ANNUAL REPORT
AND ACCOUNTS 2020
CONTENTS
STRATEGIC REPORT
About Gem Diamonds
2020 in review
Our business model
Chairperson’s statement
Market review
Stakeholder engagement
Our strategy
Principal risks and uncertainties
Viability statement
PERFORMANCE REVIEW
Chief executive’s review
Chief financial officer’s review
Operational review
Sustainability
GOVERNANCE
Chairperson’s introduction to corporate governance
Governance at a glance
Directorate and executive management
Corporate governance statement
Nominations committee
Sustainability committee
Audit committee
Remuneration committee
Directors’ report
FINANCIAL STATEMENTS
REPORT ON PAYMENTS TO GOVERNMENTS
ADDITIONAL INFORMATION
02
03
04
06
10
13
15
21
25
31
32
33
36
43
48
51
52
54
56
58
69
72
75
81
110
113
176
179
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on the Group’s website at www.gemdiamonds.com
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about the Group’s sustainable development activities
on the Group’s website at www.gemdiamonds/
reports.co.za/reports/sd-2021/index.php
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website www.gemdiamonds.com
WELCOME TO THE GEM DIAMONDS
ANNUAL REPORT AND ACCOUNTS 2020
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 which is publicly available at
www.integratedreporting.org
information related to payments made to governments
was compiled as required under the UK’s Report on
Payments to Governments Regulations 2014 (as amended
December 2015) as applicable to companies involved in
extractive activities. It is also intended to satisfy the
requirements of the Disclosure and Transparency Rules;
of the Financial Conduct Authority in the UK;
International Financial Reporting Standards (IFRS); and
the UK Corporate Governance Code 2018 which is
publicly available at www.frc.org.uk
;
.
The report covers Gem Diamonds Limited and its subsidiaries
(the Group) for the financial year ended 31 December 2020.
REPORTING SUITE
In addition to the Annual Report and Accounts 2020 our
reporting suite includes:
Sustainable Development Report 2020
(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 on the www.gemdiamonds/
reports.co.za/reports/sd-2021/index.php and
in our 2020
Sustainability Report.
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, we considered what is most likely to promote the
sustainability and success of Gem Diamonds in the long term.
The Board approved the Annual Report and Accounts 2020,
which
includes the Strategic Report on pages 2 to 50
on 10 March 2021.
The 439ct Letšeng Icon that was recovered and sold in 2020 is featured on the cover page.
02
03
STRATEGIC
REPORT
ABOUT GEM DIAMONDS
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;
•
•
our employees can benefit in the short and long term; and
we can deliver long-term value to our shareholders.
CUT
The way we do things (values)
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 that 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.
Refer to our Chairperson’s statement on page 10.
COLOUR
Culture
invest
At Gem we
in our workforce to create an
environment where every person is proud to be part of
our family. Mutual respect and care are not only shared
throughout the Group but extend to the wider society.
Individuals are valued for their differences and are
empowered to thrive, grow and contribute to a common
goal, holding themselves and each other accountable for
delivering on their promises.
A purpose and vision extending
beyond financial measures
Gem Diamonds Limited Annual Report and Accounts 2020
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional information 04
05
2020 IN REVIEW
2020 IN REVIEW CONTINUED
Measure
Average price per carat achieved (US$)
Revenue (US$ million)
Total direct cash cost (excluding waste costs) per tonne treated (LSL)
Total direct cash cost (including waste costs) 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)
Cash generated from operating activities (US$ million)
Drawndown bank facilities (US$ million)
Net cash/(debt)3 (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) certification
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)
2020
1 908
189.6
201.5
326.6
320.2
53.2
27.5
8.0
12.1
49.8
96.2
15.2
34.6
60.8
79.2
1.6
5.4
15.6
Yes
Yes
0
0
1
0.04
0.3
2019
1 637
182.0
181.2
321.8
245.9
41.0
15.0
9.4
5.1
11.4
55.5
21.6
(10.2)
69.9
54.9
9.7
6.7
24.0
Yes
Yes
1
0
7
0.28
0.8
Average employees (including contractors)
Skills development (training hours)
1 702
13 101
1 748
30 816
Carats recovered (thousands)
Carats sold (thousands)
Major or significant environmental incidents
100.8
99.2
0
114.0
111.3
0
%
change
17
4
(11)
(1)
(30)
30
83
(15)
137
337
73
30
439
(13)
44
84
(19)
(35)
–
–
(100)
–
(86)
(86)
(63)
(3)
(57)
(12)
(11)
–
Financial
capital
Manufactured
capital
Intellectual
capital
Social and relational
capital
Human
capital
Natural
capital
1 Refer Note 4, Operating profit on page 145, 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 drawndown bank facilities (excluding the asset-based finance facility and insurance
premium financing).
DIAMOND ANALYSIS AND
MANUFACTURING
The Group’s HIGH-TECH ROUGH DIAMOND
ANALYSIS 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 through third-party
manufacturers.
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. In 2020, flexible tender processes were introduced to ensure strict
compliance with COVID-19 health and safety protocols while ensuring the highest
obtainable market prices were achieved.
The Group’s electronic tender platform provides an enhanced experience for clients
and significantly increases internal efficiencies in the sales and marketing function.
Gem Diamonds Marketing Services (100% ownership)
UNITED KINGDOM
BASED HEADQUARTERS
The Group’s holding company which is
listed on the London Stock Exchange and
oversight of Governance structures and
the Board’s strategic plans.
GHAGHOO
Underground diamond mining development in Botswana,
which was placed on care and maintenance in 2017 and is
classified as a discontinued operation held for sale.
Gem Diamonds Botswana (100% ownership)
TECHNOLOGY AND
INNOVATION
This Cyprus company houses the
Group’s innovation and technology
research and development projects
and related intellectual property
rights.
Gem Diamonds Innovation Services
(100% ownership)
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.
in Lesotho
This operation
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 110 000 carats to 120 000 carats.
70% owned by Gem Diamonds Limited and 30% owned by the
Government of the Kingdom of Lesotho with a lease period until 2039
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 06
07
OUR BUSINESS MODEL
OUR BUSINESS MODEL CONTINUED
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
•
•
Rough diamond analysis and sorting
Sale of rough diamonds
Rough diamonds are manufactured
into polished diamonds
•
•
Wholesale of
polished diamonds
Trading in polished
diamonds
*
Design and manufacturing of diamond
jewellery
Retail sales to the consumer
*
The diamond in
jewellery state
Rough pink diamond
Cut and polished diamond
Blockchain solutions will connect the end user and the producer. Read more on page 47.
INPUTS REQUIRED
OUTCOMES: 2020 DELIVERY
Letšeng, a long-term asset with a strong open pit resource base with the possibility of further underground expansion.
Letšeng is also a low-cost operation with a track record of successful mine plan optimisation and cost-reduction initiatives.
•
•
•
•
•
•
•
Current mine lease period to 2039
Total mineral resource of 5 million carats
1 377 867GJ of energy consumed
Per tonne treated we use 1.18m3 water
1 702 employees (including contractors) with an absenteeism rate of 1.6 days per person per annum
The health, wellness and development of employees are priorities throughout the Group
The Group put in place, and continues to take, all necessary precautions as part of its COVID-19 response to ensure the welfare of our
employees, contractors and the communities in which we operate
• We have zero tolerance to harm of employees, human rights violations, bribery and corruption
•
•
• 412 registered clients
The Group values and safeguards its social licence to operate
Vastly experienced global management team
Top revenue drivers:
– Grade performance and carats recovered
– Diamond market
– Number of large (>10ct) high-quality diamonds recovered
– Exceptional high-value diamond recoveries
– Reduction in diamond damage
– Main versus Satellite pipe ore mix at Letšeng
•
•
Available debt facilities US$60.8 million
Annual capex investment of US$1.6 million
Top cost drivers:
– Waste stripping
– Increasing depth of pits
– Cost of remoteness
– Foreign exchange rate fluctuations
Rough carats sold:
99 172
Rough carats recovered:
100 780
2020 OUTPUTS
Number of >10ct diamonds:
762 contributing 81% of revenue
Diamonds selling for more than US$1 million:
34 contributing
US$77.6 million to revenue
Total carbon footprint: 140 040 tCO2e
Major or significant environmental incidents: Zero
10.2ha land added to the mining footprint
Diamond exports complying to the Kimberley Process: 100%
Letšeng rehabilitation provision of US$12.3 million
Since inception, Gem Diamonds has worked in partnership with the
Government of Lesotho to contribute to the national priorities. We continue
to contribute to government’s efforts to combat COVID-19 in the country
and invest in initiatives in project-affected communities (PACs) that support
long-term development.
Sustainable Development Reporting Platform, available on Gem Diamonds’
,
website (www.gemdiamonds/reports.co.za/reports/sd-2021/index.php)
provides a comprehensive report on social, employee, safety, environmental
and governance matters.
Priority UN Sustainable Development Goals (SDGs):
Zero fatalities
LTIFR of 0.04
AIFR of 0.76
In 2020 two employees unfortunately lost their lives to suspected
COVID-19-related complications
Human rights training included in employee induction programme
Major or significant stakeholder incidents: 0
A supply chain preventing child and forced labour
Invested US$0.3 million in community and country COVID-19
prevention programmes
Resettled PACs: 0
Letšeng in-country procurement: US$126.2 million
Letšeng paid royalties of US$18.4 million
Focus on cost optimisation and cash preservation during the year
Cash generated per share 0.69 (US cents)
Basic earnings per share (BEPS)
from continuing operations 12.1 (US cents)
Average price per carat achieved US$1 908
Return on average capital employed of 12%
EBITDA of US$53.2 million
Revenue of US$189.6 million
Our viability statement on page 31 explains how the outcomes ultimately lead to a sustainable business model that delivers on our vision.
*
Images supplied by Graff Diamonds International.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 08
09
OUR BUSINESS MODEL CONTINUED
OUR BUSINESS MODEL CONTINUED
INVESTMENT CASE
While Gem Diamonds’ Letšeng mine is renowned for its large,
high-value white diamonds, the Group has a number of other
attributes that make it a unique and compelling investment
proposition:
•
•
•
•
Diamond frequency – Large high-value diamonds
recovered from the Letšeng mine account for 75% to 80%
of the Group’s revenue annually, making Letšeng the
highest average dollar per carat kimberlite diamond mine
in the world. Since the Letšeng mine was acquired in 2006,
it has produced 116 diamonds of greater than 100 carats
and in addition, it has also produced high-quality pink and
blue diamonds.
Cost efficiency – Operating costs per tonne at the mine are
among the lowest in the world and the Group continues to
realise ongoing benefits from the implemented BT initiatives
and the ongoing CI programme currently being rolled out.
Resource base – Letšeng is a long-term asset with the
possibility of further underground expansion.
Innovation – The Group continues to monitor and
advance innovative technology that improves operational
performance and unlocks value by reducing diamond
damage through early identification and non-mechanical
liberation.
•
•
•
•
•
•
Strong customer relationships – The Group has
developed excellent relationships with key customers over
time that supported continued diamond sales at good
prices in 2020.
Integrated multi-channel sales and marketing –
Advanced mapping and analysis of diamonds assists
strategic selling, partnering or manufacturing decisions
to achieve the highest value through multiple selling
channels.
Leadership – Experienced global Board and Executive
Management with a track record of successful mine plan
optimisation and cost reduction. Significant in-country
experience and expertise has and continues to be
developed at our operations.
Good governance – Commitment to ethical business
practices and good corporate governance.
Strategy – Gem Diamonds’ strategy has proven to deliver
maximum value for all stakeholders.
Social and environmental responsibility – We are
committed to promoting a culture of zero harm and
responsible care to minimise our impact on the
environment and optimise the benefit for our
communities.
Harry Kenyon-Slaney
Chairperson
10 March 2021
BALANCING CAPITAL ALLOCATION IN
UNCERTAIN TIMES
In addition to taking immediate steps to ensure the health and
safety of our workforce and surrounding communities in response
to COVID-19, we assessed the significant uncertainty introduced to
the Group, the mining sector and global marketing channels. We
proactively implemented cost reduction and deferment measures
to preserve cash and improve liquidity to ensure the sustainability
of the business. All operational and financial management
initiatives and planned capital expenditure were re-evaluated to
minimise cash outflow. Cost reduction and deferment measures at
Letšeng included negotiating with contractors to manage services
and costs during the 30-day shutdown and subsequent ramp-up
period to full production. Temporary salary reductions were
implemented across the Group, ranging from 20% at executive
level to 15% and 10% across various salary bands. The salary cuts
were repaid to all affected employees at an effective rate of 96%
following the positive sales results and cash flow generation in
September.
Waste mining was significantly reduced during the second quarter
to preserve cash before resuming in July. We increased the
proportion of ore treated from the high-value Satellite pipe and
strategically reduced processing throughput to improve plant
stability through a more consistent feed rate with the aim of
increasing recoveries and overall grade. Dewatering was suspended
at the Ghaghoo mine, which is on care and maintenance, realising
further savings through the renegotiation of key contracts and
reduced fuel consumption on site and other ancillary costs. The
ongoing benefits and savings from the Business Transformation
(BT) and Continuous Improvement (CI) initiatives supported cash
flows and no significant costs were incurred on ad hoc projects.
focus on cash preservation did not affect our
This
commitment to supporting the welfare of the Group’s
employees, contractors and the communities in which we
operate, which remains a foremost priority. To the end of the
year, US$1.1 million was spent on ongoing COVID-19
protocols to protect our employees and contractors, and a
further US$0.3 million was
invested through the CSI
programme to support local communities and government
initiatives to address the risk, support our surrounding local
communities and curb the spread of COVID-19.
The cash preservation initiatives, cost controls and effective
capital expenditure allowed the Group to generate positive
cash flows and achieve a net cash position at year end of
US$34.6 million. Cash flow management remains a significant
focus area to ensure financial and funding resilience to achieve
the Group’s strategic objectives in the current uncertain times.
The Group reviews its capital allocation on an ongoing basis,
taking into account:
•
•
•
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 objective remains to provide a return on investment to
shareholders through the payment of a cash dividend; to
consider special dividends in the event of significant diamond
recoveries; and to consider a share buyback programme should
the opportunity arise.
FUTURE RESILIENCE
Gem Diamonds’ ability to operate effectively through the crisis
and improve its cash position over the year reflects the resilience
of our business model. The Group operates with a small head
office complement that works very closely with the leadership
and operational teams at Letšeng. This model of trust-based
decision-making proved invaluable during the long periods
when certain required skills and individuals were unable to
travel to the operations and needed to rely on the knowledge
and experience of the teams on site. In the process, the
operational teams demonstrated the depth of future leadership
available in the Group.
The strategic focus on cost management and maintaining
consistent operational performance enabled the Group to
largely achieve its targets despite the unprecedented challenges
the year presented. Maintaining commitment to the principles
of the BT programme ensured that cost disciplines were
maintained and even improved during 2020, supporting the
improved cash position at year end.
The CFO and senior management worked very closely with our
funders to ensure the Group’s debt structures remain resilient,
efficient and appropriate.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 10
11
CHAIRPERSON’S STATEMENT
CHAIRPERSON’S STATEMENT CONTINUED
“The Group moved swiftly and resolutely during extremely challenging
and uncertain circumstances.”
– Harry Kenyon-Slaney –
extensive efforts to ensuring that our Letšeng operation, which is
a significant earner of foreign currency in Lesotho, was able to
restart operations safely and in line with the strict guidelines
implemented by the government. This twin-track approach
of contributing meaningfully to local priorities while continuing to
operate the Letšeng mine directly aligns with our corporate vision.
Despite the prolonged absence of certain required skills and
individuals during the lockdown, our operational teams made
important decisions while running a complex and technically
demanding process. Their ability to take responsibility and act
autonomously is testament to the work we have done to develop
and empower our people. As it unfolded, the continued impact
of the pandemic required management to take urgent and
decisive action and make critical and difficult decisions across the
Group to control costs, continue operations in a responsible and
safe manner and stabilise the business. We are extremely grateful
to the significant proportion of the workforce who agreed to take
a material but temporary salary cut, with no decrease in
motivation, to support cash preservation in the Group. Following
the positive sales results and cash flow generation in September,
we were able to repay these salary cuts at an effective rate of 96%
to all affected employees.
DIAMOND SUPPLY/DEMAND
FUNDAMENTALS SUPPORT HIGHER PRICES
While there was significant uncertainty regarding the impact of
COVID-19 on the diamond market at the start of the pandemic,
apart from a relatively short initial period, demand for diamonds
returned and prices achieved remained relatively strong. Supply
has been affected by the closure of Rio Tinto’s Argyle mine,
operational and COVID-19-related production interruptions in
various major producers during the year, and the closure of
some smaller mines. China has emerged from the pandemic
well and continues to show signs of a return to strong economic
growth. Rising living standards will continue to support China’s
growth as a significant consumer of diamonds and especially of
the large high-value diamonds produced by Letšeng. US stock
markets, long seen as closely correlated with diamond demand,
performed well; and this supported the progressively more
Dear shareholders,
On behalf of the Board, it gives me great pleasure to present the
Gem Diamonds Annual Report and Accounts 2020. The Report
and Accounts provide an overview of the progress we have
made in delivering on the Group’s strategic objectives in a year
when the economic, social and personal lives of so many people
and organisations have been profoundly affected by the
COVID-19 pandemic.
OUR VISION:
To support, develop and empower our employees so that
they can benefit and develop in a company of which they
are proud, we can make a meaningful, sustainable
contribution to the countries and communities in which we
operate and deliver sustainable value to our shareholders.
Since its emergence as a problem of global significance in early
2020, the COVID-19 pandemic has demanded an enormous
amount of management time and effort. Our primary objective
has been to ensure the safety and health of our employees, their
families and the communities surrounding our operations as well
as making a material contribution to Lesotho’s national effort to
contain the spread of the virus. In parallel, however, it was
imperative that economic activity continued and we devoted
SAFE AND RESPONSIBLE OPERATIONS
Workplace safety is an absolute priority for the Board and
management. We passionately believe it is possible for every
employee to come to work and return home safely every day
and we are constantly looking at improving our safety systems
and processes to ensure this is achieved. We are pleased with
the improvement in safety performance this year.
The Board is similarly strongly committed to environmental
responsibility and I am pleased to report that there were no
major or significant environmental incidents reported at any
of our operations during the year. Gem Diamonds’ inclusion
index recognises the high standards
in the FTSE4Good
of environmental, social and governance practices in place.
During the year we launched the first rolling three-year cycle to
further integrate the UN Sustainable Development Goals (SDGs)
into the Group’s systems and processes. The project aims to
embed the objectives of the goals in our decision-making
and thereby further enhance Gem Diamonds’ positive impact
in line with relevant UN recommendations.
GENERATING SUSTAINABLE RETURNS
FOR OUR SHAREHOLDERS
The focus on cash generation and preservation during the year
saw the Group move from a net debt position of US$10.2 million
at the start of the year to a net cash position of US$34.6 million
at year end. While some of the longer-term development capital
expenditure was postponed, this represents a prudent approach
to expenditure in a time of heightened uncertainty.
In
line with our commitment to delivering sustainable
shareholder returns, the Board’s policy is to pay a dividend to
shareholders when the financial strength of the Group permits.
As a result of the Group’s strong cash generation during the year
and improved financial position, the Board is pleased to
recommend that a dividend of 2.5 US cents be declared in
respect of the 2020 financial year. The Board is committed to
sustaining shareholder value through the implementation of
appropriate dividend policies.
positive economic outlook as the year drew to a close. India will
emerge as an important polished diamond consumer market in
the medium to long term and the manufacturing sector is
emerging from its COVID-19-related challenges.
CONTRIBUTION TO COMMUNITY
AND COUNTRY
At Gem Diamonds we regard ourselves as guests in the countries
where we operate and we endeavour at all times to maintain
strong and constructive relationships, both with the populace
and with regional and national governments. We engage with
government and local communities on a regular basis to seek
mutually beneficial solutions to challenges that arise. We work
closely with these communities, providing both financial and
practical support on a range of projects they consider important.
MAIN AREAS OF FOCUS FOR THE
BOARD IN 2020:
1.
Ensuring sustainable operations, keeping employees
and local communities safe and supporting the
Lesotho Government during COVID-19 .
2.
Ensuring delivery of the objectives of the BT
programme.
3. Enhancing risk management systems and processes.
4.
Maintaining disciplined financial control to increase
cash generation and repay debt.
5. Considering an appropriate return to shareholders.
GOVERNANCE TO SUPPORT SUSTAINABLE
VALUE CREATION
The Group’s governance systems and processes performed well
during the year. While face-to-face contact tends to lead to
deeper discussions of issues during and around Board meetings,
the remote interaction necessitated by COVID-19 nevertheless
proved effective. We have increased the time allocated for the
quarterly Board and Committee meetings to allow for longer
discussions, which facilitates a deeper understanding of the
issues. In addition, the Board added a stand-alone quarterly risk
review meeting to ensure time is available for a detailed review
and discussion of the Group’s key risks and to test management’s
mitigating actions.
The appointment of an experienced non-Executive Director to
take responsibility for engaging with stakeholders in Lesotho
has proven beneficial. Mazvi has deep local knowledge of
political, social and community issues in Lesotho and the
feedback from her engagement with employees provides
valuable feedback to the Board to inform our decision-making.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 12
13
CHAIRPERSON’S STATEMENT CONTINUED
MARKET REVIEW
OUTLOOK
Although the supply/demand dynamics of the diamond market
remain positive, particularly for the unique high-value diamonds
produced at Letšeng, our immediate concern remains the
ongoing protection of our people from the COVID-19 pandemic,
which continues to cast a shadow over southern Africa. Our
immediate priorities for 2021 therefore remain the provision of a
safe operating environment for all our employees and support
to the Lesotho Government in securing vaccines for our
workforce and local communities.
The work we did in prior years to reduce costs, lower overheads,
streamline systems and improve efficiencies stood us in good
stead in 2020 and has provided an excellent foundation for the
year ahead. We will build on this momentum and make the
most of the opportunities we have created through the BT and
CI programmes. In addition, we need to unlock the commercial
potential in the pioneering work being done to reduce diamond
damage through our technology and innovation projects and
to advance the use of blockchain technology in providing a full
and transparent record of origin for every diamond produced
at Letšeng.
FINAL REMARKS
I would like to thank my fellow Board members for their valuable
and extensive contributions during the past year. On behalf of
the Board, I would also like to thank our long-standing partners
at Letšeng, the Lesotho Government, and the leaders of our
host communities, all of whom have helped us to navigate what
has been a challenging year.
The Group’s management and employees deserve a special note of
appreciation for their commitment and tenacity during 2020. The
Group moved swiftly and resolutely during extremely challenging
and uncertain circumstances to contain the spread and impact of a
devastating pandemic that could have had an equally devastating
impact on our business. I have been tremendously impressed by
the resilience and capability of management and employees
throughout the organisation to run a technically, commercially and
physically complex business, often with remote leadership.
I want to extend my condolences to the families and friends of
colleagues who have lost loved ones as a result of the pandemic or
related complications. The COVID-19 pandemic is far from over and,
at the time of writing, things continue to be extremely difficult in
southern Africa. Until vaccinations have been rolled out to a large
part of the population, we must remain extremely vigilant.
Harry Kenyon-Slaney
Chairperson
10 March 2021
Further recovery of the diamond market expected in 2021
THE DIAMOND MARKET IN SUMMARY
The unique supply/demand dynamics of the diamond industry
drive diamond prices through a balance between rough
diamonds recovered and consumer demand for polished
diamonds, primarily in the form of jewellery. The middle market
sits between these poles of the diamond supply chain, buying
rough diamonds from the mines to manufacture for sale to
jewellers, who subsequently sell to retailers and finally
consumers. Global economic growth and disposable income
are key drivers of demand for diamonds, while supply is directly
linked to the economics of diamond mining. Prices paid for
rough diamonds by the middle market that fall below the
production cost per rough diamond for extended periods will
lead to mine closures and a resultant decrease in supply. Natural
diamond resources are finite and will deplete over time.
GLOBAL DEMAND TRENDS
Nearly half of all polished diamonds are sold in the US,
with China, India, Japan and the Gulf States making up a further
30% of demand. Demand is supported by the growing 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.
Demand improved in the first two months of the year despite
continued concerns around global economic growth, rising
geopolitical tensions and the threat of a US/Sino trade war.
However, the onset of the COVID-19 pandemic had an
immediate and significant negative impact across the diamond
industry, from mining to retail, with restrictive lockdown
regulations
in many countries across the world, travel
restrictions, uncertainty around economic recovery and the
threat of a second wave.
Key players in the diamond industry opened gradually as
lockdown restrictions eased, in particular the manufacturing
sector in India, the largest purchaser of rough diamonds for
manufacturing, and jewellery stores across the globe. Following
the
the second quarter,
major jewellers reported a remarkable increase in sales in the
second half of the year with many retailers adjusting quickly
to online sales.
immediate drop
in sales
in
Generational shifts in consumer preferences reveal an emerging
trend of demand from younger consumers for diamonds
produced by ethical and responsible mining companies
committed to meaningful social benefit. Blockchain technology
(read more on page 47) enables consumers to track the source
of diamonds and understand the corporate citizenship
demonstrated by producers before making a purchase.
This has also led to an increase in luxury jewellery brands
partnering directly with producers to enhance the value of the
final polished product, combining sustainable sources and
exclusive design.
GLOBAL SUPPLY TRENDS
Rough diamond production is believed to have peaked at
in 2017 and annual global diamond
151 million carats
production
is expected to steadily decrease to around
110 million carats by 2030. However, supply in 2020 is estimated
to have already fallen to 111 million carats due to a combination
of planned mine closures, the closure of marginal mines due to
the impact of COVID-19, suspension and slowdown of certain
operations and the cancellation of scheduled sales, particularly
by De Beers and Alrosa.
The lower than expected production of rough diamonds in 2020
may provide an opportunity for miners such as De Beers and
Alrosa to release some of their stockpile inventory into the market,
which would offset any immediate marked reduction in rough
diamond supply, especially in the commercial diamond industry.
Depending on consumer preferences and perceptions the
popularity of lab-grown diamonds may rise for fashion jewellery
while natural diamonds will continue to be in demand for
momentous occasions. However, the potential impact on
natural diamond demand and price is not yet fully understood.
Lab-grown diamonds sell at a significantly lower price than
natural diamonds and continue to take market share, especially
in the smaller, lower-value, commercial diamond market. Gem
Diamonds’ offering is focused on delivery of large, high-value
diamonds sought after by a different consumer group.
In the medium term, however, global rough diamond demand
is still expected to remain steady against supply which is likely to
decrease gradually as existing diamond mines age and deplete,
and lower prices put additional pressure on marginal mines,
with possible further mine closures.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 14
15
MARKET REVIEW CONTINUED
STAKEHOLDER ENGAGEMENT
POSITIONING GEM DIAMONDS
Historically the prices for larger high-quality diamonds have
proved more resilient to market pressures. Diamonds from
Letšeng are at the top end of the market in terms of size, colour
and quality. Diamonds greater than 10.8 carats accounted for
81% of revenue in 2020 (2019: 75%) and exceptional recoveries
during the year include a 439 carat Type IIa white diamond,
a 183 carat Type IIa white diamond and a 166 carat Type IIa
white diamond.
Letšeng achieved an average price of US$1 908 per carat during
the year (2019: US$1 637), retaining its standing as the highest
average dollar per carat kimberlite diamond producer in the
world. A record high of 16 diamonds greater than 100 carats
were recovered in 2020 compared to 11 in 2019.
REVENUE PERCENTAGE BY
SIZE FRACTION (%)
for
large high-quality
While high-net-worth customers
polished diamonds tend to be
less affected by global
economic fluctuations, polished prices came under pressure
in the first half of the year as demand decreased following the
onset of the pandemic. Prices achieved for the Letšeng goods
in the second half of the year recovered strongly to levels
higher than those achieved in 2019. Factors supporting this
increase
increased
demand for high-value polished diamonds from China in
particular, reduced availability of large high-value diamonds
and depleted stock levels at manufacturers.
improved market sentiment,
include
%
> 10 CTS
5 – 10 CTS
< 5 CTS
81
10
9
Understanding the views of stakeholders and shareholders
has proven to be highly beneficial to the Group.
STAKEHOLDER MANAGEMENT
The strength of the Group’s relationships with its stakeholders,
particularly employees, regulators, communities and society,
secures Gem Diamonds’ social
licence to operate. This
relationship relies on how effectively we manage issues such as
ethics, labour practices, environmental and social responsibility,
as well as our risk management and engagement activities with
stakeholders.
Regular engagements with shareholders and other stakeholders
provide relevant input for decision-making, promote the long-
term sustainability of the Group and enable our contribution to
wider society.
The Gem Diamonds Board is responsible for stakeholder
engagement and the Chairperson ensures that relevant
stakeholder views and strategic issues are regularly reviewed,
clearly understood and underpin the work of the Board. The
views of shareholders and other key stakeholders are considered
when making decisions regarding strategy, remuneration
policy, corporate social investment and other relevant matters.
The effectiveness of stakeholder engagement in the Group was
included in the 2020 Board evaluation process. Personal
performance objectives that determine short-term incentive
bonuses for Executive Directors
include a weighting for
strengthening of key stakeholder relationships.
A stakeholder engagement strategy and programme is in place
and Letšeng regularly engages with stakeholders in accordance
with this strategy.
MONITORING STAKEHOLDER ENGAGEMENT
The Chairperson, Senior Independent Director and Executive
Directors engage regularly with shareholders and report back to
the Board at the Board meetings.
A non-Executive Director, Mazvi Maharasoa, was appointed in
2019 as the Board’s representative to engage with the broader
workforce, and provides direct feedback to the Board on the key
concerns of these stakeholders. This has proven hugely
successful in monitoring workplace culture during an extremely
challenging year for our workforce and communities.
At Letšeng, PACs have elected community representatives
who communicate with the Corporate Social Responsibility
Investment (CSRI) Committee to create a sustainable and
culturally effective link between communities and the mine. The
community representatives sit on the CSRI subcommittee of the
Board, which meets quarterly and ensures that community
members have a platform for relevant matters to be heard and
the
addressed. These meetings
employment of PAC members and the effectiveness of current
CSI projects. A community needs-analysis was scheduled to
take place in 2020 to inform Letšeng’s approach to current and
future community development projects, however, COVID-19-
related lockdowns and restrictions have delayed this to 2021.
include discussions on
A community liaison officer (CLO) from Letšeng regularly visits
and engages with surrounding communities, government
officials and community leaders. The CLO remains involved with
our community projects, adjusting the mine’s continued level
of involvement based on the maturity and sustainability of
each project.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 16
17
STAKEHOLDER ENGAGEMENT CONTINUED
STAKEHOLDER ENGAGEMENT CONTINUED
RESPONDING TO STAKEHOLDERS
The section that follows provides an overview of the Group’s key stakeholders, how we engage with them and how we respond to
their concerns.
Shareholders
Why this relationship
is important to us
•
Shareholders are the owners of the Group and the Board is ultimately accountable to them for
performance. The goal of our strategy is to maximise shareholder value in a sustainable manner
What our stakeholders
tell us they value
Traditional channels
of engagement
Shareholders and investors can provide funding for expansion opportunities
•
• Growth opportunities
•
•
•
•
•
•
•
•
•
•
Desired return on investment
Balanced capital allocation
Good governance and ethics
Responsible environmental and social practices
Liquidity and cost containment during COVID-19
Direct access to the Chairperson and the Senior Independent Director
Meetings with the Chief Executive and Chief Financial Officers
Regular roadshows to engage with several of the Group’s larger investors
Investor relations, mandated to the Chief Legal and Commercial Officer
Attendance at the AGM by directors
• Annual and interim results presentations, and quarterly trading updates
• Conferences
•
•
•
•
•
•
•
The Company website
The Annual Report and Accounts, and the Sustainability Report
The 2020 AGM was run as a closed meeting to comply with COVID-19 restrictions on gatherings
Regular discussions were held around the impact of the pandemic on operations and
mitigating actions
More regular discussions were held on balancing capital allocation (see page 58)
Engagement with a significant shareholder regarding their voting at the AGM (see below)
Engagement on proposed 2021 remuneration policy amendments
COVID-19 impact
on engagement
Material developments
in 2020
Engagements post the AGM
At the Group AGM in June, the proportion of votes cast
against Resolution 14 (Authority to allot shares), Resolution 15
(The disapplication of pre-emption rights) and Resolution 16
(The further disapplication of pre-emption rights) exceeded
20%. Following the AGM, the Company sought to engage
with shareholders who voted against these resolutions and
established that such votes were primarily due to a standing
policy on these matters of a significant shareholder.
The Board believes these Resolutions were appropriate given
they followed the provisions of the Pre-emption Group’s
Statement of Principles for the disapplication of pre-emption
rights and reflected UK listed company market practice.
Members of the Board and the Executive Management team
have engaged with the significant shareholder and will
continue to do so regularly.
Majority interest in shares
On 15 February 2021, 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 Investments Limited
Lansdowne Partners
Aberforth Partners
Gem Diamonds Holdings
Number of
ordinary shares
%
shareholding
30 836 759
20 861 931
19 231 938
13 762 340
9 325 000
22.1
15.0
13.8
9.9
6.7
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. The shareholder base comprises
139.6 million issued ordinary shares of US$0.01 each. There are
institutional shareholders that hold 126.2 million shares (90%) and
private shareholders who hold 13.4 million shares (10%).
Bankers, insurers and funders
Why this relationship
is important to us
What our stakeholders
tell us they value
Traditional channels
of engagement
COVID-19 impact
on engagement
Material developments
in 2020
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Providers of working capital facilities and long-term funding enable the Group to invest in
capital projects and expansion opportunities
Insurance allows the transfer of any potential financial implications of a risk materialising as
part of the Group’s risk mitigation strategy
Responsible management of the Group’s financial position to ensure commitments are
met as they fall due
Liquidity and cost containment during COVID-19
Responsible environmental practices
Transparency in reporting potential issues in a timeous manner
The finance department engages with bankers and funders on an ongoing basis regarding
debt levels, compliance with covenants and debt renegotiations
The finance team at each operation engages with insurance brokering consultants around
renewal anniversaries with oversight from Group Risk management
COVID-19 led to a significantly increased risk perception of the mining industry by banks,
funders and insurers, resulting in tighter lending criteria, as well as increased exclusions,
deductibles and premiums on insurance policies
Aggregate limits are being imposed on insurance policies and Director and Officer (D&O)
liability cover is becoming more difficult to secure
Letšeng has submitted a business interruption claim for the 30-day shutdown period when
the mine was required to be placed on care and maintenance
The Group Revolving Credit Facility which expired in December 2020 was renegotiated
Review of capital requirements and considering and aligning appropriate debt facilities
The Group was able to repay US$13.5 million of debt during the year and ended the year
in a net cash position of US$34.6 million
The Group has embarked on a comprehensive debt refinancing programme and has appointed
Nedbank Corporate and Investment Banking to act as the sole mandated lead arranger
Employees and contractors
Why this relationship
is important to us
What our stakeholders
tell us they value
• Our employees and contractors make it possible to run our operations and execute our strategy
•
•
•
Gem Diamonds’ strength lies in the quality of the people who work at its operations. To attract
and retain top talent, we must understand and address their needs
Fair treatment and remuneration
Safe working conditions during COVID-19
Traditional channels
of engagement
COVID-19 impact
on engagement
Material developments
in 2020
• Opportunities for advancement
• Health and safety
•
•
•
Skills development
Informal engagements on a daily basis
Visible felt leadership visits
• Annual culture and engagement surveys
• Quarterly Letšeng newsletter
• Company intranet and website
•
•
•
•
•
Regular ‘toolbox talks’ with smaller shift teams
There was increased use of electronic communications and virtual meetings during lockdown
Head office leadership was often unable to physically visit the operations due to travel
restrictions and had to use virtual engagement channels
The non-Executive Director appointed to oversee engagement with the workforce initiated
meetings with an employee representative forum
Strengthened the desired culture through the advancement of CI initiatives with a focus on
skills development
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 18
19
STAKEHOLDER ENGAGEMENT CONTINUED
STAKEHOLDER ENGAGEMENT CONTINUED
Engagements with employees
Suppliers and business partners
In July, Ms Maharasoa held a virtual workforce engagement session with a representative group of employees at Letšeng to explain the
role of the designated non-Executive Director responsible for employee engagement and to understand the key workforce concerns.
The engagement indicated an appetite for increased engagement between the executive and the workforce as well as some operational
concerns, which are as a matter of course dealt with during daily toolbox talks. Further clarification is required regarding the distinction
between the Group Board and the Letšeng Board, and the function and purpose of the whistleblowing hotline.
As a result the Board directed that a summary of the role of the designated non-Executive Director, together with the matters raised
and the actions taken, was to be published in the Letšeng newsletter. The newsletter is published quarterly and will be used to
communicate relevant employee engagement information. Feedback will also be provided at the Chief Operating Officer address
once COVID-19 protocols related to gatherings are relaxed. A training and awareness campaign will be run regarding the
whistleblowing hotline.
We conduct an annual employee culture survey to measure workplace culture, which enables the Board to explore the collective
experience within the organisation and the prevalent patterns of behaviour. Metrics are in place to link the outcomes of the survey
to our values and determine areas for future focus. The results of the 2020 survey indicated improvements in the areas which were
in focus during 2020 and highlighted areas for further improvement. The Board will assess and monitor progress in these areas on a
quarterly basis during 2021.
Customers
Why this relationship
is important to us
What our stakeholders
tell us they value
Traditional channels
of engagement
COVID-19 impact
on engagement
Material developments
in 2020
•
Gem Diamonds’ relationship with its customers supports demand for its unique diamonds
and helps to ensure the best prices are achieved
• Availability of high quality diamonds
•
•
•
•
•
•
•
Regular and transparent tenders
The ability to tender safely during COVID-19
Responsible environmental and social practices
Sustainability of the business during COVID-19
Engagements at tenders
Electronic tender platform
Regular interactions in the normal course of business
• Website communication and press releases
•
Flexible tenders were introduced to ensure that sales could still take place
•
•
Six tenders were held in Antwerp, Belgium with one viewing in Tel Aviv, Israel
Additional rough diamond analysis information of selected large high-value diamonds was
provided to assist clients to make informed buying decisions even if they were not able to
physically view the diamonds on tender due to travel restrictions
Why this relationship
is important to us
What our stakeholders
tell us they value
Traditional channels
of engagement
COVID-19 impact
on engagement
Material developments
in 2020
•
•
•
•
•
•
Supply chain interruptions can disrupt operations, particularly where these affect critical
equipment and spares
Products and services represent a significant cost to the Group
Local procurement supports the local economy and the broader population of Lesotho
Fair payment terms
Local procurement opportunities
Responsible environmental and social practices
Sustainability of the business during COVID-19
•
• Ongoing interactions in the normal course of business
• Annual contract negotiations
•
•
•
•
•
Renewals of service level agreements
COVID-19-related national lockdowns and travel restrictions affected the availability of
critical spares and maintenance for haul trucks and other critical equipment
Procurement strategies have been enforced to ensure that orders of necessary spares,
equipment, etc. are placed well in advance to minimise delays that might occur because
of procurement backlogs
We engaged extensively and transparently with contractors and suppliers regarding the
shutdown of operations and required cost savings. Ongoing discussions ensured continued
alignment and understanding, and supported the sustainability of all parties
Engagements ensured transparency, fairness and consistency with respect to the treatment
of the workforce, including that of our contractors
Regulators and government
Why this relationship
is important to us
What our stakeholders
tell us they value
• Mining is a highly regulated industry and a good relationship with government is essential
•
The Government of the Kingdom of Lesotho is a 30% shareholder in Letšeng, the Group’s
flagship mine
• Health and safety
• Good governance and ethics
•
Responsible environmental and social practices
• Community investments
•
Local employment and procurement
Traditional channels
of engagement
COVID-19 impact
on engagement
Material developments
in 2020
• Contribution to Lesotho GDP through dividends, royalties and tax contributions
Support for government COVID-19 priorities
•
• Ongoing engagements with regulators as required
•
•
•
•
Regular engagements with government regarding planning and progress on community
initiatives
The Group engaged extensively with the Government of the Kingdom of Lesotho to provide
support for COVID-19 relief efforts at a local and national level (see page 50)
Regulations to contain the spread of COVID-19 were implemented in all countries of operation
and the Group had to ensure that these protocols met the regulatory requirements as they
evolved
Engagements to have mining classified as an essential service to be able to reopen the
Letšeng mine safely and responsibly
• Working with government to provide facilities for COVID-19 testing
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 20
21
STAKEHOLDER ENGAGEMENT CONTINUED
OUR STRATEGY
Project-Affected Communities
Why this relationship
is important to us
What our stakeholders
tell us they value
•
Letšeng’s PACs play a vital role in the success of the operation and we are committed to
ensuring that PACs benefit from the operation
• CSI projects that improve access to education and skills development
• CSI projects to provide infrastructure and support local economic development
•
•
•
•
•
•
•
•
•
•
Regular updates regarding progress on community projects
Responsible and safe mining, environmental and social practices
Local employment opportunities
Support provided during the COVID-19 pandemic
Social and environmental impact assessments and community needs analyses identify the
most pressing community concerns
Elected community representatives sit on the CSRI subcommittee of the Letšeng Board
Letšeng’s CLO regularly visits stakeholders such as surrounding communities, government
officials and community leaders
A grievance mechanism exists for PAC members to submit a grievance directly to mine
management
Community visits and mass meetings were cancelled in 2020 as a result of COVID-19
restrictions. The operation relied on other forms of engagement, such as virtual meetings and
regular telephonic contact with community leaders
Letšeng partnered with government to raise awareness regarding COVID-19, distribute
personal protective equipment (PPE) and sanitiser, and provide food parcels in local
communities (see page 50)
Traditional channels
of engagement
COVID-19 impact
on engagement
Material developments
in 2020
Gem Diamonds’ strategy aims to maximise stakeholder value in
a sustainable manner. The strategy aligns with the Group’s
purpose, vision and values, which provide a broader context to
our business activities that emphasises the Group’s commitment
to creating social benefit and our duty to be responsible
stewards of our natural resources.
The management team, led by the Chief Executive Officer (CEO),
develops the business strategy for the Group and presents it to
the Board, which reviews and approves it. The strategy is
reviewed each year against developments in regulations,
governance requirements, current market conditions and the
short-, medium- and long-term outlook. Where necessary, the
strategy is revised to adjust for these developments.
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.
2020 STRATEGY REVIEW
The review in November 2020 assessed the strategy in the context of the impact of COVID-19 on the diamond market, industry peers
and the Group’s operations. A range of options to create stakeholder value was considered, including technologies and diversification
across assets, commodities, industries, business models and operating structures. We assessed a number of opportunities during the
year and will continue to do so, engaging with stakeholders who may present compelling options to unlock value. Fundamentally our
business model remains unchanged and is considered effective to support our strategic aspirations. The pandemic demanded a short-
term response to changing circumstances but did not affect our medium- to long-term strategic objectives.
The primary revenue and cost drivers set out in our business model (page 6) form the fundamentals of a mining business model and the
resultant long-term strategy. The ability to remain as low as possible on the cost curve extracting the highest-quality diamonds to sell as
effectively as possible remains the goal. Our agility to adjust tactics in the short to medium term contributes to protecting and preserving
long-term fundamentals.
The strategic review concluded that the appropriate short- to medium-term priority remains maximising value from our Letšeng
operation through three main focus areas:
Optimising the current
operating model
We continue to implement and investigate new ways to improve our operating model to ensure
we are operating efficiently and appropriately, particularly in the current market conditions.
Using early identification and
anti-breakage technology
We are advancing technology that shows potential to improve diamond recovery, reduce
diamond damage and decrease costs through early identification of diamonds within kimberlite
and a non-mechanical method of liberating diamonds from kimberlite.
Reducing diamond damage
Reducing damage to diamonds from mining and processing activities remains a key focus to
improve the prices we achieve for rough diamonds. This includes redesigning blasting patterns,
and reduced processing throughput to improve plant stability through a more consistent feed
rate with the aim of improving diamond recoveries.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 22
23
OUR STRATEGY CONTINUED
OUR STRATEGY CONTINUED
The table below further defines our strategic objectives and links them to relevant key performance indicators (KPIs) and targets.
Objective
Meaning
Measuring
Extracting maximum value
from our operations
• Optimise operating model
•
•
Reduce diamond damage
Practise continuous improvement
• Underlying EBITDA
•
•
•
Return on average capital employed
Basic earnings per share
Cash generated from operating
activities
• Ore tonnes treated
• Carats recovered
• >20 carat diamond recoveries
• Average US$ per carat achieved
2020 performance
Revenue and profit were affected by the lockdown and the impact of COVID-19 on operations and the diamond market. Proactive
cash preservation measures led to positive cashflows and the Group ended the year in a net cash-positive position of
US$34.6 million. The CFO report on page 36 discusses the Group’s financial performance and position.
The BT programme remains on track to deliver the targeted US$100 million in revenue, productivity and cost savings by end 2021. The CI
roll-out at Letšeng is progressing well. The BT and CI initiatives are discussed on page 46.
We continue to explore new sales channels, including a trial on four selected large high-value diamonds in a partnership agreement
with a strategic manufacturer. Letšeng has earned an additional US$0.6 million (15% of the rough value) in the polished uplift on the
sale of the resultant polished diamonds to date.
Revenue (US$ million)
Underlying EBITDA1 (US$ million)
Return on average capital employed (%)
190
2016
214
2017
267
2018
182
2019
190
2020
63
49
88
41
53
15
12
21
7
12
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Basic earnings per share (BEPS)
(pre-exceptional items) (US cents)
Cash generated from operating activities
(US$ million)
Ore tonnes treated (million)
13.0
2016
6.6
2017
22.9
2018
5.1
9.8
2019
2020
71
97
2016
2017
138
2018
55
96
2019
2020
6.9
6.5
6.5
6.7
5.4
2016
2017
2018
2019
2020
Carats recovered (thousand)
>20 carat recoveries (number of diamonds)
US$ per carat achieved
149
2016
120
2017
127
2018
114
2019
101
2020
179
2016
213
2017
257
2018
252
2019
262
2020
1 720
2016
1 930
2017
2 131
2018
1 637
2019
1 908
2020
1 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP measures.
Objective
Meaning
Working responsibly and
maintaining our social licence
•
Promote a culture of zero harm and
responsible care
• Adopt six UN sustainability goals:
– No poverty
– Good health and well-being
– Clean water and sanitation
– Decent work and economic growth
– Reduced inequalities
– Responsible consumption and production
• GIA – Blockchain
Measuring
•
•
Fatalities
LTIFR1
• AIFR1
•
Major and significant
environmental or community
incidents
•
Sustainability legal compliance
• Community investment
•
ISO certifications
2020 performance
The Group’s safety performance improved during the year with no fatalities and one LTI, resulting in a decrease in the LTIFR. The
Group reported an AIFR of 0.76, the lowest AIFR for the Group in a decade.
A Group-wide COVID-19 Detection and Management Protocol was put in place to ensure the welfare of employees, contractors and
surrounding communities, and to curb the spread of COVID-19.
There were no major environmental or community incidents during the year, nor any incidents of non-compliance. We continue to
invest in local communities and strengthen our relationships with our key stakeholders. Refer to pages 48 and 50 for more
performance information on our social licence to operate.
It was the fourth consecutive year of receiving ISO 14001 and 45001 certifications and no incidents of structural instability regarding
tailings or water storage facilities integrity were recorded during the year.
Fatalities
LTIFR1
AIFR1
0
0
0
1
0
2016
2017
2018
2019
2020
0.18
2016
0.04
2017
0.15
2018
0.28
2019
0.04
2020
1.93
2016
2.02
2017
1.45
2018
0.93
2019
0.76
2020
1 Measures the safety performance of the Group and includes contractors and expressed as a frequency rate per 200 000 man hours.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 24
25
OUR STRATEGY CONTINUED
PRINCIPAL RISKS AND UNCERTAINTIES
Objective
Meaning
Preparing for our future
•
Advance innovative technologies focusing
on reducing diamond damage and reducing
costs
• Assess external growth opportunities
•
Long term mine planning and optimisation
Measuring
• Capital expenditure
• Waste tonnes mined
•
•
Extending life of mine
Mining in accordance with life
of mine plan
• Mergers and acquisitions
2020 performance
We continue to investigate technologies for reducing diamond damage and reducing costs. These are discussed on page 47.
We reviewed opportunities to further optimise the mine plan for implementation in 2021. The Letšeng mining lease was successfully
renewed in 2019 and implemented in 2020. We continue to assess external growth opportunities and during the year we evaluated
and engaged in an opportunity which arose from a formal sales process.
Capital expenditure (US$ million)
Waste tonnes mined (million)
11
18
23
10
2
2016
2017
2018
2019
2020
29.8
2016
29.7
2017
25.8
2018
24.0
2019
15.6
2020
Read more in the CEO review, page 33, CFO review, page 36, and Operational review page 43.
Governance
Responsibility
HOW WE APPROACH RISK
The Group’s risk management framework aims to identify, manage and mitigate the risks and uncertainties to which the Group is
exposed. Effective risk management and mitigation reduce the likelihood that financial, operational and compliance impacts could
materially affect 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 responsible for risk management in the Group and 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 evaluates the effectiveness of the
Group’s risk management process accordingly. It confirms that the process is accurately aligned
to the Group’s strategy and performance objectives.
Top-down approach –
sets the risk appetite and
tolerances, strategic
objectives and
accountability for the
management of the
framework
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
for monitoring each
management and
operational site’s performance.
SUSTAINABILITY COMMITTEE
The
Sustainability Committee provides
assurance to the Board that appropriate
systems are in place to identify and manage
health, safety, social and environmental risks. It
monitors the Group’s performance within
these categories and drives proactive risk
mitigation strategies to secure the social
licence to operate in the future.
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
Prior to 2020, risk was an agenda item in Board meetings, but
from the start of 2020 a stand-alone risk review meeting was
added to the quarterly Board and Committee meetings to allow
sufficient time to explore the risks fully and to assess
management’s scenarios and plans. The Board reviews the
risk register and interrogates the most critical risks in detail,
debating mitigating plans with management.
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 as their impact, individually or
collectively, could affect the Group’s ability to operate profitably
and generate positive cash flows in the medium to long term.
The risk disclosures follow guidelines from the IIRC’s
Framework to clarify the distinction between inherent and
residual risk, indicate risk movements, and link the areas of the
business model and strategy to each risk.
While Gem Diamonds’ risk management framework focuses on
risk identification and mitigation, many factors that give rise to
these risks also offer opportunities. The Group monitors existing
and emerging opportunities and incorporates them into the
strategy where they support the Group’s vision.
implications of external macro risks and
How COVID-19 made us re-evaluate risk
COVID-19 has increased the emphasis on identifying the
possible
low-
probability/high-consequence events to inform appropriate
contingency plans. These risks can be mitigated by ensuring we
continue to build resilience and flexibility into our leadership
and operational processes and our leaders are equipped to
quickly quantify the size and scale of the emerging issue and
adapt accordingly.
Insurance cover is an important aspect of risk mitigation.
It transfers potential financial implications due to any primary risk
of the Group materialising. The COVID-19 pandemic led to an
increased risk perception in the insurance market as a result of
increasing claims and a declining premium pool. Insurers have
decreased their exposure to the mining industry. As a result, the
renewal of appropriate insurance has become challenging
leading to additional exclusions, reduced cover, increasing
deductibles/excesses payable and increasing premiums.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 26
27
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Although insurance cover does not eliminate the operational controls needed to manage and mitigate risk, it offsets the potential
financial loss should the risk materialise. Reduced cover consequently directly impacts the Group’s cash management risk.
The Group is considering various options to minimise risk in the absence of insurance cover, including a self-insurance structure and
enhanced business continuity procedures.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Risk type
Operational
Operational
Strategic and operational Operational
Operational and external
Operational and external
External
Operational and external
Description
Cash management
Diamond damage
Knowledge of the resource
Security of product
Impact
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, security of
product and the detrimental
effect of COVID-19 on all
spheres of the business.
Letšeng’s valuable Type II
diamonds are highly susceptible
to damage during the mining
and recovery process. This affects
the demand for the Group’s large
high-value diamonds and the
prices achieved resulting in
reduced cashflow and profitability.
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 make the
operation sensitive to resource
variability. Mineral resource
underperformance could affect the
Group’s ability to operate profitably.
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
would negatively affect revenue
and cash flows.
Opportunity
if managed
Cash constraints drive more
efficient capital expenditure
and cost disciplines.
Improvements to blasting
techniques and the introduction
of 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.
Advanced security control measures
increase employee and product safety
and improve revenue.
Key priorities
Area of business
model affected
•
Funding the business model
Mitigation
•
•
•
•
•
Reassessment of capital
expenditure and operational
strategies
Treasury management
practices in place
• Weekly cashflow reviews
•
Foreign exchange
management
Access to available facilities
Delivering of BT targets
Regular review of the mine
plan to optimise cash flow
and to identify rescheduling
opportunities
Early engagement with
lenders to renew facility
agreements
The ability to reduce
operating costs in times
of uncertainty
•
•
Heatmap key
1
•
•
•
•
•
•
•
•
•
•
•
2
Increased 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
Breakage and value loss studies
at the mine and in Antwerp
Optimisation of blast design
and fragmentation results
Online system in place to
monitor plant parameters and
evaluate trends within the
treatment process
Evaluation of new
technology to detect
diamonds within kimberlite
Review and update of current
diamond breakage initiative
plan and implementation of
diamond damage project plan
On-mine Diamond Value
Management Committee to
oversee and drive the focus of
overall value recovery
•
•
•
•
•
3
Outputs of carats recovered
Increased financial outputs
Human capital and safety
outcomes
Advanced security access control
and surveillance system in place,
complemented by off-site
surveillance
Zero tolerance on nonconformance
to policy and regulations
Monitoring of security process
effectiveness by the Diamond
Recovery Protection Committee
(a subcommittee of the Letšeng
Board)
Appropriate diamond specie
insurance cover in place
Regular vulnerability assessments
complemented with internal and
independent third-party
assurance audits undertaken
•
•
•
•
•
•
•
•
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 distribution
and value profiles per kimberlite
type through rigorous daily
and monthly data plotting
and trend analysis
Information Technology (IT)
and Operational Technology (OT)
systems, and cybersecurity
The Group’s operations rely on secure IT
and OT systems to process and record
financial and operating data in its
information management systems. If these
systems are compromised, there could be
a material adverse impact on the Group.
Detrimental effect of COVID-19 on
all spheres of the business
Rough diamond demand
and prices
COVID-19 not only caused infections and
deaths worldwide but also wreaked havoc
on the mining sector, leading to the
closure of mines and marketing channels
during the global lockdowns.
Gem Diamonds’ main priority is the
welfare of its employees, contractors and
all those around its operations and
corporate offices. The Company is taking
all necessary precautions to protect its
people and to ensure the sustainability
of the business.
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 47).
Successfully navigating the crisis improves
the Group’s competitive position. Closure
of marginal mines reduces supply of rough
diamonds and could support diamond prices.
Ensuring we protect the wellbeing of our
employees and contractors and playing an
active role in community and government
initiatives, we strengthen our relationships
with these key stakeholders.
•
•
•
•
•
•
•
Entire business model
Application of technical and process
IT controls in line with industry-
accepted standards
Appropriate back-up procedures
in place
Firewalls and other appropriate
security applications in place
Regular testing of back-up
restorations
Consultations with professional
external advisers when needed to
better understand evolving risks and
any mitigating factors to be
implemented
IT management policies
•
•
•
•
•
•
•
Entire business model
Detection and prevention strategies
developed and implemented at all
mines and offices
Various flexible strategies available
for a successful tender process
Cash preservation, cost management
and cash flow planning initiatives
in place
Ongoing negotiations with bankers
to ensure access to facilities on a
needs basis
COVID-19 protocols to minimise
disruptions as a result of infection
and procurement strategies to
ensure availability of spares,
equipment, etc.
Community initiatives including
provision of PPE and food parcels,
awareness programmes and ongoing
training and support
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 13 and
directly affect Gem Diamonds’ cash flows
and EBITDA and its ability to fund
operations, projects and growth plans.
Additional viewings in new areas could
introduce new clients and improve prices
realised. New channels to market could
increase the price the Group achieves on
certain diamonds.
Funding the business model
Sales and marketing activities
Chosen distribution channels
Monitoring of market conditions
and trends
Flexibility in sales processes and
utilisation of multiple sales and
marketing channels, and increased
viewing opportunities
Virtual viewing opportunities
Ability to enter into partnership
agreements with manufacturers
to share in the upside of the
polished diamonds
Maintaining the integrity of the
tender process
Reduction in supply in the market
with greater demand for Letšeng
goods caused by current offtake
agreement between a diamond
trader and a mine
Reduced sales opportunities in
2020 resulting in decreased supply
of high-value diamonds
•
•
•
•
•
•
•
•
•
•
7
Decreased
Production interruption
Material mine and/or plant shutdowns or
periods of decreased production could arise
due to 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 financial 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
improves efficiencies due to stability
of production.
Focused contract management impacts
positively on cash generation through
improved procurement and contract
renegotiation practices.
•
•
•
•
•
•
•
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
Bespoke contract management role
fulfilled to ensure proper contract
management and minimise potential
for disputes and disruptions
Appropriate insurance maintained
Appropriate levels of resources
maintained (fuel, stockpiles, etc.)
to mitigate certain production
interruptions
Improvements implemented
in the management of contractors’
procurement practices.
8
Increased
Risk exposure
Increased
Unchanged
Unchanged
4
Increased
5
Increased
6
New risk
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
28
29
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risk type
Strategic
Strategic and operational
External and operational
Strategic and operational
Strategic and operational
Strategic and operational
External
Description
Limited opportunities for growth
Workforce
Environmental
Social licence to operate
Health and safety
Impact
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 the ability to attract and
retain key suitably qualified and experienced
personnel. Gem Diamonds operates in an
environment and industry where shortages
in experience and skills are prevalent, and in
jurisdictions with localisation policies.
Opportunity
if managed
Focusing on existing operations could unlock
further value through rationalisation and
efficiency improvements.
Skills retention and continuous improvement
initiatives build the Group’s human capital
and can create a competitive advantage.
Climate and environmental issues, such as
the recent dam failures reported by other
companies, are recognised as top global risks
by the World Economic Forum and investors
are increasingly focused on environmental
performance. Failure to manage climate and
environmental issues will impact on compliance
to mining lease and debt facility agreements.
Environmental regulations, pressure from
surrounding communities and failure to manage
vital natural resources can affect the Group’s
ability to operate sustainably.
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.
Gem Diamonds’ social licence to
operate arises from the approval of its
stakeholders, particularly employees,
regulators, project- affected 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.
The risk that a major health or safety
incident, such as a dam failure, may occur
within the Group is inherent in mining
operations. These risks could impact the
wellbeing of employees, project- affected
communities, our licence to operate, the
Company’s reputation and compliance
with its mining lease agreement.
Realising the Group’s vision to make a
meaningful and sustainable contribution to
the countries in which we operate builds
Gem Diamonds’ reputation with
employees, government, regulators,
communities and investors.
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.
Sustainability of Business
Transformation
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.
Delivery of the BT target improves cash
flow and credibility and positions the
Group ahead of the industry.
Currency volatility
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.
Earning capability in currencies stronger
than currencies in which operational
costs are incurred results in maximum
financial benefit to Letšeng.
Human, intellectual and financial capital
inputs into the business model
•
Natural capital inputs into the business
model and negative outcomes in the case
of environmental incidents
Key priorities
Area of business
model affected
•
Entire business model
Mitigation
Group strategy review performed with
objective of improving the share price through:
•
•
•
Delivering the BT target
Advancing early identification and
anti-breakage technology
Assessing M&A and diversification
opportunities
•
•
•
•
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
bonuses and long-term share awards
Remuneration Committees are set up at a
GDL and Letšeng level. They review current
remuneration policies, skills and succession
planning
•
•
•
•
Appropriate sustainability and
environmental policies, subject to
continuous improvement review,
implemented
Behaviour-based care programme, which
instils environmental stewardship,
implemented
Climate change adaptation plan
implemented
Dam safety management framework
implemented
Annual social and environmental
management plan (SEMP) audit
programme implemented
ISO 14001 accreditation obtained
UN SDG framework adopted
Rehabilitation and closure management
strategy adopted and updated annually
• Water management framework completed
•
•
•
•
•
Concurrent rehabilitation strategy
implemented
Group shared natural resources
management strategy implemented
•
11
Decreased
Heatmap key
9
Risk exposure
New risk
10
Decreased
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
•
•
•
Financial capital inputs and
outcomes
A framework to enter into
short-term hedging instruments
is in place
Appropriate treasury management
procedures are in place
Entire business model
Dedicated BT task team
Ongoing monitoring through
regular review meetings
Delivered US$79 million to date,
with medium/low risk of delivering
remaining balance
CI roll out commenced at Letšeng
with pilot in the Mining department
completed
•
•
•
•
•
•
Social capital and viability of
business model
Appropriate health, safety and
sustainability policies in place
which are subject to continuous
improvement reviews
Appropriate CSI spend catered
for within the new mining lease
agreement
UN SDG framework adopted
Regular engagement with
relevant Government
Department Ministries
Dam safety management
framework implemented
•
•
•
•
•
•
•
•
•
•
•
•
Social, relational and human
capital and viability of business
model if outcomes are negative
Appropriate health and safety
policies and practices, subject
to continuous improvement
reviews, implemented
Corrective actions identified from
incident investigations and internal
and external audits implemented
timeously
Dam safety management
framework implemented
ISO 45001 accreditation obtained
Verification module developed
for the Electronic Business
Management System that will
improve management and
implementation of recommended
corrective actions
Safety management and leadership
programme (focusing on
behaviour-based safety culture)
implemented
12
Decreased
13
Unchanged
14
Decreased
15
Decreased
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
30
31
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
VIABILITY STATEMENT
The graphics below show the change in likelihood and impact scenarios pre-mitigation (inherent risk
(residual risk
with a greater impact is considered more important than a matter with a higher likelihood.
) and post-mitigation
). The order of importance was established taking guidance from the IIRC’s Framework, where a material matter
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
9
10
11
1
2
3
12
13
4
5
14
15
6
7
8
LOW
IMPACT
HIGH
LOW
IMPACT
HIGH
EMERGING RISKS
The assessment of emerging risks is embedded within the risk
management function of the Group. 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:
•
are likely to materialise or impact over a longer time frame
than existing risks;
• do not have much reference from 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 (16);
generational shifts in consumer preferences –
social influencers (17);
the rate of advancement of digital technologies such as
blockchain (18); and
future workforce (automation, skills for the future, etc.) (19).
Based on an inherent risk ranking over the medium- to long-
term time horizon we rank their importance as:
HIGH
D
O
O
H
I
L
E
K
I
L
16
18
17
19
LOW
IMPACT
HIGH
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 25 to 30 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 the 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 risk types, together with the effectiveness of
the potential mitigations that management reasonably believes
would be available to the Company over this period.
The Group’s credit facilities (excluding project term loans) total
US$70.8 million when fully unutilised, with US$34.0 million
expiring on 18 July 2021, US$30.0 million expiring on
31 December 2021 and the balance of US$6.8 million being a
general banking facility with no set expiry date (refer Note 18,
Interest-bearing loans and borrowings). The Group’s viability
assessment assumes that these facilities will be successfully
restructured, and their expiry dates extended, based on advanced
discussions with lenders and previous successful renewals.
COVID-19
Uncertainty exists around the ongoing impact of the pandemic
on the Group. The Group is in a good position to mitigate the
impact of any operational disruption that may be caused by
potential further COVID-19-related lockdowns. International
travel restrictions could have an impact on the frequency of
diamond tenders and the ability to generate revenue on its
regular tender cycles.
STRESS TESTS
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 and were applied independently of each other.
Effect
A decrease
in forecast rough
diamond revenue from reduced
market prices or production
volumes
Extent of
sensitivity analysis
Related principal risks
Area of business model affected
32% •
Rough diamond demand
and prices
•
•
•
Production interruption
Knowledge of the resource
Detrimental effect of COVID-19
on all spheres of the business
•
Entire business model i.e.
inputs, activities, outputs and
outcomes
A strengthening of local currencies
to the US dollar from expected
market forecasts
32% • Currency volatility
•
Detrimental effect of COVID-19
on all spheres of the business
•
Financial capital inputs and
outcomes
The Group’s current net cash2 position of US$34.6 million as at 31 December 2020 and available facilities of US$60.8 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 2024.
1 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP measures.
2 Net cash is calculated as cash and short-term deposits less drawndown bank facilities (excluding asset-based finance facility and insurance premium financing).
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 32
33
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
PERFORMANCE
REVIEW
CHIEF EXECUTIVE’S REVIEW
“In the face of the significant disruption caused by COVID-19,
the fundamentals of Gem Diamonds’ business remain sound
and our strategy intact.”
– Clifford Elphick –
The quick return to production, Letšeng’s top-quality diamonds
and our excellent relationships with our customers allowed us
to sell diamonds and generate revenue when many other
producers could not. Despite the pressure on the diamond
market, these factors helped us to achieve a 17% higher overall
average price per carat than in 2019.
Most of the BT cost-efficiency initiatives are now fully embedded
in day-to-day operations and the CI initiative is being rolled out.
The changed working conditions during COVID-19 and
extensive engagements with our contractors and suppliers
identified additional efficiencies and new ways of working that
helped to further reduce costs, which contributed to strong
operating cashflows. It is pleasing to announce that the Board
has recommended a dividend of 2.5 US cents.
While we are pleased with the Group’s performance for the
year in the face of these challenges, we are deeply saddened
and offer our condolences to the families of the seven
employees who passed away to date from suspected COVID-
19-related complications.
STRATEGIC FOCUS: WORKING RESPONSIBLY
AND MAINTAINING OUR SOCIAL LICENCE
The Group’s COVID-19
included a significant
response
contribution to ensuring the health of members of surrounding
communities and supporting the Lesotho Government’s
programmes, as described on page 50.
We aim to create and sustain a workplace safety culture that is
underpinned by a deep sense of mutual care and collaboration
across the workforce. We are pleased with the improvement in
our safety statistics this year but remain diligent in implementing
our safety protocols in line with our commitment to promoting
a culture of zero harm and responsible care. There were no
fatalities and one LTI during the year, compared to one fatality
and seven LTIs in 2019. The Group-wide LTIFR decreased to 0.04
(2019: 0.28) and the lowest AIFR in a decade was recorded.
In the face of the significant disruption caused by COVID-19, the
fundamentals of Gem Diamonds’ business remain sound and
our strategy intact. Despite the extreme uncertainty at the start
of the pandemic the fast and decisive action we took, combined
with the organisational improvements of the last few years and
strong stakeholder relationships, supported a good operational
performance, strong cash flows and an improved financial cash
position at the end of the year.
Our first priority was to make sure our people were safe. We took
the potential threat to their health extremely seriously and
acted quickly to do what we could to protect them, which
included immediately establishing a testing laboratory on site at
Letšeng.
Following the Lesotho Government’s lockdown order, as soon
as it was safe to restart operations and we had the necessary
authorisations, we worked hard to get back to full production as
fast as we could. We managed to ramp up well ahead of many
operations in similar positions, greatly reducing the loss of
production. This success was in no small part due to the in-
country skills and expertise we have developed at Letšeng,
since certain required skills and individuals were unable to
physically be at the mine.
Gem Diamonds Limited Annual Report and Accounts 2020
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional information 34
35
CHIEF EXECUTIVE’S REVIEW CONTINUED
CHIEF EXECUTIVE’S REVIEW CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
(TSFs), which are designed and managed
Our strategic focus on working responsibly includes our
commitment to environmental responsibility, which is discussed
in detail on pages 48 to 50. A rigorous ongoing monitoring and
management programme is in place to ensure any risks
regarding Letšeng’s freshwater dam and two tailings storage
facilities
to
international best practice, are timeously
identified and
mitigated. We are currently assessing our TSF management
process against the Global Industry Standard on Tailings
Management launched in August 2020 and developing an
action plan to ensure conformance. A technical visit to the mine
was undertaken in November 2020 by an independent expert
and the compilation of a draft Independent Tailings Review
Board (ITRB) structure and Terms of Reference is underway.
Supporting local communities and contributing
to national priorities
Gem Diamonds invests in surrounding communities to improve
educational outcomes, develop infrastructure and stimulate
local enterprises
to create self-sustaining employment
independent of the mine. Some of these projects were delayed
due to disruptions caused by COVID-19 and we continue
to engage with stakeholders regarding project status, any
further COVID-19 impact on progress and alternative projects to
address immediate needs in current circumstances.
In addition to community support, the Letšeng mine makes a
substantial contribution to the Lesotho economy, providing
jobs for more than 1 7021 people and supporting the local
economy and the broader population of Lesotho through local
procurement initiatives. In 2020, due to the reduced production
and the 30-day shutdown period, in-country procurement
decreased 23% to US$126.9 million (2019: US$164.6 million), of
which US$2.2 million was procured directly from PACs (2019:
US$2.4 million) and US$27.4 million (2019: US$30.5 million) from
regional communities around Letšeng. The Company’s
investment in training also improves individual skills in the area.
No major or significant stakeholder incidents were reported at
any of Gem Diamonds’ operations during the year (2019: none)
and there were also no incidents involving any violation of the
rights of the indigenous people on whose land the Group
operates (2019: none).
STRATEGIC FOCUS: EXTRACTING
MAXIMUM VALUE FROM OUR OPERATIONS
Despite
the challenging operating environment, Gem
Diamonds produced solid results that included the recovery of
16 diamonds greater than 100 carats (2019: 11). Exceptional
recoveries during the year include a 439 carat white Type IIa
diamond, a 183 carat white Type IIa diamond and a 166 carat
white Type IIa diamond reaffirming the quality of the mine’s
production.
While the overall diamond market was under extreme pressure,
our proactive steps to ensure the safety of customers and
provide additional analysis of the diamonds on tender resulted
in the average price achieved increasing 17% to US$1 908 per
carat (2019: US$1 637 per carat) from the sale of 99 172 carats
(2019: 111 292).
Tonnes treated for the year decreased 19% year on year
impacted by the 30-day shutdown at Letšeng and subsequent
phased ramp-up of the two plants and we continue to focus on
enhancing value over volume in our treatment of ore through
the plants. Carats recovered decreased 12% to 100 780
(2019: 113 974), which was in line with the reduced tonnes
treated due to the COVID-19-related shutdown in Q2. Letšeng’s
operational performance is discussed in detail on page 43.
Revenue increased 4% to US$189.6 million (2019: US$182.0 million),
which translates to underlying EBITDA2 of US$53.2 million and
earnings per share of 9.8 US cents. Cash flow was a key focus
given the crisis conditions prevalent for most of the year and
cash flow from operations increased 73% to US$96.2 million for
the year, allowing the Group to move from a net debt position
of US$10.2 million at the start of the year to a net cash3 position
of US$34.6 million at the end of 2020. More information
regarding the Group’s financial results is available in the
Chief Financial Officer’s report on page 36.
The process to sell the Ghaghoo mine, which remains on care
and maintenance, continues, but was significantly delayed
during the year due to the impact of COVID-19. Management
remains committed to the sale and will conclude the process
in 2021.
STRATEGIC FOCUS: PREPARING FOR
THE FUTURE
The Group’s improved balance sheet at year end provides a
sound platform from which to navigate the current uncertain
environment. The reduced costs and improved efficiencies
realised through the BT initiatives were critical in maximising
operational cash flows during the year and the operational
benefits from the CI initiative currently being rolled out are
already evident. These initiatives are discussed on page 46.
Non-essential capital expenditure was deferred wherever
possible to preserve cash, but not at the expense of projects
necessary to sustain operations.
We continue to advance two key technologies to identify locked
diamonds within kimberlite and to liberate diamonds using a
non-mechanical process. While the pilot project was hindered
largely by the COVID-19-related lockdown and travel restrictions
and did not make the progress during the year we would have
liked, we have identified new technical partners to advance the
pilot and believe that the benefits in reduced diamond damage
and lower operating costs will be realised in time.
Gem Diamonds is cognisant of the risks presented by climate
change and conscious of the need to minimise emissions and our
environmental impact more broadly. The immediate climate-
related challenge at Letšeng remains water management.
Effective water management is crucial for the viability of our
business. This refers not only to the preservation of natural
resources for the benefit of host communities but also to the cost
implications of water consumption on our business.
Includes contractors.
1
2 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP (Generally Accepted Accounting Principles) 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 and insurance
premium financing).
OUTLOOK
In the year ahead, our immediate focus will be on ensuring the
health of our employees and contractors during the COVID-19
second and possible future waves. We will also continue to
support surrounding communities and assist the Lesotho
Government in its efforts to manage the impact of the
pandemic, including doing what we can to facilitate access to
effective vaccination programmes.
At an operational level, we will continue to realise the benefits
of the BT programme and roll out the CI project, drive efficiencies
and cost-reduction initiatives to maximise cash flows and
maintain our status as a responsible, safe and low-cost operation.
APPRECIATION
I would like to thank the Board and our Chairperson for their
support and guidance during the year. A special thanks goes
to the management teams for their energy and tenacity in
implementing
in extremely challenging
conditions.
strategy
the
My appreciation also extends to the Lesotho Government for its
help in allowing us to restart our operation. Our customers
bought our product at good prices during uncertain times and
we thank them for their support and trust. In closing, thank you
to our shareholders for their confidence and belief in our vision.
Clifford Elphick
Chief Executive Officer
10 March 2021
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 36
37
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
CHIEF FINANCIAL OFFICER’S
REVIEW
“Management was able to normalise operations and maintain cash
reserves through effective sales processes and cash preservation initiatives.”
– Michael Michael –
FINANCIAL OVERVIEW 2020
The Group’s immediate focus in the first half of the year was to
manage the severe operational challenges brought on by the swift
onset of the COVID-19 pandemic. Management was able to
normalise operations and maintain cash reserves through effective
sales processes and cash-preservation initiatives. In the short to
medium term, the focus moved to optimising cash generation
through further operational efficiencies to ensure the continued
sustainability of the business in a challenging environment.
Significant operating and capital cost reduction and deferment
measures were implemented in the second quarter which,
together with the ability to successfully hold tenders and
generate revenue, contributed to positive cash generation.
Following the forced shutdown of operations at Letšeng due to
the Lesotho Government’s lockdown order during March and
April, planned waste mining activities was successfully deferred
to resume in July; and in the second half of the year the primary
focus was on continued and safe operations, curbing the spread
of COVID-19 on site and cash generation.
Although tender revenues initially tracked the weaker market for
rough diamonds following the onset of COVID-19, there was a
marked improvement in sentiment in the second half of the year.
With the focus on the higher-value satellite ore, Letšeng produced
good high-quality large diamonds, which included 16 diamonds
greater than 100 carats during the year, compared to 11 in 2019.
Underlying EBITDA2 from continuing operations increased to
US$53.2 million (after COVID-19 standing costs of US$3.9 million
incurred during the lockdown period), from US$41.0 million in
2019. Profit attributable to shareholders
from continuing
operations for the year was US$16.9 million, equating to earnings
per share from continuing operations of 12.1 US cents on a
weighted average number of shares in issue of 139.3 million. After
including the
loss of US$3.3 million from the Ghaghoo
discontinued operation, the Group’s attributable profit was
US$13.6 million with earnings per share after discontinued
operations of 9.8 US cents.
The Group ended
the year with a cash balance of
US$49.8 million and drawndown facilities of US$15.2 million,
resulting in a net cash position of US$34.6 million (2019: net
debt of US$10.2 million) and unutilised available facilities of
US$60.8 million.
Summary of financial performance
Please refer to the full annual financial statements starting on
page 113.
US$ million
Revenue
Royalty and selling costs
Cost of sales1
COVID-19 Standing costs
Corporate expenses
Underlying EBITDA2 from
continuing operations
Depreciation and mining asset
amortisation
Share-based payments
Other income
Other expenses
Foreign exchange (loss)/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)
Dividends per share (US cents)
2020
2019
189.6
(19.8)
(104.7)
(3.9)
(8.0)
182.0
(16.9)
(114.7)
–
(9.4)
53.2
41.0
(9.1)
(0.6)
–
–
(0.9)
(4.4)
38.2
(10.7)
27.5
(10.6)
(14.7)
(0.8)
1.1
(0.3)
3.6
(5.8)
24.1
(9.0)
15.1
(8.0)
16.9
7.1
(3.3)
13.6
(4.5)
2.6
12.1
5.1
(2.3)
2.5
(3.2)
–
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
US$ million
2020
2019
Group revenue summary
Letšeng sales – rough
Sales – polished margin
Impact of movement in inventory
Group revenue
189.2
0.6
(0.2)
189.6
182.1
–
(0.1)
182.0
Extracted diamond inventory on hand at the end of the year
decreased to US$0.6 million (2019: US$0.9 million).
Expenditure
Operating expenditure and COVID-19 standing costs
Group cost of sales decreased by 9% to US$104.7 million from
US$114.7 million in 2019 as a result of the cash preservation
measures and the continued focus to reduce costs in line with
the BT initiatives. Total waste-stripping costs amortised were
US$43.4 million compared to US$43.1 million in 2019.
incurred during the
Certain standing charges that were
shutdown and ramp-up periods where normal waste stripping
and carat production levels were disrupted, were recognised as
abnormal costs, and in terms of IAS 2 Inventories have been
expensed immediately and disclosed separately from cost of
sales. These costs amount to Lesotho loti LSL48.5 million
(US$2.9 million). In addition, US$1.0 million was incurred to
implement protocols to address the risk and contain the spread
of COVID-19 at the operations and Letšeng’s surrounding
communities.
Revenue
Revenue of US$189.6 million was generated at Letšeng, achieving
an average price of US$1 908 per carat1 (2019: US$1 637 per carat).
The Group sold 34 diamonds for more than US$1.0 million each,
contributing US$77.6 million to revenue.
increased
revenue was mainly driven
The Group’s
by achievement of a higher average price per carat and
increased large diamond recoveries.
Letšeng 12-month rolling average
(US$ per carat)
1 637
1 568
1 636
1 850
1 908
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
1
Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation.
2 Underlying EBITDA as defined in Note 4, Operating profit of the notes to the consolidated financial statements.
1
Includes carats extracted at rough valuation and carry-over inventory.
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CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Total operating costs in local currency increased by 6% to LSL1 740.8 million compared to LSL1 649.6 million in 2019 and includes
the impact of non-cash accounting charges. The unit cost per tonne increased 30% to LSL320.20 per tonne from LSL245.92 per tonne
treated in 2019. This increase was driven by the reduced tonnes treated and the proportionate mix of ore mined during the year.
Although the total waste-stripping costs amortised during the year was similar to 2019, the increased contribution from Satellite pipe
material (which carries a higher stripping ratio and associated amortisation charge) impacted the unit cost. During the year, 2.8 million
tonnes of this material were treated (2019: 1.6 million) which increased the total amortisation charge to LSL131.56 per tonne treated
compared to LSL92.88 in 2019. The increase in the non-cash accounting charges per tonne treated, impacted by waste-stripping
amortisation, was offset by the timing differences of the inventory and stockpile movements during the year.
Letšeng Unit Cost Analysis
Unit cost
per tonne
treated
Direct
cash
costs2
Plant 3
operator
costs
2020 (LSL)
2019 (LSL)
% change
2020 (US$)
2019 (US$)
% change
183.94
150.61
15.73
20.40
11.17
10.42
0.95
1.41
Subtotal
199.67
171.01
17
12.12
11.83
2
BT & CI
associated
costs
Total
direct
cash costs
Non-cash
accounting
charges1
Total
operating
cost
1.79
10.15
0.11
0.71
201.46
181.16
11
12.23
12.54
(2)
118.74
64.76
7.21
4.48
320.20
245.92
30
19.44
17.02
(2)
Waste cash
costs per
waste tonne
mined
43.70
38.62
13
2.65
2.67
0
Direct cash cost per tonne treated is LSL201.46, representing an
11% increase from 2019. Waste cash cost per waste tonne mined
increased by 13% to LSL43.70 (2019: LSL38.62). These cash cost
increases are a direct result of the lower volumes treated
(5.4 million tonnes compared to 6.7 million tonnes in 2019)
and waste tonnes mined (15.6 million tonnes compared to
24.0 million tonnes in 2019) during the year respectively.
Total direct cash costs, including waste cash costs, decreased by
18% to LSL1 775.7 million from LSL2 158.8 million in 2019 as a
result of the lower volume of mining activities and cash
preservation and deferment measures implemented during
the year.
Letšeng pays the third plant operator contractor according to
the revenue generated by the sales from diamonds recovered
through the contractor plant. In 2020, the cash costs in local
currency decreased by 23% in line with the reduction in carats
recovered and sold.
BT and CI associated costs of US$0.6 million were incurred
relating to initiatives implemented during the year, resulting a
unit cost impact of LSL1.79 per tonne treated.
Exchange rate influences
Revenue is generated in US dollars, while the majority of
operational expenses are incurred in the relevant local currency
in the operational jurisdictions. Local currency rates for the
Lesotho loti (LSL) (pegged to the South African rand) and
Botswana pula (BWP) were weaker against the US dollar during
the year (compared to 2019), which reduced the Group’s
US dollar-reported costs.
Exchange rates
2020
2019 % 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
16.47
14.69
11.45
10.80
0.78
0.73
14.45
13.98
10.76
10.58
0.78
0.75
14
5
6
2
–
(3)
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
1
Non-cash accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and the impact of adopting IFRS 16 Leases, and exclude depreciation
and mining asset amortisation.
2 Direct mine cash costs represent all operating costs, excluding royalty and selling costs.
operation’s mining lease. The Group’s sales and marketing
operation in Belgium incurs costs relating to diamond selling
and marketing. During the year, royalties and selling costs
increased by 17% to US$19.8 million (2019: US$16.9 million) in
line with the increase in revenue and the increase in royalties
from October 2019 from 8% to 10%.
Rough diamond extractions and partnership sales
Letšeng entered into partnership arrangements during the year
for the sale of four rough diamonds totalling 240 carats. The
partnership arrangements allow for Letšeng to share in the
margin uplift on the sale of the resultant polished diamonds,
which added revenue to the Group of US$0.6 million in 2020.
Corporate expenses
Central costs are incurred by the Group to provide expertise in
all areas of the business model to realise maximum value from
the Group’s assets. These costs are incurred at the technical and
administrative offices in South Africa (in South African rand) and
head office in the UK (in British pounds).
Baseline corporate costs for the year were US$7.9 million,
a 4% increase compared to 2019 of US$7.7 million. The benefits
from the corporate cost initiatives implemented through BT
continue to be realised. During the year, US$0.1 million in
costs were incurred on ad hoc projects (2019: US$1.7 million),
resulting in an overall saving of US$1.4 million compared to
2019. The saving is largely due to the suspension of all ad hoc
projects during the COVID-19 pandemic.
Historical corporate costs data (US$ million)
0.1
0.5
0.2
0.7
1.7
0.1
11.6
2015
10.5
2016
9.0
2017
9.3
2018
7.7
2019
7.9
2020
BASELINE COSTS
PROJECT COSTS
Underlying EBITDA1 and attributable profit
Group underlying EBITDA1
from continuing operations
increased by 30% to US$53.2 million (2019: US$41.0 million)
as a result of the increase in revenue and the reduction in costs
through cash preservation
initiatives. Profit attributable
to shareholders was US$13.6 million, which translates to
9.8 US cents per share based on a weighted average number
of shares in issue of 139.3 million.
Statement of financial position – selected
indicators
US$ 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 (payable)/receivable
Capital expenditure
2020
2019
304 003
5 839
26 740
49 821
3 528
323 853
6 337
32 517
11 303
3 943
(1 701)
(6 009)
(14 385)
(16 332)
(4 224)
(78 209)
(12 331)
(11 834)
(4 221)
(83 124)
(15 588)
8 176
The Group’s focus on cash preservation during COVID-19 resulted
in limited capital spend and the deferral of a number of capital
projects. Letšeng’s capital spend was incurred mainly on continued
core drilling; micro diamond analysis and mineral resource studies
to firm up the existing mineral resource base (US$0.7 million) (2019:
US$0.5 million); and the studies and engineering designs for the
construction of the replacement Primary Crusher Area of US$0.3
million (2019: US$0.7 million). In addition, US$0.1 million was spent
on COVID-19 screening equipment and hardware.
Total capital expenditure (excluding waste stripping) decreased
to US$1.6 million during the year (2019: US$9.7 million).
1 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP measures.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 40
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Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Cash at hand
Summary of loan facilities as at 31 December 2020
The Group generated cash from operating activities (before capital and waste investment of US$48.7 million) of US$96.2 million.
The Group ended the year with cash on hand of US$49.8 million (2019: US$11.4 million), of which US$36.2 million is attributable to
Gem Diamonds. All scheduled capital debt repayments during the year were made, totalling US$13.5 million. The overall result is a net
increase in cash of US$44.8 million year on year.
Letšeng declared a dividend of LSL400.0 million (US$27.0 million) in 2020 of which LSL250.0 million (US$16.8 million) was paid during
2020, with a further LSL150.0 million (US$10.2 million) payable in March 2021.
Cash movement (US$ million)
105
6
47
70
11
Cash and
facilities
December
2019
8
8
5
3
3
2
4
61
50
Letšeng –
cash
generated
Net
income
tax
received
Letšeng –
waste costs
capitalised
Net Financial
liabilities
repaid
(incl. IFRS 16)
Corporate
costs
Dividends
to
NCIs
Net finance
costs
Ghaghoo
costs
Investment
in PPE
FCTR
Cash and
facilities
December
2020
AVAILABLE FACILITIES
Loans and borrowings
At year end, the Group had utilised facilities of US$15.2 million,
resulting in a net cash position of US$34.6 million and available
facilities of US$60.8 million, comprising a net debt position of
US$5.7 million (after US$10.0 million drawdown) at Gem
Diamonds and a net cash position of US$40.3 million at Letšeng.
The Group optimised the capital structure to ensure Letšeng’s
debts were fully repaid at the end of the year, even under
COVID-19 circumstances, to ensure lower overall gearing in
the medium term should the pandemic have extended
implications. The Group has
the Gem
Diamonds’ three-year revolving credit facility that expired
in December 2020
to
31 December 2021. The Group engages regularly with lenders
and credit providers to ensure continued access to funding
and to manage the Group’s cash flow requirements during
these current turbulent times.
further 12 months up
renegotiated
for a
Repayment of the remaining US$10.0 million balance on
the Gem Diamonds Limited facility, relating to the Ghaghoo
US$25.0 million debt, was repaid in quarterly instalments during
the year, with the final repayment made in December 2020.
During 2020, Gem Diamonds accessed US$14.0 million of its
three-year RCF. A capital repayment of US$6.0 million was made
on the RCF facility in December 2020, ending the year with a
US$10.0 million outstanding balance.
Letšeng made repayments of LSL57.3 million (US$3.9 million) on
its project debt facility for the construction of the mining
workshop complex. The outstanding balance of LSL76.3 million
(US$5.2 million) will be repaid by September 2022.
Funding discussions for the replacement PCA continues while
the appropriate timing for the commencement of the project is
being considered.
The Group has commenced a consolidated debt refinancing
of its key credit facilities and has appointed Nedbank Corporate
and Investment Banking as the sole mandated lead arranger
to drive this process on its behalf.
Company
Term/
description
Lender
Expiry
Interest rate1
Amount
US$ million
Drawn down
US$ million
Available
US$ million
Existing facilities
Gem Diamonds
Limited2
12-Month RCF Nedbank
December 2021
Letšeng
Diamonds
Letšeng
Diamonds
Three-year RCF Standard
July 2021
Lesotho Bank
and Nedbank
Lesotho
Nedbank/
Export Credit
Insurance
Corporation
Five-and-a-
half-year
project facility
March 2022
London US$
three-month
London
Interbank
Offered Rate
(LIBOR) + 5.0%
Lesotho prime
rate minus
1.5%
Tranche 1
(R180 million)
South African
Johannesburg
Interbank
Average Rate
(JIBAR) + 3.15%
September 2022 Tranche 2
Letšeng
Diamonds
Overdraft
facility
Nedbank
Annual review
in March
Total
(LSL35 million)
South African
JIBAR + 6.75%
South African
prime rate
minus 0.7%
30.0
10.0
20.0
34.0
–
34.0
12.3
4.1
2.3
1.1
–
–
6.8
85.4
–
15.2
6.8
60.8
Discontinued operation
In line with the strategic objective to dispose of non-core assets,
the Board and management remain committed to the sale of
Ghaghoo. The binding agreement that Gem Diamonds entered
into in June 2019 for the sale of 100% of the share capital of Gem
Diamonds Botswana Proprietary Limited lapsed due to certain
suspensive conditions not being met, however process was
again opened to other prospective buyers during the year and
has entered into an exclusivity arrangement with an interested
party with whom potential sale discussions are continuing.
The sales process faced considerable delays in 2020 largely due
to the impact of COVID-19 and in particular the related travel
restrictions that prohibited site visits for due diligence purposes.
This process is expected to be concluded in 2021.
in accordance with
The operation remains on care and maintenance and is classified
as a discontinued operation
IFRS 5
Non-current Assets Held for Sale and Discontinued Operations.
Care and maintenance costs were significantly reduced to
US$3.3 million (2019: US$4.5 million) and have been recognised
and disclosed separately in the Consolidated Statement of Profit
or Loss. The reduction in costs was mainly due to the renegotiation
of key contracts following the suspension of the de-watering
programme. The suspension realised savings relating to reduced
fuel consumption on site and ancillary costs associated with de-
watering. Further cost reductions were driven by insurance
premium decreases, termination of a transport contract, reducing
the workforce in line with reduced care and maintenance
operations and renegotiation of a generator rental contract.
1 At 31 December 2020 LIBOR was 0.24% and JIBAR was 3.65%.
2 Refer Note 18 of the Annual Financial Statements for the reconciliation of the US$30 million facility.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 42
43
CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED
OPERATIONAL REVIEW
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Share-based payment
The share-based payment charge for the year was US$0.6 million
(2019: US$0.8 million). On 9 June, 1 249 000 nil-cost options were
granted to certain key employees and Executive Directors under
the long-term incentive plan of the Group with similar conditions
as previous awards granted under this scheme.
DIVIDEND
As a result of the Group’s disciplined capital and cash
management, and its strong cash generation during the year in
a challenging environment, the Board is pleased to recommend
the payment of an ordinary cash dividend of 2.5 US cents in
respect of the 2020 financial year. The dividend is subject to
shareholder approval at the scheduled AGM to be held on
2 June 2021.
TAXATION
The Group has applied all relevant principles in accordance with
prevailing legislation in assessing its tax obligations.
The Group’s effective tax rate was 28%. Most of the Group’s taxes
are incurred in Lesotho, which has a corporate tax rate of 25%.
The effective tax rate is above the Lesotho corporate tax rate as
a result of deferred tax assets not recognised on losses incurred
in operations during the year, partially offset by a reduction in
the deferred tax liability on unremitted earnings. Governments
in various countries introduced certain tax payment deferment
measures to reduce the impact of COVID-19 on companies
during the lockdown period, and where applicable all taxes
were paid before year-end, in line with the deferrals offered.
During the year the Group received a net tax refund of
US$5.9 million in taxes. The US$7.6 million of overpaid taxes
relating to the 2019 tax year at Letšeng was refunded during the
year. Following the solid financial results at Letšeng, a further tax
obligation of US$11.3 million relating to the 2020 tax year is due
for payment by March 2021.
As disclosed in the 2019 Annual Report and Accounts, an amended
tax assessment was issued to Letšeng by the Lesotho Revenue
Authority (LRA) in December 2019, contradicting the application
of certain tax treatments in the current Income Tax Act. An
objection was lodged by Letšeng in March, which was supported
by the opinion of senior counsel, together with an application for
the suspension of any payment deemed due. The application for
suspension of payment was accepted. The LRA has subsequently
lodged an application to the Lesotho High Court pertaining to this
matter, which Letšeng is opposing and a court date has been set
for 3 August 2021. There has therefore been no change in the
judgement applied and the accounting treatment for this matter
(refer Note 1.2.28, Critical accounting estimates and judgments for
further detail.)
SENSITIVITIES
The Group is exposed to a range of external factors that are
outside of its control in the conduct of its business. The Group
has the necessary resilience, balance sheet strength and access
to funds to adjust for shifts in these factors. The graph below
illustrates the sensitivity of 2020’s EBITDA to various factors that
have the most significant impact on our ability to create value.
SENSITIVITY IMPACT OF 1% CHANGE
(US$ MILLION)
%
Royalties rate change (absolute)
Average selling price for rough diamonds sold
Operating cost per tonne – direct cash cost
Exchange differences
Diesel price or volume
Corporate expenses
1.8
1.7
1.1
1.1
0.1
0.1
OUTLOOK
While the full impact of COVID-19 on the diamond industry and
the Group’s operations is still unfolding, the Group expects that
in the medium to long term, rough diamond prices will be
supported by favourable demand and supply fundamentals.
These include continued growth in demand from markets such
as China and India, supported by a projected fall-off in rough
diamond supply. This dynamic is expected to benefit high-
quality diamonds in particular, where shortages of certain
categories of these rough diamonds were already evident
during the year.
The Group’s business priorities were quickly adapted to the new
reality created by COVID-19 and numerous operational projects
were deferred to focus on normalising the business. The Group
continues to monitor developments and considers the potential
primary risks to be disruptions in production resulting in lower
throughput and the risk of reduced revenue due to downward
pressure on diamond prices and/or decreased demand.
The Group’s focus remains on areas of optimisation and cash
preservation through re-evaluation of all operational and
financial management initiatives, while keeping employees and
surrounding communities safe. Effective capital allocation and
cost reductions aim to ensure the financial and funding
resilience needed to operate in extremely challenging times
and to achieve the Group’s strategic objectives.
Michael Michael
Chief Financial Officer
10 March 2021
HIGHLIGHTS
• Zero fatalities and one LTI
• Group AIFR at 0.76, the lowest in a decade
•
•
•
•
•
•
Recovered 16 diamonds greater than 100 carats, including a
439 carat, a 183 carat and a 166 carat Type IIa white diamond
Sold 34 diamonds for more than US$1.0 million each
Average price of US$1 908 per carat achieved despite the
impact of COVID-19 (2019: US$1 637)
The Group effectively handled an unprecedented crisis
Continued benefits and savings realised from BT initiatives
and CI programme successfully rolled out in mining
operations
Excellent collaboration with contractors and suppliers
ensured safe and responsible continued operations and
the sustainability of the business
•
Fourth consecutive year of ISO 14001 and 45001 certifications
KEY PROJECTS 2020
•
Implemented a Safety Turnaround Strategy, adopted at the
end of 2019
•
•
•
•
•
•
•
•
Ensured the safety and wellbeing of our workforce and
PACs during COVID-19 while adapting operations and
strategic priorities for the changed operating environment
Enhanced customer engagement to realise maximum sales
opportunities
Ensured transitioning of BT into CI (see page 46)
Completed feasibility study to replace and upgrade the
PCA facility
Investigated further options to reduce waste mining
Reduced diamond damage through changing blasting
patterns successfully rolled out at Letšeng
Reduced processing throughput to improve plant stability
through more consistent feed rate
Progressed studies and core drilling relating to the
updating of the Resource and Reserve Statement
CHALLENGES
• COVID-19 and the 30-day shutdown at Letšeng mine
•
•
COVID-19 disruptions affected haul truck and other critical equipment, and spares availability
Processing at Letšeng plants below budget due to (i) an increase in planned maintenance to improve equipment reliability and
plant stability; and (ii) intermittent power interruptions
PERFORMANCE
Line managers at Letšeng report to the COO on a weekly basis.
This was increased to daily meetings at Letšeng and weekly
meetings at Ghaghoo following the onset of the pandemic and
the resultant operational impacts.
Weekly meetings were held with contractors, line management
and the COO to ensure alignment and understand challenges in
addressing COVID-19 impacts.
Over and above quarterly reports to the Board, the COO and
CFO meet with a non-Executive Director about operational
governance on a weekly basis.
Weekly cash flow meetings with Letšeng are held and line
managers submit a monthly operational report to both the
COO and CFO, which provides performance feedback on
metrics involving:
• health and safety;
• COVID-19 testing and management;
• production and operational performance;
•
•
TSF management and monitoring; and
current projects’ progress discussions.
Safety
Letšeng’s approach to safety is built on the culture of behaviour-
based care at work and a commitment to zero harm. The Group’s
intensified focus on safety and the benefits of visible leadership
and training is evident in the positive operational safety trends
seen in 2020. One LTI was recorded at Letšeng during 2020
(2019: seven); and the LTIFR decreased to 0.04 (2019: 0.28). The
Group reported the lowest AIFR in a decade after the AIFR
improved to 0.76 (2019: 0.97). Although the focus on the Safety
Turnaround Strategy implemented in 2020 saw a decrease in
LTIs during 2020, management has also implemented pro-
active actions to prevent the recurrence of certain near-miss
incidents that could potentially have severe outcomes. Letšeng
is putting into effect a strategy to reduce LTIs, and to ensure
behaviour-based care is integrated at the operation to continue
to reduce all safety incidents. There were no LTIs during 2020 at
Ghaghoo or anywhere else in the Group.
Strategic report • Performance review • Governance • Financial statements • Report on payments • Additional information
Gem Diamonds Limited Annual Report and Accounts 2020 44
45
OPERATIONAL REVIEW CONTINUED
OPERATIONAL REVIEW CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
KPI
Fatalities
LTIFR
AIFR
Operations
KPI
Ore mined
Ore treated
Carats recovered1
Carats sold
Average price per carat
Unit
Number
200 000 man hours
200 000 man hours
2020
0
0.04
0.76
2019
% change
1
0.28
0.93
(100)
(86)
(19)
Unit
tonnes
tonnes
carats
carats
US$/carat
2020
2019
% change
5 594 639
5 436 396
100 780
99 172
1 908
6 297 805
6 707 791
113 974
111 292
1 637
(11)
(19)
(12)
(11)
17
Letšeng suspended operations and placed the mine on care
and maintenance from 28 March to 26 April in compliance with
the Government of Lesotho’s lockdown order. Mining and ore
treatment restarted in a phased approach in April and ramp-up
to full production at both treatment plants was achieved in May,
with waste mining recommencing in July, in accordance with a
revised 2020 mine plan.
Waste tonnes mined decreased 35% to 15.6 million tonnes from
24.0 million tonnes in 2019, impacted by the shutdown of
operations in Q2, the focus on cash preservation and based on a
revised 2020 mining plan. Availability of primary waste diggers and
waste hauling trucks was lower than call due to reduced availability
of critical spares and maintenance services, largely as a result of the
imposed COVID-19-related lockdowns and travel restrictions.
Ore tonnes treated during 2020 of 5.4 million tonnes comprised
4.5 million tonnes treated by Letšeng’s plants (2019: 5.6 million)
and 0.9 million tonnes treated by the third-party processing
contractor Alluvial Ventures (AV) (2019: 1.1 million). Of the total ore
treated, 2.6 million was sourced from the Main pipe, 2.8 million
from the Satellite pipe with only a negligible number of tonnes
from the Main pipe stockpiles. Ore tonnes treated was impacted
by the shutdown and phased ramp-up, the planned reduction in
processing feed rates to improve plant stability with the aim of
increasing diamond recoveries, electricity supply interruptions,
and an increase in planned maintenance to ensure equiment
reliability. Due mainly to the lost processing time during the
shutdown period and phased ramp-up in Q2, a higher proportion
of Satellite pipe ore was treated in 2020 to maximise revenue and
cash generation, particularly in the second half of the year. The
coarser and harder Satellite pipe material, however, negatively
impacts throughput capacity in the plants.
Total carats recovered in 2020 decreased 12% to 100 780 (2019:
113 974), largely as a result of no tonnes being treated during
the 30-day shutdown period and reduced tonnes during the
ramp-up phase.
The BT initiative to re-treat historic and current recovery tailings
through the mobile XRT sorting machine yielded 1 341 carats in
2020 (2019: 5 420 carats). The decrease compared to 2019 is largely
due to improved recoveries within the coarse recovery system and
the depletion of historic coarse recovery tailings material.
Overall grade for 2020 was 1.85cpht, an increase of 9% on the
1.70cpht realised in 2019 due to the higher contribution of
Satellite pipe ore in 2020, which has a higher grade relative to
Main pipe ore. The grade for the ore processed during the year
was in line with its expected reserve grade.
Large diamond recoveries
In 2020 Letšeng recovered 16 diamonds greater than 100 carats each (2019:11); and total diamonds recovered greater than 10 carats
increased by 5% 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
2020
2019
FY average
2009 – 2019
16
29
102
115
500
762
11
20
82
139
472
724
8
18
72
114
426
639
1
Includes carats produced from the Letšeng plants, the Alluvial Ventures (AV) plant and the tailings treatment plant.
Letšeng +100 carat diamonds
20
15
10
5
0
15
16
11
11
9
7
5
6
3
2012
2013
2014
2015-
2016
2017
2018
2019
2020
DIAMONDS RECOVERED PER ANNUM
Mineral resources and reserves
While studies related to the updating of Letšeng’s Resource and
Reserve Statement continued throughout 2020, there were
considerable delays due to the lockdowns in Lesotho, South
interpretation of results
Africa and Canada. Analysis and
progressed, including 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.
Bulk sampling of the various volumetrically significant subdomains
is ongoing within the mining and treatment production
schedules. The low grades of all kimberlites at Letšeng mean that
substantial bulk samples are required to collect sufficient
diamond data to confidently estimate grade and diamond value.
impacted by the relatively
The timeline for updating the Resource and Reserve Statement
internal geology
was further
recognised during the detailed petrographic studies on
historical and new core obtained during the 2017-2018 drilling
programme. As a result, additional core drilling is required to
confirm the classification of certain portions of the Resource as
Indicated.
The necessary additional core drilling commenced with a new drill
rig purchased in November 2020. This drilling programme was
designed to increase drillhole density in certain areas and confirm
internal contacts. Logging and sampling of the core will be carried
out at Letšeng in parallel with external petrographic analysis to
complete the work required for the Resource and Reserve
Statement and the supporting technical report.
Diamond sales
Travel and other COVID-19-related restrictions implemented in
many countries worldwide, and particularly in Belgium, Israel
and India, impacted on the Group’s sales process. Flexible tender
processes were successfully introduced in strict compliance
with COVID-19 health and safety protocols,
including
appropriate social distancing guidelines and sanitation
measures. This allowed for sales to be conducted by limited
tender and/or allowing clients to view diamonds virtually before
tendering. Additional rough diamond analysis information of
selected large high-value diamonds was provided to assist
clients who could not physically attend the tenders to virtually
view the diamonds prior to bidding on the tender platform.
Six rough diamond tender viewings were held in Antwerp and
one in Tel Aviv during the year. A total of 99 172 carats were sold
by Gem Diamonds Marketing Services (2019: 111 292). Letšeng
generated rough diamond revenue of US$189.2 million
(2019: US$182.0 million), at an average price of US$1 908
per carat (2019: US$1 637).
Capital projects
Capital requirements for 2020 were reviewed as a result of
COVID-19 with savings realised and a portion of planned capital
expenditure deferred to future years. During the year, the limited
capital spend related to the progress of the resource and reserve
statement, the expansion of the Patiseng Tailings Storage Facility
and the initial design work to replace the ageing primary
crushing area (PCA). Details of overall costs and capital
expenditure incurred at Letšeng during the period are included
in the CFO’s report on pages 36 to 42.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
46
47
OPERATIONAL REVIEW CONTINUED
OPERATIONAL REVIEW CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Business Transformation (BT) and Continuous
Improvement (CI)
The Group’s Business Transformation (BT) programme started in
2018, with the goal of delivering US$100 million in revenue,
productivity and cost savings (against the 2017 base) by the end
of 2021. 325 initiatives were identified to create a step change in
efficiency, productivity and cost management, and to position
Gem Diamonds favourably in its peer group. The BT programme
included four primary workstreams – mining, processing,
working capital and overheads, and corporate activities.
The target included US$7.1 million in once-off savings and
US$92.9 million in cumulative recurring annualised benefits
over the four-year period. This target
is stated net of
implementation costs, consultant fees and an employee
incentive plan that rewarded the successful delivery of initiatives
contributing to the overall target.
The successful implementation of the underlying initiatives over
the past three years created a solid operational, financial and
cultural platform for the Group to navigate the challenging
operating environment over the past few years and more recently
to absorb the external shock of the COVID-19 pandemic. The
process underpinning the material initiatives that contribute to
the US$100 million target are embedded and sustainable and,
notwithstanding the 30-day shutdown and reduced operations
in Q2 2020 which negatively impacted certain of the initiatives,
the full delivery of the target by end 2021 remains on track. By the
end of the year, the BT programme delivered US$79.2 million of
the target.
BT programme annual cash saving (US$ million)
CUMULATIVE
SAVING
21
2
1
13
5
2018
55
3
2
12
79
100
3
3
2
4
2
4
17
2019
16
2020
11
2021
MINING
PROCESSING
WORKING CAPITAL AND OVERHEADS
CORPORATE ACTIVITIES
2020
2021
2019
2018
Many of the BT processes focused on improved efficiencies in
the use of our natural resources, which also mitigate the
operational impact on the natural environment. This supports
the Group’s strategy of maximising benefit for our communities
and minimising our impact on the environment.
(using
The transition from BT to CI at Letšeng is progressing well. CI
focuses on behavioural strategies and the implementation of
indicators for effective visual
meaningful key performance
management and problem
the 5-WHY
solving
methodology) at all levels. CI, supported by software training,
enables the Group to continuously improve efficiencies by
unlocking the inherent capabilities of employees at all levels to
implement CI best practices, build effective teams , drive
incremental
improvements and create a high-performance
culture. The successful implementation of CI in the Mining area at
Letšeng has resulted in marked operational efficiencies, such as
improved adherence to drilling parameters and blasting quality,
during 2020. Roll-out to the Treatment and Services areas has
commenced. Taskforce members
in Treatment have been
identified and they have undergone the introductory training.
4 300
HOURS
of CI, leadership, visual management
and problem solving
700
EMPLOYEES
introduced to CI
Dam safety and integrity
Tailings dam integrity is an ongoing area of focus for mining
companies and investors, in recognition of the possible adverse
impact that a failure at one of these facilities may have on
human lives and the natural environment. Letšeng has three
dams on site – (i) the Patiseng tailings storage facility (TSF),
which is currently in use for the deposition of coarse and fine
slimes tailings, (ii) the old TSF, which is a semi-dormant facility
currently used only for emergency deposition of fines tailings,
and (iii) the Mothusi Dam, which is the mine’s freshwater supply
resource. These dams were constructed using the ‘centre line
and downstream tipping’ method1. Most recent dam failures
reported in the mining industry were related to dams built
using ‘upstream’ construction methods.
The relevant details of these facilities are available in Gem
Diamonds’ voluntary disclosure as part of the Investor Mining
& Tailings Safety initiative set up by the Church of England,
found under the Company’s name at
which can be
http://tailing.grida.no/
. Read more about progress in 2020
on page 50.
Reducing diamond damage
The unique diamond distribution
in Letšeng’s orebody
comprises a high proportion of larger high-value Type II
diamonds that are more susceptible to damage in mining and
processing. Reducing diamond damage therefore provides an
important opportunity for Gem Diamonds to 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.
Over the last five years, Gem Diamonds has made significant
progress in identifying, validating and testing technologies from
various industries that show potential for early detection and
non-mechanical liberation of diamonds.
Following the successful proof of concept, the Group’s wholly
Innovation Solutions,
owned subsidiary, Gem Diamonds
constructed and commissioned a pilot plant at Letšeng in 2019
to test the technology under operating conditions. The pilot
plant combines scanning technology that uses proprietary
imaging and sorting algorithms to detect diamonds within
kimberlite with high-voltage pulse power for non-mechanical
fragmentation of composite materials
the
encapsulated diamonds.
liberate
to
the
impacted by COVID-19,
A steering committee is in place to oversee the project, chaired
by the CEO. Advancing of the pilot during the year was
negatively
revised capital
expenditure plan, inconstant electricity and water supply, and
challenges with the reliability of certain key components. The
work done to date demonstrates the potential of the technology
to reduce diamond damage and the Group remains committed
to the project. New partners were identified to advance the
pilot processing plant to detect diamonds within kimberlite and
further enhancement and testing will continue in 2021.
Providing clarity for customers
Increasing consumer interest in social and environmental
factors when making buying decisions, particularly among
younger consumers, provides an opportunity for ethical
and responsible producers like Gem Diamonds. Blockchain
technology is a way to securely link the source of rough
diamonds with the final polished diamonds, proving their
authenticity, provenance and traceability, and supporting
ethical sourcing and processing in the diamond value chain.
Solutions currently available offer consumers information
about the country of origin of their diamonds, as well as the
positive impact the mine and the broader industry have on
the communities and countries in which they operate. We
have been participating in the GIA’s Diamond Origin
programme since the start of 2020 and have been sending
large, high-value diamonds for rough analysis as time and
lockdown regulations allow.
FUTURE FOCUS AREAS 2021
Our focus to further reduce waste stripping will continue. An
analysis was completed in 2020 to further steepen pit slope
angles. A trial to further steepen the west side of the Satellite
pipe is scheduled to commence in H1 2021.
Following the completion of the design work of the replacement
PCA, the application for funding continues while the appropriate
timing for the commencement of the project
is being
considered.
1
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.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 202014EMPLOYEESfrom across the levels part of CI Steering Committee15CHAMPIONStrained25EMPLOYEESmaking up taskforces12EMPLOYEESupskilled and accredited as trainers through ‘train the trainer’ principle 48
49
SUSTAINABILITY
SUSTAINABILITY CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
HIGHLIGHTS
•
Lowest AIFR in a decade at 0.76
• US$1.1 million spent implementing the COVID-19
response plan at Letšeng
•
•
The Group implemented a risk mitigation-based Safety
Turnaround Strategy at Letšeng
ISO 14001 and 45001 certification retained
UNITED NATIONS SUSTAINABLE
DEVELOPMENT GOALS
The United Nations Sustainable Development Goals (UN SDGs)
are a call for action by all countries to promote prosperity while
protecting the planet. They recognise that ending poverty must
go hand in hand with strategies that build economic growth
and address a range of social needs, including education, health,
social protection and job opportunities while tackling climate
change and protecting the environment. Focused support of
the UN SDGs reflects a growing trend among companies to
align their existing business practices with broader societal
goals. The world’s top risks, as described in the World Economic
Forum’s (WEF’s) Global Risks Perception Survey, are incorporated
in the UN SDGs. If businesses are to protect their future supply
chains and markets, these risks must be addressed.
Through our sustainability principles, a direct link exists between
the three key priorities underpinning Gem Diamonds’ strategy, the
delivery of maximum value for stakeholders, and the UN SDGs.
Gem Diamonds has, for several years, aligned its sustainability and
business practices with the UN SDGs. The exercise has been
valuable in its emphasis on the mutual support between global
and local priorities, between business and sustainability outcomes,
and between the Company and its stakeholders.
Following extensive engagement, we have determined that the
next step in this alignment is the institution of a rolling three-
year cycle of commitment to specific UN SDGs to ensure a
targeted impact. The first three-year cycle commenced in 2020
and focuses on the following UN SDGs:
UN SDG 6: Sustainable management of water and sanitation
• UN SDG 1: No poverty
• UN SDG 3: Good health and well-being
•
• UN SDG 8: Decent work and economic growth
• UN SDG 10: Reduced inequalities
• UN SDG 12: Responsible consumption and production
More information on the strategy the Group has adopted
found on the sustainability reporting platform
can be
http://www.gemdiamonds-reports.co.za/reports/sd-2020/
working-towards-global-goals.php
CLIMATE CHANGE
The Group undertook extensive work during 2019 to assess climate
change-related risks. The work was primarily focused on our
flagship operation, Letšeng, and the approach taken was aimed at
identifying both current and future climate change-related risks.
Following this work, a climate change adaptation plan (CCAP) was
developed and adopted by Letšeng at the start of 2020.
The CCAP focuses on two main areas:
•
•
business continuity by adapting to climate change effects
and minimising Greenhouse Gas (GHG) production; and
ensuring safe and sustainable post-closure end land use
that can withstand the impact of extreme weather events
and meet closure objectives.
To reinforce this climate change-related work, the Group also
aligned the UN SDG framework goals with the climate change
management and mitigation goals.
Task force on Climate related Financial Disclosures
(TCFD)
Climate change is one of the most significant risks faced by
organisations today, and its short- and long-term impacts are
often misunderstood and therefore not adequately disclosed.
The TCFD is a voluntary disclosure platform to assist with guidance
regarding consistent climate-related finance disclosure.
During 2020 the Group was faced with challenges relating to
climate change, such as a regional drought in Lesotho. The
importance of making adequate climate change-related
financial disclosure is evident and well understood by Gem
Diamonds. The Group aims to include this information in
its 2021 financial year reporting.
Carbon footprint
In 2020, the total carbon footprint for the Group was
140 040 tCO2e (compared to 172 968 tCO2e in 2019), primarily
driven by electricity consumption and mobile and stationary
fuel combustion. This figure includes the direct GHG emissions
(Scope 1), energy-indirect GHG (Scope 2) emissions, and
material Scope 3 emissions. It 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
117 443 tCO2e, compared to 143 229 tCO2e in 2019. Less than
one percent of the Group’s total CO2 emissions resulted from its
UK-based operations.
The total Group footprint signifies a 19% decrease from 2019,
and an 18% decrease for Scope 1 and 2, on which the intensity
reporting is based. The observed decrease is the result of a
decrease in the use of diesel in both mobile and stationary
activities at Letšeng mine, attributable to the impact of the
COVID-19 pandemic and associated lockdowns.
Intensity reporting is required to demonstrate 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 decreased from 87.1 tonnes
of CO2e per employee in 2019 to 71.3 tonnes of CO2e per
employee in 2020. This was mainly due to an increase in the
number of employees and reduced activity throughout the year
due to the COVID-19 pandemic and associated restrictions. The
ratio for tonnes of CO2e per carat decreased to 1.34 in 2020,
compared to 1.52 in 2019. This represents a 12% decrease,
attributable to fewer carats mined and lower scope 1 emissions
and 2 emissions at Letšeng mine.
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 Group’s water uses, the risks associated with water use
and the impacts within the catchments where the Group
operates. As such, caring for water sources and monitoring
water usage are crucial practices both commercially and morally
and help the Group maintain its social licence to operate.
In 2020 the total water withdrawal for the Group was
5 213 064m3, an 8% decrease in the volume used in 2019
of 5 635 805m3. The key factor in the decreased water
consumption for the Group was reduced activities at Letšeng
due to COVID-19-related restrictions. In 2020, the total water
footprint for the Group was 45m3/carat (2019: 40m3/carat)
and 1.18m3 per ore tonne treated (2019: 1.19m3 per ore tonne
treated). The changes were directly related to the decrease
in tonnes treated and carats recovered in 2020.
Energy consumption
The Group-wide energy consumption (for Scope 1 and 2
activities)
in 2020 was 336 814 167kWh, compared to
382 740 833kWh in 2019. This represents a decrease in energy
consumption of 12% from 2019 to 2020, owing to decreased
use of diesel at the Letšeng mine. Scope 1 energy consumption
in 2020 was 274 175 556kWh. This represents a decrease of
12% from the 2019 figures, attributable to the decreased mobile
and stationary combustion at the Letšeng mine. Scope 2
energy consumption was 62 638 611kWh in 2020, a 10.5%
decrease from 2019. 98% of the Scope 1 and 2 energy
consumption in 2020 is attributed to the Letšeng mine, and less
than one percent of Scope 1 and 2 energy consumption
originated from our UK-based operations.
Energy conservation initiatives implemented in 2019 continued
at the Letšeng Mine, however most energy consumption
reductions in 2020 can be attributed to reduced operational
activities as a result of COVID-19-related restrictions.
CREATING A SAFE AND HEALTHY WORKING ENVIRONMENT
COVID-19
DETECTION
AND
MANAGEMENT
PROTOCOL
Identifying potential COVID-19 cases as soon as possible
before clinical care may be required
Isolating and quarantining potential COVID-19 cases off-site
to immediately mitigate the risk of transmissions of infection
to others
Mitigating the risk of the spread of COVID-19 to employees
and health professionals
Referring suspected and/or positive cases of COVID-19 either
for observation at the national COVID-19 health facilities or
home for mandatory self-quarantine
Supporting and consulting employees who are under
quarantine or may have been infected
Managing the impact on people and operations according to
the various official guidelines issued and practices adopted
across the global mining and minerals sector
The Group implemented
a Group-wide COVID-19
Detection and Management
Protocol at the start of the
pandemic to ensure the
welfare of employees,
contractors and
surrounding communities,
and to curb the spread of
COVID-19. The policies and
procedures were guided by
medical experts, various
host country regulations
and WHO
recommendations.
Processes and procedures
were adapted as expert
recommendations and
government regulations
evolved.
thermal
sanitising,
screening, X-ray
A wide range of precautions were implemented, including
regular
screening,
polymerase chain reaction (PCR) screening, COVID-19 serology
tests (rapid tests), promotion of sanitation measures, appropriate
social distancing, compulsory wearing of face masks, training
and counselling and the provision of personal protective
equipment (PPE).
During 2020, Letšeng conducted over 13 000 screening tests.
Employees with suspected cases of COVID-19 were safely
transferred to their respective residences or national healthcare
facilities for self-quarantine. Sadly, during the year, two
employees passed away while in quarantine, off site. To date,
seven employees from Letšeng and its contractors have passed
away from suspected COVID-19-related complications.
COVID-19 protocols and health and safety measures remain in
place and the Group continues to take all necessary precautions
to protect its people as part of its COVID-19 response. The Group
is working with the Government of Lesotho to secure vaccinations
for the workforce and local communities.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 50
51
SUSTAINABILITY CONTINUED
GOVERNANCE
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Dam safety and integrity
Tailings and water storage facilities, while an integral part of
mining, also present one of the most significant potential hazards
associated with the industry. Recent tragedies involving the
failure of tailings storage facilities have placed the mining industry
under intense scrutiny, highlighting the importance of risk
management at every stage of the lifecycle of a tailings and water
storage facility. Letšeng proactively manages and mitigates the
risk posed by both its TSF and raw water dam. The construction
methods, operating procedures and inspections of the old and
recently constructed tailings and water dams have been reviewed
internally and with independent expert consultants. The dams
are built and maintained according to sound structural and
environmental standards that align with international best
practice guidelines.
Letšeng has implemented a stringent dam safety management
system encompassing daily, weekly and monthly safety checks
and inspections by internal experts as well as quarterly and
annual audits by independent professional engineers. Any risks
identified through the safety management system are mitigated
and any required remedial steps are implemented immediately.
Dam safety is a standing agenda item at operational HSE
subcommittee meetings, operational Board meetings, Group
Sustainability subcommittee meetings, and Group Board
meetings, where findings from the stringent safety monitoring
processes are discussed and regularly reviewed.
A comprehensive emergency management and early-warning
system has been implemented by Letšeng to ensure any PACs
located downstream of the facilities receive early warnings in
case of an emergency. The communication and alarm systems
are frequently tested and, to ensure the emergency readiness of
response teams and communities, drills involving the mine site
and downstream communities are held regularly. Training and
awareness programmes have been implemented on site and at
surrounding communities.
The International Council on Mining and Metals (ICMM), the
United Nations Environment Programme (UNEP) and the
Principles for Responsible Investment (PRI) co-convened the
Global Tailings Review to establish an international standard for
the safe management of tailings storage facilities. The resulting
Global Industry Standard on Tailings Management was launched
in August 2020. A Senior Independent Technical Reviewer (SITR)
was appointed in the third quarter of the year and introduction/
awareness sessions were held with the Gem Diamonds
Executive Committee as well as the Letšeng Management
Committee. A technical visit to the mine was undertaken in
November 2020; and the compilation of a draft Independent
Tailings Review Board (ITRB) structure and Terms of Reference is
underway. The Group has implemented processes to proactively
assess conformance to the new standard and to develop an
action plan to close any identified gaps.
OPTIMISING SOCIO-ECONOMIC BENEFIT
Lesotho is classified by the World Bank as a lower-middle-
income country with high levels of unemployment, inequality
and poverty. The Group therefore has a significant responsibility
to contribute positively and sustainably to PACs through
excellent social practice and stakeholder engagement. To fulfil
this responsibility, the Group set out to implement an ambitious
in 2020. However, the global COVID-19
CSI programme
pandemic and associated restrictions had a significant impact
on the programme and a number of planned projects were
delayed to 2021.
The Group invested US$0.3 million in social initiatives during
2020. The Group supports initiatives that benefit its PACs in the
areas of health, education,
infrastructure development,
development of small to medium enterprises and environmental
protection. It also makes donations to relevant causes. COVID-
19-related aid and education were the two categories that
received the majority of the investment in 2020, followed by
infrastructure.
COVID-19 Community investment
Gem Diamonds engaged extensively with stakeholders such as
government, medical experts and surrounding communities in
designing its response to and protocols for the COVID-19
pandemic, to protect employees and contractors, and to
support Lesotho at a local and national level.
Letšeng partnered with the Government of the Kingdom of
Lesotho and the Ministry of Health to raise awareness regarding
COVID-19 and distribute PPE and sanitiser in 10 villages in the
neighbouring Mokhotlong District. Training and support
programmes were rolled out to educate the workforce and
surrounding communities on COVID-19, the correct use of PPE,
and the importance of social distancing and proper hygiene.
Forty-eight community health workers were trained to lead the
programmes in the surrounding communities.
Letšeng also provided necessary food parcels for those adversely
affected by the pandemic in surrounding communities.
At a national level, Letšeng supplied appropriate PPE and donated
a four-room mobile structure to the Ministry of Health to use as
a COVID-19 testing lab in Maseru.
PRIORITISING ENVIRONMENTAL
PROTECTION
The Group has a duty of care for the natural environment where it
operates. It takes this duty seriously and implements operational
environmental management plans that aim to minimise, manage
and mitigate potential environmental impacts.
The environmental management system at Letšeng is aligned
with the ISO 14001 standards and was audited and recertified in
2020. No major or significant environmental incidents occurred
at Letšeng for the twelfth consecutive year.
Effective water management is key to the Group’s success and
the integrated water management plan continues to be
implemented at Letšeng to safeguard ground and surface water
resources. During 2020 work was done to manage both quantity
and quality impacts of operational processes on water.
Because mining has a finite lifespan, the Group has engaged
with independent experts at both Letšeng and Ghaghoo to
understand the quantum of work to be done to ensure safe and
responsible mine closure at end of life of mine. The Group’s
rehabilitation plans and resultant liability are externally reviewed
on an annual basis. In 2020 the Group rehabilitation provision
amounted to US$16.1 million. During 2020 Letšeng embarked
on rehabilitation work on the Old Tailings Storage Facility (TSF)
as well as the decommissioning of certain unused infrastructure
on site.
Strategic report • Performance review • Governance • Financial statements • Report on payments • Additional information
Gem Diamonds Limited Annual Report and Accounts 2020 52
53
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
CHAIRPERSON’S INTRODUCTION
TO CORPORATE GOVERNANCE
“Good governance is never a difficult decision and extends far
beyond oversight over financial performance.”
– Harry Kenyon-Slaney –
FOCUS AREAS 2020
For many Boards the pandemic presented a challenge to the
efficacy of governance processes and policies and required scrutiny
of the appropriateness of company culture, values and decision-
making ability. At Gem Diamonds it was our company vision and
the way we do things (refer page 3) that proved to be the foundation
to successfully negotiate the COVID-19 pandemic.
Many decisions had to be made in uncertain circumstances in
response to safety, operational and financial challenges. These
decisions were not difficult to make as our values of care, trust,
respect and flexibility set the direction for ethical and agile responses.
The Board’s and Committees’ primary focus areas included:
•
•
•
•
•
ensuring sustainable operations, keeping employees
and local communities safe and supporting the Lesotho
Government during COVID-19;
ensuring delivery of the objectives of the BT programme;
enhancing the risk management systems and processes;
maintaining disciplined financial control to increase cash
realisation and repay debt; and
considering an appropriate capital return strategy to
shareholders.
FACTORING OTHERS INTO DECISION-MAKING
Fair shareholder
engagement
•
Engagement p 16
• Conflict of interest p 62
Ethical business conduct
•
Culture, values and purpose p 3
•
Anti-bribery and corruption p 60
• Human rights p 60
•
Tax policy p 42
Impact of the community
and environment
•
TCFD p 48
•
SDGs p 48
UNEARTHING
UNIQUE
POSSIBILITIES
S172
Long-term consequences
• Capital allocation p 8
•
•
Business model p 6
Risk appetite and risk p 25
Employee interests
Engagement p 17
•
• Diversity p 65
•
Remuneration p 93
Other stakeholder interests
• Other engagement p 18
•
•
Supply chain p 19
Payments to governments p 176
CHAIRPERSON’S INTRODUCTION TO CORPORATE
GOVERNANCE CONTINUED
PRINCIPAL DECISIONS 2020
Please refer to our Committee reports on pages 69 to 109, which
document principal decisions taken by Board Committees as
part of their mandate of support to the Board.
FUTURE FOCUS AREAS 2021
The primary focus for 2021 will remain the safety of our
employees and PACs as we manage a second wave and
anticipate further waves of the pandemic in southern Africa.
With guidance from the Sustainability Committee we aim to
understand how the needs and perceptions of our stakeholders
are changing as the pandemic impacts on them.
Our Audit Committee will continue its more frequent and in-
depth investigation into risk practices and financial control.
This black swan event has highlighted the need for Boards to
consist of appropriate expertise and aptitude. I am pleased to
say that the skills and experience represented by Gem Diamonds’
Board and Executive Committee have proven invaluable. The
Board will continue to review the composition, skills, experience
and diversity of the Board and Executive Management, as well
as evolve the process for executive succession planning.
The Board conducts a formal annual evaluation of its own
performance, the performance of the Board Committees and
individual Directors. Details of the 2020 evaluation process and
outcomes are available on page 66. Outcomes will be actioned
in the coming year.
GOVERNANCE
I am pleased to report that for the year under review, we have
consistently applied the principles of good governance
contained in the UK Corporate Governance Code 2018 and
voluntary disclosures in relation to the Miscellaneous Reporting
Regulation (MRR). Further information on our compliance with
the Provisions of the Code, is available within our 2020
Compliance Statement.
HOW WE PERFORM OUR DUTIES
The main methods used by the Directors to perform their duties
include:
•
•
the annual strategy review, which considers the concerns
of key stakeholders and developments in regulations,
governance requirements, current market conditions
and the short-, medium- and long-term outlook
(see pages 21 to 24;
engagement monitoring with stakeholders to ensure the
Group is cognisant of their main concerns and interests
(see pages 15 to 20);
•
•
•
•
•
oversight of and responsibility for the Group’s risk
management processes to ensure key risks are properly
identified, assessed, mitigated and monitored;
alignment of the organisational culture with our purpose
and values and establishment of the ethical tone for the
Group;
external assurance from audits and certification in terms
of international management systems;
assurance provided by the Sustainability Committee to the
Board that appropriate systems are in place to identify and
manage health, safety and environmental risks; and
formal training or industry-specific insight sessions for
Directors and senior managers to help them fulfil their roles.
TRANSPARENT REPORTING
The Board and reporting team have applied their minds to
ensure the Annual Report and Accounts 2020 is transparent and
provides meaningful disclosures on our activities and values.
FURTHER ENGAGEMENT
The 2021 AGM will be held on Wednesday, 2 June 2021.
Details on arrangements for the meeting will be available in
the Notice of AGM.
If you have any questions on this report, any of the Committee’s
activities or wish to discuss any aspect of our governance
arrangements, please contact me or my fellow Board members
via our Company Secretary at ir@gemdiamonds.com.
SECTION 172(1) STATEMENT
The Board of Directors confirms that during the year under
review, it has acted to promote the long-term success of the
Company for the benefit of shareholders, while having due
regard to the matters set out in section 172(1)(a) to (f ) of the
Companies Act 2006, being:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company’s employees;
(c)
the need to foster the Company’s business
relationships with suppliers, customers and others;
(d) the impact of the Company’s operations on the
community and the environment;
(e) the desirability of the Company maintaining a
reputation for high standards of business conduct; and
(f ) the need to act fairly between members of the Company.
Harry Kenyon-Slaney
Chairperson
10 March 2021
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 54
55
GOVERNANCE AT A GLANCE
GOVERNANCE AT A GLANCE CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Good governance is not dependent on laws but on the principles
and qualities of those who govern them
GOVERNANCE FRAMEWORK
The Board
HIGHLIGHTS AS AT 31 DECEMBER 2020
Board and committee meeting attendance
UK CORPORATE GOVERNANCE
CODE- COMPLIANCE STATEMENT
100%
Board members’ aggregate years of experience
195 YEARS
Board gender diversity
14%
MAJOR BOARD DECISIONS
•
Review of the appropriateness of incentive calculations
• No political donations during 2020
•
•
Oversight of the Group’s response to COVID-19
Financial investment to COVID-19 responses
The Board confirms that for the year ended 31 December 2020,
the Principles of good corporate governance contained in
the 2018 UK Corporate Governance Code (the Code) have
been consistently applied. The Company fully complied
with all the provisions of the Code, except for Provision 11
and we have provided a full explanation on pages 62, 64
and 70 of the current approach and future considerations.
Page 55 illustrates how the Governance section has been
structured around the Principles contained in the Code.
KEY GOVERNANCE ACTIVITIES
•
Supporting and overseeing management’s response
to COVID-19
•
•
•
•
•
•
Monitoring the Group’s cash-preservation and
cash-generation initiatives
Overseeing, interrogating and approving the annual
strategy review
Reviewing and debating key risks and mitigating
actions with management
Overseeing progress achieved in the BT and CI
programmes
Assessing significant estimates and judgements
applied in the valuation of the carrying value of mining
assets and impairment testing in the context of the
impact of COVID-19 on pricing , production capabilities
and exchange rate fluctuations
Overseeing and supporting management’s
engagements with funders to restructure Group debt
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
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 and oversee the internal control framework
Considering the views of shareholders and other key stakeholders when making decisions
Ensuring adequate succession planning
•
•
•
• Approving changes to the Group’s capital and corporate structure
• Determining the remuneration policy
• Monitoring the effectiveness of and reporting on corporate governance
Our strategy
p 21
Our principal
risks and
uncertainties
p 25
S172 statement
p 53
Delegation of certain matters to Board sub-committees
There are six formally constituted Committees of the Board, each of which has specific terms of reference.
Standing and Share
Scheme Committee
•
Facilitate the
administration of the
Board’s delegated
authority.
Audit
Committee
(p 75)
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.
Nominations
Committee
(p 69)
•
Ensure formal, rigorous
and transparent
procedure for
appointment of new
directors to the Board;
•
•
•
•
Lead the process for
Board appointments;
Ensuring Board
composition is
regularly reviewed
and refreshed;
Oversee the
development of a
diverse pipeline for
succession; and
Work and liaise in
respect of any
remuneration package
to be offered to any
new appointment
of the Board.
Sustainability
Committee
(p 72)
•
Promote a culture of
zero harm and
responsible care;
•
•
•
Minimise
environmental impact
and reduce resource
consumption;
Achieve the goal of
sustainable
development; and
Review and monitor
the Group’s approach,
policies and measures
on health, safety,
corporate social
responsibility and the
environment.
Remuneration
Committee
(p 81)
•
Ensure remuneration
policy and practices
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
•
Ensure executive
remuneration is
aligned to purpose,
values and attainment
of long-term strategy.
The Board delegates the execution of strategy and the day-to-day management of the business to the Executive directors and management
Executive directors and management
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 56
57
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
DIRECTORATE AND EXECUTIVE
MANAGEMENT
DIRECTORATE AND EXECUTIVE MANAGEMENT CONTINUED
Gem Diamonds Non-Executive Directors meeting
Gem Diamonds Executive Directors and Executive Management meeting
Leave
1
2
3
4
5
1. HARRY KENYON-SLANEY
3. MIKE BROWN
5. MAZVI MAHARASOA
(60)
(60)
(51)
Independent non-Executive
Chairperson
Independent non-Executive
Director
BSc Geology (Southampton University),
International Executive Programme
(INSEAD France)
Chairperson
Member
2. MICHAEL LYNCH-BELL
(67)
Independent non-Executive
Director
BA Hons Economics and Accountancy
(University of Sheffield); FCA of the
Institute of Chartered Accountants in
England and Wales
Chairperson
Member
BSc Engineering; Mining PR Eng (ECSA)
Engineering (University of
Witwatersrand); Strategic Executive
Programme (London Business School)
Chairperson
Member
4. JOHNNY VELLOZA
(50)
Non-Executive Director
BSc Mining and Mineral Engineering
(University of Johannesburg), BSc
Business/Commerce General
(University of South Africa)
Member
Non-Executive Director
LLM International and Commercial Law
(University of Buckingham)
Member
Committee icons
Audit
Remuneration
Nominations
Sustainability
Summarised CVs available on page 182
Leave
7
9
6
8
6. CLIFFORD ELPHICK
(60)
Chief Executive Officer
BCom (University of Cape Town); BCompt Hons (University of
South Africa)
8. GLENN TURNER
(60)
Chief Legal and Commercial Officer and
Company Secretary
BA; LLB (University of Cape Town); LLM (Cambridge)
7. MICHAEL MICHAEL
(50)
Chief Financial Officer
BCom Hons (Rand Afrikaans University); CA(SA)
9. BRANDON DE BRUIN
(49)
Operations and Business Transformation Executive
BCom; LLB (University of the Witwatersrand); Attorney
(South Africa) and Solicitor (England and Wales)
Non-Executive Directors
Executive Directors
Executive Management
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
58
59
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
CORPORATE GOVERNANCE
STATEMENT
Board leadership and
Group purpose
Effective Board
Purposes, values and culture
Pages 58
to 60
STRUCTURE OF THIS SECTION
The Governance section aligns with the structure and Principles
(A to R) of the 2018 UK Corporate Governance Code (the ‘Code’)
and illustrates how we have applied the Code Principles and
complied with the Provisions.
1.
A
B
C
D
E
2.
F
G
H
I
3.
J
K
L
Governance framework and Board resources
Stakeholder engagement
Workforce policies and practices
Division of responsibilities
Board roles
Independence
Pages 60
to 64
External commitments and conflicts of interest
Key activities of the Board in 2020
Composition, succession and
evaluation
Pages 64
to 66
Appointments to the Board
Board skills, experience and knowledge
Annual Board evaluation
4.
Audit, risk and internal control
Pages 66
to 68
M Financial reporting
External auditor
Internal audit
N
O
Review of the Annual Report 2020
Internal financial controls
Risk management
5.
Remuneration
Pages 82
to 109
P
Q
R
Linking remuneration with purpose and strategy
Remuneration Policy review
Changes to policy and summary of process
Performance outcomes in 2020
Strategic targets
BOARD LEADERSHIP AND GROUP
PURPOSE
Effective Board
The Directors bring together a range of skills, knowledge and
perspective, with extensive experience in the mining industry
(see page 182). The Board’s focus areas (page 52) support the
guidance of the Code by promoting the long-term sustainable
success of the Company, generating value for shareholders and
contributing to wider society.
in November 2020 and
The Board oversees, interrogates and approves the annual
strategy review prepared by Executive Management. This year’s
review took place
included an
assessment of the continuing relevance of the strategy in the
current local and global context. The review is conducted with
an appreciation of the current and emerging risks that could
impact the Group (see page 25) and the degree to which the
current business model (see page 6) remains appropriate for
long-term value creation.
Key areas discussed by the Board during the strategy review
included:
•
•
alignment of the strategic priorities with the Group’s
purpose, vision, values and culture;
the strategy’s contribution to the achievement of the
Group’s vision in 2020, including its meaningful, sustainable
contributions to the countries in which we operate;
• performance against peers in the EMEA mining market;
•
•
•
•
•
review of the updated mining plan at Letšeng;
updates on the diamond market and the impact of recent
developments;
opportunities to unlock value across operations and
commodities, operational structure, capital restructuring,
use of technology, cost efficiencies and strategic
partnerships;
review of corporate activities; and
assessment of capital allocation policy.
The Board Committees support the Board by focusing on
specific areas of the business (see page 55) and reporting back
to the Board through their chairs to ensure that Board meetings
use time effectively.
CORPORATE GOVERNANCE STATEMENT CONTINUED
Purposes, values and culture
Workplace culture is measured against metrics such as turnover
and absenteeism rates; training data; recruitment; reward and
promotion decisions; whistleblowing, grievance and ‘speak-up’
data, board interaction with senior management and workforce;
promptness of payments to suppliers; health and safety data
and an annual employee culture survey.
Governance framework and Board resources
The Group’s corporate governance framework and processes
provide effective oversight of the business to ensure long-term
value creation and benefit for all stakeholders. Strategy
development and execution is supported by:
•
•
•
•
•
•
establishing clear lines of accountability and responsibility;
linking the strategic priorities to key performance
indicators that can be tracked to monitor delivery on the
strategy;
ensuring regular feedback and sharing of information to
inform timeous decisions;
engaging with key stakeholders to ensure their concerns
and interests are included where relevant (see page 15);
maintaining an effective risk management framework (see
page 25) aligned with the Group’s strategy and
performance objectives, and supported by comprehensive
internal controls and regular assurance; and
including independent insight and knowledge from the
non-Executive Directors.
The information supplied to the Board aims to strike a balance
that provides the depth necessary for effective debate without
being excessive. Where relevant, the person responsible for the
report attends the Board meeting to provide further information
and give Directors the opportunity to develop a deeper
understanding of the issue. External subject matter experts are
also invited to present in relevant areas to expose Directors and
Executive Management to a broader range of views.
Independent advice
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 compliance with all
governance matters and assists with professional development
as required.
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 Chairperson.
Company Secretary
The Company Secretary has access to an independent firm of
Chartered Secretaries in Public Practice. Bruce Wallace Associates
is engaged to ensure all company secretarial and governance
issues are attended to and the Board is apprised of all compliance
and best practice matters throughout the year.
Protection
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 employee has acted
fraudulently or dishonestly.
Stakeholder engagement
The Board recognises the enhanced responsibilities of the Code
for the Board to engage with its workforce and the wider
community of stakeholders. Pages 15 to 20 contains a detailed
analysis of stakeholder engagement during 2020.
Annual General Meeting (AGM)
Due to restrictions on travel and public gatherings at the time,
the 2020 AGM took place as a closed meeting. The meeting
addressed the formal resolutions in the notice of meeting and
shareholders were invited to submit questions in advance.
Voting on all resolutions was conducted by poll vote. The results
of the resolutions were announced through the Regulatory
News Services and on the Company’s website.
if any resolution put to
In accordance with the Code,
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. As discussed on
page 16, at the 2020 AGM three resolutions received more than
20% votes against and members of the Board and the Executive
Management team engaged in consultation with several of the
Company’s larger shareholders on the concerns raised. The
Company released an updated statement in December 2020
on actions taken in response to the votes received, which
can
Company’s website
www.gemdiamonds.com.
viewed
the
on
be
The 2021 AGM will be held on Wednesday, 2 June. 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 and sent to shareholders who requested to continue to
receive paper copies a minimum of 20 business days before the
meeting. Shareholders who receive electronic communications
can access the Annual Report and Accounts 2020 and the AGM
documentation through the Company’s website.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 60
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CORPORATE GOVERNANCE STATEMENT CONTINUED
CORPORATE GOVERNANCE STATEMENT CONTINUED
Workforce policies and practices
Employee policies and involvement
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 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 designed to attract
and retain top-calibre management and employees by creating
a work environment that incentivises enhanced performance.
Guidelines and frameworks covering remuneration benefits,
performance management, career development, succession
planning,
the
alignment of human resources management and policies have
line with
been
international best practice. Each operating unit manages its
human resources requirements locally, within the Group’s
guidelines and frameworks.
recruitment, expatriate employment and
implemented by the Group and are
in
The Modern Slavery Statement, in accordance with the Slavery
Act, is updated and published via the Group website annually.
Bribery Act
its employees,
involving any of
The Group has a zero-tolerance approach to acts of bribery and
corruption
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. The Group anti-bribery and corruption policy was
updated and approved by the Board in November 2020.
The updates comprised refinements and clarifications.
Refer to the Audit Committee Report page 75.
Whistleblowing programme
Employees can report any breach of the Group’s business
principles including, but not limited to, bribery, breaches of
ethics, and
independently operated and
confidential toll-free phone hotlines in each country where the
Group operates or through a confidential webpage.
fraud through
All whistleblowing incidents reported are referred by the Group
Internal Auditor or Company Secretary for investigation by the
relevant operations. Incidents 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 Group whistleblowing facility was successfully migrated to
a new service provider during the year and the Group Fraud and
Whistleblowing Policy was revised to reflect the new information
and to provide clarity on reporting lines in the event of
suspected improprieties.
The Board is satisfied that the whistleblowing programme is
being used correctly. During the year, 19 reports were received
and five test calls were made to test and verify the system
efficiency. Out of the 19 reports, 17 were closed before the
end of the year and two remain under investigation. The
engagement with an employee
(see
page 17) indicated that further training and awareness was
needed on the whistleblowing facility and this will be prioritised
in 2021.
forum at Letšeng
Data protection
The Group’s Privacy Policy can be found on its website
at www.gemdiamonds.com/privacy.php.
A dedicated
email address is available for any correspondence relating
to
queries
protection
is reviewed by
dataprotection@gemdiamonds.com which
the Chief Legal and Commercial Officer. No correspondence
was received during the year.
privacy
data
and
DIVISION OF RESPONSIBILITIES
Board roles
The governance framework on page 59 sets out the primary
role of the Board.
The Board meets on a regular basis focusing on strategic issues,
such as operational and 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 sufficient
time and appropriate resource allocation surrounding these
matters.
While all Directors have equal responsibility in terms of the law
for managing the Group’s affairs, Executive Management is
responsible for managing the business within the parameters
established by the Board and for producing clear, accurate and
timely information and reports to enable the Board to monitor
and assess the Group’s performance. The Board reviews financial
and operational performance at each meeting and receives
regular updates on the Group’s performance across a range of
metrics. Regular reports presented to the Board include health
and safety reports, tailings facility integrity reports, operations
reviews, sales, marketing and manufacturing reports, half-year
and full-year financial results, employee surveys, BT and CI status
and investor relations updates. Executive management draws
on the expertise and experience of the non-Executive Directors.
Directors are encouraged to express their views freely and,
where they have concerns about the running of the Group or a
proposed course of action, they may ask that these be recorded
in the minutes where appropriate. No such concerns were
raised during 2020.
Chairperson and Chief Executive Officer
The respective responsibilities of the Chairperson and the Chief
Executive Officer are clearly defined and separate. The Board has
operated on this basis for 14 years, thereby ensuring a clear
division of responsibilities between the leadership of the Board
and the executive leadership of the Company’s business.
The Chairperson 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,
align with the requirements of the Code and are detailed on the
following pages.
Roles of the Chairperson and Chief Executive Officer
Chairperson, Harry Kenyon-Slaney
CEO, Clifford Elphick
•
•
•
•
•
•
•
•
•
•
•
Ensuring effective operation and providing leadership to
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 the Board
comprises individuals with appropriate skill sets, experience,
knowledge and diversity and there are succession plans in
place for the Board and senior management team
Ensuring the Company maintains effective communication
with shareholders and the Board understands their views
and concerns
Working with the CEO to ensure the Board receives accurate
and timely information on the performance of the Group
Leading the annual 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 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 effective business and financial controls and risk
management processes are in place across the Group, as
well as compliance with all relevant laws and regulations
Making recommendations to the Board on the appropriate
delegation of authority within the Group
Keeping the Board informed about the performance of the
Group and bringing to the Board’s attention all matters that
materially affect, or are capable of materially affecting, the
performance of the Group and the achievement of its
strategy
Developing, for the Board’s approval, appropriate values and
standards to guide all activities undertaken by the Group
Providing clear and visible leadership in responsible
business conduct
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 62
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CORPORATE GOVERNANCE STATEMENT CONTINUED
CORPORATE GOVERNANCE STATEMENT CONTINUED
Roles of the Senior Independent Director and non-Executive Directors
Senior Independent Director, Michael Lynch-Bell
Non-Executive Directors
Key activities of the Board in 2020
Key activities of the Board in relation to various focus areas:
Acting as a sounding board for the Chairperson
Serving as an intermediary for other Directors if necessary
Acting as a sounding board for the Chairperson
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
•
•
•
•
Determining the Company’s policy for executive
remuneration, as well as the remuneration packages for the
Chairperson 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 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 information on the roles of Board Committees please refer www.gemdiamonds.com/investors-corporate-governance.php.
Independence
Non-Executive Directors are required to 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, ie 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 of the Code, they cannot be
considered independent due to their previous roles within the
Group. Both Johnny and Mazvi are members only of the
Sustainability Committee (previously called the HSSE Committee).
Our Nominations Committee report on page 69 discusses the
matter in more detail.
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.
External commitments and conflicts of interest
External commitments
External commitments are detailed in the Directors’ CVs on
page 182.
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, 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 2021). The Company voluntarily
complies with this requirement. The Board considered all
external Directors’ 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.
Related-party transactions
Other than those disclosed in Note 26 of the financial statements,
the Company did not have any transactions with, nor did it
make loans to, related parties during the period in which any
Director had any interest.
Operational
•
•
•
•
•
•
•
Oversight of the Group’s response to COVID-19
Oversight of Safety Turnaround Strategy implemented at Letšeng
Review of quarterly management reports on operational performance
Review and approval of the 2021 business plan
Oversight of progress achieved in the BT and CI programmes
Review of progress on technology initiatives
Updates on Mineral Resource Management and the mapping of resources
Strategy and financing
• Annual strategy review in November 2020
• Ongoing review of KPIs to assess delivery of strategy during the year
• Monitoring of the Group’s cash-preservation and cash-generation initiatives
•
•
•
•
•
•
•
Oversight of the process of ensuring access to funding facilities and rolling
over of debt falling due or expiring
Review and approval of planned capital expenditure
Review of risk management processes and updated risk register (including
emerging risks)
Review of updates from the Audit Committee on internal control and
assurance functions
Review of regular updates from the Sustainability Committee on health and
safety, environmental and CSI initiatives
Review of the impact of the increased risk perception of insurance markets
on risk management
Regular review of financial performance and position
• Monitoring of cash flow forecasts
•
•
•
•
•
Review of updates from the Remuneration Committee on key focus areas
Review and approval of quarterly updates, interim results and final results
and the relevant announcements
Review and approval of the 2019 Annual Report and Accounts, and the
Sustainability Report
Monitoring and maintenance of the separation of roles between
Chairperson and CEO
Annual review and update of Committee terms of reference and evaluation
of Committee composition
• Approval of appointments to the Board Committees
•
•
•
•
•
•
•
Review and approval of updates to key policies
Participation in annual evaluation of the Board, Committees and Directors
Review of regular governance updates from the Company Secretary
Review of matters reserved for the Board
Review of Directors’ independence and conflicts of interest
Engagement with significant shareholders and the Remuneration Committee
regarding the votes against resolutions 14, 15 and 16 at the 2020 AGM
Refer pages 15 to 20
• Measuring the Group’s culture through an annual employee culture survey
and other approved metrics
Risk management and
internal control
Corporate and
performance reporting
Governance
Stakeholder engagement
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
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CORPORATE GOVERNANCE STATEMENT CONTINUED
CORPORATE GOVERNANCE STATEMENT CONTINUED
Meeting attendance
Four scheduled Board meetings and two special meetings of the Board were held during 2020. The terms of reference for the Audit,
Nominations, Sustainability and Remuneration Committees can be viewed on the Group’s website together with the matters reserved
for the Board. www.gemdiamonds.com/investorscorporate-governance.php.
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, recorded and ratified as necessary, at the following Board meeting.
100% attendance of all members at the Board and subcommittee meetings during 2020.
Director
Executive Board members
C Elphick
M Michael
Non-Executive Board members
H Kenyon-Slaney
M Lynch-Bell
M Brown
J Velloza
M Maharasoa
Board:
6 held
Audit:
4 held
Remuneration:
4 held
Nominations:
4 held
Sustainability:
4 held
6/6
6/6
6/6
6/6
6/6
6/6
6/6
N/A
N/A
N/A
4/4
2/2
2/2
2/2
N/A
N/A
4/4
4/4
4/4
N/A
N/A
N/A
N/A
4/4
4/4
4/4
N/A
N/A
N/A
N/A
2/2
N/A
4/4
4/4
4/4
M Brown joined
H Kenyon-Slaney joined
Audit Committee
J Velloza and M Maharasoa
stepped down
September 2020
Sustainability
Committee
Non-Executive Directors’ meetings
The non-Executive Directors meet
independently of the
Executive Directors, in accordance with the practice adopted by
many listed companies.
COMPOSITION, SUCCESSION AND
EVALUATION
Appointments to the Board
The Code requires that the procedure for appointing new
Directors is formal, rigorous and transparent, and appointments
are made on merit, against objective criteria and with due
regard for the benefits of diversity on the Board. Recruitment to
the Board has, since 2007, been based on recommendation. In
line with the Nominations Committee’s objective to review the
composition of the Board, Jack Hammer Executive Search has
been appointed as an independent, external search consultant
to assist with this process. Neither Jack Hammer, nor any of the
other companies in the same group, provides other services to
the Group or is in any other way connected to the Group, and
therefore Jack Hammer is considered to be independent.
The Board comprises a broad and 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 required by the business. Further details
are included in the Nominations Committee Report.
Re-election
The Nominations Committee’s section of this report is set out on
pages 69 to 71. The Articles of Association (81) provide 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 90 and 92. 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 enable
the Board and its Committees to conduct their respective duties
and responsibilities effectively.
Board skills, experience and knowledge
The Board annually reviews the composition and chairmanship
of its primary Committees, namely the Audit, Nominations,
Sustainability 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.
opportunities and enhancing the Group’s operations in sales
and marketing strategies.
Knowledge of financial markets is also necessary to ensure
fulfilment of the Group’s strategy. The CVs, which can be found
on pages 182 to 185, provide more information on each
Director’s competencies. All Directors allocate sufficient time to
the Group to fulfil their responsibilities effectively.
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 fostering new business
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 is vital to the
success of the Group.
Board skills and experience (%)
BOARD EXPERTISE
BOARD AND EXECUTIVE EXPERTISE
81
81
81
67
71
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
Technology/digital
Social media, communications
4
4
41
33
29
14
5
5
85
81
78
67
67
67
70
67
63
63
56
Board diversity
The Board recognises the
importance of the Hampton-
Alexander reviews as well as the Parker reviews and their
objective to improve gender and ethnic diversity in executive
leadership and senior management. Similarly, the Board is
conscious of the trends evidenced in the Code to increase
diversity in boardrooms. There is a focus from the Board on gender
Female
Ethnic minority
and ethnic diversity at Board level and in the succession pipeline.
The Group recognises the importance of diversity at all levels and
the diversity and inclusion policy covers both Board diversity and
the Company’s approach across the organisation. The current
succession pipeline for direct reports into senior management
reflects 33% gender and 70% ethnic diversity.
BOARD
14%
14%
SENIOR MANAGEMENT
17%
33%
0%
0%
100%
100%
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 66
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CORPORATE GOVERNANCE STATEMENT CONTINUED
CORPORATE GOVERNANCE STATEMENT CONTINUED
Succession planning is a key priority across the Group with a
focus on the development of women and ethnic minorities into
leading roles, which drives a diverse pipeline of talent.
Further detail on the Group framework to succession planning
can be found in the Nominations Committee report on
page 69.
More information on gender-based employment is contained
in the Sustainable Development Review on the Company’s
website www.gemdiamonds.com.
Training and induction
A formal and tailored induction is provided to new Directors on
joining the Board. This includes meetings with management
and access to external auditors and covers the Board Committees
they join. In addition, ongoing support and resources are
provided to Directors 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. Travel restrictions in
response to COVID-19 limited the opportunity for site visits
during 2020. Executive Directors and management visited the
operations on a regular basis as part of their day-to-day business
in the period before lockdown and again once travel restrictions
were eased. Mike Brown and Johnny Velloza visited Letšeng in
January and November.
Annual 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
individual
Directors. As the Board had previously undertaken an external
evaluation, it was agreed that an internal evaluation was
appropriate for this year. In September 2020, the Board
undertook an evaluation facilitated by Bruce Wallace Associates.
The review was initiated by the Board and arranged by the
Nominations Committee and covered both overall and
its Committees and
formulation, stakeholder engagement and
individual performance as well as effectiveness of the Board and
its Committees. The review took the form of a questionnaire
based on a number of themes including the Board and
Company’s response to events of the preceding months,
strategy
risk
management. The findings were consolidated into a report
which, along with a number of recommendations, was
circulated to all Directors and discussed at the November 2020
Board meeting. One-on-one meetings were held between the
Chairman and the non-Executive Directors to discuss the
outcomes of the Board evaluation and separate meetings
between the Chairman and the CEO will be held in early 2021.
The overall findings from the evaluation were positive and
demonstrated significant progress on some of the key findings
from
for
the previous year’s evaluation. Tactical areas
improvement were identified, including:
•
•
•
composition of the Board as it relates to independence
requirements;
the need to develop a thorough and transparent appointment
process in the event of Board appointments; and
the need to improve the effectiveness of stakeholder
engagement.
The Board and Committees are in the process of implementing
the recommendations from the evaluation.
AUDIT, RISK AND INTERNAL CONTROL
Financial reporting
The Board is conscious of its responsibility to present a fair,
balanced and understandable assessment of the Group’s
position and prospects and is satisfied that the Strategic Report
on pages 2 to 50 meets this obligation. The Responsibility
Statement of the Directors in respect of the Annual Report and
Accounts 2020 is set out on page 114.
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, which is prepared in co-operation
with all Group functions based on specified economic assumptions.
Performance is monitored and 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. 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.
External auditor
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 auditor, EY. These responsibilities are delegated to and
discharged by the Audit Committee.
The lead audit partner is based in Johannesburg, South Africa.
Further information regarding the appointment of EY SA is
detailed in the Audit Committee Report on pages 75 to 79.
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 their knowledge and belief,
there is no information relevant to the preparation of the
Auditor’s Report of which the Company’s auditor is unaware
and the Directors have taken all reasonable steps to make
themselves aware of any relevant audit information and
establish that the Company’s auditor is aware of that information.
A resolution to reappoint EY SA as the Company’s auditor and to
authorise the Board to determine the auditor’s remuneration
will be proposed at the 2021 AGM.
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 required
assurance that risks are being effectively managed and
controlled and the Group’s control environment is adequate
and effective.
The Group Internal Audit function is provided through an
in-house Internal Audit team supplemented by external industry
experts when required. The Group Internal Audit team reports
directly to the Audit Committee and
is responsible for
co-ordinating the Group’s risk-based audit approach and
evaluating its effectiveness. The team contributes 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.
Review of the Annual Report and Accounts 2020
The Board, supported by the Audit Committee, is responsible for
ensuring the integrity and completeness of the Group’s Annual
Report and Accounts and Half-Year Report. The Board reviews
the reports and applies its collective mind to their preparation
and presentation to ensure they provide a fair, balanced,
understandable and appropriate representation of the Group’s
performance, strategy and material risks.
Internal controls
The Board has responsibility for the Group’s overall approach to
risk management and internal control, which is embedded in all
key operations. In accordance with the Guidance on Risk
Internal Control and Related Financial and
Management,
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. 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 enhancing the value of shareholders’ investments and
safeguarding assets. The internal control systems have been
designed to manage rather than eliminate the risk of failure, to
achieve business objectives, and to provide reasonable but not
absolute assurance that the Group’s business objectives will be
achieved within the risk tolerance levels identified by the Board.
The system of internal control includes the controls over
compliance with regulatory and legal requirements.
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 75 to 79.
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
how these would be funded and 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
complete and, for material projects, steering committees are
established to monitor the progress against the approved plan.
Details regarding the Group’s capital expenditure decisions
during 2020 are available in the CFO’s review on page 36.
Commercial, legal and financial due diligence are carried out,
using external consultants as appropriate,
in respect of
acquisitions and disposals.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 68
69
CORPORATE GOVERNANCE STATEMENT CONTINUED
NOMINATIONS COMMITTEE
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Risk management
Risks are monitored continually and formally reviewed on a quarterly
basis.. 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 25 to 30 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 risk profile. This enables the relevant
management and all non-Executive Directors to holistically
review the risk, mitigate it and implement controls as necessary.
In prior years, risk was an agenda item in Board meetings. From
the start of 2020 a stand-alone risk review meeting was added
to the quarterly Board and Committee meetings to allow more
time to explore the risks fully and to test management’s
scenarios and plans. During these meetings, the Board reviews
the risk register and interrogates the most critical risks in detail,
debating mitigation plans with management.
REMUNERATION
Linking remuneration with purpose and strategy
The remuneration policy links executive remuneration to the
underlying health and performance of the Group through
relevant social and environmental indicators of performance.
The financial and non-financial KPIs used to measure
performance align with our strategy, which in turn supports the
Group’s purpose to Unearth Unique Possibilities.
Remuneration Policy review
Directors’ remuneration
is ultimately responsible
While the Board
for Directors’
remuneration, the Remuneration Committee, consisting of
for
independent non-Executive Directors,
determining the remuneration and conditions of employment
of Executive Directors, as well as the Chairperson. The Directors’
remuneration policy was updated in 2020 and approved by
shareholders at the 2020 AGM. During 2020 the Committee
reviewed the current policy in the context of matters raised by
responsible
is
shareholders and institutions. The Company will be submitting
a proposed amended 2021 remuneration policy to the
shareholders at the AGM. The details of the Directors’
remuneration policy and all Directors’ remuneration are detailed
in this report on remuneration on pages 81 to 109.
Changes to policy and summary of process
The proposed 2021 remuneration policy that will be submitted
to shareholders at the AGM for approval includes amendments
to reflect evolving practice. These include replacing the current
STIBs and ESOP with a single integrated incentive, reducing the
pay-out for threshold and target achievement for the new
incentive, implementing a plan to align Executive Directors’
pensions with that of the workforce, and introducing a one-year
post-termination shareholding
for Executive
Directors. The changes to the new policy are discussed in more
detail on page 83.
requirement
Performance outcomes in 2020
No adjustments were made to performance conditions set at
the beginning of the year to account for the impact of COVID-19
on the operations and the formulaic STIB outcome for the
business scorecard was 62.9% of maximum. The Remuneration
Committee applied its mind to whether the intended incentive
pay accurately reflects the current and likely future circumstance
of the business and considered the wider context of the
workforce as a whole to arrive at its decision to award 62.9% as
an outcome for the business scorecard.
Based on the performance to 31 December 2020, 65.9% of the
long-term incentive share awards made under the 2018 ESOP
will vest in March 2021, subject to continued employment at
that time.
The STIB business scorecard is shown on page 99 and the ESOP
award calculation on page 103.
Strategic targets
The proposed 2021 Gem Diamonds Incentive Plan (GDIP) will
reward performance 15% on personal factors and 85% on
business performance. This 85% business weighting is aligned
with the strategic focus areas Preparing for our Future
(10% weighting), Extracting Maximum Value (55%) and Working
Responsibly and Maintaining our Social Licence
(20%).
More information on the proposed GDIP scorecard is available
on page 107.
Harry Kenyon-Slaney
Non-Executive Chairperson
The role of the Committee is to:
•
•
•
•
ensure 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 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
as well as the Executive Committee;
• 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.
Membership as at 31 December 2020:
• H Kenyon-Slaney
• M Brown
• M Lynch-Bell
Other attendees:
• C Elphick
•
Secretary (Bruce Wallace Associates)
Nominations Committee skills and experience (%)
International experience
Industry
Financial
Stakeholder engagement
Operational
Risk management
Environmental, Social
Business development
Capital markets and deal making
Human resources
Regulatory
56
44
Marketing
22
Social media, Communications
11
100
89
78
78
78
78
67
67
67
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 70
71
NOMINATIONS COMMITTEE CONTINUED
NOMINATIONS COMMITTEE CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
2020 value-adding activities
Board effectiveness
The Committee considered the recommendations made during the externally facilitated 2018/19 Board
evaluation process and developed a plan for their full implementation. In addition, it oversaw the 2020 internal
Board evaluation, which covered Board, Committee and individual director performance. The details are
discussed on page 66.
The findings from the internal evaluation were discussed in November and reported to the Board. The
Committee will monitor progress on the implementation of the recommendations during the coming year.
Committee membership
The Committee and the Board acknowledged the valuable feedback received from investors in regular
meetings during the year and remain committed to complying with the provisions of the Code. Membership
of the Audit Committee was revised in September 2020 to ensure it now aligns with the recommended
composition. All Board Committees are now compliant with the provisions of the Code.
Future focus areas
The Committee will maintain its focus on ensuring the Board’s composition is strong and diverse, providing support and advice to
enable management to steer the Group in an increasingly volatile and fast-paced environment, while always promoting exemplary
governance practices in the boardroom.
The Committee will continue to monitor alignment of talent and succession planning throughout the organisation to the needs of the
business and to the Group’s long-term strategy. Development plans for potential successors will continue to be progressed during the
coming year.
2020 value-adding activities
Board composition
The composition, skills and independence of the Board remained key topics for the Committee during the year.
The objective of the Committee is to ensure that the Board retains a balanced composition and that all
members have the necessary skills and experience to contribute actively to the ongoing success of the
business.
In line with the UK Corporate Governance Code, the Committee assessed the independence of all non-Executive
Directors. This involved a review of both the external appointments held by each Director and of any potential or
actual conflicts of interests recorded. The Committee noted the external appointments held by Board members
which were considered to be in accordance with the parameters of the Code and to not affect their current duties
to the Board. Two non-Executive Directors, Johnny Velloza and Mazvi Maharasoa, are not deemed ‘independent’ in
accordance with the Code. However, as with other non-Executive Directors, their extensive experience of the
mining industry, and particularly the regional context within which the Group operates, is regarded as being
hugely valuable. All non-Executive Directors provide constructive challenge and robust scrutiny of matters that
come before the Board and, after careful consideration, the Committee and the Board were satisfied that both
Johnny Velloza and Mazvi Maharasoa demonstrate the qualities of independence in carrying out their duties. All
Board members were recommended for re-election and election at the 2020 AGM.
The Committee acknowledges that for the Board to be considered independent under the terms of the Code,
further adjustments need to be made to its composition. Work is underway to address the issue and as reported
on page 64, Jack Hammer Executive Search has been appointed as an independent search consultant to assist
with this. The Committee will be making recommendations to the Board during the course of 2021.
Succession planning
The Committee regularly reviewed succession planning across the organisation and developed a succession
framework that ensures that candidates have been identified to fill key roles in both planned and emergency
situations and that appropriate development plans are in place. The competencies and experience required in
the boardroom were regularly assessed as part of the succession planning process and the Committee will
continue to review the need to secure any particular or specific skills.
The Committee maintained regular oversight of executive succession planning and it reviewed the senior
management succession pipeline, considering emerging talent and key roles with a particular focus on maintaining
momentum on diversity. Development plans for potential successors will be progressed during the year.
Diversity
There remains a commitment to diversity in the boardroom just as the Company is committed to equal
opportunities at all levels within the organisation. The Committee continues to be supportive of this objective
during the year and focused succession planning on ensuring gender and ethnic diversity as well as ensuring
that a wide range of experience, backgrounds, perspectives and skills were available to facilitate effective
decision-making.
The Diversity and Inclusion Policy, approved by the Board in 2019, was rolled out across the organisation during
2020 as the Board and management continued to encourage a diverse and inclusive culture throughout the
business.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 72
73
SUSTAINABILITY COMMITTEE
SUSTAINABILITY COMMITTEE CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
Mike Brown
Non-Executive Director
The role of the Committee is to assist the Board in fulfilling its oversight
responsibilities 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
sustainability, health, safety, corporate social responsibility and the
environment.
Membership as at 31 December 2020:
• M Brown
•
J Velloza
• M Maharasoa
• H Kenyon-Slaney
Other attendees:
•
B de Bruin
• G Turner
• Group HSSE superintendent
•
Secretary (Bruce Wallace Associates)
Sustainability Committee skills and experience (%)
Industry
Environmental, Social
Stakeholder engagement
Operational
International experience
Human resources
Risk management
Financial expertise
Business development
Regulatory
89
78
78
78
67
67
56
56
44
44
Capital markets and deal making
22
Legal
33
Marketing
Technology/digital
11
11
2020 value-adding activities
Prioritising health and safety
The Committee continued to monitor critical health and safety matters during 2020, including:
•
•
•
The Group’s COVID-19 response plan;
Tailings and water storage management;
Safety Turnaround Strategy implemented at Letšeng; and
• Management of heavy vehicle and machinery related risks.
The Committee received regular reports on safety performance throughout the Group with particular focus on
the potential improvement opportunities stemming from near-miss incidents.
Emerging health and safety risks were identified throughout the year, in particular those related to COVID-19,
and the Committee monitored associated risks and the implementation of the mitigation measures.
A communication strategy focusing on behavioural safety, short-term contractor safety and mental health
management was reviewed by the Committee as part of its focus on overall safety. A risk-based approach to
incident classification and investigation was considered. The Committee also considered reports on the
integration of new global best practice standards into operational practices and will continue to monitor the
implementation of these where appropriate.
The Committee received feedback on independent audits conducted to provide assurance of safe and
responsible operational practices, supporting the identification of opportunities for improvement. These audits
included:
•
•
•
Legal compliance;
ISO 45001 occupational health and safety management;
Integrity of tailings storage and fresh water facilities; and
• Health and safety systems management.
Mike Brown and Johnny Velloza visited Letšeng on two occasions during the year, specifically focusing on
safety, tailings management and risk management with regards to heave machinery and equipment.
Progressing our corporate social responsibility
There were no major or significant stakeholder incidents recorded during the year. The Committee monitored
the impact of the COVID-19 pandemic on its PACs and oversaw the amendment of the corporate social
investment and engagement strategy. The implementation of the amended investment strategy included
donations of COVID-19 aid to surrounding communities. Further details are included in the case study below
as well as the sustainable development reporting platform http://www.gemdiamonds-reports.co.za/reports/sd-
2021/index.php.
The Committee reviewed the sustainability of community projects impacted by the national lockdown and other
COVID-19-related restrictions and monitored the implementation of projects that were able to continue as planned.
The Committee oversaw the voluntary submissions regarding the Group’s tailings management processes and
guided stakeholder engagement to ensure fair and transparent relations.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
74
75
SUSTAINABILITY COMMITTEE CONTINUED
AUDIT COMMITTEE
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
2020 value-adding activities
Minimising environmental impact
There were no major or significant environmental incidents recorded during 2020. The Committee continues
to monitor the environmental impact of the Group’s operations and oversees the various strategies aimed at
mitigating this impact.
The Committee received reports pertaining to the continuing regional drought in Lesotho and oversaw efforts
focused on water quality management and conservation. The Committee also oversaw rehabilitation work on
the old TSF at Letšeng.
The Committee received external non-financial audit reports on the management of environmental parameters
and resultant impact on the environment to benchmark the Group’s performance and identify improvement
opportunities. These reports included:
•
•
•
The Group Carbon and Water Footprints;
ISO 14001 Environmental systems audit; and
The social and environmental management plan compliance audit report.
Future focus areas
• Oversight and monitoring of continued COVID-19 impact and response
• Oversight and monitoring of the new corporate sustainability KPIs
• Monitoring the UN SDG framework adoption
• Monitoring the climate change adaptation plan
• Oversight and monitoring of safety focused initiatives and implementation of corrective actions
• Monitoring the continued implementation of appropriate global best practice standards
M Lynch-Bell
Chairperson
Non-Executive Director
•
Oversight and monitoring of the Group’s alignment with the recommendations of the Task Force on Climate-related Financial
Disclosures (TCFD)
Audit Committee skills and experience (%)
International experience
Stakeholder engagement
Industry
Risk management
Financial
Environmental, Social
Business development
Operational
Capital markets and deal making
Human resources
Regulatory
Legal
Marketing
Technology/digital
0
0
0
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.
Membership as at 31 December 2020:
• M Lynch-Bell
• M Brown
Other attendees:
• H Kenyon-Slaney
• C Elphick
•
J Velloza
• M Maharasoa
• M Michael
•
B de Bruin
• Group Financial Controller
External and internal audit
Secretary (Bruce Wallace Associates)
100
83
83
83
83
•
•
67
67
67
67
50
50
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 76
77
AUDIT COMMITTEE CONTINUED
AUDIT COMMITTEE CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
2020 value-adding activities
External auditor and audit effectiveness
During the year, the Committee fully considered the effectiveness, objectivity, skills, capacity and independence
of EY SA, considering all current ethical guidelines, and was satisfied that all criteria were met. The auditor’s fee
was approved as part of this process.
In advance of the 2020 audit, the Committee reviewed and assessed the appropriateness of the external
auditor’s plan, audit strategy, scoping, materiality and audit risks. 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, the continued treatment of Ghaghoo as a
discontinued operation and the application of IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations, COVID-19-related matters, deferred waste stripping calculation, taxation, rehabilitation provisions,
bank facilities and share-based payments. The key audit matter during the year was the uncertainty caused by
COVID-19 on the assumptions used to forecast the prospective financial information applied in the impairment
and going concern models as mentioned in the Independent Auditor’s Report on page 115. 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.
Following the audit, EY SA presented its findings to the Committee and met separately with the Committee
Chairperson to discuss key audit findings, judgements and estimates. This provided an opportunity to assess
the audit work performed, understand how management’s assessments had been challenged and assess the
quality of conclusions drawn. The Committee also made enquiries of senior management to obtain its feedback
on the audit process and considered this feedback in its assessment.
In line with the Code and the duty of the Committee to assess the effectiveness of the audit process, a detailed
audit assessment by way of a survey was carried out during the year. This survey enabled the Committee to
assess the extent to which the audit strategy was appropriate for the Group’s activities and addressed the risks
the business faced, including factors such as: independence, materiality, the auditor’s risk assessment versus
the Committee’s own risk assessment and the extent of the Group auditor’s participation in the subsidiary
component audits. The responses formed the Committee’s assessment of the effectiveness of the audit, citing
only some minor areas of improvement around the requirement for enhanced communication between the
Group audit team and senior management which could improve the efficiency of the audit process.
Auditor appointment and independence
The transition from EY UK to EY South Africa (EY SA) was completed in early 2019. The Committee remains
satisfied with the performance of EY SA and recommended its reappointment to the Board. The lead
engagement partner has served two of his five consecutive years. Other senior primary 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.
The provision of any non-audit service requires Committee pre-approval and is subject to careful consideration,
focused on the extent to which provision of such non-audit services may impact the independence or perceived
independence of the auditor. EY was engaged to assist with a limited number of non-audit matters, particularly
with regards to tax services during the first quarter of 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$17 944. This was against the external audit fee of US$471 749, representing 3.8%
of external audit fees. In September 2020 the Committee approved a revised policy on non-audit services, of
which the most material change was the prohibition of non-audit tax services by EY. The Company has appointed
PricewaterhouseCoopers (PwC) to perform tax-related services in jurisdictions where EY was previously engaged.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
2020 value-adding activities
Anti-bribery and corruption policy review and approval
The Committee approved an updated policy during the year. The Committee is satisfied that the policy remains
robust regarding compliance and diligence procedures. There were no incidents of bribery or fraud and
irregularities during the year.
Acting on whistleblowing
The Committee regularly received whistleblowing reports and monitored the actions and progress on the
matters that arose. During the year, 19 reports were received on the whistleblowing line of which 17 were
closed before the end of the year and two remain under investigation. The Committee found the actions taken
in response to these reports to be appropriate..
Monitoring internal audit
The principal matters to be reviewed by the Group Internal Audit team were reviewed by the Committee and
it continued to monitor management’s responsiveness to the findings and recommendations from the Internal
Auditor. Based on the disappointing safety performance in 2019, risk management effectiveness, vehicle safety
and dam safety were focus areas for Group Internal Audit during the year. In addition, various ad hoc reviews
and special investigations brought about by the COVID-19 pandemic were assigned to Group Internal Audit
during the year. The proposed 2021 Internal Audit plan was approved by the Committee and is linked to the
current risk profile of the organisation.
The Internal Audit Charter was reviewed and approved by the Committee in June.
The Committee assessed the effectiveness of Group Internal Audit during the year by conducting a survey
which included:
•
•
•
a self-assessment of the Committee on its responsibility for the effectiveness of the Group Internal Audit
function in the context of the Group’s overall risk management system;
an assessment by the Committee of the Internal Audit function focusing on Group Internal Audit’s
understanding of the Group, integrity and objectivity, independence, structure, resources, planning,
governance, reporting and relationships within the Group; and
an assessment by the Group management structure of the internal audit function focusing on Group
Internal Audit’s planning, execution of work, reporting, integrity, objectivity, independence, competence
and due professional care.
The responses formed the Committee’s assessment of the effectiveness of the Group Internal Audit which was
found to be effective. The Committee also considered if additional resources were required to extend the
internal audit function but concluded that the current structure was appropriate for the size and requirements
of the Group.
Risk management and internal controls
Although the Committee maintained its oversight on the principal and emerging risks during the year, in line
with the Code’s requirements for all Board members to focus on Risk Management, a separate quarterly Risk
Meeting was held as an extension of the main Board meeting with all Board members attending. The main risk
area that the Board concentrated on and considered was the impact of COVID-19 throughout the business
model. These are listed on pages 25 to 30.
The Committee reviewed the outcome of the annual insurance renewal process in light of the changes in the
insurance environment which drove increased premiums, lower insurance cover and increased deductibles.
These changes were largely brought about by the impact of COVID-19 on the insurance market, the increased
mining industry risk profile and an increase in the volume of global insurance claims. The Committee assessed the
appropriateness of the cover and the ability to transfer any potential financial implications of the risks materialising.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 78
79
AUDIT COMMITTEE CONTINUED
AUDIT COMMITTEE CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
2020 value-adding activities
Future focus areas
Priorities for the forthcoming year will be to:
•
•
•
•
monitor the appropriateness of the transfer of any potential financial implications of any risks materialising through insurance
markets;
continue to assess principal and emerging risks and consider the impact of COVID-19 on any of these risks;
continue to assess the quality and effectiveness of the external audit and the procedures and controls to ensure auditor
independence; and
ensure appropriate reporting against relevant sustainability standards such as the TCFD and UN SDG’s.
2020 value-adding activities
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 a review of the Audit Committee’s
performance within its remit.
Financial disclosure
The Committee continued to ensure that the Group’s Annual Report and Accounts 2020 and the Half-Year
Report 2020 were fair, balanced and understandable by challenging and debating the judgements made and
ensuring the information necessary for shareholders to assess the Group’s performance, business model and
strategy is provided. EY SA audited the Financial Statements from pages 113 to 173 for the year ended
31 December 2020 and issued an unmodified audit opinion in this regard.
The significant issues reviewed and challenged by the Committee relating to the 2020 results were:
(1) The assumptions in the Group’s financial forecasts incorporating the successful roll over of the Group’s debt
facilities and the status of forecast future covenant compliance, mitigating actions available to the Group,
and the appropriateness of the going concern and viability assumptions and related disclosures. The
Committee assessed the disclosures in the Annual Report and Financial Statements in respect of going
concern and covenant compliance and concluded that they were appropriate. Refer to Note 1.2.2, Going
concern on page 129 for further details.
(2) The significant estimates and judgements applied in the valuation of the carrying value of mining assets
and impairment testing, considering the impact of COVID-19 on pricing, production capabilities and
exchange rate fluctuations. The Committee critically reviewed the key assumptions and parameters
(diamond price forecasts and the impact of COVID-19 on the market outlook and foreign exchange rates
against current and forward rates) in the LoM plan for Letšeng that supported the impairment tests
performed by management, together with the sensitivity analysis performed under various scenarios. The
Committee noted the diamond price recovery in the LoM plan given the recovery of the diamond market
experienced in the second half of the year. Changes to the underlying operational plan, costs and capital
expenditure assumptions did not materially change the LoM valuation. There was no impairment charge
necessary and Letšeng’s carrying value remained above its recoverable value. The Committee further
reviewed the relevant disclosure in the Financial Statements to ensure compliance with reporting standards.
(3) The judgements applied by management in the continued assessment of Ghaghoo as a discontinued
operation, 18 months since its initial assessment, and the application of IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations to its results. The Committee assessed the delays caused in the
conclusion of the sales process, further exacerbated by COVID-19, and supported management
assumptions on the basis that the Company remains fully committed to the sale.
(4) The assumptions relating to the classification of tax uncertainties and the treatment and disclosure thereof
in relation to the amended tax assessment issued to Letšeng by the Lesotho Revenue Authority (LRA) in
December 2019, contradicting the application of certain tax treatments in the current Income Tax Act.
(5) The judgements applied by management in assessing the treatment and disclosure of costs incurred
during the shutdown period due to Government of Lesotho lockdown order as a result of COVID-19.
(6) The assumptions and judgements applied by management in assessing the residual values and useful lives
of assets at Letšeng to align these with the extended mining lease period and the resultant impact on the
current year depreciation charge.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 80
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REMUNERATION COMMITTEE
“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 shareholders.”
FOCUS AREAS 2020
•
Executive pay considerations in light of the global impact of the
COVID-19 pandemic
•
•
•
•
Effectiveness of short- and long-term incentive structures and alignment
with shareholder expectations
Executive pension alignment to the greater workforce
Executive in-post and post-cessation shareholding requirements
Workforce remuneration and related policies and the alignment of incentives
and rewards with culture
FUTURE FOCUS AREAS 2021
•
Determining whether the appropriate environmental, social and governance
(ESG) measures link to executive pay
•
•
•
Deciding on the appropriate performance conditions and setting targets
for incentive plans given the impact of COVID-19 and the focus on stabilisation
and business recovery
Reflecting on the composition of the total reward package for the Group and
consider if there are constituent parts which may discourage the promotion
of individuals from minority groups
Considering the effectiveness of enforcement methods for post-termination
shareholding requirements
M Lynch-Bell
Non-Executive Director
Chairperson of the Remuneration
Committee
STRUCTURE
Annual statement, which includes an ‘at a glance’ of remuneration decisions
2021 Remuneration Policy
Annual report on remuneration
Page 82
Page 86
Page 93
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ANNUAL STATEMENT ON DIRECTORS’ REMUNERATION
ANNUAL STATEMENT ON DIRECTORS’ REMUNERATION CONTINUED
ANNUAL STATEMENT
Dear shareholders
On behalf of the Board, I am pleased to present the Remuneration
Committee’s Directors’ Remuneration Report for 2020. The report
is presented in three sections: this Annual Statement, the Directors’
Remuneration Policy (page 86) and the Annual Report on
Remuneration (page 93).
Linking Executive Directors’ remuneration with
our purpose and strategy
Executive remuneration is focused on the underlying health
and performance of the Group, and considers key drivers
including relevant social and environment factors. Performance
metrics consist of both financial and non-financial KPIs linked to
our strategy, which in turn support the Group’s purpose to
unearth unique possibilities. These unique possibilities are
relevant for our employees, the communities in which we
operate and shareholders alike. Each strategic pillar is linked to
an element of remuneration as set out on pages 86 to 92 of the
Directors’ Remuneration Policy.
result of
initiatives generated as a
Remuneration decisions taken during 2020
The
the Business
Transformation process continued to be implemented at
Letšeng and across the Group. Despite the in-country lockdown,
subsequent operational shutdown and other COVID-19-related
challenges, significant progress has been made in 2020 with
US$79.2 million of the US$100 million four-year cost savings BT
target achieved. Flexible tender sales processes were instituted
in order to continue to generate vital revenue when travel and
other COVID-19 related restrictions were implemented in
countries worldwide. Despite the challenges of 2020, the Group
has managed a net
in cash during 2020 of
US$44.8 million which has increased the Group’s cash position
to
from US$10.2 million net debt at 2019 year-end
US$34.6 million net cash at 2020 year-end. The operational
diligence and progress on the Group’s strategic goals as well as
the 17% increase in the average price per carat of rough
diamonds sold during the year contributed to a 30% increase in
underlying EBITDA1. Earnings per share increased 92% and, even
though the share price closed the year 21% lower than at the
start, the share price trend was considerably better than that of
our peer group over this period. In light of these positive
financial results, the Board is recommending a dividend of
2.5 US cents per share.
increase
tiered
Temporary
salary cuts affecting directors and
management were implemented from the onset of the four-
week government imposed shutdown in April 2020. Following
the achievement of steady state operations and the cash flow
achieved through positive sales results, a decision was made in
September 2020 to repay affected employees 96% of the total
salary cut, which excluded the shutdown and ramp-up period
proportionally. Other employees incurred no salary cuts on their
basic pay, although Letšeng employees’ operational on-site
allowances were suspended for the period they were not on site
due to the government imposed shutdown.
Across the Group there were no enduring salary cuts as a result
of the impact of COVID-19. In this context, the Committee’s key
decisions during the year related to the following areas:
Short-term incentive bonus (STIB)
For 2020, 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.
The Committee agreed that it was not appropriate to make any
adjustments to the financial performance conditions set at the
beginning of the year to account for the impact of COVID-19 on
the operation, notwithstanding that the Lesotho Government’s
lockdown order resulted in Letšeng suspending operations for
effectively a six-week period. This impacted the achievement of
two operational KPIs within the STIBS scorecard.
The resulting formulaic STIB outcome for the business scorecard
was 62.9% of maximum. The Committee considered whether
the intended incentive pay accurately reflects the current and
likely future circumstance of the business and whether it reflects
the wider employee experience. It further considered the wider
context of the workforce as a whole and in particular that no
furloughed and no direct COVID-19
employees were
government support taken up. The Ghaghoo operation was the
recipient of a government subsidy of c.US$18k, as it was
prevented from undergoing standard non-COVID-19-related
operational restructuring . The subsidy had no material impact
on the Group’s financial performance or directors’ remuneration
outcomes. Continuing operations across the Group achieved its
respective 2020 STIB performance metrics which in turn resulted
in payments to employees. The Committee exercised no
discretion in determining the outcome of the STIB.
ESOP
Based on the performance to 31 December 2020, 65.9% of the
share awards made under the 2018 ESOP will vest in March 2021,
subject to continued employment at that time. The 2018 ESOP
rewards performance against relative total shareholder return
(TSR) against a tailored diamond mining peer comparator group
(25%), delivery of BT (25%), and profit and production (50%),
measured over three years.
The Company’s three-year TSR over the period was at the top of
the peer comparator group, which resulted in 100% of the
element vesting. 21.9% (out of a maximum of 25%) and 19.0%
(out of a maximum of 50%) of the BT and profit and production
elements will vest, respectively, based on performance over the
three-year period. The overall vesting level is 65.9% of the
maximum award.
The specific targets and outturns underlying these elements are
discussed in detail on page 103 of the Annual Report on
Remuneration. The Committee believes the formulaic vesting
outcome is a fair reflection of the Company’s underlying
performance over the three-year period to 31 December 2020
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.
1 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.
2
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 and insurance
premium financing).
Remuneration Policy review
The current remuneration policy was adopted at the Annual General Meeting (AGM) in June 2020. During 2020 the Committee reviewed
the current policy in the context of matters raised by shareholders and in relation to our ability to robustly measure TSR performance
against comparable companies, given the recent reduction in the number of listed diamond mining peers from eight to four, which was
largely due to reasons ranging from consolidation to delisting. The Committee considered how best to ensure the ESOP continues to be
a robust and relevant incentive that reinforces performance and how it can be structured to avoid sensitivity to uncontrollable factors
and challenges of long-term forecasting for a single asset company. We believe the time is opportune for a reset of the incentive reward
structure. The Company therefore proposes to replace the current STIB and ESOP with a single integrated incentive, the Gem Diamonds
Incentive Plan or ‘GDIP’, and will be submitting a proposed 2021 remuneration policy to shareholders at the upcoming AGM.
The GDIP has been developed to simplify the incentive arrangements by measuring performance over a single one-year performance
period, which then delivers a combination of cash and deferred shares. The overall time horizon of the GDIP, including its deferral
periods and post-vesting holding periods, and its mix of cash and shares have been designed to replicate the overall STIB and ESOP
structure it replaces.
The Committee also proposes several other changes to the current remuneration policy to ensure the remuneration structure reflects
evolving governance developments (see below). The Committee consulted major shareholders on these proposals prior to finalising the
details, and no concerns were raised in respect to the proposals.
Summary of proposed changes
The proposed 2021 remuneration policy introduces the following amendments to the 2020 policy:
Element
Remuneration policy 2020
Remuneration policy 2021
Long- and short-term
incentives
STIB opportunity up to 100% and ESOP
up to 125% of annual salary, totalling a
combined opportunity of up to 225%
STIB pay-out of 50% at threshold and
68% at target
Pension
Post-termination
shareholding
Pension for new Executive Directors
aligned with the workforce
Current CEO and CFO pension
respectively 14% and 13.5% of salary
No requirement
Implementation of the remuneration policy in 2021
The Executive Directors’ salaries were reviewed in February 2021,
considering relevant benchmarks and in-country inflation. The
review is in line with the general practice of considering the
wider workforce when applying inflation as a base for salary
increases across the Group. Based on all considerations including
current market conditions, the Remuneration Committee
determined that base salaries will remain unchanged.
For 2021, subject to the approval of the proposed 2021
remuneration policy, the annual bonus opportunity and the
ESOP award will be replaced with the GDIP which will have a
maximum annual award opportunity of 180% of salary
(compared to the previous STIB/ESOP combined opportunity of
225%). Group performance will continue to be measured with
reference to a business scorecard linked to the Group’s three
strategic focus areas: Extracting Maximum Value from Our
Operations; Working Responsibly and Maintaining Our Social
Licence; and Preparing for Our Future. Group performance will
be weighted 85% of maximum, with the remaining 15% linked
to personal performance.
The earned incentive will be paid 55% in cash and 45% in
deferred shares vesting in one-third annual tranches after one,
Replacing the STIB and ESOP with a single integrated
incentive (the Gem Diamonds Incentive Plan or ‘GDIP’) with
an opportunity of up to 180% of salary
Pay-out of 20% at threshold and 50% at target
The detailed structure of the GDIP is set out on page 106 of
the Annual Report on Remuneration
No change for new hires; incumbent director pensions to
reduce to 7.5% of salary over 5 years starting 1 April 2021 in
order to align with the wider workforce
The in-post shareholding requirement is maintained for a
period of 1 year following cessation of employment
two and three years, subject to continued employment and
good/bad leaver provisions over this period. Vested awards will
also be subject to a two-year post-vesting holding period,
during which time Executive Directors may not sell shares
except to cover tax. Malus and clawback provisions will apply
during the performance period and for a period of two years
following payment.
Please refer to pages 105 to 107 for further details on the
implementation of the proposed 2021 remuneration policy.
Engagement
I look forward to receiving your support at our 2021 AGM. The
Board considers it important that shareholders have the
opportunity to raise questions with the Board. As such,
shareholders are invited to send any questions that they may
have on this report, our proposed remuneration policy or in
relation to any of the Committee activities. Please feel free to
contact me through Minelle Zech, the Group Human Resources
Manager on mazor@gemdiamonds.com.
Michael Lynch-Bell
Chairperson of the Remuneration Committee
10 March 2021
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 84
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ANNUAL STATEMENT ON DIRECTORS’ REMUNERATION CONTINUED
ANNUAL STATEMENT ON DIRECTORS’ REMUNERATION CONTINUED
Fostering a culture of transparent and fair remuneration
which supports our purpose and strategy and is aligned with
wider workforce considerations
Remuneration at a glance
Basis of preparation
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.
TOTAL NON-EXECUTIVE FEE
£387 100
< £750 000
MAXIMUM AGGREGATE PER
THE ARTICLES
Proposed 2021 remuneration components in
summary
Component Key feature
Basic salary
•
•
Market-competitive base salary to
recruit and retain individuals
No prescribed maximum annual
increase
Benefits
Pension
GDIP
• No performance conditions
•
Cash allowance in lieu of non-cash
benefits
Retirement benefits that are
appropriately competitive
Alignment with wider workforce
over 5 years
•
•
• No performance conditions
•
Participants can receive a maximum of
up to 180% of their base salary
•
•
•
For threshold-level and target-level
performance, the bonus earned is up
to 20% and 50% of maximum
opportunity, respectively
Group scorecard targets may include
one or more of the three key strategic
priority areas
Awards to be delivered 55% in cash
and 45% in deferred shares vesting in
one-third annual tranches after 1, 2
and 3 years, and subject to a 2-year
post-vest holding period
100%
REMUNERATION COMMITTEE
ATTENDANCE
NO MALUS
OR CLAWBACK
PROVISIONS TRIGGERED IN 2020
Wider considerations for employees in 2020
+5%
inflationary based
increase to comparative
Approved
employees’ basic salaries effective from 1 January 2020
(excluding Directors)
14%
7.5%
Executive Director pension alignment over 5 years from
April 2021
Similar performance scorecards for management incentive
schemes across the Group
Pension and benefits No change
COVID-19 IMPACT ON REMUNERATION
96%
repaid of the total tiered salary
cuts over a six-month period for
directors and management. The
unpaid portion takes into
account the four-week
government imposed shutdown
and the subsequent ramp-up
period.
Deferred
annual
increases
for directors
2020
STIB
0%
salary
cuts on employees below
management level basic pay.
Letšeng employees’
operational on-site
allowances were suspended
for the period they were not
on site as a result of the
government imposed
shutdown.
ESOP
%
%
Individual
Group
Extracting Maximum Value
from Our Operations
Working Responsibly and
Maintaining Our Social Licence
20
80
60
20
Preparing for Our Future
Total
20
100%
TSR
Group performance
Underlying EBITDA
Earnings per share
US$ p/ct
Carats recovered
Total
25
75
18.75
18.75
18.75
18.75
100%
SHAREHOLDING
PROFILE OF SCORECARD
PERFORMANCE CRITERIA
Basic and shareholding
Target
CEO
CFO
100%
As a % of
salary
784%
As a % of
salary
26%
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 86
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DIRECTORS’ REMUNERATION POLICY
DIRECTORS’ REMUNERATION POLICY CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
REMUNERATION POLICY 2021
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 2021 AGM and, subject to shareholder
approval, will become effective from the date of the 2021 AGM.
The proposed policy is broadly consistent with the approved
2020 policy, with the exception of the changes highlighted in
the Remuneration Committee Chairperson’s Statement and
some non-significant changes as follows:
•
•
references to financial years have been updated where
appropriate;
references to performance measures have been updated
for the latest business strategy, as appropriate.
The Company’s remuneration policy is designed to provide a
level of remuneration which attracts, retains and motivates
executives of a suitably high calibre to manage the business,
implement the Company’s 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, will be
aligned with shareholder interests and will promote effective
management of business risk.
The Committee’s policy is to weight remuneration towards
variable pay in order 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,
incentives are
risk appetite and culture, and that the
appropriately capped.
How good governance informs policy design
The table below sets out the application of the Principles of the
Code as it relates to the design of remuneration policies and
practices:
Clarity
Simplicity
Risk
Proportionality
Predictability
Culture
Targets for annual cash and share awards are aligned to the Group’s strategic priorities. This
provides clarity to shareholders and other stakeholders on the relationship between the
successful delivery of the Group’s strategy and remuneration paid.
The remuneration policy is designed to be simple and clear while complying with all relevant
regulatory requirements and meeting shareholder expectations. The proposed 2021 policy
simplifies remuneration elements further by combining the STIB and LTI into a single GDIP.
The Committee is aware of the risks that can result from excessive rewards and believe that the
robust target setting and long history of applying discretion to formulaic outcomes reflects this.
Malus and clawback provisions in the remuneration policy further mitigate this risk.
The Committee’s overriding discretion ensures that remuneration outcomes are aligned with
Group performance. This year we have been particularly mindful of alignment with our workforce
when considering the right and proportional approach to salary cuts and incentive outcomes.
The proposed GDIP ensures a simpler but more predictable range of performance outcomes
that align with the business model, ensuring predictable pay outcomes that do not reward poor
performance.
As reflected in the Chairperson’s statement on page 82, the Committee considers overall pay
and conditions for employees across the Group as a whole when determining Executive Director
outcomes.
Personal and Group performance measures include non-financial metrics linked to the Group’s
purpose and culture.
Policy table for Executive Directors
Salary
Purpose and link to
strategy
To offer a market-competitive base salary to recruit and retain individuals of the necessary high calibre
to execute the Company’s business strategy.
Operation
Base salaries are reviewed annually with changes effective from 1 April.
Salaries are typically set after considering the salary levels in companies of a similar size, complexity
and risk profile, the responsibilities of each individual role, progression within the role, and individual
performance.
In setting salaries for Executive Directors, the Committee takes note of the overall approach to salary
reviews for the wider workforce.
Opportunity
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 higher increases to ensure salary
levels remain competitive.
Performance measures
N/A
Benefits
Purpose and link to
strategy
Operation
Opportunity
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.
Executive Directors receive a cash allowance in lieu of non-cash benefits.
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
Operation
Opportunity
To provide retirement benefits that are appropriately competitive.
Executive Directors receive a cash allowance in lieu of pension.
The CEO and the CFO receive pension benefits which will be aligned with that of the workforce over
five years starting from 1 April 2021 through annual reductions of 1.2% and 0.9% of salary for the CEO
and CFO respectively. On this basis, pensions for 2021 will be 13.3% and 12.1% of salary for the CEO
and CFO respectively.
Any new Executive Director will receive pension benefits aligned to those of the wider workforce
(currently 7.5%) at the time of appointment.
Performance measures
N/A
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 88
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DIRECTORS’ REMUNERATION POLICY CONTINUED
DIRECTORS’ REMUNERATION POLICY CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
GDIP
Purpose and link to
strategy
To drive and reward performance against financial and non-financial KPIs, as well as personal objectives,
all of which are directly linked to business strategy.
Operation
The GDIP 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.
Shareholding guidelines
The in-post 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 GDIP or any other share-
based incentive.
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.
Performance is measured over one year, and earned awards are delivered 55% in cash and 45% in
deferred shares, with shares vesting in one-third annual tranches after one, two and three years,
subject to continued employment and good/bad leaver provisions over this period. Vested awards are
also subject to a two-year post-vesting holding period.
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 180% of their base salary.
For threshold-level and target-level performance, the award earned is up to 20% and 50% 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 account for 85% of performance bonus in
any one year.
Details of the measures and weightings for the current year are provided in the Annual Report
on Remuneration.
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 2021
remuneration policy, or prior to the individual becoming a
Director, if 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 (GDIP)
Performance measures used
in the Company’s executive
incentive scheme – the GDIP – 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 non-financial measures used in the GDIP
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.
Performance targets are set to be stretching but 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 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.
(below Board
Senior management
level) employees’
remuneration is reviewed by the Remuneration Committee.
Senior management and management level employees
participate in an annual bonus scheme on a similar basis as
the Executive Directors, although the weighting on Group
performance measures increases with seniority and deferred
shares vary appropriately according to organisational level.
Other employees participate in an annual bonus linked to
operational metrics.
performance scenarios: fixed, at target, maximum, and
maximum plus 50%. Potential remuneration is calculated on
the incentive opportunities set out in the 2021 remuneration
policy applied to the salaries effective 1 April 2021.
The maximum GDIP is 180% of the salary.
The fixed scenario includes base salary, pension and benefits only.
The at-target scenario includes fixed remuneration as above,
plus target pay-out of the GDIP.
The maximum scenario includes fixed remuneration, plus full
pay-out and vesting of all incentives.
The maximum +50% scenario is the same as the maximum
scenario as the deferred share element of the GDIP is not subject
to performance conditions over the deferral period.
The assumptions are summarised in the table below:
in-post shareholding
The post-termination shareholding for Executive Directors
is
requires that the
maintained for a period of a year following cessation of
employment, to be achieved through the continued holding
of vested share awards granted after the introduction of the
2021 Remuneration Policy.
requirement
Pay for performance: scenario analysis for 2021
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
Component
Fixed
At target
Maximum
Maximum + 50% share price appreciation
Salary
Benefits
Pension
GDIP
(Cash)
GDIP
(Deferred shares)
Base salary for 2021
5.5% and 6% of salary for the CEO and the CFO respectively
13.3% and 12.1% of salary for the CEO and the CFO respectively in 2021
0% of maximum 50% of maximum 100% of maximum
100% of maximum
0% of maximum 50% of maximum 100% of maximum
100% of maximum
Total (£’000)
386
678
971
971
Total (£’000)
590
1 033
1 476
1 476
CFO (%)
CEO (%)
19
24
27
27
19
24
27
27
33
33
33
33
100
57
40
40
100
57
40
40
minimum
On-target
Maximum
Maximum +50
Minimum
On-target
Maximum
Maximum +50
FIXED REMUNERATION
GDIP CASH
GDIP DEFERRED SHARES
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 90
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DIRECTORS’ REMUNERATION POLICY CONTINUED
DIRECTORS’ REMUNERATION POLICY CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
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
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
forfeited benefit, considering
factors
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
13 February 2007
M Michael
22 April 2013
Rolling contract
12 months
Pay basic salary on summary termination.
Benefits are payable only at the
Committee’s discretion.
The table below provides details of exit payments under different leaver scenarios.
Incentive
Scenario
Time of payment/vesting
Calculation of payment/vesting
GDIP awards, prior
to end of
performance period
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)
Performance against targets will
normally be assessed by the
Committee at the end of the year
and any resulting award is
normally pro-rated for the
proportion of the year worked
Immediately, on change of control Performance against targets will
normally be assessed by the
Committee up to the date of
change of control and any
resulting award is normally
pro-rated for time
All other reasons
Not applicable
No award is paid
GDIP (unvested
deferred shares)
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
Immediately, on change of control Unvested awards will normally be
prorated for time unless the
Committee decides otherwise
Awards lapse
Not applicable
Normal release date, although the
Committee has discretion to
accelerate
1 There are no special provisions in the contracts extending the notice period on a change of control or other corporate events.
All other reasons
Not applicable
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 seeks 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 it is in the best interests of the Company
and its shareholders to do so.
GDIP (deferred
shares in holding
period)
Death, disability, ill health,
redundancy, retirement, or any
other reasons the Committee may
determine (normally not including
resignation or where there are
concerns as to performance)
Change of control (whether or not
employment is terminated as a
result)
All other reasons
Immediately, on change of control Not applicable
Normal release date, although the
Committee has discretion to
accelerate
Not applicable
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 92
93
DIRECTORS’ REMUNERATION POLICY CONTINUED
ANNUAL REPORT ON REMUNERATION
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
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 Chairperson and non-Executive Directors with experience
relevant to the Company.
Operation
Fees are reviewed annually, with any changes effective from 1 April.
Fees are typically set after considering current market levels, time commitment and responsibilities
involved.
All non-Executive Directors, including the Chairperson, are each paid an all-inclusive fee. No additional
fees are paid for chairing 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.
Opportunity
There is no prescribed maximum annual increase.
It is expected that fee increases will typically be in line with market levels of fee inflation.
In certain circumstances (for example, where there is a change in time commitment required or a
material misalignment with market), the Committee has the discretion to adjust fee levels to ensure
they remain competitive.
The maximum aggregate annual fee for all non-Executive Directors, including the Chairperson,
allowed by the Company’s Articles of Association, is £750 000.
Director
Contract date
Unexpired
Notice period
Contractual termination payment
H Kenyon-Slaney
6 June 2017
M Brown
1 January 2018
M Lynch-Bell
15 December 2015
J Velloza
15 September 2018
M Maharasoa
1 July 2019
Rolling
appointment
Three months
No provision for payment of compensation
Considerations of shareholder views
The Committee considers shareholder views and the guidelines
investor bodies when determining remuneration. The
of
Committee values
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 2019 Annual Report on
Remuneration and 2020 Remuneration Policy (at the 2020 AGM)
are provided in the Annual Report on Remuneration.
from shareholders on
feedback
External directorships
Executive Directors are permitted
to accept external
directorships with prior approval of the Chairperson. 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 97
for further details.
ANNUAL REPORT ON REMUNERATION
This report provides information regarding the implementation of the Company’s approved 2020 Remuneration Policy during the
financial year ended 31 December 2020 and how the 2021 Remuneration Policy will be implemented in 2021. This Annual Report on
Remuneration will be subject to an advisory vote at our 2021 AGM on 2 June 2021.
Role, composition and experience of the Committee
The Committee’s Terms of Reference are available on the Company’s website and comply with the UK Corporate Governance Code.
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 2020:
• M Lynch-Bell
M Lynch-Bell
Chairperson
Non-Executive Director
• H Kenyon-Slaney*
• M Brown
Other attendees:
• C Elphick*
• M Michael*
• Group Human Resources Manager
• Mercer Kepler (Independent remuneration consultants)
•
Secretary (Bruce Wallace Associates)
* 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
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 94
95
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
2020 activities
Reviewed the remuneration policy to ensure it is appropriate to motivate and reward senior executives and
align their interests with the Company’s purpose and values, as well as with the interests of shareholders
Reviewed and assessed shareholder positions to ensure Gem Diamonds’ proposed 2021 Remuneration Policy
and practices align appropriately with these requirements
Set out a credible plan to align Directors’ pension contributions to those of the wider workforce
Reviewed the implementation of post-cessation shareholding policies
Reviewed the range of non-financial performance metrics in variable remuneration
Ensured incentives include an appropriate balance of financial and non-financial elements for the long-term
sustainability of the organisation
Applied its collective mind to the determination of discretionary elements in the STIB scorecard and the
appropriateness of the formulaic output from the incentive calculations, to ensure these accurately reflect
performance during the year amidst considerations of the wider employee context in light of the COVID-19
pandemic
Reviewed and approved the Terms of Reference of the Committee
Reviewed and approved the Directors’ Remuneration Report for 2019
Reviewed and approved base salaries and total remuneration for the Executive Directors and fees for the
Chairman and reviewed senior management remuneration 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 2020. Mercer Kepler provides remuneration advice to a large portfolio of clients, including
many in the FTSE 350 and FTSE Small Cap, reassuring the Committee 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 2020 were US$84 553 excluding VAT.
Following the lead advisor moving to Ellason LLP, the Committee reviewed proposals from remuneration advisors and decided to
appoint Ellason LLP as the independent remuneration advisor to the Committee effective 1 January 2021. Ellason is a signatory to, and
abides by, the Remuneration Consultants Group Code of Conduct.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Summary of shareholder voting
The table below shows the results of the advisory vote on the 2019 Annual Report on Remuneration at the 2020 AGM, and the binding
vote on the 2020 Remuneration Policy at the 2020 AGM.
2019 Annual Report on Remuneration
Total number of votes
Percentage of votes cast
2020 Remuneration Policy
Total number of votes
Percentage of votes cast
For
Against
Total votes cast
Withheld
95 146 367
87.72%
13 324 138
12.28%
108 470 505
–
1 669 120
–
66 857 401
84.25%
12 497 053
15.75%
79 354 454
–
30 775 171
–
Wider workforce considerations
The Committee considers Executive Director remuneration in the context of pay policies and practices across the wider workforce. We
value and appreciate the contribution made by our employees and aim to provide them with market-competitive remuneration and
benefit packages. Our approach to remuneration for our wider workforce is similar to that of Executive Directors and includes both fixed
and performance-based components.
Base salaries are reviewed annually and any increases become effective from either 1 January or 1 March, dependent on operation-
specific remuneration policies. The Committee reviews salary increases for the wider workforce and significant changes in practice
or policy.
All employees participate in an annual discretionary bonus scheme that rewards both an employee’s contribution to the performance
of the Group and their individual performance.
The majority of our workforce receives an employer pension contribution equal to 7.5% of salary per annum and may opt to join a
medical aid scheme to which the company contributes 50% up to a capped amount.
We have an open, collaborative and inclusive management structure and engage regularly with our employees on a range of issues. The
Non-Executive Director, Mazvi Maharasoa, further conduct formal engagement sessions with employees across the Group. Company
culture is monitored and assessed by the Board on a quarterly basis against pre-determined metrics and a formal employee culture
survey conducted annually.
Relative importance of spend on pay
The table below shows the percentage change in total employee pay expenditure and shareholder distributions (ie dividends, share
buy-backs and return of capital) from the financial year ended 31 December 2019 to the financial year ended 31 December 2020.
Distribution to shareholders
Employee remuneration1
Return of capital
2020
US$
2019
US$
%
increase
3 497 228
19 735 981
–
–
22 808 815
–
100
(13)
–
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 TSR Peer Group and the FTSE 350 Mining
Index over the 10-year period to 31 December 2020. The TSR Peer Group has been selected to provide a diamond miner comparator
group and the FTSE 350 Mining Index has been selected as 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.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 96
97
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
Value of £100 invested on 1 January (Gem Diamonds vs. FTSE350 Mining Index and 2020 TSR Peers (£))
Change in pay from 2019 to 2020
120
100
80
60
40
20
0
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
31 DEC 20
GEM DIAMONDS LIMITED
FTSE 350 MINING INDEX
2020 TSR PEERS
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
CEO single figure of
remuneration (£)
Annual bonus outcome
(% of maximum)
ESOP vesting outcome
(% of maximum)
797 755 564 419 776 406 892 935 879 719 611 314 681 191 995 161 891 643 954 860
75
Nil
13
Nil
61
Nil
83
Nil
74
Nil
0
20
83
63
66
28.3
14.5
21.4
25.9
65.9
The percentage change in Director remuneration compared to other employee pay
The table below shows a comparison of the annual change of each individual Director’s pay to the annual change in average employee
pay for the year ended 31 December 2020. Average employee pay is calculated using a mean average. The parent company consists of
only one employee who is not a Director and the Company therefore chose voluntarily to disclose the change in Directors’ remuneration
compared to a wider employee comparator group, as this will provide a more representative comparison. Where there is a year-on-year
decrease in base salary or fees paid to the Directors, this is due to reductions made in response to COVID-19 and additional fees paid to
Non-Executive Directors for projects during 2019, which have since ceased.
Executive Directors as at 31 December 2020
C Elphick
M Michael
Non-Executive Directors as at 31 December 2020
H Kenyon-Slaney
M Lynch-Bell
M Brown
J Velloza4
M Maharasoa5
Salary/Fees
(% change)1
Benefits
(% change)2
Annual
bonuses
(% change)3
0%
0%
3.7%
4.7%
(1.3%)
(1.3%)
(14.5%)
(16.0%)
(16.0%)
12.0%
96.0%
Average pay of comparator group employees6
(2.0%)
0.7%
4.9%
1
2
3
4
5
6
The annual percentage change in salary is calculated by reference to actual salary paid for the financial year ended 31 December 2020, compared to the financial year ended
31 December 2019.
The annual percentage change in benefits is calculated by reference to the value of benefits received in respect of the financial year ended 31 December 2020, compared to the
financial year ended 31 December 2019.
The annual percentage change in bonus is calculated by reference to the bonus payable in respect of the financial year ended 31 December 2020, compared to the financial year
ended 31 December 2019 for Executive Directors, and by reference to all bonus payments received during the financial year ended 31 December 2020 in comparison to the
financial year ended 31 December 2019 for comparator employees. Non-Executive Directors are not eligible to receive a bonus.
The increase in fees from 2019 to 2020 reflects the pro-rated period of additional fees for 2019 to the full period of additional fees related to special projects for 2020.
Appointed to the Board in July 2019. The increase in fees from 2019 to 2020 reflects the pro-rated period of employment in 2019.
Average employee pay is calculated by reference to the mean average pay of employee comparator group. The base salary average pay includes site-specific operational
allowances, which in 2020 were suspended for the period the individual was not on site due to COVID-19 restrictions.
Executive directors’ external appointments
Apart from interests in private entities no Executive Director holds any significant executive directorship or appointments outside the
Group except for Clifford Elphick. He was appointed non-Executive Chairperson 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.
Salary increases
The Committee approved the following salary increases in 2020:
Executive Director
C Elphick
M Michael
2020 salary
£
2019 salary
£
%
increase
491 902
324 635
482 257
318 270
2%
2%
Historically, annual increases are effective from 1 April. Following the approval of increases in February 2020, the Committee considered
the impact of the COVID-19 pandemic on the wider workforce and subsequently deferred executive increases to be effective from
1 October 2020.
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 2020,
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 2020.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 98
99
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
Implementation of remuneration policy for 2020
Total single figure of remuneration for directors
The table below sets out the total single figure remuneration received by each Director for 2020 and the prior year. Although the Group’s
reporting currency is US dollars, these figures are stated in sterling as the Directors’ emoluments are based in sterling.
Salary and fees1
Cash payments in lieu of
other non-cash benefits2
Cash payments in
lieu of pension2
Total fixed remuneration
STIB3
ESOP4
Total variable
remuneration
Total
2020
£
2019
£
2020
£
2019
£
2020
£
2019
£
2020
£
2019
£
2020
£
2019
£
2020
£
2019
£
2020
£
2019
£
2020
£
2019
£
472 611
311 904
478 745
315 952
25 994
18 714
26 332
18 957
68 529
40 547
69 419
41 073
567 134
371 165
574 496
375 982
326 379
218 643
302 060
199 347
61 347
45 343
15 087
11 151
387 726
263 986
317 147
210 498
954 860
635 151
891 643
586 480
117 600
53 900
53 900
107 800
53 900
137 500
64 166
64 166
96 250
27 500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
117 600
53 900
53 900
107 800
53 900
137 500
64 166
64 166
96 250
27 500
–
–
–
–
–
–
–
–
–
–
–
–
–
7 412
–
–
–
–
4 461
–
–
–
–
7 412
–
–
–
–
4 461
–
117 600
53 900
53 900
115 212
53 900
137 500
64 166
64 166
100 711
27 500
Executive Directors as at 31 December 2020
C Elphick
M Michael
Non-Executive Directors as at 31 December 2020
H Kenyon-Slaney
M Lynch-Bell
M Brown
J Velloza5
M Maharasoa6
Audited
1 Salary and fees.
2 Benefits and pension: cash payments in lieu.
3 Annual bonus/STIB: payments in relation to performance for the year, paid in cash.
4
ESOP: The 2020 figures relate to the values at vesting of awards vesting on performance over the three-year period ended 31 December 2020. 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 2020 of 40.47 pence. The 2019 figures have been adjusted to reflect
the share price on the vesting date of 25.3 pence. The 2020 values at vesting reflect the impact of a 73.6% reduction in share price over the period.
Fees are 50% standard fees and 50% additional fees related to special projects. The increase in fees relates to additional fees for the full 2020 period compared to a pro-rated period
for 2019. ESOP vesting relates to awards granted prior to the appointment as non-Executive Director.
5
6 M Maharasoa was appointed to the Board in July 2019. The 2019 fees relate to the period 1 July 2019 to 31 December 2019.
STIB in respect of 2020 performance
Executive Directors participate in a discretionary annual bonus arrangement focused on the strategic areas 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 2020, 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 for 2020 are disclosed in full in the table to the right.
Performance measure
Preparing for Our Future
Extracting Maximum Value from Our
Operations
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)
Carats recovered (carats)
Working Responsibly and Maintaining Our
Social Licence
Fatalities
All Injury Frequency Rate (AIFR)
Lost Time Injury Frequency Rate (LTIFR)
Major environmental or community incidents
Total score achieved
Weighting
(% of max)
Threshold
target
Stretch
targets
Actual
performance
Pay-out
(% of max)
20 Judged by Committee on a discretionary basis
15
15
61.0
91.5
79.2
5 Judged by Committee on a discretionary basis
53.2
8
9.8
8
96.2
8
8
15.6
100 780
8
46.5
8.66
78.2
22.9
114 890
69.8
12.98
117.3
24.1
134 039
0
2.20
0.11
0
0
1.25
0
0
0
0.76
0.04
0
5
5
5
5
100
11.1
3
4.9
4.5
5.3
0
0
5
5
4.1
5
62.9
1 Refer Note 4, Operating profit on page 145, for definition of non-GAAP measures.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 100
101
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
Preparing for Our Future
In compliance with the Government of Lesotho’s lockdown order, Letšeng temporarily suspended operations from 28 March to 26 April,
placing the mine on care and maintenance. After successfully engaging with the Government of Lesotho to designate mining as an
essential service, a restart and ramp-up plan was implemented to commence operations in a responsible and phased manner as soon
as it was safe and permissible to do so. After a successful restart of mining and ore treatment, ramp-up to normal production at both
treatment plants was achieved in May, with the commencement of normal waste mining in July. The success of the ramp-up plan and
the return to normal production levels following the shutdown period was possible due to a phased approach, localised in-house skills
and collaborative contractor engagement.
In response to the COVID-19 pandemic, the Group rapidly established a mobile COVID-19 testing laboratory, the only such independent
unit in Lesotho which facilitated the effective detection and control of the virus in and around the Letšeng operation. Supported by
expert advice, a wide range of precautions were implemented to protect employees, contractors and the surrounding communities.
National lockdowns resulted in the diamond market deteriorating sharply and, in addition, travel restrictions placed strain on traditional
tender methods. To counter these challenges a flexible sales process was designed and adopted to continue to generate vital revenue.
The impact of COVID-19 placed notable stress on the Group’s cash flows. Substantial time and effort were devoted to managing cash
to ensure the Group was sufficiently funded during this period. The Group managed a net increase in cash of US$44.8 million
during 2020 which has increased the Group’s cash position from US$10.2 million net debt at 2019 year-end to US$34.6 million net cash
at 2020 year-end.
The Company’s share price fell in 2020 in line with the general market sentiment in the sector but was still the best performing share
over three years compared to its peer group and has doubled since the low of the pandemic crisis in 2020.
The Ghaghoo mine remains on care and maintenance and the process to sell the asset continues, but the sale was significantly delayed
during the year due to the impact of COVID-19. Management remains committed to the sale and will conclude the process in 2021.
The Committee reviewed performance in this area during 2020 on a holistic basis and determined that a score of 15 out 20 was
appropriate.
Organisational Health
During 2020 the Group retained its FTSE4Good rating due to its continued excellence in ESG issues. Organisational Health was measured
against metrics such as turnover and absenteeism rates; training data; recruitment; reward and promotion decisions; whistleblowing,
grievance and ‘speak-up’ data, board interaction with senior management and workforce; promptness of payments to suppliers; health
and safety data and an annual employee culture survey. Scores increased in all areas save for training and in the annual employee culture
survey. Training spend and number of employees trained decreased in 2020, as most institutions were closed due to implemented
COVID-19 restrictions. In-house training was limited due to on-site COVID-19 protocols restricting the number of personal interactions.
Where possible, on-line training was conducted specifically related to leadership, Continuous Improvement (CI) practices and safety. The
culture survey highlighted specific issues within some of the Company’s major contractor groups. Improvements were seen in certain
departments, attesting to the efforts amongst others related to CI, although there was a slight decline in the overall score. This shows
again that in isolation surveys only offer insight at a point in time.
The Committee reviewed performance in this area and determined that a score of 3 out 5 was appropriate.
Personal performance
20% of the STIB is linked to personal performance, with 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
operational performance, strengthening of key stakeholder relationships, bank financing, and treasury management, HSSE objectives
and strategy development and implementation.
Clifford Elphick
Strategic focus area
Performance
•
•
•
•
•
•
The technology to detect diamonds with kimberlite, prior to non-mechanical means of liberation was
successfully advanced as expected.
The sale of the Ghaghoo asset was hindered as a result of COVID-19 challenges during 2020.
The optimisation of the operating model was delivered through further steepening of slopes and
improved drilling.
The Continuous Improvement (CI) project was rolled out to pilot departments within the Group and
delivered noticeable results.
The adoption of six UN Sustainability goals paved the way for increased focus on ESG matters that are
material to the Group.
COVID-19 specific responses included a wide range of precautions implemented to protect employees,
contractors and the surrounding communities. These measures included thermal screening, X-ray
screening, Polymerase Chain Reaction (PCR), Rapid Anti-body and Anti-gen Diagnostic screening. Over
750 food parcels have been distributed to the most vulnerable members of the communities in which
we operate.
Clifford Elphick’s leadership during this challenging year ensured all executives remained focused and worked toward a common
goal – to ensure the sustainability of the Group. His specialised skills in the diamond industry equipped him to design a flexible sales
process in order to continue to generate vital revenue when national lock-downs rendered normal tender processes impossible.
In consideration of these factors and overall performance of the business, the Committee determined that a score of 16% of the
maximum 20% for this element was appropriate.
Michael Michael
Strategic focus area
Performance
•
•
•
•
•
Robust cost and cashflow management reduced cash outflow during the year which contributed to the
sustainability of the business during 2020 and resulted in a net cash increase of US$44.8 million improving
the Group’s cash position from US$10.2 million net debt at 2019 year-end to US$34.6 million net cash at
2020 year-end, positioning it appropriately for 2021 and ahead.
The finance talent population was developed further in support of the Company’s strategic objectives.
Despite the in-country lockdown, subsequent operational shutdown and other COVID-19-related
challenges, significant progress has been made in 2020 with US$79.2 million of the US$100m BT four-year
target achieved, with the Group being on target to deliver the full value by the end of 2021.
Successfully monitored appropriate risk and governance processes and responses consistent with the
Group’s risk appetite.
The Group rapidly established a mobile COVID-19 testing laboratory, the only independent testing
laboratory in Lesotho which facilitated the response to the detection and control of the virus
In consideration of these factors and overall performance of the business, the Committee determined that a score of 17% of the
maximum 20% for this element was appropriate.
Extracting maximum value
from our operations
Working responsibly and
maintaining our social licence
Preparing for our future
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 102
103
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
The formulaic outcome from the business scorecard for Group performance was 62.9% (i.e. 50.3% out of the maximum 80%) which,
combined with the personal element, resulted in formulaic STIB outcomes of 66.4% and 67.4% of maximum for the CEO and the CFO,
respectively.
Based on business and personal performance, actual bonuses for 2020 were as follows:
Performance measure
C Elphick
M Michael
ESOP: 2018 awards vesting in 2021
% of salary
66.4
67.4
Bonus
£
326 379
218 643
The Executive Directors were granted awards of performance shares in March 2018, which are set out in the table below.
Performance measure
TSR versus diamond mining
peer group
BT
Underlying EBITDA (US$ million)
EPS (US cents)
Number
options
granted
Share price
on date of
award
£
Face value
on date of
award
£
Face value
as % of
salary
Date of
grant
Vesting date
Executive Director
Directors as at 31 December 2020
C Elphick
M Michael
20 March 2018
20 March 2018
230 000
170 000
0.964
0.964
221 720
163 880
47 20 March 2021
53 20 March 2021
US$ p/ct
Vesting of the awards was dependent on relative TSR against companies in the diamond mining sector (25% of the award) and Business
Transformation (25%) measured over the period 1 January 2018 to 31 December 2020. Profit and production (50%) 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 to the right.
Ore tonnes treated
Carats recovered
Weighting
(% of max)
Performance
period
Threshold
(20% vesting)
Stretch
(80% vesting)
Super stretch
(100% vesting)
Actual
performance
Vesting
outcome
(% of max)
25
25
10
10
10
10
10
100
3 yr
Median
75th
percentile
85th
percentile
Top of group
25
68.6
43.5
55.2
46.5
5.44
10.3
8.66
1 722
1 624
1 490
6.4
6.6
6.6
76.3
65.2
82.8
69.8
8.16
15.44
12.98
2 330
2 198
2 015
7.1
6.9
6.9
83.9
71.8
81
76.7
8.98
16.99
14.28
2 563
2 417
2 217
7.8
7.2
7.3
79.2
82.3
40.9
53.2
18.8
5.1
9.8
2 131
1 637
1 908
6.5
6.7
5.4
106 104
143 552
157 907
126 875
109 800
128 100
140 300
113 974
114 890
134 039
146 804
100 780
3 yr
2018
2019
2020
Average
2018
2019
2020
Average
2018
2019
2020
Average
2018
2019
2020
Average
2018
2019
2020
Average
21.9
10
0
3.8
4.6
10
0
3.1
4.4
6.0
2.1
6.8
5.0
2.6
3.8
0.0
2.1
5.3
3.4
0.0
2.9
65.9
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 2020, 65.9% of the maximum award will vest for Clifford Elphick and Michael Michael in
March 2021, subject to their continued employment at the time.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 104
105
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
ESOP awards granted in 2020
Directors’ shareholding and interests in shares
In June 2020, the CEO and the CFO received performance shares with face values of 15% and 17% of their then salaries respectively, as
summarised in the table below. The Committee considered guidance during the year provided by major investors around the need to
protect against windfall gains for equity-based awards granted in 2020, following reductions in share prices for many listed companies
impacted by COVID-19. The Committee is satisfied that the approach used to grant ESOP awards in recent cycles, i.e. the same number
of shares in each cycle (to minimise the impact on dilution), inherently protects against windfall gains as it avoids granting more shares
when the share price falls.
Details of interests in the share capital of the Company of those Directors in office as at 31 December 2020 are given below. It is
confirmed that there were no changes to the Directors’ holdings between 31 December 2020 and up to the date of this report. During
the period 3 February 2021 to 4 February 2021, the CEO sold Option Shares in order to realise the value allocated to him under his
remuneration package. The exercise of the Nil Cost options and subsequent sale of the Option Shares had no net effect on the number
of ordinary shares in the Company held by him prior to exercise of the Nil Cost options. No Director held an interest in the shares of any
subsidiary company.
Executive Director
C Elphick
M Michael
Number
options
granted
230 000
170 000
Share price
on date of
award
£1
Face value
on date of
award
Face value as
% of salary
0.3175
0.3175
73 025
53 975
15%
17%
Date of
grant
9 June 2020
9 June 2020
1 The prior year figures reported have been adjusted to reflect the share price on the award date of 31.75 pence.
The performance conditions that apply to these awards are summarised in the table below.
Performance measure
Weighting
(% of award)
Threshold
(20% vesting)
Stretch
(80% vesting)
Super-stretch
(100% vesting)
TSR versus tailored diamond mining peer group2
25%
Median
Operating
performance
(measured
annually)
Underlying EBITDA1
Earnings per share
US$ per carat
Carats recovered
18.75%
18.75%
18.75%
18.75%
80%
80%
85%
90%
75th
percentile
85th
percentile
120%
120%
115%
105%
132%
132%
126.5%
115%
1 Refer Note 4, Operating profit on page 145, for definition of non-GAAP measures.
2 Firestone Diamonds, Lucapa Diamond, Lucara Diamond, Mountain Province Diamonds and Petra Diamonds.
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 2020 for each measure.
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.
Details of outstanding awards of performance options to Director
Performance
options
as at
1 January
20201
Director
Granted
in the
year
Vested
in the
year
Lapsed
in the
year
Exercise
price
£
Date of grant
Earliest normal
exercise date
Expiry date
Performance
options
outstanding
as at
31 December
2020
M Michael
37 0882
–
–
–
177.6
11 September
2012
1 January
2016
31 December
2023
37 088
Audited
1
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 2020 was
40.47 pence. The highest and lowest closing prices in the year were 70.52 pence and 23 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.
2 These awards were granted to M Michael before he became a Director.
Performance
shares held
Performance
options held
Shares owned
outright as at
31 December
2020
Subject to
perfor-
mance
conditions
Unvested
and
subject to
continued
employ-
ment only
Vested
but not
exercised
Subject
to perfor-
mance
conditions
Vested
but not
exercised
Total
sharehold-
ing as a %
of salary
Share-
holding
guideline
met
Executive Directors
C Elphick1
M Michael
Non-Executive Directors
H Kenyon Slaney
J Velloza3
M Brown
9 325 000
171 849
460 000
340 000
151 586
112 042
50 000
45 450
67 124
–
–
–
–
18 315
–
–
–
–
–
–
–
–
–
–
–
–
37 088
–
–
–
784%
26%
17%
33%
48%
✔
2
n/a
n/a
n/a
Audited
1 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.
2
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 4% as a result of the decrease in share price.
3 These awards were granted to J Velloza prior to his appointment as a non-Executive Director.
Implementation of remuneration policy for 2021
The Committee determined that base salaries will remain unchanged for 2021:
Executive Director
C Elphick
M Michael
Pension and benefits
2021 salary
£
2020 salary
£
%
increase
491 902
324 635
491 902
324 635
0
0
The Executive Directors will continue to receive cash supplements in lieu of pension and benefits in 2021. Subject to the approval of the
proposed 2021 remuneration policy at the June 2021 AGM, Executive Directors’ pensions will be reduced per annum over five years
starting from 1 April 2021, to align with that of the workforce (currently 7.5% of salary) as indicated in the table below:
1 April 2021
1 April 2022
1 April 2023
1 April 2024
1 April 2025
1 April 2026
C Elphick
M Michael
13.3%
12.1%
12.2%
11.2%
11.0%
10.3%
9.8%
9.3%
8.7%
8.4%
7.5%
7.5%
Pension contributions to any new Executive Director appointments will be capped at the prevailing workforce pension rate at the time.
The current allowance in lieu of non-cash benefits will remain unchanged from 2020.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 106
107
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
GDIP
The 2021 remuneration policy replaces the STIB and ESOP with a single integrated incentive, the Gem Diamonds Incentive Plan or ‘GDIP’.
The GDIP will be structured as follows:
•
•
Executive Directors will have a maximum annual award opportunity of 180% of salary. This is derived from a combination of the
100% of salary currently available under STIB and an additional 80% of salary based on the 125% currently available under the ESOP.
It is subject to a c.35% discount to reflect the shorter performance period of the GDIP.
Earned incentive will be delivered 55% in cash and 45% in deferred shares vesting in one-third annual tranches after one, two and
three years, subject to continued employment and good/bad leaver provisions over this period. Vested awards will also be subject
to a two-year post-vesting holding period. This provides the same cash/deferred equity mix as the current STIB/ESOP combination,
and ensures the deferred shares are released over the same time horizon as the current ESOP, with the average release date of
GDIP shares at five years from the start of the cycle – see illustration below:
2021
2022
2023
2024
2025
2026
2027
T
N
E
R
R
U
C
STIBs
ESOP
Cash bonus paid
Performance period
Performance period
Shares vest
2 year hold
Shares released
Cash bonus paid
GDIP
Performance period
Shares vest
2 year hold
Shares released
Shares vest
2 year hold
Shares released
Shares vest
2 year hold
Shares released
D
E
S
O
P
O
R
P
•
Pay-out is based on a scorecard of financial, operational and personal objectives measured over the financial year, with a reduction in
the number of measures compared to prior years and an increased weighting on EBITDA. This is consistent with the current approach
for STIB and for 75% of the current ESOP awards, with increased focus on financial measures important to our shareholders. There is a
reduction in the pay-out under the GDIP to 20% of maximum at threshold and 50% at target (currently 50% and 68% respectively
under the STIB).
The performance measures will continue to support the delivery of the Group’s key strategic priorities as set out on page 21 of this
Annual Report and Accounts 2020, with 85% linked to business performance and 15% to personal performance. For the business
performance element, performance may 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. The weightings that apply
to the elements of the scorecard for 2021 are summarised in the table below.
Personal performance
Group performance
Preparing for Our Future
As set out in strategic focus areas
Extracting Maximum Value
Underlying EBITDA (US$)
Costs (US$)
Carats recovered (carats)
Working Responsibly, Maintaining Social Licence
Any fatality will result in 100% forfeiture of this element
All Injury Frequency Rate (AIFR)
Lost Time Injury Frequency Rate (LTIFR)
Any major environmental/community incident will result in 100% forfeiture of this element
15%
85%
10%
10%
55%
30%
15%
10%
20%
5%
5%
5%
5%
Targets are considered sensitive and will be disclosed in full on a retrospective basis in next year’s report. In approving these targets, the
Committee considered a range of perspectives on performance outcomes, including internal and external reference points.
ESOP
Subject to the approval of the proposed 2021 remuneration
policy at the June 2020 AGM, the ESOP will no longer exist in its
current form. Therefore no awards will be issued during 2021.
Dilution
Employee share 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 2020, a total of
13 961 223 shares (10% of issued share capital) may be issued
pursuant to all current awards outstanding over the last 10 years.
The Committee has the discretion to partly cash purchase the
deferred shares to keep within the dilution limits and to
determine whether the deferred shares should be purchased
over a period.
As at 31 December 2020, the Company’s headroom position,
which remains within the current IA Guidelines, was as shown in
the chart below:
DILUTION HEADROOM
%
Headroom
Outstanding options
6.17
3.83
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
108
109
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
ANNUAL REPORT ON REMUNERATION CONTINUED
ANNUAL REPORT ON REMUNERATION CONTINUED
C Elphick (CEO)
Total
M Michael (CFO)
Performance
shares1 as at
1 January
2020
58 209
33 425
49 300
230 000
230 000
230 000
Date of grant
10-Jun-14
01-Apr-15
15-Mar-16
04-Jul-17
20-Mar-18
20-Mar-19
09-Jun-20
Granted in
the year
Vested in
the year
Lapsed in
the year
–
–
–
–
–
–
230 000
–
–
–
59 633
–
–
–
–
–
–
170 367
–
–
–
–
830 934
230 000
59 633
170 367
11-Sep-12
10-Jun-14
01-Apr-15
15-Mar-16
04-Jul-17
20-Mar-18
20-Mar-19
09-Jun-20
18 544
31 648
24 706
36 439
170 000
170 000
170 000
–
–
–
–
–
–
–
170 000
–
–
–
–
44 076
–
–
–
–
–
–
–
125 924
–
–
–
Total
–
621 337
170 000
44 076
125 924
Audited
1 Conditional right to acquire shares.
Chairperson and non-Executive Director fees
Chairperson and non-Executive Director fees were reviewed in February 2021 and found to be appropriate. Fees will therefore remain
unchanged for 2021.
Market value
at date of
grant
US$
Earliest normal
exercise date
556 200
453 100
322 000
253 000
308 200
274 454
92 742
10-Jun-17
01-Apr-18
15-Mar-19
04-Jul-20
20-Mar-21
20-Mar-22
09-Jun-23
Expiry date
10-Jun-24
01-Apr-25
15-Mar-26
04-Jul-27
20-Mar-28
20-Mar-29
09-Jun-30
–
–
–
68 400
302 400
334 900
238 000
187 000
227 800
202 858
68 548
01-Jan-16
10-Jun-17
01-Apr-18
15-Mar-19
04-Jul-20
20-Mar-21
20-Mar-22
09-Jun-23
31-Dec-23
10-Jun-24
01-Apr-25
15-Mar-26
04-Jul-27
20-Mar-28
20-Mar-29
09-Jun-30
Performance
shares
outstanding
as at
31 December
2020
58 209
33 425
49 300
59 633
230 000
230 000
230 000
890 567
–
–
–
–
–
170 000
170 000
170 000
–
–
–
510 000
Exercised in
the year
Exercise price
US$
–
–
–
–
–
–
–
–
18 544
31 648
24 706
36 439
44 076
–
–
–
155 413
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
0.01
0.01
–
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 110
111
DIRECTORS’ REPORT
DIRECTORS’ REPORT CONTINUED
Gem_Diamonds_Annual_IAR_2020_15004_202100316_V07_CS_16h30
The Directors are pleased to submit the financial statements of
the Group for the year ended 31 December 2020.
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 2020 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
Companies Act, 2006.
For the purposes of compliance with DTR 4.1.5R(3) and DTR
4.1.8R, the required content of the Management Report can be
found in the Strategic Report and the Directors’ Report,
the Governance section including the sections of the Annual
Report and Accounts which are incorporated by reference.
The Strategic Report can be found on pages 2 to 50 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.
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 2 to 50.
DIRECTORS
The Directors, as at the date of this report, are listed on
pages 182 to 185 together with their biographical details. Details
of the Directors’ interests in shares and share options of the
Company can be found on page 105.
DIRECTORS WHO HELD OFFICE DURING
THE YEAR AND DATE OF APPOINTMENT/
RESIGNATION
Appointment
Resignation
Executive Directors
C Elphick
M Michael
Non-executive Directors
H Kenyon-Slaney
M Brown
M Lynch-Bell
J Velloza
M Maharasoa
20 January 2006
22 April 2013
n/a
n/a
6 June 2017
1 January 2018
n/a
15 December 2015 n/a
n/a
1 July 2018
n/a
1 July 2019
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 employees.
Please refer to the Corporate Governance statement on page 59
for further details.
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 105.
SUPPLIERS AND CUSTOMERS
Faced with the COVID-19 pandemic in 2020, we engaged
extensively and transparently with contractors and suppliers to
ensure alignment, mutual understanding and the sustainability of
all parties during an unprecedented crisis.
Similarly, we adapted our sales processes and together with
ongoing communication with our customers, we were able to
sell our diamonds at market-related prices throughout the year.
For more details on our engagement with suppliers, contractors
and customers, please see the Stakeholder Engagement section
on pages 15 to 20.
RESULTS AND DIVIDENDS
The Group’s attributable profit after taxation amounted to
US$13.6 million (2019: US$2.6 million).
The Group’s detailed financial results are set out in the financial
statements section on pages 113 to 173.
Based on positive earnings generated and disciplined cash
management, the Board recommends that a dividend be
declared for the 2020 financial year. 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
also adopted a policy to consider special dividends in the event
of significant diamond recoveries and to consider a share
buyback programme should the opportunity arise.
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 2
to 50. The financial position of the Company, its cash flows and
liquidity position are described in the Strategic Report on
pages 36 to 42. 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 period longer than 12 months as required
by the ’going concern’ provision. The viability statement can be
found in the Strategic Report on page 31.
SUBSEQUENT EVENTS
Refer Note 31 of the financial statements for details of events
subsequent to the reporting date.
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 10 March 2021, there were 139.9 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.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 112
113
113
FINANCIAL
STATEMENTS
DIRECTORS’ REPORT CONTINUED
At the AGM held in 2020, shareholders authorised the Company
to make on-market purchases of up to 13 908 796 of its ordinary
shares, representing approximately 10% of the Company issued
share capital at that time. During 2020, 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 2021 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 2021 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 Strategic
Report on page 43.
the understanding of existing
RESOURCE DEVELOPMENT
Resource development activities were concentrated on
improving
resources at
Letšeng. Further details can be found in the Operational
Review on page 43. For more information on the current
Resources and Reserves statement refer to the Company’s
website www.gemdiamonds.com.
CORPORATE SOCIAL RESPONSIBILITY AND
SUSTAINABILITY
A
responsibility,
is
environmental performance and community participation
presented in the Sustainable Development Reporting Platform,
available on Gem Diamonds’ website www.gemdiamonds.com.
review of health, safety, corporate social
CORPORATE SOCIAL INVESTMENT (CSI)
EXPENDITURE
Details of the Group’s CSI investment during 2020 can be found
in the Sustainability section on pages 48 to 50.
POLITICAL DONATIONS
The Group made no political donations during 2020.
GREENHOUSE GAS (GHG) EMISSIONS AND
ENERGY CONSUMPTION SUMMARY
Details on the Group’s carbon footprint and energy consumption
in the Sustainability section on
in 2020 can be found
pages 48 to 50.
By order of the Board
Harry Kenyon-Slaney
Non-Executive Chairman
10 March 2021
Gem Diamonds Limited Annual Report and Accounts 2020
Welcome • Strategic review • Performance review • Governance • Financial statements
Strategic review • Performance review • Governance • Financial statements • Report on payments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
114
115
INDEPENDENT AUDITOR’S REPORT
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 118 to 173, which comprise the consolidated statement of
financial position as at 31 December 2020, and the consolidated
statement of profit or loss, consolidated statement of other
comprehensive income, consolidated statement of changes in
equity and the consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the consolidated
financial position of the Group as at 31 December 2020, and of 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
Independent Regulatory Board for Auditors’ Code of Professional
(IRBA Code) and other
Conduct
for Registered Auditors
independence requirements applicable to performing audits of
financial statements of the Group and in South Africa. We have
fulfilled our other ethical responsibilities in accordance with the
IRBA Code and in accordance with other ethical requirements
applicable to performing audits of the Group and in South Africa.
The IRBA Code is consistent with the corresponding sections of
the
for Accountants’
for Professional Accountants
International Code of Ethics
(including International Independence Standards). We believe
that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
International Ethics Standards Board
Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in the audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of the audit of the
consolidated financial statements as a whole, and in forming the
auditor’s 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
including the procedures
results of our audit procedures,
performed to address the matters below, provide the basis for our
audit opinion on the accompanying consolidated financial
statements.
RESPONSIBILITY STATEMENT OF
THE DIRECTORS IN RESPECT OF
THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
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 2021
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.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 116
117
INDEPENDENT AUDITOR’S REPORT continued
Key Audit Matter
COVID-19 IMPACT: UNCERTAINTY WITH ASSUMPTIONS
USED TO FORECAST THE PROSPECTIVE FINANCIAL
INFORMATION APPLIED IN THE IMPAIRMENT AND GOING
CONCERN MODELS.
Management performs an annual impairment test on goodwill as
required by IAS 36 Impairment of Assets and an annual going concern
assessment using discounted and undiscounted cash flows. Goodwill
relates to the Group’s investment in the Letšeng Diamond mine.
During the year, the COVID-19 pandemic and the resulting
lockdown restrictions halted production at the Group’s Letšeng
mine for a period. It further impacted trading and reduced the
number of tenders due to the availability of goods and lockdown
restrictions.
There is an inherent uncertainty in forecasting and discounting future
cash flows, which forms the basis of the Group’s value in use calculations
used in the impairment model and the going concern assessment.
This was amplified due to the economic and other effects of the
COVID-19 pandemic including uncertainty around the duration of the
pandemic and timing of the recovery of the various world economies.
The recent volatility in diamond prices, exchange rates and discount
rates resulted in additional audit work in assessing the Group’s
impairment model and ability to continue as a going concern.
As disclosed in Note 12 Impairment testing and Note 1.2.2 Going
Concern, the Group uses discounted and undiscounted cash
flows to determine the value in use for each cash generating unit
and also Group’s ability to continue as a going concern, on the
basis of the following key assumptions:
• Diamond prices;
Inflation rates;
•
•
Production costs and volumes;
• Capital expenditure;
•
• Discount rates; and
Exchange rates
•
Renewal of borrowing facilities;
Given the above factors, the goodwill impairment and the
assessment of cash flows in the going concern model, particularly
in the diamond mining industry, required significant audit
attention in the current year through extended sensitivity and
stress testings with different scenarios including the use of our
valuation experts.
How the matter was addressed in the audit
Our audit procedures included amongst others the following:
• We involved the EY internal valuation specialists as part of
our team to assist in evaluating management’s impairment
methodology and key assumptions used in the impairment
calculations;
• Our valuation specialists calculated an independent
weighted average cost of capital (WACC) to compare to
management’s WACC’s. Our independent WACC
recalculation was based on publicly available market data for
comparable companies for the Letšeng Cash Generating
Unit (CGU);
• Our valuation specialists calculated an independent net
present value (NPV) to compare to management’s NPV;
• Our valuation specialists assessed the reasonability of the
significant inputs and assumptions used in the impairment
and going concern models, such as diamond prices,
exchange rates, inflation rates, by comparing them to
independent sources;
• We have performed sensitivity analyses around the key
assumptions used in the impairment and going concern
models. We did this by increasing and decreasing the
following assumptions in the model to determine the
impact on the headroom between the value of the recorded
assets of the CGU and the value in use as calculated and the
ability to continue as a going concern. These included:
o Exchange rates
o Diamond prices
o Carats sold
• We have compared FY2020 budgeted results utilised, against
latest actual results available to understand management’s
ability to accurately estimate future cash flows;
• We evaluated the progress on the renewal of the borrowing
facilities through inquiry and inspection of communications
with lenders;
• We assessed the adequacy of the Group’s disclosures in
terms of IAS 36 and IAS 1 in terms of the Going Concern, in
the notes to the consolidated financial statements.
Other Information
Management is responsible for the other information. The other
information comprises the information included in the 185-page
document titled “Gem Diamonds Limited Annual report and
accounts 2020”. The other information does not include the
consolidated financial statements and our auditor’s reports thereon.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information 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 Management for the
Consolidated Financial Statements
fair
for the preparation and
is responsible
Management
in
presentation of the consolidated financial statements
accordance with
internal control as
IFRSs, and for such
management determines 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, management
is 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
management either intends to liquidate the Group or to cease
operations, or has 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
judgment and maintain professional skepticism 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 management.
• Conclude on the appropriateness of management’s 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 those charged with governance
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 identity
during our audit.
We also provide those charged with governance 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, actions taken to eliminate threats or
safeguards applied.
From the matters communicated with those charged with
governance, 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 2021
102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 118
119
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2020
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2020
Notes
2020
US$’000
2019
US$’000
Notes
2020
US$’000
2019
US$’000
CONTINUING OPERATIONS
Revenue from contracts with customers
Cost of sales
Gross profit
Other operating (expense)/income
Royalties and selling costs
Corporate expenses
Share-based payments
Foreign exchange (loss)/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
Profit after tax for the year from continuing operations
DISCONTINUED OPERATION
Loss after tax from discontinued operation
Profit for the year
Attributable to:
Equity holders of parent
Non-controlling interests
Profit for the year
Other comprehensive income that will be reclassified to the Consolidated Statement
of Profit or Loss in subsequent periods
Reclassification of foreign currency translation reserve, net of tax
Exchange differences on translation of foreign operations, net of tax
5
Other comprehensive (loss)/income 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
24 278
10 576
–
(14 049)
(14 049)
(4)
4 512
4 508
10 229
15 084
3 779
6 450
1 763
13 321
2
3
28
4
5
4
6
189 647
(113 802)
182 047
(129 482)
75 845
(3 911)
(19 843)
(7 992)
(555)
(880)
–
42 664
(4 411)
382
(4 793)
38 253
52 565
845
(16 904)
(9 418)
(784)
3 550
4
29 858
(5 808)
668
(6 476)
24 050
(9 020)
15 030
7
(10 711)
27 542
16
(3 264)
(4 454)
24 278
10 576
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
8
13 641
10 637
2 617
7 959
9.8
9.6
12.1
11.9
1.9
1.8
5.1
5.0
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 120
121
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2020
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 2021 and signed on its behalf by:
C Elphick
Director
M Michael
Director
Notes
2020
US$’000
2019
US$’000
9
10
11
13
23
14
13
21
15
16
17
17
18
19
20
22
23
18
19
20
21
16
304 005
4 823
12 997
153
6 346
328 324
26 741
5 686
106
49 820
82 353
3 528
323 853
8 454
13 653
–
7 871
353 831
32 517
6 337
8 189
11 303
58 346
3 943
414 205
416 120
1 397
885 648
(212 164)
(511 808)
163 073
84 422
247 495
1 702
4 902
2 029
12 331
84 538
1 391
885 648
(202 857)
(525 449)
158 733
85 424
244 157
6 009
8 539
1 936
15 588
90 995
105 502
123 067
14 385
1 836
28 823
11 940
56 984
4 224
166 710
414 205
16 332
1 940
26 390
13
44 675
4 221
171 963
416 120
Attributable to the equity holders of the parent
Accumu-
lated
(losses)/
Issued
capital
US$’000
Share
premium
US$’000
Other
reserves1
US$’000
retained
earnings
US$’000
Total
US$’000
Non-
controlling
interests
US$’000
Total
equity
US$’000
Balance at 1 January 2020
1 391
885 648
(202 857)
(525 449)
158 733
85 424
244 157
Total comprehensive (loss)/
income
Profit for the year
Other comprehensive loss
Share capital issued (Note 17)
Share-based payments (Note 28)
Dividends declared
–
–
–
6
–
–
–
–
–
–
–
–
(9 862)
13 641
3 779
6 450
10 229
–
(9 862)
13 641
–
13 641
(9 862)
(6)
561
–
–
–
–
–
561
–
10 637
(4 187)
–
–
(7 452)
24 278
(14 049)
–
561
(7 452)
Balance at 31 December 2020
1 397
885 648
(212 164)
(511 808)
163 073
84 422
247 495
Attributable to discontinued
operation (Note 16)
–
–
(53 046)
(192 252)
(245 298)
–
(245 298)
Balance at 1 January 2019
1 390
885 648
(152 029)
(578 834)
156 175
72 103
228 278
Total comprehensive income (loss)/
income
Profit for the year
Other comprehensive income (loss)/
income
Share capital issued (Note 17)
Transfer between reserves2
Share-based payments (Note 28)
–
–
–
1
–
–
–
–
–
–
–
–
(854)
–
(854)
2 617
2 617
1 763
2 617
13 321
7 959
15 084
10 576
–
(854)
5 362
4 508
–
(50 768)
794
–
50 768
–
1
–
794
–
–
–
1
–
794
Balance at 31 December 2019
1 391
885 648
(202 857)
(525 449)
158 733
85 424
244 157
Attributable to discontinued
operation (Note 16)
–
–
(51 916)
(190 107)
(242 023)
–
(242 023)
1 Other reserves relate to Foreign currency translation reserves and Share based equity reserves. Refer Note 17, Issued capital and reserves for further detail.
2
In 2019 the Company elected to release share-based equity reserve relating to lapsed and exercised options to accumulated (losses)/retained earnings.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 122
123
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2020
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
Cash flows from operating activities
Cash generated by operations
Working capital adjustments
Interest received
Interest paid
Income tax received/(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 from financing activities
Lease liabilities repaid
Net financial liabilities repaid
Financial liabilities repaid
Financial liabilities raised
Dividends paid to non-controlling interests
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Foreign exchange differences
Cash and cash equivalents
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
24.1
24.2
21
9
9
19
24.3
15
16
2020
US$’000
96 227
93 050
464
382
(3 558)
5 889
2019
US$’000
55 490
81 644
(2 854)
668
(5 181)
(18 787)
(48 718)
(80 769)
(1 571)
(47 167)
20
(9 671)
(73 175)
2 077
(12 995)
(14 076)
(1 906)
(6 431)
(55 638)
49 207
(4 658)
34 514
11 443
3 870
49 827
49 820
49 820
–
7
7
–
(1 901)
(12 175)
(47 056)
34 881
–
(39 355)
50 812
(24)
11 443
11 303
11 188
115
140
83
57
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)
and is domiciled in the United Kingdom (UK). The Company’s registration number is 669758.
These financial statements were authorised for issue by the Board on 10 March 2021.
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 2020:
Share-
holding
Cost of
investment¹
Country of
incorporation
Nature of business
100%
US$17
RSA
Technical, financial and management
consulting services.
100%
US$52 277
BVI
Dormant holding investment company
in process of being voluntarily
liquidated.
70%
US$126 000 303
Lesotho
100%
US$5 844 579
Botswana
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 dormant company
established in Lesotho to operate the
in-country diamond cutting and
polishing.
Diamond mining; evaluation and
development; and holder of mining
licences and concessions4.
Name and registered
address of company
Subsidiaries
Gem Diamond Technical
Services (Proprietary)
Limited2
Illovo Corner
24 Fricker Road
Illovo Boulevard
Johannesburg
South Africa
Gem Equity Group Limited3
2nd Floor, Coastal Building
Wickhams Cay II
PO Box 2221
Roadtown
Tortola
British Virgin Islands
Letšeng Diamonds
(Proprietary) Limited2
Letšeng Diamonds House
Corner Kingsway and Old
School Roads
Maseru
Lesotho
Gem Diamonds Botswana
(Proprietary) Limited2,4
Suite 103, GIA Centre
Diamond Technology Park
Plot 67782, Block 8
Gaborone
Botswana
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 124
125
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
1.
1.1 Corporate information (continued)
1.1.2 Operational information (continued)
Share-
holding
Name and registered
address of company
Subsidiaries
Gem Diamonds
Investments Limited2
Suite 1, 3rd Floor,
11-12 St. James Square,
London
SW1Y 4LB United Kingdom
Cost of
investment¹
Country of
incorporation
Nature of business
100%
US$17 531 316
UK
Investment holding company holding
100% in each of Calibrated Diamonds
Investment Holdings (Proprietary)
Limited; Gem Diamonds Innovation
Solutions CY Limited; Baobab
Technologies BVBA; and 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 Gem Equity Group (GEG) sold its investments, 2% in Gem Diamonds Marketing Services BVBA and 1% in Baobab Technologies investments, to Gem
Diamonds Investments Limited. Following the sale of GEG’s investments the GEG Board of Directors resolved to voluntarily liquidate GEG. As the operation is being closed
and not sold the closure has been classified as an abandonment by the Company.
The Ghaghoo Diamond Mine, which is in the process of being sold, has been classified as a discontinued operation held for sale since 30 June 2019 and disclosed
separately (refer Note 16, Asset held for sale).
4
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 since 30 June 2019.
Management monitors the operating results of the geographical units separately for the purpose of making decisions about
resource allocation and performance assessment.
Gem Diamonds Botswana (Ghaghoo Diamond Mine), which during the prior year was classified as a discontinued operation
held for sale and separately disclosed, continues to be classified as such as management remain committed to the sales process.
Refer Note 16, Asset held for sale.
During the year GEG, a dormant investment company, was abandoned. Following the sale of its investments the Board of
Directors of GEG resolved to voluntarily liquidate the operation. This process is expected to be concluded subsequent to year
end 31 December 2020. GEG is classified as part of the BVI, RSA, UK and Cyprus segment.
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 tables presents revenue from contracts with customers, profit/(loss) for the year, EBITDA and asset and liability
information from operations regarding the Group’s geographical segments:
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
1.
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
Lesotho
US$’000
Belgium
US$’000
BVI, RSA
UK and
Cyprus1
US$’000
Total
Continuing
operations
US$’000
Discontinued
operation
US$’000
Year ended 31 December 2020
Revenue from contracts with
customers
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)/income
Profit/(loss) for the year
EBITDA
Segment assets
Segment liabilities
Other segment information
Net cash and short-term deposits2
Capital expenditure
– Property, plant and equipment
– Net movement in rehabilitation asset3
– Waste cost capitalised
Total capital expenditure
Average number of employees
employed under contracts of
service
1 No revenue was generated in BVI and Cyprus.
Total
US$’000
382 623
(192 976)
189 647
52 490
9 070
43 420
561
39 602
(4 613)
34 989
(10 711)
24 278
5 997
(5 997)
382 623
(192 976)
–
1 463
1 463
–
392
(7 751)
(1 663)
(9 414)
258
(9 156)
189 647
52 490
9 070
43 420
555
42 664
(4 411)
38 253
(10 711)
27 542
–
–
–
–
–
–
6
(3 062)
(202)
(3 264)
–
(3 264)
186 801
(186 183)
618
50 636
7 216
43 420
157
49 061
(2 742)
46 319
(10 790)
35 529
59 038
396 040
63 733
189 825
(796)
189 029
391
391
–
6
1 354
(6)
1 348
(179)
1 169
1 748
1 694
(7 588)
53 198
(2 943)
50 255
6 597
404 331
496
13 719
77 948
40 311
877
(6 565)
34 623
1 535
(3 125)
47 167
45 577
323
7
–
–
7
6
29
–
–
29
21
1 571
(3 125)
47 167
45 613
3 528
4 224
407 859
82 172
7
–
–
–
–
34 630
1 571
(3 125)
47 167
45 613
350
31
381
2
Calculated as cash and short-term deposits less drawndown bank facilities (excluding the asset-based finance facility, insurance premium financing and rolling fees
capitalised to the Company’s $30.0 million bank loan facility. Refer Note 18, Interest bearing loans and borrowings).
3 Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.
Included in revenue for the current year is revenue from six customers which amounted to US$66.9 million arising from sales
reported in the Belgium segments.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.3 million and US$84.5 million respectively.
Total revenue for the year is higher than that of the prior year mainly due to higher sales prices achieved of US$1 908 (2019:
US$1 637).
During the year, COVID-19 had the following impact on revenue:
•
•
Production volumes were negatively impacted as a result of Letšeng’s production ceasing on 28 March – 26 April 2020, in
line with the COVID-19 lockdown restrictions instituted by the Government of Lesotho.
Six sales tenders were held compared to eight sales tenders during the prior year.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 126
127
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
1.
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies
1.
1.2
1.2.1 Basis of preparation
Lesotho
US$’000
Belgium
US$’000
BVI, RSA
UK and
Cyprus1
US$’000
Total
Continuing
operations
US$’000
Discontinued
operation2
US$’000
Total
US$’000
370 541
(188 494)
182 047
58 206
15 077
43 129
794
25 584
(5 988)
19 596
(9 020)
–
–
–
–
–
–
10
(4 274)
(180)
(4 454)
–
8 440
(8 440)
370 541
(188 494)
–
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)
15 030
179 313
(179 313)
–
57 293
182 788
(741)
182 047
374
14 164
43 129
264
38 524
(3 792)
34 732
(8 228)
49 014
393 107
59 854
374
–
6
863
(262)
601
(151)
1 206
2 477
(4 454)
10 576
(9 221)
(40 999)
(4 389)
36 610
8 722
404 306
600
16 293
76 747
3 943
4 221
408 249
80 968
(2 964)
1 505
(8 881)
(10 340)
140
(10 200)
8 166
157
73 175
81 498
324
–
–
324
1 196
–
–
1 196
9 843
157
73 175
83 018
–
–
–
–
9 843
157
73 175
83 018
Year ended 31 December 2019
Revenue from contracts with
customers
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/(loss) for the year
EBITDA
Segment assets
Segment liabilities
Other segment information
Net cash and short-term deposits3
Capital expenditure
– Property, plant and equipment
– Net movement in rehabilitation4
– Waste cost capitalised
Total capital expenditure
Average number of employees
employed under contracts of
service
1 No revenue was generated in BVI and Cyprus.
2
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.
Calculated as cash and short-term deposits less drawndown bank facilities (excluding the asset-based finance facility. Refer Note 18, Interest bearing loans and
borrowings).
4 Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.
Included in annual revenue for the 2019 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.
The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS),
as issued by the International Accounting Standards Board (IASB). 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 presented in US dollar and rounded to the nearest thousand. The
financial results 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 certain standards and amendments for the first time, which are effective for annual periods beginning on or
after 1 January 2020 and are listed in the table. The adoption of these new accounting pronouncements has not had a significant
impact on the consolidated financial statements of the Group nor the accounting policies, methods of computation or
presentation applied by the Group.
Amendments and New Standards
Description
The Conceptual
Framework for Financial Reporting
Amendments to IFRS 3
Amendments to IAS 1 and IAS 8
Revised Conceptual Framework for Financial Reporting
Definition of a business
Definition of material
Amendments to IFRS 9, IAS 39 and IFRS 7
Interest rate benchmark reform – Phase 1
Amendments to IFRS 16
COVID-19 Related Rent Concessions
Amendment to IFRS 16 – COVID-19 Related Rent Concessions
The amendment to IFRS 16, COVID-19 Related Rent Concessions, which is effective for annual financial reporting periods
beginning on or after 1 June 2020 has been early adopted by the Group during the current financial reporting period.
The amendment in the form of a practical expedient, provides optional relief to lessees on the treatment of rent concessions
occurring as a direct consequence of the COVID-19 pandemic.
The expedient allows lessees to account for such rent concessions as if they were not lease modifications if all of the following
conditions are met:
consideration for the lease immediately preceding the change;
(b) any reduction in lease payments affects only payments originally due on or before 30 June 2021; and
(c) there is no substantive change to other terms and conditions of the lease.
The practical expedient was applied to all leases where there was a change in lease payments granted by lessors as a direct
consequence of COVID-19 related rental concessions. For leases where concessions have been given in the form of forgiveness,
the Group included the forgiveness as negative variable lease payments in the Consolidated Statement of Profit or Loss. For
leases where concessions have been given in the form of payment deferrals, the Group continued to account for the lease
liability and right-of-use asset using the rights and obligations of the existing lease, with a separate lease payable being
recognised for the payment deferred in the period when the allocated lease cash payment is due. This adoption did not have a
material impact on the Group. Refer Note 10, Right-of-use assets and Note 19, Lease liabilities.
362
6
24
392
33
425
(a) the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
128
129
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.1 Basis of preparation (continued)
New standards issued but not yet effective
The new standards, amendments and improvements that are issued, but not yet effective, up to the date of issuance of the Group’s
consolidated financial statements are listed in the table below. These standards, amendments and improvements have not been
early adopted and it is expected that, where applicable, these standards, amendments and improvements will be adopted on each
respective effective date. The impact of the adoption of these standards cannot be reasonably assessed at this stage.
New standards,
amendments, and
improvements
IFRS 17
Description
Insurance contracts
Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform – Phase 2
Amendments to IAS 37
Onerous contracts – cost of fulfilling a contract
Amendments to IFRS 3
Reference to the Conceptual Framework
Effective date*
1 January 2023
1 January 2021
1 January 2022
1 January 2022
Amendments to IAS 16
Property, plant and equipment proceeds before intended use
1 January 2022
Amendments to IAS 1
Classification of liabilities as current or non-current
1 January 2023
Amendments to IFRS 10 and
IAS 28
Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture
Pending
Improvement IFRS 1
Subsidiary as a first-time adopter
1 January 2022
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
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.
The Group’s net cash at 31 December 2020 was US$34.6 million (31 December 2019: net debt US$10.2 million) and with its
undrawn facilities of US$60.8 million, its liquidity (defined as net cash and undrawn facilities) of US$95.4 million remains strong.
However, the Group’s Revolving Credit facilities, which total US$70.8 million when fully unutilised, mature within the next
12 months, with US$34.0 million maturing in July 2021, US$30.0 million expiring on 31 December 2021 and the balance of
US$6.8 million being a general banking facility with no set expiry date (Refer Note 18, Interest-bearing loans and borrowings).
Management have commenced discussions with lenders to restructure and extend the maturity dates of these facilities and are
confident that the facilities will be restructured as per previous successful renewals. The uncertainty that exists around the
ongoing impact of COVID-19 on future cashflows was considered by performing sensitivities on diamond pricing and diamond
production volumes and continued strengthening of the US$ against the Lesotho Loti.
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.
Improvement IFRS 9
Fees in the ’10 per cent’ test for derecognition of financial liabilities
1 January 2022
1.2.3 Basis of consolidation
Improvement IAS 41
Agriculture – Taxation in fair value measurements
1 January 2022
* Annual periods beginning on or after
Interest Rate Benchmark Reform – Phase 2
The amendment addresses issues that might affect financial reporting when an existing interest rate benchmark is replaced
with an alternative benchmark interest rate.
The Group and its funders have commenced a comprehensive debt refinancing programme of the Group’s facilities. The
refinancing programme incorporates the consideration of any risk posed to the Group by phase two of the IBOR reform, which
is effective from 1 January 2021. The IBOR reform may potentially have an impact on the JIBAR and LIBOR linked interest-bearing
loans and borrowings, which includes the LSL215.0 million unsecured project debt facility between Letšeng Diamonds and
Nedbank Limited and the Export Credit Insurance Corporation (ECIC) and the US$30.0 million revolving credit facility between
Gem Diamonds Limited and Nedbank Capital. Refer Note 18, Interest-bearing loans and borrowings for more information
regarding the maturities and the related benchmark rates subject to the IBOR reform on these loans. The Group will continue to
assess the impact of these amendments on the Group’s Consolidated Annual Financial Statements until initial application.
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 and
country risks on the operations and the financial position of the Group. The future business environment may differ from
management’s assessment.
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the
Company as at 31 December 2020.
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
gains and losses 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.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
130
131
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
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 judgements when determining whether the commercial viability of an
identified resource has been met and when determining whether indicators of impairment exist as referred under Note 1.2.28,
Critical accounting estimates and judgements.
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 a 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 9, Property, plant and equipment.
All development expenditure is monitored for indicators of impairment annually. Management is required to make certain
estimates and judgements 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.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.6 Property, plant and equipment (continued)
Item
Mining assets
Decommissioning assets
Leasehold improvements
Plant and equipment
Other assets
Method
Straight line
Straight line
Straight line
Straight line
Straight line
Useful life1
Lesser of life of mine or period of mining lease
Lesser of life of mine or period of mining lease
Three years; or lesser of life of mine or period of mining lease
Three to 15 years
Two to eight years
1
Certain asset classes are depreciated over the lesser of life of mine, or period of mining lease. Prior to 1 January 2020, the period of mining lease was shorter than the life of
mine. On 1 January 2020 a reassessment of assets’ useful lives was performed at Letšeng which resulted in a revision of assets’ useful lives being made from a remaining
useful life of five years (original period of mining lease) to 15 years (life of mine) due to the extension of the Letšeng mining lease. Furthermore, the useful life of plant and
equipment was reassessed from a useful life of 10 years to the remaining life of mine (15 years); and the useful life of vehicles, categorised within the “Other assets
category”, were reassessed from five years to eight years.
An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (i.e., at the
date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss
arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount
of the asset) is included in the statement of profit or loss when the asset is derecognised.
The asset’s residual values, useful lives and methods of depreciation are reviewed annually. Changes in the expected residual
values, expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are
considered to modify the depreciation period or method, as appropriate, and are treated as changes in accounting estimates,
and adjusted for prospectively, if appropriate.
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.
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 asset. 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.
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NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.7 Borrowing costs
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.9 Goodwill (continued)
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.
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.
1.2.8 Non-current assets held for sale and discontinued operations
1.2.10 Financial instruments
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 in Note 16, Assets held for sale. All other notes to the financial statements include amounts
for continuing operations, unless indicated otherwise.
1.2.9 Goodwill
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 fair value of 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 net identifiable amounts of the assets acquired
and the liabilities assumed in the business combination, 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.
The Group shall only recognise a financial instrument 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 transaction costs. Purchases
or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the
market place (regular way trades) are recognised on the trade date.
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 cost 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 are subsequently stated at amortised cost using the effective interest rate method, with any difference
between proceeds (net of transaction costs) and the redemption value being 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.
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.
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FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.11 Fair value measurement (continued)
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 that are measured at fair value on a recurring basis, the
Group determines whether transfers have occurred between levels in the fair 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
The Group assesses, at each reporting date, whether there is an indication that an asset (or CGU) may be impaired in accordance
with IAS 36. Goodwill is assessed for impairment on an annual basis and when circumstances indicate that the carrying value
may be impaired. 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.
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. Impairment losses relating to
goodwill cannot be reversed in future periods.
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).
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
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 consolidated statement of cash flows, 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 Group’s
presentation currency are translated into the Group’s 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.
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.
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FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.17 Share-based payments (continued)
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.19 Restoration and rehabilitation provision (continued)
Equity-settled transactions
The cost of equity-settled transactions with employees are measured by reference to the fair value of the equity instruments 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 of the vesting conditions or otherwise of the non-market
vesting conditions and of the number of equity instruments that is expected to 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 within the year of forfeiture.
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.
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
discount 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 provision
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, using a pre-tax discount rate. Discount rates used are specific to the country in which the operation is located or reasonable
alternatives if in-country information is not available. 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 a decommissioning
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 or to other comprehensive income, in which case the
tax consequences are recognised directly in equity and other comprehensive income respectively. 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.
The Group offsets deferred income tax assets and deferred income tax liabilities if, and only if, it has a legally enforceable right to
set off current tax assets and current tax liabilities and the deferred income tax assets and deferred income tax liabilities relate to
income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend
either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in
each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
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.
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.
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FOR THE YEAR ENDED 31 DECEMBER 2020 continued
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
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 measured at the amount the obligation is expected to be settled or discounted to present value using a pre-tax discount rate
where relevant or where time value of money is expected to be significant. 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. The lease component is accounted for under the requirements of IFRS 16 and the non-lease component
is accounted for using the relevant standard based on the nature of the non-lease component.
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. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the
estimated useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost
reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. Right-of-use
assets are subject to impairment. Refer Note 1.2.12, Impairments.
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.
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 qualitatively and quantitatively 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.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
Summary of significant accounting policies (continued)
1.
1.2
1.2.22 Leases (continued)
Group as a lessor
Where the Group is a lessor, it determines at inception whether the lease is a finance or operating lease. When a lease transfers
substantially all the risks and rewards of ownership of the underlying asset then the lease is a finance lease; otherwise the lease
is an operating lease.
Where the Group is an intermediate lessor, the interest in the head lease and the sub-lease is accounted for separately and the
lease classification of a sub-lease is determined by reference to the Right-of-use-asset arising from the head lease. Income from
operating leases is recognised 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 or when polished sales prices are mutually agreed between the customer and the Group.
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 or the polished sales prices are mutually agreed between the third party and the
Group 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.
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.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
140
141
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
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 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 income and expenses 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.
COVID-19
The Group has considered the impact of COVID-19 on its significant accounting judgements and estimates. The Group’s main
source of estimation uncertainty is in relation to assumptions used for the assessment of impairment and impairment reversal
of assets. No further significant estimates have been identified as a result of COVID-19, although the pandemic has increased the
level of uncertainty inherent in all future cash flow forecasts.
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.
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.
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)
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. Refer Note 12,
Impairment testing, for further estimates and judgements applied.
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 5.3%
(2019: 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 2020 of LSL14.69
(31 December 2019: 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 10.8% for revenue (2019: 11.2%) and 14.3% for costs (2019: 14.7%) 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.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
142
143
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 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)
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)
Judgement (continued)
Sensitivity
The value in use for Letšeng indicated sufficient headroom, and the further changes to key assumptions which could result in
impairment are disclosed in Note 12, Impairment testing.
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 i) the production of inventory and ii) in the creation of
future benefits by improving access and mining flexibility in respect of the ore to be mined, (the ‘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 stripped to the volume (tonnes) of ore mined 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
An amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA) in December 2019, contradicting
the application of certain tax treatments in the current Lesotho Income Tax Act 1993. In March 2020, Letšeng lodged an objection
to the assessment, which was supported by the opinion of senior counsel, together with an application for the suspension of
payment. The suspension of payment was accepted. The LRA has subsequently lodged an application to the Lesotho High Court
pertaining to this matter, to which Letšeng is opposing. The matter has been set down for hearing in August 2021.
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.
No provision or contingent liability, relating to the amended tax assessment in question, is required to be raised in the 2020
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. A portion of the lease payment is expensed in the consolidated statement of profit or loss and the
portion relating to waste removal/stripping costs is capitalised to the waste stripping asset in the proportions referred to under
the estimate and judgements applied to the Capitalised stripping costs (deferred waste) above. Refer Note 25, Commitments
and contingencies.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
144
145
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
2020
US$’000
2019
US$’000
189 028
618
1
182 046
–
1
189 647
182 047
26
(23)
(30)
(3 884)
(3 911)
90
(7)
762
–
845
2.
REVENUE FROM CONTRACTS WITH CUSTOMERS
Sale of goods
Partnership arrangements
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 partnership arrangements of US$0.6 million represents the additional uplift
from partnership arrangements for which revenue is recognised when the amount is
guaranteed (2019: Nil).
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 arrangements during the current or prior year
(2020: Nil) (2019: Nil).
3.
OTHER OPERATING (EXPENSES)/INCOME
Sundry income
Sundry expenses
(Loss)/profit on disposal and scrapping of property, plant and equipment
COVID-19 Standing costs
COVID-19 standing costs
In compliance with the Government of Lesotho’s lockdown order, Letšeng temporarily
suspended operations between 28 March and 26 April and placed the mine on care and
maintenance. After successfully engaging with the Government of Lesotho to designate
mining as an essential service, a restart and ramp-up plan was implemented commencing in
May, whereby normal production levels for both treatment plants were achieved by 27 May,
with incidental waste mining commencing in May and reaching normal levels in July. During
the care and maintenance and ramp-up periods where normal waste stripping and carat
production levels were disrupted, certain standing fixed mining contract and ore stockpile
movement costs incurred were recognised as abnormal costs and have been expensed
immediately in the Statement of profit or loss. Of these costs, US$1.0 million related to costs
incurred to implement protocols throughout the Group to address the risk and curb the
spread of COVID-19.
4.
OPERATING PROFIT
Operating profit includes such non-operating costs and income as listed below:
Depreciation and amortisation
Depreciation and amortisation excluding waste stripping costs
Depreciation of right-of-use assets
Waste stripping costs amortised
Add/(less): Depreciation and mining asset amortisation capitalised to inventory
Inventories
Cost of inventories recognised as an expense
Foreign exchange
Foreign exchange (loss)/gain
Lease expenses not included in lease liability
Mine site property
Equipment and service lease
Contingent rental – Alluvial Ventures
Leased premises
Auditor’s remuneration – EY
Group financial statements
Statutory
Auditor’s remuneration – other audit firms
Statutory
Other non-audit fees – EY
Tax compliance
Tax services advisory and consultancy
Other services2
Other non-audit fees – other audit firms
Internal audit
Tax services advisory and consultancy
2020
US$’000
2019
US$’000
(7 046)
(2 043)
(43 420)
(52 509)
19
(52 490)
(12 400)
(2 526)
(43 129)
(58 055)
(151)
(58 206)
(105 524)
(114 678)
(880)
3 550
(69)
(7 280)
(5 190)
–
(12 537)
(146)
(6 377)1
(9 472)
(152)
(16 147)1
(296)
(176)
(472)
(17)
(5)
(13)
–
(18)
–
(15)
(15)
(296)
(155)
(451)
(17)
(34)
(9)
(15)
(58)
(2)
–
(2)
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 and income
as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:
Operating profit
Other operating income5
Foreign exchange loss/(gain)
Share-based payments
Depreciation and amortisation (excluding waste stripping cost amortised)
Underlying EBITDA before discontinued operation
(18 781)
(20 467)4
42 664
27
880
555
9 070
53 196
29 858
(845)
(3 550)
784
14 752
40 999
1 These expenses consist of mining activities outsourced to a mining contractor. In 2019 the expense incorrectly included the portion of expenses which are capitalised to
the Stripping Activity Asset, the comparatives have been corrected to exclude the capitalised expenses. This did not impact the totals included within the Consolidated
Annual Financial Statements nor the earnings per share of 2019. Refer Significant accounting policies Note 1.2.6, Property Plant and equipment, Note 1.2.28, Critical
accounting estimates and judgements, Note 9, Property, plant and equipment and Note 19, Lease liabilities.
Includes services related to the sale of assets.
Includes contributions to defined contribution plan of US$0.5 million (31 December 2019: US$0.5 million). An average of 381 employees excluding contractors were
employed during the period (2019: 425).
In 2019 the discontinued operation salaries and wages were incorrectly included in this disclosure, however this did not impact the totals included within the
Consolidated Annual Financial Statements nor the Earnings per share of 2019. The comparative has been corrected to exclude the salaries and wages related to the
discontinued operation..
2
3
4
5 Excludes COVID-19 standing costs which are considered as operating costs.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 146
147
5.
6.
7.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
RECLASSIFICATION OF FOREIGN CURRENCY TRANSLATION RESERVE
During the prior year the Group abandoned Gem Diamonds Marketing Botswana (Proprietary) Limited, the sales and
marketing office for Ghaghoo’s diamonds and Gem Diamonds Technology DMCC. As the operations were closed and not sold
the closure was classified as an abandonment, which resulted in the recycling of the foreign currency translation reserve. There
was no profit or loss on the abandonment.
NET FINANCE COSTS
Finance income
Bank deposits
Other
Total finance income
Finance costs
Bank overdraft
Finance costs on borrowings
Finance costs on lease liabilities
Finance costs on unwinding of rehabilitation and decommissioning provision
Total finance costs
INCOME TAX EXPENSE
Current
– Foreign
Withholding tax
– Foreign
Deferred
– Foreign
Income tax expense
Profit before taxation from continuing operations
Reconciliation of tax rate
Applicable income tax rate
Permanent differences
Unrecognised deferred tax assets
Effect of foreign tax at different rates
Withholding tax
Effective income tax rate
2020
US$’000
2019
US$’000
358
24
382
–
(3 297)
(608)
(888)
(4 793)
(4 411)
668
–
668
(459)
(3 981)
(1 087)
(949)
(6 476)
(5 808)
(11 593)
(1 805)
(529)
(143)
1 411
(10 711)
(7 072)
(9 020)
38 253
24 050
%
25.0
(3.0)
3.0
1.7
1.3
28.0
%
25.0
0.8
7.9
3.2
0.6
37.5
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than the statutory UK corporation tax rate
of 19.0% as this is the jurisdiction in which the majority of the Group’s taxes are incurred.
8.
EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted earnings per
share computations:
Profit for the year:
Continuing operations
Discontinued operation
Less: Non-controlling interests
Net profit attributable to ordinary equity holders of the parent for basic and
diluted earnings
2020
US$’000
2019
US$’000
24 278
27 542
(3 264)
(10 637)
10 576
15 030
(4 454)
(7 959)
13 641
2 617
Weighted average number of ordinary shares outstanding during the year (‘000)
139 273
138 964
Earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year after taking into account future potential conversion
and issue rights associated with the ordinary shares.
Weighted average number of ordinary shares outstanding during the year
Effect of dilution:
– Future share awards under the Employee Share Option Plan
2020
Number of
shares
2019
Number of
shares
139 273
138 964
2 341
2 640
Weighted average number of ordinary shares outstanding during the year adjusted for the
effect of dilution
141 614
141 604
There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and
the date of completion of these financial statements.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 148
149
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
9.
PROPERTY, PLANT AND EQUIPMENT
9.
Stripping
activity
asset
US$’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 2020
Cost
Balance at 1 January 2020
Additions
Net movement in
rehabilitation provision
Disposals
Scrapping2
Reclassifications
Foreign exchange
differences
Balance at
31 December 2020
Accumulated
depreciation/
amortisation/
impairment
Balance at 1 January 2020
Charge for the year3
Disposals
Scrapping2
Foreign exchange
differences
Balance at
31 December 2020
Net book value at
31 December 2020
562 583
47 167
122 061
–
(990)
–
–
–
–
–
(2 929)
504
(21 405)
(4 586)
587 355
115 050
369 388
43 420
–
–
53 936
1 174
–
(2 929)
(11 365)
(2 992)
401 443
49 189
185 912
65 861
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5 822
–
58 219
7
84 757
1 561
6 999
3
840 441
48 738
(1 373)
–
–
–
(381)
–
(610)
674
(381)
–
(993)
(1 751)
–
(85)
(444)
573
(3 125)
(85)
(4 976)
–
(330)
(1 954)
(3 725)
555
(31 445)
4 119
55 955
79 468
7 601
849 548
4 102
88
–
–
23 901
2 834
–
(567)
60 128
2 513
–
(987)
5 133
458
(41)
(488)
516 588
50 487
(41)
(4 971)
(71)
36
(2 504)
377
(16 520)
4 119
26 204
59 150
5 439
545 543
–
29 751
20 318
2 162
304 005
1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.
2
3
Certain assets at Letšeng that were no longer in use were scrapped.
A reassessment of assets’ useful lives was undertaken at Letšeng with certain assets’ useful lives being realigned from the period of mining lease to the life of mine. The
reduction in depreciation charge of US$3.4 million is expected to continue into the future. Refer Note 1.2.6, Property, plant and equipment.
PROPERTY, PLANT AND EQUIPMENT (continued)
Exploration
and
develop-
ment
assets
US$’000
Stripping
activity
asset
US$’000
Mining
asset
US$’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
–
–
–
(150 911)2
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
–2
5 822
58 219
84 757
6 999
849 821
316 412
43 129
–
–
9 847
51 652
1 963
–
–
321
147 441
–
–
(149 441)2
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
193 195
68 125
–2
–2
4 102
23 901
60 128
5 133
525 968
1 720
34 318
24 629
1 866
323 853
1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.
2
In 2019 only a portion of the exploration and development asset cost and accumulated depreciation was allocated to the asset held for sale, however this asset only
related to the asset held for sale. The previously incorrectly unallocated portion of cost and accumulated depreciation of US$9.4 million, which had a net book value of
nil, has been corrected in the prior period property, plant and equipment reconciliation and allocated to asset held for sale. This correction did not impact the totals
included within the Consolidated Annual Financial Statements nor the reported earnings per share.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 150
151
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
11.
INTANGIBLE ASSETS
As at 31 December 2020
Cost
Balance at 1 January 2020
Foreign exchange difference
Balance at 31 December 2020
Accumulated amortisation
Balance at 1 January 2020
Amortisation
Balance at 31 December 2020
Net book value at 31 December 2020
As at 31 December 2019
Cost
Balance at 1 January 2019
Foreign exchange difference
Balance at 31 December 2019
Accumulated amortisation
Balance at 1 January 2019
Amortisation
Balance at 31 December 2019
Net book value at 31 December 2019
1 Goodwill allocated to Letšeng Diamonds. Refer Note 12, Impairment for impairment testing.
Intangibles
US$’000
Goodwill1
US$’000
Total
US$’000
791
–
791
791
–
791
–
791
–
791
791
–
791
–
13 653
(656)
14 444
(656)
12 997
13 788
–
–
–
791
–
791
12 997
12 997
13 272
381
13 653
–
–
–
14 063
381
14 444
791
–
791
13 653
13 653
10. RIGHT-OF-USE ASSETS
As at 31 December 2020
Cost
Balance at 1 January 2020
Additions
Derecognition of lease
Foreign exchange differences
Balance at 31 December 2020
Accumulated depreciation
Balance at 1 January 2020
Charge for the year
Derecognition of lease
Foreign exchange differences
Balance at 31 December 2020
Net book value at 31 December 2020
As at 31 December 2019
Cost
Balance at 1 January 2019
Additions
Foreign exchange differences
Balance at 31 December 2019
Accumulated depreciation
Balance at 1 January 2019
Charge for the year
Foreign exchange differences
Balance at 31 December 2019
Net book value at 31 December 2019
Right-of-use assets
Plant and
equipment
US$’000
Motor
vehicles
US$’000
Buildings
US$’000
Total
US$’000
2 012
821
(585)
(31)
2 217
980
793
(115)
79
1 737
480
1 350
616
46
2 012
977
3
980
1 032
1 656
-
(1 019)
(273)
364
361
114
(175)
(45)
255
109
1 620
–
36
1 656
360
1
361
1 295
7 318
354
(988)
(240)
6 444
1 191
1 136
(196)
79
2 210
4 234
6 642
540
136
7 318
1 189
2
1 191
6 127
10 986
1 175
(2 592)
(544)
9 025
2 532
2 043
(486)
113
4 202
4 823
9 612
1 156
218
10 986
2 526
6
2 532
8 454
Buildings comprise office buildings in Maseru, Antwerp, London and Johannesburg. Plant and equipment mainly comprise back-up
power generating equipment utilised at Letšeng. Motor vehicles mainly comprise vehicles utilised by contractors at Letšeng.
Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.
During the year, Letšeng entered into a new contract with its existing ore processing contractor. The original contract, which was
assessed as containing a lease on adoption on 1 January 2019, was cancelled. The new contract was assessed as not containing a
lease, as Letšeng no longer retained the right to control the use of the assets associated with the contract. All assets and liabilities
associated with the original lease were derecognised. Furthermore, Gem Diamonds Limited (GDL) entered into a new contract for
the rental of its office space in London. The new contract was assessed as containing a lease resulting in the recognition of the
associated assets and liabilities. The original contract was cancelled, and the associated assets and liabilities were derecognised.
Total gains of US$0.2 million relating to the derecognition of leases in the Group have been recognised in the Consolidated
Statement of Profit or Loss. Refer Note 19, Lease Liabilities and Note 24.1, Cash generated by operations.
During the year the Group recognised income of US$0.3 million (2019: US$0.6 million) from the sub-leasing of office buildings in
Maseru. The Group expects to receive the following lease payments from the operating sub-leasing in the following years:
2021
2022
2023
2024
2025
US$ ‘000’s
105
111
117
123
96
The Group early adopted IFRS 16 – COVID-19 Related Rent Concessions and applied the practical expedient to all rental
concessions received as a direct consequence of the COVID-19 pandemic. This adoption did not have a material impact on the
Group. Refer Note 1.2.1, Basis of preparation.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 152
153
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
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 2020. 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
2020, 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
2020
US$’000
2019
US$’000
12 997
12 997
13 653
13 653
Movement in goodwill relates to foreign exchange translation from functional to presentation currency, as disclosed within
Note 11, Intangible assets.
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.
Discount rate – Letšeng Diamonds
Applied to revenue
Applied to costs
2020
%
10.8
14.3
2019
%
11.2
14.7
Value in use
Cash flows are projected for a period up to the date that the open pit mining is expected to cease in 2034. This is based on
the latest available mine plan and is shorter than the mining lease period which extends to 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
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.
The diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends
and anticipated market supply and the Group’s medium-term forecast. Long-term diamond price escalation reflects the Group’s
assessment of market supply/demand fundamentals. The valuation of Letšeng at 31 December 2020 exceeded the carrying
value by US$83.0 million (31 December 2019: US$86.0 million). The valuation is sensitive to input assumptions particularly in
relation to the foreign exchange assumption of the US dollar (US$) to the Lesotho loti (LSL) and the future price growth for
diamonds. The Group has assumed an appropriate price increase for its diamonds following the market improvement noted in
the diamond prices in the second half of the year.
A range of alternative scenarios have been considered in determining whether there is a reasonably possible change in the
foreign exchange rates in conjunction with a reasonably possible change in the diamond price recovery, which would result
in the recoverable amount equating to the carrying amount. A 10% strengthening of the LSL to the US$ to US$1:LSL13.20 or a
further reduction of 9% to the starting diamond prices would result in the recoverable amount equating to the carrying value,
with other valuation assumptions remaining the same.
As a result, no impairment charge was recognised during the year.
13. RECEIVABLES AND OTHER ASSETS
Non-current
Deposits
Current
Trade receivables
Prepayments
Deposits
Other receivables
VAT receivable
The carrying amounts above approximate their fair value due to the nature of the instruments.
Analysis of trade receivables base on their terms and conditions
Neither past due nor impaired
Past due but not impaired:
Less than 30 days
30 to 60 days
60 to 90 days
90 to 120 days
2020
US$’000
2019
US$’000
153
–
22
1 349
–
135
4 180
5 686
–
22
–
–
–
22
89
1 087
94
797
4 270
6 243
39
50
–
–
–
89
Based on the nature of the Group’s client base, other financial assets and the negligible exposure to credit risk, the expected
credit loss is insignificant and has no impact on the Group.
14.
INVENTORIES
Diamonds on hand
Ore stockpiles
Consumable stores
2020
US$’000
2019
US$’000
15 558
2 365
8 818
26 741
21 743
1 816
8 958
32 517
Inventory is carried at the lower of cost or net realisable value. During the year no write-downs to net realisable value were
recorded.
15.
CASH AND SHORT-TERM DEPOSITS
Cash on hand
Bank balances
Short-term bank deposit
2020
US$’000
2019
US$’000
4
35 456
14 360
49 820
1
10 971
331
11 303
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 154
155
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
15. CASH AND SHORT-TERM DEPOSITS (continued)
The amounts reflected in the financial statements approximate fair value due to the short-term maturity and nature of cash
and short-term deposits.
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.
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 2020, the Group had US$60.8 million (31 December 2019: US$69.9 million) of undrawn facilities, representing
the LSL500.0 million (US$34.0 million) three-year unsecured revolving working capital facility at Letšeng, the Letšeng
ZAR100.0 million (US$6.8 million) working capital facility and US$20.0 million from the Company’s 12 month unsecured
revolving credit facility. For further details on these facilities, refer Note 18, Interest-bearing loans and borrowings.
16
ASSETS HELD FOR SALE
In line with the strategic objective to dispose of non-core assets, the Board and Management remain committed to the sale of
Gem Diamonds Botswana (Pty) Ltd which owns the Ghaghoo diamond mine. The binding agreement that Gem Diamonds
entered into in June 2019 for the sale of 100% of the share capital of GDB lapsed due to certain suspensive conditions not
having been met, however Management again opened the process to other prospective buyers during the year and has
entered into an exclusivity arrangement with an interested party with whom potential sale discussions are continuing. The
sales process faced considerable delays in 2020 largely due to the impact of COVID-19 and in particular the related travel
restrictions that prohibited site visits which had been requested for due diligence purposes. This process is expected to be
concluded in 2021. During the year, some consumable inventory items were written off relating to expired explosives and
plant consumables; and spares and accessories for automotives no longer on site.
The asset held for sale is carried at carrying value which is lower than fair value less costs to sell. The fair value is based on
unobservable market offers from potential buyers for the disposal group, accordingly the non-recurring fair value
measurement is included in level 3 of the fair value hierarchy.
The trading results of the operation continue to be classified as a discontinued operation held for sale and are presented as
follows:
Gross profit
Other costs
Inventory write-down
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 attributable to equity holders of the parent
Loss per share from discontinued operation (cents)
Basic
Diluted
2020
US$’000
2019
US$’000
–
(2 816)
(240)
(6)
–
(3 062)
(202)
(3 264)
–
(3 264)
(2.3)
(2.3)
–
(4 389)
–
(10)
125
(4 274)
(180)
(4 454)
–
(4 454)
(3.2)
(3.1)
Gem Diamonds Botswana incurred rental expenses from short-term leases of US$0.9 million (31 December 2019:
US$1.6 million) during the year.
Gem Diamonds Botswana has estimated tax losses of US$185.2 million (31 December 2019: US$184.9 million) for which no
deferred tax asset has been recognised. Deferred tax assets of US$0.3 million were recognised to the extent of the deferred tax
liabilities. These have been offset in the table below.
16
ASSETS HELD FOR SALE (continued)
ASSETS
Non-current assets
Property, plant and equipment
Current assets
Inventories
Receivables and other assets
Cash and short-term deposits
Total assets
LIABILITIES
Non-current liabilities
Provisions
Current liabilities
Trade and other payables
Total liabilities
The net cash flows attributable to the discontinued operation held for sale are as follows:
Operating cash outflows
Investing
Financing cash inflows1
Foreign exchange (loss)/gain on translation of cash balance
Net cash (outflow)/inflow
2020
US$’000
2019
US$’000
1 533
1 568
1 774
214
7
1 995
3 528
2 136
99
140
2 375
3 943
3 753
3 613
471
4 224
(2 920)
–
2 850
(63)
(133)
608
4 221
(4 323)
–
4 384
2
63
1 Financing provided by Gem Diamonds Botswana (Pty) Ltd’s holding company, being Gem Diamonds Limited, to fund care and maintenance costs .
17.
ISSUED SHARE CAPITAL AND RESERVES
Share capital
Authorised – ordinary shares of US$0.01 each
As at year end
Issued and fully paid balance at beginning of year
Allotments during the year
Balance at end of year
31 December 2020
31 December 2019
Number
of shares
US$’000
200 000
138 984
628
139 612
US$’000
2 000
1 391
6
1 397
Number
of shares
‘000
200 000
138 896
88
138 984
US$’000
2 000
1 390
1
1 391
Share premium
Share premium comprises the excess value recognised from the issue of ordinary shares above its par value.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 156
157
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
17.
ISSUED SHARE CAPITAL AND RESERVES (continued)
Other reserves
Balance at 1 January 2020
Other comprehensive income
Total comprehensive income
Share capital issue
Share-based payments
Balance at 31 December 2020
Balance at 1 January 2019
Other comprehensive expense
Total comprehensive expense
Share-based payments
Transfer between reserves1
Balance at 31 December 2019
Foreign
currency
translation
reserve
US$’000
(208 493)
(9 862)
(9 862)
–
–
Share-
based
equity
reserve
US$’000
5 636
–
–
(6)
561
Total
US$’000
(202 857)
(9 862)
(9 862)
(6)
561
(218 355)
6 191
(212 164)
(207 639)
(854)
(854)
–
–
55 610
–
–
794
(50 768)
(152 029)
(854)
(854)
794
(50 768)
(208 493)
5 636
(202 857)
1
In the prior year 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 and Botswana (2019: United Arab Emirates operation abandoned in 2019) subsidiaries’
functional currencies are different to the Group’s presentation 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$1
2020
16.47
14.69
11.45
10.80
–
–
2019
14.45
13.98
10.76
10.58
3.67
3.67
Share-based equity reserves
For details on the share-based equity reserve, refer Note 28, Share-based payments.
Capital management
For details on capital management, refer Note 27, Financial risk management.
18.
INTEREST-BEARING LOANS AND BORROWINGS
Effective interest rate
Maturity
2020
US$’000
2019
US$’000
Non-current
LSL215.0 million bank loan facility
Tranche 1
Tranche 2
ZAR12.8 million asset-based
finance facility
Current
LSL215.0 million bank loan facility
Tranche 1
Tranche 2
LSL14.5 million insurance
premium finance
US$30.0 million bank
loan facility
US$45.0 million bank
loan facility
Tranche 1
Tranche 2
ZAR12.8 million asset-based
finance facility
ZAR1.8 million insurance
premium finance
South African JIBAR + 3.15%
31 March 2022
South African JIBAR + 6.50% 30 September 2022
South African Prime Lending Rate
1 January 2024
477
817
408
1 702
4 291
1 168
550
6 009
South African JIBAR + 3.15%
31 March 2022
South African JIBAR + 6.75% 30 September 2022
635
3 268
3 433
667
2.95% fixed interest
30 June 2021
542
London US$ three-month LIBOR + 5.0% 31 December 2021
9 700
–
–
London US$ three-month LIBOR + 4.5% 31 December 2020
London US$ three-month LIBOR +4.5% 31 December 2020
–
–
10 000
2 000
South African Prime Lending Rate
1 January 2024
176
232
2.5% fixed interest
1 May 2021
64
–
14 385
16 332
LSL215.0 million (US$14.6 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$12.2 million) debt facility supported by the Export Credit
Insurance Corporation (ECIC) (five years tenure); and
Tranche 2: Lesotho loti denominated LSL35.0 million (US$2.4 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 to fund
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 LSL76.3 million (US$5.2 million) (31 December 2019: LSL133.7 million
(US$9.6 million)) remains outstanding.
The South African rand-based interest rates for the facility at 31 December 2020 are:
•
•
Tranche 1: 10.10% (31 December 2019: 9.95%); and
Tranche 2: 6.50% (31 December 2019: 13.55%).
The South African prime lending rate has reduced materially during the year due to the South African Reserve Bank reducing
the repo rate to provide relief during the COVID-19 pandemic.
Total interest for the year on this interest-bearing loan was US$0.6 million (31 December 2019: US$2.2 million).
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 158
159
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
18.
INTEREST-BEARING LOANS AND BORROWINGS (continued)
US$30.0 million (2019: US$45.0 million) bank loan facility at Gem Diamonds Limited
This facility was a three-and-a-half-year revolving credit facility (RCF) with Nedbank Capital which consisted of two tranches:
•
•
Tranche 1: related to the Ghaghoo US$25.0 million debt whereby capital repayments commenced in September 2018 with
final repayment made on 31 December 2020; and
Tranche 2: this tranche of US$20.0 million related to an RCF which included an upsize mechanism whereby the tranche
increased by a ratio of 0.6:1 for every repayment made under Tranche 1.
Upon expiry of the RCF on 31 December 2020, it was rolled into a US$30.0 million facility with no tranches for a period of
12 months. The facility will expire on 31 December 2021.
At year end US$Nil million (31 December 2019: US$10.0 million) had been drawn down under the facility under Tranche 1
and US$10.0 million (31 December 2019: US$2.0 million) under Tranche 2 which was rolled into a new US$30.0 million RCF.
This resulted in US$20.0 million remaining undrawn under the new RCF. Facility rolling fees of US$0.3 million were incurred,
which were capitalised to the loan balance, resulting in the disclosure of a net US$9.7 million loan balance. The capitalised
rolling fees will be amortised and accounted for as finance costs within profit or loss over the period of the facility (2020: nil).
The US dollar-based interest rate for this facility at 31 December 2020 is 4.72% (31 December 2019: 6.44%).
Total interest for the year on this interest-bearing RCF was US$1.2 million (31 December 2019: US$1.7 million).
ZAR12.8 million (US$0.9 million) Asset-Based Finance facility
In January 2019, 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 ZAR8.6 million (US$0.6 million) remains outstanding
(31 December 2019: ZAR 10.9 million, US$0.8 million). The facility is repayable over five years and bears interest at the South
African Prime Lending rate, which was 7.00% at 31 December 2020 (31 December 2019: 10.00%).
Total interest for the year on this interest-bearing ABF was US$0.1 million (31 December 2019: US$0.1 million).
ZAR14.5 million insurance premium finance
The Group through its subsidiary Letšeng Diamonds, entered into a LSL14.5 million (US$1.0 million) 12-month funding
agreement with Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk
insurance premium. At year end LSL7.5 million (US$0.5 million) remains outstanding. The funding is repayable in 12-monthly
instalments and bears a fixed interest rate of 2.95%. Total interest on this funding is LSL0.4 million (US$25.9 thousand) of which
LSL0.3 million (US$18.9 thousand) was paid during the year.
ZAR1.8 million insurance premium finance
The Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR1.8 million (US$0.1 million) 12-month
funding agreement with Premium Finance Partners (Proprietary) Limited for its annual Group Umbrella Liability insurance
premium. At year end US$64.3 thousand remains outstanding. The funding is repayable in 10-monthly instalments and bears
interest at a fixed rate of 2.50%. Total interest on this funding is ZAR45.2 thousand (US$2.7 thousand) of which
ZAR18.3 thousand (US$1.1 thousand) interest was paid during the year.
Other facilities
The Group through its subsidiary Letšeng Diamonds, has a LSL500.0 million (US$34.0 million) three-year unsecured revolving
working capital facility jointly with Standard Lesotho Bank and Nedbank Capital, which was renewed in July 2018 and expires
in July 2021. The facility is expected to be renewed during 2021. There was no draw down of this facility at year end.
The Group, through its subsidiary, Letšeng Diamonds, has a ZAR100.0 million (US$6.8 million) overdraft facility with Nedbank
Limited (acting through its Nedbank Corporate and Investment Banking division). There was no draw down of this facility at
year end.
19.
LEASE LIABILITIES
Non-current
Current
Total lease liabilities
Reconciliation of movement in lease liabilities
As at 1 January
Additions
Interest expense
Lease payments
Derecognition of lease
Foreign exchange differences
As at 31 December
2020
US$’000
2019
US$’000
4 902
1 836
6 738
10 479
1 175
608
(2 522)
(2 296)
(705)
6 739
8 539
1 940
10 479
11 043
1 156
1 087
(2 988)
–
181
10 479
Lease payments comprise payments in principle of US$1.9 million (31 December 2019: US$1.9 million) and repayments of
interest US$0.6 million (31 December 2019: US$1.1 million).
The Group recognised variable lease payments of US$41.4 million (31 December 2019: US$53.6 million) for the year ended
31 December 2020 which consist of mining activities outsourced to a mining contractor. Total costs incurred for the year
amount to US$41.4 million (31 December 2019: US$53.6 million) of which US$34.1 million (31 December 2019:
US$47.2 million) has been capitalised to the Stripping Asset. Refer Note 1.2.6, Property Plant and equipment, Note 1.2.28,
Critical accounting estimates and judgements, Equipment and service lease, Note 4, Operating profit.
Residual value guarantees of US$0.1 million (31 December 2019: US$0.1 million) exist on leases for backup power generating
equipment at Letšeng, which represents the cost to decommission and return the power generating equipment to the
supplier at the end of the lease term.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 160
161
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
20.
TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits1
Current
Trade payables2
Accrued expenses2
Leave benefits
Royalties and withholding taxes2
Dividend payable to non-controlling interest
Other
2020
US$’000
2019
US$’000
2 029
1 936
12 892
8 169
685
3 955
3 064
58
28 823
13 368
8 817
615
3 573
–
17
26 390
1
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.
2 These amounts are mainly non-interest bearing and are settled in accordance with terms agreed between the parties.
Royalties consist of a levy paid to the Government of the Kingdom of Lesotho on the value of diamonds sold by Letšeng.
In November, Letšeng declared a LSL400.0 million dividend (US$24.8 million), of which LSL150.0 million remains unpaid at year end
(US$10.2 million). The dividend payable to the Non-controlling interest represents 30% of the unpaid dividend, payable to the
Government of Lesotho.
The carrying amounts above approximate fair value.
21.
INCOME TAX PAYABLE/(RECEIVABLE)
Reconciliation of movement in income tax payable
Balance at 1 January
Payments received/(made) during the year
Income tax charge
Foreign exchange differences
Balance at 31 December
Split as follows
Income tax receivable
Income tax payable
22.
PROVISIONS
Rehabilitation provisions
2020
US$’000
2019
US$’000
(8 176)
5 889
11 593
2 528
11 834
(106)
11 940
8 964
(18 787)
1 948
(301)
(8 176)
(8 189)
13
22.
PROVISIONS (continued)
Rehabilitation provisions (continued)
In determining the amounts attributable to the rehabilitation provision at the Lesotho mining area, management used a
discount rate of 9.7% (31 December 2019: 6.7%), estimated rehabilitation timing of 15 years (31 December 2019: 17 years) and
an inflation rate of 5.3% (31 December 2019: 5.0%). At the Botswana mining area, management used the available estimated
costs to rehabilitate, considering its care and maintenance state. In addition to the changes in the discount rates, inflation and
rehabilitation timing, the (decrease)/increase in the provision at Letšeng and Ghaghoo (Refer Note 16, Asset held for sale)
respectively is attributable to the annual reassessment of the estimated closure costs performed at the operations together
with the ongoing rehabilitation spend during the year at Letšeng.
23. DEFERRED TAXATION
Deferred tax assets
Lease liabilities
Accrued leave
Provisions
Deferred tax liabilities
Property, plant and equipment
Right-of-use assets
Prepayments
Unremitted earnings
Net deferred tax liability
Reconciliation of net deferred tax liability
Balance at beginning of year
Movement in current period:
– Accelerated depreciation for tax purposes
– Accrued leave
– Operating lease liability
– Unremitted earnings
– Prepayments
– Provisions
– Lease liabilities
– Right-of-use assets
– Foreign exchange differences
2020
US$’000
2019
US$’000
1 683
263
4 400
6 346
(79 902)
(1 236)
(218)
(3 182)
2 705
52
5 114
7 871
(84 532)
(2 174)
(251)
(4 038)
(84 538)
(90 995)
(78 192)
(83 124)
(83 124)
(74 054)
548
21
–
857
29
12
(582)
527
3 520
(6 914)
(4)
(351)
–
41
(351)
2 626
(2 112)
(2 005)
12 331
15 588
Balance at end of year
(78 192)
(83 124)
Reconciliation of movement in rehabilitation provisions
Balance at 1 January
Decrease during the year
Unwinding of discount rate
Transferred to liabilities directly associated with the asset held for sale (Note 16)
Foreign exchange differences
Balance at 31 December
15 588
(3 125)
888
–
(1 020)
12 331
17 876
(295)
1 130
(3 613)
490
15 588
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.
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 undistributed reserves of the Group’s
subsidiaries for which a deferred tax liability has not been recognised is US$97.1 million (31 December 2019: US$127.9 million).
The Group has estimated tax losses of US$34.0 million (31 December 2019: US$27.5 million). All tax losses are generated in
jurisdictions where tax losses do not expire. No deferred tax assets were recognised on these losses.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 162
163
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
25.
COMMITMENTS AND CONTINGENCIES
Commitments
Mining leases
Mining lease commitments represent the Group’s future obligation arising from agreements
entered into with local authorities in the mining areas that the Group operates.
The period of these commitments is determined as the lesser of the term of the agreement,
including renewable periods, or the LoM. The estimated lease obligation regarding the future
lease period, accepting stable inflation and exchange rates, is as follows:
– Within one year
– After one year but not more than five years
– More than five years
Equipment and service lease
The Group has entered into lease arrangements for the provision of loading, hauling and
other transportation services payable at a fixed rate per tonne of ore and waste mined; power
generator equipment payable based on a consumption basis; and rental agreements for
various mining equipment based on the fleet utilised. All lease payments relating to this lease
are variable in nature. A portion of the lease payment is therefore expensed in the
Consolidated statement of profit or loss and the portion relating to waste removal/stripping
costs is capitalised to the waste stripping asset in the proportions referred to under the
estimate and judgements applied to the Capitalised stripping costs (deferred waste). Refer
Note 1.2.28, Critical accounting estimates. The terms of this lease are negotiated during the
extension option periods catered for in the agreements or at any time sooner if agreed by
both parties.
– Within one year
– After one year but not more than five years
2020
US$’000
2019
US$’000
162
695
993
1 850
149
862
1 821
2 832
52 855
181 904
59 267
254 218
234 759
313 485
24.
CASH FLOW NOTES
24.1 Cash generated by operations
Profit before tax for the year – continuing operations
Loss for the year – discontinued operation
Adjustments for:
Depreciation and amortisation excluding waste stripping
Depreciation on right-of-use assets
Waste stripping cost amortised
Finance income
Finance costs
Unrealised foreign exchange differences
Loss/(profit) on disposal and scrapping of property, plant and equipment
Gain on derecognition of leases
Inventory write down
Reclassification of foreign currency translation reserve
Movement in prepayment
Bonus, leave and severance provisions raised
Share-based payments
Environmental rehabilitation realignment
Gain on abandonment
4
10
4
6
6, 16
16
24.2 Working capital adjustment
Decrease/(Increase) in inventory
Decrease in receivables
Decrease in payables
24.3 Cash flows from financing activities (excluding lease liabilities)
Balance at beginning of year
Net cash used in financing activities
– Financial liabilities repaid
– Financial liabilities raised
Interest paid
Non-cash movements
– Interest accrued
– Financial liabilities raised2
– Foreign exchange differences
Balance at year end
Notes
2020
US$’000
2019
US$’000
38 253
(3 264)
7 027
2 043
43 420
(382)
4 994
(4 019)
30
(150)
240
–
–
4 317
561
–
(20)
93 050
3 489
1 316
(4 341)
464
22 341
(6 431)
(55 638)
49 207
(2 884)
3 060
2 884
1 047
(871)
24 050
(4 454)
12 551
2 526
43 129
(668)
6 656
(4 184)
(762)
–
–
(4)
(647)
3 1081
794
(451)1
–
81 644
(851)
1 596
(3 599)
(2 854)
34 166
(12 175)
(47 056)
34 881
(4 094)
4 444
4 094
–
350
1 These amounts have been disaggregated in the current year for comparative purposes, and were previously grouped and disclosed as other non-cash movements in 2019.
2 This amount relates to funding obtained for insurance premium finance. The funding was paid directly by the lender to the third party and is being repaid by the Group in
monthly installments to the lender. Refer Note 18, Interest bearing loans and borrowings.
18
16 086
22 341
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 164
165
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
2020
US$’000
2019
US$’000
26. RELATED PARTIES
Related party
Jemax Management (Proprietary) Limited
Government of the Kingdom of Lesotho
Relationship
Common director
Non-controlling interest
Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.
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
Capital expenditure
Approved but not contracted for
Approved and contracted for
37
50
87
1 091
372
1 463
39
69
108
3 299
1 490
4 789
The main capital expenditure approved relates to investment in continued tailings storage extension of US$1.0 million
(31 December 2019: US$0.6 million), investment at the mining fleet maintenance workshop of US$0.3 million (31 December
2019: nil) and the purchase of safety equipment and vehicles of US$0.1 million. The expenditure is expected to be incurred
over the next 12 months but will be assessed in line with the uncertainty presented by the COVID-19 pandemic.
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 agreement is based on 39.5% to 60% (2019: 40% to 60%) of the value (after costs) of the diamonds recovered by
Alluvial Ventures and is limited to US$1.4 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 2019: US$0.2 million).
The Group monitors possible tax claims within the various jurisdictions in which the Group operates. Management applies
judgement in identifying uncertainties over tax treatments and concluded that there were no uncertain tax treatments
relating to the current year. Refer Note 1.2.28, Critical accounting estimates and judgements. There remains a risk that further
tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in some cases, the Group does not
anticipate that there will be any material impact on the Group’s results, financial position or liquidity.
Compensation to key management personnel (including Directors)
Share-based equity transactions
Short-term employee benefits
Fees paid to related parties
Jemax Management (Proprietary) Limited
Royalties paid to related parties
Government of the Kingdom of Lesotho
Lease and licence payments to related parties
Government of the Kingdom of Lesotho
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited
Amounts owing to related party
Government of the Kingdom of Lesotho
Dividends declared
Government of the Kingdom of Lesotho
Dividends payable
Government of the Kingdom of Lesotho
2020
US$’000
2019
US$’000
344
3 612
3 956
440
3 063
3 503
(83)
(83)
(18 425)
(15 459)
(132)
(146)
(4)
(9)
(5)
(9)
(3 955)
(3 537)
(7 452)
(3 064)
–
–
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.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 166
167
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
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 2020, the Group had US$60.8 million (31 December 2019: US$69.9 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.
Refer Note 18, Interest bearing loans and borrowings for detail on the debt facilities in the Group.
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.
27. FINANCIAL RISK MANAGEMENT (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; and
– The analysis of the currency risk arises because of financial instruments which are 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 2020.
There has been no change in the assumptions or method applied from the prior year.
Sensitivity analysis
At year-end, Letšeng had US$31.1 million cash on hand. If the US dollar had appreciated/(depreciated) by 10% against
the LSL, the Group’s profit before tax at 31 December 2020 would have been US$2.8 million (lower)/higher
(31 December 2019: immaterial).
(iii) Forward exchange contracts
The Group enters into forward exchange contracts to hedge the exposure to changes in foreign currency of future sales
of diamonds at Letšeng Diamonds. The Group performs no hedge accounting. At 31 December 2020, the Group had no
forward exchange contracts outstanding (31 December 2019: US$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 80 basis points (2019: 60 basis
points) during the year, profit before tax and equity would have been US$0.1 million (lower)/higher (31 December 2019:
US$0.2 million). The assumed movement in basis points is based on the currently observable market environment,
which has been impacted by the COVID-19 pandemic.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
168
169
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
27. FINANCIAL RISK MANAGEMENT (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, to minimise
the exposure to credit risk to the lowest level possible from the perspective of the Group’s cash and cash equivalents. 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 the customers pay and settle their accounts on the date of receipt
of goods.
No other financial assets are impaired or past due and accordingly, no additional analysis has been provided.
The Group did not hold any form of collateral or credit enhancements for its credit exposures during the 31 December 2020
and 31 December 2019 financial reporting periods.
(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$60.8 million at year end (2019: US$69.9 million)
The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual
undiscounted payments, excluding discontinued operation:
Floating interest rates
Interest-bearing loans and borrowings
– Within one year
– After one year but not more than five years
Total
Lease liabilities
– Within one year
– After one year but not more than five years
Total
Trade and other payables
– Within one year
– After one year but not more than five years
Total
2020
US$’000
2019
US$’000
14 960
1 750
16 710
2 375
5 880
8 255
28 823
2 029
30 852
17 734
6 636
24 370
2 895
10 416
13 311
26 390
1 936
28 326
28. SHARE-BASED PAYMENTS
The expense recognised for employee services received during the year is shown in the
following table:
Equity-settled share-based payment transactions charged to the statement of profit or loss
– continuing operation
Equity-settled share-based payment transactions charged to the statement of profit or loss
– discontinued operation
2020
US$’000
2019
US$’000
555
6
561
784
10
794
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 four awards where options are still outstanding.
All four 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 (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
•
the vested awards are 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
•
the vested awards are equity settled.
The fair value of the Nil value awards is based on the observable Gem Diamonds Limited share price on the date of award with
no adjustments to the price made.
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020
170
171
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
28. SHARE-BASED PAYMENTS (continued)
28. SHARE-BASED PAYMENTS (continued)
The following table reflects details of all the awards within the 2007 LTIP that remain outstanding:
The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:
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 rate2 (%)
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
146 451
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
–
15 000
0.00
0.00
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
58 209
0.00
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
53 114
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 of the Company’s share price over the previous three years.
2 The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.
LTIP 2017 Award
Under the 2017 LTIP rules, there are four 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 – June 2020
On 9 June, 1 249 000 nil-cost options were granted to certain key employees and Executive Directors. 180 000 of the options
granted relate to market conditions. The options vest after a three-year period and are exercisable between 9 June 2023 and
8 June 2030. 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 £0.15 (US$0.19). Of the 1 249 000 options originally granted, 1 229 356 are still
outstanding following the resignation of a number of employees, the lapsing of awards due to certain performance conditions
not having been met and management’s estimates of the vesting of the remaining tranches.
Number of options granted – nil value
Number of options granted – market value
Date exercisable
Options outstanding
Dividend yield (%)
Expected volatility1 (%)
Risk-free interest rate2 (%)
Expected life of option (years)
Exercise price (US$)
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
LTIP
June 2020
LTIP
March 2019
LTIP
March 2018
LTIP
July 2017
1 160 500
142 500
1 069 000
180 000
1 265 000
185 000
9 June 2023 20 March 2022 20 March 2021
1 034 136
0.00
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
248 584
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
1 229 356
0.00
47.00
0.34
3.00
nil
nil
0.39
0.39
0.31
0.19
0.15
Monte Carlo
1 102 732
0.00
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 year3
Forfeited
Balance at end of year
Exercisable at end of year
2020
’000
4 002
1 249
(480)
(884)
3 887
535
2019
’000
3 538
1 303
(81)
(758)
4 002
613
1 Expected volatility was based on the average annual historic volatility of the Company’s share price over the previous three years.
2 The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.
3 Options were exercised regularly throughout the year. The weighted average share price during the year was £0.39 (US$0.50) (2019: £0.80 (US$1.02)).
The weighted average remaining contractual life for the share options outstanding as at 31 December 2020 was 7.5 years
(2019 8.0 years).
The weighted average fair value of the share options outstanding as at 31 December 2020 was US$0.79 (2019: US$1.02).
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 Company Employee Share Trust was deregistered in 2017
following the grant of these shares. 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. The fair value of these
outstanding awards at 31 December 2020 was £0.41 (US$0.52) (2019: £0.41 (US$0.52)). The shares outstanding at the end of the
year are as follows:
Outstanding at beginning of year
Granted during the year
Exercised during the year
Balance at end of year
Exercisable at end of year
2020
’000
47
–
(30)
17
17
2019
’000
47
–
–
47
47
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172
173
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020 continued
29.
FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the current portions of the prepayment disclosed in Note 13,
Receivables and other assets, which do not meet the criteria of a financial asset. These prepayments are carried at amortised cost.
32. MATERIAL PARTLY OWNED SUBSIDIARY
Financial information of Letšeng Diamonds, a 70% held subsidiary which has a material non-controlling interest, with the
remaining 30% being held by the Government of the Kingdom of Lesotho, is provided below.
Financial assets at amortised cost
Cash (net of overdraft) – continuing operations
Cash – discontinued operation
Receivables and other assets – continuing operations
Receivables and other assets – discontinued operation
Total
Total non-current
Total current
Financial liabilities at amortised cost
Interest-bearing loans and borrowings
Trade and other payables – continuing operations
Trade and other payables – discontinued operation
Total
Total non-current
Total current
Notes
2020
US$’000
2019
US$’000
15
16
13
16
18
20
16
49 821
7
4 490
195
54 513
153
54 360
16 087
30 852
471
47 410
3 730
43 680
11 303
140
4 735
99
16 277
–
16 277
22 341
28 325
608
51 274
16 484
45 269
The carrying amounts of the Group’s financial instruments held approximate their fair value.
There were no open hedges at year end (2019: nil).
30. PROPOSED DIVIDENDS ON ORDINARY SHARES
Proposed ordinary cash dividend of US$3.5 million for 2020 based on 2.5 US cents per share (2019: US$ nil).
Proposed dividends on ordinary shares are subject to approval at the AGM to be held on 2 June 2021 and are not recognised
as a liability as at 31 December.
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 requires adjustments or disclosures.
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 (expenses)/income
Operating profit
Net finance costs
Profit before tax
Income tax expense
Profit for the year
Total comprehensive income
Attributable to non-controlling interest
Dividends paid to non-controlling interest
Dividends payable to non-controlling interest
Summarised statement of financial position as at 31 December
Assets
Non-current assets
Property, plant and equipment, deferred tax assets, intangible assets and
receivables and other 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,
lease liabilities 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 cash inflows
Investing cash outflows
Financing cash outflows
Foreign exchange differences
Net increase/(decrease) in cash and cash equivalents
Country of
incorporation
and operation
Lesotho
2020
US$’000
2019
US$’000
79 906
10 683
76 427
8 319
186 579
(112 081)
74 498
(19 043)
(6 695)
48 760
(2 840)
45 920
(10 307)
35 613
35 613
10 683
(4 658)
(3 064)
179 785
(127 244)
52 541
(15 715)
3 333
40 159
(3 792)
36 367
(8 637)
27 730
27 730
8 319
–
–
325 009
340 646
78 098
403 107
53 476
394 122
101 203
109 385
35 553
136 756
266 351
186 446
79 906
105 471
(48 700)
(20 640)
2 787
38 918
29 981
139 366
254 756
178 329
76 427
70 108
(81 314)
(6 701)
(15)
(17 922)
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 174
175
ABBREVIATIONS AND
DEFINITIONS
CONTACT DETAILS
AND ADVISERS
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
EBITDA
ECL
EPS
ESOP
EU
EY
FCA
FRC
FTSE
GHG
GRI
ha
HSSE
IAS
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
Earnings before interest, tax, depreciation and
amortisation
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
IFRS
ISO
IT
JIBAR
KPI
LIBOR
LoM
LCRA
LSL
LTI
LTIFR
LTIP
International Financial Reporting Standards
International Organization for Standardization
Information technology
Johannesburg Interbank Agreed Rate
Key performance indicator
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
Gem Diamonds Limited
Registered office
2nd Floor, Coastal Building
Wickhams Cay II
PO Box 2221
Road Town
Tortola
British Virgin Islands
Financial adviser and sponsor Auditors
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
T: +44 (0) 20 7588 2828
F: +44 (0) 20 7155 9000
Ernst & Young Incorporated
102 Rivonia Road
Sandton
2146
South Africa
T: +27 (0) 11 772 3000
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
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
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
Welcome • Strategic review • Performance review • Governance • Financial statementsGem Diamonds Limited Annual Report and Accounts 2020 176176
177
Gem_Diamonds_Annual_Financial_Statements_2020_15004_20210310_V07_SM_07h45
REPORT ON
PAYMENTS TO
GOVERNMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
Gem Diamonds Limited Annual Report and Accounts 2020
REPORT ON PAYMENTS TO GOVERNMENTS CONTINUED
INTRODUCTION
This report provides an overview of the payments made to
governments by Gem Diamonds Limited and its subsidiaries
(the Group) for the 31 December 2020 financial year, as required
under the United Kingdom’s (UK) Report on Payments to
Governments Regulations 2014 (as amended December 2015).
These UK Regulations enact domestic rules in line with Directive
2013/34/EU (the EU Accounting Directive (2013) and apply
to companies that are involved in extractive activities.
This Report is also filed with the National Storage Mechanism
intended to satisfy the requirements of the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority
in the UK.
The Gem Diamonds Limited LEI number is
213800RC2PGGMZQG8L67.
BASIS FOR PREPARATION
Reporting entities
This report includes payments to governments made by
subsidiaries in the Group that are engaged in extractive
activities. During the 2020 financial reporting period, extractive
activities were conducted in Lesotho while the operation in
Botswana was under care and maintenance. All payments made
in relation to the Botswana entity were under the materiality
level and therefore not reported.
Extractive activities
Extractive activities relate to the exploration, prospection,
discovery, development and extraction of minerals, oil, natural
gas deposits or other materials. Gem Diamonds Limited,
through its subsidiaries, is engaged in diamond mining activities.
Scope of payments
The report discloses only those significant payments made to
governments arising from extractive activities.
Government
Government includes any national, regional, or local authority of
a country. It includes a department, agency or undertaking (ie
corporation) controlled by that authority.
Payment types disclosed at legal entity level
Production entitlements
There were no payments of this nature for the year ended
31 December 2020.
Taxes
These are payments on the entity’s income, production, or
profits, excluding taxes levied on consumption such as value
added taxes, personal income taxes or sales taxes in line with
in-country legislation.
Royalties
These are payments for the right to extract diamonds and are
determined on percentage of sales in terms of in-country
legislation and/or mining lease agreements.
Dividends
These are dividend payments, other than dividends paid to a
government as an ordinary shareholder of an entity unless paid
in lieu of production entitlements or royalties. There were no
dividend payments of this nature to governments for the year
ended 31 December 2020.
Signature, discovery, and production bonuses
There were no payments of this nature to governments for the
year ended 31 December 2020.
Licence fees
These are fees paid for acquisition of leases and licences,
including annual renewal fees, in order to obtain and maintain
access to the areas in which extractive activities are performed.
Payments for infrastructure improvements
There were no payments of this nature to governments for the
year ended 31 December 2020.
Cash flow basis
Payments reported are on a cash flow basis and may differ to
amounts reported in the Gem Diamonds Limited 2020 Annual
Report and Accounts, which are prepared on an accrual basis.
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 178
179
179
REPORT ON PAYMENTS TO GOVERNMENTS CONTINUED
Materiality level
In line with the guidance provided in the Report on Payments to
Governments Regulations, payments made as a single payment,
or as a series of related payments, that are equal to or exceed
US$110 000 (£86 000), are disclosed in this report. All payments
below this threshold have been excluded.
Reporting currency
The payments to government have been reported in US dollar.
Payments made in currencies other than US dollar were
translated at the relevant annual average rate for the year ended
31 December 2020.
ADDITIONAL
INFORMATION
SUMMARY REPORT
Operation
Letšeng Diamonds (Proprietary) Limited
Total
Lesotho
Letšeng Diamonds (Proprietary) Limited
Lesotho Revenue Authority
Government of Kingdom of Lesotho
Country
Lesotho
Taxes
US$’000
Royalties
US$’000
Licence fee
US$’000
(8 707)1
(8 707
18 236
18 236
144
144
Taxes
US$’000
(8 707)
Royalties
US$’000
Licence fee
US$’000
–
–
18 236
–
144
1 Letšeng Diamonds (Proprietary) Limited was in a net refund position during the year due to refunds on income taxes received which was paid in 2019.
Total
US$’000
9 673
9 673
Total
US$’000
(8 707)
18 380
Strategic report • Performance review • Governance • Financial statements • Report on payments • Additional information
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 180
181
ADDITIONAL INFORMATION CONTINUED
ADDITIONAL INFORMATION CONTINUED
ABBREVIATIONS AND DEFINITIONS
AGM
AIFR
AV
Annual General Meeting
All injury frequency rate
Alluvial Ventures (a third-party contractor)
Basotho
Lesotho nationals
BEPS
BT
BWP
CAGR
CEO
CI
CLO
CO2e
cpht
CSI
CSR
CSRI
DTR
Basic earnings per share
Business Transformation
Botswana pula
Compound annual growth rate
Chief Executive Officer
Continuous Improvement
Community Liaison Officer
Carbon dioxide equivalent
Carats per hundred tonnes
Corporate social investment
Corporate social responsibility
Corporate social responsibility investment
Disclosure Guidance and Transparency Rules
EBITDA
Earnings before interest, tax, depreciation
and amortisation
EPS
ESG
ESOP
EU
EY
FCA
FRC
FTSE
GDIP
GHG
GRI
Earnings per share
Environmental, social and governance
Employee Share Option Plan
European Union
Ernst & Young
Financial Conduct Authority
Financial Reporting Council
Financial Times Stock Exchange
Gem Diamonds incentive plan
Greenhouse gas
Global Reporting Initiative
ha
HSSE
IAS
IFRS
ISO
JIBAR
KPI
LIBOR
LoM
LSL
LTI
LTIFR
LTIP
Net cash/
(debt)
PAC
PPE
RCF
SEIAs
STIB
Hectare
Health, safety, social and environment
International Accounting Standards
International Financial Reporting Standards
International Organization for Standardization
Johannesburg Interbank Agreed Rate
Key performance indicator
London Interbank Offered Rate
Life of mine
Lesotho loti
Lost time injury
Lost time injury frequency rate
Long-term incentive plan
The sum of cash and cash equivalents
less drawndown bank facilities (excluding
asset-based finance facility and insurance
premium financing)
Project-affected community
Personal protective equipment
Revolving credit facility
Social and environmental impact assessments
Short-term incentive bonus
The Board
The Gem Diamonds Board of Directors
The Group
The Gem Diamonds Company and its
subsidiaries
TSR
UK
US$
Total shareholder return
United Kingdom
United States dollar
USA/US
United Stated of America
VAT
Value added tax
CONTACT DETAILS AND ADVISERS
GEM DIAMONDS LIMITED
FINANCIAL ADVISER AND
AUDITORS
SPONSOR
JPMorgan Cazenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
T: +44 (0) 20 7588 2828
F: +44 (0) 20 7155 9000
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
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
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020 182
183
ADDITIONAL INFORMATION CONTINUED
ADDITIONAL INFORMATION CONTINUED
DIRECTORS’ AND EXECUTIVE MANAGEMENT CVs
Non-Executive Directors
Appointed to the Board in June 2017
Appointed to the Board in January 2018
Skills and experience
Harry has over 38 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 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.
HARRY KENYON-SLANEY (60)
Independent non-Executive Chairperson
BSc Geology (Southampton University),
International Executive Programme
(INSEAD France)
Chairperson tenure <9 years
No independence conflict exists
Chairperson
Member
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.
MICHAEL LYNCH-BELL (67)
Independent non-Executive Director
BA Hons Economics and Accountancy
(University of Sheffield); FCA of the Institute of
Chartered Accountants in England and Wales
Current external appointments
Michael is currently deputy chair and senior independent non-executive director at
Kaz Minerals Plc; chair of the audit and remuneration committees at Lenta Limited;
chair of Little Green Pharma Ltd; and non-executive director and chair of the
remuneration committee of Barloworld Limited.
Tenure <9 years
Committee icons
Audit
Chairperson
Chairperson
Member
Remuneration
Nominations
Sustainability
Skills and experience
Mike has over 36 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.
Chairperson
Member
Member
Member
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. He has held senior operational management roles in
large mining companies, including De Beers, AngloGold Ashanti and BHP Billiton.
Since starting his career 26 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.
MIKE BROWN (60)
Independent non-Executive Director
BSc Engineering; Mining PR Eng (ECSA)
Engineering (University of Witwatersrand);
Strategic Executive Programme (London
Business School)
Tenure <9 years
JOHNNY VELLOZA (50)
Non-Executive Director
BSc Mining and Mineral Engineering (University
of Johannesburg), BSc Business/Commerce
General (University of South Africa)
Member
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
184
185
ADDITIONAL INFORMATION CONTINUED
ADDITIONAL INFORMATION CONTINUED
Appointed to the Board in July 2019
Appointed to the Board in April 2013
Skills and experience
Mazvi has over 21 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.
Since joining the Board, Mazvi has been appointed as the designated non-Executive
Director for workforce engagement.
Current external appointments
Mazvi is currently a non-executive director of First National Bank Lesotho Limited
and a non-executive director of several private companies
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 chairperson of Zanaga Iron Ore Co. Limited.
MAZVI MAHARASOA (51)
Non-Executive Director
BLLM International and Commercial Law
(University of Buckingham)
Executive Directors
CLIFFORD ELPHICK (60)
Chief Executive Officer
BCom (University of Cape Town);
BCompt Hons (University of South Africa)
Committee icons
Audit
Remuneration
Nominations
Sustainability
Skills and experience
Michael has over 21 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 and
appointed to the Board.
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. He was responsible for a number
of key initiatives during his tenure, including overseeing De Beers’ re-entry into
the USA.
Current external appointments
Glenn is currently a non-executive director of Agribiomed Limited and Lineout
Holdings Limited.
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 Chase, 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 in 2019 was appointed as the Group
Operations and Business Transformation Executive.
Current external appointments
None
MICHAEL MICHAEL (50)
Chief Financial Officer
BCom Hons (Rand Afrikaans University); CA(SA)
Executive Management
GLENN TURNER (60)
Chief Legal and Commercial Officer
and Company Secretary
BA; LLB (University of Cape Town);
LLM (Cambridge)
BRANDON DE BRUIN (49)
Group Operations and Business
Transformation Executive
BCom; LLB (University of the Witwatersrand);
Attorney (South Africa) and Solicitor
(England and Wales)
Strategic report • Performance review • Governance • Financial statements • Payments to governments • Additional informationGem Diamonds Limited Annual Report and Accounts 2020
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
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