Interim Results

RNS Number : 0053Y

Gem Diamonds Limited

26 August 2009

 



26thAugust, 2009

GEM DIAMONDS LIMITED

('Gem Diamonds') or ('the Company') 

Interim Results for the six months ended 30th June 2009

Gem Diamonds (LSE: GEMD) reports its interim results for the six months ended 30th June 2009. 

Highlights 

• Gem Diamonds emerges profitably from the downturn

• Rough diamond prices rose during the first half of the year

• Successful capital raising of US$98.8M (net of expenses)

• All debt repaid during the period

• Cash at hand of US$120.5M at period end

• Revenue of US$117.8M

• EBITDA of US$25.1M

• Attributable profit of US$3.3M (3.60 US cents per share) 

Gem Diamonds CEO Clifford Elphick commented: 

'During the first half of the year, Gem Diamonds pursued a strategy of focusing on cash preservation and generating maximum cash flow from its producing mines Letšeng in Lesotho and Ellendale in Australia.  I am pleased with the performance of both of our producing mines which were profitable during the period. After undertaking a successful capital raising we are entering the second half of the year with a strong balance sheet and no debt. Demand for top quality and top colour large stones continues and prices seem to have stabilised. At the retail end of the chain, demand for diamond wedding jewellery remains strong in the Middle East, Asia and the US. We are also seeing growth in demand for diamonds from China. However we still remain cautious on the US market at this stage particularly the forthcoming Thanksgiving and Christmas season.'

For further information:

Gem Diamonds Limited

Clifford Elphick, Chief Executive Officer
Glenn Turner, Chief Commercial Officer
Tel: [phone]

Richard Chetwode, Investor Relations
Tel: [phone]
Mob: [phone]

Gem Diamond Technical Services Ltd

Sherryn Tedder, Media

Tel: [phone]

Mob: [phone]

Pelham PR

Candice Sgroi
Tel: [phone]

James Henderson
Tel: [phone]

About Gem Diamonds:

Gem Diamonds is a diamond mining and marketing company with a specific focus towards higher value diamonds, a segment of the market that its management believes will deliver superior long term returns.  

Under current market conditions, Gem Diamonds is pursuing a near term strategy of focusing on cash preservation and generating maximum cash flow from its producing assets, the Letšeng Mine in Lesotho and the Kimberley Diamonds' Ellendale E9 Pipe in Australia. These two operations continue to produce amongst the world's finest white and fancy yellow diamonds respectively. 

CHIEF EXECUTIVE OFFICER'S REVIEW 

The weakness in rough diamond prices experienced by all rough diamond producers in the last quarter of 2008 continued into the first quarter of 2009. Prices stabilised thereafter and have shown improvement in the second quarter.  

During the first half of 2009, Gem Diamonds pursued a strategy of focusing on cash preservation and generating maximum cash flow from its producing assets, the Letšeng Mine in Lesotho and Kimberley Diamonds' Ellendale E9 operations in Australia. Letšeng and Ellendale continue to produce amongst the world's finest white and fancy yellow diamonds respectively. 

As a result of a strong operational performance at these mines and despite the challenging market conditions, the Company produced an attributable profit for the period of US$3.3 million. 

Against the background of the global financial crisis and its immediate impact on the diamond market, the Company took the decision to raise equity capital to strengthen its balance sheet and pay down existing debt, thereby creating a sustainable capital structure at a time of great market uncertainty. Seventy five million new ordinary shares were admitted to listing on the Official List and to trading on the Main Market of the London Stock Exchange on 22 April 2009, raising a net US$98.8 million.

 The loans due for repayment by Kimberley Diamonds to Société Générale were repaid in full in April 2009 and the outstanding Gem Diamonds variable rate convertible bonds due in October 2009 were fully redeemed in May 2009. As at 30 June 2009, the Group had gross cash of US$120.5 million* and no debt. Having repaid all debt, the Company is in a sound position to create value for shareholders. 

*US$106.1 million attributable to Gem Diamonds

The cost reduction programmes initiated at the various projects in November 2008 have continued into 2009. The lower value E4 mining operation at Kimberley Diamonds has been placed on care and maintenance; Group costs have been substantially reduced, primarily through a reduction in headcount; and minimising expenditure on capital projects. Overall, the Group has reduced its headcount by approximately 50% since the start of the global financial crisis, totalling 1 400 people. Central costs have been reduced by 23% to US$6.6 million when compared to the corresponding period in 2008.  

Lesotho

The Letšeng Mine continues to produce large diamonds of the highest quality. In the first half of 2009 Letšeng recovered 20 diamonds which sold at prices greater than US$20 000 per carat, achieving an average price of US$29 563 per carat. At the lowest point for rough diamond prices in the first quarter of 2009, Letšeng continued to operate at full capacity and to perform optimally. In May 2009 the No 1 and 2 plants set a combined tonnage record. 

The average recovered grade at Letšeng during the first half of 2009 was 1.24 carats per hundred tonnes. There has been a reduction in recovered grade compared to 2008, caused mainly by a change in the mix of ore sources. It is anticipated that in the second half of the year, Letšeng will mine and treat similar tonnages of ore together with similar levels of diamond recovery as in the first half of the year. 

In the first quarter of 2009, Letšeng achieved an average price of US$1 017 per carat against US$2 111 per carat for the first quarter of 2008. In the second quarter of 2009, rough diamond prices firmed across all categories. This strengthening in prices has meant that for the first six months of 2009 Letšeng achieved an average price of US$1 308 per carat. 

Australia

Kimberley Diamonds' Ellendale Mine remains a major producer of fancy and vivid yellow diamonds. The first half of 2009 has seen a change in operational strategy from high volume, maximum production, to cost efficient mining focused on the E9 pipe. The operations at Ellendale E4 were put on care and maintenance in February 2009 and significant progress has been made in maximising returns. The mine has consistently increased its plant throughput over recent months from E9 ore. During the period, increased efforts have been applied to cost management and Kimberley generated an operating profit for the period. The Board has therefore decided to continue its operations at Kimberley with a focus on costs and profitability.

The relocation of the DMS module from the E4 processing facility to the E9 processing facility was completed in mid-May. Post commissioning, the E9 processing facility achieved a record throughput of 0.39 million tonnes in June. Overall tonnage mined in the first half of 2009 reflects just over three months mining following on from the end of the 2008/2009 wet season. As a result of this, and to build an adequate stockpile of ore ahead of the 2009/2010 wet season, Ellendale will see an increase in waste stripping and ore mined in the second half of 2009 compared to the first half of the year. Under the current plans, Kimberley Diamonds would anticipate continuing to treat ore for the remainder of the year at the same monthly rate as in June 2009. 

Ellendale's fancy yellow diamonds continue to be sold to a US high end retailer. The commercial goods saw substantial price increases from their lows in the first quarter of 2009, though prices still remain substantially below those achieved in mid-2008. This, together with the lower value E4 being placed on care and maintenance, has resulted in an improvement in the average US$ per carat achieved by Kimberley Diamonds from US$103 per carat for the first quarter to US$160 per carat for the first half of 2009. 

Other Operations

As a result of the strategy of focusing on cash generation, operations in the CAR, DRC and Indonesia remain on care and maintenance. Negotiations with the Government of Botswana concerning a mining license for the Gope deposit are ongoing. In Angola, the Chiri project has been placed on care and maintenance for the remainder of 2009. The operations in the DRC and CAR are under continuous review and management are actively seeking opportunities to dispose of these operations. 

 Beneficiation

The beneficiation strategy was suspended during the first half of 2009 because of adverse market conditions. In the second half of 2009, this operation will recommence on a limited basis, to take advantage of value opportunities which are present in the market. 

Health and Safety 

Health and Safety management throughout the Group continues to receive the highest priority with no fatalities and six Lost Time Injuries ('LTI's') being recorded during the first six months of 2009. This compares favourably to the full year of 2008. The injury frequency rate for the Group has risen slightly (0.53 vs. 0.48) when compared to the same period in 2008, due to the significant reduction in employee numbers. 

Corporate 

On 30 June 2009, Lord Renwick of Clifton announced his retirement as a non-Executive Director from the Board of Gem Diamonds. The Board of Gem Diamonds is very appreciative of his substantial contribution during his tenure.  

Key Group Risks 

In 2009, the Board and Senior Executives considered the position of the Group and the potential risks to achieving its stated strategy. The following risks were identified:

1.   The global economic crisis and its impact on consumer preferences and expenditure.

2.  The short term imbalance between demand and supply and the impact that this has on    the diamond pipeline.

3.   A major production interruption at either Ellendale or Letšeng.

4.   A major health, safety or environmental incident.

Management is continually monitoring these risks and where appropriate, is implementing mitigating strategies.

Outlook

During the second quarter of 2009, diamond prices firmed. However, the level of debt and diamond stocks in the cutting centres remains relatively high. Demand for top quality, top colour, large diamonds continues. 

During the first half of 2009, the two largest producers of rough diamonds significantly reduced supplies to the market. It is uncertain what impact, if any, the resumption of these supplies could have upon diamond prices in the second half of the year. 

Demand for diamond jewellery at the retail level has continued to remain below 2007 levels in the US, which remains the largest consumer of diamond jewellery. There has however, been continued strength in sales of diamond wedding jewellery. Evidence suggests that retail diamond jewellery demand has remained strong in the Middle East, Asia (excluding Japan) and especially in China. The Company remains cautious about the level of retail diamond jewellery demand in the US in the forthcoming Thanksgiving and Christmas Season.  

The Company remains focused on preserving existing cash and generating profits from its producing operations. 

The Company remains well positioned to deliver value to its shareholders.

Clifford Elphick 

Chief Executive Officer

25 August 2009

CHIEF FINANCIAL OFFICER'S REVIEW 

Financial Highlights

Revenue of US$117.8 million generated in difficult trading conditions

EBITDA of US$25.1 million

Profit from continuing operations of US$11.6 million

Attributable earnings of US$3.3 million (3.60 US cents per share)

Gross cash generated from trading operations of US$32.2 million

Cash on hand of US$120.5 million

Financial results

During the period, the Group has traded profitably in spite of the global financial uncertainty that has severely impacted the diamond industry. Management's response last year, implementation of its cash preservation strategy and the capital raising has resulted in the Group ending the period with US$120.5 million of cash on hand.

For the half year 2009, the Group reports earnings before interest, tax, depreciation and amortisation ('EBITDA') of US$25.1 million; earnings from continuing operations of US$6.5 million and attributable profit of US$3.3 million. 

(US$ millions)	6 months ended 30 June 2009	6 months ended 30 June 20081
Revenue	117.8	166.8
Cost of sales	(74.9)	(84.5)
Royalty and selling costs	(11.2)	(14.4)
Corporate expenses	(6.6)	(8.7)
EBITDA	25.1	59.2
Depreciation	(8.9)	(17.9)
Amortisation	(2.0)	(14.0)
Other income	0.1	0.1
Share based payments	(4.1)	(5.2)
Foreign exchange gain	7.8	2.3
Net finance (costs) / income	(0.8)	0.6
Profit before tax	17.2	25.1
Income tax	(5.6)	(9.0)
Profit from continuing operations	11.6	16.1
Loss from discontinued operations	(3.2)	-
Profit for the period	8.4	16.1
Minority interests	(5.1)	(14.8)
Attributable profit	3.3	1.3
Earnings per share (US cents)	3.60	2.13
Earnings per share - continuing operations (US cents)	7.07	2.14

1.    The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds acquisition, which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations.

Capital Raising

As a result of the global financial crisis and its adverse effect on the diamond market, the Company concluded a firm placement on 22 April 2009, raising US$98.8 million (net) to settle outstanding debt and maintain sufficient working capital. The Company issued seventy five million new ordinary shares at 100 pence each, resulting in total shares in issue of 138.3 million and a weighted average number of shares in issue for the period of 91.3 million.

Financial Performance

Revenue of US$117.8 million was generated in the first half of the year primarily from the sale of rough diamonds recovered at Letšeng and Ellendale. Included in this revenue is the sale of US$23.5 million of Letšeng and Ellendale rough diamonds held over from 2008, the sale of a small number of Cempaka diamonds, the sale of US$10.0 million of polished diamonds produced in beneficiation trials by Letšeng and a once-off royalty payment of US$1.7 million received from a US high end jewellery manufacturer based on the off-take agreement then in place. 

Cost of sales for the year was US$74.9 million before non-cash costs of depreciation of US$8.9 million and amortisation on mining assets of US$2.0 million. The Lesotho Loti (pegged to the South African Rand) and the Australian dollar both strengthened significantly against the US dollar during the second quarter, effectively increasing dollar input costs. The South African Rand relative to the US dollar started the period at ZAR9.25, reached a high of ZAR10.70 in the first quarter, before strengthening and ending the period at ZAR7.72 to the US dollar. The Australian dollar, similarly, commenced the period at AU$1.43, reached AU$1.60 and dropped to AU$1.24 by period end. 

The following table details the relative exchange rates for 2008 and the first half of 2009:

	H1 2009	H1 2008	FY 2008
Lesotho Loti per US$1.00
Average exchange rate for the period	9.20	7.65	8.26
Period end exchange rate	7.72	7.83	9.25
Australian dollar per US$1.00
Average exchange rate for the period	1.41	1.08	1.20
Period end exchange rate	1.24	1.04	1.43

Royalties and selling costs of US$11.2 million relate predominantly to sales commissions paid as well as an 8% and 5% royalty payable to the Lesotho Revenue Authority and the Australian Government on the recovery of diamonds in these respective territories. 

Corporate expenses relate to central costs incurred by Gem Diamonds and its services subsidiary, Gem Diamond Technical Services. Significant cost reduction initiatives were implemented during the period and as a result, overall costs are 23% lower in the current period compared to the corresponding period in 2008. 

Share-based payment costs of US$4.1 million include the allocation of the share awards to the non-Executive Directors as set out in the IPO Prospectus and share/option awards to staff. On 26 June 2009, the Company approved the requests of two non-Executive Directors to take up their entitlements to shares and as a result, the share-based payment costs amounting to US$1.1 million were accounted for in this period.

Freign exchange gains relate to realised and unrealised hedges entered into by Kimberley Diamonds in the previous year. Gains were generated on exchange rate fluctuations on Sterling denominated cash held by the Company and foreign currency denominated loan balances within its Australian operation.

Net finance costs comprise interest received of US$1.2 million. This was predominately generated on surplus cash from the Letšeng operation against interest paid of US$2.0 million charged on the Société Générale debt in Kimberley and the convertible bonds in the Company, both of which were settled during the latter part of the period.  

The effective tax rate in the period for the Group is 32.5%, higher than the UK statutory tax rate of 28%. This is due to permanent differences, comprising mainly of share-based payments that are not tax deductible and deferred tax assets not recognised on losses incurred in non-trading operations. 

Minority interests represent 30% of the profits in Letšeng Diamonds, which are attributable to the Company's partner, the Government of Lesotho.  

Profit attributable to shareholders for the year was US$3.3 million equating to 3.60 US cents per share on a weighted average basis. Earnings per share from continuing operations amounted to 7.07 US cents per share. 

Segmental financial performance 

US$ (millions)	Letšeng Diamonds	Kimberley Diamonds
Sales	84.1	32.5
Cost of sales	(43.8)	(28.2)
Royalty and selling costs	(9.1)	(2.1)
EBITDA	31.2	2.2
Depreciation	(6.0)	(2.1)
Amortisation	(1.8)	(0.2)
Share based payments	(0.2)	(0.2)
Foreign exchange (loss) / gain	(0.9)	1.7
Segment results / Operating profit	22.3	1.4
Tonnes treated	3 796 587	1 854 434
Waste tonnes mined	3 487 514	1 378 640
Carats recovered	47 165	86 687
Carats sold	56 663	192 732
US$ (per unit)
Average price per carat (rough)	1 308	160
Cash cost per tonne1	9.24	12.28
Operating cost per tonne2	11.55	15.27
Local currency (per unit)	Lesotho Loti	Australian dollar
Cash cost per tonne1	85.03	17.33
Operating cost per tonne2	106.29	21.56

1.    Cash costs represents all operating costs, excluding royalty and selling costs, depreciation, mine amortisation and all other non-cash charges.

2.    Operating costs excludes royalty and selling costs and includes inventory, waste and ore stockpile adjustments and excludes depreciation and mine amortisation.

Letšeng Diamonds

Letšeng Diamonds continues to deliver strong operational and financial results in challenging economic circumstances and generated EBITDA of US$31.2 million. Average revenue per carat for the period was US$1 308. 

The effect of the second plant operating for the full period during the first half of 2009 resulted in production throughput increasing to 3.8 million tonnes compared to 2.8 million tonnes in the first half of 2008. As a result and due to various cash reduction initiatives, the cash costs per tonne reduced to Maloti 85.03 (US$9.24) from Maloti 110.14 (US$14.39) over the corresponding period in 2008. 

Total operating costs per tonne in the first half of 2009 increased to Maloti 106.29 (US$11.55) from Maloti 67.20 (US$8.78) in the corresponding period in 2008, mainly due to waste costs incurred in 2008 being amortised in the current period. 

Kimberley Diamonds

Despite current market conditions and having carried the costs of both mining and the placement of the E4 operation on care and maintenance, Kimberley has generated an operating profit of US$1.4 million against a loss of US$19.3 million in the same period last year. Furthermore, the potential of the higher value E9 pipe is demonstrated as the E9 operation generated an EBITDA of US$4.5 million. 

In February this year, the Group announced that as part of its ongoing review and due to poor market conditions, the lower value E4 mining operation at Kimberley would be placed on care and maintenance. In January and February, operations at E4 were limited to the treatment of ore from the stockpile. Since then, production has been focused solely on the E9 operation. As a result, total tonnes treated during the period reduced to 1.9 million tonnes from 3.5 million tonnes in 2008 

The table below reflects a segmental performance analysis between E4 (including the impact of the inventory carry over from 2008) and E9. As noted previously, on a stand alone basis, E9 has generated a positive return, offset by the losses generated by E4 and the inventory carry over which is not anticipated to be repeated in the second half of the year.

(US$ millions)	Kimberley E4 and inventory carry over	Kimberley E9	Total
Revenue	12.3	20.2	32.5
Operating costs	(13.7)	(14.5)	(28.2)
Royalty and selling costs	(0.9)	(1.2)	(2.1)
EBITDA	(2.3)	4.5	2.2
Tonnes treated	276 709	1 577 725	1 854 434
Waste tonnes mined	-	1 378 640	1 378 640
Carats recovered	23 063	63 624	86 687
Carats sold	155 012	37 720	192 732
Average price per carat (US$)	79	489	160

Sales during the period of US$32.5 million include the sale of inventory carried over from 2008 of 131 950 carats, mainly comprising diamonds from the lower value E4 pipe and carats recovered from mining the E4 stockpile. The value of the E9 pipe is demonstrated by the average price achieved of US$489 per carat.

Cash costs per tonne have increased slightly over the corresponding period in 2008 from AU$16.90 to AU$17.33. This increase in cash costs is due to the fixed costs, which represent a significant portion of overall costs, being absorbed by a lower tonnage in this period. US dollar unit costs reduced to US$12.28 in the current period from US$15.61 in the prior period. As a result of the weaker US dollar, unit costs per tonne in local currency are expected to reduce in the second half of the year as the operation increases its mining volumes and throughput as the full impact of the ramp-up of production at E9 in the first half of the year takes effect. 

Operating costs per tonne treated before depreciation and amortisation have remained flat in the period, AU$21.56 (US$15.27) compared to AU$21.80 (US$20.15). However, the two periods are not comparable, as in 2008 there was an increase in waste mining and ore treated associated with the E4 production build up, whilst in 2009 there were the costs associated in winding up the E4 operation and lower overall volumes as a result of focusing purely on the E9 operation.

Discontinued operations

Due to the poor market conditions experienced in 2008, the Group took immediate action to place the operations in the DRC and CAR on care and maintenance and has implemented a process to dispose of these assets. As a result, all operating costs in the DRC and CAR are no longer capitalised to exploration and resource development assets, but expensed in the Income Statement. As the Group is actively seeking to dispose of these assets, they have been classified as Assets Available for Sale on the Group's balance sheet.  

All care and maintenance costs incurred during the period at the operations in the DRC and CAR have been disclosed separately in the Income Statement under Discontinued Operations. The Group has expensed US$3.2 million on these operations which has resulted in a 3.47 US cent impact on the overall earnings per share.

Impairments 

Following the substantial impairments incurred in December 2008, as a result of the economic downturn, the Group undertook a review of its current asset base for any further impairments and during the period none were identified. However, in the event of either the disposal or closure of any of the projects currently on care and maintenance, or a significant downturn in current economic circumstances for the operations, further impairments may arise in the future.

Cash and Debt 

The Group raised US$98.8 million (net) on conclusion of its placement on 22 April 2009. As set out in the Prospectus, the proceeds were applied to settling the debt with Société Généralé of US$21.3 million and the redemption of convertible bonds of US$15.8 million. This effectively leaves the Group free from any debt as at the end of the period. The Group ended the period with US$120.5 million on hand (of this U$106.1 million is attributable).

Group cash was supplemented by a net cash inflow from operations for the period of US$15.9 million. Investments in property, plant and equipment of US$10.1 million were incurred, predominantly relating to the final costs associated with the second plant at the Letšeng mine and the relocation of the DMS at Kimberley Diamonds. In addition,

Inventory

Group diamond inventory from continuing operations at period end was US$18.0 million, down from US$21.7 million at the previous year end. Diamond inventories at both Letšeng and Ellendale were higher at the end of 2008 than at the end of the current period since the December tender in 2008 was not held as a result of the weak trading conditions during that period.

Acquisitions

During the period, the Company did not enter into any acquisition transactions.  

Conclusion 

Management placed certain operations on care and maintenance, reduced costs in various development projects and at the centre. Together with the successful conclusion of the placement in April 2009, these actions have enabled the Group to significantly improve its financial position. The ability to generate positive earnings during the current period highlights the quality of the operating assets in the Group's portfolio. The Group is well placed to emerge from the economic downturn.

Kevin Burford 

Chief Financial Officer

25 August 2009

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF DIRECTORS' RESPONSIBILITY

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 4.2.7 and DTR 4.2.8, namely: 

• 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 

• 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 2008. 

The names and functions of the Directors of Gem Diamonds are listed in the Annual Report for the year ended 31 December 2008. 

For and on behalf of the Board

Kevin Burford 

Chief Financial Officer

25 August 2009

INDEPENDENT REVIEW REPORT TO GEM DIAMONDS LIMITED

We have been engaged by Gem Diamonds Limited (the 'Company') to review the condensed consolidated set of financial statements of Gem Diamonds Limited and its subsidiaries (the 'Group') in the Half Year Report for the six months ended 30 June 2009 which comprises interim consolidated income statement, interim consolidated statement of comprehensive income, interim consolidated statement of financial position, interim consolidated statement of changes in equity and interim consolidated cash flow statement for the six months period then ended and explanatory notes. We have read the other information contained in the Half Year Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

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

Directors' responsibilities 

The Half Year Report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half Year Report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. As disclosed in note 2.1, the annual financial statements of the Group are prepared in accordance with IFRSs. The condensed set of financial statements included in this Half Year Report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting'. 

Our responsibility

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

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed bythe Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom.

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

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the Half Year Report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 

Ernst & Young LLP

London 

25 August 2009

INTERIM CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE
(US$'000)	Notes	20091	20081*
CONTINUING OPERATIONS
Revenue		117 768	166 752
Cost of sales		(85 735)	(116 276)
GROSS PROFIT		32 033	50 476
Other income		89	66
Royalties and sales costs		(11 205)	(14 445)
Corporate expenses		(6 649)	(8 656)
Share-based payments		(4 087)	(5 183)
Foreign exchange gain		7 763	2 312
OPERATING PROFIT		17 944	24 570
Net finance (costs)/income		(759)	640
Finance income		1 239	3 107
Finance costs		(1 998)	(2 467)
PROFIT BEFORE TAX		17 185	25 210
Income tax expense	5	(5 578)	(9 040)
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS		11 607	16 170
DISCONTINUED OPERATIONS
Loss after tax for the period from discontinued operations	6	(3 171)	(3)
PROFIT FOR THE PERIOD		8 436	16 167
Attributable to:
Equity holders of parent		3 285	1 333
Minority interests'		5 151	14 834
PROFIT FOR THE PERIOD		8 436	16 167
Earnings per share (cents)
- Basic profit for the period attributable to equity holders of the parent		3. 60	2. 13
- Diluted profit for the period attributable to equity holders of the parent		3. 42	2. 13
Earnings per share for continuing operations (cents)
- Basic profit for continuing operations attributable to equity holders of the parent		7. 07	2. 14
- Diluted profit for continuing operations attributable to equity holders of the parent		6. 89	2. 14

1.    Unaudited

*    The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations. 

Interim Consolidated Statement of Comprehensive Income

FOR THE SIX MONTHS ENDED 30 JUNE
(US$'000)		20091	20081*
PROFIT FOR THE PERIOD		8 436	16 167
Fair value adjustments		-	175
Exchange differences on translation of foreign operations		37 140	(5 474)
Other comprehensive income/(loss) for the period, net of tax		37 140	(5 299)
Total comprehensive income for the period, net of tax		45 576	10 868
Attributable to:
Equity holders of parent		40 425	(3 951)
Minority interests'		5 151	14 819
Total comprehensive income for the period, net of tax		45 576	10 868

1.    Unaudited

*    The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations. 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT
		30 June	31 December
(US$'000)	Notes	20091	20082*
ASSETS
Non-current assets
Property, plant and equipment	8	333 652	292 716
Intangible assets		26 379	22 224
Other financial assets	9	12 752	5 641
Deferred tax assets		-	1 265
		372 783	321 846
Current assets
Inventories		29 794	36 303
Receivables		14 532	14 218
Other financial assets	9	469	655
Cash and cash equivalents	10	120 485	61 436
		165 280	112 612
Assets of disposal groups classified as held for sale	6	1 539	-
		166 819	112 612
TOTAL ASSETS		539 602	434 458
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued share capital	11	1 383	629
Share premium		885 580	787 487
Treasury shares3		(2)	(2)
Other reserves		(40 199)	(81 506)
Accumulated losses		(521 507)	(524 792)
		325 255	181 816
Minority interests'		66 466	64 602
TOTAL EQUITY		391 721	246 418
Non-current liabilities
Interest bearing borrowings	12	-	361
Trade and other payables		662	451
Provisions		28 749	24 928
Deferred tax liabilities		57 446	51 010
		86 857	76 750
Current liabilities
Interest bearing borrowings	12	439	37 474
Other financial liabilities	12	1 383	3 853
Trade and other payables		46 625	55 405
Income tax payable		10 689	14 558
Provisions		16	-
Bank overdraft	10	456	-
		59 608	111 290
Liabilities directly associated with the assets classified as held for sale	6	1 416	-
		61 024	111 290
TOTAL LIABILITIES		147 881	188 040
TOTAL EQUITY AND LIABILITIES		539 602	434 458

1. Unaudited

2. Audited

3. Being shares held by Gem Diamonds Limited Employee Share Trust

*      The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations. 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE SIX MONTHS ENDED 30 JUNE
							Other reserves
(US$'000)	Issued share capital	Share premium		Treasury shares1			Foreign currency translation reserve		Share based equity reserve		Revaluation reserve				(Accumu- lated losses) / retained earnings			Minority interests		Total
Balance at 1 January 2009	629	787 487		(2)			(114 851)		33 463		(118)				(524 792)			64 602		246 418
Profit for the period	-	-		-			-		-		-				3 285			5 151		8 436
Other comprehensive income	-	-		-			37 140		-		-				-			-		37 140
Total comprehensive income	-	-		-			37 140		-		-				3 285			5 151		45 576
Share capital issued	754	108 015		-			-		-		-				-			-		108 769
Transaction costs on share capital issued	-	(9 922)		-			-		-		-				-			-		(9 922)
Share-based payments (Note 12)	-	-		-			-		4 167		-				-			-		4 167
Dividends paid (Note 7)	-	-		-			-		-		-				-			(3 287)		(3 287)
Balance at 30 June 20092	1 383	885 580		(2)			(77 711)		37 630		(118)				(521 507)			66 466		391 721
Balance at 1 January 2008	624	787 487		(3)			14 530		22 629		19 788				8 243			81 051		934 349
Profit for the period*	-	-		-			-		-		-				1 333			14 834		16 167
Other comprehensive (loss)/income	-	-		-			(5 474)		-		190				-			(15)		(5 299)
Total comprehensive income	-	-		-			(5 474)		-		190				1 333			14 819		10 868
Share capital issued	5	-		-			-		-		-				-			-		5
Acquisition of subsidiaries	-	-		-			-		-		-				-			(64)		(64)
Share-based payments	-	-		-			-		5 382		-				-			-		5 382
Dividends paid	-	-		-			-		-		-				-			(9 811)		(9 811)
Balance at 30 June 20082	629	787 487		(3)			9 056		28 011		19 978				9 576			85 995		940 729
1. Being shares held by Gem Diamonds Limited Employee Share Trust
2. Unaudited
*   The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations.
Refer to Note 11, Issued share capital and reserves for additional information

INTERIM CONSOLIDATED CASH FLOW STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE
(US$'000)	Notes	20091	20081*
CASH FLOWS FROM OPERATING ACTIVITIES		15 865	75 331
Cash generated by operations	14.1	37 824	62 291
Working capital adjustments	14.2	(5 629)	19 433
		32 195	81 724
Finance income		1 210	3 107
Finance costs		(1 453)	(1 271)
Cash outflow from discontinued operations		(3 862)	(3 685)
Income tax paid		(12 225)	(4 544)
CASH FLOWS FROM INVESTING ACTIVITIES		(26 554)	(105 815)
Purchase of property, plant and equipment		(20 998)	(75 171)
Proceeds on disposal of property, plant and equipment		5	-
(Purchase) / disposal of intangible assets		(27)	103
Purchase of other financial assets		(5 666)	(2 138)
Purchase of other assets		-	(995)
Cash inflow / (outflow) from discontinued operations		132	(12 491)
Acquisitions		-	(15 123)
CASH FLOWS FROM FINANCING ACTIVITIES		60 556	(4 903)
Proceeds on share capital issued		108 769	5
Transaction costs on share capital issued		(7 498)	-
Repayment of bonds		(15 760)	(961)
Financial liabilities repaid		(21 650)	(3 834)
Cash outflow from discontinued operations		(18)	(113)
Dividends paid to minorities		(3 287)	-
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS		49 867	(35 387)
Cash and cash equivalents at the beginning of the period2		61 436	181 834
Foreign exchange differences		8 946	(2 879)
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	10	120 249	143 568
Less: cash and equivalents of discontinued operations at end of period		(220)	(2 405)
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF THE PERIOD	10	120 029	141 163

1. Unaudited

2. Includes cash and cash equivalents at discontinuing operations at the beginning of the period. 

*    The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

1.    CORPORATE INFORMATION

1.1.    Incorporation and authorisation

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

The condensed interim consolidated financial statements of the Group for the six months ended 30 June 2009 were authorised for issue in accordance with a resolution of the directors on 25 August 2009.

2.    BASIS OF PREPARATION AND ACCOUNTING POLICIES

2.1.    Basis of preparation

The condensed interim consolidated financial statements for the six months ended 30 June 2009 have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed interim consolidated 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 as at 31 December 2008.

2.2.    Significant accounting policies

The accounting policies adopted in the preparation of the condensed interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2008, except for the adoption of new Standards and Interpretations as of 1 January 2009, noted below:

IFRS 2 Share-based Payment - Vesting Conditions and Cancellations

The Standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. The adoption of this amendment did not have any impact on the financial position or performance of the Group or any additional disclosure requirements.

IFRS 7 Financial Instruments: Disclosures

The amended standard requires additional disclosure about fair value measurement and liquidity risk. Fair value measurements are to be disclosed by source of inputs using a three level hierarchy for each class of financial instrument. In addition, reconciliation between the beginning and ending balance for Level 3 fair value measurements is now required, as well significant transfers between Level 1 and Level 2 fair value measurements. The amendments also clarify the requirements for liquidity risk disclosures. The adoption of this amendment did not have any impact on the financial position or performance of the Group or any additional disclosure requirements.

IFRS 8 Operating Segments

This standard requires disclosure of information about the Group's operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of this standard did not have any effect on the financial position or performance of the Group. The Group determined that the operating segments were the same as the business segments previously identified under IAS 14 Segment Reporting. Additional disclosures about each of these segments are shown in Note 3, Segment information.

IAS 1 Revised Presentation of Financial Statements

The revised Standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the Standard introduces the statement of comprehensive income. It presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.

IAS 23 Borrowing Costs (Revised)

The standard has been revised to require capitalisation of borrowing costs on qualifying assets and the Group has amended its accounting policy accordingly. In accordance with the transitional requirement of the Standard this has been adopted as a prospective change. Therefore, borrowing costs have been capitalised on qualifying assets with a commencement date on or after 1 January 2009. No changes have been made for borrowing costs incurred prior to this date that have been expensed.

IAS 32 Financial Instruments: Presentation and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation

The standards have been amended to allow a limited scope exception for puttable financial instruments to be classified as equity if they fulfil a number of specified criteria. The adoption of these amendments did not have any impact on the financial position or performance of the Group or any additional disclosure requirements.

IFRIC 13 Customer Loyalty Programmes

This interpretation requires customer loyalty credits to be accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the award credits and deferred. This is then recognised as revenue over the period that the award credits are redeemed. IFRIC 13 has no specific provision on transition. The adoption of these amendments did not have any impact on the financial position or performance of the Group or any additional disclosure requirements.

IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement

These amendments of IFRIC 9 require an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. IAS 39 now states that if an embedded derivative cannot be reliably measured, the entire hybrid instrument must remain classified as at fair value through profit or loss. The adoption of these amendments did not have any impact on the financial position or performance of the Group or any additional disclosure requirements.

IFRIC 16 Hedges of a Net Investment in a Foreign Operation

The interpretation is to be applied prospectively. IFRIC 16 provides guidance on the accounting for a hedge of a net investment. As such it provides guidance on identifying the foreign currency risks that qualify for hedge accounting in the hedge of a net investment, where within the Group the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, which is the method the Group uses to complete its consolidation. As the Group did not dispose of any net investment it has had no impact on the financial position or results or any additional disclosure requirements.

Improvements to IFRSs

In May 2008 the International Accounting Standards Board issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group and did not have any additional disclosure requirements other than those detailed below.

• IAS 1 Presentation of Financial Statements

Assets and liabilities classified as held for trading in accordance with IAS 39 Financial Instruments: Recognition and Measurement are not automatically classified as current in the statement of financial position. The Group amended its accounting policy accordingly and analysed whether Management's expectation of the period of realisation of financial assets and liabilities differed from the classification of the instrument. This did not result in any re-classification of financial instruments between current and non-current in the statement of financial position.

• IAS 16 Property, Plant and Equipment

Replace the term 'net selling price' with 'fair value less costs to sell'. The Group amended its accounting policy accordingly, which did not result in any change in the financial position and did not result in any additional disclosure requirements.

• IAS 23 Borrowing Costs

The definition of borrowing costs is revised to consolidate the two types of items that are considered components of 'borrowing costs' into one - the interest expense calculated using the effective interest rate method calculated in accordance with IAS 39. The Group has amended its accounting policy accordingly which did not result in any change in its financial position and did not result in any additional disclosure requirements.

• IAS 38 Intangible Assets

Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access goods or has received the service. This amendment has no impact on the Group because it does not enter into such promotional activities.

The reference to there being rarely, if ever, persuasive evidence to support an amortisation method of intangible assets other than a straight-line method has been removed. The Group reassessed the useful lives of its intangible assets and concluded that the straight-line method was still appropriate.

The amendments to the following standards below did not have any impact on the accounting policies, financial position or performance of the Group:

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

IFRS 7 Financial Instruments: Disclosures

IAS 8 Accounting Policies, Change in Accounting Estimates and Error

IAS 10 Events after the Reporting Period

IAS 16 Property, Plant and Equipment

IAS 18 Revenue

IAS 19 Employee Benefits

IAS 20 Accounting for Government Grants and Disclosures of Government Assistance

IAS 27 Consolidated and Separate Financial Statements

IAS 28 Investments in Associates

IAS 31 Interest in Joint ventures

IAS 34 Interim Financial Reporting

IAS 36 Impairment of Assets

IAS 39 Financial Instruments: Recognition and Measurement

Standards, interpretations and amendments to published standards that are not yet effective

The following is the present list of standards and interpretations that have been issued and are not yet effective: 

		Standard or Interpretation	Effective Date *
	IFRS 3	(Revised) Business Combinations	July 20091
	IAS 27	(Amended) Consolidated and Separate Financial Statements'	July 2009
	IAS 39	Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items	July 2009
	IFRIC 17	Distributions of Non-Cash Assets to Owners	July 2009
	IFRIC 18	Transfers of Assets from Customers	July 2009
	* Annual periods beginning on or after.
	1 Business combinations with effective date beginning on or after.
	The Group has not early adopted any of these standards. The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application once adopted, notwithstanding IFRS 3 (Revised) 'Business Combinations' may impact the financial statements should there be an acquisition in the period.

3.    SEGMENT INFORMATION        

For management purposes, the Group is organised into geographical units 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, RSA and UK (Provision of technical and administrative services; includes beneficiation projects currently being established).

Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss.

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

The following table presents revenue and profit information from continuing operations regarding the Group's geographical segments for the periods:

6 months ended 30 June 20091 (US$'000)	Lesotho	Australia	Indonesia	Botswana	BVI, RSA and UK	Total
Sales
Total sales	84 115	32 498	1 058	-	4 659	122 330
Inter-segment sales	-	-	-	-	(4 562)	(4 562)
Sales to external customers	84 115	32 498	1 058	-	97	117 768
Segment results	22 279	1 380	(924)	(10)	(4 781)	17 944
Net finance cost						(759)
Profit before tax						17 185
Income tax expense						(5 578)
Profit for the period						11 607

1. Unaudited

	6 months ended 30 June 2008 1* (US$'000)	Lesotho	Australia	Indonesia	Botswana	BVI, RSA and UK	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	(19 297)	(8 738)	-	(12 778)	24 570
	Net finance income						640
	Profit before tax						25 210
	Income tax expense						(9 040)
	Profit for the period						16 170

The following table presents segment assets relating to continuing operations of the Group's geographical segments as at 30 June 2009 and 31 December 2008:

	Segment assets (US$'000)		Lesotho	Australia	Indo- nesia	Bots- wana	DRC and CAR	BVI, RSA and UK		Total
	At 30 June 20091		323 484	72 380	2 977	47 858	-	91 364		538 063
	At 31 December 20082		275 702	60 429	5 324	42 755	2 270	46 713		433 193

4.    SEASONALITY OF OPERATIONS

The Group's sales environment with regards 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.

1. Unaudited

2. Audited

*    The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations

(US$'000)		20091	20081
5.	INCOME TAX EXPENSE
	Income statement
	Current	(5 943)	(9 884)
	- UK	2 070	(79)
	- Overseas	(8 013)	(9 805)
	Withholding tax	(794)	(2 636)
	Deferred	1 159	3 480
	- UK	(62)	-
	- Overseas	1 221	3 480
		(5 578)	(9 040)

The forecast effective tax rate for the full year of 32.5% has been applied to the actual results of the interim period.  This is higher than the UK statutory tax rate of 28%.  The principal drivers of the effective forecast tax rate are the 25% statutory rate applying to the Group's principal operations in Lesotho increased by permanent differences, including share-based payments that are not tax deductible, and deferred tax assets not recognised on losses incurred in non-trading operations.

	1. Unaudited
(US$'000)				20091		20081
6.	DISCONTINUED OPERATIONS
	Central Africa
	During the period, the decision was made to dispose of the operations in the DRC and the CAR (see detail of operations in Note 3, Segment information). Management has been committed to a plan to sell the operations and an active programme to locate a buyer and complete the plan has been initiated.  The results of the Central African operations for the six months ended 30 June are as follows:
	Revenue			650		-
	Cost of sales			(4 050)		-
	Gross loss			(3 400)		-
	Other income			162		-
	Foreign exchange gain			14		-
	Share-based payments			(31)		-
	Loss before tax from discontinued operations			(3 255)		-
	Tax expense
	- related to current pre-tax loss			(3)		-
	- related to changes in deferred tax			87		(3)
	Loss after tax for the period from discontinued operations			(3 171)		(3)
	Loss per share from discontinued operations (cents)
	- Basic			(3.47)		(0.01)
	- Diluted			(3.47)		(0.01)
(US$'000)				20091		20082
	The major classes of assets and liabilities of the discontinuing operations as at 30 June and 31 December are as follows:
	Non-current assets			831		-
	Current assets			708		-
	Assets of disposal groups classified as held for sale			1 539		-
	Non-current liabilities			1 094		-
	Current liabilities			322		-
	Liabilities of disposal group classified as held for sale			1 416		-
	1. Unaudited 2. Audited

7.    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 current market conditions unfold. 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.

8.    PROPERTY, PLANT AND EQUIPMENT

During the six months ended 30 June 2009, continuing operations of the Group acquired assets and capitalised deferred stripping of US$21.0 million (30 June 2008: US$75.2 million).

In addition to the above, foreign exchange movements on translation were US$48.0 million (30 June 2008: US$(4.7) million). Depreciation and amortisation (including amortisation of deferred stripping) of US$26.4 million (30 June 2008: US$33.7 million) was charged to the income statement during the period.

9.    OTHER FINANCIAL ASSETS

Included in other financial assets is environmental bonds of US$5.9 million (31 December 2008: US$0.3 million).

(US$'000)		30 June 20091	31 December 20082
10.	CASH AND CASH EQUIVALENTS
	Cash on hand	32	63
	Bank balances	68 265	53 297
	Short-term bank deposits	52 188	8 076
		120 485	61 436
	Bank overdraft	(456)	-
		120 029	61 436

At 30 June 2009, the Group had restricted cash of US$4.3 million (31 December 2008: US$7.3 million).

1. Unaudited

2. Audited

		30 June						31 December
		20091						20082
		Number of shares						Number of shares
		'000		(US$ '000)				'000		(US$ '000)
11.	ISSUED SHARE CAPITAL
	Authorised shares
	Ordinary shares of US$0.01 each	200 000		2 000				125 000		1 250
	On 20 April 2009, the Company increased its authorised share capital to 200 000 000 shares of US$0.01 each.
	Issued and fully paid
	Balance at beginning of period	62 905		629				62 399		624
	Allotments during the period	75 362		754				506		5
	Balance at end of period	138 267		1 383				62 905		629

During the period, the following share transactions took place:

On 19 February 2009 a non-Executive Director was issued, as part of his contract, shares in the Company. The total number of shares issued was 72 332. On 26 June 2009 two further non-Executive Directors were issued, as part of their contracts, shares in the Company. The total number of shares issued was 289 328.

On 22 April 2009 the Company completed its placing of 75 000 000 new ordinary shares, of US$ 0.01 each, to existing shareholders. The Company received US$108.8 million (£75.0 million). Share issue costs amounting to US$9.9 million were incurred.

Following the placing, the Company's share capital amounted to US$1.4 million comprising 138 267 181 ordinary shares.

12.    INTEREST BEARING BORROWINGS / OTHER FINANCIAL LIABILITIES

Borrowing and repayment of debt

During the six months ended 30 June 2009, the Group repaid the total outstanding amount on convertible bonds of US$15.8 million, bearing an interest rate of 6% and US$21.3 million on a secured bank loan bearing an interest rate of 4.95%.

Non-interest bearing debt

Included in other financial liabilities is non-interest bearing debt of US$1.4 million (30 June 2008: US$1.4 million).

1. Unaudited 2. Audited

13.    SHARE-BASED PAYMENTS

On 19 February 2009 a non-Executive Director was issued, as part of his contract, 72 332 shares in the Company. 

On 26 June 2009 the Board approved the requests of non-Executive Directors Lord Renwick of Clifton and Richard Williams MBE MC to take up their entitlements to shares in the Company. The total number of shares issued was 144 664 each. 

			30 June	30 June
(US$'000)			20091	20081*
14.	CASH FLOW NOTES
14.1    Cash generated by operations
	Profit before tax		17 185	25 210
	Adjustments for:
	-Depreciation and amortisation on property, plant and equipment		26 447	33 736
	-Finance income		(1 239)	(3 107)
	-Finance costs		1 998	2 467
	-Movement in provisions		40	(77)
	-Marked to market revaluations		(2 664)	-
	-Foreign exchange differences		(9 610)	(3 127)
	-Loss on disposal		(2)	-
	-Impairment		-	2 006
	-Inventory revaluations		1 254	-
	-Other non-cash adjustments		328	-
	-Share-based payments		4 087	5 183
			37 824	62 291
14.2    Working capital adjustments
	Decrease in inventories		4 876	9 530
	Increase in receivables		(527)	(1 077)
	(Decrease)/increase in trade and other payables		(9 890)	9 975
	Foreign exchange differences		(88)	1 005
			(5 629)	19 433
1. Unaudited
* The prior year's figures have been restated for revisions to the provisional Purchase Price Accounting for Kimberley Diamonds Company    acquisition which was finalised in the December 2008 report, and the reclassification for the impact of accounting for discontinued operations

15.    COMMITMENTS AND CONTINGENCIES

At 30 June 2009, the Group had capital commitments of US$9.5 million (30 June 2008: US$7.5 million) relating to property, plant and equipment.

Restricted cash of US$4.2 million represents funds held in terms of a deposit agreement and is security on debt owing by a Director to a financial institution, in connection with the Director's relocation. This arrangement is currently under review.

The Company has issued a guarantee to Barclays Bank PLC for US$20.0 million to secure foreign exchange contracts entered into by its subsidiary, Kimberley Diamonds. The guarantee reduces on a monthly basis by US$2.5 million commencing March 2009 and it lapses on 1 November 2009. At 30 June 2009, US$12.5 million of the guarantee is still in place. 

Having consulted professional advisers, the Group has identified possible tax claims within the various jurisdictions in which the Group operates approximating US$3.0 million (30 June 2008: US$3.8 million).

16.	RELATED PARTIES
	Related party	Relationship
	Jemax Management (Proprietary) Limited	Common director
	Jemax Aviation (Proprietary) Limited	Common director
	Gem Diamond Holdings Limited	Common director
	Government of Lesotho	Minority shareholder
	Geneva Management Group (UK) Limited	Common director
	Government of CAR	Minority shareholder
	Government of Indonesia	Minority shareholder
	Franck Nyimilongo Pieme	Minority shareholder
	During the period, Lord Renwick of Clifton resigned from the Board.

		30 June	30 June
(US$'000)		20091	20081
	Compensation to key management personnel (including directors)
	Share-based payments	606	1 451
	Short-term employee benefits	3 134	2 663
		3 740	4 114
	Related party transactions:
	Royalties paid to related parties
	Government of Lesotho	(9 020)	(7 435)
	Government of Indonesia	-	(205)
	Lease and license payments to related parties
	Government of Lesotho	(119)	(46)
	Government of CAR	-	(47)
	1. Unaudited

		30 June	30 June
(US$'000)		20091	20081
	Sales to/(purchases from) related parties
	Jemax Aviation (Proprietary) Limited	(68)	(391)
	Jemax Aviation (Proprietary) Limited	72	168
	Jemax Management (Proprietary) Limited	(55)	(253)
	Geneva Management Group (UK) Limited	(8)	-

		30 June	31 December
(US$'000)		20091	20082
	Amount included in trade receivables / payables owing by / (to) related parties
	Jemax Aviation (Proprietary) Limited	-	80
	Jemax Management (Proprietary) Limited	(9)	(8)
	Government of Lesotho	(1 792)	(1 448)
	Jemax Management (Proprietary) Limited and Jemax Aviation (Proprietary) Limited provided administrative and aviation services with regards to the mining and evaluation activities undertaken by the Group.

17.	POST BALANCE SHEET EVENTS
	No fact or circumstance has taken place during the period covered by the financial statements and up to the date of this report which, in our opinion, is of significance in assessing the state of the Group's affairs.

1. Unaudited

2. Audited

 

END

 

 

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