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Gem Diamonds Limited
2nd Floor, Coastal Building, Wickham’s Cay II, PO Box 2221, Road Town,
Tortola, British Virgin Islands, Registration number: 669758
www.gemdiamonds.com
ANNUAL REPORT
AND ACCOUNTS
2019
Delivering our strategy
GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019
1
BUSINESS OVERVIEW
About Gem Diamonds
2019 in review
Market review
Chairman’s statement
Our strategy
Viability statement
Principal risks and uncertainties
MANAGEMENT REVIEW
Chief Executive’s review
Group financial performance
OPERATING REVIEW
Letšeng
Technology and innovation
Business transformation
GOVERNANCE
Directorate and executive management
Chairman’s introduction to corporate governance
UK Corporate Governance
Audit Committee
Nominations Committee
HSSE Committee
Annual Statement on Directors’ Remuneration
Directors’ Remuneration policy
The Annual Report on Remuneration
Directors’ Report
FINANCIAL STATEMENTS
Responsibility Statement of the Directors
Independent Auditor’s Report
Annual Financial Statements
OTHER INFORMATION
Abbreviations and Definitions
Contact Details and Advisers
Navigations
1
2
6
8
11
14
15
22
26
33
38
40
44
49
51
59
62
65
68
70
79
94
100
101
104
161
162
This icon indicates additional information
available on the Group’s website at
www.gemdiamonds.com
This icon refers the reader to further information
about the Group’s sustainable development
activities on the Group’s website at
www.gemdiamonds.com
This icon indicates a link to the Remuneration
Report, which starts on page 68
This QR code refers the reader to the Group’s
website www.gemdiamonds.com
WELCOME TO THE GEM DIAMONDS
ANNUAL REPORT AND ACCOUNTS 2019
The Annual Report and Accounts (this report) have been
prepared in accordance with:
•
•
•
•
•
applicable English and British Virgin Islands law;
regulations and best practice as advised by the Financial
Reporting Council (FRC) and the Department of Business,
Innovation and Skills in the United Kingdom (UK);
guidance from the International Integrated Reporting
Council (IIRC) Integrated Reporting Framework;
International Financial Reporting Standards (IFRS); and
the UK Corporate Governance Code 2018.
The report covers Gem Diamonds Limited and its subsidiaries
(the Group) for the financial year ended 31 December 2019.
REPORTING SUITE
In addition to the Annual Report and Accounts 2019 our
reporting suite includes:
Report on Payments to Governments 2019
Information related to payments made to governments will
be compiled as required under the UK’s Report on Payments
to Governments Regulations 2014 (as amended December
2015). These regulations enact domestic rules in line with
Directive 2014/34/EU and apply to companies involved in
extractive activities. The report also intends to satisfy the
requirements of the Disclosure and Transparency Rules of
the Financial Conduct Authority in the UK. Details
regarding payments made to governments will be made
available at www.gemdiamonds.com.
Sustainable Development Report 2019
(report and interactive platform)
Information relating to sustainable development has been
compiled in accordance with the Global Reporting Initiative
(GRI) G4 Sustainability Reporting Guidelines and Gem
Diamonds’ internal reporting guidelines, with consideration
of the UN Global Compact. Details regarding sustainable
development can be found at www.gemdiamonds.com.
BOARD APPROVAL
The Board, supported by the Audit Committee, acknowledges
its responsibility to ensure the integrity and completeness of
this report. The Board applied its collective mind to the
preparation and presentation of this report. We consider the
interests of employees and other stakeholders, including the
communities and environment in which we operate, when
making decisions. We believe that the report provides a
balanced and appropriate representation of the Group’s
performance, strategy and material risks and acting fairly,
in good faith, considered what is most likely to promote the
success of Gem Diamonds in the long term.
The Board approved the Annual Report and Accounts 2019,
which includes the Strategic Report on pages 1 to 43 on
10 March 2020.
CARAT
Purpose
Unearthing unique
possibilities
CLARITY
Vision
To support, develop
and empower our
people so that:
•
a meaningful, sustainable
contribution can be made to the
countries in which we operate;
and
we can deliver long-term value to
our shareholders.
•
*
CUT
The way we do things
Care – We listen and respond responsibly to the needs of our
employees, communities and shareholders. We honour our
commitments to all stakeholders, which include the natural
environment in which we operate.
Trust – We empower our people and trust them to make
decisions which will deliver on our strategy.
Ethical – We have zero tolerance for bribery and corruption
and conduct ourselves in a manner consistent with good
governance practices. We pride ourselves on being socially
and environmentally responsible.
Respect – Everyone matters and is treated equally. We
cultivate an open and transparent environment where we
value the beliefs, ideas and contributions of our employees,
communities and shareholders.
Flexible and open minded – We encourage and consider
ideas from employees while remaining responsive and agile.
Passionate and fun – We enjoy the work that we are fortunate
to do and the people we do it with. We seek opportunities to
explore and develop while encouraging a work-life balance.
*
Image supplied by Graff Diamonds International.
COLOUR
How we create value
This is detailed in our business model
which follows on page 4.
ENGAGING OUR
EMPLOYEES ON CULTURE
S172 (1)(b)&(e)
The Board should establish the Company’s values and
promote the desired culture. The Gem Diamonds Board
engaged its employees through a survey and a strategic
session on mission and values to collaboratively define the
way we do things. Internal stakeholder feedback was used
to reach a conclusion on the desired culture within Gem
Diamonds. This was important to achieve a desired
culture within the Company.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONCONTENTSABOUT GEM DIAMONDS I
CARAT
Purpose
Unearthing unique
possibilities
CLARITY
Vision
To support, develop
and empower our
people so that:
•
a meaningful, sustainable
contribution can be made to the
countries in which we operate;
and
we can deliver long-term value to
our shareholders.
•
*
CUT
The way we do things
Care – We listen and respond responsibly to the needs of our
employees, communities and shareholders. We honour our
commitments to all stakeholders, which include the natural
environment in which we operate.
Trust – We empower our people and trust them to make
decisions which will deliver on our promises.
Ethical – We have zero tolerance for bribery and corruption
and conduct ourselves in a manner consistent with good
governance practices. We pride ourselves on being socially
and environmentally responsible.
Respect – Everyone matters and is treated equally. We
cultivate an open and transparent environment where we
value the beliefs, ideas and contributions of our employees,
communities and shareholders.
Flexible and open minded – We encourage and consider
ideas from employees while remaining responsive and agile.
Passionate and fun – We enjoy the work that we are fortunate
to do and the people we do it with. We seek opportunities to
explore and develop while encouraging a work-life balance.
*
Image supplied by Graff Diamonds International.
COLOUR
How we create value
This is detailed in our business model
which follows on page 4.
13.32 carat pink diamond
that sold for a Letšeng record
of US$656 934 per carat. The
use of pink in this report is
dedicated to this remarkable
recovery.
ENGAGING
ON CULTURE
The Board should establish the Company’s values and
promote the desired culture. The Gem Diamonds Board
engaged its employees through a survey and a strategic
session on mission and values to collaboratively define the
way we do things. Internal stakeholder feedback was used
to reach a conclusion on the desired culture within Gem
Diamonds. This was important to achieve a desired
culture within the Company.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONABOUT GEM DIAMONDS 2
3
Measure
Average price per carat achieved (US$)
Revenue (US$ million)
Total direct cost per tonne treated (LSL)
Total operating cost per tonne treated (LSL)
EBITDA1 (US$ million)
Profit for the year (from continuing operations) (US$ million)
Corporate costs (US$ million)
Basic EPS2 (from continuing operations) (US cents)
Cash and short-term deposits (US$ million)
Drawn down bank facilities (US$ million)
Net (debt)/cash3 (US$ million)
Available bank facilities (US$ million)
Business Transformation benefits delivered (US$ million)
Capital expenditure (US$ million)
Ore tonnes treated (millions)
Waste tonnes mined (millions)
ISO 14001 (environmental management) accreditation
ISO 45001 (occupational health and safety) certification
Fatalities
Major or significant stakeholder incidents
Lost time injuries (LTIs)
Lost time injury frequency rate (LTIFR) (%)
Corporate social investment (US$ million)
Average employees (including contractors)
Skills development (training hours)
Carats recovered (thousands)
Carats sold (thousands)
Major or significant environmental incidents
%
2018
change Movement
2019
1 637
182.0
181.2
245.9
41.0
15.0
9.4
5.1
11.4
21.6
(10.2)
69.9
54.9
9.7
6.7
24.0
Yes
Yes
1
0
7
0.28
0.8
2 131
267.3
182.5
295.1
87.7
52.4
10.0
22.9
50.8
33.3
17.5
57.8
20.7
23.0
6.5
25.8
Yes
Yes
0
0
4
0.15
0.8
1 956
2 189
30 816
18 260
114.0
111.3
0
126.9
125.1
0
(23)
(32)
(1)
(17)
(53)
(71)
(6)
(78)
(78)
(35)
(157)
21
165
(58)
3
(7)
100
–
75
87
–
(11)
69
(10)
(11)
–
Improvement from prior year
Not improved from prior year
No movement from prior year
Financial
capital
Manufactured
capital
Intellectual
capital
Social and relational
capital
Human
capital
Natural
capital
1 Refer Note 4, operating profit on page 130, for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.
2 Refer to Group financial performance for GAAP measures.
3 Net cash/(debt) is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility).
DIAMOND ANALYSIS AND
MANUFACTURING
The Group’s HIGH-TECH ROUGH DIAMOND
ANALYSIS AND MANUFACTURING operation
is tasked with:
•
•
understanding the value of exceptional large
high-value rough diamonds through mapping
and analysis; and
managing the manufacturing process of
selected diamonds for final polished sale.
Baobab Technologies (100% ownership)
SALES AND MARKETING
The Group's diamond sorting, sales and marketing operation
in Belgium focuses on:
•
•
•
maximising the revenue achieved on diamond sales;
developing the Gem Diamonds brand in the market; and
enhancing customer relationships.
Our diamonds are predominantly sold through a tender process.
Through mapping and analysis, the value of the Letšeng
high-quality diamonds is determined and used to achieve the
highest rough value THROUGH MULTIPLE SELLING CHANNELS.
Gem Diamonds Marketing Services (100% ownership)
A new electronic tender platform was introduced to facilitate sales.
Refer to page 39.
UNITED KINGDOM
LISTED HEAD QUARTERS
The Group’s holding company and
oversight of Governance structures and
the Board’s strategic plans.
TECHNOLOGY
AND INNOVATION
The Group established this
company in Cyprus in 2017 to
house the Group’s innovation
and technology research and
development projects.
Gem Diamonds Innovation Services
(100% ownership)
GHAGHOO
Underground diamond mining development in Botswana,
which was placed on care and maintenance in 2017 and
classified as a discontinued operation held for sale in 2019.
TECHNICAL AND ADMINISTRATIVE
SERVICES
South African subsidiary providing technical support across the
entire value chain.
Gem Diamond Technical Services (100% owned)
LETŠENG
Our flagship open pit diamond mine, is the
HIGHEST ACHIEVING AVERAGE US$ PER
CARAT KIMBERLITE MINE IN THE WORLD.
This operation in Lesotho focuses on mining and
processing ore efficiently and safely from its two
kimberlite pipes (Main and Satellite) which are
17.0ha and 5.2ha respectively. Ore is processed
through three treatment plants with an annual
throughput of 6.5 million to 7.0 million tonnes
and carat recoveries of 114 000 carats to
130 000 carats.
70% owned by Gem Diamonds Limited and 30% owned
by the Government of the Kingdom of Lesotho
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 20192019 IN REVIEW 4
5
OUR BUSINESS MODEL
ROUGH DIAMONDS
POLISHED DIAMONDS
DIAMOND JEWELLERY
TYPICAL DIAMOND VALUE CHAIN
PRODUCTION
SALES
MANUFACTURING
SALES
MANUFACTURE JEWELLERY
RETAIL SALES
• Mining ore and waste
•
•
•
•
Processing ore
Recovering diamonds
Sorting diamonds
Financial capital affected by
revenue and cost drivers
•
Sell rough diamonds
Rough diamonds are cut and
polished into polished diamonds
•
•
Wholesale of
polished diamonds
Trading in polished
diamonds
*
Rough pink diamond
Cut and polished diamond
Design and manufacture jewellery
pieces
Retail sales to the consumer
*
The 5 carat pear shape
diamond setting by
Graff Diamonds
International
INPUTS REQUIRED
Letšeng, a long-term asset with a strong resource base with the optionality of underground expansion. Letšeng is also a
low-cost operation with a track record of successful mine plan optimisation and cost reduction initiatives.
•
•
•
• 1 377 867GJ of energy consumed
•
•
Per tonne treated we used 1.19m3 water
1 956 employees (including contractors) with an absenteeism rate of 1.6 days per annum per person.
The health, wellness and development of employees are front of mind
Current LoM extends to 2036
Extended mine lease period to 2039
Total mineral resource of 5 million carats
• We have a zero tolerance to harm of employees, human rights violations, bribery and corruptions
• Social licence to operate
•
• 349 registered clients
Vastly experienced global management team
•
Top revenue drivers:
– Grade performance and carats recovered
– Diamond market
– Number of large (>10ct) high-quality diamonds recovered
– Exceptional diamond recoveries
– Reduction in diamond damage
– Main versus Satellite pipe ore mix
•
•
Available debt facilities US$69.9 million
Average annual capex investment of US$17 million
•
Top cost drivers:
– Continued waste stripping
– Depth of pits
– Cost of remoteness
– Foreign exchange rate
ROUGH DIAMONDS SOLD:
111 292
ROUGH DIAMONDS RECOVERED:
113 974
OUTPUTS
NUMBER OF >20CT DIAMONDS:
252
DIAMONDS SELLING FOR MORE THAN US$1 MILLION:
27 CONTRIBUTING
US$68.2 MILLION TO REVENUE
Blockchain solutions will connect the end-user and the producer. Read more on page 38.
OUTCOMES: 2019 DELIVERY
Sustainable Development Reporting Platform, available on
Gem Diamonds’ website (www.gemdiamonds.com), provides
a comprehensive report on social, employees, safety, environmental
and governance matters.
Resettled PACs: 0
CSI spend of US$0.8 million
Letšeng in-country procurement: US$164.6 million
Letšeng paid income taxes of US$17.4 million
Letšeng paid royalties of US$15.5 million
Total carbon footprint: 172 968tCO2e
Major or significant environmental incidents: 0
28ha new land disturbed as a result of mining activities
Diamond exports complying to the Kimberly Process: 100%
Letšeng rehabilitation provision of US$15.6 million
1 fatality
LTIFR of 0.28
AIFR of 0.93
Human rights training included in employee induction programme
Major or significant stakeholder incidents: 0
A supply chain preventing child and forced labour
BEPS 5.1 (US cents)
Average price per carat achieved US$1 637
Return on average capital employed of 7%
EBITDA of US$41.0 million
Revenue of US$182.0 million
Our viability statement on page 14 explains how the outcomes ultimately lead to a sustainable business model which delivers
on our vision.
*
Image supplied by Graff Diamonds International.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019 6
7
MARKET REVIEW
External factors impacting value creation
THE DIAMOND MARKET IN SUMMARY
Diamond prices, as with most commodities, are driven by the
industry’s unique supply/demand dynamics. The diamond
industry’s dynamics commence with the rough diamonds
produced from mines and consumer demand for cut and
polished diamonds, primarily in the form of jewellery. Between
the mines and the jewellers, the middle market buys rough
diamonds from the mines to cut and polish for sale to jewellers,
who in turn sell to retailers and consumers. Demand for
diamonds is broadly driven by global economic growth and
disposable income, whilst supply is directly linked to the
economics of diamond mining. Where prices paid for rough
diamonds by the middle market are below the production cost
per diamond for the mines, mining becomes uneconomical.
Should this continue over time, mines will close and supply will
diminish. Diamond resources deplete over time and as mines
reach the end of their lives, the supply of diamonds will lessen.
GLOBAL DEMAND TRENDS
The US, China and India together account for nearly 70% of
global polished diamond demand, and nearly half of all polished
diamonds are sold in the US. While global economic growth
remains subdued against a backdrop of rising geopolitical
tensions and the threat of a US/Sino trade war, and the
emerging but largely unquantified coronavirus threat, diamond
demand none-the-less continued to grow in real value terms in
the US and emerging economies, particularly India and China.
GLOBAL POLISHED DIAMOND DEMAND
BY GEOGRAPHY %
5 JAPAN 2018: 5
5 INDIA 2018: 6
6 GULF 2018: 7
14 CHINA1
2018: 16
21 REST OF WORLD
2018: 19
49 US
2018: 48
Source: Derived from De Beers Group, Diamond Insight Reports 2019 and 2018.
1 Greater China includes Mainland China, Hong Kong and Macau.
Demand is supported by the growing social custom of
diamonds used in bridal jewellery in India and China;
increased use of diamonds across a wider range of luxury
goods; and continued growth in the number of high-net-
worth individuals worldwide.
At the start of the year, inventories of polished diamonds
were high after a disappointing 2018 holiday sales season.
Restocking by jewellers and retailers was weak and the supply
and pricing of polished diamonds was affected by several
complicating factors in the middle market. India is the largest
purchaser of rough diamonds and due to the devaluation of
the rupee against the US dollar, the real cost of rough
diamonds for these purchasers significantly increased.
Declining prices of polished diamonds reduced the value of
the inventory held by the middle market at the same time as
funders tightening lending requirements for the middle
market to acquire new stock. This liquidity squeeze resulted in
reduced demand for rough diamonds and a need to sell off a
surplus of polished diamonds into an already saturated
polished diamond market.
Diamond prices of the smaller, commercial quality goods were
most affected, and this category was further impacted by the
entry of lab-grown diamonds into the fashion jewellery retail
market, particularly through De Beers’ Lightbox jewellery.
Historically the prices for larger high-quality diamonds have
been more resilient to market pressures, but this category of
goods also experienced some price pressures in 2019.
Another visible trend is seen in generational shifts in consumer
preferences as a social influencer. Younger consumers demand
diamonds produced by responsible mining companies
committed to meaningful social benefit and diamonds from
conflict-free sources. Blockchain technology (read more on
page 38) will allow consumers to track the source of diamonds
and consider the corporate citizenship demonstrated by
producers before making a purchase.
The link between source and consumer has further led to an
emerging trend of luxury jewellery brands partnering directly
with producers to enhance the value of the final polished
product. This is also due to consumers favouring sustainable
sources linked with exclusive design.
GLOBAL SUPPLY TRENDS
Continued low prices for rough diamonds will put additional
pressure on marginal mines, with possible mine closures, and
the ageing and depletion of existing diamond mines will, in
the medium term, result in a steady decrease in the global
rough diamond supply. Rough diamond production is
believed to have peaked at 151 million carats in 2017 and
annual global diamond production is expected to steadily
decrease to around 110 million carats by 2030. Additional
supply from new mines is not expected to compensate for
the expected growth in demand during this period.
Advances in lab-grown diamond sizes and quality, together
with growth in the supply of these diamonds, are expected to
negatively impact the demand for natural diamonds,
particularly the smaller, commercial type diamond production.
Current production of lab-grown diamonds is estimated at
three to five million carats per annum and is estimated to
grow at 20% annually through 2023.
While there is a view that the popularity of lab-grown diamonds
will rise for fashion jewellery, but natural diamonds will continue
to be in demand for momentous occasions, the potential
impact on natural diamond demand and price is not yet fully
understood and will depend on consumer preferences and
perceptions. Lab-grown diamonds sell at a significantly lower
price than natural diamonds and continue to take market share,
representing a real threat to the natural diamond industry.
POSITIONING GEM DIAMONDS
Diamonds from Letšeng are at the top end of the market in
terms of size, colour and quality, and diamonds greater
than 10 carats accounted for 75% of revenue in 2019
(2018: 80%). Such remarkable recoveries in 2019 included a
13.32 carat pink diamond that sold for a Letšeng record of
US$656 934 per carat and a 70.69 carat Type IIa white diamond
that sold for US$48 255 per carat. Customers for the
manufactured polished diamonds are wealthy and tend to be
less affected by global economic fluctuations. While these large,
ultra-high-quality diamonds have historically been less
vulnerable to market pressures, the prices for these larger
high-quality diamonds also came under pressure during 2019.
Letšeng achieved an average price of US$1 637 per carat during
the year, retaining its standing as the highest average dollar per
carat kimberlite diamond producer in the world. This represents
a decline from the average price of US$2 131 per carat (including
the Lesotho Legend that sold for US$40 million) realised in 2018
and 11 diamonds greater than 100 carats were recovered in
2019 compared to 15 the year before. Prices for Letšeng’s
high-quality diamonds have seen a moderate rise in the early
part of 2020.
REVENUE PERCENTAGE BY SIZE FRACTION %
12
13
75
> 10 CTS
5 10 CTS
< 5 CTS
Prices for smaller and commercial type goods were under
pressure but improvements in demand were noted towards
the end of the year and in early 2020. In the medium to long
term, rough diamond prices are expected to be supported by
the favourable demand/supply fundamentals, which are
underpinned by a continued growth in demand from
emerging markets contrasted with a limited growth in supply.
These dynamics are expected to benefit the high end of the
market, where Letšeng is positioned.
This graph illustrates the positive demand and supply fundamentals for natural rough diamonds as the conservative demand estimate
exceeds the optimistic supply.
NATURAL ROUGH DIAMOND SUPPLY AND DEMAND VALUES, US$ BILLION (IN REAL TERMS), 2000 – 30F, 2019 PRICES,
CONSTANT EXCHANGE RATES, OPTIMISTIC AND CONSERVATIVE SCENARIOS
25
20
15
10
5
YOY change
(2019 – 30)
Optimistic natural rough diamond demand
2% to 3%
Conservative natural rough diamond demand
0% to 1%
Optimistic natural rough diamond supply
0% to 1%
Conservative natural rough diamond supply
-2% to -1%
2000 03
07
11
15
19E
23F
27F
30F
Note: Natural rough diamond supply value corresponds to the value of natural rough diamond production; rough diamond demand has been converted from polished
diamond demand using historical ratio of rough diamond and polished diamond values.
Source: Used with permission from Bain & Company (www.bain.com/insights/global-diamond-industry-report-2019/).
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019 8
9
Resilience in the face of tough
economic conditions.
by Harry Kenyon-Slaney
Chairman
Dear shareholders,
On behalf of the Board, it gives me great pleasure to present
to you the Gem Diamonds Annual Report and Accounts 2019,
which provides an update on how we are progressing with
delivery of the Company’s strategic objectives and an
overview of our activities during the year.
DEMONSTRATING RESILIENCE UNDER
CHALLENGING CONDITIONS
The challenging operating and market conditions in 2019
required Gem Diamonds to demonstrate its resilience. The
prolonged weakness in the rough diamond market affected
producers across the industry. Drivers underlying this trend
included an oversupply of rough diamonds and funding
issues affecting buying patterns in the middle market. While
the prices achieved for Letšeng’s high-quality goods had held
up in 2017 and 2018, during 2019 prices were impacted by
the overall weakness in the market.
To offset this market weakness we focused our efforts firmly
on controlling operating costs and delivering the
commitments we made in 2018 under the Company’s
Business Transformation (BT) programme where we targeted
material improvements in production and overhead costs and
in improved efficiencies. The programme is on track to deliver
the planned cumulative benefits of US$100 million by the end
of 2021 with US$55 million realised to date. Gem Diamonds’
position as a low-cost producer strengthens the Company’s
resilience and sustainability, as well as improving our ability to
create long-term value for our stakeholders.
SAFE AND RESPONSIBLE WORKING
ENVIRONMENT
There is nothing more important to me than ensuring that
everyone goes home safely at the end of a day’s work and a
considerable proportion of the Board’s deliberations are
directed towards securing the safety and security of our
colleagues and the integrity of our operations. We are
committed to providing a safe, healthy and nurturing work
environment for all our employees, contractors and visitors in
pursuit of the target of zero harm.
We were therefore deeply saddened that Mr Abele Mtambo,
a colleague from a sub-contracting company working at the
Letšeng mine, lost his life in a tragic vehicle accident early in
the year. Following the accident we have engaged extensively
with all our contractors to ensure that the issues identified by
the resulting investigation were resolved and we have
provided appropriate support for Mr Mtambo’s family.
SECURING THE FUTURE OF LETŠENG MINE
Following a successful statutory negotiation process, the
mining lease for Letšeng was renewed by the Government of
the Kingdom of Lesotho for a period of 20 years (which
includes a 10-year exclusive renewal option from 2029). The
new lease agreement creates stability for all stakeholders in
Letšeng and provides a modern framework for our partnership
with the Government. It also secures the long-term future of
the operation and provides support for the current drilling
programme which aims to improve our understanding of the
resources below the current pit.
The new lease agreement includes provisions aimed at
developing the local mining industry. These were included to
support government’s stated intention to create a regulatory
framework for the industry that can contribute significantly to
the country’s growth. We are committed to working with
government to develop Lesotho’s geological potential to
support local communities and to foster skills development.
While Gem Diamonds’ primary goal is to maximise the
potential of the Letšeng deposit, doing so aligns with the
interests of the Basotho nation through their government’s
30% direct ownership of the mine.
INNOVATION AS A DRIVER OF VALUE
All business needs to innovate, and the Board regards the
application of new ideas to improve operational and financial
efficiency and effectiveness as pivotal to the success of the
Letšeng mine.
Letšeng unearths some of the highest quality and largest
diamonds anywhere on the planet, and the potential for and
impact of diamond damage during crushing and extraction
adversely affects the prices received for these diamonds. In
2019 the Group established a pilot plant to prove technology
that would reduce diamond damage, improving yield and
reducing operating costs. The project is on schedule and we
look forward to providing more details to shareholders as the
work progresses.
The Group is also in the process of incorporating the use of
blockchain technology into its marketing activities to create
greater transparency in the supply chain and to bring retail
customers closer to the source of their diamond. The
technology enables customers to connect with the story of
their unique diamond and to understand the operational,
social and environmental principles and processes that are
applied in its production.
ENVIRONMENTAL PERFORMANCE
Gem Diamonds is committed to operating in the most
environmentally responsible manner at all times and I am
pleased to report to shareholders that there were no major or
significant environmental incidents reported at any of our
operations during the year. The high standard of our
environmental, social and governance practices were
recognised with the inclusion of the Company’s shares in
the FTSE4Good index once more.
DAM SAFETY
The safety and integrity of TSFs was brought into the spotlight
after the recent failure of a number of major structures around
the world. These failures highlighted awareness of the
potential dangers if these structures are not correctly
engineered, managed and monitored. Gem Diamonds takes a
proactive approach in this matter to ensure that risks are fully
understood at our water and TSFs, and that these structures
are continuously managed according to international best
practice. Dam safety is a standing agenda item at operational
and Group Health, Safety, Social and Environment (HSSE)
sub-Committee meetings and at Group Board meetings.
More information on the Group’s approach to dam safety
management is available in our Sustainable Development
Reporting Platform at www.gemdiamonds.com.
CONTRIBUTING TO COMMUNITY AND
SOCIAL DEVELOPMENT
The Board understands that the Group’s sustainability requires
a responsible balance between the need to deliver returns for
our investors and the need to deliver tangible benefits for
local communities. We work closely with these communities
to identify and implement meaningful social projects that
improve community resilience, create viable and sustainable
community income streams that last beyond the life of the
mine, and improve education, skills and access to services and
infrastructure in the areas in which we operate.
Investor Mining and Tailings Safety Initiative –
Church of England1
Gem Diamonds voluntarily disclosed all
relevant details of its TSFs.
727 companies
contacted for disclosure
Only 47% of
companies responded
In addition to the details available on the Group’s website,
more details on our facilities can be found under Gem
Diamonds at http://tailing.grida.no/.
Companies who did respond represent 83%
of the mining industry by market capitalisation
1
Information as at 8 March 2020.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019CHAIRMAN’S STATEMENT 10
11
Watch the video:
www.gemdiamonds.com/video.php
GENERATING SUSTAINABLE RETURNS
FOR OUR SHAREHOLDERS
Gem Diamonds takes a conservative approach to the
allocation of capital and the Board is continuously assessing
where and how capital should be applied. The current focus is
on the twin objectives of ensuring the Letšeng mine has the
sustaining capital required to maintain and improve its
operational performance as well as strengthening the Group’s
balance sheet for the long-term benefit of shareholders. The
Board’s policy is to pay a dividend to shareholders when the
financial strength of the Group permits, in line with our
commitment to delivering sustainable shareholder returns.
Based on the current financial position of the Company and
the outlook for the global diamond market, the Board has
decided that no dividend will be paid in respect of the 2019
financial year.
GOVERNANCE TO SUPPORT SUSTAINABLE
VALUE CREATION
During 2019, the Board oversaw the review of the Company’s
governance policies and terms of reference in order to ensure
that they are aligned with the requirements of the UK Corporate
Governance Code 2018 as well as to our own commitment to
high standards of governance. Read more on page 44.
During the year I was very pleased to welcome Ms Mazvi
Maharasoa to the Board as a non-Executive Director. Mazvi
brings considerable knowledge, experience and insight to the
Board’s deliberations on account of her long and
distinguished career both in the diamond industry and as an
advisor on corporate governance to government and industry
bodies in Lesotho. It also facilitates improved decision-making
by extending the Board’s diversity.
The Board is committed to proactive and regular engagement
with the Company’s stakeholders to understand their views
and to assess any concerns they may have. Mazvi was
appointed as the Board representative with responsibility for
engaging with communities, the Government of Lesotho
and employees.
OUR PURPOSE
As a Board we need to ensure that Gem Diamonds’ purpose
extends beyond the Company to include the wider society
within which we operate. As explained on page 1, we
engaged and collectively cemented our purpose by
articulating our vision as being “To support, develop and
empower our people so that a meaningful, sustainable
contribution can be made to the countries in which we operate;
and we can deliver long-term value to our shareholders”.
We achieve this purpose through collaboration with our
employees and with the communities and governments of
the countries in which we operate. As a Board, we monitor
these working relationships very closely and we are satisfied
that our values or ‘the way we do things’ are indeed aligned
with our vision and purpose.
OUTLOOK
While the short-term outlook for the diamond market is
unclear, we believe that in the longer-term demand for the
unique high-value diamonds produced at Letšeng will remain
firm. The mine is a well-established operation, is actively
supported by the local communities and is looking
confidently to the future now that agreement has been
reached with our fellow shareholder – the Government of
Lesotho, on the lease extension. With the main initiatives
identified under the BT programme now well embedded and
a continuous improvement programme in place, the Board’s
focus is shifting towards driving the innovation that can
deliver improved value for shareholder.
APPRECIATION
I would like to thank my fellow Board members for their
contribution and support during the period. On behalf of the
Board, I would also like to thank the community leaders in our
host communities and the Government of the Kingdom of
Lesotho as our long-standing partners at Letšeng.
In closing, thank you to our employees for their efforts during
the year. The resilience the Group demonstrated in the face of
such challenging conditions is testament to our employees’
dedication and commitment.
Harry Kenyon-Slaney
Chairman
10 March 2020
SECTION 172 OF THE UK
COMPANIES ACT 2006
The Board considers the interests of the Group’s employees and other stakeholders, including the impact of its activities on the
community, environment and the Group’s reputation, when making decisions. The Board, acting fairly between members, and acting in
good faith, considers what is most likely to promote the success of the Group for its shareholders in the long term. Page 49 of this report
summarises and cross-references the areas covered regarding:
•
•
•
•
how the views and interests of all our stakeholders were represented in the boardroom during the year;
the Group’s goals, strategy and business model;
how we manage risks; and
how we are responding to the UK Corporate Governance Code 2018.
Stakeholder engagement is also detailed throughout the report through the use of pop-up boxes.
The goal of our strategy is to maximise shareholder value in a
sustainable manner. It is shaped by Gem Diamonds’ purpose,
vision and values, which were developed during the year
through a process that included extensive input from our
employees (refer to page 1 for more information). These
provide a broader context to our business activities that
emphasise the Company’s ambition to create social benefit
and duty to be responsible stewards of our natural resources.
The management team, led by the Chief Executive Officer
(CEO), is responsible for developing the business strategy for
the Group, which is reviewed and approved by the Board.
The strategy is reviewed annually and where necessary,
revised to adjust for developments in regulations, governance
requirements, current market conditions and the short,
medium and long-term outlook.
Our strategy is underpinned by three key priorities which we believe will deliver
maximum value for all stakeholders:
•
•
•
Extracting Maximum Value from Our Operations;
Working Responsibly and Maintaining Our Social Licence; and
Preparing for Our Future.
2019 STRATEGY REVIEW
The strategy review conducted in November 2019 considered a range of options to create shareholder value, including diversification
of assets, commodities, industries and business models. We will continue to assess opportunities as these arise and will engage with
shareholders should these represent compelling options to unlock value. The review also included an assessment of the potential
opportunities presented by lab-grown diamonds. Our outlook for lab-grown diamonds is summarised on page 6.
Therefore, our short to medium-term focus remains on maximising value from our current operation. This takes the form of three
main thrusts:
Optimising the current
operating model
We continue to implement and investigate new ways to improve our operating model to
ensure that we are running efficiently and appropriately, particularly in the current market
conditions.
Using early identification
and anti-breakage
technology
We are testing technology that improves early identification of diamonds within kimberlite
and a non-mechanical method of liberating diamonds from kimberlite. These technologies
show potential to improve diamond recovery, reduce diamond damage and decrease costs.
Reducing diamond
damage
Damage to diamonds through mining and processing activities can significantly impact the
price we realise for rough diamonds. Reducing diamond damage remains a key focus. This
includes redesigning blasting patterns and improving the front end of our processing plants.
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13
The table below further defines our strategic objectives and links them to relevant key performance indicators (KPIs) and targets.
Objective
Meaning
Extracting maximum value
from our operations
•
•
•
Driving business optimisation and sustaining
organisational health
Building balance sheet strength
Exploring new sales avenues to
maximise value
Measuring
•
Revenue
• Underlying EBITDA1
•
•
•
Return on average capital
employed
Basic earnings per share
Cash generated from operating
activities
• Ore tonnes treated
• Carats recovered
• Delivery of BT target
•
Energy and water consumption
2019 performance
REVENUE US$ MILLION*
UNDERLYING EBITDA1 US$ MILLION*
2019
2018
2017
2016
2015
182
214
190
267
249
2019
2018
2017
2016
2015
41
49
63
88
104
RETURN ON AVERAGE CAPITAL
EMPLOYED %*
7
2019
2018
2017
2016
2015
12
15
21
20
BASIC EARNINGS PER SHARE BEPS
US CENTS*
CASH GENERATED FROM OPERATING
ACTIVITIES US$ MILLION*
ORE TONNES TREATED MILLION
2019
2018
2017
2016
2015
55
138
97
71
119
TARGET
2019
2018
2017
2016
2015
6.6 6.8
6.7
6.5
6.5
6.9
7.0
5.1
6.6
2019
2018
2017
2016
2015
22.9
13.0
CARATS RECOVERED THOUSAND
TARGET
2019
2018
2017
2016
2015
114 118
114
127
120
149
30
200
Objective
Meaning
Working responsibly and
maintaining our social licence
2019 performance
FATALITIES
2019
2018
2017
2016
2015
•
•
•
1
0
0
0
0
Promoting a culture of zero harm and
responsible care
Delivering sustainable returns for our
investors while optimising the benefit for our
communities and minimising our impact on
the environment
Building long-term, transparent and mutually
beneficial relationships with all stakeholders
Measuring
•
•
Fatalities
LTIFR2
• AIFR2
•
•
Major environmental or
community incidents
HSSE legal compliance
• Community investment
•
ISO certifications
LTIFR2
2019
2018
2017
2016
2015
0.04
0.15
0.18
AIFR2
2019
2018
2017
2016
2015
0.28
0
0.93
1.45
2.02
1.93
2.87
Objective
Meaning
Preparing for our future
•
•
•
Advancement of innovative technologies
focusing on reducing diamond damage and
reducing costs
Renewal of the mining lease at Letšeng
Assessing external growth opportunities
Measuring
• Capital expenditure
• Waste tonnes mined
•
•
Extending life of lease beyond life
of open pit
Mining in accordance with life of
mine plan
2019 performance
CAPITAL EXPENDITURE US$ MILLION
WASTE TONNES MINED MILLION
TARGET
2019
2018
2017
2016
2015
11 13
10
18
11
23
23
TARGET
2019
2018
2017
2016
2015
24 26
24.0
25.8
29.7
29.8
24.0
* Target not disclosed due to commercial sensitivity and/or the risk associated with the target considered a profit forecast
1 Refer Note 4, operating profit on page 130, for the definition of non-GAAP measures.
Read more in the Chief Executive’s review, page 22, Financial performance, page 26, and Operating review page 33.
2 Measures the safety performance of the Group and includes contractors and expressed as a frequency rate per 200 000 man hours.
ENGAGING OUR
EMPLOYEES ON STRATEGY
S172 (1)(b)&(e)
The Board engaged with senior management to gain input
to proposed scenarios available to Gem Diamonds in terms
of long-term strategic choices including diversification,
corporate activity and changes in business model.
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15
The scenarios tested considered the Group’s revenue, EBITDA1, cash flows and other key financial ratios over the three-year period.
The scenarios tested included the compounding effect of the factors below.
Governance
The Board has assessed the viability of the Group over a period
significantly longer than 12 months from the approval of the
financial statements in accordance with the UK Corporate
Governance Code. The Board considers three years from the
approval of the financial statements to be the most relevant
period for consideration for this assessment given the Group’s
current position and the potential impact of the principal risks
documented on pages 15 to 21 that could impact the
Group’s viability.
While the Group maintains a full business model, based
predominantly on the life of mine (LoM) plan for Letšeng, the
Group’s annual business and strategic planning process also
uses a three-year time horizon. This process is led by the CEO
and involves all relevant functions including operations,
technology and innovation, sales and marketing, finance,
treasury and risk. The Board participates in the annual review
process through structured Board meetings and annual
strategic sessions. A three-year period provides sufficient
and realistic visibility in the context of the industry and
environment in which the Group operates, even though
LoM, the mining lease tenure and available estimated reserves
exceed three years.
The business and strategic plan reflects the Directors’ best
estimate of the Group’s prospects. The Directors evaluated
several additional scenarios to assess the potential impact
on the Group by quantifying their financial impact and
overlaying this on the detailed financial forecasts in the plan.
The Board’s assessment of the Group’s viability focused on
the critical principal risks categorised within the strategic,
external and operational risks, together with the potential
effectiveness of the potential mitigations that management
reasonably believes would be available to the Company over
this period.
Effect
A decrease in forecast rough
diamond revenue from reduced
market prices or production
volumes
A strengthening of local currencies
to the US dollar from expected
market forecasts
Impact of amended tax assessment
being payable prior to the
resolution of the objection lodged.
Refer Note 1.2.28, in the financial
statements
Extent of sensitivity
analysis
Related principal risks
Area of business model affected
18% •
Rough diamond demand
and prices
•
•
Production interruption
Knowledge of resource
7% • Currency volatility
•
•
Entire business model i.e.
inputs, activities, outputs and
outcomes
Financial capital inputs and
outcomes
• Cash generation
•
Financial capital inputs
Full payment
within viability
period
The Group’s current net debt2 position of US$10.2 million as at 31 December 2019 and available standby facilities of US$69.9 million
would enable it to withstand the impact of these scenarios over the three-year period. This position is supported by the cash-
generating nature of the Group’s core asset, Letšeng, and its flexibility in adjusting its operating plans within the normal course of
business.
Based on the robust assessment of the principal risks, prospects and viability of the Group, the Board confirms that it has a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period
ending March 2023.
1 Refer Note 4, operating profit on page 130, for the definition of non-GAAP measures.
2 Net debt is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility).
HOW WE APPROACH RISK
Effective identification, management and mitigation of the risks and uncertainties to which the Group is exposed are key to achieving
the Company’s strategic objectives and are core focus areas for the Group. These risks, if not appropriately managed and mitigated,
could result in financial, operational and compliance impacts on the Group’s performance, reputation and long-term growth.
The risk management framework combines top-down and bottom-up approaches with appropriate governance and oversight, as
shown in the table below.
Oversight
BOARD OF DIRECTORS
The Board is accountable for risk management within the Group. It provides
stakeholders with assurance that key risks are properly identified, assessed, mitigated
and monitored. The Board maintains a formal risk management policy for the Group
and formally evaluates the effectiveness of the Group’s risk management process. It
confirms that the risk management process is accurately aligned to the Group’s
strategy and performance objectives.
HSSE COMMITTEE
The HSSE Committee provides assurance
to the Board that appropriate systems
are in place to identify and manage
health, safety and environmental risks.
AUDIT COMMITTEE
The Audit Committee monitors the
Group’s risk management processes,
reviews the status of risk management,
and reports on a biannual basis. It is
responsible for addressing the corporate
governance requirements of risk
management and for monitoring each
operational site’s performance with risk
management.
Top-down approach
– setting the risk
appetite and
tolerances, strategic
objectives and
accountability for the
management
of the risk
management
framework
Responsibility
MANAGEMENT
Management is accountable to the Board for developing, implementing,
communicating and monitoring risk management processes and integrating them
into the Group’s day-to-day activities. It identifies risks affecting the Group, including
internal and external, current and emerging risks. It implements appropriate risk
responses consistent with the Group’s risk appetite and tolerance.
GROUP INTERNAL AUDIT
Group Internal Audit formally reviews the effectiveness of the Group’s risk
management processes. The outputs of risk assessments are used to compile the
strategic three-year rolling and annual internal audit coverage plan and evaluate the
effectiveness of controls.
Bottom-up approach
– ensures a sound risk
management process
and establishes formal
reporting structures
RISK MANAGEMENT FRAMEWORK
The Board and its Committees have identified the most
material risks facing the Group, including strategic, operational
and external risks, both current and emerging. These risks are
actively monitored and managed and their impact,
individually or collectively, could potentially affect the Group’s
ability to operate profitably and generate positive cash flows
in the medium to long term. This year risk disclosure
intentionally follows guidelines from the IIRC’s
Framework to clarify between inherent and residual risk,
indicate risk movements, and link the areas of the business
model and strategy to each risk.
Gem Diamonds’ risk management framework focuses on risk
identification and mitigation. Many factors that give rise to
these risks also offer opportunities. The Group continues to
monitor existing and emerging opportunities and will
incorporate them into the strategy where they support the
Group’s vision.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019VIABILITY STATEMENTPRINCIPAL RISKS AND UNCERTAINTIES 16
17
Extracting maximum value from
our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Risk type
External
Operational
Strategic and operational
Operational
Operational
Strategic
Operational
Diamond damage
Knowledge of the resource
Cash generation
Security of product
Growth and return to
shareholders
Workforce
Letšeng’s valuable Type II diamonds
are highly susceptible to damage
during the mining and recovery
process.
Letšeng's low grade orebodies (average carats
recovered per tonne of ore processed) and its
dependence on the regular recovery of large
high-quality diamonds makes the operation
sensitive to resource variability. Mineral resource
underperformance affects the Group’s ability to
operate profitably.
Reduced cash flows may
negatively affect the Group’s ability
to effectively operate, repay debt
and fund capital projects.
The risk is directly impacted by
other principal risks such as rough
diamond demand and prices,
diamond damage, knowledge of
the resource and security of
product.
Theft is an inherent risk in the
diamond industry. The high-value
nature of the product at Letšeng
could result in theft and significant
losses which will negatively affect
revenue and cash flows.
The volatility of the Group's share
price and lack of growth negatively
impacts the Group's market
capitalisation. Constrained cash
flows also add pressure on returns
to shareholders.
The Group currently relies on a
single mine for its revenues, profits
and cash flows.
Achieving the Group’s objectives
and sustainable growth depends
on its ability to attract and retain
key suitably qualified and
experienced personnel. Gem
Diamonds operates in an
environment and industry where
experience and skills shortages are
prevalent, and in jurisdictions with
localisation policies.
Description
Impact
Rough diamond demand
and prices
Numerous factors beyond the
control of the Group may affect the
price and demand for diamonds.
These factors include international
economic and political trends, as
well as consumer trends. Even
though the medium to long-term
demand is forecast to outpace
supply, in the short term the
prevailing climate of global
economic uncertainty and liquidity
constraints within the diamond
sector is causing pressure in rough
diamond pricing. These trends are
discussed on page 6 and directly
affect Gem Diamonds’ cash flows and
EBITDA and its ability to fund
operations, projects and growth
plans.
Opportunity if
managed
Additional viewings in new areas
could introduce new clients and
improve prices realised.
Improvements to blasting
techniques and introducing new
technology can reduce damage,
thereby improving value recovered.
Improving knowledge of the orebody through
bulk sampling, geological mapping and ahead
of face drilling supports effective forecasting and
the ability to plan accurately and optimally,
which will improve operating efficiencies and
cash flows.
Cash constraints drive more
efficient capital allocation and cost
disciplines.
Advanced security control
measures increase employees’ and
product’s safety and improves
revenue.
Delivery on the strategy should
improve cash flows, reinforce the
balance sheet strength and
improve shareholder returns,
thereby strengthening Gem
Diamonds’ position in the industry.
Retaining skills and continuous
improvement initiatives build the
Group’s human capital and can
create a competitive advantage.
Key priorities
Area of business
model affected
Mitigation
•
•
•
•
•
•
Funding the business model
Sales and marketing activities
Chosen distribution channels
Monitoring market conditions
and trends
Flexibility in sales processes and
the utilisation of multiple sales
and marketing channels, and
increased viewing opportunities
Reassessing capital projects and
operational plans to align with
market conditions and preserve
cash balances
Heatmap key
1
•
•
•
•
•
•
•
2
Increase diamond pricing
Outputs of carats recovered
Reduced financial inputs
Increased financial outputs
Continuous diamond damage
monitoring and analysis to
identify opportunities to reduce
diamond damage
An online system is in place to
monitor plant parameters and
evaluate trends within the
treatment process
An on-mine Diamond Value
Management Committee
oversees and drives the focus of
overall value recovery
Natural capital inputs and outputs of carats
recovered
LoM affects the long-term viability of the
business model
Furthering orebody knowledge through
various bulk sampling programmes,
combined with geological mapping and
modelling methods
Improving confidence in ore volumes and
grades per rock type through grade control,
reduced ore blending, increased bulk
sampling, measuring (density and moisture
content), regularly updating geological
models, monitoring and controlling external
and internal dilution and waste rafts and
focusing on waste management
Improving understanding of diamond
populations, size frequency distributions
and value profiles per kimberlite type
through rigorous daily and monthly data
plotting and trend analysis.
•
•
•
•
•
3
Risk exposure
Increased
Decreased
Increased
•
Funding the business model
•
•
Reassessment of capital
expenditure and operational
strategies
Treasury management
practices in place
Access to available facilities
•
• Delivering of BT targets
•
Regular review of the mine
plan to optimise cash flow and
to identify rescheduling
opportunities
4
Increased
Outputs of carats recovered
Increase financial outputs
Human capital and safety
outcomes
An advanced security access
control and surveillance system
is in place complimented by
off-site surveillance
Zero tolerance on non-
conformance to policy and
regulations
The Diamond Recovery
Protection Committee (a
sub-Committee of the Letšeng
Board) monitors security
process effectiveness
Appropriate diamond specie
insurance cover in place
Regular vulnerability
assessments complimented
with internal and independent
third-party assurance audits
undertaken
•
•
•
•
•
•
•
•
5
•
Viability of business model and
financial capital
Group strategy review performed
with objective of improving the
share price through:
•
Renewing the Letšeng mining
lease
• Delivering the BT target
•
•
Reviewing capital allocation
Implementing early
identification and anti-
breakage technology
Assessing diversification
opportunities
•
6
Human, intellectual and
financial capital inputs into the
business model
Human resources practices
are designed to identify skills
shortages and implement
development programmes
and succession planning for
employees.
Incentives are in place to retain
key individuals through
performance-based bonus
and long-term share awards.
Remuneration committees are
set-up at a subsidiary level,
which review current
remuneration policies, skills
and succession planning.
•
•
•
•
7
Decreased
Increased
No change
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019PRINCIPAL RISKS AND UNCERTAINTIES continued
18
19
Risk type
External and operational Operational
External
Operational
External and operational Operational
External
Description
Environmental
Sustainability of Business
Transformation
Social licence to operate
Impact
Climate and environmental issues,
such as recent dam failures, are
recognised as top global risks by the
World Economic Forum and
investors are increasingly focussed
on environmental performance.
Failure to manage vital natural
resources, environmental regulations
and pressure from neighbouring
communities can affect the Group’s
ability to operate sustainably.
The BT process identified savings and
efficiencies of US$100 million over
four years from 2018, with ongoing
sustainable benefit of US$30 million
per annum from 2022 onwards. The
sustainability of the BT benefit is
highly dependent on organisational
health, change management, skills,
workforce motivation and behaviour
and contract renegotiations.
Failure to sustain the savings
identified could impact the Group’s
cash resources.
Gem Diamonds’ social licence to operate arises
from the approval of its stakeholders, particularly
employees, regulators, communities and society,
to conduct its business. This approval is an
outcome of the way the Group manages issues
such as ethics, labour practices and sustainability
in our wider environment, as well as our risk
management and engagement activities with
stakeholders.
Opportunity if
managed
Responsible environmental
stewardship improves relationships
with regulators and communities
while strengthening our brand.
Increased investor focus on
environmental responsibility could
translate into a competitive
advantage.
Delivery of the BT target improves
cash flow, credibility and positions
the Group ahead of the industry.
Realising the Group’s vision to make a
meaningful and sustainable contribution to
the countries in which we operate builds
Gem Diamonds’ reputation with government,
regulators, communities and investors.
Key priorities
Area of business
model affected
Mitigation
Heatmap key
Natural capital inputs into the
business model and negative
outcomes in the case of
environmental incidents
Implemented appropriate
Sustainability and Environmental
policies which are subject to a
continuous improvement review
The current behaviour-based
care programme instils
environmental stewardship
A climate change adaptation
plan has been implemented
A dam safety management
framework has been
implemented
Annual social and environmental
management plan (SEMP) audit
program has been implemented
ISO 14001 accreditation obtained
Adopted a UN SDG framework
•
•
•
•
•
•
•
•
8
•
Entire business model
•
Social capital and viability of business model
• Dedicated BT task team
•
Monitoring through weekly
cadence meetings
Delivered US$55 million to date,
with medium/low risk of
delivering remaining balance.
•
9
•
•
•
Appropriate health, safety and sustainability
policies are in place and subject to
continuous improvement reviews
The new mining lease caters for appropriate
CSI spend
Adopted a UN SDG framework
10
Risk exposure
New separately defined risk
Decreased
New separately defined risk
Production interruption
Material mine and/or plant
shutdowns or periods of decreased
production could arise from various
events. These events could lead to
personal injury or death,
environmental impacts, damage to
infrastructure and delays in mining
and processing activities and could
potentially result in monetary losses
and possible legal liability.
The Group relies on the use of
external contractors in its mining
and processing activities. Disputes
with these contractors could
materially impact the Group’s
operations.
Operating at or near steady state
levels, improve efficiencies due to
stability of production.
Focused contract management
impacts positively on cash
generation through improved
procurement and contract
renegotiation practices.
Information Technology Systems
(IT) and cybersecurity
The Group’s operations rely on
secure IT systems to process and
record financial and operating data
in its information management
systems. If these IT systems are
compromised, there could be a
material adverse impact on
the Group.
Health and safety
Currency volatility
The risk that a major health or
safety incident, such as recent dam
failures, may occur within the
Group is inherent in mining
operations. These risks could impact
the wellbeing of employees, our
licence to operate, the Company’s
reputation and compliance with
debt facility agreements.
The Group receives its revenue in
US dollars, and costs are incurred in
the local currency of the countries
in which the Group operates.
Exchange rate volatility between
these currencies and the US dollar
impacts the Group’s profitability
and cash flow.
IT solutions such as machine
learning and artificial intelligence
could provide an opportunity to
assess mining and processing
practices which could improve
efficiencies and diamond
recoveries.
Technologies such as blockchain
offer opportunities to create value
in the Group’s sales and marketing
channels (see page 38).
Improving employee health and
wellness can increase morale,
reduce absenteeism and improve
productivity. Ensuring that effective
safety policies and processes are in
place reduces risk to our workforce,
strengthens our relationships with
employees and regulators, and
safeguards the Group’s reputation.
Earning capability in currencies
stronger than currencies in which
operational costs are incurred result
in maximum financial benefit to
Letšeng.
•
•
•
•
•
•
•
Reduced operational activity
could lead to a decline in
financial capital and outputs
Negative outcomes decline
natural and human capital.
Continuous review of business
continuity plans
A bespoke contract
management role has been
fulfilled to ensure proper
contract management and
minimise the potential for
disputes
Maintaining appropriate
insurance
Maintaining appropriate levels
of resources (fuel, stockpiles
etc.) to mitigate certain
production interruptions
Improvements implemented
in the management of
contractors’ procurement
practices.
•
Entire business model
•
•
•
•
•
Application of technical and
process IT controls in line with
industry-accepted standards
Appropriate back-up
procedures are in place
Firewalls and other appropriate
security applications are in
place
Regular testing of back-up
restorations are performed
Consultations with professional
external advisors take place
when there is a need to better
understand evolving risks and
any mitigating factors to be
implemented.
•
•
•
•
•
•
•
•
Social, relational and human
capital and viability of business
model if outcomes are
negative
Implemented appropriate
Health and Safety policies and
practices which are subject to
continuous improvement
reviews
Corrective actions identified
from incident investigations
and internal and external
audits are implemented
timeously
A dam safety management
framework has been
implemented
ISO 45001 accreditation
obtained.
Financial capital inputs and
outcomes
A framework to enter into
short-term hedging
instruments is in place
Appropriate treasury
management procedures are
in place
11
Decreased
12
13
New separately defined risk
Increased
14
Decreased
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019PRINCIPAL RISKS AND UNCERTAINTIES continued
20
21
ENGAGING OUR
STAKEHOLDERS ON RISK
S172 (1)(a)-(f)
Risk disclosure
Selected Board members and senior executives
collaborated and engaged with external
consultants on the most effective manner to
provide transparent risk disclosure.
2 Diamond damage
The Board and executive management
regularly engage with experts regarding
improvements in mining and treatment
processes.
3 Knowledge of the resource
The Board and executive management
engaged SRK Consulting Canada on several
matters relating to geological modelling to
gain knowledge of the resource.
4 Cash generation
The Board and executive management
regularly engage with lenders by providing
transparent performance results to maintain
good relationships and secure additional
external facilities.
6 Growth and return to shareholders
The Board engages analysts and investors through briefing sessions, update statements, research and events to
provide performance feedback and updates on remuneration resolutions. Institutional investors required disclosure on
auditor effectiveness and material non-audit fees. Please refer to page 59.
10 Social licence to operate
The Board ensures an appropriate stakeholder engagement framework exists, including a grievance management
plan to ensure stakeholder input without fear of retribution.
Engaging the industry and government
•
Letšeng Diamonds is a member of the Lesotho Chamber of Mines which was formally registered and meets
regularly
•
Letšeng Diamonds provides regular compliance feedback to various departments within government
Engaging PACs
The Group actively participates and invests in Corporate Social Initiatives for its project-affected communities (PACs),
in accordance with a needs analysis informed investment strategy.
Community representatives sit on the operational corporate social responsibility (CSR) committees.
The following table shows how the likelihood and impact scenarios change pre-mitigation (inherent risk
(residual risk
with a greater impact is considered more important than a matter with a higher likelihood.
). The order of importance was established taking guidance from the IIRC’s Framework, where a material matter
) and post-mitigation
14
HIGH
D
O
O
H
I
L
E
K
I
L
2
3
6
9
1
5
8
13
4
7
12
10
11
HIGH
D
O
O
H
I
L
E
K
I
L
6
7
8
10
11
13
9
14
12
1
2
3
4
5
LOW
IMPACT
HIGH
LOW
IMPACT
HIGH
EMERGING RISKS
The assessment of emerging risks is embedded within the risk
management function of each operation. Emerging risks
identified during these assessments are reported to the
subsidiary boards on a structured quarterly basis and to the
corporate office as they are identified.
Management evaluates emerging risks and presents them to
the Board for consideration and evaluation.
Emerging risks are risks that:
be sold at upcoming tenders, which can negatively affect
demand and price. In addition, it could also impact the
availability and cost of imported goods required for
mining operations. The risk is monitored and mitigated in
conjunction with the current principle risks relating to
‘rough diamond demand and prices’ and ‘production
interruption’. (19)
Based on an inherent risk ranking over the medium to
long-term time horizon we rank their importance as:
are likely to materialise or impact over a longer timeframe
than existing risks;
HIGH
•
•
•
do not have much to reference to by means of prior
experience; and
are likely to be assessed and monitored against
vulnerability, velocity and preparedness when
determining likelihood and impact.
The current emerging risks on the Group’s radar are:
•
•
•
•
lab-grown diamonds; (15)
generational shifts in consumer preferences – social
influencers; (16)
the rate of advancement of digital technologies such as
blockchain; (17)
future workforce (automation, skills for the future etc.); (18)
and
• Covid-19 (coronavirus): The sudden outbreak of the virus
has the potential to create short-term uncertainty in
global markets and to disrupt the viewing of diamonds to
D
O
O
H
I
L
E
K
I
L
16
18
15
19
17
LOW
IMPACT
HIGH
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019PRINCIPAL RISKS AND UNCERTAINTIES continued 22
23
Gem Diamonds concentrated on
delivering operational excellence
and managing the factors over
which we have control, solidifying
our status as one of the lowest-cost
and safest diamond producers in
the industry.
by Clifford Elphick
Chief Executive Officer
Rough diamond prices were under severe pressure during 2019 with
the over supply of most categories of rough and polished diamonds.
Events in Hong Kong affected turnout at the major trade shows for
diamonds and credit provision to diamond manufacturers tightened
considerably, reducing the ability of our direct customers to finance
stock purchases, leading to a surplus of diamond stocks in the
manufacturing sector. While the performance of shares in diamond
companies has traditionally followed US stock markets, diamond
mining companies’ shares were under pressure during 2019, regardless
of individual performance.
PERFORMANCE AGAINST PEERS
In these challenging circumstances, Gem Diamonds
concentrated on delivering operational excellence and
managing the factors over which we have control. It is
significant that Gem Diamonds achieved all its operational
guidance metrics for 2019. Moreover, operating costs per
tonne were the lowest for the past three years.
EXTRACTING MAXIMUM VALUE FROM
OUR OPERATIONS
Despite the challenging conditions, Gem Diamonds delivered
positive results, including the recovery of 11 diamonds greater
than 100 carats (2018: 15). These recoveries also brought the
total number of diamonds of greater than 100 carats each to
100, since Gem Diamonds took ownership of Letšeng in July
2006. Early in the year, a 13.32 carat pink diamond was
recovered that sold for a Letšeng record of US$656 934 per
carat, reaffirming the quality of the mine’s production.
In the context of the decline in the overall diamond market,
the average price achieved decreased 23% to US$1 637 per
carat (2018: US$2 131 per carat) from the sale of 111 292 carats
(2018: 125 111). The additional tender viewings in Tel Aviv,
introduced in 2017, increased flexibility and improved sales
values realised, while providing a valuable opportunity to
interact with customers and investors. The new customised
electronic tender platform that was launched in September
2019 has been successfully integrated. It offers an enhanced
client experience and improved internal efficiencies.
The volume of tonnes treated for the year increased 3% year
on year and the plants continue to focus on enhancing
value over volume. Carats recovered decreased 10% to
113 974 (2018: 126 875), mainly due to the planned limited
contribution of the higher-grade, high-value Satellite pipe
material during the year. This was the result of Letšeng
transitioning into a new cutback within the pipe to
accommodate future increases in contribution from this
high-value pipe. More information on Letšeng’s operational
performance is available on page 33.
Revenue decreased 32% to US$182.0 million (2018:
US$267.3 million), which translated into underlying EBITDA1
of US$41.0 million and earnings per share of 5.1 US cents.
Although the Group returned to a cash generative position
in Q4 2019, cash flow from operations decreased 60% to
US$55.5 million during 2019, resulting in net debt at year-end
of US$10.2 million, compared to net cash2 of US$17.5 million
at the end of 2018. The Group’s financial results are discussed
in detail in the Group Financial Performance report on
page 26.
The Business Transformation (BT) programme is delivering
its targeted gains and is on track to achieve the goal of
US$100 million in cost savings and efficiencies by the end of
2021, as well as the sustainable annual net benefit of
US$30 million from 2022 onwards. The elements of the BT
programme and progress against its objects are discussed on
page 40. The programme has been instrumental in reducing
costs and improving efficiencies in the Group since it was
initiated in 2017 and Gem Diamonds’ improved position on
the global cost curve demonstrates the benefits of the
programme. The next phase of the optimisation strategy
involves the transition to continuous improvement (CI).
WORKING RESPONSIBLY AND
MAINTAINING OUR SOCIAL LICENCE
The Group’s vision and values embody our commitment to
delivering shareholder returns in a responsible and sustainable
way, by creating social benefit and being responsible stewards
of our environmental resources.
Gem Diamonds is committed to promoting a culture of zero
harm and responsible care. Our goal is to create and sustain a
safety culture that is underpinned by a deep sense of mutual
care and collaboration across the workforce. We are
disappointed that some of our safety statistics deteriorated
during 2019 after several years of improvement. There was
one fatality and seven LTIs during the year, compared to no
fatalities and four LTIs in 2018. The Group-wide LTIFR increased
to 0.28 (2018: 0.15). The root causes of reported injuries are
investigated and addressed and shared across the
organisation to improve safety outcomes.
Safeguarding our communities
While the freshwater dam and two tailings storage facilities
(TSFs) at Letšeng are designed and managed to international
best practice, we are aware of the potential risk that TSFs can
pose to host communities, operations and the environment.
Rigorous ongoing monitoring of these facilities is conducted
by experts to timeously identify and mitigate risks. An early-
warning system is in place and community training and
awareness programmes have been implemented in
downstream communities to improve emergency response
readiness in the unlikely event of a failure. More information on
how the Group ensures the highest standards of dam safety
management is available on the Sustainable Development
Reporting Platform at www.gemdiamonds.com.
1 Refer Note 4, operating profit on page 130 for the definition of non-GAAP measures.
2 Net cash/ debt is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility).
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019REBASED CHART 050100150200NOV 19SEP 19JUL 19MAY 19MAR 19JAN 19NOV 18SEP 18JUL 18MAY 18MAR 18JAN 18GEMPEER 1PEER 2PEER 3PEER 4PEER 5PEER 6CHIEF EXECUTIVE’S REVIEW 24
25
Supporting local communities and contributing
to national priorities
Gem Diamonds recognises PACs as vital stakeholders and
views investments in initiatives to support community
development and resilience as investments in the long-term
sustainability of the Group. Over the years, Gem Diamonds has
consistently invested in local communities with an emphasis
on education, infrastructure development and local
enterprises that create self-sustaining employment
independent of the mine.
Community enterprise development initiatives to date include
providing infrastructure, training and ongoing support for a
vegetable farm, dairy farm, as well as a wool and mohair
project. Read more about current initiatives on page 37.
The Letšeng operation provides jobs for more than
1 900 people and is a substantial employer in Lesotho. The
Company’s investment in training improves individual skills
in the area and our local procurement initiatives support
the local economy and the broader population of Lesotho.
In 2019 total in-country procurement increased to
US$164.6 million (2018: US$159.3 million). Of this amount,
US$2.4 million was procured directly from PACs (2018:
US$2.1 million) and US$30.5 million from regional
communities around Letšeng.
For the 10th year running, no major or significant stakeholder
incidents occurred at any of Gem Diamonds’ operations
during 2019. There were also no incidents (2018: none)
involving any violation of the rights of the indigenous people
on whose land the Group operates.
PREPARING FOR THE FUTURE
The signing of the new mining lease secures Gem Diamonds’
mining right at Letšeng for the next two decades (which
includes a 10-year exclusive renewal option from 2029). The
new lease sees the royalty rate payable increasing from 8% to
10%, the shareholding in the mine remaining unaltered (Gem
Diamonds at 70% and Government of Lesotho at 30%) and
there is, an increase in the number of work permits that may
be granted in order to fill any skills gap at the operation. The
BT initiatives that aim to reduce waste stripping (discussed on
page 34) that were implemented a year earlier than initially
estimated significantly improved LoM stripping ratios and
increased the mine’s net present value.
Capital expenditure was substantially reduced during the year
and comprised mainly sustaining capital projects, investments
in technology and innovation projects, and the extension of
the Patiseng TSF. The Patiseng extension provides deposition
space until 2024.
The diamond detection in kimberlite pilot plant was
completed and commissioned on budget during the year. The
plant is validating and testing two key technologies to identify
locked diamonds within kimberlite and to liberate diamonds
using a non-mechanical process to limit diamond damage
and lower operating costs.
OUTLOOK
Our focus in the year ahead remains on realising the full
benefits of the BT and CI projects and driving efficiencies and
cost reduction initiatives to maintain our status as a low-cost
and safe operation. We continue to investigate and assess
other opportunities to unlock value for shareholders.
The Company announced that it had entered into a binding
agreement in July 2019 to sell the Ghaghoo mine, which has
been on care and maintenance since 2017. The objective is to
conclude this transaction in 2020.
APPRECIATION
I would like to take this opportunity to acknowledge the
contribution of Louis Boag, the CFO at the Letšeng mine,
who passed away unexpectedly at his home in January 2020.
He was an effective and popular part of the management
team whose commitment to training and developing those
around him, made an immense contribution to the operation.
He will be sorely missed.
I would also like to thank Gavin Beevers, who fulfilled the role
of interim technical advisor for 9 months before retiring in
April. Brandon de Bruin, the Business Transformation Officer,
was appointed as the Operations and Business Transformation
Executive to oversee the mining operations in the absence of
an appointed COO. An Operations Steering Committee was
set up to advise and assist Brandon in this role, and Johnny
Velloza, the previous deputy CEO and a current Non-Executive
Director on the Board was appointed as chairman of this
Committee.
I would like to thank the Board and our Chairman for their
leadership and support during the year. I am sincerely grateful
to our employees for their efforts in delivering on our strategic
goals, and for living the Group values.
Thanks to the representatives of the Government of the
Kingdom of Lesotho for their constructive engagement and
input during the negotiation of the lease period extension.
I would like to close by thanking our shareholders for their
ongoing support.
Clifford Elphick
Chief Executive Officer
10 March 2020
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019CHIEF EXECUTIVE’S REVIEW continued 26
27
We aim to maintain our
position as a low-cost
producer and the effects
of the early start of the BT
programme leave us in a
favourable position in
comparison with the rest
of the industry.
by Michael Michael
Chief Financial Officer
SUMMARY OF FINANCIAL PERFORMANCE
While 2019 was a year of good operational performance and
progress on our BT initiatives and other strategic objectives,
revenue and EBITDA1 declined on weaker diamond prices.
Tender revenues tracked the weaker market for rough
diamonds and 11 diamonds greater than 100 carats were
recovered during the year, compared to 15 in 2018, which
included the Lesotho Legend that sold for US$40 million.
The Group has limited ability to influence rough diamond
prices, so our focus remains on managing the areas of the
business that are within our control. These include improving
operational efficiencies, minimising waste mined, investing to
sustain our future and reducing costs where possible. The
Group also secures appropriate bank facilities to improve
funding flexibility.
Underlying EBITDA1 from continuing operations decreased to
US$41.0 million from US$87.7 million. Profit attributable to
shareholders from continuing operations for the year was
US$7.1 million, equating to earnings per share from
continuing operations of 5.1 US cents on a weighted average
number of shares in issue of 139.0 million. After including the
loss of US$4.5 million from the Ghaghoo discontinued
operation, the Group’s attributable profit was US$2.6 million
with earnings per share of 1.9 US cents.
Net cash2 in the prior year of US$ 17.5 million, decreased to
a net debt2 position of US$10.2 million at year end.
Notwithstanding the lower revenue, the Group continued to
invest into future waste stripping and capital expenditure
during the year.
The Group adopted IFRS 16 Leases, that requires a lessee to
recognise right-of-use assets and lease obligations for
qualifying leases. The Group adopted IFRS 16 using the
modified retrospective method of adoption with the date of
initial application being 1 January 2019. This resulted in an
increase in underlying EBITDA1 of US$3.0 million due to
allocating costs that would have previously been disclosed as
cost of sales to a right-of-use asset. The recognition of the
right-of-use assets in turn resulted in increased depreciation
of US$2.5 million for the year.
1
2
Refer Note 4, operating profit on page 130, for the definition of non-GAAP
measures.
Net cash/(debt) is calculated as cash and short-term deposits less drawn down
bank facilities (excluding asset-based finance facility).
Summary of financial performance
Please refer to the full annual financial statements starting on
page 104.
US$ million
Revenue
Royalty and selling costs
Cost of sales4
Corporate expenses
Underlying EBITDA5 from
continuing operations
Depreciation and mining asset
amortisation
Share-based payments
Other income
Other expenses
Foreign exchange gain
Net finance costs
Profit before tax from
continuing operations
Income tax expense
Profit for the year from
continuing operations
Non-controlling interests
Attributable profit from
continuing operations
Loss from discontinued
operations
Attributable net profit
Earnings per share from continuing
operations (US cents)
Loss per share from discontinued
operations (US cents)
2019
20183
182.0
(16.9)
(114.7)
(9.4)
267.3
(22.9)
(146.7)
(10.0)
41.0
87.7
(14.7)
(0.8)
1.1
(0.3)
3.6
(5.8)
24.1
(9.0)
15.1
(8.0)
(8.5)
(1.4)
0.4
–
2.2
(1.7)
78.7
(26.4)
52.3
(20.6)
7.1
31.7
(4.5)
2.6
(5.7)
26.0
5.1
22.9
(3.2)
(4.1)
Revenue
Revenue of US$182.0 million was generated at Letšeng,
achieving an average price of US$1 637 per carat6 (2018:
US$2 131 per carat). In the first half of the year, a 13.32 carat
pink diamond was recovered that sold for a Letšeng record
of US$656 934 per carat and contributed US$8.8 million to
revenue. The Group sold 27 diamonds for more than
US$1.0 million each, contributing US$68.2 million to revenue.
Mining mix is the ratio of high-value Satellite pipe ore
compared to Main pipe ore, and plays a significant role in
revenues realised. Letšeng transitioned into a new cutback
during the year and the planned lower contribution of the
higher-value Satellite pipe ore reduced price and volume of
carats sold. During the latter part of the year, an unforeseen
deviation in the contact face further reduced the
contributions from the Satellite pipe. This, together with the
prolonged weakness in the rough diamond market resulted in
the lower revenues generated during 2019.
LETŠENG 12MONTH ROLLING AVERAGE
US$ PER CARAT
2 131
1 769
1 612
1 507
1 637
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
US$ million
2019
2018
Group revenue summary
Letšeng sales – rough
Sales – polished margin
Sales – other
Impact of movement in inventory
Group revenue
182.1
–
–
(0.1)
182.0
266.6
0.2
0.4
0.1
267.3
Extracted diamond inventory on hand at the end of the year
increased to US$0.9 million (2018: US$0.4 million). This
includes US$0.4 million of diamond inventory held over for
sale in early 2020.
Expenditure
Operating expenditure
Group cost of sales decreased by 22% to US$114.7 million from
US$146.7 million in 2018, mainly due to decreased waste
stripping amortisation costs driven by the different ore mining
mix and the benefits of the BT initiatives impacting the full
12 month period in the year. Total waste stripping costs amortised
were US$43.1 million compared to US$68.2 million in 2018.
Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation.
3 Prior year comparatives have been restated due to the recognition of the discontinued operation
4
5 Underlying EBITDA as defined in note 4 of the notes to the consolidated financial statements.
6
Includes carats extracted at rough valuation and carry-over inventory.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019GROUP FINANCIAL PERFORMANCE
28
29
Total operating costs in local currency decreased by 14% to Lesotho loti (LSL)1 649.6 million compared to LSL1 928.0 million in 2018,
resulting in total operating costs per tonne treated of LSL245.92, which is 17% lower than 2018 of LSL295.14 per tonne treated.
UNIT COST PER TONNE TREATED
Operating costs
BT costs
Direct
cash
costs2
Plant 3
operator
costs
Once-off
main-
tenance
costs
2019 (LSL)
2018 (LSL)
% change
2019 (US$)
2018 (US$)
% change
150.61
141.54
6
10.42
10.68
(2)
20.40
24.18
(16)
1.41
1.83
(23)
–
2.82
–
–
0.21
–
Sub-
total
171.01
168.54
1
11.83
12.72
(7)
Direct cash cost2 per tonne is LSL150.61, representing a 6%
increase from 2018. Waste cash cost per waste tonne mined
increased by 8% to LSL38.62 (2018: LSL35.78). These cash cost
increases were driven by local country inflation, increased costs
of imported mining accessories and increased hauling
distances. The decrease in waste tonnes mined of 7%, of which
the largest reduction occurred in Q4 2019, contributed to the
increase in waste cash cost per tonne, but resulted in an overall
decrease in waste cash costs. The cost savings derived from BT
initiatives specifically targeting mining contractor costs and
efficiencies within blasting and plant consumables partially
offset these increases.
Letšeng pays the third plant operator contractor according to
the revenue generated by the sales from diamonds recovered
through the contractor plant. In 2019, the cash costs per
tonne treated in local currency decreased by 16% in line with
the reduction in revenue generated from these activities.
Operating costs of the tailings treatment plant, consultancy
fees and a provision for an employee reward plan related to
the successful delivery of the BT initiatives decreased to
LSL10.15 per tonne treated (2018: LSL13.97) as the
consultancy agreement and employee rewards scheme
concluded during the year.
Non-cash accounting charges per tonne treated decreased
mainly due to the lower waste amortisation costs associated
with the lower contributions of Satellite pipe material as
mentioned above. In addition, the implementation of
IFRS 16 Leases in the current year, reduced the operating costs by
LSL6.17 per tonne treated due to these costs being re-allocated
to lease liabilities in the statement of financial position.
Non-cash
accounting
charges1
Total
operating
cost
245.92
295.14
(17)
17.02
22.27
(24)
Charges
64.76
112.63
(43)
4.48
8.50
(47)
Tailings
treatment
plant
operating
costs
Fees and
employee
reward
scheme
Total
direct
operation
cash costs
2.01
1.61
25
0.14
0.12
17
8.14
12.36
(34)
0.57
0.93
(39)
181.16
182.51
(1)
12.54
13.77
(9)
Exchange rate influences
The Group’s revenue is generated in US dollar and most
operational expenses are incurred in the local currencies of
the operational jurisdictions. The average Lesotho loti (LSL),
which is pegged to the South African rand, and Botswana pula
(BWP) weakened 9% and 5% respectively against the US dollar
during the year, which reduced underlying US dollar reported
costs.
Exchange rates
2019
2018 % change
LSL per US$1.00
Average exchange rate
Year end exchange rate
BWP per US$1.00
Average exchange rate
Year end exchange rate
GBP per US$1.00
Average exchange rate
Year end exchange rate
14.45
13.98
10.76
10.58
1.28
1.32
13.25
14.39
10.20
10.73
1.34
1.27
9
(3)
5
(1)
(4)
4
Royalties and marketing costs
Royalties are paid to the Government of the Kingdom of
Lesotho on the value of rough diamonds sold by Letšeng
in terms of the operation’s mining lease. The royalty rate
increased from 8% to 10% with the renewal of the lease, and
the increased rate was applicable from October 2019. The
Group’s sales and marketing operation in Belgium incurs costs
relating to diamond selling and marketing-related expenses.
During the year, royalties and selling costs decreased by 26%
to US$16.9 million (2018: US$22.9 million) in line with the
reduction in sales.
1
Non-cash accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and the impact of adopting IFRS 16 Leases, and excludes
depreciation and mining asset amortisation.
2 Direct cash costs represent all operating costs, excluding royalty and selling costs.
Diamond manufacturing operation
During the year no diamonds were extracted for
manufacturing and no polished diamonds were sold.
Corporate expenses
These central costs are incurred to provide expertise in all areas
of the business model to realise maximum value from the
Group’s assets. These costs are incurred by the Group through
its technical and administrative offices in South Africa (in South
African rand) and head office in the UK (in British pound).
Reducing corporate expenses is one of the focus areas for the BT
programme without the risk of compromising the Group, and
baseline costs decreased to US$7.7 million in 2019 (2018:
US$9.3 million). This includes an equity-settled bonus provision of
US$1.5 million which was recognised during the year. Project-
related costs amounted to US$1.7 million (2018: US$0.7 million),
resulting in total corporate costs of US$9.4 million (2018:
US$10.0 million).
HISTORICAL CORPORATE COSTS DATA
–
0.1
0.5
0.2
0.7
1.7
12.4
11.6
10.5
9.0
9.3
7.7
N
O
I
L
L
I
M
$
S
U
2014
2015
2016
2017
2018
2019
BASELINE COSTS
PROJECT COSTS
Underlying EBITDA1 and attributable profit
Group underlying EBITDA1 from continuing operations
decreased to 53% to US$41.0 million (2018: US$87.7 million)
as a result of the decrease in revenue. Profit attributable to
shareholders was US$7.1 million, which translates to
5.1 US cents per share based on a weighted average number
of shares in issue of 139.0 million.
The Group’s effective tax rate was 37.5%. Most of the Group’s
taxes are incurred in Lesotho, which has a corporate tax rate
of 25.0%. The effective tax rate is above the Lesotho corporate
tax rate as a result of deferred tax assets not recognised on
losses incurred in non-trading operations, partially offset by a
reduction in the deferred tax liability on unremitted earnings.
1 Refer Note 4, operating profit on page 130, for the definition of non-GAAP measures.
During the year the Group paid US$18.8 million in taxes,
predominately at Letšeng. This included a payment of
US$9.1m by Letšeng relating to the profits generated in 2018
which together with the provisional payments made during
2019, resulted in an estimated tax receivable of US$8.2 million.
In December 2019, an amended tax assessment was issued to
Letšeng by the Lesotho Revenue Authority (LRA),
contradicting the application of certain tax treatments in the
current Income Tax Act. An Objection has been lodged by
Letšeng, and based on senior counsel’s advice, which is legally
privileged, is expected to have good prospects of success.
(Refer Note 25 for further detail.)
Statement of financial position –
selected indicators
US$ million
Property, plant and equipment
Receivables and other assets
Inventory
Cash and short-term deposits
Assets held for sale
Non-current: interest-bearing loans
and borrowings
Current: Interest-bearing loans and
borrowings
Liabilities associated with assets
held for sale
Deferred tax
Provisions
Income tax receivable/(payable)
Capital expenditure
2019
2018
323 853
6 337
32 517
11 303
3 943
289 640
5 433
33 084
50 812
859
(6 009)
(19 954)
(16 332)
(14 212)
(4 221)
(83 124)
(15 588)
8 176
–
(74 054)
(17 876)
(8 964)
The Group focused on prioritising spend within the cash
constraints experienced, and all capital projects during 2019
were funded out of internally generated cash flows.
Capital expenditure (excluding waste stripping) was
reduced during the year, with US$9.7 million spent (2018:
US$23.0 million) mainly on the completion of the ‘detecting
diamonds within kimberlite’ pilot plant (US$1.1 million),
extension of the footprint of the Patiseng TSF (US$1.5 million),
replacement of the jaw crusher of the primary crushing area
(PCA) (US$0.7 million) and on reserve and resource studies
ahead of releasing an updated reserve and resource statement
(US$1.5 million).
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019GROUP FINANCIAL PERFORMANCE continued
30
31
Cash at hand
Summary of loan facilities as at 31 December 2019
Lender
Expiry
Interest rate1
Amount
US$ million
Drawn down
US$ million
Available
US$ million
The Group generated cash from operating activities (before capital and waste investment of US$82.8 million) of US$55.5 million.
Group cash on hand at 31 December 2019 was US$11.4 million (2018: US$50.8 million) of which US$9.2 million is attributable to
Gem Diamonds and US$0.1 million is restricted. Significant tax payments totalling US$18.8 million were made mainly relating to the
high profits generated by Letšeng in 2018. All scheduled debt repayments were made, consuming a further US$14.1 million.
The overall result is a decrease in cash of US$39.4 million year on year.
CASH MOVEMENT US$ MILLION
150
120
90
60
30
0
94
2
73
58
51
19
19
14
10
8
5
4
3
Cash and
facilities
December 2018
Letšeng –
cash
generated
Proceeds on
disposal of
assets
Letšeng
waste –
costs capitalised
Tax paid
Net financial
liabilities repaid
(incl. IFRS 16)
Corporate
costs
Investment
in PPE
Net
finance costs
Investment –
Ghaghoo
Working
capital
AVAILABLE FACILITIES
70
11
Cash and
facilities
December 2019
Loans and borrowings
At year end, the Group had undrawn facilities of US$69.9
million available, comprising US$27.0 million (after US$2.0
million draw down) at Gem Diamonds and US$42.9 million
at Letšeng.
In December 2019, the Company accessed US$2.0 million of
its three-year RCF. In addition repayments of US$10.0 million
on the Gem Diamonds Limited facility, relating to the
Ghaghoo US$25.0 million debt were made. The remaining
balance of US$10.0 million will be repaid in quarterly
instalments, and the final repayment is due on
31 December 2020. Similarly, repayments of LSL57.3 million
(US$4.0 million) were made on the project debt facility for
the construction of the mining complex at Letšeng. The
outstanding balance of LSL133.7 million (US$9.6 million) will
be repaid by September 2022.
Available facilities were further increased, when Letšeng
concluded a 12-month overdraft facility of LSL100.0 million
(US$7.2 million) with Nedbank Corporate and Investment
Banking division, to facilitate with working capital
requirements. This facility expires in December 2020 and
bears interest at South African prime rate less 0.7%.
Term/
description
Three-and-a-
half-year
RCF
Three-and-a-
half-year
term facility
(Ghaghoo
US$25 million)
Company
Existing
facilities
Gem Diamonds
Limited2
Letšeng
Diamonds
Letšeng
Diamonds
5.5-year
project facility
Three-year RCF Standard
Nedbank
Nedbank
December
2020
December
2020
Lesotho Bank
and Nedbank
Lesotho
Nedbank/
Export Credit
Insurance
Corporation
July
2021
March
2022
September
2022
New facilities
Letšeng
Diamonds
12-month
overdraft
Nedbank
December
2020
Total
Discontinued operation (Ghaghoo operation on care
and maintenance)
In line with the strategic objective to dispose of non-core
assets, Gem Diamonds entered into a binding agreement with
Pro Civil Proprietary Limited (Pro Civil) for the sale of 100% of
the share capital of Gem Diamonds Botswana Proprietary
Limited in June 2019, which owns the Ghaghoo Diamond
Mine, for US$5.4 million. The sale is still subject to regulatory
approvals in Botswana and other conditions.
The operation was classified as a discontinued operation in
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations. Care and maintenance costs of
US$4.5 million have been recognised and disclosed separately
London US$
three-month
London
Interbank
Offered Rate
(LIBOR) + 4.5%
Lesotho prime
rate minus
1.5%
Tranche 1
(R180 million)
South African
Johannesburg
Interbank
Average Rate
(JIBAR) + 3.15%
Tranche 2
(LSL35 million)
South African
JIBAR + 6.75%
South African
prime rate
minus 0.7%
29.0
2.0
27.0
25.0
10.0
–
35.7
–
35.7
12.9
7.7
2.5
1.9
–
–
7.2
–
21.6
7.2
69.9
in the statement of profit or loss for the year and disclosed
separately in the statement of financial position at the lower
of carrying value and fair value less costs to sell.
Share-based payment
The share-based payment charge for the year was
US$0.8 million (2018: US$1.4 million). On 20 March 2019,
1 303 000 zero-cost options were granted to certain key
employees and Executive Directors under the Company’s
long-term incentive plan (LTIP). Vesting of these options is
subject to the satisfaction of certain market and non-market
performance conditions over a three-year period, in line with
previous awards within the LTIP.
1 At 31 December 2019 LIBOR was 1.94% and JIBAR was 6.8%.
2 Refer Note 18 of the Annual Financial Statements for the reconciliation of the US$45 million facility.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019GROUP FINANCIAL PERFORMANCE continued 32
33
OUTLOOK
Our focus in the year ahead remains on mining in line with
the revised mine plan to drive down Letšeng’s waste stripping
costs and increase Satellite pipe contribution, which will
further improve the net present value of the operation.
Continued focus on optimising the operations, delivering on
the targets of the BT programme and embedding continuous
improvement will improve free cash flow, enable repayment
of financial debts as they fall due and complete capital
projects on time.
The outbreak of Covid-19 (coronavirus) impacting trading and
financial markets could potentially have an impact on
upcoming tenders and availability of imported goods. Current
focus will include monitoring and mitigating risks associated
to this in line with the risk management framework.
Michael Michael
Chief Financial Officer
10 March 2020
DIVIDEND
Letšeng paid no dividends during 2019. Based on the Group’s
2019 financial performance and position, the Board will not
recommend a dividend distribution for 2020.
SENSITIVITIES
In the conduct of its business, the Group is exposed to a range
of external factors that are outside of its control. The Group
has the necessary resilience, balance sheet strength and
access to funds to adjust for shifts in these factors. The graph
below illustrates the sensitivity of 2019’s EBITDA1 to various
factors that have the most significant impact on our ability
to create value.
SENSITIVITY IMPACT OF 1% CHANGE US$ MILLION
0.1
0.2
1.8
1.1
1.1
1.6
ROYALTIES RATE CHANGE (ABSOLUTE)
AVERAGE SELLING PRICE OR ROUGH DIAMONDS SOLD
OPERATING COST PER TONNE – DIRECT CASH COST2
EXCHANGE DIFFERENCES
DIESEL PRICE OR VOLUME
CORPORATE EXPENSES
1 Refer Note 4, operating profit on page 130, for definition of non-GAAP measures.
2 Direct mine costs represent all operating costs, excluding royalty and selling costs.
HIGHLIGHTS
•
Mining lease renewed for a period of 10 years from
October 2019 with an exclusive right granted to renew
for a further period of 10 years to 2039
•
•
•
•
•
•
•
•
•
•
Recovered and sold a 13.32 carat pink diamond for
US$8.8 million, achieving a Letšeng record price of
US$656 934 per carat
Recovered 11 diamonds greater than 100 carats and sold
27 diamonds for over US$1.0 million each
Total greater than 100 carat diamond recoveries reached
100 since Gem Diamonds took ownership of Letšeng in
July 2006
Implemented inter-ramp pit slope steepening, resulting
in lower LoM stripping ratios
Average price of US$1 637 per carat achieved in
challenging market conditions
Realising the benefits and savings of BT initiatives
Additional diamonds recovered through the re-treatment
of tailings material
Improved fleet maintenance times
Lowest AIFR in 10 years
Third year ISO 14001 and 45001 certification
CHALLENGES
• One fatality and seven lost time injuries (LTIs)
•
•
A deviation was discovered in the anticipated contact
face position that reduced the expected contribution
from Satellite pipe in H2 2019
Technical challenges in implementing the diamond
detection pilot plant
OUR UNIQUE VALUE PROPOSITION
Letšeng is famous for its large top-quality diamonds. It has the
highest proportion of large, high-value diamonds, making it
the highest average dollar per carat kimberlite diamond mine
in the world. Operating costs per tonne are among the lowest
in the world.
KEY PROJECTS 2019
•
The extension of the footprint of the Patiseng TSF,
which provides deposition space until 2024
•
•
•
•
Successful replacement of the jaw crusher and
refurbishment of the PCA
Implementation of fleet management system
Commenced construction of centralised security servers
and control rooms to improve maintenance and security
Kick-off of CI (see pages 40 to 43)
FUTURE FOCUS AREAS
•
Ensure the sustainability of BT initiatives implemented
and transitioning of BT into continuous improvement (CI)
(see pages 40 to 43)
•
•
•
•
Commence feasibility study to replace and upgrade the
PCA facilities
Investigate further options to reduce waste mining
Reduce diamond damage through changing blasting
patterns and changing front-end plant configuration
Progress studies relating to the updating of the Resource
and Reserve Statement
KPIs
KPI
Fatalities
LTIFR
Ore mined
Ore treated
Carats recovered1
Carats sold
Average price per carat
Unit
2019
2018
% change
Number
200 000 man hours
tonnes
tonnes
carats
carats
US$/carat
1
0.28
6 297 805
6 707 791
113 974
111 292
1 637
0
0.15
6 139 077
6 532 596
126 875
125 111
2 131
n/a
n/a
3
3
(10)
(11)
(23)
1
Includes carats produced from the Letšeng plants, the Alluvial Ventures (AV) plant and the tailings treatment plant.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019GROUP FINANCIAL PERFORMANCE continuedLETŠENG 34
GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019
35
Enhancing value over volume
PERFORMANCE
Safety
Letšeng’s safety ethos aims to build on the culture of
behaviour-based care at work and to strive for zero harm.
In February 2019, Mr Abele Mtambo, an operator of a
sub-contractor's vehicle, was involved in a vehicle accident
and sadly passed away in hospital a short while later. The
Group conducted a detailed investigation and implemented
additional targeted health and safety management initiatives
to improve the safety performance on the mine. Seven LTIs
were recorded at Letšeng during 2019 (2018: four), the LTIFR
increased to 0.28 (2018: 0.15) and the AIFR improved to
0.97 (2018: 1.48). Although there was an increase in LTIs during
2019, there has been an overall decrease in all injuries. Letšeng
is focusing on implementing a strategy to reduce LTIs, and to
ensure behaviour-based care is integrated at the operation.
Operations
Waste tonnes mined decreased 7% to 24.0 million tonnes
from 25.8 million tonnes in 2018. The decrease is mainly due
to several BT initiatives to reduce waste mining, particularly
the initiative to steepen the inter-ramp slope angles, which
reduced tonnes of waste mined during the year by 5.8 million
compared to the previous mine plan that did not incorporate
steeper slopes. This initiative has significantly reduced LoM
stripping ratios while increasing and bringing forward the
volume of ore tonnes mined from the higher-value Satellite
pipe, increasing the LoM net present value.
Ore tonnes treated during 2019 of 6.7 million tonnes
comprise 5.6 million tonnes treated by Letšeng’s plants
(2018: 5.4 million) and 1.1 million tonnes treated by the
third-party processing contractor Alluvial Ventures (AV) (2018:
1.1 million). Of the total ore treated, 4.7 million was sourced
from the Main pipe, 1.6 million from the Satellite pipe and 0.4
million from the Main pipe stockpiles. During a 15-day
shutdown in the second half of the year to replace the jaw
crusher in the PCA and to perform extensive maintenance to
this area, the plants were fed from stockpiles with a mobile
crusher and the operation was still able to meet its stated
targets.
The transition into the new cutback to accommodate the
planned increase in contribution from Satellite pipe ore
revealed a deviation in the anticipated contact face position,
which was last mined in 2014. This transition resulted in
limited supply from Satellite pipe ore during this period
which, together with the deviation, resulted in a 27% lower
contribution of Satellite pipe ore to 1.6 million tonnes
(2018: 2.2 million tonnes). The results of the core drilling
programme and ahead of face drilling will be used to further
improve our understanding of the orebodies to mitigate the
risk of deviations in the short term.
The plants continue to focus on enhancing value over volume
by ensuring appropriate maintenance planning, well-
controlled and consistent feed rates that enhance process
stability and increased plant uptime and reliability.
Improvements were implemented to the fine dense medium
separation circuit to improve the feed rate in Plant 2. While the
volume of tonnes treated in the first half of the year were
negatively affected for a limited period while implementing
these improvements, it subsequently led to an overall
improvement in the volume of tonnes treated, especially in
the second half of 2019.
Carats recovered from all sources in 2019 decreased 10% to
113 974 (2018: 126 875). The BT initiative to re-treat tailings
through the mobile XRT sorting machine yielded 5 420 carats
in 2019 (2018: 11 905 carats). Overall grade for 2019 was
1.70cpht, a decrease of 12% on the 1.94cpht realised in 2018
due to the higher contribution of Main pipe ore in 2019,
which has a lower grade relative to Satellite pipe ore. The
grade for the ore processed during the year was in line with
its expected reserve grade.
Large diamond recoveries
In 2019 Letšeng recovered 11 diamonds greater than
100 carats and total diamonds recovered greater than
10 carats increased by 2% year on year.
Number of large
diamond recoveries
> 100 carats
60 – 100 carats
30 – 60 carats
20 – 30 carats
10 – 20 carats
Total diamonds
> 10 carats
FY average
2008 –
2018
2019
2018
11
20
82
139
472
724
15
22
83
137
455
712
7
18
74
111
423
633
LETŠENG +100 CARAT DIAMONDS
H
T
N
O
M
R
E
P
S
T
A
R
A
C
0
0
1
+
5
4
3
2
1
0
15
11
11
9
7
5
6
6
3
2011
2012
2013
2014
2015
2016
2017
2018
2019
+100 CTS PER MONTH
DIAMONDS RECOVERED PER ANNUM
Mineral resources and reserves
Diamond sales
Studies related to the updating of Letšeng’s Resource and
Reserve Statement continued throughout 2019. Progress was
made on the identification, delineation and confirmation of
geological continuity of the subdomains within each of the
historical resource categories. Several of the work components
were completed towards the end of 2019, and analysis and
interpretation of results will continue into the first half of 2020.
This work includes comprehensive petrography, mineral
chemistry (Mantle Mapper and chromite microprobe test
work) and microdiamond analysis of drill core and grab
samples, all of which complement the core logging data and
guide the 3D geological modelling process.
In parallel, bulk sampling of the various volumetrically
significant subdomains has been ongoing within the plants’
production schedule. Considering the low grades of all
kimberlites at Letšeng, the bulk samples must be substantial
in tonnage for collection of sufficient diamond data to
confidently estimate grade and diamond value. Bulk sampling
will continue in 2020 until all inputs required for optimisation
studies to be undertaken have been gathered and the
updated Resource and Reserve Statement can be finalised.
Rough diamond tender viewings were completed in Antwerp
and Tel Aviv during the year. A total of 111 292 carats were
sold by Gem Diamonds Marketing Services, a wholly owned
Gem Diamonds subsidiary (2018: 125 111) (refer to page 39 for
details on the upgraded tender platform). Letšeng generated
rough diamond revenue of US$182.1 million, at an average
price of US$1 637 per carat (2018: US$2 131) in a challenging
market.
Capital projects
The capital project that commenced in November 2017 for
the required extension of Letšeng’s TSF is ongoing and will
provide deposition space until 2024. Other key capital projects
included reserve and resource studies ahead of releasing an
updated reserve and resource statement, as well as the
replacement of the jaw crusher in the PCA. Details of overall
costs and capital expenditure incurred at Letšeng during the
period are included in the Group financial performance
section on pages 28 to 29.
Through the Group’s subsidiary GDIS, the integrated pilot
plant for the early detection of diamonds within kimberlite,
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONLETŠENG continued
36
37
with the aim to reduce diamond damage, was completed and
commissioned at Letšeng during the year. Ramp-up and
ongoing testing of the technology continues. Refer to the
technology and innovation section on page 38 for more
information on this plant.
Dam safety and integrity
Tailings dam integrity has come under the spotlight in
recent times1, with investors becoming increasingly aware of
the possible adverse impact these facilities may have on life
and the environment.
Letšeng recognises that the potential risk posed by both its
TSF and raw water dam necessitates a proactive approach to
risk management at every stage of the lifecycle of its facilities.
There are three facilities at Letšeng – the Patiseng TSF which is
in continual use, the old TSF which is used as a semi-dormant
facility, and the mine’s freshwater supply resource, the Mothusi
Dam. Gem Diamonds voluntarily disclosed all relevant details
of these facilities as part of the Investor Mining & Tailings
Safety initiative set up by the Church of England that can be
found under Gem Diamonds at http://tailing.grida.no/.
Letšeng reviewed the construction methods, operating
procedures and inspections of the old and recently
constructed tailings and water dams internally and with
independent expert consultants. The Letšeng dams were
constructed using the “centre line and downstream tipping”
method2. Most recent dam failures reported in the mining
industry were related to dams built using “upstream”
construction methods.
The dams at Letšeng are built and maintained according to
sound structural and environmental standards, using
international best practice guidelines to inform our approach.
Dam safety is a standing agenda item at operational HSSE
Sub-Committee meetings, operational Board meetings, Group
HSSE Sub-Committee meetings, and Group Board meetings
where findings from the stringent safety monitoring processes
are discussed and regularly reviewed.
Stringent safety checks and inspections are conducted daily,
weekly and monthly. Independent professional engineers
perform audits routinely every quarter, or more often as
required. Risks identified are mitigated and any required
remedial steps are implemented. Training and awareness
programmes regarding the early-warning system have been
implemented on site and at local communities. The
communication and alarm systems are regularly tested and
used to ensure the emergency readiness of response teams
and potentially affected communities (PACs).
The emergency procedures and actions in the event of a dam
wall failure have also been reviewed and drills involving the
mine site and downstream communities are regularly held.
For further detail on how the Group ensures the highest
standards of dam safety management, refer to the Sustainable
Development Reporting Platform and the tailings-related
reports and disclosures available on our website
www.gemdiamonds.com.
Health, safety, social and environment (HSSE)
Letšeng’s occupational health, safety and environmental
management systems were independently audited and
certified under the International Organization for
Standardisation (ISO) 14001 (environmental management)
and ISO 45001 (occupational health and safety management)
standards.
The protection of the natural environment within which
Letšeng operates, is key to the sustainable success of the
organisation. The mine continues to mitigate potential
impacts on the environment, with water protection and
waste management being key focus areas. No significant
or major environmental incidents occurred at Letšeng for the
10th year running.
The Group is committed to rehabilitating the natural
environment within which it operates at the end of the
lifespan of its mines. Rehabilitation requirements are included
in the decision-making processes to ensure that current
mining activities do not hinder future rehabilitation efforts.
The Group, on an annual basis, undertakes a review of its
rehabilitation plans to ensure its provision for rehabilitation
liability is a true reflection of the investment needed for the
eventual restoration of land. The 2019 rehabilitation
provision for Letšeng amounted to US$15.6 million (2018:
US$14.5 million). The Group leased 6 174ha (2018: 6 174ha) of
land during 2019 and approximately 28ha was disturbed
during the year (2018: 159ha) as a result of mining activities.
This brings the total disturbed land leased by the Group to
764ha (2018: 736ha).
1 Mining Weekly, December 2019, page 26.
2
A discussion of the construction and applicability of the various types of tailings facilities is available on the International Council of Mining and Metals website
at www.icmm.com/en-gb/environment/tailings.
ENGAGING
OUR COMMUNITIES
S172 (1)(d)
Letšeng is committed to working closely and in collaboration with its stakeholders. The operation’s PACs play a vital role in
the success of the operation and Letšeng is committed to ensuring that PACs benefit from the operation. The mine invested
US$0.8 million in community projects during 2019 (2018: US$0.8 million) which focuses on infrastructure, education and small and
medium enterprise development in these communities. Projects are selected to address the most pressing community concerns
identified through ongoing community engagement informed by our operation-specific social and environmental impact
assessments (SEIA) and community needs analyses.
The SEIAs and community needs analyses are informed by extensive public participation, host country legislation and
international best practice guidelines such as the World Bank Equator Principles and the International Finance Corporation’s
Performance Standards on Environmental and Social Performance.
Pae-La-ltlhatsoa community
footbridge
Community infrastructure
The Mokhotlong dairy farm project
The Lesotho Legend Project
Educational support
Following engagement with local community leaders regarding their most pressing
needs, Letšeng constructed a pedestrian footbridge over the Khubelu River to provide
safe crossing. The footbridge helps children to get to school safely and provides
access to crucial services and local infrastructure. The footbridge was completed and
officially handed over to the community in May 2019.
During 2018, Letšeng started construction of classrooms at the Tšepong Primary
School in the Pae-La-Itlhatsoa community and in 2019 handed over the classrooms
along with built offices for the local community leadership.
This project created a dairy business providing locally produced pasteurised and
packaged fresh milk as an alternative to milk imported from South Africa. The project
has 32 cows with a projected output of 450 litres a day. Mentoring, business coaching
and education in animal welfare is provided by the local dairy farmers association.
Letšeng will continue to provide mentorship and training as required to ensure the
ongoing viability and positive contribution of the project.
To mark the recovery of the 910 carat Lesotho Legend in 2018, the project is
investigating the optimum operating model to establish a commercial egg farming
co-operative. This project has the potential to create viable socio-economic growth in
the future, meeting community needs and contributing meaningfully to local
economic development.
Letšeng invests in local skills development by providing scholarships to local students,
thereby improving localisation of the mine’s workforce. The programme has
supported 43 students over 13 years.
“I am very proud of Letšeng mine. Of all mines in this country, Letšeng is the only one
that sticks to the promises and commitments it made to the public. I so wish other
mines could learn from Letšeng that it is a great thing to work well with the
communities. I am happy for the chief for the new office building. As a country ruled
by chiefs, what Letšeng has done is a great sign of respect. I am also happy for the
school children because even during rainy season, they won’t have an excuse not to
show up at school. As one of my favourite partners in this industry, I am proud that
you keep your promise to this nation…they truly are part of this community”
The former Minister of Mines of Lesotho, Keketso Sello, at the official handover of the footbridge and chief’s office at Pae-La-Itlhatsoa on
22 May 2019.
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GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019
39
HIGHLIGHTS
• Construction of pilot plant at Letšeng completed
•
Launch of the enhanced electronic tender platform
CHALLENGES
•
Proving early detection of diamonds within kimberlite and
anti-breakage technology under challenging operating
conditions
KEY PROJECTS 2019
•
Completion and commissioning of the pilot plant
at Letšeng
•
Developing and implementing of the enhanced electronic
tender platform
OUR UNIQUE VALUE PROPOSITION
•
Gem Diamonds regards technology and innovation as a
critical means of improving operational performance and
unlocking value. The Group continues to monitor new
developments to identify ways of supporting long-term
value creation.
FUTURE FOCUS AREAS
•
Continue the ramp-up and testing of the pilot plant
•
Introduction of blockchain technology linking end users
to the source of their diamond
PERFORMANCE
Advances in technology are creating significant opportunities to unlock value across the diamond value chain. These include
technologies that can increase the effectiveness and efficiency of diamond mining and processing, ones that reduce friction in selling
and marketing rough diamonds, and others that help consumers to understand the unique journey of their finished diamond, where it
came from and how it got to them.
Reducing diamond damage
The Letšeng mine has a unique diamond distribution within its orebody. A significant portion of its revenue is held in the larger
high-value diamonds. Larger high-value Type II diamonds are more susceptible to damage in mining and processing. Therefore,
reducing diamond damage is a key aspect of Gem Diamonds’ strategy that can significantly enhance revenue.
Opportunities to reduce diamond damage that show the most potential include:
•
•
early identification of diamonds within kimberlite; and
non-mechanical means of liberating these diamonds within kimberlite.
Gem Diamonds has made significant progress on the identification, validation and testing of technologies from various industries to
complement its innovation drive of early detection and non-mechanical means of liberating diamonds.
Following the successful proof of concept, the Group’s wholly owned subsidiary, Gem Diamonds Innovation Solutions, constructed
a pilot plant at Letšeng to test the technology under operating conditions. The pilot plant uses scanning technology in conjunction
with proprietary imaging and sorting algorithms to detect diamonds within kimberlite, combined with high-voltage pulse power for
non-mechanical fragmentation of composite materials to liberate the encapsulated diamonds. The plant was completed and
commissioned during 2019 and ramp-up and ongoing testing of the efficiency of the technology continues. Once proven, the next
step would be to scale up the project, targeting 1 000 tonnes per hour of material, 150mm in size. The scalability of the project will be
dependent on capital requirements.
Gem Diamonds electronic tender platform
During 2019, Gem Diamonds Marketing Services implemented a new customised electronic tender platform that went live for the
September tender. The new platform is more robust and has an improved user-friendly client interface, automated just-in-time
communication with clients, automatic invoicing, upgraded security and access controls and an interactive integrated know your
client database. The platform provides an enhanced experience for clients and significantly increases internal efficiencies in the sales
and marketing function.
Providing clarity for customers
With consumers increasingly considering social and
environmental factors in their purchasing decisions,
technologies that can prove authenticity, provenance and
traceability of diamonds support ethical sourcing and
processing in the diamond value chain. This is particularly
relevant with younger consumers where these considerations
are even more likely to influence buying patterns.
Technologies such as blockchain represent a secure means
of linking the source of rough diamonds with the final cut
and polished diamonds. Solutions are available that provide
consumers with information about the mine and country of
origin of their diamonds, as well as the positive impact that
the mine and the broader industry have on the communities
and countries in which they operate. These technologies
support the sales and marketing of diamonds from
environmentally and socially responsible mining companies
like Gem Diamonds.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONTECHNOLOGY AND INNOVATION 40
GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019
41
On track to deliver US$100 million by 2021
DELIVERED TO DATE
13
5
4
22
DELIVERED TO DATE
3
21
1
25
MINING
US$ MILLION
PROCESSING
US$ MILLION
REMAINING DELIVERY
12
8
4
24
REMAINING DELIVERY
4
5 1
10
The Group successfully concluded the implementation of the
Business Transformation (BT) programme which is on track to
deliver the planned US$100 million in revenue, productivity
and cost saving (against the 2017 base) by 2021. 325 initiatives
were identified at the start of the project that create a step
change in efficiency, productivity and cost management, and
position Gem Diamonds favourably in its peer group. Having
started this programme in 2017, it supported Gem Diamonds’
resilience through prolonged constrained economic
conditions the industry is experiencing.
The targeted benefits are stated net of implementation costs,
consultant fees and an employee incentive plan which related
to the successful delivery of initiatives contributing to the
overall target. The target includes US$7.1 million related to
once-off savings and US$92.9 million in cumulative recurring
annualised benefits over the four-year period.
Work streams of the BT programme include:
• Mining
•
Processing
• Working capital and overheads
• Corporate activities
OVERVIEW OF PROGRESS
To date, most focus areas have delivered more than the
planned benefits with US$54.9 million of the implemented
initiatives cash flowed by 31 December 2019 (2018:
US$20.7 million). The focus for achieving the remaining
balance will be on maintaining strict contract mining costs,
realising efficiencies in plant uptime and additional
throughput opportunities, and continued slope monitoring
and waste minimisation.
BT PROGRAMME ANNUAL CASH SAVING US$ MILLION
CUMULATIVE
SAVING
1
21
2
1
12
5
1
55
3
2
12
17
77
100
4
1
5
4
2
5
12
12
30
5
2
9
14
2017A
2018A
2019A
2020E
2021E
2022E
ONWARDS
MINING
PROCESSING
WORKING CAPITAL AND OVERHEADS
CORPORATE ACTIVITIES
Many initiatives identified during the BT process resulted in
efficiencies in natural resource use, thereby, mitigating
the operational impact on the natural environment. This
aligns with our Group strategy of maximising benefit for
our communities and minimising our impact on the
environment. More information on energy reduction
initiatives and greenhouse gas emissions is available in
the Sustainable Development Reporting Platform at
www.gemdiamonds.com.
TARGET
25
13
8
46
TARGET
7
26
2
35
DRILL, LOAD AND HAUL
PIT DESIGN
BLASTING PRACTICES
PLANT UPTIME
ADDITIONAL THROUGHPUT
PLANT CONSUMABLES
Sustainable benefits in the mining workstream will depend on
the annual contract rate negotiations with blast, drill, load and
haul contractors.
Through the implementation of 76 initiatives since
commencement of BT, the improvement in plant uptime
and stability continues to contribute to the overall target.
Steepening of the inter-ramp slope angles in January 2019
was completed a year ahead of schedule. In the current year
waste mined reduced by 5.8 million tonnes compared to the
previous pit design. Sustained benefit is dependent on
continued berm retention and steeper slope angle
sustainability. Initial indications are that opportunities exist
to further steepen slope angles in the pits.
Optimising blasting patterns and practices, accessories and
explosive mix, leading to a reduction in blasting consumables
and together with early settlement discounts secured with
explosives suppliers, were the key to the success of the
blasting initiative.
To further improve plant uptime, various incremental
improvement projects, requiring capital investment, are
being considered.
The re-treatment of tailings material through the XRT machine
recovered 5 420 carats in 2019, and to date has contributed
considerably to the additional throughput initiatives. As the
material earmarked to be processed through the retreatment
plant to the end of 2021 is of a lower grade, the forecast
benefit has been set at a lower value.
CORPORATE ACTIVITIES
US$ MILLION
WORKING CAPITAL AND OVERHEADS
US$ MILLION
REMAINING DELIVERY
5
3
REMAINING DELIVERY
3
DELIVERED TO DATE
1
2
TARGET
1
5
WORKING CAPITAL
OVERHEADS
3
3
6
Overhead costs at Letšeng were reduced by implementing a
systematic approach of contract review and assessment to
identify excess footprint and then renegotiate contracts based
on a right-sized business. Once-off sale of scrap material also
contributed to the benefit.
8
5
DELIVERED TO DATE
3
2
TARGET
8
5
13
NONCORE ASSETS
CORPORATE EXPENSES
Assets associated with Ghaghoo, specifically the aircraft
servicing the mine, certain non-core mining fleet and
inventory have been sold.
The continued costs incurred in care and maintenance at
Ghaghoo while awaiting the preconditions of the sale
agreement to be satisfied, resulted in some of the benefit
from the disposal of non-core assets lagging behind its target.
As explained in the group financial performance on page 29,
corporate expenses relating to the corporate office were well
contained during the year, reducing baseline corporate costs
to US$7.7 million from US$9.3 million in 2018.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONBUSINESS TRANSFORMATIONUS$55 millionbenefit achieved to date 42
43
2020 FOCUS
The transition from BT to continuous improvement (CI)
throughout the Group is in progress, with the main focus
at Letšeng. CI focuses on behavioural strategies and the
implementation of meaningful KPIs for effective visual
management at all levels. The CI methodology, supported by
software training, enables companies to continuously improve
efficiencies by unlocking the inherent capabilities of
employees at all levels to implement CI best practices, build
effective teams and drive incremental improvements. The
additional financial benefit associated with incremental
improvements related to the CI process is being assessed, and
any value attributed to CI will be in addition to the current
US$100 million BT target.
MAKING HIS MARK THROUGH
INNOVATIVE THINKING
Having received a bursary from Gem Diamonds to study
metallurgy, Mothobi Erasmus has been employed at
Letšeng for the past eight years. “I joined as an intern in
2011 after completing my MSc in extractive metallurgy at
Stellenbosch University,” he says.
During the BT process, all employees were invited to
contribute collectively to the transformation of the
business in line with stated goals. It was during this time
that Mothobi realised he could be involved in more than
the traditional role of a plant metallurgist.
“Each department presented ideas for improvements in
overall efficiency and effectiveness. I was one of the
initiative owners and my role was to ensure that my ideas
reached execution stage. When my superiors realised that
I was progressing well, they asked me to assist all project
owners.”
Mothobi flourished in this role. “While I was a BT agent,
management recognised my efforts and I was promoted
to Continuous Improvement Lead. Truly, the BT process
has helped me to realise my true potential and to grow
both professionally and personally.”
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45
PROFILE OF THE BOARD
The non-Executive Directors possess a range of experience and competencies and bring independent judgement to bear on issues
of strategy, performance and resources that are vital to the success of the Group.
The current non-Executive Directors, including the Chairman, except for Johnny Velloza and Mazvi Maharasoa, are regarded as
independent by the Board as defined in the UK Corporate Governance Code 2018 (the Code).
AVERAGE TENURE OF BOARD MEMBER
2 YEARS
4 YEARS
6 YEARS
8 YEARS
Female
0%
86%
Male
100%
GENDER DIVERSITY
BOARD SKILLS AND EXPERIENCE %
BOARD EXPERTISE
BOARD AND EXECUTIVE EXPERTISE
81
81
81
67
67
67
67
62
62
57
52
International experience
Industry
Stakeholder engagement
Risk management
Financial
Operational
Environmental, social
Business development
Human resources
Capital markets and deal making
Regulatory
Marketing
Legal
29
14
5
5
Technology/digital
Social media, communications
4
4
41
33
85
81
78
67
63
67
70
67
63
63
56
NON-EXECUTIVE DIRECTORS
Harry Kenyon-Slaney (59)
Non-Executive Chairman
BSc Geology (Southampton University),
International Executive Programme
(INSEAD France)
INDEPENDENCE
Chairman tenure <9 years
No independence conflict exists
Michael Lynch-Bell (66)
Non-Executive Director
BA Hons Economics and Accountancy
(University of Sheffield); FCA of the Institute of
Chartered Accountants in England and Wales
Appointed to the Board in June 2017
Skills and experience
Harry has over 37 years of experience in the mining industry, principally with
Rio Tinto. He is a geologist by training and his experience spans operations,
marketing, projects, finance and business development. He has worked in
South Africa, Australia and the UK. Until 2015, Harry was a member of the Group
executive committee of Rio Tinto where he held the roles of CEO of Energy, and
before that CEO of Diamonds and Minerals. Prior to this he variously led Rio Tinto’s
global titanium dioxide business, was CEO of Rio Tinto’s listed subsidiary, Energy
Resources of Australia Limited, was general manager of operations at Palabora
Mining Company in South Africa and held senior marketing roles in copper,
uranium and industrial minerals. He began his career as an underground geologist
with Anglo American on the gold mines in South Africa.
Current external appointments
Harry is currently a senior adviser to McKinsey & Co.
Harry is also the senior independent director of Petropavlovsk Plc; a member of the
advisory board of Schenck Process AG; a non-executive director of Sibanye-
Stillwater; and a non-executive director of several private companies.
Chairperson
Member
Appointed to the Board in December 2015; appointed Senior Independent
Director in November 2017
Skills and experience
Michael spent a 38-year career with Ernst & Young (EY) having led its Global Oil
and Gas, UK IPO and Global Oil and Gas and Mining transaction advisory practices.
He was a member of EY’s assurance Practice from 1974 to 1996 when he
transferred to the Transaction Advisory Practice. He was also UK Alumni sponsor
and a member of the firm’s Europe, Middle East, India, and Africa and Global
Advisory Councils. He retired from EY as a partner in 2012 and continued as a
consultant to the firm until November 2013.
Current external appointments
Michael is currently deputy chair and senior independent non-executive director
at Kaz Minerals Plc; chair of the audit committee at Lenta Limited; chair of Little
Green Pharma Ltd; and non-executive director of Barloworld Limited.
Chairperson
Member
Audit
Remuneration
Nominations
HSSE
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47
Appointed to the Board in January 2018
Skills and experience
Mike has over 35 years’ experience in the resources industry in operational,
senior management, and director roles. He spent six years in Switzerland as
the managing director technical at Pala where he oversaw all technical aspects
of the mining sector investments, including the risks associated with resource
performance, project management, ramp-up, operations, and the associated
working capital and financial controls. Prior to joining Pala, Mike spent 21 years
with De Beers in southern Africa in various roles, culminating in the post of chief
operating officer where he was accountable for five operating mines, including
greenfield and brownfield growth projects. He also managed the restructuring at
De Beers Consolidated Mines in 2005/2006 and again in 2009. Mike has overseen
growth projects and building of mines in Namibia, South Africa, Sierra Leone,
Vietnam and USA.
Current external appointments
Mike is currently a non-executive director of Nevada Copper.
Mike Brown (59)
Non-Executive Director
BSc Engineering; Mining PR Eng (ECSA)
Engineering (University of Witwatersrand);
Strategic Executive Programme (London
Business School)
Mazvi Maharasoa (50)
Non-Executive Director
LLM International and Commercial Law
(University of Buckingham)
Chairperson
Member
EXECUTIVE DIRECTORS
Appointed Chief Operating Officer in June 2016; Deputy Chief Executive Officer
in May 2018; Executive Director to the Board in July 2018; non-Executive Director
from September 2018
Skills and experience
Johnny is a Mining Engineer with broad mining experience in both open pit
and underground operations across southern, central and east Africa, Chile and
Australia. Johnny has worked in a number of different commodities including iron
ore, copper, cobalt, gold and diamonds. Johnny has held senior operational
management roles in large mining companies, including De Beers, AngloGold
Ashanti and BHP Billiton. Since starting his career 25 years ago, Johnny has
gained experience in exploration, feasibility studies, opening new mines
and running mines.
Current external appointments
Johnny is currently a non-executive director of Zanaga Iron Ore Co. Limited.
Member
Johnny Velloza (49)
Non-Executive Director
BSc Mining and Mineral Engineering
(University of Johannesburg), BSc Business/
Commerce General (University of South Africa)
Clifford Elphick (59)
Chief Executive Officer
BCom (University of Cape Town); BCompt
Hons (University of South Africa)
Appointed to the Board in July 2019
Skills and experience
Mazvi has over 20 years’ experience in senior management positions, including
leading roles in the mining sector having served as the resident director and
chief executive officer of Letšeng Diamonds Proprietary Limited until 2017.
Furthermore, Mazvi was also the founder and president of the Lesotho Chamber of
Mines (2016). Prior to her work in the mining industry, Mazvi was involved in the
Ministry of Natural Resources and the Central Bank of Lesotho, where she was the
senior legal counsel for each of these entities.
Mazvi has also established an advisory firm that specialises in corporate
governance practice and advice.
Since joining the Board, Mazvi has been appointed as the designated non-
Executive Director for steering engagement with the workforce.
Current external appointments
Mazvi is currently a non-executive director of Stanlib Lesotho Proprietary Limited
and Intellectual Disabilities and Autism Lesotho.
Member
Founded Gem Diamonds in July 2005
Skills and experience
Clifford joined Anglo American Corporation in 1986 and was seconded to
E Oppenheimer & Son Proprietary Limited as Harry Oppenheimer’s personal
assistant in 1988. In 1990, he was appointed managing director of E Oppenheimer
& 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.
Current external appointments
Clifford is currently the non-executive chairman of Zanaga Iron Ore Co. Limited.
Member until June 2019
Audit
Remuneration
Nominations
HSSE
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48
49
Appointed to the Board in April 2013
Skills and experience
Michael has over 20 years’ experience in financial management. He joined the
audit firm RSM Betty & Dickson in Johannesburg, South Africa in January 1993
and became audit partner at the firm in March 2000. From 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.
Current external appointments
None
Served on the Board from April 2008 to November 2017
Skills and experience
Glenn was called to the Johannesburg Bar in 1987 where he spent 14 years
practising as an advocate specialising in general commercial and competition
law and took silk in 2002. Glenn was appointed De Beers’ first general counsel in
2002 and was also a member of its executive committee. Glenn was responsible
for a number of key initiatives during his tenure, including overseeing De Beers’
re-entry into the USA.
Current external appointments
None
Skills and experience
Brandon joined Gem Diamonds from Clifford Chance LLP, one of the world's
leading international law firms. Practising in New York and London, he specialised
in debt and equity capital markets and corporate finance. Brandon gained
extensive commercial and legal experience in international corporate and finance
transactions working for clients such as Citigroup, UBS, JPMorgan, ABN Amro, Bank
of America, Lehman Brothers and Morgan Stanley. He also gained valuable
experience in stock exchange listings in London, Luxembourg and New York and
in the UKLA (UK) and SEC (USA) rules and regulations. At Gem Diamonds, Brandon
has been responsible for numerous corporate and financial transactions and has
managed the Group's Sales, Marketing and Manufacturing division. In 2017 he was
appointed as the Group Transformation Officer, and during the current year has
been appointed as the Group’s Operations and Business Transformation Executive.
Michael Michael (49)
Chief Financial Officer
BCom Hons (Rand Afrikaans University);
CA(SA)
EXECUTIVE MANAGEMENT
Glenn Turner (59)
Chief Legal and Commercial Officer
and Company Secretary
BA; LLB (University of Cape Town);
LLM (Cambridge)
Brandon de Bruin (48)
Operations and Business
Transformation Executive
BCom; LLB (University of the Witwatersrand);
Qualified attorney in South Africa and solicitor
in England and Wales
Current external appointments
None
Audit
Remuneration
Nominations
HSSE
Throughout the year the Board
has sought to evolve and
improve our corporate
governance.
We continued to implement the necessary adjustments
identified from the Code, as well as ensuring we have
enhanced our reporting in relation to section 172 of the
UK Companies Act 2006 and voluntary disclosures in relation
to the Miscellaneous Reporting Regulation (MRR).
During the year we spent considerable time evaluating the
work of the Board and its Committees, for which we brought
in external expertise to assess our performance. This was
a very valuable exercise and resulted in several
recommendations which the Board and the Committees have
started to implement over the course of the year. Many areas
were positively or highly rated such as Board dynamics,
information and support received by the Board, management
of meetings, and engagement with communities.
Recommendations for further focus included more regular
strategic discussions, addressing talent and succession,
current and emerging risk management and increased time
allocation to the Board and Committee meetings.
The table below, together with the reports from the Audit,
Nomination, HSSE and Remuneration Committees beginning
on page 59, provides a description of how the Group has
complied with and applied the main principles of the Code,
S172 of the UK Companies Act 2006, and the MRR.
Governance change
Employee engagement
CEO pay ratio
Establish a company’s purpose
Assess and monitor culture
Stakeholder engagement
Responsible Committee
Read more on page
Board/Nomination Committee/
Remuneration Committee
Remuneration Committee
Board
Board
Board
Page 1, 13, 56, 74
Page 69
Page 1
Page 1, 56, 57, 85
Throughout report as well as Mazvi Maharasoa
appointed as designated non-Executive Director
for workforce and communities engagement
Board evaluations
Nominations Committee
Talent and succession planning
Nominations Committee
Page 54, 64
Page 55, 63, 64
Length of service (tenure and prior
experience for Chair)
Nominations Committee
Page 45
Robust assessment of emerging risks
Audit Committee
Remuneration Committee
Page 21
Page 80, 74
Aligning pay practices with business
strategy and reviewing wider workforce
remuneration and related policies
Wider remit of Nominations Committee
matters to include senior management
Nominations Committee
Page 63
Policy on diversity and inclusion
Nominations Committee
Role profiles
Nominations Committee
Page 55, 63
Page 52
Pension contribution rates for Executive
Directors should be aligned with those
available to the wider workforce
Post-employment shareholding
requirements policy development
Remuneration Committee
Page 68, 71, 89
Remuneration Committee
Page 68
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50
51
One of the changes that came into effect is the requirement
for a Board to demonstrate that it is engaging not only with
employees but also with the wider stakeholder community.
The Board fully supports this objective and in line with our
existing efforts in this area appointed Mazvi Maharasoa, who
joined the board as a non-Executive Director during the year,
as the Board’s representative to engage with the broader
workforce and communities.
At the 2019 Annual General Meeting two of the proposed
resolutions received less than 80% support and the Board and
members of the senior management team engaged actively
with some of our larger investors to understand their
concerns. In November last year we issued an update on these
discussions and we continue to seek and encourage dialogue
with all stakeholders on any matters of interest or concern.
During the year the Nominations Committee adopted a new
planning framework which enabled it to monitor and plan
appropriately for both Board and senior management
succession. The Committee understands the need for the
Board to maintain a broad set of skills and capabilities and
constantly reviews its diversity and its ability to ensure a deep
level of independent thinking and constructive and critical
challenge.
Risk management remains a critical responsibility of both the
Board and senior management and the Audit Committee
continued to monitor the risks that the Group faces alongside
ensuring that its approach to, and adoption of, new financial
standards and regulations were correct and that internal
controls remained robust.
The work of the HSSE Committee is very important in ensuring
that the health and safety of employees is maintained, that
the integrity of environmental management systems remains
in place and that we work effectively with our local
communities. The committee focused particularly on ensuring
that a penetrating investigation was conducted into the tragic
accident that resulted in the death of a colleague from a
sub-contracting company, Mr Abele Mtambo at the Letšeng
mine in February 2019, and that the findings of this and all
safety investigations are promptly implemented. I and my
fellow Board members remain deeply committed at all times
to the health and safety of those that work for and with us.
Remuneration Committee has the responsibility to ensure
that remuneration policies and practices across the Group
remain aligned with best practice and that they offer an
appropriate balance of incentive and fairness to staff and
shareholders alike. During the year the Committee assessed
developments arising from the Code and with external
support considered shareholder positions to ensure that the
Company’s remuneration policies and practices remain
aligned with these requirements.
All the current Directors will offer themselves for re-election
by the shareholders at the 2020 AGM.
I remain grateful to Clifford, Michael and to all our executive
colleagues, as well as to my fellow Directors, for the excellent
work they have done during the year to ensure that our
standards of corporate governance are exemplary. I would
also like to take this opportunity to thank you, our
shareholders, for your continued support.
My fellow Board members and I will be available at the 2020
AGM to respond to any questions you may have on this report
or on any of the Committees’ activities and I look forward to
welcoming those of you who are able to attend.
Harry Kenyon-Slaney
Non-Executive Chairman
10 March 2020
This report combines the Directors’ Report, the Strategic
Report and the Group’s compliance with the principles and
provisions of the Code . It includes details of the key policies,
processes and structures that apply to the Company. It
incorporates sections on the role and work of the Audit,
Nominations, HSSE and Remuneration Committees in line
with the Disclosure Guidance and Transparency Rules (DTR).
The Board continues to review and assess all policies and
practices throughout the organisation considering changes
to the Code and best practice principles. It also looks at
forthcoming legislative and regulatory changes that may
affect the governance and compliance of the structure and
functions of the Board and its Committees.
The Board ensures it is kept apprised of all revisions and
market practice recommendations issued by institutional
investor bodies such as the Institutional Shareholder Services,
the Institutional Voting Information Service and the Pension
and Investment Research Consultant. The Company considers
that it is compliant with all provisions of the Code, unless
highlighted otherwise in this report.
BOARD OF DIRECTORS
The role of the Board
The Board is responsible for the overall conduct of the Group’s
business, with its primary focus as follows:
•
•
•
•
•
•
Setting the Group’s purpose and values and establishing
the overall Group strategy and satisfying itself that these
are aligned with its culture
Approving the Group’s commercial strategy and the
annual operating and capital expenditure budget and
any material changes to them
Ensuring the workforce policies and practices are
consistent with the Group’s values and support its
long-term success and regularly assess and monitor
the Group’s culture
Establishing procedures to manage risk, oversee the
internal control framework and consider the nature and
extent of the emerging and principal risks identified by
the Group
Considering the views of shareholders and other key
stakeholders when making decisions
Ensuring adequate succession planning for the Board and
senior management and within this context promote
diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths and monitor
performance and agree the structure of management
and its responsibilities
•
Approving changes to the Group’s capital structure and
corporate structure
• Determining the Group’s remuneration policy
•
Monitoring the effectiveness of and reporting on the
structure of corporate governance
The Board meets on a regular basis focusing on strategic
issues, such as financial performance, risk management and
other critical business concerns and has a formal schedule of
matters reserved for its decision. The agenda for each Board
meeting includes discussion, decision-making and
appropriate resource allocation surrounding these matters.
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
established by the Board and to produce clear, accurate and
timely reports to enable the Board to monitor and assess the
Group’s performance. The Board reviews financial and
operational performance at each meeting. It receives regular
updates on the Group’s performance across a range of metrics.
Regular reports presented to the Board include the CEO
Report; operations reviews; sales, marketing and
manufacturing reports; half-year and full-year financial results;
employee surveys; BT status and investor relations updates.
The executive management draws on the expertise and
experience of the non-Executive Directors.
All Directors are free to express their views and may ask that
these be recorded in the minutes where appropriate.
Board and Committee meetings
Four scheduled Board meetings and three special meetings of
the Board were held during 2019. 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,
Nominations, HSSE and Remuneration Committees can be
viewed on the Group’s website together with the matters
reserved for the Board. www.gemdiamonds.com/investors-
corporate-governance.php.
The remaining two Committees (Standing and Share Scheme)
facilitate the administration of the Board’s delegated authority.
If Board approval is required between Board meetings, Board
members are emailed the details, including supporting
information for decision-making. The decision of each Board
member is communicated and recorded at the following
Board meeting.
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Board:
7 held
Audit:
4 held1
Remuneration:
4 held
Nominations:
4 held2
HSSE:
4 held3
Roles of the Senior Independent Director and non-Executive Directors
Senior Independent Director, Michael Lynch-Bell
Non-Executive Directors
Director
Executive Board members
C Elphick
M Michael
Non-Executive Board members
H Kenyon-Slaney
M Lynch-Bell
M Brown4
J Velloza
M Maharasoa
7
7
7
7
6
7
4
–
–
3
4
3
1
1
–
–
4
4
4
–
–
2
–
4
4
4
–
–
–
3
3
4
4
1
1
M Maharasoa and J Velloza were appointed to the Audit Committee from 4 September 2019 and were eligible to attend one meeting. M Brown and H Kenyon-Slaney stood down
from the Audit Committee at the same time and were eligible to attend three meetings during the year.
2 C Elphick stood down from the Nominations Committee following the meeting in June 2019.
3
H Kenyon-Slaney, M Lynch-Bell and G Turner stepped down from the HSSE Committee and M Maharasoa was appointed from 4 September 2019. M Maharasoa was eligible to
attend one meeting.
4 M Brown was unable to join one of the special Board meetings.
Non-Executive Directors’ meetings
The non-Executive Directors meet independently of the
Executive Directors, in accordance with the practice adopted
by many listed companies.
Chairman and Chief Executive Officer
A clear separation is maintained between the responsibilities
of the Chairman and the Chief Executive Officer. The Board has
operated on this basis for over 10 years thereby ensuring there
is a clear division of responsibilities between the leadership of
Roles of the Chairman and Chief Executive Officer
the Board and the executive leadership of the Company’s
business. The Chairman is responsible for creating the
conditions for the effective working of the Board. The CEO is
responsible for the leadership, operations and management of
the Group within the strategy and business plan agreed by
the Board. Their individual responsibilities, together with the
responsibilities of the Senior Independent Director and
non-Executive Directors are detailed on the following pages.
During the year the Nominations Committee reviewed the
role profiles of the Chairman and Chief Executive Officer to
ensure these encompassed the responsibilities from the Code.
Chairman, Harry Kenyon-Slaney
CEO, Clifford Elphick
•
•
•
•
•
•
•
•
•
•
•
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 appropriate skill sets, experience,
knowledge and diversity and that there are succession plans in
place for the Board and senior management team
Ensuring that the Company maintains effective communication
with shareholders and that the Board understands their views and
concerns
Working with the CEO 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 collegial team of Directors
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 CEO
Ensuring that adequate time is available for discussion on all
agenda items
•
•
•
•
•
•
•
•
Developing a business strategy for the Group to be
approved by the Board
Producing the business plans for the Group to be
approved by the Board
Overseeing the management of the executive resource
and succession planning processes and presenting 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 to 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
Acting as a sounding board for the Chairman
Serving as an intermediary for other Directors if necessary
Scrutinising the performance of executive 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
Ensuring a satisfactory dialogue with shareholders on strategy,
remuneration policy and other relevant matters as well as
engagement with key stakeholders
Strengthening links between the Board and the workforce by
designating a non-Executive Director who, in conjunction with
management, will aim to develop and implement workforce
engagement initiatives and report to the Board on relevant
matters, or issues of concern, highlighted by the workforce
Providing a wide range of skills and independence, including
independent judgement on issues of strategy, performance and
risk management
For more on the roles of Board Committees please refer www.gemdiamonds.com/investors-corporate-governance.php.
Board skills, balance and independence
The Board annually reviews the composition and
chairmanship of its primary Committees, namely the Audit,
Nominations, HSSE and Remuneration Committees. 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-making.
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.
Knowledge of the diamond industry is crucial to foster new
business opportunities and to enhance the Group’s operations
in cutting and polishing and sales and marketing strategies.
Knowledge of financial markets is also necessary to ensure
fulfilment of the Group’s strategy. The biographies, which can
be found on pages 44 to 48, provide more information on
each Director’s competencies. All Directors allocate sufficient
time to the Group to fulfil their responsibilities effectively.
Non-Executive Directors should be independent in character
and judgement. In applying the independence test, the Board
considers relationships with executive management, major
shareholders, subsidiary and associated companies and other
parties with whom the Company transacts business against
predetermined materiality thresholds. The Board considers the
majority of the non-Executive Directors, being Harry Kenyon-
Slaney, Michael Lynch-Bell and Mike Brown, to be
independent in accordance with the Code. Both Johnny
Velloza and Mazvi Maharasoa bring a wealth of skills and
experience to the Board. However, under the criteria from the
Code cannot be considered independent due to their
previous roles within the Group. Both Johnny and Mazvi were
appointed during the year to the Audit Committee and
Mazvi to the HSSE Committee. The knowledge that both
Directors can bring to these Committees was considered by
the Board to outweigh the need for membership of the
Committee to be independent non-Executive Directors.
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.
Appointments and re-elections to the Board
(see also Board diversity on page 44)
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. Since
2007, recruitment to the Board has been based on
recommendation; therefore, no outside consultants have
been engaged. The Board currently comprises a broad and
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55
highly relevant skill set, and the Nominations Committee
continues to make appointments based on merit while
considering diversity (of gender, social and ethnic
background), cognitive and personal strengths and the
specialist skill set which is required by the business. Further
details are in the Nominations Committee Report.
The Nominations Committee’s section of this report is set out
on pages 62 to 64. It is required that all Directors retire at the
AGM and, if appropriate, offer themselves for re-election
in accordance with the Code. 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, independent
professional advice and the Company Secretary
Board evaluation
In accordance with the Code, the Board is responsible for
undertaking a formal and rigorous annual evaluation of its
own performance and that of its Committees and individual
Directors. Towards the end of 2018 and the first few months of
2019 the Board undertook an evaluation that was externally
facilitated by Chris Stamp from Prism Boardroom. Neither
Chris Stamp nor Prism Boardroom had any other connection
with the Company. The review was initiated by the Board and
arranged by the Nominations Committee, recognising in
accordance with the Code the importance of undertaking
an externally facilitated Board evaluation. The scope of the
evaluation was discussed with the Chairman and the
Company Secretary and Prism Boardroom were provided
with access to a number of documents including Board and
Committee papers as part of the review. One-on-one
interviews were conducted with all the Board Directors as well
as an informal discussion with the Company Secretary. The
findings were consolidated into a report which, along with a
number of recommendations were circulated to all Directors
and discussed during a Board meeting.
Training and induction
All new Directors receive a full, formal and tailored induction
upon joining the Board. This includes meetings with
management and access to external auditors and covers the
Board Committees that they join. 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 are
provided through four measures:
•
•
•
•
providing regular updates on changes (actual and
proposed) in laws and regulations affecting the Company
or its business;
planning, including site visits, to ensure Directors are
familiar with Group operations, including its commitment
to and application of the Group’s corporate and social
responsibility policies;
creating opportunities for professional and skills training,
such as Committee chairmanship; and
through appropriate Board presentations and formal
professional seminars.
Site visits
Visiting the Group’s operations and interacting with Senior
Management and employees is an integral part of the
Directors’ ongoing knowledge of the business.
A full Board site visit to Letšeng was last held in November
2018. In the current year, the following visits were conducted
by the non-Executive Directors:
Mike Brown visited Letšeng in April and August 2019, with the
main focus areas on verifying that the corrective actions
identified in the fatality and LTI incident investigations were
implemented and obtaining a comprehensive overview of
the TSFs. He also visited the sales and marketing operation in
Antwerp.
Johnny Velloza visited Letšeng in August and December 2019,
mainly focusing on the TSFs and as part of his duties as the
chairman of the Operations Steering Committee. Refer to
page 63 for further details on this committee.
Mazvi Maharasoa visited Letšeng as part of her induction to
the Board.
In addition to these visits, Executive Directors and
management visited the operations on a regular basis as
part of their day-to-day business.
Independent advice
All Directors either independently or collectively 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 executive management and 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 assisting with professional
development as required. The Board approved a new policy
on members seeking independent advice in March 2020.
Company Secretary
An independent firm of Chartered Secretaries in Public
Practice advises the Company Secretary. Bruce Wallace
Associates is engaged to ensure that all company secretarial
and governance issues are attended to and the Board is kept
apprised of all compliance and best practice matters
throughout the year.
Conflicts of interest
The UK Companies Act (the Act) requires Directors to avoid
any situation where they may have a direct or indirect interest
that conflicts, or may conflict, with the Group’s interests, unless
approved by the non-interested Directors. In accordance with
this Act, the Company operates a procedure, which was
updated and approved by the Board during the year, 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’
that it reviews annually (most recently in March 2019). The
Company voluntarily complies with this requirement. The
Board considered all external Director’s appointments made
during the year.
Dealings in shares and the EU market
abuse regime
The Company’s share dealing policy and reporting
procedures are in line with the EU Market Abuse Regulations
implemented in July 2016.
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 Directors’
remuneration policy was updated in 2017 and approved by
shareholders at the 2017 AGM, and the renewal of this policy
will be put to the shareholders at the 2020 AGM in line
with the Company’s three-year review policy. The details
of the Directors’ remuneration policy and all Directors’
remuneration are detailed in this report on remuneration
on pages 70 to 93.
Bribery Act
The Group applies a zero-tolerance approach to acts of
bribery and corruption involving any of its staff and third-party
representatives or associates and is committed to upholding
and complying with the requirements of the UK Bribery Act.
The Group’s terms of business require all customers and third
parties with whom business is transacted to adopt the same
zero-tolerance approach to bribery and corruption as
implemented by the Board. During the year the Board
approved an updated policy on anti-bribery and corruption
following recommendations from Group Internal Audit’s
compliance review.
Refer to the Audit Committee Report page 59.
Board diversity
The Board is mindful of the continuing Hampton-Alexander
reviews and its objective to improve diversity in
executive leadership and senior management. Further detail
on the new framework to succession planning can be found
in the Nominations Committee report on page 62. Similarly,
the Board is conscious of the trends evidenced in the Code to
increase diversity in boardrooms. The Company recognises the
importance of diversity, including gender, at all levels across
the Group. In this regard it is significant that 98% of the total
Group workforce are Lesotho citizens and 20% of the total
workforce is female. Throughout the Group, succession
planning is considered a key priority with a focus on the
development of women into leading roles, which drives a
diverse pipeline of talent. During the year the Nominations
Committee approved a new diversity and inclusion policy
covering both Board diversity and the Company’s approach
across the organisation.
More information on gender-based employment is contained
in the Sustainable Development Review on the Company’s
website www.gemdiamonds.com.
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 in the
investors section, where all published information and
shareholder communication is available. This includes trading
updates; year end and half year results; resource and reserve
statements; and all other announcements.
Accountability and audit
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 the Strategic
Report on pages 1 to 43 has met this obligation. The
Responsibility Statement of the Directors in respect of the
Annual Report and Accounts 2019 is set out on page 100.
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 business plans for the year ahead
and a three-year rolling plan. The Board reviews and approves
the Group’s annual business plan. These are prepared in
co-operation with all Group functions based on specified
economic assumptions. Performance is monitored, and
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relevant action taken throughout the year through monthly
reporting of KPIs and updated forecasts for the year, together
with information on key risk areas.
In addition, routine management reports, including results
to date and 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 results, cash flow and
progress on strategic issues are circulated to Board members
and senior executives.
Internal control
The Board has responsibility for the Group’s overall approach
to risk management and internal control, which are
embedded in all key operations. In accordance with the
Guidance on Risk Management, Internal Control and Related
Financial and Business Reporting Guidance published by the
FRC in September 2014, the Board has defined the processes
adopted for its ongoing monitoring and assessment and relies
on reviews undertaken by the Audit Committee throughout
the year, as well as the approval of the Annual Report and
Accounts 2019. In addition, regular management reporting
and a balanced assessment of key risks and controls is an
important component of Board assurance.
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 enhance 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 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 findings or weaknesses. A full
report of the work carried out by the Audit Committee on
behalf of the Board is set out in the Audit Committee Report
on pages 59 to 61.
Internal audit
The Group internal audit function, as an independent
assurance provider, is an important element of the overall
process by which the Audit Committee and the Board obtain
the assurance it requires that risks are being effectively
managed and controlled and the adequacy and effectiveness
of the Group’s control environment.
The Group internal audit function is provided through an
in-house Internal Audit department supplemented by
external industry experts when required. The Group Internal
Audit department reports directly to the Audit Committee
and is responsible for co-ordinating the Group’s risk-based
audit approach and to evaluate the effectiveness and
contribute to the improvement of the risk management
process, control environment and governance systems.
Various ad hoc assignments are also performed during the
year at the request of management.
The risk-based audit plan, approved by the Audit Committee,
covers all operating units, focusing on the principal risks.
It involves discussions with management on the risks
identified in the subsidiaries’ and Group risk registers,
emerging risks, operational changes and capital projects.
Findings and agreed actions are reported to management and
the Audit Committee.
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 discharged by the Audit Committee,
whose role is defined on pages 59 to 61.
Risk assessment and management
Risks are monitored continually and formally reviewed
annually. A more comprehensive report of the Group’s
principal and emerging risks and how these are managed
and/or mitigated can be found on pages 15 to 21 of the
Strategic Report.
The Group’s operations perform regular risk assessment
reviews and maintain risk registers. 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 tabled and approved by the Audit
Committee. The Committee at times delegates its authority
to the Board for completeness. The Audit Committee and the
Board, where appropriate, are kept informed on progress
against the plans and any significant changes to review the
ENGAGING ON
RECOMMENDATIONS
BY INTERNAL AUDIT
S172 (1)(b)&(e)
One of the manners in which culture is monitored is by
Internal Audit testing anti-bribery controls. Following
Internal Audit’s recommendations, the Board approved
updates to certain provisions in the anti-bribery and
corruption policy.
risk profile. This enables the suitable management and
non-Executive Directors to holistically review the risk, mitigate
and implement controls as necessary.
Investment appraisal
Capital expenditure is managed through 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 investments, which
includes a detailed calculation of return based on current
assumptions that are consistent with those included in
management reports.
Post-investment reviews are carried out after the project is
completed and, for material projects, steering committees
are established to monitor the progress against the approved
plan.
Commercial, legal and financial due diligence are carried out,
using external consultants as appropriate, in respect of
acquisitions and disposals.
Whistleblowing programme
The Company has formal means of reporting suspected fraud,
corruption and irregularities via independently operated and
confidential toll-free phone hotlines in each country in which
the Group operates. Employees can report any breach of the
Group’s business principles including, but not limited to,
bribery, breaches of ethics and fraud.
All whistleblowing incidences reported are distributed by the
Group internal auditor or Company Secretary for investigation
by the relevant operations.
All incidents reported are fully investigated and the results are
reported to the boards of local operations and the Group’s
Audit Committee. Group Internal Audit periodically reviews
the design and effectiveness of the hotline and reports the
results to the Audit Committee.
The Board continues to be satisfied the whistleblowing
programme is being utilised correctly by concerned
individuals and that all queries raised during the year have
been properly investigated and reported.
The policy was expanded during the year and the most
significant outcome was in the case where an employee was
reinstated after dismissal and the whistleblowing process
identified that a reinstatement was necessary.
Shareholder and stakeholder engagement
Communication with industry analysts, institutional investors
and shareholders and wider groups of stakeholders is of great
importance to the Board. Understanding the views of
stakeholders and shareholders has proven to be highly
beneficial to the Group. These engagements have been
flagged throughout the report. The Board recognises the
enhanced responsibilities from the Code for the Board to
engage with its workforce and the wider community of
stakeholders.
Shareholders have direct access to the Chairman to address
their views and concerns. The Chairman has continued to
engage with several significant shareholders over the year.
Shareholder views are communicated to the Board and are
tabled at each Board meeting. The Company’s Senior
Independent Director is available to shareholders if contact
through normal channels fails to resolve their concerns, or if
such contact would be inappropriate.
The Executive Directors conduct regular roadshows to engage
with several of the Group’s larger investors creating a suitable
platform for them to express any concerns. The responsibility
of investor relations is that of the Chief Legal and Commercial
Officer.
The shareholder base comprises 139.0 million issued ordinary
shares of US$0.01 each. There are institutional shareholders
that hold 129.3 million shares (93%) and private shareholders
who hold 9.7 million shares (7%).
Assessing and monitoring culture
We measure our workplace culture through an annual culture
and engagement survey, which enables us to explore the
collective experience within the organisation and the
prevalent patterns of behaviour. Metrics have been put in
place to link the outcomes of the survey to our values and
determine areas for future focus. Read more in our
Remuneration Committee Report on page 79.
Annual General Meeting (AGM)
The AGM is an opportunity for investors to engage with the
Directors. All Directors attend the AGM, and shareholders are
invited to ask questions during the meeting and to meet
Directors after the formal proceedings have closed.
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 Services and on the Company’s
website.
In accordance with the Code, if any resolution put to
shareholders receives over 20% votes against, the Board will
seek to actively engage with investors to understand their
concerns and publish a report on the actions taken and any
next steps within six months of the meeting. At the AGM held
in 2019 two resolutions received over 20% votes against.
Following this result, members of the Board and the executive
management team engaged in consultation with several of
the Company’s larger shareholders on concerns raised. The
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matters and outcomes during these discussions related to the
Board’s composition and wider share capital issues. Since the
AGM Mazvi Maharasoa has been appointed to the Board and
there continues to be consideration of the composition of the
Board and broader share capital matters. The Company
released an update statement in November 2019 on actions
taken in response to the votes received and can be viewed on
the Company’s website www.gemdiamonds.com.
The 2020 AGM will be held on Wednesday, 3 June 2020.
Details of the resolutions to be proposed at the AGM can be
found in the Notice of AGM, which will be published on the
Company’s website or sent to shareholders who requested to
continue to receive paper copies, a minimum of 20 business
days before the meeting. Therefore, shareholders who receive
electronic communications can access the Annual Report and
Accounts 2019 and the AGM documentation through the
Company’s website.
Shareholders
Majority interest in shares
On 14 February 2020, the Company was notified of the
following major interests (at or above 3%) in the issued
ordinary shares of the Company in accordance with the DTR 5:
Shareholders
Sustainable Capital
Graff Diamonds International
Lansdowne Partners
Aberforth Partners
Gem Diamonds Holdings
Hosking Partners
Dimensional Fund Advisors
Number
of ordinary
shares
27 948 386
20 861 931
20 721 413
14 164 995
9 325 000
5 322 700
4 692 606
%
share-
holding
20.1
15.0
14.9
10.2
6.7
3.8
3.4
There were no further updates to the date of this report.
Changes in major interests in the Company are updated on
the Company’s website as and when these occur.
M Lynch-Bell
Chairperson
Non-Executive Director
The role of the Committee is to assist the Board in fulfilling its oversight
responsibilities by reviewing and monitoring:
•
•
•
•
the integrity of the financial and narrative statements and other financial
information provided to shareholders;
the Group’s system of internal controls and risk management;
the internal and external audit process and auditors; and
the processes for compliance with laws, regulations and ethical codes
of practice.
Membership1 as at 31 December 2019:
• M Lynch-Bell
• M Maharasoa
•
J Velloza
Other attendees
• H Kenyon-Slaney
• C Elphick
• M Michael
•
B de Bruin
• Group Financial Controller
•
•
External and internal audit
Secretary (Bruce Wallace Associates)
AUDIT COMMITTEE SKILLS AND EXPERIENCE %
Stakeholder engagement
Industry
Environmental, social
International experience
Risk management
Financial
Business development
Human resources
Operational
Regulatory
89
78
78
67
67
67
67
56
56
56
Capital markets and deal making
Legal
Marketing
Technology/digital
11
11
44
33
1 H Kenyon-Slaney and M Brown stood down from the Committee and M Maharasoa and J Velloza were appointed from 3 September 2019.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019UK CORPORATE GOVERNANCE continuedAUDITCOMMITTEE
60
61
2019 value adding activities
Financial disclosure
The Committee continued to ensure during the year that the Group’s Annual Report and Accounts 2019 and
the Half Year Report 2019 were fair, balanced and understandable by continuing to challenge and debate the
judgements made and ensure information necessary for shareholders to assess the Group’s performance,
business model and strategy is provided.
The significant issues reviewed by the Committee relating to the 2019 results were:
(1) the impact of adopting the new accounting standard, IFRS 16 Leases on 1 January 2019;
(2) the judgements applied by management in the assessment of Ghaghoo as a discontinued operation
and the application of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations to its results;
(3) the impact on the estimates of useful lives of assets following the renewal of the Letšeng mining lease;
(4) the judgement applied by management in the re-allocation between the share-based payment reserve
and retained income, aligning the reserves to the outstanding awards which have vested;
(5) the judgements applied by management in assessing impairment reviews, going concern and viability
assessments and the conclusions reached thereon, after considering the financial position of the Group,
its cash flows, liquidity position and borrowing facilities; and
(6) the judgements applied by management in concluding that there were no uncertainties in income taxes
in terms of IFRIC 23 Uncertainty over Income Tax Treatments, specifically regarding the amended tax
assessment issued to Letšeng by the Lesotho Revenue Authority in December 2019.
External audit
In advance of the 2019 audit, the Committee reviewed and assessed the appropriateness of the external
auditor’s plan, audit strategy, scoping, materiality and audit risks and had the opportunity to request
additions to the scope and risk areas prior to approving the final plan. The significant areas of audit focus
identified by the external auditors to be addressed during the course of the audit were primarily: revenue
recognition, impairment of property, plant and equipment and goodwill, implementation of IFRS 16, deferred
waste stripping calculation, taxation, rehabilitation provision and share-based payments as mentioned in the
Independent Auditor’s Report on page 101. The Committee was satisfied that all material audit risks were
covered within the auditor’s scope. The Committee assessed the materiality level applied as appropriate to
identify relevant audit risks.
Auditor appointment and independence
The transition from EY UK to EY South Africa (EY SA) was completed in early 2019 for the Annual Report
and Accounts 2018 audit. The Committee remains satisfied with the performance of EY SA and recommends
their reappointment to the Board.
The Committee welcomed Philippus Grobbelaar during the year as the lead engagement partner, who will
serve no more than five consecutive years. Other senior audit employees will serve no longer than seven
consecutive years with a two-year cooling off period. The Committee assessed the tenure of the partners and
senior employees as adequate, considering the recent transition to EY SA.
EY was engaged to assist with a series of non-audit matters, particularly with regards to tax services during
the year. The Committee received regular reports on any proposed non-audit work to be undertaken by EY
and monitored the fees in line with the delegation of authority framework. All fees during the year were
below the Committee’s thresholds for approval. Through monitoring these activities, the Committee ensured
it safeguarded auditor objectivity and independence. The fees for such work amounted to US$58 377. This
was against the external audit fee of US$468 499, representing 12% of external audit fees.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Link to
strategic pillar
2019 value adding activities
Audit effectiveness
Link to
strategic pillar
The 2018 audit was the first year that the audit was performed by EY SA. This audit had unique and once-off
challenges associated with transitioning auditors from EY UK. As a result, a post review assessment was
conducted through verbal feedback and workshops between management and the auditors. The feedback
identified issues to be addressed but concluded that the audit was effective and that the planning, execution
and reporting was appropriately dealt with.
In line with the Code and the duty of the Committee to assess the effectiveness of the audit process, a
framework for a detailed audit assessment by way of a set list of questions has been proposed and agreed by
the Committee. An audit effectiveness review of the 2019 audit will be carried out in June 2020.
Anti-bribery and corruption policy review and approval
The Committee approved an updated policy during the year following a scheduled review by Group Internal
Audit and recommendations therefrom. The Committee is satisfied that the policy remains robust regarding
compliance and diligence procedures. There were no incidences of bribery or fraud and irregularities during
the year.
Acting on whistleblowing
The Committee regularly received reports on whistleblowing matters and monitored the actions and
progress on the matters that arose.
Monitoring internal audit
The principal matters to be reviewed by the internal audit team were reviewed by the Committee and they
continued to monitor management’s responsiveness to the findings and recommendations from the internal
auditor. In line with the inherent risk within the mining and especially diamond industry, dam safety and
diamond security were focus areas for Group internal audit during the year.
The proposed 2020 internal audit plan was approved by the Committee and is linked to the current risk
profile of the organisation. Based on the disappointing safety performance in 2019 and increased actions
implemented to address this, the Committee approved the additional audits planned for 2020 relating to
safety procedures.
Risk management and internal controls
The Committee focused on the principal and emerging risks during the year. These are listed on pages 15 to 21.
As part of scrutinising the risks identified by management, the Committee undertook a detailed overview of
the risk management strategy looking at the potential impact of the Group’s operations should the risks occur
and the likelihood of the risk occurring.
The Committee remained satisfied that no material weaknesses in internal control systems were identified
through the review of regular reports from the Group’s internal auditor and CFO, and through consideration
of the external auditor’s audit reports and face-to-face discussion between the Audit Partner, the Committee
chairman and Committee members.
Annual review
During the year the Committee updated its terms of reference to ensure these encompassed the updated
provisions from the Code. The Board evaluation undertaken included the Audit Committee within its remit
and it was agreed that there could be some enhancements made to the reports received by the Board.
Future focus areas
Priorities for the forthcoming year will include continuing to monitor the effectiveness of risk management processes, with special
focus on emerging risks; formally assessing the quality and effectiveness of the external audit and the procedures and controls to
ensure auditor independence; and monitoring the market impact on the viability of the business.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019AUDIT COMMITTEE continued 62
63
Harry Kenyon-Slaney
Non-Executive Chairman
The role of the Committee is to:
•
•
•
•
ensure that there is a formal, rigorous and transparent procedure for the
appointment of new directors to the Board;
lead the process for Board appointments and make recommendations to
the Board;
assist the Board in ensuring its composition is regularly reviewed and
refreshed, considering the length of service of the Board as a whole, so that it
is effective and able to operate in the best interests of shareholders;
ensure plans are in place for orderly succession to positions on the Board and
as regards the Executive Committee (senior management);
• oversee the development of a diverse pipeline for succession; and
•
work and liaise with other Board Committees, as appropriate including the
Remuneration Committee in respect of any remuneration package to be
offered to any new appointment of the Board.
Membership1 as at 31 December 2019:
• H Kenyon-Slaney
• M Brown
• M Lynch-Bell
Other attendees
• C Elphick
•
Secretary (Bruce Wallace Associates)
NOMINATIONS COMMITTEE SKILLS AND EXPERIENCE %
International experience
Industry
Risk management
Operational
Stakeholder engagement
Capital markets and deal making
Financial
Business development
Environmental, social
Human resources
Regulatory
Marketing
22
Social media, communications
11
100
89
78
78
78
67
67
67
67
56
44
1 Clifford Elphick stepped down as a member of the Committee in June 2019 in recognition of the Code’s provisions on membership.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Link to
strategic pillar
2019 value adding activities
Appointments
The Committee oversaw the appointment of Ms Mazvi Maharasoa, who joined the Board in July 2019.
Having been recommended as a suitable candidate to join the Board, Mazvi was interviewed, and the Board
members were satisfied that her qualifications and experience would add value to the Board. In light of the
fact that some years ago Mazvi had been employed as a senior executive of Letšeng, the Committee carefully
considered her independence against the provisions of the Code. While under a strict interpretation of the
Code she might not be considered fully independent it was the Committee’s view that the elapse in time
since her employment and her in-depth knowledge and experience of the Group, the diamond industry
and the broader Lesotho political, economic and cultural landscape make her a very valuable addition to
the Board, and the Board is satisfied that she carries out her duties in an independent manner.
The Committee also considered and recommended to the Board the election/re-election of each continuing
director ahead of their election/re-election by shareholders at the Company’s 2020 AGM.
The Committee recommended changes to the Audit and HSSE Committees’ membership during the year, in
order to enable the newly appointed non-Executive Directors to be included on those Committees where
other members would benefit from their knowledge and expertise. Both Johnny Velloza and Mazvi
Maharasoa were appointed to the Audit Committee and Mazvi Maharasoa to the HSSE Committee.
Clifford Elphick stood down from the Nominations Committee in accordance with the Code.
Succession planning
During the year the Committee enhanced its focus on succession planning across the organisation and
adopted a new framework for succession planning. In accordance with the Code, succession to positions at
Board and senior management level were reviewed. The Committee focused on the skills and experience
required to meet the organisation’s current and future needs to ensure business success and long-term
shareholder value. Within this analysis the Board also considered how it could actively work to promote
a diverse pipeline of talent throughout the organisation recognising that this is a continual process.
Over the year the Committee oversaw the executive management arrangements, with specific focus on
the Chief Operations Officer (COO) role and responsibilities. Gavin Beevers, who fulfilled the role of interim
technical adviser for 9 months, retired in April 2019. Brandon de Bruin, the Business Transformation Officer,
was appointed as Operations and Business Transformation Executive. An Operations Steering Committee
was set up, and Johnny Velloza appointed as chairman of this Committee to advise and assist executive
management in its oversight of the mining operations through reviewing and monitoring key operational
areas, in the absence of an appointed COO. Feedback from this committee is a standing Board agenda item.
Diversity
During the year the committee approved a new Diversity and Inclusion policy which sets out the Company’s
approach to this important aspect of leadership across the organisation. The policy defines how the
Company ensures that it retains an inclusive and welcoming culture and how it endeavours always to
appoint people on merit while simultaneously ensuring a wide range of skills and experience from different
geographical, social and cultural backgrounds. In line with the policy the diversity of the board was enhanced
through the appointment of Mazvi Maharasoa and there was an improvement in the diversity of the
leadership pipeline through the appointment of a number of women to senior management positions.
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64
65
Link to
strategic pillar
2019 value adding activities
Board evaluation
The Committee oversaw the Board evaluation process and the outcomes and agreed actions.
The outcome of the evaluation relevant to the Committee was to focus in the coming year on addressing
talent and succession.
Conflicts of interests
The Committee reviewed and made recommendations to the Board in respect of each director's actual,
potential or perceived conflicts of interests and approved a new conflicts of interest policy in accordance with
the revised Code provisions.
Additional activities
The Committee also updated its terms of reference and revised elements of the role profiles of the Chief
Executive and Chair to ensure these were in accordance with increased responsibilities of these roles from
the Code.
Future focus areas
The role of the Nominations Committee requires a continual assessment of appointments, succession planning and diversity.
The Committee will continue to build on the work undertaken over the last year to advance the progress made.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Mike Brown
Non-Executive Director
The role of the Committee is to assist the Board in fulfilling its oversight
responsibilities in order to:
•
promote a culture of zero harm and responsible care through effective risk
management that prioritises the workforce, creating a safe and healthy
environment;
• minimise environmental impact and reduce resource consumption;
•
•
achieve the goal of sustainable development, meeting the needs of the
present while sustaining the ability of future generations to support their
needs; and
review and monitor the Group’s approach, policies and measures on health,
safety, corporate social responsibility and the environment.
Membership1 as at 31 December 2019:
• M Brown
•
J Velloza
• M Maharasoa
Other attendees
• H Kenyon-Slaney
•
B de Bruin
• G Turner
• Group HSSE superintendent
•
Secretary (Bruce Wallace Associates)
HSSE COMMITTEE SKILLS AND EXPERIENCE %
Industry
Operational
Stakeholder engagement
Environmental, social
International experience
Human resources
Risk management
Financial expertise
Business development
Regulatory
Legal
89
78
78
78
67
67
56
44
44
44
33
Capital markets and deal making
22
Marketing
Technology/digital
11
11
1 H Kenyon-Slaney, M Lynch-Bell and G Turner stepped down from the Committee and M Maharasoa was appointed on 3 September 2019.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOMINATIONS COMMITTEE continuedHSSECOMMITTEE
66
67
Extracting maximum value from
our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Link to
strategic pillar
2019 value adding activities
Minimising environmental impact
Link to
strategic pillar
The Committee is pleased to report that no major or significant environmental incidents were recorded
during the year. The Committee continues to monitor the environmental impact of the Company’s operations
During 2019, the following environmental matters were discussed by the Committee:
• Water quality management;
•
•
Bioremediation and nitrate management;
Extreme weather events; and
• Drought response.
The Committee also received external non-financial audit reports on the management of environmental
parameters and resultant impact on the environment to benchmark performance and identify areas for
improvement. These reports included a Group Carbon and Water Footprint, ISO 14001 environmental systems
audit and a social and environmental management plan (SEMP) compliance report.
Revising the Group sustainability principles
Following a sustainability impact assessment conducted on the BT process, the Committee approved the
review and update of the Group sustainability principles, having last been adopted in 2012. The Committee
also approved the adoption of a United Nations (UN) Sustainable Development Goal (SDG) based framework
for the Group. The UN SDG Framework commits the Group to working towards the advancement of 6 SDGs,
as approved by the Committee, that demonstrate the direct link between sustainability and value for
improvement. Further details on these SDGs are available on the Sustainable Development Reporting
platform at www.gemdiamonds.com
Future focus areas
• Oversight and monitoring of the new CSR requirements in terms of the renewed Letšeng mining lease.
• Monitoring of the new revised Corporate KPIs which have been updated for 2020.
• Monitoring of the new Group UN SDG Framework.
• Monitoring of the safety turnaround strategy and implementation of corrective actions.
2019 value adding activities
Improving our health and safety
The Committee continued to monitor critical health and safety matters throughout the year.
These critical matters included:
•
•
•
•
Short term contractor management;
Vehicle and vehicle operations management;
Tailings and water storage facility management; and
Safety turnaround strategy.
Following the unfortunate fatality in February 2019, the Committee commissioned an internal incident
investigation in conjunction with a third-party investigator who sought the input on the incident from senior
management as well as external reports. Following the findings from the report the Committee approved
several immediate and long-term interventions, including mobile equipment access management, operator
competency assessments and vehicle road worthiness audits.
The Committee received regular reports on safety performance across the Group, including LTIs and
near-miss incidents. Concerning trends were immediately acted on including ensuring accountability for any
incidents that had occurred. Several behaviour-based projects were put in place during the year – a
leadership and mentorship programme and a revamp of the Behaviour-Based Care (BBC) campaign “Why
work safely” was launched in December. The Committee received reports on the review and renewal of the
BBC campaign.
As part of the work of the Committee, there were frequent reports on the tailings and water storage dams at
Letšeng, the purpose of which were to give the assurances that all such dams were being satisfactorily
monitored and managed and were functional and safe.
The Committee received feedback on independent audits conducted to identify opportunities for
improvement of the health and safety management system. These audits included:
•
•
•
Legal compliance;
ISO 45001 occupational health and safety management;
TSFs; and
• Health and safety systems and management.
Mike Brown and Johnny Velloza visited Letšeng on two occasions during the year, with specific focus on
safety and TSF matters.
Progressing our corporate social responsibility
The Committee continued to oversee the initiatives proposed and implemented within the local environments
where the Company operated to ensure projects are managed in a fair and transparent manner. By monitoring
their progress, the Committee remains committed to working responsibly within the community. Initiatives
included are listed on page 37. The Committee reviewed the urgent request received from the Church of
England Pension Board and council on Ethics Swedish National Pension Funds regarding information
concerning tailings dam management. The Committee oversaw the final voluntary submission and public
disclosure of the Group’s tailing management system and specifically how the Group effectively manages this
risk. Details of this disclosure are available on www.tailing.grida.no/profile under Gem Diamonds.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019HSSE COMMITTEE continued 68
69
The Committee believes that the remuneration policy is
appropriate to motivate and reward Senior Executives and align
their interests with the Group’s purpose and values as well as the
interests of the shareholders.
DEAR SHAREHOLDERS
On behalf of the Board, I am pleased to present the
Remuneration Committee’s Directors’ Remuneration Report
for 2019. The report is presented in three sections: this Annual
Statement, the Directors’ Remuneration Policy (page 70) and
the Annual Report on Remuneration (page 79).
2020 REMUNERATION POLICY
The Annual General Meeting (AGM) in June 2020 will mark the
third anniversary of the adoption of the current remuneration
policy, and therefore the Company will be submitting a
proposed 2020 remuneration policy to shareholders at the
AGM. During 2019, the Committee reviewed the effectiveness
of the existing remuneration policy to ensure that it remains
appropriate for the Company over the coming years. The
review included an assessment against the Company’s
evolving business strategy, developments in corporate
governance guidelines, prevailing market practice, and the
views of relevant stakeholders.
In particular, the Committee reviewed the Policy in the
context of recent revisions to the UK Corporate Governance
Code. The conclusion of the Committee’s review was that the
existing remuneration structure generally remained fit-for-
purpose. Notwithstanding this, the Committee believes that a
few amendments should be introduced to the 2020
remuneration policy to reflect evolving best practice and
shareholder expectations:
•
Aligning pension contributions for all newly appointed
Executive Directors with pension contributions available
to the wider workforce – the Committee supports the
principle of reducing, over time, the disparity in pension
contributions between Executive Directors and the wider
workforce. Therefore, from 2020, pension contributions to
any new appointments to the Board will be capped at the
prevailing workforce pension rate at the time, and the
relevant rate will be disclosed. With respect to incumbent
Executive Directors, the Committee will keep this area
under review.
•
•
Formalising post-vesting holding of Employee Share
Option Plan (ESOP) awards from 2020 – the 2017
remuneration policy provided the flexibility for the
Committee to introduce a holding period of up to two
years (or such other period the Committee may
determine) for vested awards, during which time
Executive Directors may not sell shares save to cover tax.
The Committee proposes to formalise the introduction of
post-vesting holding from ESOP awards made in 2020.
Introducing the flexibility for bonus deferral into shares –
the annual bonus, which provides an opportunity of up to
100% of salary, is currently payable in cash. The Committee
proposes to introduce the flexibility to deliver some or all
of the bonus in shares which may vest immediately or be
deferred for up to two years (or such other period the
Committee may determine).
The Committee also reviewed the appropriateness of
introducing a post-termination shareholding requirement.
Having debated the issue, the Committee concluded that the
combination of the ESOP post-vesting holding period (which
would normally continue to apply until the original expiry
date if an Executive Director leaves), the in-post shareholding
guideline, and existing malus and clawback provisions
provides appropriate post-employment shareholding and
ensures the safeguarding of shareholder interests. The
Committee considers that this approach provides appropriate
alignment with shareholder interests post-employment at this
time and will keep this area under review in line with evolving
best practice guidance and market practice.
REMUNERATION DECISIONS TAKEN
DURING 2019
The initiatives generated as a result of the BT process continued
to be implemented at Letšeng and across the Group. The
targeted benefits of the project have to date been realised ahead
of schedule. Despite the strong operational performance and
progress on the Group’s strategic goals, the 23% fall in the price
per carat of rough diamonds sold during the year contributed to
a 53% decline in underlying EBITDA1. Earnings per share
decreased 78% and the share price closed the year 54% lower
1 Refer Note 4, operating profit on page 130, for the definition of non-GAAP measures.
2 Net cash/(debt) is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility).
than at the start, although it should be noted that this share price
trend was considerably better than that of our peer group. The
Group ended 31 December 2019 in a net debt2 position of
US$10.2 million with access to facilities of US$69.9 million.
In this context, the Committee’s key decisions during the year
related to the following areas:
Short-term incentive bonus (STIB)
For 2019, the STIB was based on a range of financial,
operational and personal objectives that support the delivery
of the Group’s key strategic priorities, with 80% linked to
business performance and 20% to personal performance.
During 2019, performance against operational targets as
well as personal objectives was strong, with production
performance achieving between 93% and 97% of target.
However, this achievement was not reflected in performance
against financial targets, mainly due to the weak performance
of the diamond market resulting in a decreased price per carat
achieved. HSSE performance was disappointing considering
the fatality in February 2019 and the increase in the LTIFR.
The resulting formulaic STIB outcome for the business scorecard
was 58.3% of maximum. Subject to the approval of the
proposed Directors Remuneration Policy and the amended
ESOP 2020 rules at the June AGM, the Committee applied its
discretion in awarding the bonus in Nil-cost options which will
vest on the grant date. No further discretion has been applied in
determining remuneration outcomes.
ESOP
Based on the performance to 31 December 2019, 25.93% of
the share awards made under the 2017 ESOP will vest in July
2020, subject to continued employment at that time. The
2017 ESOP rewards performance against relative total
shareholder return (TSR) against the constituents of the
FTSE350 Mining Index (25%), profit (37.5%) and production
(37.5%), measured over three years.
The Company’s three-year TSR over the period was below that
of the median of the constituents of the FTSE350 Mining
Index, which resulted in 0% of the element vesting. 13.99%
(out of a maximum of 37.5%) and 11.94% (out of a maximum
of 37.5%) of the profit and production elements will vest,
respectively, based on performance over the three-year
period. The overall vesting level is 25.93% of the maximum
award.
The specific targets and outturns underlying these elements are
discussed in detail on page 88 of the Annual Report on
Remuneration. The Committee believes that the formulaic
vesting outcome is a fair reflection of the Company’s underlying
performance over the three-year period to 31 December 2019
and therefore no discretionary adjustment was applied.
We have not included a CEO pay ratio in this report as the
Company has only one employee based in the UK, and any
resulting ratios would not be meaningful.
IMPLEMENTATION OF THE
REMUNERATION POLICY IN 2020
The Executive Directors’ salaries were reviewed in
February 2020 and all received an inflationary increase of 2%
effective 1 April, in line with the general practice of applying
inflation as a base for salary increases across the Group.
Consideration was also given to current market conditions
and relevant benchmarks.
For 2020, the annual bonus opportunity will remain 100%
of salary in line with the 2020 remuneration policy. Group
performance will continue to be measured with reference to
a business scorecard linked to three key priorities: Extracting
Maximum Value from Our Operations; Working Responsibly
and Maintaining Our Social Licence; and Preparing for Our
Future. Group performance will continue to be weighted 80%
of maximum, with the remaining 20% linked to personal
performance. Malus and clawback provisions will apply
during the performance period and for a period of two years
following payment.
The CEO and CFO will be granted awards under the ESOP in
2020 of 230,000 shares and 170,000 shares respectively,
equivalent to 28% and 32% of salary for the CEO and CFO
respectively, well within the ESOP policy limit of 125% of
salary. Since the 2015 ESOP cycle, the Committee has granted
the same number of ESOP shares to the Executive Directors on
the basis that this approach is more aligned with shareholders
as it inherently rewards growth in the share price.
Consistent with the approach in 2019, awards will vest on
performance over the three financial years to 31 December
2022, and the performance conditions will remain 25% on
relative TSR against a tailored peer group and 75% on
operating performance which includes profit and production
targets. A mandatory post-vesting holding period will apply
for a period of two years following vesting, during which time
Executive Directors may not sell shares save to cover tax.
Malus and clawback provisions will apply during the vesting
period and for a period of two years following vesting.
Please refer to pages 89 to 93 for further details on the
implementation of the proposed 2020 remuneration policy.
Resolutions to approve the proposed 2020 remuneration
policy (subject to a binding vote) and the 2019 Annual Report
on Remuneration (subject to an advisory vote) will be put to
our shareholders at the forthcoming AGM. We value feedback
from our stakeholders, and I am available to meet and discuss
our remuneration arrangements. We hope to receive your
support at the AGM.
Michael Lynch-Bell
Chairman of the Remuneration Committee
10 March 2020
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71
•
Pay-for-performance charts have been updated to reflect
2020 salaries.
Benefits
The report has been prepared in accordance with the
principles of the UK Companies Act 2006, Schedule 8 of The
Large and Medium-sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations 2013 and the EU
Market Abuse Regulations. The auditor of Gem Diamonds has
audited information within this remuneration report which
has been appropriately marked as such.
As required by legislation, the proposed remuneration policy
as set out in this section of the report will be put to a binding
shareholder vote at the 2020 AGM and, subject to shareholder
approval, will become effective from the date of the 2020
AGM. The proposed policy is broadly consistent with the
approved 2017 Policy, save for the changes highlighted in the
Remuneration Committee Chairman’s Statement and for some
non-significant changes as follows:
•
•
•
References to financial years have been updated where
appropriate;
New Non-Executive Directors’ appointment and expiry
dates have been updated;
References to performance measures have been updated
for the latest business strategy, as appropriate; and
Policy table for Executive Directors
Salary
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 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’s policy is to weight remuneration towards
variable pay 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 Committee is satisfied that the proposed Policy is clear,
simple, and appropriately aligned with the Company’s
strategy, risk appetite and culture, and that incentives are
appropriately capped.
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
Operation
Opportunity
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.
There is 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.
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.
Performance measures
N/A
Purpose and link to strategy
To provide competitive benefits considering the market value of the role and benefits offered
to the wider UK management population, in line with the Company’s strategy to keep
remuneration simple and consistent
Operation
Executive Directors receive a cash allowance in lieu of non-cash benefits.
Opportunity
The benefit value may vary by role to reflect market practice. It is not anticipated that the
current cost of benefits (as set out in the Annual Report on Remuneration) will increase
materially over the term of this policy, though the Committee retains discretion to approve a
higher cost in exceptional circumstances (for example relocation or an increase in insurance
premiums).
Performance measures
N/A
Pension
Purpose and link to strategy
To provide retirement benefits that are appropriately competitive
Operation
Executive Directors receive a cash allowance in lieu of non-cash benefits.
Opportunity
The CEO and the CFO receive pension benefits equal to 14.5% and 13.0% of base salary,
respectively.
Any new Executive Director will receive pension benefits aligned to that of the wider workforce
at the time of the appointment.
Performance measures
N/A
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73
STIB
ESOP
Purpose and link to strategy
To drive and reward performance against financial and operational KPIs, as well as personal
objectives, all of which are directly linked to business strategy
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.
Operation
The STIB 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 the underlying business and personal performance during the year.
The STIB is paid entirely in cash. The Committee has discretion to pay some or all of the bonus
in shares or nil-cost options which may vest and/or become exercisable immediately or be
deferred for up to two years (or such other period the Committee may determine).
Malus and clawback provisions may be applied for a period of two years following payment in
exceptional circumstances, including, but not limited to, misstatement, misconduct or error.
Opportunity
Participants can receive a maximum of up to 100% of their base salary.
For threshold level and target level performance, the bonus earned is up to 50% and 68% of
maximum opportunity, respectively.
Performance measures
Performance is determined by the Committee annually 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 one or more of the three key strategic priority areas of
Extracting Maximum Value from Our Operations, Working Responsibly and Maintaining Our
Social Licence, and Preparing for Our Future. The Group scorecard 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.
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.
In respect of awards granted in 2020 and future years, a holding period of two years will apply
for vested awards, during which time Executive Directors may not sell shares save to cover tax.
Malus and clawback provisions may be applied for a period of two years post-vesting in
exceptional circumstances, including but not limited to misstatement, misconduct or error.
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 measured
over a minimum of three years. It is the Committee’s current intention that performance be
based on relative TSR, and operational measures, 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.
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75
NOTES TO POLICY TABLE
Payments from existing arrangements
Executive Directors will be eligible to receive remuneration or
other payments in respect of any award granted or payment
agreed prior to the approval and implementation of the 2020
remuneration policy, or prior to the individual becoming a
Director and in the opinion of the Committee, the payment
was not in consideration for the individual becoming a
Director. Details of any such awards or payments are disclosed
in the Annual Report on Remuneration.
Selection of performance measures
(STIB and ESOP)
Performance measures used in the Company’s executive
incentive schemes, being the STIB and the ESOP, are selected
to ensure incentives reinforce the Company strategy and align
executive interests closely with those of shareholders. It is the
Committee’s opinion that the financial and operational
measures used in the STIB support the strategic priorities of
Extracting Maximum Value from Our Operations, Working
Responsibly and Maintaining Our Social Licence, and
Preparing for Our Future, and are well accepted measures for
the mining sector. The ESOP uses profit and production
targets, measures which are consistent with the Company’s
KPIs. The inclusion of a relative TSR element is strongly aligned
with shareholders and ensures that executives are rewarded
only if they exceed the returns which a shareholder could
achieve elsewhere in the sector.
Performance targets are set to be stretching and achievable,
considering a range of reference points including the Group’s
business plan, the Company’s strategic priorities and the
economic environment in which the Company operates. The
Committee believes it has a robust approach to target setting,
and that the maximum outcomes are achievable only for
exceptional performance.
Remuneration policy for other employees
Salary reviews are implemented with a consistent approach
across the Group and consider the level of responsibility,
experience, individual performance, market levels and the
Company’s ability to pay.
Senior management (below Board level) employees’
remuneration is set by the Remuneration Committee. Senior
management participate in an annual bonus scheme on a
similar basis as the Executive Directors, although the
weighting on Group performance measures increases with
seniority. Certain management level employees also receive
ESOP awards. Performance conditions and award sizes vary
appropriately according to the organisational level.
A once-off Transformation Incentive Plan (TIP) was developed
in 2017 for senior managers below Board level to reward
individual performance and drive specific improvements
around key BT activities, behaviours and metrics. Executive
Directors did not participate in this plan as delivery of the
BT target is already built into the STIB and ESOP scorecards for
outstanding cycles. A total of US$2.8 million (7%) of the
targeted BT savings of US$40 million was set aside for
payment of the TIP across the Group. Following engagement
with operational staff a percentage of the TIP was earmarked
for the development of a recreational centre on site.
Shareholding guidelines
The guideline for Executive Directors is that they hold 100%
of their salary in beneficially owned shares. Until the guideline
has been met, Executive Directors will be required to retain
50% of vested awards under the ESOP or any other share-
based incentive.
ENGAGING OUR
EMPLOYEES
S172 (1)(a),(b),(e)&(f)
Mazvi Maharasoa had agreed to be the designated
non-Executive Director responsible for workforce
engagement going forward. When determining
remuneration for Executive Directors and senior
management, the Committee considers the remuneration
and employment conditions elsewhere in the Group.
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 across the
Group and takes these into account when determining
Executive Director remuneration.
Going forward Mazvi Maharasoa intends to focus on
enhancing existing safety and operational forums into a
wider workforce engagement, providing feedback to the
Board in the quarterly Board feedback meetings. Workforce
surveys will be reviewed to ensure a general understanding
of Group related matters are included and understood.
Social media may be considered as another avenue of
communication, with HR providing the administrative
support to Mazvi Maharasoa.
Pay for performance: scenario analysis
The graph below illustrates an estimate of the potential future
remuneration for the Executive Directors and the potential
split between the different elements of pay under four
performance scenarios: fixed, at target, maximum, and
maximum plus 50%. Potential remuneration is calculated on
the incentive opportunities set out in the 2020 remuneration
policy applied to the salaries effective 1 April 2020.
The maximum STIB is 100% of the salary. Illustrative ESOP
values in the graph use the three-month average share price
to 31 December 2019 of 60.6 pence and the proposed
number of shares to be awarded in 2020, which equate to
28% and 32% of 2020 salary. These projected values exclude
the impact of any share price movements except in the
maximum +50% scenario.
The fixed scenario includes base salary, pension and
benefits only.
The at target scenario includes fixed remuneration as above,
plus target pay-out of STIB, and threshold vesting for the ESOP.
The maximum scenario includes fixed remuneration, plus full
pay-out and vesting of all incentives.
The maximum + 50% share price appreciation scenario
includes fixed remuneration, plus full pay-out and vesting of
all incentives, plus 50% share price appreciation on the ESOP.
The assumptions are summarised in the table below:
Component
Fixed
At target
Maximum
Maximum + 50% share
price appreciation
Salary
Benefits
Pension
STIB
Base salary for 2019
5.5% and 6% of salary for the CEO and the CFO, respectively
14.5% and 13% of salary for the CEO and the CFO, respectively
0% of maximum
68% of maximum
100% of maximum
100% of maximum
ESOP
0% of maximum
20% of maximum
100% of maximum
100% of maximum + 50%
share price appreciation
CFO %
814
13
40
814
13
40
47
47
386
100
628
3
35
62
MAXIMUM +50
MAXIMUM
ON-TARGET
MINIMUM
100
80
60
40
20
0
CEO %
1 291
1 222
16
38
46
11
40
48
100
80
60
40
20
0
590
100
953
3
35
62
FIXED REMUNERATION
ANNUAL BONUS
LONG-TERM INCENTIVES
FIXED REMUNERATION
ANNUAL BONUS
LONG-TERM INCENTIVES
MAXIMUM +50
MAXIMUM
ON-TARGET
MINIMUM
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77
Approach to remuneration on executive
recruitment
The Committee will follow the remuneration policy as set out
in the policy table when recruiting new Executive Directors.
Any arrangement specifically established to recruit an external
Executive Director would be capped at the limits described in
the policy table on appointment. Where an individual forfeits
outstanding incentive payments and/or contractual rights at
a previous employer as a result of their appointment, the
Committee may offer additional compensatory payments or
awards (buy-out) in such form as it considers appropriate. Any
such buy-out compensation would be on a comparable basis
to the forfeited benefit, considering 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 normally use
the remuneration components under the regular policy to
make such buy-out awards but may also exercise its discretion
under Listings Rule 9.4.2 if an alternative incentive structure
were required. Where an Executive Director is required to
relocate from their home location to take up their role, the
Committee may provide reasonable, time-limited assistance
with relocation in line with local market norms.
In the case of internal promotions, any commitments made
prior to promotion and the approval of the remuneration
policy (except for pension entitlements) will be honoured.
Where the new appointee has an initial salary set below
market, any shortfall will be managed with phased increases
over a period of several years, subject to the individual’s
performance and development in the role.
SERVICE CONTRACTS
The Company’s policy is to limit termination payments to
pre-established contractual arrangements. If 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.
Director
Contract date
Unexpired
Notice period
Contractual termination payment1
CT Elphick
M Michael
13 February 2007
22 April 2013
Rolling contract
12 months
Pay basic salary on summary termination.
Benefits are payable only at the Committee’s
discretion.
1 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
On termination of an Executive Director’s contract, payments
equal to salary in lieu of notice may 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.
Where employment is terminated by the Company and the
departing Executive Director has a legal entitlement (under
statute or otherwise) to additional amounts, these would
need to be met. Should the Company wish to enter into a
settlement agreement and the individual must seek
independent legal advice, the Committee retains discretion to
settle any claims by or on behalf of the Executive Director in
return for making an appropriate payment and contributing
to the legal fees incurred by the Executive Director in
connection with the termination of employment.
In exceptional circumstances, the Committee may approve
new contractual arrangements with departing Executive
Directors including (but not limited to) settlement,
confidentiality, outplacement services, restrictive covenants
and/or consultancy arrangements. These will be used only in
circumstances where the Committee believes that it is in the
best interests of the Company and its shareholders to do so.
The table below provides details of exit payments under different leaver scenarios.
Incentive plan
Scenario
Time of payment/
vesting
Calculation of payment/
vesting
STIB
ESOP
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)
Normal payment date,
although the Committee has
discretion to accelerate (for
example, in relation to death)
Immediately, on change
of control
Performance against targets
will normally be assessed by the
Committee at the end of the year
and any resulting bonus is normally
pro rated for the proportion of the
year worked
Performance against targets
will normally be assessed by the
Committee up to the date of change
of control and any resulting bonus is
normally pro rated for time
All other reasons
Not applicable
No bonus is paid
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)
Normal vesting date, although
the Committee has discretion
to accelerate
Unvested awards will normally be pro
rated for time unless the Committee
decides otherwise, and vesting will
be based on performance
Immediately, on change
of control
Unvested awards will normally be pro
rated for time unless the Committee
decides otherwise, and vesting will
be 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
Not applicable
Awards lapse
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79
NON-EXECUTIVE DIRECTORS
Non-Executive Directors do not receive benefits from the Company, and they are not eligible to participate in any cash or share-based
incentive scheme.
Directors’ fees
Purpose and link to strategy
To attract and retain a high-calibre Chairman and non-Executive Directors with experience
relevant to the Company
Fees are reviewed annually, with any changes effective from 1 April.
Fees are typically set after considering current market levels and considering time
commitment and responsibilities involved.
Operation
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 monthly 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.
There is no prescribed maximum annual increase.
It is expected that the fees increase 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 adjust fee levels
to ensure they remain competitive.
The maximum aggregate annual fee for all Non-Executive Directors, including the Chairman,
allowed by the Company’s Articles of Association is £750 000.
Opportunity
Director
Contract date
Unexpired term
Notice period
Contractual termination
payment
Rolling appointment
Three months
No provision for payment of
compensation
H Kenyon-Slaney
M Brown
M Lynch-Bell
J Velloza
M Maharasoa
6 June 2017
1 January 2018
15 December 2015
15 September 2018
1 July 2019
CONSIDERATIONS OF
SHAREHOLDER VIEWS
The Committee considers shareholder views and the
guidelines of investor bodies when determining
remuneration. The Committee values feedback from
shareholders on the Company’s remuneration policy and
commits to consulting shareholders in advance of any
significant changes to the policy. Details on the votes received
on the 2018 Annual Report on Remuneration (at the 2019
AGM) and the 2017 remuneration policy (at the 2017 AGM)
are 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. Refer to page 93 for further details.
This report provides information regarding the implementation of the Company’s approved 2017 remuneration policy during the
financial year ended 31 December 2019 and how the Remuneration Committee intends to implement the proposed 2020
remuneration policy during the financial year ending 31 December 2020.
The Committee’s Terms of Reference are available on the Company’s website and complies with the UK Corporate Governance Code.
M Lynch-Bell
Non-Executive Director
The role of the Committee is to assist the Board to fulfil its responsibility to
shareholders to ensure that:
•
•
remuneration policy and practices of the Company are designed to support
strategy and promote long-term sustainable success and reward fairly and
responsibly, with a clear link to corporate and individual performance, having
regard to statutory and regulatory requirements; and
executive remuneration is aligned to Company purpose and values and linked
to the delivery of the Company’s long-term strategy.
Membership as at 31 December 2019:
• M Lynch-Bell
• H Kenyon-Slaney
• M Brown
Other attendees
• C Elphick*
• M Michael*
• Group human resources manager
• Mercer Kepler (Independent remuneration consultants)
•
Secretary (Bruce Wallace Aassociates)
* Except when issues relating to their own remuneration are discussed.
REMUNERATION COMMITTEE SKILLS AND EXPERIENCE %
International experience
Industry
Risk management
Operational
Stakeholder engagement
Capital markets and deal making
Financial
Business development
Environmental, social
Human resources
Regulatory
Marketing
22
Social media, communications
11
100
89
78
78
78
67
67
67
67
56
44
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81
Link to
strategic pillar
SUMMARY OF SHAREHOLDER VOTING
The table below shows the results of the advisory vote on the 2018 Annual Report on Remuneration at the 2019 AGM, and the binding
vote on the 2017 remuneration policy at the 2017 AGM.
2018 Annual Report
on Remuneration
2017 Remuneration Policy
Total number of votes
Percentage of votes cast
Total number of votes
Percentage of votes cast
For
Against
Total votes cast
93 250 698
83.91%
85 580 439
90.15%
17 881 133
16.09%
9 354 785
9.85%
111 131 831
–
94 935 224
–
Withheld
2 380 902
–
6 000
–
2019 activities
Reviewed the remuneration policy to ensure that it is appropriate to motivate and reward senior executives
and align their interests with the Company’s purpose and values, as well as the interest of shareholders.
Reviewed and assessed developments in the Code and shareholder positions to ensure Gem Diamonds’
proposed 2020 remuneration policy and practices align appropriately with these requirements.
Ensuring that incentives include an appropriate balance of financial, operational and HSSE elements to ensure
the long-term sustainability of the organisation.
Applying its collective mind to the appropriateness of the formulaic output from the incentive calculations
to ensure that these accurately reflect performance during the year.
The Terms of Reference of the Committee had been reviewed, updated in line with the changes introduced
in the 2018 UK Corporate Governance Code and approved
Reviewed and approved the Directors’ Remuneration Report for 2019.
Reviewed and approved base salaries and total remuneration for the Executive Directors and Senior
Management and fees for Non-Executive Directors in line with consideration of recent developments in
remuneration market trends and best practice.
Consideration of independence
Mercer Kepler was appointed by the Committee in February 2010 and provided independent remuneration
advice to the Committee and attended Committee meetings during 2019. Mercer Kepler provides
remuneration advice to a large portfolio of clients including many in the FTSE 350 and FTSE Small Cap,
which gives the Committee comfort that the advice provided is appropriate and relevant. Mercer Kepler
is a signatory to, and abides by, the Remuneration Consultants Group Code of Conduct. Further details can
be found at www.remunerationconsultantsgroup.com.
Neither Mercer Kepler nor Mercer Kepler’s parent company, the MMC Group, provides non-remuneration
services to the Group or is in any other way connected to the Group, and Mercer Kepler is therefore
considered to be independent. The fees payable in relation to work for the Committee in 2019 were
US$31 659 excluding VAT.
Future focus areas
The Committee will focus on encouraging an open and transparent dialogue with shareholders on remuneration matters and seek
to consult with major shareholders prior to implementing any significant changes to the remuneration policy.
The Code sets out an expectation that pension contribution rates for Executive Directors should be aligned with those available to
the wider workforce. The Gem Diamonds CEO and CFO currently receive a cash allowance in lieu of pension equal to 14.5% and 13%
of salary, respectively. Most of the workforce receive a maximum employer pension contribution of 7.5% of salary, as a 1:1 match on
any employee contribution. The Committee is considering how best to apply this provision and will engage with shareholders to
seek their views.
The Code sets out an expectation for Remuneration Committees to develop a formal policy for post-employment shareholding
requirements encompassing both unvested and vested shares. The Committee is considering how best to apply this provision and
will engage with shareholders to seek their views.
Extracting maximum value from
our operations
Working responsibly and
maintaining our social licence
Preparing for our future
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019THE ANNUAL REPORT ON REMUNERATION continued
82
83
TOTAL SINGLE FIGURE OF REMUNERATION FOR DIRECTORS
The table below sets out the total single figure remuneration received by each Director for 2019 and the prior year.
Although the Group’s reporting currency is US dollar, these figures are stated in sterling as the Directors’ emoluments
are paid in sterling.
Salary and fees1
Cash payments in lieu of
other non-cash benefits2
Cash payments in
lieu of pension2
2019
£
2018
£
2019
£
2018
£
2019
£
2018
£
Total fixed
remuneration
STIB3
ESOP4
Total variable
remuneration
Total
2019
£
2018
£
2019
£
2018
£
2019
£
2018
£
2019
£
2018
£
2019
£
2018
£
478 745
315 952
468 211
309 000
26 332
18 957
25 752
18 540
69 419
41 073
67 891
40 170
574 496
375 982
561 854
367 710
302 060
199 347
389 430
263 188
36 137
26 710
43 877
32 431
338 197
226 057
433 307
295 619
912 693
602 039
995 161
663 329
137 500
64 166
64 166
96 250
27 500
110 000
55 000
55 000
15 865
–
–
–
65 048
–
–
–
–
–
–
–
–
–
–
–
–
–
3 902
–
–
–
–
–
–
–
–
–
–
–
8 456
–
137 500
64 166
64 166
96 250
27 500
110 000
55 000
55 000
15 865
–
–
–
77 406
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10 684
–
–
–
–
–
–
–
–
–
10 684
–
–
–
–
–
–
137 500
64 166
64 166
106 934
27 500
110 000
55 000
55 000
15 865
–
37 105
–
24 704
32 431
–
–
–
61 865
32 431
–
–
139 271
32 431
Executive Directors as at 31 December 2019
C Elphick
M Michael
Non-Executive Directors as at 31 December 2019
H Kenyon-Slaney
M Lynch-Bell
M Brown
J Velloza5
M Maharasoa
Executive and non-Executive Directors resigned
J Velloza6
G Turner7
Audited
1 Salary and fees. During 2019 Non-executive directors received additional fees relating to special projects.
2 Benefits and pension: cash payments in lieu.
3 Annual bonus/STIB: payments in relation to performance for the year, paid in Nil-cost options, rather than cash, subject to approval at the June 2020 AGM.
4
ESOP: The 2019 figures relate to the values at vesting of awards vesting on performance over the three-year period ended 31 December 2019. The share price on the vesting date is
currently unknown, therefore the awards are valued using the three-month average share price to 31 December 2019 of 60.6 pence. The 2018 figures have been adjusted to reflect
the share price on the vesting date of 89.0 pence. The values at vesting reflect the impact of a 37% reduction in share price over the period.
J Velloza was appointed as non-Executive Director on 15 September 2018. The 2018 remuneration reported in the table relates to the period 15 September 2018 to
31 December 2018. The 2019 ESOP value relates to the 2017 pro-rated award granted before his Board appointment.
J Velloza was appointed to the Board on 1 July 2018 and subsequently resigned from the Board as an Executive Director on 15 September 2018. The 2018 remuneration reported in
the table relates to the period 1 July 2018 to 15 September 2018.
5
6
7 G Turner resigned from the Board on 14 November 2017.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019THE ANNUAL REPORT ON REMUNERATION continued 84
85
SALARY INCREASES
The Committee approved the following salary increases from
1 April 2019:
INCENTIVE OUTCOMES FOR
THE FINANCIAL YEAR ENDED
31 DECEMBER 2019
Executive
Director
C Elphick
M Michael
2019
salary
£
482 257
318 270
2018
salary
£
468 211
309 000
% increase
3
3
PENSION AND OTHER BENEFITS
No formal pension provision is made by the Company. Instead
Executive Directors receive a cash allowance in lieu of pension.
In 2019, this was equivalent to 14.5% and 13% of salary for the
CEO and the CFO, respectively. Executive Directors received a
cash allowance in lieu of other non-cash benefits, the values
of which were 5.5% and 6% for the CEO and the CFO,
respectively, during 2019.
STIB in respect of 2019 performance
Executive Directors participate in a discretionary annual bonus
arrangement designed to focus participants on the business
strategy of Extracting Maximum Value from Our Operations,
Working Responsibly and Maintaining Our Social Licence,
and Preparing for Our Future, all of which are underpinned
by specific KPIs and included in the business plan approved
by the Board.
In 2019, the maximum bonus opportunity for Executive
Directors was 100% of base salary, with 80% linked to a
business scorecard and 20% linked to a discretionary
assessment of personal performance. The business scorecard
performance measures, targets and actual outturns in
respect of 2019 are disclosed in full in the table below.
Performance measure
Preparing for Our Future
Extracting Maximum Value from Our Operations
BT
Operating
performance
BT target (US$) (millions)
Organisational Health
Underlying EBITDA1(US$)
(millions)
Earnings per share (US$ cents)
Cash flows from operating
activities (US$) (millions)
Waste tonnes mined (millions)
Ore tonnes treated (millions)
Carats recovered (carats)
Working Responsibly and Maintaining Our Social
Licence
HSSE
Fatalities
AIFR
LTIFR
Major environmental or
community incidents
Total score achieved
1 Refer Note 4, operating profit on page 130, for definition of non-GAAP measures
Weighting
(% of max)
Threshold
target
Stretch
targets
Actual
performance
Pay-out
(% of max)
20 Judged by Committee on a discretionary basis
60
15
35.0
52.5
54.9
5 Judged by Committee on a discretionary basis
55.2
10.3
68.0
23.4
6.6
109 800
0
2.2
0.11
0
82.8
15.44
102.0
24.7
6.9
128 100
0
<1.8
0
0
41.0
5.1
55.5
24.0
6.7
113 974
1
0.93
0.28
0
6.7
6.7
6.7
6.7
6.7
6.7
20
5
5
5
5
100
15
15
5
0
0
0
4.9
4.3
4.1
0
5
0
5
58.3
Preparing for Our Future
The current diamond market placed significant stress on the
Group’s cash flows. Significant time was spent on managing
the Group’s cash flows to ensure that the Group was
sufficiently funded during the market downturn. The
corporate operating costs for 2019 reduced to US$6.2m
(excluding bonuses and project costs) down from US$7.8m in
2018 and the lowest it’s ever been.
The Company’s share price fell in 2019 in line with the general
market sentiment of the sector but was the best performing
share price over two years when compared to its peer group.
Letšeng’s application for a renewal of its mining lease under
the 2005 Mines and Minerals Act was lodged initially in
March 2018. The final lease was signed in October 2019 with
extended tenure.
Various organic growth projects form part of the strategy to
extract maximum value from Letšeng. A review of the blasting
practices and techniques has enabled pit design to be based
on steeper slopes which was implemented with effect from
1 January 2019. The impact of this has resulted in a revised
mine plan which delivered a total saving of 5.8m waste tonnes
in 2019 when compared to the 2017 mine plan and a total
estimated 100m tonnes of waste saving over the LoM.
In June, the Company entered into a binding agreement for
the sale of the Ghaghoo mine in Botswana and by December
the application to transfer the mining license was with the
Department of Mines for approval. Although the payment of
the sale proceeds had not been received by year end, the
process to close the deal continues and awaits the approval
from the Department of Mines.
The Group ended 31 December 2019 in a net debt position
of US$10.2 million with access to facilities of US$69.9 million.
The Committee reviewed performance in this area during
2019 on a holistic basis, and determined that a score of 15 out
20 was appropriate.
Extracting Maximum Value from Our Operations
In respect of the discretionary ‘organisational health’ element
of the business scorecard, the format of the employee culture
survey for 2019 was adapted as the Company transitioned
from the Business Transformation process to a Continuous
Improvement (CI) process during 2019. This transition
necessitated a renewed view of the behaviours and principles
which are required to successfully drive the CI journey. These
principles are in turn mapped to the Company’s values to
track the desired culture. A cultural survey was undertaken
in December 2019 and the outcomes were typical of an
organisation at the start of a CI journey. The results provide a
valuable baseline to measure the Company’s culture moving
forward. Organisational health initiatives that were generated
and implemented during the BT process are continuing in the
areas where they remain relevant. The Committee reviewed
performance in this area and determined that a score of 5 out
5 was appropriate for this element.
Changes to the performance measures for 2019
During 2019, the HSSE legal compliance measure was
replaced with an LTIFR target, in line with the Company’s
commitment to the principle of zero harm. HSSE legal
compliance is well managed and no major compliance
matters were identified or raised during the year. No
discretionary element remains under the HSSE element of
the scorecard.
Personal performance
20% of the STIB is linked to personal performance, with
personal performance objectives linked to each Executive
Director’s individual areas of responsibility and designed to
collectively support the achievement of the Group’s strategic
targets for the year. Individual targets comprised contributions
to the Group’s overall performance and the delivery of
strategic projects and initiatives as set out by the Board
including, but not limited to, operational performance,
strengthening of key stakeholder relationships, bank financing
and treasury management and HSSE objectives.
1
Net cash/(debt) calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility).
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019THE ANNUAL REPORT ON REMUNERATION continued 86
87
It was the Committee’s conclusion that each Executive
Director made strong contributions in their respective areas
during 2019, successfully carried out their duties and
collectively achieved the Group’s objectives. The CEO and CFO
both scored 16% out of a maximum of 20%.
The formulaic outcome from the business scorecard for Group
performance was 46.6% out of 80% which, combined with the
personal element, resulted in formulaic STIB outcomes of
62.6% of maximum for the CEO and the CFO, respectively. The
Executive Directors and Remuneration Committee jointly
agreed to override formulaic determination of the 2019 STIB
to align with the shareholder experience over the year. Subject
to shareholder approval of the proposed Directors
Remuneration Policy at the June 2020 AGM, the bonus will be
paid in Nil-cost options, rather than cash, under the amended
ESOP 2020 rules. These Nil-cost options will vest on the grant
date.
Based on business and personal performance, actual bonuses
for 2019 were as follows:
C Elphick
M Michael
Audited
% of
salary
62.6
62.6
Bonus
£
302 060
199 347
ESOP: 2017 awards vesting in 2020
The Executive Directors were granted awards of performance shares in July 2017, which are set out in the table below.
Executive Director
Date of grant
Awards made
during 2017
Share price on
date of award
£
Face value on
date of award
£
Face value as
% of salary
Vesting
date
Directors as at
31 December 2019
C Elphick
M Michael
Directors resigned
or retired
G Turner
4 July 2017
230 000
170 000
0.96
219 949
162 571
47%
53%
4 July 2020
4 July 2017
170 000
0.96
162 571
52%
4 July 2020
Clifford Elphick
Strategic focus area
Performance
Preparing for our future
•
•
•
Secured extended mining tenure for the Letšeng mining lease.
Developed key relationships with stakeholders in order to mitigate the impact of political
in-country instability at the operations.
Progressed innovation technology with the aim of reducing diamond breakage.
• Developed the Group’s purpose, vision and values.
•
Identified and pursued growth opportunities through corporate transactions.
Extracting maximum value
from operations
Focused on operational efficiencies through the BT process, such as pit slope steepening,
resulting in continued savings delivered through the process, with a cumulative net saving of
US$54.9m by the end of 2019.
Working responsibly and
maintaining social licence
•
•
Established sustainability strategy to be rolled-out in 2020, focussing on six areas aligned
with UN sustainability goals.
Established an Inclusion and Diversity policy, which resulted in increased female
representation on the Board, in Senior Management and in the talent pipeline.
Michael Michael
Strategic focus area
Performance
• Appropriately progressed the disposal of the Ghaghoo asset.
• Developed the finance talent population in support of the Company’s strategic objectives.
Preparing for our future
• Commenced the roll-out of the Group’s purpose, vision and values
•
Explored and assessed viability/profitability/ of corporate M&A activities.
• Assessed viability of identified growth opportunities of corporate transactions.
Extracting maximum value
from operations
Working responsibly and
maintaining social licence
•
•
•
•
•
•
Forged strong relationships with lenders and secured increased available facilities.
Corporate operating costs for 2019 reduced to US$6.2m (excluding bonuses and project
costs) down from US$7.8m in 2018, the lowest it’s ever been.
Ensured the benefits of the BT programme continued to deliver results and the Group is in
line to meet its US$100m target by end 2021.
Successfully monitored appropriate risk and governance processes and responses
consistent with the Group’s risk appetite.
Together with the Group Operations Executive, drove the implementation of the safety
turnaround programme.
Established a benchmark to measure culture going forward, through alignment of
company values with the principles of the cultural survey.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019THE ANNUAL REPORT ON REMUNERATION continued 88
89
Vesting of the awards was dependent on relative TSR against the constituents of the FTSE 350 Mining Index (25% of the award), profit
(37.5%) and production (37.5%), measured over the three-year performance period ended 31 December 2019. Relative TSR was
measured over the period 1 January 2017 to 31 December 2019. Profit and production were measured on an annual basis with respect
to the business plan for the year, with final vesting based on the average achievement of targets over the three years. The performance
conditions that applied to these awards are summarised in the table below.
Weighting
(% of max)
Per-
formance
period
Threshold
(20%
vesting)
Stretch
(80%
vesting)
Super-
stretch
(100%
vesting)
Actual
performance
Vesting
outcome
(% of max)
75th
percentile
85th
percentile
9th
percentile
0.00
Performance measure
TSR versus FTSE 350 Miners
Profit
Underlying
EBITDA1
(US$ million)
EPS
(US cents)
Production
Ore tonnes
treated
(millions)
Carats
recovered
25
18.75
18.75
18.75
18.75
2017
2018
2019
Average
2017
2018
2019
Average
2017
2018
2019
Average
2017
2018
2019
Average
Median
80% of
business
plan
55.1
43.5
55.2
80% of
business
plan
6.23
5.44
10.30
120% of
business
plan
132% of
business
plan
82.7
65.2
82.8
91.0
71.8
91.0
120% of
business
plan
9.35
8.16
15.44
132% of
business
plan
10.28
8.98
16.99
48.6
82.32
40.9
6.50
18.802
5.1
95% of
business
plan
105% of
business
plan
115.5% of
business
plan
6.7
6.4
6.6
7.4
7.1
6.93
8.1
7.8
7.24
6.4
6.5
6.7
85% of
business
plan
100 320
106 104
109 8005
115% of
business
plan
135 728
143 552
128 1006
126.5% of
business
plan
149 300
157 907
140 3007
111 811
126 875
113 974
0.00
18.75
0
6.25
4.46
18.75
0
7.74
0.00
4.95
7.16
4.04
7.40
9.99
6.32
7.9
25.93
Total award
100
Refer Note 4, operating profit on page 130, for definition of non-GAAP measures.
1
2 As previously reported. Any adjustments relating to IFRS restatements are not included.
3 Adjusted to 100%.
4 Adjusted to 105%.
5 Adjusted to 90% of business plan
6 Adjusted to 105% of business plan.
7 Adjusted to 115% of business plan.
For each measure, for achievement between threshold and stretch, and stretch and super-stretch, the award vested on a straight-line
basis. Achievement of less than threshold received no vesting.
Based on performance to 31 December 2019, 25.93% of the maximum award will vest for Clifford Elphick and Michael Michael in
July 2020, subject to their continued employment at the time.
ESOP awards granted in 2019
In March 2019, the CEO and the CFO received performance shares with face values of 44% and 50% of their then salaries, respectively,
as summarised in the table below.
Executive Director
Date of grant
C Elphick
M Michael
20 March 2019
Awards made
during 2019
230 000
170 000
Share price on
date of award
£1
Face value on
date of award
£
Face value as
% of salary
0.904
207 920
153 680
44%
50%
The performance conditions that apply to these awards are summarised in the table below.
Performance measure
TSR versus tailored diamond mining peer group
Business Transformation
Operating performance
(measured annually)
Underlying EBITDA2
Earnings per share
US$ per carat
Ore tonnes treated
Carats recovered
Weighting
(% of award)
Threshold
(20% vesting)
Stretch
(80% vesting)
Super-stretch
(100% vesting)
25%
25%
10%
10%
10%
10%
10%
Median
75th percentile
85th percentile
90%
80%
80%
85%
95%
90%
100%
120%
120%
115%
100%
105%
110%
132.0%
132.0%
126.5%
105%
115%
For each measure, for achievement between threshold and
stretch, and stretch and super-stretch, the award will vest on
a straight-line basis. Achievement of less than threshold will
receive no vesting.
TSR and BT will be measured over three years, from 1 January
2019 to 31 December 2021. Under the TSR performance
condition, Gem Diamonds’ TSR will be measured against a
tailored diamond mining peer group comprising Firestone
Diamonds, Lucapa Diamond, Lucara Diamond, Mountain
Province Diamonds, Petra Diamonds, Stornoway Diamond,
and Trans Hex Group. The BT performance condition relates to
the achievement of BT targets of US$100 million saving by
2021. Refer page 8.
Operating performance will be measured annually against the
business plan for the year, with final vesting based on the
average achievement of targets over the three years. The
Board considers the business plan to be aspirational in nature,
where achievement of stretch and super-stretch targets –
particularly in relation to operating performance – would
represent an outstanding level of performance that far
surpasses the industry standard. The Committee carefully
considered the business plan for 2019 for each measure and
determined that in respect of the ore tonnes treated and
carats recovered elements, the stretch and super-stretch
targets (as percentages of business plan) should be adjusted
to be realistically achievable, yet sufficiently stretching.
Operating performance targets relate to the Company’s
business plan and strategy and, as such, are considered
commercially sensitive and will therefore be disclosed in
full after the performance period has ended.
IMPLEMENTATION OF REMUNERATION
POLICY FOR 2020
The Committee approved the following salary increases from
1 April 2020:
Executive
Director
C Elphick
M Michael
2019
salary
£
2020
salary
£
482 257
318 270
491 902
324 635
% increase
2
2
Increases for Executive Directors were considered in line with
the practice applied to the broader workforce, where salaries
are benchmarked against the market and increases are based
on the relevant Consumer Price Index rate.
Pension and benefits
The Executive Directors will continue to receive cash
supplements in lieu of pension and benefits in 2020. The
values will remain unchanged from 2019.
From 2020, pension contributions to any new Executive
Director appointments will be capped at the prevailing
workforce pension rate at the time.
1 The prior year figures reported have been adjusted to reflect the share price on the award date of 90.4 pence.
2
Refer Note 4, operating profit on page 130, for definition of non-GAAP measures.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019THE ANNUAL REPORT ON REMUNERATION continued 90
91
STIB
The maximum STIB opportunity will remain 100% of salary for
2020. Performance measures will continue to include a range
of financial, operational and personal objectives that support
the delivery of the Group’s key strategic priorities as set out on
page 69 of this Annual Report and Accounts 2019, with 80%
linked to business performance and 20% to personal
performance. For the business performance element,
performance will continue to be linked to the Group’s three
key strategic priorities of Extracting Maximum Value from Our
Operations; Working Responsibly and Maintaining Our Social
Licence; and Preparing for Our Future. Performance measures
and targets will be disclosed in full on a retrospective basis in
next year’s report.
ESOP
The Committee reviews the performance measures and
corresponding targets before the start of each ESOP cycle to
ensure they are appropriately stretching over the performance
period. The 2020 ESOP will operate on the same basis as in
2019. The CEO and the CFO will receive awards of 230 000 and
170 000 performance shares (equivalent to approximately 28%
and 32% of basic salary, respectively). The share price on the
award date is currently unknown. Therefore, the awards are
valued using the three-month average share price to
31 December 2019 of 60.6 pence.
The performance conditions are:
•
•
25% on relative TSR, measured against a tailored diamond
mining peer group;
75% weighted towards operational performance, which
includes profit and production elements.
Achievement against target will be measured over the
three-year performance period ending 31 December 2022.
The relative TSR performance condition remains unchanged
from 2019. The operational performance targets will be
disclosed after the performance period has ended as these
targets relate to the Company’s business plan and are
therefore considered commercially sensitive. Malus and
clawback provisions will apply during the vesting period and
for a period of two years following vesting, respectively.
A post-vesting holding period of two years will be introduced
for any awards from 2020 onwards, during which period the
Executive Directors may not sell shares save for the purpose of
covering taxes related to the exercising of options.
Shareholding guidelines
In order to further align Executive Directors’ interests with
those of the Company’s other shareholders, the Company
introduced a shareholding guideline of 100% of salary from
1 January 2017. Until the guideline has been met, Executive
Directors will be required to retain at least 50% of vested
(and released, in respect of ESOP awards from 2020, which
are subject to post-vesting holding) awards under the ESOP
or any other share-based incentive.
CHAIRMAN AND NON-EXECUTIVE
DIRECTOR FEES
Chairman and non-Executive Director fees were reviewed in
February 2020 and found to be generally in line with market
fee levels for companies of similar size and sector. A CPI related
increase of 2% was approved in line with the increases applied
to the Executive Directors for 2020.
THE PERCENTAGE INCREASE IN CEO REMUNERATION COMPARED WITH OTHER
EMPLOYEE PAY
The table below shows the percentage change in the CEO’s remuneration from 2018 compared with the average percentage change
in remuneration for all other “own employees” (i.e. excluding contractors). Employee remuneration reflects the average number of own
employees in the Group for 2019 totalling 425 (2018: 412). Employees throughout the Group are remunerated in different
denominations but reported in GBP.
C Elphick
Other employees
2019
£
482 257
96 451
302 060
880 769
2018
£
468 211
93 642
389 430
951 283
% change
2019
£
2018
£
% change
3
3
(22)
12 204 772
987 643
2 865 998
11 951 578
840 850
1 582 235
(7)
16 058 413
14 374 663
2%
17%
81%
12%
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 (i.e. dividends, share
buy-backs and return of capital) from the financial year ended 31 December 2018 to the financial year ended 31 December 2019.
Executive Director
Distribution to shareholders
Employee remuneration1
Return of capital
2019
salary
US$
2018
salary
US$
–
22 808 815
n/a
–
22 158 284
n/a
% increase
–
3%
n/a
1
Includes salary, pension and benefits, bonus, accounting charge for the ESOP, and employer national insurance contribution.
PAY FOR PERFORMANCE
The graph shows the Company’s TSR performance compared with the performance of the FTSE SmallCap (excluding investment
trusts), FTSE 250 (excluding investment trusts), and the FTSE 350 Mining Index over the 10-year period to 31 December 2019. The FTSE
SmallCap and FTSE 250 have been selected to provide broad market comparator groups, and the FTSE 350 Mining Index has been
selected because the Group and the constituents of the index are affected by similar commercial and economic factors. The table
below the graph details the CEO’s single figure of remuneration and actual variable pay outcomes over the same period.
VALUE OF £100 INVESTED ON 1 JANUARY GEM DIAMONDS VS. FTSE350 MINING INDEX, FTSE250 XIT AND FTSE
SMALLCAP XIT INDEX £
350
300
250
200
150
100
50
0
31 DEC 09
31 DEC 10
31 DEC 11
31 DEC 12
31 DEC 13
31 DEC 14
31 DEC 15
31 DEC 16
31 DEC 17
31 DEC 18
31 DEC 19
FTSE250 XIT
GEM DIAMONDS
SMALLCAP XIT
FTSE350 MINERS
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
CEO single figure of
remuneration (£)
Annual bonus outcome
(% of maximum)
ESOP vesting outcome
(% of maximum)
726 050
797 755
564 419
776 406
892 935
879 719
611 314
681 191
995 161 912 693
67
Nil
75
Nil
13
Nil
61
Nil
83
Nil
74
Nil
0
20
83
62.6
28.26
14.54
21.43
25.93
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 2019, a total of 13 898 382 shares (10% of issued share capital) may be issued pursuant to all current awards outstanding
over the last 10 years.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019THE ANNUAL REPORT ON REMUNERATION continued 92
93
DETAILS OF OUTSTANDING AWARDS OF PERFORMANCE SHARES TO DIRECTORS
Date of grant
Performance
shares1 as at
1 January 2019
Granted in
the year
Vested in
the year
Lapsed in
the year
Exercised in
the year
Exercise price
US$
Market value at
date of grant
US$
Earliest normal
exercise date
10 Jun 14
01 Apr 15
15 Mar 16
04 Jul 17
20 Mar 18
20 Mar 19
11 Sep 12
10 Jun 14
01 Apr 15
15 Mar 16
04 Jul 17
20 Mar 18
20 Mar 19
58 209
33 425
230 000
230 000
230 000
781 634
18 544
31 648
24 706
170 000
170 000
170 000
584 898
–
–
–
–
–
230 000
230 000
–
–
–
–
–
–
170 000
170 000
–
–
49 300
–
–
–
49 300
–
–
–
36 439
–
–
–
36 439
–
–
180 700
–
–
–
180 700
–
–
–
133 561
–
–
–
133 561
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.01
0.01
0.01
0.01
0.01
0.01
–
0.01
0.01
0.01
0.01
0.01
0.01
0.01
556 200
453 100
322 000
253 000
308 200
274 454
68 400
302 400
334 900
238 000
187 000
227 800
202 858
10 Jun 17
01 Apr 18
15 Mar 19
04 Jul 20
20 Mar 21
20 Mar 22
01 Jan 16
10 Jun 17
01 Apr 18
15 Mar 19
04 Jul 20
20 Mar 21
20 Mar 22
Directors
C Elphick (CEO)
Total
M Michael (CFO)
Total
Audited
1 Conditional right to acquire shares.
Performance
shares
outstanding
as at
31 December
2019
58 209
33 425
49 300
230 000
230 000
230 000
830 934
18 544
31 648
24 706
36 439
170 000
170 000
170 000
621 337
Expiry date
10 Jun 24
01 Apr 25
15 Mar 26
04 Jul 27
20 Mar 28
20 Mar 29
31 Dec 23
10 Jun 24
01 Apr 25
15 Mar 26
04 Jul 27
20 Mar 28
20 Mar 29
DETAILS OF OUTSTANDING AWARDS OF PERFORMANCE OPTIONS TO DIRECTOR
Performance
options
as at
1 January
20191
Director
Granted
in the year
Vested
in the year
Lapsed
in the year
Exercise
price
£
Date of
grant
Earliest
normal
exercise
date
Performance
shares
outstanding
as at
31 December
2019
Expiry
date
M Michael
37 0882
–
–
–
177.6
11 September
2012
1 January
2016
31 December
2023
37 088
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 2019 are given below. It is
confirmed that there were no changes to the Directors’ holdings between 31 December 2019 and up to the date of this report.
No Director held an interest in the shares of any subsidiary company.
Performance shares held
Performance options held
Shares owned
outright
as at
31 December
2019
Unvested
and subject
to continued
employment
only
Subject to
performance
conditions
Vested but
not exercised
Subject to
performance
conditions
Vested but
not exercised
Total
shareholding
as a % of salary
Shareholding
guideline met
9 325 000
10 000
690 000
510 000
59 633
44 076
140 934
111 337
–
27 790
17 630
27 820
–
–
–
–
37 088
1189
30
3
4
–
n/a
n/a
Executive
Directors
C Elphick3
M Michael
Non-executive
Director
J Velloza5
1
2
3
4
An option is a right to acquire shares granted under the plan including, unless indicated otherwise, a zero-cost option. The three-month average share price to December 2019 was
60.6 pence. The highest and lowest closing prices in the year were 113.5 pence and 48.1 pence respectively. Details of the vesting conditions, which are subject to audit, for awards
made under the ESOP are included in note 28 of the financial statements and a full set of the rules will be available for inspection at the AGM.
These awards were granted to M Michael before he became a Director.
CT 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.
In terms of the shareholding guidelines, M Michael is required to retain at least 50% of his vested awards until the guideline has been met. The year on year shareholding as a % of
salary has decreased by 14% as a result of the decrease in share price.
5 These awards were granted to J Velloza prior to his appointment as a Non-executive director.
Currently the only non-Executive Director with a shareholding is Johnny Velloza, by virtue of his employment before taking up a
non-Executive position on 15 September 2018.
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 except for Clifford Elphick. He was appointed non-Executive Chairman of 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 are £83 000. Any fees paid to Clifford Elphick in fulfilling these external roles are retained by him.
By order of the Board
Michael Lynch-Bell
Chairman of the Remuneration Committee
10 March 2020
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95
The Directors are pleased to submit the financial statements
of the Group for the year ended 31 December 2019.
statement that the Strategic Report is consistent with the
financial statements herein.
As a British Virgin Islands (BVI) registered company, Gem
Diamonds Limited is not obliged to conform 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 fiduciary duty. The 2019 Annual Report and Accounts will
include disclosure on how the Directors have performed their
duty to promote the success of the Company, in line with the
incoming changes to the Companies Act, 2006.
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
which are incorporated by reference.
The Strategic Report can be found on pages 1 to 43 and 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 several 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 based on 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. The forward-looking statements
should be read in context with actual historic information
provided. 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 Auditor’s Report does include a
CORPORATE GOVERNANCE
The UK Financial Conduct Authority’s Disclosure Guidance 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 Guidance and Transparency Rules and the
UK Financial Conduct Authority’s Listing Rules (LR 9.8.6) is
located on pages 51 to 58.
DIRECTORS
The Directors, as at the date of this report, are listed on
pages 44 to 48 together with their biographical details. Details
of the Directors’ interests in shares and share options of the
Company can be found on page 92.
DIRECTORS WHO HELD OFFICE DURING
THE YEAR AND DATE OF APPOINTMENT/
RESIGNATION
Appointment
Resignation
Executive Directors
C Elphick
M Michael
20 January 2006
22 April 2013
Non-executive Directors
H Kenyon-Slaney
M Brown
M Lynch-Bell
J Velloza
M Maharasoa
6 June 2017
1 January 2018
15 December 2015
1 July 2018
1 July 2019
n/a
n/a
n/a
n/a
n/a
n/a
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. Details of the
Directors’ service contracts are included on pages 76 and 78.
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 and Disclosure and
Transparency Rules and face a range of penalties including
private or public censure, fines and/or imprisonment. 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.
The Group therefore 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.
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 UK Listing Authority.
Neither the insurance nor the indemnity provides cover where
the Director or Group personnel member has acted
fraudulently or dishonestly.
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 on page 92.
RELATED-PARTY TRANSACTIONS
Other than those disclosed in Note 26 of the financial
statements, the Company did not have any transactions with,
nor made loans to, related parties during the period in which
any Director had any interest.
SUPPLIERS AND CUSTOMERS
The extension of the mine lease at Letšeng is testament to
how we work collaboratively with our strategic partners,
including the Government of the Kingdom of Lesotho. We
also build strong relationships with core suppliers. Formal
written contracts and negotiations using the principles of
transparency, our beliefs and attitudes drive the culture of the
procurement supply chain. As part of the BT process, all major
contracts were reviewed for efficiencies and regular meetings
to discuss contract performance are held. These discussions
have led to continued benefits being derived from the BT
initiatives and in the current year the contracts relating to the
load, haul and drilling activities and the operators of the
processing plants were extended for more than 5 years
ensuring the sustainability of long-term benefits. Contractor
employees were also invited to partake in the Company’s
cultural survey.
A core part of our strategy is exploring new sales avenues to
maximise value, and at the same time provide an opportunity
to interact with our customers and investors. The additional
tender viewings in Tel Aviv continued during the year and a
new customised electronic tender platform was launched in
September offering an enhanced client experience.
RESULTS AND DIVIDENDS
The Group’s attributable profit after taxation amounted to
US$2.6 million (2018: US$26.0 million).
The Group’s detailed financial results are set out in the
financial statements section on pages 98 to 143.
The Board has adopted a dividend policy that determines the
appropriate dividend each year, based on consideration of the
Company’s cash resources; the level of free cash flow and
earnings generated during the year; and expected funding
commitments for capital projects relating to the Group’s
operational requirements. The Board has decided that no
dividend will be paid in respect of the 2019 financial year. We
believe that the focus on strengthening our balance sheet and
positioning ourselves for the future will be to the benefit of
our shareholders going forward.
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 1 to 43.
The financial position of the Company, its cash flows and
liquidity position are described in the Strategic Report on
pages 26 to 32. In addition, Note 27 and Note 29 to the
financial statements include 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 review 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 has 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.
VIABILITY STATEMENT
In accordance with provision C.2.2 of the 2018 UK Corporate
Governance Code, the Directors have assessed the prospect of
the Company over a longer period of 12 months as required
by the ’going concern’ provision. The viability statement can
be found in the Strategic Report on page 14.
BUSINESS DEVELOPMENT
The Group progressed its Business Transformation process
over the year and remains on track to deliver on its cumulative
four-year target to 2021 of US$100 million in revenue,
productivity improvements and cost savings. The transition
from Business Transformation to Continuous Improvement
has commenced to introduce behavioural strategies and
meaningful KPIs for sustainability and continuously improving
efficiencies. Further detail relating to the Business
Transformation is set out on pages 40 to 43.
Advances in technology are creating significant opportunities
to unlock value across the diamond value chain. These include
technologies that can increase the effectiveness and efficiency
of diamond mining and processing, ones that reduce friction
in selling and marketing rough diamonds, and others that
help consumers to understand the unique journey of their
finished diamond, where it came from and how it got to them.
Further detail on these innovative technologies is set out on
pages 38 to 39.
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SUBSEQUENT EVENTS
Refer Note 31 of the financial statements for details of events
subsequent to the reporting date.
ANNUAL GENERAL MEETING
Details of the resolutions which will be put to the AGM are
given in the Notice of AGM, which is a separate document
from the Annual Report. For those shareholders who elected
to receive company documentation electronically, an
announcement will be released when the AGM documents
are available to download from the Company’s website
(www.gemdiamonds.com).
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 17 to the financial statements.
As at 11 March 2019, there were 139.0 million fully paid
ordinary shares of US$0.01 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 profit of the Company.
There are no shareholders who carry any special rights with
regard 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, save 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 2019, shareholders authorised the
Company to make on-market purchases of up to 13 892 911
of its ordinary shares, representing approximately 10% of the
Company issued share capital at that time. During 2019, 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 2020 AGM to
renew this authority. The Directors have no present intention
to exercise this authority, if granted. Details of deadlines for
exercising voting rights and proxy appointments will be set
out in the 2020 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 58.
RESOURCE DEVELOPMENT
Resource development activities were concentrated on
improving the understanding of existing resources at Letšeng.
Further details can be found in the Letšeng Operating Review
on page 33. For more information on the current Resources
and Reserves statement refer to the Company’s website
www.gemdiamonds.com.
An updated Reserve and
Resource statement is expected in 2020.
CORPORATE SOCIAL RESPONSIBILITY
AND SUSTAINABILITY
A review of health, safety, corporate social responsibility,
environmental performance and community participation
is presented in the Sustainable Development Reporting
Platform, available on Gem Diamonds’ website
www.gemdiamonds.com.
CORPORATE SOCIAL INVESTMENT (CSI)
EXPENDITURE
During 2019 the Group invested US$0.8 million towards social
initiatives, in line with the contribution made in 2018. The
Group supports initiatives that benefit its PACs in the areas of
health, education, infrastructure development, development
of small to medium enterprises and also makes donations to
relevant causes. Infrastructure development was recorded as
the category receiving the most investment, followed by small
and medium enterprise development and education.
POLITICAL DONATIONS
The Group made no political donations during 2019.
GREENHOUSE GAS (GHG) EMISSIONS
CARBON FOOTPRINT ASSESSMENT (CFA)
SUMMARY
In 2019, the total carbon footprint for the Group was
172 968 tCO2e (compared to 161 491 tCO2e in 2018), primarily
driven by electricity consumption and mobile and stationary
fuel combustion. This figure includes the direct Greenhouse Gas
(GHG) emissions (Scope 1), energy indirect GHG (Scope 2)
emissions, and material Scope 3 emissions, and was calculated
in accordance with the parameters defined by the GHG Protocol
Corporate Accounting and Reporting Standard. The total carbon
footprint for Scope 1 and Scope 2 emissions combined, was 143
229 tCO2e, compared to 135 385 tCO2e in 2018.
The total Group footprint signifies a 7.1% increase from 2018,
and a 5.2% increase for Scope 1 and 2, on which the intensity
reporting is based. This observed increase is the net result of
increased mobile combustion related primarily to the mining
fleet at Letšeng due to longer haul distances.
Intensity reporting is required to report on the Group’s carbon
efficiency performance, therefore the Group tracks tonnes of
CO2e emitted per employee and per carat recovered. The
tonnes of CO2e per employee increased from 73.7 tonnes of
CO2e per employee in 2018 to 87.1 tonnes of CO2e per
employee in 2019. This was mainly due to a decrease in the
number of employees and an increase in scope 1 emissions, in
particular mobile diesel consumption. The ratio for tonnes of
CO2e per carat increased to 1.52 in 2019 compared to 1.27 in
2018. This 19% increase is attributable to fewer carats
recovered during the year and the higher scope 1 emissions.
WATER FOOTPRINT
Fresh water is one of the most important and increasingly
scarce commodities on earth. As water stewards, Gem
Diamonds aims to understand related risks of water scarcity
and pollution and undertakes to ensure that water is
managed sustainably. Monitoring the Group Water Footprint
improves understanding of the Groups’ water uses, the risks
associated with water use and the impacts within the
catchments in which the Group operates. As such, caring for
water sources and monitoring water usage are crucial
practices in both a commercial and moral aspect and helps
the Group maintain its social licence to operate.
In 2019 the total water withdrawal for the Group was
5 635 805m3, a 33% reduction in the volume used in 2018
of 8 383 339m3.The key factor in the decreased water
consumption for the Group was the extreme drought
experienced in Lesotho during 2019 which drove an increased
focus on recycling of water. Ghaghoo continued to pump
water to maintain its underground tunnels, however as that
water was not being used in the process plant and was
discharged into the environment, it results in lower water
withdrawal volumes. In 2019, the Total Water Footprint for the
Group was 40m3/carat (2018: 37.6 m3/carat) and 1.19m3 per
ore tonne treated (2018: 1.28m3 per ore tonne treated). The
changes were directly related to a reduction in water usage, a
3% increase on ore tonnes treated and a 10% decrease in
recovered carats.
EMPLOYEE POLICIES AND INVOLVEMENT
To gain a fuller understanding of matters related to employee
policies and involvement, this segment should be read in
conjunction with the information on employment matters
contained in the Sustainable Development Platform, available
on the Company’s website.
The Group prioritises the health, safety and effective
performance of employees, in conjunction with maintaining
positive employee relations. The Group encourages a direct
relationship with open communication between employees
and management. Employees are informed about the Group’s
performance and objectives through direct and continuous
communication with management as well as the Company’s
website, published information, the circulation of press
cuttings and Group announcements. Equal opportunity forms
the foundation of employment within the Group and Gem
Diamonds is committed to achieving equality 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 abilities and aptitude. Where existing employees become
disabled, it is the Group’s policy, where practical, to provide
continuing employment under normal terms and conditions
and to provide training, career development and promotion
to disabled employees wherever possible.
Employment practices within the Group are aimed at
attracting and retaining top calibre management and staff
by creating a work environment that incentivises enhanced
performance. Guidelines and frameworks in respect of
remuneration benefit, performance management, career
development, succession planning, recruitment, expatriate
employment and the alignment of human resources
management and policy have been implemented by the
Group and are in line with international best practice. Each
operating unit manages its human resources requirements
locally, within the Group’s guidelines and framework.
DISCLOSURE OF INFORMATION AND
AUDITOR RE-ELECTION
The Lead Audit Partner is based in Johannesburg, South Africa.
Further information regarding the appointment of EY SA are
detailed in the Audit Committee Report on pages 59 to 61.
As required under section 418 of the Companies Act, 2006, to
which the Directors have voluntarily elected to conform, each
Director confirms that to the best of his knowledge and belief,
there is no information relevant to the preparation of the
Auditor’s Report of which the Company’s auditor is unaware
of 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 auditor is
aware of that information.
A resolution to re-appoint EY SA as the Company’s auditor
and to authorise the Board to determine the auditor’s
remuneration will be proposed at the 2020 AGM. The Strategic
Report, the Directors’ Report and the Directors’ Remuneration
Report were approved by the Board on 10 March 2020.
By order of the Board
Harry Kenyon-Slaney
Non-Executive Chairman
10 March 2020
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99
FINANCIAL
STATEMENTS
Responsibility statement of the Directors in respect of the
Annual Report and financial statements
Independent Auditor's Report
Annual Financial Statements
Abbreviations and definitions
Contact details and advisers
100
101
104
161
162
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101
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, are fair, balanced
and understandable and that they provide the information
necessary for shareholders to assess the Company’s
performance, business model and strategy.
The Strategic Report and Directors’ Report include 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 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 have been followed, subject
to any material departures disclosed and explained in the
Group 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 or loss of the Group 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.
The Directors of the Company have elected to comply with
the Companies Act, 2006, in particular the requirements of
Schedule 8 to The Large and Medium-sized Companies and
Groups (Accounts and Reports) Regulations 2013 of the
United Kingdom pertaining to Directors’ remuneration which
would otherwise only apply to companies incorporated in
the UK.
Michael Michael
Chief Financial Officer
10 March 2020
To the Shareholders of Gem Diamonds Limited
REPORT ON THE AUDIT OF THE
CONSOLIDATED FINANCIAL STATEMENTS
Opinion
We have audited the consolidated financial statements of
Gem Diamonds Limited and its subsidiaries (the Group) set
out on pages 104 to 160, which comprise the consolidated
statement of financial position as at 31 December 2019, the
consolidated statement of profit or loss, the consolidated
statement of other comprehensive income, the consolidated
statement of changes in equity and the consolidated
statement of cash flows for the year then ended, and notes to
the consolidated financial statements, including a summary of
significant accounting policies.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of the Group as at 31 December 2019, and its
consolidated financial performance and consolidated cash
flows for the year then ended in accordance with International
Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities
for the Audit of the consolidated financial statements section of
our report. We are independent of the Group in accordance
with the sections 290 and 291 of the Independent Regulatory
Board for Auditors' Code of Professional Conduct for Registered
Auditors (Revised January 2018), parts 1 and 3 of the
Independent Regulatory Board for Auditors' Code of
Professional Conduct for Registered Auditors (Revised November
2018) (together the IRBA Codes) and other independence
requirements applicable to performing audits of financial
statements of the Group and in South Africa. We have fulfilled
our other ethical responsibilities, as applicable, in accordance
with the IRBA Codes and in accordance with other ethical
requirements applicable to performing audits of the Group
and in South Africa. The IRBA Codes are consistent with the
corresponding sections of the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA code) and the International Ethics
Standards Board for Accountants’ International Code of Ethics
for Professional Accountants (including International
Independence Standards) respectively. We believe that the
audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters. For each matter below, our
description of how our audit addressed the matter is provided
in that context.
We have fulfilled the responsibilities described in the Auditor’s
Responsibilities for the Audit of the consolidated financial
statements section of our report, including in relation to these
matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the
risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the
procedures performed to address the matters below, provide
the basis for our audit opinion on the accompanying
consolidated financial statements.
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Key audit matter (KAM)
How the matter was addressed in the audit
Taxation – Uncertainty over income tax treatments on
an amended tax assessment received by Letšeng
Diamonds Proprietary Limited.
In December 2019, an amended tax assessment was issued to
Letšeng Diamonds (Pty) Ltd by the Lesotho Revenue Authority
(‘LRA’) as noted in the consolidated financial statements in Note
1.2.1. and Note 1.2.28 respectively.
The matter identified had to be evaluated to determine
whether the tax treatment/position accounted for is
appropriate. Management involved external senior legal
counsel to assess the uncertainty to appropriately corroborate
the Group position taken.
The significant judgement involved in the process on the LRA
matter, relates to:
• Ambiguity in the application of the Lesotho Income Tax Act
and related guidelines (such as ordinances, circulars and
letters) and their interpretations;
•
•
Income tax practices that are generally applied by the
taxation authorities and tax payers in specific jurisdictions
and situations; and
Tax memoranda/opinions prepared by qualified in-house or
external tax advisor.
Management believes the assessment to be contradictory to
the application of certain tax treatments in the current Lesotho
Income Tax Act and concluded the matter not to be an
uncertain tax position.
The matter is therefore considered to be a KAM due to the
extensive audit effort assessing the various memoranda and
opinions which required the assistance of our tax experts, and
the extent of discussions required with management to
understand their views.
Our audit procedures included amongst others the
following:
• We evaluated management’s Group tax risk register and
their determination and assessment of uncertain tax
positions and tax contingencies and the application of IFRIC
23, Uncertainty over income tax treatments. Specifically, we
inspected management’s documentation of their
assessment of “probable or not” relating to the amended
assessment raised by the LRA;
• We engaged, as part of our team, tax specialists to assist us
with our audit procedures, specifically relating to the
amended assessment received from the LRA. Our experts
on the audit team inspected and assessed the following
documents:
o The amended assessment received from the LRA.
o For the key matters raised by the LRA, the references to
the legislation by the LRA, the method of resolution
suggested by the LRA, and the salient dates relevant to
the matter;
o Objections and other correspondence with the LRA, to
determine the reasonableness of management’s
response, relative to the tax legislation, other
supporting information and documentation used by
management to support their response, as well as prior
treatment of the matter in their tax returns;
o Senior counsel’s opinion, to determine whether the
opinion corroborates managements position and
response.
• We assessed the adequacy of the disclosures related to
IFRIC 23, Uncertainty over income tax treatments and IAS 12,
Income taxes, in the notes to the consolidated financial
statements.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the
164-page document titled “Gem Diamonds Limited Annual
Report and accounts 2019”. The other information does not
include the consolidated financial statements and our
auditor’s report thereon.
Our opinion on the consolidated financial statements does
not cover the other information and we do not express an
audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other
information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated. If, based on the
work we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of the Directors for the Consolidated
Financial Statements
The Directors are responsible for the preparation and fair
presentation of the consolidated financial statements in
accordance with International Financial Reporting Standards,
and for such internal control as the Directors determine is
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether
due to fraud or error.
In preparing the consolidated financial statements, the
Directors are responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate
the Group or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the audit of the
Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they
could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated
financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgement and maintain professional scepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement of
the consolidated financial statements, whether due to
fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that is
sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Group’s internal control.
•
Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by the Directors.
• Conclude on the appropriateness of the Directors’ use of
the going concern basis of accounting and based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the Group to express an opinion on the
consolidated financial statements. We are responsible for
the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with the Directors regarding, among other
matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Directors with a statement that we have
complied with relevant ethical requirements regarding
independence, and to communicate with them all
relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with the Directors, we
determine those matters that were of most significance in the
audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter
should not be communicated in our report because the
adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such
communication.
Ernst & Young Inc.
Director – Philippus Dawid Grobbelaar
Registered Auditor
Chartered Accountant (SA)
10 March 2020
102 Rivonia Road
Sandton
Private Bag X14
Sandton
2146
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019INDEPENDENT AUDITOR'S REPORT continued 104
GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
105
Profit for the year
Other comprehensive income that could be reclassified to the statement of profit
or loss in subsequent periods
Reclassification of foreign currency translation reserve
Exchange differences on translation of foreign operations
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income for the year, net of tax
Attributable to:
Equity holders of the parent
Non-controlling interests
Notes
2019
US$’000
2018
US$’000
10 576
46 641
5
(4)
4 512
4 508
–
(43 217)
(43 217)
15 084
3 424
1 763
13 321
(3 638)
7 062
CONTINUING OPERATIONS
Revenue from contracts with customers
Cost of sales
Gross profit
Other operating income
Royalties and selling costs
Corporate expenses
Share-based payments
Foreign exchange gain
Reclassification of foreign currency translation reserve
Operating profit
Net finance costs
Finance income
Finance costs
Profit before tax for the year from continuing operations
Income tax expense
Notes
2019
US$’000
2018*
US$’000
2
3
28
4
5
4
6
7
182 047
(129 482)
267 290
(154 953)
52 565
845
(16 904)
(9 418)
(784)
3 550
4
29 858
(5 808)
668
(6 476)
24 050
(9 020)
112 337
474
(22 905)
(10 319)
(1 422)
2 200
–
80 365
(1 658)
2 032
(3 690)
78 707
(26 348)
Profit after tax for the year from continuing operations
15 030
52 359
DISCONTINUED OPERATION
Loss after tax from discontinued operation
Profit for the year
Attributable to:
Equity holders of parent
Non-controlling interests
Earnings per share (cents)
– Basic earnings for the year attributable to ordinary equity holders of the parent
– Diluted earnings for the year attributable to ordinary equity holders of the parent
Earnings per share (cents) for continuing operations
– Basic earnings for the year attributable to ordinary equity holders of the parent
– Diluted earnings for the year attributable to ordinary equity holders of the parent
16
(4 454)
(5 718)
10 576
46 641
8
2 617
7 959
26 017
20 624
1.9
1.8
5.1
5.0
18.8
18.3
22.9
22.4
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (refer Note 16, Assets held for sale).
CONSOLIDATED STATEMENT OF PROFIT OR LOSSFOR THE YEAR ENDED 31 DECEMBER 2019CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2019 106
GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
107
Attributable to the equity holders of the parent
Issued
capital
US$’000
Share
premium1
US$’000
Other
reserves1
US$’000
Accumu-
lated
(losses)/
retained
earnings
US$’000
Non-
controlling
interests
US$’000
Total
US$’000
Total
equity
US$’000
Balance at 1 January 2019
1 390
885 648
(152 029)
(578 834)
156 175
72 103
228 278
Total comprehensive income
Profit for the year
Other comprehensive income
Share capital issued (Note 17)
Transfer between reserves2
Share-based payments (Note 28)
–
–
–
1
–
–
–
–
–
–
–
–
(854)
–
(854)
–
(50 768)
794
2 617
2 617
–
–
50 768
–
1 763
13 321
15 084
2 617
(854)
7 959
5 362
10 576
4 508
1
–
794
–
–
–
1
–
794
Balance at 31 December 2019
1 391
885 648
(202 857)
(525 449)
158 733
85 424
244 157
Balance at 1 January 2018
Total comprehensive income
Profit for the year
Other comprehensive income
Share capital issued (Note 17)
Share-based payments (Note 28)
Dividends paid
1 387
–
885 648
–
(123 811)
(29 655)
(604 851)
26 017
–
–
3
–
–
–
–
–
–
–
–
(29 655)
26 017
–
–
1 437
–
–
–
–
158 373
(3 638)
26 017
(29 655)
3
1 437
–
85 783
7 062
20 624
(13 562)
–
–
(20 742)
244 156
3 424
46 641
(43 217)
3
1 437
(20 742)
Balance at 31 December 2018
1 390
885 648
(152 029)
(578 834)
156 175
72 103
228 278
Attributable to discontinued operation
–
–
(51 916)
(190 107)
(242 023)
–
(242 023)
1 Refer Note 17, Issued capital and reserves for further detail.
2 The Company elected to release share-based equity reserve relating to lapsed and exercised options to accumulated (losses)/retained earnings.
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use asset
Intangible assets
Receivables and other assets
Deferred tax assets
Current assets
Inventories
Receivables and other assets
Income tax receivable
Cash and short-term deposits
Assets held for sale
Total assets
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital
Share premium
Other reserves
Accumulated losses
Non-controlling interests
Total equity
Non-current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Provisions
Deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings
Lease liabilities
Trade and other payables
Income tax payable
Liabilities directly associated with the assets held for sale
Total liabilities
Total equity and liabilities
Approved by the Board of Directors on 10 March 2020 and signed on its behalf by:
C Elphick
Director
M Michael
Director
Notes
2019
US$’000
2018
US$’000
9
10
11
13
23
14
13
21
15
16
17
17
18
19
20
22
23
18
19
20
21
16
323 853
8 454
13 653
–
7 871
353 831
32 517
6 337
8 189
11 303
58 346
3 943
289 640
–
13 272
347
5 746
309 005
33 084
5 433
–
50 812
89 329
859
416 120
399 193
1 391
885 648
(202 857)
(525 449)
158 733
85 424
244 157
6 009
8 539
1 936
15 588
90 995
1 390
885 648
(152 029)
(578 834)
156 175
72 103
228 278
19 954
–
1 555
17 876
79 800
123 067
119 185
16 332
1 940
26 390
13
44 675
4 221
171 963
416 120
14 212
–
28 554
8 964
51 730
–
170 915
399 193
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2019CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2019 108
109
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 stripping costs capitalised
Proceeds from sale of property, plant and equipment
Cash flows used in financing activities
Lease liabilities repaid
Net financial liabilities repaid
– Financial liabilities repaid
– Financial liabilities raised
Dividends paid to non-controlling interests
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange differences
Cash and cash equivalents
Cash and cash equivalents at end of year – continuing operation
Cash and cash equivalents held at banks
Restricted cash
Cash and cash equivalents at end of year – discontinued operation
Cash and cash equivalents held at banks
Restricted cash
Notes
2019
US$’000
2018
US$’000
24.1
24.2
21
55 490
138 339
81 644
(2 854)
668
(5 181)
(18 787)
149 755
1 916
2 033
(2 742)
(12 623)
(80 769)
(99 449)
(9 671)
(73 175)
2 077
(22 963)
(79 294)
2 808
(14 076)
(30 766)
(1 901)
–
24.3
(12 175)
(10 024)
(47 056)
34 881
–
(39 355)
50 812
(24)
11 443
11 303
11 188
115
140
83
57
(12 937)
2 913
(20 742)
8 124
47 704
(5 016)
50 812
50 734
50 581
153
78
22
56
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
1.
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
(BVI). The Company’s registration number is 669758.
These financial statements were authorised for issue by the Board on 10 March 2020.
The Group is principally engaged in operating diamond mines.
1.1.2 Operational information
The Company has the following investments directly and indirectly in subsidiaries at 31 December 2019:
Name and registered
address of company
Share-
holding
Cost of
investment¹
Country of
incorporation
Nature of business
Subsidiaries
Gem Diamond Technical
Services (Proprietary)
Limited2
Illovo Corner
24 Fricker Road
Illovo Boulevard
Johannesburg
South Africa
Gem Equity Group Limited2
Ground Floor, Coastal Building
Wickhams Cay II
Roadtown
Tortola
VG 1130
British Virgin Islands
Letšeng Diamonds
(Proprietary) Limited2
Letšeng Diamonds House
Corner Kingsway and Old School
Roads
Maseru
Lesotho
Gem Diamonds Botswana
(Proprietary) Limited2,3
Suite 103, GIA Centre
Diamond Technology Park
Plot 67782, Block 8
Gaborone
Botswana
100%
US$17 RSA
Technical, financial and management
consulting services.
100%
US$52 277 BVI
70% US$126 000 303 Lesotho
100%
US$5 844 579 Botswana
Dormant investment company
holding 1% in Gem Diamonds
Botswana (Proprietary) Limited, 2% in
Gem Diamonds Marketing Services
BVBA and 1% in Baobab Technologies
BVBA.
Diamond mining and holder of
mining rights. Letšeng Diamonds
(Proprietary) Limited holds 100% of
the A class shares and 70% of the B
class shares in Letšeng Diamonds
Manufacturing (Proprietary) Limited,
which is a company established in
Lesotho to operate the in-country
diamond cutting and polishing. The
company is currently dormant.
Diamond mining; evaluation and
development; and holder of mining
licences and concessions3.
1 The cost of investment represents original cost of investments at acquisition dates.
2 No change in the shareholding since the prior year.
3 During the year the Ghaghoo Diamond Mine, which is in the process of being sold, was classified as a discontinued operation held for sale and has been disclosed
separately (refer Note 16, Assets held for sale).
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019CONSOLIDATED STATEMENT OF CASH FLOWSFOR THE YEAR ENDED 31 DECEMBER 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019 110
111
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
1.
1.1 Corporate information (continued)
1.1.2 Operational information (continued)
Name and registered
address of company
Share-
holding
Cost of
investment¹
Country of
incorporation
Nature of business
Subsidiaries
Gem Diamonds
Investments Limited2,3
20 – 22 Bedford Row
London
WC1R 4JS
United Kingdom
100%
US$17 531 316 UK
Investment holding company holding
100% in each of Calibrated Diamonds
Investment Holdings (Proprietary)
Limited and Gem Diamonds Innovation
Solutions CY 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.
3 During the year the Group abandoned Gem Diamonds Marketing Botswana (Proprietary) Limited, which was the sales and marketing office for Ghaghoo’s diamonds
and Gem Diamonds Technology DMCC, which owned an investment property in Dubai that was sold at the end of the prior year. As the operations are being closed and
not sold the closure has been classified as an abandonment (refer Note 5, Reclassification of foreign currency translation reserve), both these companies were 100% held
by Gem Diamonds Investments Limited.
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 the Group operates or areas in
which operations are managed. The below measures of profit or loss, assets and liabilities are reviewed by the Chief Operating
Decision-Maker, ie Board of Directors. The main geographical regions and the type of products and services from which each
reporting segment derives its revenue from are:
•
•
•
•
Lesotho (diamond mining activities);
Belgium (sales, marketing and manufacturing of diamonds);
BVI, RSA, UK and Cyprus (technical and administrative services); and
Botswana (diamond mining activities), classified as discontinued operation held for sale during the year.
Management monitors the operating results of the geographical units separately for the purpose of making decisions about
resource allocation and performance assessment.
During the year the Gem Diamonds Botswana (Ghaghoo Diamond Mine), which is in the process of being sold, was classified
as a discontinued operation held for sale and has been disclosed separately (refer Note 16, Assets held for sale). The Ghaghoo
mine was previously disclosed in the Botswana segment.
During the year, two immaterial operations, Gem Diamonds Marketing Botswana (Proprietary) Limited (GDMB) and Gem
Diamonds Technology DMCC (GDTD) were abandoned. GDMB was the sales and marketing office for Ghaghoo’s diamonds
and was previously classified as part of the Botswana segment. GDTD owned an investment property in Dubai that was sold at
the end of the prior year and was previously classified as part of the Belgium segment (refer Note 5, Reclassification of foreign
currency translation reserve).
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
1.
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
Segment performance is evaluated based on operating profit or loss. Intersegment 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, profit/(loss), EBITDA and asset and liability information from operations regarding the
Group’s geographical segments:
Year ended 31 December 2019
Lesotho
US$’000
Belgium
US$’000
BVI, RSA
UK and
Cyprus1
US$’000
Total
Continuing
operations
US$’000
Discontinued
operation2
US$’000
Revenue
Total revenue
Intersegment
179 313
(179 313)
182 788
(741)
8 440
(8 440)
370 541
(188 494)
External customers
Depreciation and amortisation
–
57 293
182 047
374
Total
US$’000
370 541
(188 494)
182 047
58 206
15 077
43 129
–
–
–
–
–
–
10
794
(4 274)
(180)
(4 454)
–
25 584
(5 988)
19 596
(9 020)
–
539
539
–
514
(9 529)
(1 754)
(11 283)
(641)
182 047
58 206
15 077
43 129
784
29 858
(5 808)
24 050
(9 020)
14 164
43 129
264
38 524
(3 792)
34 732
(8 228)
374
–
6
863
(262)
601
(151)
15 030
(4 454)
10 576
49 014
393 107
1 206
2 477
(9 221)
(40 999)
(4 389)
36 610
8 722
404 306
3 943
408 249
59 854
600
16 293
76 747
4 221
80 968
8 323
73 175
81 498
324
–
324
1 196
–
1 196
9 843
73 175
83 018
–
–
–
9 843
73 175
83 018
– Depreciation and mining asset
amortisation
– Waste stripping cost amortisation
Share-based equity transactions
Segment operating profit/(loss)
Net finance costs
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year
EBITDA
Segment assets
Segment liabilities
Other segment information
Capital expenditure
– Property, plant and equipment3
– Waste cost capitalised
Total capital expenditure
1 No revenue was generated in BVI and Cyprus.
2 The results of Gem Diamonds Botswana, which has been classified as a discontinued operation held for sale and which was previously included in the Botswana
segment, has been reclassified to the discontinued operation segment.
3 Capital expenditure includes non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.
Included in annual revenue for the current year is revenue from one customer which amounted to US$21.1 million arising from
sales reported in the Belgium segments.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$7.9 million and US$91.0 million
respectively.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 112
113
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
1.
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
Total revenue for the year is lower than that of the prior year mainly as a result of the lower volume of large diamonds
recovered during the year. The revenue of the prior year was specifically bolstered by the recovery and sale of the 910 carat
Lesotho Legend which sold for US$40.0 million.
Year ended 31 December 2018
Lesotho
US$’000
Belgium1
US$’000
267 370
(432)
266 938
204
204
–
6
2 025
–
2 025
(542)
2 114
3 305
Revenue
Total revenue
Intersegment
External customers
Depreciation and amortisation
– Depreciation and mining asset
amortisation
– Waste stripping cost amortisation
Share-based equity transactions
Segment operating profit/(loss)
Net finance costs
Profit/(loss) before tax
Income tax expense
Profit for the year
EBITDA
Segment assets
Segment liabilities
Other segment information
Capital expenditure
– Property, plant and equipment4
– Waste cost capitalised
Total capital expenditure
262 636
(262 636)
–
76 537
8 332
68 205
317
88 815
743
89 558
(20 779)
95 607
358 648
62 753
22 628
79 294
101 922
BVI, RSA
UK and
Cyprus2
US$’000
Continuing
operations
Discontinued
operation3
Total
US$’000
9 440
(9 088)
539 446
(272 156)
352
120
120
–
1 099
(10 475)
(2 401)
(12 876)
(5 027)
267 290
76 861
8 656
68 205
1 422
80 365
(1 658)
78 707
(26 348)
–
–
–
43
43
–
15
(5 528)
(190)
(5 718)
–
539 446
(272 156)
267 290
76 904
8 699
68 205
1 437
74 837
(1 848)
72 989
(26 348)
52 359
(5 718)
46 641
(10 040)
87 680
(5 423)
82 257
27 552
389 505
689
23 637
87 079
3 942
4 036
393 447
91 115
1 880
–
1 880
899
–
899
25 407
79 294
104 701
–
–
–
25 407
79 294
104 701
1 The results of Gem Diamonds Marketing Botswana, previously included in the Botswana segment, have been reclassified to the Belgium segment.
2 No revenue was generated in BVI and Cyprus.
3 The results of Gem Diamonds Botswana, which has been classified as a discontinued operation held for sale and which was previously included in the Botswana
segment, has been reclassified to the Discontinued operation segment.
4 Capital expenditure includes non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.
Included in annual revenue for the 2018 year is revenue from two customers which amounted to US$88.3 million arising from
sales reported in the Belgium segments.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$5.7 million and US$79.8 million
respectively.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies
1.
1.2
1.2.1 Basis of preparation
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 for assets and liabilities measured
at fair value. The accounting policies have been consistently applied except for the adoption of the new standards and
interpretations detailed on the following pages.
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 and rounded to the nearest
thousand. 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 1.2.28, Critical accounting estimates and judgements.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The Group adopted IFRS 16 Leases for the first time using the modified retrospective method of adoption with the date of initial
application being 1 January 2019 without restating comparative figures. The nature and effect of the changes as a result of
adoption of this new accounting standard is described below. All other accounting policies adopted are consistent with those
applied in the previous financial year.
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-
Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the
principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases
under a single on-balance sheet model.
The nature of the effect of adoption of IFRS 16
The Group has lease contracts for various items of buildings, plant and equipment and vehicles. Before the adoption of IFRS 16
the Group determined whether an arrangement contained a lease based on whether the fulfilment of the arrangement was
dependent on the use of a specific asset or assets or the arrangement conveyed a right to use the asset. For leases that contain
one lease component and one or more additional lease or non-lease components, the Group allocated the consideration in
the contract to each lease component on the basis of the relative stand-alone price of the lease component and the
aggregate stand-alone price of the non-lease components. A reassessment would be made after inception of the lease only
if one of the following applied: (a) There was a change in contractual terms, other than a renewal or extension of the
arrangement; (b) A renewal option was exercised or extension granted, unless the term of the renewal or extension was
initially included in the lease term; (c) There was a change in the determination of whether fulfilment is dependent on a
specific asset; or (d) There was a substantial change to the asset. Where a reassessment was made, lease accounting
commenced or ceased 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).
Leases where the lessor retained substantially all the risks and rewards of ownership were classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) were charged to the statement of
profit or loss on a straight-line basis over the period of the lease. When the Group was a party to a lease where there was a
contingent rental element associated within the agreement, a cost was recognised as and when the contingency materialised.
Upon adoption of IFRS 16, the Group applies a single recognition and measurement approach for all leases, except for
short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical
expedients, which have been applied by the Group. The Group did not have any finance leases at the time IFRS 16 was
adopted on 1 January 2019.
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114
115
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.1 Basis of preparation (continued)
Leases previously accounted for as operating leases
The Group recognised a new category of assets, namely right-of-use assets and lease liabilities for those leases previously
classified as operating leases, except for short-term leases and leases of low-value assets. For all leases, the right-of-use assets
were recognised based on the amount equal to the lease liabilities on the date of initial application (ie. 1 January 2019),
adjusted by the amount of any prepaid or accrued lease payments relating to that lease. Lease liabilities were recognised
based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date
of initial application.
The Group also applied the available practical expedients wherein it:
• used a single discount rate to a portfolio of leases with reasonably similar characteristics;
•
•
•
applied the short-term leases exemptions to lease contracts with a lease term that ends within 12 months of the date of
initial application;
applied the materiality exemption on transition to the lease contracts for which the underlying asset was of a low value
and was not qualitatively material to the Group;
excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application;
• used hindsight for historical lease payments made to determine the value of the liability and right-of-use asset at date
of initial application where the contract did not refer to an annual fixed escalation rate; and
• used hindsight to determine the lease term if the contract contained options to extend or terminate the lease.
Based on the foregoing, as at 1 January 2019:
•
•
right-of-use assets of US$9.6 million, net of accrued lease payments of $1.4 million, were recognised and presented
separately in the statement of financial position;
additional lease liabilities of US$11.0 million were recognised and presented separately in the statement of financial position; and
• deferred tax assets and liabilities of $2.4 million respectively were presented separately in the statement of financial position.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.1 Basis of preparation (continued)
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as at 31 December 2018 as follows:
Operating lease commitments as at 31 December 2018
Weighted average incremental borrowing rate as at 1 January 2019
Discounted operating lease commitments at 1 January 2019
Less:
Commitments relating to short-term leases
Variable lease payments
Out of scope leases eg mining leases
Add:
Arrangements not previously separately disclosed as operating leases commitments
Lease liabilities as at 1 January 2019
1 January
2019
US$’000
136 423
10%
128 490
(102)
(120 899)
(1 069)
4 623
11 043
For amounts recognised in the statement of financial position and profit or loss at year end, refer Note 10, Right-of-use assets
and Note 19, Lease liabilities.
Management applied judgement when determining whether contracts contained a lease. Refer Note 1.2.28, Critical accounting
estimates and judgements.
IFRIC Interpretation 23 Uncertainty over Income Tax Treatment
The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of
IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does it specifically include requirements
relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses the following:
The effect of adoption of IFRS 16 as at 1 January 2019 (increase/(decrease) is as follows:
• whether an entity considers uncertain tax treatments separately;
Assets
Right-of-use assets
Deferred tax assets
Total assets
Liabilities
Lease liabilities
Deferred tax liabilities
Trade and other payables
Total liabilities
1 January
2019
US$’000
9 612
2 375
11 987
11 043
2 375
(1 431)
11 987
•
the assumptions an entity makes about the examination of tax treatments by taxation authorities;
• how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and
• how an entity considers changes in facts and circumstances.
The Group determines whether to consider each uncertain tax treatment separately or together with one or more other
uncertain tax treatments and uses the approach that better predicts the resolution of the uncertainty.
The Group applies judgement in identifying uncertainties over income tax treatments, as referred under Note 1.2.28, Critical
accounting estimates and judgements, and concluded that there were no uncertain tax treatments relating to the current
year. The interpretation did not have an impact on the consolidated financial statements of the Group.
Several other amendments, interpretations and improvements apply for the first time in 2019, and are listed in the table on the
following page. These amendments and interpretations do not have an impact on the consolidated financial statements of the
Group.
The Ghaghoo mining operation was placed on care and maintenance in 2017 and subsequently classified as a discontinued
operation held for sale during the current year. The entity only has short-term leases and leases of low-value assets and the
adoption of IFRS 16 at Ghaghoo, did not have an impact at a Group level.
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117
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.1 Basis of preparation (continued)
Standard, amendment, interpretation or improvement
Amendments to IFRS 9
Prepayment Features with Negative Compensation
Amendments to IAS 19
Plan Amendment, Curtailment or Settlement
Amendments to IAS 28
Long-term Interests in Associates and Joint Ventures
Improvements to IFRS 3
Business Combinations – previously held interests in joint operation
Improvements to IFRS 11
Joint Arrangements – previously held interests in joint operation
Improvements to IAS 12
Income Taxes – income tax consequences of payments on financial instruments
classified as equity
Improvements to IAS 23
Borrowing Costs – borrowing costs eligible for capitalisation
Standards issued but not yet effective
The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet
effective. The standards, interpretations and amendments that are issued, but not yet effective, up to the date of issuance
of the Group’s financial statements are listed in the table below, and are not expected to impact the Group.
Standard, amendment, interpretation or improvement
IFRS 17
Insurance Contracts
Amendments to IFRS 3
Definition of a Business
Amendments to IFRS 9, IAS 39 and IFRS 7 Interest Rate Benchmark Reform
Amendments to IAS 1 and IAS 8
Definition of Material Costs
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
have been assessed by management. The financial position of the Company, its cash flows and liquidity position are presented
in the Annual Report and Accounts. In addition, Note 27, 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 market risk, 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.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company as at 31 December 2019.
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 of the following criteria must be met: (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 intragroup balances and
transactions, including unrealised profits arising from them, are eliminated in full.
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly or 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 statement of profit or loss.
Licence costs paid in connection with a right to explore in an existing exploration area are capitalised, as a component of
property, plant and equipment, 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, as an exploration and development asset, 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 statement of profit or loss. 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.
Management is required to make certain estimates and assumptions when determining whether the commercial viability of an
identified resource and when determining whether indicators of impairment exist as referred under Note 1.2.28, Critical
accounting estimates and judgements.
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119
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.5 Development expenditure
When proved reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure is
reclassified from exploration phase to development phase. As the asset is not available for use, during the development phase,
it is not depreciated. On completion of the development phase, any capitalised exploration and evaluation expenditure
already capitalised to development asset, 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. Management is required to make certain
estimates and assumptions when determining whether indicators of impairment exist as referred under Note 1.2.28, Critical
accounting estimates and judgements.
1.2.6 Property, plant and equipment
Property, plant and equipment are 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, to get the asset in its
condition and location for its intended use among others, professional fees, and for qualifying assets, borrowing costs
capitalised in accordance with the Group’s accounting policies.
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 statement of profit or loss during the financial period in which they
are incurred.
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
Other assets
Method
Straight line
Straight line
Straight line
Straight line
Straight line
Useful life
Lesser of life of mine or period of mining lease
Lesser of life of mine or period of mining lease
Lesser of three years or period of mining lease
Three to 10 years
Two to five years
Pre-production and in production stripping costs
Costs associated with removal of waste overburden are classified as stripping costs.
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 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 non-current asset recognised is referred to as a ‘stripping activity asset’ and is separately disclosed in Note 9, Property, plant
and equipment. If all the criteria are not met, the production stripping costs are charged to the statement of profit or loss 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.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.6 Property, plant and equipment (continued)
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.
Management applies judgement to calculate and allocate the production stripping costs to inventory and/or the stripping
activity asset(s) as referred under Note 1.2.28, Critical accounting estimates and judgements.
1.2.7 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes
a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
1.2.8 Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered
principally through a sale transaction rather than through continuing use. Such non-current assets and disposal groups
classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are
the incremental costs directly attributable to the sale, excluding the finance costs and income tax expense.
The criteria for held-for-sale classification is regarded as met only when the sale is highly probable, and the asset or disposal
group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is
unlikely that significant changes to the sale will be made or that it will be withdrawn. Management must be committed to the
sale expected within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position.
A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is
classified as held for sale, and:
(a) represents a separate major line of business or geographical area of operations;
(b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
(c) is a subsidiary acquired exclusively with a view to re-sale.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit
or loss after tax from discontinued operations in the statement of profit or loss.
Additional disclosures are provided Note 16, Assets held for sale. All other notes to the financial statements include amounts
for continuing operations, unless indicated otherwise.
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120
121
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.9 Goodwill
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.10 Financial instruments (continued)
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 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 CGUs (or
groups of CGUs) 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 shall not be larger than an
operating segment before aggregation.
Where goodwill forms part of a CGU 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 CGU retained.
1.2.10 Financial instruments
The Group shall only recognise a financial instrument only when the Group becomes a party to the contractual provisions of the
instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every
reporting date based on the business model for managing these financial assets and the contractual cash flow characteristics.
Currently the Group only has financial assets at amortised cost which consist of receivables and other assets, and cash and
short-term deposits which is held within a business model to collect contractual cash flows and for which the contractual cash
flow characteristics are solely payments of principal interest. When financial assets are recognised initially, they are measured at
fair value plus (in the case of financial assets not at fair value through profit or loss) directly attributable costs.
Financial assets at amortised cost
Financial assets at amortised cost 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,
if the time value of money is significant, less any allowance for impairment. Gains and losses are recognised in the statement of
profit or loss when the financial assets at amortised are derecognised or impaired, as well as through the amortisation process.
Derecognition
A financial asset is primarily derecognised when the rights to receive cash flows from the asset have expired or the Group has
transferred its rights to receive cash flows from the asset. Gains or losses from derecognition of financial assets are recognised in
the statement of profit or loss.
Financial liabilities
Financial liabilities, which consist of interest-bearing borrowings and trade and other payables, are recognised initially at fair
value, net of transaction costs incurred. Financial liabilities are subsequently stated at amortised cost; any difference between
proceeds (net of transaction costs) and the redemption value is recognised in the statement of profit or loss, unless capitalised
in accordance with Note 1.2.7, Borrowing costs, over the contractual period of the financial liability, using the effective interest
rate method.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Gains or losses
from derecognition of financial liabilities are recognised in the statement of profit or loss.
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 is 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.
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 if it is determined that there is an
indication of impairment in accordance with IAS 36. 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.
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Summary of significant accounting policies (continued)
1.
1.2
1.2.12 Impairments (continued)
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 statement of profit or loss. 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
Assets carried at amortised cost
The Group recognises an allowance for expected credit losses (ECLs) for all financial assets at amortised costs in the statement
of profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and
all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The
expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to
the contractual terms.
For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided
for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit
exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for
credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
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, is 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.
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, and 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 consist 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 statement of profit or loss 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
•
resulting exchange differences are recognised as a separate component of equity.
Details of the rates applied at the respective reporting dates and for the statement of profit or loss transactions are detailed in
Note 17, Issued capital and reserves.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.16 Foreign currency translations (continued)
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 or 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
statement of profit or loss. Non-monetary items that are measured in terms of cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was determined. Monetary items for each 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.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are
granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees
become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity-settled
transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the
Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market
condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other
performance conditions are satisfied.
At each 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
statement of profit or loss, 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, due to the fact that it would not be
beneficial to the employees.
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 statement of profit or loss 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 are reversed and recognised in
income immediately for the current year and through retained earnings for costs, recognised in previous years.
Management applies judgement when determining whether share options relating to employees who resigned before the
end of the service condition period are cancelled or forfeited as referred under Note 1.2.28, Critical accounting estimates
and judgements.
The Group periodically releases the share-based equity reserve to retained earnings in relation to lapsed, forfeited and
exercised options.
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Summary of significant accounting policies (continued)
1.
1.2
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 a finance cost.
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 program 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.
Management is required to make significant estimates and assumptions when determining the amount of the restoration
and rehabilitation provisions as referred under Note 1.2.28, Critical accounting estimates and judgements.
1.2.20 Taxation
Income tax for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss
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.
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 statement of profit or loss 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.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.20 Taxation (continued)
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 payables and disclosed as part of
royalty and selling costs in the statement of profit or loss.
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
At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement
whether it depends on a specified asset, whether the Group obtains substantially all the economic benefits from the use of
that asset, and whether the Group has the right to direct the use of the asset. For leases that contain one lease component and
one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease
component on the basis of the relative stand-alone price of the lease component and the aggregate stand-alone price of the
non-lease components.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease (ie, the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial
direct costs incurred, costs to dismantle, restore and remove the right-of-use asset, and lease payments made at or before the
commencement date less any lease incentives received. After the commencement date, the right-of-use assets are measured
using a cost model. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease
term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and
the lease term. Right-of-use assets are subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option
reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects
the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are
recognised as an expense in the period on which the event or condition that triggers the payment occurs.
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Summary of significant accounting policies (continued)
1.
1.2
1.2.22 Leases (continued)
In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement
date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification to the terms and conditions of the lease or if there a lease
reassessment.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term leases (ie, those leases that have a lease term
of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of
low-value assets recognition exemption to leases of office equipment that are considered to be of low value. Lease payments
on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.
1.2.23 Revenue from contracts with customers
Revenue comprises net invoiced diamond sales to customers excluding VAT. Diamond sales are made through a competitive
tender process and recognised when the Group’s performance obligations have been satisfied at the time the buyer obtains
control of the diamond(s), at an amount that the Group expects to be entitled in exchange for the diamond(s). Where the
Group makes rough diamond sales to customers and retains a right to an interest in their future sale as polished diamonds, the
Group records the sale of the rough diamonds but such contingent revenue on the onward sale is only recognised at the date
when the polished diamonds are sold.
The following revenue streams are recognised:
•
rough diamonds which are sold through a competitive tender process, partnership agreements and joint operation
arrangements;
• polished diamonds and other products which are sold through direct sales channels;
•
•
additional uplift (on the value from rough to polished) on partnership arrangements; and
additional uplift (on the value from rough to polished) on joint operation arrangements.
The sale of rough diamonds is the core business of the Group, with other revenue streams contributing marginally to total revenue.
Revenue through joint operation arrangements is recognised for the sale of the rough diamond according to each party’s
percentage entitlement as per the joint operation arrangement. Contractual agreements are entered into between the Group
and the joint operation partner whereby both parties control jointly the cutting and polishing activities relating to the
diamond. All decisions pertaining to the cutting and polishing of the diamonds require unanimous consent from both parties.
Once these activities are complete, the polished diamond is sold, after which the revenue on the remaining percentage of the
rough diamond is recognised, together with additional uplift on the joint operation arrangement. The Group portion of
inventories related to these transactions is included in the total inventories balance.
Revenue through partnership arrangements is recognised for the sale of the rough diamond, with an additional uplift based
on the polished margin achieved. Management recognises the revenue on the sale of the rough diamond when it is sold to
a third party, as there is no continuing involvement by management in the cutting and polishing process and control has
passed to the third party. Revenue from additional uplift is considered to be a variable consideration. This variable
consideration will generally be significantly constrained. This is on the basis that the ultimate additional uplift received will
depend on a range of factors that are highly susceptible to factors outside the Group’s influence. Management recognises
revenue on the additional uplift when the polished diamond is sold by the third party and the additional uplift is guaranteed.
Rendering of service
Revenue from services relating to third-party diamond manufacturing is recognised in the accounting period in which the
services are rendered, when the Group’s performance obligations have been satisfied, at an amount that the Group expects
to be entitled to in exchange for the services.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.23 Revenue from contracts with customers (continued)
Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group
transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is
recognised for the earned consideration that is conditional. The Group does not have any contract assets as performance and
a right to consideration occurs within a short period of time and all rights to consideration are unconditional.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an
amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to
the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract
liabilities are recognised as revenue when the Group performs under the contract. The Group does not have any contract liabilities as
the transfer of goods or services performance occurs within a short period of time of receiving the consideration.
1.2.24 Interest income
Interest income is recognised on a time proportion basis using the effective interest rate method.
1.2.25 Dividends
Dividends are recognised when the amount of the dividend can be reliably measured and the Group’s right to receive
payment is established.
1.2.26 Finance costs
Finance costs are recognised on a time proportion basis using the effective interest rate method.
1.2.27 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.
1.2.28 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.
Estimates
Ore reserves and associated life of mine (LoM)
There are numerous uncertainties inherent in estimating ore reserves and the associated LoM. Therefore, the Group must make
a number of assumptions in making those estimations, including assumptions as to the prices of diamonds, 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 diamonds, 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 LoM estimates, the associated depreciation rates, residual values, waste stripping and amortisation
ratios, and environmental provisions are reassessed to take into account the revised LoM estimate. Refer Note 9, Property, plant
and equipment.
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Summary of significant accounting policies (continued)
1.
1.2
1.2.28 Critical accounting estimates and judgements (continued)
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.28 Critical accounting estimates and judgements (continued)
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.
Refer Note 9, Property, plant and equipment.
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. Refer Note 22, Provisions, for further detail.
Judgement
Impairment reviews
The Group determines if goodwill is impaired at least on an annual basis, while all other significant operations are tested for
impairment when there are potential indicators which may require impairment review. This requires an estimation of the
recoverable amount of the relevant CGU under review. Recoverable amount is the higher of fair value less costs to sell and
value in use. While conducting an impairment review of its assets using value-in-use impairment models, the Group exercises
judgement in making assumptions about future rough diamond prices, exchange rates, volumes of production, ore reserves
and resources included in the current LoM plans, production costs and macro-economic factors such as inflation and discount
rates. Changes in estimates used can result in significant changes to the consolidated statement of profit or loss and
consolidated statement of financial position. The results of the impairment testing performed did not indicate any
impairments in the current year.
The key assumptions used in the recoverable amount calculations, determined on a value-in-use basis, are listed below:
Valuation basis
Discounted present value of future cash flows.
LoM and recoverable value of reserves and resources
Economically recoverable reserves and resources, carats recoverable and grades achievable are based on management’s
expectations of the availability of reserves and resources at mine sites and technical studies undertaken by in-house and
third-party specialists. Reserves remaining after the current LoM plan have not been included in determining the value in use
of the operations.
Cost and inflation rate
Operating costs for Letšeng are determined based on management’s experience and the use of contractors over a period of
time whose costs are fairly reasonably determinable. Mining and processing costs in the short to medium term have been
based on the agreements with the relevant contractors. In the longer term, management has applied local inflation rates of 4%
to 6% for operating costs in addition to a depth escalation factor for mining costs as a result of mining in deeper areas within
both pits.
Capital costs in the short-term has been based on management’s capital program after which a fixed percentage of operating
costs have been applied to determine the capital costs necessary to maintain current levels of operations.
Exchange rates
Exchange rates are estimated based on an assessment at current market fundamentals and long-term expectations. The US
dollar/Lesotho loti (LSL) exchange rate used was determined with reference to the closing rate at 31 December 2019 of LSL13.98.
Diamond prices
The diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends
and the Group’s medium-term forecast. Long-term diamond price escalation reflects the Group’s assessment of market supply/
demand fundamentals.
Discount rate
The discount rate of 11.2% for revenue (2018: 12.2%) and 14.7% for costs (2018: 15.8%) used for Letšeng represents the
before-tax risk-free rate adjusted for market risk, volatility and risks specific to the asset and its operating jurisdiction.
Market capitalisation
In the instance where the Group’s asset carrying values exceed market capitalisation, this results in an indicator of impairment.
The Group believes that this position does not represent an impairment as all significant operations were assessed for
impairment during the year and no impairments were recognised.
Sensitivity
The value in use for Letšeng indicated sufficient headroom, and no reasonable change in the key assumptions will result in an
impairment. Refer Note 12, Impairment testing, for further detail.
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 Letšeng.
The orebody needs 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. Refer Note 9, Property, plant and equipment, for further detail.
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. Where employees do
not meet the requirements of a good leaver as per the rules of the long-term incentive plan (LTIP), no award will vest and this
will be treated as cancellation by forfeiture. The expenses relating to these charges previously recognised are then reversed.
Where employees do meet the requirements of a good leaver as per the rules of the LTIP, some or all of an award will vest and
this will be treated as a modification to the original award. The future expenses relating to these awards are accelerated and
recognised as an expense immediately. Refer Note 28, Share-based payments, for further detail.
Identifying uncertainties over tax treatments
In December 2019, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA), contradicting
the application of certain tax treatments in the current Income Tax Act.
Management do not believe an uncertain tax position exists as:
•
•
•
there is no ambiguity in the application of the Lesotho Income Tax Act;
there has been no change in the application of the Income Tax Act and resulting tax; and
senior counsel advice, which is legally privileged, has been obtained and reflects good prospects of success in setting
aside the amended tax assessment.
Management has lodged a formal Objection to the amended tax assessment, which Objection is supported by the opinion of
senior counsel. The LRA applies a “pay now argue later” principle, the application of which is subject to the discretion of the
Commissioner General. An application for the suspension of any payment has been made to the Commissioner General
together with the Objection. No provision or contingent liability, relating to the amended tax assessment in question, is
therefore required to be raised in the 2019 Annual Financial Statements.
Equipment and service lease
The major components of Letšeng's ore-extraction mining activities are outsourced to a mining contractor. The mining contractor
performs these functions using their own equipment. Management applied judgement when evaluating whether the contract
between Letšeng and the mining contractor contained a lease. While it was concluded there was a lease, lease payments are
variable in nature as the lease payment vary based on the tonnes of ore and waste mined and hence no right of use asset or
liability could be measured. The lease payment is therefore expensed in the statement of profit or loss. Refer Note 25,
Commitments and contingencies.
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2.
REVENUE FROM CONTRACTS WITH CUSTOMERS
Sale of goods
Rendering of services
The revenue from the sale of goods represents the sale of rough diamonds, for which revenue
is recognised at the point in time at which control transfers. The revenue from the rendering
of services mainly represents the services rendered on third-party diamond analysis and
manufacturing, for which the revenue is recognised over time as the services are rendered.
No revenue was generated from joint operation or partnership arrangements during the
current year (2018: Nil).
3.
4.
OTHER OPERATING INCOME
Sundry income
Sundry expenses
Profit on disposal and scrapping of property, plant and equipment
OPERATING PROFIT
Operating profit includes the following:
Depreciation and amortisation
Depreciation and amortisation excluding waste stripping costs
Depreciation of right-of-use assets
Waste stripping costs amortised
(Less): Depreciation and mining asset amortisation capitalised to inventory
Inventories
Cost of inventories recognised as an expense
Foreign exchange gain
Foreign exchange gain
Lease expenses not included in lease liability
Mine site property
Equipment and service lease
Contingent rental – Alluvial Ventures
Leased premises
2019
US$’000
2018*
US$’000
182 046
1
266 822
468
182 047
267 290
90
(7)
762
845
300
(521)
695
474
(12 400)
(2 526)
(43 129)
(58 055)
(151)
(8 605)
–
(68 205)
(76 810)
(51)
(58 206)
(76 861)
(114 678)
(146 397)
3 550
2 200
(146)
(61 658)
(9 472)
(152)
(131)
(68 174)
(11 924)
(1 807)
(71 428)
(82 036)
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (refer Note 16, Assets held for sale).
4.
OPERATING PROFIT (continued)
Auditor's remuneration – EY
Group financial statements
Statutory
Other audit-related services1
Auditor's remuneration – other audit firms
Statutory
Other non-audit fees – EY
Tax compliance
Tax services advisory and consultancy
Other services2
Other non-audit fees – other audit firms
Internal audit
Employee benefits expense
Salaries and wages3
Underlying earnings before interest, tax, depreciation and mining asset
amortisation (underlying EBITDA) before discontinued operation
Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to
the operational performance of the Group and excludes such non-operating costs as listed
below. The reconciliation from operating profit to underlying EBITDA is as follows:
Operating profit
Other operating income
Foreign exchange gain
Share-based payments
Depreciation and amortisation (excluding waste stripping cost amortised)
Underlying EBITDA before discontinued operation
2019
US$’000
2018*
US$’000
(296)
(172)
–
(468)
(17)
(34)
(9)
(15)
(58)
(2)
(279)
(153)
(106)
(538)
(20)
(8)
(12)
(3)
(23)
(1)
(22 088)
(20 123)
29 858
(845)
(3 550)
784
14 752
40 999
80 365
(474)
(2 200)
1 422
8 567
87 680
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (refer Note 16, Assets held for sale).
1 Other audit-related services by EY relate to the interim review on the half year results for the six months ended 30 June 2018. No interim review was performed on the
2019 half year results.
2 Includes services related to the sale of assets.
3
Includes contributions to defined contribution plan of US$0.5 million (31 December 2018: US$0.5 million). An average of 425 employees excluding contractors were
employed during the period (2018: 401).
5.
RECLASSIFICATION OF FOREIGN CURRENCY TRANSLATION RESERVE
During the year the Group abandoned Gem Diamonds Marketing Botswana (Proprietary) Limited, the sales and marketing
office for Ghaghoo’s diamonds and Gem Diamonds Technology DMCC, which owned an investment property in Dubai that
was sold at the end of the prior year. As the operations are being closed and not sold the closure has been classified as an
abandonment, which has resulted in the recycling of the foreign currency translation reserve. There was no profit or loss on
the abandonment.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 132
133
6.
NET FINANCE COSTS
Finance income
Bank deposits
Other
Total finance income
Finance costs
Bank overdraft
Finance costs on borrowings
Finance costs on lease liabilities
Finance costs on unwinding of rehabilitation and decommissioning provision
Total finance costs
7.
INCOME TAX
Income tax expense
Current
– Overseas
Withholding tax
– Overseas
Deferred
– Overseas
Profit before taxation from continuing operations
Reconciliation of tax rate
Applicable income tax rate
Permanent differences
Unrecognised deferred tax assets
Effect of overseas tax at different rates
Withholding tax
Effective income tax rate
2019
US$’000
2018*
US$’000
668
–
668
(459)
(3 981)
(1 087)
(949)
(6 476)
(5 808)
2 031
1
2 032
(1 887)
(916)
–
(887)
(3 690)
(1 658)
(1 805)
(16 147)
(143)
(4 984)
(7 072)
(5 217)
(9 020)
(26 348)
24 050
78 707
%
25.0
0.8
7.9
3.2
0.6
37.5
%
25.0
1.1
1.9
1.3
6.8
36.1
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than the statutory UK corporation tax rate
of 19.0% as this is the jurisdiction in which the majority of the Group’s taxes are incurred.
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (refer Note 16, Assets held for sale).
8.
EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted earnings
per share computations:
Profit for the year:
Continuing operations
Discontinued operation
Less: Non-controlling interests
Net profit attributable to ordinary equity holders of the parent for basic
and diluted earnings
2019
US$’000
2018
US$’000
10 576
15 030
(4 454)
46 641
52 880
(6 239)
(7 959)
(20 624)
2 617
26 017
Weighted average number of ordinary shares outstanding during the year (‘000)
138 964
138 731
Earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year after taking into account future potential conversion
and issue rights associated with the ordinary shares.
Weighted average number of ordinary shares outstanding during the year
Effect of dilution:
– Future share awards under the Employee Share Option Plan
2019
Number of
shares
2018
Number of
shares
138 964
138 731
2 640
3 265
Weighted average number of ordinary shares outstanding during the year adjusted for the
effect of dilution
141 604
141 996
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and
the date of completion of these financial statements.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 134
135
9.
PROPERTY, PLANT AND EQUIPMENT
9.
PROPERTY, PLANT AND EQUIPMENT (continued)
Stripping
activity
asset
US$’000
Mining
asset
US$’000
Exploration
and
develop-
ment
assets
US$’000
De-
commis-
sioning
assets
US$’000
Lease-
hold
improve-
ment
US$’000
Plant and
equipment
US$’000
Other
assets1
US$’000
Total
US$’000
As at 31 December 2019
Cost
Balance at 1 January 2019
Additions
Net movement in rehabilitation
provision
Disposals
Reclassifications
Assets held for sale (Note 16)
Foreign exchange differences
Balance at
31 December 2019
Accumulated depreciation/
amortisation/impairment
Balance at 1 January 2019
Charge for the year
Disposals
Assets held for sale (Note 16)
Foreign exchange differences
Balance at
31 December 2019
Net book value at
31 December 2019
473 395
73 175
117 913
434
148 890
–
5 494
–
55 197
19
95 365
8 727
19 899
506
916 153
82 861
–
–
–
–
16 013
–
–
2 634
–
1 080
–
–
–
(141 531)
2 021
157
–
–
–
171
–
–
8 085
(6 821)
1 739
–
(292)
(11 328)
(10 195)
2 480
–
(343)
609
(14 683)
1 011
157
(635)
–
(173 230)
24 515
562 583
122 061
9 380
5 822
58 219
84 757
6 999
849 821
316 412
43 129
–
–
9 847
51 652
1 963
–
–
321
147 441
–
–
(139 962)
2 000
3 669
310
–
–
123
24 639
5 279
–
(6 821)
768
64 233
4 223
–
(10 195)
1 867
18 467
625
(320)
(14 683)
981
626 513
55 529
(320)
(171 661)
15 907
369 388
53 936
9 380
4 102
23 901
60 128
5 133
525 968
193 195
68 125
–
1 720
34 318
24 629
1 866
323 853
1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.
Stripping
activity
asset
US$’000
Mining
asset
US$’000
Exploration
and
develop-
ment
assets
US$’000
De-
commis-
sioning
assets
US$’000
Lease- 1
hold
improve-
ment
US$’000
Plant and
equipment
US$’000
Other
assets2
US$’000
Total
US$’000
As at 31 December 2018
Cost
Balance at 1 January 2018
Additions
Net movement in rehabilitation
provision
Disposals
Reclassifications
Assets held for sale (Note 16)
Foreign exchange differences
Balance at
31 December 2018
Accumulated depreciation/
amortisation/impairment
Balance at 1 January 2018
Charge for the year
Disposals
Assets held for sale (Note 16)
Foreign exchange differences
Balance at
31 December 2018
Net book value at
31 December 2018
465 206
79 294
124 013
220
161 733
–
–
–
–
–
(71 105)
–
–
–
–
(6 320)
–
(44)
–
–
(12 799)
4 347
–
1 944
–
–
–
(797)
42 307
23
108 165
22 530
24 373
171
930 144
102 238
–
(3)
19 846
–
(6 976)
–
–
(20 282)
–
(15 048)
–
(411)
436
(2 124)
(2 546)
1 944
(458)
–
(2 124)
(115 591)
473 395
117 913
148 890
5 494
55 197
95 365
19 899
916 153
291 536
68 205
–
–
(43 329)
51 084
2 056
–
–
(1 488)
160 107
–
–
–
(12 666)
4 302
4
–
–
(637)
24 928
2 937
(1)
–
(3 225)
71 293
2 674
–
–
(9 734)
21 352
977
(370)
(1 267)
(2 225)
624 602
76 853
(371)
(1 267)
(73 304)
316 412
51 652
147 441
3 669
24 639
64 233
18 467
626 513
156 983
66 261
1 449
1 825
30 558
31 132
1 432
289 640
1 Borrowing costs of US$1.6 million incurred in respect of the LSL215.0 million facility at Letšeng (refer Note 18, Interest-bearing loans and borrowings) were capitalised to
the leasehold improvements. The weighted average capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation was 10.49%
2 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued 136
137
10. RIGHT-OF-USE ASSETS
As at 1 January 2019
Additions
Depreciation charge for the year
Foreign exchange differences
As at 31 December 2019
Right-of-use assets
Plant and
equipment
US$’000
Motor
vehicles
US$’000
Buildings
US$’000
Total
US$’000
1 350
616
(977)
43
1 032
1 620
–
(360)
35
1 295
6 642
540
(1 189)
134
6 127
9 612
1 156
(2 526)
212
8 454
Right-of-use assets is a new category of assets that was recognised on adoption of IFRS 16 Leases. Refer Note 1.2.1, Changes in
accounting policy.
Plant and equipment mainly comprise back-up power generating equipment utilised at Letšeng. Motor vehicles mainly
comprise vehicles utilised by contractors at Letšeng. Buildings comprise office buildings in Maseru, Antwerp, London and
Johannesburg.
During the year the Group recognised income from sub-leasing of office buildings in Maseru of US$0.6 million.
Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.
12.
IMPAIRMENT TESTING
Impairment testing
Goodwill impairment testing is undertaken on Letšeng Diamonds annually and when there
are indications of impairment. The most recent test was undertaken at 31 December 2019.
In assessing whether goodwill has been impaired, the carrying amount of Letšeng Diamonds
is compared with its recoverable amount. For the purpose of goodwill impairment testing in
2019, the recoverable amount for Letšeng Diamonds has been determined based on a
value-in-use model, similar to that adopted in the past.
Goodwill
Letšeng Diamonds
Balance at end of year
2019
US$’000
2018
US$’000
13 653
13 653
13 272
13 272
Movement in goodwill relates to foreign exchange translation from functional to presentation currency.
The discount rate is outlined below and represents the nominal pre-tax rate. This rate is based on the weighted average cost
of capital (WACC) of the Group and adjusted accordingly at a risk premium for Letšeng Diamonds, taking into account risks
associated therein.
11.
INTANGIBLE ASSETS
As at 31 December 2019
Cost
Balance at 1 January 2019
Foreign exchange difference
Balance at 31 December 2019
Accumulated amortisation
Balance at 1 January 2019
Amortisation
Balance at 31 December 2019
Net book value at 31 December 2019
As at 31 December 2018
Cost
Balance at 1 January 2018
Foreign exchange difference
Balance at 31 December 2018
Accumulated amortisation
Balance at 1 January 2018
Amortisation
Balance at 31 December 2018
Net book value at 31 December 2018
* Goodwill allocated to Letšeng Diamonds. Refer Note 12, Impairment for impairment testing.
2019
%
11.2
14.7
2018
%
12.2
15.8
Intangibles
US$’000
Goodwill*
US$’000
Total
US$’000
Discount rate – Letšeng Diamonds
Applied to revenue
Applied to costs
Value in use
Cash flows are projected for a period up to the date that the open pit mining is expected to cease in 2036. This is based on the
latest available mine plan and is shorter than the mining lease period. During the year, the Letšeng mining lease was extended
for 10 years, expiring on 2 October 2029, with an exclusive option to renew for a further 10 years to 2039. This mine plan takes
into account the available reserves and other relevant inputs such as diamond pricing, costs and geotechnical parameters.
Sensitivity to changes in assumptions
It was assessed that no reasonable possible change in any of the key assumptions would cause Letšeng’s carrying amount to
exceed its recoverable amount.
The Group will continue to test its assets for impairment where indications are identified.
Refer Note 1.2.28, Critical accounting estimates and judgements, for further details on impairment testing policies.
791
–
791
791
–
791
–
791
–
791
791
–
791
–
13 272
381
13 653
–
–
–
14 063
381
14 444
791
–
791
13 653
13 653
15 422
(2 150)
13 272
–
–
–
16 213
(2 150)
14 063
791
_
791
13 272
13 272
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued
138
139
13. RECEIVABLES AND OTHER ASSETS
Non-current
Prepayments1
Current
Trade receivables
Prepayments1
Deposits
Other receivables
VAT receivable
The carrying amounts above approximate their fair value.
Terms and conditions of the receivables:
Analysis of trade receivables
Neither past due nor impaired
Past due but not impaired:
Less than 30 days
30 to 60 days
60 to 90 days
90 to 120 days
1
Included in current prepayments are facility restructuring costs of US$0.4 million (2018: non-current US$0.3, current US$0.4).
Based on the nature of the Group’s client base, the expected credit loss has no impact on the Group.
2019
US$’000
2018
US$’000
–
347
89
1 087
94
797
4 270
6 337
39
50
–
–
–
89
184
1 038
97
329
3 785
5 433
135
49
–
–
–
184
14.
INVENTORIES
Diamonds on hand
Ore stockpiles
Consumable stores
2019
US$’000
2018
US$’000
21 743
1 816
8 958
32 517
18 531
2 585
11 968
33 084
Inventory is carried at the lower of cost or net realisable value. During the year a write-down to net realisable value adjustment
of US$1.1 million was recorded.
15. CASH AND SHORT-TERM DEPOSITS
Cash on hand
Bank balances
Short-term bank deposit
2019
US$’000
2018
US$’000
1
10 971
331
11 303
1
16 093
34 718
50 812
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 2019, the Group had restricted cash of US$0.1 million (31 December 2018: US$0.2 million). The Group’s cash
surpluses are deposited with major financial institutions of high-quality credit standing predominantly within Lesotho and the
United Kingdom.
At 31 December 2019, the Group had US$69.9 million (31 December 2018: US$57.8 million) of undrawn facilities, representing
the LSL500.0 million (US$35.8 million) three-year unsecured revolving working capital facility at Letšeng, the Letšeng
ZAR100.0 million (US$7.2 million) working capital facility and US$27.0 million from Tranche 2 of the Company’s US$45.0 million
three-and-a-half-year unsecured revolving credit facility.
For further details on these facilities, refer Note 18, Interest-bearing loans and borrowings
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued
140
141
16. ASSETS HELD FOR SALE
Property, plant and equipment
Discontinued operation assets
2019
US$’000
2018
US$’000
–
3 943
3 943
8591
–
859
1 On 30 January 2019, the aircraft which serviced the Letšeng mine was sold for US$2.1 million. This was disclosed as an asset held for sale at 31 December 2018.
The non-recurring fair value measurement is included in level 3 of the fair value hierarchy. The fair value is based on the
purchase price of the transaction.
Discontinued operation held for sale
The Ghaghoo mine was placed on care and maintenance on 31 March 2017. In June 2019 the Company entered into a
binding agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, which owns the
Ghaghoo Diamond Mine, for US$5.4 million. The sale, subject to regulatory approvals in Botswana and other conditions
precedent, is expected to be concluded in 2020. The assets held for sale are carried at carrying value which is lower than fair
value less costs to sell. The trading results of the operation have been classified as a discontinued operation held for sale and
are presented as follows:
Gross profit
Other operating costs
Share-based payments
Foreign exchange gain
Operating loss
Net finance costs
Loss before tax from discontinued operation
Income tax expense
Loss after tax from discontinued operation
Loss per share from discontinued operation (cents)
Basic
Diluted
2019
US$’000
2018
US$’000
–
(4 389)
(10)
125
(4 274)
(180)
(4 454)
–
(4 454)
(3.20)
(3.14)
–
(5 519)
(15)
6
(5 528)
(190)
(5 718)
–
(5 718)
(4.1)
(4.1)
16. ASSETS HELD FOR SALE (continued)
The assets and liabilities attributable to the discontinued operation held for sale are as follows:
ASSETS
Non-current assets
Property, plant and equipment
Current assets
Inventories
Receivables and other assets
Cash and short-term deposits
Total assets
LIABILITIES
Non-current liabilities
Provisions
Current liabilities
Trade and other payables
Total liabilities
The net cash flows attributable to the discontinued operation held for sale are as follows:
Operating
Investing
Financing
Foreign exchange gain/(loss) on translation of cash balance
Cash inflow/(outflow)
17.
ISSUED SHARE CAPITAL AND RESERVES
Share capital
2019
US$’000
1 568
2 136
99
140
2 375
3 943
3 613
608
4 221
2019
US$’000
2018
US$’000
(4 323)
–
4 384
2
63
(6 251)
313
5 845
(11)
(104)
Authorised – ordinary shares of US$0.01 each
As at year end
Issued and fully paid balance at beginning of year
Allotments during the year
Balance at end of year
31 December 2019
31 December 2018
Number
of shares
‘000
200 000
138 896
88
138 984
US$’000
2 000
1 390
1
1 391
Number
of shares
‘000
200 000
138 620
276
138 896
US$’000
2 000
1 387
3
1 390
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued
142
143
17.
ISSUED SHARE CAPITAL AND RESERVES (continued)
Share premium
Share premium comprises the excess value recognised from the issue of ordinary shares at par value.
Other reserves
Balance at 1 January 2019
Other comprehensive income
Total comprehensive income
Share-based payments
Transfer between reserves1
Balance at 31 December 2019
Balance at 1 January 2018
Other comprehensive expense
Total comprehensive expense
Share-based payments
Balance at 31 December 2018
Foreign
currency
translation
reserve
US$’000
(207 639)
(854)
(854)
–
–
Share-based
equity
reserve
US$’000
55 610
–
–
794
(50 768)
Total
US$’000
(152 029)
(854)
(854)
794
(50 768)
(202 493)
5 636
(202 857)
(177 984)
(29 655)
(29 655)
–
54 713
–
–
1 437
(123 811)
(29 655)
(29 655)
1 437
(207 639)
55 610
(152 029)
1 The Company elected to release share-based equity reserve relating to lapsed and exercised options to accumulated (losses)/retained earnings.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign
entities. The South African, Lesotho, Botswana and United Arab Emirates (abandoned during the year) subsidiaries’ functional
currencies are 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
Year end
Average rate
Year end
Average rate
Year end
Currency
ZAR/LSL to US$1
ZAR/LSL to US$1
Pula to US$1
Pula to US$1
Dirham to US$1
Dirham to US$1
2019
14.45
13.98
10.76
10.58
3.67
3.67
2018
13.25
14.39
10.20
10.73
3.67
3.67
Share-based equity reserves
For details on the share-based equity reserve, refer Note 28, Share-based payments.
Capital management
For details on capital management, refer Note 27, Financial risk management.
18.
INTEREST-BEARING LOANS AND BORROWINGS
Effective interest rate
Maturity
2019
US$’000
2018
US$’000
Non-current
LSL215.0 million bank
loan facility
Tranche 1
Tranche 2
US$45.0 million bank
loan facility
Tranche 1
ZAR12.8 million asset-based
finance facility
Current
LSL215.0 million bank
loan facility
Tranche 1
Tranche 2
US$45.0 million bank
loan facility
Tranche 1
Tranche 2
ZAR12.8 million asset-based
finance facility
South African JIBAR + 3.15%
31 March 2022
South African JIBAR + 6.75% 30 September 2022
4 291
1 168
7 508
1 784
London US$ three-month LIBOR + 4.5% 31 December 2020
–
10 000
South African Prime Lending Rate
1 January 2024
550
662
6 009
19 954
South African JIBAR + 3.15%
31 March 2022
South African JIBAR + 6.75% 30 September 2022
3 433
667
3 337
649
London US$ three-month LIBOR + 4.5% 31 December 2020
London US$ three-month LIBOR +4.5% 31 December 2020
10 000
2 000
10 000
–
South African Prime Lending Rate
1 January 2024
232
226
16 332
14 212
LSL215.0 million (US$15.4 million) bank loan facility at Letšeng Diamonds
This loan comprises two tranches of debt as follows:
•
•
Tranche 1: South African rand denominated ZAR180.0 million (US$12.9 million) debt facility supported by the Export Credit
Insurance Corporation (ECIC) (five years tenure); and
Tranche 2: Lesotho loti denominated LSL35.0 million (US$2.5 million) term loan facility without ECIC support (five years and
six months tenure).
The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 22 March 2017 for the
total funding of the construction of the Letšeng mining support services complex. The loan is repayable in equal quarterly
payments which commenced in September 2018. At year end LSL133.7 million (US$9.6 million) (31 December 2018:
LSL191.0 million (US$13.3 million)) remains outstanding. The South African rand-based interest rates for the facility at
31 December 2019 are:
•
•
Tranche 1: 9.95% (2018: 10.30%); and
Tranche 2: 13.55% (2018: 13.90%).
Total interest for the year on this interest-bearing loan was US$2.2 million (2018: US$1.6 million).
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144
145
18.
INTEREST-BEARING LOANS AND BORROWINGS (continued)
US$45.0 million bank loan facility at Gem Diamonds Limited
This facility is a three-and-a-half-year revolving credit facility (RCF) with Nedbank Capital and consists of two tranches:
•
•
Tranche 1: relates to the Ghaghoo US$25.0 million debt whereby capital repayments commenced in September 2018 with a
final repayment due on 31 December 2020; and
Tranche 2: this tranche of US$20.0 million relates to an RCF and includes an upsize mechanism whereby this tranche will
increase by a ratio of 0.6:1 for every repayment made under Tranche 1. This will result in the available facility increasing to
US$35.0 million once Tranche 1 is fully repaid.
At year end US$10.0 million (31 December 2018: US$20.0 million) had been drawn down relating to Tranche 1 and
US$2.0 million (31 December 2018: US$nil) relating to Tranche 2. This resulted in US$27.0 million remaining undrawn under
Tranche 2. The US dollar-based interest rate for this facility at 31 December 2019 is 6.44% (2018: 7.30%).
Total interest for the year on this interest-bearing RCF was US$1.7 million (2018: US$1.6 million).
ZAR12.8 million Asset-Based Finance facility
The Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.9 million) Asset
Based Finance (ABF) facility with Nedbank Limited for the purchase of a mobile X-Ray transmission machine (the asset).
The asset serves as security for the facility. At year end ZAR10.9 million (US$0.8 million) remains outstanding. The facility is
repayable over five years and bears interest at the South African Prime Lending rate, which was 10.00% at 31 December 2019
(2018: 10.25%).
Total interest for the year on this interest-bearing ABF was US$0.1 million (2018: US$0.1 million).
Other facilities
In addition, at 31 December 2019, the Group through its subsidiary Letšeng Diamonds, has a LSL500.0 million (US$35.8 million)
three-year unsecured revolving working capital facility jointly with Standard Lesotho Bank and Nedbank Capital, which was
renewed in July 2018. There was no draw down of this facility at year end.
The Group, through its subsidiary, Letšeng Diamonds, entered into a ZAR100.0 million (US$7.2 million) 12-month working
capital facility during the year with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division).
There was no draw down of this facility at year end and it expires in December 2020.
19.
LEASE LIABILITIES
Non-current
Current
Total lease liabilities
2019
US$’000
2018
US$’000
8 539
1 940
10 479
–
–
–
Lease liabilities is a new category of liabilities that was recognised on adoption of IFRS 16 Leases. Refer Note 1.2.1, Changes in
accounting policies and disclosures.
Reconciliation of movement in lease liabilities
As at 1 January 2019
Additions
Interest expense
Lease payments
Foreign exchange differences
As at 31 December 2019
The Group recognised rent expense from short-term leases of US$1.7 million and variable lease payments
of US$61.7 million for the year ended 31 December 2019.
Residual value guarantees of US$0.1 million exist on leases for backup power generating equipment at
Letšeng, which represents the cost to decommission and return the power generating equipment to the
supplier at the end of the lease term.
31 December
2019
US$’000
11 043
1 156
1 087
(2 988)
181
10 479
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147
20.
TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits1
Current
Trade payables2
Accrued expenses2
Leave benefits
Royalties and withholding taxes2
Operating lease3
Other
1
2
3
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.
These amounts are mainly non-interest bearing and are settled in accordance with terms agreed between the parties.
In line with the adoption requirements of IFRS 16 Leases, accrued lease agreements relating to operating leases were allocated
against the right-of-use assets recognised. Refer Note 1.2.1, Changes in accounting policies and Note 10, Right-of-use assets.
Included in accrued expenses is US$0.5 million relating to employee taxes on fringe benefits
not withheld on mileage reimbursements. This was disclosed as a contingent liability in the
prior year. Refer Note 25, Commitments and contingencies.
Royalties consist of a levy paid to the Government of the Kingdom of Lesotho on the value of
diamonds sold by Letšeng. This levy increased from 8% to 10% in October 2019 in line with the
terms of the renewed Letšeng mining lease.
The carrying amounts above approximate fair value.
21.
INCOME TAX (RECEIVABLE)/PAYABLE
Reconciliation of movement in income tax payable
Balance at 1 January
Payments made during the year
Tax charge per statement of profit or loss
Foreign exchange differences
Balance at 31 December
Split as follows
Income tax receivable
Income tax payable
22.
PROVISIONS
Rehabilitation provisions
Reconciliation of movement in rehabilitation provisions
Balance at 1 January
(Decrease)/increase during the year
Unwinding of discount rate
Discontinued operation (Note 16)
Foreign exchange differences
Balance at 31 December
2019
US$’000
2018
US$’000
1 936
1 555
13 368
8 817
615
3 573
–
17
26 390
12 672
11 019
499
2 572
1 538
254
28 554
8 964
(18 787)
1 948
(301)
1 276
(12 623)
21 131
(820)
(8 176)
8 964
(8 189)
13
–
8 964
15 588
17 876
17 876
(295)
1 130
(3 613)
490
15 588
17 306
1 944
1 078
–
(2 452)
17 876
22.
PROVISIONS (continued)
Rehabilitation provisions
The provisions have been recognised as the Group has an obligation for rehabilitation of the mining areas. The provisions have
been calculated based on total estimated rehabilitation costs, discounted back to their present values over the LoM at the
mining operations. The pre-tax discount rates are adjusted annually and reflect current market assessments.
In determining the amounts attributable to the rehabilitation provision at the Lesotho mining area, management used a
discount rate of 6.7% (31 December 2018: 6.6%), estimated rehabilitation timing of 17 years (31 December 2018: seven years)
and an inflation rate of 5.0% (31 December 2018: 5.3%). At the Botswana mining area, management used the available
estimated costs to rehabilitate, considering its care and maintenance state. In addition to the changes in the discount rates,
inflation and rehabilitation timing, the increase in the provision (including Ghaghoo) is attributable to the annual reassessment
of the estimated closure costs performed at the operations together with the ongoing rehabilitation spend during the year at
Letšeng.
23. DEFERRED TAXATION
Deferred tax assets
Lease liabilities
Accrued leave
Operating lease liability
Provisions
Deferred tax liabilities
Property, plant and equipment
Right-of-use assets
Prepayments
Unremitted earnings
Net deferred tax liability
Reconciliation of deferred tax liability
Balance at beginning of year
Movement in current period:
– Accelerated depreciation for tax purposes
– Accrued leave
– Operating lease liability
– Prepayments
– Provisions
– Lease liabilities
– Right-of-use assets
– Foreign exchange differences
Balance at end of year
2019
US$’000
2018
US$’000
2 705
52
–
5 114
7 871
(84 532)
(2 174)
(251)
(4 038)
–
56
2
5 688
5 746
(75 470)
–
(292)
(4 038)
(90 995)
(79 800)
(83 124)
(74 054)
(74 054)
(78 579)
(6 914)
(4)
(351)
41
(351)
2 626
(2 112)
(2 005)
(6 667)
(1)
26
44
1 381
–
–
9 742
(83 124)
(74 054)
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$92.8 million (31 December 2018: US$70.5 million).
The Group has estimated tax losses of US$211.2 million (31 December 2018: US$194.5 million). All tax losses are generated in
jurisdictions where tax losses do not expire. No deferred tax assets were recognised on these losses.
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149
Notes
2019
US$’000
2018
US$’000
2019
US$’000
2018
US$’000
24. CASH FLOW NOTES
24.1 Cash generated by operations
Profit before tax for the year – continuing operations
Loss for the year – discontinued operation
Adjustments for:
Depreciation and amortisation excluding waste stripping
Depreciation on right-of-use assets
Waste stripping cost amortised
Finance income
Finance costs
Unrealised foreign exchange differences
Profit on disposal and scrapping of property, plant and equipment
Reclassification of foreign currency translation reserve
Movement in prepayment
Other non-cash movements
Share-based equity transaction
24.2 Working capital adjustment
Increase in inventory
Decrease/(increase) in receivables
(Decrease)/increase in payables
24.3 Cash flows from financing activities excluding lease liabilities
Balance at beginning of year
Net cash used in financing activities
– Financial liabilities repaid
– Financial liabilities raised
Non-cash movement – FCTR
Interest accrued
Balance at year end
4
10
4
6
6, 16
24 050
(4 454)
12 551
2 526
43 129
(668)
6 656
(4 184)
(762)
(4)
(647)
2 657
794
78 708
(5 719)
8 699
–
68 205
(2 033)
3 880
(8 201)
(695)
–
426
5 048
1 437
81 644
149 755
(851)
1 596
(3 599)
(2 854)
34 166
(12 175)
(47 056)
34 881
350
–
(3 660)
(261)
5 837
1 916
46 343
(10 024)
(12 937)
2 913
(2 212)
59
18
22 341
34 166
25. COMMITMENTS AND CONTINGENCIES
Commitments
Mining leases
Mining lease commitments represent the Group’s future obligation arising from agreements
entered into with local authorities in the mining areas that the Group operates.
During the year, the Letšeng mining lease was extended for 10 years, expiring on
2 October 2029, with an exclusive option to renew for a further 10 years to 2039.
The period of these commitments is determined as the lesser of the term of the agreement,
including renewable periods, or the LoM. 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
Equipment and service lease
The Group has entered into lease arrangements for 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 the fleet utilised. All lease payments relating to this
lease are variable in nature and have therefore been recognised in the statement of profit or
loss. Refer Note 1.2.28, Critical accounting estimates. The terms of this lease are negotiated
during the extension option periods catered for in the agreements or at any time sooner if
agreed by both parties.
During the year the mining contractor lease was extended for four years, expiring on
31 October 2024.
– Within one year
– After one year but not more than five years
– More than five years
149
862
1 821
2 832
139
652
825
1 616
59 267
254 218
–
45 234
80 813
–
313 485
126 047
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151
25. COMMITMENTS AND CONTINGENCIES (continued)
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.
– 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
39
69
–
108
3 299
1 490
4 789
47
–
–
47
3 618
6 228
9 846
The main capital expenditure approved but not contracted for relates to the construction of a new accommodation block of
US$0.7 million, continued tailings storage extension investment of US$0.6 million, information technology (IT) and security
equipment upgrades of US$0.6 million and further mineral resource and reserve studies of US$0.5 million. The expenditure will
be incurred over the next two years.
Contingent rentals – Alluvial Ventures
The contingent rentals represent 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 60% of the value (after costs) of the diamonds recovered by Alluvial Ventures
and is limited to US$1.5 million per individual diamond. As at the reporting date, such future sales cannot be determined.
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$0.2 million (December 2018: US$0.1 million).
The Group monitors possible tax claims within the various jurisdictions in which the Group operates. Possible tax claims of
US$1.3 million were disclosed in the prior year, of which, US$0.8 million were resolved during the current year without requiring
the recognition of a liability. The remaining balance of US$0.5 million related to employee taxes on fringe benefits which has
been recognised in accrued expenses. Refer Note 20, Trade and other payables. Management applies judgement in identifying
uncertainties over tax treatments and concluded that there were no uncertain tax treatments relating to the current year. Refer
Note 1.2.28, Critical accounting estimates and judgements. There remains a risk that further tax liabilities may potentially arise.
While it is difficult to predict the ultimate outcome in some cases, the Group does not anticipate that there will be any material
impact on the Group’s results, financial position or liquidity.
2019
US$’000
2018
US$’000
26. RELATED PARTIES
Related party
Jemax Management (Proprietary) Limited
Gem Diamond Holdings Limited
Government of the Kingdom of Lesotho
Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.
Compensation to key management personnel (including Directors)
Share-based equity transactions
Short-term employee benefits
Fees paid to related parties
Jemax Management (Proprietary) Limited
Royalties paid to related parties
Government of the Kingdom of Lesotho
Lease and licence payments to related parties
Government of the Kingdom of Lesotho
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited
Amounts owing to related party
Government of the Kingdom of Lesotho
Dividends paid
Government of the Kingdom of Lesotho
Relationship
Common director
Common director
Non-controlling interest
2019
US$’000
2018
US$’000
440
3 063
3 503
872
2 652
3 524
(83)
(111)
(15 459)
(20 850)
(146)
(131)
(5)
(9)
–
(8)
(3 537)
(2 568)
–
(20 742)
Jemax Management (Proprietary) Limited provided administrative services with regard to the mining activities undertaken by
the Group. A controlling interest is held by an Executive Director of 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.
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153
27. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group’s activities expose it to a variety of financial risks:
• market risk (including commodity price risk, foreign exchange risk and interest rate risk);
•
•
credit risk; and
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 to the financial risk management policy since the prior year.
Capital management
For the purpose of the Group’s capital management, capital includes the issued share capital, share premium and liabilities 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 or restructure its debt facilities. The management of the Group’s capital
is performed by the Board.
The Group’s capital management, among other things, aims to ensure that it meets financial covenants attached to its
interest-bearing loans and borrowings. Breaches in meeting the financial covenants would permit the bank to immediately
call loans and borrowings. There have been no breaches of the financial covenants in the current year.
At 31 December 2019, the Group had US$69.9 million (31 December 2018: US$57.8 million) of undrawn debt facilities 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 and Nedbank Capital (a division of Nedbank Limited) – three-year unsecured
revolving credit facility – LSL500.0 million (US$35.8 million)
The Group, through its subsidiary, Letšeng Diamonds, has an LSL500.0 million (US$35.8 million), three-year unsecured revolving
working capital facility which was renewed in July 2018. The facility bears interest at the Lesotho prime rate minus 1.5%.
At year end, there was no drawdown on this facility.
Unsecured – Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) –
12-month unsecured working capital facility – LSL100.0 million (US$7.2 million)
The Group, through its subsidiary, Letšeng Diamonds, has an LSL100.0 million (US$7.2 million), 12-month unsecured working
capital facility which was entered into in December 2019. The facility bears interest at the South African prime rate minus 0.7%.
At year end, there was no drawdown on this facility.
27. FINANCIAL RISK MANAGEMENT (continued)
Financial risk factors (continued)
Unsecured – Nedbank Limited and Export Credit Insurance Corporation (ECIC) – five years and six months project
debt facility – LSL215.0 million (US$15.4 million)
The Group, through its subsidiary, Letšeng Diamonds, has an unsecured project debt loan facility consisting of two tranches
as follows:
•
•
Tranche 1: South African rand denominated ZAR180.0 million (US$12.9 million) debt facility supported ECIC (five years’
tenure); and
Tranche 2: Lesotho loti denominated LSL35.0 million (US$2.5 million) term loan facility without ECIC support (five years
and six months’ tenure).
The facility is repayable in equal quarterly payments, which commenced in September 2018 and bears interest as follows:
•
•
Tranche 1: Johannesburg ZAR interbank three-month JIBAR + 3.15%; and
Tranche 2: Johannesburg ZAR interbank three-month JIBAR + 6.75%.
At year end LSL133.7 million (US$9.6 million) remains outstanding, with no available balance to be drawn down under
this facility.
Unsecured – Nedbank Capital (a division of Nedbank Limited) – three-and-a-half-year unsecured debt facility –
US$45.0 million
This facility is a three-and-a-half-year revolving credit facility (RCF) with Nedbank Capital and consists of two tranches:
•
•
Tranche 1: relates to the Ghaghoo US$25.0 million debt whereby capital repayments commenced in September 2018 with
a final repayment due on 31 December 2020; and
Tranche 2: this tranche of US$20.0 million is a RCF and includes an upsize mechanism whereby it will increase by a ratio of
0.6:1 for every repayment made under Tranche 1. This will result in the available facility increasing to US$35.0 million once
Tranche 1 is fully repaid.
This RCF bears interest at London USD Interbank three-month LIBOR + 4.5%.
At year end US$10.0 million was drawn down relating to Tranche 1 and US$2.0 million relating to Tranche 2. This resulted in
US$27.0 million available to be drawn under Tranche 2.
ZAR12.8 million Asset Based Finance facility
The Group, through its subsidiary, Gem Diamond Technical Services, entered into an ABF facility with Nedbank Limited for the
purchase of an X-Ray transmission machine. The facility is repayable over five years and bears interest at the South African
Prime Lending rate, which was 10.00% at 31 December 2019. The facility is repayable in equal monthly payments which
commenced in February 2019.
At year end US$0.8 million had been drawn down on this facility.
(a) Market risk
(i) Commodity price risk
The Group is subject to diamond price risk. Diamonds are not homogeneous products 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 dollar per 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.
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154
155
27. FINANCIAL RISK MANAGEMENT (continued)
27. FINANCIAL RISK MANAGEMENT (continued)
Financial risk factors (continued)
Asset Based Finance Facility (continued)
(a) Market risk (continued)
(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 2019. There has been no change in the assumptions or method applied from the prior year.
Sensitivity analysis
There were no material financial assets or financial liabilities denominated in a currency that is not the functional
currency of the relevant Group entity, and therefore if the US dollar had appreciated/(depreciated) by 10% against
currencies significant to the Group at 31 December 2019, income before taxation would not have been materially
impacted. There would be no effect on equity reserves other than those directly related to statement of profit or loss
and foreign currency translation reserve 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 2019, the Group
had no forward exchange contracts outstanding (31 December 2018: US$nil).
(iv) 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.
Sensitivity analysis
If the interest rates on the interest-bearing loans and borrowings (increased)/decreased by 60 basis points during the
year, profit before tax would have been US$0.2 million (lower)/higher (31 December 2018: US$0.2 million). The
assumed movement in basis points is based on the currently observable market environment, which remained
consistent with the prior year.
Financial risk factors (continued)
Asset Based Finance Facility (continued)
(b)
Credit risk
The Group’s potential concentration of credit risk consists mainly of cash deposits with banks, trade receivables and
other receivables. The Group’s short-term cash surpluses are placed with 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 any 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 financial institutions and shareholding
funding. This ensures flexibility in maintaining business operations and maximises opportunities. The Group has
available debt facilities of US$69.9 million at year end (2018: US$57.8 million)
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on
contractual undiscounted payments, excluding discontinued operation:
Floating interest rates
Interest-bearing loans and borrowings
– Within one year
– After one year but not more than five years
Total
Lease liabilities
– Within one year
– After one year but not more than five years
Total
Trade and other payables
– Within one year
– After one year but not more than five years
Total
2019
US$’000
2018
US$’000
17 734
6 636
24 370
2 895
10 416
13 311
26 390
1 936
28 326
16 626
22 008
38 634
–
–
–
28 554
1 555
30 109
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued
156
157
2019
US$’000
2018
US$’000
28. SHARE-BASED PAYMENTS (continued)
The following table reflects details of all the awards within the 2007 LTIP that remain outstanding:
28. 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 statement of profit or loss
– continuing operation
Equity-settled share-based payment transactions charged to the statement of profit or loss
– discontinued operation
784
10
794
1 422
15
1 437
The long-term incentive plans are described below:
Long-term incentive plan (LTIP)
Certain key employees are entitled to a grant of options, under the LTIP 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 an appropriate 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. 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.
The Company’s LTIP policy is reviewed every 10 years.
LTIP 2007 Award
Under the 2007 LTIP rules, there are five awards where options are still outstanding.
All five awards were awarded on the following basis:
To key employees (excluding Executive Directors):
•
•
•
•
the awards vest over a three-year period in tranches of a third of the award each year;
the vesting of the award is dependent on service conditions and certain performance targets being met for the same
three-year period financial years (classified as non-market conditions);
if the performance or service conditions are not met, the options lapse;
the performance conditions relating to the non-market conditions are not reflected in the fair value of the award at
grant date;
• once the awards vest, they are exercisable for seven years (ie. contractual term is 10 years); and
•
equity settled.
To Executive Directors:
•
•
•
•
•
the awards vest over a three-year period;
the vesting of the award is dependent on service conditions and both market and non-market performance
conditions;
75% of the awards granted are subject to non-market conditions and 25% to market conditions by reference to the
Company’s total shareholder return (TSR) as compared to a group of principal competitors;
if the performance or service conditions are not met, the options lapse;
the performance conditions relating to the non-market conditions are not reflected in the fair value of the award at
grant date;
• once the awards vest, they are exercisable for seven years (ie. contractual term is 10 years); and
•
equity settled.
LTIP
March
2016
LTIP
April
2015
LTIP
June
2014
LTIP
March
2014
LTIP
September
2012
Number of options granted – Nil value
Number of options granted – Market value
Date exercisable
Options outstanding
Dividend yield (%)
Expected volatility1 (%)
Risk-free interest rate (%)
Expected life of option (years)
Exercise price (US$)
Exercise price (GBP)
Weighted average share price (US$)
Fair value of nil value options (US$)
Fair value of nil value options (GBP)
Fair value of market value options (US$)
Fair value of market value options (GBP)
Model used
625 000
–
456 750
152 250
1 215 000
185 000
15 March 2019
326 439
2.00
39.71
0.97
3.00
nil
nil
1.56
1.40
0.99
0.69
0.49
312 000
624 000
10 June 2017 19 March 2017 1 January 2016
18 544
15 000
–
–
42.10
–
0.33
–
3.00
3.00
2.85
nil
1.78
nil
2.85
2.87
2.85
2.87
1.78
1.74
1.66
–
–
1.04
– Monte Carlo
89 857
–
37.25
1.94
3.00
nil
nil
2.70
2.70
1.61
1.83
1.09
Monte Carlo Monte Carlo Monte Carlo
1 215 000
185 000
1 April 2018
102 508
2.00
37.18
1.16
3.00
nil
nil
2.10
1.97
1.33
1.18
0.80
1 Expected volatility was based on the average annual historic volatility over the previous three years.
LTIP 2017 Award
Under the 2017 LTIP rules, there are three awards where options are still outstanding.
All the awards were issued on the same basis as the 2007 LTIP.
During the current year, one new award was made as follows:
LTIP 2017 Award – March 2019
On 20 March, 1 303 000 nil-cost options were granted to certain key employees and Executive Directors. 142 500 of the options
granted relate to market conditions. The options vest after a three-year period and are exercisable between 20 March 2022 and
19 March 2029. If the performance or service conditions are not met, the options lapse. The performance conditions relating to
the non-market conditions are not reflected in the fair value of the award at grant date, and therefore the Company will assess the
likelihood of these conditions being met with a relevant adjustment to the cumulative charge as required at each financial year
end. The fair value of the nil-cost options is £0.90 (US$1.20) and the option grants are settled by issuing shares. Of the 1 303 000
options originally granted, 1 258 359 are still outstanding following the resignation of a number of employees and the lapsing of
awards due to certain performance conditions not having been met.
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued
158
159
28. SHARE-BASED PAYMENTS (continued)
The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:
LTIP
March 2019
LTIP
March 2018
LTIP
July 2017
29. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the non-current and current portions of the prepayment
disclosed in Note 13, Receivables and other assets, which do not meet the criteria of a financial asset. These prepayments are
carried at amortised cost.
Financial assets at amortised cost
Cash (net of overdraft) – continuing operations
Cash – discontinued operation
Receivables and other assets – continuing operations
Receivables and other assets – discontinued operation
Total
Total non-current
Total current
Financial liabilities at amortised cost
Interest-bearing loans and borrowings
Finance lease liabilities
Trade and other payables – continuing operations
Trade and other payables – discontinued operation
Total
Total non-current
Total current
Notes
2019
US$’000
2018
US$’000
15
16
13
16
18
19
20
16
11 303
140
4 735
99
16 277
–
16 277
22 341
10 479
28 325
608
61 753
16 484
45 269
50 812
–
4 395
–
55 207
–
55 207
34 166
–
30 109
–
64 275
21 509
42 766
The carrying amounts of the Group’s financial instruments held approximate their fair value.
There were no open hedges at year end (2018: nil).
30. DIVIDENDS PAID AND PROPOSED
There were no dividends proposed for the 2019 or 2018 financial years.
31. EVENTS AFTER THE REPORTING PERIOD
No fact or circumstance has taken place between the end of the reporting period and the approval of the financial statements
which, in our opinion, is of significance in assessing the state of the Group’s affairs or require adjustments or disclosures.
Number of options granted – nil value
Number of options granted – market value
Date exercisable
Options outstanding
Dividend yield (%)
Expected volatility1 (%)
Risk-free interest rate (%)
Expected life of option (years)
Exercise price (US$)
Exercise price (GBP)
Weighted average share price (US$)
Fair value of nil value options (US$)
Fair value of nil value options (GBP)
Fair value of market value options (US$)
Fair value of market value options (GBP)
Model used
1 160 500
142 500
1 265 000
185 000
20 March 2022 20 March 2021
1 198 018
–
40.00
1.2
3.00
nil
nil
1.35
1.35
0.96
0.74
0.53
1 150 000
185 000
4 July 2020
993 679
2.00
40.21
0.67
3.00
nil
nil
1.24
1.11
0.86
0.72
0.56
Monte Carlo Monte Carlo Monte Carlo
1 258 359
–
43.00
1.2
3.00
nil
nil
1.20
1.20
0.90
0.58
0.44
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 year2
Forfeited
Balance at end of year
Exercisable at end of year
2019
’000
3 538
1 303
(81)
(758)
4 002
613
2018
’000
3 612
1 450
(241)
(1 283)
3 538
266
1 Expected volatility was based on the average annual historic volatility over the previous three years.
2 Options were exercised regularly throughout the year. The weighted average share price during the year was £0.80 (US$1.02).
The weighted average remaining contractual life for the share options outstanding as at 31 December 2019 was 8.0 years
(2018: 8.2 years).
The range of exercise prices for options outstanding at the end of the year was US$0.00 to $2.85 (2018: US$0.00 to $2.85).
ESOP
In September 2017, 47 200 shares which were previously held in the Company Employee Share Trust were granted to certain
key employees involved in the Business Transformation of the Group. The fair value of the award was valued at the share price
of the Company at the date of the award of £0.71 (US$0.96). These shares vested on 18 March 2019 and became immediately
exercisable. All shares remain outstanding at the end of the year as follows:
Outstanding at beginning of year
Granted during the year
Exercised during the year
Balance at end of year
Exercisable at end of year
2019
’000
47
–
–
47
47
2018
’000
47
–
–
47
–
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued
160
161
32. MATERIAL PARTLY OWNED SUBSIDIARY
Financial information of Letšeng Diamonds, a 70% held subsidiary which has a material non-controlling interest, with the
remaining 30% being held by the Government of the Kingdom of Lesotho, is provided below.
Name
Letšeng Diamonds (Proprietary) Limited
Accumulated balances of material non-controlling interest
Profit allocated to material non-controlling interest
The summarised financial information of this subsidiary is provided below.
This information is based on amounts before intercompany eliminations.
Summarised statement of profit or loss for the year ended
31 December
Revenue
Cost of sales
Gross profit
Royalties and selling costs
Other 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
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
Interest-bearing loans and borrowings, trade and other payables, provisions
and deferred tax liabilities
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 cash flow information for the year ended
31 December
Operating
Investing
Financing
Net decrease in cash and cash equivalents
Country of
incorporation
and operation
Lesotho
2019
US$’000
2018
US$’000
76 427
8 319
67 692
20 985
179 785
(127 244)
52 541
(15 715)
3 333
40 159
(3 792)
36 367
(8 637)
27 730
27 730
8 319
–
262 636
(152 360)
110 276
(21 159)
1 262
90 379
743
91 122
(21 172)
69 950
69 950
20 985
20 742
340 646
298 565
53 476
394 122
60 092
358 657
109 385
95 371
29 981
139 366
254 756
178 329
76 427
70 093
(81 314)
(6 701)
(17 922)
37 649
133 020
225 638
157 946
67 692
82 718
(99 931)
195
(17 018)
LIBOR
LoM
LCRA
LSL
LTI
LTIFR
LTIP
London Interbank Offered Rate
Life of mine
Lesotho Revenue Authority
Lesotho loti
Lost time injury
Lost time injury frequency rate
Long-term incentive plan
Net cash/
(debt)
The sum of cash and cash equivalents less
drawn down bank facilities (excluding
asset-based finance facility)
PAC
RCF
SEIAs
SDGs
STIB
Project affected community
Revolving credit facility
Social and environmental impact
assessments
Sustainable Development Goals
Short-term incentive bonus
The Board
The Gem Diamonds Board of Directors
The Group
The Gem Diamonds Company and its
subsidiaries
TSR
UK
UN
US$
Total shareholder return
United Kingdom
United Nations
United States dollar
USA/US
United Stated of America
VAT
WACC
Value added tax
Weighted average cost of capital
ABF
AGM
AIFR
AV
Asset Based Finance Facility
Annual General Meeting
All injury frequency rate
Alluvial Ventures (a third-party contractor)
Basotho
Lesotho nationals
BT
BVI
BWP
CAGR
CEO
CGU
CO2e
cpht
CSI
CSR
DTR
Business Transformation
British Virgin Islands
Botswana pula
Compound annual growth rate
Chief Executive Officer
Cash-generating unit
Carbon dioxide equivalent
Carats per hundred tonnes
Corporate social investment
Corporate social responsibility
Disclosure Guidance and Transparency Rules
EBITDA
Earnings before interest, tax, depreciation and
amortisation
ECL
EPS
ESOP
EU
EY
FCA
FRC
FTSE
GHG
GRI
ha
HSSE
IAS
IFRS
ISO
IT
JIBAR
KPI
Expected credit loss
Earnings per share
Employee Share Option Plan
European Union
Ernst & Young
Financial Conduct Authority
Financial Reporting Council
Financial Times Stock Exchange
Greenhouse gas
Global Reporting Initiative
Hectare
Health, safety, social and environment
International Accounting Standards
International Financial Reporting Standards
International Organization for Standardization
Information technology
Johannesburg Interbank Agreed Rate
Key performance indicator
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATIONGEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019NOTES TO THE ANNUAL FINANCIAL STATEMENTS continuedABBREVIATIONS AND DEFINITIONS 162
BUSINESS OVERVIEW MANAGEMENT REVIEW OPERATING REVIEW GOVERNANCE FINANCIAL STATEMENTS OTHER INFORMATION
163
Financial adviser and sponsor
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
T: +44 (0) 20 7588 2828
F: +44 (0) 20 7155 9000
Auditors
Ernst & Young Incorporated
102 Rivonia Road
Sandton
2146
South Africa
T: +27 (0) 11 772 3000
Financial public relations adviser
Celicourt Communications
Adam House
7 – 10 Adam Street, The Strand
London WC2N 6AA
United Kingdom
T: +44 (0) 20 7520 9265
Financial advisers
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
United Kingdom
T: +44 (0) 20 3100 2000
F: +44 (0) 20 3100 2099
Panmure Gordon & Co.
One New Change
London EUM 9AF
United Kingdom
T: +44 20 7886 2500
Gem Diamonds Limited
Registered office
2nd Floor, Coastal Building
Wickhams Cay II
PO Box 2221
Road Town
Tortola
British Virgin Islands
Head office
2 Eaton Gate
London SW1W 9BJ
United Kingdom
T: +44 (0) 203 043 0280
F: +44 (0) 203 043 0281
Legal adviser
Linklaters
One Silk Street
London EC2Y 8HQ
United Kingdom
T: +44 (0) 20 7456 2000
F: +44 (0) 20 7456 2222
Feedback
Gem Diamonds Limited
Glenn Turner
T: +44 (0) 203 043 0280
E: IR@gemdiamonds.com
GREYMATTER & FINCH # 13915
GEM DIAMONDS LIMITED ANNUAL REPORT AND ACCOUNTS 2019CONTACT DETAILS AND ADVISERS
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