Sale of the 550ct Letseng Star

24 October 2011

GEM DIAMONDS LIMITED

("Gem Diamonds" or the "Company")

GEM DIAMONDS ANNOUNCES THE SALE OF THE 550CT LETŠENG STAR

Gem Diamonds, the FTSE 250 listed diamond company (LSE: GEMD), is pleased to announce the sale of the Letšeng Star, a 550 carat, Type IIa, D colour, white gem diamond recovered on 19 August 2011 at the Company's Letšeng mine in the Kingdom of Lesotho. The Letšeng Star is currently ranked as the 14th largest white diamond on record and is the fourth diamond of such historical significance to be recovered at Letšeng since 2006.

Under the new sales and marketing strategy, the Letšeng Star has been sold into a profit sharing arrangement for a rough price of US$16.5 million, payable immediately. Letšeng Diamonds will then further benefit from a significant share of the downstream polished margin uplift resulting from the sale of the polished diamonds cut from the Letšeng Star.

Gem Diamonds CEO, Clifford Elphick commented:

"The Letšeng Star has the potential to yield an exceptional polished product and the profit sharing arrangement for the polished margin of the Letšeng Star will ensure that its true value is realised and that Letšeng Diamonds benefits directly from the exposure to the resulting upside. Gem Diamonds' strategy of maximising revenue generation from our rough diamonds by seeking value-added initiatives further up the diamond value chain is gaining importance for the Group, and we are becoming increasingly successful in selling rough and polished diamonds with good margins being realised." 

For further information:

Gem Diamonds Limited:

Glenn Turner, Chief Commercial and Legal OfficerTel: +44 (0) 203 043 0280

Sherryn Tedder, Investor RelationsTel: +27 (0) 11 560 9600Mob: +27 (0) 83 943 4505

Kim O'Farrell, Public and Media RelationsTel: +44 (0) 203 043 2080

Mob: +44 (0) 776 506 1316

Pelham Bell Pottinger:James Henderson/James MacFarlaneTel: +44 (0) 20 7861 3232

About Gem Diamonds:

Gem Diamonds is a leading global diamond producer with a focus on high value diamonds. Its production portfolio comprises kimberlite and lamproite mines in Lesotho and Australia, and a kimberlite mine development project in Botswana. Both producing mines are world-leaders in the production of the highest quality, highest value gems: remarkable white diamonds from the Letšeng mine in Lesotho and fancy yellow diamonds from the Ellendale mine in Australia. This production positions the Company strongly in a segment of the market expected to generate attractive returns over the long term.

Gem Diamonds has a clear and consistent growth strategy, based on the development of its existing assets and carefully targeted acquisitions. The strategy has been implemented with a view to capitalising on the steady improvement in the diamond market seen during 2010 and 2011 and the favourable supply demand dynamics which are expected to continue for the foreseeable future.

www.gemdiamonds.com