Annual Results Announcement
Gem Diamonds Limited
23 April 2008
GEM DIAMONDS LIMITED
(Gem Diamonds) or (the Company)
ANNUAL RESULTS ANNOUNCEMENT
FOR THE YEAR ENDED 31 DECEMBER 2007
2007 was Gem Diamonds first financial year as a listed company. The Company's
focus for the year was the execution of its acquisition strategy outlined at the
time of its IPO as well as the development of existing assets to increase
production. During the year capital raised on IPO was deployed on acquisitions
in Australia, Botswana, DRC and Indonesia which are all now under Gem Diamonds'
control.
The Letseng Mine's processing capacity was increased with the construction of
its second plant and early stage operations in central Africa were progressed.
Sales in Q108 of rough and polished diamonds from Letseng, Cempaka and Ellendale
diamonds have all shown strong price increases.
HIGHLIGHTS
- Global diamond mining company with assets in seven countries
- Listed on LSE in February 2007 raising US$636 million
- Revenue of US$153 million
- EBITDA of US$74 million
- Targeted acquisition strategy successfully pursued
- Diversified diamond resource with in situ value of US$11.4 billion
- Three producing operations with circa 750 000 carats expected for 2008
- Positive results from diamond beneficiation trials
Commenting on these results, Gem Diamonds CEO, Clifford Elphick said:
'The past year has seen Gem Diamonds achieve many of the milestones outlined at
the time of its IPO. These strong financial results demonstrate the merit of
the Company's strategy to focus on the top end of the diamond market. A sector
that continues to show remarkable price increases in line with strong demand
fundamentals.
Gem Diamonds enters 2008 with three producing mines situated in different
countries, all of which are in expansion mode and producing diamonds that
continue to achieve extraordinary prices. Development projects throughout Africa
provide an opportunity to more than double the current production levels.
Whilst the current US economic climate presents a challenge, opportunities
abound throughout the diamond value chain to deliver returns to our
shareholders. Our outlook remains extremely positive.'
For further information:
Gem Diamonds Limited Pelham PR
Clifford Elphick Candice Sgroi
Tel: +44 203 043 0280 Tel: +44 789 446 2114
James Henderson
Gem Diamond Technical Services Tel : +44 207 743 6673
Angela Parr
Tel: +27 83 578 3885
1 CHIEF EXECUTIVE OFFICER'S REVIEW
Having listed Gem Diamonds on the LSE on 14 February 2007, the management team's
primary aim was to deliver on the plans outlined in the Prospectus. The
objective was to grow in scale and generate returns. To achieve this, the
Company focused on the execution of its acquisition strategy as well as the
development of existing assets to increase production. Of the US$636 million
raised on IPO, US$390.6 million was utilised acquiring prospects and projects in
Australia, Botswana, DRC and Indonesia, all of which are now under Gem Diamonds'
control.
1.1 Lesotho
Gem Diamonds owns 70% of Letseng Diamonds in partnership with the Government of
the Kingdom of Lesotho which owns the remaining 30%. Acquired in late 2006 for
US$118.5 million, Letseng has delivered exceptional returns for its
shareholders. In 2006, Letseng sold 53 000 carats at an average price of US$1
578 per carat. Since Gem Diamonds took control it has almost doubled annual
production to a forecast 101 000 carats for 2008, improved diamond prices by
between 50 - 100% for similar goods and expanded the resource base significantly
after accounting for depletion over the period.
In 2007 Letseng continued to produce some of the world's most remarkable
diamonds including the 493 carat Letseng Legacy and a 215 carat internally
flawless white diamond which sold for US$21 000 and US$38 600 per carat
respectively.
Five +100 carat diamonds in total were recovered from Letseng during the year.
Letseng has two kimberlite pipes and from acquisition to November 2007 mining
was focused on the Satellite Pipe. In December 2007 production shifted to the
Main Pipe when hard rock was exposed, allowing cut three of the Satellite Pipe
to commence. Prior to this mining of the weathered kimberlite on the Main Pipe
was undertaken by contractors Alluvial Ventures. Diamond prices achieved over
the year increased steadily, a trend which has continued into 2008. Diamonds
mined from the Satellite Pipe sold on average over the year for US$2 201 against
US$1 602 for 2006. In the first quarter 2008, diamonds from a blended ore source
were sold for an average price of US$2 500 per carat, ahead of expectations.
1.2 Letseng Diamonds Production Statistics
FY07 FY06
Tonnes mined and
processed (millions) 4.0 3.1
Letseng Diamonds grade (cpht) 2.09 1.91
Alluvial Ventures grade (cpht) 1.28 1.10
Carats produced 73 916 54 677
Carats sold Letseng Diamonds 60 234 46 020
Carats sold Alluvial Ventures 16 639 6 793
Achieved US$/ct Letseng Diamonds 2 201 1 602
Achieved US$/ct Alluvial Ventures 1 164 1 416
With life of mine at Letseng's acquisition of 70 years, the decision was taken
to double the mine's processing capacity with the construction of a second
processing plant. Combined with the current 2.6mtpa processing plant, the two
plants will have a 5.3mtpa processing capacity.
Construction of the second plant was completed subsequent to the year end.
Commissioning started on schedule in the first quarter of 2008 and the plant is
building up to full production which is expected to be reached during the second
quarter of 2008.
Resource updates undertaken at the end of 2007 dramatically upgraded the in situ
value of the Letseng mine from US$4.7 billion to US$6.7 billion. This increase
is attributable to a 36% increase in estimated in situ tonnes and a 14% increase
in the value of Letseng's diamonds. With this enlarged resource, Letseng's
resource is sufficient to provide 46 years worth of ore at current mining rates.
Further plans to increase production optimally are being developed and will be
formalised by late 2008.
1.3 Australia
Gem Diamonds acquired a controlling interest in Kimberley Diamonds, a listed
Australian diamond mining company, in late November 2007. Kimberley Diamonds
owns the Ellendale mine with production comprising a high proportion of gem
diamonds. The mine's fancy and vivid yellow diamonds are an important component
of the production mix. Kimberley Diamonds also holds a 39% interest in Blina
Diamonds, a listed alluvial diamond mining and diamond exploration company
adjacent to the Ellendale mine.
Following the completion of the acquisition, the Kimberley Diamonds' board was
reconstituted and a new managing director, Alistair Croll, was subsequently
appointed in February 2008.
The acquisition of Kimberley Diamonds presented a low risk opportunity to gain
access to a proven source of high quality diamonds in a stable political
environment. The mine was constructed with an 8mtpa capacity and a good onsite
management team was in place. However, the mine was running at 60% of capacity
with no mine plan. Limited access to capital hindered operations and optimal
diamond sales processes. Since Gem Diamonds' involvement and subsequent
acquisition of Kimberley Diamonds, Ellendale has been adequately capitalised,
modifications have been made to the processing plants and the sales technique
has been improved. The net effect of which is that the mine is expected to
process 8.5 million tonnes in 2008 to produce almost 600 000 carats at prices
that have achieved a 39% increase from US$152 per carat to US$216 per carat to
date. Further increases to the design capacity are underway and in 2009,
Ellendale is expected to process 10.5 million tonnes.
What was a marginal operation and a loss making business is being turned to
profit and management continue to target opportunities to increase margins. The
one challenge that Kimberley Diamonds does face is its high Australian dollar
fixed cost base which when combined with sales in a weakening US dollar presents
a currency risk.
1.4 Botswana
Gem Diamonds acquired Gope Exploration from De Beers and Xstrata in May 2007 for
US$34.1 million. Gope Exploration was the holder of a suspended retention
license covering the Gope 25 kimberlite deposit in the Central Kalahari Game
Reserve ('CKGR'). A Mining License Application was submitted in July 2007 and
Section 51 negotiations with the Government of Botswana will commence shortly.
These negotiations will determine the key terms of the mining license.
Should a mining license be granted the Company will develop Gope into a 6mtpa
mine producing over a million carats per annum. The capital estimate remains in
the region of US$450 million and debt financing for this project is being
negotiated.
To secure a mining license at Gope, the existing Environmental Impact Assessment
('EIA'), which was completed in 1998, required revising. Due to the sensitivity
of the area around Gope a decision was taken to conduct a full Social and
Environmental Impact Assessment ('SEIA') as part of the EIA. Public
Participation meetings, which form an integral part of the SEIA, were held with
all interested and affected parties including communities inside and around the
CKGR.
Whilst disputes surrounding the CKGR were the subject of court action and had
attracted negative publicity for some time, the Company was of the view that
these disputes were mainly a matter between the State and its citizens, and did
not pertain to the development of a mine at Gope. In all discussions held
between Gope Exploration, its independent advisors tasked to complete the SEIA
and the relevant communities, indications have been that local communities are
strongly in favour of a mine being developed at Gope.
This does not detract from the significant responsibility that Gope Exploration
has to develop this mine with the utmost consideration for its social and
environmental impact.
1.5 Indonesia
BDI Mining was acquired by Gem Diamonds in May 2007 for US$78.2 million. It owns
80% of the Cempaka alluvial diamond mine in south Kalimantan, Indonesia in
partnership with the Government of Indonesia which owns the remaining 20%. BDI
Mining also owned the Woodlark Gold Project which was subsequently sold for
US$27 million.
The alluvial deposits at the Cempaka mine consist of the Danau Seran and Cempaka
paleo-channels. The former, which is significantly smaller but was of a higher
grade, was mined since the commencement of the operations in 2004, and is almost
depleted. Mining moved to the Cempaka channel in the second half of 2007.
BDI Mining's Cempaka mine produces high quality white diamonds as well as an
array of coloured diamonds. Limited capital and mining expertise had hampered
production and thereby increased unit costs. This provided the opportunity for
the Company whose operational strategy at Cempaka was to ramp up cubic metres
processed, driving down unit costs and simultaneously seek better diamond prices
through improved sales techniques. All three of these initiatives were
successful with cubic metres processed up from an annualised 130 000 bcm on
acquisition to 672 000 bcm annualised by year end. Annualised processing of 960
000 bcm is targeted.
Some 10 400 carats from Cempaka were sold during 2007 prior to Gem Diamonds
acquisition of BDI Mining at an average price of US$218 per carat. A revision of
this sale process was under-taken by Gem Diamonds and in 2008 an average price
of US$331 per carat has been achieved, representing a 51% increase over previous
prices.
At these levels, Cempaka remains a small operation for Gem Diamonds. To maximise
the return on investment, production levels need to increase. Feasibility
studies in this regard are ongoing and results are expected in late 2008.
1.6 DRC
Gem Diamonds' operations in the DRC comprise a number of alluvial diamond
projects and a kimberlite exploration programme across three broad areas namely
Mbelenge, Lubembe and Longatshimo.
These interests are held via a number of companies in which Gem Diamonds has
between an 80% and 100% shareholding, having increased its stake during the year
in the largest of these, Kabongo Development Company, from 49.99% to 100%.
The Company's intention with its alluvial projects was to get into production
rapidly and in a low cost manner. This was achieved at both Mbelenge and Lubembe
where operations were set up on time and on budget whilst overcoming the
significant logistical hurdles associated with operating in the DRC.
Commissioning of the DMS plant commenced at Mbelenge in late June 2007, slightly
ahead of the schedule and the plant was regularly achieving design throughput by
year end. Mining was focused on the river terraces of the Kasai River. Whilst
grades realised were and remain lower than forecast in this first area of focus,
the quality of the diamonds was in line with expectations at US$83 per carat.
Mining at Lubembe commenced in the modern day river and was undertaken with a
number of dredge units. The dredging programme was not as efficient as
anticipated and production was limited. The recovered grades were however
consistently higher than expected and diamonds were sold for approximately US$86
per carat in line with expectations.
In light of these results the decision was taken to focus on resource
development at all three alluvial projects on a lower cost basis until the
Company is confident that these operations can be run profitably. A resource
update undertaken at the year end downgraded the average grade across the DRC's
alluvial projects, but increased the volume of diamondiferous gravels, the net
effect of which is that the in situ resource is valued at approximately US$164
million.
Aeromagnetic and helimag surveys in 2006 and 2007 in Lubembe and Longatshimo
generated 59 higher interest geophysical anomalies. Of these, 23 of the more
accessible targets were drilled but no kimberlite was intersected. The
remainder, which are in more remote locations, will be investigated in 2008.
The different diamond populations evident in the Kasai province indicate that
not all primary sources are likely to lie in northern Angola, as conventional
thinking currently suggests. The Company is therefore confident that an
alternate proximal primary source exists.
1.7 CAR
Gem Diamonds holds a 75% interest in Gem Diamonds Centrafrique SA, in
partnership with the Government of the CAR which holds the remaining 25%. Gem
Diamonds Centrafrique holds exclusive exploration and mining rights to the
800km2 Mambere Concession.
In the target area on the Mambere River known locally as 'le Buckle', a sampling
campaign was carried out across the terrace and modern river gravels in 2007. At
1.19 cpht the diamond grades from the terraces were determined sub-economic at
the current cost base and sampling moved downstream of le Buckle in early 2008.
A partial river diversion was constructed in January 2008 and more encouraging
grades averaging 20 cpht were recovered in February and March 2008. The value of
these diamonds has been estimated at US$140 per carat. Work to determine the
extent of the resource is in progress.
1.8 Angola
A Cooperation Agreement was signed in January 2007 between Gem Diamonds and
Avantis Angola with respect to a feasibility study to be conducted on the known
Chiri kimberlite in the Lunda Sul Province of Angola in which Avantis has a 25%
interest. An Option Agreement whereby Gem Diamonds can acquire an effective
11.25% interest in Chiri from Avantis Angola was signed at the same time. A
further opportunity to increase Gem Diamonds interest to 20% was also agreed.
Gem Diamonds regards Chiri as a highly promising undeveloped kimberlite. Drilled
and subsequently illegally mined during Angola's civil war, Chiri's
diamondiferous nature is well known but its grade not yet confirmed.
During 2007 a project team were recruited and Luanda offices were established. A
10 tph DMS sampling plant and large diameter drill rig have been procured and
are in transit to the site where a camp has been established. The preliminary
feasibility report is expected by the end of 2008.
1.9 Beneficiation
Margins in the diamond business vary widely across the value chain. Overall
however the Company's experience is that the highest margins are achieved in the
mining and jewellery retailing segments.
Due to the high value of Gem Diamonds' production across its three mines, a
number of options exist for Gem Diamonds to capture downstream margin. In late
2007 two trials were conducted with Antwerp based Matrix Diamond Technology
polishing 267 carats of highly complex rough diamonds from Letseng into 80.2
polished carats. These polished diamonds were sold in two separate tenders
subsequent to year end, the first of which was the first time a tender of
polished diamonds had taken place in Antwerp.
The results of these beneficiation trials were positive with both tenders
achieving record prices per carat for certain polished diamonds. An average
price per carat of US$90 000 was received. Trials on Ellendale yellow diamonds
have been initiated.
It is too early to accurately quantify the additional revenue that this process
of beneficiation could bring to the Group. However, the Company is cognisant of
the fact that in order to achieve the final margin capture, the application of a
premium brand and marketing strategy to the polished diamonds is an important
factor.
Gem Diamonds enters 2008 with three producing mines situated in different
countries, all of which are in expansion mode and producing diamonds that
continue to achieve extraordinary prices. Development projects throughout Africa
provide an opportunity to more than double the current production levels.
Whilst the current US economic climate presents a challenge, opportunities
abound throughout the diamond value chain to deliver returns to our
shareholders. Our outlook remains extremely positive.
2 Diamond Market Review
2007 started as a strong year for the diamond sector which, despite the
emergence of the sub prime crisis, did not weaken as the year progressed.
With an estimated 45% of all diamond consumption occurring in the US, a
weakening US economy represents a significant risk to the overall industry.
However it is misleading to view diamonds as a single commodity.
Through 2007 and subsequently in 2008, the bottom end of the rough and polished
diamond market experienced some difficulties and this situation is expected to
continue. However Gem Diamonds' production from Letseng, with the highest
average price per carat of any kimberlite mine, as well as Cempaka and
Ellendale, with high diamond value profiles, is valued at multiples of the world
average. It is this segment of the rough and polished diamond market that
performed best in 2007 and 2008 has begun extremely positively.
According to WWW International Diamond Consultants ('WWW'), prices in the very
top quality rough diamonds increased by 50% to 100%, depending on size, in 2007.
This trend started in late 2006, continued through 2007 and, in January 2008
alone, a further increase of more than 10% in prices for top quality rough
diamonds occurred.
Encouragingly, the increase in this segment of the rough diamond market has been
replicated in the polished diamond market where there have been a stream of
record prices paid. This much was evident in the Letseng polished tender of
January 2008 where a five carat diamond sold for US$133 000 per carat, exceeding
what had been the long standing bench mark price of US$100 000 per carat for a D
flawless polished diamond. The increase in polished prices for these exclusive
gems has outstripped all expectations.
One of the driving forces for this surge in prices in both rough and polished
top quality diamonds has been the realisation in the diamond trading markets
that the liquidation of the De Beers stockpile is now complete and a shortage of
these rare gems is developing. There is no known significant new source of
diamonds coming into production in the foreseeable future that is likely to
ease this shortage. In fact, WWW predicts that the real shortage for rough
diamonds will only really begin to take effect in 2011. Combining this shortage
with demand from the new wealth centres of the Far East and Russia and with
increased demand from the Middle East, augurs well for a strong price growth.
Looking forward therefore, there is no reason to expect anything more severe
than a levelling off of recent very high prices in these key areas of Gem
Diamonds' production profile despite the broader current economic circumstances.
In fact if 2008 continues as it has started, Gem Diamonds expects those mines
with a high quality profile in all the sizes to benefit from firm to improving
prices over the course of the year.
3 CHIEF FINANCIAL OFFICER'S REVIEW
I am pleased to present the Group's maiden Annual Financial Results as a listed
entity in which the Group is able to report revenue of US$152.7 million as well
as earnings before interest, tax, depreciation and amortisation ('EBITDA')1 of
US$73.5 million. This EBITDA was achieved as follows:
(US$ millions) 12 months ended December 2007 6 months ended December
2006
Revenue 152.7 50.4
Royalties and sales costs (16.6) (3.9)
Cost of sales (before depreciation
and amortisation) (44.2) (15.5)
Corporate expenses (17.4) (7.8)
Share of loss in associate (1.0) (0.5)
EBITDA 73.5 22.7
Depreciation (7.6) (2.2)
Other income 0.2 -
Foreign exchange gain/(loss) 14.7 (9.3)
Net finance income/(costs) 20.1 (0.2)
Trading profit 100.9 11.0
Amortisation (13.0) (3.1)
Share based payments (19.5) -
Profit before tax 68.4 7.9
1 EBITDA unless indicated to the contrary, is before exceptional items and share based payments. Exceptional
items are significant items of income and expense which due to their nature or expected infrequency are
presented separately in the Consolidated Income Statement.
3.1 Revenue
Revenue of US$151.9 million was generated in 2007 from the sale of rough
diamonds recovered at Letseng Diamonds where the number of carats sold and
prices achieved improved significantly from that of the prior period.
Sales of rough diamonds from other mines as well as those of polished diamonds
on hand at the end of 2007 occurred subsequent to year end. Diamonds recovered
but not sold are held at the lower of cost or net realisable value on the
balance sheet. Revenue generated from diamonds recovered and sold from
development projects in Central Africa in 2007 are netted off against
exploration expenditure, the net amount of which is capitalised to the balance
sheet.
3.2 Royalties and Sales Costs
Royalties and selling costs relate to a 2.5% commission paid to agents based in
Antwerp, which will reduce to 1.75% in the course of 2008 when the second plant
at Letseng is at full production, as well as an 8% royalty payable to the
Lesotho Revenue Authority on the sale of Letseng's diamonds.
3.3 Cost Of Sales
Cost of sales for the year was US$44.2 million before non-cash costs of on mine
deprecation of US$7.6 million and amortisation on mining assets of US$13.0
million. The bulk of this relates to sales at Letseng Diamonds.
3.4 Corporate Expenses
Corporate expenses relate to central costs incurred by Gem Diamonds and its
services subsidiary Gem Diamond Technical Services. Central costs were in line
with those budgeted for the year.
3.5 Share of Loss In Associate
The share of loss in associate relates to losses incurred in Kabongo Development
Company ('KDC') of US$1.0 million prior to the Company increasing its holding to
100% in October 2007.
3.6 Foreign Exchange Gains
A foreign exchange gain was earned as a result of the Company's decision to
convert capital raised on IPO in Sterling into US dollars. This decision was
made on the basis that the Company's functional currency is US dollars. A
further foreign exchange gain was made on funds transferred to Australia to
settle the Kimberley Diamonds acquisition.
3.7 Finance Income
Net finance income received reflects the interest accrued on the capital raised
at IPO in mid-February 2007. The rate at which interest is earned in 2008 will
decline in line with global interest rates.
3.8 Share Based Payments
As set out in the Company's Prospectus, the Company is authorised to issue up to
2.5% of shares in issue at IPO (i.e. 2.5% of 57 865 209) to non-Executive
Directors of which 2.25% have been allocated to date. Going forward the Company
intends to make awards to Executive Directors and other Senior Executives of up
to 1% of the total shares in issue in any one financial year.
3.9 Taxation
US$17.1 million of tax charges relate to income and withholding taxes paid by
the Group to revenue authorities. The balance of US$10.8 million is deferred
tax. The effective tax rate of 41% is above the average tax rate across the
Group of 30% as a result of unrecognised deferred tax assets. These unrecognised
deferred tax assets mainly comprise tax losses across the Group the benefit of
which may be realised in future years. The effective cash tax rate was 25%.
3.10 Minority Interests
Minority interests represent the 30% in Letseng Diamonds which is held by the
Company's partner, the Government of Lesotho.
3.11 Earnings Attributable To Shareholders
Earnings attributable to shareholders for the year were US$23.2 million equating
to 40 US cents per share on a weighted average basis (40 US cents per share for
dilutive earnings). The weighted average number of shares in issue during the
year was 57.5 million shares. At year end shares in issue were 62.4 million.
3.12 Inventory
In line with the decision to review the sales processes at a number of recently
acquired companies, diamonds recovered at Ellendale and Cempaka were accumulated
for sale in early 2008. Sales of these diamonds were held in January and
February 2008 and significantly reduced the inventory holding.
3.13 Cash
The Group started the period with US$51.9 million in cash resources. This was
supplemented by net cash raised of US$606.9 million, proceeds of which were
arrived at as follows:
- 30 000 000 shares issued on 14 February 2007 at £9.50;
- A further 4 100 000 shares issued on 23 February 2007 in the greenshoe
allocation at £9.50; and
- Less cash costs incurred in the year on the raising of this capital of US$29.3
million.
During the period US$390.6 million of this cash was applied to the acquisitions
detailed below. US$109.6 million was invested in property, plant and equipment
at existing operations.
3.14 Acquisitions and Disposals
In line with the Group strategy a number of acquisitions were made during the
year:
BDI Mining
In May 2007, the Company acquired BDI Mining for a cash consideration of US$78.2
million, which owned 80% of the producing Cempaka alluvial diamond mine in
Indonesia. BDI Mining also owned 100% of the Woodlark Gold Project in Papua New
Guinea which was disposed of for a consideration of US$27 million. The net cash
price of Cempaka was therefore US$51.2 million. BDI Mining was consolidated in
to the Group accounts from June 2007. There were no diamond sales during the
period and as such no revenue was generated and the majority of the operating
costs were taken to inventory which is held at the lower of cost or net
realisable value.
Gope Exploration
In May 2007, the Group acquired 100% of Gope Exploration for a total
consideration of US$34.1 million.
KDC
Gem Diamonds started the year as a 49.9% shareholder in KDC and acquired the
remaining 50.1% in October 2007 for US$56.1 million. KDC owns various licenses
and concessions in the DRC, the bulk of which are in the Mbelenge and Lubembe
areas.
Kimberley Diamonds
In November 2007, the Group acquired Kimberley Diamonds for a total cash
consideration of US$249.2 million of which US$14.5 million was settled after
year end. Kimberley Diamonds owns the producing Ellendale mine operating in
Western Australia. Kimberley Diamonds was fully consolidated from 1 December
2007.
With three producing mines in different countries, Gem Diamonds has expanded and
de-risked its earning capacity. Acquisitions are now fully operationally and
financially integrated and 2008 is expected to be a year of solid organic
growth.
CONSOLIDATED INCOME STATEMENT
FOR THE 12 months ended 6 months ended
31 December 31 December
(US$'000) 2007 2006
Revenue 152 706 50 441
Cost of sales (64 759) (20 773)
GROSS PROFIT 87 947 29 668
Royalties and sales costs (16 558) (3 937)
Corporate expenses (17 371) (7 809)
Share-based payments (19 531) -
Foreign exchange gain/(loss) 14 654 (9 284)
Other income 245 4
OPERATING PROFIT 49 386 8 642
Net finance income/(costs) 20 085 (235)
Finance income 23 363 3 354
Finance costs (3 278) (3 589)
Share of loss in associate (1 030) (525)
PROFIT BEFORE TAXATION 68 441 7 882
Income tax expense (27 941) (7 543)
PROFIT FOR THE PERIOD 40 500 339
Attributable to:
Equity holders of parent 23 227 (5 121)
Minority interest 17 273 5 460
PROFIT FOR THE PERIOD 40 500 339
Earnings per share
- Basic, for profit/(loss) for the period 40 (24)
attributable to equity holders of the parent (cents)
- Diluted, for profit/(loss) for the period 40 (24)
attributable to equity holders of the parent (cents)
CONSOLIDATED BALANCE SHEET
AS AT 31 December 31 December
(US$'000) 2007 2006
ASSETS
Non-current assets
Property, plant and equipment 863 529 192 332
Intangible assets 71 685 27 958
Investment in associate - 20 044
Loans owing by associate - 14 783
Other assets 2 366 -
Deferred taxation 962 481
938 542 255 598
Current assets
Inventories 41 145 7 315
Receivables 12 505 13 017
Loans receivable 1 663 8 719
Cash and cash equivalents 183 536 51 907
238 849 80 958
TOTAL ASSETS 1 177 391 336 556
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued share capital 624 253
Share premium 787 487 162 775
Treasury shares (3) -
Other reserves 56 968 4 724
Retained income/(accumulated losses) 8 243 (14 984)
853 319 152 768
Minority interest 81 361 45 319
TOTAL EQUITY 934 680 198 087
Non-current liabilities
Other financial liabilities 16 688 51 014
Provisions 22 529 2 584
Deferred taxation 110 684 46 759
Trade and other payables 421 317
150 322 100 674
Current liabilities
Other financial liabilities 15 330 9 304
Trade and other payables 64 995 21 736
Income tax payable 10 362 6 755
Bank overdraft 1 702 -
92 389 37 795
TOTAL LIABILITIES 242 711 138 469
TOTAL EQUITY AND LIABILITIES 1 177 391 336 556
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period/year Other reserves
ended 31 December
(US$'000) Issued Share Treasury FCTR Share-based Revaluation (Accu-mulated Minority Total
share premium shares equity Reserve losses)/
capital reserve retained interest
income
Balance at 1 July 170 59 705 - (48) 2 362 - (9 863) - 52 326
2006
Share capital 83 108 378 - - - - - - 108 461
issued
Total recognised - - - 2 410 - - (5 121) 5 413 2 702
income and expenses
for the period
Foreign currency - - - 2 410 - - - (47) 2 363
translation reserve
Loss for the - - - - - - (5 121) 5 460 339
period
Transaction costs - (5 308) - - - - - - (5 308)
on share capital
issued
Acquisition of - - - - - - - 42 527 42 527
subsidiaries
Dividends declared - - - - - - - (2 621) (2 621)
Balance at 31 253 162 775 - 2 362 2 362 - (14 984) 45 319 198 087
December 2006
Share capital 371 665 618 (3) - - - - - 665 986
issued
Total recognised - - - 12 189 - - 23 227 17 273 52 689
income and expenses
for the period
Foreign currency - - - 12 189 - - - - 12 189
translation reserve
Profit for the - - - - - - 23 227 17 273 40 500
period
Transaction costs - (40 906) - - - - - - (40 906)
on share capital
issued
Share-based - - - - 20 267 - - - 20 267
payments
Acquisition of - - - - - 19 788 - 22 069 41 857
subsidiaries
Dividends declared - - - - - - - (3 300) (3 300)
Balance at 31 624 787 487 (3) 14 551 22 629 19 788 8 243 81 361 934 680
December 2007
CONSOLIDATED CASH FLOW STATEMENT
For the 12 months ended 31 6 months ended 31
December December
(US$'000) 2007 2006
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated by operations 76 506 13 962
Working capital adjustments (29 190) 244
47 316 14 206
Finance income 23 363 3 354
Finance costs (2 913) (2 258)
Tax paid (18 188) (604)
Dividends paid to minorities (5 921) -
43 657 14 698
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (109 621) (7 911)
Purchase of intangible assets (683) (439)
Loans and receivables repaid/(granted) 5 281 (11 740)
Purchase of other assets (229) 3
Acquisitions (390 624) (118 524)
Loans acquired (44 617) -
Proceeds from disposal of group held for sale 27 017 -
(513 476) (138 611)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds on share capital issued 636 277 108 461
Proceeds on issue of bonds - 52 500
Transaction costs on share capital issued (29 340) (5 308)
Transaction costs on issue of bonds - (2 739)
Financial liabilities repaid (8 841) (1 550)
598 096 151 364
NET INCREASE IN CASH AND CASH EQUIVALENTS 128 277 27 451
Cash and cash equivalents at the beginning of the period 51 907 23 750
Foreign exchange revaluations 1 650 706
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 181 834 51 907
NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT
1. Segment Information
The primary segment reporting format is geographical as the Group's risks and
rates of return are affected predominantly by differences in the geographical
regions of the mines and areas in which the Group operates. Other regions where
no direct mining activities take place are combined into a single geographical
region. The main geographical regions are:
- Kingdom of Lesotho ('Lesotho')
- Australia
- Indonesia
- Botswana
- Democratic Republic of Congo ('DRC')
- Central African Republic ('CAR')
- British Virgin Islands and South Africa (Provision of technical and
administrative services) ('BVI and South Africa')
Secondary segment information is reported on business activities. The main
business activities are:
- Mining activities of known diamond resources. These include all
elements of diamond mining, including exploitation of kimberlite and lamproite
pipes and alluvial deposits ('Mining activities');
- Exploration and resource development activities involving
determination of technical feasibility and assessment of commercial viability of
identified resources ('Exploration and resource development activities'); and
- Group function and provision of technical and administrative services
('Group services').
Inter-segment transactions are entered into under terms agreed between the
parties. Segment revenue, segment expense and segment results include
transactions between segments. Those transactions are eliminated on
consolidation.
Primary reporting - geographical segments:
The following table presents revenue and profit and certain asset and liability
information regarding the Group's geographical segments for the periods.
Year ended 31 Lesotho Australia DRC Indonesia Botswana CAR BVI and Total
December 2007 South
Africa
US$'000
Sales
Total sales 151 905 - 249 76 - - 14 180 166 410
Inter-segment sales - - - - - - (13 704) (13 704)
Sales to external 151 905 - 249 76 - - 476 152 706
customers
Segment results 80 189 5 895 (1 632) (6 373) (80) 1 735 (30 348) 49 386
Net finance income 20 085
Share of loss in (1 030)
associate
Profit before 68 441
taxation
Income tax expense (27 941)
Profit for the 40 500
period
Assets
Segment assets 324 261 409 453 175 233 114 025 39 954 14 813 99 652 1 177 391
Total assets 324 261 409 453 175 233 114 025 39 954 14 813 99 652 1 177 391
Segment liabilities 87 693 55 199 35 186 31 243 1 052 436 31 902 242 711
Other segment
information
Capital expenditure
- Property, plant 68 357 303 235 142 737 106 436 36 823 7 459 10 891 675 938
and equipment
- Intangible assets - - 26 691 16 124 - 66 - 42 881
Depreciation 14 803 3 002 723 4 167 3 733 489 23 920
Other non-cash flow
items
- Share based 2 159 - 758 98 54 257 16 941 20 267
equity transactions
Period ended 31 December 2006 BVI and
(6 months)
US$'000 Lesotho DRC CAR South Africa Total
Sales
Total sales 50 330 - - 3 458 53 788
Inter-segment sales - - - (3 347) (3 347)
Sales to external customers 50 330 - - 111 50 441
Segment results 24 133 (823) (202) (14 466) 8 642
Net finance income (235)
Share of loss in associate (525)
Profit before taxation 7 882
Income tax expense (7 543)
Profit for the period 339
Assets
Segment assets 253 067 16 664 7 279 39 502 316 512
Investment in associate - 20 044 - - 20 044
Total assets 253 067 36 708 7 279 39 502 336 556
Segment liabilities 67 851 414 254 69 950 138 469
Other segment information
Capital expenditure
- Property, plant and equipment 188 996 204 3 161 119 192 480
- Intangible assets 26 771 439 - - 27 210
Depreciation 6 550 24 148 47 6 769
Other non-cash flow items
- Share based equity transactions - - - - -
2. Acquisitions
Acquisition of BDI Mining
On 29 May 2007, the Group acquired 100% of the share capital of BDI Mining, a
diamond mining and gold exploration group which owned a producing alluvial
diamond mine and a gold development project. BDI Mining through its indirect
wholly owned subsidiary, Ashton MMC Pte Limited, owns 80% in PT. Galuh Cempaka,
which holds the mining rights to Cempaka Diamond Mine in Indonesia. BDI Mining
also indirectly owned 100% of Woodlark Mining Limited which owns the Woodlark
Gold Project located in Papua New Guinea. The Group disposed of Woodlark Mining
Limited on 30 June 2007.
The provisional fair value of the identifiable assets and liabilities of BDI
Mining as at the date of acquisition and the corresponding carrying amounts
immediately before the acquisition were:
Carrying Recognised
values at values at
acquisition acquisition
Property, plant and equipment 13 670 80 681
Intangible assets 303 42
Other financial assets 10 10
Inventories 212 309
Trade and other receivables 539 539
Cash and cash equivalents 3 739 3 739
18 473 85 320
Held for sale assets 12 347 25 301
Total assets 30 820 110 621
Financial liabilities 2 145 2 157
Trade and other payables 5 039 5 021
Deferred tax liabilities - 21 315
Provisions 287 392
Income tax payable 2 352 4 650
9 823 33 535
Held for sale liabilities 19 19
Total liabilities 9 842 33 554
Net assets 20 978 77 067
Fair value of net assets 77 067
Less: Minority interest (11 172)
Attributable portion of fair value of net assets acquired 65 895
Plus: Goodwill on acquisition 16 083
Total cost 81 978
The total cost of the combination was US$82.0 million which comprised the purchase consideration and directly
attributable costs associated with the acquisition.
Cash outflow on acquisition
Purchase consideration 81 978
Net cash acquired with the subsidiary (3 756)
Net cash paid 78 222
From the date of acquisition, BDI Mining has contributed US$0.1 million to
revenue and incurred a loss of US$6.1 million.
If the combination had taken place at the beginning of the year, BDI Mining
would have contributed US$2.5 million to revenue and a loss of US$13.7 million
to the Group.
The goodwill arises as a result of the requirement to recognise a deferred tax
liability calculated as the difference between the tax effect of the fair value
of the assets and liabilities and their tax bases. This balance was subject to
impairment testing as at 31 December 2007 and it has been determined that no
impairment existed.
Acquisition of KDC
During 2006, the initial 49.99% share capital of KDC was acquired for US$18.0
million. During October 2007, the Group acquired the remaining 50.01% share
capital of the company for US$56.1 million, resulting in KDC now being a wholly
owned subsidiary of the Group. As part of the latest acquisition, the
shareholder's loan of US$5.9 million was acquired, resulting in a net share
purchase cost of US$50.2 million.
The provisional fair value of the identifiable assets and liabilities of KDC as
at the date of acquisition and the corresponding carrying amounts immediately
before the acquisition were:
Carrying Recognised
values at values at
acquisition acquisition
Property, plant and equipment 34 428 134 133
Intangible assets 18 18
Deferred tax asset 1 428 -
Inventories 1 242 1 242
Trade and other receivables 530 530
Cash and cash equivalents 214 214
37 860 136 137
Financial liabilities 43 377 43 377
Trade and other payables 1 812 1 813
Deferred tax liabilities - 29 510
Provisions 271 613
Income tax payable 1 1
45 461 75 314
Net (liabilities)/assets (7 601) 60 823
Fair value of net assets 60 823
Plus: Post acquisition loss of associate acquired 1 736
Less: Revaluation surplus (19 783)
Attributable portion of fair value of net assets acquired 42 776
Plus: Goodwill on acquisition 25 604
Total cost 68 380
Cash outflow on acquisition
Purchase consideration 68 380
Initial acquisition (18 000)
Net cash acquired with the subsidiary (214)
Net cash paid 50 166
From the date of acquisition, KDC has net contributed US$0.3 million to revenue
and incurred a loss of US$2.5 million. The entity is currently in the resource
development phase.
If the combination had taken place at the beginning of the year, KDC would have
contributed US$0.3 million to revenue and a loss of US$7.9 million to the Group.
The goodwill arises as a result of the requirement to recognise a deferred tax
liability calculated as the difference between the tax effect of the fair value
of the assets and liabilities and their tax bases. This balance was subject to
impairment testing as at 31 December 2007 and it has been determined that no
impairment existed.
Acquisition of Kimberley Diamonds
On 26 November 2007, the Group acquired a controlling interest in Kimberley
Diamonds, an Australian diamond mining company which owns the Ellendale Mine in
Australia. Ellendale is renowned for its fancy yellow diamonds. At year end, the
Group held an effective 96% of the issued share capital with the compulsory
acquisition of the remaining 4% of the share capital completed subsequent to
year end. Kimberley Diamonds also holds a 39% interest in Blina Diamonds NL
('Blina'), an ASX Listed alluvial diamond mining and exploration company.
Blina is consolidated on the grounds of effective control even though the Group
owns less than 50% of the shares. The Group is able to govern the financial and
operating policies of the company by virtue of being the largest single
shareholder of the company and dominating the composition of Blina's board of
directors, thereby having the ability to cast the majority of votes at meetings
of the board of directors.
During the year, the Group entered into a hedge to protect the US$ purchase
price of the acquisition of Kimberley Diamonds in Australia. The transaction
closed out during the course of the year and the cost of the acquisition was
accounted for at the hedge rate. No amounts were credited to equity or to profit
and loss.
The provisional fair value of the identifiable assets and liabilities of
Kimberley Diamonds as at the date of acquisition and the corresponding carrying
amounts immediately before the acquisition were:
Carrying Recognised
values at values at
acquisition acquisition
Property, plant and equipment 175 533 301 225
Other assets 1 938 1 938
Investments 21 21
Inventories 13 697 14 370
Trade and other receivables 2 471 2 471
Cash and cash equivalents 659 659
194 319 320 684
Financial liabilities 26 237 26 237
Trade and other payables 25 172 25 172
Provisions 8 508 8 508
59 917 59 917
Net assets 134 402 260 767
Fair value of net assets 260 767
Less: Minority interest (10 897)
Total cost 249 870
Cash outflow on acquisition
Purchase consideration 249 870
Outstanding payment on purchase (14 487)
Net cash acquired with the subsidiary (659)
Net cash paid 234 724
From the date of acquisition, Kimberley Diamonds has not contributed to revenue
and incurred a loss of US$1.1 million.
If the combination had taken place at the beginning of the year, Kimberley
Diamonds would have contributed US$68.1 million to revenue and a loss of US$36.4
million to the Group.
Acquisition of Gope Exploration
The Group acquired 100% of Gope Exploration for a total cost consideration of
US$34.1 million. The effective date of the acquisition was 15 May 2007, the day
the last suspensive condition was met. The Company holds a retention license in
Botswana. A known kimberlite pipe lies within the area of this retention
license. The acquisition of Gope Exploration is considered to be an asset
acquisition and is not recognised as a business combination.
Acquisition of Letseng Diamonds
On 1 July 2006, the Group acquired 70% of the share capital of Letseng Diamonds,
an unlisted company in Lesotho which holds the mining rights and operational
assets of the Letseng Diamond Mine.
The final fair value of the identifiable assets and liabilities of Letseng
Diamonds as at the date of acquisition and the corresponding carrying amounts
immediately before the acquisition were:
Carrying Recognised
values at values at
acquisition acquisition
Property, plant and equipment 31 408 184 386
Inventories 4 854 4 854
Trade and other receivables 2 144 2 144
Cash and cash equivalents 8 074 8 074
46 480 199 458
Financial liabilities 1 441 3 684
Trade and other payables 5 757 5 757
Deferred tax liabilities 7 099 45 343
Provisions 2 409 2 409
Income tax payable 509 509
17 215 57 702
Net assets 29 265 141 756
Fair value of net assets 141 756
Less: Minority interest (42 527)
99 229
Plus: Goodwill on acquisition 26 771
Cost 126 000
Cost
Purchase consideration 131 096
Costs associated with the acquisition 188
Sale of 3% to the Government of Lesotho (5 284)
126 000
Cash outflow on acquisition
Purchase consideration 126 000
Outstanding payment on sale (4 498)
Outstanding amount due on sale of 3% to the Government of Lesotho 5 284
Costs associated with the acquisition paid in prior period (188)
Net cash acquired with the subsidiary (8 074)
Net cash paid 118 524
Letseng Diamonds was acquired in the prior year and therefore its results have
been included in the Group results for the full year.
3 BASIS OF PRESENTATION
The information in this results announcement has been extracted from the Group's
Annual Report for the year ended 31 December 2007 which has been prepared in
accordance with International Financial Reporting Standards and on a basis
consistent with the accounting policies applied for preparation of financial
statements included in the Group's prospectus published on 14 February 2007,
except for any changes in accounting policies detailed below.
The Annual Results announcement and the Annual Financial Statements were
approved by the Board on 22 April 2008. Following that the auditors have issued
an unqualified audit opinion.
4. CHANGE IN ACCOUNTING POLICY
The Group now accounts for stripping costs as follows:
Stripping costs incurred during the production phase to remove additional
overburden or waste ore are deferred when they give access to future economic
benefits and charged to operating costs using the expected average stripping
ratio over the average life of the area being mined. The average stripping ratio
is calculated as the number of tonnes of waste material expected to be removed
during the life of area, per tonne of ore mined.
The average life of area cost per tonne is calculated as the total expected
costs to be incurred to mine the 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 is 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.
The Group previously accounted for stripping costs as follows:
Post production mine stripping costs are expensed to profit or loss as incurred.
The impact of this change in accounting policy is immaterial in 2006 and
therefore comparative figures have not been restated.
5. EARNINGS PER SHARE
12 months ended 6 months ended
31 December 31 December
(US$'000) 2007 2006
The following reflects the income and share data used in the basic
and diluted earnings per share computations:
Profit for the period 40 500 339
Less: minority interests (17 273) (5 460)
Net profit attributable to equity holders of the parent 23 227 (5 121)
Weighted average number of ordinary shares in issue during the period 57 399 21 011
('000)
Profit/(loss) per share (cents) 40 (24)
Diluted profit/(loss) per share (cents) 40 (24)
Profit/(loss) per share amounts are calculated by dividing profit/(loss) for the period attributable to ordinary
equity holders by the weighted average number of ordinary shares outstanding during the period.
Diluted profit/(loss) per share is calculated by dividing the net profit attributable to ordinary equity holders of the
parent by the weighted average number of ordinary shares outstanding during the period after taking into account future
potential conversion and issue rights associated with ordinary shares.
The potential dilution of future potential conversion and issue rights has no earnings saving impact on the basic
earnings attributable to the equity holders of the parent
Number Number of
of shares shares
('000) ('000)
Weighted average number of ordinary shares in issue during the period 57 399 21 011
Effect of dilution:
- Future share awards to non-Executive Directors contracted for 419 -
- Future share awards under the Employee Share Option Programme 229 -
- Future share awards to Executive Directors and senior executives 174 -
under the Executive Share Growth Plan
Weighted average number of ordinary shares in issue during the period 58 221 21 011
adjusted for the effect of dilution
The convertible bonds have an anti-dilutive effect on the earnings of the Group
and as such are not included in the dilutive earnings per share calculation.
6. DIVIDENDS PAID AND PROPOSED
The directors do not intend recommending the declaration of a dividend. The
directors will reconsider the Company's dividend policy as the Company advances
the development of its operations. The directors envisage that, at such time,
the Company's dividend policy will be determined based on, and dependant on, the
results of the Group's operations, its financial condition, cash requirements,
future prospects, profits available for distribution and other factors deemed to
be relevant at the time.
7 INCOME TAX EXPENSE
12 months ended 6 months ended
31 December 31 December
(US$'000) 2007 2006
Income statement
Current (15 802) (6 492)
- UK (3 891) -
- Overseas (11 911) (6 492)
Withholding tax (1 312) (612)
Deferred (10 827) (439)
- Overseas (10 827) (439)
(27 941) (7 543)
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