Gem Diamonds Di Regulatory News (GEMD)

RNS Number : 5105R

Gem Diamonds Limited

24 August 2010

 

 

 

24 August 2010

Gem Diamonds Limited

("Gem Diamonds" or the "Company")

 

Half Year Results for the half year ended 30 June 2010

 

 

Gem Diamonds (LSE: GEMD) a leading diamond mining company reports its half year results for the half year ended 30 June 2010:

 

Operational highlights:

 

§ Letšeng continues to produce large high quality diamonds:

- A total of 245 rough diamonds over 10.8 carats in size were sold

- 35 diamonds reached prices in excess of US$20 000 per carat

- A 27.91 carat diamond sold for US$58 724 per carat, the highest price for a Letšeng rough white diamond sold on tender since July 2008

§ At Ellendale strong prices achieved for fancy yellow diamonds; and other production back at pre-crash price

levels.

§ Investigating growth strategy through targeted acquisitions and the development of existing assets.

§ HSSE - Company record of 2.8 million man hours worked without an LTI over the past eight months

 

Financial Highlights:

 

§ Revenue of US$103.9 million

§ EBITDA of US$18.5 million

§ Gross cash generated from operating activities of US$27.9 million

§ Profit before tax from continuing operations of US$7.8 million

§ Attributable earnings of US$3.0 million (1.72 US cents per share)

§ US$108.3 million gross cash with no debt provides the Company with a platform for growth.

 

Market Outlook:

 

§ Sustained recovery in prices for rough and polished diamonds

§ Medium and long-term supply/demand imbalance remains

 

Clifford Elphick, CEO, commented:

 

"Letšeng continues to recover large diamonds of the highest quality and colour. The recovery in rough and polished diamond prices has been broadly based and at the top end this was well illustrated in June when Letšeng sold a 27.91 carat white diamond for US$58 724 per carat, achieving the highest US$ per carat for a Letšeng white diamond sold on rough tender since July 2008. At Ellendale the long term agreement with Tiffany for the purchase of its rare fancy yellow diamonds has continued to show the benefits of working with this partner.

 

The management of Gem Diamonds is focussed on the following areas:

§ To substantially increase production at Letšeng

§ To evaluate moving underground at the Letšeng Satellite pipe to maximise NPV through the reduction of

waste stripping

§ To minimise diamond damage at Letšeng (which occurs at all diamond mines, but with Letšeng's unique

production, has a far greater impact)

§ To introduce Letšeng's own sales and marketing strategy

§ To proceed with the mining licence application and development of an underground mine at Gope

§ To increase the resource base at Ellendale

§ To continue to evaluate external growth opportunities

 

All of these are intended to increase the value of the company to shareholders."

For further information: Gem Diamonds Limited

 

Clifford Elphick, Chief Executive Officer Glenn Turner, Chief Commercial Officer Tel: +44 (0) 203 043 0280

 

Richard Chetwode, Investor Relations Tel: +44 (0) 203 043 0280 Mob: +44 (0) 759 0064 883

 

Gem Diamond Technical Services Ltd

 

Sherryn Tedder, Media

Tel: +27 (0) 11 560 9618

Mob: +27 (0) 83 943 4505

 

Pelham Bell Pottinger

 

James Henderson Tel: +44 (0) 207 861 3160 

 

Charles Vivian

Tel: +44 (0) 207 861 3126 

 

About Gem Diamonds:

Gem Diamonds is an international diamond mining company that has pursued a long term growth strategy through targeted acquisitions and the development of its existing assets. Due to the recovery in diamond prices in 2010 the Company's focus has been to place itself in a position to take advantage of long term growth opportunities.

 

The Company's mining portfolio comprises producing kimberlite and lamproite mines in Lesotho and Australia, as well as development projects in Angola and Botswana. The Company also owns a diamond cutting technology company.

 

With Letšeng's production of the world's most sought after remarkable white diamonds and Ellendale's production of rare fancy yellow diamonds, Gem Diamonds remains focused on higher value diamonds. This segment of the market is likely to deliver attractive long term returns.

 

www.gemdiamonds.com

Chief Executive Officer's Review

 

In the first half of 2010 there has been a continued recovery in the global diamond industry from the extreme lows of the corresponding period in 2009. Increased consumer demand from India and China, together with an end to the destocking trend in the US market and improved liquidity in all markets provide the backdrop for the strengthening in prices for both rough and polished diamonds.

 

In light of the recovery in diamond demand and prices, Gem Diamonds has spent the first half of 2010 reverting to a normalised mining plan at the Letšeng mine in Lesotho and the Ellendale mine in Western Australia. Having successfully weathered the global financial crisis, Gem Diamonds' management team is assessing and implementing growth opportunities. A series of internal growth projects, production efficiency and revenue enhancement initiatives, together with external growth through targeted acquisitions are being pursued. Gem Diamonds has gross cash of US$108.3 million and no debt and is therefore well positioned to invest in growth opportunities.

 

LETšENG OVERVIEW

 

The Letšeng mine in Lesotho continues to produce large white diamonds of the highest quality. In order to increase the returns from this world class asset, a substantial amount of work has been undertaken during the first half of the year in the following four areas:

 

·; Assessing the possibility of significantly increasing production capacity. At current drilling levels, Letšeng has an identified resource of 223 million tonnes, but currently the two Letšeng plants have the capacity to process 5.5 million tonnes per annum from the Satellite and Main pipes.

 

·; Assessing diamond breakage, which given the high value nature of the resource when compared to other mines, represents a significant opportunity to improve revenue.

 

·; Reviewing new ore treatment technologies to increase efficiencies and lower costs.

 

·; Designing and preparing a new sales and marketing strategy with the main objectives of reducing marketing costs and allowing Letšeng to secure additional downstream revenues.

 

PRODUCTION

 

The two main treatment plants at Letšeng have continued to operate at full capacity, in excess of design, being fed with ore from both the Main and Satellite pipes. In addition, a contracted company, Alluvial Ventures, continues to treat material from the Main pipe stockpile that was created in the late 1970's. Management expects that planned tonnes treated will be achieved for the full year.

 

During the first half of 2010, the two main plants continued to operate at the same high levels of performance achieved in 2009 and treated a very similar tonnage to that treated in both the first and second halves of 2009, at a grade of 1.45cpht (1.46cpht in H1 2009, 1.32cpht in H2 2009). 

 

The improvement in grade from the second half of 2009 compared to the first half of 2010 resulted from changes within the treatment process leading to the additional recovery of smaller diamonds. The recovered grade achieved in May and June, together with the accessing of higher grade ore in the Satellite pipe in the second half of 2010, leads management to believe that the full year target recovery of 95 000 carats should be achieved.

 

The split of ore sourced from the Main and Satellite pipes is constantly assessed and takes into account waste stripping requirements, ore availability, grade and value. In the first half of 2010 the ore for the two plants was sourced at a ratio of 31:69 from the Satellite and Main pipes respectively. It is anticipated that the contribution of ore from the satellite pipe will be slightly higher in the second half than in the first half of the year.

 

Alluvial Ventures continued to treat tonnages well in excess of their plant's designed capacity in the first half of the year, albeit at a lower than planned grade of 0.47cpht (0.7cpht in FY 2009). The revenue contribution from Alluvial Ventures to Letšeng's total revenue was 10% (10% in H1 2009).

 

The build-up of waste stripping that commenced at the end of 2009 is continuing throughout 2010, and will also see the continued introduction of larger rigid haul trucks which will reduce mining costs. Management expects to strip 14 million tonnes of waste for the full year.

 

During the period under review a number of operational challenges were successfully overcome, including the build-up of waste stripping in the relatively small satellite pipe, together with restricted access to its higher grade, higher value ore; and a strike by the employees of the mining contractor. Against this background, the overall performance of the mine in the first half of the year was satisfactory. Letšeng is one of the great diamond mines of the world. It is a very high value, low grade resource which therefore means that short term fluctuations in production are to be expected.

 

DIAMOND SALES

The increased recovery of smaller diamonds at Letšeng impacts on the overall average dollar per carat achieved, sales for the first half of 2010 averaged US$1 728 per carat. In the corresponding period last year, sales averaged US$1 308 per carat (in the first quarter of 2009 sales averaged US$1 017 per carat).

 

In May 2010, a 27.91 carat white rough diamond sold for US$58 724 per carat, which is the highest price paid for a Letšeng white diamond sold on tender since July 2008. During the first half of 2010, a total of 35 individual rough diamonds from Letšeng sold for in excess of US$20 000 per carat each on tender and a total of 245 rough diamonds over 10.8 carats in size were sold.

 

As part of the ongoing evaluation of potential downstream margins, Gem Diamonds purchased three Letšeng rough diamonds on tender totalling 71.87 carats for a total value of US$2.5 million during the first half of 2010. The polished diamonds manufactured from these three diamonds, as well as those purchased and manufactured in the second half of 2009 have achieved and are expected to achieve significant additional margin. 

 

In the July 2010 tender Gem Diamonds purchased a further three rough diamonds totalling 123.9 carats at a cost of US$4.9 million. These diamonds are currently in the analysis phase and indications of the additional margin expected to be achieved are in line with expectations.

 

The current Letšeng marketing agreement expires at the end of August 2010. Since the beginning of the year the Board of Letšeng has conducted a process whereby the world's foremost marketing agents and diamantaires were invited to submit proposals in regards to the marketing of Letšeng's diamonds. A new sales and marketing strategy will include the cutting and polishing of selected top quality Letšeng diamonds in order to capture margins downstream and will be implemented in the latter half of 2010.

 

PROFITABILITY

 

For the first half of 2010 Letšeng Diamonds made an EBITDA of US$22.6 million. The strength of the South African rand against the US dollar has continued to impact negatively on costs and profitability. During the first half of 2010, the South African rand:US dollar exchange rate averaged 7.53, a decrease of 18% over the same period in 2009 which averaged 9.20. (The Lesotho loti is pegged to the South African rand).

 

Management continued to focus on managing costs to protect margins. Significant progress has been made in the two major cost areas - mining and treatment. In the mining process the phased introduction of larger and more efficient equipment continues to reduce costs, whilst improvements in blasting practices and technology solutions have improved the overall efficiency. One of the highest potential cost and efficiency improvements in the treatment process is the investigation of high volume X-Ray machines to be employed in place of the Dense Medium Separator (DMS) units in the concentration of the high value grade portion of Letšeng's production. Test work to prove the technology in recovering both Type I and II diamonds was successfully conducted on site. The next phase of this project will entail a production trial later this year.

 

For the first half of 2010, operating costs were Maloti 78.53 per tonne and it is anticipated that for the full year operating costs will be more in line with the full year costs in 2009 (Maloti 98.14 per tonne). Cash costs for waste stripped, ore mined and ore treated have risen in line with inflation from the end of 2009, however, total cash costs have risen in proportion to the increase in waste stripped (see Chief Financial Officer's Review).

 

LETšENG CORE GROWTH WORKSTREAMS

 

Production Increase Opportunities:

In January 2010, a body of work was initiated to model the maximum extractable rate of ore from the two Letšeng pipes. The outcome of this work indicates that an extraction rate of up to double that currently being achieved is potentially possible (approximately 10 million tonnes per annum). The next phase of the project will be to undertake a detailed financial study leading to the design and implementation of an optimally sized expansion programme which will commence in the second half of 2010. It is estimated that this expansion will be fully implemented by the end of 2014. 

 

Underground Development to Minimise Waste Stripping at Satellite pipe:

Management is evaluating moving underground at the Letšeng Satellite pipe in order to maximise NPV through the reduction of waste stripping.

 

Diamond Damage Minimisation:

Diamond damage is inherent in the processing and crushing of diamond bearing ore. However due to the high value of Letšeng's diamonds the benefit of minimising damage has a potentially far greater impact than at other diamond mines producing lower value diamonds. A detailed data collection and technology review commenced in the first half of 2010. To date, technology supplier presentations have been completed and test work programmes are currently being reviewed. The study confirms that significant value addition can be achieved by reducing breakage in larger stone sizes. Various technologies are being investigated to address this. The results of this project will be incorporated into the overall production expansion project.

 

Beneficiation (Cutting and polishing of Letšeng Diamonds' production):

In November 2009, approval was obtained from the Government of Lesotho for a limited number of carats to be beneficiated during a two year trial period. The potential impact of this project will be an increase in revenue through improved margins. At this juncture the project is to be financed from business cash flows and will be ramped up depending on market conditions. Results to date have confirmed that the business plan is attractive and should be pursued vigorously.

 

ELLENDALE REVIEW

 

The Ellendale mine in Australia maintains its position as the world's largest single producer of rare fancy yellow diamonds. Since February 2009, the E4 pipe at Ellendale has remained on care and maintenance and mining has taken place only from the higher value E9 pipe. The challenge for management is to increase the mine's overall operational life. Amongst the many initiatives being examined, the following are receiving priority:

 

·; Resource Extension and Development (RE&D) programmes.

 

·; Assessment of recommencing operations at Ellendale's E4.

 

·; Alternative mining systems.

 

·; Plant 'up-time' project.

 

PRODUCTION Traditionally in the first half of the year, processing rates at Ellendale are lower than those in the second half of the year as the operation works its way through the effects of the wet season. Production improvements in the second half of 2009 have continued into 2010, where the operation has processed an additional 310 000 tonnes to yield an additional 17 800 carats when compared to the same period in 2009. 

 

The modifications made to the front end of the plant late in 2009 have had a significant impact in terms of achieving these figures. Against this, however, plant availability hampered plant throughput from March to June and resulted in an overall underperformance against targets for the first half of the year.

 

A plant utilisation improvement project or "plant up-time project" to increase throughput is gaining momentum, the benefits of which are expected to show in the third quarter of 2010. Management estimates that for the full year 2010 that 6.1 million tonnes of waste will be stripped; 4.1 million tonnes of ore will be treated and 190 000 carats will be recovered.

 

Trials on an alternative mining system were conducted in April and May 2010 to investigate the implementation of a rock cutting machine in order to reduce mining costs (by eliminating drilling and blasting) and associated plant costs (through front end crushing and throughput impacts). The results of these trials have demonstrated that this technology works well in the Ellendale environment. The assessment of the feasibility of the project is nearing completion and if found to be financially viable, an implementation plan will be developed in the fourth quarter of 2010.

 

DIAMOND SALES

 

During the first half of 2010 Ellendale achieved an average of US$2 588 per carat (US$2 509 per carat in 2009) for its fancy yellow production which is sold to Tiffany & Co. The two parties will meet in September 2010 to review prices in accordance with the agreement.

 

Prices for Ellendale's other production (excluding the fancy yellow production sold to Tiffany & Co.) have increased substantially from an average of US$51 per carat in the first half of 2009 to an average of US$144 per carat in the first half of 2010. Prices for these goods have now returned to pre-crash levels.

 

PROFITABILITY

 

During the period under review Ellendale made an EBITDA of US$3.3 million.

 

Cost management remains a key focus. The strength of the Australian dollar against the US dollar has continued to impact negatively on costs and profitability. During the first half of 2010 the Australian dollar:US dollar exchange rate averaged 1.12 an increase of 21% over the same period in 2009 which averaged 1.41.

 

Operating costs for the first half of 2010 fell by 22% to AU$16.72 per tonne, primarily because the corresponding figure for 2009 included the costs of a substantial stock carry over from 2008 which have not been repeated in the first half of 2010. Operating costs for the full year are likely to be similar to the first half. 

 

ELLENDALE CORE GROWTH WORKSTREAMS:

 

Resource Extension and Development (RE&D) programmes:

The RE&D programmes at Ellendale which had been suspended due to the onset of the global financial crisis have now resumed at a cost of some US$5 million which will be split over 2010 and 2011. These programmes are examining extension possibilities within the existing pits at E9 and E4; assessing the geophysics on prospective targets identified; embarking on a bulk sampling programme on E7, E11 and E4-Satellite and conducting other investigations on a regional basis.

 

Assessment of recommencing operations at E4:

The sustained increases in diamond prices have precipitated an evaluation of re-opening the operations at the larger resource, but lower value, E4 pipe. The initial scope of work entails examining the viability of treating the ore remaining on the E4 stockpile at the processing facility as well as mining and treating the ore which is available within the E4 pit. The work is well advanced and a proposal will be made to the board before the end of 2010.

On completion of the RE&D programmes for the E4 pit, the E4-satellite area and adjacent areas, the long term viability of the E4 complex as a whole will be assessed.

 

GOPE

 

During the first half of 2010, Gem Diamonds published a resource upgrade report on the Gope project in Botswana with a total in situ resource of US$3.3 billion and an average resource diamond price of US$162 per carat. Towards the end of August 2010 Gem Diamonds will present an updated study on Gope to the Botswana Government and negotiations for a mining licence will commence during the second half of 2010. After that, the Company will commence the building of an underground mine in a phased approach.

 

OTHER OPERATIONS

 

The Group is currently considering its options with regard to the Chiri project in Angola and a conceptual design and costing for a small mine has been submitted to our partners for consideration.

 

The Group continues to look at all disposal options for the PT Galuh Cempaka mine in Indonesia and its operations in the CAR.

 

HSSE

 

The Group is pleased to announce that it has achieved a company record 2.8 million man hours without a Lost Time Injury (LTI) at all of its operations over the past eight months. This is a strong indicator of the quality of the operations systems and monitoring processes plus the management teams involved, and reinforces the fact that health, safety and the environment are of the greatest importance to the Company, its directors and management. Both the Lost Time Injury Frequency Rate (LTIFR) and Severity Rate (SR) are zero; and the All Injury Frequency Rate (AIFR) continues to remain below both 2008 and 2009 levels for the year to date.

 

OUTLOOK

 

In the last six months, continued demand from China and India, together with restocking in the diamond manufacturing pipeline has helped drive rough and polished prices higher; rough prices are in some categories at pre-crash levels. However the short term outlook for further price increases remains uncertain ahead of the US Christmas season. The long and medium term favourable demand versus available supply imbalance remains. Additionally, in the short term there continues to be a shortage of large high quality diamonds.

 

Gem Diamonds' management team is driving a number of operational and growth initiatives and also continues to assess other strategic opportunities for growth that will deliver production benefits and take advantage of external opportunities to grow shareholder value.

 

 

Clifford Elphick

Chief Executive Officer

 

23 August 2010

Chief Financial Officer's Review

 

 

Financial Highlights

 

·; Revenue of US$103.9 million

·; EBITDA of US$18.5 million

·; Profit before tax from continuing operations of US$7.8 million

·; Attributable earnings of US$3.0 million (1.72 US cents per share)

·; Gross cash generated from operating activities of US$27.9 million

·; Cash on hand of US$108.3 million

 

 

FINANCIAL RESULTS

 

The global financial crisis severely impacted the entire mining sector, with diamonds being amongst those most affected. Firstly demand for rough diamonds was sharply curtailed as a lack of liquidity prevailed across the entire diamond pipeline, followed by consumers significantly reducing discretionary expenditure at the retail end. This resulted in prices of rough diamonds falling precipitously, to the lows experienced in early 2009. A gradual recovery in demand and liquidity saw prices improve in the second quarter of 2009 and since then prices have recovered to roughly be in line with pre-crash prices.

 

Notwithstanding the impact of no real price growth since 2008, local inflation of 9% per annum in Lesotho and 3% per annum in Australia and the impact of a weaker US dollar over the prior period, the Group has traded profitably. Further, the impact of the Board and management's capital raising, cash preservation and cost reduction strategies has resulted in the Group ending the period with US$108.3 million of cash on hand and no debt. 

 

For the half year, the Group reports revenue of US$103.9 million and earnings before interest, tax, depreciation and amortisation ('EBITDA') of US$18.5 million, pre-tax earnings from continuing operations of US$7.8 million and attributable profit of US$3.0 million. As part of the Group's ongoing Polishing Project, diamonds internally acquired and not sold by half year have reduced attributable profit by US$0.8 million.

 

(US$ millions)	6 months ended 30 June 2010	6 months ended 30 June 20091
Revenue	103.9	116.7
Cost of sales	(69.9)	(72.8)
Royalty and selling costs	(9.9)	(11.2)
Corporate expenses	(5.6)	(6.6)
EBITDA	18.5	26.1
Depreciation and amortisation	(14.6)	(10.9)
Share based payments	(0.8)	(4.1)
Other income	2.6	-
Foreign exchange gain	0.8	7.7
Net finance income/(costs)	1.3	(0.7)
Profit before tax	7.8	18.1
Attributable profit	3.0	3.3
Earnings per share (US cents)	2.18	3.60
Earnings per share – continuing operations (US cents)	1.72	9.38

 

1. The prior period's figures have been restated for the reclassification impact of accounting for discontinued operations.

 

FINANCIAL PERFORMANCE

 

Revenue of US$103.9 million was generated in the first half of the year primarily from the sale of rough diamonds recovered at the Letšeng and Ellendale mines. The prior year revenue of US$116.7 million included the sale of Letšeng run of mine and Ellendale low value rough diamonds held over from 2008, a one-off royalty payment received from an off-take agreement then in place and the sale of polished diamonds produced in beneficiation trials by Letšeng. Therefore Group revenue, on a like for like basis, has increased by US$17.3 million over that in the prior period of US$86.6 million representing a 20% increase.

 

Rough prices have increased steadily over the period resulting in an average of US$1 728 per carat for the first half of the year at Letšeng, a 32% increase over the same period in 2009. Similarly, at Ellendale, an average of US$2 588 per carat for the fancy yellow diamonds sold to Tiffany & Co. and US$144 per carat for the rest of the production has been achieved, representing an increase of 3% and 182% respectively over the first half of 2009. The low percentage increase in the fancy yellow diamonds demonstrates the advantage of having the relationship with Tiffany & Co. especially through periods of financial uncertainty.

 

Cost of sales for the period was US$69.9 million before non-cash costs of depreciation of US$11.6 million and amortisation on mining assets of US$3.0 million.

 

The continued weaker trading of the US dollar against the Lesotho loti (pegged to the South African rand) and the Australian dollar negatively impacted US dollar input costs during the period. Although both these currencies traded fairly consistently against the US dollar during the period, they were significantly stronger than that in the prior period. The US dollar traded 18% and 21% weaker against the South African rand and Australian dollar respectively, period on period.

 

The following table details the relative exchange rates for 2009 and the first half of 2010:

	H1 2010	H1 2009	Variance H1 2010 to H1 2009	FY 2009	Variance H1 2010 to FY 2009
Lesotho loti per US$1.00
Average exchange rate for the year/period	7.53	9.20	(18%)	8.42	(11%)
Year/period end exchange rate	7.67	7.72	(1%)	7.36	4%
Australian dollar per US$1.00
Average exchange rate for the year/period	1.12	1.41	(21%)	1.28	(13%)
Year/period end exchange rate	1.19	1.24	(4%)	1.11	7%

 

Royalties and selling costs of US$9.9 million mainly comprise sales commissions and royalties paid to the Lesotho Revenue Authority of 8% and the Australian Government of 5% on the sale of diamonds in these respective territories.

 

Notwithstanding the negative impact of exchange rates (a large portion of corporate costs are based in South African rand), corporate expenses were further curtailed during the period to US$5.6 million resulting in a 15% cost saving relative to 2009 and 36% relative to 2008. Corporate expenses relate to central costs incurred by the Company and its services subsidiary, Gem Diamond Technical Services.

 

EBITDA for the period was US$18.5 million, and although down on the prior period, has been negatively impacted by the current exchange rates. This impact on the current period's EBITDA is US$13.1 million, being cost of sales at Letšeng of US$7.3 million and Ellendale of US$5.8 million (on a like for like exchange rate based on H1 2009).

 

Share-based payment costs for the period decreased to US$0.8 million comprising the allocation of the share/option awards to staff in early 2008 and the final costs associated with the Executive Share Growth Plan which ended in February 2010, and for which no vesting took place. On 23 June 2010, the Company announced that 1.3 million options were awarded to Directors and senior employees. The share based payment cost associated with this new award will impact the current year charge by US$0.4 million. 

 

Foreign exchange gains relate to, gains on the conversion of US dollar revenue into local currency at Letšeng, losses on exchange rate fluctuations on Sterling denominated cash held by the Company and realised hedges entered into by Kimberley Diamonds during the period.

 

Net finance costs comprise interest received of US$2.0 million. This was predominantly generated on surplus cash from the Letšeng operation against US$0.7 million charged to the Income Statement representing the impact of unwinding the current environmental provisions.

 

The effective tax rate in the year for the Group is 29% from continuing operations, slightly above the UK statutory tax rate of 28%. The tax rate of the Group is driven by tax of 25% on profits generated by Letšeng Diamonds, withholding tax of 10% on dividends and deferred tax assets not recognised on losses incurred in non-trading operations.

 

Minority interests represent 30% of the profits in Letšeng Diamonds, which are attributable to the Company's partner, the Government of Lesotho.

 

Profit attributable to shareholders for the period was US$3.0 million equating to 2.18 US cents per share on a weighted average number of shares of 138 million. Earnings per share from continuing operations amounted to 1.72 US cents per share.

 

SEGMENTAL FINANCIAL PERFORMANCE

US$ (millions)	Letšeng Diamonds4	Kimberley Diamonds
Sales	70.9	33.6
Cost of sales	(40.5)	(28.2)
Royalty and selling costs	(7.8)	(2.1)
EBITDA	22.6	3.3
Physicals
Tonnes treated	3 829 275	1 888 133
Waste tonnes mined	4 607 855	1 902 708
Carats recovered	44 748	81 501
Carats sold(3)	41 544	77 198
US$ (per unit)
Average price per carat (rough)	1 728	434
Cash cost per tonne1	13.18	14.72
Operating cost per tonne2	10.43	14.92
Local currency (per unit)	Lesotho loti	Australian dollar
Cash cost per tonne1	99.20	16.50
Operating cost per tonne2	78.53	16.72

1. Cash costs represents all operating costs, excluding royalty and selling costs, depreciation, mine amortisation and all other non-cash charges.

2. Operating costs excludes royalty and selling costs and includes inventory, waste and ore stockpile adjustments and excludes depreciation and mine amortisation.

3. Excludes sale of polished diamonds.

4. Letšeng's revenue includes US$2.5 million of diamonds purchased by the Group as part of its Polishing Project. Included in EBITDA is US$1.5 million profit generated on the portion of diamonds purchased by the Group and not sold by the end of June. These values have been eliminated in the consolidated Group results.

 

LETšENG DIAMONDS

 

Letšeng Diamonds continues to deliver strong operational and financial results in spite of the challenging economic environment, generating revenue of US$70.9 million from diamond sales and EBITDA of US$22.6 million. The average revenue per carat for the period was US$1 728, resulting in revenue per tonne of US$20.22 up 25% from the same period last year of US$16.22.

 

Cash costs per tonne treated for the period were Maloti 99.20 relative to the prior period of Maloti 85.03. Unit cash costs for ore mined, waste moved and ore treated have, in local currency terms, increased in line with inflation of 9%. However, the major impact on the overall cash unit costs is the increased waste moved in the period of 1.1 million tonnes relative to the prior year. Total operating costs per tonne in the first half of 2010 decreased to Maloti 78.53 from Maloti 106.29, mainly as a result of less waste amortisation being recognised in the Income Statement during the period. Waste amortisation is currently only associated with the Satellite pit.

 

KIMBERLEY DIAMONDS

 

The current period's results only include mining from Ellendale's E9 pit. Kimberley Diamonds generated revenue of US$33.6 million compared to US$20.2 million achieved in the prior H1 period on a like for like basis (E9 only). The average US$ per carat achieved in the period is US$434. The operation has processed 20% more ore and recovered 28% more carats in the current period when compared to same period in 2009. Kimberley Diamonds has again generated a positive EBITDA of US$3.3 million, although impacted negatively by a stronger Australian Dollar.

 

Cash costs per tonne have decreased slightly over the corresponding 2009 period from AU$17.33 to AU$16.50. This decrease in cash costs is due to no costs associated with E4 being incurred during the current period and management's ongoing drive to reduce overall costs. Operating costs per tonne treated have decreased to AU$16.72 from AU$21.56, a reduction of 22%. The operating costs in the first half of 2009 were negatively impacted by the large carry-over inventory from 2008, which impacted overall operating costs per tonne. Current period cash costs and operating costs per tonne are fairly similar as the waste to ore ratio in the E9 pit is approximately 1:1.

 

CUTTING & POLISHING

 

During the period, Gem Diamonds acquired three rough diamonds on the Letšeng tenders totalling US$2.5 million. As at the end of June, the rough diamonds that were purchased in April had only just been cut, polished and graded at period end and as such are carried in the Group Balance Sheet at the cost of production and manufacturing. EBITDA in the current period for the Group has been impacted by US$1.5 million (US$0.8 million on attributable profit) due to the Group's elimination of this inter-group sale. 

 

DISCONTINUED OPERATIONS

 

The operations in Indonesia and the CAR are still on care and maintenance. The Group is actively seeking to dispose of the Indonesian operation and the assets and equipment at the CAR operation are in the process of being sold, after which the company will meets its obligations and close the company.

 

As a result, both these assets have been classified as 'Assets Held for Sale' on the Group's Balance Sheet.

 

All care and maintenance costs incurred during the year at the operations in Indonesia and CAR have been disclosed separately in the Income Statement under Discontinued Operations. The Group has realised a net gain of US$0.6 million on these operations during the period after the sale of certain of their assets. The total net result was a 0.45 US cent impact on the overall earnings per share.

 

BLINA DIAMONDS

 

During February 2010, Blina Diamonds NL, a Listed Company on the Australian Stock Exchange and previously a subsidiary of Kimberley Diamonds raised AU$1.5 million by way of a placement. Kimberley Diamonds did not participate in all its rights to the placement and as a result, the Group's shareholding in the company decreased to 23.11%. This decrease in shareholding resulted in the Group no longer consolidating the results of the operation. The investment is now accounted for as an associate, resulting in the Group expensing US$0.1 million of its share of the losses, after realising a US$2.7 million gain following its loss of control.

 

IMPAIRMENTS

 

No impairments were identified in the current period.

 

CASH AND DEBT

 

The Group is free from any debt at the end of the period and has US$108.3 million cash on hand (of which U$89.6 million is attributable and US$4.8 million is restricted).

 

Group cash was supplemented by a net cash inflow from operations for the year of US$27.9 million. Investments in property, plant and equipment of US$7.2 million were incurred. In Letšeng, this relates predominantly to infrastructure costs associated with the life of mine extension. In Kimberley Diamonds, the increased treatment rate at the Ellendale E9 plant required additional slimes capacity. In addition, US$22.5 million was invested in waste stripping in both mining operations.  

 

INVENTORY

 

Group diamond inventory from continuing operations at the cost of production at period end was US$16.3 million.

 

ACQUISITIONS

 

During the period, the Company did not enter into any acquisition transactions.

 

RISKS TO OUR BUSINESS

 

The Group's operational and growth performance is influenced and impacted by a number of risks, some of which are beyond the control of the Group. A formal risk management process exists to assist in identifying and reviewing potential risks; mitigating action plans are formulated and reviewed regularly to monitor their effectiveness and progress.

 

A reassessment of the risks, which have been previously reported in the Chief Financial Officer's Review in the December 2009 Annual Report, has identified that the principal risks and uncertainties have not changed. These may impact the Group over the medium to long term; however the following key risks have been identified which may impact the Group over the next six months.

 

- Short term demand and prices (Market and Price Risk)

The period and stability of the recovery of the financial markets and the impact on consumer preferences post the global economic crisis impacts the Group and the diamond industry as a whole. This potentially compounds the existing short term imbalance between demand and supply and the impact that this has on the diamond pipeline. Although the Group cannot materially influence this situation, the market conditions are continually monitored to identify current trends that could pose a threat or create an opportunity for the Group.

 

- Exchange Rates (Financial Risk)

The Group receives its revenue in US dollars while its cost base arises in local currencies based on the various countries within which the Group operates. The weakening of the US dollar relative to these local currencies and the volatility of these currencies trading against the US dollar currently adversely impact the Group's profitability. Therefore the impact of the exchange rate fluctuations is closely monitored. It is the Group's policy not to actively hedge. 

 

OUTLOOK

 

Although exchange rates have severely impacted the current period's results, the Group has generated positive earnings and net cash inflows from operations. The Group's financial position is sound with cash resources on hand and no debt. Following significant focus on the two existing operations, the Group is well placed to continue its work streams on production growth and revenue enhancements. In addition, continued focus on eliminating costs in respect of care and maintenance projects and the cost saving initiatives of the producing operations should have a positive impact on future earnings.

 

 

Kevin Burford

Chief Financial Officer

 

23 August 2010

GEM DIAMONDS LIMITED

 

 

 

 

 

Half Year Financial Statements

30 June 2010  

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

 

PURSUANT TO DISCLOSURE AND TRANSPARENCY RULES (DTR) 4.2.10

 

 

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

 

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

 

Ø material related party transactions in the first six months of the year and any material changes in the related party transactions described in the Gem Diamonds Limited Annual Report 2009.

 

The names and functions of the Directors of Gem Diamonds are listed in the Annual Report for the year ended 31 December 2009.

 

For and on behalf of the Board

 

 

 

 

Kevin Burford

Chief Financial Officer

 

23 August 2010

 

  

Independent Auditor's Report To The Members Of Gem Diamonds Limited

 

We have been engaged by Gem Diamonds Limited (the 'Company') to review the condensed consolidated set of financial statements of the Company and its subsidiaries (the 'Group") in the half year report for the six months ended 30 June 2010 which comprises interim consolidated income statement, interim consolidated statement of comprehensive income, interim consolidated statement of financial position, interim consolidated statement of changes in equity, interim consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half year report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

 

The half year report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half year report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

As disclosed in note 2.1, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half year report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half year report based on our review.

 

Scope of Review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom.

 

A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half year report for the six months ended 30 June 2010 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

 

 

Ernst & Young LLP

London

 

23 August 2010

 

 

 

 

 

 

 

 

 

INTERIM CONSOLIDATED INCOME STATEMENT

 

 

FOR THE SIX MONTHS ENDED 30 JUNE 2010
(US$'000)			Notes			20101			20091*
CONTINUING OPERATIONS
Revenue						103 930			116 709
Cost of sales						(83 631)			(83 671)
GROSS PROFIT						20 299			33 038
Other income			7			2 708			33
Royalties and selling costs						(9 941)			(11 175)
Corporate expenses						(6 519)			(6 649)
Share-based payments			13			( 828)			(4 082)
Foreign exchange gain						803			7 702
OPERATING PROFIT						6 522			18 867
Net finance income/(costs)						1 306			( 730)
Finance income						1 959			1 239
Finance costs						( 653)			(1 969)
Share of loss in associate			7			( 50)			-
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS BEFORE TAX						7 778			18 137
Income tax expense			5			(2 279)			(4 420)
PROFIT FOR THE PERIOD FROM CONTINUING OPERATIONS						5 499			13 717
DISCONTINUED OPERATIONS
Profit/(loss) after tax for the period from discontinued operations			6			626			(5 281)
PROFIT FOR THE PERIOD						6 125			8 436
Attributable to:
Equity holders of parent						3 007			3 285
Non-controlling interests						3 118			5 151
PROFIT FOR THE PERIOD						6 125			8 436
Earnings per share (cents)
- Basic profit for the period attributable to equity holders  of the parent			2. 18						3.60
- Diluted profit for the period attributable to equity holders of the parent			2. 17						3.64
Earnings per share for continuing operations (cents)
- Basic profit for continuing operations attributable to equity holders of the parent			1. 72						9.38
- Diluted profit for continuing operations attributable to equity holders of the parent			1.72						9.04
1. Unaudited
* Prior period figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 6, Discontinued Operations).

 

 

INTERIM Consolidated Statement of Comprehensive Income

 

 

FOR THE SIX MONTHS ENDED 30 JUNE 2010
(US$'000)				20101		20091*
PROFIT FOR THE PERIOD				6 125		8 436
Exchange differences on translation of foreign operations				(17 694)		37 140
Other comprehensive (loss)/income for the period, net of tax				(17 694)		37 140
Attributable to:
Equity holders of parent				(12 226)		40 425
Non-controlling interests'				657		5 151
Total comprehensive (loss)/income for the period, net of tax				(11 569)		45 576
1. Unaudited
* Prior period figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 6, Discontinued Operations).

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2010
				30 June				31 December
(US$'000)			Notes	20101				20092
ASSETS
Non-current assets
Property, plant and equipment			9	342 223				356 554
Intangible assets				26 888				27 990
Investment in Associate			7	800				-
Other financial assets			10	13 931				12 578
				383 842				397 122
Current assets
Inventories				28 648				31 395
Receivables				6 064				6 995
Other financial assets			10	535				535
Income tax receivable				154				92
Cash and short term deposits			11	108 301				113 827
				143 702				152 844
Assets of disposal group classified as held for sale			6	3 453				140
				147 155				152 984
TOTAL ASSETS				530 997				550 106
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital			12	1 383				1 383
Share premium				885 648				885 648
Own shares3				( 1)				( 1)
Other reserves				(40 893)				(26 551)
Accumulated losses				(506 253)				(509 260)
				339 884				351 219
Non-controlling interests				68 700				68 043
TOTAL EQUITY				408 584				419 262
Non-current liabilities
Trade and other payables				1 654				1 584
Provisions				25 772				30 183
Deferred tax liabilities				57 336				60 549
				84 762				92 316
Current liabilities
Interest bearing loans and borrowings				-				204
Trade and other payables				33 285				36 842
Income tax payable				1 624				1 274
Provisions				165				-
Bank overdraft			11	9				-
				35 083				38 320
Liabilities directly associated with the assets of the disposal group classified as held for sale			6	2 568				208
				37 651				38 528
TOTAL LIABILITIES				122 413				130 844
TOTAL EQUITY AND LIABILITIES				530 997				550 106
1. Unaudited
2. Audited
3. Shares held by Gem Diamonds Limited Employee Share Trust

 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

FOR THE SIX MONTHS ENDED 30 JUNE 2010
	Attributable to the equity holders of the parent
								Other reserves
(US$'000)	Issued capital		Share premium			Own shares1			Foreign currency trans- lation reserve		Share based equity reserve			Revalu- ation reserve		(Accumu- lated losses)		Total		Non-control- ling interests		Total equity
Balance at 1 January 2010	1 383		885 648			( 1)			(65 642)		39 209			( 118)		(509 260)		351 219		68 043		419 262
Profit for the period	-		-			-			-		-			-		3 007		3 007		3 118		6 125
Other comprehensive loss	-		-			-			(15 233)		-			-		-		(15 233)		(2 461)		(17 694)
Total comprehensive income	-		-			-			(15 233)		-			-		3 007		(12 226)		657		(11 569)
Share-based payments (note 13)	-		-			-			-		891			-		-		891		-		891
Balance at 30 June 20102	1 383		885 648			( 1)			(80 875)		40 100			( 118)		(506 253)		339 884		68 700		408 584
Balance at 1 January 2009	629		787 487			( 2)			(114 851)		33 463			( 118)		(524 792)		181 816		64 602		246 418
Profit for the period	-		-			-			-		-			-		3 285		3 285		5 151		8 436
Other comprehensive income	-		-			-			37 140		-			-		-		37 140		-		37 140
Total comprehensive income	-		-			-			37 140		-			-		3 285		40 425		5 151		45 576
Share capital issued	754		108 015			-			-		-			-		-		108 769		-		108 769
Acquisition of subsidiaries	-		(9 922)			-			-		-			-		-		(9 922)		-		(9 922)
Share-based payments(note 13)	-		-			-			-		4 167			-		-		4 167		-		4 167
Dividends paid	-		-			-			-		-			-		-		-		(3 287)		(3 287)
Balance at 30 June 20092	1 383		885 580			( 2)			(77 711)		37 630			( 118)		(521 507)		325 255		66 466		391 721
1. Shares held by Gem Diamonds Limited Employee Share Trust
2. Unaudited

 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

 

 

FOR THE SIX MONTHS ENDED 30 JUNE 2010
(US$'000)		Notes		20101		20091*
CASH FLOWS FROM OPERATING ACTIVITIES				27 909		15 865
Cash generated by operations		14.1		27 190		33 298
Working capital adjustments		14.2		594		(4 965)
				27 784		28 333
Interest received				1 959		1 210
Interest paid				( 29)		(1 453)
Income tax paid				(1 805)		(12 225)
CASH FLOWS USED IN INVESTING ACTIVITIES				(30 004)		(26 554)
Purchase of property, plant and equipment				(29 753)		(20 998)
Proceeds on disposal of property, plant and equipment				1 176		137
Purchase of intangible assets				-		( 27)
Purchase of other financial assets				(1 248)		(5 666)
Disposal of subsidiary, net of cash disposed				(179)		-
CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES				(204)		60 556
Proceeds from share capital issued				-		108 769
Transaction costs from share capital issued				-		(7 498)
Repayment of bonds				-		(15 760)
Financial liabilities repaid				(204)		(21 668)
Dividends paid to non-controlling interests				-		(3 287)
NET(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS				(2 299)		49 867
Cash and cash equivalents at the beginning of the period				113 842		61 436
Foreign exchange differences				(2 878)		8 946
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD				108 665		120 249
Less: cash and equivalents from discontinued operations at end of period				( 373)		( 327)
CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF THE PERIOD		11		108 292		119 922
1. Unaudited
* Prior period figures have been restated for the reclassification impact for accounting of discontinued operations (Refer Note 6, Discontinued Operations).

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

1.	CORPORATE INFORMATION
1.1.	Incorporation and authorisation
The holding company, Gem Diamonds Limited (the ‘Company’), was incorporated on 29 July 2005 in the British Virgin Islands. The Company’s registration number is 669758.
The financial information shown in this report, which was approved by the Board of Directors on 23 August 2010, is unaudited and does not constitute statutory financial statements. The report of the auditors on the Company's 2009 Annual Report and Accounts was unqualified.
2.	BASIS OF PREPARATION AND ACCOUNTING POLICIES
2.1.	Basis of presentation
The condensed interim consolidated financial statements for the six months ended 30 June 2010 have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group’s annual financial statements for the year ended 31 December 2009. The interim financial report for the six months ended 30 June 2010 has been prepared on a going concern basis as the Directors believe that there are no material uncertainties that lead to significant doubt that the entity can continue as a going concern in the foreseeable future.
2.2	Basis of consolidation
When the Company loses control of a subsidiary but retains significant influence, the subsidiary is deconsolidated and any resultant gain or loss is recognised in the income statement. On the loss of control of a subsidiary, any investment retained in the former subsidiary will be fair valued at this date and accounted for as an associate going forward, if significant influence is retained.
2.3.	Significant accounting policies
The accounting policies adopted in the preparation of the condensed interim consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2009, except for the adoption of new Standards and Interpretations as of 1 January 2010, noted below:
IFRS 2 Share-Based Payment - Group cash-settled share-based payment transactions
The Standard has been amended to clarify the accounting for group cash-settled share-based payment transactions. This amendment also supersedes IFRIC 8 and IFRIC 11. The adoption of this amendment did not have any impact on the financial position or performance of the Group or any additional disclosure requirements.
IFRS 3 Business Combinations (revised)
IFRS 3 (revised) introduces significant changes in the accounting for business combinations occurring after 1 July 2009. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. The change in accounting policy was applied prospectively and all acquisition-related costs have been expensed in the current year.

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 For the half year ended 30 June 2010

 

IAS 27 Consolidated and separate financial statements (amended)
This amendment requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The amendment had no effect on the financial position or performance of the Group.
IAS 39 Financial Instruments: Recognition and measurement - Eligible hedged items
The amendment addresses the designation of a one-sided risk in a hedged item and the designation of inflation as a hedged risk or portion in particular situations. The amendment had no effect on the financial position or performance of the Group.
IFRIC 17 Distribution of non-cash assets to owners
This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation had no effect on the financial position or performance of the Group.
IFRIC 18 Transfer of Assets from customers
This amendment clarifies the requirements for agreements in which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services. The amendment had no effect on the financial position or performance of the Group.
Improvements to IFRSs
In April 2009 the International Accounting Standards Board issued its second omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Group and did not have any additional disclosure requirements other than those detailed below.
Ø IFRS 8 Operating segment information:
Clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. As the Group's chief operating decision maker does review segment assets and liabilities, the Group has continued to disclose this information in Note 3.
Ø IAS 7 Statement of cash flows:
Explicitly states that only expenditure that results in recognising an asset can be classified as a cash flow from investing activities. The Group has complied with this amendment in preparing its cash flow statement.

 

  

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

Ø IAS 18 Leases
The IASB has added guidance (which accompanies the standard) to determine whether an entity is acting as a principal or as an agent. The features indicating an entity is acting as a principal are whether the entity:
- has primary responsibility for providing the good or services;
- has inventory risk;
- has discretion in establishing prices;
- bears the credit risk
The Group has assessed its revenue arrangements against these criteria and concluded that it is acting as principal in all arrangements.
Ø IAS 36 Impairment of assets:
The amendment clarified that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. The amendment has no impact on the Group as the annual impairment test is performed before aggregation.
Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group:
IFRS 2	Share based payments (Scope of IFRS 2 and revised IFRS 3)
IFRS 5	Non-current Assets Held for Sale and Discontinued Operations
IAS 1	Presentation of Financial Statements
IAS 17	Leases
IAS 38	Intangible Assets
IAS 39	Financial Instruments: Recognition and Measurement
IFRIC 9	Reassessment of Embedded Derivatives
IFRIC 16	Hedges of a Net Investment in a Foreign Operation
Standards, interpretations and amendments to published standards that are not yet effective
The following is the present list of standards and interpretations that have been issued and are not yet effective:
	Standard or Interpretation	Effective Date *
IFRS 9	Financial instruments (Phase 1 of new standards to replace IAS39)	January 2013
IAS 24	Amendments to IAS 24 - Related Party Disclosure	January 2011
IAS 32	Amendment to IAS 32 - Classification of Rights Issue denominated in a Foreign Currency	February 2010
IFRIC 14	Amendments to IFRIC 14 - Prepayments of a minimum Funding Requirement	January 2011
IFRIC 19	Extinguishing Financial Liabilities with Equity Instruments	July 2010
Improvements to IFRS (May 2010)		July 2010
*Annual periods beginning on or after.
The Group has not early adopted any of these standards or amendments. The Directors do not anticipate that the adoption of these standards will have a material impact on the Group's financial statements in the period of initial application once adopted.

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

3.	SEGMENT INFORMATION
For management purposes, the Group is organised into geographical units as the Group's risks and required rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates. Other regions where no direct mining activities take place are organised into geographical regions in the areas where the projects are based. The main geographical regions are: - Lesotho - Australia - Indonesia - Botswana - BVI, RSA, and UK (Provision of technical and administrative services. Includes beneficiation projects currently being established).   Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss. However, Group financing (including finance costs and finance income) and income taxes are managed on a group basis and are not allocated to operating segments.   Inter-segment transactions are entered into under terms agreed between the parties. Segment revenue, segment expense and segment results include transactions between segments. Those transactions are eliminated on consolidation.   The following table presents revenue and profit information from continuing operations regarding the Group's geographical segments for the periods:

 

6 months ended 30 June 20101				Australia			Indonesia	Botswana		BVI, RSA and UK	Total
(US$'000)	Lesotho
Sales
Total sales	70 987			33 558			-	-		5 428	109 973
Inter-segment sales	(1 700)			-			-	-		(4 343)	(6 043)
Sales to external customers	69 287			33 558			-	-		1 085	103 930
Segment profit/(loss)	12 179			2 291			-	( 22)		(7 926)	6 522
Net finance income											1 306
Share of loss in associate											( 50)
Profit before taxation											7 778
Income tax expense											(2 279)
Profit for the period											5 499
1. Unaudited

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

3.		SEGMENT INFORMATION continued
6 months ended 30 June 2009 1*									Australia							Indonesia						Botswana			BVI, RSA and UK						Total
(US$'000)						Lesotho
Sales
Total sales						84 115			32 498							-						-			4 659						121 272
Inter-segment sales						-			-							-						-			(4 562)						(4 562)
Sales to external customers						84 115			32 498							-						-			97						116 710
Segment profit/(loss)						22 279			1 380							-						( 10)			(4 782)						18 867
Net finance cost																															( 730)
Profit before taxation																													18 137
Income tax expense																																(4 420)
Profit for the period																																13 717
The following table presents segment assets relating to continuing operations of the Group’s geographical segments as at 30 June 2010 and 31 December 2009:
Segment assets   (US$'000)						Lesotho			Australia							Indonesia							Botswana			BVI, RSA and UK						Total
At 30 June 20101						341 043			73 803							-							46 801			65 897						527 544
At 31 December 20092						341 872			76 078							2 986							48 904			80 126						549 966
4.	SEASONALITY OF OPERATIONS
The Groups' sales environment with regards to its diamond sales is not materially impacted by seasonal and cyclical fluctuations. The mining operations may be impacted by seasonal weather conditions. Appropriate mine planning and ore stockpile build-up ensures that mining can continue during adverse weather conditions.
1. Unaudited
2. Audited
* Prior period figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 6, Discontinued Operations).

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

(US$'000)					20101		20091*
5.		INCOME TAX EXPENSE
		Income statement
		Current			(3 182)		(5 943)
		- UK			-		2 070
		- Overseas			(3 182)		(8 013)
		Withholding tax			( 43)		( 794)
		Deferred			946		2 317
		- UK			-		( 62)
		- Overseas			946		2 379
					(2 279)		(4 420)
		The forecast effective tax rate for the full year of 29.30% has been applied to the actual results of the interim period. This is slightly higher than the UK statutory tax rate of 28%. The principal drivers of the effective forecast tax rate are the 25% statutory rate applying to the Group's principal operations in Lesotho increased by permanent differences, including share-based payments that are not tax deductible, and deferred tax assets not recognised on losses incurred in non-trading operations.
1. Unaudited
* Prior period figures have been restated for the reclassification impact of accounting for discontinued operations (Refer Note 6, Discontinued Operations).

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

(US$'000)		20101	20091
6.	DISCONTINUED OPERATIONS
	Central Africa During the prior year, the decision was made to dispose of the operations in the CAR. Management has committed to a plan to sell the operations or the assets.
	Indonesia During the period, the decision was made to dispose of the operations in the BDI Group. Management has committed to a plan to sell the operations and an active programme to locate a buyer and complete the plan has been initiated.   The results of the Central African and Indonesian operations for the six months ended 30 June are as follows:
	Revenue	-	1 707
	Cost of sales	(1 062)	(6 114)
	Gross loss	(1 062)	(4 407)
	Other income	1 119	219
	Selling and distribution costs	-	( 30)
	Foreign exchange (losses)/gains	( 30)	75
	Finance costs	( 2)	( 29)
	Share-based payments	( 17)	( 35)
	Profit/(loss) before tax from discontinued operation	8	(4 207)
	Tax expense
	- related to current pre-tax profit/(loss)	618	(3)
	- related to changes in deferred tax	-	(1 071)
	Profit/ (loss) after tax for the period from discontinued operations	626	(5 281)
	Profit/(loss) per share from discontinued operation:
	- Basic	0.45	(5.78)
	- Diluted	0.45	(5.40)
1. Unaudited

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

(US$'000)		20101		20092
6.	DISCONTINUED OPERATIONS continued
	The major classes of assets and liabilities of the discontinuing operations as at 30 June and 31 December are as follows:
	Non-current assets		2 509	10
	Current assets		944	130
	Assets of disposal groups classified as held for sale		3 453	140
	Non-current liabilities		2 058	129
	Current liabilities		510	79
	Liabilities directly associated with the assets classified as held for sale		2 568	208
	The net cash flows attributable to the discontinued operations are as follows:
	Operating	( 1 529)		(5 375)
	Investing	1 118		132
	Financing	680		( 241)
	Net cash inflow/(outflow)	269		(5 484)
1. Unaudited
2. Audited

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

7.	INVESTMENT IN ASSOCIATE
	During February 2010, Blina Diamonds NL (a diamond exploration company), which is a listed company on the Australian Stock Exchange and previously a subsidiary of Kimberley Diamonds, raised AU$1.5 million by way of a placement. Kimberley Diamonds did not participate in all its rights to the placement and as a result, the Group's shareholding in the Company decreased to 23.11%. This decrease in shareholding resulted in the Group no longer consolidating the results of the operation. The Investment is now accounted for as an associate, resulting in the Group carrying US$0.1 million of its share of the losses, after realising a US$2.7 million gain, reflected in other income, following its loss of control.
(US$'000)			30 June 2010
	Fair value at		699
	Share of the associate's losses		( 50)
	Carrying amount of investment		800

 

8.		DIVIDENDS PAID AND PROPOSED
		The Directors do not intend recommending the declaration of a dividend. The Directors will reconsider the Company's dividend policy as the current market conditions unfold. The Directors envisage that, at such time, the Company's dividend policy will be determined based on, and dependent on, the results of the Group's operations, its financial condition, cash requirements, future prospects, profits available for distribution and other factors deemed to be relevant at the time.
9.		PROPERTY, PLANT AND EQUIPMENT
		During the six months ended 30 June 2010, continuing operations of the Group acquired assets and capitalised deferred stripping of US$29.7 million (30 June 2009: US$21.0 million).
		In addition to the above, foreign exchange movements on translation were US$(15.4) million (30 June 2009: US$48.0 million).
		Depreciation and amortisation (including amortisation of deferred stripping of US$10.7) of US$25.4 million (30 June 2009: US$26.4 million) was charged to the income statement during the period.
10.		OTHER FINANCIAL ASSETS
		Included in other financial assets are environmental bonds of US$7.5million (31 December 2009: US$6.5 million).

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

					30 June 20101	31 December 20092
(US$'000)
11.		CASH AND SHORT TERM DEPOSITS
		Cash on hand			12			28
		Bank balances			58 723			77 954
		Short-term bank deposits			49 566			35 845
					108 301			113 827
		Bank overdraft			( 9)			-
					108 292			113 827
		At 30 June 2010, the Group had restricted cash of US$4.8 million (31 December 2009: US$5.1 million).
1. Unaudited
2. Audited

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

 

For the half year ended 30 June 2010

 

			30 June 20101			31 December 20092
			Number of shares		Number of shares
			'000	(US$ '000)	'000		(US$ '000)
12.		ISSUED CAPITAL
		Authorised shares
		Ordinary shares of US$0.01 each.	200 000	2 000	200 000		2 000
		Issued and fully paid
		Balance at beginning of period	138 267	1 383	62 905		629
		Allotments during the period	-	-	75 362		754
		Balance at end of year	138 267	1 383	138 267		1 383

 

13. SHARE - BASED PAYMENTS
	Long term Incentive Plan ('LTIP')   On 23 June 2010, 1 375 200 options were granted to certain key employees under the LTIP of the Company. Of the total number of shares, 458 400 were Nil Value Options and 916 800 were Market Value Options. The exercise price of the Market Value Options is £2.31 (US$3.33), which was equal to the market price of the shares on the date of the grant. The vesting of the options will be subject to the satisfaction of performance conditions over a three year period that are considered appropriately stretching. If the performance conditions are not met the options lapse. The fair value of the options granted is estimated at the date of the grant using a Monte Carlo simulation model, taking into account the terms and conditions upon which the options were granted, projected dividends, share price fluctuations, the expected volatility, the risk-free interest rate, expected life of the options in years and the weighted average share price of the Company. The contractual life of each option granted is three years. There are no cash settlement options. The fair value of the options granted during the six months ended 30 June 2010 was estimated on the date of grant using the following assumptions:
	Performance Share Awards
	Dividend yield (%) Expected volatility (%) Risk-free interest rate (%) Expected life (years) Weighted average share price (US$) Fair value of Nil Value Options (US$) Fair value of Market Value Options (US$)	- 76.33 1.11 3.00 3.33 2.27 1.45
1. Unaudited
2. Audited

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

			30 June	30 June
(US$'000)			20101	20091*
14.		CASH FLOW NOTES
14.1		Cash generated by operations
		Profit before tax for the period from continuing operations	7 778	18 137
		Profit /(loss) before tax for the period from discontinuing operations	8	(4 207)
		Adjustments for:
		-Depreciation and amortisation on property, plant and equipment	26 630	26 447
		-Fair value gain on deconsolidation	( 896)	-
		-Finance income	(1 959)	(1 239)
		-Finance costs	653	1 992
		-Movement in provisions	( 225)	54
		-Market to market revaluations	15	(2 664)
		-Foreign exchange differences	( 919)	(9 666)
		-Profit on disposal of assets	(1 196)	( 2)
		-Movements in prepayments	100	-
		-Other non-cash movements	(1 884)	328
		-Share of loss of associate	50	-
		-Gain on disposal of subsidiaries	(1 809)	-
		-Share-based equity transactions	844	4 118
			27 190	33 298
14.2		Working capital adjustments
		Decrease in inventories	1 807	10 848
		Increase in receivables	14	1 856
		Decrease in trade and other payables	(1 227)	(17 669)
			594	(4 965)

 

15.	COMMITMENTS AND CONTINGENCIES
		At 30 June 2010, the Group had capital commitments of US$9.3 million (31 December 2009: US$16.6 million) relating to property, plant and equipment.   Restricted cash of US$3.9 million (31 December 2009: US$4.2 million) represents funds held in terms of a deposit agreement and is security on debt owing by a Director to a financial institution, in connection with the Director's relocation. This arrangement is currently under review.   Having consulted professional advisers, the Group has identified possible tax claims within the various jurisdictions in which the Group operates approximating US$3.2 million (31 December 2009: US$3.9 million).
1. Unaudited
* Prior period figures have been restated for the reclassification impact for accounting of discontinued operations (Refer Note 6, Discontinued Operations).

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

16.	RELATED PARTIES
	Related party			Relationship
	Jemax Management (Proprietary) Limited			Common director
	Jemax Aviation (Proprietary) Limited			Common director
	Gem Diamond Holdings Limited			Common director
	Government of Lesotho			Minority shareholder
	Geneva Management Group (UK) Limited			Common director
	Government of CAR			Minority shareholder
	Government of Indonesia			Minority shareholder

 

				30 June	30 June
(US$'000)				20101	20091
	Compensation to key management personnel (including directors)
	Share-based payments			694	606
	Short-term employee benefits			3 260	3 134
				3 954	3 740
	Related party transactions:
	Royalties paid to related parties
	Government of Lesotho			(5 790)	(9 020)
	Lease and license payments to related parties
	Government of Lesotho			( 53)	( 119)
	Sales to/(purchases from) related parties
	Jemax Aviation (Proprietary) Limited			( 52)	( 68)
	Jemax Aviation (Proprietary) Limited			151	72
	Jemax Management (Proprietary) Limited			( 53)	( 55)
	Geneva Management Group (UK) Limited			( 8)	( 8)
1. Unaudited

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

For the half year ended 30 June 2010

 

					30 June 20101		31 December 20092
(US$'000)
16.		RELATED PARTIES continued
		Amount included in trade receivables owing by/(to) related parties
		Jemax Aviation (Proprietary) Limited			46		26
		Jemax Management (Proprietary) Limited			( 9)		( 19)
		Amounts owing to related party
		Government of Lesotho			-		(1 378)
		Jemax Management (Proprietary) Limited and Jemax Aviation (Proprietary) Limited provided administrative and aviation services with regards to the mining and evaluation activities undertaken by the Group.
17.			POST BALANCE SHEET EVENTS
		No fact or circumstance has taken place between the period end and the approval of the financial statements which, in our opinion is of significance in assessing the state of the Group's affairs.
1. Unaudited
2. Audited