Trading Update

Gem Diamonds Limited
04 February 2008


News Release                                                    4 February 2008


                              GEM DIAMONDS LIMITED
                         (Gem Diamonds or the Company)

          TRADING UPDATE FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2007


2007 is Gem Diamonds first financial year as a listed company.  The Company's
focus for the year was the execution of its acquisition strategy outlined at the
time of its IPO as well as the development of existing assets to increase
production.  During the year US$404 million was deployed on acquisitions in
Australia, Botswana, DRC and Indonesia which are all now under Gem Diamonds'
control.  The Letseng Mine's processing capacity was increased with the
construction of its second plant and early stage operations in central Africa
were progressed.  Tenders conducted in January 2008 on Letseng, Cempaka and
Ellendale diamonds have all shown strong price increases.


HIGHLIGHTS:

Corporate

  • Successful acquisition of 100% of Kimberley, owner of the Ellendale Mine
    in Australia renowned for its fancy yellow diamonds.
  • Appointment of Roger Davis, the former UK Chief Executive of Barclays Bank
    UK Banking Operation as non-Executive Chairman
  • Appointment of Lord Robin Renwick, Miklos Salamon and Richard Williams MBE
    MC to the Board as non-Executive Directors.  The Board Structure is now
    fully Combined Code compliant


Sales

  • US$152.0 million total sales value from Letseng, an 81% increase on the
    US$83.9 million for the prior period
  • 76 873 cts sold from Letseng Mine, a 45% increase on the 52 998 cts sold
    in the prior period
  • Letseng diamonds extracted for polishing and sold on tender in January
    2008 for US$3.1 million (US$68 000/ ct)
  • Remarkable Letseng diamonds continue to achieve record prices:
      • 493 ct Letseng Legacy sold for US$10.4 million (US$21 000/ ct)
      • 215 ct D-colour flawless diamond sold for US$8.3 million (US$38 600/
        ct)
      • 125 ct D-colour diamond sold in January 2008 for US$5 million (US$40
        000/ ct)
      • 26 ct pink diamond sold in January 2008 for US$2.6 million (US$99 000/
        ct)
  • Accumulated Cempaka production of 15 000 carats sold for US$331/ ct in
    January, an increase of 52% over prices achieved prior to acquisition
  • First Ellendale tender under Gem Diamonds control realises US$14 million
    from 63 500 carats at an average of US$220/ ct, an increase of 22% over
    prices achieved prior to acquisition

Operational

  • Letseng second plant on schedule for commencement of commissioning in
    Q108, with full production levels expected to be reached in Q208
  • December tonnage at Ellendale increased to record levels of 654 000 tonnes
  • Mining License Application for Gope submitted and in process of being
    updated
  • Steady increase in volumes processed at Cempaka, with move to owner mining


Gem Diamonds CEO Clifford Elphick comments:

'At the end of its first year as a listed Company, Gem Diamonds is in a good
position.  We are profitable and cash flow positive and poised for further
growth in a favourable diamond market.  Operations have generally performed
ahead of expectations and problem areas are being addressed.  We are examining
how to capture additional margin for the Company over the complete range of
exceptional diamonds that the mines under our control produce.'


1                     Corporate

In line with the commitment made to shareholders at the time of the Company's
listing, the Board of Gem Diamonds appointed former senior non-Executive
Director Roger Davis, to the position of non-Executive Chairman, a position
previously combined with that of the Chief Executive.  The Board has been
further strengthened by the appointment of Lord Robin Renwick, Miklos Salamon
and Richard Williams MBE MC as non-Executive Directors.  Miklos Salamon and
Richard Williams' appointments are effective as of yesterday.

Miklos Salamon is a mining engineer and MBA with over 30 years experience in the
mining sector.  He was a founding director of Billiton and was instrumental in
its IPO on the LSE in 1997 and subsequent merger with BHP in 2001.  Mike retired
from his position of Executive Director at BHP Billiton in 2006 and is now the
Co-president of private equity fund AMCI Capital.

Richard Williams MBE MC spent 20 years in the British Army, latterly as the
Commanding Officer of 22 SAS Regiment, the British Army's Special Forces, during
which time he saw service across the Middle East, Afghanistan, Pakistan, Latin
America and Africa.  Richard has an MBA from Cranfield University and a Masters
in International Security Studies from Kings College, London.  He is a Founding
Director of Apsley International Management Services; a London-based Risk
Management and Security Company.

As outlined in the Prospectus on IPO, during the year the Company awarded 1 012
644 shares to its newly appointed non-Executive directors, 433 990 of which have
been issued.  This will result in a non cash charge to the 2007 statement of
Profit and Loss of approximately US$15.5 million.  In 2008, 2009 and 2010 the
recurring non cash expense in this regard is estimated to be US$5.8 million,
US$2.5 million and US$0.2 million respectively.

The Company was included in the FTSE 250 Index from 21 September 2007 and
currently index funds hold approximately 6% of the issued share capital.


2                     Lesotho

Gem Diamonds holds 70% of Letseng Diamonds (Pty) Ltd (Letseng Diamonds) in
partnership with the Government of the Kingdom of Lesotho which owns the
remaining 30%.


2.1               Production

Letseng Diamonds continues to perform well and tonnes mined and processed
increased 30% relative to the prior period as a result of the doubling of
contractor processing capacity and improved hard rock processing ability in No 1
Plant.


                                 H107         H207         FY07         FY06

Tonnes mined and processed       1.9          2.1          4.0          3.1
millions
Cts produced                    37 854       35 817       73 916       54 677
Satellite Pipe grade cpht        2.26         2.06         2.19         2.08
Main Pipe grade cpht             1.37         1.26         1.31         n/a



Increased mining depths in the Satellite Pipe pit resulted in higher basalt
waste stripping requirements and waste mining totalled 3.8 million tonnes for
the year compared to 0.8 million tonnes in the previous year.

Mining at the Main Pipe has previously been undertaken by contractors who mined
the weathered kimberlite at the surface level.  Contractor mining exposed
sufficient hard kimberlite at 14m depth to enable Letseng Diamonds to commence
drilling and blasting at the Main Pipe in December 2007.  Accordingly production
shifted from the Satellite Pipe to the Main Pipe whilst waste mining continues
at Satellite Pipe.  Ore mining at the Satellite Pipe will recommence in February
2008.  The remainder of the weathered kimberlite continues to be treated by the
contractor miner.


Five +100 ct diamonds were recovered in 2007:
     
-    493 ct Letseng Legacy sold for US$10.4 million

-    215 ct diamond sold for US$8.3 million

-    129 ct diamond valued at US$3.5million in the rough and extracted for
     polishing, not yet sold

-    125 ct diamond sold in January 2008 for US$5.0 million

-    113 ct diamond sold for US$0.8million


2.2  Diamond sales

Tender results for 2007 are as follows:

                      Cts Sold               Total Tender Value               Achieved US$/ct
                                                US$ Millions
              H107      H207      FY07      H107     H207    FY07     H107     H207     FY07     FY06

 Satellite   39 037    21 198    60 234     73.3     59.2    132.6   1 879    2 795    2 201     1465
   Pipe
 Main Pipe    8 182     8 456    16 639      9.1     10.3    19.4    1 113    1 214    1 164     n/a

   Total     47 219    29 654    76 873     82.5     69.5    152.0   1 746    2 344    1 977     n/a


At the most recent tender of diamonds which only included Main Pipe production,
the average price achieved was US$2 300 per ct.  This excludes the revenue
achieved for a remarkable 26 ct pink diamond of US$99 000/ ct.



2.3  Beneficiation

Between July and November, seven D-colour diamonds were extracted from the
production for polishing in Antwerp by Matrix Diamond Technology using their
proprietary diamond technology.  Six of these diamonds totalling 137 cts were
polished into 45.7 cts, of which 41.6 cts were sold for US$3.1 million.  The
seventh rough diamond, weighing 129 cts, is expected to be polished and sold in
H108.


2.4               Expansion and development

With a life of mine at Letseng in mid 2006 of 70 years, the decision was taken
in October 2006 to double the mine's hard rock processing capacity with the
construction of a second plant.  Combined with the current 2.6mtpa processing
plant, the two plants will process 5.3mtpa.

Construction of the second plant which commenced in February 2007 is now in its
final stages.  Commissioning is scheduled to start in Q108, building up to full
production during Q208.  The final cost of the plant is estimated to over-run
the initial estimate of US$45 million by some 15%.  This overrun is mainly
attributable to increased input prices over the duration of the project,
standing time due to adverse weather conditions as well as additional civil work
required.

Letseng Diamonds is supplied with power by the Lesotho Electrical Corporation
(LEC) who in turn sources this power on two different lines from the South
African parastatal ESKOM.  To date Letseng has not experienced any power outages
as a result of the power supply problems in South Africa.  In the short term the
LEC is attempting to agree with ESKOM that any power outages to Lesotho will be
on the line that does not supply Letseng.  Over the longer term, Letseng has
committed to undertaking a study into increasing the capacity of the line from
the Lesotho Highlands Project, which produces hydroelectric power, to Letseng.
Should the results of this study prove positive it is expected that it will take
18 months to complete the upgrade.


3                     Australia

Gem Diamonds acquired a controlling interest in Kimberley Diamond Company NL
(Kimberley) an Australian diamond mining company in late November 2007.  As at
period end Gem Diamonds held an effective 96% of the issued share capital with
the compulsory acquisition of the remaining 4% of the share capital completed
subsequent to the year end.

Kimberley currently exploits two diamondiferous lamproites on the Ellendale
mining lease namely E9 and E4.  The production comprises a high proportion of
gem and near gem diamonds with an important component of fancy yellow diamonds.
Kimberley also holds a 39% interest in Blina Diamonds NL (Blina), an alluvial
diamond mining and diamond exploration company adjacent to the Ellendale mine.

Following the completion of the acquisition, Gem Diamonds reconstituted the
boards of both Kimberley and Blina.  Gem Diamonds management are in place at
Kimberley to oversee operations and the company's integration into Gem Diamonds.

A new managing director has been appointed to Kimberley and will assume this
position at the end of February 2008.


3.1               Production

During the acquisition process and then subsequent to obtaining operational
control, Gem Diamonds has made significant improvements to Kimberley's three
plants - two on the E9 pipe and one on the E4 pipe - resulting in improved
process flow.

The improvement to the crushing circuit and removal of the tertiary crusher in
the E4 South plant resulted in an immediate increase in throughput.  Other
ineffective plant designs and circuits will be changed during Q108.  These
improvements will increase the E4 South plant capacity from 4.4 mtpa to 5.5
mtpa.

The E9 East plant upgrade, which will be complete by end 2008, will increase
production from the 2007 levels of 2 mtpa to a new design capacity 4.4 mtpa.
Further upgrades to increase the capacity of the E9 East plant to 5.5 mtpa and
the E9 West plant to 1 mtpa are under consideration.

These improvements are highlighted in the production table below:

                    Jul 07    Aug 07    Sept 07    Oct 07    Nov 07    Dec 07
Tonnes mined and       488       562       492        580       652       654
processed 000's
Cts produced         37 913    41 288     35 721    46 542    50 490    42 703
Average grade cpht     7.8       7.3       7.3        8.0       7.7       6.5

Production for the six months to end December 2007 was 254 657 cts from 3.4
million tonnes treated at an average grade of 7.4 cpht.  This compares to the
end June 2007 full year of 378 026 cts from 4.8 million tonnes treated at an
average grade of 7.9 cpht.  This grade differential is attributable to relative
increase in production from the E9 pipe which produces higher price diamonds at
a lower grade.

During December 2007, the first month of Gem Diamonds ownership, Kimberley mined
a record 672 923 tonnes, treating 630 761 tonnes with an associated diamond
production of 42 703.


3.2               Diamond sales

During the year to 30 June 2007, Kimberley sold its diamond production using a
combination of tenders and direct sales at an average price of US$131 per ct.
After 30 June 2007 and the Gem Diamonds take over bid, Kimberley only sold
diamonds by direct sale, achieving an average year to date price of US$152 per
ct.  The last direct sale in November averaged US$181 per ct.

The most recent sale took place by tender in Antwerp at the end of January 2008
and achieved an average price of US$220 per ct, an increase of 22% on the last
tender prior to acquisition.


4                     Botswana

Gem Diamonds acquired Gope Exploration Company (Gope) in May 2007.  Gope was the
holder of a suspended retention license covering the Gope 25 Kimberlite deposit
in the Central Kalahari Game Reserve (CKGR).

A Mining License Application was submitted in July 2007 and subsequently
supplemented with additional information in December 2007.  Section 51
negotiations with the Botswana Department of Mines are expected to commence in
2008 which will determine the key terms of the mining license.

To secure a mining license at Gope the existing Environmental Impact Assessment
(EIA), which was completed in 1998, required revising.  Due to the sensitivity
of the area around Gope a decision was taken to conduct a full Social and
Environmental Assessment (SEIA) as part of the EIA.  Adverts for the Public
Participation meetings, which form an integral part of the SEIA, were duly sent
out, and numerous meetings with communities around the CKGR are being held.

A Feasibility Study was also completed in 1998 which is currently under revision
by management and independent consultants.  Key changes to the original
feasibility study are the increase in the throughput from 4mtpa to 6mtpa and the
inclusion of autogenous milling in the diamond liberation process.  The
feasibility study is expected to be finalised by the end of Q108.

The capital expenditure to develop a mine at Gope is estimated at approximately
US$450 million.


5                     Indonesia

BDI Mining Corp (BDI Mining) was acquired by Gem Diamonds in May 2007.  It owns
80% of the Cempaka alluvial diamond mine in South Kalimantan, Indonesia in
partnership with the Government of Indonesia which owns the remaining 20%.

BDI Mining also owned the Woodlark Gold Exploration Project in Papua New Guinea,
which was sold for a consideration of US$26.5 million.

The alluvial deposits at the Cempaka Mine consist of the Danau Seran and Cempaka
paleochannels.  The former was mined since the commencement of the operations in
2004 and is almost depleted.  It was significantly smaller but of a higher grade
than the Cempaka channel.

Minor gold and platinum is present in the diamondiferous gravels in both
channels.


5.1               Production

Production for 2007 was as follows:

                                      H107          H207          FY07

Cts produced                              8 441        14 594        23 034
Gravel treated bcm                       69 389        196 094       265 483
Grade cts/bcm                             0.12          0.07          0.09
Overburden stripped  million bcm          0.77          1.87          2.64
Stripping ratio                           11.11         9.53          9.94
Au/Pt conc produced kg                     6.0          10.8          16.8

Mining in the Cempaka channel commenced in Q406 and was the main source of
gravel in 2007. Diamond production increased from 8 441 cts in H107 to 14 594
cts in H207 due to the higher volume of gravel treated offset by the lower grade
of the Cempaka channel.

Limited overburden stripping in H107 prior to acquisition was addressed as a
priority in H207 with overburden mining ramped up to 1.87 million bcm in H207
compared to 0.77 million bcm in H107.   Significant progress was made during
H207 to increase gravel treatment rates to the planned 80 000 bcm/ month.  There
was a steady build up in the gravel treated reaching 56 000 bcm in December 2007
with record associated production of 6 540 cts despite the onset of the wet
season.  It is expected that 80 000 bcm/ month will be achieved by early Q208.

Conversion from contactor to owner mining was initiated in H107 with an
associated capital investment of US$9.9 million for mining equipment being made
for this purpose


5.2               Sales

A total of 10 410 cts was sold during H107 for US$2.27 million or US$218/ct.
All these sales took place prior to Gem Diamonds acquisition of BDI Mining.  A
revision of this sale process was undertaken by Gem Diamonds and the decision
was taken to accumulate a large parcel of diamonds for tender to the market in
January 2008.  Some 15 000 cts were sold in this tender an average price of
US$331 per ct, representing a 52% increase in average prices achieved in H107.



5.3               Expansion and development

The mining method currently employed at Cempaka is based on hydraulic excavators
and trucks.  Higher than usual rainfall in H107 adversely affected production
and highlighted the need to modify the mining method in order to be able to
operate better under heavy rainfall conditions.  Accordingly a prefeasibility
study into dredging has commenced and the results of this study are expected in
H208.

Exploration drilling in the Cempaka channel was doubled to 5 000 metres per
month in H207 with a view to increasing the level of confidence in the resource
and for improved mine planning purposes.


6                     DRC

Gem Diamonds has interests in three projects in the DRC at Mbelenge, Lubembe and
Longatshimo.  These interests are held via a number of companies in which Gem
Diamonds has between an 80% and 100% shareholding.  Gem Diamonds DRC properties
have an estimated 10.3 million cts in situ, 82% of which is classified at the
deposit level.


6.1               Mbelenge Mine

Mbelenge hosts 4.1 million cts of the DRC's 10.3 million ct resource.
Commissioning of the DMS plant commenced at Mbelenge in late June, slightly
ahead of the schedule and the plant was regularly achieving design throughput by
period end.  However, grades realised in the terraces, being the planned area of
focus during the first two years of operation have proved disappointing.
Towards the end of the year, grades in alternative blocks proved somewhat better
but those of the terraces, continue to perform significantly below plan.


6.1.1          Production

                             Planned           Actual         Variance
                                                                  %
Overburden stripped m3       310 000          316 086            +2
Gravel mined m3              147 500          105 610           -28
Gravel treated m3            122 500           98 492           -20
Cts recovered m3             122 500           7 680            -94
Grade cts/ m3                  1.0              0.08            -92



The first parcel of 2 986 cts of Mbelenge diamonds was sold in Antwerp for US$83
/ct, in line with expectations.



6.1.2          Expansion and development



With the low grades returned from the terrace gravels, sample trenches
transverse to the old river flow direction are being cut in advance of mining to
assist with the refinement of the geological model.



Representative samples of gravel from the present Kasai River bed will also be
obtained and should provide an indication of river grades.  In the event that
these grades are sub-economic at the current cost base, Gem Diamonds' focus in
the DRC will in all likelihood shift to a different project within its lease
area.



6.2               Lubembe Project

Sampling at Lubembe in 2007 was undertaken by dredges and production has
accordingly been limited.  Efficiency of the dredging programme has been
improved but the original expectations of the units are not expected to be met.




6.2.1          Production

The two 8' dredges which were operational in the period recovered a total of 14
826 cts, below the budgeted annual target of 68 100 cts.  The recovered grades
were however consistently higher than expected.



Three parcels totalling 16 652 cts (including a carry over from 2006
exploration) were sold in Antwerp for approximately US$88 per ct in line with
expectations.


                            Planned      Actual       Variance %
Cts recovered                68 100      14 826          -78



6.2.2          Expansion and development



6.2.2.1    Alluvial

Depth surveys have been conducted to determine the river bed profile to optimise
the positioning of sampling and production dredges.



In the light of the disappointing performance of the Aquasweeper units, a review
of the dredging programme is currently being undertaken



6.2.2.2    Kimberlite

Aeromagnetic and helimag surveys in 2006 and 2007 in Lubembe generated over 40
higher interest geophysical anomalies.  Of these, 18 of the more accessible
targets were drilled but no kimberlite was intersected.  The remainder which are
in more remote locations will be investigated once a more portable drilling rig
is on site.  Simultaneously, a programme of alternative, ground geophysical
surveys is being developed to assist in kimberlite targeting.



6.3               Longatshimo Project

The treatment plant and ancillary equipment is expected to be delivered to site
during Q208.  On-site preparations and ongoing exploratory work for the trial
mining campaign are on track and trial mining will commence in Q308.



Resource definition of river terraces and floodplain settings is ongoing in the
Longatshimo area through systematic field mapping, reconnaissance pitting and
limited sampling.



A helimag survey was conducted in the Longatshimo area generating 19 higher
interest geophysical anomalies.  The five easily accessible aeromagnetic
anomalies were drilled but no kimberlite was intersected.  The remaining 14
anomalies will be investigated once the man-portable drilling machine is on
site.



7                     CAR



Gem Diamonds holds a 75% interest in Gem Diamonds Centrafrique SA, in
partnership with the Government of the CAR which holds the remaining 25%.  Gem
Diamonds Centrafrique holds exclusive exploration and mining rights to the
800km2 Mambere Concession.  An application has been made to acquire more ground
which will enlarge the size of the exploration rights to more than 4 500 km2.



7.1               South Mambere: Sample Results and Dredging

In the target area known locally as 'le Buckle', a two phase sampling campaign -
pitting followed by bulk sampling - was carried out across the terraces and at
several localities in the modern Mambere River.  Samples ranged from prospecting
samples of 20 tonnes to 10,000 tonnes for the largest bulk sample and a total of
399 carats were recovered from 34 000 tonnes treated.  At 1.19 cpht the diamond
grades from these terraces have been determined sub-economic at the current cost
base and accordingly the resource potential of this area was downgraded in late
2007.  Sampling of active Mambere River gravels downstream of 'le Buckle' is
scheduled to begin in Q208.



7.2               North Mambere: Exploration

Published information from the northern part of the concession records strong
historical production from the Mambere River tributaries.  Quickbird satellite
imagery will be added to this data and to the results of geological work
currently in progress using auger drills and pitting.



8                     Angola



A Cooperation Agreement was signed in January 2007 between Gem Diamonds and
Avantis Angola Inc (Avantis) with respect to a feasibility study to be conducted
on the known Chiri kimberlite in the Lunda Sul Province of Angola in which
Avantis have a 25% interest.  An Option Agreement whereby Gem Diamonds can
acquire an effective 11.25% interest in Chiri from Avantis was signed at the
same time.



Project and Logistics Managers were recruited in H207 and will be based in
Luanda where offices have been established.  A 10 tph DMS sampling plant and
large diameter drill rig have been procured and are ready for shipment to site
and the preliminary feasibility report expected at the Q408.


For further information:
 Gem Diamond Technical Services                       Pelham PR
 Clifford Elphick                                     Candice Sgroi
 Tel: [phone]                                 Tel: [phone]
                                                      James Henderson
 Angela Parr                                          Tel : [phone]
 Tel: [phone]                                 Charles Vivian
                                                      Tel : [phone]


About Gem Diamonds:



Gem Diamonds Limited (LSE: GEMD) is a global leading diamond producer that is
pursuing an accelerated growth strategy through targeted acquisitions and the
development of existing assets.  Gem Diamonds portfolio comprises producing
kimberlite, lamproite and alluvial mines, development projects and exploration
assets.  Operations are situated in Angola, Australia, Botswana, the Central
African Republic (CAR), the Democratic Republic of Congo (DRC), Lesotho and
Indonesia.  Gem Diamonds produces some of the world's most remarkable white
diamonds from its Letseng Mine and rare fancy yellow diamonds from its Ellendale
Mine and an array of coloured diamonds from its Cempaka Mine.



Established in July 2005, Gem Diamonds listed on the main board of the London
Stock Exchange in February 2007 raising US$635 million.  It is currently
capitalised at approximately US$1.1 billion and has US$175 million of cash on
its balance sheet at year end.



Gem Diamonds issues this statement as an unaudited trading update for the twelve
months ended 31 December 2007 (the period), in advance of its annual results to
be released on 24 April 2008.




                      This information is provided by RNS
            The company news service from the London Stock Exchange