Gem Diamonds : Half Year Results 2021

B

HALF-YEAR REPORT 2021

Gem Diamonds Limited Annual Report and Accounts 2020

CONTENTS

INTERIM BUSINESS REVIEW	2
Overview	2
Strategic progress	3
Looking ahead	6
OPERATING REVIEW: LETŠENG	8
H1 2021 IN REVIEW	8
Production overview	8
Diamond sales	9
GROUP FINANCIAL PERFORMANCE	10
H1 2021 in review	10
Profitability and liquidity	10
Financial position	13
PRINCIPAL RISKS AND UNCERTAINTIES	17
HALF YEAR FINANCIAL STATEMENTS	18
Responsibility Statement of the Directors in Respect of the Half Year	19
Report and the Financial Statements
Interim Consolidated Statement of Profit or Loss	20
Interim Consolidated Statement of Comprehensive Income	21
Interim Consolidated Statement of Financial Position	22
Interim Consolidated Statement of Changes in Equity	23
Interim Consolidated Statement of Cash Flows	24
Condensed Notes to the Consolidated Interim Financial Statements	25

CONTACT DETAILS AND ADVISERS

46

2

INTERIM BUSINESS REVIEW

OVERVIEW

Diamond market overview

Overall, the global diamond market1 has continued to improve significantly since late 2020 - especially for the high- quality white diamonds produced at the Letšeng mine. This is highlighted by the highest dollar per carat achieved by Gem Diamonds for a top-quality white diamond during the Period of US$40 139.

Increasing diamond prices can be attributed to supply shortages and renewed consumer demand, especially in the US and China. The US market has seen boosted consumer sentiment due to a successful COVID-19 vaccine rollout, US government stimulus checks and the recovery of its stock markets. China is currently the industry's strongest consumer market, led by strong domestic luxury consumption. Diamond sales in China's consumer market are expected to increase significantly in coming years, driven by two government economic policies - its Dual Circulation Strategy and 14th Five-Year Plan - designed to triple per-capita GDP to US$30 000 by 20352.

COVID-19-related travel restrictions caused by the resurgence of the virus, saw the first Letšeng Diamonds (Letšeng) tender of 2021 postponed to March. Since then the Group has successfully concluded its scheduled H1 2021 tenders in Antwerp. All tenders held in H1 2021 were fully attended and a high number of bids per parcel were observed - reinforcing the fact that Letšeng's high-quality diamonds remain in strong demand. In order to further leverage its strong position in the large diamond market, Gem Diamonds is planning to host its first trial tender viewing for Letšeng's diamonds in Dubai in September 2021.

The Group continues to support the Gemological Institute of America's (GIA) blockchain technology to assure consumers about their diamonds' ethical and socially supportive footprint.

Performance overview

The Group's Letšeng operation has managed to operate in line with its normal operating activities during the Period, despite numerous challenges presented by the continuing impact of COVID-19 on the availability of spares and limited access to certain skills and services due to lockdowns and travel restrictions; as well as a high rainfall season which impacted both mining and treatment activities. Despite these challenges, waste tonnes mined during the Period were 10.2 million tonnes (H1 2020: 5.2 million), ore tonnes treated were 3.1 million tonnes (H1 2020: 2.4 million), 58 831 carats were recovered (H1 2020: 43 275) and the mine's 2021 production metrics remain on track.

The Group increased revenue by 50% to US$104.5 million, compared to H1 2020, achieving an average of US$1 886 per carat (H1 2020: US$1 707 per carat). The underlying EBITDA from continuing operations improved by 207% to US$34.7 million (H1 2020: US$11.3 million), with attributable profit of US$9.3 million (H1 2020: loss of US$1.7 million) achieved.

The Group ended the Period in a strong cash position with a cash balance of US$33.9 million (31 December 2020: US$49.8 million) and drawn down facilities of US$14.3 million (31 December 2020: US$15.2 million), resulting in a net cash position of US$19.6 million (31 December 2020: US$34.6 million) and unutilised available facilities of US$61.0 million (31 December 2020: US$60.8 million).

In line with the Group's commitment to delivering sustainable shareholder returns, the Board proposed a dividend of 2.5 US cents per share (US$3.5 million) which was approved at the Annual General Meeting on 2 June and paid to shareholders on 15 June.

1. https://www.rough-polished.com/en/analytics/120639.html.
2. Supplied Zimnisky analyst report: July 2021.

Interim Business Review • Operating Review: Letšeng • Group Financial Performance • Principal Risks And Uncertainties • Contact Details And Advisers

3

INTERIM BUSINESS REVIEW CONTINUED

In a further positive development, and subsequent to the Period end, on 23 August 2021, Gem Diamonds entered into a binding share sale agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, the owner of the Ghaghoo diamond mine in Botswana, with Okwa Diamonds. Okwa Diamonds, an SPV company registered in Botswana, is owned by Vast Resources PLC, a mining and resource development company listed on AIM, and by Botswana Diamonds PLC, a diamond exploration and project development company listed on AIM and the Botswana Stock Exchange. Vast Resources PLC and Botswana Diamonds PLC are both parties to the share sale agreement and guarantee the obligations of Okwa Diamonds. The transaction is subject to certain suspensive conditions, including final Government and Competition Commission approvals which are expected to be completed in Q4 2021.

STRATEGIC PROGRESS

Gem Diamonds'strategic priorities include extracting maximum value from its operations, maintaining its social licence to operate and preparing for the future. These priorities have helped Gem Diamonds improve efficiencies, optimise production, and entrench a culture of zero harm and sustainability throughout the Group.

Business Transformation (BT)

The BT programme remains on track to deliver the targeted US$100 million in revenue, productivity and cost saving, measured against the 2017 base, by the end of 2021. Since its inception, the BT programme has delivered US$95.4 million, net of fees and costs.

The reduced costs and improved efficiencies realised through the BT initiatives have been critical in maximising operational cash flows over the past three years.

Continuous Improvement (CI)

The transition from BT to CI at Letšeng is progressing well. CI focuses on behavioural strategies and the implementation of meaningful key performance indicators for effective visual management and problem solving at all levels. The CI methodology, supported by software solutions, enables the Group to continuously improve efficiencies by unlocking the inherent capabilities of employees at all levels to implement CI best practices, build effective teams and drive incremental improvements.

Interim Business Review • Operating Review: Letšeng • Group Financial Performance • Principal Risks And Uncertainties • Contact Details And Advisers