Interim Results

RNS Number : 2690C

Gem Diamonds Limited

29 August 2008

 



GEM DIAMONDS LIMITED

(Gem Diamonds) or (the Company)

HALF YEAR RESULTS ANNOUNCEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2008

Gem Diamonds is a global diamond company that is pursuing an accelerated growth strategy through targeted acquisitions and the development of its existing assets.

The Company's portfolio comprises producing kimberlite, lamproite and alluvial mines, development projects, exploration assets as well as a diamond beneficiation centre. Operations are situated in Angola, Australia, Botswana, CAR, DRC, Dubai, Lesotho and Indonesia.

Gem Diamonds has a specific focus towards higher value diamonds, a segment of the market expected to deliver superior long term returns. The Company produces some of the world's most remarkable white diamonds from its Letšeng mine, rare fancy and vivid yellow diamonds from its Ellendale mine and an array of coloured diamonds from its Cempaka mine.

HIGHLIGHTS

FINANCIAL

-          Strong financial results supported by rising diamond prices across all top quality goods

-          Revenue up 138% to US$166.8 million

-          EBITDA up 68% to US$56.5 million

-          Record average price per carat achieved for Letšeng diamonds of US$2 512 per carat

-          Strong net cash generated from operations of US$75 million

-          Recently acquired assets turning to profit

OPERATIONAL

-          Production of 283 000 carats across Group

-          Letšeng Second Plant constructed and commissioned

-          Supply agreement with high end jeweler reached on Ellendale yellow diamonds

-          Production records beaten at Ellendale and Cempaka

-          Gope mine development progressed, SEIA complete

-          Central African sampling yielding higher indicative grades

-          Diamond beneficiation strategy formalised and implemented

 

Commenting on these results, Gem Diamonds CEO, Clifford Elphick said:

'Gem Diamonds has continued to position itself to capitalise on the growth in global demand for large high quality diamonds, some 60% of which are supplied by the Company's flagship mine, Letšeng.  The turnaround at Ellendale is progressing well and returns to shareholders on this investment are expected within the year. The highly sought after yellow diamonds that Ellendale produces complement Letšeng's unique white diamonds and collectively they lend themselves to the beneficiation strategy that the Company is executing. This strategy will generate additional revenue and widen margins from 2009 onwards. The remainder of the year will be focused on making further improvements in production and in turn profitability at all three operating mines. ' 

For further information: 

Gem Diamonds Limited Tel: [phone] Gem Diamond Technical Services Tel: [phone]

Pelham PR Candice Sgroi  Tel: [phone] James Henderson Tel : [phone]

  CHIEF EXECUTIVE'S REVIEW

The first six months of 2008 have seen the Group build on the achievements of 2007.

During the period, several capital projects were successfully concluded and as a result production levels have risen across operations. Advance stage projects have been progressed with feasibility studies providing favourable results. Exploration activities continue to show good indications of undiscovered primary diamond deposits.

LESOTHO

In Lesotho, the Group's key operation, Letšeng Diamonds, has gone from strength to strength. In March of 2008, construction of the mine's second processing plant was completed and commissioning began. The aggressive production ramp up progressed relatively smoothly over the second quarter and target production levels were achieved post the period end.

Whilst production rates are expected to run ahead of rated capacity, recent resource extensions indicate a life of mine of some 45 years. To optimise the Company's investment, means of increasing production are being explored. Initial indications are that the mine scheduling can accommodate a further increase in throughput using conventional methods. This and more innovative extraction techniques are the subject of a study; the results of which are expected before year end.

The diamonds produced at Letšeng continue to enjoy a highly favourable reception in the rough and polished diamond market. Average rough prices achieved over the period of US$2 512 are a 27% and 71% increase on those achieved in 2007 and 2006 respectively and are indicative of the global upward trend in prices for large, top quality diamonds.

AUSTRALIA

Gem Diamonds acquired Australian listed Kimberley Diamonds in December 2007. Kimberley Diamonds is the owner of the Ellendale mine in Western Australia, the world's most reliable source of fancy and vivid yellow diamonds, demand for which has grown rapidly over the last 15 years.

Modifications at Ellendale's processing plants have increased the mine's processing capacity. This improvement, combined with the broader recapitalisation of the business and introduction of technical expertise, has resulted in the achievement of record throughput levels.

Losses historically recorded at Kimberley Diamonds have been reduced over the period as the turnaround strategy yields results. Due to the high levels of fixed costs at Ellendale, planned increases in production will enhance the mine's profitability. Improved cost control measures are also being put in place. The relative strength of the Australian dollar combined with high oil prices, will continue to impact costs at Ellendale. 

Ellendale has historically experienced interrupted and erratic production on account of extreme weather conditions and insufficient waste stripping. An investment in stripped reserve over the period, which will continue into the second half, will alleviate this problem.

At current increased production rates, Ellendale's life of mine has been shortened to eight years. Resource extensions and pit redesign work are ongoing in an effort to extend this. Increased diamond prices achieved will also assist in this regard. In addition, samples taken prior to the acquisition of Ellendale from a number of the 42 lamproite bodies on the lease area are being re-evaluated. Results of this work will be known in 2009.

Ellendale's diamond sales have benefited from revised sales techniques as well as the overall upward trend in diamond prices. Diamonds sold in the rough increased 66% from the comparative period to achieve an average price of US$207 per carat. Polished diamonds, sold in diamond beneficiation trials, achieved average prices of US$28 860 per carat. 

Subsequent to the period end, an agreement was reached with a global high end jewellery chain to supply a selection of Ellendale's gem quality diamonds to them at the current price book plus a royalty on retail sale price. This agreement provides Ellendale with a reliable rough diamond price and the opportunity to capture additional margin, as well as the Group with valuable insight into the diamond value chain post the rough diamond wholesale market. 

BOTSWANA

Preparation and studies for the development of a kimberlite mine at Gope in Botswana were progressed during the first half of the year. The update to the De Beers' feasibility study was completed in April 2008 with a favourable outcome. It does however highlight that the provision of power and basic infrastructure to the Gope site by the Government of Botswana is important to the project's success. Further work on the feasibility study is ongoing and it is expected to be completed within the year.

The social and environmental impact assessment was completed and submitted in August 2008 and negotiations with the Government of Botswana in respect of the award of a mining license will commence shortly.

Due to the sensitive nature of the social and environmental issues at Gope, the assessment included two rounds of public participation meetings, rather than the one stipulated by law. In all meetings held, the local communities expressed their overwhelming support for the development of a mine at Gope.

Should a mining license be granted, Gem Diamonds is committed to developing a mine to the highest environmental standards and to working closely with local communities to initiate and manage sustainable development projects.

Capital estimates for the construction of a six mtpa mine at Gope remain between US$450 and US$500 million. Various funding options are under consideration for this capital outlay, the bulk of which is expected to be debt funded. A final decision in this regard will be made post the award of the mining license.

INDONESIA

The Cempaka mine, located in the South Kalimantan province of Indonesia, has experienced mixed success over the period. After a smooth transition from contractor to owner mining in the second half of 2007, productivity levels at the mine increased dramatically. The target throughput of 216 000 tpm was achieved in the early part of this year. However, heavy rains in March flooded the mining pits and impacted waste stripping and production.

In April concerns were raised by local Provincial authorities about the quality of the waste water being discharged from the Cempaka mine. In line with the Group's desire to follow best environmental practice, mining was temporarily suspended. Independent environmental consultants were recruited to advise on the optimal waste water treatment facility and after extensive discussion with Provincial authorities, these facilities were constructed in June. Subsequent to the period end, the water treatment facility received the necessary approvals. 

Cempaka continues to produce beautiful diamonds, with 22 000 carats sold during the period for an average of US$305 per carat, representing a 40% increase on the comparative period prices. This impetus, combined with the relatively long life of mine at Cempaka is the motivation for a potentially large ramp up of production. Various mining methods are being evaluated and the findings of this evaluation are now expected in 2009.

DRC

Work in the three alluvial project areas as well as on kimberlite exploration was progressed during the period.

Sampling at Mbelenge has yielded improved results. Indicative grades recorded on the Kasaï river terraces in late 2007 and early 2008 prompted the shift to sampling on the river flood plains. The flood plains proved to host more than double the grade than that of the terraces but still insufficient to warrant the development of a large scale mine. Accordingly sampling operations were moved to the modern day river where samples were obtained using dredges and a partial river diversion. Indicative grades in the river were a favourable 1ct/m3. An appropriate mass mining technique to exploit this deposit remains to be determined.

At Lubembe, river dredging in the Kasaï river continued to yield positive grade results of approximately 8 cts/m3, considerably ahead of expectations. The nature of the deposit in the river beds, combined with the high level of overburden makes a safe and effective mass mining technique a matter for considerable study.

Resource definition and delineation through sampling of the river and terraces at Longatshimo is planned for the latter half of 2008. 

Whilst the Company remains confident of the alluvial prospectivity of its concessions in the DRC, the development of a mine operating to the highest environmental and safety standards remains a challenge. A decision in this regard is expected by year end.

Kimberlite drilling continued in the first half of the year with no kimberlite intersected to date. A programme of intensive stream sediment sampling has produced three discrete areas of indicator mineral concentrations that are of interest.

CAR

After mixed results from historic paleo-channel and terrace sampling in 2007, the grades achieved from the sampling of the modern day Mambéré river in the first half of this year have been far more promising. Grades of up to 60 cpht have been encountered in pockets, with an average of 25 cpht achieved. The extent of these deposits will be determined by the bulk sampling of river gravels, planned for the latter half of the year.

ANGOLA

Project activities at Chiri, the known diamondiferous kimberlite in the Lunda Sul Province of Angola, commenced in the early part of the year with a view to completing the prefeasibility study in 2008. Gem Diamonds has the opportunity to acquire up to 20% of the Chiri project in partnership with Avantis Angola.

Solid logistical progress has been made with the establishment of site infrastructure, completion of civil foundation work and the assembly and commissioning of a ten tph dense media separation bulk sampling plant.

The geophysical survey undertaken earlier this year indicates that the kimberlite has a large surface expression of some 50 - 60 ha. Based on the results of the survey, a diamond drilling programme has been initiated to refine and calibrate the geophysical model. Bulk sampling was initiated in July and diamonds recovered have an initial estimated value of between US$150 - 200 per carat.

Large diameter drilling is planned for later in the year and is a critical step in the completion of the prefeasibility study on Chiri.

BENEFICIATION

Diamond beneficiation trials continued in 2008 with the sale of a further 93 carats of white and 16 carats of yellow polished diamonds. All polished diamonds were sold on tender in Antwerp with a significant additional margin captured. With the confidence of four successful polished diamond tenders concluded, the decision was taken to formalise the Company's beneficiation strategy.

A diamond cutting and polishing facility is in the process of being established in Dubai and arrangements have been entered into with the founding executives of Matrix Diamond Technology to join Gem Diamonds. In their capacity as founders of this business, the executive team was responsible for developing some of the most sophisticated diamond mapping technology currently in existence. When applied to large complex rough diamonds, such as those recovered at Letšeng, this technology has the ability to enhance the polished yield and hence value. An established cutting and polishing business focused on these larger diamonds is expected to be operating from the start of 2009.

The diamond market for the large and top quality diamonds, that the Group produces, continues to be buoyant and all indications are that this is set to continue for at least the medium term. These diamonds are predominantly sold to HNWI's who are significant consumers of luxury goods and whose expenditure is less constrained by recent economic downturns. 

The remainder of the year will see the Group focus on increasing production from its three operating mines as well as the development of projects set to generate future revenue streams. Cost input pressures are under constant review in order to ensure that unit costs remain acceptable.

The first half of the 2008 year can be regarded as an extremely satisfactory performance, in a difficult global economic climate.

Clifford Elphick

Chief Executive Officer

  CHIEF FINANCIAL OFFICER'S REVIEW

I am pleased to present the Half Yearly results in which the Group is able to report earnings before interest, tax, depreciation and amortisation ('EBITDA') of US$56.5 million, up 68% on the corresponding prior period. This EBITDA was achieved as follows:

	6 months	6 months
	ended	ended
	30 June	30 June
(US$ millions)	2008	2007
Revenue	166.8	69.8
Selling and distribution costs	(14.4)	(5.5)
Cost of sales	(87.7)	(20.3)
Corporate costs	(8.2)	(9.9)
Share of loss in associate	-	(0.5)
EBITDA	56.5	33.6
Depreciation	(16.4)	(2.1)
Amortisation	(14.0)	(4.7)
Other income	0.1	0.1
Share-based payments	(5.2)	(14.2)
Foreign exchange gain	2.3	5.1
Net finance income	0.6	10.8
Profit before tax	23.9	28.6

REVENUE

Revenue has more than doubled over the comparative six month period to US$166.8 million and is more than the full 2007 financial year. Revenue was generated from the sale of rough and polished diamonds recovered at the Letšeng, Ellendale and Cempaka mines where the diamonds sold and prices per carat achieved improved significantly from that of the comparative period.

Revenue generated from diamonds recovered and sold from exploration and resource development projects in central Africa are netted off against exploration expenditure, the net amount of which is capitalised to the balance sheet.

SELLING AND DISTRIBUTION COSTS

Selling and distribution costs of US$14.4 million were incurred. These relate to sales commission paid to agents based in Antwerp and royalties payable to the relevant state authorities in Lesotho, Australia and Indonesia on the value of diamond sales. 

COST OF SALES

Cost of sales for the six months was US$87.7 million before non-cash costs of depreciation of US$16.4 million and amortisation of mining assets of US$14.0 million.

Cost of sales at Letšeng before depreciation and amortisation was US$18.5 million. At Ellendale, the cost of sales before depreciation and amortisation, and excluding waste stripping deferred, was US$55.6 million. The Ellendale mine has a high proportion of fixed costs and as production levels continue to ramp up over the remainder of the year, as has been the case in the first half, the unit costs are expected to decline significantly. At Cempaka, cost of sales before depreciation and amortisation of US$11.6 million include all costs incurred over the six month period, of which the mine was only operational for approximately two months.

  CORPORATE EXPENSES 

Corporate expenses relate to central costs which were incurred by Gem Diamonds and its services subsidiary Gem Diamond Technical Services and are currently in line with those budgeted for the full year.

SHARE-BASED PAYMENTS

On 19 February 2008, the Group issued 506 322 shares to the non-Executive Directors in terms of their letters of appointment. During the period, the Group awarded 403 916 performance shares to Directors and senior executives in line with the rules of the Long-Term Incentive Plan. The total share-based payment charge to the income statement for the period was US$5.2 million, of which US$3.8 million relates to awards to non-Executive Directors agreed at IPO. 

FOREIGN EXCHANGE GAINS

The majority of the foreign exchange gain of US$2.3 million arose due to forward cover contracts taken at Letšeng Diamonds. Gem Diamonds does not take active positions in the currency markets.

NET FINANCE INCOME

Net finance income received reflects the interest accrued on the funds held throughout the Group during the period, the majority of which was generated by surplus cash in Letšeng Diamonds and residual funds held by the Company following the capital raised on the IPO in the previous year.

TAXATION

Gem Diamonds is a registered tax payer in the United Kingdom. 

The effective tax rate of 38% is above the average rate across the Group of 28% as a result of:

- Permanent differences, comprising a portion of share-based payments that are not tax deductible; and

- Deferred tax assets not currently recognised on losses at Kimberley Diamonds.

MINORITY INTERESTS

Minority interests represent the 30% interest in Letšeng Diamonds which is held by the Company's partner, the Government of the Kingdom of Lesotho and the 20% of PTGC, the holding company for Cempaka mine, held by Indonesian para-statal ANTAM.

AMOUNTS ATTRIBUTABLE TO SHAREHOLDERS

At the returns attributable to shareholders level, the Group has exceeded budget and broken even. This is reflective of the turn around that is underway at the previously loss making mining operations at Ellendale and Cempaka. The full year return to shareholders is expected to be positive as improvements in profitability at newly acquired operations continue and recent production increases at Letšeng are reflected in earnings.

INVENTORY

Diamond inventory held at the end of the period decreased from the previous period end to US$13.5 million. Of this US$7.5 million is attributable to Letšeng Diamonds and US$4.9 million to Kimberley Diamonds. The remainder of the inventory balance of US$18.0 million comprises ore stockpiles at Letšeng Diamonds and Kimberley Diamonds of US$1.3 million and US$6.1 million respectively and consumables held across all operations.

CASH

The Group started the period with US$182 million in cash resources. This was supplemented by net cash generated from operations of US$75 million. During the period US$44 million of this cash was invested in property, plant and equipment at existing operations (Letšeng Diamonds US$10 million, Kimberley Diamonds US$12 million and Cempaka US$7 million), and a further US$15 million on exploration and resource development expenditure in the DRC, CAR and Botswana. 

A total of US$39 million was invested in deferred waste stripping across all operations (Letšeng Diamonds US$18 million, Kimberley Diamonds US$14 million and Cempaka US$7 million). 

The outstanding balance for the acquisition of Kimberley Diamonds of US$14.5 million was also settled during period. The Group ended the period with US$143.6 million cash on hand.

For the remainder of the financial year, the Group will focus on turning recently acquired operations to profit, significant progress on which has already been made. The high level of taxation, predominantly a non-cash charge, remains a concern to the Group and means to reduce this are being sought out.

Kevin Burford

Chief Financial Officer

  CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

INTERIM CONSOLIDATED INCOME STATEMENT

FOR THE		6 months ended	6 months  ended	year  ended
		30 June	30 June	31 December
(US$'000)	Note	20081	20071*	20072
Revenue		166 752	69 800	152 706
Cost of sales		(117 688)	(26 951)	(64 759)
GROSS PROFIT		49 064	42 849	87 947
Other income		66	78	245
Royalties and sales costs		(14 445)	(5 541)	(16 558)
Corporate expenses		(8 656)	(10 074)	(17 371)
Share-based payments		(5 183)	(14 190)	(19 531)
Foreign exchange gain		2 312	5 060	14 654
OPERATING PROFIT		23 158	18 182	49 386
Net finance income		640	10 762	20 085
Finance income		3 107	12 065	23 363
Finance costs		(2 467)	(1 303)	(3 278)
Share of loss in associate		-	(507)	(1 030)
PROFIT BEFORE TAXATION		23 798	28 437	68 441
Income tax expense	7	(9 043)	(11 031)	(27 941)
PROFIT FROM CONTINUING OPERATIONS		14 755	17 406	40 500
Loss after tax for the period relating to disposal group held for sale		-	(18)	-
PROFIT FOR THE PERIOD		14 755	17 388	40 500
Attributable to:
Equity holders of parent		(79)	8 619	23 227
Minority interest		14 834	8 769	17 273
PROFIT FOR THE PERIOD		14 755	17 388	40 500
Earnings per share
- Basic, for (loss)/profit for the period attributable to equity holders of the parent (cents)		-	16	40
- Diluted, for (loss)/profit for the period attributable to equity holders of the parent (cents)		-	16	40

¹ Unaudited

² Audited

* Restated due to change in accounting policy

  INTERIM CONSOLIDATED BALANCE SHEET

AS AT		30 June	30 June	31 December
(US$'000)		20081	20071*	20072
ASSETS
Non-current assets
Property, plant and equipment		908 373	328 138	863 529
Intangible assets		68 968	44 723	71 685
Investment in associate		-	16 787	-
Loans owing by associate		-	30 979	-
Other assets		3 335	1 211	2 366
Deferred tax assets		4 485	1 138	962
		985 161	422 976	938 542
Current assets
Inventories		31 493	8 241	41 145
Trade and other receivables		13 353	9 001	12 505
Loans receivable		3 801	1 370	1 663
Cash and cash equivalents		143 736	524 421	183 536
		192 383	543 033	238 849
Assets of disposal group classified as held for sale		-	26 093	-
		192 383	569 126	238 849
TOTAL ASSETS		1 177 544	992 102	1 177 391
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued share capital		629	624	624
Share premium		787 487	786 819	787 487
Treasury shares		(3)	(4)	(3)
Other reserves		57 066	19 167	56 968
Retained income/(accumulated losses)		8 164	(6 365)	8 243
		853 343	800 241	853 319
Minority interest		86 305	61 139	81 361
TOTAL EQUITY		939 648	861 380	934 680

  INTERIM CONSOLIDATED BALANCE SHEET

AS AT		30 June	30 June	31 December
(US$'000)		20081	20071*	20072

LIABILITIES

Non-current liabilities
Other financial liabilities		15 620	18 042	16 688
Provisions		20 724	4 400	22 529
Deferred tax liabilities		102 550	71 116	110 684
Trade and other payables		-	381	421
		138 894	93 939	150 322
Current liabilities
Other financial liabilities		13 036	2 437	15 330
Trade and other payables		68 827	31 464	64 995
Income tax payable		16 973	2 831	10 362
Bank overdraft		166	-	1 702
		99 002	36 732	92 389
Liabilities directly associated with the assets classified as held for sale		-	51	-
		99 002	36 783	92 389
TOTAL LIABILITES		237 896	130 722	242 711
TOTAL EQUITY AND LIABILITES		1 177 544	992 102	1 177 391

¹ Unaudited

² Audited

* Restated due to change in accounting policy

  INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED

				Other reserves
							Retained
					Share-		income/
	Issued				based	Reval-	(accu-
	share	Share	Treasury		equity	uation	mulated	Minority
(US$'000)	capital	premium	shares	FCTR1	reserve	reserve	losses)	interest	Total
Balance at 1 January 2008	624	787 487	(3)	14 551	22 629	19 788	8 243	81 361	934 680
Share capital issued	5	-	-	-	-	-	-	-	5
Total recognised income and expenses for the period	-	-	-	(5 474)	-	-	(79)	14 834	9 281
(Loss)/profit for the period	-	-	-	-	-	-	(79)	14 834	14 755
FCTR1	-	-	-	(5 474)	-	-	-	-	(5 474)
Acquisition of subsidiaries	-	-	-	-	-	-	-	(64)	(64)
Fair value adjustments	-	-	-	-	-	190	-	(15)	175
Share-based payments  (Note 12)	-	-	-	-	5 382	-	-	-	5 382
Dividends paid	-	-	-	-	-	-	-	(9 811)	(9 811)
Balance at 30 June 20082	629	787 487	(3)	9 077	28 011	19 978	8 164	86 305	939 648
Balance at 1 January 2007	253	162 775	-	2 362	2 362	-	(14 984)	45 319	198 087
Share capital issued	371	665 290	(4)	-	-	-	-	-	665 657
Total recognised income and expenses for the period	-	-	-	253	-	-	8 619	8 769	17 641
Profit for the period	-	-	-	-	-	-	8 619	8 769	17 388
FCTR1	-	-	-	253	-	-	-	-	253
Transaction costs on share capital issued	-	(41 246)	-	-	-	-	-	-	(41 246)
Acquisition of subsidiaries	-	-	-	-	-	-	-	10 351	10 351
Share-based payments	-	-	-	-	14 190	-	-	-	14 190
Dividends paid	-	-	-	-	-	-	-	(3 300)	(3 300)
Balance at 30 June 20072*	624	786 819	(4)	2 615	16 552	-	(6 365)	61 139	861 380

  INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED

				Other reserves
							(Accu-
					Share-		mulated
	Issued				based	Reval-	losses)/
	share	Share	Treasury		equity	uation	retained	Minority
(US$'000)	capital	premium	shares	FCTR1	reserve	reserve	income	interest	Total
Balance at 1 January 2007	253	162 775	-	2 362	2 362	-	(14 984)	45 319	198 087
Share capital issued	371	665 618	(3)	-	-	-	-	-	665 986
Total recognised income and expenses for the period	-	-	-	12 189	-	-	23 227	17 273	52 689
Profit for the period	-	-	-	-	-	-	23 227	17 273	40 500
FCTR1	-	-	-	12 189	-	-	-	-	12 189
Transaction costs on share capital issued	-	(40 906)	-	-	-	-	-	-	(40 906)
Share-based payments	-	-	-	-	20 267	-	-	-	20 267
Acquisition of subsidiaries	-	-	-	-	-	19 788	-	22 069	41 857
Dividends paid	-	-	-	-	-	-	-	(3 300)	(3 300)
Balance at 31 December 20073	624	787 487	(3)	14 551	22 629	19 788	8 243	81 361	934 680

¹ Foreign currency translation reserve

² Unaudited

³ Audited

*Restated due to change in accounting policy

INTERIM CONSOLIDATED CASH FLOW STATEMENT

FOR THE		6 months ended	6 months ended	Year  ended
		30 June	30 June	31 December
(US$'000)		20081	20071*	20072
CASH FLOWS FROM OPERATING ACTIVITIES		75 332	23 399	49 578
Cash generated by operations		61 408	36 029	76 506
Working capital adjustments		16 638	(11 334)	(29 190)
		78 046	24 695	47 316
Finance income		3 107	12 065	23 363
Finance costs		(1 271)	(1 793)	(2 913)
Tax paid		(4 550)	(11 568)	(18 188)
CASH FLOWS FROM INVESTING ACTIVITIES		(105 814)	(150 430)	(513 476)
Purchase of property, plant and equipment		(87 343)	(33 887)	(109 621)
Purchase of intangible assets		(215)	(71)	(683)
Loans and receivables (granted)/repaid		(2 138)	(10 058)	5 281
Purchase of other assets		(995)	-	(229)
Acquisitions		(15 123)	(106 414)	(390 624)
Loans acquired through acquisitions		-	-	(44 617)
Proceeds from disposal of group held for sale		-	-	27 017
CASH FLOWS FROM FINANCING ACTIVITIES		(4 903)	599 592	592 175
Proceeds on share capital issued		5	634 563	636 277
Repayment of bonds		(961)	-	-
Transaction costs on share capital issued		-	(28 294)	(29 340)
Financial liabilities repaid		(3 947)	(3 377)	(8 841)
Dividends paid to minorities		-	(3 300)	(5 921)
Net (decrease)/increase in cash and cash equivalents		(35 385)	472 561	128 277
Cash and cash equivalents at the beginning of the period		181 834	51 907	51 907
Foreign exchange revaluations		(2 879)	(47)	1 650
Cash and cash equivalents at the end of the period		143 570	524 421	181 834

¹ Unaudited

² Audited

* Restated due to change in accounting policy

   NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

• SEGMENT INFORMATION

The primary segment reporting format is geographical as the Group's risks and rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates. Other regions where no direct mining activities take place are combined into a single geographical region. The main geographical regions are:

- Lesotho

- Australia

- Indonesia

- Botswana

- DRC

- CAR

- BVI and South Africa (Group function and provision of technical and administrative services)

Inter-segment transactions are entered into under terms agreed between the parties. Segment revenue, segment expense and segment results include transactions between segments. Those transactions are eliminated on consolidation.

Primary reporting - geographical segments:

The following table presents revenue and profit information regarding the Group's geographical segments for 

the periods.

							BVI
6 months ended							and
30 June 20081			Indo-	Bots-			South
(US$'000)	Lesotho	Australia	nesia	wana	DRC	CAR	Africa	Total
Sales
Total sales	99 486	60 158	6 940	-	-	-	8 726	175 310
Inter-segment sales	-	-	-	-	-	-	(8 558)	(8 558)
Sales to external customers	99 486	60 158	6 940	-	-	-	168	166 752
Segment results	65 383	(20 709)	(8 738)	-	-	-	(12 778)	23 158
Net finance income								640
Profit before taxation								23 798
Income tax expense								(9 043)
Profit for the period								14 755

							BVI
6 months ended							and
30 June 20071*			Indo-	Bots-			South
(US$'000)	Lesotho	Australia	nesia	wana	DRC	CAR	Africa	Total
Sales
Total sales	69 624	-	-	-	-	-	6 960	76 584
Inter-segment sales	-	-	-	-	-	-	(6 784)	(6 784)
Sales to external customers	69 624	-	-	-	-	-	176	69 800
Segment results	37 072	-	63	(20)	(439)	(1 515)	(16 979)	18 182
Net finance income								10 762
Share of loss in associate								(507)
Profit before taxation								28 437
Income tax expense								(11 031)
Profit for the period								17 406

							BVI
Year ended							and
31 December 20072			Indo-	Bots-			South
(US$'000)	Lesotho	Australia	nesia	wana	DRC	CAR	Africa	Total
Sales
Total sales	151 905	-	76	-	249	-	14 180	166 410
Inter-segment sales	-	-	-	-	-	-	(13 704)	(13 704)
Sales to external customers	151 905	-	76	-	249	-	476	152 706
Segment results	80 189	5 895	(6 373)	(80)	(1 632)	1 735	(30 348)	49 386
Net finance income								20 085
Share of loss in associate								(1 030)
Profit before taxation								68 441
Income tax expense								(27 941)
Profit for the year								40 500

¹ Unaudited

² Audited

* Restated due to change in accounting policy

  2.  ACQUISITIONS

Acquisition of BDI Mining

On 29 May 2007, the Group acquired 100% of the share capital of BDI Mining, a diamond mining and gold exploration group which owned a producing alluvial diamond mine and a gold development project. BDI Mining through its indirect wholly owned subsidiary, Ashton MMC Pte Limited, owned 80% in PTGC, which holds the mining rights to the Cempaka mine in Indonesia. BDI Mining also indirectly owned 100% of Woodlark Mining Limited which owned the Woodlark Gold Project located in Papua New Guinea. The Group disposed of Woodlark Mining Limited on 30 June 2007.

The final fair value of the identifiable assets and liabilities of BDI Mining as at the date of acquisition were:

		Provisional fair
		value as
		reported at				Final fair
		31 December	Fair value			value at
(US$'000)		2007	adjustments			acquisition
Property, plant and equipment		80 681	(1 745)			78 936
Intangible assets		42	(22)			20
Other assets		10	-			10
Inventories		309	-			309
Trade and other receivables		539	-			539
Cash and cash equivalents		3 739	-			3 739
		85 320	(1 767)			83 553
Held for sale assets		25 301	-			25 301
Total assets		110 621	(1 767)			108 854
Other financial liabilities		2 157	-			2 157
Trade and other payables		5 021	176			5 197
Deferred tax liabilities		21 315	(730)			20 585
Provisions		392	501			893
Income tax payable		4 650	(1 194)			3 456
		33 535	(1 247)			32 288
Held for sale liabilities		19	-			19
Total liabilities		33 554	(1 247)			32 307
Fair value of net assets		77 067	(520)			76 547
Fair value of net assets		77 067	(520)			76 547
Less: Minority interest		(11 172)	64			(11 108)
Attributable fair value of net assets		65 895	(456)			65 439
Plus: Goodwill on acquisition		16 083	542			16 625
Total cost		81 978	86			82 064
Total cost
Purchase consideration		79 676	-			79 676
Costs associated with the acquisition		2 302	86			2 388
		81 978	86			82 064
The total cost of the combination was US$82.0 million which comprised the purchase consideration and directly attributable costs associated with the acquisition.

	Provisional fair
	value as
	reported at		Final fair
	31 December	Fair value	value at
(US$'000)	2007	adjustments	acquisition

Cash outflow on acquisition
Purchase consideration	81 978	86	82 064
Net cash acquired with the subsidiary	(3 756)	-	(3 756)
Net cash paid	78 222	86	78 308

Acquisition of Kabongo Development Company

At 30 June 2008, there has been no change in the provisional fair value of the identifiable assets and liabilities of Kabongo Development Company as at the date of acquisition and the corresponding carrying amounts immediately before acquisition other than additional costs of US$0.1 million which were identified. This resulted in an increase in the goodwill arising upon acquisition of US$0.1 million. The review of the fair value of the assets and liabilities acquired will be finalised within the twelve months post the acquisition date.

Acquisition of Kimberley Diamonds

At 30 June 2008, there has been no change in the provisional fair value of the identifiable assets and liabilities of Kimberley Diamonds as at the date of acquisition and the corresponding carrying amounts immediately before acquisition other than additional costs of US$0.5 million which were identified. This resulted in an increase in the mining asset arising upon acquisition of US$0.5 million. The review of the fair value of the assets and liabilities acquired will be finalised within the twelve months post the acquisition date.

3.  BASIS OF PREPARATION

The information in this results announcement has been extracted from the Group's Half Yearly Report for the period ended 30 June 2008 which has been prepared in accordance with IAS 34 Interim Financial Reporting and on a basis consistent with the accounting policies applied for preparation of financial statements included in the Group's annual financial statements as at 31 December 2007, except for any changes in accounting policies detailed below.

The Half Yearly Results announcement and the condensed interim consolidated financial statements of the Group for the six months ended 30 June 2008 were authorised for issue in accordance with a resolution of the Directors on 28 August 2008.

4.  SEASONALITY OF OPERATIONS

The Group's sales environment with regards to 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.

 5.  CHANGE IN ACCOUNTING POLICY

During the 2007 period, the Group changed the way it accounts for stripping costs. The Group now accounts for stripping costs as follows:

Stripping costs incurred during the production phase to remove additional overburden or waste are deferred when they give access to future economic benefits and charged to operating costs using the expected average stripping ratio over the average life of the area being mined. The average life of area stripping ratio is calculated as the number of tonnes of waste material expected to be removed during the life of area, per tonne of ore mined.

The area cost per tonne is calculated as the total costs incurred to mine the orebody divided by the number of tonnes mined during the period. The average life of area stripping ratio and the cost per tonne is recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio are accounted for prospectively as a change in estimate.

The Group previously accounted for stripping costs as follows:

Post production mine stripping costs are expensed to profit or loss as incurred.

The result of the change in accounting policy had no material impact on the opening accumulated loss at 1 January 2007 and accordingly was not restated.

The result for the 6 months ended 30 June 2007 have been restated and the effect of the adjustment was to increase profit before tax by US$1.4 million, and income tax expense by US$0.4 million. Earnings per share increased accordingly by 1 cent to 16 cents per share.

6.  DIVIDENDS PAID AND PROPOSED

The Directors do not intend recommending the declaration of a dividend. The Directors will reconsider the Company's dividend policy as the Company advances the development of its operations. The Directors envisage that, at such time, the Company's dividend policy will be determined based on, and 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 the time.

7.  INCOME TAX EXPENSE

(US$'000)	30 June 20081	30 June 20071	31 December 20072
Income statement
Current	(9 885)	(5 798)	(15 802)
- UK	(80)	-	(3 891)
- Overseas	(9 805)	(5 798)	(11 911)
Withholding tax	(2 636)	(770)	(1 312)
Deferred
- Overseas	3 478	(4 463)	(10 827)
	(9 043)	(11 031)	(27 941)

¹ Unaudited

² Audited

* Restated due to change in accounting policy

 

END

 

 

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