Annual Report 2013
Gem Diamonds is a leading global producer of high-value diamonds. The
Group currently has one producing mine, the Letšeng mine in Lesotho,
and is developing the Ghaghoo mine in Botswana. The Letšeng mine
is renowned for its regular production of large, top colour, exceptional
white diamonds, making it the highest average dollar per carat kimberlite
diamond mine in the world. Since Gem Diamonds acquired the mine
in 2006, Letšeng has produced four of the 20 largest white gem quality
diamonds ever recorded.
Gem Diamonds has an organic growth strategy based on enhancing
the operating efficiencies of the Letšeng mine and developing the
Ghaghoo mine. Achieving operational excellence through cost
reductions and enhancing current production is an essential focus.
Additional value is created through the Group’s expanded sales,
marketing and manufacturing capabilities.
Our 2013 reports
Feedback
Sherryn Tedder
stedder@gemdiamonds.com
Illovo Corner
24 Fricker Road, Illovo Boulevard
Johannesburg 2024
South Africa
PO Box 55316
Northlands, 2116
South Africa
Tel: +27 11 560 9600
Fax: +27 11 560 9601
M O C K - U P P I C
– Annual
Report 2013
– Sustainability
Report 2013
SD
All information contained in our Annual Report is published on our website at www.gemdiamonds.com
Sustainability information is available in the sustainability section of the Gem Diamonds website.
You can also find information on our share price performance and other economic data in the investor relations section.
Caption for front cover: The access decline at the Ghaghoo mine
The Strategic Report is
set out on pages 2 to 41.
The Directors Report
is set out on pages 79
to 82.
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Page 1 Gem Diamonds Annual Report 2013
Contents
2
STRATEGIC REPORT (SR)
2
2
4
6
9
10
12
14
16
16
20
23
24
28
32
35
BUSINESS OVERVIEW
Gem Diamonds at a glance
Our business model
Chairman’s statement
MANAGEMENT REVIEW
Key performance indicators
Our market place
Chief Executive Officer’s overview
OPERATING REVIEW
Letšeng
Ghaghoo
Sales, marketing and manufacturing
Group financial performance
Mineral resource management
Principal risks and uncertainties
Sustainable development review
43 GOVERNANCE
44 Board of Directors
46 Chairman’s overview of corporate governance
47 UK corporate governance code compliance
55 Audit Committee
59 Nominations Committee
60 HSSE Committee
62 Directors’ remuneration report
71 Annual report on directors’ remuneration
79 Directors’ report
85 FINANCIAL STATEMENTS
86 Directors’ responsibility statement
87 Independent auditors’ report
90 Annual financial statements
143 Contact details and advisers
Notice of AGM and proxies are contained in a separate
document.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 2
Gem Diamonds at a glance
Our strategy is based on creating value by focusing on mining and selling
our diamonds effectively to maximise returns.
MINES
Letšeng Diamonds Limited
Gem Diamonds Botswana
Letšeng diamond mine – Lesotho – page 17
Ghaghoo diamond mine – Botswana – page 21
Ownership:
Acquired: July 2006
Ownership:
Acquired: May 2007
70%
Gem Diamonds Limited
30%
Government of the Kingdom of Lesotho
100%
Gem Diamonds Limited
Description of operation:
Letšeng diamond mine – mining and processing diamond bearing ore sourced
from the Main and Satellite kimberlite pipes
Description of operation:
Ghaghoo diamond mine – development of the Ghaghoo diamond mine in the
Central Kalahari Game Reserve in Botswana
Total resource:
5.3 million carats (as at 1 January 2013)
In-situ value:
US$11.6 billion (as at 1 January 2013)
Strategic objectives:
• Optimisation of Letšeng expansion project while improving diamond liberation
and reducing diamond breakage
• Focus on cost reductions
• Implement life of mine extensions
• Optimise timing for underground mining
Operational performance 2013:
• Carats recovered: 95 053
• Average US$ per carat: US$2 043*
• Tonnes treated: 6.2 million
• Waste tonnes mined: 19.1 million
Sustainability performance 2013:
• Zero fatalities
• Lost time injury frequency rate (LTIFR) 0.11
• All injury frequency rate (AIFR) 2.08
• Two lost time injuries (LTIs)
• Zero major environmental incidents
• Letšeng achieved a five-star rating in the annual external Health, Safety, Social
and Environment (HSSE) audit
• Corporate social investment (CSI) projects carried out on schedule
• 95% of Letšeng’s workforce is made up of Lesotho nationals, 20% of whom are
from project affected communities
FOCUS FOR 2014
• Construction of a new coarse recovery plant
• Optimisation and planning for implementation of the Letšeng
expansion project
• Review optimal timing for moving from open pit to underground in
Satellite pipe
* Includes carats extracted for polishing at rough valuation.
Total resource:
20.5 million carats (as at 1 January 2013)
In-situ value:
US$4.6 billion (as at 1 January 2013)
Strategic objectives:
• Optimise the returns from Ghaghoo following the completion of Phase 1
development
Development performance 2013:
• Construction of the sand portion of the access decline completed
• Extension of the main decline into basalt commenced in the third quarter
• Construction of the processing plant ready for final commissioning, which is
scheduled for the second half of 2014
• Kimberlite intercepted at Level 0
Sustainability performance 2013:
• Zero fatalities
• LTIFR 0.34
• AIFR 5.15
• One LTI
• Zero major environmental incidents
• Ghaghoo achieved a four-star rating in the annual external HSSE audit
• Community water supply programme has drilled and equipped four boreholes,
giving four communities a sustainable water supply within the Central Kalahari
Game Reserve
• 92% of the Ghaghoo workforce is made up of Botswana nationals, 27% of
whom are from project affected communities
FOCUS FOR 2014
• Continue to develop Phase 1 of the underground mine
• Balance of US$25 million to be spent in 2014 – funding for this raised
in January 2014
• Commence production in the second half of 2014
• Install capacity for sustainable production output
Page 3 Gem Diamonds Annual Report 2013
SALES AND MARKETING
MANUFACTURING
Gem Diamonds Marketing Services
Baobab Technologies
Belgium – page 23
Belgium – page 23
Ownership:
Formed: October 2010
Ownership:
Formed: April 2012
100%
Gem Diamonds Limited
100%
Gem Diamonds Limited
Description of operation:
Gem Diamonds Marketing Services – the Group’s diamond sorting, valuation,
sales and marketing company based in Antwerp, Belgium
Strategic objectives:
• Maximise the value achieved on rough and polished diamond sales
• Develop the Letšeng and Gem Diamonds brands in marketing channels
beyond the mine gate
• Identify and develop key strategic areas for targeted revenue growth further
down the diamond pipeline
• Increase customer base
• Develop and maintain strong relations with new and existing customers
Performance 2013:
• Achieved an average value of US$2 043* per carat for Letšeng’s rough
production
• In October 2013, a 12.47 carat blue diamond sold for US$7.5 million, a Letšeng
record of US$603 047 per carat
• Contributed additional revenue to the Group of US$5.4 million and
additional earnings before interest, tax, depreciation and amortisation (EBITDA)
of US$3.6 million
Sustainability performance 2013:
• Gem Diamonds continued to adhere to the provisions of the Kimberley Process
• Every rough diamond produced was certified in terms of the Kimberley Process
certification scheme
• Gem Diamonds registered as a candidate organisation with the Responsible
Jewellery Council, with full registration expected to be concluded in 2014
• Zero HSSE incidents
FOCUS FOR 2014
• Continue to achieve highest prices for all rough and polished
diamonds
• Establish the sales and marketing channels for the Ghaghoo rough
production
• Explore brand development opportunities and markets closer to the
end-consumer
Description of operation:
Baobab Technologies – the Group’s high-tech rough diamond analysis and
manufacturing company based in Antwerp, Belgium
Strategic objectives:
• Advanced mapping and analysis of exceptional rough diamonds in order to
better understand true value and drive higher prices
• Provide manufacturing capacity to meet the Group’s current manufacturing
requirement and growth objectives
• Manufacture high-end polished diamonds, primarily sourced from the Group’s
mining operations
• Continue to source and develop state-of-the-art diamond analysis technology
and grow intellectual knowledge of both rough and polished diamonds
• Develop and maintain strong relationships with new and existing customers
Performance 2013:
• Baobab Technologies received 1 079 carats of high-value diamonds for
manufacturing with a rough market value of US$23.7 million, of both Letšeng
and third party goods
• 164 carat diamond was cut and polished into 11 exceptional polished
diamonds, with a total weight of 83.47 carats, all of which received triple
‘excellent’ grading in cut grade, polish and symmetry by the Gemological
Institute of America (GIA)
Sustainability performance 2013:
• Gem Diamonds continued to adhere to the provisions of the Kimberley
Process and all of its diamonds were certified in terms of the Kimberley Process
certification scheme
• Gem Diamonds registered as a candidate organisation with the Responsible
Jewellery Council, with full registration expected to be concluded in 2014
• Developed and implemented an integrated safety, health, environmental and
quality management system
• Zero HSSE incidents
FOCUS FOR 2014
• Increase volumes of extracted rough diamonds to be polished
• Obtain best possible polished results for rough diamonds
manufactured
• Optimise sales and marketing activities
• Identify diamond sales and marketing opportunities in other strategic
• Increase business activities by polishing more high-value diamonds
for customers outside the Group
jurisdictions
* Includes carats extracted for polishing at rough valuation.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 4
Our business model
Gem Diamonds’ strategy is based on three broad pillars, namely value creation, growth
and sustainability.
Our business model offers the flexibility to pursue our strategy in a manner that derives
the maximum returns for our shareholders in a sustainable manner.
We recognise that we require inputs for our business activities. We have categorised
these inputs in terms of the capitals available. Through our business activities, these are
transformed into outputs and broader outcomes, generating value for our shareholders
and the wider community in which we operate.
Optimising returns
Improving the quality of our
assets through life of mine
extensions.
Operating profitably and
generating cash.
Strengthening the capital structure.
Optimising revenue achieved for
our diamond production through
reductions in breakage and theft.
Operational excellence
Focusing on cost reductions
and enhancing our current
production efficiency.
STRATEGY ➧
➧
➧
Stakeholders and
communities
Building long-term, transparent
and mutually beneficial relationships
with all stakeholder groups.
Health, safety and environment
Aiming to sustainably achieve
zero harm to our environment,
people and communities.
Effective management of impacts
upon economic, social and
ecological systems to the
benefit of future generations.
Organic growth
Optimisation of the Letšeng
mine and developing the Ghaghoo
mine using available capital
to deliver optimum returns to
shareholders.
Value accretive opportunities
Generation of additional
value through expanded sales
and marketing capabilities,
incorporating manufacturing
and downstream initiatives.
Value creation
Growth
Sustainability
Page 5 Gem Diamonds Annual Report 2013
Our business activities focus primarily on extracting diamonds through mining. We
have also expanded our focus further along the diamond value chain through our
strategic sales, marketing and manufacturing.
We are committed to sustainable development, which underpins our drive to maximise
value for our shareholders and society.
Our business activities are subject to a range of risks, which the Group actively
manages and mitigates. Refer to page 32 for more information.
.
INPUTS
Human capital refers to our
staff and their contribution
to our success.
• Number of employees:
1 660
• Total employee training:
12 277 hours
Financial capital refers to the
funds required for the Group to
carry out its business activities
and the funds on hand available
for future use.
• Cash from operating activities:
US$87.6 million
• Cash balance: US$71 million
• Available credit facilities:
US$44 million*
Infrastructure capital is the
investment into assets used in the
production of both rough and polished
diamonds to maintain and increase
production capacity.
• Capital expenditure: US$30 million
Social and relational capital
refers to the relationships with our
stakeholders.
• Group-wide corporate social
investment: US$0.5 million
Natural capital refers to the
resources, such as diamond
reserves and water used by the
Group in its operations.
• Tonnes mined: 6.2mT
• Energy consumption:
6 972 536GJ
• Water consumption:
4 032 161m3
Intellectual capital is both
the Group’s intellectual
property and its innovation
within the organisation.
• Technical expertise of
our staff in all spheres
in which the Group
operates
* As at 31 December 2013.
BUSINESS
ACTIVITIES
OUTPUTS
OUTCOMES
Outcomes are the
broader effects of our
business such as:
• Customer satisfaction
• Shareholder returns
• Local economy
contribution
• Employee development
and engagement
• Environmental impact
• Innovative mining solutions
developed
Mining
• Mine economically
viable diamond deposits
on our mining leases
• Implement expansion
projects and optimise the
timing of underground
mining at Letšeng
• Develop the Ghaghoo mine
• Enhance cost and operating
efficiencies across the mining
cycle
• Ensure safe operation and
minimise all impacts
Sales, marketing and
manufacturing
• Improve revenue achieved for
diamonds through the sale of our
rough diamonds
• Analysis and mapping of our
exceptional diamonds to give us
the capability to truly understand
the rough diamond value
• Manufacture and sales of select
high-value rough diamonds
and strategic partnership
arrangements on the manufacture
and sale of exceptional, high-
value diamonds
Human capital
• Fatality-free year
• Significant reduction in
lost time injuries
Financial capital
• Revenue: US$213 million
• Underlying EBITDA:
US$77 million
• Attributable net profit
(before exceptional items):
US$21 million
• Basic earnings per share (EPS):
15.2 US cents
Infrastructure capital
• Installation of four new cone
crushers, significantly reducing
diamond damage
• Extensive development of the
Ghaghoo mine
Social and relational capital
• Good stakeholder relations
maintained
• No major or significant community
complaints
Natural capital
• Carat production: 95 053
• Waste mined: 19.1mT
• Zero major environmental
incidents
• No fines for environmental
transgressions or
non-compliances
Intellectual capital
• Diamond mapping
technology
• Technical mining
expertise as
demonstrated in
Ghaghoo decline
development
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 6
Chairman’s statement
During 2013, the rough diamond market saw less volatility than in
recent years with demand for rough diamonds remaining healthy.
Top prices were achieved for Letšeng’s production, particularly
the high-quality large diamonds, for which our flagship mine
is famous.
Following the restructuring which took place in the prior year, Gem
Diamonds’ focus for 2013 remained on extracting the maximum value
from its existing assets in a responsible and sustainable manner. The
technological and strategic investments made during the year, together
with a more stable diamond market, resulted in improved revenue of
US$213 million generated from the sale of 97 294 carats (an increase of 5%
compared to revenue of US$202 million from the sale of 107 617 carats in
the prior year) and stronger underlying EBITDA of US$77 million (up 18%
from 2012).
Strategic review
The Group’s strategic focus centres on three core business objectives,
namely growth, value creation and sustainability. In 2012, a number of
strategic objectives were outlined to shareholders and the table on the
next page sets out how these have been achieved during 2013.
Gem Diamonds’ primary growth strategy is focused on mining diamonds as
efficiently as possible. This is based on the consolidation and optimisation
of the Group’s core assets through the focused expansion of the flagship
Letšeng operation, and the development of the Ghaghoo mine, while
controlling costs and maintaining the Group’s strong financial position.
During 2013, the Group continued to enhance the Letšeng operation. In
line with the Group strategy, selected expansion plans were reviewed.
This resulted in a decision to scale back on part of the intended expansion
project at Letšeng, phasing in the introduction of technologies aimed at
improving production efficiency, thus minimising and spreading capital
expenditure. One such example is the four new cone crushers installed
during 2013, which led to a significant reduction in diamond damage and
hence an increase in revenues.
The development of the Ghaghoo operation has progressed well during
2013 and despite the technical challenges faced, the mine development
is currently on time and within the budget of US$96.0 million. The mine
remains on track to commence commercial production in the second half
of 2014.
Gem Diamonds’ secondary growth strategy is focused on maximising
revenue and margins from rough diamond production by expanding sales
and marketing capabilities, as well as pursuing diamond manufacturing
and partnership arrangement initiatives down the diamond value chain.
The Group has an advanced diamond mapping technology at its disposal
at Baobab Technologies BVBA, a 100% held Gem Diamonds subsidiary. The
advanced mapping and analysis of Letšeng’s exceptional diamonds allows
for accurate assessment of their value, enabling the Group to achieve
optimal prices for its rough diamonds.
The in-house analytical and manufacturing ability of the Group also
enables it to engage in the polishing and sales of select high-value
diamonds. The Group also participates in strategic partnership
arrangements on the manufacture and sale of exceptional, high-value
polished diamonds.
Page 7 Gem Diamonds Annual Report 2013
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Strategic goals 2012
Improve revenue growth by reducing
diamond damage in large diamonds
and by improving the recovery process
and security in the recovery plant.
Complete the rationalisation of the
business through the disposal of assets
which do not meet investor returns
and reduce central costs to reflect the
revised business.
Access the Ghaghoo kimberlite deposit
in the most cost-effective capital way on
time and on budget by the second half
of 2014.
Improve cash position and balance
sheet strength.
The Group’s second core objective
involves a focus on creating value through
operational excellence. In line with this
emphasis, strategic realignment occurred
during 2012 and 2013, resulting in a
number of assets, which did not meet the
stringent requirements for value creation,
being sold and the Group’s cost base being
reduced.
Gem Diamonds’ broad-based strategy
lends a resilience and flexibility to the way
it does business, allowing it to react flexibly
to market and operational conditions to
extract maximum value for shareholders.
The Group’s third core objective involves
sustainable development principles
which underpin the Group’s strategy. Gem
Diamonds’ sustainable approach to business
reduces operating costs and enhances
its reputation as a responsible and ethical
corporate citizen in the countries in which
it operates.
The health and safety of employees
is a responsibility that is at the top of
management’s list of operational priorities.
The Group continues to implement the
highest standards of HSSE governance,
incorporating relevant international best
practice guidelines.
It is pleasing to report that there were
no major stakeholder or environmental
incidents during 2013. During 2013, only
three lost time injuries occurred throughout
the Group and Letšeng achieved the highest
IRCA audited rating for the management of
its HSSE matters.
Strategic goals achieved 2013
•
Four secondary and tertiary crushers were installed at Letšeng which have contributed
to a significant reduction in damage to the mine’s high-value diamonds and hence an
improvement in revenue.
• A feasibility study concluded that the implementation of a new coarse recovery
plant would be the appropriate recovery plant to achieve this goal. Finalisation for
bank funding is currently under way and the project will commence in the second
quarter of 2014.
The disposal of the Ellendale asset was finalised in 2012 and final proceeds received
in 2013.
•
• Substantial reduction of executive headcount resulting in reduction of central costs from
US$14 million in 2012 to an anticipated US$12 million in 2014.
•
Despite adverse ground conditions, the project is anticipated to be brought in as
planned, on time and on budget in the second half of 2014.
• Kimberlite was intercepted in late 2013 and capital expenditure has been kept at the
anticipated US$96 million.
• Finalisation of a US$25 million loan facility took place in January 2014 for the remaining
•
capital to be spent on Phase 1 development at Ghaghoo.
Group cash balance as at 30 June 2013 was US$61 million, which increased to
US$71 million by end-2013 (this being post further capex investment of over
US$11 million on Ghaghoo during the second half of 2013).
The Group is in compliance with all material
legal requirements at its operations and
monitors its compliance on a continuous
basis.
Further details of the Group’s commitment
to sustainable development can be found in
the sustainability section of this report and in
the 2013 Sustainable Development Report.
Corporate governance and
the Board
Gem Diamonds’ robust corporate
governance, evidenced throughout the
Group, helps deliver sustainable value to all
its stakeholders. The Group is committed to
transparency and accountability, which are
essential to success in the short, medium
and long term. During the year, the Group
embarked on a Board evaluation process
to enhance its governance. It is pleasing
to report that no major issues were
identified and the feedback received will
be incorporated into Group governance
processes.
After seven years of service, Kevin Burford
retired from the Group. Kevin served as
Group Chief Financial Officer from January
2006 to April 2013. On behalf of the
Board, I would like to thank Kevin for his
contribution to Gem Diamonds.
In 2013, Michael Michael was welcomed
to the Board as the Group Chief Financial
Officer. Michael was previously the Group
Financial Manager and we look forward
to his continued contribution in the
years ahead.
Appreciation
I would like to express my gratitude to
my colleagues on the Board who have
supported me with their counsel and
valuable guidance. To our management
team and employees, I convey my gratitude
and appreciation for their outstanding
efforts during 2013 and their commitment
to the ongoing success of the Group.
Finally, I extend the thanks of the Group
to our shareholders for your continued
confidence in us as we work strategically to
build long-term shareholder value.
Outlook
The Group expects diamond prices to
remain relatively stable during 2014, with the
potential for pricing increases due to a firmer
US market and continued growth in China.
Together with our refined and focused
strategy and flexible business model, the
Group is well positioned to take advantage
of this positive trend.
Roger Davis
Non-Executive Chairman
17 March 2014
(SR) Operating reviewGovernanceFinancial statements
The Letšeng mine in Lesotho.
Page 9 Gem Diamonds Annual Report 2013
Management review
Since Gem Diamonds’
acquisition of Letšeng
in 2006, the mine has
produced four of the
20 largest white gem
quality diamonds ever
recorded.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 10
Key performance indicators
Key performance indicators are used to help evaluate performance of the Group
against its strategy. These indicators are monitored continuously to effectively
evaluate the performance of the Group over the short, medium and long term.
Growth
Commentary
Description
Revenue (US$ million)
306
167
189
202
213
Revenue represents the value of goods sold
during the year (both rough and polished)
and measures the level of operating activity
and growth of the business. Revenue for the
year is as reported in the consolidated income
statement.
2009
2010
2011
2012
2013
Underlying EBITDA(US$ million)/underlying
EBITDA margin (%)
167
54%
32%
65
36%
77
38%
72
27%
45
2009
2010
2011
2012
2013
60
50
40
30
20
10
0
Return on average capital employed
(ROACE) (%)
26
15
16
15
12
2009
2010
2011
2012
2013
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.
ROACE is a post-tax measure of the efficiency
with which the Group generates operating
profits from its capital. ROACE 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 statement of
financial position).
Overall, the Group revenue increased by 5%,
notwithstanding the 10% lower volume of rough
carat sales by Letšeng compared to last year. The
impact of the decrease in volume was offset by
higher diamond prices of 6% and the realisation of
polished sales in the current year of US$10.4 million
(rough value) which were extracted for
manufacturing in the prior year and held as
inventory at the end of last year. A further uplift on
the sale of the manufactured polished goods in the
current year contributed to the overall increase.
The underlying EBITDA has had a steady
growth over the prior year (up 18% year on
year) and reflects the impact of higher Group
revenue, additional uplift made on polished
manufactured sales and cost management and
operational efficiency focus during the year. The
weakening of the Lesotho loti (pegged to the
South African rand) has had a positive impact on
the translation of local costs into US dollar.
Post-tax ROACE achieved 15%, driven by higher
Group revenue and EBITDA which positively
impacted earnings. Prior years’ ROACE is as
reported at that point in time and includes all
operations in existence at that period.
Basic earnings per share (EPS)
(before exceptional items) (US cents)
48
17
15
12
15
2009
2010
2011
2012
2013
Basic EPS represents net profit attributable to
equity shareholders on continuing operations
and is stated before exceptional items and
after taking into account non-controlling
interest. This is a measure of net profitability of
the Group taking into account changes in the
equity structure. EPS is calculated as reported
in the consolidated income statement and in
accordance with Note 8, Earnings per share in
the financial statements.
Basic EPS at 15 US cents per share (up 24%
from the prior year) is indicative of the higher
earnings achieved as a consequence of the
higher revenue and EBITDA achieved. There was
no change in the capital structure of the Group.
Free cash generated (US$ million)
77
17
19
21
2009
2010
2011
(51)
2012
2013
Free cash generated represents net cash
flows 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 cash flows from operating
activities less sustaining capital of US$7.4 million
(pre-expansion capital) and less waste cash costs
capitalised of US$59.3.
The Group utilised existing cash resources and
cash flows from operations to fund existing
capital commitments and operating costs and
has maintained a strong statement of financial
position. Although capital expenditure for
expansionary projects has been scaled back,
current operations are generating free cash,
resulting in positive cash for investment in other
growth projects which in 2013 was applied
to the ongoing capital expenditure of the
Ghaghoo Phase 1 development.
350
300
250
200
150
100
50
0
180
160
140
120
100
80
60
40
20
0
30
25
20
15
10
5
0
60
50
40
30
20
10
0
100
80
60
40
20
0
(20)
(40)
(60)
Page 11 Gem Diamonds Annual Report 2013
The key performance indicators exclude the impact of any discontinued or disposed operations in the prior years unless otherwise stated.
Value creation
Capital expenditure (US$ million)
60
50
40
30
20
10
0
8
7
6
5
4
3
2
1
0
54
25
30
12
13
2009
2010
2011
2012
2013
Production tonnes treated (millions)
7.5
7.6
6.8
6.6
6.2
2009
2010
2011
2012
2013
Carats produced (thousands)
350
300
250
200
150
100
50
0
91
91
112
114
95
2009
2010
2011
2012
2013
Waste tonnes mined (millions)
25
20
15
10
5
0
17.4
19.1
13.6
11.7
8.1
2009
2010
2011
2012
2013
Sustainability
Lost time injury frequency rates (LTIFR)
0.50
0.40
0.30
0.20
0.10
0
0.45
0.30
0.25
0.13
2009
0
2010
2011
2012
2013
Description
Commentary
Capital expenditure represents the amount
invested in the Group’s organic growth plans.
Capital expenditure is reflected in the statement
of cash flows 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 9, Property, plant and equipment in the
financial statements.
The production profile sets out the tonnes
treated by Letšeng during the current and
prior years.
The carats produced profile sets out the carats
produced by Letšeng during the current and
prior years.
The Group invested US$7.4 million in sustaining
capital expenditure during 2013 to optimise
and improve operational performance and
invested US$22.2 million in expansion capital,
the majority of which was attributable
to the continued development of Ghaghoo.
The decrease in the production volumes in 2013
was driven by the plant downtime required
for the crusher installation and the limited-
throughput test in the early part of the year.
Future production will reflect production at
Letšeng (through its Plants 1 and 2 only as the
Alluvial Ventures contract nears completion in
2014) and the commencement of production at
Ghaghoo in mid-2014.
The decrease in the volumes produced in 2013
was driven by the reduced contribution of the
higher-grade Satellite ore in 2013, together with
some internal basalt dilution which took place in
the marginal blocks in the Main pipe, where 84%
of the total ore treated was sourced, together
with the lower tonnes treated throughput as
detailed above.
The waste tonnes mined profile sets out the
waste tonnes mined by Letšeng.
Waste stripping at Letšeng increased according
to the mine plan and the requirements to access
the higher-grade Satellite ore.
Description
Commentary
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. Prior
year rates include all operations in existence at
that period.
The LTIFR for the year was 0.13 and was the
result of three LTIs recorded for the Group, two
at Letšeng and one at Ghaghoo. The Group
drives to continually improve its safety record
and its target for LTIFR is zero.
Corporate Social Investment expenditure
1.10
0.73
0.70
0.60
0.50
2009
2010
2011
2012
2013
1.20
1.00
0.80
0.60
0.40
0.20
0
The Group has continued its commitment to
Corporate Social Investment. This has resulted
in US$0.5 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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 12
Our marketplace
Our position in the market
There remains a positive medium to long-
term outlook for the diamond market due
to the increasing demand for both rough
and polished diamonds which is expected
to outpace supply. The growth in demand
particularly in China and India, is being
fuelled by urbanisation and a growing
middle class, while the supply from the
world’s diamond producers is diminishing.
Supply is unlikely to reach previous levels of
production primarily due to the continued
depletion of existing deposits and the
scarcity of economically viable global
diamond deposits. This, together with the
capital intensive nature of developing and
operating a diamond mine, creates high
barriers to entry. Alrosa, De Beers and Rio
Tinto remain the dominant players in terms
of carat production (together producing
approximately 60% of rough diamonds
in 2012), others, including Dominion
Diamonds, Petra Diamonds, Lucara
Diamonds and Gem Diamonds, made up
the remaining 40%.
Global annual carat production in 2013
was 125 million carats with an average
price per carat of approximately US$100 to
US$150. Although Gem Diamonds only
contributes approximately 100 000 carats
to the global annual production, its
large, top colour, exceptional diamonds
produced from the Letšeng mine make
Gem Diamonds the highest average dollar
per carat kimberlite diamond producer in
the world, averaging US$2 043* per carat
in 2013. Due to the significant amount of
special stones (greater than 10.8 carats)
produced, the Group is placed at the top
end of the diamond market in terms of
value and pricing. With the commissioning
of the Group’s Ghaghoo mine in Botswana,
an additional 200 000 carats per annum
will be added to the Group’s production
from 2015, albeit with a lower price per
carat. This will give Gem Diamonds greater
exposure to commercial goods, resulting
in an overall lower Group average price per
carat, offset by higher carat production,
resulting in higher Group revenue.
Supply and demand trends
The current demand and supply balance
in the rough diamond market is expected
to continue for the short to medium term.
Thereafter, as existing diamond mines
continue to deplete their reserves and
with no new diamond mines anticipated
* Includes carats extracted for polishing at
rough valuation.
to contribute significant additional
production, supply is expected to decrease.
An expanding middle class in China
and India, improving global economic
conditions and growth in emerging
markets, are likely to fuel a further increase
in demand. These supply/demand
fundamentals support a positive medium
to long-term outlook for the diamond
market, both in rough and polished form.
Compounding supply constraints was
the severe reduction in rough diamond
supply from the major producers between
late 2008 and mid-2009 following the
global financial crisis, which exceeded
the fall in retail demand for polished
diamonds during that period. The volumes
of production have not yet recovered to
pre-global financial crisis levels. This has
resulted in a dramatic reduction in the
rough and polished diamond stock levels
held at cutting centres, which has further
augmented the gap between supply and
demand as cutting centres seek supply
of rough diamonds in order to meet the
continuing rise in demand.
The US remains the world’s dominant
diamond consumer and ongoing economic
recovery has resulted in continuous
improved demand from this region since
2008. Other influencing factors in the rise
in global demand can be attributed to
the rapid expansion of the middle class
in China and India, growth in disposable
income and trends towards western
consumer spending behaviour. In addition,
growing interest in diamonds has been
seen from other countries such as Japan,
Hong Kong, Taiwan, and the Gulf.
The exceptional rarity of the large, high-
quality, top colour diamonds for which
Gem Diamonds is famous, together with
the increasing market demand for these
high-value goods, have contributed to
creating a positive market outlook at
the top end of the market, where Gem
Diamonds has positioned itself. Rough
diamond prices for these high-value goods
have been driven by the growth of high
net worth individuals and the development
and growth of the luxury goods market. The
prospect of good returns for the Group’s
high-value production over the long term is
particularly favourable.
30 million
High net worth individuals in 2013
(26 million in 2012)
US$250 billion
Personal luxury goods market in 2013
(US$212 billion in 2012)
Copyright© 2013 Bain & Company, Inc and Antwerp
World Diamond Centre, private foundation (AWDC)
The diamond market in 2013
Global rough and polished diamond prices
have recovered and are now above pre-crisis
levels. The rough diamond market was
relatively stable in 2013, with less volatility
than seen in recent years. Overall rough
prices benefited from improved polished
trading conditions after reasonable end-of-
year holiday season sales and expectations
that rough diamond supply would reduce
in the short term. The diamond market
again relied on the US as the main centre for
the sale of polished diamonds in particular
Annual production, millions of carats
176
168
163
120
128
123
128
(2006 – 2012)
(2011 – 2012)
-5%
Others
Canada
Australia
Russia
Zimbabwe
Angola
South Africa
DRC
Botswana
-8%
-4%
-18%
-2%
50%
-2%
-12%
-5%
-8%
4%
25%
-3%
17%
-1%
42%
0%
0%
12%
-10%
2006
2007
2008
2009
2010
2011
2012
Copyright© 2013 Bain & Company, Inc and Antwerp World Diamond Centre, private foundation (AWDC)
Page 13 Gem Diamonds Annual Report 2013
Diamond prices have recovered to above their pre-crisis levels
200
150
100
CAGR
+1%
CAGR
+5%
CAGR
+6%
CAGR
+13%
Polished
diamonds
Rough
diamonds
2004
2005
2006
2007
2008
2009
2010
2011
2012
1H2013
Note: The CAGR for polished diamond prices is calculated as the growth rate for year-end prices; rough
diamond prices for the first half of 2013 have been estimated based upon ALROSA and De Beers results.
Copyright© 2013 Bain & Company, Inc and Antwerp World Diamond Centre, private foundation (AWDC)
Exceptional diamonds produced
by Letšeng in 2013
92.9 carat sold for
US$5.3 million
(US$56 494 per carat)
January 2013
94.4 carat sold for
US$4.6 million
(US$48 619 per carat)
January 2013
Main producers of +25 carat rough diamonds
Gem Diamonds
164 carat sold for
US$9.0 million
(US$54 911 per carat)
April 2013
99.9 carat sold for
US$6.5 million
(US$64 631 per carat)
July 2013
20 000
15 000
10 000
5 000
)
t
a
r
a
c
r
e
p
$
S
U
(
Other producers
0
25
30
35
40
Average diamond size (carat)
45
50
55
98.29 carat sold for
US$5.1 million
(US$52 077 per carat)
September 2013
82.6 carat sold for
US$4.9 million
(US$59 173 per carat)
October 2013
Group internal data 2010.
during the Thanksgiving to Christmas
holiday period.
2013 saw a healthy rise in rough diamond
prices for the Letšeng goods as mining
at Letšeng moved from the traditionally
lower-value Main pipe into the higher-
value Satellite pipe in the fourth quarter
and an expected improvement in the
quality of diamonds produced and sold
was seen. This together with a stronger
market for these higher-value diamonds
saw the final tender of 2013 realise over
US$3 000 per carat. A robust and healthy
demand for Letšeng’s high-value diamonds
seen at the end of 2013 has continued
into the beginning of 2014 and looks set
to continue further into the remainder of
the year.
Looking ahead
The Group expects diamond prices to
remain relatively stable in 2014 with
potential for modest price increases, due
primarily to constrained supply and an
expected firmer US market. Continued
growth in China and India, albeit
anticipated at a lower rate than in recent
years, will also have a positive influence
in market pricing in 2014.
Despite this overall optimistic sentiment,
sustained liquidity constraints, made
worse by two major banks in Belgium
recently announcing tightening of their
lending criteria, are expected to result in
the continuation of the cautious approach
adopted by most industry participants in
both the rough and polished market.
With favourable supply/demand dynamics
expected to benefit the industry over the
medium to long term, both at the high
end of the market with goods supplied
by Letšeng, as well as the lower average
dollar per carat future production from
Ghaghoo, the Group is well positioned to
generate attractive and diversified returns
for shareholders looking forward.
12.5 carat blue sold for
US$7.5 million (a Letšeng
record of US$603 047 per
carat) October 2013
123.12 carat sold for
US$4.8 million
(US$38 986 per carat)
November 2013
78.69 carat sold for
US$5.2 million
(US$66 082 per carat)
December 2013
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 14
Chief Executive Officer’s overview
For Gem Diamonds, 2013 was a year of consolidation following the
strategic realignment that occurred during 2012. The optimisation of
the Group’s asset portfolio enabled us to focus our resources on core
assets that we believe offer the most potential to deliver substantial
returns to shareholders.
Following this restructuring in 2013, the
Group aligned corporate costs to the
current asset base, expecting to achieve a
central cost reduction from US$14.2 million
in 2012 to US$12.0 million in 2014. This,
together with selected investments
in innovative technology at Letšeng,
resulted in the Group emerging leaner
and more focused, well placed to extract
the maximum returns from its assets for
shareholders.
Performance during 2013
Letšeng
As previously communicated in the 2012
Annual Report, in light of the challenging
global economic climate, the Board took
the decision to work with greater capital
discipline and to preserve financial position
strength. This has seen a refocusing and
scaling back of capital expenditure at
Letšeng, focusing on projects with near-
term returns.
Mining at Letšeng focused on the lower-
grade, lower-value Main pipe in the first
three quarters of 2013. Mining moved
into higher-grade, higher-value Satellite
orebody in the last four months of the year,
resulting in the anticipated improvement
in the grade, size and quality of diamonds
produced. Of the total ore treated for the
year, 84% was sourced from the Main pipe
and 16% from the Satellite pipe. The plan
going forward is to achieve an approximate
75:25 split between the Main pipe and
the Satellite pipes each year, subject to
operational constraints.
Four new secondary and tertiary cone
crushers were installed in Plants 1 and 2 in
the first half of 2013. There was anticipated
downtime during their installation and this,
together with some test work done in the
first quarter, which entailed slowing down
plant throughput to determine if there
was any correlation between production
rate and diamond breakage, resulted in
ore treated for the year being down to
6.2 million tonnes, compared to 6.6 million
tonnes in 2012.
There has, however, been a significant
reduction in diamond breakage following
the installation of these new crushers
with 25 diamonds larger than 50 carats
recovered through Letšeng’s Plants 1
and 2 since installation in May 2013 to
31 December 2013. Work to identify further
incremental improvements to throughput
and breakage at both plants is on going.
Results are encouraging and this work will
progress during early 2014.
The carats recovered at Letšeng during
2013 amounted to 95 053, compared with
114 350 carats in 2012. This is primarily
due to mining mostly lower-grade Main
pipe ore during the first three quarters of
the year, which also had some associated
internal basalt dilution, further lowering
the recovered grade, and the lower
contribution from the higher-grade Satellite
pipe compared to previous years.
During the fourth quarter of 2013, Letšeng
held three tenders, which, together
with the diamonds extracted for own
manufacture, achieved an average value
of US$2 533 per carat, bringing the full
year 2013 average to US$2 043 per carat.
At the first tender of 2014 these strong
prices continued, with Letšeng achieving
an average of US$2 673 per carat. This
brings the 12-month rolling average to
US$2 180 per carat.
Looking ahead, we will continue to
introduce technology to extract better
value from our existing assets. To assist
in coarse recovery, tests on various
technologies were conducted during
2013. After extensive review, the Group
decided that X-ray transmissive technology
would be installed into the new Letšeng
coarse recovery plant during 2014. The
project, which entails building a new
coarse recovery plant, was approved in
November 2013, subject to the finalisation
of funding for an estimated US$14.0 million
to cover the full capital costs. This project
will use the latest technology to treat the
high-value coarse fraction of the ore, to
ensure greater recovery of the higher-value
type II diamonds. It will also include further
security improvements and advanced
technology diamond accounting of all
diamonds recovered by these units.
Ghaghoo
The development project at Ghaghoo
has made good progress and is expected
to deliver on its Phase 1 objectives, the
most important of which being the
commencement of commercial production
in the second half of 2014.
At Ghaghoo, kimberlite has been
intersected and the main decline reached
50 metres from the break off to the first
production level in February 2014. The
mine is expected to come into production
in the second half of 2014.
The development at Ghaghoo has been
challenging. The mine is situated near the
south-eastern border of the Central Kalahari
Game Reserve, a remote area characterised
by shifting sands and difficult road
conditions. From a mining perspective, and
in order to minimise the capital spend on
Phase 1 of the mine, an access decline was
selected as the most cost-effective method
of accessing the deposit which lies under a
sand overburden of some 80 metres.
It is very satisfying to see that the advance
of the decline shaft through difficult and
dangerous conditions has taken place on
time and on budget. This is thanks to the
technical expertise and the dedication of
all Group and contractor employees who
have worked tirelessly to make this exciting
project a reality. I wish to express the thanks
of our Board and shareholders to all those
who have contributed to the success of
this project thus far. With the kimberlite
now intersected and the development
of the mining tunnels taking place, the
completion of Phase 1 of the project is
in sight.
The commencement of commercial
production remains on schedule for the
second half of 2014; ramping up to the
planned Phase 1 steady state annual
production rate by the end of the year of
approximately 200 000 to 220 000 carats
per annum, extracted from 720 000 tonnes
of ore. The mining support infrastructure,
camp, treatment plant and other services
are in place and are operating effectively.
As at 31 December 2013, US$71.2 million of
Page 15 Gem Diamonds Annual Report 2013
the total capital budget of US$96.0 million
had been spent and bank finance is in
place for the remaining US$25 million to
complete Phase 1.
Sales, marketing and manufacturing
Gem Diamonds’ sales, marketing and
manufacturing strategy aims to extract
additional value further along the diamond
chain. During 2013, a number of rough
diamonds were extracted from Letšeng
tenders and were either cut and polished
by the Group at its facilities in Antwerp, or
were placed into partnership arrangements
with some of the world’s leading
diamantaires. Of those diamonds extracted
from Letšeng tenders for manufacturing,
a high-value, 164 carat diamond was
placed into a partnership arrangement and
manufactured by Baobab. This resulted in
11 large exceptional polished diamonds, all
of which received triple ‘excellent’ grading
in cut grade, polish and symmetry by the
GIA. This business unit continues to deliver
planned revenues and profits.
HSSE
It is with great sadness that we report the
death of Segolame Mashumba, after a fall
of ground incident occurred at Ghaghoo on
11 January 2014. The Botswana Inspector
of Mines has conducted an enquiry into
the incident and will issue his report in due
course. This is a tragic accident considering
the outstanding safety record of the Group
in 2013. Health and safety continue to
be a core focus as we strive towards our
goal of zero harm. We express our sincere
condolences to the Mashumba family.
As an employer, we pride ourselves in
our high-calibre employees. Providing
opportunities for professional development
is important to us and offering training to
our employees is a vital part of their skills
development. Due to the sale of operations
and the focus on commissioning the
Ghaghoo mine, there was a decrease in
hours per capita of vocational training
offered in 2013. Increasing the amount
of vocational training available to our
employees will be an important focus
in 2014.
We maintain a policy of freedom of
association, with our employees free
to join unions and other worker and/or
collective bargaining associations. All of our
operations, however, remain non-unionised.
No strikes or lockouts were recorded at any
of our operations in 2013.
The well-being and economic prosperity
of communities around our operations
and the maintenance of the surrounding
environment remains a focus for the Group,
as we wish to leave a positive legacy for
future generations from our activities.
Therefore, where our operations are able
to match available skills in project affected
communities with on-site requirements,
local recruitment takes place. During 2013,
we participated in various corporate social
investment initiatives at both Letšeng
and Ghaghoo based on detailed needs
assessments. These projects included
offering scholarships, assisting our schools,
helping develop infrastructure within
communities, constructing health posts
and treating community members at
on-site clinics.
Gem Diamonds remains committed
to delivering shareholder return in a
responsible and sustainable manner.
Further details of the Group’s commitment
to sustainable development can be found
in the sustainability section of this report or
in the full 2013 Sustainable Development
Report.
SD
Outlook
The emphasis for 2014 and beyond
remains on positioning the Group to
leverage its strengths and invest
responsibly in future value
creation. We are focused
on bringing Ghaghoo
into production, as well
as concentrating on the
continued development
and expansion of our
Letšeng operation. We
remain confident in our
ability to deliver returns
to our shareholders.
In this regard, I am
pleased to report that
the Board of Directors has
the intention of paying
a maiden dividend to
shareholders at the end
of the 2014 financial
year, based on continued
strong performance of the
Company’s operations.
We again extend our thanks
to our dedicated employees
– your efforts in pursuing
excellence are appreciated.
We wish to extend our
appreciation to our
shareholders and assure them
of our continued efforts in our
strategic pursuit of operational
excellence.
Clifford Elphick
Chief Executive Officer
17 March 2014
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 16
Operating review – Letšeng
www.gemdiamonds.com
Focus for 2014
– Optimisation and planning for implementation
of the Letšeng expansion project to maximise
return and minimise capital expenditure
– Construction of a new coarse recovery plant
incorporating X-ray transmissive technology
and improved security
– Review optimal timing for moving from open
pit to underground in Satellite pipe
Plant maintenance at Letšeng Plant 2.
Page 17 Gem Diamonds Annual Report 2013
The Letšeng mine, located in the Maluti
mountains in the Kingdom of Lesotho
at an average elevation of 3 100 metres
(10 000 feet) above sea level, is one of
the highest diamond mines in the world.
The mine has achieved the highest
average dollar per carat of any kimberlite
diamond mine in the world, with its
regular production of large, top-quality
diamonds.
Gem Diamonds acquired Letšeng in July
2006. The Group owns 70% of the mine
in partnership with the Government of
the Kingdom of Lesotho, which owns the
remaining 30%.
Since its acquisition, Letšeng’s annual
production has risen from 55 000 carats
in 2006 to 95 053 carats in 2013, with a
peak of 114 350 carats produced in 2012.
Letšeng
Highlights summary
– Decrease in severe diamond breakage following the
installation of four diamond-friendly cone crushers in
Letšeng’s Plants 1 and 2 and other initiatives
– Recovered 25 diamonds greater than 50 carats since
installation of the cone crushers to 31 December 2013
– Recovered a 12.47 carat blue diamond, which sold for
US$7.5 million, a Letšeng record of US$603 047 per carat
– Achieved a five-star rating in the annual external
HSSE audit
2 400
2 300
2 200
2 100
2 000
1 900
1 800
1 700
1 600
1 500
Letšeng rolling average
US$ per carat 2013
5
2
3
2
3
4
0
2
9
2
1
2
8
7
8
1
0
3
0
2
9
4
9
1
1
3
9
1
0
8
7
1
0
9
7
1
2
1
8
1
4
5
8
1
0
8
7
1
July 13 Aug 13 Sept 13 Oct 13 Nov 13 Dec 13
■ Six-month average US$ per carat
■ 12-month average US$ per carat
Haul trucks in the Satellite pipe.
Diamond sales
Number carats sold
Average US$ per carat1
Year ended
31 December
2013
Year ended
31 December
2012
97 294
2 043
107 617
1 932
Frequency of recoveries of large diamonds at Letšeng
Number of diamonds2
2008
2009
2010
2011
2012
2013
>100 carats
60 – 100 carats
30 – 60 carats
20 – 30 carats
7
16
74
88
5
10
76
98
6
10
61
89
5
19
59
91
Total diamonds >20 carats
185
189
166
174
1 Includes diamonds extracted for polishing at rough valuation.
2 Letšeng’s treatment plants only, excludes Alluvial Ventures production.
3
13
61
110
187
7
16
50
71
144
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 18
Operating review – Letšeng continued
Operational performance
Production at Letšeng in 2013 was
concentrated in the lower-grade Main pipe
during the first half of the year, moving
to the higher-grade Satellite pipe during
the second half of the year. Total tonnes
treated for the year was 6.2 million tonnes
compared with 6.6 million tonnes in 2012.
Of the total ore treated for the year, 84%
was sourced from the Main pipe and 16%
from the Satellite pipe, compared to 76%
Main and 24% Satellite ore in 2012. This
reduced contribution of Satellite ore in
2013, together with some internal basalt
dilution which took place particularly in the
marginal blocks in the Main pipe, resulted
in Letšeng producing 95 053 carats, a 17%
decrease from the prior year.
Waste tonnes moved in 2013 was
19.1 million tonnes, up 10% from 2012.
Waste stripping at Letšeng increased
according to the mine plan and the
requirements to access the higher-grade
Satellite ore. During the first half of 2014,
the mining contractor will deliver bigger
mining equipment that includes four new
100 tonne dump trucks and two new
300 tonne hydraulic excavators, thereby
improving the waste mining efficiency in
line with the anticipated increase in waste
mining in the future.
Addressing diamond damage
With diamond damage being a key focal
area, a number of initiatives to reduce
damage were embarked on this year. An
early initiative was undertaken in the first
quarter of 2013, in which plant tonnage
throughput was curtailed to test its
possible correlation to diamond damage.
This resulted in a slightly reduced plant
throughput during the first quarter of
the year, but did not, however, show any
correlation between plant throughput
and diamond damage. Further changes
were made in the second quarter with
the secondary and tertiary crushers being
replaced with more diamond-friendly
cone crushing technology and reducing
the overall size fragmentation of blasted
ore. These efforts have resulted in a
marked reduction in diamond breakage
in the larger (+10.8 carat) diamonds in the
latter part of the year, as can be seen by
this chart, which reflects the number, size
and type of +50 carat diamonds recovered
since the installation of the crushers in
May 2013.
2013 +50 carat diamonds
e
z
i
s
d
n
o
m
a
d
i
l
i
a
u
d
v
d
n
i
I
200
180
160
140
120
100
80
60
40
Type 2
Installation of crushers
Type 1
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
In 2013, a new resource drilling campaign
was started, aimed at improving the
geological knowledge of the Letšeng
kimberlites. Key objectives of the
programme include the delineation of the
different kimberlite phases, variations in the
kimberlite geology, improving knowledge
on internal dilution and kimberlite/basalt
contacts. A total of 9 400 metres of drilling
has been planned for as part of the drilling
programme, 30% of which will be in
kimberlite with the remainder in basalt.
In 2013, 4 700 of these metres of drilling
were completed, with the remainder of
the drilling scheduled to be completed
in the first quarter of 2014. More detail on
this programme is provided in the mineral
resource management section on pages 28
to 31.
Following the installation of the secondary
and tertiary crushers in Plants 1 and 2,
a revised plant upgrade concept was
developed based on the new plant
mass balance. The concept studies have
identified the possibility of expanding the
production capacity of the existing plants.
These concepts are now being developed
in a pre-feasibility study and should be
completed in the first quarter of 2014.
The project to upgrade the existing
recovery process, through the construction
of a new coarse recovery plant, was
developed and approved in the last quarter
of 2013, subject to funding being finalised.
XRT technology has been identified and
tested for inclusion in the new coarse
recovery plant. This XRT technology will
treat the high-value, coarse fraction to
ensure improved diamond recovery of the
high-value type II diamonds, which typically
have a low fluorescence and are not readily
picked up using regular X-ray technology.
In addition, security improvements and
advanced technology diamond accounting
will be incorporated into the new recovery
plant to enhance the overall security of
the product.
Constructive negotiations with the plant
contractor culminated in the signing of a
new processing contract in August 2013,
in terms of which the plant contractor
will operate the two processing plants
until 2017. Aside from a reduction in the
margin to be paid to the plant contractor,
the contract also makes provision for
performance-based measures and
payments. In addition, a joint structure has
been established to manage the contract
and to explore continuous improvement
opportunities.
It is expected that the new contract will
materially change how the processing
facilities are operated and deliver savings
to Letšeng. In addition, a heightened focus
on processing practices is expected to
lead to an increase in plant availability and
utilisation, which should further contribute
to a decrease in diamond damage.
Sales and marketing strategy
Letšeng’s rough diamond production is sold
on tender in Antwerp by Gem Diamonds
Marketing Services BVBA (Gem Diamonds
Marketing), a wholly owned Gem
Diamonds subsidiary. Letšeng has complete
flexibility and control over the marketing
of its rough diamond production. A key
element of Letšeng’s marketing strategy has
been to access additional uplift by pursuing
sales and manufacturing initiatives further
down the diamond value chain.
Page 19 Gem Diamonds Annual Report 2013
2014 and onwards
The focus at Letšeng in 2014 will be on the
following key points:
• continual improvement of current
operations;
• continuation of the detailed design of
the new coarse recovery plant, with
construction scheduled to start in
September 2014, and commissioning
scheduled for first quarter of 2015;
• refinement of the Letšeng expansion
project (implementation and timing
thereof is subject to Board approval);
• continuation of test work with new waste
sorting techniques;
• revisiting the optimal timing of moving
from open pit mining to underground
mining in the Satellite pipe;
• additional exploration drilling is planned
to further increase knowledge of the
resource. Holes drilled around the
deeper sections of the Satellite pipe
will support planning of the potential
underground operation. Details of this
drilling programme are given in the
mineral resource management section
on pages 28 to 31;
• review of the Alluvial Ventures’ tenure, as
this contract is nearing its end;
• continued cost management, with
interventions aimed at optimising
treatment and mining unit costs; and
• optimisation of medium-term waste
stripping profiles will be prioritised in
order to maximise cash flow.
27 Letšeng diamonds
achieved values of
over US$1 million each
during 2013, totalling
US$83.3 million
Gem Diamonds Marketing holds 10 tenders
during the year for the Letšeng rough
diamond production, two in both the
first and third quarters and three in the
second and fourth quarters. In addition
to the rough tenders, Gem Diamonds
Marketing extracts select diamonds
for manufacturing and sale as polished
diamonds and/or for sale into Letšeng’s
high-value manufacturing and partnership
arrangements.
Diamond sales
The average value for Letšeng’s rough
diamond exports (including diamonds
extracted for manufacturing) for the year
was US$2 043 per carat, compared with
the average price of US$1 932 per carat
achieved in 2012, representing an increase
of 6%.
In 2013, 566 rough diamonds greater
than 10.8 carats in size were recovered
at Letšeng, totalling 12 125 carats and
contributing US$149.0 million or 75% of
total rough diamond value (compared
with 647 rough diamonds greater than
10.8 carats totalling 13 554 carats and
contributing US$151.2 million or 73%
of Letšeng’s total rough revenue in
2012). A total of 96 diamonds recorded
prices greater than US$20 000 per
carat, contributing rough value of
US$114.1 million or 57% of Letšeng’s rough
revenue, compared with 134 diamonds in
2012, which contributed US$117.6 million
or 57% of Letšeng’s rough revenue in 2012.
HSSE
Letšeng obtained a five-star rating for
its external HSSE audit in 2013. This is
the highest possible score on the rating
system, and reflects the increased focus
on ensuring a safe and healthy working
environment, as well as minimal harm to
the social and natural environment.
Two LTIs occurred at Letšeng during
2013, both of these incidents were
comprehensively investigated and the
appropriate corrective actions have
been implemented in order to prevent
recurrences. The operation has completed
and implemented an electronic business
management system in order to ensure
ongoing implementation of best practice
health, safety, social and environmental
management procedures.
The operation recorded no major
environmental incidents and one significant
incident, comprising a hydrocarbon spill
which was successfully cleaned and the
contaminated soil remediated. During
2013, Letšeng completed its environmental
and social action plans along with all the
associated procedures.
CSI at Letšeng continues to positively
impact the lives of the project affected
communities. The Group’s flagship CSI
projects, the wool and mohair and the
livelihoods projects remain on target. Over
1 000 local farmers have completed training
in a variety of agricultural, entrepreneurial
and business skills; and in excess of
100 000 goats and sheep were sheared
during the year. Several smaller projects are
still on going.
At year end, 95% of Letšeng’s workforce
was made up of Lesotho citizens and the
percentage of total workforce originating
from the project affected community was
20%, with three of the 24 local employees
at senior management level also emanating
from the project affected community.
Moreover, on a monthly basis an average of
134 temporary employees were employed
from the village adjacent to the mine.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 20
Operating review – Ghaghoo
www.gemdiamonds.com
Focus for 2014
– Continue to develop Phase 1 of the underground mine
for sustainable production output
– Balance of US$25 million to be spent in 2014 – funding
raised in January 2014
– Commence production in the second half of 2014 and
ramp-up to steady state capacity by the end of 2014
(60 000 tonnes per month)
– Install capacity for sustainable production output
– Review options post Phase 1
The processing plant at Ghaghoo is complete and ready for final commissioning.
Page 21 Gem Diamonds Annual Report 2013
The Ghaghoo diamond mine, which
is currently being developed, is held
by Gem Diamonds’ wholly owned
subsidiary, Gem Diamonds Botswana,
which holds a 25-year mining licence.
The Ghaghoo mine is situated in the
south-east portion of the Central
Kalahari Game Reserve.
The difficult task of mining through
approximately 80 vertical metres of
sand overburden before reaching
the competent country rock, has
created unique challenges for the
project team.
Ghaghoo
Highlights summary
– Completed construction of the sand portion of the
access decline
– Commenced extension of the main decline into
basalt
– Completed construction of the processing plant and
ready for final commissioning
– Intercepted Kimberlite at Level 0
Despite its challenges, good progress has been made on the development
of the Ghaghoo diamond mine which is poised to deliver on its Phase 1
objectives, the most important of which, being the commencement of
commercial production in the second half of 2014.
The 473 metre long sand portion of the access decline was completed
in July 2013, with a further 500 metres of basalt development being
completed during the year. Kimberlite ore was intersected on 25 November
in the cross-cut on Level 0, some 134 metres below surface. This cross-
cut will be used to access the old sampling tunnels on the 140 metre
level to allow the area to be dewatered and made safe before ore mining
commences on the production levels below. As at 31 December 2013, the
access decline had reached a depth of 145 metres and a further 50 metres
of decline development was required to reach the first production level
break-off at a depth of 154 metres below surface.
A decision was taken during the year not to sink the planned six metre
diameter ventilation shaft in 2013 and to delay this to 2015. The replanning
and a redesign of the ventilation system and escape way to smaller
diameter (1 100mm) drilled holes has allowed for this deferment. The
drilling of these ventilation and escape holes is progressing well and will be
complete before the end of the first quarter of 2014.
The processing plant will be fully commissioned well ahead of a sustainable
feed of run of mine ore becoming available from underground. A build-up
to a steady state production rate of 60 000 tonnes per month is planned
Safety briefing in the access decline
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 22
Operating review – Ghaghoo continued
by the end of 2014. It is anticipated that
approximately 200 000 to 220 000 carats
will be extracted from 720 000 tonnes
of ore per annum. Production readiness
preparation is progressing well and will
be in place before the end of the first
quarter of 2014.
All mining and other service support
infrastructure has been completed and
is operating satisfactorily. Significantly,
no project delays were experienced as
a result of logistical problems, despite
the challenges of hauling goods and
equipment some 160km on sandy tracks.
During 2013, US$19.2 million was spent on
the project. Due to the delays associated
with the development of the sand
portion of the access decline, the total
Phase 1 capital budget was increased
to US$96.0 million. At the end of 2013, a
total of US$71.2 million had been spent to
date, with a debt facility of US$25.0 million
concluded in January 2014 for the
remaining capital spend.
HSSE
The HSSE system at Ghaghoo has been
fully developed and implementation at the
operational level remains on going as the
mining activities continue to expand.
Ghaghoo registered one LTI in January
2013. This accident was comprehensively
investigated and the appropriate corrective
actions taken to prevent recurrences in
the future.
The Group 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. A Community
Trust has been approved by the Board and
legally registered. The Group successfully
completed a community water supply
programme for four settlements in the
Central Kalahari Game Reserve and the
supply of water and maintenance of the
boreholes equipment continues. An ‘adopt
a school’ programme is being considered
for these communities.
At year end, 27% of Ghaghoo’s employees
were recruited from the project affected
communities and 92% of employees were
Botswana citizens.
2014 onwards
Gem Diamonds continues to view the
Ghaghoo development as integral to
its overall growth strategy.
Work will continue on the development
of the access decline and subsequent
access to the orebody, followed by the
commencement of commercial production
in the second half of 2014. Activities
related to the sinking of the ventilation
and escape holes for the underground
mine will be completed in the first quarter
of 2014 and the processing plant will be
fully commissioned by May 2014. Studies
are continuing to assess 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.
HSSE case study: Short-term labour programme continues with
an upgrade to fixed-term employment
The Ghaghoo mine has implemented a short-term labour programme in order to
employ local people from the Kaudwane community. The Kaudwane community
is located 80km away from the mine. In collaboration with the village development
committee, the mine recruits local people on a rotational basis. The programme
aims to enable community members to learn new skills and provide them with work
opportunities.
While the Ghaghoo mine continues with the programme of bringing in residents
from project affected communities to work at the mine on a short-term basis, mine
management has realised that quite a number of these young people have potential,
are enthusiastic and have adapted well to the world of work. To this end, mine
management has consulted the leadership from Kaudwane to inform them about the
Group’s intention of employing those capable individuals on fixed-term contracts, as
opposed to casual appointments.
At this stage, some of these individuals have been deployed to the engineering
department to be trained in basic welding skills and other simple maintenance work.
Another individual has been deployed in the survey department as an assistant
surveyor. The mine will continue to seek opportunities in other technical units with a
view to enrolling these individuals as part of the employment upgrading programme.
Further to this, the mine endeavours to support this programme by developing
employment-related skills for the temporary employees from the project affected
communities. This will give them an opportunity to acquire the basic skills they need to
keep up with the demands and changes in modern life.
People from project affected
communities employed in the short-
term labour programme at Ghaghoo
Operating review – Sales, marketing and manufacturing
Page 23 Gem Diamonds Annual Report 2013
Gem Diamonds’ Marketing
Services was formed in 2010 and
is responsible for implementing
the Group’s sales and marketing
strategies. The Group maximises
revenue from its production
by actively marketing its
rough diamonds through
competitive tenders to respected
international diamantaires.
As part of the strategic objective
to increase revenue for its
rough diamonds and to access
additional margins further along
the diamond pipeline, the Group
established Baobab Technologies
in 2012, an advanced analytical
and manufacturing capability in
Antwerp.
A 2.09 carat fancy intense orangy pink
Letšeng diamond, cut and polished by
Baobab Technologies.
Sales, marketing
and manufacturing
Highlights summary
– Gem Diamond Marketing achieved an average value of
US$2 043* per carat
– Sold the 12.47 carat blue diamond for US$7.5 million
– Contributed US$5.4 million in additional revenue to
the Group
* Includes carats extracted for polishing at rough valuation.
Sales and marketing
Letšeng’s rough diamond production is sold on an electronic tender platform and is
marketed by Gem Diamonds Marketing Services. The tender platform is designed to
enhance engagement with customers by allowing continuous access, flexibility and
communication, as well as ensuring transparency during the tender process. Although
viewings of the diamonds take place in Antwerp over 10 tenders annually, the electronic
tender platform allows customers the flexibility to participate in each tender from
anywhere in the world. This contributes to the achievement of highest market-driven
prices for the Group’s rough diamond production.
Rough diamonds that have been selected for polishing are manufactured at Baobab, and
the resulting polished diamonds are sold through direct selling channels to high-end
clients.
The Group continues to invest and increase the intellectual property 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.
Analysis and manufacturing
Baobab Technologies’ advanced mapping and analysis of Letšeng’s exceptional rough
diamonds aids the Group in assessing the true polished value of its rough diamonds and
thus drives strategic decisions to implement robust reserve prices on its top diamonds at
each tender.
In order to access the highest value for its top-quality diamonds, the Group also
selectively manufactures some of its own high-value rough diamonds through the
Baobab operation and places other exceptional diamonds into strategic manufacturing
and partnership arrangements with select clients.
Baobab Technologies received 1 079 carats of high-value diamonds for processing, with
a rough market value of US$23.7 million of both Letšeng and third party goods. Included
in this amount was the manufacture of a high-value, 164 carat diamond, which resulted
in 11 exceptional polished diamonds, with a total weight of 83.47 carats, all of which
received triple ‘excellent’ grading for cut grade, polish and symmetry by the GIA.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 24
Group financial performance
www.gemdiamonds.com
Focus for 2014
– Execute Ghaghoo remaining capital spend within
budget
– Pursue cost control and operational efficiencies
– Deliver value to shareholders
A 162.02 carat type II diamond recovered at Letšeng at the end of January 2014.
Page 25 Gem Diamonds Annual Report 2013
Group financial
performance
Highlights summary
– Revenue US$213 million – up 5%.
– Underlying EBITDA US$77 million – up 18%.
– Attributable net profit US$21 million – up 23%.
– Basic EPS US$0.15 – up 24%.
– Cash on hand US$71 million.
lower carat recovery was the reduction of tonnes treated in the
year to 6.2 million, down from 6.6 million in 2012, due to the
plant downtime required for the crusher installation and the
limited throughput test in the early part of the year. For further
information, refer to the Letšeng operating review on pages 16
to 19.
Year ended
31 December
2013
Year ended
31 December
2012
Average price per carat (US$)1
Carats sold2
2 043
97 294
1 932
107 617
Letšeng financial performance
US$ (millions)
Sales
Cost of sales3
Royalty and selling costs
Underlying EBITDA
EBITDA margin
201.3
(99.2)
(16.1)
86.0
42.7%
207.7
(100.1)
(16.7)
90.9
43.7%
1 Includes carats extracted for polishing at rough valuation.
2 Represents all goods sold to Gem Diamonds Marketing Services in the year.
3 Including waste amortisation but excluding depreciation and mining asset
amortisation.
Revenue
Cost of sales
Royalties and selling costs
Corporate expenses
Underlying EBITDA
Depreciation and mining asset
amortisation
Share-based payments
Other income
Foreign exchange gain
Finance (cost)/income
Profit before tax
Income tax expense
Profit for the year
Less: Non-controlling interests
Attributable profit before
exceptional items
Exceptional items
Attributable profit/(loss) after
exceptional items
Earnings per share (US cents)
before exceptional items
2013
US$ million
Total
2012
US$ million
Total
212.8
(103.1)
(18.5)
(13.8)
77.4
(17.3)
(0.9)
0.7
0.6
(1.6)
58.9
(20.9)
38.0
17.0
21.0
0.1
21.1
15.2
202.1
(103.3)
(19.1)
(14.2)
65.5
(18.6)
(2.3)
1.3
3.8
1.3
51.0
(18.4)
32.6
15.5
17.1
(134.9)
(117.8)
12.4
Revenue
The Group’s revenue is primarily derived from its two business
activities, namely its mining operations at Letšeng and its
expanded focus on the downstream opportunities through
its advanced rough analysis and manufacturing operation
in Antwerp. Overall, the Group revenue increased by 5%,
notwithstanding the 10% lower volume of rough carat sales
by Letšeng compared to last year. The impact of the decrease
in volume was offset by higher diamond prices of 6% and the
impact of the extraction into inventory and subsequent sales
of the manufactured polished diamonds. External market
conditions, mining plans and management interventions all
affect revenue.
Mining operations
The demand for rough diamonds remained strong during 2013,
with relatively high prices achieved for Letšeng’s production,
particularly the high-quality, large diamonds for which the mine
is renowned.
During 2013, 84% of the total ore treated was sourced from
the lower-grade Main pipe and 16% was mined from the
Satellite pipe, compared to 76% Main pipe and 24% Satellite
pipe ore in 2012. The reduced contribution of Satellite pipe
ore in 2013 resulted in Letšeng recovering 95 053 carats, a
17% decrease from the prior year. Further contributing to the
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 26
Group financial performance continued
The combination of mining in the higher-value Satellite pipe in
the latter part of the year, together with the positive impact of the
installation of the new diamond-friendly crushers, resulted in a
higher average value obtained for Letšeng’s rough diamond exports,
including diamonds extracted for manufacturing. US$2 043* per
carat was achieved in 2013 from the sale of 97 294 carats, compared
to the average price of US$1 932* per carat achieved in 2012 from
107 617 carats. The impact of the 10% lower sales volume was
partially offset by the 6% higher US$ per carat achieved resulting in
an overall reduction in Letšeng’s revenue of 3% from the prior year.
Sales, marketing and manufacturing
In line with the Group’s strategic objective of seeking value accretive
opportunities, the expanded sales, marketing and manufacturing
operations continued to contribute positively to Group revenue and
EBITDA in 2013.
At the end of the prior year, rough diamond inventory to the value
of US$10.4 million remained on hand within the Group for own
manufacturing and was treated as unrealised sales from a Group
perspective in 2012. During the current year, a further 478 carats
valued at a rough market value of US$6.0 million were extracted
from the Letšeng exports for own manufacture. Polished diamonds
with an initial rough value of US$13.5 million were sold during the
year, resulting in US$2.9 million remaining in inventory at the end
of the current year. The sale of these polished diamonds, together
with the uplift made on partnered diamonds, contributed additional
revenue of US$5.4 million and additional EBITDA of US$3.6 million.
The net impact of the polished inventory movement on the overall
Group revenue in the current year is an increase of US$7.5 million.
Costs
Operational excellence through cost reductions and enhancing
production efficiency remained a key focus area for 2013.
The Lesotho loti (LSL) (pegged to the South African rand) and the
Botswana pula (BWP) were significantly weaker than the prior year,
positively impacting US dollar reported costs during the year.
Exchange rates
LSL per US$1.00
Average exchange rate for the
year
Year end exchange rate
BWP per US$1.00
Average exchange rate for the
year
Year end exchange rate
2013
2012
Variance
9.65
10.47
8.40
8.78
8.21
8.48
7.62
7.79
18%
23%
10%
13%
Cost of sales for the period was US$103.1 million, compared to
US$103.3 million in 2012. This included waste amortisation
of US$34.9 million incurred at Letšeng and is stated before non-cash
costs of depreciation of US$14.7 million and amortisation on mining
assets of US$2.6 million.
* Includes carats extracted for polishing at rough valuation.
Letšeng operational performance
Year ended
31 December
2013
Year ended
31 December
2012
Physicals
Tonnes treated
Waste tonnes mined
Carats recovered
6 225 821
6 551 434
19 072 657
17 396 233
95 053
114 350
The majority of cost of sales is incurred at the Letšeng operation. Total
direct cash costs (before waste) in local currency were LSL801.1 million
compared to LSL709.1 million in the prior year. This resulted in unit
costs per tonne treated for the year of LSL128.68 relative to the prior
year of LSL108.24. This increase of 19% in unit costs is mainly due to
local inflation increases, fuel and power increases above local inflation
and operational changes to drilling and blasting methodologies.
The overall impact of lower tonnages treated during the year (down
5% from 2012) contributed 25% (LSL5.17) to the increase in the unit
reported costs. Furthermore, costs associated with the contractor
(Alluvial Ventures which operates a third plant at Letšeng) which are
based on a percentage of revenue, have also increased as revenue
achieved from their production was higher in 2013 compared to the
prior year, which contributed 27% of the overall unit cost increase.
Letšeng costs
US$ (per unit)
Direct cash cost (before waste)
per tonne treated1
Operating cost per tonne treated2
Waste cash cost per waste tonne
mined
Local currency (per unit) LSL
Direct cash cost (before waste)
per tonne treated1
Operating cost per tonne treated2
Waste cash cost per waste tonne
mined
Letšeng costs
Other operating information
(US$ millions)
Waste capitalised
Waste amortised
Depreciation and mining asset
amortisation
Capital expenditure3
Year ended
31 December
2013
Year ended
31 December
2012
13.34
15.85
2.71
13.18
15.29
2.97
128.68
152.92
108.24
125.57
26.12
24.40
Year ended
31 December
2013
Year ended
31 December
2012
59.3
34.9
16.0
9.9
60.6
26.9
17.7
22.8
1 Direct cash costs represent all operating costs, excluding royalty and selling
costs, depreciation, mine amortisation and all other non-cash charges.
2 Operating costs exclude royalty and selling costs and depreciation and mine
amortisation, and include inventory, waste amortisation and ore stockpile
adjustments.
3 Capital expenditure excludes movements in rehabilitation assets relating to
changes in rehabilitation estimates.
Page 27 Gem Diamonds Annual Report 2013
Operating costs per tonne treated for the year increased to
LSL152.92 per tonne from LSL125.57 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). Letšeng
significantly increased mining ore from cut 3 in the Main pipe
during the year which carries an amortisation charge. Ore previously
mined from the Main pipe was mainly sourced from cut 2 which did
not carry any waste amortisation charge. As a result the amortisation
charge attributable to the Main pipe ore accounted for 52% of the
total amortisation charge in 2013. The amortisation associated to
the Satellite pipe ore was less than that in 2012 due to the lower
volume of Satellite pipe ore mined during the current year.
The increase in the local currency waste cash cost per waste tonne
mined of 7% is in line with inflation.
Royalties and selling costs in the Group of US$18.5 million mainly
comprise mineral extraction costs paid to the Lesotho Revenue
Authority of 8% on the sale of diamonds, and diamond marketing
related expenses.
Corporate expenses decreased from US$14.2 million in 2012 to
US$13.8 million in 2013. These expenses relate to central costs
incurred by the Group. During 2012, a number of assets which
did not meet the stringent requirements for value creation, were
disposed of, resulting in a reduction of staff and streamlining of
corporate expenses in 2013, the full benefit of which will only be
realised in 2014. Corporate costs include once-off termination costs
of US$0.6 million relating to the retirement of Kevin Burford, the
Chief Financial Officer, that occurred during the year. A large portion
of corporate costs are denominated in South African rand and were
positively impacted by the stronger US dollar during the year.
As a result of the factors discussed above, underlying EBITDA for the
year was US$77.4 million, up by US$11.9 million (18%) from the prior
year of US$65.5 million.
Share-based payment costs for the year amounted to US$0.9 million,
down from US$2.3 million in 2012. This is as a result of a number of
employees resigning before the end of the service condition period
and a reversal of US$1.2 million of previously recognised costs as a
result of the forfeiture. There were no new options granted during
the year.
Net finance costs mainly comprise the unwinding of the current
environmental provisions partially offset by interest received
predominantly from surplus cash from the Letšeng operation
and interest received on outstanding loan balances.
The effective tax rate in the year for the Group was 35.3%, above
the UK statutory tax rate of 24.0%. The tax rate of the Group is
driven by tax of 25.0% on profits generated by Letšeng Diamonds,
withholding tax of 10% on dividends from Letšeng and deferred tax
assets not recognised on losses incurred in non-trading operations.
The profit attributable to shareholders for the year before
exceptional items was US$21.0 million (up 23% from US$17.1 million
in 2012) equating to 15.2 US cents per share (up 24% from
12.4 US cents in 2012) on a weighted average number of shares in
issue of 138 million.
Financial position and funding review
Following the restructuring that occurred in 2012, the Group’s asset
and liability position remained relatively unchanged, however, due
to the weakening of the underlying local currencies, the closing
balances in US$ have decreased as at 31 December 2013.
The Group maintains its strong cash position with US$71.2 million
cash as at 31 December 2013, up from US$70.8 million in 2012. This
was largely due to careful cost management, cash generated mainly
by Letšeng during the period, and the strategic decision made in
2012 to proceed cautiously with capital investments.
Investments in property, plant and equipment amounted
to US$88.9 million, the largest component of which was
US$59.3 million incurred in waste stripping at Letšeng. The Group
also invested US$9.9 million at Letšeng, in aggregate, on the
installation of the cone crushers, new modular coarse recovery
plant design work, security upgrades and other sustaining capital
costs. US$19.2 million was invested in Phase 1 development costs at
Ghaghoo, bringing the total spend on the development at the end
of 2013 to US$71.2 million out of a budgeted US$96.0 million.
The Group generated cash flow from operating activities of
US$87.6 million before the investment in waste mining and capital
costs detailed above. In addition US$14.0 million, representing
the final proceeds on the sale of Kimberley Diamonds which was
concluded and disclosed in the prior year were received. During the
last quarter of 2013, Letšeng declared a dividend of US$19.8 million
which resulted in a net cash flow of US$12.5 million to Gem
Diamonds, and a cash outflow from the Group of US$7.3 million, as
a result of withholding taxes of US$1.4 million and payments of the
Government of Lesotho’s portion of the dividend of US$5.9 million.
As part of capital management, the Group’s current strong cash
balance, supported by Letšeng’s cash flows, has been further
enhanced by the implementation of a funding strategy of
incorporating appropriate debt levels into the capital structure.
As a result, a US$20.0 million three-year unsecured revolving
credit facility with Nedbank Capital at the Gem Diamonds level
was concluded in January 2013. This was in addition to the
LSL250.0 million (US$23.9 million) three-year unsecured revolving
credit facility at Letšeng which was implemented in late 2011. As
at period end, no drawdowns have been made on these facilities.
In January 2014 a further US$25.0 million nine-month short-term
unsecured facility was concluded with Nedbank Capital to fund
the remaining Phase 1 development spend at Ghaghoo planned
for 2014. This is due to be refinanced through a longer-term debt
facility prior to its expiry.
Looking ahead
With the advent of the Ghaghoo Phase 1 development nearing
completion, focus will continue on executing the remaining capital
spend within budget. As the project is scheduled to come into
production in the second half of the year, focus will be on the
conversion from a development project into sustaining operational
activities with appropriate cost management aiming to generate a
positive contribution to EBITDA. Letšeng is operationally geared to
mine a more consistent mix of Satellite and Main pipe ore following
the investment in waste stripping in 2013. In addition, the positive
impact following the installation of the new cone crushers during the
year and the potential benefits of the value added projects underway,
together with the expectation of stable prices, provides a good
platform for 2014.
The Group is well funded and will pursue cost control and
operational efficiencies wherever possible in order to deliver value to
its shareholders over the short, medium and long term.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 28
Mineral resource management
Effective, integrated management of our mineral resources is considered a
key driver for the success of our business.
Gem Diamonds’ mineral resource management pipeline
Gem Diamonds adopts an integrated approach to mineral resource management (MRM) whereby all elements of the resource to product
pipeline are considered holistically to ensure the optimal utilisation of the Group’s resource base.
➧➧➧➧➧➧➧➧➧➧➧➧➧➧➧➧
Resource
exploration and
development
estimation and
modelling
Mine
planning and
RESOURCE
Treatment
Extraction
PRODUCT
Resource
RESERVE
design
This approach to MRM is key in understanding the Group’s in-situ resource, the modifying factors that govern the resource to reserve
conversion process and the continued improvement and optimisation of the Group’s exploitation strategy. Continuous improvement work
streams in a number of areas across the pipeline are currently being evaluated.
While the key concepts of the MRM pipeline approach apply largely to the Letšeng operation at this stage, a similar approach will be taken
at the developing Ghaghoo operation. MRM is reported in the following sections: reserve performance; resource development and mineral
resource and reserve statements.
2013 Letšeng reserve performance1
Actual
Expected
Grade
Revenue
1.60
1.84
-13%
1 970
1 574
+25%
The expected 2013 reserve performance measurement indicators detailed above are based on 2013 reserve estimates as per
the 2013 reserve statement summarised later in this section.
KEY POINTS ON 2013 LETŠENG RESERVE PERFORMANCE
–
–
Letšeng reserve grade was 13% below that expected from the ore mined. This shortfall was a result of greater than expected dilution in
problematic mining areas – the marginal contact and basalt breccia/raft areas during the early part of the year, but returned to historic
averages in the second half of the year.
Letšeng US$ per carat reserve revenues outperformed 2013 expected values by 25%. Market price increases during the course of 2013
accounted for 10% of this overperformance. 2013 price performance was largely in line with historical trends (2011 to 2013) with actual
prices achieving close to expected values of US$2 000 per carat in the early part of the year and increasing towards US$3 000 per carat in
the latter part of the year due to increasing Satellite ore contribution and the improved recovery of large type II diamonds.
2013 Ghaghoo reserve performance
No mining of Ghaghoo ore reserves was conducted during 2013, with the first mining expected in mid-2014.
1 All analysis presented in this section excludes the alluvial ventures production facility which contributed <15% of the production throughput in 2013.
Page 29 Gem Diamonds Annual Report 2013
Historical performance trends2,3
Letšeng ore provenance
100
50
0
2011
■ Satellite pipe ore ■ Main pipe ore
2012
2013
Diamond price performance
5 000
4 000
t
a
r
a
c
r
e
p
$
S
U
3 000
2 000
1 000
0
2011
2011
2011
2012
2013
■ Actual diamond price
■ Expected diamond price
■ WWW Rough Diamond Index
Grade performance
2.50
2.00
1.50
1.00
0.50
e
n
n
o
t
0
0
1
r
e
p
s
t
a
r
a
C
0
2011
2011
■ Actual grade
■ Expected grade
2012
2012
2013
2013
2 Prices detailed in historical trend data are normalised to end-2013 price levels.
3 The WWW Rough Diamond Index is published with the kind permission of WWW International.
1.6
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 30
Mineral resource management continued
2013 Letšeng reserve performance
At Letšeng, 2013 was a busy year for resource development with the completion of the 2011/2012 infill and deep drilling programme early in
the year, ongoing discrete production sampling (which are individual production shifts that can be confidently assigned to a single kimberlite
phase) and in-depth geological and petrographical studies. In addition to this, the 2013/2014 drilling programme, largely aimed at improving
the resolution and understanding of the upper portions of the resource, was initiated in the latter half of the year.
Planned 2013/2014 core drilling programme
-3209200 DY
-3209400 DY
-3209600 DY
-3209800 DY
-3210000 DY
X
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0
0
4
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-
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1
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_
0
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_
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S 1 3 _ 0 1 8 _ G E
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M13_025_GE1
3
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_
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M13_027_GE
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1
3
_
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_
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P
M 1 3 _ 0 2 9 _ G E
P re-2011 Drillh oles
Pre-2011 drillholes
Drillholes end 2012
Drillholes end-2012
2013 ac tual & 2014 P lan
2013 actual and 2014 plan
X
O
0
0
8
3
1
-
X
O
0
0
6
3
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-
X
O
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M13_028_EP
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X
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8
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-
X
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0
0
6
2
1
-
In 2013, 16 holes were drilled with a total depth of 8 300 meters.
Geological model improvement
Barbara Scott Smith, a world renowned kimberlite expert, and her associates have been engaged to further the understanding of the geology,
petrography and emplacement models of both Letšeng pipes.
While this is a work in progress, initial results corroborate most previously identified phases of kimberlite, especially within the Main pipe (after
Bloomer and Nixon 19731), and they have been identified or extrapolated to depth.
During 2013, initial studies revealed that many aspects of the infill and internal geology of both pipes was most similar to Kimberley-type
pyroclastic kimberlite pipes, though some important differences were noted.
KEY POINTS ON LETŠENG RESOURCE DEVELOPMENT
–
Good progress in discrete production sampling of the important individual ore phases during 2013.
– Satellite NVK ore phase returned grades above the 2013 reserve estimate while SVK returned grades lower than the reserve estimate due
to marginal basalt dilution.
– Main pipe ore phases returned grades in line with the 2013 reserve estimates.
– Resource drilling addresses main areas of uncertainty in geology, contact and depth extent.
2013 Ghaghoo resource development
No resource development work was conducted on the Ghaghoo asset during 2013.
1 References: MP Barbara Scott Smith
Bloomer A G and Nixon P H 1973. The Geology of Letšeng-La-Terae kimberlite pipes. In: Lesotho kimberlites (editors: P H Nixon), Lesotho National Development
Corporation, page 20 to 38.
Scott Smith B H, 2008. Canadian kimberlites: Geological characteristics relevant to emplacement. Proceedings of the 2006 kimberlite emplacement workshop,
Saskatoon, Canada. Journal of Volcanology and Geothermal Research, 174, page 9 to 19.
Scott Smith B H, Nowicki T E, Russell J K, Webb K J, Mitchell R H, Hetman C M, Harder M, Skinner E M W and Robey J V, 2013. Kimberlites: descriptive geological
nomenclature and classification. Proceedings of the 10th international kimberlite conference. Special issue of the Journal of the Geological Society of India, Volume
2, page 1 to 17. Springer India.
Page 31 Gem Diamonds Annual Report 2013
Mineral resource and reserve statements
Letšeng resource base increases substantially and Ghaghoo declares
initial reserve.
Mineral resources were re-estimated in 2013 with an effective statement date of 1 January 2013. The resource and reserve statements are
available on the Gem Diamonds website: www.gemdiamonds.com under Investors.
The resources are stated inclusive of reserves and are stated as gross resources and reserves.
Gem Diamonds summary resource and reserve statement as at 1 January 2013
Asset
Probable reserves
Indicated resources
Inferred resources
Total resources
Ownership
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Letšeng
Lesotho
Ghaghoo
Botswana
Total
70%
78.9
1.75
1.38
1 715
80.8
1.76
1.42
2 184
220.9
1.75
3.86
2 194
301.7
1.75
5.29
2 191
100%
7.5
86.4
27.81
4.01
2.08
3.46
246
79.4
19.51
15.49
222
28.8
17.52
5.04
220
108.2
18.98
20.53
831
160.2
10.56
16.92
387
249.7
3.57
8.90
1 076
409.8
6.30
25.82
222
625
Gem Diamonds summary resource and reserve statement as at 1 January 2012
Asset
Probable reserves
Indicated resources
Inferred resources
Total resources
Ownership
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Ore
(mT)
Grade
(cts/100T)
Carats
(m) US$/ct
Letšeng
Lesotho
Ghaghoo
Botswana
Total
70%
64.7
1.80
1.17
2 485
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%
—
64.7
—
—
—
79.4
19.51
15.49
259
28.8
17.52
5.04
257
108.2
18.98
20.53
1.80
1.17
2 485
150.1
11.17
16.77
448
169.6
4.58
7.77
1 181
319.7
7.68
24.54
259
680
KEY CHANGES TO THE RESOURCE
– Letšeng tonnage resource base increases by 43% mainly due to depth extensions in both orebodies.
– Letšeng diamond price estimates drop by 20% largely in line with market price decreases.
– Letšeng global resource grade drops by 8% as a result of the addition of lower-grade Main pipe resource tonnage.
– Ghaghoo resource tonnes and grade remain unchanged ahead of mining in 2014.
– Ghaghoo diamond price drops by 14% in line with diamond market decreases.
KEY CHANGES TO THE RESERVE
– Letšeng reserve base tonnes increases by 22%.
– Letšeng reserve diamond price decreases due to mining mix and changes to the large stone factor.
– Ghaghoo declares first official reserve of 7.5 million tonnes.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 32
Principal risks and uncertainties
The Group’s operational and growth performance is influenced and impacted
by a number of risks. Maintaining a robust risk management system is critical
to allow the Group to pursue growth opportunities and increase shareholder
value, while effectively mitigating the various risks it is exposed to.
Risks exist in the natural course of business. It is not an objective to eliminate all exposure to these risks as this would be neither commercially
viable, nor possible. A formal risk management process exists to identify and review potential risks with the oversight of the Board. The Audit
Committee assists the Board in this process by identifying and assessing any changes in risk exposure, together with the potential financial
and non-financial impacts and likelihood of occurrence. Mitigating plans are formulated and reviewed regularly to gain an understanding of
their effectiveness and progress.
The Group has identified the following key risks. This is not an exhaustive list, but rather a list of the most material risks facing the Group. The
impact of these risks individually or collectively, could potentially affect the ability of the Group to operate profitably and generate positive
cash flows in the medium to long term. As a result, these risks are actively monitored and managed, as detailed below.
Commentary
Mitigation
2013 actions and outcomes
Market risks
Numerous factors may affect the price and
demand of diamonds which are beyond the
control of the Group. These factors include
international economic and political trends,
as well as consumer trends.
The funding of growth plans could also
be adversely affected by negative market
conditions.
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 in its
sales processes and the ability to reassess its
capital projects and operational strategies
in light of current market conditions to
preserve cash balances.
Strict treasury management procedures are
also in place to monitor cash and capital
projects expenditure.
Operational risks
Mineral resource risk
The Group’s mineral resources influence
the operational mine plans and affect
the generation of sufficient margins.
Underperformance of its mineral resources
could affect the Group’s ability to operate
profitably in the medium to long term.
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.
A major production interruption
The Group may experience material mine
and/or plant shutdowns or periods of
decreased production due to a number
of different events. Any such event could
negatively affect the Group’s operations and
impact both profitability and cash flows.
HSSE-related risks
The risk that a major health, safety, social or
environmental incident may occur within
the Group is inherent in mining operations.
During the year, diamond prices
outperformed the mineral reserve prices.
Capital expenditure was deferred without
materially affecting the execution and
timeline of projects.
As part of the operational strategy to
improve the quality of diamonds produced,
in order to access higher revenues,
increased investment in waste stripping
occurred at Letšeng to access higher-grade,
higher-value Satellite pipe ore in the latter
part of the year.
The Group has a strong balance sheet
with cash reserves of US$71 million plus
existing undrawn facilities of US$44 million*
with sufficient funding to conclude the
development of Ghaghoo.
Letšeng drilling programmes and discrete
sampling were undertaken to improve
confidence in geology and resource volume
and the understanding of grade and
revenue estimates.
World renowned kimberlite geology
experts were engaged to improve the
understanding of the geology at Letšeng.
A review of the business continuity plan was
undertaken at Letšeng during the year and is
in the process of internal audit review.
Improvements in power monitoring and
backup power supply were undertaken
at Letšeng, reducing the risk of lengthy
outages.
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. This is overseen by the HSSE
Committee of the Board.
Further to this, the Group engages
independent third parties to review and
provide assurance on processes currently
in place.
Due to continuous focus on best practice,
an excellent safety and environmental
record was achieved during the year.
The five-star rating awarded to Letšeng in
its external 2013 HSSE audit supports this.
Corporate social investment into the
Group’s project affected communities
continued throughout the year.
SD Further reading in our Sustainable Development
Report 2013 available on www.gemdiamonds.com
* As at 31 December 2013.
Page 33 Gem Diamonds Annual Report 2013
Commentary
Mitigation
2013 actions and outcomes
Operational risks continued
Diamond theft
Theft is an inherent risk factor in the
diamond industry.
Security measures are constantly reviewed
and implemented in order to minimise
this risk.
A new coarse recovery plant project
was approved during the year which
incorporates enhanced security features.
Diamond damage
Damage to large stones may occur during
the mining and recovery processes which
could negatively impact the pricing,
affecting both profitability and cash flows.
Diamond damage is regularly monitored
and analysed. Continuous studies
are conducted to further implement
modifications and identify opportunities
to reduce such damage.
Political risks
The political environments of the various
jurisdictions that the Group operates within
may adversely impact the ability to operate
effectively and profitably. Emerging market
economies are generally subject to greater
risks, including regulatory and political risk,
and are potentially subject to rapid change.
Changes to the political environment
and regulatory developments are closely
monitored. Where necessary, the Group
engages in dialogue with relevant
government representatives in order
to keep well informed of all legal and
regulatory developments impacting its
operations and to build relationships.
Upgrades to the existing security systems
and facilities were implemented at Letšeng.
New crushers were installed at Letšeng
during the year. Reduced diamond damage
was evident following their commissioning.
In addition, other projects are being
reviewed which will further reduce
diamond damage.
Blasting techniques were refined to
improve liberation of large diamonds.
The Group actively managed and monitored
its political risk exposure during 2013.
Ongoing dialogues with representative
stakeholders were held.
There were no strikes or lockouts during
the year.
No matters of non-compliance were
identified as all necessary legal requirements
were met.
Financial risks
Exchange rates
The Group receives its revenue in US dollars,
while its cost base arises in local currencies
of 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.
Growth risks
Expansion and project delivery
The Group’s growth strategy is based on
delivery of expansion projects, premised
on various studies, cost indications and
future market assumptions. In assessing the
viability, costs and implementation of these
projects, risks concerning cost overruns
and/or delays may affect the effective
implementation and execution thereof.
Strategic risks
Retention of key personnel
The successful achievement of the Group’s
objectives and sustainable growth depends
on its ability to attract and retain key
personnel.
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.
Local currencies in the jurisdictions in which
the Group operates have weakened against
the US dollar during the year, in favour of
the Group’s results.
Numerous hedges were taken out to take
advantage of the weakened currencies.
Project governance structures have been
implemented to ensure that the projects
are monitored and risks managed at an
appropriate level.
Flexibility in the execution of projects allows
the Group to react quickly to changes in
market and operational conditions.
Active management of project risks resulted
in the following:
• Studies on the Letšeng expansion
projects have advanced well during the
year. The new crushers were successfully
installed on time and within budget.
• The development of Ghaghoo is still on
track and within budget for delivery in
the second half of 2014.
The Group’s remuneration policies and
human resources practices are designed
to attract, incentivise and retain individuals
of the right calibre through performance-
based bonus schemes and long-term
reward and retention schemes, such as the
Employee Share Option Plan (ESOP).
A review and amendment of the
remuneration policies were undertaken
during the year to retain key skills within
the Group.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Mining operators at Letšeng.
Page 35 Gem Diamonds Annual Report 2013
Sustainable
development review
At Gem Diamonds, we
seek to maximise the value
of our assets by mining,
manufacturing and selling
diamonds with due care
and respect for people
and the environment.
Our approach to
sustainable development is
both a moral obligation to
do the right thing, as well
as a business imperative
to support our overall
business strategy.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 36
Sustainable development review
Gem Diamonds has produced its sixth Sustainable Development Report
this year. The report is based on the framework as defined by the Global
Reporting Initiative (GRI). This Sustainable Development Review section
comprises a brief summary of the progress made in corporate social
responsibility during 2013.
Gem Diamonds has continued to evolve its
sustainable development framework as well
as the actions implemented on the ground,
and as such would encourage shareholders
and stakeholders to access the full 2013
Sustainable Development Report on the
Gem Diamonds website.
SD
By publishing the Gem Diamonds
Sustainable Development Report on
an annual basis, the Company strives
to improve communication with all
stakeholders and reaffirm its commitment
to sustainable business. 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 acknowledges the
importance of integrating sustainability
throughout its business strategy.
Internationally recognised standards are
implemented and further developed
throughout the Group to ensure the
greatest benefit to its people and
environment.
Gem Diamonds aims to operate with
moral and ethical responsibility at all
times, enabling the Group to effectively
manage its impact on economic, social
and ecological systems to the benefit of
future generations. All operations within
the Group are required to comply with host
country legislation relating to health and
safety, environment, social and economic
business management, as well as assessing
and implementing international standards
of best practice. These standards ensure
that the Group operates in a manner that
benefits society as a whole.
Creating sustainable value
Gem Diamonds’ subsidiaries contribute
to the economies of the host countries in
which they operate through the payment
of statutory taxes and the fulfilment of
other financial obligations such as royalties.
The Group’s commitment to creating a
lasting, positive socio-economic legacy
in the communities in which it operates
extends beyond legal obligations. In
keeping with this commitment, all
operations have programmes in place
aimed at maximising the benefit of regional
and local employment and procurement.
Group-wide local
contributions 2013
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
1.1
32.1
136.8
2.5
3.9
28.6
Governance
As a company listed on the London Stock
Exchange, Gem Diamonds has voluntarily
committed to adhere to the most rigorous
and widely recognised international
standards of best practice in respect
of financial, corporate governance and
corporate social responsibility aspects.
Appropriate HSSE policies, procedures
and management systems have been
developed and implemented at each
operation, ensuring adherence to relevant
host country and international standards
of best practice. Operational management
structures are in place at each operating
subsidiary, facilitating co-operative and
transparent communication at all levels of
the business, while providing the required
assurance to the operational Boards.
HSSE sub-committees at the operations
serve as a platform to address high-risk
business areas.
The Gem Diamonds HSSE Committee,
at Board level, supports the operations
through the employment of Group policies,
standards and strategic guidance in
respect of HSSE matters. The Committee
reports directly to the Board of Directors
and provides assurance in respect of
the appropriateness and adequacy of
operational HSSE management.
No cases of bribery, corruption, anti-
competitive behaviour, anti-trust or
monopoly practices were brought against
the Group or its subsidiaries in 2013, nor
have they ever been brought against the
Group. Policies and practices are continually
reviewed and refined to ensure these
practices do not occur.
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.
Page 37 Gem Diamonds Annual Report 2013
Compliance with voluntary standards
All Gem Diamonds’ subsidiaries adhere
to host country legislation as a minimum
compliance standard. As a London-listed
organisation, relevant best practice
standards are also incorporated into the
Group’s management systems, based on
the materiality of these standards.
The International Finance Corporation’s
Environmental, Health and Safety Standard
and Guidelines, as well as the Equator
Principles, are continuously applied
throughout the Group. Operational Safety,
Health and Environmental management
systems are based on the principles of
ISO 18000 and ISO 14001, and the GRI
serves as the reporting basis for the Group.
The Group registered with the Responsible
Jewellery Council in 2012, and finalisation
of this registration is anticipated in 2014.
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.
Our people
Creating a safe and healthy work
environment
Gem Diamonds sets the health and safety
of its workforce as its highest priority. The
Group aims to protect its people through
actively promoting responsible care and
the creation of a safe and healthy working
environment. Gem Diamonds’ employees
are a key asset, and a culture of zero
tolerance for non-conformance to safe,
responsible and sustainable practices is
being built.
Gem Diamonds’ health and safety
management systems are based on the
principles of ISO 18000 and incorporate
relevant international best practice
standards. These systems are independently
audited on an annual basis, allowing
resources to be allocated appropriately to
improve performance.
* Includes previously owned operations.
Gem Diamonds reported a fatality-free year
in 2013. There were, however, three LTIs
across the Group, two at Letšeng and one
at Ghaghoo. The Group-wide LTIFR for 2013
was consequently 0.13, a decrease from the
0.30* recorded for 2012, but still exceeding
the Group target of zero.
In 2013, the Group-wide AIFR of 2.49 was
well under the Group ceiling value of 4.20,
a significant reduction from the 2012 value
of 4.45*.
The Group focused on the proactive
management of health and safety in 2013.
Proactively managing serious diseases and
the proactive identification of behaviour
and conditions that pose a risk to the
health and safety of employees will assist
the Group in the pursuit of its ultimate goal
of zero harm. The number of proactive
safety management actions implemented
throughout the Group in 2013 amounted
to 45 512. This is an increase compared to
the 43 899* proactive actions implemented
in 2012.
Gem Diamonds’ health and safety
management efforts extend beyond
occupational concerns. The Group
assisted employees through treatment,
education and training, as well as
counselling where necessary, and conducts
environmental and serious disease
management programmes that address
the total well-being of its employees. These
programmes are continuously improving
and expanding.
Due to the increased focus on serious
disease management in 2013 the
total Group-wide interventions rose to
6 287 from 2 002* recorded in 2012.
Gem Diamonds’ goal remains to achieve
zero harm in a sustainable manner,
and the Group continues to refine and
improve its health and safety management
systems through ongoing identification
and implementation of appropriate
improvement measures.
Developing and retaining our people
Gem Diamonds aims to engage, develop
and retain first-class employees. This is
regarded as a key element in achieving
operational excellence.
At year end, Gem Diamonds employed
a total of 344 own and 1 316 contractor
employees. Employee absenteeism rates
decreased from an average of 1.68* in
2012, to 1.39 in 2013. Staff turnover
is continuously monitored across all
operations. At Ghaghoo, turnover rates
remain high and this trend is expected
to continue until the operation reaches
a steady-state operational phase. Staff
turnover at all other facilities remained
stable during 2013.
The Group recorded a net 34% decrease
in hours per capita vocational training in
comparison to 2012. The Letšeng mine
recorded a 4% increase in hours per capita
vocational training while the Ghaghoo
mine recorded a 45% decrease, due to the
short-term nature of contract labour. This
training is provided via internal and external
training mechanisms. The Group remains
committed to training and sees this as a
priority to be further pursued in 2014.
Career reviews are conducted at all
operations; however, 2013 recorded a
decrease in the number of employees
receiving career reviews. In 2013, 16%
of the Group’s employees underwent
career reviews, compared to 30%* in 2012.
Career review and development policies
are determined by each subsidiary, which
prescribes the level of seniority from which
reviews are conducted. No differentiation
is made between male and female
employees’ reviews. Looking forward, the
Group will work on increasing the number
of career reviews conducted in 2014.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 38
Sustainable development review continued
Gem Diamonds’ Code of Ethics clearly
communicates its status as an equal
opportunity employer. The Code further
outlines the Group’s policy regarding zero
tolerance towards discrimination on any
basis and, for the second consecutive year,
zero cases of discrimination were recorded
in 2013. Further details are set out in the
table below.
There are currently nine men on the
Group’s Board, but no women. However,
the Group retained a 19.5% female staff
complement in 2013.
Board members
Senior
management
Group employees
total in 2013
Women
Men
0
9
9
80
330
1 330
Localisation of the workforce is another
human resource priority across the Group.
In 2013, 95% of Letšeng‘s workforce
comprised Basotho nationals and 92%
of Ghaghoo‘s workforce comprised
Motswana nationals.
Gem Diamonds continues to refine policies,
processes and procedures relating to the
human rights of its employees. The total
hours of human rights training provided
to employees increased from 300 in 2012
to 400 in 2013. The aim is to offer human
rights training to all employees in 2014.
Labour relations at all operations remained
stable in 2013. None of Gem Diamonds’
operations and/or facilities are unionised,
although freedom of association remains a
core right for each employee. No strikes or
lockouts occurred during 2013.
Gem Diamonds continues to remunerate
its employees in line with 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$3.3 million spent on benefits in
2013, compared with US$5.2 million spent
in 2012.
* Includes previously owned operations.
Optimising community benefit
The Group’s mines operate in existing
socio-economic environments, benefiting
from mining diamonds during the life of
these operations. In turn, the Group has
a moral obligation to contribute to the
sustainable socio-economic growth of
these areas.
With this in mind, culturally appropriate
and sustainable CSI programmes were
put in place at the operating mines based
on detailed community needs analyses.
In 2013, Group-wide CSI expenditure
amounted to US$0.5 million, compared
to US$0.6* million in 2012. The Group
continues to focus on projects related to
health, education, infrastructure, small
and medium enterprises and regional
environmental initiatives.
At Letšeng, 2013 marked the conclusion
of the 2011-2013 Corporate Social
Responsibility Initiative (CSRI) strategy.
This strategy was underpinned by a needs
analysis undertaken in 2009. Various
initiatives were undertaken in 2013,
including infrastructure developments,
education and health projects, as well as
sponsorship and donations. The total CSI
project expenditure at Letšeng during
2013 amounted to US$0.5 million. A new,
forward-looking CSI plan was established
for implementation in 2014. This plan
will ensure that the project affected
communities surrounding the Group’s
flagship operation continue to benefit.
Ghaghoo has successfully provided water
to the Mothomelo, Metsiamonong, Molapo
and Gope communities and is looking
forward to expanding its CSRI strategy once
operational.
One community need identified during the
2009 stakeholder engagement campaign
conducted on behalf of Ghaghoo, was the
optimisation of local employment. Gem
Diamonds is pleased to report that the
rotational employment of unskilled labour
from the project affected communities
has resulted in 27% of the total workforce
being recruited from these communities.
This has resulted in US$46 000 flowing into
these largely unemployed communities.
Several community members are now
permanently employed at the operation.
No resettlement of communities was
undertaken during 2013 and it is not
anticipated to be necessary for any of the
existing operations.
The Group seeks to maintain open,
transparent, respectful and mutually
beneficial relations with its neighbours and
all its stakeholders. For the fifth consecutive
year, zero major stakeholder incidents were
reported.
Our environment
Gem Diamonds adopts a precautionary
approach when considering potential
environmental impacts. Comprehensive
environmental management programmes
are implemented at each of the operations
to mitigate environmental impacts. The
Group’s environmental management
approach is based on the level of
environmental risk exposure and potentially
achievable cost reductions.
The minimisation, mitigation and
management of environmental impacts
are key components of the Group’s strategy
and taken very seriously. Extensive impact
assessments are undertaken taking into
account relevant international best practice
standards, prior to the commencement
of any mining activities. Throughout
the life of Gem Diamonds’ operations,
environmental performance is monitored
and the results from such monitoring
processes are used, if necessary, to update
environmental management plans and
procedures. These assessments inform
the management approach, facilitate
compliance with regulatory requirements
and informs the Group’s stakeholders of
how Gem Diamonds is endeavouring to
protect its natural heritage. Environmental
impacts caused by the Group’s operations
are managed through the implementation
of an extensive and dynamic
management system.
Gem Diamonds continues to invest in
environmental protection. A total of
US$1.0 million was spent on environmental
protection measures in 2013. Initiatives
undertaken in 2013 included costs
Page 39 Gem Diamonds Annual Report 2013
associated with environmental training,
expert consultants, research and
development, green purchases and other
expenditure.
A decrease in the number of minor
environmental incidents was recorded
in 2013. This may be attributed to an
increased focus on environmental
awareness. Only one significant
environmental incident occurred in 2013
compared to four* in 2012.
The continuous development and review
of comprehensive rehabilitation plans at
the Group’s mining operations remained
a focus during 2013. Advances were
made with the integration of progressive
rehabilitation programmes into the Letšeng
mine plan. In 2013 a total of 6 174ha of
land was under the Group’s management
and 18ha was disturbed. In 2013, Letšeng
continued with extensive rehabilitation
trials that were initiated in 2012. These
trials will assist the mine in determining
the feasibility and success of planned
rehabilitation strategies well in advance of
mine closure.
Water quality is constantly monitored at the
Group’s operations and any challenges are
addressed. Challenges include prevention,
point source treatment and management
of elevated levels of nitrates. Letšeng
finalised the construction of an artificial
wetland to treat effluent water in late
2013. Care is taken at the operations to
ensure that any water discharged is of an
appropriate quality.
Waste generated at the Group’s 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 are implemented
at each of the operations with a view to
ensuring the correct handling of waste to
avoid environmental pollution. Waste is
disposed of in accordance with approved
disposal methods. Elimination or reduction
of waste generated at the source remains
a priority.
All mineral waste structures on-site are
designed, maintained and managed in
compliance with host country legislation
and international best practice standards.
The volume of mineral waste generated
in 2013 increased at both Letšeng and
Ghaghoo in comparison to 2012. This
can be attributed to the increased waste
stripping undertaken at Letšeng and an
increase in mining activities at Ghaghoo.
Gem Diamonds endeavours to limit the
infrastructural footprints of its operations
to conserve and protect as much of
the natural environment as possible.
The Social and Environmental Impact
Assessment (SEIA) and Integrated Social
and Environmental Management Plan
(SEMP) undertaken at Letšeng during 2012
were finalised and approved by the relevant
authorities in 2013. Ghaghoo continued to
implement its environmental management
plan in 2013 to mitigate and manage any
impacts on the sensitive ecological systems
of the Central Kalahari Game Reserve.
Gem Diamonds has a zero tolerance
approach to major environmental incidents.
To ensure that no major environmental
incidents occur, all operations monitor
their adherence to applicable laws, best
practice and site-specific environmental
management practices and processes.
The Group is reliant on various non-
renewable resources to conduct its
business and the efficient use of these
resources contributes to the resilience of
the organisation, helping it adapt to an
environment that is increasingly resource
constrained. The Group’s aim is to reduce
its resource consumption through process
optimisation and the introduction of
progressive technologies. Reducing the
Group’s dependency on natural resources
potentially facilitates greater access to
natural resources by local communities
and other businesses. The cost benefits
from this initiative are notable, benefiting
the Group’s business as well as the
environment in which it operates.
The Group’s total energy consumption
decreased during 2013, as a result of
the disposal of the Ellendale mine in
Australia at the end of 2012, as well as
the implementation of energy-efficiency
projects. Energy intensity per carat
produced is measured Group-wide
and allows for better understanding of
consumption patterns, as well as the
identification of opportunities to utilise this
resource more efficiently. A slight increase
of 7.7% in the Group-wide energy intensity
was recorded in 2013. This increase in
energy intensity is linked to higher volumes
of waste being mined at Letšeng in order to
access the diamondiferous ore.
The water consumption of the Group
decreased by 73% in 2013. This significant
decrease can be attributed to the disposal
of the Ellendale mine, and to water
awareness campaigns at Letšeng. In 2013,
the water consumed at Letšeng decreased
by 37% to 3.5 million cubic metres. At
Ghaghoo, water consumption increased
by 74% to 0.5 million cubic metres due to
increased mining, dewatering activities as
well as extraction from boreholes.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements * Includes previously owned operations.
Gem Diamonds Annual Report 2013 Page 40
Sustainable development review continued
The total carbon footprint for the Group for
2013 was 124 812 tonnes CO2e. This figure
includes the direct greenhouse gas (GHG)
emissions (Scope 1) and energy indirect
GHG emissions (Scope 2).
Gem Diamonds understands that
undertaking a carbon footprint
assessment is not the only step to a better
understanding and effective reduction
of GHG emissions. The Group intends to
formulate a GHG emissions reduction
strategy with a view to pursuing our
goal of zero harm to the environment in
connection with the Group’s operations.
Product integrity
Gem Diamonds is committed to supplying
natural diamonds with the highest
product integrity to its clients. To fulfil this
commitment, the Group has developed a
strong culture of corporate integrity and
good corporate governance measures.
Since 2009, the Group has progressively
built its sustainable development
framework. Ongoing expansions
and development of this framework
ensures 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, ethical,
environmental and social practices, as
well as the protection of human rights
throughout the diamond, gold and
platinum group metals jewellery supply
chain. Full registration with the Council is
expected to be concluded during 2014.
The Group continues to adhere to all the
provisions of the Kimberley Process and all
rough diamonds are certified in terms of
the Kimberley Process certification scheme.
Letšeng undergoes an independent annual
audit conducted by the Kimberley Process
team and the Group has remained fully
compliant since it was founded in 2006.
All of the Group’s rough diamonds are
exported with original Kimberley Process
certificates.
To ensure the Group’s diamonds reach
the market through the correct channels,
strict controls are applied. Trade with
Gem Diamonds is by invitation only.
A screening process is undertaken to
identify potential clients, and selected
clients are assessed to ensure their good
standing and compliance with internal and
external anti-money laundering and
anti-bribery and corruption protocols.
Through continuous and transparent
communication, trust relationships are
developed and maintained with clients and
other stakeholders.
Gem Diamonds maintains the highest level
of transparency and integrity during the
marketing and sales process. Diamonds
are made available for detailed viewing
by clients prior to the conclusion of a
tender. Gem Diamonds does not provide
warranties in respect of its diamonds.
The confidentiality of Gem Diamonds’
clients is protected in all instances. The
Group’s tenders are governed by tender
conditions that are agreed to by all clients.
Following the conclusion of each rough
tender, a complete list of the winning bids
is electronically circulated to all tender
participants. This ensures a transparent
tender process.
Security and theft prevention is a serious
risk management consideration when
dealing with high-value products such
as diamonds. Operations assess their risk
profiles on an ongoing basis. Top specialists
and insurers are engaged on a regular
basis to assess the status of the Group’s
security risk management systems and
solutions, and to ensure that the diamonds
remain secure.
SD
Letšeng’s flagship CSI project is the wool and mohair project which aims to develop the skills of local sheep farmers in terms of wool
shearing, ram breeding, business skills and animal health management.
Sign off of our Strategic Report
Page 41 Gem Diamonds Annual Report 2013
Our Strategic Report, as set out on pages 2 to 40, has been reviewed and approved by the Board of Directors on 17 March 2014.
Roger Davis
Chairman
17 March 2014
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Glove box in the Letšeng recovery plant.
Page 43 Gem Diamonds Annual Report 2013
Governance
Robust corporate
governance supports the
Group’s ability to create
value for its stakeholders.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 44
Non-Executive Directors
Roger Davis (57)
Non-Executive Chairman
MA (Oxon)
Roger spent eight years at Barclays, latterly as
the Chief Executive Officer 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 t
that, he spent 10 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. Roger is currently the non-Executive
Chairman of Sainsbury’s Bank plc and of
GRC Limited, and is also a non-Executive
Director at Experian plc.
Appointed
Roger was appointed as Chairman of the
Gem Diamonds Board in February 2007.
Key skills and experience
Commercial and Capital Markets and
Public Company Board Governance.
Board committee membership:
Audit, Remuneration and Nominations
Committees.
Dave Elzas (47)
Non-Executive Director
BSc Business Engineer ( Vrije Universiteit
Brussel); Master’s in Business and Technologies
(Handelsingenieur) (Solvay Business School)
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 Chief Executive
Officer of the Geneva Management Group, an
international wealth management and financial
services company and was appointed as a
non-Executive Director of Zanaga Iron Ore Co.
Limited in November 2010.
Appointed
Dave was appointed to the Gem Diamonds
Board in October 2005.
Key skills and experience
Finance, Diamond Industry Trading and Capital
Markets.
Board committee membership
Audit and Remuneration Committees.
Mike Salamon (58)
Senior Independent Director
BSc (Mining Engineering) (University of the
Witwatersrand); MBA (London Business School)
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 as 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.
Appointed
Mike was appointed to the Gem Diamonds
Board in February 2008.
Key skills and experience
Operational – Mining, Projects, Health
and Safety, Sustainability, Corporate Social
Responsibility and Capital Markets.
Board committee membership
Nominations, HSSE and Remuneration
Committees.
Gavin Beevers (64)
Non-Executive Director
BSc Hons (Mechanical Engineering) (Lancaster
Polytechnic)
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.
Appointed
Gavin was appointed to the Gem Diamonds
Board in February 2007.
Key skills and experience
Operational – Mining, Health and Safety,
Sustainability and Corporate Social
Responsibility.
Board committee membership
HSSE Committee.
Richard Williams MBE
MC (47)
Non-Executive Director
BSc Economics (University College London); MBA
(Cranfield University); MA International Security
Studies (King’s College London)
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 worked as an adviser to a number of London
and New York-based financial institutions. He is a
founding member of CENTAR Limited, a mining
investment company focused on central Asia
and Zimbabwe, Chief Executive Officer of Afghan
Gold and Minerals Company, Director of Central
Asian Mining Services Limited and a Director of
Meikles-Centar Mining (Zimbabwe). He is also a
strategic adviser to Olive Company LLC, a global
risk management business.
Appointed
Richard was appointed to the Gem Diamonds
Board in February 2008.
Key skills and experience
Security, Capital Markets and Political Risk.
Board committee membership
Audit and Remuneration Committees.
Executive Directors
Page 45 Gem Diamonds Annual Report 2013
Michael Michael (43)
Chief Financial Officer
BCom Hons (Rand Afrikaans University);
CA(SA)
Michael Michael has over 20 years’ experience
in financial management. He joined RSM Betty
& Dickson in Johannesburg, South Africa in
January 1993 as a trainee accountant and
became audit partner at the firm in March
2000. In August 2006 to February 2008
Michael was seconded to Gem Diamonds
Limited to assist with the financial aspects
of the Main London Listing including the
financial reporting, management accounting
and tax relating to the Initial Public Offering.
In March 2008 Michael joined Gem Diamonds
on a full-time basis as the Group Financial
Manager. On 2 April 2013 he was promoted to
the position of Chief Financial Officer.
Appointed
Michael joined Gem Diamonds in March 2008
and was appointed to the Board in April 2013.
Key skills and experience
Finance, Diamond Industry and Capital
Markets.
Clifford Elphick (53)
Chief Executive Officer
BCom (University of Cape Town); BCompt Hons
(University of South Africa)
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 is also the
non-Executive Chairman of Zanaga Iron Ore
Co. Limited and Jumelles Holdings Limited.
Appointed
Clifford formed Gem Diamonds in July 2005.
Key skills and experience
Diamond and Mining Industries and
Commercial and Capital Markets.
Board committee membership
Nominations Committee.
Glenn Turner (53)
Chief Legal and Commercial Officer
BA LLB (University of Cape Town);
LLM (Cambridge)
Glenn was called to the Johannesburg Bar
in 1987 where he spent 14 years practicing
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.
Appointed
Glenn joined Gem Diamonds in May 2006
and was appointed to the Board in April 2008.
Key skills and experience
Diamond Industry and Legal.
Board committee membership
HSSE Committee.
Alan Ashworth (59)
Chief Operating Officer
BSc (Mining Engineering) (Nottingham
University), South African Mine Managers
Certificate of Competency
Alan holds a BSc in Mining Engineering
and has 38 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.
Appointed
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 and Corporate Social
Responsibility.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 46
Chairman’s overview of corporate governance
In the present climate, it is fundamental
that the Group is managed with openness,
honesty, and transparency. This can only
be achieved by maintaining the highest
standard of corporate governance.
The responsibility for good corporate
governance lies with your Board. The
Directors and I regard the setting and
maintenance of high standards across the
Group as an essential part of our work.
The Board is ultimately responsible to
shareholders for the Group’s activities, its
strategy and financial performance, for the
efficient use of the Group’s resources and
for health, safety, social and environmental
matters. With the assistance of the Audit
Committee, the Board therefore approves
the Group’s governance framework and
reviews its risk management and internal
control process. I believe this leads to a
more effective Board and also facilitates my
leadership role.
During the year, our governance framework
has taken into account the introduction,
in September 2012, of the latest additions
to the UK Corporate Governance Code
(the Code). The most significant reporting
changes have been to the Directors’
Remuneration Report with a binding vote
on the remuneration policy.
Corporate governance is embedded in
the way we organise our business, with
local Boards and Audit Committees taking
responsibility for our operations in local
markets. This helps us to do the right
thing for our shareholders, customers,
employees, suppliers, local communities
and the environment. Therefore, while 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.
I am pleased to confirm that during the
year the Company adhered to the latest
principles of the Code published in
September 2012. In respect of provisions
of the Code, the only exception relates
to section C.3.1 committee membership,
where we, as we did last year, felt that
compliance for its own sake would not
prove more effective to the management
of your Company and the effectiveness
of the Audit Committee. This is more fully
explained in the following UK Corporate
Governance Code Compliance Report.
During 2013, we undertook a Board
evaluation process to review the Board’s
approach to strategy, particularly in
relation to both process and initiatives.
The evaluation was carried out by way of
a questionnaire administered by Prism, an
external contractor. A detailed description
of the evaluation process is set out on
page 50. The results of this evaluation were
taken into account at our strategy meeting
in November 2013, culminating in the
focus areas for 2014 detailed on the afore-
mentioned page.
Key focus areas confirmed by the
evaluation process were the Board’s
commitment to apply best practice
with regards to corporate responsibility,
environmental management, health and
safety. In other words, doing what is best
for our stakeholders and the broader
environment.
In the following pages you will find
overviews of our primary four committees,
plus detailed information regarding their
overall operation within the governance
framework.
A key concern for good corporate
governance is to eradicate bribery, fraud
and corruption. As reported last year,
following the implementation of the UK
Bribery Act, the Group began a review of
its policies, procedures and the principles
set out in the related Ministry of Justice
Guidance. I am confident that we now
have a uniform system in place throughout
the Group, including a programme for the
system to be monitored and reviewed on
an annual basis through our internal audit
function.
We have also found that in the last
year our whistleblowing hotline, used
to report suspected fraud, corruption
and irregularities, has been used more
frequently. Following investigation, none
of the cases were significant and were
resolved without serious consequences.
We value this system, which gives staff the
opportunity to voice their concerns in a
way that draws attention to the matter,
without fearing reprisals for speaking out.
Board composition is very important, with
three critical dimensions:
• the balance of skills and experience;
• maintaining a strong level of
independence and objectivity; and
• ensuring that all members have sufficient
knowledge of the Group and the context
in which we operate.
As we act in shareholders’ interests,
it is right that shareholders have the
opportunity to vote on the re-election of
every Director on an annual basis.
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 our 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 UK Corporate Governance Code
Compliance Report on page 52.
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 to date.
Roger Davis
Chairman
17 March 2014
UK Corporate Governance Code compliance
Page 47 Gem Diamonds Annual Report 2013
This report combines the Directors’
Report, the Management Report and the
Group’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,
Remuneration, Nominations and HSSE
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 2013,
with one exception. As previously advised
in last year’s Annual Report, the position of
Lord Renwick on the Audit Committee was
taken over by Roger Davis on 25 August
2009. As Roger Davis is also the Chairman
of the Board, this was not in compliance
with section C.3.1 of the Code. In this
regard the Chairman was considered to be
independent upon his appointment. This
situation will continue for the foreseeable
future but will be kept under review. In
the event that the Company remains
below the FTSE 350 until 31 December
2014, the current composition of the Audit
Committee will be compliant with section
C.3.1 of the Code because the Code’s
smaller companies regime will apply.
Board of Directors
The role of the Board
The Board is responsible for the overall
conduct of the Group’s business.
The Board is responsible for:
• setting the Group’s strategy and for the
management, direction and performance
of the business;
• monitoring and understanding the
risk environment in which the Group
operates;
• providing accountability to shareholders
for the proper conduct of the business;
• safeguarding the long-term success of
the Group and taking into consideration
the interests of all stakeholders; and
• ensuring the effectiveness of and
reporting on the system of corporate
governance.
The Board has a schedule for each Board
meeting, which includes discussion and
decision-making surrounding:
• verbal reports given by the Chairman
of each Committee on the Committee’s
activities;
• overall Group strategy, new business, and
long-term plans;
• operational reviews;
• major capital projects;
• latest financial reports;
• annual budget and operating plans;
• the Group’s 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 Group, within a framework of
policies and controls, which provide for
effective risk identification, assessment
and management. The Board provides
leadership and articulates the Group’s
objectives and strategy to achieve those
objectives. The Board sets standards
of conduct, which provide an ethical
framework for all of the Group’s business
functions. While the Board focuses
on strategic issues, such as financial
performance, risk management and other
critical business concerns, it also has a
formal schedule of reserved 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 for the Board
include, but are not limited to, approval of
budgets and business plans, major capital
expenditure, major acquisitions, disposals
and bank borrowings and were last
reviewed in March 2013.
While all Directors have equal responsibility
in terms of the law for managing the
Group’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.
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Gem Diamonds Annual Report 2013 Page 48
UK Corporate Governance Code compliance continued
Board composition during 2013
Name
Title
Executive Board members (4)
Held appointment
during 2013
Committee chairmen and
number of members
C T Elphick
A R Ashworth
K M Burford
M Michael
G E Turner
Chief Executive Officer
Chief Operating Officer
Chief Financial Officer
Chief Financial Officer
Chief Legal and Commercial Officer
Until 1 April 2013
From 22 April 2013
Non-Executive Board members (5)
R W Davis
G A Beevers
Chairman
D J Elzas
M Salamon
R J Williams
Senior Independent Director
The non-Executive Directors possess a
range of experience and competencies and
are able to bring independent judgement
to bear on issues of strategy, performance,
and resources that are vital to the success
of the Group.
All of the non-Executive Directors are
regarded as independent by the Board as
defined in the Code, as was the Chairman
on his appointment.
Board and Committee meetings
Five scheduled Board meetings were held
during 2013, all in the United Kingdom.
Attendance by Directors at Board and
committee meetings is shown below.
There are six formally constituted
committees of the Board, each of which
has specific terms of reference. Those for
the Audit, Remuneration, Nominations
and HSSE Committees can be viewed on
the Group’s website together with the
matters reserved for the Board, at
www.gemdiamonds.com. The remaining
two committees (Standing and Share
Scheme) facilitate the administration of the
Board’s delegated authority.
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
Attendance at Board and Committee meetings during 2013
Nominations (3)
Health, Safety, Social and
Environment (3)
Audit (3)
Remuneration (4)
members are emailed with the details,
including a justification. The decision of
each Board member is communicated and
recorded at the following Board meeting.
The terms of reference for each Committee
require members to be renominated every
three years (subject to annual re-election).
This was undertaken in respect of Mike
Salamon (who sits on the Remuneration,
Nominations and HSSE Committees),
Richard Williams (Audit and Remuneration
Committees) and Gavin Beevers (HSSE
Committee).
Director
R W Davis
C T Elphick
G A Beevers
D J Elzas
M Salamon
R J Williams
A R Ashworth
K M Burford1
M Michael1
G E Turner
Number of meetings held
Board
Audit
Remuneration
Nominations
HSSE
5/5
5/5
5/5
5/5
5/5
5/5
5/5
1/1
4/4
5/5
4/4
–
–
3/4
–
4/4
–
–
–
–
4/4
–
–
4/4
4/4
4/4
–
–
–
–
3/3
3/3
–
–
3/3
–
–
–
–
–
–
–
4/4
–
4/4
–
–
–
–
4/4
1 K M Burford retired on 1 April 2013 and M Michael was appointed on 22 April 2013.
Page 49 Gem Diamonds Annual Report 2013
A further nine unscheduled Board or
committee meetings were held during the
year to approve, inter alia, the appointment
of Michael Michael, the vesting of shares
post-exercise, approval of bank facilities and
to consider the merits of certain corporate
plans.
Non-Executive Directors meetings
Before the scheduled Board meetings, the
non-Executive Directors meet
independently of the Executive Directors,
in accordance with a practice adopted by
many listed companies. During the year
four such meetings were held.
Chairman and Chief Executive Officer
A clear separation is maintained between
the responsibilities of the Chairman and
the Chief Executive Officer. 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 Officer is
responsible for the leadership, operations
and management of the Group within
the strategy and business plan agreed by
the Board. Their individual responsibilities
are detailed below, as well as the
responsibilities of the Senior Independent
Director (SID) and non-Executive Directors.
Roles of the Chairman and Chief Executive Officer
The role of the Chairman – Roger Davis
The effective operation and leadership of the Board and setting the
highest standards of corporate governance.
Providing strategic guidance to the executive team.
Setting the agenda, style and tone of Board discussions.
Through the Nominations Committee, ensuring that the Board
comprises individuals with an appropriate mixture of skills,
experience and knowledge.
Ensuring that the Company maintains effective communication
with shareholders and that their views and concerns are
understood by the Board.
Working with the Chief Executive Officer to ensure that the Board
receives accurate and timely information on the performance of
the Group.
Leading the evaluation of the performance of the Board, its
Committees and individual Directors.
Encouraging a culture of openness and discussion to foster a high-
performing and collegial team of Directors that operates effectively.
Ensuring that relevant stakeholder and shareholder views, as well
as strategic issues, are regularly reviewed, clearly understood and
underpin the work of the Board.
Facilitating the relationship between the Board and the Chief
Executive Officer.
Ensuring that adequate time is available for discussion on all
agenda items.
The role of the Chief Executive Officer – Clifford Elphick
Developing a business strategy for the Group to be approved by
the Board on an annual basis.
Producing business plans for the Group 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.
Ensuring that effective business and financial controls and risk
management processes are in place across the Group, as well as
compliance with all relevant laws and regulations.
Making recommendations to the Board on the appropriate
delegation of authority within the Group.
Keeping the Board informed about the performance of the Group
and bringing to the Board’s attention all matters that materially
affect, or are capable of materially affecting, the performance of the
Group and the achievement of its strategy.
Developing, for the Board’s approval, appropriate values and
standards to guide all activities undertaken by the Group.
Providing clear and visible leadership in responsible business
conduct.
Roles of the SID 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 policy for executive remuneration, as
well as the remuneration packages for the Chairman and Executive
Directors through the Remuneration Committee.
Providing a wide range of skills and independence, including
independent judgement on issues of strategy, performance and risk
management.
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UK Corporate Governance Code compliance continued
Board skills, balance and independence
As a mining company, the efficiency of the
day-to-day operations, in both the medium
and long term, is essential to the Group’s
progress in producing 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 Group has moved into cutting and
polishing and as new sales and marketing
strategies are being rolled out, knowledge
of the diamond industry is crucial in order
to foster new business opportunities.
Financial resources and capability are
also necessary to ensure fulfilment of
the Group’s strategy, both financially and
corporately. The biographies, which can
be found on pages 44 and 45, provide
more information on each Director’s
competencies. All Directors allocate
sufficient time to the Group 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 so that no individual or
group can dominate the Board’s decision-
taking.
Non-Executive Directors should be
independent in character and judgement.
All five non-Executive Directors are
considered by the Board to be independent
of management and the Group. In applying
the independence test, the Board considers
relationships with management, major
shareholders, subsidiary and associated
companies and other parties with whom
the Company transacts business against
predetermined materiality thresholds.
The letters of appointment for the non-
Executive Directors and the contracts of
the Executive Directors are available for
inspection at the place of business of the
Company in London.
The Board annually reviews the
composition and chairmanship of its
primary Committees, namely the Audit,
Remuneration, Nominations and HSSE
Committees.
Appointments and re-elections to the
Board (see also Board diversity on
page 52)
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 management.
The Nominations Committee’s section of
this report is set out on page 59.
It is required that all Directors retire at the
end of the year and, if appropriate, offer
themselves for re-election at each Annual
General Meeting in accordance with Code
provision B.7.1. This practice will continue
for future re-elections.
The Nominations Committee has
considered and concluded that the Board
has demonstrated commitment to its role.
The Committee is also satisfied that the
collective skills, experience, background
and knowledge of the Company’s Directors
enables the Board and its Committees
to conduct their respective duties and
responsibilities effectively.
Continuing Board development,
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 conduct
of their duties, subject to prior consultation
with the Chairman. Furthermore, all
Directors have access to management and
to the advice and services of the Company
Secretary. The Company Secretary is
accountable to the Board for ensuring
that all governance matters are complied
with and to assist with professional
development as required.
Board-approved arrangements ensure that
new Directors receive a full, formal and
tailored induction on joining the Board. In
addition, ongoing support and resources
are provided to Directors, enabling them to
extend and refresh their skills, knowledge
and familiarity with the Group. Professional
development and training is provided
through three complementary measures:
• delivering regular updates on changes
(actual or proposed) in laws and
regulations affecting the Company or its
businesses;
• making arrangements, including site
visits, to ensure Directors are familiar with
the Group’s operations, particularly its
commitment to and application of the
Group’s corporate social responsibility
policies; and
• creating opportunities for professional
and skills training, such as committee
chairmanship and formal professional
seminars, designed by appropriate
advisers.
Board evaluation
Aim
Recognising that 2013 had been a year
during which a number of strategic
challenges, as set out on pages 32 and 33,
came to the fore, it was agreed that the
Board evaluation exercise should primarily
focus on the Directors’ understanding of
the current strategy and the processes
by which the Board engaged with the
formulation and implementation of
strategy. The evaluation exercise also
considered the current composition of the
Board.
Approach
In line with best practice on Board
evaluation, as set out in Code provision
B.6.2 of the Code 2012, the Board appointed
Prism to undertake an externally facilitated
independent review of Board effectiveness
during November and December 2013. The
scope of the 2013 evaluation exercise was
agreed with the Chairman and Company
Page 51 Gem Diamonds Annual Report 2013
Bribery Act
The Company has implemented a review of
its policies and procedures in line with the
Bribery Act and the principles set out in
the related Ministry of Justice Guidance.
EY LLP (EY ), supported the senior
management of the Group in this review.
The review was completed in 2012
and a new Group policy was adopted
and circulated to staff identified by the
Group as potentially exposed to bribery
and corruption. All identified individuals
received formal training in 2012. The Group
policy and its application is subject to
monitoring by the Group’s internal audit
function on a regular basis.
Secretary and implemented by means of a
questionnaire. The questionnaire was sent
to each Director and their responses were
collated by Prism who then presented their
analysis, findings and recommendations in
a report to the Board. Prism has no other
connection with the Group.
Analysis
The Prism Report to the Board noted that
the Board had allocated considerable
time and attention to discussing strategy,
against a backdrop of a difficult strategic
environment. As a result, the understanding
of that context and the initiatives being
taken in response had developed
considerably during the year. Two principal
recommendations were made to the
Board: first, the need to continue the
dialogue on strategy in order to give extra
clarity to the direction and detail of the
Company’s approach; second, the Board
was encouraged to further consider how
it communicated with the Company’s
shareholders about the strategy.
The review of the composition of the Board
noted that, in a changing company context,
the membership of the Board needed to be
reviewed in view of the future needs of the
Company. The Nominations Committee
was encouraged to pay particular attention
to this during 2014.
Next step
The findings and recommendations have
been discussed with the Board by the
Chairman. All agreed that the Board would
continue to work to both ensure a value
creating strategy going forward and to
monitor and support the Executive in the
successful implementation of that strategy.
The need to ensure that the Company's
shareholders were aware of the strategic
direction of the Group, was also recognised.
Conflicts of interest
The UK Companies Act requires that
Directors avoid any situation where they
may have a direct or indirect interest that
conflicts, or may possibly conflict, with the
Group’s interests, unless approved by the
non-interested Directors. In accordance
with this Act, the Directors are allowed to
authorise conflicts and potential conflicts
where appropriate. The Company operates
a procedure to ensure the disclosure
of conflicts and, if appropriate, for the
consideration and authorisation of them
by non-conflicted Directors. The Board
maintains a register of ‘conflicts of interest’
which it reviews annually (most recently in
November 2013). The Company voluntarily
complies with this requirement.
Dealings in shares
The Company has a policy based on the
Model Code, published in the FCA’s UK
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.
Directors’ remuneration
While 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 as well as the Chairman. The
details of all Directors’ remuneration are
covered in the Directors’ Remuneration
Report and in the Annual Report on
Directors’ Remuneration on pages 62 to 78.
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UK Corporate Governance Code compliance continued
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.
More information on gender-based
employment is contained in the
Sustainability Development Review on
page 38.
Communication of business
development during the year
Detailed information on the Group’s
business developments and projects can
be found on the Company’s website
(www.gemdiamonds.com) in the investors’
section, where all published information
and shareholder communication
is available. This includes: interim
management statements; trading updates;
year-end and half-year results; analysts’
briefings; and all announcements.
Accountability and audit
Financial reporting
The Board is conscious of its responsibility
to present a fair, balanced and
understandable assessment of the Group’s
position and prospects and is satisfied
that it has met this obligation. The current
assessment can be found in the Strategic
Report on pages 2 to 41.
The Responsibility Statement of the
Directors in respect of the Annual Report
and Financial Statements is set out on
page 86.
Information and financial
reporting systems
The Board is supplied in a timely manner
with information in a form and of a quality
appropriate to enable it to discharge its
duties. Financial reporting to the Board
is continuously modified and enhanced
to cater for changing circumstances. The
Group’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
Group’s annual budget and business plan.
These 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 monthly
reporting of key performance indicators
and updated forecasts for the year, together
with information on 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 Board.
These reports form the cornerstone of
the Group’s system of internal control.
Detailed consolidated management
accounts, as well as 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 flow and progress of strategic
issues are circulated to Board members and
Senior Executives.
Internal control
The Board of Directors is responsible for
the Group’s system of internal control,
which is embedded in all key operations.
In accordance with the Turnbull
Guidance (Committee on Internal Control
published in October 2005), the Board
relies on reviews undertaken by the
Audit Committee throughout the year,
and approval of the Annual Report and
Financial Statements. In addition, 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 regular reports from
management on the operation of the risk
assessment process throughout the Group.
These included:
• 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 reports.
The principal aim of the system of internal
control is the management of business risks
that significantly threaten the fulfilment
of the Group’s business and strategic
objectives, with a view to enhancing the
value of shareholders’ investments and
safeguarding assets. The internal control
systems have been designed to manage,
rather than eliminate, the risk of failure,
to achieve business objectives and to
provide reasonable but not absolute
assurance that the Group’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. For the review, the Audit
Committee considered reports dealing with
internal audit plans and outcomes, as well
as risk logs and sign-off from external audit
and management representations. These
did not reveal any significant failings or
weaknesses.
Page 53 Gem Diamonds Annual Report 2013
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 2013
and approved by the Audit Committee,
with reports on the 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 the Audit
Committee.
The internal audit function is provided by
KPMG Services Proprietary Limited (KPMG)
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.
An ongoing process, in accordance
with the Turnbull Guidance has been
established for identifying, evaluating
and managing the most significant risks
faced by the Group. The Group’s risk
management policy aims to cover and
review all important business risks faced
by the Group, including, but not limited
to, operational, financial, commercial,
legal, regulatory and compliance risks,
which could undermine the Group’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 and/or mitigated
can be found on pages 32 and 33 in the
Strategic Report.
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.
All of the Group’s operations carry out
comprehensive annual self-assessment
risk reviews and update their risk registers
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 are reviewed and approved by
the Audit Committee and, if necessary,
the 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 of the Group’s
operating unit’s board meetings, thereafter
to the Company’s Audit Committee and, if
appropriate, to the Company’s Board.
The results of the process have been
reviewed by management with all of the
Group’s operations and submitted to the
Company’s Audit Committee.
Investment appraisal
Capital expenditure is managed 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
completed 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.
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 Group’s
external auditors, EY. These responsibilities
are delegated to and are discharged by the
Audit Committee, whose work is described
on pages 55 to 58.
Whistleblowing programme
The Company has implemented a formal
mechanism to report suspected fraud,
corruption and irregularities. This is via
independently operated and confidential
toll-free phone hotlines in each country in
which the Group operates, through which
employees can report any breach of the
Group’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 boards
of local operations and to the Company’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 to all
employees detailing the whistleblowing
tool and the relevant contact details.
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UK Corporate Governance Code compliance continued
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 attending the Company’s
next scheduled meeting will be advised
as to the level of proxy votes received, as
well as the 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
AGM. 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, 10 June 2014.
Relations with shareholders
Majority interest in shares
On 14 March 2014, 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 Limited
Lansdowne Partners Limited
BlackRock Inc
FIL Limited/FMR LLC
Capital Group Companies Inc
Gem Diamonds Holdings Limited
Number of
ordinary shares
%
shareholding
20 906 699
20 721 413
17 936 619
15 782 766
9 611 688
9 325 000
15.12
14.99
12.97
11.14
6.95
6.74
There has been no change reported to the Group since 14 March 2014.
Dialogue with shareholders
The Board places importance on effective
communication with its shareholders and
maintains regular dialogue with, and gives
briefings to, analysts and institutional
investors, which the Board believes ensures
that members of the Board develop an
understanding of the views of major
shareholders about the Company. The
responsibility for investor relations is
that of the Chief Legal and Commercial
Director, Glenn Turner, who is based at the
Company’s London office. Presentations
are given by the Executive Directors after
the Group’s announcement of the year-
end and half-year results. Any concerns
raised by shareholders in relation to the
Group and its affairs are communicated
to the Board as a whole and a summary of
shareholders’ views are 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, and in accordance with
both the DTR and Group policy. This
policy was most recently reviewed by the
Board in November 2012 and updated as
appropriate. It was recirculated to each
operation in 2014.
Glenn Turner keeps in contact with
the Company’s institutional and other
shareholders, as well as 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 119 institutional
shareholders who hold 128.21 million
shares (93%) and 500 private shareholders
who hold 10.06 million shares (7%).
The Company’s Senior Independent
Director, Mike Salamon, is available to
shareholders if contact through normal
channels has failed to resolve their
concerns, or if such contact would be
inappropriate.
All shareholders can access the Group’s
annual and half-year reports; interim
management statements; trading
updates; and other published and
current information about the Group
through the Company’s website at
www.gemdiamonds.com.
Audit Committee
Page 55 Gem Diamonds Annual Report 2013
“The purpose of the Audit Committee is to reassure shareholders that
their interests are properly protected in respect of the Company’s financial
management and reporting.”
Dave Elzas, Chairman
The role and focus of the Audit Committee
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.
By fulfilling this role, the Audit Committee
assists the Board in discharging its
responsibilities with regard to financial
reporting, external and internal audits and
controls.
Composition, meetings and
attendance in 2013
In accordance with provision C.3.1 of
the Code, all members of the Audit
Committee should be non-Executive
Directors, independent in character and
judgement, and free from relationships or
circumstances which are likely to affect, or
could appear to affect, their judgement.
The Audit Committee comprises three non-
Executive Directors: Dave Elzas (Chairman
of the Committee), Roger Davis and Richard
Williams MBE MC.
Number of
meetings
held/
attended
2013
Member
throughout
2013
3/4*
4/4
4/4
Committee
members
D J Elzas –
Chairman
R W Davis
R J Williams
* In Dave Elzas’ absence, Roger Davis acted as
Chairman.
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 Group 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 of the Audit Committee
were held in 2013. The Chief Executive
Officer, the Chief Financial Officer and a
representative of the Company’s internal
and external auditors normally attend each
meeting by invitation. 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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 56
Audit Committee continued
Activities of the Audit Committee during 2013
External auditors
• Reviewed reports on audit findings.
• Considered the independence of the
auditors and its effectiveness, taking into
account:
– non-audit work undertaken by the
external auditors and compliance with
the Group’s policy; and
– the Committee’s own assessment.
• Agreed on the audit approach
and scope of the audit work to be
undertaken by the external auditors and
the fees for the same.
Financial reporting
• Reviewed the annual financial (2012)
and half-year (2013) statements and
the significant financial reporting
judgements and the Auditors’ Report
thereon.
• Reviewed the trading announcements
published in January and June
including the two interim management
statements.
• 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 the
• Reviewed disclosures in the Annual
2013 audit, including going-concern
assessment, impairment reviews,
introduction of new accounting
standards (IFRIC 20) and revenue
recognition.
• Recommended to the Board the
reappointment of the external auditors
following an evaluation of their
effectiveness and confirmation of
auditor objectivity and independence.
Report in relation to internal controls,
risk management, principal risks and
uncertainties and the work of the
Committee.
• Reviewed management’s considerations
on impairment.
• Reviewed the appropriateness of the
Group’s accounting policies.
Internal controls and risk
• Received reports from the external and
internal auditors on their assessment of the
control environment.
• Reviewed feedback from the reports
submitted by managers across the Group,
prior to approval of the half-year and
annual financial statements and before the
audit.
• The management reports cover areas
involving significant judgement, estimation
or uncertainty, including assessment of fair
values, impairment reviews 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.
• Agreed on the internal audit programme,
considered the effectiveness of the internal
auditors and their reappointment.
• Examined the effectiveness of the Group’s
risk management system, including its risk
management process and profile, and the
Group’s internal control systems.
• The Committee received reports of the
internal control environment in place at its
subsidiaries which were considered to be
effective. These included:
– procedures for identifying business and
operational risks and control of their
impact on the Group;
– budgeting and forecasting systems,
financial reporting systems and controls;
– procedures for detecting fraud and
serious breaches of business conduct
including whistleblowing;
– procedures for ensuring compliance
with relevant regulators and eliminating
bribery;
– operational effectiveness of the Audit
Committee structures; and
– overseeing the adequacy of the internal
controls and allocation of responsibilities
for monitoring internal financial controls
• 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.
Page 57 Gem Diamonds Annual Report 2013
External auditors
• Adhered to the Financial Reporting
Council’s consultation of audit firm
rotation, and their rotation of audit
partners. As such, there is no intention of
considering their replacement.
• Managed the relationship with the
external and internal auditors covering
terms of engagement, remuneration and
effectiveness.
Financial reporting
• Assisted the Board in assuring the
integrity of the financial statements
which the Chief Executive Officer and
Chief Financial Officer have certified as
representing a true and fair view of the
Group.
• Evaluated the effectiveness of the
Group’s internal control over financial
reporting based on the established
framework and criteria. No material
weaknesses in the Group’s internal
controls over financial reporting were
identified by management.
Internal controls and risk
• Ensured that there is a system of control
in place for identifying and managing
risk in the Group. The Board, through the
Audit Committee, reviewed the systems
that have been established for this
purpose, including whether the processes
continued to meet evolving external
governance requirements.
• Considered and approved the structure,
scope of cover and renewal terms of the
Group’s insurance programme.
• Reviewed matters reported to the external
whistleblowing hotline and reports on
the findings of the investigations. There
were no matters reported which were
considered significant.
• Evaluated the performance of the
Committee and its terms of reference.
• The Board conducted reviews of the
effectiveness of the Group’s systems of
risk management and internal controls
in accordance with the UK Corporate
Governance Code (including the Turnbull
Guidance). These covered financial,
operational and compliance controls and
risk assessment. Management presented
an assessment of the material business
risks facing the Group. The reviews were
overseen by the Audit Committee, with
findings and recommendations reported
to the Board where appropriate. In
addition, the Board received an assessment
of the effectiveness of internal controls
over key risks identified through the work
of the Board Committees. The Board was
satisfied that the effectiveness of the
internal controls was properly reviewed.
• Reviewed foreign exchange management,
including investment hedging and related
foreign exchange exposure.
• Reviewed litigation matters affecting all
Group Companies, monitored their status
and progress and, where appropriate,
made recommendations regarding future
action.
• Received routine reports on cash
management (including the negotiation
of committed facilities) to ensure adequate
resources were available for future trading
and capital expenditure, and to underpin
the going concern assumptions.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 58
Audit Committee continued
Meetings with auditors and
management
Following each Audit Committee meeting,
separate meetings were held with each of
the following:
• external auditors;
• internal auditors; and
• the executive management.
Matters discussed during these meetings
include, but are not limited to the
transparency of the auditors’ interactions
with management, confirmation that there
has been no restriction of scope placed on
them by management, independence of
their audit and how they have exercised
professional scepticism. In particular, the
primary areas of judgement considered
by the Committee in relation to the
2013 accounts, and how these were
addressed, were:
• Impairment testing and going concern
assessment:
The judgements in relation to asset
impairment largely relate to the
assumptions underlying the calculation
of the value in use and the fair value
less costs of disposal of the operations
being tested for impairment. For both
impairment and going concern, the
achievement of the long-term business
plan and macro-economic assumptions
underlying the valuation process and
going concern assumptions are primary
judgements. The Committee addresses
these matters through receiving reports
from management outlining the basis
for the assumptions used. The business
plans are approved by the Board. In
addition, this area is a primary source of
audit focus and accordingly EY provides
detailed reporting to the Committee.
• The introduction of new accounting
standards – IFRIC 20 Stripping costs in
the production phase of a surface mine:
The judgement in relation to IFRIC 20
is to determine, during the production
phase, stripping costs that are incurred
in the production of inventory and
those incurred in the creation of future
benefits by improving access and
mining flexibility in respect of the ore
to be mined. Furthermore, judgement
is required in identifying the orebodies
into various separately identifiable
components. The Committee addresses
these issues through receiving reports
from management outlining the
assessment of the introduction of the
new accounting standards.
• Revenue recognition:
The judgement in relation to revenue
recognition is around determining
the timing of the recognition and
the measurement of the additional
uplift with regards to rough diamonds
sold into partnership arrangements.
The Committee addresses these
issues through a range of reporting
from management and a process of
challenging the appropriateness of
management’s views. This is also an area
of higher audit risk and accordingly the
Committee receives detailed verbal and
written reporting from EY on this matter.
EY further provides the Group with a
detailed audit plan identifying their
assessment of the key risks. These risks
are tracked throughout the year and we
challenge the work performed by the
auditors to test management’s assumptions
and estimates. We assess the effectiveness
of the audit process in addressing those
matters through the reporting we receive
from EY.
Auditors’ 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 external 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$0.6 million in total. This was against
external audit fees of US$0.8 million
representing approximately 71% of external
audit fees.
When commissioning non-audit services,
the Company is very conscious of ensuring
that there is no conflict which could
compromise the auditors’ independence.
Recommendation of auditor
The Audit Committee’s assessment
of the external auditor’s performance
and its independence underpins its
recommendation to the Board to propose
to shareholders the reappointment of
EY (which was first appointed as the
Company’s auditor in 2006) until the
conclusion of the Company’s AGM in 2014.
This assessment includes a review of EY
policies for maintaining independence,
including its policy for rotating audit
partners, which requires that a new lead
audit partner be appointed every five
years. In accordance with this policy a
new lead audit partner was appointed in
2011. Resolutions to authorise the Board
to reappoint and determine the external
auditor’s remuneration will be proposed
at the Company’s AGM on Tuesday,
10 June 2014.
Nominations Committee
Page 59 Gem Diamonds Annual Report 2013
“The Nominations Committee continued its work of ensuring that the Board
and Committees composition is correct and that there is the appropriate
balance of skills, knowledge, experience and independence to ensure their
continued effectiveness in supporting our strategy.’’
Roger Davis, Chairman
Composition, meetings and
attendance in 2013
Number of
meetings
held/
attended
2013
Member
throughout
2013
ü
ü
ü
3/3
3/3
3/3
Committee
members
2013
R W Davis –
Chairman
M Salamon
C T Elphick
The Nominations Committee comprises
two non-Executive Directors and one
Executive Director. The Committee’s 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.
Three meetings were held in 2013.
All recommendations for Board
appointments, such as the commendation
and subsequent appointment of Michael
Michael as Chief Financial Officer in April
2013, are made on merit and against
objective criteria. Since Michael Michael’s
appointment was internal, there was no
need to employ outside consultants.
The role and focus of the
Nominations Committee
The key objective of the Nominations
Committee is to ensure that the Board
of the Company comprises individuals
with the requisite skills, knowledge and
experience. This enables the effective
discharge of the Board’s responsibilities,
which includes supporting the Group’s
strategy.
Responsibilities:
• Leading the process for identifying and
making recommendations in relation to
the structure, size and composition of the
Board, including its diversity and balance
of skills, knowledge and experience
as well as the independence of non-
Executive Directors.
• Making recommendations to the
Board regarding the composition of
the Nominations Committee and the
composition and chairmanship of
the Audit, Remuneration and HSSE
Committees.
• Identifying and making
recommendations to the Board
regarding candidates for appointment
as Directors, which includes considering
succession planning and the leadership
needs of the Group.
• Overseeing 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
diversity throughout the Group. It endorses
the Group’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 contribution 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.
Recognising that Directors with diverse skill
sets, capabilities and experience, gained
from different geographic and cultural
backgrounds, can enhance the Board’s
effectiveness, the Nominations Committee
continues to encourage and support a
diversity of business skills and experience.
Details, including the proportion of women
in senior management, can be found in
the developing and retaining our people
section of the Sustainable Development
Review on page 38.
Activities of the Nominations
Committee during 2013
The Nominations Committee in 2013
deliberated upon:
• appointing a new Chief Financial Officer;
• succession planning for all Directors and
senior executives;
• the composition of various committees;
• the effectiveness of the Nominations
Committee; and
• the composition of the Nominations
Committee.
In the year ahead, the Committee will
continue to assess the Board’s composition,
as well as evaluating the composition of
various committees. It will also continue
to monitor developments in corporate
governance, to ensure the Group remains
at the forefront of good governance
practices.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 60
HSSE Committee
”The safety and well-being of our employees and contractors continue to
be our first priority. We strive to identify potentially hazardous tasks and
conditions so that safe working procedures are implemented and embedded
throughout all levels in the organisation. Putting health and safety first,
being environmentally responsible, legally compliant and adding value to
our stakeholders and the communities in which we operate ensures our
social licence to operate.”
Gavin Beevers, Chairman
• reviewing the Group’s external reporting,
regulatory and public disclosures on
HSSE matters and approving these as
necessary;
• reviewing and reporting to the
Board developments, trends and/ or
forthcoming significant legislation
on HSSE and sustainability matters
which may be relevant to the Group’s
operations, its assets or employees; and
• providing the Board with guidance on
key global HSSE issues.
Member
throughout
2013
Number of
meetings
and
attendance
ü
ü
ü
4/4
4/4
4/4
Committee
members
G A Beevers
– Chairman
M Salamon
G E Turner
The role and focus of the HSSE
Committee
The overall role and responsibility of the
Committee is to give the Board assurance
that the policies and guidelines approved
by the Board have been implemented
and that the management of health,
safety, social and environmental matters
throughout the Group is carried out in
accordance with these policies as well as
being legally compliant with all relevant
legislation. The policies and procedures
take account of international best practice
and are continuously reviewed to ensure
they remain effective and current.
The Committee achieves this by regularly:
• reviewing HSSE policies and guidelines,
and ensuring they take account of
minimum requirements and international
best practice;
• having oversight of and providing
assurance to the Board on the Group’s
compliance with applicable legal,
regulatory and international best practice
requirements associated with HSSE;
• assessing the effectiveness of
management’s approach to managing
risks, particularly with respect to all
aspects of HSSE;
• reviewing significant incidents
and considering causative factors,
consequences and actions including the
impact on employees, third parties and
reputational risk;
• recommending to the Board the Group’s
key performance indicators with regard
to HSSE matters and monitoring the
performance against these targets;
Page 61 Gem Diamonds Annual Report 2013
Activities of the HSSE Committee during 2013
In 2013, members of the HSSE Committee visited the Group’s operations in order to gather first-hand knowledge of current practices and the
management of HSSE matters at the operations to assist in their assessment of the effectiveness of the Group’s HSSE policies and procedures.
Specific activities of the HSSE Committee in 2013 included the following:
Social
• Identified material
social governance
risks and addressed
the risks through the
implementation of
effective mitigation
measures as per the
Group’s policies and
guidelines.
• Received reports
from and interviewed
accountable managers
on implemented
community
development
initiatives.
• Reviewed reports
on project affected
community socio-
economic indicators
and trends.
Health
• Reviewed the
effectiveness of
disaster contingency
planning on the mine
sites in Botswana and
Lesotho.
• Reviewed reports
on project affected
communities and
employee health
indicators and trends.
• Monitored the
effectiveness of on-
site clinics at Letšeng
and Ghaghoo.
• Considered a report
on the impact
of antiretroviral
treatment on the
incidence of HIV/
Aids and the effects
on individuals
undergoing treatment.
Safety
• Reviewed the
implementation of
the strategic plan to
improve safety.
• Received reports
from, and interviewed
accountable
managers, on
all serious safety
incidents.
• Reviewed reports on
key safety indicators
and trends.
• Recognised the risk
associated with water
and slimes storage
facilities; ensured that
the risk is mitigated
at operational
level through the
implementation of
specialist research
recommendations.
• Recognised the risk
associated with the
use of contractors
and ensuring that
the correct measures
were developed
and implemented
at operational level
to mitigate this risk,
including the further
development and
implementation of
a contractor safety
system, which ensures
contractors follow
approved systems and
practices as required
by the Group.
Governance
• Reviewed reports
on the Group’s key
indicators and trends.
• Reviewed changes
to local and
international best
practice guidelines
on safety, health
and environmental
governance.
• Reviewed changes to
the United Kingdom’s
GHG reporting
requirements
and associated
Department of
Environment, Food
and Rural Affairs
(DEFRA) best practice
guidance.
• Considered changes
to the Global
Reporting Initiative
reporting standard
and agreed the
indicators to be
disclosed in the
2013 Sustainable
Development Report.
Environment
• Reviewed key
sustainability-related
risks and associated
mitigation plans.
• Reviewed reports on
key environmental
indicators and trends.
• Reviewed changes to
local and international
environmental
regulations.
• Recognised the
importance of
safeguarding the
quality of water at the
Group’s operations
and initiated water
impact mitigation
measures in order to
address the upward
trending levels of
contaminants in
process water at
operations.
• Received reports
from and interviewed
accountable managers
on significant
environmental
incidents, including
a detailed analysis
of cause and
contributory factors
and the corrective and
preventative measures
taken.
• Identified material
environmental risks
and ensured that the
risks were adequately
addressed through
the implementation
of effective mitigation
measures as per the
Group’s policies and
guidelines.
SD
More detailed information concerning the Group’s sustainability-related activities is set out in the full 2013 Sustainable Development
Report, which can be downloaded from the Company’s website at www.gemdiamonds.com.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 62
Directors‘ remuneration report
“Our remuneration policy
is designed to support our
business strategy, thereby
maximising long-term
sustainable shareholder returns.
This year, for the first time, the
report includes a policy which
will be subject to a binding
vote, as well as describing
how this policy has been
implemented during 2013.”
Chairman’s statement
Dear shareholder,
On behalf of the Board I am pleased to
present the Remuneration Committee’s
Directors’ Remuneration Report for 2013,
for which we will be seeking shareholder
approval at the Annual General Meeting
(AGM) in June 2014.
In August 2013, the UK Government
Department for Business Innovation and
Skills (BIS) published regulations setting
out what companies must disclose in
the Directors’ Remuneration Report with
the aim of improving transparency and
promoting best practice. This report is
therefore divided into three parts:
• Chairman’s Statement;
• Directors’ Remuneration Policy, which
outlines the Company’s remuneration
policy for Executive Directors (subject to
a binding vote); and
• Annual Report on Remuneration, which
focuses on remuneration outcomes
for the year under review and how the
Committee intends to implement the
policy in the following year (subject to an
advisory vote).
Our remuneration policy is designed to
support our business strategy to achieve
sustainable growth and maximise long-
term sustainable shareholder returns.
A substantial proportion of the total
remuneration package is linked to the
achievement of demanding financial and
non-financial performance targets in the
short term and shareholder returns in the
long term.
We seek to set the total remuneration package at an appropriate level to reflect the
competitive markets in which the Group operates and the Group’s overall performance,
and exercise downwards discretion in determining incentive outcomes where warranted
by Group performance. In 2013, the achievement of the annual bonus scorecard objectives
was strong in terms of growth and HSSE performance, though a number of operating
performance targets were missed. The achievement of personal objectives ranged from 70%
to 100% of maximum for the Executive Directors. As such, the remuneration outcomes for
the Directors for the year were as follows:
Basic salaries
Benefits
Annual bonuses
Pension contribution equivalent
Other4
ESOP
Total remuneration of Executive
Directors
Non-Executive Director fees
Total of all Directors
Total Group base salaries, benefits,
pensions, bonuses and ESOP
20131,2
£
1 269 560
74 031
758 422
171 470
481 983
–
2 755 466
310 000
3 065 466
2012
£
1 307 147
76 308
174 449
174 707
65 688
–
1 798 299
307 500
2 105 799
13 332 710
28 113 3703
% change
(2.9)
(3.0)
334.8
(1.9)
633.7
–
53.2
0.8
45.6
(52.6)
1 K M Burford retired on 1 April 2013. M Michael was appointed on 22 April 2013.
2 The detail by individual Director can be found on page 71.
3 Included in this figure is an amount of £13 326 101 relating to Kimberley Diamonds NL, which was disposed of at
31 December 2012.
4 K M Burford retired on 1 April 2013 and received a lump sum payment of £341 578 equivalent to 12 months’
notice period (base salary; pension; and benefits) and £56 492 in lieu of annual leave entitlement at date of
leaving. He also received £65 688 in lieu of annual leave entitlement in relation to 2012. M Michael and
G E Turner received £26 765 and £57 148, respectively, in lieu of annual leave entitlement in 2013. Further
details pertaining to the payments in lieu of annual leave entitlement have been disclosed on page 63.
Towards the end of 2012 the Committee
commenced a review of the ESOP, with
a view to making the plan’s performance
criteria more aligned with the Group’s
strategy, more resilient to uncontrollable
factors, and to reflect recent remuneration
trends in the mining sector. During
2013, the Board undertook a mid-year
review of its corporate planning, and the
Committee felt it was appropriate that
any changes to the ESOP should be made
after the finalisation of such deliberations.
As such, no awards were made to
Executive Directors under the ESOP in
2013; the Committee intends to grant
ESOP awards to the Executive Directors in
2014 with vesting subject to a revised set
of performance measures which capture
a wider range of the key performance
indicators for the Group.
Following the review of the ESOP, the
Committee has proposed a number of
revisions, for which shareholder approval
is being sought at the 2014 AGM. For
awards to be made in 2014 and subsequent
years, the maximum award opportunity
will be increased from 100% to 125% of
salary in performance shares (or 250% in
performance options, subject to an overall
maximum with fair value equivalent to 125%
of salary in performance shares). Awards
to Executive Directors will vest based on
relative TSR (measured versus the FTSE 350
mining companies), profit and production,
measured over a three-year performance
period. The Committee is proposing a slight
increase in the maximum award opportunity
on the basis that the performance targets
being proposed are set at a significantly
more stretching level than in prior years. For
Page 63 Gem Diamonds Annual Report 2013
example, under the new arrangements, the
Company’s TSR will need to be at the 85th
percentile of the comparator group for the
TSR-based awards to vest in full (relative to
12% outperformance under the old plan,
which was estimated to be equivalent to
75th percentile).
In 2013, the Committee also agreed a new
policy on annual leave entitlements for staff
based in South Africa and the UK including
Executive Directors. Previously, the policy
and contractual arrangements allowed
for any unused annual leave to be carried
over into the next year which could be
accumulated to date of termination. Under
the new policy, effective from July 2013, a
cap is placed on the total number of annual
leave days that can be carried over each year,
thereby limiting payments in lieu of annual
leave in case of termination. In terms of the
new policy, any annual leave entitlement in
excess of the cap is forfeited at the end of
the year. To effect the change at the time of
implementation, any excess annual leave
entitlements above the cap were settled
to bring all those with excess annual leave
in line with the policy. Payments in lieu of
annual leave entitlement were made in 2013
to two Executive Directors totalling £83 913.
Further details are provided in the Annual
Report on Remuneration.
We look forward to receiving your support
for this Directors’ Remuneration Report at
this year’s AGM.
The report has been prepared in
accordance with the principles of the
Companies Act 2006 and Schedule 8 of
The Large and Medium-sized Companies
and Groups (Accounts and Reports)
(Amendment) Regulations 2013. The
Regulations require our auditors to report
to shareholders on the audited information
within this report and to state whether, in
their opinion, the relevant sections have
been prepared in accordance with the Act.
The auditors’ opinion is set out on page 87
and we have clearly marked the audited
sections of the report.
The Company’s 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 carry
out 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 (UKLA), the principles and
provisions of the UK Corporate Governance
Code as amended in September 2012
(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 Group.
The Committee’s policy is to weight
remuneration towards variable pay. The aim
is to provide base salaries and benefits that
are fair, and variable pay incentives linked
to the achievement of realistic performance
targets relative to the Company’s strategy
and corporate objectives.
The Directors’ remuneration policy (set
out on pages 64 to 66) will be put to
shareholders for approval in a binding
vote at the AGM in 2014. The Committee
intends that this policy will formally come
into effect from 10 June 2014, the date of
the AGM.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 64
Directors‘ remuneration report continued
Remuneration policy of the Company
Executive Directors
Element
• Salary
• Benefits
Operation
• Base salaries are
reviewed annually,
with changes effective
from 1 April.
• Salaries are typically
set after considering
the salary levels in
companies of a similar
size, complexity
and risk profile, the
responsibilities of
each individual role,
progression within the
role, and individual
performance.
• In setting salaries for
Executive Directors,
the Committee takes
note of the overall
approach to salary
reviews for the wider
workforce.
• Executive Directors
receive a cash
allowance in lieu of
non-cash benefits.
Purpose and link to
strategy
• To offer a market
competitive base
salary to recruit and
retain individuals
of the necessary
calibre to execute the
Company’s business
strategy.
• To provide
competitive benefits
taking into account
market value of
role and benefits
offered to the wider
UK management
population, in line
with the Company’s
strategy to keep
remuneration simple
and consistent.
Performance
measures
• N/A
Opportunity
• No prescribed
maximum annual
increase.
• It is expected that
salary increases for
Executive Directors
will ordinarily be (in
percentage of salary
terms) in line with
those of the wider
workforce in countries
of a similar inflationary
environment.
• N/A
• In certain
circumstances (for
example where
there is a change in
responsibility, role
size or complexity,
or progression in the
role), the Committee
has discretion to
award a higher
increase to ensure
salary levels remain
competitive.
• Benefit value may
vary by role; the value
of benefits received
during 2013 ranged
between 5.5% and 6%
of base salary for the
Chief Executive Officer
and other Executive
Directors respectively.
• It is not anticipated
that the cost of
benefits will exceed
this level over the term
of this policy, though
the Committee
retains discretion to
approve a higher
cost in exceptional
circumstances (for
example relocation or
increase in insurance
premiums).
Element
• Pension
Purpose and link to
strategy
• To provide retirement
benefits that are
appropriately
competitive.
Operation
• No formal pension
provision is made by
the Company
• Annual bonus
• To drive and reward
performance against
personal objectives
and selected financial
and operational KPIs
which are directly
linked to business
strategy.
• The executive
incentive scheme is
reviewed annually
by the Committee
at the start of the
year to ensure
the opportunity
and performance
measures are
appropriate and
continue to support
business strategy.
• The Committee
has discretion to
adjust the formulaic
outcome of the bonus
to more accurately
reflect business and
personal performance
during the year.
• The annual bonus is
paid entirely in cash.
Page 65 Gem Diamonds Annual Report 2013
Opportunity
• Executive Directors
receive a cash
allowance in lieu of
pension which is
currently equivalent
to 14.5% and 13.0%
of base salary for the
Chief Executive Officer
and other Executive
Directors respectively.
• It is not anticipated
that the cash
allowance in lieu of
pension will exceed
this level over the term
of this policy, though
the Committee
retains discretion to
approve a higher cost
if deemed appropriate.
• Maximum opportunity
of up to 100% of base
salary.
• For threshold level
and target level
performance, the
bonus earned is
50% and up to
68% of maximum
opportunity,
respectively.
Performance
measures
• N/A
• Performance is
determined by
the Committee on
an annual basis
by reference to a
scorecard of Group
targets as detailed in
the Group’s business
plan and encapsulated
in specific KPIs as well
as a discretionary
assessment of
personal performance.
• Group scorecard
targets may include
growth (incorporating
Letšeng growth
plans; Ghaghoo
development; M&A
activity including
associated financing),
which is judged by
the Committee on a
discretionary basis,
HSSE and operating
performance, and will
typically be weighted
at least 70% in any
one year.
• Details of the
measures and
weightings for the
current year are
provided in the
Annual Report on
Remuneration.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 66
Directors‘ remuneration report continued
Element
• Employee Share
Option Plan (ESOP)
Purpose and link to
strategy
• To balance the
delivery of absolute
and relative returns
to shareholders in the
long term, support
alignment with
shareholders, and
attract, retain and
motivate executives
of the appropriate
calibre.
Opportunity
• Maximum opportunity
is up to 125% of
salary in performance
shares and 250% in
performance options
(subject to overall
maximum with fair
value equivalent to
125% of salary in
performance shares).
• For threshold
performance, 20% of
the maximum award
vests.
Performance
measures
• Awards vest based
on continued
employment and
the Company’s
performance over a
three-year period. It
is the Committee’s
current intention
that the performance
measures be based
on relative TSR, profit
and production,
but may for future
awards include
additional measures
such as HSSE or
strategic objectives,
as determined by the
Committee.
• Vesting is ultimately
also subject to
the Committee’s
assessment of the
Company’s underlying
performance.
Operation
• Executive Directors
are granted awards of
performance shares
and/or options as
determined by the
Committee, which
vest after a minimum
of three years based
on performance.
• Awards are normally
made annually after
the announcement
of the full-year results
but may be made at
other times deemed
appropriate by the
Committee.
• The Committee may
vary the ratio of
performance shares
and options from
year to year, but it is
the current intention
of the Committee
that only awards of
performance shares
are made over the
term of this policy.
• The Committee will
consider the impact
of any external factors
when determining the
final vesting outcome
of awards under
the ESOP.
• Any such discretion
would be disclosed
and explained in
the following year’s
Annual Report on
Remuneration.
• For performance
shares, any dividends
paid would accrue
over the vesting
period and would be
paid only on those
awards that vest.
Page 67 Gem Diamonds Annual Report 2013
Notes to policy table
Payments from existing arrangements
Executive Directors will be eligible to
receive remuneration or other payment
in respect of any award granted or
payment agreed prior to the approval and
implementation of the policy, or prior to
the individual becoming a director. Such
payments include awards made to Michael
Michael under the 2007 LTIP and under the
ESOP prior to his appointment to the Board
in 2013, awards made to other Executive
Directors under the ESOP prior to the
revisions being proposed at the 2014 AGM,
as well as payments in lieu of annual leave
entitlements under the previous policy on
annual leave entitlements.
Details of any such awards or payments
are disclosed in the Annual Report on
remuneration.
Selection of performance measures
(bonuses and ESOPs)
The performance measures used in the
Company’s executive incentive scheme
have been selected to ensure incentives
reinforce the Company strategy and align
executive interests closely with those of
shareholders.
Performance targets are set to be stretching
and achievable, taking into account the
Company’s strategic priorities and the
economic environment in which the
Company operates. Targets are set taking
into account a range of reference points
including the Group’s business plan. The
Committee believes that the performance
targets set are adequately stretching,
and that the maximum outcomes
are achievable only for exceptional
performance.
Remuneration policy for other employees
Our approach to salary reviews is consistent
across the Group, with consideration given
to the level of responsibility, experience,
individual performance, market levels and
the Company’s ability to pay.
Below-Board senior executives participate
in an annual bonus scheme on a similar
basis as the Executive Directors, although
the more senior the individual, the higher
the weighting on financial measures. A
number of senior executives also receive
ESOP awards. Performance conditions and
award sizes vary to be appropriate to the
organisational level.
Pay for performance: scenario analysis
The following charts provide an estimate
of the potential future remuneration for
the Executive Directors and the potential
split between the different elements of
pay under three performance scenarios:
‘fixed’, ‘at target’ and ‘maximum’. Potential
Chief Executive Officer
Chief Financial Officer
Maximum
£1 302 000
Maximum
£703 000
41%
34%
25%
40%
34%
26%
59%
33%
8%
59%
34%
7%
At target
£896 000
At target
£483 000
100%
Fixed
£530 000
100%
Fixed
£284 000
0
500
1 000
1 500
0
200
400
600
800
Chief Operating Officer
Chief Legal and Commercial Officer
Maximum
At target
40%
34%
26%
40%
34%
26%
£961 000
Maximum
£869 000
59%
34%
7%
59%
34%
7%
£660 000
At target
£597 000
100%
Fixed
£389 000
100%
Fixed
£352 000
0
200
400
600
800
1 000
0
200
400
600
800
1 000
■ Salary, pension and benefits
■ Annual bonus
■ Long-term incentives
remuneration is based on the incentive
opportunities for 2014 (ie annual bonus
of 100% of salary and performance share
awards under the ESOP of 75% of salary)
and current benefit and pension policy,
applied to the latest salaries as at 5 March
2014, and excludes the impact of any share
price movements.
The ‘fixed’ scenario includes base salary,
pension and benefits only.
The ‘at target’ scenario includes fixed
remuneration as above, plus a target
payout of 68% of maximum annual bonus
and 20% vesting under the ESOP.
The ‘maximum’ scenario includes fixed
remuneration, plus full payout/vesting of all
incentives.
Approach to remuneration on executive
recruitment
In recruiting new Executive Directors, the
Committee will typically follow the existing
remuneration policy as set out in the policy
table, but retains the discretion to offer
remuneration that is outside of the policy
if necessary to enable the recruitment of
an individual of the appropriate calibre.
The Committee will pay no more than is
appropriate while seeking to secure the
necessary world-class Executive Directors
required to deliver the Company’s strategy
and create value for shareholders.
In the case of internal promotions, any
commitments made prior to promotion
and the approval of the remuneration
policy will be honoured.
On appointment of an external Executive
Director, the Committee may consider it
appropriate to compensate for incentive
arrangements the Director forfeits on
leaving his current employer. Any such
buy-out compensation would be on a
comparable basis taking into account
factors including the performance
conditions attached to these awards, the
likelihood of conditions being met, and
the remaining vesting period of these
awards. The Committee would use the
remuneration components under the
regular policy to make such buy-out awards
but may also exercise its discretion under
Listing Rule 9.4.2 if an alternative incentive
structure were required.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 68
Directors‘ remuneration report continued
Service contracts
The Company’s policy is to limit termination payments on termination to pre-established contractual arrangements. In the event that the
employment of an Executive Director is terminated, any compensation payable will be determined in accordance with the terms of the
service contract between the Company and the employee, as well as the rules of any incentive plans. Details of the Executive Directors’ service
contracts are summarised in the table below.
Directors
C T Elphick
M Michael
G E Turner
A R Ashworth
Contract date
13 February 2007
22 April 2013
1 July 2008
1 March 2008
Unexpired term
Notice period1
Rolling contract
Rolling contract
Rolling contract
Rolling contract
12 months
12 months
12 months
12 months
Contractual
termination payment2
Pay salary on summary
termination. Benefits
are payable only at the
Committee’s discretion.
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 period for the Executive Directors to 12 months (both from the Company and from the Director). This revision took effect as
of 1 March 2013.
2 There are no special provisions in the contracts extending the notice period on a change of control or other corporate events.
Payments for loss of office under all service contracts
If an Executive Director’s contract is terminated, payments equal to salary in lieu of notice can be made monthly during the notice period.
Benefits are payable only at the Committee’s discretion. Payment in lieu of unused annual leave entitlement can be made at the effective
salary rate at the point of termination.
The table below provides details of exit payments under different leaver scenarios.
Incentive plan
• Annual bonus
• ESOP
Scenario
• Death, disability, ill-health,
redundancy, retirement,
or any other reasons the
Committee may determine
(normally not including
resignation or where
there are concerns as to
performance).
• Change of control (whether
or not employment is
terminated as a result).
• All other reasons.
• Death, disability, ill-health,
redundancy, retirement,
or any other reasons the
Committee may determine
(normally not including
resignation or where
there are concerns as to
performance).
• Change of control (whether
or not employment is
terminated as a result).
Time of payment/vesting
• Normal payment date,
although the Committee has
discretion to accelerate (eg in
relation to death).
• On change of control.
• Ineligible.
• Normal vesting date,
although the Committee has
discretion to accelerate.
• On change of control.
Calculation of payment/
vesting
• Performance against targets
will be assessed by the
Committee at the end of the
year and any resulting bonus
is pro-rated for proportion of
the year worked.
• Performance against targets
will be assessed by the
Committee up to the date of
change of control and any
resulting bonus is pro-rated
for time.
• N/A
• Unvested awards will be
pro-rated for time unless
the Committee decides
otherwise, and based on
performance.
• Unvested awards will be
pro-rated for time unless
the Committee decides
otherwise, and based on
performance up to the
date of change of control.
Executive Directors can elect
to exchange ESOP awards
for those of the acquiring
company, if offered.
• All other reasons.
• Awards lapse.
• N/A
Page 69 Gem Diamonds Annual Report 2013
Non-Executive Directors
Non-Executive Directors do not receive benefits from the Company and they are not eligible to participate in any bonus or share incentive
scheme.
Details of the policy on non-Executive Director fees are set out in the table below.
Purpose and link to strategy
• To attract and retain a high-calibre
Chairman and non-Executive Directors
with experience relevant to the
Company.
Opportunity
• No prescribed maximum annual increase.
• It is expected that fee increases will
typically be in line with market levels of
fee inflation.
• In certain circumstances (for example
where there is a change in time
commitment required or a material
misalignment with market), the
Committee has the discretion to make
adjustments to fee levels to ensure they
remain competitive.
Operation
• Fees are reviewed annually, with any
changes effective from 1 April.
• Fees are typically set after considering
current market levels and taking
into account time commitment and
responsibilities involved.
• All non-Executive Directors, including the
Chairman, are each paid an all-inclusive
fee. No additional fees are paid for
chairmanship of Committees.
• All fees are payable in cash in arrears.
• The non-Executive Directors do not
participate in any of the Group’s incentive
plans. No other benefits or remuneration
are provided to non-Executive Directors.
On appointment, a new non-Executive Director’s fees would be on the same basis as that disclosed above.
Non-Executive Directors’ appointment terms
Non-Executive Directors do not have service contracts. Summary details of terms and notice periods for non-Executive Directors are included
below.
Directors
R W Davis
D J Elzas
G A Beevers
M Salmon
R J Williams
Contract date
1 February 2007
1 February 2007
1 February 2007
3 February 2008
3 February 2008
Unexpired term
Notice period
Rolling appointment
Three months
Rolling appointment
Three months
Rolling appointment
Three months
Rolling appointment
Three months
Rolling appointment
Three months
Contractual
termination payment
No provision for payment
of compensation.
Considerations of conditions
elsewhere in the Group
The Committee considers the remuneration
and employment conditions elsewhere in
the Group when determining remuneration
for Executive Directors. Although the
Committee does not currently consult
specifically with employees on the
executive remuneration policy, it receives
regular updates from the Chief Financial
Officer on the pay conditions for employees
around the Group, and takes these into
account when determining Executive
Director remuneration.
Considerations of shareholder
views
The Committee always welcomes feedback
from shareholders on the Company’s
remuneration policy and commits to
undergoing shareholder consultation in
advance of any significant changes to
policy. Detail on the votes received on the
Directors’ Remuneration Report at the prior
AGM is provided in the Annual Report on
remuneration.
External directorships
Executive Directors are permitted to accept
external directorships with prior approval of
the Chairman. Approval will only be given
where the appointment does not present
a conflict of interest with the Group’s
activities and the experience gained will
be beneficial to the development of the
individual. Where fees are payable in
respect of such appointments, these would
be retained by the Executive Director.
Please see page 78 for further details.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 70
Directors‘ remuneration report continued
Composition of the
Remuneration Committee
The Committee comprises the following
members:
Number of
meetings
held/
attended
2013
Member
throughout
2013
ü
ü
ü
ü
4/4
4/4
4/4
4/4
Committee
members
R J Williams –
Chairman
R W Davis
D J Elzas
M Salamon
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.
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 Code.
The Committee’s main responsibilities
are to:
• consider and agree the Company’s
executive remuneration policies for
adoption by the shareholders at the
AGM;
• determine individual remuneration
packages for the Chairman, the Executive
Directors and the Company Secretary
together with certain Senior Executives;
• monitor and recommend the level and
structure of remuneration for senior
management;
• approve the design of performance-
related pay schemes operated by
the Group 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 and senior management;
• make recommendations to the Board
on the fees offered to the non-Executive
Directors; and
• 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 remuneration
policy.
Activities of the Remuneration
Committee in 2013
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 2013. There were no material
issues identified or action arising therefrom.
During the year activities undertaken by the
Committee included:
• approved the Directors’ Remuneration
Report for 2012;
• agreed the basis of the award of annual
bonuses;
• reviewed share plan performance;
• reviewed changes to performance
measures and targets of the ESOP
applicable to grants made to all
participants;
• 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 2013
cash bonuses applicable to Executive
Directors and senior management; and
• reviewed specific operating unit
incentive plans – particularly relating to
the Group’s operations associated with
Project Kholo and Ghaghoo.
Advisers to the Committee
Kepler Associates, appointed by the
Committee in February 2010, provided
independent remuneration advice to the
Committee and attended Committee
meetings during 2013. Kepler Associates
provide remuneration advice to a large
portfolio of clients, including many in the
FTSE 350; this gives the Committee comfort
that the advice provided is appropriate
and relevant. Kepler Associates provide no
non-remuneration services to the Group
and are in no other way connected to the
Group, and are therefore considered to be
independent. The fees payable in relation
to 2013 were £62 953 (US$98 497)
excluding VAT.
Richard Williams MBE MC
Chairman
17 March 2014
The Annual Report on Directors’ remuneration
Page 71 Gem Diamonds Annual Report 2013
Voting outcome for 2012
The table below shows the results of the advisory vote on the 2012 Directors’ Remuneration Report at the 11 June 2013 AGM.
Total number of votes
Percentage of votes cast (%)
Audited
For
Against Total votes cast
Abstentions
99 927 967
425 180
100 353 147
20 721 413
99.6
0.4
100
One major institutional shareholder withheld its vote on the Directors’ Remuneration Report. However, as they did not identify any specific
aspect of remuneration as meriting criticism, the Board regarded the abstention as a general reluctance to vote in favour rather than specific
disapproval.
Total single figure of remuneration for Directors
The table below sets out the total single figure remuneration received by each Director for 2013 and the prior year.
Cash payments
in lieu of
other non–cash
benefits2
£
Cash payments
in lieu of
pension2
£
Bonuses³
£
Salary and fees¹
£
ESOPs4
Other5
£
Full–year total
£
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
2013
2012
Executive
C T Elphick
428 480
424 360
23 566
23 340 262 230
A R Ashworth
317 280
314 227
19 037
18 854 181 484
K M Burford1
71 760
284 280
17 057
Nil
55 702
41 246
34 445
62 130
41 246
9 329
4 306
9 900
165 000
Nil
Nil 139 040
Nil
21 450
287 040
284 280
17 222
17 057 175 668
43 056
37 315
36 611
61 017
40 468
36 611
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
398 070
65 688
26 765
57 148
Nil
Nil
776 406
559 047
483 465
362 155
574 393
564 419
414 795
438 081
N/A
381 004
M Michael1
G E Turner
Total of
Executive
Directors
Non-Executive
R W Davis
G A Beevers
D J Elzas
M Salamon
R J Williams
Total non-
Executive
Directors
Total of all
Directors
Audited
1 269 560
1 307 147
74 031
76 308 758 422
174 449 171 470
174 707
Nil
Nil
481 983
65 688
2 755 466
1 798 299
100 000
52 500
52 500
52 500
52 500
97 500
52 500
52 500
52 500
52 500
310 000
307 500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100 000
52 500
52 500
52 500
52 500
97 500
52 500
52 500
52 500
52 500
310 000
307 500
1 579 560
1 614 647
74 031
76 308 758 422
174 449 171 470
174 707
Nil
Nil
481 983
65 688
3 065 466
2 105 799
1 Salary and fees: amount earned for the year. KM Burford retired on 1 April 2013. M Michael was appointed on 22 April 2013.
2 Benefits and pension: cash payments in lieu.
3 Bonuses: payment for performance during the year.
4 ESOP: value at vesting of awards vesting on performance over the three-year periods ended 31 December 2012 (for ESOP 2010) and 31 December 2013 (for ESOP
2011) (the latter will lapse in full in June 2014).
5 K M Burford retired on 1 April 2013 and received a lump sum payment of £341 578 equivalent to 12 months’ notice period (base salary; pension; and benefits)
and £56 492 in lieu of annual leave entitlement at date of leaving. He also received £65 688 in lieu of annual leave entitlement in relation to 2012. M Michael and
G E Turner received £26 765 and £57 148, respectively, in lieu of annual leave entitlement in 2013. Further details pertaining to the payments in lieu of annual leave
entitlement have been disclosed on page 63.
Note: Although the Group’s reporting currency is US dollars, these figures are stated in sterling as the Directors’ emoluments are paid in
this currency.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 72
The Annual Report on Directors’ remuneration continued
Pensions and other benefits
No formal pension provision is made by
the Company. Instead, Executive Directors
received a cash allowance in lieu of pension
which was equivalent to 14.5% and 13.0%
of base salary for the Chief Executive
Officer and other Executive Directors
respectively. Executive Directors received
a cash allowance in lieu of other non-
cash benefits, the value of which ranged
between 5.5% and 6% of base salary
during 2013.
2013 annual bonus
Executive Directors 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, social, 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. The maximum bonus
payable to Executive Directors 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 2013 are shown below.
Scorecard
The executive bonus scheme for 2013 was
based on the 2013 business plan objectives
and premised on a similar structure to that
of the 2012 bonus scheme. In March 2013,
the executive bonus scheme was based on:
• business performance – 80%; and
• personal performance – 20%.
Business performance
The following key metrics were considered under business performance in 2013:
Performance measure
Growth (incorporating Letšeng growth plans, Ghaghoo development and M&A activities including associated funding)
Operating performance
HSSE performance
Approved
weighting
30%
50%
20%
The growth component of the bonus is assessed at the discretion of the Committee. In terms of performance against the Group’s growth
targets, the Committee considered the excellent progress made in the year in the development of Ghaghoo in relation to budget and
delivery, and in the Executive Directors’ efforts in assessing possible strategic activities. The Committee concluded that the growth component
of the bonus deserved a payout of 24% (relative to a maximum of 30%).
Operating performance comprised the following key elements with threshold and stretch targets as set out in the table:
Performance measure (operating performance)
Weighting
Underlying EBITDA
Earnings per share
Waste tonnes mined
Ore tonnes treated
Productions – carats recovered
Total
20%
20%
20%
20%
20%
Threshold
% to business
plan target
(50% payout)
Stretch
% to business
plan target
(100% payout)
Actual
performance
80%
80%
95%
95%
85%
120% Below threshold
120% Below threshold
100%
Above stretch
105% Below threshold
115% Below threshold
Payout
0%
0%
20%
0%
0%
20%
Page 73 Gem Diamonds Annual Report 2013
HSSE performance comprised the following key elements with threshold and stretch targets as set out in the table:
Performance measure
(HSSE performance)
Fatalities
All injury frequency rate
Major environmental or community incidents
HSSE Legal compliance
Total
Threshold
% to business
plan target
(50% payout)
Stretch
% to business
plan target
(100% payout)
Zero
80%
Zero
Zero
100%
Zero
Actual
performance
Stretch
Above stretch
Stretch
Subjective
Subjective
Above stretch
Weighting
25%
25%
25%
25%
Payout
25%
25%
25%
25%
100%
The business performance targets have not been disclosed in this year’s report as they are considered commercially sensitive by the Board
given the close link between performance targets and business strategy. The Committee will keep this under review, and targets will be
disclosed at a point in the future when they are no longer considered sensitive.
Personal performance
The personal performance measures were
based on individual KPIs as agreed with the
Chief Executive Officer.
These included but were not limited to:
• manage and develop investor relations
programme;
• discussions with key stakeholders;
• business development;
• delivery of strategic projects;
• HSSE objectives;
• operation performance;
• growth;
• bank financing projects; and
• improvement of the Group finance
processes.
Actual bonuses awarded for 2013
Based on business and personal
performance, actual bonuses for 2013 were
as follows:
Percentage
of salary
%
61.2
57.2
63.2
61.2
Bonus
£
262 230
181 484
139 040
175 668
Directors
C T Elphick
A R Ashworth
M Michael
G E Turner
Audited
2011 Employee Share Option Plan
(ESOP)
On 13 June 2011, the Executive Directors
received awards of shares and options
under the ESOP. Vesting of awards was
subject to the achievement of challenging
performance conditions based on the
Company’s three-year relative Total
Shareholder Return ( TSR). TSR performance
was measured relative to two benchmarks
as follows:
• 50% of the award based on the
Company’s performance relative to a
peer group of global diamond mining
and exploration companies; and
• 50% of the award is based on the
Company’s performance relative to the
FTSE 250 Index (excluding Investment
Trusts).
The global diamond benchmark was
based on the average TSR of the diamond
companies weighted by their market
capitalisation at the start of the three-year
performance period. Weighting individual
comparator TSRs by their market caps helps
reduce the sensitivity of ESOP outcomes to
the smaller comparator companies which
are likely to have more volatile TSRs than
the Company.
The diamond peer group for the 2011
cycles comprised Mountain Province
Diamonds, Petra Diamonds, Rockwell
Diamonds, Shore Gold and Trans Hex
Group. African Diamonds Limited was taken
over by Lucara in December 2010, and
was dropped for the 2011 grant. Lucara
therefore replaced African Diamonds
Limited for the 2012 grant. Vaaldiam
Resources was taken over by BCKP Limited
in July 2012 and Namakwa was delisted
in 2013. Both of these companies were
subsequently removed from the diamond
peer group for both the 2011 and 2012
grants.
25% of the award vests if the Company’s
three-year TSR is in line with benchmark
performance, with full vesting if the
Company’s 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.
The three-year period over which
performance was measured ended on
31 December 2013. Actual TSR was -13.7%
per annum versus the diamond peer group
and -24.6% per annum versus the FTSE 250
(excluding investment trusts). As a result,
the awards will lapse on 13 June 2014.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 74
The Annual Report on Directors’ remuneration continued
The table below sets out the awards held by Executive Directors under the 2011 ESOP:
Executive Directors
C T Elphick
A R Ashworth
M Michael
G E Turner
Audited
Performance shares
Performance options
Performance shares
Performance options
Performance shares
Performance options
Performance shares
Performance options
Awards held
50 000
100 000
34 000
68 000
20 000
40 000
30 333
60 667
Vesting % Interest vesting
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
0
0
0
0
0
0
0
0
Date vesting
13 June 2014
13 June 2014
13 June 2014
13 June 2014
13 June 2014
13 June 2014
13 June 2014
13 June 2014
Exercise price
US$0.01
263.40p
US$0.01
263.40p
US$0.01
263.40p
US$0.01
263.40p
ESOP awards made during 2013
No awards were made to Executive Directors in 2013.
Exit payments/payments to previous Directors
K M Burford retired on 1 April 2013 and received a lump sum termination payment of
£341 578, equivalent to 12 months’ notice period (base salary; pension; and benefits) in
line with his contractual entitlements. He also received £56 492 in lieu of annual leave
entitlement at date of leaving.
No payments to previous Directors were made during the year.
Implementation of Remuneration Policy for 2014
The Committee approved the following salary increases from 1 April 2014.
Executive Directors
C T Elphick
A R Ashworth
M Michael1
G E Turner
Audited
2013
salary
£
428 480
317 280
220 000
287 040
2014
salary
£
441 334
326 798
238 960
295 651
% increase
3
3
8.6
3
1 M Michael was appointed to the Board on 22 April 2013 at an initial salary which was below the median for a Chief
Financial Officer. Consequently, the Committee has awarded a salary increase of 8.6% to M Michael for 2014 based
on the Committee’s assessment of his progress in the role during 2013 and the desire to ensure his remuneration
better reflects market conditions.
Pension and benefits
Executive Directors will continue to receive cash supplements in lieu of pension and benefits
in line with the current policy.
Annual bonus
In 2014 the annual bonus will have the same maximum opportunity and will operate on
broadly the same basis as for 2013. The measures have been selected to reflect a range
of financial and operational goals that support the key strategic objectives of the Group.
The performance measures and weightings will be similar to 2013 but may vary at the
Committee’s discretion. The targets are commercially sensitive at this time, and will therefore
not be disclosed until a time the Committee determines to be appropriate.
ESOP
In 2014, the Committee will put to the
shareholders a revised ESOP. If approved
by shareholders, this plan will be adopted
and form the basis for future long-term
incentive awards. Subject to shareholder
approval, from 2014 onwards for awards
under the ESOP for Executive Directors will
have a maximum opportunity of 125% of
salary in performance shares (or 250% in
performance options, subject to an overall
maximum with fair value equivalent to
125% of salary in performance shares). It
is intended that awards of performance
shares with a face value of 75% of salary
will be made to Executive Directors in 2014.
Awards to Executive Directors will vest
based on relative TSR (measured versus the
FTSE 350 mining companies), profit and
production, measured over a three-year
performance period. The TSR targets will
be disclosed in the notice of AGM, and
the profit and production targets will be
disclosed after the performance period has
ended as these targets relate to the Group’s
business plan and are therefore considered
commercially sensitive. Further details of
the revised ESOP will be available with the
notice of the AGM.
Chairman and non-Executive
Director fees
Chairman and non-Executive Director fees
were last reviewed in March 2013 when
no increases were awarded. Fees were
also reviewed in March 2014 when it was
agreed no changes would be made at
this time.
Page 75 Gem Diamonds Annual Report 2013
The percentage increase in Chief Executive Officer remuneration (salary, benefits, and annual bonus)
compared to employee pay 2013
2013
£
428 480
23 566
262 230
714 276
C T Elphick
2012
£
424 360
23 340
55 702
503 402
Increase
%
1%
1%
371%
42%
2013
£
10 950 685
931 855
1 369 135
13 251 675
Other employees
2012
£
10 003 741
797 242
922 935
11 723 918
% increase
9
17
48
13
Base salaries
Benefits
Annual bonuses
Total
Audited
Relative importance of spend on pay
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (that is dividends and share
buy-backs) from the financial year ended 31 December 2012 to the financial year ended 31 December 2013.
Distribution to shareholders
Employee remuneration1
Audited
2013
(US$)
Nil
21 949 159
2012
(US$)
Nil
24 168 372
% change
Nil
(9)
1 Includes salary, pension and benefits, bonus, accounting charge for the ESOP, employer’s NI but excludes employees’ NI.
Pay for performance
The chart below shows the Company’s TSR performance compared with the performance of the FTSE 250 (excluding investment trusts)
and the ESOP comparator group over the five-year period to 31 December 2013. The former has been selected to reflect broad market
movements, and the latter has been selected because the Group believes it is affected by similar commercial and economic factors to
the comparator group.
The table below details the Chief Executive Officer’s single figure remuneration and actual variable remuneration outcomes over the
same period.
Value of £100 invested on 1 January 2009
Gem Diamonds vs. ESOP global mining and exploration comparators and FTSE 250 xIT index
£350
£300
£250
£200
£150
£100
£50
£0
Dec 2008
Dec 2009
Dec 2010
Dec 2011
Dec 2012
Dec 2013
■ Gem Diamonds
■ Median of ESOP comparators
■ FTSE250 (excluding investment trusts)
Chief Executive Officer single figure of
remuneration (£)
Annual bonus outcome (% of maximum)
ESOP vesting outcome (% of maximum)
Audited
2009
2010
2011
2012
2013
640 150
54
Nil
726 050
67
Nil
797 755
75
Nil
564 419
13
Nil
776 406
61
Nil
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 10-year period. As of
31 December 2013, 2 074 000 shares (1.50% of issued share capital) have been, or may be issued, pursuant to all awards made over the last
10 years.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 76
The Annual Report on Directors’ remuneration continued
Details of awards of performance shares to Directors
Performance
shares1
as at
1 January
2013
Exercised
in the
year
Granted
in the
year
57 000
50 000
45 000
42 600
34 000
34 000
38 600
30 333
30 000
19 000
20 000
20 000
24 0003
38 600
30 333
30 000
Directors
C T Elphick
Total
A R Ashworth
Total
K M Burford
(retired
1 April 2013)
Total
M Michael
Total
G E Turner
Total
Audited
Lapsed
in the
year2
57 000
Market
value
at date
of grant
£
Exercise
price
US$
0.01
131 670
0.01
131 700
0.01
135 023
Earliest
normal
exercise
date
23 June
2013
13 June
2014
Date of
grant
23 June
2010
13 June
2011
Expiry
date
23 June
2020
13 June
2021
20 March
2012
20 March
2015
20 March
2022
42 600
38 600
30 333
30 000
19 000
38 600
0.01
0.01
98 406
89 556
0.01
102 017
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
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
0.01
89 166
79 897
90 015
43 890
52 680
60 010
89 166
79 897
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
20 March
2012
23 June
2013
13 June
2014
20 March
2015
1 January
2016
23 June
2010
13 June
2011
23 June
2013
13 June
2014
23 June
2020
13 June
2021
20 March
2022
1 January
2024
23 June
2020
13 June
2021
20 March
2012
20 March
2015
20 March
2022
42 624 11 September
2012
Performance
shares at
31 December
2013
–
50 000
45 000
95 000
–
34 000
34 000
68 000
–
–
–
–
–
20 000
20 000
24 000
64 000
–
30 333
30 000
60 333
1 Conditional right to acquire shares.
2 2010 awards were granted on 23 June 2010. The vesting criteria runs on a calendar year basis. Based on performance to 31 December 2012, it was determined that none would
vest on 23 June 2013.
3 These awards were granted to M Michael before he became a Director. The terms of these differ from the ESOP performance conditions for Executive Directors and were only
granted to senior managers. In brief the scheme provides that a third of the awards granted in 2012 will vest in 2014, 2015, and 2016 based on performance in each of the
2013, 2014 and 2015 financial years. The extent to which the awards vest will depend on the achievement of Group and individual targets (weighted 70% and 30% of the total,
respectively) in each of the three one-year performance periods. Any awards that vest will be banked and may only be exercised at the end of the three-year performance period.
As soon as reasonably practicable following the end of the performance periods, the achievement of the targets for each of the 2013, 2014 and 2015 financial years are calculated.
Based on performance in 2013, 68% of M Michael’s award will be banked.
Page 77 Gem Diamonds Annual Report 2013
Details of awards of performance options to Directors
Directors
C T Elphick
Performance
options1
as at
1 January
2013
114 000
100 000
90 000
Total
A R Ashworth
85 200
68 000
68 000
77 200
60 667
60 000
38 000
40 000
40 000
48 0003
77 200
60 667
60 000
Total
K M Burford
(retired on
1 April 2013)
Total
M Michael
Total
G E Turner
Total
Audited
Exercised
in the year
Granted
in the year
Lapsed
in the year2
Exercise
price
GB pence
114 000
231.00
263.40
300.05
85 200
231.00
263.40
300.05
77 200
60 667
231.00
263.40
60 000
300.05
38 000
231.00
263.40
300.05
177.60 11 September
2012
77 200
231.00
263.40
300.05
Earliest
normal
exercise
date
23 June
2013
13 June
2014
Date of
grant
23 June
2010
13 June
2011
20 March
2012
20 March
2015
23 June
2010
13 June
2011
23 June
2013
13 June
2014
20 March
2012
20 March
2015
23 June
2010
13 June
2011
23 June
2013
13 June
2014
20 March
2012
20 March
2015
23 June
2010
13 June
2011
20 March
2012
23 June
2010
13 June
2011
23 June
2013
13 June
2014
20 March
2015
1 January
2024
23 June
2013
13 June
2014
20 March
2012
20 March
2015
Performance
options at
31 December
2013
Expiry date
23 June
2020
13 June
2021
20 March
2022
23 June
2020
13 June
2021
20 March
2022
23 June
2020
13 June
2021
20 March
2022
23 June
2020
13 June
2021
20 March
2022
1 January
2024
23 June
2020
13 June
2021
20 March
2022
–
100 000
90 000
190 000
–
68 000
68 000
136 000
–
–
–
–
–
40 000
40 000
48 000
128 000
–
60 667
60 000
120 667
1 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 year end was 145.25
pence. The highest and closing prices in the year were 173.0 pence and 107.25 pence respectively. Details of the vesting conditions, which are subject to audit, for awards made
under the ESOP are included on pages 138 to 140 of the Annual Report and a full set of the rules will be available for inspection at the AGM.
2 2010 awards were granted on 23 June 2010. The vesting criteria run on a calendar year basis. Based on performance to 31 December 2012, it was determined that none would vest
on 23 June 2013.
3 These awards were granted to M Michael before he became a Director. The terms of these differ from the ESOP performance conditions for Executive Directors and were only
granted to senior managers. In brief the scheme provides that a third of the awards granted in 2012 will vest in 2014, 2015, and 2016 based on performance in each of the
2013, 2014 and 2015 financial years. The extent to which the awards vest will depend on the achievement of Group and individual targets (weighted 70% and 30% of the total,
respectively) in each of the three one-year performance periods. Any awards that vest will be banked and may only be exercised at the end of the three-year performance period.
As soon as reasonably practicable following the end of the performance periods, the achievement of the targets for each of the 2013, 2014 and 2015 financial years are calculated.
Based on performance in 2013, 68% of M Michael’s award will be banked.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 78
The Annual Report on Directors’ remuneration continued
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 2013 are given below. It is confirmed
that there were no changes to the Directors’ holdings between 31 December 2013 and up to the date of this report. No Director held an
interest 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 27 on page 138.
Executive Directors
C T Elphick1
A R Ashworth
M Michael
G E Turner
Audited
Shares owned
outright at
31 December
2013
9 325 000
21 900
10 000
400 000
Performance shares held
Performance options held
Subject to
performance
conditions
Vested but
not exercised
Subject to
performance
conditions
Vested but
not exercised
Total
shareholding
95 000
68 000
64 000
60 333
Nil
Nil
Nil
Nil
190 000
136 000
128 000
120 667
Nil
Nil
Nil
Nil
9 610 000
225 900
202 000
581 000
1 C T 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.
Non-Executive Directors
Number of
shares as at
31 December
2013 held in
own right
1 267 752
145 164
144 664
316 944
164 664
R W Davis
G A Beevers
D J Elzas
M Salamon
R J Williams
Audited
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 fees 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.
Directors’ external appointments
Apart from private Group 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
By order of the Board
Richard Williams
Chairman, Remuneration Committee
17 March 2014
Directors’ Report
Page 79 Gem Diamonds Annual Report 2013
The Directors take pleasure in submitting
the financial statements of the Group for
the year ended 31 December 2013.
As a BVI registered company, Gem
Diamonds Limited is not required to
comply with the Companies Act 2006.
However, the Directors have elected
to conform to the requirements of the
Companies Act, 2006.
This requires that the Directors present a
Strategic Report and a Directors’ Report to
inform shareholders of the Company and
help them assess the extent to which the
Directors performed their duty to promote
the success of the Company.
For the purposes of compliance with
DTR 4.1.5R(2) and DTR 4.1.8R, the required
content of the ‘Management Report’ can
be found in the Strategic Report and the
Directors’ Report, including the sections
of the Annual Report and Accounts
incorporated by reference.
The Strategic Report 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 Strategic Report 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 which 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
Strategic Report will be realised. Statements
about the Directors’ expectations, beliefs,
hopes, plans, intentions and strategies
are inherently subject to change and are
based on expectations and assumptions
about future events, circumstances and
other factors which are, in some cases,
outside the Company’s control. The
information contained in the Strategic
Report 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 the
Strategic Report during the financial year
ahead. It is believed that the expectations
set out in the 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 Strategic Report.
The Company’s shareholders are cautioned
not to place undue reliance on the forward-
looking statements. Shareholders should
note that the Strategic Report has not
been audited, but the Auditors’ Report
does include a statement that the Strategic
Report is consistent with the financial
statements herein.
Related party transaction
Other than those disclosed in Note 24 of
the financial statements, the Company did
not have any transactions with, nor make
loans to related parties during the period in
which any Director is or was interested.
Exploration and resource
development
Resource development activities were
concentrated at Letšeng with the 2011/12
resource drilling programme which was
completed in early 2013 and a further
phase of drilling initiated towards the end
of the year. The drilling programme was
successful in extending the resource depth
to approximately 800 metres below surface
on both the Main and Satellite pipes
and improving the orebody definition,
significantly increasing the overall resource
base tonnage. Discrete production
sampling of both orebodies continued in
2013 together with detailed geological and
petrographical analysis of the orebodies.
Several continuous improvement work
streams were identified and prioritised
during 2013, with respect to resource
development, which will be progressed
during 2014. Further details can be found in
the mineral resource management section
on page 28.
No exploration activities are currently being
pursued by the Group.
Results and dividends
The Group’s attributable profit after
taxation amounted to US$21 million (2012:
attributable loss after tax US$117.9 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 at Letšeng and
Ghaghoo, thus the Board recommends
that no dividend be declared for the
2013 financial year. 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 together with capital projects
relating to its growth strategy. Other
factors may also have a bearing and these
will be taken into account at the time of
consideration of the dividend policy.
Corporate social responsibility
and sustainability
A review of health, safety, corporate social
responsibility, environmental performance
and community participation is presented
in the Sustainable Development Review on
pages 35 to 40.
Greenhouse gas emissions
In 2012, the Group reviewed and adopted a
more thorough process for data collection,
which yielded a more complete picture of
the carbon footprint of the Group. The total
2012 carbon footprint for the Group was
254 611 tonnes CO2e. Due to the disposal of
our Ellendale operation as well as ongoing
carbon reduction initiatives, the Group’s
carbon footprint has decreased significantly
since 2012.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 80
Directors’ Report continued
The total carbon footprint for the Group in
2013 was 124 812 tonnes CO2e. This
figure includes the direct GHG emissions
(Scope 1) and energy indirect GHG
emissions (Scope 2). The major contributing
emission sources were fuel combustion
(mobile and stationary) and electricity
consumption. The source that contributed
the largest amount of carbon was
electricity consumption which accounted
for 74 130 tonnes CO2e. Fuel combustion
accounted for 48 394 tonnes CO2e while
other operational consumption accounted
for 5 978 tonnes CO2e. No heat, steam or
cooling sources are used by the Group and
therefore no data is provided.
As outlined above, the Group recorded
a smaller carbon footprint in 2013 when
compared to the 2012 footprint. The Group
also tracks the tonnes CO2 emitted per
carat recovered. In 2012 the Group emitted
0.63 tonnes CO2 per recovered carat; this
increased in 2013 to 1.31 tonnes CO2 per
recovered carat.
The 2013 Group carbon footprint was
calculated with boundaries clearly defined
as per guidance from the GHG Protocol
corporate accounting and reporting
standard. Where international averages
have been used to determine activity data,
the most up to date, industry standard/or
accepted values were used.
The Group understands that undertaking
a carbon footprint assessment is not the
only step to a better understanding and
effective reduction of GHG emissions.
The Group intends to formulate a GHG
emissions reduction strategy in 2014 with
a view to pursuing our goal of zero harm
to the environment in connection with the
Group’s operations.
Political donations
The Group made no political donations
in 2013.
The Group’s CSI expenditure supports
initiatives that benefit the project affected
communities in the areas of health,
education, infrastructure development,
development of small to medium
enterprises, regional environmental
initiatives and general donations to relevant
causes in project affected communities. In
2013 the Group contributed US$0.4 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
Review on pages 35 to 40 together with the
full 2013 Sustainable Development Report,
which can be found on the Company’s
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 which 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.
Employees are kept informed about the
performance and objectives of the Group
through direct involvement and access
to the Company’s website, published
information, the circulation of ‘press
cuttings’ and Group announcements,
as well as continuous communication
between employees and management
which is achieved through initiatives such
as the Visible Felt leadership initiative at
Letšeng.
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. For details on the
Company's ESOP, see Note 27.
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
people with disabilities who apply for
positions which they can adequately fill,
having regard for their particular abilities
and aptitude. Where existing employees
become disabled, it is the Group’s policy,
whether practicable, to provide continuing
employment under normal terms and
conditions and to provide training, career
development and promotion to disabled
employees wherever possible.
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
The UK Financial Conduct Authority’s
Disclosure and Transparency Rules (DTR 7.2)
require that certain information be included
in a corporate governance statement set
out in the Directors’ Report. The Group has
an existing practice of issuing a separate
Corporate Governance Code Compliance
Report as part of its Annual Report. The
information required by the Disclosure and
Transparency Rules and the UK Financial
Conduct Authority’s Listing Rules (LR 9.8.6)
is located on pages 47 to 54 of this Annual
Report.
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 Strategic Report
on pages 16 to 23. The financial position of
the Company, its cash flows and liquidity
position are described in the Strategic
Report on pages 24 to 27. In addition,
Note 26 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 cash flows, borrowing facilities and
sensitivity analyses and considering the
uncertainties described in this report either
Page 81 Gem Diamonds Annual Report 2013
In line with normal market practice, the
Group believes that it is in its best interests
to protect the individuals prepared to serve
on its Board from the consequences of
innocent error or omission, as this enables
the Group to attract prudent individuals to
act as Directors.
Therefore, the Group has, and continues
to maintain, at its expense, a Director and
Officer’s liability insurance policy to provide
indemnity, in certain circumstances, for
the benefit of Directors and other Group
personnel. The insurance policy does not
provide cover where the Director or Group
personnel member has acted fraudulently
or dishonestly.
In accordance with the Company’s Articles
of Association, the Company has and
continues to maintain indemnities granted
by the Company to the Directors of the
Company and the Company’s associated
companies to the extent permitted by
and consistent with BVI law and the UK
Companies Act, 2006 and rules made by
the UKLA.
Details of payments for loss of office under
the Director’s service contracts is included
in the Directors’ Remuneration Report on
page 68.
Directors’ Remuneration
The ESOP contains provisions relating
to a change of control. Under these,
outstanding options would normally vest
and become exercisable on a change of
control, subject to the satisfaction of any
performance conditions at that time.
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 and voting rights
Details of the authorised and issued share
capital of the Company, including the rights
pertaining to each share class, are set out in
Note 18 to the financial statements.
As at 17 March 2014, there were 138.27
million fully paid ordinary shares of 0.01c
each in issue and listed on the Official List
maintained by the FCA in its capacity as the
UK Listing Authority.
The Company has one class of ordinary
shares. Shareholders have the right
to receive notice of and attend, speak
and vote at any general meeting of the
Company. Each shareholder who is present
in person (or, being a corporation, by
representative) or by proxy at a general
meeting on a show of hands has one vote
and, on a poll, every such holder present
in person (or, being a corporation, by
representative) or by proxy shall have one
vote in respect of every ordinary share held
by them. To be valid, the appointment of a
proxy to vote at a general meeting must be
received not less than 48 hours before the
time appointed for holding the meeting.
In addition, the holders of ordinary shares
have the right to participate in dividends
and other distributions according to their
respective rights and interests in the profits
of the Company.
There are no shareholders who carry any
special rights with regards to the control of
the Company. The Company is not aware
of any agreements between holders of
securities which may result in restrictions
on transfers or voting rights, same as
mentioned below.
There are no restrictions on the transfer of
ordinary shares other than:
• as set out in the Company's Articles of
Association;
• certain restrictions may from time to time
be imposed by laws and regulations; and
• pursuant to the Company’s share
dealing code whereby the Directors
and employees of the Company require
approval to deal in the Company’s
ordinary shares.
At the AGM held in 2013, shareholders
authorised the Company to make on-
market purchases of up to 13 826 718 of its
ordinary shares, representing approximately
10% of the Company issued share capital
at that time. During 2013, the Company
did not make any on-market or off-market
purchases of its shares or shares under any
buy-back programme. Shareholders will
be asked at the 2014 AGM to renew this
authority. The Directors have no present
intention to exercise this authority, if
granted. Details of deadlines for exercising
directly or by cross-reference, the Directors
have a reasonable expectation that the
Group had 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 44 and 45, together
with their biographical details. Details
of the Directors’ interests in shares and
share options of the Company can be
found in the Annual Report on Directors’
Remuneration on page 78.
Directors who held office
during the year and date of
appointment/resignation
Executive Directors
K M Burford
20 January 2006
(retired 1 April 2013)
20 January 2006
C T Elphick
A R Ashworth 22 April 2008
22 April 2008
G E Turner
22 April 2013 (appointed)
M Michael
Non-Executive Directors
D J Elzas
G A Beevers
R W Davis
M Salamon
R J Williams
18 October 2005
1 February 2007
1 February 2007
3 February 2008
3 February 2008
Re-election of Directors
The Articles of Association (81) provides
that a third of Directors retire annually by
rotation and, if eligible, offer themselves for
re-election. However, in accordance with
the Code, at each AGM all the Directors
retire and, subject to being eligible, offer
themselves for re-election. Each Director
has been the subject of a Board evaluation.
Protection available to Directors
By law, Directors are ultimately responsible
for most aspects of the Group’s business
dealings. Consequently, they face
potentially significant personal liability
under criminal or civil law, or the UK
Listing, Prospectus, DTR, and face a range
of penalties including private or public
censure, fines and/or imprisonment.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 82
Directors’ Report continued
voting rights and proxy appointments will
be set out in the 2014 notice of AGM.
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 UK Corporate
Governance Code Compliance Report on
page 54.
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
Annual Report on Directors’ Remuneration
on page 78.
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
2013 represented 58 days of the Company’s
annual purchases.
Subsequent events
Refer to Note 29 for details of events
subsequent to the reporting date.
Electronic copies of documents
Copies of the 2013 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 Auditors’
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 reappoint EY as the Company’s
auditors and to authorise the Board to
determine the auditors’ remuneration will be
proposed at the 2014 AGM.
The Strategic Report, the Directors’
Report and the Directors’ Remuneration
Report were approved by the Board on
17 March 2014.
By order of the Board
André Confavreux
Company Secretary
17 March 2014
Page 83 Gem Diamonds Annual Report 2013
A view of Letšeng’s Satellite pipe.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 84
Page 85 Gem Diamonds Annual Report 2013
Financial statements
The Group’s revenue is
primarily derived from its
two business activities,
namely its mining
operation at Letšeng
and its advanced
rough analysis and
manufacturing operation
in Antwerp.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 86
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). Having taken advice from the Audit
Committee, the Board considers the
report and accounts taken as a whole, is
fair, balanced and understandable and
that it provides the information necessary
for shareholders to assess the Company’s
performance, business model and strategy.
The Management Report, which
incorporates the Strategic Report and
Directors’ Report, 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.
Preparation of the financial
statements
The Directors must not approve the
financial statements unless they are
satisfied that they give a true and fair view
of the state of affairs of the Group and
parent company and of their profit or loss
for that period. In preparing the Group
financial statements, the Directors are
required to:
• select suitable accounting policies and
then apply them consistently;
• make judgements and estimates that are
reasonable and prudent;
• state whether they have been prepared
in accordance with IFRS;
• state whether applicable IFRS standards
have been followed, subject to any
material departures disclosed and
explained in the parent company
financial statements; and
• prepare the financial statements on
the going-concern basis unless it is
inappropriate to presume that the Group
will continue in business.
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. In
addition, suitable accounting policies have
been selected and applied consistently.
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.
Michael Michael
Chief Financial Officer
17 March 2014
Page 87 Gem Diamonds Annual Report 2013
Independent auditor’s report to the members
of Gem Diamonds Limited
We have audited the Group Financial
Statements of Gem Diamonds Limited (the
Group) for the year ended 31 December
2013 which comprise the Consolidated
Income Statement, Consolidated
Statement of Comprehensive Income,
the Consolidated Statement of Financial
Position, the Consolidated Statement of
Cash Flows, the Consolidated Statement of
Changes in Equity and the related notes 1
to 29. The financial reporting framework
that has been applied in their preparation
is applicable law and International Financial
Reporting Standards (IFRS).
This report is made solely to the Company’s
members, as a body, in accordance with
the terms of our engagement letter dated
7 November 2013 (Addendum to the
engagement letter dated 7 March 2014).
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’
Responsibilities Statement set out on
page 86, 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 and express an opinion on the
Group Financial Statements in accordance
with applicable law and 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:
– adequate accounting records have
been kept (including returns from
those branches which have not been
visited);
– the accounts are in agreement with
the records and returns; or
– we have obtained all the information
and explanations which we consider
necessary for the purpose of the audit.
• review the Directors’ statement in
relation to going concern as set out on
page 80, 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 of 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 and to identify any information
that is apparently materially incorrect based
on, or materially inconsistent with, the
knowledge acquired by us in the course of
performing the audit. If we become aware
of any apparent material misstatements
or inconsistencies we consider the
implications for our report.
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
2013 and of its profit for the year then
ended; and
• have been properly prepared in
accordance with IFRS.
Our assessment of risks of
material misstatement
We identified the following risk that had the
greatest effect on the overall audit strategy;
the allocation of resources in the audit; and
directing the efforts of the engagement
team:
• Revenue recognition in particular cut
off procedures in relation to recognising
additional revenue from the cutting and
polishing beneficiation arrangements;
and
• Impairment of property, plant and
equipment and goodwill.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 88
Independent auditor’s report to the members
of Gem Diamonds Limited continued
Our application of materiality
We determined planning materiality of
the Group to be US$2.9 million, which is
5% of pre-tax profit. This provided a basis
for determining the nature, timing and
extent of risk assessment procedures,
identifying and assessing the risk of
material misstatement and determining the
nature, timing and extent of further audit
procedures. We assessed our materiality
calculation based on the pre-tax profit of
the Group as we considered that to be the
most relevant performance measure to the
stakeholders of the entity.
On the basis of our risk assessment,
together with our assessment of the
Group’s overall control environment, our
judgement was that overall performance
materiality (ie our tolerance for
misstatement in an individual account or
balance) for the Group should be 50% of
planning materiality, namely US$1.5 million.
Our objective in adopting this approach
was to ensure that total detected and audit
differences in all accounts did not exceed
our planning materiality level.
We agreed with the Audit Committee that
we would report to the Committee all
audit differences that remain uncorrected
and that exceed US$150 000, as well as
differences below that threshold that, in our
opinion, warranted reporting on qualitative
grounds.
An overview of the scope of our
audit
Following our assessment of the risk
of material misstatement to the Group
financial statements, we selected six
components which represent the principal
business units within the Group and
account for 100% of the Group’s revenue
and 90% of the Group’s profit before tax.
Two of these were subject to a full scope
audit, while the remaining four were
subject to a specific or limited scope audit
where the extent of audit work was based
on our assessment of the risks of material
misstatement and of the materiality of
the Group’s business operations in that
component. They were also selected
to provide an appropriate basis for
undertaking audit work to address the
risks of material misstatement identified
above. For the remaining components, we
performed other procedures to confirm
that there were no significant risks of
material misstatement in the Group
financial statements.
The audit work performed in the six
components was executed at the lower of
Group and Statutory materiality.
The Group audit team follows a programme
of planned site visits. This year, the Group
audit partner visited both the full scope
location teams, reviewed key working
papers, participated in component team’s
planning, including discussion on fraud
and error, and attended the audit closing
meetings for each full scope component.
Our response to the risk identified above
included the following:
Revenue
• Understanding the process management
undertake in relation to their role in
the cutting and polishing beneficiation
arrangements;
• Challenging management’s
determination that the revenue
recognition criteria has been met to
appropriately measure and recognise the
additional uplift on these arrangements;
and
• Confirming inter-company sales
transactions are appropriately eliminated.
Impairment testing
• Obtaining and assessing management’s
impairment memorandum on the
processes followed on identifying
impairment indicators; given that the
Group’s market capitalisation is lower
than the Group’s asset carrying values;
• Auditing of the Letšeng Diamonds
and Calibrated Diamonds goodwill
impairment models; including testing of
the forecasted cash flows and underlying
assumptions; and
• Challenging management’s assumptions
used and performing sensitivity testing
on the models to confirm that no
reasonable change would result in an
impairment.
Opinion on other matters
prescribed by the terms of our
engagement letter
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 54 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.
Page 89 Gem Diamonds Annual Report 2013
Under the terms of our engagement letter
we are required 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; or
• where the Company has voluntarily
complied with items specified for review
by the Listing Rules of the Financial
Services Authority for premium listed
UK incorporated companies or the UK
Companies Act, 2006, and instructed us
to review such items:
The Directors’ statement, set out on
page 80, in relation to going concern.
Ernst & Young LLP
London
17 March 2014
Matters on which we are required
to report by exception
We have nothing to report in respect of the
following:
Under the ISAs (UK and Ireland), we are
required to report to you if, in our opinion,
information in the Annual Report is:
• materially inconsistent with the
information in the audited financial
statements; or
• apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the Group acquired in the
course of performing our audit; or
• is otherwise misleading.
In particular, we are required to consider
whether we have identified any
inconsistencies between our knowledge
acquired during the audit and the Directors’
Responsibilities Statement that they
consider the Annual Report is fair, balanced
and understandable and whether the
Annual Report appropriately discloses
those matters that we communicated to
the Audit Committee which we consider
should have been disclosed.
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 our review.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 90
Consolidated income statement
for the year ended 31 December 2013
Revenue
Cost of sales
Gross profit
Other operating income
Royalties and selling costs
Corporate expenses
Share-based payments
Foreign exchange gain
Reversal of impairment/(impairment) of assets
Operating profit
Finance (cost)/income
Finance income
Finance costs
Profit before tax for the year from
continuing operations
Income tax expense
Profit for the year from continuing
operations
Loss after tax for the year from discontinued
operations
Loss after tax
Recycling of foreign currency translation
reserve on disposal of subsidiary
Profit/(loss) for the year
Attributable to:
Equity holders of parent
Profit for the year
Loss for the year from discontinued operations
Non-controlling interests
Earnings per share (cents)
Basic earnings per share
Diluted earnings per share*
Notes
2
27
3
4
3
5
6
7
8
2013
US$’000
Before
exceptional
items
2013
US$’000
Exceptional
items
2013
US$’000
Total
2012
US$’000
Before
exceptional
items
2012
US$’000
Exceptional
items
212 828
(120 136)
92 692
746
(18 485)
(14 124)
(932)
606
–
60 503
(1 639)
1 218
(2 857)
58 864
(20 855)
–
–
–
–
–
–
–
–
155
155
–
–
–
155
–
212 828
202 118
(120 136)
(120 478)
92 692
746
(18 485)
(14 124)
(932)
606
155
60 658
(1 639)
1 218
(2 857)
59 019
(20 855)
81 640
1 271
(19 142)
(15 629)
(2 281)
3 815
–
49 674
1 312
2 564
(1 252)
50 986
(18 407)
2012
US$’000
Total
202 118
(120 478)
81 640
1 271
(19 142)
(15 629)
(2 281)
3 815
(16 241)
33 433
1 312
2 564
(1 252)
–
–
–
–
–
–
–
–
(16 241)
(16 241)
–
–
–
(16 241)
–
34 745
(18 407)
38 009
155
38 164
32 579
(16 241)
16 338
–
–
–
–
–
–
–
–
–
–
–
–
(118 686)
(118 686)
(70 297)
(70 297)
(48 389)
(48 389)
38 009
155
38 164
32 579
(134 927)
(102 348)
21 015
21 015
–
16 994
15.2
15.1
155
155
–
–
0.1
0.1
21 170
21 170
–
17 072
17 072
(134 927)
(117 855)
(16 241)
831
–
(118 686)
(118 686)
16 994
15 507
–
15 507
15.3
15.2
12.4
12.2
(85.9)
(85.1)
(73.5)
(72.9)
* Options are dilutive at the profit from continuing operations level and so in accordance with IAS 33 have been treated as dilutive for the purpose of diluted earnings
per share.
Page 91 Gem Diamonds Annual Report 2013
Consolidated statement of comprehensive income
for the year ended 31 December 2013
Profit/(loss) for the year
Other comprehensive income that could be reclassified to the income statement in subsequent periods
Loss on valuation of available-for-sale financial asset
Exchange differences on translation of foreign operations
Recycling of exchange differences on disposal of subsidiary
Impairment of available-for-sale financial asset
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Attributable to:
Equity holders of the parent
Non-controlling interests
Total comprehensive income for the year, net of tax
2013
US$’000
2012
US$’000
38 164
(102 348)
–
(64 612)
–
–
(64 612)
(26 448)
(32 272)
5 824
(26 448)
(204)
(23 237)
48 389
906
25 854
(76 494)
(89 378)
12 884
(76 494)
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 92
Consolidated statement of financial position
as at 31 December 2013
Assets
Non-current assets
Property, plant and equipment
Investment property
Intangible assets
Other financial assets
Current assets
Inventories
Receivables and other assets
Other financial assets
Cash and short-term deposits
Total assets
Equity and liabilities
Equity attributable to equity holders of the parent
Issued capital
Share premium
Treasury shares¹
Other reserves
Accumulated losses
Non-controlling interests
Total equity
Non-current liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Income tax payable
Total liabilities
Total equity and liabilities
1 Shares held by Gem Diamonds Limited Employee Share Trust.
Approved by the Board of Directors on 17 March 2014 and signed on their behalf by:
C T Elphick
Director
M Michael
Director
Notes
2013
US$’000
2012
US$’000
9
10
11
13
15
16
13
17
18
18
19
20
14
22
19
373 625
615
20 202
28
408 605
616
24 973
14
394 470
434 208
29 326
6 749
13
71 178
107 266
501 736
1 383
885 648
(1)
(69 408)
(518 091)
299 531
70 879
370 410
1 109
23 186
64 824
89 119
–
37 086
5 121
42 207
131 326
501 736
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
101 780
2 947
43 775
1 285
48 007
149 787
551 419
Page 93 Gem Diamonds Annual Report 2013
Consolidated statement of changes in equity
for the year ended 31 December 2013
Attributable to the equity
holders of the parent
Issued
capital²
Share
premium²
Own
shares¹
Other
reserves²
Accumulated
(losses)/
retained
earnings
Non-
controlling
interests
Total
Balance at 1 January 2013
1 383
885 648
Profit for the year
Other comprehensive income
–
–
–
–
Total comprehensive income
1 383
885 648
Share-based payments (Note 27)
Dividends paid
–
–
–
–
Balance at 31 December 2013
1 383
885 648
Balance at 1 January 2012
1 383
885 648
Loss for the year
Other comprehensive income
Total comprehensive income
Share-based payments (Note 27)
Dividends paid
–
–
–
–
–
–
–
–
–
–
(1)
–
–
(1)
–
–
(1)
(1)
–
–
–
–
–
(17 130)
(539 261)
330 639
–
21 170
(53 442)
(53 442)
1 164
–
21 170
–
–
21 170
(53 442)
(32 272)
1 164
–
(69 408)
(518 091)
299 531
(48 720)
–
28 477
28 477
3 113
–
(421 406)
(117 855)
–
(117 855)
–
–
416 904
(117 855)
28 477
(89 378)
3 113
–
Balance at 31 December 2012
1 383
885 648
(1)
(17 130)
(539 261)
330 639
1 Being shares held by Gem Diamonds Limited Employee Share Trust.
2 Refer to Note 18, Issued capital and reserves, for further detail.
70 993
16 994
(11 170)
5 824
–
(5 938)
70 879
66 879
15 507
(2 623)
12 884
–
(8 770)
70 993
Total
equity
401 632
38 164
(64 612)
(26 448)
1 164
(5 938)
370 410
483 783
(102 348)
25 854
(76 494)
3 113
(8 770)
401 632
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 94
Consolidated statement of cash flows
as at 31 December 2013
Cash flows from operating activities
Cash generated by operations
Working capital adjustments
Interest received
Interest paid
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
Purchase price of business combination
Purchase of other financial assets
Notes
21.1
21.2
21.1
2013
US$’000
87 614
114 462
(17 491)
96 971
1 218
(517)
(10 058)
(73 730)
(29 651)
(59 278)
1 191
–
(22)
Cash received/(disposed of ) from disposal of subsidiary1
21.3
14 030
Cash flows used in financing activities
Financial liabilities (repaid)/raised
Dividends paid to non-controlling interests
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange differences
Cash and cash equivalents at end of year held with banks
Restricted cash at end of year
Cash and cash equivalents at end of year
(8 529)
(2 591)
(5 938)
5 355
70 842
(5 019)
70 998
180
71 178
24
17
17
1 This relates to the disposal of the operations in Australia in the prior year and subsequent receipt of proceeds in the current year.
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
Page 95 Gem Diamonds Annual Report 2013
Notes to the annual financial statements
for the year ended 31 December 2013
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 17 March 2014.
1.1.2 Operational information
The Company has the following investments directly in subsidiaries at 31 December 2013:
Name of company
Subsidiaries
Gem Diamond Technical
Services (Proprietary)
Limited2
Gem Equity Group
Limited2
Letšeng Diamonds
(Proprietary) Limited2
Gem Diamonds
Botswana (Proprietary)
Limited2
BDI Mining Corp2
Gem Diamonds
Australia Holdings2
Gem Diamonds
Investments Limited2
Share-
holding
Cost of
investment¹
Country of
incorporation
Nature of business
100%
US$17
RSA
Technical, financial and management consulting
services.
100%
US$52 277
BVI
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.
70%
US$126 000 303
Lesotho
Diamond mining and holder of mining rights.
100%
US$27 752 144
Botswana
Diamond mining; evaluation and development; and
holder of mining licences and concessions.
100%
100%
US$82 064 783
BVI
Dormant investment company.
US$293 960 521
Australia
Dormant investment company.
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, a
marketing company that sells the Group’s diamonds
on tender in Antwerp.
1 The cost of investment represents original cost of investments at acquisition dates.
2 No change in the shareholding since the prior year.
1.1.3 Segment information
For management purposes, the Group is organised into geographical units as its risks and required rates of return are affected
predominantly by differences in the geographical regions of the mines and areas in which it operates. Other regions where no
direct mining activities take place are organised into geographical regions in the areas where the operations are managed. The
main geographical regions are:
• Lesotho (diamond mining activities)
• Botswana (diamond mining activities)
• Belgium (sales, marketing and manufacturing of diamonds)
• Mauritius (manufacturing of diamonds)
• BVI, RSA and UK (technical and administrative services)
The Mauritius and Belgium operations have been aggregated into one operating segment, as management monitors these two
operations as one, due to the similarity of their services provided.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 96
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
Management monitors the operating results of the geographical units separately (except for Belgium and Mauritius) for the
purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based
on operating profit or loss.
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, polished manufacturing margins 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 2013
Revenue
Total revenue
Inter-segment
External customers
Results
Depreciation and amortisation
Depreciation and mining asset amortisation
Waste amortisation
Share-based equity transactions
(Reversal of impairment)/impairment of assets
Net finance cost
Profit before tax
Income tax expense
Profit for the year
Segment assets
Segment liabilities
Other segment information
Capital expenditure
– Property, plant and equipment*
– Waste cost capitalised
Total capital expenditure
Lesotho
US$’000
Botswana
US$’000
Belgium
and
Mauritius
US$’000
BVI, RSA
and UK
US$’000
Total
continuing
operations
US$’000
201 310
(199 556)
1 754
51 067
16 012
35 055
385
58
–
–
–
–
–
–
–
–
212 897
9 001
423 208
(2 390)
(8 434)
(210 380)
210 507
567
212 828
869
869
–
–
–
415
415
–
547
(213)
52 351
17 296
35 055
932
(155)
60 658
(1 639)
59 019
(20 855)
38 164
340 853
107 004
42 922
5 632
11 209
13 694
42 670
4 254
501 736
66 502
7 915
59 278
67 193
20 712
–
20 712
566
–
566
41
–
41
29 234
59 278
88 512
Segment operating profit/(loss)
76 605
24
(2 396)
(13 575)
* Capital expenditure includes non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho and
Botswana segments and capitalisation of share-based payments for the Botswana segment.
Included in total annual revenue is revenue from a single customer which amounted to US$22.6 million arising from sales
reported in the Lesotho and Belgium segments.
Segment liabilities do not include deferred tax liabilities of US$64.8 million.
Page 97 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
Year ended 31 December 2012
Lesotho
US$’000
Botswana
US$’000
Belgium
and
Mauritius
US$’000
BVI, RSA
and UK
US$’000
Total
continuing
operations
US$’000
Discontinued
operations
US$’000
Total
US$’000
201 443
10 188
419 375
113 704
533 079
(1 729)
(10 036)
(217 257)
–
(217 257)
199 714
152
202 118
113 704
315 822
–
–
–
–
–
–
–
17 651
26 967
305
1 428
473
473
–
–
–
912
912
–
1 977
14 813
67 683
(246)
1 473
(35 477)
Revenue
Total revenue
Inter-segment
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
Segment operating
profit/(loss)
Net finance income/(cost)
Profit/(loss) before tax
Income tax expense
Remeasurement to fair value
Recycling of foreign currency
translation reserve on disposal
of subsidiary
Profit/(loss) for the year
46 003
49 530
95 533
19 036
26 967
2 281
16 241
33 433
1 312
34 745
(18 407)
–
–
18 278
31 252
650
4 121
37 314
58 219
2 931
20 362
(6 107)
27 326
(493)
819
(6 600)
28 145
–
(18 407)
(63 697)
(63 697)
(48 389)
(48 389)
16 338
(118 686)
(102 348)
Segment assets
Segment liabilities
372 778
100 490
51 042
6 702
17 171
6 402
60 980
14 365
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
3 339
–
3 339
474
–
474
72 219
60 559
132 778
15 457
36 058
51 515
87 676
96 617
184 293
* Capital expenditure includes non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho and
Botswana segments and capitalisation of share-based payments for the Botswana segment.
Included in the prior year annual revenue is revenue from a single customer which amounted to US$88.7 million arising from
sales reported in the discontinued operations segment.
Segment liabilities do not include deferred tax liabilities of US$71.3 million.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 98
Notes to the annual financial statements continued
for the year ended 31 December 2013
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 US dollar, which is the currency of the primary economic
environment in which the entities operate. All amounts are expressed in US dollar. The financial statements of subsidiaries whose
functional and reporting currency is in currencies other than US dollar have been converted into US dollar on the basis as set out
in Note 1.2.16, 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 1.2.26, Critical accounting estimates and judgements.
The Group has also adopted the following standards and interpretations from 1 January 2013:
IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1
The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (OCI). Items that could be
reclassified (or recycled) to profit or loss at a future point in time (eg net gain on hedge of net investment, exchange differences
on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets)
now have to be presented separately from items that will never be reclassified (eg actuarial gains and losses on defined benefit
plans and revaluation of land and buildings). The amendment had no impact on the Group’s financial position or performance.
Presentation has been amended in the statement of comprehensive income.
IAS 1 Clarification of the requirement for comparative information (Amendment)
The amendment to IAS 1 clarifies the difference between voluntary additional comparative information and the minimum
required comparative information. An entity must include comparative information in the related notes to the financial
statements when it voluntarily provides comparative information beyond the minimum required comparative period. The
additional voluntarily comparative information does not need to be presented in a complete set of financial statements.
An opening statement of financial position (known as the ‘third balance sheet’) must be presented when an entity applies an
accounting policy retrospectively, makes retrospective restatements, or reclassifies items in its financial statements, provided
any of those changes has a material effect on the statement of financial position at the beginning of the preceding period. The
amendment clarifies that a third balance sheet does not have to be accompanied by comparative information in the related
notes.
IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities – Amendments
to IFRS 7
The amendment requires an entity to disclose information about rights to set off financial instruments and related arrangements
(eg collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting
arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are
set off in accordance with IAS 32. The disclosures also apply to recognised financial instruments that are subject to an enforceable
master netting arrangement or similar agreement, irrespective of whether the financial instruments are set off in accordance
with IAS 32. As the Group is not setting off financial instruments in accordance with IAS 32 and does not have relevant offsetting
arrangements, the amendment does not have an impact on the Group.
Page 99 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.1 Basis of presentation (continued)
IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements
IFRS 10 establishes a single control model that applies to all entities including special purpose entities. IFRS 10 replaces the parts
of previously existing IAS 27 Consolidated and Separate Financial Statements that dealt with consolidated financial statements
and SIC 12 Consolidation – Special Purpose Entities. IFRS 10 changes the definition of control such that an investor controls an
investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met,
including:
(a) An investor has power over an investee;
(b) The investor has exposure, or rights, to variable returns from its involvement with the investee; and
(c) The investor has the ability to use its power over the investee to affect the amount of the investor’s returns.
IFRS 10 had no impact on the consolidation of investments held by the Group.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and
structured entities. The requirements in IFRS 12 are more comprehensive than the previously existing disclosure requirements
for such investments but will have no impact on the Group’s financial position or performance. Additional disclosures have been
presented in Note 28, Material partly owned subsidiaries.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity
is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or
permitted. The application of IFRS 13 has not impacted the fair value measurements carried out by the Group.
IFRIC 20 Stripping costs in the Production Phase of Surface Mine
IFRIC 20 applies to stripping costs incurred during the production phase of a surface mine. Such costs incurred are to be
capitalised as part of an asset if it can be demonstrated that its probable future economic benefits will be realised, the
costs can be reliably measured and the entity can identify the component of an orebody for which access has been improved.
This asset is to be called the ‘stripping activity asset’ and is to be depreciated or amortised on a units-of-production basis unless
another method is more appropriate. As the Group’s amortisation methodology applied in prior periods is consistent with the
principles of IFRIC 20, the application of this new standard did not impact the financial results of the Group.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 100
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.1 Basis of presentation (continued)
Standards issued but not effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial
statements are disclosed below. The Group intends to adopt these standards if applicable when they become effective.
Standard or
interpretation
IFRS 10
Consolidated Financial
Statements
IAS 32
Offsetting Financial Assets
and Financial Liabilities –
Amendments to IAS 32
The amendment provides an exception to the
consolidation requirement for entities that meet the
definition of an investment entity. The exception requires
investment entities to account for subsidiaries at fair value
through profit or loss in accordance with IFRS 9. Based on
preliminary analyses no material impact is expected.
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.
Effective date*
1 January 2014
1 January 2014
IFRS 9, IFRS 7
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.
IFRS 7 - 1 January
2015
IFRS 9 - 1 January
2018
* Annual periods beginning on or after.
Page 101 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (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 and Europe. 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 Strategic Review on pages 16 to 23. The financial position of the Company, its cash flows and liquidity position are
described in the Strategic Review on pages 24 to 27. In addition, Note 26, 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 26, 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.
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. An investor controls an investee when it is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through its power over the
investee. To meet the definition of control in IFRS 10, all three criteria must be met, being:
(a) An investor has power over an investee;
(b) The investor has exposure, or rights, to variable returns from its involvement with the investee; and
(c)
The investor has the ability to use its power over the investee to affect the amount of the investor’s returns.
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 intra-group 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; and (vii) reclassifies the parent’s share of components previously recognised in other
comprehensive income to profit or loss or retained earnings, as appropriate.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 102
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
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 under way 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 indicators 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, among 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.
Page 103 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.6 Property, plant and equipment (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.
Item
Mining assets
Decommissioning assets
Leasehold improvements
Plant and equipment
Finance lease assets
Other assets
Pre-production stripping costs
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 three years and period of lease
Three to 10 years
Lesser of period of lease or five years
Two to five years
The capitalisation of pre-production stripping costs as part of exploration and development assets ceases when the mine is
commissioned and ready for production. Subsequent stripping activities that are undertaken during the production phase of a
surface mine may create two benefits, being either the production of inventory or improved access to the ore to be mined in
the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are
accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and where the
benefit is the creation of mining flexibility and improved access to ore to be mined in the future, the costs are recognised as a
non-current asset, referred to as a ‘stripping activity asset’, if:
(a) future economic benefits (being improved access to the orebody) are probable;
(b) the component of the orebody for which access will be improved can be accurately identified; and
(c) the costs associated with the improved access can be reliably measured.
The stripping activity asset is accounted for as an addition to, or an enhancement of, an existing asset, being the mine asset
included under mining asset and disclosed in Note 9, Property, plant and equipment. If all the criteria are not met, the production
stripping costs are charged to the income statement as operating costs. The stripping activity asset is initially measured at cost,
which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified
component of ore, plus an allocation of directly attributable overhead costs. If incidental operations are occurring at the same
time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned,
these costs are not included in the cost of the stripping activity asset. If the costs of the stripping activity asset and the inventory
produced are not separately identifiable, a relevant production measure is used to allocate the production stripping costs
between the inventory produced and the stripping activity asset. The stripping activity asset is subsequently amortised over the
expected useful life of the identified component of the orebody that became more accessible as a result of the stripping activity.
Based on proven and probable reserves, the expected average stripping ratio over the average life of the area being mined is used
to amortise the stripping activity. As a result, the stripping activity asset is carried at cost less amortisation and any impairment
losses.
The average life of area cost per tonne is calculated as the total expected costs to be incurred to mine the orebody 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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 104
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
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
Initial direct costs capitalised to investment property
No depreciation is provided due to depreciable amount being zero
Five 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 IFRS 13 in the income statement. If the contingent consideration is classified as equity, it should not be
remeasured 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 IFRS. 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.
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.
Page 105 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
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 reporting 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 reporting 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 the income statement
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 the income statement 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 reporting 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 the income statement.
Cash flow hedges
For cash flow hedges, the effective portions of the fair value gains and losses are recognised in equity until the hedging instrument
expires or is sold, or when a hedge no longer meets the criteria for hedge accounting. Then any cumulative gain or loss existing in
equity at that time remains in equity until the forecast transaction is eventually recognised in the income statement or included in
the initial measurement of covered assets and liabilities. When a forecast transaction is no longer expected to occur, the cumulative
gain or loss that was reported in equity is immediately transferred to the income statement and then the gains and losses are
recognised in earnings or included in the initial measurement of covered assets or liabilities. The ineffective portion of fair value
gains and losses is reported in earnings in the period to which they relate.
Hedge accounting is applied provided certain criteria are met. At the inception of a hedging relationship, the relationship
between the hedging instruments and hedged items, its risk management objective and its strategy for undertaking the hedge
is documented. A documented assessment, both at hedge inception and on an ongoing basis, of whether or not the hedging
instruments, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in
the cash flows of the hedged items, is also prepared.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 106
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
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 reporting 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 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 1.2.24, 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 include 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.
1.2.11 Fair value measurement
The Group measures financial instruments at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the
asset or transfer the liability takes place either:
• in the principal market for the asset or liability, or
• in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available
to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
as a whole:
• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
Page 107 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.11 Fair value measurement (continued)
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end of each reporting period.
1.2.12 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. Goodwill is assessed for impairment on an annual basis. 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 reporting date whether a financial asset or group of financial assets are impaired.
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 (ie 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 the income statement.
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 the income statement.
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 the income statement, is
transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available for sale are not recognised
in the income statement. Reversals of impairment losses on debt instruments are reversed through the income statement if the
increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognised
in the income statement.
1.2.13 Inventories
Inventories, which include rough diamonds, ore stockpiles 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 ‘weighted average 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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 108
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.14 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position 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.
1.2.15 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.
1.2.16 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:
• statement of financial position items are translated at the closing rate at the reporting date;
• 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); and
• all resulting exchange differences are recognised as a separate component of equity.
Details of the rates applied at the respective reporting dates and for the income statement transactions are detailed in Note 18,
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 the income
statement. 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 statement of financial position
presented are translated at the closing rate at the reporting date.
1.2.17 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 remeasured at each reporting date until
settlement, with the changes in fair value recognised in the income statement.
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.
Page 109 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.17 Share-based payments (continued)
At each reporting 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 reporting 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.
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.
1.2.18 Provisions
Provisions are recognised when:
• the Group has a present legal or constructive obligation as a result of a past event; and
• 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.
1.2.19 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 and associated
asset 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.
1.2.20 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 reporting
date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the statement of financial position 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 reporting
date.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 110
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.20 Taxation (continued)
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 incurred by the Group comprise mineral extraction costs based on a percentage of sales paid to the local revenue
authorities. These obligations arising from royalty arrangements are recognised as current provisions and disclosed as part of
royalty and selling costs in the income statement.
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. The royalties incurred by the Group are considered
not to meet the criteria to be treated as part of income tax.
1.2.21 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 reporting 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.
1.2.22 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.
Page 111 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.22 Leases (continued)
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.
1.2.23 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. Revenue is recognised as follows:
Sale of goods
The sale of rough diamonds (which are made through competitive tender processes or through partnership arrangements) and
the sale of polished diamonds and other products (which are made through direct sale transactions) 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.
Dividends
Dividends are recognised when the amount of the dividend can be reliably measured and the Group’s right to receive payment is
established.
1.2.24 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.
1.2.25 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.
1.2.26 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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 112
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.26 Critical accounting estimates and judgements (continued)
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 reassessed 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. This occurs when the third party sells these goods, at which point in time the value of the final polished
goods are determined.
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.
The Group has made a judgement in determining if, in the instance where the Group’s asset carrying values exceed its market
capitalisation, this results in an indicator of impairment. The Group believes that the market capitalisation position does not
represent an indicator of impairment as all significant operations were assessed during the year and there were no indicators of
impairment. The goodwill in the Group which is reported in the Letšeng Diamonds and Calibrated Diamonds operations is tested
annually, with no impairment evident in the current year. Refer Note 12, Impairment testing for further detail.
Page 113 Gem Diamonds Annual Report 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.26 Critical accounting estimates and judgements (continued)
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.
Capitalised stripping costs (deferred waste)
Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations.
Furthermore, during the production phase, stripping costs are incurred in the production of inventory as well as in the creation
of future benefits by improving access and mining flexibility in respect of the ore to be mined, the latter being referred to as a
‘stripping activity asset’. Judgement is required to distinguish between these two activities at each of the surface operations.
The orebodies need to be identified in its various separately identifiable components. An identifiable component is a specific
volume of the orebody that is made more accessible by the stripping activity. Judgement is required to identify and define these
components (referred to as ‘cuts’), and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be
mined in each of these components. These assessments are based on a combination of information available in the mine plans,
specific characteristics of the orebody and the milestones relating to major capital investment decisions.
Judgement is also required to identify a suitable production measure that can be applied in the calculation and allocation of
production stripping costs between inventory and the stripping activity asset. The ratio of expected volume (tonnes) of waste
to be stripped for an expected volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the
current period ratio of actual volume (tonnes) of waste to the volume (tonnes) of ore is considered to determine the most suitable
production measure.
These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/or the
stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the stripping ratio calculation in
determining the amortisation of the stripping activity asset.
Stripping ratio
Estimated recoverable reserves are used in determining the amortisation of mine-specific assets. Amortisation is calculated by
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 orebody 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.
Production start date
The phase of each mine construction project is assessed to determine when a mine moves into the production phase. The criteria
used to assess the start date is determined by the unique nature of each mine’s construction project and includes factors such
as the complexity of a plant and its location. Various relevant criteria are considered to assess when the mine is substantially
complete and ready for its intended use and moves into the production phase. At this point, all related amounts are reclassified
from ‘exploration and development assets’ to ‘mining assets’ and/or ‘property, plant and equipment’. Some of the criteria would
include but are not limited to the following:
• The level of capital expenditure compared to the construction cost estimates;
• Completion of a reasonable period of testing of the mine plant and equipment;
• Ability to produce inventory in saleable form; and
• Ability to sustain ongoing production of inventory.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 114
Notes to the annual financial statements continued
for the year ended 31 December 2013
1. Notes to the financial statements (continued)
1.2 Summary of significant accounting policies (continued)
1.2.26 Critical accounting estimates and judgements (continued)
Production start date (continued)
When a mine construction project moves into the production phase, the capitalisation of certain mine construction costs
ceases and costs are either regarded as inventory or expensed, except for capitalisable costs related to mining asset additions
or improvements, production phase stripping costs capitalisable as stripping activity asset(s), and exploration expenditure that
meets the criteria for capitalisation. It is also at this point that depreciation/amortisation commences.
Share-based payments
Judgement is applied by management in determining whether the share options relating to employees who resigned before
the end of the service condition period have been cancelled or forfeited in light of their leaving status. The Group elected that
the employees were not awarded some or all of an award and have thus been treated as cancellation by forfeiture. The expenses
relating to these charges previously recognised have been reversed.
1.2.27 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
Finance revenue is reflected in Note 5, Finance (cost)/income.
Other operating income is reflected in Note 3, Operating profit.
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
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 development assets – continuing operations
Less: Depreciation and mining asset amortisation capitalised to inventory – continuing operations
Amortisation of intangible assets
Inventories
Cost of inventories recognised as an expense
Write-down of inventories to net realisable value
2013
US$’000
2012
US$’000
212 020
201 606
808
512
212 828
202 118
2013
US$’000
2012
US$’000
689
–
(54 324)
–
1 454
519
(52 351)
(159)
(52 510)
121
194
(47 098)
(49 984)
1 133
416
(95 533)
(105)
(95 638)
(102 843)
(85 003)
(90)
–
3. Operating profit (continued)
Foreign exchange gain
Foreign exchange gain
Mark-to-market revaluations on forward exchange contracts
Operating lease expenses as a lessee
Mine site property
Equipment and service leases
Contingent rental – Alluvial Ventures
Leased premises
Auditor’s remuneration – Ernst & Young
Audit fee
Group financial statements
Continuing operations
Discontinued operations
Statutory
Continuing operations
Auditor’s remuneration – other
Statutory
Continuing operations
Other non-audit fees – Ernst & Young
Tax services advisory and consultancy
Continuing operations
Discontinued operations
Corporate finance services
Continuing operations
Tax compliance services
Continuing operations
Other services
Continuing operations
Other assurance services
Continuing operations
Page 115 Gem Diamonds Annual Report 2013
2013
US$’000
2012
US$’000
1 480
(874)
606
(90)
(43 665)
(9 605)
(1 743)
(55 103)
(479)
(479)
–
(331)
(331)
(810)
(18)
(18)
(18)
(73)
(73)
–
(320)
(320)
(13)
(13)
(86)
(86)
(87)
(87)
(579)
2 624
1 191
3 815
(85)
(45 210)
(7 463)
(792)
(53 550)
(834)
(560)
(274)
(298)
(298)
(1 132)
(15)
(15)
(15)
(283)
(112)
(171)
(143)
(143)
(16)
(16)
(150)
(150)
(187)
(187)
(779)
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 116
Notes to the annual financial statements continued
for the year ended 31 December 2013
3. Operating profit (continued)
Other non-audit fees – other
Other services
Internal audit
Continuing operations
Tax services advisory and consultancy
Continuing operations
Employee benefits expense
Salaries and wages¹
1Includes contributions to defined contribution plan of US$0.9 million (31 December 2012: US$0.8 million).
Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA)
Underlying EBITDA is shown as the Directors consider this measure to be a relevant guide to the
performance of the Group. The reconciliation from operating profit to underlying EBITDA is as follows:
Operating profit
Foreign exchange gain
Share-based payments
Other operating income
Depreciation and mining asset amortisation (excluding waste amortisation)
Underlying EBITDA
4.
Exceptional items
Recognised in arriving at operating profit from continuing operations
Reversal of impairment/(impairment) – Chiri
Impairment – Project Kholo
Net reversal of impairment – Other assets
Impairment – Chiri
2013
US$’000
2012
US$’000
(132)
(132)
(163)
(163)
(295)
(134)
(134)
(164)
(164)
(298)
(20 845)
(21 124)
60 503
(606)
932
(746)
17 296
77 379
49 674
(3 815)
2 281
(1 271)
18 582
65 451
2013
US$’000
2012
US$’000
159
(58)
54
155
(14 813)
(1 428)
–
(16 241)
During 2007, the Group entered into a Cooperation Agreement and Option Agreement in relation to the Chiri Concession in Angola, which is
believed to be a diamondiferous kimberlite. During the prior year, the Group was unable to agree to a commercial agreement with its partner
in Angola which would have given the Group an option to acquire an indirect interest in the Chiri Concession. In October 2012, it was decided
not to continue with the project, which 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, costs associated and incurred in securing the option to
acquire the indirect interest of US$0.5 million and costs associated with the exploration and other associated assets of US$8.7 million. These
costs were not directly related to current operations and were therefore disclosed as exceptional.
During the current year, a previously written off sampling plant was sold, resulting in an impairment reversal of US$0.2 million.
Impairment – Project Kholo
During 2011, the Group approved the expansion at the Letšeng mine (Project Kholo). During 2012, Project Kholo as originally envisaged was
re-evaluated and as a result certain capital expenditure incurred on items that have been assessed as no longer having an enduring benefit to
the operation, have been 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.
Net reversal of impairment – Other assets
Included in the net reversal of impairment is an impairment charge reversal of US$0.3 million relating to the sale of a front-end sorting plant
which had previously been written off; offset by an impairment charge of US$0.2 million relating to a deposit which was impaired on the basis
of the execution of the contract to which it related to being uncertain.
5.
Finance (cost)/income
Finance income
Bank deposits
Other
Total finance income
Finance costs
Bank overdraft
Interest on debt, borrowings and trade and other payables1
Finance costs on unwinding of rehabilitation provision
Total finance costs
Page 117 Gem Diamonds Annual Report 2013
2013
US$’000
2012
US$’000
992
226
1 218
(143)
(1 501)
(1 213)
(2 857)
(1 639)
2 514
50
2 564
(123)
(1)
(1 128)
(1 252)
1 312
1Included in interest on debt, borrowings and trade and other payables is a provision for interest on potential tax liabilities which are under dispute.
6.
Income tax expense
Income statement
Current
– Overseas
Withholding tax
– Overseas
Deferred
– Overseas
Profit before taxation from continuing operations
Loss before taxation from discontinued operations
Profit/(loss) before taxation
Reconciliation of tax rate
Applicable income tax rate
Permanent differences
Tax impact on exceptional items
Unrecognised deferred tax assets
Effect of overseas tax at different rates
Withholding tax
Effective income tax rate
Notes
2013
US$’000
2012
US$’000
(12 980)
(9 860)
(1 498)
(2 140)
(6 377)
(20 855)
59 019
–
59 019
(6 407)
(18 407)
34 745
(118 686)
(83 941)
7
%
23.3
6.1
–
1.5
1.9
2.5
35.3
%
24.5
9.1
11.5
1.0
0.6
6.3
53.0
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 118
Notes to the annual financial statements continued
for the year ended 31 December 2013
7. Discontinued operations
There are no discontinued operations for the current year.
Australia
During the prior year, on 30 November 2012, the Group entered into a sale agreement for the disposal of its Australian mining activities, the
Ellendale mine (Kimberley Diamonds Company NL), with an effective date of 31 December 2012. The net assets were remeasured to fair value,
derecognised and the investment was recorded as an available-for-sale investment at fair value.
In January 2013, the Kimberley Diamonds Company NL sale was finalised and sold for the agreed purchase price of A$14.8 million, the
proceeds of which were all received during the current year.
The results of the Australian operation for the year ended 31 December 2012:
Revenue
Cost of sales and other operating costs1
Gross profit
Other operating income
Royalties and selling costs
Finance costs2
Share-based payments
Impairments
Foreign exchange gain
Loss before remeasurement to fair value
Remeasurement to fair value
Recycling of foreign currency translation reserve
Loss before tax from discontinued operations
Income tax expense
Loss after tax from discontinued operations
Earnings per share from discontinued operations (cents)
– Basic
– Diluted
The net cash flows attributable to the discontinued operation are as follows:
Operating
Investing
Net cash outflow
1Included in cost of sales is an amount of US$1.7 million relating to write-down of inventories.
2Included in finance costs is unwinding of discount rate of rehabilitation provision of US$1.0 million.
2012
US$’000
113 704
(108 667)
5 037
80
(6 912)
(493)
(650)
(4 121)
459
(6 600)
(63 697)
(48 389)
(118 686)
–
(118 686)
(86)
(85)
43 007
(51 217)
(8 210)
Page 119 Gem Diamonds Annual Report 2013
8.
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
Loss for the year from discontinued operations
Recycling of foreign currency translation reserve on discontinued operation
Less: Non-controlling interests
Net profit/(loss) 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.
2013
US$’000
38 164
–
–
(16 994)
21 170
2012
US$’000
32 579
(70 297)
(48 389)
(15 507)
(101 614)
Weighted average number of ordinary shares outstanding during the year (‘000)
138 194
138 177
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 outstanding during the year
Effect of dilution:
– Future share awards under the Employee Share Option Programme
Weighted average number of ordinary shares outstanding during the year adjusted for the effect of dilution
Number
of shares
2013
’000
Number
of shares
2012
’000
138 194
138 177
710
138 904
1 350
139 527
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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 120
Notes to the annual financial statements continued
for the year ended 31 December 2013
9. Property, plant and equipment
As at 31 December 2013
Cost
Balance at 1 January 2013
Additions
Net movement in rehabilitation provision
Disposals
Reclassifications
Foreign exchange differences
Balance at 31 December 2013
Accumulated depreciation/
amortisation
Balance at 1 January 2013
Depreciation and amortisation charge
Disposals
Impairment reversal
Foreign exchange differences
Balance at 31 December 2013
Net book value at 31 December 2013
As at 31 December 2012
Cost
Balance at 1 January 2012
Additions
Net movement in rehabilitation provision
Disposals
Disposal of subsidiaries
Reclassifications
Foreign exchange differences
Balance at 31 December 2012
Accumulated depreciation/
amortisation
Balance at 1 January 2012
Depreciation and amortisation charge
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$’000
340 250
59 278
–
–
7 566
(59 980)
347 114
125 155
38 162
–
–
(19 849)
143 468
203 646
90 460
20 050
(392)
–
(4 672)
(11 107)
94 339
–
–
–
–
–
–
94 339
18 353
17 362
119 100
12 239 597 764
–
(1 957)
–
–
(3 382)
13 014
2 613
1 170
–
–
(639)
3 144
9 870
299
–
(85)
5 871
(3 556)
19 891
8 610
2 104
(85)
–
(2 085)
8 544
11 347
10 023
1 211
90 861
–
–
(2 349)
(2 976)
(10 319)
(23 014)
92 814
(67)
(3 128)
–
1 554
(2 119) (103 158)
12 818 579 990
48 051
10 278
(2 479)
(386)
(10 471)
44 993
47 821
4 730 189 159
2 610
54 324
(62)
(2 626)
(386)
–
(1 062)
(34 106)
6 216 206 365
6 602 373 625
Mining
assets1
US$’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
507 469
97 065
–
–
(253 149)
–
(11 135)
340 250
290 605
62 168
–
98 647
32 852
2 736
(17)
(39 773)
(1 246)
(2 739)
90 460
31 475
–
–
28 991
–
15 013
–
(25 111)
–
(540)
18 353
12 009
4 582
–
81 600
7 328
–
282 282
13 430 1 012 419
27 174
2 125
166 544
–
–
17 749
(1 180)
(3 251)
(852)
(5 300)
(78 039)
(174 626)
(4 375)
(575 073)
7 616
37
17 362
(8 760)
(3 719)
119 100
2 390
(479)
12 239
–
(18 575)
597 764
66 542
6 503
181 236
5 614
587 481
20 632
3 197
97 082
(1)
(2 009)
(802)
(2 812)
Disposal of subsidiaries
(227 017)
(39 773)
(13 979)
(66 571)
(153 120)
(3 077)
(503 537)
Impairment
Foreign exchange differences
Balance at 31 December 2012
Net book value at 31 December 2012
1 040
(1 641)
125 155
215 095
7 800
498
–
90 460
–
1
2 613
15 740
1 852
285
8 610
8 752
1 910
(598)
48 051
71 049
–
(202)
4 730
7 509
12 602
(1 657)
189 159
408 605
1Included in mining asset is waste costs capitalised during the year of US$54.0 million (31 December 2012: US$90.9 million).
2Included in plant and equipment is capital work in progress of US$32.1 million (31 December 2012: US$47.4 million).
3Other assets comprise motor vehicles, computer equipment, furniture and fittings and office equipment.
Page 121 Gem Diamonds Annual Report 2013
10.
Investment property
The investment property consists of a commercial unit located in the Almas Towers in Dubai. The unit is being let out in terms of a long-term
rental agreement entered into with a tenant for a period of five years which commenced on 23 July 2010.
Cost
Balance at 1 January
Balance at 31 December
Accumulated depreciation
Balance at 1 January
Depreciation
Balance at 31 December
Net book value at 31 December
Fair value¹
Amounts recognised in profit or loss
Rental income
Direct operating expenses
2013
US$’000
2012
US$’000
617
617
1
1
2
615
1 099
53
(20)
617
617
–
1
1
616
879
53
(11)
1 No independent valuation was performed. Fair value was based upon an overview of property sales (units within the same building as the investment property)
during 2013, weighted towards the most recent sales activity, which is valued using a Level 2 input in terms of the fair value hierarchy.
The future minimum rental income under the rental agreement in aggregate and for each of the following periods are as follows:
– Within one year
– After one year but not more than five years
– More than five years
11.
Intangible assets
As at 31 December 2013
Cost
Balance at 1 January 2013
Foreign exchange difference
Balance at 31 December 2013
Accumulated amortisation
Balance at 1 January 2012
Amortisation
Balance at 31 December 2013
Net book value at 31 December 2013
2013
US$’000
2012
US$’000
57
35
–
92
56
92
–
148
Intangibles
US$’000
Goodwill
US$’000
Total
US$’000
786
–
786
105
159
264
522
24 292
(4 612)
19 680
–
–
–
25 078
(4 612)
20 466
105
159
264
19 680
20 202
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 122
Notes to the annual financial statements continued
for the year ended 31 December 2013
11.
Intangible assets (continued)
As at 31 December 2012
Cost
Balance at 1 January 2012
Disposal of subsidiaries
Additions
Foreign exchange differences
Balance at 31 December 2012
Accumulated amortisation/impairment
Balance at 1 January 2012
Disposal of subsidiaries
Amortisation
Foreign exchange differences
Balance at 31 December 2012
Net book value at 31 December 2012
Intangibles
US$’000
Goodwill
US$’000
Total
US$’000
–
–
786
–
786
–
–
105
–
105
681
58 712
(33 604)
–
(816)
58 712
(33 604)
786
(816)
24 292
25 078
33 183
(33 604)
33 183
(33 604)
–
421
–
105
421
105
24 292
24 973
Impairment of goodwill within the Group was tested in accordance with the Group’s policy. Refer to Note 12, Impairment testing, for further
details.
12.
Impairment testing
Goodwill
Goodwill acquired through business combinations has been allocated to the individual cash-generating
units, as follows:
– Letšeng Diamonds
– Calibrated Diamonds
Balance at end of year
2013
US$’000
2012
US$’000
18 229
1 451
19 680
22 502
1 790
24 292
Movement in goodwill relates to foreign exchange translation from functional to presentation currency.
Discount rates are outlined below, and represent the real pre-tax rates. These rates are based on the weighted average cost of capital (WACC)
of the Group and adjusted accordingly at a risk premium of each cash-generating unit, taking into account risks associated with different cash-
generating units.
Discount rate for each cash-generating unit
– Letšeng Diamonds
– Calibrated Diamonds
2013
%
13.9
13.1
2012
%
13.3
14.0
Goodwill impairment testing is undertaken annually and whenever there are indications of impairment. The most recent test was undertaken
at 31 December 2013. In assessing whether goodwill has been impaired, the carrying amount of the cash-generating unit is compared with
its recoverable amount. For the purpose of goodwill impairment testing in 2013, recoverable amounts for Letšeng Diamonds and Calibrated
Diamonds have been determined based on value in use and fair value less costs of disposal models respectively.
Page 123 Gem Diamonds Annual Report 2013
12.
Impairment testing (continued)
Letšeng Diamonds
Value in use
Cash flows are projected for a period up to the date that mining is expected to cease, based on management’s expectations at the time of
completing the testing, and is limited to the lesser of the current economic resource or the remaining 11-year mining lease period. This date
depends on a number of variables, including recoverable reserves and resources, the forecast selling prices and the treatment costs.
Key assumptions used in the calculations
The key assumptions used in the calculation for goodwill asset are:
• Recoverable reserves and resources
• Expected carats recoverable
• Expected grades achievable
• Expected US$/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. The impairment test is most sensitive to
changes in commodity prices and foreign exchange rates.
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. 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 calculation.
Sensitivity to changes in assumptions
Given the current volatility in the market, adverse changes in key assumptions could result in changes to impairment charges.
For the purposes of testing for impairment of goodwill using the value-in-use basis for Letšeng Diamonds, the excess of the recoverable
amount based on the remaining lease period over the carrying value is US$211 million. Based on the life of mine period using current reserves,
the excess over the recoverable amount is US$519 million.
No reasonably possible change in any of these key assumptions would cause Letšeng Diamonds’ carrying amount to exceed its recoverable
amount.
Calibrated Diamonds
Fair value less costs of disposal
The recoverable amount of Calibrated Diamonds was determined based on fair value less costs of disposal using discounted cash flow
projections from financial budgets approved by senior management. The key assumptions include management’s best estimate of the
recoverability of the residual value of the assets taking into account the location of the assets and the ability to dispose of the assets in the
current economic climate.
Key assumptions used in the calculations
The key assumptions used in the calculation of goodwill asset are:
• Expected volumes of production and yield
• Expected US$/carat prices
• Costs of manufacturing
• Discount rates
Expected volume of production and yield has been based on current plant specifications and tests performed. US$/carat prices are based on
external data published by independent retailers and adjusted accordingly for this specific operation. Costs which are reasonably determinable
are based on management’s experience.
The foreign exchange rates have been based on current spot exchange rates at the date of the fair value less costs of disposal calculation.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 124
Notes to the annual financial statements continued
for the year ended 31 December 2013
12.
Impairment testing (continued)
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. No reasonably possible change in any of
these key assumptions would cause Calibrated Diamonds’ carrying amount to exceed its recoverable amount.
Other
Chiri
During 2012, the Group was unable to agree to a commercial agreement with its partner in Angola in relation to the Chiri Concession and in
October 2012 it was decided not to continue with the project which resulted in the total resource and developments costs expended on the
project to date, to be written off. During the current year, a previously written off asset was sold, resulting in a reversal of impairment.
Project Kholo
In 2011, Letšeng initiated an expansion programme (Project Kholo) to double its production capacity. During 2012, Project Kholo as originally
envisaged was re-evaluated. As work had already commenced on Project Kholo, some of the costs incurred to date 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 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
(Reversal of impairment)/impairment – Chiri1
Impairment – Project Kholo
Net reversal of impairment – other assets
1Refer to Note 4, Exceptional items, for a breakdown of these amounts.
13. Other financial assets
Non-current
Other assets
Current
Available-for-sale investment1
Forward exchange contract
Other assets
2013
US$’000
2012
US$’000
(159)
58
(54)
14 813
1 428
–
2013
US$’000
2012
US$’000
28
28
–
–
13
13
41
14
14
15 369
1 067
8
16 444
16 458
1 The available-for-sale investment related to Kimberley Diamonds Company NL which was disposed of in the prior year.
The Group enters into forward exchange contracts to hedge the exposure to changes in foreign currency of future sales of diamonds at
Letšeng Diamonds. The forward exchange contract is the revaluation on the market-to-market financial assets at year end. The Group performs
no hedge accounting. At 31 December 2013, the Group has no forward exchange contracts outstanding.
Page 125 Gem Diamonds Annual Report 2013
2013
US$’000
2012
US$’000
45
5
5 919
5 969
80
–
7 295
7 375
(66 951)
(74 766)
(154)
350
(4 038)
(70 793)
(64 824)
(10)
162
(4 038)
(78 652)
(71 277)
(71 277)
(68 061)
(6 404)
(9 447)
(22)
6
(146)
(1)
190
12 830
(64 824)
(2)
(5)
(1)
2 771
217
3 251
(71 277)
14. 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
– 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$31.9 million (31 December 2012: US$44.5 million).
The Group has estimated tax losses of US$293.0 million (31 December 2012: US$310.0 million). No deferred tax assets have been recognised
in respect of such losses at 31 December 2013 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.
Of the US$293.0 million (31 December 2012: US$310.0 million) estimated tax losses, US$3.2 million (31 December 2012: US$1.4 million) losses in
various jurisdictions expire as follows:
2014
2015
2016
2017
2018
31 December
2013
US$’000
31 December
2012
US$’000
31
2
6
1 244
1 914
3 197
30
2
5
1 224
–
1 378
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 126
Notes to the annual financial statements continued
for the year ended 31 December 2013
15.
Inventories
Diamonds on hand
Ore stock piles
Consumable stores
Net realisable value write-down
16. Receivables and other assets
Trade receivables
Prepayments
Deposits1
Other receivables
VAT receivable
1Refer to Note 4, Exceptional items, for details on a deposit that was impaired.
The carrying amounts above approximate their fair value.
Terms and conditions of the receivables:
These amounts are non-interest bearing and are settled in accordance with terms agreed between the parties.
Analysis of trade receivables
Neither past due nor impaired
Past due but not impaired:
< 30 days
30 – 60 days
60 – 90 days
Movements in the provision against trade receivables were as follows:
Balance at beginning of year
Utilised during the year
Foreign exchange differences
Balance at end of year
2013
US$’000
2012
US$’000
18 806
3 281
7 239
29 326
90
14 247
311
8 094
22 652
–
2013
US$’000
2012
US$’000
1 002
739
230
134
4 644
6 749
1 858
1 400
475
541
2 999
7 273
2013
US$’000
2012
US$’000
939
1 768
31
32
–
33
18
39
1 002
1 858
–
–
–
–
1 084
(1 097)
13
–
17. Cash and short-term deposits
Cash on hand
Bank balances
Short-term bank deposits
Page 127 Gem Diamonds Annual Report 2013
2013
US$’000
2012
US$’000
9
22 724
48 445
71 178
4
35 754
35 084
70 842
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 2013, the Group had restricted cash of US$0.2 million (31 December 2012: US$0.2 million).
The Group’s cash surpluses are deposited with major financial institutions of high-quality credit standing predominantly within Lesotho, the
United Kingdom and Switzerland.
At 31 December 2013, the Group has a US$20.0 million three-year unsecured revolving credit facility with Nedbank Capital and, through its
subsidiary Letšeng Diamonds, a M250.0 million (US$23.9 million) three-year revolving working capital facility.
As at 31 December 2013, there has been no draw down (31 December 2012: US$2.9 million) on either of the above facilities. At 31 December
2012, the outstanding amount was classified under interest-bearing loans and borrowings and was fully repaid in January 2013.
After the reporting date, a US$25.0 million nine-month unsecured facility was concluded through Nedbank Capital, for the completion of the
Ghaghoo Phase 1 development capital expenditure. This facility is due to be refinanced through a longer-term debt facility prior to its expiry in
October 2014. US$5.0 million has been drawn down on this facility to date.
18.
Issued capital and reserves
Authorised – ordinary shares of US$0.01 each
As at year end
Issued and fully paid
Balance at beginning of year
Allotments during the year
Balance at end of year
31 December 2013
31 December 2012
Number
of shares
‘000
US$’000
Number
of shares
‘000
US$’000
200 000
2 000
200 000
2 000
138 267
1 383
138 267
3
–
–
138 270
1 383
138 267
1 383
–
1 383
On 31 July 2013 there was an allotment of shares when employee share options were exercised. Refer to Note 27, Share-based payments.
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$0.01.
During the current year, 14 667 shares were exercised (31 December 2012: 10 500) and no shares lapsed (31 December 2012: nil). At
31 December 2013, 65 550 (31 December 2012: 80 217) shares were held by the trust.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 128
Notes to the annual financial statements continued
for the year ended 31 December 2013
18.
Issued capital and reserves (continued)
Other reserves
Balance at 1 January 2013
Other comprehensive income
Total comprehensive income
Share-based payments
Balance at 31 December 2013
Balance at 1 January 2012
Other comprehensive income
Total comprehensive income
Share-based payments
Balance at 31 December 2012
Foreign currency translation reserve
Foreign
currency
translation
reserve
US$’000
Share-based
equity
reserve
US$’000
Other
reserves
US$’000
(62 800)
(53 442)
(53 442)
(116 242)
(90 575)
27 775
27 775
(62 800)
45 670
–
–
1 164
46 834
42 557
–
–
3 113
45 670
–
–
–
(702)
702
702
–
Total
US$’000
(17 130)
(53 442)
(53 442)
1 164
(69 408)
(48 720)
28 477
28 477
3 113
(17 130)
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities. During the
year, the South African, Lesotho, Botswana, Mauritian and United Arab Emirate subsidiaries’ functional currencies were different to the Group’s
functional currency of US dollar. The rates used to convert the operating functional currency into US dollar are as follows:
Average rate
Period end
Average rate
Period end
Average rate
Period end
Average rate
Period end
Average rate
Period end
Currency
ZAR/Maloti to 1 US$
ZAR/Maloti 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$
2013
9.65
10.47
1.04
1.12
8.40
8.78
30.75
30.05
3.67
3.67
2012
8.21
8.48
0.97
0.96
7.62
7.79
30.13
30.55
3.67
3.67
Share-based equity reserves
For detail on the share-based equity reserve refer to Note 27, Share-based payments.
Other reserves
In the prior 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.
Capital management
For details on capital management, refer to Note 26, Financial risk management.
Page 129 Gem Diamonds Annual Report 2013
2013
US$’000
2012
US$’000
2
1 107
1 109
12 023
20 790
790
2 761
141
581
37 086
38 195
–
1 007
1 007
15 302
24 578
1 236
1 445
6
1 208
43 775
44 782
19. Trade and other payables
Non-current
Operating lease
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 mainly non-interest bearing and are settled in accordance with terms agreed between the parties. Included in accrued expenses is an
interest-bearing payable. The interest thereon has been provided for in finance costs. Refer to Note 5, Finance (cost)/income.
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.
20. Provisions
Rehabilitation provisions
2013
Reconciliation of movement in provisions
Balance at beginning of year
Arising during the year
Decrease in rehabilitation provisions
Unwinding of discount rate
Foreign exchange differences
Balance at end of year
2013
US$’000
2012
US$’000
23 186
29 496
Rehabilitation
provisions
US$’000
Employee
provisions
US$’000
Other
US$’000
Total
US$’000
29 496
442
(2 791)
1 213
(5 174)
23 186
–
–
–
–
–
–
–
–
–
–
–
–
29 496
442
(2 791)
1 213
(5 174)
23 186
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 130
Notes to the annual financial statements continued
for the year ended 31 December 2013
20. Provisions (continued)
2012
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
Rehabilitation provisions
Rehabilitation
provisions
US$’000
Employee
provisions
US$’000
Other
US$’000
Total
US$’000
41 712
–
(872)
(30 162)
17 749
2 077
(1 008)
29 496
551
245
–
(802)
–
–
6
–
195
–
(190)
–
–
–
(5)
–
42 458
245
(1 062)
(30 964)
17 749
2 077
(1 007)
29 496
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.
In determining the amounts attributable to the rehabilitation provisions, management used a discount rate range of 5.5% – 7.5% (31 December
2012: 7.5% – Letšeng only), estimated rehabilitation timing of 11 to 14 years (31 December 2012: 12 years – Letšeng only) and an inflation rate
range of 5.6% – 6.0% (31 December 2012: 6.8% – Letšeng only). In addition to the changes in the discount rates, inflation and rehabilitation
timing, the decrease in the provision is attributable to unrealised foreign exchange translation from functional to presentation currency.
21. Cash flow notes
21.1 Cash generated by operations
Profit before tax for the year from continuing operations
Loss before tax for the year from discontinued operations
Adjustments for:
Depreciation, mining asset amortisation and waste amortisation on property, plant
and equipment and amortisation on intangible assets
(Reversal of impairment)/impairment of assets
Write-down of inventory
Finance income
Finance costs
Movement in provisions
Mark-to-market revaluations
Unrealised foreign exchange differences
Profit on disposal of property, plant and equipment
Prepayments
Other non-cash movements
Loss on disposal of subsidiaries
Share-based equity transaction
Notes
2013
US$’000
2012
US$’000
59 019
34 745
–
(118 686)
3
3
3
5
5
3
27
52 510
(155)
90
(1 218)
2 857
(655)
984
620
(689)
160
7
–
932
95 638
19 456
1 650
(3 109)
2 291
(1 512)
(2 435)
43 483
(315)
(627)
6 492
63 697
2 931
114 462
143 699
21. Cash flow notes (continued)
21.2 Working capital adjustments
Increase in inventories
(Increase)/decrease in receivables
Decrease in trade and other payables
21.3 Cash received/(disposed) 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
Proceeds on sale of subsidiaries
Proceeds on disposal not yet received
Net costs incurred
Cash equivalents sold
Cash received/(disposed) from disposal of subsidiary
Page 131 Gem Diamonds Annual Report 2013
2013
US$’000
2012
US$’000
(10 962)
(4 009)
(2 520)
(17 491)
(24 945)
565
(704)
(25 084)
2013
US$’000
2012
US$’000
–
–
–
–
–
–
–
–
14 030
–
–
–
14 030
11 001
30 891
3 049
13 492
282
(12 382)
(30 964)
15 369
–
(15 369)
(327)
(282)
(609)
In January 2013, the Kimberley Diamonds Company NL sale was finalised and sold for the agreed purchase price of A$14.8 million
(US$15.4 million). During the current year the full purchase price of A$14.8 million (US$14.0 million) was received. The difference in the
cash proceeds received relates to foreign exchange movements.
22.
Interest-bearing loans and borrowings
Current
Working capital facility
The carrying values of the liabilities approximate their fair values.
2013
US$’000
2012
US$’000
–
2 947
The drawn down portion of the Letšeng Diamonds facility at 31 December 2012 was repaid in the current year. The interest rate on this loan
is prime less 0.8%, which equated to 9.12% (2012: 8.95%) at year end and interest paid during the year was US$0.1 million (31 December 2012:
US$0.1 million).
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 132
Notes to the annual financial statements continued
for the year ended 31 December 2013
23. Commitments and contingencies
Commitments
Operating lease commitments – Group as lessee
The Group has entered into commercial lease arrangements for rental of office premises. These leases have a period of between two and
12 years with an option of renewal at the end of the period. The terms will be negotiated during the extension option periods catered for
in the agreements. There are no restrictions placed upon the lessee by entering into these leases.
Future minimum rentals payable under non-cancellable operating leases:
– Within one year
– After one year but not more than five years
– More than five years
Mining leases
2013
US$’000
2012
US$’000
1 813
5 437
11 126
18 376
1 508
6 406
16 795
24 709
Mining lease commitments represent the Group’s future obligation arising from agreements entered into with local authorities in the mining
areas that the Group operates.
The period of these commitments is determined as the lesser of the term of the agreement, including renewable periods, or the life of the
mine. The estimated lease obligation regarding the future lease period, accepting stable inflation and exchange rates, is as follows:
– Within one year
– After one year but not more than five years
– More than five years
Moveable equipment lease
2013
US$’000
2012
US$’000
84
381
735
1 200
88
403
957
1 448
The Group has entered into commercial lease arrangements which include the provision of loading, hauling and other transportation services
payable at a fixed rate per tonne of ore and waste mined; power generator equipment payable based on a consumption basis; and rental
agreements for various mining equipment based on a fixed monthly fee.
The contract pertaining to loading and hauling terminates at the end of December 2014 and is currently being negotiated on new
commercial terms for a period of seven years. As the final commercial terms have not been concluded, the figures below do not include future
commitments.
– Within one year
– After one year but not more than five years
– More than five years
Capital expenditure
Approved but not contracted for
Approved and contracted for
2013
US$’000
29 422
718
–
30 140
2012
US$’000
32 774
32 767
–
65 541
2013
US$’000
2012
US$’000
40 070
3 853
35 342
22 002
Page 133 Gem Diamonds Annual Report 2013
23. Commitments and contingencies (continued)
Contingent rentals – Alluvial Ventures
The contingent rentals represents the Group’s obligation to a third party (Alluvial Ventures) for operating a third plant on the Group’s mining
property at Letšeng Diamonds. The rental is determined when the actual diamonds mined by Alluvial Ventures are sold. The rental agreement is
based on 40% to 50% of the value of the diamonds recovered by Alluvial Ventures and is limited to US$0.9 million per individual diamond. As at
the reporting date, 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 2012:
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 advisers, the Group has identified possible disputes approximating
US$3.6 million (December 2012: US$4.1 million) and tax claims within the various jurisdictions in which the Group operates approximating
US$1.2 million (December 2012: US$1.4 million).
There remains a risk that further tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in some cases, the Group
does not anticipate that there will be any material impact on the Group’s results, financial position or liquidity.
24. Related parties
Related party
Jemax Management (Proprietary) Limited
Jemax Aviation (Proprietary) Limited
Gem Diamond Holdings Limited
Government of Lesotho
Geneva Management Group (UK) Limited
Refer to Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.
Refer to the Directors’ Report for information regarding the Directors.
Relationship
Common director
Common director
Common director
Non-controlling interest
Common director
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 134
Notes to the annual financial statements continued
for the year ended 31 December 2013
24. Related parties (continued)
Compensation to key management personnel (including Directors)
Share-based equity transactions – continuing operations
Short-term employee benefits – continuing operations1
– discontinuing operations
– discontinuing operations
Fees paid to related parties
Jemax Aviation (Proprietary) Limited
Jemax Management (Proprietary) Limited
Royalties paid to related parties
Government of Lesotho
Lease and licence payments to related parties
Government of Lesotho
Sales to/(purchases) from related parties
Jemax Aviation (Proprietary) Limited
Geneva Management Group (UK) Limited
Amount included in trade receivables owing by/(to) related parties
Jemax Aviation (Proprietary) Limited
Jemax Management (Proprietary) Limited
Amounts owing by/(to) related party
Government of Lesotho
Blina Minerals NL
Dividends paid
Government of Lesotho
2013
US$’000
2012
US$’000
1 054
–
5 819
–
6 873
(82)
(98)
1 574
145
7 660
1 392
10 771
(109)
(107)
(15 868)
(16 382)
(112)
214
(6)
51
(8)
(85)
200
(13)
51
(9)
(2 425)
–
(1 062)
372
(5 938)
(8 770)
1Included in this amount is payments made to an executive director on retirement, comprising 12 months’ notice period payment and payments in lieu of
holiday entitlement at the date of retirement.
Jemax Management (Proprietary) Limited and Jemax Aviation (Proprietary) Limited provided administrative and aviation services with
regards to the mining activities undertaken by the Group. Geneva Management Group (UK) Limited provided administration, secretarial and
accounting services to the Company. The above transactions were made on terms agreed between the parties and were made on terms that
prevail in arm’s-length transactions.
Page 135 Gem Diamonds Annual Report 2013
25. Financial instruments
Fair value
Set out below is a table of carrying amounts of all of the Group’s financial instruments that are carried in the financial statements. The carrying
amounts approximate their fair value.
Financial assets
Cash (net of overdraft)
Receivables
Other assets
Available-for-sale investments1
Forward exchange contract
Financial liabilities
Interest-bearing loans and borrowings
Trade and other payables
Carrying amount
Fair value
hierarchy
2013
US$’000
2012
US$’000
3
3
3
3
2
3
3
71 178
6 749
41
–
–
–
38 195
70 813
7 273
22
15 369
1 067
2 947
44 782
1 The available-for-sale investment related to Kimberley Diamonds Company NL which was disposed of in the prior year.
Valuation technique Level 2: Forward exchange contract
The foreign currency forward exchange contracts are measured based on observable spot exchange rates, the yield curves of the respective
currencies as well as the currency basis spreads between the respective currencies.
Fair value hierarchy
• Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
• Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable.
• Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
26. 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; and
(c) Liquidity risk.
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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 136
Notes to the annual financial statements continued
for the year ended 31 December 2013
26. 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 statement of financial position. 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.
At 31 December 2013, the Group has US$43.9 million debt facilities available and continues to have the flexibility to manage the capital
structure more efficiently by the use of these debt facilities thus ensuring that an appropriate gearing ratio is achieved.
The debt facilities in the Group are as follows:
Unsecured – Standard Lesotho Bank – revolving credit facility
The Group, through its subsidiary Letšeng Diamonds, has a M250.0 million (US$23.9 million), three-year unsecured revolving working capital
facility. The facility is due for renewal in November 2014 and as part of the capital management process, negotiations are in place to roll over
the facility for a further three-year period. This facility bears interest at the South African prime rate less 0.8%.
Unsecured – Nedbank Capital (a division of Nedbank Limited) – revolving credit facility
The Company has a US$20.0 million three-year unsecured revolving credit facility which is due for renewal in January 2016. This facility bears
interest at London USD Interbank three-month LIBOR plus 5.33%.
At year end there is no drawdown on either of these two facilities.
Unsecured – Nedbank Capital (a division of Nedbank Limited) – nine-month facility
Post the reporting date, the following additional facility has been completed:
For the completion of the Ghaghoo Phase 1 development capital expenditure, a nine-month unsecured US$25.0 million facility was
concluded in January 2014. This facility is due to be refinanced through a longer-term debt facility prior to its expiry in October 2014. Currently,
US$5.0 million has been drawn down on this facility. The facility bears interest at London USD Interbank three-month LIBOR rate plus 4%.
(a) Market risk
(i) Commodity price risk
The Group is subject to commodity price risk. Diamonds are not a homogeneous product and the price of rough diamonds is not
monitored on a public index system. The fluctuation of prices is related to certain features of diamonds such as quality and size.
Diamond prices are marketed in US dollar and long-term US$/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.
(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 Botswana pula. 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 dollar 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
dollar, are not taken into consideration.
• The major currency exposures for the Group relate to the US dollar and local currencies of subsidiaries. Foreign currency exposures
between two currencies where one is not the US dollar 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 2013. There has been no
change in the assumptions or method applied from the prior year.
Page 137 Gem Diamonds Annual Report 2013
26. Financial risk management (continued)
(a) Market risk (continued)
(ii) Foreign exchange risk (continued)
Sensitivity analysis
If the US dollar had appreciated (depreciated) 10% against currencies significant to the Group at 31 December 2013, income before
taxation would have been US$0.1 million higher (lower) (31 December 2012: US$0.5 million). There would be no effect on equity
reserves other than those directly related to income statement movements.
(iii) Forward exchange contracts
The Group enters into forward exchange contracts to hedge the exposure to changes in foreign currency of future sales of diamonds
at Letšeng Diamonds. The Group performs no hedge accounting. At 31 December 2013, the Group has no forward exchange contracts
outstanding (31 December 2012: US$44.0 million notional cover).
(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 judgement 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.
(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 reporting 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, the Company has available debt facilities of US$43.9 million at year end, which was increased to US$63.9 million subsequent
to year end.
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual undiscounted
payments:
Floating interest rates
Interest-bearing loans and borrowings
– Within one year
Total
Trade and other payables
– Within one year
– After one year but not more than five years
Total
2013
US$’000
2012
US$’000
–
–
37 086
1 109
38 195
2 947
2 947
43 775
1 007
44 782
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 138
Notes to the annual financial statements continued
for the year ended 31 December 2013
27. Share-based payments
The expense recognised for employee services received during the year is shown in the following table:
Equity-settled share-based payment transactions charged to the income statement
– continuing operations
– discontinued operations (refer to Note 7, Discontinued operations)
Equity-settled share-based payment transactions capitalised
2013
US$’000
2012
US$’000
932
–
232
1 164
2 281
650
182
3 113
There were no options granted during the current year.
During the year a number of employees resigned before the end of the performance period. These employees were not awarded some or
all of an award and have thus been treated as cancellation by forfeiture. The effect of this cancellation resulted in the reversal of previously
recognised costs of US$1.2 million.
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 the Company. The contractual life of the options is 10 years and
there are no cash settlement alternatives. The Company has no past practice of cash settlement.
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 short-term incentive bonus scheme (STIBS) or (ESOP) 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 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 satisfaction of
performance conditions over a three-year period that is considered appropriately stretching. The options which vest are exercisable between
13 June 2014 and 12 June 2021. 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.
For the purpose of the performance criterion, the conditions were tested up to 31 December 2013 and the outcome was that the 2011 options
will not vest as neither the diamond peer group nor the FTSE 250 was outperformed.
Page 139 Gem Diamonds Annual Report 2013
27. Share-based payments (continued)
Employee Share Option Plan for March 2012 (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. Of the 1 347 000 options originally granted, only 777 000 are still
outstanding following the resignation of a number of employees. The vesting of the options will be subject to the same conditions as the LTIP
2011 on the previous page. The awards which vest on 20 March 2015 are exercisable between 20 March 2015 and 20 March 2022. The fair value
of these options is estimated in a similar manner as the LTIP 2011 on the previous page.
Employee Share Option Plan for September 2012 (LTIP)
On 11 September 2012, 936 000 options were granted to certain key employees (excluding Executive Directors) 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$2.85), which was equal to the market price of the shares on the date of grant. Of the 936 000 options originally granted,
only 540 000 are still outstanding following the resignation of a number of employees. The awards which vest over a three-year period in
tranches of a quarter of the award each year, dependent on the performance targets for the 2013, 2014 and 2015 financial years being met, are
exercisable between 1 January 2016 and 31 December 2023. The vesting of the options is subject to performance conditions based on goals
relating to the Group 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 2011 on the previous page.
Movements in the year
Employee Share Option Plan
The following table illustrates the number (’000) 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 under the ESOP:
Employee Share Option Plan
Dividend yield (%)
Expected volatility (%)
Risk-free interest rate (%)
Expected life of option (years)
Weighted average share price
Model used
2013
’000
33
(15)
18
–
2012
’000
44
(11)
33
–
–
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.
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements Gem Diamonds Annual Report 2013 Page 140
Notes to the annual financial statements continued
for the year ended 31 December 2013
27. Share-based payments (continued)
Employee Share Option Plan for September 2012, March 2012, 2011 and 2010 (LTIP)
The following table illustrates the number (’000) and movement in the outstanding share options during the year:
Outstanding at beginning of year
Granted during the year
Exercised during the year
Forfeited
Balance at end of year
2013
’000
4 501
–
(3)
(2 425)
2 073
The following table lists the inputs to the model used for the plan for the awards granted during the current and prior year:
2012
’000
2 467
2 283
–
(249)
4 501
LTIP
2010
–
76.33
1.11
3.00
3.33
2.27
1.45
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
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
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.
Monte Carlo
Monte Carlo
Monte Carlo
Monte Carlo
Page 141 Gem Diamonds Annual Report 2013
28. Material partly owned subsidiaries
Financial information of Letšeng Diamonds, a subsidiary which has a material non-controlling interest, is provided below:
Proportion of equity interest held by non-controlling interests:
Name
Letšeng Diamonds (Proprietary) Limited
Accumulated balances of material non-controlling interest
Profit allocated to material non-controlling interest
Country of
incorporation and
operation
Lesotho
2013
30%
72 454
15 702
2012
30%
76 319
18 084
The summarised financial information of this subsidiary is provided below. This information is based on amounts before inter-company
eliminations.
Summarised income statement for the year ended 31 December:
Revenue
Cost of sales
Gross profit
Royalties and selling costs
Other (costs)/income
Operating profit
Net finance (costs)/income
Profit before tax
Income tax expense
Profit for the year
Total comprehensive income
Attributable to non-controlling interest
Dividends paid to non-controlling interest
2013
US$ ‘000
201 310
(114 150)
87 160
(16 099)
(860)
70 201
(614)
69 587
(17 246)
52 341
52 341
15 702
5 938
2012
US$ ‘000
207 744
(116 798)
90 946
(16 657)
3 306
77 595
885
78 480
(18 202)
60 278
60 278
18 084
8 770
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Annual Report 2013 Page 142
Notes to the annual financial statements continued
for the year ended 31 December 2013
28. Material partly owned subsidiaries (continued)
Summarised statement of financial position as at 31 December:
Assets
Non-current assets
Property, plant and equipment and intangible assets
Current assets
Inventories, receivables and other assets and cash and short-term deposits
Total assets
Non-current liabilities
2013
US$ ‘000
2012
US$ ‘000
281 017
326 152
64 862
345 879
46 626
372 778
Trade and other payables, provisions and deferred tax liabilities
81 951
93 312
Current liabilities
Interest-bearing loans and borrowings and trade and other payables
Total liabilities
Total equity
Attributable to:
Equity holders of parent
Non-controlling interest
Summarised cashflow information for the year ended 31 December:
Operating
Investing
Financing
Net increase/(decrease) in cash and cash equivalents
29. Events after the reporting period
22 415
104 366
241 513
25 069
118 381
254 397
169 059
72 454
178 078
76 319
85 961
(68 782)
(8 529)
8 650
51 493
(83 344)
(5 727)
(37 578)
The following has taken place since the reporting date:
• On 31 January 2014 the Group concluded a US$25.0 million nine-month unsecured loan facility through Nedbank Capital (a division
of Nedbank Limited) for the completion of the Ghaghoo Phase 1 development capital expenditure. This facility is due to be
refinanced through a longer-term debt facility prior to its expiry in October 2014. The facility bears interest at London USD Interbank
three-month LIBOR rate plus 4%. US$5.0 million has been drawn down on this facility to date.
Contact details
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
Page 143 Gem Diamonds Annual Report 2013
Contact details and advisers
Advisers
Financial adviser and Sponsor
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
T: +44 20 7588 2828
F: +44 20 7155 9000
Legal adviser
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 Adviser
Bell Pottinger
Holborn Gate
330 High Holborn
London WC1V 7QD
T: +44 20 7861 3232
F: +44 20 7861 3233
BASTION GRAPHICS
(SR) Business overview(SR) Management review(SR) Operating reviewGovernanceFinancial statements
Gem Diamonds Limited
2nd Floor, Coastal Building
Wickham’s Cay II
Road Town
Tortola
British Virgin Islands
Registration number: 669758
www.gemdiamonds.com