Full Year Results

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UK 100

RNS Number : 1976T

Gem Diamonds Limited

16 March 2023

Thursday, 16 March 2023

Gem Diamonds Limited

Full Year 2022 Results

Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Full Year Results for the year ending 31 December 2022 (the "Period").

FINANCIAL RESULTS:

· Revenue of US$188.9 million (US$201.9 million in 2021)

· Underlying EBITDA of US$43.7 million (US$57.4 million in 2021)

· Profit for the year of US$20.2 million (US$27.4 million in 2021)

· Attributable profit of US$10.2 million (US$14.8 million in 2021)

· Earnings per share of 7.3 US cents (10.5 US cents in 2021)

· Cash on hand of US$8.7 million as at 31 December 2022 (US$7.9 million attributable to Gem Diamonds)

OPERATIONAL RESULTS:

Letšeng

· Carats recovered of 106 704 (115 336 carats in 2021)

· Waste tonnes mined of 10.2 million tonnes (18.7 million tonnes in 2021)

· Ore treated of 5.5 million tonnes (6.2 million tonnes in 2021)

· Average value of US$1 755 per carat achieved (US$1 835 in 2021)

· The highest dollar per carat achieved for a white rough diamond during the year was US$53 834 per carat

Safety performance

Letšeng's safety performance improved in 2022 with the implementation of an organisational safety culture maturity programme yielding positive results. Letšeng recorded zero fatalities and three LTIs during 2022 (2021: six), resulting in an improved LTIFR and AIFR of 0.13 (2021: 0.24) and 0.70 (2021: 0.93), respectively.

Financial performance

The Group delivered a solid financial performance in 2022 despite the volatile global economic environment following Russia's invasion of Ukraine which caused high levels of inflation and interest rates and significantly increased diesel prices. The consumption of diesel was further increased by the grid electricity interruption due to load shedding by Eskom. Several initiatives were implemented to reduce costs, drive efficiencies and effectively managed increased operating costs.

Operational performance

Letšeng operated safely, responsibly and efficiently throughout 2022, achieving its operational objectives notwithstanding a number of challenges experienced during the year. These included regular load shedding by Eskom, supply chain challenges, exceptionally high rainfall, the Lesotho national elections in October 2022 which required a compulsory two day site-wide shutdown and a secondary crusher breakdown. An Energy and Decarbonisation Committee was established in 2022, focused on identifying, assessing and implementing opportunities to improve energy security in light of the unreliable Eskom electricity grid.

TCFD and Climate

The Group adopted the recommendations of the Task Force on Climate-related Financial Disclosures in 2021 and concluded Phase 2 of its three-year TCFD roadmap in 2022. This included the adoption of a decarbonisation strategy and carbon pricing model. The Group has committed to a decarbonisation target of a 30% reduction of its scope 1 and scope 2 carbon emissions by 2030, from a 2021 base.

Commenting on the results today, Clifford Elphick, Chief Executive Officer of Gem Diamonds, said:

"A priority remains the health and safety of our workforce. We are therefore pleased to report that the organisational safety maturity programme that commenced in 2021 is yielding positive results. Letšeng halved its number of LTIs in 2022 compared to 2021 and we had another fatality-free year.

Gem has delivered solid operational and financial results in light of the challenges brought about by Russia's invasion of the Ukraine. This directly impacted our operating costs, in particular diesel prices, and interrupted supply chains. This was exacerbated by the increased Eskom load shedding which caused an increase in the use of diesel-powered generators.

The Group has continued with its climate change journey and we're pleased to announce our commitment to a 30% reduction in scope 1 and 2 carbon emissions by 2030. The unreliable Eskom electricity grid supply has emphasised the need to implement lower carbon and renewable energy sources.

Demand for Letšeng's large, high-value diamonds remains strong. The re-opening of China, the second largest diamond market, is expected to pave the way for a rapid rebound in economic activity, which bodes well for diamond prices in 2023."

The Company will host a live audio webcast presentation of the full year results today, 16 March 2023, at 9:30 GMT. This can be viewed on the Company's website: www.gemdiamonds.com

The page references in this announcement refer to the Annual Report and Accounts 2022, which can be found on the Company's website: www.gemdiamonds.com

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67

FOR FURTHER INFORMATION:

Gem Diamonds Limited

ir@gemdiamonds.com

Celicourt Communications

Mark Antelme / Felicity Winkles

Tel: +44 (0) 208 434 2643

ABOUT GEM DIAMONDS:

Gem Diamonds is a leading global diamond producer of high value diamonds. The Company owns 70% of the Letšeng mine in Lesotho. The Letšeng mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world.

CHAIRPERSON'S STATEMENT

The Board steered the Group through another challenging and uncertain year. We made important progress in our climate change journey by adopting a decarbonisation strategy and a carbon-pricing model. The challenge for the year ahead will be to continue operating safely, effectively and cost-efficiently.

Dear shareholders,

On behalf of the Board of Directors, I am pleased to share with you the Gem Diamonds Annual Report and Accounts for 2022, which outlines the Group's performance over the past year and some of our focus areas for the year ahead.

In the early months of 2022, as the threat of the COVID-19 pandemic subsided, we were finally able to return to something approaching normal operations. While the experience of the past two years has been very difficult for our workforce, their families and our local communities, the community of spirit generated during the fight against the pandemic has built new levels of trust and enabled us to extend our employee health improvement programmes.

While the world emerged from one crisis, it was immediately plunged into another as Russia invaded Ukraine. The consequences of this conflict were widely felt as they impacted supply chains, exacerbated inflation and increased energy costs. Just about every country has had to grapple with sharply rising input costs and the trifecta of accelerating inflation, rising interest rates and the lingering impact of COVID-19, weighing down global growth.

At Gem Diamonds, we felt the impact of these pressures through a sharp rise in the price of diesel and countless other inflationary increases in the cost of important commodities, machinery and services. Added to this was the well-documented deterioration in the reliability of the supply of grid power by Eskom, which meant we had to frequently resort to using diesel-powered generators. As a result, we experienced a steep rise in input costs which resulted in our EBITDA falling 24% to US$43.7 million (2021: US$57.4 million). While revenue fell 6% to US$188.9 million on the back of a slightly lower volume of carats recovered, 2022 was a solid year overall from an operational perspective.

Demand for high-quality diamonds was strong in 2021 and this robust market continued into 2022. Market strength was further underpinned by the imposition of sanctions on Russia's Alrosa, which caused a shortage of smaller diamonds. In Q4 2022 consumer demand weakened slightly, although pleasingly demand for Letšeng's exceptional white diamonds remained firm and we achieved an average price per carat of US$1 755 compared to US$1 835 in 2021.

The Letšeng mine is located in a remote and pristine region in Lesotho, and the Group's overarching ethos is to operate at all times in an exemplary social and environmentally responsible manner. Our continued inclusion in the FTSE4Good Index and our receipt of various awards in recognition of the work we do around our operation and communities are validation that our ESG programmes deliver real value. There were no major or significant environmental incidents reported at any of our operations during the year.

GOVERNANCE IMPROVEMENTS FOR 2022

Despite being a small Group with a small Board of Directors, I am pleased that our governance structure is aligned with the independence requirements of the UK Corporate Governance Code. While we acknowledge that there is always room for improvement, I believe we have further strengthened our governance structures over the past two years, and have established an effective rhythm and cadence to the work of our Board. Specifically, we have worked to clarify governance processes, allocated more time for routine and strategic Board deliberations, and ensured the smooth running of the important work of our Board subcommittees.

One area where I believe we can improve further is to carve out sufficient Board time to better understand the future strategic opportunities available to the Group. As the Letšeng orebodies are mined progressively deeper, we are accelerating our analysis of possible future development pathways for the mine, including whether it is economically feasible to transition to underground operations. In addition, we need to consider our future beyond our ownership of a single operational asset.

In 2022, we once again reassessed and refreshed our positions on human rights, modern slavery, corruption and climate change as part of our approach to combatting these global systemic challenges. As part of this process, our employees and contractors reaffirmed their commitment to these important statements.

The Nominations Committee oversees Board and senior management succession planning, with the objective of ensuring that our leadership is appropriately sized, regularly reinvigorated, and offers a wide range of diversity and skill sets. I am satisfied that the Board contains the right balance of gender, experience and complementary perspectives to ensure the appropriate independent oversight of the Group.

Maintaining a diverse workforce in an atmosphere where everyone feels included is hugely important to me personally, and it gives me great pride to see the work that Gem Diamonds has done over the years to achieve a representation of almost 98% Lesotho nationals at Letšeng. The representation of female employees at Letšeng remains lower than we would like, and we continue to work closely with local communities and schools to promote mining and Letšeng as a company as rewarding and safe places for women to aspire to join.

THE BOARD'S PRIORITIES IN 2022

· Conducting an external Board effectiveness evaluation

· Overseeing the execution of the Group's climate change strategy

· Advancing efforts to sell or exit the Ghaghoo mine in Botswana, which remains on care and maintenance

· Approving the share buyback programme announced in April 2022

· Considering the way forward for Letšeng, including the initial results of the Underground Feasibility Study

· Considering external growth opportunities

SUPPORTING ORGANISATIONAL ETHICS

Gem Diamonds maintains a strong set of ethical principles that provides a firm foundation for everything we do. We insist on transparency and have no tolerance for fraud, theft, modern slavery, child labour or any other wrongdoing. The culture espoused by the Board and senior management is one of transparency, openness, and a willingness to challenge and to change, and these principles promote high standards of ethical behaviour throughout the Group. To support these principles, we maintain a rigorous system of internal controls, a comprehensive internal audit programme and an anonymous whistleblowing facility.

OUR PURPOSE AND VISION

In November 2022, the Board approved a new purpose and vision for the Group. The new purpose "Produce the best diamonds, in the best way, leaving a lasting legacy", outlines the Group's purpose in a way that is clear and easily understood. This purpose replaces "Unearthing unique possibilities". It speaks to our ambition to produce high-quality diamonds in a way that protects our workforce, local communities and the environment. We have a long-term perspective, and we aim to leave a positive legacy in the countries in which we operate. This involves making meaningful investments in our local communities that will have a lasting impact, supporting education, health and skills development, and creating and maintaining an open and constructive working relationship with governments at a local and national level.

Our new vision "A world full of Gem diamonds" speaks to actively pursuing expansion and growth opportunities for Gem Diamonds, elevating the brand and ensuring it is synonymous with large, high-value diamonds, a passionate workforce and an ethical culture. All elements of our previous vision remain relevant and have been encapsulated in our new purpose.

FOSTERING A STRONG SAFETY CULTURE

We regard the safety and health of our employees as our single most important priority. I am pleased to report that during 2022 we continued to drive our safety and health initiatives, and we again suffered no fatal accidents and experienced only three lost time injuries resulting in a lost time injury frequency rate (LTIFR) of 0.13, a strong improvement on the 0.24 achieved in 2021. The all injury frequency rate (AIFR) for the full year was 0.70 (2021: 0.93 ) .

We recognise that maintaining a safe workplace requires relentless and close attention to detail and a strong and trusting relationship with our workforce. To this end, during the year we implemented a safety improvement programme, with a specific focus on safety leadership coaching, that was informed by a detailed safety performance survey carried out in 2021. During 2023 we will focus on embedding these new leadership skills into the organisation to improve the ability of employees at all levels to identify and permanently eliminate risk from the operations, with the aim of further improving our safety performance.

GOVERNANCE OF WATER AND TAILINGS MANAGEMENT

Lesotho experienced unprecedented rainfall during 2022, resulting in Letšeng's water storage facilities rising to their highest levels on record. It was pleasing to see that our freshwater catchment areas functioned effectively despite the heavy rainfall, and the mine now has a secure source of water for almost nine years based on current usage rates.

In line with global efforts to elevate the safety and security of all tailings and water storage facilities, Gem has put significant emphasis into ensuring full alignment with all the new recommendations emerging from recent international tailings facility failure investigations. This includes strict adherence to a management programme that includes daily inspections, monthly audits and annual external audits. Our alignment with international standards is well established and our Independent Tailings Review Board is led by one of the world's leading dam-safety experts. We are confident that we have the right skills, systems and governance to ensure appropriate water and tailings management in the future.

CONTINUING OUR CLIMATE CHANGE JOURNEY

We recognise that climate change is an existential issue for our planet that must be addressed. The Board is therefore determined that the Group makes its contribution to this challenge when reviewing strategy, risk management, annual budgets and business plans and when developing action plans and Group policies. The Board officially adopted the TCFD framework in 2021, and in 2022 we implemented the second phase of our three-year roadmap. This included the adoption of a decarbonisation strategy and carbon-pricing model. We have set a target to reduce our Scope 1 and Scope 2 carbon emissions by 30% by 2030.

There is a great deal of global uncertainty within multinationals and capital markets on how corporates should respond to and communicate their actions to address climate change. As a small Group with limited resources, we recognise that we must prioritise those actions that will have the maximum benefit to the business and to Lesotho while also addressing climate change.

COMMUNITY AND GOVERNMENT ENGAGEMENT

We strive to always maintain constructive, open and honest dialogue with our local communities and government partners. We consider their concerns and inform them about our business and the broader environment we require to thrive. Our ongoing stakeholder engagement with communities and government ensures that the Board is kept abreast of issues as they emerge and evolve.

In 2022, our communities were affected by unemployment and inflation, including steep increases in food and energy costs. In these economic conditions, our ongoing investments in community support become increasingly important. We remain very proud of the work we do to support our local communities, which is informed by a community needs

analysis undertaken in 2021 and contributes to our UN SDG commitments. We believe that investing in our local communities will bolster the resilience and sustainability of Letšeng in the long term.

Mining is a major contributor to Lesotho's gross domestic product and offers considerable direct and indirect employment opportunities during a mine's lifespan. However, mines have a finite lifespan. This means that we must proactively engage with our employees, communities and government to sensitise them to the expected ultimate closure of the mine. We aim to maintain open dialogue with government as we begin preparing for the various pathways that might exist for the mine. As a Board, we will work constructively with management, employees and communities as the long-term view emerges.

LOOKING TO THE FUTURE

Our actions in 2023 will be strongly influenced by the cost pressures that unfolded in 2022. Our efforts to contain costs will require real productivity and efficiency improvements. This will also mean that we will need to be smarter in our technological and operational choices.

During the year we will continue to work on defining the future development pathway for the Letšeng orebody. As the pits go deeper, various options exist, including the possibility of a transition to underground operations, and we will consult widely with all stakeholders as the options become clear.

We are now well placed to progress our environmental, social and governance (ESG) strategy, and will in particular be looking at both the source and the intensity of the energy we use. If possible, we will identify partners with whom we can work to help us switch to more renewable sources of power, both to reduce our carbon footprint and to lower our dependence on Eskom's increasingly unreliable grid.

We are pleased that Lesotho's national elections in 2022 concluded peacefully and we welcome the transition to a new government that is business-friendly and collaborative. We look forward to a constructive working relationship with the new administration as we continue to further our contribution to the country's economic development.

Antwerp in Belgium is a city that has been inextricably linked to the trade and manufacturing of rough diamonds for centuries. The diamond market, however, is changing as diamond trading in new centres outside of Antwerp gain traction. We will respond accordingly and embrace opportunities to work with and sell through other centres.

APPRECIATION

On behalf of the Board, I thank all our stakeholders who have contributed to the Group's performance in 2022. Without the support of our employees, contractors, community partners, the Government of the Kingdom of Lesotho and our shareholders, we would be unable to operate effectively. Finally, a sincere thank you to my fellow directors for their dedication, insight and support over the past year.

Harry Kenyon-Slaney

Chairperson

15 March 2023

RISK MANAGEMENT

HOW WE APPROACH RISK

The Group's risk management framework, which is fully integrated with strategic and operational planning, aims to identify, manage and respond to the Group's risks and uncertainties. The framework combines top-down and bottom-up approaches with appropriate governance and oversight.

Risk management framework


Oversight	Board of Directors The Board is responsible for risk management in the Group and provides stakeholders with assurance that key risks are properly identified, assessed, mitigated and monitored. The Board maintains a formal risk management framework for the Group and formally evaluates the effectiveness of the Group's risk management process. It confirms that the process is accurately aligned with the Group's strategy and performance objectives. At the quarterly risk review meeting, the Board reviews the risk register, assesses management's scenarios and plans, interrogates the most critical risks in detail and debates mitigating plans with management.		Top-down approach - the Board sets the risk appetite and tolerances, strategic objectives and accountability for the management of the framework
Oversight

Governance	Audit Committee The Audit Committee monitors the Group's risk management processes, reviews the status of risk management, and reports to the Board on a biannual basis. It is responsible for addressing the corporate governance requirements of risk management and for monitoring risk management at each operation.	Sustainability Committee The Sustainability Committee provides assurance to the Board that appropriate systems are in place to identify and manage health, safety, social, environmental and climate change-related risks. It monitors the Group's performance within these categories and drives proactive risk mitigation strategies to secure safe and responsible operations and our social licence to operate in the future.
Governance

Responsibility	Management Management develops, implements, communicates and monitors risk management processes and integrates them into the Group's day-to-day activities. It identifies risks affecting the Group, including internal and external, current and emerging risks. It implements appropriate risk responses consistent with the Group's risk appetite and tolerance. Group Internal Audit Group Internal Audit formally reviews the effectiveness of the Group's risk management processes. The outputs of risk assessments are used to compile the strategic three-year rolling and annual internal audit coverage plan, and evaluate the effectiveness of controls.		Bottom-up approach - ensures a sound risk management process and establishes formal reporting structures
Responsibility

The Board is ultimately responsible and accountable for the Group's risk management function. It is supported by its subcommittees and senior management to oversee the Group's most relevant and significant current and emerging risks. These include strategic, operational and external risks. These risks are actively identified, assessed, prioritised, managed and mitigated as much as reasonably possible, as they could negatively impact the Group's ability to execute its strategy.

While the Group's risk management framework focuses on risk identification and mitigation, many of the factors that give rise to these risks also present opportunities. Gem Diamonds tracks these opportunities and incorporates them into the strategy where they appropriately support the Group's purpose.

The Board and its subcommittees have identified the following key strategic, operational and external risks, which have been set out in no order of priority.


3. Workforce	Risk: Achieving the Group's objectives and sustainable growth depend on the ability to attract and retain suitably qualified, experienced and ethical employees. Gem Diamonds operates in an environment and industry where shortages in experience and skills are prevalent. Related opportunities: Skills retention and continuous improvement initiatives build the Group's human capital and can create a competitive advantage.	Risk response: • Human resource practices are designed to identify skills shortages and implement development programmes and succession planning for employees • Incentives are in place to retain key individuals through performance-based bonuses and long-term share awards • Remuneration practices are in place to ensure the Group regularly reviews current remuneration policies, skills and succession planning • Development of training and coaching plans to address areas where skills and experience shortages are identified, in conjunction with government agencies	Risk type: Strategic and operational Strategic impact: Extracting Maximum Value from Our Operations Working Responsibly and Maintaining Our Social Licence Preparing for Our Future Business model impact: Affects human, intellectual and financial capital inputs into the business model.
4. Security of product	Risk: Theft is an inherent risk in the diamond industry. The high-value nature of the product at Letšeng makes it susceptible to theft and significant losses, which could negatively affect revenue and cash flows. Related opportunities: Advanced security control measures increase employee and product safety and improve revenue.	Risk response: • Zero tolerance of non-conformance to diamond security policies and regulations • Advanced security access control and surveillance system in place, complemented by off-site surveillance • Monitoring of security process effectiveness by the Diamond Recovery Protection Committee (a subcommittee of the Letšeng Board) • Appropriate diamond specie insurance cover in place • Vulnerability assessments and assurance audits conducted by internal and independent third parties	Risk type: Strategic and operational Strategic impact: Extracting Maximum Value from Our Operations Working Responsibly and Maintaining Our Social Licence Business model impact: Improves outputs of carats recovered, which increases financial outputs. Improves human capital and safety outcomes.
5. Variability in cash generation	Risk: Variability in cash flows from operational activities, currency fluctuations and uncontrollable cost inflation can negatively affect the Group's ability to effectively operate, repay debt and fund capital projects. This risk is directly impacted by other principal risks such as rough diamond demand and prices, diamond damage, and diamond resources and reserves performance. Related opportunities: Cash constraints drive more efficient capital allocation and cost discipline. Consistent and regular cash flows provide predictability to maintain an appropriate capital allocation strategy.	Risk response: • Appropriate treasury management procedures and framework to enter into short-term hedging instruments are implemented to mitigate the effects of currency volatility on cash flows • Rigorous cost and capital discipline is in place • Funding facilities are in place to manage variability in the short to medium term • Ongoing drive for continuous improvement to deliver operational efficiencies	Risk type: External and strategic Strategic impact: Extracting Maximum Value from Our Operations Preparing for Our Future Business model impact: Affects funding and financial capital inputs and outcomes.
6. Information Technology (IT) and Operational Technology (OT) systems, and cybersecurity	Risk: The Group's operations rely on secure IT and OT systems to process and record financial and operating data in its information management systems. If these systems are compromised, there could be serious production interruption and a material adverse impact on the Group. Related opportunities: Stability to the business with no production interruption	Risk response: • Application of technical and process IT controls in line with industry-accepted standards • Appropriate back-up procedures, firewalls and other appropriate security applications in place • Regular testing of back-up restorations • IT management policies • Delivering on the outcomes of the National Institute of Standards and Technology's (NIST) cybersecurity risk assessment	Risk type: Strategic and operational Strategic impact: Extracting Maximum Value from Our Operations Preparing for Our Future Business model impact: Affects the entire business model.

7. Production interruption

Risk: Material mine and/or plant shutdowns, pit closures or periods of decreased production could arise due to various events. These events could lead to personal injury or death, environmental impacts, damage to infrastructure and delays in mining and processing activities and could result in financial losses and possible legal liability.

The Group relies on the use of external contractors in its mining and processing activities. Material disputes with these contractors could materially impact the Group's operations.

Related opportunities: Focused contract management supports operating at or near steady-state levels, which improves efficiencies due to stability of production.

Robust business continuity plans are in place which results in limited delays due to disruptions.

Risk response:

• Continuous review of business continuity plans

• Bespoke contract management role in place to ensure proper contract management and minimise potential for disputes and disruptions

• Appropriate insurance is maintained

• Appropriate levels of critical resources maintained (fuel, ore stockpiles, etc) to mitigate the impact of any production interruptions

• Continual improvements in the management of contractors' operating practices

Risk type: Operational and External

Strategic impact:

Extracting Maximum Value from Our Operations

Working Responsibly and Maintaining Our Social Licence

Business model impact:

Reduced operational activity could lead to a decline in financial capital and outputs. Negative outcomes decrease natural and human capital.

8. Diamond damage

Risk: Letšeng's valuable Type IIa diamonds are susceptible to damage during the mining and ore treatment process. This affects revenue generated by the Group's large, high-value diamonds, resulting in reduced cash flow and profitability.

Related opportunities: Reduction in diamond damage will result in higher prices achieved, resulting in improved revenue, cash flow and profitability.

Risk response:

• Continuous diamond damage monitoring and analysis to identify opportunities to reduce diamond damage

• Adherence to defined blasting and processing parameters to reduce possible diamond damage

• Development of early identification and improved liberation technology

• Evaluating alternative technologies for reduced diamond damage in the mining and treatment processes

Risk type: Strategic and operational

Strategic impact:

Extracting Maximum Value from Our Operations

Preparing for Our Future

Business model impact:

Reduces financial inputs, increases diamond prices realised and output of carats recovered, increasing financial outputs.

9. Health, safety and wellness

Risk: The probability of a major health or safety incident occurring is inherent to mining operations. These incidences could impact the well-being of employees, PACs, our licence to operate, the Group's reputation and compliance with our mining lease agreement.

Related opportunities: Improving employee health and wellness can increase morale, reduce absenteeism and improve productivity.

Effective safety policies and processes in place reduces risk to our workforce, strengthens our relationships with employees and regulators, and safeguards our reputation.

Risk response:

• Appropriate health and safety policies and practices are in place

• Corrective actions identified from incident investigations and internal and external audits are implemented timeously

• Dam safety management framework implemented in alignment with the ICMM's GISTM

• ISO 45001 accreditation maintained

• Safety management and leadership programme; visible felt leadership, detection and prevention strategies developed and implemented

• Safety training and awareness campaigns

• Psychological support considerations for entire workforce

• Continually assess organisational safety culture maturity to address current and emerging issues

• Implement a mine-wide critical control management strategy

Risk type: Strategic and operational

Strategic impact:

Extracting Maximum Value from Our Operations

Working Responsibly and Maintaining Our Social Licence

Business model impact:

Affects the entire business model.

10. Social licence to operate	Risk: The Group's social licence to operate is underpinned by the support of its stakeholders, particularly employees, regulators, PACs and society. This support is an outcome of the way the Group manages issues such as ethics, labour practices and sustainability in our wider environment, as well as our risk management and engagement activities with stakeholders. The recent election outcome in Lesotho could result in new government policies. Related opportunities: Realising the Group's goal to make a meaningful and sustainable contribution to the countries in which we operate builds our reputation with all stakeholders including employees, government, regulators, communities and investors.	Risk response: • The implementation of an appropriate CSI strategy based on a community needs analysis which provides infrastructure and access to education and healthcare, and supports local economic development • Adoption of relevant standards, best practices and strategies • Appropriate governance structures across all levels of the Group • Regular engagement with all stakeholders, including government, regulators, community leadership and PACs • Established an Employee Engagement Committee	Risk type: Strategic and operational Strategic impact: Working Responsibly and Maintaining Our Social Licence Preparing for Our Future Business model impact: Affects social capital and the viability of the business model.

11. Climate change	Risk: Climate change-related risks (transitional and physical risks) are recognised as top global risks and investors are increasingly focused on the management of these risks. Climate change presents significant present and future risks to the Group which, if not identified and managed responsibly, could negatively impact the Group's long-term operational and financial resilience. Opportunity: Opportunities for improvements in energy consumption and sustainable power supply resulting in operational efficiency, decarbonisation, and reduction in costs and potential carbon taxes.	Risk response: • TCFD adoption and climate change strategy development • Adoption of a Group decarbonisation strategy • Governance and management practices implemented • Structured TCFD Adoption Steering Committee meetings • New reporting standards adopted • Adoption of UN SDG framework • Carbon emissions monitoring and reporting • Drive and monitor the implementation and benefits realised from energy and decarbonisation initiatives through the Energy and Decarbonisation Committee	Risk type: Strategic, operational and external Strategic impact: Preparing for Our Future Working Responsibly and Maintaining Our Social Licence Business model impact: Affects the entire business model.
12. Access to capital	Risk: The volatility of the Group's share price and lack of growth negatively impacts the Group's market capitalisation. Constrained cash flows could impact returns to shareholders. The Group currently relies on a single mine with a finite life for its revenues, profits and cash flows. Related opportunities: Exploit growth opportunities within current operations and pursue other external assets.	Risk response: The Group's strategic objectives are to drive share price growth through: • Continuous improvement initiatives • Investigating early diamond identification and alternative mining and liberation technology • Assessing mergers and acquisitions and diversification opportunities • Focusing on existing operations to unlock further value through rationalisation and efficiency improvements	Risk type: Strategic Strategic impact: Extracting Maximum Value from Our Operations Working Responsibly and Maintaining Our Social Licence Preparing for Our Future Business model impact: Affects the entire business model.
13. Rough diamond demand and prices	Risk: Numerous factors beyond our control could affect the price and demand for diamonds. These factors include macro-economic, political and consumer trends. Medium to long-term demand is forecast to outpace supply, but short-term uncertainty and liquidity constraints within the diamond sector may negatively impact rough diamond pricing. Related opportunities: Reduced supply and increased demand could result in improved revenue, resulting in positive cash flows.	Risk response: • Managing our own sales processes and closely monitoring market conditions and trends • Flexibility in sales processes and utilisation of multiple sales and marketing channels, and increased viewing opportunities • Ability to enter into partnership agreements to share in the upside of polished diamonds • Maintaining the integrity of the tender process	Risk type: External Strategic impact: Extracting Maximum Value from Our Operations Preparing for Our Future Business model impact: Affects funding of the business model, sales and marketing activities and chosen distribution channels.
14. Environmental	Risk: Environmental issues are recognised as top global risks by the World Economic Forum and investors are increasingly focused on environmental performance. Failure to manage vital natural resources, environmental regulations and pressure from neighbouring communities can affect the Group's ability to operate sustainably. Related opportunities: Responsible environmental stewardship improves relationships with regulators and communities while strengthening our brand. Increased focus on environmental responsibility could translate into a competitive advantage.	Risk response: • Appropriate sustainability and environmental policies are in place and regularly reviewed • The current behaviour-based care programme embeds environmental stewardship • A dam safety management framework has been implemented • Annual social and environmental management plan audit programme has been implemented • ISO 14001 (Environmental Management) accreditation maintained • Adopted a UN SDG framework • Rehabilitation and closure management strategy adopted and updated annually • Implementation of an integrated water management framework • Concurrent rehabilitation strategy implemented	Risk type: External and operational Strategic impact: Extracting Maximum Value from Our Operations Working Responsibly and Maintaining Our Social Licence Preparing for Our Future Business model impact: Affects natural capital inputs into the business model and negative outcomes in the case of environmental incidents.

EMERGING RISKS

The Group risk framework includes an assessment of emerging risks, which considers those risks that:

· are likely to materialise or impact over a longer timeframe than existing risks;

· do not have much reference from prior experience; and

· are likely to be assessed and monitored against vulnerability, velocity and preparedness when determining likelihood and impact.

The current emerging risks that are being monitored by the Group are:

· lab-grown diamonds attracting a larger market share;

· generational shifts in consumer preferences back to diamonds, as led by social influencers; and

· future workforce (automation, skills for the future, etc).

VIABILITY STATEMENT

The Board has assessed the viability of the Group over a period significantly longer than 12 months from the approval of the financial statements, in accordance with the UK Corporate Governance Code. The Board considers three years from the financial year end to be the most relevant period for consideration for this assessment, given the Group's current position and the potential impact of the principal risks documented on pages 36 to 42 on the Group's viability.

While the Group maintains a full business model, based predominantly on the life of mine plan for Letšeng, the Group's annual business and strategic planning process also uses a three-year time horizon. This process is led by the CEO and CFO and involves all relevant functions including operations, technology and innovation, sales and marketing, finance, treasury and risk. The Board participates in the annual review process through structured Board meetings and annual strategy review sessions. A three-year period provides sufficient and realistic visibility in the context of the industry and

environment in which the Group operates, even though the life of mine, the mining lease tenure and available estimated reserves exceed three years.

The business and strategic plan reflects the Directors' best estimate of the Group's prospects. The Directors evaluated several additional scenarios to assess the potential impact on the Group by quantifying their financial impact and overlaying this on the detailed financial forecasts in the plan.

The Board's assessment of the Group's viability focused on the critical principal risks categorised within the strategic, external and operational risk types, together with the effectiveness of the potential mitigations that management reasonably believes would be available to the Group over this period.

GROUP FACILITIES

The refinancing of the Group's facilities, which was completed in December 2021, and the new project debt facility for the replacement of the primary crusher area (PCA), implemented in November 2022, significantly increased the Group's available facilities to US$82.6 million, when fully unutilised. US$74.1 million of these facilities mature in December 2024 and US$5.9 million is a general banking facility with no set expiry date, but which is reviewed annually. The balance of US$2.6 million relates to the PCA funding which expires in May 2027.

RISING COSTS

The Russian invasion of Ukraine caused extreme global uncertainty which resulted in increased diesel and explosives prices experienced during the year. This had a direct impact on costs due to the large volumes of diesel used in the loading and hauling of ore and waste tonnes. In addition, the cost of running the treatment plants increased as the diesel-run generators were used for extended periods due to the electricity grid disruptions experienced in South Africa, the primary source of electricity for Letšeng. The Group has seen a slight reduction in the diesel price during the first two months of 2023.

CLIMATE CHANGE

The Board is cognisant of the risks presented by climate change and conscious of the need to minimise emissions. A Group-specific climate change scenario analysis has been conducted whereby the short to medium and longer-term physical risks were assessed. The short to medium-term impacts fall within the viability period. The physical risks identified for Letšeng, such as drought, strong winds, extreme precipitation and cold, are similar to its current operating conditions. The operation is therefore well geared to manage these conditions within its current and medium-term operational activities, cost structure and business planning. Additional cash investment required in the event of these short to medium-term physical risks materialising has been assessed as low with no material impact on the current operations and viability of the Group.

In terms of transitional risks, as users of grid-supplied and fossil fuel energy, the short-term focus is on improving energy efficiencies in our operational processes and reducing combustion-related fossil fuel use. Options are being assessed in the context of the size, nature and location of the Group's operations, the required investment and the expectations of our main stakeholders. Any material investment during the viability period is considered unlikely. Due to the uncertainty of the cost and timing of implementation of carbon-related taxes, the impact of such taxes on the Group's operations and cash flows has been excluded from the viability assessment and scenario stress testing. Management and the Board will continue to assess these impacts as the information becomes more certain. The Group has adopted a carbon-pricing model that will be used to responsibly assess the potential financial impact of future projects. The Group has also adopted a decarbonisation strategy which is aimed at reducing potential future carbon tax liabilities.

STRESS TESTS

The scenarios tested considered the Group's revenue, EBITDA 1 , cash flows and other key financial ratios over the three-year period. The scenarios included the compounding effect of the factors below and were applied independently of each other.


Effect	Extent of sensitivity analysis	Related principal risks	Area of business model affected
A decrease in forecast rough diamond revenue from reduced market prices or production volumes caused by unforeseen production disruption due to climate-related, electricity grid disruptions or any other events.	26%	Rough diamond demand and prices Production interruption Diamond damage Diamond resources and reserves	Entire business model, ie inputs, activities, outputs and outcomes
A strengthening of local currencies to the US dollar from expected market forecasts.	23%	Variability in cash generation	Financial capital inputs and outcomes
An increase in mine operating costs caused by volatility in diesel, explosives and other consumable prices	30%	Variability in cash generation	Financial capital inputs and outcomes

¹ Refer Note 4, Operating profit on page 177 for the definition of non-GAAP measures.

CONCLUSION

The Group's current net cash 1 position of US$3.3 million as at 31 December 2022 and undrawn facilities of US$82.6 million at 31 December 2022, subject to availability, would enable it to withstand the impact of these scenarios over the three-year period. During the final year of the viability period, in 2025, there is no Satellite pipe ore available for processing. The timing of the availability of this higher value ore is dependent on the Underground or Open pit Cut 6 decision, which will be made by the Board during the viability period. The revolving credit facilities which expire on 22 December 2024 have a 24-month extension period and the Group will follow all necessary processes to extend the facilities for this available period, as it has in the past. This position is supported by the cash-generating nature of the Group's core asset, Letšeng, and its flexibility in adjusting its operating plans within the normal course of business. Based on the robust assessment of the principal risks, prospects and viability of the Group, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending 31 December 2025.

1 Net cash is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility and insurance premium financing).

CHIEF EXECUTIVE OFFICER'S REVIEW

2022 was a year of solid operational performance and steady execution of our strategy.

In 2022, the Letšeng mine emerged from the COVID-19 pandemic to resume normal operations, but new operational challenges emerged following Russia's invasion of Ukraine, which impacted global inflation and drove extraordinary increases in diesel prices. In addition, Eskom's significantly increased electricity outages posed challenges to the stability of Letšeng's production processes and negatively impacted costs due to the regular requirement for diesel power generation.

It is pleasing to report that the implementation of cost-saving and decarbonisation initiatives at Letšeng, aimed at energy efficiency and carbon reduction, together with the additional reduction in waste tonnes from our revised mine plan for the year, resulted in a 27% year on year reduction in the Group's carbon footprint. We implemented the second year of our TCFD adoption strategy, where we made good progress towards the Group's long-term decarbonisation objectives.

We also advanced the updating of our Resource and Reserve Statement by completing a second core resource drilling programme. We intend to publish the Resource and Reserve Statement in Q4 2023.

Letšeng also commissioned a comprehensive Underground Feasibility Study. We will have greater clarity on the way forward for Letšeng as we finalise this important exercise and complete the trade-off studies between an underground operation to mine the Satellite pipe versus another open pit cutback (Cut 6 West).

The October 2022 national elections in Lesotho saw a peaceful transition of power from the All Basotho Convention party to the Revolution for Prosperity party in coalition with the Alliance of Democrats and the Movement for Economic Change. As significant investors in the Kingdom of Lesotho, we have worked well with every government and will continue to do so. The new government is business-orientated and investor-friendly and has announced several positive initiatives to improve service delivery. One important example is the government's commitment to issue work permits within a shorter defined time period. This is an important step to enhancing economic growth and allowing for the speedy engagement of scarce technical skills.

EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS

We have achieved our objectives of extracting value for our stakeholders by operating safely, responsibly and efficiently. The lifting of COVID-19 restrictions eased the supply constraints experienced in 2021 and allowed us to resume regular leadership visits to Letšeng.

Tonnes treated decreased 11% year on year in line with the revised mine plan. This plan excluded the third party operated plant from 1 July. Carats recovered decreased (7)% to 106 704 (2021: 115 336).

Four diamonds greater than 100 carats were recovered during the year (2021: six). Exceptional sales during the year included the three large high-quality Type IIa white diamonds of 245 carats, 128 carats and 125 carats, which sold for US$35 811 per carat, US$28 618 per carat and US$12 123 per carat, respectively. The operational performance of the Letšeng mine is discussed in more detail in the Operations review on page 56.

The diamond market improved in 2022 and demand for the high-quality white diamonds produced at Letšeng remained robust. The average price achieved decreased slightly year on year by 4% to US$1 755 per carat (2021: US$1 835 per carat). The decrease in the average price achieved compared to 2021 relates mainly to the quality of diamonds recovered and a slight softening of the global diamond market in Q4 2022.

We have an effective, transparent and competitive tender sales process in Antwerp, with two additional viewings having taken place in Dubai in 2022. The viewings in Dubai are convenient for clients from the United Arab Emirates, India and Israel. These were well supported and contributed to the strong prices achieved. These viewings are now part of our annual tender calendar and are scheduled to take place when appropriate. In 2022, Letšeng entered into an agreement with two important diamond manufacturing clients who will supply polished diamonds to some of world's most premium luxury brands. These diamonds are polished to precise specifications and additional value is realised for the Group. This is a further step in the Group's strategy to move further down the value chain and to promote Letšeng as the exceptional diamond brand.

Group revenue decreased 6% to US$188.9 million (2021: US$201.9 million), which translates to underlying EBITDA of US$43.7 million and earnings per share of 7.3 US cents. Significant inflationary increases, specifically in diesel prices, resulted in profit attributable to shareholders of US$10.2 million. The Group ended the year in a net cash position of US$3.3 million. More information regarding the Group's financial results is included in the CFO review on page 49.

The biggest challenge faced in 2022 was the unreliability of Eskom-generated power supply and the high cost of diesel. As the incidence of load shedding increased and diesel costs rose, with the price of crude oil exceeding US$120 per

barrel in June 2022, the impact on profitability has been significant. Total operating costs rose 13% to LSL1 900.3 million (2021: LSL1 677.2 million), and the costs related to diesel increased by 29% to LSL340.6 million (2021: LSL265.0 million).

The Government of Lesotho is showing a commendable determination to find solutions to reduce national dependency on South Africa's unreliable electricity grid. The Minister of Mines and his colleagues have been supportive of Letšeng's intentions to implement renewable energy solutions.

1 Refer Note 4, Operating profit on page for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.

2 Net cash is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility and insurance premium financing).

WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE

Another highlight for 2022 is the Group's improved safety performance. Once again, there were no fatalities (2021: none), three LTIs (2021: six), and we achieved an overall AIFR of 0.70 (2021: 0.93), a 33% decrease year on year. We continue to implement safety initiatives to reinforce our safety measures and responsible behaviour, and entrench a workplace safety culture founded on mutual care and collaboration.

We adhere to the highest environmental management standards. We are proud to report that Gem Diamonds' work in sustainable water treatment and community water initiatives during 2022 was recognised by the award in the Water category conferred by the Mining Indaba Sustainability Committee Junior ESG Awards Committee.

Our tailings storage facility management process aligns with the ICMM's GISTM, which ensures the responsible management and monitoring of the tailings storage facilities. In addition, our tailings storage and freshwater facilities are subject to regular inspections by external experts. In 2022, we engaged an external consultant to evaluate our tailings storage facilities and to review and update the dam breach analysis that was conducted in 2020, and no material issues or concerns were raised. In addition, the engineer responsible for the Mothusi Dam, our freshwater dam, was consulted to provide an opinion on the safe operating level of the dam. The engineer provided an opinion that the dam can be safely operated at 100% capacity. These professional opinions together with the internal governance, management, monitoring and reporting processes ensure that our tailings storage and freshwater dam management is both effective and closely monitored.

In 2022, our CSI activities resumed as normal and our focus areas, as aligned with our selected UN SDGs, are to support infrastructure development, education and health while stimulating small businesses. In 2022, we supported small agricultural operations including those in egg, vegetable and dairy production, provided scholarships for tertiary education, and delivered water and sanitation projects in schools. From 2016 to 2022 the Group invested US$4.4 million in sustainable CSI initiatives.

In 2022, Gem Diamonds contributed a total of US$39.7 million (LSL649.3 million) to the Lesotho fiscus in the form of taxes, royalties and dividends. We are proud of our contribution to this developing economy and our position as a significant taxpayer and employer.

PREPARING FOR THE FUTURE

In 2023, we aim to deliver the business plan approved by the Board. This includes achieving our financial and operational targets. We will maintain a focus on further improving our safety performance by keeping up a steady drumbeat of safety interventions, critical control management and communication.

Our capital plans include funding for projects that will sustain growth and value creation. The two major capital-intensive projects in 2023 include the replacement of the primary crushing area (PCA), which commenced in 2022 and will be completed in Q2 2023, and concluding the Underground Feasibility Study which was commissioned in July 2022. As soon as the latter is concluded, we will evaluate the trade-off between the next cutback in the Satellite pipe versus an earlier and potentially more cost-effective underground mining opportunity. The current open pit mine plan extends to 2040.

In 2023, we will prioritise consistent production levels while enhancing efficiencies. We will manage costs to protect cash flows and strive to improve our capital return to shareholders. We are investigating new measures to maintain our status as a low-cost operator in the face of significant inflationary pressures. This includes plans to right-size and further optimise operations at Letšeng in line with its operational requirements. This right-sizing process has commenced in an appropriate and structured manner to deliver these objectives.

Securing power independence

In 2022, Eskom shed over 1 900 hours of power, making it the most load shedding intensive year on record. The pain of severe load shedding has been felt throughout all industries in southern Africa, from small businesses to large companies.

Lesotho is heavily dependent on Eskom, although there are plans at government levels to reduce this dependency. Over this period, we had to significantly increase the utilisation of our two diesel generator farms to run for more frequent and extended periods. This has required an investment in replacement generators and increased diesel storage as well as funding the ongoing and increased related running and maintenance costs. While this allows us to be self-sufficient to continue operations, the asset maintenance and fuel costs related to diesel generation are placing significant pressure on profitability.

We are therefore considering renewable energy sources. We have a team of experts examining all potential solutions, including wind, hydro and solar. We have completed the foundation work in 2022 to outline all the practical solutions. In 2023, we will advance this programme and plot the way forward for Letšeng. This also speaks to our long-term decarbonisation strategy, while addressing the immediate need to provide energy at a price that is sustainable for the business.

OUTLOOK

The Russian invasion of Ukraine might continue to hamper global growth, increase energy costs and exacerbate geopolitical tensions. While there are mixed signs of inflation starting to ease, interest rates across the globe remain high and could pose a constraint to growth. However, the major developing nations are already reporting a positive growth outlook for 2023/2024, and China's reopening paves the way for a rapid rebound in economic activity in that country. Many analysts expect high levels of savings among Chinese consumers during the pandemic to translate to greater spending in 2023. This bodes well for the global diamond market as Chinese consumers represent the world's second-largest market for diamonds. In China, women increasingly buy diamonds for themselves to celebrate their achievements and financial independence.

Despite the highly uncertain economic market conditions, the global luxury market continued to grow in 2022 and remains poised to expand further in 2023. The luxury market appears well positioned to cope with economic turbulence, with a larger and more resilient consumer base. According to a report by Bain & Company, the luxury market consumer base broadened to 400 million consumers in 2022 and is expected to expand to 500 million consumers by 2030.

In the medium to long term, rough diamond prices should be supported by favourable demand and supply fundamentals, which are underpinned by continued growth in demand from markets such as the US, China and India, contrasted with a projected fall in rough diamond supply. This dynamic of rising demand and constrained supply is expected to benefit high-quality rough diamonds in particular. The fundamentals that underpin our business are sound and strongly position Gem Diamonds for success.

APPRECIATION

I would like to thank the Board for their strong leadership and commitment in 2022. I appreciate our hard-working employees for their efforts to deliver our strategic goals and for living our values. I would also like thank our customers for their continued trust and for purchasing Letšeng's diamonds, and our shareholders for their faith in our business. Finally, I thank the Government of the Kingdom of Lesotho for their support and our productive engagements. We look forward to another mutually beneficial year.

Clifford Elphick

Chief Executive Officer

15 March 2023

CHIEF FINANCIAL OFFICER'S REVIEW

The Group delivered a solid financial performance in 2022 despite the volatile global economic environment, significant inflation, extraordinary fuel costs and increased grid electricity interruption.


Underlying EBITDA decreased 24% to US$43.7 million from US$57.4 million in 2021		Profit attributable to shareholders: US$10.2 million (2021: US$14.8 million)

Earnings per share: 7.3 US cents (2021: 10.5 US cents)		The Group ended the year in a net cash position of US$3.3 million (2021: US$20.9 million)

Share buyback programme: 1 520 170 shares purchased for US$1.2 million (2021: nil)		Unutilised available facilities of US$82.6 million (2021: US$74.3 million)

We delivered a credible financial performance for 2022 despite several operational challenges and turbulent global economic conditions. Most major economies experienced unprecedented levels of inflation in 2022, which showed some signs of easing late in the year. Russia's invasion of Ukraine significantly impacted the global economy and resulted in significantly higher fuel prices, and several suppliers also passed on higher than inflation increases to the operations. In response, we looked at opportunities to decrease our consumption of diesel by reducing waste tonnes mined and introducing shorter haulage distances. In the medium to long term, we are looking to reduce our reliance on diesel generators by pursuing renewable energy solutions.

Our Letšeng operation performed in line with expectations, despite several challenges presented by an exceptionally high rainfall season and snow, increased electricity supply disruptions and higher than anticipated operating costs. We benefited from a strong diamond market, and achieved an average price of US$1 755 per carat for the year. The overall dollar per carat achieved was negatively influenced by a decrease in large, high-value diamond recoveries compared to 2021.

In 2022, we supported shareholder value creation by paying a dividend of 2.7 US cents per share and we initiated a share buyback programme in April 2022.

Underlying EBITDA 2 decreased to US$43.7 million from US$57.4 million in 2021. Profit attributable to shareholders for the year was US$10.2 million, equating to basic earnings per share of 7.3 US cents on a weighted average number of shares in issue of 139.8 million.

The Group ended the year with a cash balance of US$8.7 million and drawn down facilities of US$5.4 million, resulting in a net cash position of US$3.3 million (2021: net cash of US$20.9 million) and unutilised facilities of US$82.6 million.

Summary of financial performance

Refer to the full annual financial statements from page 146.


US$ million	2022	2021*
Revenue from contracts with customers	188.9	201.9
Royalties and selling costs	(20.3)	(21.9)
Cost of sales 1	(116.2)	(113.5)
COVID-19 related costs	(0.1)	(0.7)
Corporate expenses	(8.6)	(8.4)
Underlying EBITDA 2	43.7	57.4
Depreciation and mining asset amortisation	(8.4)	(8.6)
Share-based payments	(0.3)	(0.4)
Other operating expenses	(2.4)	(3.3)
Foreign exchange gain	1.9	1.9
Net finance costs	(4.1)	(4.0)
Profit before tax for the year	30.4	43.0
Income tax expense	(10.2)	(15.6)
Profit after tax for the year	20.2	27.4
Non-controlling interests	(10.0)	(12.6)
Attributable profit	10.2	14.8
Earnings per share (US cents)	7.3	10.5
Dividends per share (US cents)	-	2.7

*The prior year figures have been re-presented, as Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a discontinued operation during the current financial reporting period. Refer Note 15, Assets held for sale of the notes to the consolidated financial statements.

1 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation.

2 Underlying EBITDA as defined in Note 4, Operating profit of the notes to the consolidated financial statements.

Revenue

The Group's decrease in revenue was mainly driven by lower production volumes compared to 2021 (ore tonnes treated decreased 11% to 5.5 million tonnes) and lower than average recoveries of large diamonds. Rough diamond revenue of US$188.6 million was generated at Letšeng, achieving an average price of US$1 755 per carat (2021: US$1 835 per carat). The Group sold 29 diamonds for more than US$1.0 million each, contributing US$64.5 million to revenue.

Letšeng has partnership agreements that allow the Group to share in the margin uplift on the sale of polished diamonds. In 2022, additional revenue of US$0.3 million (2021: US$0.2 million) was generated from these partnership arrangements.


US$ million	2022	2021

Group revenue summary
Letšeng sales - rough	188.6	201.3
Sales - polished margin	0.3	0.3
Impact of movement in inventory	-	0.3
Group revenue	188.9	201.9


	Letšeng Unit Cost Analysis
Unit cost per tonne treated	Direct cash costs 1	Third plant operator costs	Total direct cash operating costs	Non-cash accounting charges 2	Total operating cost	Waste cash costs per waste tonne mined

2022 (LSL)	252.50	10.57	263.07	82.02	345.09	66.74
2021 (LSL)	185.59	15.53	201.12	70.63	271.75	44.44
% change	36	(32)	31	16	27	50
2022 (US$)	15.42	0.65	16.07	5.01	21.08	4.08
2021 (US$)	12.55	1.05	13.60	4.78	18.38	3.00
% change	23	(38)	18	5	15	36

¹ Direct cash costs represent all operating costs, excluding royalties and selling costs.

² Non-cash accounting charges include waste stripping amortised, inventory and ore stockpile adjustments, and finance lease costs, and exclude depreciation and mining asset amortisation.

Expenditure

Operating expenditure

Group cost of sales increased slightly in 2022 to US$116.2 million from US$113.5 million in 2021. In 2022, the Group incurred US$0.1 million in COVID-19-related costs (2021: US$0.7 million) to maintain COVID-19 protocols at its operations. Total waste-stripping costs amortised decreased by 22% to US$36.3 million compared to US$46.8 million in 2021.

· Total operating costs in local currency increased by 13% to LSL1 900.27 million (2021: LSL1 677.21 million) which includes the impact of non-cash accounting charges. The unit cost per tonne treated increased 27% to LSL345.09 (2021: LSL271.75 per tonne treated) due to cost increases, especially the significantly increased cost of diesel and other consumables, and further impacted by lower tonnes treated in the year. Ore tonnes treated decreased 11% to 5.5 million tonnes (2021: 6.2 million tonnes).

· Direct cash costs (excluding waste) increased by 17% to LSL1 448.6 million. This was driven primarily by the cost of diesel. The average price per litre of diesel increased by 68% from 2021 and, despite a 5.6 million litre decrease in consumption, resulted in a 29% increase in diesel costs to LSL340.6 million from LSL265.0 million in 2021. Direct cash costs were also affected by price increases from suppliers on explosives, equipment, spare parts and tyres. Significant effort was made to reduce costs and drive efficiencies, such as steepening the slopes in the Main pit and decreasing waste hauling distances. Notwithstanding these efforts and the impact of lower tonnes processed, direct cash costs per tonne treated increased by 36% to LSL252.50 from LSL185.59 in 2021.

· Third plant operator costs reflect payments to Alluvial Ventures, the contractor, which are calculated from revenue generated by the sales from diamonds recovered by the contractor plant. In 2022, the total cash costs in local currency decreased by 39% to LSL58.2 million due to the expiry of the Alluvial Ventures contract on 30 June 2022.

· Waste cash costs decreased by 18% to LSL677.7 million from LSL829.4 million in 2021. Waste tonnes mined decreased by (46)% (10.2 million tonnes compared to 18.7 million tonnes in 2021) but the decrease in volumes were offset by increased costs, most notably diesel costs as disclosed above. Waste cash cost per waste tonne mined increased by 50% to LSL66.74 (2021: LSL44.44).

· Non-cash accounting charges refers to waste amortisation, stockpile and diamond inventory movements and finance lease costs. Non-cash accounting charges increased 4% to LSL451.7 million (2021: LSL436.0 million). This is a combination of a decrease in total waste amortisation charges of LSL594.0 million (2021: LSL692.3 million) due to lower tonnes mined during the year, offset by a change in inventory in 2021 when there was a material increase at year end inventory values compared to 2020; the year end inventory values between 2021 and 2022 were similar. In addition, a write-down to net realisable value of lower-grade stockpile material of US$1.6 million was recognised during the period.

US-dollar reported costs

Gem Diamonds' revenue is generated in US dollars, while the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. Local currency rates for the Lesotho loti (LSL) (pegged to the South African rand) and Botswana pula (BWP) were weaker against the US dollar (compared to 2021), which decreased the Group's US dollar-reported costs and increased local currency cash flow generation. The fluctuation of the exchange rates are set out in the table below:


Exchange rates	2022	2021	% change

LSL per US$1.00
Average exchange rate	16.37	14.79	11
Year end exchange rate	17.02	15.96	7
BWP per US$1.00
Average exchange rate	12.37	11.09	12
Year end exchange rate	12.75	11.76	8
GBP per US$1.00
Average exchange rate	0.81	0.73	12
Year end exchange rate	0.83	0.74	13

Royalties and marketing costs

In terms of Letšeng's mining lease, it pays royalties to the Government of the Kingdom of Lesotho on the value of rough diamonds sold. The Group's sales and marketing operation in Belgium incurs costs relating to diamond selling and marketing. Royalties and selling costs decreased by 7% to US$20.3 million (2021: US$21.9 million) in line with the decrease in revenue.

Corporate costs

The technical and administrative office in South Africa and head office in the UK provide expertise in all areas of the business to realise maximum value from the Group's assets. Central costs are incurred in South African rand and British pounds respectively.

Corporate costs (excluding depreciation) were contained to US$8.6 million, representing a slight increase from 2021. In 2022, US$0.1 million of project costs were incurred on the ongoing sales process of Ghaghoo and the implementation of certain TCFD recommendations (2021: US$0.1 million).

Historical corporate costs (excl. depreciation) (US$ million)


	2018	2019	2020	2021	2022
Baseline costs	9.3	8.3	7.4	8.3	8.5
Project costs	0.7	0.8	0.1	0.1	0.1

Underlying EBITDA 1 and attributable profit

Group underlying EBITDA 1 decreased by 24% to US$43.7 million (2021: US$57.4 million) due to the decline in revenue and increased operating expenditure. Profit attributable to shareholders was US$10.2 million, which translates to 7.3 US cents per share based on a weighted average number of shares in issue of 139.8 million.

1 Underlying EBITDA as defined in Note 4., Operating profit of the notes to the consolidated financial statements.

Statement of financial position - selected indicators


US$ million	2022	2021

Property, plant and equipment	293 499	293 627
Non-current: receivables and other assets	2 916	1 278
Current: receivables and other assets	4 855	4 095
Inventory	30 370	31 158
Net income tax receivable	2 268	1 191
Cash and short-term deposits	8 721	30 913
Assets held for sale	-	2 097
Non-current: interest-bearing loans and borrowings	(4 370)	(8 340)
Current: interest-bearing loans and borrowings	(1 575)	(2 704)
Liabilities associated with assets held for sale	-	(4 100)
Net deferred tax liabilities	(76 036)	(77 355)
Non-current: rehabilitation provisions	(15 387)	(11 202)

Capital expenditure

The Group's capital expenditure increased for 2022 as capital spend was incurred on the replacement of the PCA, with completion expected in Q2 2023, the commencement of the Underground Feasibility Study for the Satellite pipe, and the core drilling programme to inform the Resource and Reserve Statement. The designs for the Patiseng Coarse Tailings Facility expansion project and the bioremediation plant were also completed during the year. Total capital expenditure (excluding waste stripping) was US$11.9 million during the year (2021: US$4.0 million).

Cash at hand

At year end, cash on hand totalled US$8.7 million (2021: US$31.1 million) and net cash of US$3.3 million which was a decrease in net cash of US$17.6 million year on year. Group cash generated by operations was US$82.8 million before capital and waste investment of US$59.7 million. Gem Diamonds' share buyback programme and the dividend paid to its shareholders totalled US$4.8 million. In addition, the Lesotho Government's portion of dividends and withholding taxes extracted from Letšeng was US$10.5 million

Loans and borrowings

The Group-wide debt refinancing for Letšeng and Gem Diamonds was successfully concluded in December 2021 for LSL750.0 million and US$30.0 million respectively, for an initial three-year period. Security for the facilities was implemented over Gem Diamonds' bank accounts and its shareholding in Letšeng, reducing the margin on the interest rates applicable to these facilities by 1.5%.

Letšeng has a ZAR100.0 million (US$5.9 million) general banking facility with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) renewable annually. There was no drawdown on this facility at year end.

The funding partners to the facility agreement are Nedbank, Standard Bank and Firstrand Bank (through their respective operations). Nedbank's portion of the funding, totalling US$31.1 million, is a sustainability-linked loan (SLL), which is an innovative structure that links the margin and resultant interest rate on the SLL to the Group's ESG performance. The margin on the SLL will decrease subject to the Group meeting certain carbon reduction and water conservation KPIs that are aligned with the Group's sustainability strategy. These KPIs were assessed for 31 December 2022 and will be assessed again on 31 December 2023.

The two KPIs included for the SLLs both need to be met at each measurement date before the margin reduction on these loans becomes effective. The carbon emissions reduction KPI was achieved at 31 December 2022, but due to delays in the construction of the bioremediation plant, the water conservation KPI could not be measured. No margin reduction will therefore be implemented on any utilisation of the facility in 2023.

In 2022, Letšeng implemented a four-and-a-half-year facility agreement for the replacement of the PCA to an amount of R136.4 million (US$8.0 million) with Nedbank. The facility is underwritten by the Export Credit Insurance Corporation of South Africa (ECIC). At year end, an amount of LSL92.8 million was utilised (US$5.4 million). Repayment of this facility is scheduled to commence in Q4 2023 once the balance of the facility is drawn down, which is expected by May 2023.

At year end, the Group had utilised facilities of US$5.4 million (as mentioned above), resulting in a net cash position of US$3.3 million and available facilities of US$82.6 million. Gem Diamonds, the Company, ended the year with no outstanding facilities (2021: US$9.0 million).

Letšeng made final repayments of LSL19.0 million (US$1.2 million) on its project debt facility for the construction of the mining workshop complex which expired on 30 September 2022.

The Group regularly engages with funders and credit providers to ensure continued access to funding and to manage cash flow requirements.

Summary of loan facilities as at 31 December 2022


Company	Term/description/ expiry	Lender	Interest rate 1	Amount US$ million	Drawn down/ Balance due US$ million	Available US$ million

Gem Diamonds Limited	Three-year revolving credit facility Expires 22 December 2024	Nedbank Standard Bank Firstrand Bank	Facility A (US$30 million): US$ 3-month LIBOR + 5.00% Term SOFR + 0.26% + 5.00% 2	30.0	-	30.0
Letšeng Diamonds	Three-year revolving credit facility Expires 22 December 2024	Standard Lesotho Bank Nedbank Lesotho First National Bank of Lesotho Firstrand Bank	Facility B (LSL450 million): Central Bank of Lesotho rate + 3.25% 2	26.4	-	26.4
		Nedbank	Facility C (ZAR300 million):South African JIBAR + 3.05% 1	17.6	-	17.6
Letšeng Diamonds	Four-and-a-half-year project facility Expires 31 May 2027	Nedbank Export Credit Insurance Corporation	ZAR136 million South African JIBAR + 2.50%	8.0	5.4	2.6
Letšeng Diamonds	General banking facility Annual review in March	Nedbank	ZAR100 million South African Prime Lending Rate minus 0.70%	5.9	-	5.9
Total				88.0	5.4	82.6

1 At 31 December 2022 LIBOR was 4.47% and JIBAR was 7.26%.

2 The transition from LIBOR to term SOFR on the GDL RCF was concluded on 30 November 2022 and is effective from all interest periods starting on or after 1 January 2023.

Ghaghoo

In line with the strategic objective to dispose of non-core assets, the Board and management remain committed to the sale of the Ghaghoo Diamond Mine in Botswana and continues to engage a number of interested parties. In parallel, Gem Diamonds is discussing various alternatives with affected stakeholders, including the potential closure of the mine.

The operation remains on care and maintenance but due to the failure to close a sales transaction, including considerations of potential closure of the mine, Ghaghoo no longer met the highly probable requirements as set out in IFRS 5 and therefore Ghaghoo ceased to be classified as a discontinued operation held for sale as at 31 December 2022. As a result, a reassessment of the carrying value of the remaining assets resulted in an impairment of US$0.7 million (2021: nil). This, together with the care and maintenance cash costs of US$1.9 million (2021: US$2.1 million), is included in other operating expenses. An additional US$0.2 million (2021: US$0.2 million) on the unwinding of the environmental rehabilitation provision resulted in a non-cash interest charge which is included in finance costs. The decrease in cash costs was mainly due to the favourable exchange rate and further reduction of care and maintenance activities.

Insurance

The perception of risk in the mining industry has improved, with insurers offering more competitive rates for mining companies. In 2022, insurance premiums for the Group were 13% lower compared to 2021. The Group is in the second year of a five-year multi-aggregate insurance policy to mitigate the increased risk of higher deductibles in the unlikely event of an unexpected loss.

Letšeng pursued two insurance claims in 2022. One relates to the business interruption claim for insured losses arising out of the COVID-19-related shutdown in 2020, where the mine was required to be placed on care and maintenance. We hope to receive an appropriate settlement in 2023. The second claim relates to diesel theft identified in 2021.

Share-based payments

The share-based payment charge for the year was US$0.3 million (2021: US$0.4 million). At the AGM on 2 June 2021, shareholders approved the 2021 Remuneration Policy, which included the introduction of a post-termination shareholding, an employee pension alignment plan, as well as the new Gem Diamonds Incentive Plan (GDIP) for

Executive Directors. On 4 April 2022, 1 007 098 nil-cost options were granted to certain key employees and Executive Directors under the new GDIP. Refer to the Remuneration Committee report on page 119 for more detail.

Dividends and share buyback programme

In line with the Group's commitment to deliver sustainable shareholder returns, the Board proposed a dividend of 2.7 US cents per share (US$3.8 million) which was approved at the 2022 Annual General Meeting and paid in June 2022.

In addition, the Board launched a share buyback programme on 12 April 2022 and purchased 1 520 170 shares that are held as treasury shares. The weighted average purchase price was 60.05 GB pence (78.07 US cents) per share. An amount of US$1.2 million was spent up to 7 June 2022, which is the date that the Board authority lapsed. We believe that this buyback represents another important mechanism by which to return further capital to shareholders. The share price strengthened immediately following the announcement of the share buyback programme. At the AGM on 8 June 2022 shareholders again authorised Gem Diamonds to purchase its own shares within the permitted parameters. The programme, however, was not reinstated to preserve cash in light of increasing operating costs.

The Board is not proposing a dividend based on the 2022 financial results due to the volatility in the current economic outlook and the need to preserve the Group's available cash resources.

TAXATION

The Group applies all relevant principles in accordance with prevailing legislation in assessing its tax obligations. The Group's effective tax rate was 33.8%. Most of the Group's taxes are incurred in Lesotho, which has a corporate tax rate of 25%. The effective tax rate is above the Lesotho corporate tax rate mainly due to deferred tax assets not recognised on losses incurred in other operations.

The Group continues to pursue a long-standing legal matter relating to an amended tax assessment that was issued to Letšeng by the Revenue Services Lesotho (RSL) (previously known as the Lesotho Revenue Authority (LRA)) in December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. We expect to pursue this matter in the courts in 2023. We have sought senior legal counsel and their advice indicates good prospects for success. Refer to the accounting treatment for this matter, Note 1.2.28, Critical accounting estimates and judgements for further detail.

OUTLOOK

We are driving several initiatives to contain our operating costs in a volatile environment. These include a focus on reducing the impact of significant cost increases and investing in renewable energy to support our decarbonisation strategy. We have commenced the optimisation and right-sizing of Letšeng. This project will include a coaching and mentoring component to address skills and experience challenges at supervisory and management levels together with certain targeted operational performance issues. This project will consider resizing the business to ensure a more appropriate skills match with the current profile of our operations. This is a difficult but necessary step to ensure that our continued status as a low-cost operator is maintained.

Michael Michael

Chief Financial Officer

15 March 2023

OPERATIONS REVIEW

2022 saw robust operational performance and improving operational efficiencies in challenging physical and economic conditions.

2022 OVERVIEW

· Zero fatalities, three LTIs (2021: six), an LTIFR of 0.13 (2021: 0.24) and an AIFR of 0.70 (2021: 0.93).

· Zero major or significant environmental or stakeholder incidents.

· Focused dam and tailings facilities management.

· Energy efficiency and carbon reduction initiatives resulted in a 27% year on year reduction of the Group's carbon footprint.

· Objectives of the second year of our three-year TCFD adoption strategy completed.

· Recovered four diamonds greater than 100 carats, including two high-quality Type IIa white diamonds of 244.34 carats and 127.58 carats.

· Sold 29 diamonds for over US$1.0 million each, generating revenue of US$56.3 million.

· Average price of US$1 755 per carat achieved, with highest prices achieved being:

· US$79 543 per carat for a 10.07 carat pink diamond.

· US$66 059 per carat for an 8.41 carat pink diamond.

· US$53 834 per carat for a 30.01 carat white diamond.

· Supported our PACs through investment in education, school infrastructure, small business development and clean water projects.

· Received our sixth consecutive annual ISO 14001(Environmental Management) and 45001 (Occupational Health and Safety Management) certifications.

· Completed the 2021-2022 core resource drilling programme and commenced an Underground Feasibility Study for the Satellite pipe.

· Commenced the PCA replacement project, to be completed in Q2 2023, with commissioning early in Q3 2023.

· Completed the designs for a modular bioremediation plant to be constructed in 2023.

PERFORMANCE

Safety

The Group's safety culture is founded on our commitment to zero harm and the belief that all injuries are preventable. Letšeng recorded zero fatalities and three LTIs during 2022 (2021: six), resulting in an improved LTIFR and AIFR of 0.13 (2021: 0.24) and 0.70 (2021: 0.93), respectively. Letšeng's safety performance improved in 2022, with the implementation of an organisational safety culture maturity programme yielding positive results. In 2022, Letšeng commenced a two-year safety maturity strategy aimed at addressing critical safety risks, enhancing safety-specific leadership visibility, and engagement and implementing engineering and behaviour-focused controls to more specifically prevent safety incident reoccurrences. The programme is guided by independent subject matter experts and includes mentoring senior management on best practice safety leadership and successfully implementing our critical control management strategy.


Safety performance	Unit	2022	2021

Fatalities	Number	0	0
LTIs	Number	3	6
LTIFR	200 000 man hours	0.13	0.24
AIFR	200 000 man hours	0.70	0.93

Operations


KPI	Unit	2022	2021	% change

Ore mined	tonnes	5 732 493	6 298 862	(10)
Waste tonnes mined	tonnes	10 153 846	18 663 493	(45)
Ore treated	tonnes	5 506 576	6 172 428	(11)
Carats recovered 1	carats	106 704	115 336	(7)
Carats sold	carats	107 498	109 697	(2)
Average price per carat	US$/carat	1 755	1 835	(4)

1 Includes carats produced from the Letšeng plants, the Alluvial Ventures plant and the coarse and fines tailings treatment plants.

Letšeng operated safely and responsibly throughout 2022 and we welcomed a resumption of more normal operating conditions post COVID-19, particularly a more reliable supply chain. This however was short-lived as the Russian invasion of Ukraine and the ensuing war brought about immediate inflationary, cost and supply chain challenges globally, directly impacting our operations.

Extreme weather conditions at Letšeng, including exceptionally high rainfall and snow, although well managed, resulted in intermittent disruptions to our mining operations. The positive impact of the high rainfall throughout the wet season was that the freshwater dam reached 92% of its capacity and, based on current usage rates for operational requirements, has sufficient freshwater capacity for up to nine years.

The 2022 Lesotho general election held in October required a compulsory two-day site-wide shutdown at Letšeng to allow the workforce to vote in their respective constituencies. Although operations were halted for two days, the time was used to perform scheduled maintenance to mitigate the impact of lost operating time.

Waste tonnes mined

Total waste tonnes mined in 2022 decreased (46)% to 10.2 million tonnes from 18.7 million tonnes in 2021. This was in line with the planned 2022 waste mining profile, further optimised with the successful implementation of slope steepening of the active cutbacks in the Main pit. This followed the successful steeper slope and berm retention programme implemented in Cut 5 West of the Satellite pit during 2021. To further optimise waste mining and the cost thereof, we enhanced our initiative to further reduce the haulage distances travelled from the Main pit, in particular the new Cut 4 West cutback, to the waste dump.

Ore mined

Total ore tonnes mined in 2022 decreased 9% to 5.7 million tonnes from 6.3 million tonnes in 2021. This was in line with the 2022 mine plan, taking into account the treatment capacity of the plants, including the reduced requirement of ore mining following the expiry of the Alluvial Ventures processing contract on 30 June 2022, and required stockpile management.

Ore treated

Ore treated during 2022 of 5.5 million tonnes (2021: 6.2 million tonnes) comprised 5.1 million tonnes treated by Letšeng's two plants (2021: 5.2 million) and 0.4 million tonnes treated by Alluvial Ventures, the third party processing contractor (2021: 1.0 million). The reduction in total ore tonnes treated in 2022 compared to 2021 was mainly driven by

the expiry of Alluvial Ventures' processing contract on 30 June 2022. Of the total ore treated, 2.5 million tonnes were sourced from the Main pipe and 3.0 million from the Satellite pipe, the latter being in line with the planned annual Satellite ore contribution.

The biggest challenge to the performance and stability of the plants in 2022 was the negative impact of more frequent and longer periods of grid power outages resulting from increased load shedding by Eskom. Although the work completed on increasing Letšeng's back-up generator capacity and improving the synchronised switch-over to generator power yielded benefits, the additional strain on and instability caused by more frequent and longer load shedding increased the risk of plant and equipment breakdowns and chokes. An example of this was a sudden secondary crusher breakdown in Plant 2 in October 2022, which caused 3.5 days of downtime to repair. The significantly increased utilisation of diesel generators, together with the increased cost of diesel in the year, had a significant negative impact on operating costs.

Other challenges to plant performance included the maintained lower feed rate of the current ageing primary crusher asset in 2021, to protect its longevity, while the replacement PCA is being constructed. This impacted the ability of the current primary crusher to keep up with plant demand, creating plant feed challenges at times. The new PCA will be commissioned in Q3 2023 and comprises a twin module design with a combined throughput of c.1 000 tonnes/hour.

Extensive work to resolve identified issues of plant stability, appropriate maintenance strategy implementation, and certain other issues causing inconsistent performance, yielded positive results in Q4 2022 as plant stability and performance improved. Further improvement and optimisation of the organisational structure is being implemented to ensure that the operation and maintenance of the plants are more effectively and efficiently managed.

Total carats recovered

Total carats recovered in 2022 decreased 7% to 106 704 carats (2021: 115 336 carats) due primarily to comparatively lower production volumes treated.

The coarse tailings mobile XRT sorting machine recovered 774 carats in 2022 (2021:1 098 carats) from re-treating coarse recovery tailings, and an additional 2 657 carats (2021: 213 carats) were recovered by the fines tailings mobile XRT sorting machine, which treated both historic and current fines recovery tailings.

The overall grade for 2022 was 1.94cpht which is higher than 2021 and in line with the expected reserve grade. The contribution from Satellite pipe material accounted for 55% of all material treated during the year (2021: 54%).

Large diamond recoveries

In 2022, Letšeng recovered four diamonds greater than 100 carats, and total diamonds recovered greater than 10 carats decreased by 11% year on year, mostly in the 10 to 20 carat size category. The lower number of diamonds in the larger categories can be primarily attributed to the domains of the resource that were mined in both the Satellite and Main pipes in 2022. A total of 126 greater than 100 carat diamonds have been recovered at Letšeng since 2006.


Number of large diamond recoveries	2022	2021	FY average 2008 - 2021

>100 carats	4	6	8
60 - 100 carats	18	16	19
30 - 60 carats	69	81	77
20 - 30 carats	108	122	114
10 - 20 carats	507	570	442
Total diamonds >10 carats	706	795	660

Diamond sales

Eight rough diamond tender viewings were held in Antwerp with two additional viewings held in Dubai in March and September. All tenders were well attended and the competitive bidding evidenced that demand for Letšeng's large, high-value diamonds remained strong throughout the year.

A total of 107 498 carats were sold in 2022 (2021: 109 697) and Letšeng generated rough diamond revenue of US$188.6 million (2021: US$201.30 million), at an average price of US$1 755 per carat (2021: US$1 835).

The Group supports the GIA's blockchain technology to inform and assure consumers about the ethical and socially supportive footprint of our diamonds. Blockchain technology can link the source of rough diamonds to the final polished diamonds, proving their authenticity, provenance and traceability, and supporting ethical sourcing and processing in the diamond value chain.

Life of mine plan and Underground Feasibility Study

In Q2 2022 it was identified that the kimberlite contact on the west side of the Satellite pipe protruded further into the side wall from where it had been previously mapped. This resulted in an inability to access the ore in the contact area safely and required an amendment to the short-term Satellite pit design. Following a review of numerous solutions, the most appropriate plan was to "step-in" on the pit design of Satellite Cut 5 West (C5W), which resulted in a deferment of ore originally planned for C5W into either (i) the next cutback in the Satellite pipe (Cut 6 West (C6W)) or (ii) a potential underground operation. This has resulted in a reduction in the volume of ore previously available in C5W, thereby reducing the life of this cutback from 2025 to 2024. We continue to review and explore opportunities to extract

additional ore from C5W - ie initiatives such as the use of a surface miner to steepen remaining benches and other viable end-of-cutback opportunities (ie backloading of the ramp) that could bring additional ore back into C5W.

In light of these changes, our long-term mine plan has been updated to take into account the reduced tonnes in Satellite C5W.

A conceptual desktop study for an underground mining operation in the Satellite pipe post the current C5W cutback was completed in November 2021. The outcome indicated potential for underground mining and recommended that a comprehensive Underground Feasibility Study be undertaken to confirm the feasibility thereof to most optimally and economically extend the life of mine for the Satellite pipe. This study commenced in mid-2022 and is expected to be completed in Q4 2023. The study will (i) assess the viability of an earlier shift to underground mining of the Satellite pipe, and (ii) inform the trade-off between underground mining and proceeding with the next open pit cutback in the Satellite pipe (C6W) post the completion of Satellite C5W in 2024. The study will encompass several underground feasibility studies, including geological and hydrogeological drilling and modelling, geotechnical drilling, geo-metallurgy and social and environmental impact assessments.

Following the successful steepening of the pit slope angles in Satellite C5W, steeper slopes have now been implemented in the Main pit Cut 4 East and Cut 4 West cutbacks. This has resulted in lower waste stripping requirements for the Main pit from c.12.0 million tonnes per annum to c.9.5 million tonnes per annum compared to the previous mine plan. This has also allowed access to a further c.5.3 million tonnes of Main pipe ore. A third plant which was included in the previous mine plan has been deferred and will be reassessed following the outcome of the trade-off between open pit and underground mining, resulting in reduced annual treatment rates. These factors have had the impact of extending the mine plan to 2040 as set out in the graph below.

Resource development

Letšeng embarked on a Resource Development Project in 2016, the objectives of which initially were to improve the understanding of grade and price variability within the five historical kimberlite domains (namely KMain, K6 and K4 in the Main pipe and NVK and SVK in the Satellite pipe) which formed the basis of previous Resource and Reserve Statements. Letšeng's last independent Resource and Reserve Statement was published in 2015.

The first step in the process was to increase the drillhole coverage down to 300 metres below pit floor, including extensive core drilling, petrography, mineral chemistry and micro-diamond studies. This core drilling programme was concluded in December 2018, with 12 drillholes (c.3 000 metres) in the Main pipe and 16 drillholes (c.4 000 metres) in the Satellite pipe. Sampling of the core and related geological studies were carried out in 2019-2020. Preliminary geological models produced by SRK Consulting suggested more complex internal geology in both pipes than was previously reflected in the 2015 Resource and Reserve Statement. Additional drilling was therefore required to delineate the internal contacts between domains before the geological models could be finalised and the Resource Statement updated. To achieve this, a further c.9 000 metre core drilling programme was undertaken in late 2020, which was completed in June 2022 and comprised 13 core drillholes (c.3 500 metres) in the Satellite pipe and 25 core drillholes (c.5 500 metres) in the Main pipe.

The draft geological models for the Satellite pipe indicated that yet more core drilling was required to adequately define contacts in the central portion of the pipe. The drilling of four additional core drillholes (c.2 000 metres) in the Satellite pipe commenced in December 2022 and will be completed by May 2023. The preliminary geological models for the Main pipe were completed by SRK Consulting in November 2022. Work on the pit optimisation of both the Main and Satellite pits has commenced.

The focus in 2022 was completing the core drilling programme in the Main pipe and assembling the bulk sampling and pricing data for the newly defined domains in both pipes. The primary challenge facing an in-pit core drilling programme of this nature is competing with ongoing production activities for access to the drilling sites within the limited confines of each pit. Although both the core drilling programme and continued production are vital to the sustainability of the operation, priority is given to the latter.

The information from this latest drilling programme will inform both the updated Resource and Reserve Statement and the Underground Feasibility Study currently being undertaken for the Satellite pipe. The updated Resource and Reserve Statement and accompanying NI43-101 Technical Report are scheduled to be completed by the end of 2023.

Surface miner trial

In 2022, we further progressed a mining project to optimise ore fragmentation and plant throughput by trialling a surface miner in Main pit Cut 4 East (MC4E). By year end, 0.2 million tonnes of ore were cut by the machine and treated as a sample through both Letšeng's plants. The surface miner technology presents a potentially diamond-friendly method of breaking the rock while providing a consistently well-fragmented product to the plant, positively impacting throughput. In addition to achieving higher truck payloads by replacing drilling and blasting in the kimberlite, the surface miner has the potential to allow for steeper pit slopes in ore - thereby enabling access to more ore for the same waste stripped. Replacing the drilling and blasting process in ore is also a cleaner mining method, as nitrates resulting from blasting are reduced. The incorporation of a surface miner into Letšeng's mining method for the Satellite pipe is being considered and discussions with various surface miner suppliers and mining contractors have commenced.

Capital projects

Capital was appropriately allocated during 2022 and was in line with operational requirements. All project-related capital spend is closely monitored by the Projects Steering Committee, attended by the COO (Chair), CFO and Senior Technical and Projects Manager, together with senior management from Group and Letšeng. Letšeng's key capital projects for 2022 included:

· the replacement of the PCA;

· commencement of the Underground Feasibility Study;

· the core drilling programme to inform the Resource and Reserve Statement; and

· the designs for the Patiseng Coarse Tailings Facility expansion project and the bioremediation project.

Details of overall costs and capital expenditure incurred at Letšeng are included in the CFO review on page 49.

The planned capital spend in 2023 relates mainly to 2022 carry-over capital, including the completion of the new PCA and bioremediation project, and finalising the Underground Feasibility Study and Resource and Reserve Statement. No other major new capital spend is anticipated in 2023.

Tailings storage facility and dam management

Operational status of our dams and tailings storage facilities

The recent global tailings dam failures in the mining industry have shown the severe adverse impact these can have on human lives and the natural environment. Tailings dam integrity is consequently an ongoing area of significant focus for mining companies and investors.

Letšeng has two tailings storage facilities (TSFs) and one freshwater dam on site:

1. the Patiseng TSF, which is currently in use for the deposition of coarse and fines tailings;

2. the Old TSF, which is sporadically used for fine tailings deposition; and

3. the Mothusi Dam, which is the mine's freshwater supply source.

Letšeng's TSFs and dam were constructed using the centre line and downstream tipping method, being a safer method of construction than the "upstream" construction methods used in most recent dam failures reported in the mining industry.

The 2022 quarterly dam safety inspections for the Mothusi Dam were completed as scheduled. There were no adverse findings regarding the safety of the dam or the possible failure modes relating to the embankment, the spillway structure or the seepage. The exceptionally high rainfall experienced in 2021 and 2022 prompted us to request the Engineer of Record (EoR) responsible for the Mothusi Dam to provide an opinion on the safe operating level of the dam. The EoR confirmed that the dam can be safely operated at its 100% full supply capacity, subject to all operation and maintenance procedures being followed. The dam reached 100% full supply capacity in January 2023 and water started flowing down the spillway which had been extended to push the flow away from the toe of the wall.

Our TSF management code of practice is aligned to that of the ICMM's GISTM, and we have established appropriate governance structures at both operational and Group levels to provide oversight and assurance of continued safe and responsible management of our TSFs. The relevant details of Letšeng's TSFs are available in our voluntary disclosure as part of the Investor Mining and Tailings Safety initiative set up by the Church of England, which can be found under the Company's name at http://tailing.grida.no/ .

An external consultant was appointed to conduct geotechnical investigations to provide the technical data and information to understand the tailing storage facilities' founding conditions and to review and update the dam breach analysis that was conducted in 2020. The outcome of this work will inform the current consequence classification of our TSFs. This work has commenced and is scheduled to be completed by Q3 2023.

There were no incidents of compromised dam or TSF integrity.

Governance framework

Our approach

It is our responsibility to guard our workforce, communities and the environment in which we operate against any potential risks posed by our operations. TSFs, while an integral part of mining, present a significant potential hazard if not responsibly managed and continuously monitored. Focused risk management is therefore crucial at every stage of the lifecycle of our TSFs.

In response to recent tragedies, the ICMM's GISTM was established to achieve the ultimate goal of zero harm to people and the environment. The GISTM requires operators to take responsibility and prioritise the safety of TSFs through all phases of their lifecycles, including closure and post-closure. It also requires the disclosure of relevant information to support public accountability. Gem Diamonds has committed to and adopted the GISTM standards.

We recognise that ensuring the integrity of our TSFs and freshwater storage facilities is non-negotiable and integral in exercising our responsibility to safeguard our workforce, communities and environment to ensure business continuity. We take a focused and proactive approach to managing our TSFs according to appropriate international best practice. Retaining structures and embankments undergo stringent safety monitoring in the form of inspections and audits, which are conducted both internally and externally at regular intervals throughout the year. Stringent inspections and monitoring on a daily, weekly and monthly basis include surveying various factors such as the densities of fines deposits, water levels, beach lengths and freeboard. Annual structural stability analysis is also conducted at our TSFs and an early-warning system, together with community training and awareness programmes, are used to ensure the emergency readiness of communities that could be affected in the unlikely event of a failure. The nearest village is located 20km downstream from the mine.

The findings and recommendations stemming from these investigations and audits are reported quarterly to the Boards and Sustainability subcommittees at both operational and Group level.

The Global Industry Standard on Tailings Management

The GISTM is directed at operators and applies to TSFs, both existing and to-be-built. It makes it clear that extreme consequences to people and the environment from catastrophic TSF failures are unacceptable. To this end, operators must have zero tolerance for human fatalities and strive for zero harm to people and the environment, which is directly aligned to our safety culture. The GISTM provides the specified measures to prevent failure of TSFs and to implement best practices in planning, design, construction, operation, maintenance, monitoring, closure and post-closure activities.

Our dam and TSF management, monitoring and assurance strategy


Storage Facility	Internal Inspections	External Inspections	Additional Studies	Measures in Case of Failure
Patiseng TSF	Daily inspections and weekly surveys of water level, beach length and freeboard as well as overall TSF condition.	Quarterly structural stability inspections by the appointed Engineer of Record (EoR). Annual structural stability assessment by independent external expert.	• Facility Risk Assessment. • Inundation studies with Flow Modelling. • Geotechnical characterisation.	• Emergency assessments and planning for wall failures. • Communication towers in downstream villages. • Mobile phone contact with communication custodians. • Alarm activation from within villages or Letšeng emergency control centre. • Business continuity planning.
Old TSF	Daily inspections and weekly surveys of water level, beach length and freeboard as well as overall TSF condition.	Quarterly structural stability inspections by EoR. Annual structural stability assessment by independent external expert.	• Facility Risk Assessment. • Inundation studies with Flow Modelling. • Geotechnical characterisation.	• Emergency assessments and planning for wall failures. • Communication towers in downstream villages. • Mobile phone contact with communication custodians. • Alarm activation from within villages or Letšeng emergency control centre. • Business continuity planning.
Mothusi Dam	Weekly inspections.	Annual dam safety inspections by EoR. Quarterly dam safety inspections by Letšeng, reviewed by EoR.	• Facility Risk Assessment. • Flow Modelling Study. • Resistivity surveys.	• Emergency assessments and planning for wall failures. • Communication towers in downstream villages. • Mobile phone contact with communication custodians. • Alarm activation from within villages or Letšeng emergency control centre. • Business continuity planning.

TSF Risk and Governance Management Framework


Group Risk and Reporting structures	Board	The Board of Directors is informed of the status of the TSFs providing confirmation of the following: • All TSFs have been designed with a full understanding of the consequence of failure, site conditions and reasonably expected operating conditions. • All TSFs are, and will be, constructed and operated in accordance with defined thresholds and performance indicators with particular reference to containment integrity and overtopping risk management; and managed in accordance with the Gem Diamonds TSF Management Standard. • Construction, operation, maintenance and surveillance of each TSF is proceeding in conformance to design intent. • Compliance and performance is verified as part of the Gem Diamonds assurance program, both internally and externally. Non-conformances that may increase risk to the point where the design intent may not be achieved, are identified, reported and addressed. • An emergency response plan, based on a comprehensive understanding of the consequences of failure, has been developed, implemented, maintained and tested. • In alignment with the requirements of the recently published GISTM, the above items are independently verified by suitably qualified professionals (an external reviewer/review board) at intervals dictated by the consequence classification of each facility.

Internal Risk and Assurance	Risk and Assurance	Risk management and assessment commensurate with the consequence of failure of each facility is carried out routinely. The results of which are reviewed and overseen by independent third-party experts.

Independent Technical Review Board (ITRB)	Independent Technical Review Board (ITRB)	• An appointed ITRB consisting of Senior Independent Technical Reviewers (SITR) is mandated for systematic and ongoing independent reviews. • The ITRB provides independent technical review of the design, construction, operation, closure and management of tailings facilities. The independent reviewers are third-parties who are not, and have not been directly involved with the design or operation of the particular tailings facility. The expertise of the ITRB members reflect the range of issues relevant to the facility and its context and the complexity of these issues. The ITRB reports directly to the COO.

Tailings Governance Committee	Tailings Governance Committee	Tailings Governance Committee, chaired by the COO, who reports directly to the CEO on matters related to the GISTM, communicates with the Board of Directors, and who is accountable for the safety of tailings facilities and for minimising the social and environmental consequences of a potential tailings facility failure.

Engineer of Record (EoR)	Engineer of Record (EoR)	The Engineer of Record (EoR) is a qualified engineering firm or individual responsible for confirming that the tailings facility is designed, constructed, and decommissioned with appropriate concern for integrity of the facility, and that it aligns with and meets applicable regulations, statutes, guidelines, codes and standards. Every facility has an EoR working continuously with the Responsible Tailings Facility Engineer (RTFE) and operational management to ensure construction and operational adherence to design, and that the structure is performing in line with the design intent.

Competent person (RTFE)	Competent person (RTFE)	The RTFE is an engineer appointed by Letšeng who is responsible for the tailings facilities. The RTFE must be available at all times during construction, operations and closure. The RTFE has clearly defined, delegated responsibility.

Community engagement on TSF and dam safety

Letšeng provides the community and district-level stakeholders with balanced and objective information about the state and safety of its TSFs and freshwater storage dam. This is done during quarterly public gatherings attended by community representatives from nine neighbouring villages.

Consultations are held with these stakeholders on TSFs and dam-related safety activities and project decisions that directly or indirectly affect them. Letšeng and six of the nine neighbouring villages jointly established the downstream emergency preparedness programme. The aim of this programme is to alert the community in the event of a TSF or dam incident or any other emergency that would require the communities to evacuate from the downstream villages.

We frequently conduct in-depth training of community members on how to respond during an emergency. Emergency preparedness drills with community members are held every quarter. Assembly points have been identified and clearly marked in the villages. A two-way radio system is also in place and is regularly tested. Sirens have been installed in the six villages which are centrally controlled at the mine and manned 24 hours a day by the mine's Emergency Team.

Stakeholder engagement platforms:

· Quarterly public gatherings with local communities.

· Daily, weekly and monthly engagement with community leaders.

· Biannual district-level stakeholder forums.

· Quarterly district leadership forums.

· Monthly district leadership meetings.

· Joint emergency preparedness drills.

OUR PLANS FOR 2023

We have several operational objectives for 2023. These include:

· Completion of the Underground Feasibility Study timeously and cost-effectively. Concluding this important study will allow us to make strategic decisions on the way forward for Letšeng's orebody (ie the trade-off between Satellite C6W and the early access underground operation), and will also inform the updated Resource and Reserve Statement.

· Complete our updated Resource and Reserve Statement.

· Enhancing efficiencies and reducing costs. The optimisation and right-sizing of Letšeng's operations to align with operational requirements.

· Investment in renewable and/or alternative energy sources. Providing a consistent source of power for the mine operations remains a challenge at Letšeng. A power usage study has been commissioned to inform the way forward on prioritised power usage and assess the opportunities for lower-carbon and renewable energy sources.

DIRECTORS' REPORT

The Directors are pleased to submit the financial statements of the Group for the year ended 31 December 2022.

As a British Virgin Islands-registered company, Gem Diamonds Limited (company registration number: 669758) is not required to conform with the Companies Act, 2006. However, the Directors have elected to conform to the requirements of the Companies Act, 2006.

Accordingly, Directors must present a Strategic Report and a Directors' Report to inform shareholders of the Group's performance and prospects and help them evaluate whether the Directors performed their fiduciary duty. The 2022 Annual Report and Accounts discloses how the Directors have performed their duty to ensure the Group's continued success and sustainability, in line with the Companies Act, 2006.

Aligned with Disclosure Guidance and Transparency Rules (DTR 4.1.5R(3) and DTR 4.1.8R), the required content of the Management Report can be found in the Strategic Report, the Performance Review and the Directors' Report, the Governance section and other sections of the 2022 Annual Report and Accounts, indicated by a reference.

The Strategic Report can be found on pages 3 to 88. This will provide the shareholders with a balanced assessment of the Group's business including a description of its principal risks and uncertainties. It may not be relied upon by anyone, including the Company's shareholders, for any other purpose.

Forward-looking statements

The Strategic Report and other sections of this report contain forward-looking statements. Forward-looking statements, by their nature, involve several risks, uncertainties and future assumptions because they relate to events and/or depend on circumstances that may or may not occur in the future. The actual results and outcomes may differ materially from those expressed or implied by the forward-looking statements. No assurance can be given that the forward-looking statements in the Strategic Report will be realised. Statements about the Directors' expectations, beliefs, hopes, plans, intentions and strategies are subject to change and are based on expectations and assumptions about future events, circumstances and other factors which are, in many instances, outside the Company's control.

The information in the Strategic Report was prepared based on the knowledge and information available to the Directors at the time of its preparation. The Company is under no obligation to update or revise the Strategic Report during 2023. The expectations set out in the forward-looking statements are reasonable but may be influenced by a several variables which could cause actual results or trends to differ materially. Forward-looking statements need to be read in context with actual historic information provided. The Company's shareholders are cautioned not to place undue reliance on the forward-looking statements. Shareholders should note that the Strategic Report has not been audited.

CORPORATE GOVERNANCE

DTR 7.2 requires certain information be included in a corporate governance statement set out in the Directors' Report. The Group has an existing practice of issuing a separate Corporate Governance Code Compliance Report as part of its Annual Report and Accounts. The information required by the Disclosure Guidance and Transparency Rules and the UK Financial Conduct Authority's Listing Rules (LR 9.8.6) is located on pages 3 to 88.

DIRECTORS

The Directors, as at the date of this report, are listed on pages 214 to 216 to together with their biographical details. Details of the Directors' interests in shares and share options of the Company can be found on page 139.

Directors who held office during the year and date of appointment


	Appointment

Executive Directors
C Elphick	20 January 2006
M Michael	22 April 2013
Non-Executive Directors
H Kenyon-Slaney	6 June 2017
M Brown	1 January 2018
M Lynch-Bell	15 December 2015
M Maharasoa	1 July 2019
R Kainyah	1 May 2021

Appointment and re-election of Directors

The Board's formal Selection and Appointment Policy ensures that the procedure for appointing new Directors is formal, rigorous and transparent, and appointments are made on merit, against objective criteria. The Nominations Committee makes appointments based on merit while considering diversity (of gender, social and ethnic background), cognitive and personal strengths and the specialist skill sets.

The Articles of Association (82) provide that a third of Directors retire annually by rotation and, if eligible, offer themselves for re-election. However, in accordance with the Code, all the Directors retire at the AGM and, subject to being eligible, offer themselves for re-election.

Payments for loss of office due to change of control

Details of payments for loss of office to Executive Directors due to a change in control can be found on page 126.

PROTECTION AVAILABLE TO DIRECTORS

By law the Directors are ultimately responsible for most aspects of the Group's business dealings. This means they face potentially significant personal liability under criminal or civil law, or the UK Listing, Prospectus and Disclosure and Transparency Rules and face a range of penalties including private or public censure, fines and/or imprisonment. In line with normal market practice, the Group understands that it is in its best interests to protect its Board members from the consequences of innocent error or omission. This allows the Group to attract prudent individuals to act as Directors.

The Group maintains, at its expense, a Director and Officer's liability insurance policy to provide indemnity, in certain circumstances, for the benefit of Directors and other Group employees.

Refer to the Corporate Governance statement on page 98 for further details.

DIRECTORS' INTERESTS

No Director had, at any time during the year, a material interest in any contract of significance in relation to the Company's business. The interest of Directors in the shares of the Company is included on page 139.

SUPPLIERS AND CUSTOMERS

We engage extensively with suppliers and contractors to ensure alignment, mutual understanding and the sustainability of all parties.

We have ongoing communication with customers and our sales processes have resumed as normal post COVID-19. We achieved market-related prices for our diamonds throughout the year. In 2022, we entered into an agreement with two important diamond manufacturing clients who will supply polished diamonds to some of world's most premium luxury brands. These diamonds are polished to the specifications of these luxury brands and additional value is realised for the Group as it shares in a percentage of the sales price of the resultant polished diamonds .

Refer to our stakeholder relationships section on pages 17 to 20 for more details on our engagement with suppliers, contractors and customers.

RESULTS, DIVIDENDS AND SHARE BUYBACK PROGRAMME

The Group's attributable profit after taxation amounted to US$10.2 million (2021: US$14.8 million).

The Group's detailed financial results are set out in the financial statements on pages 151 to 207.

In line with the Group's commitment to deliver sustainable shareholder returns, the Board proposed a final dividend of 2.7 US cents per share (US$3.8 million) for the 2021 financial year, which was approved at the Annual General Meeting on 8 June 2022.

The Board is not proposing a dividend based on the 2022 financial results due to the volatility in the current economic outlook, the Group's available cash resources and the current business outlook.

The Group's dividend policy sets the appropriate dividend each year, and considers:

· The Group's cash resources.

· The level of free cash flow and earnings generated during the year.

· Expected funding commitments for future capital projects.

The Board will consider special dividends in the event of significant diamond recoveries and will consider share buyback programmes if appropriate.

GOING CONCERN

The Group business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report on pages 3 to 88. The financial position of the Group, its cash flows and liquidity position are described in the Strategic Report on pages 49 to 55. In addition, Note 26 and Note 28 to the financial statements include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit and liquidity risk.

The Directors have a reasonable expectation that the Group has adequate financial resources to continue operations for the foreseeable future. This follows a review of forecasts, budgets, timing of cash flows, debt facilities, sensitivity analyses and the uncertainties disclosed in this report. For this reason, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts of the Group.

VIABILITY STATEMENT

In accordance with provision 30 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospect of the Group over a period longer than 12 months as required by the "going concern" provision. The viability statement, aligned with Provision 31 of the UK Corporate Governance Code 2018, is included in the Strategic Report on page 43.

SUBSEQUENT EVENTS

Refer Note 30 of the financial statements for details of events subsequent to the reporting date.

SHARE CAPITAL AND VOTING RIGHTS

Details of the authorised and issued share capital of the Company, including the rights pertaining to each share class, are set out in Note 16 to the financial statements.

As at 15 March 2023, there were 139.4 million fully paid ordinary shares of US$0.01 each in issue and listed on the official list maintained by the Financial Conduct Authority in its capacity as the UK Listing Authority. In addition, the Company holds 1.5 million shares as treasury shares acquired during the share buyback programme that was launched in 2022. These treasury shares are not entitled to dividends and have no voting rights.

The Company has one class of ordinary shares. Shareholders have the right to receive notice of and attend, speak and vote at any general meeting of the Company. Shareholders may be present in person (or, being a corporation, by representative), or by proxy at a general meeting. Every shareholder present in person (or, being a corporation, by representative) or by proxy will have one vote in respect of every ordinary share they hold. The appointment of a proxy to vote at a general meeting must be received no less than 48 hours before the meeting's appointed time.

Shareholders have the right to participate in dividends and other distributions according to their respective rights and interests in the profit of the Company.

No shareholders have any special rights with regard to the control of the Company. The Company is not aware of any agreements between shareholders which may result in restrictions on transfers or voting rights, save as mentioned below.

There are no restrictions on the transfer of ordinary shares other than:

· As set out in the Company's Articles of Association.

· Certain restrictions may from time to time be imposed by laws and regulations.

· Pursuant to the Company's share dealing code whereby the Directors and employees of the Company require approval to deal in the Company's ordinary shares.

At the AGM held in June 2022, the Board noted the proportion of the votes cast against the resolution referring to the authority of Directors to allot shares (Resolution 13 passed with 58.55% of participating shareholders voting in favour). The Board was disappointed in this outcome, given that the resolution reflects UK-listed company market practice. In view of a significant shareholder's position and standing policy on this matter, the Board and the executive management team have not engaged in further consultation with the significant shareholder, but will continue to regularly consider their approach to this matter.

At the same AGM, shareholders authorised the Company to make on-market purchases of up to 13 922 781 of its ordinary shares, representing approximately 10% of the Company's issued share capital at that time. In 2022, the Company purchased 1 520 170 of its ordinary shares which are being held as treasury shares and may be used to settle ESOP and GDIP awards.

At the 2023 AGM, shareholders will be requested to renew this authority. The Directors continue to consider various options and keep the authorisation under regular review. The 2023 Notice of AGM will set out the details regarding exercising voting rights and proxy appointments.

MAJOR INTERESTS IN SHARES

Details of the major interests (at or above 3%) in the issued ordinary shares of the Company are set out in the Strategic Report on page 18.

ARTICLES OF ASSOCIATION

Any proposed amendments to the Articles of Association of the Company need to be approved by shareholders by special resolution.

RESOURCE DEVELOPMENT

The Group's resource development activities are focused on deepening the understanding of existing resources at Letšeng and collecting information on the future strategic decisions to be made. The Operations Review on page 56 provides more detail on these activities.

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY

Read more about the Group's 2022 Sustainability Performance, including CSI investment, community participation and environmental management, in Our Sustainability Report which is available at www.gemdiamonds.com .

POLITICAL DONATIONS

The Group made no political donations during 2022.

TCFD, CARBON EMISSIONS AND ENERGY CONSUMPTION SUMMARY

Information on the Group's decarbonisation strategy, adoption of the TCFD recommendations, carbon footprint and energy consumption in 2022 can be found in the Our Approach to Climate Change and Sustainability sections on pages 25 and 64 respectively.

By order of the Board

Harry Kenyon-Slaney

Non-Executive Chairperson

15 March 2023

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with International Financial Reporting Standards (IFRS). Having taken advice from the Audit Committee, the Board considers that this report and financial statements taken as a whole, are fair, balanced and understandable and that they provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

The Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Group faces.

PREPARATION OF THE FINANCIAL STATEMENTS

The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group, and of their profit or loss for that period. In preparing the Group financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRS;

· state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the Group financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose, with reasonable accuracy at any time, the financial performance, the financial position and cash flow of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position at year end, cash flow and profit or loss for the year then ended of the Group and the undertakings included in the consolidation taken as a whole. In addition, suitable accounting policies have been selected and applied consistently.

Information, including accounting policies, has been presented in a manner that provides relevant, reliable, comparable and understandable information, and additional disclosures have been provided when compliance with the specific requirements in IFRS have been insufficient to enable users to understand the financial impact of particular transactions, other events and conditions on the Group's financial position, cash flow and financial performance. Where necessary, the Directors have made judgements and estimates that are considered reasonable and prudent.

The Directors of the Company have elected to comply with the Companies Act, 2006, in particular the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 of the United Kingdom pertaining to Directors' remuneration which would otherwise only apply to companies incorporated in the UK.

Michael Michael

Chief Financial Officer

15 March 2023

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Gem Diamonds Limited

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion

We have audited the consolidated financial statements of Gem Diamonds Limited and its subsidiaries (the Group) set out on pages 151 to 207, which comprise the consolidated statement of financial position as at 31 December 2022, and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors' Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements of the Group and in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits of the Group and in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Key Audit Matter

How the matter was addressed in the audit

GOODWILL IMPAIRMENT

Management performs an annual impairment test on goodwill as required by IAS 36 Impairment of Assets using discounted future cash flows. Goodwill relates to the Group's investment in the Letšeng Diamond mine.

There is an inherent uncertainty in forecasting and discounting future cash flows, which forms the basis of the Group's value in use calculations used in the impairment model. This was amplified due to the economic and other effects of the continued Covid-19 pandemic including uncertainty around the duration of the pandemic and timing of the recovery of the various world economies. The continued volatility in diamond prices, exchange rates and discount rates resulted in additional audit work in assessing the Group's impairment model.

As disclosed in Note 11 Impairment testing and Note 1.2.28 Critical accounting estimates and judgements , the Group uses discounted cash flows to determine the value in use for each cash generating unit, on the basis of the following key assumptions:

• Diamond prices;

• Inflation rates;

• Production costs and volumes;

• Capital expenditure;

• Discount rates; and

• Exchange rates.

Given the above factors, the goodwill impairment, particularly in the diamond mining industry, required significant audit attention in the current year through extended sensitivity and stress testings with different scenarios including the use of our valuation experts.

Our audit procedures included amongst others the following:

• We involved our internal valuation specialists as part of our team to assist in evaluating management's impairment methodology and key assumptions used in the impairment calculations;

• Our valuation specialists calculated two independent weighted average cost of capital (WACC) rates (Revenue and costs) to compare to management's WACC's. Our independent WACC recalculations were based on publicly available market data for comparable companies for the Letšeng Cash Generating Unit (CGU);

• Our valuation specialists calculated an independent net present value (NPV) to compare to management's NPV;

• Our valuation specialists assessed the reasonability of the significant inputs and assumptions used in the impairment models, such as diamond prices, exchange rates, inflation rates, by comparing them to independent sources;

• We have performed sensitivity analyses around the key assumptions used in the impairment model. We did this by increasing and decreasing the following assumptions in the model to determine the impact on the headroom between the value of the recorded assets of the CGU and the value in use as calculated. These included:

• WACC; and

• Diamond prices

• We assessed the adequacy of the Group's disclosures in terms of IAS 36, in the notes to the consolidated financial statements.

Other Information

Management is responsible for the other information. The other information comprises the information included in the 219-page document titled 'Gem Diamonds Annual report and Accounts 2022'.The other information does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's nternal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

· Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identity during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Ernst & Young Inc.

Director - Philippus Dawid Grobbelaar

Registered Auditor

Chartered Accountant (SA)

15 March 2023

102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2022


	Notes	2022	2021*
		US$'000	US$'000
Revenue from contracts with customers	2	188 937	201 859
Cost of sales		(124 113)	(121 587)
Gross profit		64 824	80 272
Other operating expense	3	(1 937)	(4 116)
Royalties and selling costs		(20 328)	(21 918)
Corporate expenses		(8 997)	(8 886)
Share-based payments	27	(253)	(397)
Foreign exchange gain	4	1 914	1 923
Impairment of non-current assets	15	(702)	-
Operating profit	4	34 521	46 878
Net finance costs	5	(4 089)	(3 963)
- Finance income		413	202
- Finance costs		(4 502)	(4 165)

Profit before tax for the year		30 432	42 915
Income tax expense	6	(10 277)	(15 562)
Profit for the year		20 155	27 353
Attributable to:
Equity holders of parent		10 178	14 767
Non-controlling interests		9 977	12 586
Earnings per share (cents)	7
- Basic earnings for the year attributable to ordinary equity holders of the parent		7.3	10.5
- Diluted earnings for the year attributable to ordinary equity holders of the parent		7.2	10.4

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2022


	2022	2021
	US$'000	US$'000
PROFIT FOR THE YEAR	20 155	27 353
Items that could be reclassified to profit or loss in the future:
Exchange differences on translation of foreign operations, net of tax	(18 534)	(21 196)
Other comprehensive loss for the year, net of tax	(18 534)	(21 196)
Total comprehensive income for the year	1 621	6 157
Attributable to:
Equity holders of parent	(2 513)	(154)
Non-controlling interests	4 134	6 311

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2022


		2022	2021
	Notes	US$'000	US$'000
ASSETS
Non-current assets
Property, plant and equipment	8	293 499	293 627
Right-of-use assets	9	6 340	3 137
Intangible assets	10	11 221	11 962
Receivables and other assets	12	2 916	1 278
Deferred tax assets	22	5 994	5 117
		319 970	315 121
Current assets
Inventories	13	30 370	31 158
Receivables and other assets	12	4 855	4 095
Income tax receivable	20	2 323	1 232
Cash and short-term deposits	14	8 721	30 913
		46 269	67 398
Assets held for sale	15	-	2 097
Total assets		366 239	384 616
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital	16	1 410	1 406
Treasury shares	16	(1 157)	-
Share premium		885 648	885 648
Other reserves	16	(239 169)	(226 697)
Accumulated losses		(494 113)	(500 550)
		152 619	159 807
Non-controlling interests		80 428	86 843
Total equity		233 047	246 650
Non-current liabilities
Interest-bearing loans and borrowings	17	4 370	8 340
Lease liabilities	18	6 021	3 851
Trade and other payables	19	2 169	2 095
Provisions	21	15 387	11 202
Deferred tax liabilities	22	82 030	82 472
		109 977	107 960
Current liabilities
Interest-bearing loans and borrowings	17	1 575	2 704
Lease liabilities	18	1 877	973
Trade and other payables	19	19 708	22 188
Income tax payable	20	55	41
		23 215	25 906
Liabilities directly associated with the assets held for sale	15	-	4 100
Total liabilities		133 192	137 966
Total equity and liabilities		366 239	384 616

Approved by the Board of Directors on 15 March 2023 and signed on its behalf by:

C Elphick M Michael

Director Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2022


	Attributable to the equity holders of the parent
	Issued capital	Share premium	Treasury shares	Other reserves 1	Accumu- lated (losses) / retained earnings	Total	Non- controlling interests	Total equity
	US$'00 0	US$'00 0	US$'00 0	US$'000	US$'00 0	US$'00 0	US$'000	US$'00 0
As at 1 January 2022	1 406	885 648	-	(226 697)	(500 550)	159 807	86 843	246 650
Total comprehensive (loss)/income	-	-	-	(12 691)	10 178	(2 513)	4 134	1 621
Profit for the year	-	-	-	-	10 178	10 178	9 977	20 155
Other comprehensive loss	-	-	-	(12 691)	-	(12 691)	(5 843)	(18 534)
Share capital issued (Note16)	4	-	-	(4)	-	-	-	-
Share-based payments (Note 27)	-	-	-	253	-	253	-	253
Share buyback (Note 16)	-	-	(1 157)	-	-	(1 157)	-	(1 157)
Transfer between reserves	-	-	-	(30)	30	-	-	-
Dividends declared (Note 29)	-	-	-	-	(3 771)	(3 771)	(10 549)	(14 320)
As at 31 December 2022	1 410	885 648	(1 157)	(239 169)	(494 113)	152 619	80 428	233 047

As at 1 January 2021	1 397	885 648	-	(212 164)	(511 808)	163 073	84 422	247 495
Total comprehensive (loss)/ income	-	-	-	(14 921)	14 767	(154)	6 311	6 157
Profit for the year	-	-	-	-	14 767	14 767	12 586	27 353
Other comprehensive loss	-	-	-	(14 921)	-	(14 921)	(6 275)	(21 196)
Share capital issued (Note 16)	9	-	-	(9)	-	-	-	-
Share-based payments (Note 27)	-	-	-	397	-	397	-	397
Dividends declared (Note 29)	-	-	-	-	(3 509)	(3 509)	(3 890)	(7 399)
As at 31 December 2021	1 406	885 648	-	(226 697)	(500 550)	159 807	86 843	246 650
Attributable to asset held for sale (Note 15)	-	-	-	(52 893)	(196 006)	(248 899)	-	(248 899)

¹ Other reserves relate to Foreign currency translation reserves and Share-based equity reserves. Refer Note 16, Issued share capital and reserves for further detail.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2022


		2022	2021
	Notes	US$'000	US$'000
Cash flows from operating activities		63 032	71 307
Cash generated by operations	23.1	82 799	103 902
Working capital adjustments	23.2	(9 889)	(7 107)
Interest received	5	303	202
Interest paid	18, 23.3	(2 933)	(2 457)
Income tax paid	20	(8 435)	(23 329)
Income tax received	20	1 187	96


Cash flows used in investing activities		(59 672)	(68 686)
Purchase of property, plant and equipment	8	(11 920)	(3 985)
Waste stripping costs capitalised	8	(47 948)	(64 725)
Proceeds from sale of property, plant and equipment		196	24


Cash flows used in financing activities		(24 909)	(19 025)
Lease liabilities repaid	18	(1 846)	(1 660)
Net financial liabilities repaid	23.3	(7 734)	(7 194)
Financial liabilities repaid		(17 627)	(26 393)
Financial liabilities raised		9 893	19 199
Share buyback	16	(1 157)	-
Dividends paid to holders of the parent		(3 623)	(3 486)
Dividends paid to non-controlling interests		(10 549)	(6 685)


Net decrease in cash and cash equivalents		(21 549)	(16 404)
Cash and cash equivalents at beginning of year		31 057	49 827
Foreign exchange differences		(787)	(2 366)
Cash and cash equivalents at end of year		8 721	31 057
Cash and cash equivalents at end of year	14	8 721	30 913
Cash and cash equivalents at end of year - asset held for sale	15	-	144

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2022

1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.1 Corporate information

1.1.1 Incorporation

The holding company, Gem Diamonds Limited (the Company), was incorporated on 29 July 2005 in the British Virgin Islands (BVI) and is domiciled in the United Kingdom (UK). The Company's registration number is 669758.

These financial statements were authorised for issue by the Board on 15 March 2023.

The Group is principally engaged in operating diamond mines.

1.1.2 Operational information

The Company has the following investments directly and indirectly in subsidiaries at 31 December 2022.


Name and registered address of company	Share- holding	Cost of investment¹	Country of incorporation	Nature of business
Subsidiaries
Gem Diamond Technical Services (Proprietary) Limited2 Illovo Corner 24 Fricker Road Illovo Boulevard Johannesburg South Africa	100%	US$17	RSA	Technical, financial and management consulting services.
Letšeng Diamonds (Proprietary) Limited2 Letšeng Diamonds House Corner Kingsway and Old School Roads Maseru Lesotho	70%	US$126 000 303	Lesotho	Diamond mining and holder of mining rights.
Gem Diamonds Botswana (Proprietary) Limited2,3 The Courtyard unit 7A Plot 54513 Village Gaborone Botswana	100%	US$5 844 579	Botswana	Diamond mining; evaluation and development; and holder of mining licences and concessions.
Gem Diamonds Investments Limited2 Suite 1, 7th Floor, 50 Broadway, London SW1H 0BL United Kingdom	100%	US$17 531 316	UK	Investment holding company holding 100% in each of Gem Diamonds Innovation Solutions CY Limited, a company holding intellectual property relating to development of technology to innovate mining processes; Baobab Technologies BV, a diamond analysis and valuation facility in Belgium; and Gem Diamonds Marketing Services BV, a marketing company that sells the Group's diamonds on tender in Antwerp.

¹ The cost of investment represents original cost of investments at acquisition dates.

² No change in the shareholding since the prior year.

³ Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), ceased to be classified as a discontinued operation held for sale during the current financial reporting period. Refer Note 15, Assets held for sale .

1.1.3 Segment information

For management purposes, the Group is organised into geographical units as its risks and required rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates or areas in which operations are managed. The below measures of profit or loss, assets and liabilities are reviewed by the Chief Operating Decision-Maker, ie Board of Directors. The main geographical regions and the type of products and services from which each reporting segment derives its revenue from are:

· Lesotho (diamond mining activities);

· Belgium (sales, marketing and manufacturing of diamonds);

· BVI, RSA, UK and Cyprus (technical and administrative services); and

· Botswana (diamond mining activities) ceased to be classified as a discontinued operation held for sale during the current financial reporting period. Refer Note 15, Assets held for sale.

Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment.

Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), which was classified as a discontinued operation held for sale and disclosed separately as the discontinued operation segment in prior years, has ceased to be classified as a discontinued operation held for sale during the current financial reporting period, refer Note 15, Assets held for sale. The 31 December 2021 comparative segment information has been restated to re-present the previous discontinued operation segment as the Botswana segment as part of the Group's continuing operations.

Segment performance is evaluated based on operating profit or loss. Intersegment transactions are entered into under normal arm's length terms in a manner similar to transactions with third parties. Segment revenue, segment expenses and segment results include transactions between segments. Those transactions are eliminated on consolidation.

Segment revenue is derived from mining activities, polished manufacturing margins, and diamond analysis and manufacturing services.

The following tables presents revenue from contracts with customers, profit/(loss) for the year, EBITDA and asset and liability information from operations regarding the Group's geographical segments:


Year ended 31 December 2022	Lesotho	Belgium	BVI, RSA, UK and Cyprus 1	Botswana	Total

	US$'000	US$'000	US$'000	US$'000	US$'000
Revenue from contracts with customers
Total revenue	186 087	189 497	7 326	-	382 910
Intersegment	(185 782)	(865)	(7 326)	-	(193 973)
External customers	305	188 632	-	-	188 937
Depreciation and amortisation	43 267	263	1 081	80	44 691
- Depreciation and mining asset amortisation	6 982	263	1 081	80	8 406
- Waste stripping cost amortisation	36 285	-	-	-	36 285
Share-based equity transactions	(33)	(2)	(218)	-	(253)
Segment operating profit/(loss)	46 060	1 307	(10 158)	(2 688)	34 521
Net finance costs	(2 569)	(17)	(1 294)	(209)	(4 089)
Profit/(loss) before tax	43 491	1 290	(11 452)	(2 897)	30 432
Income tax expense	(10 236)	(195)	154	-	(10 277)
Profit/(loss) for the year	33 255	1 095	(11 298)	(2 897)	20 155
EBITDA	50 842	1 625	(8 781)	-	43 686
Segment non-current assets	308 889	1 516	627	28	311 060
Segment assets	350 640	2 411	6 676	518	360 245
Segment liabilities	43 987	1 677	2 097	3 401	51 162
Other segment information
Net cash and short-term deposits 2	(2 627)	660	5 231	1	3 265
Capital expenditure
- Property, plant and equipment	11 894	7	19	-	11 920
- Net movement in rehabilitation asset 3	858	-	-	(573)	285
- Waste cost capitalised	47 948	-	-	-	47 948
Total capital expenditure	60 700	7	19	(573)	60 153
Average number of employees employed under contracts of service	322	7	22	19	370

1 No revenue was generated in BVI and Cyprus.

2 Calculated as cash and short-term deposits less drawn down bank facilities (excluding insurance premium financing and credit underwriting fees). Refer Note 17, Interest-bearing loans and borrowings.

3 Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho and Botswana segments.

Included in revenue for the current year is revenue from two customers who individually contributed 10% or more to total revenue. This revenue in total amounted to US$48.7 million arising from sales reported in the Belgium segment.

Segment non-current assets do not include deferred tax assets of US$6.0 million and financial instruments of US$2.9 million. Included in the non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current assets located in the Company's country of domicile, the UK, of US$19.4 thousand.

Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.0 million and US$82.0 million respectively.

Total revenue for the year decreased compared to the prior year mainly due to a decrease in the volume of carats sold of 106 704 (2021: 109 697) and lower recoveries of greater than 100 carat diamonds. An average sales price of US$1 755 per carat (2021: US$1 835 per carat) was achieved.


Year ended 31 December 2021	Lesotho	Belgium	BVI, RSA, UK and Cyprus 1	Botswana*	Total*
	US$'000	US$'000	US$'000	US$'000	US$'000
Revenue from contracts with customers
Total revenue	198 816	202 461	7 031	-	408 308
Intersegment	(198 581)	(837)	(7 031)	-	(206 449)
External customers	235	201 624	-	-	201 859
Depreciation and amortisation	54 012	350	1 063	-	55 425
- Depreciation and mining asset amortisation	7 199	350	1 063	-	8 612
- Waste stripping cost amortisation	46 813	-	-	-	46 813
Share-based equity transactions	(105)	(4)	(286)	(2)	(397)
Segment operating profit/(loss)	59 008	1 238	(9 835)	(3 533)	46 878
Net finance costs	(2 395)	(1)	(1 346)	(221)	(3 963)
Profit/(loss) before tax	56 613	1 237	(11 181)	(3 754)	42 915
Income tax expense	(14 661)	(178)	(723)	-	(15 562)
Profit/(loss) for the year	41 952	1 059	(11 904)	(3 754)	27 353
EBITDA	64 328	1 625	(8 584)	(2 047)	55 322
Segment non-current assets	306 777	161	1 788	1 413	310 139
Segment assets	369 105	1 985	6 312	2 097	379 499
Segment liabilities	39 440	351	11 603	4 100	55 494
Other segment information
Net cash and short-term deposits 2	24 175	1 561	(5 014)	144	20 866
Capital expenditure
- Property, plant and equipment	3 952	7	32	-	3 991
- Net movement in rehabilitation asset 3	(1 345)	-	-	-	(1 345)
- Waste cost capitalised	64 725	-	-	-	64 725
Total capital expenditure	67 332	7	32	-	67 371
Average number of employees employed under contracts of service	304	6	22	22	354

*Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), previously reported as the discontinued operation segment in prior periods, ceased to be classified as a discontinued operation held for sale during the current financial reporting period and the comparative segment information has been restated to re-present the previous discontinued operation segment as the Botswana segment. Refer Note 15, Assets held for sale.

1 No revenue was generated in BVI and Cyprus.

2 Calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility, insurance premium financing and credit underwriting fees). Refer Note 17, Interest-bearing loans and borrowings.

3 Non-cash movem ents in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.

Included in revenue for the 2021 year is revenue from two customers who individually contributed 10% or more to total revenue. This revenue in total amounted to US$73.0 million arising from sales reported in the Belgium segment.

Segment non-current assets do not include deferred tax assets of US$5.1 million and financial instruments of US$1.3 million. Included in the non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current assets located in the Company's country of domicile, the UK, of US$132.5 thousand

Segment assets and liabilities do not include deferred tax assets and liabilities of US$5.1 million and US$82.5 million respectively.

1.2 Summary of significant accounting policies

1.2.1 Basis of preparation

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). These financial statements have been prepared under the historical cost basis except for assets and liabilities measured at fair value. The accounting policies have been consistently applied except for the adoption of the new standards and interpretations detailed on the following pages.

The functional currency of the Company and certain of its subsidiaries is US dollar, which is the currency of the primary economic environment in which the entities operate. All amounts are presented in US dollar and rounded to the nearest

thousand. The financial results of subsidiaries whose functional and reporting currency is in currencies other than US dollar have been converted into US dollar on the basis as set out in Note 1.2.16, Foreign currency translations.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 1.2.28, Critical accounting estimates and judgements.

Changes in accounting policies and disclosures

New and amended standards and interpretations

The Group adopted certain standards and amendments for the first time, which became effective for the Group on 1 January 2022 and are listed in the table below. The adoption of these new accounting pronouncements has not had a significant impact on the consolidated financial statements of the Group nor the accounting policies, methods of computation or presentation applied by the Group. Other than the changes described below, the accounting policies are consistent with those of the previous financial year.


Amendments and new standards	Description
Amendments to IFRS 16	Covid 19-Related Rent Concessions beyond 30 June 2021
Amendments to IAS 37	Onerous contracts - costs of fulfilling a contract
Amendments to IFRS 3	Reference to the Conceptual Framework
Amendments to IAS 16	Property, plant and Equipment proceeds before intended use
Improvement IFRS 1	Subsidiary as a first-time adopter
Improvement IFRS 9	Fees in the '10 per cent' test for derecognition of financial liabilities
Improvement IAS 41	Agriculture - Taxation in fair value measurements

New standards issued but not yet effective

The new standards, amendments and improvements that are issued, but not yet effective, up to the date of issuance of the Group's consolidated financial statements are listed in the table below. These standards, amendments and improvements have not been early adopted and it is expected that, where applicable, these standards, amendments and improvements will be adopted on each respective effective date. The impact of the adoption of these standards cannot be reasonably assessed at this stage.


New standards, amendments, and improvements	Description	Effective date*
IFRS 17	Insurance contracts	1 January 2023
Amendments to IAS 1	Classification of liabilities as current or non-current	1 January 2024
Amendments to IAS 8	Definition of Accounting Estimates	1 January 2023
Amendments to IAS 1 and IFRS Practice Statement 2	Disclosure of Accounting Policies	1 January 2023
Amendments to IAS 12	Deferred Tax related Assets and Liabilities arising from a Single Transaction	1 January 2023
Amendments to IFRS 16	Lease Liability in a Sale and Leaseback	1 January 2024
Amendments to IFRS 10 and IAS 28	Sale or Contribution of Assets between an Investor and its Associate or Joint Venture	Pending

* Annual periods beginning on or after.

1.2.2 Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position have been assessed by management. The financial position of the Group, its cash flows and liquidity position are presented in the Annual Report and Accounts. In addition, Note 26, Financial risk management, includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to market risk, credit risk and liquidity risk.

The Group's net cash at 31 December 2022 was US$3.3 million (31 December 2021: net cash US$20.9 million). Following the successful refinancing of the Group's facilities for a three-year period from 23 December 2021 in the prior year and securing the project debt facility for the replacement of the PCA in the current year, the Group's undrawn facilities at 31 December 2022 amounted to US$82.6 million, resulting in strong liquidity (defined as net cash and undrawn facilities) of US$85.9 million (31 December 2021: US$95.1 million). The Group's Revolving Credit facilities, which total US$74.1 million when fully unutilised, mature on 22 December 2024. In addition, there is a US$5.9 million general banking facility with no set expiry date, but is reviewed annually, and US$8.0 million which is the project debt facility for the replacement of the PCA. This facility expires in May 2027 (Refer Note 17, Interest-bearing loans and borrowings). The uncertainty that exists around the ongoing impact of the Russian conflict on Ukraine on future cash flows was considered by performing sensitivities on costs, diamond pricing and continued strengthening or weakening of the US dollar against the Lesotho loti.

After reviewing detailed assessment performed by management and making enquiries which include reviews of forecasts and budgets, timing of cash flows, borrowing facilities and sensitivity analyses and considering the uncertainties described in this report either directly or by cross-reference, the Directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Group Financial Statements.

These financial statements have been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due for the foreseeable future.

1.2.3 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company as at 31 December 2022.

Subsidiaries

Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three of the following criteria must be met: (a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor's returns. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intra-group balances and transactions, including unrealised gains and losses arising from them, are eliminated in full.

Non-controlling interests

Non-controlling interests represent the equity in a subsidiary not attributable, directly or indirectly, to the parent company and is presented separately within equity in the consolidated statement of financial position, separately from equity attributable to owners of the parent. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

1.2.4 Exploration and evaluation expenditure

Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Exploration and evaluation activity includes:

· acquisition of rights to explore;

· researching and analysing historical exploration data;

· gathering exploration data through topographical, geochemical and geophysical studies;

· exploratory drilling, trenching and sampling;

· determining and examining the volume and grade of the resource;

· surveying transportation and infrastructure requirements; and

· conducting market and finance studies.

Administration costs that are not directly attributable to a specific exploration area are charged to the statement of profit or loss. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised, as a component of property, plant and equipment, and amortised over the term of the permit.

Exploration and evaluation expenditure is capitalised as incurred. Capitalised exploration expenditure is recorded as a component of property, plant and equipment, as an exploration and development asset, at cost less accumulated impairment charges. As the asset is not available for use, it is not depreciated.

All capitalised exploration and evaluation expenditure is monitored for indications of impairment. Where a potential impairment is indicated, assessments are performed for each area of interest in conjunction with the group of operating assets (representing a cash-generating unit (CGU) to which the exploration is attributed. To the extent that exploration expenditure is not expected to be recovered, it is charged to the statement of profit or loss. Exploration areas where reserves have been discovered, but require major capital expenditure before production can begin, are continually evaluated to ensure that commercial quantities of reserves exist or to ensure that additional exploration work is under way as planned.

Management is required to make certain estimates and judgements when determining whether the commercial viability of an identified resource has been met and when determining whether indicators of impairment exist.

1.2.5 Development expenditure

When proven and probable reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure is reclassified from exploration phase to development phase. As the asset is not available for use, during the development phase, it is not depreciated. On completion of the development phase, any capitalised exploration and evaluation expenditure already capitalised to a development asset, together with the subsequent development expenditure, is reclassified within property, plant and equipment to mining assets and depreciated on the basis as laid out in Note 1.2.6, Property, plant and equipment.

All development expenditure is monitored for indicators of impairment annually. Management is required to make certain estimates and judgements when determining whether indicators of impairment exist.

1.2.6 Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition and construction of the items, to get the asset in its condition and location for its intended use among others, professional fees, and for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policies.

Subsequent costs to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised when the cost of the item can be measured reliably, with the carrying amount of the original component being written off. All repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.

Depreciation commences when an asset is available for use. Depreciation is charged so as to write off the depreciable amount of the asset to its residual value over its estimated useful life, using a method that reflects the pattern in which the asset's future economic benefits are expected to be consumed by the Group.


Item	Method	Useful life
Mining assets	Straight line	Lesser of life of mine or period of mining lease
Decommissioning assets	Straight line	Lesser of life of mine or period of mining lease
Leasehold improvements	Straight line	Three years; or lesser of life of mine or period of mining lease
Plant and equipment	Straight line	Three to 15 years
Other assets	Straight line	Two to eight years

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (ie, at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognised.

The asset's residual values, useful lives and methods of depreciation are reviewed annually. Changes in the expected residual values, expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the depreciation period or method, as appropriate, and are treated as changes in accounting estimates, and adjusted for prospectively, if appropriate.

Pre-production and in production stripping costs

Costs associated with removal of waste overburden are classified as stripping costs.

Stripping activities that are undertaken during the production phase of a surface mine may create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and where the benefit is the creation of mining flexibility and improved access to ore to be mined in the future, the costs are recognised as a non-current asset if:

(a) future economic benefits (being improved access to the orebody) are probable;

(b) the component of the orebody for which access will be improved can be accurately identified; and

The non-current asset recognised is referred to as a "stripping activity asset" and is separately disclosed in Note 8, Property, plant and equipment. If all the criteria are not met, the production stripping costs are charged to the statement of profit or loss as operating costs. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs.

If incidental operations are occurring at the same time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned, these costs are not included in the cost of the stripping activity asset. Given the deep vertical nature of the pit, all stripping costs are capitalised on a cut/component basis for each cut in the mine planning process.

The stripping activity asset is subsequently amortised over the expected useful life of the identified component of the orebody that became more accessible as a result of the stripping activity. The net book value of the stripping asset and future expected stripping costs to be incurred for that component is depreciated using the units of production over the proven and probable reserves, in order to match the total stripping costs of the cut to the economic benefits created by the cut. As a result, the stripping activity asset is carried at cost less amortisation and any impairment losses. The future stripping costs of the cut/component and the expected ore to be mined of that cut/component are recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio are accounted for prospectively as a change in estimate.

Management applies judgement to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s) as referred under Note 1.2.28, Critical accounting estimates and judgements.

1.2.7 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset.

All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

1.2.8 Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the sale, excluding the finance costs and income tax expense.

The criteria for held-for-sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that it will be withdrawn. Management must be committed to the sale expected within one year from the date of the classification.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position.

A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

a. represents a separate major line of business or geographical area of operations;

b. is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

c. is a subsidiary acquired exclusively with a view to resale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss.

Additional disclosures are provided in Note 15, Assets held for sale. All notes to the consolidated statement of financial position for the comparative period as at 31 December 2021 exclude amounts for assets and liabilities held for sale, unless stated otherwise.

1.2.9 Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree) over the fair value of the net identifiable amounts of the assets acquired and the liabilities assumed in the business combination.

Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements, are accounted for separately from the business combination in accordance with their nature and applicable IFRS.

Identifiable intangible assets, meeting either the contractual legal or separability criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition date fair value can be measured reliably.

If the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree) is lower than the fair value of the net identifiable amounts of the assets acquired and the liabilities assumed in the business combination, the difference is recognised in profit and loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's CGUs (or groups of CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes, and shall not be larger than an operating segment before aggregation.

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.

1.2.10 Financial instruments

The Group shall only recognise a financial instrument when the Group becomes a party to the contractual provisions of the instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial assets

Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date based on the business model for managing these financial assets and the contractual cash flow characteristics. Currently the Group only has financial assets at amortised cost which consist of receivables and other assets, and cash and short-term deposits which is held within a business model to collect contractual cash flows and for

which the contractual cash flow characteristics are solely payments of principal interest. When financial assets are recognised initially, they are measured at fair value plus (in the case of financial assets not at fair value through profit or loss) directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a timeframe established by regulation or convention in the marketplace (regular way trades) are recognised on the trade date.

Financial assets at amortised cost

Financial assets at amortised cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except those with maturities greater than 12 months after the reporting date. These are classified as non-current assets. Such assets are carried at amortised cost using the effective interest rate method, if the time value of money is significant, less any allowance for impairment. Gains and losses are recognised in the statement of profit or loss when the financial assets at amortised cost are derecognised or impaired, as well as through the amortisation process.

Derecognition

A financial asset is primarily derecognised when the rights to receive cash flows from the asset have expired or the Group has transferred its rights to receive cash flows from the asset. Gains or losses from derecognition of financial assets are recognised in the statement of profit or loss.

Financial liabilities

Financial liabilities are initially measured at fair value net of (in the case of financial liabilities not at fair value through profit or loss) directly attributable transaction costs. The Group's Interest-bearing loans and borrowings and trade and other payables financial liabilities are subsequently stated at amortised cost using the effective interest rate method, with any difference between proceeds (net of transaction costs) and the redemption value being recognised in the statement of profit or loss, unless capitalised in accordance with Note 1.2.6, Property, plant and equipment, over the contractual period of the financial liability.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Gains or losses from derecognition of financial liabilities are recognised in the statement of profit or loss.

1.2.11 Fair value measurement

The Group's financial instruments or transactions that are classified to be measured at fair value on a recurring basis are measured at fair value at each reporting date and financial instruments and transactions that are measured at fair value on a non-recurring basis are measured at fair value at the reporting date for which fair value measurement is relevant.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

· in the principal market for the asset or liability; or

· in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the financial statements that are measured at fair value on a recurring and non-recurring basis, the Group determines whether transfers have occurred between levels in the fair value hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

1.2.12 Impairments

Non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset (or CGU) may be impaired in accordance with IAS 36. Goodwill is assessed for impairment on an annual basis and when circumstances indicate that the carrying value may be impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Non-financial assets that were previously impaired are reviewed for possible reversal of the impairment at each reporting date. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such a reversal is recognised in the statement of profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Impairment losses relating to goodwill cannot be reversed in future periods.

Financial assets

Financial assets carried at amortised cost

The Group recognises an allowance for expected credit losses (ECLs) for all financial assets at amortised costs in the statement of profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

1.2.13 Inventories

Inventories, which include rough diamonds, ore stockpiles and consumables, are measured at the lower of cost and net realisable value. The amount of any write-down of inventories to net realisable value and all losses, is recognised in the period the write-down or loss occurs. Cost is determined as the average cost of production, using the weighted average method. Cost includes directly attributable mining overheads, but excludes borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs to be incurred in marketing, selling and distribution.

The Group maintains strategic stockpiles in line with operational and insurance requirements. In normal mining activities, lower grade ore is consequentially mined and maintained in a separate stockpile. Although this lower grade stockpile could be processed as emergency plant feed, its overall intention is it to be processed at the end of life of mine. As a result, the associated mining costs for this stockpile are allocated at the net realisable value and the balance of the costs are allocated to the Main pipe strategic stockpiles.

1.2.14 Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at amortised cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term, highly liquid investments with original maturities of three months or less that are held to meet the Group's short-term cash commitments.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts which are repayable on demand and form an integral part of the Group's cash management.

1.2.15 Issued share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

Treasury shares

Own equity instruments that are reacquired are recognised at cost, including transaction costs, and deducted from equity. These are disclosed as treasury shares. No gain or loss is recognised in profit or loss in the purchase, sale, issue or cancellation of the Group's own equity instruments. Any difference between the carrying amount and the consideration, if reissued, is recognised in equity.

1.2.16 Foreign currency translations

Presentation currency

The results and financial position of the Group's subsidiaries which have a functional currency different from the Group's presentation currency are translated into the Group's presentation currency as follows:

· statement of financial position items are translated at the closing rate at the reporting date;

· income and expenses for each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

· resulting exchange differences are recognised as a separate component of equity.

Details of the rates applied at the respective reporting dates and for the statement of profit or loss transactions are detailed in Note 16, Issued share capital and reserves.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation at the period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss. Non-monetary items that are measured in terms of cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Monetary items for each statement of financial position presented are translated at the closing rate at the reporting date.

1.2.17 Share-based payments

Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). In situations where some or all of the goods or services received by the entity as consideration for equity instruments cannot be specifically identified, they are measured as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received at the grant date.

Equity-settled transactions

The cost of equity-settled transactions with employees are measured by reference to the fair value of the equity instruments at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).

On a cumulative basis, over the vesting period of an award, no expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement of the vesting conditions or otherwise of the non-market vesting conditions and of the number of equity instruments that is expected to ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is recognised in the statement of profit or loss, with a corresponding entry in equity.

Where the terms of an equity-settled award are modified, or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative, due to the fact that it would not be beneficial to the employees.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the statement of profit or loss for the award is expensed immediately. Where an equity-settled award is forfeited, it is treated as if vesting conditions had not been met and all costs previously recognised are reversed and recognised in income immediately within the year of forfeiture.

Management applies judgement when determining whether share options relating to employees who resigned before the end of the service condition period are cancelled or forfeited as referred under Note1.2.28, Critical accounting estimates and judgements.

The Group periodically releases the share-based equity reserve to retained earnings in relation to lapsed and forfeited options subsequent vesting date.

1.2.18 Provisions

Provisions are recognised when:

· the Group has a present legal or constructive obligation as a result of a past event; and

· a reliable estimate can be made of the obligation.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.

1.2.19 Restoration and rehabilitation provision

The mining, extraction and processing activities of the Group normally give rise to obligations for site restoration and rehabilitation. Rehabilitation works can include facility decommissioning and dismantling, removal and treatment of waste materials, land rehabilitation, and site restoration. The extent of the work required and the estimated cost of final

rehabilitation, comprising liabilities for decommissioning and restoration, are based on current legal requirements, existing technology and the Group's environmental policies, and is reassessed annually. Cost estimates are not reduced by the potential proceeds from the sale of property, plant and equipment.

Provisions for the cost of each restoration and rehabilitation programme are recognised at the time the environmental disturbance occurs. When the extent of the disturbance increases over the life of the operation, the provision and associated asset is increased accordingly. Costs included in the provision encompass all restoration and rehabilitation activity expected to occur. The restoration and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present value, using a pre-tax discount rate. Discount rates used are specific to the country in which the operation is located or reasonable alternatives if in-country information is not available. The value of the provision is progressively increased over time as the effect of the discounting unwinds, which is recognised in finance charges. Restoration and rehabilitation provisions are also adjusted for changes in estimates.

When provisions for restoration and rehabilitation are initially recognised, the corresponding cost is capitalised as a decommissioning asset where it gives rise to a future benefit and depreciated over future production from the operation to which it relates.

Management is required to make significant estimates and assumptions when determining the amount of the restoration and rehabilitation provisions as referred under Note 1.2.28, Critical accounting estimates and judgements.

1.2.20 Taxation

Income tax for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it relates to items charged or credited directly to equity or to other comprehensive income, in which case the tax consequences are recognised directly in equity and other comprehensive income respectively. Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

The Group offsets deferred income tax assets and deferred income tax liabilities if, and only if, it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

In respect of taxable temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, deferred tax is provided except where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

In respect of deductible temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. Withholding tax is recognised in the statement of profit or loss when dividends or other services which give rise to that withholding tax are declared or accrued respectively. Withholding tax is disclosed as part of current tax.

Royalties

Royalties incurred by the Group comprise mineral extraction costs based on a percentage of sales paid to the local revenue authorities. These obligations arising from royalty arrangements are recognised as current payables and disclosed as part of royalty and selling costs in the statement of profit or loss.

Royalties and revenue-based taxes are accounted for under IAS 12 when they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is based on taxable income - rather than based on quantity produced or as a percentage of revenue. For such arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation. The royalties incurred by the Group are considered not to meet the criteria to be treated as part of income tax.

1.2.21 Employee benefits

Provision is made in the financial statements for all short-term employee benefits. Liabilities for wages and salaries, including non-monetary benefits, benefits required by legislation, annual leave, retirement benefits and accumulating sick leave obliged to be settled within 12 months of the reporting date, are recognised in trade and other payables and are measured at the amounts expected to be paid when the liabilities are settled. Benefits falling due more than 12 months after the reporting date are measured at the amount the obligation is expected to be settled or discounted to present value using a pre-tax discount rate where relevant or where time value of money is expected to be significant. The Group recognises an expense for contributions to the defined contribution pension fund in the period in which the employees render the related service.

Bonus plans

The Group recognises a liability and an expense for bonuses. The Group recognises a liability where contractually obliged or where there is a past practice that has created a constructive obligation. These liabilities are recognised in trade and other payables and are measured at the amounts expected to be paid when the liabilities are settled.

1.2.22 Leases

At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement whether it depends on a specified asset, whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset. For leases that contain one lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of the individual relative stand-alone price of all lease and non-lease components and the aggregate stand-alone price of all lease and non-lease components. The lease component is accounted for under the requirements of IFRS 16 and the non-lease component is accounted for using the relevant IFRS standard based on the nature of the non-lease component.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (ie, the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, costs to dismantle, restore and remove the right-of-use asset, and lease payments made at or before the commencement date less any lease incentives received. After the commencement date, the right-of-use assets are measured using a cost model. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. Right-of-use assets are subject to impairment. Refer Note 1.2.12, Impairments.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification to the terms and conditions of the lease or if there is a lease reassessment.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (ie, those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be qualitatively and quantitatively of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

Group as a lessor

Where the Group is a lessor, it determines at inception whether the lease is a finance or operating lease. When a lease transfers substantially all the risks and rewards of ownership of the underlying asset then the lease is a finance lease; otherwise the lease is an operating lease.

Where the Group is an intermediate lessor, the interest in the head lease and the sub-lease is accounted for separately and the lease classification of a sub-lease is determined by reference to the Right-of-use-asset arising from the head lease. Income from operating leases is recognised on a straight-line basis over the lease term.

1.2.23 Revenue from contracts with customers

Revenue comprises net invoiced diamond sales to customers excluding VAT. Diamond sales are made through a competitive tender process and recognised when the Group's performance obligations have been satisfied at the time the buyer obtains control of the diamond(s), at an amount that the Group expects to be entitled in exchange for the diamond(s). Where the Group makes rough diamond sales to customers and retains a right to an interest in their future sale as polished diamonds, the Group records the sale of the rough diamonds but such contingent revenue on the onward sale is only recognised at the date when the polished diamonds are sold or when polished sales prices are mutually agreed between the customer and the Group.

The following revenue streams are recognised:

· rough diamonds which are sold through a competitive tender process, partnership agreements and joint operation arrangements;

· polished diamonds and other products which are sold through direct sales channels;

· additional uplift (on the value from rough to polished) on partnership arrangements; and

· additional uplift (on the value from rough to polished) on joint operation arrangements.

The sale of rough diamonds is the core business of the Group, with other revenue streams contributing marginally to total revenue.

Revenue through joint operation arrangements is recognised for the sale of the rough diamond according to each party's percentage entitlement as per the joint operation arrangement. Contractual agreements are entered into between the Group and the joint operation partner whereby both parties control jointly the cutting and polishing activities relating to the diamond. All decisions pertaining to the cutting and polishing of the diamonds require unanimous consent from both parties. Once these activities are complete, the polished diamond is sold, after which the revenue on the remaining percentage of the rough diamond is recognised, together with additional uplift on the joint operation arrangement. The Group portion of inventories related to these transactions is included in the total inventories balance.

Revenue through partnership arrangements is recognised for the sale of the rough diamond, with an additional uplift based on the polished margin achieved. Management recognises the revenue on the sale of the rough diamond when it is sold to a third party, as there is no continuing involvement by management in the cutting and polishing process and control has passed to the third party. Revenue from additional uplift is considered to be a variable consideration. This variable consideration will generally be significantly constrained. This is on the basis that the ultimate additional uplift received will depend on a range of factors that are highly susceptible to factors outside the Group's influence. Management recognises revenue on the additional uplift when the polished diamond is sold by the third party or the polished sales prices are mutually agreed between the third party and the Group and the additional uplift is guaranteed, as this is the point in time at which the significant constraints are lifted or resolved from the Polished Margin revenue.

Rendering of services

Revenue from services relating to third-party diamond manufacturing is recognised in the accounting period in which the services are rendered, when the Group's performance obligations have been satisfied, at an amount that the Group expects to be entitled to in exchange for the services.

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. The Group does not have any contract assets as performance and a right to consideration occurs within a short period of time and all rights to consideration are unconditional.

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. The Group does not have any contract liabilities as the transfer of goods or services occurs within a short period of time of receiving the consideration.

1.2.24 Interest income

Interest income is recognised on a time proportion basis using the effective interest rate method.

1.2.25 Dividend income

Dividend income is recognised when the amount of the dividend can be reliably measured and the Group's right to receive payment is established.

1.2.26 Finance costs

Finance costs are recognised on a time proportion basis using the effective interest rate method.

1.2.27 Dividend distribution

Dividend distributions to the Group's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Group's shareholders.

1.2.28 Critical accounting estimates and judgements

The preparation of the consolidated financial statements requires management to make estimates and judgements and form assumptions that affect the reported amounts of the assets and liabilities, the reported income and expenses during the periods presented therein, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future and the resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the financial results or the financial position reported in future periods are discussed below.

Business environment and country risk

The Group's operations are subject to country risk being the economic, political and social risks inherent in doing business in certain areas of Africa, Europe and the United Kingdom. These risks include matters arising out of the policies of the government, economic conditions, imposition of or changes to taxes and regulations, foreign exchange rate fluctuations and the enforceability of contract rights.

The consolidated financial information reflects management's assessment of the impact of these business environments and country risks on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

Task Force on Climate-related Financial Disclosures (TCFD)

In preparing the Consolidated Financial Statements management continues to consider the impact of climate change, particularly in the context of the disclosures included in the Strategic Report detailing the phased approach strategy which the Group has adopted in implementing the TCFD requirements and the high level overview of some climate-related risks and opportunities. These considerations did not have a material impact on the financial reporting estimates and judgements, consistent with the assessment that climate change is not expected to have a significant impact on the Group's going concern assessment to March 2024, after which management will assess the impact on the Group's going concern. These considerations also had no material impact on any Property, Plant and Equipment or Commitments. For Letšeng, the physical risks identified of severe weather conditions, are similar to its current operating conditions of drought, high wind, snow and rainfall. The operation is therefore well set up to manage these conditions within its current reporting and accounting framework. As users of grid-supplied and fossil fuel energy, our short-term focus is on improving energy efficiencies in our operational processes and on reducing fossil fuel use. Due to the uncertainty of the cost and timing of implementation of carbon-related taxes, the impact of such taxes on the Group's operations and cash flows has been excluded from the going concern, viability assessment and impairment review.

The Russian invasion of Ukraine

The Russian invasion of Ukraine has significantly increased the price of consumables, especially diesel and explosive costs used in the mining activities, and inflation rates across the jurisdictions where the Group operates. Management has considered the impact of increased costs on future cash flows, and whether these costs and inflation rates are short or long term in nature. Management has used current pricing and inflation estimates for shorter-term forecasts, and normalised these to average historic levels for the medium to long term.

Estimates

Ore reserves and associated life of mine (LoM)

There are numerous uncertainties inherent in estimating ore reserves and the associated LoM. Therefore, the Group must make a number of assumptions in making those estimations, including assumptions as to the prices of diamonds, exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of diamonds, exchange rates, production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the ore reserves being restated. Where assumptions change the LoM estimates, the associated depreciation rates, residual values, waste stripping and amortisation ratios, and environmental provisions are reassessed to take into account the revised LoM estimate. Refer Note 8, Property, plant and equipment, Note 10, Intangible assets and Note 21, Provisions.

Provision for restoration and rehabilitation

Significant estimates and assumptions are made in determining the amount of the restoration and rehabilitation provisions. These deal with uncertainties such as changes to the legal and regulatory framework, magnitude of possible contamination, and the timing, extent and costs of required restoration and rehabilitation activity. Refer Note 21, Provisions, for further detail.

Judgement

Impairment reviews

The Group determines if goodwill is impaired at least on an annual basis, while all other significant operations are tested for impairment when there are potential indicators which may require impairment review. This requires an estimation of the recoverable amount of the relevant CGU under review. Recoverable amount is the higher of fair value less costs to sell and value in use. While conducting an impairment review of its assets using value-in-use impairment models, the Group exercises judgement in making assumptions about future rough diamond prices, volumes of production, ore reserves and resources included in the current LoM plans, production costs and macro-economic factors such as inflation and discount rates. Changes in estimates used can result in significant changes to the consolidated statement of profit or loss and consolidated statement of financial position. Refer Note 11, Impairment testing, for further estimates and judgements applied.

The key assumptions used in the recoverable amount calculations, determined on a value-in-use basis, are listed below:

Valuation basis

Discounted present value of future cash flows.

LoM and recoverable value of reserves and resources

Economically recoverable reserves and resources, carats recoverable and grades achievable are based on management's expectations of the availability of reserves and resources at mine sites and technical studies undertaken by in-house and third-party specialists. Reserves remaining after the current LoM plan have not been included in determining the value in use of the operations. The LoM of Letšeng is to 2040 (2021: 2037). The extension was as a result of an additional Satellite pit cutback included in the current LoM model.

Cost and inflation rate

Operating costs for Letšeng are determined based on management's experience and the use of contractors over a period of time whose costs are fairly reasonably determinable. Mining and processing costs in the short to medium term have been based on the agreements with the relevant contractors. In the longer term, management has applied local inflation

rates of 5.0% (2021: 5.0%) for operating costs beyond 2025. Up to 2025, inflation rates applied ranged between 5.7% - 8.9%.

Capital costs in the short term have been based on management's capital programme after which a fixed percentage of operating costs has been applied to determine the capital costs necessary to maintain current levels of operations.

Exchange rates

Exchange rates are estimated based on an assessment at current market fundamentals and long-term expectations. The US dollar/Lesotho loti (LSL) exchange rate used was determined with reference to the closing rate at 31 December 2022 of LSL17.02 (31 December 2021: LSL15.96).

Diamond prices

The medium-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends and the Group's medium-term forecast. Long-term diamond price escalation reflects the Group's assessment of market supply/demand fundamentals.

Discount rate

The discount rate of 12.5% for revenue (2021: 11.5%) and 15.4% for costs (2021: 13.4% ) used for Letšeng represents the before-tax risk-free rate adjusted for market risk, volatility and risks specific to the asset and its operating jurisdiction.

1.2.28 Critical accounting estimates and judgements

Market capitalisation

In the instance where the Group's asset carrying values exceed market capitalisation, this results in an indicator of impairment. The Group believes that this position does not represent an impairment as all significant operations were assessed for impairment during the year and no impairments were recognised.

Sensitivity

The value in use for Letšeng indicated sufficient headroom, and the further changes to key assumptions which could result in impairment are disclosed in Note 11, Impairment testing.

Provision for restoration and rehabilitation and deferred tax thereon

Judgement is applied when calculating the closure costs associated with the restoration of the Letšeng mine site. These include the following:

· there are no costs associated with the backfill of the open pits due to no in-country legislation requirements;

· concurrent rehabilitation of the waste rock dump and tailings facilities will take place during the operational phase; and

· there are no costs associated with dismantling permanent buildings as these will be handed over to various parties in consultation with the Lesotho Government when the end of life is reached.

At the Ghaghoo mine site, the following judgements were applied:

· the site would be donated to various Botswana Government departments already operating within the mine site area of the Central Kalahari Desert. Therefore, no costs associated with the rehabilitation of certain roads or rehabilitation and dismantling infrastructures; and

· the timing of the rehabilitation cost cash flows has been estimated to be five years.

Deferred tax assets are recognised on provisions for rehabilitation as management will ensure appropriate tax planning to ensure sufficient taxable income is available to utilise all deductions in the future.

Capitalised stripping costs (deferred waste)

Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations. The orebody needs to be identified in its various separately identifiable components. An identifiable component is a specific volume of the orebody that is made more accessible by the stripping activity. Judgement is required to identify and define these components (referred to as "cuts"), and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments are based on a combination of information available in the mine plans, specific characteristics of the orebody and the milestones relating to major capital investment decisions.

Judgements and estimates are also used to apply the amortisation rate, future stripping costs of the cut/component and the expected ore to be mined of that cut/component. Refer Note 8, Property, plant and equipment.

Share-based payments

Judgement is applied by management in determining whether the share options relating to employees who resigned before the end of the service condition period have been cancelled or forfeited in light of their leaving status. Where employees do not meet the requirements of a good leaver as per the rules of the long-term incentive plan (LTIP), no award will vest and this will be treated as cancellation by forfeiture. The expenses relating to these charges previously recognised are then reversed. Where employees do meet the requirements of a good leaver as per the rules of the LTIP, some or all of an award will vest and this will be treated as a modification to the original award. The future expenses relating to these awards are accelerated and recognised as an expense immediately. Refer Note 27, Share-based payments, for further detail.

Identifying uncertainties over tax treatments

As disclosed in the prior year, an amended tax assessment was issued to Letšeng by the Revenue Services Lesotho (RSL), previously the Lesotho Revenue Authority, in December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. An objection to the amended tax assessment was lodged with the RSL in March 2020, which was supported by the opinion of senior counsel. The RSL subsequently lodged a court

application for the review and setting aside of the applicable regulations to the Lesotho High Court pertaining to this matter, which Letšeng is opposing.

On 7 February 2022, Letšeng received an application from the RSL to amend its original grounds for the court application. Letšeng's counsel continues to review the RSL's proposed amendment and has opposed the new application by the RSL.

Management do not believe an uncertain tax position exists as:

· there is no ambiguity in the application of the published Lesotho Income Tax Act;

· there has been no change in the application of the Income Tax Act and resulting tax; and

· senior counsel advice, which is legally privileged, has been obtained for the new circumstances. This advice still reflects good prospects of success.

No provision or contingent liability, relating to the amended tax assessment in question, is required to be raised in the 2022 Annual Financial Statements.

1. 1.2.28 Critical accounting estimates and judgements

Offsetting of deferred tax assets and deferred tax liabilities of the Group's subsidiary, Letšeng Diamonds

The Group's subsidiary, Letšeng Diamonds, is subject to the tax laws and regulations enacted within Lesotho. The corporate tax laws and regulations currently enacted by the RSL requires a taxpayer to file a claim for offsetting current tax asset and current tax liabilities, and offsetting deferred tax assets and deferred tax liabilities with the Commissioner within four years after service of the notice of assessment for the year of assessment to which the claim relates.

The Group, after applying significant judgement, is of the view that Letšeng Diamonds does not have a legal enforceable right to offset current tax assets against current tax liabilities, and deferred tax assets against deferred tax liabilities within the Lesotho corporate tax jurisdiction as it is subject to the Commissioner's approval of the claim submitted for which the outcome is highly uncertain as the approval is purely subject to the discretion of the Commissioner. On this basis, the Group does not offset Letšeng Diamonds deferred tax assets and deferred tax liabilities, but rather presents them on a gross basis in the consolidated statement of financial position. Refer Note 1.2.20, Taxation.

Equipment and service lease

The major components of Letšeng's ore-extraction mining activities are outsourced to a mining contractor. The mining contractor performs these functions using their own equipment. Management applied judgement when evaluating whether the contract between Letšeng and the mining contractor contained a lease. While it was concluded there was a lease, lease payments are variable in nature as the lease payment vary based on the tonnes of ore and waste mined and hence no right of use asset or liability could be measured. A portion of the lease payment is expensed in the consolidated statement of profit or loss, and the portion relating to waste removal/stripping costs is capitalised to the waste stripping asset in the proportions referred to under the estimate and judgements applied to the capitalised stripping costs (deferred waste) above. Refer Note 24, Commitments and contingencies.


		2022	2021
		US$'000	US$'000
2.	REVENUE FROM CONTRACTS WITH CUSTOMERS
	Sale of goods	188 615	201 610
	Partnership arrangements	306	235
	Rendering of services	16	14
		188 937	201 859

The revenue from the sale of goods mainly represents the sale of rough diamonds, for which revenue is recognised at the point in time at which control transfers.

The revenue from partnership arrangements of US$0.3 million represents the additional uplift from partnership arrangements for which revenue is recognised when the significant constraints are lifted or resolved and the amount of revenue is guaranteed (2021: US$0.2 million). At year end 1 457 carats (2021: 894 carats) have significant constraints in recognising revenue relating to the additional uplift.

No revenue was generated from joint operation arrangements during the current or prior year.


		2022	2021*
		US$'000	US$'000
3.	OTHER OPERATING EXPENSES
	Sundry income	61	116
	Other expenses	-	(12)
	Ghaghoo care and maintenance costs 2	(2 053)	(3 525)
	Profit on disposal and scrapping of property, plant and equipment	195	16
	COVID-19 related costs 1	(140)	(711)
		(1 937)	(4 116)

1 COVID-19-related costs relating to continued protocols for curbing the spread of the virus.

2 Includes depreciation recognised in the current year of US$80.0 thousand (31 December 2021: nil) and inventory write-down of US$nil (31 December 2021: US$1.5 million).


		2022	2021*
		US$'000	US$'000
4.	OPERATING PROFIT
	Operating profit includes operating costs and income as listed below:
	Depreciation and amortisation
	Depreciation and mining asset amortisation excluding waste stripping cost	(6 588)	(6 927)
	Depreciation of right-of-use assets	(1 818)	(1 685)
	Waste stripping costs amortised	(36 285)	(46 813)
		(44 691)	(55 425)
	Inventories
	Cost of inventories recognised as an expense (including waste stripping costs amortised)	(116 382)	(113 737)
	Foreign exchange
	Foreign exchange gain	1 914	1 923
	Lease expenses not included in lease liability
	Mine site property	(142)	(170)
	Equipment and service lease	(11 154)	(8 462)
	Contingent rental - Alluvial Ventures	(3 556)	(6 483)
		(14 852)	(15 115)
	Impairment of non-current assets	(702)	-

	Auditor's remuneration - EY
	Group financial statements	(411)	(238)
	Statutory	(242)	(212)
		(653)	(450)
	Auditor's remuneration - other audit firms
	Statutory	(26)	(20)
	Other non-audit fees - EY
	Other services 1	(56)	(41)
	Other non-audit fees - other audit firms
	Tax services advisory and consultancy	(74)	(45)
	Employee benefits expense
	Salaries and wages 2	(17 239)	(18 267)
	Underlying earnings before interest, tax, depreciation and mining asset amortisation (underlying EBITDA)
	Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the operational performance of the Group and excludes such non-operating costs and income as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:
	Operating profit	34 521	46 878
	Other operating expenses 3	1 718	3 405
	Impairment of non-current assets	702	-
	Foreign exchange gain	(1 914)	(1 923)
	Share-based payments	253	397
	Depreciation and amortisation (excluding waste stripping cost amortised)	8 406	8 612
	Underlying EBITDA	43 686	57 369

1 Includes services related to forensic investigation performed on allegations of diesel theft at Letšeng.

2 Includes contributions to defined contribution plan of US$0.5 million (31 December 2021: US$0.6 million). An average of 370 employees excluding contractors were employed during the period (2021: 354).

3 Excludes COVID-19-related costs of US$0.1 million (31 December 2021: US$0.7 million) which are considered as operating costs. Includes Ghaghoo-related care and maintenance costs of US$2.1 million (31 December 2021: US$3.5 million), which are considered non-operating costs.


		2022	2021*
		US$'000	US$'000
5.	NET FINANCE COSTS
	Finance income
	Bank deposits	303	197
	Insurance asset	110	5
	Total finance income	413	202
	Finance costs
	Finance costs on borrowings	(2 552)	(2 232)
	Finance costs on lease liabilities	(666)	(525)
	Finance costs on unwinding of rehabilitation and decommissioning provision	(1 284)	(1 408)
	Total finance costs	(4 502)	(4 165)
		(4 089)	(3 963)

Finance income relates to interest earned on cash, short-term deposits and insurance assets.

Finance costs include interest incurred on borrowings and associated unwinding of facility credit underwriting fees, finance lease liabilities and the unwinding of rehabilitation provisions.


		2022	2021*
		US$'000	US$'000
6.	INCOME TAX EXPENSE
	Current
	- Foreign	(6 054)	(10 197)
	Withholding tax
	- Foreign	(1 356)	(639)
	Deferred
	- Foreign	(2 867)	(4 726)
	Income tax expense	(10 277)	(15 562)
	Profit before taxation	30 432	42 915


	%	%
Reconciliation of tax rate
Applicable income tax rate	25.0%	25.0%
Permanent differences 1	0.4%	2.5%
Unrecognised deferred tax assets	6.4%	5.3%
Effect of foreign tax at different rates	2.8%	2.0%
Withholding tax and unremitted earnings	(0.8)%	1.5%
Effective income tax rate	33.8%	36.3%

The tax rate reconciles to the statutory Lesotho corporation tax rate of 25% rather than the statutory UK corporation tax rate of 19% as this is the jurisdiction in which the majority of the Group's taxes are incurred.

1 In the current year, permanent differences comprise CSI, share-based payments and legal fees of a capital nature all of which are non-deductible for tax purposes, offset by the reversal of unremitted earnings. Refer Note 22, Deferred taxation . In the prior year, these mainly comprise CSI at Letšeng Diamonds, legal fees of a capital nature and share-based payments, all of which are non-deductible for tax purposes.

The corporate income tax rate in the United Kingdom was increased from 19% to 25% for companies effective from 1 April 2023. The new corporate tax rate of 25% is not expected to have a material impact on the Group. This event did not require any adjustment to the financial statements and will be applicable to Gem Diamonds Limited, the Groups' parent company.


		2022	2021
		US$'000	US$'000
7.	EARNINGS PER SHARE
	The following reflects the income and share data used in the basic and diluted earnings per share computations:

	Profit for the year	20 155	27 353
	Less: Non-controlling interests	(9 977)	(12 586)
	Net profit attributable to ordinary equity holders of the parent for basic and diluted earnings	10 178	14 767
	Number of ordinary shares outstanding at end of year ('000)	140 923	140 516
	Weighted number of share options exercised during the year ('000)	(145)	(223)
	Share buyback during the year ('000)	(977)	-
	Weighted average number of ordinary shares outstanding during the year ('000)	139 801	140 293
	Basic earnings per share attributable to ordinary equity holders of the parent (cents)	7.3	10.5

Earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year after taking into account future potential conversion and issue rights associated with the ordinary shares.


	2022	2021
	Number of shares	Number of shares
Weighted average number of ordinary shares outstanding during the year	139 802	140 293
Effect of dilution:
- Future share awards under the Employee Share Option Plan	1 857	1 796
Weighted average number of ordinary shares outstanding during the year adjusted for the effect of dilution	141 659	142 089
Diluted earnings per share attributable to ordinary equity holders of the parent (cents)	7.2	10.4

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.

8. PROPERTY, PLANT AND EQUIPMENT


	Stripping activity asset	Mining asset	De- commis- sioning assets	Lease- hold improve- ment	Plant and equip- ment	Other assets 1	Total
As at 31 December 2022
Cost
As at 1 January 2022	599 558	107 999	3 769	51 418	74 504	7 304	844 552
Additions - Ghaghoo (Note 15)	-	585	-	6 135	10 594	1 240	18 554
Additions	47 948	242	-	-	11 391	287	59 868
Net movement in rehabilitation provision	858	-	-	(307)	(266)	-	285
Disposals	-	-	-	-	(23)	(116)	(139)
Reclassifications	-	262	-	113	(685)	310	-
Foreign exchange differences	(39 028)	(5 116)	(250)	(3 619)	(6 223)	(504)	(54 740)
As at 31 December 2022	609 336	103 972	3 519	53 740	89 292	8 521	868 380
Accumulated depreciation/ amortisation/impairment
As at 1 January 2022	414 706	44 874	3 769	26 648	55 544	5 384	550 925
Additions - Ghaghoo (Note 15)	-	585	-	5 567	9 746	1 243	17 141
Charge for the year	36 080	958	-	2 925	2 388	522	42 873
Impairment 2	-	-	-	161	541	-	702
Disposals	-	-	-	-	(21)	(116)	(137)
Foreign exchange differences	(25 470)	(3 853)	(250)	(2 161)	(4 471)	(418)	(36 623)
As at 31 December 2022	425 316	42 564	3 519	33 140	63 727	6 615	574 881
Net book value at 31 December 2022	184 020	61 408	-	20 600	25 565	1 906	293 499

1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.

2 The impairment relates to the assets impaired at Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine) following it ceasing to be classified as a discontinued operation held for sale during the current financial reporting period. Refer Note 15, Assets held for sale.


	Stripping activity asset	Mining asset	De- commis- sioning assets	Lease- hold improve- ment	Plant and equip- ment	Other assets 1	Total
As at 31 December 2021
Cost
Balance at 1 January 2021	587 355	115 050	4 119	55 955	79 468	7 601	849 548
Additions	64 725	-	-	36	3 850	105	68 716
Net movement in rehabilitation provision	(1 069)	-	-	(138)	(138)	-	(1 345)
Disposals	-	-	-	(508)	(932)	(191)	(1 631)
Reclassifications	-	-	-	473	(810)	337	-
Foreign exchange differences	(51 453)	(7 051)	(350)	(4 400)	(6 934)	(548)	(70 736)
As at 31 December 2021	599 558	107 999	3 769	51 418	74 504	7 304	844 552
Accumulated depreciation/ amortisation/impairment
As at 1 January 2021	401 443	49 189	4 119	26 204	59 150	5 438	545 543
Charge for the year	46 708	910	-	3 187	2 375	560	53 740
Disposals	-	-	-	(508)	(929)	(187)	(1 624)
Foreign exchange differences	(33 445)	(5 225)	(350)	(2 235)	(5 052)	(427)	(46 734)
As at 31 December 2021	414 706	44 874	3 769	26 648	55 544	5 384	550 925
Net book value at 31 December 2021	184 852	63 125	-	24 770	18 960	1 920	293 627

1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.


		Right-of-use assets
		Plant and equipment	Motor vehicles	Buildings	Total
		US$'000	US$'000	US$'000	US$'000
9.	RIGHT-OF-USE ASSETS
	As at 31 December 2022
	Cost
	As at 1 January 2022	56	94	5 761	5 911
	Additions	3 259	384	1 644	5 287
	Derecognition of lease	(27)	(38)	(672)	(737)
	Foreign exchange differences	(98)	(19)	(303)	(420)
	As at 31 December 2022	3 190	421	6 430	10 041
	Accumulated depreciation
	As at 1 January 2022	20	63	2 691	2 774
	Charge for the year	695	96	1 027	1 818
	Derecognition of lease	(24)	(38)	(672)	(734)
	Foreign exchange differences	(3)	(6)	(148)	(157)
	As at 31 December 2022	688	115	2 898	3 701
	Net book value at 31 December 2022	2 502	306	3 532	6 340

	As at 31 December 2021
	Cost
	As at 1 January 2021	2 217	364	6 444	9 025
	Additions	-	-	507	507
	Derecognition of lease	(2 141)	(260)	(768)	(3 169)
	Foreign exchange differences	(20)	(10)	(422)	(452)
	As at 31 December 2021	56	94	5 761	5 911
	Accumulated depreciation
	As at 1 January 2021	1 737	255	2 210	4 202
	Charge for the year	437	75	1 173	1 685
	Derecognition of lease	(2 141)	(260)	(523)	(2 924)
	Foreign exchange differences	(13)	(7)	(169)	(189)
	As at 31 December 2021	20	63	2 691	2 774
	Net book value at 31 December 2021	36	31	3 070	3 137

Plant and equipment mainly comprise back-up power generating equipment utilised at Letšeng. Motor vehicles mainly comprise vehicles utilised by contractors at Letšeng. Buildings comprise office buildings in Maseru, Antwerp, London, Gaborone and Johannesburg.

Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

During the year, a new lease contract for back-up power generating equipment at Letšeng was entered into resulting in the recognition of right-of-use assets and lease liabilities associated with the new lease. Furthermore, Gem Diamonds Marketing Services and Baobab Technologies entered into new contracts for the rental of office space in Antwerp as the original contracts both came to an end. The new contracts were assessed as containing leases, which resulted in the recognition of the new associated right-of-use assets and lease liabilities. Refer Note 18, Lease liabilities and Note 23.1, Cash generated by operations.

During the prior year, the original lease contract for back-up power generating equipment and the lease for certain vehicles used on the mine at Letšeng came to an end. The assets and liabilities associated with these leases were derecognised. Furthermore, Gem Diamonds Limited and Gem Diamonds Technical Services entered into new contracts for the rental of office space in London and Johannesburg respectively. The new contracts were assessed as containing leases, which resulted in the recognition of the new associated right-of-use assets and lease liabilities. The original contracts were both cancelled and all associated assets and liabilities were derecognised

There were no gains or losses (2021: US$0.1 million) relating to the derecognition of leases in the Group during the year. Refer Note 18, Lease liabilities and Note 23.1, Cash generated by operations. During the year the Group recognised income of US$0.3 million (2021: US$0.3 million) from the sub-leasing of office buildings in Maseru. The Group expects to receive the following lease payments from the operating sub-leasing in the following years:


	US$ '000
2023	353
2024	376
2025	227


		Intangibles	Goodwill 1	Total
		US$'000	US$'000	US$'000
10.	INTANGIBLE ASSETS
	As at 31 December 2022
	Cost
	Balance at 1 January 2022	-	11 962	11 962
	Foreign exchange translation difference	-	(741)	(741)
	Balance at 31 December 2022	-	11 221	11 221
	Accumulated amortisation
	Balance at 1 January 2022	-	-	-
	Amortisation	-	-	-
	Balance at 31 December 2022	-	-	-
	Net book value at 31 December 2022	-	11 221	11 221

	As at 31 December 2021
	Cost
	Balance at 1 January 2021	791	12 997	13 788
	Foreign exchange translation difference	-	(1 035)	(1 035)
	Scrapping	(791)	-	(791)
	Balance at 31 December 2021	-	11 962	11 962
	Accumulated amortisation
	Balance at 1 January 2021	791	-	791
	Amortisation	-	-	-
	Scrapping	(791)	-	(791)
	Balance at 31 December 2021	-	-	-
	Net book value at 31 December 2021	-	11 962	11 962

1 Goodwill allocated to Letšeng Diamonds. Refer Note 11, Impairment testing .


		2022	2021
		US$'000	US$'000
11.	IMPAIRMENT TESTING
	Goodwill impairment testing is undertaken on Letšeng Diamonds annually and when there are indications of impairment. The most recent test was undertaken at 31 December 2022. In assessing whether goodwill has been impaired, the carrying amount of Letšeng Diamonds is compared with its recoverable amount. For the purpose of goodwill impairment testing in 2022, the recoverable amount for Letšeng Diamonds has been determined based on a value in use model, similar to that adopted in the past.
	Goodwill
	Letšeng Diamonds	11 221	11 962
	As at 31 December 2022	11 221	11 962

Movement in goodwill relates to foreign exchange translation from functional to presentation currency, as disclosed within Note 10, Intangible assets.

The discount rates are outlined below and represents the nominal pre-tax rate. These rates are based on the weighted average cost of capital (WACC) of the Group and adjusted accordingly at a risk premium for Letšeng Diamonds, taking into account risks associated therein.


	2022 %	2021 %
Discount rate - Letšeng Diamonds
Applied to revenue	12.5	11.5
Applied to costs	15.4	13.4

Value in use

The mining lease period at Letšeng extends to 2029 with an exclusive option to renew for a further 10 years to 2039. The latest open pit mine plan available which has been used to project the cash flows, reflects that the open pit mining is expected to cease in 2040. In terms of IAS 36, cash flows are projected for a period up to the date of the mining lease period if it is earlier than the ceasing of the mining, ie. 2039. The mine plan includes the next open pit cutback in the Satellite pipe (C6W). This mine plan takes into account the available reserves and other relevant inputs such as diamond pricing, costs and geotechnical parameters, and includes the steeper slope angles implemented in the Main pit Cut 4 East and Cut 4 West cutbacks. For further information refer to the Operations Review on page 56. In addition, cost savings associated with the optimisation and right-sizing which commenced at Letšeng in early 2023 have also been included in the value-in-use model.

A comprehensive Underground Feasibility Study commenced in mid-2022 to confirm the feasibility of mining underground. The completion of this study will take place in 2023 (and has therefore not been included in the Value in use valuation), and will (i) assess the viability of an earlier shift to underground mining of the Satellite pipe and (ii) inform the trade-off between underground mining and proceeding with the next open pit cutback in the Satellite pipe (C6W) .

Sensitivity to changes in assumptions

The Group will continue to test its assets for impairment where indications are identified.

Refer Note 1.2.28, Critical accounting estimates and judgements, for further details on impairment testing policies.

The short and medium-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends and anticipated market supply and the Group's medium-term forecast. Long-term diamond price escalation reflects the Group's assessment of market supply/demand fundamentals. The valuation of Letšeng at 31 December 2022 exceeded the carrying value by US$92.2 million (31 December 2021: US$56.8 million). The valuation is sensitive to input assumptions particularly in relation to the foreign exchange assumption of the US dollar (US$) to the Lesotho loti (LSL) at year end, future price growth for diamonds and increase in operating costs. The Group has assumed an appropriate price increase for its diamonds following the market improvement noted in the diamond prices during the year.

A range of alternative scenarios have been considered in determining whether there is a reasonably possible change in the foreign exchange rates, operating costs and diamond prices, which would result in the recoverable amount equating to the carrying amount. An 8% strengthening of the LSL to the US$ to US$1:LSL15.60 or a reduction of 6.5% to the starting diamond prices would result in the recoverable amount equating to the current carrying value (at year end exchange rate), with other valuation assumptions remaining the same. As a result of the variability in consumable prices such as diesel and explosive costs, a third sensitivity on changes in costs was performed. An 8% increase in current estimated operating costs of US$2.5 billion over the life of mine would result in the recoverable amount equating to the current carrying amount, with other valuation assumptions remaining the same.

As a result, no impairment charge was recognised for the Letšeng Diamonds CGU during the year.


		2022	2021
		US$'000	US$'000
12.	RECEIVABLES AND OTHER ASSETS
	Non-current
	Deposits	96	109
	Insurance asset 1	2 820	1 169
		2 916	1 278
	Current
	Trade receivables	23	25
	Prepayments 2	1 350	975
	Deposits	21	19
	Other receivables	249	122
	Vat receivable	3 212	2 954
		4 855	4 095
	The carrying amounts above approximate their fair value due to the nature of the instruments.
	Analysis of trade receivables based on their terms and conditions
	Neither past due nor impaired	-	2
	Past due but not impaired:
	Less than 30 days	-	-
	30 to 60 days	-	-
	60 to 90 days	-	-
	90 to 120 days	-	23
	> 120 days	23	-
		23	25

¹ This non-current asset relates to Letšeng's Multi-aggregate Protection Insurance Policy with The Lesotho National Insurance Group (LNIGC) entered into the prior year. This policy has a remaining tenure of three-and-a-half years at year end. During the current year the policy was increased to LSL140.0 million (US$8.2 million) (31 December 2021: LSL100.0 million (US$6.2 million)). The premium payments were increased to LSL30.0 million (US$1.8 million) (31 December 2021: LSL20.0 million) (US$1.2 million) for the remainder of the policy each payable annually in advance. Refer Note 24, Commitments and contingencies. The policy gives Letšeng the right to claim up to LSL75.0 million (31 December 2021: LSL50.0 million) for each-and-every-loss and LSL150.0 million (31 December 2021: LSL100.0 million) in the aggregate (subject to terms and conditions contained in the policy). On expiry of the policy in June 2026, all unutilised funds within the policy are due and payable to Letšeng. A non-current financial asset has been recognised for the unutilised premium paid to date, net of underwriting service fee of LSL 2.1 million ( US$128 thousand) as expensed within other operating expenses. The non-current financial asset is measured at amortised cost in line with IFRS 9 Financial Instruments. Interest is earned on the unrealised premium and recognised as finance income. The second premium payment of LSL 30.0 million (US$1.8 million) was financed through a 10-month loan through Premium Finance Partners (Proprietary) Limited. This non-current financial asset is ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 17, Interest-bearing loans and borrowings.

² Prepayments include insurance premiums prepaid at Letšeng of US$0.4 million (31 December 2021: US$0.4 million) which were also funded through Premium Finance Partners (Proprietary) Limited. This prepayment is ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 17, Interest-bearing loans and borrowings.

Based on the nature of the Group's client base and the negligible exposure to credit risk through its client base, insurance asset and other financial assets, the expected credit loss is insignificant and has no impact on the Group.


		2022	2021
		US$'000	US$'000
13.	INVENTORIES
	Diamonds on hand	16 745	18 303
	Ore Stockpile	5 053	4 702
	Consumable stores 1	8 572	8 153
		30 370	31 158

1 Includes consumable stores from Ghaghoo of US$0.3 million in the current year.

Inventory is carried at the lower of cost or net realisable value. During the year, lower grade ore stockpile inventory at Letšeng was written down by US$1.5 million (31 December 2021: nil) to net realisable value. Part of this stockpile was historically treated by Alluvial Ventures, the third-party plant contractor. When this contract expired during the year and the plant was dismantled, the stockpile level increased to the end of the period. Refer Note 1.2.13, Inventories.


		2022	2021
		US$'000	US$'000
14.	CASH AND SHORT-TERM DEPOSITS
	Cash on hand	4	3
	Bank balances	6 006	27 673
	Short term bank deposits	2 711	3 237
		8 721	30 913

The amounts reflected in the financial statements approximate fair value due to the short-term maturity and nature of cash and short-term deposits.

Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits are generally call deposit accounts and earn interest at the respective short-term deposit rates.

The Group's cash surpluses are deposited with major financial institutions of high-quality credit standing predominantly within Lesotho and the United Kingdom.

At 31 December 2022, the Group had US$82.6 million (31 December 2021: US$74.3 million) of undrawn facilities, representing the LSL750.0 million (US$44.1 million) three-year secured (31 December 2021: unsecured) revolving working capital facility at Letšeng, the Letšeng ZAR100.0 million (US$5.9 million) general banking facility, the available portion of the PCA project debt facility of ZAR43.5 million (US$2.6 million) and US$30.0 million from the Company's secured (31 December 2021: unsecured) revolving credit facility. For further details on these facilities, refer Note 17, Interest-bearing loans and borrowings.

15. ASSETS HELD FOR SALE

Since 2019, in line with the strategic objective to dispose of non-core assets, the Board of Directors and Management have remained committed to the sale of Gem Diamonds Botswana (Pty) Ltd (GDB), which owns the Ghaghoo Diamond Mine. In May 2022, the sales agreement which Gem Diamonds Limited had entered into with Okwa Diamonds (Pty) Ltd (Okwa Diamonds), on 23 August 2021, lapsed, following the inability of Okwa Diamonds' owners to secure a funding partner for the transaction. There has been no new agreement entered into for the sale of the asset by year end, although a number of interested parties are performing due diligence procedures. As a result of the developments above, the sale of GDB no longer met the highly probable requirements as set out in the Group's accounting policy 1.2.8 Non-current assets held for sale and discontinued operations at year end and the Board of Directors and Management have reviewed various alternatives of disposal and closure of the asset. As a result, GDB has ceased to be classified as a discontinued operation held for sale as at the 31 December 2022. All impacted prior year figures in the consolidated statement of profit or loss and relevant notes have been re-presented to reflect GDB as part of continuing operations. The assets and liabilities of GDB are no longer disclosed as held for sale in the current reporting period.

The table below represents the prior year re-presentation for all amounts in the consolidated statement of profit or loss and notes thereto which were re-presented.


	As previously reported	Re- presentatio n adjustment	Re- presented figures
	2021	2021	2021
	US$'000	US$'000	US$'000
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
CONTINUING OPERATIONS
Other operating expense	(591)	(3 525)	(4 116)
Share-based payments	(395)	(2)	(397)
Foreign exchange gain/(loss)	1 929	(6)	1 923
Operating profit	50 411	(3 533)	46 878
Net finance costs	(3 742)	(221)	(3 963)
- Finance costs	(3 944)	(221)	(4 165)
Profit before tax for the year	46 669	(3 754)	42 915
Profit after tax for the year	31 107	(3 754)	27 353
DISCONTINUED OPERATION
Loss after tax from discontinued operation	(3 754)	3 754	-
Earnings per share (cents)
Earnings per share (cents) for continuing operations
- Basic earnings for the year attributable to ordinary equity holders of the parent	-	-	-
- Diluted earnings for the year attributable to ordinary equity holders of the parent	-	-	-



3	OTHER OPERATING EXPENSES
	Ghaghoo care and maintenance costs	-	(3 525)	(3 525)

4	OPERATING PROFIT
	Foreign exchange
	Foreign exchange gain/(loss)	1 929	(6)	1 923

	Auditor's remuneration - EY
	Statutory	(190)	(22)	(212)

	Employee benefits expense
	Salaries and wages	(17 767)	(500)	(18 267)

	Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the operational performance of the Group and excludes such non-operating costs and income as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:
	Operating profit	50 411	(3 533)	46 878
	Other operating expenses	(120)	3 525	3 405
	Foreign exchange (gain)/loss	(1 929)	6	(1 923)
	Share-based payments	395	2	397
	Underlying EBITDA	57 369	-	57 369

5	NET FINANCE COSTS
	Finance costs on unwinding of rehabilitation and decommissioning provision	(1 187)	(221)	(1 408)

6	INCOME TAX EXPENSE
	Profit before taxation	46 669	(3 754)	42 915
	Reconciliation of tax rate	%	%	%
	Permanent differences	2.3	0.2	2.5
	Unrecognised deferred tax assets	3.1	2.2	5.3
	Effect of foreign tax at different rates	1.6	0.4	2.0
	Withholding tax and unremitted earnings	1.4	0.1	1.5
	Effective income tax rate	33.4	2.9	36.3

27	SHARE-BASED PAYMENTS
	Equity-settled share-based payment transactions charged to the statement of profit or loss	395	2	397
	Equity-settled share-based payment transactions charged to the statement of profit or loss - discontinued operation	2	(2)	-

Depreciation of US$0.1 million was recognised in the current year relating to the underlying depreciable assets within GDB which was suspended whilst GDB was classified as held for sale.

The recoverable amount of all items of property, plant and equipment was assessed and an impairment charge of US$(0.7) million was recognised, reducing the carrying value of the leasehold improvements and plant and equipment categories to zero. Refer Note 8 Property, plant and equipment . This impairment has been included in the Botswana segment in Note 1.1.3 Segment information .


	2022	2021
	US$'000	US$'000
ASSETS
Non-current assets
Property, plant and equipment	-	1 413
Current assets
Inventories	-	477
Receivables and other assets	-	63
Cash and short-term deposits	-	144
	-	684
Total assets	-	2 097
LIABILITIES
Non-current liabilities
Provisions	-	3 654
Trade and other payables	-	446
Total liabilities	-	4 100

The disposal group's assets held for sale were carried at carrying value which was lower than the disposal group's fair value less costs to sell in the prior year. The fair value was based on the unobservable market offer from the potential buyer for the disposal group, accordingly the non-recurring fair value measurement for the prior year was included in level 3 of the fair value hierarchy.

16 ISSUED SHARE CAPITAL AND RESERVES

Share capital


	31 December 2022		31 December 2021
	Number of shares '000	US$'000	Number of shares '000	US$'000
Authorised - ordinary shares of US$0.01 each
As at year end	200 000	2 000	200 000	2 000
Issued and fully paid balance at beginning of year	140 515	1 406	139 612	1 397
Allotments during the year	408	4	903	9
Number of ordinary shares outstanding at end of year	140 923	1 410	140 515	1 406
Treasury shares	(1 520)	(1 157)	-	-
Balance at end of year	139 403	253	140 515	1 406

Share premium

Share premium comprises the excess value recognised from the issue of ordinary shares above its par value.

Other reserves


	Foreign currency translation reserve	Share- based equity reserve	Total
	US$'000	US$'000	US$'000
As at 1 January 2022	(233 276)	6 579	(226 697)
Other comprehensive loss	(12 691)	-	(12 691)
Total comprehensive loss	(12 691)	-	(12 691)
Share capital issue	-	(4)	(4)
Share-based payment expense	-	253	253
Transfer to (accumulated losses)/retained earnings	-	(30)	(30)
As at 31 December 2022	(245 967)	6 798	(239 169)

As at 1 January 2021	(218 355)	6 191	(212 164)
Other comprehensive loss	(14 921)	-	(14 921)
Total comprehensive loss	(14 921)	-	(14 921)
Share capital issue	-	(9)	(9)
Share-based payment expense	-	397	397
As at 31 December 2021	(233 276)	6 579	(226 697)

Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities. The South African, Lesotho and Botswana subsidiaries' functional currencies are different to the Group's presentation currency of US dollar. The rates used to convert the operating functional currency into US dollar are as follows:


		2022	2021
	Currency	US$'000	US$'000
Average rate	ZAR/LSL to US$1	16.37	14.79
Year end	ZAR/LSL to US$1	17.02	15.96
Average rate	Pula to US$1	12.37	11.09
Year end	Pula to US$1	12.75	11.76

Share-based equity reserves

For details on the share-based equity reserve, refer Note 27, Share-based payments.

Capital management

For details on capital management, refer Note 26, Financial risk management.

Treasury shares

During the year, the Board of Directors approved a share buyback programme to purchase up to US$2.0 million of the Company's ordinary shares. The sole purpose of the programme is to reduce the capital of the Company and the Company intends to hold those ordinary shares purchased under the programme in treasury. Such treasury shares are not entitled to dividends and have no voting rights. The share buyback programme was initiated on 12 April 2022. At 31 December 2022,

1 520 170 shares were bought back at the market value on the date of each buyback, equating to a weighted average price of 60.05 GB pence (78.07 US cents) per share, totalling US$$1.2 million (including transaction costs). This reduction in shares issued has been taken into account in calculating the earnings per share.

17. INTEREST-BEARING LOANS AND BORROWINGS

On 28 February 2022, Gem Diamonds Limited provided security for both the Letšeng Diamonds and Gem Diamonds Limited RCF facilities over its bank accounts domiciled in the United Kingdom (US$4.6 million) and on 15 March 2022 the security over its 70% shareholding in Letšeng Diamonds, refer Note 31, Material partly owned subsidiary, was implemented. This security had the impact of decreasing the interest rate margin on all facilities by 1.5% from 15 March 2022 and converting the facilities into secured facilities.

The IBOR phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 became effective on 1 January 2021 for the Group. The IBOR reform has impacted the South African JIBAR and LIBOR linked interest-bearing loans and borrowings within the Group. The interest-bearing loans and borrowings that remains subject to the South African JIBAR rate include the LSL136.4 million unsecured project debt facility and the ZAR300.0 million revolving credit facility. The

interest-bearing loans and borrowings that was subject to the US$ three-month LIBOR rate was the US$30.0 million revolving credit facility. The developments on these facilities from 31 December 2021 and their carrying amounts and maturities as at 31 December 2022 are disclosed in the note below.

The South African JIBAR rates are yet to transition to alternative benchmark rates at the reporting period end. The Group will continue to assess the impact of the interest rate benchmark reform on the Group's JIBAR interest-bearing loans and borrowings as the revised benchmark rates are published or negotiated with the funders.


	Effective interest rate	Maturity	2022 US$'000	2021 US$'000
Non-current
ZAR12.8 million asset-based finance facility	South African Prime Lending Rate	Repaid 15 July 2022	-	202
LSL450.0 million and ZAR300.0 million bank loan facility	Central Bank of Lesotho rate + 3.25% and South African JIBAR + 3.05%
Credit underwriting fees		22 December 2024	(327)	(525)
US$30.0 million bank loan facility	London US$ three-month LIBOR + 5.00%	22 December 2024	-	9 000
Credit underwriting fees			(225)	(337)
LSL136.4 million project debt facility	South African JIBAR + 2.50%	31 May 2027	4 922	-
			4 370	8 340
Current
LSL7.3 million insurance premium finance	2.35%	Repaid 1 June 2022	-	305
ZAR3.5 million insurance premium finance	2.50%	Repaid 1 June 2022	-	155
LSL20.0 million insurance premium finance	3.20%	Repaid 1 June 2022	-	880
ZAR2.5 million insurance premium finance	3.55%	1 April 2023	60	-
LSL30.0 million insurance premium finance	3.55%	1 April 2023	719	-
LSL10.9 million insurance premium finance	3.55%	1 May 2023	262	-
LSL215.0 million bank loan facility
Tranche A	South African JIBAR + 6.75%	Repaid 30 September 2022	-	439
Tranche B	South African JIBAR + 3.15%	Repaid 31 March 2022	-	752
ZAR12.8 million asset-based finance facility	South African Prime Lending Rate	Repaid 15 July 2022	-	173
LSL136.4 million project debt facility	South African JIBAR + 2.50%	31 May 2027	534	-
			1 575	2 704

ZAR12.8 million (US$0.8 million) Asset-Based Finance facility

In January 2019, the Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.8 million) Asset-Based Finance (ABF) facility with Nedbank Limited for the purchase of a mobile X-Ray transmission machine (the asset). On 15 July 2022, the facility was early settled. The facility had an interest rate of the South African Prime Lending Rate, which was 10.5% at 31 December 2022 (31 December 2021: 7.25%).

Total interest for the year on this interest-bearing ABF was US$13.3 thousand (31 December 2021: US$34 thousand).

LSL450.0 million and ZAR300.0 million (US$44.1 million) bank loan facility at Letšeng Diamonds

The Group, through its subsidiary Letšeng Diamonds, has a LSL450.0 million and ZAR300.0 million (US$44.1 million) three-year revolving credit facility jointly with Nedbank Lesotho Limited, Standard Lesotho Bank Limited, First National Bank of Lesotho Limited, Firstrand Bank Limited (acting through its Rand Merchant Bank division) and Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division).

The facility is secured (31 December 2021: unsecured) and expires on 22 December 2024 and has a 24-month renewal option. The LSL450.0 million facility is subject to interest at the Central Bank of Lesotho rate plus 3.25% and the ZAR300.0 million facility is subject to South African JIBAR plus 3.05%. There was no draw down on this facility at the current or prior year ends.

The remaining balance of the credit underwriting fees of US$0.3 million (31 December 2021: US$0.5 million) which were incurred and capitalised to the Group's consolidated interest-bearing loans and borrowings as part of the prior year refinancing facility, albeit that Letšeng did not have any draw downs on its RCF at year end. The capitalised fees are amortised and accounted for as finance costs within profit or loss over the period of the facility.

US$30.0 million bank loan facility at Gem Diamonds Limited

This facility is a secured (31 December 2021: unsecured) three-year RCF with Nedbank Limited (acting through its London branch), Standard Bank of South Africa Limited (acting through its Isle of Man branch) and Firstrand Bank Limited (acting through its Rand Merchant Bank division) for US$13.5 million, US$9.0 million and US$7.5 million, respectively. All draw downs will be made in these ratios.

The facility expires on 22 December 2024 and has a 24-month renewal option.

At year end the facility was undrawn (31 December 2021: US$9.0 million) resulting in US$30.0 million (31 December 2021: US$21.0 million) being available for draw down. The remaining balance of the previously capitalised credit underwriting fees is US$0.2 million (31 December 2021: US$0.3 million) at year end. The capitalised fees will be amortised and accounted for as finance costs within profit or loss over the period of the facility.

The US$-based interest rate for this facility at 31 December 2022 was 8.7% (31 December 2021: 6.72%) which comprises term US$ three-month LIBOR plus 5.00% (31 December 2021: US$ three-month LIBOR plus 6.50%). The decrease in the margin of 6.50% to 5.00% follows the security implementation on 15 March 2022. As part of the Group's refinancing programme, on 30 November 2022, the contractual terms of this LIBOR linked facility transitioned from the US$ three-month LIBOR rate to term Secured Overnight Financing Rate (SOFR), effective on all interest periods from 1 January 2023. The transition from LIBOR to SOFR had no impact on the Group financial statements as the transition is as a direct consequence of the IBOR reform and the new basis for determining the contractual cash flows is and will be economically equivalent to the basis immediately preceding the change and therefore the Group applied the practical expedient available within the IBOR Phase 2 amendments and changed the basis for determining the contractual cash flows prospectively from 1 January 2023 by revising the effective interest rate.

Total interest for the year on this interest-bearing RCF was US$1.1 million (31 December 2021: US$1.0 million).

LSL136.4 million (US$8.0 million) project debt facility at Letšeng Diamonds

The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 29 November 2022 to fund the replacement of the primary crushing area (PCA) at Letšeng. The loan is repayable in equal quarterly payments commencing in November 2023. The outstanding balance at year end was ZAR92.8 million (US$5.4 million). This loan expires on 27 May 2027.

The South African rand-based interest rates for the facility at 31 December 2022 was 9.76% which comprises JIBAR plus 2.50%.

Total interest for the year on this interest-bearing loan was US$15.6 thousand.

LSL7.3 million (US$ 0.4 million) insurance premium finance

In the prior year, the Group through its subsidiary Letšeng Diamonds, entered into a LSL7.3million (US$0.4 million) 9-month funding agreement with Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk insurance premium. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets This financing was fully repaid on 1 June 2022.

ZAR3.5 million (US$ 0.2 million) insurance premium finance

In the prior year, the Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR3.5 million (US$0.2 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited for its annual Group Umbrella Liability insurance premium. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners (Proprietary) Limited. 12, Receivables and other assets. This financing was fully repaid on 1 June 2022.

LSL20.0 million (US$ 1.2 million) insurance premium finance for Multi-aggregate Protection Insurance Policy

In the prior year, the Group through its subsidiary Letšeng Diamonds, entered into a LSL20.0 million (US$1.2 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited to finance the initial premium of LSL20.0 million on the Multi-aggregate Insurance Policy. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets. This financing was fully repaid on 1 June 2022.

LSL30.0 million (US$ 1.8 million) insurance premium finance for Multi-aggregate Protection Insurance Policy

The Group through its subsidiary Letšeng Diamonds, entered into a LSL30.0 million (US$1.8 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited to finance the second premium of LSL30.0 million on the Multi-aggregate Insurance Policy. At year end LSL12.4 million (US$0.7 million) remains outstanding. The funding is repayable in 10 monthly instalments, payable in advance. Total interest on this funding is LSL1.1 million (US$62.6 thousand) of which LSL0.9 million (US$53.1 thousand) was paid during the year. The unutilised premium paid, recognised as an insurance asset, has been ceded as security in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets.

LSL10.9 million (US$ 0.7 million) insurance premium finance

The Group through its subsidiary Letšeng Diamonds, entered into a LSL10.9 million (US$0.6 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk insurance premium. At year end LSL4.5million (US$0.3 million) remains outstanding. The funding is repayable in 10 monthly instalments, payable in advance. Total interest on this funding is LSL0.4 million (US$23.7 thousand) of which LSL0.3 million (US$19.4 thousand) was paid during the year. All respective insurance premiums prepaid at year end have been ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets.

Other facilities

Letšeng Diamonds has a ZAR100.0 million (US$5.9 million) general banking facility with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) renewable annually. There was no draw down on this facility in the current or prior years.

The bank loan facilities include an additional US$20.0 million accordion option for Gem Diamonds, the utilisation of which is subject to all necessary internal credit and other approvals from all funders. There was no utilisation of this facility in the current or prior years.


		2022	2021
		US$'000	US$'000
18.	LEASE LIABILITIES
	Non-current	6 021	3 851
	Current	1 877	973
	Total lease liabilities	7 898	4 824

	Reconciliation of movement in lease liabilities
	As at 1 January	4 824	6 738
	Additions	5 287	507
	Interest expense	666	525
	Lease payments	(2 512)	(2 185)
	Derecognition of lease	-	(352)
	Foreign exchange differences	(367)	(409)
	As at 31 December	7 898	4 824

Lease payments comprise payments in principle of US$1.8 million (31 December 2021: US$1.7 million) and repayments of interest of US$0.7 million (31 December 2021: US$0.5 million).

During the year, the Group recognised variable lease payments of US$39.5 million (31 December 2021: US$50.0 million), which consist of mining activities outsourced to a mining contractor. Total costs incurred for the year amount to US$39.5 million (31 December 2021: US$50.0 million) of which US$28.4 million (31 December 2021: US$41.5 million) has been capitalised to the Stripping Asset. Refer Note 1.2.6, Property Plant and equipment, Note 1.2.28, Critical accounting estimates and judgements, Equipment and service lease and Note 4, Operating profit.

During the year, a new lease contract for backup power generating equipment at Letšeng was entered into. This lease contains residual value guarantees of US$42 thousand (31 December 2021: nil) which represents the cost to decommission and return the power generating equipment to the supplier at the end of the lease term. Refer Note 9, Right-of-use assets for details on new leases entered into and leases derecognised during the year.

The Group incurred rental expenses from short-term leases of US$62 thousand (31 December 2021: nil) during the year.


		2022	2021
		US$'000	US$'000
19.	TRADE AND OTHER PAYABLES
	Non-current
	Severance pay benefits 1	2 169	2 095
	Other	-	-
		2 169	2 095

	Current
	Trade payables 2	10 888	10 778
	Accrued expenses 2	5 884	5 413
	Leave benefits	625	639
	Royalties 2	1 936	4 996
	Withholding taxes 2	230	341
	Other	145	21
		19 708	22 188

1 The severance pay benefits arise due to legislation within the Lesotho jurisdiction, requiring that two weeks of severance pay be provided for every completed year of service, payable on retirement.

2 These amounts are mainly non-interest bearing and are settled in accordance with terms agreed between the parties.

Royalties consist of a levy payable to the Government of the Kingdom of Lesotho on the value of diamonds sold by Letšeng. Withholding taxes mainly consist of taxes payable on dividends and other services to the Lesotho Revenue Authority.

The carrying amounts above approximate fair value.


		2022	2021
		US$'000	US$'000
20.	INCOME TAX (RECEIVABLE)/PAYABLE
	Reconciliation of movement in income tax (receivable)/payable
	As at 1 January	(1 191)	11 834
	Payments made during the year	(8 435)	(23 329)
	Refunds received during the year	1 187	96
	Income tax charge	6 054	10 197
	Foreign exchange differences	117	11
	As at 31 December	(2 268)	(1 191)
	Split as follows
	Income tax receivable	(2 323)	(1 232)
	Income tax payable	55	41


		2022	2021
		US$'000	US$'000
21.	PROVISIONS
	Rehabilitation provisions	15 387	11 202

	Reconciliation of movement in rehabilitation provisions
	As at 1 January - Letšeng	11 202	12 331
	Additions - Ghaghoo (Note 15)	3 654	-
	Decrease in provision - Ghaghoo	(573)	-
	Other movements - Letšeng	858	(1 345)
	Unwinding of discount rate	1 284	1 187
	Foreign exchange differences	(1 038)	(971)
	As at 31 December	15 387	11 202

Rehabilitation provisions

The provisions have been recognised as the Group has an obligation for rehabilitation of the mining areas. The provisions have been calculated based on total estimated rehabilitation costs, discounted back to their present values

over the estimated rehabilitation period at the mining operations. The pre-tax discount rates are adjusted annually and reflect current market assessments.

In determining the amounts attributable to the rehabilitation provision at Letšeng, management used a discount rate of 11.5% (31 December 2021: 9.8%), estimated rehabilitation timing of 13 years (31 December 2021: 14 years) and an inflation rate of 7.0% (31 December 2021: 5.3%). The increase in the provision at Letšeng is mainly attributable to the annual reassessment of the estimated closure costs performed at the operations together with the ongoing rehabilitation spend during the year at Letšeng.

At Ghaghoo, which continued its care and maintenance state, an independent rehabilitation assessment was performed during the year based on the rehabilitation costs of certain areas of the mine which are expected to be rehabilitated. It is anticipated that certain infrastructure, such as access roads to the mine, paving and walkways, will remain intact for use by the local communities and other government departments in the area.

In determining the amounts attributable to the rehabilitation provision at Ghaghoo, management used a discount rate of 6.0% (31 December 2021: 6.0%), estimated rehabilitation timing of 5 years (31 December 2021: 5 years) and an inflation rate of 4.8% (31 December 2021: 4.0%). The decrease in the provision at Ghaghoo is mainly attributable to the reduced rehabilitation required caused by the access road exclusion and a change in method of rehabilitating the processing waste deposit and evaporation dams, together with the ongoing rehabilitation spend during the year.


		2022	2021
		US$'000	US$'000
22.	DEFERRED TAXATION
	Deferred tax assets
	Lease liabilities	1 590	1 225
	Accrued leave	412	321
	Provisions	3 992	3 571
		5 994	5 117
	Deferred tax liabilities
	Property plant and equipment	(79 021)	(78 202)
	Right of use assets	(1 347)	(900)
	Prepayments	(84)	(188)
	Unremitted earnings	(1 578)	(3 182)
		(82 030)	(82 472)
	Net deferred tax liability	(76 036)	(77 355)

	Reconciliation of net deferred tax liability
	As at 1 January	(77 355)	(78 192)
	Movement in current period:
	- Accelerated depreciation for tax purposes	(5 321)	(4 249)
	- Accrued leave	4	(2)
	- Unremitted earnings	1 604	-
	- Prepayments	102	30
	- Provisions	779	(429)
	- Lease liabilities	459	(350)
	- Right-of-use assets	(494)	273
	- Foreign exchange differences	4 186	5 564
	As at 31 December	(76 036)	(77 355)

The Group has not recognised a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries because it is able to control the timing of dividends and only part of the temporary difference is expected to reverse in the foreseeable future. The gross temporary difference in respect of the undistributed reserves of the Group's subsidiaries for which a deferred tax liability has not been recognised is US$134.3 million (31 December 2021: US$99.5 million). The deferred tax liability on unremitted earnings is based on the timing of expected dividends from the Group's subsidiaries over the next three years. There are no income tax consequences attached to the payment of dividends by Gem Diamonds Limited to its shareholders.

22. DEFERRED TAXATION (continued)

The Group, excluding Gem Diamonds Botswana, has estimated tax losses of US$47.6 million (31 December 2021: US$40.3 million). All tax losses are generated in jurisdictions where tax losses do not expire. No deferred tax assets were recognised on these losses as management does not foresee any taxable profits or taxable temporary differences against which to utilise these.

Gem Diamonds Botswana has estimated tax losses of US$175.8 million (31 December 2021: US$173.0 million), which carry no expiry date, for which no deferred tax asset has been recognised.


			2022	2021
		Notes	US$'000	US$'000
23.	CASH FLOW NOTES
23.1	Cash generated by operations
	Profit before tax for the year		30 432	42 915
	Adjustments for:
	Depreciation and amortisation excluding waste stripping		6 588	6 927
	Depreciation on right-of-use assets	4, 9	1 818	1 685
	Waste stripping cost amortised	4	36 285	46 813
	Finance income	5	(413)	(202)
	Finance costs	5	4 502	4 165
	Unrealised foreign exchange differences		(1 911)	(2 426)
	Profit on disposal and scrapping of property, plant and equipment	3	(195)	(16)
	Gain on derecognition of leases		-	(107)
	Write-down of inventories to net realisable value		1 556	1 455
	Bonus, leave and severance provisions raised		3 182	2 284
	Share-based payments		253	397
	Impairment of assets	4, 15	702	-
	Bad debts written off		-	12
			82 799	103 902
23.2	Working capital adjustment
	Increase in inventory		(3 747)	(8 255)
	(Increase)/decrease in receivables		(1 465)	5 072
	Decrease in payables		(4 677)	(3 924)
			(9 889)	(7 107)
23.3	Cash flows from financing activities (excluding lease liabilities)
	As at 1 January		11 044	16 087
	Net cash used in financing activities		(7 734)	(7 194)
	- Financial liabilities repaid		(17 627)	(26 393)
	- Financial liabilities raised		9 893	19 199
	Interest paid		(2 263)	(1 927)
	Non-cash movements		4 898	4 078
	- Interest accrued		2 263	1 927
	- Amortisation/unwinding of facility rolling fees		284	300
	- Financial liabilities raised 1		2 654	2 082
	- Foreign exchange differences		(303)	(231)

	As at 31 December	17	5 945	11 044

1 This amount mainly relates to funding obtained for insurance premium finance. The funding was paid directly by the lender to the third party and is being repaid by the Group in monthly instalments to the lender. Refer Note 17, Interest-bearing loans and borrowings.


		2022	2021
		US$'000	US$'000
24.	COMMITMENTS AND CONTINGENCIES
	Commitments
	Mining leases
	Mining lease commitments represent the Group's future obligation arising from agreements entered into with local authorities in the mining areas that the Group operates.
	The period of these commitments is determined as the lesser of the term of the agreement, including renewable periods, or the LoM. The estimated lease obligation regarding the future lease period, accepting stable inflation and exchange rates, is as follows:
	- Within one year	187	145
	- After one year but not more than five years	847	760
	- More than five years	809	784
		1 843	1 689
	Equipment and service lease
	The Group has entered into lease arrangements for the provision of loading, hauling and other transportation services payable at a fixed rate per tonne of ore and waste mined; power generator equipment payable based on a consumption basis; and rental agreements for various mining equipment based on the fleet utilised. All lease payments relating to this lease are variable in nature. A portion of the lease payment is therefore expensed in the Consolidated statement of profit or loss and the portion relating to waste removal/stripping costs is capitalised to the waste stripping asset in the proportions referred to under the estimate and judgements applied to the Capitalised stripping costs (deferred waste). Refer Note 1.2.28, Critical accounting estimates. The terms of this lease are negotiated during the extension option periods catered for in the agreements or at any time sooner if agreed by both parties.
	- Within one year	32 645	39 290
	- After one year but not more than five years	32 514	89 241
		65 159	128 531
	Multi-aggregate protection policy
	During the prior year, the Group, through its subsidiary Letšeng entered into a LSL100.0 million (US$5.9 million) Multi-aggregate Protection Insurance Policy with the Lesotho National Insurance Group (LNIGC). The policy has a tenure of 4 years and 9 months and consists of five premium payments each payable annually in advance. On 1 August 2022 the policy was increased to LSL140.0 million (US$8.2 million) and the premium payments were increased to LSL30.0 million (US$1.8 million) for the remainder of the policy. As at 31 December 2022 the Group has committed to settle the three remaining premium payments, as well as the annual insurance risk finance service fee of 7% of the annual premium and the surplus reserve finance cost fee of 1.5% on the cumulative net premiums surplus balance carried over each year. These fees are either deductible from premium or payable upfront at the option of Letšeng. The Group has elected to deduct the fees from the annual premiums, therefore there is no additional cash commitment relating to these fees and the future cash flow commitments are stated at the future premiums payable over the remaining insurance period. Refer Note 12, Receivables and other assets for further detail on the policy.
	- Within one year	1 763	1 253
	- After one year but not more than five years	3 526	3 759
		5 289	5 012
	Letšeng Diamonds Educational Fund
	In terms of the mining agreement entered into between the Group and the Government of the Kingdom of Lesotho, the Group has an obligation to provide funding for education and training scholarships. The quantum of such funding is at the discretion of the Letšeng Diamonds Education Fund Committee.
	- Within one year	68	54
	- After one year but not more than five years	103	64
		171	118
	Capital expenditure
	Approved but not contracted for	8 676	19 335
	Approved and contracted for	5 999	855
		14 675	20 190

The main capital expenditure approved relates to the Underground Feasibility Study of US$4.5 million and the balance of the investment in the new PCA at Letšeng of US$2.6 million (31 December 2021: US$15.0 million). Other smaller capital expenditure, all at Letšeng, relates to the construction of a bioremediation plant of US$1.6 million, investment in

continued tailings storage extension of US$1.1 million (31 December 2021: US$1.3 million) and the replacement of the Plant 1 scrubber of US$1.0 million. The expenditure is expected to be incurred over the next 12 months.

Contingent rentals - Alluvial Ventures

The contingent rentals represent the Group's obligation to a third party (Alluvial Ventures) for operating a third plant on the Group's mining property at Letšeng Diamonds. The rental is determined when the actual diamonds mined by Alluvial Ventures are sold. The agreement is based on 39.5% to 60% (2021: 39.5% to 60%) of the value (after costs) of the diamonds recovered by Alluvial Ventures and is limited to US$1.4 million (2021: US$1.4 million) per individual diamond. The Alluvial Ventures contract expired at the end of June 2022 and all liabilities settled. There was therefore no contingent rental at the reporting date.

Contingencies

The Group has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation of commercial arrangements and applicable legislation in the countries where the Group has operations. In certain specific transactions, however, the relevant third party or authorities could have a different interpretation of those laws and regulations that could lead to contingencies or additional liabilities for the Group. Having consulted professional advisers, the Group has identified possible disputes approximating US$0.3 million (December 2021: US$0.2 million) relating mainly to labour matters.

The Group monitors possible tax claims within the various jurisdictions in which the Group operates. Management applies judgement in identifying uncertainties over tax treatments and concluded that there were no uncertain tax treatments relating to the current year. Refer Note 1.2.28, Critical accounting estimates and judgements. There remains a risk that further tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in some cases, the Group does not anticipate that there will be any material impact on the Group's results, financial position or liquidity.


25.	RELATED PARTIES
	Related party	Relationship
	Jemax Management (Proprietary) Limited	Common director
	Government of the Kingdom of Lesotho	Non-controlling interest

Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.


	2022	2021
	US$'000	US$'000
Compensation to key management personnel (including Directors)
Share-based equity transactions	204	248
Short-term employee benefits	3 874	4 500
Post-employment benefits (including severance pay and pension)	203	152
	4 281	4 900
Fees paid to related parties
Jemax Management (Proprietary) Limited	(84)	(93)
Royalties paid to related parties
Government of the Kingdom of Lesotho	(18 869)	(20 214)
Lease and licence payments to related parties
Government of the Kingdom of Lesotho	(38)	(70)
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited	(5)	(6)
Non-executive director	-	11
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited	(7)	(8)
Amounts owing to related party
Government of the Kingdom of Lesotho	(2 163)	(5 337)
Dividends declared
Government of the Kingdom of Lesotho	(10 549)	(3 890)

Jemax Management (Proprietary) Limited provided administrative services with regards to the mining activities undertaken by the Group. A controlling interest is held by an Executive Director of the Company.

The transaction relating to the non-Executive Director in the prior year was for the sale of a polished diamond. All proceeds were received prior to the previous year end.

The above transactions were made on terms agreed between the parties and were made on terms that prevail in arm's length transactions.

26. FINANCIAL RISK MANAGEMENT

Financial risk factors

The Group's activities expose it to a variety of financial risks:

· market risk (including commodity price risk, foreign exchange risk and interest rate risk);

· credit risk; and

· liquidity risk.

The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

Risk management is carried out under policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.

There have been no changes to the financial risk management policy since the prior year.

Capital management

For the purpose of the Group's capital management, capital includes the issued share capital, share premium and liabilities on the Group's statement of financial position. The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may issue new shares, buy back its shares, or restructure its debt facilities. The management of the Group's capital is performed by the Board.

The Group's capital management, among other things, aims to ensure that it meets financial covenants attached to its interest-bearing loans and borrowings. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches of the financial covenants in the current year.

At 31 December 2022, the Group had US$82.6 million (31 December 2021: US$74.3 million) of undrawn debt facilities and continues to have the flexibility to manage the capital structure more efficiently by the use of these debt facilities, thus ensuring that an appropriate gearing ratio is achieved.

Refer Note 17, Interest-bearing loans and borrowings for detail on the debt facilities within the Group.

a) Market risk

(i) Commodity price risk

The Group is subject to diamond price risk. Diamonds are not homogeneous products and the price of rough diamonds is not monitored on a public index system. The fluctuation of prices is related to certain features of diamonds such as quality and size. Diamond prices are marketed in US dollar and long-term US dollar per carat prices are based on external market consensus forecasts. The Group does not have any financial instruments that may fluctuate as a result of commodity price movements.

(ii) Foreign exchange rate risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Lesotho loti, South African rand and Botswana pula. Foreign exchange risk arises when future commercial transactions, recognised assets and liabilities are denominated in a currency that is not the entity's functional currency.

The Group's sales are denominated in US dollar which is the functional currency of the Company, but not the functional currency of all its operations.

The currency sensitivity analysis below is based on the following assumptions:

· Differences resulting from the translation of the financial statements of the subsidiaries into the Group's presentation currency of US dollar, are not taken into consideration;

· The major currency exposures for the Group relate to the US dollar and local currencies of subsidiaries. Foreign currency exposures between two currencies where one is not the US dollar are deemed insignificant to the Group and have therefore been excluded from the sensitivity analysis; and

· The analysis of the currency risk arises because of financial instruments which are denominated in a currency that is not the functional currency of the relevant Group entity. The sensitivity has been based on financial assets and liabilities at 31 December 2022 and 31 December 2021.

There has been no change in the assumptions or method applied from the prior year.

Sensitivity analysis

At year-end, Letšeng had only US$40.4 thousand (2021: US$22.1 million) cash on hand held in US$. If the US dollar had appreciated/(depreciated) by 10% against the LSL, the Group's profit before tax and equity at 31 December 2022 would have been US$3.4 thousand higher/(lower) (31 December 2021: US$2.4 million).

(iii) Forward exchange contracts

From time to time, the Group enters into forward exchange contracts to hedge the exposure to changes in foreign currency of future sales of diamonds at Letšeng Diamonds. The Group performs no hedge accounting. At 31 December 2022, the Group had no forward exchange contracts outstanding (31 December 2021: nil).

(iv) Interest rate risk

The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's cash flow interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash

flow interest rate risk. At the time of taking new loans or borrowings, management uses its judgement to decide whether it believes that a fixed or variable rate borrowing would be more favourable to the Group over the expected period until maturity.

Sensitivity analysis

If the interest rates on the interest-bearing loans and borrowings (increased)/decreased by 100 basis points (2021: 80 basis points) during the year, profit before tax and equity would have been US$0.1 million (lower)/higher 31 December 2021: US$0.1 million). The assumed movement in basis points is based on the currently observable market environment, with eased COVID-19 impact, which has increased interest rates compared to the prior year, and also assumed a continued impact on rising interest rates caused by the Russian invasion of Ukraine.

(b) Credit risk

The Group's potential concentration of credit risk consists mainly of cash deposits with banks, trade receivables, insurance asset and other receivables. The Group's short-term cash surpluses are placed with banks that have investment grade ratings, to minimise the exposure to credit risk to the lowest level possible from the perspective of the Group's cash and cash equivalents. The maximum credit risk exposure relating to financial assets is represented by their carrying values as at the reporting dates.

The Group considers the credit standing of counterparties when making deposits to manage the credit risk.

Considering the nature of the Group's ultimate customers and the relevant terms and conditions entered into with such customers, the Group believes that credit risk is limited as the customers pay and settle their accounts on the date of receipt of goods.

The Group's insurance premiums are placed with insurers and underwriters that have high-quality credit standings, to minimise the exposure to credit risk to the lowest level possible from the perspective of the Group's insurance asset.

No other financial assets are impaired or past due and accordingly, no additional ECL or credit risk analysis has been provided.

The Group did not hold any form of collateral or credit enhancements for its credit exposures during the 31 December 2022 and 31 December 2021 financial reporting periods.

Liquidity risk arises from the Group's inability to obtain the funds it requires to comply with its commitments including the inability to realise a financial asset in a short period of time at a price close to its fair value. Management manages the risk by maintaining sufficient cash and marketable securities and ensuring access to financial institutions and shareholding funding. This ensures flexibility in maintaining business operations and maximises opportunities. The Group has available undrawn debt facilities of US$82.6 million at year end (2021: US$74.3 million

The table below summarises the maturity profile of the Group's financial liabilities at 31 December based on contractual undiscounted payments. The prior period excludes the liabilities directly associated with assets held for sale:


	2022	2021
	US$'000	US$'000
Floating interest rates
Interest-bearing loans and borrowings
- Within one year	2 317	2 758
- After one year but not more than five years	8 805	8 856
Total	11 122	11 614
Lease liabilities
- Within one year	2 332	1 459
- After one year but not more than five years	6 161	4 282
- After five years	448	-
Total	8 941	5 741
Trade and other payables
- Within one year	19 708	22 188
- After one year but not more than five years	2 169	2 095
Total	21 877	24 283


		2022	2021*
		US$'000	US$'000
27.	SHARE-BASED PAYMENTS
	The expense recognised for employee services received during the year is shown in the following table:
	Equity-settled share-based payment transactions charged to the statement of profit or loss	253	397

The long-term incentive plans are described below:

Long-term incentive plan (LTIP)

Certain key employees are entitled to a grant of options, under the LTIP of the Company. The vesting of the options is dependent on employees remaining in service for a prescribed period (normally three years) from the date of grant. The fair value of share options granted is estimated at the date of the grant using an appropriate simulation model, taking into account the terms and conditions upon which the options were granted. It takes into account projected dividends and share price fluctuation co-variances of the Company.

There is a nil exercise price for the options granted. The contractual life of the options is 10 years and there are no cash settlement alternatives. The Company has no past practice of cash settlement.

The Company's LTIP policy is reviewed every 10 years.

LTIP 2007 Award

Under the 2007 LTIP rules, there are three awards where options are still outstanding.

All these awards were awarded on the following basis:

To key employees (excluding Executive Directors):

· the awards vest over a three-year period in tranches of a third of the award each year;

• the vesting of the award is dependent on service conditions and certain performance targets being met for the same three-year period (classified as non-market conditions). These non-market condition awards are referred to as Nil Value options in the tables below;

· if the performance or service conditions are not met, the options lapse;

· the performance conditions relating to the non-market conditions are not reflected in the fair value of the award at grant date;

· once the awards vest, they are exercisable for seven years (ie contractual term is 10 years); and

· the vested awards are equity settled.

To Executive Directors:

· the awards vest over a three-year period;

· the vesting of the award is dependent on service conditions and both market and non-market performance conditions;

· 75% of the awards granted are subject to non-market conditions (referred to as Nil Value options in tables below) and 25% to market conditions (referred to as Market Value options in tables below) by reference to the Company's total shareholder return (TSR) as compared to a group of principal competitors;

· if the performance or service conditions are not met, the options lapse;

· the performance conditions relating to the non-market conditions are not reflected in the fair value of the award at grant date;

· once the awards vest, they are exercisable for seven years (ie contractual term is 10 years); and

· the vested awards are equity settled.

The fair value of the Nil value awards is based on the observable Gem Diamonds Limited share price on the date of award with no adjustments to the price made.

The following table reflects details of all the awards within the 2007 LTIP that remain outstanding:


	LTIP	LTIP	LTIP
	March	April	March
	2016	2015	2014
Number of options granted - Nil value	1 215 000	1 215 000	625 000
Number of options granted - Market value	185 000	185 000	-
Date exercisable	15 March 2019	1 April 2018	19 March 2017
Options outstanding	34 287	5 000	5 000
Dividend yield (%)	2.00	2.00	-
Expected volatility (%) 1	39.71	37.18	-
Risk-free interest rate (%) 2	0.97	1.16	-
Expected life of option (years)	3.00	3.00	3.00
Exercise price (US$)	nil	nil	nil
Exercise price (GBP)	nil	nil	nil
Weighted average share price (US$)	1.56	2.10	2.87
Fair value of nil value options (US$)	1.40	1.97	2.87
Fair value of nil value options (GBP)	0.99	1.33	1.74
Fair value of market value options (US$)	0.69	1.18	-
Fair value of market value options (GBP)	0.49	0.80	-
Model used	Monte Carlo	Monte Carlo	-

1 Expected volatility was based on the average annual historic volatility of the Company's share price over the previous three years.

2 The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.

LTIP 2017 Award

Under the 2017 LTIP rules, there are five awards where options are still outstanding.

All the awards were issued on the same basis as the 2007 LTIP.

LTIP 2017 Award - April 2022

On 4 April, 165 930 nil-cost options were granted to certain key employees of the Company. In addition, 841 168 nil-cost options were granted to certain executive employees and the Executive Directors on the same basis as the 2007 LTIP. These options were granted in line with the introduction of the Gem Diamonds Incentive Plan (GDIP) in the prior year, which integrates annual bonus awards with awards under the LTIP. The options, which vest in tranches of one-third per annum commencing on 4 April 2023, are exercisable between the respective vesting dates and 3 April 2032. The fair value of these awards is based on the observable Gem Diamonds Limited share price on the date of award with no adjustments to the price made.

This new award was made under predominantly the same basis as the 2007 LTIP, with the following differences:

To key employees (excluding Executive Directors):

· the number of awards granted are determined on the Group's performance in the preceding financial year in terms of the Gem Diamonds Incentive Plan (GDIP) introduced in 2021;

· the vesting of the award is dependent only on service conditions. There are no future performance conditions attached to the award;

· if the service conditions are not met, the options lapse;

· the fair value of the awards is based on the observable Gem Diamonds Limited share price on the date of award with no adjustments to the price made; and

· the awards are subject to malus and clawback.

· To Executive Directors as a bonus share award:

· the number of awards granted are determined on the Group's performance in the preceding financial year in terms of the Gem Diamonds Incentive Plan (GDIP) introduced in 2021;

· the vesting of the award is dependent only on service conditions. There are no future performance conditions attached to the award;

· if the service conditions are not met, the options lapse;

· the fair value of the awards is based on the observable Gem Diamonds Limited share price on the date of award with no adjustments to the price made;

· the awards have a two-year holding period from the respective vesting dates and are exercisable for 10 years from the award date; and

· the awards are subject to malus and clawback.

The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:


	LTIP	LTIP	LTIP	LTIP	LTIP
	April	June	March	March	July
	2022	2020	2019	2018	2017
Number of options granted - Nil value	1 007 098	1 069 000	1 160 500	1 265 000	1 150 000
Number of options granted - Market value	-	180 000	142 500	185 000	185 000
Date exercisable	4 April 2023	9 June 2023	20 March 2022	20 March 2021	4 July 2020
Options outstanding	994 308	1 023 061	278 679	249 799	58 642
Dividend yield (%)	-	-	-	-	2.00
Expected volatility (%) 1	n/a	47.00	43.00	40.00	40.21
Risk-free interest rate (%) 2	n/a	0.34	1.20	1.20	0.67
Expected life of option (years)	3.00	3.00	3.00	3.00	3.00
Exercise price (US$)	nil	nil	nil	nil	nil
Exercise price (GBP)	nil	nil	nil	nil	nil
Weighted average share price (US$)	0.74	0.39	1.20	1.35	1.24
Fair value of nil value options (US$)	0.74	0.39	1.20	1.35	1.11
Fair value of nil value options (GBP)	0.58	0.31	0.90	0.96	0.86
Fair value of market value options (US$)	-	0.19	0.58	0.74	0.72
Fair value of market value options (GBP)	-	0.15	0.44	0.53	0.56
Model used	n/a	Monte Carlo	Monte Carlo	Monte Carlo	Monte Carlo

1 Expected volatility was based on the average annual historic volatility of the Company's share price over the previous three years.

2 The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.

The following table illustrates the number ('000) and movement in the outstanding share options during the year:


	2022	2021
	US$'000	US$'000
Outstanding as at 1 January	2 453	3 887
Granted during the year	1 007	-
Exercised during the year 1	(394)	(855)
Forfeited	(418)	(579)
As at 31 December	2 648	2 453
Exercisable as at 31 December	635	454

1 Options were exercised regularly throughout the year. The weighted average share price during the year was £0.45 (US$0.55) (2021: £0.60 (US$0.83)).

The weighted average remaining contractual life for the share options outstanding as at 31 December 2022 was 7.6 years (2021: 7.5 years).

The weighted average fair value of the share options outstanding as at 31 December 2022 was US$0.48 (2021: US$0.65).

ESOP

In September 2017, 47 200 shares which were previously held in the Company Employee Share Trust were granted to certain key employees involved in the Business Transformation of the Group. The Company Employee Share Trust was deregistered in 2017 following the grant of these shares. The fair value of the award was valued at the share price of the Company at the date of the award of £0.71 (US$0.96). These shares vested on 18 March 2019 and became immediately exercisable. The fair value of these outstanding awards at 31 December 2022 was £0.33 (US$0.39) (2021: £0.47 (US$0.65)). The shares outstanding at the end of the

year are as follows:


	2022	2021
	US$'000	US$'000
Outstanding as at 1 January	10	17
Exercised during the year	-	(7)
As at 31 December	10	10
Exercisable as at 31 December	10	10

28. FINANCIAL INSTRUMENTS

Set out below is an overview of financial instruments, other than the current portions of the prepayment disclosed in Note 12, Receivables and other assets, which do not meet the criteria of a financial asset.


		2022	2021
	Notes	US$'000	US$'000
Financial assets at amortised cost
Cash	14	8 721	30 913
Cash - assets held for sale	15	-	144
Receivables and other assets	12	6 421	4 398
Receivables and other assets - assets held for sale	15	-	45
Total		15 142	35 500
Total non-current		2 916	1 278
Total current		12 226	34 222
Financial liabilities at amortised cost
Interest-bearing loans and borrowings	17	5 945	11 044
Trade and other payables	19	21 877	24 279
Trade and other payables - liabilities directly associated with assets held for sale	15	-	446
Total		27 822	35 769
Total non-current		6 539	10 435
Total current		21 283	25 334

The carrying amounts of the Group's financial instruments held approximate their fair value.

There were no open hedges at year end (2021: nil).


		2022	2021
		US$'000	US$'000
29.	DIVIDENDS DECLARED AND PROPOSED
	Declared dividends on ordinary shares
	Final ordinary cash dividend for 2021: 2.7 US cents per share (2020: 2.5 US cents per share)	3 771	3 509

The 2021 proposed dividend was approved on 8 June 2022 and a final cash dividend of 2.7 US cents per share was paid to shareholders on 21 June 2022.

The 2020 proposed dividend was approved on 2 June 2021 and a final cash dividend of 2.5 US cents per share was paid to shareholders on 15 June 2021.

30. EVENTS AFTER THE REPORTING PERIOD

No other fact or circumstance has taken place between the end of the reporting period and the approval of the financial statements which, in our opinion, is of significance in assessing the state of the Group's affairs or requires adjustments or disclosures.

31. MATERIAL PARTLY OWNED SUBSIDIARY

Financial information of Letšeng Diamonds, a 70% held subsidiary which has a material non-controlling interest, with the remaining 30% being held by the Government of the Kingdom of Lesotho, is provided below.


		2022	2021
		US$'000	US$'000
Name	Country of incorporation and operation
Letšeng Diamonds (Proprietary) Limited	Lesotho
Accumulated balances of material non-controlling interest		69 822	76 845
Profit allocated to material non-controlling interest		9 786	12 458
The summarised financial information of this subsidiary is provided below. This information is based on amounts before intercompany eliminations.
Summarised statement of profit or loss for the year ended 31 December
Revenue		186 087	198 510
Cost of sales		(123 793)	(120 751)
Gross profit		62 294	77 759
Royalties and selling costs		(19 571)	(20 879)
Other income		2 133	1 110
Operating profit		44 856	57 990
Net finance costs		(2 590)	(2 470)
Profit before tax		42 266	55 520
Income tax expense		(9 647)	(13 993)
Profit for the year		32 619	41 527
Total comprehensive income		32 619	41 527
Attributable to non-controlling interest		9 786	12 458
Dividends paid to non-controlling interest		(10 549)	(6 685)
Summarised statement of financial position as at 31 December
Assets
Non-current assets
Property, plant and equipment, deferred tax assets, intangible assets and receivables and other assets		317 550	313 028
Current assets
Inventories, receivables and other assets, and cash and short-term deposits		39 231	61 455
Total assets		356 781	374 483
Non-current liabilities
Interest-bearing loans and borrowings, trade and other payables, provisions, lease liabilities and deferred tax liabilities		104 118	95 261
Current liabilities
Interest-bearing loans and borrowings, trade and other payables and lease liabilities		19 923	23 072
Total liabilities		124 041	118 333
Total equity		232 740	256 150
Attributable to:
Equity holders of parent		162 918	179 305
Non-controlling interest		69 822	76 845
Summarised cash flow information for the year ended 31 December
Operating cash inflows		74 793	77 824
Investing cash outflows		(59 928)	(68 655)
Financing cash outflows		(36 387)	(30 582)
Foreign exchange differences		(475)	1 271
Net decrease in cash and cash equivalents		(21 997)	(20 142)

REPORT ON PAYMENTS TO GOVERNMENTS

INTRODUCTION

This report provides an overview of the payments made to governments by Gem Diamonds Limited and its subsidiaries (the Group) for the 31 December 2022 financial year, as required under the UK Report on Payments to Governments Regulations 2014 (as amended December 2015). These UK Regulations enact domestic rules in line with Directive 2013/34/EU (the EU Accounting Directive 2013) and apply to companies that are involved in extractive activities.

This report is also filed with the National Storage Mechanism intended to satisfy the requirements of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in the UK.

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.

BASIS FOR PREPARATION

Reporting entities

This report includes payments to governments made by subsidiaries in the Group that are engaged in extractive activities. During the 2022 financial year, extractive activities were conducted in Lesotho while the operation in Botswana was under care and maintenance. All payments made in relation to the Botswana entity were under the materiality level and therefore not reported.

Extractive activities

E xtractive activities relate to the exploration, prospection, discovery, development and extraction of minerals, oil, natural gas deposits or other materials. Gem Diamonds Limited, through its subsidiaries, is engaged in diamond mining activities.

Scope of payments

The report discloses only those significant payments made to governments arising from extractive activities.

Government

Government includes any national, regional, or local authority of a country. It includes a department, agency or undertaking (ie corporation) controlled by that authority.

Payment types disclosed at legal entity level

Production entitlements

There were no payments of this nature for the year ended 31 December 2022.

Taxes

These are payments on the entity's income, production, or profits, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes in line with in-country legislation.

Royalties

These are payments for the right to extract diamonds and are determined on percentage of sales in terms of in-country legislation and/or mining lease agreements.

Dividends

These are dividend payments, other than dividends paid to a government as an ordinary shareholder of an entity unless paid in lieu of production entitlements or royalties. There were no dividend payments of this nature to governments for the year ended 31 December 2022.

Signature, discovery, and production bonuses

There were no payments of this nature to governments for the year ended 31 December 2022.

Licence fees

These are fees paid for acquisition of leases and licences, including annual renewal fees, in order to obtain and maintain access to the areas in which extractive activities are performed.

Payments for infrastructure improvements

There were no payments of this nature to governments for the year ended 31 December 2022.

Cash flow basis

Payments reported are on a cash flow basis and may differ to amounts reported in the Gem Diamonds Limited 2022 Annual Report and Accounts, which are prepared on an accrual basis.

Materiality level

In line with the guidance provided in the Report on Payments to Governments Regulations, payments made as a single payment, or as a series of related payments, which are equal to or exceed US$103 450 (£86 000), are disclosed in this report. All payments below this threshold have been excluded.

Reporting currency

The payments to government have been reported in US dollar.

Payments made in currencies other than US dollar were translated at the relevant annual average exchange rate for the year ended 31 December 2022.

Summary report


Operation	Country	Taxes US$'000	Royalties US$'000	Licence fee US$'000	Total US$'000
Letšeng Diamonds (Proprietary) Limited	Lesotho	6 944	21 728	156	28 828
Total		6 944	21 728	156	28 828

Lesotho Letšeng Diamonds (Proprietary) Limited		Taxes US$'000	Royalties US$'000	Licence fee US$'000	Total US$'000
Lesotho Revenue Authority		6 944	-	-	6 944
Government of the Kingdom of Lesotho		-	21 728	156	21 884

Other

Other than the taxes, royalties and licence fees disclosed above, there were no other payments to governments for the year ended 31 December 2022, but Letšeng Diamonds (Proprietary) Limited (a subsidiary of Gem Diamonds Limited) has a mining contract (which has been in place since 2006), with Matekane Mining Investment Corporation. This contract is due to expire in October 2024 under current terms. Letšeng Diamonds (Proprietary) Limited understands that Matekane Mining Investment Corporation is wholly or majority indirectly owned and controlled by Ntsokoane Samuel Matekane, who became Prime Minister of the Kingdom of Lesotho in October 2022.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.

END

FR GPURWWUPWUQQ

Gem Diamonds Ltd. (DI) (GEMD)

Friday, 20th December 2024

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1. Availability and sustainability of reliable power supply

Risk: Poor quality of power supply reduces the available processing time and negatively influences the reliability and stability of plant equipment. Regular power interruptions result in higher generator use and compound the impact of escalated diesel prices and time between failures, which in turn increases operating costs.

Opportunity: Improved efficiencies, reduced costs and decarbonisation benefits.

Risk response:

• Exploring solutions with the Lesotho Electricity Company (LEC) for grid and/or renewable power

• Initiated power usage option study

• Assessing potential to generate renewable energy for own use

• Established an Energy and Decarbonisation Committee

• Prioritisation of load and allocation of power

• Identification and implementation of consumption reduction initiatives

Risk type: Strategic, operational and external

Strategic impact: Extracting Maximum Value from Our Operations

Preparing for Our Future

Working Responsibly and Maintaining Our Social Licence

Business model impact:

Affects the entire business model.

2. Diamond
resources and reserves

Risk: Letšeng's low-grade orebodies make the operation sensitive to resource variability. Inconclusive information on the geological continuity, distribution, grade and quality of diamonds within the orebodies and variability at depth increases the risk that production targets will not be achieved and reduces confidence in the performance of the resource. Unexpected variability in key resource/reserve criteria, such as volume, tonnage, grade and price, can significantly impact mine planning, forecasting and financial stability, both in the short and medium term, and can influence decisions regarding future growth.

Related opportunity: Having access to adequately detailed and reliable exploration, sampling and testing data enables the operation to reasonably estimate geological, grade and quality continuity within defined domains, and improves planning and forecasting accuracy.

Risk response:

• Gathering geological evidence on variations within the resource (lithology, density, volume/tonnage, grade, diamond population size and value distribution), applying industry best practice and engaging independent experts to audit and provide advice

• Ongoing pit mapping, petrography, drilling and 3D modelling

• Grade control, bulk sampling, density and moisture content measurements (on-site and independent lab verification), dilution control, stockpile management, data management, quality control and internal auditing of production data (including geological, processing, recovery and sales data)

• Managing the Diamond Accounting System and Mineral Resource Management (MRM) database, monitoring recovery data on a daily and monthly basis, as well as per export period, to follow trends in diamond distributions, large stone recovery frequencies and average diamond prices per kimberlite domain

Risk type: External and operational

Strategic impact:

Extracting Maximum Value from Our Operations

Preparing for Our Future

Business model impact:

Affects natural capital inputs and outputs of carats recovered. Life of mine affects the long-term viability of the business model.

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