Half Year 2018 Results

RNS Number : 7731Z

Gem Diamonds Limited

05 September 2018

Half Year 2018 results

Wednesday 5 September 2018

Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Half Year Results for the period ending 30 June 2018 (the "Period").

Record recoveries of large, high quality diamonds at Letšeng, combined with the discovery and subsequent sale of the Lesotho Legend have generated a strong financial performance for the first half of 2018.

FINANCIAL RESULTS:

· Revenue US$167.7 million (up 81% from US$92.9 million in H1 2017)

· Underlying EBITDA, before exceptional items US$68.4 million (US$13.0 million in H1 2017)

· Attributable profit before exceptional items of US$24.5 million, after exceptional items of US$24.2 million (attributable profit before exceptional items of US$49k, attributable loss after exceptional items of US$2.9 million in H1 2017)

· Basic earnings per share 17.68 US cents before exceptional items (Basic earnings per share 0.04 US cents before exceptional items in H1 2017)

· Cash on hand US$70.5 million (US$47.7 million in 31 December 2017)

OPERATIONAL RESULTS:

Letšeng

· Recovery of 910 carat Lesotho Legend, sold for US$40.0 million

· Recovered a half year record of ten diamonds greater than 100 carats

· Record rough tender revenue of US$169.2 million (US$88.8 million in H1 2017)

· Average price of US$2 742 per carat achieved (up 54% from US$1 779 per carat in H1 2017)

· 25 diamonds achieved a sales value of greater than US$1 million each

· Ore tonnes treated of 3.0 million (3.2 million tonnes in H1 2017)

· Carats recovered of 61 596 (50 478 carats in H1 2017)

Business Transformation

· Solid progress made with US$47.0 million of the US$100.0 million 4-year target to 2021 implemented

· US$10.0 million of the implemented initiatives have been cash flowed to date

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

"We are pleased to report our 2018 half yearly results. Letšeng's improved recoveries combined with the discovery and subsequent sale of the Lesotho Legend has generated a strong set of results. Letšeng produced a record number of diamonds greater than 100 carats for any six-month period in the mine's history reaffirming the exceptional and unique quality of Letšeng. Subsequent to June, two further diamonds larger than 100 carats have been recovered, with the latest in August marking the twelfth such recovery for the year. This now positions 2018 as a record for recoveries of diamonds greater than 100 carats in a single year.

The market for Letšeng's high-quality diamonds has remained robust, with an average price achieved of US$2 742* per carat during the Period, up 54% compared to H1 2017 of US$1 779*.

It is also pleasing to report on the progress of the Business Transformation. This has already seen initiatives achieved in revenue, productivity improvements and cost savings to the value of US$47 million of the 2021 US$100 million target."

The Company will host a live audio webcast presentation of the full year results today, 5 September 2018, at 10:30 BST. This can be viewed on the Company's website: www.gemdiamonds.com

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.

FOR FURTHER INFORMATION:

Gem Diamonds Limited

Susan Wallace, Company Secretarial department

ir@gemdiamonds.com

Celicourt Communications

Mark Antelme / Joanna Boon
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.

www.gemdiamonds.com

Interim Business Review

The first half of 2018 (the Period) started exceptionally well, with the recovery of two diamonds greater than 100 carats and the remarkable 910 carat Lesotho Legend in January. The diamond is the second largest gem quality diamond recovered this century and the largest recovered at the Letšeng mine to date, reaffirming the unique quality of the mine's diamond production. The Lesotho Legend achieved a price of US$40.0 million (US$43 912 per carat) on tender in March, further highlighting the exceptional quality of the iconic diamond and the Group's expertise in the sales and marketing of high quality diamonds. The trend of large diamond recoveries continued, with 12 diamonds greater than 100 carats being recovered to 4 September 2018, 10 of which were recovered during the Period. This is a record for Letšeng, contributing to an average price achieved of US$2 742^* per carat during the Period, up 54% compared to H1 2017 of US$1 779^*.

During the Period, the Business Transformation process progressed well and the cumulative 2021 target of US$100.0 million in revenue, productivity improvements and cost savings remains on track, with implemented initiatives contributing approximately US$47.0 million to the cumulative US$100.0 million target. Of these implemented initiatives, US$4.7 million relates to once-off savings through working capital management and the sale of non-core assets and the balance of US$42.3 million relates to cumulative recurring annualised benefits over the 4-year period in mining, processing and corporate activities. US$10.0 million of the implemented initiatives has been cash flowed since the Business Transformation process was implemented in 2017.

At Letšeng, mining progressed in line with the mine plan with 61 596 carats recovered during the Period, an improvement of 22% when compared to H1 2017. A new scrubber shell was successfully installed in Plant 2 and feed rates returned to normal post the planned shutdown. Although the installation of the new shell took longer than planned, an initiative to run a bypass conveyer was implemented to mitigate the overall impact of lost tonnages caused by the plant shutdown. In April 2018 the mining services complex project was completed on time and under budget with no Lost Time Injury (LTI) or any significant or major environmental incidents.

In April 2018, following the application for renewal of the Letšeng Mining Lease submitted in March 2018, the Prime Minister of Lesotho, at the Commonwealth Heads of Government meeting in London, announced the Lesotho Government's intention to renew the lease until 2034. The full terms of the renewed mining lease are subject to a statutory negotiation process with the Lesotho Mining Board and, when agreed, will be contained in a new mining lease agreement. Statutory negotiations are anticipated to be concluded by the end of 2018.

During the Period the Company continued to make good progress in its two key technologies to i) identify locked diamonds within kimberlite; and, ii) to liberate diamonds using a non-mechanical process. These technologies are aimed primarily at limiting diamond damage and lowering operating costs. Plans have been approved to mobilise a test plant at Letšeng in 2019 to process tailings as part of the development of these technologies.

The Ghaghoo mine was placed on care and maintenance in 2017 following the weak state of the diamond market for the category of diamonds produced at Ghaghoo and a decision was made to proceed with the sale of the Ghaghoo mine. The damage caused by an earthquake to the seal of the underground water fissure in April 2017 was successfully repaired in July 2018. During the Period, a formal sale process to sell the Ghaghoo mine commenced with Nedbank Capital being appointed as the corporate advisor on the transaction and initial non-binding offers were received in July 2018.

With strong operational results, the Group generated underlying EBITDA after exceptional items of US$68.1 million (30 June 2017: US$10.0 million), resulting in an attributable profit after exceptional items of US$24.2 million (30 June 2017: attributable loss after exceptional items of US$2.9 million) and an earnings per share after exceptional items of 17.5 US cents (30 June 2017: loss per share after exceptional items of 2.11 US cents) on a weighted average number of shares in issue of 138.7 million. The Group ended the Period with a cash balance of US$70.5 million and drawn down facilities of US$40.7 million, resulting in a net cash position of US$29.8 million and unutilised available facilities of US$38.2 million. After Period end, the Letšeng LSL 250.0 million three-year unsecured revolving working capital facility held jointly with Standard Lesotho Bank and Nedbank Capital was increased to LSL500.0 million and renewed for a further 3-years until July 2021. This increases the undrawn and available facilities to US$ 56.5 million.

Mike Brown, a highly experienced executive in the diamond industry was appointed as an independent non-Executive Director and Chairman of the HSSE Committee in January 2018. On 28 June 2018 Johnny Velloza, the Group COO, advised of his intention to leave the Company as an Executive on 15 September 2018 to pursue an opportunity in the DRC. Johnny, however, will remain on the Board as a non-Executive Director. Gavin Beevers, who has spent 10 years on the Gem Diamonds' Board and is well versed in the Company's operations, will join the Company as technical advisor whilst a search for Johnny's successor continues. The Board is most grateful to Johnny for the key role he played in the Group and wish him well in his new role.

Diamond market

The global market for rough diamonds improved as the manufacturing sector reduced inventories. This resulted in a slight upward trend in overall rough diamond prices and the stabilisation of polished diamond prices. Financing challenges in the midstream segment persist forcing out smaller, less sophisticated operations. 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, specifically China and India, coupled with a limited growth in supply. Against this background, Letšeng's large, high quality goods continued to perform well as reflected in an average US$ per carat achieved for H1 2018 of US$2 742^* per carat.

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-free H1 2018, however, four LTI's occurred during the first quarter, resulting in a Group-wide Lost Time Injury Frequency Rate (LTIFR) of 0.30. The Group-wide All Injury Frequency Rate (AIFR) is 1.37 for the Period. No major or significant environmental or stakeholder incidents were reported over the Period and close collaboration with our project affected communities continued throughout the Period with investment being made into community and social programmes, including the flagship dairy farming project which commenced in 2016 and the initiation of an egg farming co-operative in Lesotho.

^*^{Includes carats extracted at rough valuation}

Operating review: Letšeng

H1 2018 in review

· Recovery of 910 carat Lesotho Legend, largest Letšeng diamond ever recovered to date, sold for US$40.0 million

· Record recovery of 10 diamonds larger than 100 carats

· Average price of US$ 2 742^* per carat achieved (US$1 779^* per carat in H1 2017)

· Construction of the relocated mining complex complete on time and under budget

· Reported four lost time injuries

Operational performance

	H1 2018	H1 2017
Waste mined (tonnes)	13 492 867	15 004 160
Ore mined (tonnes)	2 740 951	3 410 988
Ore treated (tonnes)	2 991 802	3 178 631
Carats recovered - production	56 228	50 308
Grade recovered¹ (cpht)	1.88	1.58
Carats recovered - re-treated recovery tailings	5 368	170
Carats sold	61 696	49 930
Average price per carat (US$)²	2 742	1 779

^{1Based on production carats and excludes carats from the tailings re-treatment.}

^{2 Includes carats extracted 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.

During the Period, Letšeng continued mining in accordance with the life of mine (LoM) plan. Additional work is being conducted on the LoM plan with the aim of further reducing waste stripping required to expose the Kimberlite in both the Main and Satellite pipes through the steepening of the waste slopes. This process will be concluded in H2 2018 and it is envisaged that mining in line with the revised plan will commence in January 2019 once all technical and safety aspects have been considered.

Letšeng treated a total of 2.5 million tonnes of ore through its two main plants during the Period, of which 59% was sourced from the Main pipe, and 41% from the Satellite pipe. Alluvial Ventures, who operate a third plant at Letšeng, treated the balance of 0.5 million tonnes in the Period, 54% of which was sourced from the Main pipe and 46% from low grade ore stockpiles. Owing to the amount of low grade material available to be treated, the contract with Alluvial Ventures has been extended to the middle of 2020 when it is planned that all low-grade material will have been removed and treated.

During Q1 2018, the Letšeng plants continued to experience lower than planned availabilities. In May, both plants were stopped for a major shutdown to repair various elements of the plant, including the replacement of the scrubber shell in Plant 2. The installation of the new shell was a complex operation owing to the concrete foundation of the scrubber installation requiring to be fully rehabilitated, which delayed the planned shutdown by 10 days thereby impacting ore tonnes treated during the Period. During the scrubber change out an initiative to run a bypass conveyer was implemented to mitigate the overall impact of lost tonnages. The shutdown was successfully concluded, and the feed rate into the plant has since reverted to normal levels. The operational focus in the plant is to ensure stable production and stable feed to ensure process stability, especially in the Dense Medium Separate (DMS) units in the plant. The operation continues to focus on value over volume and as a result the plant will not be overfed to makeup the shortfall in tonnage treated in the first half of the year. Improved plant availability will allow for more tonnage to be treated as the total run time of the plant improves without over-feeding the plant.

During the Period, 61 596 carats were recovered, an improvement of 22% when compared to H1 2017. The slightly lower tonnage treated was offset by a higher mine core factor and higher head feed grade owing to the volume of Satellite material treated. The tailings re-treatment facility produced an additional 5 368 carats from recovery tailings material that was generated before the upgrade of the recovery process. The recovered grade for the Period was 1.88 carats per hundred tonnes (cpht) against an expected reserve grade of 1.83 cpht.

During the Period, work has continued on enhancing value by reducing diamond damage through initiatives underway that focus on blasting, crusher setup, screening efficiency and DMS feed control. The trend of improved large stone recoveries seen during H2 2017 continued during the Period with a record recovery of 10 diamonds greater than 100 carats in H1 2018, including the magnificent 910 carat Lesotho Legend. There has also been an increase in the number of diamonds recovered in all size fractions above 20 carats. The table below sets out the frequency of recovery of large diamonds.

Frequency of recovery of large diamonds

	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	H1 2018
Number of diamonds
>100 carats	7	6	7	6	3	6	9	11	5	7	10
60-100 carats	18	11	11	22	17	17	21	15	21	21	13
30-60 carats	96	79	66	66	77	60	74	65	70	74	38
20-30 carats	108	111	101	121	121	82	123	126	83	116	63
Total diamonds > 20 carats	229	207	185	215	218	165	227	217	179	218	124

The construction of the relocated mining complex, required to make way for the expansion of the open pits, has been completed, on time and below budget. The capital project for the extension of the tailings storage facility project was approved by the Board in November 2017 for c.US$13.7 million. The extension is progressing well and will be completed on time and within budget, during H1 2020.

The core drilling program, which commenced in 2017 to firm up the existing resource base is scheduled to be completed in H2 2018. Following the core drilling program, core analysis will be done in Q1 2019, which includes micro diamond analysis. These results will be used to update the Reserve and Resource statement.

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 2018, with a total of 61 696 carats sold in Antwerp through Gem Diamonds Marketing Services (GDMS), a wholly owned Gem Diamonds subsidiary. Letšeng achieved a record for its rough tender revenue of US$169.2 million*, with an average price of US$2 742* per carat, bringing the 12-month rolling US$ per carat average to US$2 414* per carat.

HSSE

Four LTI's were recorded at Letšeng during Q1 2018, resulting in an LTIFR of 0.30. The AIFR for the Period was 1.37. Letšeng continues to work towards its goal of zero harm and has implemented various health and safety management initiatives aimed at further improving the safety performance on the mine following the four injuries. No LTI's occurred during Q2 2018. The core of the safety focus at Letšeng is to build on the culture of behaviour-based care at work. Throughout the Business Transformation process all process changes and cost reductions are scrutinised to ensure that the safety of staff, the sustainability of the operation and the welfare of the communities is not being compromised.

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. The dairy farm project, a flagship project which commenced in 2016 in the Mokhotlong district in Lesotho, was formally opened by the Mines Minister in February 2018. Furthermore, an egg farming co-operative project has been initiated to benefit the community around the Letšeng mine to celebrate the recovery of the Lesotho Legend.

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

H2 2018 and onwards

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

· continue to focus on plant availability and process stability;

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

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

· complete core drilling program and commence core analysis; and,

· drive the safe implementation of the pit slope steepening.

^*^{Includes carats extracted at rough valuation}

Operating review: Sales, marketing and manufacturing

H1 2018 in review

· The 910 carat Lesotho Legend sold for US$40.0 million

· Rough tender revenue record of US$169.2 million* (US$88.8 million* in H1 2017)

· 25 diamonds achieved a value greater than US$1.0 million each

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 to achieve additional margins along the diamond value chain.

Sales and marketing

The Group's rough diamond production is marketed and sold by GDMS in Antwerp 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 and 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 the highest market-driven prices for Letšeng's rough diamond production.

In line with the Groups' strategy of exploring new sales avenues to maximise value, GDMS concluded a trial of three tender viewings in Tel Aviv. Based on the new customer base reached and the positive results yielded from these viewings, the Tel Aviv viewings will continue four times a year for Letšeng's large tenders.

During H1 2018, four Letšeng tenders were held with 61 696 carats sold for a total value of US$169.2 million* achieving an average of US$2 742* per carat.

During the Period, one pink diamond of 8.52 carats was sold into a partnership arrangement at a rough price of US$375 000. In addition to the rough price, Letšeng will share in the revenue uplift at the time of the sale of the resultant polished diamonds.

The highest US$ per carat achieved for a rough diamond was US$62 433 per carat for a 2.26 carat pink diamond that was sold on tender. The highest US$ per carat achieved for a white diamond was US$56 028 for a 66.27 carat diamond.

Analysis and manufacturing

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

Baobab analysed 43 of Letšeng's large, exceptional quality rough diamonds during the Period.

^{* Includes carats extracted at rough valuation}

Business Transformation

The Business Transformation continued its momentum in 2018 and the cumulative 4-year target of US$100.0 million in revenue, productivity improvements and cost savings to 2021 remains on track.

Initiatives which will contribute US$47.0 million to the cumulative US$100.0 million target have been implemented. Of these implemented initiatives, US$4.7 million relates to once-off savings and the balance of US$42.3 million relates to cumulative recurring annualised benefits over the 4-year period. US$10.0 million of the implemented initiatives have been cash flowed to date.

The 4-year period financial impact on the balance sheet (B/S) and income statement (I/S) in terms of net revenue increase (I/S), cost reduction ((I/S) and cash improvement (B/S) of the implemented initiatives and the resulting cash flowed to date compared to the cumulative 4-year US$100.0 million target is illustrated below:

(US$ million)	Target	Initiatives implemented	Cash flowed
Net revenue increase (I/S)	27	17	7
Cost reduction (I/S)	42	18	1
Cash (B/S)	31	12	2
Total	100	47	11

The table below references the target of US$100.0 million (as reported in the 2017 Annual Report) together with the status of implementation of the primary contributing initiatives. Of the US$47.0 million implemented to date, US$39.4 million has primarily resulted from the successful implementation of initiatives in the mining and processing workstreams and the balance of US$7.6 million has resulted from improved working capital management, reduction of corporate overheads and the sale of non-core assets.

Initiative & Target

Activity & Target

Objective

Impact

Status

Mining:

US$42.0 million

Drill, load and haul activities:

US$31.0 million

Reduce mining costs through:

• improving efficiencies and rates; and reviewing tenure of mining contractor;

• optimising support equipment requirements and associated cost;

• improving haul roads to optimise truck speeds;

• increasing truck capacity by 7% by installing greedy boards; and

• improving drill rates by 30% by modernising the drilling fleet with a cost-efficient autonomous system.

Reduce waste unit costs

Cash (B/S)

Reduce ore unit costs

Cost reduction (I/S)

Implemented¹ US$15.6 million

A reduction in mining rates implemented in H1 2018 primarily based on the optimisation of the mining fleet and support equipment, increased truck capacity through installing greedy boards and improving haul road conditions.

Work in progress²

Further rate reductions targeted through continuous maintenance of haul roads, improving truck speeds, optimising shift changes and drill rates.

Targeting further benefit through improved diesel consumption initiatives.

Pit design:

US$6.0 million

Opportunities to steepen current slope angles are being studied with the benefit of reducing waste tonnes over the LoM.

Reduce waste tonnes

Cash (B/S)

Work in progress²

Slope design and blasting trials to ensure reliable berm retention are underway with initial positive results. The implementation of this initiative will follow the geotechnical, blasting and safety sign-offs which are currently expected in Q4 2018.

Blasting practices:

US$5.0 million

Changing blasting patterns and practices, accessories and explosive mix, leading to a reduction in blasting consumables by up to 30%.

Reduce direct cash costs

Cost reduction (I/S)

Implemented¹ US$4.1 million

Reduced the number of primers used per blast hole in both ore and waste by 1 unit.

Secured early settlement discounts with explosive suppliers.

Work in progress²

Additional blasting initiatives being tested to further reduce explosive consumables and accessories.

1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

2. "Work in progress" - means an initiative has been planned and a business case has been approved for implementation. Associated implementation costs may have been incurred.

Initiative & Target	Activity & Target		Objective		Impact		Status
Processing: US$34.0 million		Plant uptime: US$16.0 million		46 initiatives identified to improve plant uptime through: • improved maintenance scheduling (planned and unplanned); • improving ore feed management; • improving stability of power supply; and • reducing operational delays.		Increase ore tonnes treated Net revenue increase (I/S)		Implemented¹ US$0.5 million Once-off implementation of a scrubber bypass which mitigated the loss of tonnes due to the planned Plant 2 extended shutdown in H1 2018 to replace the scrubber. Work in progress² The plant uptime initiatives are being implemented at different stages during the 4-year period, and the benefits are expected to ramp up from 2019.
		Additional throughput: US$16.0 million		Deploy an XRT machine to re-treat tailings.		Increase carats recovered Net revenue increase (I/S)		Implemented¹ US$18.3 million Additional carats recovered to 30 June 2018 from the re-treating of tailings by the new XRT sorting machine.
				Review and renegotiate the Alluvial Ventures contract for the operation of the third plant at Letšeng.		Reduce direct cash costs Cost reduction (I/S)		The Alluvial Ventures contract has been renegotiated to realign the profit margin share and to extend the tenure to mid-2020.
		Plant consumables: US$2.0 million		Efficient usage and reduce consumption of plant consumables.		Reduce direct cash costs Cost reduction (I/S)		Implemented¹ US$0.8 million Improved flocculent and coagulant combination product introduced. Work in progress² Further initiatives to optimise the usage of plant consumables are being implemented, such as improved stock controls and the installation of a new flocculent recovery unit in Plant 1.

1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

2. "Work in progress" - means an initiative has been planned and a business case has been approved for implementation. Associated implementation costs may have been incurred.

Initiative & Target

Activity & Target

Objective

Impact

Status

Working capital
and overheads:

US$4.0 million

Working capital:

US$1.0 million

Improve working capital management with specific focus on redundant and slow-moving plant inventory at Letšeng.

The working capital initiative is a once-off benefit which is expected to deliver over a 12-18 month period.

Reduce working capital (once off benefit)

Cash (B/S)

Implemented¹ US$0.6 million

Draw down of slow moving stock and the rebasing of economic order quantities has been implemented.

Work in progress²

Redundant stock and scrap metal has been identified for sale.

Overheads:

US$3.0 million

Reducing support service costs at Letšeng through contract reviews and focused contract management.

Implementing stricter spend control procedures on administrative and support costs at Letšeng

Reducing the Letšeng corporate office footprint and other office costs

Reduce direct cash costs

Cost reduction (I/S)

Implemented¹ US$3.1 million

The catering and housekeeping contract was reviewed and renegotiated.

Entered into new IT network provider contracts offering improved technological services and rates.

The Letšeng corporate office footprint has been reduced through the sub-leasing of excess office space.

Work in progress²

Additional initiatives to reduce overheads at Letšeng, including further energy saving opportunities and insurance reviews, have been identified and are in the process of being implemented.

1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

2. "Work in progress" - means an initiative has been planned and a business case has been approved for implementation. Associated implementation costs may have been incurred.

Initiative & Target

Activity & Target

Objective

Impact

Status

Corporate activities:

US$20.0 million

Non-core assets:

US$16.0 million

Selling non-core mining fleet and redundant stock at Ghaghoo.

Reduce direct cash costs

Cost reduction (I/S)

Once-off cash benefit

Cash (B/S)

Implemented¹ US$2.1 million

Assets associated with Ghaghoo i.e. the aircraft servicing the mine, certain non-core mining fleet and inventory have been sold.

Reduce or eliminate the ongoing care and maintenance costs at Ghaghoo.

Reduce direct cash costs

Cost reduction (I/S)

Work in progress²

The initiative to reduce or eliminate the care and maintenance costs of Ghaghoo mine continues.

Selling other non-core assets across the Group.

Once-off cash benefit

Cash (B/S)

Work in progress²

Additional non-core assets across the Group have been identified for sale.

Corporate costs

US$4.0 million

Implementation of stricter spend control procedures on admin and support costs and focusing on fit-for-purpose operations.

Downsizing office footprint in the United Kingdom, South Africa and Botswana.

Reduce direct cash costs

Cost reduction (I/S)

Implemented¹ US$1.9 million

Office footprints in the United Kingdom and Botswana reduced.

Strict spend control through one centralized cost approval office implemented.

Focused control of travel expenditure and associated costs.

Reduced Annual Report publishing and printing costs.

Reduced professional fees.

Work in progress²

Reduction of membership association fees, reduced office footprint in South Africa and numerous other initiatives are being implemented to further reduce Corporate costs.

1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

2. "Work in progress" - means an initiative has been planned and a business case has been approved for implementation. Associated implementation costs may have been incurred.

The success and sustainability of the Business Transformation is underpinned by the organisational health of the Group. Of the 48 organisational health initiatives identified following the Organisational Health Index (OHI) survey conducted in Q3 2017, 29 have been implemented and the remaining 19 are expected to be implemented in H2 2018. A follow up OHI survey is scheduled during Q4 2018 to assess the impact on the organisational health of the Group following the implementation of these initiatives. The Business Transformation employee recognition and reward scheme, which will be self-funded through the gains of the Business Transformation, has been developed and implemented.

The focus for the remainder of the year is to drive the implementation of approved initiatives and to ensure the sustainability of the Business Transformation throughout the Group.

Group financial performance

Results overview

· Record Letšeng tender revenue US$169.2 million^* (US$88.8 million^* in H1 2017)

· Underlying EBITDA¹ US$68.4 million, pre-exceptional items (US$13.0 million, in H1 2017, pre-exceptional items)

· Attributable net profit, before exceptional items US$24.5 million (US$49k attributable net profit, before exceptional items, in H1 2017)

· Basic earnings per share 17.68 US cents before exceptional items² (Basic earnings per share 0.04 US cents before exceptional items² in

· H1 2017)

· Cash on hand US$70.5 million

· Post Ghaghoo once-off costs of US$0.3 million, attributable net profit US$24.2 million resulting in an earnings per share of 17.48 US cents (attributable net loss US$2.9 million resulting in a loss per share of 2.11 US cents in H1 2017)

(US$ million)	H1 2018 Pre-exceptional items	H1 2018 Exceptional Items²	H1 2018 Post-exceptional items	H1 2017⁴
Revenue	167.7	-	167.7	92.9
Royalty and selling costs	(14.7)	-	(14.7)	(8.4)
Cost of sales³	(79.3)	-	(79.3)	(66.7)
Cost of sales - exceptional²	-	(0.3)	(0.3)	(3.0)
Corporate expenses	(5.3)	-	(5.3)	(4.8)
Underlying EBITDA¹	68.4	(0.3)	68.1	10.0
Depreciation and mining asset amortisation	(4.4)	-	(4.4)	(5.9)
Share-based payments	(0.8)	-	(0.8)	(0.8)
Other income	0.5	-	0.5	0.1
Foreign exchange gain	2.1	-	2.1	1.1
Net finance costs	(0.7)	-	(0.7)	(2.2)
Profit/(loss) before tax	65.1	(0.3)	64.8	2.3
Income tax expense	(23.9)	-	(23.9)	(1.7)
Profit/(loss) for the Period	41.2	(0.3)	40.9	0.6
Non-controlling interests	(16.7)	-	(16.7)	(3.5)
Attributable Profit/(loss)	24.5	(0.3)	24.2	(2.9)
Earnings/(loss) per share (US cents)	17.68		17.48	(2.11)

^{1 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}

^{2 Exceptional costs relate to costs associated with additional dewatering at Ghaghoo as a result of the earthquake that occurred in 2017.In the previous year it related to the once-off costs associated with placing Ghaghoo on care and maintenance in addition to dewatering costs.}

^{3 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation}

^{4 Post exceptional items}

Record tender revenues achieved at Letšeng during the Period was underpinned by strong operational results with a record 10 diamonds greater than 100 carats being recovered. Included in these recoveries, is the remarkable 910 carat Lesotho Legend that sold for US$40 million. This diamond is believed to be the second largest Gem quality diamond to be recovered this century, and contributed significantly towards the Group's improved revenue, cash position and strengthened balance sheet. These recoveries continued in H2 2018 with a further two diamonds greater than 100 carats being recovered, resulting in a record 12 diamonds greater than 100 carats being recovered to date of this report. The successful implementation of several Business Transformation initiatives resulted in US$7.6 million, net of fees and costs, contributed to the Group's results during the Period. The Group is on track to deliver on its 2021 US$100.0 million cumulative target in revenue, productivity improvements and cash costs savings.

Revenue

The Group's revenue during the Period was primarily derived from its mining operations in Lesotho (Letšeng). Letšeng's large high-quality white rough diamonds continued to be in high demand and the improvement in the frequency of the recovery of these types of diamonds saw 10 diamonds greater than 100 carats being recovered during the Period, compared to a total of seven for the full 2017 year.

Group revenue of US$167.7 million in the Period was 81% higher than that achieved in H1 2017. Letšeng achieved an average of
US$2 742^* per carat (US$1 799* per carat in H1 2017) during the Period which was 33% higher than that achieved for the immediately preceding six-month period, H2 2017, of US$2 061^*. This improvement in revenue generated is due to the improvement in the frequency of the recovery of large, high-quality white diamonds and further aided by a 24% increase in total carats sold. Included in this revenue improvement are Business Transformation initiatives which contributed US$9.3 million, before associated operating and implementation costs, during the Period. This mainly related to the implementation of a mobile XRT sorting machine to re-treat tailings material, contributing to the increase in carats sold during the Period.

Letšeng revenue

	H1 2018	H1 2017
Carats sold	61 696	49 930
Average price per carat (US$)^*	2 742	1 779

^{* Includes carats extracted at rough valuation}

Group revenue summary

	H1 2018	H1 2017
Sales - rough	169.2	88.8
Sales - polished margin	0.2	0.7
Sales - other	0.2	0.2
Impact of movement in own manufactured inventory	(1.9)	3.2
Group revenue	167.7	92.9

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 increased by 75% to US$14.7 million, in line with higher 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. Although the local currency Period end rates closed weaker for the Period, the average 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 2017) which negatively impacted underlying US dollar costs and the Group's US dollar reported costs. Group cost of sales for the Period was US$79.3 million, compared to US$66.7 million in H1 2017, the majority of which was incurred at Letšeng.

Exchange rates	H1 2018	H1 2017	% change
LSL per US$1.00
Average exchange rate for the Period	12.32	13.21	(7%)
Period-end exchange rate	13.71	13.10	5%
BWP per US$1.00
Average exchange rate for the Period	9.78	10.41	(6%)
Period-end exchange rate	10.40	10.26	1%
US$ per GBP1.00
Average exchange rate for the Period	1.38	1.26	10%
Period-end exchange rate	1.32	1.30	2%

Letšeng mining operation

Cost of sales for the year was US$77.2 million, up 25% from US$61.7 million in H1 2017, an increase of US$15.5 million of which US$2.5 million represents an increase in waste stripping amortisation costs due to the mining mix. Total waste stripping costs amortised of US$34.2 million were incurred compared to US$31.7 million in H1 2017.

In line with the mine plan, 13.5 million tonnes of waste were mined during the Period. Total ore tonnes treated of 3.0 million tonnes were 6% lower than H1 2017, mainly due to the shutdown in Plant 2, to replace the cracked scrubber shell. Of the total ore treated, 2.5 million

tonnes were treated through the Letšeng Plants, with a Satellite to Main pipe ratio of 41:59, compared to 31:69 in H1 2017. Carats recovered during the Period of 61 596 were 22% higher than H1 2017. Notwithstanding the lower tonnes treated, the improved carats were due to the improved mining mix as well as recovering additional carats through the re-treatment of tailings material.

In local currency, total direct cash costs increased by 14% to LSL586.6 million in H1 2018 compared to LSL513.6 million in H1 2017 resulting in total direct cash costs of LSL196.06 per tonne (H1 2017: LSL161.57). The 6% lower tonnes treated during the Period of 3.0 million tonnes compared to 3.2 million tonnes in H1 2017 had a negative impact on the overall reported unit costs.

Unit cost per tonne treated	Operating costs				Business Transformation (BT) costs			Non-cash accounting charges²
LSL	Direct cash costs¹	3^rd Plant operator costs	Once-off maintenance costs	Sub-total	XRT sorting machine operating costs	Fees and employee reward scheme	Total direct operating cash costs	Charges	Total operating cost
H1 2018	144.87	22.95	5.76	173.58	1.72	20.76	196.06	117.03	313.09
H1 2017	147.09	14.48	-	161.57	-	-	161.57	100.07	261.63
% Change	-2%	58%	-	7%	-	-	21%	17%	20%

US$
H1 2018	11.76	1.86	0.47	14.09	0.14	1.69	15.92	9.50	25.42
H1 2017	11.13	1.10	-	12.23	-	-	12.23	7.58	19.81
% Change	6%	70%	-	15%	-	-	30%	25%	28%

¹ Direct mine cash costs represent all operating costs, excluding royalty and selling costs

²Non-cash accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and excludes depreciation and mining asset amortisation.

Notwithstanding the impact of reduced tonnes treated, local country inflation, increased ore mining hauling distances of 6% and increased fuel price of 15%, the direct cash cost per tonne treated decreased by 2%. This is the result of the cost savings derived from the Business Transformation initiatives during the Period. These initiatives delivered US$1.2 million of cost savings, net of operating and implementation costs, during the Period.

3rd Plant processing contractor cash costs per tonne treated in local currency increased by 58%. This cost is a function of the revenue generated by the sales from diamonds recovered through the contractor plant and the increase in costs is due to the additional revenue generated during the Period.

The scrubber shell in Plant 2 that cracked in the latter part of 2017 was replaced during the Period for LSL17.2 million, resulting in a LSL5.76 increase in once-off repairs and maintenance costs.

The Business Transformation related costs are operating cost relating to the XRT sorting machine of LSL1.72 which contributed additional revenue of US$7.6 million during the Period and LSL20.76 per tonne increase in costs relating to the implementation of Business Transformation. These implementation costs include consultancy fees paid and a provision for an employee recognition and reward scheme that has been developed and implemented. Both these costs are self-funded through the gains of the Business Transformation.

The non-cash accounting charges per tonne treated increased mainly due to the lower tonnes treated, higher waste amortisation costs as a result of the different waste to ore strip ratios for the particular cuts mined during the Period as well as ending the Period with a higher value of diamond inventory. The amortisation charge attributable to the Satellite pipe ore accounted for 82% of the total waste stripping amortisation charge in the Period (H1 2017: 76%).

The total operating costs (post non-cash accounting charges) per tonne treated was LSL313.09, which is 20% higher than H1 2017 of LSL261.63 per tonne treated.

The increase in the local currency waste cash cost per waste tonne mined increased by 3% to LSL34.46 (H1 2017: LSL33.38). The cost savings of various Business Transformation initiatives were negatively impacted by local country inflation, increased waste mining hauling distances of 19% and increased fuel price of 15%.

Other operating information

(US$ million)	H1 2018	H1 2017
Waste cost capitalised	42.9	42.9
Waste stripping cost amortised	34.2	31.7
Depreciation and mining asset amortisation	4.4	5.9
Capital expenditure	10.9	7.2

Ghaghoo mining operation (on care and maintenance)

Net costs for the Period amounting to US$2.6 million have been recognised in the income statement. The majority of these costs related to care and maintenance costs of US$2.3 million and costs associated with additional dewatering and sealing relating to the fissure which was damaged following an earthquake in 2017. These additional costs of US$0.3 million, net of insurance proceeds received, have been classified as exceptional items in the income statement, having an overall effect on earnings of 0.21 US Cents per share in the Period. The fissure was successfully sealed at the end of the Period.

The prior Period exceptional item of US$3.6 million relates to once-off costs associated to achieve care and maintenance status as well as additional dewatering costs relating to the earthquake.

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$0.2 million to Group revenue (through additional polished margin generated). The robust pricing achieved for Letšeng's production resulted in limited extractions during the Period for manufacturing. Extracted diamond inventory on hand at the end of the Period was US$2.4 million compared to US$0.5 million at 31 December 2017. This resulted in lower Group revenue being recognised of US$1.9 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. General corporate costs for the Period amounted to US$4.6 million (H1 2017: US$4.8 million) continuing the trend of reducing corporate costs despite inflation and a 7% and 10% weaker US$ exchange rate against the South African Rand and British Pound respectively. In addition, a further US$0.5 million relating to Business Transformation implementation costs and US$0.2 million relating to projects costs were incurred during the Period. The Business Transformation implementation costs relate to consultancy fees paid and a provision for an employee recognition and reward scheme that has been developed and implemented both these costs will be self-funded through the gains of the Business Transformation.

The share-based payment charge for the Period amounted to US$0.8 million (H1 2017: US$0.8 million). On 20 March 2018, 1 450 000 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.

Underlying EBITDA¹ and attributable profit

Based on the above operating results, the Group generated an Underlying EBITDA¹ of US$68.4 million. The profit attributable to shareholders for the Period was US$24.5 million before exceptional items, equating to an earnings per share, before exceptional items of 17.68 US cents on a weighted average number of shares in issue of 138.7 million. After including the effect of the exceptional items of US$0.3 million, the Group's attributable profit was US$24.2 million and an earnings per share of 17.48 US cents.

The Business Transformation initiatives contributed an improved revenue of US$7.4 million (after operating and implementation costs) and cost savings of US$2.4 million (after operating and implementation costs). Also included in cost of sales are the Business Transformation consulting and provision for incentive costs associated with these initiatives of US$5.4 million, resulting in a net contribution of US$4.4 million to the Group's EBITDA¹ during the Period.

The forecast effective tax rate for the full year is 36.65% 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% and 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 disciplined cash management and ended the Period with cash on hand of US$70.5 million (31 December 2017: US$47.7 million) of which US$58.1 million is attributable to Gem Diamonds and US$0.2 million is restricted. At Period end, the Group had utilised facilities of US$40.7 million, resulting in a net cash position of US$29.8 million. Furthermore, standby undrawn facilities of US$38.2 million remain available, comprising US$20.0 million at Gem Diamonds and US$18.2 million at Letšeng.

Contributing to the Group's closing cash balance of US$70.5 million is US$3.2 million due to direct cash saving Business Transformation initiatives relating to the sale of the aircraft that serviced the Ghaghoo mine and selling redundant equipment at the operations. This is in addition to the US$4.4 million EBITDA¹ improvement detailed above, resulted in an overall contribution of US$7.6 million from Business Transformation during the Period.

Summary of loan facilities as at 30 June 2018

Company	Term/ Description	Lender	Expiry	Interest Rate	Amount (US$ million)	Drawn Down (US$ million)	Available (US$ million)
Gem Diamonds Limited	3-year RCF and term loan	Nedbank	December 2020	London US$ three-month Libor + 4.5%	45.0	25.0	20.0
Letšeng Diamonds	3-year RCF	Standard Lesotho Bank and Nedbank Lesotho	July 2018^*	Lesotho prime rate	18.2	-	18.2
Letšeng Diamonds	5.5-year project facility	Nedbank / ECIC	August 2022	Tranche 1 (ZAR 180m) South African JIBAR + 3.15% Tranche 2 (LSL 35m) South African JIBAR + 6.75%	15.7	15.7	-
Total					78.9	40.7	38.2

^*Subsequent to Period end, the Letšeng Diamonds LSL250.0 million three-year unsecured revolving working capital facility jointly held with Standard Lesotho Bank and Nedbank Capital was renewed for a further three years until July 2021 and increased to LSL500.0 million. A more favourable interest rate on this facility was negotiated at the Lesotho prime rate less 1.5% with the remaining terms and conditions being in line with the existing facility. This increased the undrawn and available facilities to US$56.5 million after Period end.

The Group generated cash from operating activities of US$97.6 million (30 June 2017: US$34.2 million) before investment in waste stripping costs at Letšeng of US$42.9 million and capital expenditure of US$10.9 million, incurred mainly at Letšeng. The capital expenditure mainly comprised the completion of the mining support services complex (US$4.0 million) and the extension of the footprint of the Patiseng tailings storage facility (US$3.4 million).

During the Period, Letšeng paid dividends of US$51.7 million, which resulted in a net cash flow of US$32.6 million to Gem Diamonds and a cash outflow from the Group as a result of withholding taxes of US$3.6 million and payment of the Government of Lesotho's share of dividend of US$15.5 million.

Outlook

Continue focus on cash generation by remaining disciplined with capital and cash management practices to further strengthen the balance sheet.

Actively pursue the successful delivery of the US$100.0 million cumulative target in revenue, productivity improvements and cash costs savings by 2021.

Review available options for the Ghaghoo mine with a continued focus on further optimising the care and maintenance costs in the short-term.

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

Principal risks and uncertainties

The Group is exposed to a variety of risks and uncertainties that could have a material financial, operational and compliance 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.

A reassessment of the principal risks and uncertainties, which have been previously reported in the Business Overview in the 2017 Annual Report (pages 11 to 15), 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 most material key risks (in no particular order of priority) may impact the Group over the next six months.

Business Transformation (BT) (strategic risk)

The success of the BT process is highly dependent on change management, skills and certain contract renegotiations. The organisational health of the Group underpins the success and sustainability of the BT and areas requiring improvement have been identified and are being addressed.

A dedicated team is tasked to ensure the successful implementation and ongoing sustainability of the BT.

The BT cumulative 4-year target of US$100.0 million in revenue and productivity improvements and cost savings to 2021 remains on track for delivery. Initiatives which will contribute US$47.0 million to the cumulative US$100.0 million target have been implemented. Of these implemented initiatives, US$4.7 million relates to once-off savings and the balance of US$42.3 million relates to cumulative recurring annualised benefits over the 4-year period. US$10.0 million of the implemented initiatives have been cash flowed to date. For more detail on this process, refer to the Business Transformation section on page 6.

Cash generation (operational risk)

The lack of cash flow generation may negatively affect the Group's ability to effectively operate, fund capital projects and repay debt. This could be impacted by market conditions, production constraints, resource performance and exchange rate volatility.

The continued improvement in the recoveries of the larger higher-value diamonds has resulted in an increased overall US$ per carat, positively contributing to cash flows. The strong operational results (notwithstanding the shut down due to the scrubber replacement) and the significant progress made on BT has resulted in an improvement in the Group's net cash position of US$1.4 million in December 2017 to a net cash position of US$29.8 million in June 2018. The Group generated cash from operating activities of US$97.6 million (30 June 2017: US$34.2 million) before investment in waste stripping costs at Letšeng of US$42.9 million and capital expenditure of US$10.9 million, incurred mainly at Letšeng. The Group has sufficient levels of available facilities in place to fund working capital requirements when necessary.

After Period end the Group, through its subsidiary Letšeng, refinanced its LSL250.0 million (US$18.2 million) revolving credit facility (RCF) into a LSL500.0 million (US$36.5 million) RCF for a further tenure of three years.

Ghaghoo (strategic risk)

The Ghaghoo mine was placed on care and maintenance in 2017 following the weak state of the diamond market for the category of diamonds produced at Ghaghoo and a decision was made to proceed with the sale of the Ghaghoo mine. The damage caused by an earthquake to the seal of underground water fissure in April 2017 was successfully repaired in July 2018. The inability to sell Ghaghoo will result in ongoing care and maintenance costs.

A formal sales process to sell the Ghaghoo mine has commenced, with Nedbank Capital appointed as the corporate advisor on the transaction and initial non-binding offers which were received in July 2018, are currently being evaluated.

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. 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.

The Lesotho Loti (LSL) (pegged to the South African rand (ZAR)) and Botswana pula (BWP) were stronger against the US dollar during the first three months of the Period and subsequently weakened during the last three months of the Period. The overall stronger local currencies negatively impacted the Group's US dollar reported costs. No hedges were taken out during the Period.

Rough diamond demand and prices (market risk)

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. Demand for rough diamonds improved during the latter half of 2017 as the cutting and polishing sector reduced surplus inventories. This resulted in a slight upward trend in rough diamond prices and the stabilisation of polished diamond prices. 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 and marketing 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 in the short and medium term. Limited knowledge of the resource could lead to an inability to forecast or plan accurately or optimally and lead to financial risk. With Letšeng being the world's lowest grade operating kimberlite mine, the risk of resource underperformance is elevated and requires ongoing mitigation.

Mineral resource risk mitigation at Letšeng entails improving the understanding of the resource from current mining levels to depth and increasing confidence in the resource so that continuity of resource parameters for the life of mine may be reasonably assumed.

Routine geological functions are undertaken to detect variation within the resource. These are combined with more specialized techniques of analysing the diamond populations in terms of their size frequency and value distributions, with deviations from expected models being studied.

The core drilling programme initiated to increase the understanding of the existing resource, which commenced in 2017 continued during the Period and is expected to be completed during H2 2018.

A major production interruption (operational risk)

The Group may experience material mine and/or plant shut downs or periods of decreased production due to various events. Any such event could result in damage to facilities, personal injury or death, environmental damage, delays in mining and processing activities potentially resulting in monetary losses and possible legal liability. The Group's mining operations also rely on the use of external contractors to manage its mining and its processing activities. If there is a dispute with any of the contractors, the Group's operations could be materially impacted.

The likelihood of possible process interruption events is continually reviewed, and the appropriate controls, processes and business continuity plans are in place to immediately mitigate these risks. The Group maintains insurance against certain risks that are associated with its business in amounts that it believes to be reasonable in the current environment and status of operations.

Country and political risks (external 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 political risk, and can be exposed to a rapidly changing environment. Changes to the political environment at the Group's operations are closely monitored. Where necessary, the Group engages in dialogue with relevant government representatives to remain well informed of all developments impacting its operations.

Positive and proactive engagement with the Government of Lesotho continues with the aim of developing mutually beneficial, transparent and effective relationships.

In April 2018, following the application for renewal of the Letšeng Mining Lease submitted in March 2018, the Prime Minister of Lesotho announced the Lesotho Government's intention to renew the Letšeng Mining lease until 2034. Statutory negotiations are anticipated to be concluded by the end of 2018 and a new mining lease issued by the Minister shortly thereafter. The renewal of the mining lease further illustrates the positive engagement with the Government of Lesotho.

There were no strikes or lockouts during the Period across the Group.

^{* Includes carats extracted at rough valuation}

Compliance with legislation (external risk)

The Group operates in various jurisdictions which are subject to various laws and regulations. The legal and regulatory requirements in each jurisdiction are different and the Group relies, on each operation's local advisors in respect of legal, environmental compliance, banking, financing and tax matters to ensure compliance with material legal, regulatory and governmental developments as they pertain to and affect each Company's operation. Despite these resources, there is a risk that any one of the Group's operations may fail to comply with its country's specific legal or regulatory requirements, which may lead to the revocation of certain rights or to penalties or fees and in enforcement actions thereunder.

In addition, as a publicly traded company with listings on stock exchanges in the United Kingdom, the Company is subject to additional laws and regulations, compliance with which is both time consuming and costly. If the Company is subject to an enforcement action or are found to be in violation of any such laws, this may result in significant penalties, fines and/or sanctions which could have a material adverse effect on the Company, which could cause a significant decline in the Company's stock price.

Changes in legislation at the Group's operations are closely monitored. Where necessary, the Group engages in dialogue with relevant government representatives to remain well informed of all regulatory developments impacting its operations.

Information technology systems and cybersecurity (external risk)

The Group's operations rely on secure information technology (IT) systems to process and record financial and operating data in its Information Management Systems. In the event these IT systems are compromised there could be a material adverse impact on the Group.

The Group applies technical and process controls in line with industry-accepted standards to protect information, assets and systems which include secure configuration, firewalls, access controls, patch management and malware protection. Backup and recovery systems are employed that meet the Groups' Recovery Time Objectives (RTO) of 24 hours or less in the event of a system failure, disaster, or cyber-attack. These controls are currently considered to be appropriate and cost effective in line with the current size and structure of the Group, however there is no assurance that the Group will not suffer losses associated with cyber-security breaches in the future and may be required to expend additional resources to investigate, mitigate and remediate any potential vulnerabilities.

Clifford Elphick

Chief Executive Officer

5 September 2018

Half-yearly financial statements

30 June 2018

Contents

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

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 Statements

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 2017.

The names and functions of the Directors of Gem Diamonds are listed in the Annual Report for the year ended 31 December 2017 and updates to the directorate have been disclosed in the Interim Business Review on page 1.

For and on behalf of the Board

Michael Michael

Chief Financial Officer

5 September 2018

Interim Consolidated Income Statement

for the six months ended 30 June 2018

Notes

30 June 2018¹

Before exceptional item

US$'000

30 June 2018¹

Exceptional item

US$'000

30 June 2018¹

Total

US$'000

30 June 2017¹

Before exceptional item

US$'000

30 June

2017¹

Exceptional item

US$'000

30 June

2017¹

Total

US$'000

Revenue 3

Cost of sales 3

167 683

(83 538)

(285)²

167 683

(83 823)

92 908

(72 458)

(2 971)²

92 908

(75 429)

Gross profit/(loss)

Other operating income

Royalties and selling costs 3

Corporate expenses

Share-based payments 13

Foreign exchange gain

84 145

447

(14 704)

(5 400)

(783)

2 100

(285) -

83 860

447

(14 704)

(5 400)

(783)

2 100

20 450

131

(8 397)

(4 937)

(842)

1 079

(2 971)

17 479

131

(8 397)

(4 937)

(842)

1 079

Operating profit/(loss) 3

Net finance costs

Finance income

Finance costs

65 805

(735)

(285) -

65 520

(735)

7 484

(2 218)

(2 971)

4 513

(2 218)

1 195

(1 930)

1 195

(1 930)

285

(2 503)

285

(2 503)

Profit/(loss) before tax

Income tax expense 7

65 070

(23 846)

(285)

64 785

(23 846)

5 266

(1 717)

(2 971)

2 295

(1 717)

Profit/(loss)

41 224

(285)

40 939

3 549

(2 971)

578

Attributable to:

Equity holders of parent

Non-controlling interests

24 519

16 705

(285) -

24 234

16 705

3 500

(2 971)

(2 922)

3 500

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

17.68

17.23

17.48

17.03

0.04

(2.11)

1 Unaudited

2 Refer to Note 4, Exceptional items

Interim Consolidated Statement of

Comprehensive Income

for the six months ended 30 June 2018

30 June

20181

US$'000

30 June

20171

US$'000

Profit for the Period

Other comprehensive (expense)/income that could be classified to the income statement in subsequent periods

Exchange differences on translation of foreign operations

40 939

(30 003)

578

6 880

Other comprehensive (expense)/income net of tax

(30 003)

6 880

Total comprehensive income

Attributable to:

Equity holders of parent

Non-controlling interests

10 936

4 008

6 928

7 458

4 797

2 661

Total comprehensive income net of tax

10 936

7 458

1 Unaudited

Interim Consolidated Statement of

Financial Position

as at 30 June 2018

Notes	30 June 20181 US$'000	31 December 2017² US$'000
ASSETS Non-current assets Property, plant and equipment 9 Intangible assets Receivables and other assets 10	291 169 13 930 2	305 542 15 422 22
	305 101	320 986
Current assets Inventories Receivables and other assets 10 Income tax receivable Cash and short-term deposits 11	31 868 6 321 93 70 487	34 065 7 777 - 47 704
	108 769	89 546
Assets held for sale 18	615	2 097
Total assets	414 485	412 629
EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Issued capital 12 Share premium Other reserves Accumulated losses	1 388 885 648 (143 254) (580 617)	1 387 885 648 (123 811) (604 851)
	163 165	158 373
Non-controlling interests	77 184	85 783
Total equity	240 349	244 156
Non-current liabilities Interest-bearing loans and borrowings 14 Trade and other payables Provisions Deferred tax liabilities	27 389 1 595 16 447 77 143	33 279 1 609 17 306 78 579
	122 574	130 773
Current liabilities Interest-bearing loans and borrowings 14 Trade and other payables Income tax payable	13 978 26 105 11 479	13 064 23 360 1 276
	51 562	37 700
Total liabilities	174 136	168 473
Total equity and liabilities	414 485	412 629

1 Unaudited

2 Audited

Interim Consolidated Statement of Changes in Equity

for the six months ended 30 June 2018

				Attributable to equity holders of the parent
	Issued capital US$'000	Share premium US$'000	Own Shares US$'000		Other reserves² US$'000	Accu- mulated losses US$'000	Total US$'000	Non-controlling interests US$'000	Total equity US$'000
Balance at 1 January 2018	1 387	885 648	-		(123 811)	(604 851)	158 373	85 783	244 156
Total comprehensive income/(expense)	-	-	-		(20 226)	24 234	4 008	6 928	10 936
Profit for the Period	-	-	-		-	24 234	24 234	16 705	40 939
Other comprehensive income/(expense)	-	-	-		(20 226)	-	(20 226)	(9 777)	(30 003)
Share capital issued (Note 12)	1	-	-		-	-	1	-	1
Share-based payments (Note 13)	-	-	-		783	-	783	-	783
Dividends paid to non-controlling interests	-	-	-		-	-	-	(15 527)	(15 527)
Balance at 30 June 2018¹	1 388	885 648	-		(143 254)	(580 617)	163 165	77 184	240 349
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

1 Unaudited

2 Other reserves relate to Foreign currency translation reserve and Share based equity reserve

Interim Consolidated Statement of Cash Flows

for the six months ended 30 June 2018

Notes	30 June 20181 US$'000	30 June 20171 US$'000
Cash flows from operating activities Cash generated by operations 15.1 Working capital adjustments 15.2	97 636	34 202
	99 781 4 967	42 070 (7 967)
Interest received Interest paid Income tax (paid)/received	104 748 1 195 (1 160) (7 147)	34 103 285 (1 890) 1 704
Interest received Interest paid Income tax (paid)/received
Cash flows used in investing activities	(51 984)	(51 685)
Purchase of property, plant and equipment 9 Letšeng waste stripping costs capitalised 9 Proceeds from sale of property, plant and equipment
	(10 918) (42 904) 1 838	(8 808) (42 877) -

Cash flows (used in)/from financing activities	(18 812)	6 346
Net financial liabilities (repaid)/raised	(3 285)	6 346
Financial liabilities raised	2 840	49 318
Financial liabilities repaid	(6 125)	(42 972)
Dividends paid to non-controlling interests	(15 527)	-
Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the Period Foreign exchange differences	26 840	(11 137)
	47 704 (4 057)	30 787 396

Cash and cash equivalents at end of the Period held with banks Restricted cash at end of the Period Cash and cash equivalents at end of the Period 11
	70 326 161	19 879 167
	70 487	20 046

1 Unaudited

Condensed Notes to the Consolidated

Interim Financial Statements

for the six months ended 30 June 2018

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 4 September 2018, is unaudited and does not constitute statutory financial statements. The report of the auditors on the Group's 2017 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 2018 (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 2017.

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 19. The financial position of the Group, its cash flows and liquidity position are described in the Interim Business Review on pages 12 to 16.

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 2017, except for the adoption of new standards and amendments as of 1 January 2018. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

IFRS 15 Revenue from Contracts with Customers

The Group is required to apply IFRS 15 for annual reporting periods beginning on or after 1 January 2018. Management has assessed the core principle of IFRS 15, that the Group will recognise revenue to depict the transfer of promised diamond sales to customers in an amount that reflects the consideration to which the Group expects to be entitled in exchange for the diamond sales. The standard requires entities to apportion revenue earned from contracts to individual promises, or performance obligations, on a relative standalone selling price basis, based on a five-step model.

The impacts of implementing IFRS 15 on the Group results are as follows:

· Under IFRS 15 the revenue recognition model changed from one based on the transfer of risk and reward of ownership to the transfer of control of ownership. The Group's revenue is predominantly derived from the sale of rough diamonds. Diamond sales are made through a competitive tender process and are recognised when the performance obligations have been satisfied, at the time the buyer obtains control of the stone, costs can be reliably measured, and receipt of tender proceeds are probable - recognition is deemed to be at the point at which the tender is awarded. The Group has reviewed the terms and conditions of the current tender contract entered into with each of the buyers and as the transfer of risks and rewards generally coincides with the transfer of control at a point in time, is satisfied that, based on the terms of the current contracts, there is no change to the timing of revenue on tender sales under IFRS 15.

· IFRS 15 introduces the concept of performance obligations that are defined as a 'distinct' promised good or service. This will have an impact on the timing of revenue recognised where the Group enters into partnership arrangements, whereby there is rough diamond revenue and an additional uplift revenue recognised on polished margin received. Both these revenue streams will be recorded when all performance obligations are met, being at the time of the sale of the rough diamond to the partner. Previously, the additional uplift was recognised on final sale of the polished diamond by the partner. The Group has determined that the value of the additional uplift is highly susceptible to factors outside the Group's influence. As a result, the amount of revenue recognised will not occur until all uncertainties are resolved. The Group has reviewed the terms and conditions of its current contracts pertaining to such scenarios and are satisfied that there is no change to the timing of the additional uplift recognised on such sales under IFRS 15.

2.2 Significant accounting policies (continued)

IFRS 9 Financial Instruments

Classification and measurement of financial assets and financial liabilities that replaces IAS 39. Overall, there is no significant impact on the Groups financial position and performance due to there not being significant items which fall within the scope of these changes.

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 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

IFRS 16 Leases

The Group is required to apply IFRS 16 for annual reporting periods beginning on or after 1 January 2019. Management have assessed the core principle of IFRS 16, to reflect the right of use assets and lease liabilities onto the consolidated statement of financial position for the first time in respect of its current operating leases.

Under the new standard, a lessee is required to:

• recognise all right of use assets and lease liabilities, with the exception of short term (under 12 months) and low value leases, on the balance sheet. The liability is initially measured at the present value of future lease payments for the lease term. This includes variable lease payments that depend on an index or rate but excludes other variable lease payments. The right of use asset reflects the lease liability, initial direct costs, any lease payments made before the commencement date of the lease, less any lease incentives and, where applicable, provision for dismantling and restoration;

• recognise depreciation of right of use assets and interest on lease liabilities in the income statement over the lease term; and

• separate the total amount of cash paid into a principal portion (presented within financing activities) and interest portion (which the Group presents in operating activities) in the cash flow statement.

This standard will have an impact on the Group's earnings and it must be implemented retrospectively, either with the restatement of comparatives or with the cumulative impact of application recognised as at 1 January 2019 under the modified retrospective approach.

Under IFRS 16 the present value of the Group's operating lease commitments as defined under the new standard, excluding low value leases and short-term leases, will be shown as right of use assets and as lease liabilities on the balance sheet. The Group is considering the available options for transition.

Management are currently reviewing the impact of IFRS 16 to the Group and cannot make a reasonable estimate of the impact at this stage. Refer to Note 16, Commitments and contingencies.

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 on 31 March 2017, and sales and marketing of diamonds through Gem Diamonds Marketing Botswana (Proprietary) Limited);

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

■■ BVI, RSA, UK and Cyprus (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 present revenue and profit, and asset and liability information from operations regarding the Group's geographical segments:

Six months ended 30 June 2018¹	Lesotho US$'000	Botswana US$'000	Belgium US$'000	BVI, RSA, UK and Cyprus² US$'000	Total US$'000
Revenue
Total revenue	166 657	-	167 616	4 273	338 546
Inter-segment	(166 657)	-	(158)	(4 048)	(170 863)
External customers	-	-	167 458	225²	167 683
Segment operating profit/(loss)	72 726	(2 613)	1 432	(6 025)	65 520
Net finance costs					(735)
Profit before tax					64 785
Income tax expense					(23 846)
Profit for the Period after exceptional item					40 939

1 Unaudited

2 No revenue was generated in BVI or Cyprus

Six months ended 30 June 2017¹	Lesotho US$'000	Botswana US$'000	Belgium US$'000	BVI, RSA, UK and Cyprus² US$'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 or Cyprus

3. Segment information (continued)

	Lesotho US$'000	Botswana US$'000	Belgium US$'000	BVI, RSA, UK and Cyprus US$'000	Total US$'000
Segment assets
At 30 June 20181	375 574	4 535	4 834	29 542	414 485
At 31 December 20172	394 886	5 635	2 843	9 265	412 629
Segment liabilities
At 30 June 20181	62 480	4 629	1 760	28 123	96 992
At 31 December 20172	51 658	4 530	303	33 403	89 894

1 Unaudited

2 Audited

Included in revenue is revenue from a single customer which amounted to US$45.1 million (30 June 2017: US$30.0 million)

arising from sales reported in the Lesotho and Belgium segments.

Segment assets and liabilities do not include net deferred tax liabilities of US$77.1 million (31 December 2017: US$78.6 million).

Operating profits, pre-exceptional items, have increased in the current Period as a result of increased large diamond recoveries and higher diamond prices achieved. Royalties and selling costs, being variable costs, have increased as a direct result of the increase in revenue.

4. Exceptional items

30 June

20181

US$'000

30 June

20171

US$'000

Ghaghoo

285²

2 971

1 Unaudited

2 Ghaghoo - exceptional costs

The Ghaghoo mine was placed on care and maintenance on 31 March 2017. The costs incurred in the Period included once-off costs associated with the additional water pumping and sealing of the fissure as a result of the earthquake in 2017, which have been classified as exceptional costs. The fissure was sealed for the second time on 4 July 2018. The costs incurred in the prior Period included development costs, retrenchment costs, and once-off costs to renegotiate contracts.

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

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

20181

US$'000

30 June

20171

US$'000

Operating profit

Foreign exchange gain

Share-based payments

Other operating income

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

65 805

(2 100)

783

(447)

4 394

7 484

(131)

842

(1 079)

5 912

Underlying EBITDA before exceptional items

68 435

13 028

1 Unaudited

6. Seasonality of operations

The Group's sales environment with regard to 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

20181

US$'000

30 June

20171

US$'000

Income statement

Current

- Overseas

Withholding tax

- Overseas

Deferred

- Overseas

(14 797)

(3 708)

(5 341)

(283)

(71)

(1 363)

(23 846)

(1 717)

1 Unaudited

The forecast effective tax rate for the full year is 36.65% (31 December 2017: 43.10%) 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.

The forecast effective tax rate for the full year is above the Lesotho statutory tax rate primarily as a result of withholding tax of 10% on dividends from Letšeng and deferred tax assets not recognised on losses incurred in non-trading operations.

8. Dividends paid and proposed

There were no dividends proposed in 2018 relating to the 2017 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.

9. Property, plant and equipment

During the Period, the Group invested US$10.9 million (30 June 2017: US$8.8 million) into property, plant and equipment, of which US$10.5 million (30 June 2017: US$7.2 million) related to Letšeng.

Letšeng's capital spend was incurred mainly on the completion of the mining support services complex (US$4.0 million) (30 June 2017: US$5.1 million), the extension of the footprint of the Patiseng tailings storage facility (US$3.4 million) (30 June 2017: US$0) and continued core drilling to firm up the existing mineral resource base (US$0.5 million).

Letšeng further invested US$42.9 million (30 June 2017: US$42.9 million) in deferred stripping costs which were capitalised.

Borrowing costs of US$0.8 million (30 June 2017: US$0.1 million) incurred in respect of the LSL 215.0 million (US$15.7 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 5.21%.

In addition to the above, foreign exchange movements on translation affecting property, plant and equipment were a decrease of US$29.5 million (30 June 2017: Increase of US$10.6 million).

Depreciation and mining asset amortisation of US$4.5 million (30 June 2017: US$5.8 million) was charged to the income statement during the Period.

At Letšeng, amortisation of the deferred stripping asset (waste stripping cost amortisation) of US$34.2 million (30 June 2017:

US$31.7 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 20181 US$'000	31 December 20172 US$'000
Non-current
Other receivables	2	22
	2	22
Current Trade receivables Prepayments³ Deposits Other receivables VAT receivable	273 1 123 106 627 4 192	91 2 537 151 973 4 025
	6 321	7 777

1 Unaudited

2 Audited

³ Included in prepayments are facility restructuring costs of US$0.9 million relating to the Company's US$45.0 million bank loan facility which will be amortised over the period of the loan.

11. Cash and short-term deposits

30 June

20181

US$'000

31 December

20172

US$'000

Cash on hand

Bank balances

Short-term bank deposits

69 864

622

24 423

23 279

Cash and short-term deposits

70 487

47 704

1 Unaudited

2 Audited

At 30 June 2018, the Group had restricted cash of US$0.2 million (31 December 2017: US$0.2 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 20181		31 December 20172
	Number of shares '000	US$'000	Number of shares US$'000 '000
Authorised - ordinary shares of US$0.01 each As at Period/year	200 000	2 000	200 000 2 000
Issued and fully paid Balance at beginning of Period/year	138 620	1 387	138 361 1 384
Allotments during the Period/year	117	1	259 3
Balance at end of Period/year	138 737	1 388	138 620 1 387

1 Unaudited

2 Audited

13. Share-based payments

Long-term Incentive Plan 2017 Award - March 2018

In March, 1 450 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term Incentive Plan 2017 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 20 March 2021 and 19 March 2028. 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$1.14) and the option grants are settled by issuing shares.

The expense disclosed in the interim consolidated income statement is made up as follows:

30 June

20181

US$'000

30 June

20171

US$'000

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

783

842

783

842

1 Unaudited

14. Interest-bearing loans and borrowings

Effective interest rate % Maturity	30 June 20181 US$'000	31 December 20172 US$'000
Non-current LSL215.0 million bank loan facility3
Tranche 1 South African JIBAR + 3.15% 31 March 2022³	11 844	12 391
Tranche 2 South African JIBAR + 6.75% 30 September 2022³	-	888
US$45.0 million bank loan facility4
Tranche 1 London US$ three-month 31 December 20204
LIBOR + 4.5%	15 000	20 000
Asset Based Finance Facility5 South African Prime Lending rate 31 December 20235	545	-
	27 389	33 279
Current LSL215.0 million bank loan facility3
Tranche 2 South African JIBAR + 6.75% 30 September 2022³	3 843 683	1 939
US$45.0 million bank loan facility4
Tranche 1 South African JIBAR + 4.5% 31 December 20204	10 000	5 000
Tranche 2 South African JIBAR + 4.5% 31 December 20204	-	6 125
Asset Based Finance Facility5 South African Prime Lending rate 31 December 20235	135	-
	13 978	13 064

1 Unaudited

2 Audited

³LSL215.0 million (US$ 15.7 million) bank loan facility at Letšeng Diamonds

This loan comprises two tranches of debt as follows:

Ø Tranche 1: South African Rand denominated ZAR180.0 million (US$13.1 million) debt facility supported by the Export Credit Insurance Corporation (ECIC) (five years tenure); and

Ø Tranche 2: Lesotho Loti denominated LSL35.0 million (US$2.6 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. The facility was drawn down in full by Period end.

14. Interest-bearing loans and borrowings (continued)

The South African Rand based interest rates for the facility at 30 June 2018 are:

Ø Tranche 1: 10.11%

Ø Tranche 2: 13.71%

Total interest for the year on this interest-bearing loan was US$0.8 million and has been capitalised to the cost of the project.

⁴US$ 45.0 million bank loan facility at Gem Diamonds Limited

This facility is a three-year revolving credit facility (RCF) with Nedbank Capital and consists of two tranches:

Ø 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;

Ø 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.

⁵Asset Based Finance Facility

The Group, through its subsidiary, Gem Diamond Technical Services, entered into a US$1.1 million Asset Based Finance Facility with Nedbank Limited for the purchase of an X-Ray transmission machine. The facility is for a maximum of 5 years and bears interest at the South African Prime Lending rate.

Other facilities

In addition, at 30 June 2018, the Group through its subsidiary Letšeng Diamonds, has a LSL250.0 million (US$18.2 million), three-year unsecured revolving working capital facility jointly with Standard Lesotho Bank and Nedbank Capital. There was no draw down of this facility at Period end (30 June 2017: draw down US$3.8 million). Subsequent to Period end, this facility was upsized to LSL500.0 million (US$36.5 million) and renewed for a further three-years to 2021. This renewed facility bears interest at Lesotho prime rate minus 1.5%. Refer to Note 19, Events after the reporting Period.

15. Cash flow notes

		30 June 2018¹ US$'000	30 June 2017¹ US$'000
15.1	Cash generated by operations
	Profit before tax for the year Exceptional items²	65 070 (285)	5 266 (2 971)
	Adjustments for:
	Depreciation and amortisation on property, plant and equipment	4 510	5 789
	Waste stripping cost amortisation	34 202	31 681
	Finance income	(1 195)	(285)
	Finance costs	1 930	2 503
	Unrealised foreign exchange differences	(6 528)	(1 995)
	Profit on disposal of property, plant and equipment	(367)	-
	Movements in prepayments	(74)	99
	Other non-cash movements	1 735	1 141
	Share-based equity transaction	783	842
		99 781	42 070
15.2	Working capital adjustments
	(Increase)/Decrease in inventories	(817)	(2 001)
	Decrease in receivables	853	2 189
	Increase/(Decrease) in trade and other payables	4 931	(8 155)
		4 967	(7 967)

15. Cash flow notes (continued)

15.3	Cash flows from financing activities
	Balance at beginning year	46 343	27 757
	Net cash generated by/(used in) financing activities	(3 285)	6 346
	- financial liabilities raised	2 840	49 318
	- financial liabilities repaid	(6 125)	(42 972)
	Non-cash movement - FCTR	(1 692)	(146)
	Non-cash movement - interest accrued	-	-
	Balance at year end	41 366	33 957

1 Unaudited

2 Refer to Note 4, Exceptional items

16. Commitments and contingencies

The Group has entered into commercial lease arrangements for the rental of office premises. These leases have remaining periods of between one and eight years with an option of renewal at the end of the period. Future minimum rentals payable under non-cancellable operating leases is US$10.1 million (31 December 2017: US$ 11.9 million). Management are currently reviewing the impact of IFRS 16 to the Group and cannot make a reasonable estimate of the impact at this stage.

The Board has approved capital projects of US$16.7 million (31 December 2017: US$14.7 million), mainly relating to the Letšeng mining support services complex, of which US$14.8 million (31 December 2017: US$13.7 million) has been contracted at 30 June 2018. The main capital expenditure approved relates to the extension of the footprint of the Patiseng tailings storage facility of US$14.8 million which will provide deposition space until 2024. The expenditure will be incurred over the next three years.

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$0.3 million (31 December 2017: US$0.5 million) and tax claims within the various jurisdictions in which the Group operates approximating US$0.5 million (31 December 2017: US$0.7 million).

17. Related parties

Relationship

Jemax Management (Proprietary) Limited Common director Gem Diamond Holdings Limited Common director Government of Lesotho Non-controlling interest

	30 June 2018¹ US$'000	30 June 2017¹ US$'000
Compensation to key management personnel (including Directors)
Share-based equity transactions	468	609
Short-term employee benefits	1 684	1 383
	2 152	1 992
Fees paid to related parties
Jemax Management (Proprietary) Limited	(55)	(51)
Royalties paid to related parties
Government of Lesotho	(13 439)	(7 030)
Lease and license payments to related parties
Government of Lesotho	(141)	(138)
Purchases from related parties
Jemax Management (Proprietary) Limited	(6)	(4)
Amount included in trade receivables owing by/(to) related parties
Jemax Management (Proprietary) Limited	(10)	(10)

17. Related parties (continued)

Amounts owing to related party
Government of Lesotho	(502)	(2 551)
Dividends paid
Government of Lesotho	(15 527)	-

¹Unaudited

18. Assets held for sale

	30 June 2018¹ US$'000	31 December 20172 US$'000
Investment property³	615	615
Property, plant and equipment⁴	-	1 482
	615	2 097
¹Unaudited ²Audited ³ Refer to Note 19, Events after the reporting Period. ⁴On 10 January 2018, the aircraft which serviced the Ghaghoo mine was disclosed as an asset held for sale at 31 December 2017, was sold for US$1.7 million.

19. Events after the reporting Period

1. At 31 December 2017, the investment property in Dubai was identified as an asset held for sale. The directors of the Company resolved to dispose of this property and a real estate agent was appointed to actively market the property. On 16 July 2018, an offer was received and accepted for the sale of the property and the fair value was based on this amount. Refer to Note 18, Assets held for sale.

2. Subsequent to Period end, the LSL250.0 million (US$18.2 million) three-year unsecured revolving working capital facility held jointly with Standard Lesotho Bank and Nedbank Capital, was upsized to LSL500.00 million (US$36.5 million) and renewed for a further three years to 2021. Refer to Note 14, Interest-bearing loans and borrowings.

Contact Details and Advisers

Gem Diamonds Limited

Registered office

Coastal Building, Ground 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 20 7886 2500

Feedback

Gem Diamonds Limited

Glenn Turner

United Kingdom

T: +44 (0) 203 043 0280

IR@gemdiamonds.com

Celicourt Communications

Joanna Boon/Mark Antelme

T: +44 (0) 20 7520 9265

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.

END

IR LFFLLAEISIIT

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Gem Diamonds Ltd. (DI) (GEMD)

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