Annual Report 2014
Feedback Sherryn Tedder [email protected] 2 Eaton Gate SW1W 9BJ Gem Diamonds is a London United Kingdom leading producer Tel: +44 203 043 0280 Fax: +44 203 043 0281 The following icons indicate where additional information of high-value diamonds. is available online, in the Group’s Sustainability Report or elsewhere in this report. The Group owns Indicates additional information available on the Group’s website the Letšeng mine www.gemdiamonds.com. in Lesotho, and the Refers the reader to further information available in the Group’s 2014 Sustainable Development Report. Ghaghoo mine in Botswana.
Our strategy is based on three broad pillars: value creation, growth and sustainability
About Gem Diamonds Annual Report 2014 The Letšeng mine is renowned for its regular production of large, top colour, exceptional white diamonds, making it the highest average dollar per carat kimberlite diamond mine in the world. Since Gem Diamonds acquired the mine in 2006, Letšeng has produced four of the 20 largest white gem quality diamonds ever recovered.
Gem Diamonds has an organic growth strategy based on enhancing the operating efficiencies of the Letšeng mine and AnnualAnnAnnnuall RReReportport2t 20142014 Sustainable Development Report 2014 bringing the Ghaghoo mine into full production. Achieving operational excellence through cost reductions and enhancing current production is an essential focus.
Additional value is created through the Group’s expanded sales, Caption for front cover: The Satellite pipe at Letšeng. marketing and manufacturing capabilities.
CONTENTS
Strategic report: Business overview 2 2 Gem Diamonds at a glance 4 Our business model 6 2014 in review 7 Our locations 8 Chairman’s statement Strategic ReportStrategic Business review
Strategic report: Management review 10 12 Key performance indicators 14 Our marketplace 18 Chief Executive Officer’s overview 20 Group financial performance Strategic ReportStrategic Management review
Strategic report: Operating review www.gemdiamonds.comwww gemdiamondsdi d com 24 26 Letšeng 30 Ghaghoo 33 Sales, marketing and manufacturing 35 Mineral resource management 40 Sustainable development review 44 Principal risks and uncertainties Download this QR code
on your smart device to gain ReportStrategic Operating review quick access to our website. Governance The Strategic Report is set out on pages 2 to 46. 48 The Directors’ Report is set out on pages 86 to 89. 50 Directorate 52 Chairman’s overview of corporate governance 53 UK Corporate Governance Code compliance 60 Audit, Nominations and HSSE Committees 67 Annual statement of Directors’ remuneration 68 Directors’ remuneration policy 76 The annual report on remuneration Governance 86 Directors’ report Financial statements 90 92 Directors’ responsibility statement 93 Independent auditor’s report 96 Annual financial statements IBC Contact details and advisers Financial statements Financial
1 Gem Diamonds Annual Report 2014
GEM DIAMONDS AT A GLANCE
We continue to focus on creating value by focusing on mining and selling our diamonds effectively to maximise returns.
MINES
Letšeng Diamonds Gem Diamonds Botswana
OWNERSHIP ACQUIRED July 2006 OWNERSHIP ACQUIRED May 2007 70% Gem Diamonds Limited 30% 100% Government of the Kingdom Gem Diamonds Limited of Lesotho
DESCRIPTION OF OPERATION DESCRIPTION OF OPERATION – Mining and processing diamond bearing ore sourced from the Main and – Development of the Ghaghoo diamond mine in the central Kalahari Satellite kimberlite pipes Game Reserve in Botswana
TOTAL RESOURCE IN-SITU VALUE TOTAL RESOURCE IN-SITU VALUE 5.0 million carats US$10.4 billion 20.5 million carats US$4.9 billion (as at 1 January 2014) (as at 1 January 2014) (as at 1 January 2014) (as at 1 January 2014)
STRATEGIC OBJECTIVES STRATEGIC OBJECTIVES – Optimisation of expansion projects while improving diamond liberation – Optimise the returns following the completion of Phase 1 capital project and reducing diamond breakage – Optimise and assess opportunity to expand into Phase 2 – Focus on cost reductions – Implement life of mine extensions – Optimise timing for underground mining DEVELOPMENT PERFORMANCE 2014 – Three kimberlite tunnels completed on Level 1 – Processing plant commissioning commenced OPERATIONAL PERFORMANCE 2014 – Capital project complete Carats recovered: 108 569 – Carats recovered: 10 167 Average US$ per carat: US$2 540* – Tonnes treated: 48 023 Tonnes treated: 6.4 million Waste tonnes mined: 19.9 million * Includes carats extracted for polishing at rough valuation. SUSTAINABILITY PERFORMANCE 2014 – Maintained its four-star rating in the annual external HSSE audit SUSTAINABILITY PERFORMANCE 2014 – LTIFR 0.91 – Maintained a five-star rating in the annual external health, safety, social – AIFR 7.07 and environment (HSSE) audit – Four LTIs, including one fatality – Lost time injury frequency rate (LTIFR) 0.05 – Zero major environmental incidents – All injury frequency rate (AIFR) 2.05 – Established a community trust. Funds were allocated to support – Zero fatalities; one lost time injury (LTI) various community projects during the year – Zero major environmental incidents – 93% of workforce made up of Batswana nationals, 19% of whom – Corporate social investment (CSI) projects carried out on schedule are from project affected communities – 92% of workforce made up of Basotho nationals, 18% of whom are from project affected communities
FOCUS FOR 2015 FOCUS FOR 2015 – Continue transition processes and systems from project phase – Complete implementation of Plant 2 Phase 1 upgrade to operation phase – Complete the construction and commissioning of the Coarse Recovery – Continue ramping up production to name plate capacity Plant – Optimise the processing plant – Complete mine planning studies and pit optimisation; review optimal – Advance the decline to open up Level 2 timing for commencement of underground mining – Increase number of carats for sale and frequency of tenders held – Undertake further studies into the next phase of expansion programme – Continuation of test work with new waste sorting techniques – Continuation of the drive to reduce diamond damage
Letšeng diamond mine – Lesotho – page 26 Ghaghoo diamond mine – Botswana – page 30
2 Gem Diamonds Annual Report 2014 Sales and MarketingSales –page33 valuation,Diamond sorting, salesandmarketing company basedin – inotherstrategicIdentify diamondsalesandmarketing opportunities – Optimise salesandmarketing activities – Optimise thesalesandmarketing channelsfor theGhaghoorough – Continue toachieve highestprices for allrough andpolisheddiamonds – Zero HSSEincidents – Every rough diamondproduced interms was oftheKimberley certified – * Includescarats forpolishingatrough valuation. extracted Contributed additionalrevenue totheGroup ofUS$5.8million – Achieved anaverage value ofUS$2540*percarat for– Letšeng’s rough Develop andmaintain strong relations withnew andexisting customers – Increase customer base – Identify anddevelop key strategic areas for targeted– revenue growth Develop theLetšeng Diamondsbrands andGem inmarketing channels – Maximisethevalue achieved onrough andpolisheddiamondsales – production production Antwerp, Belgium jurisdictions production Process certificationscheme down thediamond pipeline further beyond theminegate Gem DiamondsLimited Gem 100% OWNERSHIP Gem DiamondsMarketingGem Services SUSTAINABILITY PERFORMANCE DESCRIPTION OF OPERATION AE N AKTN MANUFACTURING SALES AND MARKETING STRATEGIC OBJECTIVES PERFORMANCE 2014 FOCUS FOR2015 ESTABLISHED 2014
October 2010 October Manufacturing –page33 Develop andmaintain strong relationships withnew andexisting customers – diamondanalysis Continue tosource anddevelop state-of-the-art – polisheddiamonds, primarilysourced high-end Manufacture from – Provide capacity tomeettheGroup’s manufacturing – current Advanced mappingandanalysis ofexceptional rough– diamondsin High-tech rough diamondanalysis company andmanufacturing based – polishingbusiness Increase third party – Obtained best possiblepolishedresults for rough diamonds – volumesIncrease ofextrac – Zero HSSEincidents – Developed andimplemented anintegrated safety,– health, All diamondswere interms oftheKimberley certified Process – Included inthe above were: a124carat, whichwas cutinto – Baobab Technologies– received 1232carats ofhigh-value diamonds manufactured polished diamonds technology andgrow ofbothrough knowledge and intellectual the Group’s miningoperations andgrowth objectives opportunity manufacturing order to betterunderstandthetruevalue anddrive higherprices in Antwerp, Belgium environmental andqualitymanagement system scheme certification Institute ofAmerica (GIA) triple ‘excellent’ grading by theGeological incut, polishandsymmetry diamonds, withatotal weight of34.53carats, allofwhichreceived and a95carat diamond, whichwas cutinto four exceptional polished 12 exceptional polisheddiamonds, withatotalweight of40.63carats, US$17.2 million from Letšeng for manufacturing, witharough market value of Gem DiamondsLimited Gem 100% OWNERSHIP SUSTAINABILITY PERFORMANCE DESCRIPTION OF OPERATION Baobab Technologies STRATEGIC OBJECTIVES PERFORMANCE 2014 FOCUS FOR2015 ted roughdiamondsto Gem Diamonds Gem
ESTABLISHED bepolished 2014 Annual Report 2014 AnnualReport
April 2012 3
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OUR BUSINESS MODEL
Gem Diamonds’ strategy is based on three broad pillars, namely growth, value creation and sustainability We believe this offers us the flexibility to generate maximum returns for our shareholders in a sustainable manner. Our business model is focused primarily on extracting diamonds through mining. We have also expanded our focus further along the diamond value chain through our strategic sales, marketing and manufacturing activities. These activities give rise to a range of risks, which we actively manage and mitigate. We are committed to sustainable development, seeking to create and extract maximum value for all stakeholders by exploring, mining and marketing our product responsibly. Our overarching objective is to deliver sustainable returns for our investors while optimising the benefit for our communities and minimising our impact on the environment.
4 Gem Diamonds Annual Report 2014
downstream initiatives. and manufacturing incorporating capabilities, expanded salesandmarketing Generation ofadditionalvaluethrough Value accretive opportunities optimum returns to shareholders. production usingavailable capitalto deliver bringing theGhaghoomineinto full Optimisation oftheLetšeng mineand Organic growth Growth
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Annual Report 2014 AnnualReport eve lop ing inn ovat ive mi ning solutions
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2014 IN REVIEW
Ghaghoo reported 10 167 carats recovered during commissioning up to the end of the year, including a 20 carat At Letšeng’s February tender, white diamond, a the 162.02 carat diamond 17 carat white diamond, Recovery of two +160 carat sold for US$11.1 million and a 3 carat orange diamond. diamonds from the Letšeng (US$68 687 per carat) mine. A 162.02 carat Type II and the 161.31 carat sold for Letšeng final tender achieves diamond and a 161.31 carat US$2.4 million US$2 799 per carat. Type I diamond. (US$14 636 per carat). December January February
October March Ghaghoo entered an Gem Diamonds’ Board important phase as it announced its intention transitioned from a to pay a maiden dividend capital project to an to shareholders based on operating mine. the 2014 financial results. September The 197.6 carat white diamond recovered in July achieved May US$ 10.6 million. Kimberlite was intersected in Ghaghoo mine officially the first production tunnel on opened on level one at Ghaghoo 5 September by the President Updated Resource of Botswana, Seretse Khama Ian August and Reserve statement released Khama. – approximately doubling Strong half-year results Letšeng’s in situ value announced, of the reserve to with revenue up 54% to US$4.6 billion, with a life of US$148.9 million and mine of 21 years now fully EBITDA up 87% to contained in the Probable US$62.2 million July Reserve category. compared to previous Recovery of a 197.6 carat, half-year. The Group white Type IIa diamond maintained its strong from the Letšeng mine. cash position with This was an exceptional US$113.9 million as at white, high-quality 30 June 2014. diamond, displaying no fluorescence.
6 Gem Diamonds Annual Report 2014 OUR LOCATIONS Company inthe headquarters Gem DiamondsLimitedGem United Kingdom Ownership: 100% Gem DiamondsLimited 100%Gem Ownership: Ownership: 100% Gem DiamondsLimited 100%Gem Ownership: Gem Diamonds Gem Technical Services Ghaghoo Diamond Mine (Botswana) Ghaghoo DiamondMine Gem DiamondsBotswanaGem Ownership: 100% Gem DiamondsLimited 100%Gem Ownership: DiamondsMarketingGem Service Ownership: 100% Gem DiamondsLimited 100%Gem Ownership: Baobab Technologies (RSA) (Belgium) (Belgium) Lesotho Limited; 30%Government of Diamonds 70%Gem Ownership: Letšeng (Lesotho) DiamondMine Letšeng Diamonds Gem Diamonds Gem
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CHAIRMAN’S STATEMENT
2014 was characterised by the delivery of a robust financial performance and the recommendation of our first dividend. The focus on maximising the revenue from our core assets through enhancing operating efficiencies and investing in innovative technologies has delivered improved earnings and has positioned Gem Diamonds for sustainable growth.
Our investment proposition
Letšeng: value Diamond market Strategic and Dividend paying enhancing fundamentals structural clarity policy opportunities
Dear shareholder, strategy and will aim to pay a total Bringing the Ghaghoo mine into It gives me great pleasure to present dividend at an approximately consistent production Gem Diamonds’ 2014 Annual Report. proportion of sustaining net earnings. Gem Diamonds’ technical skills have come Dividends are expected to be declared by to the fore in the development of the Strategic review the Board annually with the full-year results. Ghaghoo mine in Botswana, delivering the In 2011, Gem Diamonds mapped out a This policy demonstrates our commitment capital project on time and within budget. clear strategy built on three pillars, namely to returning value to shareholders. It is also pleasing to report that the first value creation, growth and sustainability. diamonds produced during This broad-based approach has allowed Improving the revenue line at commissioning have been of a better the Group to adapt to short-term Letšeng through innovation quality and average size than those The Letšeng mine in Lesotho is opportunities and challenges while recovered during the exploration phase. synonymous with exceptional diamonds. moving towards its long-term goal of It has also been noteworthy that the It is, therefore, imperative that the Group sustainable shareholder returns. During presence of rare coloured diamonds in continually invests in innovative ways of 2014, the Group made great strides in the resource has been confirmed. achieving its stated objectives: identifying, recovering and preserving these high-value diamonds. During 2014, The mine development showcases Maintaining a robust financial the mine continued to reap the benefits of Gem Diamonds’ commitment to best position and cash flows the technological investments made in the practice in relation to its project affected The continued enhancement of the previous years. In addition, further focused communities and the environment. The Group’s cash position and balance projects, including the installation of the communities affected by the Ghaghoo sheet strength allows it to react new Coarse Recovery Plant, which will mine have been involved and consulted proactively to market and operational further improve diamond recovery, and from the outset with the aim of achieving conditions in order to meet its medium- the Plant 2 Phase 1 upgrade, which will broader stakeholder value. In addition, and longer-term objectives. increase throughput, reduce breakage numerous ecological and archaeological and improve diamond liberation, are set surveys; visual and socio-economic impact Group revenue rose by 27% over the prior to advance Gem Diamonds’ strategic assessments; as well as an extensive public year, with cash on hand at the end of the objective of increasing revenues at participation process have been year of US$110.7 million. The Group Letšeng. These projects represent relatively conducted. Information gathered during achieved a total shareholder return of low capital investments in keeping with this process underpinned the Group’s 23% in 2014. the Group’s focus of maintaining capital approach to minimising Ghaghoo’s Dividend discipline in all of its operations. ecological footprint and maximising the benefit for all stakeholders. A Ghaghoo Based on the positive results achieved While the political unrest that occurred in Community Trust has been established and since the implementation of the above Lesotho during 2014 posed a possible local community representatives sit in Trust strategy, the Board is pleased to challenge, the mine, situated four hours meetings. The Trust has made a number recommend a maiden cash dividend of from the capital, Maseru, remained of material interventions in community 5 US cents per share. The Board has unaffected. The state of affairs in the projects, long before the first diamond was adopted a policy that will determine the country has since stabilised, with elections sold and will continue to do so as the mine appropriate dividend each year based on having taken place on 28 February 2015 enters the next phase of development. consideration of the Company’s cash under the watchful eye of the South resources, the level of free cash flow and African Development Community (SADC) Continued excellence in sales, earnings generated during the year, and representatives headed by South Africa’s marketing and manufacturing the expected funding commitments for Deputy President, Cyril Ramaphosa. initiatives capital projects relating to our growth Positioned at the very top end of the diamond market, Gem Diamonds’ Letšeng 8 Gem Diamonds Annual Report 2014 * Includescarats extracted forpolishingatrough valuation. achieving zero harm. goalof line withourall-encompassing in andreducingwork incidencesofinjury commitment to eliminatingfatalities at to thefamily. Iwishto reaffirm the Group’s condolences once againsendourheartfelt behalf oftheBoard and the Group, we health andsafety ofouremployees. On ourfocussharpened onsafeguarding the 2014,isatragedythathas January in employees, SegolameMashumba, Mr theyear,during thelossoflife ofoneour astrongDespite overall safety performance is bothamoralandbusinessimperative. Safeguarding thewell-being ofemployees and safety standards Committed tothehighesthealth polished uplift. benefiting from 50%ofthe resulting of 2015,whichwillseeLetšeng further atthebeginning arrangement partnership yellow diamond, wassoldinto a recovered theyear, during a299.3 carat US$37.4 million. The largest diamond which together achieved atotal of seven +100 caratdiamonds, five of acquisition in2006. This included than 20caratsinasingleyear, since its highestnumberofdiamondsgreater note, theyear during LetšengOf recovered relatively fluctuations. resilient to market Letšeng’s rough productionto remain these exceptional diamonds, allowing who continueto for pay thehighestprices theworld’stenders attract top diamantaires US$2 540* percaratin2014.Letšeng’s andachievedworld anaverage of diamondproducer inthe carat kimberlite itthehighestaverage dollarper making world’s diamonds, mostremarkable mine consistently produces someofthe upside asset valuation Ghaghoo: nearterm governance Robust corporate over theyears. Following André’s his significant to theGroup contribution to expresslike itsappreciation to André for 2015. 70 on11January The Board would Secretary, André Confavreux retired atage asCompany eightyearsAfter ofservice into theGroup’s governanceframework. the feedback received willbeincorporated that nomajorissueswere identifiedand Board governance. Iampleasedto report evaluation process aimedatenhancing Directors submitted themselves to aBoard theyear,During theGroup’s Board of changes asrequired. well positioned to introduce thenecessary amended accordingly. The Group isthus Diamonds’ was governance framework theCode, andtheGem supports amended. The Board agrees withand UK Corporate GovernanceCode was September 2014,the stakeholders. During to create sustainablereturns for all itsability supports governance corporate The Group’s commitmentto robust Corporate governance Gem Diamondswebsite.) onthe Report Sustainable Development at Board level. (Refer to thefull2014 strategic guidancebytheHSSECommittee, of interms each operation,supported development programme isinplaceat communities. Acomprehensive sustainable strives to positively contribute to these communities inwhichitoperates and the successandwell-being ofthe to iscloselylinked viability its long-term development. The Group recognises that stewardship andsocio-economic operates, ofenvironmental bothinterms responsibility towards theareas inwhichit Gem Diamondsisdeeplyaware ofits Roger Davis p 16 March 2015 Non-Executive Chairman Roger Davis value.build long-term continue to deliver onourstrategy and asweour shareholders for theirsupport commitment to GemDiamondsaswell as our employees for and theirtireless efforts behalf oftheBoard, to Iwould thank like theyear. during and contribution On fellow Board membersfor theirwisdom toDiamonds andIwould thankmy like calibre ofpeople employed atGem The 2014results are atestimony to the by theGroup’s dividendpolicy. execution ofstrategy asisdemonstrated to our shareholders through thisfocused to returns continuedelivering our ability and responsibly. We remain confidentin mining andsellingdiamondsefficiently remain oncreating valueby focusing on The strategic focus for theyear aheadwill half of2015. beginning to trend upward inthesecond to remain favourable, withdiamondprices diamond demand, therefore, isexpected The mediumto outlookfor long-term funding gapthattriggered theseconcerns. Dubai andelsewhere steps to take fillthe asbanksin inthemarket some firming lending andliquidity, theGroup expects over dueto bank concerns of 2014,partly quarter inthefourth ofprices weakening remains strong.market Despitea outlookforThe long-term thediamond Outlook duties asExecutive Director. role to ofCompany hiscurrent Secretary retirement, Glenn Turner hasaddedthe Gem Diamonds Gem
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MANAGEMENT REVIEW
10 Gem Diamonds Annual Report 2014 maiden cash dividend of 5 US centspershare. US maiden cashdividendof5 Gem Diamondsis since theimplementation ofourstrategy Based onthe positive results achieved pleased to recommend a Gem Diamonds Gem
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KEY PERFORMANCE INDICATORS
Key performance indicators are used to help evaluate the performance of the Group against its strategy. These indicators are monitored continuously to effectively evaluate the performance of the Group over the short, medium and long term.
Growth Description Commentary
Revenue (US$ million) Revenue represents the value of goods sold during Group revenue increased by 27%, driven by 12% the year (both rough and polished) and measures higher volume of rough carat sales from Letšeng and the level of operating activity and growth of the 24% higher diamond prices compared to the prior 350 306 business. Revenue for the year is as reported in the year. Revenue does not include sales from Ghaghoo 300 271 consolidated income statement. as the mine had not reached full commercial 250 202 213 production during the year. The first sale of carats 200 189 recovered during commissioning concluded after 150 year end. 100 50 0 2010 2011 2012 2013 2014
Underlying EBITDA (US$ million)/ Underlying EBITDA means earnings before interest, Underlying EBITDA has continued its upward trend and tax, depreciation and amortisation. It excludes share- has increased by 35% over the prior year. This reflects underlying EBITDA margin (%) based payments, other income, foreign exchange the impact of the higher Group revenue, continued differences and exceptional items. cost management and operational efficiency focus 60 180 54% during the year. EBITDA does not include any results 160 50 Underlying EBITDA margin is calculated as from Ghaghoo due to the mine not having reached 140 underlying EBITDA as a percentage of revenue. 38% 40 full commercial production. The weakening of the
167 32% 38% 120 36% Both these indicators provide a measure of the Lesotho loti (pegged to the South African rand) has 100 30 operating profitability of the business. Refer to 80 had a positive impact on the translation of the local
60 104 20 Note 3, Operating profit, in the financial statements costs into US dollars. 77 72 for the calculation of underlying EBITDA. 40 65 10 20 0 0 2010 2011 2012 2013 2014
Return on average capital employed ROACE is a pre-tax measure of the efficiency with Pre-tax ROACE achieved 19%, driven by higher Group which the Group generates operating profits from revenue and underlying EBITDA which positively (ROACE) (%) its capital. ROACE is calculated as underlying EBITDA impacted earnings. Prior years’ ROACE is as reported (as per Note 3, Operating profit, in the financial at that point in time and includes all operations in 30 26 statements) less depreciation and amortisation existence in those relevant years. 25 divided by average capital employed (being total 19 equity and non-current liabilities per the 20 consolidated statement of financial position). 15 12 10 9 10 5 0 2010 2011 2012 2013 2014
Basic earnings per share (EPS) (US cents) Basic EPS represents net profit attributable to equity Basic EPS at 24 US cents per share (up 57% from shareholders and is stated before exceptional items the prior year) is indicative of the higher earnings 48 and after taking into account non-controlling achieved as a consequence of the higher revenue and 50 interest. This is a measure of net profitability of the EBITDA achieved. There was no change in the capital 40 Group taking into account changes in the equity structure of the Group. structure. EPS is calculated as reported in the 30 24 consolidated income statement and in accordance 20 15 15 with Note 6, Earnings per share, in the financial 12 statements. 10 0 2010 2011 2012 2013 2014
Free cash generated represents net cash flows The Group is focused on generating strong operating Free cash generated (US$ million) before financing activities and investing activities cash flows. Stringent working capital management 77 in expansion projects. This measures the together with higher EBITDA contributed to increased 80 61 cash-generating capability of the Group to fund levels of free cash generation during the year. The 60 future growth. Free cash generated is reflected in the strong free cash generated provides flexibility to 40 statement of cash flows and is determined by cash apply such cash into development and expansion 19 21 flows from operating activities less sustaining capital initiatives and to implement the Group strategy of 20 of US$18.3 million (pre-expansion capital) and less providing returns to shareholders through the ability 0 waste cash costs of US$54.0 million. to fund future dividends. During the year, these funds, (20) together with debt facilities raised, were invested
(51) mainly into completing the Phase 1 development and (40) commissioning of Ghaghoo and the Plant 2 Phase 1 (60) expansion project at Letšeng. 2010 2011 2012 2013 2014 The Group ended the year with US$110.7 million cash and has drawn down US$37.1 million of its total available facilities of US$78.7 million, resulting in a net cash position of US$73.6 million at year end.
The key performance indicators exclude the impact of any discontinued or disposed operations in the prior years unless otherwise stated.
12 Gem Diamonds Annual Report 2014 Value creation Sustainability Capital expenditure Production tonnestreated expenditure Corporate socialinvestment(CSI) Carats pro W Lost timeinjuryfrequencyrate 0.05 0.10 0.15 0.20 0.25 0.30 100 120 as 0.2 0.4 0.6 0.8 1.0 1.2 10 20 30 40 50 60 10 15 20 20 40 60 80 0 0 0 1 2 3 4 5 6 7 8 0 5 0 0 t e 2010 2010 2010 2010 t 11.7 0.7 7.6 2010 91 2010 onnes m 0.00 13 d uce (US$ million) 2011 2011 2011 2011 13.7 1.1 112 6.8 2011 2011 d 0.25 25 i
ne (t h d ousan (US$ million)
2012 ( 2012 2012 2012 17.4 114 6.6 0.6 m 2012 2012 54 0.30 illi d ons s) (millions) 2013 2013 19.1 2013 2013 0.5 6.2 95 ) 2013 30 2013 0.13 (LTIFR) 2014 2014 2014 2014 19.9 119 6.5 0.6 2014 47 0.20 2014 ecito Commentary and includesexpansionsustainingcapital. flows aspurchases ofproperty, plantandequipment expenditure isreflected inthestatement ofcash in theGroup’s organic growth plans. Capital Capital expenditure represents theamountinvested Description ecito Commentary period. rates includealloperationsinexistence atthat rate per200000manhours.frequency Prior year companies andsubcontractors, expressed asa LTIreported statisticsfor allofGemDiamonds’ contractors. LTIFR ismeasured onthebasisof oftheGroup, and performance includingpartners The LTIFR provides ameasure ofthesafety Description tonnes mined by Letšeng. The waste tonnes minedprofile setsoutthewaste produced by Letšeng andGhaghoo. The caratsproduced profile setsoutthecarats by Letšeng andGhaghoo. The profile production setsoutthe tonnes treated with our project affectedwith ourproject communities. mutually beneficialandtransparent relationships commitment to CSIwhichiscriticalfor theongoing CSI expenditure relates to theGroup’s continued Ghaghoo. to thecompletion ofthePhase1development of capital ofUS$27.5millionwasmainlyattributable phase. the commissioning Expansion andramp-up valueoftheassetduring capitalised to thecarrying operational expensesatGhaghoowhichwere in thenewCoarse PlantatLetšeng Recovery and capital expenditure, whichincludestheinvestment The Group invested US$18.3millioninsustaining to reach itstarget for LTIFR ofzero. drives to continually improve itssafety record inorder recordedincludes onefatality atGhaghoo. The Group five LTIs (oneat Letšeng and four atGhaghoo) and The LTIFR for theyear was0.20andtheresult of haul equipmentcommissioned duringtheyear. by improved efficienciesintheuseoflarger loadand requirements inorder to meetthemineplan,aided Waste moved for theyear wasmarginally aheadof produced phase. from Ghaghooduringtheramp-up the year. The current year includes10167 carats the grade overperformance during ofthereserve Further contributing to thehighercaratrecovery was compared to 16%and84%respectively in2013. pipe and69%from thelower-grade pipe, Main total ore treated beingsourced from theSatellite Satellitehigher-grade ore, resulting in31%ofthe was driven by miningahighercontribution ofthe Letšeng’s increased caratproduction by 14%and ofthatyear.limited throughput test intheearlypart plant downtime for thecrusherinstallationand phase. The decreased tonnes intheprioryear included 48 023 tonnes treated atGhaghooduringtheramp-up throughput through theLetšeng plantandincludes The current year represents production steady state community-related inBotswanaandLesotho. projects related duringtheyear, projects whichrepresents The Group invested US$0.6millionincommunity- Gem Diamonds Gem
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OUR MARKETPLACE
The medium to long-term outlook for diamond demand and prices is expected to remain favourable when considering the supply-demand dynamics and the Group expects diamond prices to continue their upward trend in the latter part of 2015.
The global diamond market adopting a more cautious approach which Supply trends in 2014 was further fuelled by a disappointing Global rough diamond production has The global diamond market has seen Hong Kong Jewellery Show in September. declined considerably since its peak of numerous peaks and troughs since the This exerted downward pressure on both approximately 177 million carats in 2005, onset of the global financial crisis which rough and polished prices in general, with production volumes still not having saw diamond prices fall rapidly towards the however, Letšeng’s high-value rough recovered to levels seen prior to the global end of 2008 and into 2009. In 2010, both production continued to remain relatively financial crisis. Intensified mining activities, resilient, ending the year on a very positive rough and polished prices recovered as well as a small number of new diamond note, achieving an average of US$2 799* strongly, reaching historically high levels in mines anticipated to come on stream, are per carat in the December tender 2011. Following a downward correction in expected to result in an increase in the (compared to the average of US$2 540* per 2012, diamond prices have begun to trend supply of rough diamonds in the short to carat achieved for the full year of 2014). moderately upward in 2013 and 2014 (see medium term. However, the projected adjacent graph). Supply and demand levels of supply still remain below the pre-global financial crises levels (see Despite the more recent positive trend, dynamics adjacent chart). concerns regarding continued liquidity The diamond market key supply and demand fundamentals remain robust with constraints in the market and the Demand trends tightening of lending criteria by a number demand expected to outstrip supply for Diamond demand is expected to continue of prominent diamond banks, including the medium to long term. At present, to grow in real value terms, largely driven the announcement of the closure of the however, with demand expected to by increased urbanisation and a growing Antwerp Diamond Bank in October 2014, outstrip supply, the market is currently middle class in emerging markets such as negatively affected diamond prices and experiencing a relative balance in terms of China and India and the continuing trading activity during the second half of supply and demand, which is projected to economic recovery in the US market. the year. continue for the short term. Thereafter, supply is expected to decrease as ageing Although the US remains the world’s Gem Diamonds’ market in mines continue to deplete their reserves dominant diamond consumer, the growth 2014 and no new diamond mines are in disposable income and the trend 2014 was a year of two halves. The ongoing anticipated to contribute significant towards western consumer spending liquidity concerns had very little impact on additional production. On the other hand, behaviour in China and India will continue sales during the first half of the year, with growth in demand is projected to continue to positively influence global demand (see Letšeng achieving robust prices for its at a healthy rate, due largely to expanding adjacent chart). Although the slowdown in high-value rough and polished diamonds. wealth and a growing middle class in both GDP growth seen more recently in China The second half of the year saw buyers developed and developing countries. has had a small negative impact on demand, this has been partially offset by the recovery seen in the US economy. This ongoing recovery of the US economy has resulted in improved demand from this region since 2008.
* Includes carats extracted for polishing at rough valuation.
14 Gem Diamonds Annual Report 2014 Rough diamonddemandwillbefuelledbymarketsintheUS,China,andIndia Copyright Source Note 10 20 30 35 Rough diamonddemand,2010to2024,basescenario,2013prices,US$billion Copyright Source Note Rough andpolisheddiamondpricegrowthrevertstonearitshistorictrajectory Polished diamondpriceindex,2004=100 Source Zimbabwe, andotherminorproducingcountries. Note Copyright 150 200 100 World productionofdiamondsisexpectedtoreachapproximately150millioncaratsby2024 of carats millions Total, Rough diamondsupply,millionsofcarats,2008to2024,basescenario 50 0 2010 : Roughdiamonddemandhasbeenconvertedfrompolishedusinghistoricalratioofrough productiontopo : TheCAGRforpolisheddiamondpricesiscalculatedasthegrowthrateyear-endorperiod-endprices;priceindex : SmallerplayersareDominionDiamond,BHPBillitonfor2008to2012,PetraDiamonds,andCatoca;otherminesincludeallthe : Euromonitor,IDEXTacyLimitedandChaimEven-Zohar;publicationanalysis;Bainanalysis. : PolishedPrices.com;KimberleyProcess;companydata;Bainanalysis. : Companydata;publicationanalysis;KimberleyProcess;expertinterviews;Bainanalysis. 180 120 150 60 30 90 © © © 0 2014Bain&Company,IncandAntwerpWorldDiamondCentre, privatefoundation(AWDC) 2014Bain&Company,IncandAntwerpWorldDiamondCentre,privatefoundation(AWDC) 2014Bain&Company,IncandAntwerpWorldDiamondCentre,privatefoundation(AWDC) 2004 2009 120 0121 0521 092021 2019 2017 2015 2013 2011 2005 CAGR +2% 0121 0521 092021 2019 2017 2015 2013 2011 2 3 142 130 123 CAGR +4% 0620 0820 0021 0221 2014 2013 2012 2011 2010 2009 2008 2007 2006 US$2 799 percarat THE FINAL LETŠENG TENDER ACHIEVED Full year 540in2014 averageUS$2 of oihddaod Roughdiamonds Polished diamonds remaining productioninAngola,Australia,Canada,DemocraticRepublicoftheCongo,Russia,SouthAfrica, 152 +12% CAGR CAGR +2% polished diamondstracksstonesofdifferentsizes. Forecast lished diamonds. Forecast 6 159 163 (2013 –2024)2019)(2019 0.5 –1.5%3.54.0%2.0%-1.5% Gem Diamonds Gem
Rough diamondpriceindex,2004=100 2023 158 032024 2023 CAGR CAGR CAGR -2% -2% Annual Report 2014 AnnualReport 2024 149 Rio Tinto New mines De Beers ALROSA Other mines Smaller players Japan Other India +China US Persian Gulf Europe (2013 –2014) 4% –5% CAGR 250 150 100 200 50 15
Strategic Report 10 Management review
OUR MARKETPLACE continued
Since the end of 2013, the Group has seen a steady rise in rough diamond prices for Letšeng’s production as more of the higher-value Satellite pipe ore was accessed in accordance with the mine plan.
Diamonds used in the production of Since the end of 2013, the Group has seen Notwithstanding the continued concerns jewellery remain the primary driver of a steady increase in prices for Letšeng’s regarding bank lending and liquidity in the demand. The industry therefore continues rough diamond production as more of the market, the Group expects diamond prices to support initiatives to sustain this higher-value Satellite pipe ore was accessed to continue their upward trend in the latter demand in the developed and, more in accordance with the mine plan. This, part of 2015, fuelled primarily by demand particularly, the developing, world as well together with the ability of Gem Diamonds in the US, China and India. as to increase appreciation of diamonds as to extract the maximum value for its The exceptional rarity of the large, investments. Online diamond sales have production through a flexible sales strategy high-quality, top colour diamonds for become an important sales channel for of tender or partnerships, as well as own which the Letšeng mine is famous, the polished diamond and jewellery cutting and polishing, has also contributed together with the increased market industry, fuelling demand as advanced to the strong earnings reported during demand for these high-value goods, economies continue the trend toward the year. contribute to creating a positive outlook at the convenience of online retail. With the commissioning of the Group’s the top end of the diamond market where Our position in the market Ghaghoo mine in Botswana, and once Gem Diamonds has positioned itself. The Global annual diamond production during full production levels are achieved, an growth in the number of high-net-worth 2014 was estimated at 131 million carats, approximately 200 000 additional carats individuals and the development and with Gem Diamonds contributing per annum will be added to the Group’s growth of the luxury goods market approximately 119 000 carats. However, the production, albeit with a lower price per continue to drive the demand for these large, exceptional diamonds produced carat. This will give Gem Diamonds greater high-value goods, making the prospect from the Letšeng mine makes it the exposure to the commercial goods market. of good returns particularly favourable. highest average dollar per carat kimberlite Outlook This, coupled with the commercial goods diamond producer in the world, averaging The medium to long-term outlook for produced by Ghaghoo will position the US$2 540* per carat in 2014 compared to diamond demand and prices is expected Group to generate additional revenue an estimated global average of US$105 per to remain favourable when considering the going forward. carat. Due to the significant amount of supply-demand dynamics and the Group special diamonds (greater than 10.8 carats) expects diamond prices to continue their produced, the Group is placed at the top upward trend in the latter part of 2015. end of the diamond market in terms of value and pricing, with Letšeng’s tenders continuing to attract an increasing number of the world’s top diamantaires.
* Includes carats extracted for polishing at rough valuation.
16 Gem Diamonds Annual Report 2014 Exceptional diamondsproduced by Letšeng in2014 299.3 carat 2014and December extracted 197.6 carat soldforUS$10.6 million sold into partnership arrangement sold into partnership 66.57 carat soldforUS$4.2 million 132.6 carat soldforUS$7.5 million (US$62 566percarat) (US$56 492percarat) (US$53 746percarat) September 2014 September in January 2015 in January January 2014 January June 2014 162.02 carat soldforUS$11.1 million 112.6 carat soldforUS$5.8 million 80.5 carat soldforUS$4.4 million (US$68 687percarat) (US$51 833percarat) (US$54 179percarat) December 2014 December February 2014 June 2014 88.13 carat soldforUS$3.7 million 90.46 carat soldforUS$4.2 million Gem Diamonds Gem
(US$42 110percarat) (US$46 003percarat) 94.98 carat extracted December 2014 December April 2014 April July 2014 Annual Report 2014 AnnualReport 17
Strategic Report 10 Management review
CHIEF EXECUTIVE OFFICER’S OVERVIEW
Letšeng continued to drive strong operational performance and exceptional financial results during 2014. Prices of both rough and polished diamonds firmed over the first three quarters before declining moderately in the final quarter. Despite this softer trend, the final Letšeng tender of 2014 saw very strong prices achieved and demonstrates the Group’s commitment to implementing the strategy adopted in 2011 to create sustainable growth and production despite the market conditions. As our second mine, Ghaghoo, ramps up, we look forward to the contribution Botswana’s first underground diamond mine will make.
2014 achievements Maintained robust Operations expanded Improved Letšeng Maiden financial position from a single revenue line and plant dividend and cash flows producing mine to two optimisation
Operational performance transmissive (XRT) technology that will innovation. By pursuing an underground improve the recovery of the high-value Letšeng mining option, the Group achieved Type II diamonds. Significant At Letšeng, a year of solid operational significant cost savings, reduced its improvements to security measures and potential environmental impact and has performance saw an improvement over advanced diamond accounting served to pave the way for a new era of the prior year’s production results, with processes will also result from the mining in challenging mining conditions costs well controlled. Plant enhancements construction of the new Coarse and improved blasting techniques, as well Recovery Plant. (including deposits covered with as greater access to ore from the higher- significant overburden). This point was grade, higher-value Satellite orebody over – Implementation of the Plant 2 Phase 1 reinforced by the President of Botswana the prior year, resulted in an improvement upgrade project commenced in the third when he officiated the opening of the in the grade, size and quality of the quarter of 2014 and is on track to be Ghaghoo mine in September 2014. diamonds produced. completed in early 2015. The project is Gem Diamonds is developing Ghaghoo in expected to result in an increased a phased approach. The first phase is aimed During the year, Letšeng issued a revised treatment capacity of 250 000 tonnes at confirming diamond grades and prices, resource statement to reflect a significant per annum and further reduce diamond as well as testing different mining and increase in the Letšeng indicated resource damage and improve diamond processing techniques. In subsequent category which had been extended in liberation. Subsequent upgrades to the phases, production will be increased as depth to approximately 350 metres below plant will be considered once the appropriate in a cost-effective manner. the current mine pits on both Satellite and current projects are completed, and Main pipe orebodies. This extension has The mine is currently in Phase 1 with the plant performance has been resulted in a significant increase in the capital project complete and fully evaluated. indicated resource tonnage and contained commissioning progressing well. As at carats but has also allowed for a significant The operational improvements undertaken 31 December 2014, 48 023 tonnes of ore increase in the Letšeng probable reserves, this year, together with the projects had been treated, with 10 167 carats with the entire 22 year life of mine plan that are currently under way and those recovered, including a 20 carat white diamond, a 17 carat white diamond, and a now classified as reserve. considered for the future, position Letšeng three carat orange diamond (the recovery of as a long life open pit operation. The growth focus at the Letšeng mine which confirms the presence of valuable Optimisation of the life of mine plans, during 2014 remained on relatively low coloured diamonds in the orebody). After which take these improvements into capex expansion projects with near-term year end, a 35 carat diamond was recovered, account, will deliver on the longer-term returns. Two such projects were advanced which is the largest diamond recovered at plan for Letšeng going forward. significantly during the year: Ghaghoo to date. The first tender of 10 167 Ghaghoo carats was held in February of 2015, – The new Coarse Recovery Plant remains following viewings held in Gaborone and As Botswana’s first underground diamond on track for completion at the end of the Antwerp and achieved US$210 per carat. As mine, the Ghaghoo mine has showcased second quarter of 2015. This plant will is usual in the development of the Gem Diamonds’ ability to add value to optimise the treatment of the high- marketing of a new mine’s production, it will value, coarse fraction of ore using X-ray existing assets through technical take at least six months of tender sales and
18 Gem Diamonds Annual Report 2014 * Includes carats extracted for polishingatrough valuation. polished sales value. fromin 50%oftheuplift theeventual 2015,where shareearly Letšeng willfurther in arrangement and soldinto apartnership carat yellow diamond, whichwasextracted diamond recovered in2014wasa299.3 14% ofLetšeng’s total revenue. The largest sales valueofUS$37.4million,representing and a112.6carat)together achieved atotal 162.02 carat,a161.31132.55carat exceptional diamonds (a197.6carat,a +100 caratdiamonds, five ofthese theyear LetšengDuring recovered seven on itsproduction. operations to ensure thehighestreturns andmanufacturing its marketing The Group continuesto invest in manufacturing Sales, marketing and mine development. proceed with minimaldisruptionto the development ofthetunnelsto efficient technical response, allowing has been overcome through and swift rock. the basalt country This challenge following ofafissure theintersection in water was encountered atGhaghoo theyear,During asignificant ingress of toexpected beachieved by mid-2015. approximately 60 000tonnes permonthis mine’s Phase 1plan, a productionrate of average to emerge. price ofthe As part diamonds byclients, inorder for areliable the subsequentsaleof thepolished on budget ontimeand project Ghaghoo capital Completed manufacturing initiativesmanufacturing in sales, marketing and Continued excellence community projects during 2014. In 2014.In projectsduring community mine andthesefundsallocated to support ofthedevelopment ofthe funded aspart The GhaghooCommunity Trust hasbeen hasintensified. the surrounding community Ghaghoo mine, theGroup’s involvement in communities. With theopeningof to these contribution ameaningful make ensure thatthesocial projectsimplemented with itsprojectaffected communities to inclosecollaboration Gem Diamondsworks incidents occurred across theGroup. consecutive year nomajorenvironmental thatfor pleasingto report thesixth It is andenhancingbiodiversity.direct impact improving energy efficiency, reducing operations there isacontinualfocus on footprint withgreat care. Across all The Group managesitsenvironmental continued success. enablersoftheGroup’sremain key legal complianceandsocialrelevance contractors, environmental responsibility, health andsafety ofemployees and social licenceto operate. As aresult, the strongly dependent onmaintainingits oftheGroupThe sustainability is environment (HSSE) Health, safety, socialand US$2 043* per carat in the prior year.US$2 043* percaratintheprior of US$2540*percarat,up24%from (2013: 97294),achievinganaverage price For thefullyear Letšeng sold108963carats Clifford Elphick 16 March 2015 Chief Executive Officer Clifford Elphick their continuedsupport. the year, aswell asourshareholders for thank theBoard for theirguidanceduring Diamonds possible. to Iwould alsolike excellence hasmadethe successofGem our employees. Your continuedpursuitof I wishto express my sincere appreciation to growth in2015and beyond. inorder to producethe market continued favourable supply/demand dynamicsin is well advantageofthe placed to take these steps, Iamconfident thattheGroup pursuing innovative technologies. Taking on improving operationalefficienciesand forward. The Group willcontinueto focus figures inproduction significant shift going Ghaghoo, seeinga theGroup willstart mines, at withtherampupofproduction single producing mineto producing two As theGroup’s operationsexpandfrom a Outlook Kalahari region. Kalahari region. communities withintheCentral the boreholes, which are usedbythe Ghaghoo continuesto equipandmaintain surrounding communities. Moreover, available to treat emergencies inthe facilities ontheminehave beenmade affected communities and themedical upbymany intheproject been taken have addition, employmentopportunities Gem Diamonds Gem
Annual Report 2014 AnnualReport 19
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GROUP FINANCIAL PERFORMANCE
Capital and cash management discipline has placed the Group in a well- funded position to recommend the payment of its maiden dividend of 5 US cents per share, which enforces its strategy of delivering additional value to its shareholders.
Financial highlights
Revenue of Underlying EBITDA Attributable profit Basic EPS of US$271 million of US$104 million of US$33 million 24 US cents – up 27% – up 35% – up 57% – up 57%
2014 2013 Mining operations US$ million US$ million The demand for rough diamonds remained strong during 2014, Total Total with high prices achieved for Letšeng’s production, particularly the Revenue 270.9 212.8 high-quality, large diamonds for which the mine is renowned. The Royalties and selling costs (24.7) (18.5) benefit of the additional investment in waste stripping in the Cost of sales (129.6) (103.1) Satellite pipe at Letšeng in 2013 was realised in 2014, as increased Corporate expenses (12.4) (13.8) volumes of the higher-value, higher-grade Satellite pipe ore was mined during the year. The Satellite to Main pipe ore ratio was Underlying EBITDA 104.2 77.4 31:69 during the year, compared to 16:84 in the prior year. The Depreciation and mining asset amortisation (15.2) (17.3) increased contribution of the higher-grade Satellite pipe ore, Share-based payments (1.7) (0.9) together with the higher than expected performance of the Other income 0.2 0.7 reserve grade during the year resulted in Letšeng recovering Foreign exchange gain 5.2 0.6 108 569 carats, a 14% increase from the prior year. Finance income/(cost) 0.2 (1.6) Reversal of impairment of assets – 0.1 2014 2013 Profit before tax 92.9 59.0 Average price per carat (US$)1 2 540 2 043 Income tax expense (35.0) (20.8) Carats sold1 108 963 97 294 Profit for the year 57.9 38.2 Group revenue summary Non-controlling interests (24.7) (17.0) (US$ million) Attributable profit for the year 33.2 21.2 Sales – rough 276.8 198.8 Earnings per share (US cents) 24.0 15.3 Sales – polished margin 5.8 6.3 Revenue Sales – other 0.4 0.3 The Group’s revenue is primarily derived from its two business Impact of movement in own activities, namely its mining operations at Letšeng and its rough manufactured inventory (12.1) 7.4 diamond manufacturing operation in Antwerp. Revenue does Group revenue 270.9 212.8 not include any contribution from the mining operation at 1 Includes carats extracted for polishing at rough valuation. Ghaghoo, as the mine had not reached full commercial production during the year. The first sale of carats recovered during commissioning concluded after year end. Overall, the Group revenue increased by 27%, driven by 12% higher volume of rough carat sales from Letšeng and 24% higher diamond prices achieved. Management interventions initiated during 2013, effective mining plans and favourable external market conditions for the majority of 2014 have all resulted in a positive impact on revenue.
20 Gem Diamonds Annual Report 2014 * Includes carats extracted for polishingatrough valuation. related expenses. of8%onthesalediamondsanddiamondmarketing- Authority costspaidto theLesotho Revenue mineralextraction comprise Royalties andsellingcostsintheGroup ofUS$24.7millionmainly Royalties andsellingcosts Group revenue byUS$12.1 million. year. The year-on-year movement decreased polishedinventory the of thecurrent year, compared to US$2.9millionat the endofprior theyearduring andUS$15.0 millionremained attheend ininventory diamonds withaninitialrough valueofUS$5.1millionwere sold total,from for theLetšeng In polished manufacturing. exports valueofUS$17.2millionwerevalued atarough extracted market generated) andUS$3.9 million to EBITDA. year, During the 1 232carats US$5.8 millionto Group revenue (through additionalpolishedmargin contributed operationinAntwerp The diamondmanufacturing operationDiamond manufacturing EBITDA margin of46%(2013:42%). in Letšeng’s rough revenue compared year to theprior andan 2013 from 97294carats. This resulted inanoverall increase of39% compared to theaverage ofUS$2043*percaratachieved price in per carat wasachieved in2014from thesaleof108 963carats, value obtainedfor Letšeng’s US$2 540* rough diamondexports. conditions,and favourable resulted market ina higher average 2013 pipe, ofthenewcrushersinstalledduring thepositive impact The combinationofincreased mininginthehigher-value Satellite US$111 million Cash onhand of 5 UScents pershare Maiden dividendof the year, costs. GBPcorporate negatively impacting pound(GBP) strengthenedBritish againsttheUSdollarduring theyear. costsduring US dollar reported Conversely, the were year,(BWP) thantheprior weaker positively impacting rand)andtheBotswanapula The LSL(peggedto theSouthAfrican 2014. valueduring oftheasset’srecognised aspart carrying sustaining operationallevels, andtherefore allcostswere costs incurred atGhaghoo, as theminedid notreach itsintended improved unitcosts. Cost ofsalesdoesnotinclude any operational fleet andimproved throughput production contributed to procuring a largerof thenewlynegotiated miningcontract, mining ofUS$49.3 million(2013:US$34.8million). amortised The benefits which wasincurred atLetšeng, costs andincludeswaste stripping of Cost ofsales for wasUS$129.6 million,themajority theperiod through efficiencies. andenhancingproduction costreductions The focus for 2014remained oncontinuedoperationalexcellence Cost ofsales Year endexchange rate for theyear Average exchange rate US$1.00 perGBP Year endexchange rate for theyear Average exchange rate BWP perUS$1.00 Year endexchange rate for theyear Average exchange rate LSL perUS$1.00 Exchange rates Michael Michael –ChiefFinancial Michael Michael Officer Gem Diamonds Gem 11.57 10.85 2014 1.56 1.65 9.51 8.98
04 11 10.47 03%change 2013 .6(6) 6 1.66 8 1.56 7 8.78 8.40 12 9.65 Annual Report 2014 AnnualReport 21
Strategic Report 10 Management review
GROUP FINANCIAL PERFORMANCE continued
Year ended Year ended Year ended Year ended 31 December 31 December Other operating information 31 December 31 December Letšeng costs 2014 2013 (US$ million) 2014 2013 US$ (per unit) Waste cost capitalised 51.5 59.3 Direct cash cost (before waste) Waste stripping costs amortised 49.3 34.9 per tonne treated1 12.70 13.34 Depreciation and mining asset Operating cost per tonne amortisation 15.2 16.0 treated2 19.64 15.85 Capital expenditure1 11.3 9.9 Waste cash cost per waste 1 Capital expenditure excludes movements in rehabilitation assets relating to tonne mined 2.22 2.71 changes in rehabilitation estimates. Local currency (per unit) LSL Direct cash cost (before waste) Local currency waste cash cost per waste tonne mined decreased per tonne treated1 137.75 128.68 by 8% as a result of the newly negotiated mining contract and the Operating cost per tonne use of larger equipment improving overall efficiencies. Following treated2 213.08 152.92 the estimation change in respect of the waste mined out of the Waste cash cost per waste surveying review, which was disclosed in 2012, waste costs will be tonne mined 24.07 26.12 recovered from the mining contractor over the eight-year term 1 Direct cash costs represent all operating cash costs, excluding royalty and of the new contract and this has been raised as a prepayment in selling costs. the Statement of Financial Position. The impact on the waste 2 Operating costs include waste stripping cost amortised, inventory and ore stripping cost amortised in the current year due to the change stockpile adjustments, and excludes depreciation. in estimate is a credit of US$0.9 million. Total direct cash costs (before waste) at Letšeng, in local currency, Corporate expenses were LSL884.6 million compared to LSL801.1 million in 2013. This As a result of the streamlining of the corporate structure initiated in resulted in unit costs per tonne treated for the year of LSL137.75 2013, corporate expenses have further decreased, notwithstanding (2013: LSL128.68). This increase of 7% is primarily attributable to inflation, from US$13.8 million in 2013 to US$12.4 million in 2014, general inflation increases of approximately 6%; above inflationary which now represents the full impact of the restructuring initiatives. fuel and power increases; additional costs relating to back up Corporate expenses relate to central costs incurred by the Group power facilities and diamond reduction initiatives, offset by savings and are incurred in both South African rand and British pounds. achieved through the new mining contract arrangements.
Operating costs per tonne treated increased to LSL213.08 per Share-based payments tonne from LSL152.92 per tonne, mainly due to increased waste Share-based payment costs for the year amounted to stripping cost amortised, driven by the different waste to ore strip US$1.7 million compared to US$0.9 million in 2013. There were ratios for the particular ore processed. Letšeng significantly two Long-term Incentive Plan (LTIP) options granted during March increased mining ore from the Satellite pipe during the year, which and June of 2014. In March, 625 000 nil-cost options were granted carries a higher amortisation charge than the Main pipe. As a result, to certain key employees. The vesting of these options the amortisation charge attributable to the Satellite pipe ore will be subject to the satisfaction of certain performance and accounted for 64% of the total waste stripping amortisation charge service conditions classified as non-market conditions. In June, in 2014 (2013: 48%). 609 000 nil-cost options were granted to the Executive Directors. The vesting of these options will be subject to the satisfaction of certain performance conditions over a three-year period. The share-based payment cost associated with the new awards had a US$0.6 million impact on the current year charge.
22 Gem Diamonds Annual Report 2014 resource andothersustainingcapitalcosts. drilling extension Plant, Plant 2Phasethe Coarse Recovery 1upgrade, additional Group alsoinvested US$11.3millionatLetšeng, with inconnection US$54.0 million incurred costsatLetšeng. inwaste stripping The US$101.3 million,thelargest componentofwhichwas Investments inproperty, plant andequipmentamounted to 31 December 2014. undrawn facilities ofUS$41.6millionstillavailable asat end, resulting inanetcashpositionofUS$73.6million, with theyear.during Boththesefacilitieswere fullydrawn downbyyear remaining Phase 1development spendatGhaghoowasraised Plant, andUS$25.0millionto fundthe of the Coarse Recovery debt funding ofLSL140.0million(US$12.1 million)for thefunding appropriate debtlevels into thecapitalstructure, additional Enhancing theGroup’s fundingstrategy of incorporating in waste mining andcapitalexpenditure. ofUS$133.7millionbeforeoperating activities theinvestment US$0.2 millionrestricted. The Group generated cashflowfrom to GemDiamondsand US$99.4 million wasattributable US$110.7 million cashonhandatyear end, ofwhich The Group’s robust cashpositionwasmaintained, with Financial positionandfundingreview weighted average numberofshares inissueof138 million. to 24.0 US centspershare (up57%from 15.3UScentsin2013)ona was US$33.2 million(up57%from US$21.2 millionin2013)equating from year. theprior The profit shareholdersto attributable for the year EBITDAunderlying ofUS$104.2million,upbyUS$26.8 million (35%) for ofthepositive tradingactivities theyearThe impact hasresulted in EBITDA andattributable profit in non-tradingoperations. Letšeng anddeferred taxassetsnotrecognised onlossesincurred generated byLetšeng, withholdingtaxof10%ondividendsfrom tax rate of21.5%. This taxrate by isdriven taxof25%onprofits The Group’s effective taxrate was37.6%,above theUKstatutory Income taxexpense environmental provisions andinterest oninterest-bearing liabilities. offset bytheunwinding ofthecurrent This incomewaspartially prepayment atfairvaluerelating to thewaste estimationchange. adjustment relating ofraisingthenon-current to theimpact cashfromsurplus theLetšeng operationandthefinanceincome interestNet financeincomemainlycomprises received from Net finance income 16 March 2015 Chief Financial Officer Michael Michael mediumandlongterm. short, achieve shareholder ofdelivering itsobjectives return over the onanongoingbasisto efficiencies and growth opportunities The Group willcontinueto pursuecostcontrol, operational platform from 2015andbeyond. whichto buildduring the Plant 2Phase inthefirsthalfof2015provides 1project astrong benefits Plant and following thecompletionof Coarse Recovery Satellite pipeore. addition,thepotential andMain addedvalue In Letšeng isoperationallygeared to mineamore consistent mixof to EBITDA. withtheaimofgenerating apositive contribution priority 2015. Optimisingsteady state productioncostswillbeofhigh achieving steady state bytheendoffirsthalf production development and project into sustainingoperationalactivities Focus theGhaghoominefrom willbeonconverting a to 21%of 2014netearnings. 9 June 2015. The total dividendwould beUS$6.9million,equating held on 2June2015,andwould beanticipated to bepaidon to shareholdersubject approval atthescheduledAGM to be additionalvaluetodelivering itsshareholders. This dividendis dividend of5 US centspershare, whichenforces itsstrategy of a well-funded positionto recommend thepayment ofitsmaiden Capital andcashmanagementdisciplinehasplacedtheGroup in Outlook Government of Lesotho of US$27.6 million for its minority portion. Government ofLesotho portion. ofUS$27.6millionfor itsminority withholding taxes ofUS$6.5millionandpayment to the US$34.1 million flowed outsideoftheGroup representing of which US$57.9millionflowed to GemDiamondsand theyear,During Letšeng declared dividendsofUS$92.0million as themineiscapableofoperatingatsustainablelevels. valueoftheassetuntilsuchtime ofthecarrying recognised aspart commissioning phase(US$8.9 million). These costscontinuedto be together withsixmonths’ the operationalcostsduring the remaining Phase costs(US$26.2million) 1capitalproject US$35.1 millionwasinvested inGhaghoo, representing Gem Diamonds Gem
Annual Report 2014 AnnualReport 23
Strategic Report 10 Management review
OPERATING REVIEW
24 Gem Diamonds Annual Report 2014 the prior year’sthe prior production results. performance At Letšeng, a year ofsolidoperational saw an improvement Gem Diamonds Gem
over Annual Report 2014 AnnualReport 25
Strategic Report 24 Operating review
OPERATING REVIEW – LETŠENG
At Letšeng, plant improvements and improved blasting techniques, as well as greater access to ore from the higher-grade Satellite orebody resulted in an improvement in the grade, size and quality of the diamonds produced, exceeding all prior year production levels.
Letšeng
Operational highlights
Highest number of +20 carat diamonds recovered
The recovered grade outperformed the 2014 reserve estimate by 7%
Five +100 carat diamonds sold achieved US$37.4 million in total, representing 14% of total sales
Early introduction of the new mining contract resulted in improved efficiencies and cost savings
Construction of the new Coarse Recovery Plant under way. Improved blasting techniques implemented during 2014.
26 Gem Diamonds Annual Report 2014 accommodation are ontheright. Aerial viewoftheLetšeng mine, withtheMainpipeinforeground pipebehindit.Theprocessing andtheSatellite plants, Carats recovered Waste tonnes mined Tonnes treated Letšeng operational performance * Letšeng’s treatment plantsonly. (Excludes Contractor Plant production.) Number ofdiamonds* Frequency ofrecoveries of large diamondsat Letšeng Large diamondrecoveries >100 carats 0–10crt 61 01 316 13 19 10 10 16 60 –100carats 0–6 aas7 66 96 50 61 59 61 76 74 30 –60carats 0–3 aas8 88 11071 110 91 89 98 88 20 –30carats oa imns>0crt 8 8 6 7 8 144 187 174 166 189 185 Total diamonds>20carats Letšeng rollingaverageUS$percarat2014 1 500 1 900 2 300 2 700 3 100
u Aug Jul 2 672 2 547 2 655
2 513 2 547
Sep 2 590 0820 0021 022013 2012 2011 2010 2009 2008 756537
Oct 2 522 2 620 Nov 31 December 31 December 2 474 19 884721
6 421704 2 337 108 569 ended ended 2014 Dec Year Year 2 337 2 539 31 December 31 December 902674 19 072657 2 2 3 6 225821 ’ 50314 95 053 ended ended 03%change 2013 Year Year 2014 101 198 21 69 7 ready for in2015. review early toward theendofyear andwillbe the steeper slopeangles, commenced into account mineplan,taking long-term the life ofthemine. Optimisationofthe reducing thetotal costofminingover ratios,stripping thereby significantly be increased safely. This willresult inlower allowed theslopeanglesofmineto control and blastingofthepitslopeshave Significant improvements sidewall to in waste mining. with thecurrent increase andmedium-term inline improving thewaste miningefficiency 300 tonne hydraulic excavators, thereby new 100tonne new dumptrucksandtwo larger miningequipment thatincludedfive delivered of 2014,theminingcontractor tonnes, up4%from thefirst half 2013.During proportions. Waste moved was19.9million Satelliteaccess thehigher-grade ore inhigher with themineplanandrequirement to Waste atLetšeng stripping increased inline in 2014,a14%increase from year. theprior resulted in108569caratsbeingrecovered to theminingmix pipe contribution recovered grade andincreased Satellite liberation anddilutioncontrol. The higher of finediamondsthrough improved controls, aswell astheincreased recovery improve mining, treatment andgeological to effort tobe attributed aconcerted estimate by7%andthiscan 2014 reserve The recovered the grade hasoutperformed and16%Satellite84% Main ore in2013. 31% from theSatellite pipe, compared to 69% wassourced from pipeand theMain thetotal ore treatedin 2013.Of for theyear, of ore compared to the6.2milliontonnes Letšeng treated atotal of6.4milliontonnes yearprior production levels. For theyear exceeding all operational performance, Letšeng ayear ofrobust reported Operational performance Gem Diamonds Gem
Annual Report 2014 AnnualReport offices andsite 27
Strategic Report 24 Operating review
OPERATING REVIEW – LETŠENG continued
Letšeng was awarded, for the second consecutive year, the highest possible rating for health, safety, social and environmental (HSSE) management according to the IRCA global system.
use XRT sorters to process all of the +5 mm diamond concentrate to ensure improved Letšeng +50 carats recoveries diamond recovery of the high-value Type II 350 Introduction of Improvements 100% new crusher in blasting 90% diamonds, which typically have a low 300 80% 250 70% fluorescence and are not easily recovered 60% 200 using regular fluorescence-based X-ray 50% 150 40% technology. 100 30%
Stone size (carats) 50 20% 10% State of the art security systems have 0 0% been designed for the new Coarse Recovery Plant, which will include X-ray Jan 2013 Jan 2014 Jan 2015 Jun 2013 Jun 2014 Apr 2014 Apr 2014 Feb 2013 Feb 2014 Aug 2013 Aug 2014 Export number scanning of all personnel exiting the Type I Type II % Satellite recovery plant. Skills The issue of skills attraction and retention New mining contract Building on the successful installation of remains a material risk to the Letšeng Letšeng successfully renegotiated its the crushers in 2013, further enhancements operation. Aside from the normal factors contract with the mining contractor a year were made to the plants, which had a ascribed to working in remote areas and ahead of the expiry of the previous positive impact on the diamond breakage remunerating skilled employees in a globally contract. This has resulted in improved unit trend. New liner configurations for the weak currency, localisation challenges, costs for eight years, effective from Plant 1 and Plant 2 secondary crushers difficulties experienced in obtaining work 1 January 2014. The introduction of the were finalised and adopted, resulting in permits for expatriates and increasing new larger mining equipment has resulted improved throughputs, as well as better competition from other diamond companies in improved loading and hauling fragmentation. in Lesotho for skilled personnel, have efficiencies, contributing to reduced exacerbated the risk. mining costs. Expansion and improvement programme An exercise focusing on a global search for Focus on diamond damage Following several studies it was decided qualified and experienced Lesotho citizens With diamond damage remaining a key that the Plant 2 Phase 1 upgrade would be who were willing to work in Lesotho focus area, a number of initiatives in both implemented and that the Plant 2 Phase 2 indicated that there is a limited pool of mining and processing were embarked upgrade project would be examined available skills. upon during the past year to reduce further after the implementation of Phase 1. The Plant 2 Phase 1 project was Extensive engagements with Lesotho diamond damage even further. Changes Government officials on this matter have to mine blasting practices and operations approved by the Board in June 2014 at a capital cost of US$4.7 million and will be commenced. Indications are that the have resulted in improved fragmentation stakeholders will adopt a collaborative of the ore for the treatment plants, which completed in Q1 2015. The Plant 2 Phase 1 upgrade project will increase Letšeng’s approach to addressing the skills challenge. contributes to reducing diamond damage. Furthermore, an intensified effort is being These efforts, in conjunction with the production capacity by 250 000 tonnes per annum and is also expected to further made to invest in the development of installation of the secondary and tertiary existing employees. crushers in 2013; the lining of the cyclone reduce diamond damage. underflow boxes; and the optimisation of Construction on the new Coarse Recovery HSSE crusher gaps and crusher operations have Plant started in Q3 of 2014. Construction and Letšeng was awarded, for the second resulted in a reduced breakage trend in the commissioning is expected to be completed consecutive year, the highest possible valuable Type II diamonds. by the end of Q2 2015. This new plant will rating for HSSE management according to create a single access, secure facility, and will the IRCA global system. The 2014 external
One of Letšeng’s exceptional diamonds. New larger equipment was delivered to site during the year.
28 Gem Diamonds Annual Report 2014 expand access to medical services in Lesotho.expand accessto medicalservices ofhealthastheycontinueto department health postswere handedover to the health postsinLesotho 2014. during These The operationalsobuiltandequipped three winter conditionsintheLesotho mountains. harsh to aidsurviving skills outdoor survival training campaign whichwasfocused on and initiatives. aherd Letšeng boys undertook US$59 587towards educationalscholarships and education. To thisend, Letšeng invested development, small andmediumenterprise investment spendwent towards infrastructure implemented. ofLetšeng’sThe majority (CSI) planand asmore are projects socialinvestment ofthecorporate maturity anticipated to increase in2015linewiththe investment projects, theamountofwhichis US$0.3 milliontowards community 2014,LetšengDuring invested approximately forums. andgovernmental community project affected communitiesand relevant Letšeng continuesto closely with the work the communitiesaffected by miningactivities, To improve thelives andsocialwell-being of during 2014. incidents were recorded atLetšeng No majororsignificant environmental recurrences. to prevent taken corrective actions root causes andappropriate determined comprehensively investigated, the anLTI.experienced The incidentwas following thismilestone Letšeng an LTI. Unfortunately, immediately significant milestone of365days without 2014LetšengOn 23October reached a natural environment inwhichitoperates. Letšeng’s approach to safeguarding the project affected communities, as well as and safety ofthemine’s employees and effectiverisks to thehealth managementof thecontinued which reflects focus onthe rating HSSE auditresulted inafive-star Letšeng Plant 2. affected communities. with 18% originating from project workforce Lesotho comprised citizens At theendof2014,92%Letšeng’s under way. iswell andtheproject the nursery securing thecorrect for infrastructure The isintheprocess community of – nursery management. establishing anenvironment – propagation ofindigenousplants; – ofendangered plant conservation – included: memberswhich community The mineprovided trainingto self-sustainability.furthering income for and thecommunity businesses, thereby generatingan plants to and localprojects the communities sellindigenous nursery. The aims is to project have establishment ofanindigenousplant valleywiththe Khubelu members intheneighbouring Letšeng assisted thelocalcommunity plantnursery Indigenous development in action development inaction conducive to plantgrowth; and species; Sustainable Sustainable Focus for 2015 diamond damage Continuation ofthedrive to reduce techniques sorting Continuation oftest work withnewwaste improvement programmes Improving efficienciesthroughcontinuous phase(s) oftheexpansionprogramme studiesinto thenext further Undertake mining commencement ofunderground the optimaltimingfor Re-review optimal returns mining rates from bothpitsto derive of waste strippingandthe optimal reducing anddelaying thepeak incorporating steeper slopeangles, Complete mineplanningstudies Recovery Plant commissioning oftheCoarse Complete and theconstruction Complete thePlant2Phase1upgrade Gem Diamonds Gem
Annual Report 2014 AnnualReport
29
Strategic Report 24 Operating review
OPERATING REVIEW – GHAGHOO
The Ghaghoo diamond mine was officially opened by His Excellency the President of Botswana, Seretse Khama Ian Khama, on 5 September 2014. The mine reached an important milestone with the completion of the Phase 1 capital project which entailed developing an access decline through 80 metres of sand overburden and three production tunnels in the first level of mining.
Ghaghoo
Operational highlights
The Phase 1 development of the Ghaghoo mine has been completed on time and on budget
Final commissioning and optimisation of the plant to achieve nameplate production output is in progress
A total of 10 167 carats recovered during commissioning, (including a 20 carat white diamond, a 17 carat white diamond and a three carat orange diamond)
TOTAL RESOURCE IN-SITU VALUE 20.5 million carats US$4.9 billion (as at 1 January 2014) (as at 1 January 2014)
The access decline at Ghaghoo. Some of Ghaghoo’s first diamonds produced.
30 Gem Diamonds Annual Report 2014 underground includingthe workings, measures were to rehabilitate taken the water fissure wassuccessfully sealedand tunnelofthefirstproduction level.rim The of amajorwater fissure alongthebasalt delayed dueto anunforeseen intersection 2014werecommissioning byDecember 60 000 tonnes permonthandfinal The plannedrampupto approximately escape route. one hasbeenequippedasanemergency diameter ventilation holeswere and drilled To facilitate 1200mm production,two to bestable andfree gases. ofharmful were dewatered andfound andinspected intersected inAugust 2014. These tunnels were (140 metres belowsurface) The tunnelsintheoldsamplinglevel in thefirstlevel ofmining. overburden andthree tunnels production access declinethrough 80metres ofsand project, whichentaileddeveloping an with thecompletionofPhase 1capital milestone The minereached animportant 5 September 2014. on IanKhama, Botswana, Seretse Khama thePresident Excellency opened byHis of The Ghaghoodiamondminewasofficially Operational performance Lining the kimberlite tunnels with safety meshing. tunnelswithsafety Lining thekimberlite production levels. mining operations reach steady state be achieved asboth theplantand grades will thatreserve it isexpected plant, thegrade showed improvement and optimisation process atthetreatment oftheyear,latter part following an commissioning. the early During during margins ofthepipe and plantinefficiencies byhighlydilutedimpacted ore from the approximately 27cpht,butwasnegatively compared of to anexpectation above 21caratsperhundred tonnes (cpht) hasaveragedcommissioning period just year. The recovered grade the during the of10167caratsduring in therecovery 48 023 tonnes ofore was treated, resulting isinprogress. optimisationwork further is inthefinalstagesofcommissioningand the processing plant. The processing plant these wasusedinthecommissioningof tunnels inLevel 1. The ore drawn from andfrom thedevelopment below surface, from stope on Level thetrial 0,134metres theyear,During productionwasdrawn sealing ofthewater fissure. pipeand boreholes around thekimberlite handling capacities, ofdewatering drilling installing additionalpumpingandwater reinforcing ofunderground tunnels, the incident. the root causesto prevent recurrence of wereappropriate to actions address taken This incidentwasinvestigated and ground occurred, resulting inthree LTIs. fallof On 4November 2014afurther been implemented. training programme has have beenrevised andan extensive required to causefailure. Work practices smallamountofforcethat avery was therockweaken massto such anextent thatcombinedtoconsecutive actions the incidentwasa result of ofaseries thorough accidentinvestigation found that A comprehensiveMashumba. and and resulted inthedeathof Mr Segolame of ground incidentoccurred on11 January consecutive year in2014.Regrettably a fall HSSEauditforexternal asecond it wasawarded afour-star ratingfor its improvement ofHSSEmanagementwhen The operationwasrecognised for its including theHSSEmanagementsystem. is improving itsmanagementsystems, organisationGhaghoo isamaturing that HSSE Gem Diamonds Gem
Annual Report 2014 AnnualReport 31
Strategic Report 24 Operating review
OPERATING REVIEW – GHAGHOO continued
Ghaghoo established a community trust in 2014. This trust is made up of representatives from the project affected communities as well as representatives from the mine.
No major or significant environmental Focus for 2015 incidents occurred during 2014. Sustainable Ghaghoo established a community trust development in action Continue the transition of processes in 2014. This trust is made up of Adoption of the Kaudwane Primary and systems from the project phase to representatives from the project affected School operations phase communities as well as representatives from Ghaghoo officially adopted the the mine. Ghaghoo has increased its CSI Kaudwane Primary School on 24 June activity in local communities during the year, 2014. An official adoption ceremony with a focus on education. The mine has was held to mark this event and to Continue ramping-up mining and production to nameplate capacity and adopted the Kaudwane Primary School as facilitate good relations between the Ghaghoo diamond mine and the maintain a focus on sustaining those part of its social investment strategy and Kaudwane community. The school levels. (Production is expected to ramp-up appointed a number of Kaudwane residents identified various projects that they to reach steady state during the first as part of its short-term labour project. The required assistance with, including half of 2015). project is aimed at building capacity and infrastructure and maintenance providing local community members with upgrades. work experience and skills. Other Extensive maintenance has been Optimise the processing plant programmes have been identified as part undertaken to improve the ablution of the CSI plan for implementation in 2015. facilities of the school, and the classrooms have been provided with Advance the decline to open up At year end, 93% of the Ghaghoo electricity after the generator was Level 2 in 2015 workforce were Batswana citizens, 19% of serviced. More projects are planned for which originated from project affected implementation during 2015. communities. Increase the number carats for sale and the frequency of tenders held (An initial sale of 10 096 carats took place in Gaborone and Antwerp during February 2015).
A 3 carat orange diamond recovered at Ghaghoo. Underground equipment in the kimberlite tunnels in level 1.
32 Gem Diamonds Annual Report 2014 polished atBaobab Technologies. 11.02 carat,An Dcolour, flawless round brilliantdiamond, cut and Operational highlights manufacturing Sales, marketingand polished diamonds. of ensuring thatthehighestreturns are achieved foritsrough and its sales, marketing andmanufacturing operations, The Groupcontinues in toinvest inandgrow theintellectual property OPERATING – REVIEW SALES, MARKETING AND MANUFACTURING * Includes carats extracted forpolishingatrough valuation. to the Group Polished divisioncontributed salesthrough US$5.8 millioninadditionalrevenue themanufacturing 59* rough diamondsfor greater thanUS$1.0millioneach production US$276.8 million*withanaverage price ofUS$2540*per Baobab Technologies cuttingandpolishingfacility. carat wasachieved for Letšeng’s high-value with theobjective Gem Diamonds Gem
Annual Report 2014 AnnualReport 33
Strategic Report 24 Operating review
SALES, MARKETING AND MANUFACTURING continued
Sales and marketing Focus for 2015 During 2014, Baobab Technologies The Group’s rough diamond production is received 933 carats of high-value diamonds marketed by Gem Diamonds Marketing for processing, with a rough market value Sales and marketing – Gem Diamonds of US$12.9 million from Letšeng and Services and sold through an electronic Marketing Services tender platform. The tender platform is continued to cut and polish third-party designed to enhance engagement with Continue to achieve highest prices goods. Included in this amount was the customers by allowing continuous access, for the Group’s rough and polished manufacture of two high-value diamonds flexibility and communication, as well as diamonds through optimised sales and – a 124 carat diamond, which resulted in marketing activities ensuring transparency during the tender 12 exceptional polished diamonds with process. Although tender viewings of the a total weight of 40.63 carats (including Group’s diamonds take place in Antwerp, Develop and implement the market a 10 carat, D Flawless, Emerald cut), and a the electronic tender platform allows strategy and sales channels for the 95 carat diamond, which resulted in four customers the flexibility to participate in Ghaghoo rough production to achieve exceptional polished diamonds with a each tender from anywhere in the world. highest prices total weight of 34.53 carats (including a This flexibility, together with the 18 carat, D Flawless, Round and a 10 carat, professional and transparent manner in Identify diamond sales and marketing D Flawless, Round). All of the polished which the tender is managed, as well as opportunities in other strategic stones from these two diamonds achieved the high-calibre clients who participate in jurisdictions Excellent grading for cut grade, polish and the tenders, contributes to the symmetry by the GIA. achievement of the highest market-driven prices for the Group’s rough diamond Analysis and Focus for 2015 production. In addition to the Letšeng manufacturing production, Gem Diamonds Marketing Baobab Technologies’ advanced mapping Analysis and manufacturing – Baobab Services will also be tendering the and analysis of Letšeng’s exceptional rough Ghaghoo rough diamond production in diamonds assists the Group in assessing Continue to analyse Letšeng’s large, 2015, with viewings scheduled to take appropriate true values of its rough high-value diamonds to ensure deep place in Gaborone and Antwerp. diamonds that are presented for sale on understanding of product value on each Letšeng tender tender or sold through any other sales Rough diamonds selected for polishing are channel. This ensures that robust reserve manufactured at Baobab, and the resulting prices are set for its diamonds at each polished diamonds are sold by Gem Obtain best possible polished results tender and assists in the making of Diamonds Marketing Services through for Letšeng’s rough diamonds extracted strategic selling, partnering or direct selling channels to prominent for manufacturing manufacturing decisions. high-end clients. In order to access the highest value for its Increase business activities by top-quality diamonds, the Group also polishing more high-value diamonds selectively manufactures some of its own for customers outside the Group high-value rough diamonds through Baobab and places other exceptional diamonds into strategic partnership arrangements with select clients.
34 Gem Diamonds Annual Report 2014 * measurement indicators performance The expected2014reserve detailedabove are estimatesasperthe2 basedon 2014reserve Contractor Plant returned reserves values anetgainon expected in2014 2014 Contractor Plant reserve performance* * measurement indicators performance The expected2014reserve detailedabove are estimatesasperthe2 basedon2014reserve Letšeng Plant 1and2reserves returned values anetgainonexpected in2014 2014 Letšeng (Plant 1and2)reserve performance* development andmineralresource andreserve statements. resource the following reserve performance; sections: in atthedeveloping Ghaghoo operation.MRMisreported taken to theLetšeng operation atthisstage, asimilarapproach isbeing conceptsoftheMRMpipelineapproach applylargelyWhile thekey performance. is evident inthe2014reserve were initiated in2013are beginning to yieldpositive outcomes as exploitation strategy. Continuous improvement streams work that the continuedimprovement andoptimisationoftheGroup’s thatgovernfactors theresource conversion to reserve process and This entailsunderstandingthein-situresources, themodifying ofourmineralresources.extraction An integrated approach optimal to MRMiscrucialinensuring Integrated mineral resource management mineral resource management value throughUnlocking effective similar approach isbeingtaken atthedeveloping Ghaghoo operation. pipeline While thekey concepts oftheMineral Resources Management(MRM) Expected Actual Expected Actual MINERAL RESOURCE MANAGEMENT summarised laterinthissection. summarised laterinthissection. approach applylargely totheLetšeng operation atthisstage, a Resource exploration anddevelopment Resource estimation andmodelling Mine planninganddesign Mine hundred tonnes) hundred tonnes) Grade (caratper Grade (caratper RESOURCE Treatment Extraction PRODUCT RESERVE Gem Diamonds Gem 014 reserve statement 014 reserve statement 014 reserve
3 +2% +3% +12% +7% .41931 1972 0.94 0.97 2315 2591 1.68 1.80 Annual Report 2014 AnnualReport (US$/carat) (US$/carat) Revenue Revenue 35
Strategic Report 24 Operating review
MINERAL RESOURCE MANAGEMENT continued
Key points on 2014 Letšeng reserve performance
Plant 1 and 2 reserve grade was 7% above that expected from the ore mined. This over-performance was a result of increased recovery of fine diamonds through improved liberation and improved dilution control.
Plant 1 and 2 US$ per carat reserve revenues outperformed 2014 expected values by 12%. This over-performance was mainly due to the improved recovery of large Type II diamonds. Market prices flattened at the end of the year after going up by 15% during the year.
Contractor Plant reserve grade was 3% above that expected from the ore mined. The US$ per carat reserve revenues outperformed 2014 expected values by 2%.
Historical performance trends
Letšeng ore provenance
100
50
0 2012 2013 2014
Main pipe Satellite pipe
Diamond price performance
4 000
3 000
per carat 2 000 US$
1 000
2012 2013 2014 Actual diamond price Expected diamond price WWW Rough Diamond Index
36 Gem Diamonds Annual Report 2014 has beensuccessfullycompleted. Atotal of8075metres were with17holes, pipeandseven drilled intheSatel 10intheMain The 2013/14core programme, drilling largely of ther aimedatimproving theresolution andunderstandingofthe upperportions 2014 Letšeng resource development Key points onLetšeng resource development resourceMineral development then. measurements willstart Steady performance state production miningwillonlycommencein2015andassuchreserve 2014 Ghaghooreserve performance initiatives undertaken. variability, iscontinuallyimprovingThe graphs above predictability thelong-term short-term illustrate that,notwithstanding Grade performance–ContractorPlant Grade performance–Plant1and2 Carats per 100 tonne Carats per 100 tonne Encouraging results from initialmicrodiamond analysis. incorporate thiswork. The 2013/2014 resource drillingprogramme wascompleted. 3Dresource modelsare currently beingupdated to days.production during 2013. Atotal of1583 271tonnes ofdiscrete samples were taken,whichrepresents 29%oftheavailable Good progress wasmadeindiscrete samplingoftheindividualore production phasesthatcommenced 2.00 2.50 1.00 0.50 0.00 1.50 1.60 1.00 1.20 0.80 1.40 0.00 0.20 0.60 0.40 2012 2012 culgaeExpectedgrade Actual grade culgaeExpectedgrade Actual grade 2013 2013 2014 2014 Gem Diamonds Gem
Annual Report 2014 AnnualReport asaresult of lite pipe. esource, 37
Strategic Report 24 Operating review
MINERAL RESOURCE MANAGEMENT continued
Positions of the 2013/14 drill holes
ROCK TYPE [BASALT] [K4] [K6] [KB] [KMAIN] [NVK] [OLD_HOLE] [RAFT] [SVK]
Geological model improvement 2014 Ghaghoo resource classification of approximately 350 metres External consultants have been engaged to development below the current mine pits on both Satellite further the understanding of the geology, No resource development work was and Main pipe orebodies. petrography and emplacement models of conducted on the Ghaghoo asset This increase in the indicated resource both Letšeng pipes. This work will be during 2014. base is a result of improved confidence in incorporated in the 2013/14 drill holes and Mineral resource and reserve the resource through infill drilling is expected to be completed by the end statements programmes, improved estimation of 2015. Letšeng indicated resource base techniques and detailed geological studies. Also at Letšeng, initial results from increases substantially This extension has not only resulted in a microdiamond analysis have been received Mineral resources were re-estimated in significant increase in the indicated from a one tonne sample taken in the Main 2014 with an effective statement date resource tonnage and contained carats but pipe for comparison with the historical of 1 January 2014. The resource and has also allowed for a significant increase in De Beers results. The results were very reserve statements are available on the Letšeng probable reserves, with the encouraging with approximately three the Gem Diamonds website: entire 22 year life of mine plan now times the microdiamond grade being www.gemdiamonds.com under the classified as reserve. recovered compared to the historical Investors section. results. Analysis of these initial results by The updated 2014 statement reflects a an industry expert indicated that significant increase in the Letšeng indicated microdiamonds can be used at Letšeng to resource category, which has been predict grade (and possibly even revenue) extended in depth from approximately at depth. Further samples are planned and 100 metres beneath the current pit bottoms budgeted for in 2015 to further develop (in previous statements) to a new depth this understanding.
38 Gem Diamonds Annual Report 2014 Total 139.4 3.11 4.34 1 191 1 4.34 3.11 139.4 Total osaa10 . 78 .8267 2.08 27.81 7.5 Botswana 100% Ghaghoo osaa10 . 78 .8246 831 2.08 1 3.46 1.38 27.81 4.01 1.75 715 7.5 Total 86.4 78.9 Botswana 100% Ghaghoo Lesotho 70% Letšeng 2 2.26 1.71 045 131.9 Lesotho 70% Letšeng eoreProbable reserves Resource Probable reserves Resource The resources are stated andare inclusive stated ofreserves asgross resources andreserves. and reserves. and reserves. Group MRMExecutive, Andrew Allan,Pr Mr SciNat(400127/11). Venmyn Deloitte independentlyreviewed andsigned offthe resource Gem Diamonds’ resources estimates were andreserves ofthe prepared incompliancewiththeSAMREC codeunderthesupervision Auditing andcompliance – – – – – Ownership Ownership Ownership
Key changestothereserve Key changestotheresource Type IIdiamonds. US$1 715percarat. andimproved oflargeThis improved pricing high-va increased reflects price average market recovery reserve The average for diamondprice theLetšeng hasincreased probable by19%to reserves US$2045percarat,from aprevious average 1.38 millioncarats. The Letšeng have probable reserves increased by64%,to incaratterms atotal of2.26millioncarats, from aprevious total of 78.9 milliontonnes. The Letšeng have probable reserves increased intonnage by 67%,to atotal of131.9milliontonnes, from aprevious total of 1.42 millioncarats. The Letšeng indicated resource basehasincreased by127%,to incaratterms atotal of3.23millioncarats, from aprevious to 80.8 million tonnes. This represents anadditionofover 100milliontonnes to theindicated resource category. The Letšeng indicated resource basehasincreased intonnage by 132%,to atotal of187.1milliontonnes, from aprevious total Ore Ore (mT) (mT) (cts/100T) (cts/100T) (cts/100T) Grade Grade Carats Carats Carats (m) US$/ct (m) US$/ct (m) US$/ct Gem Diamonds summary resource 2014 Diamondssummary statement andreserve Gem asat 1January Gem Diamonds summary resource 2013 Diamondssummary statement andreserve Gem asat 1January 6. .31.25015650 .27242163 55 601 25.54 6.35 402.1 712 6.82 5.03 135.6 560 18.72 7.03 266.5 6. 05 69 8 4. .789 7 0. .02.2625 25.82 6.30 409.8 1076 8.90 3.57 249.7 388 16.92 10.56 160.2 8. .332 8 0. .717 5 9. .150 2073 5.01 1.71 293.9 2051 1.78 1.67 106.8 2086 3.23 1.73 187.1 Ore Ore 941.11.9222. 75 .4291821.82.3241 20.53 18.98 108.2 239 5.04 17.52 28.8 242 15.49 19.51 79.4 941.11.9222. 75 .4 2 0. 89 05 222 2192 20.53 5.29 18.98 1.75 108.2 220 301.7 2194 5.04 3.86 17.52 1.75 28.8 220.9 222 2185 15.49 1.42 19.51 1.76 79.4 80.8 (mT) (mT) (cts/100T) (cts/100T) (cts/100T) Idctdrsucs Ifre eore Total resources Inferred resources Total resources Indicated resources Inferred resources Indicated resources Grade Grade Carats Carats Carats (m) US$/ct (m) US$/ct (m) US$/ct Ore Ore (mT) (mT) (cts/100T) (cts/100T) (cts/100T) Grade Grade Gem Diamonds Gem
Carats Carats Carats (m) US$/ct (m) US$/ct (m) US$/ct Annual Report 2014 AnnualReport
tal of of Ore Ore (mT) (mT) lue of s (cts/100T) (cts/100T) (cts/100T) 39 Grade Grade
Strategic Report 24
Carats Carats Carats Operating review (m) US$/ct (m) US$/ct (m) US$/ct
SUSTAINABLE DEVELOPMENT REVIEW
Gem Diamonds seeks to maximise the value of its assets through the mining, manufacturing and selling of diamonds and regards the well-being of people and the environment as a key priority. Our sustainable development approach is based on our moral obligation to do the right thing, both in the letter and the spirit of the law, within the context of the overall business strategy.
Gem Diamonds has produced its seventh Creating sustainable value international standards of best practice Sustainable Development Report as a Gem Diamonds’ subsidiaries contribute to relating to financial, corporate governance stand alone report, which can be accessed the economies of their host countries by and corporate social responsibility aspects from the Gem Diamonds website. complying with legal requirements such as and has implemented appropriate HSSE The Sustainable Development Report is the payment of statutory taxes and the policies, procedures and management based on the framework as defined by the fulfilment of other financial obligations systems throughout its operations. Annual Global Reporting Initiative (GRI) and such as royalties. The Group is also assessments of the operations are outlines the sustainable development committed to creating a lasting and conducted to identify any possible areas of framework applied by Gem Diamonds, as positive legacy that extends beyond the non-compliance and to outline a strategy well as actions that the Group has legal requirements of a country. This to ensure ongoing compliance. The implemented at its operations in order to commitment has resulted in the operations have dedicated and committed ensure the long-term sustainability of establishment of socio-economic management structures that facilitate the business. programmes primarily aimed at co-operative and transparent communication throughout the business The Sustainable Development Review infrastructure, education and maximising as well as providing required assurance to below comprises a brief summary of the the benefit associated with employment the operational boards. progress made in 2014 in ensuring through small and medium enterprises sustainable business. (SMEs). Furthermore, the Group The Gem Diamonds HSSE Committee endeavours to create value in-country reports directly to Gem Diamonds’ Board of Our approach to though its policies of local procurement Directors and provides assurance to the sustainability and employment. Board with regard to the appropriateness Gem Diamonds acknowledges the and adequacy of HSSE management at importance of integrating sustainability Group-wide local operations. The Gem Diamonds HSSE throughout its business strategy. In order contributions 2014 US$ million Committee supports the operations to derive the greatest benefit for its people Project affected community- through the setting of Group policies as and environment, the Group has based purchasing/ well as standards and strategic guidance implemented internationally recognised procurement 4.2 with regard to HSSE matters. guidelines and standards and identified Regional-based purchasing/ further areas of integration throughout the Gem Diamonds is continually reviewing procurement 37.8 Group’s operations. and refining its policies and procedures Total in-country purchasing/ relating to anti-bribery and corruption. In Gem Diamonds strives to minimise its procurement 139.3 2014, no cases of bribery, corruption, impact on economic, social and ecological Project affected community- anti-competitive behaviour, and anti-trust systems, and follows a management based local employee costs 2.6 or monopoly practices were brought approach based on a strict code of morals Regionally based local against the Group or any of its subsidiaries. and ethics. This philosophy benefits future employee costs 4.4 Gem Diamonds makes no financial and current generations in a responsible Total in-country-based local contributions to political parties, and sustainable manner. Gem Diamonds’ employee costs 32.9 operations, as a minimum requirement, are politicians or any other politically affiliated Total in-country purchasing/ structures, as is outlined in the Gem required to comply with all host country procurement and total Diamonds governance policies. All legislation regarding HSSE business employee costs 172.2 management. Operations are also required financial contributions made to host country governments relate to regulatory to implement international best practice Governance standards and assess their compliance taxes and other legal financial obligations Gem Diamonds is listed on the London thereto. The implementation of these such as royalties. Stock Exchange and has committed to measures ensures that the Group’s adhere to rigorous and widely recognised operations operate in a socially responsible manner that benefits society as a whole.
40 Gem Diamonds Annual Report 2014 safety. The focus onproactive management proactive managementofhealthand The Group continuedto focus onthe well undertheGroup’s ceilingvalueof4.00. zero. The 2014Group-wide AIFRof3.01was for 2013andexceeding theGroup target of was 0.20,anincrease from 0.13recorded incidents. The Group-wide LTIFR for 2014 were implemented to avoid future similar investigated andappropriate measures These incidentswere extensively occurred atGhaghooandoneLetšeng. three LTIs Afurther Segolame Mashumba. incident resulted in the deathofMr where on11January, afallofground regrettably, atGhaghoo, wasafatality the Group in2014,oneofwhich, five Gem Diamondsreported LTIs across continuously improved performance. on an annualbasisinorder to ensure standards, are independentlyaudited relevant bestpractice international ofOHSAS18001and both theprinciples management systems, whichare basedon Gem Diamonds’ healthandsafety safe, sustainableandresponsible practices. of zero tolerance for to non-conformance employees andcontinuesto buildaculture environment inorder to protect its of a caring, safe andhealthy working Group promotes actively thecreation its workforce asitshighestpriority. The assetandsetsthehealthsafety of key Gem Diamondsregards itsemployees asa environment Creating asafe andhealthy work Our employees business matters. guidelinesonallmaterial reporting astheGroup’sThe GRIserves sustainability Systems, ISO14001. standard onEnvironmental Management Standards Organisation’sthe International management systems, OHSAS18001,and for occupational healthandsafety Standard appliedBritish internationally are based ofthe ontheprinciples operational HSSEmanagementsystems into managementstandards. The Group’s standards andguidelinesare incorporated legislation, appropriate bestpractice to additionto hostcountry adhering In international standards Compliance with The Group recorded a42%increase in andcareer development. aimed atskills employee development programmes Gem Diamondsimplementsand supports into asteady-state operation. seen atGhaghooastheminetransitioned 15% in2013,withsignificant improvement across theGroup decreased to 5%from 2014 from 1.39in2013.Staffturnover absenteeism rate decreased to 0.90 in employee needs. The Group-wide retention rates andbetter understand across alloperationsinorder to improve areturnover continuouslymonitored employees. Absenteeism trends andstaff employed 449own and1389contractor appropriately. Atyear end, GemDiamonds depth ofitscapabilitiesbyresourcing committed to developing andgrowing the retain firstclassemployees andis therefore aimsto engage, develop and operational excellence. The Group workforce role plays inachieving akey Gem Diamondsunderstandsthatits developing ouremployees Attracting, retaining and and safety managementsystems. continues to refine andimprove itshealth zero inasustainablemanner, harm and Gem Diamonds’ goalremains to achieve are beingcontinuouslyimproved. attheoperationsand stages ofmaturity management programmes are invarious employees. The Group’s health address thetotal well-being ofits disease managementprogrammes to environmentalconducts andserious occupational concerns. The Group also beyond merehealth managementefforts where necessary. its extends This practice training aswell ascounsellingservices by offering treatment, educationand Gem Diamonds’ aimsto assistemployees safety willassist initspursuitofzero harm. ontheproactive managementof efforts The Group believes thatconcentrated implemented in2013. the 45512actions which showsasignificant increase from theyear, during management actions implemented. There were 62357safety behaviour basedsafety initiatives, were diseasemanagementand serious measures,various includingproactive strengthened in2014when and further of healthandsafety wasinitiated in2013, above the normal salaries payable. salaries above the normal incentives to itsemployees over and Group offers relevant benefitsand minimumlegislatedcountry’s wage. The compensated well inexcess ofthehost rates. The lowest graded employees are remunerated inlinewithmarket-related DiamondsemployeesAll Gem are oa n21 2 1513 325 total in2014 Group employees eirmngmn 4104 14 Senior management or ebr 9 0 Board members outcomes of –includingthereduction promotes sociallydesirabledevelopmental mine itsdiamondsinsuchaway that The ultimate goalofGemDiamondsisto capital Our socialandrelationship the majority werethe majority male. employee numbersatGhaghoo, ofwhich 2013. This isdueto anincrease in 18% in 2014,adecrease from 19.5%in retained afemale staffcomplementof Maharasoa.Officer, The Mazvi Ms Group headed upbyafemale ChiefExecutive Diamonds’ Board. Letšeng, however, is ontheGem no women currently serve ofwomen,issues andtheempowerment Gem Diamondsissensitive to gender the third consecutive year. Even though werecases ofdiscrimination recorded for outlined intheGroup’s Code ofEthics. Zero onanydiscrimination basis. This isclearly employer andhasazero tolerance for Gem Diamondsisanequalopportunity the future. the numberofcareer reviews in conducted 16% in2013. Work isongoingto increase career reviews in2014:14%compared with the numberofemployees whounderwent Group. Regrettably, there wasadecrease in the operationsremains agoalacross the Performing annualcareer reviews atallof its workforce. growththe skills, anddevelopment of Group remains committed to furthering mechanismsandthe andexternal internal Training atoperationsisprovided via 15% increase inhourspercapitatraining. 45% increase whileGhaghoorecorded a to 2013.Letšengcomparison recorded a hours
per capitavocational trainingin Gem Diamonds Gem
oe Men Women Annual Report 2014 AnnualReport 41
Strategic Report 24 Operating review
SUSTAINABLE DEVELOPMENT REVIEW continued poverty, capacity building, empowerment investment is anticipated to increase in Finance Corporation environmental, health and the creation of job opportunities. 2015 in line with the maturity of the and safety guidelines for mining and the CSI plan and as more projects are Equator principles. The ultimate goal of Gem Diamonds supports localisation of implemented. undertaking SEIAs at Group operations is to its workforce. In 2014, 92% of Letšeng’s identify, minimise, mitigate and manage workforce comprised Basotho nationals, Based on a needs analysis, Ghaghoo any potential impacts on the environment and 93% of Ghaghoo’s workforce expanded on its CSI activity to include as a result of mining. comprised Batswana nationals. Gem various additional investment projects and Diamonds endeavours to continually refine initiatives whilst maintaining ongoing Environmental impacts, which result from policies, processes and procedures to communication with its project affected mining activities, are managed through an further the human rights of its employees. communities. Ghaghoo invested extensive and dynamic management A total of 122 hours of human rights US$0.2 million towards CSI projects with system that is continuously updated to training was provided to employees in the majority of investment being made ensure that the most appropriate 2014. None of Gem Diamonds’ operations towards education and health. The management approach is employed. and/or facilities are unionised, and labour operation will be expanding its CSI Environmental performance of the relations at all operations remained stable strategy further in 2015. operations are monitored throughout their throughout the Group during the year. lifecycles and informs the management Both Ghaghoo and Letšeng afforded Gem Diamonds recognises freedom of approach, facilitates compliance with employment opportunities to unskilled association as a core right of each regulations and informs stakeholders and appropriately skilled labour from employee. The Group experienced no as to the Group’s endeavours to protect their respective project affected strikes or lockouts during 2014. natural heritage. communities. This resulted in an The Group’s strategy, business focus and approximate US$2.6 million capital During 2014, Gem Diamonds invested value system combine to support the injection into these largely unemployed US$1.0 million towards environmental Group’s conviction that diamond mining is, communities through temporary and protection. Initiatives undertaken at its first and foremost, about the sustainable permanent employment. By year end operations included, amongst others, the benefits stakeholders derive from this 18% of Letšeng’s and 19% of Ghaghoo’s training of staff and community members, practice. Culturally appropriate CSI employees originated from project specialist research and consultation, programmes, based on detailed needs affected communities. development of environmental protection analyses, were implemented by the measures and the purchase of No resettlement of communities was operating mines in the communities in environmentally friendly technology. undertaken during 2014 and it is not which they operate. In 2014 the Group- anticipated to be necessary at any future No significant or major environmental wide contribution towards CSI initiatives time for any of the current operations. incidents were recorded during the year. amounted to US$0.6 million, compared to However, there was an increase in the US$0.5 million in 2013. Education formed 2014 marks the sixth consecutive year of number of minor environmental incidents the main thrust of CSI initiatives during the Gem Diamonds achieving zero recorded in comparison with 2013. This increase year; however, investment was also made major stakeholder incidents. The Group can be attributed to intensified mining towards infrastructure development and seeks to maintain open, transparent, activity at Ghaghoo as well as environmental protection. respectful and mutually beneficial environmental awareness campaigns at relations with its neighbours and all Gem Diamonds invested US$0.1 million the operations, which resulted in higher other stakeholders. during the year in South Africa and levels of incident reporting. Lesotho. The majority of this expenditure Our environment Planning for future rehabilitation of land was allocated to the Sentebale Charity in Environmental protection forms a leased by Gem Diamonds’ operations is a Lesotho, which helps vulnerable children cornerstone of the Group’s strategy and as key priority in order to achieve the Group’s and victims of the HIV/Aids epidemic. environmental custodian, Gem Diamonds goal of conducting business in a Building on the successful completion of has implemented comprehensive sustainable manner. The Group leases the 2011 – 2013 CSI programme in 2013, environmental management programmes 6 174 ha of land of which 38.95 ha was Letšeng commenced with its 2014 – 2016 at its mining operations. The Group newly disturbed by mining activities during CSI programme in 2014. Based on a needs follows a precautionary approach aimed the year bringing the total disturbed land analysis, this CSI strategy outlined various at mitigating the environmental leased by Gem Diamonds to 548.49 ha. The projects that would benefit Letšeng’s impacts associated with its diamond Group continued with the annual review project affected communities. The majority mining activities. and improvement of comprehensive of Letšeng’s CSI expenditure went towards rehabilitation plans for its mining Any mining activity undertaken is infrastructure development, small and operations. Letšeng continued with subjected to an extensive Social and medium enterprise development and extensive rehabilitation trials, which were Environmental Impact Assessment (SEIA). education. During the year, Letšeng initiated in 2012, in order to determine the The SEIA process takes account of relevant invested US$0.3 million towards feasibility and success of its planned international best practice standards and community investment projects. This rehabilitation strategies. guidelines such as the International
42 Gem Diamonds Annual Report 2014 resources. reliance on,andconsumptionofnatural progressive technology to reduce the initiatives, andintroduces environmental continually identifiesprocess optimisation of theorganisation. Diamonds Gem natural resources to increase theresilience way thatitwillreduce businessreliance on businessinsucha to conduct is important fuel are becoming increasingly strained, it natural resources suchaswater andfossil whereever-changing globalcontext, Gem Diamondsunderstandsthatinan progressed into onedevelopment. to 2013,asmining Ghaghoo incomparison line withthemineplananddecreased at waste generated atLetšeng increased in standards.practice The volume ofmineral and according to best international legislation compliance withhostcountry designed, maintainedandmanagedin All on-site mineralwaste structuresare legislation. least complywithhostcountry environmental pollutionandatthevery volume ofwaste generated, avoid waste managementplansto minimise the Group’s operationshave implemented amount ofmineralwaste. Eachofthe effluent, medicalwaste andasignificant such asusedoilsandlubricants, sewage amountsofhazardousrestricted waste on-site accommodationandofficefacilities, includes domesticandgeneralwaste from Waste generated bytheGroup’s operations lease area isofanacceptablequality. ensure thatany water leaving themine care attheoperationstoUtmost istaken inthewater atLetšeng.levels observed management andminimisationofnitrate point ofsource contaminationandthe include pollutionprevention, treatment of Water challengesaddressed quality in2014 when, required. trends are accessedandaddressed as, and of water atbothofitsoperationsand resource. The Group monitors thequality ofthisprecious andquantity the quality ofitsoperationson mitigate theimpact extensive programmes to understandand water, andhas therefore undertaken protecting valuablenaturalresources like of Diamonds recognises theimportance growth andongoingpollution.Gem development,due to industrial population Water resources are underthreat globally good corporate governance measures governance good corporate in strong culture and integrity ofcorporate To thisend, theGroup hasdeveloped a integrity.diamonds ofthehighestproduct of supplyingitsclientswithnatural imperative andisproud ofitstrackrecord asabusiness and clientsatisfaction Gem Diamondsregards product quality Product integrity CO Group 2014was138 046tonnes during for footprinttotal carbon reported the strategy for future implementation. The greenhouse gasemissionsreductions Group formulated acomprehensive footprint assessment,the 2013 carbon Following opportunities. reduction the assists theGroup inidentifyingemission gas emissions. The annualassessment onglobalgreenhouseof Group activities gain abetter understandingoftheimpact footprint assessmentinordercarbon to anannual Gem Diamondsundertakes consistent at0.5millioncubicmetres. consumption atGhaghooremained However,mining activities. water winter conditionsandincreased dry very metres, thisincrease to canbeattributed 34% in 2014to atotal of5.3millioncubic consumption atLetšeng increased by reliance atLetšeng. water Site-specific water toattributed increased surface consumption in2014,whichcanbe The Group saw a31%increase in water of the increased miningactivities. with 2013,increasing byonly1%inspite remained intensity stableincomparison opportunities. The Group-wide energy and to identifypossibleenergy efficiency operational energy consumptionpatterns percarattointensity better understand operations. The Group measures energy atboth increased miningactivities increased theyear asaresult during of The Group’s total energy consumption benefits for theenvironment. holds notablecostbenefitsandsubstantial Reduced naturalresource consumption communities andotherbusinesses. greater accessto naturalresources bylocal natural resources would potentially enable on A Group-wide reduced dependency Gas Emissions(Scope2)aswell asmaterial Gas Greenhouse 1),indirect Emissions (Scope Scope 3Emissions. Scope 2 e. GreenhouseThis includesdirect Gas remains secure. ensure thattheGroup’s production management systems andsolutions to assess thestatusofGroup’s security insurers are engagedonaregular basisto operations andrecognised specialistsand atall assessments are anongoingpractice considered by theGroup. profile Risk prevention andtheft are security seriously Group’s operationsandmanagement of for posesamajorrisk the Diamond theft transparent andfair. thatthetender processensuring is oncloseofthe tender,participants thus electronically circulated to alltender A complete listofthewinningbidsis conditions thatare agreed on by allclients. and alltenders are bytender governed is inallinstances respected confidentiality respect ofthediamondsare issued. Client in conclusion ofatender andnowarranties are madeavailable to to the clientsprior Extensive diamondviewingopportunities andsalesprocess.marketing ofthe which alsoform anintegral part transparent communicationpractices, through continuousand stakeholders and maintainedwithclientsother protocols. Trust relationships are developed andcorruption andanti-bribery laundering anti-money andexternal internal their goodstandingandcompliancewith clients are andvalidate assessedto confirm screening process a strict andselected Potential clientsare to identifiedsubject Diamonds isbyinvitation only. channels,correct andtradewithGem reach through thetargeted the markets applied to ensure theGroup’s diamonds controls assurance. are Strict quality approval to and ensure bestpractice Process stampof Kimberley certificate theoriginal bearing diamonds isexported The Group’s ofrough fullproduction inception in2006. has remained fullycompliantsinceits Processthe Kimberley team andtheGroup by independent annualauditconducted scheme. Letšeng undergoes an Process oftheKimberley terms certification in and allrough diamondsare certified Process standard the Kimberley industry The Group complieswiththeprovisions of Governance Code. accordance withtheUKCorporate Gem Diamonds Gem
Annual Report 2014 AnnualReport 43
Strategic Report 24 Operating review
PRINCIPAL RISKS AND UNCERTAINTIES
The Group is exposed to a number of risks and uncertainties that could have a material impact on its performance and long-term development. The effective identification, management and mitigation of these risks and uncertainties are a core focus of the Group, as they are key to the Company’s objectives and strategy being achieved. Central to Gem Diamonds’ approach to risk management is having the right Board and Senior Management team in place, with such members combining extensive experience of diamond mining, corporate governance, risk management and the local operating conditions in Lesotho and Botswana.
Risk management is the overall responsibility of the Board, assisted primarily by the Audit and HSSE Committees, who together identify and assess any change in risk exposure, together with the potential financial and non-financial impacts and likelihood of occurrence.
Given the long-term nature of the Group’s mining operations, the Group’s risks are unlikely to alter significantly on a yearly asis.b However, inevitably the level of risk can change, as could the Group’s risk appetite. The Board and its committees have identified the following key risks. This is not an exhaustive list, but rather a list of the most material risks facing the Group. The impact of these risks individually or collectively could potentially affect the ability of the Group to operate profitably and generate positive cash flows in the medium to long term. As a result, these risks are actively monitored and managed, as detailed below in no order of priority.
Description and impact Mitigation 2014 actions and outcomes
Market risks Rough diamond prices Numerous factors beyond the control Market conditions are continually The market for rough and polished of the Group may affect the price monitored to identify current trends that diamonds firmed over the first three and demand of diamonds. These factors will pose a threat or create an opportunity quarters in 2014 before softening in the include international economic and for the Group. The Group has flexibility in its final quarter as a result of recent concerns political trends, as well as sales processes and the ability to reassess its over bank lending and liquidity. Despite consumer trends. capital projects and operational strategies in this, diamond prices achieved The funding of growth plans could also light of current market conditions to outperformed the mineral reserve prices, be adversely affected by constrained preserve cash balances. improving Group revenues. cash flows impacted by negative Strict treasury management procedures are Operational efficiency initiatives and market conditions. also in place to monitor cash and capital current projects in the form of the new projects expenditure. Coarse Recovery Plant and Plant 2 Phase 1 upgrade are geared to providing increased revenue and margin. The Group has a strong balance sheet with cash reserves of US$110* million plus existing undrawn facilities of US$42* million. * As at 31 December 2014.
Operational risks Mineral resource risk The Group’s mineral resources influence Various bulk sampling programmes Letšeng resource drilling and bulk sampling the operational mine plans and affect combined with geological mapping and programmes were successfully completed the generation of sufficient margins. modelling methods significantly improve during the year. The results of these Under-performance of its mineral the Group’s understanding of and programmes together with other geological resources could affect the Group’s ability confidence in the mineral resources and work have resulted in a significant increase to operate profitably in the medium to assist in optimising the mining thereof. in the indicated resource category and long term. probable reserves. The entire open pit life of mine plan is now classified as reserve.
44 Gem Diamonds Annual Report 2014 Description and impact Mitigation 2014 actions andoutcomes 2014actions Mitigation Description andimpact and cashflows. bothprofitability operations andimpact event couldnegatively affect theGroup’s number of different events. Any such of decreased dueto production a mine and/or plantshutdowns orperiods The Group material may experience interruption A majorproduction Operational risks diamond industry. inthe isaninherent factor Theft risk Diamond theft creates potential upsidefor theGroup. to reduce suchdamage opportunity process andthe mining andrecovery the highly susceptibleto damageduring Letšeng’s valuable Type IIdiamondsare Diamond damage implementation andexecution thereof. and/or delays may affect theeffective costoverruns projects, concerning risks costs andimplementationofthese assessingtheviability,assumptions. In indications andfuture market premised studies, onvarious cost ofexpansionprojects, on delivery The Group’s growth strategy isbased delivery Expansion andproject continued are inplaceto mitigate thisrisk. processes plans andbusinesscontinuity appropriate managementcontrols, different events andensures thatthe andconsequenceofpossible likelihood The Group continuallyreviews the this risk. and implemented inorder to minimise measures areSecurity constantlyreviewed to reduce suchdamage. modifications andidentifyopportunities implement toconducted further and analysed. Continuous studiesare Diamond damageisregularly monitored market andoperationalconditions. market tothe Group changesin to reactquickly Flexibility intheexecution allows ofprojects appropriate level. are monitored managedatan andrisks implemented to ensure thatthe projects Project governance structures have been been introduced. handling andmanagementsystems have at Ghaghoo inJuly, improved water Following significant water ingress mitigate downtime. possibleproduction whichfurther year were undertaken, the and geotechnical during monitoring treatment plants;improved sidewallcontrol; addition,areview spares ofcritical forIn the outages. Letšeng, reducing oflengthy theimpact at power supplywerebackup undertaken power andtheprovision monitoring of states. lightofthis, improvements In in dependent andneighbouring South Africa challenges inproviding consistent power in provider,electricity whohave Eskom, had issourcedturn from theSouthAfrican which in Corporation, Lesotho Electricity Letšeng sources itspower through the diamond security systems andfacilities. diamond security completed andincludedappropriate The Phase 1capitalprojectatGhaghoowas at Letšeng throughout theyear. systems andfacilitiescontinued security of2015.Upgrades to theexisting quarter completed bytheendofsecond is well underway andontarget to be features, enhancedsecurity incorporates Plant, which The newCoarse Recovery damage. ofdiamond aimed atreducing theimpact of2015,isfurther end ofthefirstquarter year andontrackto becompleted bythe upgrade, whichwasapproved the during significant impact. The Plant 2 Phase 1 improved having hada blastingpractices the aimofreducing diamonddamage, with initiatives continueto beimplemented with year,installed intheprior numerous further Building onthesuccessofnewcrushers half of2015. bytheendoffirst is ontrackfor delivery of thedelay andasaresult,impact themine introduced, havequickly reduced the and managementsystems, whichwere ingress, however, improved water handling up wasdelayed dueto significant water completed withinbudget. The initialramp The Phase 1development ofGhaghoowas of 2015. second quarter time andwithinbudgetbytheendof and completionthereof isanticipated on Phase 1upgrade were projects approved Plant andPlant 2 new Coarse Recovery theyear.continued to advanceduring The Studies ontheLetšeng expansionprojects Gem Diamonds Gem
Annual Report 2014 AnnualReport 45
Strategic Report 24 Operating review
PRINCIPAL RISKS AND UNCERTAINTIES continued
Description and impact Mitigation 2014 actions and outcomes
Operational risks continued HSSE-related risks The risk that a major health, safety, The Group has reviewed and published While the Group’s overall safety social or environmental incident may policies in this regard and significant performance remains satisfactory, occur within the Group is inherent in resources have been allocated to a fatality was recorded at the Ghaghoo mining operations. continuously improve, review, recommend, underground mine. implement and monitor compliance Letšeng and Ghaghoo maintained their throughout the various operations within five-star and four-star ratings respectively the Group. This is overseen by the HSSE for their external HSSE audits. Committee of the Board. Corporate social investment into the Further to this, the Group engages Group’s project affected communities independent third parties to review and continued throughout the year. provide assurance on processes currently in place. The Group actively participates and invests in corporate social initiatives and the involvement of members of the communities who sit on the respective corporate social responsibility committees is critical to the success thereof.
Strategic risks Political risks The political environments of the various Changes to the political environment and Political unrest was experienced during the jurisdictions that the Group operates regulatory developments are closely year in Lesotho; however no disruptions within may adversely impact the ability monitored. Where necessary, the Group were experienced at the Letšeng mine. The to operate effectively and profitably. engages in dialogue with relevant Group took part in its ongoing dialogues Emerging market economies are government representatives in order to with representative stakeholders, gaining generally subject to greater risks, remain well informed of all legal and insight into the progress and status of the including regulatory and political risk, and regulatory developments impacting its political developments leading up to the are potentially subject to rapid change. operations and to build relationships. elections in February 2015. The Group further implemented specific procedures to mitigate the impact of any unrest. There were no strikes or lockouts during the year at either operation.
Retention of key personnel and skills shortages The successful achievement of the Group’s The Group’s human resources practices, An intensified effort is being made to invest objectives and sustainable growth which are regularly reviewed, are designed in the development of existing identified depends on its ability to attract and retain to identify areas of skills shortages, and key employees through structured training key suitably qualified and experienced actions such as development programmes and development programmes. Extensive personnel, especially in an environment are implemented to mitigate such risks. In engagements with respective government and industry where skills shortages are addition, these practices are designed to departments are ongoing as part of the prevalent and in jurisdictions where attract, incentivise and retain individuals effort to develop plans for local upskilling. localisation policies exist. of the appropriate calibre through A review and amendments of remuneration A global review for qualified and performance-based bonus schemes and policies and the Employee Share Option experienced Lesotho citizens undertaken long-term reward and retention schemes. Plan (ESOP) were implemented during the during the year confirmed this skills year. The amendments to the ESOP shortage. incorporated a broader base of participants.
Financial risks Exchange rates The Group receives its revenue in US The impact of the exchange rates and Local currencies in the jurisdictions in which dollars, while its cost base is incurred in fluctuations are closely monitored. It is the the Group operates have weakened against local currencies of the various countries Group’s policy to hedge a portion of future the US dollar during the year. This has had a within which the Group operates. The diamond sales when weakness in the local positive impact on the Group’s results. weakening of the US dollar relative to currencies indicates it to be appropriate. Numerous hedges were taken out in the these local currencies and the volatility of Such contracts are generally short term latter part of the year to take advantage of these currencies trading against the US in nature. the weakened currencies. dollar will impact the Group’s profitability.
46 Gem Diamonds Annual Report 2014 16 March 2015 Non-Executive Chairman Roger Davis assetoutonpages2to 46,hasbeenreviewedOur Strategic andapproved Report, bytheBoard ofDirectors on16March 2015. SIGN OFF OF OUR STRATEGIC REPORT Gem Diamonds Gem
Annual Report 2014 AnnualReport 47
Strategic Report 24 Operating review
GOVERNANCE
48 Gem Diamonds Annual Report 2014 stakeholders. the Group’s Robust corporate governance ability to createability value for its supports supports Gem Diamonds Gem
Annual Report 2014 AnnualReport 49 48 Governance
DIRECTORATE
Non-Executive Directors
ROGER DAVIS MIKE SALAMON GAVIN BEEVERS RICHARD WILLIAMS DAVE ELZAS (58) (59) (65) MBE MC (48) (48) Non-Executive Chairman Senior Independent Non-Executive Director Non-Executive Director Non-Executive Director MA (Oxon) Director BSc Hons (Mechanical BSc Economics (University BSc Business Engineer Roger spent eight years BSc (Mining Engineering) Engineering) (Lancaster College London); MBA (Vrije Universiteit Brussel); at Barclays, latterly as the (University of the Polytechnic) (Cranfield University); MA Master’s in Business Chief Executive Officer of Witwatersrand); MBA Gavin was the Director of International Security and Technologies the UK banking operation (London Business School) Operations at De Beers Studies (King’s College (Handelsingenieur) (Solvay and as a member of the Mike is a mining engineer from April 2000 until his London) Business School) Board of Barclays Plc. Under with an MBA and has over retirement in 2004. He had Richard spent 20 years in Dave has over 15 years’ his leadership, the UK 30 years’ experience in the joined De Beers in 1979 the British Army, latterly as experience in international business was significantly mining sector. He was a and was based in Botswana the Commanding Officer investment banking. restructured. Prior to founding Director of Billiton for 11 years. Thereafter, he of 22 SAS Regiment, Between 1994 and that, he spent 10 years in and was instrumental in was appointed Assistant during which time he 2000, Dave served as a investment banking in Billiton’s IPO on the London General Manager at De saw service across the Senior Executive and London and held various Stock Exchange in 1997 and Beers Marine in Cape Town Middle East, Latin America subsequently Managing positions in China and the subsequent merger until 1994, whereafter he and Africa. Richard has Director of the Beny India for Flemings and with BHP in 2001. Mike returned to Botswana as worked as an adviser to Steinmetz Group. Dave BZW. Roger started his retired from his position as General Manager at the a number of London and is currently the Senior career with a Executive Director at BHP Orapa and Lethlakane New York-based financial Partner and Chief 12-year service in the Billiton in 2006. Thereafter, mines. From January 1996 institutions. He is Chief Executive Officer of the British Army. Roger Mike was appointed to March 2000, Gavin held of Staff at Barrick Gold Geneva Management is currently the non- Executive Chairman of the position of Deputy Corporation. He is also a Group, an international Executive Chairman of New World Resources and Managing Director of strategic adviser to Olive wealth management and Sainsbury’s Bank Plc and of led its IPO on the London Debswana Diamond Company LLC, a global risk financial services company GRC Limited, and is also a Stock Exchange in 2008. He Company. management business. and was appointed as a non-Executive Director at retired from this position in non-Executive Director of Experian Plc. 2012 and is a non-Executive Appointed Appointed Zanaga Iron Ore Co Limited Director of Ferrexpo Plc. Gavin was appointed to Richard was appointed to in November 2010. Appointed the Gem Diamonds Board the Gem Diamonds Board Roger was appointed as Appointed in February 2007. in February 2008. Appointed Chairman of the Gem Mike was appointed to the Dave was appointed to the Diamonds Board in Gem Diamonds Board in Key skills and Key skills and Gem Diamonds Board in February 2007. February 2008. experience experience October 2005. Operational mining, health Security, capital markets Key skills and Key skills and and safety, sustainability and political risk. Key skills and experience experience and corporate social experience Commercial and Board committee Operational mining, responsibility. membership Finance, diamond industry capital markets and projects, health and safety, trading and capital public company board Board committee Audit and Remuneration sustainability, corporate Committees. markets. governance. social responsibility and membership capital markets. HSSE Committee. Board committee Board committee membership membership Board committee Audit and Remuneration Audit, Remuneration and membership Committees. Nominations Committees. Nominations, HSSE and Remuneration Committees.
50 Gem Diamonds Annual Report 2014 Executive Directors BCom (University of Cape Cape of (University BCom Chief Executive Officer Nominations Committee. membership Board committee and capitalmarkets. andcommercialindustries Diamond andmining experience Key and skills Diamonds inJuly2005. Clifford Gem formed Appointed Jumelles HoldingsLimited. OreIron Co Limited and ofZanaga Chairman also thenon-Executive Committee. Clifford is BeersExecutivethe De in 2000,Clifford on served Beers ofDe privatisation Investments. Following the andDB Anglo American of Central Holdings, Clifford wasalsoaDirector thattime,2004. During leaving inDecember a positionhehelduntil E. OppenheimerandSon, Managing Director of 1990,hewasappointed In personal assistantin1988. Oppenheimer’s as Harry E. OppenheimerandSon 1986 andwassecondedto in Corporation American Clifford joinedAnglo (54) CLIFFORD ELPHICK Town); BCompt Hons Hons BCompt Town); (University of South Africa) South of (University
social responsibility. andcorporate sustainability health andsafety, andunderground), (surface management, mining industry, mineralresource Operational diamond experience Key and skills the Board 2008. inApril 2007 andwasappointed to Diamonds inNovember Alan joinedGem Appointed West Africa. Fields’ Ghanaoperationsin Managing Director ofGold August 2007,hewasthe From 2006until January Beers Consolidated Mines. Head ofOperationsfor De Manager, Operations and four years astheGroup and Diamond Corporation oftheNamdeb Manager four years astheGeneral BeersGroup,De including spent 28years withinthe andAustralia. He Indonesia Guinea, Ghana,Russia, Namibia,Botswana, Africa, countries, includingSouth invarious has worked hiscareer,During he in theminingindustry. almost 40years’ experience Engineering andhas inMining Alan holdsaBSc Engineering) (Mining BSc Chief Operating Officer (60) ALAN ASHWORTH ALAN ASHWORTH (Nottingham University), University), (Nottingham South African Mine Mine African South Managers Certificate of of Certificate Managers Competency and capitalmarkets. Finance, diamondindustry experience Key and skills Board 2013. inApril and wasappointed to the Diamonds inMarch 2008 joinedGem Michael Appointed of ChiefFinancial Officer. promoted to theposition 2013hewas On 2April Group Financial Manager. on afull-timebasisasthe joined GemDiamonds March 2008Michael In PublicInitial Offering. and taxrelating to the management accounting the financial reporting, London Listingincluding oftheMain aspects assist withthefinancial Diamonds Limited to was secondedto Gem February 2008Michael From August 2006to March in 2000. the firm at became auditpartner 1993and inJanuary Africa Johannesburg, South &Dicksonin RSM Betty management. Hejoined infinancial experience hasover 20years’Michael (Rand Hons BCom Chief Financial Officer (44) MICHAEL MICHAEL Afrikaans University); University); Afrikaans CA(SA)
HSSE Committee. membership Board committee legal. and Diamond industry experience Key and skills Board 2008. inApril and wasappointed to the 2006 Diamonds inMay Glenn joinedGem Appointed into theUSA. re-entry Beers’overseeing De his tenure,during including initiatives a numberofkey Glenn wasresponsible for the Executive Committee. and wasalsoamemberof General Counsel in2002 appointed Beers’ De first silk in2002.Glennwas competition law, andtook general commercial and advocate specialisingin asan 14 years practicing 1987 where hespent Johannesburg Barin Glenn wascalledto the Cape of (University LLB BA Company Secretary Commercial Officer and Chief Legal and (54) GLENN TURNER GLENN TURNER Town); LLM (Cambridge) LLM Town);
Gem Diamonds Gem
Annual Report 2014 AnnualReport 51 48 Governance
CHAIRMAN’S OVERVIEW OF CORPORATE GOVERNANCE
Key focus areas confirmed by the evaluation process were the Board’s commitment to applying best practice with regard to internal and external communication, decision-making, strategy and risk management.
It is fundamental that the Group is the role of Company Secretary to his Board composition is very important, with managed with openness, honesty, and current duties as Executive Director. three critical dimensions: transparency. This can only be achieved by – the balance of skills and experience; Notwithstanding the September 2014 maintaining the highest standard of revision, I am pleased to confirm that – maintaining a strong level of corporate governance. The responsibility independence and objectivity; and for good corporate governance lies with during the year the Company adhered to – ensuring that all members have the Board. The Directors and I regard the the principles of the Code published in September 2012. sufficient knowledge of the Group and setting and maintenance of high standards the context in which we operate. across the Group as an essential part of During 2014, we undertook a Board our work. evaluation process to review the Board’s As we act in shareholders’ interests, it is approach to strategy, particularly in relation right that shareholders have the The Board is ultimately responsible to opportunity to vote on the re-election of shareholders for the Group’s activities, its to process and initiatives. The evaluation every Director on an annual basis. Some strategy and financial performance, for the was carried out by way of a questionnaire non-Executive Directors will have served efficient use of the Group’s resources and administered by Bruce Wallace Associates, for approximately nine years by the for health, safety, social and environmental an external contractor. A detailed holding of the 2015 AGM, which will matters. With the assistance of the Audit description of the evaluation process is provide an opportunity to review our Committee, the Board, therefore, approves set out on pages 56 and 57. Board composition. the Group’s governance framework and Key focus areas confirmed by the reviews its risk management and internal evaluation process were the Board’s I would like to take this opportunity to set control process. I believe this leads to a commitment to applying best practice out our approach to diversity in the more effective Board and also facilitates with regard to internal and external boardroom. At present, our Board comprises my leadership role. communication, decision-making, strategy four Executive Directors and five non- Executive Directors representing different During the year, our governance and risk management. nationalities and disciplines (the detail of framework has taken into account the In the following pages, you will find which you will find in the biography for each introduction, in September 2014, of overviews of our primary four committees, individual). We acknowledge the importance the latest additions to the UK Corporate together with detailed information Governance Code (the Code) which will of diversity, including gender, to the effective regarding their overall operation within be applicable to the Group in 2015. The functioning of our Board and commit to most significant amendments have been the governance framework. supporting diversity in the boardroom. We value diversity of business skills and to the Directors’ Remuneration and Audit A key concern for good corporate experience because Directors with a range of Committee Reports. governance is to eradicate bribery, fraud skill sets, capabilities and experience gained and corruption. I am confident that we Corporate governance is embedded in the from different geographic and cultural now have a uniform system in place way we organise our business, with local backgrounds, enhance the Board by throughout the Group, including a boards and audit committees taking bringing a wide spectrum of perspectives to programme for the system to be responsibility for our operations in local the business. More information about our monitored and reviewed on an annual markets. This helps us to do the right Board diversity policy can be found under basis through our internal audit function. thing for our shareholders, customers, the UK Corporate Governance Code employees, suppliers, local communities We have found that in the last year our Compliance Report on page 57. and the environment. Therefore, while I am whistleblowing hotline, used to report ultimately responsible for the application of Looking ahead, we recognise that suspected fraud, corruption and the various provisions of the Code, specific corporate governance is central to our irregularities, has been used more responsibility is delegated to individuals continuing success and will strive to frequently. Following investigation, none of whose task it is to ensure adoption. maintain the high standards that we have the cases were significant and they were set to date. These individuals include the Company resolved without serious consequences. Secretary and the Chairmen of the various We value this system, which gives staff the committees. After eight years of service as Roger Davis opportunity to voice their concerns in a Company Secretary, André Confavreux Non-Executive Chairman way that draws attention to the matter, retired on 11 January 2015. Following without fearing reprisals for speaking out. 16 March 2015 André’s retirement, Glenn Turner has added
52 Gem Diamonds Annual Report 2014 – The Board isresponsible for: oftheGroup’sconduct business. The Board isresponsible for theoverall The role of theBoard Board ofDirectors provisions oftheCode. considers thatitiscompliantwithall the smallercompany regime. The Company to theprovisionsis subject applicableto consecutive financial years and, therefore, below theFTSE350for thepasttwo and IMA. The Company hasremained institutional investor bodies, suchasNAPF updates introduced practice by market ofallrevisions and apprised been kept addition,theBoard has 2014.In 1 October financial years beginning onorafter Governance Code, applicablefor the made in2014to theUKCorporate the organisation inlightofthechanges throughout assess allpoliciesandpractices The Board hascontinuedto review and bestpractice. governance with thehigheststandard ofcorporate philosophy anddevelopment to comply The Board considersitcore to theGroup’s and Transparency Rules(DTR). Committees, asrequired by theDisclosure Remuneration, NominationsandHSSE ontherole oftheAudit, andwork sections apply to theCompany. alsoincludes It policies, processes that andstructures Code 2012(theCode), and detailsthekey provisions oftheUKCorporate Governance and compliance withtheprinciples andtheGroup’sthe Strategic Report combinestheDirectors’This report Report, Corporate Governance Code. throughout theorganisation inlightofthechangesmade2014toUK The Boardhascontinued toreviewandassess UK CORPORATE GOVERNANCE CODE COMPLIANCE
performance ofthebusiness; performance and the management, direction setting theGroup’s strategy andfor latest coderequirements inthisarea. into account the management, taking identification, assessmentand controls, whichprovide for effectiverisk Group, ofpoliciesand withinaframework andgovernance ofthe the performance The Board isresponsible to shareholders for – – – – – – – – – – surrounding: decision-making meeting, whichincludes discussionand The Board hasaschedulefor eachBoard – – – –
corporate governance issues. governance corporate administrative matters including management; and system control ofinternal andrisk shareholder communications; annual andhalf-year financial results and tax andtreasury; the Group’s financialstructure, including annual budgetandoperatingplans; latest financial reports; major capitalprojects; operational reviews; plans; and long-term overall Group strategy, newbusiness, activities; each committee onthecommittee’s given of bytheChairman reports verbal governance. onthesystem ofcorporate reporting theeffectivenessensuring ofand the interests and ofallstakeholders; into consideration the Group andtaking safeguarding successof thelong-term for theproper ofthebusiness; conduct toproviding shareholders accountability operates; environment inwhichtheGroup andunderstandingtherisk monitoring allpoliciesandpractices minutes where appropriate. and may askthattheseberecorded inthe All Directors are free to express theirviews businesscareers.various non-Executive from Directors bring their thatthe andexperience expertise executive managementdraws onthe assess management’s performance. The to enabletheBoardreports to monitor and to produce clear, accurate andtimely the parameters laiddownbytheBoard and management to runthebusinesswithin Group’s affairs, itisthe role oftheexecutive ofthelawin terms for managing the While allDirectors have equalresponsibility March 2014. borrowings andwere lastreviewed in acquisitions anddisposalsbank major capitalexpenditure, major approval ofbudgetsandbusinessplans, Board include, butare notlimited to, the Board. for Suchmatters reserved the annually and, ifappropriate, updated by decisions andactions,are reviewed approval requirements corporate for key levels list ofauthorisation andprior which are documented inacomprehensive does notdelegate. matters,These reserved mattersformal thatit scheduleofreserved businessconcerns, italsohasa critical management,andother risk performance, focuses onstrategic issues, suchasfinancial Group’s businessfunctions. While theBoard provide for anethicalframework allofthe Board setsstandards which ofconduct, strategy to achieve thoseobjectives. The theGroup’sarticulates and objectives The Board provides leadershipand Gem Diamonds Gem
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Board composition during 2014 Held appointment Committee chairmen Name Title during 2014 and number of members Executive Board members (4) CT Elphick Chief Executive Officer √ AR Ashworth Chief Operating Officer √ M Michael Chief Financial Officer √ GE Turner Chief Legal and Commercial Officer √ Non-Executive Board members (5) RW Davis Chairman √ Nominations (3) GA Beevers √ HSSE (3) DJ Elzas √ Audit (3) M Salamon Senior Independent Director √ RJ Williams √ Remuneration (4)
The non-Executive Directors possess a There are six formally constituted the matters reserved for the Board, Board range of experience and competencies committees of the Board, each of which members are emailed with the details, and are able to bring independent has specific terms of reference. Those for including a justification. The decision of judgement to bear on issues of strategy, the Audit, Remuneration, Nominations each Board member is communicated and performance, and resources that are vital to and HSSE Committees can be viewed recorded at the following Board meeting. the success of the Group. on the Group’s website together with The terms of reference for each committee the matters reserved for the Board, at All of the non-Executive Directors are require members to be renominated every www.gemdiamonds.com. The regarded as independent by the Board as three years (subject to annual re-election). remaining two committees (Standing and defined in the Code, as was the Chairman This was undertaken in respect of Mike Share Scheme) facilitate the administration on his appointment. Salamon (who sits on the Remuneration, of the Board’s delegated authority. Nominations and HSSE Committees), Board and committee meetings In the event that Board approval is required Richard Williams (Audit Committee) and Five scheduled Board meetings were held between Board meetings for such matters Glenn Turner (HSSE Committee). during 2014, all in the United Kingdom. as capital expenditure, where approvals Attendance by Directors at Board and come within the threshold determined by committee meetings is shown below.
Attendance at Board and committee meetings during 2014 Number of meetings held Board Audit Remuneration Nominations HSSE
Director
RW Davis 5/5 5/5 4/4 4/4 – CT Elphick 5/5 – – 4/4 – GA Beevers 5/5 – – – 4/4 DJ Elzas 5/5 5/5 4/4 – – M Salamon 5/5 – 4/4 4/4 4/4 RJ Williams 5/5 5/5 4/4 – – AR Ashworth 5/5 – – – – M Michael 5/5 – – – – GE Turner 5/5 – – – 4/4
54 Gem Diamonds Annual Report 2014 Roles oftheSIDandnon-Executive Directors Roles oftheChairmanandChiefExecutive Officer responsibilities, together Director withtheresponsibilities (SID)andnon-Executive oftheSeniorIndependent Directors are d the leadership, operationsandmanagementoftheGroup withinthestrategy andbusinessplanagreed by theBoard. Their individ isresponsibleThe Chairman for creating theconditionsfor oftheBoard. theeffective working Officer is TheChiefExecutive res Davis 2007withtheappointmentofRoger asChairman. established during theresponsibilities andtheChiefExecutiveA clearseparationismaintainedbetween oftheChairman Officer. Thisseparationwa Chairman andChiefExecutive Officer adopted bymanypractice listed companies. theyear, During four suchmeetingswere held. Before eachscheduledBoard meeting, thenon-Executive Directors meetindependentlyoftheExecutive Directors, inaccordance w Non-Executive Directors’ meetings Acting as a sounding board for the Chairman. Scrutinising the performance ofmanagementinmeeting agreed Scrutinisingtheperformance resolved.satisfactorily the executive have team and/ortheChairman notbeen offinancialinformation Reviewingtheintegrity anddetermining Being available to shareholders they have ifconcerns raisedwith Non-Executive Directors for otherDirectors ifnecessary. asanintermediary Serving asasounding boardActing for theChairman. Director BasedintheUK Independent Senior agenda items. thatadequate timeisavailableEnsuring for discussiononall Executive Officer. Facilitating the relationship theBoard between andtheChief oftheBoard. thework underpin as strategic issues, are regularly reviewed, understood and clearly thatrelevant andshareholderEnsuring stakeholder views, aswell effectively. andcollegial team ofDirectors thatoperateshigh-performing Encouraging aculture ofopennessanddiscussionto foster a committees andindividualDirectors. oftheBoard,Leading its theevaluationofperformance the Group. receives of accurate andtimelyinformation ontheperformance withtheChiefExecutiveWorking to ensure thattheBoard Officer concerns. with shareholders andthattheBoard understands theirviewsand thattheCompanyEnsuring maintainseffective communication andknowledge. experience themanagementofexecutive Overseeing resource and individualswithanappropriatecomprises ofskills, mixture Producing thebusinessplansfor theGroup to beapproved by the Through theNominationsCommittee, thattheBoard ensuring andtone ofBoardSetting theagenda,style discussions. Providing strategic guidanceto theexecutive team. the higheststandards governance. ofcorporate The effective operationandleadershipoftheBoard andsetting The role oftheChairmanRogerDavis risk management. independent judgementonissues ofstrategy, and performance Providing and independence, including awiderangeofskills Directors through theRemuneration Committee. forwell andExecutive astheremuneration theChairman packages theCompany’sDetermining for executive policy remuneration, as are robust. controlswhether internal management andsystems ofrisk ofperformance. thereporting andmonitoring goals andobjectives conduct. Providing clearandvisibleleadershipinresponsible business by theGroup.standards undertaken to guideallactivities Developing, for theBoard’s approval, appropriate valuesand the Group andtheachievement of itsstrategy. affect, orare of affecting, capableofmaterially theperformance and bringing to theBoard’s attention allmatters thatmaterially oftheGroup theBoard Keeping informed abouttheperformance withintheGroup.delegation ofauthority recommendations to theBoard ontheappropriateMaking compliance withallrelevant laws andregulations. management processes are inplaceacross theGroup, aswell as thateffectiveEnsuring businessandfinancialcontrols risk and these to theBoard andNominationsCommittee annually. succession planningprocesses andpresenting theoutputfrom Board onanannualbasis. the Board onanannualbasis. abusinessstrategyDeveloping for theGroup to beapproved by Clifford Elphick The role oftheChiefExecutive Officer Gem Diamonds Gem
Annual Report 2014 AnnualReport etailed below. ponsible for s ual ith a 55 48 Governance
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Board skills, balance and independence of diversity on the Board, including gender – making arrangements, including site As a mining company, the efficiency of (B.2). Since 2007, recruitment to the Board visits, to ensure Directors are familiar the day-to-day operations, in both the has been on the basis of recommendation; with the Group’s operations, particularly medium and long term, is essential to the thus no outside consultants have been its commitment to and application Group’s progress in producing shareholder employed. The Board currently comprises of the Group’s corporate social value. In addition, security plays a a broad and highly relevant skill set and responsibility policies; and significant role in maintaining the flow of the Nomination Committee will continue – creating opportunities for professional the high-value diamonds produced by to make appointments based on merit and skills training, such as committee Letšeng and Ghaghoo. while taking into account diversity and chairmanship and formal professional the specialist skill set which is required by As the Group has operations in cutting and seminars, designed by appropriate the business. polishing, and as sales and marketing advisers. strategies are being rolled out, knowledge The Nominations Committee’s section of Board evaluation of the diamond industry is crucial in order this report is set out on page 64. Aim to foster new business opportunities. It is required that all Directors retire at The Board understands the importance of Financial resources and capability are also the Annual General Meeting and, if ensuring that excellent standards of necessary to ensure fulfilment of the appropriate, offer themselves for re- behaviour and governance are maintained, Group’s strategy, both financially and election in accordance with Code provision not only by the Directors, but integrated corporately. The biographies, which can be B.7.1. This practice will continue for future through all levels of the Group. found on pages 50 and 51, provide more re-elections. The Nominations Committee information on each Director’s One of the overarching objectives of the has considered and concluded that the competencies. All Directors allocate 2014 Board evaluation was to carry out a Board has demonstrated commitment to sufficient time to the Group to discharge comprehensive review on the effectiveness its role. The committee is also satisfied that their responsibilities effectively. of the Board, not only as a unit, but also the collective skills, experience, to assess and evaluate the contributions The Company complies with the background and knowledge of the made by individual Directors. requirement of the Code that there should Company’s Directors enables the Board be a balance of Executive and non-Executive and its committees to conduct The Board evaluation exercise looked at the Directors so that no individual or group can their respective duties and composition of the Board and committees dominate the Board’s decision-taking. responsibilities effectively. of the Board, conduct and decision- making; how strategy is approached and Non-Executive Directors should be Continuing Board development, addressed; risk management, management independent in character and judgement. access to independent professional information and reporting; training, All five non-Executive Directors are advice and the Company Secretary development and succession planning; considered by the Board to be independent All Directors are aware that they may take and internal and external communication. of management and the Group. In applying independent professional advice, at the the independence test, the Board considers expense of the Company, in the conduct of Approach relationships with management, major their duties, subject to prior consultation In line with best practice on Board shareholders, subsidiary and associated with the Chairman. Furthermore, all evaluation, as set out in Code provision companies and other parties with whom Directors have access to management and B.6.2 of the Code, the Board appointed the Company transacts business against the advice and services of the Company Bruce Wallace Associates to undertake an predetermined materiality thresholds. Secretary. The Company Secretary is externally facilitated independent review accountable to the Board for ensuring that of Board effectiveness during December The letters of appointment for the non- all governance matters are complied with 2014 and January 2015. The scope of the Executive Directors and the contracts of and assisting with professional 2014 evaluation exercise was agreed with the Executive Directors are available for development as required. the Chairman and Company Secretary and inspection at the place of business of the implemented by means of a questionnaire. Company in London. Board-approved arrangements ensure The questionnaire was sent to each that new Directors receive a full, formal The Board annually reviews the composition Director and their responses were collated and tailored induction on joining the and chairmanship of its primary committees, by Bruce Wallace Associates that then Board. In addition, ongoing support and namely the Audit, Remuneration, presented its analysis, findings and resources are provided to Directors, Nominations and HSSE Committees. recommendations in a report to the Board. enabling them to extend and refresh their Appointments and re-elections to skills, knowledge and familiarity with the Analysis the Board (see also Board diversity Group. Professional development and The report from Bruce Wallace to the Board on page 57) training are provided through three noted that considerable progress had been The Code requires there to be a formal, complementary measures: made addressing recommendations in the 2013 Board evaluation, particularly with rigorous and transparent procedure for the – delivering regular updates on changes regard to strategy and governance which, appointment of new Directors, which (actual or proposed) in laws and together with conduct of effective and should be made on merit, against objective regulations affecting the Company efficient meetings were identified in the criteria and with due regard to the benefits or its businesses;
56 Gem Diamonds Annual Report 2014 policy waslastreviewed inNovemberpolicy 2012 responsibilities andemployee insiders. This persons discharging managerial andapplies to allDirectors,securities Listing Rules, whichcovers dealingsin Code,Model publishedintheFCA’s UK basedonthe The Company hasapolicy Dealings inshares complies withthisrequirement. November 2014). The Company voluntarily that itreviews annually(most recently in maintains aregister of ‘conflicts ofinterest’ Directors.by non-conflicted TheBoard ofthem consideration andauthorisation and,conflicts ifappropriate, for the a procedure to ensure thedisclosure of where appropriate. The Company operates andpotential conflicts conflicts authorise theDirectorsthis Act, are allowed to interested Directors. accordance with In interests, unlessapproved bythenon- withthe conflicts, ormay conflict, Group’s may have adirectorindirect interest that Directors avoid any situation where they The UKCompanies requires Act that Conflicts ofinterest the Board months. intheforthcoming considered by planning would befurther composition oftheBoard andsuccession The Board thatthe alsoconfirmed to thestrategy process beimplemented. and thattherecommended enhancements importance achieving strategy wasofkey continued focus ondeveloping and Chairman. The Board agreed that been discussedwiththeBoard bythe The findingsand recommendations have stepNext recommendations made. output from thereview andany the Nominations Committee’s progress, The Board wasencouragedto consider 2014. succession planningduring review thecompositionofBoard and to Nominations Committee hadstarted the 2013Board evaluation,the consistent withrecommendations from strategy wasalsoclearthat, process. It enhancethe against strategy would further more measurement ofperformance non-Executive involvementDirector and focus oncommunication,timingof well anditwasconsidered that working 2014werestrategy during found to be Strategy sessionsandBoard debate on well.areas inwhichtheBoard performs 2014 Board evaluationasthethree main
Directors’ remuneration (www.gemdiamonds.com) intheinvestors’ can befound ontheCompany’s website business developments andprojects informationDetailed ontheGroup’s development duringtheyear Communication ofbusiness page 41. Reviewon Sustainable Development employment iscontainedinthe More information ongender-based throughout theorganisation. females beingemployed atseniorlevels an increasing numberofsuitablyqualified the genderbalancewithinGroup with onitsBoard to andstrives all types improve of diversity The Board continuesto support Board diversity by theBoard. asimplemented andcorruption to bribery to adoptthe samezero tolerance approach withwhombusinessistransacted parties updated to require allcustomers andthird The Group’s ofbusinesshave terms been audit function. regular bytheGroup’s monitoring internal to anditsapplicationissubject policy received formal trainingin2012. The Group Allidentifiedindividuals corruption. and as potentially exposed to bribery circulated to staffidentifiedbythe Group wasadopted and a new Group policy The review wascompleted in2012,and Senior the supported Young LLP(EY) ofJusticeGuidance. & Ernst related Ministry setoutinthe andtheprinciples Act Bribery its policiesandprocedures inlinewiththe The Company hasimplemented areview of Act Bribery 68 to 85. onRemunerationpages Annual Report Directors’ andthe RemunerationReport Directors’ remuneration are covered inthe well as theChairman. The detailsofall employment ofExecutive Directors, as remuneration andconditionsof is responsible for the determining non-Executiveof Independent Directors, Remuneration Committee, consisting for Directors’ remuneration, the While theBoard isultimately responsible updated routinely. 2014. The insiderlistisreviewed and and wascirculated to allinsidersinJanuary Management oftheGroup inthisreview.Management Senior Executives. issues are circulated to Board membersand figures, cashflow and progress onstrategic sales such asoperationalperformance, matters covering update reports summary meeting. Board Between meetings, circulated to eachscheduledBoard prior well asanexecutive summary, are consolidated managementaccounts, as Group’s system control. ofinternal Detailed form ofthe thecornerstone These reports are prepared andpresented to theBoard. including updated forecasts for theyear, on anoperationalandconsolidated basis, addition,routine managementreports In areas. risk together with information on key and updated forecasts for theyear, indicators performance ofkey reporting throughout theyear through monthly monitored andrelevant taken action economic assumptions. Performance is Group onthebasisofspecified functions withall These are prepared inco-operation Group’s annualbusinessplan. The Board reviews andapproves the year aheadandathree-year rolling plan. detailed operationalbusinessplansfor the proceduresfinancial include reporting Group’s comprehensive planningand cater for changing circumstances. The continuously modifiedandenhanced to duties. Financial to theBoard reporting is appropriate to enableitto discharge its with information inaform andofaquality The Board issuppliedinatimelymanner systems Information andfinancial reporting page 92. and Financial Statements issetouton Directors inrespect oftheAnnualReport 46. Statement ofthe The Responsibility found onpages2to inthe Strategic Report obligation. The current assessmentcanbe prospects andissatisfiedthatithasmetthis assessment oftheGroup’s position and present afair, balancedandunderstandable The Board isconsciousofitsresponsibilityto Financial reporting Accountability andaudit and allotherannouncements. briefings, statementsresource and reserve year endandhalf-year results; analysts’ available. This includestradingupdates; and shareholder communicationis wheresection, allpublishedinformation Gem Diamonds Gem
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Internal control Internal audit These risks are reviewed at least once a The Board of Directors has responsibility The internal audit function, established year. A more comprehensive report of the for the Group’s overall approach to risk in 2007, is an important element of the Group’s key risks and the means by which management and internal control, which overall process by which the Audit these are managed and/or mitigated are embedded in all key operations. In Committee and the Board obtain the can be found on pages 44 to 46 in the accordance with the Turnbull Guidance assurance it requires that risks are being Strategic Report. recently replaced by the Guidance on Risk effectively managed and controlled. Management, Internal Control and Related The Company’s approach to risk Financial and Business Reporting Guidance A risk-based internal audit plan was management is value driven and has published by the Financial Reporting prepared for 2014 and approved by the the stated objective of ensuring an Council in September 2014, the Board has Audit Committee, with reports on the environment in which it can grow defined the processes adopted for its achievement of the risk-based audit plan shareholder value through protecting and ongoing monitoring and assessment and and findings presented to the Audit enhancing the Group’s assets, the relies on reviews undertaken by the Audit Committee for consideration and approval. environment in those locations in which it operates, its reputation and its staff. The Committee throughout the year, as well as The risk-based audit plan covers all process is thorough and robust and is an the approval of the Annual Report and operating units, focusing in particular on essential element of business planning. Financial Statements. In addition, regular the most significant risks and related management reporting, providing a internal controls identified in the risk All of the Group’s operations carry out balanced assessment of key risks and self-assessment process. Findings and comprehensive annual self-assessment risk controls, is an important component of agreed actions are reported to reviews and update their risk registers Board assurance. management and the Audit Committee. accordingly. Objectives in the business plan are aligned with risks and a summary The Audit Committee reviewed the A review of the Group internal audit of the key risks, related internal controls, effectiveness of the system of internal function during 2014 resulted in a full-time accountabilities and further mitigating control by considering regular reports from Group internal auditor being appointed, actions are reviewed and approved by the management on the operation of the risk reporting directly to the Audit Committee, Audit Committee and, if necessary, the assessment process throughout the Group. who is responsible for co-ordinating the Board, for appropriateness and Group’s risk-based approach to internal These included: effectiveness. audit to ensure the appropriate focus – key risks identified; of work. Progress against plans, significant changes – mitigating actions and controls; in the business risk profile and actions The appointment resulted in the internal – management representations and taken to address controls and mitigate risks audit function realigning itself from a full assertions; and are reported at each of the Group’s outsourced function, performed by KPMG operating unit’s board meetings, thereafter – reports covering the independent Services Proprietary Limited (KPMG), to a to the Company’s Audit Committee and, if assessment of internal control systems co-sourced function managed through appropriate, to the Company’s Board. from internal audit, together with other the Group internal audit function. The assurance providers such as health, objective of the co-sourced agreement will The results of the process have been safety, social and environmental reports. be that KPMG will perform certain internal reviewed by management with all of the The principal aim of the system of internal audits on behalf of the Group internal audit Group’s operations and submitted to the control is the management of business risks as and when required. Company’s Audit Committee. that significantly threaten the fulfilment of Risk assessment and management Investment appraisal the Group’s business and strategic The Board, through the Audit Committee, Capital expenditure is managed by a objectives, with a view to enhancing the considers effective risk management as budgetary process and authorisation levels. value of shareholders’ investments and an essential element of professional For expenditure beyond specified levels, safeguarding assets. The internal control management and has implemented detailed written proposals are submitted to systems have been designed to manage, risk assessment and control systems across the Board. There is an approval procedure rather than eliminate, the risk of failure, to the Group, with the assistance of KPMG. for investment appraisal, which includes a achieve business objectives and to provide In accordance with the Turnbull Guidance, detailed calculation of return based on reasonable, but not absolute, assurance that a process has been established for assumptions that are consistent with those the Group’s business objectives will be continually identifying, evaluating and included in management reports. achieved within the risk tolerance levels managing the Group’s most significant identified by the Board. The Directors risks. The Group’s risk management policy Reviews are carried out after the project is confirm that they have reviewed the aims to cover and review all important completed and, for some projects, during effectiveness of the system of internal business risks faced by the Group, the development period of the investment, control. For the review, the Audit Committee including, but not limited to, operational, to monitor progress against plan. All major considered reports dealing with internal financial, commercial, legal, regulatory overruns are investigated. Commercial, audit plans and outcomes, as well as risk and compliance risks, which could legal and financial due diligence work, logs and sign-off from external audit and undermine the Group’s ability to achieve using outside consultants as appropriate, is management representations. These did not its strategic and business objectives. undertaken in respect of acquisitions reveal any significant failings or weaknesses. and disposals.
58 Gem Diamonds Annual Report 2014 shares oftheCompany hadbeen notified to the Company inaccordance withthe DTR 5: On 6March 2015,thefollowing majorinterests (atorabove 3%)intheissuedordinary interestMajority inshares Relations withshareholders investigated andreported. theyear haveraised during beenproperly individualsandthatallqueries concerned mannerby utilised inthecorrect whistleblowing programme isbeing The Board issatisfiedthatthe tool andtherelevant details. contact employees detailingthewhistleblowing was required to reissue literature to all was reviewed in2012,andeachoperation are effective and up date.to Theprocess procedures are reviewed sure to make they Audit Committee. The whistleblowing of localoperationsandtheCompany’s and theresults are to theboards reported areAll incidentsreported fullyinvestigated, breachesbribery, ofethicsandfraud. principles, including, butnotlimited to, any breachreport oftheGroup’s business which theGroup operates. Employees can in toll-free phonehotlinesineachcountry independently operated andconfidential via andirregularities corruption fraud, suspected means ofreporting The Company hasimplemented aformal Whistleblowing programme on pages60to 63. Audit Committee, isdescribed whosework are delegated to andare discharged bythe auditors,external EY. These responsibilities appropriate relationship withtheGroup’s control and for principles maintainingan andinternal apply thefinancial reporting forarrangements howitshould considering should establishformal andtransparent oftheCode isthattheBoardA principle audit External There to the Group hasbeennochange reported since 6March 2015. Shareholders rf imn nentoa iie 0966915.12 20906699 Limited International Graff Diamond ason atesLmtd2 2 1 14.99 20721 413 Lansdowne Partners Limited e imnsHlig iie 2 0 6.74 9325000 Gem DiamondsHoldingsLimited M L 7 9 5.62 7776396 FMR LLC aia ru opne n.685454.96 6855 495 Capital Group Companies Inc. lcRc 1 8 4.57 6317181 BlackRock aadAstMngmn 7 0 3.53 4874 803 Lazard Asset Management ogsBn netetMngr 3 3 3.42 4733934 Norges BankInvestment Managers PMra se aaeet448583.24 4478 598 JP Morgan Asset Management ieiyItrainlLmtd441123.22 4451 132 Fidelity Limited International aei se aaes410913.02 4180971 AssetMajedie Managers tt tetGoa dios411883.02 4171 898 State Street GlobalAdvisors who hold10.06millionshares (7%). shares shareholders (93%)and500private shareholders thathold128.21million US$0.01 each. There are 119institutional shares of 138.27 million issuedordinary The shareholder basecomprises allow themto express any concerns. number oftheGroup’s larger investors and roadshows to engagewitha quarterly The Executive Directors alsoconduct the Company anditsinvestors. good flowof reliable information between ishistasktoa regular ensure basis. a It on experts shareholders, aswell asindustry Company’s institutionalandother Glenn Turner withthe incontact keeps Board meeting. shareholders’ viewsare presented ateach of Board asawhole, andasummary and itsaffairsare communicated to the by shareholders inrelation to the Group and half-year results. Any raised concerns the Group’s announcementoftheyear-end are given bytheExecutive Directors after Company’s London office. Presentations Glenn Turner, whoisbasedatthe the ChiefLegal andCommercial Director, responsibility for investor relations isthatof shareholders abouttheCompany. The understanding oftheviewsmajor that membersoftheBoard develop an investors, whichtheBoard believes ensures to,briefings analystsandinstitutional maintains regular dialoguewith,andgives communication withitsshareholders and oneffective The Board placesimportance Dialogue withshareholders ordinary shares ordinary Number of shareholding % be inappropriate. wouldconcerns, orifsuchcontact channels hasfailedto resolve their throughshareholders normal ifcontact Director, Salamon,isavailable to Mike The Company’s SeniorIndependent www.gemdiamonds.com. through theCompany’s website at current information abouttheGroup updates; andotherpublished annual andhalf-yeartrading reports; All shareholders canaccesstheGroup’s website (www.gemdiamonds.com). andontheCompany’sNews Service announced through theRegulatory The results oftheresolutions willbe shareholders to assesstheirconcerns. how theyintend to engagewith any resolution, thedirectors willexplain ofvotes haveproportion beencastagainst theBoard considersthatasignificantIf respect ofeachresolution. as thepercentages for andagainstin to thelevel ofproxy votes received, aswell scheduledmeetingwillbeadvisedas next Shareholders attending theCompany’s theformalafter proceedings have ended. themeetingandto meetDirectorsduring shareholders are invited to askquestions Directors attend theAGM, where communicate withallinvestors. All The Code urges boards to usetheAGM to General Meeting(AGM) Constructive useoftheAnnual be heldon Tuesday, 2June2015. days before themeeting, whichisdueto to shareholders aminimum of20business of theAGM and related paperswillbesent accordanceAGM. withtheCode, In notice the AGM canbefound inthenoticeof oftheresolutionsDetails to be proposed at operation in2014. wasrecirculatedappropriate. It to each in November 2012andupdated as was mostrecently reviewed bytheBoard both theDTR andGroup policy. This policy the sametime, andinaccordance with shareholders, institutionalandprivate, at sensitive information isreleased to all toCare ensure istaken thatany price- Gem Diamonds Gem
Annual Report 2014 AnnualReport
59 48 Governance
AUDIT COMMITTEE
“The primary role of the Audit Committee is to ascertain that shareholders can rely on the financial reports of the Company by establishing that effective measures and internal controls for the oversight of the financial reporting and audit process are in place and proficiently applied throughout the financial reporting period”. – Dave Elzas, Chairman
Composition, meetings and Dave Elzas is considered to be Five meetings of the Audit Committee attendance in 2014 independent. The association of Dave Elzas were held in 2014. The Chief Executive In accordance with provision C.3.1 of the and Geneva Management Group (UK) Officer, the Chief Financial Officer and a Code, all members of the Audit Committee Limited (GMG) in no way compromises his representative of the Company’s internal should be non-Executive Directors, independence. The fees for the work and external auditors normally attend independent in character and judgement, performed by GMG for the Group are each meeting by invitation. Other Directors and free from relationships or immaterial in relation to the overall income of the Company and Senior Executives circumstances which are likely to affect, or of GMG. With his experience of running may also attend by invitation and speak, could appear to affect, their judgement. several businesses, serving as a member of but not vote, at any meeting of the The Audit Committee comprises three several boards (both private and UK listed) Audit Committee. non-Executive Directors: Dave Elzas and as a partner at GMG, Dave Elzas is (Chairman of the committee), Roger Davis regarded as having appropriate financial and Richard Williams MBE MC. experience as referred to in provision C.3.1.
Number of meetings held/ Committee members Member throughout 2014 attended 2014 DJ Elzas – Chairman √ 5/5 RW Davis √ 5/5 RJ Williams √ 5/5
The role and focus of the Audit Committee The Audit Committee’s primary role is to ensure: – the integrity of financial reporting and the audit process; and – that an appropriate risk management and internal financial control system is maintained.
By fulfilling this role, the Audit Committee assists the Board in discharging its responsibilities with regard to financial reporting, external and internal audits and controls. Additional requirements in relation to the viability of the Group and the extension of the period to be covered by the going concern statement introduced in the 2014 changes made to the Code will be assessed by the Audit Committee for further consideration by the Board during 2015.
60 Gem Diamonds Annual Report 2014 Activities oftheAuditActivities Committee during2014 – – – Financial reporting – auditors External – – Internal controls andrisk
– – – – – – – included: which were considered to beeffective. These control environment inplaceatitssubsidiaries The committee received oftheinternal reports Group’s control internal systems. management process andprofile, andthe management system, includingitsrisk Examined theeffectiveness oftheGroup’srisk directly to theAudit Committee. Group auditor, internal of afull-time reporting 2014andagreedduring ontheappointment reviewedGroup’s the auditfunction internal Approved arisk-based auditplanand internal basis. statements onagoing-concern appropriateness ofpreparing thefinancial and resources, legalmatters andthe of earnings, taxation,treasury, reserves reviewsimpairment ofgoodwill, quality includingassessmentoffairvalues,uncertainty, significant judgement,estimationor cover areasThe managementreports involving statements andbefore theaudit. approval ofthehalf-year andannualfinancial by managersacross theGroup, to prior Reviewed feedback submitted from thereports environment. auditors ontheirassessmentofthecontrol andinternal fromReceived theexternal reports
effectiveness control. ofinternal committee andtheBoard review the the statement ontheprocess bywhichthe controlinternal environment andapproved Assessed theeffectiveness oftheGroup’s financialcontrols. internal monitoring controls and allocationofresponsibilities for oftheinternal overseeing theadequacy Committee structures;and operational effectiveness ofthe Audit relevant regulators andeliminatingbribery; procedures for compliancewith ensuring whistleblowing; breaches including ofbusinessconduct procedures for fraudandserious detecting systems andcontrols;reporting budgeting andforecasting systems, financial on theGroup; andcontroloperational risks oftheirimpact procedures for identifyingbusinessand – – – – –
independence. and of auditor objectivity their effectiveness andconfirmation auditors following anevaluationof reappointment oftheexternal Recommended to theBoard the recognition. phase)andrevenueits production date’start ofwhenaminemoves into of(specifically in terms ‘production significant judgementsapplied reviews,assessment, impairment 2014 audit,includinggoing-concern Considered focus key areas for the and thefees for thesame. auditors bytheexternal undertaken toscope oftheauditwork be Agreed ontheauditapproach and – – into account: taking auditors andtheireffectiveness, Considered theindependenceof onauditfindings.Reviewed reports
the committee’s ownassessment. with theGroup’s and policy; auditors andcompliance external bythe undertaken non-audit work – – – – – –
Group’s accountingpolicies. Reviewed theappropriateness ofthe considerations onimpairment. Reviewed management’s committee. ofthe andthework uncertainties and risks management,principal risk inrelation to controls, internal Report Reviewed disclosures intheAnnual in theAnnualReport. and reviewed therelated disclosures basis accounts onagoing-concern basis for preparing theGroup andthe risk Reviewed theliquidity management statements. interim and Julyincludingthetwo announcements publishedinJanuary Reviewed thetrading thereon. judgements andtheAuditors’ Report the significant financial reporting and half-year (2014)statements and Reviewed theannualfinancial(2013) Gem Diamonds Gem
Annual Report 2014 AnnualReport 61 48 Governance
AUDIT COMMITTEE continued
Internal controls and risk External auditors Financial reporting
– Ensured that there is a system of control in – Adhered to the Financial Reporting – Assisted the Board in assuring the place for identifying and managing risk in the Council’s consultation of audit firm integrity of the financial statements Group. The Board, through the Audit rotation, and their rotation of audit which the Chief Executive Officer and Committee, reviewed the systems that have partners. As such, there is no Chief Financial Officer have certified been established for this purpose, including intention of considering their as representing a true and fair view of whether the processes continued to meet replacement. the Group. evolving external governance requirements. – Managed the relationship with the – Evaluated the effectiveness of the – Considered and approved the structure, scope external and internal auditors Group’s internal control over financial of cover and renewal terms of the Group’s covering terms of engagement, reporting based on the established insurance programme. remuneration and effectiveness. framework and criteria. No material – Reviewed matters reported to the external weaknesses in the Group’s internal whistleblowing hotline and reports on the controls over financial reporting were findings of the investigations. There were no identified by management. matters reported which were considered significant. – Evaluated the performance of the committee and its terms of reference. – The Board conducted reviews of the effectiveness of the Group’s systems of risk management and internal controls in accordance with the UK Corporate Governance Code (including the Turnbull Guidance). These covered financial, operational and compliance controls and risk assessment. Management presented an assessment of the material business risks facing the Group. The reviews were overseen by the Audit Committee, with findings and recommendations reported to the Board where appropriate. In addition, the Board received an assessment of the effectiveness of internal controls over key risks identified through the work of the Board committees. The Board was satisfied that the effectiveness of the internal controls was properly reviewed. – Reviewed foreign exchange management, including investment hedging and related foreign exchange exposure. – Reviewed litigation matters affecting all Group Companies, monitored their status and progress and, where appropriate, made recommendations regarding future action. – Received routine reports on cash management (including the negotiation of committed facilities) to ensure adequate resources were available for future trading and capital expenditure, and to underpin the going- concern assumptions.
62 Gem Diamonds Annual Report 2014 – – addressed, were: 2014 accounts, andhowthesewere by the committee inrelation to the areas ofjudgementconsidered primary professional particular, scepticism.In the their auditandhowtheyhave exercised them bymanagement,independenceof ofscopeplacedon has beennorestriction thattherewith management,confirmation oftheauditors’transparency interactions include, butare notlimited to, the thesemeetings discussedduring Matters – – – the following: separate meetingswere heldwitheachof Following eachAudit Committee meeting, management Meetings withauditors and
Ghaghoo. date of relation to theproduction start judgements applied, specificallyin accountingestimates and Critical to thecommittee.reporting and accordingly EYprovides detailed source ofauditfocusarea isaprimary approved bytheBoard. addition,this In plan isthemostsignificant, whichis assumptions used, ofwhichthebusiness management outliningthebasisfor the through from receiving reports The committee addresses thesematters judgements. assumptions are primary valuation process andgoingconcern the economic assumptionsunderlying businessplanandmacro- long-term theachievementconcern, ofthe test. For andgoing bothimpairment assumptions usedintheimpairment existandthekey impairment assessment ofwhetherindicators of largelyimpairment relate to the The judgementsinrelation to asset and equipmentgoodwill: testing ofproperty, plant Impairment the Executive Management. auditors;internal and auditors; external –
reporting we receivereporting from EY. addressing thosematters through the effectiveness oftheaudit process in estimates. The committee assessesthe management’s assumptionsand bytheauditors to test performed committee challengesthework are throughout tracked the year andthe risks. assessment ofthekey These risks detailed auditplanidentifyingits provides theGroup witha EY further from EYonthismatter.reporting receives andwritten detailedverbal andaccordinglyaudit risk thecommittee streams. This isalsoanarea ofhigher on theaccountingofallrevenue appropriateness ofmanagement’s views process ofchallenging the from managementanda reporting these issuesthrough arangeof arrangements. The committee addresses rough diamondssoldinto partnership elementwithregardson theuplift to rough diamondsalesandinparticular rewards of ownershiptransfer onall and thetimingofrisks determining relation to revenue recognition isaround Revenue recognition: The judgementin to thecommittee. reports written accordingly EYprovides and verbal source ofauditfocus and a primary management’s view. addition,thisis In challenging theappropriateness of management andaprocess of from through arangeofreporting The committee addresses theseissues asset commences. costs ceasesanddepreciation ofthemine mineconstruction capitalisation ofcertain the productionphaseatwhichpoint ready for itsintended useandmoves into the mine issubstantiallycomplete and isconsidered criteria to assesswhen project. construction Various relevant by the uniquenature ofeachmine’s date are determined to assess thestart phase.its production used The criteria moves phaseinto from itsconstruction date’start isto whenamine determine The judgementinrelation to ‘production compromise theauditors’ independence. whichcould that there isnoconflict consciousofensuring the Company isvery When commissioningnon-auditservices, auditfees.external representing approximately 33%of auditfeesexternal ofUS$0.6million US$0.2 million intotal. This wasagainst The fees for amounted suchwork to auditors.to the external Committee detailingnon-audit fees paid Periodic are madeto reports theAudit withauditor independence.conflict that are notin provide non-auditservices auditors areThe external to permitted by the Auditing Practices Board. Ethical Standards for Auditors published the requirements oftheCode and the that theCompany isincompliancewith auditors,by theexternal whichensures ofnon-auditwork theconduct governing The Audit Committee hasaformal policy non-audit work Auditors’ independence and Company’s AGM on Tuesday, 2June2015. remuneration will beproposed atthe auditor’s theexternal determine theBoardauthorise to reappoint and was appointed in2011.Resolutionsto anewleadauditpartner with thispolicy five In accordance years.appointed every be requires thatanewleadauditpartner for which rotatingpolicy auditpartners, maintaining independence, includingits includes areview ofEYpoliciesfor Company’s AGM in2015. This assessment auditor in2006)until theconclusionof (which wasfirstappointed asthe Company’s to shareholders thereappointment ofEY recommendation to theBoard to propose its independence underpins auditor’s andits external performance The Audit Committee’s assessmentofthe Recommendation ofauditor Gem Diamonds Gem
Annual Report 2014 AnnualReport 63 48 Governance
NOMINATIONS COMMITTEE
“The Nominations Committee continued its work of ensuring that the Board and committee’s composition is correct and that there is the appropriate balance of skills, knowledge, experience and independence to ensure their continued effectiveness in supporting our strategy”.– Roger Davis, Chairman
Number of meetings held/ Committee members Member throughout 2014 attended 2014 RW Davis – Chairman √ 4/4 M Salamon √ 4/4 CT Elphick √ 4/4
Composition, meetings and – Making recommendations to the criteria and gender balance that are in line attendance in 2014 Board regarding the composition of with the Board’s aspiration. Recognising The Nominations Committee comprises the Nominations Committee and the that Directors with diverse skill sets, two non-Executive Directors and one composition and chairmanship capabilities and experience, gained from Executive Director. The committee’s terms of the Audit, Remuneration and different geographic and cultural of reference provide for a formal and HSSE Committees. backgrounds, can enhance the Board’s transparent procedure for the committee – Identifying and making effectiveness, the Nominations Committee to follow in discharging its responsibilities. recommendations to the Board continues to encourage and support a The committee has responsibility to regarding candidates for appointment as diversity of business skills and experience. identify, evaluate and recommend Directors, which includes considering Details, including the proportion of women candidates for Board vacancies and to succession planning and the leadership in senior management, can be found in the make recommendations on Board needs of the Group. “Attracting, retaining and developing our employees” section of the Sustainable composition and balance. Four meetings – Overseeing the performance evaluation Development Review on page 41. were held in 2014. All recommendations of the Board, its committees, and for Board appointments are made on individual Directors. Activities of the Nominations merit and against objective criteria. No Committee during 2014 The Board acknowledges that diversity appointments were made in 2014. The Nominations Committee in 2014 extends beyond the boardroom and deliberated upon: The role and focus of the supports management in its efforts to Nominations Committee build diversity throughout the Group. It – succession planning for all Directors and The key objective of the Nominations endorses the Group’s policy to attract and Senior Executives; Committee is to ensure that the Board of develop a highly qualified and diverse – the composition of various committees; the Company comprises individuals with the workforce, to ensure that all selection and requisite skills, knowledge and experience. decisions are based on merit and that all – the effectiveness of the Nominations This enables the effective discharge of the recruitment activities are fair and non- Committee. Board’s responsibilities, which includes discriminatory. The policy acknowledges supporting the Group’s strategy. the contribution of diversity, including In the year ahead, the committee will gender, to the effective functioning of the continue to assess the Board’s composition, Responsibilities include: Board. When recruiting additional Directors as well as evaluating the composition of – Leading the process for identifying and and/or filling vacancies which arise when various committees. It will also continue to making recommendations in relation to Directors do not seek re-election, the monitor developments in corporate the structure, size and composition of Nominations Committee will seek to governance, to ensure the Group remains at the Board, including its diversity and appoint new Directors who fit the skills the forefront of good governance practices. balance of skills, knowledge and experience as well as the independence of non-Executive Directors.
64 Gem Diamonds Annual Report 2014 – The committee achieves thisby regularly: they remain effective andcurrent. and are continuouslyreviewed to ensure bestpractice accountofinternational take legislation. The policiesandprocedures being legallycompliantwithallrelevant accordance withthesepoliciesaswell as throughout outin theGroup iscarried social andenvironmental matters that themanagementofhealth,safety, by theBoard have beenimplemented and that thepoliciesandguidelinesapproved committee isto give theBoard assurance The overall role ofthe andresponsibility HSSE Committee The role andfocus ofthe licence tooperate”. our stakeholders andthecommunities inwhichwe operate, ensures oursocial first, beingenvironmentally responsible, legally compliant andadding value to embedded throughout alllevels intheorganisation. Putting healthandsafety tasks andconditions sothatsafeworking procedures are implementedand be our firstpriority. striveWe toidentify andmitigatepotentiallyhazardous “ HSSE COMMITTEE
The safety andwell-being ofouremployeesThe safety andcontractors continues ETre 4/4 4/4 4/4 √ √ √ Memberthroughout 2014 GE Turner M Salamon GA Beevers –Chairman Committee members international bestpractice; international minimum requirements and accountof theytake and ensuring HSSEpoliciesandguidelines,monitoring –
Gavin Beevers,Gavin Chairman – – – –
performance againstthesetargets; performance to HSSEmatters the andmonitoring indicators withregard performance key recommending to theBoard theGroup’s reputational risk; onemployees, and impact third parties includingthe consequences andactions causative factors,considering reviewing significant incidentsand ofHSSE; aspects withrespect to all risks, particularly management’s approach to managing assessing theeffectiveness of with HSSE; requirementspractice associated best andinternational regulatory compliance withapplicablelegal, assurance to the Board ontheGroup’s having oversight ofandproviding Group’s HSSEpoliciesandprocedures. assessment oftheeffectiveness ofthe matters attheoperationsto assistintheir andthemanagementofHSSE practices ofcurrentknowledge gather first-hand visited theGroup’s operationsinorder to 2014,membersoftheHSSECommittee In during 2014 oftheHSSECommitteeActivities – – –
key globalHSSEissues. key providing theBoard with guidanceon assets oremployees; and relevant to theGroup’s operations, its matters whichmaysustainability be developments, HSSEtrends and to theBoardreviewing andreporting necessary; HSSE matters andapproving theseas andpublicdisclosures on regulatory reviewing theGroup’s reporting, external Gem Diamonds Gem Number ofmeetingsheld/
attended 2014 Annual Report 2014 AnnualReport to 65 48 Governance
HSSE COMMITTEE continued
Specific activities of the HSSE Committee in 2014 included the following:
Health Safety Social Environment Governance
– Reviewed reports on – Reviewed the – Identified material – Reviewed key – Reviewed reports on project affected implementation of social governance sustainability-related the Group’s key communities and the strategic plan to risks and addressed risks and associated indicators and trends. employee health improve safety. the risks through the mitigation plans. – Reviewed changes to indicators and trends. – Monitored the implementation of – Reviewed reports on local and international – Monitored the implementation of effective mitigation key environmental best practice effectiveness of Behaviour Based measures as per the indicators and trends. guidelines on safety, Group’s policies and on-site clinics at Safety programmes – Recognised the health and guidelines. Letšeng at the mines in importance of environmental and Ghaghoo. Botswana – Received reports from safeguarding the governance. – Reviewed the and Letšeng. and interviewed quality of water at the – Considered changes effectiveness of health – Received reports accountable Group’s operations to the Global risk mitigation from, and interviewed managers on and initiated water Reporting Initiative strategies at the mine accountable implemented impact mitigation reporting standard sites in Botswana managers on, all community measures in order to and agreed the and Letšeng. serious safety development address the upward indicators to be incidents. initiatives. trending levels of disclosed in the – Reviewed reports on – Reviewed reports on contaminants in 2014 Sustainable investigation into root project affected process water at Development Report. causes of all serious community socio- operations. safety incidents to economic indicators – Identified material avoid similar future and trends. environmental risks incidents. – Monitored the and ensured that the – Reviewed reports on implementation at risks were adequately key safety indicators operational level of addressed through and trends. corporate social the implementation investment plans at of effective mitigation – Recognised the risk the mines in Botswana measures as per the associated with water and Letšeng. Group’s policies and and slimes storage guidelines. facilities; ensured that the risk is mitigated at – Reviewed reports on operational level the Group’s key through the indicators and trends. implementation of specialist research recommendations. – Recognised the risk associated with the use of contractors and ensuring that the correct measures were developed and implemented at operational level to mitigate this risk, including the further development and implementation of a contractor safety system, which ensures contractors follow approved systems and practices as required by the Group.
66 Gem Diamonds Annual Report 2014 June 2014. were made to theExecutive Directors in the 2014AGM, andawards of75%salary period. Shareholders approved theplanat measured over performance athree-year objectives,and production andwillbe FTSE 350miningcompanies, andprofit versus on total shareholder return (TSR) shares, andwillvestperformance based in from 100%to 125%ofsalary hasbeenincreased award opportunity and subsequentyears, themaximum mining sector. For awards madein2014 reflect recent remuneration trends inthe resilient to uncontrollable factors, andto aligned withtheGroup’s strategy, more theplan’smake more criteria performance in 2014,andmadeanumberofrevisions to committee concludedareview of theESOP As disclosedinlastyear’s the report, Group performance. incentive outcomes where by warranted downwards discretion indetermining andexerciseoverall performance, which theGroup operates andtheGroup’s level in to reflect thecompetitive markets atanappropriate remuneration package the long term. We seekto setthetotal andshareholder term returns in short targets inthe non-financial performance achievement ofdemandingfinancialand to the islinked remuneration package ofthetotal A substantialproportion sustainableshareholderlong-term returns. sustainable growth andmaximise ourbusinessstrategy to achieve support PolicyOur Remuneration isdesigned to theyear.during byto the thecommittee decisions taken ease ofreference andto provide context AGM, andisreproduced infullfor both approved byshareholders atthe2014 to 75,remains consistent withthat Remuneration Policy, detailedonpages68 onRemuneration.Our Annual Report Directors’ RemunerationPolicy andthe three theAnnualStatement, the sections: linewithlastyear,In issplitinto thisreport Directors’ for 2014. RemunerationReport present theRemunerationCommittee’s On behalfoftheBoard Iampleasedto Dear shareholder, Chairman’s statement “ shareholders atthe2014AGM.” shareholder returns. TheDirectors’ Remuneration Policy was approved by to achieve sustainablegrowth andmaximiselong-termsustainable ANNUAL STATEMENT ON DIRECTORS’ REMUNERATION Our remuneration policy is designed to support ourbusinessstrategy,Our remuneration isdesignedto support policy M Michael waspromotedM Michael to theChief increases across theGroup.salary of applyinginflationasabase practice for an increase of3%,inlinewiththegeneral Chief Financial Officer, M Michael, received reviewed in March 2015,andallsave the The Executive Directors’ were salaries atthattime. practice expires, policy based onprevailing market clawback provisions whenthecurrent review theappropriateness ofmalusand be effected atthistime. Thecommittee will and itwasagreed thatno changeswould ofimplementingtheseprovisionsmerits professional adviceandguidanceonthe Remuneration Committee sought Executive Directors’ incentive plans. The post-vesting clawback provisions for adjustments(malus)and performance companies introduce pre-vesting changes to theCode recommending that introduced September 2014,theFRC In Other Pension equivalent contribution Annual bonuses Benefits Basic salaries Non-Executive Director fees ESOP 3 2 1 pensions, bonuses andESOP Total Group basesalaries, benefits, Total ofallDirectors Directors Total remuneration ofExecutive as follows: Executive Directors. As such,theremuneration outcomes for theDirectors for theyear were oftheyear interms personal objectives were strong, 100%ofmaximumfor scoring allthe andtheachievement of targetsgrowth, andHSSEperformance operatingperformance For 2014,boththeachievement oftheannualbonusscorecard of interms objectives retired 2013andreceivedKM Burford on1April alumpsumpaymentof£341578equivalent to12months’ ESOP: value atvesting ofawards over vesting 2013 onperformance thethree-year periodended31December The detailby can individualDirector befoundonpage77. (for ESOP 2011) and 31 December 2014(forESOP 2012)(thelatterlapsedinfullMarch(for ESOP2011)and31December 2015). to the payments in lieu of annual leave entitlement are disclosed in the 2013 Annual Report onRemuneration. to thepaymentsinlieuofannualleave Report entitlementare disclosedinthe2013Annual received £26765and£57148,respectively, inlieuofannualleave entitlementin2013.Further detailspertaining leaving. He alsoreceived £65688inlieuofannualleave andGETurner entitlementinrelation to2012.MMichael pension;andbenefits)£56492inlieuofannualleave entitlementatdateof notice period(basesalary; 3 2
– Richard Williams,– Richard MBEMC,Chairman
16 March 2015 Committee Chairman oftheRemuneration Richard Williams, MBE MC attheAGM.receive your support feedback from shareholders and hopeto AGM. forthcoming We continueto value vote atthe to anadvisory be subject onRemuneration will The AnnualReport market. more inlinewith hissalary and to bring and significant to thebusiness contribution inhisrole continued strong performance increase to hissalary, which reflects his committee awarded a25.5% M Michael Company For 2015, performance. the development inthe role to and subject year to reflect hisdemonstrated would beincreased each that hissalary in2013,anditwasintended level salary Financial roleonabelow-market Officer 13 565919 1290258 1 083883 2 933672 2 623672 174306 310000 75225 2014 Gem Diamonds Gem £ – –
1 1 3 1 1.7 13332710 129501.6 1269560 30546 (4.3) (4.8) 3065466 2755466 1140 1.7 171470 7842 42.9 758422 3000 0.0 310000 4193 (100.0) 481983 7 3 1.6 74031 2013 Annual Report 2014 AnnualReport £%change £ 0.0 –
67 48 Governance
DIRECTORS’ REMUNERATION POLICY
The Company’s remuneration policy is designed to provide a level of remuneration which attracts, retains and motivates executives of a suitable calibre to carry out the Company’s business strategy and maximise long-term shareholder wealth.
The report has been prepared in which the Company operates and will be benefits that are fair, and variable pay accordance with the principles of the aligned with shareholder interests and incentives linked to the achievement Companies Act 2006 and Schedule 8 of promote effective management of of realistic performance targets relative The Large and Medium-sized Companies business risk. to the Company’s strategy and and Groups (Accounts and Reports) corporate objectives. The committee takes into account the UK (Amendment) Regulations 2013. The Listing Rules (UKLA), the principles and The Directors’ remuneration policy was put Regulations require our auditors to report provisions of the Code and the guidance to shareholders for approval in a binding to shareholders on the audited information provided by institutional investor vote at the AGM in 2014, and having within this report and to state whether, in representative bodies in determining received 95% support formally came into their opinion, the relevant sections have executive remuneration arrangements. In effect from 10 June 2014, the date of the been prepared in accordance with the Act. deciding on the appropriate structure and AGM. The report below is as disclosed in The auditors’ opinion is set out on pages 93 quantum of remuneration, the committee the 2013 Directors’ Remuneration Report to 95 and we have clearly marked the reviews remuneration practices at save a number of minor changes as audited sections of the report. comparator companies, comprising mining follows: The Company’s companies and UK-listed companies of a – references to financial years have been similar size and complexity, to ensure updated where appropriate; remuneration policy remuneration policies reflect, as The Company’s remuneration policy is – pay-for-performance scenario appropriate, prevailing industry and market designed to provide a level of charts have been updated to reflect conditions. Furthermore, remuneration remuneration which attracts, retains and 2015 salaries; and policies have taken, and will continue to motivates executives of a suitable calibre to take account of pay and employment – approach to remuneration on carry out the Company’s business strategy conditions elsewhere in the Group. recruitment has been updated for and maximise long-term shareholder the clarification note released wealth. It is intended that, as far as possible, The committee’s policy is to weight following publication of the remuneration policies and practices will remuneration towards variable pay. Directors’ Remuneration Report and conform to best practice in the markets in The aim is to provide base salaries and prior to the AGM.
68 Gem Diamonds Annual Report 2014 Executive Directors oftheCompanyRemuneration policy Salary Benefits Element – – strategy Purpose andlink to
business strategy. execute theCompany’s calibre to necessary individuals ofthe to recruit andretain competitive basesalary To offer amarket simple andconsistent. remunerationto keep the Company’s strategy population, inlinewith management to thewider UK role andbenefitsoffered valueof account market into benefits taking To provide competitive – – – – prto potnt Performance measures Opportunity Operation
wider workforce. reviews for the salary the overall approach to notecommittee of takes Executive Directors, the for settingsalaries In performance. role, andindividual progression withinthe of eachindividualrole, profile, the responsibilities andrisk complexity of asimilarsize, levels incompanies salary the considering after areset Salaries typically 1 April. changes effective from reviewed annually, with areBase salaries benefits. in lieuofnon-cash receive acashallowance Executive Directors – – – – –
competitive. levels remain salary higher increase to ensure discretion to award a the committee has progression intherole), or complexity, or responsibility, role size there isachangein (for examplewhere circumstances certain In environment. a similarinflationary workforce of incountries those ofthewider inlinewith terms) salary be (inpercentage of Directors willordinarily increases for Executive thatsalary isexpected It annual increase. No prescribed maximum premiums). increase ininsurance example relocation or circumstances (for in exceptional approve ahighercost retains discretion to though thecommittee ofthispolicy,term exceed thislevel over the the costofbenefitswill isnotanticipated that It respectively. other Executive Directors and Executive Officer for theChief salary 5.5% and6%ofbase 2014 rangedbetween benefits received during by role; thevalueof Benefit valuemay vary Gem Diamonds Gem
N/A N/A Annual Report 2014 AnnualReport 69 48 Governance
DIRECTORS’ REMUNERATION POLICY continued
Purpose and link to Element Operation Opportunity Performance measures strategy Pension – To provide retirement – No formal pension – Executive Directors N/A benefits that are provision is made by the receive a cash allowance appropriately Company. in lieu of pension which competitive. is currently equivalent to 14.5% and 13.0% of base salary for the Chief Executive Officer and other Executive Directors respectively. – It is not anticipated that the cash allowance in lieu of pension will exceed this level over the term of this policy, though the committee retains discretion to approve a higher cost if deemed appropriate. Annual – To drive and reward – The executive incentive – Maximum opportunity – Performance is bonus performance against scheme is reviewed of up to 100% of base determined by the personal objectives and annually by the salary. committee on an annual basis by reference to a selected financial and committee at the start of – For threshold level and operational KPIs which the year to ensure the scorecard of Group target level performance, targets as detailed in the are directly linked to opportunity and the bonus earned is 50% Group’s business plan business strategy. performance measures and up to 68% of and encapsulated in are appropriate and maximum opportunity, specific KPIs as well as a continue to support respectively. discretionary assessment business strategy. of personal performance. – The committee has – Group scorecard targets discretion to adjust the may include growth formulaic outcome of (incorporating Letšeng the bonus to more growth plans; Ghaghoo accurately reflect development; M&A business and personal activity including associated financing), performance during which is judged by the the year. committee on a – The annual bonus is paid discretionary basis, HSSE entirely in cash. and operating performance, and will typically be weighted at least 70% in any one year. – Details of the measures and weightings for the current year are provided in the Annual Report on Remuneration.
70 Gem Diamonds Annual Report 2014 (ESOP) Option Plan Share Employee Element – strategy Purpose andlink to
appropriate calibre. executives ofthe retain andmotivate shareholders, andattract, alignment with support in thelongterm, returns to shareholders of absolute andrelative To balancethedelivery – – – – – – prto potnt Performance measures Opportunity Operation
those awards thatvest. would bepaid onlyon vesting and period would accrueover the any dividendspaid For shares, performance onRemuneration. Report following year’s Annual explained inthe would bedisclosedand Any suchdiscretion awards undertheESOP. final vesting outcome of the when determining factors any external of consider theimpact The committee will ofthispolicy.term shares are madeover the awards ofperformance committee thatonly current intention ofthe year to year, butitisthe shares andoptionsfrom the ratioofperformance The committee may vary the committee. deemed appropriate by be madeatothertimes full-year results butmay announcement ofthe the made annuallyafter Awards are normally performance. three years basedon vest aminimum of after by thecommittee, which or optionsasdetermined shares and/ performance granted awards of Executive Directors are – –
maximum award vests. 20%ofthe performance, For threshold shares). performance in 125% ofsalary fair valueequivalentto overall maximumwith to options (subject 250% inperformance shares and performance in up to 125%ofsalary is opportunity Maximum Gem Diamonds Gem
– –
underlying performance. underlying of theCompany’s committee’s assessment to the subject Vesting isultimately also committee. bythe determined objectives, as such asHSSEorstrategic additional measures awards include but may for future profit andproduction, be basedonrelative TSR, measures performance intention thatthe the committee’s current is three-year period. It over a performance and theCompany’s continued employment Awards vest basedon Annual Report 2014 AnnualReport 71 48 Governance
DIRECTORS’ REMUNERATION POLICY continued
Notes to policy table Below Board level Senior Management pay under three performance scenarios: Payments from existing participate in an annual bonus scheme on ‘fixed’, ‘at target’ and ‘maximum’. Potential arrangements a similar basis as the Executive Directors, remuneration is based on the policy that Executive Directors will be eligible to although the more senior the individual, will apply in 2015, applied to the salaries receive remuneration or other payment in the higher the weighting on Group effective 1 April 2015. For the annual respect of any award granted or payment performance measures. A number of bonus, the amounts illustrated are those agreed prior to the approval and Senior Management also receive ESOP potentially receivable in respect of implementation of the policy, or prior to awards. Performance conditions and award performance for 2015 (ie a maximum the individual becoming a director. sizes vary to be appropriate to the of 100% of salary). ESOP values are Such payments include awards made to organisational level. based on the proposed number of shares to be awarded in 2015 and the M Michael under the 2007 LTIP and under Pay for performance: scenario average share price from 1 October 2014 the ESOP prior to his appointment to the analysis to 31 December 2014 of 172.2p. Note that Board in 2013, awards made to other The following graphs provide an estimate the projected values exclude the impact Executive Directors under the ESOP prior to of the potential future remuneration for of any share price movements and the revisions being proposed at the 2014 the Executive Directors and the potential dividend accrual. AGM, as well as payments in lieu of annual split between the different elements of leave entitlements under the previous policy on annual leave entitlements. Chief Executive Officer Chief Financial Officer Details of any such awards or payments are disclosed in the Annual Report (£000) on Remuneration. 1 400 £1 396k Selection of performance 1 200 (£000) 28% £934k measures (bonuses and ESOPs) 1 000 1 000 £950k
The performance measures used in the 800 9% 800 £620k
Company’s executive incentive scheme 33% £545k 600 33% 600 have been selected to ensure incentives 9% £357k reinforce the Company strategy and 400 400 31% 58% 39% align executive interests closely with those 200 100% 200 38% 58% 33% of shareholders. 100% 0 0
Performance targets are set to be Fixed Fixed At target At target Maximum stretching and achievable, taking into Maximum account the Company’s strategic priorities and the economic environment in Chief Operating Officer Chief Legal and Commercial Officer which the Company operates. Targets are set taking into account a range of reference points including the Group’s (£000) (£000) £1 030k business plan. The committee believes that 1 000 1000 £960k the performance targets set are adequately 800 £688k 800 stretching, and that the maximum £628k 600 9% 600 outcomes are achievable only for 9% £401k 33% 28% £362k exceptional performance. 400 400 32% 30%
200 200 39% 58% 33% 100% 58% 33% Remuneration policy for other 38% 100% employees 0 0
The approach to salary reviews is Fixed Fixed At target At target Maximum consistent across the Group, with Maximum consideration given to the level of Q Salary, pension and benefits Q Annual bonus responsibility, experience, individual Q Long-term incentives performance, market levels and the Company’s ability to pay.
72 Gem Diamonds Annual Report 2014 The tablebelow provides detailsofexitpayments underdifferent leaver scenarios. rate atthepointoftermination. salary Benefits are payable onlyatthecommittee’s discretion. Payment inlieuofunusedannualleave entitlementcanbemadeatthee anExecutiveIf Director’s theno inlieuofnoticecanbemademonthlyduring isterminated, contract payments equalto salary Payments for lossofoffice underallservice contracts Executive Directors world-class necessary to secureappropriate the while seeking committee willpay nomore thanis individual oftheappropriate calibre. The to enabletherecruitment ofan necessary if remuneration thatisoutsideofthepolicy table, butretains thediscretion to offer assetoutinthepolicy remuneration policy followcommittee willtypically theexisting recruiting new ExecutiveIn Directors, the executive recruitment Approach to remuneration on of allincentives. remuneration, plusfullpayout/vesting The ‘maximum’ includes fixed scenario and 20%vesting undertheESOP. payout of68%maximumannualbonus remuneration asabove, plusatarget The ‘at target’ includesfixed scenario pension andbenefitsonly. The ‘fixed’ includesbasesalary, scenario netv lnSeai ieo amn/etn Calculation of payment/vesting Time ofpayment/vesting Scenario Annual bonus Incentive plan 12months 2 Notice period Rollingcontract Unexpired term 1 13February 2007 Contract date Elphick CT Directors ETre uy20 oln otat12months 12months 12months Rollingcontract Rolling contract Rollingcontract 1March 2008 1July2008 2013 22April AR Ashworth GE Turner M Michael There are nospecialprovisions inthecontracts extendingthenotice periodonachangeofcontrol orothercorporate events. At theRemuneration Committee meetingheldon4March 2013andafterhavingreviewed market practice companies ofFTSE-listed Director). ThisrevisionDirector). tookeffectasof1March 2013. mining sector, thecommittee approved theextensionofnotice periodfortheExecutive to12months(bothfrom Directors th – – –
performance). there are asto concerns including resignation or where not (normally determine other reasons thecommittee may redundancy, retirement, orany disability,Death, illhealth, l te esn All otherreasons a result). not employmentisterminated as Change ofcontrol (whetheror buy-out awards butmaybuy-out alsoexercise its such to make under theregular policy would usetheremuneration components oftheseawards.period The committee being met,andtheremaining vesting these awards, ofconditions thelikelihood conditionsattachedto the performance into including accountfactors basis taking compensation would beonacomparable current employer. Any suchbuy-out the Director onleaving forfeits his/her compensate for incentive arrangements committee may consider it appropriate to hello’ would beoffered, althoughthe envisage apayment suchasa ‘golden table. policy The committee doesnot inthe be cappedatthelimitsdescribed established to recruit anindividualwould Director, any specifically arrangement ExecutiveOn appointmentofanexternal and create valuefor shareholders. required to deliver theCompany’s strategy – – –
nlgbe Ineligible On changeofcontrol. death). accelerate (eginrelation to the committee hasdiscretion to payment date,Normal although 1 Contractual termination payment discretion. are payable onlyatthecommittee’s Benefits termination. Pay onsummary salary in thetablebelow. Directors’ are contracts summarised service incentive plans. oftheExecutive Details employee, aswell astherulesofany theCompany between contract andthe in accordance oftheservice withtheterms compensation payable willbedetermined Executive Director isterminated, any theevent thattheemployment ofan In arrangements. contractual pre-established paymentstermination to ontermination The Company’s isto limit policy contracts Service policy, willbehonoured. and theapproval oftheremuneration to promotioncommitments madeprior promotions, thecaseofinternal In any required. alternative incentive was structure discretion underListingRule9.4.2ifan – – –
N/A time. any resulting bonusispro rated for the date ofchangecontrol and assessed bythecommittee upto Performance againsttargets willbe of theyear worked. bonus ispro rated for proportion end oftheyear andany resulting assessed bythecommittee atthe Performance againsttargets willbe Gem Diamonds Gem
e Company andfrom the andothercompanies inthe Annual Report 2014 AnnualReport tice period. ffective 2 73 48 Governance
DIRECTORS’ REMUNERATION POLICY continued
Incentive plan Scenario Time of payment/vesting Calculation of payment/vesting
ESOP – Death, disability, ill health, – Normal vesting date, although – Unvested awards will be pro rated redundancy, retirement, or any the committee has discretion to for time unless the committee other reasons the committee may accelerate. decides otherwise, and based on determine (normally not performance. including resignation or where there are concerns as to performance). – Change of control (whether or – On change of control. – Unvested awards will be pro rated not employment is terminated as for time unless the committee a result). decides otherwise, and based on performance up to the date of change of control. Executive Directors can elect to exchange ESOP awards for those of the acquiring company, if offered. – All other reasons.– Awards lapse.– N/A
Non-Executive Directors Non-Executive Directors do not receive benefits from the Company and they are not eligible to participate in any bonus or share incentive scheme.
Details of the policy on non-Executive Director fees are set out in the table below.
Purpose and link to strategy Operation Opportunity
– To attract and retain a high-calibre – Fees are reviewed annually, with any – No prescribed maximum annual Chairman and non-Executive Directors changes effective from 1 April. increase. with experience relevant to the – Fees are typically set after considering – It is expected that fee increases will Company. current market levels and taking into typically be in line with market levels of account time commitment and fee inflation. responsibilities involved. – In certain circumstances (for example – All non-Executive Directors, including where there is a change in time the Chairman, are each paid an all commitment required or a material inclusive fee. No additional fees are paid misalignment with market), the for chairmanship of committees. committee has the discretion to make – All fees are payable in cash in arrears. adjustments to fee levels to ensure they remain competitive. – The non-Executive Directors do not participate in any of the Group’s incentive plans. No other benefits or remuneration are provided to non- Executive Directors.
On appointment, a new non-Executive Director’s fees would be on the same basis as that disclosed above.
74 Gem Diamonds Annual Report 2014 advance ofany significant changes to undergoing shareholder consultationin andcommitsto remuneration policy from shareholders ontheCompany’s The committee always welcomes feedback shareholder views Considerations of remuneration. Executivedetermining Director Group, theseinto accountwhen andtakes conditions for employees around the Chief Financial onthe pay Officer policy, itreceives regular updates from the employees ontheexecutive remuneration currently consultspecificallywith Although thecommittee doesnot remuneration for Executive Directors. the Group whendetermining and employmentconditionselsewhere in The committee considerstheremuneration the Group conditions elsewhere in Considerations of included below. for andnoticeperiods detailsofterms non-ExecutiveNon-Executive Directors contracts. Summary Directors donothave service Non-Executive Directors’ appointment terms ietr otatdt nxie emNtc eidContractual termination payment Notice period Unexpired term Contract date Directors WDvs1Fbur 07Rligapitet Three months Rollingappointment 1February 2007 Davis RW JEzs1Fbur 07Rligapitet Three months Rollingappointment 1February 2007 DJ Elzas ABees1Fbur 07Rligapitet Three months Rollingappointment 1February 2007 GA Beevers amn3Fbur 08Rligapitet Three months Rollingappointment 3February 2008 M Salmon JWlim eray20 oln ponmn Three months Rollingappointment 3February 2008 RJ Williams 16 March 2015 Chairman oftheRemunerationCommittee Richard Williams, MBEMC details. further the Executive Director. Refer to page85for appointments, thesewould beretained by are payable inrespect ofsuch development oftheindividual. Where fees gained willbebeneficial to the Group’s andtheexperience activities present ofinterest aconflict withthe given where theappointmentdoesnot Approvalof theChairman. willonlybe approval directorships withprior external Executive Directors are to permitted accept directorships External on Remuneration. AGMprior isprovided intheAnnualReport the Directors’ atthe RemunerationReport policy. onthevotes Detail received on compensation No provision for payment of Gem Diamonds Gem
Annual Report 2014 AnnualReport are 75 48 Governance
THE ANNUAL REPORT ON REMUNERATION
Composition of the Remuneration Committee During the year, activities undertaken by The committee comprises the following members: the committee included: – approving the Directors’ Remuneration Member Number of meetings Committee members throughout 2014 held/attended 2014 Report for 2013; RJ Williams – Chairman √ 4/4 – agreeing the basis of the award of annual bonuses; RW Davis √ 4/4 – reviewing share plan performance; DJ Elzas √ 4/4 – reviewing changes to performance M Salamon √ 4/4 measures and targets of the ESOP applicable to grants made to all participants; The Chief Executive Officer and the Chief – review the design of all share-based – reviewing Senior Management Financial Officer attend committee incentive plans and approve the awards remuneration in light of developments meetings by invitation and assist the to be made; in best practice and market trends; committee in its deliberations except when – determine the basis for calculating – reviewing and approving the base salary issues relating to their own remuneration bonuses payable to the Executive and benefits of the Chairman, Executive are discussed. Representatives of Kepler Directors and Senior Management; Associates also attend the meeting by Directors and Company Secretary; – make recommendations to the Board on invitation. – setting and approving targets for 2014 the fees offered to the non-Executive cash bonuses applicable to Executive Directors; and Role of the Remuneration Directors and Senior Management; – consider major changes in employee Committee – reviewing share awards for the Executive remuneration in the Group and select The committee is a formal committee of Directors; and and appoint consultants to advise the the Board. Its terms of reference are committee. – reviewing operating unit incentive plans. available on the Company’s website and conform to the Code. The committee’s policy is to encourage an Advisers to the committee open and transparent dialogue with The committee’s main responsibilities are to: Kepler Associates appointed by the shareholders on remuneration matters and committee in February 2010 provided – consider and agree on the Company’s would seek to consult with major independent remuneration advice to the executive remuneration policies for shareholders prior to implementing any committee and attended committee adoption by the shareholders at significant changes to the remuneration meetings during 2014. Kepler Associates the AGM; policy. provide remuneration advice to a large – determine individual remuneration portfolio of clients including many in the packages for the Chairman, the Activities of the FTSE 350; this gives the committee comfort Executive Directors and the Company Remuneration Committee that the advice provided is appropriate and Secretary together with certain senior in 2014 relevant. Kepler Associates provide no managers; The activities of the committee are non-remuneration services to the Group – monitor and recommend the level and governed by its terms of reference which and are in no other way connected to the structure of remuneration for Senior reflect best practice. A review of the Group and therefore considered to be Management; committee’s terms of reference and the independent. The fees payable in relation – approve the design of performance- committee’s effectiveness was carried out to 2014 were £31 319 (US$51 600) related pay schemes operated by the in March 2014. There were no material excluding VAT. Group and approve total annual issues identified or action arising therefrom. payments;
Voting outcome for 2013 The table below shows the results of the advisory vote on the 2013 Directors’ Remuneration Report at 10 June 2014 AGM. Total For Against Abstentions votes cast Total number of votes 117 681 350 5 616 314 123 297 664 4 100 Directors’ Remuneration Policy Percentage of votes cast (%) 95.4% 4.6% 100% Total number of votes 123 291 751 5 913 123 297 664 4 100 Annual Report on Remuneration Percentage of votes cast (%) 100.0% 0.0% 100% Audited
76 Gem Diamonds Annual Report 2014 Directors Executive Total ofnon– RJ Williams 52500 M Michael AR Ashworth CT Elphick CT ietr 1600258 Directors Total ofall M Salamon DJ Elzas GA Beevers RW Davis RW ietr 1290258 Directors Executive Total of GE Turner salary during 2014. during salary 5.5%and6%ofbase ranged between benefitsthevalue ofwhich non-cash received acashallowance inlieuofother Directors respectively. Executive Directors andother ExecutiveExecutive Officer for theChief and 13.0%ofbasesalary pension whichwasequivalentto 14.5% received acashallowance inlieuof the Company. Executive Instead Directors No formal pensionprovision ismadeby Pensions andotherbenefits in this currency. Note: Although theGroup’s isUSdollarsthesefigures are currency stated astheDirectors’ insterling reporting emolumentsar 5 4 3 2 1 Audited The tablebelow setsoutthetotal singlefigure remuneration received byeachDirector year.for 2014andtheprior Total singlefigure of remuneration for Directors andGETurnerM Michael received £26765and£57148,respectively, inlieuofannualleave entitlement in2013.Further deta ESOP: value atvesting ofawards over vesting 2013(forESOP2011)an onperformance thethree-year periodsended31December duringtheyear. Bonuses:paymentforperformance Benefitsandpension: cash paymentsinlieu. andfees:amountearnedfortheyear. Salary Annual Report onRemuneration. Report Annual 52500
1
324419 438 121 310000 Salary andfees Salary 100000 293498 234220 2014 52500 52500 52500 – £ 1 507800 317280 428 480 310000 1 1 197800 100000 287040 165000 2013 52500 52500 52500 – £ non-cash benefits non-cash Cash payments in lieuofother 19465 24097 75 225 2014 75225 17610 14053 – assessment ofpersonalperformance. to adiscretionary and 20%linked to abusinessscorecardwith 80%linked Executive Directors is100%ofbasesalary the Board. The maximumbonuspayable to included inthebusinessplanapproved by indicators andwhichare performance key of whichare byspecific underpinned all andmanufacturing, (v) sales, marketing sustainability, imageandrelationships; and (iv) health,safety, social, environment, (iii) financial andoperationalperformance; strategy implementation;(ii)funding; following (i) growth factors: businesscritical designed onthe to focus participants annualbonusarrangement discretionary Executive ina Directors participate 2014 annualbonus £ – 2 – – – – 19037 23 566 69 725 2013 17222 – 69 725 Bonuses 9900 £ – – – – – 3 1 083883 271896 367190 1083883 245982 198815 2014 – in lieuofpension £ – – – – – payments 181484 Cash 262 230 758422 175668 139040 2013 758 422 – £ – 2 – – – – – 174306 42175 63 527 – – executive bonusschemewasbasedon: 2014the of the2013bonusscheme. In and premised to onasimilarstructure that based onthe2014businessplanobjectives The executive bonus scheme for 2014was Scorecard for 2014are shownbelow. ofthebusinessscorecardDetails splitused ESOP
2014 174 306 personal performance: 20%. personal performance: 80%;and business performance: 38155 30449 4 £ – – – Gem Diamonds Gem – – – – ils pertaining tothepaymentsinlieuofannualleave entitlementare disclosedinthe2013 ils pertaining 41246
162 141 62 130 d 31 December 2014(forESOP2012) (thelatterlapsedinfullMarchd 31December 2015). Other 2013 – – 162 141 37315 21450 £ 5 – – – – – 2014 Annual Report 2014 AnnualReport – – £ – – – – e paid – – – – – – – 2013 52500 52500 – – £ – – – – – – – – 2014 77 – – £ – – 52500 52500 – – – – – –
2013 48 83913
Governance
57148 26765
£ 83 913 –
–
– – – – 2 933672 657955 892935 310000 2 623672 100000 595245 477537 2014 Total 52500 52500 £ 2 582001 559047 776 406 310000 2 272001 100000 574393 362155 2013 Total 52500 52500 £
THE ANNUAL REPORT ON REMUNERATION continued
Business performance The following key metrics were considered under business performance in 2014: Weighting % Performance measure of maximum Growth (incorporating Letšeng growth plans, Ghaghoo development, and M&A activities including associated funding) 30 Operating performance 50 HSSE performance 20
The growth component of the bonus is assessed at the discretion of the committee. In terms of performance against the Group’s growth targets the committee considered the excellent progress made in the year in completing the development of Ghaghoo in relation to budget, in managing the political challenges experienced at Letšeng, and in the Executive Directors’ efforts in assessing possible strategic activities. The committee concluded that the growth component of the bonus deserved a payout of 24% (relative to a maximum of 30%).
Operating performance comprised the following key elements with threshold and stretch targets as set out in the table: Threshold Stretch % % business to business Performance measure Weighting plan target plan target Actual Payout (operating performance) % (50% payout) (100% payout) performance % Underlying EBITDA 20 80 120 Above stretch 20 Earnings per share 20 80 120 Above stretch 20 Waste tonnes mined 20 95 100 Above stretch 20 Ore tonnes treated 20 95 105 Above stretch 20 Production – carats recovered 20 85 115 Below threshold 0 Total 80
HSSE performance comprised the following key elements with threshold and stretch targets as set out in the table: Threshold Stretch % % business to business Performance measure (HSSE Weighting plan target plan target Actual Payout performance) % (50% payout) (100% payout) performance % Fatalities 25 Zero Zero Below threshold 0 All injury frequency rate 25 80 100 Above stretch 25 Major environmental or community incidents 25 Zero Zero Stretch 25 HSSE legal compliance 25 Subjective Subjective Stretch 25 Total 75
The business performance targets, in respect of the 2014 bonus, have not been disclosed in this year’s report as they are considered commercially sensitive by the Board given the close link between performance targets and business strategy. The committee will keep this under review and targets will be disclosed at a point in the future when they are no longer considered sensitive. Personal performance The personal performance measures were based on individual KPIs as agreed with the Chief Executive Officer.
These included but were not limited to: – manage and develop investor relations programme; – discussions with key stakeholders; – business development; – delivery of strategic projects; – HSSE objectives; – operation performance; – growth; and – bank financing projects.
78 Gem Diamonds Annual Report 2014 – – asfollows:benchmarks wasmeasured relativeperformance to two relative TSR.TSR three-year Company’s conditionsbasedonthe performance to theachievementsubject ofchallenging under theESOP. Vesting ofawards was received awards ofshares andoptions On 20March 2012,theExecutive Directors (ESOP) 2012 Employee Share OptionPlan bonusesfor actual 2014were asfollows:Based onbusinessandpersonalperformance bonusesawardedActual for 2014 The tablebelow setsouttheawards heldbyExecutive Directors undertheMarch 2012ESOP.
CT Elphick CT GE Turner 1 Audited Directors Awards Executive M Michael AR Ashworth Elphick CT Audited GE Turner M Michael AR Ashworth These awards were granted before conditions hebecame toM Michael are 2013.Theperformance thesameas inApril aDirector trusts). (excluding investmentFTSE 250Index Company’s relative to performance the 50% oftheaward isbasedonthe and explorationcompanies; peer group ofglobaldiamondmining Company’s relative to performance a 50% oftheaward basedonthe other Executive in2012(ierelative Directors TSR). 1 efrac pin 000300.05p 300.05p 60000 30000 40000 20000 Performance options Performance shares Performance options Performance shares efrac pin 800300.05p 300.05p 68000 34000 90000 45000 Performance options Performance shares Performance options Performance shares in July 2012 and Namakwa wasdelisted in in July2012andNamakwa overResources byBCKPLimited wastaken Limited for the2012grant. Vaaldiam therefore replaced Diamonds African 2010.LucaraDecember DiamondCorp overtaken byLucara in DiamondCorp Group. Diamonds Limited was African Diamonds, Shore Goldand Trans Hex Diamonds, Petra Diamonds, Rockwell Province Mountain comprised cycles The diamondpeergroup for the2012 volatile TSRs thantheCompany. tocompanies whichare have likely more outcomes to thesmaller comparator ofESOP helps reduce thesensitivity comparator caps TSRs bytheirmarket period. performance Weighting individual ofthethree-year capitalisation atthestart companies weighted by theirmarket on theaverage TSR ofthediamond wasbased The globaldiamondbenchmark Awards edVsig% neetvsigDate vesting Interest vesting Vesting % held i i 20March 2015 Nil 20March 2015 Nil Nil Nil i i 20March 2015 Nil Nil Nil Nil the awards willlapseon20March 2015. (excluding investment trusts).As aresult, and 19.7%perannumbelowtheFTSE250 per annumbelowthediamondpeergroup 2014.Actual 31 December TSR was16.1% wasmeasured endedon performance over which period The three-year +12%perannum. benchmark and benchmark between performance straight-line pro ratavesting for performance. to upperquartile There is committee believes isbroadly equivalent by12%perannumwhichthe benchmark Company’s TSR exceeds thatofits withfullvesting ifthe performance three-year TSR isinlinewithbenchmark 25% oftheaward vests iftheCompany’s peer group for the2012grant. subsequently removed from thediamond 2013. Bothofthesecompanieswere % ofsalary 20 March 2015 32367190 83.2 32245982 198815 271896 83.2 83.2 83.2 Gem Diamonds Gem
those forawards madetothe Annual Report 2014 AnnualReport Exercise Bonus price $0.01 $0.01 $0.01 $0.01 £ 79 48 Governance
THE ANNUAL REPORT ON REMUNERATION continued
ESOP awards made during 2014 As set out in the 2013 Directors’ Remuneration Report, the Remuneration Committee conducted a review of the existing ESOP, with a view to ensuring the plan’s performance criteria was more aligned with the Group’s strategy and more resilient to uncontrollable factors and to reflect recent remuneration trends in the mining sector. The revised plan was subsequently approved by shareholders at the 2014 AGM.
Under the revised ESOP, Executive Directors have a maximum opportunity of 125% of salary in performance shares (or 250% in performance options subject to an overall maximum, with fair value equivalent to 125% of salary in performance shares). In June 2014, awards of performance shares with a face value of 75% of salary were made to the Executive Directors.
Share price on Face value Awards made date of award on date of award Face value Executive Director Date of grant during the year £ £ as % of salary CT Elphick 10 June 2014 206 000 1.61 331 372 75 AR Ashworth 10 June 2014 153 000 1.61 246 116 75 M Michael 10 June 2014 112 000 1.61 180 163 75 GE Turner 10 June 2014 138 000 1.61 221 987 75
These awards will vest based on relative Under the profit element, 20% of the performance period has ended as these TSR (25% of the award), profit (37.5%) and maximum award will vest for achieving targets relate to the Company’s business production (37.5%) measured over the 80% of the business plan, 80% will vest for plan and medium and long-term strategy three-year performance period ending 120% of the business plan and there will be and are therefore considered commercially 31 December 2016. full vesting for achieving 132% of the sensitive. business plan; straight-line vesting applies The TSR element will be based on the between these points. Under the The committee is satisfied that the Company’s relative TSR ranking against the production element, 20% of the maximum performance targets set for the 2014 constituents of the FTSE 350 Mining Index. award will vest for achieving an average of awards (as described above) are sufficiently 20% of the maximum award will vest for 90% of the business plan, 80% will vest for stretching and full vesting is achievable TSR in line with the median, 80% will vest 110% of the business plan and there will be only for exceptional performance. for TSR in line with 75th percentile and full vesting for achieving an average of there will be full vesting only for TSR in line 121% of the business plan; straight-line Exit payments/payments to with 85th percentile. For performance in vesting applies between these points. The previous Directors between these points, the award will vest precise profit and production performance No exit payments or payments to previous on a straight-line basis. ranges will be disclosed after the Directors were made during the year.
Implementation of remuneration policy for 2015 The committee approved the following salary increases from 1 April 2015: 2014 salary 2015 salary Executive Director £ £ % increase CT Elphick 441 334 454 574 3.0 AR Ashworth 326 798 336 602 3.0 M Michael 238 960 300 000 25.5 GE Turner 295 651 304 521 3.0 Audited
M Michael was appointed to the Board in 2013 on a salary that was below the median level for companies of similar size and sector and significantly below the levels of the other Executive Directors. The committee’s intention was to gradually increase his salaryeach year to reflect his demonstrated development in his role as Chief Financial Officer and the performance of the business. In this context, the committee increased M Michael’s salary by 25.5% to £300 000 effective 1 April 2015. This increase reflects M Michael’s continuedstrong performance in his role and significant contribution to the business.
80 Gem Diamonds Annual Report 2014 Total Annual bonuses Benefits Base salaries Employee remuneration to shareholdersDistribution 1 Audited buy-backs) from thefinancial December 2013 to the financialyear ended31 December2014. yearended31 The tablebelow shows thepercentage changeintotal employee pay expenditure andshareholder (thatisdividends distributions Relative ofspendonpay importance Audited annual bonus)compared withemployee pay 2014 The percentage increase inChiefExecutive Officer remuneration (salary, benefitsand adjustments(malus)and performance that companies introduce prevesting changes to theCode recommending introducedin September 2014, theFRC As mentionedintheChairman’s Statement appropriate. that thecommittee to determines be therefore notbediscloseduntilsuchtime commercially sensitive atthistimeandwill committee’s discretion. The targets are atthe to those in2014butmay vary measures andweightings willbesimilar oftheGroup.objectives The performance strategic thekey goals thatsupport reflect arangeoffinancialandoperational 2014. The measures have to beenselected operate onbroadly thesamebasisasfor andwill same maximumopportunity 2015,theannualbonuswillhave the In Annual bonus benefits inlinewiththecurrent policy. cash supplementsinlieuofpensionand Executive Directors willcontinueto receive Pension andbenefits Includes salary pensionandbenefitsbonusaccounting chargeIncludes salary fortheESOPemployer’s NIbutexcludes employees’ NI. 1 829 408 367 190 438 121 24 097 2014 will bebasedonthe TSR versus the 87%and98%of salary). between Vesting shares (equivalentto performance will eachreceive anaward of170000 andtheotherExecutive Directors salary) shares (equivalentto 87%of performance receive anOfficer will award of230000 basis asin2014. The ChiefExecutive ESOP willcontinueto operate onthesame period. Forover theperformance 2015the ensure theyare appropriately stretching measures andcorresponding targets to committee reviews theperformance the advanceofeachESOPcycle In ESOP prevailing market practice atthattime. practice prevailing market expires basedon the current policy of malusandclawback provisions when committee willreview theappropriateness to both theannualbonusandESOP. The would beeffected atthistimein relation the matter andagreed thatnochanges The Remuneration Committee considered Executive Directors’ incentive plans. post-vesting clawback provisions for £ CT Elphick Other employees Other Elphick CT 1 7 16 714 276 6 3 40 262 230 2 8 2 428 480 3562 23 566 2013 %increase £ 15 280332 11 968035 25 193146 2 201672 1 110625 6 913491 similar size andsector. fee levelsmarket for companiesof from R52500to R55 000inlinewith non-Executive Directors’ fees by 4.8% 10% from £100000to £110000andthe Chairman’s fee would beincreased by March 2015whenitwasagreed thatthe at this time. Fees were alsoreviewed in was agreed nochangeswould bemade were lastreviewed inMarch 2014whenit andnon-ExecutiveChairman Director fees Executive Director fees Chairman andnon- considered commercially sensitive. strategylong-term andare therefore Company’s businessplanandmedium has endedasthesetargets relate to the period theperformance be disclosedafter and theprofit targets andproduction will TSR targets remain unchanged from 2014 2017. ending on31December The relative period over performance thethree-year measuredproduction (37.5%)objectives (25% oftheaward), profit (37.5%) and Index constituents oftheFTSE350Mining 2014 2014 US$ £ Gem Diamonds Gem
3216515 13 251675 090659 10 950685 1991915 21 949159 1391561 1369135 3 5 19 931 855 2013 2013 S % US$ i N/A Nil %increase £ Annual Report 2014 AnnualReport and share 81 48 Governance
THE ANNUAL REPORT ON REMUNERATION continued
Pay for performance The graph below shows the Company’s TSR performance compared with the performance of the FTSE 250 (excluding investment trusts) and the ESOP comparator group over the six-year period to 31 December 2014. The former has been selected to reflect broad market movements and the latter has been selected because the Group believes it is affected by similar commercial and economic factors to the comparator group.
Value of £100 invested on 1 January 2009 Gem Diamonds versus ESOP global mining and exploration comparators and FTSE 250 XIT INDEX
£350
£300
£250
£200
£150
£100
£50
£0 Dec 2008 Dec 2009 Dec 2010 Dec 2011 Dec 2012 Dec 2013 Dec 2014
Gem Diamonds FTSE 250 XIT Median of ESOP peers FTSE 350 Mining Index
2009 2010 2011 2012 2013 2014 Chief Executive Officer single figure of remuneration (£) 640 150 726 050 797 755 564 419 776 406 892 935 Annual bonus outcome (% of maximum) 54 67 75 13 61 83 ESOP vesting outcome (% of maximum) Nil Nil Nil Nil Nil Nil Audited
82 Gem Diamonds Annual Report 2014 ETre 3 3 – – 3 3)00 9871 ue21 3Jn 041 ue22 – 13June2021 13June2014 13June2011 79897 0.01 (30333) – – 30333 GE Turner ihe 2 0 – – 2 0)00 2601 ue21 3Jn 041 ue22 – 13June2021 13June2014 13June2011 52680 0.01 (20000) – – 20000 M Michael RAhot 3 0 – – 3 0)00 9561 ue21 3Jn 041 ue22 – 13June2021 13June2014 13June2011 89556 0.01 (34000) – – 34000 AR Ashworth TEpik 000 (000 .111701 ue21 3Jn 041 ue22 – 13June2021 13June2014 13June2011 131700 0.01 (50000) – – 50000 Elphick CT 000 00 0052 ac 022 ac 052 ac 0230000 20March 2022 20March 2015 20March 2012 90015 0.01 – – – 30 000 Details ofawards shares ofperformance to Directors last 10 years. 2014,1673333shares31 December (1.21% ofissuedshare capital)have beenormay beissuedpursuantto allawards madeover the Company’s share schemeswillnotexceed 10%oftheCompany’s share capitalinany issuedordinary rolling 10-year period. A ESOP awards may besatisfiedwithnewlyissuedsharesto aggregate subject dilutionlimits. Theissueofshares to satisfy award Dilution Directors 3 2 1 Audited These awards were granted before hebecame toMMichael aDirector. Thetermsoftheawards 2012differfrom madeinSeptember 2011 awards were granted on13June2011.Thevesting criteriarunsonacalendar year to31Dece basis. Basedonperformance Conditional righttoacquire shares. M Michael’s award willbebanked. periods, theachievement ofthetargets foreachofthe2013,2014and2015financial years are calculated. Basedonperformance banked andmayonlybeexercised period. attheendofthree-year soonasreasonably performance As practicable, following of Group andindividualtargets (weighted 70and30ofthetotalrespectively) period ineachofthethree performance one-year ineachofthe2013,2014and2015financial years.2014, 2015and2016basedonperformance Theextenttowhichtheawards vest conditions forExecutive andwere Directors onlygranted toseniormanagers. Inbrief, theschemeprovides thatathird ofthe none would vest on13June2014. – – 3 0 – .121971 ue21 0Jn 071 ue22 138000 10June2024 10June2017 10June2014 221987 0.01 – 138000 – – – – 1 0 – .110131 ue21 0Jn 071 ue22 112000 10June2024 10June2017 10June2014 180163 0.01 – 112000 – – 000 00 0002 ac 022 ac 052 ac 0220000 20March 2022 20March 2015 20March 2012 60010 0.01 – – – 20 000 400 00 0 1 0Mrh21 0Mrh21 0Mrh22 34000 20March 2022 20March 2015 20March 2012 102017 0.01 – – – 34 000 500 00 3 2 0Mrh21 0Mrh21 0Mrh22 45000 20March 2022 20March 2015 20March 2012 135023 0.01 – – – 45 000 24 000 – – 5 0 – .126161 ue21 0Jn 071 ue22 153000 10June2024 10June2017 10June2014 246116 0.01 – 153000 – – – – 0 0 – .131321 ue21 0Jn 071 ue22 206000 10June2024 10June2017 10June2014 331372 0.01 – 206000 – – 1 January shares 1 2014 asat Perform- 3 ance Exercised in the – – – .14 2 11September 2012 42624 0.01 – – – year Granted in the year 2
Lapsed in the Exercise year price US$ value at Market date of date of grant grant US$ 3 Date of grant aur 063 eebr22 24000 2023 31December 2016 1 January Gem Diamonds Gem awards granted in2012willvest in s. awards Any thatvest willbe
mber 2013,itwas determinedthat the end of the performance the endofperformance in2013and2014,77%of willdependontheachievement the ESOP performance theESOPperformance exercise normal Earliest date date Annual Report 2014 AnnualReport s under s of the Expiry 83 date date 168 000 156 000
48 31December Governance Perform-
shares at 187 000
251 000 2014 ance
THE ANNUAL REPORT ON REMUNERATION continued
Details of awards of performance options to Directors Perform- Perform- ance Earliest ance shares1 as at Exercised Granted Lapsed Exercise normal shares at 1 January in the in the in the price Date of exercise Expiry 31 December Directors 2014 year year year2 GB pence grant date date 2014 CT Elphick 100 000 – – (100 000) 263.40 13 June 2011 13 June 2014 13 June 2021 – 90 000 – – – 300.05 20 March 2012 20 March 2015 20 March 2022 90 000 90 000 AR Ashworth 68 000 – – (68 000) 263.40 13 June 2011 13 June 2014 13 June 2021 – 68 000 – – – 300.05 20 March 2012 20 March 2015 20 March 2022 68 000 68 000 M Michael 40 000 – – (40 000) 263.40 13 June 2011 13 June 2014 13 June 2021 – 40 000 – – – 300.05 20 March 2012 20 March 2015 20 March 2022 40 000 48 0003 – – – 177.60 11 September 2012 1 January 2016 31 December 2023 48 000 88 000 GE Turner 60 667 – – (60 667) 263.40 13 June 2011 13 June 2014 13 June 2021 – 60 000 – – – 300.05 20 March 2012 20 March 2015 20 March 2022 60 000 60 000 Audited 1 Option is a right to acquire shares granted under the plan including, unless indicated otherwise, a nil-cost option. The market price of an ordinary share at the year end was 174.75 pence. The highest and closing prices in the year were 221.50 pence and 141.00 pence respectively. Details of the vesting conditions, which are subject to audit, for awards made under the ESOP are included in Note 24 of the financial statements and a full set of the rules will be available for inspection at the AGM. 2 2011 awards were granted on 13 June 2011. The vesting criteria run on a calendar year basis. Based on performance to 31 December 2013, it was determined that none would vest on 13 June 2014. 3 These awards were granted to M Michael before he became a Director. The terms of the awards made in September 2012 differ from the ESOP performance conditions for Executive Directors and were only granted to senior managers. In brief the scheme provides that a third of the awards granted in 2012 will vest in 2014, 2015, and 2016 based on performance in each of the 2013, 2014 and 2015 financial years. The extent to which the awards vest will depend on the achievement of Group and individual targets (weighted 70% and 30% of the total respectively) in each of the three one-year performance periods. Any awards that vest will be banked and may only be exercised at the end of the three-year performance period. As soon as reasonably practicable following the end of the performance periods, the achievement of the targets for each of the 2013, 2014 and 2015 financial years are calculated. Based on performance in 2013 and 2014, 77% of M Michael’s award will be banked.
Directors’ shareholdings and interests in shares Details of interests in the share capital of the Company of those Directors in office as at 31 December 2014 are given below. Itis confirmed that there were no changes to the Directors’ holdings between 31 December 2014 and up to the date of this report. No Director held an interest in the shares of any subsidiary company.
In addition to these interests in shares, the Executive Directors, along with other employees, also have conditional rights to acquire shares under the Company’s long-term incentive plan disclosed in Note 24 to the financial statements. Executive Directors Performance shares held Performance options held Shares owned outright as at Subject to Subject to 31 December performance Vested but performance Vested but Total 2014 conditions not exercised conditions not exercised shareholding CT Elphick 9 325 0001 251 000 Nil 90 000 Nil 9 666 000 AR Ashworth 21 900 187 000 Nil 68 000 Nil 276 900 M Michael 10 000 156 000 Nil 88 000 Nil 254 000 GE Turner 400 000 168 000 Nil 60 000 Nil 628 000 Audited 1 CT Elphick is interested in these ordinary shares by virtue of his interest as a potential beneficiary in a discretionary trust which has an indirect interest in those ordinary shares.
84 Gem Diamonds Annual Report 2014 RJ Williams M Salamon DJ Elzas GA Beevers Davis RW 16 March 2015 Chairman oftheRemunerationCommittee Richard Williams MBEMC orderBy oftheBoard OreIron Co Limited inNovember 2010.Any fees paidto Cliffordexternal ElphickorDave roles Elzasinfulfillingthese are reta November 2010. Total fees paidto Clifford Elphick byZanagais£83000.Dave Elzaswasalsoappointed anon-Executive Director Jumelles HoldingsLimited Ore in2009andZanagaIron Co oftheLondon Limited, Stock whichlisted Exchange ontheAIMMarket i directorship orappointmentsoutsidetheGroup withtheexception of Clifford whowasappointed non-Executive Elphick, Chairman from Group private interestsApart listed 2009,noExecutive intheprospectus dated 1April Director holdsany significant exec Directors’ external appointments Audited Non-Executive Directors Gem Diamonds Gem
Annual Report 2014 AnnualReport of shares asat 31December ined bythem. 2014heldin utive own right of Zanaga 1 267752 Number 164 664 316 944 144 664 159 964 n of 85 48 Governance
DIRECTORS’ REPORT
Under the requirements of the Companies Act, 2006, the Directors have prepared a Strategic Report and a Directors’ Report to inform shareholders of the Company and help them assess the extent to which the Directors performed their duty to promote the success of the Company.
The Directors take pleasure in submitting plans, intentions and strategies are to the extension of the Letšeng indicated the financial statements of the Group for inherently subject to change and are based resource base by 127%. the year ended 31 December 2014. on expectations and assumptions about Discrete production sampling of both future events, circumstances and other As a BVI registered company, Gem orebodies at Letšeng continued in 2014 factors which are, in some cases, outside Diamonds Limited is not obliged to comply together with detailed geological and the Company’s control. The information with the Companies Act, 2006. petrographical analysis of the orebodies. contained in the Strategic Report has been Further details can be found in the Mineral However, the Directors have elected to prepared on the basis of the knowledge Resource Management section on pages conform to the requirements of the and information available to Directors 35 to 39. Companies Act, 2006. at the date of its preparation and the Company does not undertake any No resource development work was This requires that the Directors present a obligation to update or revise the Strategic conducted on the Ghaghoo asset Strategic Report and a Directors’ Report to Report during the financial year ahead. It is during 2014. inform shareholders of the Company and believed that the expectations set out in help them assess the extent to which the the forward-looking statements are Results and dividends Directors performed their duty to promote reasonable, but they may be affected by a The Group’s attributable profit after the success of the Company. wide range of variables which could cause taxation amounted to US$33.2 million For the purposes of compliance with DTR actual results or trends to differ materially. (2013: US$21.2 million). In particular, the forward-looking 4.1.5R(2) and DTR 4.1.8R, the required The Group’s detailed financial results are set statements should be read in context. The content of the ‘Management Report’ can out in the financial statements section on Company’s shareholders are cautioned not be found in the Strategic Report and the pages 92 to 144. Directors’ Report, including the sections of to place undue reliance on the forward- the Annual Report and Accounts looking statements. Shareholders should The current focus of the Group is on incorporated by reference. note that the Strategic Report has not been internal growth and surplus cash is audited, but the Auditors’ Report does invested into its capital projects at Letšeng The Strategic Report has been prepared to include a statement that the Strategic and Ghaghoo. However, as already provide the Company’s shareholders with a Report is consistent with the financial indicated to the market during 2014 the fair review of the business of the Company statements herein. Board recommends that a dividend be and a description of the principal risks and declared for the 2014 financial year. The uncertainties facing it. It may not be relied Related-party transaction Board has adopted a policy that will upon by anyone, including the Company’s Other than those disclosed in Note 22 of determine the appropriate dividend each shareholders, for any other purpose. the financial statements, the Company did year, based on consideration of the not have any transactions with, nor made The Strategic Report and other sections Company’s cash resources; the level of free loans to related parties during the period in cash flow and earnings generated during of this report contain forward-looking which any Director is or was interested. statements. By their nature, forward- the year; and expected funding looking statements involve a number of commitments for capital projects relating Exploration and resource to the Group’s growth strategy, and will aim risks, uncertainties and future assumptions development because they relate to events and/or to pay a total dividend at an approximately Resource development activities were consistent proportion of sustaining net depend on circumstances that may or may concentrated at Letšeng with the 2013/14 not occur in the future which could cause earnings. Dividends are expected to be resource drilling programme which was declared by the Board annually with the actual results and outcomes to differ completed in the first quarter of 2014. materially from those expressed or implied full-year results. A dividend representing The drilling programme was largely a total amount of US$6.9 million or by the forward-looking statements. No aimed at improving the resolution and assurance can be given that the forward- 5 US cents per share will be proposed understanding of the upper portions of the at the 2015 AGM. looking statements in the Strategic Report resource on both the Main and Satellite will be realised. Statements about the pipes. This drilling programme contributed Directors’ expectations, beliefs, hopes,
86 Gem Diamonds Annual Report 2014 in 2014. The Group madenopoliticaldonations Political donations in 2014 was138046tCO footprintThe total for carbon theGroup Greenhouse gasemissions pages 40to 43. Reviewon in theSustainableDevelopment ispresented participation and community responsibility, environmental performance A review ofhealth,safety, social corporate sustainability responsibility and Corporate social implemented goingforward. Group’s operations. This strategy willbe environment withthe inconnection the Group’s goalofzero to the harm formulated in2014withaviewto pursuing strategyA GHG emissionsreduction was effective ofGHG emissions.reduction only step to abetter understandingand footprint assessmentisnotthe a carbon The Group understandsthatundertaking accepted valueswere used. standard/orthe mostupto date, industry data, have beenusedto activity determine standard. Where averages international accountingandreporting corporate as perguidancefrom theGHGProtocol defined clearly calculated withboundaries The 2014Group footprint was carbon recovered carat. 1.31 tonnes CO carat recovered. 2013,theGroup emitted In tCO decreased in2014to 1.27tonnes CO also tracksthetonnes CO compared to the2013footprint. The Group increased footprint in2014when carbon As outlinedabove, theGroup recorded an data isprovided. are usedby theGroup andtherefore no 14 185. Noheat,steam orcoolingsources operational consumptionaccounted for accounted for 50808whileother accounted for 73053.Fuel combustion consumptionwhich was electricity thelargest contributed amountofcarbon consumption. electricity The source that and combustion (mobileandstationary) emissionsourcescontributing were fuel Scope3emissions.material The major indirect GHGemissions(Scope2)and 2 e). This figure includesdirect (Scope1), 2 perrecovered carat;this 2 2 e (2013:137082 emitted per 2 per the financialstatements. the Company's ESOP, refer to Note 24of communication andtrust.For detailson on quality, leadership, effective management,foundedbusiness function relationship itsemployees between and The Company always seeksto have adirect management. employeesdialogue between and openly withemployees andencourage istheGroup’sIt to communicate policy Letšeng andGhaghoo. as the Visible Felt leadershipinitiative at which isachieved through initiatives such employeesbetween andmanagement well ascontinuouscommunication cuttings’ andGroup announcements, as information, thecirculation of ‘press the Company’s website, published through directinvolvement andaccessto oftheGroup andobjectives performance Employees informed are aboutthe kept across theGroup’s operations. employee importance relations is of key together with themaintenance ofpositive ofemployees,effective performance performance. The health,safety and environment whichincentivisesenhanced management andstaffbycreating an andretains therequiredattracts calibre of been developed to ensure thattheGroup The Group’s have employmentpractices www.gemdiamonds.com. can be found ontheCompany’s website, Review,Sustainable Development which 40 to 43 on Review pages Sustainable Development on employmentmatters containedinthe isto beread This report withtheinformation involvement Employee policiesand social initiatives. US$0.6milliontocontributed these 2014,theGroupcommunities. In relevant causesinproject affected initiatives andgeneraldonationsto enterprises, regional environmental development ofsmallto medium education, infrastructure development, communities intheareas ofhealth, initiatives affected thatbenefittheproject The Group’s CSIexpenditure supports
together with the full 2014 together withthefull2014
exposures to credit and liquidity risk. exposures to risk. credit andliquidity details ofitsfinancialinstruments; andits risk management objectives; financial and processes for managing itscapital; includes theCompany’s objectives, policies Note 23 onpages20 Report position are intheStrategic described Company, itscashflowsandliquidity pages 2 on are setoutintheStrategic Report andposition development, performance to affect itsfuture likely with thefactors The Company’s businessactivities,together concernGoing 53 Listing Rules(LR9.8.6)islocated onpages the UKFinancial Authority’s Conduct the Disclosure and Transparency Rulesand Annual Report. The information required by ofits aspart Code Compliance Report issuing aseparate Corporate Governance The Groupof hasanexistingpractice statement setout intheDirectors’ Report. governance be includedinacorporate (DTR 7.2) information require thatcertain Disclosure and Transparency Rules The UKFinancial Authority’s Conduct Corporate governance Group’s guidelinesandframework. resources requirements locally, withinthe Each operatingunitmanagesitshuman bestpractice. withinternational and policy alignment ofhumanresources management employmentandforexpatriate the succession planning, recruitment and management, career development and remuneration benefits, performance on in respect ofCompany policy The Group setsguidelinesandframeworks employees wherever possible. development andpromotion to disabled conditions andto provide training, career and terms employment undernormal where to practicable, provide continuing become disabled, itistheGroup’s policy, and aptitude. Where existingemployees having regard abilities for theirparticular positions whichtheycanadequately fill, people withdisabilitieswhoapplyfor consideration isgiven to applicationsfrom religion, status. raceormarital Full ofgender,in employment, irrespective and achievement ofequalopportunities The Group iscommitted to theprinciple
to 59ofthisAnnualReport.
to 46. The financialpositionofthe to thefinancialstatements Gem Diamonds Gem
to 23. In addition, to 23.In Annual Report 2014 AnnualReport 87 48 Governance
DIRECTORS’ REPORT continued
After making enquiries which include potentially significant personal liability Share capital and voting rights reviews of forecasts and budgets, timing of under criminal or civil law, or the UK Listing, Details of the authorised and issued share cash flows, borrowing facilities and Prospectus and Disclosure and capital of the Company, including the sensitivity analyses and considering the Transparency Rules and face a range of rights pertaining to each share class, are set uncertainties described in this report either penalties including private or public out in Note 14 to the financial statements. directly or by cross-reference, the Directors censure, fines and/or imprisonment. In line have a reasonable expectation that the with normal market practice, the Group As at 16 March 2015, there were Group has adequate financial resources believes that it is in its best interests to 138.27 million fully paid ordinary shares of to continue in operational existence for protect the individuals prepared to serve £0.01 each in issue and listed on the Official the foreseeable future. For this reason, they on its Board from the consequences of List maintained by the FCA in its capacity continue to adopt the going-concern basis innocent error or omission, as this enables as the UK Listing Authority. in preparing the Annual Report and the Group to attract prudent individuals to The Company has one class of ordinary accounts of the Company. act as Directors. shares. Shareholders have the right to receive Therefore, the Group has, and continues to notice of and attend, speak and vote at any Directors general meeting of the Company. Each The Directors, as at the date of this report, maintain, at its expense, a Director and shareholder who is present in person (or, are listed on pages 50 and 51 together with Officer’s liability insurance policy to provide being a corporation, by representative) or by their biographical details. Details of the indemnity, in certain circumstances, for the proxy at a general meeting on a show of Directors’ interests in shares and share benefit of Directors and other Group hands has one vote and, on a poll, every options of the Company can be found personnel. The insurance policy does not such holder present in person (or, being a in the Annual Report on Remuneration provide cover where the Director or Group corporation, by representative) or by proxy on pages 84 and 85. personnel member has acted fraudulently or dishonestly. shall have one vote in respect of every Directors who held office ordinary share held by them. To be valid, the In accordance with the Company’s Articles appointment of a proxy to vote at a general during the year and date of of Association, the Company has and meeting must be received not less than appointment/resignation continues to maintain indemnities granted 48 hours before the time appointed for Executive Directors by the Company to the Directors of the holding the meeting. In addition, the holders CT Elphick 20 January 2006 Company and the Company’s associated of ordinary shares have the right to AR Ashworth 22 April 2008 companies to the extent permitted by and participate in dividends and other GE Turner 22 April 2008 consistent with BVI law and the UK distributions according to their respective M Michael 22 April 2013 Companies Act, 2006 and rules made by rights and interests in the profits of the Non-Executive Directors the UKLA. Company. DJ Elzas 18 October 2005 Details of payments for loss of office There are no shareholders who carry any GA Beevers 1 February 2007 under the Directors’ service contracts (of special rights with regard to the control of RW Davis 1 February 2007 which there are none) are included in the Company. The Company is not aware M Salamon 3 February 2008 the Directors’ Remuneration policy on of any agreements between holders of RJ Williams 3 February 2008 pages 73 and 74. securities which may result in restrictions on transfers or voting rights, save as Re-election of Directors Directors’ remuneration mentioned below. The Articles of Association (81) provides The ESOP contains provisions relating to that a third of Directors retire annually by a change of control. Under these, There are no restrictions on the transfer of rotation and, if eligible, offer themselves for outstanding options would normally vest ordinary shares other than: re-election. However, in accordance with and become exercisable on a change of – as set out in the Company's Articles the Code, at each AGM all the Directors control, subject to the satisfaction of any of Association; retire and, subject to being eligible, offer performance conditions at that time. – certain restrictions may from time themselves for re-election. Each Director to time be imposed by laws and has been the subject of a Board evaluation. Annual General Meeting (AGM) regulations; and Details of the resolutions which will be put Protection available to Directors to the AGM are given in the notice of the – pursuant to the Company’s share dealing code whereby the Directors and By law, Directors are ultimately responsible AGM, which is contained in a separate employees of the Company require for most aspects of the Group’s business document from the Annual Report. dealings. Consequently, they face approval to deal in the Company’s ordinary shares.
88 Gem Diamonds Annual Report 2014 the Company’s annualpurchases. 2014represented31 December 62days of been metbythesupplier. Trade creditors at andconditionshavethat alltradingterms accordance withthoseterms, provided Group thatpayments are practice madein are aware is ofpayment. oftheterms It thatsuppliers andensuring transactions andconditionsforterms theirbusiness companies are responsible for agreeing to operating suppliers. Individual inrespect ofpayments Group-wide policy Group’s operations, there isnospecific nature viewoftheinternational ofthe In Creditors’ payment practice pages 84 and85. on onRemuneration the Annual Report shares oftheCompany isincludedin business. The interest ofDirectors inthe significance in relation to the Company’s year, interest amaterial of inany contract No Director had, atany the timeduring Directors’ interests page 59. on Governance Code Compliance Report Company are setoutintheUKCorporate shares ofthe 3%) intheissuedordinary ofthemajorinterestsDetails (atorabove Major interests inshares notice ofAGM. appointments willbesetoutinthe2015 for exercising voting andproxy rights authority, ifgranted. ofdeadlines Details have nopresent intention to exercise this AGM to renew thisauthority. The Directors Shareholders atthe2015 willbeasked shares underany buy-backprogramme. purchases ofitssharesor off-market or Company any on-market didnotmake share capitalatthattime. 2014,the During approximately 10%oftheCompany issued shares,its ordinary representing purchases ofupto 13826980of market theCompanyauthorised on- to make At theAGM heldin2014,shareholders reporting date.reporting for detailsofevents subsequentto the Refer to Note 27ofthefinancialstatements Subsequent events 16 March 2015 Company Secretary Glenn Turner orderBy oftheBoard 16 March 2015. were approvedReport by theBoard on theDirectors’Report and Remuneration theDirectors’The Strategic Report, 2015 AGM. remuneration willbeproposed atthe Board to theauditors’ determine Company’s auditors the andto authorise A resolution to reappoint EYasthe aware ofthatinformation. establish thattheCompany’s auditors are of any relevant auditinformation andto steps asa Director himselfaware to make allreasonableeach Director hastaken Company’s auditors are unaware andthat of theAuditors’ ofwhichthe Report no information relevant to thepreparation andbelief,best ofhisknowledge there is conform, that eachDirectorto the confirms Directors have to voluntarilyelected Companies 2006,to Act, whichthe As required 418ofthe undersection London, UK. isbasedin The leadauditpartner auditor re-election Disclosure ofinformation and www.gemdiamonds.com. are available ontheCompany’s website, pressreports, releases andannouncements publications,policies andothercorporate HSSE Copies ofthe2014AnnualReport, copiesElectronic ofdocuments
Gem Diamonds Gem
Annual Report 2014 AnnualReport 89 48 Governance
FINANCIAL STATEMENTS
90 Gem Diamonds Annual Report 2014 Financial Standards (IFRS). Reporting statements inaccordance withInternational andtheGroup financial the AnnualReport The Directors are responsible for preparing Gem Diamonds Gem Annual Report 2014 AnnualReport 91 90 Financial statements
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing – state whether they have been prepared disclosures have been provided when the Annual Report and the Group financial in accordance with IFRS; compliance with the specific requirements statements in accordance with – state whether applicable IFRS have been in IFRS have been insufficient to enable International Financial Reporting Standards followed, subject to any material users to understand the financial impact of (IFRS). Having taken advice from the Audit departures disclosed and explained in particular transactions, other events and Committee, the Board considers the report the parent company financial conditions on the Group’s financial position and accounts taken as a whole, is fair, statements; and and financial performance. Where balanced and understandable and that it necessary, the Directors have made – prepare the financial statements on the provides the information necessary for judgements and estimates that are going-concern basis unless it is shareholders to assess the Company’s reasonable and prudent. inappropriate to presume that the Group performance, business model and strategy. will continue in business. The Directors of the Company have elected The Strategic Report and Directors’ Report to comply with certain Companies Act and The Directors are responsible for keeping includes a fair review of the development Listing Rules (LR) which would otherwise adequate accounting records that are and performance of the business and the only apply to companies incorporated in sufficient to show and explain the Group’s position of the Company and the the UK – namely: transactions and disclose, with reasonable undertakings included in the consolidation accuracy at any time, the financial position (a) the Directors’ statement under taken as a whole, together with a of the Group. They are also responsible for LR 9.8.6R(3) (statement by the Directors description of the principal risks and safeguarding the assets of the Group and that the business is a going concern); uncertainties that they face. hence for taking reasonable steps for the and Preparation of the financial prevention and detection of fraud and (b) the requirements of Schedule 8 statements other irregularities. to The Large and Medium-sized Companies and Groups (Accounts The Directors must not approve the The Directors confirm that the financial and Reports) Regulations 2008 of financial statements unless they are statements, prepared in accordance with the United Kingdom pertaining to satisfied that they give a true and fair view IFRS, give a true and fair view of the assets, Directors’ remuneration that UK of the state of affairs of the Group and liabilities, financial position and profit of the quoted companies are required to parent company and of their profit or loss Company and the undertakings included comply with. for that period. In preparing the Group in the consolidation taken as a whole. In financial statements, the Directors are addition, suitable accounting policies have required to: been selected and applied consistently. – select suitable accounting policies and Michael Michael Information, including accounting policies, then apply them consistently; Chief Financial Officer has been presented in a manner that – make judgements and estimates that provides relevant, reliable, comparable and 16 March 2015 are reasonable and prudent; understandable information and additional
92 Gem Diamonds Annual Report 2014 statements andfor beingsatisfied thatthey the preparation oftheGroup financial page 92, thedirectors are responsible for Responsibilities Statement setouton As explainedmore fullyintheDirectors’ directors andauditor responsibilitiesRespective of opinions we have formed. for orfor thisreport, the audit work, Company’s membersasabody, for our other thantheCompany andthe toaccept orassumeresponsibility anyone by permitted law,fullest extent we donot andforreport nootherpurpose. To the required to state to theminanauditor’s Company’s membersthosematters we are sothatwe mightstate to the undertaken 11 March hasbeen 2015.Ourauditwork ofourengagementletterthe terms dated members, asabody, inaccordance with ismadesolelyto theCompany’sThis report preparation isapplicablelaw andIFRS. thathasbeenappliedintheir framework notes 1to 27. The financial reporting Statement ofCashFlows andtherelated Changes inEquity, theConsolidated Position, theConsolidated Statement of Consolidated Statement ofFinancial Statement ofComprehensive the Income, Statement, ConsolidatedIncome theConsolidated2014 whichcomprise Group) for theyear ended31December statements DiamondsLimited ofGem (the We have audited theGroup financial What we have audited – – statements: ouropiniontheGroup financial In Opinion onfinancialstatements GEM DIAMONDS LIMITED INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF
Reporting Standards (IFRS). Reporting Financialaccordance withInternational have beenproperly prepared in ended; and 2014 andofitsprofit for the year then the Group’sDecember affairsasat31 give atrueandfairviewofthestate of Conduct Authority.Conduct review bythe ListingRulesoftheFinancial company,incorporated isspecified for 87 and 88,which,for apremium listed UK assetoutonpages to goingconcern Review theDirectors’ Statement inrelation ifwe are notsatisfiedthat: Report – – – opinion: whetherinour ustoinstructed report, addition,theCompanyIn hasalso Standards for Auditors. the Auditing Practices Board’s Ethical Those standards require usto complywith Standards onAuditing (UKandIreland). with applicablelaw andInternational Group financialstatements inaccordance is to auditandexpress anopiniononthe give atrueandfairview. Ourresponsibility
– – – therein;described accordance withthebasisofpreparation as audited hasbeenproperly prepared in thatisdescribed Remuneration Report oftheDirectors’the section statements; structures isconsistent withthefinancial processes andaboutshare capital systems inrelation to financial reporting controlinternal management andrisk Governance Statement withrespect to the information given intheCorporate financial statements; prepared are consistent withthe the Group financialstatements are for thefinancial year Report for which the Directors’ andtheStrategic Report
and for oftheaudit; thepurpose necessary and explanationswhichwe consider we have obtainedalltheinformation the records andreturns; or the accountsare inagreement with visited); those brancheswhichhave notbeen (includingreturns frombeen kept adequate accountingrecords have implications for ourreport. inconsistencies, we considerthe of any apparent misstatements material or we becomeaware theaudit.If performing acquired byusinthecourseof knowledge inconsistentmaterially with,the apparently basedon,or incorrect materially to identify any information thatis with theaudited financialstatements and to inconsistencies identifymaterial Report non-financial information intheAnnual addition,we readIn allthefinancialand – – – error. This includesanassessmentof: misstatement, whethercausedbyfraudor statements are free from material reasonable assurancethatthefinancial financial statements sufficient to give about theamountsanddisclosures inthe An auditinvolves obtainingevidence statements Scope oftheauditfinancial
statements. the overall presentation ofthefinancial directors; and accounting estimates madebythe the reasonableness ofsignificant adequately disclosed; and have beenconsistently appliedand appropriate to theGroup’s circumstances whether theaccountingpoliciesare Gem Diamonds Gem Annual Report 2014 AnnualReport 93 90 Financial statements
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GEM DIAMONDS LIMITED continued
Our assessment of focus areas and response We identified the following risks that had the greatest effect on the overall audit strategy; the allocation of resources in theaudit; and directing the efforts of the engagement team. Details of why we identified these issues as focus areas and our audit response are set out in the table below.
Area of focus How our audit addressed the area of focus
Revenue recognition
Refer to the Audit Committee Report on page 63 and the revenue disclosures in Note 2 to the annual financial statements
Diamonds are sold through three revenue streams as follows: – We identified and observed controls around the revenue process in – rough diamonds sold on tender; understanding management’s internal processes and the control – selected diamonds sold through partnership arrangements; and environment. – diamonds extracted for purposes of own manufacturing and sold – We challenged management’s recognition of revenue, covering all thereafter in polished form. revenue streams of the Group. This involved agreeing revenue We focused on this area due to the inherent risk related to the recognition transactions to underlying agreements, invoices and supporting and measurement of revenue, particularly on partnership arrangements calculations. and diamonds extracted for purposes of own manufacturing. – For partnership arrangements, we also assessed and challenged as to For partnership arrangements, revenue is earned on the sale of the rough when the risks and rewards were transferred. We verified this to diamond, with an additional uplift recognised on the polished margin supporting agreements. achieved. Judgement is involved in determining when the risks and – We confirmed that intercompany sales transactions properly eliminated rewards of ownership transfer on rough diamond sales and also on the and verified the completeness of consolidation entries. uplift element. – We performed cut-off testing at year end by selecting transactions close For diamonds extracted for purposes of own manufacturing, no revenue is to the period end, and we reconciled inventory movements related to recognised until the diamonds are sold to third parties; however, there are diamonds extracted for purposes of own manufacturing in validating a number of intercompany transactions that must be eliminated in the the completeness of revenue. consolidated financial statements, and there is risk related to the completeness of sales recognised through the extraction process in light of the polishing losses that result from the manufacturing process.
Impairment of property, plant and equipment and goodwill
Refer to the Audit Committee Report on page 63 and the disclosures of impairment testing in Note 10 to the annual financial statements
At 31 December 2014, the carrying value of property, plant and – We assessed management’s process of identifying impairment equipment was US$374.9 million and the carrying value of goodwill was indicators and evaluated management’s analysis of whether the Group’s US$17.8 million. market capitalisation compared to the Group’s net asset value represented an indicator of impairment in 2014. We focused on this area due to the significant size of the carrying value of asset balances and the judgements applied by management in assessing – We considered the appropriateness of management’s conclusions whether indicators of impairment exist and in determining key related to whether impairment triggers existed by challenging the assumptions used in impairment tests. rationale applied and the completeness of factors assessed. Our procedures focused on management’s Letšeng goodwill impairment – We audited the Letšeng goodwill impairment test model, including the test and the judgements involved in determining the appropriate reasonableness of forecast cash flows and underlying assumptions cash-generating unit and the significant assumptions applied in the future through a comparison of current year actual results and trends. cash flow forecast, including expected diamond prices and discount rates. – We challenged management’s price and discount rate assumptions with the assistance of our valuations specialists and performed sensitivity testing on these key assumptions to confirm that no reasonable change in the estimated headroom would result in impairment. – From the evidence we obtained through our audit procedures, we also assessed the sufficiency of disclosures surrounding management’s goodwill impairment test in the consolidated financial statements.
Key judgements relating to the production start date of the Ghaghoo mine
Refer to the Audit Committee Report on page 63 and Note 1.2.26 to the annual financial statements
We focused on this area due to the judgements and estimates applied by – We challenged management’s analysis and conclusion on the management in determining whether the Ghaghoo mine had reached development stage of the Ghaghoo mine throughout 2014, including production or continued to be in the development stage during the year. an assessment of the key judgements applied and factors considered. Management determined that the Ghaghoo mine had not reached For each key judgement, we analysed the results achieved to date and operations as intended by management in 2014 and was still in the evaluated the reasonableness of the mine’s operations as intended by development stage based on an assessment of key judgements and management. activity to date, including: – We also audited costs capitalised to the Ghaghoo mining project in – the extent of testing of the mine plant and equipment; accordance with IAS 16 by agreeing amounts to underlying – the unanticipated high volumes of water from basalt fissures which documentation and validating that the capitalisation criteria was met. were encountered during the latter part of the year causing a delay in reaching a steady state of production; and – the ability to sustain ongoing production of inventory.
94 Gem Diamonds Annual Report 2014 misstatements againstboth the We evaluate any uncorrected onqualitative grounds. reporting warranted below thatthreshold that,inouropinion, (2013: US$150 000),aswell asdifferences andthatexceeduncorrected US$233 000 all audit differences that remain tothat we thecommittee would report We agreed withtheAudit Committee US$1.6 million. componentswasUS$420000to reporting allocated to materiality range ofperformance the current year, component.In reporting the ofmisstatement atthat view oftherisk the relative size ofthecomponentandour for componentisbasedon eachreporting materiality. set materiality The performance on apercentage of ourtotal performance based isundertaken and theUnited Kingdom, Botswana, Lesotho, SouthAfrica, Mauritius, components, entitiesinBelgium, covering Audit atindividual reporting work level. our planningmateriality differences inallaccountsdidnotexceed to ensure thattotal detected andaudit inadoptingthisapproachobjective was US$2.3 million(2013:US$1.5million).Our be 50% ofplanningmateriality, namely account orbalance)for theGroup should tolerance for misstatement inanindividual (ieour materiality that overall performance control environment, ourjudgementwas with ourassessmentoftheGroup’s overall assessment,together On thebasisofourrisk Letšeng mine. given theproduction stageoftheGroup’s measure oftheentity to thestakeholders to bethemostrelevant performance profit oftheGroup as we considered that calculationbasedonthepre-tax materiality audit procedures. We assessedour the nature, offurther timingandextent misstatementmaterial anddetermining of identifying andassessingtherisk assessmentprocedures, ofrisk extent for thenature, determining timingand by theGroup in2014. This provided abasis given profit thehigherpre-tax recognised increased by62%compared with2013 has profit. Ourplanningmateriality US$2.9 million),whichis5%ofpre-tax the Group to beUS$4.7million(2013: We of planningmateriality determined our auditopinion. misstatements ontheauditandinforming audit, inevaluatingtheeffect ofidentified the inplanningandperforming materiality materiality. We applytheconceptof isinfluenced The scopeofourwork by Our application ofmateriality Performance materiality aeilt US$4.7million Materiality Reporting Reporting threshold US$0.2 million US$2.3 million – – – ouropinion: In by theterms ofourengagementletter Opinion onothermatters prescribed components. reporting attended the auditclosingmeetingsfor all discussions onfraudanderror, and teams’ planningprocedures, including component inreporting participated component teams,audited byreporting papers Group team working reviewed key the Letšeng andGhaghoomines. The specific scopelocations, includingvisits to visited allfull and the Group auditpartner programme ofplannedsite visits. This year, The Group auditteam follows a Group materiality. individual entity, whichwere lower than applicabletolevels each ofmateriality componentswasexecutedreporting at intheseven performed The auditwork in theGroup financialstatements. no significant misstatement risks ofmaterial other procedures thatthere to confirm were remaining components, we performed misstatement identifiedabove. For the towork address ofmaterial therisks audit an appropriate basis for undertaking entities. They were to alsoselected provide do not test allaccountsatspecificscope component,andtherefore,reporting we Group’s businessoperationsinthat ofthe misstatement andofthemateriality ofmaterial on ourassessmentoftherisks where wasbased ofauditwork theextent to aspecificorlimitedsubject scopeaudit scope audit,whiletheremaining five were these componentswere to afull subject and 98%oftheGroup’s total assets. Two of revenue, 99%oftheGroup’s profit pre-tax and accountfor 100%oftheGroup’s businessunitswithintheGroup principal componentswhichrepresent reporting the financial statements, seven we selected misstatementmaterial to theGroup Following of ourassessmentoftherisk our audit ofthescopeAn overview of relevant qualitative considerations. discussed above andinlightofother quantitative measures ofmateriality
as described therein.as described accordance withthebasisof preparation audited hasbeenproperly prepared in the Company as thathasbeendescribed of Report oftheRemuneration the part the financialstatements; and share isconsistent capitalstructures with processes andabout financial reporting managementsystems inrelationrisk to to58 withrespect control internal and Governance Statement setoutonpage the information given intheCorporate consistent withthefinancialstatements; financial statements are prepared is financial year for whichtheGroup for andStrategic the Report Report the information given intheDirectors’ 16 March 2015 London Ernst & Young LLP – – – – – – opinion: we are required to you to if, report inour ofourengagementletter,Under theterms Code, specifiedinour review. provisions oftheUKCorporate Governance Company’s compliancewiththenine Governance Statement relating to the oftheCorporate to review thepart Under theListingRules, we are required should have beendisclosed. Audit Committee whichwe consider matters thatwe communicated to the appropriately disclosesthose Report understandable andwhethertheAnnual isfair,the annual report balanced and directors’ statement thattheyconsider acquired theauditand during inconsistencies ourknowledge between consider whether we have identifiedany particular,In we are required to – – – is: information intheAnnualReport required to you to if, report inouropinion, Under theISAs we (UKandIreland), are following: We have inrespect ofthe nothingto report by exceptionreport Matters onwhichwe are required to
to complywith. that UKquoted companiesare required to Directors’pertaining remuneration Regulations 2008oftheUnited Kingdom Groups (Accounts andReports) Large Companies andMedium-sized and the requirements 8to ofSchedule the concern; pages 87and88,inrelation to going the Directors’ Statement, setouton to review suchitems namely: Companies us 2006andinstructed Act companiesortheUK incorporated for Authority Conduct premium listed UK by theListingRulesofFinancial complied withitems specified for review where the Company hasvoluntarily for oftheaudit;or thepurpose necessary and explanationswhichwe consider we have notobtainedalltheinformation the records andreturns; or the accountsare notinagreement with or branches whichhave notbeenvisited); (includingreturns frombeen kept those adequate accountingrecords have not misleading. is otherwise ouraudit;or course ofperforming oftheGroup acquired inthe knowledge inconsistentor materially with,our apparently basedon, incorrect materially statements; or information intheaudited financial inconsistentmaterially withthe Gem Diamonds Gem Annual Report 2014 AnnualReport 95 90 Financial statements
CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2014
2014 2013 US$’000 US$’000 Notes Total Total Revenue 2 270 890 212 828 Cost of sales (144 495) (120 136) Gross profit 126 395 92 692 Other operating income 134 746 Royalties and selling costs (24 692) (18 485) Corporate expenses (12 628) (14 124) Share-based payments 24 (1 740) (932) Foreign exchange gain 3 5 242 606 Reversal of impairment of assets 3 – 155 Operating profit 3 92 711 60 658 Net finance income/(cost) 4 219 (1 639) Finance income 3 430 1 218 Finance costs (3 211) (2 857) Profit before tax for the year 92 930 59 019 Income tax expense 5 (34 983) (20 855) Profit for the year 57 947 38 164 Attributable to: Equity holders of parent 33 217 21 170 Non-controlling interests 24 730 16 994 Earnings per share (cents) 6 Basic earnings per share 24.0 15.3 Diluted earnings per share 23.9 15.2
96 Gem Diamonds Annual Report 2014 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Total comprehensive income/(expense) for theyear, netoftax interestsNon-controlling holdersoftheparentEquity Attributable to: Total comprehensive income/(expense) for theyear comprehensiveOther expense for theyear, netoftax Exchange differences ontranslationof foreign operations subsequent periods comprehensive incomeOther thatcould bereclassified totheincome statementin Profit for the year Gem Diamonds Gem US$’000 (37 307) (37 307) 20 640 17 732 20 640 57 947 2 908 2014 Annual Report 2014 AnnualReport US$’000 (64 612) (64 612) (26 448) (32 272) (26 448) 38 164 5 824 2013 97 90 Financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2014
2014 2013 Notes US$’000 US$’000 Assets Non-current assets Property, plant and equipment 7 374 927 373 625 Investment property 8 615 615 Intangible assets 9 18 181 20 202 Receivables and other assets 11 2 877 – Other financial assets 10 28 396 610 394 470 Current assets Inventories 12 28 770 29 326 Receivables and other assets 11 7 598 6 749 Other financial assets 4 13 Income tax receivable 353 – Cash and short-term deposits 13 110 738 71 178 147 463 107 266 Total assets 544 073 501 736 Equity and liabilities Equity attributable to equity holders of the parent Issued capital 14 1 383 1 383 Share premium 885 648 885 648 Treasury shares¹ (1) (1) Other reserves 14 (97 753) (69 408) Accumulated losses (484 874) (518 091) 304 403 299 531 Non-controlling interests 61 014 70 879 Total equity 365 417 370 410 Non-current liabilities Interest-bearing loans and borrowings 15 7 261 – Trade and other payables 16 1 274 1 109 Provisions 17 19 543 23 186 Deferred tax liabilities 19 57 467 64 824 85 545 89 119 Current liabilities Interest-bearing loans and borrowings 15 29 841 – Other financial liabilities 18 249 – Trade and other payables 16 43 711 37 086 Income tax payable 19 310 5 121 93 111 42 207 Total liabilities 178 656 131 326 Total equity and liabilities 544 073 501 736 1 Shares held by Gem Diamonds Limited Employee Share Trust. Approved by the Board of Directors on 16 March 2015 and signed on their behalf by: CT Elphick M Michael Director Director
98 Gem Diamonds Annual Report 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Balance at 31December 2013 Dividends paid hr-ae amns(oe2)–––114–114–1164 – 1164 – 1164 – – – payments (Note 24) Share-based (expense) Total comprehensive income/ te opeesv xes 5 4)–(342 1 7)(64612) (11170) (53442) – (53442) – – – comprehensive expense Other Profit for the year – – – – 21 170 21 170 16 99438164 170 16 21 –21170 – – – Profit for the year Balance at 1 January 2013 Balance at 1January Balance at 31December 2014 Dividends paid Share-based payments (Note 24) Share-based (expense) Total comprehensive income/ Other comprehensive expense Other Profit for the year Balance at 1 January 2014 Balance at 1January 2 1 Refer to Note 14, Issued capital and reserves, for further detail.Refer toNote14,Issuedcapital andreserves, forfurther Being shares LimitedEmployee heldby GemDiamonds Share Trust. US$’000 capital² Issued 8 8 4 1 9 5)(8 7)34436 1 365417 61014 304403 (484874) (97753) (1) 885648 1 383 8 8 4 1 6 0)(1 9)29517 7 370410 70879 299531 (518091) (69408) (1) 885648 1 383 8 8 4 1 6 0)(1 9)29517 7 370410 70879 299531 (518091) (69 408) (1) 885648 1 383 8 8 4 1 5 4)2 7 3 7)584(26448) 5824 (32272) 21170 (53 442) (1) 885648 1 383 8 8 4 1 1 3)(3 6)30697 9 401632 70993 330639 (539261) (17 130) (1) 885648 1 383 ––––(5–––– –––– –––– 6 6 1964 – 1964 – 1964 – – – 3 0)3 1 298 77220640 17732 2908 33217 (30309) – – – 3 0)– (039 698 (37307) (6998) (30309) – (30309) – – – 327 327 47057947 24730 33217 33217 – – – – premium² US$’000 Share US$’000 shares¹ Own Own reserves² US$’000 Other Attributable to theequity holders oftheparent Accumulated earnings retained US$’000 (losses)/ US$’000 Gem Diamonds Gem Total controlling interests US$’000 2 9)(27597) (27 597) Non- 3)(5938) 938) Annual Report 2014 AnnualReport US$’000 equity Total 99 90 Financial statements
CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2014
2014 2013 Notes US$’000 US$’000 Cash flows from operating activities 133 736 87 614 Cash generated by operations 20.1 153 577 114 462 Working capital adjustments 20.2 59 (17 491) 153 636 96 971 Interest received 2 575 1 218 Interest paid (521) (517) Income tax paid (21 954) (10 058) Cash flows used in investing activities (101 301) (73 730) Purchase of property, plant and equipment (47 364) (29 651) Waste cost capitalised (53 996) (59 278) Proceeds from sale of property, plant and equipment 59 1 191 Purchase of other financial assets – (22) Cash received from disposal of subsidiary1 – 14 030 Cash flows generated by/(used in) financing activities 10 309 (8 529) Financial liabilities raised/(repaid) 37 906 (2 591) Dividends paid to non-controlling interests 22 (27 597) (5 938) Net increase in cash and cash equivalents 42 744 5 355 Cash and cash equivalents at beginning of year 71 178 70 842 Foreign exchange differences (3 184) (5 019) Cash and cash equivalents at end of year held with banks 110 574 70 998 Restricted cash at end of year 13 164 180 Cash and cash equivalents at end of year 13 110 738 71 178 1 This relates to the receipt of proceeds in 2013 as a result of the disposal of the operations in Australia in 2012.
100 Gem Diamonds Annual Report 2014 NOTES TO THE ANNUAL FINANCIAL STATEMENTS . Notes to thefinancialstatements 1. . Corporate information 1.1 1.1.3 Segment information Segment 1.1.3 .. Operationalinformation 1.1.2 Incorporation 1.1.1 2 1 these two operations as one, due to the similarity of their services provided. oftheirservices operations asone,these two dueto thesimilarity and Belgium operations haveThe Mauritius beenaggregated into oneoperatingsegment, asmanagementmonitors – – – – – segment derives itsrevenuereporting from are: the operationsare managed. from whicheach The maingeographical regions ofproductsandservices andthetype regions placeare where take organisedOther into nodirect miningactivities geographical regions intheareas where affected predominantly by differences inthegeographical regions oftheminesand areas inwhich the Group operates. For managementpurposes, theGroup isorganised into geographical andrequired units asitsrisks rates ofreturn are Investments Limited Gem Diamonds Holdings Gem DiamondsAustralia Corp BDI Mining Limited(Proprietary) Gem DiamondsBotswana Limited(Proprietary) Letšeng Diamonds GroupGem Equity Limited Services (Proprietary) Limited (Proprietary) Services Gem Diamond Technical Subsidiaries Name ofcompany The Company hasthefollowing investments 2014: at31December directly insubsidiaries The Group engagedintheexplorationanddevelopment isprincipally ofdiamondmines. These financialstatements were authorised for issue by theBoardMarch on16 2015. Islands (BVI). The Company’s registration numberis669758. The holdingcompany, GemDiamondsLimited (theCompany), on29July2005intheBritish wasincorporated Virgin No changeintheshareholding since theprioryear. The cost ofinvestment represents originalcost ofinvestments atacquisition dates.
BVI, RSAand UK(technical and administrativeBVI, services). ofdiamonds). (manufacturing Mauritius ofdiamonds). Belgium andmanufacturing (sales, marketing Botswana (diamondminingactivities). Lesotho (diamondmining activities). 2
2 2 2 2 2 2 100% US$293 960 521 Australia Dormant investment Dormant company. Australia US$293960521 100% 0%U$75136U Investment holdingcompany holding investment Dormant company. UK US$17531316 100% BVI US$82064783 Diamondmining;evaluationand 100% Diamondminingandholderof Botswana US$27752144 Lesotho 100% investment Dormant company holding1% US$126000303 Technical, financial andmanagement 70% BVI RSA US$52277 US$17 100% 100% holding Share- investment¹ Cost of noprto Nature ofbusiness incorporation of Country diamonds ontender inAntwerp. company thatsellstheGroup’smarketing a BVBA, Services Gem DiamondsMarketing in Baobab Technologies and98%in BVBA Limited;Gem Botswana(Proprietary) 99% Limited;(Proprietary) 99.9%inCalibrated Calibrated DiamondsInvestment Holdings Diamonds Technology DMCC and Technology Limited, (Mauritius) Gem 100% ineachofGemDiamonds licences andconcessions. development; andholderofmining rights. Limited.Botswana (Proprietary) and0.1%inCalibrated Gem BVBA 1%inBaobab BVBA, TechnologiesServices Limited, 2%inGemDiamondsMarketing in GemDiamondsBotswana(Proprietary) consulting services. Gem Diamonds Gem Annual Report 2014 AnnualReport 101 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.1 Corporate information continued 1.1.3 Segment information continued Management monitors the operating results of the geographical units separately (except for Belgium and Mauritius) for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss. Inter-segment transactions are entered into under normal arm’s-length terms in a manner similar to transactions with third parties. Segment revenue, segment expenses and segment results include transactions between segments. Those transactions are eliminated on consolidation. Segment revenue is derived from mining activities, polished manufacturing margins and Group services. The following table presents revenue and profit, asset and liability information from operations regarding the Group’s geographical segments: Belgium and BVI, RSA Lesotho Botswana Mauritius and UK Total Year ended 31 December 2014 US$’000 US$’000 US$’000 US$’000 US$’000 Revenue Total revenue 277 908 – 272 221 8 877 559 006 Inter-segment (276 429) – (3 141) (8 546) (288 116) External customers 1 479 – 269 080 3311 270 890 Results Depreciation and amortisation 62 800 – 1 063 607 64 470 Depreciation and mining asset amortisation 13 488 – 1 063 607 15 158 Waste stripping cost amortised 49 312 – – – 49 312 Share-based equity transactions 488 – – 1 252 1 740 Segment operating profit/(loss) 107 527 (75) (1 977) (12 764) 92 711 Net finance income 219 Profit before tax 92 930 Income tax expense (34 983) Profit for the year 57 947 Segment assets 321 464 139 987 7 430 75 192 544 073 Segment liabilities 68 212 9 304 968 42 705 121 189 Other segment information Capital expenditure – Property, plant and equipment* 7 720 42 086 92 40 49 938 – Waste cost capitalised 51 484 – – – 51 484 Total capital expenditure 59 204 42 806 92 40 101 422 1 No revenue was generated in BVI. * Capital expenditure includes non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho and Botswana segments and capitalisation of share-based payments for the Botswana segment. Segment liabilities do not include deferred tax liabilities of US$57.5 million.
102 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. . Corporate information 1.1 1.1.3 Segment information Segment 1.1.3 Total capitalexpenditure at otcptlsd5 7 59278 – – – 59278 – Waste costcapitalised rpry ln n qimn*7952 1 6 129234 41 566 20712 7915 – Property, plantandequipment* Capital expenditure segmentinformationOther Segment liabilities Segment Segment assets Segment Profit for the year taxexpense Income Profit before tax Net financecost Segment operatingSegment profit/(loss) fast 8––(1)(155) (213) – – 58 of assets (Reversal ofimpairment)/impairment hr-ae qiytascin 8 4 932 547 – – 385 transactions equity Share-based External customers External ne-emn (9 5)–( 9)( 3)(210380) (8434) (2390) – (199556) Inter-segment oa eeu 0 1 1 9 0 423208 9001 212897 – 201310 Total revenue Revenue Segment liabilitiesdonotincludedeferred taxliabilitiesofUS$64.8million. intheLesothoarising from salesreported andBelgium segments. year intheprior annualrevenue isrevenueIncluded from asinglecustomer which amounted to US$22.6 million 1 ercainadaotsto 107–894552351 415 869 – 51067 Depreciation andamortisation Results * Capital movements expenditure inrehabilitation includesnon-cash assetsrelating tochangesinrehabilitation estimatesfor Year 2013 ended31December No revenue was generated inBVI. and Botswana segmentsandcapitalisation paymentsfortheBotswana ofshare-based segment. at tipn otaotsto 476–––34766 – – – 34766 Waste costamortisation stripping mriain1 0 6 1 17585 415 869 – 16301 amortisation Depreciation andminingasset continued continued continued US$’000 Lesotho 4 2 0 0 4 260501736 42670 8740 107004 343 322 7132 1 6 188512 41 566 20712 67 193 2925621 9 42466502 4254 13694 5632 42 922 6652 236 1 7)60658 (13575) (2396) 24 76 605 5 1 0 567 210507 – 1 754 Botswana US$’000 Mauritius Belgium US$’000 and Gem Diamonds Gem US$’000 BVI, RSA BVI, and UK Annual Report 2014 AnnualReport 1 theLesotho US$’000 212 828 (20 855) 38 164 59 019 (1 639) Total 103 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statements continued 1.2 Summary of significant accounting policies 1.2.1 Basis of presentation The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS). These financial statements have been prepared under the historical cost basis. The accounting policies have been consistently applied except for the adoption of the new standards and interpretations detailed below. The functional currency of the Company and certain of its subsidiaries is US dollar, which is the currency of the primary economic environment in which the entities operate. All amounts are expressed in US dollar. The financial statements of subsidiaries whose functional and reporting currency is in currencies other than US dollar have been converted into US dollar on the basis as set out in Note 1.2.16, Foreign currency translations. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 1.2.26, Critical accounting estimates and judgements. The Group has also adopted the following standards and interpretations from 1 January 2014:
Investment Entities – Amendments to IFRS 10, IFRS 12 and IAS 27 These amendments provide an exception to the consolidation requirement for entities that meet the definition of an investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain transition relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss. These amendments have no impact on the Group as none of the entities in the Group qualify to be an investment entity under IFRS 10.
IAS 32 Offsetting Financial Assets and Financial Liabilities – Amendments to IAS 32 These amendments clarify the meaning of ’currently has a legally enforceable right to set-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting and is applied retrospectively. These amendments have no impact on the Group.
IFRIC 21 Levies IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. As the Group applies the requirements of this standard in recognising liabilities for levies, such as royalty payments to governments, the application of this new standard did not have an impact on the financial results of the Group.
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets – Amendments to IAS 36 The amendment clarifies the disclosures required in relation to the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments remove the requirement to disclose the recoverable amount for each cash-generating unit for which the carrying amount of goodwill or intangible assets with indefinite useful lives allocated to that unit is significant. The Group adopted this amendment and removed the disclosure of recoverable amounts previously disclosed.
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria and retrospective application is required. These amendments have no impact on the Group as the Group does not enter into any hedges.
104 Gem Diamonds Annual Report 2014 Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 .. Basisofpresentation 1.2.1 IAS 16/IAS38 IFRS 14 IFRS 15 * periodsbeginningonorafter.Annual IFRS 9 interpretation Standard or become effective. financial statements are disclosedbelow. TheGroup intends to adoptthesestandards ifapplicablewhenthey The standards andinterpretations thatare issued, butnotyet effective, up to thedate ofissuance oftheGroup’s Standards issuedbutnoteffective Amortisation Amortisation and of Depreciation Acceptable Methods Clarification of Accounts Deferral Regulatory Customer Contracts with Revenue from Financial Instruments continued continued continued that time. regard, theGroup at willassesstheimpact Should theGroup’s policies changeinthis theGroup.that thisstandard willnotimpact as amethodofdepreciation, itisanticipated assets. As thisrevenue ratioisnotcurrently used intangiblelimited circumstances to amortise equipment andmay onlybeusedinvery be usedto depreciate property, plantand total revenue to expected begenerated cannot asset. As such,theratioofrevenue generated to benefits thatare consumedthrough useofan operating abusinessratherthantheeconomic of economicbenefitsthatare generated from Intangible Assets Property, Plant andEquipment inIAS16 theprinciple The amendmentsclarify that time. this regard, theGroup at willassesstheimpact Group. ShouldtheGroup’s changein activities therefore thisstandard doesnotapplyto the to ratecurrently notsubject regulation and adoption ofIFRS. The Group’s are activities deferral accountbalancesuponitsfirst-time existing accountingpoliciesfor regulatory regulation, to continueapplyingmostofits entity, are to rate whoseactivities subject IFRS 14isanoptionalstandard thatallowsan Group isstillcurrently assessingtheimpact. istransferred to thecustomer.or service The recognition ofrevenue whencontrol ofagood model principles-based, five-step for the The newrevenue standard introduces asingle, Group isstillcurrently assessingtheimpact. and financialliabilitiesasdefinedinIAS39. The Classification andmeasurement offinancialassets thatrevenue reflects a pattern andIAS38 Gem Diamonds Gem 1 January 2016 1 January 1 January 2016 1 January 1 January 2017 1 January 1 January 2018 1 January Effective date* Annual Report 2014 AnnualReport 105 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.1 Basis of presentation continued Business environment and country risk The Group’s operations are subject to country risk being the economic, political and social risks inherent in doing business in certain areas of Africa and Europe. These risks include matters arising out of the policies of the government, economic conditions, imposition of or changes to taxes and regulations, foreign exchange rate fluctuations and the enforceability of contract rights. The consolidated financial information reflects management’s assessment of the impact of these business environments on the operations and the financial position of the Group. The future business environment may differ from management’s assessment. 1.2.2 Going concern The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Review on pages 24 to 34. The financial position of the Company, its cash flows and liquidity position are described in the Strategic Review on pages 20 to 23. In addition, Note 23, Financial risk management, includes the Company’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposures to credit risk and liquidity risk. After making enquiries which include reviews of forecasts and budgets, timing of cash flows, borrowing facilities and sensitivity analyses and considering the uncertainties described in this report either directly or by cross- reference, the Directors have a reasonable expectation that the Group and the Company have adequate financial resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going-concern basis in preparing the Annual Report and accounts of the Company. These financial statements have been prepared on a going-concern basis which assumes that the Group will be able to meet its liabilities as they fall due for the foreseeable future. Refer to Note 23, Financial risk management for statements on the Company’s objectives, policies and processes for managing its capital; details of its financial instruments and hedging activities; its exposures to market risk in relation to commodity price and foreign exchange risks; cash flow interest rate risk; credit risk and liquidity risk. 1.2.3 Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Subsidiaries Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three criteria must be met, being: (a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor’s returns. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intra-group balances and transactions, including unrealised profits arising from them, are eliminated in full. A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it (i) derecognises the assets (including goodwill) and liabilities of the subsidiary; (ii) derecognises the carrying amount of any non-controlling interest; (iii) derecognises the cumulative translation differences, recorded in equity; (iv) recognises the fair value of the consideration received; (v) recognises the fair value of any investment retained; (vi) recognises any surplus or deficit in profit or loss; and (vii) reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate.
106 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 .. Property, plantandequipment 1.2.6 Development expenditure 1.2.5 Explorationandevaluationexpenditure 1.2.4 the financial period inwhichtheyarethe financialperiod incurred. original off. componentbeingwritten All repairs andmaintenance are charged to theincomestatement during separately, iscapitalisedwhenthecostofitem canbemeasured reliably, amountofthe withthecarrying Subsequent coststo replace acomponentofanitem ofproperty, plantandequipmentthatisaccounted for Group’s accountingpolicy. among others, professional fees, andfor qualifyingassets, borrowing costscapitalisedinaccordance withthe losses. Cost oftheitems, includesexpenditure to theacquisitionandconstruction attributable thatisdirectly Property, plantandequipmentisrecorded atcostlessaccumulated depreciation andaccumulated impairment All development expenditure ismonitored for annually. indicators ofimpairment and depreciated onthebasisaslaidoutinNote 1.2.6,Property, plantandequipment. the subsequentdevelopment expenditure, isreclassified withinproperty, plantandequipment to miningassets capitalised explorationandevaluationexpenditure already capitalisedto development expenditure, together with available for use, thedevelopment during phase, itisnotdepreciated. Oncompletionofthedevelopment, any expenditure isreclassified withinproperty, plantandequipment to development expenditure. As theassetisnot When proved are anddevelopment determined reserves issanctioned, capitalisedexplorationandevaluation isunderwayadditional explorationwork asplanned. can begin, are continuallyevaluated to ensure existorto thatcommercial ensure quantitiesofreserves that Exploration areas have where reserves beendiscovered, butrequire majorcapitalexpenditure before production To the extent thatexplorationexpenditure to isnotexpected berecovered, itischarged to theincomestatement. group ofoperatingassets(representing unit(CGU)) acash-generating to whichtheexplorationisattributed. isindicated,potential for impairment assessmentsare eacharea performed ofinterest withthe inconjunction All capitalisedexplorationandevaluationexpenditure ismonitored for indicationsofimpairment. Where a not available for use, itisnotdepreciated. as acomponentofproperty, charges. plantandequipmentatcostlessaccumulated impairment As theasset is Exploration andevaluationexpenditure iscapitalisedasincurred. Capitalisedexplorationexpenditure isrecorded over ofthepermit. theterm and amortised to explore witharight statement. inanexistingexplorationarea Licencecostspaidinconnection are capitalised Administration costs thatare to aspecificexplorationarea notdirectlyattributable are charged to theincome – – – – – – – and theassessmentofcommercialanidentified includes: viability resource. Explorationandevaluationactivity involvesExploration andevaluationactivity thesearch for mineralresources, oftechnical thedetermination feasibility interest even ifthatresults inadeficitbalance. to are ownersoftheparent.from attributable to attributed Losses equity thenon-controlling withinasubsidiary company andispresented intheconsolidated separately statement withinequity offinancialposition,separately notattributable, interests directlyandindirectly,Non-controlling represent inasubsidiary to theequity theparent interests Non-controlling
conducting market andfinancestudies. market conducting andinfrastructure requirements; and transportation surveying andexaminingthevolumedetermining andgrade oftheresource; drilling, trenching andsampling; exploratory explorationdatathroughgathering topographical, geochemicalandgeophysical studies; researching explorationdata; andanalysinghistorical to explore;acquisition ofrights continued continued Gem Diamonds Gem Annual Report 2014 AnnualReport 107 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.6 Property, plant and equipment continued Depreciation commences when an asset is available for use. Depreciation is charged so as to write off the depreciable amount of the asset to its residual value over its estimated useful life, using a method that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the Group. Item Method Useful life Mining assets Straight line Lesser of life of mine and period of lease Decommissioning assets Straight line Lesser of life of mine and period of lease Leasehold improvements Straight line Lesser of three years and period of lease Plant and equipment Straight line Three to 10 years Finance lease assets Straight line Lesser of period of lease or five years Other assets Straight line Two to five years Pre-production stripping costs The capitalisation of pre-production stripping costs as part of exploration and development assets ceases when the mine is commissioned and ready for production. Subsequent stripping activities that are undertaken during the production phase of a surface mine may create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and where the benefit is the creation of mining flexibility and improved access to ore to be mined in the future, the costs are recognised as a non-current asset, referred to as a ‘stripping activity asset’, if: (a) future economic benefits (being improved access to the orebody) are probable; (b) the component of the orebody for which access will be improved can be accurately identified; and (c) the costs associated with the improved access can be reliably measured. The stripping activity asset is separately disclosed in Note 7, Property, plant and equipment. If all the criteria are not met, the production stripping costs are charged to the income statement as operating costs. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs. If incidental operations are occurring at the same time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned, these costs are not included in the cost of the stripping activity asset. If the costs of the stripping activity asset and the inventory produced are not separately identifiable, a relevant production measure is used to allocate the production stripping costs between the inventory produced and the stripping activity asset. The stripping activity asset is subsequently amortised over the expected useful life of the identified component of the orebody that became more accessible as a result of the stripping activity. Based on proven and probable reserves, the expected average stripping ratio over the average life of the area being mined is used to amortise the stripping activity. As a result, the stripping activity asset is carried at cost less amortisation and any impairment losses. The average life of area cost per tonne is calculated as the total expected costs to be incurred to mine the orebody divided by the number of tonnes expected to be mined. The average life of area stripping ratio and the average life of area cost per tonne are recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio are accounted for prospectively as a change in estimate. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount of the asset. These are included in the income statement.
108 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 .. Businesscombinations, goodwillandotherintangible assets 1.2.8 Investment property 1.2.7 production commences. ofthelifemethod to allocate thecost ofconcessionsandlicencesover ofthelicenceonce ofmineorterm theshorter iscalculated usingthestraight-line losses. andaccumulated impairment Amortisation accumulated amortisation Concessions andlicencesare shownatcost.Concessions andlicences have afinite usefullife at costless andare carried Concessions andlicences unitretained. ofthecash-generating on therelative valuesoftheoperationdisposedandportion thegainorlossondisposalofoperation.Goodwilldisposedinthiscircumstancedetermining ismeasured based amountoftheoperationwhen goodwill associated withtheoperationdisposedofisincluded inthecarrying oftheoperationwithinthatunitisdisposedof, unitandpart the ofacash-generating Where goodwill forms part andnotbelarger managementpurposes internal thananoperatingsegment before aggregation. to whichgoodwillisallocated shallrepresent thelowest atwhichthegoodwillismonitored level withintheentity for irrespective ofwhetherotherassetsorliabilitiestheacquiree are assigned to thoseunits. Eachunitorgroup ofunits Group’s units)thatare units(orgroups to expected benefitfrom ofcash-generating cash-generating thecombination, testing,impairment goodwillacquired inabusinesscombinationis, from theacquisitiondate, allocated to each ofthe initialrecognition,After goodwillismeasured atcostlessany losses. accumulated impairment For of thepurpose recognised inprofit andloss. interest heldinthebusinessacquired,contingent liabilitiesandthefairvalueofany pre-existing thedifference is the acquirer’s previously interest heldequity intheacquiree) islower thanthefairvalueofassets, liabilitiesand interestnon-controlling (andwhere thebusinesscombinationisachieved instages, theacquisitiondate fairvalueof theaggregateIf oftheacquisitiondate fairvalueoftheconsiderationtransferred andtheamountrecognised for the measured reliably. Contingent liabilitiesrepresenting apresent obligationare recognised iftheacquisitiondate fairvaluecanbe are criterion recognised legalorseparability assets, separately meetingeitherthecontractual from goodwill. separately from thebusinesscombinationinaccordance withtheirnature andapplicable IFRS.Identifiableintangible relationships orpost-acquisition remuneration are arrangements accountedsuch asthesettlementofpre-existing for business combination.Assets separate acquired to andliabilitiesassumedintransactions thebusinesscombinations, acquiree) over thenetidentifiableamountsofassetsacquired andtheliabilitiesassumedinexchange for the combination isachieved instages, theacquisition date fairvalueoftheacquirer’s previously interest heldequity inthe consideration transferred andtheamountrecognised for interest thenon-controlling (andwhere thebusiness Goodwill isinitiallymeasured atcostbeingtheexcess oftheaggregate oftheacquisitiondate fairvalueofthe should notberemeasured until itisfinallysettledwithinequity. recognised inaccordance thecontingentconsiderationisclassifiedasequity, withIFRS13intheincomestatement. If it willbe Subsequent changesto thefairvalueofcontingentconsiderationwhichisdeemedto beanassetorliability Any contingent considerationto betransferred bytheacquirer willberecognised atfairvaluetheacquisitiondate. acquisition date. bytheacquiree.This includestheseparationofembeddedderivatives inhost contracts Nodepreciation isprovided dueto depreciable amountbeingzero and designation conditionsasatthe terms, inaccordance economiccircumstances withthecontractual andpertinent When theGroup acquires abusiness, itassessesthefinancialassetsandliabilitiesassumed for appropriate classification Acquisition costsincurred are expensedandincludedinadministrative expenses. shareproportionate oftheacquiree’s basis. identifiablenetassets, onatransaction-by-transaction isdetermined controlling interest intheacquiree. The choiceofmeasurement interest, ofnon-controlling eitheratfairvalueorthe aggregate oftheconsiderationtransferred, measured atacquisitiondate fairvalueandtheamountofany non- Business combinationsare accounted for usingtheacquisitionmethod. The costofanacquisitionismeasured asthe Business combinations andgoodwill Five years direct costscapitalisedto investmentInitial property Investment property basis asfollows: anddepreciatedcapitalised to investment over property Depreciation theleaseterm. iscalculated onastraight-line a straight-line basisover costsincurred direct innegotiatingandarranging theleaseare ofthelease. theterm Initial depreciation andlessany losses. accumulated impairment Rentalincomefrom isrecognised investment on property isinitiallyrecognised usingthecostmodel.Investment property Subsequentrecognition isatcostlessaccumulated continued continued Gem Diamonds Gem Annual Report 2014 AnnualReport 109 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.9 Other financial assets Management determines the classification of its investments at initial recognition and re-evaluates this designation at every reporting date. Currently the Group only has financial assets at fair value through profit or loss and loans and receivables. When financial assets are recognised initially, they are measured at fair value plus (in the case of investments, not at fair value through profit or loss) directly attributable costs. Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss. Upon initial recognition, a financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Gains and losses on investments held for trading are recognised in profit or loss. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the reporting date. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except those with maturities greater than 12 months after the reporting date. These are classified as non-current assets. Such assets are carried at amortised cost using the effective interest rate method, less any allowance for impairment, if the time value of money is significant. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at an appropriate interest rate. The amount of the provision is recognised in the income statement. 1.2.10 Financial liabilities Interest-bearing borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the income statement, unless capitalised in accordance with Note 1.2.24, Finance costs, over the period of the borrowings, using the effective interest rate method. Bank overdrafts are recognised at amortised cost. Fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on liabilities held for trading are recognised in the income statement.
110 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 ..2Impairments 1.2.12 Fair valuemeasurement 1.2.11 useful life. to allocateperiods theasset’s amount,lessany residual value, revised onasystematic basisover carrying itsremaining a reversal isrecognised in theincomestatement. suchareversal After thedepreciation charge isadjusted infuture have beendetermined, netofdepreciation, lossbeen recognised hadnoimpairment for years. theassetinprior Such the assetisincreased to itsrecoverable amount. amountthatwould That increased amountcannotexceed thecarrying the asset’s recoverable amountof losswasrecognised. amountsincethelastimpairment thatisthecase, thecarrying If A previously recognised lossis reversed impairment onlyifthere hasbeenachangeintheestimates usedto determine date.reversal ateachreporting oftheimpairment units).Non-financialassetsthat were cash inflows(cash-generating previously impaired arereviewed forpossible assetsare ofassessingimpairment, groupedpurpose atthelowest levels for whichthere are separately identifiable risks specific totheasset. assessments ofthetimevaluemoneyand rate current thatreflects market Forthe assessing valueinuse, theestimated future cashflowsare discounted discount to theirpresent valueusingapre-tax recoverable amount. The recoverable amountisthehigherofanasset’s fairvaluelesscoststo sellandvalueinuse. In annual basis. lossisrecognised Animpairment for amountexceeds theamountbywhichasset’s its carrying amountmay notberecoverable.circumstances indicate Goodwillisassessedfor thatthecarrying onan impairment ordepreciationAssets are thatare to reviewed amortisation subject for whenever impairment events orchangesin Non-financial assets level inputthatissignificant period.to thefairvaluemeasurement asawhole)attheendofeach reporting whether transfers have levels occurred between inthehierarchy byreassessing (basedonthelowest categorisation For assetsandliabilitiesthatare recognised inthefinancialstatements basis, ona theGrouprecurring determines – – – measurement asawhole: the fairvaluehierarchy, asfollows, described basedonthelowest level inputthatissignificant to thefairvalue All assetsandliabilitiesfor whichfairvalueismeasured ordisclosedinthefinancialstatements are within categorised inputs. unobservable available to measure inputsandminimisingtheuseof fairvalue, maximisingtheuseofrelevant observable The Group usesvaluationtechniques thatare appropriate inthecircumstances andfor whichsufficientdata are asset initshighestandbestuse. that would usethe participant benefits byusingtheassetinitshighestandbestuseorsellingit anothermarket to participant’sto generate ability economic intoA fairvaluemeasurement accountamarket ofanon-financialassettakes intheireconomicbestinterest. act theassetorliability, participants pricing assumingthatmarket would usewhen participants ismeasuredThe fairvalueofanassetoraliability usingtheassumptionsthatmarket mustbeaccessibleby theGroup. orthemostadvantageousmarket The principal – – placeeither: to selltheassetortransfer takes that the transaction theliability atthemeasurement date. participants market between The fairvalue measurement isbasedonthepresumption Fair thatwould valueistheprice bereceived to sellanassetorpaidto transfer inanorderly transaction aliability The Group date. measures financialinstrumentsatfairvalueeach reporting
unobservable. Level 3– Valuation techniques for whichthe lowest level inputthatissignificant to thefairvaluemeasurement is directly orindirectly observable. Level 2– Valuation techniques for whichthe lowest level inputthatissignificant to thefairvaluemeasurement is for identicalassetsorliabilities.Level markets inactive prices 1–Quoted (unadjusted) market for theassetorliability. inthemostadvantageousmarket market, in theabsenceofaprincipal or for theassetorliability; market in theprincipal continued continued Gem Diamonds Gem Annual Report 2014 AnnualReport 111 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.12 Impairments continued Financial assets The Group assesses at each reporting date whether a financial asset or group of financial assets are impaired. Assets carried at amortised cost If there is objective evidence that an impairment loss on assets carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through use of an allowance account. The amount of the loss shall be recognised in the income statement. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date, any subsequent reversal of an impairment loss is recognised in the income statement. In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognised when they are assessed as uncollectible. 1.2.13 Inventories Inventories, which include rough diamonds, ore stockpiles and consumables, are measured at the lower of cost and net realisable value. The amount of any write-down of inventories to net realisable value and all losses, is recognised in the period the write-down or loss occurs. Cost is determined as the average cost of production, using the ‘weighted average method’. Cost includes directly attributable mining overheads, but excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs to be incurred in marketing, selling and distribution. 1.2.14 Cash and cash equivalents Cash and cash equivalents are carried in the statement of financial position at amortised cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term, highly liquid investments with original maturities of three months or less. For the purpose of the cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. 1.2.15 Issued share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds. 1.2.16 Foreign currency translations Presentation currency The results and financial position of the Group’s subsidiaries which have a functional currency different from the presentation currency are translated into the presentation currency as follows: – statement of financial position items are translated at the closing rate at the reporting date; – income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and – resulting exchange differences are recognised as a separate component of equity. Details of the rates applied at the respective reporting dates and for the income statement transactions are detailed in Note 14, Issued capital and reserves.
112 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 ..8Provisions 1.2.18 payments Share-based 1.2.17 ..6Foreign translations currency 1.2.16 obligation. The increase intheprovision dueto thepassage oftimeisrecognised asfinancecosts. risks specific to the assessments ofthetimevaluemoneyand rate thatreflects current market using a pre-tax Provisions are measured at thepresent valueoftheexpenditures to expected berequired to settletheobligation, – – Provisions are recognised when: recognised intheincomestatement for theaward isreversed andrecognised inincomeimmediately. Where award anequity-settled isforfeited, itistreated asifvesting conditionshadnotbeenmetandallcostspreviously yet recognised intheincomestatement for theaward is expensedimmediately. awardWhere anequity-settled iscancelled, itistreated asifithadvested onthedate ofcancellation,andany costnot award, bothasmeasured onthedate ofthemodification.No is reduction recognised ifthisdifference isnegative. modification, basedonthedifferenceoriginal thefairvalueof between award andthefairvalueofmodified addition,anexpenseisrecognisedIn over theremainder for ofthenewvesting period theincremental fairvalueofany settled award, thecostbasedonoriginal award continuesto terms berecognised over theoriginal vesting period. awardWhere ofanequity-settled theterms are modifiedoranew award isdesignated as replacing acancelledor date inequity. isrecognisedreporting intheincomestatement, withacorresponding entry condition,betreated asvesting above.a market asdescribed The movement incumulative expensesincetheprevious instrumentsthatwillultimately vestconditions andofthenumberequity or, to inthe case ofaninstrumentsubject vesting hasexpired period andmanagement’s ofnon-market bestestimate oftheachievement orotherwise date beforeAt eachreporting vesting, thecumulative expenseiscalculated, representing to whichthe theextent conditionsare satisfied. that allotherperformance condition,whichare treated conditionissatisfied,market provided asvesting irrespective ofwhetherornotthemarket No expenseisrecognised for awards thatdonotultimately vest, except for awards, where vesting isconditionalupona ofthesharesprice conditions). oftheCompany (market ofany vesting noaccountistaken transactions, to conditions, the valuing equity-settled otherthanconditionslinked relevant employees becomefullyentitledto theaward. Fair usinganappropriate valueisdetermined model. pricing In they are granted andisrecognised asanexpenseover thevesting period, whichendsonthedate onwhichthe withemployees transactions ismeasuredThe costofequity-settled by reference to thefairvalueatdate atwhich transactionsEquity-settled income statement. isremeasured datethe liability untilsettlement,withthechangesinfairvaluerecognised ateachreporting inthe receivedpayment atthe andthefairvalueofanygrant date. identifiablegoodsorservices For cash-settledtransactions, cannot bespecificallyidentified, they are measured asthedifference between thefairvalueofshare-based received asconsiderationfor instruments bytheentity situationswhere equity someorallofthegoodsservices In transactions). wherebytransactions, asconsiderationfor instruments(equity-settled employees equity render services Employees (includingSeniorExecutives) oftheGroup receive remuneration payment intheform ofshare-based date. items for eachstatement offinancialpositionpresentedMonetary are translated attheclosingrate atthe reporting value inaforeign are translated currency usingtheexchange rates atthedate whenthefairvaluewasdetermined. are items translated measured usingtheexchange atfair rates asatthedates oftheinitialtransactions.Non-monetary are items recognised thatare measured intheincomestatement. ofcostinaforeign interms Non-monetary currency assetsandliabilitiesdenominated inforeign exchange rates ofmonetary currenciesthe translationatperiod-end dates Foreign ofthetransactions. exchange gainsorlossesresulting from andfrom thesettlementofsuchtransactions Foreign usingtheexchange are rates transactions translated currency prevailing into thefunctional atthe currency Transactions andbalances
a reliable estimate can bemadeoftheobligation. the Group hasapresent obligationasaresult legalorconstructive ofapastevent; and continued continued continued Gem Diamonds Gem Annual Report 2014 AnnualReport 113 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.19 Restoration and rehabilitation The mining, extraction and processing activities of the Group normally give rise to obligations for site restoration and rehabilitation. Rehabilitation works can include facility decommissioning and dismantling, removal and treatment of waste materials, land rehabilitation, and site restoration. The extent of the work required and the estimated cost of final rehabilitation, comprising liabilities for decommissioning and restoration, are based on current legal requirements, existing technology and the Group’s environmental policies and is reassessed annually. Cost estimates are not reduced by the potential proceeds from the sale of property, plant and equipment. Provisions for the cost of each restoration and rehabilitation programme are recognised at the time the environmental disturbance occurs. When the extent of the disturbance increases over the life of the operation, the provision and associated asset is increased accordingly. Costs included in the provision encompass all restoration and rehabilitation activity expected to occur. The restoration and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present value. Discount rates used are specific to the country in which the operation is located. The value of the provision is progressively increased over time as the effect of the discounting unwinds, which is recognised in finance charges. Restoration and rehabilitation provisions are also adjusted for changes in estimates. When provisions for restoration and rehabilitation are initially recognised, the corresponding cost is capitalised as an asset where it gives rise to a future benefit and depreciated over future production from the operation to which it relates. 1.2.20 Taxation Income tax for the period comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items charged or credited directly to equity, in which case it is recognised in equity. Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. In respect of taxable temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, deferred tax is provided except where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future. In respect of deductible temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. Withholding tax is recognised in the income statement when dividends or other services which give rise to that withholding tax are declared or accrued respectively. Withholding tax is disclosed as part of current tax. Royalties Royalties incurred by the Group comprise mineral extraction costs based on a percentage of sales paid to the local revenue authorities. These obligations arising from royalty arrangements are recognised as current payables and disclosed as part of royalty and selling costs in the income statement. Royalties and revenue-based taxes are accounted for under IAS 12 when they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is based on taxable income – rather than based on quantity produced or as a percentage of revenue. For such arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation. The royalties incurred by the Group are considered not to meet the criteria to be treated as part of income tax.
114 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 ..3Revenue 1.2.23 Leases 1.2.22 Employee benefits 1.2.21 recognised asfollows: of goods, netofvalue addedtax,rebates eliminated anddiscountsafter saleswithintheGroup. Revenue is Revenue ismeasured atfairvalueoftheconsiderationreceived orreceivable thefairvaluefor andcomprises thesale of investment property. straight-line basisover Refer theleaseterm. to Note information 1.2.7,Investment property, onthetreatment for further Assets leasedoutunderoperatingleasesare includedin investment property. Rentalincomeisrecognised ona Group asalessor contingent rental elementassociated withintheagreement, acostisrecognised materialises. asandwhenthecontingency statement onastraight-line ofthelease. basisover theperiod to aleasewhere thereWhen theGroup isa isaparty Payments madeunderoperatingleases(netofany incentives received from thelessor)are charged to theincome Leases where thelessorretains andrewards substantiallyalltherisks ofownership are classifiedasoperatingleases. equipment acquired underfinanceleasesare depreciated oftheasset’s over theshorter usefullife andthelease term. rate ofinteresta constant periodic ontheremaining for balanceoftheliability eachyear. The property, plantand The interest elementofthefinancecostischarged theincomestatementto soas over produceto theleaseperiod lease obligations, netoffinancecharges, are includedinfinancial liabilities. andfinancecharges soas liability to achieve aconstantrate onthefinancebalanceoutstanding. Thecorresponding andthepresent valueoftheminimumleasepayments.leased property Eachleasepayment isallocated the between classified asfinanceleases. Financeleases are capitalisedatthelease’s inceptionatthelower ofthefairvalue Leases ofproperty, plantandequipmentwhere theGroup has, substantially, andrewards alltherisks ofownershipare Group as a lessee for (b). scenario circumstances gave to thereassessment rise for (a),(c)or(d)andatthe date ofrenewal scenarios period orextension Where areassessment ismade, leaseaccountingshallcommenceorceasefrom thedate whenthechangein there isasubstantialchangeto theasset. (d) there ofwhetherfulfilmentisdependentonaspecificasset;or isachangeinthedetermination (c) a renewal optionisexercised granted, or extension oftherenewal unlesstheterm wasinitially (b) orextension terms, there otherthanarenewal isachangeincontractual ofthearrangement; orextension (a) following applies: conveys toarrangement usetheasset.Areassessment aright inceptionoftheleaseonlyifone ismadeafter isdependentontheuseofaspecificassetorassets inception date ofwhetherthefulfilmentarrangement is, ofwhetheranarrangement The determination orcontains, at aleaseisbasedonthesubstanceofarrangement trade andotherpayables andare measured to attheamountsexpected bepaidwhen theliabilitiesare settled. obliged orwhere thathascreated there isapastpractice obligation. aconstructive These liabilitiesare recognised in The Group recognises andanexpensefor aliability bonuses. The Group recognises where contractually aliability Bonus plans inwhichtheemployees pensionfundintheperiod to thedefinedcontribution render the related service. date are thereporting discounted12 monthsafter to present value. The Group recognises anexpensefor contributions are measured to attheamountsexpected bepaidwhentheliabilitiesare settled. Benefitsfallingduemore than sick leave date, obligedto besettledwithin12monthsofthereporting are recognised intradeandotherpayables and benefits, benefits requiredincluding non-monetary bylegislation, annualleave, retirement benefitsandaccumulating Provision ismadeinthefinancialstatements employee benefits.for allshort-term Liabilities forwagesandsalaries, included intheleaseterm; continued continued Gem Diamonds Gem Annual Report 2014 AnnualReport 115 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.23 Revenue continued Sale of goods The sale of rough diamonds (which are made through competitive tender processes or through partnership arrangements), the sale of polished diamonds and other products (which are made through direct sale transactions) and additional uplift on partnership arrangements are recognised when the significant risks and rewards of ownership have been transferred to the customer and can be measured reliably and receipt of future economic benefits is probable. For the additional uplift made on partnership arrangements, certain estimates and judgements are made by management as referred under policy 1.2.26 Critical accounting estimates and judgements. Rendering of service Sales of services relating to third-party diamond manufacturing, are recognised in the accounting period in which the services are rendered, and it is probable that the economic benefits associated with the transaction will flow to the entity, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. Interest income Interest income is recognised on a time-proportion basis using the effective interest rate method. Dividends Dividends are recognised when the amount of the dividend can be reliably measured and the Group’s right to receive payment is established. 1.2.24 Finance costs Finance costs are generally expensed as incurred, except where they relate to the financing of construction or development of qualifying assets requiring a substantial period of time to prepare for their intended future use. Finance costs are capitalised up to the date when the asset is ready for its intended use. 1.2.25 Dividend distribution Dividend distributions to the Group’s shareholders are recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Group’s shareholders. 1.2.26 Critical accounting estimates and judgements The preparation of the consolidated financial statements requires management to make estimates and judgements and form assumptions that affect the reported amounts of the assets and liabilities, the reported revenue and costs during the periods presented therein, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future and the resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the financial results or the financial position reported in future periods are discussed below. Life of mine There are numerous uncertainties inherent in estimating ore reserves and the associated life of mine. Therefore the Group must make a number of assumptions in making those estimations, including assumptions as to the prices of commodities, exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the ore reserves being restated. Where assumptions change the life of mine estimates, the associated depreciation rates, residual values, waste stripping and amortisation ratios, and environmental provisions are reassessed to take into account the revised life of mine estimate. Exploration and evaluation expenditure This policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular whether economically viable extraction operations are viable where reserves have been discovered and whether indications of impairment exist. Any such estimates and assumptions may change as new information becomes available.
116 Gem Diamonds Annual Report 2014 .Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 ..6Criticalaccounting estimates andjudgements 1.2.26 contamination, andthetiming, andcostsofrequired extent restoration andrehabilitation activity. provisions. magnitude ofpossible framework, suchaschangesto thelegalandregulatory These dealwithuncertainties Significant estimates andassumptionsare theamountof madeindetermining restoration and rehabilitation Provision forrestoration andrehabilitation testing, detail.to Note for 10,Impairment further operations istested annually,polished diamondmanufacturing evidentinthecurrent year. withnoimpairment Refer and there were noindicators ofimpairment. The goodwill in theGroup intheLetšeng whichisreported miningand position doesnotrepresent asallsignificant anindicator ofimpairment operations were the assessedduring year capitalisation,thisresults inanindicator ofimpairment. its market capitalisation The Group believes thatthemarket The Group if, hasmadeajudgementindetermining intheinstancewhere theGroup’s valuesexceed assetcarrying flows are discounted byanappropriate discountrate thenetpresent determine to value. into may account.Cash take participant continued useoftheassetusingassumptionsthatanindependentmarket value for asthepresent mineassetsisgenerallydetermined valueofestimated future from cashflowsarising the obtained from thesaleofassetinanarm’s-length Fair andwillingparties. knowledgeable between transaction Fairoperating performance. asmanagement’s valueisdetermined bestestimate oftheamountthatwould be diamondprices,assumptions suchaslong-term discountrates, future capitalrequirements, explorationpotential and be thehigheroffairvaluelesscoststo sellandvalueinuse. These assessmentsrequire theuseofestimates and Where exists, anindicator ofimpairment aformal estimate oftherecoverable amount ismade, whichisconsidered to unitannuallyto whetherany determine exists.The Group indicationofimpairment assesseseachcash-generating Impairment ofassets present valueofthosecashflows. discountrate inorderfuture unitandamarket-related pre-tax cashflowsfromto calculate thecash-generating unitcouldbesold. Estimatingthe value inuserequirescash-generating theGroup an estimate to oftheexpected make costs to sell andvalueinuse. Fair valuecalculationsrequire theGroup estimates to oftheamountfor make whichthe unitto whichthegoodwillrelates.amount ofthecash-generating Recoverable amountisthehigheroffairvalueless The Group ifgoodwillisimpaired determines atleastonanannualbasis. This requires anestimationoftherecoverable Impairment ofgoodwill including future demand, technological changes, exchange rates, interest rates andothers. The calculationoftherecoverable amountofanassetrequires significant judgements, estimates andassumptions, Property, plantandequipment–recoverable amount goods are determined. measured. sellsthesegoods, atwhichpointintimethevalueoffinalpolished This occurswhenthethird party canbereliably estimates andassumptionsbased onwhentheuplift isrequiredManagement certain to make isrecognisedadditional uplift andmeasured withregard arrangements. to rough diamonds soldinto partnership andrewardsrisks have passedto thethird Judgementisappliedby party. when managementindetermining asthereparty, isnocontinuinginvolvement by managementinthecuttingandpolishingprocess andthesignificant recognisesManagement therevenue onthesaleofrough diamondatthepoint atwhichitissoldto thethird polished margin achieved. These are referred inthesefinancial statements. arrangements to aspartnership these arrangements, revenue for isearned thesaleofrough diamond, basedonthe withanadditionaluplift hasenteredManagement to into increase arrangements therevenue onthesaleofrough earned diamonds. Under Revenue estimates above andassumptionssimilarto for thosedescribed capitalisedexplorationandevaluationexpenditure. recoverable existandthatdevelopment isrequired may reserves besanctioned. Management certain to make whenaproject hasreachedJudgement isappliedbymanagementindetermining astageatwhicheconomically expenditureDevelopment continued continued continued Gem Diamonds Gem Annual Report 2014 AnnualReport 117 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
1. Notes to the financial statementscontinued 1.2 Summary of significant accounting policiescontinued 1.2.26 Critical accounting estimates and judgements continued Taxation The determination of the Group’s obligations and expense for taxes requires an interpretation of tax law and therefore certain assumptions and estimates are made. Capitalised stripping costs (deferred waste) Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations. Furthermore, during the production phase, stripping costs are incurred in the production of inventory as well as in the creation of future benefits by improving access and mining flexibility in respect of the ore to be mined, the latter being referred to as a ‘stripping activity asset’. Judgement is required to distinguish between these two activities at Letšeng. The orebody needs to be identified in its various separately identifiable components. An identifiable component is a specific volume of the orebody that is made more accessible by the stripping activity. Judgement is required to identify and define these components (referred to as ‘cuts’), and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments are based on a combination of information available in the mine plans, specific characteristics of the orebody and the milestones relating to major capital investment decisions. Judgement is also required to identify a suitable production measure that can be applied in the calculation and allocation of production stripping costs between inventory and the stripping activity asset. The ratio of expected volume (tonnes) of waste to be stripped for an expected volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the current period ratio of actual volume (tonnes) of waste to the volume (tonnes) of ore is considered to determine the most suitable production measure. These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the stripping ratio calculation in determining the amortisation of the stripping activity asset. Stripping ratio Estimated recoverable reserves are used in determining the amortisation of mine-specific assets. Amortisation is calculated by using the expected average stripping ratio over the average life of the area being mined. The average stripping ratio is calculated as the number of tonnes of waste material expected to be removed during the life of area, per tonne of ore mined. The average life of area cost per tonne is calculated as the total expected costs to be incurred to mine the orebody divided by the number of tonnes expected to be mined. The average life of area stripping ratio and the average life of area cost per tonne are recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio are accounted for prospectively as a change in estimate. Production start date The phase of each mine construction project is assessed to determine when a mine moves into the production phase. The criteria used to assess the start date are determined by the unique nature of each mine’s construction project and includes factors such as the complexity of a plant and its location. Various relevant criteria are considered to assess when the mine is substantially complete and ready for its intended use and moves into the production phase. At this point, all related amounts are reclassified from ‘exploration and development assets’ to ‘mining assets’, ‘stripping activity asset’ and/or ‘property, plant and equipment’. Some of the criteria would include but are not limited to the following: – the level of capital expenditure compared to the construction cost estimates; – completion of a reasonable period of testing of the mine plant and equipment; – ability to produce inventory in saleable form; and – ability to sustain ongoing production of inventory.
118 Gem Diamonds Annual Report 2014 .Revenue 2. Notes to thefinancialstatements 1. 1.2 Summary ofsignificantaccounting policies Summary 1.2 Finance incomeisreflected inNote 4,Netfinance income/(cost). ofservices Rendering Sale ofgoods ..7Exceptional items 1.2.27 Criticalaccounting estimates andjudgements 1.2.26 facilitate comparison with prior periods andto assessbetter periods trends withprior facilitate comparison infinancialperformance. presentation to inthe allowshareholdersyear, to understandbetter theelementsoffinancialperformance soas to oftheeventsexpenses which,becauseofthenature giving separate infrequency to andexpected them,merit rise The Group presents asexceptional items onthefaceofincomestatement, items thosematerial ofincomeand relating to theseawards are accelerated andrecognised asanexpenseimmediately. some orallofanaward willvest andthiswillbetreated asamodification to theoriginal award. Thefuture expenses recognised are thenreversed. Where employees do meet therequirements ofagoodleaver aspertherulesofLTIP, award willvest andthiswillbetreated ascancellationby forfeiture. The expensesrelating to these charges previously employees donotmeettherequirements ofagoodleaver incentive aspertherulesoflong-term plan(LTIP), no have conditionperiod before beencancelledorforfeited inlightoftheirleaving status. theendofservice Where whethertheshareJudgement isappliedbymanagementindetermining optionsrelating to employees whoresigned payments Share-based ofNote 7,Property,capitalised to theexplorationanddevelopment assetcategory plantandequipment. management andtherefore theyear themineremained phasewithallcostsincurred during being initsconstruction forAs itto aresult, becapableofoperatinginthemannerintended by theminewasnotinconditionnecessary – specific areas intheplantdidnotallowcommissioningprocess to progress to itsintended production state. – the unanticipated highvolumes ofwater from basaltfissures which were ofthe encountered thelatter part during based onthefollowing: theyear date during judgementthattheGhaghoominehadnotreached productionstart madethekey Management commences. isalsoatthispointthatdepreciation/amortisation exploration expenditure for thatmeetsthecriteria capitalisation.It asset(s),and asset additionsorimprovements, activity costscapitalisableasstripping phasestripping production costs ceasesandare eitherregarded orexpensed, asinventory except for capitalisablecostsrelated to mining mineconstruction moves project intoWhen amineconstruction theproductionphase, thecapitalisationofcertain date Production start year causingadelay inreaching steady state production,and continued continued continued continued Gem Diamonds Gem US$’000 269 870 270 890 1 020 2014 Annual Report 2014 AnnualReport US$’000 212 020 212 828 2013 808 119 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
3. Operating profit 2014 2013 US$’000 US$’000 Operating profit includes the following: Other operating income Profit on disposal of property, plant and equipment 49 689 Depreciation and amortisation Depreciation and mining asset amortisation (16 991) (19 558) Waste stripping costs amortised (49 312) (34 766) (66 303) (54 324) Less: Depreciation capitalised to development 1 957 1 454 Less: Depreciation and mining asset amortisation capitalised to inventory 33 519 (64 313) (52 351) Amortisation of intangible assets (157) (159) (64 470) (52 510) Reversal of impairment Reversal of impairment – Chiri1 – 159 Impairment – Project Kholo2 – (58) Net reversal of impairment – other assets – 54 – 155 Inventories Cost of inventories recognised as an expense (129 195) (102 843) Write-down of inventories to net realisable value – (90) Foreign exchange gain Foreign exchange gain 5 508 1 480 Mark-to-market revaluations on forward exchange contracts (266) (874) 5 242 606 Operating lease expenses as a lessee Mine site property (90) (90) Equipment and service leases (39 535) (43 665) Contingent rental – Alluvial Ventures (8 489) (9 605) Leased premises (2 716) (1 743) (50 830) (55 103) Auditor’s remuneration – Ernst & Young Audit fee Group financial statements (443) (479) Statutory (183) (331) (626) (810) Auditor’s remuneration – other Statutory (25) (18) (25) (18) 1 This relates to the sale of assets in 2013, relating to the Chiri Concession in Angola, which was previously fully impaired in 2012. The Group no longer holds this concession in Angola. 2 During 2011, the Group approved the expansion at the Letšeng mine (Project Kholo). During 2012, Project Kholo as originally envisaged was re-evaluated and as a result certain capital expenditure incurred on items that had been assessed as no longer having an enduring benefit to the operation, were written off.
120 Gem Diamonds Annual Report 2014 .Operating profit 3. Underlying EBITDA (excluding costamortised) waste stripping Depreciation andminingassetamortisation operatingincome Other payments Share-based Foreign exchange gain Operating profit oftheGroup.performance The reconciliation from operatingprofit EBITDA underlying to isas follows: EBITDAUnderlying isshown,astheDirectors considerthismeasure to bearelevant guideto the Underlying earningsbefore interest, (EBITDA) tax,depreciation andminingassetamortisation 1 Salaries andwages¹ Salaries Employee benefits expense Tax andconsultancy advisory services audit Internal non-auditfees –other Other assuranceservices Other services Other Tax complianceservices Corporate financeservices Tax andconsultancy advisory services non-auditfees –Ernst& Other Young Includes contributions todefined Decembercontribution planof 2013: US$0.8 million(31 US$0.9 million). continued Gem Diamonds Gem US$’000 104 233 (22 334) 15 158 92 711 (5 242) 1 740 2014 (134) (457) (101) (356) (217) (151) (42) (11) (13) – Annual Report 2014 AnnualReport US$’000 (20 845) 77 379 17 296 60 503 2013 (606) (746) (320) (295) (163) (132) (579) 932 (87) (86) (13) (73) 121 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
4. Net finance income/(cost) 2014 2013 US$’000 US$’000 Finance income Bank deposits 2 575 992 Other 855 226 Total finance income 3 430 1 218 Finance costs Bank overdraft (116) (143) Interest on debt, borrowings and trade and other payables1 (2 029) (1 501) Finance costs on unwinding of rehabilitation provision (1 066) (1 213) Total finance costs (3 211) (2 857) 219 (1 639) 1 Included in interest on debt, borrowings and trade and other payables is a provision for interest on potential tax liabilities which are under dispute.
5. Income tax expense 2014 2013 US$’000 US$’000 Income statement Current – Overseas (30 626) (12 980) Withholding tax – Overseas (6 565) (1 498) Deferred – Overseas 2 208 (6 377) (34 983) (20 855) Profit before taxation 92 930 59 019
Reconciliation of tax rate % % Applicable income tax rate 21.5 23.3 Permanent differences 4.0 6.1 Unrecognised deferred tax assets 1.1 1.5 Effect of overseas tax at different rates 4.0 1.9 Withholding tax 7.0 2.5 Effective income tax rate 37.6 35.3
122 Gem Diamonds Annual Report 2014 . Earningspershare 6. date ofcompletionthesefinancialstatements. There date andthe shares have shares involving thereporting between orpotential beennoothertransactions ordinary ordinary of dilution Weighted shares theyear average outstandingduring adjusted for numberofordinary theeffect – Future share awards undertheEmployee Share OptionPlan Effect ofdilution: Weighted shares theyear average outstandingduring numberofordinary shares. associated withtheordinary issue rights into accountfutureweighted shares potential theyear average taking conversion outstandingduring after numberofordinary an pershareDiluted holdersoftheparent earnings are byth equity calculated bydividingthenetprofit ordinary to attributable weighted shares theyear. average outstandingduring numberofordinary pershare holdersoftheparentEarnings amountsare byth equity calculated bydividingthe netprofit ordinary to attributable Weighted shares theyear average outstandingduring (‘000) numberofordinary The weighted average shares atyear numberofshares into end. accountthetreasury takes Net profit holdersoftheparentattributable equity to for basicanddiluted earnings Less: Profit for the year The following theincomeandshare reflects pershare datausedinthebasicanddiluted earnings computations: Non-controlling interests Non-controlling Gem Diamonds Gem
of shares US$’000 Number 139 166 138 204 138 204 (24 730) 33 217 57 947 2014 2014 962 Annual Report 2014 AnnualReport of shares Number US$’000 138 904 138 194 138 194 e (16 994) 21 170 38 164 e 2013 2013 710
d 123 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
7. Property, plant and equipment Exploration and Stripping develop- Decommis- Leasehold activity Mining ment sioning improve- Plant and Other asset asset assets1 assets ment equipment2 assets3 Total As at 31 December 2014 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 Cost Balance at 1 January 2014 216 133 130 981 94 339 13 014 19 891 92 814 12 818 579 990 Additions 54 642 – 38 668 – 80 11 536 2 609 107 535 Reallocated to prepayments (Note 11) (3 158) – – – – – – (3 158) Net movement in rehabilitation provision – – 616 (3 571) – – – (2 955) Disposals – – – – – (25) (103) (128) Reclassifications – 1 177 81 – 4 439 (6 237) 540 – Foreign exchange differences (23 665) (6 797) (9 623) (1 035) (2 062) (9 534) (1 285) (54 001) Balance at 31 December 2014 243 952 125 361 124 081 8 408 22 348 88 554 14 579 627 283 Accumulated depreciation/ amortisation Balance at 1 January 2014 100 843 42 625 – 3 144 8 544 44 993 6 216 206 365 Charge for the year 49 312 2 477 – 880 2 459 8 435 2 740 66 303 Disposals – – – – – (25) (91) (116) Foreign exchange differences (12 076) (668) – (378) (1 059) (5 268) (747) (20 196) Balance at 31 December 2014 138 079 44 434 – 3 646 9 944 48 135 8 118 252 356 Net book value at 31 December 2014 105 873 80 927 124 081 4 762 12 404 40 419 6 461 374 927
124 Gem Diamonds Annual Report 2014 . Property, plantandequipment 7. 1Dcme 0315208 5 4399801 4 781662373 625 6602 47821 11347 9870 94339 88356 115290 2013 31 December Net bookvalueat 31 December 2013 Balance at oeg xhnedfeecs(855 124 69 205 1 7)(1062)(34106) 471) 085)(10 (639) (2 – (1264) (18585) Foreign exchange differences Impairment reversal Impairment Disposals hrefrteya 3 6 9 7 0 02826054324 2610 10278 2104 1170 – 3396 34766 Charge for theyear aac t1Jnay21 4624 9 1 1 801470189159 4730 48051 8610 2613 – 40493 84662 2013 Balance at1January amortisation Accumulated depreciation/ 31 December 2013 Balance at oeg xhnedfeecs(259 1 3)(117 332 356 2 1)(2119)(103158) 014) 556)(23 382)(3 107) (3 (11 (17431) (42549) Foreign exchange differences Reclassifications – 7 566 (4 672) – 5 871 (10 319) 1 554– 319) 871 (10 –5 (4672) – 7566 Reclassifications Disposals eaiiainpoiin––(9)( 5)–––(2349) – – – (1957) (392) – – rehabilitation provision Net movement in diin 928–2 5 9 00312190861 1211 10023 299 – 20050 – 59278 Additions aac t1Jnay21 9 0 4 4 0401 5 73219101 3 597764 12239 119100 17362 18353 90460 140846 199404 2013 Balance at1January Cost As 2013 at31December 3 2 1 Included inplantandequipmentiscapital work inprogress ofUS$20.2 2013: US$19.3 million(31December million).Borrowing Borrowing costs ofUS$0.6 2013:US$nil) million(31December incurred inrespect fortheremain ofthe$25.0millionfacility assetscomprise motorvehicles, computerOther equipment,furniture andfittings, andoffice equipment. amount ofborrowing costs eligibleforcapitalisation was 5.07%. to Note15,Interest-bearing loansandborrowings) isincludedincapital work inprogress. Theweighted average capitalisation 2013:US$nil)(31 December incurred Coar inrespect forthetotalfundingofnew oftheLSL140.0millionbankloanfacility used todeterminetheamountofborrowing costs eligibleforcapitalisation was 4.04%. (referdevelopment toNote15,Interest-bearing loansandborrowings) were capitalised asset.Theweighted tothedevelopment a Stripping Stripping US$’000 0 4 265–3148544 9 1 206365 6216 44993 8544 3144 – 42625 100 843 1 3 3 8 4391 1 9819 1 288579990 12818 92814 19891 13014 94339 130981 216 133 activity activity continued asset ––––– –––– –––– US$’000 Mining Mining asset Exploration develop- US$’000 assets ment and 1 Decommis- US$’000 sioning assets Leasehold improve- US$’000 ment 8)( 7)(2 (2626) (62) (2479) (85) 8)( 7)(7 (3128) (67) (2976) (85) equipment Plant and Gem Diamonds Gem US$’000 36 (386) – (386)
ing spendonthePhase 1Ghaghoo se Recovery Plant atLet rate usedtodeterminethe 2 costs ofUS$0.5 million verage capitalisation rate US$’000 assets Other Other Annual Report 2014 AnnualReport 3 US$’000 š eng (refer Total 125 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
8. Investment property The investment property consists of a commercial unit located in the Almas Towers in Dubai. The unit is being let out in terms of a rental agreement which was renegotiated during 2014. The rental agreement is for a period of two years commencing 1 October 2014. 2014 2013 US$’000 US$’000 Cost Balance at 1 January 617 617 Balance at 31 December 617 617 Accumulated depreciation Balance at 1 January 2 1 Depreciation – 1 Balance at 31 December 2 2 Net book value at 31 December 615 615 Fair value¹ 1 164 1 099 Amounts recognised in profit or loss Rental income 54 53 Direct operating expenses (16) (20) The future minimum rental income under the rental agreement in aggregate and for each of the following periods are as follows: – Within one year 59 57 – After one year but not more than five years 44 35 – More than five years – – 103 92 1 No independent valuation was performed. Fair value was based upon an overview of property sales (units within the same building as the investment property) during 2014, weighted towards the most recent sales activity, which is valued using a Level 2 input in terms of the fair value hierarchy.
9. Intangible assets Intangibles Goodwill Total As at 31 December 2014 US$’000 US$’000 US$’000 Cost Balance at 1 January 2014 786 19 680 20 466 Foreign exchange difference (2) (1 862) (1 864) Balance at 31 December 2014 784 17 818 18 602 Accumulated amortisation Balance at 1 January 2013 264 – 264 Amortisation 157 – 157 Balance at 31 December 2014 421 – 421 Net book value at 31 December 2014 363 17 818 18 181 Intangibles Goodwill Total As at 31 December 2013 US$’000 US$’000 US$’000 Cost Balance at 1 January 2013 786 24 292 25 078 Foreign exchange difference – (4 612) (4 612) Balance at 31 December 2013 786 19 680 20 466 Accumulated amortisation Balance at 1 January 2012 105 – 105 Amortisation 159 – 159 Balance at 31 December 2013 264 – 264 Net book value at 31 December 2013 522 19 680 20 202 Impairment of goodwill within the Group was tested in accordance with the Group’s policy. Refer to Note 10, Impairment testing, for further details.
126 Gem Diamonds Annual Report 2014 10. Impairment 10. Impairment testing – – – – – – – – assumptionsusedinthecalculationfor are:The key goodwillassetimpairment Key assumptionsusedinthecalculations associated miningandtreatment costs. period. This date dependsonanumberofvariables, includingrecoverable andresources, reserves theforecast a sellingprices time ofcompletingthetesting, andislimited to thelesserofcurrent economicresource ortheremaining 10-year miningl Cash flowsare projected up thedateto for aperiod thatminingisexpected cease,to basedonmanagement’s atthe expectations Value inuse model.Letšeng basedonavalue-in-use Diamondshasbeendetermined is compared withitsrecoverable amount.For testing in2014,therecoverable ofgoodwillimpairment thepurpose amountfor uni amountofthecash-generating assessingwhethergoodwillhasbeenimpaired, 2014.In at31December thecarrying undertaken annuallyandwhenever there are indicationsofimpairment. testing isundertaken Goodwill impairment The mostrecent test was – Calibrated Diamonds – Calibrated Diamonds – Letšeng Diamonds generating units, asfollows: Goodwill acquired through businesscombinationshasbeenallocated to theindividualcash- Goodwill – Letšeng Diamonds Discount rate for eachcash-generating unit associated into withdifferent accountrisks units. taking cash-generating weighted average oftheGroup costofcapital(WACC) andadjusted unit, accordingly premium atarisk ofeachcash-generating Discount rates are outlinedbelow(basedonablendedrate), andrepresent rates. thereal pre-tax These rates are basedonthe Movement ingoodwillrelates to foreign exchange translationfrom to presentation functional currency. within theGroup. unitinthecurrent year asaresult Diamonds cash-generating ofthere being achangeintheassessmentofcash-generating Goodwill thatwaspreviously unithasbeenallocated allocated infullto to theLetšen theCalibrated Diamondscash-generating Balance at endofyear
discount rates. yieldonpolished;and expected andprocessing; costs ofextracting plantthroughput;expected US$/caratprices; expected gradesexpected achievable; caratsrecoverable;expected recoverable andresources; reserves Gem Diamonds Gem
US$’000 17 818 17 818 2014 2014 13.7 % – – Annual Report 2014 AnnualReport US$’000 nd the
19 680 18 229 ease 1 451 g 2013 2014 units 13.1 12.5
127 % t 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
10. Impairment testing continued Economically recoverable reserves and resources, carats recoverable and grades achievable are based on management’s current expectation and mine plan, supported by the evaluation work undertaken by appropriately qualified persons. The impairment test si most sensitive to changes in commodity prices and discount rates. Long-term US$ per carat prices are based on external market consensus forecasts as published by independent marketing consultants adjusted for the Group’s specific operations. Plant throughput is based on current plant facilities and processing capacities. heT Plant 2 Phase 1 upgrade project to increase the current Plant 2 capacity by 250 000 tonnes per annum has commenced during the year and majority of the costs have been incurred in 2014. This upgrade will result in the increased throughput rate almost immediately after commissioning and is due to be completed by the end of Q1 2015. The additional 250 000 tonnes have therefore been included in the future years when calculating the value in use. Costs are determined on management’s experience and the use of contractors over a period of time whose costs are fairly reasonably determinable. Mining costs for the next eight years (effective 1 January 2014) have been based on the negotiated mining contract which was concluded during the year. Costs of extracting and processing which are reasonably determinable are based on management’s experience. Expected yield on polished has been based on management’s experience. The foreign exchange rates have been based on current spot exchange rates at the date of the value-in-use calculation.
Sensitivity to changes in assumptions Given the current volatility in the market, adverse changes in key assumptions could result in changes to impairment charges. For the purpose of testing for impairment of goodwill using the value-in-use basis for Letšeng mining operations, it was assessed that no reasonably possible change in any of these key assumptions would cause its carrying amount to exceed its recoverable amount. The Group will continue to test its assets for impairment where indications are identified and may in future record additional impairment charges or reverse any impairment charges to the extent that market conditions improve and to the extent permitted by accounting standards.
128 Gem Diamonds Annual Report 2014 Terms andconditionsofthereceivables: 1 Receivables andotherassets 11. 12. Inventories Prepayments Non-current The carrying amountsabove approximate theirfairvalue.The carrying 1 60 to 90days 30 to 60days Less than30days Past duebutnotimpaired: Neither pastduenorimpaired Analysis oftrade receivables VAT receivable receivables Other Deposits Prepayments Trade receivables Current Net realisable valuewrite-down Consumable stores Ore stock piles Diamonds onhand stripping cost amortised charge (includedincoststripping cost ofsales)US$1.4 amortised millionandafinance income adjustmentof US$0.9 million whichwas review disclosedin2012.Thewastesurveying tonnesand stripratio forfuture cutshave beenreassessed andhave re contractor over contract thetermofnew (eight 2014)asaresult years oftheestimationchange inrespect from 1January assetdisclosedinNote7,Property,the strippingactivity plantandequipment.Thisrepresents thecurrent value ofwaste cos ofUS$0.3 ofUS$2.9 millio A totalprepayment millionandacurrent ofUS$3.2 portion million(comprising portion anon-current 1 1 Gem Diamonds Gem
ts toberecovered from themining of thewaste minedoutofthe US$’000 US$’000 US$’000 sulted inacredit tothewaste in theyear. n) hasbeenreallocated from 28 770 17 460 9 255 2 055 7 598 5 656 1 250 2 877 2014 2014 2014 106 167 419 106 16 34 56 – – Annual Report 2014 AnnualReport US$’000 US$’000 US$’000 29 326 18 806 1002 7 239 3 281 1 002 6 749 4 644 2013 2013 2013 134 230 939 739 32 31 90 129 – – 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
13. Cash and short-term deposits 2014 2013 US$’000 US$’000 Cash on hand 2 9 Bank balances 56 925 22 724 Short-term bank deposits 53 811 48 445 110 738 71 178 The amounts reflected in the financial statements approximate fair value. Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits are generally call depositaccounts and earn interest at the respective short-term deposit rates. At 31 December 2014, the Group had restricted cash of US$0.2 million (31 December 2013: US$0.2 million). The Group’s cash surpluses are deposited with major financial institutions of high-quality credit standing predominantly within Lesotho and the United Kingdom. At 31 December 2014, the Group has US$41.6 million (31 December 2013: US$43.9 million) of undrawn facilities representing a US$20.0 million three-year unsecured revolving credit facility and an LSL250.0 million (US$21.6 million) three-year revolving working capital facility. During the year, two new facilities were concluded and were fully drawn down at 31 December 2014. For further details on these facilities, refer to Note 15, Interest-bearing loans and borrowings.
14. Issued capital and reserves Issued capital 31 December 2014 31 December 2013 Number of Number of shares shares ‘000 US$’000 ‘000 US$’000 Authorised – ordinary shares of US$0.01 each As at year end 200 000 2 000 200 000 2 000 Issued and fully paid Balance at beginning of year 138 270 1 383 138 267 1 383 Allotments during the year ––3– Balance at end of year 138 270 1 383 138 270 1 383 Share premium Share premium comprises the excess value recognised from the issue of ordinary shares at par value. Treasury shares The Company established an Employee Share Option Plan (ESOP) on 5 February 2007. Under the terms of the ESOP, the Company granted options to employees of over 376 500 ordinary shares with a nil exercise price upon listing. At listing, the Gem Diamonds Limited Employee Share Trust acquired 376 500 ordinary shares by subscription from the Company as part of the initial awards under the ESOP arrangement at nominal value of US$0.01. During the current year, there were no shares exercised (31 December 2013: 14 667) and no shares lapsed (31 December 2013: nil). At 31 December 2014, 65 550 shares were held by the trust (31 December 2013: 65 550).
130 Gem Diamonds Annual Report 2014 14. Issued capital and reserves Issuedcapitalandreserves 14. Period end Dirham to US$1 Dirham to US$1 Dirham Rupeeto US$1 Pula to US$1 Rupeeto US$1 Pula to US$1 ZAR/LSL to US$1 ZAR/LSL to US$1 For detailsoncapitalmanagement,refer to Note 23,Financial management. risk Capital management For refer reserve, equity payments. to detailsontheshare-based Note 24,Share-based reserves equity Share-based Period end Average rate Period end Average rate Period end Average rate Period end Average rate as follows: different to theGroup’s ofUSdollar. currency functional into US d currency Therates theoperatingfunctional used to convert theyear,During Lesotho, theSouthAfrican, andUnited ArabEmirate subsidiaries’ Botswana, Mauritian currencies we functional The foreign allforeign comprises translationreserve currency exchange differences from arising thetranslationof foreign enti Foreign translation currency reserve Other reserves Other hr-ae amns–1141164 1164 (53442) – – (53442) Balance at 31December 2013 payments Share-based Total comprehensive expense comprehensive expense Other 2013 Balance at 1January Balance at 31December 2014 payments Share-based Total comprehensive expense comprehensive expense Other 2014 Balance at 1January continued translation currency currency 1651 878(97753) 48798 (69408) (146 551) 46834 (116 242) US$’000 Currency 1622 684(69408) 46834 (116 242) Foreign 3 0)–(30309) (30309) – – (30 309) (30 309) reserve 5 4)–(53442) – (17130) 45670 (53 442) (62 800) 6 1964 1964 – Gem Diamonds Gem equity reserve equity Share-based Share-based
US$’000 31.75 30.65 11.57 10.85 2014 3.67 3.67 9.51 8.98 Annual Report 2014 AnnualReport US$’000 ties. ollar are Total re re 30.05 30.75 10.47 2013 9.65 3.67 3.67 8.78 8.40 131 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
15. Interest-bearing loans and borrowings Effective interest 2014 2013 rate % Maturity US$’000 US$’000 Non-current LSL140.0 million bank loan facility South African 30 June 2017 7 261 – JIBAR + 4.95% 7 261 – Current LSL140.0 million bank loan facility South African 30 June 2017 4 841 – JIBAR + 4.95% US$25.0 million bank loan facility London US$ 30 April 2015 25 000 – three-month LIBOR + 4% 29 841 – LSL140.0 million bank loan facility at Letšeng Diamonds This loan is a three-year unsecured project debt facility signed jointly with Standard Lesotho Bank and Nedbank Limited on 26 June 2014 for the total funding of the new Coarse Recovery Plant. The loan is repayable in 10 quarterly payments commencing 31 March 2015 with a final payment due on 30 June 2017. The interest rate for the facility at 31 December 2014 is 11.08%. US$25.0 million bank loan facility at the Company This loan is a nine-month unsecured facility which was signed with Nedbank Capital on 16 January 2014 for the remaining spend on the Ghaghoo Phase 1 development. The loan expired in October 2014, but has been extended in the interim to 30 April 2015 to cater for the process of concluding the refinancing thereof into a six-year secured project debt facility which will expire on 31 December 2020. At the time of finalisation, this facility will be split into its short-term and long-term component. The interest rate for the facility at 31 December 2014 is 4.26%. Total interest for the year on the interest-bearing loans and borrowings was US$1.1 million (2013: US$nil) which has been capitalised to the carrying value of the assets as borrowing costs. There are no significant differences between the fair value and carrying value of loans and borrowings.
132 Gem Diamonds Annual Report 2014 18. Other financial liabilities Other 18. 17. Provisions Trade andotherpayables 16. 2 1 rehabilitation timing, thedecrease intheprovision to thereassessment isattributable oftheestimated closure costs. In addition inflation rateto thechangesindiscountrates,December 2013:5.6% rangeof5.9% to 6.0%). to 6.0%(31 inflatio 2013:5.5%to 7.5%),estimated(31 December rehabilitation timingof10to 13years 2013:11to 14years) (31December andan to therehabilitation theamountsattributable determining provisions,In managementusedadiscountrate rangeof7.0%to 7.5% operation. assessments.adjusted current annuallyandreflect market Thesecostsare expected beutilisedoverto alife ofmineatthe min calculated basedontotal estimated rehabilitation costs, discounted backto theirpresent values. discountrates a The pre-tax The provisions have beenrecognised astheGroup hasanobligationfor rehabilitation oftheminingareas. The provisions have Rehabilitation provisions Balance at endofyear Foreign exchange differences Unwinding ofdiscount rate Decrease inrehabilitation provisions theyear during Arising Terms andconditionsofthetradeotherpayables: amountsabove approximate fairvalue.The carrying Balance atbeginning ofyear Reconciliation ofmovement inprovisions Total trade andotherpayables Other Operating lease Royalties Leave benefits Accrued expenses Trade payables Current Severance pay benefits Operating lease Non-current respective currencies. spotexchange oftherespective basisspreads rates, currencies the aswell between as the currency theyieldcurves observable exchange areThe forward contracts measured usingaLevel ofthefairvaluehierarchy, 2inputinterms thusbasingitsfairva no hedgeaccounting.Group performs at Letšeng Diamonds. financialliabilitiesat year end. exchange istherevaluationThe forward onthemarket-to-market contract The Group enters into exchange to forward hedgetheexposure contracts to changesinforeign offuture salesof diamon currency Forward exchange contract Current Rehabilitation provisions These amountsare mainlynon-interest bearingandare settledinaccordance Includedi withtermsagreed theparties. between The severance paybenefits ariseduetolegislation,withinthe twoLesotho jurisdiction, requiring that weeks ofseverance pa interest-bearing payable. Theinterest thereon hasbeen provided forinfinance costs. RefertoNote4,Netfinance income/(cost) year ofservice, payable onretirement. 2 2 2 1 Gem Diamonds Gem
y be provided for every completedy beprovided forevery US$’000 US$’000 US$’000 . 19543 23 186 44 985 43 711 25 962 12 544 19 543 (2024) n accrued expensesisan (3 571) 1 336 3 245 1 274 1 192 2014 2014 2014 616 550 575 835 249 82 Annual Report 2014 AnnualReport lue on US$’000 US$’000 US$’000 re re 23186 29 496 38 195 37 086 20 790 12 023 23 186 (5174) n and (2 791) ing been 1 213 2 761 1 109 1 107 The
2013 2013 2013 442 581 141 790
ds 133 – 2 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
19. Deferred taxation 2014 2013 US$’000 US$’000 Deferred tax assets Accrued leave 50 45 Operating lease liability 7 5 Provisions 5 140 5 919 5 197 5 969 Deferred tax liabilities Property, plant and equipment (58 293) (66 951) Prepayments (333) (154) Provisions – 350 Unremitted earnings (4 038) (4 038) (62 664) (70 793) Net deferred tax liability (57 467) (64 824) Reconciliation of deferred tax liability Balance at beginning of year (64 824) (71 277) Movement in current period: – Accelerated depreciation for tax purposes 2 906 (6 404) – Accrued leave 11 (22) – Operating lease liability 120 6 – Prepayments (124) (146) – Provisions (297) (1) – Tax losses utilised in the year (408) 190 – Foreign exchange differences 5 149 12 830 Balance at end of year (57 467) (64 824) The Group has not recognised a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries because it is able to control the timing of dividends and only part of the temporary difference is expected to reverse in the foreseeable future. The gross temporary difference in respect of the undistributable reserves of the Group’s subsidiaries for which a deferred tax liability has not been recognised is US$39.0 million (31 December 2013: US$46.3 million). The Group has estimated tax losses of US$306.8 million (31 December 2013: US$293.0 million). No deferred tax assets have been recognised in respect of such losses at 31 December 2014 as management considers that it is not probable that the losses in those entities will be utilised against taxable profits in those entities in the foreseeable future. Of the US$306.8 million estimated tax losses (31 December 2013: US$293.0 million), US$4.8 million losses in various jurisdictions (31 December 2013: US$3.2 million) expire as follows: 31 December 31 December 2014 2013 US$’000 US$’000 2015 2 2 2016 5 6 2017 1 177 1 244 2018 1 914 1 914 2019 1 699 – 4 797 3 166
134 Gem Diamonds Annual Report 2014 02Working capitaladjustments 20.2 1 Commitments and contingencies 21. Cash generated by operations 20.1 Cash flow notes 20. – More thanfive years oneyear– After butnotmore thanfive years – Within oneyear the mine. The estimated lease obligationregarding thefuture leaseperiod, acceptingstableinflationandexchange rates, isas oftheagreement, asthelesserofterm ofthesecommitmentsisdetermined The period includingrenewable periods, orthel mining areas thattheGroup operates. leasecommitmentsrepresentMining theGroup’s future from obligationarising agreements entered in into withlocalauthorities leases Mining – More thanfive years oneyear– After butnotmore thanfive years – Within oneyear Future operatingleases: minimumrentals payable undernon-cancellable catered for intheagreements. There are placeduponthelesseeby into entering norestrictions theseleases. and 12 years withanoptionofrenewal attheendofperiod. optionperio theextension willbenegotiatedThe terms during The Group hasentered into commercial for leasearrangements rental ofoffice premises. two Theseleases ofbetween have aperiod Operating leasecommitments –Group aslessee Commitments iac noe4 3 Increase/(decrease) intradeandotherpayables inreceivablesIncrease ininventoriesIncrease Finance costs Finance income ofinventory Write-down hr-ae qiytascin24 3 3 transaction equity Share-based movements non-cash Other Movement inprepayments Profit ondisposalofproperty, plantandequipment Unrealised foreign exchange differences revaluations Mark-to-market Reversal ofassets ofimpairment at tipn otaotsd3 Waste costamortised stripping ercainadaotsto npoet,patadeupet 3 onproperty, plantandequipment Depreciation andamortisation Adjustments for: Profit before tax for the year Notes 4 Gem Diamonds Gem
US$’000 US$’000 US$’000 153 577 16 754 10 313 49 312 15 158 92 930 (1 560) (1 969) (3 430) (7 942) 2 454 1 711 4 997 1 444 3 588 3 211 1 740 2 243 2014 2014 2014 611 132 138 266 (49) 59 – – Annual Report 2014 AnnualReport US$’000 US$’000 US$’000 114 462 (17 491) (10 962) 18 376 11 126 34 766 17 744 59 019 follows: (2 520) (4 009) (1 218) 2857 1 200 5 437 1 813 2013 2013 2013 ds (155) (689) 932 160 735 381 984 620 the ife of 84 90 135 7
90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
21. Commitments and contingencies continued Moveable equipment lease The Group has entered into commercial lease arrangements which include the provision of loading, hauling and other transportation services payable at a fixed rate per tonne of ore and waste mined; power generator equipment payable based on a consumption basis; and rental agreements for various mining equipment based on a fixed monthly fee. The contract at Letšeng pertaining to the loading and hauling which was due to terminate at the end of 2014 was renegotiated during the year and therefore future commitment amounts have been based on the new contract which has an eight-year term, effective 1 January 2014. 2014 2013 US$’000 US$’000 – Within one year 32 942 29 422 – After one year but not more than five years 189 170 718 – More than five years 100 486 – 322 598 30 140 Capital expenditure Approved but not contracted for 5 197 40 070 Approved and contracted for 10 794 3 853 The majority of capital expenditure commitments relate to the finalisation of the new Coarse Recovery Plant and the Plant 2 Phase 1 upgrade at Letšeng. Contingent rentals – Alluvial Ventures The contingent rentals represent the Group’s obligation to a third party (Alluvial Ventures) for operating a third plant on the Group’s mining property at Letšeng Diamonds. The rental is determined when the actual diamonds mined by Alluvial Ventures are sold. The rental agreement is based on 50% – 70% of the value (after costs) of the diamonds recovered by Alluvial Ventures and is limited to US$1.2 million per individual diamond. As at the reporting date, such future sales cannot be determined. Letšeng Diamonds Educational Fund In terms of the mining agreement entered into between the Group and the Government of the Kingdom of Lesotho, the Group has an obligation to provide funding for education and training scholarships. The quantum of such funding is at the discretion of the Letšeng Diamonds Education Fund Committee. The amount of the funding provided for the current year was US$0.1 million (31 December 2013: US$0.1 million). Contingencies The Group has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation of commercial arrangements and applicable legislation in the countries where the Group has operations. In certain specific transactions, however, the relevant third party or authorities could have a different interpretation of those laws and regulations that couldlead to contingencies or additional liabilities for the Group. Having consulted professional advisers, the Group has identified possible disputes approximating US$3.5 million (December 2013: US$3.6 million) and tax claims within the various jurisdictions in which the Group operates approximating US$1.4 million (December 2013: US$1.2 million). There remains a risk that further tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in some cases, the Group does not anticipate that there will be any material impact on the Group’s results, financial position or liquidity.
136 Gem Diamonds Annual Report 2014 22. Related parties and were thatprevail madeonterms inarm’s-length transactions. to theCompany.secretarial andaccountingservices The above were transactions agreed madeonterms theparties between Limited bytheGroup. provided administration, with regard Group GenevaManagement (UK) undertaken to theminingactivities Limited (Proprietary) andJemaxAviationJemax Management Limited (Proprietary) provided administrative andaviation services Government ofLesotho Dividends paid Government ofLesotho Amounts owing to related party Limited (Proprietary) Jemax Management Jemax Aviation Limited (Proprietary) Amount includedintrade receivables owing by/(to) related parties Common director Limited GroupGeneva Management (UK) Jemax Aviation Limited (Proprietary) Common director to/(purchases)Sales from related parties Government ofLesotho Common director L Government ofLesotho Royalties paidto related parties Limited (Proprietary) Jemax Management Jemax Aviation Limited (Proprietary) Fees paidto related parties employee benefits Short-term transactions equity Share-based Compensation to key management personnel(includingDirectors) Refer to theDirectors’ for information regarding Report theDirectors. Refer to Note 1.1.2,Operationalinformation, for information regarding shareholding insubsidiaries. Limited GroupGeneva Management (UK) Government ofLesotho Gem DiamondHoldingsLimited Jemax Aviation Limited (Proprietary) Limited (Proprietary) Jemax Management Related party ease andlicence payments to related parties Gem Diamonds Gem
US$’000 (27 597) (22 102) (3 167) Non-controlling interestNon-controlling 8 617 7 170 1 447 2014 (114) (181) (36) (73) 28 (8) (6) Common director Annual Report 2014 AnnualReport Relationship US$’000 (15 868) (5 938) (2 425) 6 873 5 819 1 054 2013 (112) 214 (98) (82) 51 (6) (8) 137 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
23. Financial risk management Financial risk factors The Group’s activities expose it to a variety of financial risks: (a) Market risk (including commodity price risk and foreign exchange risk); (b) Credit risk; and (c) Liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out under policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use ofderivative financial instruments and non-derivative financial instruments, and investing excess liquidity. There have been no changes in the financial risk management policy since the prior year. Capital management The capital of the Company is the issued share capital, share premium and treasury shares on the Group’s statement of financial position. The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may issue new shares. The management of the Group’s capital is performed by the Board. At 31 December 2014, the Group has US$41.6 million (31 December 2013: US$43.9 million) debt facilities available and continues to have the flexibility to manage the capital structure more efficiently by the use of these debt facilities thus ensuring that an appropriate gearing ratio is achieved. The debt facilities in the Group are as follows: Unsecured – Standard Lesotho Bank – revolving credit facility The Group, through its subsidiary, Letšeng Diamonds, has a LSL250.0 million (US$21.6 million), three-year unsecured revolving working capital facility. This facility is in the process of being renewed for an additional three-year term and by year end an initial term sheet had been signed. The renewed facility will bear interest at the Lesotho prime rate. At year end, there is no drawdown on this facility. Unsecured – Nedbank Capital (a division of Nedbank Limited) – revolving credit facility The Company has a US$20.0 million three-year unsecured revolving credit facility which is due for renewal in January 2016. This facility bears interest at London USD Interbank three-month LIBOR +5.33%. At year end there is no drawdown on this facility. Unsecured – Nedbank Capital (a division of Nedbank Limited) – nine-month facility; currently being extended and refinanced through a six-year project debt facility This loan is a nine-month unsecured US$25.0 million facility which was signed with Nedbank Capital on 16 January 2014 for the remaining spend on the Ghaghoo Phase 1 development. The loan expired in October 2014, but has been extended in the interim to 30 April 2015 to cater for the process of concluding the refinancing thereof into a six-year secured project debt facility which will expire on 31 December 2020. The current facility bears interest at London USD Interbank three-month LIBOR + 4% and the refinanced facility will bear interest at London USD Interbank three-month LIBOR + 5.5%. At year end, this facility was fully drawn down. Unsecured – Standard Lesotho Bank and Nedbank Limited – three-year unsecured project debt facility for the new Coarse Recovery Plant For the completion of the new Coarse Recovery Plant, a three-year unsecured LSL140.0 million facility was concluded in June 2014. This facility bears interest at South African JIBAR + 4.95%. At year end, this facility was fully drawn down.
138 Gem Diamonds Annual Report 2014 3 Financial riskmanagement 23. Cash flow interest risk rate (iv) Sensitivity analysis Foreign exchange risk (ii) Diamondsare ofrough nothomogeneousproductsandtheprice diamonds risk. price The Group to commodity issubject (a) Capital management
(iii) (i) risk Market
a fixed rate borrowing orvariable would bemore favourable theGroupto untilmaturity. over period theexpected newloansorborrowings managementusesitsjudgementto decidewhetheritbelieves that Atthetimeoftaking rate risk. cash flowinterest fromrisk arises rate borrowings. rates Borrowings exposetheGroup issuedatvariable cashflowinterestto The Group’s interest incomeandoperatingcashflows are rates. substantiallyindependentofchangesinmarket TheGroup’s outstanding. exchangeUS$20.0 millionnotionalcover 2013:US$nil)forward (31December contracts of diamondsatLetšeng Diamonds. nohedgeaccounting. 2014,theGroupThe Group At31December has performs The Group enters into exchange to forward hedgetheexposure contracts to changes inforeign offuture sales currency Forward exchange contracts otherthanthosedirectly related effect incomestatementto reserves onequity movements. before taxationwould have beenUS$0.1millionhigher/(lower) 2013:US$0.1million). (31December There would beno theUSdollarhadappreciated/(depreciated)If 10%againstcurrencies significant to the GroupDecember 2014,income at31 There hasbeennochangeintheassumptionsormethodappliedfrom year. theprior oftherelevant Groupcurrency entity. December 2014. hasbeen basedonfinancialassetsandliabilitiesat31 The sensitivity thatisnotthefunctional because offinancialinstrumentsdenominated inacurrency arises risk The analysisofthecurrency been excluded analysis. from thesensitivity exposures currencies two where between oneisnottheUSdollarare deemedinsignificant to theGroup and have therefore exposures forThe majorcurrency theGroup relate to theUSdollarandlocalcurrencies ofsubsidiaries. Foreign currency ofUSdollar,currency are into consideration. nottaken Differences resulting from into thetranslationoffinancialstatements the ofthesubsidiaries Group’s presentation analysisbelow isbasedonthefollowing sensitivity assumptions: The currency oftheoperations. currency The Group’s oftheCompany, salesare currency denominated inUSdollarwhichisthefunctional butnotthefunctional currency. commercial recognised transactions, assetsandliabilitiesare thatisnottheentity’s denominated functional inacurrency withrespect to theLesothoprimarily randandBotswanapula.Foreign loti,SouthAfrican whenfuture exchange arises risk The Group operates andisexposedto internationally foreign exposures, from exchange currency arising various risk have anyprice movements. financialinstrumentsthatmay asa fluctuate resultofcommodity consensus forecasts adjusted for salesarrangements andcontracted theGroup’s specificoperations. TheGroup doesnot market and size. are US$percaratprices inUSdollarandlong-term are basedonexternal Diamondprices marketed is notmonitored onapublicindexsystem. is ofprices relatedfeatures The fluctuation to certain ofdiamondssuchasquality priceCommodity risk continued continued Gem Diamonds Gem
Annual Report 2014 AnnualReport 139 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
23. Financial risk management continued Capital management continued (b) Credit risk The Group’s potential concentration of credit risk consists mainly of cash deposits with banks and other receivables. The Group’s short-term cash surpluses are placed with the banks that have investment grade ratings. The maximum credit risk exposure relating to financial assets is represented by the carrying value as at the reporting dates. The Group considers the credit standing of counterparties when making deposits to manage the credit risk. Considering the nature of the Group’s ultimate customers and the relevant terms and conditions entered into with such customers, the Group believes that credit risk is limited as customers pay on receipt of goods. No other financial assets are impaired or past due and accordingly, no additional analysis has been provided. No collateral is held in respect of any impaired receivables or receivables that are past due but not impaired. (c) Liquidity risk Liquidity risk arises from the Group’s inability to obtain the funds it requires to comply with its commitments including the inability to sell a financial asset quickly at a price close to its fair value. Management manages the risk by maintaining sufficient cash, marketable securities and ensuring access to shareholding funding. This ensures flexibility in maintaining business operations and maximises opportunities. Furthermore, the Company has available debt facilities of US$41.6 million at year end. The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual undiscounted payments: 2014 2013 US$’000 US$’000 Floating interest rates Interest-bearing loans and borrowings – Within one year 31 381 – – After one year but not more than five years 8 041 – Total 39 422 – Trade and other payables – Within one year 43 711 37 086 – After one year but not more than five years 1 274 1 109 Total 44 985 38 195
24. Share-based payments The expense recognised for employee services received during the year is shown in the following table: 2014 2013 US$’000 US$’000 Equity-settled share-based payment transactions charged to the income statement 1 740 932 Equity-settled share-based payment transactions capitalised 224 232 1 964 1 164 The long-term incentive plans are described below: Employee Share Option Plan (ESOP) Certain key employees are entitled to a grant of options, under the ESOP of the Company. The vesting of the options is dependent on employees remaining in service for a prescribed period (normally three years) from the date of grant. The fair value of share options granted is estimated at the date of the grant using a Black Scholes simulation model, taking into account the terms and conditions upon which the options were granted. It takes into account projected dividends and share price fluctuation co-variances of the Company. There is a nil or nominal exercise price for the options granted at admission of the Company. The contractual life of the options is 10 years and there are no cash settlement alternatives. The Company has no past practice of cash settlement.
140 Gem Diamonds Annual Report 2014 24. Share-based payments Share-based 24. weighted average share oftheCompany. price dividends, share theexpected fluctuations, volatility, price risk-free the interest rate, life expected oftheoptionsin years into andconditionsuponwhichtheoptionswere accounttheterms simulationmodel, Carlo a Monte taking granted, projected £1.61 (US$2.70). The fairvalueoftheoptionsgranted, conditions, relating isestimated to atthedate themarket ofthegran adjustment to thecumulative charge asrequired. conditionsis optionsrelating to non-market The fairvalueofthenil-cost grant date. Ateachfinancial year end, the oftheseconditionsbeingmetwitha Company willassessthelikelihood relevant options lapse. conditionsare conditionsrelating notreflected to inthefairvalueof thenon-market awardThe performance conditionsare notmet, orservice options whichvest are exercisable theperformance 10June2017and92024.If between options, 152250relates conditionswiththeremaining609 000nil-cost conditions. 456 750relating to market to non-market Th conditionsover period. athree-year O performance andnon-market market ofcertain to thesatisfaction options willbesubject optionswere granted June2014,609 000nil-cost toIn theExecutive Directors undertheLTIP oftheCompany. The vesting ofth ESOP for June2014(LTIP) optionsis£1.74(US$2.87). The fairvalueofthenil-cost oftheseconditionsbeingmetwitharelevant adjustmenttolikelihood thecumulative charge asrequired ateachfinancial year theyarenon-market-based notreflected inthefairvalueof award at grant date, andtherefore the Company willassessthe conditionsare conditionsare notmet,theoptionslapse. As theperformance orservice theperformance and 18March 2024.If The options whichvest in tranchesofathird over period athree-year oftheaward eachyear are exercisable 19March between condit conditionsclassifiedasnon-market aswell asservice performance ofcertain to thesatisfaction options willbesubject employees optionswere undertheLTIP key March granted 2014,625 000nil-cost toIn certain oftheCompany. The vesting ofthe ESOP for March 2014(LTIP) conditions. non-market The fairvalueoftheseoptions isestimated ina similarmannerastheMarch 2012LTIP. conditionsbasedongoalsrelating whichare to classifiedas theGroup to performance andindividual performance is subject December 2023.2014 and2015financial 2016and31 years beingmet,are exercisable 1January between The vesting oftheoptions which vest over intranchesofathird athree-year period oftheaward eachyear, targets for dependentontheperformance the 936 000optionsoriginally granted, only528000are stilloutstandingfollowing theresignation ofanumberemployees. The oftheshares price onthedate ofgrant. valueoptionsis£1.78(US$2.85),whichwasequalto O themarket ofthemarket price the Company. thetotal numberofshares, Of 312000were valueoptions. nilvalueoptionsand624000were market The exercise On 11September employees 2012,936000optionswere (excluding key Executive granted to Directors) certain undertheLTIP of ESOP for 2012(LTIP) September the Company. lifeThe contractual ofeachoptiongranted isthree years. volatility,the expected therisk-free interest rate, life expected oftheoptionsinyears andtheweighted average share pric into andconditionsuponwhichtheoptionswere accounttheterms taking granted, projected dividends, share fluctuations, price the optionslapse. The fairvalueoftheoptionsgranted isestimated atthedate simulationm ofthegrant Carlo usingaMonte which vest on20March conditionsare 2015are notmet, exercisable theperformance 20March 2015and20March between 2022.If conditionsover thatisconsidered athree-year period appropriately ofperformance stretching. to thesatisfaction subject The granted, only747000are stilloutstanding following theresignation ofanumberemployees. The vesting oftheoptionswill oftheshares the1347000optionsoriginall price onthedate ofthegrant.£3.00 (US$4.76),whichwasequalto Of themarket of shares, 449000were valueoptions. nilvalueoptionsand898000were market valueoptions The exercise ofthemarket price On 20March employees 2012,1347000optionswere undertheLTIP key granted to certain oftheCompany. thetotal number Of ESOP for March 2012(long-term incentive plan(LTIP)) whichmay beintroducedarrangements by theCompany from timeto time. There are currently nonon-Executive share awards. incentive incentive bonusscheme(STIBS)orESOPany otherperformance-related intheshort-term eligible to participate were invited for to subscribe shares setoutintheprospectus. atnominal valueonterms The non-Executive Directors shallnot order toIn align theinterests andindependent Directors withthoseoftheshareholders, oftheChairman thenon-Executive Dir Non-Executive share awards continued Gem Diamonds Gem
Annual Report 2014 AnnualReport andthe e of t using ions. y awards f the odel, be be awards ectors ectors at e is 2013, e end. 2017 f the the
141
90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
24. Share-based payments continued Movements in the year ESOP The following table illustrates the number (’000) and movement in share options during the year: 2014 2013 ’000 ’000 Outstanding at beginning of year 18 33 Exercised during the year – (15) Balance at end of year 18 18 Exercisable at end of year – – The following table lists the inputs to the model used for the plan for the awards granted under the ESOP: Dividend yield (%) – Expected volatility (%) 22 Risk-free interest rate (%) 5 Expected life of option (years) 10 Weighted average share price 18.28 Model used Black Scholes The fair value of share options granted is estimated at the date of the grant using a Black Scholes 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 option in years and the weighted average share price of the Company. The ESOP is an equity-settled plan and the fair value is measured at the grant date. ESOP for June 2014, March 2014, September 2012, March 2012 and 2011 (LTIP) The following table illustrates the number (’000) and movement in the outstanding share options during the year: 2014 2013 ’000 ’000 Outstanding at beginning of year 2 073 4 501 Granted during the year 1 234 – Exercised during the year – (3) Forfeited (862) (2 425) Balance at end of year 2 445 2 073 The following table lists the inputs to the model used for the market conditions awards granted during the current and prior year: LTIP LTIP LTIP June September March LTIP 2014 2012 2012 2011 Dividend yield (%) – ––– Expected volatility (%) 37.25 42.10 63.88 66.32 Risk-free interest rate (%) 1.94 0.33 1.20 1.59 Expected life of option (years) 3.00 3.00 3.00 3.00 Weighted average share price (US$) 2.70 2.85 4.76 4.38 Fair value of nil value options (US$) 1.83 2.85 3.76 3.01 Fair value of market value options (US$) – 1.66 2.27 1.95 Model used Monte Carlo Monte Carlo Monte Carlo Monte Carlo The fair value of share 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 option in years and the weighted average share price of the Company.
142 Gem Diamonds Annual Report 2014 5 Dividendsproposed 25. 26. Material partly owned subsidiaries Material partly 26. Final cashdividendfor 2014:5centspershare (2013:nil) Proposed shares dividendsonordinary trbtbet o-otoln neet interestDividends paidto non-controlling interest to non-controlling Attributable Total comprehensive income Profit for the year taxexpense Income Profit before tax Net financeincome/(costs) Lesotho Operating profit income/(costs) Other Royalties andsellingcosts Gross profit Cost ofsales Revenue Summarised income statement for theyear ended31December company eliminations. isprovided below. financialinformationThe summarised ofthissubsidiary Thisinformation isbasedonamountsbefore inter- Profit allocated interest non-controlling to material Accumulated interest non-controlling balancesofmaterial Letšeng Limited Diamonds(Proprietary) Name interest ofequity Proportion heldby non-controlling interests Financial interest, information non-controlling whichhasamaterial ofLetšeng isprovided below. Diamonds, asubsidiary as at31 December. Proposed shares to approval issubject attheAGM dividendonordinary to beheldon2June2015andisnotrecognised asalia and operation incorporation incorporation Country of Country Gem Diamonds Gem
(138 293) US$’000 US$’000 122 665 120 620 139 615 277 908 (40 059) (22 379) 27 597 24 782 82 606 82 606 24 782 66 148 2 045 3 384 6 913 2014 2014 2014 30% Annual Report 2014 AnnualReport (114150) 201310 US$’000 US$’000 (17246) (16099) 15702 52341 52341 15702 72454 69587 70201 87160 5938 bility bility 2013 2013 2013 (614) (860) 30% 143 – 90 Financial statements
NOTES TO THE ANNUAL FINANCIAL STATEMENTS continued for the year ended 31 December 2014
26. Material partly owned subsidiaries continued Summarised statement of financial position as at 31 December 2014 2013 US$’000 US$’000 Assets Non-current assets Property, plant and equipment and intangible assets 252 397 281 017 Current assets Inventories, receivables and other assets and cash and short-term deposits 81 958 64 862 Total assets 334 355 345 879 Non-current liabilities Trade and other payables, provisions and deferred tax liabilities 69 557 81 951 Current liabilities Interest-bearing loans and borrowings and trade and other payables 44 306 22 415 Total liabilities 113 863 104 366 Total equity 220 492 241 513 Attributable to: Equity holders of parent 154 345 169 059 Non-controlling interest 66 148 72 454 Summarised cash flow information for the year ended 31 December Operating 82 581 85 961 Investing (62 730) (68 782) Financing (15 496) (8 529) Net increase in cash and cash equivalents 4 355 8 650 27. Events after the reporting period No other fact or circumstance has taken place between the end of the reporting period and the approval of the financial statements which, in our opinion, is of significance in assessing the state of the Group’s affairs.
144 Gem Diamonds Annual Report 2014
CONTACT DETAILS AND ADVISERS
Contact details Advisers Gem Diamonds Limited Financial adviser and sponsor Registered office JPMorgan Cazenove Limited 2nd Floor, Coastal Building 20 Moorgate Wickham’s Cay II London EC2R 6DA Road Town United Kingdom Tortola T: +44 20 7588 2828 British Virgin Islands F: +44 20 7155 9000
Head office Financial adviser 2 Eaton Gate Liberum Capital Limited London SW1W 9BJ Ropemaker Place United Kingdom 25 Ropemaker Street T: +44 20 3043 0280 London EC2Y 9LY F: +44 20 3043 0281 United Kingdom T: +44 20 3100 2000 F: +44 20 3100 2299
Legal adviser Linklaters One Silk Street London EC2Y 8HQ United Kingdom T: +44 20 7456 2000 F: +44 20 7456 2222
Auditors Ernst & Young LLP 1 More London Place London SE1 2AF United Kingdom T: +44 20 7951 2000 F: +44 20 7951 1345
Financial PR adviser Bell Pottinger Holborn Gate 330 High Holborn London WC1V 7QD T: +44 20 7861 3232 F: +44 20 7861 3233
Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU United Kingdom T: +44 (0) 208 639 3399 F: +44 (0) 208 639 2342
BASTION GRAPHICS Gem Diamonds Limited 2nd Floor, Coastal Building Wickham’s Cay II Road Town Tortola British Virgin Islands Registration number: 669758 www.gemdiamonds.com