TIDMGEMD
RNS Number : 0608F
Gem Diamonds Limited
17 March 2022
Thursday, 17 March 2022
Gem Diamonds Limited
Full Year 2021 Results
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company"
or the "Group") announces its Full Year Results for the year ending
31 December 2021 (the "Period").
FINANCIAL RESULTS:
-- Revenue of US$201.9 million (US$189.6 million in 2020)
-- Underlying EBITDA from continuing operations of US$57.4 million (US$53.2 million in 2020)
-- Profit for the year from continuing operations US$31.1 million (US$27.5 million in 2020)
-- Attributable profit from continuing operations US$18.5 million (US$16.9 million in 16.9)
-- Earnings per share from continuing operations 13.2 US cents (12.1 US cents in 2020)
-- Cash on hand of US$31.1 million as at 31 December 2021
(US$23.5 million attributable to Gem Diamonds)
DIVID
-- Ordinary dividend of 2.7 US cents per share proposed by the
Directors and subject to approval by the shareholders at the 2022
AGM
-- The dividend will be paid on 21 June 2022 to shareholders who
are on the register of members on the record date of 20 May 2022
(ex-div date 19 May 2022)
OPERATIONAL RESULTS:
Letšeng
-- Carats recovered of 115 335 (100 780 carats in 2020)
-- Waste tonnes mined of 18.7 million tonnes (15.6 million tonnes in 2020)
-- Ore treated of 6.2 million tonnes (5.4 million tonnes in 2020)
-- Average value of US$1 835 per carat achieved (US$1 908 in 2020)
-- The highest dollar per carat achieved for a white rough
diamond during the year was US$47 574 per carat
COVID-19
One of the Group's priorities in 2021 was to safeguard its
employees, contractors and surrounding communities from COVID-19
and, in doing so, it was able to operate uninterrupted throughout
the year. Almost 100% of the Group's workforce has now been fully
vaccinated against COVID-19.
TCFD and Climate
The Group adopted the recommendations of the Task Force on
Climate-related Financial Disclosures during the year and concluded
Phase 1 of its three-year TCFD roadmap. The Group took a measured
and science-based approach to conclude its Group-wide climate
change scenario analysis and to develop a climate change strategy,
and will continue to do so while setting targets, metrics and
setting its decarbonisation strategy.
Commenting on the results today, Clifford Elphick, Chief
Executive Officer of Gem Diamonds, said:
"Gem Diamonds has delivered positive operational and financial
results notwithstanding the continued challenges brought about by
the COVID-19 pandemic on the availability of skills, equipment,
spares and other aspects of the supply chain. One of our priorities
remains the safety of our employees, contractors and surrounding
communities and we are pleased that we were able to assist the
Lesotho Government in its fight against COVID-19 with a donation of
20 000 vaccines and a new 4x4 ambulance capable of reaching remote
communities. To date, nearly 100% of the Group's workforce has been
vaccinated.
The Group has continued with its climate change journey and
we're pleased with the progress made in 2021. Our science-based
approach will stand us in good stead over the coming years in
managing the physical and transition risks. We are also continuing
to explore the opportunities that climate change might bring to our
operations.
The continuing recovery of the diamond market in 2021 was
evidenced by the robust prices achieved for Letšeng's large,
high-value diamonds and there was also a significant improvement in
the prices achieved for smaller diamonds. This resulted in positive
cash flows and allowed Gem Diamonds to end the year in a strong
financial position.
We are pleased to announce that based on the results achieved in
2021, the Board has proposed the payment of an ordinary dividend of
2.7 US cents per share."
The Company will host a live audio webcast presentation of the
full year results today, 17 March 2022, at 9:30 GMT. This can be
viewed on the Company's website: www.gemdiamonds.com
The page references in this announcement refer to the Annual
Report and Accounts 2021, which can be found on the Company's
website: www.gemdiamonds.com .
The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67
FOR FURTHER INFORMATION:
Gem Diamonds Limited
ir@gemdiamonds.com
Celicourt Communications
Mark Antelme / Felicity Winkles
Tel: +44 (0)20 8434 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 took measures in 2021 to enhance risk management,
improve stakeholder relations and meet the board independence
requirements of the UK Governance Code.
Dear shareholders,
On behalf of your Board of Directors, I am pleased to share the
Gem Diamonds Annual Report and Accounts for 2021, which describes
both the Group's performance during the past year and the progress
we have made against our longer-term strategic objectives.
2021 was certainly not without its challenges, with a
combination of the impact of renewed COVID-19 waves and
restrictions, planned periods of mining in lower grade areas of the
resource and extreme weather conditions. Pleasingly,
notwithstanding these challenges, operational stability improved
significantly towards the end of the year. We also saw the positive
effect of several important safety interventions (including a
24-hour 'Stop for Safety' campaign in June 2021) returning the
operation to its usual strong level of safety performance following
a number of disappointing safety incidents in the first half of the
year. In parallel, robust global demand for our large high-value
diamonds resulted in a solid financial performance of EBITDA of
US$57.4 million, an increase of 8% on 2020, and revenue of US$201.9
million.
CONTINUOUSLY IMPROVING OUR GOVERNANCE APPROACH
As stewards of the interests of all stakeholders of the Group,
the Directors strive to continuously improve governance and
oversight. Good governance is the bedrock upon which the Group's
reputation rests and it underpins operational efficiency, the
relationships we have with employees, local communities and
governments, and the respect we have for and in which we are held
by our shareholders and the wider market. Ultimately, good
governance is a crucial element in the sustainability of our
business and the preservation of value for all stakeholders.
The Board's priorities in 2021:
-- Ensuring safe and stable operations during the COVID-19 pandemic.
-- Enhancing risk management systems and processes.
-- Overseeing the adoption of the TCFD recommendations and Group climate change strategy.
-- Resolving certain shareholder concerns regarding the Board's independence.
-- Overseeing the renewal of the Group's funding arrangements.
-- Overseeing the pending sale of the Ghaghoo mine.
"Good governance is a crucial element in the sustainability of
our business and the preservation of value for all
stakeholders"
- Harry Kenyon-Slaney -
During the past year, we worked hard to further refine our risk
management systems and processes. This has enabled us to improve
the identification, quantification and mitigation of operational
and wider environmental and societal risks, and to assess their
potential impact against the risk tolerance levels we judge
appropriate for the Group. Practical examples include the
restructuring of our insurance cover to mitigate the substantial
recent increase in insurance cost and further refinement of our
tailings management systems to align them fully with the ICMM's
GISTM. Effective risk management and ongoing stakeholder engagement
ensure that the Board is kept appraised of issues as they emerge
and evolve, and that new opportunities are brought to the Board's
attention.
As part of our governance process, we continually review our
approaches to combatting systemic challenges. This year we have
again reassessed and refreshed our positions on human rights,
modern slavery, corruption and climate change. I am pleased that
all employees and contractors have reaffirmed their commitment to
these statements.
ADDRESSING SAFETY AND CLIMATE CHANGE
We regard the safety and health of our workforce as our highest
priority and, while we are not complacent and can always do better,
our track record over recent years has been solid. It was therefore
a concern to the Board that our safety performance deteriorated
during the first six months of 2021, but management took swift
action to turn the situation around. The Letšeng mine was shut down
for a full day in a 'Stop for Safety' campaign to allow the
workforce to be addressed. A new safety culture programme was
launched to reinforce the message that production must happen
safely or not at all. Pleasingly the second half of the year showed
a sharp recovery. The AIFR for the full year was 0.93.
Letšeng is located in a remote and pristine region of the world
and the Board has always been sensitive to the need to operate in
an environmentally responsible manner. In 2021, the existential
threat of climate change moved to the centre of the public's
consciousness and is top of mind for political and business
leaders. As a mining company that is necessarily a sizeable
consumer of energy, we have commenced the process of both
understanding our contribution to greenhouse gas emissions and what
we can do to limit it. Climate change is now a topic of discussion
at every Board meeting and is a top priority in our risk management
system.
Gem Diamonds has adopted six priority goals from the 17 UN SDGs
and our ongoing inclusion in the FTSE4Good index is an external
validation that our positive ESG practices align with global
standards and expectations. There were no major or significant
environmental incidents reported at any of our operations during
the year.
VALUING DIVERSITY, SKILLS AND EXPERIENCE
While ours is a small Board, appropriate for the size of the
Group, we are committed to aligning with the requirements of the UK
Corporate Governance Code. In May, Johnny Velloza (previously
deputy CEO) stepped down from the Board to ensure that the Board
meets the independence requirements of the Code. We are grateful to
Johnny for his significant contribution and commitment over the
last five years and we continue to benefit from his technical
expertise as a strategic adviser.
We welcomed Rosalind Kainyah MBE to the Board. Rosalind has
decades of experience in corporate and environmental law,
government relations, political risk management and sustainability.
Her experience in diamond mining includes an Executive Director
position at the De Beers Group and she adds valuable ESG and
leadership skills to the Board.
The Nominations Committee oversees board and senior management
succession planning, and this important work ensures that the
Group's leadership is appropriately sized, regularly refreshed,
diverse and equipped with the necessary skills. We believe that the
Board, as currently constituted, contains the right balance of
critical thinking capabilities, skills and experience and that the
complementary perspectives included ensure appropriate independent
oversight of the Group.
We are proud of our track record of local appointments and
promotions with a representation of nearly 98% Lesotho nationals at
Letšeng and steadily improving gender diversity throughout the
Group.
LISTENING TO OUR STAKEHOLDERS
As the operator and 70% owner of the Letšeng mine, we regard
ourselves as guests of the people of Lesotho. We endeavour to
always maintain constructive, open and honest dialogue with local
communities and government partners. We consider their priorities
and ensure that they in turn understand the nature of our business
and Letšeng's significant contribution to the national economy.
Since joining the Board in July 2019, Mazvi Maharasoa has been
the designated non-Executive Director for workforce engagement. She
engages directly with employee representatives and provides the
Board with an unfiltered view on issues that people wish to raise.
This engagement process has broadened our understanding of various
concerns and has enhanced the channels via which employees can
communicate with management and see their issues being resolved.
The Board values this process as it gives us reassurance that
employee voices are heard at the top of the organisation and has
helped to strengthen our relationships with them. These
interactions have been particularly important while access to the
mine has been restricted during the COVID-19 pandemic.
ENTRENCHING AN ETHICAL CULTURE
Gem Diamonds has always maintained a strong set of ethical
principles that remain the firm foundation of 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, 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.
SUSTAINABLE RETURNS FOR OUR SHAREHOLDERS
In line with our dividend policy to pay a dividend to
shareholders when the financial strength of the Group allows, we
are pleased to propose that a dividend of 2.7 US cents per share be
declared for the 2021 financial year.
ACKNOWLEDGING OUR STAKEHOLDERS' CONTRIBUTIONS
Operating a large mine high in the Maluti Mountains of Lesotho
under the constraints of COVID-19-related travel and access
restrictions once again provided a considerable test for everyone
at Gem Diamonds during 2021. Management's ability to oversee the
operation remotely for extended periods is a testament first and
foremost to the ability and fortitude of our workforce, to the
quality of the systems and culture in place at the mine and the
strength of our relationships with local community leaders and with
the Government of the Kingdom of Lesotho.
On behalf of the Board, I therefore want to thank everyone who
has contributed to the Group's success this past year despite
considerable disruption to their lives and those of their families.
We thank our employees, contractors, our community partners, the
Government of the Kingdom of Lesotho and our shareholders for their
ongoing support. Finally, I wish to thank my fellow Directors for
the dedication and commitment they showed and the valuable
contributions they made during the year.
BEING CONFIDENT ABOUT THE FUTURE
While there are some signs that the COVID-19 pandemic may be
starting to wane, there remains a risk of further resurgences. The
success of our efforts to largely shield our people over the past
two years has given us confidence that we have the systems and
processes in place to deal with this risk, to keep our people safe
and maintain the supply chain that our operations depend on.
2021 marked the end of the four-year period over which we
delivered in excess of the target of US$100 million by achieving
US$110.0 million in revenue, productivity and cost savings
generated through the Business Transformation programme launched in
2017. In 2022, our goal is to build on the success of this effort
by further improvement of our operational consistency through the
focused implementation of a rigorous continuous improvement
culture. In addition, we vigorously continue to exploit
opportunities to optimise the mine plan and to reduce our waste
profile, investigate future options to explore underground mining
at Letšeng and progress several technological innovations in our
processing plants.
The climate change scenario analysis that the Group undertook in
2021 provides a strong foundation to incorporate climate
change-related risks and opportunity considerations into future
business plans, strategies and feasibility studies.
Diamond prices have recovered steadily since the second half of
2020 due to an improving market outlook and declining supply.
Prices increased further in 2021 and it is pleasing to note that
this trend has continued into 2022. While predicting the frequency
of the recovery of large diamonds is impossible in the short term,
consistent delivery of plant throughput volumes is the best way to
yield results over time.
Harry Kenyon-Slaney
Chairperson
16 March 2022
RISK MANAGEMENT
HOW WE APPROACH RISK
The Group's risk management framework, which is fully integrated
within strategic and operational planning, aims to identify, manage
and mitigate the risks and uncertainties to which the Group is
exposed and combines top-down and bottom-up approaches with
appropriate governance and oversight, as shown in the graphic
below.
Oversight BOARD OF DIRECTORS Top-down approach -
The Board is responsible for risk management in the Group and sets the risk appetite and
provides stakeholders with assurance tolerances, strategic
that key risks are properly identified, assessed, mitigated and objectives and accountability
monitored. The Board maintains for the management
a formal risk management framework for the Group and formally of the framework
evaluates the effectiveness
of the Group's risk management process. It confirms that the
process is accurately aligned
with the Group's strategy and performance objectives.
At the quarterly risk review meeting, the Board reviews the risk
register, assesses management's
scenarios and plans, interrogates the most critical risks in
detail and 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 Board
processes, reviews the status that appropriate systems are
of in place to identify and manage
risk management, and reports to health, safety, social and
the Board on a biannual basis. environmental risks. It monitors
It is responsible for the Group's performance within
addressing these categories and drives
the corporate governance proactive risk mitigation
requirements of risk management strategies
and for monitoring risk to secure the safe and
management responsible operations and the
at each operation. social licence to operate in the
future.
-------------------------------- ---------------------------------
Responsibility MANAGEMENT Bottom-up approach -
Management develops, implements, communicates and monitors risk ensures a sound risk management
management processes and integrates process and establishes formal
them into the Group's day-to-day activities. It identifies risks reporting structures
affecting the Group, including
internal and external, current and emerging risks. It implements
appropriate risk responses
consistent with the Group's risk appetite and tolerance.
GROUP INTERNAL AUDIT
Group Internal Audit formally reviews the effectiveness of the
Group's risk management processes.
The outputs of risk assessments are used to compile the strategic
three-year rolling and annual
internal audit coverage plan and evaluate the effectiveness of
controls.
------------------------------------------------------------------- --------------------------------
Risk management framework
The Board and its Committees oversee the most relevant and
significant current and emerging risks facing the Group which
include strategic, operational and external risks. These risks are
actively monitored, managed and mitigated to the extent possible as
their impact, individually or collectively, could affect the
Group's ability to achieve its objectives.
While Gem Diamonds' risk management framework focuses on risk
identification and mitigation, many factors that give rise to these
risks also offer opportunities. The Group monitors existing and
emerging opportunities and incorporates them into the strategy
where they support the Group's vision.
The learnings from COVID-19 led to increased emphasis on
identifying the possible implications of external macro risks and
low-probability and high-consequence events to inform appropriate
contingency plans. These risks are mitigated by building resilience
and flexibility into our leadership and operational processes, and
ensuring the Group is equipped to quickly quantify the size and
scale of the emerging issue and adapt accordingly. Insurance cover
plays an important role in risk mitigation, enabling the transfer
of certain risk elements within the primary risk categories of the
Group. While it does not eliminate the need for operational
controls to manage and mitigate risk, it offsets the financial loss
should the risk materialise.
Insurers have continued to decrease their exposure to the mining
industry due to the risk perception created by the COVID-19
pandemic, as well as claims in the industry due to the looting
experienced in South Africa in July 2021. As a result, the renewal
of appropriate insurance has become challenging, leading to
additional exclusions, reduced cover, increasing deductibles or
excesses payable and increasing premiums. Reduced cover
consequently directly impacts the Group's cash management risk. In
response to these challenges, the Group has decided to adopt a new
risk transfer strategy to address the substantial changes in the
insurance market by developing a sustainable insurance solution for
the Group in the medium to long term.
1. Climate Risk: Climate Risk Response: Risk type:
Change change-related * TCFD adoption and climate change strategy Strategic,
risks development. Operational
(transitional and External
and physical
risks) are * Governance and management practices implemented. Strategic
recognised as impact:
top Preparing for
global risks and * Structured TCFD Adoption Committee meetings. our future.
investors are
increasingly Working
focused on the * New reporting standards adopted. responsibly
management of and
these risks. maintaining
Climate * Adoption of UN SDG framework our social
change presents licence.
significant
present and * GHG emissions monitoring and reporting. Business model
future risks and impact:
opportunities to Affects the
the Group, that entire
if not business
identified and model.
managed
responsibly
could negatively
impact the
organisation's
long-term
resilience.
Opportunity:
Opportunities
for improvements
in energy and
operational
efficiency,
innovation
and growth.
2. Diamond Risk: Risk Response: Risk type :
damage Letšeng's * Continuous diamond damage monitoring and analysis to Strategic and
valuable Type identify opportunities to reduce diamond damage. Operational
IIa diamonds are
highly Strategic
susceptible to * Optimising blasting and processing activities to impact:
damage during reduce possible diamond damage. Extracting
the maximum value
mining and from our
recovery * Development of early identification and improved operations.
process. This liberation technology.
affects revenue Preparing for
generated by the our future.
Group's large,
high-value Business model
diamonds impact:
resulting in Reduces
reduced cash financial
flow and inputs,
profitability. increases
diamond prices
Related realised and
opportunities: output of
Reduction in carats
diamond damage recovered,
will result in increasing
higher prices financial
achieved, outputs.
resulting in
improved cash
flow and
profitability.
----------------- ---------------------------------------------------------------- ---------------
3. Diamond Risk: Risk Response: Risk type:
Resources and Letšeng's * Gathering geological evidence on variations within External and
Reserves low-grade the resource (lithology, density, volume/tonnage, Operational
orebodies makes grade, diamond population size and value
the operation distributions), applying industry best practice and Strategic
sensitive to engaging independent experts to audit and advise. impact:
resource Extracting
variability. maximum value
Inadequate * Ongoing pit mapping, petrography, drilling, and 3D from our
information on modelling. operations.
the geological
continuity, Preparing for
distribution, * Grade control, bulk sampling, density and moisture our future.
grade, and content measurements (on-site and independent lab
quality of verification), dilution control, stockpile management Business model
diamonds , impact:
within the data management, quality control and internal Affects
orebodies auditing of production data (including geological, natural
increases the processing, recovery and sales data). capital inputs
risk that and outputs of
production carats
targets may not * Managing the Diamond Accounting System and Mineral recovered.
be achieved and Resource Management (MRM) database, monitoring Life of mine
reduces recovery data on daily and monthly basis, as well as affects the
confidence in per export period, to follow trends in diamond long-term
the performance distributions, large stone frequencies and average viability of
of the resource. diamond prices per kimberlite domain. the business
Unexpected model.
variability in
key
resource/reserve
criteria, such
as volume,
tonnage, grade
and price, can
significantly
impact the
operation's
forecasting and
financial
stability, both
in the short and
medium term, and
can influence
decisions
regarding future
growth.
Related
opportunity:
Having access to
adequately
detailed and
reliable
exploration,
sampling
and testing data
enables the
operation to
reasonably
assume
geological,
grade and
quality
continuity
within defined
domains, and
improves
planning and
forecasting
accuracy.
----------------- ---------------------------------------------------------------- ---------------
4. Security of Risk: Theft is Risk Response: Risk type:
product an inherent risk * Zero tolerance on non- conformance to policy and Strategic and
in the diamond regulations. Operational
industry. The
high-value Strategic
nature of the * Advanced security access control and surveillance impact:
product system in Extracting
at Letšeng maximum value
makes it from our
susceptible to * place, complemented by off-site surveillance. operations.
theft and
significant Working
losses, which * Monitoring of security process effectiveness by the responsibly
would negatively Diamond Recovery Protection Committee (subcommittee and
affect revenue of the Letšeng Board). maintaining
and cash flows. our social
licence.
Related * Appropriate diamond specie insurance cover in place.
opportunities: Business model
Advanced impact:
security control * Regular vulnerability assessments complemented by Affects
measures internal and independent third-party assurance audits outputs of
increase undertaken. carats
employee and recovered,
product safety which
and improves increases
revenue. financial
outputs.
Improves human
capital
and safety
outcomes.
----------------- ---------------------------------------------------------------- ---------------
5. Variability Risk: Risk Response: Risk type:
in cash Variability in * Appropriate treasury management procedures and External and
generation cash flows from framework to enter into short-term hedging Strategic
operational instruments are implemented to mitigate the effects
activities and of currency volatility on cash flows. Strategic
currency impact:
fluctuations can Extracting
negatively * Rigorous cost and capital discipline is in place. maximum value
affect the from our
Group's ability operations.
to effectively * Funding facilities are in place to manage any
operate, repay variability in the short to medium term. Preparing for
debt and fund our future.
capital
projects. This * Ongoing CI programme to drive operational Business model
risk is directly efficiencies. impact:
impacted by Affects
other principal funding and
risks such as financial
rough diamond capital inputs
demand and outcomes.
and prices,
diamond damage,
and diamond
resources and
reserves.
Related
opportunities:
Cash constraints
drive more
efficient
capital
allocation and
cost discipline.
Consistent and
regular cash
flows provides
predictability
to maintain an
appropriate
capital
allocation
strategy.
----------------- ---------------------------------------------------------------- ---------------
6. Information Risk : The Risk Response: Risk type :
Technology (IT) Group's * Application of technical and process IT controls in Strategic and
and Operational operations rely line with industry- accepted standards. Operational
Technology (OT) on secure IT and
systems, and OT systems to Strategic
cybersecurity process and * Appropriate back-up procedures, firewalls and other impact:
record financial appropriate security applications in place. Extracting
and operating maximum value
data in its from our
information * Regular testing of back-up restorations. operations.
management
systems. If Preparing for
these systems * IT management policies. our future.
are compromised,
there could be a Business model
material adverse impact:
impact on the Affects the
Group. entire
business
Related model.
opportunities:
Stability to the
business with no
production
interruption.
----------------- ---------------------------------------------------------------- ---------------
7. Health Risk: The Risk Response: Risk type:
Safety and probability of a * Appropriate health and safety policies and practices Strategic and
Wellness major health or are in place. Operational.
safety incident
occurring within Strategic
the Group is * Corrective actions identified from incident impact:
inherent in investigations and internal and external audits Extracting
mining implemented timeously. maximum value
operations. from our
These incidences operations.
could impact the * Dam safety management framework implemented and
wellbeing of alignment with the GISTM. Working
employees, PACs, responsibly
our licence to and
operate, the * ISO 45001 accreditation maintained. maintaining
Company's our social
reputation and licence.
compliance with * Safety management and leadership programme; detection
its mining lease and prevention strategies are developed and Business model
agreement. implemented. impact:
Affects the
Related entire
opportunities: * Training and awareness campaigns. business
Improving model.
employee health
and wellness can * Psychological support considerations for the full
increase morale, workforce.
reduce
absenteeism and
improve * Continually assess organisational health to address
productivity. current and emerging issues.
Effective safety
policies and * Flexible shift configuration to assess alternatives
processes in to limit community transmission and transfer to the
place reduces workplace.
risk to our
workforce,
strengthens
our
relationships
with employees
and regulators,
and safeguards
our reputation.
----------------- ---------------------------------------------------------------- ---------------
8. Production Risk: Material Risk Response: Risk type:
interruption mine and/or * Continuous review of business continuity plans. Operational
plant shutdowns, and External
pit closures or
periods of * Bespoke contract management role fulfilled to ensure Strategic
decreased proper contract management and minimise potential for impact:
production disputes and disruptions. Extracting
could arise due maximum value
to various from our
events. These * Appropriate insurance maintained. operations.
events could
lead to personal Working
injury or death, * Appropriate levels of resources maintained (fuel, responsibly
environmental stockpiles, etc) to mitigate certain production and
impacts, damage interruptions. maintaining
to our social
infrastructure licence.
and delays in * Improvements implemented in the management of
mining and contractors' procurement practices. Business model
processing impact:
activities and Reduced
could operational
result in activity could
financial losses lead to a
and possible decline in
legal liability. financial
capital and
The Group relies outputs.
on the use of Negative
external outcomes
contractors in decrease
its mining and natural and
processing human capital
activities. .
Disputes with
these
contractors
could materially
impact the
Group's
operations.
Related
opportunities:
Focused contract
management
supports
operating at or
near
steady-state
levels which
improves
efficiencies due
to stability of
production.
Robust business
continuity plans
are in place
which results in
limited delays
due to
disruptions.
----------------- ---------------------------------------------------------------- ---------------
9. Rough Risk: Numerous Risk Response: Risk type:
diamond demand factors beyond * Monitoring of market conditions and trends. External
and prices the control of
the Group may Strategic
affect the price * Flexibility in sales processes and utilisation of impact:
and demand for multiple sales and marketing channels, and increased Extracting
diamonds. These viewing opportunities. maximum value
factors include from our
international operations.
economic and * Ability to enter into partnership agreements with
political manufacturers to share in the upside of the polished Preparing for
trends, as well diamonds. our future.
as consumer
trends. Medium- Business model
to long-term * Maintaining the integrity of the tender process. impact:
demand is Affects
forecast to funding of the
outpace supply, * Reduction in supply in the market with greater demand business
but short-term for Letšeng goods caused by current offtake model, sales
uncertainty agreement between a diamond trader and a competitive and marketing
and liquidity mine. activities and
constraints chosen
within the distribution
diamond sector channels.
may affect rough
diamond pricing.
Related
opportunities:
Reduced supply
and increased
demand may
result in
improved revenue
resulting in
positive cash
flows
----------------- ---------------------------------------------------------------- ---------------
10. Creating Risk: The Risk Response: Risk type:
and preserving volatility of The Groups strategy review has the objective of improving the Strategic
value for the Group's share price through:
shareholders share price and * Continuous Improvement initiatives. Strategic
lack of growth impact:
negatively Working
impacts the * Investigating early identification and anti-breakage responsibly
Group's market technology. and
capitalisation. maintaining
Constrained cash our social
flows could * Assessing mergers and acquisitions and licence.
impact on diversification opportunities.
returns to Preparing for
shareholders. our future.
The Group
currently relies Business model
on a single mine impact:
with a finite Affects the
life for its entire
revenues, business
profits and model.
cash flows.
Related
opportunities:
Focusing on
existing
operations could
unlock further
value through
rationalisation
and efficiency
improvements.
----------------- ---------------------------------------------------------------- ---------------
11. Workforce Risk: Achieving Risk Response: Risk type :
the Group's * Human resources practices are designed to identify Strategic and
objectives and skills shortages and implement development programmes Operational
sustainable and succession planning for employees.
growth depend on Strategic
the ability to impact:
attract * Incentives are in place to retain key individuals Extracting
and retain through performance- based bonus and long-term share maximum value
suitably awards. from our
qualified and operations.
experienced key
employees. Gem * Remuneration practices are in place which review Working
Diamonds current remuneration policies, skills and succession responsibly
operates in an planning. and
environment maintaining
and industry our social
where shortages * Development of training plans to address areas where licence.
in experience skills shortages are identified, in conjunction with
and skills are government agencies. Preparing for
prevalent. our future.
Related Business model
opportunities : impact:
Skills retention Affects human,
and Continuous intellectual
Improvement and financial
initiatives capital inputs
build the into the
Group's human business
capital and can model.
create a
competitive
advantage.
----------------- ---------------------------------------------------------------- ---------------
12. Risk: Risk Response: Risk type:
Environmental Environmental * Implemented appropriate Sustainability and External and
issues are Environmental policies which are subject to a Operational
recognised as continuous improvement review.
top global risks Strategic
by the World impact:
Economic Forum * The current behaviour-based care programme instils Extracting
and investors environmental stewardship. maximum value
are increasingly from our
focused on operations.
environmental * A dam safety management framework has been
performance. implemented. Working
Failure to responsibly
manage vital and
natural * Annual social and environmental management plan audit maintaining
resources, programme has been implemented. our social
environmental licence.
regulations and
pressure from * ISO 14001 accreditation maintained. Preparing for
neighbouring our future.
communities can
affect the * Adopted a UN SDG framework. Business model
Group's ability impact:
to operate Affects
sustainably. * Rehabilitation and closure management strategy natural
adopted and updated annually. capital inputs
Related into the
opportunities: business model
Responsible * Implementation of the water management framework. and negative
environmental outcomes in
stewardship the case of
improves * Concurrent rehabilitation strategy implemented. environmental
relationships incidents.
with
regulators and * Group shared natural resources management strategy
communities implemented.
while
strengthening
our brand.
Increased focus
on environmental
responsibility
could translate
into a
competitive
advantage.
----------------- ---------------------------------------------------------------- ---------------
13. Social Risk: The Risk Response Risk type:
licence to Group's social * Appropriate CSI strategy based on community needs Strategic and
operate licence to analysis which provides infrastructure, access to Operational.
operate is education and healthcare, and supports local economic
underpinned by development. Strategic
the support of impact:
its Working
stakeholders, * Adoption of relevant standards, best practices and responsibly
particularly strategies. and
employees, maintaining
regulators, PACs our social
and society. * Appropriate Governance structures across all levels licence.
This support is of the Group.
an outcome of Preparing for
the way our future.
the Group * Regular engagement with government and regulators.
manages issues Business model
such as ethics, impact:
labour practices Affects social
and capital and
sustainability the viability
in our wider of the
environment, as business
well as our risk model.
management and
engagement
activities with
stakeholders.
Related
opportunities:
Realising the
Group's vision
to make a
meaningful and
sustainable
contribution to
the countries in
which we operate
builds the
Group's
reputation with
employees,
government,
regulators,
communities and
investors.
----------------- ---------------------------------------------------------------- ---------------
EMERGING RISKS
The Group risk framework includes an assessment of emerging
risks which are indicators of future conditions from which new
opportunities and threats can arise.
The Group's consideration of emerging risk includes those risks
that:
-- are likely to materialise or impact over a longer time frame than existing risks.
-- do not have much reference from prior experience.
-- are likely to be assessed and monitored against
vulnerability, velocity and preparedness when determining
likelihood and impact.
The current emerging risks and opportunities being monitored by
the Group are:
-- although the invasion of Russia into the Ukraine and
consequential sanctions applied is a current event; the social,
political and economic effect of this on commodity prices, supply
chains and market conditions is unknown..
-- lab-grown diamonds.
-- generational shifts in consumer preferences - social influencers.
-- the rate of advancement of digital technologies such as blockchain.
-- future workforce (automation, skills for the future, etc).
-- uncertainty around carbon tax.
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 approval of the
financial statements 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 37 to 44 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
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.
REFINANCING OF GROUP FACILITIES
The refinancing of the Group's facilities which was completed in
December 2021, significantly increased the Group's available
facilities from US$67.6 million immediately before the refinancing
to US$83.3 million thereafter, when fully unutilised. US$77.0
million of these facilities mature in December 2024, with the
balance of US$6.3 million being a general banking facility with no
set expiry date, but which is reviewed annually.
COVID-19
While there are promising signs that the impact of the COVID-19
pandemic may be dissipating, there remains a potential risk of
further resurgences. The Group is confident in its ability to
manage through any such resurgence given its experience and success
to date, especially following the successful roll-out of
vaccinations at Letšeng. The Group predominantly holds viewings for
its rough tender sales in Antwerp, although viewings have been held
in Tel Aviv and more recently in Dubai. Although international
travel has been subject to changing levels of restrictions, the
main diamond sales market in Antwerp has remained open. Diamond
sales are concluded on Gem Diamonds' electronic tender platform
which can be accessed from anywhere in the world. The Group is
confident that it will be able to continue to hold tender viewings
in Antwerp despite any potential COVID-19 travel restrictions.
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 and transitional 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, is
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.
STRESS TESTS
The scenarios tested considered the Group's revenue, EBITDA(1) ,
cash flows and other key financial ratios over the three-year
period. The scenarios tested included the compounding effect of the
factors below and were applied independently of each other.
1 Refer Note 4, Operating profit on page 179 for the definition
of non-GAAP measures.
Effect Extent of sensitivity Related principal risks Area of business model affected
analysis
A decrease in 20%
forecast * Rough diamond demand and prices. * Entire business model ie inputs, activ
rough diamond ities, outputs
revenue from and outcomes.
reduced * Production interruption.
market prices
or production
volumes * Diamond damage.
caused by
unforeseen
production * Diamond resources and reserves.
disruption
due to either
COVID-19
restrictions
or climate-
related
events.
--------------------------- --------------------------------------- ---------------------------------------------
A 23%
strengthening * Variability in cash generation. * Financial capital inputs and outcomes.
of local
currencies to
the US dollar
from expected
market
forecasts.
--------------------------- --------------------------------------- ---------------------------------------------
CONCLUSION
The Group's current net cash(1) position of US$20.9 million as
at 31 December 2021 and available facilities of US$74.3 million
would enable it to withstand the impact of these scenarios over the
three-year period. The revolving credit facilities which expire on
22 December 2024, has 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 2024.
(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'S REVIEW
We performed strongly in 2021 and operated in a safe and
responsible manner to protect the wellbeing of our workforce.
Letšeng has a unique ore body with diamonds that are of the
highest value of any kimberlite mine, and the most beautiful found
anywhere in the world. Despite the many COVID-19-related challenges
encountered during the year, the Group ended the year in a strong
cash position (net cash of US$20.9 million) with the average price
of Letšeng goods exceeding US$2 000 per carat in Q4. This robust
pricing for Letšeng's large, high-quality diamonds has continued
into 2022.
We aim to extract maximum value for our stakeholders by
operating safely, responsibly and efficiently and exploring new
technologies to reduce diamond damage during the diamond liberation
process. Achieving the highest average prices of any kimberlite
mine in the world requires an effective, transparent and
competitive tender sales process which we boast in Antwerp and,
more recently, in Dubai. In addition, the Group adheres to
internationally recognised systems and processes which provide our
clients and their customers the assurance that our diamonds are
ethically mined.
EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS
The strategy during the second year of COVID-19 impact on our
operations focused on driving the extraction of greater value from
our assets.
The Group's Letšeng operation delivered a solid operating
performance, despite the significant challenges presented by travel
restrictions, supply chain constraints, extreme weather conditions
and intermittent external power outages on site.
Tonnes treated increased 15% year on year as operations returned
to normal after the COVID-19 shutdowns in 2020. Carats recovered
increased 14% to 115 335 (2020: 100 780).
Six diamonds greater than 100 carats were recovered during the
year, which is comparable to the 13-year average of eight, albeit
lower than the 16 such diamonds recovered in 2020. Exceptional
recoveries during the year included the two large high-quality Type
IIa white diamonds of 367 and 245 carats which sold for US$26 160
per carat and US$40 139 per carat, respectively. Letšeng's
operational performance is discussed in more detail on page 60.
The diamond market has recovered to levels not seen in some time
and demand for the high-quality white diamonds produced at Letšeng
is particularly strong. 21 diamonds sold for more than US$1 million
each, generating revenue of US$64.5 million (2020: 34 diamonds
contributing US$72.6 million). The average price achieved during
the year decreased 4% to US$1 835 per carat (2020: US$1 908 per
carat) from the sale of 109 697 carats (2020: 99 172). The decrease
in the prices achieved compared to 2020 relates mainly to fewer
large and exceptional diamond recoveries, and the overall quality
of the diamonds recovered as a result of the areas of the resource
mined during the year. The Group successfully hosted its first
trial tender viewing in Dubai in September, making it easily
accessible for important clients from the UAE, India and Israel to
participate in the tender. The viewings were well-attended and
contributed to the robust prices achieved. The Group will hold its
next Dubai viewing in March 2022.
"We are committed to operating in an environmentally responsible
way."
- Clifford Elphick -
Group revenue increased 6% to US$201.9 million (2020: US$189.6
million), which translates to underlying EBITDA(1) of US$57.4
million and earnings per share of 10.5 US cents. Operational cash
generated amounted to US$71.3 million resulting in a net cash(2)
position of US$20.9 million at the end of 2021. The Group-wide debt
refinancing was successfully concluded during the year. An
additional funder joined the lender group, bringing the total
number of lenders to three. The Group's revolving credit facilities
were increased from US$61.3 million to US$77.0 million, in dollar
equivalent, and renewed for a three-year period.
Based on the positive financial performance of the Group in
2021, we are pleased to announce that the Board has proposed a
dividend of 2.7 US cents per share. More information regarding the
Group's financial results is included in the CFO review on page
52.
WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE
Gem Diamonds aims to sustain a workplace safety culture founded
on mutual care and collaboration across the workforce. We continue
to roll out programmes to drive a behavioural, organisational and
culture ethos of safe conduct in the workplace.
In the past year, there were no fatalities (2020: none), six
LTIs (2020: 1), and we achieved an overall AIFR of 0.93.
We are committed to operating in an environmentally responsible
way. Our tailings storage facility management process aligns with
the ICMM's GISTM which ensures the responsible management and
monitoring of the tailings storage and freshwater facilities with
regular inspections by external experts.
We invest in our surrounding communities through our well-
established CSI programme to improve educational outcomes, develop
infrastructure and stimulate local enterprises to create
self-sustaining employment independent of the mine. Implementing
these programmes was a significant highlight in 2021 as we were
able to successfully implement a number of 2020 projects delayed by
the COVID-19 lockdowns, while also commencing with those projects
planned for 2021. In addition, we were active in repairing roads,
footbridges and other PAC infrastructure damaged by the
extraordinary flooding in the Patiseng valley in the first quarter
of the year.
We are particularly proud of the pipeline of in-country mining
skills we have developed that will serve Letšeng, and Lesotho as a
country, well into the future. We started operations with 250
people in 2006, more than half of whom were expatriates. There are
now 1 591 people working at Letšeng, of whom 98% are Basotho. This
is due to our significant investment in transferring of skills,
sponsoring the studies of students in mining and business-related
disciplines, and in coaching initiatives specific to our needs.
Responsible social and environmentally sourced diamonds are a
consumer priority. We have adopted six of the UN SDGs and continue
to support the GIA's use of blockchain technology to assure
consumers of our diamonds' ethical footprint.
There were no major or significant stakeholder incidents
reported during the year.
GEM DIAMONDS' CONTRIBUTION TO LESOTHO
-- Jobs for 1 591 employees and contractors of which 98% are Basotho nationals.
-- Local procurement US$158.7 million.
-- Local procurement directly from PACs US$3.4 million.
-- Local procurement from regional communities US$31.4 million.
-- Investment in training to improve individual skills.
-- 48 bursaries and scholarships for local students.
-- Vaccine and ambulance donations.
1 Refer Note 4, Operating profit on page 179 for the definition
of non-GAAP (Generally Accepted Accounting Principles)
measures.
2 Net cash/(debt) 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).
OPERATING THROUGH COVID-19
The challenge for our business over the last two years has been
to keep our workforce safe, find ways to run efficiently and
uninterrupted during COVID-19 and generate a return for our
shareholders. We demonstrated our care and agility at the start of
the pandemic by quickly establishing a testing laboratory, strict
controls and protocols, giving confidence to employees,
contractors, communities and the Government of the Kingdom of
Lesotho that we were serious about keeping our people safe. The
Group has incurred significant expenditure in implementing its
COVID-19 protocols with the majority being spent at Letšeng, where
an estimated LSL26.4 million (LSL17 375 per employee) was spent on
COVID-19 management and prevention to date.
When vaccinations started in Lesotho in the second half of 2021,
we acquired and donated 20 000 vaccines to the Lesotho Department
of Health. As part of the national vaccination programme, we worked
with the Department of Health to allow our workforce the
opportunity to be vaccinated on site. We are proud to report that
99% of our workforce is fully vaccinated to date.
As a result of our early and proactive interventions, the mine
operated continuously throughout 2021. However, travel restrictions
made it challenging for Group management, contractors and certain
technical skills to access the mine, and ongoing supply chain
disruptions affected the timeous replenishment of essential spares
and equipment. We remain alert to the effects of the pandemic on
mental health and in response targeted wellness initiatives have
been rolled out at the Johannesburg office and a full-time
psychologist was appointed at Letšeng to support the workforce at
the mine.
Focusing on climate change
We are cognisant of the risks presented by climate change and
conscious of the need to minimise emissions and our environmental
impact more broadly. Letšeng's physical location exposes the
operation to extreme weather conditions including drought, strong
wind, heavy rain, extreme cold and snow. The operation is well set
up to manage these conditions and is experienced in sheltering and
supporting our PACs when necessary.
We held climate change workshops and completed a Group-specific
climate change scenario analysis to deepen our understanding of
climate-related risks and its likely impacts on the Group. The TCFD
framework is proving to be a useful tool to identify and assess
climate change- related issues.
As users of grid and fossil fuel energy, our short-term focus is
on improving energy efficiencies in our operating processes and
reducing combustion-related fossil fuel use. We are assessing our
options in the context of the size, nature and location of our
operations, the required investment and the expectations of our
main stakeholders.
The Group has appointed independent external subject matter
experts to provide input into the climate change considerations
that will inform governance, risk management and strategy decisions
as well as climate change-related targets for the Group. Our
approach to climate change is included on page 26.
PREPARING FOR THE FUTURE
The four-year BT target of US$100 million was exceeded by the
end of the year with the achievement of US$110.0 million, and many
of the embedded initiatives will continue to create value for the
Group. We continue to foster a culture of continuous improvement to
identify and execute value driving initiatives and look forward to
realising the benefits thereof in the near future.
Our capital plans include funding for projects that will sustain
growth and value creation. Advancing technologies to reduce diamond
damage during processing is a focus and while the potential is
clear, the slow pace of progress during the year was
disappointing.
The current open pit mine plan for both Main and Satellite pipes
extends to 2036. In preparing for the future, we are exploring the
trade-off between the next cutback in Satellite pipe versus an
earlier underground access to this ore body in a safe and efficient
manner. To inform our decision in this regard, we deepened our
knowledge of the resource body in 2021 through an extensive
resource drilling programme and will continue this process into
2022.
OUTLOOK
The current strong diamond demand and the ongoing decrease in
the number of diamond producers, suggests that the fundamentals are
supportive for achieving higher diamond prices in the future. We
will prioritise stable and consistent production while driving
efficiencies and managing costs to maximise cash flows, sustain an
appropriate capital return to shareholders and maintain our status
as a responsible, safe and low-cost operation.
Russia's recent invasion of the Ukraine has created political
turmoil and the impact on the global economy, and the diamond
market in particular, is uncertain at this stage.
Our future success depends on ensuring access to the requisite
technical expertise, which will require further investments in
skills development and retention initiatives, as well as effective
succession planning. We remain focused on safeguarding the health
of employees and contractors against COVID-19 for as long as it
persists. We will continue to support our PACs and assist the
Government of the Kingdom of Lesotho in its efforts to manage the
impact of the pandemic.
APPRECIATION
In closing, I thank the Board and our Chairperson for their
leadership during the year. The management teams once again
demonstrated their commitment to the Group, and I thank them for
their exceptional efforts during another difficult year.
We thank our customers for their continued trust and patronage,
and our shareholders for their support. I would like to acknowledge
the Government of the Kingdom of Lesotho for allowing us to
continue to operate in a safe and responsible manner through three
COVID-19 waves during the year.
Clifford Elphick
Chief Executive Officer
16 March 2022
CHIEF FINANCIAL OFFICER'S REVIEW
Gem Diamonds generated positive cash flow and ended the year in
a strong financial position, proposing a shareholder dividend for
the second consecutive year.
-- Underlying EBITDA from continuing operations increased 8% to
US$57.4 million from US$53.2 million in 2020
-- Earnings per share from continuing operations: 13.2 US cents
-- Profit attributable to shareholders from continuing operations: US$18.5 million
-- Group's attributable profit: US$14.8 million
-- The Group ended the year in a net cash position of US$20.9 million (2020: US$34.6 million)
-- Unutilised available facilities of US$74.3 million
"The successful refinancing of our facilities, which includes a
sustainability-linked loan, further embeds our commitment to
delivering the Group's ESG strategy."
- Michael Michael -
We generated another strong set of results and positive cash
flows in 2021, against the backdrop of ongoing COVID-19 challenges.
Our effective and early interventions in response to COVID-19
enabled operations to continuing uninterrupted throughout 2021,
with an ongoing focus on protecting employees and contractors
against infection whilst maximising production and continues to
sell our diamonds at the highest obtainable market price.
Production throughput was constrained during the year with three
waves of COVID-19 impacting the availability of equipment, spares,
skills and supply chain management. This resulted in the Group
resetting some of its full year production targets, although the
strong performance in Q4 resulted in some of those metrics being
exceeded. The diamond market showed significant recovery and we
achieved US$1 835 per carat for the year.
We successfully concluded the Group-wide debt refinancing during
the year by renewing our revolving credit facilities at an amount
of US$77.0 million for a three-year period. US$32.3 million of this
amount is a Sustainability Linked Loan (SLL) which links the margin
and resultant interest rate on the loans to the Group's ESG
performance, which is aligned to its sustainability strategy.
In further support of our commitment to sustainability and
climate change-related matters, Phase 1 of our TCFD Adoption
Strategy was concluded during the year by establishing the
necessary foundations to support meaningful, science-based decision
making. The TCFD-related workstreams completed during 2021
included:
-- Establishing robust board and management governance structures;
-- Strengthening the enterprise risk management processes to
ensure the full ambit of climate risk are considered and
managed;
-- Concluding our climate change scenario analysis; and
-- Identifying, assessing and plotting the impact of our
physical and transition risks over the short-, medium- and
long-term.
Underlying EBITDA(2) from continuing operations increased to
US$57.4 million, from US$53.2 million in 2020. Profit attributable
to shareholders from continuing operations for the year was US$18.5
million, equating to earnings per share from continuing operations
of 13.2 US cents on a weighted average number of shares in issue of
140.3 million.
The Group ended the year with a cash balance of US$31.1 million
and drawn down facilities of US$10.2 million, resulting in a net
cash position of US$20.9 million (2020: net cash of US$34.6
million) and unutilised facilities of US$74.3 million.
Summary of financial performance
Refer to the full annual financial statements starting on page
147.
US$ million 2021 2020
------------------------------------------------------------- ------------
Revenue 201.9 189.6
Royalty and selling costs (21.9) (19.8)
Cost of sales(1) (113.0) (104.7)
COVID-19 costs/standing costs (0.7) (3.9)
Corporate expenses (8.9) (8.0)
------------------------------------------------------------- ------------- ------------
Underlying EBITDA(2) from continuing operations 57.4 53.2
------------------------------------------------------------- ------------- ------------
Depreciation and mining asset amortisation (8.6) (9.1)
Share-based payments (0.4) (0.6)
Other income 0.1 -
Foreign exchange gain/(loss) 1.9 (0.9)
Net finance costs (3.7) (4.4)
------------------------------------------------------------- ------------- ------------
Profit before tax from continuing operations 46.7 38.2
------------------------------------------------------------- ------------- ------------
Income tax expense (15.6) (10.7)
------------------------------------------------------------- ------------- ------------
Profit for the year from continuing operations 31.1 27.5
------------------------------------------------------------- ------------- ------------
Non-controlling interests (12.6) (10.6)
------------------------------------------------------------- ------------- ------------
Attributable profit from continuing operations 18.5 16.9
------------------------------------------------------------- ------------- ------------
Loss from discontinued operations (3.7) (3.3)
------------------------------------------------------------- ------------- ------------
Attributable net profit 14.8 13.6
------------------------------------------------------------- ------------- ------------
Earnings per share from continuing operations (US cents) 13.2 12.1
Loss per share from discontinued operations (US cents) (2.7) (2.3)
Dividends per share (US cents) 2.7 2.5
------------------------------------------------------------- ------------- ------------
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
Rough diamond revenue of US$201.3 million was generated at
Letšeng, achieving an average price of US$1 835 per carat (2020:
US$1 908 per carat). The Group sold 21 diamonds for more than
US$1.0 million each, contributing US$64.5 million to revenue.
The Group's increased revenue was mainly driven by higher
volumes through normalised production (following the
COVID-19-related disruptions in 2020) and improved market
conditions. The overall dollar per carat achieved was negatively
impacted by a decrease in large diamond recoveries during the year
when compared to 2020.
Letšeng entered into partnership arrangements during the year
that allows them to share in the margin uplift on the sale of the
resultant polished diamonds. In 2021, additional revenue of US$0.3
million (2020: US$0.6 million) was generated from these partnership
arrangements.
Letšeng Unit Cost Analysis
Waste cash
Total direct Non-cash Total costs per
Unit cost per Direct cash Third plant cash operating accounting operating waste tonne
tonne treated costs(1) operator costs costs charges(2) cost mined
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
2021 (LSL) 185.59 15.53 201.12 70.63 271.75 44.44
2020 (LSL) 185.73 15.73 201.46 118.74 320.20 43.70
% change - (1) - (41) (15) 2
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
2021 (US$) 12.55 1.05 13.60 4.78 18.38 3.00
2020 (US$) 11.28 0.95 12.23 7.21 19.44 2.65
% change 11 11 11 (33) (5) 13
---------------- --------------- --------------- --------------- --------------- --------------- ---------------
1 Direct cash costs represent all operating costs, excluding
royalties and selling costs.
2 Non-cash accounting charges include waste stripping amortised,
inventory and ore stockpile adjustments, finance lease costs and
exclude depreciation and mining asset amortisation.
US$ million 2021 2020
Group revenue summary
Letšeng sales - rough 201.3 189.1
Sales - polished margin 0.3 0.6
Impact of movement in inventory 0.3 (0.2)
--------------------------------- ------ ------
Group revenue 201.9 189.6
--------------------------------- ------ ------
Expenditure
OPERATING EXPITURE
Group cost of sales increased by 8% to US$113.0 million from
US$104.7 million in 2020. In 2021, the Group incurred US$0.7
million to manage and maintain protocols to contain the spread of
COVID-19 at its operations (2020: US$1.0 million). In 2020, an
additional US$2.9 million standing charges were incurred during the
shutdown and ramp-up periods at Letšeng. Total waste-stripping
costs amortised increased by 8% to US$46.8 million compared to
US$43.4 million in 2020.
Total operating costs in local currency decreased by 4% to LSL1
677.4 million compared to LSL1 740.8 million in 2020 which includes
the impact of non-cash accounting charges.
The unit cost per tonne treated decreased 15% to LSL271.75
(2020: LSL320.20 per tonne treated) due to more consistent
operational throughputs and an increase in tonnes treated compared
to 2020.
-- Direct cash costs (excluding waste) increased by 13% to LSL1
241.4 million in line with the increase of ore tonnes treated to
6.2 million, a 15% increase compared to 2020. Waste cash costs
increased by 22% to LSL829.4 million which was also in line with
the 20% increase in waste tonnes mined (18.7 million tonnes
compared to 15.4 million tonnes in 2020). Direct cash costs per
tonne treated of LSL185.59 which is similar to 2020. Waste cash
cost per waste tonne mined increased marginally to LSL44.44 (2020:
LSL43.70).
-- Third plant operator costs reflect payments to the contractor
which are calculated from revenue generated by the sales from
diamonds recovered through the contractor plant. In 2021, the total
cash costs in local currency increased by 12% in line with the
increase in carats recovered and sold.
-- Non-cash accounting charges: comprise waste amortisation,
stockpile and diamond inventory movements and finance lease costs.
The total impact of these charges in 2021 was LSL436.0 million
compared to LSL645.6 million in 2020. The decrease is mainly driven
by a build-up of ore stockpile to standard levels as mining
activities normalised. An increase in diamond inventory on hand at
year-end of about 3 500 carats driven by a higher grade mining mix
post the last export of the year, also contributed to the decrease.
Total waste amortisation charges decreased to LSL669.1 million
(2020: LSL690.1 million), impacting the unit cost by LSL108.41 per
tonne treated (2020: LSL131.56).
The diesel theft as discussed on page 115 had no material effect
on operating costs or the unit cost per tonne treated.
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 stronger against the US dollar (compared
to 2020), which increased the Group's US dollar-reported costs and
decreased local currency cash flow generation. The fluctuation of
the exchange rates are set out in the table below:
Exchange rates 2021 2020 % change
------
LSL per US$1.00
Average exchange rate 14.79 16.47 (10)
Year end exchange rate 15.96 14.69 9
------------------------ ------ ------ ---------
BWP per US$1.00
Average exchange rate 11.09 11.45 (3)
Year end exchange rate 11.76 10.80 9
------------------------ ------ ------ ---------
GBP per US$1.00
Average exchange rate 0.73 0.78 (6)
Year end exchange rate 0.74 0.73 1
------------------------ ------ ------ ---------
ROYALTIES AND MARKETING COSTS
In terms of Letšeng's mining lease, Gem Diamonds pays royalties
to the Government 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 increased by 11% to US$21.9 million (2020: US$19.8 million)
in line with the increase in revenue.
CORPORATE EXPENSES
The technical and administrative offices 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.
Baseline corporate costs were US$8.2 million, a 4% increase
compared to US$7.9 million in 2020. The benefits from the corporate
cost initiatives implemented through BT continue to be realised.
During the year, US$0.7 million in costs were incurred on ad hoc
projects (2020: US$0.1 million), an increase of US$0.6 million
compared to 2020, when all ad hoc projects were suspended due to
COVID-19. Current year costs were impacted by the stronger South
African Rand and British Pound against the US dollar.
Total expenditure for the year relating to the adoption of TCFD
and CCSA amounted to US$0.2 million.
Historical corporate costs data (US$ milllion)
2017 2018 2019 2020 2021
------ ------ ------ ------ -----
Baseline costs 9.0 9.3 7.7 7.9 8.2
Project costs 0.2 0.7 1.7 0.1 0.7
------ ------ ------ ------ -----
Underlying EBITDA(1) and attributable profit
Group underlying EBITDA(1) from continuing operations increased
by 8% to US$57.4 million (2020: US$53.2 million) as a result of the
increase in revenue. Profit attributable to shareholders was
US$14.8 million, which translates to 10.5 US cents per share based
on a weighted average number of shares in issue of 140.3
million.
1 Underlying EBITDA as defined in Note 4, Operating profit of
the notes to the consolidated financial statements.
Statement of financial position - selected indicators
US$ million 2021 2020
Property, plant and equipment 293 627 304 005
Receivables and other assets 5 373 5 839
Inventory 31 158 26 741
Income tax receivable 1 191 -
Cash and short-term deposits 30 913 49 820
Assets held for sale 2 097 3 528
Non-current: interest-bearing loans and borrowings (8 340) (1 702)
Current: interest-bearing loans and borrowings (2 704) (14 385)
Liabilities associated with assets held for sale (4 100) (4 224)
Deferred tax (77 355) (78 192)
Provisions (11 202) (12 331)
Income tax payable - (11 834)
---------------------------------------------------- --------- ---------
CAPITAL EXPITURE
The Group's capital expenditure increased following the cash
preservation focus in 2020. Letšeng's capital spend was incurred
mainly on the completion of a single-occupancy accommodation block,
the purchase and installation of an additional X-ray sorting
machine, the replacement of an overland conveyor for one of the
tailings storage facilities and expenditure on progressing the
drilling work to develop our Resource and Reserve Statement. Total
capital expenditure (excluding waste stripping) increased to US$4.0
million during the year (2020: US$1.6 million).
CASH AT HAND
Group cash generated from operating activities (before capital
and waste investment of US$68.7 million) was US$71.3 million. At
year end, cash on hand totalled US$31.1 million (2020: US$49.8
million), of which US$23.5 million is attributable to Gem Diamonds.
All scheduled capital debt repayments during the year were made,
totalling US$4.0 million. The overall result is a decrease in net
cash of US$13.7 million year on year.
Letšeng declared and paid a dividend of LSL200.0 million
(US$12.5 million) in 2021. Gem Diamonds paid a dividend to its
shareholders of 2.5 US cents per share, totalling US$3.5 million
after approval by the AGM in June 2021.
LOANS AND BORROWINGS
The Group-wide debt refinancing was successfully concluded on 23
December 2021. Letšeng's LSL500.0 million and Gem Diamonds' US$30.0
million revolving credit facilities (RCF), that were due to expire
in December 2021, were refinanced for LSL750.0 million and US$30.0
million respectively, for an initial three-year period. The
facilities were therefore increased from US$61.3 million to US$77.0
million, in dollar equivalent. Security for the facilities over Gem
Diamonds' bank accounts and its shareholding in Letšeng was
implemented after year-end.
The funding partners to the new facility agreement are Nedbank,
Standard Bank and new to the Group, Firstrand Bank (through their
respective operations). Nedbank's portion of the funding, totalling
US$32.3 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.
The measurement dates for these KPIs are 31 December 2022 and 31
December 2023.
At year end, the Group had utilised facilities of US$10.2
million, resulting in a net cash position of US$20.9 million and
available facilities of US$74.3 million, mainly comprising a net
debt position of US$5.5 million (after US$9.0 million drawdown) at
Gem Diamonds and a net cash position of US$24.2 million at Letšeng.
Gem Diamonds ended the year with a US$9.0 million outstanding
balance.
Letšeng made repayments of LSL56.9 million (US$3.8 million) on
its project debt facility for the construction of the mining
workshop complex. The outstanding balance of LSL19.0 million
(US$1.2 million) will be repaid by September 2022.
The Group engages regularly with funders and credit providers to
ensure continued access to funding and to manage cash flow
requirements.
Summary of loan facilities as at 31 December 2021
Drawn down
/Balance
Term/description/ Amount due US$ Available
Company expiry Lender Interest rate(1) US$ million million US$ million
----------------------- -------------
Nedbank
Three-and-a-half-year Standard
RCF Bank
Facility A
Gem Diamonds Expires 22 December FirstRand (US$30 million):
Limited 2024 Bank LIBOR + 6.5%(2) 30.0 9.0 21.0
-------------- ----------------------- ------------- ------------------- ------------- ------------ ------------
Standard
Lesotho
Bank
Nedbank
Lesotho
Three-year revolving Facility B
credit facility First (LSL450 million):
National Central Bank of
Letšeng Expires 22 December Bank of Lesotho rate +
Diamonds 2024 Lesotho 4.75%(2) 28.2 - 28.2
-------------- ----------------------- ------------- ------------------- ------------- ------------ ------------
Facility C
Nedbank (ZAR300 million): JIBAR + 4.55%(2) 18.8 - 18.8
------------- ---------------------------------------------------------- ------------- ------------ ------------
Nedbank
Five-and-a-half-year
project facility Export Tranche A
Credit (LSL35 million):
Letšeng Tranche A: expires Insurance South African
Diamonds September 2022 Corporation JIBAR + 6.75% 2.2 0.4 -
------------- ------------------- ------------- ------------ ------------
Tranche B
(R180 million): South African
Tranche B: expires March 2022 JIBAR + 3.15% 11.3 0.8 -
-------------------------------------- --------------------------------- ------------- ------------ ------------
General banking
facility LSL100 million
South African
Letšeng Annual review in prime rate minus
Diamonds March Nedbank 0.7% 6.3 - 6.3
-------------- ----------------------- ------------- ------------------- ------------- ------------ ------------
Total 96.8 10.2 74.3
--------------------------------------------------------------------------- ------------- ------------ ------------
1 At 31 December 2021 LIBOR was 0.08% and JIBAR was 3.89%.
2 Margin will decrease with 1.5% upon implementation of the
security condition.
DISCONTINUED OPERATION
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. Following the exclusivity
agreement in the prior year, a binding share sale agreement was
entered into for the sale of the mine in 2021. The agreement was
subject to the fulfilment of certain suspensive conditions,
including obtaining competition authority and regulatory approvals
within Botswana. Prior to year end, the regulatory conditions were
fulfilled and approvals were obtained from the Botswana Competition
Authority. Although the transaction was not yet concluded by year
end, management is pursuing to close it out as soon as
possible.
The operation remains on care and maintenance and is classified
as a discontinued operation and asset held for sale per IFRS 5
Non-current Assets Held for Sale and Discontinued Operations. Care
and maintenance cash and non-cash costs amounted to US$3.7 million
(2020: US$3.3 million) and have been recognised and disclosed
separately in the Consolidated Statement of Profit or Loss. The
increase in costs was mainly due to a non-cash impairment of
redundant stock and spares during the year.
INSURANCE
Letšeng submitted a business interruption claim to its insurers
for insured losses arising out of the 30-day COVID-19-related
Government shutdown period in 2020 when the mine was required to be
placed on care and maintenance. This claim has been rejected by the
insurer and Letšeng has commenced the process to pursue it
further.
Increased risk perception in the mining industry due to the
COVID-19 pandemic and dam wall failures reported by other companies
around the world have led to insurers decreasing their exposure to
the industry. This has resulted in the renewal of appropriate
insurance becoming challenging, leading to additional exclusions,
reduced cover, increasing deductibles or excesses payable and
increasing premiums. In response, the Group has implemented a new
risk transfer strategy to address the substantial changes in the
insurance market by developing a sustainable insurance solution for
the Group in the medium to long term.
The Group assessed its potential maximum risk exposure and its
history of insurance claims as a basis to transition its
conventional approach to insurance cover to a more flexible model
by retaining higher insurance excesses which resulted in an
insurance premium saving. To mitigate the increased risk exposure
of the higher deductibles in the unlikely event of an unexpected
loss, the Group entered into a five-year Multi-aggregate Protection
Insurance Policy.
SHARE-BASED PAYMENTS
The share-based payment charge for the year was US$0.4 million
(2020: US$0.6 million). 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. No awards in line with the new GDIP or the existing
Long-Term Incentive Plan (LTIP) were made in 2021.
Dividend
The Board is committed to sustaining shareholder value through
the implementation of appropriate dividend policies and we aim to
pay a dividend when the financial strength of the Group permits.
The Board's proposed dividend in March 2021 of 2.5 US cents per
share (US$3.5 million) was approved and paid to shareholders in
June.
Based on the Group's financial performance during the year, the
Board is proposing a dividend of 2.7 US cents per share (US$3.8
million). The dividend is subject to shareholder approval at the
scheduled AGM on 8 June 2022.
TAXATION
The Group has applied all relevant principles in accordance with
prevailing legislation in assessing its tax obligations. The
Group's effective tax rate was 33.4%. 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 and permanent differences which are non-deductible
for tax purposes.
As disclosed in the prior year, an amended tax assessment was
issued to Letšeng by the Lesotho Revenue Authority (LRA) 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 LRA in March
2020, which was supported by the opinion of senior counsel. The LRA
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 and a court
date is expected to be set in June 2022.
On 7 February 2022 Letšeng received an application from the LRA
to amend its original grounds for the court application. Letšeng's
counsel continues to review the LRA's proposed amendment of its
case and has opposed the new application by the LRA. Senior counsel
advice has been obtained for the new circumstances. This advice
still reflects good prospects of success. There has therefore been
no change in the judgement applied and the accounting treatment for
this matter (refer Note 1.2.28, Critical accounting estimates and
judgments for further detail).
SENSITIVITIES
A range of external factors outside of the Group's control have
an impact on its ability to create financial value. The Group has
the necessary resilience, balance sheet strength and access to
funds to adjust for shifts in these factors. The graph below
illustrates the sensitivity of 2021's EBITDA to various factors
that have the most significant impact on our ability to create
value.
SENSITIVITY IMPACT OF 1% CHANGE (US$ MILLION)
Royalties rate change (absolute) 2.0
Average selling price for rough diamonds sold 2.0
Operating cost per tonne - direct cash cost 0.9
Exchange differences 1.1
Diesel price or volume 0.1
Corporate expenses 0.1
----
OUTLOOK
The Group's focus remains on operational consistency and cost
management to optimise cash flows, which together with appropriate
funding facilities will enable it to meet its operational and
capital requirements.
Michael Michael
Chief Financial Officer
16 March 2022
OPERATIONS REVIEW
2021 OVERVIEW
-- Zero fatalities, successful 'Stop for Safety' campaign and
focus on maturing operational safety culture.
-- Exceeded BT four-year target, achieving US$110.0 million by 31 December 2021.
-- 99% of workforce fully vaccinated to date.
-- Improved, adapted, and implemented our COVID-19 protocols and
procedures to protect the safety and wellbeing of our people while
continuing operations through three COVID-19 waves in a safe and
responsible manner.
-- Recovered six diamonds greater than 100 carats, including a
367 carat and a 245 carat large high-quality Type IIa white
diamonds.
-- Sold 21 diamonds for over US$1.0 million each, generating revenue of US$64.5 million.
-- Highest prices achieved:
-- US$119 886 per carat for a 3.4 carat pink diamond.
-- US$47 574 per carat for a 65 carat Type IIa white diamond.
-- Average price of US$1 835 per carat achieved.
-- Supported our PACs through COVID-19 and repaired flood-damaged infrastructure.
-- Fifth consecutive annual ISO 14001 and 45001 certifications.
-- Group-level climate change scenario analysis completed.
-- Reduced waste costs by reducing haulage distances for Main pipe waste.
-- Advanced the resource core drilling programme.
-- Completed a preliminary conceptual underground study to evaluate for Satellite pipe.
-- Completed designs for the replacement PCA.
-- Successful trial of steeper slopes in Satellite pipe to
significantly reduce waste and increase ore availability.
-- New fines X-ray sorting machine to treat fine recovery tailings commissioned.
-- Enhanced and optimised process control to stabilise plant feed conditions.
-- Initial surface miner trials completed in Q2 and Q3.
PERFORMANCE
Safety
The Group's safety approach is founded on our commitment to zero
harm and belief that all injuries are preventable. Letšeng recorded
zero fatalities but six LTIs during 2021, resulting in an LTIFR of
0.24 (2020: 0.04) and an AIFR of 0.93 (2020: 0.76). An
organisational safety culture initiative was implemented to advance
the maturity of our operational safety practices and reduce the
frequency of safety incidents experienced in H1, through focused
interventions including a 24-hour 'Stop for Safety' campaign and
critical control management.
Safety performance Unit H1 2020 H2 2020 FY 2020 H1 2021 H2 2021 FY 2021
Fatalities Number 0 0 0 0 0 0
LTIs Number 0 1 1 4 2 6
LTIFR 200 000 man hours 0.00 0.08 0.04 0.32 0.16 0.24
AIFR 200 000 man hours 0.33 1.07 0.76 1.29 0.57 0.93
-------------------- ------------------- -------- -------- -------- -------- -------- --------
The safety case study below, outlines the key 2021 safety
interventions implemented to mature our safety culture at Letšeng
and improve safety performance.
MATURING OUR ORGANISATIONAL SAFETY CULTURE
Our safety journey in 2021 reflects the Group's deep commitment
to zero harm and the belief that all injuries are preventable.
During the first half of 2021, Letšeng recorded a series of
safety incidents that led the leadership team taking to shut down
operations for 24 hours for safety-focused engagements with the
entire workforce.
The site-wide 'Stop for Safety' campaign was the first of its
kind for the Group and Letšeng and was aimed at understanding the
root causes of increased safety incidents, reaffirm the commitment
to zero harm and to design a targeted strategy to address the
identified root causes and other concerns raised by the workforce
during the intensive engagements.
This campaign took place on 8 June. Group Executive Management
and Letšeng's leadership teams, accompanied by our contractors'
executive and operational management, engaged extensively with the
workforce. An additional session for employees not on duty on the
day was held the following week.
A comprehensive list of actions was put together to immediately
address matters raised during these sessions, which spanned a range
of topics, including:
-- The continuing impacts of the COVID-19 pandemic.
-- Fatigue management.
-- Health and safety.
-- Human resource management and leadership.
As part of the discussions, the workforce requested more regular
employee engagement forums to discuss safety and other matters, and
as such, monthly employee engagement sessions were established.
Following the 'Stop for Safety', we appointed external safety
specialists to review our safety practices and identify
opportunities for improvement. In support of this process, a safety
perception survey was conducted in October to map the Group's
current safety maturity level. The findings of the safety
perception survey informed a safety-focused response plan to
implement strategic programmes that aim to develop and mature
safety practices and organisational culture at Letšeng.
The strategic safety programmes initiated in 2021 include:
-- Critical control management.
-- Incident investigation and management.
-- Safety-focused leadership coaching.
-- Just Culture Model development.
In addition to the above programmes, we are maturing from
reacting to lagging indicators, which measure failures post-
incident to leading indicators that measure performance and
indicate whether safety and health controls are effective at
managing safety risk, thus being more proactive in our safety
strategy. This approach will be monitored and measured through a
leading indicator safety committee that will meet monthly to
conduct retrospective analysis of all the leading indicators to
identify trends or potential red flags to allow a proactive
response.
We recognise that with one operating mine, there is limited
opportunity for cross-operational knowledge sharing and we have
identified a need for external assistance to transfer knowledge,
experience and expertise on safety-related matters. We have
constituted a committee of experienced individuals, our 'Grey Hair
Council', from a broad industry base with deep insight into
industry leading safety practices. In 2021, this council provided
valuable guidance and insights into actual safety incidents, which
have been integrated into our safety response and management
plans.
We remain committed to zero harm and continue to look for
innovative ways to deepen our understanding of how we can keep
ourselves and our teams safe.
Operations
KPI Unit 2021 2020 % change
------------------------- ----------- ---------- ---------
Ore mined tonnes 6 298 863 5 594 639 13
Ore treated tonnes 6 213 098 5 436 396 12
Carats recovered(1) carats 115 335 100 780 14
Carats sold carats 109 697 99 172 11
Average price per carat US$/carat 1 835 1 908 (4)
------------------------- ----------- ---------- ---------- ---------
(1) Includes carats produced from the Letšeng plants, the
Alluvial Ventures plant and the tailings treatment plant.
The Group's Letšeng operation continued operating safely and
responsibly throughout the year notwithstanding the ongoing impact
of COVID-19 on the availability of spares and equipment, limited
access to skills and services due to travel restrictions and supply
chain disruptions, and lost shifts due to required quarantining.
Fatigue and mental health challenges placed significant strain on
the management and the workforce.
Waste tonnes mined increased 20% to 18.7 million tonnes from
15.6 million tonnes in 2020 (2020 being impacted by the 30-day
COVID-19 shutdown).
The trial to further steepen the west side of the Satellite pipe
was safely and successfully managed during the year, with blasting
and berm retention controls well entrenched. A similar slope
steepening programme is planned for the final cutbacks in the Main
pit. This will significantly reduce waste volumes and related
costs, and expose more ore over the life of the Main pipe open
pit.
Ore mined in 2021 of 6.3 million tonnes (2020: 5.6 million
tonnes) was in line with the requirements of the plants and
stockpile management.
Although a successful year overall, the Letšeng operations
experienced many challenges during the year, including:
-- intermittent Main pit closures due largely to extreme weather
conditions and spillage caused by the split-shell mining method as
one cutback is completed while the next starts.
-- regional power grid instability and unplanned power cuts.
-- a breakdown of the primary jaw crusher at the end of the third quarter.
-- unscheduled and extended maintenance of critical plant equipment.
Ore treated during 2021 of 6.2 million tonnes (2020: 5.4 million
tonnes) comprised 5.2 million tonnes treated by Letšeng's plants
(2020: 4.5 million) and 1.0 million tonnes treated by Alluvial
Ventures, the third-party processing contractor (2020: 0.9
million).
Of the total ore treated, 2.7 million was sourced from the Main
pipe, 3.3 million from the Satellite pipe with 0.2 million tonnes
treated from the Main pipe stockpiles.
During the year we reduced the PCA throughput to ensure the
longevity of our current PCA while the construction of the
replacement PCA commences in 2022 and for commissioning in 2023.
The new PCA comprises a twin module design with a combined
throughput of c.1 000 tonnes/hour.
Total carats recovered in 2021 increased 14% to 115 335 carats
(2020: 100 780 carats). Carats recovered increased by 1% when
compared to 2019, which was a more comparable year not impacted by
COVID-19. The BT initiative to re-treat historic and current
recovery tailings through the mobile X-ray transmission sorting
machine recovered 1 098 carats in 2021 (2020:1 341 carats). An
additional 213 carats were recovered by the new fines X-ray sorting
machine that was installed and commissioned in H2 with expected
full production in H1 2022.
Overall grade for 2021 was 1.85cpht which is aligned with 2020
and in line with the expected reserve grade. The contribution from
Satellite pipe material accounted for 54% of all material treated
during the year (2020: 52%).
Revised Mine Plan
Following the change in design of the Satellite pit, resulting
in the successful implementation of steeper slopes in 2019, and
further steepening and pit design optimisation over the last three
years, more ore has been exposed. This has resulted in the
availability of ore from the Satellite pipe extending late into
2025, compared to the 2019 plan where it was depleted in mid- 2023.
This has allowed the commencement of the waste stripping related to
the next cutback (Cut 6 West / C6W) of the Satellite pit to be
delayed to 2024.
In 2021, a preliminary conceptual study of an early-access
underground in the Satellite pit was completed. An underground
feasibility study will be commissioned in 2022 to assess the
viability of an earlier shift to underground mining of the
Satellite pipe and to evaluate the trade-off between this and C6W.
The trade-off analysis between C6W and underground mining of the
Satellite pit will be completed in 2023.
Our long-term mine plan has been revised accordingly to commence
waste stripping related to C6W in 2024, previously 2022. At this
rate of waste stripping, Satellite ore from C6W will be available
from 2029. Pending the outcome of the proposed underground
feasibility study, Satellite C6W cutback may be replaced by the
early commencement of underground mining with the intention of
bringing forward access to Satellite ore post the completion of
Satellite Cut 5 West in 2025.
The waste mining profile for the next two years has therefore
been reduced to an estimated 11.0 million and 11.6 million tonnes
respectively. At this rate of waste stripping, Satellite ore from
C6W will be available from 2029.
Large diamond recoveries
In 2021 Letšeng recovered six diamonds greater than 100 carats
and total diamonds recovered greater than 10 carats increased by 4%
year on year, mostly in the 10 to 20 carat size category. Although
recoveries throughout the categories are mostly in line with the
13-year averages, the lower number of diamonds in the large
categories (60 to 100 carats and greater than 100 carats) can be
primarily attributed to the areas of the resource that were mined
in 2021 versus what was mined in 2020. 2020 was a record year for
these two categories of larger diamonds. A total of 122 greater
than 100 carat diamonds have been recovered at Letšeng since
2006.
FY average
Number of large diamond recoveries 2021 2020 2008-2020
------------------------------------ ----- -----------
> 100 carats 6 16 8
60 - 100 carats 16 29 19
30 - 60 carats 81 102 76
20 - 30 carats 122 115 114
10 - 20 carats 570 500 433
------------------------------------ ----- ----- -----------
Total diamonds > 10 carats 795 762 650
------------------------------------ ----- ----- -----------
Letšeng 60 - 100 and +100 carat diamonds
Year +100 Carat diamonds 60 - 100 Carat diamonds
2021 6 16
2020 16 29
2019 11 20
2018 15 22
2017 7 19
2016 5 21
2015 11 15
2014 9 21
2013 6 17
-------------------- ------------------------
Mineral resources and reserves
A primary focus in 2021 was advancing the resource core drilling
programme in the Main and Satellite pipes, using the new drill rig
purchased at the end of 2020. As the new drilling crews and
management systems were embedded, the number of shifts increased,
and the drilling process accelerated. The main challenge facing
demarcated drilling programme remains the competition with
production activities for access to the drilling sites, which were
all positioned in the pits. Although completion of the core
drilling programme was a high priority, continued production
activities remained paramount.
Resource drilling in the Satellite pipe progressed well and nine
delineation drillholes were completed. The kimberlite contact of
the Satellite pipe along the western wall deviated out slightly
from the expected position at the current mining elevation and
posed certain geotechnical risks. A series of 19 additional holes
were drilled for geotechnical purposes at intervals along the
length of the western wall to resolve the immediate risk to the
mine design and pit wall stability. These drillholes detected an
increase in the pipe margin, adding further ore to the resource
base of Satellite pipe. Detailed petrography of the core is in
progress and updated geological models are expected by
mid-2022.
Resource drilling in the Main pipe proved more difficult, with
ground conditions hampering drilling progress and resulting in
several holes having to be abandoned and redrilled. Delays
experienced related to excessive rainfall and the commencement of
mining activities on the upper benches in the new cutback (Cut 4
East), creating unsafe working conditions for the drilling crews
below and periodically restricting access to the drilling
sites.
Two additional contractor drill rigs were brought to site to
reduce the impact on the timeline for completion of the drilling
programme and updating of the Resource and Reserve Statement. By
year end, the objectives of the drilling programme in Satellite
pipe had been met and only four of the 14 planned drillholes in
Main pipe remained to be completed.
Diamond sales
Six rough diamond tender viewings were held in Antwerp and a
first trial tender viewing was held in Dubai in September. Travel
and other COVID-19-related restrictions had little impact on
attendance at the tender viewings and demand remained strong
throughout the year.
A total of 109 697 carats were sold in 2021 (2020: 99 172) and
Letšeng generated rough diamond revenue of US$201.3 million (2020:
US$189.2 million), at an average price of US$1 835 per carat (2020:
US$1 908).
The Group supports the GIA's blockchain technology to inform and
assure consumers about the ethical and socially supportive
footprint of the diamonds being purchased. 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.
Capital projects
Although limited, capital was appropriately spent during 2021 in
line with operational requirements. Certain capital was deferred
into 2022 without putting the continuation of operations at risk. A
number of key capital projects are planned for 2022, including the
replacement of the PCA, the completion of the resource core
drilling programme to inform Lesteng's Resource and Reserve
Statement, the construction of the bioremediation plant, further
evaluation of the underground development opportunities and
expansion of the Patiseng coarse tailings storage facility. Details
of overall costs and capital expenditure incurred at Letšeng during
the year are included in the CFO review on pages 52 to 59.
Business Transformation
The Group's BT programme concluded at the end of 2021, exceeding
the targeted US$100 million(1) in revenue, productivity and cost
savings (against the 2017 base) by achieving a total of US$110.0
million, as set out below. The programme identified 325 initiatives
to create a step change in efficiency, productivity and cost
management, and to position Gem Diamonds favourably in its peer
group.
(1) The target is stated net of implementation costs, consultant
fees and an employee incentive plan that rewarded the successful
delivery of initiatives contributing to the overall target.
BT programme annual cash saving (US$ million)
2018 2019 2020 2021
Cumulative saving 21 55 79 110
----- ----- ----- -----
Mining 5 17 16 21
Processing 4 12 2 4
Working capital and overheads 2 2 3 2
Corporate activities 4 3 3 4
----- ----- ----- -----
The targeted US$100 million comprised US$7.1 million in once-off
savings and US$103.0 million in cumulative recurring annualised
benefits over four primary workstreams - mining, processing,
working capital and overheads, and corporate activities. The
implemented initiatives are sustainably embedded in the operation
and continue to deliver benefits in reduced costs and improved
efficiencies that have been critical in maximising operational cash
flows, which was crucial in the Group's ability to successfully
absorb the external shock of the COVID-19 pandemic.
Continuous Improvement
The CI programme aims to implement behavioural strategies and
meaningful KPIs to create effective visual management tools and
problem solving at all levels. The CI methodology, supported by
training and coaching, enables the Group to continuously improve
efficiencies by unlocking the inherent capabilities of employees at
all levels to implement best practices, build effective teams and
drive incremental improvements. Although severely hampered by
COVID-19 restrictions and constraints, CI was successfully
implemented in Mining at Letšeng in 2020, with the roll-out to the
Treatment and Services areas commencing in 2021. In 2022, the
programme will focus on training and focused coaching to improve
skills and experience at the supervisory level.
A key strategic objective for the Group is to continuously
identify opportunities to unlock value within our business. During
2021, we focused on continuous improvement opportunities to reduce
mining-related costs and improve resource use efficiencies. At
Letšeng, waste hauling distance is a major driver of both current
and future mining costs and fossil fuel combustion-related
greenhouse gas emissions.
We identified an opportunity to reduce both mining costs and
greenhouse gas emissions through shorter mining waste haulage
distances of our waste from the Main pit. Following extensive
collaboration between our environmental and mining teams, a new
mine waste dumping plan was designed and implemented. The revised
plan has reduced the haulage distance of waste from the Main pit by
30%, resulting in a significant long- term reduction of the
associated operational costs and diesel consumption, and advancing
our sustainability objectives to lower carbon emissions.
By working together to design innovative solutions, we are able
to unlock shared value and drive Group goals with regards to
maximising value, managing costs and reducing our environmental
footprint.
Dam safety and integrity
Letšeng has three dams on site - (i) the Patiseng tailings
storage facility, which is currently in use for the deposition of
coarse tailings and fine tailings, (ii) the Old Tailings Storage
Facility, which is sporadically used for fine tailings deposition,
and (iii) the Mothusi Dam, which is the mine's freshwater supply
resource. Letšeng's dams were constructed using the 'centre line
and downstream tipping' method(1) , which is a safer method of
construction than the 'upstream' construction methods used in most
recent dam failures reported in the mining industry.
We have aligned our 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.
The Group has aligned its tailings storage facility management
code of practice to that of the ICMM's GISTM and established
appropriate governance structures at both operational and Group
levels to provide oversight and assurance of continued safe and
responsible management of our tailings storage facilities. The
relevant details of Letšeng's tailings storage facilities 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/. Further information is available on page
78.
(1) A discussion of the construction and applicability of the
various types of tailings facilities is available on the
International Council of Mining and Metals website at
www.icmm.com/en-gb/environment/tailings.
Preventing diamond damage
The large high-value Type II diamonds in Letšeng's orebody are
more susceptible to damage through the mining and treatment
processes. Diamond damage negatively impacts the value and in turn
the sales prices realised for these diamonds. Reducing damage to
these diamonds provides an important opportunity to significantly
enhance revenue.
Our main focus in this regard has been on identifying,
validating and testing technologies from various industries that
show potential to identify diamonds within kimberlite at an early
stage and liberate these using non-mechanical means. In 2019, the
Group's wholly owned subsidiary, Gem Diamonds Innovation Solutions,
constructed and commissioned a pilot plant at Letšeng to test this
technology under operating conditions. Progress on the detection
components of this pilot plant has been limited to the development
of the detection and ejection algorithms and further development is
required to enhance this technology. The materials handling
component of the pilot plant now forms part of Letšeng's new fines
XRT system that was commissioned in H2 of 2021.
Sale of Ghaghoo
A binding share sale agreement was entered into for the sale of
the Ghaghoo diamond mine in Botswana to Okwa Diamonds Pty Ltd, an
entity owned by Vast Resources PLC (Vast) and Botswana Diamonds PLC
(BOD). The agreement is subject to the fulfilment of certain
suspensive conditions including obtaining the competition authority
and regulatory approvals within Botswana. Regulatory conditions
have been fulfilled and written approvals have been obtained from
the Botswana Competition Authority and, in December 2021, the
Ministry of Mineral Resources, Green Technology and Energy Security
of Botswana. However, the completion date for the transaction has
been extended by two months to 31 March 2022 to allow BOD to secure
an alternative financing partner to replace Vast.
OUR PLANS FOR 2022
A pre-evaluation of the feasibility of an earlier shift to
underground operation will start early in 2022 and the replacement
of the PCA will commence in the first half of the year. The
contract with Alluvial Ventures, which runs the third processing
plant, expired at the end of 2021 and has been extended to 30 June
2022. We are currently evaluating several options for a replacement
1.0 to 1.2 million tonne per annum XRT plant. Work continues to
steepen slopes to optimise the mining plan for Main pipe and we
will begin planning for the tailings extension at Patiseng. A
number of other projects are planned to optimise mining
efficiencies, improve production, decrease costs and reduce
emissions in line with our commitment to decarbonisation.
FINANCIAL STATEMENTS
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 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
16 March 2022
INDEPENT 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
152 to 211, which comprise the consolidated statement of financial
position as at 31 December 2021, 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
2021, 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 36 Impairment * We involved our EY internal valuation specialists as
of Assets using discounted future cash flows. part of our team to assist in evaluating management's
Goodwill relates to the Group's investment in impairment methodology and key assumptions used in
the Letšeng Diamond mine. the impairment calculations;
There is an inherent uncertainty in
forecasting and discounting future cash * Our valuation specialists calculated two independent
flows, which forms weighted average cost of capital (WACC) rates
the basis of the Group's value in use (Revenue and costs) to compare to management's
calculations used in the impairment model. WACC's. Our independent WACC recalculations were
This was based on publicly available market data for
amplified due to the economic and other comparable companies for the Letšeng Cash
effects of the continued Covid-19 pandemic Generating Unit (CGU);
including
uncertainty around the duration of the
pandemic and timing of the recovery of the * Our valuation specialists calculated an independent
various net present value (NPV) to compare to management's
world economies. The continued volatility in NPV;
diamond prices, exchange rates and discount
rates
resulted in additional audit work in * Our valuation specialists assessed the reasonability
assessing the Group's impairment model. of the significant inputs and assumptions used in the
impairment models, such as diamond prices, exchange
As disclosed in Note 11 Impairment testing rates, inflation rates, by comparing them to
and Note 1.2.28 Critical accounting estimates independent sources;
and
judgements, the Group uses discounted cash
flows to determine the value in use for each * We have performed sensitivity analyses around the key
cash assumptions used in the impairment model. We did this
generating unit, on the basis of the by increasing and decreasing the following
following key assumptions: assumptions in the model to determine the impact on
* Diamond prices; the headroom between the value of the recorded assets
of the CGU and the value in use as calculated. These
included:
* Inflation rates;
* WACC; and
* Production costs and volumes;
* Diamond prices
* Capital expenditure;
* We assessed the adequacy of the Group's disclosures
* Discount rates; and in terms of IAS 36, in the notes to the consolidated
financial statements.
* Exchange rates.
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 224-page
document titled 'Gem Diamonds Annual Report and Accounts 2021'. 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 judgment and maintain professional scepticism
throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
-- Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and
the reasonableness of accounting estimates and related disclosures
made by management.
-- Conclude on the appropriateness of management's use of the
going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
-- Evaluate the overall presentation, structure and content of
the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
-- Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with those charged with governance regarding,
among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we 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)
16 March 2022
102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEARED 31 DECEMBER 2021
2021 2020
Notes US$'000 US$'000
-------------------------------------------------------------------------------------- ------ ----------
CONTINUING OPERATIONS
Revenue from contracts with customers 2 201 859 189 647
Cost of sales (121 587) (113 802)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Gross profit 80 272 75 845
Other operating expense 3 (591) (3 911)
Royalties and selling costs (21 918) (19 843)
Corporate expenses (8 886) (7 992)
Share-based payments 27 (395) (555)
Foreign exchange gain/(loss) 4 1 929 (880)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Operating profit 4 50 411 42 664
Net finance costs 5 (3 742) (4 411)
---------- ----------
- Finance income 202 382
- Finance costs (3 944) (4 793)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Profit before tax for the year from continuing operations 46 669 38 253
-------------------------------------------------------------------------------------- ------ ---------- ----------
Income tax expense 6 (15 562) (10 711)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Profit after tax for the year from continuing operations 31 107 27 542
-------------------------------------------------------------------------------------- ------ ---------- ----------
DISCONTINUED OPERATION
Loss after tax from discontinued operation 15 (3 754) (3 264)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Profit for the year 27 353 24 278
-------------------------------------------------------------------------------------- ------ ---------- ----------
Attributable to:
Equity holders of parent 14 767 13 641
Non-controlling interests 12 586 10 637
-------------------------------------------------------------------------------------- ------ ---------- ----------
Earnings per share (cents) 7
- Basic earnings for the year attributable to ordinary equity holders of the parent 10.5 9.8
- Diluted earnings for the year attributable to ordinary equity holders of the parent 10.4 9.6
Earnings per share (cents) for continuing operations
- Basic earnings for the year attributable to ordinary equity holders of the parent 13.2 12.1
- Diluted earnings for the year attributable to ordinary equity holders of the parent 13.0 11.9
-------------------------------------------------------------------------------------- ------ ---------- ----------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2021
2021 2020
Notes US$'000 US$'000
------------------------------------------------------------------------------------- ------- ---------
Profit for the year 27 353 24 278
Other comprehensive loss that will be reclassified to the Consolidated Statement of
Profit or Loss in subsequent periods
Exchange differences on translation of foreign operations, net of tax (21 196) (14 049)
---------------------------------------------------------------------------------------------- --------- ---------
Other comprehensive loss for the year, net of tax (21 196) (14 049)
---------------------------------------------------------------------------------------------- --------- ---------
Total comprehensive income for the year, net of tax 6 157 10 229
Attributable to:
Equity holders of the parent (154) 3 779
Non-controlling interests 6 311 6 450
---------------------------------------------------------------------------------------------- --------- ---------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2021
2021 2020
Notes US$'000 US$'000
--------------------------------------------------------------- ------ ----------
ASSETS
Non-current assets
Property, plant and equipment 8 293 627 304 005
Right-of-use assets 9 3 137 4 823
Intangible assets 10 11 962 12 997
Receivables and other assets 12 1 278 153
Deferred tax assets 22 5 117 6 346
--------------------------------------------------------------- ------ ---------- ----------
315 121 328 324
--------------------------------------------------------------- ------ ---------- ----------
Current assets
Inventories 13 31 158 26 741
Receivables and other assets 12 4 095 5 686
Income tax receivable 20 1 232 106
Cash and short-term deposits 14 30 913 49 820
--------------------------------------------------------------- ------ ---------- ----------
67 398 82 353
--------------------------------------------------------------- ------ ---------- ----------
Assets held for sale 15 2 097 3 528
--------------------------------------------------------------- ------ ---------- ----------
Total assets 384 616 414 205
--------------------------------------------------------------- ------ ---------- ----------
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital 16 1 406 1 397
Share premium 885 648 885 648
Other reserves 16 (226 697) (212 164)
Accumulated losses (500 550) (511 808)
--------------------------------------------------------------- ------ ---------- ----------
159 807 163 073
--------------------------------------------------------------- ------ ---------- ----------
Non-controlling interests 86 843 84 422
--------------------------------------------------------------- ------ ---------- ----------
Total equity 246 650 247 495
--------------------------------------------------------------- ------ ---------- ----------
Non-current liabilities
Interest-bearing loans and borrowings 17 8 340 1 702
Lease liabilities 18 3 851 4 902
Trade and other payables 19 2 095 2 029
Provisions 21 11 202 12 331
Deferred tax liabilities 22 82 472 84 538
--------------------------------------------------------------- ------ ---------- ----------
107 960 105 502
--------------------------------------------------------------- ------ ---------- ----------
Current liabilities
Interest-bearing loans and borrowings 17 2 704 14 385
Lease liabilities 18 973 1 836
Trade and other payables 19 22 188 28 823
Income tax payable 20 41 11 940
--------------------------------------------------------------- ------ ---------- ----------
25 906 56 984
--------------------------------------------------------------- ------ ---------- ----------
Liabilities directly associated with the assets held for sale 15 4 100 4 224
--------------------------------------------------------------- ------ ---------- ----------
Total liabilities 137 966 166 710
--------------------------------------------------------------- ------ ---------- ----------
Total equity and liabilities 384 616 414 205
--------------------------------------------------------------- ------ ---------- ----------
Approved by the Board of Directors on 16 March 2022 and signed
on its behalf by:
C Elphick M Michael
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2021
Attributable to the equity holders of the parent
Accumulated
(losses)/
Issued Share Other retained Non-controlling
capital premium reserves(1) earnings Total interests Total equity
US$'000 US$'000 US$'000 US$'000 US$'000 U5$'000 US$'000
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Balance at 1
January 2021 1 397 885 648 (212 164) (511 808) 163 073 84 422 247 495
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Total
comprehensive
(loss)/
income - - (14 921) 14 767 (154) 6 311 6 157
------------- ------------- ------------ ------------ ---------- ---------------- -------------
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 27) - - 397 - 397 - 397
Dividends
declared
(Note 29) - - - (3 509) (3 509) (3 890) (7 399)
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Balance at 31
December 2021 1 406 885 648 (226 697) (500 550) 159 807 86 843 246 650
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Attributable
to
discontinued
operation
(Note 15) - - (52 893) (196 006) (248 899) - (248 899)
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Balance at 1
January 2020 1 391 885 648 (202 857) (525 449) 158 733 85 424 244 157
Total
comprehensive
(loss)/income - - (9 862) 13 641 3 779 6 450 10 229
------------- ------------- ------------ ------------ ---------- ---------------- -------------
Profit for the
year - - - 13 641 13 641 10 637 24 278
Other
comprehensive
loss - - (9 862) - (9 862) (4 187) (14 049)
------------- ------------- ------------ ------------ ---------- ---------------- -------------
Share capital
issued (Note
16) 6 - (6) - - - -
Share-based
payments
(Note 27) - - 561 - 561 - 561
Dividends
declared - - - - - (7 452) (7 452)
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Balance at 31
December 2020 1 397 885 648 (212 164) (511 808) 163 073 84 422 247 495
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Attributable
to
discontinued
operation
(Note 15) - - (53 046) (192 252) (245 298) - (245 298)
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
1 Other reserves relate to Foreign currency translation reserves
and Share based equity reserves. Refer Note 16, Issued capital and
reserves for further detail.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2021
2021 2020
Notes US$'000 US$'000
------------------------------------------------------------------- --------- -----------
Cash flows from operating activities 71 307 96 227
--------- -----------
Cash generated by operations 23.1 103 902 93 050
Working capital adjustments 23.2 (7 107) 464
Interest received 202 382
Interest paid 18, 23.3 (2 457) (3 558)
Income tax paid 20 (23 329) (1 268)(1)
Income tax received 20 96 7 157(1)
------------------------------------------------------------------- --------- --------- -----------
Cash flows used in investing activities (68 686) (48 718)
--------- -----------
Purchase of property, plant and equipment 8 (3 985) (1 571)
Waste stripping costs capitalised 8 (64 725) (47 167)
Proceeds from sale of property, plant and equipment 24 20
------------------------------------------------------------------- --------- --------- -----------
Cash flows used in financing activities (19 025) (12 995)
--------- -----------
Lease liabilities repaid 18 (1 660) (1 906)
Net financial liabilities repaid 23.3 (7 194) (6 431)
--------- -----------
Financial liabilities repaid (26 393) (55 638)
Financial liabilities raised 19 199 49 207
--------- -----------
Dividends paid to holders of the parent (3 486) -
Dividends paid to non-controlling interests (6 685) (4 658)
------------------------------------------------------------------- --------- --------- -----------
Net (decrease)/ increase in cash and cash equivalents (16 404) 34 514
Cash and cash equivalents at beginning of year 49 827 11 443
Foreign exchange differences (2 366) 3 870
------------------------------------------------------------------- --------- --------- -----------
Cash and cash equivalents at end of year 31 057 49 827
--------- -----------
Cash and cash equivalents at end of year - continuing operation 14 30 913 49 820
Cash and cash equivalents at end of year - discontinued operation 15 144 7
------------------------------------------------------------------- --------- --------- -----------
(1) These amounts were presented on a net basis in the prior
year and have been disaggregated and presented separately in the
current year. This reclassification had no impact on the financial
statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2021
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 16 March 2022.
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
2021. During the prior year Gem Equity Group Limited, a 100% held dormant investment holding
company, was abandoned. Following the sale of its investments within the prior year the Board
of Directors of Gem Equity Group Limited resolved to voluntarily liquidate the company. The
liquidation was finalised on 2 July 2021 and the company no longer exists at year end. In
addition, Calibrated Diamonds Investment Holdings (Proprietary) Limited, a 100% held subsidiary
of Gem Diamonds Investments Limited was deregistered during the year after being dormant for
several years.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------
Name and Share-holding Cost of Country of incorporation Nature of business
registered investment(1)
address of
company
-----------------
Subsidiaries
----------------- ---------------------- -------------------- --------------------------------- -------------------------------------------------------------------
Gem Diamond 100% US$17 RSA Technical, financial and management
Technical consulting services.
Services
(Proprietary)
Limited(2)
Illovo Corner
24 Fricker Road
Illovo Boulevard
Johannesburg
South Africa
----------------- ---------------------- -------------------- --------------------------------- -------------------------------------------------------------------
Letšeng 70% US$126 000 303 Lesotho Diamond mining and holder of mining
Diamonds rights.
(Proprietary)
Limited(2)
L etšeng
Diamonds House
Corner Kingsway
and Old
School Roads
Maseru
Lesotho
----------------- ---------------------- -------------------- --------------------------------- -------------------------------------------------------------------
Gem Diamonds 100% US$5 844 579 Botswana Diamond mining; evaluation and
Botswana development; and holder of mining licences and concessions.
(Proprietary)
Limited(2,3)
Suite 103, GIA
Centre
Diamond
Technology Park
Plot 67782,
Block 8
Gaborone
Botswana
----------------- ---------------------- -------------------- --------------------------------- -------------------------------------------------------------------
Gem Diamonds 100% US$17 531 316 UK Investment holding company holding
Investments 100% in each of Gem Diamonds Innovation Solutions CY Limited, a
Limited(2) company holding intellectual property relating to development of
Suite 1, 3rd technology to innovate mining
Floor, processes; Baobab Technologies BVBA, a diamond analysis and
11-12 St. James valuation facility in Belgium;
Square, and Gem Diamonds Marketing Services BVBA,
London a marketing company that sells the Group's diamonds on tender in
SW1Y 4LB United Antwerp.
Kingdom
----------------- ---------------------- -------------------- --------------------------------- -------------------------------------------------------------------
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), which is in the process
of being sold, has been classified as a discontinued operation held for sale since 30 June
2019 and disclosed separately (refer Note 15, Asset 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, i.e. 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), classified as
discontinued operation held for sale since 30 June
2019.
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 from 2019, continues to be
classified as such at year end as management remain committed to the sales process. Refer
Note 15, Asset held for sale.
During the prior year Gem Equity Group, a dormant investment holding company registered in
the BVI, was abandoned. Following the sale of its investments within the prior year the Board
of Directors of Gem Equity Group resolved to voluntarily liquidate the company. The company
no longer exists as the liquidation was finalised on 2 July 2021 at a minimal liquidation
professional fee paid by Gem Diamonds Limited. There was no further impact on the Group's
results in the current year from the company. GEG was classified as part of the BVI, RSA,
UK and Cyprus segment. Calibrated Diamonds Investment Holdings (Proprietary) Limited (CDIH),
a 100% held subsidiary of Gem Diamonds Investments Limited was deregistered during the year
after being dormant for several years. There was no impact on the Group's results in the current
year from this company. CDIH was classified as part of the BVI, RSA, UK and Cyprus segment.
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:
BVI, RSA UK and
Year ended 31 Lesotho Belgium Cyprus(1) Total Continuing operations Discontinued operation Total
December 2021 US$'000 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 - 408 308
Intersegment (198 581) (837) (7 031) (206 449) - (206 449)
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
External customers 235 201 624 - 201 859 - 201 859
Depreciation and
amortisation 54 012 350 1 063 55 425 - 55 425
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
- Depreciation and
mining asset
amortisation 7 199 350 1 063 8 612 - 8 612
- Waste stripping cost
amortisation 46 813 - - 46 813 - 46 813
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Share-based equity
transactions (105) (4) (286) (395) (2) (397)
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Segment operating
profit/(loss) 59 008 1 238 (9 835) 50 411 (3 533) 46 878
Net finance costs (2 395) (1) (1 346) (3 742) (221) (3 963)
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Profit/(loss) before tax 56 613 1 237 (11 181) 46 669 (3 754) 42 915
Income tax expense (14 661) (178) (723) (15 562) - (15 562)
Profit/(loss) for the
year 41 952 1 059 (11 904) 31 107 (3 754) 27 353
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
EBITDA 64 328 1 625 (8 584) 57 369 (2 047) 55 322
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Segment non-current
assets 306 777 161 1 788 308 726 1 413 310 139
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Segment assets 369 105 1 985 6 312 377 402 2 097 379 499
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Segment liabilities 39 440 351 11 603 51 394 4 100 55 494
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Other segment
information
Net cash and short-term
deposits(2) 24 175 1561 (5 014) 20 722 144 20 866
Capital
expenditure
- Property, plant and
equipment 3 952 7 32 3 991 - 3 991
- Net movement in
rehabilitation asset(3) (1 345) - - (1 345) - (1 345)
- Waste cost capitalised 64 725 - - 64 725 - 64 725
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Total capital
expenditure 67 332 7 32 67 371 - 67 371
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
Average number of
employees employed
under contracts of
service 304 6 22 332 22 354
------------------------- ---------------------- -------------------- ----------------- ------------------------------------- ----------------------------- -------------
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 current 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$0.1 million.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$5.1
million and US$82.5 million respectively.
Total revenue for the year is higher than that of the prior year mainly due to higher volume
of carats sold of 109 697 (2020: 99 172). An average sales price of US$1 835 (2020: US$1 908)
was achieved.
BVI, RSA UK and
Year ended 31 Lesotho Belgium Cyprus(1) Total Continuing operations Discontinued operation(2) Total
December 2020 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Revenue from
contracts with
customers
Total revenue 186 801 189 825 5 997 382 623 - 382 623
Intersegment (186 183) (796) (5 997) (192 976) - (192 976)
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
External
customers 618 189 029 - 189 647 - 189 647
Depreciation and
amortisation 50 636 391 1 463 52 490 - 52 490
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
- Depreciation
and mining
asset
amortisation 7 216 391 1 463 9 070 - 9 070
- Waste
stripping cost
amortisation 43 420 - - 43 420 - 43 420
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Share-based
equity
transactions 157 6 392 555 6 561
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Segment
operating
profit/(loss) 49 061 1 354 (7 751) 42 664 (3 062) 39 602
Net finance
costs (2 742) (6) (1 663) (4 411) (202) (4 613)
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Profit/(loss)
before tax 46 319 1 348 (9 414) 38 253 (3 264) 34 989
Income tax
expense (10 790) (179) 258 (10 711) - (10 711)
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Profit/(loss)
for the year 35 529 1 169 (9 156) 27 542 (3 264) 24 278
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
EBITDA 59 038 1 748 (7 588) 53 198 (2 943) 50 255
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Segment
non-current
assets 318 611 504 2 710 321 825 1 533 323 358
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Segment assets 396 040 1 694 6 597 404 331 3 528 407 859
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Segment
liabilities 63 733 496 13 719 77 948 4 224 82 172
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Other segment
information
Net cash and
short-term
deposits(2) 40 311 877 (6 565) 34 623 7 34 630
Capital
expenditure
- Property,
plant and
equipment 1 535 7 29 1 571 - 1 571
- Net movement
in
rehabilitation
asset(3) (3 125) - - (3 125) - (3 125)
- Waste cost
capitalised 47 167 - - 47 167 - 47 167
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Total capital
expenditure 45 577 7 29 45 613 - 45 613
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
Average number
of employees
employed under
contracts of
service 323 6 21 350 31 381
----------------- ---------- -------------------- ---------------------- ---------------------------------- ----------------------------------- -----------------
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 rolling fees capitalised to
the Company's US$30.0 million bank loan facility). 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 annual revenue for the 2020 year is revenue from six customers who individually
contributed 10% or more to total revenue. This revenue in total amounted to US$66.9 million
arising from sales reported in the Belgium segment.
Segment non-current assets do not include deferred tax assets of US$6.3 million and financial
instruments of US$0.2 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$0.3 million.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.3
million and US$84.5 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 applied for the first-time certain standards and amendments, which are effective
for annual periods beginning on or after 1 January 2021 (unless otherwise stated). The Group
has not early adopted any other standard, interpretation or amendment that has been issued
but is not yet effective.
The nature and effect of these changes as a result of the adoption of these new pronouncements
are described below. Other than the changes described below, the accounting policies adopted
are consistent with those of the previous financial year.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest rate benchmark reform
Phase 2
The amendment addresses issues that might affect financial reporting when an existing interest
rate benchmark is replaced with an alternative benchmark interest rate. In the prior year,
the Group and its funders commenced a comprehensive debt refinancing programme of the Group's
facilities. The refinancing programme incorporates the consideration of any risk posed to
the Group by phase two of the IBOR reform, which was effective from 1 January 2021. The IBOR
reform may potentially have an impact on the South African JIBAR, and LIBOR linked interest-bearing
loans and borrowings The interest-bearing loans and borrowings subject to the South African
JIBAR rate include the LSL215.0 million unsecured project debt facility between Letšeng
Diamonds, Nedbank Limited and the Export Credit Insurance Corporation (ECIC) and the ZAR300.0
million revolving credit facility between Letšeng Diamonds and Nedbank Limited. The interest-bearing
loans and borrowings subject to the US$ three-month LIBOR rate include the US$30.0 million
revolving credit facility between Gem Diamonds Limited, Nedbank Limited, Standard Bank of
South Africa Limited and Firstrand Bank Limited. Both the South African JIBAR and the LIBOR
rates are yet to transition to alternative benchmark rates at the reporting period end. Refer
to Note 17, Interest- bearing loans and borrowings for more information regarding the maturities
and the related benchmark rates subject to the IBOR reform on these loans and/or borrowing
facilities. At year end, it is not possible to estimate the potential impact of the amendment
as no alternative rates have been published by the regulatory bodies or negotiated with the
funders, however, in terms of the agreement, the LIBOR rate on the US$30.0 million revolving
credit facility of Gem Diamonds Limited will be replaced by 30 June 2022. The Group will continue
to assess the impact of the interest rate benchmark reform as the revised benchmark rates
are published or negotiated with the funders. This assessment will include considerations
on how the practical expedients available within the amendments will impact the Group's interest
rate benchmarking.
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, amendments, Description Effective date*
and improvements
IFRS 17 Insurance contracts 1 January 2023
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Amendment to IFRS 16 Covid 19-Related Rent Concessions beyond 30 June 2021 1 April 2021
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Amendments to IAS 37 Onerous contracts - cost of fulfilling a contract 1 January 2022
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Amendments to IFRS 3 Reference to the Conceptual Framework 1 January 2022
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Amendments to IAS 16 Property, plant and equipment proceeds before intended use 1 January 2022
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Amendments to IAS 1 Classification of liabilities as current or non-current 1 January 2023
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
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 Transaction 1 January 2023
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Amendments to IFRS 10 and Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Pending
IAS 28
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Improvement IFRS 1 Subsidiary as a first-time adopter 1 January 2022
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Improvement IFRS 9 Fees in the '10 per cent' test for derecognition of financial liabilities 1 January 2022
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
Improvement IAS 41 Agriculture - Taxation in fair value measurements 1 January 2022
---------------------------- -------------------------------------------------------------------------------------------------------- ------------------------------
* Annual periods beginning on or after.
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.
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 2021 was US$20.9 million (31 December 2020: net cash US$34.6
million). Following the successful refinancing of the Group's facilities for a three-year
period from 23 December 2021, the Group's undrawn facilities at 31 December 2021 amounted
to US$74.3 million, resulting in strong liquidity (defined as net cash and undrawn facilities)
of US$95.2 million (31 December 2020: US$95.4 million). The Group's Revolving Credit facilities,
which total US$77.0 million when fully unutilised, mature on 22 December 2024. The balance
of US$6.3 million is a general banking facility with no set expiry date , but is reviewed
annually (Refer Note 17, Interest-bearing loans and borrowings). The uncertainty that exists
around the ongoing impact of COVID-19 on future cashflows was considered by performing sensitivities
on diamond pricing and diamond production volumes and continued strengthening of the US$ against
the Lesotho Loti.
After making enquiries which include reviews of forecasts and budgets, timing of cash flows,
borrowing facilities and sensitivity analyses and considering the uncertainties described
in this report either directly or by cross-reference, the Directors have a reasonable expectation
that the Group 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 2021.
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 intragroup 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 proved 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(1)
------------------------
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
------------------------ ------------------------- --------------------------------------------------
1 Certain asset classes are depreciated over the lesser of life of mine, or period of mining
lease. Prior to 1 January 2020, the period of mining lease was shorter than the life of mine.
On 1 January 2020 a reassessment of assets' useful lives was performed at Letšeng which
resulted in a revision of assets' useful lives being made from a remaining useful life of
five years (original period of mining lease) to 15 years (life of mine) due to the extension
of the Letšeng mining lease. Furthermore, also within the prior year the useful life
of plant and equipment was reassessed from a useful life of 10 years to the remaining life
of mine (15 years); and the useful life of vehicles, categorised within the "Other assets
category", were reassessed from five years to eight years.
An item of property, plant and equipment and any significant part initially recognised is
derecognised upon disposal (i.e., 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 re-sale.
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 other notes to the
financial statements include amounts for continuing operations, unless indicated 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 time frame established by regulation or convention in the market place
(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
The Groups 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 1.2.7, Borrowing
costs, 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.
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.
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.
1.2.15 Issued share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue
of new shares or options are shown in equity as a deduction from the proceeds.
1.2.16 Foreign currency translations
Presentation currency
The results and financial position of the Group's subsidiaries which have a functional currency
different from the 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 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 Note 1.2.28, Critical accounting estimates and judgements.
The Group periodically releases the share-based equity reserve to retained earnings in relation
to lapsed, forfeited and exercised options.
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 service
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.
COVID-19
The Group has considered the impact of COVID-19 on its significant accounting judgements and
estimates. The Group's main source of estimation uncertainty is in relation to assumptions
used for the assessment of impairment and impairment reversal of assets. No further significant
estimates have been identified as a result of COVID-19, although the pandemic has increased
the level of uncertainty inherent in all future cash flow forecasts.
Task Force on Climate-related Financial Disclosures (TCFD)
In preparing the Consolidated Financial Statements management has considered the impact of
climate change, particularly in the context of the disclosures included in the Strategic Report
this year 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 2023 nor viability over the next three
years. These considerations also had no material impact on any Property, Plant and Equipment
or Commitments. For Letšeng, the physical risks identified of extreme weather conditions,
are similar to its current operating conditions of drought, high wind, extreme precipitation
and cold events. 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 to reducing combustion related 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.
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,
exchange rates, 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. The results of the impairment
testing performed did not indicate any impairments in the current year. 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 2037 (2020: 2034).
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% (2020: 4.0% to 5.3%) for operating costs in addition to a depth escalation factor for
mining costs as a result of mining in deeper areas within both pits.
Capital costs in the short-term has been based on management's capital program after which
a fixed percentage of operating costs have 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 2021 of LSL15.96 (31 December 2020: LSL14.69).
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 11.5% for revenue (2020: 10.8%) and 13.4% for costs (2020: 14.3%) used
for Letšeng represents the before-tax risk-free rate adjusted for market risk, volatility
and risks specific to the asset and its operating jurisdiction.
Market capitalisation
In the instance where the Group's asset carrying values exceed market capitalisation, this
results in an indicator of impairment. The Group believes that this position does not represent
an impairment as all significant operations were assessed for impairment during the year and
no impairments were recognised.
Sensitivity
The value in use for Letšeng indicated sufficient headroom, and the further changes to
key assumptions which could result in impairment are disclosed in Note 11, Impairment testing.
Provision for restoration and rehabilitation and deferred tax thereon
Judgement is applied when calculating the closure costs associated with the restoration of
the Letšeng mine site. These include the following:
* There are no costs associated with the backfill of
the open pits due to no in-country legislation
requirements; 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.
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. Furthermore, during the production phase, stripping costs are
incurred in i) the production of inventory and ii) in the creation of future benefits by improving
access and mining flexibility in respect of the ore to be mined, (the 'stripping activity
asset'). Judgement is required to distinguish between these two activities at Letšeng.
The orebody needs to be identified in its various separately identifiable components. An identifiable
component is a specific volume of the orebody that is made more accessible by the stripping
activity. Judgement is required to identify and define these components (referred to as 'cuts'),
and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be
mined in each of these components. These assessments are based on a combination of information
available in the mine plans, specific characteristics of the orebody and the milestones relating
to major capital investment decisions.
Judgement is also required to identify a suitable production measure that can be applied in
the calculation and allocation of production stripping costs between inventory and the stripping
activity asset. The ratio of expected volume (tonnes) of waste to be stripped for an expected
volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the
current period ratio of actual volume (tonnes) of waste stripped to the volume (tonnes) of
ore mined is considered to determine the most suitable production measure.
These judgements and estimates are used to calculate and allocate the production stripping
costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates
are also used to apply the stripping ratio calculation in determining the amortisation of
the stripping activity asset. Refer Note 8, Property, plant and equipment and Note 13, Inventories.
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
Lesotho Revenue Authority (LRA) 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 LRA in March 2020, which was supported by the opinion of senior
counsel. The LRA 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 and a court date is expected to be set in June 2022.
On 7 February 2022, Letšeng received an application from the LRA to amend its original
grounds for the court application. Letšeng's counsel continues to review the LRA's proposed
amendment and has opposed the new application by the LRA.
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 2021 Annual Financial Statements.
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.
2021 2020
US$'000 US$'000
---------------------------------------------------- ------------------------
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Sale of goods 201 610 189 028
Partnership arrangements 235 618
Rendering of services 14 1
---------------------------------------------------- ------------------------ ------------------------
201 859 189 647
---------------------------------------------------- ------------------------ ------------------------
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$0.2 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 (2020: US$0.6 million). At
year end 894 carats (2020: 485 carats) have
significant constraints in recognising revenue
relating to the additional uplift.
The revenue from the rendering of services mainly
represents the sales of rough diamonds on
behalf of third parties, for which revenue is
recognised at the time when performance
obligations
are met, and services rendered on third-party
diamond analysis and manufacturing, for which
the revenue is recognised over time as the
services are rendered.
No revenue was generated from joint operation
arrangements during the current or prior year
(2021: Nil) (2020: Nil).
---------------------------------------------------- ------------------------ ------------------------
2021 2020
US$'000 US$'000
3. OTHER OPERATING (EXPENSES)/INCOME
Sundry income 116 26
Sundry expenses (12) (23)
Profit/(loss) on disposal and scrapping of property, plant and equipment 16 (30)
COVID-19 costs/standing costs (711) (3 884)
----------------------------------------------------------------------------------------------- --------- ---------
COVID-19 standing costs
During the prior year, COVID-19 standing costs consisted of US$2.9 million which related to
certain standing fixed mining contract and ore stockpile movement costs which were incurred
during the brief period that the mine suspended operations in compliance with the Lesotho
lockdown order and was placed on care and maintenance, and were recognised as abnormal costs
and expensed immediately in the Consolidated Statement of Profit or Loss. The remaining
US$1.0
million related to costs incurred to implement protocols throughout the Group to address the
risk and curb the spread of COVID-19. In the current year, there were no abnormal standing
costs incurred. Costs of US$0.7 million were incurred relating to continued protocols for
curbing the spread of the virus. (591) (3 911)
2021 2020
US$'000 US$'000
---------------------------------------------------------------------------------------- ----------
4. OPERATING PROFIT
Operating profit includes operating costs and income as listed below:
Depreciation and amortisation
Depreciation and amortisation excluding waste stripping costs (6 927) (7 027)
Depreciation of right-of-use assets (1 685) (2 043)
Waste stripping costs amortised (46 813) (43 420)
--------------------------------------------------------------------------------------------- ---------- ----------
(55 425) (52 490)
Inventories
Cost of inventories recognised as an expense (113 737) (105 524)
--------------------------------------------------------------------------------------------- ---------- ----------
Foreign exchange
Foreign exchange gain/(loss) 1 929 (880)
--------------------------------------------------------------------------------------------- ---------- ----------
Lease expenses not included in lease liability
Mine site property (170) (69)
Equipment and service lease (8 462) (7 280)
Contingent rental - Alluvial Ventures (6 483) (5 190)
(15 115) (12 539)
----------
Auditor's remuneration - EY
Group financial statements (238) (296)
Statutory (190) (176)
--------------------------------------------------------------------------------------------- ---------- ----------
(428) (472)
--------------------------------------------------------------------------------------------- ---------- ----------
Auditor's remuneration - other audit firms
Statutory (20) (17)
Other non-audit fees - EY
Tax compliance - (5)
Tax services advisory and consultancy - (13)
Other services(1) (41) -
---------------------------------------------------------------------------------------- ---------- ----------
(41) (18)
--------------------------------------------------------------------------------------------- ---------- ----------
Other non-audit fees - other audit firms
Tax services advisory and consultancy (45) (15)
--------------------------------------------------------------------------------------------- ---------- ----------
Employee benefits expense
Salaries and wages(2) (17 767) (18 781)
--------------------------------------------------------------------------------------------- ---------- ----------
Underlying earnings before interest, tax, depreciation and mining asset amortisation
(underlying
EBITDA) before discontinued operation
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 42 664
Other operating (income)/expense(3) (120) 27
Foreign exchange (gain)/loss (1 929) 880
Share-based payments 395 555
Depreciation and amortisation (excluding waste stripping cost amortised) 8 612 9 070
--------------------------------------------------------------------------------------------- ---------- ----------
Underlying EBITDA before discontinued operation 57 369 53 196
--------------------------------------------------------------------------------------------- ---------- ----------
1 Includes services related to forensic investigation performed on allegations of diesel theft
at Letšeng.
2 Includes contributions to defined contribution plan of US$0.6 million (31 December 2020:
US$0.5 million). An average of 354 employees excluding contractors were employed during the
period (2020: 381).
3 Excludes COVID-19 costs/standing costs which are considered as operating costs.
2021 2020
US$'000 US$'000
---------------------------------------------------------------------------- ---------
5. NET FINANCE COSTS
Finance income
Bank deposits 197 358
Other 5 24
--------------------------------------------------------------------------------- --------- ---------
Total finance income 202 382
Finance costs
Finance costs on borrowings (2 232) (3 297)
Finance costs on lease liabilities (525) (608)
Finance costs on unwinding of rehabilitation and decommissioning provision (1 187) (888)
--------------------------------------------------------------------------------- --------- ---------
Total finance costs (3 944) (4 793)
--------------------------------------------------------------------------------- --------- ---------
(3 742) (4 411)
--------------------------------------------------------------------------------- --------- ---------
2021 2020
US$'000 US$'000
-------------------------------------------------------------------------- ------------
6. INCOME TAX EXPENSE
Current
- Foreign (10 197) (11 593)
Withholding tax
- Foreign (639) (529)
Deferred
- Foreign (4 726) 1 411
------------------------------------------------------------------------------- ------------- ------------
Income tax expense (15 562) (10 711)
------------------------------------------------------------------------------- ------------- ------------
Profit before taxation from continuing operations 46 669 38 253
------------------------------------------------------------------------------- ------------- ------------
% %
-------------------------------------------------------------------------- ------------- ------------
Reconciliation of tax rate
Applicable income tax rate 25.0 25.0
Permanent differences 2.3 (1) (3.0)
Unrecognised deferred tax assets 3.1 3.0
Effect of foreign tax at different rates 1.6 1.7
Withholding tax 1.4 1.3
------------------------------------------------------------------------------- ------------- ------------
Effective income tax rate 33.4 28.0
------------------------------------------------------------------------------- ------------- ------------
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than
the statutory UK corporation tax rate of 19.0% as this is the jurisdiction in which the majority
of the Group's taxes are incurred.
1 Permanent differences mainly comprise CSI at Letšeng Diamonds, legal fees of a capital
nature and share-based payments, all of which are non-deductible for tax purposes.
------------------------------------------------------------------------------------------------------------
2021 2020
US$'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: 27 353 24 278
------------------ ------------------
Continuing operations 31 107 27 542
Discontinued operation (3 754) (3 264)
------------------ ------------------
Less: Non-controlling interests (12 586) (10 637)
----------------------------------------------------------------------------- ------------------ ------------------
Net profit attributable to ordinary equity holders of the parent for basic
and diluted earnings 14 767 13 641
----------------------------------------------------------------------------- ------------------ ------------------
Number of ordinary shares outstanding during the year ('000) 140 516 139 612
----------------------------------------------------------------------------- ------------------ ------------------
Weighted number of share options exercised during the year ('000) (223) (339)
----------------------------------------------------------------------------- ------------------ ------------------
Weighted average number of ordinary shares outstanding during the year
('000) 140 293 139 273
----------------------------------------------------------------------------- ------------------ ------------------
Basic earnings per share attributable to ordinary equity holders of the
parent (cents) 10.5 9.8
----------------------------------------------------------------------------- ------------------ ------------------
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.
----------------------------------------------------------------------------------------------------------------
2021 2020
Number of shares Number of shares
------------------------------------------------------------------------ ------------------
Weighted average number of ordinary shares outstanding during the year 140 293 139 273
Effect of dilution:
- Future share awards under the Employee Share Option Plan 1 796 2 341
----------------------------------------------------------------------------- ------------------ ------------------
Weighted average number of ordinary shares outstanding during the year
adjusted for the effect
of dilution 142 089 141 614
----------------------------------------------------------------------------- ------------------ ------------------
Diluted earnings per share attributable to ordinary equity holders of the
parent (cents) 10.4 9.6
----------------------------------------------------------------------------- ------------------ ------------------
There have been no other transactions involving ordinary shares or potential ordinary shares
between the reporting date and the date of completion of these financial statements.
---------------------------------------------------------------------------------------------------------------------
8. PROPERTY, PLANT AND EQUIPMENT
Stripping
activity Mining Decom-missioning Lease-hold
asset asset assets Improve-ment Plant and equipment Other assets(1) Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
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
provision (1 069) - - (138) (138) - (1 345)
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)
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Balance at
31 December 2021 599 558 107 999 3 769 51 418 74 504 7 304 844 552
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Accumulated depreciation/
amortisation/impairment
Balance 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)
---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Balance at
31 December 2021 414 706 44 874 3 769 26 648 55 544 5 384 550 925
---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Net book value at 31
December 2021 184 852 63 125 - 24 770 18 960 1 920 293 627
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office
equipment.
Stripping
activity Mining Decom-missioning Lease-hold
asset asset assets Improve-ment Plant and equipment Other assets(1) Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
As at 31 December 2020
Cost
Balance at 1 January 2020 562 583 122 061 5 822 58 219 84 757 6 999 840 441
Additions 47 167 - - 7 1 561 3 48 738
Net movement in
rehabilitation
provision (990) - (1 373) (381) (381) - (3 125)
Disposals - - - - - (85) (85)
Scrapping(2) - (2 929) - (610) (993) (444) (4 976)
Reclassifications - 504 - 674 (1 751) 573 -
Foreign exchange
differences (21 405) (4 586) (330) (1 954) (3 725) 555 (31 445)
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Balance at 31 December
2020 587 355 115 050 4 119 55 955 79 468 7 601 849 548
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Accumulated depreciation/
amortisation/impairment
Balance at 1 January 2020 369 388 53 936 4 102 23 901 60 128 5 133 516 588
Charge for the year(3) 43 420 1 174 88 2 834 2 513 458 50 487
Disposals - - - - - (41) (41)
Scrapping(2) - (2 929) - (567) (987) (488) (4 971)
Foreign exchange
differences (11 365) (2 992) (71) 36 (2 504) 376 (16 520)
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Balance at 31 December
2020 401 443 49 189 4 119 26 204 59 150 5 438 545 543
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
Net book value at 31
December 2020 185 912 65 861 - 29 751 20 318 2 163 304 005
-------------------------- ---------- ------------ ----------------- -------------------- -------------------- -------------------- ----------
1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office
equipment.
2 Certain assets at Letšeng that were no longer in use were scrapped.
3 The 2020 reassessment of assets' useful lives undertaken at Letšeng resulted in certain
assets' useful lives being realigned from the period of mining lease to the life of mine.
This resulted in a reduction in depreciation charge which will continue into the future. Refer
Note 1.2.6, Property, plant and equipment.
-----------------------------------------------------------------------------------------------------------------------------------------------------
Right-of-use assets
---------------------------------------------------------------------------------------------------------
Plant and equipment Buildings Total
US$'000 Motor vehicles US$'000 US$'000 US$'000
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
9. RIGHT-OF-USE ASSETS
As at 31 December 2021
Cost
Balance 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)
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Balance at 31 December 2021 56 94 5 761 5 911
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Accumulated depreciation
Balance 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)
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Balance at 31 December 2021 20 63 2 691 2 774
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Net book value at 31 December 2021 36 31 3 070 3 137
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
As at 31 December 2020
Cost
Balance at 1 January 2020 2 012 1 656 7 318 10 986
Additions 821 - 354 1 175
Derecognition of lease (585) (1 019) (988) (2 592)
Foreign exchange differences (31) (273) (240) (544)
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Balance at 31 December 2020 2 217 364 6 444 9 025
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Accumulated depreciation
Balance at 1 January 2020 980 361 1 191 2 532
Charge for the year 793 114 1 136 2 043
Derecognition of lease (115) (175) (196) (486)
Foreign exchange differences 79 (45) 79 113
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Balance at 31 December 2020 1 737 255 2 210 4 202
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
Net book value at 31 December 2020 480 109 4 234 4 823
----------------------------------------- --------------------------- ------------------------------ ------------------------ ------------------
At year end, plant and equipment mainly comprise printing equipment utilised at Gem Diamond
Technical Services. Motor vehicles mainly comprise vehicles utilised by contractors at Letšeng.
Buildings comprise office buildings in Maseru, Antwerp, London 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, the 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 have been derecognised. A new lease for back-up power generating
equipment is in the process of being negotiated. In the interim, Letšeng is renting existing
back-up power generating equipment on a month-to-month basis. 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.
In the prior year, Letšeng entered into a new contract with its existing ore processing
contractor. The new contract was assessed as not containing a lease as Letšeng no longer
retained the right to control the use of the assets associated with the contract. The original
contract, which was assessed as containing a lease on adoption on 1 January 2019, was cancelled
and all associated assets and liabilities were derecognised. Furthermore, in the prior year,
Gem Diamonds Limited entered into a new contract for the rental of its office space in London.
The new contract was assessed as containing a lease resulting in the recognition of the associated
assets and liabilities. The original contract was cancelled, and the associated assets and
liabilities were derecognised.
Total gains of US$0.1 million (2020: US$0.2 million) relating to the derecognition of leases
in the Group have been recognised in the Consolidated Statement of Profit or Loss. 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 (2020: 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
-----------------------------------------------------------------------------
2022 358
2023 381
2024 405
2025 245
----------------------------------------------------------------------------- ---------------------------------------------------------------------
Intangibles Goodwill(1) Total
US$'000 US$'000 US$'000
----------------------------------------- ---------------------------------- ----------------------------------------- --------------------------
10. INTANGIBLE ASSETS
As at 31 December 2021
Cost
Balance at 1 January 2021 791 12 997 13 788
Foreign exchange 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
----------------------------------------- ---------------------------------- ----------------------------------------- --------------------------
As at 31 December 2020
Cost
Balance at 1 January 2020 791 13 653 14 444
Foreign exchange difference - (656) (656)
----------------------------------------- ---------------------------------- ----------------------------------------- --------------------------
Balance at 31 December 2020 791 12 997 13 788
----------------------------------------- ---------------------------------- ----------------------------------------- --------------------------
Accumulated amortisation
Balance at 1 January 2020 791 - 791
Amortisation - - -
Balance at 31 December 2020 791 - 791
----------------------------------------- ---------------------------------- ----------------------------------------- --------------------------
Net book value at 31 December 2020 - 12 997 12 997
1 Goodwill allocated to Letšeng Diamonds. Refer Note 11, Impairment testing.
2021 2020
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
11. IMPAIRMENT TESTING
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 2021.
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
2021, 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 11 962 12 997
----------------------------------------------------------------------------------------------- --------- ---------
Balance at end of year 11 962 12 997
----------------------------------------------------------------------------------------------- --------- ---------
Movement in goodwill relates to foreign exchange translation from functional to presentation
currency, as disclosed within Note 10, Intangible assets.
The discount rate is outlined below and represents the nominal pre-tax rate. This rate is
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.
2021 2020
% %
----------------------------------------------------------------------------------------- ---------
Discount rate - Letšeng Diamonds
Applied to revenue 11.5 10.8
Applied to costs 13.4 14.3
----------------------------------------------------------------------------------------------- --------- ---------
Value in use
Cash flows are projected for a period up to the date that the open pit mining is expected
to cease in 2037 (in terms of IAS 36). This is based on the latest available mine plan and
is shorter than the mining lease period which extends to 2029 with an exclusive option to
renew for a further 10 years to 2039. This mine plan takes into account the available reserves
and other relevant inputs such as diamond pricing, costs and geotechnical parameters.
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 2021 exceeded
the carrying value at an attributable level by US$35.1 million (31 December 2020: US$83.0
million). The valuation is sensitive to input assumptions particularly in relation to the
foreign exchange assumption of the US dollar (US$) to the Lesotho loti (LSL) and the future
price growth for diamonds. 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 in conjunction with a reasonably possible change
in the diamond price recovery, which would result in the recoverable amount equating to the
carrying amount. A 5% strengthening of the LSL to the US$ to US$1:LSL15.15 or a further reduction
of 4% to the starting diamond prices would result in the recoverable amount equating to the
current carrying value (at year end exchange rate), with other valuation assumptions remaining
the same.
As a result, no impairment charge was recognised during the year.
2021 2020
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
12. RECEIVABLES AND OTHER ASSETS
Non-current
Deposits 109 153
Insurance Asset(1) 1 169 -
----------------------------------------------------------------------------------------- --------- ---------
1 278 153
----------------------------------------------------------------------------------------------- --------- ---------
Current
Trade receivables 25 22
Prepayments(2) 975 1 349
Deposits 19 -
Other receivables 122 135
VAT receivable 2 954 4 180
----------------------------------------------------------------------------------------------- --------- ---------
4 095 5 686
----------------------------------------------------------------------------------------------- --------- ---------
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 - 22
30 to 60 days - -
60 to 90 days - -
90 to 120 days 23 -
----------------------------------------------------------------------------------------- --------- ---------
25 22
----------------------------------------------------------------------------------------------- --------- ---------
1 During the year, the Group, through its subsidiary Letšeng, transitioned its conventional
approach to insurance cover towards a more flexible approach, through retaining higher insurance
excesses, thereby obtaining an insurance premium saving and ultimately preserving cashflow.
To mitigate the increased risk exposure of the higher deductible in the unlikely event of
an unexpected loss, Letšeng entered into a LSL100.0 million (US$6.2 million) Multi-aggregate
Protection Insurance Policy with The Lesotho National Insurance Group (LNIGC) on 1 October
2021. This policy has a tenure of 4 years and 9 months, consisting of five premium payments
of LSL20.0 million (US$1.3 million), each payable annually in advance (refer Note 24, Commitments
and contingencies). This policy gives Letšeng the right to claim up to LSL50.0 million
for each-and-every- loss and LSL100.0 million in the aggregate (subject to terms and conditions
contained in the policy), from inception of 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
and fronting fees as expensed within other operating expenses. The non-current financial asset
is measured at amortised cost in line with IFRS 9. Interest is earned on the unrealised premium
and recognised as finance income. The first premium payment 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 Diamonds of US$0.3 million
(31 December 2020: US$0.6 million) and Gem Diamonds Technical Services of US$0.2 million (31
December 2020: US$0.1 million) which were funded through Premium Finance Partners (Proprietary)
Limited. This prepayment is ceded in favour of Premium Finance Partners (Proprietary) Limited.
Refer Note 17, Interest Bearing Loans and Borrowings.
Based on the nature of the Group's client base and the negligible exposure to credit risk
through its client base, insurance asset and other financial assets, the expected credit loss
is insignificant and has no impact on the Group.
---------------------------------------------------------------------------------------------------------------------
2021 2020
US$'000 US$'000
13. INVENTORIES
Diamonds on hand 18 303 15 558
Ore stockpiles 4 702 2 365
Consumable stores 8 153 8 818
------------------------------------------------------------------ ------------------ ------------------
31 158 26 741
------------------------------------------------------------------ ------------------ ------------------
Inventory is carried at the lower of cost or net realisable value. There were no write-downs
recorded to net realisable value in the current or prior year.
----------------------------------------------------------------------------------------------------
2021 2020
US$'000 US$'000
14. CASH AND SHORT-TERM DEPOSITS
Cash on hand 3 4
Bank balances 27 673 35 456
Short-term bank deposit 3 237 14 360
------------------------------------------------------------------ ------------------ ------------------
30 913 49 820
------------------------------------------------------------------ ------------------ ------------------
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 2021, the Group had US$74.3 million (31 December 2020: US$60.8 million) of
undrawn facilities, representing the LSL750.0 million (US$47.0 million) three-year unsecured
revolving working capital facility at Letšeng, the Letšeng ZAR100.0 million (US$6.3
million) general banking facility and US$21.0 million from the Company's 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
and Management have remained committed to the sale of Gem Diamonds Botswana (Pty) Ltd (GDB),
which owns the Ghaghoo diamond mine. Notwithstanding the lapsing in the prior year during
January 2020 of the initial sales agreement which was entered into in June 2019, management
remained committed and again opened the process to other prospective buyers and on 23 August
2021 entered into a binding share sale agreement with Okwa Diamonds (Pty) Ltd (Okwa Diamonds),
the entity with which an exclusivity agreement had been entered into in November 2020. Okwa
Diamonds, an SPV company registered in Botswana, which is owned by Vast Resources PLC (Vast),
a mining and resource development company listed on AIM (a sub-market of the London Stock
Exchange), and by Botswana Diamonds PLC (BOD), a diamond exploration and project development
company listed on AIM and the Botswana Stock Exchange. Vast and BOD are both parties to the
share sale agreement and guarantee the obligations of Okwa Diamonds. Under the share sale
agreement, the purchaser would pay a total consideration of US$4.0 million, payable in two
instalments of US$2.0 million each, the first of which would be payable five days after the
date on which the last suspensive condition is fulfilled or waived.
The suspensive conditions included obtaining the competition authority and regulatory approvals
within Botswana. The competition authority and regulatory conditions were fulfilled prior
to year end and written approvals were obtained from the Botswana Competition Authority and
the Ministry of Mineral Resources, Green Technology and Energy Security of Botswana. The agreement
had an initial longstop date of 31 January 2022.
In January 2022, after the reporting period, Vast informed Gem Diamonds and BOD that it did
not intend to continue with the transaction due to its inability to meet the funding suspensive
condition. BOD confirmed its commitment to conclude the transaction as originally envisaged
as soon as possible and has informed Gem Diamonds Limited that it has identified an alternative
financing partner which will, subject to any approvals that are required, replace Vast as
the initial financing partner. Gem Diamonds Limited and BOD remain committed to the sale of
GDB and are working together towards a mutually beneficial outcome and have agreed to extend
the longstop date from 31 January 2022 to 31 March 2022.
As the transaction was not successfully concluded by year end, GDB continued to be disclosed
as a discontinued operation held for sale at year end based on the circumstances detailed
above.
During the year, certain consumable inventory items which were not being used in the mine's
care and maintenance operations were written off relating to expired explosives and plant
consumables; underground mining consumables and spares and accessories for automotives no
longer on site. The asset held for sale is carried at carrying value which is lower than fair
value less costs to sell. The fair value is based on the unobservable market offer from the
potential buyer for the disposal group, accordingly the non-recurring fair value measurement
is included in level 3 of the fair value hierarchy.
The trading results of the operation continue to be classified as a discontinued operation
held for sale and are presented as follows:
2021 2020
US$'000 US$'000
--------------------------------------------------------------------------------------------- ---------
Gross profit - -
Other costs (2 070) (2 816)
Inventory write-down (1 455) (240)
Share-based payments (2) (6)
Foreign exchange gain (6) -
--------------------------------------------------------------------------------------------- --------- ---------
Operating loss (3 533) (3 062)
Net finance costs (221) (202)
--------------------------------------------------------------------------------------------- --------- ---------
Loss before tax from discontinued operation (3 754) (3 264)
Income tax expense - -
--------------------------------------------------------------------------------------------- --------- ---------
Loss after tax from discontinued operation attributable to equity holders of the parent (3 754) (3 264)
--------------------------------------------------------------------------------------------- --------- ---------
Loss per share from discontinued operation (cents)
Basic (2.7) (2.3)
Diluted (2.6) (2.3)
--------------------------------------------------------------------------------------------- --------- ---------
Gem Diamonds Botswana incurred rental expenses from short-term leases of US$0.5 million (31
December 2020: US$0.9 million) during the year.
Gem Diamonds Botswana has estimated tax losses of US$173.0 million (31 December 2020: US$185.2
million), which carry no expiry date, for which no deferred tax asset has been recognised.
Deferred tax assets of US$0.3 million (31 December 2020: US$0.3 million) were recognised to
the extent of the deferred tax liabilities. These have been offset in the table below.
2021 2020
US$'000 US$'000
--------------------------------------------------------------------------------------------- ---------
ASSETS
Non-current assets
Property, plant and equipment 1 413 1 533
--------------------------------------------------------------------------------------------- --------- ---------
Current assets
Inventories 477 1 774
Receivables and other assets 63 214
Cash and short-term deposits 144 7
--------------------------------------------------------------------------------------------- --------- ---------
684 1 995
--------------------------------------------------------------------------------------------- --------- ---------
Total assets 2 097 3 528
--------------------------------------------------------------------------------------------- --------- ---------
LIABILITIES
Non-current liabilities
Provisions 3 654 3 753
--------------------------------------------------------------------------------------------- --------- ---------
Current liabilities
Trade and other payables 446 471
Total liabilities 4 100 4 224
--------------------------------------------------------------------------------------------- --------- ---------
The net cash flows attributable to the discontinued operation held for sale are as follows:
Operating cash outflows (2 186) (2 920)
Investing - -
Financing cash inflows(1) 2 332 2 850
Foreign exchange loss on translation of cash balance (9) (63)
--------------------------------------------------------------------------------------------- --------- ---------
Net cash inflow/(outflow) 137 (133)
--------------------------------------------------------------------------------------------- --------- ---------
1 Financing provided by Gem Diamonds Botswana (Pty) Ltd's holding company, being Gem Diamonds
Limited, to fund care and maintenance costs.
16. ISSUED SHARE CAPITAL AND RESERVES
Share capital
31 December 2021 31 December 2020
----------------------------------------- -----------------------------
Number of shares Number of shares
US$'000 US$'000 US$'000 US$'000
------------------------------------- ------------------------ --------------- ------------------- --------
Authorised - ordinary shares of
US$0.01 each
As at year end 200 000 2 000 200 000 2 000
------------------------------------------- ------------------------ --------------- ------------------- --------
Issued and fully paid balance at beginning
of year 139 612 1 397 138 984 1 391
Allotments during the year 903 9 628 6
------------------------------------------- ------------------------ --------------- ------------------- --------
Balance at end of year 140 515 1 406 139 612 1 397
------------------------------------------- ------------------------ --------------- ------------------- --------
Share premium
Share premium comprises the excess value recognised from the issue of ordinary shares above
its par value.
Other reserves
Foreign currency translation
reserve Share- based equity reserve Total
US$'000 US$'000 US$'000
-------------------- ----------------------------------- ---------------------------------- ----------------
Balance 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 payments - 397 397
-------------------------- ----------------------------------- ---------------------------------- ----------------
Balance at 31 December
2021 (233 276) 6 579 (226 697)
-------------------------- ----------------------------------- ---------------------------------- ----------------
Balance at 1 January 2020 (208 493) 5 636 (202 857)
Other comprehensive loss (9 862) - (9 862)
-------------------------- ----------------------------------- ---------------------------------- ----------------
Total comprehensive loss (9 862) - (9 862)
Share capital issue - (6) (6)
Share-based payments - 561 561
-------------------------- ----------------------------------- ---------------------------------- ----------------
Balance at 31 December
2020 (218 355) 6 191 (212 164)
-------------------------- ----------------------------------- ---------------------------------- ----------------
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:
Currency 2021 2020
-------------------- ----------------------------------- ----------------
Average rate ZAR/LSL to US$1 14.79 16.47
Year end ZAR/LSL to US$1 15.96 14.69
Average rate Pula to US$1 11.09 11.45
Year end Pula to US$1 11.76 10.80
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.
17. INTEREST-BEARING LOANS AND BORROWINGS
A consolidated Group-wide refinancing of revolving credit facilities (RCF) took place during
the year with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking
Division) (Nedbank) appointed as sole mandated lead arranger. Financial close of the three-year
RCF took place on 23 December 2021. The salient features of the new consolidated RCF are as
follows:
* Three funders are participating in the RCF, namely
Nedbank (US$34.7 million), Standard Bank of South
Africa Limited (US$23.1 million) and Firstrand Bank
Limited (through their various operations) (US$19.2
million). All draw downs will be made in this same
ratio;
* The RCF of Gem Diamonds Limited remains unchanged at
US$30.0 million and the Letšeng Diamonds RCF has
increased from LSL500.0 million (31 December 2020:
US$34.0 million) to US$47.0 million, made up of two
facilities of LSL450.0 million and ZAR300.0 million;
* As at 31 December 2021, the RCF is unsecured;
* On 28 February 2022, subsequent to year end, Gem
Diamonds Limited provided security for the RCF over
its bank accounts domiciled in the United Kingdom and
on 15 March 2022 the security over its 70%
shareholding in Letšeng Diamonds (carrying
value: US$256.2 million, which includes net cash and
short-term deposits of US$24.2 million) was
implemented. This security has 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 Nedbank Limited portions of the RCF, being
US$13.5 million for Gem Diamonds Limited and ZAR300.0
million for Letšeng Diamonds are
Sustainability-linked loans, whereby the interest
rate can be reduced if certain sustainability
performance targets to be measured on 31 December
2022 and 31 December 2023 are achieved. This has had
no impact on the classification or measurement of
these facilities as at 31 December 2021;
* The facilities also include an additional US$20.0
million accordion option for Gem Diamonds, the
utilisation of which is subject to all necessary
internal credit and other approvals from all funders.
There was no utilisation of this facility during the
current year.
2021 2020
Effective interest rate Maturity US$'000 US$'000
---------------------------------- --------------------------------- ------------------ ---------
Non-current
LSL215.0 million bank loan
facility
Tranche A South African JIBAR + 6.50% 30 September 2022 - 477
Tranche B South African JIBAR + 3.15% 31 March 2022 - 817
---------------------------------------- --------------------------------- ------------------ --------- ---------
ZAR12.8 million asset-based finance
facility South African Prime Lending Rate 1 January 2024 202 408
---------------------------------------- --------------------------------- ------------------ --------- ---------
LSL450.0 million and ZAR300.0
million bank loan facility Credit
underwriting fees - 22 December 2024 (525) -
---------------------------------- --------------------------------- ------------------ --------- ---------
US$30.0 million bank loan London US$ three-month LIBOR +
facility 6.50% 22 December 2024 8 663 -
---------------------------------- --------------------------------- ------------------ --------- ---------
8 340 1 702
---------------------------------------- --------------------------------- ------------------ --------- ---------
Current
---------------------------------- --------------------------------- ------------------ --------- ---------
ZAR1.8 million insurance premium
finance 2.5% 1 May 2021 - 64
---------------------------------------- --------------------------------- ------------------ --------- ---------
LSL14.5 million insurance premium
finance 2.95% 3 July 2021 - 542
---------------------------------------- --------------------------------- ------------------ --------- ---------
London US$ three-month LIBOR +
US$30.0 million bank loan facility 5.0% 31 December 2021 - 9 700
---------------------------------------- --------------------------------- ------------------ --------- ---------
LSL7.3 million insurance premium
finance 2.35% 1 June 2022 305 -
---------------------------------------- --------------------------------- ------------------ --------- ---------
ZAR3.5 million insurance premium
finance 2.5% 1 July 2022 155 -
---------------------------------------- --------------------------------- ------------------ --------- ---------
LSL20.0 million insurance premium
finance 3.2% 1 July 2022 880 -
LSL215.0 million bank loan
facility
Tranche A South African JIBAR + 6.75% 30 September 2022 439 635
Tranche B South African JIBAR + 3.15% 31 March 2022 752 3 268
---------------------------------------- --------------------------------- ------------------ --------- ---------
ZAR12.8 million asset-based finance
facility South African Prime Lending Rate 1 January 2024 173 176
---------------------------------------- --------------------------------- ------------------ --------- ---------
2 704 14 385
---------------------------------------- --------------------------------- ------------------ --------- ---------
LSL215.0 million (US$13.5 million) bank loan facility at Letšeng Diamonds
This loan comprises two tranches of debt as follows:
* Tranche A: Lesotho loti denominated LSL35.0 million
(US$2.2 million) term loan facility without Export
Credit Insurance Corporation (ECIC) support (five
years and six months tenure); and
* Tranche B: South African rand denominated ZAR180.0
million (US$11.3 million) debt facility supported by
the ECIC (five years tenure).
The loan is an unsecured project debt facility which was signed jointly with Nedbank and the
ECIC on 22 March 2017 to fund the construction of the Letšeng mining support services
complex. The loan is repayable in equal quarterly payments which commenced in September 2018.
At year end LSL19.0million (US$1.2 million) (31 December 2020: LSL76.3 million (US$5.2 million))
remains outstanding.
The South African rand-based interest rates for the facility at 31 December 2021 are:
* Tranche A: 10.63% (31 December 2020: 10.10%); and
* Tranche B: 7.03% (31 December 2020: 6.50%).
Total interest for the year on this interest-bearing loan was US$0.4 million (31 December
2020: US$0.6 million).
LSL450.0 million and ZAR 300.0 million (US$47.0 million) bank loan facility at Letšeng
Diamonds
Following the consolidated refinancing on 23 December 2021, the Group, through its subsidiary
Letšeng Diamonds, has a LSL450.0 million and ZAR300.0 million (US$47.0 million) three-year
revolving credit facility jointly with Nedbank Lesotho Limited, Standard Lesotho Bank Limited,
First National Bank of Lesotho Limited, Firstrand Bank Limited (acting through its Rand Merchant
Bank division) and Nedbank Limited (acting through its Nedbank Corporate and Investment Banking
division).
The facility 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 4.75% and the ZAR300.0
million facility is subject to South African JIBAR plus 4.55%.
The facility was unsecured as at 31 December 2021, however, following the implementation of
the security, subsequent to period end, on 15 March 2022, the interest rate will decrease
to Central Bank of Lesotho rate plus 3.25% and the ZAR300.0 million facility is subject to
South African JIBAR plus 3.05% respectively. There was no draw down on this facility at year
end.
Credit underwriting fees of US$0.5 million (31 December 2020: US$ nil) which were incurred
as part of the refinancing were capitalised to the Group's consolidated interest-bearing loans
and borrowings, albeit that Letšeng did not have any draw downs on its RCF 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. Arranging fees of US$0.2 million which were incurred
as part of the refinancing were expensed to profit or loss for the year.
US$30.0 million bank loan facility at Gem Diamonds Limited
This new facility is a 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.
The previous RCF of US$30.0 million with Nedbank Limited which was due to expire on 31 December
2021, was replaced with the new RCF on 23 December 2021. On this date, the outstanding balance
on the previous RCF was US$15.0 million and after a capital repayment of US$6.0 million, the
new RCF was recognised at US$9.0 million.
At year end US$9.0 million (31 December 2020: US$10.0 million) had been drawn down resulting
in US$21.0 million (31 December 2020: US$20.0 million) remaining undrawn. Credit underwriting
fees of US$0.3 million (31 December 2020: US$0.3 million facility rolling fees) were capitalised
to the loan balance, resulting in the disclosure of a net US$8.7 million (31 December 2020:
US$9.7 million) loan balance. The capitalised fees will be amortised and accounted for as
finance costs within profit or loss over the period of the facility. Arranging fees of US$0.1
million which were incurred as part of the refinancing were expensed to profit or loss for
the year.
The US$-based interest rate for this facility at 31 December 2021 was 6.72% (31 December 2020:
5.22%) which comprises London US$ three-month LIBOR plus 6.50%.
The facility was unsecured as at 31 December 2021, however, following the implementation of
the security, subsequent to period end, on 15 March 2022, the interest rate will decrease
to London US$ three-month LIBOR plus 5.00%.
Total interest for the year on this interest-bearing RCF was US$1.0 million (31 December 2020:
US$1.2 million).
ZAR12.8 million (US$0.9 million) Asset-Based Finance facility
In January 2019, the Group, through its subsidiary, Gem Diamond Technical Services, entered
into a ZAR12.8 million (US$0.9 million) Asset Based Finance (ABF) facility with Nedbank Limited
for the purchase of a mobile X-Ray transmission machine (the asset). The asset serves as security
for the facility and has a carrying value of ZAR2.5 million (US$0.2 million) as at 31 December
2021 (31 December 2020: ZAR4.9 million (US$0.3 million)). At year end ZAR6.0 million (US$0.4
million) remains outstanding (31 December 2020: ZAR8.6 million (US$0.6 million)). The facility
is repayable over five years and bears interest at the South African Prime Lending rate, which
was 7.25% at 31 December 2021 (31 December 2020: 7.0%).
Total interest for the year on this interest-bearing ABF was US$34 thousand (31 December 2020:
US$0.1 million).
LSL7.3 million insurance premium finance
The Group through its subsidiary Letšeng Diamonds, entered into a LSL7.3million (US$0.5
million) 9-month funding agreement with Premium Finance Partners (Proprietary) Limited for
insurance premium finance for its annual Asset All Risk insurance premium. At year end LSL4.9million
(US$0.3million) remains outstanding. The funding is repayable in 9 monthly instalments, payable
in advance. Total interest on this funding is LSL0.2 million (US$11.6 thousand) of which LSL0.1
million (US$4.8 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.
LSL14.5 million insurance premium finance
In the prior year, the Group through its subsidiary Letšeng Diamonds, entered into a
LSL14.5million (US$1.0 million) 12-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 3 July 2021.
LSL20.0 million insurance premium finance for Multi-aggregate Protection Insurance Policy
The Group through its subsidiary Letšeng Diamonds, entered into a LSL20.0 million (US$1.3
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. At
year end LSL14.0 million (US$0.9 million) remains outstanding. The funding is repayable in
10 monthly instalments, payable in advance. Total interest on this funding is LSL0.6 million
(US$43.3 thousand) of which LSL0.2 million (US$15.1 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.
ZAR3.5 million insurance premium finance
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. At year end ZAR2.5 million (US$154.9
thousand) remains outstanding. The funding is repayable in 10 monthly instalments. Total interest
on this funding is ZAR88.1 thousand (US$5.5 thousand) of which ZAR33.1 thousand (US$2.1 thousand)
interest 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.
ZAR1.8 million insurance premium finance
In the prior year, the Group through its subsidiary Gem Diamonds Technical Services, entered
into a ZAR1.8 million (US$0.1 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. Refer Note 12, Receivables and other assets. This financing was fully
repaid on 1 May 2021.
Other facilities
In addition, Letšeng Diamonds has a ZAR100.0 million (US$6.3 million) overdraft facility
with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division)
renewable annually. There was no draw down on this facility at year end.
2021 2020
US$'000 US$'000
-------------------------------------------------------------------------- -------------
18. LEASE LIABILITIES
Non-current 3 851 4 902
Current 973 1 836
-------------------------------------------------------------------------------- ------------- -------------
Total lease liabilities 4 824 6 738
-------------------------------------------------------------------------------- ------------- -------------
Reconciliation of movement in lease liabilities
As at 1 January 6 738 10 479
Additions 507 1 175
Interest expense 525 608
Lease payments (2 185) (2 522)
Derecognition of lease (352) (2 296)
Foreign exchange differences (409) (706)
-------------------------------------------------------------------------------- ------------- -------------
As at 31 December 4 824 6 738
-------------
Lease payments comprise payments in principle of US$1.7 million (31 December 2020: US$1.9
million) and repayments of interest US$0.5 million (31 December 2020: US$0.6 million).
The Group recognised variable lease payments of US$50.0 million (31 December 2020: US$41.4
million) for the year ended 31 December 2021 which consist of mining activities outsourced
to a mining contractor. Total costs incurred for the year amount to US$50.0 million (31 December
2020: US$41.4 million) of which US$41.5 million (31 December 2020: US$34.1 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, Note 4, Operating
profit.
During the year, the lease relating to backup power generating equipment at Letšeng expired
and was therefore derecognised. A new lease for back-up power generating equipment is in the
process of being negotiated. In the interim, Letšeng is renting existing backup power
generator equipment on a month-to-month basis, which amounted to US$0.4 million for the year
which has been included in profit or loss.
2021 2020
US$'000 US$'000
------------------------------------------------------------------------ --------------
19. TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits(1) 2 095 2 029
------------------------------------------------------------------------------ -------------- --------------
Current
Trade payables(2) 10 778 12 892
Accrued expenses(2) 5 413 8 169
Leave benefits 639 685
Royalties(2) 4 996 3 250(3)
Withholding taxes(2) 341 705(3)
Dividend payable to non-controlling interest - 3 064
Other 21 58
------------------------------------------------------------------------------ -------------- --------------
22 188 28 823
------------------------------------------------------------------------------ -------------- --------------
1 The severance pay benefits arise due to legislation within the Lesotho jurisdiction, requiring
that two weeks of severance pay be provided for every completed year of service, payable on
retirement.
2 These amounts are mainly non-interest bearing and are settled in accordance with terms agreed
between the parties.
3 These amounts were presented on a net basis in the prior year and have been disaggregated
and presented separately in the current year.
Royalties consist of a levy paid to the Government of the Kingdom of Lesotho on the value
of diamonds sold by Letšeng. Withholding taxes consist of taxes paid on dividends and
other services to the Lesotho Revenue Authorities.
The carrying amounts above approximate fair value.
2021 2020
US$'000 US$'000
---------------------------------------------------------------------------- --------------
20. INCOME TAX (RECEIVABLE)/PAYABLE
Reconciliation of movement in income tax payable
Balance at 1 January 11 834 (8 176)
Payments made during the year (23 329) (1 268)(1)
Refunds received during the year 96 7 157(1)
Income tax charge 10 197 11 593
Foreign exchange differences 11 2 528
---------------------------------------------------------------------------------- ------------ --------------
Balance at 31 December (1 191) 11 834
---------------------------------------------------------------------------------- ------------ --------------
Split as follows
Income tax receivable (1 232) (106)
Income tax payable 41 11 940
---------------------------------------------------------------------------------- ------------ --------------
1 These amounts were presented on a net basis in the prior year and have been disaggregated
and presented separately in the current year.
2021 2020
US$'000 US$'000
---------------------------------------------------------------------------- --------------
21. PROVISIONS
Rehabilitation provisions 11 202 12 331
---------------------------------------------------------------------------------- ------------ --------------
Reconciliation of movement in rehabilitation provisions
Balance at 1 January 12 331 15 588
Decrease during the year (1 345) (3 125)
Unwinding of discount rate 1 187 888
Foreign exchange differences (971) (1 020)
---------------------------------------------------------------------------------- ------------ --------------
Balance at 31 December 11 202 12 331
---------------------------------------------------------------------------------- ------------ --------------
Rehabilitation provisions
The provisions have been recognised as the Group has an obligation for rehabilitation of the
mining areas. The provisions have been calculated based on total estimated rehabilitation
costs, discounted back to their present values over the LoM at the mining operations. The
pre-tax discount rates are adjusted annually and reflect current market assessments.
In determining the amounts attributable to the rehabilitation provision at Letšeng, management
used a discount rate of 9.8% (31 December 2020: 9.7%), estimated rehabilitation timing of
14 years (31 December 2020: 15 years) and an inflation rate of 5.3% (31 December 2020: 5.3%).
At Ghaghoo (Refer Note 15, Asset held for sale), management used the available estimated costs
to rehabilitate, considering its care and maintenance state. The decrease in the provision
at Letšeng is mainly attributable to the annual reassessment of the estimated closure
costs performed at the operations together with the ongoing rehabilitation spend during the
year at Letšeng.
2021 2020
US$'000 US$'000
-------------------------------------------------------------------------- --------------
22. DEFERRED TAXATION
Deferred tax assets
Lease liabilities 1 225 1 683
Accrued leave 321 263
Provisions 3 571 4 400
-------------------------------------------------------------------------------- --------------- --------------
5 117 6 346
-------------------------------------------------------------------------------- --------------- --------------
Deferred tax liabilities
Property, plant and equipment (78 202) (79 902)
Right-of-use assets (900) (1 236)
Prepayments (188) (218)
Unremitted earnings (3 182) (3 182)
-------------------------------------------------------------------------------- --------------- --------------
(82 472) (84 538)
-------------------------------------------------------------------------------- --------------- --------------
Net deferred tax liability (77 355) (78 192)
Reconciliation of net deferred tax liability
Balance at beginning of year (78 192) (83 124)
Movement in current period:
- Accelerated depreciation for tax purposes (4 249) 548
- Accrued leave (2) 21
- Unremitted earnings - 857
- Prepayments 30 29
- Provisions (429) 12
- Lease liabilities (350) (582)
- Right-of-use assets 273 527
- Foreign exchange differences 5 564 3 520
-------------------------------------------------------------------------------- --------------- --------------
Balance at end of year (77 355) (78 192)
-------------------------------------------------------------------------------- --------------- --------------
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$99.5 million (31 December
2020: US$97.1 million). There are no income tax consequences attached to the payment of dividends
by Gem Diamonds Limited to its shareholders.
The Group, excluding Ghaghoo, has estimated tax losses of US$40.3 million (31 December 2020:
US$34.0 million). All tax losses are generated in jurisdictions where tax losses do not expire.
No deferred tax assets were recognised on these losses as management do not foresee any taxable
profits or taxable temporary differences against which to utilise these.
2021 2020
Notes US$'000 US$'000
-------------------------------------------------------------------------- ------ ---------
23. CASH FLOW NOTES
23.1 Cash generated by operations
Profit before tax for the year - continuing operations 46 669 38 253
Loss for the year - discontinued operation (3 754) (3 264)
Adjustments for:
Depreciation and amortisation excluding waste stripping 4 6 927 7 027
Depreciation on right-of-use assets 4, 9 1 685 2 043
Waste stripping cost amortised 4 46 813 43 420
Finance income 5 (202) (382)
Finance costs 5, 15 4 165 4 994
Unrealised foreign exchange differences (2 426) (4 019)
(Profit)/loss on disposal and scrapping of property, plant and equipment (16) 30
Gain on derecognition of leases (107) (150)
Inventory write down 15 1 455 240
Bonus, leave and severance provisions raised 2 284 4 317
Share-based payments 397 561
Gain on abandonment of investment - (20)
Bad debts written off 12 -
-------------------------------------------------------------------------- ------ --------- ---------
103 902 93 050
--------------------------------------------------------------------------------- ------ --------- ---------
23.2 Working capital adjustment
(Increase)/decrease in inventory (8 255) 3 489
Decrease in receivables 5 072 1 316
Decrease in payables (3 924) (4 341)
--------------------------------------------------------------------------------- ------ --------- ---------
(7 107) 464
--------------------------------------------------------------------------------- ------ --------- ---------
23.3 Cash flows from financing activities (excluding lease liabilities)
Balance at beginning of year 16 087 22 341
Net cash used in financing activities (7 194) (6 431)
--------- ---------
- Financial liabilities repaid (26 393) (55 638)
- Financial liabilities raised 19 199 49 207
--------- ---------
Interest paid (1 927) (2 884)
Non-cash movements 4 078 3 061
--------- ---------
- Interest accrued 1 927 2 884
- Unwinding of facility rolling fees 300 -
- Financial liabilities raised(1) 2 082 1 047
- Foreign exchange differences (231) (870)
--------------------------------------------------------------------------------- ------ --------- ---------
Balance at year end 17 11 044 16 087
--------------------------------------------------------------------------------- ------ --------- ---------
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.
2021 2020
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 145 162
- After one year but not more than five years 760 695
- More than five years 784 993
----------------------------------------------------------------------------------------------- --------- ---------
1 689 1 850
----------------------------------------------------------------------------------------------- --------- ---------
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 39 290 52 855
- After one year but not more than five years 89 241 181 904
----------------------------------------------------------------------------------------------- --------- ---------
128 531 234 759
----------------------------------------------------------------------------------------------- --------- ---------
Multi-aggregate protection policy
The Group, through its subsidiary Letšeng entered into a LSL100.0 million (US$6.2
million)
Multi-aggregate Protection Insurance Policy with the Lesotho National Insurance Group
(LNIGC)
on 1 October 2021. This policy has a tenure of 4 years and 9 months, consisting of five
premium
payments of LSL20.0 million (US$1.3 million), each payable annually in advance. As at 31
December
2021 the Group has committed to making the four remaining premium payments, as well as
the
annual insurance risk finance service fee of 7% on an annual premium of LSL1.4 million
(US$0.1
million) 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 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 1 253 -
- After one year but not more than five years 3 759 -
----------------------------------------------------------------------------------------- --------- ---------
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 54 37
- After one year but not more than five years 64 50
----------------------------------------------------------------------------------------------- --------- ---------
118 87
----------------------------------------------------------------------------------------------- --------- ---------
Capital expenditure
Approved but not contracted for 19 335 1 091
Approved and contracted for 855 372
----------------------------------------------------------------------------------------------- --------- ---------
20 190 1 463
----------------------------------------------------------------------------------------------- --------- ---------
The main capital expenditure approved relates to the investment in the new primary crushing
area at Letšeng of US$15.0 million. Other smaller capital expenditure, all at Letšeng,
relates to investment in continued tailings storage extension of US$1.3 million (31 December
2020: US$1.0 million), the construction of an employee centre of US$0.8 million linked to
the successful completion of the Business Transformation target, further mineral resource
and reserve studies of US$0.5 million and detailed engineering designs relating to the new
primary crushing area of US$0.5 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% (2020: 39.5% to 60%) of the value (after costs) of the diamonds recovered
by Alluvial Ventures and is limited to US$1.4 million (2020: US$1.4 million) per individual
diamond. As at the reporting date, such future sales cannot be estimated reliably due to the
variability within these estimations.
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$0.2 million (December 2020: US$0.2 million).
The Group monitors possible tax claims within the various jurisdictions in which the Group
operates. Management applies judgement in identifying uncertainties over tax treatments and
concluded that there were no uncertain tax treatments relating to the current year. Refer
Note 1.2.28, Critical accounting estimates and judgements. There remains a risk that further
tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome
in some cases, the Group does not anticipate that there will be any material impact on the
Group's results, financial position or liquidity.
25. RELATED PARTIES
---------------------------------------------------------------------------------------------------------------
Related party Relationship
----------------------------------------------------------------------------
Jemax Management (Proprietary) Limited Common director
---------------------------------------------------------------------------- ---------------------------------
Government of the Kingdom of Lesotho Non-controlling interest
---------------------------------------------------------------------------- ---------------------------------
Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.
2021 2020
US$'000 US$'000
---------------------------------------------------------------------------- -------------
Compensation to key management personnel (including Directors)
Share-based equity transactions 248 344
Short-term employee benefits 4 655 3 562
Post-employment benefits (including severance pay and pension) 152 93
---------------------------------------------------------------------------- ------------------ -------------
5 055 3 999
---------------------------------------------------------------------------- ------------------ -------------
Fees paid to related parties
Jemax Management (Proprietary) Limited (93) (83)
---------------------------------------------------------------------------- ------------------ -------------
Royalties paid to related parties
Government of the Kingdom of Lesotho (20 214) (18 425)
---------------------------------------------------------------------------- ------------------ -------------
Lease and licence payments to related parties
Government of the Kingdom of Lesotho (70) (132)
---------------------------------------------------------------------------- ------------------ -------------
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited (6) (4)
---------------------------------------------------------------------------- ------------------ -------------
Non-executive director 11 -
---------------------------------------------------------------------------- ------------------ -------------
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited (8) (9)
---------------------------------------------------------------------------- ------------------ -------------
Amounts owing to related party
Government of the Kingdom of Lesotho (5 337) (3 955)
---------------------------------------------------------------------------- ------------------ -------------
Dividends declared
Government of the Kingdom of Lesotho (3 890) (7 452)
---------------------------------------------------------------------------- ------------------ -------------
Dividends payable
Government of the Kingdom of Lesotho - (3 064)
---------------------------------------------------------------------------- ------------------ -------------
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 was for the sale of a polished diamond.
All proceeds were received prior to 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 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 2021, the Group had US$74.3 million (31 December 2020: US$60.8 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 in
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 the 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
2021 and 31 December 2020.
There has been no change in the assumptions or method applied from the prior year.
Sensitivity analysis
At year-end, Letšeng had US$22.1 million (2020: US$31.1 million) cash on hand
held in
US$. If the US dollar had appreciated/ (depreciated) by 10% against the LSL, the
Group's profit
before tax and equity at 31 December 2021 would have been US$2.4 million
higher/(lower) (31
December 2020: US$2.8 million).
(iii) Forward exchange contracts
From time to time, the Group enters into forward exchange contracts to hedge the
exposure
to changes in foreign currency of future sales of diamonds at Letšeng Diamonds.
The Group
performs no hedge accounting. At 31 December 2021, the Group had no forward exchange
contracts
outstanding (31 December 2020: US$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
80 basis points (2020: 80 basis points) during the year, profit before tax and equity
would
have been US$0.1 million (lower)/higher (31 December 2020: US$0.1 million). The
assumed movement
in basis points is based on the currently observable market environment, which
remained consistent
with the prior year and assumed a continued impact of the COVID-19 pandemic for the
year.
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 2021 and 31 December 2020 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, 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 debt facilities of US$74.3 million at year end (2020: US$60.8 million).
The table below summarises the maturity profile of the Group's financial liabilities at 31
December based on contractual undiscounted payments, excluding discontinued operation:
2021 2020
US$'000 US$'000
------------------------------------------------------------------- -------------
Floating interest rates
Interest-bearing loans and borrowings
- Within one year 2 758 14 960
- After one year but not more than five years 8 856 1 750
------------------------------------------------------------------- ------------------ -------------
Total 11 614 16 710
------------------------------------------------------------------- ------------------ -------------
Lease liabilities
- Within one year 1 459 2 375
- After one year but not more than five years 4 282 5 880
------------------------------------------------------------------- ------------------ -------------
Total 5 741 8 255
------------------------------------------------------------------- ------------------ -------------
Trade and other payables
- Within one year 22 188 28 823
- After one year but not more than five years 2 095 2 029
------------------------------------------------------------------- ------------------ -------------
Total 24 283 30 852
------------------------------------------------------------------- ------------------ -------------
2021 2020
US$'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 profit or
loss
- continuing operation 395 555
Equity-settled share-based payment transactions charged to the statement of profit or
loss
- discontinued operation 2 6
----------------------------------------------------------------------------------------------- --------- ---------
397 561
----------------------------------------------------------------------------------------------- --------- ---------
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 or nominal 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 four 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 (i.e. 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 (i.e. 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 March 2016 LTIP April 2015 LTIP June 2014 LTIP March 2014
------------------------- ------------------ --------------------- ---------------- ----------------
Number of options granted -
Nil value 1 215 000 1 215 000 456 750 625 000
Number of options granted -
Market value 185 000 185 000 152 250 -
Date exercisable 15 March 2019 1 April 2018 10 June 2017 19 March 2017
Options outstanding 34 287 5 000 - 5 000
Dividend yield (%) 2.00 2.00 0.00 0.00
Expected volatility(1) (%) 39.71 37.18 37.25 -
Risk-free interest rate (%) 0.97 1.16 1.94 -
Expected life of option
(years) 3.00 3.00 3.00 3.00
Exercise price (US$) nil nil nil nil
Exercise price (GBP) nil nil nil nil
Weighted average share price
(US$) 1.56 2.10 2.70 2.87
Fair value of nil value
options (US$) 1.40 1.97 2.70 2.87
Fair value of nil value
options (GBP) 0.99 1.33 1.61 1.74
Fair value of market value
options (US$) 0.69 1.18 1.83 -
Fair value of market value
options (GBP) 0.49 0.80 1.09 -
Model used Monte Carlo Monte Carlo Monte Carlo -
------------------------- ------------------ --------------------- ---------------- ----------------
1 Expected volatility was based on the average annual historic volatility of the Company's
share price over the previous three years.
2 The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely
matches the lifetime of the option.
LTIP 2017 Award
Under the 2017 LTIP rules, there are three awards where options are still outstanding.
All the awards were issued on the same basis as the 2007 LTIP.
During the current year there were no new awards granted in terms of the LTIP.
The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:
LTIP June 2020 LTIP March 2019 LTIP March 2018 LTIP July 2017
------------------------------ ------------------ ---------------- ---------------- ----------------
Number of options granted - Nil
value 1 069 000 1 160 500 1 265 000 1 150 000
Number of options granted - Market
value 180 000 142 500 185 000 185 000
Date exercisable 9 June 2023 20 March 2022 20 March 2021 4 July 2020
Options outstanding 1 068 132 964 198 302 639 73 917
Dividend yield (%) 0.00 0.00 0.00 2.00
Expected volatility(1) (%) 47.00 43.00 40.00 40.21
Risk-free interest rate(2) (%) 0.34 1.2 1.2 0.67
Expected life of option (years) 3.00 3.00 3.00 3.00
Exercise price (US$) nil nil nil nil
Exercise price (GBP) nil nil nil nil
Weighted average share price (US$) 0.39 1.20 1.35 1.24
Fair value of nil value options
(US$) 0.39 1.20 1.35 1.11
Fair value of nil value options
(GBP) 0.31 0.90 0.96 0.86
Fair value of market value options
(US$) 0.19 0.58 0.74 0.72
Fair value of market value options
(GBP) 0.15 0.44 0.53 0.56
Model used 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:
2021 2020
'000 '000
-------------------------------------------------------------------- ----------------
Outstanding at beginning of year 3 887 4 002
Granted during the year - 1 249
Exercised during the year(1) (855) (480)
Forfeited (579) (884)
------------------------------------------------------------------------- ---------------- ----------------
Balance at end of year 2 453 3 887
------------------------------------------------------------------------- ---------------- ----------------
Exercisable at end of year 454 535
------------------------------------------------------------------------- ---------------- ----------------
1 Options were exercised regularly throughout the year. The weighted average share price during
the year was GBP0.60 (US$0.83) (2020: GBP0.39 (US$0.50).
The weighted average remaining contractual life for the share options outstanding as at 31
December 2021 was 7.5 years (2020: 7.9 years).
The weighted average fair value of the share options outstanding as at 31 December 2021 was
US$0.65 (2020: US$0.79).
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 GBP0.71 (US$0.96). These shares vested on 18 March 2019 and became immediately
exercisable. The fair value of these outstanding awards at 31 December 2021 was GBP0.47 (US$0.65)
(2020: GBP0.41 (US$0.52)). The shares outstanding at the end of the year are as follows:
2021 2020
'000 '000
-------------------------------------------------------------------- ----------------
Outstanding at beginning of year 17 47
Granted during the year - -
Exercised during the year (7) (30)
------------------------------------------------------------------------- ---------------- ----------------
Balance at end of year 10 17
------------------------------------------------------------------------- ---------------- ----------------
Exercisable at end of year 10 17
------------------------------------------------------------------------- ---------------- ----------------
28. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the current portions of
the prepayment disclosed in Note 12, Receivables and other assets, which do not meet the criteria
of a financial asset. These prepayments are carried at amortised cost.
2021 2020
Notes US$'000 US$'000
---------------------------------------------- --------------------------------------- ----------
Financial assets at amortised cost
Cash - continuing operations 14 30 913 49 820
Cash - discontinued operation 15 144 7
Receivables and other assets - continuing
operations 12 4 398 4 490
Receivables and other assets - discontinued
operation 15 45 195
---------------------------------------------------- --------------------------------------- ---------- ----------
Total 35 500 54 512
---------------------------------------------------- --------------------------------------- ---------- ----------
Total non-current 1 278 153
Total current 34 222 54 359
Financial liabilities at amortised cost
Interest-bearing loans and borrowings 17 11 044 16 087
Trade and other payables - continuing operations 19 24 283 30 852
Trade and other payables - discontinued operation 15 446 471
---------------------------------------------------- --------------------------------------- ---------- ----------
Total 35 773 47 410
---------------------------------------------------- --------------------------------------- ---------- ----------
Total non-current 10 435 3 730
Total current 25 338 43 680
---------------------------------------------------- --------------------------------------- ---------- ----------
The carrying amounts of the Group's financial instruments held approximate their fair value.
There were no open hedges at year end (2020: nil).
2021 2020
US$'000 US$'000
--------------------------------------------------------------------------------------- ----------
29. DIVIDS DECLARED AND PROPOSED
Declared dividends on ordinary shares
Final ordinary cash dividend for 2020: 2.5 US cents per share (2019: Nil) 3 509 -
--------------------------------------------------------------------------------------- ---------- ----------
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.
A proposed ordinary cash dividend of 2.7 US cents per ordinary share for 2021 is subject to
approval at the AGM to be held on 8 June 2022 and is not recognised as a liability as at 31
December.
30. EVENTS AFTER THE REPORTING PERIOD
Events which occurred after the reporting period relating to the discontinued operation and
the status of the sales process have been disclosed in Note 15 Assets held for sale. These
events did not require any adjustments to the financial statements.
Events which occurred after the reporting period relating to the successful implementation
of the security on certain revolving credit facilities within the Group have been disclosed
in Note 17 Interest-bearing loans and borrowings. These events did not require any adjustments
to the financial statements.
On 23 February 2022, the South African corporate income tax rate was reduced from 28% to 27%
for companies with years of assessment ending on or after 31 March 2023. The change in tax
rate will affect recorded deferred tax assets and liabilities and effective tax rate in the
future. The new corporate tax rate of 27% is considered to be substantively enacted on 23
February 2022 and is expected to not 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
Technical Services, the Group's South African subsidiary.
Progress relating to the amended tax assessment issued to Letšeng by the LRA has been
disclosed in Note 1.2.28 Critical accounting estimates and judgements.
An ordinary cash dividend of 2.7 US cents for the 2021 financial year has been proposed. This
is subject to approval at the AGM to be held on 8 June 2022.
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.
2021 2020
Name Country of incorporation and operation US$'000 US$'000
---------------------------------------------- --------------------------------------- ----------
Letšeng Diamonds (Proprietary) Limited Lesotho
Accumulated balances of material non-controlling
interest 76 845 79 906
Profit allocated to material non-controlling
interest 12 458 10 683
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 198 510 186 579
Cost of sales (120 751) (112 081)
---------------------------------------------------- --------------------------------------- ---------- ----------
Gross profit 77 759 74 498
Royalties and selling costs (20 879) (19 043)
Other income/(expenses) 1 110 (6 695)
---------------------------------------------------- --------------------------------------- ---------- ----------
Operating profit 57 990 48 760
Net finance costs (2 470) (2 840)
---------------------------------------------------- --------------------------------------- ---------- ----------
Profit before tax 55 520 45 920
Income tax expense (13 993) (10 307)
---------------------------------------------------- --------------------------------------- ---------- ----------
Profit for the year 41 527 35 613
Total comprehensive income 41 527 35 613
---------------------------------------------------- --------------------------------------- ---------- ----------
Attributable to non-controlling interest 12 458 10 683
Dividends paid to non-controlling interest (6 685) (4 658)
Dividends payable to non-controlling interest - (3 064)
---------------------------------------------------- --------------------------------------- ---------- ----------
Summarised statement of financial position as
at 31 December
Assets
Non-current assets
Property, plant and equipment, deferred tax assets,
intangible assets and receivables and
other assets 313 028 352 009
Current assets
Inventories, receivables and other assets, and cash
and short-term deposits 61 455 78 098
---------------------------------------------------- --------------------------------------- ---------- ----------
Total assets 374 483 403 107
---------------------------------------------------- --------------------------------------- ---------- ----------
Non-current liabilities
Interest-bearing loans and borrowings, trade and
other payables, provisions, lease liabilities
and deferred tax liabilities 95 261 101 203
Current liabilities
Interest-bearing loans and borrowings, trade and
other payables and lease liabilities 23 072 35 553
---------------------------------------------------- --------------------------------------- ---------- ----------
Total liabilities 118 333 136 756
---------------------------------------------------- --------------------------------------- ---------- ----------
Total equity 256 150 266 351
---------------------------------------------------- --------------------------------------- ---------- ----------
Attributable to:
Equity holders of parent 179 305 186 445
Non-controlling interest 76 845 79 906
Summarised cash flow information for the year
ended
31 December
Operating cash inflows 77 824 105 471
Investing cash outflows (68 655) (48 700)
Financing cash outflows (30 582) (20 640)
Foreign exchange differences 1 271 2 787
---------------------------------------------------- --------------------------------------- ---------- ----------
Net (decrease)/increase in cash and cash
equivalents (20 142) 38 918
---------------------------------------------------- --------------------------------------- ---------- ----------
REPORT ON PAYMENTS TO GOVERNMENTS
for the year ended 31 December 2021
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 2021 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 2021 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 (i.e.
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 2021.
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 2021.
SIGNATURE, DISCOVERY, AND PRODUCTION BONUSES
There were no payments of this nature to governments for the
year ended 31 December 2021.
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 2021.
Cash flow basis
Payments reported are on a cash flow basis and may differ to
amounts reported in the Gem Diamonds Limited 2021 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$110 000
(GBP86 000), are disclosed in this report. All payments below this
threshold have been excluded.
Reporting currency
The payments to government have been reported in US dollar.
Payments made in currencies other than US dollar were translated
at the relevant annual average rate for the year ended 31 December
2021.
SUMMARY REPORT
Taxes Royalties Total
Operation Country US$'000 US$'000 Licence fee US$'000 US$'000
---------------------------------------------- --------- --------- ---------- -------------------- ---------
Letšeng Diamonds (Proprietary) Limited Lesotho 23 104 18 050 150 41 304
---------------------------------------------- --------- --------- ---------- -------------------- ---------
Total 23 104 18 050 150 41 304
--------------------------------------------------------- --------- ---------- -------------------- ---------
Lesotho Taxes Royalties Total
Letšeng Diamonds (Proprietary) Limited US$'000 US$'000 Licence fee US$'000 US$'000
---------------------------------------------- --------- --------- ---------- -------------------- ---------
Lesotho Revenue Authority 23 104 - - 23 104
--------------------------------------------------------- --------- ---------- -------------------- ---------
Government of Kingdom of Lesotho - 18 050 150 18 200
--------------------------------------------------------- --------- ---------- -------------------- ---------
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END
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