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Annual Report 2014 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 MARKETING MANUFACTURING Gem Diamonds Marketing Services Baobab Technologies 2 OWNERSHIP ESTABLISHED October 2010 OWNERSHIP ESTABLISHED April 2012 100% 100% Gem Diamonds Limited Gem Diamonds Limited DESCRIPTION OF OPERATION DESCRIPTION OF OPERATION ReportStrategic Business review – Diamond sorting, valuation, sales and marketing company based in – High-tech rough diamond analysis and manufacturing company based Antwerp, Belgium in Antwerp, Belgium STRATEGIC OBJECTIVES STRATEGIC OBJECTIVES – Maximise the value achieved on rough and polished diamond sales – Advanced mapping and analysis of exceptional rough diamonds in – Develop the Letšeng and Gem Diamonds brands in marketing channels order to better understand the true value and drive higher prices beyond the mine gate – Provide manufacturing capacity to meet the Group’s current – Identify and develop key strategic areas for targeted revenue growth manufacturing opportunity and growth objectives further down the diamond pipeline – Increase customer base – Manufacture high-end polished diamonds, primarily sourced from – Develop and maintain strong relations with new and existing customers the Group’s mining operations – Continue to source and develop state-of-the-art diamond analysis technology and grow intellectual knowledge of both rough and PERFORMANCE 2014 polished diamonds – Achieved an average value of US$2 540* per carat for Letšeng’s rough – Develop and maintain strong relationships with new and existing customers production – Contributed additional revenue to the Group of US$5.8 million PERFORMANCE 2014 – Baobab Technologies received 1 232 carats of high-value diamonds * Includes carats extracted for polishing at rough valuation. from Letšeng for manufacturing, with a rough market value of US$17.2 million SUSTAINABILITY PERFORMANCE 2014 – Included in the above were: a 124 carat, which was cut into 12 exceptional polished diamonds, with a total weight of 40.63 carats, – Every rough diamond produced was certified in terms of the Kimberley and a 95 carat diamond, which was cut into four exceptional polished Process certification scheme diamonds, with a total weight of 34.53 carats, all of which received – Zero HSSE incidents triple ‘excellent’ grading in cut, polish and symmetry by the Geological Institute of America (GIA) SUSTAINABILITY PERFORMANCE 2014 – All diamonds were certified in terms of the Kimberley Process certification scheme FOCUS FOR 2015 – Developed and implemented an integrated safety, health, – Continue to achieve highest prices for all rough and polished diamonds environmental and quality management system – Optimise the sales and marketing channels for the Ghaghoo rough – Zero HSSE incidents production – Optimise sales and marketing activities – Identify diamond sales and marketing opportunities in other strategic FOCUS FOR 2015 jurisdictions – Increase volumes of extracted rough diamonds to be polished – Obtained best possible polished results for rough diamonds manufactured – Increase third party polishing business Sales and Marketing – page 33 Manufacturing – page 33 3 Gem Diamonds Annual Report 2014 OUR BUSINESS MODEL Gem Diamonds’ strategy is based on three broad pillars, namely growth, value creation and sustainability We believe this offers us the
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