Annual Report 2012
Financial and operational performance
Financial performance
Revenue
Underlying EBITDA
US$202 million
US$66 million
Attributable net profit
(before exceptional items)
Basic EPS
(before exceptional items)
US$17 million
US$0.12
Cash on hand as at 31 December 2012
(net after debt)
US$68 million
(US$63 million attributable
to Gem Diamonds)
Operational highlights
Letšeng
Ellendale
• Record carat production of
• Carat production 155 996cts,
114 350 carats, up 2% from 2011
up 30% from 2011
• Recovered grade 1.75 cpht, up
6% from 2011
• Tonnes ore mined 4.67m
tonnes, up 71% from 2011
• Waste tonnes moved 17.4m
tonnes, up 27% from 2011
• Tonnes treated 4.17m tonnes,
up 34% from 2011
• Letšeng achieved a 4 Star rating
in external SHE audit
• Ellendale achieved 32 months
LTI-free in May 2012, remaining
fatality free since acquisition
• Ellendale retained its 4 Star
rating in external SHE audit
Front cover: 11 carat blue diamond which sold in September 2012 for US$2.17 million (US$186 943 per carat)
Front cover: 11 carat blue diamond which sold in September 2012 for US$2.17 million (US$186 943 per carat)
Gem DiamondsAnnual Report 2012 Focus on value creation
Introduction
Gem Diamonds is a leading global producer of
high value diamonds. The Company currently
owns the Letšeng mine in Lesotho and is
developing the Ghaghoo mine in Botswana,
having disposed of the Ellendale mine in Australia
during 2012. The Letšeng mine is renowned for
its production of large, top colour, exceptional
white diamonds, making it the highest average
dollar per carat kimberlite diamond mine in the
world. Letšeng has the distinction of having
produced four of the 20 largest white gem
quality diamonds ever recorded, since Gem
Diamonds acquired the mine in 2006.
Gem Diamonds has an organic growth strategy based on the
optimisation of its current operating Letšeng mine and the
development of the Ghaghoo mine, expected to be in production
during 2014. The Company also seeks to maximise revenue and
margins from its rough diamond production by pursuing diamond
manufacturing and sales and marketing initiatives further along the
diamond value chain. With favourable supply/demand dynamics
expected to benefit the industry over the medium to long term,
particularly at the high-end of the market supplied by Gem Diamonds,
this strategy positions the Company strongly to generate attractive
returns for shareholders well into the future.
01
Contents
Focus on value creation
IFC Financial and
operational performance
Introduction
01
02 Gem Diamonds at a glance
04 Our business model
06 Chairman’s statement
10 Our strategy
12 KPIs
14 Our marketplace
Business review
16
Chief Executive Officer’s
overview
18 Letšeng
24 Ellendale
28 Ghaghoo
30
Gem Diamonds marketing
and manufacturing
31 Other assets
32
36
38
40
Group financial performance
Mineral resources management
Principal risks
Sustainability Development
Report
Governance
49
50
52
60
68
80
85
86
Chairman’s overview of
corporate governance
Board of Directors
Corporate governance
compliance
Committees
Directors' remuneration report
Directors' report
Responsibility statement
of the Directors in respect
of the Annual Report and
financial statements
Independent auditor’s report
to the members of Gem
Diamonds Limited
Financial statements
For further detail on our business please visit:
www.gemdiamonds.com
90
91
92
93
88 Consolidated Income Statement
89
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cashflows
Notes to the Annual
Financial Statements
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 02
Gem Diamonds at a glance
Our strategy is based on the on-going optimisation and further
development of our existing assets in order to maximise the value of our
mines. We also seek to maximise revenues achieved and to gain access to
additional margins from our rough diamond production by pursuing sales
and manufacturing initiatives further along the diamond value chain.
Gem Diamonds Ltd
Letsˇeng Diamonds
Kimberley Diamond Company NL
The Kingdom of Lesotho
Western Australia
Mines
Ownership:
70%
Gem Diamonds Limited
Main operation:
Letšeng diamond mine – mining
and processing diamond bearing ore
sourced from the Main and Satellite
kimberlite pipes
Famous for:
Producing large, top colour,
exceptional white diamonds, making
Letšeng the highest average dollar
per carat kimberlite diamond mine
in the world; since Gem Diamonds
acquisition of Letšeng, the recovery of
four of the 20 largest white gem quality
diamonds ever recorded
Total resource:
4.0 million carats
(as at 1 January 2012)
In-situ value:
US$11.39 billion
(as at 1 January 2012)
Acquired: July 2006
Ownership:
Acquired: December 2007
30%
Government of the
Kingdom of Lesotho
Strategic objectives:
• Optimisation of Project Kholo at
Letšeng, simultaneously improving
diamond liberation and reducing
diamond breakage
• To sustain Letšeng's position as the
world’s top producer of large, high-end
diamonds
• To gain additional margin for Letšeng's
production through ‘smart sales’
• To cut and polish high margin
diamonds to capture additional
revenue
Highlights 2012:
• Carats recovered: 114 350
• Average US$ per carat: US$1 932
• Tonnes treated: 6.6 million
• Waste tonnes mined: 17.4 million
Sustainability performance:
• LTIFR 0.11
• AIFR 2.36
• Zero major environmental incidents
recorded in 2012
• On schedule execution of Corporate
Social Investment projects
• Letšeng achieved a 4 Star rating in the
annual external SHE audit
• Regrettably Letšeng recorded one
fatality in the year
DISPOSED OF
to Goodrich Resources Limited
Main operation:
Ellendale diamond mine – mining
and processing diamond bearing ore
sourced from the E9 lamproite pipe
Famous for:
Its rare fancy yellow diamonds, making
it the most significant producer of
these diamonds globally
Disposal of the operation:
• Disposed of Ellendale to ASX listed
company Goodrich Resources Limited
for a total cash consideration of US$15.4
million (including the repayment of a
US$11.5 million loan)
• The Ellendale operation’s short
remaining life of mine and marginal
returns at current diamond prices
resulted in the operation ceasing to fit
with Gem Diamonds’ requirements for
value return. Its disposal enables Gem
Diamonds to refocus its resources and
management time on those core assets
that the management believes offer
the most potential to deliver substantial
returns to shareholders
Highlights 2012:
• Carats recovered: 155 996
• Average US$ per carat: US$720
• Tonnes treated per annum: 4.2 million
• Waste tonnes mined per annum: 6.5
million
Sustainability performance:
• LTIFR 0.51
• AIFR 11.64
• Achieved 32 months LTI free in May
2012
• Zero major environmental incidents
• Ellendale retained its 4 Star rating in the
annual external SHE audit
• Fatality free since the operation
commenced in 2002
• Indigenous Land Use Agreement with
the Bunuba People was completed in
2012 and US$1.9 million was paid into
the Bunuba People's Trust in early 2013
FOCUS FOR 2013:
• Optimisation of Project Kholo to maximise return and minimise capex
Gem DiamondsAnnual Report 2012
BELGIum
antwERP
uK
LonDon
03
anGoLa
ChIRI
PRoJECt
Botswana
GhaGhoo
south aFRICa
JohannEsBuRG
mauRItIus
mauRItIus
LEsotho
LEtšEnG
austRaLIa
KImBERLEy
Gem Diamonds Ltd
Mines
Sales and marketing
Manufacturing
Gem Diamonds Botswana
Gem Diamonds Marketing
Services BVBA
Botswana
Belgium, Antwerp
Ownership:
Acquired: May 2007
Ownership:
100%
Gem Diamonds Limited
Main operation:
Development of the Ghaghoo diamond mine
Total resource:
20.5 million carats
(as at 1 January 2012)
In-situ value:
US$5.3 billion
(as at 1 January 2012)
Strategic objectives:
• Optimise the returns from Ghaghoo following
the completion of Phase 1 development
Development highlights 2012:
• Phase 1 construction of the sand portion of the
access decline 40% complete
• Phase 1 construction of the processing plant
substantially complete
Sustainability performance:
• LTIFR 1.09
• AIFR 7.93
• HSSE system continues to be expanded at Ghaghoo
• Zero major or significant environmental incidents
• Community water supply programme continues with
two communities now having sustainable water supply
within the Central Kalahari Game Reserve
• 30% of Ghaghoo employees were recruited from the
project affected communities
• Ghaghoo achieved a 4 Star rating in the annual external
SHE audit
• Regrettably, Ghaghoo recorded two fatalities in the year
FOCUS FOR 2013:
• Continue to develop the underground mine
• Refine options for expanded mining, post Phase 1
100%
Gem Diamonds Limited
Formed: October 2010
Main operation:
• Diamond sorting, valuation and marketing service
• Diamond manufacturing advisory service
Strategic objectives:
• To maximise the value achieved on rough and
polished diamond sales
• To develop the Group’s Letšeng Diamond brand in
marketing channels beyond the mine gate
• To identify key strategic areas for targeted revenue
growth further down the diamond pipeline
• To increase customer base and quality
• To maintain strong relations with customers
Output highlights 2012:
• US$208 million sales from Letšeng production
• Extracted and/or partnered on the manufacturing
of rough diamonds to the value of US$32 million
• Cemented existing and commenced new
manufacturing partnerships
• Increased diamond sales channels
• Established marketing presence
Sustainability performance:
• Gem Diamonds continues to adhere to the
provisions of the Kimberley Process and all its
diamonds are certified in terms of the Kimberley
Process certification scheme and all its polished
diamonds are certified by the Gemological Institute
of America (GIA)
• Gem Diamonds registered as a candidate organisation
with the Responsible Jewellery Council, with full
registration expected to be concluded in 2014
FOCUS FOR 2013:
• Continue to achieve top prices for all goods sold
• Continue to explore brand development
opportunities and markets closer to the consumer
• Optimise sales activities
• Investigate diamond sales opportunities in new
jurisdictions
Owned technology and
intellectual property
Antwerp, Lesotho, Mauritius
and South Africa
Commenced:
September 2008
Main operations:
• Owned: Antwerp, Lesotho, Mauritius, South Africa
Strategic objectives:
• Provide manufacturing capacity, either in-house
or outsourced, to meet the Group’s current
manufacturing requirement and growth objective
• Produce high-end polished diamonds, primarily
sourced from the Group’s mining operations
• Continue to source, develop and/or establish state of
the art technology and grow intellectual knowledge
in the Group’s manufacturing operations
Output highlights 2012:
• Established facility and sourced significant
intellectual knowledge for high-end diamond
analytical and manufacturing operations in Antwerp
• Provided key valuation data to the Group’s marketing
arm to optimise marketing channels for rough and
polished diamonds
• Deployed the Calibrated laser cutting technology
in Mauritius
• Broke ground in Maseru, Lesotho, where a new
manufacturing facility is to be established in line with
the objective to establish in-country manufacturing
capability
• Enhanced relationship with clients and partners
through experience gained in analysis and
manufacturing
Sustainability performance:
• Gem Diamonds continues to adhere to the
provisions of the Kimberley Process and all its
diamonds are certified in terms of the Kimberley
Process certification scheme and all its polished
diamonds are certified by the Gemological Institute
of America (GIA)
• Gem Diamonds registered as a candidate organisation
with the Responsible Jewellery Council, with full
registration expected to be concluded in 2014
FOCUS FOR 2013:
• Increase volumes through the Group’s
established facilities
• Complete establishment of facilities in Mauritius
and Lesotho and bring into production
• Optimise deployment of technology and
expertise in Group facilities for different types
and qualities of production – Antwerp: lower
volume, large diamonds and in Mauritius and
Lesotho: higher volume, smaller diamonds
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 04
Our business model
How we do business across the diamond value chain
Gem Diamonds’ business model focuses primarily on extracting
diamonds through the mining of our mineral resources at our operating
assets. Increasingly, the company has expanded its focus further along
the diamond value chain through strategic sales and marketing, and
value added manufacturing activities in order to access additional
‘post mine gate’ revenues.
The Company is committed to sustainable development which
underpins our desire to maximise value for shareholders and society.
Fundamentally this helps secure our licence to operate, aids in risk
management, reduces operating costs, and enhances our reputation,
which in turn drives customer attraction.
Develop
Optimise and
produce
Sales and
marketing
Valuation and
manufacturing
What we do
What we do
What we do
What we do
• Invest capital to develop
diamond producing
mines at our mining
leases.
• Analyse and map
exceptional diamonds.
• Manufacture select
diamonds.
• Increase our in-house
manufacturing
intelligence.
• Develop our
manufacturing capacity
to meet the Group’s
growth plans.
• Mine economically
viable diamond deposits
on our mining leases.
• Undertake long-term
mine planning to ensure
optimal resource usage.
• Optimise operating
efficiencies across
the mining cycle:
drilling, blasting,
loading and hauling,
crushing, screening
and concentration,
separation, sorting and
recovery.
• Maximise cost
efficiencies across the
mining process.
• Ensure safe operation
and minimise all impacts
across the mining cycle.
• Maximise the value
achieved for our
diamonds and employ
various strategies to
access additional “post
mine gate” revenue.
Rough sales strategy:
• Utilise multiple
marketing
methodologies to sell
our rough diamonds –
tender, auction, off-take
arrangements.
Polished sales strategy:
• Own manufacture and
sales of our select high
value rough diamonds.
• Strategic partnering on
the manufacture and
sale of our exceptional,
high value diamonds.
See pages 18-29 for more detail
See pages 18-31 for more detail
See page 30 for more detail
See page 30 for more detail
Gem DiamondsAnnual Report 2012 05
478 carat Light of Letšeng, recovered at Letšeng in September 2008
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 06
Chairman's statement
Record carat
production and
refocusing of strategy
to generate greater
returns for
shareholders
Introduction
2012 was underpinned by an excellent
operational performance and record
carat production for Gem Diamonds,
as the Company worked to maximise
value from its portfolio of assets. The
Company’s flagship Letšeng mine
delivered its second successive record
carat performance in 2012, by
producing 114 350 carats (compared to
the previous record in 2011 with 112 367
carats produced). The Ellendale mine
achieved a 30% increase in carats
recovered to 155 996 carats. Gem
Diamonds strives for zero harm at each
of its operations and regretfully, in spite
of a year of strong operational
performance, we have to report three
fatalities for the year – one at Letšeng
and two at Ghaghoo. The Board and
management of the Company offer
their sincere condolences to the
families of the deceased employees.
In keeping with the Company’s stated
strategy for focused delivery of value
through the enhancement of key
assets, the Company’s asset base has
been restructured through the disposal
of those projects which did not meet
the requirements for value return. This
consolidation and optimisation of the
Company’s asset portfolio has enabled
the Company to refocus its resources
and management time on those core
assets that the Company believes offer
the most potential to deliver substantial
returns to shareholders. The disposal
of 100% interest in its wholly owned
subsidiary, Kimberley Diamond
Company NL in Australia was
concluded during the year and the
transaction was duly completed on
31 January 2013. In addition, the
Company’s participation in the Chiri
project in Angola terminated in
November 2012.
“ In keeping with the Company’s
stated strategy for focused delivery
of value through the enhancement
of key assets, the Company’s asset
base has been restructured
through the disposal of those
projects which did not meet the
requirements for value return. This
consolidation and optimisation of
the Company’s asset portfolio has
enabled the Company to refocus
its resources and management
time on those core assets that the
Company believes offer the most
potential to deliver substantial
returns to shareholders.”
Gem DiamondsAnnual Report 2012 07
The sharp fall in diamond prices, which
had commenced in the third quarter of
2011, continued to be felt throughout
2012 as the Eurozone crisis and global
financial uncertainty persisted. As a
result, the prices realised for the
Company’s Letšeng diamonds were
approximately 15% lower in 2012 than
for the previous year, with even sharper
falls experienced in some categories of
rough goods in the market. This
contributed to a decline in the Group’s
revenues (excluding Kimberley
Diamond Company) in 2012 to
US$202.1 million and the underlying
EBITDA falling to US$65.5 million, down
from the record profit achieved in 2011.
As a result of the impact of weaker
diamond prices on revenues and cash
flows during the year, the Company
acted swiftly to scale back the capex
earmarked for Project Kholo and for the
development of Phase 1 at the
Ghaghoo mine. Accordingly, at Letšeng,
those elements of Project Kholo which
are more capital efficient and offer
near-term returns, have continued to
be implemented. For example, work is
already underway to replace four
crushing units in both of Letšeng’s
existing processing plants with crushers
designed for project Kholo, with the
aim of reducing diamond damage and
thus minimising the loss of revenues.
These crushers will be installed by June
2013. Effective delivery and
implementation of these key
workstreams should provide a stronger
operating platform for the Company,
enabling Gem Diamonds to expand
carat production and significantly
enhance profit margins, even in the
current uncertain economic
environment, and to increase the
positive effect of any strengthening in
diamond prices. This should enable
Gem Diamonds to emerge a far
stronger, leaner and more focused
company in 2013, capable of capturing
better value in the diamond market
and to be well placed to extract value
from its assets for shareholders.
Diamond market
Operational overview
2012 was a volatile and challenging year
for the diamond industry. The Eurozone
crisis, reduced liquidity from the
lending banks, high stock levels in the
manufacturing sector and low demand
from the emerging markets in the East
resulted in downward pressure on
diamond prices in 2012.
Following the more than 30%
correction in rough diamond prices
experienced after September 2011
the year started positively for rough
diamond prices, with prices for rough
diamonds increasing by approximately
6% to May 2012. However, from May
2012 through to August 2012, trading
conditions were again extremely
challenging. The continued low levels
of polished trading as a result of the
slowing demand in the emerging
markets of the East and the major US
market, coupled with sustained high
levels of rough supply into the market
by the major producers, resulted in an
overstocking of both rough and
polished in the manufacturing sector.
This overstocked situation and the
tightening of liquidity by the lending
banks saw demand for rough
diamonds reducing considerably and
rough diamond prices decreased by
approximately 20% from June to
August 2012. After August, polished
trading began to improve, with a
resulting increase in demand for
rough diamonds.
In the longer term, the prospect for
diamonds remains excellent. Rough
diamond production is unlikely to reach
previous peaks and, with growing Asian
consumer demand for diamond
jewellery supporting the improving
major US market, demand for rough
and polished diamonds should begin
to outpace supply, sustaining a longer
term price growth trend.
Operationally, Gem Diamonds has had
a strong year, with Letšeng delivering
its second successive record in terms of
carats produced. This was largely driven
by an increase in Letšeng’s recovered
grade as a result of mining in the higher
grade K6 facies in the Main pipe.
114 350 carats were produced in 2012
which was an improvement on the
record performance of 112 367 carats in
2011. This record was achieved despite
two very heavy snowfalls during the
winter of 2012 which caused the loss of
four days of production. Great credit
must go to management and the
Letšeng technical team for this
successive record achievement.
As previously communicated, in light
of the challenging global economic
climate, the Board took the decision to
focus on greater capital discipline and
to preserve balance sheet strength. This
has seen a refocusing and scaling back
of capital expenditure on Project Kholo
at Letšeng, in order to focus on those
components of Project Kholo which
were value accretive but less capital
intense. By way of example, installing
four new crushing units on plants one
and two, as envisaged by the initial
Project Kholo plans, in order to reduce
the adverse effects of the older
crushers on diamond damage. This
work will be completed by mid-2013.
The exploration drilling programme at
Letšeng was completed during 2012
and has resulted in very encouraging
results which have confirmed and
extended the resource in both pipes
and which will be included in an
updated resource model to be
completed shortly.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 08
Chairman's Statement continued
The focus for 2013 will be on
implementing and delivering value
accretive workstreams at Letšeng,
focused on enhancing revenue
generation and improving margins
through the reduction of diamond
damage and by an effective cost
reduction programme aimed at
optimising treatment and mining unit
costs. The upgrading of the existing
mining fleet, in order to meet future
production requirements, will continue.
The Company will continue to assess
opportunities to upgrade technology
within its operations to improve
efficiencies, safety and enhance
profitability.
At Ghaghoo, the development of Phase
1 of the underground project has
continued as planned. The camp and
surface infrastructure is complete and
the plant has been installed on
schedule. The access decline is
proceeding well, albeit at a slower rate
than originally planned due to
encountering unforeseen ground
conditions. It is anticipated that the first
kimberlite will be processed through
the plant in the second half of 2014.
Health and safety
The Company continues to strive
towards setting the highest standards
of health and safety across the Group’s
operations and the highest priority is
given to ensuring the health and safety
of our employees in the workplace. In
furtherance of this goal, a number of
key managers attended a course on
health and safety run by Du Pont in
the USA and on site in the Company’s
technical offices. Although there was
a good deal of learning and interaction,
it was also satisfying to note that
management had already been
performing at a very high level in
this key area.
During 2012 Letšeng achieved a
creditable 13 consecutive months
without a Lost Time Injury. However, in
December 2012, a non-mining fatality
occurred at Letšeng when a casual
employee was fatally injured by a wall
which collapsed onto her. The Board
and management of the Company
once again offer our sincere
condolences to the family of the
deceased employee.
At Ghaghoo, a sound safety record was
marred by the tragic collapse of sand
in the access decline in which two
contractor employees lost their lives.
After a full investigation, remedial steps
were taken to prevent any such similar
occurrence. The Board and
management of the Company again
extend their heartfelt condolences
to the families of the deceased
employees.
Stakeholder relationships and
environmental
The Company places great emphasis
on its relations with the governments
and communities in the areas in which
it operates.
In Lesotho, a number of community
projects were completed and new
ones initiated. A third woolshed was
opened in October 2012 at Libibing in
the Mokhotlong district, close to where
the Letšeng mine is situated. These
woolsheds have made a dramatic
impact upon the livelihood of the wool
and mohair farmers in this
impoverished district, who are now
able to shear and bale wool in modern
sheds with access to electricity and
transport routes to ports in South
Africa. It is pleasing that the Minister of
Agriculture made a congratulatory
speech at the opening of the third
woolshed and this highlights the sound
relationship which is enjoyed with
government and the Project
Affected Communities.
The Letšeng scholarship programme is
well regarded throughout Lesotho and
continues to subsidise the education of
Lesotho born students at local and
regional universities and technikons,
followed in many cases by an internship
on the Letšeng mine and eventual
employment there. In 2012 a new
project, working in partnership with
government, was initiated by the
Company to establish a mountain
search and rescue facility in the Lesotho
highlands in order to encourage
tourism and reduce the number of
fatalities from adverse weather
conditions experienced during the
severe winter weather. In March of this
year, the first trainees will be sent to
Scotland to attend a practical training
course run by the Scottish mountain
search and rescue facility in the
Scottish Highlands.
Gem DiamondsAnnual Report 2012 09
In Botswana, 2012 saw the installation
of borehole water points in the Central
Kalahari Game Reserve where the local
Basarwa communities are now able to
access water. The community which is
situated close to the Ghaghoo mine
has water piped to their village and
have received emergency medical
attention from the medical station at
the Ghaghoo mine. Almost 150
members of the community have been
employed at the mine in either
permanent or temporary capacities.
The positive interaction with the
project affected communities is
on-going and is coordinated by a
community liaison officer at the mine.
At Ellendale, a community needs
analysis was conducted during late
2011 in order to improve the
appropriateness and sustainability of
the Company’s CSI investments in
Australia and the Bunuba People's Trust
was created. During 2012, the Company
paid US$1.9 million in lieu of share
options into this community trust.
These funds are now available for
community motivated projects to be
undertaken.
There have been no major
environmental incidents at any of
the Company’s operations during
the period and further details of the
Company’s commitment to the
environment is to be found in the
Sustainability section of this report or
in the 2012 Sustainable Development
Report available on the Gem Diamonds
website, www.gemdiamonds.com
Strategic focus
Further to the review of the Company’s
assets communicated to shareholders
in 2011, management has implemented
the stringent process of disposing of
those assets which do not meet the
criteria of generating shareholder
returns. Accordingly, the Ellendale mine
in Australia was disposed of to
Goodrich Resources for a cash
consideration of US$15.4 million.
This disposal was made taking into
consideration the relatively short
remaining mine life and a potentially
substantial environmental liability
upon closure.
In addition, the Company terminated
its involvement in the Chiri project in
Angola once it had become clear that
the development of this deposit, on the
terms available to it, would not meet
the stringent financial returns
requirements set by the Company
review.
The Company has implemented
measures to reduce cost overheads
in line with the strategic focus on
its remaining core assets.
Despite a difficult 2012 for the diamond
mining sector, the Company is now
well positioned to focus upon the key
mining and development assets of
Letšeng and Ghaghoo as well as its
successful sales and marketing division
which, it is anticipated, will maximise
shareholder returns over the coming
years. Set against the slowly recovering
global economy and the emerging
constrained supply in the rough
diamond market, I am confident that
the Company is very well placed to take
advantage of a recovery in the
diamond mining industry.
Roger Davis
non-Executive Chairman
11 March 2013
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 10
Our strategy
Our business is run around three core business objectives:
1. Growth
Organic growth:
Expansion of our world class Letšeng mine and development of
Ghaghoo mine, using available capital to deliver optimum returns to
shareholders.
Value accretive opportunities:
Additional value generation with expanded sales and marketing
capabilities incorporating manufacturing and downstream initiatives.
2. Value creation
Operational excellence:
Focus on cost reductions and enhancing our current
production efficiency.
Optimising returns:
Improve quality of our assets through life of mine extensions.
Improve the capital structure. Improve revenue achieved for our
diamond production through the reduction in breakage and theft.
3. Sustainability
Stakeholders and communities:
Build long-term, transparent and mutually beneficial
relationships with all stakeholder groups.
Health, safety and environment:
Sustainably achieve zero harm.
Ensure mitigation of impacts upon the receiving environment.
See pages 18-31
for more detail
See pages 18-31
for more detail
See pages 40-47
for more detail
Gem DiamondsAnnual Report 2012 "Phase 1 development of the
Ghaghoo mine continues unabated,
although progress in the sand portion
of the access decline was slower than
anticipated due to unforeseen
adverse ground conditions during
the year. Ground level infrastructure
is complete, with the processing
plant over 90% installed. It is
anticipated that the first ore will
be put through the processing
plant around mid-2014."
11
For further detail please visit:
www.gemdiamonds.com
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 12
Key performance indicators
1. Growth
Revenue (US$’000)
350 000
300 000
250 000
200 000
150 000
100 000
50 000
0
306 142
Description
Commentary
188 500
166 600
202 118
Revenue represents the value of goods sold during
the year and measures the level of operating activity
and growth of the business. Revenue for the year is as
reported in the Consolidated Income Statement.
The decrease in revenue of 34% is driven by decreased
diamond prices achieved at Letšeng.
2009
2010
2011
2012
Underlying EBITDA (US$’000) / Underlying EBITDA margin (%)
200000
150000
100000
27%
44 600
50000
54%
166 516
38%
71 600
32%
65 452
0
2009
2010
2011
2012
60
50
40
30
20
10
0
Return on Capital Employed (ROCE) (%)
Description
Commentary
Underlying EBITDA means earnings before interest,
tax, depreciation and amortisation. It is also adjusted
for share-based payments, other income, foreign
exchange differences and exceptional items.
Underlying EBITDA margin is calculated as underlying
EBITDA as a percentage of revenue.
Both these indicators provide a measure of the
operating profitability of the business. Refer to Note
3, Operating profit in the financial statements for the
calculation of underlying EBITDA.
The underlying EBITDA result (down 60% year-on-
year) reflects the weaker diamond prices, as cost
management and operational efficiency focus
continued.
30%
25%
20%
15%
10%
5%
0%
26%
Description
Commentary
15%
16%
12%
2009
2010
2011
2012
ROCE is a post tax measure of the efficiency with
which the Group generates operating profits from its
capital. ROCE is calculated as underlying EBITDA (as per
Note 3, Operating profit, in the financial statements)
less depreciation and tax divided by average capital
employed (being total equity and non-current liabilities
per the consolidated balance sheet).
Post tax ROCE achieved 12%, driven by lower diamond
prices which negatively impacted earnings.
Basic Earnings per Share (continuing operations) (EPS) (US cents)
60
50
40
30
20
10
0
48
17
15
12
2009
2010
2011
2012
Free Cash Generated (US$’000)
Description
Commentary
Basic EPS represents net profit attributable to equity
shareholders on continuing operations and is stated
before exceptional items and after taking into account
non-controlling interest. This is a measure of net
profitability of the Group taking into account changes
in the equity structure. EPS is calculated as reported in
the Consolidated Income Statement and in accordance
with Note 10, Earnings per share in the financial
statements.
Basic EPS (continuing operations) at 12 US cents per
share is indicative of the lower earnings achieved as a
consequence of the lower diamond prices achieved.
98 669
Description
Commentary
100 000
80 000
60 000
40 000
20 000
0
16 440
-20 000
-11 405
-21 827
-40 000
2009
2010
2011
2012
Free cash generated represents net cashflows before
financing activities and investing activities in expansion
projects. This measures the cash generating capability
of the Group to fund future growth. Free cash
generated is reflected in the statement of cashflows
and is determined by cashflows from operating
activities less sustaining capital of US$21.2 million (pre
expansion capital) and less waste cash costs capitalised
as reflected in the footnote to Note 11, Property, plant
and equipment in the financial statements. The effect
of Kimberley Diamonds Company NL during the year
has been included in this graph.
The Group utilised existing cash resources and
cash flows from operations to fund existing capital
commitments and operating costs. As a result of the
impact of weaker diamond prices on revenues and cash
flows during the year, capital expenditure earmarked
for Project Kholo and for the development of Phase 1 at
the Ghaghoo mine was scaled back.
Gem DiamondsAnnual Report 2012 13
2. Value creation
Capital Expenditure – including future growth projects (US$’000)
80000
70000
60000
50000
40000
30000
20000
10000
0
67 174
50 943
21 756
25 463
2009
2010
2011
2012
Description
Commentary
Capital expenditure represents the amount invested in
the Group’s organic growth plans. Capital expenditure
is reflected in the statement of cashflows and is
determined by purchases of property, plant and
equipment, (both expansion and sustaining capital)
excluding waste cash costs capitalised as reflected in
the footnote to Note 11, Property, plant and equipment
in the financial statements. The effect of Kimberley
Diamonds Company NL during the year has been
included in this graph.
The Group invested US$21.2 million in sustaining
capital expenditure during 2012 to optimise and
improve operational performance and invested
US$47 million in expansion capital, the majority of
which was attributable to the continued development
of Ghaghoo.
Production Tonnes Treated – including future growth projects (millions)
Description
Commentary
7
6
6
The production profile sets out the tonnes treated
by the Group. The production tonnes treated at the
Ellendale mine at Kimberley Diamonds Company NL
during the year have been included in this graph.
12
12
11
10
14
12
10
8
6
4
2
0
2009
2010
2011
2012
2013
2014
2015
The increase in the production volumes in 2012 was
driven by increased tonnes at Ellendale as a result of a
number of modifications to the treatment plant that
were completed towards the end of 2011. The future
production profile reflects production at Letšeng
(excluding any increase in production that would
result from the implementation of Project Kholo) and
the commencement of production from Ghaghoo in
mid-2014.
3. Sustainability
Lost Time Injury Frequency Rates (LTIFR)
0.5
0.4
0.3
0.2
0.1
0.0
0.45
Description
Commentary
0.30
0.25
The LTIFR provides a measure of the safety performance
of the Group, including partners and contractors. LTIFR
is measured on the basis of reported LTI statistics for
all of Gem Diamonds’ companies and subcontractors,
expressed as a frequency rate per 200 000 man-hours.
The LTIFR for the year was 0.30 and was the result of
eight LTIs recorded for the Group. This included one LTI
and one fatal injury at Letšeng, two LTIs at Ellendale and
two LTIs and two fatal injuries at Ghaghoo. The Group
drives to continually improve its safety record and its
target for LTIFR is zero.
0
2010
2009
2011
2012
Corporate Social Investment Expenditure (US$'000)
1200000
1000000
800000
600000
400000
200000
0
1 102
740
705
627
2009
2010
2011
2012
Stakeholders, communities and
environmental
The Group has continued its commitment to Corporate
Social Investment and environmental management.
This has resulted in US$0.6 million invested in
community related projects during the year and the
continuation of mutually beneficial and transparent
relationships with our Project Affected Communities.
There were no major environmental incidents recorded
during the year.
Kimberley Diamonds Company NL was disposed of in the current year and has been reflected as a discontinued operation. Hence the key performance indicators above exclude the impact of Kimberley
Diamonds Company NL for the current and all prior year comparatives unless otherwise stated.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 14
Our marketplace
Global rough price devaluation
for full year 2012
-15%
Source WWW Forecasts Ltd
The global diamond market
2012 was a volatile and challenging year
for the diamond industry. The Eurozone
crisis, reduced liquidity from the
lending banks, high stock levels in the
manufacturing sector and low demand
from the emerging markets in the East
resulted in downward pressure on
diamond prices in 2012.
Following the more than 30%
correction in rough diamond prices
experienced in September 2011 also as
a result of the factors mentioned above,
2012 started positively for rough
diamond prices, with prices for rough
diamonds increasing by approximately
6% to May 2012. However, from May
2012 through to August 2012, trading
conditions were extremely challenging.
The continued low levels of polished
trading as a result of the slowing
demand in the emerging markets of
the East and the major US market
coupled with sustained high levels of
rough diamond supply into the market
by the major producers resulted in an
overstocking of both rough and
polished diamonds in the
manufacturing sector. This overstocked
situation and the tightening of liquidity
by the lending banks saw demand for
rough diamonds reducing considerably,
with rough diamond prices decreasing
by approximately 20% from June to
August 2012. Prices for higher value
diamonds were also impacted.
Gem DiamondsAnnual Report 2012 15
Global polished prices
devaluation for full year 2012
-11%
Source WWW Forecasts Ltd
According to WWW Forecasts Ltd,
average polished prices finished the
year 11% below those seen at the start
of the year.
Outlook for 2013
Although the factors that caused
volatility in diamond prices during 2012
are likely to continue for some time,
prices in the first half of 2013 are
expected to be more stable, leading up
to the Chinese New Year. In particular,
Gem Diamonds has seen an
improvement in rough demand and
prices achieved at the two tenders
conducted so far in 2013. This may
signal a shift in sentiment within the
diamond market, especially amidst
fears of reducing supply.
In the longer term, the prospect for
diamonds remains excellent. Rough
diamond production is unlikely to reach
the previous peaks – with limited new
production coming on stream and with
the growing Asian consumer demand
for diamond jewellery reinforcing the
improving major US market, demand
for rough and polished diamonds
should begin to outpace supply,
sustaining a continued long term
price growth trend.
Post August 2012, as the year drew
to an end, polished diamond trading
began to improve and demand for
rough diamonds increased as a result.
Demand for both rough and polished
diamonds improved as the downward
trend in polished diamond prices
stemmed and the new rough diamond
prices saw margins return to the
manufacturing sector, although not
to a significant extent. Furthermore,
reasonable year-end diamond jewellery
sales in the major US market and the
expected lower future rough diamond
supply from one of the major
producers saw rough diamond
demand and prices improve in the
last quarter of 2012.
According to WWW Forecasts Ltd,
global average rough diamond prices
for the year finished approximately 15%
lower than at the start of the year.
While rough prices saw positive growth
in the first five months of 2012, the low
levels of trading and resultant high
inventory levels in the polishing sector
saw the trend in polished prices fall for
the whole of 2012. However, as with
rough prices and for the reasons stated
above, polished diamond prices found
a more stable level towards the end of
2012 as trading levels improved towards
the year-end and in the months leading
up to the Chinese New Year in February
2013. Positively, demand for the larger
higher end diamonds is increasing and
prices for these goods are starting to
edge positively.
Ellendale fancy yellow diamonds
550 carat Letšeng Star
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 16
Business review
Chief Executive Officer’s overview
“Although 2012 was a
challenging year for the
diamond industry and for
Gem Diamonds, it is
pleasing to see that 2012
was a strong operational
year for the Group, with a
second successive record
carat production at
Letšeng, our flagship asset.
Moreover, the disposal of
underperforming assets will
result in a more focused
management team,
confident of improving
returns to shareholders in
the coming years.”
of a sale agreement in respect of the
Ellendale mine which was sold to
Goodrich Resources for US$15.4 million,
with the transaction having been
completed at the end of January 2013.
Given the very short remaining life of
mine, low margin operation and the
significant environmental rehabilitation
liability of Ellendale, the Board
considered this to be in the best
interests of shareholders and this
disposal will allow management to
focus on the remaining core assets
of Letšeng and Ghaghoo.
In addition, the Company terminated
its participation in the Chiri project
in Angola when it became clear that
the terms upon which on-going
participation in this deposit could be
secured, did not meet the requirements
of the Company for value creation.
Introduction
Gem Diamonds has achieved record
operational results during 2012 with
a second successive record carat
production year at Letšeng of 114 350
carats (versus 112 367 carats in 2011)
and a significantly improved grade of
1.75 carats per hundred tonnes (cpht).
This success has been mirrored by
improved carat production at Ellendale
and credit must go to the management
teams at both the mines and at the
Company’s technical support office
for these impressive operational
achievements.
After a record financial year in 2011,
the sharp fall in diamond prices which
began in the third quarter of 2011 and
again in 2012, led to the Company
taking quick action to implement
capital discipline at Letšeng and
Ghaghoo in order to preserve the
Company’s strong balance sheet.
The on-going Eurozone crisis in 2012
and the persistent global financial
uncertainty led to a fall of some 15%
in rough diamond prices for equivalent
Letšeng type goods over the year.
This contributed to a decline in the
Group’s revenue to US$202.1 million
and an underlying EBITDA of US$65.5
million for the year.
2012 was a key year for Gem Diamonds,
which saw a consolidation of the
Company’s asset portfolio to
strengthen the position of the
Company going forward, as well as
the continued implementation of
the Company’s strategic plan for
the focused delivery of value to
shareholders through the
enhancement of key assets.
Accordingly, a number of assets
which did not meet the stringent
requirements for value creation have
been sold or terminated over the past
two years. This year saw the conclusion
Gem DiamondsAnnual Report 2012 17
Sunset over Ghaghoo
Letšeng processing plant
Letšeng recovery plant
Operational outlook
The outlook for the diamond industry is
showing signs of an improvement, and
the initial Letšeng tender for 2013 realised
US$27.9 million for 16 188 carats – an
encouraging result for production
sourced entirely from the lower value
Main pipe. Other rough diamond sellers
are reporting similarly promising results at
the outset of 2013. Moreover, the longer
term prospects for the diamond mining
industry remain excellent, with
production well off the peaks and with
rapid growth forecast in the Asian
markets and continued improvement in
the key US market, which is expected to
outstrip supply, with no significant supply
scheduled to come on-stream in the
medium-term.
Clifford Elphick
Chief Executive Officer
11 March 2013
Project Kholo at Letšeng has been
scaled back, however, strong progress
has been made and with key work-
streams on-going, it is pleasing to
report that four new secondary
crushers will be installed in Letšeng’s
existing processing plants by mid-2013.
It is anticipated that these crushers will
have a significant effect in reducing
diamond breakage, thereby increasing
average per carat values – an important
component of Project Kholo.
The development of Phase 1 at
Ghaghoo continues unabated and the
camp and ground level infrastructure
is complete, with the processing plant
over 90% installed. Progress in the
access decline has been slower than
anticipated due to unforeseen adverse
ground conditions and tunnel
development has since been slow but
steady. It is anticipated that the first ore
will be put through the plant by
mid-2014.
The implementation of the Company’s
sales and manufacturing strategy
continued throughout 2012 and
resulted in a number of diamonds
which were either cut and polished
by the Company itself at its facilities
in Antwerp, or were manufactured in
partnership arrangements with some
of the world’s leading diamantaires.
Gem Diamonds’ sales and
manufacturing strategy continues
to extract additional value from the
diamond value chain for the Company
and the Group is focused on further
developing and enhancing this strategy
to ensure increased exposure to value
chain.
HSSE
Health and safety has been an area of
continuing focus throughout the Group
and it is pleasing to report that Letšeng
achieved 13 months of zero Lost Time
Injuries during 2012. This achievement
was undermined by a tragic non-
mining accident in December when
a casual employee had a wall collapse
upon her in the laundry courtyard.
After being stabilised and receiving
medical treatment at the mine clinic,
the employee was transferred to the
local hospital where she passed away
the following day. At Ghaghoo, the
adverse ground conditions
encountered in the access decline
resulted in the collapse of ground
which tragically resulted in two fatalities
in May 2012. Remedial action was taken
after a full investigation was undertaken
into the cause of both of these
incidents. The Board and management
again extend their sincere condolences
to the families of the deceased
employees.
For further detail please visit:
www.gemdiamonds.com
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 18
Business review
Letsˇeng
The Letšeng mine is famous for its large, top quality diamonds and
achieves the highest average dollar per carat of any kimberlite diamond
mine in the world. Gem Diamonds owns 70% of Letšeng Diamonds
(Letšeng) in partnership with the Government of the Kingdom of
Lesotho, which owns the remaining 30%. Letšeng was acquired in
July 2006 and has continued to deliver exceptional returns for
its shareholders.
Since Gem Diamonds took control, Letšeng’s annual production has
risen from 55 000 carats in 2006 to 114 350 carats in 2012, with an
investment programme in place focused on further expanding
production going forward. During this period, it has produced four of
the 20 largest white gem diamonds ever recovered: the 603 carat
Lesotho Promise in 2006; the 493 carat Letšeng Legacy in 2007; the 478
carat Light of Letšeng in 2008; and the 550 carat Letšeng Star in 2011.
Diamond sales
No. carats sold
Average US$ per carat
Year-ended
31 December
2012
107 617
1 932
year-ended
31 December
2011
107 700
2 776
Frequency of recoveries of large diamonds at Letšeng
LEsotho
LEtšEnG
no of diamonds*
>100 carats
60-100 carats
30-60 carats
20-30 carats
2008
2009
2010
2011
2012
7
16
74
88
5
10
76
98
6
10
61
89
5
19
59
91
3
13
61
110
187
Total diamonds >20 carats
185
189
166
174
*Letšeng's treatment plants only, excludes Alluvial Ventures production
Operational highlights
• Carats recovered: 114 350
• Average US$ per carat: US$1 932
• Tonnes treated: 6.6 million
• Waste tonnes mined: 17.4 million
Sustainability performance
• LTIFR 0.11
• AIFR 2.36
• Zero major environmental incidents
recorded in 2012
• On schedule execution of corporate
social investment projects
• Letšeng achieved a 4 Star rating in
the annual external SHE audit
• Regrettably Letšeng recorded
1 fatality in the year
Gem DiamondsAnnual Report 2012 19
Letšeng produced a record of 114 350
carats in 2012, mainly driven by a higher
recovered grade as a result of mining
entering the high grade Main pipe K6
facies for the first time during the year.
This achievement increased Letšeng’s
recovered grade for the second year in
succession to 1.75 cpht compared to
1.65 cpht in the prior year. Tonnes
treated for the year were 6.6 million
tonnes compared to 6.8 million tonnes
in 2011. Heavy snowfalls caused two
power outages in the recovery plants
which lasted for a total of four days, due
to the difficulty in repair crews
accessing the site. Tonnes treated also
reduced in December in order to allow
the mine to investigate whether the
plant feed rate may have any impact
on diamond damage. Analysis of the
results from this test is still on going.
Of the total ore treated for the year, 72%
was sourced from the Main pipe, 24%
from the Satellite pipe and 4% from
Main pipe stockpiles. Production for the
year resulted in underlying EBITDA of
US$91.0 million.
Waste tonnes moved in 2012 was 17.4
million tonnes, 27% higher than the
prior year (based on the revised 2011
waste tonnes moved of 13.7 million
tonnes). During the year three new CAT
777 trucks were brought to site joining
the CAT 773’s that were added to the
mining fleet during 2010 and 2011.
These new, larger units will add
capacity to the waste stripping fleet as
the stripping requirement begins to
increase with the deepening of both
the Main and Satellite pipes over time.
The quantification of the shortfall of
waste tonnes mined compared to that
reported (due to the issue with
surveying techniques which was
reported in the H1 2012 trading update)
has been finalised. Reporting has been
revised and mine plans for future years
have taken full account of the shortfall.
The updated planning and the current
stripping capacity indicate that no
problems are foreseen in ensuring the
required future ore exposure.
In late 2012, after considering the
existing and expected global economic
outlook, the Board decided that Project
Kholo should be scaled back with a
focus towards a lower, more capital
efficient project. A number of less
capital intensive opportunities to add
significant value at Letšeng have been
identified. These are based around the
upgrading of the current processing
plants by installing the improved
recovery technologies that had been
planned for the new Project Kholo
plant, as well as potentially increasing
throughput capacity. Studies are
underway to determine the most
optimal plan and timing.
Work is already underway to replace
four crushing units in the two existing
processing plants, with crushers
previously designed for Project Kholo.
These crushers are expected to reduce
diamond damage and the project is
expected to be completed by mid-
2013.
The resource drilling programme that
was started in late 2011 was completed
during the year. The objectives were to
increase geological and geotechnical
knowledge on the existing resource at
Letšeng, as well as to define additional
resources below the current limits.
A total of 19 holes were drilled during
the programme. In terms of the
resource extension, approximately
230 metres of additional depth was
delineated below the Satellite pipe and
320 metres below the Main pipe. This
extends confirmation that the two
pipes exist at 828 metres and 793
metres below surface respectively
(current mining in both pipes is at
approximately 160 metres below
surface). An updated resource model is
expected to be completed by the end
of the first quarter in 2013 based on the
results of the drilling campaign. More
detail on this drilling programme is
provided in the Mineral Resource
section of the Annual Report.
Mining in Letšeng's Main pipe
Letšeng Plant 2
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 20
Business review
Letsˇeng continued
Letšeng continued to recover
high value diamonds during
the year, most notably the
recovery of an 11 carat blue
diamond which sold in
September 2012 for US$2.17
million (US$186 943 per carat).
During the year a pre-feasibility study
on converting the Satellite pipe to an
underground operation prior to the
completion of the planned open-pit
was completed. The results indicate
that commencing an underground
operation sooner has a very similar
value proposition compared to
completing the current economic
open-pit, and then continuing with
underground mining. Studies on
underground mining will continue
however, and post the completion
of the updated resource model
mentioned above, the study will be
revised, taking into account all relevant
operational updates, including the
revision to Project Kholo and the latest
economic forecasts. Should the
outcome indicate that the early-start
underground option still shows
potential, a full feasibility study will
then commence.
Sales and marketing strategy
additional margins by pursuing sales
and manufacturing initiatives further
down the diamond value chain.
Gem Diamonds Marketing generally
holds ten tenders annually for the
Letšeng rough production, two in each
of the first and third quarters and three
in each of the second and fourth
quarters. In addition to the rough
tenders, Gem Diamonds Marketing
extracts select diamonds for
manufacturing and sale as polished
and/ or for sale into Letšeng’s high-end
manufacturing partnerships.
Diamond sales
The average value for Letšeng’s rough
diamond exports (including diamonds
extracted for manufacture) of unique
diamonds for the year was US$1 932
per carat, compared to the average
price of US$2 776 per carat achieved in
2011, representing a decrease in the
average price of 30%.
Letšeng’s rough production is sold
through Gem Diamonds Marketing
Services BVBA (Gem Diamonds
Marketing), an Antwerp-based wholly
owned Gem Diamonds subsidiary.
Letšeng has complete flexibility and
control over the marketing of its rough
production. A key element of Letšeng’s
marketing strategy has been to access
In 2012, 647 rough diamonds greater
than 10.8 carats in size (+10.8 carats)
compared to approximately 591
diamonds in 2011, were recovered at
Letšeng, totalling 13 554 carats and
contributing to 73% of total rough
diamond value at Letšeng (14 104
carats, contributing 77% of Letšeng’s
revenue in 2011). A total of 134
Drilling in Letšeng's Main pipe
Gem DiamondsAnnual Report 2012 21
diamonds recorded prices greater
than US$20 000 per carat, contributing
a rough value of US$117.6 million (57%
of Letšeng’s revenue), compared to
187 diamonds in 2011, which
contributed US$202.6 million (67%
of Letšeng’s revenue) in 2011.
Manufacturing and partnership
Continuing the Company’s stated
strategy to access margin further
downstream by cutting and polishing
diamonds and/or partnering on select
diamonds, for the full year 2012, a total
of 946 carats (1 624 carats in 2011) were
extracted at a rough market value of
US$31.6 million (US$68.6 million in 2011).
Of the diamonds extracted for
manufacture, US$10.4 million (US$1.2
million in 2011) remains on hand in
inventory at year-end and is
unrecognised in revenue for the Group.
Despite the volatile and challenging
trading conditions experienced during
2012 and the lower volume of
diamonds manufactured in 2012, the
revenue uplift achieved on those
goods manufactured and sold was
US$2.8 million.
Financial performance
Carats recovered:
114 350
2011: 112 367
Amidst difficult market conditions
during 2012, which started with the
downturn in late 2011, Letšeng
Diamonds continued to deliver strong
operational results with record carats
recovered, generating revenue of
US$207.7 million from diamond sales
and underlying EBITDA of US$91.0
million. However, as a result of the 30%
decrease in average US$ per carat
achieved in the current year compared
to 2011, there was a decrease of 50% in
underlying EBITDA over the prior year.
US$ (millions)
Sales
Cost of sales*
Royalty and selling costs
Underlying EBITDA
Physicals
Tonnes treated
Waste tonnes mined
Carats recovered
Carats sold3
US$ (per unit)
Exchange rate (average)
Average price per carat (rough)
Direct cash cost (before waste) per tonne treated4
Operating cost per tonne treated5
Waste cash cost per waste tonne mined6
Local currency (per unit) Lesotho loti
Direct cash cost (before waste) per tonne treated4
Operating cost per tonne treated5
Waste cash cost per waste tonne mined6
Other operating information (US$ millions)
Waste capitalised
Waste amortised
Depreciation and mining asset amortisation
Capital expenditure7
Year-ended
31 December
20121
year-ended
31 December
2011
207.7
(100.1)
(16.7)
90.9
6 551 434
17 396 233
114 350
107 617
8.21
1 932
13.18
15.29
2.97
108.24
125.57
24.40
60.6
26.9
17.7
22.8
300.6
(95.4)
(24.5)
180.7
6 805 152
13 652 7302
112 367
107 700
7.26
2 776
12.24
14.07
2.91
88.84
102.15
21.13
56.5
18.6
19.6
14.2
* Excluding depreciation, mining asset amortisation and waste amortisation.
1 Included in underlying EBITDA is US$10.4 million profit (31 December 2011: US$1.2 million) generated on the portion of diamonds sold
to the Sales and Marketing company in the Group for cutting and polishing and not sold outside of the Group by the end of December.
These values have been eliminated in the consolidated Group results.
2 Revised waste tonnes mined for 2011, due to the survey review which was reported in the H1 2012 Trading Update
3 Excludes sale of polished diamonds.
4 Direct cash costs represents all operating costs, excluding royalty and selling costs, depreciation, mine amortisation and all other
non-cash charges.
5 Operating costs exclude royalty and selling costs and depreciation and mine amortisation, and include inventory, waste and ore
stockpile adjustments.
6 Not restated for revised waste tonnes mined (as reported at 31 December 2011).
7 Capital expenditure excludes movements in rehabilitation assets relating to changes in rehabilitation estimates.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 22
Business review
Letsˇeng continued
Larger operating fleet brought to site during
2012 to increase capacity
Major environmental incidents:
Zero
2011: Zero
Costs
Cost management has continued to be
a key focus and Letšeng has managed
to maintain its costs within expected
targets. Local currency direct cash costs
(before waste) per tonne treated for the
year were Maloti 108.24 relative to the
prior year of Maloti 88.84. This increase
of 21% is mainly due to local inflation
increases, fuel and power increases
above local inflation, operational
changes to drilling and blasting
methodologies and the impact of
lower tonnages treated during the year
(down 4% from 2011). The lower
tonnage treated was mainly due to
the planned reduced throughput in
the main Letšeng plants in December
to assess any impact on diamond
damage.
Total operating costs per tonne treated
for the year increased to Maloti 125.57
per tonne from Maloti 102.15 per tonne,
mainly as a result of an increase in
waste amortisation costs (driven by
the different waste to ore strip ratios
for the particular ore processed) during
the year and the lower production
volumes. During the current year,
Satellite ore contributed 25% of the
total ore processed in 2012 compared
to 16% in 2011.
Health, Safety, Social and
Environment (HSSE)
Gem Diamonds is committed to
meeting international best practice
standards with respect to health, safety
and social and environmental impacts
at Letšeng and across all of its
operations. The Company regards this
as a key component of its business
strategy and a key element of its
success going forward. The Company
is continually reviewing and enhancing
its approach and initiatives in this
regard and is pleased with the progress
that has been made.
HSSE management at Letšeng
showed a significant improvement
in performance compared to 2011.
This is supported by an improvement in
Letšeng’s independent SHE audit score
from a 3 to a 4 Star rating in 2012.
Regrettably in December, a non-mining
related fatality occurred at the
operation, shortly followed by an LTI.
Comprehensive investigations into
both incidents were undertaken and
appropriate corrective actions
implemented to prevent any
reoccurrences. The completion of the
operation’s behaviour-based safety
system was achieved in late 2012 and
proactive SHE management has been
significantly improved.
2012 saw the commencement of the
construction of an engineered wetland
at Letšeng, which will sustainably treat
the mine’s effluent prior to release into
the ambient environment. Should this
prove successful, this approach will
be expanded upon.
Letšeng recorded zero major1
environmental incidents, while
recording one significant2 incident
which was immediately remediated.
The operation remains on target to
complete the update of its Social and
Environmental Management Plan in
early 2013. This plan will ensure
compliance with the International
Finance Corporation (IFC)
Environmental, Health and Safety
guidelines and performance standards,
as well as with the Equator Principles.
Corporate Social Investment (CSI) at
Letšeng continues to positively impact
the lives of the project affected
communities. The Company’s flagship
CSI projects, the Wool & Mohair and the
Livelihoods projects, remain on target,
with over 1 000 local farmers
completing training in a variety of
agricultural, entrepreneurial and
business skills and in excess of 100 000
goats and sheep sheared during the
year. Several other projects remain
on-going.
1 Incident which results in long term, high severity environmental
impact.
2 Short to mid-term, medium severity environmental impact
incidents.
Gem DiamondsAnnual Report 2012 23
Evening at the Letšeng mine
Aerial view of the Letšeng mine
2013 and onwards
The focus for 2013 will be refining the
studies around the Plant 1 and 2
upgrades, in conjunction with
developing long-term mining scenarios
to match the anticipated treatment
capacity increase. Diamond damage
studies will continue to examine all
possible areas of influence from
blasting in the pit to the relevant
operations in the recovery process.
Various blasting tests are currently
underway and the programme to
replace four crushing units in Letšeng’s
existing processing plants, mentioned
above, is expected to result in
immediate improvements by mid-year.
Additional exploration drilling is
planned to be undertaken during the
year to further increase knowledge of
the resource. A number of holes are
planned around the deeper sections
of the Satellite pipe in order to support
planning of the potential underground
operation. Details of this drilling
programme are given in the Mineral
Resource section of the Annual Report.
Cost reduction will remain a focus and
interventions are being put in place
aimed at optimising treatment and
mining unit costs, considering
expected production profiles.
Upgrading of the mining fleet to match
future production requirements will
continue. Negotiations with the various
contractors are underway in order
to support cost reduction initiatives
considering the long life remaining
at Letšeng. Aligned with cost
management, the optimisation of
medium-term waste stripping profiles
will be a priority in order to maximise
cashflow especially during periods of
the anticipated capital expenditure
on the two existing treatment plants.
As part of the development of
Letšeng’s downstream activities and
capabilities, Letšeng is in the process
of establishing an in-country
manufacturing facility that will
manufacture certain categories of its
rough diamond production, utilising
proprietary diamond processing
technology. This facility is planned to
be completed in the second half of
2013 and will reach full production
capacity in 2014.
Case Study - Conserving Critical Habitat at Letšeng
Our operation at Letšeng borders the
buffer zone of the Maloti Drakensberg
Transfrontier Conservation Area, which
is recognised as a global biodiversity
hotspot due to the high diversity and
richness of plant species, as well as the
high prevalence of endemic species.
With the revision of the International
Finance Corporation’s Performance
Standards in 2012 relating to the
management of living natural
resources, we took the opportunity to
implement yet another set of
international best practice standards.
We conducted a comprehensive Critical
Habitat Assessment in 2012 to identify
biodiversity impacts and develop
optimal mitigation, management and
offset measures. This resulted in the
finalisation of the mine’s Biodiversity
Action Plan, which will be fully
implemented in 2013 by an
internationally recognised alpine
vegetation specialist, newly appointed
to the team.
The vegetation specialist is also
responsible for co-ordinating the
biodiversity monitoring programme;
plant rescue and relocation;
maintenance of the mine’s unique
biodiversity display garden; indigenous
seed collection and plant propagation;
rehabilitation measures; and oversight
of biodiversity offset projects, such as
the construction of the new engineered
wetland.
For further detail please visit:
www.gemdiamonds.com
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 24
Business review
Ellendale
Ellendale is renowned worldwide for its production of rare fancy yellow
diamonds, which comprise approximately 13% of Ellendale’s total carats
recovered in 2012. These diamonds are sold under an off-take
agreement to Tiffany & Co. and accounted for 78% of Ellendale’s total
revenue for the year.
Gem Diamonds concluded the disposal of its 100% interest in the
Ellendale Mine through the disposal of its wholly owned subsidiary,
Kimberley Diamond Company NL, to Goodrich Resources Limited, for a
consideration of US$15.4 million, effective as at 31 December 2012.
KImBERLEy
ELLEnDaLE
Diamond sales
No. carats sold
Average US$ per carat
Operational highlights
Year-ended
31 December
2012
157 796
720
year-ended
31 December
2012
121 454
731
• Carats recovered: 155 996
• Average US$ per carat: US$720
• Tonnes treated: 4.2 million
• Waste tonnes mined: 6.5 million
Emergency response training drill at Ellendale
Sustainability performance
• LTIFR 0.51
• AIFR 11.64
• Achieved 32 months LTI free in
May 2012
• Zero major environmental incidents
• Ellendale retained its 4 Star rating in
the annual external SHE audit
• Fatality free since the operation
commenced in 2002
• Land use agreement with the Bunuba
People was completed in 2012 and
US$1.9 million was paid into the
Bunuba People's Trust
Inspection of new tailings storage facility
at Ellendale
Gem DiamondsAnnual Report 2012 25
2012 saw a much improved production
performance at Ellendale after a
difficult 2011. Tonnes treated increased
by 34% year-on-year to 4.17 million
tonnes and carats recovered increased
by 28% to 155 996 carats. A major
contributor to the improved volume
performance was a number of
modifications made to the screening
and primary feed arrangements in the
treatment plant that commenced
towards the end of 2011. This resulted
in a greater ability to handle the
characteristic wet and sticky ore which
had been severely impacting the
plant’s performance. The increase
in tonnes treated was in turn
underpinned by higher volumes from
the pit as the mining contractor
continued operating at a limited
capacity through the wet season at the
beginning of the year. The contractor,
which was appointed in late 2011 as a
result of a re-tendering process,
performed well throughout the year
and ore mined increased to 4.67 million
tonnes, up 71% compared to 2011. This
performance contributed to a healthy
stockpile balance of 1.4 million tonnes
at year-end.
In terms of ore tonnes mined and
treated, 61% was sourced from the East
pit and 39% from the West pit. This
compares to 53% and 47% respectively
in 2011. The increased mix from the
higher grade East pit was planned to
boost carat production, however
recovered grade for the year was 3.74
cpht, 3% lower than the 3.86 cpht
reported in 2011. The lower grade
resulted primarily from progressing
deeper into the East pit where the
geology was found to be more
complex than originally expected. With
depth, the root zone of the pipe was
encountered and areas which had
been estimated as high grade were
found to contain lower grade material.
Waste mining moved 6.5 million tonnes
for the year compared to 6.2 million
tonnes in the prior year. The year-on-
year increase was mainly due to the
higher proportion of mining from the
deeper East pit with a commensurate
increase in waste stripping being
needed to access the ore.
Gem Diamonds concluded the disposal
of its 100% interest in the Ellendale
Mine (held within its wholly owned
subsidiary, Kimberley Diamond
Company NL (‘Kimberley Diamonds’))
to ASX listed company Goodrich
Resources Limited (‘Goodrich’), for a
total consideration of US$15.4 million.
The consideration comprises a cash
payment of AU$3.2 million and the
repayment of a secured loan by
Kimberley Diamonds of US$11.5 million
(payable in instalments over 23 months
following completion). The sale was
completed on 31 January 2013 and was
effective as at 31 December 2012.
Prices achieved
In 2012, Kimberley Diamonds achieved
an overall average price of US$720 per
carat for its production, a decrease of
1.5% from the average price of US$731
per carat achieved in 2011.
Kimberley Diamonds achieved an
average of US$4 393 per carat for
Ellendale’s rare qualifying fancy yellow
diamonds that are sold to Tiffany & Co.,
representing a reduction of 0.3%
against the average price per carat of
US$4 409 in 2011. The prices in the
fourth quarter of 2012 were positively
impacted as a result of the new floor
price introduced to the indexed pricing
mechanism.
In 2012, Ellendale’s commercial
diamond production achieved an
average price of US$181 per carat,
which represents a decrease of 4% over
the average price achieved in 2011 of
US$188 per carat.
Sales and marketing strategy
Financial performance
Kimberley Diamonds sells its fancy
yellow diamonds directly under an
off-take agreement to Laurelton
Diamonds, Inc., the diamond sourcing
and manufacturing subsidiary of global
high-end jeweller Tiffany & Co. During
the year, pricing for the qualifying fancy
yellow diamonds sold to Tiffany & Co.
was reviewed and a new pricing floor
to the existing indexed pricing
mechanism was agreed. This new floor
price became effective on 1 October
2012.
Kimberley Diamonds sells the
remaining commercial rough
production through an outsourced
electronic diamond auction platform.
Kimberley Diamonds generated
revenue of US$113.6 million compared
to US$89.4 million achieved in the prior
year. The increased prices achieved on
the fancy yellow diamonds sold to
Tiffany & Co. and the increase in carats
recovered due to improved production,
contributed to the 27% increase in
revenue and the generation of a
positive underlying EBITDA of US$12.4
million, a decrease of 6% from 2011.
This decrease was mainly driven by
the additional costs associated with
increased production and a strong
Australian dollar. The results of the
operation are set out below. However
as the company was disposed of with
effect on 31 December 2012, the results
of the operation are disclosed as
discontinued operations in the Group
results.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 26
Business review
Ellendale continued
Ellendale E9 East from the air
Costs
The improved production performance
at Ellendale, which resulted in higher
tonnage treated, together with strict
cost management, have positively
impacted unit costs. A large portion of
Ellendale’s cost structure constitutes a
fixed element resulting in local
currency direct cash costs (before
waste) per tonne treated for the year
amounting to AU$16.89 relative to the
prior year of AU$19.02.
Total operating costs per tonne treated
for the year also decreased to AU$20.86
per tonne from AU$21.97 per tonne,
mainly as a result of the higher
production volumes and cost
management referred to above.
US$ (millions)
Sales
Cost of sales*
Royalty and selling costs
Underlying EBITDA
Physicals
Tonnes treated
Waste tonnes mined
Carats recovered
Carats sold
US$ (per unit)
Exchange rate (average)
Average price per carat (rough)
Direct cash cost (before waste) per tonne treated¹
Operating cost per tonne treated²
Waste cash cost per waste tonne mined
Local currency (per unit)
Australian dollar (AU$)
Direct cash cost (before waste) per tonne treated¹
Operating cost per tonne treated²
Waste cash cost per waste tonne mined
Other operating information (US$ million)
Waste capitalised
Waste amortised
Depreciation and mining asset amortisation
Capital expenditure3
Year-ended
31 December
2012
year-ended
31 December
2011
113.6
(94.3)
(6.9)
12.4
4 171 291
6 532 941
155 996
157 796
0.97
720
17.49
21.60
4.60
16.89
20.86
4.45
36.1
31.3
18.2
9.3
89.4
(70.6)
(5.6)
13.2
3 116 017
6 183 668
120 302
121 454
0.97
731
19.63
22.67
4.16
19.02
21.97
4.04
30.8
18.7
8.8
15.7
* Excluding depreciation, mining asset amortisation and waste amortisation.
1 Direct cash costs represents all operating costs, excluding royalty and selling costs, depreciation, mine amortisation and all other non-
cash charges.
2 Operating costs excludes royalty and selling costs and depreciation and mine amortisation, and includes inventory, waste and ore
stockpile adjustments.
3 Capital expenditure excludes movements in rehabilitation assets relating to changes in rehabilitation estimates.
Gem DiamondsAnnual Report 2012 27
Total operating costs per tonne treated
AUS$16.89
2011: AUS$19.02
Waste cash costs per tonne of waste
moved was AU$4.45 up from the prior
year of AU$4.04.
HSSE
Ellendale continues to achieve a high
standard in HSSE management and
retained its 4 Star rating in the external
SHE audit for a third consecutive year.
The operation has remained fatality-
free since it commenced operation and
achieved 32 months LTI free in May.
Ellendale recorded zero major 3
environmental incidents and three
significant4 incidents, which were duly
reported to the relevant authorities and
appropriate remedial actions
implemented. Extensive focus was paid
to improving the operations’
rehabilitation and closure plan during
2012 to ensure that a practicable,
integrated and cost-effective
rehabilitation plan could be
implemented concurrently with mining
activities. AU$0.9 million was spent on
progressive rehabilitation in 2012.
The Company continued to contribute
to the progress of its Project Affected
Communities through supporting
projects related to education, healthy
lifestyles, regional environmental
initiatives and a range of several worthy
causes. Cross cultural awareness
training continued in 2012, facilitated by
the Traditional Owners of the Ellendale
mine lease, the Bunuba people. The
Bunuba People's Trust was finalised
during late 2012 and US$1.9 million paid
to the Trust in early 2013.
3 Incident which results in long term, high severity environmental impact.
4 Short to mid-term, medium severity environmental impact incidents.
Case Study – Optimising community benefit for the Bunuba people
Gem Diamonds takes its responsibility
for ensuring good relations with its
Project Affected Communities seriously
and we strive to achieve a positive
legacy that will remain long after the
mineral resources have been depleted.
We regard it as our duty to ensure the
sustainable development of the
communities amongst whom we
operate and have a direct impact upon.
During the time of the Company’s
ownership of the Ellendale mine,
much work has gone into identifying,
developing and implementing a
long-term sustainable Corporate Social
Investment (CSI) project for members of
Bunuba people of the Fitzroy Crossing
area – the traditional owners of the land
on which the Ellendale operation is
located. Ideally a project of this nature
is developed to function independently
of the mining operation in order to
avoid the ‘boom and bust’ cycle so often
associated with the mining industry.
Based on the findings of a Community
Investment Review and Audit in 2011,
a community needs analysis was
conducted during late 2011 in order to
improve the appropriateness and
sustainability of the Company’s CSI
investments in Australia. A community
trust was determined to be the best
vehicle for this, and the Bunuba
People's Trust was created.
An annual land use compensation
payment under the Bunuba Native Title
and Compensation Agreement of 2004
was agreed with the Bunuba people and
in January 2013, the Company paid
US$1.9 million into the Bunuba People's
Trust. This amount, together with
additional funds for legal fees and other
costs incurred by the traditional owners,
and a portion of this was paid in lieu of
share options, which were no longer
available to the Bunuba people due to
the delisting of Kimberley Diamond
Company from the Australian Stock
Exchange after its acquisition by Gem
Diamonds in 2007. These funds are
available immediately for community
motivated projects to be undertaken.
For further detail please visit:
www.gemdiamonds.com
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 28
Business review
Ghaghoo
The Ghaghoo diamond mine in Botswana is currently being developed
by the Company’s wholly-owned subsidiary, Gem Diamonds Botswana,
which holds a 25 year mining licence. ‘Ghaghoo’ is the name of a locally
abundant camel thorn acacia tree, and is the name historically used by
locals to refer to the area, before geological exploration teams arrived
over 30 years ago
The Ghaghoo Underground Project
is currently underway with Phase 1
development which is intended to
provide confirmation of diamond
prices, grade and diamond recovery
characteristics to enable a more
definitive way forward for Ghaghoo
to be defined. Progress increased
substantially during 2012, however
sadly this was marred by a fatal
accident where two contractor
employees lost their lives. This is set
out in more detail in the HSSE section
of the Annual Report.
Tunnel development for the access
decline commenced in the fourth
quarter of 2011 and will reach a depth
of approximately 150 metres below
surface from whence production will
commence. The first 70 metres of
vertical depth is through Kalahari Sand
and an Open Face Tunnelling Shield is
being used to advance through the
sand until reaching basalt. From this
point on, conventional drill and blast
techniques will be used to tunnel down
to the 150 metre level and develop into
the kimberlite ore-body. Sub-level
caving will then be used as the
production method which will ramp
up to a capacity of approximately
720 000 tonnes per annum.
Difficulties were encountered while
tunnelling through the sand and a
number of unexpected areas of very
hard calcrete have also been
encountered. This caused a change to
the tunnelling procedure, and drilling
and blasting had to be introduced.
In conjunction with the accident
mentioned above, these events have
resulted in a significant delay to the
access decline’s progress. After
reviewing the expected time-line
going forward and taking into account
what is likely to be slower than planned
progress in the remainder of the sand
tunnel, the commencement of Phase 1
production has been moved out to
mid-2014 from the original planned
date of mid-2013.
As at 31 December 2012, the sand
portion of the access decline had
reached a depth of 43 metres or
218 metres of decline development.
A further 298 metres of decline
development is required to reach
the basalt interface.
Pre-project preparation, including
surface works for the commencement
of sinking the ventilation shaft is well
progressed and it is planned that
work on this will commence after
the completion of the sand portion
of the access decline.
Botswana
GhaGhoo
Installation of the autogenous mill
at Ghaghoo
Treatment plant at Ghaghoo
Access decline through the Kalahari sand
Gem DiamondsAnnual Report 2012 29
Construction of the treatment plant
progressed well throughout the year
and was substantially complete at
year-end. An autogenous grinding mill
has been installed and is in the process
of being commissioned. The
autogenous milling process is expected
to improve diamond liberation through
a finer grind compared to conventional
milling, which therefore increases the
recovered grade. This will have a
positive effect on revenue and is one
of the key result areas for Phase 1 of
the project.
The camp-site infrastructure was
completed during 2012 and installation
of on-site power generation completed
which will be used throughout Phase 1.
A number of boreholes have been
drilled which will supply water for the
processing plant while additional
ground-water from the underground
workings is expected to supplement
borehole capacity. Currently, the
amount of water being pumped from
the boreholes is exceeding expected
capacity.
During 2012, US$32.7 million was spent
on the project. Due to the delays
described above, the total Phase 1
capital budget has been increased
to US$96 million from the original
US$85 million.
decline before mining resumed in
September. An additional two Lost
Time Injuries were recorded during the
year. Zero major and/or significant
environmental incidents were recorded
in the reporting period.
HSSE
The development of the Ghaghoo
HSSE system remains on-going as
construction and operational activities
expand. The Company has made great
strides with its social and community
engagement programmes in Botswana,
with a focused and comprehensive
framework in place to guide future
initiatives. The Company successfully
completed a community water supply
programme for two settlements in the
Central Kalahari Game Reserve and is
currently assessing options to supply a
further two communities with drinking
water. At year-end, 30% of the
Company’s employees were recruited
from the Project Affected Communities.
Tragically, two fatalities occurred at the
operation in a fall of ground incident in
May 2012. Extensive remedial actions
were implemented in the access
As a priority, Gem Diamonds is focused
on minimising all negative impacts as
far as possible and working towards
ensuring the best interests of its
employees, affected communities
and the environment.
2013 onwards
Work will continue on the access
decline development with subsequent
access to the ore-body to follow.
Activities related to the sinking of a
ventilation shaft for the underground
mine are underway. The remainder of
the processing plant will be completed
and commissioned. Studies are
continuing to asses various long-term
mining and processing scenarios which,
depending on the outcome of Phase 1
and the expected economic outlook,
will determine the next stage of the
Ghaghoo Project.
During 2013, US$40.2 million of the
capital budget remains to be spent.
Short-term labour programme changing Kaudwane residents' lives
Many of the residents of the Ghaghoo
mine’s Project Affected Community,
Kaudwane, have never been employed.
This is true of Oduetse Moloreng, born
in the Gope settlement, who we
employed at the age of 22 to work in the
Ghaghoo mine’s kitchen. Oduetse
quickly proved himself to be a valued
employee and was elected by his peers
to become their Safety, Health and
Environmental Representative. Says
Oduetse of his new position: “I was
looking for a job that I really enjoy and I
think I found it. While I am still learning, I
am a people’s person and this job has
me working with lots of people around
and serving my customers. Everybody
pitches in when the work needs to be
done, including the managers. I’m a
happy person and if someone walks
away being happy, then I’ve done
my job.”
The importance of employing Oduetse
and others from the Kaudwane village
is an operational imperative for
Ghaghoo: “I can understand how
people in our community get trapped
by unemployment. Lack of education is
much of it and when you grow up, you
see parents and aunties and uncles who
didn’t finish school and didn’t have
jobs. It’s easy to think that if they didn’t
need a job, you don’t need it either. We
returned from the Ghaghoo Diamond
Mine with a different perspective about
the world. We even interact with people
differently now – not as people from
Kaudwane, but as world citizens”, says
Oduetse.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 30
Business review
Gem Diamonds marketing and manufacturing
Gem Diamonds’ marketing arm was formed in 2010 and is responsible
for designing and implementing the sales and marketing and
manufacturing strategies as defined by the Group and subsidiary
boards. Gem Diamonds maximises revenue from actively marketing
its rough and polished diamonds through a combination of channels,
including tenders, auctions, direct sales, off-take arrangements and
partnerships. In May 2012, Gem Diamonds established a high-tech
analytical and manufacturing capability in Antwerp as part of the
strategic objective to increase revenue for its rough diamonds and
access additional margins further along the diamond pipeline.
Sales and marketing
Manufacturing
The Group’s rough diamond
production is marketed primarily in
Antwerp through the use of electronic
sales (eSales) technology platforms
(eTenders and eAuctions) that are
designed to enhance engagement
with customers more frequently,
dynamically and transparently. This
helps ensure the achievement of fair
market-driven prices for the Group’s
diamond production. Polished
diamonds are sold directly to clients.
The Letšeng diamond production is
sold on eTender and is marketed by
Gem Diamonds Marketing Services
BVBA, a wholly-owned Group
subsidiary based in Antwerp, Belgium.
The Kimberley Diamonds (‘Kimberley’)
commercial diamond production was
marketed through an outsourced
service provider via eAuctions in
Antwerp and Kimberley’s higher value
qualifying fancy yellow diamond
production was sold to Tiffany & Co.
through the Life of Mine off-take
agreement.
The Group continues to invest and
grow the intellectual know-how in
its marketing and manufacturing
operations with the objective of
ensuring that the highest returns are
achieved on its production, in rough
or polished form.
The Group continued to invest in
and build its manufacturing expertise
and capacity during 2012. A high-tech
diamond analysis and manufacturing
operation focusing on large, top quality
diamonds was established in Antwerp
in the second quarter of 2012.
The Group also commenced the
establishment of an operation in
Mauritius in the second half of 2012,
which will see the deployment of the
Calibrated laser cutting technology. The
analytical and manufacturing capability,
and the polished sales and partnering
arrangements provide the Group with
a more complete understanding of
the value of the Letšeng high-end
production as well as access to
margins beyond the mine gate.
Continuing the Company’s stated
strategy to access margin further
downstream by cutting and polishing
diamonds and/or partnering on select
diamonds, for the full year 2012, a total
of 946 (1 624 carats in 2011) were
extracted at a rough market value of
US$31.6 million (US$68.6 million in 2011).
Of the diamonds extracted for
manufacture, US$10.4 million (US$1.2
million in 2011) remains on hand in
inventory at year-end and is
unrecognised in revenue for the
Group in 2012. Despite the volatile
and challenging trading conditions
experienced during 2012 and the lower
volume of diamonds manufactured
in 2012, the overall uplift achieved
on those goods manufactured
and sold was US$2.8 million.
Gem DiamondsAnnual Report 2012 31
Business review
Other assets
Due to the current global market
conditions and the resulting
impact on diamond prices,
Gem Diamonds formally
withdrew from the Chiri project
in Angola at the end of
November 2012.
Since its inception, a total of
US$14.8 million has been spent
at Chiri as at 31 December 2012.
Following the decision to withdraw
from Angola, this amount has been
written off. Of the total US$14.8 million
spent at Chiri, US$5.6 million was
advanced as a loan to the project
partner and is subject to a continuing
right of repayment should the project
go ahead at any time in the future
(irrespective of Gem Diamonds’
involvement). The write-off of this asset
has been disclosed as an exceptional
item due to its non-recurring nature.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 32
Business review
Group financial performance
Revenue
US$202.1
million
2012 was a difficult year in the diamond market with global market
conditions impacting diamond revenue. The Group reports* revenue
of US$202.1 million, underlying EBITDA of US$65.5 million, and profit
for the year before exceptional items of US$32.6 million. The disposal
of the Kimberley Diamonds operation was concluded with effect
on 31 December 2012. Notwithstanding the difficult trading
conditions, the Group generated positive earnings of 12 US cents
before exceptional items.
US$ (millions)
Revenue
Cost of sales1
Royalty and selling costs
Corporate expenses
Underlying EBITDA
Depreciation, mining asset amortisation and
waste amortisation
Share-based payments
Impairments
Other income2
Foreign exchange gain
Net finance income
Profit before tax
Income tax expense
12 months
ended
31 December
2012
before
exceptional
items
202.1
(103.3)
(19.1)
(14.2)
65.5
(18.6)
(2.3)
1.3
3.8
1.3
51.0
(18.4)
12 months
ended
31 December
2012
Total
12 months*
ended
31 December
2011
Exceptional
items
202.1
(103.3)
(19.1)
(14.2)
65.5
306.1
(97.8)
(26.5)
(15.3)
166.5
(18.6)
(21.6)
(16.2)
(16.2)
(2.3)
(16.2)
1.3
3.8
1.3
34.8
(18.4)
Profit for the year from continuing
operations
32.6
(16.2)
16.4
(Loss)/profit from discontinued operations
(70.3)
(70.3)
Recycling of foreign currency translation
reserve on disposal of subsidiary
(Loss)/profit for the year
Non-controlling interests
Attributable profit/(loss)
Earnings per share (US cents)
Earnings per share –
(continuing operations (US cents)
32.6
(15.5)
17.1
12.4
(48.4)
(48.4)
(134.9)
(102.3)
(15.5)
(117.8)
(85.0)
12.4
(1.3)
-
-
6.8
2.1
152.6
(52.9)
99.7
6.2
105.9
(38.2)
61.5
49.0
44.0
* The results of the Kimberley Diamond operation have been included in Discontinued operations and the prior period’s figures have been
restated for the reclassification impact of accounting for discontinued operations.
1 Excluding depreciation, mining asset and waste amortisation.
2 Included in other income is the gain on revaluation of mark to market financial instruments amounting to US$1.2 million.
Gem DiamondsAnnual Report 2012 33
As a result of the disposal of the
Ellendale mine, the Group’s results
are reported excluding the Kimberley
Diamonds’ operation as these are
now disclosed as part of discontinued
operations. The comparative results
have been restated to exclude
Kimberley Diamonds in accordance
with IFRS.
Financial performance (before
exceptional items)
Revenue was generated primarily from
the sale of rough diamonds recovered
at the Letšeng mine. In addition, the
sale and marketing division has
contributed to Group profitability
through the management of the
manufacturing process and
downstream initiative, which has
resulted in Letšeng generating US$2.8
million in additional revenue. Royalties
and selling costs of US$19.1 million
mainly comprise mineral extraction
costs paid to the Lesotho Revenue
Authority of 8% on the sale of
diamonds and diamond marketing
related expenses. The internal sales
and marketing structure formed by
the Group in late 2010, has resulted in
a reduction in Letšeng’s selling costs
from 2.5%, to 1.5%. As a result of
managing the sales and marketing
internally, the Group underlying EBITDA
in 2012 is improved by US$3.6 million
generated through reduced selling
and marketing costs and a strong
contribution from that division.
Cost of sales for the period was
US$103.3 million before non-cash costs
of depreciation of US$16.0 million and
amortisation on mining assets of
US$2.6 million.
Underlying EBITDA for the year was
US$65.5 million, down from the prior
year by US$101.0 million from US$166.5
million. This is predominately driven by
the lower revenue achieved by the
Group which reduced by US$104.0
million from 2011. This is represented by
the average US$ per carat achieved at
Letšeng of US$1 932 for 2012, compared
to US$2 776 in 2011. Profit attributable
to shareholders for the year before
exceptional items was US$17.1 million,
equating to 12 US cents per share on a
weighted average number of shares in
issue of 138 million. The Group incurred
an overall attributable loss of US$117.8
million post the impact of exceptional
items, including discontinued
operations resulting in a loss per share
of 85 US cents per share.
Corporate expenses relate to central
costs incurred by the Company and
its services subsidiary, Gem Diamond
Technical Services. Corporate expenses
were US$14.2 million, positively
impacted by the stronger US$ during
the period (a large portion of corporate
costs are in South African Rand), and
exclude one-off project costs of US$1.6
million resulting in total corporate costs
of US$15.8 million in 2012. Corporate
costs do not include the positive
financial contribution generated by
the Group from the implementation
of the sales and marketing structure
noted above.
The Lesotho Loti (pegged to the South
African Rand) weakened significantly
during the latter part of 2011. This
weakened rate together with a further
weakening in the latter part of 2012
resulted in the average rate for 2012
being 13% weaker than the average
in 2011. The Australian dollar has
maintained its strong trading levels
during the year resulting in a strong
average local currency level similar
to that of the prior year.
The following table details the relative
exchange rates for 2012 compared
to 2011:
Lesotho Loti per US$1.00
Average exchange rate for the
year/period
Year/period end exchange rate
Australian dollar per US$1.00
Average exchange rate for the year/
period
Year/period end exchange rate
FY 2012
h2 2012
h1 2012
Fy 2011
Variance Fy
2012 to Fy
2011
8.21
8.48
0.97
0.96
8.48
8.78
0.97
0.94
7.94
8.18
0.97
0.98
7.26
8.07
0.97
0.98
13%
5%
0
2%
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 34
Business review
Group financial performance continued
Exceptional items
On 30 January 2013, the Company
concluded the sale of its 100% interest
in the Ellendale Mine through the
disposal of its wholly owned subsidiary,
Kimberley Diamond Company NL, to
Goodrich Resources Limited, for a
consideration of US$15.4 million,
effective as at 31 December 2012.
Up until the date of the disposal,
Kimberley Diamonds incurred a trading
loss in 2012 of US$6.6 million. As a result
of the disposal of the operation, an
additional loss of US$63.7 million
was incurred being the fair value
adjustment to bring the carrying
value of the operation in line with its
fair value of the total consideration of
US$15.4 million (net of costs to sell).
This consideration receivable has been
disclosed in other assets on the Balance
Sheet. Due to currency fluctuations of
the Australian dollar since the Groups'
investment into Kimberley Diamonds
up until the disposal, the Group
incurred a loss of US$48.4 million which
represents recycling of foreign currency
translation reserve as a result of the
disposal.
Gem Diamonds formally withdrew
from the Chiri project in Angola at
the end of November 2012 due to the
current global market conditions and
the resulting impact on diamond
prices. Since its inception, a total of
US$14.8 million has been spent at Chiri
as at 31 December 2012. Following the
decision to withdraw from Angola, this
amount has been written off. Of the
total US$14.8 million spent at Chiri,
US$5.6 million was advanced as a loan
to the project partner and is subject to
a continuing right of repayment should
the project go ahead at any time in the
future (irrespective of Gem Diamonds’
involvement).
Following the review of the current
Project Kholo in light of the existing
and expected global economic
outlook, the project was scaled back
with a focus towards a lower, more
capital efficient project. As a result an
amount of US$1.4 million of the current
project costs incurred were considered
impaired as they could not be used in
the revised project plans.
These items have all been disclosed
as Exceptional Items separately in
the Income Statement and amount
to a total of US$134.9 million
impacting overall earnings per
share by 97 US cents.
Share-based payments
Share-based payment costs for the year
amount to US$2.3 million, comprising
the allocation of the share option
award in 2010 which expired in 2012
and for which no vesting took place,
and the share option award in 2011
which expires in 2014. On 20 March
2012, the Company announced 1.3
million share options were awarded to
Directors and senior employees. On 11
September 2012, a further 0.9 million
share options were awarded to senior
employees, other than Directors.
The share-based payment cost
associated with these new awards
has impacted the current year’s charge
by US$1.2 million.
Forex
Foreign exchange gains relate to gains
and losses on the conversion of US
dollar revenue into local currency at
Letšeng, gains and losses on exchange
rate fluctuations on Sterling
denominated cash held by the
Company and realised hedges entered
into by the Group during the period.
Net finance income
Net finance income comprises the net
of interest received of US$2.6 million,
predominantly generated on surplus
cash from the Letšeng operation,
against US$1.3 million charged to
the Income Statement, representing
the impact of unwinding the current
environmental provisions.
Tax
The effective tax rate in the year for
the Group is 53.0% from continuing
operations, above the UK statutory tax
rate of 24.5%. The increase over the
statutory rate is predominately driven
by the dividends declared at Letšeng
during the year which result in a 10%
withholding tax payable in Lesotho.
The tax rate of the Group is driven by
tax of 25% on profits generated by
Letšeng Diamonds, withholding tax
of 10% on dividends, tax impact on
exceptional items and deferred tax
assets not recognised on losses
incurred in non-trading operations.
Non-controlling interest
Non-controlling interest represents 30%
of the profits in Letšeng Diamonds,
which is attributable to the Company’s
partner, the Government of the
Kingdom of Lesotho.
Gem DiamondsAnnual Report 2012 35
Cash and debt
Events subsequent to the year-end
The Group has US$67.8 million (net of
facility draw down at Letšeng of
US$2.9 million) cash on hand (of
which US$62.8 million is attributable
and US$0.2 million is restricted).
Group cash was supplemented by a net
cash inflow generated from operations
for the year of US$143.7 million.
Investments in property, plant and
equipment amounted to US$165.6
million. The largest component of this
investment was US$96.6 million,
incurred in waste stripping at both
mining operations. For Letšeng US$22.8
million of plant and equipment
investment relates to infrastructure
costs associated with the Life of Mine
extension and initial costs relating to
the expansion project and associated
infrastructure. For Kimberley Diamonds
US$9.7 million relates to infrastructure
costs associated with additional slimes
capacity, modifications to the primary
plant feed section of the processing
plant. For Ghaghoo US$32.7 million
relates to the development of the
underground mine in Phase 1.
During the year total dividends
declared by Letšeng were US$31.0
million, which resulted in a net
cashflow of US$19.5 million to Gem
Diamonds and a cash outflow from the
Group as a result of withholding taxes,
of US$2.2 million and payments of the
Government of Lesotho’s portion of
the dividend of US$8.8 million. As at
31 December 2012 US$2.9 million of
the Letšeng facility was drawn down
(this amount was repaid in full in
January 2013).
In addition to the Maloti 250 million
(US$29.5 million) 3-year unsecured
revolving credit facility at Letšeng
concluded in late 2011, Gem Diamonds
has concluded and signed a US$20.0
million 3-year unsecured revolving
credit facility with Nedbank Capital
(a division of Nedbank Ltd), which is
available for draw-down. As at the date
of this report, the Group now has
US$50.0 million of working capital
facility available.
In January 2013, the Company
concluded its facility agreement with
Nedbank Capital. The facility is an
unsecured, US$20.0 million, 3 year
working capital revolving facility and
is available for draw down.
On 31 January 2013, the Group
concluded the sale of its 100% interest
in the Ellendale Mine (through the
sale of a wholly owned subsidiary,
Kimberley Diamond Company NL
("Kimberley Diamonds")) to ASX listed
company Goodrich Resources Limited
("Goodrich") effective 31 December
2012.
No other fact or circumstance has taken
place during the period covered by the
financial statements and up to the date
of this report which in our opinion, is of
significance in assessing the state of the
Group’s affairs.
Governance
Gem Diamonds is an independent
company which finances its own
operations via a decentralised
corporate model. It does not rely
upon any financial support from the
Government of any country in which
it operates and complies with, and
benefits from, as appropriate and
legitimate, all legal and regulatory
requirements to operate.
No actions relating to anti-competitive
behaviour, anti-trust and/or monopoly
practices have been taken against Gem
Diamonds.
It is now almost 12 years since the
Kimberley Process was introduced
to the diamond industry. The process
has grown in reputation and has
contributed to the virtual eradication
of the trade in conflict diamonds.
Gem Diamonds is firmly committed to
the principles of the Kimberley Process
and all diamonds sold by the Group
are Kimberley Process certified.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 36
Business review
Mineral resource management
Mineral resource management programmes continued at both the Letšeng and Ellendale operations,
monitoring resource performance in terms of grade and revenue, together with resource
development initiatives.
Resource performance
Annual grade reconciliation
Annual revenue reconciliation
• The Letšeng 2012 annual grade
reconciliation was 94% or 6% below
expected (1.86 cpht actual versus
1.98 cpht expected). This was largely
the result of lower than expected
grades recovered from the recently
intersected K6 ore phase in Main
pipe (2.43 cpht actual versus an
expected resource grade of 2.81
cpht).
The Letšeng 2012 annual revenue
reconciliation was 71% or 29% below
expected (US$1 958 per carat actual
versus US$2 768 per carat expected).
This is due to a combination of factors:
• prices declined by 15% from the
January 2012 resource estimate
• lower than expected diamond
revenue from the K6 ore phase; and
• The Ellendale 2012 annual grade
• value loss through breakage of
reconciliation was 88% or 12% below
expected (3.74cpht actual versus
4.27cpht expected). This was largely
due to plant inefficiencies mainly
caused by poor water quality.
Type II stones
The Ellendale 2012 annual revenue
reconciliation was 98% or 2% below
expected (US$701 per carat actual
versus US$714 per carat expected).
Re-negotiation of the floor index
for the Tiffany quality goods with
Laurelton in the last quarter helped
achieve this result.
At Letšeng discrete production samples
from individual zones totalled 583 107
tonnes, producing 12 295 carats at an
average grade of 2.11 cpht, slightly
lower than the expected grade of
2.29 cpht.
At Ellendale 18 discrete production
samples were collected across all zones
in the E9 orebody, totalling 189 339
tonnes and 6 892 carats. These
production samples produced an
average grade of 3.64 cpht, slightly
lower than the expected grade of
4.25 cpht.
The resource performance (grade and
US$ per carat revenue) is measured
against the end of 2012 resource
statement estimates (see Mineral
Resource Statement Reporting section
below). Grade reconciliation is based
on expected carat production from
provenance analysis of the various
facies loaded and treated on a daily
basis, versus the actual carats
recovered. The US$ per carat revenue
reconciliation is calculated in a similar
manner based on ore provenance
analysis versus the actual revenue
realised from the relevant tender
period. These resource measurements
are important as they highlight possible
resource under/over-estimation,
process problems and also, importantly,
price gaps due to a changing market
environment. (Note that the ore treated
by the contractor miner, “Alluvial
Ventures” is excluded from the Letšeng
reconciliation. Alluvial Ventures
produces only 10% of the annual carats
at Letšeng, using a different treatment
process and for this reason is excluded
from the resource reconciliation
calculation).
Letšeng Plant 2
Gem DiamondsAnnual Report 2012 37
Resource Development
90 million
tonnes
added to Letšeng's resource
At Ellendale the resource development
work was restricted to bulk sampling
of the E11 satellite lamproite. This work
returned an uneconomic grade of
0.9 carats per hundred tonnes from the
6 690 tonnes of material processed.
Mineral resource
statement reporting
An independent resource statement
was prepared for Gem Diamonds
by Venmyn Rand in the first quarter
of 2012.
In the following summary table,
prepared by Gem Diamonds, total
resources (not attributable) are stated,
inclusive of reserves.
For the detailed statements please see:
http://www.gemdiamonds.com/gem/
en/investors/resource_statement/
Gem Diamonds is currently updating
the resource models for the resource
base and re-estimating grade and
revenue estimates, taking into account
the data generated during 2012.
These revised estimates will be released
in the second quarter of 2013.
Resource development
At Letšeng a comprehensive infill and
deep drilling core programme, on both
the Satellite and Main kimberlite
orebodies, was completed in
December 2012. The objectives were
to increase geological and geotechnical
knowledge on the existing resource
as well as define additional resources
below the current depth limits. A total
of 18 holes or 8 740 metres were drilled
during the campaign. In terms of the
resource extension at depth,
approximately 230 metres of additional
ore was delineated below the Satellite
pipe and 320 metres for the Main pipe.
This extends the existence of the two
pipes to 828 metres and 793 metres
below surface respectively (current
mining in both pits extends to 160
metres below surface). Together, these
depth extensions are expected to add
approximately 90 million tonnes to the
Letšeng resource. Although the drilling
encountered a number of challenges
both from a weather and an operating
perspective, the overall core recovery
was 99% which is an excellent
achievement. An updated resource
model is expected to be completed
by the end of the first quarter in 2013
which will confirm the additional
tonnage along with any other changes
to the resource.
Resource
Indicated resources
Inferred resources
Total resources
Country
ownership
ore (mt)
Grade
(cts/100t)
Carats (m)
$/ct
ore (mt)
Grade
(cts/100t)
Carats (m)
$/ct
ore (mt)
Grade
(cts/100t)
Carats (m)
$/ct
Lesotho
– Letšeng
Botswana
– Ghaghoo
Australia
– Ellendale
Total
70%
70.7
1.81
1.28
2 739
140.9
1.94
2.73
2 885
211.6
1.90
4.01
2 839
100%
79.4
19.51
15.49
259
28.8
17.52
5.04
257
108.2
18.98
20.53
259
100%
14.7
5.27
0.78
164.8
10.64
17.55
376
445
76.6
4.18
3.20
246.2
4.46
10.98
229
904
91.3
4.35
3.98
411.1
6.94
28.52
258
621
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 38
Business review
Principal risks
Risks to the business: The Group’s operational and growth performance is influenced and impacted by a
number of risks. Although many of these are beyond the control of the Group, a formal risk management
process exists to assist in identifying and reviewing potential risks. Mitigating plans are formulated and
reviewed regularly to gain an understanding of their effectiveness and progress. The Group is focused
on continuously analysing and assessing the risks it faces and improving the risk management process
accordingly. The following key risks have been identified by the Group. It is by no means an exhaustive list
and may change over a period of time, as the impact and likelihood of the risks is assessed as part of the
risk management process.
Market risks pertinent to the Group
Commentary
Mitigation
Trend (from 2011)
The period and stability of the recovery of the financial
markets and the impact on consumer preferences post
the 2008 global economic crisis impacts the Group and
the industry as a whole. The further downturn in the
diamond market in late 2011 emphasises the volatility
and uncertainty in the recovery periods. This potentially
compounds the existing short-term imbalance between
demand and supply and the impact that this has on the
diamond pipeline. Diamond prices remain volatile and
sensitive to market uncertainties which have a direct
impact on cash flows.
Operational risks pertinent to the Group
A change in consumer preferences away from diamonds
due to negative sentiment towards diamonds and/or
diamond mining is a continuing risk. Although the Group
cannot materially influence the situation, the market
conditions are continually monitored to identify current
trends that will pose a threat or create an opportunity for
the Group. The Group has flexibility to reassess its capital
projects in light of current market conditions to preserve
cash balances on its balance sheet.
Commentary
Mitigation
Trend (from 2011)
Mineral resource risk
The Group’s ability to operate profitably in the medium to
long term depends heavily on knowledge of the Group’s
mineral resource, which influences the operational mine
plans and the generation of sufficient margins.
A major production interruption at
Letšeng Diamonds
The Group may experience material mine and/or plant
shutdowns or periods of decreased production due to
a number of different events. Any such events could
negatively affect the Group’s operations and impact
both profitability and cashflows.
Health, safety, social and environmental
responsibility related risks
The risk that a major health, safety, social or environmental
incident may occur within the Group is inherent in mining
operations.
Diamond theft
Theft is an inherent risk factor in the diamond industry.
Various bulk sampling programmes combined with
geological mapping and modelling methods significantly
improve the Group’s understanding of the mineral
resources and assist in mining the existing mineral
resources profitably.
The continual review of the likelihood of possible different
events and ensuring that the appropriate management
controls, processes and business continuity plans are in
place to mitigate this risk.
The Group has reviewed and published policies in this
regard and significant resources have been allocated to
continuously improve, review, recommend, implement
and monitor compliance throughout the various
operations within the Group. Further to this, the Group
engages independent third parties to review and provide
assurance on processes currently in place.
All the necessary precautions have been put in place in
order to minimise this risk.
Gem DiamondsAnnual Report 2012
39
Political risks pertinent to the Group
Commentary
Mitigation
Trend (from 2011)
The political environments of the various jurisdictions
that the Group operates within may adversely impact the
ability to operate effectively and profitably.
The Group prioritises workforce localisation and
compliance to host country legislation is a minimum
compliance standard. Furthermore, changes to the
political environment are closely monitored.
Financial risks pertinent to the Group
Commentary
Mitigation
Trend (from 2011)
Exchange Rates
The Group receives its revenue in US dollars while
its cost base arises in local currencies based on the
various countries within which the Group operates.
The weakening of the US dollar relative to these local
currencies and the volatility of these currencies trading
against the US dollar will impact the Group’s profitability.
Inability to achieve profitability and cash
generation in the medium to long term
The financial impact of the risks that may affect the Group
may individually, or in a combination, affect the ability of
the Group to operate profitably and generate positive
cash flow in the medium to long term.
Growth plans
Commentary
Inability to achieve planned growth
The Group’s growth strategy is based on various
studies, cost indications and future market assumptions.
Although due process in assessing the viability, costs and
implementation of these projects is undertaken, risks with
regards to cost overruns and/or delays may impact the
effective implementation thereof. The funding of these
growth plans could also be adversely affected by negative
market conditions.
The impact of the exchange rates and fluctuations are
closely monitored. Where appropriate and at relevant
currency levels, the Group enters into exchange rate
contracts to protect future cash flows.
The various risk management processes described above
provide a substantial base from which to assess, monitor
and mitigate this risk.
Mitigation
Trend (from 2011)
Project governance structures have been implemented to
ensure that the projects are monitored and risks managed
at an appropriate level.
Strict treasury management procedures are also in place
to monitor this risk.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
40
Business review
Sustainable Development Report
This year, Gem Diamonds produced its fifth Sustainable Development Report based on Global Reporting
Initiative (GRI) guidelines. This section comprises a brief summary of its progress in Corporate Social
Responsibility (CSR). The Company has continued to evolve its Sustainable Development framework and
implementation programme. The Company encourages shareholders and stakeholders to access the full 2012
Sustainable Development Report on the Gem Diamonds website, www.gemdiamonds.com
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Sustainable Development Report 2012
Our commitment is total
By publishing the Gem Diamonds
Sustainable Development Report on
an annual basis, the Company strives
to improve communication with all
stakeholders. The main purpose of the
report is to demonstrate the Group’s
progress and commitment to
conducting business in a responsible
and ethical manner.
Our approach to sustainability
Gem Diamonds maintains a
commitment to the integration of
sustainability as a core business
strategy. The effective implementation
of its strategy for sustainability
underpins Gem Diamonds’ business
resilience to ensure on-going benefits
to all of its stakeholders.
In all instances, the Company operates
within the context of a greater
economic, social and ecological system.
Gem Diamonds has the view that
operating within such systems creates
the moral and ethical responsibility to
understand and manage the actual
and potential impact of its operations
for the greater good. Compliance to
host country legislation is a minimum
compliance standard for all of the
Company’s operations and it
continually assesses and implements
relevant international best practice
standards relating to CSR in order to
optimise benefit to the greater society.
Gem Diamonds recognises the
importance of sustainable business
processes and is committed to the
development, implementation and
maintenance of internationally
recognised standards of health and
safety, environmental, social, economic
and business management, in order
to conduct its business with due care
and respect for people and the
environment.
Creating sustainable value
Gem Diamonds continues to research
and implement ways in which it can
optimise both financial and socio-
economic return on investment for its
shareholders and stakeholders alike.
Against the backdrop of today’s
uncertain market and global economic
conditions, a decision was taken in late
2012 to curtail expenditure on the
Letšeng expansion project in order to
preserve the Group’s available capital
and, in so doing, to ensure the financial
sustainability of the Company.
Expansion at Letšeng will continue,
albeit in an altered manner to the initial
plans, and will ensure that the Group
achieves its financial goals.
Construction of the Ghaghoo mine
continued at a slower than planned
pace in 2012 due to unexpected
challenges related to ground conditions
in the sand portion of the access
decline. The construction phase is now
expected to be completed during 2014,
at which time production will
commence.
Gem DiamondsAnnual Report 2012
41
The Group’s strategy to expand its
presence further along the diamond
pipeline in order to capture additional
margins, has resulted in the successful
establishment of cutting and polishing
facilities in Antwerp and Mauritius
respectively during 2012. The Group
continues to investigate ways to
increase its profitability in a responsible
and sustainable manner and continue
to contribute to the local economies
in which it operates.
All Gem Diamonds’ subsidiaries
continue to contribute to the host
country economies in which they
operate through payment of all
statutory taxes and other financial
obligations. In addition, the Company’s
commitment to creating a lasting and
positive socio-economic legacy
extends beyond its legal obligations.
Therefore, all operations have
programmes in place to maximise local
and regional employment and
procurement. The success of this
strategy is evident through the 47%
increase in Project Affected Community
and 40% in regional salary expenditure
since 2010. Project Affected
Community procurement has increased
by 33%, while regional procurement
has increased by 45% over the same
period.
Group Wide Local Contributions (US$ million)
Project Affected Community based purchasing/ procurement
Regional based purchasing/procurement
Total in country purchasing/procurement
Project Affected Community based local employee costs
Regionally based local employee costs
Total in country based local employee costs
2012
28.0
140.1
241.9
7.1
19.0
39.7
Governance
Being listed on the London Stock
Exchange, Gem Diamonds has
voluntarily adopted the most rigorous
and widely recognised international
best practice standards in respect of
financial, corporate governance and
CSR matters.
Appropriate Health, Safety, Social and
Environmental (HSSE) policies,
procedures and management systems
have been developed and
implemented at each operation, which
ensures adherence to the relevant host
country and international standards of
best practice. Operational
management structures are in place at
each operating subsidiary to facilitate
inclusive and transparent
communication at all levels of the
business, while providing the required
assurance to the operational Boards.
This year has seen an expansion in the
number of technical Committees that
have been formed at operational level.
These Committees include subject
matter experts and serve to address
crucial focus areas such as pit stability
and incident investigation.
The operations are supported by Gem
Diamonds’ HSSE Committee at Board
level which is responsible for the
implementation of Group level policies,
standards and strategic guidance in
respect of HSSE matters. The
Committee reports directly to Gem
Diamonds’ Main Board and provides
assurance in respect of the
appropriateness and adequacy of
operational HSSE management.
As throughout the Company’s history,
no cases of bribery, corruption,
anti-competitive behaviour, anti-trust
and/or monopoly practices were
brought against the Company or its
subsidiaries in 2012 and the Company
continues to refine its policies and
practices to prevent such practices
from occurring.
In terms of Gem Diamonds’ governance
policies, no financial contributions are
made to political parties, politicians or
any other related institutions. All
financial contributions made to host
country governments relate to
regulatory taxes.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 42
Business review
Sustainable Development Report continued
Compliance with
voluntary standards
Creating a safe and healthy
work environment
The Company has at the core of its
business philosophy the application
of the Triple Bottom Line principle.
Each operation manages its own
unique risks and opportunities in a
manner that is most appropriate to
its circumstances and operational
conditions, allowing management
flexibility, creativity and independence
in the decision making process.
Gem Diamonds continues to apply the
principles of the International Finance
Corporation (IFC) Environmental, Health
and Safety (EH&S) guidelines and
standards, as well as the Equator
Principles as its international best
practice guidance standard.
The operational Safety, Health and
Environmental management systems
are based on the principles of ISO
18000 and ISO 14001, while the Global
Reporting Initiative (GRI), serves as the
reporting basis for the Company in
respect of CSR.
Progress in the development
and embedding of sustainable
development principles over the past
five years has now prepared the Group
to register as a candidate organisation
with the Responsible Jewellery Council.
In preparation for certification under
the Council, the development of an
integrated HSSE audit protocol covering
seven international best practice
standards related to CSR commenced
development in 2012 for
implementation during 2013.
Gem Diamonds continues to adhere to
the standards of the Kimberley Process
and as such, all diamonds produced by
the Group are Kimberley Process
certified. In addition, all polished
diamonds are certified by the
Gemological Institute of America (GIA).
Gem Diamonds promotes a culture
of zero harm and responsible care.
The creation of a safe and healthy
working environment serves to protect
our people, who are key assets of the
business. The Company developed
and rolled out ‘The Gem Way’ in 2012,
expressing its total commitment to
ensuring that each and every task
being performed at its operations is
carried out in a safe and responsible
manner. Gem Diamonds is building
a culture of zero tolerance to non-
conformance to safe, responsible
and sustainable care.
Health and safety management at
Gem Diamonds extends beyond mere
occupational concerns, and includes
providing employees with assistance
related to environmental, as well as
general serious diseases such as HIV/
Aids, diabetes and hypertension,
among others. Expansion of this
support programme remains on-going.
Appropriate, risk based health and
safety management systems are in
effect at all the operations and are
independently audited annually. This
allows for the appropriate allocation
of resources to ensure continuous
effectiveness and performance
improvement – the main goal being
to achieve the Group-wide objective
of sending each employee home safely
to their families.
Given the Company’s excellent
performance in 2010 and 2011 at the
majority of its operations, the year-end
performance in 2012 was disappointing.
Gem Diamonds is however, proud to
report that the Ellendale operation
recorded 1 000 days Lost Time Injury
Free in May 2012, while Letšeng
recorded 13 months Lost Time Injury
free in November 2012. Despite these
excellent achievements, Gem
Diamonds regrettably reports that two
of our colleagues at Ghaghoo, Opelo
Mmolai and Mogakolodi Monthe, lost
their lives in a fall of ground incident,
while our colleague, Mateboho
S’kosana lost her life at Letšeng when a
wall collapsed onto her in a non-mining
accident. Our heartfelt condolences
go out to their families and loved ones
and we would like to express our
commitment to ensuring that incidents
of this severity will not be tolerated at
any of our operations.
A further five Lost Time Injuries were
recorded across the Group in 2012,
resulting in a Lost Time Injury
Frequency Rate of 0.30, which is well
in excess of the Group’s target of 0.00.
Similarly, the Group-wide All Injury
Frequency Rate of 4.45 at year-end
exceeded the threshold of 4.20.
In 2012, the Company’s health and
safety focus was on the proactive
identification of at-risk behaviours
and conditions, which the Company
believes will aid greatly in the
elimination of injuries and incidents.
In 2011 only 1 832 proactive health,
safety and environmental reports and
actions were recorded, compared to
43 899 in 2012.
Gem Diamonds’ goal remains to
achieve zero harm in a sustainable
manner and the Company will continue
to refine and improve its health and
safety management systems through
on-going identification and
implementation of appropriate
continuous improvement measures.
For more information in respect of
specific keyperformance indicators,
refer to the full Sustainable
Development Report available
on the Company’s website
www.gemdiamonds.com
Gem DiamondsAnnual Report 2012
43
Developing and retaining
our people
Gem Diamonds’ human resource
strategy is to engage, develop
and retain first-class employees.
The development and retention of
a skilled and operationally intelligent
workforce is regarded as a key element
to achieving operational excellence.
At year-end, a total of 480 own and
1 676 contractor employees were
employed by Gem Diamonds around
the world, where possible, on a
permanent basis.
Employee absenteeism rates decreased
from an average of 2.11 days per person
in 2011, to 1.68 in 2012. Monitoring of
staff turnover continues across all
operations and a significant decrease
in turnover rates was recorded at
Ellendale in 2012 as a result of the
implementation of improved roster
arrangements. Staff turnover at Letšeng
in 2012 was 8% while, due to the short
term nature of contracts at Ghaghoo,
turnover is not yet being recorded.
Employee training remains a priority
at all operations and in 2012, a 67%
increase in per capita vocational
training hours was recorded across the
Group, compared to 2011. This training
is provided via internal and external
training mechanisms. In addition,
strong mentoring programmes are in
place at the operating mines in order
to facilitate adequate skills transfer
and career succession. Career reviews
continue at all operations, with 30% of
all employees across the Group having
undergone such reviews in 2012. This is
a significant increase from 16% in 2011.
Career review and development
policies are determined by each
subsidiary which prescribe the level
of seniority from which reviews are
conducted. No differentiation is made
between male and female employees’
reviews.
Gem Diamonds’ Code of Ethics clearly
communicates its status as an equal
opportunity employer. The Code
further outlines the Company’s policy
regarding zero tolerance towards
non-discrimination on any basis
and zero cases of discrimination was
recorded in 2012. A total of 18% of
employees across the Group were
female in 2012. Localisation of the
workforce is another human resource
priority across the Gem Diamonds
Group. In 2012 at Letšeng, 90% of the
Company’s workforce comprised
Basotho nationals, at Ghaghoo 89%
comprised Motswana nationals and
87% of the KDC workforce was
Australian nationals.
Gem Diamonds continues to refine
policies, processes and procedures
relating to the upholding of the human
rights of our employees’ and our
project affected communities. A total
of 300 hours of human rights training
was undertaken in 2012 and involved
all employees.
Labour relations at all operations
remained stable in 2012. None of Gem
Diamonds’ operations and/or facilities
are unionised, although freedom of
association remains a core right for
each employee. No strikes or lock-outs
occurred during 2012.
Gem Diamonds continues to
remunerate its employees at or above
market related rates and the lowest
graded employees are compensated
in excess of the host country minimum
wage provisions. Relevant benefits and
incentives are provided to employees
over and above normal salaries, with
US$5.2 million spent on such benefits
in 2012.
Ghaghoo employees conducting a team building event
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 44
Business review
Sustainable Development Report continued
Reducing our resource consumption
The efficient use of resources directly
affects Gem Diamonds’ bottom line
and contributes to the ability of the
organisation to adapt to an
environment that is increasingly
resource-constrained. Therefore, the
Company continually implements ways
to reduce the consumption of natural
capital and thereby contribute to the
preservation of precious resources for
future generations.
As a diamond mining company, Gem
Diamonds is reliant on various natural
and non-renewable resources to
conduct its business. The Group aims
to reduce its resource consumption
through process optimisation, recycling
initiatives and the introduction of
progressive technologies. Reducing
dependence on natural resources
ensures equitable access to natural
resources by local communities and
other businesses. The Company has
also noted the cost benefit which
results from reduced consumption
and process optimisation and therefore
regards this initiative as beneficial to its
business and to the environment in
which it operates.
Overall, the Group’s energy
consumption increased by 21% during
2012 as a result of a year-on-year
increase in material moved and
processed at the Letšeng and Ellendale
operations, and the continued
construction of the Ghaghoo mine
in Botswana. The implementation of
energy efficiency projects remained
a focus during 2012 for operations at
both Letšeng and Ellendale and these
projects remain on target. Energy
conservation and efficiency has been
a strategic objective for the Ghaghoo
mine from the outset. Reduction
measures were integrated into the
design planning phase of the project
and these initiatives continue to deliver
the desired results.
Energy intensity per carat produced
continues to be measured Group-wide
and allows the Company to better
understand its consumption patterns
and opportunities to utilise this
resource more efficiently. In 2011,
energy intensity per carat recovered
increased by 26% and in 2012 by 4% as
a result of the higher ratio of waste rock
mined at both Letšeng and Ellendale to
access diamondiferous ore. At Ellendale
major improvements to the processing
plant, as well as the introduction of a
more effective mining fleet, aided in
reducing this operation’s energy
intensity by 10.5%.
In 2012, raw water consumption for
the Group increased by 19% over the
previous year, with a total volume of
14.9 million cubic meters of water used
across the operations. This is attributed
to the increased production rates at the
operational mines, the construction of
the Tailings Storage Facility 1D Cell 3 at
Ellendale, and the construction of the
Ghaghoo mine where dewatering
ahead of the decline sand tunnel
commenced. In addition to major
improvements in energy efficiencies
resulting from the process plant
improvements at Ellendale, achieved
17% decrease in raw water
consumption intensity was achieved.
In 2013, Gem Diamonds will continue
to seek ways in which to reduce its
environmental footprint, including
technologies and processes that
achieve actual resource reduction.
Minimising our
environmental impact
Gem Diamonds’ environmental
management approach is based on
the level of environmental risk exposure
and cost reduction. The Company
adopts a precautionary approach when
considering potential environmental
impacts and implements a
comprehensive environmental
management programme at each of its
operations to mitigate actual impacts.
The minimisation, mitigation and
management of environmental
impacts related to operations, are key
elements of the Company’s duty of
care – a responsibility that Gem
Diamonds takes seriously. Across the
Group, extensive impact assessment is
undertaken in accordance with relevant
international best practice standards,
prior to commencement of activities
and continuously throughout the life
of the operations. These assessments
inform the management approach
at all operations, satisfy regulatory
requirements and, importantly, provide
assurance to the Company’s
stakeholders that it is adequately
protecting their natural heritage.
Environmental impacts resulting from
the operations are managed through
the implementation of an extensive
and dynamic management system.
The Gem Diamonds Group continues
to invest in environmental protection.
A total of US$3 million was spent on
environmental training, expert
consultants, research and development,
green purchases and other expenditure
associated with environmental
protection in 2012. This includes
AU$0.9 million spent on progressive
rehabilitation at Ellendale in 2012.
Larger mining haul trucks increase fuel
efficiency at Ellendale
Gem DiamondsAnnual Report 2012 45
An increased number of minor
incidents were recorded in 2012.
This is not regarded to be indicative
of inadequate environmental
management practices, but rather
increased awareness and discipline
around the monitoring and reporting
of incidents. Three significant
environmental incidents occurred
at Ellendale, one at Letšeng and one
at Ghaghoo.
The continuous development and
review of comprehensive rehabilitation
plans at Gem Diamonds’ mining
operations remained a focus during
2012. Excellent progress was made in
2012 to integrate progressive
rehabilitation programmes into each
operation’s mine plans, working
towards achieving our mine closure
goals in as efficient a manner as
possible. In 2012 an additional 112 ha
of land within the existing mine lease
areas was disturbed, comprising 9.97%
of the total land under Gem Diamonds’
management. Concurrent rehabilitation
was undertaken in 2012 at the Ellendale
operation, with approximately 61 ha of
land undergoing partial rehabilitation.
Letšeng initiated extensive
rehabilitation trials in 2012 that will
assist in determining the feasibility
and success of various planned
rehabilitation strategies well in advance
of mine closure.
Prevention, point source treatment
and management of elevated levels
of Nitrates continue to be investigated
at Letšeng and the construction of an
artificial wetland to treat effluent water
commenced in late 2012. Care is taken
at the operations to ensure that any
water discharged is of an appropriate
quality and discharges only take place
when permitted.
Waste generated at Gem Diamonds’
operations includes domestic and
general waste from on-site
accommodation facilities, limited
amounts of hazardous waste such as
used oils and lubricants, fluorescent
tubes, sewage effluent, medical waste
and a significant amount of mineral
waste. Waste management plans have
been developed and are implemented
at each of the operations to ensure the
correct handling of waste to avoid
environmental pollution. Waste
separation and recycling is undertaken
where possible and 37% of all solid
waste generated at the operations was
recycled in 2012. Waste materials are
disposed of in accordance with
approved methods. Point source
elimination of waste is also a strategic
priority at all operations – an example
being the elimination of fluorescent
lights at Letšeng, through the
installation of non-mercury containing
LED based alternative lighting.
Water pollution sources at the Letšeng
and Ellendale operations are minimal.
Water quality challenges are mostly
limited to elevated suspended solids
which may negatively affect the
ambient environment if discharged.
Mineral waste generated at all the
operations is retained on-site in suitably
designed and managed facilities.
All mineral waste structures are
designed, maintained and managed
in compliance with host country
legislation and international best
practice standards. Mineral waste
generation increased at all operations
during 2011 and 2012 as a result of
waste stripping undertaken at the
Letšeng, Ellendale and Ghaghoo
operations in accordance with their
mine plans.
Great efforts are made to minimise the
operations’ impact on biodiversity.
Gem Diamonds endeavours to limit
infrastructure footprints to conserve
and protect as much of the naturally
occurring fauna and flora as possible.
In 2012, Letšeng invested in the
development of a Biodiversity Action
Plan to address the biodiversity impacts
identified during the Social and
Environmental Assessment. This plan
sets out the actions by which Letšeng
can limit, manage and monitor its
overall impacts on biodiversity.
Ghaghoo continued to implement its
environmental management plan to
mitigate and manage any impacts on
the sensitive ecological systems of the
Central Kalahari Game Reserve.
All operations will continue to enforce
and monitor adherence to legislative,
best practice and site specific
environmental management practices
and processes. Zero tolerance for major
environmental incidents will continue
in 2013, while each operation is
expected to implement a new
practicable environmental optimisation
project.
Ellendale process water dams
Thunderstorm brewing over Central Kalahari
Game Reserve
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 Ellendale continues to implement the
CSI programme to ensure a smooth
socio-economic transition for the
Project Affected Communities, from
relying on the continued support of
the operational mine, to the potential
closure of the operation. The three year
Letšeng CSI investment programme
came to an end in 2012 and a new
forward-looking plan was established
for implementation in 2013 – ensuring
that the Project Affected Communities
surrounding the Group’s flagship
operation continue to benefit from
sustainable and independent
development programmes.
No resettlement of communities was
undertaken during 2012 and it is not
anticipated to be necessary for any
of the existing operations.
46
Business review
Sustainable Development Report continued
Optimising community benefit
Gem Diamonds operates in existing
socio-economic environments and
benefits from mining diamonds during
the life of the operations. The Company
has a moral obligation in turn to
contribute to sustainable socio-
economic growth of these areas in
which it operates. The Group takes
seriously its duty of care to maintain
open, transparent, respectful and
mutually beneficial relations with its
neighbours and continues to actively
engage with all stakeholders.
Gem Diamonds is pleased to report
that zero major stakeholder incidents
were reported for the fourth year
running and in 2012, no significant
incidents were reported.
All the operating mines have culturally
appropriate and sustainable Corporate
Social Investment programmes in
place, based on detailed community
needs analysis, in addition to optimising
employment from local communities
and procurement from local and
regional sources. In 2012, Corporate
Social Investment expenditure
amounted to US$0.6 million. This is a
reduction from 2011 and is a result of
the conclusion of several major projects
that commenced implementation in
2010. The Group continues to focus on
projects related to health, education,
infrastructure, small and medium
enterprises and regional environmental
initiatives. US$1.9 million was paid in
early 2013 to the Bunuba People's Trust,
the Traditional Owners of the land on
which Ellendale is located in respect of
the Native Title and Compensation
Agreement.
At Letšeng, projects that commenced
in 2010, reached completion in 2012.
The Company is pleased to report that
two significant projects, the Wool and
Mohair and the Molaroneng eco-
tourism lodge, have achieved their
goals of improving the lives of the
Project Affected Communities in a
substantial and sustainable manner.
Ellendale continues to make significant
contributions to the Healthy Lifestyles
programme in the Fitzroy Valley and
has launched its support of the Marulu
Lilliwan project that assists the
community to manage and prevent
Foetal Alcohol Syndrome Disease.
Ghaghoo has successfully provided
much needed potable water to the
Mothomelo community and continues
to progress the delivery of potable
water to other communities in the
Central Kalahari Game Reserve.
Since 2009 and as part of the
stakeholder engagement with the
Project Affected Communities
surrounding the Ghaghoo operation,
one clear objective from the
community stood above all others –
the optimisation of local employment.
Gem Diamonds is pleased to report
that the rotational employment of
unskilled labour from the Kaudwane
village has resulted in 148 people
having worked at the mine, resulting in
BWP0.2 million flowing into this largely
unemployed community. Several
community members are now
permanently employed at the
operation. An additional BWP1.1 million
in salaries have flowed into the
Lephepe community.
Training in sheepshearing skills through
the Letšeng wool and mohair project
Ghaghoo community members meeting
regarding water supply project
Gem DiamondsAnnual Report 2012 47
Gem Diamonds maintains a high level
of transparency and integrity during
the marketing and sales process.
Inherent to the trade of natural
diamonds is the occurrence of natural
flaws and inclusions. Gem Diamonds
does not provide warranties in respect
of its diamonds and diamonds are
therefore made available for detailed
inspection by clients prior to the
conclusion of a sale.
The confidentiality of clients is
protected in all instances. The
Company enters into confidentiality
agreements with its clients and the
client list is known to only a handful
of people in the sales and marketing
team. The outcomes of bids and
tenders are also kept confidential.
Gem Diamonds continues to adhere
to all the provisions of the Kimberley
Process. All diamonds are certified
in terms of the Kimberley Process
certification scheme and all polished
diamonds are certified by the
Gemological Institute of America.
All Gem Diamonds’ operations undergo
independent annual audits conducted
by the Kimberley Process team and
have remained fully compliant since
the company was founded in 2006.
Traditionally, the diamond industry has
low levels of transparency necessitated
by strict requirements for security and
confidentiality. To overcome some of
these challenges and to ensure that the
Company’s diamonds reach the market
through the correct channels, strict
controls are applied. A screening
process is undertaken to identify
potential clients and trade with Gem
Diamonds is based on invitation.
Clients are vetted to ensure that they
are compliant with the Group’s internal
anti-money laundering protocols.
Gem Diamonds believes in building
relationships based on trust with its
clients and other stakeholders. This is
achieved through continuous and
transparent communication.
Product integrity
To Gem Diamonds, product integrity
demonstrates that the Company has
met its responsibilities as an ethical
and accountable organisation, that it
effectively manages its environmental
impacts, provides a healthy and safe
working environment and optimises
community benefit.
Gem Diamonds is committed to
supplying natural diamonds to its
clients with assurance of the highest
product integrity. In order to achieve
this, the Company has cultivated a
strong culture of corporate integrity
and good governance which extends
throughout the full business cycle.
To this end, the Company has been
building its sustainable development
framework progressively since 2009 to
ensure continuous improvement in all
matters related to the environment,
society, human rights, health, safety
and security. In 2012, Gem Diamonds
registered with the Responsible
Jewellery Council as a candidate
organisation. The Council promotes
responsible and ethical, environmental
and social practices as well as the
protection of human rights throughout
the diamond, gold and platinum group
metals jewellery supply chain. Gem
Diamonds’ business philosophy is
consistent with the Council’s stated
mission and vision and registering as
a member will enable rigorous and
independent verification of the way the
Company lives up to its commitments.
Full registration with the council is
expected to be concluded in 2014.
Diamond measurement
Diamond valuation
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 48
Gem Diamonds
annual Report 2012
Governance
Contents
49
50
52
60
68
80
85
86
Chairman’s overview of
corporate governance
Board of Directors
UK corporate governance
code compliance
Committees
Directors’ remuneration
report
Directors’ report
Responsibility statement
of the Directors in respect
of the Annual Report and
financial statements
Independent auditor’s
report to the members of
Gem Diamonds Limited
49
I would like to take this opportunity to
set out our approach to diversity in the
boardroom, a topic which has aroused
considerable interest in the business
community. At present, our Board
comprises four Executive Directors and
five non-Executive Directors
representing different nationalities and
disciplines (the detail of which you will
find in the biography for each
individual). We acknowledge the
importance of diversity, including
gender, to the effective functioning of
your Board and commit to supporting
diversity in the boardroom. We value
diversity of business skills and
experience because Directors with
a range of skill sets, capabilities and
experience gained from different
geographic and cultural backgrounds
enhance the Board by bringing a wide
range of perspectives to the business.
More information about our Board
Diversity Policy can be found under
the Corporate governance report
on page 57.
Looking ahead, we recognise that
corporate governance is central to our
continuing success and will strive to
maintain the high standards that we
have set.
Roger Davis
Chairman
11 March 2013
Governance
Chairman’s overview of corporate governance
The responsibility for good
corporate governance lies with
your Board, and the Directors and I
regard the setting, maintenance
and review of high standards as an
essential part of our work. We
spend significant time at Board
and Committee meetings, and in
our discussions with Executive
Directors, to ensure there is a
strong and effective governance
system in place throughout the
Group. We monitor trends in
corporate governance, adapting
practices in order to improve the
overall control of our business.
I believe this will lead to a more
effective Board and also facilitate
my leadership role.
Corporate governance is embedded in
the way we organize our business, with
local Boards and Audit Committees
having responsibility for our operations
in local markets.
I am pleased to confirm that during the
year the Company adhered to the
principles of the Code published in June
2010. In respect of provisions, the only
exceptions relate to B.2.1 and C.3.1
Committee membership, where we felt
that compliance for its own sake would
not prove more effective to the
management of your Company and the
effectiveness of the Committee. This is
more fully explained in the following
Corporate governance report.
Governance helps us to do the right
thing for our shareholders, customers,
employees, suppliers, local communities
and the environment. Therefore, whilst
I am ultimately responsible for the
application of the various provisions
of the Code, specific responsibility is
delegated to individuals whose task it is
to ensure adoption. These individuals
include the Company Secretary and the
Chairmen of the various Committees.
As Chairman of the Board, I am
responsible for its leadership and for
ensuring its effectiveness. I believe that
effective governance is best realised
through collaboration. To this end, I
expect all Directors, but particularly
non-executive Directors, to
constructively challenge proposals that
come to the Board for decision and to
contribute to the development of the
strategy. This is one of the criteria I have
used in determining the contribution of
Directors during the year. As part of our
Board evaluation process, we have
reviewed the Board’s approach to
strategy with regard to both process
and initiatives. The results of this
evaluation were taken into account at
our strategy meeting in November
2012. Board evaluation was by way of a
questionnaire carried out internally, with
the results analysed by an external
consultant.
We strive to apply best practice to
Corporate Responsibility, Environment
Management and Health and Safety,
which is closely aligned to employee
communications and development.
I am pleased to inform you that at this
year’s Investor Relations awards the
Company was nominated for its
Sustainable Development Report in the
category of “Best communication of
Corporate Responsibility in the Annual
Report”. We were proud to share the
platform with much larger companies
which have many more years of
experience in compiling such reports.
In the following pages you will find
overviews of our primary four
Committees plus detailed information
regarding their operation within the
governance framework overall.
Following the implementation of the
UK Bribery Act, the Company
implemented a review of its policies
and procedures and the principles set
out in the related Ministry of Justice
Guidance. I am confident that we now
have a robust system in place
throughout the Group, in terms of both
policy and procedure.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 50
Board of Directors
Non-Executive Directors
Roger Davis (56)
non-Executive Chairman
Dave Elzas (46)
non-Executive Director
Roger spent eight years at Barclays, latterly as the CEO of the UK
banking operation and as a member of the Board of Barclays Plc.
Under his leadership, the UK business was significantly restructured.
Prior to that, he spent ten years in investment banking in London
and held various positions in China and India for Flemings and BZW.
Roger started his career with a 12-year service in the British Army.
He joined Gem Diamonds in February 2007. Roger is currently the
non-Executive Chairman of Cabot Credit Management Ltd and
of GRC Ltd, and is also a non-Executive Director at Experian plc.
Key skills and experience:
Commercial and Capital Markets; Public Company Board
Governance
Dave has over 15 years’ experience in international investment
banking. Between 1994 and 2000, Dave served as a senior executive
and subsequently Managing Director of the Beny Steinmetz Group.
Dave is currently the Senior Partner and CEO of the Geneva
Management Group, an international wealth management and
financial services company and was appointed as a Director of
Zanaga Iron Ore Co. Ltd in November 2010. Dave joined Gem
Diamonds in October 2005.
Key skills and experience:
Finance; Diamond Industry Trading; Capital Markets
Mike Salamon (57)
Senior Independent Director
Richard Williams MBE MC (46)
non-Executive Director
Mike is a mining engineer with an MBA and has over 30 years’
experience in the mining sector. He was a founding Director of
Billiton and was instrumental in Billiton’s IPO on the London Stock
Exchange in 1997 and the subsequent merger with BHP in 2001.
Mike retired from his position of Executive Director at BHP Billiton
in 2006. Thereafter Mike was appointed Executive Chairman of New
World Resources and led its IPO on the London Stock Exchange in
2008. He retired from this position in 2012 and is a non-Executive
Director of Central Rand Gold, Ferrexpo Plc and Minera las Cenizas.
Mike joined Gem Diamonds in February 2008.
Key skills and experience:
Operational – Mining, Projects, Health and Safety, Sustainability,
Corporate Social Responsibility; Capital Markets
Richard spent 20 years in the British Army, latterly as the
Commanding Officer of 22 SAS Regiment, during which time he
saw service across the Middle East, Latin America and Africa. Richard
has an MBA from Cranfield University and a Masters in International
Security Studies from King’s College, London. Richard is a founding
member of Central Asian Resources Ltd, a mining investment
company focused on Central Asia, CEO of Afghan Gold and Minerals
Company, and a non-Executive Director of Henderson Risk Limited,
a UK and Africa based risk management business. Richard joined
Gem Diamonds in February 2008.
Key skills and experience:
Security; Capital Markets
Gavin Beevers (63)
non-Executive Director
Gavin was the Director of Operations at De Beers from April 2000
until his retirement in 2004. He had joined De Beers in 1979 and
was based in Botswana for 11 years. Thereafter he was appointed
Assistant General Manager at De Beers Marine in Cape Town until
1994, whereafter he returned to Botswana as General Manager at
the Orapa and Lethlakane Mines. From January 1996 to March 2000,
Gavin held the position of Deputy Managing Director of Debswana
Diamond Company. Gavin joined Gem Diamonds in February 2007.
Key skills and experience:
Operational – Mining, Health and Safety, Sustainability,
Corporate Social Responsibility
Gem DiamondsAnnual Report 2012 51
Executive Directors
Clifford Elphick (52)
Chief Executive Officer
Kevin Burford (54)
Chief Financial Officer
Clifford joined Anglo American Corporation in 1986 and was
seconded to E. Oppenheimer and Son as Harry Oppenheimer’s
personal assistant in 1988. In 1990, he was appointed Managing
Director of E. Oppenheimer and Son, a position he held until leaving
in December 2004. During that time, Clifford was also a Director of
Central Holdings, Anglo American and DB Investments. Following
the privatisation of De Beers in 2000, Clifford served on the De Beers
Executive Committee. Clifford formed Gem Diamonds in July 2005.
Clifford is also the non-Executive Chairman of Zanaga Iron Ore Co.
Limited.
Kevin has 28 years’ experience in the mining industry having
worked for De Beers and Anglo American between 1985 and 2005,
and Xstrata in 2005. Previously he was the Group Manager – Finance
at De Beers where he had responsibility for the financial aspects of
all De Beers’ operations and exploration activities across the globe.
In addition he has held strategic leadership positions covering
supply chain, IT, risk management, internal audit and business
strategy. Kevin completed his articles with Coopers and Lybrand
in 1984 and is a registered chartered accountant. Kevin joined
Gem Diamonds in January 2006.
Key skills and experience:
Diamond and Mining Industries; Commercial and Capital Markets
Key skills and experience:
Finance; Diamond Industry; Capital Markets
Alan Ashworth (58)
Chief Operating Officer
Alan holds a BSc in Mining Engineering and has 37 years’ experience
in the mining industry. During his career he has worked in various
countries, including South Africa, Namibia, Botswana, Guinea,
Ghana, Russia, Indonesia and Australia. He spent 28 years within the
De Beers group, including four years as the General Manager of
the Namdeb Diamond Corporation and four years as the Group
Manager, Operations and Head of Operations for De Beers
Consolidated Mines. From January 2006 until August 2007, he was
the Managing Director of Gold Fields’ Ghana operations in West
Africa. Alan joined Gem Diamonds in November 2007 and was
appointed to the Board in April 2008.
Key skills and experience:
Operational – Diamond Industry, Mineral Resource Management,
Mining (surface and underground), Health and Safety, Sustainability,
Corporate Social Responsibility
Glenn Turner (52)
Chief Legal and
Commercial Officer
Glenn was called to the Johannesburg Bar in 1987 where he spent
14 years practising as an advocate specialising in general
commercial and competition law, and took silk in 2002. Glenn was
appointed De Beers’ first General Counsel in 2002 and was also a
member of the Executive Committee. Glenn was responsible for
a number of key initiatives during his tenure, including overseeing
De Beers’ re-entry into the USA. Glenn joined Gem Diamonds in
May 2006 and was appointed to the Board in April 2008.
Key skills and experience:
Diamond Industry; Legal
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
52
UK corporate governance code compliance
This report combines the Directors’ report, the Management report and the Company’s compliance with the
principles and provisions of the Code, and details the key policies, processes and structures that apply to the
Company. It also includes sections on the role and work of the Audit, HSSE, Nominations and Remuneration
Committees, as required by the Disclosure and Transparency Rules (DTR).
The Company has fully complied with the best practice governance provisions of the Code for the year up to 31 December
2012, with two exceptions, and notes below those periods during the year when it was not fully compliant:
• As previously advised, the position of Lord Renwick on the Audit Committee was taken by Roger Davis on 25 August 2009.
As Roger Davis is also Chairman of the Board, this was not in compliance with Section C.3.1 of the Code. This situation will
continue for the foreseeable future but will be kept under review. In this regard the Chairman is considered to be
independent.
• At the time of Lord Renwick’s resignation it was decided that his position on the Nominations Committee would not be filled
as the conduct and performance of the Committee was seen to be working effectively with its present membership (Roger
Davis, Clifford Elphick and Mike Salamon). The Committee did not believe that filling the vacancy, simply to comply with
section B.2.1. of the Code, would improve the effectiveness of the Committee. The situation was last reviewed in November
2012 when it was decided to make no change.
Board of Directors
The role of the Board
The Board is responsible for the overall conduct of the Group’s business and has powers and duties pursuant to the relevant
jurisdictions in which it is registered and operates.
The Board is:
• responsible for setting the Group strategy and for the management, direction and performance of the business;
• accountable to shareholders for the proper conduct of the business;
• responsible for the long term success of the Company, having regard to the interests of all stakeholders; and
• responsible for ensuring the effectiveness of and reporting on the system of corporate governance.
The Board has a schedule of items for its discussion and decision at each Board meeting:
–
the Chairman of each Committee provides a verbal report on its own activities;
– group strategy, new business, and long-term plans;
– operational reviews;
– major capital projects;
–
latest financial report;
– annual budget and operating plans;
– group financial structure, including tax and treasury;
– annual and half year financial results and shareholder communications;
– system of internal control and risk management; and
– administrative matters including corporate governance issues.
The Board is responsible to shareholders for the performance and governance of the Company within a framework of policies
and controls which provide for effective risk identification, assessment and management. The Board provides leadership and
articulates the Company’s objectives and strategy to achieve those objectives. The Board sets standards of conduct which
provide an ethical framework for all of the Company’s business functions. While the Board focuses on strategic issues,
financial performance, risk management and critical business issues, it also has a formal schedule of matters that it does not
delegate. These reserved matters, which are documented in a comprehensive list of authorisation levels and prior approval
requirements for key corporate decisions and actions, are reviewed annually and, if appropriate, updated by the Board. Such
matters reserved to the Board include, but are not limited to, approval of budgets and business plans, major capital
Gem DiamondsAnnual Report 2012
53
expenditure, major acquisitions, disposals and bank borrowing and were last reviewed in March 2012.
Whilst all Directors have equal responsibility in law for managing the Company’s affairs, it is the role of the executive
management to run the business within the parameters laid down by the Board and to produce clear, accurate and timely
reports to enable the Board to monitor and assess management’s performance. The executive management draws on the
expertise and experience which the non-Executive Directors bring from their various business careers.
All Directors are free to express their views and may ask that these be recorded in the minutes where appropriate.
The Company maintains at its expense, a Directors and Officers liability insurance policy to provide an indemnity in certain
circumstances for the benefit of Directors and other Group personnel. The insurance policy does not provide cover where
the Director or Officer has acted fraudulently or dishonestly.
The composition of the Board is as follows. There were no changes during the year:
Name
Titles
Executive Board members (4)
Ct Elphick
Km Burford
aR ashworth
GE turner
Chief Executive officer
Chief Financial officer
Chief operating officer
Chief Legal and Commercial officer
Non-Executive Board members (5)
Rw Davis
Ga Beevers
DJ Elzas
m salamon
RJ williams
Chairman
senior Independent Director
Held appointment
throughout 2012
Committee Chairman and
(number of members)
◊
◊
◊
◊
◊
◊
◊
◊
◊
nominations (3)
health, safety, social and
Environment (3)
audit (3)
Remuneration (4)
• The non-Executive Directors possess a range of experience and are of a calibre to bring independent judgement to bear on
issues of strategy, performance, and resources that are vital to the success of the Company.
• All of the non-Executive Directors are regarded as independent by the Board as defined in the Code (A.3.1), as was the
Chairman on his appointment.
Attendance at Board meetings and Committees of the Board
Five scheduled Board meetings were held during 2012. Attendance by Directors at Board and Committee meetings is shown
below. All Board meetings were held in the United Kingdom.
There are six formally constituted Committees of the Board, each of which has formal terms of reference. Those for the Audit,
Remuneration, HSSE and Nomination Committees can be viewed on the Company’s website together with the Matters
Reserved for the Board, at www.gemdiamonds.com.
In the event that Board approval is required between Board meetings for such matters as capital expenditure, where
approvals come within the threshold determined by the Matters Reserved for the Board, Board members are emailed with
the details, including a justification. The decision of each Board member is communicated and recorded at the next following
Board meeting.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 54
UK corporate governance code compliance continued
Attendance at Board meetings and Committee meetings during 2012
Number of meetings held
Board
Audit
Remuneration
Nominations
HSSE
Director
Rw Davis
Ct Elphick
Ga Beevers
DJ Elzas
m salamon
RJ williams
aR ashworth
Km Burford
GE turner
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
5/5
4/4
–
–
4/4
–
4/4
–
–
–
4/4
–
–
4/4
4/4
4/4
–
–
–
4/4
4/4
–
–
4/4
–
–
–
–
–
–
4/4
–
4/4
–
–
–
4/4
A further Board Committee meeting to approve Group funding matters was held on 27 June 2012 as a result of delegated
authority from the Board.
Before each Board meeting the non-Executive Directors meet independently of the Executive Directors, in accordance with
a practice adopted by many listed companies. During the year there were four such meetings.
Chairman and Chief Executive
A clear separation is maintained between the responsibilities of the Chairman and the Chief Executive. This separation was
established during 2007 with the appointment of Roger Davis as Chairman.
The Chairman is responsible for creating the conditions for the effective working of the Board. The Chief Executive is
responsible for the leadership, operations and management of the Company within the strategy and business plan agreed
by the Board. Also listed below are the roles of the Senior Independent Director (SID) and non-Executive Directors.
Roles of the Chairman and Chief Executive
The Role of the Chairman – Roger Davis
The Role of the Chief Executive – Clifford Elphick
the effective operation and leadership of the Board, and setting the
highest standards of corporate governance.
Developing a business strategy for the company to be approved by
the Board on an annual basis.
Providing strategic guidance to the executive team.
setting the agenda, style and tone of Board discussions.
Producing business plans for the company to be approved by the
Board on an annual basis.
overseeing the management of the executive resource and
succession planning processes and presenting annually the output
from these to the Board and nominations Committee.
through the nominations Committee, ensuring that the Board
comprises individuals with an appropriate mixture of skills,
experience and knowledge.
Ensuring that effective business and financial controls and risk
management processes are in place across the Company and
ensuring compliance with all relevant laws and regulations.
Ensuring that the company maintains effective communication with
shareholders and that their views and any concerns are understood
by the Board.
making recommendations to the Board on the appropriate delegation
of authority within the Group.
working with the Chief Executive to ensure that the Board receives
accurate and timely information on the performance of the Company.
Keeping the Board informed regularly as to the performance of the
Company and bringing promptly to the Board’s attention all matters
that materially affect, or are capable of materially affecting, the
performance of the Company and the achievement of its strategy.
Leading the evaluation of the performance of the Board, its
Committees and individual Directors.
Developing for the Board’s approval appropriate values and standards
to guide all activities undertaken by the Company.
Providing clear and visible leadership in responsible business conduct.
Gem DiamondsAnnual Report 2012 55
Roles of the Senior Independent Director and non-Executive Directors
Senior Independent Director – Based in the UK
Non-Executive Directors
acting as a sounding board for the Chairman.
serving as an intermediary for other Directors if necessary.
scrutinising the performance of management in meeting agreed
goals and objectives and monitoring the reporting of performance.
Reviewing the integrity of financial information and determining
whether internal controls and systems of risk management are robust.
Being available to shareholders if concerns they have raised
with the executive team and/or the Chairman have not been
satisfactorily resolved.
Determining the Company’s broad policy for executive remuneration
and the remuneration packages for the Executive Directors and the
Chairman through the Remuneration Committee
Providing a wide range of skills and independence, including
independent judgment on issues of strategy, performance and
risk management.
Board skills, balance and independence
As a mining company, the sustainability of the day-to-day operations in both the medium and long-term, are of major
importance in ensuring the Company’s profitable progress in securing continued shareholder value. In addition, security plays
a significant role in maintaining the flow of high quality diamonds for which the Letšeng mine is renowned. As the Company
has moved into cutting and polishing, employing its unique technology, and as new sales and marketing strategies are being
rolled out, a knowledge of the diamond industry is essential in order to foster new business opportunities. Financial resource
and capability are also necessary in order to ensure fulfilment of the Company’s strategy, both financially and corporately.
The biographies, which can be found on pages 50 and 51, provide more information on each Director’s competencies and
all Directors allocate sufficient time to the company to discharge their responsibilities effectively.
The Company complies with the requirement of the Code that there should be a balance of Executive and non-Executive
Directors such that no individual or group can dominate the Board’s decision-taking.
Non-Executive Directors should be independent in character and judgment. Of the current five non-Executive Directors,
all are considered by the Board to be independent of management.
The letters of appointment of the non-Executive Directors are available for inspection at the place of business of the
Company in London.
The Board reviews annually the composition and Chairmanship of its primary Committees, namely the Audit, Remuneration,
Nomination and the HSSE Committees.
Appointments and re-elections to the Board (see also Board diversity on page 57)
The Code requires there to be a formal, rigorous and transparent procedure for the appointment of new Directors, which
should be made on merit, against objective criteria and with due regard to the benefits of diversity on the Board, including
gender (B.2). Since 2007, recruitment to the Board has been on the basis of recommendation, thus no outside consultants
have been employed. The ‘pool’ of appropriately qualified individuals is small and suitable candidates are known to the
management. The Nomination Committee’s section of this report is set out on page 62 and 63.
Starting in 2012, all Directors retired and, if appropriate, offered themselves for re-election at the Annual General Meeting
in accordance with Code provision B.7.1. This practice will be the basis for future re-elections.
Access to independent professional advice and the Company Secretary
All Directors are aware that they may take independent professional advice, at the expense of the Company, in the
furtherance of their duties, subject to prior consultation with the Chairman. To date they have not found the need to do so.
All Directors have access to management and to the advice and services of the Company Secretary, who is responsible to the
Board for ensuring that all governance matters are complied with, and assists with professional development as required.
Arrangements have been approved by the Board to ensure that new Directors should receive a full, formal and tailored
induction on joining the Board. In addition, on-going support and resources are provided to Directors in order to enable
them to extend and refresh their skills, knowledge and familiarity with the Company. Professional development and training is
provided in three complementary ways: regular updating with information on changes (actual or proposed) in laws and
regulations affecting the Company or its businesses; arrangements, including site visits, to ensure Directors are familiar with
the Company’s operations particularly its commitment to and application of the Company’s Corporate Social Responsibility
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 56
UK corporate governance code compliance continued
policies, which includes health and safety; and opportunities for professional and skills training such as Committee
chairmanship and formal professional seminars designed by appropriate advisors.
Following individual Director evaluation, the results are discussed with the individual and, where training and/or
development needs are identified, an action plan is agreed.
Performance evaluation
In 2012 a Board evaluation was carried out. This was undertaken by means of a focused questionnaire requiring direct
comment, rather than a ‘box ticking’ approach. The questionnaire was conceived and administered internally by the
Chairman and Company Secretary with guidance from an independent organisation, which also has the responsibility
for analysing the responses.
In 2012 the evaluation addressed two topics, namely strategy and an individual performance review. The results of the
strategic review were circulated to the Board for discussion.
The top strategic issues facing the Company over the next three to five years were identified.
The individual personal evaluations were provided to the Chairman.
In accordance with best practice a Board evaluation will be carried out in 2013, following a similar format to that used in 2012.
The terms of reference and performance of each primary Committee were reviewed with changes made, if appropriate and
warranted. These terms of reference were compared to best practice models and there was nothing of significance to
change.
The Board has formally reviewed succession plans for Board members, including the Chairman, and key senior executive
management roles. This review is regarded as an important feature of the Nomination Committee’s function and is carried
out at least annually.
Conflicts of interest
The Board maintains a register of ‘Conflicts of Interest’ which it reviews annually (most recently in November 2012). Should any
conflict of interest arise between annual reviews, Directors are on notice to advise the Board and the Board will exercise its
authority as appropriate and record such conflicts.
Dealings in shares
The Company has a policy based on the Model Code, published in the Listing Rules, which covers dealings in securities and
applies to all Directors, persons discharging managerial responsibilities and employee insiders. This policy was last reviewed
in November 2012 and has been circulated to all insiders. The insider list is reviewed routinely.
Remuneration
Whilst the Board is ultimately responsible for Directors’ remuneration, the Remuneration Committee, consisting of
independent non-Executive Directors, is responsible for determining the remuneration and conditions of employment of
Executive Directors and the Chairman. The details of all Directors’ remuneration are covered in the Directors' remuneration
report on pages 68 to 79.
Bribery act
The Company has implemented a review of its policies and procedures in the light of the Bribery Act and the principles set
out in the related Ministry of Justice Guidance. Ernst & Young supported the senior management of the Company in this
review. This review was completed in 2012 and a new Group policy was adopted and circulated to staff identified as
potentially exposed to bribery and corruption, determined by the company. All of these individuals received formal training
during the year.
Gem DiamondsAnnual Report 2012 57
Board diversity
As encouraged by the Davies Report, the Board supports and welcomes diversity of all types on its Board, including gender
diversity. In the event of recruitment, the aim would be to maintain a high level of diversity. Board appointments are based
on a spectrum of factors including experience, skills and diversity. Since there has been little movement in the
composition of the Board since listing, the Board did not believe any great benefit would be gained in setting
gender-based targets at present.
Communication of business development during the year
Detailed information on the Company’s business and developments/projects can be found on the Company’s website
(www.gemdiamonds.com) in the Investors section, where all published information and shareholder communications is
available. This includes: IMS; trading updates; year-end and half-year results; analysts’ briefing; and all announcements.
Accountability and audit
Financial reporting
The Board is conscious of its responsibility to present a balanced and clear assessment of the Company’s position and
prospects and the Board is satisfied that it has met this obligation. This assessment is primarily provided in the Business review
contained in this report.
The Responsibility Statement of the Directors in respect of the annual report and financial statements is set out on page 85.
Information and financial reporting systems
Financial reporting to the Board is continuously modified and enhanced to cater for changing circumstances. The Company’s
comprehensive planning and financial reporting procedures include detailed operational budgets for the year ahead and a
three-year rolling plan. The Board reviews and approves the annual budget and plan. The plan and budgets are prepared in
cooperation with all Group functions on the basis of specified economic assumptions. Performance is monitored and
relevant action taken throughout the year through the monthly reporting of key performance indicators and updated
forecasts for the year, together with information on the key risk areas.
In addition, routine management reports on an operational and consolidated basis, including updated forecasts for the year,
are prepared and presented to the Audit Committee and the Board, and this forms a cornerstone of the system of internal
control. Detailed consolidated management accounts, together with an executive summary, are circulated prior to each
scheduled Board meeting. Between Board meetings, summary update reports covering matters such as operational
performance, sales figures, cash and progress of strategic issues are circulated to the Board members and senior executives.
Internal control
The Board of Directors is responsible for the Company’s system of internal control, which is embedded in all key operations.
The Board relies on reviews undertaken by the Audit Committee, in accordance with the Company’s compliance with the
Turnbull Guidance, throughout the year and up to the date of the approval of the Annual Report and Financial Statements.
Regular management reporting, providing a balanced assessment of key risks and controls, is an important component of
Board assurance.
The Audit Committee reviewed the effectiveness of the system of internal control by considering the regular reports from
management on the operation of the risk assessment process throughout the Company. These included the key risks
identified, mitigating actions and controls, management representations and assertions, and reports covering the
independent assessment of internal control systems from internal audit, together with other assurance providers such as
health, safety, social and environmental.
The principal aim of the system of internal control is the management of business risks that are significant to the fulfilment
of the Company’s business and strategy objectives, with a view to enhancing over time the value of the shareholders’
investments and safeguarding the assets. The internal control systems have been designed to manage rather than
eliminate the risk of failure; to achieve business objectives; and provide reasonable but not absolute assurance that the
Company’s business objectives will be achieved within the risk tolerance levels identified by the Board. The Directors
confirm that they have reviewed the effectiveness of the system of internal control and have not identified any significant
failings or weaknesses.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 58
UK corporate governance code compliance continued
Internal audit
Internal audit is an important element of the overall process by which the Audit Committee and the Board obtains the
assurance it requires that risks are being properly identified, managed and controlled. An internal audit function was
established in 2007. A risk-based internal audit programme was prepared for 2012 and approved by the Audit Committee,
with reports on achievement of the programme and findings presented to the Audit Committee for consideration
and approval.
The programme covers all operating units, focusing in particular on the more significant risks and related internal
controls identified in the risk self-assessment process. Findings and agreed actions are reported to management
and Audit Committee.
The internal audit function is provided by KPMG Services (Proprietary) Ltd as an outsourced service provider.
Risk assessment and management
The Board, through the Audit Committee, considers effective risk management as an essential element of professional
management and has implemented risk assessment and control systems across the Group, with the assistance of KPMG
Services (Proprietary) Ltd. An on-going process, in accordance with the revised Guidance of the Turnbull Committee on
Internal Control published in October 2005, has been established for identifying, evaluating and managing the significant
risks faced by the Group. The Group’s risk management policy aims to cover and review all significant business risks faced by
the Group, including, but not limited to, operational, financial, commercial, legal, regulatory and compliance risks, which could
undermine the Company’s ability to achieve its strategic and business objectives. These risks are reviewed at least annually.
A more comprehensive report of the Group’s key risks and the means by which these are managed/mitigated will be found
on pages 38 and 39 in the Business review.
The Company’s approach to risk management is value driven and has the stated objective of ensuring an environment
in which it can grow shareholder value through protecting and enhancing the Group’s assets, the environment in those
locations in which it operates, its reputation and its staff. The process is thorough and robust and is an essential element
of business planning.
Each operating unit carries out a comprehensive annual self-assessment risk review and updates its risk register
accordingly. Objectives in the business plan are aligned with risks and a summary of the key risks, related internal controls,
accountabilities and further mitigating actions, is reviewed and approved by the Audit Committee/Board for appropriateness
and effectiveness.
Progress against plans, significant changes in the business risk profile and actions taken to address controls and mitigate risks
are reported at each operating unit board and thereafter to the Group’s Audit Committee and as appropriate to the Board.
The results of the process have been reviewed by management with the respective operating units which is then submitted
to the Group Audit Committee.
Investment appraisal
Capital expenditure is regulated by a budgetary process and authorisation levels. For expenditure beyond specified levels,
detailed written proposals are submitted to the Board. There is an approval procedure for investment appraisal which
includes a detailed calculation of return based on assumptions that are consistent with those included in management
reports. Reviews are carried out after the project is complete and, for some projects, during the development period of the
investment, to monitor progress against plan. All major overruns are investigated. Commercial, legal and financial due-
diligence work, using outside consultants as appropriate, is undertaken in respect of acquisitions and disposals.
Whistleblowing programme
There is a formal mechanism to report suspected fraud, corruption and irregularities. There are independently-operated and
confidential freephone hotlines in each country in which the Company operates, through which employees can report any
breach of the Company’s business principles, including but not limited to bribery, breaches of ethics and fraud.
All incidents reported are fully investigated and the results are reported to the local boards and to the Group’s Audit
Committee. The whistleblowing procedures are reviewed to make sure they are effective and up to date. The process
was reviewed in 2012 and each operation was required to reissue literature and contact details to all employees.
External audit
A principle of the Code is that the Board should establish formal and transparent arrangements for considering how it should
apply the financial reporting and internal control principles and for maintaining an appropriate relationship with the external
Gem DiamondsAnnual Report 2012 59
auditors, Ernst & Young LLP. These responsibilities are delegated to and are discharged by the Audit Committee whose work
is described on pages 60 to 62.
Relations with shareholders
Majority interest in shares
On 15 February 2013, the following major interests (at or above 3%) in the issued ordinary shares of the Company had been
notified to the Company in accordance with the DTR 5:
Shareholders
Graff Diamonds International Ltd
Lansdowne Partners Ltd
BlackRock Inc
FIL Limited/FmR LLC
Gem Diamonds holdings Ltd
Capital Group Companies Inc
Number of ordinary shares
% Shareholding
20 906 699
20 721 413
15 716 051
11 301 546
9 325 000
8 631 142
15.12
14.99
11.37
8.17
6.74
6.25
There has been no change reported to the Company since 15 February 2013.
Dialogue with shareholders
The Board places importance on effective communication with shareholders and maintains regular dialogue with and gives
briefings to analysts and institutional investors. The responsibility for Investor Relations falls under the responsibility of Glenn
Turner, the Chief Legal and Commercial Director based in the Company’s London office. Presentations are given by the
Executive Directors after the Company’s announcement of the year-end and half-year results. Any concerns raised by a
shareholder in relation to the Company and its affairs are communicated to the Board as a whole as issues arise and a
summary of shareholders’ views is presented at each Board meeting.
Care is taken to ensure that any price-sensitive information is released to all shareholders, institutional and private, at the same
time, in accordance with the Disclosure and Transparency Rules and with Group policy. This policy was most recently
reviewed by the Board in November 2012 and updated as appropriate. It has been circulated to each operation in 2012.
Glenn Turner keeps in contact with the Company’s institutional and other shareholders plus industry experts on a regular
basis. It is his task to ensure a good flow of reliable information between the Company and its investors.
The shareholder base comprises 138.27 million issued ordinary shares of US$0.01 each. There are 152 institutional shareholders
who hold 129.01 million shares (93%) and 484 private shareholders who hold 8.64 million shares (7%)
The Senior Independent Director, Mike Salamon, is available to shareholders if they have concerns which contact through
the normal channels has failed to resolve or for which such contact would be inappropriate.
All shareholders can access the Annual and Half-Year Reports; IMSs; Trading Updates; and other published and current
information about the Company through the Company’s website at www.gemdiamonds.com
Constructive use of the Annual General Meeting (AGM)
The Code urges Boards to use the AGM to communicate with all investors. All Directors attend the AGM, where shareholders
are invited to ask questions during the meeting and to meet Directors after the formal proceedings have ended. Shareholders
at the meeting will be advised as to the level of proxy votes received, plus percentages for and against in respect of each
resolution. The results of the resolutions will be announced through the Regulatory News Service and on the Company’s
website.
Details of the resolutions to be proposed at the AGM can be found in the Notice of the Meeting. In accordance with the
Code, notice of the AGM and related papers will be sent to shareholders a minimum of 20 business days before the meeting
which is due to be held on Tuesday 11 June 2013.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 60
Committees
Board Committees
Subject to those matters reserved for its decision, the Board delegates certain responsibilities to a number of primary
Committees – the Audit, Remuneration, Nomination and HSSE Committees. The terms of reference of these Committees are
available on the Company’s website.
The terms of reference of each Committee and its performance were reviewed during the year and, where appropriate,
changes were made. The terms of reference for each Committee requires members to be re-nominated every three years
(subject to annual re-election). This was undertaken in respect of Roger Davis (Audit and Nominations Committee); Dave Elzas
(Remuneration and Audit Committee); Gavin Beevers (HSSE Committee); and Clifford Elphick (Nominations Committee).
Audit Committee
“The Committee has an annual work plan, developed
from its terms of reference. This includes standing items
that we consider at each meeting, in addition to specific
matters arising and items on which we have chosen to
focus. In addition, we are evolving our activities in light
of guidance from regulators and market conditions”.
Dave Elzas, Chairman
The work of the Audit Committee during 2012 is summarised below
Committee members
DJ Elzas – Chairman
Rw Davis
RJ williams
Member throughout 2012
Number of meetings held /
attended 2012
◊
◊
◊
4/4
4/4
4/4
The Audit Committee’s primary role is: to ensure the integrity of financial reporting and the audit process; and that an
appropriate risk management and internal financial control system is maintained. In doing so, the Audit Committee assists the
Board of Directors in discharging its responsibilities with regard to financial reporting, external and internal audits and
controls. These include but are not limited to: reviewing the annual financial statements and reviewing significant financial
reporting judgments; considering the scope of the Company’s annual external audit and the extent of non-audit work
undertaken by external auditors; approving and monitoring the effectiveness of the internal audit programme and reviewing
its findings; advising on the appointment of both internal and external auditors, overseeing this relationship including
auditor’s remuneration and terms of engagement, monitoring independence, annual review of auditor’s performance; and
reviewing the effectiveness of the Company’s internal financial control and risk management systems.
In accordance with provision C.3.1 of the Code all members of the Audit Committee should be non-Executive Directors, all of
whom are independent in character and judgment and free from relationships or circumstances which are likely to affect, or
could appear to affect, their judgment. The Audit Committee comprises three non-Executive Directors: Dave Elzas (Chairman
of the Committee); Roger Davis; and Richard Williams MBE MC.
Dave Elzas is considered to be independent. The association of Dave Elzas and Geneva Management Group (UK) Limited
(GMG) in no way compromises his independence. The fees for the work performed by GMG for the Company are immaterial
in relation to the overall income of GMG. With his experience of running several businesses, serving as a member of several
Boards (both private and UK listed) and as a partner at GMG, Dave Elzas is regarded as having appropriate financial experience
as referred to in provision C.3.1.
Four meetings are scheduled for 2013. The Chief Executive, the Chief Financial Officer and a representative of the Company’s
internal and external auditors normally attend each meeting. Other Directors of the Company and senior executives may also
attend by invitation and speak, but not vote, at any meeting of the Audit Committee.
Gem DiamondsAnnual Report 2012 61
Audit Committee functions in 2012 included:
Internal controls and risk
External auditors
Financial reporting
Received reports from the external and internal
auditors on their assessment of the control
environment.
Reviewed feedback from the management reports
submitted by managers across the Group, prior to
approval of the half year and annual financial
statements and before the audit.
the management report covers areas involving
significant judgment, estimation or uncertainty,
including assessment of fair values, impairment of
goodwill, quality of earnings, taxation, treasury,
reserves and resources, legal matters and the
appropriateness of preparing the financial
statements on a going concern basis, which
would be assessed.
Reviewed reports on audit findings.
Reviewed the half year (2012) and annual
financial statements (2011) and the
significant financial reporting judgements
and the auditor’s report thereon.
Considered the independence of the
auditors and their effectiveness, taking
into account:
• non-audit work undertaken by the
external auditors and compliance with
the policy;
• the Committee’s own assessment.
Reviewed the trading announcements
published in January and June plus the
two Ims.
agreed the internal audit programme, considered
the effectiveness of the internal auditors and their
reappointment.
agreed the audit approach and scope
of the audit work to be undertaken by
the external auditors and the fees for
the same.
Reviewed the liquidity risk and the basis
for preparing the Group accounts on a
going concern basis and reviewed the
related disclosures in the annual report.
Considered key focus areas for Fy2012
audit, including going-concern position,
impairments disposal of KDC, Letšeng
waste surveying variance and revenue
recognition on polished sales.
Reviewed disclosures in the annual report
in relation to internal controls, risk
management, principal risks and
uncertainties and the work of the
Committee.
Recommended to the Board the
re-appointment of the external auditors
following an evaluation of their
effectiveness and confirmation of auditor
objectivity and independence.
Reviewed management’s proposals
on impairment.
Reviewed the appropriateness of the
Company’s accounting policies.
Examined the effectiveness of the Company’s risk
management system, including its risk
management process and profile, and the
Company’s internal control systems.
the Committee received reports of the internal
control environment in place at its subsidiaries
which were considered to be effective.
Considered and approved the structure, scope
of cover and renewal terms of the Group’s
insurance programme.
Reviewed management’s assessment of the
internal control framework.
assessed the effectiveness of the Group’s internal
control environment, and approved the statement
on the process by which the Committee and the
Board review the effectiveness of internal control.
Reviewed matters reported to the external
whistleblowing hotline and a report from the
investigations.
Reviewed and approved the internal audit plans
for 2012; the effectiveness of the internal audit
function; and the re-appointment of the internal
auditor.
Evaluated the performance of the Committee and
its terms of reference.
the requirements of the Bribery act in respect of
risk and training were addressed and finalised
during the year.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 62
Committees
Board Committees continued
Audit Committee Meetings
Following each Audit Committee meeting, separate meetings were held with each of the following on their own:
• the external auditors;
• internal auditors; and
• the Executive management.
Auditor’s independence and non-audit work
The Audit Committee has a formal policy governing the conduct of non-audit work by the external auditors which ensures
that the Company is in compliance with the requirements of the Code and the Ethical Standards for Auditors published by
the Auditing Practices Board.
The auditors are permitted to provide non-audit services that are not in conflict with auditor independence. Periodic reports
are made to the Audit Committee detailing non-audit fees paid to the external auditors.
The fees for such work amounted to US$592 000 in total. This was divided between the continuing operation (excluding
Kimberley) of US$421 000 against audit fees of US$1 045 000 representing approximately 40% of audit fees and Kimberley
US$171 000 of non-audit fees against audit fees of US$274 000 representing 62%.
The Company is very conscious of ensuring that when commissioning non-audit services there is no conflict which could
compromise the auditor’s independence. Therefore, as a matter of principle, it only uses services which will be facilitated
by the existing relationship with the Company.
Recommendation of auditor
The Committee’s assessment of the external auditor’s performance and their independence, underpins its recommendation
to the Board to propose to shareholders the re-appointment of Ernst & Young LLP as auditors (who were first appointed in
2006) until the conclusion of the AGM in 2013. This assessment includes a review of Ernst & Young’s policies for maintaining
independence, including the policy for rotation of audit partners. This requires a new lead audit partner to be appointed
every five years. In accordance with this policy there was a new lead audit partner appointed in 2011. Resolutions to authorise
the Board to re-appoint and determine their remuneration will be proposed at the AGM on Tuesday 11 June 2013.
Nominations Committee
“The Nominations Committee continues its work of
ensuring the Board composition is correct and that
our governance is effective.”
Roger Davis, Chairman
Committee members
Rw Davis – Chairman
m salamon
Ct Elphick
Member throughout 2012
Number of meetings held
and attendance in 2012
◊
◊
◊
4/4
4/4
4/4
Gem DiamondsAnnual Report 2012 63
The Nominations Committee comprises two non-Executive Directors and one Executive Director. The terms of reference
provide for a formal and transparent procedure for the Committee to follow in discharging its responsibilities. The Committee
has responsibility to identify, evaluate and recommend candidates for Board vacancies and to make recommendations on
Board composition and balance. Four meetings were held in 2012. All recommendations for Board appointments are made
on merit and against objective criteria. In 2012 the Committee has not employed outside consultants as there has been no
change to the composition of the Board.
Key objective
• to ensure the Board comprises individuals with the requisite skills, knowledge and experience to ensure that it is effective
in discharging its responsibilities.
Responsibilities
The Committee:
• leads the process for identifying and making recommendations to the Board regarding candidates for appointment as
directors, giving full consideration to succession planning and the leadership needs of the Group:
• makes recommendations to the Board on the composition of the Nominations Committee and the composition and
chairmanship of the Audit and Remuneration Committees;
• regularly reviews and makes recommendations in relation to the structure, size and composition of the Board including its
diversity and balance of skills, knowledge and experience and the independence of the non-Executive Directors; and
• oversees the performance evaluation of the Board, its Committees, and individual Directors.
The Board acknowledges that diversity extends beyond the boardroom and supports management in its efforts to build a
diverse organization throughout the Group. lt endorses the Company's policy to attract and develop a highly qualified and
diverse workforce; to ensure that all selection decisions are based on merit and that all recruitment activities are fair and
non-discriminatory. The policy acknowledges the importance of diversity, including gender, to the effective functioning of
the Board. When recruiting additional Directors and/or filling vacancies which arise when Directors do not seek re-election,
the Nominations Committee will seek to appoint new Directors who fit the skills criteria and gender balance that is in line
with the Board's aspiration. It continues to focus on encouraging diversity of business skills and experience. Recognising that
Directors with diverse skills sets, capabilities and experience gained from different geographic and cultural backgrounds can
enhance the Board’s effectiveness. Detail, including the proportion of women in senior management, can be found in the
"Developing and retaining our people" section of the Sustainable Development Report 2012.
The Nominations Committee in 2012 deliberated upon:
• succession planning for Directors and senior executives;
• the composition of various Committees;
• reviewing the structure, size and composition of the Board and making recommendations to the Board with regard
to any changes required;
• the effectiveness of the Nominations Committee; and
• the composition of the Nominations Committee.
In the year ahead, the Committee will continue to assess what enhancements should be made to the Board's and the
Committee’s composition and will continue to monitor developments in corporate governance to ensure the Company
remains at the forefront of good governance practices.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 64
Committees
Board Committees continued
HSSE Committee
“The safety and wellbeing of our employees and
contractors is our first priority. We drive a culture of
‘being our brother’s keeper’ where each member of our
team takes responsibility for their own, as well as each
other’s safety. We strive continuously to identify
potentially hazardous tasks and conditions so that safe
working procedures are designed, communicated and
embedded by our people themselves at all levels
throughout the organisation.”
Gavin Beevers, Chairman
Committee members
Ga Beevers – Chairman
m salamon
GE turner
Member throughout 2012
Number of meetings and
attendance 2012
◊
◊
◊
4/4
4/4
4/4
In addition to the formal Committees recommended by the Code, the Board has a Health, Safety, Social and Environment
(HSSE) Committee. It assists the Board in developing and monitoring policies and guidelines for management on Corporate
Social Responsibility and sustainable development matters, including health, safety, Corporate Social Investment (CSI) and
environmental issues. The HSSE Committee’s ensures the implementation of these policies and guidelines as well as correct
and legal maintenance throughout the Group. Additionally, the HSSE Committee has developed a system of internal controls
and risk management policies and procedures which aim to ensure the Group’s strategy is cognisant of and takes account the
best HSSE practices, the details of which are more fully described in the Sustainability Development Report to be found on
pages 40 to 47. The HSSE Committee provides the Board with additional focus and guidance on key global HSSE issues.
The primary purpose of the Committee is to:
• have oversight of and provide advice to the Board and, if necessary, to the Audit Committee, on all HSSE matters within
the Group;
• have oversight of and provide advice to the Board on the Group’s compliance with applicable legal and regulatory
requirements associated with HSSE including recommendations regarding international best practices;
• continually assess the effectiveness of management’s approach and effectiveness in managing risks, related to all aspects
of HSSE;
• review significant incidents and consider causative factors, consequences and actions including the impact on employees
and third parties and reputational risk;
• review the Group’s performance indicators in connection with HSSE matters;
• review the Group’s external reporting, regulatory and public disclosures on HSSE matters and approve these as necessary;
• report to the Board on developments, trends and/or forthcoming significant legislation on HSSE matters which may be
relevant to the Group’s operations, its assets or employees ; and
• review the trends and/or forthcoming significant legislation in relation to safety and sustainability which may be relevant
to the Group’s operation, its assets or employees
More detailed information concerning the Group’s sustainability related activities is set out in the full Sustainable
Development Report, which can be down loaded from the Company’s website: www.gemdiamonds.com
Gem DiamondsAnnual Report 2012 65
The HSSE Committee in 2012 deliberated on:
Safety
Sustainability
Governance, regulatory and reporting
Received reports from accountable
managers on fatalities and all hssE incidents,
including a detailed analysis of factors
contributing to an incident and the corrective
and preventative measures taken to
prevent recurrence
Received reports from accountable managers
on all serious hssE incidents, including a
detailed analysis of factors contributing to an
incident and the corrective and preventative
measures taken to prevent recurrence
Reviewed reports on key safety indicators
and trends
Reviewed reports on key indicators
and trends
Reviewed changes to local and international
safety, health and environmental regulations
Considered feedback from external auditors
following their assurance review of selected
data in the annual Report and sustainable
Development Report
Reviewed progress and implementation of
strategic plan to improve safety
Reviewed reports on health and community
indicators and trends
Reviewed key sustainability related risks and
associated mitigation plans
Reviewed effectiveness of disaster
contingency plan in providing medical
assistance following events in Botswana and
approved measures to assure and provide
counselling and support to affected
employees and their family members
Reviewed reports on implementation of the
Group’s water management strategy at KDC
Reviewed disclosures in the annual Report
and sustainable Development Report
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 66
Committees
Board Committees continued
Remuneration Committee
“The Committee seeks to set remuneration policies
and executive pay packages designed to be
competitive and drive achievement of short- and
long-term strategic goals.”
Richard Williams MBE MC, Chairman
I am pleased to introduce the Directors' remuneration report (“DRR”) for the year-ended 31 December 2012. This report was
prepared according to the requirements of the Listing Rules (LR-9.8.8) The Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008, schedule 8.
The Remuneration Committee (‘the Committee’) aims to ensure that remuneration packages are offered which:
• set the total remuneration package at an appropriate level to reflect the competitive markets in which the Group operates;
• link a substantial proportion of the total remuneration package to the achievement of demanding financial and non-financial
performance targets;
• structure the reward of senior management to align their interests with those of shareholders over the long-term;
• enable the retention and stability of the management team; and
• reinforce a high-performance culture throughout the Group.
Towards the end of 2012 the Committee commenced a review of the Employee Share Option Plan (“ESOP”), the Company’s
long-term incentive plan. Changes are being considered to the ESOP to help ensure the plan is more relevant to participants,
more robust to uncontrollable factors, and reflects recent trends in mining sector incentives. Full details of the revised ESOP
will be disclosed in next year’s DRR.
Draft recommendations published by the Department for Business, Innovation and Skills (BIS) on Executive remuneration
reporting have been considered by the Committee. In anticipation of the revised reporting regulations, and in line with
evolving best practice, we have provided additional disclosures in this report in advance of being required to do so.
Richard Williams MBE MC, Chairman
Composition of the Committee
The Committee comprises the following members:
Committee members
RJ williams – Chairman
Rw Davis
DJ Elzas
m salamon
Member throughout 2012
Number of meetings held /
attended 2012
◊
◊
◊
◊
4/4
4/4
4/4
4/4
The Chief Executive Officer and the Chief Financial Officer also attend Committee meetings by invitation and assist the
Committee in its deliberations, except when issues relating to their own remuneration are discussed. Representatives of
Kepler Associates also attend the meeting by invitation.
Gem DiamondsAnnual Report 2012
67
Role of the Remuneration Committee
The Committee is a formal Committee of the Board. Its Terms of Reference are available on the Company’s website and
conform to the UK Corporate Governance Code (the ‘Code’).
The Committee’s main responsibilities are to:
• agree policies, determine individual remuneration packages for the Chairman and the Executive Directors, the Company
Secretary together with certain senior executives;
• consider and scrutinise all elements of the Company’s Executive remuneration policy;
• monitor and recommend the level and structure of remuneration for senior management;
• approve the design of performance-related pay schemes operated by the Company and approve total annual payments;
• review the design of all share-based incentive plans and approve the awards to be made;
• determine the basis for calculating bonuses payable to the Executive Directors;
• make recommendations to the Board on the fees offered to the non-Executive Directors, after taking independent
professional advice;
• consider major changes in employee remuneration in the Group; and
• select and appoint consultants to advise the Committee.
The Committee’s policy is to encourage an open and transparent dialogue with shareholders on remuneration matters and
would seek to consult with major shareholders prior to implementing any significant changes to the senior executive
remuneration policy.
Activities of the Committee in 2012
The activities of the Committee are governed by its Terms of Reference which reflect best practice. A review of the
Committee’s Terms of Reference and the Committee’s effectiveness was carried out in March 2012. There were no material
issues identified or action arising there from.
During the year, the Committee met four times and it:
• approved the Directors’ remuneration report;
• agreed the basis of the award of annual bonuses;
• reviewed share plan performance;
• reviewed and approved awards made under the ESOP;
• approved changes to performance measures and targets of the ESOP applicable to grants made to senior management
below Board level;
• reviewed senior executive remuneration in light of developments in best practice and market trends;
• reviewed and approved the base salary and benefits of the Chairman, Executive Directors and Company Secretary;
• set and approved targets for 2012 cash bonuses; and
• reviewed specific incentive plans – particularly relating to the Group’s operations associated with projects Kholo
and Ghaghoo.
Advisors to the Committee
Kepler Associates, appointed by the Committee in February 2010, provided independent remuneration advice to the
Committee and attended Committee meetings during 2012. Kepler Associates provide no other services to the Company.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 68
Directors' remuneration report
External appointments
Apart from private company interests listed in the Prospectus dated 1 April 2009, no Executive Director holds any significant
executive directorship or appointments outside the Group with the exception of Clifford Elphick who was appointed
non-Executive Chairman of Jumelles Holdings Limited in 2009 and Zanaga Iron Ore Co. Limited which listed on the AIM
Market of the London Stock Exchange in November 2010. Total fee paid to Clifford Elphick by Zanaga is £83 000. Dave Elzas
was also appointed a non-Executive Director of Zanaga Iron Ore Co. Limited in November 2010. Any fees paid to Clifford
Elphick or Dave Elzas in fulfilling these external roles are retained by them.
Executive remuneration policy
The Company’s remuneration policy is designed to provide a level of remuneration which attracts, retains and motivates
executives of a suitable calibre to execute the Company’s business strategy and maximise long-term shareholder wealth.
It is intended that, as far as possible, remuneration policies and practices will conform to best practice in the markets in which
the Company operates and will be aligned with shareholder interests and promote effective management of business risk.
The Committee takes into account the UK Listing Rules, the principles and provisions of the Code and the guidance provided
by institutional investor representative bodies in determining executive remuneration arrangements. In deciding upon the
appropriate structure and quantum of remuneration, the Committee reviews remuneration practices at comparator
companies, comprising mining companies and UK-listed companies of a similar size and complexity, to ensure remuneration
policies reflect, as appropriate, prevailing industry and market conditions. Furthermore, remuneration policies have taken,
and will continue to take account of pay and employment conditions elsewhere in the Company.
Elements of Executive Directors’ remuneration
The remuneration policy is supported by the following principles:
Elements
Base salary
Purpose and link to strategy
Policy
Operation
• Support recruitment
and retention
• Targeted at and above the
median of the relevant market
• 2012 salary increases were 4%
for Executive Directors
Pensions and other benefits
• Provide competitive pension
and benefits provision
• Reviewed annually with
adjustments effective 1 april
• Salary levels/increases take
account of:
a. scope and responsibility
of position
b. Individual performance
and experience
c. market pay levels
d. average increases awarded
across the Group
• Executive Directors receive a
cash allowance in lieu of other
non-cash benefits
• No formal pension provision
is made by the Company.
Instead, Executive Directors
receive a cash allowance in
lieu of pension
• No salary increases have been
awarded to the Executive
Directors in 2013
• As from 1 April 2012 the values
of benefits paid to the Executive
Directors ranged between
5.5% and 6% of base salary
• As from 1 April 2012 cash
allowances in lieu of pension
were equivalent to 14.5% and
13.0% of base salary for the CEo
and other Executive Directors
respectively
Gem DiamondsAnnual Report 2012 69
Purpose and link to strategy
Policy
Operation
Elements
annual bonus
• Encourage and reward the
attainment of challenging
financial; strategic; and short
term operational objectives
Employee share option Plan
• Reinforces the delivery of
absolute and relative returns
to shareholders
• Provides alignment with
shareholders
• Attracts executives of the
appropriate calibre
• The structure of the bonus for
2012 is detailed on page 71
• 2012 ESOP awards granted to
the Executive Directors
comprise c.32% of salary in
performance shares and c.63%
of salary in options, in face
value terms
• Towards the end of 2012 the
Committee commenced a
review of the EsoP, with the
objective of considering
changes to the structure in 2013
to help ensure the plan is more
relevant to participants, more
robust to uncontrollable
factors, and reflects recent
trends in mining sector
incentives. Full details of any
revisions to the EsoP will be
disclosed in next year’s
Directors' remuneration report
• Award opportunities of up to
100% of base salary for the
Executive Directors
• 80% is linked to explicit
business targets detailed in the
Group’s Business Plan and
encapsulated in specific KPIs
• 20% is linked to a discretionary
assessment of personal
performance
• Payouts are subject to
Remuneration Committee
discretion
• A significant proportion of total
remuneration should be ‘at risk’
and conditional on the
performance of the Group
• Annual awards of performance
shares and/or options
• Awards are normally made
annually after the
announcement of the full year
results but may be made at
other times deemed
appropriate by the
Remuneration Committee
• Annual maximum opportunity
of up to 100% of salary in
performance shares and 200%
in market value options (subject
to overall maximum with fair
value equivalent to 100% of
salary in performance shares)
• Shares vest on Gem Diamonds’
three-year tsR outperformance
of the FtsE 250 index (xIt) (50%
of award) and a peer group of
global diamond mining and
exploration companies the
details of which are on page 74
(50% of award)
• Vesting is also dependent on
the Remuneration Committee’s
assessment of underlying
performance
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 70
Directors' remuneration report continued
Total of Directors’ remuneration
The table below provides a summary of aggregate salaries, benefits and fees paid to Directors.
Basic salaries
Benefits
annual bonuses
Pension contribution equivalent
Fees
total
total Group base salaries, benefits and bonuses
2012
£'s
2011
£'s
%
change
1 307 147
1 259 824
76 307
174 449
174 708
307 500
73 544
925 797
163 613
300 000
2 040 111
2 722 778
28 113 370
24 637 731
3.8
3.8
(81.2)
6.8
2.5
(25.1)
14.1
Executive Director pay mix
The pay structure has been developed to be significantly performance-oriented; at target performance c.35% of Executive
Director total remuneration is performance-based rising to c.56% at ‘maximum’ performance.
Clifford Elphick, Chief Executive
(£’000s)
Kevin Burford, Chief Financial Officer
(£’000s)
Max
Target
44%
Fixed
56%
Variable
Max
Target
66%, 34%
44%
Fixed
56%
Variable
65%, 35%
Below target
100%, 0%
Below target
100%, 0%
0
200
400
600
800
1000
1200
1400
0
100
200
300
400
500
600
700 800
900
Salary
Payment in lieu of
pension and benefits
Annual bonus
ESOP
Salary
Payment in lieu of
pension and benefits
Annual bonus
ESOP
Alan Ashworth, Chief Operating Officer
(£’000s)
Glenn Turner, Chief Legal & Commercial Officer
(£’000s)
Max
Target
44%
Fixed
56%
Variable
Max
Target
66%, 35%
44%
Fixed
56%
Variable
65%, 35%
Below target
100%, 0%
Below target
100%, 0%
0
100
200 300 400 500 600 700 800 900 1000
0
100
200
300
400
500
600
700 800
900
Salary
Payment in lieu of
pension and benefits
Annual bonus
ESOP
Salary
Payment in lieu of
pension and benefits
Annual bonus
ESOP
'Below target' performance assumes nil payout under all incentives. 'Target' performance assumes: bonus payout of 50% of
salary, ESOP awards vesting at 25%. 'Max' performance assumes: bonus payout of 100% of salary, ESOP awards vesting at
100%. ESOP option awards, where relevant are valued assuming a Black-Scholes value of 33%. No share price growth is
assumed in the valuations.
Gem DiamondsAnnual Report 2012 71
Base salary
Base salaries are reviewed annually with any changes normally taking effect from 1 April. This review takes into account
individual performance, experience and market competitiveness. In assessing market competitiveness, the Committee
benchmarks salaries against comparable roles at mining companies and UK-listed companies of similar size. In approving
Executive Directors’ salary increases, the Committee takes into account general pay conditions across the Group.
The Committee reviewed base salaries in March 2013 and agreed no increase for 1 April 2013.
Executive Directors
2012 salary £
2013 salary £
% increase
C t Elphick
a R ashworth
K m Burford
G E turner
428 480
317 280
287 040
287 040
428 480
317 280
287 040
287 040
Nil
Nil
Nil
Nil
Pensions and other benefits
No formal pension provision is made by the Company. Instead, Executive Directors receive a cash allowance in lieu of pension
which in 2012 was equivalent to 14.5% and 13.0% of base salary for the Chief Executive Officer and other Executive Directors
respectively. Executive Directors receive a cash allowance in lieu of other non-cash benefits, the value of which ranged
between 5.5% and 6% of base salary during 2012. There are no changes to these allowances for 2013.
Annual bonus
Executive Directors and senior executives participate in a discretionary annual bonus arrangement designed to focus
participants on the following business-critical factors (i) growth strategy implementation; (ii) funding; (iii) financial and
operational performance; (iv) health, safety and environment, sustainability, image and relationships; (v) sales, marketing and
manufacturing, all of which are underpinned by specific Key Performance Indicators and which are included in the Business
plan approved by the Board at the beginning of each year. The maximum bonus payable is 100% of base salary, with 80%
linked to a business scorecard and 20% linked to a discretionary assessment of personal performance. Details of the business
scorecard split used for 2012 are shown in the table below.
Performance category
Weighting
Below
threshold
Between
threshold
and target
Between
target and
stretch
Above
stretch
Performance achievement
Growth strategy implementation
Funding
Financial and operational performance
hsE/sustainability/image and relationships
sales, marketing and manufacturing
30%
15%
30%
15%
10%
◊
◊
◊
◊
◊
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 72
Directors' remuneration report continued
Whilst the achievement of the 2012 scorecard objectives was strong, in light of the overall financial performance of the
Company in 2012 which was primarily affected by poor market conditions, the Committee determined that no bonus be
earned in relation to the business scorecard and that bonuses be earned solely based on the achievement of personal
objectives set for the executive directors. The Committee approved the following bonuses for 2012:
Directors
Ct Elphick
aR ashworth
Km Burford
GE turner
Percentage of salary
13%
13%
12%
15%
Bonus
£55 702
£41 246
£34 445
£43 056
The bonus structure for 2013 will be largely consistent with that for 2012.
Employee Share Option Plan (ESOP)
The ESOP was first introduced in 2007, and was subject to several changes in 2010.
The ESOP provides for annual grants of performance shares and fair market value options, the relative proportions of which
are determined by the Committee on the occasion of each grant.
ESOP awards may be up to 100% of salary in performance shares, or up to 200% of salary in options, or a mix of performance
shares and options subject to the condition that in any one year the combined fair value of the share and option grant is no
more than the fair value of an award of 100% of salary fair value in performance shares. 2012 ESOP awards granted to the
Executive Directors comprised c.32% of salary in performance shares and c.63% of salary in options, in face value.
Vesting of ESOP awards is subject to the achievement of challenging performance conditions based on the Company’s
three-year relative Total Shareholder Return (TSR).
TSR performance is measured relative to two comparator groups as follows:
• 50% vests according to performance relative to a peer group of global diamond mining and exploration companies; and
• 50% of the award vests according to performance relative to the FTSE 250 Index (excluding Investment Trusts).
The constituents of the diamond-sector peer group are regularly reviewed by the Committee and adjusted if warranted
by corporate actions amongst the constituents. The comparators for the 2010, 2011 and 2012 cycles are as follows:
Company
Lucara Diamond Corp
shore Gold Inc
Petra Diamonds Limited
namakwa Diamonds Limited
mountain Province Diamonds Limited
Rockwell Diamonds Inc
trans hex Group Limited
Vaaldiam Resources Limited
2010
grant
2011
grant
2012
grant
1
◊
◊
◊
◊
◊
◊
◊
1
◊
◊
◊
◊
◊
◊
◊
◊
◊
◊
◊
◊
◊
◊
2
1 Africa Diamonds Limited was taken over by Lucara in December 2010. Lucara replaced African Diamonds Limited for the 2012 grant.
2 Taken over by BCKP Ltd on 6 July 2012 and will not be substituted.
The Committee believes an element based on a broad market index helps provide robustness in light of the small number
of companies in the diamond mining comparator group and uses the FTSE 250 as it captures companies with whom Gem
Diamonds competes for capital. The Committee considers TSR relative to a global diamond mining peer group to be an
appropriate performance measure given the extent to which the Company’s share price and those of its peers are
significantly influenced by diamond prices.
Gem DiamondsAnnual Report 2012 73
ESOP awards vest (at 25%) only if the Company’s 3-year TSR is in line with average (or benchmark) performance, with full
vesting if Gem Diamonds’ TSR exceeds that of its benchmark by 12% per annum, which the Committee believes is broadly
equivalent to upper quartile performance. There is straight line pro rata vesting for performance between Benchmark and
Benchmark +12% per annum.
‘Benchmark’ performance is based on the published FTSE 250 excluding Investment Trusts index (for that element of ESOP
awards) and the average TSR of the diamond mining and exploration companies, weighted by their market capitalisation at
the start of the three-year performance period (for the other 50% of ESOP awards). Weighting diamond-mining comparator
TSRs by their market capitalisation helps reduce the sensitivity of ESOP outcomes to the smaller comparator companies in
the group which are likely to have more volatile TSRs than the Company. A summary of the vesting schedule is provided
in the graph below:
Annualised outperformance
of benchmark TSR
Additionally, for any ESOP awards to vest, the Committee must
satisfy itself that the recorded TSR is a fair reflection of the
underlying business performance of the Company over the
performance period. In the event that the TSR calculation is
affected by a significant corporate event which the Committee
considers materially distorts the performance comparison, the
Committee may make suitable adjustments, provided that it is
satisfied that any new or varied performance conditions would
be no less demanding. The Committee may also adopt different
performance conditions during the life of the ESOP and may vary
the ratio of performance shares and options.
g 100%
n
i
t
s
e
V
25%
Participation in the ESOP includes the Executive Directors and
extends to other senior executives in the Group. Historically,
awards granted to the executives below the Board have been entirely consistent in structure with those granted to the
Executive Directors. During 2012, the Committee reviewed the effectiveness of TSR-based awards to executives below the
Board and approved an award with performance conditions based on specific company objectives. Such grants were made
over performance shares and market value options, with vesting based on performance targets for each financial year during
the 3-year performance cycle. ESOP awards granted during 2012 to the Executive Directors continued to be based on the
relative TSR conditions as described above.
12%
0%
Dividends accrue on performance shares (but not options) during the vesting period. In the event of a change of control,
awards would vest according to performance up to the date of the change of control. In addition, share-based, but not
option-based, awards would be pro-rated for time based on the proportion of the vesting period elapsed at the date
of the event, with Committee discretion to treat otherwise.
Towards the end of 2012 the Committee commenced a review of the ESOP, with the objective of considering changes to the
structure in 2013 to help ensure the plan is more relevant to participants, more robust to uncontrollable factors, and reflects
recent trends in mining sector incentives. Full details of any revisions to the ESOP will be disclosed in next year’s Directors'
remuneration report.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 74
Directors' remuneration report continued
Dilution
ESOP awards may be satisfied with newly issued shares subject to aggregate dilution limits. The issue of shares to satisfy
awards under the Company’s share schemes will not exceed 10% of the Company’s issued ordinary share capital in any rolling
ten-year period. As of 31 December 2012, 4 501 200 shares (3.26% of issued share capital) have been, or may be issued,
pursuant to all awards made over the last ten years.
Value of £100 invested on 1 January 2008
Gem Diamonds vs. ESOP global mining and exploration comparison
and FTSE 250 xIT index
£140
£120
£100
£80
£60
£40
£20
£0
Dec07
Dec08
Dec09
Dec10
Dec11
Dec12
Gem Diamonds
Median of ESOP comparators
FTSE 250xIT
The following information is subject to audit
Executive Directors
Executive Directors’ entitlements under service contracts
The details of service contracts and appointment letters are as follows:
The Executive Directors’ service contracts
Directors
Contract date
Unexpired term
Notice period
Ct Elphick
Km Burford
GE turner
13 February 2007
rolling contract
6 months (12 months)1
13 February 2007
rolling contract
6 months (12 months)1
1 July 2008
rolling contract
6 months (12 months)1
aR ashworth
1 march 2008
rolling contract
6 months (12 months)1
Contractual
termination payment
Pay salary and benefits
on summary termination
1 At the Remuneration Committee meeting held on 4 March 2013 and after having reviewed market practice of FTSE-listed
companies and other companies in the mining sector, the Committee approved the extension of the notice periods
for the executive directors to 12 months (both from the Company and from the director). This revision will take effect
as of 1 March 2013.
There are no special provisions in the contracts extending notice period on a change of control or other corporate event.
Non-Executive directors
The Chairman and Executive Directors approve the fees of the non-Executive Directors. The Committee approves the fees
of the Chairman. The fees for non-Executive Directors are set at the level considered necessary to obtain the services of
individuals with the relevant skills and experience to bring added depth and breadth to the composition of the Board. Fees
take into account the number of meetings, the time required for reading Board and other papers, the duties associated with
membership or chairmanship of Board Committees and fees paid by comparable companies.
Gem DiamondsAnnual Report 2012 Non-Executive Director fee structure
Chairman fee
non-Executive Director fee
75
£100 00
£52 500
Fees were reviewed in March 2012 when it was approved to increase the Chairman’s fee to £100,000 (from £90,000). Fees were
also reviewed in March 2013 when it was agreed no changes would be made at this time.
The non-Executive Directors are not eligible to participate in the annual bonus, ESOP, or any other performance related
incentive.
The appointment of non-Executive Directors, who do not have service contracts, is on a rolling contract basis. Since the Board
has adopted provision B.7.1 of the Code, all Directors will retire annually at the Annual General Meeting and, if eligible, will
offer themselves for re-election.
Non-Executive Directors’ appointment terms:
Directors
Contract date
Unexpired term
Notice period
Rw Davis
DJ Elzas
Ga Beevers
m salmon
RJ williams
1 February 2007
rolling appointment
3 months
1 February 2007
rolling appointment
3 months
1 February 2007
rolling appointment
3 months
3 February 2008
rolling appointment
3 months
3 February 2008
rolling appointment
3 months
Contractual
termination payment
no provision for payment
of compensation
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 76
Directors' remuneration report continued
Emoluments and compensation
Details of the remuneration settled in cash or at cash cost to the Company of each Director who has served in the year are
shown below. The following table and accompanying notes have been audited.
Details of the Directors’ remuneration:
salary and
fees¹
£
Cash payments in lieu
of pension and other
non-cash benefits2
£
Bonuses³
£
Total
2012⁴
Full year
total 2011
Executive
Ct Elphick⁵
aR ashworth
Km Burford
GE turner
Non-Executive
Rw Davis
Ga Beevers
DJ Elzas
m salamon
RJ williams
424 360
314 227
284 280
284 280
97 500
52 500
52 500
52 500
52 500
84 357
59 322
53 668
53 668
55 702
41 246
34 445
43 056
564 419
414 795
372 393
381 004
797 755
575 467
520 638
528 918
90 000
52 500
52 500
52 500
52 500
1 All salaries and fees are paid in cash.
2 Payments are made in cash to Directors who may purchase benefits.
3 Bonuses are in respect of 2012 and were paid in 2013.
4 The Directors’ total emoluments for the year do not include any fair value share option/award charges.
5 Highest paid Director.
6 No Director received or is due to receive any compensation for loss of office during the year.
7 Although the Company’s reporting currency is US dollars, these figures are stated in Sterling as the Directors’ emoluments are paid in this currency.
8 No Director received any expense allowances.
9 There were no payments to former Directors of the Company.
Gem DiamondsAnnual Report 2012 77
Entitlements under long-term incentives
During the year under review, outstanding ESOP awards included those granted in 2010, 2011 and 2012 (there were no
long term incentives awarded to Directors during 2009). In respect of performance shares nothing is payable on grant
and no exercise price is payable to acquire the shares underlying these awards (save for nominal value where shares are
newly issued).
2010 ESOP awards vest 50% on the Company’s three-year TSR rank relative to the FTSE 250 and 50% on the Company’s
three-year TSR rank relative to the diamond mining comparator group; there is nil vesting below median, 25% vesting at
median, rising on a straight line basis to full vesting from upper quartile. In 2013, the Committee reviewed the Company’s
TSR performance over the 2010 ESOP performance period with the result that no 2010 ESOP awards vested.
Details of awards to Directors under the ESOP
Exercised
in the year
Granted in
the year
Lapsed in
the year
Exercise
Price us$
market value
at date of
grant £
0.01
131 670
0.01
131 700
Date of
grant
23 June
2010
13 June
2011
Earliest
normal
exercise
date
23 June
2013
13 June
2014
23 June
2020
13 June
2021
Expiry date
Performance
shares at 31
December
2012
Directors
Performance
shares* as at
1 January
2012
Ct Elphick
57 000
50 000
total
aR ashworth
42 600
34 000
total
Km Burford
38 600
30 333
total
GE turner
38 600
30 333
total
*conditional right to acquire shares.
45 000
0.01
135 023
20 March
2012
20 March
2015
20 March
2022
0.01
98 406
0.01
89 556
34 000
0.01
102 017
0.01
89 166
0.01
79 897
30 000
0.01
90 015
0.01
89 166
0.01
79 897
30 000
0.01
90 015
23 June
2010
13 June
2011
23 June
2013
13 June
2014
23 June
2020
13 June
2021
20 March
2012
20 March
2015
20 March
2022
23 June
2010
13 June
2011
23 June
2013
13 June
2014
23 June
2020
13 June
2021
20 March
2012
20 March
2015
20 March
2022
23 June
2010
13 June
2011
23 June
2013
13 June
2014
23 June
2020
13 June
2021
20 March
2012
20 March
2015
20 March
2022
57 000
50 000
45 000
152 000
42 600
34 000
34 000
110 600
38 600
30 333
30 000
98 933
38 600
30 333
30 000
98 933
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 78
Directors' remuneration report continued
ESOP awards of options
Performance
shares* as at
1 January
2012
114 000
100 000
85 200
68 000
77 200
60 667
77 200
60 667
Directors
Ct Elphick
total
aR ashworth
total
Km Burford
total
GE turner
total
Exercised
in the year
Granted in
the year
Lapsed in
the year
Exercise
Price
GB pence
Date of Grant
Earliest normal
exercise date
Expiry date
Performance
shares at 31
December
2012
231.00
23 June 2010
23 June 2013
23 June 2020
114 000
263.40
13 June 2011
13 June 2014
13 June 2021
100 000
90 000
300.05
20 March 2012
20 March 2015
20 March 2022
90 000
231.00
23 June 2010
23 June 2013
23 June 2020
85 200
263.40
13 June 2011
13 June 2014
13 June 2021
68 000
304 000
68 000
300.05
20 March 2012
20 March 2015
20 March 2022
68 000
231.00
23 June 2010
23 June 2013
23 June 2020
77 200
263.40
13 June 2011
13 June 2014
13 June 2021
60 667
221 200
60 000
300.05
20 March 2012
20 March 2015
20 March 2022
60 000
231.00
23 June 2010
23 June 2013
23 June 2020
77 200
263.40
13 June 2011
13 June 2014
13 June 2021
60 667
197 867
60 000
300.05
20 March 2012
20 March 2015
20 March 2022
60 000
197 867
* Option is a right to acquire shares granted under the plan including, unless indicated otherwise, a nil-cost option. The market price of an ordinary share at the yearend was 144 pence. The highest and lowest
prices in the year were 310.60 pence and 142.75 pence respectively
Details of the vesting conditions, which are subject to audit, for awards made under the ESOP are included on pages 72 to 73
of the Annual Report and a full set of the rules will be available for inspection at the AGM.
Gem DiamondsAnnual Report 2012 79
Directors’ shareholdings and interests in shares
Details of interests in the share capital of the Company of those Directors in office as at 31 December 2012 are given below.
It is confirmed that there were no changes to the Directors’ holdings between 31 December 2012 and up to the date of this
report. No Director was interested in the shares of any subsidiary company.
In addition to these interests in shares, the Executive Directors, along with other employees, also have conditional rights
to acquire shares under the Company’s long-term incentive plan, disclosed in Note 20.
Executives
Ct Elphick1
aR ashworth
Km Burford
GE turner
Shares
owned
outright at
31
December
2012
9 325 000
21 900
458 333
400 000
Nil-cost options and
awards held
Options and awards held
Subject to
performance
conditions
Vested but
not
exercised
Subject to
performance
conditions
Vested
but not
exercised
Total
shareholding
456 000
331 800
296 800
296 800
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
NIL
9 781 000
353 700
755 133
696 800
1 Clifford Elphick is interested in these ordinary shares by virtue of his interest as a potential beneficiary in a discretionary trust, which has an indirect interest in those ordinary shares.
2 There has been no change in these figures since the end of the year and date of the notice of the AGM.
Non-Executives
Rw Davis
Ga Beevers
DJ Elzas
m salamon
RJ williams
Number of shares as at
31 December 2012³ held
in own right
1 267 752
145 164
144 664
316 944
164 664
3 There has been no change in these figures since the end of the year and date of the notice of the AGM.
Pensions
No pension contributions were made to any registered pension scheme or pension fund in respect of Executive Directors
during the year, and no retirement benefits were paid.
By order of the Board
Richard Williams
Chairman, Remuneration Committee
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 80
Director's report
The Directors have pleasure in submitting the financial statements of the Group for the year-ended 31 December 2012.
For the purpose of DTR 4.1.8R this report will be deemed the ‘Management Report’ plus any cross-references made herein
and should be read with the Annual Financial Statements on pages 85 to 142.
Principal activities
The Company is a global diamond mining company, listed on the premium market of the London Stock Exchange. More
detailed information on the Group’s operations, activities and financial performance is incorporated into this report by
reference and can be found in the Business review on pages 16 to 47.
Review of the business, future developments and post balance sheet events
As a BVI registered company, Gem Diamonds Ltd is not required to comply with the Companies Act 2006. However the
Directors have voluntarily elected to conform to Section 417 of the Companies Act 2006, which requires that the Directors
present a Business review in this report to inform shareholders of the Company and help them assess how the Directors have
performed their duty to promote the success of the Company. Information that fulfils this requirement can be found in the
sections set out below and is incorporated by reference in this report:
Focus on value creation
• Financial and operational performance Inside front cover
• Gem Diamonds at a glance pages 2 to 3
• Business model page 4
• Chairman’s statement pages 6 to 9
• Our strategy pages 10 to 11
• Key performance indicators pages 12 to 13
• Our market place and performance page 14 to 15;
The Business review on pages 16 to 47 covers
• Chief Executive Officer's overview pages 16 to 17
• Mining operating reviews pages 18 to 29
• Gem Diamonds marketing and manufacturing review page 30
• Other assets page 31
• Group financial performance pages 32 to 35
• Mineral resources management pages 36 to 37
• Principal risks pages 38 to 39
• Sustainable development report pages 40 to 47
The Business review has been prepared to provide the Company’s shareholders with a fair review of the business of the
Company and a description of the principal risks and uncertainties facing it. It may not be relied upon by anyone, including
the Company’s shareholders, for any other purpose.
The Business review and other sections of this report contain forward-looking statements. By their nature, forward-looking
statements involve a number of risks, uncertainties and future assumptions because they relate to events and/or depend on
circumstances that may or may not occur in the future and could cause actual results and outcomes to differ materially from
those expressed or implied by the forward-looking statements. No assurance can be given that the forward-looking
statements in the Business review will be realised. Statements about the Directors’ expectations, beliefs, hopes, plans,
intentions and strategies are inherently subject to change and they are based on expectations and assumptions as to future
events, circumstances and other factors which are in some cases outside the Company’s control. The information contained
in the Business review has been prepared on the basis of the knowledge and information available to Directors at the date of
its preparation and the Company does not undertake any obligation to update or revise this Business review during the
financial year ahead. It is believed that the expectations set out in these forward-looking statements are reasonable but they
may be affected by a wide range of variables which could cause actual results or trends to differ materially. In particular, the
forward-looking statements should be read in the context of the specific risk factors affecting the Company identified in the
Business review. The Company’s shareholders are cautioned not to place undue reliance on the forward-looking statements.
Shareholders should note that the Business review has not been audited or otherwise independently verified.
Gem DiamondsAnnual Report 2012 81
Acquisitions together with disposals, and changes to companies undertaken during the year, (such as they were) including
post balance sheet events, of which there was one, are included in the Business review on pages 16 to 48.
Related party transaction
Other than those disclosed in Note 26 of the Financial Statements, the Company did not have any transactions, with and did
not make loans to, related parties in the period in which any Director is or was interested.
Exploration and resource development
Resource development activities were concentrated on our two production operations, Letšeng and Ellendale. At Letšeng a
comprehensive resource drilling programme was completed in 2012, together with on-going production bulk sampling of
the orebody. The drilling programme was successful in improving resource definition and extending kimberlite resources at
depth. Activities at Ellendale were restricted to production bulk sampling in the main E9 orebody together with bulk
sampling of a satellite lamproite – E11. No exploration activities are currently being pursued by the Group.
Results and dividends
The Group’s attributable loss after taxation amounted to US$117.9 million (2011: attributable profit after tax US$67.7 million)
The Group’s detailed financial results are set out in the Financial Statements section on pages 85 to 142.
The current focus of the Group is on internal growth and surplus cash is invested into its capital projects, thus the Board
recommends that no dividend be declared, in accordance with its intention as set out previously. The Board keeps the
Company’s dividend policy under review. The factors which are most likely to influence a change in its current policy will be
the Company’s financial and cash position. Other factors may also have a bearing and these will be taken into account at the
time of consideration.
Financial risk management
The Group’s key risks are detailed on page 38 and 39 of the Business review.
Corporate social responsibility and sustainability
A review of health, safety, corporate social responsibility and environmental performance and community participation
is presented in the Sustainable Development Report on pages 40 to 47.
Greenhouse gas emissions
The total carbon footprint for the Group in 2012 was 166 807.5 tonnes CO2e. This figure includes the direct GHG emissions
(Scope 1) and energy indirect GHG emissions (Scope 2).
In 2012, we reviewed and recalculated the Group’s carbon footprint, with boundaries clearly defined as per guidance from
the GHG Protocol: A Corporate Accounting and Reporting Standard and in line with the ISO14064 standard. We adopted
a more thorough process for this year’s data collection which yielded a more complete and subsequent larger absolute
carbon footprint for 2012. For this reason the 2012 footprint has been set as the new baseline and the starting point for
tracking of the Group’s carbon footprint.
We believe that the various energy reducing and energy efficiency measures that were implemented in the past year
across all our operations made a positive contribution to reducing our carbon footprint. However, the impact of these
measures could not be established due to the newly defined boundaries and captured baseline carbon footprint for 2012,
as explained above.
Political and charitable donations
No political donations were made in 2012.
The Group’s Corporate Social Investment (CSI) expenditure supports initiatives that benefit the Project Affected Communities
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 82
Directors' report continued
in the areas of health, education, infrastructure development, development of small to medium enterprises (SME’s), regional
environmental initiatives and general donations to relevant causes in project affected communities. In 2012, the Company
contributed US$2.5 million to these social initiatives.
Employee policies and involvement
This report is to be read with the information on employment matters contained in the Sustainable Development overview
(SD overview) on pages 40 and 47 together with the full Sustainable Development Report which can be found on our
website www.gemdiamonds.com. The Group’s employment practices have been developed to ensure that the Group
attracts and retains the required calibre of management and staff by creating an environment that incentivises enhanced
performance. The health, safety and effective performance of employees, together with the maintenance of positive
employee relations is of key importance across the Group’s operations.
More generally employees are kept informed of the performance and objectives of the Group through direct involvement
and access to the Group’s website, published information, the circulation of ‘press cuttings’ and Group announcements.
It is the Group’s policy to communicate openly with employees and encourage dialogue between employees and
management.
The Company always seeks to have a direct relationship between its employees and business function management,
founded on quality, leadership, effective communication and trust.
The Group is committed to the principle and achievement of equal opportunities in employment irrespective of gender,
religion, race or marital status. Full consideration is given to applications from disabled persons who apply for employment
where the requirements of the position can be adequately filled by a disabled person, having regard to their particular
abilities and aptitude.
The Group sets guidelines and frameworks in respect of Company policy on remuneration benefits, performance
management, career development and succession planning, recruitment and expatriate employment and for the alignment
of human resources management and policy with international best practice. Each operating unit manages its human
resources requirements locally, within the Group’s guidelines and framework.
Corporate governance
A report on Corporate Governance and compliance with the provisions of the UK Corporate Governance Code (the Code) is
set out on pages 52 to 59.
Going concern
The Company’s business activities, together with the factors likely to affect its future development, performance and position
are set out in the Business review on pages 16 to 47. The financial position of the Company, its cashflows and liquidity position
are described in the Business review on pages 32 to 35. In addition, Note 28 and 29 to the financial statements includes the
Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its
financial instruments; and its exposures to credit and liquidity risk.
After making enquiries which include reviews of forecasts and budgets, timing of cashflows, borrowing facilities and
sensitivity analyses and considering the uncertainties described in this report either directly or by cross reference, the
Directors have a reasonable expectation that the Group and the Company have adequate financial resources to continue in
operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing
the Annual Report and Accounts of the Company.
Directors
The Directors, as at the date of this report, are listed on pages 50 and 51, together with their biographical details. Details
of Directors’ interests in shares and share options of the Company can be found in the Director’s remuneration report
on pages 68 to 79.
Gem DiamondsAnnual Report 2012 83
Date of appointment
20 January 2006
22 april 2008
20 January 2006
22 april 2008
Date of appointment
1 February 2007
1 February 2007
18 october 2005
3 February 2008
3 February 2008
Directors who held office during the year
Executive Directors
Ct Elphick
aR ashworth
Km Burford
GE turner
Non-Executive Directors
Rw Davis
Ga Beevers
DJ Elzas
m salamon
RJ williams
There has been no change in the above appointments since 1 January 2012 to the date of this report.
Re-election of Directors
The Articles of Association (81) provides that a third of Directors retire by rotation and being eligible, offer themselves for
re-election. However in accordance with the Code at each year’s AGM, all the Directors will retire and, subject to them being
eligible, will offer themselves for re-election. Each has been the subject of a Board evaluation.
Annual General Meeting (AGM)
Details of the resolutions which will be put to the AGM are given in the notice of the AGM, which is contained in a separate
document from the Annual Report.
Share capital
Details of the authorised and issued share capital of the Company, including the rights pertaining to each share class, are set
out in Note 20 to the Financial Statements.
Major interests in shares
Details of the major interests (at or above 3%) in the issued ordinary shares of the Company are set out in the Corporate
Governance Report on Page 59.
Directors’ interests
No Director had, at any time during the year, a material interest in any contract of significance in relation to the Company’s
business. The interest of Directors in the shares of the Company is included in the Directors’ Remuneration Report on Page 79.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012 84
Directors' report continued
Creditors’ payment practice
In view of the international nature of the Group’s operations there is no specific Group-wide policy in respect of payments to
suppliers. Individual operating companies are responsible for agreeing terms and conditions for their business transactions
and ensuring that suppliers are aware of the terms of payment. It is Group practice that payments are made in accordance
with those terms, provided that all trading terms and conditions have been met by the supplier. Trade creditors at 31
December 2012 represented 72 days of the Gem Diamonds Limited’s annual purchases.
Electronic copies of documents
Copies of the 2012 Annual Report, HSSE policies and other corporate publications, reports, press releases and announcements
are available on the Company’s website at www.gemdiamonds.com
Disclosure of information and auditor re-election
The lead audit partner is based in London, UK.
As required under section 418 of the Companies Act 2006, to which the Directors have voluntarily elected to conform, each
Director confirms that to the best of his knowledge and belief, there is no information relevant to the preparation of the
auditor’s report of which the Company’s auditors are unaware and that each Director has taken all reasonable steps as a
Director to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of
that information.
A resolution to re-appoint Ernst & Young LLP as the Company’s auditors and to authorise the Board to determine the auditor’s
remuneration will be proposed at the 2013 Annual General Meeting.
By order of the Board
André Confavreux
Company Secretary
11 March 2013
Gem DiamondsAnnual Report 2012 85
Responsibility statement of the Directors in respect of the
Annual Report and financial statements
The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with
International Financial Reporting Standards (IFRS).
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time the financial position of the Group. They are also responsible
for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors confirm that the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the undertakings included in the consolidation taken as a whole.
The Business review includes a fair review of the development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal
risks and uncertainties that they face.
Information, including accounting policies, has been presented in a manner that provides relevant, reliable, comparable
and understandable information and additional disclosures have been provided when compliance with the specific
requirements in IFRS have been insufficient to enable users to understand the financial impact of particular transactions,
other events and conditions on the Group’s financial position and financial performance. Where necessary, the Directors
have made judgements and estimates that are reasonable and prudent.
The Directors of the Company have elected to comply with certain Companies Act and Listing Rules (LR) which would
otherwise only apply to companies incorporated in the UK – namely:
(a) the Directors’ statement under LR 9.8.6R (3) (statement by the Directors that the business is a going concern);
(b) the Directors’ remuneration disclosures made under LR 9.8.8R (2) – (5) and (11) – (12); and
(c) the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 of the United Kingdom pertaining to Directors’ remuneration that UK quoted companies are required
to comply with.
Kevin Burford
Chief Financial Officer
11 March 2013
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
86
Independent auditor’s report to the members
of Gem Diamonds Limited
We have audited the Group financial statements of Gem Diamonds Limited (the Company) and its subsidiaries (together
‘the Group’) for the year ended 31 December 2012 which comprise the Consolidated Income Statement, the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of
Changes in Equity, the Consolidated Statement of Cash Flows and the related notes 1 to 30. The financial reporting
framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs).
This report is made solely to the Company’s members in accordance with the terms of our letter of engagement dated
August 2011 (Addendum to the engagement 2 March 2012). Our audit work has been undertaken so that we might state
to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and
the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
As explained more fully in the Directors’ Responsibility Statement set out on page 85, the Directors are responsible for the
preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility
is to audit the Group financial statements in accordance with International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
In addition the company has also instructed us to:
• report as to whether the Directors’ report for the financial year for which the Group financial statements are prepared
is consistent with the financial statements.
• report as to whether the information given in the Corporate governance statement with respect to internal control and
risk management systems in relation to financial reporting processes and about share capital structures is consistent with
the financial statements.
• report as to whether the section of the Directors’ remuneration report that is described as audited has been properly
prepared in accordance with the basis of preparation described therein.
• report if we are not satisfied that:
1. adequate accounting records have been kept (including returns from those branches which have not been visited); or
2.
the accounts are in agreement with the records and returns; or
3. we have obtained all the information and explanations which we consider necessary for the purpose of the audit.
• review certain elements of the report to shareholders by the board on Directors’ remuneration, which for a premium listed
UK incorporated company is specified for review by the Listing Rules of the Financial Services Authority.
• review the Directors’ statement in relation to going concern as set out on page 82, which for a premium listed UK
incorporated company is specified for review by the Listing Rules of the Financial Services Authority.
Scope of the audit and the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances, and have
been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial
information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become
aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Gem DiamondsAnnual Report 2012
87
Opinion on financial statements
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs as at 31 December 2012 and of its loss for the year then ended;
and
• have been properly prepared in accordance with IFRSs.
Opinion on other matters as per our terms of engagement with the company
In our opinion:
• the information given in the Directors’ report for the financial year for which the Group financial statements are prepared is
consistent with the financial statements;
• the information given in the Corporate governance statement set out on pages 52 to 59 with respect to internal control
and risk management systems in relation to financial reporting processes and about share capital structures is consistent
with the financial statements; and
• the part of the Remuneration report of the Company that has been described as audited has been properly prepared
in accordance with the basis of preparation as described therein.
Matters on which we report by exception
We have nothing to report in respect of the following:
Under the Listing Rules we are required to review the part of the Corporate governance statement relating to the Company’s
compliance with the nine provisions of the UK Corporate Governance Code, specified in for our review.
Under the terms of our engagement we agreed to report to you if, in our opinion:
• adequate accounting records have not been kept, (including returns from those branches which have not been visited); or
• the accounts are not in agreement with the records and returns; or
• we have not obtained all the information and explanations which we consider necessary for the purpose of the audit.
Where the company has also instructed us to review:
• certain elements of the report to shareholders by the board on Director’s remuneration.
• the Directors’ statement, set out on page 82, in relation to going concern.
Ernst & Young LLP
1 More London Place
London
11 March 2013
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
88
Consolidated Income Statement
For the year ended 31 December 2012
Revenue
Cost of sales
Gross profit
Other operating income
Royalties and selling costs
Corporate expenses
Share-based payments
Foreign exchange gain
Impairment of assets
Operating profit
Net finance income
Finance income
Finance costs
Profit before tax
Income tax expense
Profit for the year
(Loss)/profit after tax for the year from discontinued
operations
(Loss)/profit after tax
Recycling of foreign currency translation reserve on
discontinued operation
(Loss)/profit for the year
Attributable to:
Non-controlling interests
Equity holders of parent
– Profit for the year
– Profit for the year from discontinued operations
Earnings per share (cents)
– Basic earnings per share
– Diluted earnings per share **
2012
US$’000
Before
exceptional
items
2012
US$’000
Exceptional
items
2011*
US$’000
2012
US$’000
Total
Before
exceptional
items
2011*
US$’000
Exceptional
items
2011*
US$’000
Total
Notes
2
3
31
3
4
3
5
6
8
8
10
202 118
(120 478)
81 640
1 271
(19 142)
(15 629)
(2 281)
3 815
–
–
–
–
–
–
–
–
202 118
306 142
(120 478)
(117 410)
81 640
188 432
1 271
40
(19 142)
(26 527)
(15 629)
(17 291)
(2 281)
(1 310)
3 815
6 882
–
(16 241)
(16 241)
–
49 674
(16 241)
33 433
150 526
1 312
2 564
(1 252)
–
–
–
1 312
2 564
2 108
3 157
(1 252)
(1 049)
50 986
(16 241)
34 745
152 634
(18 407)
–
(18 407)
(52 946)
32 579
(16 241)
16 338
99 688
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
306 142
(116 550)
189 592
40
(26 527)
(17 291)
(1 310)
6 882
–
150 526
2 108
3 157
(1 049)
152 634
(52 946)
99 688
–
–
–
(118 686)
(118 686)
(70 297)
(70 297)
(48 389)
(48 389)
–
–
–
6 228
6 228
6 228
6 228
–
–
32 579
(134 927)
(102 348)
99 688
6 228
105 916
15 507
17 072
17 072
–
15 507
38 247
–
(134 927)
(117 855)
61 441
6 228
(16 241)
831
61 441
–
–
(118 686)
(118 686)
–
6 228
38 247
67 669
61 441
6 228
12
12
(86)
(85)
(74)
(73)
44
44
5
4
49
48
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 8, discontinued operations).
** Options are dilutive at the profit from continuing operations level and thus in accordance with IAS33 have been treated as dilutive for the purpose of dilutive earnings per share. The diluted loss per share is
lower than basic loss per share because of the losses on discontinued operations.
Gem DiamondsAnnual Report 2012
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2012
(Loss)/profit for the year
Loss on valuation of available-for-sale financial assets
Exchange differences on translation of foreign operations
Recycling of exchange differences on discontinued operation
Impairment of available-for-sale financial assets
Other comprehensive profit/(loss) for the year
Total comprehensive (loss)/income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive (loss)/income for the year
89
Notes
8
2012
US$’000
(102 348)
(204)
(23 237)
48 389
906
25 854
(76 494)
(89 378)
12 884
(76 494)
2011
US$’000
105 916
(702)
(70 430)
–
–
(71 132)
34 784
16 042
18 742
34 784
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
90
Consolidated Statement of Financial Position
As at 31 December 2012
Assets
Non-current assets
Property, plant and equipment
Investment property
Intangible assets
Other financial assets
Current assets
Inventories
Receivables
Other financial assets
Cash and short-term deposits
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent
Issued capital
Share premium
Own shares1
Other reserves
Accumulated losses
Non-controlling interests
Total equity
Non-current liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Income tax payable
Total liabilities
Total equity and liabilities
1 Shares held by Gem Diamonds Limited Employee Share Trust.
Approved by the Board of Directors on 11 March 2013 and signed on their behalf by:
C T Elphick
Director
K M Burford
Director
Notes
2012
US$’000
2011
US$’000
11
12
13
15
17
18
15
19
20
20
21
22
16
24
21
408 605
424 937
616
24 973
14
617
25 529
14 587
434 208
465 670
22 652
7 273
16 444
70 842
117 211
551 419
1 383
885 648
(1)
(17 130)
(539 261)
330 639
70 993
401 632
1 007
29 496
71 277
39 222
10 145
9
158 750
208 126
673 796
1 383
885 648
(1)
(48 720)
(421 406)
416 904
66 879
483 783
667
43 201
68 061
101 780
111 929
2 947
43 775
1 285
48 007
149 787
551 419
–
57 098
20 986
78 084
190 013
673 796
Gem DiamondsAnnual Report 2012
Consolidated Statement of Changes in Equity
For the year ended 31 December 2012
91
Attributable to the equity
holders of the parent
Issued
capital²
Share
premium²
Own
shares¹
Other
reserves²
Accumulated
losses)/
retained
earnings
Non-
controlling
interests
Total
Total
equity
Balance at 1 January 2012
1 383
885 648
(1)
(48 720)
(421 406)
416 904
66 879
483 783
Loss for the year
Other comprehensive income
Total comprehensive income
Share-based payments (Note 30)
Dividends paid
Balance at 31 December 2012
Balance at 1 January 2011
Profit for the year
Other comprehensive income
Total comprehensive income
Share-based payments (Note 30)
Dividends paid
–
–
–
–
–
–
–
–
–
–
1 383
885 648
1 383
885 648
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1)
(1)
–
–
–
–
–
–
(117 855)
(117 855)
15 507
(102 348)
28 477
–
28 477
(2 623)
25 854
28 477
(117 855)
(89 378)
12 884
(76 494)
3 113
–
–
–
3 113
–
3 113
–
(8 770)
(8 770)
(17 130)
(539 261)
330 639
70 993
401 632
1 325
(489 075)
399 280
–
67 669
67 669
84 791
38 247
484 071
105 916
(51 627)
(51 627)
1 582
–
–
(51 627)
(19 505)
(71 132)
67 669
–
–
16 042
1 582
18 742
–
34 784
1 582
–
(36 654)
(36 654)
Balance at 31 December 2011
1 383
885 648
(1)
(48 720)
(421 406)
416 904
66 879
483 783
1 Being shares held by Gem Diamonds Limited Employee Share Trust.
2 Refer Note 20, Issued Capital and Reserves for further detail.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
92
Consolidated Statement of Cash flows
As at 31 December 2012
Cash flows from operating activities
Cash generated by operations
Working capital adjustments
Finance income
Finance cost
Income tax paid
Cash flows used in investing activities
Purchase of property, plant and equipment
Waste cost capitalised
Proceeds from sale of property, plant and equipment
Acquisition of business combination
Purchase of other financial assets
Cash (disposed of)/received from disposal of subsidiary
Cash flows used in financing activities
Financial liabilities raised
Dividends paid to non-controlling interests
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year – continuing operations
Cash and cash equivalents at the beginning of the year – discontinued operations
Foreign exchange differences
Cash and cash equivalents at end of the year held with banks
Restricted cash at end of the year
Cash and cash equivalents at end of the year
Notes
23.1
23.2
23.1
9
23.3
26
19
19
2012
US$’000
90 199
143 699
(25 084)
118 615
3 109
(213)
(31 312)
(170 883)
(69 000)
(96 617)
1 144
(786)
(5 015)
(609)
(5 728)
3 042
(8 770)
(86 412)
158 750
–
(1 496)
70 681
161
70 842
2011
US$’000
203 288
216 680
3 994
220 674
3 766
(36)
(21 116)
(125 030)
(44 913)
(87 314)
2 637
–
(340)
4 900
(36 654)
–
(36 654)
41 604
129 849
78
(12 781)
157 165
1 585
158 750
Gem DiamondsAnnual Report 2012
93
Notes to the Annual Financial Statements
For the year ended 31 December 2012
1. Notes to the financial statements
1.1 Corporate information
1.1.1 Incorporation
The holding company, Gem Diamonds Limited (the ‘Company’), was incorporated on 29 July 2005 in the British Virgin
Islands. The Company’s registration number is 669758.
These financial statements were authorised for issue by the Board on 11 March 2013.
1.1.2 Operational information
The Company has the following investments directly in subsidiaries at 31 December 2012:
Name of company
Subsidiaries
Share-
holding
Cost of
investment¹
Country of
incorporation Nature of business
Gem Diamond Technical Services (Proprietary) Limited2 100%
US$17
RSA
Gem Equity Group Limited2**
100%
US$52 277
BVI
Technical, financial and management consulting
services.
Dormant investment company holding 1% in Gem
Diamonds Botswana (Proprietary) Limited, 2% in Gem
Diamonds Marketing Services BVBA, 1% in Baobab
Technologies BVBA and 0.1% in Calibrated Gem
Botswana (Proprietary) Limited.
Letšeng Diamonds (Proprietary) Limited2
Gem Diamonds Botswana (Proprietary) Limited2
BDI Mining Corp2
Gem Diamonds Australia Holdings21*
70%
100%
100%
100%
US$126 000 303
Lesotho
Diamond mining and holder of mining rights.
US$27 752 144
Botswana
Diamond mining; evaluation and development; and
holder of mining licences and concessions.
US$82 064 783
BVI
Dormant investment company.
US$293 960 521
Australia
Investment company holding 100% in Kimberley
Diamonds Company NL.
Gem Diamonds Investments Limited2**
100%
US$17 531 316
UK
Investment holding company holding 100% in each
of Gem Diamonds Technology (Mauritius) Limited,
Gem Diamonds Technology DMCC and Calibrated
Diamonds Investment Holdings (Proprietary) Limited;
99.9% in Calibrated Gem Botswana (Proprietary)
Limited; 99% in Baobab Technologies BVBA and 98%
in Gem Diamonds Marketing Services BVBA.
1 The cost of investment represents original cost of investments at acquisition dates.
2 No change in the shareholding since the prior year.
* The Group entered into a sale agreement on 30 November 2012 for the sale of its Australian mining activities, the Ellendale mine (Kimberley Diamonds Company NL), with an effective date of 31 December 2012.
As a result of the terms of the agreement entered into, the Group lost control of Kimberley Diamonds Company NL. As a result, the trading results of the operation have been classified as part of discontinued
operations and the net assets have been derecognised and an investment was recorded as an available for sale investment at fair value.
**On May 2012 Baobab Technologies BVBA was formed, a 100% held company within Gem Diamonds Investment Limited.
1.1.3 Segment information
For management purposes, the Group is organised into geographical units as the Group’s risks and required rates of return
are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates.
Other regions where no direct mining activities take place (includes the remaining dormant operations of the Australian
region post the sale of the Australian mining operations) are organised into geographical regions in the areas where the
operations are managed. The main geographical regions are:
•
Lesotho (Mining activities)
• Australia (Mining activities)
• Botswana (Mining activities)
• Belgium (Sales, marketing and manufacturing for the sale of diamonds in Antwerp)
• BVI, RSA and UK (Technical and administrative services)
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
94
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.1.3 Segment information continued
Management monitors the operating results of the geographical units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss.
However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis
and are not allocated to operating segments.
Inter-segment transactions are entered into under normal arm’s length terms in a manner similar to transactions with third
parties. Segment revenue, segment expenses and segment results include transactions between segments. Those
transactions are eliminated on consolidation.
Segment revenue is derived from mining activities and group services.
The following table presents revenue and profit, asset and liability information from operations regarding the Group’s
geographical segments:
Year ended 31 December 2012
Lesotho
(US$’000)
Botswana
(US$’000)
Belgium
(US$’000)
BVI, RSA and UK
(US$’000)
Total
Continuing
operations
(US$’000)
Discontinued
operations
(US$’000)
Total
(US$’000)
Sales
Total sales
Inter-segment sales
Sales to external customers
Results
207 744
(205 492)
2 252
Depreciation and amortisation
44 618
Depreciation and mining
asset amortisation
Waste amortisation
Share-based equity transactions
Impairment
17 651
26 967
305
1 428
–
–
–
–
–
–
–
Segment operating profit/(loss)
67 683
(246)
Net finance income/(cost)
Profit/(loss) before tax from operations
Income tax expense
Re-measurement to fair value
Recycling of foreign currency translation reserve on disposal
of subsidiary
Profit/(loss) for the year
201 433
10 198
419 375
113 704
533 079
(1 729)
(10 036)
(217 257)
–
(217 257)
199 704
162
202 118
113 704
315 822
350
350
–
–
–
13
1 035
46 003
49 530
95 533
1 035
–
1 976
14 813
(34 017)
19 036
26 967
2 281
16 241
33 433
1 312
34 745
(18 407)
–
–
18 278
31 252
650
4 121
(6 107)
(493)
(6 600)
–
(63 697)
37 314
58 219
2 931
20 362
27 326
819
28 145
(18 407)
(63 697)
(48 389)
(48 389)
16 338
(118 686)
(102 348)
Segment assets
Segment liabilities
372 778
51 042
100 490
6 702
15 379
2 769
62 772
17 997
551 419
78 510
–
–
551 419
78 510
Other segment information
Capital expenditure
– Property, plant and equipment*
– Waste cost capitalised
Total capital expenditure
31 677
60 559
92 236
36 731
–
36 731
2 124
–
2 124
1 687
–
72 219
60 559
1 687
132 778
15 457
36 058
51 515
87 676
96 617
184 293
*Capital expenditure includes movements in rehabilitation assets relating to changes in rehabilitation estimates.
Gem DiamondsAnnual Report 2012
95
1.1.3 Segment information continued
Included in total annual revenue is revenue from a customer which amounted to US$88.7 million arising from sales reported
in the Australian segment.
Segment liabilities do not include deferred tax liabilities of US$71.3 million.
Total sales for the period are lower than that in the prior period as a result of the current market conditions and lower
diamonds prices at both the Lesotho and Australian operations.
Lesotho
(US$’000)
Botswana
(US$’000)
Belgium
(US$’000)
BVI, RSA and UK
(US$’000)
Total continuing
operations
(US$’000)
Discontinued
operations
(US$’000)
Total
(US$’000)
Year ended 31 December 2011
Sales
Total sales
Inter-segment sales
Sales to external customers
Results
Depreciation and amortisation
– Depreciation and mining asset
amortisation
– Waste amortisation
Share-based equity transactions
Resource extension development costs
300 587
(297 027)
3 560
40 594
21 970
18 624
129
–
–
–
–
–
–
–
–
–
Segment operating profit/(loss)
167 442
161
1 285
(18 362)
Net finance income/(cost)
Share of profit of associate
Profit before tax from continuing
operations
Income tax expense
Profit for the period
300 244
(58)
13 968
(11 572)
614 799
(308 657)
89 432
704 231
–
(308 657)
300 186
2 396
306 142
89 432
395 574
1 735
42 608
27 382
69 990
279
279
–
–
–
1 735
–
1 181
–
23 984
18 624
1 310
–
150 526
2 108
–
152 634
(52 946)
99 688
8 720
18 662
145
1 767
6 198
(278)
308
6 228
–
6 228
32 704
37 286
1 455
1 767
156 724
1 830
308
158 862
(52 946)
105 916
673 796
121 952
Segment assets
Segment liabilities
371 503
54 620
66 749
2 952
3 966
2 324
113 682
555 900
117 896
3 042
62 938
59 014
Other segment information
Capital expenditure
– Property, plant and equipment
– Waste cost capitalised
Total capital expenditure
18 714
56 486
75 200
21 791
–
21 791
11
–
11
1 091
–
1 091
41 607
56 486
98 093
19 738
30 828
50 566
61 345
87 314
148 659
*Capital expenditure includes movements in rehabilitation assets relating to changes in rehabilitation estimates.
Included in the prior year annual revenue, is revenue from two customers which amount to US$134.4 million arising from
sales reported in the Lesotho, Belgium and Australian segments.
Segment liabilities do not include deferred tax liabilities of US$68.1 million.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
96
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2 Summary of significant accounting policies
1.2.1 Basis of presentation
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards
(IFRS). These financial statements have been prepared under the historical cost basis, except as modified by the revaluation
for available-for-sale financial assets through other comprehensive income and derivative financial instruments at fair value
through profit or loss. The accounting policies have been consistently applied except for the adoption of the new standards
and interpretations detailed below.
The functional currency of the Company and certain of its subsidiaries is the US dollar, which is the currency of the primary
economic environment in which the entities operate. All amounts are expressed in US dollars. The financial statements
of subsidiaries whose functional and reporting currency is in currencies other than the US dollar have been converted
into US dollars on the basis as set out in Note 1.2.14. Foreign currency translations.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the
financial statements are disclosed in Note 1.2.25. Critical accounting estimates and judgements.
The Group has also adopted the following standards and interpretations from 1 January 2012:
IFRS 7 Financial Instruments: Disclosures – Enhanced Derecognition Disclosure Requirements (Amendment)
The amendment requires additional disclosure about financial assets that have been transferred but not derecognised
to enable the user of the Group’s financial statements to understand the relationship with those assets that have not been
derecognised and their associated liabilities. In addition, the amendment requires disclosures about the entity’s continuing
involvement in derecognised assets to enable the users to evaluate the nature of, and risks associated with, such
involvement. The amendment is effective for annual periods beginning on or after 1 July 2011. The Group does not have
any assets with these characteristics so there has been no effect on the presentation of its financial statements.
IAS 12 Income Taxes – Deferred Taxes: Recovery of Underlying Assets (Amendment)
The IASB has issued an amendment to IAS 12 that introduces a rebuttable presumption that deferred tax on investment
properties measured at fair value be recognised on a sale basis. The presumption can be rebutted if the entity applies
a business model that would indicate that substantially all of the investment property will be consumed in the business,
in which case an own-use basis must be adopted. The Group measures its investment property at cost and therefore this
amendment had no effect on the financial position or performance of the Group.
Gem DiamondsAnnual Report 2012
97
1.2.1 Basis of presentation continued
Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Groups financial
statements are disclosed below. The Group intends to adopt these standards if applicable when they become effective.
Standard or
Interpretation
IAS 28
Investments in Associates and Joint
Ventures
IAS 32
Offsetting Financial Assets and Financial
Liabilities – Amendments to IAS 32
IFRS 7
Disclosures – Offsetting Financial
Assets and Financial Liabilities –
Amendments to IFRS 7
The revised standard caters for joint ventures in addition to prescribing the
accounting for investments in associates. The amendment has no impact on the
Group.
Clarification of the meaning of “currently has a legally enforceable right to set-off”
and clarification of offsetting criteria to settlement systems. Based on the
preliminary analyses performed it is not expected to have any impact on the
currently held investments of the Group.
Disclosure of information about rights to set-off and related arrangements to
provide information that is useful to users in evaluating the effect of netting
arrangements. Based on the preliminary analyses performed this is not expected to
have any impact on the currently held investments of the Group.
Effective Date*
1 January 2013
1 January 2014
1 January 2013
IFRS 9
Financial Instruments: Classification
and Measurement
Classification and measurement of financial assets and financial liabilities as defined
in IAS 39. Measurement of fair value. Based on preliminary analyses no material
impact is expected.
1 January 2015
IFRS 10,
IAS 27
Consolidated Financial Statements,
Separate Financial Statements
IFRS 11
Joint Arrangements
IFRS 12
Disclosure of Interests in Other Entities
IFRS 13
Fair Value Measurement
IFRIC 20
Stripping Costs in the Production Phase
of a Surface Mine
* Annual periods beginning on or after.
Guidance on accounting for consolidated financial statements and includes a
revised definition of control. Based on the preliminary analyses performed this
amendment is not expected to have any impact on the currently held investments
of the Group.
Joint ventures to be accounted for using the equity method therefore eliminating
the proportionate consolidation of the joint venture and includes a revised
definition of joint control. The application of this new standard will not impact the
financial position of the Group.
Includes additional disclosures as well as those disclosures previously in IAS 27, IAS
28 and IAS 31. New disclosures are required but this is not expected to impact on
the Group’s financial position or performance.
Measurement of fair value. Based on preliminary analyses no material impact is
expected.
Accounting for the benefit from stripping in surface mining activity. As the Group’s
application is in line with IFRIC 20 the application of this new standard will not
impact the financial position of the Group.
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
98
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2.1 Basis of presentation continued
Business environment and country risk
The Group’s operations are subject to country risk being the economic, political and social risks inherent in doing business
in certain areas of Africa, Europe and Australia. These risks include matters arising out of the policies of the government,
economic conditions, imposition of or changes to taxes and regulations, foreign exchange rate fluctuations and the
enforceability of contract rights.
The consolidated financial information reflects management’s assessment of the impact of these business environments
on the operations and the financial position of the Group. The future business environment may differ from management’s
assessment.
1.2.2 Going concern
The Company’s business activities, together with the factors likely to affect its future development, performance and position
are set out in the Business review. The financial position of the Company, its cash flows and liquidity position are described in
the Business review. In addition, Note 29, Financial risk management, includes the Company’s objectives, policies and
processes for managing its capital; its financial risk management objectives; details of its financial instruments and its
exposures to credit risk and liquidity risk.
After making enquiries which include reviews of forecasts and budgets, timing of cash flows, borrowing facilities and
sensitivity analyses and considering the uncertainties described in this report either directly or by cross reference, the
Directors have a reasonable expectation that the Group and the Company have adequate financial resources to continue
in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in
preparing the annual report and accounts of the Company.
These financial statements have been prepared on a going concern basis which assumes that the Group will be able to
meet its liabilities as they fall due for the foreseeable future.
Refer to Note 29, Financial Risk Management for statements on the Company’s objectives, policies and processes for
managing its capital; details of its financial instruments and hedging activities; its exposures to market risk in relation
to commodity price and foreign exchange risks; cash flow interest rate risk; credit risk and liquidity risk.
1.2.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company. Control is achieved where the Company has the power to govern the financial and operating policies
of an investee entity so as to obtain benefits from its activities.
Basis of consolidation
Subsidiaries
Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial
and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect
ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement.
The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the
same reporting year as the parent company and are based on consistent accounting policies. All intragroup balances and
transactions, including unrealised profits arising from them, are eliminated in full.
A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary, it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary;
(ii) derecognises the carrying amount of any non-controlling interest; (iii) derecognises the cumulative translation differences,
recorded in equity; (iv) recognises the fair value of the consideration received; (v) recognises the fair value of any investment
retained; (vi) recognises any surplus or deficit in profit or loss; (vii) reclassifies the parent’s share of components previously
recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.
Gem DiamondsAnnual Report 2012
99
1.2.3 Basis of consolidation continued
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly and indirectly, to the parent company
and is presented separately within equity in the consolidated statement of financial position, separately from equity
attributable to owners of the parent. Losses within a subsidiary are attributed to the non-controlling interest even if that
results in a deficit balance.
1.2.4 Exploration and evaluation expenditure
Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility
and the assessment of commercial viability of an identified resource. Exploration and evaluation activity includes:
• acquisition of rights to explore;
• researching and analysing historical exploration data;
• gathering exploration data through topographical, geochemical and geophysical studies;
• exploratory drilling, trenching and sampling;
• determining and examining the volume and grade of the resource;
• surveying transportation and infrastructure requirements; and
• conducting market and finance studies.
Administration costs that are not directly attributable to a specific exploration area are charged to the income statement.
Licence costs paid in connection with a right to explore in an existing exploration area are capitalised and amortised over
the term of the permit.
Exploration and evaluation expenditure is capitalised as incurred. Capitalised exploration expenditure is recorded as a
component of property, plant and equipment at cost less accumulated impairment charges. As the asset is not available
for use, it is not depreciated.
All capitalised exploration and evaluation expenditure is monitored for indications of impairment. Where a potential
impairment is indicated, assessments are performed for each area of interest in conjunction with the group of operating
assets (representing a cash-generating unit (CGU)) to which the exploration is attributed. To the extent that exploration
expenditure is not expected to be recovered, it is charged to the income statement. Exploration areas where reserves have
been discovered, but require major capital expenditure before production can begin, are continually evaluated to ensure
that commercial quantities of reserves exist or to ensure that additional exploration work is underway as planned.
1.2.5 Development expenditure
When proved reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure
is reclassified within property, plant and equipment to development expenditure. As the asset is not available for use, during
the development phase, it is not depreciated. On completion of the development, any capitalised exploration and
evaluation expenditure already capitalised to development expenditure, together with the subsequent development
expenditure, is reclassified within property, plant and equipment to mining assets and depreciated on the basis as laid out
in Note 1.2.6. Property, plant and equipment.
All development expenditure is monitored for indications of impairment annually.
1.2.6 Property, plant and equipment
Property, plant and equipment is recorded at cost less accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable to the acquisition and construction of the items, amongst others,
professional fees, and for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy.
Subsequent costs to replace a component of an item of property, plant and equipment that is accounted for separately,
is capitalised when the cost of the item can be measured reliably, with the carrying amount of the original component
being written off. All repairs and maintenance are charged to the income statement during the financial period in which
they are incurred.
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100
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
Depreciation commences when an asset is available for use. Depreciation is charged so as to write off the depreciable
amount of the asset to its residual value over its estimated useful life, using a method that reflects the pattern in which
the asset’s future economic benefits are expected to be consumed by the Group.
Depreciation methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each balance sheet date.
The following methods and useful lives were applied during the period:
Item
Mining assets
Decommissioning assets
Leasehold improvements
Plant and equipment
Finance lease assets
Other assets
Method
Straight line
Straight line
Straight line
Straight line
Straight line
Straight line
Useful life
Lesser of life of mine and period of lease
Lesser of life of mine and period of lease
Lesser of 3 years and period of lease
3 – 10 years
Lesser of period of lease or 5 years
2 – 5 years
Pre-production mine stripping costs are capitalised to development costs. Stripping costs incurred during the production
phase to remove additional overburden or waste ore are deferred when they give access to future economic benefits and
charged to operating costs using the expected average stripping ratio over the average life of the area being mined. The
average stripping ratio is calculated as the number of tonnes of waste material expected to be removed during the life of
area, per tonne of ore mined.
The average life of area cost per tonne is calculated as the total expected costs to be incurred to mine the ore body divided
by the number of tonnes expected to be mined. The average life of area stripping ratio and the average life of area cost per
tonne are recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio
are accounted for prospectively as a change in estimate.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the asset. These are
included in the income statement.
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101
1.2.7 Investment property
Investment property is initially recognised using the cost model. Subsequent recognition is at cost less accumulated
depreciation and less any accumulated impairment losses. Rental income from investment property is recognised on a
straight line basis over the term of the lease. Initial direct costs incurred in negotiating and arranging the lease are capitalised
to investment property and depreciated over the lease term. Depreciation is calculated on a straight line basis as follows:
Investment property
No depreciation is provided for due to depreciable amount being zero
Initial direct costs capitalised to investment property
5 years
1.2.8 Business combinations, goodwill and other intangible assets
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling
interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate
share of the acquiree’s identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred
are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the
acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be
recognised in accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent
consideration is classified as equity, it should not be re measured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration
transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in
stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) over the net identifiable
amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and
liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships
or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance
with their nature and applicable IFRSs. Identifiable intangible assets, meeting either the contractual-legal or separability
criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised
if the acquisition-date fair value can be measured reliably.
If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the
non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the
‘acquirer’s previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent
liabilities and the fair value of any pre-existing interest held in the business acquired, the difference is recognised in profit
and loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of
impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units (or groups of cash-generating units) that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to
which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal
management purposes and not be larger than an operating segment before aggregation.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the carrying amount of the operation when determining the gain
or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of
the operation disposed of and the portion of the cash-generating unit retained.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
102
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2.8 Business combinations, goodwill and other intangible assets continued
Concessions and licences
Concessions and licences are shown at cost. Concessions and licences have a finite useful life and are carried at cost
less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight line
method to allocate the cost of concessions and licences over the shorter of the life of mine or term of the licence once
production commences.
1.2.9 Other financial assets
• financial assets at fair value through profit or loss;
• loans and receivables;
• held-to-maturity investments; and
• available-for-sale financial assets.
Management determines the classification of its investments at initial recognition and re-evaluates this designation at every
reporting date.
When financial assets are recognised initially, they are measured at fair value plus (in the case of investments, not at fair value
though profit or loss) directly attributable costs.
Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held-for-trading, and those designated at fair value through profit
or loss. Upon initial recognition, a financial asset is classified in this category if acquired principally for the purpose of selling
in the short term or if so designated by management. Derivatives are also categorised as held-for-trading unless they are
designated as hedges. Gains and losses on investments held-for-trading are recognised in profit or loss. Assets in this
category are classified as current assets if they are either held-for-trading or are expected to be realised within 12 months
of the balance sheet date.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market. They are included in current assets, except those with maturities greater than 12 months after the balance
sheet date. These are classified as non-current assets. Such assets are carried at amortised cost using the effective interest
rate method, less any allowance for impairment, if the time value of money is significant. Gains and losses are recognised
in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process.
A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be
able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at an appropriate
interest rate. The amount of the provision is recognised in the income statement.
Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed
maturities that the Group’s management has the positive intention and ability to hold to maturity. If the time value of money
is significant, held-to-maturity investments are carried at amortised cost using the effective interest rate method. Gains
and losses are recognised in profit or loss when the investments are derecognised or impaired, as well as through
the amortisation process.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any
of the other categories. They are included in non-current assets unless management intends to dispose of the investment
within 12 months of the balance sheet date. After initial recognition, available-for-sale financial assets are measured at fair
value with gains or losses being recognised as a separate component of equity until the investment is derecognised or until
the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity
is included in profit or loss.
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103
1.2.9 Other financial assets continued
Fair value
The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted
market bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair
value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions;
reference to the current market value of another instrument which is substantially the same; discounted cash flow analysis
or other valuation models.
Amortised cost
Held-to-maturity investments and loans and receivables are measured at amortised cost. This is computed using the
effective interest rate method less any allowance for impairment. The calculation takes into account any premium or
discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate.
1.2.10 Impairments
Non-financial assets
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are
separately identifiable cash inflows (cash-generating units). Non-financial assets that were previously impaired are reviewed
for possible reversal of the impairment at each reporting date.
A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the
asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset
is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such a reversal is
recognised in the income statement. After such a reversal the depreciation charge is adjusted in future periods to allocate
the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.
Financial assets
The Group assesses at each balance sheet date whether a financial asset or group of financial assets are impaired.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
104
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2.10 Impairments continued
Assets carried at amortised cost
If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount
of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash
flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original
effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset is
reduced through use of an allowance account. The amount of the loss shall be recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed, to the extent
that the carrying value of the asset does not exceed its amortised cost at the reversal date, any subsequent reversal of an
impairment loss is recognised in profit or loss.
In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability
of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due
under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance
account. Impaired debts are derecognised when they are assessed as uncollectible.
Available-for-sale financial investments
If an available-for-sale investment is impaired, an amount comprising the difference between its cost (net of any principal
payment and amortisation) and its current fair value, less any impairment loss previously recognised in profit or loss, is
transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available-for-sale are not
recognised in profit or loss. Reversals of impairment losses on debt instruments are reversed through profit or loss if the
increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was
recognised in profit or loss.
1.2.11 Inventories
Inventories, which include rough diamonds, ore stock piles and consumables, are measured at the lower of cost and net
realisable value. The amount of any write-down of inventories to net realisable value and all losses, are recognised in the
period the write-down or loss occurs. Cost is determined as the average cost of production, using the ‘first-in-first-out
method’. Cost includes directly attributable mining overheads, but excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and the estimated costs to be incurred in marketing, selling and distribution.
1.2.12 Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at amortised cost. Cash and cash equivalents comprise cash
on hand, deposits held at call with banks, other short term, highly liquid investments with original maturities of three months
or less.
For the purpose of the cash flow statement, cash and cash equivalents consists of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
1.2.13 Issued share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from
the proceeds.
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105
1.2.14 Foreign currency translations
Presentation currency
The results and financial position of the Group’s subsidiaries which have a functional currency different from the presentation
currency are translated into the presentation currency as follows:
• balance sheet items are translated at the closing rate at the date of that balance sheet;
• income and expenses for each income statement are translated at average exchange rates (unless this average is not
a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income
and expenses are translated at the dates of the transactions);
• all resulting exchange differences are recognised as a separate component of equity.
Details of the rates applied at the respective balance sheet dates and for the income statement transactions are detailed
in Note 20, Issued capital and reserves.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at the period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are
recognised in profit or loss. Non-monetary items that are measured in terms of cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was determined. Monetary items for each balance
sheet presented are translated at the closing rate at the date of that balance sheet.
1.2.15 Share-based payments
Employees (including Senior Executives) of the Group receive remuneration in the form of share-based payment
transactions, whereby employees render services as consideration for equity instruments (equity settled transactions).
In situations where some or all of the goods or services received by the entity as consideration for equity instruments cannot
be specifically identified, they are measured as the difference between the fair value of the share-based payment and the fair
value of any identifiable goods or services received at the grant date. For cash-settled transactions, the liability is re-measured
at each reporting date until settlement, with the changes in fair value recognised in profit or loss.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they
are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant
employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing
equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the
shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon
a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided
that all other performance conditions are satisfied.
At each balance sheet date before vesting, the cumulative expense is calculated, representing the extent to which the
vesting period has expired and management’s best estimate of the achievement or otherwise of non-market conditions and
of the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition,
be treated as vesting as described above. The movement in cumulative expense since the previous balance sheet date is
recognised in the income statement, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified or a new award is designated as replacing a cancelled or settled
award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition,
an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification,
based on the difference between the fair value of the original award and the fair value of the modified award, both as
measured on the date of the modification. No reduction is recognised if this difference is negative.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
106
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2.15 Share-based payments continued
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet
recognised in the income statement for the award is expensed immediately.
Where an equity-settled award is forfeited, it is treated as if vesting conditions had not been met and all costs previously
recognised in the income statement for the award is reversed and recognised in income immediately.
1.2.16 Financial liabilities
Interest-bearing borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the
income statement, unless capitalised in accordance with Note 1.2.23. Finance costs, over the period of the borrowings, using
the effective interest rate method.
Bank overdrafts are recognised at amortised cost.
Fair value through profit or loss
Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through profit and loss.
Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives,
including separated embedded derivatives, are also classified as held for trading unless they are designated as effective
hedging instruments. Gains or losses on liabilities held for trading are recognised in the income statement.
1.2.17 Provisions
Provisions are recognised when:
• the Group has a present legal or constructive obligation as a result of a past event;
• a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
The increase in the provision due to the passage of time is recognised as finance costs.
1.2.18 Restoration and rehabilitation
The mining, extraction and processing activities of the Group normally give rise to obligations for site restoration and
rehabilitation. Rehabilitation works can include facility decommissioning and dismantling; removal and treatment of waste
materials; land rehabilitation; and site restoration. The extent of the work required and the estimated cost of final
rehabilitation, comprising liabilities for decommissioning and restoration, are based on current legal requirements, existing
technology and the Group’s environmental policies and is reassessed annually. Cost estimates are not reduced by the
potential proceeds from the sale of property, plant and equipment.
Provisions for the cost of each restoration and rehabilitation programme are recognised at the time the environmental
disturbance occurs. When the extent of the disturbance increases over the life of the operation, the provision is increased
accordingly. Costs included in the provision encompass all restoration and rehabilitation activity expected to occur. The
restoration and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present
value. Discount rates used are specific to the country in which the operation is located. The value of the provision is
progressively increased over time as the effect of the discounting unwinds, which is recognised in finance charges.
Restoration and rehabilitation provisions are also adjusted for changes in estimates.
When provisions for restoration and rehabilitation are initially recognised, the corresponding cost is capitalised as an asset
where it gives rise to a future benefit and depreciated over future production from the operation to which it relates.
Gem DiamondsAnnual Report 2012
107
1.2.19 Taxation
Income tax for the period comprises current and deferred tax. Income tax is recognised in the income statement except
to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity. Current tax
expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted
at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset
is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted
at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax
benefit will be realised.
In respect of taxable temporary differences associated with investments in subsidiaries, associates and jointly controlled
entities, deferred tax is provided except where the timing of the reversal of the temporary differences can be controlled
by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.
In respect of deductible temporary differences associated with investments in subsidiaries, associates and jointly controlled
entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse
in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
Withholding tax is recognised in the income statement when dividends or other services which give rise to that withholding
tax are declared or accrued respectively. Withholding tax is disclosed as part of current tax.
Royalties
Royalties and revenue-based taxes are accounted for under IAS 12 when they have the characteristics of an income tax.
This is considered to be the case when they are imposed under Government authority and the amount payable is based
on taxable income – rather than based on quantity produced or as a percentage of revenue. For such arrangements, current
and deferred tax is provided on the same basis as described above for other forms of taxation. Obligations arising from
royalty arrangements that do not satisfy these criteria are recognised as current provisions and disclosed as part of selling
and distribution costs. The royalties incurred by the Group are considered not to meet the criteria to be treated as part
of income tax.
1.2.20 Employee benefits
Provision is made in the financial statements for all short term employee benefits. Liabilities for wages and salaries, including
non monetary benefits, benefits required by legislation, annual leave, retirement benefits and accumulating sick leave
obliged to be settled within 12 months of the reporting date, are recognised in trade and other payables and are measured
at the amounts expected to be paid when the liabilities are settled. Benefits falling due more than 12 months after the
balance sheet date are discounted to present value. The Group recognises an expense for contributions to the defined
contribution pension fund in the period in which the employees render the related service.
Bonus plans
The Group recognises a liability and an expense for bonuses. The Group recognises a liability where contractually obliged
or where there is a past practice that has created a constructive obligation. These liabilities are recognised in trade and other
payables and are measured at the amounts expected to be paid when the liabilities are settled.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
108
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2.21 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement
at inception date of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets or
the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the
following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included
in the lease term;
(c) There is a change in the determination of whether fulfilment is dependent on a specific asset; or
(d) There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances
gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).
Group as a lessee
Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased
property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and
finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding lease obligations,
net of finance charges, are included in financial liabilities.
The interest element of the finance cost is charged to the income statement over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of the liability for each year. The property, plant and
equipment acquired under finance leases are depreciated over the shorter of the asset’s useful life and the lease term.
Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income
statement on a straight line basis over the period of the lease. When the Group is a party to a lease where there is a
contingent rental element associated within the agreement, a cost is recognised as and when the contingency materialises.
Group as a lessor
Assets leased out under operating leases are included in investment property. Rental income is recognised on a straight
line basis over the lease term. Refer to Note 1.2.7 Investment property for further information on the treatment of
investment property.
1.2.22 Revenue
Revenue is measured at fair value of the consideration received or receivable and comprises the fair value for the sale
of goods, net of value-added tax, rebates and discounts and after eliminated sales within the Group. The Group assesses
its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has
concluded that it is acting as principal in all of its revenue arrangements. Revenue is recognised as follows:
Sale of goods
Sales of diamonds and other products are recognised when the significant risks and rewards of ownership have been
transferred to the customer and can be measured reliably and receipt of future economic benefits is probable.
Rendering of service
Sales of services are recognised in the accounting period in which the services are rendered, and it is probable that
the economic benefits associated with the transaction will flow to the entity, by reference to completion of the specific
transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided.
Interest income
Interest income is recognised on a time-proportion basis using the effective interest rate method.
Gem DiamondsAnnual Report 2012
109
1.2.22 Revenue continued
Dividends
Dividends are recognised when the amount of the dividend can be reliably measured and the Group’s right to receive
payment is established.
1.2.23 Finance costs
Finance costs are generally expensed as incurred, except where they relate to the financing of construction or development
of qualifying assets requiring a substantial period of time to prepare for their intended future use. Finance costs are
capitalised up to the date when the asset is ready for its intended use.
1.2.24 Dividend distribution
Dividend distributions to the Group’s shareholders are recognised as a liability in the Group’s financial statements in the
period in which the dividends are approved by the Group’s shareholders.
1.2.25 Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make estimates and judgements and
form assumptions that affect the reported amounts of the assets and liabilities, the reported revenue and costs during the
periods presented therein, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future and the resulting accounting estimates will, by
definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing
a material adjustment to the financial results or the financial position reported in future periods are discussed below.
Life of mine
There are numerous uncertainties inherent in estimating ore reserves and the associated life of mine. Therefore the Group
must make a number of assumptions in making those estimations, including assumptions as to the prices of commodities,
exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change
significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the ore
reserves being restated. Where assumptions change the life of mine estimates, the associated depreciation rates, residual
values, waste stripping and amortisation ratios and environmental provisions are re-assessed to take into account the revised
life of mine estimate.
Exploration and evaluation expenditure
This policy requires management to make certain estimates and assumptions as to future events and circumstances, in
particular whether economically viable extraction operations are viable where reserves have been discovered and whether
indications of impairment exist. Any such estimates and assumptions may change as new information becomes available.
Development expenditure
Judgement is applied by management in determining when a project has reached a stage at which economically
recoverable reserves exist and that development may be sanctioned. Management is required to make certain estimates
and assumptions similar to those described above for capitalised exploration and evaluation expenditure.
Revenue
Management has entered into arrangements to increase the revenue earned on the sale of rough diamonds. Under these
arrangements, revenue is earned for the sale of the rough diamond, with an additional uplift based on the polished margin
achieved. These are referred to as partnership arrangements in these financial statements. Management recognises the
revenue on the sale of the rough diamond at the point at which it is sold to the third party, as there is no continuing
involvement in the cutting and polishing process by management and the significant risks and rewards have passed to the
third party. Judgement is applied by management in determining when additional uplift is recognised and measured with
regards to rough diamonds sold into partnership arrangements. Management is required to make certain estimates and
assumptions based as to when the uplift can be reliably measured.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
110
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
1. Notes to the financial statements continued
1.2.25 Critical accounting estimates and judgements continued
Property, plant and equipment – recoverable amount
The calculation of the recoverable amount of an asset requires significant judgements, estimates and assumptions, including
future demand, technological changes, exchange rates, interest rates and others.
Impairment of goodwill
The Group determines if goodwill is impaired at least on an annual basis. This requires an estimation of the recoverable
amount of the cash-generating unit to which the goodwill relates. Recoverable amount is the higher of fair value less costs
to sell and value-in-use. Fair value calculations require the Group to make estimates of the amount for which the cash-
generating unit could be sold. Estimating the value in use requires the Group to make an estimate of the expected future
cash flows from the cash-generating unit and a market related pre-tax discount rate in order to calculate the present value
of those cash flows.
Impairment of assets
The Group assesses each cash-generating unit annually to determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of
the fair value less costs to sell and value-in-use. These assessments require the use of estimates and assumptions such as
long-term diamond prices, discount rates, future capital requirements, exploration potential and operating performance.
Fair value is determined as management’s best estimate of the amount that would be obtained from the sale of the asset
in an arm’s length transaction between knowledgeable and willing parties. Fair value for mine assets is generally determined
as the present value of estimated future cash flows arising from the continued use of the asset using assumptions that an
independent market participant may take into account. Cash flows are discounted by an appropriate discount rate to
determine the net present value.
Provision for restoration and rehabilitation
Significant estimates and assumptions are made in determining the amount of the restoration and rehabilitation provisions.
These deal with uncertainties such as changes to the legal and regulatory framework, magnitude of possible contamination,
and the timing, extent and costs of required restoration and rehabilitation activity.
Taxation
The determination of the Group’s obligations and expense for taxes requires an interpretation of tax law and therefore
certain assumptions and estimates are made.
Deferred waste
Management is required to make certain estimates and assumptions regarding the tonnes of waste material expected
to be mined during the life of area per tonne of ore mined. The average life of area cost per tonne is calculated as the total
expected costs to be incurred to mine the ore body divided by the number of tonnes expected to be mined. The average
life of area stripping ratio and the average life of area cost per tonne are recalculated annually in light of additional
knowledge and changes in estimates. During the current year there was a change in estimate of waste amortisation rates
due to the revision of the surveying method used. This resulted in an additional US$1.9 million cost (after tax) being
recognised in the income statement. It is not practicable to disclose the effect for the future periods.
Loss of control of the Australian mining activities
Judgement is applied by management in determining whether the Group lost control and if so, on what date control was
lost over its Australian mining activities, the Ellendale mine (Kimberley Diamonds Company NL). The Group entered into a
sale agreement on 30 November 2012, with an effective date of 31 December 2012. As a result of the terms of the
agreement entered into, the Group lost control of Kimberley Diamonds Company NL.
Share based payments
Management applied judgement in determining that the share options relating to the employees of Kimberley Diamonds
Company NL were cancelled in light of their leaving status being assessed as “good leavers”. The costs not yet recognised
in the income statement for the award have been expensed immediately.
Gem DiamondsAnnual Report 2012 111
1.2.26 Exceptional items
The Group presents as exceptional items on the face of the income statement, those material items of income and expenses
which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to
allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison
with prior periods and to assess better trends in financial performance.
2. Revenue
Sale of goods
Rendering of services
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 8, Discontinued Operations).
Finance revenue is reflected in Note 5, Net finance income.
Other operating income is reflected in Note 3, Operating profit.
2012
US$’000
200 700
1 418
202 118
2011*
US$’000
305 633
509
306 142
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
112
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
3. Operating profit
Operating profit includes the following:
Other operating income
Profit on disposal of property, plant and equipment – continuing operations
Profit on disposal of property, plant and equipment – discontinued operations
Mark to market revaluations on forward exchange contracts
Depreciation, mining asset amortisation and waste amortisation
Depreciation, mining asset amortisation and waste amortisation – continuing operations
Depreciation, mining asset amortisation and waste amortisation – discontinued operations
Less: Depreciation capitalised to exploration assets – continuing operations
Less: Depreciation and amortisation capitalised to inventory – continuing operations
Amortisation of intangible assets – continuing operations
Inventories
Cost of inventories recognised as an expense
Foreign exchange gain
Operating lease expenses as a lessee
Lease payments recognised in the income statement
– Mine site property
– Equipment and service leases
– Contingent rental – alluvial deposits
– Leased premises
Auditor’s remuneration – Ernst &Young
Audit fee
– Group financial statements
– Continuing operations
– Discontinued operations
– Statutory
– Continuing operations
Auditor’s remuneration – Other
– Statutory
– Continuing operations
2012
US$’000
2011*
US$’000
121
194
1 191
(47 098)
(49 984)
1 133
416
(95 533)
(105)
(95 638)
(85 003)
3 815
(85)
(45 210)
(7 463)
(792)
(53 550)
(1 021)
(747)
(274)
(298)
(298)
33
–
–
(42 848)
(27 443)
268
33
(69 990)
–
(69 990)
(97 821)
6 882
(87)
(33 178)
(6 153)
(660)
(40 078)
(971)
(710)
(261)
(249)
(249)
(1 319)
(1 220)
(15)
(15)
(15)
–
–
–
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations, unless stated otherwise (Refer Note 8, Discontinued operations).
Gem DiamondsAnnual Report 2012
113
2012
US$’000
2011*
US$’000
(283)
(112)
(171)
(143)
(143)
(16)
(16)
(150)
(150)
–
(592)
(134)
(134)
(164)
(164)
–
(298)
(61)
(44)
(17)
–
(18)
(18)
(9)
(6)
(3)
(88)
(225)
(225)
–
–
–
(225)
(21 124)
(19 724)
Other non-audit fees – Ernst & Young
Tax services advisory and consultancy
– Continuing operations
– Discontinued operations
Corporate finance services
– Continuing operations
Tax compliance services
– Continuing operations
Other services
– Continuing operations
– Discontinued operations
Other non-audit fees – other
Other services
– Internal audit
– Continuing operations
– Tax services advisory & consultancy
– Continuing operations
– Discontinued operations
Employee benefits expense
Salaries and wages1
1Includes contributions to defined contribution plan of US$0.8million (31 December 2011: US$0.6 million).
Underlying earnings before interest, tax, depreciation and mining asset amortisation
(EBITDA)
Underlying EBITDA is shown as the Directors consider this measure to be a relevant guide to the performance of the Group. The reconciliation from
operating profit to underlying EBITDA is as follows:
Operating profit
Foreign exchange gain
Share-based payments
Other operating income
Depreciation and mining asset amortisation (excluding waste amortisation)
Underlying EBITDA before exceptional items
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 8, Discontinued operations).
.
Directors’ remuneration
Refer to the Directors’ remuneration report for full details of transactions with Directors.
49 674
(3 815)
2 281
(1 271)
18 582
65 451
150 526
(6 882)
1 310
(40)
21 603
166 517
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
114
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
4. Exceptional items
Recognised in arriving at operating profit from continuing operations:
Impairment – Chiri
Impairment – Project Kholo
Impairment – Chiri
2012
US$’000
2011*
US$’000
14 813
1 428
16 241
860
–
860
During 2007, the Company entered into a co-operation agreement and option agreement in relation to the Chiri Concession
in Angola, which is a diamondiferous kimberlite. During the current year, the Company terminated its participation in the
Chiri project in Angola when it became clear that the terms upon which ongoing participation in this deposit could be
secured, did not meet the requirements of the Company for value creation. This resulted in the total resource and
development costs expended on the project to date to be written off. The write-off is represented by a loan advanced to the
project of US$5.6 million (December 2011: US$5.6 million), costs associated and incurred in securing the option to acquire
the indirect interest of US$0.5 million (December 2011: US$0.5 million) and costs associated with the exploration and other
associated assets of US$8.7 million (December 2011: US$8.4 million). These costs are not directly related to current
operations and are therefore disclosed as exceptional.
Impairment – Project Kholo
During 2011, the Group approved the expansion at the Letšeng mine (Project Kholo). During the current year, Project Kholo
as originally envisaged was re-evaluated and, as a result certain capital expenditure incurred on items that were assessed as
no longer having an enduring benefit to the operation, were written off. As the write-off of these assets has arisen from
circumstances other than the write off of assets at the end of their usual expected lives, this write-off has been classified
as exceptional.
5. Net finance income
Finance income
Bank deposits
Other
Total finance income
Finance costs
Bank overdraft
Interest on debt and borrowings
Finance costs on unwinding of rehabilitation provision
Total finance costs
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 8, Discontinued operations).
2012
US$’000
2011*
US$’000
2 514
50
2 564
(123)
(1)
(1 128)
(1 252)
1 312
3 140
17
3 157
(1)
(1)
(1 047)
(1 049)
2 108
Gem DiamondsAnnual Report 2012
115
Notes
2012
US$’000
2011
US$’000
(9 860)
(34 347)
(2 140)
(8 636)
(6 407)
(18 407)
34 745
8
(118 686)
(83 941)
(9 963)
(52 946)
152 634
6 228
158 862
%
24.5
9.1
11.5
1.0
0.6
–
6.3
53.0
%
26.5
1.7
–
–
(1.4)
1.9
5.6
34.3
6. Income tax expense
Income statement
Current
– Overseas
Withholding tax
– Overseas
Deferred
– Overseas
Reconciliation of tax rate:
Profit before taxation from continuing operations
(Loss)/profit before taxation from discontinued operations
(Loss)/profit before taxation
Applicable income tax rate
Permanent differences
Tax impact on exceptional items
Unrecognised deferred tax assets
Effect of overseas tax at different rates
Effect of deferred tax on unremitted earnings
Withholding tax
Effective income tax rate
Income tax expense reported in the consolidated income statement
Income tax attributable to discontinued operations
(18 407)
(52 946)
–
–
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 8, Discontinued operations).
7. Disposal of subsidiary
Australia
Kimberley Diamonds Company NL
The Group entered into a sale agreement on 30 November 2012 for the sale of its Australian mining activities, the Ellendale
mine (Kimberley Diamonds Company NL), with an effective date of 31 December 2012. As a result of the terms of the
agreement entered into, the Group lost control of Kimberley Diamonds Company NL. As a result, the trading results of the
operation have been classified as part of discontinued operations. The net assets have been re-measured to fair value, then
derecognised and an investment was recorded as an available for sale investment at fair value. The subsidiary has therefore
been de-consolidated from this date.
Blina Minerals NL, previously held as an available for sale asset was held through Kimberley and due to the loss of control of
Kimberley, the investment in Blina Minerals NL is considered to be disposed of. Due to the decline in share price which was
considered to be other than temporary, the investment was fully impaired through profit and loss.
Subsequent to year-end, the Kimberley Diamonds Company NL sale was finalised for the agreed purchase price of US$15.4
million.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
116
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
7. Disposal of subsidiary continued
Indonesia
Cempaka mine
During the prior year the Group completed the sale of its Indonesian operation for a consideration of US$5.0 million,
resulting in the Group realising a gain of US$2.7 million. Refer to Note 23.3, Cash received/(disposed) from disposal of
subsidiary for further detail on the disposal.
The results of the transactions are presented as follows:
Assets
Property, plant and equipment
Inventories
Trade and other receivables
Other financial assets
Cash and cash equivalents
Liabilities
Trade and other payables
Provisions
Net identifiable assets disposed of
Recycling of foreign currency translation reserve
Consideration received
Available-for-sale investment
Re-measurement to fair value
Loss / (Gain) on disposal of subsidiaries
Notes
2012
US$’000
2011
US$’000
11 001
30 891
3 049
13 492
282
(12 382)
(30 964)
15 369
48 389
–
(15 369)
63 697
112 086
2 486
132
76
–
100
(308)
(139)
2 347
–
(5 000)
–
–
(2 653)
Gem DiamondsAnnual Report 2012
117
8. Discontinued operations
The discontinued operations consist of Kimberley Diamonds Company NL (Refer Note 7, Disposal of subsidiary), for the
period up until control was lost and the Cempaka mine in Indonesia (Refer Note 7, Disposal of subsidiary) for the period
up to 28 October 2011.
Australia
Impairment of property, plant and equipment
Immediately before classification as an asset held-for-sale, the recoverable amount for certain items of property, plant and
equipment in Kimberley Diamonds Company NL was estimated and an impairment of US$3.2 million was identified.
On reclassification, the carrying value of the assets in the disposal group was re-measured by US$63.7 million to reflect their
fair value. The fair value of the asset held-for-sale was determined from the estimated consideration which has been agreed
between the Company and a 3rd party buyer, which is US$15.4 million. The results of the Australian operation for the year
ended 31 December 2012 and both the Australian and Indonesian operations for the year ended 31 December 2011 are
as follows:
Revenue
Cost of sales and other operating costs1
Gross profit
Other operating income
Royalties and selling costs
Finance costs2
Share-based payments
Impairments3
Foreign exchange gain
Share of profit in associate
Gain on disposal of subsidiary
(Loss)/gain before re-measurement to fair value
Re-measurement to fair value
Recycling of foreign currency translation reserve
(Loss)/profit before tax from discontinued operations
Tax expense
– related to current pre-tax loss
(Loss)/profit after tax from discontinued operations
Earnings per share from discontinued operations (cents)
– Basic
– Diluted
The net cash flows attributable to the discontinued operations are as follows:
Operating
Investing
Financing
Net cash (outflow)/inflow
2012
US$’000
113 704
(108 667)
5 037
80
(6 912)
(493)
(650)
(4 121)
459
–
–
(6 600)
(63 697)
(48 389)
2011
US$’000
89 432
(82 731)
6 701
4 043
(5 570)
(278)
(148)
(1 767)
286
308
2 653
6 228
–
–
(118 686)
6 228
–
–
–
–
(118 686)
6 228
(86)
(85)
43 007
(51 217)
–
(8 210)
2
2
(1 136)
1 527
(370)
21
1 Included in cost of sales is an amount of US$1.7 million relating to write down of inventories (31 December 2011: US$0.4 million).
2 Included in finance costs is unwinding of discount rate of rehabilitation provision of US$0.95 million (31 December 2011: US$0.87 million)
3 Included in impairments is the impairment relating to Blina Minerals NL. The Group considered the investment to be impaired due to the significant decline of the investment’s share price.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
118
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
9. Business combination
On 9 May 2012, Baobab Technologies BVBA (a newly formed 100% held company within Gem Diamonds Investment
Limited) acquired certain intellectual property (staff and know-how) from and entered into a short-term lease agreement
for the use of equipment and premises with Matrix Diamond Technology BVBA (“Matrix”), an unlisted company based in
Belgium, specialising in cutting and polishing of rough diamonds. The cash consideration paid for the intellectual property
was US$0.8m. The acquisition was done as part of the Group’s sales and marketing strategy and growth in its cutting and
polishing business. The final fair value of the assets acquired as at the date of acquisition was:
Final fair value recognition on acquisition
Assets
Intangible asset
Purchase consideration in cash transferred
Total
(US$’000)
786
786
786
From the date of acquisition to 31 December 2012, Baobab contributed revenue of US$0.1million and a loss of US$0.4
million to the profit from continuing operations. Had the combination taken place at the beginning of 2012 Baobab would
have contributed revenue of US$0.2 and a loss of US$0.6 million.
Transaction costs of US$0.2 million have been expensed and are included in the income statement of the Group.
10. Earnings per share
The following reflects the income and share data used in the basic and diluted earnings per share computations:
Profit for the year
Profit/(loss) for the year from discontinued operations
Recycling of foreign currency translation reserve on discontinued operation
Less: non-controlling interests
Net (loss)/profit attributable to equity holders of the parent for basic and diluted earnings
The weighted average number of shares takes into account the treasury shares at year-end.
2012
US$’000
32 579
(70 297)
(48 389)
(15 507)
(101 614)
2011
US$’000
99 688
6 228
–
(38 247)
67 669
Weighted average number of ordinary shares in issue during the year (‘000)
138 177
138 170
Earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent
by the weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share is calculated by dividing the net profit attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year after taking into account future potential
conversion and issue rights associated with the ordinary shares.
Weighted average number of ordinary shares in issue during the year
Effect of dilution:
– Future share awards under the Employee Share Option Programme
Weighted average number of ordinary shares in issue during the year adjusted for the effect of dilution
Number of
shares
2012
(’000)
Number of
shares
2011
(’000)
138 177
138 170
1 350
139 527
2 147
140 317
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date
and the date of completion of these financial statements.
Gem DiamondsAnnual Report 2012
119
11. Property, plant and equipment
As at 31 December 2012
Cost
Balance at 1 January 2012
Additions
Disposals
Mining
assets1
(US$’000)
Exploration &
development
assets
(US$’000)
Decommissioning
assets
(US$’000)
Leasehold
improvements
(US$’000)
Plant and
equipment2
(US$’000)
Other
assets3
(US$’000)
Total
(US$’000)
586 246
97 065
107 004
35 588
–
(17)
29 259
15 013
–
84 203
8 653
(1 180)
279 916
15 579
1 102 207
24 717
(3 251)
3 257
(852)
184 293
(5 300)
Disposal of subsidiaries
(253 149)
(39 773)
(25 111)
(78 039)
(174 626)
(4 375)
(575 073)
Reclassifications
–
Foreign exchange differences
(11 135)
Balance at 31 December 2012
419 027
(1 246)
(2 739)
98 817
–
(540)
6 291
37
(6 303)
(3 719)
1 258
(479)
–
(18 575)
18 621
19 965
116 734
14 388
687 552
Accumulated
depreciation/amortisation
Balance at 1 January 2012
370 264
38 601
12 277
69 836
176 981
9 311
677 270
Depreciation and amortisation
charge
Disposals
62 168
–
–
–
4 582
–
6 503
(1)
20 632
(2 009)
3 197
(802)
97 082
(2 812)
Disposal of subsidiaries
(227 017)
(39 773)
(13 979)
(66 571)
(153 120)
(3 077)
(503 537)
Impairment
Foreign exchange differences
1 040
(1 641)
Balance at 31 December 2012
204 814
7 800
498
7 126
–
1
2 881
1 852
285
11 904
1 910
(598)
43 796
–
(203)
8 426
12 602
(1 658)
278 947
Net book value at
31 December 2012
As at 31 December 2011
Cost
Balance at 1 January 2011
Additions
Disposals
Reclassifications
Foreign exchange differences
214 213
91 691
15 740
8 061
72 938
5 962
408 605
Mining
assets1
(US$’000)
Exploration &
development assets
(US$’000)
Decommissioning
assets
(US$’000)
Leasehold
improvements
(US$’000)
Plant and
equipment2
(US$’000)
Finance
lease assets
(US$’000)
Other assets3
(US$’000)
Total
(US$’000)
567 320
87 232
–
(15 609)
(52 697)
94 718
21 471
–
(473)
(8 712)
22 298
8 879
–
–
(1 918)
29 259
108 371
242 224
843
(18)
(19 642)
26 364
(3 867)
34 803
(5 351)
(19 608)
84 203
279 916
991
–
(956)
–
(35)
–
14 119
1 050 041
3 870
(1 347)
921
148 659
(6 188)
–
(1 984)
(90 305)
15 579
1 102 207
Balance at 1 January 2011
343 435
36 840
10 477
75 482
160 175
991
8 624
636 024
Balance at 31 December 2011
586 246
107 004
Accumulated
depreciation/amortisation
Depreciation and
amortisation charge
Disposals
Reclassifications
Impairment
44 324
–
(3 739)
–
Foreign exchange differences
(13 756)
Balance at 31 December 2011
370 264
–
–
–
1 767
(6)
38 601
2 288
–
–
–
(488)
12 277
Net book value at
31 December 2011
215 982
68 403
16 982
14 367
102 935
1 Included in mining asset is deferred stripping of US$90.9 million (31 December 2011: US$81.3 million)
2 Included in plant and equipment is capital work in progress of US$47.4 million (31 December 2011: US$31.1 million)
3 Other assets comprise motor vehicles, computer equipment, furniture and fittings and office equipment
3 874
(18)
(7 194)
–
17 670
(3 804)
10 130
–
–
(956)
–
–
2 133
(1 346)
803
–
70 289
(6 124)
–
1 767
(2 308)
(7 190)
(35)
(903)
(24 686)
69 836
176 981
–
–
9 311
677 270
6 268
424 937
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
120
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
12. Investment property
The investment property consists of a commercial unit in a building located in Dubai. It comprises of a unit in Almas Towers
in Dubai. The unit is being let out in terms of a long-term rental agreement entered into with a tenant during 2010. The
rental agreement was entered into for a period of five years commencing 23 July 2010.
Cost
At 1 January 2012
Net book value 31 December
Accumulated depreciation/impairment
At 1 January 2012
Depreciation
Balance at 31 December 2012
Net book value at 31 December 2012
Fair value¹
Amounts recognised in profit or loss
Rental income
Direct operating expenses
2012
US$’000
2011
US$’000
617
617
–
–
1
1
616
879
53
(11)
617
617
–
–
–
–
617
703
53
(9)
1 No independent valuation was performed. Fair value was based upon an overview of property sales (units within the same building as the investment property) during 2012, weighted towards the most recent
sales activity.
The future minimum rental payments under the long-term rental agreement in aggregate and for each of the following
periods are as follows:
– Within one year
– After one year but not more than five years
– More than five years
2012
US$’000
2011
US$’000
56
92
–
148
54
148
–
202
Gem DiamondsAnnual Report 2012
121
13. Intangible assets
As at 31 December 2012
Cost
Balance at 1 January 2012
Disposal of subsidiaries2
Additions
Disposals
Foreign exchange differences
Balance at 31 December 2012
Accumulated amortisation/impairment
Balance at 1 January 2012
Disposal of subsidiaries2
Amortisation
Foreign exchange differences
Balance at 31 December 2012
Net book value at 31 December 2012
1 Intellectual property was acquired as part of the business combination (Refer Note 9, Business combinations).
2 The goodwill disposed of related to goodwill in Kimberley which had previously been fully impaired.
As at 31 December 2011
Cost
Balance at 1 January 2011
Foreign exchange differences
Balance at 31 December 2011
Accumulated amortisation/impairment
Balance at 1 January 2011
Foreign exchange differences
Balance at 31 December 2011
Net book value at 31 December 2011
Intangibles1
(US$’000)
Goodwill
(US$’000)
Total
(US$’000)
–
–
786
–
–
786
–
–
105
–
105
681
104 328
(33 604)
–
–
(816)
69 908
78 799
(33 604)
–
421
45 616
24 292
104 328
(33 604)
786
–
(816)
70 694
78 799
(33 604)
105
421
45 721
24 973
Goodwill
(US$’000)
Total
(US$’000)
109 948
(5 620)
104 328
78 794
5
78 799
25 529
109 948
(5 620)
104 328
78 794
5
78 799
25 529
Impairment of goodwill within the Group was tested in accordance with the Group’s policy. Refer to Note 14, Impairment
testing for further details.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
122
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
14. Impairment testing
Goodwill
Goodwill acquired through business combinations has been allocated to the individual cash-generating units, as
follows:
– Letšeng Diamonds
– Calibrated Diamonds
Balance at end of the year
2012
US$’000
2011
US$’000
22 503
1 790
24 293
23 648
1 881
25 529
Discount rates are outlined below, and represent the real pre-tax rates. These rates are based on the weighted average cost
of capital of the Group and adjusted accordingly at a risk premium of each cash-generating unit, taking into account risks
associated with different cash-generating units.
Discount rate for each cash-generating unit
– Letšeng Diamonds
– Calibrated Diamonds
2012
US$’000
2011
US$’000
13.3%
14.0%
14.7%
13.7%
Goodwill impairment testing is undertaken annually and whenever there are indications of impairment. The most recent test
was undertaken at 31 December 2012. In assessing whether goodwill has been impaired, the carrying amount of the cash-
generating unit is compared with its recoverable amount. For the purpose of goodwill impairment testing in 2012,
recoverable amounts for Letšeng Diamonds and Calibrated Diamonds have been determined based on value-in-use.
Letšeng Diamonds
Value-in-use
Cash flows are projected for a period up to the date that mining is expected to cease, based on management’s expectations
at the time of completing the testing, and is limited to the lesser of the current economic resource or the remaining 12 year
mining lease period. This date depends on a number of variables, including recoverable reserves and resources, the forecast
selling prices and the treatment costs.
Key assumptions used in the calculations
The key assumptions used in the calculation for goodwill assets are:
• recoverable reserves and resources
• expected carats recoverable
• expected grades achievable
• expected US$/carat prices
• expected plant throughput
• costs of extracting and processing
• discount rates
Economically recoverable reserves and resources, carats recoverable and grades achievable are based on management’s
current expectation and mine plan, supported by the evaluation work undertaken by appropriately qualified persons.
Long-term US$/carat prices are based on external market consensus forecasts as published by independent marketing
consultants adjusted for the Group’s specific operations and contracted sales arrangements. Plant throughput is based
on current plant facilities and processing capacities. Costs are determined on management’s experience and the use
of contractors over a period of time whose costs are fairly reasonably determinable.
The foreign exchange rates have been based on current spot exchange rates at the date of the value-in-use calculations.
Gem DiamondsAnnual Report 2012
123
Sensitivity to changes in assumptions
Given the current volatility in the market, adverse changes in key assumptions could result in changes to
impairment charges. The impairment test is most sensitive to changes in commodity prices and foreign exchange rates.
The values assigned to these key assumptions reflect past experience.
For the purposes of testing for impairment of goodwill using the value-in-use basis for Letšeng, the excess of the recoverable
amount (based on the remaining lease period) over the carrying value is US$110.0 million. Based on the life of mine period
using current reserves, the excess over the recoverable amount is US$560.0 million, as it is management’s intention to
extend the lease arrangement.
No reasonably possible change in any of these key assumptions would cause Letšeng Diamonds’ carrying amount to exceed
its recoverable amount.
Calibrated Diamonds
The recoverable amount of Calibrated Diamonds was determined based on value-in-use calculation using cash flow
projections from financial budgets approved by senior management. The key assumptions include management’s best
estimate of the recoverability of the residual value of the assets taking into account the location of the assets and the ability
to dispose of the assets in the current economic climate.
Sensitivity to changes in assumptions
Given the current volatility in the market, adverse changes in key assumptions could result in changes to
impairment charges.
The impairment test is most sensitive to changes in commodity prices and foreign exchange rates. The values assigned
to these key assumptions reflect past experience. No reasonably possible change in any of these key assumptions would
cause Letšeng Diamonds’ carrying amount to exceed its recoverable amount.
Other
Chiri
During the year, the Company terminated its participation in the Chiri project in Angola when it became clear that the terms
upon which ongoing participation in this deposit could be secured, did not meet the requirements of the Company for
value creation. This resulted in the total resource and developments costs expended on the project to date, to be written off.
(Refer to Note 8, Discontinued operations). The write-off is represented by a loan advanced to the project of US$5.6 million
(December 2011: US$5.6 million), costs associated and incurred in securing the option to acquire the indirect interest of
US$0.5 million (December 2011: US$0.5 million) and costs associated with the exploration and other associated assets of
US$8.7 million (December 2011: US$8.4 million). These costs are not directly related to current operations and are therefore
disclosed as exceptional.
Project Kholo
Letšeng initiated an expansion programme (Project Kholo) to double current production capacity. This was approved at the
Letšeng and the Company’s Boards in November 2011. However during 2012 Project Kholo as originally envisaged was re-
evaluated. The project management team is actively investigating the optimal allocation of capital to fund an optimised
Project Kholo with a lower capital requirement. As work had already commenced on the Project Kholo, some of the costs
incurred have been considered to have no future benefit and the cost related to this work has been written off.
The Group will continue to test its other assets for impairment where indications are identified and may in future record
additional impairment charges or reverse any impairment charges to the extent that market conditions improve and to
the extent permitted by accounting standards.
Other non-current assets
Impairment – Chiri1
Impairment – Project Kholo1
1Refer Note 4, Exceptional items for a breakdown of the amounts included above.
2012
US$’000
14 457
1 428
2011
US$’000
–
–
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
124
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
15. Other financial assets
Non-current
Environmental bonds1
Chiri project loan2
Chiri option2
Available-for-sale investment
Other assets
Current
Available-for-sale investment3
Forward exchange contract
Other assets
2012
US$’000
2011
US$’000
–
–
–
–
14
14
15 369
1 067
8
16 444
16 458
7 293
5 626
536
498
634
14 587
–
–
9
9
14 596
1 Environmental bonds in the prior year related to the Kimberley Diamonds Company NL which has been disposed of. These bonds are classified as loans and receivables.
2 The Chiri project loan and option in the prior year related to the Chiri concession in Angola which has been fully written off at year-end. Refer Note 14, Impairment testing.
3 The available for sale investment relating to the Kimberly Diamonds Company NL is classified as a level 3 financial instrument as its fair value is not based on observable market data. Refer Note 8,
Discontinued operations.
The available-for-sale investment relates to the investment in Ellendale mine. The Group entered into a sale agreement on
30 November 2012 for the sale of its Australian mining activities, the Ellendale mine (Kimberley Diamonds Company NL),
with an effective date of 31 December 2012. As a result of the terms of the agreement entered into, the Group lost control
of Kimberley Diamonds Company NL. The trading results of the operation have been classified as part of discontinued
operations and the net assets have been derecognised and an investment was recorded as an available for sale investment
at fair value.
In the prior year, the non current available-for-sale investment related to Blina Minerals NL which the Group lost control over
on loss of control of Kimberley Diamonds Company NL.
The Group has entered into forward exchange contracts to hedge the exposure to changes in foreign currency of future
sales of diamonds at Letšeng Diamonds. The forward exchange contract is the revaluation on the mark to market financial
assets at year-end. The Group performs no hedge accounting. At December 2012 the Group has Zero Cost Cap Collars in
place with a notional cover of US$44.0 million. The zero cost cap collars have a put rate of ZAR8.65 while the call rate starts
at ZAR9.17 increasing to ZAR9.52 throughout the year. Of the US$44.0 million collars in place, US$24.0 million were
renegotiated and closed subsequent to year-end. These zero cost cap collars have a put rate of ZAR8.85 while the call rate
starts at ZAR9.26 increasing to ZAR9.35.
The fair value of these collars at 31 December 2012 was US$1.1 million (31 December 2011 US$nil).
Gem DiamondsAnnual Report 2012
125
2012
US$’000
2011
US$’000
80
–
7 295
7 375
86
5
4 730
4 821
(74 766)
(68 834)
(10)
162
(4 038)
(78 652)
(71 277)
(10)
–
(4 038)
(72 882)
(68 061)
(68 061)
(71 012)
(9 447)
(9 000)
(2)
(5)
–
(1)
2 771
217
3 251
(71 277)
25
(15)
(2 923)
(1)
1 750
–
13 115
(68 061)
16. Deferred taxation
Deferred tax assets
Accrued leave
Operating lease liability
Provisions
Deferred tax liabilities
Property, plant and equipment
Prepayments
Provisions
Unremitted earnings
Net deferred tax liability
Reconciliation of deferred tax liability
Balance at beginning of year
Movement in current period:
– Accelerated depreciation for tax purposes
– Accrued leave
– Operating lease liability
– Unremitted earnings
– Prepayments
– Provisions
– Tax losses utilised in the year
– Foreign exchange differences
Balance at end of year
The Group has not recognised a deferred tax liability for all taxable temporary differences associated with investments
in subsidiaries because it is able to control the timing of dividends and only part of the temporary difference is expected
to reverse in the foreseeable future. The gross temporary difference in respect of the undistributable reserves of the Group’s
subsidiaries for which a deferred tax liability has not been recognised is US$44.5 million (31 December 2011: US$34.4 million).
The Group has estimated tax losses of US$310.0 million (31 December 2011: US$313.8million). No deferred tax assets have
been recognised in respect of such losses at 31 December 2012 as management considers that it is not probable that
the losses in those entities will be utilised against taxable profits in those entities in the foreseeable future.
The Group has not recognised deferred tax assets in respect of other deductible temporary differences of US$122.0 million
(31 December 2011: US$134.4 million), since management considers that it is not probable that taxable profit will
be available against which the deductible temporary differences can be utilised.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
126
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
16. Deferred taxation continued
Of the US$310.0 million (31 December 2011: US$313.8million) estimated tax losses, US$1.4 million (31 December 2011:
US$0.2 million) losses in various jurisdictions expire as follows:
2013
2014
2015
2016
2017
2018
17. Inventories
Diamonds on hand1
Ore stock piles1
Consumable stores1
* Significant movement due to the disposal of Kimberley Diamonds Company NL (Refer Note 7, Disposal of subsidiary).
1 Stated at the lower of cost or net realisable value.
18. Receivables and other assets
Trade receivables
Prepayments
Deposits
Other receivables
VAT receivable
31 December
2012
US$’000
31 December
2011
US$’000
117
30
2
5
1 224
–
1 378
2012
US$’000
14 247
311
8 094
22 652
122
31
2
6
–
–
161
2011*
US$’000
21 175
6 197
11 850
39 222
2012
US$’000
2011
US$’000
1 858
1 400
475
541
2 999
7 273
1 849
2 620
456
1 037
4 183
10 145
The carrying amounts above approximate their fair value.
Terms and conditions of the receivables:
These amounts are non-interest bearing and are settled in accordance with terms agreed between the parties.
Gem DiamondsAnnual Report 2012
127
2012
US$’000
2011
US$’000
–
1 084
7 183
9 875
33
18
39
7 273
7 273
1 084
–
(1 097)
13
–
2012
US$’000
4
35 754
35 084
70 842
190
79
1
10 145
10 145
1 149
218
(61)
(222)
1 084
2011
US$’000
2
62 014
96 734
158 750
Provision for impairment of receivables*
Receivables (at nominal value) impaired and fully provided for:
Analysis of receivables
Neither past due nor impaired
Past due but not impaired:
< 30 days
30 – 60 days
60 – 90 days
Total receivables
Movements in the provision against receivables were as follows:
Balance at beginning of year
Charge for the year
Utilised during the year
Foreign exchange differences
Balance at end of year
* The provision for receivables was determined on an individual basis.
19. Cash and short term deposits
Cash on hand
Bank balances
Short term bank deposits
The amounts reflected in the financial statements approximate fair value.
Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits are generally call deposit
accounts and earn interest at the respective short term deposit rates.
At 31 December 2012, the Group had restricted cash of US$0.2 million (31 December 2011: US$1.6 million).
The Group’s cash surpluses are deposited with major financial institutions of high quality credit standing predominantly
within Lesotho, Australia, United Kingdom and Switzerland.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
128
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
20. Issued capital and reserves
Authorised – ordinary shares of US$0.01 each
As at year-end
Issued and fully paid
Balance at beginning of year
Allotments during the year
Balance at end of year
There were no share transactions during the year.
31 December 2012
31 December 2011
Number of
shares
‘000
US$’000
Number of
shares
‘000
US$’000
200 000
2 000
200 000
2 000
138 267
–
138 267
1 383
–
1 383
138 267
–
138 267
1 383
–
1 383
Share premium
Share premium comprises the excess value recognised from the issue of ordinary shares at par value.
Treasury shares
The Company established an Employee Share Option Plan (ESOP) on 5 February 2007. Under the terms of the ESOP,
the Company granted options to employees of over 376 500 ordinary shares with a nil exercise price upon listing.
At Listing, the Gem Diamonds Limited Employee Share Trust acquired 376 500 ordinary shares by subscription from
the Company as part of the Initial Awards under the ESOP arrangement at nominal value of US$0.01.
During the year, 10 500 shares were exercised (31 December 2011: 3 000) and no shares lapsed (31 December 2011: 1 000).
At 31 December 2012, 80 217 (31 December 2011: 90 717) shares were held by the trust.
Balance at 1 January 2012
Other comprehensive income
Total comprehensive income
Share-based payments
Balance at 31 December 2012
Balance at 1 January 2011
Other comprehensive loss
Total comprehensive loss
Share-based payments
Balance at 31 December 2011
Foreign
currency
translation
reserve
US$’000
(90 575)
27 775
27 775
(62 800)
(39 650)
(50 925)
(50 925)
–
(90 575)
Share-based
equity reserve
US$’000
42 557
–
–
3 113
45 670
40 975
–
–
1 582
42 557
Other
reserves
US$’000
(702)
702
702
–
–
(702)
(702)
–
(702)
Total
US$’000
(48 720)
28 477
28 477
3 113
(17 130)
1 325
(51 627)
(51 627)
1 582
(48 720)
Gem DiamondsAnnual Report 2012
129
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign
entities. During the year, the South African, Lesotho, Botswana, Australian, Mauritian and United Arab Emirate subsidiaries’
functional currencies were different to the Groups functional currency of US Dollars. The rates used to convert the operating
functional currency into US dollars are as follows:
Average rate
Period end
Average rate
Period end
Average rate
Period end
Average rate
Period end
Average rate
Period end
Average rate
Period end
Currency
Maloti to 1 US$
Maloti to 1 US$
ZAR to 1 US$
ZAR to 1 US$
AUD to 1 US$
AUD to 1 US$
Pula to 1 US$
Pula to 1 US$
Rupee to 1US$
Rupee to 1US$
Dirham to 1 US$
Dirham to 1 US$
2012
8.21
8.48
8.21
8.48
0.97
0.96
7.62
7.79
30.13
30.55
3.67
3.67
2011
7.26
8.07
7.26
8.07
0.97
0.98
6.84
7.47
28.71
29.35
3.67
3.67
Share-based equity reserves
For detail on the share-based payment reserve refer to Note 30, Share-based payments.
Other reserves
In the prior year, at the date of loss of significant influence, the difference between the carrying value and the fair value of the
investment in Blina Minerals NL was recognised in profit or loss and subsequent movements in the fair value gave rise to this
reserve through other comprehensive income. During the current year Blina Minerals NL was disposed of due to the loss of
control in Kimberley Diamonds Company NL. All relevant movements were recognised through other comprehensive
income and subsequently recycled through profit and loss.
Non-controlling interests
No non-controlling interests were acquired during the course of the year.
Capital management
For details on capital management, refer to Note 29, Financial risk management.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
130
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
21. Trade and other payables
Non-current
Accrued expenses1
Severance pay benefits2
Current
Trade payables1
Accrued expenses1
Leave benefits
Royalties1
Operating lease
Other
Total trade and other payables
The carrying amounts above approximate fair value.
Terms and conditions of the trade and other payables:
1 These amounts are non-interest bearing and are settled in accordance with terms agreed between the parties.
2012
US$’000
2011
US$’000
–
1 007
1 007
15 302
24 578
1 236
1 445
6
1 208
43 775
44 782
6
661
667
20 091
28 427
2 439
4 046
20
2 075
57 098
57 765
2 The severance pay benefits arise due to legislation, within the Lesotho jurisdiction, requiring that two weeks of severance pay be provided for every completed year of service, payable on retirement.
22. Provisions
Rehabilitation provisions
Employee provisions
Other
*Significant movement due to the disposal of Kimberley Diamonds Company NL (Refer Note 7, Disposal of subsidiary).
Reconciliation of movement in provisions
Balance at beginning of year
Arising during the year
Utilised during the year
Disposal of subsidiaries
Increase in rehabilitation provisions
Unwinding of discount rate
Foreign exchange differences
Balance at end of year
2012
US$’000
29 496
–
–
2011*
US$’000
41 712
551
195
29 496
42 458
Other
195
–
(190)
–
–
–
(5)
–
Total
42 458
244
(1 062)
(30 964)
17 749
2 077
(1 007)
29 496
Rehabilitation
provisions
Employee
provisions
41 712
–
(872)
(30 162)
17 749
2 077
(1 008)
29 496
551
244
–
(802)
–
–
6
–
Rehabilitation provisions
The provisions have been recognised as the Group has an obligation for rehabilitation of the mining areas. The provisions
have been calculated based on total estimated rehabilitation costs and discounted back to their present values. The pre-tax
discount rates are adjusted annually and reflect current market assessments. These costs are expected to be utilised over a
life of mine at the mining operation.
Gem DiamondsAnnual Report 2012
131
2011
US$’000
152 634
6 228
69 990
1 767
391
(3 786)
1 956
(548)
(308)
(3 794)
(1 772)
1 059
(5 939)
(2 653)
1 455
Employee provisions
Employee provisions in the prior year relate predominantly to long-service leave entitlements in Australia which were
payable upon an employee attaining a certain period of service and other employee benefits.
23. Cash flow notes
23.1 Cash generated by operations
Profit before tax for the year from continuing operations
(Loss)/ profit before tax for the year from discontinued operations
Adjustments for:
Notes
2012
US$’000
34 745
(118 686)
Depreciation, mining asset amortisation and waste amortisation on property, plant and equipment
3
Impairment
Write-down of inventory
Finance income
Finance costs
Movement in provisions
Share of profit in associate
Unrealised foreign exchange differences
Profit on disposal of property, plant and equipment
Prepayments
Other non-cash movements
Loss/(gain) on disposal of subsidiaries
Share-based equity transaction
23.2 Working capital adjustments
Increase in inventories
Decrease/(increase) in receivables
(Decrease)/increase in trade and other payables
95 638
19 456
1 650
(3 109)
2 291
(1 512)
–
41 048
(315)
(627)
6 492
63 697
2 931
143 699
216 680
2012
US$’000
(24 945)
565
(704)
(25 084)
2011
US$’000
(7 197)
(5 677)
16 868
3 994
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
132
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
23. Cash flow notes continued
23.3 Cash (disposed)/received from disposal of subsidiary
Property, plant and equipment
Inventories
Trade and other receivables
Other financial assets
Cash and cash equivalents
Trade and other payables
Provisions
Gain on disposal of subsidiaries
Proceeds on sale of subsidiaries
Proceeds on disposal not yet received
Net costs incurred
Cash equivalents sold
Net cash (disposed)/received
2012
US$’000
11 001
30 891
3 049
13 492
282
(12 382)
(30 964)
15 369
–
–
15 369
(327)
(282)
(609)
2011
US$’000
2 486
132
76
-
100
(308)
(139)
2 347
2 653
5 000
–
–
(100)
4 900
This relates to the disposal of the operations in Australia in the current year and Indonesia in the prior year (Refer Note 7,
Disposal of subsidiary).
24. Interest-bearing loans and borrowings
Current
Working capital facility
2012
US$’000
2011
US$’000
2 947
–
The carrying values of the liabilities approximate their fair values.
At 31 December 2012, the Group, through its subsidiary Letšeng Diamonds, has a M250.0 million revolving working capital
facility amounting to US$29.5 million (31 December 2011: US$31.0 million) which was signed in the prior year. As at 31
December 2012 US$2.9 million had been drawn against this facility (31 December 2011: US$nil). The interest rate on this loan
is prime less 0.8%, which equated to 8.95% at year-end and interest paid on the outstanding amount was US$0.1 million.
Subsequent to year-end the drawn down amount was fully repaid.
Gem DiamondsAnnual Report 2012
133
25. Commitments and contingencies
Commitments
Operating lease commitments – Group as lessee
The Group has entered into commercial lease arrangements for rental of office premises. These leases have a period of
between two and twelve years with an option of renewal at the end of the period. The terms will be negotiated during the
extension option periods catered for in the agreements. There are no restrictions placed upon the lessee by entering into
these leases.
Future minimum rentals payable under non-cancellable operating leases:
– Within one year
– After one year but not more than five years
– More than five years1
2012
US$’000
1 508
6 406
16 795
24 709
2011*
US$’000
926
799
–
1 725
1During the year Letšeng Diamonds entered into an operating lease contract for the rental of office space relating to the establishment of an in country manufacturing facility in Lesotho.
Mining leases
Mining lease commitments represent the Group’s future obligation arising from agreements entered into with local
authorities in the mining areas that the Group operates, currently in Lesotho and previously in Lesotho and Australia.
The period of these commitments is determined as the lesser of the term of the agreement, including renewable periods
or the life of the mine. The estimated lease obligation regarding the future lease period, accepting stable inflation and
exchange rates, is as follows:
– Within one year
– After one year but not more than five years
– More than five years
2012
US$’000
88
403
957
1 448
2011*
US$’000
86
400
1 142
1 628
Moveable equipment lease
The Group has entered into commercial lease arrangements which include the provision of loading, hauling and other
transportation services payable at a fixed rate per tonne of ore and waste mined, and power generator equipment payable
based on a consumption basis:
– Within one year
– After one year but not more than five years
– More than five years
2012
US$’000
32 774
32 767
–
2011*
US$’000
34 439
68 876
–
65 541
103 315
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations, unless stated otherwise (Refer Note 8, Discontinued operations).
Capital expenditure
Approved but not contracted for
Approved and contracted for
2012
US$’000
2011*
US$’000
35 342
22 002
322 705
29 588
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
134
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
25. Commitments and contingencies continued
Letšeng initiated an expansion programme (Project Kholo) to double current production capacity. This was approved at the
Letšeng and the Company’s Boards in November 2011. However during 2012 Project Kholo as originally envisaged was re-
evaluated. The project management team is actively investigating the optimal allocation of capital to fund an optimised
Project Kholo with a lower capital requirement. As work had already commenced on the Project Kholo, some of the costs
incurred have been considered to have no future benefit and the cost related to this work has been written off.
Contingent rentals – alluvial deposits
The contingent rentals on alluvial deposits represents the Group’s obligation to third parties for alluvial diamonds mined by
such third parties on the Group’s mining property. The rental is determined when the actual diamonds mined by such third
parties are sold. The rental agreement is based on 40% - 50% of the value of the diamonds recovered by Alluvial Ventures
and is limited to US$0.85 million per individual diamond. As at the balance sheet dates, such future sales cannot be
determined.
Letšeng Diamonds Educational Fund
In terms of the mining agreement entered into between the Group and the Government of the Kingdom of Lesotho, the
Group has an obligation to provide funding for education and training scholarships. The quantum of such funding is at the
discretion of the Letšeng Diamonds Education Fund Committee. The amount of the funding provided for the current year
was US$0.1 million (31 December 2011: US$0.1 million).
Contingencies
The Group has conducted its operations in the ordinary course of business in accordance with its understanding and
interpretation of commercial arrangements and applicable legislation in the countries where the Group has operations.
In certain specific transactions however, the relevant third party or authorities could have a different interpretation of those
laws and regulations that could lead to contingencies or additional liabilities for the Group. Having consulted professional
advisors, the Group has identified possible disputes approximating US$4.1 million (December 2011: US$1.0 million)
and tax claims within the various jurisdictions in which the Group operates approximating US$1.4 million
(December 2011: US$6.6 million).
There remains a risk that further tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in
some cases, the Group does not anticipate that there will be any material impact on the Group’s results, financial position
or liquidity.
26. Related parties
Related party
Jemax Management (Proprietary) Limited
Jemax Aviation (Proprietary) Limited
Gem Diamond Holdings Limited
Government of Lesotho
Geneva Management Group (UK) Limited
Blina Minerals NL
Relationship
Common director
Common director
Common director
Non-controlling interest
Common director
Associate (during prior year)
Refer to Note 1.1.2. Operational information, for information regarding shareholding in subsidiaries.
Refer to the Directors’ report for information regarding the Directors.
Gem DiamondsAnnual Report 2012
135
2012
US$’000
2011
US$’000
1 719
9 052
10 771
(109)
(107)
1 186
7 989
8 336
(650)
(96)
(16 382)
(23 887)
(85)
200
(13)
–
51
(9)
(87)
451
(10)
413
(50)
(9)
(1 062)
372
(2 012)
366
(8 770)
(36 654)
Compensation to key management personnel (including Directors)
Share-based equity transactions
Short term employee benefits
Fees paid to related parties
Jemax Aviation (Proprietary) Limited
Jemax Management (Proprietary) Limited
Royalties paid to related parties
Government of Lesotho
Lease and licence payments to related parties
Government of Lesotho
Sales to/(purchases) from related parties
Jemax Aviation (Proprietary) Limited
Geneva Management Group (UK) Limited
Blina Minerals NL
Amount included in trade receivables owing by/(to) related parties
Jemax Aviation (Proprietary) Limited
Jemax Management (Proprietary) Limited
Amounts owing by/(to) related party
Government of Lesotho
Blina Minerals NL1
Dividends paid
Government of Lesotho
1 The amount owing by Blina Minerals NL has been fully written off. Refer Note 7, Disposal of subsidiary.
Compensation to key management personnel (including Directors) includes compensation relating to Kimberley Diamonds
Company which is included as part of discontinued operations.
Jemax Management (Proprietary) Limited and Jemax Aviation (Proprietary) Limited provided administrative and aviation
services with regards to the mining and evaluation activities undertaken by the Group. The above transactions were made
on terms agreed between the parties.
Geneva Management Group (UK) Limited provided administration, secretarial and accounting services to the Company.
The above transactions were made on terms that prevail in arm’s length transactions.
27. Post balance sheet events
The following has taken place since the balance sheet date:
• The Company concluded and signed a US$20 million three-year unsecured revolving credit facility with Nedbank Capital
(a division of Nedbank Ltd), which is available for draw-down.
• As at the 31 December 2012 US$2.9 million of the Letšeng facility which was drawn down was repaid in January 2013.
• On 31 January 2013 the Group concluded the sale of Kimberley Diamond Company NL with an effective date of
31 December 2012.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
136
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
28. Financial instruments
Fair value
Set out below is a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments that
are carried in the financial statements:
Financial assets
Cash
Loan notes1
Receivables1
Environmental bond facilities and bank guarantees
Other loans1
Chiri option2
Available-for-sale investments3
Forward exchange contract
Financial liabilities
Bank overdraft
Interest bearing loans and borrowings
Trade and other payables1
1 The fair value approximates carrying value.
2 The option is carried at cost as fair value cannot be determined.
Carrying amount
Fair value
2012
US$’000
2011
US$’000
2012
US$’000
2011
US$’000
70 842
–
7 273
–
22
–
15 369
1 067
29
2 947
44 782
158 750
5 626
10 145
7 293
32
536
498
–
–
–
57 765
70 842
–
7 273
–
22
–
15 369
1 067
29
2 947
44 782
158 750
5 626
10 145
7 293
32
n/a
498
–
–
–
57 765
3 The available for sale investment relating to Kimberley Diamonds Company NL is classified as a level 3 financial instrument as the determined fair value is not based on observable market data
The fair values of other financial assets have been calculated using market interest rates where applicable.
29. Financial risk management
Financial risk factors
The Group’s activities expose it to a variety of financial risks:
(a) Market risk (including commodity price risk and foreign exchange risk);
(b) Credit risk;
(c) Liquidity risk; and
The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance.
Risk management is carried out under policies approved by the Board of Directors. The Board provides principles for overall
risk management, as well as policies covering specific areas, such as foreign exchange risk, interest-rate risk, credit risk, use
of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.
There have been no changes in the financial risk management policy since the prior year.
Gem DiamondsAnnual Report 2012
137
29. Financial risk management continued
Capital management
The capital of the Company is the issued share capital, share premium and treasury shares on the Group’s balance sheet.
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy
capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and
makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group
may issue new shares. The management of the Group’s capital is performed by the Board. During November 2011, the
Group, through its subsidiary Letšeng, signed a Maloti 250.0 million (31 December 2012: US$29.5 million, 31 December 2011:
US$31.0 million) three-year revolving working capital facility of which US$2.9 million had been drawn down as at year-end.
In addition to this, and by reference to the Note 27, Post balance sheet events, the Company concluded and signed a US$20
million 3-year unsecured revolving credit facility with Nedbank Capital (a division of Nedbank Ltd), which is available for
draw-down. At present, the Group has US$49.5 million (31 December 2011: US$31.0 million) of funding available and has
the flexibility to manage the capital structure more efficiently by the introduction of debt into the Group to ensure that an
appropriate gearing ratio is achieved.
(a) Market risk
(i) Commodity price risk
The Group is subject to commodity price risk. Diamonds are not a homogenous product and the price of rough diamonds
is not monitored on a public index system. The fluctuation of prices is related to certain features of diamonds such as quality
and size. Diamond prices are marketed in US$ and long-term US$/carat prices are based on external market consensus
forecasts and contracted sales arrangements adjusted for the Group’s specific operations. The Group does not have any
financial instruments that may fluctuate as a result of commodity price movements.
Kimberley Diamonds had an existing supply agreement with a top-end jeweller for its fancy yellow diamond production.
This contract, which catered for a monthly price review, was for the life of the mine and provided certainty to the revenue
flows (Refer Note 8, Discontinued operations).
(ii) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures,
primarily with respect to the Lesotho Loti, South African Rand and Australian Dollar. Foreign exchange risk arises when
future commercial transactions, recognised assets and liabilities are denominated in a currency that is not the entity’s
functional currency.
The Group’s sales are denominated in US$ which is the functional currency of the Company, but not the functional currency
of the operations.
The currency sensitivity analysis below is based on the following assumptions:
• Differences resulting from the translation of the financial statements of the subsidiaries into the Group’s presentation
currency of US$, are not taken into consideration.
• The major currency exposures for the Group relate to the US$ and local currencies of subsidiaries. Foreign currency
exposures between two currencies where one is not the US$ are deemed insignificant to the Group and have therefore
been excluded from the sensitivity analysis.
The analysis of the currency risk arises because of financial instruments denominated in a currency that is not the functional
currency of the relevant Group entity. The sensitivity has been based on financial assets and liabilities at 31 December 2012.
There has been no change in the assumptions or method applied from the prior year.
Sensitivity analysis
If the US$ had appreciated (depreciated) 10% against currencies significant to the Group at 31 December 2012, income
before taxation would have been US$0.5 million higher (lower) (31 December 2011: US$-). There would be no effect
on equity reserves other than those directly related to income statement movements.
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
138
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
29. Financial risk management continued
(iii) Forward exchange contracts
The Group has entered into forward exchange contracts to hedge the exposure to changes in foreign currency of future
sales of diamonds at Letšeng. The Group performs no hedge accounting. At December 2012 the Group has zero cost cap
collars in place with a notional cover of US$44.0 million. The zero cost cap collars have a put rate of ZAR8.65 while the call
rate starts at ZAR9.17 increasing to ZAR9.52 throughout the year. Of the US$44.0 million collars in place, US$24.0 million were
renegotiated and closed subsequent to year end. These zero cost cap collars have a put rate of ZAR8.85 while the call rate
starts at ZAR9.36 increasing to ZAR9.35.
(iv) Cash flow interest rate risk
The Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s
cash flow interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest
rate risk. At the time of taking new loans or borrowings management uses its judgment to decide whether it believes that a
fixed or variable rate borrowing would be more favourable to the Group over the expected period until maturity. An analysis
has been prepared which demonstrates the sensitivity to a reasonably possible change in interest rates, with all other
variables held constant, of the Group’s profit before tax (through impact on floating rate borrowings).
The interest rate sensitivity analysis is based on the following assumptions:
• All non-derivative financial instruments with fixed interest rate terms that are carried at amortised cost are excluded from
this analysis. This is because a change in market interest rates for such non-derivative financial instruments would only
affect income if these are measured at their air value; and
• The Group does not have significant cash flow hedges related to interest rate risk. As such, movements that would occur
in equity as a result of a hypothetical change in interest rates at reporting date has been excluded from this analysis.
Sensitivity analysis
If interest rates had increased (decreased) by 100 basis points at 31 December 2012 there would have been no material
impact on profit in the current year due to the low level of debt of US$2.9 million. There would be no effect on equity
reserves other than those directly related to income statement movements.
(b) Credit risk
The Group’s potential concentration of credit risk consists mainly of cash deposits with banks and other receivables.
The Group’s short-term cash surpluses are placed with the banks that have investment grade ratings. The maximum credit
risk exposure relating to financial assets is represented by the carrying value as at the balance sheet dates. The Group
considers the credit standing of counterparties when making deposits to manage the credit risk.
Considering the nature of the Group’s ultimate customers and the relevant terms and conditions entered into with such
customers, the Group believes that credit risk is limited as customers pay on receipt of goods. No other financial assets are
impaired or past due and accordingly, no additional analysis has been provided. No collateral is held in respect of the
impaired receivables or receivables that are past due but not impaired.
(c) Liquidity risk
Liquidity risk arises from the Group’s inability to obtain the funds it requires to comply with its commitments including
the inability to sell a financial asset quickly at a price close to its fair value. Management manages the risk by maintaining
sufficient cash, marketable securities and ensuring access to shareholding funding. This ensures flexibility in maintaining
business operations and maximises opportunities. Furthermore, subsequent to year end, the Company concluded and
signed a US$20 million 3-year unsecured revolving credit facility, which is available for draw-down. This facility, together with
the Maloti 250 million (US$29.5 million) facility signed by Letšeng in November 2011, provides the Group with a total of
US$49.5 million available debt facilities.
Gem DiamondsAnnual Report 2012
139
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual
undiscounted payments:
Floating interest rates
Trade and other payables
– Within one year
– After one year but not more than five years
– More than five years
Total
Trade and other payables
– Within one year
– After one year but not more than five years
– More than five years
Total
30. Share-based payments
2012
US$’000
2011
US$’000
2 947
–
–
2 947
43 775
1 007
–
–
–
–
57 098
667
–
44 782
57 765
The expense recognised for employee services received during the year is shown in the following table (US$’000):
Equity-settled share-based payment transactions charged to the Income statement – continuing operations
Equity-settled share-based payment transactions charged to the Income statement – discontinued operations (Refer
Note 8, Discontinued operations) 1
Equity-settled share-based payment transactions capitalised
2012
US$’000
2011*
US$’000
2 281
650
182
3 113
1 310
148
124
1 582
* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 8, Discontinued operations).
1 Included in this expense is the cost of accelerated vesting for the Australian employees. The equity settled awards were forfeited from the scheme which has resulted in the future SBP charges being accelerated
from the applicable Employee Share Option Plan (“ESOP”). Excluded from this acceleration is the ESOP awarded on 11 September 2012. This expense is reversed as the vesting relates to an 'employment period'
and is not based on market conditions.
The long-term incentive plans are described below:
Employee Share Option Plan
Certain key employees are entitled to a grant of options, under the Employee Share Option Plan (‘ESOP’) of the Company.
The vesting of the options is dependent on employees remaining in service for a prescribed period (normally three years)
from the date of grant. The fair value of share options granted is estimated at the date of the grant using a Black Scholes
simulation model, taking into account the terms and conditions upon which the options were granted. It takes into account
projected dividends and share price fluctuation co-variances of the Company.
There is a nil or nominal exercise price for the options granted at Admission of Gem Diamonds Limited. The contractual life
of the options is ten years and there are no cash settlement alternatives. The Group has no past practice of cash settlement.
Performance shares
No performance shares were granted during the year. During 2008, 437 769 performance shares were granted to certain key
employees under the ESOP of the Company in four tranches. The vesting of awards is subject to the satisfaction of
performance conditions over a three-year period that is considered appropriately stretching. If the performance conditions
are not met the options lapse. The fair value of share options granted is estimated at the date of the grant using a Monte
Carlo simulation model, taking into account the terms and conditions upon which the options were granted,
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
140
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
30. Share-based payments continued
projected dividends, share price fluctuations, the expected volatility, the risk-free interest rate, expected life of the option in
years and the weighted average share price of the Company. The contractual life of each option granted is three years. The
performance share awards vested in April 2011. For the purpose of the performance criterion, the conditions were tested
and the outcome was that no awards vested as neither the diamond peer group nor the FTSE 250 was outperformed.
Non-Executive share awards
In order to align the interests of the Chairman and independent Directors with those of the shareholders, the non-Executive
Directors were invited to subscribe for shares at nominal value on terms set out in the prospectus. The non-Executive
Directors shall not be eligible to participate in the STIBS, ESOP or ESGP or any other performance-related incentive
arrangements which may be introduced by the Company from time to time. There are currently no non-Executive
share awards.
Employee Share Option Plan for 2010 (long-term incentive plan (LTIP))
On 23 June 2010, 1 375 200 options were granted to certain key employees under the LTIP of the Company. Of the total
number of shares, 458 400 were Nil Value Options and 916 800 were Market Value Options. The exercise price of the Market
Value Options is £2.31 (US$3.33), which was equal to the market price of the shares on the date of the grant. The vesting
of the options will be subject to the satisfaction of performance conditions over a three-year period that is considered
appropriately stretching. If the performance conditions are not met the options lapse. The fair value of the options granted
is estimated at the date of the grant using a Monte Carlo simulation model, taking into account the terms and conditions
upon which the options were granted, projected dividends, share price fluctuations, the expected volatility, the risk-free
interest rate, expected life of the options in years and the weighted average share price of the Company. The contractual life
of each option granted is three years. There are no cash settlement options.
Employee Share Option Plan for 2011 (long-term incentive plan (LTIP))
On 13 June 2011, 1 314 000 options were granted to certain key employees under the LTIP of the Company. Of the total
number of shares, 438 000 were Nil Value Options and 876 000 were Market Value Options. The exercise price of the Market
Value Options is £2.63 (US$4.38), which was equal to the market price of the shares on the date of the grant. The vesting
of the options will be subject to the same conditions as the LTIP 2010 above.
Employee Share Option Plan for March 2012 (long-term incentive plan (LTIP))
On 20 March 2012, 1 347 000 options were granted to certain key employees under the LTIP of the Company. Of the total
number of shares, 449 000 were Nil Value Options and 898 000 were Market Value Options. The exercise price of the Market
Value Options is £3.00 (US$ 4.76), which was equal to the market price of the shares on the date of the grant. The vesting
of the options will be subject to the same conditions as the LTIP 2010 above.
Employee Share Option Plan for September 2012 (long-term incentive plan (LTIP))
On 11 September 2012, a further 936 000 options were granted to certain key employees under the LTIP of the Company.
Of the total number of shares 312 000 were Nil Value Options and 624 000 were Market Value Options. The exercise price
of the Market Value Options is £1.78 (US$2.95), which was equal to the market price of the shares on the date of grant.
The vesting of the September 2012 options is subject to performance conditions based on goals relating to company and
individual performance which are classified as non-market conditions. The fair value of these options is estimated in a similar
manner as the LTIP 2010 above.
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141
Movements in the year
Employee Share Option Plan
The following table illustrates the number and movement in, share options during the year:
Outstanding at beginning of year
Exercised during the year
Balance at end of year
Exercisable at end of year
The following table lists the inputs to the model used for the plan for the awards granted in 2008:
Employee Share Option Plan
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average share price
Model used
2012
‘000
44
(11)
33
–
2011
‘000
47
(3)
44
–
–
22
5
10
18.28
Black Scholes
The fair value of share options granted is estimated at the date of the grant using a Black Scholes simulation model, taking
into account the terms and conditions upon which the options were granted, projected dividends, share price fluctuations,
the expected volatility, the risk-free interest rate, expected life of the option in years and the weighted average share price
of the Company.
The ESOP is an equity-settled plan and the fair value is measured at the grant date.
Performance shares
The performance shares vested in April 2011 without meeting the performance conditions. All share options were forfeited.
The following table illustrates the number (’000) and movement in share options during the year:
Outstanding at beginning of year
Forfeited during the year
Balance at end of year
Exercisable at end of year
2012
US$’000
2011
US$’000
–
–
–
–
319
(319)
–
–
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
142
Notes to the Annual Financial Statements continued
For the year ended 31 December 2012
30. Share-based payments continued
The following table lists the inputs to the model used for the four tranches of the performance share awards:
Performance Share Awards
Award date
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average share price
Model used
Tranche 1
Tranche 2
Tranche 3
Tranche 4
30/04/2008
09/06/2008
01/07/2008
02/12/2008
–
30.58
2.49
3.00
13.60
–
31.32
2.98
3.00
20.34
–
31.23
2.92
3.00
20.51
–
74.18
1.13
3.00
3.96
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
The fair value of share options granted is estimated at the date of the grant using a Monte Carlo simulation model, taking
into account the terms and conditions upon which the options were granted, projected dividends, share price fluctuations,
the expected volatility, the risk-free interest rate, expected life of the option in years and the weighted average share price
of the Company.
The ESOP is an equity-settled plan and the fair value is measured at the grant date.
Employee Share Option Plan for 2012 and 2011 (long-term incentive plan (LTIP))
The following table illustrates the number (’000) and movement in the ESOP 2012 and 2011 share options during the year:
Outstanding at beginning of year
Granted during the year
Forfeited
Balance at end of year
Exercisable at end of year
2012
2 467
2 283
(249)
4 501
–
2011
1 375
1 314
(222)
2 467
–
The following table lists the inputs to the model used for the plan for the awards granted during the current and prior year:
Employee Share Option Plan
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average share price(US$)
Fair value of Nil Value Options (US$)
Fair value of Market Value Options (US$)
Model used
LTIP
September 2012
LTIP
March 2012
–
42.10
0.33
3.00
2.85
2.85
1.66
–
63.88
1.20
3.00
4.76
3.76
2.27
LTIP
2011
–
66.32
1.59
3.00
4.38
3.01
1.95
LTIP
2010
–
76.33
1.11
3.00
3.33
2.27
1.45
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
The fair value of share options granted is estimated at the date of the grant using a Monte Carlo simulation model, taking
into account the terms and conditions upon which the options were granted, projected dividends, share price fluctuations,
the expected volatility, the risk-free interest rate, expected life of the option in years and the weighted average share price
of the Company.
Gem DiamondsAnnual Report 2012
143
Contact Details and Advisors
For the year ended 31 December 2012
Contact details
Advisors
Gem Diamonds Limited
Registered Office
Coastal Building, 2nd Floor
Wickham’s Cay II
Road Town
Tortola
British Virgin Islands
Head Office
2 Eaton Gate
London SW1W 9BJ
United Kingdom
T:+44 20 3043 0280
F:+44 20 3043 0281
Financial Advisor and Sponsor
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
T:+44 20 7588 2828
F:+44 20 7155 9000
Legal Advisor
Linklaters
One Silk Street
London EC2Y 8HQ
United Kingdom
T:+44 20 7456 2000
F:+44 20 7456 2222
Auditors
Ernst & Young LLP
1 More London Place
London SE1 2AF
United Kingdom
T:+44 20 7951 2000
F:+44 20 7951 1345
Financial PR Advisor
Pellham Bell Pottinger
5th Floor, Holborn Gate
330 High Holborn
London WC1V 7QD
United Kingdom
T:+44 20 7861 3232
F:+44 20 7861 3233
Financial statementsGovernanceFocus on value creationBusiness reviewGem DiamondsAnnual Report 2012
144
Notes
Gem DiamondsAnnual Report 2012 Designed and produced by Radley Yeldar (www.ry.com) using the paperless proofing system wizardry.
www.gemdiamonds.com