Half Year 2021 Results
Thursday, 2 September 2021
Gem Diamonds Limited
Half Year 2021 Results
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Half Year Results for the six months ending 30 June 2021 (the "Period").
FINANCIAL
· Revenue of US$104.5 million (H1 2020: US$69.5 million)
· Cash on hand of US$33.9 million at 30 June 2021 (US$24.9 million attributable to Gem Diamonds)
· The Group has unutilised facilities of US$61.0 million
· Underlying EBITDA of US$34.7 million (H1 2020: US$11.3 million)
· Loss from discontinued operations of US$1.3 million relating to Ghaghoo (H1 2020: US$1.9 million)
· The Business Transformation programme has delivered a cumulative US$95.4 million, net of fees and costs, to the Group's results to date
OPERATIONAL AND HEALTH AND SAFETY:
· Zero fatalities and four lost time injuries during the Period
· Average price of US$1 886 per carat achieved (H1 2020: US$1 707 per carat)
· Three diamonds larger than 100 carats recovered (H1 2020: Seven)
· Recovered 58 831 carats (H1 2020: 43 275 carats)
· Waste tonnes mined of 10.2 million tonnes (H1 2020: 5.2 million tonnes)
· Ore treated of 3.1 million tonnes (H1 2020: 2.4 million tonnes)
COVID-19 Response
The Group continues to stringently apply its wide range of Covid-19 protocols, health and safety measures and other precautions to protect its employees and contractors at its operations. This has had a positive effect in containing infections across the Group and has allowed operations to continue in a safe and responsible manner.
The Group continues to provide support to its workforce, contractors and surrounding communities in its efforts to curb the spread of the virus where it operates. Letšeng partnered with the Government of the Kingdom of Lesotho to increase preparedness for the impact of Covid-19 in project-affected communities. The mine acquired 20 000 doses of the Johnson & Johnson vaccine for use by the Government of the Kingdom of Lesotho in its national vaccine rollout programme.
The vaccine rollout for Letšeng's employees has commenced, with 885 employees vaccinated to date.
Sale of Gem Diamonds Botswana Proprietary Limited
On 23 August 2021, the Group entered into a binding share sale agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, the owner of the Ghaghoo diamond mine in Botswana.
Commenting on the results today, Clifford Elphick, Chief Executive Officer of Gem Diamonds, said:
"We are pleased with the results achieved during the Period and to see a continued strong demand for Letšeng's high quality diamonds and the positive impact on prices achieved.
The stringent Covid-19 protocols implemented at Letšeng have contained infections and allowed operations to continue in a safe and responsible manner. The vaccine rollout at Letšeng is progressing well and we hope to have the full workforce vaccinated within the next few weeks.
We are also pleased that the binding sale agreement for 100% of the share capital of the Ghaghoo mine owned subsidiary, Gem Diamonds Botswana Proprietary Limited, has been concluded as it is in line with the Group's strategic objective to dispose of non-core assets."
The Company will host a live audio webcast presentation of the half year results today, 2 September 2021, at 9:30 GMT. This can be viewed on the Company's website: www.gemdiamonds.com .
The page references in this announcement refer to the Half Year Report, which can be found on the Company's website: www.gemdiamonds.com .
The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67
FOR FURTHER INFORMATION:
Susan Wallace
Company Secretarial Department
Gem Diamonds Limited
ir@gemdiamonds.com
Celicourt Communications
Mark Antelme / Ollie Mills
Tel: +44 (0) 208 434 2643
ABOUT GEM DIAMONDS:
Gem Diamonds is a leading global diamond producer of high value diamonds. The Company owns 70% of the Letšeng mine in Lesotho. The Letšeng mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world.
INTERIM BUSINESS REVIEW
OVERVIEW
Diamond market overview
The global diamond market1 has continued to improve significantly since late 2020 - especially for the high-quality white diamonds produced at the Letšeng mine. This is highlighted by the highest dollar per carat achieved by Gem Diamonds for a top-quality white diamond during the Period of US$40 139.
Increasing diamond prices can be attributed to supply shortages and renewed consumer demand, especially in the US and China. The US market has seen boosted consumer sentiment due to a successful COVID-19 vaccine rollout, US government stimulus checks and the recovery of stock markets. China is currently the industry's strongest consumer market, led by strong domestic luxury consumption. Diamond sales in China's consumer market are expected to increase significantly in coming years, driven by two government economic policies - its Dual Circulation Strategy and 14th Five-Year Plan - designed to triple per-capita GDP to US$30 000 by 20352.
COVID-19-related travel restrictions caused by the resurgence of the virus, saw the first Letšeng Diamonds (Letšeng) tender of 2021 postponed to March. Since then the Group has successfully concluded its scheduled H1 2021 tenders in Antwerp. All tenders held in H1 2021 were fully attended and a high number of bids per parcel were observed - reinforcing the fact that Letšeng's high-quality diamonds remain in strong demand. In order to further leverage its strong position in the large diamond market, Gem Diamonds is planning to host its first trial tender viewing for Letšeng's diamonds in Dubai in September 2021.
The Group continues to use the Gemological Institute of America's (GIA) blockchain technology to assure consumers about their diamonds' ethical and socially supportive footprint.
1 https://www.rough-polished.com/en/analytics/120639.html.
2 Supplied Zimnisky analyst report: July 2021.
Performance overview
The Group's Letšeng operation has managed to operate in line with its normal operating activities during the Period, despite numerous challenges presented by the continuing impact of COVID-19 on the availability of spares and limited access to certain skills and services due to lockdowns and travel restrictions; as well as a high rainfall season which impacted both mining and treatment activities. Despite these challenges, waste tonnes mined during the Period were 10.2 million tonnes (H1 2020: 5.2 million), ore tonnes treated were 3.1 million tonnes (H1 2020: 2.4 million), 58 831 carats were recovered (H1 2020: 43 275) and the mine's 2021 production metrics remain on track.
The Group increased revenue by 50% to US$104.5 million compared to H1 2020, achieving an average of US$1 886 per carat (H1 2020: US$1 707 per carat). The underlying EBITDA from continuing operations improved by 207% to US$34.7 million (H1 2020: US$11.3 million), with attributable profit of US$9.3 million (H1 2020: loss of US$1.7 million) achieved.
The Group ended the Period in a strong cash position with a cash balance of US$33.9 million (31 December 2020: US$49.8 million) and drawn down facilities of US$14.3 million (31 December 2020: US$15.2 million), resulting in a net cash position of US$19.6 million (31 December 2020: US$34.6 million) and unutilised available facilities of US$61.0 million (31 December 2020: US$60.8 million).
In line with the Group's commitment to delivering sustainable shareholder returns, the Board proposed a dividend of 2.5 US cents per share (US$3.5 million) which was approved at the Annual General Meeting on 2 June and paid to shareholders on 15 June.
In a further positive development and subsequent to the Period end, on 23 August 2021, Gem Diamonds entered into a binding share sale agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, the owner of the Ghaghoo diamond mine in Botswana, with Okwa Diamonds. Okwa Diamonds, an SPV company registered in Botswana, is owned by Vast Resources PLC, a mining and resource development company listed on AIM, and by Botswana Diamonds PLC, a diamond exploration and project development company listed on AIM and the Botswana Stock Exchange. Vast Resources PLC and Botswana Diamonds PLC are both parties to the share sale agreement and guarantee the obligations of Okwa Diamonds. The transaction is subject to certain suspensive conditions, including final Government and Competition Commission approvals which are expected to be completed in Q4 2021.
STRATEGIC PROGRESS
Gem Diamonds' strategic priorities include extracting maximum value from its operations, maintaining its social licence to operate and preparing for the future. These priorities have helped Gem Diamonds improve efficiencies, optimise production, and entrench a culture of zero harm and sustainability throughout the Group.
Business Transformation (BT)
The BT programme remains on track to deliver the targeted US$100 million in revenue, productivity and cost saving, measured against the 2017 base, by the end of 2021. Since its inception, the BT programme has delivered US$95.4 million, net of fees and costs.
The reduced costs and improved efficiencies realised through the BT initiatives have been critical in maximising operational cash flows over the past three years.
Continuous Improvement (CI)
The transition from BT to CI, mainly at Letšeng, is progressing well. CI focuses on behavioural strategies and the implementation of meaningful key performance indicators for effective visual management and problem solving at all levels. The CI methodology, supported by software solutions, enables the Group to continuously improve efficiencies by unlocking the inherent capabilities of employees at all levels to implement CI best practices, build effective teams and drive incremental improvements.
Sustainability and maintaining a social licence to operate
The safety and welfare of employees, contractors and project-affected communities (PACs) is a priority for Gem Diamonds. The Group takes all necessary precautions to protect its workforce and surrounding communities while continuing to implement its COVID-19 response plan.
Health and safety
COVID-19 Detection and Management Protocol
Gem Diamonds implemented a Group-wide COVID-19 Detection and Management Protocol at the beginning of the global pandemic in H1 2020. This protocol was guided by medical experts, host country regulations and World Health Organization (WHO) recommendations, and remains in place to protect the Group's workforce and PACs.
The protocol includes COVID-19 screening and testing for all employees and contractors, compulsory mask-wearing, hand sanitising and enforced social distancing.
To date, 60 frontline Letšeng medical employees - doctors, nurses and paramedics employed in the Group's medical facility - have received their vaccinations. The workforce at Letšeng is classified as essential and therefore qualifies to receive priority vaccinations. The vaccine rollout at Letšeng started in mid-August with 885 vaccinations administered to date (approximately 62% of the workforce).
Since March 2020, the Group has incurred an estimated LSL15 100 per employee (total spend of LSL22.9 million) at Letšeng on COVID-19 management and prevention. Through Letšeng's advanced screening protocol, 109 COVID-19 cases have been identified and appropriately managed during the Period.
Safety management
The Group remains committed to promoting a culture of zero harm and in support of this commitment an ISO 45001 accredited occupational safety system has been implemented. Zero work-related fatalities were recorded during the Period; however, the Group unfortunately recorded four lost time injuries (LTIs) at Letšeng. An all injury frequency rate (AIFR) of 1.29 (H1 2020: 0.33) was achieved during the Period.
| 2017 | 2018 | 2019 | 2020 | H1 2021 |
LTI frequency rate trend | 0.04 | 0.15 | 0.28 | 0.04 | 0.32 |
AIFR trend | 2.02 | 1.45 | 0.93 | 0.76 | 1.29 |
In striving to achieve the Group's priority of zero harm and responsible care, a day of safety focus and engagement was held at the Letšeng min on 8 June 2021 to continue to promote the safety of all on site. The safety campaign focused on engagement with the workforce and reinforcing continuous safety protocols at the operation.
The feedback received from the engagement sessions has been captured and operation specific action plans aimed at addressing the matters raised by the workforce are being implemented, where appropriate. The operation has also established dedicated engagement platforms for management to provide feedback to the workforce on the close-out or advancement of actions.
Safeguarding and supporting communities
Gem Diamonds values the successful relationships it shares with its host countries to achieve shared goals. These relationships are important to ensure operational sustainability and preserve the Group's social licence to operate.
Letšeng partnered with the Government of the Kingdom of Lesotho and the Ministry of Health to increase preparedness for the impact of COVID-19 in PACs. The mine provided COVID‑19-related training and support programmes, distributed personal protective equipment (PPE), hand sanitisers, food and subsistence farming parcels, and recently acquired 20 000 doses of the Johnson & Johnson vaccine for use by the Government of the Kingdom of Lesotho in its national vaccine rollout programme. It is pleasing to record that the Honourable Prime Minister of Lesotho addressed a letter to Letšeng's management to thank and congratulate the company on this generous and important intervention - emphasising the strong partnership with the Lesotho Government.
In addition to providing these vaccine doses, Gem Diamonds donated 17 oxygen concentrator machines to ten hospitals and clinics throughout Lesotho, addressing a critical need for oxygen in the country.
Tailings and other storage facilities
An Independent Tailings Review Board (ITRB) was established to work with the Group's Tailings Governance Committee to assess the operational conformity to the new Global Industry Standard on Tailings Management (GISTM), released in August 2020, and to review the effectiveness the tailings management at the Letšeng mine. The ITRB, comprising two independent senior reviewers who are recognised industry leaders in their field, has conducted independent technical reviews of the design, construction, operation, closure and management of Letšeng's tailings storage facilities in June 2021 and reported favourably on their findings.
Letšeng's tailings and freshwater storage facilities undergo stringent structural safety inspections and audits at regular intervals throughout the year, which are conducted by competent internal and external experts. The safety and structural integrity of Letšeng's tailings and freshwater storage facilities is an ongoing focus area for the Group.
Inspections are done daily, weekly and monthly, surveying various factors such as water level, beach length, freeboard and overall structural stability. The findings and recommendations stemming from these inspections and additional audits are reported to the Sustainability subcommittee and, in turn, to the Board.
The Group also recognises its responsibility towards its PACs and safeguarding communities from any adverse impact related to the storage facilities. An early-warning system, together with continuous community training and awareness programmes, have been implemented to ensure communities' emergency readiness in the extremely unlikely event of a failure.
Climate change
Gem Diamonds recognises that climate change will significantly impact what responsible mining will look like in the future. The Group is continuously working to understand how climate change impacts its operational resilience in the short, medium and long term; as well as understanding the Group's own carbon footprint, climate impact and associated opportunities. To properly report on the financial and strategic considerations related to climate change, Gem Diamonds is integrating the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) into the Group's governance and risk management structures, strategy and reporting platforms.
The Group has established formal governance structures at management and Board level that deal with climate change matters. To bolster the body of knowledge available to management and the Board when making strategic decisions, Gem Diamonds has commissioned a series of climate change focused studies that will provide operation-specific data regarding mitigation and adaptation strategies.
Gem Diamonds acknowledges that climate change related challenges are a present-day management matter, as illustrated by multiple water management challenges recently faced at Letšeng; these include a three-year drought, followed by regional flash-flooding in February 2021. To mitigate against the impacts these events have had on the Group, an integrated water management plan was implemented, in addition to the ISO 14001 accredited environmental management framework.
The Group is awaiting the outcome of its climate change scenario analysis and decarbonisation studies to inform further appropriate steps to improve its resilience to future climate change risks and impacts and minimise its carbon footprint to contribute to global carbon reduction goals.
Preparing for the future
The Group continues to advance two key technologies to identify locked diamonds within kimberlite and to liberate diamonds using a non-mechanical process. While the enhancements and troubleshooting of the pilot plant operation were hindered by COVID‑19-related travel restrictions, the Group has made steady progress through collaboration with its technical partners to advance the detection technology. The Group remains steadfast in its view that detection of diamonds within kimberlite will greatly reduce diamond damage and reduce operating costs whilst adding significant value for its shareholders.
Good corporate governance
Gem Diamonds embraces governance excellence at every level. The Board leads by example and has oversight of Group performance and activities.
The Group welcomed Rosalind Kainyah to the Board during the Period. Rosalind has 30 years of combined international, senior management, executive and board-level experience. The Group believes her experience across a range of stakeholders from government, corporate, civil society organisations and media will contribute meaningfully to Board debates and add fresh insight. Following her appointment, the gender and ethnic minority diversity of the Board has increased to 29%.
LOOKING AHEAD
The Group will continue to focus on the health and safety of its workforce. It will also continue to support surrounding communities and assist the Government of the Kingdom of Lesotho to manage the impact of the pandemic.
Supporting the UN SDG's remains a priority for the Group and the Group is working to integrate the recommendations of the TCFD into its existing UN SDG framework. The Group has also appointed independent external subject matter experts to provide input into the climate change considerations that will inform governance, risk management and strategy decisions as well as climate related targets for the Group.
At an operational level, the Group will continue to realise the benefits from the BT programme to drive efficiencies and cost-reduction initiatives to maximise cash flows and maintain its status as a responsible, safe and low-cost operation. The Group believes this focus helps it achieve its strategic objectives and will continue to unlock value for its shareholders.
OPERATING REVIEW: LETŠENG
H1 2021 IN REVIEW
· Zero fatalities and four LTIs
· Zero significant environmental or social incidents
· Recovered three diamonds greater than 100 carats (H1 2020: Seven)
· Achieved an average price of US$1 886 per carat (H1 2020: US$1 707 per carat)
· The highest price achieved was US$119 886 per carat for a 3.35 carat pink diamond
· The highest price achieved for a Type IIa white diamond was for a 254 carat diamond that sold for US$40 139 per carat
PRODUCTION OVERVIEW
Gem Diamonds owns 70% of Letšeng in partnership with the Government of the Kingdom of Lesotho, which owns the remaining 30%.
| Unit | H1 2021 | H1 2020 | H1 2019 | % variance to H1 2020 |
Waste mined | tonnes | 10 167 526 | 5 167 305 | 13 150 417 | 97% |
Ore mined | tonnes | 3 175 880 | 2 489 655 | 3 181 762 | 28% |
Ore treated | tonnes | 3 139 719 | 2 353 991 | 3 339 620 | 33% |
Carats recovered | carats | 58 831 | 43 275 | 56 668 | 36% |
Recovered grade | cpht1 | 1.87 | 1.84 | 1.70 | 2% |
1 Carats per hundred tonnes.
Waste mining increased to 10.2 million tonnes (H1 2020: 5.2 million), following the normalisation of operations post the imposed lockdown order in H1 2020. 3.1 million ore tonnes were treated, of which the two Letšeng plants treated 2.6 million tonnes (H1 2020: 2.0 million tonnes), with the remaining 0.5 million tonnes (H1 2020: 0.4 million tonnes) treated by Alluvial Ventures, the third-party processing contractor.
The Group recovered 58 831 carats (H1 2020: 43 275 carats), an increase of 36% from H1 2020. H1 2020 was significantly impacted by the operational 30-day shutdown and further ramp-up period to bring the operation to full capacity due to COVID-19. Carats recovered increased by 4% when compared to H1 2019, which was a more comparable period, mainly due to the higher contribution from Satellite pipe material.
The BT initiative to re-treat historic and current recovery tailings through the mobile X-ray sorting machine recovered 592 carats (H1 2020: 456). An additional 43 carats were recovered by the new mobile fines X-ray sorting machine that was commissioned at the end of May.
The overall grade for H1 2021 was 1.87 cpht (H1 2020: 1.84 cpht), representing an increase of 2% from H1 2020, mainly driven by a slightly higher contribution from Satellite pipe material which accounted for 53% of all material treated during the Period (H1 2020: 50%). The grade recovered is in line with the expected reserve grade.
Plant stabilisation
Creating and sustaining process stability is the cornerstone of good operational management. A multi-disciplinary technical team embarked on a process to develop a dynamic simulation model of the processing plants to gain greater insight on the impact of internal and external variables on the performance of the processing plants. The model used empirical data as input to ensure an accurate replication of the plants. A baseline was established to ensure the model logic mimicked the current plant performance. This simulation verified pre-defined hypotheses, with the outcomes being analysed and used to drive positive adjustments.
A simulated environment helped the team to ascertain how to stabilise, improve and optimise plant performance. The model assisted the team to identify bottlenecks and test associated improvement initiatives such as:
· Blasting and fragmentation impact on performance;
· The potential value-add of Advance Process Control;
· Equipment upgrade and debottlenecking options;
· Improved overall time utilisation; and
· Flowsheet changes or reconfiguration of splits and mass balance to debottleneck the process.
The evaluated scenarios allowed for decisions and actions based on factual information rather than assumptions. This enables improved plant stabilisation and debottlenecking, with focused and appropriate capital expenditure and insightful decision-making to drive continuous improvement. This model is currently being expanded to include the mining operations to offer a complete value chain solution. In time, the model will form part of the planning process, actively testing initiatives before they are implemented to predict future performance.
Frequency of large diamond recoveries
Number of diamonds | H1 2021 | H1 2020 | H1 2019 | FY average 2008 - 2020 |
>100 carats | 3 | 7 | 3 | 8 |
60 - 100 carats | 9 | 21 | 9 | 19 |
30 - 60 carats | 43 | 47 | 36 | 76 |
20 - 30 carats | 59 | 57 | 72 | 114 |
10 - 20 carats | 317 | 180 | 155 | 433 |
Total diamonds >10 carats | 431 | 312 | 275 | 650 |
The noticeable increase in the number of diamonds recovered in the 10 to 20 carat size category, as shown in the table above, is mainly a result of the material treated during the Period, a part of which had an expected smaller diamond size.
DIAMOND SALES
The average price achieved during the Period was US$1 886 per carat (H1 2020: US$1 707 per carat) for 55 123 carats generating revenue of US$104.0 million (H1 2020: 43 384 carats at a value of US$74.1 million).
The highest price achieved was for a 3.35 carat pink diamond that sold for US$119 886 per carat. The highest price achieved for a white diamond was for a 254 carat diamond that sold for US$40 139 per carat.
10 diamonds sold for more than US$1.0 million each, generating revenue of US$36.1 million (H1 2020: 16 diamonds sold for more than US$1.0 million each, generating revenue of US$29.4 million).
GROUP FINANCIAL PERFORMANCE
H1 2021 IN REVIEW
· Revenue generation increased to US$104.5 million (H1 2020: US$69.5 million)
· Underlying EBITDA1 increased to US$34.7 million (H1 2020: US$11.3 million)
· Attributable profit from continuing operations increased to US$10.6 million (H1 2020: US$0.2 million)
· Basic earnings per share from continuing operations increased to 7.6 US cents (H1 2020: 0.1 US cents)
· Loss from discontinued operations reduced to US$1.3 million relating to Ghaghoo (H1 2020: US$1.9 million)
PROFITABILITY AND LIQUIDITY
US$ million | H1 2021 | H1 2020 | H1 2019 |
Revenue | 104.5 | 69.5 | 91.3 |
Royalty and selling costs | (11.0) | (7.6) | (8.4) |
Cost of sales2 | (53.6) | (43.7) | (52.5) |
COVID-19 costs/standing costs | (0.4) | (3.3) | - |
Corporate expenses | (4.8) | (3.6) | (5.1) |
Underlying EBITDA1 from continuing operations | 34.7 | 11.3 | 25.3 |
Depreciation and mining asset amortisation | (4.2) | (6.2) | (7.1) |
Share-based payments | (0.3) | (0.3) | (0.6) |
Other income | - | - | 1.4 |
Foreign exchange (loss)/gain | (0.1) | 0.3 | 2.4 |
Net finance costs | (1.8) | (2.6) | (2.7) |
Profit before tax from continuing operations | 28.3 | 2.5 | 18.7 |
Income tax expense | (10.0) | (0.7) | (6.6) |
Profit for the Period from continuing operations | 18.3 | 1.8 | 12.1 |
Non-controlling interests | (7.7) | (1.6) | (5.5) |
Attributable profit from continuing operations | 10.6 | 0.2 | 6.6 |
Loss from discontinued operations | (1.3) | (1.9) | (2.4) |
Attributable net profit/(loss) | 9.3 | (1.7) | 4.2 |
Earnings per share from continuing operations (US cents) | 7.6 | 0.1 | 4.8 |
Loss per share from discontinued operations (US cents) | (1.0) | (1.4) | (1.8) |
The Group generated an underlying EBITDA1 of US$34.7 million (H1 2020: US$11.3 million). The profit attributable to shareholders from continuing operations was US$10.6 million (H1 2020: US$0.2 million), equating to earnings per share from continuing operations of 7.6 US cents (H1 2020: 0.1 US cents) on a weighted average number of shares in issue of 139.8 million (H1 2020: 139.0 million shares). After including the loss of US$1.3 million from Ghaghoo, which remains classified as a discontinued operation, the Group's attributable profit was US$9.3 million, resulting in earnings per share after discontinued operations of 6.6 US cents (H1 2020: loss of 1.3 US cents per share).
1 Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) as defined in Note 6 of the condensed notes to the consolidated interim financial statements.
2 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation.
Revenue
US$ million | H1 2021 | H1 2020 | H1 2019 |
Sales - rough | 104.0 | 74.0 | 94.5 |
Sales - polished margin | 0.2 | - | - |
Impact of carry over rough diamonds | 0.3 | (4.5) | (3.2) |
Group revenue | 104.5 | 69.5 | 91.3 |
The Group's increased revenue of US$104.5 million was mainly driven by increased sales volumes and higher prices per carat achieved compared to H1 2020, which was impacted by COVID-19. The higher sales volumes were a direct result of the increased production since being able to operate at normal capacity during the Period. The recovery of the diamond market also had a positive impact on the prices achieved for Letšeng's rough diamonds.
Exchange rates | H1 2021 | H1 2020 | % change |
LSL per US$1.00 |
|
|
|
Average exchange rate for the Period | 14.54 | 16.66 | (13%) |
Period end exchange rate | 14.28 | 17.38 | (18%) |
BWP per US$1.00 |
|
|
|
Average exchange rate for the Period | 10.87 | 11.53 | (6%) |
Period end exchange rate | 10.92 | 11.81 | (8%) |
US$ per GBP1.00 |
|
|
|
Average exchange rate for the Period | 1.39 | 1.26 | 10% |
Period end exchange rate | 1.38 | 1.24 | 11% |
Costs
The Group continues to closely manage its costs and preserve cash resources to maintain strong margins and appropriate liquidity.
Exchange rate impacts
While revenue is generated in US dollars, the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. Local currency rates for the Lesotho loti (LSL) (pegged to the South African rand) and Botswana pula (BWP) were stronger against the US dollar (compared to H1 2020) which increased the Group's US dollar reported costs and decreased local currency cash flow generation.
COVID-19 impact on operational costs
The Group continued its effective management of COVID-19 protocols with US$0.4 million spent during the Period (H1 2020: US$0.3 million) to help prevent the spread of COVID-19 on site. The previously reported COVID-19 standing costs in H1 2020 included US$3.0 million of fixed mining costs which were incurred for the 30-day operational shutdown. An estimated LSL15 100 per employee has been spent at Letšeng on PPE and testing to date.
Letšeng's total direct cash costs1 increased by 24% to LSL580.7 million (H1 2020: LSL468.4 million). The increase is mainly due to the reduced costs in H1 2020 due to the 30-day operational shutdown and subsequent ramp-up period.
Notwithstanding the increase in total costs, the unit cost per tonne decreased due to Letšeng operating at normal capacity during the Period. Tonnes treated were 33% higher and waste tonnes mined were 97% higher compared to H1 2020 due to the impact of COVID-19 on production volumes in H1 2020. In local currency, total operating costs2 increased by 7% to LSL782.7 million in H1 2021 (H1 2020: LSL734.0 million), resulting in total operating costs per tonne treated of LSL249.29, a decrease of 20% from LSL311.81 per tonne treated in H1 2020.
This reduced unit cost was driven by the increased tonnes treated and the lower non-cash accounting charges during the Period, which was mainly due to the impact of inventory movement during the Period compared to the movement in H1 2020.
1 Direct cash costs represent all operating cash costs, excluding waste cash costs, royalty and selling costs
2 Operating costs before waste costs and after adding non-cash accounting charges.
Letšeng Unit Cost Analysis | |||||||
Unit cost per tonne treated | Direct cash costs1 | Third plant operator costs | Total direct cash operating costs1 | Non-cash accounting charges2 | Total operating cost |
| Waste cash costs per waste tonne mined |
H1 2021 (LSL) | 172.43 | 12.52 | 184.95 | 64.34 | 249.29 |
| 44.52 |
H1 2020 (LSL) | 186.49 | 12.51 | 199.00 | 112.81 | 311.81 |
| 43.31 |
% change |
|
| (7) |
| (20) |
| 3 |
H1 2021 (US$) | 11.86 | 0.86 | 12.72 | 4.43 | 17.15 |
| 3.06 |
H1 2020 (US$) | 11.2 | 0.75 | 11.95 | 6.77 | 18.72 |
| 2.60 |
% change |
|
| 6 |
| (8) |
| 18 |
1 Direct mine cash costs represent all operating costs, excluding royalty and selling costs.
2 Non-cash accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and the impact of adopting IFRS 16 Leases, and exclude depreciation and mining asset amortisation.
· Direct cash costs are LSL172.43 per tonne treated, representing an 8% decrease from H1 2020. Waste cost per waste tonne mined increased by 3% to LSL44.52 (H1 2020: LSL43.31). The decrease in the direct cash unit cost per tonne treated is a direct result of the higher volumes treated and mined during the Period.
· Third plant operator costs per tonne treated in local currency remained consistent with H1 2020. This cost is a function of the revenue generated by the sales from diamonds recovered through the contractor plant during the Period.
· Non-cash accounting changes: The contribution of the Satellite pipe to the mining mix was 53% of all material treated during the Period (H1 2020: 50%). Total waste amortisation costs increased to LSL322.9 million (H1 2020: LSL288.4 million), impacting the cost by LSL102.8 per tonne. This increase was offset by the timing differences of the inventory movements during the Period.
Corporate expenses
Corporate office costs are incurred to provide expertise in all areas of the business to realise maximum value from the Group's assets. These costs are incurred by the Group through its technical and administrative offices in South Africa (in South African rand) and head office in the UK (in British pounds).
General corporate costs were US$4.8 million (H1 2020: US$3.6 million), impacted significantly by the stronger South African Rand and British Pound, against the US Dollar.
The share-based payment charge for the Period was US$0.3 million (H1 2020: US$0.3 million). On 2 June, shareholders approved the 2021 Remuneration Policy which included the introduction of a post-termination shareholding, a workforce pension alignment plan as well as the new Gem Diamonds Incentive Plan (GDIP) for Executive Directors. No awards in line with the new GDIP or the existing Long Term Incentive Plan (LTIP) were made during the Period.
Cost reductions to preserve cash - Ghaghoo (discontinued operation)
The operation, currently on care and maintenance, continues to be classified as a discontinued operation per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Care and maintenance costs reduced to US$1.3 million (H1 2020: US$1.9 million) and have been recognised and disclosed separately in the Interim Consolidated Statement of Profit or Loss.
Subsequent to Period end, on 23 August 2021, Gem Diamonds entered into a binding share sale agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, the owner of the Ghaghoo diamond mine in Botswana. The completion of the transaction is subject to certain suspensive conditions, including the relevant regulatory and competition authority approvals within Botswana. It is expected that these will be fulfilled, and the transaction completed in Q4 2021.
Under the share sale agreement, the purchaser will pay a total consideration of US$4.0 million, payable in two instalments of US$2.0 million each, the first of which is payable five days after the date on which the last suspensive condition has been fulfilled or waived. The second payment is payable on or before 23 December 2021, provided the first payment has been made prior thereto. In the event the last suspensive condition is fulfilled or waived after 23 December 2021, the full amount of US$4.0 million will be payable five days after such fulfilment or waiver. The Group will use the sale proceeds for general corporate purposes.
FINANCIAL POSITION
The LSL closed 3% stronger against the US dollar at the end of the Period compared to 31 December 2020. This resulted in an increase in the US dollar reported values in the Interim Consolidated Statement of Financial Position. The changes to and key drivers of selected totals of the Interim Consolidated Statement of Financial Position are detailed below.
US$ million | H1 2021 | FY 2020 | % variance |
Non-current assets | 347.5 | 304.0 |
|
Current assets | 71.5 | 26.7 |
|
Assets associated with discontinued operation | 3.5 | 3.5 |
|
Total assets | 422.5 | 414.2 | 2% |
Equity attributable to parent company | 173.5 | 163.1 |
|
Non-controlling interest | 93.9 | 84.4 |
|
Total equity | 267.4 | 247.5 | 8% |
Non-current liabilities | 112.0 | 105.5 |
|
Current liabilities | 38.8 | 57.0 |
|
Liabilities associated with discontinued operation | 4.3 | 4.2 |
|
Total liabilities | 155.1 | 166.7 | (7%) |
Key asset drivers |
|
|
| |
US$ million | H1 2021 | H1 2020 | % variance | |
Waste cost capitalised | 35.7 | 15.5 | 130% | |
Waste stripping cost amortised | 23.0 | 18.0 | 28% | |
Depreciation and mining asset amortisation | 4.2 | 6.2 | (32%) | |
Capital expenditure | 1.9 | 0.9 | 111% | |
Waste cost capitalised and amortised increased in line with the higher volumes of waste mined and ore treated respectively. Depreciation and mining asset amortisation decreased to US$4.2 million (H1 2020: US$6.2 million).
During the Period, the majority of capital spent related to three capital projects:
· The completion of an additional, single-occupancy employee housing block at Letšeng for US$0.4 million. The additional accommodation will help ease congestion and aid social distancing.
· An X-ray sorting machine was purchased and commissioned to aid the recovery of finer diamonds for a total project cost of US$0.7 million.
· An amount of US$0.2 million was spent on reviewing the replacement of Letšeng's primary crushing area (PCA). The commencement of the PCA capital project has been delayed following the completion of remedial work and several options are currently being considered to ultimately replace the PCA in a phased approach.
Liquidity and solvency
The Group ended the Period with cash on hand of US$33.9 million (31 December 2020: US$49.8 million) of which US$24.9 million is attributable to Gem Diamonds. The Group generated cash from operating activities of US$29.9 million (30 June 2020: US$21.8 million).
At Period end, the Group had utilised facilities of US$14.3 million, resulting in a net cash position of US$19.6 million and available facilities of US$61.0 million, comprising US$19.0 million at Gem Diamonds and US$42.0 million at Letšeng.
The decrease of the Group's cash balances was mainly due to corporate income tax paid in Lesotho for the 2020 year of and first provisional payment for the 2021 tax year of US$15.9 million and dividends to Gem Diamonds' shareholders and the Government of Lesotho's dividend portion from Letšeng of US$6.3 million.
The Group has an LSL500.0 million and a US$30.0 million credit facility expiring in December 2021. The Group's debt refinancing of its existing facilities with Nedbank Corporate and Investment Banking as the lead arranger has commenced and is expected to be concluded before the end of 2021. The Group engages regularly with lenders and credit providers to ensure continued access to funding and to manage the Group's cash flow requirements.
Summary of loan facilities as at 30 June 2021:
| Term/ description |
Lender |
Expiry | Interest rate | Amount US$ million | Drawn down US$ million | Available US$ million |
Gem Diamonds Limited | Three-year rolling credit facility (RCF) | Nedbank | December 2021
| London US$ three-month Interbank Offered Rate (LIBOR) plus 5.0% | 30.0
| 11.0 | 19.0 |
Letšeng Diamonds
| Three-year RCF
| Standard Lesotho Bank and Nedbank Lesotho | December 2021
| Lesotho prime rate minus 1.5%
| 35.0
| - | 35.0 |
Letšeng Diamonds
| 5.5-year project facility
| Nedbank/ Export Credit Insurance Corporation
| September 2022
| Tranche A (LSL35 million) South African JIBAR + 6.75% | 2.5 | 0.8 | - |
|
|
| March 2022
| Tranche B (R180 million) South African Johannesburg Interbank Average Rate (JIBAR) + 3.15% | 12.6 | 2.5 | - |
Letšeng Diamonds | Overdraft facility | Nedbank | Annual review in March | South African prime rate minus 0.7% | 7.0 | - | 7.0 |
Total |
|
|
|
| 87.1 | 14.3 | 61.0 |
Tax matters
The forecast effective tax rate for the full year is 35.2% 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 recognised on losses incurred in non-trading operations.
As disclosed in the 2019 and 2020 Annual Report and Accounts, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA), contradicting the application of certain tax treatments in the current Lesotho Income Tax Act, 1993. An objection to the amended tax assessment was lodged with the LRA in March 2020, which was supported by the opinion of senior counsel, together with an application for the suspension of any payment deemed due. The application for suspension of payment was accepted. The LRA has subsequently lodged an application for the review and setting aside of the applicable regulations to the Lesotho High Court pertaining to this matter, which Letšeng is opposing, and a court date will be determined in February 2022. The previous court date of 3 August 2021 was postponed due to COVID-19.
Going concern
The projections of the Group's current and expected profitability, considering reasonable possible changes in operations, key assumptions and inputs, such as the renewal of the facilities, indicate that the Group will be able to operate as a going concern for the foreseeable future. See the financial statements on page 18.
PRINCIPAL RISKS AND UNCERTAINTIES
The Group's principal risks and uncertainties, both current and emerging, that could have a material financial, operational and compliance impact on its performance and long-term growth are presented in the Business Overview of the Annual Report and Accounts for 2020 (pages 25 to 30). The Group's principal risks as presented in the Annual Report and Accounts for 2020 remain unchanged in the medium to long term and takes into consideration current market and operational conditions of the Group's operations and world markets. The Group's risk management strategy aims to manage Group risk in such a way to minimise threats and maximise opportunities.
The Group continues to monitor areas of unpredictability, in particular the evolving impact of the COVID-19 pandemic on all Group risks. All requisite staffing, facilities and equipment, as well as communication and education mechanisms, as developed and implemented in response to the COVID-19 risk, remain in place to ensure the safety of all our people and the achievement of the Group's objectives. The controls implemented was effective in mitigating the risk associated with COVID-19 during the third wave of infections experienced during July and August 2021.
The assessment of emerging risks is embedded within the risk Framework of the Group. Any emerging risks identified are reported to and considered by the Board.
Insurers have continued to decrease their exposure to the mining industry due to the risk perception created by the COVID-19 pandemic, as well as recent claims within the industry due to the looting experienced in South Africa. As a result, the renewal of appropriate insurance has become challenging, leading to additional exclusions, reduced cover, increasing deductibles or excesses payable and increasing premiums. In response to the current insurance market challenges, the Group has decided to adopt a new risk transfer strategy to address the substantial changes in the insurance market by developing a sustainable insurance solution for the Group in the medium to long term.
Climate change is one of the most significant risks facing organisations. The Financial Conduct Authority (FCA) has published new proposals on climate-related disclosure rules for premium listed companies to promote climate and wider sustainability-related financial disclosures. The aim of these is for investors and consumers to better understand the impact of climate change and make more informed decisions. The Group has commenced integrating the recommendations of the TCFD into its governance and risk management structures, strategy and reporting platforms to adequately report on the financial and strategic considerations related to climate change as required by the FCA proposals.
Current health and safety statistics, production trends and sales results demonstrate the Group's resilience and the maturity of the risk management process to enable quick response and adaptability in difficult conditions.
Clifford Elphick
Chief Executive Officer
1 September 2021
HALF YEAR FINANCIAL STATEMENTS
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE HALF YEAR 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 year 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 2020.
The names and functions of the Directors of Gem Diamonds Limited are listed in the Annual Report for the year ended 31 December 2020.
On 1 May, Johnny Velloza, a Non-Executive Director stepped down from the Board and was replaced by Rosalind Kainyah, who joined the Board as an Independent non-Executive Director.
For and on behalf of the Board
Michael Michael
Chief Financial Officer
1 September 2021
INTERIM CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE SIX MONTHS ENDED 30 JUNE 2021
| Notes | 30 June 20211 US$'000 | 30 June 20201 US$'000 |
CONTINUING OPERATIONS |
|
|
|
Revenue from contracts with customers | 4 | 104 525 | 69 543 |
Cost of sales |
| (57 757) | (49 931) |
Gross profit |
| 46 768 | 19 612 |
Other operating expense | 5 | (340) | (3 301)2 |
Royalties and selling costs |
| (11 038) | (7 640) |
Corporate expenses |
| (4 813) | (3 566) |
Share-based payments | 17 | (295) | (301) |
Foreign exchange (loss)/gain |
| (122) | 312 |
Operating profit |
| 30 160 | 5 116 |
Net finance costs |
| (1 848) | (2 565) |
- Finance income |
| 88 | 240 |
- Finance costs |
| (1 936) | (2 805) |
|
|
|
|
Profit before tax for the Period from continuing operations |
| 28 312 | 2 551 |
Income tax expense | 8 | (9 953) | (739) |
Profit after tax for the Period from continuing operations |
| 18 359 | 1 812 |
DISCONTINUED OPERATION |
|
|
|
Loss after tax for the Period from discontinued operation | 15 | (1 329) | (1 925) |
Profit/(loss) for the Period |
| 17 030 | (113) |
Attributable to: |
|
|
|
Equity holders of parent |
| 9 288 | (1 736) |
Non-controlling interests |
| 7 742 | 1 623 |
Earnings/(loss) per share (cents) |
|
|
|
- Basic earnings/(loss) for the Period attributable to ordinary equity holders of the parent |
| 6.64 | (1.25) |
- Diluted earnings/(loss) for the Period attributable to ordinary equity holders of the parent |
| 6.53 | (1.23) |
Earnings per share (cents) for continuing operations |
|
|
|
- Basic earnings for the Period attributable to ordinary equity holders of the parent |
| 7.59 | 0.13 |
- Diluted earnings for the Period attributable to ordinary equity holders of the parent |
| 7.47 | 0.13 |
1 Unaudited
2 During the current Period, the Company reclassified COVID-19 standing costs of US$3.3 million which were presented separately in the prior period, to Other operating expenses. The reclassification had no impact on the totals in the Interim Consolidated Statement of Profit or Loss.
INTERIM CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE
INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2021
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 |
Profit/(loss) for the Period |
| 17 030 | (113) |
Other comprehensive income that will be reclassified to the Interim Consolidated Statement of Profit or Loss in subsequent periods |
|
|
|
Exchange differences on translation of foreign operations, net of tax |
| 6 142 | (48 833) |
Other comprehensive income/(loss) for the Period, net of tax |
| 6 142 | (48 833) |
Total comprehensive income/(loss) for the Period, net of tax |
| 23 172 | (48 946) |
Attributable to: |
|
|
|
Equity holders of parent |
| 13 686 | (65 232) |
Non-controlling interests |
| 9 486 | 16 286 |
1 Unaudited
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2021
| Notes | 30 June 20211 US$'000 | 31 December 20202 US$'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Property, plant and equipment | 10 | 323 896 | 304 005 |
Right-of-use assets | 11 | 3 877 | 4 823 |
Intangible assets | 12 | 13 370 | 12 997 |
Receivables and other assets | 13 | 141 | 153 |
Deferred tax assets |
| 6 201 | 6 346 |
|
| 347 485 | 328 324 |
Current assets |
|
|
|
Inventories |
| 30 744 | 26 741 |
Receivables and other assets | 13 | 6 726 | 5 686 |
Income tax receivable |
| 106 | 106 |
Cash and short-term deposits | 14 | 33 929 | 49 820 |
|
| 71 505 | 82 353 |
Asset held for sale | 15 | 3 534 | 3 528 |
Total assets |
| 422 524 | 414 205 |
EQUITY AND LIABILITIES |
|
|
|
Equity attributable to equity holders of the parent |
|
|
|
Issued capital | 16 | 1 405 | 1 397 |
Share premium |
| 885 648 | 885 648 |
Other reserves |
| (207 478) | (212 164) |
Accumulated losses |
| (506 029) | (511 808) |
|
| 173 546 | 163 073 |
Non-controlling interests |
| 93 908 | 84 422 |
Total equity |
| 267 454 | 247 495 |
Non-current liabilities |
|
|
|
Interest-bearing loans and borrowings | 18 | 487 | 1 702 |
Lease liabilities | 19 | 4 682 | 4 902 |
Trade and other payables |
| 2 237 | 2 029 |
Provisions |
| 13 299 | 12 331 |
Deferred tax liabilities |
| 91 275 | 84 538 |
|
| 111 980 | 105 502 |
Current liabilities |
|
|
|
Interest-bearing loans and borrowings | 18 | 14 217 | 14 385 |
Lease liabilities | 19 | 1 116 | 1 836 |
Trade and other payables |
| 22 277 | 28 823 |
Income tax payable |
| 1 182 | 11 940 |
|
| 38 792 | 56 984 |
Liabilities directly associated with the asset held for sale | 15 | 4 298 | 4 224 |
Total liabilities |
| 155 070 | 166 710 |
Total equity and liabilities |
| 422 524 | 414 205 |
1 Unaudited
2 Audited
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2021
| Attributable to the equity holders of the parent |
| ||||||||
|
| Issued capital US$'000 | Share premium US$'000 | Other reserves1 US$'000 | Accumu- lated (losses)/ retained earnings US$'000 | Total US$'000 | Non- Control-ling interests US$'000 | Total equity US$'000 |
| |
Balance at 1 January 2021 |
| 1 397 | 885 648 | (212 164) | (511 808) | 163 073 | 84 422 | 247 495 |
| |
|
|
|
|
|
|
|
|
|
| |
Profit for the Period |
| - | - | - | 9 288 | 9 288 | 7 742 | 17 030 |
| |
Other comprehensive income |
| - | - | 4 398 | - | 4 398 | 1 744 | 6 142 |
| |
|
|
|
|
|
|
|
|
|
| |
Total comprehensive income |
| - | - | 4 398 | 9 288 | 13 686 | 9 486 | 23 172 |
| |
Share capital issued (Note 16) |
| 8 | - | (8) | - | - | - | - |
| |
Share-based payments (Note 17) |
| - | - | 296 | - | 296 | - | 296 |
| |
Dividends paid (Note 9) |
| - | - | - | (3 509) | (3 509) | - | (3 509) |
| |
Balance at 30 June 20212 |
| 1 405 | 885 648 | (207 478) | (506 029) | 173 546 | 93 908 | 267 454 |
| |
Attributable to discontinued operation (Note 15) |
| - | - | (53 027) | (193 581) | (246 608) | - | (246 608) |
| |
Balance at 1 January 2020 |
| 1 391 | 885 648 | (202 857) | (525 449) | 158 733 | 85 424 | 244 157 |
| |
|
|
|
|
|
|
|
|
|
| |
(Loss)/profit for the Period |
| - | - | - | (1 736) | (1 736) | 1 623 | (113) |
| |
Other comprehensive (loss)/income |
| - | - | (63 496) | - | (63 496) | 14 663 | (48 833) |
| |
|
|
|
|
|
|
|
|
|
| |
Total comprehensive |
| - | - | (63 496) | (1 736) | (65 232) | 16 286 | (48 946) |
| |
Share capital issued (Note 16) |
| 3 | - | (3) | - | - | - | - |
| |
Share-based payments (Note 17) |
| - | - | 307 | - | 307 | - | 307 |
| |
Balance at 30 June 20202 |
| 1 394 | 885 648 | (266 049) | (527 185) | 93 808 | 101 710 | 195 518 |
| |
Attributable to discontinued operation (Note 15) |
| - | - | (51 868) | (192 029) | (243 897) | - | (243 897) |
| |
1 Other reserves relate to Foreign currency translation reserves and Share based equity reserves
2 Unaudited
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2021
| Notes | 30 June 20211 US$'000 | 30 June 20201 US$'000 | |
Cash flows from operating activities |
| 29 905 | 21 814 | |
Cash generated by operations | 20.1 | 57 438 | 32 028 | |
Working capital adjustments | 20.2 | (10 501) | (7 955) | |
Interest received |
| 88 | 240 | |
Interest paid |
| (1 182) | (2 193) | |
Income tax paid |
| (15 937) | (306) | |
|
|
|
| |
Cash flows used in investing activities |
| (37 576) | (16 317) | |
Purchase of property, plant and equipment | 10 | (1 898) | (864) | |
Waste stripping costs capitalised | 10 | (35 683) | (15 453) | |
Proceeds from sale of property, plant and equipment |
| 5 | - | |
|
|
|
| |
Cash flows from financing activities |
| (9 038) | 2 310 | |
Lease liabilities repaid |
| (1 067) | (900) | |
Net financial liabilities (repaid)/raised | 20.3 | (1 667) | 3 210 | |
- Financial liabilities raised |
| 1 000 | 32 513 | |
- Financial liabilities repaid |
| (2 667) | (29 303) | |
Dividends paid to holders of the parent |
| (3 509) | - | |
Dividends paid to non-controlling interests |
| (2 795) | - | |
|
|
|
| |
Net (decrease)/increase in cash and cash equivalents |
| (16 709) | 7 807 | |
Cash and cash equivalents at beginning of Period |
| 49 827 | 11 443 | |
Foreign exchange differences |
| 868 | (1 733) | |
|
|
|
| |
Cash and cash equivalents |
| 33 987 | 17 517 | |
Cash and cash equivalents at end of Period - continuing operations | 14 | 33 929 | 17 285 | |
Cash and cash equivalents held at banks |
| 33 929 | 17 239 | |
Restricted cash |
| - | 46 | |
Cash and cash equivalents at end of Period - discontinued operation | 15 | 58 | 232 | |
Cash and cash equivalents held at banks |
| 58 | 181 | |
Restricted cash |
| - | 51 | |
|
|
|
| |
1 Unaudited
CONDENSED NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2021
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 (BVI). 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 1 September 2021, is unaudited and does not constitute statutory financial statements. The report of the auditor on the Group's 2020 Annual Report and Accounts was unqualified.
The Group is principally engaged in operating 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 2021 (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 2020. The Condensed financial statements are unaudited and do not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The financial information for the year to 31 December 2020 included in this report was derived from the statutory accounts for the year ended 31 December 2020, a copy of which has been delivered to the Registrar of Companies. The auditor's report on these accounts was unqualified, did not include a reference to any matters to which the auditor drew attention by way of an emphasis of matter and did not contain a statement under sections 498 (2) or (3) of the Companies Act 2006.
Going concern The Group's business activities, together with the factors likely to affect its future development, performance and position are set out on pages 2 to 17. The financial position of the Group, its cash flows and liquidity position are described in the Group Financial Performance on pages 10 to 15. The Group's net cash at 30 June 2021 was US$19.6 million (31 December 2020: net cash of US$34.6 million) and with its undrawn facilities of US$61.0 million (31 December 2020: US$60.8 million), its liquidity (defined as net cash and undrawn facilities) of US$80.6 million (31 December 2020: US$95.4 million) remains strong. The Group's Revolving Credit facilities, which total US$65.0 million when fully unutilised, mature on 31 December 2021. The Letšeng Diamonds LSL500.0 million (US$35.0 million) debt facility, which remained unutilised at Period end, held jointly with Standard Lesotho Bank and Nedbank Capital, which expired in July, was extended to 31 December 2021 while the Group's wider debt refinancing with Nedbank Corporate and Investment Banking ("Nedbank"), as the lead arranger, progresses. This debt refinancing will involve the refinancing of the Group's current key credit facilities for an initial 3-year period, by securing additional funder(s) who are able to share the exposure equally with Nedbank. Management is confident that the refinancing will be completed before 31 December 2021 to the value of the current Revolving Credit facility values and has applied this judgement in assessing the going concern. Letšeng Diamonds' ZAR100.0 million (US$7.0 million) overdraft facility will not form part of the refinancing and will be reviewed, in line with its annual review, for renewal by the funders in March 2022. It is anticipated this facility will be renewed successfully in line with previous renewals. (Refer Note 18, Interest-bearing loans and borrowings).
Nedbank has undertaken that, should an additional funder not be secured, and subject to all standard necessary internal approvals, they will extend a 3-year revolving credit facility to Letšeng of c. LSL350.0 million (US$25.0 million) in addition to the existing ZAR100.0 million overdraft facility and a 3-year revolving credit facility to Gem Diamonds Limited to the amount of US$15.0 million.
The successful refinancing of these facilities is therefore a material judgement which has been included in the going concern assessment.
After making enquiries which include reviews of forecasts and budgets, timing of cash flows, the maturity and status of the Group debt refinancing and sensitivity analyses, and considering the continued impact of the COVID-19 pandemic on both the wider macro-economic environment (including demand for the Group's products and realised prices) and the Group's operations and production levels, the Directors have a reasonable expectation that the Group and the Company have adequate financial resources without the use of mitigating actions to continue in operational existence for the foreseeable future. This is the case even in the event that Nedbank remain the sole lenders and extend the reduced facility values. For this reason, the Directors continue to adopt the going concern basis in preparing this half year 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 2020. Minor amendments to existing standards, also became effective on 1 January 2021 and have been adopted by the Group. The adoption of these amendments has not had a significant impact on the accounting policies, methods of computation or presentation applied by the Group.
Amendments to standards Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest rate benchmark reform The amendment addresses issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative benchmark interest rate. In the prior year, the Group and its funders commenced a comprehensive debt refinancing programme of the Group's facilities. The refinancing programme incorporates the consideration of any risk posed to the Group by phase two of the IBOR reform, which was effective from 1 January 2021. The IBOR reform may potentially have an impact on the JIBAR, and LIBOR linked interest-bearing loans and borrowings, which includes the LSL215.0 million unsecured project debt facility between Letšeng Diamonds and Nedbank Limited and the Export Credit Insurance Corporation (ECIC) and the US$30.0 million revolving credit facility between Gem Diamonds Limited and Nedbank Capital. Refer Note 18, Interest-bearing loans and borrowings for more information regarding the maturities and the related benchmark rates subject to the IBOR reform on these loans. At Period end, it is not possible to estimate the potential impact of the amendment as no alternative rates have been published by the regulatory bodies or negotiated with the funders. The Group will continue to assess the impact of the interest rate benchmark reform as the revised benchmark rates are published.
Standards issued but not yet effective The standards, amendments and improvements that are issued, but not yet effective, up to the date of issuance of the Group's consolidated interim financial statements are listed in the table below. The standards, amendments and improvements have not been early adopted and it is expected that, where applicable, these standards and amendments will be adopted on each respective effective date. The impact of the adoption of these standards cannot be reasonably assessed at this stage.
| |||||||||||||||||||||||||||||||
| Standards, amendments, and improvements | Description | Effective date* | |||||||||||||||||||||||||||||
| IFRS 17 | Insurance contracts | 1 January 2023 | |||||||||||||||||||||||||||||
| Amendments to IAS 37 | Onerous contracts - cost of fulfilling a contract | 1 January 2022 | |||||||||||||||||||||||||||||
| Amendments to IFRS 3 | Reference to the Conceptual Framework | 1 January 2022 | |||||||||||||||||||||||||||||
| Amendments to IAS 16 | Property, plant and equipment proceeds before intended use | 1 January 2022 | |||||||||||||||||||||||||||||
| Amendments to IAS 1 | Classification of liabilities as current or non-current | 1 January 2023 | |||||||||||||||||||||||||||||
| Amendments to IFRS 10 and IAS 28 | Sale or Contribution of Assets between an Investor and its Associate or Joint Venture | Pending | |||||||||||||||||||||||||||||
| Amendments to IAS 8 | Definition of Accounting Estimates | 1 January 2023 | |||||||||||||||||||||||||||||
| Amendments to IAS 1 and IFRS Practice Statement 2 | Disclosure of Accounting Policies | 1 January 2023 | |||||||||||||||||||||||||||||
| Amendments to IAS 12 | Deferred Tax related to Assets and Liabilities arising from a Single Transaction | 1 January 2023 | |||||||||||||||||||||||||||||
| Improvement IFRS 1 | Subsidiary as a first-time adopter | 1 January 2022 | |||||||||||||||||||||||||||||
| Improvement IFRS 9 | Fees in the '10 per cent' test for derecognition of financial liabilities | 1 January 2022 | |||||||||||||||||||||||||||||
| Improvement IAS 41 | Agriculture - Taxation in fair value measurements | 1 January 2022 | |||||||||||||||||||||||||||||
| * Annual periods beginning on or after
| |||||||||||||||||||||||||||||||
2.3 | Significant accounting matters During the six months ended 30 June 2021, the significant accounting matters addressed by management focused on the assessment of any continued COVID-19 impacts.
COVID-19 continued impact The critical judgements and sources of estimation uncertainty affecting the results for the six months ended 30 June 2021 are consistent with those disclosed in the Group's Annual Report and Accounts for the year ended 31 December 2020. The Group has considered the continued impact of COVID-19 during the Period on its significant accounting judgements and estimates. The material judgement applied in the Going concern assessment has been disclosed above in the section on Basis of preparation and accounting policies. The pandemic continues to affect the level of uncertainty in future cash flow forecasts. This level of uncertainty has been reduced due to numerous factors, such as (a) the classification of Letšeng as an essential service provider in Lesotho by the Lesotho Government which has reduced the risk of a COVID-19 related operation shut-down, (b) the vaccination rollout to the workforce at Letšeng and across the Group's operations, and (c) the continued improvement in the diamond market and demand for Letšeng's high-value diamonds experienced during the Period when compared to the previous year. Another estimation uncertainty are the assumptions used for the assessment of impairment and impairment reversal of assets where indicators of impairment or impairment reversal are identified. The diamond price and foreign exchange rate assumptions used to forecast future cash flows for impairment assessment purposes have been reviewed to consider both the short-term observable impact of COVID-19 and the forecast medium and longer-term impact on commodity prices. These inputs continue to support the conclusion that no impairment indicators existed at Period end. As a result, no impairment charge has been recognised during the Period.
| |||||||||||||||||||||||||||||||
3. | SEGMENT INFORMATION For management purposes, the Group is organised into geographical units as its risks and required rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates or areas in which operations are managed. The below measures of profit or loss, assets and liabilities are reviewed by the Chief Operating Decision-Maker, i.e., Board of Directors. The main geographical regions and the type of products and services from which each reporting segment derives its revenue from are: · Lesotho (diamond mining activities); Belgium (sales, marketing and manufacturing of diamonds); · BVI, RSA, UK and Cyprus (technical and administrative services); and · Botswana (diamond mining activities), classified as a discontinued operation since 30 June 2019.
Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment.
Gem Diamonds Botswana (Ghaghoo Diamond Mine), which was classified as a discontinued operation held for sale and disclosed separately in 2019, continues to be classified as such at Period end. The Company entered into a binding share sale agreement post Period end on, 23 August 2021. Refer Note 23. Events after the reporting Period.
During the prior year Gem Equity Group Limited, a dormant investment company, was abandoned. Following the sale of its investments the Board of Directors of Gem Equity Group Limited resolved to voluntarily liquidate the operation. The liquidation was finalised on 2 July 2021. Gem Equity Group Limited is classified as part of the BVI, RSA, UK and Cyprus segment and had no impact on the financial results in the current Period.
Segment performance is evaluated based on operating profit or loss. Intersegment transactions are entered into under normal arm's length terms in a manner similar to transactions with third parties. Segment revenue, segment expenses and segment results include transactions between segments. Those transactions are eliminated on consolidation.
Segment revenue is derived from mining activities, polished diamond manufacturing margins and Group services.
The following tables present revenue form contracts with customers, profit/(loss) for the Period, EBITDA and asset and liability information from operations regarding the Group's geographical segments:
| |||||||||||||||||||||||||||||||
| Six months ended 30 June 20211 | Lesotho US$'000 | Belgium US$'000 | BVI, RSA, UK and Cyprus2 US$'000 | Total continuing operations US$'000 | Discontinued operations US$'000 | Total US$'000 | |||||||||||||||||||||||||
| Revenue from contracts |
|
|
|
|
|
| |||||||||||||||||||||||||
| Total revenue | 102 949 | 104 659 | 3 388 | 210 996 | - | 210 996 | |||||||||||||||||||||||||
| Intersegment | (102 714) | (369) | (3 388) | (106 471) | - | (106 471) | |||||||||||||||||||||||||
| External customers | 235 | 104 290 | - | 104 525 | - | 104 525 | |||||||||||||||||||||||||
| Segment operating profit/(loss) | 35 235 | 720 | (5 795) | 30 160 | (1 216) | 28 944 | |||||||||||||||||||||||||
| Net finance costs | (1 190) | (2) | (656) | (1 848) | (113) | (1 961) | |||||||||||||||||||||||||
| Profit/(loss) before tax | 34 045 | 718 | (6 451) | 28 312 | (1 329) | 26 983 | |||||||||||||||||||||||||
| Income tax expense | (8 237) | (94) | (1 622)3 | (9 953) | - | (9 953) | |||||||||||||||||||||||||
| Profit/(loss) for the Period | 25 808 | 624 | (8 073) | 18 359 | (1 329) | 17 030 | |||||||||||||||||||||||||
| EBITDA | 38 379 | 915 | (4 616) | 34 678 | (1 184) | 33 494 | |||||||||||||||||||||||||
| 1 Unaudited 2 No revenue was generated in BVI and Cyprus 3 This includes the adjustment to align the forecast effective tax rate for the full year, to the actual results for the Period. Refer Note 8, Income tax expense.
| |||||||||||||||||||||||||||||||
| Six months ended 30 June 20201 | Lesotho US$'000 | Belgium US$'000 | BVI, RSA, UK and Cyprus2 US$'000 | Total continuing operations US$'000 | Discontinued operations US$'000 | Total US$'000 | |||||||||||||||||||||||||
| Revenue from contracts with customers |
|
|
|
|
|
| |||||||||||||||||||||||||
| Total revenue | 68 500 | 69 861 | 2 947 | 141 308 | - | 141 308 | |||||||||||||||||||||||||
| Intersegment | (68 500) | (318) | (2 947) | (71 765) | - | (71 765) | |||||||||||||||||||||||||
| External customers | - | 69 543 | - | 69 543 | - | 69 543 | |||||||||||||||||||||||||
| Segment operating profit/(loss) | 8 751 | 316 | (3 951) | 5 116 | (1 825) | 3 291 | |||||||||||||||||||||||||
| Net finance costs | (1 677) | (3) | (885) | (2 565) | (100) | (2 665) | |||||||||||||||||||||||||
| Profit/(loss) before tax | 7 074 | 313 | (4 836) | 2 551 | (1 925) | 626 | |||||||||||||||||||||||||
| Income tax expense | (1 661) | (3) | 925 | (739) | - | (739) | |||||||||||||||||||||||||
| Profit/(loss) for the Period | 5 413 | 311 | (3 912) | 1 812 | (1 925) | (113) | |||||||||||||||||||||||||
| EBITDA | 13 863 | 531 | (3 058) | 11 336 | (1 720) | 9 616 | |||||||||||||||||||||||||
| 1 Unaudited 2 No revenue was generated in BVI and Cyprus 3 This includes the adjustment to align the forecast effective tax rate for the full year, to the actual results for the Period. Refer Note 8, Income tax expense.
| |||||||||||||||||||||||||||||||
|
| Lesotho US$'000 | Belgium US$'000 | BVI, RSA, UK and Cyprus US$'000 | Total continuing operations US$'000 | Discontinued operations US$'000 | Total US$'000 | |||||||||||||||||||||||||
| Segment assets |
|
|
|
|
|
| |||||||||||||||||||||||||
| 30 June 20211 | 406 047 | 2 310 | 4 432 | 412 789 | 3 534 | 416 323 | |||||||||||||||||||||||||
| 31 December 20202 | 396 040 | 1 694 | 6 597 | 404 331 | 3 528 | 407 859 | |||||||||||||||||||||||||
| Net cash/(debt) and short-term deposits3 |
|
|
|
|
|
| |||||||||||||||||||||||||
| 30 June 20211 | 27 164 | 1 382 | (8 956) | 19 590 | 58 | 19 648 | |||||||||||||||||||||||||
| 31 December 20202 | 40 311 | 877 | (6 565) | 34 623 | 7 | 34 630 | |||||||||||||||||||||||||
| Segment liabilities |
|
|
|
|
|
| |||||||||||||||||||||||||
| 30 June 20211 | 45 411 | 479 | 13 607 | 59 497 | 4 298 | 63 795 | |||||||||||||||||||||||||
| 31 December 20202 | 63 733 | 496 | 13 719 | 77 948 | 4 224 | 82 172 | |||||||||||||||||||||||||
| 1 Unaudited 2 Audited 3 Calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility). Refer Note 18, Interest bearing loans and borrowings. | |||||||||||||||||||||||||||||||
|
Included in revenue for the Period is revenue from two customers which amounted to US$38.0 million (30 June 2020: US$37.9 million from three customers) from the sale of diamonds reported in the Lesotho and Belgium segments.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.2 million and US$91.3 million respectively (31 December 2020: deferred tax asset US$6.3 million, deferred tax liabilities US$84.5 million).
Total revenue for the Period is higher than that of the prior period mainly due to the negative impact which COVID-19 had on production and sales volumes, and sales prices achieved in the prior period.
| |||||||||||||||||||||||||||||||
4. | REVENUE FROM CONTRACTS WITH CUSTOMERS | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Sale of goods | 104 277 | 69 543 | |||||||||||||||||||||||||||||
| Partnership arrangements | 235 | - | |||||||||||||||||||||||||||||
| Rendering of services | 13 | - | |||||||||||||||||||||||||||||
|
| 104 525 | 69 543 | |||||||||||||||||||||||||||||
| 1 Unaudited
The revenue from the sale of goods represents the sale of rough diamonds, for which revenue is recognised at the point in time at which control transfers.
The revenue from partnership arrangements of US$0.2 million represents the additional uplift from partnership arrangements for which revenue is recognised when the amount is guaranteed (2020: Nil).
The revenue from the rendering of services represents revenue from the marketing and sale of rough diamonds for customers external to the Group, for which revenue is recognised when the Group's performance obligations have been satisfied (2020: Nil).
No revenue was generated from joint operation arrangements during the current or prior periods.
| |||||||||||||||||||||||||||||||
5. | OTHER OPERATING EXPENSES | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Sundry income | 85 | 163 | |||||||||||||||||||||||||||||
| Sundry expenses | (12) | (150) | |||||||||||||||||||||||||||||
| Loss on disposal and scrapping of property, plant and equipment | (4) | - | |||||||||||||||||||||||||||||
| Other operating net income | 69 | 13 | |||||||||||||||||||||||||||||
| COVID-19 costs/standing costs | (409) | (3 314) | |||||||||||||||||||||||||||||
| Other operating expenses | (340) | (3 301) | |||||||||||||||||||||||||||||
| 1 Unaudited
COVID-19 costs/standing costs During the prior period, COVID-19 standing costs consisted of US$3.0 million which related to certain standing fixed mining contract and ore stockpile movement costs which were incurred during the brief period that the mine suspended operations in compliance with the Lesotho lockdown order and was placed on care and maintenance, and were recognised as abnormal costs and expensed immediately in the Interim Consolidated Statement of Profit or Loss, and US$0.3 million which related to costs incurred to implement protocols throughout the Group to address the risk and curb the spread of COVID-19. In the current Period, there were no abnormal standing costs incurred. Costs of US$0.4 million were incurred relating to continued protocols for curbing the spread of the virus.
| |||||||||||||||||||||||||||||||
6. | UNDERLYING EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND MINING ASSET AMORTISATION (UNDERLYING EBITDA) BEFORE DISCONTINUED OPERATION
Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the operational performance of the Group and excludes such non-operating costs and income as listed below. The reconciliation from operating profit to underlying EBITDA is as follows: | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Operating profit | 30 160 | 5 116 | |||||||||||||||||||||||||||||
| Other operating income2 | (69) | (13) | |||||||||||||||||||||||||||||
| Foreign exchange loss/(gain) | 122 | (312) | |||||||||||||||||||||||||||||
| Share-based payments | 295 | 301 | |||||||||||||||||||||||||||||
| Depreciation and amortisation (excluding waste stripping cost amortised) | 4 170 | 6 244 | |||||||||||||||||||||||||||||
| Underlying EBITDA before discontinued operation | 34 678 | 11 336 | |||||||||||||||||||||||||||||
| 1 Unaudited 2 Excludes COVID-19 costs/standing costs which are considered operating costs.
| |||||||||||||||||||||||||||||||
7. | SEASONALITY OF OPERATIONS The Group's sales environment with regard to its diamond sales is not materially impacted by seasonal and cyclical fluctuations. The mining operations may be impacted by seasonal weather conditions. Appropriate mine planning and ore stockpile build-up ensures that mining can continue during adverse weather conditions.
| |||||||||||||||||||||||||||||||
8. | INCOME TAX EXPENSE | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Current |
|
| |||||||||||||||||||||||||||||
| - Foreign | (4 958) | (3 802) | |||||||||||||||||||||||||||||
| Withholding tax |
|
| |||||||||||||||||||||||||||||
| - Foreign | (90) | (73) | |||||||||||||||||||||||||||||
| Deferred |
|
| |||||||||||||||||||||||||||||
| - Foreign | (4 905) | 3 136 | |||||||||||||||||||||||||||||
|
| (9 953) | (739) | |||||||||||||||||||||||||||||
| 1 Unaudited
The forecast effective tax rate for the full year from continuing operations is 35.2% (31 December 2020: 28.0%) and has been applied to the actual results from continuing operations for the Period. The asset held for sale (refer to Note 15, Asset held for sale), has been excluded from the forecast effective tax rate for the full year and taxed separately. There is no tax effect on the loss from the asset held for sale.
The effective tax rate is above the Lesotho statutory tax rate of 25% primarily as a result of deferred tax assets not recognised on losses incurred in non-trading operations.
| |||||||||||||||||||||||||||||||
9. | DIVIDENDS PAID | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Dividends on ordinary shares declared and paid |
|
| |||||||||||||||||||||||||||||
| Final ordinary dividend for 2020: 2.5 US cents per share (2019: Nil) | (3 509) | - | |||||||||||||||||||||||||||||
| 1 Unaudited
The 2020 proposed dividend based on the 2020 full-year results was approved at the Annual General Meeting on 2 June 2021 and a final cash dividend of US$3.5 million was paid on 15 June 2021.
The Directors intend on applying a similar dividend policy in the current year on the 2021 full year results as has been adopted previously. 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.
| |||||||||||||||||||||||||||||||
10. | PROPERTY, PLANT AND EQUIPMENT During the Period, the Group invested US$1.9 million (30 June 2020: US$0.9 million) into property, plant and equipment, of which US$1.8 million (30 June 2020: US$0.8 million) related to Letšeng.
Letšeng's capital spend was incurred mainly on the purchase of an X-ray sorting machine of US$0.7 million (30 June 2020: Nil), the completion of an additional single-occupancy employee housing block of US$0.4 million (30 June 2020: Nil) and the design and planning work relating to the replacement of the current primary crushing area of US$0.2 million (30 June 2020: US$0.2 million). Letšeng further invested US$35.7 million (30 June 2020: US$15.5 million) in deferred stripping costs which were capitalised. Amortisation of the deferred stripping asset (waste stripping cost amortisation) of US$23.0 million (30 June 2020: US$18.0 million) was charged to the Interim Consolidated Statement of Profit or Loss 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.
Depreciation and amortisation of US$3.1 million (30 June 2020: US$4.9 million) was charged to the Interim Consolidated Statement of Profit or Loss during the Period.
In addition to the above, foreign exchange movements on translation affecting property, plant and equipment increased the asset balances by US$8.4 million (30 June 2020: US$55.1 million).
| |||||||||||||||||||||||||||||||
11. | RIGHT-OF-USE ASSETS | |||||||||||||||||||||||||||||||
|
| Right-of-use assets | ||||||||||||||||||||||||||||||
|
| Plant and equipment | Motor vehicles | Buildings | Total | |||||||||||||||||||||||||||
| As at 30 June 2021 |
|
|
|
| |||||||||||||||||||||||||||
| Cost |
|
|
|
| |||||||||||||||||||||||||||
| Balance at 1 January 2021 | 2 217 | 364 | 6 444 | 9 025 | |||||||||||||||||||||||||||
| Additions | - | - | 225 | 225 | |||||||||||||||||||||||||||
| Derecognition of lease | (2 037) | - | (579) | (2 616) | |||||||||||||||||||||||||||
| Foreign exchange differences | 27 | 10 | 151 | 188 | |||||||||||||||||||||||||||
| Balance at 30 June 2021 | 207 | 374 | 6 241 | 6 822 | |||||||||||||||||||||||||||
| Accumulated depreciation |
|
|
|
| |||||||||||||||||||||||||||
| Balance at 1 January 2021 | 1 737 | 255 | 2 210 | 4 202 | |||||||||||||||||||||||||||
| Charge for the year | 438 | 65 | 607 | 1 110 | |||||||||||||||||||||||||||
| Derecognition of lease | (2 037) | - | (411) | (2 448) | |||||||||||||||||||||||||||
| Foreign exchange differences | 21 | 9 | 51 | 81 | |||||||||||||||||||||||||||
| Balance at 30 June 2021 | 159 | 329 | 2 457 | 2 945 | |||||||||||||||||||||||||||
| Net book value at 30 June 2021 | 48 | 45 | 3 784 | 3 877 | |||||||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
| As at 31 December 2020 |
|
|
|
| |||||||||||||||||||||||||||
| Cost |
|
|
|
| |||||||||||||||||||||||||||
| Balance at 1 January 2020 | 2 012 | 1 656 | 7 318 | 10 986 | |||||||||||||||||||||||||||
| Additions | 821 | - | 354 | 1 175 | |||||||||||||||||||||||||||
| Derecognition of lease | (585) | (1 019) | (988) | (2 592) | |||||||||||||||||||||||||||
| Foreign exchange differences | (31) | (273) | (240) | (544) | |||||||||||||||||||||||||||
| Balance at 31 December 2020 | 2 217 | 364 | 6 444 | 9 025 | |||||||||||||||||||||||||||
| Accumulated depreciation |
|
|
|
| |||||||||||||||||||||||||||
| Balance at 1 January 2020 | 980 | 361 | 1 191 | 2 532 | |||||||||||||||||||||||||||
| Charge for the year | 793 | 114 | 1 136 | 2 043 | |||||||||||||||||||||||||||
| Derecognition of lease | (115) | (175) | (196) | (486) | |||||||||||||||||||||||||||
| Foreign exchange differences | 79 | (45) | 79 | 113 | |||||||||||||||||||||||||||
| Balance at 31 December 2020 | 1 737 | 255 | 2 210 | 4 202 | |||||||||||||||||||||||||||
| Net book value at 31 December 2020 | 480 | 109 | 4 234 | 4 823 | |||||||||||||||||||||||||||
|
Plant and equipment mainly comprise printing equipment utilised at Gem Diamond Technical Services. Motor vehicles mainly comprise vehicles utilised by contractors at Letšeng. Buildings comprise office buildings in Maseru, Antwerp, London and Johannesburg.
Right-of-use assets are depreciated on a straight-line basis over the shorter of their estimated useful life and the lease term.
During the Period, the lease contract for back-up power generating equipment at Letšeng came to an end. The assets and liabilities associated with the lease have been derecognised. A new lease for back-up power generating equipment is in the process of being negotiated. In the interim, Letšeng is renting existing back-up power generating equipment on a month-to-month basis. Furthermore, Gem Diamonds Limited entered into a new contract for the rental of its office space in London, resulting in the recognition of the new associated assets and liabilities and the derecognition of the previous associated assets and liabilities. Total gains of US$0.1 million relating to the derecognition of leases in the Group have been recognised in the Consolidated Statement of Profit or Loss. Refer Note 19, Lease Liabilities and Note 20.1, Cash generated by operations.
During the Period, the Group recognised income of US$0.2 million (30 June 2020: US$0.2 million) from the sub-leasing of office buildings in Maseru.
The Group expects to receive the following income from its sub-leasing activities: | |||||||||||||||||||||||||||||||
|
| US$'000 | ||||||||||||||||||||||||||||||
| July 2021 - June 2022 | 357 | ||||||||||||||||||||||||||||||
| July 2022 - June 2023 | 381 | ||||||||||||||||||||||||||||||
| July 2023 - June 2024 | 405 | ||||||||||||||||||||||||||||||
| July 2024 - June 2025 | 431 | ||||||||||||||||||||||||||||||
| July 2025 - June 2026 | 34 | ||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
12. | INTANGIBLE ASSETS | |||||||||||||||||||||||||||||||
|
| Intangibles US$'000 | Goodwill1 US$'000 | Total US$'000 | ||||||||||||||||||||||||||||
| As at 30 June 2021 |
|
|
| ||||||||||||||||||||||||||||
| Cost |
|
|
| ||||||||||||||||||||||||||||
| Balance at 1 January 2021 | 791 | 12 997 | 13 788 | ||||||||||||||||||||||||||||
| Foreign exchange differences | - | 373 | 373 | ||||||||||||||||||||||||||||
| Balance as at 30 June 2021 | 791 | 13 370 | 14 161 | ||||||||||||||||||||||||||||
| Accumulated depreciation |
|
|
| ||||||||||||||||||||||||||||
| Balance at 1 January 2021 | 791 | - | 791 | ||||||||||||||||||||||||||||
| Amortisation/impairment charge for the Period | - | - | - | ||||||||||||||||||||||||||||
| Balance as at 30 June 2021 | 791 | - | 791 | ||||||||||||||||||||||||||||
| Net book value as at 30 June 2021 | - | 13 370 | 13 370 | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
| As at 31 December 2020 |
|
|
| ||||||||||||||||||||||||||||
| Cost |
|
|
| ||||||||||||||||||||||||||||
| Balance at 1 January 2020 | 791 | 13 653 | 14 444 | ||||||||||||||||||||||||||||
| Foreign exchange differences | - | (656) | (656) | ||||||||||||||||||||||||||||
| Balance as at 31 December 2020 | 791 | 12 997 | 13 788 | ||||||||||||||||||||||||||||
| Accumulated depreciation |
|
|
| ||||||||||||||||||||||||||||
| Balance at 1 January 2020 | 791 | - | 791 | ||||||||||||||||||||||||||||
| Amortisation/impairment charge for the year | - | - | - | ||||||||||||||||||||||||||||
| Balance as at 31 December 2020 | 791 | - | 791 | ||||||||||||||||||||||||||||
| Net book value as at 31 December 2020 | - | 12 997 | 12 997 | ||||||||||||||||||||||||||||
| 1 Goodwill is allocated to Letšeng Diamonds
| |||||||||||||||||||||||||||||||
13. | RECEIVABLES AND OTHER ASSETS | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 31 December 20202 US$'000 | |||||||||||||||||||||||||||||
| Non-current |
|
| |||||||||||||||||||||||||||||
| Deposits | 141 | 153 | |||||||||||||||||||||||||||||
| Current |
|
| |||||||||||||||||||||||||||||
| Trade receivables | 23 | 22 | |||||||||||||||||||||||||||||
| Prepayments | 284 | 1 349 | |||||||||||||||||||||||||||||
| Other receivables | 770 | 135 | |||||||||||||||||||||||||||||
| VAT receivable | 5 649 | 4 180 | |||||||||||||||||||||||||||||
| Total current | 6 726 | 5 686 | |||||||||||||||||||||||||||||
| Total | 6 867 | 5 839 | |||||||||||||||||||||||||||||
| 1 Unaudited 2 Audited
Based on the nature of the Group's client base, other financial assets and the negligible exposure to credit risk, the expected credit loss is insignificant and has no impact on the Group.
| |||||||||||||||||||||||||||||||
14. | CASH AND SHORT-TERM DEPOSITS | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 31 December 20202 US$'000 | |||||||||||||||||||||||||||||
| Cash on hand | 4 | 4 | |||||||||||||||||||||||||||||
| Bank balances | 30 821 | 35 456 | |||||||||||||||||||||||||||||
| Short-term bank deposits | 3 104 | 14 360 | |||||||||||||||||||||||||||||
|
| 33 929 | 49 820 | |||||||||||||||||||||||||||||
| 1 Unaudited 2 Audited
The amounts reflected in the financial statements approximate fair value due to the short-term maturity and nature of cash and short-term deposits.
Finance income relates to interest earned on cash and short-term deposits.
Finance costs include interest incurred on bank overdraft and borrowings, finance lease liabilities and the unwinding of rehabilitation provisions.
At 30 June 2021, the Group had US$61.0 million (31 December 2020: US$60.8 million) of undrawn facilities, representing the LSL500.0 million (US$35.0 million) unsecured revolving working capital facility and the ZAR100.0 million (US$7.0 million) overdraft facility, both at Letšeng, and the US$19.0 million unsecured revolving credit facility at the Company. Refer Note 18, Interest-bearing loans and borrowings.
| |||||||||||||||||||||||||||||||
15. | ASSET HELD FOR SALE In line with the strategic objective to dispose of non-core assets, the Company entered into a binding share sale agreement for the sale of Gem Diamonds Botswana (Pty) Ltd, which owns the Ghaghoo diamond mine, post Period end. Refer Note 23, Events after the reporting Period. The asset was held for sale at Period end.
During the Period, some consumable inventory items were written off relating to expired explosives.
The asset held for sale is carried at carrying value which is lower than fair value less costs to sell. The fair value is based on unobservable market offers from potential buyers for the disposal group, accordingly the non-recurring fair value measurement is included in level 3 of the fair value hierarchy.
The trading results of the operation continue to be classified as a discontinued operation held for sale and are presented as follows: | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Gross profit | - | - | |||||||||||||||||||||||||||||
| Other costs | (1 198) | (1 677) | |||||||||||||||||||||||||||||
| Inventory write-down | (16) | (142) | |||||||||||||||||||||||||||||
| Share-based payments | (1) | (6) | |||||||||||||||||||||||||||||
| Foreign exchange loss | (1) | - | |||||||||||||||||||||||||||||
| Operating loss | (1 216) | (1 825) | |||||||||||||||||||||||||||||
| Net finance costs | (113) | (100) | |||||||||||||||||||||||||||||
| Loss for the Period before tax from discontinued operation | (1 329) | (1 925) | |||||||||||||||||||||||||||||
| Income tax | - | - | |||||||||||||||||||||||||||||
| Loss for the Period after tax from discontinued operation attributable to Equity holders of the parent | (1 329) | (1 925) | |||||||||||||||||||||||||||||
| Loss per share from discontinued operation |
|
| |||||||||||||||||||||||||||||
| Basic | (0.95) | (1.38) | |||||||||||||||||||||||||||||
| Diluted | (0.93) | (1.36) | |||||||||||||||||||||||||||||
| 1 Unaudited
Gem Diamonds Botswana incurred rental expenses on short-term leases of US$0.3 million (30 June 2020: US$0.5 million) during the Period.
Gem Diamonds Botswana has estimated tax losses of US$184.3 million (30 June 2020: US$159.3 million) for which no deferred tax asset has been recognised. Deferred tax assets of US$0.3 million (30 June 2020: US$0.3 million) were recognised to the extent of the deferred tax liabilities. These have been offset in the table below.
The assets and liabilities attributable to the discontinued operation are shown in the table below.
| |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 31 December 20202 US$'000 | |||||||||||||||||||||||||||||
| ASSETS |
|
| |||||||||||||||||||||||||||||
| Non-current assets |
|
| |||||||||||||||||||||||||||||
| Property, plant and equipment | 1 517 | 1 533 | |||||||||||||||||||||||||||||
| Current assets |
|
| |||||||||||||||||||||||||||||
| Inventories | 1 747 | 1 774 | |||||||||||||||||||||||||||||
| Receivables and other assets | 212 | 214 | |||||||||||||||||||||||||||||
| Cash and cash short-term deposits | 58 | 7 | |||||||||||||||||||||||||||||
|
| 2 017 | 1 995 | |||||||||||||||||||||||||||||
| Total assets | 3 534 | 3 528 | |||||||||||||||||||||||||||||
| LIABILITIES |
|
| |||||||||||||||||||||||||||||
| Non-current liabilities |
|
| |||||||||||||||||||||||||||||
| Provisions | 3 825 | 3 753 | |||||||||||||||||||||||||||||
| Current liabilities |
|
| |||||||||||||||||||||||||||||
| Trade and other payables | 473 | 471 | |||||||||||||||||||||||||||||
| Total liabilities | 4 298 | 4 224 | |||||||||||||||||||||||||||||
| 1 Unaudited 2 Audited
The net cash flows attributable to the discontinued operation held for sale are as follows: | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Operating cash outflows | (1 229) | (1 638) | |||||||||||||||||||||||||||||
| Investing | - | - | |||||||||||||||||||||||||||||
| Financing cash inflows2 | 1 280 | 1 747 | |||||||||||||||||||||||||||||
| Foreign exchange loss on translation of cash balance | - | (17) | |||||||||||||||||||||||||||||
| Cash inflow | 51 | 92 | |||||||||||||||||||||||||||||
| 1 Unaudited 2 Financing provided by Gem Diamonds Limited, the holding company of the held for sale asset, to fund care and maintenance costs.
| |||||||||||||||||||||||||||||||
16. | ISSUED CAPITAL | |||||||||||||||||||||||||||||||
|
| 30 June 20211 | 31 December 20202 | |||||||||||||||||||||||||||||
|
| Number of shares '000 | US$'000 | Number of shares '000 | US$'000 | |||||||||||||||||||||||||||
| Authorised - ordinary shares of US$0.01 each as at Period/Year | 200 000 | 2 000 | 200 000 | 2 000 | |||||||||||||||||||||||||||
| Issued and fully paid balance at beginning of Period/Year | 139 612 | 1 397 | 138 984 | 1 391 | |||||||||||||||||||||||||||
| Allotments during the Period/Year | 825 | 8 | 628 | 6 | |||||||||||||||||||||||||||
| Balance at end of Period/Year | 140 437 | 1 405 | 139 612 | 1 397 | |||||||||||||||||||||||||||
| 1 Unaudited 2 Audited
| |||||||||||||||||||||||||||||||
17. | SHARE-BASED PAYMENTS There were no new awards granted during the Period in terms of the Long-term Incentive Plan.
The expense disclosed in the Interim Consolidated Statement of Profit or Loss is made up as follows: | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Equity-settled share-based payment transactions - charged to the Statement of Profit or Loss - continuing operations | 295 | 301 | |||||||||||||||||||||||||||||
| Equity-settled share-based payment transactions - charged to the Statement of Profit or Loss - discontinued operation | 1 | 6 | |||||||||||||||||||||||||||||
|
| 296 | 307 | |||||||||||||||||||||||||||||
| 1 Unaudited
| |||||||||||||||||||||||||||||||
18. | INTEREST-BEARING LOANS AND BORROWINGS | |||||||||||||||||||||||||||||||
|
| Effective interest rate | Maturity | 30 June 20211 US$'000 | 31 December 20202 US$'000 | |||||||||||||||||||||||||||
| Non-current |
|
|
|
| |||||||||||||||||||||||||||
| LSL215.0 million bank |
|
|
|
| |||||||||||||||||||||||||||
| Tranche 1 | South African JIBAR + 6.75% | 30 September 2022 | 163 | 477 | |||||||||||||||||||||||||||
| Tranche 2 | South African JIBAR + 3.15% | 31 March 2022 | - | 817 | |||||||||||||||||||||||||||
| ZAR12.8 million asset-based finance facility | South African Prime Lending Rate | 1 January 2024 | 324 | 408 | |||||||||||||||||||||||||||
|
|
|
| 487 | 1 702 | |||||||||||||||||||||||||||
| Current |
|
|
|
| |||||||||||||||||||||||||||
| LSL215.0 million bank loan facility |
|
|
|
| |||||||||||||||||||||||||||
| Tranche A | South African JIBAR + 6.75% | 30 September 2022 | 654 | 635 | |||||||||||||||||||||||||||
| Tranche B | South African JIBAR + 3.15% | 31 March 2022 | 2 521 | 3 268 | |||||||||||||||||||||||||||
| LSL14.5 million insurance premium finance | 2.95% fixed interest | 3 July 2021 | 5 | 542 | |||||||||||||||||||||||||||
| US$30.0 million bank loan facility | London US$ three-month LIBOR + 5.0% | 31 December 2021 | 10 850 | 9 700 | |||||||||||||||||||||||||||
| ZAR12.8 million asset-based finance facility | South African Prime Lending Rate | 1 January 2024 | 187 | 176 | |||||||||||||||||||||||||||
| ZAR1.8 million insurance premium finance | 2.5% fixed interest | 1 May 2021 | - | 64 | |||||||||||||||||||||||||||
|
|
|
| 14 217 | 14 385 | |||||||||||||||||||||||||||
| 1 Unaudited 2 Audited |
|
|
|
| |||||||||||||||||||||||||||
|
LSL215.0 million (US$15.1 million) bank loan facility at Letšeng Diamonds This loan comprises two tranches of debt as follows:
· Tranche A: Lesotho loti denominated LSL35.0 million (US$2.5 million) term loan facility without ECIC support (five years and six months tenure); and · Tranche B: South African Rand denominated ZAR180.0 million (US$12.6 million) debt facility supported by the Export Credit Insurance Corporation (ECIC) (five years tenure).
The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 22 March 2017 to fund the construction of the Letšeng mining support services complex. The loan is repayable in equal quarterly payments, which commenced in September 2018. At Period end LSL47.7 million (US$3.3 million) (31 December 2020: LSL76.3 million, US$5.2 million) remains outstanding.
The South African Rand based interest rates for the facility at 30 June 2021 are:
· Tranche A: 10.44% (30 June 2020: 10.66%) · Tranche B: 6.84% (30 June 2020: 7.06%)
Total interest charge for the Period on this interest-bearing loan was US$0.2 million (30 June 2020: US$0.2 million).
ZAR14.5 million (US$1.0 million) insurance premium finance The insurance premium finance entered into in August 2020 by Letšeng Diamonds, was fully repaid on 3 July 2021. Total interest charge for the Period on this interest-bearing loan was US$30.1 thousand (30 June 2020: Nil).
US$30.0 million bank loan facility at Gem Diamonds Limited This facility is a 12 month revolving credit facility (RCF) with Nedbank Capital.
At Period end, US$11.0 million (31 December 2020: US$10.0 million) had been drawn down resulting in US$19.0 million (31 December 2020: US$20.0 million) remaining undrawn. In 2020, facility rolling fees of US$0.3 million were capitalised to the loan balance, which are amortised and accounted for as finance costs within profit or loss over the period of the facility (30 June 2021: US$0.1 million, 31 December 2020: Nil) resulting in a net US$10.9 million loan balance. The US$-based interest rate for this facility at 30 June 2021 was 5.15% (30 June 2020: 4.81%).
Total interest charge for the Period on this interest-bearing loan was US$0.5 million (30 June 2020: US$0.4 million).
This facility expires in December 2021 and will form part of the wider Group debt refinancing referenced below.
ZAR12.8 million (US$0.9 million) Asset-Based Finance facility In January 2019, the Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.9 million) Asset Based Finance facility (ABF) with Nedbank Limited for the purchase of an X-Ray transmission machine (the asset). The asset serves as security for the facility. At Period end ZAR7.3 million (US$0.5 million) remains outstanding (31 December 2020: ZAR8.6 million, US$0.6 million). The facility is repayable over five years and bears interest at the South African Prime Lending rate, which was 7.00% at 30 June 2021 (30 June 2020: 7.25%).
Total interest for the Period on this interest-bearing loan was US$18.6 thousand (30 June 2020: US$26.6 thousand).
ZAR1.8 million (US$0.1 million) insurance premium finance The insurance premium financing entered into in November 2020 by the Group's subsidiary Gem Diamond Technical Services, was fully repaid on 1 May 2021.
Other facilities The Group through its subsidiary Letšeng Diamonds, has a LSL500.0 million (US$35.0 million) three-year unsecured revolving working capital facility jointly with Standard Lesotho Bank and Nedbank Capital, which was renewed before its expiry date of July 2021. The expiry date was extended to 31 December 2021 to allow for the wider Group debt refinancing to be concluded. There was no draw down of this facility at Period end (31 December 2020: no draw down). Refer Group debt refinancing below.
The Group, through its subsidiary, Letšeng Diamonds, has a ZAR100.0 million (US$7.0 million) overdraft facility with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) which is reviewed for renewal annually in March. There was no draw down of this facility at Period end (31 December 2020: no draw down).
Group debt refinancing During the Period, the Group commenced its consolidated debt refinancing of all its key credit facilities and has appointed Nedbank Corporate and Investment Banking as the sole mandated lead arranger to drive this process on its behalf. The refinanced facilities are expected to be in place before the expiry of the existing facilities on 31 December 2021.
| |||||||||||||||||||||||||||||||
19. | LEASE LIABILITIES | |||||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 31 December 20202 US$'000 | |||||||||||||||||||||||||||||
| Non-current | 4 682 | 4 902 | |||||||||||||||||||||||||||||
| Current | 1 116 | 1 836 | |||||||||||||||||||||||||||||
| Total lease liabilities | 5 798 | 6 738 | |||||||||||||||||||||||||||||
| Reconciliation of movement in lease liabilities |
|
| |||||||||||||||||||||||||||||
| As at 1 January | 6 738 | 10 479 | |||||||||||||||||||||||||||||
| Additions | 225 | 1 175 | |||||||||||||||||||||||||||||
| Interest expense | 285 | 608 | |||||||||||||||||||||||||||||
| Lease payments | (1 352) | (2 522) | |||||||||||||||||||||||||||||
| Derecognition of lease | (260) | (2 296) | |||||||||||||||||||||||||||||
| Foreign exchange differences | 162 | (706) | |||||||||||||||||||||||||||||
| As at 30 June/31 December | 5 798 | 6 738 | |||||||||||||||||||||||||||||
| 1 Unaudited 2 Audited
Lease payments comprise payments in principle of US$1.1 million (31 December 2020: US$1.9 million) and repayments of interest of US$0.3 million (31 December 2019: US$0.6 million).
During the Period the Group recognised variable lease payments, for which no lease liability can be recognised, of US$25.9 million (30 June 2020: US$13.9 million). These payments consist of mining activities outsourced to a mining contractor of which US$22.0 million (30 June 2020: US$11.4 million) has been capitalised to the Stripping Asset within Property, Plant and Equipment.
During the Period the lease containing a residual value guarantee relating to backup power generating equipment at Letšeng was derecognised. A new lease for back-up power generating equipment is in the process of being negotiated. In the interim, Letšeng is renting existing back-up power generating equipment on a month-to-month basis. There are no residual value guarantees on leases at 30 June 2021(31 December 2020: US$0.1 million).
| |||||||||||||||||||||||||||||||
20. | CASH FLOW NOTES | |||||||||||||||||||||||||||||||
|
| Notes | 30 June 20211 US$'000 | 30 June 20201 US$'000 | ||||||||||||||||||||||||||||
20.1 | Cash generated by operations |
|
|
| ||||||||||||||||||||||||||||
| Profit before tax for the Period - continuing operations |
| 28 312 | 2 551 | ||||||||||||||||||||||||||||
| Loss before tax for the Period - discontinued operation |
| (1 329) | (1 925) | ||||||||||||||||||||||||||||
| Adjustments for: |
|
|
| ||||||||||||||||||||||||||||
| Depreciation and amortisation excluding waste stripping |
| 3 060 | 4 9962 | ||||||||||||||||||||||||||||
| Depreciation on right-of-use assets |
| 1 110 | 1 000 | ||||||||||||||||||||||||||||
| Waste stripping cost amortised |
| 22 988 | 17 968 | ||||||||||||||||||||||||||||
| Finance income |
| (88) | (240) | ||||||||||||||||||||||||||||
| Finance costs |
| 2 049 | 2 905 | ||||||||||||||||||||||||||||
| Unrealised foreign exchange differences |
| (1 766) | 2 5412 | ||||||||||||||||||||||||||||
| Loss on disposal of property, plant and equipment |
| 4 | - | ||||||||||||||||||||||||||||
| Gain on derecognition of leases |
| (92) | (151) | ||||||||||||||||||||||||||||
| Inventory write down |
| 16 | 142 | ||||||||||||||||||||||||||||
| Bonus, leave and severance provisions raised |
| 2 878 | 1 9342 | ||||||||||||||||||||||||||||
| Share-based equity transaction |
| 296 | 307 | ||||||||||||||||||||||||||||
|
|
| 57 438 | 32 028 | ||||||||||||||||||||||||||||
20.2 | Working capital adjustment |
|
|
| ||||||||||||||||||||||||||||
| (Increase)/decrease in inventories |
| (2 892) | 1 545 | ||||||||||||||||||||||||||||
| Increase in receivables |
| (652) | (3 192) | ||||||||||||||||||||||||||||
| Decrease in trade and other payables |
| (6 957) | (6 308) | ||||||||||||||||||||||||||||
|
|
| (10 501) | (7 955) | ||||||||||||||||||||||||||||
20.3 | Cash flows from financing activities (excluding lease liabilities) |
|
|
| ||||||||||||||||||||||||||||
| Balance at beginning of Period |
| 16 086 | 22 341 | ||||||||||||||||||||||||||||
| Net cash (used)/raised in financing activities |
| (1 667) | 3 210 | ||||||||||||||||||||||||||||
| - financial liabilities raised |
| 1 000 | 32 513 | ||||||||||||||||||||||||||||
| - financial liabilities repaid |
| (2 667) | (29 303) | ||||||||||||||||||||||||||||
| Interest paid |
| (896) | (1 280) | ||||||||||||||||||||||||||||
| Non-cash movements |
| 1 181 | 664 | ||||||||||||||||||||||||||||
| - Interest accrued |
| 896 | 1 280 | ||||||||||||||||||||||||||||
| - Amortisation of capitalised facility fees3 |
| 150 | - | ||||||||||||||||||||||||||||
| - Foreign exchange differences |
| 135 | (1 944) | ||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||
| Balance at Period end |
| 14 704 | 23 607 | ||||||||||||||||||||||||||||
| 1 Unaudited 2 These amounts have been disaggregated and reclassified in the prior Period for comparative purposes. The amounts were previously grouped and disclosed as other non-cash movements. The reclassification has not had an impact on the total cash generated by operations in the Consolidated Statement of Cashflows. 3 Refer Note 18, Interest bearing loans and borrowings.
| |||||||||||||||||||||||||||||||
21. | COMMITMENTS AND CONTINGENCIES
The Board has approved capital projects of US$6.3 million (31 December 2020: US$1.5 million) of which US$1.6 million (31 December 2020: US$0.4 million) has been contracted at 30 June 2021. The main capital expenditure approved relates to further mineral resource studies of US$2.2 million (31 December 2020: US$Nil), continued tailings storage extension investment of US$1.0 million (31 December 2020: US$1.0 million), construction of a recreation centre, as a benefit of the successful Business Transformation achievements of US$0.9 million (31 December 2020: US$Nil), replacement of equipment in the diamond sorting plant of US$0.5 million (31 December 2020: US$Nil) and investment at the mining fleet maintenance workshop of US$0.3 million (31 December 2021: US$0.3 million). This expenditure is expected to be incurred over the next 12 months.
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 2020: US$0.2 million).
The Group monitors possible tax claims within the various jurisdictions in which the Group operates. Management applies judgement in identifying uncertainties over tax treatments and concluded that there were no uncertain tax treatments during the Period. There remains a risk that further tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in some cases, the Group does not anticipate that there will be any material impact on the Group's results, financial position or liquidity.
As disclosed in the 2020 Annual Report and Accounts, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA) in December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. An objection to the amended tax assessment was lodged with the LRA in March 2020, which was supported by the opinion of senior counsel, together with an application for the suspension of any payment deemed due. The application for suspension of payment was accepted. The LRA has subsequently lodged an application for the review and setting aside of the applicable regulations to the Lesotho High Court pertaining to this matter, which Letšeng is opposing and a court date will be determined in February 2022. The previous court date of 3 August 2021 was postponed due to COVID-19. There has therefore been no change in the judgement applied and the accounting treatment for this matter.
| |||||||||||||||||||||||||||||||
22. | RELATED PARTIES | |||||||||||||||||||||||||||||||
|
| Relationship | ||||||||||||||||||||||||||||||
| Jemax Management (Proprietary) Limited | Common director | ||||||||||||||||||||||||||||||
| Government of the Kingdom of Lesotho | Non-controlling interest | ||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
|
| 30 June 20211 US$'000 | 30 June 20201 US$'000 | |||||||||||||||||||||||||||||
| Compensation to key management personnel (including Directors) |
|
| |||||||||||||||||||||||||||||
| Share-based equity transactions | 126 | 158 | |||||||||||||||||||||||||||||
| Short-term employee benefits | 2 957 | 2 158 | |||||||||||||||||||||||||||||
|
| 3 083 | 2 316 | |||||||||||||||||||||||||||||
| Fees paid to related parties |
|
| |||||||||||||||||||||||||||||
| Jemax Management (Proprietary) Limited | (47) | (41) | |||||||||||||||||||||||||||||
| Royalties paid to related parties |
|
| |||||||||||||||||||||||||||||
| Government of Lesotho | (10 226) | (6 953) | |||||||||||||||||||||||||||||
| Lease and licence payments to related parties |
|
| |||||||||||||||||||||||||||||
| Government of Lesotho | (54) | (26) | |||||||||||||||||||||||||||||
| Purchases from related parties |
|
| |||||||||||||||||||||||||||||
| Jemax Management (Proprietary) Limited | (2) | (2) | |||||||||||||||||||||||||||||
| Amount included in trade payables owing to related parties |
|
| |||||||||||||||||||||||||||||
| Jemax Management (Proprietary) Limited | (8) | (7) | |||||||||||||||||||||||||||||
| Amounts owing to related party |
|
| |||||||||||||||||||||||||||||
| Government of Lesotho | (4 476) | (152) | |||||||||||||||||||||||||||||
| Dividends paid |
|
| |||||||||||||||||||||||||||||
| Government of the Kingdom of Lesotho | (2 795) | - | |||||||||||||||||||||||||||||
| 1 Unaudited
Jemax Management (Proprietary) Limited provided administrative services with regard to the mining activities undertaken by the Group. A controlling interest is held by an Executive Director of the Company.
The above transactions were made on terms agreed between the parties and were made on terms that prevail in arm's length transactions.
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23. | EVENTS AFTER THE REPORTING PERIOD Subsequent to Period end, on 23 August 2021, the Company entered into a binding share sale agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, the owner of the Ghaghoo diamond mine in Botswana with Okwa Diamonds. Okwa Diamonds, an SPV company registered in Botswana, is owned by Vast Resources PLC, a mining and resource development company listed on AIM, and by Botswana Diamonds PLC, a diamond exploration and project development company listed on AIM and the Botswana Stock Exchange. Vast Resources PLC and Botswana Diamonds PLC are both parties to the share sale agreement and guarantee the obligations of Okwa Diamonds. The transaction is subject to certain suspensive conditions, including final Government and Competition Commission approvals which is expected to be completed in Q4 2021. The completion of the transaction is subject to certain Suspensive Conditions including final Government and Competition Commission approvals . It is expected that these will be fulfilled, and the transaction completed in the last quarter of 2021. As a result of the agreement and the Suspensive Conditions which arose after the end of the reporting Period, the event is classified as a non-adjusting event and therefore no adjustment has been made to the results as reported at Period end.
Under the share sale agreement, the purchaser will pay a total consideration of US$4.0 million, payable in two instalments of US$2.0 million each, the first of which is payable 5 (five) days after the date on which the last Suspensive Condition has been fulfilled or waived. The second payment is payable on or before 23 December 2021, provided the first payment has been made prior thereto. In the event the last Suspensive Condition is fulfilled or waived after 23 December 2021 the full amount of US$4.0 million will be payable 5 (five) days after such fulfilment or waiver.
No other fact or circumstance has taken place between the Period end and the approval of the financial statements which, in our opinion, is of significance in assessing the state of the Group's affairs. | |||||||||||||||||||||||||||||||
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