Full Year Results

RNS Number : 6421I

Gem Diamonds Limited

16 March 2010

 



 16 March 2010

Gem Diamonds Limited

("Gem Diamonds" or the "Company")

Full Year Results for the year ended 31 December 2009

Gem Diamonds (LSE: GEMD) a leading diamond mining company reports its full year results for the year ended 31 December 2009:

Financial Highlights

§ Revenue US$244.4 million.

§ EBITDA US$53.4 million.

§ Cash generated by operations US$72.2 million.

§ Profit before tax from continuing operations US$37.1m.

§ Attributable profit US$15.5 million (14 US cents per share).

§ US$113.8m gross cash with no debt provides the Company with a platform for growth in recovering markets.

§ Central costs reduced by 37% to US$13.2 million.

Operational Highlights:

§ Implementation of strategy to preserve cash and reduce costs across the Group.

§ Implementation of a targeted mining strategy enabled both Letšeng and E9 to extract maximum value.

§ Letšeng produced over 700 rough gem diamonds of over 10.8 carats ('special stones') which equates to 78% of revenue.

§ A 35.1 carat diamond from Letšeng sold for US$ 1.8m at an average of US$51 253 per carat.

§ Average price of US$1 534 per carat for Letšeng in 2009.

§ At Ellendale operations at the higher value E9 ramped up. E9 achieved or exceeded all of its 2009 targets.

§ Average price of US$2 480 per carat achieved for Ellendale's fancy yellow diamonds in 2009.

§ Despite the downturn, the average price  for Ellendale's production rose in 2009 to  US$232 per carat compared to US$184 per carat for 2008.

§ Recommencement of beneficiation strategy demonstrates value add.

§ Total in situ resource carats maintained at circa 30 million carats.

§ Received 3 HSSE related awards based on the external HSSE audit score Letšeng of and Ellendale.

Corporate Highlights:

Gem Diamonds maintains profitability despite rough diamond prices falling over 60% from their 2008 highs during the worst recession faced by the diamond industry for decades.

§    Effective execution of cash preservation and cost reduction strategy.

§ Capital raising of US$ 98.8 million (net) enabled the company to repay all debt.

§ Long term supply agreement with a subsidiary of Tiffany & Co. for all Ellendale yellow diamonds to strengthen Gem Diamonds position in the luxury end of the market.

§ DRC assets sold with Gem Diamonds maintaining the right to a 65% interest and 3% royalty in any kimberlite projects developed.

Outlook for 2010

§ Diamond market has strengthened in the second half of 2009.

§ Opportunities for growth assessed in light of market conditions.

§ There is a genuine shortage of supply at the top end of the market amongst the larger, better quality goods.

§ Medium and long term supply shortfall impacting the market

§ External research shows that Letšeng produces 31% of all rough gem quality diamonds in excess of 25 carats.

Clifford Elphick, CEO, commented:

"2009 was an extremely challenging year for the diamond mining industry as a whole. However, our ability to react swiftly to changing market conditions enabled us to weather the worst of the economic crisis and maintain production and profitably at our two key operations. Consequently, with signs of a recovery in the market we are well placed to benefit from an upturn in the global economy. Additionally, increasing demand in non-traditional markets such as China and India has re-inforced the positive supply / demand fundamentals which will provide further long term growth opportunities for Gem Diamonds, particularly with our focus on the high end of the market.

2009 saw us cut back on all non-core expenditure with the majority of development projects put on care and maintenance. We are currently reviewing growth possibilities. Following the capital raising in April 2009 we have US$113.8 million gross cash and no debt on the balance sheet."

The Company will be hosting an analyst presentation on its Full Year Results today, which will take place at 9.30am. A live webcast of the presentation will be available on the Company's website: www.gemdiamonds.com

For further information:

Gem Diamonds Limited

Clifford Elphick, Chief Executive Officer
Glenn Turner, Chief Commercial Officer
Tel: [phone]

Richard Chetwode, Investor Relations
Tel: [phone]
Mob: [phone]

Gem Diamond Technical Services Ltd

Sherryn Tedder, Media

Tel: [phone]

Mob: [phone]

Pelham Bell Pottinger

James Henderson
Tel: [phone]

Charles Vivian

Tel: [phone]

About Gem Diamonds:

Gem Diamonds is a global diamond mining company that has pursued a long term growth strategy through targeted acquisitions and the development of its existing assets. Under the prevailing market conditions of 2009, the Company has focused its strategy on developing its cash generating assets and curtailing all non-essential capital and development expenditure.

The Company's portfolio comprises producing kimberlite and lamproite mines in Lesotho and Australia, as well as operations, development projects and exploration assets in Angola, Botswana, the Central African Republic, and Indonesia.

With Letšeng's production of the world's most remarkable white diamonds and Ellendale's production of rare fancy yellow diamonds, Gem Diamonds remains focused towards higher value diamonds. This segment of the market is expected to deliver attractive long term returns.

Chief Executive Officer's Review

From its listing in 2007 until late 2008, Gem Diamonds pursued a strategy of asset and production growth. However, this strategy underwent a radical change with the onset of the global financial crisis and its immediate and severe impact on prices of all rough diamonds. Prices continued to fall through the first quarter of 2009, but as confidence and the availability of credit returned to the diamond market, prices strengthened substantially throughout the remainder of 2009, though they remained below the highs of 2008.

From late 2008 and throughout 2009, Gem Diamonds' management implemented a strategy to ensure sustainability of the business and to best protect the Group's operating and financial position. The Group pursued measures focused on generating maximum cash flow from its producing mines, Letšeng in Lesotho and Ellendale in Australia. With a group-wide emphasis on cost cutting and cash preservation, the majority of the Group's other assets were placed on care and maintenance, and its assets in the DRC subsequently sold. Corporate costs were reduced and there has also been a substantial reduction in discretionary, sustaining and expansion capital expenditure. Corporate costs, excluding depreciation, are down from US$20.9 million in 2008 to US$13.2 million in 2009.

In order to strengthen the balance sheet and pay down existing debt, the Company raised new capital from its shareholders via a Placing on the London Stock Exchange.  On 22 April 2009, 75 million new shares were admitted to the Official List and to trading, raising a net US$98.8 million. Gem Diamonds now has no debt obligations and has gross cash of US$113.8 million as at 31 December 2009. The Group reports no impairments for 2009.

During the year, substantial progress was made in gaining an improved understanding of the mineral resources at both the Ellendale and Letšeng mines. This has enabled management to better optimise and reconcile the mining plan against the actual mining operations, as well as providing a more accurate means of forecasting expected production ahead of the actual mining.

Letšeng and Ellendale continue to produce amongst the world's finest white and fancy yellow diamonds respectively.

LESOTHO

Gem Diamonds owns 70% of Letšeng Diamonds in partnership with the Government of the Kingdom of Lesotho which owns the remaining 30%. Letšeng Diamonds was acquired in mid 2006 and has continued to deliver exceptional returns for its shareholders. Since Gem Diamonds took control, Letšeng's annual production has risen from 55 000 carats in 2006 to 90 878 carats in 2009.

The Letšeng mine continues to produce the world's most remarkable diamonds. During 2009, Letšeng produced over 700 rough gem quality diamonds, each in excess of 10.8 carats in size ('special stones') which represented 78% of Letšeng's total annual mine revenue. Of these, a total of 68 rough diamonds sold for more than US$20 000 per carat each. In the final quarter of the year Letšeng sold a 35.51 carat D colour, type IIa rough diamond for
US$51 253 per carat. The fact that 33 of these 68 diamonds were sold in the fourth quarter of 2009 alone, is testimony to the remarkable increase in the prices of large diamonds towards the end of 2009.

From an average of US$2 687 per carat in the second quarter of 2008, Letšeng achieved an average of only US$1 017 per carat in the first quarter of 2009, a fall of 62% on average, reflecting the severe impact of the global financial crisis on diamond prices. However from April 2009 onwards, prices for rough diamonds improved swiftly. In the last quarter of 2009, Letšeng's diamonds achieved an average price of US$1 894 per carat, with the December 2009 tender achieving US$2 070 per carat resulting in an average of US$1 534 per carat for the full year.

In line with the group-wide strategy, Letšeng's management adjusted their 2009 mining plan to optimise the balance between revenue generation and cash preservation. The key areas of the adjusted mining plan were:

-    the commencement in the ramp-up of waste stripping which had been previously planned to begin in early 2009 was delayed until the end of 2009 and continues into early 2010;

-    a shift in production towards the lower cost, lower value Main pipe whilst diamond prices were at their lowest levels; and

-    a balancing of mineral resource risk (higher cost, higher confidence ore versus lower cost, lower confidence ore) whilst achieving the targets.

This plan was successfully implemented although it led to lower planned grades being recovered for the full year (compared to 2008) due to the change in mining mix. The impact of the lower grade was partly offset by the increased tonnage treated and the mine remained profitable throughout the whole of 2009.

As prices continued to improve in the second half of 2009, the strategy changed and reverted to a new balance between Satellite and Main pipes. The ramp-up of waste stripping commenced with the introduction of larger, more cost effective, rigid frame dump trucks. 

It is anticipated that there will be a brief strategy transition period in early 2010, during which time production will only be from the Main pipe and not from the Satellite pipe. This presents the mine with an opportunity to carry out production bulk sampling of the Main pipe to improve resource knowledge.

The majority of Letšeng's electricity is supplied by South African electricity parastatal, ESKOM.  As a result of load shedding by ESKOM in previous years, Letšeng had experienced scheduled power outages. Standby electricity generating capacity was installed on site. This capacity is sufficient to operate one of the two processing plants and the mining contractor's plant, and was effectively used in the few instances of power outages experienced during 2009.

At the end of 2009, indicated and inferred resources at Letšeng amounted to 222.6 million tonnes containing an estimated 3.7 million carats with an assumed in-situ value of US$6.5 billion. Based on 2009 prices and exchange rates, the economic life of mine remains in excess of 25 years.

In October 2009, Keith Whitelock resigned from his position of Chief Executive Officer of Letšeng Diamonds. He also stood down from the Board of Letšeng Diamonds and was succeeded as CEO by Ms. Manthethe (Mazvi) Maharasoa, who remains a Director of the Board of Letšeng Diamonds.

AUSTRALIA

In December 2007, Gem Diamonds acquired Kimberley Diamond Company NL. Kimberley Diamonds owns 100% of the Ellendale mine in the North of Western Australia. The Ellendale mine is a major producer of fancy and vivid yellow diamonds. Kimberley Diamonds also held a 39% interest (which reduced to 34% during the year) in Blina Diamonds, a listed alluvial diamond mining and diamond exploration company adjacent to the Ellendale mine.

In February 2009, the lower value E4 operation at Ellendale was placed on care and maintenance in line with management's policy to focus exclusively on generating positive cash flow from the higher value E9 operation. This resulted in a significant reduction in the scale of operations at Ellendale as a whole. However, the ongoing operation at E9 continued to report improvements throughout the year and all aspects of the E9 operation achieved its 2009 targets.

During 2009, the Ellendale mine treated 4 159 482 tonnes of ore and 198 825 carats of rough diamonds were recovered. Sales of rough diamonds in 2009 (312 450 carats) were substantially higher than the number of carats mined because it included a significant volume of commercial diamond inventories mined in the previous year and which were sold in the first half of 2009.

In July 2008, Kimberley Diamonds entered into a formal six month supply arrangement for Kimberley's fancy yellow production with Laurelton Diamonds Inc., the diamond sourcing and polishing subsidiary of global high end jeweller Tiffany & Co. Even though this agreement expired in early January 2009, sales to Laurelton continued through 2009 on a non-contractual basis. In December 2009, Kimberley Diamonds entered into a formal life of mine agreement with Laurelton Diamonds for the supply of its fancy yellow diamond production at a new price of less than 10% below the 2008 peak prices, which includes a regular price review mechanism. In 2009, fancy yellow diamonds accounted for 20 711 carats (7%) of Ellendale's diamonds sold and achieved an average price US$2 480 per carat.

The remaining commercial production from the Ellendale mine, which includes diamonds not covered in this agreement, will continue to be marketed through existing channels, including tender, auction and select direct sales. Prices for these commercial goods fell from a high of US$86 per carat in the third quarter of 2008 to just below US$40 per carat in the last quarter of 2008 and the first quarter of 2009. As confidence has returned to the diamond market, the prices for these commercial goods have encouragingly increased by circa 200% on average. In the most recent sale in March 2010, the Kimberley commercial goods achieved an increase of 20% on average over the December 2009 average tender price.

The sale of fancy yellow diamonds to Tiffany & Co. and the focus on the higher value E9 pipe for the majority of the year meant that despite the global financial crisis, the Ellendale operations achieved an average price of US$232 per carat for 2009 as opposed to US$185 per carat for 2008.

In a similar manner to Letšeng, Kimberley was quick to respond to the impact of the global economic crisis and took the following steps to ensure the profitability of the Ellendale mine:

-   the suspension of operations at the lower value E4 pipe with the associated reduction in staff and overheads;

-    the relocation of a DMS module from the E4 plant to the E9 plant to increase treatment capacity for the higher value E9 pipe ore;

-    a focus during the first half of 2009, on the east side of the E9 pipe to maximise revenues from the fancy yellow diamonds;

-    optimisation of the mining fleet to reduce overall mining costs;

-    ongoing negotiation and finalisation of the off-take agreement with Tiffany & Co. for the fancy yellow component of production;

-    a full review of the mineral resource and the associated mine planning together with the development of a resource extension strategy;

-    a renewed focus on cost and financial management; and

-    changes to senior on-site management to ensure the embedding of the necessary organisation culture to effect the changed strategy.

Again, it is pleasing to report that the new strategy was successful and Ellendale, together with setting several new production records throughout the year, generated a profit in 2009.

At the end of 2009, indicated and inferred resources amounted to 90.1 million tonnes containing an estimated 4.9 million carats with an assumed in-situ value of US$85.8 million. This resource is sufficient to sustain a life of mine of 3.5 years at current production rates at E9 (the lower grade E4 pipe is on care and maintenance and the E4 Satellite pipe has not been developed at this stage).

INDONESIA

BDI Mining was acquired by Gem Diamonds in May 2007. It owns 80% of the Cempaka, the alluvial diamond mine in South Kalimantan, Indonesia in partnership with the Government of Indonesia which owns the remaining 20%.

The mine was put onto care and maintenance at the beginning of 2009 and has remained as such throughout 2009. During that period, environmental rehabilitation was undertaken and all other legal obligations were met.

BOTSWANA

Gem Diamonds acquired Gope Exploration Company from De Beers and Xstrata in May 2007. Gope Exploration is the holder of a retention licence covering the Gope 25 kimberlite deposit in the Central Kalahari Game Reserve. During 2009 all efforts were focused on minimising ongoing expenditure on the project whilst continuing to meet all legal obligations associated with tenure until the market recovers sufficiently to recommence the project.

Work in terms of refining the geological model on the Gope project has continued. Revenue estimates and size frequency distributions have been reassessed and remodelled. The feasibility study and capital estimate is currently under review.

DRC

Gem Diamonds' operations in the DRC comprised a number of alluvial diamond projects and a kimberlite exploration programme across three broad areas. These interests were held via a number of companies in which Gem Diamonds held between an 80% and 100% shareholding.

Contracts for the sale of Gem Diamonds' three DRC companies were concluded with Kasai Resource Mining Limited ('KRM') at the end of 2009, for a consideration of US$5.0 million. Under the terms and conditions of the sale agreements entered into with KRM, Gem Diamonds retains the right at no further cost, to an additional 65% interest in any economic kimberlite that may be discovered on the concessions currently owned by these DRC companies. In addition, Gem Diamonds will be entitled to a 3% royalty on the revenue from any diamonds extracted from any kimberlite discovery on these concessions.

CAR

Gem Diamonds holds a 75% interest in Gem Diamonds Centrafrique SA, in partnership with the Government of the Central African Republic (CAR), which holds the remaining 25%. Gem Diamonds Centrafrique holds exclusive exploration and mining rights to the Mambéré Concession.

All exploration and sampling activities were suspended in November 2008. Throughout 2009, the mining site has remained on care and maintenance whilst opportunities for disposal have been pursued.

ANGOLA

In January 2007, Gem Diamonds and Avantis Angola signed a Co-operation Agreement with respect to a preliminary feasibility report to be produced on the Chiri kimberlite deposit in the Lunda Sul Province of Angola. The preliminary exercise was completed in March 2009. From the date of completion of this report, the project has remained on care and maintenance.

An Option Agreement whereby Gem Diamonds can acquire an effective 11.25% interest in Chiri from Avantis Angola was also signed at the same time and remains in place.

BENEFICIATION

In January 2009, diamonds totalling 180.9 carats, polished in the second half of 2008, were sold at an average price of US$55 348 per carat. However, because of adverse market conditions, the beneficiation strategy was suspended during the first half of 2009.

In the third quarter of 2009, Gem Diamonds recommenced its beneficiation operation in order to take advantage of the value opportunity. Two rough diamonds were purchased by Gem Diamonds at Letšeng tenders for a total of US$1.8 million and were analysed, cut and polished by Matrix Diamond Technology in Antwerp. The resultant three exceptional D colour, internally flawless, polished diamonds, weighing a total of 25.7 carats, were sold for US$2.5 million, at an average price of US$97 234 per carat. 

During 2009 as a whole, Gem Diamonds sold a total of 206.6 carats of polished diamonds, for a consideration of US$12.5 million at an average price of US$60 560 per carat.

OUTLOOK

Diamond prices have continued to improve in early 2010 following a better than expected 2009 Christmas season in the US, albeit relative to the post crisis fourth quarter sales in 2008. In addition evidence suggests that demand for diamond jewellery in India and China continues to grow strongly, although not making up for the slowdown in US consumption of diamond jewellery. Prices for rough diamonds in 2009 were driven by lower retail sales in some markets and by destocking in the major US market. In general retailers stock according to expectations and these expectations have improved. The production cutbacks by the major producers in 2009 allied to anecdotal evidence which suggests that capacity in India, the largest cutting centre, has not returned to pre crash levels, has meant that stocks of rough and polished have not grown substantially by the end of 2009. At the top end of the market, amongst larger, better quality goods, there appears to be a shortage of supply.

Whilst I would not want to predict where the major global economies will stand at the end of 2010, the medium and long-term shortage in diamond supply created by falling production from existing mines, a lack of new mines coming on stream and growth in the Indian and Chinese markets impacting on demand, is positively impacting the market.

KEY PERFORMANCE INDICATORS

The Board and Executive Committee of Gem Diamonds monitor the Group's performance over time using a range of key performance indicators ('KPIs'). These KPIs are reported on regularly by management and provide a useful measure of the Group's operational, financial and safety performance. They are reported in this Annual Report to enable all stakeholders to assess the Group's performance and results on a clear and consistent basis.

Safety:

-     Fatalities -Work related fatal accidents (ceiling 0 fatalities, achieved)

-     LTIFR - Lost time injury frequency rate (ceiling 0.50, achieved 0.45)

Operational Performance:

-     Tonnes mined - (target 11.6 mt, achieved 11.5 mt)

-     Ore treated  - (target 11.7 mt, achieved 11.7 mt)

-     Carats produced - (target 275 265 cts, achieved 289 703 cts)

-     Carats sold - (target 392 526 cts, achieved 414 049 cts)

Financial Performance:

-     Earnings before interest, tax, depreciation and amortisation ('EBITDA')

      (budget US$37.3 million, achieved US$53.4 million)

For the period 2008 to 2010, Gem Diamonds' Executives were charged with achieving the following:

Key Strategic Objectives 2008 - 2010		2009
1.	Maintain appropriate health and safety standards and manage environmental obligations	Achieved and ongoing
2.	Identify and conclude acquisitions that are likely to have a positive influence on earnings and share price and increase the critical mass of production	Ongoing
3.	Successfully implement the beneficiation process	Commenced and ongoing
4.	i)  Successfully conclude the pre-feasibility study on the    Chiri deposit ii) Potential acquisition of an equity stake in the Chiri project	Achieved On care and maintenance
5.	Successfully conclude the mining licence application for Gope and secure funding and commence the project	Ongoing assessment
6.	Successfully integrate the Kimberley Diamond acquisition	Achieved in 2008
7.	Maximise mine-gate revenue through optimised sale process	Achieved and ongoing (Tiffany and Co. agreement)
8.	Increase the confidence in the diamond resource base	Partially achieved, work ongoing
9.	Commission the second plant at Letšeng within budget and achieve rapid production build-up	Achieved in 2008
10.	Achieve planned throughput tonnes treated at all mining operations	Achieved and ongoing
11.	Achieve budgeted recovery of carats at all mining operations	Achieved for 2009 and ongoing
12.	Achieve budgeted earnings before interest, tax, depreciation and amortisations ('EBITDA')	Exceeded in 2009

I would like to thank the Board, management and staff of Gem Diamonds and its subsidiaries. Their combined efforts and commitment ensured that the Group's revised operational strategies in response to the market downturn were implemented timeously and efficiently across all aspects of the operations, whilst continuing to maintain imperatives such as occupational health, safety, environmental management and community matters during an extremely challenging year. 

Clifford Elphick

Chief Executive Officer

15 March 2010

Chief Financial Officer's Review

Financial Highlights

·    Revenue of US$244.4 million generated in challenging trading conditions

·    EBITDA of US$53.4 million

·    Profit before tax from continuing operations of US$37.1 million

·    Attributable earnings of US$15.5 million (14 US cents per share)

·    Gross cash generated from operating activities of US$47.5 million

·    Cash on hand of US$113.8 million

FINANCIAL RESULTS

The Group has traded profitably for the current year in spite of the global financial crisis that has severely affected the diamond industry both at the rough trading and polished sales levels. The Board and management's response to the situation, commencing in late 2008, which included the implementation of its cash preservation and cost reduction strategies, as well as a capital raising, resulted in the Group generating positive earnings, eliminating all debt and ending the year with US$113.8 million cash on hand.

For the current year, the Group reports earnings before interest, tax, depreciation and amortisation ('EBITDA') of US$53.4 million, earnings from continuing operations of
US$26.9 million and attributable profit of US$15.5 million.

(US$ millions)	12 months ended 31 December 2009	12 months ended 31 December 20081
Revenue	244.4	296.9
Cost of sales	(155.3)	(187.4)
Royalty and selling costs	(22.5)	(27.1)
Corporate expenses	(13.2)	(20.9)
EBITDA	53.4	61.5
Depreciation and amortisation	(25.3)	(61.0)
Share based payments	(5.6)	(10.4)
Impairment	0.2	(338.2)
Other income	0.3	-
Foreign exchange gain/(loss)	14.4	(19.3)
Net finance (costs)	(0.3)	(0.1)
Profit before tax	37.1	(367.4)
Attributable profit	15.5	(552.8)
Earnings/(loss) per share (US cents)	14	(884)
Earnings/(loss) per share - continuing operations (US cents)	15	(597)

1.     The prior year's figures have been restated for the reclassification for the impact of accounting for discontinued operations.

CAPITAL RAISING

On the back of the global financial crisis and its adverse effect on the diamond market, the Company concluded a firm placement on 22 April 2009, raising US$98.8 million (net) to settle outstanding debt and maintain sufficient working capital. The Company issued 75 million new ordinary shares at 100 pence each, resulting in total shares in issue of 138.3 million and a weighted average number of shares in issue for the year of 114.9 million.

FINANCIAL PERFORMANCE

Revenue of US$244.4 million was generated during the year primarily from the sale of rough diamonds recovered at the Letšeng and Ellendale mines. Prices have increased steadily over the year after confidence in the rough diamond market improved. This has resulted in a 8% increase in revenue in the second half of the year over the first six months. Included in revenue for the first six months, is the sale of Letšeng and Ellendale rough diamonds held over from 2008, the sale of a small number of Cempaka diamonds, a once-off royalty payment received from an off-take agreement then in place and the sale of polished diamonds produced in beneficiation trials by Letšeng. Therefore, on a comparable basis, revenue has increased in the second half of the year by 52%. This is evidenced by the US$ per carat achieved by Letšeng and Ellendale in the second half of the year of US$1 818 and US$348 per carat respectively compared to US$1 308 and US$160 per carat in the first half.

Cost of sales for the year was US$155.3 million before non-cash costs of depreciation of US$16.8 million and amortisation on mining assets of US$6.8 million. The Lesotho loti (pegged to the South African rand) and the Australian dollar both strengthened significantly against the US dollar during 2009, effectively increasing dollar input costs over the year. The South African rand relative to the US dollar started the year at ZAR9.25, reached a high of ZAR10.70 in the first quarter of 2009, before strengthening and ending the year at ZAR7.36. The Australian dollar, similarly, commenced the year at AU$1.43, reached a high of AU$1.60 and strengthened to AU$1.11 by year end.

The following table details the relative exchange rates for 2008 and 2009:

	FY 2009	H2 2009	H1 2009	FY 2008
Lesotho Loti per US$1.00
Average exchange rate for the year / period	8.42	7.67	9.20	8.26
Year / period end exchange rate	7.36	7.36	7.72	9.25
Australian dollar per US$1.00
Average exchange rate for the year / period	1.28	1.15	1.41	1.20
Year / period end exchange rate	1.11	1.11	1.24	1.43

Royalties and selling costs of US$22.5 million, comprise sales commissions and royalties paid to the Lesotho Revenue Authority of 8% and the Australian Government of 5% on the sale of diamonds in these respective territories.

Corporate expenses relate to central costs incurred by the Company and its services subsidiary, Gem Diamond Technical Services. Significant cost reduction initiatives were implemented during the year, which resulted in a 37% cost saving relative to 2008.

EBITDA for the year rose to US$53.4 million from US$25.1 million at June 2009, an increase of 13% in the last six months relative to the first half of the year. In difficult trading conditions and off the back of a decrease of 18% in Group revenue from 2008, Letšeng generated EBITDA of US$58.5 million, reaffirming the quality of the asset, and pleasingly, Kimberley Diamonds generated US$11.0 million highlighting the value of the Ellendale E9 operation.

Share-based payment costs of US$5.6 million comprise the allocation of the share awards to the non-Executive Directors as set out in the IPO Prospectus and share/option awards to staff. Of this cost, US$2.8 million relates to the share awards granted to the non-Executive Directors and US$1.5 million to the Executive Share Growth Plan which ended in February 2010. Based on the Company's share performance, no vesting and payment relating to the Executive Share Growth Plan will take place.  

Foreign exchange gains relate to realised hedges entered into by Kimberley Diamonds in 2008 and gains on exchange rate fluctuations on Sterling denominated cash held by the Company and foreign currency denominated loan balances within its Australian operation. It is Group policy to not actively hedge.

Net finance costs comprise interest received of US$2.8 million. This was predominantly generated on surplus cash from the Letšeng operation against interest paid of US$3.1 million charged on the Société Générale debt in Kimberley and the convertible bonds in the Company, both of which were settled during the first half of the year.

The effective tax rate in the year for the Group is 27.5% from continuing operations, slightly lower than the UK statutory tax rate of 28%. The tax rate of the Group is driven by tax of 25% on profits generated by Letšeng Diamonds, withholding tax of 10% on dividends and deferred tax assets not recognised on losses incurred in non-trading operations. These were offset by the release of a current tax liability.

Minority interests represent 30% of the profits in Letšeng Diamonds, which are attributable to the Company's partner, the Government of Lesotho. 

Profit attributable to shareholders increased significantly from US$3.3 million at June 2009 to US$15.5 million for the year equating to 14 US cents per share on a weighted average number of shares of 114.9 million. Earnings per share from continuing operations amounted to 15 US cents per share.

SEGMENTAL FINANCIAL PERFORMANCE

US$ (millions)	Letšeng Diamonds	Kimberley Diamonds
Sales	163.9	76.7
Cost of sales	(87.7)	(61.0)
Royalty and selling costs	(17.7)	(4.7)
EBITDA	58.5	11.0
Physicals
Tonnes treated	7 549 386	4 159 482
Waste tonnes mined	8 072 032	3 956 957
Carats recovered	90 878	198 825
Carats sold(3)	101 599	312 450
US$ (per unit)
Average price per carat (rough)	1 534	232
Cash cost per tonne1	10.80	13.82
Operating cost per tonne2	11.66	14.71
Local currency (per unit)	Lesotho Loti	Australian dollar
Cash cost per tonne1	90.90	17.68
Operating cost per tonne2	98.14	18.82

1. Cash costs represents all operating costs, excluding royalty and selling costs, depreciation, mine amortisation and all other non-cash charges. 

2. Operating costs excludes royalty and selling costs and includes inventory, waste and ore stockpile adjustments and excludes depreciation and mine amortisation.

3.  Excludes sale of polished diamonds

LETŠENG DIAMONDS

Letšeng Diamonds continues to deliver strong operational and financial results in spite of challenging economic circumstances, generating EBITDA of US$58.5 million. The average revenue per carat for the year was US$1 534, up 17% from the first half of the year of US$1 308.

The effect of the second plant operating for the full year during 2009 resulted in production throughput increasing to 7.5 million tonnes compared to 6.6 million tonnes in 2008. This increased throughput combined with various cash reduction initiatives, reduced the cash costs per tonne to Maloti 90.90 (US$10.80) from Maloti 96.53 (US$11.69), relative to the 2008 year. Total operating costs per tonne in 2009 increased to Maloti 98.14 (US$11.66) from Maloti 84.78 (US$10.27) in 2008, predominantly due to waste costs incurred in 2008 being amortised in the current year and the impact of reduced diamond inventory levels at the end of the year compared to the end of 2008. The maintaining of local currency unit costs at similar levels to 2008 is indicative of the results achieved from the Groups cash preservation and cost reduction strategy.

KIMBERLEY DIAMONDS

In February 2009, the Group announced that, as part of its ongoing review of the operation, and combined with poor market conditions, the lower value E4 mining operation would be placed on care and maintenance. In January and February, operations at E4 were limited to the treatment of ore from the stockpile. Since then, production has been focused solely on the E9 operation. As a result, total tonnes treated during the year reduced to 4.2 million tonnes from 8.3 million tonnes in 2008.

Despite current market conditions and having carried the costs of operations and the placement of E4 on care and maintenance in early 2009, Kimberley has generated EBITDA of US$11.0 million and an operating profit of US$6.8 million against an EBITDA of US$5.2 million and a loss of US$60.5 million (pre-impairments) in the prior year.  Furthermore, the potential of the higher value E9 pipe is further demonstrated as the E9 operation, on a stand alone basis, generated an EBITDA of US$13.3 million.

The table below reflects a segmental performance analysis between the E4 operation (including the impact of the inventory carry-over from 2008) and the E9 operation. As noted previously, on a stand alone basis, E9 has generated a positive return, offset by the losses generated by E4 and the inventory carry over, which were not repeated in the second half of the year.

(US$ millions)	Kimberley E4 and inventory carry-over	Kimberley E9	Total
Revenue	12.3	64.4	76.7
Operating costs	(13.7)	(47.3)	(61.0)
Royalty and selling costs	(0.9)	(3.8)	(4.7)
EBITDA	(2.3)	13.3	11.0
Tonnes treated	276 709	3 882 773	4 159 482
Waste tonnes mined	-	3 956 958	3 956 958
Carats recovered	23 063	162 762	198 825
Carats sold	155 012	157 438	312 450
Average price per carat (US$)	79	382	232

Sales during the year of US$76.7 million include the sale of inventory carried over from 2008 of 131 950 carats, comprising diamonds from the lower value E4 pipe and carats recovered from mining the E4 stockpile. The value of the E9 pipe is demonstrated by the average price achieved of US$382 per carat. The average price achieved in the fourth quarter was positively impacted by the formalising of an existing supply arrangement with Laurelton Diamonds Inc., the diamond sourcing and polishing subsidiary of Tiffany & Co. for the supply and sale of Kimberley Diamond's fancy yellow diamond production. This contract, for which the pricing is subject to regular pricing review, is for the life of the mine and provides certainty to the revenue streams to the operation and provides regular cash inflows.

Cash costs per tonne have increased slightly over the corresponding 2008 year from AU$16.96 to AU$17.68. This increase in cash costs is due to the operational fixed costs, being absorbed by a lower tonnage in this year. US dollar unit cash costs reduced to US$13.82 in the current year from US$14.16.

Local currency operating costs per tonne treated have remained relatively flat in the year, AU$18.82 (US$14.71) compared to AU$18.52 (US$15.46) in 2008. However, the two years are not directly comparable, as in 2008 there was an increase in waste mining and ore treated associated with the E4 production build up, whilst in 2009 there were costs associated in winding down the E4 operation combined with lower overall tonne volumes from focusing on the E9 operation only.

DISCONTINUED OPERATIONS

Due to the poor market conditions experienced in the second half of 2008, the Group took immediate action to place the operations in the DRC and CAR on care and maintenance. This resulted in all operating costs of the DRC and CAR operations no longer being capitalised to exploration and resource development assets but expensed in the Income Statement. In December 2009, the Group disposed of the three DRC companies for the consideration of US$5.0 million. Under the terms and conditions of the agreements entered into with Kasai Resource Management Limited ('KRM') in Q4 2009 in relation to the sale of each of  Gem Diamonds' three DRC companies, Gem Diamonds  retains the right, at no further cost, to a 65% interest in any economic kimberlite that may be discovered on the concessions owned by these DRC companies at the time of the sale to KRM. In addition, Gem Diamonds is entitled to a 3% royalty on the revenue from any diamonds extracted from any kimberlite discovery on these concessions.This resulted in a combined profit on sale of subsidiaries of US$4.4 million. The Group is actively seeking to dispose of the CAR operation and accordingly it has been classified as 'Assets Held for Sale' on the Group's Balance Sheet. 

All care and maintenance costs incurred during the year at the operations in the DRC and CAR have been disclosed separately in the Income Statement under Discontinued Operations. The Group has expensed US$5.9 million on these operations prior to the recovery of the profit on the sale of the DRC operations. The total net impact resulted in a 1 US cent impact on the overall earnings per share.

IMPAIRMENTS

Following the substantial impairments incurred in December 2008 arising out of the economic downturn, the Group has assessed its current asset base for any additional impairment. No such impairments were identified in the current year. In the event of a significant downturn in current economic circumstances for the diamond market, further impairments may arise in the future.

CASH AND DEBT

The Group raised US$98.8 million (net) on conclusion of its placement on 22 April 2009. As set out in the Prospectus, the proceeds were utilised to settle the debt with Société Généralé (US$21.3 million) and redeem the convertible bonds (US$15.8 million). The Group is free from any debt at the end of the year. The Group ended the year with US$113.8 million cash on hand (of this U$97.7 million is attributable and US$5.1 million is restricted).

Group cash was supplemented by a net cash inflow from operations for the year of US$47.5 million. Investments in property, plant and equipment of US$58.8 million were incurred. In Letšeng, this relates predominantly to the final costs associated with the life of mine extension programme. In Kimberley Diamonds, the increased treatment rate at the Ellendale E9 plant required additional slimes capacity. In addition, US$33.8 million was invested in waste stripping in both mining operations.

The disposal of the three DRC companies further contributed US$3.8 million in 2009, with the balance of US$1.2 million being received in early January 2010.

INVENTORY

Group diamond inventory from continuing operations at year end was US$14.1 million, down from US$22.0 million at the previous year end. Diamond inventories at both Letšeng and Ellendale were higher at the end of 2008 than at the end of the current year due to the difficult trading conditions at the end of that year.

ACQUISITIONS

During the year, the Company did not enter into any acquisition transactions. The purchase price allocation relating to the Calibrated Diamonds Group was finalised. This resulted in an increase in goodwill of US$0.1 million and had no impact on the Income Statement.

GOVERNANCE

Gem Diamonds receives no financial assistance from the government of any country in which it operates. No actions relating to anti-competitive behaviour, anti-trust and/or monopoly practices have been taken against Gem Diamonds.

RISKS TO OUR BUSINESS

The Group's operational and growth performance is influenced and impacted by a number of risks. Many of these risks are beyond the control of the Group but a formal risk management process exists to assist in identifying and reviewing potential risks. Mitigating plans are formulated and reviewed regularly to understand their effectiveness and progress. The Group is focused on continuously analysing and assessing the risks faced and improving the risk management process accordingly. The following key risks have been identified by the Group. The list is by no means exhaustive and may change over a period of time, as the impact and likelihood of the risks is assessed as part of the risk management process.

-     MARKET RISKS PERTINENT TO THE GROUP

The period and stability of the recovery of the financial markets and the impact on the consumer preferences post the global economic crisis impacts the Group and the industry as a whole. This potentially compounds the existing short term imbalance between demand and supply and the impact that this has on the diamond pipeline. Although the Group cannot materially influence the situation, the market conditions are continually monitored to identify current trends that will pose a threat or create an opportunity for the Group.

A change in consumer preferences away from diamonds due to negative sentiment towards diamonds and/or diamond mining is a continuing risk.

-     OPERATIONAL RISKS PERTINENT TO THE GROUP

A major production interruption at either Kimberley Diamonds or Letšeng Diamonds

The Group may experience material mine and/or plant shutdowns or periods of decreased production due to a number of different events. Any such events could negatively affect the Group's operations and impact both profitability and cash flows. The continual review of the likelihood of possible different events and ensuring that the appropriate management controls, processes and business continuity plans are in place mitigate this risk.

Mineral resource risk

The Group's ability to operate profitability in the medium to long term depends heavily on knowledge of the Group's mineral resource, which influences the operational mine plans and the generation of sufficient margins. Various bulk sampling programmes combined with geological mapping and modelling methods significantly improve the Group's understanding of the mineral resources and assist in mining the existing mineral resources profitably.

Life of mine at Kimberley

The Ellendale E9 pipe has a relatively short remaining life. As highlighted, the E9 operation makes an important contribution to the Group. The Group continues to review the current geological information and current lamporite resources with a view of identifying opportunities to extend the life of the Kimberley Diamonds' operation.

Health, safety, social and environmental responsibility related risks

The risk that a major health, safety, social or environmental incident may occur within the Group is inherent in mining operations. The Group has formulated and published policies in this regard and significant resource has been allocated to review, recommend, implement and monitor compliance throughout the various operations within the Group. Further to this, the Group engages independent third parties to review and provide assurance on processes currently in place.

-     POLITICAL RISKS PERTINENT TO THE GROUP

The political environments of the various jurisdictions that the Group operates within may  adversely impact the ability to operate effectively and profitably. However, the geographical disbursement of the Groups' operations internationally mitigates the impact of this on the Group.

-     FINANCIAL RISKS PERTINENT TO THE GROUP

Exchange Rates

The Group receives its revenue in US dollar while its cost base arises in local currencies based on the various countries within which the Group operates. The weakening of the US dollar relative to these local currencies and the volatility of these currencies trading against the US dollar will adversely impact the Group's profitability. The impact of the exchange rates and fluctuations are closely monitored.

Inability to achieve profitability in the medium to long term

The financial impact of the risks that may affect the Group may individually, or in a combination, affect the ability of the Group to operate profitably in the medium to long term. The various risk management processes described above provided a substantial base from which to assess, monitor and mitigate this risk.

EVENTS SUBSEQUENT TO THE YEAR END

During February 2010, Blina Diamonds NL, a Listed Company on the Australian Stock Exchange and a subsidiary of Kimberley Diamonds raised AU$1.5 million by way of a placement. As a result, the Group's shareholding in the company has decreased to 23.11%. The Group is reviewing its options with regards to the future activities of the company.

CONCLUSION

Management placed certain operations on care and maintenance, reduced costs in various development projects and at the centre. Together with the successful conclusion of the placement in April 2009 and the settlement of all long-term debt, these actions have enabled the Group to significantly improve and strengthen its financial position. The ability to generate positive earnings and net cash inflows from operations during the current year highlights the quality of the operating assets in the Group's portfolio. The Group is well placed, with sufficient cash resources on hand, to pursue growth opportunities emerging in the current economic climate.

Kevin Burford

Chief Financial Officer

15 March 2010

Responsibility Statement of the Directors in Respect of the Annual Report and Financial Statements

The Directors confirm that, to the best of our knowledge and subject to any material departures disclosed and explained in the financial statements, the Group has complied with international Financial Reporting Standards ('IFRS') and suitable accounting policies have been selected and applied consistently in the preparation of this annual report and the annual financial statements contained therein.

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 has 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.

The management report (entitled 'Business Review') includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

For and on behalf of the Board.

Kevin Burford

Chief Financial Officer

15 March 2010

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009
(US$'000)	Notes	2009	2008*
CONTINUING OPERATIONS
Revenue		244 396	296 881
Cost of sales		(178 849)	(247 409)
GROSS PROFIT		65 547	49 472
Other operating  income		321	210
Royalties and selling costs		(22 500)	(27 067)
Corporate expenses		(14 937)	(22 188)
Share-based payments		(5 629)	(10 410)
Reversal of  impairment / (impairment)		170	(338 197)
Foreign exchange gain / (loss)		14 399	(19 347)
OPERATING PROFIT / (LOSS)		37 371	(367 527)
Net finance costs		(271)	(74)
Finance income		2 851	3 840
Finance costs		(3 122)	(3 914)
PROFIT / (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS		37 100	(367 601)
Income tax expense	5	(10 214)	(5 251)
PROFIT / (LOSS) FOR THE YEAR FROM CONTINUING OPERATIONS		26 886	(372 852)
DISCONTINUED OPERATIONS
Loss after tax for the year  from discontinued operations		(1 517)	(179 314)
PROFIT / (LOSS) FOR THE YEAR		25 369	(552 166)
Attributable to:
Equity holders of parent		15 531	(552 817)
Minority interests		9 838	651
PROFIT / (LOSS) FOR THE YEAR		25 369	(552 166)
Earnings per share (cents)	3
- Basic, profit / (loss) for the year attributable to ordinary equity holders of the parent		14	(884)
- Diluted, profit / (loss) for the year attributable to ordinary equity holders of the parent		13	(884)
Earnings per share for continuing operations (cents)
- Basic, profit / (loss) for continuing operations attributable to ordinary equity holders of the parent		15	(597)
- Diluted, profit / (loss) for continuing operations attributable to ordinary equity holders of the parent		14	(597)

*   The prior year figures have been restated for the reclassification impact of accounting for discontinued operations.

Consolidated Statement of Comprehensive Income

FOR THE YEAR ENDED 31 DECEMBER 2009
(US$'000)		2009	2008*
PROFIT  / (LOSS) FOR THE YEAR		25 369	(552 166)
Fair value adjustments		-	(123)
Exchange differences on translation of foreign operations		46 056	(129 337)
Other comprehensive income / (loss) for the year, net of tax		46 056	(129 460)
Total comprehensive income / (loss)  for the year, net of tax		71 425	(681 626)
Attributable to:
Equity holders of parent		48 163	(663 671)
Minority  interests		23 262	(17 955)
Total comprehensive income / (loss)  for the year, net of tax		71 425	(681 626)

*   The prior year figures have been restated for the revisions to the provisional Purchase Price Accounting for the Calibrated Diamonds acquisition.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2009
(US$'000)		2009	2008*
ASSETS
Non-current assets
Property, plant and equipment		356 554	292 716
Intangible assets		27 990	22 294
Other financial assets		12 578	5 641
		397 122	320 651
Current assets
Inventories		31 395	36 303
Receivables		6 995	14 218
Other financial assets		535	655
Income tax receivable		92	-
Cash and short term deposits		113 827	61 436
		152 844	112 612
Assets of disposal group classified as held for sale		140	-
TOTAL ASSETS		550 106	433 263
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital		1 383	629
Share premium		885 648	787 487
Treasury shares		(1)	(2)
Other reserves		(26 551)	(64 929)
Accumulated losses		(509 260)	(524 791)
		351 219	198 394
Minority interests		68 043	48 068
TOTAL EQUITY		419 262	246 462
Non-current liabilities
Interest bearing loans and borrowings		-	361
Trade and other payables		1 584	451
Provisions		30 183	25 240
Deferred tax liabilities		60 549	49 745
		92 316	75 797
Current liabilities
Interest bearing loans and borrowings		204	37 474
Other financial liabilities		-	3 853
Trade and other payables		36 842	55 405
Income tax payable		1 274	14 272
		38 320	111 004
Liabilities directly associated with the assets  of  the disposal group classified as held for sale		208	-
TOTAL LIABILITIES		130 844	186 801
TOTAL EQUITY AND LIABILITIES		550 106	433 263

*   The prior year figures have been restated for the revisions to the provisional Purchase Price Accounting for the Calibrated Diamonds acquisition . The restatement of the prior year figures did not impact the opening statement of financial position at 1 January 2008 and hence it has not been presented.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	FOR THE YEAR ENDED 31 DECEMBER 2009
						Attributable to the equity holders of the parent
	(US$'000)	Issued capital	Share premium		Treasury shares	Other reserves		(Accumulated losses) / retained earnings	Total	Minority interests	Total    equity
	Balance at 1 January 2009	629	787 487		(2)	(64 929)		(524 791)	198 394	48 068	246 462
	Profit for the year	-	-		-	-		15 531	15 531	9 838	25 369
	Other comprehensive income	-	-		-	32 632		-	32 632	13 424	46 056
	Total comprehensive income	-	-		-	32 632		15 531	48 163	23 262	71 425
	Share capital issued	754	108 016		1	-		-	108 771	-	108 771
	Transaction costs on share capital issued	-	(9 855)		-	-		-	(9 855)	-	(9 855)
	Share-based payments (Note 27)	-	-		-	5 746		-	5 746	-	5 746
	Dividends paid	-	-		-	-		-	-	(3 287)	(3 287)
	Balance at 31 December 2009	1 383	885 648		(1)	(26 551)		(509 260)	351 219	68 043	419 262
	Balance at 1 January 2008	624	787 487		(3)	54 874		8 243	851 225	83 123	934 348
	(Loss) / Profit for the year	-	-		-	-		(552 817)	(552 817)	651	(552 166)
	Other comprehensive (loss) / income	-	-		-	(130 637)		19 783	(110 854)	(18 606)	(129 460)
	Total comprehensive income	-	-		-	(130 637)		(533 034)	(663 671)	(17 955)	(681 626)
	Share capital issued	5	-		1	-		-	6	-	6
	Share-based payments	-	-		-	10 834		-	10 834	-	10 834
	Dividends paid	-	-		-	-		-	-	(17 100)	(17 100)
	Balance at 31 December 2008*	629	787 487		(2)	(64 929)		(524 791)	198 394	48 068	246 462
*   The prior year figures have been restated for the revisions to the provisional Purchase Price Accounting for the Calibrated Diamonds acquisition.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2009
(US$'000)				2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES				47 451			59 095
Cash generated by operations				74 736			88 123
Working capital adjustments				(2 503)			(18 611)
				72 233			69 512
Interest received				2 851			3 840
Interest paid				(1 918)			(2 188)
Income tax paid				(25 715)			(12 069)
CASH FLOWS USED IN INVESTING ACTIVITIES				(61 027)			(159 407)
Purchase of property, plant and equipment				(58 856)			(137 872)
Proceeds from sale of property, plant and equipment				20			1 632
Purchase of intangible assets				-			(293)
Proceeds from disposal of other financial assets				321			1 234
Purchase of other financial assets				(6 301)			(4 391)
Acquisitions, net of cash acquired				-			(19 717)
Proceeds from sale of subsidiary, net of cash disposed				3 789			-
CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES				54 130			(5 126)
Proceeds from share capital issued				108 771			6
Transaction costs from share capital issued				(9 855)			-
Repayment of bonds				(15 760)			(961)
Financial liabilities (repaid) / raised				(25 739)			12 929
Dividends paid to non-controlling interests				(3 287)			(17 100)
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS				40 554			(105 438)
Cash and cash equivalents at the beginning of the year				61 436			181 834
Foreign exchange differences				11 852			(14 960)
CASH AND CASH EQUIVALENTS AT END OF THE YEAR				113 842			61 436
Less:	cash and equivalents from discontinued operations at end of the year				(15)		-
CASH AND CASH EQUIVALENTS AT END OF THE YEAR				113 827			61 436

NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT
1.	SEGMENT INFORMATION
	For management purposes, the Group is organised into geographical units as the Group's risks and required rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates. Other regions where no direct mining activities take place, are organised into geographical regions in the areas where the projects are based. The main geographical regions are:
	- Lesotho
	- Australia
	- Indonesia
	- Botswana
	- BVI, RSA and UK (Provision of technical and administrative services. Includes beneficiation projects currently being established).
	Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.
	Inter-segment transactions are entered into under normal arm's length terms in a manner similar to transactions with third parties. Segment revenue, segment expenses and segment results include transactions between segments. Those transactions are eliminated on consolidation.
	Segment revenue is derived from mining activities and group services.
	The following table presents revenue and profit, asset and liability information regarding the Group's geographical segments:
	Year ended 31 December 2009									Lesotho		Australia			Indonesia			Botswana		BVI, RSA and UK		Total
	(US$'000)
	Sales
	Total sales									163 881		76 705			1 058			3		11 690		253 337
	Inter-segment sales									-		-			-			-		(8 941)		(8 941)
	Sales to external customers									163 881		76 705			1 058			3		2 749		244 396
	Results
	Depreciation									42 635		13 822			-			-		1775		58 232
	Share-based equity transactions									189		219			9			-		5 212		5 629
	Segment profit / (loss)									40 104		8 090			(2 107)			(10)		(8 706)		37 371
	Segment assets									341 872		76 078			2 986			48 904		80 126		549 966
	Segment liabilities									25 231		35 804			3 679			1 373		4 000		70 087
	Other segment information
	Capital expenditure
	- Property, plant and equipment									34 425		20 692			-			3 874		1 467		60 458
	Profit for each operating segment does not include finance income (US$2.9 million) and finance costs (US$3.1 million). Based on all available information to the Group, no single customer contributed more than 10% to the Group's revenue. Segment assets do not include assets of the disposal group classified as held for sale (US$0.1 million). Segment liabilities do not include deferred tax liabilities (US$60.5 million) and liabilities directly associated with the assets of the disposal group classified as held for sale (US$0.2 million).

Year ended 31 December 2008*			Lesotho	Australia	Indonesia	Botswana	BVI, RSA and UK	Total
(US$'000)
Sales								-
Total sales			188 827	99 534	8 003	-	16 294	312 658
Inter-segment sales			-	-	-	-	(15 777)	(15 777)
Sales to external customers			188 827	99 534	8 003	-	517	296 881
Results
Depreciation			22 054	40 547	11 526	-	1 221	75 348
Share-based equity transactions			573	183	111	-	9 513	10 380
Segment profit / (loss)			98 905	(303 293)	(121 706)	27	(41 460)	(367 527)
Segment assets			275 702	60 429	5 324	42 755	46 783	430 993
Segment liabilities			35 324	70 279	5 553	2 270	21 276	134 702
Other segment information
Capital expenditure
- Property, plant and equipment			50 656	45 850	8 000	11 070	9 090	124 666
- Intangible assets			-	-	-	-	1 893	1 893

* Prior year figures have been restated for the reclassification impact for accounting for discontinued operations (Refer Note 6, Discontinued Operations).

Profit for each operating segment does not include finance income (US$3.8 million) and finance costs (US$3.9 million).

Segment liabilities do not include deferred tax liabilities (US$49.7 million) and liabilities directly associated with the assets of the disposal groups classified as held for sale (US$0.2 million).

2.

BASIS OF PRESENTATION AND ANNUAL REPORT

The information in this results announcement has been extracted from the Group's Annual Report for the year ended 31 December 2009 which has been prepared in accordance with International Financial Reporting Standards.

The Annual Results announcement and the Annual Financial Statements were approved by the Board on 15 March 2010 The Independent Auditor's Report on the consolidated financial statements is set out in full on page 82 of the 2009 Annual Report and is unqualified. The 2009 Annual Report has been published on 16 March 2010 and is available on the Gem Diamonds Limited website (www.gemdiamonds.com) Copies are available from: The Company Secretary Gem Diamonds Limited 2 Eaton Gate London SW1W 9BJ In compliance with 9.6.1 of the Listing Rules on 16 March 2010, the Company forwarded to the Financial Services Authority two copies of the Annual Report for publication through the document viewing facility. The Annual General Meeting will take place on 9 June 2010. The Notice of meeting will be sent out to shareholders at the latest on 5 May 2010.

(US$'000)			2009	2008

3.	EARNINGS PER SHARE (CENTS)
	The following reflects the income and share data used in the basic and diluted earnings per share computations:
	Profit / (loss) for the year from continuing operations					26 886	(372 852)
	Loss for the year from discontinued operations					(1 517)	(179 314)
						25 369	(552 166)
	Less: minority interests					(9 838)	(651)
	Net profit / (loss) attributable to equity holders of the parent for basic and diluted earnings					15 531	(552 817)
	The weighted average number of shares takes into account the treasury shares at year-end.
	Weighted average number of ordinary shares in issue during the year ('000)					114 913	62 563
	Profit / (loss) per share amounts are calculated by dividing profit / (loss) for the year attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year.
	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 year after taking into account future potential conversion and issue rights associated with the ordinary shares.
						Number of shares	Number of shares
						('000)	('000)
Weighted average number of ordinary shares in issue during the year						114 913	62 563
Effect of dilution:
- Future share awards to Executive Directors and senior executives
under the Executive Share Growth Plan						5 587	-
- Future share awards under the Employee Share Option Programme						465	-
Weighted average number of ordinary shares in issue during
year adjusted for the effect of dilution						120 965	62 563
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.

* The prior year figures have been restated for the reclassification impact of accounting for discontinued operations.

4.		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.

(US$'000)			2009	2008

	5.	INCOME TAX EXPENSE
		Income statement
		Current
		- Overseas		(12 495)	(19 511)
		- Adjustments in respect of prior year		2 070	1 895
				(10 425)	(17 616)
		Withholding tax
		- Overseas		(821)	(4 163)
		- Adjustments in respect of prior year		-	2 893
				(821)	(1 270)
		Deferred
		- Overseas		1 032	13 635
				1 032	13 635
				(10 214)	(5 251)
		Reconciliation of tax rate:
		Profit / (loss) before taxation from continuing operations		37 100	(367 601)
		Loss before taxation from discontinued operations		(1 607)	(209 136)
		Profit / (loss) before taxation		35 493	(576 737)
				%	%
		Expected income tax rate		28	29
		Permanent differences		7	(2)
		Unrecognised deferred tax assets		(2)	(24)
		Effect of overseas tax at different rates		(2)	2
		Utilisation of previously unrecognised deferred
		tax assets		-	(1)
		Effect of deferred tax on unremitted earnings		3	-
		Withholding tax		2	-
		Adjustments in respect of prior years		(6)	-
		Other		(1)	-
		Effective tax rate		29	4
		Income tax expense reported in the consolidated income statement		(10 214)	(5 251)
		Income tax attributable to discontinued operations		90	29 822
				(10 124)	24 571
	*   The prior year figures have been restated for the reclassification impact of accounting for discontinued operations.

6.	RELATED PARTIES
	Related party		Relationship
	Jemax Management (Proprietary) Limited		Common director
	Jemax Aviation (Proprietary) Limited		Common director
	Gem Diamond Holdings Limited		Common director
	Government of Lesotho		Minority shareholder
	Geneva Management Group (UK) Limited		Common director
	Government of CAR		Minority shareholder
	Government of Indonesia		Minority shareholder
	Compensation to key management personnel (including directors)
	Share-based equity transactions			2 604	3 604
	Short-term employee benefits			7 244	6 779
				9 847	10 383

(US$'000)			2009	2008

	Related party transactions
	Royalties paid to related parties
	Government of Lesotho		(13 554)	(14 254)
	Government of Indonesia		-	(367)
	Lease and license payments to related parties
	Government of Lesotho		(105)	(90)
	Government of CAR		(181)	(454)

		Sales to / (purchases) from related parties
		Jemax Aviation (Proprietary) Limited										221		266
		Jemax Management (Proprietary) Limited										-		(77)
		Geneva Management Group (UK) Limited										(9)		(14)
		Amount included in trade receivables owing by / (to) related parties
		Jemax Aviation (Proprietary) Limited										26		80
		Jemax Management (Proprietary) Limited										(19)		(8)
		Amounts owing to related party
		Government of Lesotho										(1 378)		(1 448)
	7.		POST BALANCE SHEET EVENTS
			The following have taken place since the balance sheet date:
	-		During February 2010, Blina Diamonds NL, a Company Listed on the Australian Stock Exchange and a subsidiary of Kimberley Diamonds, raised AU$1.5 million by way of a placement. As a result, the Group's shareholding has decreased in the Company from 34.04% to 23.11%. The Group is reviewing its options with regard to the future activities of the Company.
	-		During January 2010, the outstanding amount relating to the disposal of the operations in the DRC of US$1.2 million was received.
			Other than the events mentioned above, no other fact or circumstance has taken place during the period covered by the financial statements and up to the date of this report which in our opinion, is of significance in assessing the state of the Group's affairs.

Fourth Quarter 2009 Trading Update - Correction

In Gem Diamonds' 2009 fourth quarter Trading Statement, which was released in January 2010, the percentage of ore sourced from the Satellite pipe was incorrectly stated as 39% due to a reporting and administrative error rather than any change to the underlying operating performance. The correct figure is 20%.

 

END

 

 

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