Supply agreement with Tiffany

RNS Number : 5223E

Gem Diamonds Limited

22 December 2009

22nd December 2009

GEM DIAMONDS LIMITED

("Gem Diamonds" or the "Company")

GEM DIAMONDS AND TIFFANY SUBSIDIARY ENTER INTO SUPPLY AGREEMENT FOR ELLENDALE'S FANCY YELLOW DIAMONDS

Gem Diamonds (LSE: GEMD), the FTSE 250 diamond mining company that acquired Kimberley Diamond Company NL ("Kimberley Diamonds") in November 2007, is pleased to announce that Kimberley Diamonds has successfully entered into an agreement with Laurelton Diamonds, Inc. ("Laurelton"), the diamond sourcing and polishing subsidiary of global high-end jeweller, Tiffany & Co. ("Tiffany"), for the supply and sale of its fancy yellow diamond production from the Ellendale mine.

The Ellendale mine in Western Australia is renowned for its production of sought after fancy yellow diamonds and is widely regarded as the world's leading producer of these rare and beautiful diamonds.

The agreement, which formalises an existing supply arrangement dating back to July 2008, is effective from December 2009 and will run for the economic life of the Ellendale mine, affording Kimberley a contractual revenue stream for Ellendale's high quality fancy yellow diamond production.

On signature of the agreement, Kimberley Diamonds will benefit from an initial price which is less than 10% below the peak prices achieved before the onset of the financial crisis in 2008.The fancy yellow production from Ellendale's E9 pipe constitutes a substantial portion of Kimberley Diamonds' total revenue. Gem Diamonds' Directors believe that this increased price is both sustainable and favourable for the mine, and the regular price reviews that will commence in 2010 allow for the price to be fairly adjusted to the prevailing market by agreement. This agreement at current exchange rates and prices provides Kimberley Diamonds with a certain income stream and positive cash flow to enable the company to cover all costs as well as undertake further exploration at Ellendale.

The remaining commercial production from the Ellendale mine, which includes diamonds not covered in this agreement, will continue to be marketed through existing channels, including open tender and select direct sales.

Gem Diamonds CEO, Clifford Elphick commented:

"I am pleased that Kimberley Diamonds has been able to conclude a long term supply agreement for Ellendale's production of fancy yellow diamonds with such a highly regarded brand and major player in the diamond jewellery and retail sector. The agreement should provide a sustainable platform on which the Ellendale mining operations can grow and I have every confidence that with Tiffany's global marketing and retail reach, they will extract the full potential of these remarkable yellow diamonds which in turn will allow Kimberley Diamonds to realise their full rough value."

James N. Fernandez, Tiffany & Co.'s Executive Vice President and Chief Financial Officer, said:

"Tiffany has some very exciting design initiatives beginning in 2010 that will require high quality yellow diamonds. This agreement should fully and efficiently satisfy our supply needs."

For further information:

Investor relations
Richard Chetwode
Tel: +44 (0) 7590 064 883

Gem Diamond Technical Services

Sherryn Tedder

Tel: +27 (0)11 560 9600

Pelham PR

James Henderson/ Chelsea Hayes

Tel: +44 (0) 20 7337 1523

About Gem Diamonds

Gem Diamonds Limited (LSE: GEMD) 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.

About Laurelton Diamonds

Laurelton Diamonds is a wholly owned subsidiary of Tiffany & Co. Established in 2002, the company ensures the integrity and high quality of Tiffany's diamonds through strict control of a global supply chain that sources, cuts, polishes and supplies finished stones to Tiffany & Co. Laurelton Diamonds has operations in the United States, Belgium, South Africa, Botswana, Namibia, Vietnam, Mauritius and China.