Half Year 2017 results

RNS Number : 2169O

Gem Diamonds Limited

17 August 2017

Gem Diamonds Limited (LSE: GEMD) (Gem Diamonds, the Company or the Group) today announces its half-year results for the six months ended 30 June 2017 (H1 2017 or the Period).

FINANCIAL RESULTS:

· Revenue US$92.9 million (US$109.1 million in H1 2016)

· Underlying EBITDA US$13.0 million (US$43.5 million in H1 2016)

· Attributable net profit, before exceptional items US$49k (US$13.4 million attributable net profit, before exceptional items, in H1 2016)

· Basic earnings per share 0.04 US cents before exceptional items (Basic earnings per share 9.70 US cents before exceptional items in H1 2016)

· Cash on hand US$20.0 million

OPERATIONAL RESULTS:

LETŠENG:

· Waste tonnes mined of 15.0 million (15.3 million tonnes in H1 2016)

· Ore treated of 3.2 million (3.3 million tonnes in H1 2016)

· Carats recovered of 50 478 (57 380 carats in H1 2016)

· Grade recovered of 1.59cpht (1.72cpht in H1 2016)

· Rough tender revenue of US$88.8 million (US$106.2 million in H1 2016)

· Average price of US$ 1 779 per carat achieved (US$1 899 per carat in H1 2016)

· Recovered four diamonds greater than 100 carats

GHAGHOO:

· Operation placed on Care and Maintenance on 31 March 2017

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

"The improvement in the greater than 100 carat diamond recoveries at Letšeng is encouraging with the US$ per carat achieved trending positively at US$1 779, up 20% from US$1 480 in H2 2016. The latest sale in July achieved US$2 385 per carat. The updated life of mine plan was implemented during the Period with the objective of reducing waste tonnes mined and improve near term cash flows, and mining progressed well against this plan during the Period.

At Ghaghoo, the mine was successfully placed on care and maintenance during the Period which will result in further cost optimisation during the remainder of the year. Shareholders are advised that an offer to acquire 100% of the Ghaghoo asset has been received and the Board is considering the offer.

The cost reduction and transformation programme is firmly underway and at this early stage US$15 million of annualised efficiency and cost reduction initiatives have already been identified for implementation from October 2017."

The Company will host a live audio webcast presentation of the half year results today, 17 August 2017, at 09:30 BST. This can be viewed on the Company's website:www.gemdiamonds.com

This announcement contains inside information for the purpose of Article 7 of Regulation (EU) No596/2014.

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.

FOR FURTHER INFORMATION:

Gem Diamonds Limited

ir@gemdiamonds.com

Celicourt Communications

Mark Antelme / Jimmy Lea
Tel: +44 (0) 207 520 9265

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 and 100% of the Ghaghoo mine in Botswana. 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. The Ghaghoo mine in Botswana has been placed on care and maintenance until market conditions allow for recommencement of production.

www.gemdiamonds.com

Interim Business Review

The first half of 2017 (the Period), saw an improvement in the recovery of large diamonds at the Letšeng mine with four diamonds greater than 100 carats being recovered during the Period. The demand for Letšeng's high-value diamonds remained firm, achieving an average price of US$1 779* per carat during the Period. This average price is 20% higher than that achieved for the prior six-month period (H2 2016) of US$1 480*.

Letšeng successfully implemented an updated Life of Mine plan during the Period which is designed to reduce waste mined and improve near term cash flows. Mining progressed well during the Period and is in line with this mine plan. During the Period, construction of the relocated mining complex, which is financed through bank funding, commenced. Construction progressed well and is expected to be completed in early 2018, on time and on budget. Following the disbandment of the Lesotho Parliament in early 2017, peaceful elections were concluded in June when a new government was elected. Initial engagement with the new government has commenced positively with the aim of developing effective relationships.

In February 2017, the Board decided to place the Ghaghoo mine on care and maintenance to preserve the value of the asset while continuing to monitor viable options for the mine. This decision was based on the decrease in the prices achieved for its diamonds from US$ 210 per carat in early 2015 to US$ 142 per carat at its sale in December 2016, reflecting the weak state of the diamond market for this category of diamonds. The care and maintenance status was successfully achieved during the Period, in line with management's objective to maintain the asset as a going concern. The planned annual care and maintenance cost of US$3.0 million is expected to be achieved in H2 2017.

As part of the Group's cash preservation focus, a Group-wide cost efficiency and bench-marking review has commenced and has already identified opportunities that are being actively pursued.

The Group ended the Period with a cash balance of US$20.0 million which included utilised facilities of US$34.2 million, resulting in a net debt position of US$14.2 million and unutilised facilities of US$36.2 million. Subsequent to Period end, the Group successfully restructured its existing US$35.0 million Revolving Credit Facility at the corporate office into a new US$45.0 million facility with a tenure of 3.5 years, thereby increasing the current available facilities to US$45.1 million.

During the Period, Roger Davis stepped down as Chairman of the Group and was succeeded by Harry Kenyon-Slaney who was appointed to as Chairman to the Board on 6 June 2017. Harry's wide-ranging experience, knowledge and contacts in the diamond mining industry are perfectly suited to lead Gem Diamonds forward. During the Period, the Letšeng Chief Executive Officer, Ms. Mazvi Maharasoa, retired from the organisation after 10 years of diligent service. As part of the restructuring following her retirement, a new Chief Operating Officer, Jeremy Taylor, has been appointed. Jeremy brings to Letšeng a wealth of experience that will drive Letšeng's focus on improving operational excellence.

Diamond market

The global market for both rough and polished diamonds remained cautious. Financing challenges persist and the volatile macro-economic environment continues to create challenges for the middle diamond market. In the medium to long term, rough diamond prices are expected to be supported by favourable demand/supply fundamentals, which are underpinned by a continued growth in demand from emerging markets coupled with a limited growth in supply.

Against this background, Letšeng's large, high quality goods continued to perform well, as demonstrated by the price achieved for an exceptional high-value 8.65 carat pink diamond which was sold for US$164 855 per carat, the sixth highest single diamond per carat value achieved at Letšeng. In addition, one of the large high value white diamonds achieved the highest price per carat for a Letšeng white diamond since February 2016. A moderate increase was also seen in the prices achieved for certain categories of the smaller goods.

Health, safety, corporate social responsibility and environment (HSSE)

The Group remains committed to its goal of zero harm to its people and the environment and strives to achieve its operational goals within its sustainable development framework. The Group reports a fatality and lost time injury (LTI) free Period, resulting in a Group-wide lost time injury frequency rate (LTIFR) of 0.00. The Group-wide all injury frequency rate (AIFR) is 1.69 for the Period. No major or significant environmental or stakeholder incidents were reported over the Period and the Group continues to work closely with project affected communities to implement sustainable community projects.

^{* Includes carats extracted for manufacturing at rough valuation}

Operating review: Letšeng

Sustainability overview

· Zero LTI's

· LTIFR 0.00

· AIFR 1.67

· Zero major or significant stakeholder and environmental incidents

Operational overview

· Waste tonnes mined of 15.0 million (15.3 million tonnes in H1 2016)

· Ore treated of 3.2 million (3.3 million tonnes in H1 2016)

· Carats recovered of 50 478 (57 380 carats in H1 2016)

· Grade recovered of 1.59cpht (1.72cpht in H1 2016)

· Rough tender revenue of US$88.8 million* (US$106.2 million* in H1 2016)

· Average price of US$ 1 779* per carat achieved (US$1 899* per carat in H1 2016)

· Recovered four diamonds greater than 100 carats

^{* Includes carats extracted for manufacturing at rough valuation}

Operational performance

	H1 2017	H1 2016
Waste mined (tonnes)	15 004 160	15 287 897
Ore treated (tonnes)	3 178 631	3 336 300
Carats recovered	50 478	57 380
Grade recovered (cpht)	1.59	1.72
Carats sold	49 930	55 948
Average price per carat (US$)*	1 779	1 899

^{* Includes carats extracted for manufacturing at rough valuation}

Gem Diamonds owns 70% of Letšeng Diamonds (Letšeng) in partnership with the government of the Kingdom of Lesotho, which owns the remaining 30%. Letšeng was acquired in July 2006. The Letšeng mine, famous for its exceptional top-quality diamonds and having the highest proportion of large, high-value diamonds, is the highest average dollar per carat kimberlite diamond mine in the world.

Letšeng started mining in line with its updated mine plan during the Period with the aim to reduce and smooth the waste profile over the remaining Life of Mine. This plan had a material positive impact on the maximum annual volumes of waste stripping, improving near term cash flows. The deferral of waste resulted in a reduction of mining cash costs amounting to LSL100 million (US$7.6 million) for 2017.

Letšeng treated a total of 2.6 million tonnes of ore through its two main plants during the Period, of which 69% was sourced from the Main pipe, and 31% from the Satellite pipe. Alluvial Ventures, who operate a third plant at Letšeng, treated the balance of 0.6 million tonnes in the Period, 71% of which was sourced from the Main pipe and 29% from ore stockpiles. The contract with Alluvial Ventures was extended for a further two years, to the end of 2018.

The lower than planned ore tonnes treated during the Period was due to reduced plant availability and downtime associated with the installation and commissioning of the split front-ends for Plants 1 and 2. The availability issues have largely been addressed by mine management and the processing contractor. A significant amount of time and resources were utilised in addressing these issues and as a consequence, availability of both plants have improved towards the end of the Period.

The project to split the front ends of both plants was completed in March 2017, on time and within budget, resulting in the following benefits:

· Increased ability to set up the individual plants to treat specific material;

· Improved understanding of the performance of each plant depending on the material being treated; and

· Improved understanding of diamond damage related issues, specific to each plant.

During the Period, 50 478 carats were recovered (12% lower than H1 2016), primarily due to lower tonnages treated and lower grades recovered. The recovered grade for the Period was 1.59 carats per hundred tonnes (cpht) against an expected reserve grade of 1.63 cpht. The lower than expected grade was mainly due to the underperformance of the Main pipe contact material and internal changes in the geology of this pipe.

Recovery of large diamonds has improved, with four greater than 100 carat diamonds and two exceptional D-colour Type IIa diamonds of 98.42 and 80.58 carats being recovered during the Period. The table below shows the frequency of large diamonds recovered in the Period compared to prior years.

Frequency of recovery of large diamonds

	2008	2009	2010	2011	2012	2013	2014	2015	2016	H1 2017
Number of diamonds
>100 carats	7	6	7	6	3	6	9	11	5	4
60-100 carats	18	11	11	22	17	17	21	15	21	8
30-60 carats	96	79	66	66	77	60	74	65	70	34
20-30 carats	108	111	101	121	121	82	123	126	83	50
Total diamonds > 20 carats	229	207	185	215	218	165	227	217	179	96

The construction of the relocated mining complex, which is required to make way for the expansion of the open pits, progressed well and the project is currently on schedule and tracking against budget. Bank funding has been secured for this project.

A core drilling programme will be implemented during the second half of the year to improve confidence in the geology at depth, including volume, grade, and revenue inputs of the resource.

Details of overall costs and capital expenditure incurred at Letšeng during the Period are included in the Group financial performance section.

Diamond sales

Four tenders were completed during H1 2017, with a total of 49 930 carats sold in Antwerp through Gem Diamonds Marketing Services, a wholly owned Gem Diamonds subsidiary. Rough tender revenue of US$88.8 million* with an average price of US$1 779* per carat was achieved, bringing the 12-month rolling US$ per carat average to US$1 625* per carat.

HSSE

No LTI's were recorded at Letšeng during the Period, resulting in an LTIFR of 0.00. The AIFR for the Period was 1.67. Letšeng continues to work towards its goal of zero harm and has implemented various health and safety management initiatives aimed at building on the existing culture of behaviour based care.

Zero significant or major environmental incidents have occurred at the operation during the Period and Letšeng is continuing with its environmental stewardship work through initiatives such as rehabilitation trials, water protection programmes and waste management plans.

Letšeng has continued with the successful implementation of its corporate social investment (CSI) plan with the focus being on small and medium enterprise development and support to projects within the affected communities. These projects include the Botha-Bothe Vegetable Project and the Dairy Project in Mokhotlong.

No significant or major environmental or stakeholder incidents were recorded in the Period.

H2 2017 and onwards

The focus at Letšeng will be on the following key areas:

· engage and build relationships with the newly elected government in Lesotho;

· continue to pursue and implement efficiency and cost reduction initiatives identified;

· continue work streams on enhancing value through reducing diamond damage;

· annual revision of the mining plan to further enhance value; and

· deliver the mining complex on time and on budget.

^{* Includes carats extracted for manufacturing at rough valuation}

Operating review: Ghaghoo

Sustainability overview

· Zero LTI's

· LTIFR 0.00

· AIFR 2.14

· Zero major or significant stakeholder or environmental incidents

Operational overview

· Operation placed on care and maintenance on 31 March 2017

Gem Diamonds owns 100% of Gem Diamonds Botswana (the Ghaghoo mine) which lies within the Central Kalahari Game Reserve. The mine was officially opened in September 2014. Owing to the suppressed diamond market for the size and quality of goods produced by Ghaghoo, the decision to place the operation on care and maintenance was taken in February 2017, with full care and maintenance status being achieved in March 2017. The mine is being maintained in such a way to ensure that when the diamond market recovers, the operation can be brought back into production. The Ghaghoo resource is significant, with over 20 million carats and an in-situ value in excess of US$4 billion.

The operational performance up until the operation was placed on care and maintenance is set out in the table below.

Operational performance

	H1 2017	H1 2016
Development mined (metres)	97	1 168
Ore treated (tonnes)	43 991	95 569
Carats recovered	8 084	20 876
Grade recovered (cpht)	18.4	21.8
Carats sold	-	30 277
Average price per carat (US$)	-	157

During the Period, an earthquake of magnitude 6.5 with an epicentre 25km from the mine, occurred. There was superficial damage to the surface infrastructure, however the earthquake damaged the seal of the underground water fissure. This led to a large influx of water into the underground workings of the mine. This water is successfully being pumped out of the mine and rehabilitation of the seal will be completed in Q3 2017.

A significant amount of work has been done to put the operation on care and maintenance. All contracts have been renegotiated and modified for the new operating environment. The majority of the once off costs relating to retrenchment and the renegotiated contracts to place the operation on care and maintenance have been incurred. Once the water fissure has been sealed, the operation's annual care and maintenance costs will return to the anticipated costs of US$3.0 million per annum.

The Company continues to evaluate the diamond market conditions for the Ghaghoo diamonds. The sale of the final c.13 000 carats on hand will be finalised in Q3 2017.

Operating review: Sales, marketing and manufacturing

Operational overview

· Sales of US$88.8 million* with an average price of US$1 779* per carat achieved for Letšeng's production

· 18 rough diamonds sold for more than US$1.0 million each at a total value of US$37.0 million

· Sales of polished diamonds contributed US$0.7 million of additional margin to the Group

The Group's in-house sales and marketing function provides a flexible sales strategy with multiple marketing channels to maximise revenue from the Group's production. This is achieved through competitive tenders and other targeted sales and marketing channels for its rough and polished diamonds.

The Group's rough diamond analysis capabilities provide in-depth knowledge of the value of Letšeng's large, rough diamonds and are vital in the setting of appropriate reserve prices for the diamonds to be sold at each tender.

The Group selectively manufactures some of its own high-value rough diamonds and has the flexibility to place other exceptional diamonds into strategic partnership arrangements with select customers in order to achieve additional margins along the diamond value chain.

Sales and marketing

Gem Diamonds owns 100% of Gem Diamonds Marketing Services (GDMS) which markets and sells Letšeng's rough diamond production through an electronic tender platform. The tender platform is designed to enhance engagement with customers by allowing continual access, flexibility and communication, as well as ensuring transparency during the tender process. Although viewing of Letšeng's diamonds take place in Antwerp, the electronic tender platform allows customers the flexibility to participate in each tender from anywhere in the world. This flexibility, together with the professional and transparent manner in which the tenders are managed and the reputable customers who participate in the tenders, contribute to the strategy of achieving highest market-driven prices for Letšeng's rough diamond production. A total of 367 clients viewed the diamonds during the four tenders held at the GDMS premises during the Period.

During the first half of 2017, four Letšeng tenders were held with 49 930 carats sold for a total value of US$88.8 million*, achieving an average price of US$1 779* per carat. The highest US$ per carat achieved for a rough diamond was US$164 855 per carat for an 8.65 carat pink diamond that was sold on tender. One of the large high value white diamonds achieved the highest US$ per carat for a white diamond since February 2016.

During the Period, nine diamonds totaling 464.3 carats were sold into partnership arrangements at a total rough value of US$12.5 million. In addition to the rough value, Letšeng will share in the revenue uplift at the time of the sale of the resultant polished diamonds.

Analysis and manufacturing

Rough diamonds selected for own manufacturing are analysed, planned and managed by Baobab Technologies (Baobab), a 100% owned subsidiary of Gem Diamonds. The final polished diamonds are sold by GDMS through direct selling channels to reputable high-end diamantaires.

Baobab analysed 27 of Letšeng's large, exceptional quality rough diamonds during the Period and 42 third-party diamonds.

^{* Includes carats extracted for manufacturing at rough valuation}

Group financial performance

Results overview

· Revenue US$92.9 million (US$109.1 million in H1 2016)

· Underlying EBITDA¹ US$13.0 million (US$43.5 million in H1 2016)

· Attributable net profit, before exceptional items² US$49k (US$13.4 million attributable net profit, before exceptional items², in H1 2016)

· Basic earnings per share 0.04 US cents before exceptional items² (Basic earnings per share 9.70 US cents before exceptional items² in

· H1 2016)

· Cash on hand US$20.0 million

· After the Ghaghoo once-off costs of US$3.0 million, attributable loss for the Period was US$2.9 million resulting in a loss per share of 2.11 US cents

(US$ million)	H1 2017 Pre-exceptional items	H1 2017 Exceptional Items¹	H1 2017 Post-exceptional items	H1 2016
Revenue	92.9	-	92.9	109.1
Royalty and selling costs	(8.4)	-	(8.4)	(9.8)
Cost of sales²	(66.7)	(3.0)	(69.7)	(48.7)
Corporate expenses	(4.8)	-	(4.8)	(7.1)
Underlying EBITDA³	13.0	(3.0)	10.0	43.5
Depreciation and mining asset amortisation	(5.9)	-	(5.9)	(5.0)
Share-based payments	(0.8)	-	(0.8)	(0.9)
Other income	0.1	-	0.1	0.1
Foreign exchange gain	1.1	-	1.1	1.9
Net finance costs	(2.2)	-	(2.2)	(0.4)
Impairment¹	-	-	-	(40.0)
Profit/(loss) before tax	5.3	(3.0)	2.3	(0.8)
Income tax expense	(1.7)	-	(1.7)	(15.1)
Profit/(loss) for the Period	3.6	(3.0)	0.6	(15.9)
Non-controlling interests	(3.5)	-	(3.5)	(10.7)
Attributable Profit/(loss)	0.1	(3.0)	(2.9)	(26.6)
Earnings/(loss) per share (US cents)	0.04	(2.15)	(2.11)	9.70
Loss per share after impairment	-	-	-	(19.23)

^{1 Exceptional costs relate to once-off costs associated with placing Ghaghoo on care and maintenance during the Period. In 2016 the exceptional items related to an impairment charge to the carrying}^{value of the Ghaghoo development asset}

^{2 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation}

^{3 Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) as defined in Note 5 of the condensed notes to the consolidated interim financial statements}

During the Period, there was a continued focus on cash generation which was aided by the successful implementation of the updated Life of Mine plan at Letšeng and the decision to place Ghaghoo on care and maintenance. The updated Life of Mine plan had a positive impact on the near term cashflows as a result of optimising the waste profile by reducing the maximum annual volumes of waste stripping. The improved recovery of greater than 100 carat diamonds during the Period (four in H1 2017) was encouraging and aligned with management's expectation that the variability in the resource would revert back to normalised levels during the year when compared to the previous year. Care and maintenance status at Ghaghoo was achieved during the Period and will result in reduced costs for the operation in the latter half of the year. As part of the Group's continued focus on cost discipline, a Group-wide efficiency and cost reduction review has commenced and has already identified various opportunities which will be actively pursued.

Revenue

The Group continues with its objective of maximising the value achieved on rough and polished diamond sales. The Group's revenue during the Period was primarily derived from its mining operations in Lesotho (Letšeng) and to a lesser extent through additional margin generated from its rough diamond manufacturing operation in Belgium. The market for both rough and polished diamonds remained cautious for the first six months of the year. Letšeng's large high-quality white rough diamonds however continued to be in strong demand and the improvement in the frequency of the recovery of these types of diamonds saw four diamonds greater than 100 carats being recovered during the Period, compared to a total of five for the full 2016 year.

Group revenue of US$92.9 million in the Period was 15% lower than that achieved in H1 2016. Letšeng achieved an average of
US$1 779* per carat (US$1 899* per carat in H1 2016) during the Period which was 20% higher than that achieved for the immediately preceding six-month period, H2 2016, of US$1 480*. During the Period, two of the greater than 100 carat diamonds which were recovered, were sold, with the remaining two recovered late in Q2 2017 sold after Period end. In addition to the two greater than 100 carat diamonds sold, exceptional high-value diamonds which contributed to the increased average price achieved (compared to H2 2016), included an 8.65 carat pink diamond which was sold for US$164 855 per carat and two exceptional D-colour Type IIa diamonds of 98.42 and 80.58 carats.

Letšeng revenue

	H1 2017	H1 2016
Carats sold	49 930	55 948
Average price per carat (US$)*	1 779	1 899

^{* Includes carats extracted for manufacturing at rough valuation}

The Group's manufacturing operation contributed additional revenue of US$3.9 million, comprising US$0.7 million polished margin and US$3.2 million from the effect of recognising Group revenue from the movement in own manufactured closing inventory for the Period. There were no sales of Ghaghoo production in the Period. The final production of c.13 000 carats is anticipated to be sold in Q3 2017.

Group revenue summary

	H1 2017	H1 2016
Sales - rough	88.8	106.2
Sales - polished margin	0.7	1.2
Sales - other	0.2	0.1
Impact of movement in own manufactured inventory	3.2	1.6
Group revenue	92.9	109.1

Royalties consist of an 8% levy paid to the Lesotho Revenue Authority on the sale of diamonds in Lesotho. Diamond selling and marketing-related expenses are incurred by the Group's sales and marketing operation in Belgium. During the Period, royalties and selling costs decreased by 14% to US$8.4 million, driven by lower sales.

Operations

While revenue is generated in US dollars, the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. The Lesotho loti (LSL) (pegged to the South African Rand) and Botswana Pula (BWP) were stronger against the US dollar during the Period (compared to the same period in 2016) which negatively impacted the Group's US dollar reported costs. Group cost of sales for the Period was US$66.7 million, compared to US$48.7 million in H1 2016, the majority of which was incurred at Letšeng.

Exchange rates	H1 2017	H1 2016	% change
LSL per US$1.00
Average exchange rate for the Period	13.21	15.41	(14%)
Period-end exchange rate	13.10	14.65	(11%)
BWP per US$1.00
Average exchange rate for the Period	10.41	11.13	(6%)
Period-end exchange rate	10.26	10.85	(5%)
US$ per GBP1.00
Average exchange rate for the Period	1.26	1.43	(12%)
Period-end exchange rate	1.30	1.34	(3%)

Letšeng mining operation

Cost of sales for the year was US$61.7 million, up 33.0% from US$46.4 million in H1 2016, an increase of US$15.3 million of which US$13.7 million represents an increase in waste stripping amortisation costs due to the mining mix. Total waste stripping costs amortised of US$31.7 million were incurred compared to US$18.0 million in H1 2016.

In line with the updated mine plan, 15.0 million tonnes of waste were mined during the Period. Ore tonnes treated of 3.2 million tonnes were 4.7% lower than H1 2016. Of the total ore treated, 2.6 million tonnes were treated through the Letšeng Plants, with a Satellite to Main pipe ratio of 31:69, compared to 34:66 in H1 2016. Carats recovered during the Period of 50 478 were 12.0% lower than H1 2016 driven by the lower tonnes treated.

	H1 2017	H1 2016	% change
US$ (per unit)
Direct cash cost (before waste) per tonne treated¹	12.23	9.48	(29%)
Operating cost per tonne treated²	19.81	14.26	(39%)
Waste cash cost per waste tonne mined	2.53	1.80	(41%)
Local currency (per unit) LSL
Direct cash cost (before waste) per tonne treated¹	161.57	146.15	(11%)
Operating cost per tonne treated²	261.63	219.70	(19%)
Waste cash cost per waste tonne mined	33.38	27.80	(20%)

^{1 Direct cash costs represent all operating costs, excluding royalty and selling costs}

^{2 Operating costs include waste stripping cost amortised, inventory and ore stockpile adjustments, and excludes depreciation}

Total direct cash costs (before waste costs) in local currency increased by 5.3% to LSL513.6 million in H1 2017 compared to LSL487.6 million in H1 2016. This resulted in a unit cost per tonne treated of LSL161.57 relative to the prior year of LSL146.15, representing an effective increase of 10.6%. This increase was impacted by local country inflation and longer hauling distances as a result of mining in deeper sections of both pits. The additional increase in the unit costs is due to the lower ore tonnes treated of 4.7% during the Period compared to H1 2016 with no commensurate saving in fixed costs.

Operating costs per tonne treated of LSL261.63 were 19.1% higher than H1 2016's cost of LSL219.70 per tonne treated. The increase was mainly driven by higher waste amortisation costs during the Period, as a result of the different waste to ore strip ratios for the particular Satellite pipe ore mined. During the year, ore was sourced from a cut within the Satellite pipe with a significantly higher strip ratio compared to H1 2016. The amortisation charge attributable to the Satellite pipe ore accounted for 76% of the total waste stripping amortisation charge in the Period (H1 2016: 64%).

The increase in the local currency waste cash cost per waste tonne mined of 20.1% was impacted by local country inflation costs and longer haul distances for the various waste cut, in line with the new mine plan adopted.

Other operating information

(US$ million)	H1 2017	H1 2016
Waste cost capitalised	42.9	31.3
Waste stripping cost amortised	31.7	18.0
Depreciation and mining asset amortisation	5.9	5.0
Capital expenditure	7.2	3.7

Ghaghoo mining operation

With the ongoing difficult market conditions for Ghaghoo's production and the Company's focus on profitable production, the decision was made to place the operation on care and maintenance. As a result, all costs for the Period amounting to US$6.1 million have been recognised in the income statement. The majority of these costs related to the operating cost up to the date of care and maintenance of US$2.6 million and once-off costs associated to achieve care and maintenance status of US$3.0 million. These once-off costs mainly relate to retrenchment costs and costs associated with renegotiating and modifying existing contracts under the new care and maintenance environment. These once-off costs have been classified as exceptional items in the income statement, having an overall effect of US Cents 2.15 on earnings per share in the Period. The prior Period exceptional item relates to the US$40.0 million impairment on Ghaghoo's development asset.

Diamond manufacturing operation

The Group generated additional margin on selected high-value diamonds through its manufacturing facilities and partnership arrangements. The diamond manufacturing operation in Antwerp contributed US$0.7 million to Group revenue (through additional polished margin generated) and US$0.4 million to underlying EBITDA. Extracted diamond inventory on hand at the end of the Period was US$1.2 million compared to US$4.4 million at 31 December 2016, further increasing recognised Group revenue by US$3.2 million.

Corporate office

Corporate costs relate to central costs incurred by the Group through its technical and administrative offices in South Africa and the United Kingdom and are incurred in both South African Rand and British Pound. Corporate costs for the Period amounted to US$4.8 million (H1 2016: US$7.1 million).

The share-based payment charge for the Period amounted to US$0.8 million (H1 2016: US$0.9 million). On 4 July 2017 (post the Period end), 1 335 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term Incentive Plan of the Company with similar conditions as previous awards granted under this scheme. The charge of the new award will be recognised in the income statement from its grant date.

Underlying EBITDA¹ and attributable profit

Based on the above operating results, the Group generated an Underlying EBITDA¹ of US$13.0 million. The profit attributable to shareholders for the Period was US$49k before exceptional items, equating to an earnings per share of 0.04 US cents on a weighted average number of shares in issue of 138.3 million. After including the effect of the exceptional items of US$3.0 million, the Group's attributable loss was US$2.9 million.

The forecast effective tax rate for the full year is 32.60% and has been applied to the actual results for the Period. This rate is the result of profits generated by Letšeng being taxed at 25.0%, deferred tax assets not recognized on losses incurred in non-trading operations which is partially offset by a reduction in the deferred tax liability on unremitted earnings.

Financial position and funding review

The Group continued its prudent cash management and ended the Period with cash on hand of US$20.0 million (31 December 2016: US$30.8 million) of which US$16.1 million is attributable to Gem Diamonds and US$0.2 million is restricted. At Period end, the Group had utilised facilities of US$34.2 million, resulting in a net debt position of US$14.2 million. Furthermore, standby undrawn facilities of US$36.2 million remain available, comprising US$9.9 million at Gem Diamonds and US$26.3 million (of which US$11.0 million relates to the mining complex project funding) at Letšeng.

The Group generated cash from operating activities (pre-exceptional items) of US$37.1 million (30 June 2016: US$44.5 million) before investment in waste stripping costs at Letšeng of US$42.9 million and capital expenditure of US$8.8 million, incurred mainly at Letšeng.

After placing the Ghaghoo mine on care and maintenance, its US$25.0 million fully accessed facility was settled by utilising the available Gem Diamonds Limited US$35.0 million Revolving Credit Facility (RCF). The Gem Diamonds Limited RCF was subsequently restructured post Period end to increase it from a US$35.0 million to a US$45.0 million facility. This restructured facility consists of two tranches with the first tranche relating to the Ghaghoo US$25.0 million debt whereby quarterly capital repayments have been re-scheduled to commence in September 2018 with final repayment on 31 December 2020. The second tranche of US$20.0 million is a revolving facility and includes an upsize mechanism whereby the available facility of this tranche will increase by a ratio 0.6:1 for every repayment made under the first tranche.

During the Period, construction of the relocated mining complex, which is bank funded, commenced. The loan is an unsecured project debt facility for LSL215.0 million (US$16.4 million) which was signed jointly with Nedbank Limited and the Export Credit Insurance Corporation (ECIC). The loan is repayable in equal quarterly payments commencing in September 2018. At Period end, LSL70.1 million (US$5.4 million) has been drawn down resulting in LSL144.9 million (US$11.0 million) being available.

At Period end US$3.8 million on the LSL250.0 million (US$19.1 million) revolving credit facility at Letšeng was utilised.

During the Period, no dividends were paid by Letšeng.

Outlook

Capital and cash management discipline remains a high priority in the short term and the Company remains committed to generating cash and strengthening its balance sheet.

The various opportunities identified through the efficiency and cost reduction review will be actively pursued.

Options for the Ghaghoo asset will be considered and focus will remain on further optimising the care and maintenance costs.

^{1 Underlying earnings before interest, tax, depreciation and mining asset amortization}

Risks to our business

The Group is exposed to a number of risks and uncertainties that could have a material impact on its performance and long-term growth. The effective identification, management and mitigation of these risks and uncertainties are a core focus of the Group as they are key to achieving the Company's strategic objectives.

Many of these risks are beyond the control of the Group but a formal risk management process exists to assist in identifying and reviewing potential risks. Mitigating plans are formulated and reviewed regularly to understand their effectiveness and progress. The Group is focused on continuously analysing and assessing the risks faced and improving the risk management process accordingly.

The Group internal audit function carries out a risk-based programme approved by the Audit Committee to evaluate the effectiveness and contribute to the improvement of risk management controls and governance processes.

A reassessment of the principal risks and uncertainties, which have been previously reported in the Business Overview in the 2016 Annual Report, has been performed to take into account the current market and operational conditions. These may impact the Group over the medium to long term; however, the following key risks (in no particular order of priority) may impact the Group over the next six months.

Cash generation (financial risk)

The lack of cash flow generation may negatively affect the Group's ability to effectively operate, fund capital projects and repay debt.

Cash flows which were negatively impacted by lower than expected revenues achieved resulted in additional utilisation of debt facilities. This was due to a lower number of high value diamonds being recovered during the latter part of 2016 and Q1 2017 impacting the overall US$ per carat, and lower plant availability impacting tonnage treated and carats recovered. Although a significant amount of time and resources were utilised in addressing the plant availability issues which have resulted in improvements towards the end of the Period, the possibility of further unplanned maintenance issues could further impact tonnage treated in the short term. In Q2 2017, there has been an improvement in the recoveries of the larger higher value diamonds resulting in an increased overall US$ per carat, positively contributing to cash flows. The Group has the ability to reassess its capital projects and operational strategies. Strict treasury management procedures are in place to monitor cash and capital project expenditure.

In February 2017, the Board made a decision to place the Ghaghoo mine on care and maintenance to preserve the value of the asset and to reduce cash consumed. Although once off costs have been incurred during the Period to bring the operation into care and maintenance status it is expected that the reduction in cash consumption will be realised in H2 2017.

Following the placing of Ghaghoo on care and maintenance, the Company's US$35.0 million short term Revolving Credit Facility (RCF) was utilised to repay the Ghaghoo US$25.0 million long term facility. The Group successfully restructured its short term RCF into a new US$45.0 million facility, deferring debt repayment commitments. Refer to note 14, Interest-bearing loans and borrowings for details of the tenure and structure.

To further improve cash generation, a Group-wide efficiency and cost reduction review has commenced and has already identified opportunities that are being actively pursued.

Currency volatility (financial risk)

The Group receives its revenue in US dollars, while its cost base is incurred in the local currency of the various countries within which the Group operates. The volatility of these currencies trading against the US dollar impacts the Group's profitability and cash. In order to mitigate currency risk, these fluctuations are closely monitored and, when weaknesses in the local currency reach levels where it would be appropriate, the Group enters into exchange rate contracts to protect future cash flows.

Extreme volatility between the Lesotho loti and US dollar has been experienced during the Period, and this is expected to continue into H2 2017.

Rough diamond demand and prices (market risk)

While the medium to long-term fundamentals of the diamond market remain intact, with demand forecast to outpace supply, in the short term the prevailing climate of global economic uncertainty may cause some volatility in rough diamond pricing. The cautious approach adopted by rough and polished diamantaires and manufacturers is expected to continue into the second half of the year. Market conditions are constantly monitored to identify current trends that pose a threat or create an opportunity for the Group. The Group has flexibility in its sales processes.

Mineral resource risks (operational risk)

The Group's mineral resources influence the mine plans. Uncertainty or underperformance of mineral resources could affect the Group's ability to operate profitably. With Letšeng being the world's lowest grade operating kimberlite mine, the risk of resource underperformance is elevated. Various bulk sampling programmes, combined with geological mapping and modelling methods, significantly improve the Group's understanding of and confidence in optimising the mining of its resources.

The short-term volatility in the mineral resource is evidenced by the lower number of high quality diamonds which were recovered in 2016. During the Period, an increase in the recovery of these higher value diamonds contributed to an improved US$ per carat in line with expectations.

A major production interruption (operational risk)

The Group may experience material mine and/or plant shut downs or periods of decreased production due to numerous events. Any such event could negatively affect the Group's operations and impact its profitability and cash flows. The likelihood of possible interruption events is continually reviewed and the appropriate controls, processes and business continuity plans are in place to immediately mitigate this risk.

Country and political risks (operational risk)

The political environments of the various jurisdictions that the Group operates within may adversely impact the ability to operate effectively and profitably. Emerging market economies are generally subject to greater risks, including regulatory and political risk, and can be exposed to a rapidly changing environment. Changes to the political environment and regulatory developments are closely monitored. Where necessary, the Group engages in dialogue with relevant government representatives to remain well informed of all legal and regulatory developments impacting its operations.

Following the disbandment of the Lesotho Parliament in early 2017, peaceful elections were concluded in June 2017 where a new government was elected. Engagement with the new government has commenced positively with the aim of developing effective relationships.

Clifford Elphick

Chief Executive Officer

16 August 2017

Half-yearly financial statements

30 June 2017

Contents

Responsibility Statement of the Directors in Respect of the Half-yearly Report and the Financial Statements

Independent Review Report to the Members of Gem Diamonds Limited

Interim Consolidated Income Statement

Interim Consolidated Statement of Comprehensive Income

Interim Consolidated Statement of Financial Position

Interim Consolidated Statement of Changes in Equity

Interim Consolidated Statement of Cash Flows

Condensed Notes to the Consolidated Interim Financial Statement

Responsibility Statement of the Directors in Respect of the Half-yearly Report and Financial Statements

PURSUANT TO DISCLOSURE AND TRANSPARENCY RULES (DTR) 4.2.10

The Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting and that the Half-yearly Report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

(a) an indication of important events that have occurred during the first six months of the financial year and their impact on this condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) material related-party transactions in the first six months of the year and any material changes in the related-party transactions described in the Gem Diamonds Limited Annual Report 2016.

The names and functions of the Directors of Gem Diamonds are listed in the Annual Report for the year ended 31 December 2016 and updates have been disclosed in the Interim Business Review on pages 1 to 11.

For and on behalf of the Board

Michael Michael

Chief Financial Officer

16 August 2017

Independent Review Report to the Members of Gem Diamonds Limited

We have been engaged by Gem Diamonds Limited (the Company) to review the condensed consolidated set of financial statements

of the Company and its subsidiaries (the Group) in the Half-yearly Report for the six months ended 30 June 2017 which

comprises the interim consolidated income statement, interim consolidated statement of comprehensive income, interim

consolidated statement of financial position, interim consolidated statement of changes in equity, interim consolidated

statement of cash flows and the related explanatory notes. We have read the other information contained in the Half-yearly Report and considered whether it contains any apparent misstatements or material inconsistencies with the information

in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the

Company, for our work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The Half-yearly Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for

preparing the Half-yearly Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial

Conduct Authority. As disclosed in note 1.2.1 in the 2016 audited annual financial statements, the Annual Financial Statements of

the Group are prepared in accordance with International Financial Reporting Standards (IFRS). The condensed consolidated set

of financial statements included in this Half-yearly Report have been prepared in accordance with International Accounting

Standard 34 Interim Financial Reporting.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed consolidated set of financial statements in the Half-yearly Report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim

Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the

United Kingdom.

A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated set of financial statements in the Half-yearly Report for the six months ended 30 June 2017 are not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLP

London

16 August 2017

Interim Consolidated Income Statement

for the six months ended 30 June 2017

Notes

30 June 2017¹

Before exceptional item

US$'000

30 June 2017¹

Exceptional item

US$'000

30 June 2017¹

Total

US$'000

30 June 2016¹

Before exceptional item

US$'000

30 June 2016¹

Exceptional item

US$'000

30 June 2016¹

Total

US$'000

Revenue 3

Cost of sales

92 908

(72 458)

(2 971) ²

92 908

(75 429)

109 140

(53 649)

109 140

(53 649)

Gross profit/(loss)

Other operating income

Royalties and selling costs

Corporate expenses

Share-based payments 13

Foreign exchange gain

Impairment of asset

20 450

131

(8 397)

(4 937)

(842)

1 079

(2 971)

17 479

131

(8 397)

(4 937)

(842)

1 079

55 491

(9 782)

(7 214)

(914)

1 936

(40 000)²

55 491

(9 782)

(7 214)

(914)

1 936

(40 000)

Operating profit/(loss) 3

Net finance costs

Finance income

Finance costs

7 484

(2 218)

(2 971)

4 513

(2 218)

39 586

(422)

(40 000)

(414)

(422)

285

(2 503)

285

(2 503)

972

(1 394)

972

(1 394)

Profit/(loss) before tax

Income tax expense 7

5 266

(1 717)

(2 971)

2 295

(1 717)

39 164

(15 052)

(40 000)

(836)

(15 052)

Profit/(loss)

3 549

(2 971)

578

24 112

(40 000)

(15 888)

Attributable to:

Equity holders of parent

Non-controlling interests

3 500

(2 971)
-

(2 922)

3 500

13 417

10 965

(40 000)

(26 583)

10 965

Earnings/(loss) per share (cents)

- Basic earnings/(loss) for the Period attributable to ordinary equity holders of the parent

- Diluted earnings/(loss) for the Period

attributable to ordinary equity holders
of the parent

0.04

(2.11)

9.70

(19.23)

1 Unaudited

2 Refer to Note 4, Exceptional items

Interim Consolidated Statement of

Comprehensive Income

for the six months ended 30 June 2017

30 June

20171

US$'000

30June

20161

US$'000

Profit/(loss) for the Period

Other comprehensive income that could be classified to the income statement in subsequent periods

Exchange differences on translation of foreign operations

578

6 880

(15 888)

11 488

Other comprehensive income net of tax

6 880

11 488

Total comprehensive income/(expense)

Attributable to:

Equity holders of parent

Non-controlling interests

7 458

4 797

2 661

(4 400)

(21 512)

17 112

Total comprehensive income/(expense) net of tax

7 458

(4 400)

1 Unaudited

Interim Consolidated Statement of

Financial Position

as at 30 June 2017

Notes	30 June 20171 US$'000	31 December 2016² US$'000
ASSETS Non-current assets Property, plant and equipment 9 Investment property Intangible assets Receivables and other assets 10	281 921 615 14 572 27	257 199 615 14 014 31
	297 135	271 859
Current assets Inventories Receivables and other assets 10 Income tax receivable Cash and short-term deposits 11	34 293 5 695 2 385 20 046	30 911 6 557 4 636 30 787
	62 419	72 891
Total assets	359 554	344 750
EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Issued capital 12 Share premium Treasury shares3 Other reserves Accumulated losses	1 386 885 648 (1) (134 937) (613 251)	1 384 885 648(1) (143 498) (610 329) (610 329)
	138 845	133 204
Non-controlling interests	73 284	70 623
Total equity	212 129	203 827
Non-current liabilities Interest-bearing loans and borrowings 14 Trade and other payables Provisions Deferred tax liabilities	5 354 1 709 17 968 69 297	- 1 409 16 630 65 676
	94 328	83 715
Current liabilities Interest-bearing loans and borrowings 14 Trade and other payables Income tax payable	28 895 23 903 299	27 757 29 012 439
	53 097	57 208
Total liabilities	147 425	140 923
Total equity and liabilities	359 554	344 750

1 Unaudited

2 Audited

3 Shares held by Gem Diamonds Limited Employee Share Trust

Interim Consolidated Statement of Changes in Equity

for the six months ended 30 June 2017

				Attributable to equity holders of the parent
	Issued capital US$'000	Share premium US$'000	Own Shares² US$'000	Other reserves US$'000	Accu- mulated losses US$'000	Total US$'000	Non-controlling interests US$'000	Total equity US$'000
Balance at 1 January 2017	1 384	885 648	(1)	(143 498)	(610 329)	133 204	70 623	203 827
Total comprehensive income/(expense)	-	-	-	7 719	(2 922)	4 797	2 661	7 458
(Loss)/profit for the Period	-	-	-	-	(2 922)	(2 922)	3 500	578
Other comprehensive income/(expense)	-	-	-	7 719	-	7 719	(839)	6 880
Share capital issued (Note 12)	2	-	-	-	-	2	-	2
Share-based payments (Note 13)	-	-	-	842	-	842	-	842
Balance at 30 June 20171	1 386	885 648	(1)	(134 937)	(613 251)	138 845	73 284	212 129
Balance at 1 January 2016	1 383	885 648	(1)	(163 420)	(439 764)	283 846	59 923	343 769
Total comprehensive income/(expense)	-	-	-	5 071	(26 583)	(21 512)	17 112	(4 400)
Loss/(profit) for the Period	-	-	-	-	(26 583)	(26 583)	10 695	(15 888)
Other comprehensive income	-	-	-	5 071	-	5 071	6 417	11 488
Share-based payments (Note 13)	-	-	-	954	-	954	-	954
Dividends paid (Note 8)	-	-	-	-	(11 755)	(11 755)	(6 246)	(18 001)
Balance at 30 June 2016¹	1 383	885 648	(1)	(157 395)	(478 102)	251 533	70 789	322 322

1 Unaudited

2 Shares held by Gem Diamonds Limited Employee Share Trust

Interim Consolidated Statement of Cash Flows

for the six months ended 30 June 2017

Notes	30 June 20171 US$'000	30 June 20161 US$'000
Cash flows from operating activities Cash generated by operations 15.1 Working capital adjustments 15.2	34 202	44 454
	42 070 (7 967)	59 463 (529)
Interest received Interest paid Income tax received/(repaid)	34 103 285 (1 890) 1 704	58 934 1 089 (1 839) (13 730)

Cash flows used in investing activities Purchase of property, plant and equipment 9 Ghaghoo costs capitalised 9 Letšeng waste cost capitalised 9 Proceeds from sale of property, plant and equipment	(51 685)	(45 599)
	(8 808) - (42 877) -	(5 982) (8 375) (31 269) 27

Cash flows from/(used in) financing activities	6 346	(20 669)
Financial liabilities raised	49 318	-
Financial liabilities repaid	(42 972)	(2 667)
Net financial liabilities raised/(repaid) Dividends paid to equity holders of the parent Dividends paid to non-controlling interests	6 346 - -	(2 667) (11 755) (6 247)
Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of Period Foreign exchange differences	(11 137)	(21 814)
	30 787 396	85 719 2 551

Cash and cash equivalents at end of Period Cash and cash equivalents at end of Period held with banks Restricted cash at end of Period Cash and cash equivalents at end of Period 11	20 046	66 456
	19 879 167	63 785 2 671
	20 046	66 456

1 Unaudited

Condensed Notes to the Consolidated

Interim Financial Statements

for the six months ended 30 June 2017

1. Corporate information

1.1 Incorporation and authorisation

The holding company, Gem Diamonds Limited (the Company), was incorporated on 29 July 2005 in the British Virgin

Islands. The Company's registration number is 669758.

The financial information shown in this report relating to Gem Diamonds Limited and its subsidiaries (the Group) was
approved by the Board of Directors on 16 August 2017, is unaudited and does not constitute statutory financial statements.
The report of the auditors on the Group's 2016 Annual Report and Accounts was unqualified.

The Group is principally engaged in operating of diamond mines.

2. Basis of preparation and accounting policies

2.1 Basis of presentation

The condensed consolidated interim financial statements for the six months ended 30 June 2017 (the Period) have been
prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements
do not include all the information and disclosures required in the annual financial statements and should be read in
conjunction with the Group's Annual Financial Statements for the year ended 31 December 2016.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position
are set out in the Interim Business Review on pages 1 to 11. The financial position of the Group, its cash flows and liquidity
position are described in the Interim Business Review on pages 6 to 11.

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

2.2 Significant accounting policies

The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent
with those followed in the preparation of the Group's Annual Financial Statements for the year ended 31 December 2016,
except for the adoption of new standards and amendments as of 1 January 2017. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is not yet effective.

2.	Basi	s of preparation and accounting policies (continued)
	2.2	Significant accounting policies (continued)
		Standards issued but not effective
		The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group's financial statements are disclosed below. The Group intends to adopt these standards if applicable when they become effective.
		Standard, amendment

interpretation Effective date*

IFRS 2	Classification and measurement of Share-based Payment Transactions	Amendments to IFRS 2 in relation to the classification and measurement of share-based payment transactions. The Group will assess the impact prior to the effective date.	1 January 2018
IFRS 9	Financial Instruments	Classification and measurement of financial assets and financial liabilities that replaces IAS 39. The Group will assess the impact prior to the effective date.	1 January 2018
IFRS 15	Revenue from Contracts with Customer	The new revenue standard introduces a single, principles- based, five-step model for the recognition of revenue when control of a good or service is transferred to the customer. The Group is currently reviewing the potential impact of IFRS 15.	1 January 2018
IFRS 16	Leases	The new standard requires lessees to recognise assets and liabilities on their balance sheets for most leases, many of which may have been off balance sheet in the past. The Group will assess the impact prior to the effective date.	1 January 2019

Annual periods beginning on or after

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. Other regions where no direct mining activities take place are organised into geographical regions in the areas where the operations are managed. 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);

■ Botswana (diamond mining activities through Ghaghoo, which was placed on care and maintenance in February 2017, and sales

and marketing of diamonds through Gem Diamonds Marketing Botswana (Proprietary) Limited);

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

■ BVI, RSA and UK (technical and administrative services).

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

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

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

The following tables presents revenue and profit, and asset and liability information from operations regarding the Group's geographical segments:

Six months ended 30 June 2017¹	Lesotho US$'000	Botswana US$'000	Belgium US$'000	BVI, RSA and UK² US$'000	Total US$'000
Revenue
Total revenue	88 068	-	92 776	4 913	185 757
Inter-segment	(87 713)	-	(388)	(4 748)	(92 849)
External customers	355	-	92 388	165²	92 908
Segment operating profit/(loss)	16 328	(5 824)	109	(6 100)	4 513
Net finance costs					(2 218)
Profit before tax					2 295
Income tax expense					(1 717)
Profit for the Period after exceptional item					578

1 Unaudited

2 No revenue was generated in BVI

Six months ended 30 June 2016¹	Lesotho US$'000	Botswana US$'000	Belgium US$'000	BVI, RSA and UK² US$'000	Total US$'000
Revenue
Total revenue	105 709	-	113 488	4 922		224 119
Inter-segment	(104 932)	-	(5 213)	(4 834)		(114 979)
External customers	777	-	108 275	88²		109 140
Segment operating profit/(loss)	46 856	(39 050)³	(912)	(7 308)		(414)
Net finance costs						(422)
Loss before tax						(836)
Income tax expense						(15 052)
Loss for the period						(15 888)

1 Unaudited

2 No revenue was generated in BVI

3 The operating loss on the Botswana segment mainly relates to the impairment provided for on the Ghaghoo development asset (refer to Note 4,

Exceptional items)

	Lesotho US$'000	Botswana US$'000	Belgium US$'000	BVI, RSA and UK US$'000	Total US$'000
Segment assets
At 30 June 20171	341 332	5 095	4 693	8 434	359 554
At 31 December 20162	309 469	6 190	5 996	23 095	344 750
Segment liabilities
At 30 June 20171	46 372	4 855	73	26 826	78 126
At 31 December 20162	39 677	33 182	591	1 797	75 247

1 Unaudited

2 Audited

Included in revenue is revenue from a single customer which amounted to US$30.0 million (30 June 2016: US$24.2 million)

arising from sales reported in the Lesotho and Belgium segments.

Segment assets and liabilities do not include net deferred tax liabilities of US$69.3 million (31 December 2016: US$65.6 million).

The prior Period operating loss included an exceptional item of US$40.0 million impairment charge. Pre-exceptional items, operating profits have decreased in the current Period due to lower carats recovered and lower prices achieved at Letšeng together with an increase in mining costs.

4. Exceptional items

30 June

20171

US$'000

30 June

20161

US$'000

Ghaghoo

2 971²

40 000³

1 Unaudited

2 Ghaghoo - exceptional costs

The Ghaghoo mine was placed on care and maintenance in February 2017. No impairment charge was recognized during the current Period. The costs incurred in the Period included development costs, retrenchment costs, once-off costs to renegotiate contracts and once-off costs associated with the additional water pumping and sealing of the fissure as a result of the earthquake, have been classified as exceptional costs.

3 Ghaghoo - impairment

In the prior Period, the Group recognised a consolidated income statement impairment charge of US$40.0 million (post-tax) for the Ghaghoo asset. At 31 December 2016, the asset was impaired by a further US$130.8 million.

5. Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) before exceptional item

Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the performance of the Group and excludes such non-operating costs as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:

30 June

20171

US$'000

30 June

20161

US$'000

Operating profit

Other operating income Share-based payments

Foreign exchange gain

Depreciation and mining asset amortisation (excluding waste stripping cost amortised)

7 484

(131)

842

(1 079)

5 912

39 586

(69)

914

(1 936)

4 993

Underlying EBITDA before exceptional item

13 028

43 488

1 Unaudited

6. Seasonality of operations

The Group's sales environment regarding its diamond sales is not materially impacted by seasonal and cyclical fluctuations. The mining operations may be impacted by seasonal weather conditions. Appropriate mine planning and ore stockpile build-up ensures that mining can continue during adverse weather conditions.

7. Income tax expense

30 June

20171

US$'000

30 June

20161

US$'000

Income statement

Current

- Overseas

Withholding tax

- Overseas

Deferred

- Overseas

(283)

(71)

(1 363)

(7 957)

(1 516)

(5 579)

(1 717)

(15 052)

1 Unaudited

The forecast effective tax rate for the full year is 32.60% and has been applied to the actual results, excluding exceptional items, for the Period. The exceptional items (refer to Note 4, Exceptional items), have been excluded from the forecast effective tax rate for the full year and taxed separately. There is no tax effect on the exceptional items.

Following the placing of the Ghaghoo mine on care and maintenance, the 2017 full year tax rate will no longer be reconciled to the statutory UK corporation tax rate of 19.25%, but to the statutory Lesotho corporation tax rate of 25.0%, as this is the jurisdiction in which the majority of the Group's taxes are incurred.

The forecast effective tax rate for the full year is above the Lesotho statutory tax rate primarily as a result of deferred tax assets not recognised on losses incurred in non-trading operations, which is partially offset by a reduction in the deferred tax liability on unremitted earnings.

8. Dividends paid and proposed

30 June

20171

US$'000

30 June

20161

US$'000

Dividends on ordinary shares declared and paid

Final ordinary dividend for 2016: Nil (2015: 5 US cents per share)

Final special dividend for 2016: Nil (2015: 3.5 US cents per share)

6 915

4 840

Total

11 755

1 Unaudited

There were no dividends proposed for the 2016 financial year. The dividend policy is dependent on the results of the

Group's operations, its financial condition, cash requirements, future prospects, profits available for distribution and

other factors deemed to be relevant at that time.

The 2015 dividends were approved on 7 June 2016 and a final cash dividend of 8.5 US cents per share was paid to shareholders on 16 June 2016.

9. Property, plant and equipment

During the Period, the Group invested US$8.8 million (30 June 2016: US$6.0 million) into property, plant and

equipment, of which US$7.2 million (30 June 2016: US$3.7 million) related to Letšeng and US$1.6 million (30 June 2016: US$ 1.9 million) related to Ghaghoo.

Letšeng's capital spend was incurred mainly on the commencement of the mining support services complex construction
(US$5.1 million), rehabilitation of the fresh water dam (US$0.4 million) and installation of the split front-ends for Plants 1 and 2 (US$0.2 million).

At Ghaghoo, the majority of the capital spend was incurred on the construction of the slimes dam (US$1.5 million) prior to placing the operation on care and maintenance.

Letšeng further invested US$42.9 million (30 June 2016: US$31.3 million) in deferred stripping costs which were capitalised.

Borrowing costs of US$0.1 million incurred in respect of the LSL 215.0 million (US$16.4 million) Letšeng facility (refer to Note 14, Interest-bearing loans and borrowings) have been capitalised. The weighted average rate used to

determine the amount of borrowing costs eligible for capitalisation was 3.40%.

In addition to the above, foreign exchange movements on translation affecting property, plant and equipment were US$10.6 million (30 June 2016: US$16.7 million).

Depreciation and mining asset amortisation of US$5.8 million (30 June 2016: US$5.0 million) was charged to the income statement during the Period.

At Letšeng, amortisation of the deferred stripping asset (waste stripping cost amortisation) of US$31.7 million (30 June

2016: US$18.0 million) was charged to the income statement during the Period. The amortisation is directly related to

the areas that were mined during the Period and their associated waste to ore strip ratios.

10. Receivables and other assets

	30 June 20171 US$'000	31 December 20162 US$'000
Non-current
Other receivables	27	31
	27	31
Current Trade receivables³ Prepayments Deposits Other receivables VAT receivable	538 682 141 401 3 933	1 187 756 135 334 4 145
	5 695	6 557

1 Unaudited

2 Audited

3 Trade receivables as at 31 December 2016 mainly related to the margins recognised on partnership arrangements for which proceeds were received post year end. As at Period end, the value of these receivables was lower than at 31 December 2016.

11. Cash and short-term deposits

30 June

20171

US$'000

31 December

20162

US$'000

Cash on hand

Bank balances

Short-term bank deposits

17 144

2 901

15 762

15 023

Cash and short-term deposits

20 046

30 787

1 Unaudited

2 Audited

At 30 June 2017, the Group had restricted cash of US$0.2 million (31 December 2016: US$3.1 million).

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

Finance costs include interest incurred on bank overdraft and borrowings and the unwinding of rehabilitation provisions.

12. Issued capital and reserves

30 June 2017¹

31 December 2016²

Number of
shares

'000

US$'000

Number of

'000

US$'000

Authorised - ordinary shares of US$0.01 each

Balance at beginning of Period/year

Increase in authorised shares

200 000

2 000

200 000

2 000

Balance at end of Period/year

200 000

2 000

200 000

2 000

Issued and fully paid

Balance at beginning of Period/year

138 361

1 384

138 296

1 383

Allotments during the Period/year

205

Balance at end of Period/year

138 566

1 386

138 361

1 384

1 Unaudited

2 Audited

13. Share-based payments

There were no option awards granted during the current Period. Post Period end, on 4 July 2017, there was a share option awarded (refer to Note 18 Events after reporting Period).

The expense recognised for employee services received during the year is shown in the following table:

30 June

20171

US$'000

30 June

20161

US$'000

Equity-settled share-based payment transactions - charged to the income statement

Reversal of previous expense due to forfeiture - credited to the income statement

842

961

(47)

Equity-settled share-based payment transactions - capitalised

842

914

842

954

1 Unaudited

14. Interest-bearing loans and borrowings

Effective interest rate % Maturity

30 June

20171

US$'000

31 December

20162

US$'000

Non-current

LSL215.0 million bank

loan facility

Tranche 1 South African JIBAR + 3.15% 30 September 2022³

2 683

Tranche 2 South African JIBAR + 6.75% 31 March 2022³

2 671

5 354

Current

LSL140.0 million bank

loan facility South African JIBAR + 4.95% 30 June 2017⁴

2 047

LSL250.0 million bank

loan facility Lesotho prime 30 June 2018⁵

3 816

US$25.0 million bank

loan facility London US$ three-month

LIBOR + 5.5% 31 January 2019⁶

25 710

US$35.0 million bank

loan facility London US$ three-month

LIBOR + 5.3% 31 January 2019⁶

25 079

28 895

27 757

1 Unaudited

2 Audited

³LSL215.0 million (US$ 16.4 million) bank loan facility at Letšeng Diamonds

This loan comprises two tranches of debt as follows:

· Tranche 1: South African Rand denominated ZAR180.0 million (US$13.7 million) debt facility supported by the Export Credit Insurance Corporation (ECIC) (five years tenure);

· Tranche 2: Lesotho Loti denominated LSL35.0 million (US$2.7 million) term loan facility without ECIC support (five years and six months tenure)

The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 22 March 2017 for the total funding of the construction of the Letšeng mining support services complex. The loan is repayable in equal quarterly payments commencing in September 2018.

At Period end LSL70.1 million (US$5.4 million) had been drawn down, resulting in LSL144.9 million (US$11.0 million) available to be drawn down under this facility.

The South African Rand based interest rates for the facility at 30 June 2017 are:

· Tranche 1: 10.48%;

· Tranche 2: 14.08%

Total interest for the Period on this interest-bearing loan was US$0.1 million, and has been capitalised to the cost of the project.

⁴LSL140.0 million (US$10.7 million) bank loan facility at Letšeng Diamonds

This loan was a three-year unsecured project debt facility which was signed jointly with Standard Lesotho Bank and Nedbank Limited for the total funding of the Coarse Recovery Plant. Final repayment was made on 10 February 2017 and the facility was closed on that date.

⁵LSL250.0 million (US$19.1 million) bank loan facility at Letšeng Diamonds

This loan is a three-year unsecured revolving working capital facility, signed jointly with Standard Lesotho Bank and Nedbank Capital, which was renewed in July 2015. The facility bears interest at the Lesotho prime rate.

At Period end LSL50.0 million (US$3.8 million) had been drawn down, resulting in LSL200.0 million (US$15.3 million) available to be drawn down under this facility. The South African Rand based interest rate for this facility at 30 June 2017 is 11.75%.

⁶US$25.0 million / US$35.0 million bank loan facility at Gem Diamonds Limited

The US$25.0 million was a six-and-a-half-year project debt facility for the Ghaghoo asset. At 31 December 2016, this facility was fully drawn down. In February 2017, this facility was fully repaid in line with placing the Ghaghoo asset on care and maintenance.

The US$35.0 million loan is a three-year revolving credit facility (RCF) with Nedbank Capital which was renewed on
29 January 2016 for a further three years. The facility was accessed in order to settle the Ghaghoo US$25.0 million loan.
At Period end, US$25.1 million had been drawn down, resulting in US$9.9 million available to be drawn down under this facility. The US$ based interest rate for this facility at 30 June 2017 is 6.6%.

The Gem Diamonds Limited US$35.0 million RCF was restructured post Period end to increase the facility to US$45.0 million. This restructured facility consists of two tranches:

■ Tranche 1: relates to the Ghaghoo US$25.0 million debt whereby capital repayments have been re-scheduled to commence in September 2018 with a final repayment due on 31 December 2020.

■ Tranche 2: this tranche of US$20.0 million relates to an RCF and includes an upsize mechanism whereby this tranche will increase by a ratio 0.6:1 for every repayment made under Tranche 1. This will result in the available facility increasing to US$35.0 million once Tranche 1 is fully repaid.

15. Cash flow notes

		30 June 2017¹ US$'000	30 June 2016¹ US$'000
15.1	Cash generated by operations
	Profit before tax and exceptional items Exception items²	5 266 (2 971)	39 164 (40 000)
	Adjustments for:
	Depreciation and amortisation on property, plant	5 789	5 182
	Waste stripping cost amortisation	31 681	17 975
	Impairment of asset	-	40 000²
	Finance income	(285)	(972)
	Finance costs	2 503	1 394
	Unrealised foreign exchange differences	(1 995)	(5 674)
	Profit on disposal of property, plant and equipment	-	(14)
	Movements in prepayments	99	83
	Other non-cash movements	1 141	1 411
	Share-based equity transaction	842	914
		42 070	59 463
15.2	Working capital adjustments
	(Increase)/Decrease in inventories	(2 001)	4 263
	Decrease in receivables	2 189	1 482
	Decrease in trade and other payables	(8 155)	(6 274)
		(7 967)	(529)

1 Unaudited

2 Refer to Note 4, Exceptional items

16. Commitments and contingencies

The Board has approved capital projects of US$16.0 million (31 December 2016: US$23.2 million), mainly relating to the Letšeng mining support services complex, of which US$14.9 million (31 December 2016: US$3.3 million) have been contracted at 30 June 2017.

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 relating to ongoing employee-related legal costs approximating US$1.0 million
(31 December 2016: US$0.5 million) and tax claims within the various jurisdictions in which the Group operates approximating US$1.0 million (31 December 2016: US$1.0 million).

17. Related parties

Relationship

Jemax Management (Proprietary) Limited Common

director Jemax Aviation (Proprietary) Limited Common

director Gem Diamond Holdings Limited

Common director Government of Lesotho

Non-controlling interest

	30 June 2017¹ US$'000	30 June 2016¹ US$'000
Compensation to key management personnel (including Directors)
Share-based equity transactions	609	715
Short-term employee benefits	1 383	2 573
	1 992	3 288
Fees paid to related parties
Jemax Aviation (Proprietary) Limited	(55)	(50)
Jemax Management (Proprietary) Limited	(51)	(36)
Royalties paid to related parties
Government of Lesotho	(7 030)	(8 415)
Lease and license payments to related parties
Government of Lesotho	(138)	(120)
Purchases from related parties
Jemax Aviation (Proprietary) Limited	90	(76)
Jemax Management (Proprietary) Limited	(4)	(3)
Amount included in trade receivables owing by/(to) related parties
Jemax Aviation (Proprietary) Limited	37	15
Jemax Management (Proprietary) Limited	(10)	(7)
Amounts owing to related party
Government of Lesotho	(2 551)	(2 112)
Dividends paid
Government of Lesotho	-	(6 247)

1 Unaudited

18. Events after the reporting Period

There were two events which took place between the Period end and the approval of the financial statements which are of

significance in assessing the state of the Group's affairs:

■ In July, the Gem Diamonds Limited US$35.0 million revolving credit facility was restructured to increase the facility from

US$35.0 million to US$45.0 million (refer to Note 14 Interest-bearing loans and borrowings). Following the restructure,

US$1.1 million was drawn down, resulting in US$18.8 million available to be drawn down under this facility;

■ In July, 1 335 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term

Incentive Plan of the Company. The vesting of the options will be subject to the satisfaction of certain market and non-market performance conditions over a three-year period. The satisfaction of certain performance as well as service conditions are classified as non-market conditions. 185 000 of the options granted relate to market conditions. The options vest after a three year period and are exercisable between 4 July 2020 and 3 July 2027. If the performance or service conditions are not met, the options lapse. The performance conditions relating to the non-market conditions are not reflected in the fair value of the award at grant date, and therefore the Company will assess the likelihood of these conditions being met with a relevant adjustment to the cumulative charge as required at each financial year end. The fair value of the nil-cost options is £0.86 (US$1.11) and the option grants are settled by issuing shares.

Contact Details and Advisers

Gem Diamonds Limited

Registered office

Coastal Building, 2nd Floor Wickham's Cay II

Road Town, Tortola

British Virgin Islands

Head office

2 Eaton Gate

London SW1W 9BJ United Kingdom

T: +44 (0) 203 043 0280

F: +44 (0) 203 043 0281

Financial adviser and sponsor

JPMorgan Casenove Limited

20 Moorgate

London EC2R 6DA

United Kingdom

T: +44 (0) 20 7588 2828

F: +44 (0) 20 7155 9000

Financial adviser

Liberum Capital Limited

Ropemaker Place, Level 12

25 Ropemaker Street London EC2Y 9LY United Kingdom

Tel: +44 (0) 20 3100 2000

Fax: +44 (0) 20 3100 2099

Panmure Gordon & Co.

One New Change

London EUM 9AF United Kingdom

T: +44 (0) 20 7886 2500

Legal adviser

Linklaters

One Silk Street London EC2Y 8HQ

United Kingdom

T: +44 (0) 20 7456 2000

F: +44 (0) 20 7456 2222

Auditors

Ernst & Young LLP

1 More London Place

London SE1 2AF United Kingdom

T: +44 (0) 20 7951 2000

F: +44 (0) 20 7951 1345

Financial PR Adviser

Celicourt Communications

Adam House

7-10 Adam Street, The Strand

London WC2N6AA United Kingdom

T: +44 (0) 20 7520 9265

This information is provided by RNS

The company news service from the London Stock Exchange

END

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