Gem Diamonds Di Regulatory News (GEMD)

31 Oct 2007 10:40

Gem Diamonds Limited31 October 2007 31 October 2007 Acquisition by Gem Diamonds Limited of the remaining 50.01% of Kabongo Development Company Summary Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds" or the "Company") is pleased toannounce today that it has entered into an agreement to acquire the 50.01% ofKabongo Development Company s.p.r.l ("KDC") from Almesta Holdings Limited ("Almesta") which it does not already own (the "Acquisition"). KDC holds all ofthe concessions on which Gem Diamonds is conducting operations at Mbelenge andTshikapa and the majority of the concessions at Lubembe and Longatshimo, alllocated in the Kasai Occidental Province of the Democratic Republic of Congo ("DRC"). Acquisition highlights • Acquisition consolidates Gem Diamonds' position in the DRC • Initial consideration will be settled in cash for US$56.2 million - A deferred payment will be made to Almesta in the event of an increase in the valuation of KDC on the first anniversary of the Acquisition. The deferred payment will be 50,01% of the increase in value of the concession as determined by an independent competent person and will be capped at US$56.2 million. - A further deferred payment is payable to Almesta in the event a diamondiferous kimberlite is discovered on a KDC concession which proves to be economically exploitable. The deferred payment amount will be 5% of Gem Diamonds attributable value and will be capped at US$100 million. • Acquisition increases Gem Diamonds ownership of the Mbelenge mine and Lubembe dredging project to 100% • Sales and agency agreement entered into with Almesta over DRC and Central African Republic production • Attributable DRC in situ resource of Gem Diamonds increases 53.5% to 9.46 million carats • Gem Diamonds remains confident of its security of tenure over its licenses in the DRC Commenting on the Offer, Clifford Elphick, CEO of Gem Diamonds, said: "The ownership and development of KDC and its concessions has been a key part ofGem Diamonds' strategy since our first pre-IPO, equity capital raising.Securing controlling ownership of these assets, to complement our existingoperating role, is a natural and progressive step for Gem Diamonds enabling ourshareholders to participate more fully in the value we expect to deliver fromour exciting mining and exploration activities in the DRC." 1. Introduction Gem Diamonds currently holds a 49.99% interest in KDC which, in turn, holdsdiamond concessions located at Mbelenge, Lubembe, Longatshimo and Tshikapa inthe Kasai Occidental Province of the DRC. Under Gem Diamonds' management a minehas been built and commissioned and is now running at designed capacity atMbelenge. At Lubembe, trial dredge mining is ongoing in the Kasai River and atLongatshimo trial mining will commence in late 2008. Tshikapa is yet to bedeveloped. The kimberlite exploration program undertaken by Gem diamonds in theDRC on all concessions has identified 79 targets of which 23 have been drilledso far without successful discovery of a kimberlite. The remaining undrilledtargets will be drilled in due course. 2. The Acquisition Gem Diamonds will acquire the 50.01% of KDC from Almesta for an initial totalcash consideration of US$56.2 million, which amount will be settled oncompletion of the Acquisition. In the event of an upward revaluation of KDC (as determined by an independentcompetent person) on the first anniversary of the Acquisition, Gem Diamonds willmake a deferred payment to Almesta equal to 50.01% of the increase in the valueof Almesta's attributable share. This deferred payment will be settled in cashand is capped at US$56.2 million. In the event that, within the five years following the Acquisition, adiamondiferous kimberlite is located on any of the concessions currently held byKDC in respect of which a bankable feasibility study is completed indicating itseconomic viability, Gem Diamonds will make a further deferred payment to Almestaequal to five per cent of Gem Diamonds' attributable interest in this kimberliteas determined by an independent competent person. All such kimberlite paymentswill be capped at a total of US$100 million and payable in cash. A transaction on similar terms between the parties was contemplated for sometime prior to the Company's listing on the London Stock Exchange and wasdetailed in the Prospectus published at that time. Gem Diamonds has also entered into a sales and agency agreement with Almesta,which is advised by Mr Ehud Laniado, associated with renowned diamantairecompany Omega Diamonds, whereby all Gem Diamonds' rough diamond production fromthe DRC and the Central African Republic concessions, held at the time of theAcquisition, will be marketed through Almesta for three years from the date ofthe agreement. Almesta has extensive experience in the Central African diamondmarket, having marketed diamonds produced in this area for over 20 years. GemDiamonds has the option to retain any diamonds produced in these territories forcutting and polishing in house should it so wish. Omega Diamonds is one of the largest diamond trading companies outside of the DeBeers' sightholder network; currently marketing approximately of US$1 billion ofrough diamonds annually. Diamonds will be valued by independent valuators inAntwerp, post-acidisation. Commission payable to Almesta will be in line withGem Diamonds' existing marketing arrangements in other territories. For the six months ended 30 June 2007, KDC reported no revenue and a loss beforetax of US$1.72 million. As at 30 June 2007, KDC had net liabilities of US$3.2million and gross assets of US$38.4 million. 3. Background to and reasons for the Acquisition Gem Diamonds has been operating the KDC concessions in the DRC for approximately18 months and continues to explore the prospective nature of these concessions.Ownership of 100% of KDC will allow for development of these concessions to beexpedited and co-ordinated with Gem Diamonds' other majority owned operations inthe DRC, which will result in reduced costs and other synergies throughrestructuring. Over time it is intended that the operations of KDC and GemDiamonds' subsidiary Gem Diamond Mining Company of Africa (RDC) s.p.r.l. will befully integrated which will enhance operations efficiency in the DRC 4. Financing The consideration for the Acquisition will be settled from Gem Diamonds'existing cash resources, which as at the last reported financial period end of30 June 2007 was US$524.4 million. 5. Licenses Gem Diamonds remains confident of its security of tenure over its licenses inthe DRC. Recent enquiries with the Deputy Minister of Mines as well as theCadastre Miniere in the DRC have confirmed that there are no investigationsunderway or pending on any licenses held directly or indirectly by Gem Diamondsin the DRC. For further information: Gem Diamonds Limited Clifford Elphick +44 203 043 0280 Gem Diamond Technical Services (Pty) Limited Angela Parr Tel: +27 11 560 9600 Pelham PR Candice Sgroi Tel: +44 207 743 6376 About Gem Diamonds Gem Diamonds is a diamond mining company with a balanced portfolio of aproducing kimberlite mine, two producing alluvial mines, development projectsand long-term prospects. Established in July 2005, Gem Diamonds ispursuing an accelerated growth strategy and aims to become one of the world'sleading diamond companies. Gem Diamonds currently has one producing kimberlitemine, Letseng, in Lesotho, two producing alluvial mines - Cempaka inIndonesia and Mbelenge in the Democratic Republic of Congo (DRC), a kimberlitedevelopment project in Botswana, two development projects in the DRC, one in theCentral African Republic and an option to develop the Chiri kimberliteconcession in Angola. The Company recently made an offer to Kimberley Diamond Company'sshareholders to acquire their shares in this company, which owns the EllendaleMine in north Western Australia, and which was approved by Gem Diamonds'shareholders at an Extraordinary General Meeting on 16 October 2007. Gem Diamonds currently has a specific focus towards higher value diamonds, asegment of the market that its management believes will deliver superior longterm returns. For further information about Gem Diamonds visit www.gemdiamonds.com. This information is provided by RNS The company news service from the London Stock Exchange