Gem Diamonds Di Regulatory News (GEMD)

Thursday, 16 March 2023

Gem Diamonds Limited

Full Year 2022 Results

Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Full Year Results for the year ending 31 December 2022 (the "Period").

FINANCIAL RESULTS:

· Revenue of US$188.9 million (US$201.9 million in 2021)

· Underlying EBITDA of US$43.7 million (US$57.4 million in 2021)

· Profit for the year of US$20.2 million (US$27.4 million in 2021)

· Attributable profit of US$10.2 million (US$14.8 million in 2021)

· Earnings per share of 7.3 US cents (10.5 US cents in 2021)

· Cash on hand of US$8.7 million as at 31 December 2022 (US$7.9 million attributable to Gem Diamonds)

OPERATIONAL RESULTS:

Letšeng

· Carats recovered of 106 704 (115 336 carats in 2021)

· Waste tonnes mined of 10.2 million tonnes (18.7 million tonnes in 2021)

· Ore treated of 5.5 million tonnes (6.2 million tonnes in 2021)

· Average value of US$1 755 per carat achieved (US$1 835 in 2021)

· The highest dollar per carat achieved for a white rough diamond during the year was US$53 834 per carat

Safety performance

Letšeng's safety performance improved in 2022 with the implementation of an organisational safety culture maturity programme yielding positive results. Letšeng recorded zero fatalities and three LTIs during 2022 (2021: six), resulting in an improved LTIFR and AIFR of 0.13 (2021: 0.24) and 0.70 (2021: 0.93), respectively.

Financial performance

The Group delivered a solid financial performance in 2022 despite the volatile global economic environment following Russia's invasion of Ukraine which caused high levels of inflation and interest rates and significantly increased diesel prices. The consumption of diesel was further increased by the grid electricity interruption due to load shedding by Eskom. Several initiatives were implemented to reduce costs, drive efficiencies and effectively managed increased operating costs.

Operational performance

Letšeng operated safely, responsibly and efficiently throughout 2022, achieving its operational objectives notwithstanding a number of challenges experienced during the year. These included regular load shedding by Eskom, supply chain challenges, exceptionally high rainfall, the Lesotho national elections in October 2022 which required a compulsory two day site-wide shutdown and a secondary crusher breakdown. An Energy and Decarbonisation Committee was established in 2022, focused on identifying, assessing and implementing opportunities to improve energy security in light of the unreliable Eskom electricity grid.

TCFD and Climate

The Group adopted the recommendations of the Task Force on Climate-related Financial Disclosures in 2021 and concluded Phase 2 of its three-year TCFD roadmap in 2022. This included the adoption of a decarbonisation strategy and carbon pricing model. The Group has committed to a decarbonisation target of a 30% reduction of its scope 1 and scope 2 carbon emissions by 2030, from a 2021 base.

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

"A priority remains the health and safety of our workforce. We are therefore pleased to report that the organisational safety maturity programme that commenced in 2021 is yielding positive results. Letšeng halved its number of LTIs in 2022 compared to 2021 and we had another fatality-free year.

Gem has delivered solid operational and financial results in light of the challenges brought about by Russia's invasion of the Ukraine. This directly impacted our operating costs, in particular diesel prices, and interrupted supply chains. This was exacerbated by the increased Eskom load shedding which caused an increase in the use of diesel-powered generators.

The Group has continued with its climate change journey and we're pleased to announce our commitment to a 30% reduction in scope 1 and 2 carbon emissions by 2030. The unreliable Eskom electricity grid supply has emphasised the need to implement lower carbon and renewable energy sources.

Demand for Letšeng's large, high-value diamonds remains strong. The re-opening of China, the second largest diamond market, is expected to pave the way for a rapid rebound in economic activity, which bodes well for diamond prices in 2023."

The Company will host a live audio webcast presentation of the full year results today, 16 March 2023, at 9:30 GMT. This can be viewed on the Company's website: www.gemdiamonds.com

The page references in this announcement refer to the Annual Report and Accounts 2022, which can be found on the Company's website: www.gemdiamonds.com

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67

FOR FURTHER INFORMATION:

Gem Diamonds Limited

ir@gemdiamonds.com

Celicourt Communications

Mark Antelme / Felicity Winkles

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. 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.

CHAIRPERSON'S STATEMENT

The Board steered the Group through another challenging and uncertain year. We made important progress in our climate change journey by adopting a decarbonisation strategy and a carbon-pricing model. The challenge for the year ahead will be to continue operating safely, effectively and cost-efficiently.

Dear shareholders,

On behalf of the Board of Directors, I am pleased to share with you the Gem Diamonds Annual Report and Accounts for 2022, which outlines the Group's performance over the past year and some of our focus areas for the year ahead.

In the early months of 2022, as the threat of the COVID-19 pandemic subsided, we were finally able to return to something approaching normal operations. While the experience of the past two years has been very difficult for our workforce, their families and our local communities, the community of spirit generated during the fight against the pandemic has built new levels of trust and enabled us to extend our employee health improvement programmes.

While the world emerged from one crisis, it was immediately plunged into another as Russia invaded Ukraine. The consequences of this conflict were widely felt as they impacted supply chains, exacerbated inflation and increased energy costs. Just about every country has had to grapple with sharply rising input costs and the trifecta of accelerating inflation, rising interest rates and the lingering impact of COVID-19, weighing down global growth.

At Gem Diamonds, we felt the impact of these pressures through a sharp rise in the price of diesel and countless other inflationary increases in the cost of important commodities, machinery and services. Added to this was the well-documented deterioration in the reliability of the supply of grid power by Eskom, which meant we had to frequently resort to using diesel-powered generators. As a result, we experienced a steep rise in input costs which resulted in our EBITDA falling 24% to US$43.7 million (2021: US$57.4 million). While revenue fell 6% to US$188.9 million on the back of a slightly lower volume of carats recovered, 2022 was a solid year overall from an operational perspective.

Demand for high-quality diamonds was strong in 2021 and this robust market continued into 2022. Market strength was further underpinned by the imposition of sanctions on Russia's Alrosa, which caused a shortage of smaller diamonds. In Q4 2022 consumer demand weakened slightly, although pleasingly demand for Letšeng's exceptional white diamonds remained firm and we achieved an average price per carat of US$1 755 compared to US$1 835 in 2021.

The Letšeng mine is located in a remote and pristine region in Lesotho, and the Group's overarching ethos is to operate at all times in an exemplary social and environmentally responsible manner. Our continued inclusion in the FTSE4Good Index and our receipt of various awards in recognition of the work we do around our operation and communities are validation that our ESG programmes deliver real value. There were no major or significant environmental incidents reported at any of our operations during the year.

GOVERNANCE IMPROVEMENTS FOR 2022

Despite being a small Group with a small Board of Directors, I am pleased that our governance structure is aligned with the independence requirements of the UK Corporate Governance Code. While we acknowledge that there is always room for improvement, I believe we have further strengthened our governance structures over the past two years, and have established an effective rhythm and cadence to the work of our Board. Specifically, we have worked to clarify governance processes, allocated more time for routine and strategic Board deliberations, and ensured the smooth running of the important work of our Board subcommittees.

One area where I believe we can improve further is to carve out sufficient Board time to better understand the future strategic opportunities available to the Group. As the Letšeng orebodies are mined progressively deeper, we are accelerating our analysis of possible future development pathways for the mine, including whether it is economically feasible to transition to underground operations. In addition, we need to consider our future beyond our ownership of a single operational asset.

In 2022, we once again reassessed and refreshed our positions on human rights, modern slavery, corruption and climate change as part of our approach to combatting these global systemic challenges. As part of this process, our employees and contractors reaffirmed their commitment to these important statements.

The Nominations Committee oversees Board and senior management succession planning, with the objective of ensuring that our leadership is appropriately sized, regularly reinvigorated, and offers a wide range of diversity and skill sets. I am satisfied that the Board contains the right balance of gender, experience and complementary perspectives to ensure the appropriate independent oversight of the Group.

Maintaining a diverse workforce in an atmosphere where everyone feels included is hugely important to me personally, and it gives me great pride to see the work that Gem Diamonds has done over the years to achieve a representation of almost 98% Lesotho nationals at Letšeng. The representation of female employees at Letšeng remains lower than we would like, and we continue to work closely with local communities and schools to promote mining and Letšeng as a company as rewarding and safe places for women to aspire to join.

THE BOARD'S PRIORITIES IN 2022

· Conducting an external Board effectiveness evaluation

· Overseeing the execution of the Group's climate change strategy

· Advancing efforts to sell or exit the Ghaghoo mine in Botswana, which remains on care and maintenance

· Approving the share buyback programme announced in April 2022

· Considering the way forward for Letšeng, including the initial results of the Underground Feasibility Study

· Considering external growth opportunities

SUPPORTING ORGANISATIONAL ETHICS

Gem Diamonds maintains a strong set of ethical principles that provides a firm foundation for everything we do. We insist on transparency and have no tolerance for fraud, theft, modern slavery, child labour or any other wrongdoing. The culture espoused by the Board and senior management is one of transparency, openness, and a willingness to challenge and to change, and these principles promote high standards of ethical behaviour throughout the Group. To support these principles, we maintain a rigorous system of internal controls, a comprehensive internal audit programme and an anonymous whistleblowing facility.

OUR PURPOSE AND VISION

In November 2022, the Board approved a new purpose and vision for the Group. The new purpose "Produce the best diamonds, in the best way, leaving a lasting legacy", outlines the Group's purpose in a way that is clear and easily understood. This purpose replaces "Unearthing unique possibilities". It speaks to our ambition to produce high-quality diamonds in a way that protects our workforce, local communities and the environment. We have a long-term perspective, and we aim to leave a positive legacy in the countries in which we operate. This involves making meaningful investments in our local communities that will have a lasting impact, supporting education, health and skills development, and creating and maintaining an open and constructive working relationship with governments at a local and national level.

Our new vision "A world full of Gem diamonds" speaks to actively pursuing expansion and growth opportunities for Gem Diamonds, elevating the brand and ensuring it is synonymous with large, high-value diamonds, a passionate workforce and an ethical culture. All elements of our previous vision remain relevant and have been encapsulated in our new purpose.

FOSTERING A STRONG SAFETY CULTURE

We regard the safety and health of our employees as our single most important priority. I am pleased to report that during 2022 we continued to drive our safety and health initiatives, and we again suffered no fatal accidents and experienced only three lost time injuries resulting in a lost time injury frequency rate (LTIFR) of 0.13, a strong improvement on the 0.24 achieved in 2021. The all injury frequency rate (AIFR) for the full year was 0.70 (2021: 0.93).

We recognise that maintaining a safe workplace requires relentless and close attention to detail and a strong and trusting relationship with our workforce. To this end, during the year we implemented a safety improvement programme, with a specific focus on safety leadership coaching, that was informed by a detailed safety performance survey carried out in 2021. During 2023 we will focus on embedding these new leadership skills into the organisation to improve the ability of employees at all levels to identify and permanently eliminate risk from the operations, with the aim of further improving our safety performance.

GOVERNANCE OF WATER AND TAILINGS MANAGEMENT

Lesotho experienced unprecedented rainfall during 2022, resulting in Letšeng's water storage facilities rising to their highest levels on record. It was pleasing to see that our freshwater catchment areas functioned effectively despite the heavy rainfall, and the mine now has a secure source of water for almost nine years based on current usage rates.

In line with global efforts to elevate the safety and security of all tailings and water storage facilities, Gem has put significant emphasis into ensuring full alignment with all the new recommendations emerging from recent international tailings facility failure investigations. This includes strict adherence to a management programme that includes daily inspections, monthly audits and annual external audits. Our alignment with international standards is well established and our Independent Tailings Review Board is led by one of the world's leading dam-safety experts. We are confident that we have the right skills, systems and governance to ensure appropriate water and tailings management in the future.

CONTINUING OUR CLIMATE CHANGE JOURNEY

We recognise that climate change is an existential issue for our planet that must be addressed. The Board is therefore determined that the Group makes its contribution to this challenge when reviewing strategy, risk management, annual budgets and business plans and when developing action plans and Group policies. The Board officially adopted the TCFD framework in 2021, and in 2022 we implemented the second phase of our three-year roadmap. This included the adoption of a decarbonisation strategy and carbon-pricing model. We have set a target to reduce our Scope 1 and Scope 2 carbon emissions by 30% by 2030.

There is a great deal of global uncertainty within multinationals and capital markets on how corporates should respond to and communicate their actions to address climate change. As a small Group with limited resources, we recognise that we must prioritise those actions that will have the maximum benefit to the business and to Lesotho while also addressing climate change.

COMMUNITY AND GOVERNMENT ENGAGEMENT

We strive to always maintain constructive, open and honest dialogue with our local communities and government partners. We consider their concerns and inform them about our business and the broader environment we require to thrive. Our ongoing stakeholder engagement with communities and government ensures that the Board is kept abreast of issues as they emerge and evolve.

In 2022, our communities were affected by unemployment and inflation, including steep increases in food and energy costs. In these economic conditions, our ongoing investments in community support become increasingly important. We remain very proud of the work we do to support our local communities, which is informed by a community needs

analysis undertaken in 2021 and contributes to our UN SDG commitments. We believe that investing in our local communities will bolster the resilience and sustainability of Letšeng in the long term.

Mining is a major contributor to Lesotho's gross domestic product and offers considerable direct and indirect employment opportunities during a mine's lifespan. However, mines have a finite lifespan. This means that we must proactively engage with our employees, communities and government to sensitise them to the expected ultimate closure of the mine. We aim to maintain open dialogue with government as we begin preparing for the various pathways that might exist for the mine. As a Board, we will work constructively with management, employees and communities as the long-term view emerges.

LOOKING TO THE FUTURE

Our actions in 2023 will be strongly influenced by the cost pressures that unfolded in 2022. Our efforts to contain costs will require real productivity and efficiency improvements. This will also mean that we will need to be smarter in our technological and operational choices.

During the year we will continue to work on defining the future development pathway for the Letšeng orebody. As the pits go deeper, various options exist, including the possibility of a transition to underground operations, and we will consult widely with all stakeholders as the options become clear.

We are now well placed to progress our environmental, social and governance (ESG) strategy, and will in particular be looking at both the source and the intensity of the energy we use. If possible, we will identify partners with whom we can work to help us switch to more renewable sources of power, both to reduce our carbon footprint and to lower our dependence on Eskom's increasingly unreliable grid.

We are pleased that Lesotho's national elections in 2022 concluded peacefully and we welcome the transition to a new government that is business-friendly and collaborative. We look forward to a constructive working relationship with the new administration as we continue to further our contribution to the country's economic development.

Antwerp in Belgium is a city that has been inextricably linked to the trade and manufacturing of rough diamonds for centuries. The diamond market, however, is changing as diamond trading in new centres outside of Antwerp gain traction. We will respond accordingly and embrace opportunities to work with and sell through other centres.

APPRECIATION

On behalf of the Board, I thank all our stakeholders who have contributed to the Group's performance in 2022. Without the support of our employees, contractors, community partners, the Government of the Kingdom of Lesotho and our shareholders, we would be unable to operate effectively. Finally, a sincere thank you to my fellow directors for their dedication, insight and support over the past year.

Harry Kenyon-Slaney

Chairperson

15 March 2023

RISK MANAGEMENT

HOW WE APPROACH RISK

The Group's risk management framework, which is fully integrated with strategic and operational planning, aims to identify, manage and respond to the Group's risks and uncertainties. The framework combines top-down and bottom-up approaches with appropriate governance and oversight.

Risk management framework

environment in which the Group operates, even though the life of mine, the mining lease tenure and available estimated reserves exceed three years.

The business and strategic plan reflects the Directors' best estimate of the Group's prospects. The Directors evaluated several additional scenarios to assess the potential impact on the Group by quantifying their financial impact and overlaying this on the detailed financial forecasts in the plan.

The Board's assessment of the Group's viability focused on the critical principal risks categorised within the strategic, external and operational risk types, together with the effectiveness of the potential mitigations that management reasonably believes would be available to the Group over this period.

GROUP FACILITIES

The refinancing of the Group's facilities, which was completed in December 2021, and the new project debt facility for the replacement of the primary crusher area (PCA), implemented in November 2022, significantly increased the Group's available facilities to US$82.6 million, when fully unutilised. US$74.1 million of these facilities mature in December 2024 and US$5.9 million is a general banking facility with no set expiry date, but which is reviewed annually. The balance of US$2.6 million relates to the PCA funding which expires in May 2027.

RISING COSTS

The Russian invasion of Ukraine caused extreme global uncertainty which resulted in increased diesel and explosives prices experienced during the year. This had a direct impact on costs due to the large volumes of diesel used in the loading and hauling of ore and waste tonnes. In addition, the cost of running the treatment plants increased as the diesel-run generators were used for extended periods due to the electricity grid disruptions experienced in South Africa, the primary source of electricity for Letšeng. The Group has seen a slight reduction in the diesel price during the first two months of 2023.

CLIMATE CHANGE

The Board is cognisant of the risks presented by climate change and conscious of the need to minimise emissions. A Group-specific climate change scenario analysis has been conducted whereby the short to medium and longer-term physical risks were assessed. The short to medium-term impacts fall within the viability period. The physical risks identified for Letšeng, such as drought, strong winds, extreme precipitation and cold, are similar to its current operating conditions. The operation is therefore well geared to manage these conditions within its current and medium-term operational activities, cost structure and business planning. Additional cash investment required in the event of these short to medium-term physical risks materialising has been assessed as low with no material impact on the current operations and viability of the Group.

In terms of transitional risks, as users of grid-supplied and fossil fuel energy, the short-term focus is on improving energy efficiencies in our operational processes and reducing combustion-related fossil fuel use. Options are being assessed in the context of the size, nature and location of the Group's operations, the required investment and the expectations of our main stakeholders. Any material investment during the viability period is considered unlikely. Due to the uncertainty of the cost and timing of implementation of carbon-related taxes, the impact of such taxes on the Group's operations and cash flows has been excluded from the viability assessment and scenario stress testing. Management and the Board will continue to assess these impacts as the information becomes more certain. The Group has adopted a carbon-pricing model that will be used to responsibly assess the potential financial impact of future projects. The Group has also adopted a decarbonisation strategy which is aimed at reducing potential future carbon tax liabilities.

STRESS TESTS 

The scenarios tested considered the Group's revenue, EBITDA1, cash flows and other key financial ratios over the three-year period. The scenarios included the compounding effect of the factors below and were applied independently of each other. 

1 Refer Note 4, Operating profit on page 177 for the definition of non-GAAP measures.

CONCLUSION

The Group's current net cash1 position of US$3.3 million as at 31 December 2022 and undrawn facilities of US$82.6 million at 31 December 2022, subject to availability, would enable it to withstand the impact of these scenarios over the three-year period. During the final year of the viability period, in 2025, there is no Satellite pipe ore available for processing. The timing of the availability of this higher value ore is dependent on the Underground or Open pit Cut 6 decision, which will be made by the Board during the viability period. The revolving credit facilities which expire on 22 December 2024 have a 24-month extension period and the Group will follow all necessary processes to extend the facilities for this available period, as it has in the past. This position is supported by the cash-generating nature of the Group's core asset, Letšeng, and its flexibility in adjusting its operating plans within the normal course of business. Based on the robust assessment of the principal risks, prospects and viability of the Group, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending 31 December 2025.

1 Net cash is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility and insurance premium financing).

CHIEF EXECUTIVE OFFICER'S REVIEW

2022 was a year of solid operational performance and steady execution of our strategy.

In 2022, the Letšeng mine emerged from the COVID-19 pandemic to resume normal operations, but new operational challenges emerged following Russia's invasion of Ukraine, which impacted global inflation and drove extraordinary increases in diesel prices. In addition, Eskom's significantly increased electricity outages posed challenges to the stability of Letšeng's production processes and negatively impacted costs due to the regular requirement for diesel power generation.

It is pleasing to report that the implementation of cost-saving and decarbonisation initiatives at Letšeng, aimed at energy efficiency and carbon reduction, together with the additional reduction in waste tonnes from our revised mine plan for the year, resulted in a 27% year on year reduction in the Group's carbon footprint. We implemented the second year of our TCFD adoption strategy, where we made good progress towards the Group's long-term decarbonisation objectives.

We also advanced the updating of our Resource and Reserve Statement by completing a second core resource drilling programme. We intend to publish the Resource and Reserve Statement in Q4 2023.

Letšeng also commissioned a comprehensive Underground Feasibility Study. We will have greater clarity on the way forward for Letšeng as we finalise this important exercise and complete the trade-off studies between an underground operation to mine the Satellite pipe versus another open pit cutback (Cut 6 West).

The October 2022 national elections in Lesotho saw a peaceful transition of power from the All Basotho Convention party to the Revolution for Prosperity party in coalition with the Alliance of Democrats and the Movement for Economic Change. As significant investors in the Kingdom of Lesotho, we have worked well with every government and will continue to do so. The new government is business-orientated and investor-friendly and has announced several positive initiatives to improve service delivery. One important example is the government's commitment to issue work permits within a shorter defined time period. This is an important step to enhancing economic growth and allowing for the speedy engagement of scarce technical skills.

EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS

We have achieved our objectives of extracting value for our stakeholders by operating safely, responsibly and efficiently. The lifting of COVID-19 restrictions eased the supply constraints experienced in 2021 and allowed us to resume regular leadership visits to Letšeng.

Tonnes treated decreased 11% year on year in line with the revised mine plan. This plan excluded the third party operated plant from 1 July. Carats recovered decreased (7)% to 106 704 (2021: 115 336).

Four diamonds greater than 100 carats were recovered during the year (2021: six). Exceptional sales during the year included the three large high-quality Type IIa white diamonds of 245 carats, 128 carats and 125 carats, which sold for US$35 811 per carat, US$28 618 per carat and US$12 123 per carat, respectively. The operational performance of the Letšeng mine is discussed in more detail in the Operations review on page 56.

The diamond market improved in 2022 and demand for the high-quality white diamonds produced at Letšeng remained robust. The average price achieved decreased slightly year on year by 4% to US$1 755 per carat (2021: US$1 835 per carat). The decrease in the average price achieved compared to 2021 relates mainly to the quality of diamonds recovered and a slight softening of the global diamond market in Q4 2022.

We have an effective, transparent and competitive tender sales process in Antwerp, with two additional viewings having taken place in Dubai in 2022. The viewings in Dubai are convenient for clients from the United Arab Emirates, India and Israel. These were well supported and contributed to the strong prices achieved. These viewings are now part of our annual tender calendar and are scheduled to take place when appropriate. In 2022, Letšeng entered into an agreement with two important diamond manufacturing clients who will supply polished diamonds to some of world's most premium luxury brands. These diamonds are polished to precise specifications and additional value is realised for the Group. This is a further step in the Group's strategy to move further down the value chain and to promote Letšeng as the exceptional diamond brand.

Group revenue decreased 6% to US$188.9 million (2021: US$201.9 million), which translates to underlying EBITDA of US$43.7 million and earnings per share of 7.3 US cents. Significant inflationary increases, specifically in diesel prices, resulted in profit attributable to shareholders of US$10.2 million. The Group ended the year in a net cash position of US$3.3 million. More information regarding the Group's financial results is included in the CFO review on page 49.

The biggest challenge faced in 2022 was the unreliability of Eskom-generated power supply and the high cost of diesel. As the incidence of load shedding increased and diesel costs rose, with the price of crude oil exceeding US$120 per

barrel in June 2022, the impact on profitability has been significant. Total operating costs rose 13% to LSL1 900.3 million (2021: LSL1 677.2 million), and the costs related to diesel increased by 29% to LSL340.6 million (2021: LSL265.0 million).

The Government of Lesotho is showing a commendable determination to find solutions to reduce national dependency on South Africa's unreliable electricity grid. The Minister of Mines and his colleagues have been supportive of Letšeng's intentions to implement renewable energy solutions.

1 Refer Note 4, Operating profit on page for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.

2 Net cash is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility and insurance premium financing).

WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE

Another highlight for 2022 is the Group's improved safety performance. Once again, there were no fatalities (2021: none), three LTIs (2021: six), and we achieved an overall AIFR of 0.70 (2021: 0.93), a 33% decrease year on year. We continue to implement safety initiatives to reinforce our safety measures and responsible behaviour, and entrench a workplace safety culture founded on mutual care and collaboration.

We adhere to the highest environmental management standards. We are proud to report that Gem Diamonds' work in sustainable water treatment and community water initiatives during 2022 was recognised by the award in the Water category conferred by the Mining Indaba Sustainability Committee Junior ESG Awards Committee.

Our tailings storage facility management process aligns with the ICMM's GISTM, which ensures the responsible management and monitoring of the tailings storage facilities. In addition, our tailings storage and freshwater facilities are subject to regular inspections by external experts. In 2022, we engaged an external consultant to evaluate our tailings storage facilities and to review and update the dam breach analysis that was conducted in 2020, and no material issues or concerns were raised. In addition, the engineer responsible for the Mothusi Dam, our freshwater dam, was consulted to provide an opinion on the safe operating level of the dam. The engineer provided an opinion that the dam can be safely operated at 100% capacity. These professional opinions together with the internal governance, management, monitoring and reporting processes ensure that our tailings storage and freshwater dam management is both effective and closely monitored.

In 2022, our CSI activities resumed as normal and our focus areas, as aligned with our selected UN SDGs, are to support infrastructure development, education and health while stimulating small businesses. In 2022, we supported small agricultural operations including those in egg, vegetable and dairy production, provided scholarships for tertiary education, and delivered water and sanitation projects in schools. From 2016 to 2022 the Group invested US$4.4 million in sustainable CSI initiatives.

In 2022, Gem Diamonds contributed a total of US$39.7 million (LSL649.3 million) to the Lesotho fiscus in the form of taxes, royalties and dividends. We are proud of our contribution to this developing economy and our position as a significant taxpayer and employer.

PREPARING FOR THE FUTURE

In 2023, we aim to deliver the business plan approved by the Board. This includes achieving our financial and operational targets. We will maintain a focus on further improving our safety performance by keeping up a steady drumbeat of safety interventions, critical control management and communication.

Our capital plans include funding for projects that will sustain growth and value creation. The two major capital-intensive projects in 2023 include the replacement of the primary crushing area (PCA), which commenced in 2022 and will be completed in Q2 2023, and concluding the Underground Feasibility Study which was commissioned in July 2022. As soon as the latter is concluded, we will evaluate the trade-off between the next cutback in the Satellite pipe versus an earlier and potentially more cost-effective underground mining opportunity. The current open pit mine plan extends to 2040.

In 2023, we will prioritise consistent production levels while enhancing efficiencies. We will manage costs to protect cash flows and strive to improve our capital return to shareholders. We are investigating new measures to maintain our status as a low-cost operator in the face of significant inflationary pressures. This includes plans to right-size and further optimise operations at Letšeng in line with its operational requirements. This right-sizing process has commenced in an appropriate and structured manner to deliver these objectives.

OUTLOOK

The Russian invasion of Ukraine might continue to hamper global growth, increase energy costs and exacerbate geopolitical tensions. While there are mixed signs of inflation starting to ease, interest rates across the globe remain high and could pose a constraint to growth. However, the major developing nations are already reporting a positive growth outlook for 2023/2024, and China's reopening paves the way for a rapid rebound in economic activity in that country. Many analysts expect high levels of savings among Chinese consumers during the pandemic to translate to greater spending in 2023. This bodes well for the global diamond market as Chinese consumers represent the world's second-largest market for diamonds. In China, women increasingly buy diamonds for themselves to celebrate their achievements and financial independence.

Despite the highly uncertain economic market conditions, the global luxury market continued to grow in 2022 and remains poised to expand further in 2023. The luxury market appears well positioned to cope with economic turbulence, with a larger and more resilient consumer base. According to a report by Bain & Company, the luxury market consumer base broadened to 400 million consumers in 2022 and is expected to expand to 500 million consumers by 2030.

In the medium to long term, rough diamond prices should be supported by favourable demand and supply fundamentals, which are underpinned by continued growth in demand from markets such as the US, China and India, contrasted with a projected fall in rough diamond supply. This dynamic of rising demand and constrained supply is expected to benefit high-quality rough diamonds in particular. The fundamentals that underpin our business are sound and strongly position Gem Diamonds for success.

APPRECIATION

I would like to thank the Board for their strong leadership and commitment in 2022. I appreciate our hard-working employees for their efforts to deliver our strategic goals and for living our values. I would also like thank our customers for their continued trust and for purchasing Letšeng's diamonds, and our shareholders for their faith in our business. Finally, I thank the Government of the Kingdom of Lesotho for their support and our productive engagements. We look forward to another mutually beneficial year.

Clifford Elphick

Chief Executive Officer

15 March 2023

CHIEF FINANCIAL OFFICER'S REVIEW

The Group delivered a solid financial performance in 2022 despite the volatile global economic environment, significant inflation, extraordinary fuel costs and increased grid electricity interruption. 

We delivered a credible financial performance for 2022 despite several operational challenges and turbulent global economic conditions. Most major economies experienced unprecedented levels of inflation in 2022, which showed some signs of easing late in the year. Russia's invasion of Ukraine significantly impacted the global economy and resulted in significantly higher fuel prices, and several suppliers also passed on higher than inflation increases to the operations. In response, we looked at opportunities to decrease our consumption of diesel by reducing waste tonnes mined and introducing shorter haulage distances. In the medium to long term, we are looking to reduce our reliance on diesel generators by pursuing renewable energy solutions.

Our Letšeng operation performed in line with expectations, despite several challenges presented by an exceptionally high rainfall season and snow, increased electricity supply disruptions and higher than anticipated operating costs. We benefited from a strong diamond market, and achieved an average price of US$1 755 per carat for the year. The overall dollar per carat achieved was negatively influenced by a decrease in large, high-value diamond recoveries compared to 2021.

In 2022, we supported shareholder value creation by paying a dividend of 2.7 US cents per share and we initiated a share buyback programme in April 2022.

Underlying EBITDA2 decreased to US$43.7 million from US$57.4 million in 2021. Profit attributable to shareholders for the year was US$10.2 million, equating to basic earnings per share of 7.3 US cents on a weighted average number of shares in issue of 139.8 million.

The Group ended the year with a cash balance of US$8.7 million and drawn down facilities of US$5.4 million, resulting in a net cash position of US$3.3 million (2021: net cash of US$20.9 million) and unutilised facilities of US$82.6 million.

Summary of financial performance

Refer to the full annual financial statements from page 146.

\* The prior year figures have been re-presented, as Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a discontinued operation during the current financial reporting period. Refer Note 15, Assets held for sale of the notes to the consolidated financial statements.

1 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation.

2 Underlying EBITDA as defined in Note 4, Operating profit of the notes to the consolidated financial statements. 

Revenue

The Group's decrease in revenue was mainly driven by lower production volumes compared to 2021 (ore tonnes treated decreased 11% to 5.5 million tonnes) and lower than average recoveries of large diamonds. Rough diamond revenue of US$188.6 million was generated at Letšeng, achieving an average price of US$1 755 per carat (2021: US$1 835 per carat). The Group sold 29 diamonds for more than US$1.0 million each, contributing US$64.5 million to revenue.

Letšeng has partnership agreements that allow the Group to share in the margin uplift on the sale of polished diamonds. In 2022, additional revenue of US$0.3 million (2021: US$0.2 million) was generated from these partnership arrangements.

Capital expenditure 

At year end, cash on hand totalled US$8.7 million (2021: US$31.1 million) and net cash of US$3.3 million which was a decrease in net cash of US$17.6 million year on year. Group cash generated by operations was US$82.8 million before capital and waste investment of US$59.7 million. Gem Diamonds' share buyback programme and the dividend paid to its shareholders totalled US$4.8 million. In addition, the Lesotho Government's portion of dividends and withholding taxes extracted from Letšeng was US$10.5 million

Loans and borrowings

The Group-wide debt refinancing for Letšeng and Gem Diamonds was successfully concluded in December 2021 for LSL750.0 million and US$30.0 million respectively, for an initial three-year period. Security for the facilities was implemented over Gem Diamonds' bank accounts and its shareholding in Letšeng, reducing the margin on the interest rates applicable to these facilities by 1.5%.

Letšeng has a ZAR100.0 million (US$5.9 million) general banking facility with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) renewable annually. There was no drawdown on this facility at year end.

The funding partners to the facility agreement are Nedbank, Standard Bank and Firstrand Bank (through their respective operations). Nedbank's portion of the funding, totalling US$31.1 million, is a sustainability-linked loan (SLL), which is an innovative structure that links the margin and resultant interest rate on the SLL to the Group's ESG performance. The margin on the SLL will decrease subject to the Group meeting certain carbon reduction and water conservation KPIs that are aligned with the Group's sustainability strategy. These KPIs were assessed for 31 December 2022 and will be assessed again on 31 December 2023.

The two KPIs included for the SLLs both need to be met at each measurement date before the margin reduction on these loans becomes effective. The carbon emissions reduction KPI was achieved at 31 December 2022, but due to delays in the construction of the bioremediation plant, the water conservation KPI could not be measured. No margin reduction will therefore be implemented on any utilisation of the facility in 2023.

In 2022, Letšeng implemented a four-and-a-half-year facility agreement for the replacement of the PCA to an amount of R136.4 million (US$8.0 million) with Nedbank. The facility is underwritten by the Export Credit Insurance Corporation of South Africa (ECIC). At year end, an amount of LSL92.8 million was utilised (US$5.4 million). Repayment of this facility is scheduled to commence in Q4 2023 once the balance of the facility is drawn down, which is expected by May 2023.

At year end, the Group had utilised facilities of US$5.4 million (as mentioned above), resulting in a net cash position of US$3.3 million and available facilities of US$82.6 million. Gem Diamonds, the Company, ended the year with no outstanding facilities (2021: US$9.0 million).

Letšeng made final repayments of LSL19.0 million (US$1.2 million) on its project debt facility for the construction of the mining workshop complex which expired on 30 September 2022.

The Group regularly engages with funders and credit providers to ensure continued access to funding and to manage cash flow requirements.

Summary of loan facilities as at 31 December 2022

Executive Directors. On 4 April 2022, 1 007 098 nil-cost options were granted to certain key employees and Executive Directors under the new GDIP. Refer to the Remuneration Committee report on page 119 for more detail.

TAXATION

The Group applies all relevant principles in accordance with prevailing legislation in assessing its tax obligations. The Group's effective tax rate was 33.8%. Most of the Group's taxes are incurred in Lesotho, which has a corporate tax rate of 25%. The effective tax rate is above the Lesotho corporate tax rate mainly due to deferred tax assets not recognised on losses incurred in other operations.

The Group continues to pursue a long-standing legal matter relating to an amended tax assessment that was issued to Letšeng by the Revenue Services Lesotho (RSL) (previously known as the Lesotho Revenue Authority (LRA)) in December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. We expect to pursue this matter in the courts in 2023. We have sought senior legal counsel and their advice indicates good prospects for success. Refer to the accounting treatment for this matter, Note 1.2.28, Critical accounting estimates and judgements for further detail.

OUTLOOK

We are driving several initiatives to contain our operating costs in a volatile environment. These include a focus on reducing the impact of significant cost increases and investing in renewable energy to support our decarbonisation strategy. We have commenced the optimisation and right-sizing of Letšeng. This project will include a coaching and mentoring component to address skills and experience challenges at supervisory and management levels together with certain targeted operational performance issues. This project will consider resizing the business to ensure a more appropriate skills match with the current profile of our operations. This is a difficult but necessary step to ensure that our continued status as a low-cost operator is maintained.

Michael Michael

Chief Financial Officer

15 March 2023

OPERATIONS REVIEW

2022 saw robust operational performance and improving operational efficiencies in challenging physical and economic conditions.

2022 OVERVIEW

· Zero fatalities, three LTIs (2021: six), an LTIFR of 0.13 (2021: 0.24) and an AIFR of 0.70 (2021: 0.93).

· Zero major or significant environmental or stakeholder incidents.

· Focused dam and tailings facilities management.

· Energy efficiency and carbon reduction initiatives resulted in a 27% year on year reduction of the Group's carbon footprint.

· Objectives of the second year of our three-year TCFD adoption strategy completed.

· Recovered four diamonds greater than 100 carats, including two high-quality Type IIa white diamonds of 244.34 carats and 127.58 carats.

· Sold 29 diamonds for over US$1.0 million each, generating revenue of US$56.3 million.

· Average price of US$1 755 per carat achieved, with highest prices achieved being:

· US$79 543 per carat for a 10.07 carat pink diamond.

· US$66 059 per carat for an 8.41 carat pink diamond.

· US$53 834 per carat for a 30.01 carat white diamond.

· Supported our PACs through investment in education, school infrastructure, small business development and clean water projects.

· Received our sixth consecutive annual ISO 14001(Environmental Management) and 45001 (Occupational Health and Safety Management) certifications.

· Completed the 2021-2022 core resource drilling programme and commenced an Underground Feasibility Study for the Satellite pipe.

· Commenced the PCA replacement project, to be completed in Q2 2023, with commissioning early in Q3 2023.

· Completed the designs for a modular bioremediation plant to be constructed in 2023.

PERFORMANCE

Safety

The Group's safety culture is founded on our commitment to zero harm and the belief that all injuries are preventable. Letšeng recorded zero fatalities and three LTIs during 2022 (2021: six), resulting in an improved LTIFR and AIFR of 0.13 (2021: 0.24) and 0.70 (2021: 0.93), respectively. Letšeng's safety performance improved in 2022, with the implementation of an organisational safety culture maturity programme yielding positive results. In 2022, Letšeng commenced a two-year safety maturity strategy aimed at addressing critical safety risks, enhancing safety-specific leadership visibility, and engagement and implementing engineering and behaviour-focused controls to more specifically prevent safety incident reoccurrences. The programme is guided by independent subject matter experts and includes mentoring senior management on best practice safety leadership and successfully implementing our critical control management strategy.

Operations

1 Includes carats produced from the Letšeng plants, the Alluvial Ventures plant and the coarse and fines tailings treatment plants.

Letšeng operated safely and responsibly throughout 2022 and we welcomed a resumption of more normal operating conditions post COVID-19, particularly a more reliable supply chain. This however was short-lived as the Russian invasion of Ukraine and the ensuing war brought about immediate inflationary, cost and supply chain challenges globally, directly impacting our operations.

Extreme weather conditions at Letšeng, including exceptionally high rainfall and snow, although well managed, resulted in intermittent disruptions to our mining operations. The positive impact of the high rainfall throughout the wet season was that the freshwater dam reached 92% of its capacity and, based on current usage rates for operational requirements, has sufficient freshwater capacity for up to nine years.

The 2022 Lesotho general election held in October required a compulsory two-day site-wide shutdown at Letšeng to allow the workforce to vote in their respective constituencies. Although operations were halted for two days, the time was used to perform scheduled maintenance to mitigate the impact of lost operating time.

Waste tonnes mined 

Total waste tonnes mined in 2022 decreased (46)% to 10.2 million tonnes from 18.7 million tonnes in 2021. This was in line with the planned 2022 waste mining profile, further optimised with the successful implementation of slope steepening of the active cutbacks in the Main pit. This followed the successful steeper slope and berm retention programme implemented in Cut 5 West of the Satellite pit during 2021. To further optimise waste mining and the cost thereof, we enhanced our initiative to further reduce the haulage distances travelled from the Main pit, in particular the new Cut 4 West cutback, to the waste dump.

Ore mined

Total ore tonnes mined in 2022 decreased 9% to 5.7 million tonnes from 6.3 million tonnes in 2021. This was in line with the 2022 mine plan, taking into account the treatment capacity of the plants, including the reduced requirement of ore mining following the expiry of the Alluvial Ventures processing contract on 30 June 2022, and required stockpile management.

Ore treated

Ore treated during 2022 of 5.5 million tonnes (2021: 6.2 million tonnes) comprised 5.1 million tonnes treated by Letšeng's two plants (2021: 5.2 million) and 0.4 million tonnes treated by Alluvial Ventures, the third party processing contractor (2021: 1.0 million). The reduction in total ore tonnes treated in 2022 compared to 2021 was mainly driven by

the expiry of Alluvial Ventures' processing contract on 30 June 2022. Of the total ore treated, 2.5 million tonnes were sourced from the Main pipe and 3.0 million from the Satellite pipe, the latter being in line with the planned annual Satellite ore contribution.

The biggest challenge to the performance and stability of the plants in 2022 was the negative impact of more frequent and longer periods of grid power outages resulting from increased load shedding by Eskom. Although the work completed on increasing Letšeng's back-up generator capacity and improving the synchronised switch-over to generator power yielded benefits, the additional strain on and instability caused by more frequent and longer load shedding increased the risk of plant and equipment breakdowns and chokes. An example of this was a sudden secondary crusher breakdown in Plant 2 in October 2022, which caused 3.5 days of downtime to repair. The significantly increased utilisation of diesel generators, together with the increased cost of diesel in the year, had a significant negative impact on operating costs.

Other challenges to plant performance included the maintained lower feed rate of the current ageing primary crusher asset in 2021, to protect its longevity, while the replacement PCA is being constructed. This impacted the ability of the current primary crusher to keep up with plant demand, creating plant feed challenges at times. The new PCA will be commissioned in Q3 2023 and comprises a twin module design with a combined throughput of c.1 000 tonnes/hour.

Extensive work to resolve identified issues of plant stability, appropriate maintenance strategy implementation, and certain other issues causing inconsistent performance, yielded positive results in Q4 2022 as plant stability and performance improved. Further improvement and optimisation of the organisational structure is being implemented to ensure that the operation and maintenance of the plants are more effectively and efficiently managed.

Total carats recovered

Total carats recovered in 2022 decreased 7% to 106 704 carats (2021: 115 336 carats) due primarily to comparatively lower production volumes treated.

The coarse tailings mobile XRT sorting machine recovered 774 carats in 2022 (2021:1 098 carats) from re-treating coarse recovery tailings, and an additional 2 657 carats (2021: 213 carats) were recovered by the fines tailings mobile XRT sorting machine, which treated both historic and current fines recovery tailings.

The overall grade for 2022 was 1.94cpht which is higher than 2021 and in line with the expected reserve grade. The contribution from Satellite pipe material accounted for 55% of all material treated during the year (2021: 54%).

Large diamond recoveries

In 2022, Letšeng recovered four diamonds greater than 100 carats, and total diamonds recovered greater than 10 carats decreased by 11% year on year, mostly in the 10 to 20 carat size category. The lower number of diamonds in the larger categories can be primarily attributed to the domains of the resource that were mined in both the Satellite and Main pipes in 2022. A total of 126 greater than 100 carat diamonds have been recovered at Letšeng since 2006.

Diamond sales

Eight rough diamond tender viewings were held in Antwerp with two additional viewings held in Dubai in March and September. All tenders were well attended and the competitive bidding evidenced that demand for Letšeng's large, high-value diamonds remained strong throughout the year.

A total of 107 498 carats were sold in 2022 (2021: 109 697) and Letšeng generated rough diamond revenue of US$188.6 million (2021: US$201.30 million), at an average price of US$1 755 per carat (2021: US$1 835).

The Group supports the GIA's blockchain technology to inform and assure consumers about the ethical and socially supportive footprint of our diamonds. Blockchain technology can link the source of rough diamonds to the final polished diamonds, proving their authenticity, provenance and traceability, and supporting ethical sourcing and processing in the diamond value chain.

Life of mine plan and Underground Feasibility Study

In Q2 2022 it was identified that the kimberlite contact on the west side of the Satellite pipe protruded further into the side wall from where it had been previously mapped. This resulted in an inability to access the ore in the contact area safely and required an amendment to the short-term Satellite pit design. Following a review of numerous solutions, the most appropriate plan was to "step-in" on the pit design of Satellite Cut 5 West (C5W), which resulted in a deferment of ore originally planned for C5W into either (i) the next cutback in the Satellite pipe (Cut 6 West (C6W)) or (ii) a potential underground operation. This has resulted in a reduction in the volume of ore previously available in C5W, thereby reducing the life of this cutback from 2025 to 2024. We continue to review and explore opportunities to extract

additional ore from C5W - ie initiatives such as the use of a surface miner to steepen remaining benches and other viable end-of-cutback opportunities (ie backloading of the ramp) that could bring additional ore back into C5W.

In light of these changes, our long-term mine plan has been updated to take into account the reduced tonnes in Satellite C5W.

A conceptual desktop study for an underground mining operation in the Satellite pipe post the current C5W cutback was completed in November 2021. The outcome indicated potential for underground mining and recommended that a comprehensive Underground Feasibility Study be undertaken to confirm the feasibility thereof to most optimally and economically extend the life of mine for the Satellite pipe. This study commenced in mid-2022 and is expected to be completed in Q4 2023. The study will (i) assess the viability of an earlier shift to underground mining of the Satellite pipe, and (ii) inform the trade-off between underground mining and proceeding with the next open pit cutback in the Satellite pipe (C6W) post the completion of Satellite C5W in 2024. The study will encompass several underground feasibility studies, including geological and hydrogeological drilling and modelling, geotechnical drilling, geo-metallurgy and social and environmental impact assessments.

Following the successful steepening of the pit slope angles in Satellite C5W, steeper slopes have now been implemented in the Main pit Cut 4 East and Cut 4 West cutbacks. This has resulted in lower waste stripping requirements for the Main pit from c.12.0 million tonnes per annum to c.9.5 million tonnes per annum compared to the previous mine plan. This has also allowed access to a further c.5.3 million tonnes of Main pipe ore. A third plant which was included in the previous mine plan has been deferred and will be reassessed following the outcome of the trade-off between open pit and underground mining, resulting in reduced annual treatment rates. These factors have had the impact of extending the mine plan to 2040 as set out in the graph below. 

Resource development

Letšeng embarked on a Resource Development Project in 2016, the objectives of which initially were to improve the understanding of grade and price variability within the five historical kimberlite domains (namely KMain, K6 and K4 in the Main pipe and NVK and SVK in the Satellite pipe) which formed the basis of previous Resource and Reserve Statements. Letšeng's last independent Resource and Reserve Statement was published in 2015.

The first step in the process was to increase the drillhole coverage down to 300 metres below pit floor, including extensive core drilling, petrography, mineral chemistry and micro-diamond studies. This core drilling programme was concluded in December 2018, with 12 drillholes (c.3 000 metres) in the Main pipe and 16 drillholes (c.4 000 metres) in the Satellite pipe. Sampling of the core and related geological studies were carried out in 2019-2020. Preliminary geological models produced by SRK Consulting suggested more complex internal geology in both pipes than was previously reflected in the 2015 Resource and Reserve Statement. Additional drilling was therefore required to delineate the internal contacts between domains before the geological models could be finalised and the Resource Statement updated. To achieve this, a further c.9 000 metre core drilling programme was undertaken in late 2020, which was completed in June 2022 and comprised 13 core drillholes (c.3 500 metres) in the Satellite pipe and 25 core drillholes (c.5 500 metres) in the Main pipe.

The draft geological models for the Satellite pipe indicated that yet more core drilling was required to adequately define contacts in the central portion of the pipe. The drilling of four additional core drillholes (c.2 000 metres) in the Satellite pipe commenced in December 2022 and will be completed by May 2023. The preliminary geological models for the Main pipe were completed by SRK Consulting in November 2022. Work on the pit optimisation of both the Main and Satellite pits has commenced.

The focus in 2022 was completing the core drilling programme in the Main pipe and assembling the bulk sampling and pricing data for the newly defined domains in both pipes. The primary challenge facing an in-pit core drilling programme of this nature is competing with ongoing production activities for access to the drilling sites within the limited confines of each pit. Although both the core drilling programme and continued production are vital to the sustainability of the operation, priority is given to the latter.

The information from this latest drilling programme will inform both the updated Resource and Reserve Statement and the Underground Feasibility Study currently being undertaken for the Satellite pipe. The updated Resource and Reserve Statement and accompanying NI43-101 Technical Report are scheduled to be completed by the end of 2023.

Surface miner trial

In 2022, we further progressed a mining project to optimise ore fragmentation and plant throughput by trialling a surface miner in Main pit Cut 4 East (MC4E). By year end, 0.2 million tonnes of ore were cut by the machine and treated as a sample through both Letšeng's plants. The surface miner technology presents a potentially diamond-friendly method of breaking the rock while providing a consistently well-fragmented product to the plant, positively impacting throughput. In addition to achieving higher truck payloads by replacing drilling and blasting in the kimberlite, the surface miner has the potential to allow for steeper pit slopes in ore - thereby enabling access to more ore for the same waste stripped. Replacing the drilling and blasting process in ore is also a cleaner mining method, as nitrates resulting from blasting are reduced. The incorporation of a surface miner into Letšeng's mining method for the Satellite pipe is being considered and discussions with various surface miner suppliers and mining contractors have commenced.

Capital projects

Capital was appropriately allocated during 2022 and was in line with operational requirements. All project-related capital spend is closely monitored by the Projects Steering Committee, attended by the COO (Chair), CFO and Senior Technical and Projects Manager, together with senior management from Group and Letšeng. Letšeng's key capital projects for 2022 included:

· the replacement of the PCA;

· commencement of the Underground Feasibility Study;

· the core drilling programme to inform the Resource and Reserve Statement; and

· the designs for the Patiseng Coarse Tailings Facility expansion project and the bioremediation project.

Details of overall costs and capital expenditure incurred at Letšeng are included in the CFO review on page 49.

The planned capital spend in 2023 relates mainly to 2022 carry-over capital, including the completion of the new PCA and bioremediation project, and finalising the Underground Feasibility Study and Resource and Reserve Statement. No other major new capital spend is anticipated in 2023.

Tailings storage facility and dam management

Operational status of our dams and tailings storage facilities

The recent global tailings dam failures in the mining industry have shown the severe adverse impact these can have on human lives and the natural environment. Tailings dam integrity is consequently an ongoing area of significant focus for mining companies and investors.

Letšeng has two tailings storage facilities (TSFs) and one freshwater dam on site:

1. the Patiseng TSF, which is currently in use for the deposition of coarse and fines tailings;

2. the Old TSF, which is sporadically used for fine tailings deposition; and

3. the Mothusi Dam, which is the mine's freshwater supply source.

Letšeng's TSFs and dam were constructed using the centre line and downstream tipping method, being a safer method of construction than the "upstream" construction methods used in most recent dam failures reported in the mining industry.

The 2022 quarterly dam safety inspections for the Mothusi Dam were completed as scheduled. There were no adverse findings regarding the safety of the dam or the possible failure modes relating to the embankment, the spillway structure or the seepage. The exceptionally high rainfall experienced in 2021 and 2022 prompted us to request the Engineer of Record (EoR) responsible for the Mothusi Dam to provide an opinion on the safe operating level of the dam. The EoR confirmed that the dam can be safely operated at its 100% full supply capacity, subject to all operation and maintenance procedures being followed. The dam reached 100% full supply capacity in January 2023 and water started flowing down the spillway which had been extended to push the flow away from the toe of the wall.

Our TSF management code of practice is aligned to that of the ICMM's GISTM, and we have established appropriate governance structures at both operational and Group levels to provide oversight and assurance of continued safe and responsible management of our TSFs. The relevant details of Letšeng's TSFs are available in our voluntary disclosure as part of the Investor Mining and Tailings Safety initiative set up by the Church of England, which can be found under the Company's name at http://tailing.grida.no/.

An external consultant was appointed to conduct geotechnical investigations to provide the technical data and information to understand the tailing storage facilities' founding conditions and to review and update the dam breach analysis that was conducted in 2020. The outcome of this work will inform the current consequence classification of our TSFs. This work has commenced and is scheduled to be completed by Q3 2023.

There were no incidents of compromised dam or TSF integrity.

Governance framework

Our approach

It is our responsibility to guard our workforce, communities and the environment in which we operate against any potential risks posed by our operations. TSFs, while an integral part of mining, present a significant potential hazard if not responsibly managed and continuously monitored. Focused risk management is therefore crucial at every stage of the lifecycle of our TSFs.

In response to recent tragedies, the ICMM's GISTM was established to achieve the ultimate goal of zero harm to people and the environment. The GISTM requires operators to take responsibility and prioritise the safety of TSFs through all phases of their lifecycles, including closure and post-closure. It also requires the disclosure of relevant information to support public accountability. Gem Diamonds has committed to and adopted the GISTM standards.

We recognise that ensuring the integrity of our TSFs and freshwater storage facilities is non-negotiable and integral in exercising our responsibility to safeguard our workforce, communities and environment to ensure business continuity. We take a focused and proactive approach to managing our TSFs according to appropriate international best practice. Retaining structures and embankments undergo stringent safety monitoring in the form of inspections and audits, which are conducted both internally and externally at regular intervals throughout the year. Stringent inspections and monitoring on a daily, weekly and monthly basis include surveying various factors such as the densities of fines deposits, water levels, beach lengths and freeboard. Annual structural stability analysis is also conducted at our TSFs and an early-warning system, together with community training and awareness programmes, are used to ensure the emergency readiness of communities that could be affected in the unlikely event of a failure. The nearest village is located 20km downstream from the mine.

The findings and recommendations stemming from these investigations and audits are reported quarterly to the Boards and Sustainability subcommittees at both operational and Group level.

The Global Industry Standard on Tailings Management

The GISTM is directed at operators and applies to TSFs, both existing and to-be-built. It makes it clear that extreme consequences to people and the environment from catastrophic TSF failures are unacceptable. To this end, operators must have zero tolerance for human fatalities and strive for zero harm to people and the environment, which is directly aligned to our safety culture. The GISTM provides the specified measures to prevent failure of TSFs and to implement best practices in planning, design, construction, operation, maintenance, monitoring, closure and post-closure activities.

TSF Risk and Governance Management Framework

Community engagement on TSF and dam safety

Letšeng provides the community and district-level stakeholders with balanced and objective information about the state and safety of its TSFs and freshwater storage dam. This is done during quarterly public gatherings attended by community representatives from nine neighbouring villages.

Consultations are held with these stakeholders on TSFs and dam-related safety activities and project decisions that directly or indirectly affect them. Letšeng and six of the nine neighbouring villages jointly established the downstream emergency preparedness programme. The aim of this programme is to alert the community in the event of a TSF or dam incident or any other emergency that would require the communities to evacuate from the downstream villages.

We frequently conduct in-depth training of community members on how to respond during an emergency. Emergency preparedness drills with community members are held every quarter. Assembly points have been identified and clearly marked in the villages. A two-way radio system is also in place and is regularly tested. Sirens have been installed in the six villages which are centrally controlled at the mine and manned 24 hours a day by the mine's Emergency Team.

Stakeholder engagement platforms:

· Quarterly public gatherings with local communities.

· Daily, weekly and monthly engagement with community leaders.

· Biannual district-level stakeholder forums.

· Quarterly district leadership forums.

· Monthly district leadership meetings.

· Joint emergency preparedness drills.

OUR PLANS FOR 2023

We have several operational objectives for 2023. These include:

· Completion of the Underground Feasibility Study timeously and cost-effectively. Concluding this important study will allow us to make strategic decisions on the way forward for Letšeng's orebody (ie the trade-off between Satellite C6W and the early access underground operation), and will also inform the updated Resource and Reserve Statement.

· Complete our updated Resource and Reserve Statement.

· Enhancing efficiencies and reducing costs. The optimisation and right-sizing of Letšeng's operations to align with operational requirements.

· Investment in renewable and/or alternative energy sources. Providing a consistent source of power for the mine operations remains a challenge at Letšeng. A power usage study has been commissioned to inform the way forward on prioritised power usage and assess the opportunities for lower-carbon and renewable energy sources.

DIRECTORS' REPORT

The Directors are pleased to submit the financial statements of the Group for the year ended 31 December 2022.

As a British Virgin Islands-registered company, Gem Diamonds Limited (company registration number: 669758) is not required to conform with the Companies Act, 2006. However, the Directors have elected to conform to the requirements of the Companies Act, 2006.

Accordingly, Directors must present a Strategic Report and a Directors' Report to inform shareholders of the Group's performance and prospects and help them evaluate whether the Directors performed their fiduciary duty. The 2022 Annual Report and Accounts discloses how the Directors have performed their duty to ensure the Group's continued success and sustainability, in line with the Companies Act, 2006.

Aligned with Disclosure Guidance and Transparency Rules (DTR 4.1.5R(3) and DTR 4.1.8R), the required content of the Management Report can be found in the Strategic Report, the Performance Review and the Directors' Report, the Governance section and other sections of the 2022 Annual Report and Accounts, indicated by a reference.

The Strategic Report can be found on pages 3 to 88. This will provide the shareholders with a balanced assessment of the Group's business including a description of its principal risks and uncertainties. It may not be relied upon by anyone, including the Company's shareholders, for any other purpose.

Forward-looking statements

The Strategic Report and other sections of this report contain forward-looking statements. Forward-looking statements, by their nature, involve several risks, uncertainties and future assumptions because they relate to events and/or depend on circumstances that may or may not occur in the future. The actual results and outcomes may differ materially from those expressed or implied by the forward-looking statements. No assurance can be given that the forward-looking statements in the Strategic Report will be realised. Statements about the Directors' expectations, beliefs, hopes, plans, intentions and strategies are subject to change and are based on expectations and assumptions about future events, circumstances and other factors which are, in many instances, outside the Company's control.

The information in the Strategic Report was prepared based on the knowledge and information available to the Directors at the time of its preparation. The Company is under no obligation to update or revise the Strategic Report during 2023. The expectations set out in the forward-looking statements are reasonable but may be influenced by a several variables which could cause actual results or trends to differ materially. Forward-looking statements need to be read in context with actual historic information provided. The Company's shareholders are cautioned not to place undue reliance on the forward-looking statements. Shareholders should note that the Strategic Report has not been audited.

CORPORATE GOVERNANCE

DTR 7.2 requires certain information be included in a corporate governance statement set out in the Directors' Report. The Group has an existing practice of issuing a separate Corporate Governance Code Compliance Report as part of its Annual Report and Accounts. The information required by the Disclosure Guidance and Transparency Rules and the UK Financial Conduct Authority's Listing Rules (LR 9.8.6) is located on pages 3 to 88.

DIRECTORS

The Directors, as at the date of this report, are listed on pages 214 to 216 to together with their biographical details. Details of the Directors' interests in shares and share options of the Company can be found on page 139.

Directors who held office during the year and date of appointment

Appointment and re-election of Directors

The Board's formal Selection and Appointment Policy ensures that the procedure for appointing new Directors is formal, rigorous and transparent, and appointments are made on merit, against objective criteria. The Nominations Committee makes appointments based on merit while considering diversity (of gender, social and ethnic background), cognitive and personal strengths and the specialist skill sets.

The Articles of Association (82) provide that a third of Directors retire annually by rotation and, if eligible, offer themselves for re-election. However, in accordance with the Code, all the Directors retire at the AGM and, subject to being eligible, offer themselves for re-election.

Payments for loss of office due to change of control

Details of payments for loss of office to Executive Directors due to a change in control can be found on page 126.

PROTECTION AVAILABLE TO DIRECTORS

By law the Directors are ultimately responsible for most aspects of the Group's business dealings. This means they face potentially significant personal liability under criminal or civil law, or the UK Listing, Prospectus and Disclosure and Transparency Rules and face a range of penalties including private or public censure, fines and/or imprisonment. In line with normal market practice, the Group understands that it is in its best interests to protect its Board members from the consequences of innocent error or omission. This allows the Group to attract prudent individuals to act as Directors.

The Group maintains, at its expense, a Director and Officer's liability insurance policy to provide indemnity, in certain circumstances, for the benefit of Directors and other Group employees.

Refer to the Corporate Governance statement on page 98 for further details.

DIRECTORS' INTERESTS

No Director had, at any time during the year, a material interest in any contract of significance in relation to the Company's business. The interest of Directors in the shares of the Company is included on page 139.

SUPPLIERS AND CUSTOMERS

We engage extensively with suppliers and contractors to ensure alignment, mutual understanding and the sustainability of all parties.

We have ongoing communication with customers and our sales processes have resumed as normal post COVID-19. We achieved market-related prices for our diamonds throughout the year. In 2022, we entered into an agreement with two important diamond manufacturing clients who will supply polished diamonds to some of world's most premium luxury brands. These diamonds are polished to the specifications of these luxury brands and additional value is realised for the Group as it shares in a percentage of the sales price of the resultant polished diamonds.

Refer to our stakeholder relationships section on pages 17 to 20 for more details on our engagement with suppliers, contractors and customers.

RESULTS, DIVIDENDS AND SHARE BUYBACK PROGRAMME

The Group's attributable profit after taxation amounted to US$10.2 million (2021: US$14.8 million).

The Group's detailed financial results are set out in the financial statements on pages 151 to 207.

In line with the Group's commitment to deliver sustainable shareholder returns, the Board proposed a final dividend of 2.7 US cents per share (US$3.8 million) for the 2021 financial year, which was approved at the Annual General Meeting on 8 June 2022.

In addition, the Board launched a share buyback programme on 12 April 2022 and purchased 1 520 170 shares that are held as treasury shares. The weighted average purchase price was 60.05 GB pence (78.07 US cents) per share. An amount of US$1.2 million was spent up to 7 June 2022, which is the date that the Board authority lapsed. At the AGM on 8 June 2022 shareholders again authorised Gem Diamonds to purchase its own shares within the permitted parameters.

The Board is not proposing a dividend based on the 2022 financial results due to the volatility in the current economic outlook, the Group's available cash resources and the current business outlook.

The Group's dividend policy sets the appropriate dividend each year, and considers:

· The Group's cash resources.

· The level of free cash flow and earnings generated during the year.

· Expected funding commitments for future capital projects.

The Board will consider special dividends in the event of significant diamond recoveries and will consider share buyback programmes if appropriate.

GOING CONCERN 

The Group business activities, together with the factors likely to affect its future development, performance and position, are set out in the Strategic Report on pages 3 to 88. The financial position of the Group, its cash flows and liquidity position are described in the Strategic Report on pages 49 to 55. In addition, Note 26 and Note 28 to the financial statements include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to credit and liquidity risk.

The Directors have a reasonable expectation that the Group has adequate financial resources to continue operations for the foreseeable future. This follows a review of forecasts, budgets, timing of cash flows, debt facilities, sensitivity analyses and the uncertainties disclosed in this report. For this reason, the Directors continue to adopt the going concern basis in preparing the Annual Report and Accounts of the Group.

VIABILITY STATEMENT

In accordance with provision 30 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospect of the Group over a period longer than 12 months as required by the "going concern" provision. The viability statement, aligned with Provision 31 of the UK Corporate Governance Code 2018, is included in the Strategic Report on page 43.

SUBSEQUENT EVENTS

Refer Note 30 of the financial statements for details of events subsequent to the reporting date.

SHARE CAPITAL AND VOTING RIGHTS

Details of the authorised and issued share capital of the Company, including the rights pertaining to each share class, are set out in Note 16 to the financial statements.

As at 15 March 2023, there were 139.4 million fully paid ordinary shares of US$0.01 each in issue and listed on the official list maintained by the Financial Conduct Authority in its capacity as the UK Listing Authority. In addition, the Company holds 1.5 million shares as treasury shares acquired during the share buyback programme that was launched in 2022. These treasury shares are not entitled to dividends and have no voting rights.

The Company has one class of ordinary shares. Shareholders have the right to receive notice of and attend, speak and vote at any general meeting of the Company. Shareholders may be present in person (or, being a corporation, by representative), or by proxy at a general meeting. Every shareholder present in person (or, being a corporation, by representative) or by proxy will have one vote in respect of every ordinary share they hold. The appointment of a proxy to vote at a general meeting must be received no less than 48 hours before the meeting's appointed time.

Shareholders have the right to participate in dividends and other distributions according to their respective rights and interests in the profit of the Company.

No shareholders have any special rights with regard to the control of the Company. The Company is not aware of any agreements between shareholders which may result in restrictions on transfers or voting rights, save as mentioned below.

There are no restrictions on the transfer of ordinary shares other than:

· As set out in the Company's Articles of Association.

· Certain restrictions may from time to time be imposed by laws and regulations.

· Pursuant to the Company's share dealing code whereby the Directors and employees of the Company require approval to deal in the Company's ordinary shares.

At the AGM held in June 2022, the Board noted the proportion of the votes cast against the resolution referring to the authority of Directors to allot shares (Resolution 13 passed with 58.55% of participating shareholders voting in favour). The Board was disappointed in this outcome, given that the resolution reflects UK-listed company market practice. In view of a significant shareholder's position and standing policy on this matter, the Board and the executive management team have not engaged in further consultation with the significant shareholder, but will continue to regularly consider their approach to this matter.

At the same AGM, shareholders authorised the Company to make on-market purchases of up to 13 922 781 of its ordinary shares, representing approximately 10% of the Company's issued share capital at that time. In 2022, the Company purchased 1 520 170 of its ordinary shares which are being held as treasury shares and may be used to settle ESOP and GDIP awards.

At the 2023 AGM, shareholders will be requested to renew this authority. The Directors continue to consider various options and keep the authorisation under regular review. The 2023 Notice of AGM will set out the details regarding exercising voting rights and proxy appointments.

MAJOR INTERESTS IN SHARES

Details of the major interests (at or above 3%) in the issued ordinary shares of the Company are set out in the Strategic Report on page 18.

ARTICLES OF ASSOCIATION

Any proposed amendments to the Articles of Association of the Company need to be approved by shareholders by special resolution.

RESOURCE DEVELOPMENT

The Group's resource development activities are focused on deepening the understanding of existing resources at Letšeng and collecting information on the future strategic decisions to be made. The Operations Review on page 56 provides more detail on these activities.

CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY

Read more about the Group's 2022 Sustainability Performance, including CSI investment, community participation and environmental management, in Our Sustainability Report which is available at www.gemdiamonds.com.

POLITICAL DONATIONS

The Group made no political donations during 2022.

TCFD, CARBON EMISSIONS AND ENERGY CONSUMPTION SUMMARY 

Information on the Group's decarbonisation strategy, adoption of the TCFD recommendations, carbon footprint and energy consumption in 2022 can be found in the Our Approach to Climate Change and Sustainability sections on pages 25 and 64 respectively.

By order of the Board

Harry Kenyon-Slaney

Non-Executive Chairperson

15 March 2023

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with International Financial Reporting Standards (IFRS). Having taken advice from the Audit Committee, the Board considers that this report and financial statements taken as a whole, are fair, balanced and understandable and that they provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

The Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Group faces.

PREPARATION OF THE FINANCIAL STATEMENTS

The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group, and of their profit or loss for that period. In preparing the Group financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRS;

· state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the Group financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose, with reasonable accuracy at any time, the financial performance, the financial position and cash flow of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position at year end, cash flow and profit or loss for the year then ended of the Group and the undertakings included in the consolidation taken as a whole. In addition, suitable accounting policies have been selected and applied consistently.

Information, including accounting policies, has been presented in a manner that provides relevant, reliable, comparable and understandable information, and additional disclosures have been provided when compliance with the specific requirements in IFRS have been insufficient to enable users to understand the financial impact of particular transactions, other events and conditions on the Group's financial position, cash flow and financial performance. Where necessary, the Directors have made judgements and estimates that are considered reasonable and prudent.

The Directors of the Company have elected to comply with the Companies Act, 2006, in particular the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 of the United Kingdom pertaining to Directors' remuneration which would otherwise only apply to companies incorporated in the UK.

Michael Michael

Chief Financial Officer

15 March 2023

INDEPENDENT AUDITOR'S REPORT

To the Shareholders of Gem Diamonds Limited

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

Opinion 

We have audited the consolidated financial statements of Gem Diamonds Limited and its subsidiaries (the Group) set out on pages 151 to 207, which comprise the consolidated statement of financial position as at 31 December 2022, and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors' Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements of the Group and in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits of the Group and in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Other Information

Management is responsible for the other information. The other information comprises the information included in the 219-page document titled 'Gem Diamonds Annual report and Accounts 2022'.The other information does not include the consolidated financial statements and our auditor's report thereon.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's nternal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

· Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identity during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Ernst & Young Inc.

Director - Philippus Dawid Grobbelaar

Registered Auditor

Chartered Accountant (SA)

15 March 2023

102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146

CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2022

\* The prior year figures have been re-presented, as Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a discontinued operation during the current financial reporting period. Refer Note 15, Assets held for sale.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2022

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2022

Approved by the Board of Directors on 15 March 2023 and signed on its behalf by:

C Elphick M Michael

Director Director

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2022

1  Other reserves relate to Foreign currency translation reserves and Share-based equity reserves. Refer Note 16, Issued share capital and reserves for further detail.

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2022