REG - Gem Diamonds Limited - Full Year 2023 Results
14/03/2024 07:45
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RNS Number : 8435G Gem Diamonds Limited 14 March 2024
Thursday, 14 March 2024
Gem Diamonds Limited
Full Year 2023 Results
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the
"Group") announces its Full Year Results for the year ending 31 December 2023
(the "Period").
FINANCIAL RESULTS:
· Revenue of US$140.3 million (US$188.9 million in 2022)
· Underlying EBITDA of US$15.2 million (US$43.7 million in 2022)
· Profit for the year of US$1.6 million (US$20.2 million in 2022)
· Attributable loss of US$2.1 million (profit of US$10.2 million
in 2022)
· Loss per share of 1.5 US cents (earnings per share of 7.3 US
cents in 2022)
· Cash on hand of US$16.5 million as at 31 December
2023 (US$12.3 million attributable to Gem Diamonds)
OPERATIONAL RESULTS:
Letšeng
· Carats recovered of 109 656 (106 704 carats in 2022)
· Waste tonnes mined of 8.8 million tonnes (10.2 million tonnes
in 2022)
· Ore treated of 5.0 million tonnes (5.5 million tonnes in 2022)
· Average value of US$1 334 per carat achieved (US$1 755 in 2022)
· The highest dollar per carat achieved for a white rough diamond
during the year was US$36 399 per carat
Safety performance
Letšeng's safety performance in 2023 was excellent with zero fatalities
(2022: zero), two LTIs (2022: three), an improved LTIFR of 0.10 (2022: 0.13)
and our lowest AIFR on record of 0.67 (2022: 0.70).
Financial performance
The turbulent global economic conditions from the previous year continued into
2023 with high inflation, interest rate hikes and slow overall economic growth
in major economies which impacted the diamond market. The pressure experienced
on the diamond market significantly impacted rough and polished diamond prices
which resulted in a 26% decrease in revenue. Despite the implementation of
numerous cost containment measures, EBITDA decreased by 65%.
Operational performance
Significant changes were made to management, workforce and operating
methodologies at Letšeng and Ghaghoo in 2023 to meet the challenges of lower
revenues and increasing costs. The implementation of a number of initiatives
in H2 2023 to slow down the rate at which ore is fed into the treatment plants
significantly improved overall stability which materially improved the
consistency of higher daily overall plant utilisation.
TCFD and Climate
The Group concluded the final phase of its three-year TCFD roadmap in 2023.
The Group achieved a 26% reduction of its scope 1 and scope 2 carbon emissions
compared to its target of a 30% reduction by 2030.
Resource & Reserve Statement
Following an in-depth resource development programme that involved extensive
core resource drilling, pit surface mapping, 3D-modelling, and petrography,
the Group has concluded its NI 43-101 Technical Report containing Letšeng's
2024 Resource and Reserve Statement which will be available on the Group's
website at www.gemdiamonds.com.
Commenting on the results today, Clifford Elphick, Chief Executive Officer of
Gem Diamonds, said:
"2023 was a challenging year globally with surging inflation and interest rate
increases in major economies, two international conflicts and a subdued
overall global economic outlook which had a significant negative impact on the
diamond industry. Our financial results suffered primarily as a result of a
decrease in revenue because of lower diamond prices. We have relentlessly
focused on cost control measures, enhanced operational efficiencies, rigorous
evaluation of capital projects and the deferment of non-essential longer-term
projects.
We are proud of our excellent safety performance in 2023 which is a testament
to the focus and dedication of our workforce to mature the organisational
safety culture, a programme that commenced in 2021.
We also released Letšeng's 2024 Resource and Reserve statement today, the
result of a lot of hard work over the past number of years. We will continue
to optimise our mine plan to ensure sustainable returns for our stakeholders.
The pressure on the diamond market has persisted into 2024, although there
have been some signs of price recovery. We are cautiously optimistic that
prices will stabilise and that there will be some growth towards the end of
2024."
The Company will host a live audio webcast of the full year results today,
14 March 2024, at 9:00 GMT. If you would like to attend the webcast please
register here: 2023 Full Year results webcast
(https://gemdiamonds.zoom.us/webinar/register/WN_Igbhf6gQTjW8Nu_A3YQJbg)
The page references in this announcement refer to the Annual Report and
Accounts 2023 which can be found on the Company's website:
www.gemdiamonds.com.
The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67
FOR FURTHER INFORMATION:
Gem Diamonds Limited
Kiki Constantopoulos, Company Secretary
ir@gemdiamonds.com
Celicourt Communications
Mark Antelme / Felicity Winkles
Tel: +44 (0) 207 777 6424
ABOUT GEM DIAMONDS:
Gem Diamonds is a leading global producer of high value diamonds. The Company
owns 70% of the Letšeng mine in Lesotho. The Letšeng mine is famous for the
production of large, exceptional white
diamonds, making it the highest dollar per carat kimberlite diamond mine in
the world.
CHAIRPERSON'S STATEMENT
The Board steered the Group through another challenging year in the face of
the global cost-of-living crisis, international conflicts and the resultant
downturn in the natural diamond market.
Dear shareholders,
On behalf of the Board of Directors, I am pleased to share with you the Gem
Diamonds Annual Report and Accounts for 2023, which outlines the Group's
performance over the past year and highlights some of our focus areas for the
year ahead.
We entered 2023 with the ongoing Russian invasion of Ukraine and the
cost-of-living crisis which saw global economies grappling with accelerating
inflation, rising interest rates and continued supply chain challenges. The
slowdown of global economic growth in 2023 was further impacted by the
conflict in Gaza that began in October 2023, and in early 2024, the attacks
launched by Yemen's Houthi rebels on cargo vessels in the Red Sea.
The diamond industry suffered in the face of these challenges. Demand and
prices for rough and polished diamonds exhibited material weakness and, as
reported by some of the world's major diamond producers, declined year-on-year
by as much as 40% in certain categories of diamonds.
The past four years, starting with the COVID-19 pandemic, have been difficult
for our business, with the result that our workforce, their families and the
wider communities within which we operate have all had to adapt to the new
economic environment. The resilience and fortitude they have displayed has
been inspiring and commendable.
At Letšeng, the impact of a wide array of operating costs rising at a rate
markedly higher than inflation put enormous strain on the business. In
particular, the fact that Letšeng is reliant on South African grid
electricity supplier Eskom, which is currently plagued with poor operating
performance leading to frequent load shedding, resulted in a sharp rise in our
use of more expensive diesel-powered generators. These higher input costs,
combined with a 26% decrease in revenue due to lower diamond prices, led to
EBITDA reducing by 65% compared to 2022. Management moved swiftly to address
these external challenges by tightening cost controls even further and by
taking a range of tough decisions to align the organisational structure with
the market conditions. The financial results are discussed in the CFO Review
on page 34 and the financial statements are available from page 118.
Letšeng performed well operationally, especially in the second half of the
year, with ore throughput in the plants being steady and consistent. The COO
review on page 41 contains the full details of Letšeng's operational
performance during 2023.
The sale, closure and/or handover options for Ghaghoo continue to be actively
managed while the site is being appropriately maintained and safeguarded, and
we will continue to support management through this process.
We are pleased to report that there were no major or significant environmental
or social incidents reported at any of our operations during the year.
GOVERNANCE MATTERS IN 2023
The Governance section from page 62 provides full details of all corporate
governance matters relevant to the Group in 2023.
I can report that there were no changes to the makeup of the Board of
Directors during 2023, and that the current governance structure is aligned
with the independence requirements of the UK Corporate Governance Code and is
fully representative with respect to both gender and minority groups.
The findings from the external Board evaluation concluded at the end of 2022
were reviewed. It is encouraging that the report was complimentary of the
functioning of the Board, offering only minor improvement opportunities which
we implemented during 2023.
In line with past practice, Gem Diamonds was again able to derive 99% of the
workforce at Letšeng from within Lesotho. Increasing female representation in
our workforce remains a priority, and we have implemented various initiatives
in local communities and schools to create awareness of the many possible
careers that exist within the mining sector, and to promote Letšeng as an
employer of choice for women.
Shareholders will be aware that Matekane Mining Investment Company
(Proprietary) Limited (MMIC) has held the contract to conduct mining
operations at the Letšeng mine since 2005. In October 2022, Mr Sam Matekane
(the ultimate owner of MMIC) was elected as the new Prime Minister of Lesotho.
In order to avoid any potential conflicts of interest between Mr Matekane's
political appointment and his business with Letšeng, we concluded a mutually
agreed early termination of the mining services agreement and all mining
activities were taken over by Letšeng. I would like to take this opportunity
to thank both the Prime Minister and Letšeng's management for the
professionalism with which this important transition was undertaken.
The financial and operational details of this transaction are included in the
CFO Review on page 34 and the COO Review on page 41.
THE BOARD'S PRIORITIES IN 2023
· Considering the way forward for the Letšeng orebody, including
the finalisation of the 2024 Resource and Reserve Statement
· Overseeing the implementation of initiatives to improve the
maturity of the Group's organisational safety culture
· Overseeing the execution of the Group's decarbonisation strategy
and the completion of its TCFD adoption roadmap
· Advancing efforts to sell or exit the Ghaghoo mine in Botswana,
which remains on care and maintenance
· Implementing the opportunities identified by the external Board
evaluation concluded in 2022
· Considering external growth opportunities
IMPROVEMENT IN SAFETY PERFORMANCE AND CULTURE
We regard the safety and health of our employees as our single most important
priority, and I am very pleased to report that in 2023 Letšeng reported its
best All Injury Frequency Rate on record at 0.67. We would like to
congratulate and thank Letšeng's management and workforce for this notable
accomplishment. The Board would like to express its gratitude for the effort
and commitment that was applied to drive forward the various initiatives that
were developed following the 24-hour stop-for-safety shutdown in June 2021. We
recognise that it requires relentless focus and close attention to detail to
achieve these results. Despite this achievement we all appreciate the need to
remain constantly vigilant and alert to existing and new hazards and risks,
and to continue to build a mature and collaborative safety culture where
employees and management actively look out for each other's safety and health
at all times.
The COO Review on page 41 contains full details of Letšeng's safety
performance during 2023.
THE FUTURE DEVELOPMENT OF LETŠENG
With the Letšeng open pit mine progressing deeper every year, the Board
carefully considered the future development of Letšeng's orebodies during
2023. An underground study carried out during the year indicated that
underground mining of the Satellite pipe is not currently an economically
viable option and we therefore continue with optimising open pit mining at
Letšeng.
Following an in-depth resource development programme that involved extensive
core resource drilling, pit surface mapping, 3D modelling, and petrography, we
have concluded our NI 43-101 Technical Report. The report contains Letšeng's
2024 Resource and Reserve Statement and will be published on the Group's
website at www.gemdiamonds.com
(https://www.gemdiamonds.com/operations.php#mine2) .
Refer to the COO Review for more details on the underground study on page 44
and the 2024 Resource and Reserve Statement on page 45.
DECARBONISATION STRATEGY
During 2023 we made notable progress on our decarbonisation strategy with the
Group completing its three-year TCFD adoption roadmap as planned. At the
beginning of 2023, we also announced that our decarbonisation target would be
a commitment to reduce our Scope 1 and Scope 2 carbon emissions by 30% (as
measured against our 2021 emissions) by 2030.
Our primary focus is now on identifying and implementing ways to reduce our
energy usage and at the same time searching for ways to lower our dependence
on the unreliable and high-carbon grid electricity supplied by Eskom. We
continue to actively investigate alternative large-scale, long-term energy
solutions that will not only underpin the sustainability of the business but
also contribute to offsetting the wider suite of climate change risks. The
energy consumption of the Group in 2023 is detailed in the Climate change
report on page 51.
COMMUNITY AND GOVERNMENT ENGAGEMENT
The Lesotho Government is a significant shareholder in the Letšeng mine and
we seek at all times to maintain sound and constructive relationships with
government departments and officials. Accordingly, I am very pleased that
during the past year we were able work constructively with the new government
following the elections in Lesotho in late 2022. Honest communication with all
stakeholders is crucial, and has been particularly so during the political and
economic challenges of recent years. Their ongoing support will be
tremendously important as we seek to steer Letšeng's operations through the
current period of challenging market conditions.
We consider all stakeholders' concerns and inform them about our business and
the broader political, social and operational environment that we require in
order to thrive. This dialogue is conducted through a range of stakeholder
engagement forums which meet regularly and which routinely pass details of the
issues discussed to the Board for its consideration.
LOOKING TO THE FUTURE
At the time of writing, it would seem that many of the challenges we faced
during 2023 will be evident again during the coming year - a difficult
economic environment with slow economic growth impeded by several
international conflicts. The prospect of declining inflation and early
indications of a reduction in interest rates in major economies suggest a
stabilisation of the global economy towards the end of 2024. Until then, we
will have to remain resilient through effective cost control and delivery of
further operational efficiencies.
We will define the future development pathway for the Letšeng orebody based
on the 2024 Resource and Reserve Statement, and we will communicate widely and
consult as necessary with all relevant stakeholders.
Our exit from the Ghaghoo mine remains a priority, and negotiations are
continuing with the Government of Botswana on closure, handover and/or
rehabilitation should a sale not be possible.
The Group's revolving credit facilities are expiring at the end of 2024, and
we will actively oversee the extension of these facilities with the Group's
lenders.
We will stay abreast of developments in the diamond market and respond
appropriately by selling Letšeng's rough diamonds through appropriate
channels and available diamond centres in order to achieve the highest
obtainable market prices.
APPRECIATION
On behalf of the Board, I would like to thank every single person who has
contributed to the Group's performance in 2023, especially our executive and
senior management for steering the Group through a very challenging year. We
thank our employees, contractors, community partners, the Government of the
Kingdom of Lesotho and our shareholders for their ongoing support. I also wish
to thank my fellow Directors for their commitment and valuable contributions
during 2023.
Harry Kenyon-Slaney
Chairperson
13 March 2024
RISK MANAGEMENT
HOW WE APPROACH RISK
The Group's risk management framework, which is fully integrated with
strategic and operational planning, aims to identify, manage and respond to
the Group's risks and uncertainties. The framework combines top-down and
bottom-up approaches with appropriate governance and oversight.
Risk management framework
Oversight Board of Directors Top-down approach -
the Board sets the risk appetite and tolerances, strategic objectives and
The Board is responsible for the overall approach to risk management for the accountability for the management of the framework
Group and provides stakeholders with assurance that key risks are properly
identified, assessed, mitigated and monitored. The Board maintains a formal
Group risk management framework, assesses and approves the overall risk
appetite and tolerance, and formally evaluates the effectiveness of the
Group's risk management and internal control processes. It confirms that the
process is appropriately aligned with the Group's strategy and performance
objectives.
At the quarterly risk review meeting, the Board reviews the risk register,
assesses management's scenarios and plans, interrogates the most critical
risks in detail, and challenges mitigating plans with management.
Governance Audit Committee Sustainability Committee
The Audit Committee monitors the Group's risk management processes, reviews The Sustainability Committee provides assurance to the Board that appropriate
the status of risk management, and reports to the Board on a quarterly basis. systems are in place to identify and manage health, safety, social,
It is responsible for addressing the corporate governance requirements of risk environmental and climate change-related risks. It monitors the Group's
management. performance within these categories and drives proactive risk mitigation
strategies to secure safe and responsible operations and our social licence to
operate in the future.
Responsibility Management Bottom-up approach -
ensures a sound risk management process and establishes formal reporting
Management develops, implements, communicates and monitors risk management structures
processes and integrates them into the Group's day-to-day activities. It
identifies risks affecting the Group, including internal and external, current
and emerging risks. It implements appropriate risk responses consistent with
the Group's risk appetite and tolerance.
Group Internal Audit
Group Internal Audit formally reviews the effectiveness of the Group's risk
management processes. The outputs of risk assessments are used to compile the
strategic three-year rolling and annual internal audit coverage plan and
evaluate the effectiveness of controls.
The Board is ultimately responsible and accountable for the Group's risk
management function. It is supported by its subcommittees and senior
management in overseeing the Group's most relevant and significant current and
emerging risks. These risks are actively identified, assessed, prioritised,
managed and mitigated as much as reasonably possible, as they could negatively
impact the Group's ability to execute its strategy.
While the Group's risk management framework focuses on risk identification and
mitigation, many of the factors that give rise to these risks also present
opportunities. Gem Diamonds tracks these opportunities and incorporates them
into the strategy where they appropriately support the Group's purpose.
The Board and its subcommittees have identified the following key strategic,
operational and external risks, which have been set out in no order of
priority.
1.Variability in cash generation Risk: Risk response: Strategic impact:
Marginal cash resources and variability of cash flows could negatively affect •Rigorous cost and capital discipline is in place Extracting maximum value from our operations
the Group's ability to effectively operate, repay debt and fund capital
projects, and impacts strategic short and long-term decision-making. The risk •Funding facilities are in place to manage variability in the short to Preparing for our future
is directly impacted by other principal risks such as rough diamond demand and medium term
prices, variability of the resource, economic viability of reserves and
volatility of exchange rate. •Focus on cost discipline to achieve greater operational efficiencies
•Ongoing drive for continuous improvement to deliver operational
efficiencies
2.Diamond resources and Risk: Risk response: Strategic impact:
reserves
Letšeng's low-grade orebodies make the operation sensitive to resource •Gathering geological evidence on variations within the resource (lithology, Extracting maximum value from our operations
variability. Unexpected variability in key resource/reserve criteria, such as density, volume/tonnage, grade, diamond population size and value
volume, tonnage, grade and price, could significantly impact mine planning, distribution), applying industry best practice and engaging independent Preparing for our future
forecasting and financial stability, both in the short and medium term, and experts to audit and provide advice
could influence decisions regarding future growth.
•Optimised mine plan
•Ongoing pit mapping, petrography, drilling and 3D modelling
•Grade control, bulk sampling, density and moisture content measurements
(on-site and independent lab verification), dilution control, stockpile
management, data management, quality control and internal auditing of
production data (including geological, processing, recovery and sales data)
•Managing the Diamond Accounting System and Mineral Resource Management
(MRM) database, and monitoring recovery data on a daily and monthly basis, as
well as per export period, to follow trends in diamond distributions, large
stone recovery frequencies and average diamond prices per kimberlite domain
3.Rough diamond demand and prices Risk: Risk response: Strategic impact:
Numerous factors beyond our control could affect the price and demand for •Monitoring market conditions and trends Extracting maximum value from our operations
diamonds. These factors include geopolitical tension, macro-economic
conditions, global diamond production levels and consumer trends. Medium to •Flexibility in sales processes and utilisation of multiple sales and Preparing for our future
long-term demand is forecast to outpace supply, but short-term uncertainty and marketing channels including additional viewing opportunities
liquidity constraints within the diamond sector may negatively impact rough
diamond pricing. •Ability to enter into partnership agreements to share in the upside of
polished diamonds
•Maintaining the integrity of the tender process
4.Availability of sustainable and reliable power supply Risk: Risk response: Strategic impact:
Regular power interruptions (load shedding by the South African power utility, •Exploring solutions with the Lesotho Electricity Company (LEC) for grid Extracting maximum value from our operations
Eskom) compound the need for and cost of self-generated power and escalated and/or renewable power
diesel prices. Unscheduled power interruptions and poor quality of power
Working responsibly and maintaining our social licence
supply reduce the available processing time and negatively influence the •Assessing the potential to generate renewable energy for own use
reliability and stability of plant equipment.
Preparing for our future
•Prioritisation of load and allocation of power
•Identification and implementation of consumption-reduction initiatives
5.Growth and access to capital Risk: Risk response: Strategic impact:
The volatility of the Group's share price and lack of growth opportunities The Group's strategic objectives are to drive share price growth through: Extracting maximum value from our operations
negatively impact the Group's market capitalisation. Constrained cash flows
add pressure on returns to shareholders. The Group currently relies on a •Assessing mergers and acquisitions and diversification opportunities Working responsibly and maintaining our social licence
single mine with a finite life for its revenues, profits and cash flows.
•Focusing on existing operations to unlock further value through Preparing for our future
rationalisation and efficiency improvements
6.Workforce Risk: Risk response: Strategic impact:
Achieving the Group's objectives and sustainable growth depend on the ability •Human resource practices are designed to identify skills shortages and Extracting maximum value from our operations
to attract and retain suitably qualified, experienced and ethical employees. implement development programmes and succession planning for employees
Gem Diamonds operates in an environment and industry where shortages in
Working responsibly and maintaining our social licence
experience and skills are prevalent. •Remuneration practices and incentives are in place to appropriately
remunerate and retain skills Preparing for our future
•Training and coaching plans are in place to address skills and experience
shortages
7.Information Technology (IT) and Operational Technology (OT) systems, and Risk: Risk response: Strategic impact:
cybersecurity
The Group's operations rely on secure OT and IT systems to process financial •Application of technical and process IT controls and policies in line with Extracting maximum value from our operations
and operating data in its information management systems. If these systems are industry-accepted standards
compromised, there could be a material adverse impact on the Group through a
Preparing for our future
lack of production and/or compromised recovery parameters. •Appropriate back-up procedures, firewalls and other appropriate security
applications in place
•Vulnerability assessments to define gaps and devise corrective actions
8.Production interruption Risk: Risk response: Strategic impact:
Material mine and/or plant shutdowns, pit closures or periods of decreased •Robust business continuity plans are in place to ensure limited delays due Extracting maximum value from our operations
production could arise due to various events. These events could lead to to disruptions
personal injury or death, environmental impacts, damage to infrastructure and
Working responsibly and maintaining our social licence
delays in mining and processing activities and could result in financial •Appropriate levels of critical resources (fuel, ore stockpiles, etc) are
losses and possible legal liability. maintained to mitigate the impact of any production interruptions
•Appropriate insurance is maintained
9.Health, safety and wellness Risk: Risk response: Strategic impact:
The probability of a major health or safety incident occurring is inherent to •Appropriate health and safety policies and practices and training and Extracting maximum value from our operations
mining operations. Such incidents could impact the well-being of employees, awareness campaigns are in place
PACs, our licence to operate, the Group's reputation, and compliance with our
Preparing for our future
mining lease agreement. The health and safety of our people is critical to the •Dam safety management framework has been implemented in alignment with the
business. ICMM's GISTM
•ISO 45001 accreditation is maintained
•A safety management and leadership programme, visible felt leadership, and
detection and prevention strategies have been developed and implemented
•We continually assess the organisational safety culture maturity to address
current and emerging issues
10.Security of product Risk: Risk response: Strategic impact:
Theft is an inherent risk in the diamond industry. The high-value nature of •Zero tolerance of non-conformance to diamond security policies and Extracting maximum value from our operations
the product at Letšeng makes it susceptible to theft and could result in regulations
significant losses that would negatively affect revenue, cash flows and
Working responsibly and maintaining our social licence
strategic short and long-term mine plan decision-making. •Advanced security access control and surveillance system is in place.
Preparing for our future
•Monitoring of security process effectiveness is performed by the Executive
Committee and the Board
•Appropriate diamond specie insurance cover is in place
•Vulnerability assessments and assurance audits are conducted by internal
and independent third parties
11.Social licence to operate Risk: Risk response: Strategic impact:
The Group's social licence to operate is underpinned by the support of its •The implementation of an appropriate CSI strategy based on a community Working responsibly and maintaining our social licence
stakeholders, particularly employees, regulators, PACs and society. This needs analysis that provides infrastructure and access to education and
support is an outcome of the way the Group manages issues such as ethics, healthcare and supports local economic development Preparing for our future
labour practices and sustainability in our wider environment, as well as our
risk management and engagement activities with stakeholders. •Adoption of relevant standards, best practices and strategies
•Appropriate governance structures across all levels of the Group, including
established Employee Engagement Committee
•Regular engagement with all stakeholders, including government, regulators,
community leadership and PACs
12.Climate change Risk: Risk response: Strategic impact:
Climate change-related risks (transitional and physical risks) are recognised •TCFD recommendations adopted and climate change strategy developed Working responsibly and maintaining our social licence
as top global risks and investors are increasingly focused on the management
of these risks. The uncertainty of potential carbon taxes and the impact of •Adoption of a Group decarbonisation strategy and 2030 target Preparing for our future
climate change present significant current and future risks to the Group
which, if not identified and managed responsibly, could negatively impact the •Governance and management practices implemented to oversee the
Group's long-term operational and financial resilience. implementation of the adopted strategy and 2030 target
•New reporting standards adopted
•Adoption of UN SDG framework
•Carbon emissions monitoring and reporting
13.Environmental Risk: Risk response: Strategic impact:
Failure to manage vital natural resources, environmental regulations and •Appropriate sustainability and environmental policies are in place and Extracting maximum value from our operations
pressure from neighbouring communities could affect the Group's ability to regularly reviewed
operate sustainably. Furthermore, investors and stakeholders are increasingly
Working responsibly and maintaining our social licence
focused on environmental practices. •The current behaviour-based care programme embeds environmental stewardship
Preparing for our future
•A dam safety management framework has been implemented
•Annual social and environmental management plan audit programme has been
implemented
•ISO 14001 (Environmental Management) accreditation maintained
•Adopted the UN SDG framework
•Rehabilitation and closure management strategy adopted and updated annually
•Implementation of an integrated water management framework
•Concurrent rehabilitation strategy implemented
EMERGING RISKS
The Group risk framework includes an assessment of emerging risks, which
considers those risks that:
· are likely to materialise or impact over a longer timeframe than
existing risks;
· do not have much reference from prior experience; and
· are likely to be assessed and monitored against vulnerability,
velocity and preparedness when determining likelihood and impact.
The current emerging risks that are being monitored by the Group are:
· lab-grown diamonds attracting a larger market share;
· generational shifts in consumer preferences; and
· future workforce (automation, skills for the future, etc).
VIABILITY STATEMENT
The Board has assessed the viability of the Group over a period significantly
longer than 12 months from the approval of the financial statements, in
accordance with the UK Corporate Governance Code. The Board considers three
years from the financial year end to be the most relevant period for
consideration for this assessment, given the Group's current position and the
potential impact on the Group's viability of the principal risks documented on
pages 21 to 26.
While the Group maintains a full business model, based predominantly on the
life of mine plan for Letšeng, the Group's annual business and strategic
planning process also uses a three-year time horizon. This process is led by
the CEO and CFO and involves all relevant functions including operations,
sales and marketing, finance, treasury and risk. The Board participates in the
annual review process through structured Board meetings and annual strategy
review sessions. A three-year period provides sufficient and realistic
visibility in the context of the industry, the environment in which the Group
operates, and the current short-term mine plan, even though the life of mine,
the mining lease tenure and available estimated reserves exceed three years.
The business and strategic plan reflects the Board's best estimate of the
Group's prospects. The Board evaluated several additional scenarios to assess
the potential impact on the Group by quantifying their financial impact and
overlaying this on the detailed financial forecasts in the plan.
The Board's assessment of the Group's viability focused on the critical
principal risks categorised within the strategic, external and operational
risk types, together with the effectiveness of the potential mitigations that
management reasonably believes would be available to the Group over this
period.
GROUP FACILITIES
The Group has access to US$71.0 million in RCFs when fully available. Of
these RCFs, US$37.8 million was utilised at the end of the year. The Group's
RCFs mature on 22 December 2024. The existing facility agreement includes an
option to extend the facilities for a period of 24 months (subject to lender
approval). The Group may also decide to renew these facilities for a
potentially longer period of 36 months. These facilities have been in place
since 2011 and have been renewed on three previous occasions through expanding
the lender group and increasing the overall facility amount. In addition,
there is a general banking facility of US$5.5 million with no set expiry
date, but which is reviewed annually by the lenders. This facility was fully
available at the end of the year.
ROUGH DIAMOND MARKET
Demand and prices for rough and polished diamonds exhibited material weakness
and declined year-on-year by as much as 40% in certain categories of diamonds,
as reported by some of the world's major diamond producers. The offloading of
large, high-value polished diamonds by other producers has had a detrimental
effect on the top end of the diamond market. All of these factors placed
severe pressure on rough and polished diamond prices during 2023.
RISING COSTS
At Letšeng, the impact of a wide array of operating costs rising at a rate
markedly higher than inflation put strain on the business. In particular, the
fact that Letšeng is reliant upon South African grid electricity supplier
Eskom, which is currently plagued with poor operating performance leading to
frequent load shedding, resulted in a rise in the use of more expensive
diesel-powered generators. The price of diesel also remains high which has a
direct impact on costs due to the large volumes of diesel used in the loading
and hauling of ore and waste tonnes. The Group strives to mitigate these
rising costs through stringent cost control and efficient mining, evidenced
through the recent right-sizing and insourcing initiatives.
CLIMATE CHANGE
The Board is cognisant of the risks presented by climate change and conscious
of the need to minimise carbon emissions. A Group-specific climate change
scenario analysis has been conducted whereby the short to medium and
longer-term physical risks were assessed. The short to medium-term impacts
fall within the viability period. The physical risks identified for Letšeng,
such as drought, strong winds, extreme precipitation and cold, are similar to
its current operating conditions. The operation is therefore well geared to
manage these conditions within its current and medium-term operational
activities, cost structure and business planning. Additional cash investment
required in the event of these short to medium-term physical risks
materialising has been assessed as low with no material impact on the current
operations and viability of the Group.
In terms of transitional risks, as users of grid-supplied and fossil fuel
energy, the short-term focus is on improving energy efficiencies in our
operational processes and reducing the use of fossil fuels. Options are being
assessed in the context of the size, nature and location of the Group's
operations, the required investment and the expectations of our main
stakeholders. Any material investment during the viability period is
considered unlikely. Due to uncertainty around the cost and timing of
implementation of carbon-related taxes, the impact of such taxes on the
Group's operations and cash flows has been excluded from the viability
assessment and scenario stress testing. Management and the Board will continue
to assess these impacts as the information becomes more certain. The Group has
adopted a carbon-pricing model that will be used to responsibly assess the
potential financial impact of future projects. The Group has also adopted a
decarbonisation strategy that is aimed at reducing potential future carbon tax
liabilities.
STRESS TESTS
The scenarios tested considered the Group's revenue, EBITDA1, cash flows and
other key financial ratios over the three-year period. The scenarios included
the compounding effect of the factors below and were applied independently of
each other. In addition, the scenarios assumed the successful extension of the
current RCFs.
Effect Extent of sensitivity analysis Related principal risks Area of business model affected
A decrease in forecast rough diamond revenue from reduced market prices or 22% •Rough diamond demand and prices •Entire business model, ie inputs, activities, outputs and outcomes
production volumes caused by unforeseen production disruption due to
climate-related events, electricity grid disruptions or any other events. •Production interruption
•Diamond damage
•Diamond resources and reserves
A strengthening of local currencies to the US dollar from expected market 19% •Variability in cash generation •Financial capital inputs and outcomes
forecasts.
(R15.25:$1)
An increase in mine operating costs caused by volatility in diesel, explosives 27% •Variability in cash generation •Financial capital inputs and outcomes
and other consumable prices.
1 Refer Note 4, Operating profit on page 147 for the definition of non-GAAP
measures.
CONCLUSION
The Group ended the year in a net debt1 position of US$21.3 million and
undrawn available credit facilities of US$45.9 million. These facilities
expire on 22 December 2024 and have an option to extend the facilities for a
period of 24 months (subject to lender approval). The Group will follow all
necessary processes to extend the facilities for this available period or
renew the facilities for an extended period, as has been the practice in the
past.
During the final year of the viability period, in 2026, there will be no
Satellite pipe ore available for processing which will negatively impact
overall revenue and cashflows and access to RCFs will be required. It is
estimated, based on the current life of mine plan, that the availability of
this higher-value ore will resume in 2030.
Letšeng, the Group's core asset, is cash generative over the viability period
and remains flexible in being able to adjust its operating plans within the
normal course of business. In the unlikely event that the RCFs are not renewed
further cost-reduction initiatives could be implemented during the viability
period, and ongoing optimisation of the mine plan (as mentioned in the COO
Review on page 48) may further reduce the cost profile in the period. Based on
the robust assessment of the principal risks, prospects and viability of the
Group, and the successful extension of the facilities, the Board confirms that
it has a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the three-year period
ending 31 December 2026.
1 Net debt is calculated as cash and short-term deposits less drawn
down bank facilities (excluding asset-based finance facility and insurance
premium financing).
CHIEF EXECUTIVE OFFICER'S REVIEW
Challenging macro-economic conditions negatively impacted the diamond market
in 2023.
2023 was a challenging year globally, with surging inflation and interest
rates in major economies, two international conflicts and a subdued overall
global economic outlook. The Israel-Hamas conflict in Gaza is detrimental to
the diamond market because Tel Aviv is one of the world's most important
diamond trading centres. The attacks by Yemen's Houthi rebels on cargo vessels
in the Red Sea from the beginning of 2024 are expected to further challenge
supply chains not yet fully recovered after the COVID-19 pandemic.
In the diamond industry, aggressive overstocking post-COVID-19 led to high
inventory levels resulting in an inevitable oversupply of polished diamonds.
Given China's importance as a consumer of polished diamonds, the sluggish
growth of its economy contributed to the decrease in demand, which was
exacerbated by slow economic growth in other important consumer markets such
as the US and the rest of Asia. There is evidence of below market sales of
large, high-value polished diamonds by certain manufacturers that has had a
detrimental effect on the top end of the diamond market. These factors have
placed severe pressure on rough and polished diamond prices during 2023.
The manufacturing of lab-grown diamonds has continued to double every year
since 2015 and is forecast to reach 20 million carats in 2024. Although
lab-grown diamonds have increased in availability and popularity due largely
to their favourable price point, we have not seen it impact the demand for
Letšeng's large, high-value diamonds; these goods are on the opposite side of
the spectrum when it comes to value and quality. Lab-grown diamonds have taken
the place of other natural diamond look-alikes such as cubic zirconia and
moissanite, and are regarded as consumer goods, not investments. Lab-grown
diamonds can be compared to what "fast fashion" is to the premium clothing
industry. In order to clearly differentiate them from natural diamonds, and
avoid any confusion of the two by consumers, it is notable that the French
Government recently ruled that these diamonds may only be referred to as
"synthetic".
The Letšeng mine continued to grapple with increased operating costs, mainly
because of inflation and higher diesel consumption due to Eskom's continued
load shedding, which increased its reliance on diesel-powered generators.
Considering these challenges, there was no choice but to relentlessly focus on
cost control measures, enhance operational efficiencies, rigorously evaluate
capital projects against measurable returns, and defer non-essential
longer-term projects.
As reported in our Half-year Report 2023, a further right-sizing programme
commenced at Letšeng in March 2023 and the workforce element of the programme
was completed in June. The programme was aimed at more effectively and
efficiently aligning the workforce to operational requirements.
Letšeng concluded the early termination of the mining services agreement with
MMIC on 1 December. It is pleasing to report the smooth transition to owner
mining, which included the transfer of all relevant equipment and employees to
Letšeng. Employment was effective 1 February 2024 and MMIC employees remained
on contract until this date. The process was well managed by senior
management, and we are already seeing significant benefits from this
transaction, both financially and operationally. The full details of the
transaction are included in the CFO Review on page 34.
Several changes were made to the senior leadership structure at Letšeng.
Kelebone Leisanyane retired from his position as CEO of Letšeng at the
expiration of his contract at the end of June. We would like to thank Kelebone
for his valuable contribution during his tenure as CEO. He was succeeded by
Motooane Thinyane, previously the Head of Operations. Motooane has been a
senior manager and executive of Letšeng for the past eight years. An
important part of his role will be spearheading the identification and
implementation of appropriate alternative energy solutions. Gideon Scheepers
was appointed to the position of Operations Director. Gideon has 32 years of
extensive experience in diamond mining and related processes, many of these in
the Lesotho diamond mining industry.
Glenn Turner, the Chief Commercial and Legal Officer of the Group, retired at
the end of April. Glenn's expertise and leadership was invaluable to the Group
over the past 16 years. I have worked with Glenn for many years both at De
Beers and subsequently at Gem. We have relied heavily on him as an experienced
and deeply trusted colleague. His sound judgement, legal knowledge and
commercial experience have helped steer the Group through challenging times
and his absence will leave a huge gap. We wish him all the best with this new
chapter in his life.
We continue to work well with the newly elected Lesotho Government. Three new
non-Executive Directors appointed by the Lesotho Government joined the
Letšeng Board during the year. We welcome them and look forward to their
valuable contribution and support while we navigate a challenging
macro-economic and operating environment. We would also like to thank the
outgoing Directors for their dedication and commitment during the time they
served on the Letšeng Board.
We concluded the implementation of our TCFD adoption strategy in 2023 and are
actively working towards our decarbonisation target of a 30% reduction in
Scope 1 and 2 emissions by 2030 (measured against our 2021 footprint). We are
pleased to report that in 2023 we achieved a 26% reduction against the 2021
baseline of our decarbonisation target.
Letšeng's underground pre-feasibility study was completed during the year and
the results show that underground mining in the Satellite pipe is not
currently economically viable. These options for both the Main and Satellite
pipes may be revisited when macro-economic and diamond market conditions
improve. Letšeng will therefore, on current and foreseeable economics,
continue with open pit mining and pursue mine plan optimisation options to
ensure maximum value for all stakeholders.
Our NI 43-101 Technical Report containing Letšeng's 2024 Resource and Reserve
Statement will be published following an in-depth resource development
programme over the past number of years. The detailed documents will be
available on the Group's website at www.gemdiamonds.com
(https://www.gemdiamonds.com/operations.php#mine2) .
Refer to the COO Review for more details on the underground study on page 44
and the 2024 Resource and Reserve statement on page 45.
EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS
We have operated safely, responsibly and efficiently during the year with an
ongoing focus on cost containment and control and enhancing operational
efficiencies. Production stabilised and volumes of ore treated increased in H2
2023 compared to H1 2023, with the implementation of targeted initiatives to
improve plant stabilisation and increase diamond recoveries.
Five diamonds greater than 100 carats were recovered during the year.
Exceptional sales during the year included a 7 carat pink diamond that was
sold for US$282 889 per carat, the third-highest dollar per carat achieved for
a Letšeng diamond. In addition, three large high-quality Type IIa white
diamonds of 58 carats each were sold for US$36 399 per carat, US$34 441 per
carat and US$34 252 per carat, respectively.
We have an effective, transparent and competitive tender sales process in
Antwerp. The limited supply agreement that was concluded in 2022 with two
important diamond manufacturing customers who supply polished diamonds to some
of the world's most premium luxury brands has continued. These diamonds are
polished to precise specifications required by the brands and additional value
is realised for the Group. This is a further step in the Group's strategy of
focused delivery of top-quality diamonds to promote Letšeng as an exceptional
diamond brand, Lesotho as the origin and therefore to achieve premium prices
for its diamonds.
The operational performance of the Letšeng mine is discussed in more detail
in the COO Review on page 41.
The challenging macro-economic environment and downturn in the diamond market
resulted in pressure on rough diamond prices, which had a direct and
significant impact on our financial results. The average price achieved
decreased to US$1 334 per carat compared to US$1 755 per carat in 2022. The
lower prices achieved resulted in total revenue of US$140.3 million and
underlying EBITDA1 of US$15.2 million. The Group ended the year in a net
debt2 position of US$21.3 million.
Full details of the Group's financial performance are included in the CFO
Review on page 34.
1 Refer Note 4, Operating profit on page 147 or the definition of
non-GAAP (Generally Accepted Accounting Principles) measures.
2 Net debt is a non-GAAP measure and calculated as cash and
short-term deposits less drawn down bank facilities (excluding insurance
premium financing).
WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE
One of our proudest accomplishments in 2023 was the Group's safety
performance. There were no fatalities for the fourth consecutive year, two
LTIs (2022: three), and we achieved an overall AIFR of 0.67 (2022: 0.70), our
lowest AIFR on record. The drive to mature the organisational safety culture
since June 2021 has yielded positive results of which we are very proud. We
will continue to entrench a workplace safety culture founded on individual
responsibility, mutual care and collaboration.
We adhere to the highest environmental management standards. We are proud to
report that Gem Diamonds' work in sustainable water treatment and community
water initiatives during 2022 was recognised by the award in the Water
category conferred by the Mining Indaba Sustainability Committee Junior ESG
Awards Committee in February 2023.
In order to improve the quality of water from the mine, we introduced two
small-scale mobile bioremediation plants in 2023. Results from these plants
indicate an effective reduction in nitrates in the water flowing through these
plants. Construction of a ∼300 kilolitre per day plant was completed in
December 2023 and commissioned in February 2024.
Our residue storage facility management process aligns with the ICMM's GISTM.
Our residue storage and freshwater facilities are subject to regular
inspections by external experts. These professional external reviews, together
with the internal governance, management, monitoring and reporting processes,
ensure that our residue storage and freshwater dam management is both
effective and closely monitored.
In 2023, we adopted two additional UN SDGs, being Zero Hunger and Climate
Action. Our CSI activities are focused on supporting infrastructure
development, education and health while assisting and stimulating small
businesses. In 2023, we supported small agricultural operations including
those in egg, vegetable and dairy production, provided scholarships for
tertiary education, and constructed classrooms at schools. From 2016 to 2023
the Group invested US$4.8 million in sustainable CSI initiatives.
In 2023, Letšeng contributed a total of US$15.5 million (LSL285.8 million) to
the Lesotho fiscus in the form of taxes and royalties alone. We are proud of
our contribution to this developing economy and our position as a significant
taxpayer and employer.
PREPARING FOR THE FUTURE
In 2024, we aim to deliver the business plan approved by the Board. This
includes achieving our financial and operational targets with a focus on cost
control measures and improved operational efficiencies. Every single contract,
capital project and expense is being interrogated and scrubbed for absolute
necessity. We will continue to focus on our safety performance by maintaining
the cadence of safety interventions, critical control management, visual
safety leadership and communication with the workforce.
The increase in load shedding and consequent reliance on diesel-powered
generators with their associated costs have intensified our need to identify
and implement alternative energy solutions for the short, medium and long
term. The criteria for these solutions are that they must be renewable,
reliable and reduce costs. We are making progress on this important
workstream.
Our capital plans include funding for projects that will sustain growth and
value creation. The planned capital-intensive projects in 2024, although not
financially significant, include recovery plant and sort house enhancements,
the required extension of the Patiseng coarse residue storage facility to
align its capacity with future mining activities, and necessary screen
replacements in both the treatment plants.
Now that the NI 43-101 Technical Report containing Letšeng's 2024 Resource
and Reserve Statement will be published, we will carefully consider our
long-term mine plan to ensure the delivery of sustainable value for all
stakeholders.
OUTLOOK
Pressure on the diamond market has persisted into 2024, although there have
been some signs of price recovery at the top and bottom end. We are cautiously
optimistic that prices will stabilise and that there will be some growth
towards the end of 2024. Global economic growth outlooks for major economies
and important diamond consumer markets such as the US and China remain
uncertain. It is worth noting that almost half of the global population is
expected to participate in national elections during 2024, which will likely
cause further economic and geopolitical uncertainty.
It is pleasing to note that the global luxury market continued to grow in 2023
and remains poised to expand further in 2024. The luxury market appears well
positioned to cope with economic turbulence, with a larger and more resilient
consumer base.
In the medium to long term, rough diamond prices should be supported by
favourable demand and supply fundamentals, with a projected further decrease
in natural rough diamond supply. This dynamic of rising demand and constrained
supply is expected to benefit high-quality rough diamonds in particular. The
fundamentals that underpin our business are sound and strongly position Gem
Diamonds for success.
APPRECIATION
I would like to thank the Board for their support and commitment in 2023. We
are grateful for our workforce and appreciate the dedication required to
deliver the safety performance we saw in 2023. We also appreciate their
commitment to delivering our strategic goals and to living our values. I would
like to thank our customers for their continued trust in Letšeng's diamonds,
and our shareholders for their support. Finally, I would like to thank the
Government of the Kingdom of Lesotho for their support and open and
transparent communication. We look forward to a productive 2024.
Clifford Elphick
Chief Executive Officer
13 March 2024
CHIEF FINANCIAL OFFICER'S REVIEW
The financial performance of the Group in 2023 was disappointing, driven by a
downturn in the diamond market that resulted in lower diamond prices achieved.
The turbulent global economic conditions from the previous year continued into
2023 with high inflation, interest rate hikes and slow overall economic growth
in major economies. The continued Russian invasion of Ukraine and the recent
conflict in Gaza further impacted the global economy and specifically the
diamond market. Locally, the ever-increasing load shedding by the South
African grid electricity supplier, Eskom, put pressure on the operating
environment and costs. These factors had a significant impact on diamond
prices achieved and costs incurred during the year, resulting in lower
EBITDA compared to 2022. This necessitated a renewed focus on cost
containment and improvement in operational efficiencies.
Operationally, Letšeng performed in line with expectations despite several
challenges posed by high rainfall and increased electricity supply disruptions
(refer to the COO Review on page 41). The pressure experienced on the diamond
market significantly impacted rough and polished diamond prices and resulted
in an average price of US$1 334 per carat for the year, with revenue from the
sale of rough diamonds of US$139.4 million. In addition, US$0.9 million of
margin uplift was generated, bringing total revenue for the year to
US$140.3 million.
Underlying EBITDA decreased to US$15.2 million from US$43.7 million in 2022.
The Group reported a loss attributable to shareholders for the year of
US$2.1 million, equating to a basic loss per share of 1.5 US cents on a
weighted average number of shares in issue of 139.5 million.
The Group ended the year with a cash balance of US$16.5 million and drawn down
facilities of US$37.8 million, resulting in a net debt position of US$21.3
million and available undrawn facilities of US$45.9 million.
Summary of financial performance
Refer to the full annual financial statements from page 118.
US$ million 2023 2022
Revenue from contracts with customers 140.3 188.9
Royalties and selling costs (15.3) (20.3)
Cost of sales1 (102.1) (116.3)
Corporate expenses (excluding depreciation) (7.7) (8.6)
Underlying EBITDA2 15.2 43.7
Depreciation and mining asset amortisation (7.3) (8.4)
Share-based payments (0.3) (0.3)
Other operating income/(expenses) - (2.4)
Foreign exchange gain 2.8 1.9
Net finance costs (4.7) (4.1)
Profit before tax for the year 5.7 30.4
Income tax expense (4.1) (10.2)
Profit after tax for the year 1.6 20.2
Non-controlling interests (3.7) (10.0)
Attributable (loss)/profit (2.1) 10.2
(Loss)/earnings per share (US cents) (1.5) 7.3
1 Including waste stripping costs amortisation but excluding
depreciation and mining asset amortisation.
2 Underlying EBITDA as defined in Note 4, Operating profit of the notes
to the consolidated financial statements.
Revenue
Revenue decreased 26% compared to 2022, mainly due to lower prices achieved
as a result of a downturn in the diamond market and a decrease of 3% in carats
sold (104 520 carats compared to 107 498 in 2022). Rough diamond revenue of
US$139.4 million (2022: US$188.6 million) was generated at Letšeng, achieving
an average price of US$1 334 per carat (2022: US$1 755 per carat).
Additional revenue is generated through an arrangement with two diamond
manufacturing customers to supply polished diamonds to some of the world's
most premium luxury brands, and other partnership arrangements. These
agreements allow the Group to share in the margin uplift on the sale of
polished diamonds. In 2023, additional revenue of US$0.9 million (2022: US$0.3
million) was generated from these arrangements.
US$ million 2023 2022
Group revenue summary
Rough diamond sales 139.4 188.6
Polished diamond margin 0.9 0.3
Group revenue 140.3 188.9
Insourcing of the mining activities
Matekane Mining Investment Company (Proprietary) Limited (MMIC) has been the
provider of mining services to Letšeng since 2005. Following the election of
Mr Sam Matekane (the ultimate owner of MMIC) as Prime Minister of Lesotho in
October 2022, Letšeng carefully considered its options to resolve the
potential conflict of interest created by being in a business relationship
with a politically exposed person.
Effective 1 December 2023, Letšeng reached an agreement with MMIC to early
terminate the mining services contract, 11 months ahead of its scheduled
contractual end date of 31 October 2024, and insourced these activities.
Letšeng acquired the mining fleet and support equipment that was used
exclusively for Letšeng, and offered employment to those MMIC employees
working exclusively for Letšeng, in line with operational requirements.
Employment was effective 1 February 2024 and MMIC employees remained on
contract until this date.
The total purchase price, which was determined with the assistance of external
third-party valuators, was US$22.7 million. Payment terms were agreed whereby
US$13.0 million was paid on the effective date, US$9.3 million was paid in
January 2024, and a retainer of US$0.4 million was withheld for equipment
under repair at the effective date and subsequently settled in early March
2024.
The full purchase price was capitalised to the statement of financial position
and the fleet and equipment will be depreciated over the useful life of each
asset based on the available production hours. The financial results for the
year include one month of depreciation on the acquired fleet.
This transition to owner mining creates further opportunities for Letšeng to
maximise mining efficiencies, reduce costs through eliminating contractor
margins, and manage mining procurement directly, and enables further
flexibility in the planning and execution of its mining activities. All these
factors will contribute to a more efficient and cost-effective operation. The
full benefit of the insourcing of the mining activities will be seen from 2024
onwards.
Expenditure
Energy costs
The increased load shedding by Eskom in 2023, which impacted 335 days of the
year (compared to 205 in 2022), has necessitated an increase in diesel usage
due to Letšeng's reliance on diesel-powered generators to operate the
treatment plants uninterruptedly. This increase was partially set off by a
decrease in diesel usage for mining activities due to lower volumes mined
(refer to the COO Review on page 41) and the full year benefit of previously
implemented lower-energy consumption initiatives.
The net impact was a 0.1 million litre increase in diesel consumption
compared to the prior year. The average cost per litre of diesel decreased by
2% from 2022. Overall, it resulted in a 1% decrease in diesel costs, in local
currency, to LSL336.0 million (US$18.2 million) from LSL340.6 million
(US$20.8 million) in 2022.
Grid electricity usage decreased due to increased load shedding during the
year. The marginal 3% decrease in cost to LSL54.9 million (US$3.0 million)
was set off by a 7.9% rate increase.
Overall energy costs, including diesel and electricity, amounted to
LSL390.9 million (US$21.2 million) in 2023 (2022: LSL397.0 million,
US$24.3 million), a 2% decrease from 2022 in local currency. Energy costs as
a percentage of direct cash costs remained unchanged at 27%, and the energy
cost per tonne treated increased by 8% from LSL72.09 in 2022 to LSL77.79 in
2023, driven by lower volumes of tonnes treated.
Letšeng Unit Cost Analysis
Unit cost Direct Third plant Total direct Non-cash Total Waste cash
per tonne treated cash operator costs cash accounting operating costs per
costs(1) operating costs charges(2) cost waste tonne
mined
2023 (LSL) 288.54 - 288.54 85.87 374.41 66.03
2022 (LSL) 252.50 10.57 263.07 82.02 345.09 66.74
% change 14 (100) 10 5 8 (1)
2023 (US$) 15.63 - 15.63 4.66 20.29 3.58
2022 (US$) 15.42 0.65 16.07 5.01 21.08 4.08
% change 1 (100) (3) (7) (4) (12)
(1) Direct cash costs represent all operating costs, excluding
royalties and selling costs.
2 Non-cash accounting charges include waste stripping amortised,
inventory and ore stockpile adjustments, and finance lease costs, and exclude
depreciation and mining asset amortisation.
Operating expenditure
Group cost of sales (excluding depreciation) decreased by 12% in 2023 to
US$102.1 million from US$116.3 million in 2022.
· Direct cash costs (excluding waste) remained virtually unchanged
at LSL1 449.8 million (2022: LSL1 448.6 million). In 2023 these costs were
affected by energy costs (detailed above), price increases from suppliers on
explosives, equipment, spare parts and tyres, and additional once-off
severance payments and related consulting fees due to the right-sizing of the
Letšeng operation (refer to the COO Review on page 43). Direct cash costs per
tonne treated increased by 14% to LSL288.54 from LSL252.50 in 2022, impacted
by the lower volume of tonnes treated in the year. The third plant operator's
(Alluvial Ventures or AV) contract expired on 30 June 2022. Ore tonnes treated
decreased 9% to 5.0 million tonnes (2022: 5.5 million tonnes of which AV
contributed 0.4 million tonnes). On a like-for-like basis (excluding the
impact of AV), the 2022 unit costs would be LSL274.48 per tonne treated,
resulting in a year-on-year increase of 11%, which is driven by the additional
costs mentioned above.
· Non-cash accounting charges refers to waste amortisation,
stockpile and diamond inventory movements and finance lease costs. These
charges decreased 4% to LSL431.5 million (2022: LSL451.7 million), mainly due
to the combination of an increase in total waste amortisation charges of
LSL723.2 million (2022: LSL594.0 million), despite lower tonnes treated during
the year, and the impact of the increase in stockpile tonnes on hand from 0.7
million tonnes in 2022 to 1.1 million tonnes in 2023. The increase in waste
amortisation charges was mainly driven by the reduction of the anticipated
future ore tonnes from SC6W as a consequence of an updated pit design (refer
to the COO Review on page 47). In US dollar terms, waste amortisation charges
increased by 8% to US$39.2 million compared to US$36.3 million in 2022.
· Total operating costs in local currency decreased marginally to
LSL1 881.3 million (2022: LSL1 900.3 million), which includes the impact
of direct cash costs and non-cash accounting charges detailed above. The unit
cost per tonne treated increased 8% to LSL374.41 per tonne treated
(2022: LSL345.09 per tonne treated), mainly due to the 9% decrease in tonnes
treated in the year.
· Waste cash costs decreased by 14% to LSL583.8 million from
LSL677.7 million in 2022, which is in line with the 13% reduction in waste
tonnes mined (8.8 million tonnes compared to 10.2 million tonnes in 2022).
Initiatives such as the steepening of slopes in the Main pit and decreasing of
waste hauling distances, implemented in 2022, resulted in a 1% decrease in
waste cash cost per waste tonne to LSL66.03 (2022: LSL66.74) despite the lower
waste tonnes mined.
US dollar-reported costs
Gem Diamonds' revenue is generated in US dollars, while the majority of
operational expenses are incurred in the relevant local currency in the
operational jurisdictions. Local currency rates for the Lesotho loti (LSL)
(pegged to the South African rand) and Botswana pula (BWP) were weaker against
the US dollar compared to 2022, which decreased the Group's US dollar-reported
costs and increased local currency cash flow generation. The fluctuation of
the exchange rates are set out in the table below:
Exchange rates 2023 2022 % change
LSL per US$1.00
Average exchange rate 18.45 16.37 13
Year end exchange rate 18.29 17.02 7
BWP per US$1.00
Average exchange rate 13.36 12.37 8
Year end exchange rate 13.39 12.75 5
GBP per US$1.00
Average exchange rate 0.80 0.81 (1)
Year end exchange rate 0.78 0.83 (6)
Royalties and marketing costs
In terms of Letšeng's mining lease, royalties are paid to the Government of
the Kingdom of Lesotho on the value of rough diamonds sold. The Group's sales
and marketing operation in Belgium incurs costs relating to diamond selling
and marketing. Royalties and selling costs decreased by 25% to US$15.3 million
(2022: US$20.3 million) in line with the decrease in revenue.
Corporate costs
The technical and administrative office in South Africa and head office in the
UK provide expertise in all areas of the business to realise maximum value
from the Group's assets. Central costs are incurred in South African rand and
British pounds respectively.
Corporate costs (excluding depreciation) were US$7.7 million, representing a
10% decrease from 2022. In 2023, US$0.2 million of project costs were
incurred on the ongoing sales process of Ghaghoo and investigating external
growth opportunities (2022: US$0.1 million).
Underlying EBITDA1 and attributable profit
Group underlying EBITDA1 decreased by 65% to US$15.2 million (2022: US$43.7
million), mainly due to the decline in revenue in the current year. The loss
attributable to shareholders was US$2.1 million, which translates to a loss of
1.5 US cents per share based on a weighted average number of shares in issue
of 139.5 million.
1 Underlying EBITDA as defined in Note 4, Operating profit of the
notes to the consolidated financial statements.
Statement of financial position - selected indicators
US$ million 2023 2022
Property, plant and equipment 295.8 293.5
Non-current: receivables and other assets 4.5 2.9
Current: receivables and other assets 3.6 4.9
Inventory 37.6 30.4
Net income tax receivable 3.7 2.3
Cash and short-term deposits 16.5 8.7
Non-current: interest-bearing loans and borrowings (5.2) (4.4)
Current: interest-bearing loans and borrowings (33.4) (1.6)
Net deferred tax liabilities (75.3) (76.0)
Non-current: rehabilitation provisions (14.2) (15.4)
Capital expenditure
Total capital expenditure (excluding waste stripping) was US$30.4 million
during the year (2022: US$11.9 million). The increase in 2023 was mainly due
to the acquisition of the mining fleet and support equipment from MMIC for
US$22.7 million, as detailed on page 35. The replacement of the PCA and the
underground study that commenced in 2022 were completed. Three bioremediation
plants were constructed, with the large-scale, ∼300 kilolitre per day plant
being commissioned in February 2024.
Cash on hand
The Group ended the year with cash on hand of US$16.5 million (2022:
US$8.7 million) and net debt of US$21.3 million, which was a decrease in net
cash of US$24.6 million year on year. Group cash generated by operations was
US$56.1 million before capital and waste investment of US$57.1 million.
Loans and borrowings
The Group-wide debt facilities for Letšeng (LSL450.0 million and
ZAR300.0 million) and Gem Diamonds (US$30.0 million), which were concluded
in December 2021 for an initial three-year period, are due to expire in
December 2024. The process to extend or renew the revolving credit facilities
will commence in Q2 2024.
Letšeng has a ZAR100.0 million (US$5.5 million) general banking facility
with Nedbank Limited (acting through its Nedbank Corporate and Investment
Banking division) reviewed annually. The facility was utilised from time to
time during the year and was fully repaid by year end.
The funding partners to the existing facilities are Nedbank, Standard Bank and
Firstrand Bank (through their respective operations). Nedbank's portion of the
funding, totalling US$29.9 million, is a sustainability-linked loan (SLL), an
innovative structure that links the margin and resultant interest rate on the
SLL to the Group's ESG performance. The margin on the SLL will decrease
subject to the Group meeting certain carbon reduction and water conservation
KPIs that are aligned with the Group's sustainability strategy. These KPIs are
assessed at the end of every financial year.
The two KPIs included for the SLLs both need to be met at each measurement
date before the margin reduction on these loans becomes effective. At 31
December 2023, both the carbon emission and water conservation KPIs were met
and therefore the margin reduction is expected to apply to any outstanding
balance on these facilities in 2024.
In 2022, Letšeng implemented a four-and-a-half-year facility agreement with
Nedbank for the replacement of the PCA for an amount of ZAR136.4 million
(US$8.0 million). The facility is underwritten by the Export Credit Insurance
Corporation of South Africa (ECIC). At the end of the availability period on
30 November 2023, an amount of LSL132.0 million (US$7.2 million) was
utilised and the remaining balance expired. Quarterly repayments of this
facility will commence from Q1 2024 until May 2027.
At year end, the Group had utilised facilities of US$37.8 million, resulting
in a net debt position of US$21.3 million and available facilities of
US$45.9 million. Gem Diamonds, the Company, ended the year with
US$6.0 million of its facility drawn down (2022: nil) and US$24.0 million
available. Letšeng ended the year with US$24.6 million (2022: nil ) of its
revolving credit facility utilised and US$16.4 million available.
Summary of loan facilities as at 31 December 2023
Company Term/description/expiry Lender Interest rate Amount Drawn down/ Available
US$ million Balance due US$ million
US$ million
Gem Diamonds Limited Three-year revolving credit facility Nedbank Facility A 30.0 6.0 24.0
(US$30 million):
Expires Standard Bank
22 December 2024
Term SOFR + 5.26%
Firstrand Bank
Letšeng Diamonds Three-year revolving credit facility Standard Lesotho Bank Facility B (LSL450 million): Central Bank of Lesotho rate + 3.25% 24.6 14.8 9.8
Expires Nedbank Lesotho
22 December 2024
First National Bank of Lesotho
Firstrand Bank
Nedbank Facility C (ZAR300 million): South African JIBAR + 3.05% 16.4 9.8 6.6
Letšeng Diamonds Four-and-a-half-year project facility Nedbank ZAR136 million 7.2 7.2 -
Expires Export Credit Insurance Corporation South African JIBAR + 2.50%
31 May 2027
Letšeng Diamonds General banking facility Nedbank ZAR100 million South African 5.5 - 5.5
Annual review in March Prime Lending Rate minus 0.70%
Total 83.7 37.8 45.9
Ghaghoo
The Board and management remain committed to exiting the Ghaghoo Diamond Mine
in Botswana, either by sale, closure or handover of the mine. Ghaghoo ceased
to be classified as a discontinued operation held for sale as at 31 December
2022 due to the highly probable requirements set out in IFRS 5 not being met.
Care and maintenance cash costs decreased to US$1.8 million in 2023 (2022:
US$1.9 million), which amount is included in other operating expenses in the
financial results. An additional US$0.2 million (2022: US$0.2 million) on the
unwinding of the environmental rehabilitation provision resulted in a non-cash
interest charge which is included in finance costs. In addition, a US$0.4
million reduction in the rehabilitation provision has been included in
operating income and expenses.
A solar power solution was installed during the year. The solar plant was
commissioned in January 2024 and completely replaces the existing diesel
generator. This will result in future cost savings as it will eliminate costs
related to generator rentals, diesel usage and transport.
The operation has also commenced site clean-up activities to prepare it for
handover, the costs of which are included in the above cash costs.
Insurance
The perception of risk in the mining industry has improved, with insurers
offering more competitive rates for mining companies. In 2023, insurance
premiums for the Group were 15% lower compared to 2022. The Group is in the
third year of a five-year multi-aggregate insurance policy to mitigate the
increased risk of higher deductibles in the unlikely event of an unexpected
loss.
Letšeng's insurance claim relating to diesel theft, which was identified in
2021, was settled during the year and is included in other operating income in
the financial results. The business interruption claim for insured losses
arising out of the COVID-19-related shutdown in 2020, where the mine was
required to be placed on care and maintenance, is ongoing and we hope to
receive an appropriate settlement in 2024.
Share-based payments
The share-based payment charge for the year was US$0.3 million (2022: US$0.3
million). At the AGM on 2 June 2021, shareholders approved the 2021
Remuneration Policy, which included the introduction of a post-termination
shareholding, an employee pension alignment plan, as well as the new Gem
Diamonds Incentive Plan (GDIP) for Executive Directors. On 21 April 2023,
1 060 055 nil-cost options were granted to certain key employees and
Executive Directors under the GDIP. Refer to Note 26, Share-based payments on
page 167 for more detail.
TAXATION
The Group applies all relevant principles in accordance with prevailing
legislation in assessing its tax obligations. The Group's effective tax rate
was 72.0%. Most of the Group's taxes are incurred in Lesotho, which has a
corporate tax rate of 25%. The effective tax rate is above the Lesotho
corporate tax rate mainly due to deferred tax assets not recognised on losses
incurred in other operations, the impact of the alignment of foreign tax at
different rates, partially offset by withholding tax overpaid in prior periods
and refunded in full by the Revenue Services Lesotho (RSL) during the year.
Refer to Note 6, Income tax expense on page 148 for more detail.
The Group continues to pursue a long-standing legal matter relating to an
amended tax assessment that was issued to Letšeng by the RSL in December
2019, contradicting the application of certain tax treatments in the current
Lesotho Income Tax Act 1993. We expect to pursue this matter in the courts in
2024. We have sought senior legal counsel and their advice indicates good
prospects for success. Refer to the accounting treatment for this matter, Note
1.2.26, Critical accounting estimates and judgements for further detail.
OUTLOOK
In light of the many external macro-economic factors negatively impacting our
business, we have renewed our focus on cost containment measures, tightening
capital allocation decision-making and enhancing operational efficiencies. The
insourcing of the mining activities is expected to deliver significant
savings. A key focus for 2024 will be the extension or renewal the Group's
facilities which expire on 22 December 2024.
Michael Michael
Chief Financial Officer
13 March 2024
CHIEF OPERATING OFFICER'S REVIEW
The overall operational performance of the Group in 2023 was pleasing, driven
by a focus on safety and operational efficiency.
Market conditions and the continuing pressure on revenue in 2023, coupled with
the ever-rising cost of operating, including longer hauling distances due to
deeper pits, and increased load shedding, necessitated a reinforcement of our
focus on operational efficiencies and cost containment, while at all times
ensuring that we meet our production targets safely, responsibly and
sustainably.
The challenges of lower revenues and increasing costs are not always within
our control. To meet these challenges head-on however, we made significant
changes to management, workforce and operating methodologies at Letšeng and
Ghaghoo in 2023. This required a direct focus on operating more efficiently to
reduce, or at the very least contain, those operational costs that are within
our control.
The implementation and integration of sustainability initiatives at our
operations over the past few years, in particular our focus on reducing energy
consumption and associated costs, positioned the Group well to navigate a
difficult financial year in 2023. This is evident in reduced costs and
decarbonisation related to waste mining in particular, and the successful
implementation of several other energy-efficiency initiatives. In 2023, we
recorded a 26% decrease in our Scope 1 and 2 emissions and a 25% decrease in
diesel consumption-related emissions when compared to our 2021 baseline carbon
emission footprint.
One of our proudest achievements in 2023 is our safety performance. The health
and safety of our workforce remains paramount, and it is very pleasing to reap
the rewards of a three-year safety campaign that started with a 24-hour
stop-for-safety in June 2021. Achieving our lowest all injury frequency rate
(AIFR) on record is testament to our commitment to achieving a zero harm
operation and the relentless focus of leadership, management and each employee
to achieve this.
We have also completed the NI 43-101 Technical Report containing Letšeng's
2024 Resource and Reserve Statement, which will be available on the Group's
website at www.gemdiamonds.com
(https://www.gemdiamonds.com/operations.php#mine2) .
PERFORMANCE
Safety
Safety performance Unit 2023 2022 % change
Fatalities Number 0 0 -
LTIs Number 2 3 (33)
LTIFR 200 000 man hours 0.10 0.13 (26)
AIFR 200 000 man hours 0.67 0.70 (4)
The Group's safety culture is founded on our commitment to zero harm and our
strong belief that all injuries can be prevented. Letšeng's safety
performance in 2023 was of the highest standard, with zero fatalities (2022:
zero), two LTIs (2022: three), an improved LTIFR of 0.10 (2022: 0.13) and our
lowest AIFR on record of 0.67 (2022: 0.70). Our improved safety performance
does not happen by chance but is a direct result of the relentless effort and
commitment of executive leadership and operational management in the
implementation of the organisational safety maturity strategy. This strategy
addresses critical safety risks, enhances safety-specific leadership
visibility, and engages with the workforce to implement engineering and
behaviour-focused controls to more specifically prevent safety incident
reoccurrences. A focused safety programme was guided by independent subject
matter experts and included mentoring senior management on best practice
safety leadership and successfully implementing a critical control management
strategy.
The safety of our workforce remains our highest priority and we will continue
to build on the organisational safety maturity at our operations, which is
founded on and entrenched in a safety culture of visible safety-focused
leadership, individual responsibility and accountability, mutual care and
collaboration.
Operations
KPI Unit 2023 2022 % change
Ore mined tonnes 5 419 033 5 732 493 (5)
Waste mined tonnes 8 841 628 10 153 846 (13)
Ore treated tonnes 5 024 665 5 506 576 (9)
Carats recovered1 carats 109 656 106 704 3
Grade cpht 2.18 1.94 12
Carats sold carats 104 520 107 498 (3)
Average price per carat US$/carat 1 334 1 755 (24)
1 Includes carats produced from the Letšeng plants and the coarse and fines
tailings treatment plants.
Operationally, 2023 was a year of two halves. Following a positive start in Q1
2023, Letšeng faced numerous challenges and changes in Q2 2023, culminating
in the finalisation of the right-sizing programme and a change in senior
management in June 2023. Operational challenges at Letšeng during this period
included high rainfall, instability in the performance of the treatment plants
and continued load shedding by Eskom, which resulted in poor overall treatment
efficiencies and increased reliance on more expensive diesel generators to
power operations. An intensified focus on the identification and
implementation of initiatives to optimise and improve operational performance
and efficiencies and to significantly reduce costs commenced in Q3 2023,
resulting in a marked improvement in operational performance seen in H2 2023
compared to H1 2023.
The implementation of a number of initiatives to slow down the instantaneous
rate at which ore is fed into the treatment plants significantly improved
overall stability. This in turn materially improved the consistency of higher
daily overall plant utilisation. The newly built Primary Crushing Area (PCA),
which was commissioned in Q4 2023, further contributed to the improved
performance by providing the plant with a consistent feed of well-fragmented
ore. The initial benefit of these initiatives when comparing H2 2023 to H1
2023 is set out in the table below:
KPI Unit H2 2023 H1 2023 % change
Overall plant utilisation % 81 75 8
Ore treated tonnes 2 557 415 2 467 250 4
Carats recovered carats 59 055 50 601 17
Grade cpht 2.48 2.05 21
The 4% increase in ore treated in H2 2023 can largely be attributed to the
improved plant stability and higher overall daily utilisation. Overall plant
utilisation improved from 75% in H1 2023 to 81% in H2 2023. Plant stability
further contributed to improved recoveries in H2 2023, with a notable 17%
increase in carats recovered and a 21% improvement in the grade.
Waste tonnes mined
Total waste tonnes mined in 2023 decreased 13% to 8.8 million tonnes from
10.2 million tonnes in 2022. This was in line with the planned 2023 waste
mining profile, which was further reduced in Q4 2023 to align with the ore
treatment performance. Initiatives to further optimise waste mining and reduce
associated costs continued to be implemented, and during 2023 this included a
re-design of the Cut 4 West cutback in the Main pit to reduce waste, and the
implementation of a new fleet management system that improved fleet
productivity, availability and utilisation.
Ore mined
Total ore tonnes mined in 2023 decreased 5% to 5.4 million tonnes from 5.7
million tonnes in 2022. This was in line with the 2023 mine plan, taking into
account the reduced ore treatment capacity in 2023 following the expiry of the
Alluvial Ventures (AV) processing contract on 30 June 2022. This was partially
off set by increased mining to the surface ore stockpiles in 2023.
Ore treated
Letšeng's two plants treated 5.0 million tonnes of ore during 2023 (2022: 5.5
million tonnes). The reduction in total ore tonnes treated in 2023 compared to
2022 was primarily due to the expiry of AV's processing contract, which
contributed 0.4 million tonnes in 2022. The balance of the fewer tonnes
treated in 2023 compared to 2022 was mainly as a result of plant performance
and instability experienced in H1 2023. Of the total ore treated, 2.0 million
tonnes were sourced from the Main pipe and 3.0 million from the Satellite
pipe, this being in line with the planned Satellite/Main pipe ore contribution
for 2023.
The biggest operational challenge in 2023 was the continued occurrence of more
frequent and longer periods of load shedding by Eskom, the South African grid
electricity supplier. Letšeng's generator capacity is sufficient and the
synchronised switch-over from grid to generator power is effective (provided
Eskom adheres to its load shedding schedule), but the additional running hours
and strain on what was designed as a back-up generator system requires
increased maintenance and heightens the risk of generator plant and equipment
breakdowns. The increased utilisation of diesel generators, resulting in
considerably higher volumes of diesel being consumed by the treatment plants
in the year, had a significant negative impact on treatment operating costs.
Total carats recovered
Total carats recovered in 2023 increased 3% to 109 656 carats (2022:
106 704 carats), due primarily to differences in ore mix year on year and
improvements in plant stability in H2 2023, resulting in improved recoveries.
The coarse tailings mobile XRT sorting machine recovered 367 carats in 2023
(2022: 774 carats) from re-treating current coarse recovery tailings, and an
additional 5 206 carats (2022: 2 657 carats) were recovered by the fines
tailings mobile XRT sorting machine, which re-treated current fines recovery
tailings.
The overall grade for 2023 was 2.18 cpht, a 12% increase compared to 1.94
cpht in 2022, which was marginally better than expected. The contribution of
higher grade material from the Satellite pipe accounted for 59% of ore treated
during the year (2022: 55%).
Capital projects
Capital expenditure allocation during 2023 was thoroughly interrogated against
necessity and applied in line with operational and cash management
requirements. Material capital projects at Letšeng in 2023 included:
· completion of the PCA replacement project, which was successfully
commissioned in Q4 2023;
· completion of the Satellite pipe underground study;
· final design and construction of the bioremediation plant; and
· purchase of the mining fleet and equipment in the transition to
owner mining.
Details of overall costs and capital expenditure incurred at Letšeng are
included in the CFO Review on page 34.
The planned capital spend at Letšeng for 2024 includes necessary
modifications and upgrades to the recovery plant and final sort, the
development of the next phase of the Patising coarse tailings extension
project to ensure future capacity, and other smaller projects, including
necessary upgrades to storage facilities, Plant 1 scrubber shell replacement
and resource drilling.
Enhancing operational efficiencies
A change in operational requirements, together with significant pressure to
further reduce operating expenses in line with challenging market conditions
and lower rough diamond prices, required Letšeng to critically review all
aspects of its business to maximise operational efficiency and effectively
control costs to ensure continued business sustainability.
The right-sizing programme at Letšeng, which affected a total of 327
positions, including contractors, was completed in June. The programme was
aimed at more effectively and efficiently aligning the workforce to
operational requirements. In addition, a number of changes were made to the
management team at Letšeng, including the appointment of Gideon Scheepers to
the position of Operations Director. Gideon has 32 years of extensive
experience in diamond mining, treatment and related processes, and following
his appointment in June, drove the implementation of significant improvements
at the operation in H2 2023, particularly in mining, treatment and site
management.
A smooth transition to owner mining was concluded in Q4 2023 (refer to the CFO
Review on page 35), with no interruption to production or mining activities.
In addition to an immediate decrease in operating costs, there is room to
further improve operational efficiencies as Letšeng management now has direct
control over its mining fleet and execution of the mine plan. This will also
assist in reducing "day-works" costs for other necessary projects around site,
including concurrent rehabilitation.
The management of the recovery plant was brought in-house from Minopex to
ensure direct control and management over what is arguably the most important
part of the treatment process along with the final sort.
In addition, a revision to the catering and housekeeping contract on site
resulted in the housekeeping and laundry activities being insourced, with the
contractor providing the catering services only for the remainder of the
contract term.
All operational contracts are undergoing rigorous reviews to ensure
optimisation, efficiency and effective cost control management as a top
priority.
Large diamond recoveries
In 2023, Letšeng recovered five diamonds greater than 100 carats (2022:
four), including three high-quality Type IIa white diamonds of 120.43 carats,
117.47 carats and 112.46 carats, respectively. A total of 131 greater than 100
carat diamonds have been recovered at Letšeng since 2006, and we are pleased
to report that three more greater than 100 carat diamonds have been recovered
to date in Q1 2024. Total diamonds recovered greater than 10 carats decreased
by 5% year on year, mostly in the 10 to 20 carat and 60 to 100 carat size
categories. The lower number of diamonds in the larger categories can be
primarily attributed to the resource domains that were mined in both the
Satellite and Main pipes in 2023. 22 diamonds sold for over US$1.0 million
each in 2023, generating revenue of US$40.8 million.
Number of large diamond recoveries 2023 2022 FY average
2008 - 2023
>100 carats 5 4 8
60 - 100 carats 13 18 18
30 - 60 carats 71 69 76
20 - 30 carats 107 108 114
10 - 20 carats 477 507 449
Total diamonds >10 carats 673 706 664
Diamond sales
Eight large and four small rough diamond tender viewings were held in Antwerp
during the year.
A total of 104 520 carats were sold in 2023 (2022: 107 498) and Letšeng
generated rough diamond revenue of US$139.4 million (2022: US$188.6 million)
at an average price of US$1 334 per carat (2022: US$1 755). The significant
challenges experienced in the diamond market, discussed in the CEO Review on
page 30, coupled with the reduced volume of large high-value diamonds in 2023,
were the primary factors behind the lower average price and revenue achieved
in 2023.
The Group supports the GIA's blockchain technology to inform and assure
consumers about the ethical and socially supportive footprint of our diamonds.
Blockchain technology can link the source of rough diamonds to the final
polished diamonds, thereby proving their authenticity, provenance and
traceability, and supporting ethical sourcing and processing in the diamond
value chain.
Underground study
A conceptual desktop study for an underground mining operation in the
Satellite pipe post the current Cut 5 West (SC5W) open pit cutback was
completed in November 2021. The outcome indicated potential for underground
mining and recommended that a comprehensive Underground Feasibility Study be
undertaken to confirm the feasibility thereof to most optimally and
economically extend the life of mine for the Satellite pipe. The objective of
the proposed study was to upgrade the desktop study to the confidence level of
a feasibility study and to develop a transition model for an underground
operation once the life of the Satellite pit reached maximum depth achievable
through the current open pit mining. The study commenced in mid-2022 to (i)
assess the viability of an earlier shift to underground mining of the
Satellite pipe, and (ii) inform the trade-off between an underground mining
option and the next open pit cutback in the Satellite pipe Cut 6 West (SC6W)
post the completion of SC5W in 2024/5.
The project focused on the viability of the mining block within the indicated
resources zone of the Satellite pipe, but also included the assessment of
additional levels, to the point where the project no longer added positive
financial returns. Following numerous iterations of the mining strategy, a
three-level sub-level retreat was identified with the caving method as the
most efficient and appropriate underground mining method for the available ore
within the Satellite pit. To improve the economic viability of the mine, the
study focused on several optimisation strategies, particularly with regards to
mining costs. A detailed analysis of the cost breakdown was conducted to
identify areas of potential savings and to explore alternative contracting
models.
The economic viability and performance of the underground operation was
determined through developing a detailed financial model founded on the
results derived from the study and other available information. Unfortunately,
at a mid-point review held in June 2023, the preliminary analysis at that time
revealed a negative net present value of such an underground project in the
Satellite pipe. Further sensitivity analysis was conducted in H2 2023 to
ascertain the impact on project value due to potential variability in
significant value drivers such as capital expenditure, diamond selling prices
and operating costs. Following this analysis and a further review of capital
expenditure and operating costs in particular, it was clear that the
underground project for the extension of life of the Satellite pipe was not
economically viable under current macro-economic conditions and the current
state of the diamond market. The study was therefore halted at a
pre-feasibility level to avoid spending unnecessarily on further geotechnical
and hydro-technical drilling work at this time. Underground mining for both
the Main and Satellite pipes may again be reconsidered should macro-economic
and diamond market conditions improve.
In the meantime, various strategies to optimise open pit mining activities in
both the Satellite and Main pits are continually being investigated and
implemented as appropriate. A steeper conventional concept for C6W in the
Satellite pit, which will significantly reduce the strip ratio, is currently
under review.
Resource and Reserve Statement
Following the publication of Letšeng's 2015 SAMREC Mineral Resource and
Reserve Statement, efforts were focused on improving confidence in the
geological models and the predictability of the large +100 carat Type II
diamonds, which contribute materially to Letšeng's value.
Initial petrography and microdiamond studies in the latter part of 2015
suggested that the geological complexity in both the Main and Satellite pipes
may have been greater than that reflected in the broader resource categories
at the time. What set out as an exercise to better understand the internal
variability of the existing resource domains in the Main pipe (KMain, K6 and
K4) and Satellite pipe (NVK and SVK), transformed into a comprehensive
drilling and resource development programme spanning eight years and
culminating in a new appreciation of the complexity within the Letšeng
orebodies, as reflected in the current Resource and Reserve Statement.
The 2024 Mineral Resource and Reserve Statement was prepared in line with the
Canadian Institute of Mining, Metallurgy and Petroleum's (CIM) Estimation of
Mineral Resources and Mineral Reserves Best Practice Guidelines dated November
2019, and the Definition Standards for Mineral Resources and Mineral Reserves
published May 2014, and is reported in accordance with the Canadian Securities
Administrators' National Instrument 43-101 Standards of Disclosure for Mineral
Projects.
Letšeng's 2024 Mineral Resource Statement is informed by a suite of
geological studies that (i) enabled differentiation between the various known
and newly recognised kimberlite domains, (ii) delineated the internal
boundaries between the kimberlite domains, and (iii) characterised them in
terms of their diamond populations, volumes, tonnages, grades and value.
The 2024 Resource and Reserve Statement and NI 43-101 Technical Report is
based on an extensive drilling and resource development programme that
commenced in 2015 and was completed in 2023 and included the following
workstreams:
· Three phases of additional diamond core drilling: 2017-2020 (31
drillholes, 8 386 metres), 2021-2022 (24 drillholes, 8 640 metres) and
2022-2023 (8 drillholes, 2 235 metres).
· Petrographic analysis and mineral chemistry conducted between
2015 and 2023 in both the Satellite and Main pipes.
· Microdiamond analysis: initial studies in late 2015 followed by
more detailed studies in 2019-2020.
· Discrete sampling, production and updated sales data was analysed
for diamonds recovered from the dominant domains within each pipe.
· In-pit mapping data of internal and external domain contacts.
· 3D geological models for both the Satellite and Main pipes were
updated.
· Updated Size Frequency Distributions (SFD) for each domain.
· As-built survey of the open pit topography as of 31 December
2023.
The Reserve Statement has been prepared on a Life of Mine plan including SC6W
on current slope angles (refer to page 47). An opportunity to optimise this
plan with a steeper conventional concept is discussed below on page 48.
The NI 43-101 Technical Report containing Letšeng's 2024 Resource and Reserve
Statement will be available on the Group's website at www.gemdiamonds.com
(https://www.gemdiamonds.com/operations.php#mine2) .
Letšeng's 2024 Resource and Reserve Statements are set out in the tables
below (Note: the tables and accompanying notes below are presented as a direct
extraction from the NI 43-101 Technical Report):
Resource statement
Average Value
Pipe Domain Density Mass Diamond Grade Diamond Price Contained Carats
g/cm³ (kt) (cpht) (US$/ct) (kct)
Indicated Main pipe K1A 2.52 7 109.6 1.56 2 170 110.9
RFW-K1S-K1AS 2.52 2 781.3 1.56 2 170 43.4
K1B-1 2.51 7 635.6 1.59 980 121.4
RFW-K1S-K1B-1s 2.51 2 417.2 1.59 980 38.4
K1B-2 2.51 5 177.2 1.59 980 82.3
RFW-K1S-K1B-2 2.51 74.4 1.59 980 1.2
K1C 2.51 959.2 1.59 980 15.3
K2 2.54 25 793.5 1.61 1 130 415.3
K6 2.48 5 682.1 2.47 825 140.3
Total Main pipe 2.52 57 630.1 1.68 1 211 9
6
8
.
5
Satellite pipe NVK 2.50 5 175.6 2.19 2 185 113.3
SVK 2.45 7 967.7 2.26 2 535 180.1
GVK 2.45 1 746.3 3.46 970 60.4
GVK-SVK_Mixed 2.45 1 715.7 3.11 1 420 53.4
KIMB7 2.47 1 310.8 2.28 2 475 29.9
Total Satellite pipe 2.47 17 916.1 2.44 2 088 4
3
7
.
1
Total indicated 2.51 75 546.2 1.86 1 484 1
4
0
5
.
6
Average Value
Pipe Domain Density Mass Diamond Grade Diamond Price Contained Carats
g/cm³ (kt) (cpht) (US$/ct) (kct)
Inferred Main Pipe K1A 2.52 5 929.9 1.56 2 170 92.5
K1B-1 2.51 7 152.9 1.59 980 113.7
RFW-K1S-K1B-1s 2.51 396.7 1.59 980 6.3
K1B-2 2.51 1 371.0 1.59 980 21.8
K1C 2.51 348.7 1.59 980 5.5
XENO-BSLT 2.66 1 154.9 0.40 1 130 4.6
K4 2.52 697.5 1.10 360 7.7
K6 2.48 4 952.6 2.47 825 122.3
Total Main pipe 2.51 22 126.2 1.70 1 217 3
7
6
.
3
Satellite Pipe SVK 2.45 1 539.3 2.26 2 535 34.8
GVK 2.45 309.7 3.46 970 10.7
KIMB7 2.47 597.1 2.28 2 475 13.6
Total Satellite pipe 2.45 2 446.1 2.42 2 238 5
9
.
1
Total inferred 2.51 24 572.3 1.77 1 356 4
3
5
.
4
Notes:
1. The effective date of the Mineral Resource Statement is 31 December
2023. The QP for the estimate is Cliff Revering, P.Eng., an employee of SRK
Consulting (Canada) Inc.
2. Mineral Resources are not Mineral Reserves and do not have
demonstrated economic viability. All numbers have been rounded to reflect
accuracy of the estimate.
3. Mineral Resources are inclusive of in-situ Mineral Reserves and are
exclusive of all mine stockpile material.
4. Mineral Resources are quoted above a +2.00 mm square-mesh bottom
cut-off and have been factored to account for diamond losses within the
smaller sieve classes.
5. Inferred Mineral Resources are estimated on the basis of limited
geological evidence and sampling, sufficient to imply but not verify
geological grade and continuity. They have a lower level of confidence than
that applied to an Indicated Mineral Resource and cannot be directly converted
into a Mineral Reserve.
6. Average diamond value estimates are based on diamond sales data to
the end of 2023 provided by Gem Diamonds Ltd.
7. Mineral Resources have been estimated with no allowance for mining
dilution and mining recovery.
Reserve statement
Average Value
Pipe Domain Mass Diamond Grade Diamond Price Contained Carats Value
(kt) (cpht) (US$/ct) (kct) (US$'000)
Probable Main Pipe K1A Grouping 9 450.1 1.55 2 170 146.5 317 888.3
K1B Grouping 14 790.2 1.58 980 233.6 228 910.4
K1C 935.0 1.57 980 14.7 14 392.6
K2 17 512.4 1.60 1 130 279.6 315 958.5
K6 5 250.8 2.48 825 130.2 107 432.2
Total Main pipe 47 938.6 1.68 1 224 804.6 9
8
4
5
8
2
.
0
Satellite Pipe NVK 3 442.5 2.16 2 185 74.4 162 658.6
SVK 6 164.0 2.22 2 535 136.6 346 341.6
GVK 1 673.5 3.45 970 57.8 56 067.3
GVK-SVK_Mixed 1 674.4 3.09 1 420 51.7 73 413.4
KIMB7 1 200.9 2.20 2 475 26.4 65 248.7
Total Satellite pipe 14 155.5 2.45 2 028 346.9 7
0
3
7
2
9
.
6
Stockpiles Live Stockpile 11.2 1.95 1 754 0.2 382.5
Main Pipe Stockpile 900.7 1.25 1 190 11.2 13 380.2
Satellite Pipe Stockpile 176.6 1.41 2 287 2.5 5 693.6
Total Stockpiles 1 088.5 1.28 1 394 14.0 1
9
4
5
6
.
3
Total probable 63 182.5 1.84 1 465 1 165.5 1
7
0
7
7
6
7
.
9
Notes:
1. The effective date of the Mineral Reserve Statement is 31 December
2023. The QP for the estimate is Dr Anoush Ebrahimi, P. Eng., an employee of
SRK Consulting (Canada) Inc.
2. Figures have been rounded to the appropriate level of precision for
reporting.
3. Due to rounding, some columns or rows may not compute exactly as
shown.
4. Grades quoted as recovered and dry, pre-acid wash.
5. The Mineral Reserves are stated as in‐situ dry metric tonnes.
6. K1A Grouping includes K1A, RFW-K1S: K1AS and RFW-K1S: XENO-BSLT.
7. K1B Grouping includes K1B-1, RFW-K1S: K1B-1s, K1B-2 and RFW-K1S:
K1B-2.
8. The Mineral Reserves were prepared under the guidelines of the CIM,
for reporting under NI 43‐101.
9. Average diamond value estimates are based on diamond sales data to
the end of 2023 provided by Gem Diamonds Ltd.
10. Modifying factors for mining recovery of 88% and waste dilution of
12% applied on pipe contact blocks.
11. Probable Mineral Reserves were derived from Indicated Mineral
Resources.
12. Mineral Reserves are inclusive of Mineral Resources.
13. There are no known legal, political, environmental, or other risks
that could materially affect the Probable Mineral Reserves.
14. Stockpiles comprise surface loose stocks of material including
high-value, low-value and highly diluted kimberlite contact ore. Stockpiles of
low-value and highly diluted kimberlite contact ore will be processed at the
end of life of open pit mining.
15. The Mineral Reserves reported in this table are attributable solely
to the ore to be mined (and processed or stockpiled for later processing) from
the open pit mining operations at Letšeng Mine.
Long-term mine plan
Letšeng's long-term mine plan has incorporated all relevant attributes of the
2024 Resource and Reserve Statement discussed above. The previous long-term
mine plan was predicated on SC5W being completed in 2024 at an extraction rate
of 3.0 million tonnes of Satellite ore per annum. The extraction rate of
Satellite ore from the SC5W cutback has been revised down in 2024 to c.2.0
million tonnes with the remaining c.0.9 million tonnes of ore from this
cutback to be mined out by Q2 2025. Cost containment, the potentially unsafe
conditions created when mining above SC5W before ore extraction is complete,
and the opportunity to finalise the study of a steeper conventional concept
for SC6W to avoid unnecessary waste stripping on the conventional slope
angles, has necessitated that the commencement of waste stripping in SC6W be
pushed out, from Q1 2024 to Q3 2025.
In addition, the anticipated ore from SC6W has been reduced, as instantaneous
triple and double benches on the kimberlite basalt contact areas around the
pipe had to be removed from the updated pit design. The strategy of
transitioning from basalt to kimberlite was revised in the 2024 mine plan to
include flatter angles around the basalt/kimberlite contact areas. The revised
strategy was in response to the latest geological mapping results, which
revealed the curvature and dip of the pipe contact not supporting the double
and triple benching previously planned along the pipe contact. Consequently,
about 1.3 million tonnes of ore of the previous SC6W mine plan can no longer
be accessed safely.
During the annual review of the long-term mine plan in the first half of 2023,
it was observed that the in-situ revenue per tonne for certain ore domains in
the Main pipe had decreased, impacting the economics of the final cutbacks in
the Main pit (MC4). The latest pit optimisation model indicated a smaller MC4
than in the previous long-term mine plan. MC4 West was therefore redesigned in
line with this outcome, which resulted in reduced waste required to be mined
and an estimated 10.0 million tonnes of ore no longer being economically
viable to extract. The 2024 mine plan was updated to include the revised waste
and ore volumes for MC4W, thereby reducing the previously published mine plan
by approximately two years from 2040 to 2038.
The long-term mine plan has also been updated using the latest resource models
discussed above. For most of the ore domains, except K2 (Main pipe) and NVK
(Satellite pipe), the indicated and inferred resource interface levels were
shallower than in the 2015 resource models. This resulted in some ore that was
included as indicated in the previous mine plan now being excluded in line
with the mineral reserves declaration rules. Pending possible further upgrade
of the inferred resources in both the Main and Satellite pipes, the revised
final pit shell has been designed to include only indicated resources with
minimal inferred resources being included. This has shortened the updated life
of mine plan by an additional two years, from 2038 to 2036/7. Refer to the
updated long-term mine plan in the graph below.
The updated long-term mine plan includes SC5W, MC4E, a smaller MC4W and SC6W
(each based on current slope angles) and an updated plant throughput rate to
life of mine of 5.3 million tonnes per annum. Waste stripping of the SC6W
cutback is currently scheduled to commence in 2025 with ore estimated to be
available from end 2030 at an extraction rate of 2.5 million ore tonnes per
annum thereafter.
Life of Mine optimisation projects
Steeper conventional pit concept in Satellite C6W
Slope steepening carried out at Letšeng in a safe and responsible way has had
a significant positive effect on the economic value of open pit mining by
reducing the stripping ratio. An initiative to introduce a steeper
conventional design in the basalt of SC6W cutback commenced pit designs of a
steeper slope concept with the final cutback commencing from within the
current SC5W pit have been completed. The slope design has been approved by
independent slope design experts in Q4 2023 and the requisite support design
and costs are being analysed to fully evaluate the factor of safety, economics
and overall feasibility of the concept. Results of this study are expected to
be completed by Q3 2024. In the event that we are able to safely execute the
steeper conventional concept in SC6W, with the benefit of significantly
reduced waste, the above long-term mine plan adopted in our 2024 Reserve
Statement will be amended accordingly.
Upgrading inferred resource
The updated long-term mine plan shown in the graph above could be extended by
an additional two years (c.12.5 million tonnes) without any incremental
stripping of waste by upgrading the inferred resource in the Main pipe to
indicated resource. Once upgraded, the ore could then confidently be included
in the long-term mine plan with no incremental stripping of waste, given the
flexibility that has been incorporated in the current final pit design.
Ghaghoo
We remain committed to exiting the Ghaghoo Diamond Mine in Botswana, which has
been on care and maintenance since March 2017. In the absence of a sale,
closure and/or handover options are being actively pursued and affected
stakeholders have been widely consulted.
The site is being well maintained in a safe and responsible manner. Employees
on site have consistently demonstrated adherence to safety protocols and
environmental regulations, with no instances of activities causing any
disturbance to the environment being reported, and we are pleased to report
that there were no LTIs recorded at Ghaghoo in 2023.
In preparation for possible closure or partial closure and handover to
government, extensive site clean-up and partial rehabilitation activities
commenced in H1 2023. This has been carried out in a cost-effective manner and
included the removal and sale of a significant amount of scrap metal and other
redundant infrastructure and materials. The salvage values received for these
contributed significantly to the cost of the clean-up project. At the end of
2023, a solar power solution was implemented to power the necessary camp and
reverse osmosis water plant requirements. The solar plant was fully
commissioned from 1 January 2024 and has completely replaced the existing
diesel generator power supply. Securing long-term power supply for the Ghaghoo
operation allows for the site to be handed over without additional diesel
generator associated costs, and also supports the immediate rehabilitation and
decarbonisation objectives of the Group.
OUR PLANS FOR 2024
We have several operational objectives for 2024. These include:
· Optimising and improving the long-term mine plan of Letšeng with
particular focus on the SC6W cutback.
· Further enhancing operational efficiencies and reducing overall
operating costs.
· Investing in appropriate renewable and/or alternative energy
sources. Providing a consistent source of power for the mine operations
remains a challenge at Letšeng. In the meantime, the focus remains on
reducing power consumption throughout the Group, and low energy-usage
alternatives continue to be investigated and implemented.
DIRECTORS' REPORT
The Directors are pleased to submit the financial statements of the Group for
the year ended 31 December 2023.
As a British Virgin Islands-registered company, Gem Diamonds Limited (company
registration number: 669758) is not required to conform with the Companies
Act, 2006. However, the Directors have elected to conform to the requirements
of the Companies Act, 2006.
Accordingly, Directors must present a Strategic Report and a Directors' Report
to inform shareholders of the Group's performance and prospects and help them
evaluate whether the Directors performed their fiduciary duty. The 2023 Annual
Report and Accounts discloses how the Directors have performed their duty to
ensure the Group's continued success and sustainability, in line with the
Companies Act, 2006.
In line with Disclosure Guidance and Transparency Rules (DTR 4.1.5R(3) and DTR
4.1.8R), the required content of the Management Report can be found in the
Strategic Report, the Performance Review and the Directors' Report, the
Governance section and other sections of the 2023 Annual Report and Accounts,
indicated by a reference.
The Strategic Report can be found on pages 2 to 62. This will provide the
shareholders with a balanced assessment of the Group's business including a
description of its principal risks and uncertainties. It may not be relied
upon by anyone, including the Company's shareholders, for any other purpose.
Forward-looking statements
The Strategic Report and other sections of this report contain forward-looking
statements. Forward-looking statements, by their nature, involve several
risks, uncertainties and future assumptions because they relate to events
and/or depend on circumstances that may or may not occur in the future. The
actual results and outcomes may differ materially from those expressed or
implied by the forward-looking statements. No assurance can be given that the
forward-looking statements in the Strategic Report will be realised.
Statements about the Directors' expectations, beliefs, hopes, plans,
intentions and strategies are subject to change and are based on expectations
and assumptions about future events, circumstances and other factors which
are, in many instances, outside the Company's control.
The information in the Strategic Report was prepared based on the knowledge
and information available to the Directors at the time of its preparation. The
Company is under no obligation to update or revise the Strategic Report during
2024. The expectations set out in the forward-looking statements are
reasonable but may be influenced by several variables which could cause actual
results or trends to differ materially. Forward-looking statements need to be
read in context with actual historic information provided. The Company's
shareholders are cautioned not to place undue reliance on the forward-looking
statements. Shareholders should note that the Strategic Report has not been
audited.
CORPORATE GOVERNANCE
DTR 7.2 requires certain information to be included in a corporate governance
statement set out in the Directors' Report. The Group has an existing practice
of issuing a separate Corporate Governance Code Compliance Report as part of
its Annual Report and Accounts. The information required by the Disclosure
Guidance and Transparency Rules and the UK Financial Conduct Authority's
Listing Rules (LR 9.8.6) is located on pages 2 to 113.
DIRECTORS
The Directors, as at the date of this report, are listed on pages 179 to 181
together with their biographical details. Details of the Directors' interests
in shares and share options of the Company can be found on page 111.
Directors who held office during the year and date of appointment
Appointment
Executive Directors
C Elphick 20 January 2006
M Michael 22 April 2013
Non-Executive Directors
H Kenyon-Slaney 6 June 2017
M Brown 1 January 2018
M Lynch-Bell 15 December 2015
M Maharasoa 1 July 2019
R Kainyah 1 May 2021
Appointment and re-election of Directors
The Board's formal Selection and Appointment Policy ensures that the procedure
for appointing new Directors is formal, rigorous and transparent, and
appointments are made on merit, against objective criteria. The Nominations
Committee makes appointments based on merit while considering diversity (of
gender, social and ethnic background), cognitive and personal strengths and
specialist skill sets.
The Articles of Association (82) provide that a third of Directors retire
annually by rotation and, if eligible, offer themselves for re-election.
However, in accordance with the Code, all the Directors retire at the AGM and,
subject to being eligible, offer themselves for re-election.
Payments for loss of office due to change of control
The basis for payments for loss of office to Executive Directors due to a
change in control can be found on page 100.
PROTECTION AVAILABLE TO DIRECTORS
By law, the Directors are ultimately responsible for most aspects of the
Group's business dealings. This means they face potentially significant
personal liability under criminal or civil law, or the UK Listing, Prospectus
and Disclosure and Transparency Rules, and face a range of penalties including
private or public censure, fines and/or imprisonment. In line with normal
market practice, the Group understands that it is in its best interests to
protect its Board members from the consequences of innocent error or omission.
This allows the Group to attract prudent individuals to act as Directors.
The Group maintains, at its expense, a Director and Officer's liability
insurance policy to provide indemnity, in certain circumstances, for the
benefit of Directors and other Group employees.
Refer to the Corporate Governance statement on page 72 for further details.
DIRECTORS' INTERESTS
No Director had, at any time during the year, a material interest in any
contract of significance in relation to the Company's business. The interests
of Directors in the shares of the Company are included on page 111.
SUPPLIERS AND CUSTOMERS
We engage extensively with suppliers and contractors to ensure alignment,
mutual understanding and the sustainability of all parties. The early
termination (by mutual agreement) of the mining services contract and
subsequent insourcing thereof was concluded in December 2023.
We have sound relationships with our customers. We interact with customers
regularly in the normal course of business and at tenders. We continued to
hold regular diamond tender viewings in Antwerp during the year. We were able
to rely on the loyal customer base for support during the year while the
diamond market was under significant pressure. The agreement entered in 2022
with two diamond manufacturing customers to supply polished diamonds to some
of the world's most premium luxury brands remained in effect in 2023.
Refer to our stakeholder relationships section on pages 14 to 17 for more
details on our engagement with suppliers, contractors and customers.
RESULTS AND DIVIDENDS
The Group's attributable loss after taxation amounted to US$2.1 million
(2022: profit of US$10.2 million).
The Group's detailed financial results are set out in the financial statements
on pages 118 to 173.
The Board is not proposing a dividend based on the 2023 financial results due
to the volatility in the current economic outlook, the Group's available cash
resources and the current business outlook.
The Group's dividend policy sets the appropriate dividend each year, and
considers:
· The Group's cash resources.
· The level of free cash flow and earnings generated during the
year.
· Expected funding commitments for future capital projects.
The Board will consider special dividends in the event of significant diamond
recoveries and will consider further share buyback programmes if appropriate.
GOING CONCERN
The Group business activities, together with the factors likely to affect its
future development, performance and position, are set out in the Strategic
Report on pages 2 to 62. The financial position of the Group, its cash flows
and liquidity position are described in the Strategic Report on pages 34 to
40. In addition, Note 1.2.2, Note 25 and Note 27 to the financial statements
include the Group's going concern policy and its objectives, policies and
processes for managing its capital; its financial risk management objectives;
details of its financial instruments; and its exposures to credit and
liquidity risk.
The Directors have a reasonable expectation that the Group has adequate
financial resources to continue operations for the foreseeable future. This
follows a review of forecasts, budgets, timing of cash flows, the likely
successful renewal of its debt facilities, various cost-reduction initiatives,
sensitivity analyses and the uncertainties disclosed in this report. For this
reason, the Directors continue to adopt the going concern basis in preparing
the Annual Report and Accounts of the Group.
VIABILITY STATEMENT
In accordance with provision 30 of the 2018 UK Corporate Governance Code, the
Directors have assessed the prospects of the Group over a period longer than
the 12 months required by the "going concern" provision. The viability
statement, aligned with Provision 31 of the UK Corporate Governance Code 2018,
is included in the Strategic Report on page 27.
SUBSEQUENT EVENTS
Refer to Note 29 of the financial statements for details of events subsequent
to the reporting date.
SHARE CAPITAL AND VOTING RIGHTS
Details of the authorised and issued share capital of the Company, including
the rights pertaining to each share class, are set out in Note 15 to the
financial statements.
As at 13 March 2024, there were 139.7 million fully paid ordinary shares of
US$0.01 each in issue and listed on the official list maintained by the
Financial Conduct Authority in its capacity as the UK Listing Authority. In
addition, the Company holds 1.5 million shares as treasury shares acquired
during the share buyback programme that was launched in 2022. These treasury
shares are not entitled to dividends and have no voting rights.
The Company has one class of ordinary shares. Shareholders have the right to
receive notice of and attend, speak and vote at any general meeting of the
Company. Shareholders may be present in person (or, being a corporation, by
representative) or by proxy at a general meeting. Every shareholder present in
person (or, being a corporation, by representative) or by proxy will have one
vote in respect of every ordinary share they hold. The appointment of a proxy
to vote at a general meeting must be received no less than 48 hours before the
meeting's appointed time.
Shareholders have the right to participate in dividends and other
distributions according to their respective rights and interests in the profit
of the Company.
No shareholders have any special rights with regard to the control of the
Company. The Company is not aware of any agreements between shareholders which
may result in restrictions on transfers or voting rights, save as mentioned
below.
There are no restrictions on the transfer of ordinary shares other than:
· As set out in the Company's Articles of Association.
· Certain restrictions may from time to time be imposed by laws and
regulations.
· Pursuant to the Company's share dealing code whereby the
Directors and employees of the Company require approval to deal in the
Company's ordinary shares.
At the AGM held in June 2023, the Board noted the proportion of the votes cast
against the resolution referring to the authority of Directors to allot shares
(Resolution 12 passed with 69.5% of participating shareholders voting in
favour). The CEO met the significant shareholder who voted against Resolution
12 to discuss their voting policy, and although the shareholder has a standing
position on these resolutions, the Board will regularly consider its approach
to this matter. The resolution reflected UK-listed company market practice,
and the Board considers the flexibility afforded by the authority to allot
shares to be in the best interest of the Company.
At the same AGM, shareholders authorised the Company to make on-market
purchases of up to 14 121 018 of its ordinary shares, representing
approximately 10% of the Company's issued share capital at that time. In 2022,
the Company purchased 1 520 170 of its ordinary shares, which are being held
as treasury shares and may be used to settle ESOP and GDIP awards.
At the 2024 AGM, shareholders will be requested to renew this authority. The
Directors continue to consider various options and keep the authorisation
under regular review. The 2024 Notice of AGM will set out the details
regarding exercising voting rights and proxy appointments.
MAJOR INTERESTS IN SHARES
Details of the major interests (at or above 3%) in the issued ordinary shares
of the Company are set out in the Strategic Report on page 15.
ARTICLES OF ASSOCIATION
Any proposed amendments to the Articles of Association of the Company need to
be approved by shareholders by special resolution.
RESOURCE DEVELOPMENT
The NI 43-101 Technical Report containing Letšeng's 2024 Resource and Reserve
Statement will be available on the Group's website at www.gemdiamonds.com
(https://www.gemdiamonds.com/operations.php#mine2) . The COO Review on page 45
provides more detail on this.
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY
Read more about the Group's 2023 Sustainability Performance, including CSI
investment, community participation and environmental management, in our
Sustainability Report 2023 which is available at www.gemdiamonds.com.
POLITICAL DONATIONS
The Group made no political donations during 2023.
TCFD, CARBON EMISSIONS AND ENERGY CONSUMPTION SUMMARY
Information on the Group's decarbonisation strategy, adoption of the TCFD
recommendations, carbon footprint and energy consumption in 2023 can be found
in the Sustainability and Climate Change reports on pages 49 and 51
respectively.
By order of the Board
Harry Kenyon-Slaney
Non-Executive Chairperson
13 March 2024
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group
financial statements in accordance with International Financial Reporting
Standards (IFRS). Having taken advice from the Audit Committee, the Board
considers that this report and financial statements taken as a whole, are
fair, balanced and understandable and that they provide the information
necessary for shareholders to assess the Group's performance, business model
and strategy.
The Strategic Report and Directors' Report include a fair review of the
development and performance of the business and the position of the Group and
the undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that the Group faces.
PREPARATION OF THE FINANCIAL STATEMENTS
In preparing the Group financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether they have been prepared in accordance with IFRS;
· state whether applicable IFRS have been followed, subject to any
material departures disclosed and explained in the Group financial statements;
and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's transactions and disclose, with
reasonable accuracy at any time, the financial performance, the financial
position and cash flow of the Group. They are also responsible for
safeguarding the assets of the Group and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
The Directors confirm that the financial statements, prepared in accordance
with IFRS, give a true and fair view of the assets, liabilities, financial
position at year end and profit or loss for the year then ended of the Group
and the undertakings included in the consolidation taken as a whole. In
addition, suitable accounting policies have been selected and applied
consistently.
Information, including accounting policies, has been presented in a manner
that provides relevant, reliable, comparable and understandable information,
and additional disclosures have been provided when compliance with the
specific requirements in IFRS have been insufficient to enable users to
understand the financial impact of particular transactions, other events and
conditions on the Group's financial position, cash flow and financial
performance. Where necessary, the Directors have made judgements and estimates
that are considered reasonable and prudent.
The Directors of the Company have elected to comply with the Companies Act,
2006, in particular the requirements of Schedule 8 to The Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 of
the United Kingdom pertaining to Directors' remuneration which would otherwise
only apply to companies incorporated in the UK.
Michael Michael
Chief Financial Officer
13 March 2024
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Gem Diamonds Limited
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
Opinion
We have audited the consolidated financial statements of Gem Diamonds Limited
and its subsidiaries ('the Group') set out on pages 123 to 173, which comprise
the consolidated statement of financial position as at 31 December 2023, and
the consolidated statement of profit or loss, the consolidated statement of
comprehensive income, the consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes to the
consolidated financial statements, including material accounting policy
information.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Group as at 31
December 2023, and its consolidated financial performance and consolidated
cash flows for the year then ended in accordance with International Financial
Reporting Standards ("IFRS").
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing
("ISAs"). Our responsibilities under those standards are further described in
the Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the Group in
accordance with the Independent Regulatory Board for Auditors' Code of
Professional Conduct for Registered Auditors ("IRBA Code") and other
independence requirements applicable to performing audits of financial
statements of the Group and in South Africa. We have fulfilled our other
ethical responsibilities in accordance with the IRBA Code and in accordance
with other ethical requirements applicable to performing audits of the Group
and in South Africa. The IRBA Code is consistent with the corresponding
sections of the International Ethics Standards Board for Accountants'
International Code of Ethics for Professional Accountants (including
International Independence Standards). We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our
opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the consolidated financial statements of
the current period. These matters were addressed in the context of our audit
of the consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
For each matter below, our description of how our audit addressed the matter
is provided in that context.
We have fulfilled the responsibilities described in the Auditor's
Responsibilities for the Audit of the Consolidated Financial Statements
section of our report, including in relation to this matter. Accordingly, our
audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the financial statements.
The results of our audit procedures, including the procedures performed to
address the matter below, provide the basis for our audit opinion on the
accompanying consolidated financial statements.
Key Audit Matter How the matter was addressed in the audit
GOODWILL IMPAIRMENT Our audit procedures included amongst others the following:
Management performs an annual impairment test on goodwill as required by IAS •We involved our internal valuation specialists as part of our team to
36 Impairment of Assets using discounted future cash flows to determine the assist in evaluating management's impairment methodology and key assumptions
recoverable amount. Goodwill relates to the Group's investment in the Letšeng used in the impairment calculations;
Diamond mine. The carrying value of goodwill amounts to US$11.2 million
(2021:US$12.0 million). •Our valuation specialists evaluated the valuation methodology against
acceptable industry methods and accounting standards;
As disclosed in Note 11 Impairment testing and Note 1.2.28 Critical
accounting estimates and judgements, the Group uses discounted cash flows to •Our valuation specialists calculated two independent weighted average cost
determine the recoverable amount for each cash generating unit, on the basis of capital (WACC) rates (Revenue and costs) to compare to management's WACC's.
of the following key assumptions: Our independent WACC recalculations were based on publicly available market
data for comparable companies for the Letšeng Cash Generating Unit (CGU);
· Diamond prices;
•Our valuation specialists assessed the reasonability of the significant
· Inflation rates; inputs and assumptions used in the impairment models, such as diamond prices,
inflation rates, by comparing them to independent sources. Assumptions such
· Production costs and volumes; and as production costs and volumes were considered for reasonability with
reference to history and the mine plan;
· Discount rates
•We have performed sensitivity analyses around the key assumptions used in
The current year impairment model further include certain assumptions that the impairment model. We did this by increasing and decreasing the following
materially impact the recoverable amount - these include: next open pit assumptions in the model to determine the impact on the headroom (difference
cutback in Satellite pipe (C6W), optimisation and right-sizing cost savings between the carrying value of the CGU and the recoverable amount). These
and steeper slope angles. included:
Given the above factors, the goodwill impairment, required significant audit ▪WACC; and
effort including the use of our valuation experts in the audit of the
recoverable amount. ▪Diamond prices
•We considered the appropriateness of the inclusion of next open pit cutback
in Satellite pipe (C6W), optimisation and right-sizing cost savings and
steeper slope angles in the recoverable amount.
•We assessed the adequacy of the Group's disclosures in terms of IAS 36, in
the notes to the consolidated financial statements.
Other Information
Management is responsible for the other information. The other information
comprises the information included in the 183‑page document titled "Gem
Diamonds Annual Report and Accounts 2023. The other information does not
include the consolidated financial statements and our auditor's reports
thereon.
Our opinion on the consolidated financial statements does not cover the other
information and we do not express an audit opinion or any form of assurance
conclusion thereon.
In connection with our audit of the consolidated financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated
financial statements, or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the
consolidated financial statements in accordance with IFRS, and for such
internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible
for assessing the Group's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Group or
to cease operations, or has no realistic alternative but to do so.
Auditor's Responsibilities for the Audit of the Consolidated Financial
Statements
Our objectives are to obtain reasonable assurance about whether the
consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor's report
that includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with ISAs will
always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise professional
judgement and maintain professional scepticism throughout the audit. We also:
· Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion, forgery,
intentional omissions, misrepresentations, or the override of internal
control.
· Obtain an understanding of internal control relevant to the audit
in order to design audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Group's internal control.
· Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
· Conclude on the appropriateness of management's use of the going
concern basis of accounting and based on the audit evidence obtained, whether
a material uncertainty exists related to events or conditions that may cast
significant doubt on the Group's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention
in our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the
date of our auditor's report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
· Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
· Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within the group
to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision, and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit
findings, including any significant deficiencies in internal control that we
identify during our audit.
We also provide those charged with governance with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reasonably
be thought to bear on our independence, and where applicable, actions taken to
eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine
those matters that were of most significance in the audit of the consolidated
financial statements of the current period and are therefore the key audit
matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely
rare circumstances, we determine that a matter should not be communicated in
our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
Ernst & Young Inc.
Director - Philippus Dawid Grobbelaar
Registered Auditor
Chartered Accountant (SA)
13 March 2024
102 Rivonia Road
Sandton
Private Bag X14
Sandton
2146
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2023
Notes 2023 2022
US$'000 US$'000
Revenue from contracts with customers 2 140 287 188 937
Cost of sales (109 112) (124 113)
Gross profit 31 175 64 824
Other operating income/(expense) 3 7 (1 937)
Royalties and selling costs (15 340) (20 328)
Corporate expenses (7 905) (8 997)
Share-based payments 26 (332) (253)
Foreign exchange gain 4 2 775 1 914
Impairment of non-current assets 4 - (702)
Operating profit 4 10 380 34 521
Net finance costs 5 (4 696) (4 089)
- Finance income 617 413
- Finance costs (5 313) (4 502)
Profit before tax for the year 5 684 30 432
Income tax expense 6 (4 090) (10 277)
Profit for the year 1 594 20 155
Attributable to:
Equity holders of parent (2 125) 10 178
Non-controlling interests 3 719 9 977
Earnings per share (cents) 7
- Basic (loss)/earnings for the year attributable to ordinary equity holders (1.5) 7.3
of the parent
- Diluted (loss)/earnings for the year attributable to ordinary equity holders (1.5) 7.2
of the parent
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
US$'000 US$'000
Profit for the year 1 594 20 155
Items that could be reclassified to profit or loss in the future:
Exchange differences on translation of foreign operations, net of tax (16 849) (18 534)
Other comprehensive loss for the year, net of tax (16 849) (18 534)
Total comprehensive (loss)/income for the year (15 255) 1 621
Attributable to:
Equity holders of parent (14 082) (2 513)
Non-controlling interests (1 173) 4 134
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2023
2023 2022
Notes US$'000 US$'000
ASSETS
Non-current assets
Property, plant and equipment 8 295 830 293 499
Right-of-use assets 9 4 746 6 340
Intangible assets 10 10 440 11 221
Receivables and other assets 12 4 487 2 916
Deferred tax assets 21 6 814 5 994
322 317 319 970
Current assets
Inventories 13 37 633 30 370
Receivables and other assets 12 3 631 4 855
Income tax receivable 19 4 631 2 323
Cash and short-term deposits 14 16 503 8 721
62 398 46 269
Total assets 384 715 366 239
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital 15 1 413 1 410
Treasury shares 15 (1 157) (1 157)
Share premium 885 648 885 648
Other reserves 15 (250 797) (239 169)
Accumulated losses (496 238) (494 113)
138 869 152 619
Non-controlling interests 79 255 80 428
Total equity 218 124 233 047
Non-current liabilities
Interest-bearing loans and borrowings 16 5 156 4 370
Lease liabilities 17 3 786 6 021
Trade and other payables 18 1 494 2 169
Provisions 20 14 170 15 387
Deferred tax liabilities 21 82 136 82 030
106 742 109 977
Current liabilities
Interest-bearing loans and borrowings 16 33 411 1 575
Lease liabilities 17 2 164 1 877
Trade and other payables 18 23 356 19 708
Income tax payable 19 918 55
59 849 23 215
Total liabilities 166 591 133 192
Total equity and liabilities 384 715 366 239
Approved by the Board of Directors on 13 March 2024 and signed on its behalf
by:
C Elphick
M Michael
Director
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2023
Attributable to the equity holders of the parent
Issued capital Share premium Treasury shares Other reserves1 Accumulated (losses)/retained earnings Total Non-controlling interests Total equity
US$'000 US$'000 US$'000 US$'00 US$'000 US$'000 US$'000 US$'000
As at 1 January 2023 1 410 885 648 (1 157) (239 169) (494 113) 152 619 80 428 233 047
Total comprehensive loss - - - (11 957) (2 125) (14 082) (1 173) (15 255)
(Loss)/profit for the year - - - - (2 125) (2 125) 3 719 1 594
Other comprehensive loss - - - (11 957) - (11 957) (4 892) (16 849)
Share capital issued (Note 15) 3 - - (3) - - - -
Share-based payments (Note 26) - - - 332 - 332 - 332
As at 31 December 2023 1 413 885 648 (1 157) (250 797) (496 238) 138 869 79 255 218 124
As at 1 January 2022 1 406 885 648 - (226 697) (500 550) 159 807 86 843 246 650
Total comprehensive (loss)/income - - - (12 691) 10 178 (2 513) 4 134 1 621
Profit for the year - - - - 10 178 10 178 9 977 20 155
Other comprehensive loss - - - (12 691) - (12 691) (5 843) (18 534)
Share capital issued (Note 15) 4 - - (4) - - - -
Share-based payments (Note 26) - - - 253 - 253 - 253
Share buyback (Note 15) - - (1 157) - - (1 157) - (1 157)
Transfer between reserves - - - (30) 30 - - -
Dividends declared (Note 28) - - - - (3 771) (3 771) (10 549) (14 320)
As at 31 December 2022 1 410 885 648 (1 157) (239 169) (494 113) 152 619 80 428 233 047
1 Other reserves relate to Foreign currency translation reserves and
Share-based equity reserves. Refer Note 15, Issued share capital and reserves
for further detail.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2023
2023 2022
Notes US$'000 US$'000
Cash flows from operating activities 35 020 63 032
Cash generated by operations 22.1 56 150 82 799
Working capital adjustments 22.2 (15 610) (9 889)
Interest received 292 303
Interest paid (4 216) (2 933)
Income tax paid 19 (1 596) (8 435)
Income tax received 19 - 1 187
Cash flows used in investing activities (57 146) (59 672)
Purchase of property, plant and equipment 8 (20 048) (11 920)
Waste stripping costs capitalised 8 (37 102) (47 948)
Proceeds from sale of property, plant and equipment 4 196
Cash flows from/(used in) financing activities 28 021 (24 909)
Lease liability capital repayment 17 (2 092) (1 846)
Net financial liabilities raised/(repaid) 22.3 30 113 (7 734)
Financial liabilities repaid (45 103) (17 627)
Financial liabilities raised 75 216 9 893
Share buyback 15 - (1 157)
Dividends paid to holders of the parent - (3 623)
Dividends paid to non-controlling interests - (10 549)
Net increase/(decrease) in cash and cash equivalents 14 5 895 (21 549)
Cash and cash equivalents at beginning of year 8 721 31 057
Foreign exchange differences 1 887 (787)
Cash and cash equivalents at end of year 14 16 503 8 721
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2023
1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.1 Corporate information
1.1.1 Incorporation
The holding company, Gem Diamonds Limited (the Company), was incorporated on
29 July 2005 in the British Virgin Islands (BVI) and is domiciled in the
United Kingdom (UK). The Company's registration number is 669758.
These financial statements were authorised for issue by the Board on 13 March
2024.
The Group is principally engaged in operating diamond mines.
1.1.2 Operational information
The Company has the following investments directly and indirectly in
subsidiaries at 31 December 2023.
Name and registered address of company Share-holding Cost of investment(1) Country of incorporation Nature of business
Subsidiaries
Gem Diamond Technical Services (Proprietary) Limited2 100% US$17 RSA Technical, financial and management consulting services.
Illovo Corner
24 Fricker Road
Illovo Boulevard
Johannesburg
South Africa
Letšeng Diamonds (Proprietary) Limited2 70% US$126 000 303 Lesotho Diamond mining and holder of mining rights.
Letšeng Diamonds House
Corner Kingsway and Old School Roads
Maseru
Lesotho
Gem Diamonds Botswana (Proprietary) Limited2 100% US$5 844 579 Botswana Diamond mining; evaluation and development; and holder of mining licences and
concessions. Currently on care and maintenance.
The Courtyard unit 7A
Plot 54513 Village
Gaborone
Botswana
Gem Diamonds Investments Limited2 100% US$17 531 316 UK Investment holding company holding 100% in each of Gem Diamonds Innovation
Solutions CY Limited, a company holding intellectual property relating to
6th Floor, development of technology to innovate mining processes; Baobab Technologies
BV, a diamond analysis and valuation facility in Belgium; and Gem Diamonds
60 Gracechurch Street Broadway, London Marketing Services BV, a marketing company that sells the Group's diamonds on
tender in Antwerp.
EC3V 0HR United Kingdom
1 The cost of investment represents original cost of investments at
acquisition dates.
2 No change in the shareholding since the prior year.
1.1.3 Segment information
For management purposes, the Group is organised into geographical units as its
risks and required rates of return are affected predominantly by differences
in the geographical regions of the mines and areas in which the Group operates
or areas in which operations are managed. The below measures of profit or
loss, assets and liabilities are reviewed by the Chief Operating
Decision-Maker, ie Board of Directors. The main geographical regions and the
type of products and services from which each reporting segment derives its
revenue from are:
· Lesotho (diamond mining activities);
· Belgium (sales, marketing and manufacturing of diamonds);
· BVI, RSA, UK and Cyprus (technical and administrative services);
and
· Botswana (diamond mining activities, currently on care and
maintenance)
Management monitors the operating results of the geographical units separately
for the purpose of making decisions about resource allocation and performance
assessment.
Segment performance is evaluated based on operating profit or loss.
Intersegment 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 diamond analysis and manufacturing services.
The following tables presents revenue from contracts with customers,
profit/(loss) for the year, EBITDA and asset and liability information from
operations regarding the Group's geographical segments:
Lesotho Belgium BVI, RSA, UK and Cyprus1 Botswana Total
Year ended 31 December 2023 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue from contracts with customers
Total revenue 140 905 140 121 6 733 - 287 759
Intersegment (140 051) (688) (6 733) - (147 472)
External customers 854 139 433 - - 140 287
Depreciation and amortisation 45 835 194 470 10 46 509
- Depreciation and mining asset amortisation 6 641 194 470 10 7 315
- Waste stripping cost amortisation 39 194 - - - 39 194
Share-based equity transactions (21) (2) (309) - (332)
Segment operating profit/(loss) 19 573 676 (8 550) (1 319) 10 380
Net finance costs (3 500) (23) (1 000) (173) (4 696)
Profit/(loss) before tax 16 073 653 (9 550) (1 492) 5 684
Income tax (expense)/income (3 678) 5 (417) - (4 090)
Profit/(loss) for the year 12 395 658 (9 967) (1 492) 1 594
EBITDA 22 129 857 (7 754) - 15 232
Segment non-current assets 308 973 1 347 369 327 311 016
Segment assets 371 056 2 770 3 280 795 377 901
Segment liabilities 72 193 1 503 7 725 3 034 84 455
Other segment information
Net cash/(debt) and short-term deposits2 (17 908) 642 (4 082) 1 (21 347)
Capital expenditure
- Property, plant and equipment 30 014 25 34 311 30 384
- Net movement in rehabilitation asset3 (1 342) - - - (1 342)
- Waste cost capitalised 37 102 - - - 37 102
Total capital expenditure 65 774 25 34 311 66 144
Average number of employees employed under contracts of service 266 7 21 19 313
1 No revenue was generated in BVI and Cyprus.
2 Calculated as cash and short-term deposits less drawn down bank facilities
(excluding insurance premium financing and credit underwriting fees). Refer
Note 16, Interest-bearing loans and borrowings.
3 Non-cash movements in rehabilitation assets relating to changes in
rehabilitation estimates for the Lesotho segment.
Included in revenue for the current year is revenue from three customers who
individually contributed 10% or more to total revenue. This revenue in total
amounted to US$55.4 million arising from sales reported in the Belgium
segment.
Segment non-current assets do not include deferred tax assets of US$6.8
million and financial instruments of US$4.5 million. Included in the
non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current
assets located in the Company's country of domicile, the UK, of US$20.7
thousand.
Segment assets and liabilities do not include deferred tax assets and
liabilities of US$6.8 million and US$82.1 million respectively.
Revenue decreased 26% compared to 2022 mainly due to lower prices achieved as
a result of a downturn in the diamond market, a decrease of 3% in carats sold
(104 520 carats compared to 107 498 in 2022) and lower than average
recoveries of large diamonds. An average sales price of US$1 334 per carat
(2022: US$1 755 per carat) was achieved.
Lesotho Belgium BVI, RSA, UK and Cyprus1 Botswana Total
Year ended 31 December 2022 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue from contracts with customers
Total revenue 186 087 189 497 7 326 - 382 910
Intersegment (185 782) (865) (7 326) - (193 973)
External customers 305 188 632 - - 188 937
Depreciation and amortisation 43 267 263 1 081 80 44 691
- Depreciation and mining asset amortisation 6 982 263 1 081 80 8 406
- Waste stripping cost amortisation 36 285 - - - 36 285
Share-based equity transactions (33) (2) (218) - (253)
Segment operating profit/(loss) 46 060 1 307 (10 158) (2 688) 34 521
Net finance costs (2 569) (17) (1 294) (209) (4 089)
Profit/(loss) before tax 43 491 1 290 (11 452) (2 897) 30 432
Income tax expense (10 236) (195) 154 - (10 277)
Profit/(loss) for the year 33 255 1 095 (11 298) (2 897) 20 155
EBITDA 50 842 1 625 (8 781) - 43 686
Segment non-current assets 308 889 1 516 627 28 311 060
Segment assets 350 640 2 411 6 676 518 360 245
Segment liabilities 43 987 1 677 2 097 3 401 51 162
Other segment information
Net cash and short-term deposits2 (2 627) 660 5 231 1 3 265
Capital expenditure
- Property, plant and equipment 11 894 7 19 - 11 920
- Net movement in rehabilitation asset3 858 - - (573) 285
- Waste cost capitalised 47 948 - - - 47 948
Total capital expenditure 60 700 7 19 (573) 60 153
Average number of employees employed under contracts of service 322 7 22 19 370
1 No revenue was generated in BVI and Cyprus.
2 Calculated as cash and short-term deposits less drawn down bank facilities
(excluding the asset-based finance facility, insurance premium financing and
credit underwriting fees). Refer Note 16, Interest-bearing loans and
borrowings.
3 Non-cash movements in rehabilitation assets relating to changes in
rehabilitation estimates for the Lesotho segment.
Included in revenue for the 2022 year is revenue from two customers who
individually contributed 10% or more to total revenue. This revenue in total
amounted to US$48.7 million arising from sales reported in the Belgium
segment.
Segment non-current assets do not include deferred tax assets of US$6.0
million and financial instruments of US$2.9 million. Included in the
non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current
assets located in the Company's country of domicile, the UK, of US$19.4
thousand.
Segment assets and liabilities do not include deferred tax assets and
liabilities of US$6.0 million and US$82.0 million respectively.
1.2 Summary of material accounting policies
1.2.1 Basis of preparation
The financial statements of the Group have been prepared in accordance with
International Financial Reporting Standards (IFRS), as issued by the
International Accounting Standards Board (IASB). These financial statements
have been prepared under the historical cost basis except for assets and
liabilities measured at fair value. The accounting policies have been
consistently applied except for the adoption of the new standards and
interpretations detailed on the following pages.
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 presented in US dollar and rounded to the
nearest thousand. The financial results 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 1.2.14, 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.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The Group adopted certain standards and amendments for the first time, which
became effective for the Group on 1 January 2023 and are listed in the table
below. The adoption of these new accounting pronouncements has not had a
significant impact on the consolidated financial statements of the Group nor
the accounting policies, methods of computation or presentation applied by the
Group. Other than the changes described below, the accounting policies are
consistent with those of the previous financial year.
Amendments and new standards Description
IFRS 17 Insurance contracts
Amendments to IAS 8 Definition of Accounting Estimates
Amendments to IAS 1 Disclosure of Accounting Policies
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single
Transaction
Amendments to IAS 12 International Tax Reform - Pillar Two Model Rules
Standards issued but not yet effective
The standards, amendments and improvements that are issued, but not yet
effective, up to the date of issuance of the Group's consolidated financial
statements are listed in the table below. These standards, amendments and
improvements have not been early adopted and it is expected that, where
applicable, these standards, amendments and improvements will be adopted on
each respective effective date. The impact of the adoption of these standards
cannot be reasonably assessed at this stage.
New standards, amendments, and improvements Description Effective date*
Amendments to IAS 1 Classification of liabilities as Current or Non-current and Non-current 1 January 2024
Liabilities with Covenants
Amendments to IFRS 16 Lease Liability in a Sale and Leaseback 1 January 2024
Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements 1 January 2024
Amendments to IAS 21 Lack of exchangeability 1 January 2025
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Pending
Venture
* Annual periods beginning on or after.
1.2.2 Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position have been assessed by
management. The financial position of the Group, its cash flows and liquidity
position are presented in the Annual Report and Accounts. In addition, Note
25, Financial risk management, includes the Group's objectives, policies and
processes for managing its capital; its financial risk management objectives;
details of its financial instruments; and its exposures to market risk, credit
risk and liquidity risk.
The Group's net debt at 31 December 2023 was US$21.3 million (31 December
2022: net cash US$3.3 million). The Group's available undrawn facilities at 31
December 2023 amounted to US$45.9 million (31 December 2022:
US$82.6 million), resulting in liquidity (defined as net debt/cash and
available undrawn facilities) of US$24.6 million (31 December 2022: US$85.9
million). The gross liquidity position of the Group (defined as gross cash and
available undrawn facilities) as at 31 December 2023 is US$62.4 million (31
December 2022: US$91.3 million). The Group's Revolving Credit Facilities
(RCF), which total US$71.0 million when fully unutilised, mature on 22
December 2024. In addition, there is a US$5.5 million general banking facility
with no set expiry date, but is reviewed annually (Refer Note 16,
Interest-bearing loans and borrowings).The impacts on future cash flows of
Eskom's continued electricity outages, the current diamond market conditions,
the ongoing Russian invasion on Ukraine and the conflict in Gaza, were
considered by performing sensitivities on costs, diamond pricing and the
unlikely weakening of the US dollar against the Lesotho loti.
The Group's RCFs mature on 22 December 2024. The existing facility agreement
includes an option to extend the facilities for a period of 24 months (subject
to lender approval). The Group may also decide to renew these facilities for a
potentially longer period of 36 months. These facilities have been in place
since 2011 and have been renewed on three previous occasions through expanding
the lender group and increasing the overall facility amount. The Directors
believe that in considering the future cash flows, the long-standing
relationships with the wider lender group and the history of the successful
renewals of the facilities, it is more than likely that the facilities be
extended or renewed during 2024. In the unlikely event that the RCFs are not
renewed, the Directors believe that various mitigation actions such as the
deferment or further optimisation of waste stripping activities could be
implemented in the short term.
After making enquiries which include reviews of forecasts and budgets, timing
of cash flows and sensitivity analyses, the Group's operations and production
levels, the various cost reduction initiatives and considering the likely
successful renewal of the Group's RCFs, the Directors have a reasonable
expectation that the Group has adequate financial resources without the use of
mitigating actions to continue in operational existence for the foreseeable
future. For this reason, the Directors continue to adopt the going concern
basis in preparing the Group Financial Statements.
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.
1.2.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company as at 31 December 2023.
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 of the
following criteria must be met: (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 gains and losses
arising from them, are eliminated in full.
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not
attributable, directly or indirectly, to the parent company and is presented
separately within equity in the consolidated statement of financial position,
separately from equity attributable to owners of the parent. Losses within a
subsidiary are attributed to the non-controlling interest even if that results
in a deficit balance.
1.2.4 Exploration and evaluation expenditure
Exploration and evaluation activity involves the search for mineral resources,
the determination of technical feasibility and the assessment of commercial
viability of an identified resource. Exploration and evaluation activity
includes:
· acquisition of rights to explore;
· researching and analysing historical exploration data;
· gathering exploration data through topographical, geochemical and
geophysical studies;
· exploratory drilling, trenching and sampling;
· determining and examining the volume and grade of the resource;
· surveying transportation and infrastructure requirements; and
· conducting market and finance studies.
Administration costs that are not directly attributable to a specific
exploration area are charged to the statement of profit or loss. Licence costs
paid in connection with a right to explore in an existing exploration area are
capitalised, as mining assets within property, plant and equipment, and
amortised over the term of the permit.
Exploration and evaluation expenditure is capitalised as incurred. Capitalised
exploration expenditure is recorded as a component of property, plant and
equipment, as an exploration and development asset, at cost less accumulated
impairment charges. As the asset is not available for use, it is not
depreciated.
All capitalised exploration and evaluation expenditure is monitored for
indications of impairment. Where a potential impairment is indicated,
assessments are performed for each area of interest in conjunction with the
group of operating assets (representing a cash-generating unit (CGU)) to which
the exploration is attributed. To the extent that exploration expenditure is
not expected to be recovered, it is charged to the statement of profit or
loss. Exploration areas where reserves have been discovered, but require major
capital expenditure before production can begin, are continually evaluated to
ensure that commercial quantities of reserves exist or to ensure that
additional exploration work is under way as planned.
Management is required to make certain estimates and judgements when
determining whether the commercial viability of an identified resource has
been met and when determining whether indicators of impairment exist.
1.2.5 Development expenditure
When proven and probable reserves are determined and development is
sanctioned, capitalised exploration and evaluation expenditure is reclassified
from exploration phase to development phase. As the asset is not available for
use, during the development phase, it is not depreciated. On completion of the
development phase, any capitalised exploration and evaluation expenditure
already capitalised to a development asset, together with the subsequent
development expenditure, is reclassified within property, plant and equipment
to mining assets and depreciated on the basis as laid out in Note 1.2.6,
Property, plant and equipment.
All development expenditure is monitored for indicators of impairment
annually. Management is required to make certain estimates and judgements when
determining whether indicators of impairment exist.
1.2.6 Property, plant and equipment
Property, plant and equipment is recorded at cost less accumulated
depreciation and accumulated impairment losses. Cost includes expenditure that
is directly attributable to the acquisition and construction of the items, to
get the asset in its condition and location for its intended use among others,
professional fees, and for qualifying assets, borrowing costs capitalised in
accordance with the Group's accounting policies.
Subsequent costs to replace a component of an item of property, plant and
equipment that is accounted for separately, is capitalised when the cost of
the item can be measured reliably, with the carrying amount of the original
component being written off. All repairs and maintenance are charged to the
statement of profit or loss during the financial period in which they are
incurred.
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 or period of mining lease
Decommissioning assets Straight line Lesser of life of mine or period of mining lease
Leasehold improvements Straight line Three years or lesser of life of mine or period of mining lease
Plant and equipment Straight line; units of production Three to 15 years; machine hours
Other assets Straight line Two to eight years
An item of property, plant and equipment and any significant part initially
recognised is derecognised upon disposal (ie, at the date the recipient
obtains control) or when no future economic benefits are expected from its use
or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of profit or loss
when the asset is derecognised.
The asset's residual values, useful lives and methods of depreciation are
reviewed annually. Changes in the expected residual values, expected useful
life or the expected pattern of consumption of future economic benefits
embodied in the asset are considered to modify the depreciation period or
method, as appropriate, and are treated as changes in accounting estimates,
and adjusted for prospectively, if appropriate.
Pre-production and in production stripping costs
Costs associated with removal of waste overburden are classified as stripping
costs.
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 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 non-current asset recognised is referred to as a "stripping activity
asset" and is separately disclosed in Note 8, Property, plant and equipment.
If all the criteria are not met, the production stripping costs are charged to
the statement of profit or loss 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. Given the deep vertical nature of the pit, all
stripping costs are capitalised on a cut/component basis for each cut in the
mine planning process.
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. The net book value of the
stripping asset and future expected stripping costs to be incurred for that
component is depreciated using the units of production over the proven and
probable reserves, in order to match the total stripping costs of the cut to
the economic benefits created by the cut. As a result, the stripping activity
asset is carried at cost less amortisation and any impairment losses. The
future stripping costs of the cut/component and the expected ore to be mined
of that cut/component 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.
Management applies judgement to calculate and allocate the production
stripping costs to inventory and/or the stripping activity asset(s) as
referred under Note 1.2.26, Critical accounting estimates and judgements.
1.2.7 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset that necessarily takes a substantial period
of time to get ready for its intended use or sale are capitalised as part of
the cost of the asset. All other borrowing costs are expensed in the period in
which they occur. Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds.
1.2.8 Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of
the acquisition date fair value of the consideration transferred and the
amount recognised for the non-controlling interest (and where the business
combination is achieved in stages, the acquisition date fair value of the
acquirer's previously held equity interest in the acquiree) over the fair
value of the net identifiable amounts of the assets acquired and the
liabilities assumed in the business combination.
Assets acquired and liabilities assumed in transactions separate to the
business combinations, such as the settlement of pre-existing relationships or
post-acquisition remuneration arrangements, are accounted for separately from
the business combination in accordance with their nature and applicable IFRS.
Identifiable intangible assets, meeting either the contractual legal or
separability criterion are recognised separately from goodwill. Contingent
liabilities representing a present obligation are recognised if the
acquisition date fair value can be measured reliably.
If the aggregate of the acquisition date fair value of the consideration
transferred and the amount recognised for the non-controlling interest (and
where the business combination is achieved in stages, the acquisition date
fair value of the acquirer's previously held equity interest in the acquiree)
is lower than the fair value of the net identifiable amounts of the assets
acquired and the liabilities assumed in the business combination, the
difference is recognised in profit and loss.
After initial recognition, goodwill is measured at cost less any accumulated
impairment losses. For the purpose of impairment testing, goodwill acquired in
a business combination is, from the acquisition date, allocated to each of the
Group's CGUs (or groups of CGUs) that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units. Each unit or group of units to which
goodwill is allocated shall represent the lowest level within the entity at
which the goodwill is monitored for internal management purposes, and shall
not be larger than an operating segment before aggregation.
Where goodwill forms part of a CGU and part of the operation within that unit
is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or
loss on disposal of the operation. Goodwill disposed of in this circumstance
is measured based on the relative values of the operation disposed of and the
portion of the CGU retained.
1.2.9 Financial instruments
The Group shall only recognise a financial instrument when the Group becomes a
party to the contractual provisions of the instrument. A financial instrument
is any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity.
Financial assets
Management determines the classification of its financial assets at initial
recognition and re-evaluates this designation at every reporting date based on
the business model for managing these financial assets and the contractual
cash flow characteristics. Currently the Group only has financial assets at
amortised cost which consist of receivables and other assets, and cash and
short-term deposits which is held within a business model to collect
contractual cash flows and for which the contractual cash flow characteristics
are solely payments of principal and interest. When financial assets are
recognised initially, they are measured at fair value plus (in the case of
financial assets not at fair value through profit or loss) directly
attributable transaction costs. Purchases or sales of financial assets that
require delivery of assets within a timeframe established by regulation or
convention in the marketplace (regular way trades) are recognised on the trade
date.
Financial assets at amortised cost
Financial assets at amortised cost 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, if the time value of money is significant, less any allowance for
impairment. Gains and losses are recognised in the statement of profit or loss
when the financial assets at amortised cost are derecognised or impaired, as
well as through the amortisation process.
Derecognition
A financial asset is primarily derecognised when the rights to receive cash
flows from the asset have expired or the Group has transferred its rights to
receive cash flows from the asset. Gains or losses from derecognition of
financial assets are recognised in the statement of profit or loss.
Financial liabilities
Financial liabilities are initially measured at fair value net of (in the case
of financial liabilities not at fair value through profit or loss) directly
attributable transaction costs. The Group's Interest-bearing loans and
borrowings and trade and other payables financial liabilities are subsequently
stated at amortised cost using the effective interest rate method, with any
difference between proceeds (net of transaction costs) and the redemption
value being recognised in the statement of profit or loss, unless capitalised
in accordance with Note 1.2.6, Property, plant and equipment, over the
contractual period of the financial liability.
Derecognition
A financial liability is derecognised when the obligation under the liability
is discharged or cancelled or expires. Gains or losses from derecognition of
financial liabilities are recognised in the statement of profit or loss.
1.2.10 Impairments
Non-financial assets
The Group assesses, at each reporting date, whether there is an indication
that an asset (or CGU) may be impaired in accordance with IAS 36. Goodwill is
assessed for impairment on an annual basis and when circumstances indicate
that the carrying value may be impaired. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset's fair value less
costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset.
Non-financial assets that were previously impaired are reviewed for possible
reversal of the impairment at each reporting date. A previously recognised
impairment loss is reversed only if there has been a change in the estimates
used to determine the asset's recoverable amount since the last impairment
loss was recognised. If that is the case, the carrying amount of the asset is
increased to its recoverable amount. That increased amount cannot exceed the
carrying amount that would have been determined, net of depreciation, had no
impairment loss been recognised for the asset in prior years. Such a reversal
is recognised in the statement of profit or loss. After such a reversal the
depreciation charge is adjusted in future periods to allocate the asset's
revised carrying amount, less any residual value, on a systematic basis over
its remaining useful life. Impairment losses relating to goodwill cannot be
reversed in future periods.
1.2.11 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.
The Group maintains strategic stockpiles in line with operational and
insurance requirements. In normal mining activities, lower grade (highly
diluted) ore is consequentially mined and maintained in a separate stockpile.
Although this lower grade (highly diluted) stockpile could be processed as
emergency plant feed, it is likely that it will be processed at the end of
life of mine. As a result, the associated mining costs for this stockpile are
allocated at the net realisable value and the balance of the costs are
allocated to the Main pipe strategic stockpiles.
1.2.12 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, and other short-term, highly liquid investments with
original maturities of three months or less that are held to meet the Group's
short-term cash commitments.
For the purpose of the consolidated statement of cash flows, cash and cash
equivalents consist of cash and cash equivalents as defined above, net of
outstanding bank overdrafts which are repayable on demand and form an integral
part of the Group's cash management.
1.2.13 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.
Treasury shares
Own equity instruments that are reacquired are recognised at cost, including
transaction costs, and deducted from equity. These are disclosed as treasury
shares. No gain or loss is recognised in profit or loss in the purchase, sale,
issue or cancellation of the Group's own equity instruments. Any difference
between the carrying amount and the consideration, if reissued, is recognised
in equity.
1.2.14 Foreign currency translations
Presentation currency
The results and financial position of the Group's subsidiaries which have a
functional currency different from the Group's presentation currency are
translated into the Group's presentation currency as follows:
· statement of financial position items are translated at the
closing rate at the reporting date;
· income and expenses for each statement of profit or loss 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
statement of profit or loss transactions are detailed in Note 15, Issued share
capital and reserves.
Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains or losses resulting from the settlement of such transactions
and from the translation at the period-end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in the
statement of profit or loss. Non-monetary items that are measured in terms of
cost in a foreign currency are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary items measured at fair value
in a foreign currency are translated using the exchange rates at the date when
the fair value was determined. Monetary items for each statement of financial
position presented are translated at the closing rate at the reporting date.
1.2.15 Share-based payments
Employees (including senior executives) of the Group receive remuneration in
the form of share-based payment transactions, whereby employees render
services as consideration for equity instruments (equity-settled
transactions).
Equity-settled transactions
The cost of equity-settled transactions with employees are measured by
reference to the fair value of the equity instruments at the date at which
they are granted and is recognised as an expense over the vesting period,
which ends on the date on which the relevant employees become fully entitled
to the award. Fair value is determined using an appropriate pricing model. In
valuing equity-settled transactions, no account is taken of any vesting
conditions, other than conditions linked to the price of the shares of the
Company (market conditions).
On a cumulative basis, over the vesting period of an award, no expense is
recognised for awards that do not ultimately vest, except for awards where
vesting is conditional upon a market condition, which are treated as vesting
irrespective of whether or not the market condition is satisfied, provided
that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense is calculated,
representing the extent to which the vesting period has expired and
management's best estimate of the achievement of the vesting conditions or
otherwise of the non-market vesting conditions and of the number of equity
instruments that is expected to ultimately vest or, in the case of an
instrument subject to a market condition, be treated as vesting as described
above. The movement in cumulative expense since the previous reporting date is
recognised in the statement of profit or loss, with a corresponding entry in
equity.
Management applies judgement when determining whether share options relating
to employees who resigned before the end of the service condition period are
cancelled or forfeited as referred under Note1.2.26, Critical accounting
estimates and judgements.
The Group periodically releases the share-based equity reserve to retained
earnings in relation to lapsed and forfeited options subsequent to vesting
dates.
1.2.16 Provisions
Provisions are recognised when:
· the Group has a present legal or constructive obligation as a
result of a past event; and
· a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures expected to
be required to settle the obligation, using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the obligation. The increase in the provision due to the passage
of time is recognised as a finance cost.
1.2.17 Restoration and rehabilitation provision
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, using a pre-tax
discount rate. Discount rates used are specific to the country in which the
operation is located or reasonable alternatives if in-country information is
not available. 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 a decommissioning asset where it
gives rise to a future benefit and depreciated over future production from the
operation to which it relates.
Management is required to make significant estimates and assumptions when
determining the amount of the restoration and rehabilitation provisions as
referred under Note 1.2.26, Critical accounting estimates and judgements.
1.2.18 Taxation
Income tax for the period comprises current and deferred tax. Income tax is
recognised in the statement of profit or loss except to the extent that it
relates to items charged or credited directly to equity or to other
comprehensive income, in which case the tax consequences are recognised
directly in equity and other comprehensive income respectively. 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.
The Group offsets deferred income tax assets and deferred income tax
liabilities if, and only if, it has a legally enforceable right to set off
current tax assets and current tax liabilities and the deferred income tax
assets and deferred income tax liabilities relate to income taxes levied by
the same taxation authority on either the same taxable entity or different
taxable entities which intend either to settle current tax liabilities and
assets on a net basis, or to realise the assets and settle the liabilities
simultaneously, in each future period in which significant amounts of deferred
tax liabilities or assets are expected to be settled or recovered.
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 statement of profit or loss 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 statement of profit or
loss.
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.
1.2.19 Employee benefits
Provision is made in the financial statements for all short-term employee
benefits. Liabilities for wages and salaries, including non-monetary benefits,
benefits required by legislation, annual leave, retirement benefits and
accumulating sick leave obliged to be settled within 12 months of the
reporting date, are recognised in trade and other payables and are measured at
the amounts expected to be paid when the liabilities are settled. Benefits
falling due more than 12 months after the reporting date are measured at the
amount the obligation is expected to be settled or discounted to present value
using a pre-tax discount rate where relevant or where time value of money is
expected to be significant. The Group recognises an expense for contributions
to the defined contribution pension fund in the period in which the employees
render the related service.
Bonus plans
The Group recognises a liability and an expense for bonuses. The Group
recognises a liability where contractually obliged or where there is a past
practice that has created a constructive obligation. These liabilities are
recognised in trade and other payables and are measured at the amounts
expected to be paid when the liabilities are settled.
1.2.20 Leases
At inception, the Group assesses whether a contract is or contains a lease.
This assessment involves the exercise of judgement whether it depends on a
specified asset, whether the Group obtains substantially all the economic
benefits from the use of that asset, and whether the Group has the right to
direct the use of the asset. For leases that contain one lease component and
one or more additional lease or non-lease components, the Group allocates the
consideration in the contract to each lease and non-lease component on the
basis of the individual relative stand-alone price of all lease and non-lease
components and the aggregate stand-alone price of all lease and non-lease
components. The lease component is accounted for under the requirements of
IFRS 16 and the non-lease component is accounted for using the relevant IFRS
standard based on the nature of the non-lease component.
Right-of-use assets
The Group recognises right-of-use assets at the commencement date of the lease
(ie, the date the underlying asset is available for use). Right-of-use assets
are measured at cost, less any accumulated depreciation and impairment losses,
and adjusted for any remeasurement of lease liabilities. The cost of
right-of-use assets includes the amount of lease liabilities recognised,
initial direct costs incurred, costs to dismantle, restore and remove the
right-of-use asset, and lease payments made at or before the commencement date
less any lease incentives received. After the commencement date, the
right-of-use assets are measured using a cost model. Right-of-use assets are
depreciated on a straight-line basis over the shorter of the lease term and
the estimated useful lives of the assets. If ownership of the leased asset
transfers to the Group at the end of the lease term or the cost reflects the
exercise of a purchase option, depreciation is calculated using the estimated
useful life of the asset. Right-of-use assets are subject to impairment. Refer
Note 1.2.10, Impairments.
Lease liabilities
At the commencement date of the lease, the Group recognises lease liabilities
measured at the present value of lease payments to be made over the lease
term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that
depend on an index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise price of a
purchase option reasonably certain to be exercised by the Group and payments
of penalties for terminating a lease, if the lease term reflects the Group
exercising the option to terminate. The variable lease payments that do not
depend on an index or a rate are recognised as an expense in the period on
which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date if the interest rate
implicit in the lease is not readily determinable. After the commencement
date, the amount of lease liabilities is increased to reflect the accretion of
interest and reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a modification to the
terms and conditions of the lease or if there is a lease reassessment.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to its short-term
leases (ie, those leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also applies the
lease of low-value assets recognition exemption to leases of office equipment
that are considered to be qualitatively and quantitatively of low value. Lease
payments on short-term leases and leases of low-value assets are recognised as
expense on a straight-line basis over the lease term.
Group as a lessor
Where the Group is a lessor, it determines at inception whether the lease is a
finance or operating lease. When a lease transfers substantially all the risks
and rewards of ownership of the underlying asset then the lease is a finance
lease; otherwise the lease is an operating lease.
Where the Group is an intermediate lessor, the interest in the head lease and
the sub-lease is accounted for separately and the lease classification of a
sub-lease is determined by reference to the Right-of-use-asset arising from
the head lease. Income from operating leases is recognised on a straight-line
basis over the lease term.
1.2.21 Revenue from contracts with customers
Revenue comprises net invoiced diamond sales to customers excluding VAT.
Diamond sales are made through a competitive tender process and recognised
when the Group's performance obligations have been satisfied at the time the
buyer obtains control of the diamond(s), at an amount that the Group expects
to be entitled in exchange for the diamond(s). Where the Group makes rough
diamond sales to customers and retains a right to an interest in their future
sale as polished diamonds, the Group records the sale of the rough diamonds
but such contingent revenue on the onward sale is only recognised at the date
when the polished diamonds are sold or when polished sales prices are mutually
agreed between the customer and the Group.
The following revenue streams are recognised:
· rough diamonds which are sold through a competitive tender
process, partnership agreements and joint operation arrangements;
· polished diamonds and other products which are sold through
direct sales channels;
· additional uplift (on the value from rough to polished) on
partnership arrangements; and
· additional uplift (on the value from rough to polished) on joint
operation arrangements.
The sale of rough diamonds is the core business of the Group, with other
revenue streams contributing marginally to total revenue.
Revenue through partnership arrangements is recognised for the sale of the
rough diamond, with an additional uplift based on the polished margin
achieved. Management recognises the revenue on the sale of the rough diamond
when it is sold to a third party, as there is no continuing involvement by
management in the cutting and polishing process and control has passed to the
third party. Revenue from additional uplift is considered to be a variable
consideration. This variable consideration will generally be significantly
constrained. This is on the basis that the ultimate additional uplift received
will depend on a range of factors that are highly susceptible to factors
outside the Group's influence. Management recognises revenue on the additional
uplift when the polished diamond is sold by the third party or the polished
sales prices are mutually agreed between the third party and the Group and the
additional uplift is guaranteed, as this is the point in time at which the
significant constraints are lifted or resolved from the Polished Margin
revenue.
Rendering of services
Revenue from services relating to third-party diamond manufacturing is
recognised in the accounting period in which the services are rendered, when
the Group's performance obligations have been satisfied, at an amount that the
Group expects to be entitled to in exchange for the services.
1.2.22 Interest income
Interest income is recognised on a time proportion basis using the effective
interest rate method.
1.2.23 Dividend income
Dividend income is 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 recognised on a time proportion basis using the effective
interest rate method.
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 income and expenses 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.
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, Europe and the United Kingdom. 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 and country risks on the operations and
the financial position of the Group. The future business environment may
differ from management's assessment.
Task Force on Climate-related Financial Disclosures (TCFD)
In preparing the Consolidated Financial Statements management continues to
consider the impact of climate change, particularly in the context of the
disclosures included in the Strategic Report detailing the now implemented
TCFD requirements and the high level overview of some climate-related risks
and opportunities. These considerations did not have a material impact on the
financial reporting estimates and judgements, consistent with the assessment
that climate change is not expected to have a significant impact on the
Group's going concern assessment to March 2025, after which management will
assess the impact on the Group's going concern. These considerations also had
no material impact on any Property, Plant and Equipment or Commitments. For
Letšeng, the physical risks identified of severe weather conditions, are
similar to its current operating conditions of drought, high wind, snow and
rainfall. The operation is therefore well set up to manage these conditions
within its current reporting and accounting framework. As users of
grid-supplied and fossil fuel energy, our short-term focus is on improving
energy efficiencies in our operational processes and on reducing fossil fuel
use. Due to the uncertainty of the cost and timing of implementation of
carbon-related taxes, the impact of such taxes on the Group's operations and
cash flows has been excluded from the going concern, viability assessment and
impairment review.
The ongoing Russian invasion of Ukraine and the conflict in Gaza
The supply chain challenges caused by the ongoing Russian invasion of Ukraine
has significantly increased the price of consumables, especially diesel and
explosive costs used in the mining activities, and inflation rates across the
jurisdictions where the Group operates. The slowdown of global economic growth
in 2023 was further impacted by the conflict in Gaza that began in October
2023 and the subsequent attacks launched by Yemen's Houthi rebels on cargo
vessels in the Red Sea at the start of 2024. The diamond industry has suffered
in the face of these challenges. Management has incorporated the impact of the
current and historical diamond prices, increased costs and current inflation
when assessing its future cash flows.
Insourcing of the mining activities
Matekane Mining Investment Company (Proprietary) Limited (MMIC) has been the
provider of mining services to Letšeng since 2005. Following the election of
Mr Sam Matekane (the ultimate owner of MMIC) as Prime Minister of Lesotho in
October 2022, Letšeng carefully considered its options to resolve the
potential conflict of interest created by being in a business relationship
with a politically exposed person. This transition to owner mining further
creates an opportunity for Letšeng to maximise mining efficiencies, reduce
costs through eliminating contractor margins, manage mining procurement
directly and enables further flexibility in the planning and execution of its
mining activities. All these factors will contribute to a more efficient and
cost effective operation. Effective 1 December 2023, Letšeng reached
agreement with MMIC to early terminate the mining equipment and service lease
contract, eleven months ahead of its scheduled contractual end date (31
October 2024) without any termination penalties and insourced these
activities. Letšeng acquired the mining fleet and support equipment that was
used exclusively for Letšeng, and offered employment to those MMIC employees
working exclusively for Letšeng, in line with operational requirements,
effective 1 February 2024. The MMIC employees remained as contract workers
from 1 December 2023.
The total purchase price, which was determined with the assistance of external
third-party valuators,was US$22.7 million. A payment mechanism was agreed
whereby US$13.0 million was paid on 1 December 2023, the effective date,
US$9.3 million was paid in January 2024, and a retainer of US$0.4 million,
withheld for equipment under repair was paid in early March 2024. The US$9.7
million portion of the purchase price not settled in cash on the effective
date of the acquisition has been presented as part of current trade and other
payables in the consolidated statement of financial position.
In assessing whether this transaction met the criteria of an asset acquisition
or a business combination, the criteria set out in IFRS 3 Business
Combinations was considered. Management opted to apply the optional test,
being a concentration test, which permits a simplified quantitative assessment
of whether an acquired set of activities and assets is not a business. Based
on the results from the concentration test, the Group concluded that the
acquisition is not a business combination but rather an asset acquisition due
to substantially all the fair value of the gross assets acquired being
concentrated into a group of similar identifiable assets which are the same in
nature and exposed to the same risk in terms of managing and creating outputs
from the mining activities at Letšeng. The total purchase price was allocated
to all the identifiable IAS 16 Property, plant and equipment assets acquired
on the basis of their relative fair values at the effective date of the
acquisition. The capitalised total purchase price has been disclosed as
additions within Note 8, Property, plant and equipment mainly within the plant
and equipment category amounting to US$22.7 million. Directly attributable
transaction costs of US$0.1 million were allocated to all of the individual
identifiable IAS 16 Property, plant and equipment assets acquired on the basis
of their relative fair values at the effective date of the acquisition. These
assets will be depreciated over the useful life of each asset based on the
available production hours. The financial results for 31 December 2023
includes one month of depreciation. The US$13.0 million portion of the
purchase price and the directly attributable transaction costs of US$0.1
million that were settled in cash during the current financial reporting
period have been presented in the purchase of property, plant and equipment
line item within cash flows used in investing activities.
Estimates
Ore reserves and associated life of mine (LoM)
There are numerous uncertainties inherent in estimating ore reserves and the
associated LoM. Therefore, the Group must make a number of assumptions in
making those estimations, including assumptions as to the prices of diamonds,
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 diamonds, 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 LoM estimates, the associated depreciation rates,
residual values, waste stripping and amortisation ratios, and environmental
provisions are reassessed to take into account the revised LoM estimate. Refer
Note 8, Property, plant and equipment, Note 10, Intangible assets and Note 20,
Provisions.
Provision for restoration and rehabilitation
Significant estimates and assumptions are made in determining the amount of
the restoration and rehabilitation provisions. These deal with uncertainties
such as changes to the legal and regulatory framework, magnitude of possible
contamination, and the timing, extent and costs of required restoration and
rehabilitation activity. Refer Note 20, Provisions, for further detail.
Judgement
Impairment reviews
The Group determines if goodwill is impaired at least on an annual basis,
while all other significant operations are tested for impairment when there
are potential indicators which may require impairment review. This requires an
estimation of the recoverable amount of the relevant CGU under review.
Recoverable amount is the higher of fair value less costs to sell and value in
use. While conducting an impairment review of its assets using value-in-use
impairment models, the Group exercises judgement in making assumptions about
future rough diamond prices, volumes of production, ore reserves and resources
included in the current LoM plans, production costs and macro-economic factors
such as inflation and discount rates. Changes in estimates used can result in
significant changes to the consolidated statement of profit or loss and
consolidated statement of financial position. Refer Note 11, Impairment
testing, for further estimates and judgements applied.
The key assumptions used in the recoverable amount calculations, determined on
a value-in-use basis, are listed below:
Valuation basis
Discounted present value of future cash flows.
LoM and recoverable value of reserves and resources
Economically recoverable reserves and resources, carats recoverable and grades
achievable are based on management's expectations of the availability of
reserves and resources at mine sites and technical studies undertaken by
in-house and third-party specialists. Reserves remaining after the current LoM
plan have not been included in determining the value in use of the operations.
The LoM of Letšeng is to 2038 (2022: 2040). The earlier life was mainly as a
result of a redesign of the Main pit.
Cost and inflation rate
Operating costs for Letšeng are determined based on management's experience
and the use of contractors over a period of time whose costs are fairly
reasonably determinable. Mining costs have been based on owner-mining
assumptions and estimates, following the insourcing of the mining activities,
and are lower than in the past due to an immediate saving of contractor margin
costs. Processing costs in the short term have been based on historical trends
and agreements with relevant contractors. More recently there has been a
significant focus on cost efficiencies in the processing plants, which have
yielded positive results consistently for two months. These costs have been
reduced to recently achieved levels from 2025. In the longer term, management
has applied local inflation rates of 5.0% (2022: 5.0%) for operating costs
beyond 2026. Up to 2026, inflation rates applied ranged between 5.4% - 8.9%
(2022: 5.5% - 8.9%).
Capital costs for the first five years have been based on management's capital
programme after which a fixed percentage of operating costs has been applied
to determine the capital costs necessary to maintain current levels of
operations.
Exchange rates
Exchange rates are applied in line with IAS 36, Impairment of Assets. The US
dollar/Lesotho loti (LSL) exchange rate used was determined with reference to
the closing rate at 31 December 2023 of LSL18.29 (31 December 2022: LSL17.02).
Diamond prices
The short and medium-term diamond prices used in the impairment test have been
set with reference to historical and recent prices achieved, recent market
trends and anticipated market supply and the Group's medium-term forecast.
Long-term diamond price escalation reflects the Group's assessment of market
supply/demand fundamentals.
Discount rate
The discount rate of 10.4% for revenue (2022: 12.5%) and 12.4% for costs
(2022: 15.4%) used for Letšeng represents the before-tax risk-free rate
adjusted for market risk, volatility and risks specific to the asset and its
operating jurisdiction.
Market capitalisation
In the instance where the Group's asset carrying values exceed market
capitalisation, this results in an indicator of impairment. The Group believes
that this position does not represent an impairment as all significant
operations were assessed for impairment during the year and no impairments
were recognised.
Sensitivity
The value in use for Letšeng indicated sufficient headroom, and the further
changes to key assumptions which could result in impairment are disclosed in
Note 11, Impairment testing.
Provision for restoration and rehabilitation and deferred tax thereon
Judgement is applied when calculating the closure costs associated with the
restoration of the Letšeng mine site. These include the following:
· there are no costs associated with the backfill of the open pits
due to no in-country legislation requirements;
· concurrent rehabilitation of the waste rock dump and residue
storage facilities will take place during the operational phase; and
· there are no costs associated with dismantling permanent
buildings as these will be handed over to various parties in consultation with
the Lesotho Government when the end of life is reached.
At the Ghaghoo mine site, the following judgements were applied:
· the mine site will be left in a state which could enable a future
operator to operate on the site, and therefore certain infrastructure, such as
access roads to the mine, paving and walkways, a new solar solution
installation, borehole pump and water treatment plant, will remain intact and,
after obtaining the necessary approvals, it will be handed over to the
Government of Botswana through the Ministry of Minerals and Energy. Therefore,
no costs associated with the rehabilitation of certain roads or rehabilitation
and dismantling of certain infrastructures; and
· the timing of the rehabilitation cost cash flows has been
estimated to be five years.
At Letšeng, deferred tax assets are recognised on provisions for
rehabilitation as management will ensure appropriate tax planning to ensure
sufficient taxable income is available to utilise all deductions in the
future. At Ghaghoo, no deferred tax assets have been recognised on the
provision for rehabilitation as management does not foresee any taxable
profits or taxable temporary differences against which the deferred tax asset
can be utilised due to the operation being under care and maintenance.
Capitalised stripping costs (deferred waste)
Waste removal costs (stripping costs) are incurred during the development and
production phases at surface mining operations. 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.
Judgements and estimates are also used to apply the amortisation rate, future
stripping costs of the cut/component and the expected ore to be mined of that
cut/component. Refer Note 8, Property, plant and equipment.8, Property, plant
and equipment.
Share-based payments
Judgement is applied by management in determining whether the share options
relating to employees who resigned before the end of the service condition
period have been cancelled or forfeited in light of their leaving status.
Where employees do not meet the requirements of a good leaver as per the rules
of the long-term incentive plan (LTIP), no award will vest and this will be
treated as cancellation by forfeiture. The expenses relating to these charges
previously recognised are then reversed. Where employees do meet the
requirements of a good leaver as per the rules of the LTIP, some or all of an
award will vest and this will be treated as a modification to the original
award. The future expenses relating to these awards are accelerated and
recognised as an expense immediately. Refer Note 26, Share-based payments, for
further detail.
Identifying uncertainties over tax treatments
As previously disclosed, an amended tax assessment was issued to Letšeng by
the Revenue Services Lesotho (RSL), in December 2019, contradicting the
application of certain tax treatments in the current Lesotho Income Tax Act
1993. An objection to the amended tax assessment was lodged with the RSL in
March 2020, which was supported by the opinion of senior counsel. The RSL
subsequently lodged a court application for the review and setting aside of
the applicable regulations to the Lesotho High Court pertaining to this
matter, which Letšeng is opposing. The amended court application process will
continue during 2024, with support from senior legal counsel.
Management do not believe an uncertain tax position exists as:
· there is no ambiguity in the application of the published Lesotho
Income Tax Act;
· there has been no change in the application of the Income Tax Act
and resulting tax; and
· senior counsel advice, which is legally privileged, has been
obtained for the new circumstances. This advice still reflects good prospects
of success.
No provision or contingent liability, relating to
· the amended tax assessment in question; or,
· any potential legal costs that could be incurred should the
matter be found in favour of the RSL has been raised in the 2023 Annual
Financial Statements.
Offsetting of deferred tax assets and deferred tax liabilities of the Group's
subsidiary, Letšeng Diamonds
The Group's subsidiary, Letšeng Diamonds, is subject to the tax laws and
regulations enacted within Lesotho. The corporate tax laws and regulations
currently enacted by the RSL requires a taxpayer to file a claim for
offsetting current tax asset and current tax liabilities, and offsetting
deferred tax assets and deferred tax liabilities with the Commissioner within
four years after service of the notice of assessment for the year of
assessment to which the claim relates.
The Group, after applying significant judgement, is of the view that Letšeng
Diamonds does not have a legal enforceable right to offset current tax assets
against current tax liabilities, and deferred tax assets against deferred tax
liabilities within the Lesotho corporate tax jurisdiction as it is subject to
the Commissioner's approval of the claim submitted for which the outcome is
highly uncertain as the approval is purely subject to the discretion of the
Commissioner. On this basis, the Group does not offset Letšeng Diamonds
deferred tax assets and deferred tax liabilities, but rather presents them on
a gross basis in the consolidated statement of financial position. Refer Note
1.2.18, Taxation.
Equipment and service lease
Prior to the insourcing of Letšeng's mining activities on 1 December 2023,
these activities were outsourced to a mining contractor, MMIC, that performed
these functions using their own equipment. Management applied judgement when
evaluating whether the contract between Letšeng and MMIC contained a lease.
While it was concluded there was a lease, lease payments were variable in
nature as the lease payments varied based on the tonnes of ore and waste mined
and hence no right of use asset or liability could be measured. From the
beginning of the current year until 1 December 2023, a portion of the lease
payment was expensed in the consolidated statement of profit or loss, and the
portion relating to waste removal/stripping costs was capitalised to the waste
stripping asset in the proportions referred to under the estimate and
judgements applied to the capitalised stripping costs (deferred waste) above.
Refer Note 1.2.26, Critical accounting estimates and judgements, Capitalised
stripping costs (deferred waste) and Note 23, Commitments and contingencies.
2023 2022
US$'000 US$'000
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Sale of goods 139 433 188 615
Partnership arrangements 854 306
Rendering of services - 16
140 287 188 937
The revenue from the sale of goods mainly represents the sale of rough
diamonds, for which revenue is recognised at the point in time at which
control transfers.
The revenue from partnership arrangements of US$0.9 million represents the
additional uplift from partnership arrangements for which revenue is
recognised when the significant constraints are lifted or resolved and the
amount of revenue is guaranteed (2022: US$0.3 million). At year end 1 728
carats (2022: 1 457 carats) have significant constraints in recognising
revenue relating to the additional uplift.
2023 2022
US$'000 US$'000
3. OTHER OPERATING INCOME/(EXPENSES)
Sundry income 206 61
Ghaghoo reduction in rehabilitation provision 354 -
Proceeds from insurance claim1 1 030 -
Proceeds from VAT refund2 251 -
Ghaghoo care and maintenance costs3 (1 809) (2 053)
(Loss)/profit on disposal and scrapping of property, plant and equipment (22) 195
COVID-19 related costs (3) (140)
7 (1 937)
1 Proceeds from insurance claim includes a payout of US$1.0 million for a
claim on diesel theft at Letšeng which occurred between June 2020 and June
2021.
2 Proceeds from VAT refund relates to long-outstanding VAT refunds received
from the Revenue Service of Lesotho which had been previously written off at
Letšeng.
3 Includes depreciation recognised in the current year of US$10.0 thousand (31
December 2022: US$80.0 thousand) relating to right of use assets.
2023 2022
US$'000 US$'000
4. OPERATING PROFIT
Operating profit includes operating costs and income as listed below:
Depreciation and amortisation
Depreciation and mining asset amortisation excluding waste stripping cost1 (5 423) (6 588)
Depreciation of right-of-use assets (1 892) (1 818)
Waste stripping costs amortised (39 194) (36 285)
(46 509) (44 691)
Inventories
Cost of inventories recognised as an expense (including the relevant portion (102 204) (116 382)
of waste stripping costs amortised)
Foreign exchange
Foreign exchange gain 2 775 1 914
Lease expenses not included in lease liability
Mine site property (152) (142)
Equipment and service lease (9 728) (11 154)
Contingent rental - Alluvial Ventures - (3 556)
(9 880) (14 852)
Impairment of non-current assets - (702)
Auditor's remuneration - EY
Group financial statements (328) (411)
Statutory (161) (242)
(489) (653)
Auditor's remuneration - other audit firms
Statutory (92) (26)
Other non-audit fees - EY
Other services (7) (56)
Other non-audit fees - other audit firms
Tax services advisory and consultancy (31) (74)
Employee benefits expense
Salaries and wages2 (14 386) (17 239)
Underlying earnings before interest, tax, depreciation and mining asset
amortisation (underlying EBITDA)
Underlying EBITDA is shown, as the Directors consider this measure to be a
relevant guide to the operational performance of the Group and excludes such
non-operating costs and income as listed below. The reconciliation from
operating profit to underlying EBITDA is as follows:
Operating profit 10 380 34 521
Other operating (income)/expenses3 (20) 1 718
Impairment of non-current assets - 702
Foreign exchange gain (2 775) (1 914)
Share-based payments 332 253
Depreciation and amortisation (excluding waste stripping cost amortised) 7 315 8 406
Underlying EBITDA 15 232 43 686
1 Includes depreciation for the month of December, of US$0.2 million,
relating to the mining fleet and support equipment, acquired as part of the
insourcing of the mining activities. Refer Note 1.2.26, Critical accounting
estimates and judgements.
2 Includes contributions to defined contribution plan of US$0.4 million (31
December 2022: US$0.5 million). An average of 313 employees excluding
contractors were employed during the period (2022: 370).
3 Excludes COVID-19-related costs of US$3.3 thousand (31 December 2022: US$0.1
million) which are considered as operating costs. Includes Ghaghoo-related
care and maintenance costs of US$1.8 million (31 December 2022: US$2.1
million), and an insurance payout of US$1.0 million for a claim on diesel
theft at Letšeng, which are considered non-operating.
2023 2022
US$'000 US$'000
5. NET FINANCE COSTS
Finance income
Bank deposits 292 303
Insurance asset 325 110
Total finance income 617 413
Finance costs
Finance costs on borrowings (3 332) (2 552)
Finance costs on lease liabilities (497) (666)
Finance costs on unwinding of rehabilitation and decommissioning provision (1 484) (1 284)
Total finance costs (5 313) (4 502)
(4 696) (4 089)
Finance income relates to interest earned on cash, short-term deposits and
insurance assets.
Finance costs include interest incurred on borrowings and associated unwinding
of facility credit underwriting fees, finance lease liabilities and the
unwinding of rehabilitation provisions.
2023 2022
US$'000 US$'000
6. INCOME TAX EXPENSE
Current
- Foreign (909) (6 054)
Withholding tax
- Foreign - (1 356)
- Foreign: prior year over payment2 596 -
Deferred
- Foreign (3 777) (2 867)
Income tax expense (4 090) (10 277)
Profit before taxation 5 684 30 432
% %
Reconciliation of tax rate
Applicable income tax rate 25.0% 25.0%
Permanent differences1 5.4% 0.4%
Unrecognised deferred tax assets 32.9% 6.4%
Effect of foreign tax at different rates3 19.2% 2.8%
Unremitted earnings4 -% (5.3)%
Withholding tax4 -% 4.5%
Withholding tax: prior year over payment2 (10.5)% -%
Effective income tax rate 72.0% 33.8%
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25%
as this is the jurisdiction in which the majority of the Group's taxes are
incurred.
1 This item relates to withholding tax previously overpaid and refunded in
full in the current year by the Revenue Services Lesotho after acknowledgment
thereof.
2 Permanent differences comprise non-deductible expenses for tax purposes,
namely corporate social investment, legal fees of a capital nature and
share-based payments in both the current and prior year.
3 Includes provision for uncertain tax positions. Refer Note 23 Commitments
and contingencies.
4 These amounts were disclosed on a net basis in the prior year and have been
disaggregated and disclosed separately in the current year and had no impact
in the consolidated financial statements of the Group.
The corporate income tax rate in the United Kingdom was increased from 19% to
25% for companies effective from 1 April 2023. This is applicable to Gem
Diamonds Limited, the Groups' parent company. This increase did not have a
material impact on the Group.
2023 2022
US$'000 US$'000
7. EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted
earnings per share computations:
Profit for the year 1 594 20 155
Less: Non-controlling interests (3 719) (9 977)
Net (loss)/ profit attributable to ordinary equity holders of the parent for (2 125) 10 178
basic and diluted earnings
Number of ordinary shares outstanding at end of year ('000) 141 210 140 923
Weighted number of share options exercised during the year ('000) (161) (145)
Effect of share buyback - Treasury shares ('000) (1 520) (977)
Weighted average number of ordinary shares outstanding during the year ('000) 139 529 139 801
Basic (loss)/earnings per share attributable to ordinary equity holders of the (1.5) 7.3
parent (cents)
(Loss)/earnings per share is calculated by dividing the net (loss)/profit
attributable to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding during the year.
Diluted (loss)/earnings per share is calculated by dividing the net
(loss)/profit attributable to ordinary equity holders of the parent by the
weighted average number of ordinary shares outstanding during the year after
taking into account future potential conversion and issue rights associated
with the ordinary shares.
2023 2022
Number of Number of
shares shares
000's 000's
Weighted average number of ordinary shares outstanding during the year 139 529 139 801
Effect of dilution:
- Future share awards under the Employee Share Option Plan 2 509 1 857
Weighted average number of ordinary shares outstanding during the year 142 038 141 658
adjusted for the effect of dilution
Diluted (loss)/earnings per share attributable to ordinary equity holders of (1.5) 7.2
the parent (cents)
There have been no other transactions involving ordinary shares or potential
ordinary shares between the reporting date and the date of completion of these
financial statements.
8. PROPERTY, PLANT AND EQUIPMENT
Stripping activity asset Mining asset De- Lease- Plant and equip- Other assets1 Total
ment3
commis- hold
sioning assets improve-
ment
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
As at 31 December 2023
Cost
As at 1 January 2023 609 336 103 972 3 519 53 740 89 292 8 521 868 380
Additions2 37 102 2 056 - 17 27 056 1 255 67 486
Net movement in rehabilitation provision - - - - (1 342) - (1 342)
Disposals - - - - (588) (238) (826)
Reclassifications - 156 - 710 (1 153) 287 -
Foreign exchange differences (42 066) (5 357) (264) (3 575) (5 948) (489) (57 699)
As at 31 December 2023 604 372 100 827 3 255 50 892 107 317 9 336 875 999
Accumulated depreciation/amortisation/impairment
As at 1 January 2023 425 316 42 564 3 519 33 140 63 727 6 615 574 881
Charge for the year 39 194 559 - 1 536 2 895 433 44 617
Disposals - - - - (571) (229) (800)
Foreign exchange differences (27 356) (4 097) (264) (2 132) (4 279) (401) (38 529)
As at 31 December 2023 437 154 39 026 3 255 32 544 61 772 6 418 580 169
Net book value at 31 December 2023 167 218 61 801 - 18 348 45 545 2 918 295 830
1 Other assets comprise motor vehicles, computer equipment, furniture and
fittings, and office equipment.
2 Includes purchase of mining fleet and support equipment (including
transaction costs capitalised) of US$22.8 million in terms of the insourcing
of the mining activities which is disclosed in the plant and equipment
category. Refer Note 1.2.26 Critical accounting estimates and judgements.
3 Included in plant and equipment are capital projects in progress of
US$4.1 million (31 December 2022: US$14.4 million).
Stripping activity asset Mining asset De- Lease- Plant and equip- Other assets1 Total
commis- hold ment
sioning assets improve-
ment
As at 31 December 2022
Cost
Balance at 1 January 2022 599 558 107 999 3 769 51 418 74 504 7 304 844 552
Additions - Ghaghoo (Note 15) - 585 - 6 135 10 594 1 240 18 554
Additions 47 948 242 - - 11 391 287 59 868
Net movement in rehabilitation provision 858 - - (307) (266) - 285
Disposals - - - - (23) (116) (139)
Reclassifications - 262 - 113 (685) 310 -
Foreign exchange differences (39 028) (5 116) (250) (3 619) (6 223) (504) (54 740)
As at 31 December 2022 609 336 103 972 3 519 53 740 89 292 8 521 868 380
Accumulated depreciation/ amortisation/impairment
As at 1 January 2022 414 706 44 874 3 769 26 648 55 544 5 384 550 925
Additions - Ghaghoo (Note 15) - 585 - 5 567 9 746 1 243 17 141
Charge for the year 36 080 958 - 2 925 2 388 522 42 873
Impairment2 - - - 161 541 - 702
Disposals - - - - (21) (116) (137)
Foreign exchange differences (25 470) (3 853) (250) (2 161) (4 471) (418) (36 623)
As at 31 December 2022 425 316 42 564 3 519 33 140 63 727 6 615 574 881
Net book value at 31 December 2022 184 020 61 408 - 20 600 25 565 1 906 293 499
1 Other assets comprise motor vehicles, computer equipment, furniture and
fittings, and office equipment.
2 The impairment relates to the assets impaired at Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) following it ceasing to be
classified as a discontinued operation held for sale during the prior year.
The recoverable amount of all items of property, plant and equipment at
Ghaghoo was assessed and an impairment charge of US$0.7
million was recognised, reducing the carrying value of the leasehold
improvements and plant and equipment categories to zero. This impairment has
been included in the Botswana segment in Note 1.1.3, Segment information.
Plant and equipment Motor vehicles Buildings Total
US$'000 US$'000 US$'000 US$'000
9. RIGHT-OF-USE ASSETS
As at 31 December 2023
Cost
As at 1 January 2023 3 190 421 6 430 10 041
Additions 502 508 122 1 132
Derecognition of lease (94) (536) (225) (855)
Foreign exchange differences (219) (30) (319) (568)
As at 31 December 2023 3 379 363 6 008 9 750
Accumulated depreciation
As at 1 January 2023 688 115 2 898 3 701
Charge for the year 845 96 951 1 892
Derecognition of lease (42) (100) (225) (367)
Foreign exchange differences (41) (8) (173) (222)
As at 31 December 2023 1 450 103 3 451 5 004
Net book value at 31 December 2023 1 929 260 2 557 4 746
As at 31 December 2022
Cost
As at 1 January 2022 56 94 5 761 5 911
Additions 3 259 384 1 644 5 287
Derecognition of lease (27) (38) (672) (737)
Foreign exchange differences (98) (19) (303) (420)
As at 31 December 2022 3 190 421 6 430 10 041
Accumulated depreciation
As at 1 January 2022 20 63 2 691 2 774
Charge for the year 695 96 1 027 1 818
Derecognition of lease (24) (38) (672) (734)
Foreign exchange differences (3) (6) (148) (157)
As at 31 December 2022 688 115 2 898 3 701
Net book value at 31 December 2022 2 502 306 3 532 6 340
Plant and equipment mainly comprise back-up power generating equipment
utilised at Letšeng. Motor vehicles mainly comprise vehicles utilised by
contractors at Letšeng. Buildings comprise office buildings in Maseru,
Antwerp, London, Gaborone and Johannesburg.
Right-of-use assets are depreciated on a straight-line basis over the shorter
of its estimated useful life and the lease term.
During the year, Gem Diamonds Limited entered into a new contract for the
rental of its London office space as the original lease came to an end. At
Letšeng, the lease contract for certain assets relating to blasting services
was renegotiated resulting in the recognition of associated right-of-use
assets and lease liabilities. The original contract was cancelled and all
associated assets and liabilities were derecognised. Furthermore, two new
contracts were entered into for the rental of earth-moving equipment and
certain assets relating to catering, housekeeping and laundry services. Both
contracts were assessed as containing a lease resulting in the recognition of
the new associated right-of-use assets and lease liabilities. Refer Note 17,
Lease liabilities.
During the prior year, a new lease contract for back-up power generating
equipment at Letšeng was entered into resulting in the recognition of
right-of-use assets and lease liabilities associated with the new lease.
Furthermore, Gem Diamonds Marketing Services and Baobab Technologies entered
into new contracts for the rental of office space in Antwerp as the original
contracts both came to an end. The new contracts were assessed as containing
leases, which resulted in the recognition of the new associated right-of-use
assets and lease liabilities. Refer Note 17, Lease liabilities and Note 22.1,
Cash generated by operations.
Total gains of US$30 thousand (2022: nil) have been recognised in the
consolidated statement of profit or loss relating to the derecognition of
leases in the Group during the year. Refer Note 17, Lease liabilities and Note
22.1, Cash generated by operations. During the year the Group recognised
income of US$0.3 million (2022: US$0.3 million) from the sub-leasing of
office buildings in Maseru. The Group expects to receive the following lease
payments from the operating sub-leasing in future
years in line with current lease terms:
US$ '000
1 January 2024 - 31 December 2024 340
1 January 2025 - 31 December 2025 205
Goodwill1
US$'000
10. INTANGIBLE ASSETS
As at 31 December 2023
Cost
Balance at 1 January 2023 11 221
Foreign exchange translation difference (781)
Balance at 31 December 2023 10 440
Accumulated amortisation
Balance at 1 January 2023 -
Amortisation -
Balance at 31 December 2023 -
Net book value at 31 December 2023 10 440
As at 31 December 2022
Cost
Balance at 1 January 2022 11 962
Foreign exchange translation difference (741)
Balance at 31 December 2022 11 221
Accumulated amortisation
Balance at 1 January 2022 -
Amortisation -
Balance at 31 December 2022 -
Net book value at 31 December 2022 11 221
1 Goodwill allocated to Letšeng Diamonds. Refer Note 11, Impairment
testing.
2023 2022
US$'000 US$'000
11. IMPAIRMENT TESTING
Goodwill impairment testing is undertaken on Letšeng Diamonds annually and
when there are indications of impairment. The most recent test was undertaken
at 31 December 2023. In assessing whether goodwill has been impaired, the
carrying amount of Letšeng Diamonds is compared with its recoverable amount.
For the purpose of goodwill impairment testing in 2023, the recoverable amount
for Letšeng Diamonds has been determined based on a value in use model,
similar to that adopted in the past.
Goodwill
Letšeng Diamonds 10 440 11 221
As at 31 December 2023 10 440 11 221
Movement in goodwill relates to foreign exchange translation from functional
to presentation currency, as disclosed within Note 10, Intangible assets.
The discount rates are outlined below and represents the nominal pre-tax rate.
These rates are based on the weighted average cost of capital (WACC) of the
Group and adjusted accordingly at a risk premium for Letšeng Diamonds, taking
into account risks associated therein.
2023 2022
% %
Discount rate - Letšeng Diamonds
Applied to revenue 10.4 12.5
Applied to costs 12.4 15.4
Value in use
The mining lease period at Letšeng extends to 2029 with an exclusive option
to renew for a further 10 years to 2039. The latest open pit mine plan which
has been used to project the cash flows, reflects that the open pit mining
(including inferred resources) is expected to cease in 2038 (31 December 2022:
2040). In terms of IAS 36, cash flows are projected for a period up to the
date of the life of mine plan period, ie 2038, as it is earlier than the
ceasing of the current mining lease period of 2039. During the prior period
the IAS 36 cash flows were projected for a period up to the end of the mining
lease period of 2039 as it was earlier than the life of mine plan period which
was up to 2040. The mine plan takes into account the available reserves and
other relevant inputs such as diamond pricing, costs and geotechnical
parameters. It includes the next open pit cutback in the Satellite pipe (C6W)
and steeper slope angles implemented in the Main pit Cut 4 East and Cut 4 West
cutbacks. The cost savings associated with the recently concluded owner-mining
initiative have been included in the value-in-use model. Refer Note1.2.26,
Critical accounting estimates and judgements.
Sensitivity to changes in assumptions
The Group will continue to test its assets for impairment where indications
are identified.
Refer Note 1.2.26, Critical accounting estimates and judgements, for further
details on impairment testing policies.
The short and medium-term diamond prices used in the impairment test have been
set with reference to historical and recent prices achieved, recent market
trends and anticipated market supply and the Group's medium-term forecast.
Long-term diamond price escalation reflects the Group's assessment of market
supply/demand fundamentals. The valuation of Letšeng at 31 December 2023
exceeded the carrying value by US$63.3 million (31 December 2022: US$92.2
million). The valuation is sensitive to input assumptions particularly in
relation to the foreign exchange assumption of the US dollar (US$) to the
Lesotho loti (LSL) at year end, future price growth for diamonds and increase
in operating costs. The Group has assumed an appropriate price increase for
its diamonds following the significant pressure experienced in the diamond
market during the year.
A range of alternative scenarios have been considered in determining whether
there is a reasonable possible change in the foreign exchange rates, operating
costs and diamond prices, which would result in the recoverable amount
equating to the carrying amount. A 7% strengthening of the LSL to the US$ to
US$1:LSL17.00 (31 December 2022: 8% to US$1:LSL15.60) or a reduction of 5.0%
(31 December 2022: 6.5%) to the starting diamond prices (at year end exchange
rate) would result in the recoverable amount equating to the current carrying
value, with other valuation assumptions remaining the same. As a result of the
variability in consumable prices such as diesel and explosive costs, a third
sensitivity on changes in costs was performed. An 8% (31 December 2022: 8%)
increase in current estimated operating costs of US$1.7 billion (31 December
2022: US$2.5 billion) over the life of mine would result in the recoverable
amount equating to the current carrying amount, with other valuation
assumptions remaining the same.
As a result, no impairment charge was recognised for the Letšeng Diamonds
CGU during the year.
2023 2022
US$'000 US$'000
12. RECEIVABLES AND OTHER ASSETS
Non-current
Deposits 90 96
Insurance asset1 4 397 2 820
4 487 2 916
Current
Trade receivables 23 23
Prepayments2 1 249 1 350
Deposits 24 21
Other receivables 374 249
Vat receivable 1 961 3 212
3 631 4 855
The carrying amounts above approximate their fair value due to the nature of
the instruments.
Analysis of trade receivables based on their terms and conditions
Neither past due nor impaired 2 -
Past due but not impaired:
> 120 days 21 23
23 23
1 This non-current asset relates to Letšeng's Multi-aggregate Protection
Insurance Policy with The Lesotho National Insurance Group (LNIGC) of M140.0
million (US$7.7 million) (31 December 2022: LSL140.0 million) entered into in
October 2021. This policy has a remaining tenure of two-and-a-half years at
year end (31 December 2022: three-and-a-half-years). Premium payments of
LSL30.0 million (US$1.6 million) (31 December 2022: LSL30.0 million (US$1.8
million)) for the policy are payable annually in advance. Refer Note 23,
Commitments and contingencies. The policy gives Letšeng the right to claim up
to LSL75.0 million (31 December 2022: LSL75.0 million) for each-and-every-loss
and LSL150.0 million (31 December 2022: LSL150.0 million) in the aggregate
(subject to terms and conditions contained in the policy). On expiry of the
policy in June 2026, all unutilised funds within the policy are due and
payable to Letšeng. A non-current financial asset has been recognised for the
unutilised premium paid to date, net of underwriting service fee of LSL 2.1
million (US$0.1 million) (31 December 2022: LSL2.1 million (U$0.1 million)) as
expensed as part of operating expenses within the Statement of Profit or Loss.
The non-current financial asset is measured at amortised cost in line with
IFRS 9 Financial Instruments. Interest is earned on the unrealised premium and
recognised as finance income. The third premium payment of LSL 30.0 million
(US$1.6 million) (31 December 2022: LSL30.0 million (US$1.8 million) was
financed through a 10-month loan through Premium Finance Partners
(Proprietary) Limited. This non-current financial asset is ceded in favour of
Premium Finance Partners (Proprietary) Limited. Refer Note 16,
Interest-bearing loans and borrowings.
2 Prepayments include insurance premiums prepaid at Letšeng of US$0.4 million
(31 December 2022: US$0.4 million) which were also funded through Premium
Finance Partners (Proprietary) Limited. This prepayment is ceded in favour of
Premium Finance Partners (Proprietary) Limited. Refer Note 16,
Interest-bearing loans and borrowings.
Based on the nature of the Group's customer base and the negligible exposure
to credit risk through its customer base, insurance asset and other financial
assets, the expected credit loss is insignificant and has no impact on the
Group.
2023 2022
US$'000 US$'000
13. INVENTORIES
Diamonds on hand 17 128 16 745
Ore stockpile 11 553 5 053
Consumable stores 8 952 8 572
37 633 30 370
Inventory is carried at the lower of cost or net realisable value.
There were no write-downs to net realisable value recorded in the current
year. In the prior year, lower grade (highly diluted) ore stockpile inventory
at Letšeng was written down by US$1.5 million to net realisable value.
Part of the ore stockpile was historically treated by Alluvial Ventures, the
third-party plant contractor. This contract expired during the previous year
and the plant was dismantled, resulting in the stockpiles being treated at a
slower rate, causing the overall increase in the balance. Refer Note 1.2.11,
Inventories.
2023 2022
US$'000 US$'000
14. CASH AND SHORT-TERM DEPOSITS
Cash on hand 3 4
Bank balances 5 101 6 006
Short term bank deposits 11 399 2 711
16 503 8 721
The amounts reflected in the financial statements approximate fair value due
to the short-term maturity and nature of cash and short-term deposits.
Cash at banks earn interest at floating rates based on daily bank deposit
rates. Short-term deposits are generally call deposit accounts and earn
interest at the respective short-term deposit rates.
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 2023, the Group had US$45.9 million (31 December 2022: US$82.6
million) of undrawn facilities, representing LSL180.0 million (US$9.8 million)
(31 December 2022: LSL450.0 million (US$26.5 million)) and ZAR120.0 million
(US$6.6 million) (31 December 2022: ZAR300.0 million (US$17.6 million)) of the
three-year secured revolving working capital facility at Letšeng, ZAR100.0
million (US$5.5 million) (31 December 2022: ZAR100.0 million (US$5.9 million)
of the Letšeng general banking facility, and US$24.0 million (31 December
2022: US$30.0 million) of the Company's three-year secured revolving credit
facility. In the prior year there was also an amount of ZAR43.5 million
(US$2.6 million) undrawn facility relating to the PCA project facility which
had been fully drawn down in the current year. For further details on these
facilities, refer Note 16, Interest-bearing loans and borrowings.
15. ISSUED SHARE CAPITAL AND RESERVES
Share capital
31 December 2023 31 December 2022
Number US$'000 Number US$'000
of shares of shares
'000 '000
Authorised - ordinary shares of US$0.01 each
As at year end 200 000 2 000 200 000 2 000
Issued and fully paid balance at beginning of year 140 923 1 410 140 515 1 406
Allotments during the year 287 3 408 4
Number of ordinary shares outstanding at end of year 141 210 1 413 140 923 1 410
Treasury shares (1 520) (1 157) (1 520) (1 157)
Balance at end of year 139 690 256 139 403 253
Share premium
Share premium comprises the excess value recognised from the issue of ordinary
shares above its par value.
Other reserves
Foreign Share- Total
currency based
translation equity
reserve reserve
US$'000 US$'000 US$'000
As at 1 January 2023 (245 967) 6 798 (239 169)
Other comprehensive loss (11 957) - (11 957)
Total comprehensive loss (11 957) - (11 957)
Share capital issue - (3) (3)
Share-based payment expense - 332 332
As at 31 December 2023 (257 924) 7 127 (250 797)
As at 1 January 2022 (233 276) 6 579 (226 697)
Other comprehensive loss (12 691) - (12 691)
Total comprehensive loss (12 691) - (12 691)
Share capital issue - (4) (4)
Share-based payment expense - 253 253
Transfer to (accumulated losses)/retained earnings - (30) (30)
As at 31 December 2022 (245 967) 6 798 (239 169)
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange
differences arising from the translation of foreign entities. The South
African, Lesotho and Botswana subsidiaries' functional currencies are
different to the Group's presentation currency of US dollar. The rates used to
convert the operating functional currency into US dollar are as follows:
2023 2022
Currency US$'000 US$'000
Average rate ZAR/LSL to US$1 18.45 16.37
Year end ZAR/LSL to US$1 18.29 17.02
Average rate Pula to US$1 13.36 12.37
Year end Pula to US$1 13.39 12.75
Share-based equity reserves
For details on the share-based equity reserve, refer Note 26, Share-based
payments.
Capital management
For details on capital management, refer Note 25, Financial risk management.
Treasury shares
During the previous year, the Board of Directors approved a share buyback
programme to purchase up to US$2.0 million of the Company's ordinary shares.
The sole purpose of the programme was to reduce the capital of the Company and
the Company intends to hold those ordinary shares purchased under the
programme in treasury. Such treasury shares are not entitled to dividends and
have no voting rights. The share buyback programme was initiated on 12 April
2022. At 31 December 2022, 1 520 170 shares had been bought back at the
market value on the date of each buyback, equating to a weighted average price
of 60.05 GB pence (78.07 US cents) per share, totalling US$1.2 million
(including transaction costs). This reduction in shares issued has been taken
into account in calculating the earnings per share. No further share buybacks
have taken place since the prior year.
16. INTEREST-BEARING LOANS AND BORROWINGS
Gem Diamonds Limited provides security for both the Letšeng Diamonds and Gem
Diamonds Limited RCF facilities over its bank accounts domiciled in the United
Kingdom (US$1.4 million) (31 December 2022: US$4.6 million) and over its 70%
shareholding in Letšeng Diamonds, refer Note 30. Material partly owned
subsidiary.
The interest-bearing loans and borrowings subject to the US$ three-month LIBOR
rate transitioned to a Secured Overnight Financing Rate (SOFR) effective from
1 January 2023, in line with the IBOR phase 2 Amendments which became
effective in
2021. The South African JIBAR rates are yet to transition to alternative
benchmark rates at the reporting period end. The interest-bearing loans and
borrowings that remain subject to the South African JIBAR rate include the
LSL132.0 million unsecured project debt facility and the ZAR300.0 million
revolving credit facility.
The Group will continue to assess the impact of the interest rate benchmark
reform on the Group's JIBAR interest-bearing loans and borrowings as the
revised benchmark rates are published or negotiated with the funders. The
developments on these facilities from 1 January 2023 and their carrying
amounts and maturities as at 31 December 2023 are disclosed in the note below.
Effective interest rate Maturity 2023 2022
US$'000 US$'000
Non-current
LSL450.0 million and ZAR300.0 million bank loan facility Central Bank of Lesotho rate + 3.25% and South African JIBAR + 3.05% - -
Credit underwriting fees 22 December 2024 - (327)
US$30.0 million bank loan facility Term SOFR + 5.26% 22 December 2024 - -
(2022: London US$ three-month LIBOR + 5.00%)
Credit underwriting fees - (225)
ZAR132.0 million project debt facility South African JIBAR + 2.50% 31 May 2027 5 156 4 922
5 156 4 370
Current
LSL30.0 million insurance premium finance 3.55% Repaid 1 April 2023 - 719
ZAR2.5 million insurance premium finance 3.55% Repaid 1 April 2023 - 60
LSL10.9 million insurance premium finance 3.55% Repaid 1 May 2023 - 262
LSL30.0 million insurance premium finance 4.20% 1 April 2024 671 -
ZAR2.5 million insurance premium finance 4.30% 1 April 2024 55 -
LSL12.4 million insurance premium finance 4.20% 1 April 2024 278 -
ZAR132.0 million project debt facility South African JIBAR + 2.50% 31 May 2027 2 062 534
LSL450.0 million and ZAR300.0 million bank loan facility Central Bank of Lesotho rate + 3.25% and South African JIBAR + 3.05% 24 632 -
Credit underwriting fees 22 December 2024 (175) -
US$30.0 million bank loan facility Term SOFR + 5.26% 22 December 2024 6 000 -
(2022: London US$ three-month LIBOR + 5.00%)
Credit underwriting fees (112) -
33 411 1 575
LSL450.0 million and ZAR300.0 million (US$41.0 million) bank loan facility at
Letšeng Diamonds
The Group, through its subsidiary Letšeng Diamonds, has a LSL450.0 million
and ZAR300.0 million (US$41.0 million) three-year revolving credit facility
jointly with Nedbank Lesotho Limited, Standard Lesotho Bank Limited, First
National Bank of Lesotho Limited, Firstrand Bank Limited (acting through its
Rand Merchant Bank division) and Nedbank Limited (acting through its Nedbank
Corporate and Investment Banking division).
The facility is secured and expires on 22 December 2024, and has therefore
been recorded as a current liability. The facility has a 24-month extension
option which can be exercised at any time up to 21 September 2024, being three
months before expiry, and is subject to credit approval by the lenders at the
extension date. The LSL450.0 million facility is subject to interest at the
Central Bank of Lesotho rate plus 3.25% and the ZAR300.0 million facility is
subject to South African JIBAR plus 3.05%. At year end LSL270.0 million
(US$14.8 million) and ZAR180.0 million (US$9.8 million) had been drawn down
resulting in LSL180.0 million (US$9.8 million) and ZAR120.0 million (US$6.6
million) remaining available. At 31 December 2022, there were no drawdowns on
these facilities.
The remaining balance of the credit underwriting fees capitalised is US$0.2
million (31 December 2022: US$0.3 million). The capitalised fees are amortised
and accounted for as finance costs within profit or loss over the period of
the facility.
US$30.0 million bank loan facility at Gem Diamonds Limited
This facility is a secured three-year revolving credit facility with Nedbank
Limited (acting through its London branch), Standard Bank of South Africa
Limited (acting through its Isle of Man branch) and Firstrand Bank Limited
(acting through its Rand Merchant Bank division) for US$13.5 million, US$9.0
million and US$7.5 million, respectively. All draw downs are made in these
ratios.
The facility is secured and expires on 22 December 2024, and has therefore
been recorded as a current liability. The facility has a 24-month extension
option which can be exercised at any time up to 21 September 2024, being three
months before expiry, and is subject to credit approval by the lenders at the
extension date.
At year end US$6.0 million (31 December 2022: nil) had been drawn down
resulting in US$24.0 million (31 December 2022: US$30.0 million) remaining
available. The remaining balance of the credit underwriting fees capitalised
is US$0.1 million (31 December 2022: US$0.2 million) at year end. The
capitalised fees are amortised and accounted for as finance costs within
profit or loss over the period of the facility.
The US$-based interest rate for this facility at 31 December 2023 was 10.65%
(31 December 2022: 8.67%) which comprises term SOFR plus a 0.26% credit
adjustment spread and 5.00% margin (31 December 2022: US$ three-month LIBOR
plus 5.00% margin).
Total interest for the year on this interest-bearing RCF was US$0.9 million
(31 December 2022: US$1.1 million).
The facility includes an additional US$20.0 million accordion option for Gem
Diamonds, the utilisation of which is subject to all necessary credit and
other approvals from the lenders. There was no utilisation of this facility in
the current or prior years.
ZAR132.0 million (US$7.2 million) project debt facility at Letšeng Diamonds
This loan is an unsecured project debt facility which was signed jointly with
Nedbank Limited and the ECIC on 29 November 2022 to fund the replacement of
the primary crushing area (PCA) at Letšeng. The loan is repayable in equal
quarterly payments commencing in March 2024. The total project debt facility
initially available on the effective date (29 November 2022) was
ZAR136.4 million (US$7.5 million), which is the amount that was previously
disclosed at 31 December 2022. Utilisation of the project debt facility
amounted to ZAR132.0 million (US$7.2 million) at the end of the availability
period on 29 November 2023 and the remaining available balance expired on the
same date. This loan expires on 27 May 2027.
The South African rand-based interest rates for the facility at 31 December
2023 was 10.90% which comprises JIBAR plus 2.50%.
Total interest for the year on this interest-bearing loan was US$0.7 million
(31 December 2022: US$15.6 thousand). The interest has been capitalised as
part of the qualifying PCA asset included within the plant and equipment asset
class within Note 8, Property, plant and equipment. The PCA asset was
successfully commissioned in November 2023.
Insurance premium finance for Multi-aggregate and Asset All Risk Insurance
policies
The Group, through its subsidiary Letšeng Diamonds, enters into financing
agreements for insurance premiums for the Multi-aggregate Insurance Policy and
its Asset All Risk Policy. All respective insurance premiums prepaid are ceded
in favour of Premium Finance Partners (Proprietary) Limited. The funding is
payable monthly in advance. Refer Note 12, Receivables and other assets.
During the year, all prior year outstanding insurance premium finance balances
for the Multi-aggregate Insurance Policy and its Asset All Risk Policy were
fully repaid by 1 May 2023. The total interest paid during the current year
relating to these liabilities was LSL0.3 million (US$16.2 thousand).
In June, the Group through its subsidiary Letšeng Diamonds, entered into a
LSL30.0 million (US$1.6 million) 10-month funding agreement with Premium
Finance Partners (Proprietary) Limited to finance the third premium of LSL30.0
million on the Multi-aggregate Insurance Policy. At year end, LSL12.3 million
(US$0.7 million) remains outstanding. The funding is repayable in 10 monthly
instalments, payable in advance. Total interest on this funding is LSL1.3
million (US$70.5 thousand) of which LSL1.0 million (US$54.2 thousand) was
paid during the year.
In July, the Group through its subsidiary Letšeng Diamonds, entered into a
LSL12.4 million (US$0.7 million) 10-month funding agreement with Premium
Finance Partners (Proprietary) Limited for insurance premium finance for its
annual Asset All Risk insurance premium. At year end LSL5.2 million (US$0.3
million) remains outstanding. The funding is repayable in 10 monthly
instalments, payable in advance. Total interest on this funding is LSL0.5
million (US$27.1 thousand) of which LSL0.4 million (US$21.6 thousand) was paid
during the year.
Other facilities
Letšeng Diamonds has a ZAR100.0 million (US$5.5 million) general banking
facility with Nedbank Limited (acting through its Nedbank Corporate and
Investment Banking division) which is reviewed annually. During the year the
facility was utilised from time to time based on cash flow requirements, but
repaid in full at year end.
2023 2022
US$'000 US$'000
17. LEASE LIABILITIES
Non-current 3 786 6 021
Current 2 164 1 877
Total lease liabilities 5 950 7 898
Reconciliation of movement in lease liabilities
As at 1 January 7 898 4 824
Additions 1 132 5 287
Interest expense 497 666
Lease payments (2 589) (2 512)
Derecognition of lease (519) -
Foreign exchange differences (469) (367)
As at 31 December 5 950 7 898
Lease payments comprise payments in principle of US$2.1 million (31 December
2022: US$1.8 million) and repayments of interest of US$0.5 million (31
December 2022: US$0.7 million).
During the year, the Group recognised variable lease payments of US$31.6
million (31 December 2022: US$39.5 million), which consist of mining
activities outsourced to a mining contractor, prior to the transition to
insourcing of mining activities effective 1 December 2023. Total costs
incurred for the year amounted to US$31.6 million (31 December 2022: US$39.5
million) of which US$21.9 million (31 December 2022: US$28.4 million) were
capitalised to the Stripping Asset. Refer Note 1.2.6, Property plant and
equipment, Note 1.2.26, Critical accounting estimates and judgements,
Equipment and service lease, Note 4, Operating profit and Note 8, Property,
plant and equipment.
During the year, the lease contract for blasting services at Letšeng was
renegotiated resulting in the recognition of new associated right-of-use
assets and lease liabilities. The original contract was cancelled and all
associated assets and liabilities were derecognised.
During the prior year, a new lease contract for backup power generating
equipment at Letšeng was entered into. This lease contains residual value
guarantees of US$37.7 thousand (31 December 2022: US$42.5 thousand) which
represents the cost to decommission and return the power generating equipment
to the supplier at the end of the lease term. Refer Note 9, Right-of-use
assets for details on new leases entered into and leases derecognised during
the year.
No rental expenses from short-term leases were incurred by the Group during
the year (31 December 2022: US$61.8 thousand).
2023 2022
US$'000 US$'000
18. TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits1 1 494 2 169
Current
Trade payables2,3 15 761 10 888
Accrued expenses2 4 066 5 884
Leave benefits 498 625
Royalties2 2 679 1 936
Withholding taxes2 224 230
Other 128 145
23 356 19 708
1 The severance pay benefits arise due to legislation within the Lesotho
jurisdiction, requiring that two weeks of severance pay be provided for every
completed year of service, payable on retirement.
2 These amounts are both interest and non-interest bearing and are settled in
accordance with terms agreed between the parties.
3 Included in the current year amount is US$9.7 million relating to the
remaining portion of the purchase price for the mining fleet and support
equipment purchased in terms of the insourcing of the mining activities. Post
period end, this amount was settled. Refer Note 1.2.26, Critical accounting
estimates and judgements.
Royalties consist of a levy payable to the Government of the Kingdom of
Lesotho on the value of diamonds sold by Letšeng. Withholding taxes mainly
consist of taxes payable on dividends and other services to the Revenue
Services Lesotho.
The carrying amounts above approximate fair value.
2023 2022
US$'000 US$'000
19. INCOME TAX (RECEIVABLE)/PAYABLE
Reconciliation of movement in income tax (receivable)/payable
As at 1 January (2 268) (1 191)
Payments made during the year (1 596) (8 435)
Refunds received during the year - 1 187
Current income tax charge 909 6 054
Authorised offset - VAT receivable(1) (897) -
Foreign exchange differences 139 117
As at 31 December (3 713) (2 268)
Split as follows
Income tax receivable (4 631) (2 323)
Income tax payable 918 55
(1) VAT receivable from Revenue Services Lesotho (RSL) of US$0.9 million
(LSL16.6 million) was offset against provisional tax payments due to RSL
during the year. This offset has been authorised by RSL. No offset took place
in the prior year.
2023 2022
US$'000 US$'000
20. PROVISIONS
Rehabilitation provisions 14 170 15 387
Reconciliation of movement in rehabilitation provisions
As at 1 January 15 387 11 202
Additions - Ghaghoo - 3 654
Decrease in provision - Ghaghoo (354) (573)
Other movements - Letšeng (1 342) 858
Unwinding of discount rate 1 484 1 284
Foreign exchange differences (1 005) (1 038)
As at 31 December 14 170 15 387
Rehabilitation provisions
The provisions have been recognised as the Group has an obligation for
rehabilitation of the mining areas. The provisions have been calculated based
on total estimated rehabilitation costs, discounted back to their present
values over the estimated rehabilitation period at the mining operations. The
pre-tax discount rates are adjusted annually and reflect current market
assessments.
In determining the amounts attributable to the rehabilitation provision at
Letšeng, management used a discount rate of 11.4% (31 December 2022: 11.5%),
estimated rehabilitation timing of 16 years (31 December 2022: 13 years) and
an inflation rate of 7.2% (31 December 2022: 7.0%). Although the Letšeng
rehabilitation quantum increased from the prior year mainly driven by the
completion of the PCA and annual reassessment of the estimated closure costs
performed at the operation, the effect of the revised timing of the
rehabilitation, discount rate and interest rate used to present value the
provision, together with a weakening exchange rate, had an overall impact of
reducing the provision.
At Ghaghoo, which continued its care and maintenance state, an independent
rehabilitation assessment was performed during the year based on the
rehabilitation costs of certain areas of the mine which are expected to be
rehabilitated. Following discussions with the Ministry of Minerals and Energy
and the Department of Mines of Botswana, it is anticipated that the mine site
will be left in a state which could enable a future operator to operate on the
site, and therefore certain infrastructure, such as access roads to the mine,
paving and walkways, a new solar solution installation, borehole pump and
water treatment plant, will remain intact and handed over to the Government of
Botswana through the Ministry of Minerals and Energy.
In determining the amounts attributable to the rehabilitation provision at
Ghaghoo, management used a discount rate of 6.0% (31 December 2022: 6.0%),
estimated rehabilitation timing of 5 years (31 December 2022: 5 years) and an
inflation rate of 4.8% (31 December 2022: 4.8%). The decrease in the provision
at Ghaghoo is mainly attributable to cost saving measures implemented by
management since the previous reporting date and the removal of certain camp
site costs from the prior year cost estimate following discussions with the
Ministry of Minerals and Energy and the Department of Mines of Botswana as
mentioned above.
2023 2022
US$'000 US$'000
21. DEFERRED TAXATION
Deferred tax assets
Lease liabilities 1 122 1 590
Accrued leave 111 141
Provisions 3 759 4 263
Other - -
Tax losses1 1 822 -
6 814 5 994
Deferred tax liabilities
Property plant and equipment (79 537) (79 021)
Right of use assets (966) (1 347)
Prepayments (55) (84)
Unremitted earnings (1 578) (1 578)
(82 136) (82 030)
Net deferred tax liability (75 322) (76 036)
Reconciliation of net deferred tax liability
As at 1 January (76 036) (77 355)
Movement in current period:
- Accelerated depreciation for tax purposes (5 326) (5 321)
- Accrued leave (21) 4
- Unremitted earnings - 1 604
- Prepayments 29 102
- Provisions (205) 779
- Deferred tax asset raised on tax losses1 1 822 -
- Lease liabilities (354) 459
- Right-of-use assets 294 (494)
- Foreign exchange differences 4 475 4 186
As at 31 December (75 322) (76 036)
1 Deferred tax assets were recognised on tax losses incurred by Letšeng
during the current year as management believe Letšeng will generate future
taxable income against which the losses can be utilised.
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 undistributed reserves of the Group's
subsidiaries for which a deferred tax liability has not been recognised is
US$110.5 million (31 December 2022: US$134.3 million).
The deferred tax liability on unremitted earnings is based on the timing of
expected dividends from the Group's subsidiaries over the next three years.
There are no income tax consequences attached to the payment of dividends by
Gem Diamonds Limited to its shareholders.
The Group has estimated tax losses of US$208.5 million (of which US$155.7
million relates to Gem Diamonds Botswana) (31 December 2022:
US$223.4 million, of which US$175.8 million related to Gem Diamonds
Botswana) for which no deferred tax assets have been recognised as management
does not foresee any taxable profits or taxable temporary differences against
which to utilise these. Letšeng has no unrecognised deferred tax losses (31
December 2022: nil). The net decrease from the prior period is as a result of
a total estimated tax loss for which no deferred tax assets have been
recognised of US$8.2 million, offset by tax assessment updates and forex
movements.
The majority of tax losses are generated in jurisdictions where tax losses do
not expire, except for tax losses incurred by Gem Diamonds Innovation
Solutions CY Limited, within the Cyprus jurisdiction, which has unrecognised
tax losses of US$2.0 million ((31 December 2022: US$1.8 million) and if not
utilised, will expire as indicated in the table below:
2023 2022
US$ '000 US$ '000
Utilisation required within one year 350 82
Utilisation required between one and two years 415 338
Utilisation required between two and five years 1 217 1 404
2023 2022
Notes US$'000 US$'000
22. CASH FLOW NOTES
22.1 Cash generated by operations
Profit before tax for the year 5 684 30 432
Adjustments for:
Depreciation and amortisation excluding waste stripping 5 423 6 588
Depreciation on right-of-use assets 4, 9 1 892 1 818
Waste stripping cost amortised 4 39 194 36 285
Finance income 5 (617) (413)
Finance costs 5 5 313 4 502
Unrealised foreign exchange differences (2 001) (1 911)
Loss/(profit) on disposal and scrapping of property, plant and equipment 3 22 (195)
Gain on derecognition of leases 9 (30) -
Environmental rehabilitation adjustment 3 (354) -
Write-down of inventories to net realisable value - 1 556
Bonus, leave and severance provisions raised 1 292 3 182
Share-based payments 332 253
Impairment of assets 4 - 702
56 150 82 799
22.2 Working capital adjustment
Increase in inventory (10 157) (3 747)
Decrease/(increase) in receivables 1 444 (1 465)
Decrease in payables (6 897) (4 677)
(15 610) (9 889)
22.3 Cash flows from financing activities (excluding lease liabilities)
As at 1 January 5 945 11 044
Net cash generated/(used) in financing activities 30 113 (7 734)
- Financial liabilities repaid (45 103) (17 627)
- Financial liabilities raised 75 216 9 893
Interest paid (3 719) (2 263)
Non-cash movements 6 228 4 898
- Interest accrued 3 065 2 263
- Interest capitalised to property, plant and equipment 654 -
- Amortisation of credit underwriting fees 265 284
- Financial liabilities raised 1 2 434 2 654
- Foreign exchange differences (190) (303)
As at 31 December 16 38 567 5 945
1 This amount mainly relates to funding obtained for insurance premium
finance. The funding was paid directly by the lender to the third party and is
being repaid by the Group in monthly instalments to the lender. Refer Note 16,
Interest-bearing loans and borrowings.
2023 2022
US$'000 US$'000
23. COMMITMENTS AND CONTINGENCIES
Commitments
Mining leases
Mining lease commitments represent the Group's future obligation arising from
agreements entered into with local authorities in the mining areas that the
Group operates.
The period of these commitments is determined as the lesser of the term of the
agreement, including renewable periods, or the LoM. The estimated lease
obligation regarding the future lease period, accepting stable inflation and
exchange rates, is as follows:
- Within one year 218 187
- After one year but not more than five years 1 000 847
- More than five years 628 809
1 846 1 843
Equipment and service lease
Until 1 December 2023, the Group had entered into lease arrangements for 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 the fleet utilised. All lease payments relating to this
lease were variable in nature. A portion of the lease payment was expensed in
the Consolidated statement of profit or loss and the portion relating to waste
removal/stripping costs was capitalised to the waste stripping asset in the
proportions referred to under the estimate and judgements applied to the
Capitalised stripping costs (deferred waste). Refer Note 1.2.26, Critical
accounting estimates and judgements.
This lease was early terminated, effective 1 December 2023 in terms of the
transition to insourced mining and therefore there are no commitments
associated with this lease as at 31 December 2023. During the year, variable
lease payments of US$31.6 million (31 December 2022: US$39.5 million) relating
to this lease, were paid. Refer Note 1.2.26, Critical accounting estimates and
judgements, and Note 17., Lease liabilities.
- Within one year - 32 645
- After one year but not more than five years - 32 514
- 65 159
Multi-aggregate protection policy
The Group, through its subsidiary Letšeng entered into a LSL140.0 million
(US$7.7 million) Multi-aggregate Protection Insurance Policy with the Lesotho
National Insurance Group (LNIGC) in October 2021. The policy has a tenure of 4
years and 9 months and consists of five premium payments each payable annually
in advance.
As at 31 December 2023 the Group has committed to settle the two remaining
premium payments, as well as the annual insurance risk finance service fee of
7% of the annual premium and the surplus reserve finance cost fee of 1.5% on
the cumulative net premiums surplus balance carried over each year. These fees
are either deductible from premium or payable upfront at the option of
Letšeng. The Group has elected to deduct the fees from the annual premiums,
therefore there is no additional cash commitment relating to these fees and
the future cash flow commitments are stated at the future premiums payable
over the remaining insurance period. Refer Note 12, Receivables and other
assets for further detail on the policy.
- Within one year 1 640 1 763
- After one year but not more than five years 1 640 3 526
3 280 5 289
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.
- Within one year 80 68
- After one year but not more than five years 42 103
122 171
Capital expenditure
Approved but not contracted for 3 645 8 676
Approved and contracted for 643 5 999
4 288 14 675
The main capital expenditure approved relates to the replacement of screens in
Plant 1 and Plant 2 and the scrubber in Plant 1 at a combined cost of US$1.5
million; and investment in continued residue storage extension of US$0.8
million. Other smaller capital expenditure, all at Letšeng, relates to the
continued construction of the bioremediation plant of US$0.3 million, the
balance of the investment in the new PCA of US$0.2 million and new investment
in energy saving projects of US$0.3 million. The expenditure is expected to be
incurred over the next 12 months.
In the prior year, the main capital expenditure approved consisted mainly of
the investment in the new PCA at Letšeng of US$2.6 million and the
Underground Feasibility Study of US$4.5 million. During the current year, the
new PCA was successfully commissioned in November 2023. Part of the
Underground Feasibility Study was completed at a total cost of U$1.8 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 could lead to contingencies or additional liabilities for the
Group. Having consulted professional advisers, the Group has identified
possible disputes approximating US$0.5 million (December 2022:
US$0.3 million) relating mainly to labour matters.
The Group monitors possible tax claims within the various jurisdictions in
which the Group operates. It is noted that tax legislation is highly complex
and subject to interpretation of the application of the law. It is common for
tax authorities to review tax returns, and in some instances, disputes may
arise over the interpretation and application of the prevailing tax
legislation. Due to the complexity of the legislation, significant judgment is
required to determine any effects of uncertainties in accounting for and
disclosure of income taxes. Uncertain tax positions that have been determined
as being probable within the Group have been provided for and are disclosed to
such an extent that such disclosure does not prejudice the Group. Refer Note
1.2.26, Critical accounting estimates and judgements and Note 6., Income tax
expense. While it is difficult to predict the ultimate outcome in some cases,
the Group does not anticipate that there will be any material impact on the
Group's results, financial position or liquidity.
24. RELATED PARTIES
Related party Relationship
Jemax Management (Proprietary) Limited Common director
Government of the Kingdom of Lesotho Non-controlling interest
Refer Note 1.1.2, Operational information, for information regarding
shareholding in subsidiaries.
2023 2022
US$'000 US$'000
Compensation to key management personnel (including Directors)
Share-based equity transactions 252 204
Short-term employee benefits 3 577 3 874
Post-employment benefits (including severance pay and pension) 139 203
3 968 4 281
Fees paid to related parties
Jemax Management (Proprietary) Limited (68) (84)
Royalties paid to related parties
Government of the Kingdom of Lesotho (14 215) (18 869)
Lease and licence payments to related parties
Government of the Kingdom of Lesotho (32) (38)
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited (12) (5)
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited (7) (7)
Amounts owing to related party
Government of the Kingdom of Lesotho (3 176) (2 163)
Dividends declared
Government of the Kingdom of Lesotho - (10 549)
Jemax Management (Proprietary) Limited provided administrative services with
regards to the mining activities undertaken by the Group. A controlling
interest is held by an Executive Director of the Company.
The above transactions were made on terms agreed between the parties. The
amounts included in trade payables are non-interest bearing and have no
repayment terms.
25. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's activities expose it to a variety of financial risks:
· market risk (including commodity price risk, foreign exchange
risk and interest rate risk);
· credit risk; and
· 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 of derivative financial instruments and
non-derivative financial instruments, and investing excess liquidity.
There have been no changes to the financial risk management policy since the
prior year.
Capital management
For the purpose of the Group's capital management, capital includes the issued
share capital, share premium and liabilities 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, buy back its shares, or restructure its debt facilities.
The management of the Group's capital is performed by the Board.
The Group's capital management, among other things, aims to ensure that it
meets financial covenants attached to its interest-bearing loans and
borrowings. Breaches in meeting the financial covenants would permit the bank
to immediately call loans and borrowings. There have been no breaches of the
financial covenants in the current year.
At 31 December 2023, the Group had US$45.9 million (31 December 2022: US$82.6
million) of undrawn debt facilities 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.
Refer Note 16, Interest-bearing loans and borrowings for detail on the debt
facilities within the Group.
a) Market risk
(i) Commodity price risk
The Group is subject to diamond price risk. Diamonds are not homogeneous
products and the price of rough diamonds is not monitored on a public index
system. The fluctuation of prices is related to certain features of diamonds
such as quality and size, together with diamond market fundamentals. Diamond
prices are marketed in US dollar and long-term US dollar per carat prices are
based on external market consensus forecasts. The Group does not have any
financial instruments that may fluctuate as a result of commodity price
movements.
(ii) Foreign exchange rate risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures, primarily with respect to the Lesotho
loti, South African rand and Botswana pula. Foreign exchange risk arises when
future commercial transactions, recognised assets and liabilities are
denominated in a currency that is not the entity's functional currency.
The Group's sales are denominated in US dollar which is the functional
currency of the Company, but not the functional currency of all its
operations.
The currency sensitivity analysis below is based on the following assumptions:
· Differences resulting from the translation of the financial
statements of the subsidiaries into the Group's presentation currency of US
dollar, are not taken into consideration;
· The major currency exposures for the Group relate to the US
dollar and local currencies of subsidiaries. Foreign currency exposures
between two currencies where one is not the US dollar are deemed insignificant
to the Group and have therefore been excluded from the sensitivity analysis;
and
· The analysis of the currency risk arises because of financial
instruments which are denominated in a currency that is not the functional
currency of the relevant Group entity. The sensitivity has been based on
financial assets and liabilities at 31 December 2023 and 31 December 2022.
There has been no change in the assumptions or method applied from the prior
year.
Sensitivity analysis
At year-end, Letšeng had US$2.5 million (2022: US$40.4 thousand) cash on hand
held in US$. If the US dollar had appreciated/(depreciated) by 10% against the
LSL, the Group's profit before tax and equity at 31 December 2023 would have
been US$0.3 million higher/(lower) (31 December 2022: US$3.4 thousand).
(iii) Forward exchange contracts
From time to time, the Group enters into forward exchange contracts to hedge
the exposure to changes in foreign currency of future sales of diamonds at
Letšeng Diamonds. The Group performs no hedge accounting. At 31 December
2023, the Group had no forward exchange contracts outstanding (31 December
2022: nil).
(iv) Interest rate risk
The Group's income and operating cash flows are substantially independent of
changes in market interest rates. The Group's cash flow interest rate risk
arises from borrowings. Borrowings issued at variable rates expose the Group
to cash flow interest rate risk. At the time of taking new loans or
borrowings, management uses its judgement to decide whether it believes that a
fixed or variable rate borrowing would be more favourable to the Group over
the expected period until maturity.
Sensitivity analysis
If the interest rates on the interest-bearing loans and borrowings
(increased)/decreased by 100 basis points (2022: 100 basis points) during the
year, profit before tax and equity would have been US$0.2 million
(lower)/higher 31 December 2022: US$0.1 million).
(b) Credit risk
The Group's potential concentration of credit risk consists mainly of cash
deposits with banks, trade receivables, insurance asset and other receivables.
The Group's short-term cash surpluses are placed with banks that have
investment grade ratings, to minimise the exposure to credit risk to the
lowest level possible from the perspective of the Group's cash and cash
equivalents. The maximum credit risk exposure relating to financial assets is
represented by their carrying values 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 the customers pay and settle their accounts on the
date of receipt of goods.
The Group's insurance premiums are placed with insurers and underwriters that
have high-quality credit standings, to minimise the exposure to credit risk to
the lowest level possible from the perspective of the Group's insurance asset.
No material other financial assets are impaired or past due and accordingly,
no additional ECL or credit risk analysis has been provided.
The Group did not hold any form of collateral or credit enhancements for its
credit exposures during the 31 December 2023 and 31 December 2022 financial
reporting periods.
(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 realise a
financial asset in a short period of time at a price close to its fair value.
Management manages the risk by maintaining sufficient cash and marketable
securities and ensuring access to financial institutions and shareholding
funding. This ensures flexibility in maintaining business operations and
maximises opportunities. The Group has available undrawn debt facilities of
US$45.9 million at year end (2022: US$82.6 million)). The Group's facilities
expire in December 2024. The current facility agreements have a two-year
renewal option subject to lender approval. Management will commence the
process of renewal or extension in the second quarter of 2024.
The table below summarises the maturity profile of the Group's financial
liabilities at 31 December based on contractual undiscounted payments.
2023 2022
US$'000 US$'000
Floating interest rates
Interest-bearing loans and borrowings
- Within one year 35 037 2 317
- After one year but not more than five years 5 913 8 805
Total 40 950 11 122
Lease liabilities
- Within one year 2 487 2 332
- After one year but not more than five years 3 650 6 161
- After five years 448 448
Total 6 585 8 941
Trade and other payables
- Within one year 23 356 19 708
- After one year but not more than five years 1 494 2 169
Total 24 850 21 877
26. SHARE-BASED PAYMENTS
2023 2022
US$'000 US$'000
The expense recognised for employee services received during the year is shown
in the following table:
Equity-settled share-based payment transactions charged to the statement of 332 253
profit or loss
The long-term incentive plans are described below:
Long-term incentive plan (LTIP)
Certain key employees are entitled to a grant of options, under the LTIP 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.
Prior to the April 2022 award, the fair value of share options granted was
estimated at the date of the grant using an appropriate simulation model,
taking into account the terms and conditions upon which the options were
granted. It took into account projected dividends and share price fluctuation
co-variances of the Company. Since 2022, the fair value of the share options
granted have been based on the observable Gem Diamonds Limited share price on
the date of the award with no adjustments made to the price.
There is a nil exercise price for the options granted. 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.
The Company's LTIP policy is reviewed every 10 years.
LTIP 2007 Award
Under the 2007 LTIP rules, there is one award where options are still
outstanding.
This award was awarded on the following basis:
To key employees (excluding Executive Directors):
· the award vests over a three-year period in tranches of a third
of the award each year;
· the vesting of the award is dependent on service conditions and
certain performance targets being met for the same three-year period
(classified as non-market conditions). These non-market condition awards are
referred to as Nil Value options in the tables below;
· if the performance or service conditions are not met, the options
lapse;
· the performance conditions relating to the non-market conditions
are not reflected in the fair value of the award at grant date;
· once the award vests, it is exercisable for seven years (ie
contractual term is 10 years); and
· the vested award is equity settled.
To Executive Directors:
· the award vests over a three-year period;
· the vesting of the award is dependent on service conditions and
both market and non-market performance conditions;
· 75% of the award granted is subject to non-market conditions
(referred to as Nil Value options in tables below) and 25% to market
conditions (referred to as Market Value options in tables below) by reference
to the Company's total shareholder return (TSR) as compared to a group of
principal competitors;
· if the performance or service conditions are not met, the options
lapse;
· the performance conditions relating to the non-market conditions
are not reflected in the fair value of the award at grant date;
· once the award vests, it is exercisable for seven years (ie
contractual term is 10 years); and
· the vested award is equity settled.
The fair value of the Nil value award is based on the observable Gem Diamonds
Limited share price on the date of award with no adjustments to the price
made.
The following table reflects details of the award within the 2007 LTIP that
remains outstanding:
LTIP
March
2016
Number of options granted - Nil value 1 215 000
Number of options granted - Market value 185 000
Date exercisable 15 March 2019
Options outstanding 24 287
Dividend yield (%) 2.00
Expected volatility (%)1 39.71
Risk-free interest rate (%)2 0.97
Expected life of option (years) 3.00
Exercise price (US$) nil
Exercise price (GBP) nil
Weighted average share price (US$) 1.56
Fair value of nil value options (US$) 1.40
Fair value of nil value options (GBP) 0.99
Fair value of market value options (US$) 0.69
Fair value of market value options (GBP) 0.49
Model used Monte Carlo
1 Expected volatility was based on the average annual historic
volatility of the Company's share price over the previous three years.
2 The relevant risk-free interest rate is taken from a UK Treasury Bond
issued which closely matches the lifetime of the option.
LTIP 2017 Award
Under the 2017 LTIP rules, there are six awards where options are still
outstanding.
All the awards were issued on the same basis as the 2007 LTIP.
LTIP 2017 Award - April 2023 award
On 21 April 2023, 250 860 nil-cost options were granted to certain key
employees of the Company. In addition, 809 195 nil-cost options were granted
to certain Executive employees and the Executive Directors on a similar basis
as the 2007 LTIP. These options were granted in line with the introduction of
the Gem Diamonds Incentive Plan (GDIP) in 2021, which integrates annual bonus
awards with awards under the LTIP. The options which vest in tranches of
one-third per annum commencing on 21 April 2024, are exercisable between the
respective vesting dates and 21 April 2033. The fair value of the award is
based on the observable Gem Diamonds Limited share price on the date of the
award with no adjustments to the price made.
This new award was made under predominantly the same basis as the 2007 LTIP,
with the following differences:
To key employees (excluding Executive Directors):
· the number of awards granted are determined on the Group's
performance in the preceding financial year in terms of the Gem Diamonds
Incentive Plan (GDIP) introduced in 2021;
· the vesting of the award is dependent only on service conditions.
There are no future performance conditions attached to the award;
· if the service conditions are not met, the options lapse;
· the fair value of the awards is based on the observable Gem
Diamonds Limited share price on the date of award with no adjustments to the
price made; and
· the awards are subject to malus and clawback.
To Executive Directors as a bonus share award:
· the number of awards granted are determined on the Group's
performance in the preceding financial year in terms of the Gem Diamonds
Incentive Plan (GDIP) introduced in 2021;
· the vesting of the award is dependent only on service conditions.
There are no future performance conditions attached to the award;
· if the service conditions are not met, the options lapse;
· the fair value of the awards is based on the observable Gem
Diamonds Limited share price on the date of award with no adjustments to the
price made;
· the awards have a two-year holding period from the respective
vesting dates and are exercisable for 10 years from the award date; and
· the awards are subject to malus and clawback.
The following table reflects details of all the awards within the 2017 LTIP
that remain outstanding:
LTIP LTIP LTIP LTIP LTIP LTIP
April April June March March July
2023 2022 2020 2019 2018 2017
Number of options granted - Nil value 1 060 055 1 007 098 1 069 000 1 160 500 1 265 000 1 150 000
Number of options granted - Market value - - 180 000 142 500 185 000 185 000
Date exercisable 21 April 2024 4 April 2023 9 June 2023 20 March 2022 20 March 2021 4 July 2020
Options outstanding 1 060 055 888 221 323 267 244 582 236 154 48 642
Dividend yield (%) - - - - - 2.00
Expected volatility (%)1 n/a n/a 47.00 43.00 40.00 40.21
Risk-free interest rate (%)2 n/a n/a 0.34 1.20 1.20 0.67
Expected life of option (years) 3.00 3.00 3.00 3.00 3.00 3.00
Exercise price (US$) nil nil nil nil nil nil
Exercise price (GBP) nil nil nil nil nil nil
Weighted average share price (US$) 0.34 0.74 0.39 1.20 1.35 1.24
Fair value of nil value options (US$) 0.34 0.74 0.39 1.20 1.35 1.11
Fair value of nil value options (GBP) 0.27 0.58 0.31 0.90 0.96 0.86
Fair value of market value options (US$) - - 0.19 0.58 0.74 0.72
Fair value of market value options (GBP) - - 0.15 0.44 0.53 0.56
Model used n/a n/a Monte Carlo Monte Carlo Monte Carlo Monte Carlo
1 Expected volatility was based on the average annual historic
volatility of the Company's share price over the previous three years.
2 The relevant risk-free interest rate is taken from a UK Treasury
Bond issued which closely matches the lifetime of the option.
The following table illustrates the number ('000) and movement in the
outstanding share options during the year:
2023 2022
US$'000 US$'000
Outstanding as at 1 January 2 648 2 453
Granted during the year 1 060 1 007
Exercised during the year1 (253) (394)
Forfeited (630) (418)
Outstanding as at 31 December 2 825 2 648
Exercisable as at 31 December 1 244 635
1 Options were exercised regularly throughout the year. The weighted
average share price during the year was £0.21 (US$0.26) (2022: £0.45
(US$0.55)).
The weighted average remaining contractual life for the share options
outstanding as at 31 December 2023 was 7.7 years (2022: 7.6 years).
The weighted average fair value of the share options outstanding as at 31
December 2023 was US$0.40 (2022: US$0.48).
ESOP
In September 2017, 47 200 shares which were previously held in the Company
Employee Share Trust were granted to certain key employees involved in the
Business Transformation of the Group. The Company Employee Share Trust was
deregistered in 2017 following the grant of these shares. The fair value of
the award was valued at the share price of the Company at the date of the
award of £0.71 (US$0.96). These shares vested on 18 March 2019 and became
immediately exercisable. The fair value of these outstanding awards at 31
December 2023 was £0.13 (US$0.17) (2022: £0.33 (US$0.39)). The shares
outstanding at the end of the year are as follows:
2023 2022
US$'000 US$'000
Outstanding as at 1 January 10 10
Exercised during the year - -
As at 31 December 10 10
Exercisable as at 31 December 10 10
27. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the current
portions of the prepayment disclosed in Note 12, Receivables and other assets,
which do not meet the criteria of a financial asset.
2023 2022
Notes US$'000 US$'000
Financial assets at amortised cost
Cash 14 16 503 8 721
Receivables and other assets 12 6 869 6 421
Total 23 372 15 142
Total non-current 4 487 2 916
Total current 18 885 12 226
Financial liabilities at amortised cost
Interest-bearing loans and borrowings 16 38 567 5 945
Trade and other payables 18 24 850 21 877
Total 63 417 27 822
Total non-current 6 650 6 539
Total current 56 767 21 283
The carrying amounts of the Group's financial instruments held approximate
their fair value.
There were no open hedges at year end (2022: nil).
2023 2022
US$'000 US$'000
28. DIVIDENDS DECLARED AND PROPOSED
Declared dividends on ordinary shares
Final ordinary cash dividend for 2022: nil (2021: 2.7 US cents per share) - 3 771
There were no dividends proposed in 2022.
In the prior year, the 2021 declared dividend was approved on 8 June 2022 and
a final cash dividend of 2.7 US cents per share was paid to shareholders on 21
June 2022.
29. EVENTS AFTER THE REPORTING PERIOD
The deferred consideration payable of US$9.7 million relating to the
insourcing of the mining activities at Letšeng was settled post period end.
US$9.3 million was paid in January 2024, and the retainer of US$0.4 million
which was withheld for equipment under repair at the effective date was
settled in early March 2024. Refer Note 18 Trade and other payables.
No other fact or circumstance has taken place between the end of the
reporting period and the approval of the financial statements which, in our
opinion, is of significance in assessing the state of the Group's affairs or
requires adjustments or disclosures.
30. MATERIAL PARTLY OWNED SUBSIDIARY
Financial information of Letšeng Diamonds, a 70% held subsidiary which has a
material non-controlling interest, with the remaining 30% being held by the
Government of the Kingdom of Lesotho, is provided below. This information is
based on amounts before intercompany eliminations.
2023 2022
US$'000 US$'000
Name Country of incorporation and operation
Letšeng Diamonds (Proprietary) Limited Lesotho
Accumulated balances of material non-controlling interest 68 543 69 822
Profit allocated to material non-controlling interest 3 981 9 786
Summarised statement of profit or loss for the year ended 31 December
Revenue 140 905 186 087
Cost of sales (109 959) (123 793)
Gross profit 30 946 62 294
Royalties and selling costs (14 747) (19 571)
Other operating income 4 162 2 133
Operating profit 20 361 44 856
Net finance costs (3 500) (2 590)
Profit before tax 16 861 42 266
Income tax expense (3 590) (9 647)
Profit for the year 13 271 32 619
Total comprehensive income 13 271 32 619
Attributable to non-controlling interest 3 981 9 786
Dividends paid to non-controlling interest - (10 549)
Summarised statement of financial position as at 31 December
Assets
Non-current assets
Property, plant and equipment, deferred tax assets, intangible assets and 320 186 317 550
receivables and other assets
Current assets
Inventories, receivables and other assets, and cash and short-term deposits 60 711 39 231
Total assets 380 897 356 781
Non-current liabilities
Interest-bearing loans and borrowings, trade and other payables, provisions, 101 278 104 118
lease liabilities and deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings, trade and other payables and lease 51 144 19 923
liabilities
Total liabilities 152 422 124 041
Total equity 228 475 232 740
Attributable to:
Equity holders of parent 159 932 162 918
Non-controlling interest 68 543 69 822
Summarised cash flow information for the year ended 31 December
Operating cash inflows 43 548 74 793
Investing cash outflows (56 827) (59 928)
Financing cash inflows/(outflows) 22 543 (36 387)
Foreign exchange differences 1 848 (475)
Net increase/(decrease) in cash and cash equivalents 11 112 (21 997)
REPORT ON PAYMENTS TO GOVERNMENTS
INTRODUCTION
This report provides an overview of the payments made to governments by Gem
Diamonds Limited and its subsidiaries (the Group) for the 31 December 2023
financial year, as required under the UK Report on Payments to Governments
Regulations 2014 (as amended December 2015). These UK Regulations enact
domestic rules in line with Directive 2013/34/EU (the EU Accounting Directive
2013) and apply to companies that are involved in extractive activities.
This report is also filed with the National Storage Mechanism intended to
satisfy the requirements of the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority in the UK.
The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.
BASIS FOR PREPARATION
Reporting entities
This report includes payments to governments made by subsidiaries in the Group
that are engaged in extractive activities. During the 2023 financial year,
extractive activities were conducted in Lesotho while the operation in
Botswana was under care and maintenance. All payments made in relation to the
Botswana entity were under the materiality level and therefore not reported.
Extractive activities
Extractive activities relate to the exploration, prospection, discovery,
development and extraction of minerals, oil, natural gas deposits or other
materials. Gem Diamonds Limited, through its subsidiaries, is engaged in
diamond mining activities.
Scope of payments
The report discloses only those significant payments made to governments
arising from extractive activities.
Government
Government includes any national, regional, or local authority of a country.
It includes a department, agency or undertaking (ie corporation) controlled by
that authority.
Payment types disclosed at legal entity level
Production entitlements
There were no payments of this nature for the year ended 31 December 2023.
Taxes
These are payments on the entity's income, production, or profits, excluding
taxes levied on consumption such as value added taxes, personal income taxes
or sales taxes in line with in-country legislation.
Royalties
These are payments for the right to extract diamonds and are determined on
percentage of sales in terms of in-country legislation and/or mining lease
agreements.
Dividends
These are dividend payments, other than dividends paid to a government as an
ordinary shareholder of an entity unless paid in lieu of production
entitlements or royalties. There were no dividend payments of this nature to
governments for the year ended 31 December 2023.
Signature, discovery, and production bonuses
There were no payments of this nature to governments for the year ended 31
December 2023.
Licence fees
These are fees paid for acquisition of leases and licences, including annual
renewal fees, in order to obtain and maintain access to the areas in which
extractive activities are performed.
Payments for infrastructure improvements
There were no payments of this nature to governments for the year ended 31
December 2023.
Cash flow basis
Payments reported are on a cash flow basis and may differ to amounts reported
in the Gem Diamonds Limited 2023 Annual Report and Accounts, which are
prepared on an accrual basis.
Materiality level
In line with the guidance provided in the Report on Payments to Governments
Regulations, payments made as a single payment, or as a series of related
payments, which are equal to or exceed US$109 632 (£86 000), are disclosed
in this report. All payments below this threshold have been excluded.
Reporting currency
The payments to government have been reported in US dollar.
Payments made in currencies other than US dollar were translated at the
relevant annual average exchange rate for the year ended 31 December 2023.
Summary report
Operation Country Taxes Royalties Licence fee Total US$'000
US$'000 US$'000 US$'000
Letšeng Diamonds (Proprietary) Limited Lesotho 2 418 13 072 180 15 670
Total 2 418 13 072 180 15 670
Lesotho Taxes Royalties Licence fee Total US$'000
Letšeng Diamonds (Proprietary) Limited US$'000 US$'000 US$'000
Revenue Services Lesotho 2 418 - - 2 418
Government of the Kingdom of Lesotho - 13 072 180 13 252
Other
Other than the taxes, royalties and licence fees disclosed above, there were
no other payments to governments for the year ended 31 December 2023, but
Letšeng Diamonds (Proprietary) Limited (a subsidiary of Gem Diamonds Limited)
has a mining contract (which has been in place since 2006), with Matekane
Mining Investment Corporation. Letšeng Diamonds (Proprietary) Limited
understands that Matekane Mining Investment Corporation is wholly or majority
indirectly owned and controlled by Ntsokoane Samuel Matekane, who became Prime
Minister of the Kingdom of Lesotho in October 2022. An early termination of
the agreement was reached effective 1 December 2023, eleven months ahead of
the expiry date of October 2024, which resolved any potential conflicts of
interest.
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