REG - Gem Diamonds Limited - Full Year Results
16/03/2023 07:00
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RNS Number : 1976T Gem Diamonds Limited 16 March 2023
Thursday, 16 March 2023
Gem Diamonds Limited
Full Year 2022 Results
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the
"Group") announces its Full Year Results for the year ending 31 December 2022
(the "Period").
FINANCIAL RESULTS:
· Revenue of US$188.9 million (US$201.9 million in 2021)
· Underlying EBITDA of US$43.7 million (US$57.4 million in 2021)
· Profit for the year of US$20.2 million (US$27.4 million in
2021)
· Attributable profit of US$10.2 million (US$14.8 million in
2021)
· Earnings per share of 7.3 US cents (10.5 US cents in 2021)
· Cash on hand of US$8.7 million as at 31 December
2022 (US$7.9 million attributable to Gem Diamonds)
OPERATIONAL RESULTS:
Letšeng
· Carats recovered of 106 704 (115 336 carats in 2021)
· Waste tonnes mined of 10.2 million tonnes (18.7 million tonnes
in 2021)
· Ore treated of 5.5 million tonnes (6.2 million tonnes in 2021)
· Average value of US$1 755 per carat achieved (US$1 835 in 2021)
· The highest dollar per carat achieved for a white rough diamond
during the year was US$53 834 per carat
Safety performance
Letšeng's safety performance improved in 2022 with the implementation of an
organisational safety culture maturity programme yielding positive results.
Letšeng recorded zero fatalities and three LTIs during 2022 (2021: six),
resulting in an improved LTIFR and AIFR of 0.13 (2021: 0.24) and 0.70 (2021:
0.93), respectively.
Financial performance
The Group delivered a solid financial performance in 2022 despite the volatile
global economic environment following Russia's invasion of Ukraine which
caused high levels of inflation and interest rates and significantly increased
diesel prices. The consumption of diesel was further increased by the grid
electricity interruption due to load shedding by Eskom. Several initiatives
were implemented to reduce costs, drive efficiencies and effectively managed
increased operating costs.
Operational performance
Letšeng operated safely, responsibly and efficiently throughout 2022,
achieving its operational objectives notwithstanding a number of challenges
experienced during the year. These included regular load shedding by Eskom,
supply chain challenges, exceptionally high rainfall, the Lesotho national
elections in October 2022 which required a compulsory two day site-wide
shutdown and a secondary crusher breakdown. An Energy and Decarbonisation
Committee was established in 2022, focused on identifying, assessing and
implementing opportunities to improve energy security in light of the
unreliable Eskom electricity grid.
TCFD and Climate
The Group adopted the recommendations of the Task Force on Climate-related
Financial Disclosures in 2021 and concluded Phase 2 of its three-year TCFD
roadmap in 2022. This included the adoption of a decarbonisation strategy and
carbon pricing model. The Group has committed to a decarbonisation target of a
30% reduction of its scope 1 and scope 2 carbon emissions by 2030, from a 2021
base.
Commenting on the results today, Clifford Elphick, Chief Executive Officer of
Gem Diamonds, said:
"A priority remains the health and safety of our workforce. We are therefore
pleased to report that the organisational safety maturity programme that
commenced in 2021 is yielding positive results. Letšeng halved its number of
LTIs in 2022 compared to 2021 and we had another fatality-free year.
Gem has delivered solid operational and financial results in light of the
challenges brought about by Russia's invasion of the Ukraine. This directly
impacted our operating costs, in particular diesel prices, and interrupted
supply chains. This was exacerbated by the increased Eskom load shedding which
caused an increase in the use of diesel-powered generators.
The Group has continued with its climate change journey and we're pleased to
announce our commitment to a 30% reduction in scope 1 and 2 carbon emissions
by 2030. The unreliable Eskom electricity grid supply has emphasised the need
to implement lower carbon and renewable energy sources.
Demand for Letšeng's large, high-value diamonds remains strong. The
re-opening of China, the second largest diamond market, is expected to pave
the way for a rapid rebound in economic activity, which bodes well for diamond
prices in 2023."
The Company will host a live audio webcast presentation of the full year
results today, 16 March 2023, at 9:30 GMT. This can be viewed on the
Company's website: www.gemdiamonds.com (http://www.gemdiamonds.com)
The page references in this announcement refer to the Annual Report and
Accounts 2022, which can be found on the Company's website:
www.gemdiamonds.com (http://www.gemdiamonds.com)
The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67
FOR FURTHER INFORMATION:
Gem Diamonds Limited
ir@gemdiamonds.com
Celicourt Communications
Mark Antelme / Felicity Winkles
Tel: +44 (0) 208 434 2643
ABOUT GEM DIAMONDS:
Gem Diamonds is a leading global diamond 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, top colour, 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 and uncertain year. We
made important progress in our climate change journey by adopting a
decarbonisation strategy and a carbon-pricing model. The challenge for the
year ahead will be to continue operating safely, effectively and
cost-efficiently.
Dear shareholders,
On behalf of the Board of Directors, I am pleased to share with you the Gem
Diamonds Annual Report and Accounts for 2022, which outlines the Group's
performance over the past year and some of our focus areas for the year ahead.
In the early months of 2022, as the threat of the COVID-19 pandemic subsided,
we were finally able to return to something approaching normal operations.
While the experience of the past two years has been very difficult for our
workforce, their families and our local communities, the community of spirit
generated during the fight against the pandemic has built new levels of trust
and enabled us to extend our employee health improvement programmes.
While the world emerged from one crisis, it was immediately plunged into
another as Russia invaded Ukraine. The consequences of this conflict were
widely felt as they impacted supply chains, exacerbated inflation and
increased energy costs. Just about every country has had to grapple with
sharply rising input costs and the trifecta of accelerating inflation, rising
interest rates and the lingering impact of COVID-19, weighing down global
growth.
At Gem Diamonds, we felt the impact of these pressures through a sharp rise in
the price of diesel and countless other inflationary increases in the cost of
important commodities, machinery and services. Added to this was the
well-documented deterioration in the reliability of the supply of grid power
by Eskom, which meant we had to frequently resort to using diesel-powered
generators. As a result, we experienced a steep rise in input costs which
resulted in our EBITDA falling 24% to US$43.7 million (2021: US$57.4 million).
While revenue fell 6% to US$188.9 million on the back of a slightly lower
volume of carats recovered, 2022 was a solid year overall from an operational
perspective.
Demand for high-quality diamonds was strong in 2021 and this robust market
continued into 2022. Market strength was further underpinned by the imposition
of sanctions on Russia's Alrosa, which caused a shortage of smaller diamonds.
In Q4 2022 consumer demand weakened slightly, although pleasingly demand for
Letšeng's exceptional white diamonds remained firm and we achieved an average
price per carat of US$1 755 compared to US$1 835 in 2021.
The Letšeng mine is located in a remote and pristine region in Lesotho, and
the Group's overarching ethos is to operate at all times in an exemplary
social and environmentally responsible manner. Our continued inclusion in the
FTSE4Good Index and our receipt of various awards in recognition of the work
we do around our operation and communities are validation that our ESG
programmes deliver real value. There were no major or significant
environmental incidents reported at any of our operations during the year.
GOVERNANCE IMPROVEMENTS FOR 2022
Despite being a small Group with a small Board of Directors, I am pleased that
our governance structure is aligned with the independence requirements of the
UK Corporate Governance Code. While we acknowledge that there is always room
for improvement, I believe we have further strengthened our governance
structures over the past two years, and have established an effective rhythm
and cadence to the work of our Board. Specifically, we have worked to clarify
governance processes, allocated more time for routine and strategic Board
deliberations, and ensured the smooth running of the important work of our
Board subcommittees.
One area where I believe we can improve further is to carve out sufficient
Board time to better understand the future strategic opportunities available
to the Group. As the Letšeng orebodies are mined progressively deeper, we are
accelerating our analysis of possible future development pathways for the
mine, including whether it is economically feasible to transition to
underground operations. In addition, we need to consider our future beyond our
ownership of a single operational asset.
In 2022, we once again reassessed and refreshed our positions on human
rights, modern slavery, corruption and climate change as part of our approach
to combatting these global systemic challenges. As part of this process, our
employees and contractors reaffirmed their commitment to these important
statements.
The Nominations Committee oversees Board and senior management succession
planning, with the objective of ensuring that our leadership is appropriately
sized, regularly reinvigorated, and offers a wide range of diversity and skill
sets. I am satisfied that the Board contains the right balance of gender,
experience and complementary perspectives to ensure the appropriate
independent oversight of the Group.
Maintaining a diverse workforce in an atmosphere where everyone feels included
is hugely important to me personally, and it gives me great pride to see the
work that Gem Diamonds has done over the years to achieve a representation of
almost 98% Lesotho nationals at Letšeng. The representation of female
employees at Letšeng remains lower than we would like, and we continue to
work closely with local communities and schools to promote mining and Letšeng
as a company as rewarding and safe places for women to aspire to join.
THE BOARD'S PRIORITIES IN 2022
· Conducting an external Board effectiveness evaluation
· Overseeing the execution of the Group's climate change strategy
· Advancing efforts to sell or exit the Ghaghoo mine in Botswana,
which remains on care and maintenance
· Approving the share buyback programme announced in April 2022
· Considering the way forward for Letšeng, including the initial
results of the Underground Feasibility Study
· Considering external growth opportunities
SUPPORTING ORGANISATIONAL ETHICS
Gem Diamonds maintains a strong set of ethical principles that provides a firm
foundation for everything we do. We insist on transparency and have no
tolerance for fraud, theft, modern slavery, child labour or any other
wrongdoing. The culture espoused by the Board and senior management is one of
transparency, openness, and a willingness to challenge and to change, and
these principles promote high standards of ethical behaviour throughout the
Group. To support these principles, we maintain a rigorous system of internal
controls, a comprehensive internal audit programme and an anonymous
whistleblowing facility.
OUR PURPOSE AND VISION
In November 2022, the Board approved a new purpose and vision for the Group.
The new purpose "Produce the best diamonds, in the best way, leaving a lasting
legacy", outlines the Group's purpose in a way that is clear and easily
understood. This purpose replaces "Unearthing unique possibilities". It speaks
to our ambition to produce high-quality diamonds in a way that protects our
workforce, local communities and the environment. We have a long-term
perspective, and we aim to leave a positive legacy in the countries in which
we operate. This involves making meaningful investments in our local
communities that will have a lasting impact, supporting education, health and
skills development, and creating and maintaining an open and constructive
working relationship with governments at a local and national level.
Our new vision "A world full of Gem diamonds" speaks to actively pursuing
expansion and growth opportunities for Gem Diamonds, elevating the brand and
ensuring it is synonymous with large, high-value diamonds, a passionate
workforce and an ethical culture. All elements of our previous vision remain
relevant and have been encapsulated in our new purpose.
FOSTERING A STRONG SAFETY CULTURE
We regard the safety and health of our employees as our single most important
priority. I am pleased to report that during 2022 we continued to drive our
safety and health initiatives, and we again suffered no fatal accidents and
experienced only three lost time injuries resulting in a lost time injury
frequency rate (LTIFR) of 0.13, a strong improvement on the 0.24 achieved in
2021. The all injury frequency rate (AIFR) for the full year was 0.70 (2021:
0.93).
We recognise that maintaining a safe workplace requires relentless and close
attention to detail and a strong and trusting relationship with our workforce.
To this end, during the year we implemented a safety improvement programme,
with a specific focus on safety leadership coaching, that was informed by a
detailed safety performance survey carried out in 2021. During 2023 we will
focus on embedding these new leadership skills into the organisation to
improve the ability of employees at all levels to identify and permanently
eliminate risk from the operations, with the aim of further improving our
safety performance.
GOVERNANCE OF WATER AND TAILINGS MANAGEMENT
Lesotho experienced unprecedented rainfall during 2022, resulting in
Letšeng's water storage facilities rising to their highest levels on record.
It was pleasing to see that our freshwater catchment areas functioned
effectively despite the heavy rainfall, and the mine now has a secure source
of water for almost nine years based on current usage rates.
In line with global efforts to elevate the safety and security of all tailings
and water storage facilities, Gem has put significant emphasis into ensuring
full alignment with all the new recommendations emerging from recent
international tailings facility failure investigations. This includes strict
adherence to a management programme that includes daily inspections, monthly
audits and annual external audits. Our alignment with international standards
is well established and our Independent Tailings Review Board is led by one of
the world's leading dam-safety experts. We are confident that we have the
right skills, systems and governance to ensure appropriate water and tailings
management in the future.
CONTINUING OUR CLIMATE CHANGE JOURNEY
We recognise that climate change is an existential issue for our planet that
must be addressed. The Board is therefore determined that the Group makes its
contribution to this challenge when reviewing strategy, risk management,
annual budgets and business plans and when developing action plans and Group
policies. The Board officially adopted the TCFD framework in 2021, and in 2022
we implemented the second phase of our three-year roadmap. This included the
adoption of a decarbonisation strategy and carbon-pricing model. We have set a
target to reduce our Scope 1 and Scope 2 carbon emissions by 30% by 2030.
There is a great deal of global uncertainty within multinationals and capital
markets on how corporates should respond to and communicate their actions to
address climate change. As a small Group with limited resources, we recognise
that we must prioritise those actions that will have the maximum benefit to
the business and to Lesotho while also addressing climate change.
COMMUNITY AND GOVERNMENT ENGAGEMENT
We strive to always maintain constructive, open and honest dialogue with our
local communities and government partners. We consider their concerns and
inform them about our business and the broader environment we require to
thrive. Our ongoing stakeholder engagement with communities and government
ensures that the Board is kept abreast of issues as they emerge and evolve.
In 2022, our communities were affected by unemployment and inflation,
including steep increases in food and energy costs. In these economic
conditions, our ongoing investments in community support become increasingly
important. We remain very proud of the work we do to support our local
communities, which is informed by a community needs
analysis undertaken in 2021 and contributes to our UN SDG commitments. We
believe that investing in our local communities will bolster the resilience
and sustainability of Letšeng in the long term.
Mining is a major contributor to Lesotho's gross domestic product and offers
considerable direct and indirect employment opportunities during a mine's
lifespan. However, mines have a finite lifespan. This means that we must
proactively engage with our employees, communities and government to sensitise
them to the expected ultimate closure of the mine. We aim to maintain open
dialogue with government as we begin preparing for the various pathways that
might exist for the mine. As a Board, we will work constructively with
management, employees and communities as the long-term view emerges.
LOOKING TO THE FUTURE
Our actions in 2023 will be strongly influenced by the cost pressures that
unfolded in 2022. Our efforts to contain costs will require real productivity
and efficiency improvements. This will also mean that we will need to be
smarter in our technological and operational choices.
During the year we will continue to work on defining the future development
pathway for the Letšeng orebody. As the pits go deeper, various options
exist, including the possibility of a transition to underground operations,
and we will consult widely with all stakeholders as the options become clear.
We are now well placed to progress our environmental, social and governance
(ESG) strategy, and will in particular be looking at both the source and the
intensity of the energy we use. If possible, we will identify partners with
whom we can work to help us switch to more renewable sources of power, both to
reduce our carbon footprint and to lower our dependence on Eskom's
increasingly unreliable grid.
We are pleased that Lesotho's national elections in 2022 concluded peacefully
and we welcome the transition to a new government that is business-friendly
and collaborative. We look forward to a constructive working relationship with
the new administration as we continue to further our contribution to the
country's economic development.
Antwerp in Belgium is a city that has been inextricably linked to the trade
and manufacturing of rough diamonds for centuries. The diamond market,
however, is changing as diamond trading in new centres outside of Antwerp gain
traction. We will respond accordingly and embrace opportunities to work with
and sell through other centres.
APPRECIATION
On behalf of the Board, I thank all our stakeholders who have contributed to
the Group's performance in 2022. Without the support of our employees,
contractors, community partners, the Government of the Kingdom of Lesotho and
our shareholders, we would be unable to operate effectively. Finally, a
sincere thank you to my fellow directors for their dedication, insight and
support over the past year.
Harry Kenyon-Slaney
Chairperson
15 March 2023
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 is responsible for risk management in the Group and
-
provides stakeholders with assurance that key risks are properly
the Board sets the
identified, assessed, mitigated and monitored. The Board
risk appetite and
maintains a formal risk management framework for the Group
tolerances, strategic
and formally evaluates the effectiveness of the Group's risk
objectives and
management process. It confirms that the process is accurately
accountability for the
aligned with the Group's strategy and performance objectives.
management of the
At the quarterly risk review meeting, the Board reviews the risk
framework
register, assesses management's scenarios and plans,
interrogates the most critical risks in detail and debates
mitigating plans with management.
Governance Audit Committee Sustainability Committee
The Audit Committee monitors
The Sustainability Committee
the Group's risk management
provides assurance to the
processes, reviews the status
Board that appropriate systems
of risk management, and
are in place to identify and
reports to the Board on a
manage health, safety, social,
biannual basis. It is responsible
environmental and climate
for addressing the corporate
change-related risks. It
governance requirements of
monitors the Group's
risk management and for
performance within these
monitoring risk management at
categories and drives proactive
each operation.
risk mitigation strategies to
secure safe and responsible
operations and our social
licence to operate in the future.
Responsibility Management Bottom-up approach
Management develops, implements, communicates and
-
monitors risk management processes and integrates them into
ensures a sound risk
the Group's day-to-day activities. It identifies risks affecting the
management process
Group, including internal and external, current and emerging
and establishes
risks. It implements appropriate risk responses consistent with
formal reporting
the Group's risk appetite and tolerance.
structures
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 to oversee the Group's most relevant and significant current and
emerging risks. These include strategic, operational and external 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.Availability and sustainability of reliable power supply Risk: Poor quality of power supply reduces the available processing time and Risk response: Risk type: Strategic, operational and external
negatively influences the reliability and stability of plant equipment.
Regular power interruptions result in higher generator use and compound the •Exploring solutions with the Lesotho Electricity Company (LEC) for grid Strategic impact: Extracting Maximum Value from Our Operations
impact of escalated diesel prices and time between failures, which in turn and/or renewable power
increases operating costs.
Preparing for Our Future
•Initiated power usage option study
Opportunity: Improved efficiencies, reduced costs and decarbonisation
Working Responsibly and Maintaining Our Social Licence
benefits. •Assessing potential to generate renewable energy for own use
Business model impact:
•Established an Energy and Decarbonisation Committee
Affects the entire business model.
•Prioritisation of load and allocation of power
•Identification and implementation of consumption reduction initiatives
2.Diamond Risk: Letšeng's low-grade orebodies make the operation sensitive to resource Risk response: Risk type: External and operational
resources and reserves variability. Inconclusive information on the geological continuity,
distribution, grade and quality of diamonds within the orebodies and •Gathering geological evidence on variations within the resource (lithology, Strategic impact:
variability at depth increases the risk that production targets will not be density, volume/tonnage, grade, diamond population size and value
achieved and reduces confidence in the performance of the resource. Unexpected distribution), applying industry best practice and engaging independent Extracting Maximum Value from Our Operations
variability in key resource/reserve criteria, such as volume, tonnage, grade experts to audit and provide advice
and price, can significantly impact mine planning, forecasting and financial
Preparing for Our Future
stability, both in the short and medium term, and can influence decisions •Ongoing pit mapping, petrography, drilling and 3D modelling
regarding future growth.
Business model impact:
•Grade control, bulk sampling, density and moisture content measurements
Related opportunity: Having access to adequately detailed and reliable (on-site and independent lab verification), dilution control, stockpile Affects natural capital inputs and outputs of carats recovered. Life of mine
exploration, sampling and testing data enables the operation to reasonably management, data management, quality control and internal auditing of affects the long-term viability of the business model.
estimate geological, grade and quality continuity within defined domains, and production data (including geological, processing, recovery and sales data)
improves planning and forecasting accuracy.
•Managing the Diamond Accounting System and Mineral Resource Management
(MRM) database, 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. Workforce Risk: Achieving the Group's objectives and sustainable growth depend on the Risk response: Risk type: Strategic and operational
ability to attract and retain suitably qualified, experienced and ethical
employees. Gem Diamonds operates in an environment and industry where •Human resource practices are designed to identify skills shortages and Strategic impact:
shortages in experience and skills are prevalent. implement development programmes and succession planning for employees
Extracting Maximum Value from Our Operations
Related opportunities: Skills retention and continuous improvement initiatives •Incentives are in place to retain key individuals through performance-based
build the Group's human capital and can create a competitive advantage. bonuses and long-term share awards Working Responsibly and Maintaining Our Social Licence
•Remuneration practices are in place to ensure the Group regularly reviews Preparing for Our Future
current remuneration policies, skills and succession planning
Business model impact:
•Development of training and coaching plans to address areas where skills
and experience shortages are identified, in conjunction with government Affects human, intellectual and financial capital inputs into the business
agencies model.
4.Security of product Risk: Theft is an inherent risk in the diamond industry. The high-value nature Risk response: Risk type: Strategic and operational
of the product at Letšeng makes it susceptible to theft and significant
losses, which could negatively affect revenue and cash flows. •Zero tolerance of non-conformance to diamond security policies and Strategic impact:
regulations
Related opportunities: Advanced security control measures increase employee
Extracting Maximum Value from Our Operations
and product safety and improve revenue. •Advanced security access control and surveillance system in place,
complemented by off-site surveillance Working Responsibly and Maintaining Our Social Licence
•Monitoring of security process effectiveness by the Diamond Recovery Business model impact:
Protection Committee (a subcommittee of the Letšeng Board)
Improves outputs of carats recovered, which increases financial outputs.
•Appropriate diamond specie insurance cover in place Improves human capital and safety outcomes.
•Vulnerability assessments and assurance audits conducted by internal and
independent third parties
5.Variability in cash generation Risk: Variability in cash flows from operational activities, currency Risk response: Risk type: External and strategic
fluctuations and uncontrollable cost inflation can negatively affect the
Group's ability to effectively operate, repay debt and fund capital projects. •Appropriate treasury management procedures and framework to enter into Strategic impact:
This risk is directly impacted by other principal risks such as rough diamond short-term hedging instruments are implemented to mitigate the effects of
demand and prices, diamond damage, and diamond resources and reserves currency volatility on cash flows Extracting Maximum Value from Our Operations
performance.
•Rigorous cost and capital discipline is in place Preparing for Our Future
Related opportunities:
Cash constraints drive more efficient capital allocation and cost discipline. •Funding facilities are in place to manage variability in the short to Business model impact:
medium term
Consistent and regular cash flows provide predictability to maintain an
Affects funding and financial capital inputs and outcomes.
appropriate capital allocation strategy. •Ongoing drive for continuous improvement to deliver operational
efficiencies
6. Information Technology (IT) and Operational Technology (OT) systems, and Risk: The Group's operations rely on secure IT and OT systems to process and Risk response: Risk type: Strategic and operational
cybersecurity record financial and operating data in its information management systems. If
these systems are compromised, there could be serious production interruption •Application of technical and process IT controls in line with Strategic impact:
and a material adverse impact on the Group. industry-accepted standards
Extracting Maximum Value from Our Operations
Related opportunities: Stability to the business with no production •Appropriate back-up procedures, firewalls and other appropriate security
interruption applications in place Preparing for Our Future
•Regular testing of back-up restorations Business model impact: Affects the entire business model.
•IT management policies
•Delivering on the outcomes of the National Institute of Standards and
Technology's (NIST) cybersecurity risk assessment
7. Production interruption Risk: Material mine and/or plant shutdowns, pit closures or periods of Risk response: Risk type: Operational and External
decreased production could arise due to various events. These events could
lead to personal injury or death, environmental impacts, damage to •Continuous review of business continuity plans Strategic impact:
infrastructure and delays in mining and processing activities and could result
in financial losses and possible legal liability. •Bespoke contract management role in place to ensure proper contract Extracting Maximum Value from Our Operations
management and minimise potential for disputes and disruptions
The Group relies on the use of external contractors in its mining and
Working Responsibly and Maintaining Our Social Licence
processing activities. Material disputes with these contractors could •Appropriate insurance is maintained
materially impact the Group's operations.
Business model impact:
•Appropriate levels of critical resources maintained (fuel, ore stockpiles,
Related opportunities: Focused contract management supports operating at or etc) to mitigate the impact of any production interruptions Reduced operational activity could lead to a decline in financial capital and
near steady-state levels, which improves efficiencies due to stability of
outputs. Negative outcomes decrease natural and human capital.
production. •Continual improvements in the management of contractors' operating
practices
Robust business continuity plans are in place which results in limited delays
due to disruptions.
8. Diamond damage Risk: Letšeng's valuable Type IIa diamonds are susceptible to damage during Risk response: Risk type: Strategic and operational
the mining and ore treatment process. This affects revenue generated by the
Group's large, high-value diamonds, resulting in reduced cash flow and •Continuous diamond damage monitoring and analysis to identify opportunities Strategic impact:
profitability. to reduce diamond damage
Extracting Maximum Value from Our Operations
Related opportunities: Reduction in diamond damage will result in higher •Adherence to defined blasting and processing parameters to reduce possible
prices achieved, resulting in improved revenue, cash flow and profitability. diamond damage Preparing for Our Future
•Development of early identification and improved liberation technology Business model impact:
•Evaluating alternative technologies for reduced diamond damage in the Reduces financial inputs, increases diamond prices realised and output of
mining and treatment processes carats recovered, increasing financial outputs.
9. Health, safety and wellness Risk: The probability of a major health or safety incident occurring is Risk response: Risk type: Strategic and operational
inherent to mining operations. These incidences could impact the well-being of
employees, PACs, our licence to operate, the Group's reputation and compliance •Appropriate health and safety policies and practices are in place Strategic impact:
with our mining lease agreement.
•Corrective actions identified from incident investigations and internal and Extracting Maximum Value from Our Operations
Related opportunities: Improving employee health and wellness can increase external audits are implemented timeously
morale, reduce absenteeism and improve productivity.
Working Responsibly and Maintaining Our Social Licence
•Dam safety management framework implemented in alignment with the ICMM's
Effective safety policies and processes in place reduces risk to our GISTM Business model impact:
workforce, strengthens our relationships with employees and regulators, and
safeguards our reputation. •ISO 45001 accreditation maintained Affects the entire business model.
•Safety management and leadership programme; visible felt leadership,
detection and prevention strategies developed and implemented
•Safety training and awareness campaigns
•Psychological support considerations for entire workforce
•Continually assess organisational safety culture maturity to address
current and emerging issues
•Implement a mine-wide critical control management strategy
10. Social licence to operate Risk: The Group's social licence to operate is underpinned by the support of Risk response: Risk type: Strategic and operational
its stakeholders, particularly employees, regulators, PACs and society. This
support is an outcome of the way the Group manages issues such as ethics, •The implementation of an appropriate CSI strategy based on a community Strategic impact:
labour practices and sustainability in our wider environment, as well as our needs analysis which provides infrastructure and access to education and
risk management and engagement activities with stakeholders. The recent healthcare, and supports local economic development Working Responsibly and Maintaining Our Social Licence
election outcome in Lesotho could result in new government policies.
•Adoption of relevant standards, best practices and strategies Preparing for Our Future
Related opportunities: Realising the Group's goal to make a meaningful and
sustainable contribution to the countries in which we operate builds our •Appropriate governance structures across all levels of the Group Business model impact:
reputation with all stakeholders including employees, government, regulators,
communities and investors. •Regular engagement with all stakeholders, including government, regulators, Affects social capital and the viability of the business model.
community leadership and PACs
•Established an Employee Engagement Committee
11. Climate change Risk: Climate change-related risks (transitional and physical risks) are Risk response: Risk type: Strategic, operational and external
recognised as top global risks and investors are increasingly focused on the
management of these risks. Climate change presents significant present and •TCFD adoption and climate change strategy development Strategic impact: Preparing for Our Future
future risks to the Group which, if not identified and managed responsibly,
could negatively impact the Group's long-term operational and financial •Adoption of a Group decarbonisation strategy Working Responsibly and Maintaining Our Social Licence
resilience.
•Governance and management practices implemented Business model impact:
Opportunity: Opportunities for improvements in energy consumption and
sustainable power supply resulting in operational efficiency, decarbonisation, •Structured TCFD Adoption Steering Committee meetings Affects the entire business model.
and reduction in costs and potential carbon taxes.
•New reporting standards adopted
•Adoption of UN SDG framework
•Carbon emissions monitoring and reporting
•Drive and monitor the implementation and benefits realised from energy and
decarbonisation initiatives through the Energy and Decarbonisation Committee
12. Access to capital Risk: The volatility of the Group's share price and lack of growth negatively Risk response: Risk type: Strategic
impacts the Group's market capitalisation. Constrained cash flows could impact
returns to shareholders. The Group currently relies on a single mine with a The Group's strategic objectives are to drive share price growth through: Strategic impact:
finite life for its revenues, profits and cash flows.
•Continuous improvement initiatives Extracting Maximum Value from Our Operations
Related opportunities: Exploit growth opportunities within current operations
and pursue other external assets. •Investigating early diamond identification and alternative mining and Working Responsibly and Maintaining Our Social Licence
liberation technology
Preparing for Our Future
•Assessing mergers and acquisitions and diversification opportunities
Business model impact:
•Focusing on existing operations to unlock further value through
rationalisation and efficiency improvements Affects the entire business model.
13. Rough diamond demand and prices Risk: Numerous factors beyond our control could affect the price and demand Risk response: Risk type: External
for diamonds. These factors include macro-economic, political and consumer
trends. Medium to long-term demand is forecast to outpace supply, but •Managing our own sales processes and closely monitoring market conditions Strategic impact:
short-term uncertainty and liquidity constraints within the diamond sector may and trends
negatively impact rough diamond pricing. Related opportunities: Reduced supply
Extracting Maximum Value from Our Operations
and increased demand could result in improved revenue, resulting in positive •Flexibility in sales processes and utilisation of multiple sales and
cash flows. marketing channels, and increased viewing opportunities Preparing for Our Future
•Ability to enter into partnership agreements to share in the upside of Business model impact:
polished diamonds
Affects funding of the business model, sales and marketing activities and
•Maintaining the integrity of the tender process chosen distribution channels.
14. Environmental Risk: Environmental issues are recognised as top global risks by the World Risk response: Risk type: External and operational
Economic Forum and investors are increasingly focused on environmental
performance. Failure to manage vital natural resources, environmental •Appropriate sustainability and environmental policies are in place and Strategic impact:
regulations and pressure from neighbouring communities can affect the Group's regularly reviewed
ability to operate sustainably.
Extracting Maximum Value from Our Operations
•The current behaviour-based care programme embeds environmental stewardship
Related opportunities: Responsible environmental stewardship improves
Working Responsibly and Maintaining Our Social Licence
relationships with regulators and communities while strengthening our brand. •A dam safety management framework has been implemented
Increased focus on environmental responsibility could translate into a
Preparing for Our Future
competitive advantage. •Annual social and environmental management plan audit programme has been
implemented Business model impact:
•ISO 14001 (Environmental Management) accreditation maintained Affects natural capital inputs into the business model and negative outcomes
in the case of environmental incidents.
•Adopted a 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 back to diamonds, as
led by social influencers; 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 of the principal risks documented on pages 36 to 42 on the
Group's viability.
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,
technology and innovation, 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 and
environment in which the Group operates, even though the life of mine, the
mining lease tenure and available estimated reserves exceed three years.
The business and strategic plan reflects the Directors' best estimate of the
Group's prospects. The Directors 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 refinancing of the Group's facilities, which was completed in December
2021, and the new project debt facility for the replacement of the primary
crusher area (PCA), implemented in November 2022, significantly increased the
Group's available facilities to US$82.6 million, when fully unutilised.
US$74.1 million of these facilities mature in December 2024 and
US$5.9 million is a general banking facility with no set expiry date, but
which is reviewed annually. The balance of US$2.6 million relates to the PCA
funding which expires in May 2027.
RISING COSTS
The Russian invasion of Ukraine caused extreme global uncertainty which
resulted in increased diesel and explosives prices experienced during the
year. This had a direct impact on costs due to the large volumes of diesel
used in the loading and hauling of ore and waste tonnes. In addition, the cost
of running the treatment plants increased as the diesel-run generators were
used for extended periods due to the electricity grid disruptions experienced
in South Africa, the primary source of electricity for Letšeng. The Group has
seen a slight reduction in the diesel price during the first two months of
2023.
CLIMATE CHANGE
The Board is cognisant of the risks presented by climate change and conscious
of the need to minimise 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 combustion-related fossil fuel use. 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 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 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 which 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.
Effect Extent of Related principal Area of business
sensitivity
risks
model affected
analysis
A decrease in forecast rough diamond 26% Rough diamond demand Entire business model, ie
revenue from reduced market prices or
and prices
inputs, activities, outputs
production volumes caused by
Production interruption
and outcomes
unforeseen production disruption due to
Diamond damage
climate-related, electricity grid
Diamond resources and
disruptions or any other events.
reserves
A strengthening of local currencies to 23% Variability in cash Financial capital inputs and
the US dollar from expected market
generation
outcomes
forecasts.
An increase in mine operating costs 30% Variability in cash Financial capital inputs and
caused by volatility in diesel, explosives
generation
outcomes
and other consumable prices
(1) Refer Note 4, Operating profit on page 177 for the definition of
non-GAAP measures.
CONCLUSION
The Group's current net cash1 position of US$3.3 million as at 31 December
2022 and undrawn facilities of US$82.6 million at 31 December 2022, subject
to availability, would enable it to withstand the impact of these scenarios
over the three-year period. During the final year of the viability period, in
2025, there is no Satellite pipe ore available for processing. The timing of
the availability of this higher value ore is dependent on the Underground or
Open pit Cut 6 decision, which will be made by the Board during the viability
period. The revolving credit facilities which expire on 22 December 2024 have
a 24-month extension period and the Group will follow all necessary processes
to extend the facilities for this available period, as it has in the past.
This position is supported by the cash-generating nature of the Group's core
asset, Letšeng, and its flexibility in adjusting its operating plans within
the normal course of business. Based on the robust assessment of the principal
risks, prospects and viability of the Group, 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 2025.
1 Net cash 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
2022 was a year of solid operational performance and steady execution of our
strategy.
In 2022, the Letšeng mine emerged from the COVID-19 pandemic to resume normal
operations, but new operational challenges emerged following Russia's invasion
of Ukraine, which impacted global inflation and drove extraordinary increases
in diesel prices. In addition, Eskom's significantly increased electricity
outages posed challenges to the stability of Letšeng's production processes
and negatively impacted costs due to the regular requirement for diesel power
generation.
It is pleasing to report that the implementation of cost-saving and
decarbonisation initiatives at Letšeng, aimed at energy efficiency and carbon
reduction, together with the additional reduction in waste tonnes from our
revised mine plan for the year, resulted in a 27% year on year reduction in
the Group's carbon footprint. We implemented the second year of our TCFD
adoption strategy, where we made good progress towards the Group's long-term
decarbonisation objectives.
We also advanced the updating of our Resource and Reserve Statement by
completing a second core resource drilling programme. We intend to publish the
Resource and Reserve Statement in Q4 2023.
Letšeng also commissioned a comprehensive Underground Feasibility Study. We
will have greater clarity on the way forward for Letšeng as we finalise this
important exercise and complete the trade-off studies between an underground
operation to mine the Satellite pipe versus another open pit cutback (Cut 6
West).
The October 2022 national elections in Lesotho saw a peaceful transition of
power from the All Basotho Convention party to the Revolution for Prosperity
party in coalition with the Alliance of Democrats and the Movement for
Economic Change. As significant investors in the Kingdom of Lesotho, we have
worked well with every government and will continue to do so. The new
government is business-orientated and investor-friendly and has announced
several positive initiatives to improve service delivery. One important
example is the government's commitment to issue work permits within a shorter
defined time period. This is an important step to enhancing economic growth
and allowing for the speedy engagement of scarce technical skills.
EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS
We have achieved our objectives of extracting value for our stakeholders by
operating safely, responsibly and efficiently. The lifting of COVID-19
restrictions eased the supply constraints experienced in 2021 and allowed us
to resume regular leadership visits to Letšeng.
Tonnes treated decreased 11% year on year in line with the revised mine plan.
This plan excluded the third party operated plant from 1 July. Carats
recovered decreased (7)% to 106 704 (2021: 115 336).
Four diamonds greater than 100 carats were recovered during the year (2021:
six). Exceptional sales during the year included the three large high-quality
Type IIa white diamonds of 245 carats, 128 carats and 125 carats, which sold
for US$35 811 per carat, US$28 618 per carat and US$12 123 per carat,
respectively. The operational performance of the Letšeng mine is discussed in
more detail in the Operations review on page 56.
The diamond market improved in 2022 and demand for the high-quality white
diamonds produced at Letšeng remained robust. The average price achieved
decreased slightly year on year by 4% to US$1 755 per carat (2021: US$1 835
per carat). The decrease in the average price achieved compared to 2021
relates mainly to the quality of diamonds recovered and a slight softening of
the global diamond market in Q4 2022.
We have an effective, transparent and competitive tender sales process in
Antwerp, with two additional viewings having taken place in Dubai in 2022. The
viewings in Dubai are convenient for clients from the United Arab Emirates,
India and Israel. These were well supported and contributed to the strong
prices achieved. These viewings are now part of our annual tender calendar and
are scheduled to take place when appropriate. In 2022, Letšeng entered into
an agreement with two important diamond manufacturing clients who will supply
polished diamonds to some of world's most premium luxury brands. These
diamonds are polished to precise specifications and additional value is
realised for the Group. This is a further step in the Group's strategy to move
further down the value chain and to promote Letšeng as the exceptional
diamond brand.
Group revenue decreased 6% to US$188.9 million (2021: US$201.9 million),
which translates to underlying EBITDA of US$43.7 million and earnings per
share of 7.3 US cents. Significant inflationary increases, specifically in
diesel prices, resulted in profit attributable to shareholders of US$10.2
million. The Group ended the year in a net cash position of US$3.3 million.
More information regarding the Group's financial results is included in the
CFO review on page 49.
The biggest challenge faced in 2022 was the unreliability of Eskom-generated
power supply and the high cost of diesel. As the incidence of load shedding
increased and diesel costs rose, with the price of crude oil exceeding US$120
per
barrel in June 2022, the impact on profitability has been significant. Total
operating costs rose 13% to LSL1 900.3 million (2021: LSL1 677.2 million),
and the costs related to diesel increased by 29% to LSL340.6 million (2021:
LSL265.0 million).
The Government of Lesotho is showing a commendable determination to find
solutions to reduce national dependency on South Africa's unreliable
electricity grid. The Minister of Mines and his colleagues have been
supportive of Letšeng's intentions to implement renewable energy solutions.
1 Refer Note 4, Operating profit on page for the definition of
non-GAAP (Generally Accepted Accounting Principles) measures.
2 Net cash is a non-GAAP measure and calculated as cash and
short-term deposits less drawn down bank facilities (excluding the asset-based
finance facility and insurance premium financing).
WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE
Another highlight for 2022 is the Group's improved safety performance. Once
again, there were no fatalities (2021: none), three LTIs (2021: six), and we
achieved an overall AIFR of 0.70 (2021: 0.93), a 33% decrease year on year.
We continue to implement safety initiatives to reinforce our safety measures
and responsible behaviour, and entrench a workplace safety culture founded on
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.
Our tailings storage facility management process aligns with the ICMM's GISTM,
which ensures the responsible management and monitoring of the tailings
storage facilities. In addition, our tailings storage and freshwater
facilities are subject to regular inspections by external experts. In 2022, we
engaged an external consultant to evaluate our tailings storage facilities and
to review and update the dam breach analysis that was conducted in 2020, and
no material issues or concerns were raised. In addition, the engineer
responsible for the Mothusi Dam, our freshwater dam, was consulted to provide
an opinion on the safe operating level of the dam. The engineer provided an
opinion that the dam can be safely operated at 100% capacity. These
professional opinions together with the internal governance, management,
monitoring and reporting processes ensure that our tailings storage and
freshwater dam management is both effective and closely monitored.
In 2022, our CSI activities resumed as normal and our focus areas, as aligned
with our selected UN SDGs, are to support infrastructure development,
education and health while stimulating small businesses. In 2022, we supported
small agricultural operations including those in egg, vegetable and dairy
production, provided scholarships for tertiary education, and delivered water
and sanitation projects in schools. From 2016 to 2022 the Group invested
US$4.4 million in sustainable CSI initiatives.
In 2022, Gem Diamonds contributed a total of US$39.7 million (LSL649.3
million) to the Lesotho fiscus in the form of taxes, royalties and dividends.
We are proud of our contribution to this developing economy and our position
as a significant taxpayer and employer.
PREPARING FOR THE FUTURE
In 2023, we aim to deliver the business plan approved by the Board. This
includes achieving our financial and operational targets. We will maintain a
focus on further improving our safety performance by keeping up a steady
drumbeat of safety interventions, critical control management and
communication.
Our capital plans include funding for projects that will sustain growth and
value creation. The two major capital-intensive projects in 2023 include the
replacement of the primary crushing area (PCA), which commenced in 2022 and
will be completed in Q2 2023, and concluding the Underground Feasibility Study
which was commissioned in July 2022. As soon as the latter is concluded, we
will evaluate the trade-off between the next cutback in the Satellite pipe
versus an earlier and potentially more cost-effective underground mining
opportunity. The current open pit mine plan extends to 2040.
In 2023, we will prioritise consistent production levels while enhancing
efficiencies. We will manage costs to protect cash flows and strive to improve
our capital return to shareholders. We are investigating new measures to
maintain our status as a low-cost operator in the face of significant
inflationary pressures. This includes plans to right-size and further optimise
operations at Letšeng in line with its operational requirements. This
right-sizing process has commenced in an appropriate and structured manner to
deliver these objectives.
Securing power independence
In 2022, Eskom shed over 1 900 hours of power, making it the most load
shedding intensive year on record. The pain of severe load shedding has been
felt throughout all industries in southern Africa, from small businesses to
large companies.
Lesotho is heavily dependent on Eskom, although there are plans at government
levels to reduce this dependency. Over this period, we had to significantly
increase the utilisation of our two diesel generator farms to run for more
frequent and extended periods. This has required an investment in replacement
generators and increased diesel storage as well as funding the ongoing and
increased related running and maintenance costs. While this allows us to be
self-sufficient to continue operations, the asset maintenance and fuel costs
related to diesel generation are placing significant pressure on
profitability.
We are therefore considering renewable energy sources. We have a team of
experts examining all potential solutions, including wind, hydro and solar. We
have completed the foundation work in 2022 to outline all the practical
solutions. In 2023, we will advance this programme and plot the way forward
for Letšeng. This also speaks to our long-term decarbonisation strategy,
while addressing the immediate need to provide energy at a price that is
sustainable for the business.
OUTLOOK
The Russian invasion of Ukraine might continue to hamper global growth,
increase energy costs and exacerbate geopolitical tensions. While there are
mixed signs of inflation starting to ease, interest rates across the globe
remain high and could pose a constraint to growth. However, the major
developing nations are already reporting a positive growth outlook for
2023/2024, and China's reopening paves the way for a rapid rebound in economic
activity in that country. Many analysts expect high levels of savings among
Chinese consumers during the pandemic to translate to greater spending in
2023. This bodes well for the global diamond market as Chinese consumers
represent the world's second-largest market for diamonds. In China, women
increasingly buy diamonds for themselves to celebrate their achievements and
financial independence.
Despite the highly uncertain economic market conditions, the global luxury
market continued to grow in 2022 and remains poised to expand further in 2023.
The luxury market appears well positioned to cope with economic turbulence,
with a larger and more resilient consumer base. According to a report by Bain
& Company, the luxury market consumer base broadened to 400 million
consumers in 2022 and is expected to expand to 500 million consumers by 2030.
In the medium to long term, rough diamond prices should be supported by
favourable demand and supply fundamentals, which are underpinned by continued
growth in demand from markets such as the US, China and India, contrasted with
a projected fall in 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 strong leadership and commitment in
2022. I appreciate our hard-working employees for their efforts to deliver our
strategic goals and for living our values. I would also like thank our
customers for their continued trust and for purchasing Letšeng's diamonds,
and our shareholders for their faith in our business. Finally, I thank the
Government of the Kingdom of Lesotho for their support and our productive
engagements. We look forward to another mutually beneficial year.
Clifford Elphick
Chief Executive Officer
15 March 2023
CHIEF FINANCIAL OFFICER'S REVIEW
The Group delivered a solid financial performance in 2022 despite the volatile
global economic environment, significant inflation, extraordinary fuel costs
and increased grid electricity interruption.
Underlying EBITDA decreased 24% to Profit attributable to shareholders:
US$43.7 million
US$10.2 million
from US$57.4 million in 2021
(2021: US$14.8 million)
Earnings per share: The Group ended the year in a net cash position of
7.3 US cents
US$3.3 million
(2021: 10.5 US cents)
(2021: US$20.9 million)
Share buyback programme: 1 520 170 shares purchased Unutilised available facilities of
for US$1.2 million
US$82.6 million
(2021: nil)
(2021: US$74.3 million)
We delivered a credible financial performance for 2022 despite several
operational challenges and turbulent global economic conditions. Most major
economies experienced unprecedented levels of inflation in 2022, which showed
some signs of easing late in the year. Russia's invasion of Ukraine
significantly impacted the global economy and resulted in significantly higher
fuel prices, and several suppliers also passed on higher than inflation
increases to the operations. In response, we looked at opportunities to
decrease our consumption of diesel by reducing waste tonnes mined and
introducing shorter haulage distances. In the medium to long term, we are
looking to reduce our reliance on diesel generators by pursuing renewable
energy solutions.
Our Letšeng operation performed in line with expectations, despite several
challenges presented by an exceptionally high rainfall season and snow,
increased electricity supply disruptions and higher than anticipated operating
costs. We benefited from a strong diamond market, and achieved an average
price of US$1 755 per carat for the year. The overall dollar per carat
achieved was negatively influenced by a decrease in large, high-value diamond
recoveries compared to 2021.
In 2022, we supported shareholder value creation by paying a dividend of
2.7 US cents per share and we initiated a share buyback programme in April
2022.
Underlying EBITDA2 decreased to US$43.7 million from US$57.4 million in 2021.
Profit attributable to shareholders for the year was US$10.2 million,
equating to basic earnings per share of 7.3 US cents on a weighted average
number of shares in issue of 139.8 million.
The Group ended the year with a cash balance of US$8.7 million and drawn down
facilities of US$5.4 million, resulting in a net cash position of
US$3.3 million (2021: net cash of US$20.9 million) and unutilised facilities
of US$82.6 million.
Summary of financial performance
Refer to the full annual financial statements from page 146.
US$ million 2022 2021*
Revenue from contracts with customers 188.9 201.9
Royalties and selling costs (20.3) (21.9)
Cost of sales1 (116.2) (113.5)
COVID-19 related costs (0.1) (0.7)
Corporate expenses (8.6) (8.4)
Underlying EBITDA2 43.7 57.4
Depreciation and mining asset amortisation (8.4) (8.6)
Share-based payments (0.3) (0.4)
Other operating expenses (2.4) (3.3)
Foreign exchange gain 1.9 1.9
Net finance costs (4.1) (4.0)
Profit before tax for the year 30.4 43.0
Income tax expense (10.2) (15.6)
Profit after tax for the year 20.2 27.4
Non-controlling interests (10.0) (12.6)
Attributable profit 10.2 14.8
Earnings per share (US cents) 7.3 10.5
Dividends per share (US cents) - 2.7
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale of the notes to the consolidated financial
statements.
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
The Group's decrease in revenue was mainly driven by lower production volumes
compared to 2021 (ore tonnes treated decreased 11% to 5.5 million tonnes) and
lower than average recoveries of large diamonds. Rough diamond revenue of
US$188.6 million was generated at Letšeng, achieving an average price of
US$1 755 per carat (2021: US$1 835 per carat). The Group sold 29 diamonds
for more than US$1.0 million each, contributing US$64.5 million to revenue.
Letšeng has partnership agreements that allow the Group to share in the
margin uplift on the sale of polished diamonds. In 2022, additional revenue of
US$0.3 million (2021: US$0.2 million) was generated from these partnership
arrangements.
US$ million 2022 2021
Group revenue summary
Letšeng sales - rough 188.6 201.3
Sales - polished margin 0.3 0.3
Impact of movement in inventory - 0.3
Group revenue 188.9 201.9
Letšeng Unit Cost Analysis
Unit Direct Third plant Total direct Non-cash Total Waste cash
cost
per cash operator costs cash accounting operating costs per
tonne
treated costs1 operating costs charges2 cost waste tonne
mined
2022 (LSL) 252.50 10.57 263.07 82.02 345.09 66.74
2021 (LSL) 185.59 15.53 201.12 70.63 271.75 44.44
% 36 (32) 31 16 27 50
change
2022 (US$) 15.42 0.65 16.07 5.01 21.08 4.08
2021 (US$) 12.55 1.05 13.60 4.78 18.38 3.00
% change 23 (38) 18 5 15 36
(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.
Expenditure
Operating expenditure
Group cost of sales increased slightly in 2022 to US$116.2 million from
US$113.5 million in 2021. In 2022, the Group incurred US$0.1 million in
COVID-19-related costs (2021: US$0.7 million) to maintain COVID-19 protocols
at its operations. Total waste-stripping costs amortised decreased by 22% to
US$36.3 million compared to US$46.8 million in 2021.
· Total operating costs in local currency increased by 13% to
LSL1 900.27 million (2021: LSL1 677.21 million) which includes the impact
of non-cash accounting charges. The unit cost per tonne treated increased 27%
to LSL345.09 (2021: LSL271.75 per tonne treated) due to cost increases,
especially the significantly increased cost of diesel and other consumables,
and further impacted by lower tonnes treated in the year. Ore tonnes treated
decreased 11% to 5.5 million tonnes (2021: 6.2 million tonnes).
· Direct cash costs (excluding waste) increased by 17% to
LSL1 448.6 million. This was driven primarily by the cost of diesel. The
average price per litre of diesel increased by 68% from 2021 and, despite a
5.6 million litre decrease in consumption, resulted in a 29% increase in
diesel costs to LSL340.6 million from LSL265.0 million in 2021. Direct cash
costs were also affected by price increases from suppliers on explosives,
equipment, spare parts and tyres. Significant effort was made to reduce costs
and drive efficiencies, such as steepening the slopes in the Main pit and
decreasing waste hauling distances. Notwithstanding these efforts and the
impact of lower tonnes processed, direct cash costs per tonne treated
increased by 36% to LSL252.50 from LSL185.59 in 2021.
· Third plant operator costs reflect payments to Alluvial Ventures,
the contractor, which are calculated from revenue generated by the sales from
diamonds recovered by the contractor plant. In 2022, the total cash costs in
local currency decreased by 39% to LSL58.2 million due to the expiry of the
Alluvial Ventures contract on 30 June 2022.
· Waste cash costs decreased by 18% to LSL677.7 million from
LSL829.4 million in 2021. Waste tonnes mined decreased by (46)% (10.2 million
tonnes compared to 18.7 million tonnes in 2021) but the decrease in volumes
were offset by increased costs, most notably diesel costs as disclosed above.
Waste cash cost per waste tonne mined increased by 50% to LSL66.74 (2021:
LSL44.44).
· Non-cash accounting charges refers to waste amortisation,
stockpile and diamond inventory movements and finance lease costs. Non-cash
accounting charges increased 4% to LSL451.7 million (2021: LSL436.0 million).
This is a combination of a decrease in total waste amortisation charges of
LSL594.0 million (2021: LSL692.3 million) due to lower tonnes mined during the
year, offset by a change in inventory in 2021 when there was a material
increase at year end inventory values compared to 2020; the year end inventory
values between 2021 and 2022 were similar. In addition, a write-down to net
realisable value of lower-grade stockpile material of US$1.6 million was
recognised during the period.
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 2021), 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 2022 2021 % change
LSL per US$1.00
Average exchange rate 16.37 14.79 11
Year end exchange rate 17.02 15.96 7
BWP per US$1.00
Average exchange rate 12.37 11.09 12
Year end exchange rate 12.75 11.76 8
GBP per US$1.00
Average exchange rate 0.81 0.73 12
Year end exchange rate 0.83 0.74 13
Royalties and marketing costs
In terms of Letšeng's mining lease, it pays royalties 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 7% to US$20.3 million
(2021: US$21.9 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 contained to US$8.6 million,
representing a slight increase from 2021. In 2022, US$0.1 million of project
costs were incurred on the ongoing sales process of Ghaghoo and the
implementation of certain TCFD recommendations (2021: US$0.1 million).
Historical corporate costs (excl. depreciation) (US$ million)
2018 2019 2020 2021 2022
Baseline costs 9.3 8.3 7.4 8.3 8.5
Project costs 0.7 0.8 0.1 0.1 0.1
Underlying EBITDA1 and attributable profit
Group underlying EBITDA1 decreased by 24% to US$43.7 million (2021: US$57.4
million) due to the decline in revenue and increased operating expenditure.
Profit attributable to shareholders was US$10.2 million, which translates to
7.3 US cents per share based on a weighted average number of shares in issue
of 139.8 million.
1 Underlying EBITDA as defined in Note 4., Operating profit of the
notes to the consolidated financial statements.
Statement of financial position - selected indicators
US$ million 2022 2021
Property, plant and equipment 293 499 293 627
Non-current: receivables and other assets 2 916 1 278
Current: receivables and other assets 4 855 4 095
Inventory 30 370 31 158
Net income tax receivable 2 268 1 191
Cash and short-term deposits 8 721 30 913
Assets held for sale - 2 097
Non-current: interest-bearing loans and borrowings (4 370) (8 340)
Current: interest-bearing loans and borrowings (1 575) (2 704)
Liabilities associated with assets held for sale - (4 100)
Net deferred tax liabilities (76 036) (77 355)
Non-current: rehabilitation provisions (15 387) (11 202)
Capital expenditure
The Group's capital expenditure increased for 2022 as capital spend was
incurred on the replacement of the PCA, with completion expected in Q2 2023,
the commencement of the Underground Feasibility Study for the Satellite pipe,
and the core drilling programme to inform the Resource and Reserve Statement.
The designs for the Patiseng Coarse Tailings Facility expansion project and
the bioremediation plant were also completed during the year. Total capital
expenditure (excluding waste stripping) was US$11.9 million during the year
(2021: US$4.0 million).
Cash at hand
At year end, cash on hand totalled US$8.7 million (2021: US$31.1 million)
and net cash of US$3.3 million which was a decrease in net cash of
US$17.6 million year on year. Group cash generated by operations was
US$82.8 million before capital and waste investment of US$59.7 million. Gem
Diamonds' share buyback programme and the dividend paid to its shareholders
totalled US$4.8 million. In addition, the Lesotho Government's portion of
dividends and withholding taxes extracted from Letšeng was US$10.5 million
Loans and borrowings
The Group-wide debt refinancing for Letšeng and Gem Diamonds was successfully
concluded in December 2021 for LSL750.0 million and US$30.0 million
respectively, for an initial three-year period. Security for the facilities
was implemented over Gem Diamonds' bank accounts and its shareholding in
Letšeng, reducing the margin on the interest rates applicable to these
facilities by 1.5%.
Letšeng has a ZAR100.0 million (US$5.9 million) general banking facility
with Nedbank Limited (acting through its Nedbank Corporate and Investment
Banking division) renewable annually. There was no drawdown on this facility
at year end.
The funding partners to the facility agreement are Nedbank, Standard Bank and
Firstrand Bank (through their respective operations). Nedbank's portion of the
funding, totalling US$31.1 million, is a sustainability-linked loan (SLL),
which is 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 were assessed for 31 December 2022 and will be assessed again on 31
December 2023.
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. The carbon
emissions reduction KPI was achieved at 31 December 2022, but due to delays in
the construction of the bioremediation plant, the water conservation KPI could
not be measured. No margin reduction will therefore be implemented on any
utilisation of the facility in 2023.
In 2022, Letšeng implemented a four-and-a-half-year facility agreement for
the replacement of the PCA to an amount of R136.4 million (US$8.0 million)
with Nedbank. The facility is underwritten by the Export Credit Insurance
Corporation of South Africa (ECIC). At year end, an amount of LSL92.8 million
was utilised (US$5.4 million). Repayment of this facility is scheduled to
commence in Q4 2023 once the balance of the facility is drawn down, which is
expected by May 2023.
At year end, the Group had utilised facilities of US$5.4 million (as
mentioned above), resulting in a net cash position of US$3.3 million and
available facilities of US$82.6 million. Gem Diamonds, the Company, ended the
year with no outstanding facilities (2021: US$9.0 million).
Letšeng made final repayments of LSL19.0 million (US$1.2 million) on its
project debt facility for the construction of the mining workshop complex
which expired on 30 September 2022.
The Group regularly engages with funders and credit providers to ensure
continued access to funding and to manage cash flow requirements.
Summary of loan facilities as at 31 December 2022
Company Term/description/ Lender Interest rate1 Amount Drawn down/ Available
expiry
US$ million Balance due US$ million
US$ million
Gem Diamonds Three-year revolving credit facility Nedbank Facility A 30.0 - 30.0
Limited
(US$30 million): US$ 3-month LIBOR + 5.00%
Expires Standard Bank
22 December 2024
Term SOFR + 0.26% + 5.00%2
Firstrand Bank
Letšeng Diamonds Three-year revolving credit facility Standard Lesotho Bank Facility B (LSL450 million): Central Bank of Lesotho rate + 3.25%2 26.4 - 26.4
Expires Nedbank Lesotho
22 December 2024
First National Bank
of Lesotho
Firstrand Bank
Nedbank Facility C (ZAR300 million):South African JIBAR + 3.05%1 17.6 - 17.6
Letšeng Diamonds Four-and-a-half-year project facility Nedbank ZAR136 million 8.0 5.4 2.6
Export Credit
South African
Expires
Insurance
JIBAR + 2.50%
Corporation
31 May 2027
Letšeng Diamonds General banking facility Nedbank ZAR100 million 5.9 - 5.9
South African
Annual review in March
Prime Lending
Rate minus
0.70%
Total 88.0 5.4 82.6
1 At 31 December 2022 LIBOR was 4.47% and JIBAR was 7.26%.
2 The transition from LIBOR to term SOFR on the GDL RCF was concluded
on 30 November 2022 and is effective from all interest periods starting on or
after 1 January 2023.
Ghaghoo
In line with the strategic objective to dispose of non-core assets, the Board
and management remain committed to the sale of the Ghaghoo Diamond Mine in
Botswana and continues to engage a number of interested parties. In parallel,
Gem Diamonds is discussing various alternatives with affected stakeholders,
including the potential closure of the mine.
The operation remains on care and maintenance but due to the failure to close
a sales transaction, including considerations of potential closure of the
mine, Ghaghoo no longer met the highly probable requirements as set out in
IFRS 5 and therefore Ghaghoo ceased to be classified as a discontinued
operation held for sale as at 31 December 2022. As a result, a reassessment of
the carrying value of the remaining assets resulted in an impairment of
US$0.7 million (2021: nil). This, together with the care and maintenance cash
costs of US$1.9 million (2021: US$2.1 million), is included in other
operating expenses. An additional US$0.2 million (2021: 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. The decrease in
cash costs was mainly due to the favourable exchange rate and further
reduction of care and maintenance activities.
Insurance
The perception of risk in the mining industry has improved, with insurers
offering more competitive rates for mining companies. In 2022, insurance
premiums for the Group were 13% lower compared to 2021. The Group is in the
second 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 pursued two insurance claims in 2022. One relates to 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. We hope to receive an appropriate settlement in 2023. The second
claim relates to diesel theft identified in 2021.
Share-based payments
The share-based payment charge for the year was US$0.3 million (2021: US$0.4
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 4 April 2022, 1 007 098 nil-cost options were
granted to certain key employees and Executive Directors under the new GDIP.
Refer to the Remuneration Committee report on page 119 for more detail.
Dividends and share buyback programme
In line with the Group's commitment to deliver sustainable shareholder
returns, the Board proposed a dividend of 2.7 US cents per share (US$3.8
million) which was approved at the 2022 Annual General Meeting and paid in
June 2022.
In addition, the Board launched a share buyback programme on 12 April 2022 and
purchased 1 520 170 shares that are held as treasury shares. The weighted
average purchase price was 60.05 GB pence (78.07 US cents) per share. An
amount of US$1.2 million was spent up to 7 June 2022, which is the date that
the Board authority lapsed. We believe that this buyback represents another
important mechanism by which to return further capital to shareholders. The
share price strengthened immediately following the announcement of the share
buyback programme. At the AGM on 8 June 2022 shareholders again authorised Gem
Diamonds to purchase its own shares within the permitted parameters. The
programme, however, was not reinstated to preserve cash in light of increasing
operating costs.
The Board is not proposing a dividend based on the 2022 financial results due
to the volatility in the current economic outlook and the need to preserve the
Group's available cash resources.
TAXATION
The Group applies all relevant principles in accordance with prevailing
legislation in assessing its tax obligations. The Group's effective tax rate
was 33.8%. 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 Group continues to pursue a long-standing legal matter relating to an
amended tax assessment that was issued to Letšeng by the Revenue Services
Lesotho (RSL) (previously known as the Lesotho Revenue Authority (LRA)) 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 2023. We have sought senior legal counsel and their advice indicates
good prospects for success. Refer to the accounting treatment for this matter,
Note 1.2.28, Critical accounting estimates and judgements for further detail.
OUTLOOK
We are driving several initiatives to contain our operating costs in a
volatile environment. These include a focus on reducing the impact of
significant cost increases and investing in renewable energy to support our
decarbonisation strategy. We have commenced the optimisation and right-sizing
of Letšeng. This project will include a coaching and mentoring component to
address skills and experience challenges at supervisory and management levels
together with certain targeted operational performance issues. This project
will consider resizing the business to ensure a more appropriate skills match
with the current profile of our operations. This is a difficult but necessary
step to ensure that our continued status as a low-cost operator is maintained.
Michael Michael
Chief Financial Officer
15 March 2023
OPERATIONS REVIEW
2022 saw robust operational performance and improving operational efficiencies
in challenging physical and economic conditions.
2022 OVERVIEW
· Zero fatalities, three LTIs (2021: six), an LTIFR of 0.13 (2021:
0.24) and an AIFR of 0.70 (2021: 0.93).
· Zero major or significant environmental or stakeholder incidents.
· Focused dam and tailings facilities management.
· Energy efficiency and carbon reduction initiatives resulted in a
27% year on year reduction of the Group's carbon footprint.
· Objectives of the second year of our three-year TCFD adoption
strategy completed.
· Recovered four diamonds greater than 100 carats, including two
high-quality Type IIa white diamonds of 244.34 carats and 127.58 carats.
· Sold 29 diamonds for over US$1.0 million each, generating revenue
of US$56.3 million.
· Average price of US$1 755 per carat achieved, with highest
prices achieved being:
· US$79 543 per carat for a 10.07 carat pink diamond.
· US$66 059 per carat for an 8.41 carat pink diamond.
· US$53 834 per carat for a 30.01 carat white diamond.
· Supported our PACs through investment in education, school
infrastructure, small business development and clean water projects.
· Received our sixth consecutive annual ISO 14001(Environmental
Management) and 45001 (Occupational Health and Safety Management)
certifications.
· Completed the 2021-2022 core resource drilling programme and
commenced an Underground Feasibility Study for the Satellite pipe.
· Commenced the PCA replacement project, to be completed in Q2
2023, with commissioning early in Q3 2023.
· Completed the designs for a modular bioremediation plant to be
constructed in 2023.
PERFORMANCE
Safety
The Group's safety culture is founded on our commitment to zero harm and the
belief that all injuries are preventable. Letšeng recorded zero fatalities
and three LTIs during 2022 (2021: six), resulting in an improved LTIFR and
AIFR of 0.13 (2021: 0.24) and 0.70 (2021: 0.93), respectively. Letšeng's
safety performance improved in 2022, with the implementation of an
organisational safety culture maturity programme yielding positive results. In
2022, Letšeng commenced a two-year safety maturity strategy aimed at
addressing critical safety risks, enhancing safety-specific leadership
visibility, and engagement and implementing engineering and behaviour-focused
controls to more specifically prevent safety incident reoccurrences. The
programme is guided by independent subject matter experts and includes
mentoring senior management on best practice safety leadership and
successfully implementing our critical control management strategy.
Safety performance Unit 2022 2021
Fatalities Number 0 0
LTIs Number 3 6
LTIFR 200 000 man hours 0.13 0.24
AIFR 200 000 man hours 0.70 0.93
Operations
KPI Unit 2022 2021 % change
Ore mined tonnes 5 732 493 6 298 862 (10)
Waste tonnes mined tonnes 10 153 846 18 663 493 (45)
Ore treated tonnes 5 506 576 6 172 428 (11)
Carats recovered 1 carats 106 704 115 336 (7)
Carats sold carats 107 498 109 697 (2)
Average price per carat US$/carat 1 755 1 835 (4)
1 Includes carats produced from the Letšeng plants, the Alluvial Ventures
plant and the coarse and fines tailings treatment plants.
Letšeng operated safely and responsibly throughout 2022 and we welcomed a
resumption of more normal operating conditions post COVID-19, particularly a
more reliable supply chain. This however was short-lived as the Russian
invasion of Ukraine and the ensuing war brought about immediate inflationary,
cost and supply chain challenges globally, directly impacting our operations.
Extreme weather conditions at Letšeng, including exceptionally high rainfall
and snow, although well managed, resulted in intermittent disruptions to our
mining operations. The positive impact of the high rainfall throughout the wet
season was that the freshwater dam reached 92% of its capacity and, based on
current usage rates for operational requirements, has sufficient freshwater
capacity for up to nine years.
The 2022 Lesotho general election held in October required a compulsory
two-day site-wide shutdown at Letšeng to allow the workforce to vote in their
respective constituencies. Although operations were halted for two days, the
time was used to perform scheduled maintenance to mitigate the impact of lost
operating time.
Waste tonnes mined
Total waste tonnes mined in 2022 decreased (46)% to 10.2 million tonnes from
18.7 million tonnes in 2021. This was in line with the planned 2022 waste
mining profile, further optimised with the successful implementation of slope
steepening of the active cutbacks in the Main pit. This followed the
successful steeper slope and berm retention programme implemented in Cut 5
West of the Satellite pit during 2021. To further optimise waste mining and
the cost thereof, we enhanced our initiative to further reduce the haulage
distances travelled from the Main pit, in particular the new Cut 4 West
cutback, to the waste dump.
Ore mined
Total ore tonnes mined in 2022 decreased 9% to 5.7 million tonnes from 6.3
million tonnes in 2021. This was in line with the 2022 mine plan, taking into
account the treatment capacity of the plants, including the reduced
requirement of ore mining following the expiry of the Alluvial Ventures
processing contract on 30 June 2022, and required stockpile management.
Ore treated
Ore treated during 2022 of 5.5 million tonnes (2021: 6.2 million tonnes)
comprised 5.1 million tonnes treated by Letšeng's two plants (2021: 5.2
million) and 0.4 million tonnes treated by Alluvial Ventures, the third party
processing contractor (2021: 1.0 million). The reduction in total ore tonnes
treated in 2022 compared to 2021 was mainly driven by
the expiry of Alluvial Ventures' processing contract on 30 June 2022. Of the
total ore treated, 2.5 million tonnes were sourced from the Main pipe and 3.0
million from the Satellite pipe, the latter being in line with the planned
annual Satellite ore contribution.
The biggest challenge to the performance and stability of the plants in 2022
was the negative impact of more frequent and longer periods of grid power
outages resulting from increased load shedding by Eskom. Although the work
completed on increasing Letšeng's back-up generator capacity and improving
the synchronised switch-over to generator power yielded benefits, the
additional strain on and instability caused by more frequent and longer load
shedding increased the risk of plant and equipment breakdowns and chokes. An
example of this was a sudden secondary crusher breakdown in Plant 2 in October
2022, which caused 3.5 days of downtime to repair. The significantly increased
utilisation of diesel generators, together with the increased cost of diesel
in the year, had a significant negative impact on operating costs.
Other challenges to plant performance included the maintained lower feed rate
of the current ageing primary crusher asset in 2021, to protect its longevity,
while the replacement PCA is being constructed. This impacted the ability of
the current primary crusher to keep up with plant demand, creating plant feed
challenges at times. The new PCA will be commissioned in Q3 2023 and comprises
a twin module design with a combined throughput of c.1 000 tonnes/hour.
Extensive work to resolve identified issues of plant stability, appropriate
maintenance strategy implementation, and certain other issues causing
inconsistent performance, yielded positive results in Q4 2022 as plant
stability and performance improved. Further improvement and optimisation of
the organisational structure is being implemented to ensure that the operation
and maintenance of the plants are more effectively and efficiently managed.
Total carats recovered
Total carats recovered in 2022 decreased 7% to 106 704 carats (2021:
115 336 carats) due primarily to comparatively lower production volumes
treated.
The coarse tailings mobile XRT sorting machine recovered 774 carats in 2022
(2021:1 098 carats) from re-treating coarse recovery tailings, and an
additional 2 657 carats (2021: 213 carats) were recovered by the fines
tailings mobile XRT sorting machine, which treated both historic and current
fines recovery tailings.
The overall grade for 2022 was 1.94cpht which is higher than 2021 and in line
with the expected reserve grade. The contribution from Satellite pipe material
accounted for 55% of all material treated during the year (2021: 54%).
Large diamond recoveries
In 2022, Letšeng recovered four diamonds greater than 100 carats, and total
diamonds recovered greater than 10 carats decreased by 11% year on year,
mostly in the 10 to 20 carat size category. The lower number of diamonds in
the larger categories can be primarily attributed to the domains of the
resource that were mined in both the Satellite and Main pipes in 2022. A total
of 126 greater than 100 carat diamonds have been recovered at Letšeng since
2006.
Number of large diamond recoveries 2022 2021 FY average
2008 - 2021
>100 carats 4 6 8
60 - 100 carats 18 16 19
30 - 60 carats 69 81 77
20 - 30 carats 108 122 114
10 - 20 carats 507 570 442
Total diamonds >10 carats 706 795 660
Diamond sales
Eight rough diamond tender viewings were held in Antwerp with two additional
viewings held in Dubai in March and September. All tenders were well attended
and the competitive bidding evidenced that demand for Letšeng's large,
high-value diamonds remained strong throughout the year.
A total of 107 498 carats were sold in 2022 (2021: 109 697) and Letšeng
generated rough diamond revenue of US$188.6 million (2021:
US$201.30 million), at an average price of US$1 755 per carat (2021:
US$1 835).
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, proving their authenticity, provenance and traceability,
and supporting ethical sourcing and processing in the diamond value chain.
Life of mine plan and Underground Feasibility Study
In Q2 2022 it was identified that the kimberlite contact on the west side of
the Satellite pipe protruded further into the side wall from where it had been
previously mapped. This resulted in an inability to access the ore in the
contact area safely and required an amendment to the short-term Satellite pit
design. Following a review of numerous solutions, the most appropriate plan
was to "step-in" on the pit design of Satellite Cut 5 West (C5W), which
resulted in a deferment of ore originally planned for C5W into either (i) the
next cutback in the Satellite pipe (Cut 6 West (C6W)) or (ii) a potential
underground operation. This has resulted in a reduction in the volume of ore
previously available in C5W, thereby reducing the life of this cutback from
2025 to 2024. We continue to review and explore opportunities to extract
additional ore from C5W - ie initiatives such as the use of a surface miner to
steepen remaining benches and other viable end-of-cutback opportunities (ie
backloading of the ramp) that could bring additional ore back into C5W.
In light of these changes, our long-term mine plan has been updated to take
into account the reduced tonnes in Satellite C5W.
A conceptual desktop study for an underground mining operation in the
Satellite pipe post the current C5W 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. This study commenced in mid-2022 and is expected to be
completed in Q4 2023. The study will (i) assess the viability of an earlier
shift to underground mining of the Satellite pipe, and (ii) inform the
trade-off between underground mining and proceeding with the next open pit
cutback in the Satellite pipe (C6W) post the completion of Satellite C5W in
2024. The study will encompass several underground feasibility studies,
including geological and hydrogeological drilling and modelling, geotechnical
drilling, geo-metallurgy and social and environmental impact assessments.
Following the successful steepening of the pit slope angles in Satellite C5W,
steeper slopes have now been implemented in the Main pit Cut 4 East and Cut
4 West cutbacks. This has resulted in lower waste stripping requirements for
the Main pit from c.12.0 million tonnes per annum to c.9.5 million tonnes per
annum compared to the previous mine plan. This has also allowed access to a
further c.5.3 million tonnes of Main pipe ore. A third plant which was
included in the previous mine plan has been deferred and will be reassessed
following the outcome of the trade-off between open pit and underground
mining, resulting in reduced annual treatment rates. These factors have had
the impact of extending the mine plan to 2040 as set out in the graph below.
Resource development
Letšeng embarked on a Resource Development Project in 2016, the objectives of
which initially were to improve the understanding of grade and price
variability within the five historical kimberlite domains (namely KMain, K6
and K4 in the Main pipe and NVK and SVK in the Satellite pipe) which formed
the basis of previous Resource and Reserve Statements. Letšeng's last
independent Resource and Reserve Statement was published in 2015.
The first step in the process was to increase the drillhole coverage down to
300 metres below pit floor, including extensive core drilling, petrography,
mineral chemistry and micro-diamond studies. This core drilling programme was
concluded in December 2018, with 12 drillholes (c.3 000 metres) in the Main
pipe and 16 drillholes (c.4 000 metres) in the Satellite pipe. Sampling of the
core and related geological studies were carried out in 2019-2020. Preliminary
geological models produced by SRK Consulting suggested more complex internal
geology in both pipes than was previously reflected in the 2015 Resource and
Reserve Statement. Additional drilling was therefore required to delineate the
internal contacts between domains before the geological models could be
finalised and the Resource Statement updated. To achieve this, a further c.9
000 metre core drilling programme was undertaken in late 2020, which was
completed in June 2022 and comprised 13 core drillholes (c.3 500 metres) in
the Satellite pipe and 25 core drillholes (c.5 500 metres) in the Main pipe.
The draft geological models for the Satellite pipe indicated that yet more
core drilling was required to adequately define contacts in the central
portion of the pipe. The drilling of four additional core drillholes (c.2 000
metres) in the Satellite pipe commenced in December 2022 and will be completed
by May 2023. The preliminary geological models for the Main pipe were
completed by SRK Consulting in November 2022. Work on the pit optimisation of
both the Main and Satellite pits has commenced.
The focus in 2022 was completing the core drilling programme in the Main pipe
and assembling the bulk sampling and pricing data for the newly defined
domains in both pipes. The primary challenge facing an in-pit core drilling
programme of this nature is competing with ongoing production activities for
access to the drilling sites within the limited confines of each pit. Although
both the core drilling programme and continued production are vital to the
sustainability of the operation, priority is given to the latter.
The information from this latest drilling programme will inform both the
updated Resource and Reserve Statement and the Underground Feasibility Study
currently being undertaken for the Satellite pipe. The updated Resource and
Reserve Statement and accompanying NI43-101 Technical Report are scheduled to
be completed by the end of 2023.
Surface miner trial
In 2022, we further progressed a mining project to optimise ore fragmentation
and plant throughput by trialling a surface miner in Main pit Cut 4 East
(MC4E). By year end, 0.2 million tonnes of ore were cut by the machine and
treated as a sample through both Letšeng's plants. The surface miner
technology presents a potentially diamond-friendly method of breaking the rock
while providing a consistently well-fragmented product to the plant,
positively impacting throughput. In addition to achieving higher truck
payloads by replacing drilling and blasting in the kimberlite, the surface
miner has the potential to allow for steeper pit slopes in ore - thereby
enabling access to more ore for the same waste stripped. Replacing the
drilling and blasting process in ore is also a cleaner mining method, as
nitrates resulting from blasting are reduced. The incorporation of a surface
miner into Letšeng's mining method for the Satellite pipe is being considered
and discussions with various surface miner suppliers and mining contractors
have commenced.
Capital projects
Capital was appropriately allocated during 2022 and was in line with
operational requirements. All project-related capital spend is closely
monitored by the Projects Steering Committee, attended by the COO (Chair), CFO
and Senior Technical and Projects Manager, together with senior management
from Group and Letšeng. Letšeng's key capital projects for 2022 included:
· the replacement of the PCA;
· commencement of the Underground Feasibility Study;
· the core drilling programme to inform the Resource and Reserve
Statement; and
· the designs for the Patiseng Coarse Tailings Facility expansion
project and the bioremediation project.
Details of overall costs and capital expenditure incurred at Letšeng are
included in the CFO review on page 49.
The planned capital spend in 2023 relates mainly to 2022 carry-over capital,
including the completion of the new PCA and bioremediation project, and
finalising the Underground Feasibility Study and Resource and Reserve
Statement. No other major new capital spend is anticipated in 2023.
Tailings storage facility and dam management
Operational status of our dams and tailings storage facilities
The recent global tailings dam failures in the mining industry have shown the
severe adverse impact these can have on human lives and the natural
environment. Tailings dam integrity is consequently an ongoing area of
significant focus for mining companies and investors.
Letšeng has two tailings storage facilities (TSFs) and one freshwater dam on
site:
1. the Patiseng TSF, which is currently in use for the deposition of
coarse and fines tailings;
2. the Old TSF, which is sporadically used for fine tailings
deposition; and
3. the Mothusi Dam, which is the mine's freshwater supply source.
Letšeng's TSFs and dam were constructed using the centre line and downstream
tipping method, being a safer method of construction than the "upstream"
construction methods used in most recent dam failures reported in the mining
industry.
The 2022 quarterly dam safety inspections for the Mothusi Dam were completed
as scheduled. There were no adverse findings regarding the safety of the dam
or the possible failure modes relating to the embankment, the spillway
structure or the seepage. The exceptionally high rainfall experienced in 2021
and 2022 prompted us to request the Engineer of Record (EoR) responsible for
the Mothusi Dam to provide an opinion on the safe operating level of the dam.
The EoR confirmed that the dam can be safely operated at its 100% full supply
capacity, subject to all operation and maintenance procedures being followed.
The dam reached 100% full supply capacity in January 2023 and water started
flowing down the spillway which had been extended to push the flow away from
the toe of the wall.
Our TSF management code of practice is aligned to that of the ICMM's GISTM,
and we have established appropriate governance structures at both operational
and Group levels to provide oversight and assurance of continued safe and
responsible management of our TSFs. The relevant details of Letšeng's TSFs
are available in our voluntary disclosure as part of the Investor Mining and
Tailings Safety initiative set up by the Church of England, which can be found
under the Company's name at http://tailing.grida.no/
(http://tailing.grida.no/) .
An external consultant was appointed to conduct geotechnical investigations to
provide the technical data and information to understand the tailing storage
facilities' founding conditions and to review and update the dam breach
analysis that was conducted in 2020. The outcome of this work will inform the
current consequence classification of our TSFs. This work has commenced and is
scheduled to be completed by Q3 2023.
There were no incidents of compromised dam or TSF integrity.
Governance framework
Our approach
It is our responsibility to guard our workforce, communities and the
environment in which we operate against any potential risks posed by our
operations. TSFs, while an integral part of mining, present a significant
potential hazard if not responsibly managed and continuously monitored.
Focused risk management is therefore crucial at every stage of the lifecycle
of our TSFs.
In response to recent tragedies, the ICMM's GISTM was established to achieve
the ultimate goal of zero harm to people and the environment. The GISTM
requires operators to take responsibility and prioritise the safety of TSFs
through all phases of their lifecycles, including closure and post-closure. It
also requires the disclosure of relevant information to support public
accountability. Gem Diamonds has committed to and adopted the GISTM standards.
We recognise that ensuring the integrity of our TSFs and freshwater storage
facilities is non-negotiable and integral in exercising our responsibility to
safeguard our workforce, communities and environment to ensure business
continuity. We take a focused and proactive approach to managing our TSFs
according to appropriate international best practice. Retaining structures and
embankments undergo stringent safety monitoring in the form of inspections and
audits, which are conducted both internally and externally at regular
intervals throughout the year. Stringent inspections and monitoring on a
daily, weekly and monthly basis include surveying various factors such as the
densities of fines deposits, water levels, beach lengths and freeboard. Annual
structural stability analysis is also conducted at our TSFs and an
early-warning system, together with community training and awareness
programmes, are used to ensure the emergency readiness of communities that
could be affected in the unlikely event of a failure. The nearest village is
located 20km downstream from the mine.
The findings and recommendations stemming from these investigations and audits
are reported quarterly to the Boards and Sustainability subcommittees at both
operational and Group level.
The Global Industry Standard on Tailings Management
The GISTM is directed at operators and applies to TSFs, both existing and
to-be-built. It makes it clear that extreme consequences to people and the
environment from catastrophic TSF failures are unacceptable. To this end,
operators must have zero tolerance for human fatalities and strive for zero
harm to people and the environment, which is directly aligned to our safety
culture. The GISTM provides the specified measures to prevent failure of TSFs
and to implement best practices in planning, design, construction, operation,
maintenance, monitoring, closure and post-closure activities.
Our dam and TSF management, monitoring and assurance strategy
Storage Internal External Additional Measures in Case of Failure
Facility
Inspections
Inspections
Studies
Patiseng Daily inspections Quarterly structural •Facility Risk Assessment. •Emergency assessments and planning for wall failures.
TSF
and weekly
stability inspections by
surveys of water
the appointed Engineer •Inundation studies with Flow Modelling. •Communication towers in downstream villages.
level, beach
of Record (EoR).
length and
•Geotechnical characterisation. •Mobile phone contact with communication custodians.
freeboard as well
Annual structural
as overall TSF
stability assessment by •Alarm activation from within villages or Letšeng emergency control centre.
condition.
independent external
expert. •Business continuity planning.
Old TSF Daily inspections Quarterly structural •Facility Risk Assessment. •Emergency assessments and planning for wall failures.
and weekly
stability inspections by
surveys of water
EoR. •Inundation studies with Flow Modelling. •Communication towers in downstream villages.
level, beach
length and
Annual structural •Geotechnical characterisation. •Mobile phone contact with communication custodians.
freeboard as well
stability assessment by
as overall TSF
independent external •Alarm activation from within villages or Letšeng emergency control centre.
condition.
expert.
•Business continuity planning.
Mothusi Weekly Annual dam safety •Facility Risk Assessment. •Emergency assessments and planning for wall failures.
Dam
inspections.
inspections by EoR.
•Flow Modelling Study. •Communication towers in downstream villages.
Quarterly dam safety
inspections by Letšeng, •Resistivity surveys. •Mobile phone contact with communication custodians.
reviewed by EoR.
•Alarm activation from within villages or Letšeng emergency control centre.
•Business continuity planning.
TSF Risk and Governance Management Framework
Group Risk and Board The Board of Directors is informed of the status of the TSFs providing
Reporting confirmation of the following:
structures
•All TSFs have been designed with a full understanding of the consequence of
failure, site conditions and reasonably expected operating conditions.
•All TSFs are, and will be, constructed and operated in accordance with
defined thresholds and performance indicators with particular reference to
containment integrity and overtopping risk management; and managed in
accordance with the Gem Diamonds TSF Management Standard.
•Construction, operation, maintenance and surveillance of each TSF is
proceeding in conformance to design intent.
•Compliance and performance is verified as part of the Gem Diamonds
assurance program, both internally and externally. Non-conformances that may
increase risk to the point where the design intent may not be achieved, are
identified, reported and addressed.
•An emergency response plan, based on a comprehensive understanding of the
consequences of failure, has been developed, implemented, maintained and
tested.
•In alignment with the requirements of the recently published GISTM, the
above items are independently verified by suitably qualified professionals (an
external reviewer/review board) at intervals dictated by the consequence
classification of each facility.
Internal Risk and Risk and Risk management and assessment commensurate with the consequence of failure of
Assurance
Assurance each facility is carried out routinely. The results of which are reviewed and
overseen by independent third-party experts.
Independent Independent •An appointed ITRB consisting of Senior Independent Technical Reviewers
Technical Review
Technical (SITR) is mandated for systematic and ongoing independent reviews.
Board (ITRB)
Review Board
(ITRB) •The ITRB provides independent technical review of the design, construction,
operation, closure and management of tailings facilities. The independent
reviewers are third-parties who are not, and have not been directly involved
with the design or operation of the particular tailings facility. The
expertise of the ITRB members reflect the range of issues relevant to the
facility and its context and the complexity of these issues. The ITRB reports
directly to the COO.
Tailings Tailings Tailings Governance Committee, chaired by the COO, who reports directly to
Governance
Governance
the CEO on matters related to the GISTM, communicates with the Board of
Committee
Committee
Directors, and who is accountable for the safety of tailings facilities and
for
minimising the social and environmental consequences of a potential tailings
facility failure.
Engineer of Engineer of The Engineer of Record (EoR) is a qualified engineering firm or individual
Record (EoR)
Record (EoR)
responsible for confirming that the tailings facility is designed,
constructed,
and decommissioned with appropriate concern for integrity of the facility, and
that it aligns with and meets applicable regulations, statutes, guidelines,
codes
and standards. Every facility has an EoR working continuously with the
Responsible Tailings Facility Engineer (RTFE) and operational management to
ensure construction and operational adherence to design, and that the
structure is performing in line with the design intent.
Competent Competent The RTFE is an engineer appointed by Letšeng who is responsible for the
person (RTFE)
person
tailings facilities. The RTFE must be available at all times during
(RTFE) construction,
operations and closure. The RTFE has clearly defined, delegated
responsibility.
Community engagement on TSF and dam safety
Letšeng provides the community and district-level stakeholders with balanced
and objective information about the state and safety of its TSFs and
freshwater storage dam. This is done during quarterly public gatherings
attended by community representatives from nine neighbouring villages.
Consultations are held with these stakeholders on TSFs and dam-related safety
activities and project decisions that directly or indirectly affect them.
Letšeng and six of the nine neighbouring villages jointly established the
downstream emergency preparedness programme. The aim of this programme is to
alert the community in the event of a TSF or dam incident or any other
emergency that would require the communities to evacuate from the downstream
villages.
We frequently conduct in-depth training of community members on how to respond
during an emergency. Emergency preparedness drills with community members are
held every quarter. Assembly points have been identified and clearly marked in
the villages. A two-way radio system is also in place and is regularly tested.
Sirens have been installed in the six villages which are centrally controlled
at the mine and manned 24 hours a day by the mine's Emergency Team.
Stakeholder engagement platforms:
· Quarterly public gatherings with local communities.
· Daily, weekly and monthly engagement with community leaders.
· Biannual district-level stakeholder forums.
· Quarterly district leadership forums.
· Monthly district leadership meetings.
· Joint emergency preparedness drills.
OUR PLANS FOR 2023
We have several operational objectives for 2023. These include:
· Completion of the Underground Feasibility Study timeously and
cost-effectively. Concluding this important study will allow us to make
strategic decisions on the way forward for Letšeng's orebody (ie the
trade-off between Satellite C6W and the early access underground operation),
and will also inform the updated Resource and Reserve Statement.
· Complete our updated Resource and Reserve Statement.
· Enhancing efficiencies and reducing costs. The optimisation and
right-sizing of Letšeng's operations to align with operational requirements.
· Investment in renewable and/or alternative energy sources.
Providing a consistent source of power for the mine operations remains a
challenge at Letšeng. A power usage study has been commissioned to inform the
way forward on prioritised power usage and assess the opportunities for
lower-carbon and renewable energy sources.
DIRECTORS' REPORT
The Directors are pleased to submit the financial statements of the Group for
the year ended 31 December 2022.
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 2022 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.
Aligned 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 2022 Annual Report and Accounts,
indicated by a reference.
The Strategic Report can be found on pages 3 to 88. 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
2023. The expectations set out in the forward-looking statements are
reasonable but may be influenced by a 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 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 3 to 88.
DIRECTORS
The Directors, as at the date of this report, are listed on pages 214 to 216
to together with their biographical details. Details of the Directors'
interests in shares and share options of the Company can be found on page 139.
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
the 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
Details of payments for loss of office to Executive Directors due to a change
in control can be found on page 126.
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 98 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 interest
of Directors in the shares of the Company is included on page 139.
SUPPLIERS AND CUSTOMERS
We engage extensively with suppliers and contractors to ensure alignment,
mutual understanding and the sustainability of all parties.
We have ongoing communication with customers and our sales processes have
resumed as normal post COVID-19. We achieved market-related prices for our
diamonds throughout the year. In 2022, we entered into an agreement with two
important diamond manufacturing clients who will supply polished diamonds to
some of world's most premium luxury brands. These diamonds are polished to the
specifications of these luxury brands and additional value is realised for the
Group as it shares in a percentage of the sales price of the resultant
polished diamonds.
Refer to our stakeholder relationships section on pages 17 to 20 for more
details on our engagement with suppliers, contractors and customers.
RESULTS, DIVIDENDS AND SHARE BUYBACK PROGRAMME
The Group's attributable profit after taxation amounted to US$10.2 million
(2021: US$14.8 million).
The Group's detailed financial results are set out in the financial statements
on pages 151 to 207.
In line with the Group's commitment to deliver sustainable shareholder
returns, the Board proposed a final dividend of 2.7 US cents per share
(US$3.8 million) for the 2021 financial year, which was approved at the
Annual General Meeting on 8 June 2022.
In addition, the Board launched a share buyback programme on 12 April 2022 and
purchased 1 520 170 shares that are held as treasury shares. The weighted
average purchase price was 60.05 GB pence (78.07 US cents) per share. An
amount of US$1.2 million was spent up to 7 June 2022, which is the date that
the Board authority lapsed. At the AGM on 8 June 2022 shareholders again
authorised Gem Diamonds to purchase its own shares within the permitted
parameters.
The Board is not proposing a dividend based on the 2022 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 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 3 to 88. The financial position of the Group, its cash flows
and liquidity position are described in the Strategic Report on pages 49 to
55. In addition, Note 26 and Note 28 to the financial statements include 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 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, debt facilities,
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 prospect of the Group over a period longer than 12
months as 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 43.
SUBSEQUENT EVENTS
Refer Note 30 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 16 to the
financial statements.
As at 15 March 2023, there were 139.4 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 2022, the Board noted the proportion of the votes cast
against the resolution referring to the authority of Directors to allot shares
(Resolution 13 passed with 58.55% of participating shareholders voting in
favour). The Board was disappointed in this outcome, given that the resolution
reflects UK-listed company market practice. In view of a significant
shareholder's position and standing policy on this matter, the Board and the
executive management team have not engaged in further consultation with the
significant shareholder, but will continue to regularly consider their
approach to this matter.
At the same AGM, shareholders authorised the Company to make on-market
purchases of up to 13 922 781 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 2023 AGM, shareholders will be requested to renew this authority. The
Directors continue to consider various options and keep the authorisation
under regular review. The 2023 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 18.
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 Group's resource development activities are focused on deepening the
understanding of existing resources at Letšeng and collecting information on
the future strategic decisions to be made. The Operations Review on page 56
provides more detail on these activities.
CORPORATE SOCIAL RESPONSIBILITY AND SUSTAINABILITY
Read more about the Group's 2022 Sustainability Performance, including CSI
investment, community participation and environmental management, in Our
Sustainability Report which is available at www.gemdiamonds.com.
POLITICAL DONATIONS
The Group made no political donations during 2022.
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 2022 can be found
in the Our Approach to Climate Change and Sustainability sections on pages 25
and 64 respectively.
By order of the Board
Harry Kenyon-Slaney
Non-Executive Chairperson
15 March 2023
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
The Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Group, and of their profit or loss for that period. 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, cash flow 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
15 March 2023
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 151 to 207, which comprise
the consolidated statement of financial position as at 31 December 2022, and
the consolidated statement of profit or loss, consolidated statement of other
comprehensive income, consolidated statement of changes in equity and the
consolidated statement of cash flows for the year then ended, and notes to the
financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present
fairly, in all material respects, the consolidated financial position of the
Group as at 31 December 2022, and of its consolidated financial performance
and consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards.
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 the audit of the consolidated financial statements of
the current period. These matters were addressed in the context of the audit
of the consolidated financial statements as a whole, and in forming the
auditor's 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 these matters. Accordingly,
our audit included the performance of procedures designed to respond to our
assessment of the risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including the procedures
performed to address the matters 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. Goodwill relates assist in evaluating management's impairment methodology and key assumptions
to the Group's investment in the Letšeng Diamond mine. used in the impairment calculations;
There is an inherent uncertainty in forecasting and discounting future cash •Our valuation specialists calculated two independent weighted average cost
flows, which forms the basis of the Group's value in use calculations used in of capital (WACC) rates (Revenue and costs) to compare to management's WACC's.
the impairment model. This was amplified due to the economic and other effects Our independent WACC recalculations were based on publicly available market
of the continued Covid-19 pandemic including uncertainty around the duration data for comparable companies for the Letšeng Cash Generating Unit (CGU);
of the pandemic and timing of the recovery of the various world economies. The
continued volatility in diamond prices, exchange rates and discount rates •Our valuation specialists calculated an independent net present value (NPV)
resulted in additional audit work in assessing the Group's impairment model. to compare to management's NPV;
As disclosed in Note 11 Impairment testing and Note 1.2.28 Critical accounting •Our valuation specialists assessed the reasonability of the significant
estimates and judgements, the Group uses discounted cash flows to determine inputs and assumptions used in the impairment models, such as diamond prices,
the value in use for each cash generating unit, on the basis of the following exchange rates, inflation rates, by comparing them to independent sources;
key assumptions:
•We have performed sensitivity analyses around the key assumptions used in
•Diamond prices; the impairment model. We did this by increasing and decreasing the following
assumptions in the model to determine the impact on the headroom between the
•Inflation rates; value of the recorded assets of the CGU and the value in use as calculated.
These included:
•Production costs and volumes;
•WACC; and
•Capital expenditure;
•Diamond prices
•Discount rates; and
•We assessed the adequacy of the Group's disclosures in terms of IAS 36, in
•Exchange rates. the notes to the consolidated financial statements.
Given the above factors, the goodwill impairment, particularly in the diamond
mining industry, required significant audit attention in the current year
through extended sensitivity and stress testings with different scenarios
including the use of our valuation experts.
Other Information
Management is responsible for the other information. The other information
comprises the information included in the 219-page document titled 'Gem
Diamonds Annual report and Accounts 2022'.The other information does not
include the consolidated financial statements and our auditor's report
thereon.
Our opinion on the consolidated financial statements does not cover the other
information and we do not express 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 IFRSs, 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 nternal 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
identity 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)
15 March 2023
102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEAR ENDED 31 DECEMBER 2022
Notes 2022 2021*
US$'000 US$'000
Revenue from contracts with customers 2 188 937 201 859
Cost of sales (124 113) (121 587)
Gross profit 64 824 80 272
Other operating expense 3 (1 937) (4 116)
Royalties and selling costs (20 328) (21 918)
Corporate expenses (8 997) (8 886)
Share-based payments 27 (253) (397)
Foreign exchange gain 4 1 914 1 923
Impairment of non-current assets 15 (702) -
Operating profit 4 34 521 46 878
Net finance costs 5 (4 089) (3 963)
- Finance income 413 202
- Finance costs (4 502) (4 165)
Profit before tax for the year 30 432 42 915
Income tax expense 6 (10 277) (15 562)
Profit for the year 20 155 27 353
Attributable to:
Equity holders of parent 10 178 14 767
Non-controlling interests 9 977 12 586
Earnings per share (cents) 7
- Basic earnings for the year attributable to ordinary equity holders of the 7.3 10.5
parent
- Diluted earnings for the year attributable to ordinary equity holders of the 7.2 10.4
parent
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
US$'000 US$'000
PROFIT FOR THE YEAR 20 155 27 353
Items that could be reclassified to profit or loss in the future:
Exchange differences on translation of foreign operations, net of tax (18 534) (21 196)
Other comprehensive loss for the year, net of tax (18 534) (21 196)
Total comprehensive income for the year 1 621 6 157
Attributable to:
Equity holders of parent (2 513) (154)
Non-controlling interests 4 134 6 311
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
Notes US$'000 US$'000
ASSETS
Non-current assets
Property, plant and equipment 8 293 499 293 627
Right-of-use assets 9 6 340 3 137
Intangible assets 10 11 221 11 962
Receivables and other assets 12 2 916 1 278
Deferred tax assets 22 5 994 5 117
319 970 315 121
Current assets
Inventories 13 30 370 31 158
Receivables and other assets 12 4 855 4 095
Income tax receivable 20 2 323 1 232
Cash and short-term deposits 14 8 721 30 913
46 269 67 398
Assets held for sale 15 - 2 097
Total assets 366 239 384 616
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital 16 1 410 1 406
Treasury shares 16 (1 157) -
Share premium 885 648 885 648
Other reserves 16 (239 169) (226 697)
Accumulated losses (494 113) (500 550)
152 619 159 807
Non-controlling interests 80 428 86 843
Total equity 233 047 246 650
Non-current liabilities
Interest-bearing loans and borrowings 17 4 370 8 340
Lease liabilities 18 6 021 3 851
Trade and other payables 19 2 169 2 095
Provisions 21 15 387 11 202
Deferred tax liabilities 22 82 030 82 472
109 977 107 960
Current liabilities
Interest-bearing loans and borrowings 17 1 575 2 704
Lease liabilities 18 1 877 973
Trade and other payables 19 19 708 22 188
Income tax payable 20 55 41
23 215 25 906
Liabilities directly associated with the assets held for sale 15 - 4 100
Total liabilities 133 192 137 966
Total equity and liabilities 366 239 384 616
Approved by the Board of Directors on 15 March 2023 and signed on its behalf
by:
C Elphick
M Michael
Director
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Attributable to the equity holders of the parent
Issued Share premium Treasury Other reserves 1 Accumu- Total Non- Total
capital
shares
lated
controlling
equity
(losses)
interests
/
retained
earnings
US$'00 US$'00 US$'00 US$'000 US$'00 US$'00 US$'000 US$'00
0
0
0
0
0
0
As at 1 January 2022 1 406 885 648 - (226 697) (500 550) 159 807 86 843 246 650
Total comprehensive - - - (12 691) 10 178 (2 513) 4 134 1 621
(loss)/income
Profit for the year - - - - 10 178 10 178 9 977 20 155
Other comprehensive loss - - - (12 691) - (12 691) (5 843) (18 534)
Share capital issued (Note16) 4 - - (4) - - - -
Share-based payments (Note - - - 253 - 253 - 253
27)
Share buyback (Note 16) - - (1 157) - - (1 157) - (1 157)
Transfer between reserves - - - (30) 30 - - -
Dividends declared (Note 29) - - - - (3 771) (3 771) (10 549) (14 320)
As at 31 December 2022 1 410 885 648 (1 157) (239 169) (494 113) 152 619 80 428 233 047
As at 1 January 2021 1 397 885 648 - (212 164) (511 808) 163 073 84 422 247 495
Total comprehensive (loss)/ - - - (14 921) 14 767 (154) 6 311 6 157
income
Profit for the year - - - - 14 767 14 767 12 586 27 353
Other comprehensive loss - - - (14 921) - (14 921) (6 275) (21 196)
Share capital issued (Note 16) 9 - - (9) - - - -
Share-based payments (Note - - - 397 - 397 - 397
27)
Dividends declared (Note 29) - - - - (3 509) (3 509) (3 890) (7 399)
As at 31 December 2021 1 406 885 648 - (226 697) (500 550) 159 807 86 843 246 650
Attributable to asset held for - - - (52 893) (196 006) (248 899) - (248 899)
sale (Note 15)
(1 ) Other reserves relate to Foreign currency translation reserves and
Share-based equity reserves. Refer Note 16, Issued share capital and reserves
for further detail.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes US$'000 US$'000
Cash flows from operating activities 63 032 71 307
Cash generated by operations 23.1 82 799 103 902
Working capital adjustments 23.2 (9 889) (7 107)
Interest received 5 303 202
Interest paid 18, 23.3 (2 933) (2 457)
Income tax paid 20 (8 435) (23 329)
Income tax received 20 1 187 96
Cash flows used in investing activities (59 672) (68 686)
Purchase of property, plant and equipment 8 (11 920) (3 985)
Waste stripping costs capitalised 8 (47 948) (64 725)
Proceeds from sale of property, plant and equipment 196 24
Cash flows used in financing activities (24 909) (19 025)
Lease liabilities repaid 18 (1 846) (1 660)
Net financial liabilities repaid 23.3 (7 734) (7 194)
Financial liabilities repaid (17 627) (26 393)
Financial liabilities raised 9 893 19 199
Share buyback 16 (1 157) -
Dividends paid to holders of the parent (3 623) (3 486)
Dividends paid to non-controlling interests (10 549) (6 685)
Net decrease in cash and cash equivalents (21 549) (16 404)
Cash and cash equivalents at beginning of year 31 057 49 827
Foreign exchange differences (787) (2 366)
Cash and cash equivalents at end of year 8 721 31 057
Cash and cash equivalents at end of year 14 8 721 30 913
Cash and cash equivalents at end of year - asset held for sale 15 - 144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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 15 March
2023.
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 2022.
Name and registered Share- Cost of Country Nature of business
address of company
holding
investment(1)
of
incorporation
Subsidiaries
Gem Diamond Technical Services 100% US$17 RSA Technical, financial and
(Proprietary) Limited2
management consulting services.
Illovo Corner
24 Fricker Road
Illovo Boulevard
Johannesburg
South Africa
Letšeng Diamonds (Proprietary) 70% US$126 000 Lesotho Diamond mining and holder of
Limited2
303
mining rights.
Letšeng Diamonds House
Corner Kingsway and Old School
Roads
Maseru
Lesotho
Gem Diamonds Botswana 100% US$5 844 579 Botswana Diamond mining; evaluation and
(Proprietary) Limited2,3
development; and holder of mining
The Courtyard unit 7A
licences and concessions.
Plot 54513 Village
Gaborone
Botswana
Gem Diamonds Investments Limited2 100% US$17 531 316 UK Investment holding company
Suite 1, 7th Floor,
holding 100% in each of Gem
50 Broadway, London
Diamonds Innovation Solutions CY
SW1H 0BL United Kingdom
Limited, a company holding
intellectual property relating to
development of technology to
innovate mining processes; Baobab
Technologies BV, a diamond
analysis and valuation facility in
Belgium; and Gem Diamonds
Marketing Services BV, a marketing
company that sells the Group's
diamonds on tender in Antwerp.
(1) The cost of investment represents original cost of investments at
acquisition dates.
(2 ) No change in the shareholding since the prior year.
(3) Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine),
ceased to be classified as a discontinued operation held for sale during the
current financial reporting period. Refer Note 15, Assets held for sale.
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) ceased to be classified as a
discontinued operation held for sale during the current financial reporting
period. Refer Note 15, Assets held for sale.
Management monitors the operating results of the geographical units separately
for the purpose of making decisions about resource allocation and performance
assessment.
Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), which was
classified as a discontinued operation held for sale and disclosed separately
as the discontinued operation segment in prior years, has ceased to be
classified as a discontinued operation held for sale during the current
financial reporting period, refer Note 15, Assets held for sale. The 31
December 2021 comparative segment information has been restated to re-present
the previous discontinued operation segment as the Botswana segment as part of
the Group's continuing operations.
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:
Year ended 31 December Lesotho Belgium BVI, RSA, UK and Cyprus1 Botswana Total
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 6 982 263 1 081 80 8 406
amortisation
- 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 322 7 22 19 370
employed under contracts of service
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 17, Interest-bearing loans and borrowings.
3 Non-cash movements in rehabilitation assets relating to changes in
rehabilitation estimates for the Lesotho and Botswana segments.
Included in revenue for the current 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.
Total revenue for the year decreased compared to the prior year mainly due to
a decrease in the volume of carats sold of 106 704 (2021: 109 697) and lower
recoveries of greater than 100 carat diamonds. An average sales price of
US$1 755 per carat (2021: US$1 835 per carat) was achieved.
Year ended 31 December Lesotho Belgium BVI, RSA, UK and Cyprus1 Botswana* Total*
2021
US$'000 US$'000 US$'000 US$'000 US$'000
Revenue from contracts with
customers
Total revenue 198 816 202 461 7 031 - 408 308
Intersegment (198 581) (837) (7 031) - (206 449)
External customers 235 201 624 - - 201 859
Depreciation and amortisation 54 012 350 1 063 - 55 425
- Depreciation and mining asset 7 199 350 1 063 - 8 612
amortisation
- Waste stripping cost amortisation 46 813 - - - 46 813
Share-based equity transactions (105) (4) (286) (2) (397)
Segment operating profit/(loss) 59 008 1 238 (9 835) (3 533) 46 878
Net finance costs (2 395) (1) (1 346) (221) (3 963)
Profit/(loss) before tax 56 613 1 237 (11 181) (3 754) 42 915
Income tax expense (14 661) (178) (723) - (15 562)
Profit/(loss) for the year 41 952 1 059 (11 904) (3 754) 27 353
EBITDA 64 328 1 625 (8 584) (2 047) 55 322
Segment non-current assets 306 777 161 1 788 1 413 310 139
Segment assets 369 105 1 985 6 312 2 097 379 499
Segment liabilities 39 440 351 11 603 4 100 55 494
Other segment information
Net cash and short-term deposits2 24 175 1 561 (5 014) 144 20 866
Capital expenditure
- Property, plant and equipment 3 952 7 32 - 3 991
- Net movement in rehabilitation asset3 (1 345) - - - (1 345)
- Waste cost capitalised 64 725 - - - 64 725
Total capital expenditure 67 332 7 32 - 67 371
Average number of employees 304 6 22 22 354
employed under contracts of service
*Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine),
previously reported as the discontinued operation segment in prior periods,
ceased to be classified as a discontinued operation held for sale during the
current financial reporting period and the comparative segment information has
been restated to re-present the previous discontinued operation segment as the
Botswana segment. Refer Note 15, Assets held for sale.
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 17, 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 2021 year is revenue from two customers who
individually contributed 10% or more to total revenue. This revenue in total
amounted to US$73.0 million arising from sales reported in the Belgium
segment.
Segment non-current assets do not include deferred tax assets of US$5.1
million and financial instruments of US$1.3 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$132.5
thousand
Segment assets and liabilities do not include deferred tax assets and
liabilities of US$5.1 million and US$82.5 million respectively.
1.2 Summary of significant 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 1.2.16, Foreign currency translations.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the financial
statements, are disclosed in Note 1.2.28, 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 2022 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 Description
new standards
Amendments to IFRS 16 Covid 19-Related Rent Concessions beyond 30 June 2021
Amendments to IAS 37 Onerous contracts - costs of fulfilling a contract
Amendments to IFRS 3 Reference to the Conceptual Framework
Amendments to IAS 16 Property, plant and Equipment proceeds before intended use
Improvement IFRS 1 Subsidiary as a first-time adopter
Improvement IFRS 9 Fees in the '10 per cent' test for derecognition of financial liabilities
Improvement IAS 41 Agriculture - Taxation in fair value measurements
New standards issued but not yet effective
The new 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, Description Effective
amendments, and
date*
improvements
IFRS 17 Insurance contracts 1 January 2023
Amendments to IAS 1 Classification of liabilities as current or non-current 1 January 2024
Amendments to IAS 8 Definition of Accounting Estimates 1 January 2023
Amendments to IAS 1 and Disclosure of Accounting Policies 1 January 2023
IFRS Practice Statement 2
Amendments to IAS 12 Deferred Tax related Assets and Liabilities arising from a Single 1 January 2023
Transaction
Amendments to IFRS 16 Lease Liability in a Sale and Leaseback 1 January 2024
Amendments to IFRS 10 and Sale or Contribution of Assets between an Investor and its Associate or Pending
IAS 28
Joint 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
26, 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 cash at 31 December 2022 was US$3.3 million (31 December 2021:
net cash US$20.9 million). Following the successful refinancing of the Group's
facilities for a three-year period from 23 December 2021 in the prior year and
securing the project debt facility for the replacement of the PCA in the
current year, the Group's undrawn facilities at 31 December 2022 amounted to
US$82.6 million, resulting in strong liquidity (defined as net cash and
undrawn facilities) of US$85.9 million (31 December 2021: US$95.1 million).
The Group's Revolving Credit facilities, which total US$74.1 million when
fully unutilised, mature on 22 December 2024. In addition, there is a US$5.9
million general banking facility with no set expiry date, but is reviewed
annually, and US$8.0 million which is the project debt facility for the
replacement of the PCA. This facility expires in May 2027 (Refer Note 17,
Interest-bearing loans and borrowings). The uncertainty that exists around the
ongoing impact of the Russian conflict on Ukraine on future cash flows was
considered by performing sensitivities on costs, diamond pricing and continued
strengthening or weakening of the US dollar against the Lesotho loti.
After reviewing detailed assessment performed by management and making
enquiries which include reviews of forecasts and budgets, timing of cash
flows, borrowing facilities and sensitivity analyses and considering the
uncertainties described in this report either directly or by cross-reference,
the Directors have a reasonable expectation that the Group has adequate
financial resources to continue in operational existence for the foreseeable
future. For this reason, they continue to adopt the going concern basis in
preparing the 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 2022.
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 a component of 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 are 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 Three to 15 years
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 1.2.28, 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 Non-current assets held for sale and discontinued operations
The Group classifies non-current assets and disposal groups as held for sale
if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use. Such non-current assets and
disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Costs to sell are the
incremental costs directly attributable to the sale, excluding the finance
costs and income tax expense.
The criteria for held-for-sale classification is regarded as met only when the
sale is highly probable, and the asset or disposal group is available for
immediate sale in its present condition. Actions required to complete the sale
should indicate that it is unlikely that significant changes to the sale will
be made or that it will be withdrawn. Management must be committed to the sale
expected within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or
amortised once classified as held for sale.
Assets and liabilities classified as held for sale are presented separately as
current items in the statement of financial position.
A disposal group qualifies as a discontinued operation if it is a component of
an entity that either has been disposed of, or is classified as held for sale,
and:
a. represents a separate major line of business or geographical area of
operations;
b. is part of a single co-ordinated plan to dispose of a separate major line
of business or geographical area of operations; or
c. is a subsidiary acquired exclusively with a view to resale.
Discontinued operations are excluded from the results of continuing operations
and are presented as a single amount as profit or loss after tax from
discontinued operations in the statement of profit or loss.
Additional disclosures are provided in Note 15, Assets held for sale. All
notes to the consolidated statement of financial position for the comparative
period as at 31 December 2021 exclude amounts for assets and liabilities held
for sale, unless stated otherwise.
1.2.9 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.
1.2.10 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 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.
1.2.11 Fair value measurement
The Group's financial instruments or transactions that are classified to be
measured at fair value on a recurring basis are measured at fair value at each
reporting date and financial instruments and transactions that are measured at
fair value on a non-recurring basis are measured at fair value at the
reporting date for which fair value measurement is relevant.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
· in the principal market for the asset or liability; or
· in the absence of a principal market, in the most advantageous
market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would
use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data is available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs. All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input that is
significant to the fair value measurement as a whole:
Level 1: Quoted (unadjusted) market prices in active markets for
identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable.
Level 3: Valuation techniques for which the lowest level input that is
significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements
that are measured at fair value on a recurring and non-recurring basis, the
Group determines whether transfers have occurred between levels in the fair
value hierarchy by reassessing categorisation (based on the lowest level input
that is significant to the fair value measurement as a whole) at the end of
each reporting period.
1.2.12 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.
Financial assets
Financial assets carried at amortised cost
The Group recognises an allowance for expected credit losses (ECLs) for all
financial assets at amortised costs in the statement of profit or loss. ECLs
are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Group expects to
receive, discounted at an approximation of the original effective interest
rate. The expected cash flows will include cash flows from the sale of
collateral held or other credit enhancements that are integral to the
contractual terms.
For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the next 12-months (a
12-month ECL). For those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over the remaining life of
the exposure, irrespective of the timing of the default (a lifetime ECL).
1.2.13 Inventories
Inventories, which include rough diamonds, ore stockpiles and consumables, are
measured at the lower of cost and net realisable value. The amount of any
write-down of inventories to net realisable value and all losses, is
recognised in the period the write-down or loss occurs. Cost is determined as
the average cost of production, using the weighted average method. Cost
includes directly attributable mining overheads, but excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated costs to be
incurred in marketing, selling and distribution.
The Group maintains strategic stockpiles in line with operational and
insurance requirements. In normal mining activities, lower grade ore is
consequentially mined and maintained in a separate stockpile. Although this
lower grade stockpile could be processed as emergency plant feed, its overall
intention is it to 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.
1.2.14 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position
at amortised cost. Cash and cash equivalents comprise cash on hand, deposits
held at call with banks, 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.
1.2.15 Issued share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction from the proceeds.
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.
1.2.16 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 16, 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.
1.2.17 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). In situations where some or all of the goods or services
received by the entity as consideration for equity instruments cannot be
specifically identified, they are measured as the difference between the fair
value of the share-based payment and the fair value of any identifiable goods
or services received at the grant date.
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.
Where the terms of an equity-settled award are modified, or a new award is
designated as replacing a cancelled or settled award, the cost based on the
original award terms continues to be recognised over the original vesting
period. In addition, an expense is recognised over the remainder of the new
vesting period for the incremental fair value of any modification, based on
the difference between the fair value of the original award and the fair value
of the modified award, both as measured on the date of the modification. No
reduction is recognised if this difference is negative, due to the fact that
it would not be beneficial to the employees.
Where an equity-settled award is cancelled, it is treated as if it had vested
on the date of cancellation, and any cost not yet recognised in the statement
of profit or loss for the award is expensed immediately. Where an
equity-settled award is forfeited, it is treated as if vesting conditions had
not been met and all costs previously recognised are reversed and recognised
in income immediately within the year of forfeiture.
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 Note1.2.28, 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 vesting date.
1.2.18 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.
1.2.19 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 1.2.28, Critical accounting estimates and judgements.
1.2.20 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.
1.2.21 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.
1.2.22 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 1.2.12, 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.
1.2.23 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 joint operation arrangements is recognised for the sale of the
rough diamond according to each party's percentage entitlement as per the
joint operation arrangement. Contractual agreements are entered into between
the Group and the joint operation partner whereby both parties control jointly
the cutting and polishing activities relating to the diamond. All decisions
pertaining to the cutting and polishing of the diamonds require unanimous
consent from both parties. Once these activities are complete, the polished
diamond is sold, after which the revenue on the remaining percentage of the
rough diamond is recognised, together with additional uplift on the joint
operation arrangement. The Group portion of inventories related to these
transactions is included in the total inventories balance.
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.
Contract assets
A contract asset is the right to consideration in exchange for goods or
services transferred to the customer. If the Group transfers goods or services
to a customer before the customer pays consideration or before payment is due,
a contract asset is recognised for the earned consideration that is
conditional. The Group does not have any contract assets as performance and a
right to consideration occurs within a short period of time and all rights to
consideration are unconditional.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a
customer for which the Group has received consideration (or an amount of
consideration is due) from the customer. If a customer pays consideration
before the Group transfers goods or services to the customer, a contract
liability is recognised when the payment is made or the payment is due
(whichever is earlier). Contract liabilities are recognised as revenue when
the Group performs under the contract. The Group does not have any contract
liabilities as the transfer of goods or services occurs within a short period
of time of receiving the consideration.
1.2.24 Interest income
Interest income is recognised on a time proportion basis using the effective
interest rate method.
1.2.25 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.
1.2.26 Finance costs
Finance costs are recognised on a time proportion basis using the effective
interest rate method.
1.2.27 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.
1.2.28 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 phased approach
strategy which the Group has adopted in implementing the 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 2024, 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 Russian invasion of Ukraine
The 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. Management has considered the impact of increased costs on future
cash flows, and whether these costs and inflation rates are short or long term
in nature. Management has used current pricing and inflation estimates for
shorter-term forecasts, and normalised these to average historic levels for
the medium to long term.
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
21, 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 21, 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 2040 (2021: 2037). The extension was as a result of
an additional Satellite pit cutback included in the current LoM model.
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 and processing costs in the short to medium
term have been based on the agreements with the relevant contractors. In the
longer term, management has applied local inflation
rates of 5.0% (2021: 5.0%) for operating costs beyond 2025. Up to 2025,
inflation rates applied ranged between 5.7% - 8.9%.
Capital costs in the short term 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 estimated based on an assessment at current market
fundamentals and long-term expectations. The US dollar/Lesotho loti (LSL)
exchange rate used was determined with reference to the closing rate at 31
December 2022 of LSL17.02 (31 December 2021: LSL15.96).
Diamond prices
The medium-term diamond prices used in the impairment test have been set with
reference to recent prices achieved, recent market trends 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 12.5% for revenue (2021: 11.5%) and 15.4% for costs
(2021: 13.4%) 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.
1.2.28 Critical accounting estimates and judgements
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 tailings
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 site would be donated to various Botswana Government
departments already operating within the mine site area of the Central
Kalahari Desert. Therefore, no costs associated with the rehabilitation of
certain roads or rehabilitation and dismantling infrastructures; and
· the timing of the rehabilitation cost cash flows has been
estimated to be five years.
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.
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.
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 27, Share-based payments, for
further detail.
Identifying uncertainties over tax treatments
As disclosed in the prior year, an amended tax assessment was issued to
Letšeng by the Revenue Services Lesotho (RSL), previously the Lesotho Revenue
Authority, 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.
On 7 February 2022, Letšeng received an application from the RSL to amend its
original grounds for the court application. Letšeng's counsel continues to
review the RSL's proposed amendment and has opposed the new application by the
RSL.
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, is required to be raised in the 2022 Annual Financial Statements.
1.1.2.28 Critical accounting estimates and judgements
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
1.2.20, Taxation.
Equipment and service lease
The major components of Letšeng's ore-extraction mining activities are
outsourced to a mining contractor. The mining contractor performs these
functions using their own equipment. Management applied judgement when
evaluating whether the contract between Letšeng and the mining contractor
contained a lease. While it was concluded there was a lease, lease payments
are variable in nature as the lease payment vary based on the tonnes of ore
and waste mined and hence no right of use asset or liability could be
measured. A portion of the lease payment is expensed in the consolidated
statement of profit or loss, and the portion relating to waste
removal/stripping costs is 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 24, Commitments
and contingencies.
2022 2021
US$'000 US$'000
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Sale of goods 188 615 201 610
Partnership arrangements 306 235
Rendering of services 16 14
188 937 201 859
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$0.3 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 (2021: US$0.2 million). At year end 1 457
carats (2021: 894 carats) have significant constraints in recognising revenue
relating to the additional uplift.
No revenue was generated from joint operation arrangements during the current
or prior year.
2022 2021*
US$'000 US$'000
3. OTHER OPERATING EXPENSES
Sundry income 61 116
Other expenses - (12)
Ghaghoo care and maintenance costs2 (2 053) (3 525)
Profit on disposal and scrapping of property, plant and equipment 195 16
COVID-19 related costs1 (140) (711)
(1 937) (4 116)
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale.
1 COVID-19-related costs relating to continued protocols for curbing the
spread of the virus.
2 Includes depreciation recognised in the current year of US$80.0 thousand (31
December 2021: nil) and inventory write-down of US$nil (31 December 2021:
US$1.5 million).
2022 2021*
US$'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 cost (6 588) (6 927)
Depreciation of right-of-use assets (1 818) (1 685)
Waste stripping costs amortised (36 285) (46 813)
(44 691) (55 425)
Inventories
Cost of inventories recognised as an expense (including waste stripping (116 382) (113 737)
costs amortised)
Foreign exchange
Foreign exchange gain 1 914 1 923
Lease expenses not included in lease liability
Mine site property (142) (170)
Equipment and service lease (11 154) (8 462)
Contingent rental - Alluvial Ventures (3 556) (6 483)
(14 852) (15 115)
Impairment of non-current assets (702) -
Auditor's remuneration - EY
Group financial statements (411) (238)
Statutory (242) (212)
(653) (450)
Auditor's remuneration - other audit firms
Statutory (26) (20)
Other non-audit fees - EY
Other services 1 (56) (41)
Other non-audit fees - other audit firms
Tax services advisory and consultancy (74) (45)
Employee benefits expense
Salaries and wages 2 (17 239) (18 267)
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 34 521 46 878
Other operating expenses 3 1 718 3 405
Impairment of non-current assets 702 -
Foreign exchange gain (1 914) (1 923)
Share-based payments 253 397
Depreciation and amortisation (excluding waste stripping cost amortised) 8 406 8 612
Underlying EBITDA 43 686 57 369
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale.
1 Includes services related to forensic investigation performed on
allegations of diesel theft at Letšeng.
2 Includes contributions to defined contribution plan of US$0.5
million (31 December 2021: US$0.6 million). An average of 370 employees
excluding contractors were employed during the period (2021: 354).
3 Excludes COVID-19-related costs of US$0.1 million (31 December
2021: US$0.7 million) which are considered as operating costs. Includes
Ghaghoo-related care and maintenance costs of US$2.1 million (31 December
2021: US$3.5 million), which are considered non-operating costs.
2022 2021*
US$'000 US$'000
5. NET FINANCE COSTS
Finance income
Bank deposits 303 197
Insurance asset 110 5
Total finance income 413 202
Finance costs
Finance costs on borrowings (2 552) (2 232)
Finance costs on lease liabilities (666) (525)
Finance costs on unwinding of rehabilitation and decommissioning provision (1 284) (1 408)
Total finance costs (4 502) (4 165)
(4 089) (3 963)
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale.
Finance income relates to interest earned on cash, short-term deposits and
insurance assets.
Finance costs include interest incurred on borrowings and associated unwinding
of facility credit underwriting fees, finance lease liabilities and the
unwinding of rehabilitation provisions.
2022 2021*
US$'000 US$'000
6. INCOME TAX EXPENSE
Current
- Foreign (6 054) (10 197)
Withholding tax
- Foreign (1 356) (639)
Deferred
- Foreign (2 867) (4 726)
Income tax expense (10 277) (15 562)
Profit before taxation 30 432 42 915
% %
Reconciliation of tax rate
Applicable income tax rate 25.0% 25.0%
Permanent differences1 0.4% 2.5%
Unrecognised deferred tax assets 6.4% 5.3%
Effect of foreign tax at different rates 2.8% 2.0%
Withholding tax and unremitted earnings (0.8)% 1.5%
Effective income tax rate 33.8% 36.3%
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25%
rather than the statutory UK
corporation tax rate of 19% as this is the jurisdiction in which the majority
of the Group's taxes are incurred.
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale.
1In the current year, permanent differences comprise CSI, share-based payments
and legal fees of a capital nature all of which are non-deductible for tax
purposes, offset by the reversal of unremitted earnings. Refer Note 22,
Deferred taxation . In the prior year, these mainly comprise CSI at Letšeng
Diamonds, legal fees of a capital nature and share-based payments, all of
which are non-deductible for tax purposes.
The corporate income tax rate in the United Kingdom was increased from 19% to
25% for companies effective from 1 April 2023. The new corporate tax rate of
25% is not expected to have a material impact on the Group. This event did not
require any adjustment to the financial statements and will be applicable to
Gem Diamonds Limited, the Groups' parent company.
2022 2021
US$'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 20 155 27 353
Less: Non-controlling interests (9 977) (12 586)
Net profit attributable to ordinary equity holders of the parent for basic and 10 178 14 767
diluted earnings
Number of ordinary shares outstanding at end of year ('000) 140 923 140 516
Weighted number of share options exercised during the year ('000) (145) (223)
Share buyback during the year ('000) (977) -
Weighted average number of ordinary shares outstanding during the year ('000) 139 801 140 293
Basic earnings per share attributable to ordinary equity holders of the parent 7.3 10.5
(cents)
Earnings per share are calculated by dividing the net profit attributable to
ordinary equity holders of the parent by the weighted average number of
ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the net 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.
2022 2021
Number of Number of
shares
shares
Weighted average number of ordinary shares outstanding during the year 139 802 140 293
Effect of dilution:
- Future share awards under the Employee Share Option Plan 1 857 1 796
Weighted average number of ordinary shares outstanding during the year 141 659 142 089
adjusted
for the effect of dilution
Diluted earnings per share attributable to ordinary equity holders of the 7.2 10.4
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 Mining De- Lease- Plant Other assets 1 Total
activity
asset
commis-
hold
and
asset
sioning
improve-
equip-
assets
ment
ment
As at 31 December 2022
Cost
As 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 184 020 61 408 - 20 600 25 565 1 906 293 499
2022
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 current
financial reporting period. Refer Note 15, Assets held for sale.
Stripping Mining De- Lease- Plant and Other assets1 Total
activity
asset
commis-
hold
equip-
asset
sioning
improve-
ment
assets
ment
As at 31 December 2021
Cost
Balance at 1 January 2021 587 355 115 050 4 119 55 955 79 468 7 601 849 548
Additions 64 725 - - 36 3 850 105 68 716
Net movement in rehabilitation (1 069) - - (138) (138) - (1 345)
provision
Disposals - - - (508) (932) (191) (1 631)
Reclassifications - - - 473 (810) 337 -
Foreign exchange differences (51 453) (7 051) (350) (4 400) (6 934) (548) (70 736)
As at 31 December 2021 599 558 107 999 3 769 51 418 74 504 7 304 844 552
Accumulated depreciation/
amortisation/impairment
As at 1 January 2021 401 443 49 189 4 119 26 204 59 150 5 438 545 543
Charge for the year 46 708 910 - 3 187 2 375 560 53 740
Disposals - - - (508) (929) (187) (1 624)
Foreign exchange differences (33 445) (5 225) (350) (2 235) (5 052) (427) (46 734)
As at 31 December 2021 414 706 44 874 3 769 26 648 55 544 5 384 550 925
Net book value at 31 December 184 852 63 125 - 24 770 18 960 1 920 293 627
2021
1 Other assets comprise motor vehicles, computer equipment, furniture
and fittings, and office equipment.
Right-of-use assets
Plant and Motor Buildings Total
equipment
vehicles
US$'000 US$'000 US$'000 US$'000
9. RIGHT-OF-USE ASSETS
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
As at 31 December 2021
Cost
As at 1 January 2021 2 217 364 6 444 9 025
Additions - - 507 507
Derecognition of lease (2 141) (260) (768) (3 169)
Foreign exchange differences (20) (10) (422) (452)
As at 31 December 2021 56 94 5 761 5 911
Accumulated depreciation
As at 1 January 2021 1 737 255 2 210 4 202
Charge for the year 437 75 1 173 1 685
Derecognition of lease (2 141) (260) (523) (2 924)
Foreign exchange differences (13) (7) (169) (189)
As at 31 December 2021 20 63 2 691 2 774
Net book value at 31 December 2021 36 31 3 070 3 137
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, 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 18, Lease liabilities and Note 23.1, Cash
generated by operations.
During the prior year, the original lease contract for back-up power
generating equipment and the lease for certain vehicles used on the mine at
Letšeng came to an end. The assets and liabilities associated with these
leases were derecognised. Furthermore, Gem Diamonds Limited and Gem Diamonds
Technical Services entered into new contracts for the rental of office space
in London and Johannesburg respectively. The new contracts were assessed as
containing leases, which resulted in the recognition of the new associated
right-of-use assets and lease liabilities. The original contracts were both
cancelled and all associated assets and liabilities were derecognised
There were no gains or losses (2021: US$0.1 million) relating to the
derecognition of leases in the Group during the year. Refer Note 18, Lease
liabilities and Note 23.1, Cash generated by operations. During the year the
Group recognised income of US$0.3 million (2021: US$0.3 million) from the
sub-leasing of office buildings in Maseru. The Group expects to receive the
following lease payments from the operating sub-leasing in the following
years:
US$ '000
2023 353
2024 376
2025 227
Intangibles Goodwill1 Total
US$'000 US$'000 US$'000
10. INTANGIBLE ASSETS
As at 31 December 2022
Cost
Balance at 1 January 2022 - 11 962 11 962
Foreign exchange translation difference - (741) (741)
Balance at 31 December 2022 - 11 221 11 221
Accumulated amortisation
Balance at 1 January 2022 - - -
Amortisation - - -
Balance at 31 December 2022 - - -
Net book value at 31 December 2022 - 11 221 11 221
As at 31 December 2021
Cost
Balance at 1 January 2021 791 12 997 13 788
Foreign exchange translation difference - (1 035) (1 035)
Scrapping (791) - (791)
Balance at 31 December 2021 - 11 962 11 962
Accumulated amortisation
Balance at 1 January 2021 791 - 791
Amortisation - - -
Scrapping (791) - (791)
Balance at 31 December 2021 - - -
Net book value at 31 December 2021 - 11 962 11 962
1 Goodwill allocated to Letšeng Diamonds. Refer Note 11, Impairment
testing.
2022 2021
US$'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 2022. 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 2022, 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 11 221 11 962
As at 31 December 2022 11 221 11 962
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.
2022 2021
%
%
Discount rate - Letšeng Diamonds
Applied to revenue 12.5 11.5
Applied to costs 15.4 13.4
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
available which has been used to project the cash flows, reflects that the
open pit mining is expected to cease in 2040. In terms of IAS 36, cash flows
are projected for a period up to the date of the mining lease period if it is
earlier than the ceasing of the mining, ie. 2039. The mine plan includes the
next open pit cutback in the Satellite pipe (C6W). This mine plan takes into
account the available reserves and other relevant inputs such as diamond
pricing, costs and geotechnical parameters, and includes the steeper slope
angles implemented in the Main pit Cut 4 East and Cut 4 West cutbacks. For
further information refer to the Operations Review on page 56. In addition,
cost savings associated with the optimisation and right-sizing which commenced
at Letšeng in early 2023 have also been included in the value-in-use model.
A comprehensive Underground Feasibility Study commenced in mid-2022 to confirm
the feasibility of mining underground. The completion of this study will take
place in 2023 (and has therefore not been included in the Value in use
valuation), and will (i) assess the viability of an earlier shift to
underground mining of the Satellite pipe and (ii) inform the trade-off between
underground mining and proceeding with the next open pit cutback in the
Satellite pipe (C6W).
Sensitivity to changes in assumptions
The Group will continue to test its assets for impairment where indications
are identified.
Refer Note 1.2.28, 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 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 2022
exceeded the carrying value by US$92.2 million (31 December 2021: US$56.8
million). The valuation is sensitive to input assumptions particularly in
relation to the foreign exchange assumption of the US dollar (US$) 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 market improvement noted in the diamond prices
during the year.
A range of alternative scenarios have been considered in determining whether
there is a reasonably possible change in the foreign exchange rates, operating
costs and diamond prices, which would result in the recoverable amount
equating to the carrying amount. An 8% strengthening of the LSL to the US$ to
US$1:LSL15.60 or a reduction of 6.5% to the starting diamond prices would
result in the recoverable amount equating to the current carrying value (at
year end exchange rate), 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%
increase in current estimated operating costs of US$2.5 billion over the life
of mine would result in the recoverable amount equating to the current
carrying amount, with other valuation assumptions remaining the same.
As a result, no impairment charge was recognised for the Letšeng Diamonds
CGU during the year.
2022 2021
US$'000 US$'000
12. RECEIVABLES AND OTHER ASSETS
Non-current
Deposits 96 109
Insurance asset 1 2 820 1 169
2 916 1 278
Current
Trade receivables 23 25
Prepayments 2 1 350 975
Deposits 21 19
Other receivables 249 122
Vat receivable 3 212 2 954
4 855 4 095
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:
Less than 30 days - -
30 to 60 days - -
60 to 90 days - -
90 to 120 days - 23
> 120 days 23 -
23 25
(1) This non-current asset relates to Letšeng's Multi-aggregate
Protection Insurance Policy with The Lesotho National Insurance Group (LNIGC)
entered into the prior year. This policy has a remaining tenure of
three-and-a-half years at year end. During the current year the policy was
increased to LSL140.0 million (US$8.2 million) (31 December 2021: LSL100.0
million (US$6.2 million)). The premium payments were increased to LSL30.0
million (US$1.8 million) (31 December 2021: LSL20.0 million) (US$1.2 million)
for the remainder of the policy each payable annually in advance. Refer Note
24, Commitments and contingencies. The policy gives Letšeng the right to
claim up to LSL75.0 million (31 December 2021: LSL50.0 million) for
each-and-every-loss and LSL150.0 million (31 December 2021: LSL100.0 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$128 thousand) as expensed within other operating
expenses. 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 second premium payment of LSL
30.0 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 17, Interest-bearing loans and borrowings.
(2) Prepayments include insurance premiums prepaid at Letšeng of
US$0.4 million (31 December 2021: US$0.4 million) which were also funded
through Premium Finance Partners (Proprietary) Limited. This prepayment is
ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note
17, Interest-bearing loans and borrowings.
Based on the nature of the Group's client base and the negligible exposure to
credit risk through its client base, insurance asset and other financial
assets, the expected credit loss is insignificant and has no impact on the
Group.
2022 2021
US$'000 US$'000
13. INVENTORIES
Diamonds on hand 16 745 18 303
Ore Stockpile 5 053 4 702
Consumable stores1 8 572 8 153
30 370 31 158
1 Includes consumable stores from Ghaghoo of US$0.3 million in the current
year.
Inventory is carried at the lower of cost or net realisable value. During the
year, lower grade ore stockpile inventory at Letšeng was written down by
US$1.5 million (31 December 2021: nil) to net realisable value. Part of this
stockpile was historically treated by Alluvial Ventures, the third-party plant
contractor. When this contract expired during the year and the plant was
dismantled, the stockpile level increased to the end of the period. Refer Note
1.2.13, Inventories.
2022 2021
US$'000 US$'000
14. CASH AND SHORT-TERM DEPOSITS
Cash on hand 4 3
Bank balances 6 006 27 673
Short term bank deposits 2 711 3 237
8 721 30 913
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 2022, the Group had US$82.6 million (31 December 2021: US$74.3
million) of undrawn facilities, representing the LSL750.0 million (US$44.1
million) three-year secured (31 December 2021: unsecured) revolving working
capital facility at Letšeng, the Letšeng ZAR100.0 million (US$5.9 million)
general banking facility, the available portion of the PCA project debt
facility of ZAR43.5 million (US$2.6 million) and US$30.0 million from the
Company's secured (31 December 2021: unsecured) revolving credit facility. For
further details on these facilities, refer Note 17, Interest-bearing loans and
borrowings.
15. ASSETS HELD FOR SALE
Since 2019, in line with the strategic objective to dispose of non-core
assets, the Board of Directors and Management have remained committed to the
sale of Gem Diamonds Botswana (Pty) Ltd (GDB), which owns the Ghaghoo Diamond
Mine. In May 2022, the sales agreement which Gem Diamonds Limited had entered
into with Okwa Diamonds (Pty) Ltd (Okwa Diamonds), on 23 August 2021, lapsed,
following the inability of Okwa Diamonds' owners to secure a funding partner
for the transaction. There has been no new agreement entered into for the sale
of the asset by year end, although a number of interested parties are
performing due diligence procedures. As a result of the developments above,
the sale of GDB no longer met the highly probable requirements as set out in
the Group's accounting policy 1.2.8 Non-current assets held for sale and
discontinued operations at year end and the Board of Directors and Management
have reviewed various alternatives of disposal and closure of the asset. As a
result, GDB has ceased to be classified as a discontinued operation held for
sale as at the 31 December 2022. All impacted prior year figures in the
consolidated statement of profit or loss and relevant notes have been
re-presented to reflect GDB as part of continuing operations. The assets and
liabilities of GDB are no longer disclosed as held for sale in the current
reporting period.
The table below represents the prior year re-presentation for all amounts in
the consolidated statement of profit or loss and notes thereto which were
re-presented.
As Re- Re-
previously
presentatio
presented
reported
n
figures
adjustment
2021 2021 2021
US$'000 US$'000 US$'000
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
CONTINUING OPERATIONS
Other operating expense (591) (3 525) (4 116)
Share-based payments (395) (2) (397)
Foreign exchange gain/(loss) 1 929 (6) 1 923
Operating profit 50 411 (3 533) 46 878
Net finance costs (3 742) (221) (3 963)
- Finance costs (3 944) (221) (4 165)
Profit before tax for the year 46 669 (3 754) 42 915
Profit after tax for the year 31 107 (3 754) 27 353
DISCONTINUED OPERATION
Loss after tax from discontinued operation (3 754) 3 754 -
Earnings per share (cents)
Earnings per share (cents) for continuing operations
- Basic earnings for the year attributable to ordinary equity holders of the - - -
parent
- Diluted earnings for the year attributable to ordinary equity holders of the - - -
parent
3 OTHER OPERATING EXPENSES
Ghaghoo care and maintenance costs - (3 525) (3 525)
4 OPERATING PROFIT
Foreign exchange
Foreign exchange gain/(loss) 1 929 (6) 1 923
Auditor's remuneration - EY
Statutory (190) (22) (212)
Employee benefits expense
Salaries and wages (17 767) (500) (18 267)
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 50 411 (3 533) 46 878
Other operating expenses (120) 3 525 3 405
Foreign exchange (gain)/loss (1 929) 6 (1 923)
Share-based payments 395 2 397
Underlying EBITDA 57 369 - 57 369
5 NET FINANCE COSTS
Finance costs on unwinding of rehabilitation and decommissioning provision (1 187) (221) (1 408)
6 INCOME TAX EXPENSE
Profit before taxation 46 669 (3 754) 42 915
Reconciliation of tax rate % % %
Permanent differences 2.3 0.2 2.5
Unrecognised deferred tax assets 3.1 2.2 5.3
Effect of foreign tax at different rates 1.6 0.4 2.0
Withholding tax and unremitted earnings 1.4 0.1 1.5
Effective income tax rate 33.4 2.9 36.3
27 SHARE-BASED PAYMENTS
Equity-settled share-based payment transactions charged to the statement of 395 2 397
profit or loss
Equity-settled share-based payment transactions charged to the statement of 2 (2) -
profit or loss - discontinued operation
Depreciation of US$0.1 million was recognised in the current year relating to
the underlying depreciable assets within GDB which was suspended whilst GDB
was classified as held for sale.
The recoverable amount of all items of property, plant and equipment was
assessed and an impairment charge of US$(0.7) million was recognised, reducing
the carrying value of the leasehold improvements and plant and equipment
categories to zero. Refer Note 8 Property, plant and equipment. This
impairment has been included in the Botswana segment in Note 1.1.3 Segment
information.
2022 2021
US$'000 US$'000
ASSETS
Non-current assets
Property, plant and equipment - 1 413
Current assets
Inventories - 477
Receivables and other assets - 63
Cash and short-term deposits - 144
- 684
Total assets - 2 097
LIABILITIES
Non-current liabilities
Provisions - 3 654
Trade and other payables - 446
Total liabilities - 4 100
The disposal group's assets held for sale were carried at carrying value which
was lower than the disposal group's fair value less costs to sell in the prior
year. The fair value was based on the unobservable market offer from the
potential buyer for the disposal group, accordingly the non-recurring fair
value measurement for the prior year was included in level 3 of the fair value
hierarchy.
16 ISSUED SHARE CAPITAL AND RESERVES
Share capital
31 December 2022 31 December 2021
Number US$'000 Number US$'000
of shares
of shares
'000
'000
Authorised - ordinary shares of US$0.01 each
As at year end 200 000 2 000 200 000 2 000
Issued and fully paid balance at beginning of year 140 515 1 406 139 612 1 397
Allotments during the year 408 4 903 9
Number of ordinary shares outstanding at end of year 140 923 1 410 140 515 1 406
Treasury shares (1 520) (1 157) - -
Balance at end of year 139 403 253 140 515 1 406
Share premium
Share premium comprises the excess value recognised from the issue of ordinary
shares above its par value.
Other reserves
Foreign Share- Total
currency
based
translation
equity
reserve
reserve
US$'000 US$'000 US$'000
As at 1 January 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)
As at 1 January 2021 (218 355) 6 191 (212 164)
Other comprehensive loss (14 921) - (14 921)
Total comprehensive loss (14 921) - (14 921)
Share capital issue - (9) (9)
Share-based payment expense - 397 397
As at 31 December 2021 (233 276) 6 579 (226 697)
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:
2022 2021
Currency US$'000 US$'000
Average rate ZAR/LSL to 16.37 14.79
US$1
Year end ZAR/LSL to 17.02 15.96
US$1
Average rate Pula to US$1 12.37 11.09
Year end Pula to US$1 12.75 11.76
Share-based equity reserves
For details on the share-based equity reserve, refer Note 27, Share-based
payments.
Capital management
For details on capital management, refer Note 26, Financial risk management.
Treasury shares
During the 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 is 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 were 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.
17. INTEREST-BEARING LOANS AND BORROWINGS
On 28 February 2022, Gem Diamonds Limited provided security for both the
Letšeng Diamonds and Gem Diamonds Limited RCF facilities over its bank
accounts domiciled in the United Kingdom (US$4.6 million) and on 15 March 2022
the security over its 70% shareholding in Letšeng Diamonds, refer Note 31,
Material partly owned subsidiary, was implemented. This security had the
impact of decreasing the interest rate margin on all facilities by 1.5% from
15 March 2022 and converting the facilities into secured facilities.
The IBOR phase 2 Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
became effective on 1 January 2021 for the Group. The IBOR reform has impacted
the South African JIBAR and LIBOR linked interest-bearing loans and borrowings
within the Group. The interest-bearing loans and borrowings that remains
subject to the South African JIBAR rate include the LSL136.4 million unsecured
project debt facility and the ZAR300.0 million revolving credit facility. The
interest-bearing loans and borrowings that was subject to the US$ three-month
LIBOR rate was the US$30.0 million revolving credit facility. The developments
on these facilities from 31 December 2021 and their carrying amounts and
maturities as at 31 December 2022 are disclosed in the note below.
The South African JIBAR rates are yet to transition to alternative benchmark
rates at the reporting period end. The Group will continue to assess the
impact of the interest rate benchmark reform on the Group's JIBAR
interest-bearing loans and borrowings as the revised benchmark rates are
published or negotiated with the funders.
Effective Maturity 2022 2021
interest rate
US$'000 US$'000
Non-current
ZAR12.8 million asset-based South African Repaid 15 July 2022 - 202
finance facility
Prime Lending
Rate
LSL450.0 million and ZAR300.0 million Central Bank of
bank loan facility
Lesotho rate +
3.25% and South
African JIBAR +
3.05%
Credit underwriting fees 22 December 2024 (327) (525)
US$30.0 million bank loan facility London US$ 22 December 2024 - 9 000
three-month
LIBOR + 5.00%
Credit underwriting fees (225) (337)
LSL136.4 million project debt facility South African 31 May 2027 4 922 -
JIBAR + 2.50%
4 370 8 340
Current
LSL7.3 million insurance premium 2.35% Repaid 1 June 2022 - 305
finance
ZAR3.5 million insurance premium 2.50% Repaid 1 June 2022 - 155
finance
LSL20.0 million insurance premium 3.20% Repaid 1 June 2022 - 880
finance
ZAR2.5 million insurance premium 3.55% 1 April 2023 60 -
finance
LSL30.0 million insurance premium 3.55% 1 April 2023 719 -
finance
LSL10.9 million insurance premium 3.55% 1 May 2023 262 -
finance
LSL215.0 million bank loan facility
Tranche A South African Repaid 30 September - 439
JIBAR + 6.75%
2022
Tranche B South African Repaid 31 March - 752
JIBAR + 3.15%
2022
ZAR12.8 million asset-based finance South African Repaid 15 July 2022 - 173
facility
Prime Lending
Rate
LSL136.4 million project debt facility South African 31 May 2027 534 -
JIBAR + 2.50%
1 575 2 704
ZAR12.8 million (US$0.8 million) Asset-Based Finance facility
In January 2019, the Group, through its subsidiary, Gem Diamond Technical
Services, entered into a ZAR12.8 million (US$0.8 million) Asset-Based Finance
(ABF) facility with Nedbank Limited for the purchase of a mobile X-Ray
transmission machine (the asset). On 15 July 2022, the facility was early
settled. The facility had an interest rate of the South African Prime Lending
Rate, which was 10.5% at 31 December 2022 (31 December 2021: 7.25%).
Total interest for the year on this interest-bearing ABF was US$13.3 thousand
(31 December 2021: US$34 thousand).
LSL450.0 million and ZAR300.0 million (US$44.1 million) bank loan facility at
Letšeng Diamonds
The Group, through its subsidiary Letšeng Diamonds, has a LSL450.0 million
and ZAR300.0 million (US$44.1 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 (31 December 2021: unsecured) and expires on 22
December 2024 and has a 24-month renewal option. 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%. There
was no draw down on this facility at the current or prior year ends.
The remaining balance of the credit underwriting fees of US$0.3 million (31
December 2021: US$0.5 million) which were incurred and capitalised to the
Group's consolidated interest-bearing loans and borrowings as part of the
prior year refinancing facility, albeit that Letšeng did not have any draw
downs on its RCF at year end. 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 (31 December 2021: unsecured) three-year RCF 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 will be made
in these ratios.
The facility expires on 22 December 2024 and has a 24-month renewal option.
At year end the facility was undrawn (31 December 2021: US$9.0 million)
resulting in US$30.0 million (31 December 2021: US$21.0 million) being
available for draw down. The remaining balance of the previously capitalised
credit underwriting fees is US$0.2 million (31 December 2021: US$0.3 million)
at year end. The capitalised fees will be amortised and accounted for as
finance costs within profit or loss over the period of the facility.
The US$-based interest rate for this facility at 31 December 2022 was 8.7% (31
December 2021: 6.72%) which comprises term US$ three-month LIBOR plus 5.00%
(31 December 2021: US$ three-month LIBOR plus 6.50%). The decrease in the
margin of 6.50% to 5.00% follows the security implementation on 15 March 2022.
As part of the Group's refinancing programme, on 30 November 2022, the
contractual terms of this LIBOR linked facility transitioned from the US$
three-month LIBOR rate to term Secured Overnight Financing Rate (SOFR),
effective on all interest periods from 1 January 2023. The transition from
LIBOR to SOFR had no impact on the Group financial statements as the
transition is as a direct consequence of the IBOR reform and the new basis for
determining the contractual cash flows is and will be economically equivalent
to the basis immediately preceding the change and therefore the Group applied
the practical expedient available within the IBOR Phase 2 amendments and
changed the basis for determining the contractual cash flows prospectively
from 1 January 2023 by revising the effective interest rate.
Total interest for the year on this interest-bearing RCF was US$1.1 million
(31 December 2021: US$1.0 million).
LSL136.4 million (US$8.0 million) project debt facility at Letšeng Diamonds
The loan is an unsecured project debt facility which was signed jointly with
Nedbank 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 November 2023. The outstanding balance at
year end was ZAR92.8 million (US$5.4 million). This loan expires on 27 May
2027.
The South African rand-based interest rates for the facility at 31 December
2022 was 9.76% which comprises JIBAR plus 2.50%.
Total interest for the year on this interest-bearing loan was US$15.6
thousand.
LSL7.3 million (US$ 0.4 million) insurance premium finance
In the prior year, the Group through its subsidiary Letšeng Diamonds, entered
into a LSL7.3million (US$0.4 million) 9-month funding agreement with Premium
Finance Partners (Proprietary) Limited for insurance premium finance for its
annual Asset All Risk insurance premium. In the prior year, all respective
insurance premiums prepaid were ceded in favour of Premium Finance Partners
(Proprietary) Limited. Refer Note 12, Receivables and other assets This
financing was fully repaid on 1 June 2022.
ZAR3.5 million (US$ 0.2 million) insurance premium finance
In the prior year, the Group through its subsidiary Gem Diamonds Technical
Services, entered into a ZAR3.5 million (US$0.2 million) 10-month funding
agreement with Premium Finance Partners (Proprietary) Limited for its annual
Group Umbrella Liability insurance premium. In the prior year, all respective
insurance premiums prepaid were ceded in favour of Premium Finance Partners
(Proprietary) Limited. 12, Receivables and other assets. This financing was
fully repaid on 1 June 2022.
LSL20.0 million (US$ 1.2 million) insurance premium finance for
Multi-aggregate Protection Insurance Policy
In the prior year, the Group through its subsidiary Letšeng Diamonds, entered
into a LSL20.0 million (US$1.2 million) 10-month funding agreement with
Premium Finance Partners (Proprietary) Limited to finance the initial premium
of LSL20.0 million on the Multi-aggregate Insurance Policy. In the prior year,
all respective insurance premiums prepaid were ceded in favour of Premium
Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other
assets. This financing was fully repaid on 1 June 2022.
LSL30.0 million (US$ 1.8 million) insurance premium finance for
Multi-aggregate Protection Insurance Policy
The Group through its subsidiary Letšeng Diamonds, entered into a LSL30.0
million (US$1.8 million) 10-month funding agreement with Premium Finance
Partners (Proprietary) Limited to finance the second premium of LSL30.0
million on the Multi-aggregate Insurance Policy. At year end LSL12.4 million
(US$0.7 million) remains outstanding. The funding is repayable in 10 monthly
instalments, payable in advance. Total interest on this funding is LSL1.1
million (US$62.6 thousand) of which LSL0.9 million (US$53.1 thousand) was
paid during the year. The unutilised premium paid, recognised as an insurance
asset, has been ceded as security in favour of Premium Finance Partners
(Proprietary) Limited. Refer Note 12, Receivables and other assets.
LSL10.9 million (US$ 0.7 million) insurance premium finance
The Group through its subsidiary Letšeng Diamonds, entered into a LSL10.9
million (US$0.6 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 LSL4.5million (US$0.3 million)
remains outstanding. The funding is repayable in 10 monthly instalments,
payable in advance. Total interest on this funding is LSL0.4 million (US$23.7
thousand) of which LSL0.3 million (US$19.4 thousand) was paid during the year.
All respective insurance premiums prepaid at year end have been ceded in
favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12,
Receivables and other assets.
Other facilities
Letšeng Diamonds has a ZAR100.0 million (US$5.9 million) general banking
facility with Nedbank Limited (acting through its Nedbank Corporate and
Investment Banking division) renewable annually. There was no draw down on
this facility in the current or prior years.
The bank loan facilities include an additional US$20.0 million accordion
option for Gem Diamonds, the utilisation of which is subject to all necessary
internal credit and other approvals from all funders. There was no utilisation
of this facility in the current or prior years.
2022 2021
US$'000 US$'000
18. LEASE LIABILITIES
Non-current 6 021 3 851
Current 1 877 973
Total lease liabilities 7 898 4 824
Reconciliation of movement in lease liabilities
As at 1 January 4 824 6 738
Additions 5 287 507
Interest expense 666 525
Lease payments (2 512) (2 185)
Derecognition of lease - (352)
Foreign exchange differences (367) (409)
As at 31 December 7 898 4 824
Lease payments comprise payments in principle of US$1.8 million (31 December
2021: US$1.7 million) and repayments of interest of US$0.7 million (31
December 2021: US$0.5 million).
During the year, the Group recognised variable lease payments of US$39.5
million (31 December 2021: US$50.0 million), which consist of mining
activities outsourced to a mining contractor. Total costs incurred for the
year amount to US$39.5 million (31 December 2021: US$50.0 million) of which
US$28.4 million (31 December 2021: US$41.5 million) has been capitalised to
the Stripping Asset. Refer Note 1.2.6, Property Plant and equipment, Note
1.2.28, Critical accounting estimates and judgements, Equipment and service
lease and Note 4, Operating profit.
During the year, a new lease contract for backup power generating equipment at
Letšeng was entered into. This lease contains residual value guarantees of
US$42 thousand (31 December 2021: nil) 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.
The Group incurred rental expenses from short-term leases of US$62 thousand
(31 December 2021: nil) during the year.
2022 2021
US$'000 US$'000
19. TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits 1 2 169 2 095
Other - -
2 169 2 095
Current
Trade payables 2 10 888 10 778
Accrued expenses 2 5 884 5 413
Leave benefits 625 639
Royalties 2 1 936 4 996
Withholding taxes 2 230 341
Other 145 21
19 708 22 188
1 The severance pay benefits arise due to legislation within the
Lesotho jurisdiction, requiring that two weeks of severance pay be provided
for every completed year of service, payable on retirement.
2 These amounts are mainly non-interest bearing and are settled in
accordance with terms agreed between the parties.
Royalties consist of a levy payable to the Government of the Kingdom of
Lesotho on the value of diamonds sold by Letšeng. Withholding taxes mainly
consist of taxes payable on dividends and other services to the Lesotho
Revenue Authority.
The carrying amounts above approximate fair value.
2022 2021
US$'000 US$'000
20. INCOME TAX (RECEIVABLE)/PAYABLE
Reconciliation of movement in income tax (receivable)/payable
As at 1 January (1 191) 11 834
Payments made during the year (8 435) (23 329)
Refunds received during the year 1 187 96
Income tax charge 6 054 10 197
Foreign exchange differences 117 11
As at 31 December (2 268) (1 191)
Split as follows
Income tax receivable (2 323) (1 232)
Income tax payable 55 41
2022 2021
US$'000 US$'000
21. PROVISIONS
Rehabilitation provisions 15 387 11 202
Reconciliation of movement in rehabilitation provisions
As at 1 January - Letšeng 11 202 12 331
Additions - Ghaghoo (Note 15) 3 654 -
Decrease in provision - Ghaghoo (573) -
Other movements - Letšeng 858 (1 345)
Unwinding of discount rate 1 284 1 187
Foreign exchange differences (1 038) (971)
As at 31 December 15 387 11 202
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 11.5% (31 December 2021: 9.8%),
estimated rehabilitation timing of 13 years (31 December 2021: 14 years) and
an inflation rate of 7.0% (31 December 2021: 5.3%). The increase in the
provision at Letšeng is mainly attributable to the annual reassessment of the
estimated closure costs performed at the operations together with the ongoing
rehabilitation spend during the year at Letšeng.
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. It is anticipated that certain infrastructure, such as access
roads to the mine, paving and walkways, will remain intact for use by the
local communities and other government departments in the area.
In determining the amounts attributable to the rehabilitation provision at
Ghaghoo, management used a discount rate of 6.0% (31 December 2021: 6.0%),
estimated rehabilitation timing of 5 years (31 December 2021: 5 years) and an
inflation rate of 4.8% (31 December 2021: 4.0%). The decrease in the provision
at Ghaghoo is mainly attributable to the reduced rehabilitation required
caused by the access road exclusion and a change in method of rehabilitating
the processing waste deposit and evaporation dams, together with the ongoing
rehabilitation spend during the year.
2022 2021
US$'000 US$'000
22. DEFERRED TAXATION
Deferred tax assets
Lease liabilities 1 590 1 225
Accrued leave 412 321
Provisions 3 992 3 571
5 994 5 117
Deferred tax liabilities
Property plant and equipment (79 021) (78 202)
Right of use assets (1 347) (900)
Prepayments (84) (188)
Unremitted earnings (1 578) (3 182)
(82 030) (82 472)
Net deferred tax liability (76 036) (77 355)
Reconciliation of net deferred tax liability
As at 1 January (77 355) (78 192)
Movement in current period:
- Accelerated depreciation for tax purposes (5 321) (4 249)
- Accrued leave 4 (2)
- Unremitted earnings 1 604 -
- Prepayments 102 30
- Provisions 779 (429)
- Lease liabilities 459 (350)
- Right-of-use assets (494) 273
- Foreign exchange differences 4 186 5 564
As at 31 December (76 036) (77 355)
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$134.3 million (31 December 2021: US$99.5 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.
22. DEFERRED TAXATION (continued)
The Group, excluding Gem Diamonds Botswana, has estimated tax losses of
US$47.6 million (31 December 2021: US$40.3 million). All tax losses are
generated in jurisdictions where tax losses do not expire. No deferred tax
assets were recognised on these losses as management does not foresee any
taxable profits or taxable temporary differences against which to utilise
these.
Gem Diamonds Botswana has estimated tax losses of US$175.8 million (31
December 2021: US$173.0 million), which carry no expiry date, for which no
deferred tax asset has been recognised.
2022 2021
Notes US$'000 US$'000
23. CASH FLOW NOTES
23.1 Cash generated by operations
Profit before tax for the year 30 432 42 915
Adjustments for:
Depreciation and amortisation excluding waste stripping 6 588 6 927
Depreciation on right-of-use assets 4, 9 1 818 1 685
Waste stripping cost amortised 4 36 285 46 813
Finance income 5 (413) (202)
Finance costs 5 4 502 4 165
Unrealised foreign exchange differences (1 911) (2 426)
Profit on disposal and scrapping of property, plant and equipment 3 (195) (16)
Gain on derecognition of leases - (107)
Write-down of inventories to net realisable value 1 556 1 455
Bonus, leave and severance provisions raised 3 182 2 284
Share-based payments 253 397
Impairment of assets 4, 15 702 -
Bad debts written off - 12
82 799 103 902
23.2 Working capital adjustment
Increase in inventory (3 747) (8 255)
(Increase)/decrease in receivables (1 465) 5 072
Decrease in payables (4 677) (3 924)
(9 889) (7 107)
23.3 Cash flows from financing activities (excluding
lease liabilities)
As at 1 January 11 044 16 087
Net cash used in financing activities (7 734) (7 194)
- Financial liabilities repaid (17 627) (26 393)
- Financial liabilities raised 9 893 19 199
Interest paid (2 263) (1 927)
Non-cash movements 4 898 4 078
- Interest accrued 2 263 1 927
- Amortisation/unwinding of facility rolling fees 284 300
- Financial liabilities raised 1 2 654 2 082
- Foreign exchange differences (303) (231)
As at 31 December 17 5 945 11 044
1 This amount mainly relates to funding obtained for insurance premium
finance. The funding was paid directly by the lender to the third party and is
being repaid by the Group in monthly instalments to the lender. Refer Note 17,
Interest-bearing loans and borrowings.
2022 2021
US$'000 US$'000
24. 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 187 145
- After one year but not more than five years 847 760
- More than five years 809 784
1 843 1 689
Equipment and service lease
The Group has 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 are variable in nature. A portion of the lease
payment
is therefore expensed in the Consolidated statement of profit or loss and the
portion
relating to waste removal/stripping costs is 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 1.2.28, Critical
accounting
estimates. The terms of this lease are negotiated during the extension option
periods
catered for in the agreements or at any time sooner if agreed by both parties.
- Within one year 32 645 39 290
- After one year but not more than five years 32 514 89 241
65 159 128 531
Multi-aggregate protection policy
During the prior year, the Group, through its subsidiary Letšeng entered into
a
LSL100.0 million (US$5.9 million) Multi-aggregate Protection Insurance Policy
with the
Lesotho National Insurance Group (LNIGC). The policy has a tenure of 4 years
and 9
months and consists of five premium payments each payable annually in advance.
On 1 August 2022 the policy was increased to LSL140.0 million (US$8.2 million)
and
the premium payments were increased to LSL30.0 million (US$1.8 million) for
the
remainder of the policy. As at 31 December 2022 the Group has committed to
settle
the three 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 1 763 1 253
- After one year but not more than five years 3 526 3 759
5 289 5 012
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 68 54
- After one year but not more than five years 103 64
171 118
Capital expenditure
Approved but not contracted for 8 676 19 335
Approved and contracted for 5 999 855
14 675 20 190
The main capital expenditure approved relates to the Underground Feasibility
Study of US$4.5 million and the balance of the investment in the new PCA at
Letšeng of US$2.6 million (31 December 2021: US$15.0 million). Other smaller
capital expenditure, all at Letšeng, relates to the construction of a
bioremediation plant of US$1.6 million, investment in
continued tailings storage extension of US$1.1 million (31 December 2021:
US$1.3 million) and the replacement of the Plant 1 scrubber of US$1.0 million.
The expenditure is expected to be incurred over the next 12 months.
Contingent rentals - Alluvial Ventures
The contingent rentals represent the Group's obligation to a third party
(Alluvial Ventures) for operating a third plant on the Group's mining property
at Letšeng Diamonds. The rental is determined when the actual diamonds mined
by Alluvial Ventures are sold. The agreement is based on 39.5% to 60% (2021:
39.5% to 60%) of the value (after costs) of the diamonds recovered by Alluvial
Ventures and is limited to US$1.4 million (2021: US$1.4 million) per
individual diamond. The Alluvial Ventures contract expired at the end of June
2022 and all liabilities settled. There was therefore no contingent rental at
the reporting date.
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$0.3 million (December 2021: US$0.2 million)
relating mainly to labour matters.
The Group monitors possible tax claims within the various jurisdictions in
which the Group operates. Management applies judgement in identifying
uncertainties over tax treatments and concluded that there were no uncertain
tax treatments relating to the current year. Refer Note 1.2.28, Critical
accounting estimates and judgements. There remains a risk that further tax
liabilities may potentially arise. While it is difficult to predict the
ultimate outcome in some cases, the Group does not anticipate that there will
be any material impact on the Group's results, financial position or
liquidity.
25. RELATED PARTIES
Related party Relationship
Jemax Management (Proprietary) Limited Common director
Government of the Kingdom of Lesotho Non-controlling interest
Refer Note 1.1.2, Operational information, for information regarding
shareholding in subsidiaries.
2022 2021
US$'000 US$'000
Compensation to key management personnel (including Directors)
Share-based equity transactions 204 248
Short-term employee benefits 3 874 4 500
Post-employment benefits (including severance pay and pension) 203 152
4 281 4 900
Fees paid to related parties
Jemax Management (Proprietary) Limited (84) (93)
Royalties paid to related parties
Government of the Kingdom of Lesotho (18 869) (20 214)
Lease and licence payments to related parties
Government of the Kingdom of Lesotho (38) (70)
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited (5) (6)
Non-executive director - 11
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited (7) (8)
Amounts owing to related party
Government of the Kingdom of Lesotho (2 163) (5 337)
Dividends declared
Government of the Kingdom of Lesotho (10 549) (3 890)
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 transaction relating to the non-Executive Director in the prior year was
for the sale of a polished diamond. All proceeds were received prior to the
previous year end.
The above transactions were made on terms agreed between the parties and were
made on terms that prevail in arm's length transactions.
26. 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 2022, the Group had US$82.6 million (31 December 2021: US$74.3
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 17, 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. 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 2022 and 31 December 2021.
There has been no change in the assumptions or method applied from the prior
year.
Sensitivity analysis
At year-end, Letšeng had only US$40.4 thousand (2021: US$22.1 million) cash
on hand held in US$. If the US dollar had appreciated/(depreciated) by 10%
against the LSL, the Group's profit before tax and equity at 31 December 2022
would have been US$3.4 thousand higher/(lower) (31 December 2021: US$2.4
million).
(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
2022, the Group had no forward exchange contracts outstanding (31 December
2021: 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 (2021: 80 basis points) during the
year, profit before tax and equity would have been US$0.1 million
(lower)/higher 31 December 2021: US$0.1 million). The assumed movement in
basis points is based on the currently observable market environment, with
eased COVID-19 impact, which has increased interest rates compared to the
prior year, and also assumed a continued impact on rising interest rates
caused by the Russian invasion of Ukraine.
(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 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 2022 and 31 December 2021 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$82.6 million at year end (2021: US$74.3 million
The table below summarises the maturity profile of the Group's financial
liabilities at 31 December based on contractual undiscounted payments. The
prior period excludes the liabilities directly associated with assets held for
sale:
2022 2021
US$'000 US$'000
Floating interest rates
Interest-bearing loans and borrowings
- Within one year 2 317 2 758
- After one year but not more than five years 8 805 8 856
Total 11 122 11 614
Lease liabilities
- Within one year 2 332 1 459
- After one year but not more than five years 6 161 4 282
- After five years 448 -
Total 8 941 5 741
Trade and other payables
- Within one year 19 708 22 188
- After one year but not more than five years 2 169 2 095
Total 21 877 24 283
2022 2021*
US$'000 US$'000
27. SHARE-BASED PAYMENTS
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 253 397
profit
or loss
*The prior year figures have been re-presented, as Gem Diamonds Botswana
(Proprietary) Limited (Ghaghoo Diamond Mine) ceased to be classified as a
discontinued operation during the current financial reporting period. Refer
Note 15, Assets held for sale.
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.
The fair value of share options granted is 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 takes into account
projected dividends and share price fluctuation co-variances of the Company.
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 are three awards where options are still
outstanding.
All these awards were awarded on the following basis:
To key employees (excluding Executive Directors):
· the awards vest 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 awards vest, they are exercisable for seven years (ie
contractual term is 10 years); and
· the vested awards are equity settled.
To Executive Directors:
· the awards vest 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 awards granted are 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 awards vest, they are exercisable for seven years (ie
contractual term is 10 years); and
· the vested awards are equity settled.
The fair value of the Nil value awards 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 all the awards within the 2007 LTIP
that remain outstanding:
LTIP LTIP LTIP
March April March
2016 2015 2014
Number of options granted - Nil value 1 215 000 1 215 000 625 000
Number of options granted - Market value 185 000 185 000 -
Date exercisable 15 March 1 April 2018 19 March
2019
2017
Options outstanding 34 287 5 000 5 000
Dividend yield (%) 2.00 2.00 -
Expected volatility (%) 1 39.71 37.18 -
Risk-free interest rate (%) 2 0.97 1.16 -
Expected life of option (years) 3.00 3.00 3.00
Exercise price (US$) nil nil nil
Exercise price (GBP) nil nil nil
Weighted average share price (US$) 1.56 2.10 2.87
Fair value of nil value options (US$) 1.40 1.97 2.87
Fair value of nil value options (GBP) 0.99 1.33 1.74
Fair value of market value options (US$) 0.69 1.18 -
Fair value of market value options (GBP) 0.49 0.80 -
Model used 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.
LTIP 2017 Award
Under the 2017 LTIP rules, there are five awards where options are still
outstanding.
All the awards were issued on the same basis as the 2007 LTIP.
LTIP 2017 Award - April 2022
On 4 April, 165 930 nil-cost options were granted to certain key employees of
the Company. In addition, 841 168 nil-cost options were granted to certain
executive employees and the Executive Directors on the same basis as the 2007
LTIP. These options were granted in line with the introduction of the Gem
Diamonds Incentive Plan (GDIP) in the prior year, which integrates annual
bonus awards with awards under the LTIP. The options, which vest in tranches
of one-third per annum commencing on 4 April 2023, are exercisable between the
respective vesting dates and 3 April 2032. The fair value of these awards is
based on the observable Gem Diamonds Limited share price on the date of 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
April June March March July
2022 2020 2019 2018 2017
Number of options granted - 1 007 098 1 069 000 1 160 500 1 265 000 1 150 000
Nil value
Number of options granted - - 180 000 142 500 185 000 185 000
Market value
Date exercisable 4 April 2023 9 June 2023 20 March 2022 20 March 4 July 2020
2021
Options outstanding 994 308 1 023 061 278 679 249 799 58 642
Dividend yield (%) - - - - 2.00
Expected volatility (%) 1 n/a 47.00 43.00 40.00 40.21
Risk-free interest rate (%) 2 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
Exercise price (US$) nil nil nil nil nil
Exercise price (GBP) nil nil nil nil nil
Weighted average share price 0.74 0.39 1.20 1.35 1.24
(US$)
Fair value of nil value options 0.74 0.39 1.20 1.35 1.11
(US$)
Fair value of nil value options 0.58 0.31 0.90 0.96 0.86
(GBP)
Fair value of market value - 0.19 0.58 0.74 0.72
options (US$)
Fair value of market value - 0.15 0.44 0.53 0.56
options (GBP)
Model used n/a Monte Carlo Monte Carlo Monte Carlo Monte Carlo
1 Expected volatility was based on the average annual historic
volatility of the Company's share price over the previous three years.
2 The relevant risk-free interest rate is taken from a UK Treasury
Bond issued which closely matches the lifetime of the option.
The following table illustrates the number ('000) and movement in the
outstanding share options during the year:
2022 2021
US$'000 US$'000
Outstanding as at 1 January 2 453 3 887
Granted during the year 1 007 -
Exercised during the year 1 (394) (855)
Forfeited (418) (579)
As at 31 December 2 648 2 453
Exercisable as at 31 December 635 454
1 Options were exercised regularly throughout the year. The weighted
average share price during the year was £0.45 (US$0.55) (2021: £0.60
(US$0.83)).
The weighted average remaining contractual life for the share options
outstanding as at 31 December 2022 was 7.6 years (2021: 7.5 years).
The weighted average fair value of the share options outstanding as at 31
December 2022 was US$0.48 (2021: US$0.65).
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 2022 was £0.33 (US$0.39) (2021: £0.47 (US$0.65)). The shares
outstanding at the end of the
year are as follows:
2022 2021
US$'000 US$'000
Outstanding as at 1 January 10 17
Exercised during the year - (7)
As at 31 December 10 10
Exercisable as at 31 December 10 10
28. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the current
portions of the prepayment disclosed in Note 12, Receivables and other
assets, which do not meet the criteria of a financial asset.
2022 2021
Notes US$'000 US$'000
Financial assets at amortised cost
Cash 14 8 721 30 913
Cash - assets held for sale 15 - 144
Receivables and other assets 12 6 421 4 398
Receivables and other assets - assets held for sale 15 - 45
Total 15 142 35 500
Total non-current 2 916 1 278
Total current 12 226 34 222
Financial liabilities at amortised cost
Interest-bearing loans and borrowings 17 5 945 11 044
Trade and other payables 19 21 877 24 279
Trade and other payables - liabilities directly associated with assets held 15 - 446
for
sale
Total 27 822 35 769
Total non-current 6 539 10 435
Total current 21 283 25 334
The carrying amounts of the Group's financial instruments held approximate
their fair value.
There were no open hedges at year end (2021: nil).
2022 2021
US$'000 US$'000
29. DIVIDENDS DECLARED AND PROPOSED
Declared dividends on ordinary shares
Final ordinary cash dividend for 2021: 2.7 US cents per share (2020: 2.5 US 3 771 3 509
cents per share)
The 2021 proposed dividend was approved on 8 June 2022 and a final cash
dividend of 2.7 US cents per share was paid to shareholders on 21 June 2022.
The 2020 proposed dividend was approved on 2 June 2021 and a final cash
dividend of 2.5 US cents per share was paid to shareholders on 15 June 2021.
30. EVENTS AFTER THE REPORTING PERIOD
No other fact or circumstance has taken place between the end of the
reporting period and the approval of the financial statements which, in our
opinion, is of significance in assessing the state of the Group's affairs or
requires adjustments or disclosures.
31. MATERIAL PARTLY OWNED SUBSIDIARY
Financial information of Letšeng Diamonds, a 70% held subsidiary which has a
material non-controlling interest, with the remaining 30% being held by the
Government of the Kingdom of Lesotho, is provided below.
2022 2021
US$'000 US$'000
Name Country of
incorporation
and
operation
Letšeng Diamonds (Proprietary) Limited Lesotho
Accumulated balances of material non-controlling interest 69 822 76 845
Profit allocated to material non-controlling interest 9 786 12 458
The summarised financial information of this subsidiary is provided
below. This information is based on amounts before intercompany
eliminations.
Summarised statement of profit or loss for the year ended 31 December
Revenue 186 087 198 510
Cost of sales (123 793) (120 751)
Gross profit 62 294 77 759
Royalties and selling costs (19 571) (20 879)
Other income 2 133 1 110
Operating profit 44 856 57 990
Net finance costs (2 590) (2 470)
Profit before tax 42 266 55 520
Income tax expense (9 647) (13 993)
Profit for the year 32 619 41 527
Total comprehensive income 32 619 41 527
Attributable to non-controlling interest 9 786 12 458
Dividends paid to non-controlling interest (10 549) (6 685)
Summarised statement of financial position as at 31 December
Assets
Non-current assets
Property, plant and equipment, deferred tax assets, intangible assets and 317 550 313 028
receivables and other assets
Current assets
Inventories, receivables and other assets, and cash and short-term 39 231 61 455
deposits
Total assets 356 781 374 483
Non-current liabilities
Interest-bearing loans and borrowings, trade and other payables, 104 118 95 261
provisions, lease liabilities and deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings, trade and other payables and 19 923 23 072
lease liabilities
Total liabilities 124 041 118 333
Total equity 232 740 256 150
Attributable to:
Equity holders of parent 162 918 179 305
Non-controlling interest 69 822 76 845
Summarised cash flow information for the year ended 31
December
Operating cash inflows 74 793 77 824
Investing cash outflows (59 928) (68 655)
Financing cash outflows (36 387) (30 582)
Foreign exchange differences (475) 1 271
Net decrease in cash and cash equivalents (21 997) (20 142)
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 2022
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 2022 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 2022.
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 2022.
Signature, discovery, and production bonuses
There were no payments of this nature to governments for the year ended 31
December 2022.
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 2022.
Cash flow basis
Payments reported are on a cash flow basis and may differ to amounts reported
in the Gem Diamonds Limited 2022 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$103 450 (£86 000), are disclosed
in this report. All payments below this threshold have been excluded.
Reporting currency
The payments to government have been reported in US dollar.
Payments made in currencies other than US dollar were translated at the
relevant annual average exchange rate for the year ended 31 December 2022.
Summary report
Operation Country Taxes Royalties Licence fee Total
US$'000
US$'000
US$'000
US$'000
Letšeng Diamonds (Proprietary) Limited Lesotho 6 944 21 728 156 28 828
Total 6 944 21 728 156 28 828
Lesotho Taxes Royalties Licence fee Total
Letšeng Diamonds (Proprietary)
US$'000
US$'000
US$'000
US$'000
Limited
Lesotho Revenue Authority 6 944 - - 6 944
Government of the Kingdom of Lesotho - 21 728 156 21 884
Other
Other than the taxes, royalties and licence fees disclosed above, there were
no other payments to governments for the year ended 31 December 2022, 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. This contract is due to expire in October 2024
under current terms. 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.
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