Half Year 2019 Results

RNS Number : 3282L
Gem Diamonds Limited
05 September 2019
 

The following amendment has been made to the 'Gem Diamonds Half Year 2019 Results ' announcement released on 5 September 2019 at 07:00 under RNS No 2679L.

The Business Transformation financial impact table has been updated with the correct numbers.

All other details remain unchanged.

The full amended text is shown below.

 

Half Year 2019 results

 

Thursday 5 September 2019

 

Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Half Year Results for the period ending 30 June 2019 (the "Period").

 

FINANCIAL RESULTS:

·      Revenue US$91.3 million (US$167.7 million in H1 2018)

·      Underlying EBITDA US$25.3 million (US$70.7 million in H1 2018)

·      Attributable profit, from continuing operations US$6.6 million (US$26.8 million in H1 2018)

·      Basic earnings per share 4.8 US cents from continuing operations (19.4 US cents in H1 2018)

·      Cash on hand US$25.8 million

·      Available loan facilities of US$61.5 million

·      Ghaghoo care and maintenance costs of US$2.4 million reported as loss from discontinued operation

·      Adopted IFRS 16 - Leases

 
OPERATIONAL RESULTS:

Letšeng

·      Sold a 13.32 carat pink diamond for US$8.8 million, achieving a record price of US$656 934 per carat

·      Recovered 3 diamonds greater than 100 carats

·      Implemented inter-ramp pit slope steepening, resulting in a lower LoM strip ratio

·      Average price of US$1 697 per carat achieved

·      Reported one fatality and two lost time injuries


Business Transformation

·      US$42 million has been realised net of implementation costs and fees in the first 18-months of the 4-year Business Transformation programme 

·      US$ 100 million in incremental revenue, productivity improvements and cost savings to end 2021 is on track

 

Technology and Innovation

·      Construction of the 'detecting diamonds within kimberlite' pilot plant at Letšeng was completed with commissioning and ramp-up planned for latter part of Q3 2019

 

Commenting on the results today, Clifford Elphick, Chief Executive of Gem Diamonds, said:


"Letšeng achieved US$ 1 697 per carat for the Period with the sale of the 13.32 carat pink diamond achieving a Letšeng record of US$ 656 934 per carat, reaffirming the unique quality of Letšeng's diamond production. The prices achieved for the Period are 10% up from the prices achieved in the preceding 6-month period, notwithstanding the planned limited contribution from the Satellite pipe ore and current diamond market conditions.

 

The Group has successfully implemented the business transformation programme, already achieving US$42 million net of fees, and is on track to deliver the planned US$100 million in cost savings and efficiencies by 2021."

 

The Company will host a live audio webcast presentation of the half year results today, 5 September 2019, at 9:30 BST. This can be viewed on the Company's website: www.gemdiamonds.com

 

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

 

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.

 

FOR FURTHER INFORMATION:

Gem Diamonds Limited

Susan Wallace, Company Secretarial department

ir@gemdiamonds.com

 

Celicourt Communications

Mark Antelme / Jimmy Lea
Tel:
+44 (0) 208 434 2643

 

ABOUT GEM DIAMONDS:

Gem Diamonds is a leading global diamond producer of high value diamonds. The Company owns 70% of the Letšeng mine in Lesotho and is currently in the process of selling its 100% share of the Ghaghoo mine in Botswana. The Letšeng mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world.

Interim Business Review

 

The first half of 2019 (the Period) started exceptionally well, with the recovery of a 13.32 carat pink diamond which sold for a Letšeng record of US$656 934 per carat, reaffirming the unique quality of the mine's diamond production. A further four diamonds greater than 100 carats were also sold and Letšeng achieved an average price of US$1 697 per carat from the sale of 55 714 carats. The prices achieved for the Period, 10% up from the prices achieved in H2 2018, are notwithstanding the planned limited contribution from the Satellite pipe material and current diamond market conditions.

 

It is however with regret and sadness that following a fatality-free period of 6 years at Letšeng, a fatality occurred in February whereby an operator of a sub-contractor's vehicle was involved in a vehicle accident. The Group remains committed to its goal of zero harm to its people and the environment and strives to achieve its operational goals within its sustainable development framework.

 

At Letšeng, mining progressed well and in line with the new steeper inter-ramp pit slope mine plan, successfully reducing waste mined by 3.2 million tonnes during the Period when compared to the previous pit design. Ore treated was mainly sourced from the lower-value part of the orebodies with 2.9 million tonnes of Main pipe ore treated and only 0.4 million tonnes of Satellite pipe ore, resulting in overall throughput of 3.3 million tonnes with 56 668 carats being recovered compared to 61 596 carats in H1 2018. During H2 2019, mining will be transitioning into a new cut back in the Satellite pipe which will accommodate the increase in planned Satellite pipe ore contribution. The construction work to extend the tailings storage facility progressed well during the Period. The aim of the project is to create sufficient storage capacity for coarse tailings disposal until the end of 2024. US$11.2 million of the total approved capital costs of US$13.7 million has been spent with the remaining costs expected to be incurred during 2021 to 2024 on completion of the extended storage facilities. 

The Group generated underlying EBITDA from continuing operations of US$25.3 million (H1 2018: US$70.7 million), resulting in an attributable profit from continuing operations of US$6.2 million (H1 2018: US$26.8 million) and an earnings per share from continuing operations of 4.5 US cents (H1 2018: 19.4 US cents) on a weighted average number of shares in issue of 138.9 million. In line with the strategic objective to dispose of non-core assets, a binding agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, which owns the Ghaghoo diamond mine, was entered into. This resulted in the operation and the associated results being classified as a discontinued operation. The Group ended the Period with a cash balance of US$25.8 million and drawn down facilities of US$26.5 million, resulting in a net debt position of US$0.7 million and unutilised available facilities of US$61.5 million.

 

The Group successfully concluded implementing the Business Transformation programme and is on track to deliver the planned US$100 million in revenue, productivity and cost saving by 2021. To Period end, the programme has cash flowed US$42 million of the total target to the business, net of fees. The contract with the external consultant who assisted with the implementation was closed out during the Period and management have commenced implementing an internal Continuous Improvement plan to ensure the sustainability of the benefits.

 

Good progress was also made during the Period with the Company's two key technologies to identify locked diamonds within kimberlite and to liberate diamonds using a non-mechanical process. These technologies are aimed primarily at limiting diamond damage and lowering operating costs. The construction of the 'detecting diamonds within kimberlite' pilot plant at Letšeng was completed and commissioning and ramp up commenced post Period end. The pilot plant was completed for US$3.0 million as planned.

 

The application for renewal of the Letšeng Mining Lease was submitted in March 2018, and in April 2018, at the Commonwealth Heads of Government meeting in London, the Prime Minister of Lesotho announced the Lesotho Government's intention to renew the lease. The full terms of the renewed mining lease are subject to a statutory negotiation process with the Lesotho Mining Board and, when agreed, will be contained in a new mining lease agreement. Statutory negotiations have proceeded satisfactorily and are anticipated to be concluded by the end of this year.

 

The sale of the Ghaghoo mine was vigorously pursued during the Period. In June 2019, the Company entered into a binding agreement with Pro Civil (Pty) Ltd to sell Ghaghoo, for US$5.4 million. The sale, which is subject to regulatory approvals in Botswana, is expected to be concluded in H2 2019.

 

The Board also appointed Ms Mazvi Maharosoa as an independent non-Executive Director on 1 July 2019. Mazvi brings a wealth of diamond experience, skills and diversity to the Board and her intimate knowledge of Lesotho will be of great benefit to the business.

 

Diamond market

Pressure on pricing of smaller, commercial type rough diamonds has continued with inventories in the manufacturing and polished markets remaining high following a disappointing 2018 holiday season and weak subsequent restocking. Furthermore, the persistence of financing challenges specifically in the mid-stream segment has caused cash flow concerns for a number of manufacturing operations. This, in many cases, has forced manufacturers to reduce stock levels resulting in increased diamond supply by diamond producers in an already saturated market.

 

During the Period rough prices of large, high-value diamonds have shown signs of weakness, albeit to a much lesser extent than the smaller, commercial type rough diamonds. The price for Letšeng's large, ultra-high-quality production is, however, expected to be less vulnerable to market pressures over time.

 

In the medium to long term, rough diamond prices are expected to be supported by the favourable demand/supply fundamentals, which are underpinned by a continued growth in demand from emerging markets coupled with a limited growth in supply. In the short term, supply is expected to decrease with the depletion of existing mines.

 

Health, safety, corporate social responsibility and environment (HSSE)

The Group reports one fatality and two Lost Time Injuries (LTIs) during the Period, resulting in a Group-wide Lost Time Injury Frequency Rate (LTIFR) of 0.16. The Group-wide All Injury Frequency Rate (AIFR) is 0.94 for the Period. No major or significant environmental or stakeholder incidents were reported during the Period and close collaboration with project affected communities continued with investment being made into small and medium enterprise development, education and infrastructure.

Operating review: Letšeng

 

H1 2019 in review

·      Sold a 13.32 carat pink diamond for US$8.8 million, achieving a record price of US$656 934 per carat

·      Recovered 3 diamonds greater than 100 carats

·      Implemented inter-ramp pit slope steepening, resulting in a lower LoM strip ratio

·      Average price of US$1 697 per carat achieved

·      Reported one fatality and two Lost Time Injuries

 

 

Operational performance

 

                 H1 2019

                 H1 2018

Waste mined (tonnes)

13 150 417

             13 492 867

Ore mined (tonnes)

3 181 762

              2 740 951

Ore treated (tonnes)

3 339 620

              2 991 802

Carats recovered - all sources1

56 668

                   61 596

Grade recovered1 (cpht)

1.70

                      2.06

Carats sold

55 714

                  61 696

Average price per carat (US$)

1 697

                    2 742

1 Includes carats produced from the Letšeng Plants, the Alluvial Ventures (AV) plant and the tailings treatment plant.

 

Gem Diamonds owns 70% of Letšeng Diamonds (Letšeng) in partnership with the Government of the Kingdom of Lesotho, which owns the remaining 30%. Letšeng was acquired in July 2006. The Letšeng mine, famous for its exceptional top-quality diamonds and having the highest proportion of large, high-value diamonds, is the highest average dollar per carat kimberlite diamond mine in the world.

 

During the Period, Letšeng's waste mining continued in line with the requirements of the updated long-term mine plan that incorporates the Business Transformation initiative to steepen the inter-ramp slope angles. This initiative, which was implemented from 1 January 2019, has reduced the tonnes of waste mined during the Period by 3.2 million compared to the previous pit design over the same period.

 

Tonnes treated during H1 2019 were 3.3 million tonnes, of which Letšeng's plants treated 2.8 million (H1 2018: 2.5 million), with the remaining 0.5 million tonnes treated (H1 2018: 0.5 million) by Alluvial Ventures (AV), the third-party processing contractor. Tonnes treated were higher than H1 2018, which was negatively impacted by the shutdown to repair various elements of the plant, including the replacement of the scrubber shell in Plant 2. In line with the current mine plan and planned mining schedule for H1 2019, the contribution from the higher-value Satellite pipe amounted to 0.4 million tonnes (H1 2018: 1.0 million tonnes) and of the total ore treated, 84% was sourced from the Main pipe, 11% from the Satellite pipe and 5% from the Main pipe stockpiles. The planned lower contribution of the higher-value Satellite pipe ore during the Period was mainly due to transitioning into a new cutback, which was accessed in June and is planned to deliver 1.4 million tonnes in H2 2019. The operational focus in the plants is to continue enhancing value over volume with well controlled and consistent feed rates to enable process stability, increased plant uptime and reliability. As part of this focus, improvements were implemented to the fine Dense Medium Separation (DMS) circuit towards the end of the Period in order to improve the feed rate in Plant 2. In order to implement these improvements, the feed rate to the DMS circuit in Plant 2 was reduced and capped for a limited period, negatively impacting the volume of tonnes treated in H1 2019.

 

Carats recovered from all sources were 56 668, representing a decrease of 8% from H1 2018, notwithstanding the increase in tonnes treated, and was mainly driven by the mining mix treated during the Period. The Business Transformation initiative to re-treat tailings material through a tailings treatment plant continued during the Period and 2 711 carats were recovered in H1 2019 (H1 2018: 5 368). Overall grade for H1 2019 was 1.70 carats per hundred tonnes (cpht) mainly impacted by the higher contribution of Main pipe ore, which has a lower grade relative to Satellite pipe ore. The grade for the ore processed during the Period is in line with its expected reserve grade of 1.70 cpht.

 

As tabled below, the frequency of large diamond recoveries reduced during the Period, in line with treating less high-value Satellite pipe material during H1 2019 compared to the previous period.

 

Frequency of recovery of large diamonds

 

 

 

FY Average

2008 - 2018

H1 2018

H1 2019

Number of diamonds

 

 

 

>100 carats

7

10

3

60-100 carats

18

13

9

30-60 carats

74

38

36

20-30 carats

111

63

72

Total diamonds > 20 carats

210

124

120

  

 

The US$13.7 million capital project for the required extension of Letšeng's tailings storage facility which commenced in November 2017 is on track. To date US$11.2 million has been spent on the project, of which US$1.5 million was incurred during the Period.

 

Following the completion of the core drilling and logging programme in 2018, the resource models and preliminary 3D geological solids of the dominant domains have been generated. These models are expected to be finalised in Q4 2019, which will feed into the updated Reserve and Resource statement.

 

Details of overall costs and capital expenditure incurred at Letšeng during the Period are included in the Group financial performance section.

 

Diamond sales

Four tenders were completed during H1 2019, with a total of 55 714 carats sold in Antwerp through Gem Diamonds Marketing Services (GDMS), a wholly owned Gem Diamonds subsidiary. Letšeng generated rough diamond revenue of US$94.5 million, at an average price of US$1 697 per carat.

 

HSSE

The core of the safety ethos at Letšeng is to build on the culture of behaviour-based care at work and to strive for zero harm. Additional targeted health and safety management initiatives have been implemented to further improve the safety performance on the mine following the unfortunate fatality recorded in Q1 2019. In addition, 2 LTI's were recorded at Letšeng during H1 2019, resulting in an LTIFR of 0.17 and an AIFR of 0.99 for the Period.

 

Zero significant or major environmental incidents have occurred at the operation during the Period. Letšeng is working to continue mitigating all potential impacts on the environment with water protection and waste management being a key focus during the Period. 

 

No significant or major stakeholder incidents were recorded in the Period. Letšeng continued with the successful implementation of its corporate social investment (CSI) plan with focus on infrastructure and small and medium enterprise development in project affected communities.

 

H2 2019 and onwards

The focus at Letšeng will be on the following key areas:

·      Maximising the treatment of the planned higher-value Satellite pipe material;

·      Further enhancing the mining fleet and activities to reduce diesel consumption; and

·      Monitoring the feed rates through Plant 2 following the DMS improvements implemented.

.

 

Operating review: Sales, marketing and manufacturing

 

H1 2019 in review

·      US$94.5 million with an average price of US$1 697 per carat was achieved for Letšeng's production

·      15 rough diamonds sold for greater than US$1.0 million each at a total value of US$41.6 million

·      13.32 carat pink diamond was sold for US$656 934 per carat, making it the highest US$ per carat achieved for a Letšeng rough diamond

·      Newly developed electronic tender platform successfully implemented

 

The Group's in-house sales and marketing function provides a flexible sales strategy with multiple marketing channels to maximise revenue from the Group's production. This is achieved through competitive tenders and other targeted sales and marketing channels for its rough and polished diamonds.

 

The Group's rough diamond analysis capabilities provide in-depth knowledge of the value of Letšeng's large, rough diamonds and are vital in the setting of appropriate reserve prices for the diamonds sold at each tender.

 

The Group may choose to manufacture some of its own large, high-value rough diamonds and also has the flexibility to place exceptional diamonds into strategic partnership arrangements with select customers in order to achieve additional margins along the diamond value chain.

 

Sales and marketing

Letšeng's rough diamond production is marketed and sold by Gem Diamonds Marketing Services (GDMS) in Antwerp through an electronic tender platform. A new electronic tender platform has been developed over the past 12 months and has been successfully implemented. Important features of the new platform include an improved user-friendly client interface, automated just-in-time communication with clients, improved security and access controls and an interactive integrated Know Your Customer (KYC) database. The tender platform will go live for the September 2019 tender.

 

The Letšeng tender viewings in Tel Aviv have proven to be successful and as such, have now become part of the annual tender viewing schedule.

 

During the first half of 2019, 55 714 carats were sold on tender for US$94.5 million, achieving an average price of US$1 697 per carat.

 

The highlight of the Period was the sale of a 13.32 carat pink diamond for US$8.8 million which is the highest US$ per carat achieved for a Letšeng rough diamond at US$656 934 per carat. Four greater than 100 carat diamonds were sold for a total value of US$14.9 million.

 

Other notable sales included a 6.99 carat pink diamond that sold for US$171 245 per carat and a 4.15 carat pink diamond that sold for US$105 222 per carat. The highest US$ per carat achieved for a D-colour Type IIa diamond was US$48 255 for a 70.69 carat diamond.

 

Analysis and manufacturing

Rough diamonds selected for own manufacturing are analysed, planned and managed by Baobab Technologies (Baobab), a 100% subsidiary of Gem Diamonds. The final polished diamonds are sold by GDMS through direct selling channels to reputable high-end diamantaires. There were no diamonds extracted for manufacturing and no polished diamonds sold during the Period.

Project review: Technology and Innovation

 

H1 2019 in review

·      Construction of the 'detecting diamonds within kimberlite' pilot plant at Letšeng completed with commissioning and ramp-up planned for latter part of Q3 2019

 

Gem Diamonds Innovation Solutions (GDIS) was established in Cyprus in 2017 to house all the Group's innovation and technology research and development projects.

Project Progress

GDIS has made significant progress on the identification, validation and testing of technology from various industries to complement its innovation drive of early detection and non-mechanical means of liberating diamonds. Following the successful validation of the detection of diamonds within kimberlite, the design and construction of the US$3.0 million pilot plant at Letšeng has been completed. This enables extended testing of the detection and liberation technology in a production environment. As the first ore has been processed through the plant, no major deficiencies have been noted that will constrain the ramp-up of the plant in Q3 2019.

Various enhancements have been made to the proprietary imaging and sorting algorithms that will be tested in the pilot plant over the upcoming months. The prototype non-mechanical liberation unit has been integrated in the pilot plant flowsheet and its ability to effectively liberate the detected diamonds, without causing any damage, will be assessed in H2 2019.

H2 2019 and onwards

·      Pilot plant production ramp-up and continued testing of detection and liberation technology;

·      Evaluation and improvement of detection and liberation parameters to determine recovery efficiencies and deliver repeatable results; and

·      Determine parameters that enable upscaling of detection and liberation technology to process particles up to 150mm in size.

 

Business Transformation

 

 

The cumulative 4-year target of US$100 million in revenue, productivity improvements and cost savings to 2021 remains on track. This target has been set relative to the 2017 results, when the Business Transformation commenced, and all values are converted at an exchange rate of USD1:ZAR13 for the full 4-year period when tracking progress against this target.

 

Initiatives which are expected to deliver the targeted US$100 million by 2021 have been implemented. Of these implemented initiatives, US$7.1 million relates to once-off savings and the balance of US$92.9 million relates to cumulative recurring annualised benefits over the 4-year period. Since inception of the Business Transformation up to the end of the Period, US$42 million of the total benefit has been realised, net of implementation costs, consultant fees and the employee incentive plan. Focus remains on ensuring the sustainability of the implemented initiatives and implementing recently identified initiatives which are expected to contribute to the overall value of the Business Transformation.

 

The financial impact over the 4-year period on the balance sheet (B/S) and income statement (I/S) in terms of net revenue increase (I/S), cost reduction (I/S) and cash improvement (B/S) of the implemented initiatives and the resulting cash flowed to date is illustrated below:

 

(US$ million)

Target

Initiatives implemented

Cash flowed

Net revenue increase (I/S)

27

31

19

Cost reduction (I/S)

42

36

11

Cash  (B/S)

31

33

12

Total

100

100

42

 

The success and sustainability of the Business Transformation is underpinned by the organisational health of the Group. Of the 48 organisational health initiatives identified following the Organisational Health Index (OHI) survey conducted in Q3 2017, 45 have been implemented and the remaining three initiatives are in final stages of being implemented. New initiatives continue to be identified in areas which require further improvement within organisational health.

 

The organisation is in the process of implementing a Continuous Improvement plan which will focus on standardisation, visual management, capability building and promoting specific continuous improvement behaviors.

 

The table below references the cumulative 4-year target of US$100 million (as reported in the 2017 and 2018 Annual Reports) together with the status of implementation of the primary contributing initiatives.

 

 

Initiative & Target

Activity & Target

Objective

Impact

Status

Tracking against US$100m target

Mining

US$42 million

Drill, load and haul activities:

US$31.0 million

Reduce mining costs through:

·      improving efficiencies and rates and reviewing tenure of mining contractor;

·      optimising support equipment requirements and associated cost;

·      improving haul roads to optimise truck speeds;

·      increasing truck capacity by 7% by installing greedy boards; and

·      improving drill rates by 30% by modernising the drilling fleet with a cost-efficient autonomous system.

Reduce waste unit costs and waste stripping capitalisation

 

Reduce ore unit costs

 

Implemented1 US$24.0 million

A reduction in mining rates implemented in Q2 2018 primarily based on the optimisation of the mining fleet and support equipment, improved load balancing, improved maintenance practices and improved haul road and pit floor conditions.

 

Improved diesel consumption initiatives have been identified and are expected to contribute additional value from Q4 2019.

US$42.7 million

Pit design:

US$6.0 million

Opportunities to steepen current slope angles with the benefit of reducing waste tonnes over the LoM.

Reduce waste tonnes and waste stripping capitalisation

 

Implemented1 US$10.8 million

This initiative was implemented in January 2019, 12 months earlier than initially estimated, with the adoption of the new mine plan. During the Period there was a reduction of 3.2 million waste tonnes mined compared to the previous pit design.

 

Blasting practices:

US$5.0 million

Changing blasting patterns and practices, accessories and explosive mix, leading to a reduction in blasting consumables by up to 30%.

 

Applying available early settlement discounts with explosives supplier.

Reduce direct cash costs

 

Implemented1 US$7.9 million

Achieved 22% reduction in cost of blasting consumables and accessories per tonne mined compared to 2017 through:

·      reducing the number of primers used per blasting in both ore and waste;

·      introducing saver plugs in waste blasting; and

·      eliminating sub-drilling in kimberlite.

 

Applied improved payment terms with consumable suppliers and secured alternative suppliers for specific blasting consumables and accessories.

 

 

 

1.     "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

 

 

Initiative & Target

Activity & Target

Objective

Impact

Status

Tracking against US$100m target

Processing

US$34 million

Plant uptime:

US$16.0 million

46 initiatives identified to improve plant uptime through:

·      improved maintenance scheduling (planned and unplanned);

·      improving ore feed management;

·      improving stability of power supply; and

·      reducing operational delays.

Increase ore tonnes treated

 

Net revenue increase

 

Implemented1 US$7.2 million

59 initiatives have been implemented to improve plant uptime, with the benefits expected to continue to ramp up during the latter part of 2019 and into 2020.

 

Additional initiatives to further enhance plant uptime are in the process of being implemented.

 

 

US$34.5 million

Additional throughput:

US$16.0 million

Deploy a tailings treatment plant to re-treat tailings.

 

 

Increase carats recovered

 

Net revenue increase

 

Implemented1 US$23.2 million

In addition to the carats recovered in 2017 and 2018, the tailings treatment plant recovered 2 711 carats during the Period from re-treating tailings.

 

 

Review and renegotiate the Alluvial Ventures contract for the operation of the third plant at Letšeng.

Reduce direct cash costs

Implemented1 US$2.8 million

The Alluvial Ventures contract has been renegotiated to realign the profit margin share and to extend the tenure initially to mid-2020.

Plant consumables:

US$2.0 million

Efficient usage and reduction of plant consumables.

Reduce direct cash costs

 

Implemented1 US$1.3 million

An improved flocculant and coagulant combination product was introduced and new flocculant recovery units to reduce the consumption of consumables have been commissioned at both Plant 1 and Plant 2. A 20% reduction in plant consumables per tonne treated has been realised.

 

 

 

1.     "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

 

Initiative & Target

Activity & Target

Objective

Impact

Status

Tracking against US$100m target

Working capital and overheads

US$4 million

Working capital:

US$1.0 million

Improve working capital management with specific focus on redundant and slow-moving plant inventory at Letšeng.

The working capital initiative is a once-off benefit which is expected to deliver over a 12 -18 month period.

Reduce working capital (once off cash benefit)

 

Implemented1 US$1.2 million

Draw down of slow-moving Process Plant stock and the rebasing of economic order quantities has been implemented and the sale of scrap material and excess and redundant stock is ongoing.

 

US$8.1 million

Overheads:

US$3.0 million

Reduce support service costs at Letšeng through contract reviews and focused contract management.

Implement stricter spend control procedures on administrative and support costs at Letšeng

Reduce the Letšeng corporate office footprint and other office costs

Reduce direct cash costs

 

Implemented1 US$6.9 million

All identified initiatives within this workstream have been implemented at Letšeng as follows:

·      the catering and housekeeping contract was reviewed and renegotiated;

·      entered into new IT network provider contracts offering improved technological services and rates;

·      the corporate office footprint has been reduced through the sub-leasing of excess office space;

·      reviewed insurance requirements and providers and implemented savings;

·      improved on-mine diesel issue procedures and eliminated the use of diesel additives from equipment where not required; 

·      initiatives targeting office cost reductions were implemented; and

·      energy saving opportunities implemented using smart controllers on heating, geysers and lighting.

 

 

1.     "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

 

Initiative & Target

Activity & Target

Objective

Impact

Status

Tracking against US$100m target

Corporate activities

 

US$20 million

Non-core assets:

US$16.0 million

Selling non-core mining fleet and redundant stock at Ghaghoo.

Reduce direct cash costs

 

Once-off cash benefit

 

Implemented1 US$1.5 million

Assets associated with Ghaghoo i.e. the aircraft servicing the mine, certain non-core mining fleet and inventory have been sold.

 

US$14.4 million

 

Reduce or eliminate the ongoing care and maintenance costs at Ghaghoo

Reduce direct cash costs

Implemented1 US$5.2 million

Initiatives to reduce generator diesel consumption and underground water pumping requirements have been implemented to reduce certain care and maintenance costs.

 

A binding agreement to sell the Ghaghoo mine was entered into, in June 2019. Subject to regulatory approvals within Botswana, the transaction is expected to be completed in H2 2019 after which all care and maintenance costs associated with Ghaghoo will cease.

 

Selling other non-core assets across the Group.

Once-off cash benefit

 

Implemented1 US$2.6 million

Identified non-core assets have been sold, the two most material being the investment property in Dubai and the corporate aircraft.

 

 

Corporate costs

US$4.0 million

Implementation of stricter spend control on admin and support costs and focusing on fit-for-purpose operations.

Downsizing office footprint in the United Kingdom, South Africa and Botswana.

Reduce direct cash costs

 

Implemented1 US$5.1 million

All identified initiatives relating to operations in the United Kingdom, South Africa, Belgium and Botswana operations have been implemented as follows:

·      office footprints in the United Kingdom, Botswana and South Africa reduced;

·      strict spend control through one centralised cost approval office implemented;

·      focused control of travel expenditure and associated costs;

·      reduced Annual Report publishing and printing costs;

·      reduced professional fees i.e. insurance, audit, diamond analysis, consultant and brokering fees and membership fees; and

·      optimised treasury practices.

 

 

 

1.     "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.

Group financial performance

 

H1 2019 in review

·      Revenue US$91.3 million (US$167.7 million in H1 2018)

·      Underlying EBITDA1 US$25.3 million (US$70.7 million in H1 2018)

·      Attributable profit, from continuing operations US$6.6 million (US$26.8 million in H1 2018)

·      Basic earnings per share 4.8 US cents from continuing operations (19.4 US cents in H1 2018)

·      Cash on hand US$25.8 million

·      Loss from discontinued operations US$2.4 million relating to Ghaghoo (US$2.6 million in H1 2018)

·      Adopted 'IFRS 16 - Leases' on 1 January 2019

 

 

US$ millions

 

(US$ million)

           H1 2019

       H1 20183

Revenue

                  91.3

167.7

Royalty and selling costs

                 (8.4)

(14.7)

Cost of sales2

               (52.5)

(77.0)

Corporate expenses

                 (5.1)

(5.3)

Underlying EBITDA1 from continuing operations

                 25.3

70.7

Depreciation and mining asset amortisation

                 (7.1)

(4.4)

Share-based payments

                 (0.6)

(0.8)

Other income

                  1.4

0.3

Foreign exchange gain

                  2.4

2.1

Net finance costs

                 (2.7)

(0.6)

Profit before tax from continuing operations

                  18.7

67.3

Income tax expense

                 (6.6)

(23.8)

Profit for the Period from continuing operations

                  12.1

43.5

Non-controlling interests

                 (5.5)

(16.7)

Attributable profit from continuing operations

                   6.6

26.8

Loss from discontinued operations

                 (2.4)

(2.6)

Attributable net profit

                    4.2

24.2

Earnings per share from continuing operations (US cents)

                   4.8

19.4

Loss per share from discontinued operations (US cents)

                  (1.8)

             (1.9)

 

 

 

1 Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) as defined in Note 5 of the condensed notes to the consolidated interim financial statements

2 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation

3 Prior year comparatives have been restated due to the recognition of the discontinued operation

 

The Group generated an Underlying EBITDA1 of US$25.3 million. The profit attributable to shareholders from continuing operations for the Period was US$6.6 million, equating to an earnings per share from continuing operations of 4.8 US cents on a weighted average number of shares in issue of 138.9 million. After including the loss of US$2.4 million from Ghaghoo, the discontinued operation, the Group's attributable profit reduced to US$4.2 million with earnings per share of 3.0 US cents. The forecast effective tax rate for the full year is 37.2% and has been applied to the actual results for the Period. This rate is the result of profits generated by Letšeng being taxed at 25.0% and deferred tax assets not recognized on losses incurred in non-trading operations, partially offset by a reduction in the deferred tax liability on unremitted earnings.

 

Letšeng produced strong operational results during the Period which included 3.2 million waste tonnes saving from the previous pit design as a result of steepening the inter-ramp slope angles. In addition, the uptime and reliability of the Plants improved, resulting in a 12% increase in tonnes treated for the Period compared to H1 2018, from 3.0 million to 3.3 million tonnes.

 

The Group successfully implemented the planned Business Transformation initiatives that will deliver US$100 million in cost savings and revenue improvements by 2021 of which US$18.1 million, net of provision for fees and costs, contributed to the Group's results during the Period.

 

The Group adopted IFRS 16 - Leases, that requires a lessee to recognise a Right-of-use asset and lease obligations for all leases except for short-term leases, or leases of low value assets. The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. This resulted in an increase in Underlying EBITDA1 of US$1.6 million due to allocating costs that would have previously been disclosed as cost of sales to a Right-of-use asset and the recognition of the Right-of-use assets resulted in increased depreciation of US$1.4 million for Period.

 

Revenue

The Group's revenue of US$91.3 million was generated at Letšeng, at an average of US$1 697 per carat (US$2 742 per carat in H1 2018) which was 10% higher than that achieved for the immediately preceding six-month period, H2 2018, of US$1 537 per carat. Contributing US$8.8 million to revenue, is the recovery of a 13.32 carat pink diamond that sold for a Letšeng record of US$656 934 per carat. As Letšeng transitioned into a new cutback during the Period, the planned lower contribution of the higher-value Satellite pipe ore reduced both price and volume of carats sold during the Period, when compared to H1 2018, which had a higher contribution from the Satellite pipe ore and the recovery and sale of the 910 carat Lesotho Legend for US$40 million.

 

Business Transformation initiatives contributed US$11.5 million to revenue during the Period. This mainly related to the re-treating of tailings material through the tailings treatment plant.

 

 

Letšeng revenue

 

              H1 2019

          H1 2018

Carats sold

                 55 714

61 696

Average price per carat (US$)

                   1 697

2 742

 

 

 

 

 

Group revenue summary

 

              H1 2019

          H1 2018

Sales - rough

                   94.5

169.2

Sales - polished margin

                     -

0.2

Sales - other

                     -

0.2

Tender receipts received post Period-end

                     (3.2)

(1.9)

Group revenue

                   91.3

167.7

 

 

 

 

In line with the Group's policy on the timing of revenue recognition, receipts relating to diamonds sold for US$3.2 million in the final tender of the Period, were received on 2 July 2019 and therefore not recognised as Revenue during the Period.

 

Royalties consist of an 8% levy paid to the Lesotho Revenue Authority on the sale of diamonds in Lesotho. Diamond selling and marketing-related expenses are incurred by the Group's sales and marketing operation in Belgium. During the Period, royalties and selling costs decreased by 43% to US$8.4 million, in line with the sales in the Period.

 

Costs

While revenue is generated in US dollars, the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. Local currency rates for the Lesotho loti (LSL) (pegged to the South African Rand) and Botswana Pula (BWP) were weaker against the US dollar during the Period (compared to the same period in 2018) which reduced underlying US dollar costs and the Group's US dollar reported costs.

 

 

Exchange rates

               H1 2019

                H1 2018

            % change

LSL per US$1.00

 

 

 

Average exchange rate for the Period

                14.20

                   12.32

                    15%

Period-end exchange rate

                14.10

                   13.71

                    3%

BWP per US$1.00

 

 

 

Average exchange rate for the Period

                10.65

                   9.78

                      9%

Period-end exchange rate

                10.62

                  10.40

                     2%

US$ per GBP1.00

 

 

 

Average exchange rate for the Period

                  1.29

                     1.38

                    (7%)

Period-end exchange rate

                  1.27

                    1.32

                    (4%)

 

 

 

Group cost of sales for the Period reduced to US$52.5 million, compared to US$77.0 million in H1 2018, largely driven by a decrease in waste stripping amortisation costs, due to a different mining mix at Letšeng, and Business Transformation initiatives that delivered US$4.0 million of cost savings. Total waste stripping costs amortised were US$15.7 million compared to US$34.2 million in H1 2018.

 

In local currency, total operating costs decreased by 21% to LSL741.0 million in H1 2019 compared to LSL936.7 million in H1 2018, resulting in total operating costs per tonne treated of LSL221.89, which is 29% lower than H1 2018 of LSL313.09 per tonne treated. The 12% increase in tonnes treated during the Period further reduced reported unit costs.

 

 

Unit cost

per tonne

treated

Operating costs

 

Business Transformation (BT) costs

 

Accounting charges5

 

 

 

 

LSL

Direct cash costs4

3rd Plant

operator costs

Once-off maintenance costs

Sub-total

Tailings treatment plant operating

costs

Fees and employee reward scheme

Total direct operating cash costs

Charges

Total operating cost

H1 2019

148.28

13.67

-

161.95

1.63

10.52

174.10

 47.79

221.89

H1 2018

144.87

22.95

5.76

173.58

1.72

20.76

196.06

117.03

313.09

% Change

2%

-40%

-

-7%

-5%

-49%

-11%

-49%

-29%

 

 

 

 

 

 

 

 

 

 

US$

 

 

 

 

 

 

 

 

H1 2019

10.44

0.96

-

11.40

0.11

0.74

12.25

3.37

15.62

H1 2018

11.76

1.86

0.47

14.09

0.14

1.69

15.92

9.50

25.42

% Change

-11%

-48%

-

-19%

-21%

-56%

-23%

-65%

-39%

4 Direct mine cash costs represent all operating costs, excluding royalty and selling costs

5 Accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and the impact of adopting IFRS 16 - Leases, and excludes depreciation and mining asset amortisation.

 

Direct cash costs are LSL148.28, representing a 2% increase from H1 2018. Waste cash cost per waste tonne mined increased by 3% to LSL35.63 (H1 2018: LSL34.46), in line with reduced volume mined. These cash cost increases were driven by local country inflation, increase in fuel price of 11% and increased hauling distances of 9% for ore and 6% for waste. The cost savings derived from Business Transformation initiatives specifically targeting contractor mining rates and efficiencies within blasting and plant consumables partially offset these increases.

 

3rd Plant operator costs per tonne treated in local currency decreased by 40%. This cost is a function of the revenue generated by the sales from diamonds recovered through the contractor plant and the decrease in costs is directly linked to the lower revenue generated during the Period.

 

The Business Transformation costs relate to operating costs of the tailings treatment plant (that continues to re-treat tailings material), consultancy fees and a provision for an employee reward scheme. With the conclusion of the consultancy agreement during the Period and the expected conclusion of the employee rewards scheme in H2 2019, no further costs are anticipated to be incurred post 2019.

 

The accounting charges per tonne treated decreased mainly due to the lower waste amortisation costs as a result of treating 66% less high-value Satellite pipe material during the Period, which has a higher amortisation charge associated to it. The amortisation charge attributable to the Satellite pipe ore accounted for only 41% of the total waste stripping amortisation charge in the Period (H1 2018: 82%). In addition, the implementation of IFRS 16 - Leases, reduced the operating costs by LSL6.90 per tonne treated due to these costs being re-allocated to lease liabilities in the statement of financial position in line with the new accounting requirements.

 

Other operating information 

 

 

 (US$ million)

 

               H1 2019

          H1 2018

Waste cost capitalised

                      37.3

               42.9

Waste stripping cost amortised

                      15.7

               34.2

Depreciation and mining asset amortisation

                        7.1

                 4.4

Capital expenditure

                       4.4

               10.9

 

 

 

 

Depreciation and mining asset amortisation increased to US$7.1 million during the Period driven by the commencement of depreciation on the completed Letšeng mining complex and the recognition of Right-of-use assets in accordance with IFRS 16 - Leases which attracted additional depreciation of US$1.4 million in the Period.

 

Discontinued operation (Ghaghoo operation on care and maintenance)

In line with the strategic objective to dispose of non-core assets, Gem Diamonds Limited entered into a binding agreement with Pro Civil (Pty) Ltd (Pro Civil) for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited (GDB), which owns the Ghaghoo diamond mine, for US$5.4 million. The sale, subject to regulatory approvals in Botswana, is expected to be concluded in the H2 2019.

 

In line with the requirements of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, the operation was classified as a Discontinued Operation during the Period. Care and maintenance costs of US$2.4 million have been recognised and disclosed separately in the income statement for the Period and disclosed separately in the statement of financial position at the lower of its carrying value and fair value less costs to sell.

 

Diamond manufacturing operation

Extracted diamond inventory on hand at the end of the Period of US$0.4 million remained unchanged from 31 December 2018. There were no diamonds extracted for manufacturing during the Period and no polished diamonds sold.

 

Corporate office

Corporate costs relate to central costs incurred by the Group through its technical and administrative offices in South Africa and the United Kingdom and are incurred in both South African Rand and British Pound. General corporate costs for the Period were US$4.1 million (H1 2018: US$4.6 million) continuing the trend of reducing corporate costs and realising the benefits from the corporate cost initiatives implemented through Business Transformation. In addition to these savings, the costs reduced due to a 15% and 7% stronger US$ exchange rate against the South African Rand and British Pound respectively. The remaining US$1.0 million corporate costs incurred relate to US$0.6 million (H1 2018: US$0.5 million) of Business Transformation costs and US$0.4 million (H1 2018: US$0.2 million) of project costs incurred. The Business Transformation costs mainly relate to a provision for an employee reward scheme which is self-funded through the gains of the Business Transformation and no further costs in this regard are anticipated to be incurred post 2019.

 

The share-based payment charge for the Period was US$0.6 million (H1 2018: US$0.8 million). On 20 March 2019, 1 303 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term Incentive Plan of the Company with similar conditions as previous awards granted under this scheme.

 

Financial position and funding review

The Group generated cash from operating activities of US$23.3 million (30 June 2018: US$97.6 million) during the Period. The reduced waste stripping costs and the ability to defer capital expenditure contributed to positive cash management whilst mining focused in lower value areas. A significant tax payment of US$13.8 million at Letšeng relating predominantly to the high profits of 2018 was paid during the Period and all scheduled loan debt repayments were made.

 

Capital expenditure was US$4.4 million and mainly comprised the extension of the footprint of the Patiseng tailings storage facility (US$1.5 million), various sustaining capital projects at Letšeng and US$0.7 million on the completion of the 'detecting diamonds within kimberlite' pilot plant.

 

The Group ended the Period with cash on hand of US$25.8 million (31 December 2018: US$50.8 million) of which US$22.4 million is attributable to Gem Diamonds and US$0.2 million is restricted. At Period end, the Group had utilised facilities of US$26.5 million, resulting in a net debt position of US$0.7 million and undrawn facilities of US$61.5 million available, comprising US$26.0 million at Gem Diamonds and US$35.5 million at Letšeng, ensuring the Group is adequately funded.

 

Due to the impact of the lower contribution from the high-value Satellite pipe and significant tax payments during the Period, Letšeng did not pay dividends during the Period. Taking into account current cash flows, the Company has not proposed an interim dividend.

 

Summary of loan facilities as at 30 June 2019

US$ million

 

Company

 

 

Term/ Description

 

 

Lender

 

 

Expiry

 

 

Interest Rate1

 

 

Amount

 

 

 

Utilised

 

 

 

Available

Gem Diamonds Limited

3-year RCF

and term loan

Nedbank

December 2020

London US$ three-month Libor + 4.5%

45.0

15.0

26.0

Letšeng Diamonds

3-year RCF

Standard Lesotho Bank and Nedbank Lesotho

July 2021

Lesotho prime rate minus 1.5%

35.5

-

35.5

Letšeng Diamonds

5.5-year project facility

Nedbank / ECIC

 

 

March 2022

 

 

 

 

 

Tranche 1 (ZAR 180m) South African JIBAR + 3.15%

12.8

9.4

-

 

 

 

September 2022

Tranche 2 (LSL 35m) South African JIBAR + 6.75%

2.5

2.1

-

Total

 

 

 

 

95.8

26.5

61.5

1 At 30 June 2019 LIBOR was 2.33% and JIBAR was 7.03%.

H2 2019 and onwards

The Group will focus on optimising its cash position through:

 

·      Effective capital allocation and capital discipline;

·      Ensuring the Group is adequately funded to support the strategic objectives of the operations;

·      Concluding the sale of the Ghaghoo mine; and

·      Concluding the negotiations on the renewal of Letšeng's mining lease.

 

Principal risks and uncertainties

 

The Group's principal risks and uncertainties that could have a material financial, operational and compliance impact on its performance and long-term growth as presented in the Business Overview of the 2018 Annual Report (pages 11 to 15), were reassessed to consider the current market and operational conditions, and they remain unchanged.

 

The continued effective monitoring, identification, management and mitigation of these risks and uncertainties remain a core focus of the Group as they are key to achieving the Company's strategic objectives. Although there may be additional risks unknown to the Group and other risks, currently believed to be immaterial, which could have a significant impact on the Group's operational and financial results if they materialise, the following material key risks (in no particular order of priority) may impact the Group over the next six months:

 

Operational risks

 

Underperforming mineral resource

The Group's ability to operate profitably in the short and medium term are influenced by estimates of ore reserves that are based on uncertain assumptions that, if changed, could result in the need to restate ore reserves and mine plans and would negatively affect the Group's ability to operate profitably in the short and medium term.

 

Production interruption

The Group may experience material mine and/or plant shutdowns due to various events. Any such event could result in personal injury or death; damage to facilities or the environment or delays in mining and processing activities which could potentially result in monetary losses and possible legal liability. The Group also relies on the use of external contractors to manage its mining and processing activities. If there is a dispute with any of the contractors, the Group's operations could be materially impacted.

 

Cash generation

External and /or unforeseen internal events may negatively affect the Group's ability to effectively operate, fund capital projects and repay debt.

 

Health, safety, social and environment (HSSE)

The risk that a major health, safety, social or environmental incident may occur within the Group is inherent in mining operations and could impact the safety of employees, license to operate, company reputation and compliance with bank facility agreements.

 

External risks

 

Rough diamond demand and prices

Numerous factors beyond the control of the Group may affect the price and demand for diamonds. The medium to long-term fundamentals of the diamond market remain intact, with demand forecast to outpace supply. In the short term the prevailing climate of global economic uncertainty and liquidity constraints, within the mid-stream segment, may cause some volatility in rough diamond pricing. Laboratory grown diamonds are becoming a larger factor in the market, being marketed by their producers as environmentally superior and at discounted prices. These external events may negatively affect the Group's ability to effectively operate, fund capital projects and repay debt.

 

Country, political environment and compliance with legislation

The political environments of the various jurisdictions that the Group operates within may adversely impact the ability to operate effectively and profitably. Emerging market economies are generally subject to greater risks, including political risk, and can be exposed to a rapidly changing environment.

 

 

Clifford Elphick

Chief Executive Officer

 

4 September 2019

 

 

Half-yearly financial statements

30 June 2019

 

Contents

 

Responsibility Statement of the Directors in Respect of the Half-yearly Report and the Financial Statements                                              

 

Interim Consolidated Statement of Profit or Loss                                                                                                                                              

 

Interim Consolidated Statement of Comprehensive Income                                                                                                                           

 

Interim Consolidated Statement of Financial Position                                                                                                                                   

 

Interim Consolidated Statement of Changes in Equity                                                                                                                                   

 

Interim Consolidated Statement of Cash Flows                                                                                                                                          

 

Condensed Notes to the Consolidated Interim Financial Statements                                                                                                            

 

 

 

Responsibility Statement of the Directors in Respect of the Half-yearly Report and Financial Statements

 

 

PURSUANT TO DISCLOSURE AND TRANSPARENCY RULES (DTR) 4.2.10

 

The Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting and that the Half-yearly Report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

(a)  an indication of important events that have occurred during the first six months of the financial year and their impact on this condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) material related-party transactions in the first six months of the year and any material changes in the related-party transactions described in the Gem Diamonds Limited Annual Report 2018.

 

The names and functions of the Directors of Gem Diamonds Limited are listed in the Annual Report for the year ended 31 December 2018 and updates have been disclosed in the Interim Business Review on pages 1 to 17.

 

For and on behalf of the Board

 

Michael Michael

Chief Financial Officer

 

4 September 2019

 

Interim Consolidated Statement of Profit or Loss

for the six months ended 30 June 2019

 

 

 

 

 

 

        

 

          Notes

     30 June

          20191

     US$'000

      30 June

      2018*1

     US$'000

CONTINUING OPERATIONS

Revenue                                                      

Cost of sales                                                  

 

 

 

 

  3

 

91 337

(59 629)

 

167 683

        (81 204)

Gross profit

Other operating income

Royalties and selling costs                            

Corporate expenses

Share-based payments                                 

Foreign exchange gain                    

 

 

 

 

 

 

 

 

  13

 

 

31 708

1 393

(8 365)

(5 090)

(601)

2 395

86 479

304

       (14 704)

         (5 400)

            (777)

  2 130 

   

Operating profit                                

Net finance costs 

Finance income

Finance costs

 

 

 

   3

21 440

(2 733)

68 032

          (636)

 

 

 

 

518

(3 251)

            1 195

         (1 831)

 

 

 

 

 

 

Profit before tax from continuing operations

 

 

 

 

18 707

 

 

67 396

Income tax expense                                       

 

 

 

  7

(6 616)

(23 846)

Profit from continuing operations

 

 

 

 

12 091

   43 550

DISCONTINUED OPERATIONS

 

 

 

 

 

 

 

 

 

     

Loss from discontinued operations

 

 

 

  4

(2 428)

       (2 611)

Profit for the Period

 

 

 

 

9 663

40 939

Attributable to:

Equity holders of parent

Non-controlling interests

 

 

 

 

 

4 162

 5 501

        

 24 234

 16 705

 

 

Earnings per share (cents)

 

 

 

 

 

 

 

          

 

- Basic earnings for the Period attributable to ordinary equity holders of the parent

 

3.00

 

17.48

 

- Diluted earnings for the Period attributable to ordinary equity holders of the parent

2.93

17.03

Earnings per share for continuing operations (cents)

 

 

 

 

 

 

 

          

 

 

 

- Basic earnings for the Period attributable to ordinary equity holders of the parent

 

4.75

 

19.37

- Diluted earnings for the Period attributable to ordinary equity holders of the parent

4.64

18.87

1 Unaudited

* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (Refer to Note 4, Discontinued operation)

 

Interim Consolidated Statement of

Comprehensive Income

for the six months ended 30 June 2019

 

 

 

         30 June

20191

US$'000

 30 June

          2018*1

        US$'000

 

 

 

Profit for the Period

 

9 663

 

40 939

Other comprehensive income that could be classified to the income statement in subsequent periods

 

 

 

Exchange differences on translation of foreign operations

3 028

(30 003)

Other comprehensive income/(expense) net of tax

3 028

(30 003)

Total comprehensive income

Attributable to:

Equity holders of parent

Non-controlling interests

12 691

 

2 289

10 402

          10 936

              

            4 008

6 928

 

Total comprehensive income net of tax

12 691

10 936

1 Unaudited

* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (Refer to Note 4, Discontinued operation)

 

Interim Consolidated Statement of

Financial Position

as at 30 June 2019

 

 

 

 

30 June

20191

US$'000

31 December

    20182

        US$'000

 

 

 

 

ASSETS

 

 

 

 

Non-current assets

 

 

 

 

Property, plant and equipment                                                                                                 

9

314 008

289 640

Right-of-use assets                                                                                                                 

2

11 077

-

 

Intangible assets

 

 

13 540

13 272

Receivables and other assets                                                                                                

10

173

347

 

 

338 798

303 259

 

 

 

 

Current assets

 

 

 

 

Inventories

 

 

30 296

33 084

Receivables and other assets                                                                                                                

10

5 146

5 433

Income tax receivable

 

 

4 196

-

50 812

Cash and short-term deposits

11

25 673

50 812

 

 

65 311

89 329

Assets held for sale      

 

18

-

 

859

Assets directly associated with the asset of the discontinued operation classified as held for sale                                                                                                 

 

4

 

3 907

 

-

 

 

Total assets

 

408 016

393 447

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

Equity attributable to equity holders of the parent

 

 

 

 

Issued capital

12

1 391

 

1 390

 

Share premium

 

885 648

 

885 648 

Other reserves

 

(153 294)

 

(152 029) 

Accumulated losses

 

  (573 921)

(578 834)

 

 

159 824

156 175

Non-controlling interests

 

82 827

72 103

Total equity

 

242 651

228 278

 

 

 

 

Non-current liabilities

 

 

 

 

Interest-bearing loans and borrowings

14

13 065

 

19 954

Lease liabilities                                                                                                                                     

2

9 346

 

-

 

Trade and other payables

 

 

1 807

 

1 555

 

Provisions

 

 

15 273

 

17 876

 

Deferred tax liabilities

 

81 238

74 054

 

 

120 729

113 439

 

 

 

 

 

           

Current liabilities

 

 

 

 

Interest-bearing loans and borrowings

14

14 297

14 212

Lease liabilities                                           

2

2 147

-

 

Trade and other payables

 

 

23 587

28 554

Income tax payable

 

465

8 964

 

 

40 496

51 730

Liabilities directly associated with the asset of the discontinued operation classified as held for sale                                                                                                 

 

4

 

4 140

 

-

Total liabilities

 

165 365

165 169

Total equity and liabilities

 

408 016

393 447

 Unaudited

 Audited

 

Interim Consolidated Statement of Changes in Equity

for the six months ended 30 June 2019

 

 

 

 

 

Attributable to equity holders of the parent

 

 

 

 

       Issued

      capital

   US$'000

          Share   premium  US$'000

      Own   

   Shares US$'000

  Other reserves2 US$'000

      Accu-

     mulated                  losses    US$'000

        Total  

   US$'000

          Non-controlling  interests    

   US$'000

 

Total equity

   US$'000

Balance at 1 January 2019

1 390

885 648

-

(152 029)

(578 834)

156 175

72 103

228 278

IFRS 16 implementation adjustment

-

-

-

-

751

751

322

1 073

Restated balance at 1 January 2019

1 390

885 648

-

(152 029)

(578 083)

156 926

72 425

229 351

 

 

 

 

 

 

 

 

 

Profit for the Period

-

-

-

-

4 162

4 162

5 501

9 663

Other comprehensive (expense)/income

-

-

-

(1 873)

-

(1 873)

 4 901

3 028

 

 

 

 

 

 

 

 

 

Total comprehensive (expense)/

Income

-

-

-

(1 873)

4 162

2 289

10 402

12 691

 Share capital issued (Note 12)

1

-

-

-

-

1

-

1

Share-based payments

(Note 13)

-

-

-

608

-

608

-

608

      Balance at 30 June 20191

1 391

885 648

-

(153 294)

(573 921)

159 824

82 827

242 651

Balance at 1 January 2018

1 387

885 648

-

(123 811)

(604 851)

158 373

85 783

244 156

Profit for the Period

 -

  -

-

-

    24 234

 

 

 24 234

    16 705

40 939

Other comprehensive expense

 -

  -

-

  (20 226)

-

 

 (20 226)

    (9 777)

 

(30 003)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive (expense)/

income

-

-

-

(20 226)

24 234

4 008

6 928

10 936

Share capital issued (Note 12)

 

1

  -

-

     -

      -

 1

             -

1

Share-based payments

(Note 13)

 

  -

  -

-

        783

      -

 783

         -

783

Dividends paid to non-controlling interests

  -

  -

  -

  -

  -

  -

(15 527)

(15 527)

     Balance at 30 June 20181

  1 388

   885 648

-

 (143 254)

(580 617)

163 165

77 184

240 349

 Unaudited

2   Other reserves relate to Foreign currency translation reserve and Share based equity reserve

 

 

Interim Consolidated Statement of Cash Flows

for the six months ended 30 June 2019

 

 

 

Notes

        30 June

20191

US$'000

30 June

20181

US$'000

Cash flows from operating activities

Cash generated by operations                                                                                                        15.1

Working capital adjustments                                                                                                        15.2    

23 299

97 636

41 446

(3 024)

99 781

4 967

                                                                                                   

 

 

 

 

38 422

104 748

Interest received

518

1 195

Interest paid

(1 808)

(1 160)

Income tax paid

 

(13 833)

(7 147)

 

 

 

Cash flows used in investing activities

 

(39 625)

(51 984)

 

 

 

Purchase of property, plant and equipment                                                                                         9

Letšeng waste stripping costs capitalised                                                                                           9

Proceeds from sale of property, plant and equipment

(4 396)

(10 918)

(37 350)

2 121

(42 904)

1 838

 

 

 

 

 

Cash flows used in financing activities

(8 975)

     (18 812)

 

 

 

Net financial liabilities repaid

(8 975)

(3 285)

-       Financial liabilities raised

5 281

2 840

-       Financial liabilities repaid

(14 256)

(6 125)

Dividends paid to non-controlling interests

-

(15 527)

 

 

 

Net (decrease)/increase in cash and cash equivalents

(25 301)

26 840

 

 

 

Cash and cash equivalents at beginning of the Period

25 511

74 544

Foreign exchange differences

326

(4 057)

 

 

 

 

 

 

Cash and cash equivalents at the end of the Period - continuing operations

25 673

70 353

Cash and cash equivalents held at banks

25 573

70 248

Restricted cash

100

105

Cash and cash equivalents at the end of the Period - discontinued operation

163

134

Cash and cash equivalents held at banks

105

78

Restricted cash

58

56

 

 

 

 Unaudited

 

Condensed Notes to the Consolidated

Interim Financial Statements

for the six months ended 30 June 2019

 

 

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 financial information shown in this report relating to Gem Diamonds Limited and its subsidiaries (the Group) was approved by the Board of Directors on 4 September 2019, is unaudited and does not constitute statutory financial statements. The report of the auditors on the Group's 2018 Annual Report and Accounts was unqualified.

 

The Group is principally engaged in operating diamond mines.

 

2.     Basis of preparation and accounting policies

2.1    Basis of presentation

The condensed consolidated interim financial statements for the six months ended 30 June 2019 (the Period) have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's Annual Financial Statements for the year ended 31 December 2018.

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Interim Business Review on pages 1 to 17. The financial position of the Group, its cash flows and liquidity position are described in the Interim Business Review on pages 12 to 15.

 

After making enquiries which include reviews of forecasts and budgets, timing of cash flows, borrowing facilities and sensitivity analyses and considering the uncertainties described in this report either directly or by cross reference, the Directors have a reasonable expectation that the Group and the Company have adequate financial resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing this half-yearly report and accounts of the Group.

 

2.2    Significant accounting policies

The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those followed in the preparation of the Group's Annual Financial Statements for the year ended 31 December 2018, except for the adoption of new standards and amendments as of 1 January 2019. The Group adopted IFRS 16 for the first time on 1 January 2019. The nature and effect of the changes as a result of the adoption of this new standard is described below. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

IFRS 16 Leases

 

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.

 

The nature of the effect of adoption of IFRS16

The Group has lease contracts for various items of buildings, plant and equipment and vehicles. Before the adoption of IFRS 16 the Group determined whether an arrangement contained a lease based on whether the fulfilment of the arrangement was dependent on the use of a specific asset or assets or the arrangement conveyed a right to use the asset. A reassessment would be made after inception of the lease only if one of the following applied: (a) There was a change in contractual terms, other than a renewal or extension of the arrangement; (b) A renewal option was exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; (c) There was a change in the determination of whether fulfilment is dependent on a specific asset; or (d) There was a substantial change to the asset. Where a reassessment was made, lease accounting commenced or ceased from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

             2.2     Significant accounting policies (continued)

                                        

Leases where the lessor retained substantially all the risks and rewards of ownership were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the statement of profit or loss on a straight-line basis over the period of the lease. When the Group was a party to a lease where there was a contingent rental element associated within the agreement, a cost was recognised as and when the contingency materialised.

 

Upon adoption of IFRS 16, the Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Group. The Group did not have any finance leases at the time IFRS 16 was adopted on 1 January 2019.

 

Leases previously accounted for as operating leases

The Group recognised a new category of assets, namely right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. For all leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities on the date of initial application (ie. 1 January 2019). Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application as it was not practical to use the rate implicit in the lease.

 

The Group also applied the available practical expedients wherein it:

·      Used a single discount rate to a portfolio of leases with reasonably similar characteristics

·      Applied the short-term leases exemptions to lease contracts with a lease term that ends within 12 months of the date of initial application

·      Applied the materiality exemption to lease contracts for which the underlying asset is of low value

·      Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application

·      Used hindsight for historical lease payments made to determine the value of the liability and right of use asset at date of initial application where the contract did not refer to an annual fixed escalation rate

·      Used hindsight to determine the lease term if the contract contained options to extend or terminate the lease

·      Elected not to separate the lease and non-lease component where it was not practical to do so and therefore accounted for the full contract amount in terms of IFRS 16

 

Based on the foregoing, as at 1 January 2019:

·      Right-of-use assets of US$11.1 million were recognised and presented separately in the statement of financial position.

·      Additional lease liabilities of US$11.1 million were recognised and presented separately in the statement of financial position.

·      Trade and other payables of US$1.4 million related to previous operating leases were derecognised, which resulted in an increase in the deferred tax liability of US$0.4 million.

·      The implementation resulted in an increase in retained earnings of US$0.8 million and an increase in the non-controlling interest, of US$0.3 million.

 

 

 

 

The effect of adoption of IFRS16 as at 1 January 2019 (increase/(decrease) is as follows:

1 January 2019

US$'000

Assets

 

 

 

 

 

Right-of-use assets

 

 

 

 

11 055

Total assets

 

 

 

 

11 055

Liabilities

 

 

 

 

 

Lease liabilities

 

 

 

 

11 055

Deferred tax liability

 

 

 

 

358

Trade and other payables

 

 

 

 

(1 431)

Total liabilities

 

 

 

 

9 982

Equity

 

 

 

 

     

Retained earnings

 

 

 

 

751

Non-controlling interest

 

 

 

 

322

Total adjustments to equity

 

 

 

 

1 073

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

             2.2     Significant accounting policies (continued)

 

As the Ghaghoo mining operation was placed on care and maintenance, the entity only has short-term leases and leases of low-value assets. Therefore, the adoption of IFRS 16 at Ghaghoo did not have an impact at a Group level.

 

The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as at 31 December 2018 as follows:

 

 

 

 

1 January 2019

US$'000

Operating lease commitments as at 31 December 2018

 

 

136 423

 Weighted average incremental borrowing rate as at 1 January 2019

 

 

10%

 Discounted operating lease commitments at 1 January 2019

 

 

128 490

 

 

 

 

 

 

Less:

 

 

 

 

 

Commitments relating to short-term leases

 

(102)

Variable lease payments

 

 

 

 

(120 899)

Out of scope leases e.g. mining leases

 

 

 

 

(1 069)

 

 

 

 

 

 

Add:

 

 

 

 

 

Arrangements not previously separately disclosed as operating leases commitments

 

4 635

Lease liabilities as at 1 January 2019

 

 

 

 

11 055

 

Amounts recognised in the statement of financial position and profit or loss at Period end:

 

 

 

 

 

Right-of-use assets

 

Lease liabilities

 

 

 

 

 

 

 

Motor Vehicles

 

 

Buildings

 

 

Total

As at 1 January 2019

 

 

1 350

1 620

8 085

11 055

11 055

Additions

 

 

1 080

-

118

1 198

1 198

 Depreciation charge for the Period

 

(527)

(183)

(659)

(1 369)

-

Interest expense

 

 

-

-

-

-

517

Lease payments

 

 

-

-

-

-

(1 391)

 Foreign exchange differences

 

35

31

127

193

114

As at 30 June 2019

 

 

1 938

1 468

7 671

11 077

11 493

 

              Future cashflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

US$'000

Residual value guarantees

 

 

75

As at 30 June 2019

 

 

 

 

 

 

75

 

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

3.     Segment information

 

For management purposes, the Group is organised into geographical units as its risks and required rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates. Other regions where no direct mining activities take place are organised into geographical regions in the areas where the operations are managed. The main geographical regions and the type of products and services from which each reporting segment derives its revenue from are:

·      Lesotho (diamond mining activities);

·      Botswana (diamond mining activities), classified as discontinued operation in current Period; 

·      Belgium (sales, marketing and manufacturing of diamonds); and

·      BVI, RSA, UK and Cyprus (technical and administrative services).

 

 

Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment.

 

In the current Period the Ghaghoo diamond mine, which is in the process of being sold, has been classified as a discontinued operation and has been disclosed separately. As a result of the materiality of Gem Diamonds Marketing Botswana, and the nature of the operation (the sales and marketing of diamonds), the operation has been reclassified to the Belgium segment.

 

Segment performance is evaluated based on operating profit or loss. Inter-segment transactions are entered into under normal arm's-length terms in a manner similar to transactions with third parties. Segment revenue, segment expenses and segment results include transactions between segments. Those transactions are eliminated on consolidation.

 

Segment revenue is derived from mining activities, polished manufacturing margins and Group services.

 

The following tables present revenue and profit, and asset and liability information from operations regarding the Group's geographical segments:

 

 

 

Six months ended 30 June 20191

 

 

Lesotho

US$'000

 

 

Belgium

US$'000

BVI, RSA, UK and Cyprus2

US$'000

Total continuing operations

US$'000

 

Discontinued

operations

US$'000

 

 

Total

US$'000

Revenue

 

 

 

 

 

 

 

Total revenue

 

93 112

91 536

4 451

189 099

-

189 099

Inter-segment

 

(93 112)

(199)

(4 451)

(97 762)

-

(97 762)

External customers

-

91 337

-

91 337

-

91 337

Segment operating profit/(loss)

25 731

733

(5 024)

21 440

(2 337)

19 103

Net finance costs

 

 

 

 

(2 733)

(91)

(2 824)

Profit before tax

 

 

 

 

18 707

(2 428)

16 279

Income tax expense

 

 

 

(6 616)

-

(6 616)

Profit for the Period

 

 

 

12 091

(2 428)

9 663

 Unaudited

 No revenue was generated in BVI or Cyprus

 

 

 

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

3.     Segment information (continued)

 

 

 

Six months ended 30 June 20181

 

 

Lesotho

US$'000

 

 

Belgium2

US$'000

BVI, RSA, UK and Cyprus3

US$'000

Total continuing operations

US$'000

 

Discontinued

operations

US$'000

 

 

Total

US$'000

Revenue

 

 

 

 

 

 

Total revenue

 

166 657

167 616

4 273

338 546

-

338 546

Inter-segment                           

 

(166 657)

(158)

(4 048)

(170 863)

-

(170 863)

External customers

-

167 458

225

167 683

-

167 683

Segment operating profit/

(loss)

72 726

1 232

(5 926)

68 032

(2 512)

65 520

Net finance costs

 

 

 

 

(636)

(99)

(735)

Profit before tax

 

 

 

 

67 396

(2 611)

64 785

Income tax expense

 

 

 

(23 846)

-

(23 846)

Profit for the Period

 

 

 

43 550

(2 611)

40 939

 Unaudited

2   The results of Gem Diamonds Marketing Botswana, previously included in the Botswana segment, have been reclassified to the Belgium segment

3 No revenue was generated in BVI or Cyprus

 

 

 

 

 

 

Lesotho

US$'000

 

 

 

Botswana

US$'000

 

 

 

Belgium

US$'000

BVI, RSA, UK and Cyprus

US$'000

 

Total continuing operations

US$'000

 

 

Discontinued

operations

US$'000

 

 

 

Total

US$'000

Segment assets

 

 

 

 

 

 

 

30 June 2019*1

379 591

-

6 249

18 269

404 109

3 907

408 016

31 December 20182

358 646

4 000

3 249

27 552

393 447

-

393 447

Segment liabilities

 

 

 

 

 

 

 

30 June 2019*1

59 162

-

1 129

19 696

79 987

4 140

84 127

31 December 20182

62 753

4 036

689

23 637

91 115

-

91 115

                     1Unaudited

                    2Audited

* The results of Gem Diamonds Marketing Botswana, previously included in the Botswana segment, have been reclassified to the Belgium segment

 

Included in revenue is revenue from three customers which amounted to US$41.1 million (revenue from a single customer, in the prior period, amounted to US$45.1 million) arising from sales reported in the Lesotho and Belgium segments.

 

Segment assets and liabilities do not include net deferred tax liabilities of US$81.3 million (31 December 2018: US$74.1 million).

 

Total revenue for the Period is lower than that of the prior period mainly as a result of the lower volume of large diamonds recovered during the Period. The revenue of the prior period was specifically bolstered by the recovery and sale of the 910 carat Lesotho Legend which sold for US$40.0 million.

 

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

4.       Discontinued operation

 

The Ghaghoo mine was placed on care and maintenance on 31 March 2017 and in June 2019 the Company entered into a binding agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, which owns the Ghaghoo diamond mine, for US$5.4 million. The sale, subject to regulatory approvals in Botswana, is expected to be concluded in H2 2019. As a result, the trading results of the operation have been classified as discontinued operations.

 

The results of the operation for the Periods ended 30 June 2019 and 30 June 2018 are as follows:

 

 

 

 

         30 June

20191

US$'000

       30 June

           20181

       US$'000

Gross profit

-

-

Other costs

(2 332)

(2 476)

Share-based payments

(7)

(6)

Foreign exchange gain/(loss)

 

 

2

(30)

Operating loss

(2 337)

(2 512)

Net finance costs

(91)

(99)

Loss before tax from discontinued operation

(2 428)

(2 611)

Income tax

-

-

Loss after tax from discontinued operation

(2 428)

(2 611)

Loss per share from discontinued operation

 

 

Basic

(1.75)

(1.89)

Diluted

(1.71)

(1.84)

 

The assets and liabilities attributable to the discontinued operation are as follows:

         30 June

20191

US$'000

ASSETS

 

 

 

 

Non-current assets

 

 

Property, plant and equipment

1 542

 

1 542

Current assets

 

 

Inventories

2 122

Receivables and other assets

80

Cash and short-term deposits

163

 

2 365

Total assets

3 907

LIABILITIES

 

Non-current liabilities

 

     

Provisions

3 508

 

3 508

Current liabilities

 

Trade and other payables

632

 

632

Total liabilities

4 140

               1 Unaudited

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

4.     Discontinued operation (continued)

 

 

The net cashflows attributable to the discontinued operation are as follows:

         30 June

20191

US$'000

30 June

20181

        US$'000

Operating

84

(179)

Investing

-

74

Foreign exchange gain/(loss) on translation of cash balance

1

(4)

Cash inflow/(outflow)

85

(109)

1           Unaudited

 

 

5.     Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) before discontinued operation

 

Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the performance of the Group and excludes such non-operating costs as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:

 

 

 

30 June

20191

US$'000

         30 June

           2018*1

US$'000

Operating profit

21 440

68 032

Foreign exchange gain

(2 395)

(2 130)

Share-based payments

601

777

Other operating income

(1 393)

(304)

Depreciation and mining asset amortisation (excluding waste stripping cost amortised)

7 054

4 338

Underlying EBITDA before discontinued operation

25 307

70   13

             1Unaudited

*  Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (Refer to Note 4, Discontinued operation)

 

 

 

6.     Seasonality of operations

 

The Group's sales environment with regard to its diamond sales is not materially impacted by seasonal and cyclical fluctuations. The mining operations may be impacted by seasonal weather conditions. Appropriate mine planning and ore stockpile build-up ensures that mining can continue during adverse weather conditions.

                                                                                                                                                    

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

7.     Income tax expense

 

 

30 June

20191

US$'000

         30 June

20181

US$'000

Income statement

 

 

Current

 

 

- Overseas

(1 003)

(14 797)

 

Withholding tax

 

 

- Overseas

(69)

(3 708)

 

Deferred

 

 

- Overseas

(5 544)

(5 341)

 

(6 616)

   (23 846)

 

 Unaudited

 

The forecast effective tax rate for the full year from continuing operations is 37.2% (31 December 2018: 36.1%) and has been applied to the actual results from continuing operations for the Period. Discontinued operations (refer to Note 4, Discontinued operation), have been excluded from the forecast effective tax rate for the full year and taxed separately. There is no tax effect on the loss from Discontinued operations as a result of previously recognised losses.

 

The forecast effective tax rate for the full year is above the Lesotho statutory tax rate of 25% primarily as a result of withholding tax of 10% on dividends from Letšeng and deferred tax assets not recognised on losses incurred in non-trading operations.

 

 

8.     Dividends paid and proposed

 

 

There were no dividends proposed in 2019 for the 2018 financial year. The dividend policy is dependent on the results of the Group's operations, its financial condition, cash requirements, future prospects, profits available for distribution and other factors deemed to be relevant at that time.

 

 

 

9.    Property, plant and equipment

       

During the Period, the Group invested US$4.4 million (30 June 2018: US$10.9 million) into property, plant and equipment, of which US$3.5 million (30 June 2018: US$10.5 million) related to Letšeng.

 

Letšeng's capital spend was incurred mainly on the completion of the mining support services complex (US$0.6 million) (30 June 2018: US$4.0 million), the extension of the footprint of the Patiseng tailings storage facility (US$0.9 million) (30 June 2018: US$3.4 million), continued core drilling and micro diamond analysis to firm up the existing mineral resource base (US$0.5 million)(30 June 2018: US$0.5 million) and US$0.5 million on security system upgrades.

 

Letšeng further invested US$37.3 million (30 June 2018: US$42.9 million) in deferred stripping costs which were capitalised. Amortisation of the deferred stripping asset (waste stripping cost amortisation) of US$15.6 million (30 June 2018:US$34.2 million) was charged to the Statement of Profit or Loss during the Period. The amortisation is directly related to the areas that were mined during the Period and their associated waste to ore strip ratios.

 

Depreciation and mining asset amortisation of US$7.3 million (30 June 2018: US$4.5 million) was charged to the Statement of Profit or Loss during the Period. The increase in this charge was driven by the commencement of depreciation on the completed Letšeng mining complex and the recognition of Right-of-use assets in accordance with IFRS 16 - Leases which attracted additional depreciation of US$1.4 million in the Period.

 

In addition to the above, foreign exchange movements on translation affecting property, plant and equipment decreased the asset balances by US$5.7 million (30 June 2018: US$29.5 million).

 

 

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

10.    Receivables and other assets

 

 

30 June

20191

US$'000

 31 December

20182

US$'000

Non-current

 

 

 

Prepayments

173

347

 

173

347

Current

 

 

Trade receivables

156

184

Prepayments3

536

1 038

Deposits

92

97

Other receivables

361

329

VAT receivables

4 001

3 785

 

5 146

5 433

                     1Unaudited

                     2 Audited

     3 Included in prepayments are loan facility restructuring costs of US$0.6 million, relating to the Company's US$45.0 million bank loan facility, which will be  amortised over the period of the loan.

 

 

 

11.    Cash and short-term deposits

 

 

 

30 June

20191

US$'000

 31 December

20182

US$'000

Cash on hand

3

1

Bank balances

13 816

16 093

Short-term bank deposits

11 854

34 718

Cash and short-term deposits

25 673

50 812

 Unaudited

 Audited

 

At 30 June 2019, the Group had restricted cash of US$0.2 million (31 December 2018: US$0.2 million).

 

Finance income relates to interest earned on cash and short-term deposits.

 

Finance costs include interest incurred on bank overdraft and borrowings, finance lease liabilities and the unwinding of rehabilitation provisions.

 

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

12.    Issued capital and reserves

 

 

30 June 20191

 

31 December 20182

 

 

Number

of shares

  '000

    Number

 of shares          US$'000

           '000                 

 

Authorised - ordinary shares of US$0.01 each

As at Period/Year     

 

200 000

 

2 000

 

200 000                  2 000

Issued and fully paid

Balance at beginning of Period/Year 

 


138 896

 

 

1 390

 

138 620                  1 387

         

 


Allotments during the Period/Year

88


1

 

276                        3

 

Balance at end of Period/Year

138 984

1 391

138 896                  1 390

 

 Unaudited

 Audited

    

 

 

13.    Share-based payments

         

Long-term Incentive Plan 2017 Award - March 2019

On 20 March, 1 303 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term Incentive Plan 2017 of the Company. The vesting of the options will be subject to the satisfaction of certain market and non-market performance conditions over a three-year period. The satisfaction of certain performance as well as service conditions are classified as non-market conditions. 142 500 of the options granted relate to market conditions. The options vest after a three-year period and are exercisable between 20 March 2022 and 19 March 2029. If the performance or service conditions are not met, the options lapse. The performance conditions relating to the non-market conditions are not reflected in the fair value of the award at grant date, and therefore the Company will assess the likelihood of these conditions being met with a relevant adjustment to the cumulative charge as required at each financial year end. The fair value of the nil-cost options is £0.90 (US$1.19) and the option grants are settled by issuing shares.

 

The expense disclosed in the interim consolidated Statement of Profit or Loss income statement is made up as follows:

 

 

30 June

20191

US$'000

30 June

20181

US$'000

 

Equity-settled share-based payment transactions - charged to the Statement of Profit or Loss - continuing operations

Equity-settled share-based payment transactions - charged to the Statement of Profit or Loss - discontinued operation

 

601

 

7

 

 777

 

6

 

 

 

 

608

783

 Unaudited

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

14.    Interest-bearing loans and borrowings

 

 

   

                                                     Effective interest rate                                       Maturity

30 June

20191

US$'000

 31 December

20182

US$'000

Non-current

LSL215.0 million bank loan facility3

 

 

 

 

   Tranche 1                                South African JIBAR + 3.15%                    31 March 20223

5 957

 7 508

   Tranche 2                                  South African JIBAR + 6.75%                      30 Sept 20223

1 489

1 784

US$45.0 million bank loan facility4

 

 

   Tranche 1                                   London US$ three-month LIBOR+4.5%         31 Dec 20204

5 000

10 000

Asset Based Finance Facility5       South African Prime Lending rate              1 January 20245

619

662

 

 13 065

19 954

Current

LSL215.0 million bank loan facility3 

 

 

 

 

   Tranche 1                                 South African JIBAR + 3.15%                   31 March 20223

           3 404

3 337

   Tranche 2                                 South African JIBAR + 6.75%           30 September 20223

662

 649

US$45.0 million bank loan facility4 

 

 

 

 

   Tranche 1                                   South African JIBAR + 4.5%                          31 Dec 20204

10 000

10 000

Asset Based Finance Facility5       South African Prime Lending rate             1 January 20245

231

226

 

14 297

14 212

 Unaudited

 Audited

3LSL215.0 million (US$ 15.3 million) bank loan facility at Letšeng Diamonds

This loan comprises two tranches of debt as follows:

 

Tranche 1: South African Rand denominated ZAR180.0 million (US$12.8 million) debt facility supported by the Export Credit Insurance Corporation (ECIC) (five years tenure); and

Tranche 2: Lesotho Loti denominated LSL35.0 million (US$2.5 million) term loan facility without ECIC support (five years and six months tenure).

 

The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 22 March 2017 to fund the construction of the Letšeng mining support services complex. The loan is repayable in equal quarterly payments, which commenced in September 2018. At Period end LSL162.3 million (US$11.5 million) (31 December 2018: LSL191.0 million (US$13.3 million)) remains outstanding.

 

The South African Rand based interest rates for the facility at 30 June 2019 are:

Tranche 1: 10.18%

Tranche 2: 13.78%

 

Total interest for the Period on this interest-bearing loan was US$0.3 million.

 

4US$ 45.0 million bank loan facility at Gem Diamonds Limited

This facility is a three-year revolving credit facility (RCF) with Nedbank Capital and consists of two tranches:

 

Tranche 1: relates to the Ghaghoo US$25.0 million debt whereby capital repayments commenced in September 2018 with a final repayment due on 31 December 2020;

Tranche 2: this relates to a US$20.0 million RCF and includes an upsize mechanism whereby this tranche will increase by a ratio 0.6:1 for every repayment made under Tranche 1. This will result in the available facility increasing to US$35.0 million once Tranche 1 is fully repaid.

 

At Period end US$15.0 million of the Tranche 1 debt remains outstanding. This has resulted in the Tranche 2 RCF increasing to US$26.0 million, all of which remained undrawn at Period end. The US$-based interest rate for this facility at 30 June 2019 is 6.83%.

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

14.    Interest-bearing loans and borrowings (continued)

 

5Asset Based Finance Facility

The Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.9 million) Asset Based Finance Facility with Nedbank Limited for the purchase of an X-Ray transmission machine (the asset), the asset serves as security for the facility. At Period end ZAR11.9 million (US$0.9 million) remains outstanding. The facility is repayable over5 years and bears interest at the South African Prime Lending rate, which was 10.25% at 30 June 2019.

 

Other facilities          

In addition, at 30 June 2019, the Group through its subsidiary Letšeng Diamonds, has a LSL500.0 million (US$35.5 million) three-year unsecured revolving working capital facility jointly with Standard Lesotho Bank and Nedbank Capital, which was renewed in July 2018. At Period end the full facility was available for draw down.  

 

 

15.    Cash flow notes

 

 

 

30 June

20191

US$'000

  30 June

       20181

   US$'000

15.1

Cash generated by operations

 

 

 

Profit before tax for the Period - continuing operations

18 707

67 396

 

Profit before tax for the Period - discontinued operation

(2 428)

(2 611)

 

Adjustments for:

 

 

 

Depreciation and amortisation on property, plant and equipment                                                                                  

7 284

4 510

 

Waste stripping cost amortisation                                                                                           

15 649

 34 202

 

Finance income

(518)

(1 195)

 

Finance costs

3 342

1 831

 

Unrealised foreign exchange differences

(3 046)

(6 528)

 

Profit on disposal of property, plant and equipment

(1 169)

(367)

 

Movements in prepayments

(206)

(74)

 

Other non-cash movements

3 223

1 735

 

Share-based equity transaction

608

783

 

 

41 446

99 781

15.2

Working capital adjustments

 

 

 

Decrease/(increase) in inventories

1 076

(817)

 

Decrease in receivables

2 578

        853

 

(Decrease)/increase in trade and other payables

(6 678)

4 931

 

 

(3 024)

4 967

15.3

Cash flows from financing activities

 

 

 

Balance at beginning of Period

34 166

46 343

 

Net cash used in financing activities

(8 975)

(3 285)

 

- financial liabilities raised

5 281

2 840

 

- financial liabilities repaid

(12 395)

(6 125)

 

- lease liabilities repaid

(1 861)

-

 

Net non-cash movement

13 665

(1 692)

 

- FCTR

346

(1 692)

 

- lease liabilities raised

12 533

-

 

- interest on lease liabilities

786

-

 

Balance Period end

38 855

41 366

1           Unaudited

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

  16.    Commitments and contingencies

 

 

The Board has approved capital projects of US$8.4 million (31 December 2018: US$9.8 million) of which US$1.9 million (31 December 2018: US$6.2 million) has been contracted at 30 June 2019. The main capital expenditure approved relates to Letšeng's Patiseng tailings storage facility of US$2.0 million, mineral resource studies of US$1.5 million and accommodation block expansion of US$1.0 million. The expenditure is expected to be incurred over the next 12 months.

 

The Group has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation of commercial arrangements and applicable legislation in the countries where the Group has operations. In certain specific transactions, however, the relevant third party or authorities could have a different interpretation of those laws and regulations that could lead to contingencies or additional liabilities for the Group. Having consulted professional advisers, the Group has identified possible disputes relating to ongoing employee-related legal costs approximating US$0.2 million (31 December 2018: US$0.1 million) and tax claims within the various jurisdictions in which the Group operates approximating US$1.3 million (31 December 2018: US$1.3 million).

 

 

 

17.    Related parties                         

                                                                                                                                                    Relationship

Jemax Management (Proprietary) Limited                                                                                   Common director                                                         Gem Diamond Holdings Limited                                                          Common director                                    Government of Lesotho                                                                                                                Non-controlling interest

 

30 June

20191

US$'000

  30 June

       20181

   US$'000

Compensation to key management personnel (including Directors)

 

 

Share-based equity transactions

325

468

Short-term employee benefits

2 032

1 684

 

2 357

2 152

Fees paid to related parties

 

 

Jemax Management (Proprietary) Limited

(49)

(55)

Royalties paid to related parties

 

 

Government of Lesotho

(7 680)

(13 439)

Lease and license payments to related parties

 

 

Government of Lesotho

(162)

(141)

Purchases from related parties

 

 

Jemax Management (Proprietary) Limited

(3)

(6)

Amount included in trade payables owing to related parties

 

 

Jemax Management (Proprietary) Limited

(8)

(10)

Amounts owing to related party

 

 

Government of Lesotho

(299)

(502)

Dividends paid

 

 

Government of Lesotho

-

(15 527)

 1Unaudited 

 

 

Condensed Notes to the Consolidated

Interim Financial Statements continued

for the six months ended 30 June 2019

 

 

 

18.    Assets held for sale  

 

 

30 June

20191

US$'000

31 December

           20182

      US$'000

 

Property, plant and equipment

-

859

 

 

-

859

 

1Unaudited

2Audited

 

On 30 January 2019, the aircraft which serviced the Letšeng mine and was disclosed as an asset held for sale at 31 December 2018, was sold for US$2.1 million.

 

 

 

19.    Events after the reporting Period

        

No other fact or circumstance has taken place between the Period end and the approval of the financial statements which, in our opinion, is of significance in assessing the state of the Group's affairs.

 

 

Contact Details and Advisers

 

 

Gem Diamonds Limited

 

Registered office

Coastal Building, Ground Floor Wickham's Cay II

Road Town, Tortola

British Virgin Islands

 

Head office

2 Eaton Gate

London SW1W 9BJ United Kingdom

 

T: +44 (0) 203 043 0280

F: +44 (0) 203 043 0281

 

 

Financial adviser and sponsor

 

JPMorgan Casenove Limited

20 Moorgate

London EC2R 6DA

United Kingdom

 

T: +44 (0) 20 7588 2828

F: +44 (0) 20 7155 9000

 

Financial adviser

 

Liberum Capital Limited

Ropemaker Place, Level 12

25 Ropemaker Street London EC2Y 9LY United Kingdom

 

Tel: +44 (0) 20 3100 2000

Fax: +44 (0) 20 3100 2099

 

Panmure Gordon & Co.

One New Change

London EUM 9AF United Kingdom

 

T: +44 20 7886 2500

 

 

 

 

 

 

 

 

 

 

 

 

 

Legal adviser

 

Linklaters

One Silk Street London EC2Y 8HQ 

United Kingdom

 

T: +44 (0) 20 7456 2000

F: +44 (0) 207456 2222

 

Auditors

 

Ernst & Young Incorporated

102 Rivonia Road

Sandton

2146

South Africa

 

T: +27 (0) 11 772 3000

 

Financial PR Adviser

 

Celicourt Communications

Adam House

7-10 Adam Street, The Strand

London WC2N6AA United Kingdom

 

  T: +44 (0) 20 8434 2643

 

 

 

 

 

 


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