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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gem Diamonds Limited | LSE:GEMD | London | Ordinary Share | VGG379591065 | ORD USD0.01 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.01 | 0.12% | 8.63 | 8.50 | 8.76 | 5,597 | 16:35:18 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Misc Nonmtl Minrls, Ex Fuels | 140.29M | -2.13M | -0.0154 | -5.60 | 11.9M |
From Apr 2019 to Apr 2024
TIDMGEMD
RNS Number : 9223R
Gem Diamonds Limited
11 March 2021
Thursday, 11 March 2021
Gem Diamonds Limited
Full Year 2020 Results
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Full Year Results for the year ending 31 December 2020 (the "Period").
FINANCIAL RESULTS:
-- Revenue of US$189.6 million (US$182.0 million in 2019) -- Underlying EBITDA from continuing operations of US$53.2 million (US$41.0 million in 2019) -- Profit for the year from continuing operations US$27.5 million (US$15.0 million in 2019) -- Attributable profit from continuing operations US$16.9 million (US$7.1 million in 2019) -- Earnings per share from continuing operations 12.1 US cents (5.1 US cents in 2019)
-- Cash on hand of US$49.8 million as at 31 December 2020 (US$36.2 million attributable to Gem Diamonds)
DIVID
-- Ordinary dividends of 2.5 US cents per share proposed by the Directors and subject to approval by the shareholders at the 2021 AGM
-- These dividends will be paid on 15 June 2021 to shareholders who are on the register of members on the record date of 14 May 2021 (ex-div date 13 May 2021)
OPERATIONAL RESULTS:
Letšeng
-- Carats recovered of 100 780 (113 974 carats in 2019) -- Waste tonnes mined of 15.6 million tonnes (24.0 million tonnes in 2019) -- Ore treated of 5.4 million tonnes (6.7 million tonnes in 2019) -- Average value of US$1 908 per carat achieved (US$1 637 in 2019) -- Sixteen diamonds larger than 100 carats each recovered (eleven in 2019)
-- The highest dollar per carat achieved for a white rough diamond during the year was US$38 827 per carat
COVID-19
The Group's priority in 2020 was, and continues to be, to safeguard its employees, contractors and surrounding communities from COVID-19. The implemented measures include thermal screening, X-ray screening, Rapid Anti-body and Anti-gen Diagnostic screening and Polymerase Chain Reaction (PCR) testing, promotion of sanitation measures, appropriate social distancing, compulsory wearing of face masks and the provision of Personal Protective Equipment. As part of the COVID-19 management strategy, all suspected positive cases are safely transferred to their respective residences, or national health facilities if determined medically necessary, for quarantining, thus limiting suspected positive cases on mine site.
Commenting on the results today, Clifford Elphick, Chief Executive Officer of Gem Diamonds, said:
"Gem Diamonds has delivered positive operational and financial results during a very challenging year. Our first priority remains the safety of our employees, contractors and surrounding communities and we have taken steps to support the Lesotho Government in securing COVID-19 vaccinations for our workforce and surrounding communities.
The operational results were characterised by strong cash flows, the achievement of all revised operational metrics and the recovery of 16 diamonds greater than 100 carats each, the highest number recovered in a single year. The stronger prices achieved in the second half of 2020, reaffirms the recovery of the diamond market and the unique quality of the Letšeng production.
The Group has proven its ability to respond to an unprecedented global crisis in an agile and effective manner. This, together with the cost containment and cash preservation initiatives implemented, positions the Company well for the ongoing recovery of the diamond market in the coming years.
We are pleased to announce that based on the results achieved in 2020, the Board has recommended the payment of an ordinary dividend of 2.5 US cents per share."
The Company will host a live audio webcast presentation of the full year results today, 11 March 2021, 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 2020, 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 / Ollie Mills
Tel: +44 (0) 208 434 2643
ABOUT GEM DIAMONDS:
Gem Diamonds is a leading global diamond producer of high value diamonds. The Company owns 70% of the Letšeng mine in Lesotho. The Letšeng mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world.
CHAIRPERSON'S STATEMENT
"The Group moved swiftly and resolutely during extremely challenging and uncertain circumstances."
- Harry Kenyon-Slaney -
Dear shareholders,
On behalf of the Board, it gives me great pleasure to present the Gem Diamonds Annual Report and Accounts 2020. The Report and Accounts provide an overview of the progress we have made in delivering on the Group's strategic objectives in a year when the economic, social and personal lives of so many people and organisations have been profoundly affected by the COVID-19 pandemic.
OUR VISION:
To support, develop and empower our employees so that they can benefit and develop in a company of which they are proud, we can make a meaningful, sustainable contribution to the countries and communities in which we operate and deliver sustainable value to our shareholders.
Since its emergence as a problem of global significance in early 2020, the COVID-19 pandemic has demanded an enormous amount of management time and effort. Our primary objective has been to ensure the safety and health of our employees, their families and the communities surrounding our operations as well as making a material contribution to Lesotho's national effort to contain the spread of the virus. In parallel, however, it was imperative that economic activity continued and we devoted extensive efforts to ensuring that our Letšeng operation, which is a significant earner of foreign currency in Lesotho, was able to restart operations safely and in line with the strict guidelines implemented by the government. This twin-track approach of contributing meaningfully to local priorities while continuing to operate the Letšeng mine directly aligns with our corporate vision.
Despite the prolonged absence of certain required skills and individuals during the lockdown, our operational teams made important decisions while running a complex and technically demanding process. Their ability to take responsibility and act autonomously is testament to the work we have done to develop and empower our people. As it unfolded, the continued impact of the pandemic required management to take urgent and decisive action and make critical and difficult decisions across the Group to control costs, continue operations in a responsible and safe manner and stabilise the business. We are extremely grateful to the significant proportion of the workforce who agreed to take a material but temporary salary cut, with no decrease in motivation, to support cash preservation in the Group. Following the positive sales results and cash flow generation in September, we were able to repay these salary cuts at an effective rate of 96% to all affected employees.
DIAMOND SUPPLY/DEMAND FUNDAMENTALS SUPPORT HIGHER PRICES
While there was significant uncertainty regarding the impact of COVID-19 on the diamond market at the start of the pandemic, apart from a relatively short initial period, demand for diamonds returned and prices achieved remained relatively strong. Supply has been affected by the closure of Rio Tinto's Argyle mine, operational and COVID-19-related production interruptions in various major producers during the year, and the closure of some smaller mines. China has emerged from the pandemic well and continues to show signs of a return to strong economic growth. Rising living standards will continue to support China's growth as a significant consumer of diamonds and especially of the large high-value diamonds produced by Letšeng. US stock markets, long seen as closely correlated with diamond demand, performed well; and this supported the progressively more positive economic outlook as the year drew to a close. India will emerge as an important polished diamond consumer market in the medium to long term and the manufacturing sector is emerging from its COVID-19-related challenges.
CONTRIBUTION TO COMMUNITY AND COUNTRY
At Gem Diamonds we regard ourselves as guests in the countries where we operate and we endeavour at all times to maintain strong and constructive relationships, both with the populace and with regional and national governments. We engage with government and local communities on a regular basis to seek mutually beneficial solutions to challenges that arise. We work closely with these communities, providing both financial and practical support on a range of projects they consider important.
MAIN AREAS OF FOCUS FOR THE BOARD IN 2020:
1. Ensuring sustainable operations, keeping employees and local communities safe and supporting the Lesotho Government during COVID-19.
2. Ensuring delivery of the objectives of the BT programme. 3. Enhancing risk management systems and processes. 4. Maintaining disciplined financial control to increase cash generation and repay debt. 5. Considering an appropriate return to shareholders.
GOVERNANCE TO SUPPORT SUSTAINABLE VALUE CREATION
The Group's governance systems and processes performed well during the year. While face-to-face contact tends to lead to deeper discussions of issues during and around Board meetings, the remote interaction necessitated by COVID-19 nevertheless proved effective. We have increased the time allocated for the quarterly Board and Committee meetings to allow for longer discussions, which facilitates a deeper understanding of the issues. In addition, the Board added a stand-alone quarterly risk review meeting to ensure time is available for a detailed review and discussion of the Group's key risks and to test management's mitigating actions.
The appointment of an experienced non-Executive Director to take responsibility for engaging with stakeholders in Lesotho has proven beneficial. Mazvi has deep local knowledge of political, social and community issues in Lesotho and the feedback from her engagement with employees provides valuable feedback to the Board to inform our decision-making.
SAFE AND RESPONSIBLE OPERATIONS
Workplace safety is an absolute priority for the Board and management. We passionately believe it is possible for every employee to come to work and return home safely every day and we are constantly looking at improving our safety systems and processes to ensure this is achieved. We are pleased with the improvement in safety performance this year.
The Board is similarly strongly committed to environmental responsibility and I am pleased to report that there were no major or significant environmental incidents reported at any of our operations during the year. Gem Diamonds' inclusion in the FTSE4Good index recognises the high standards of environmental, social and governance practices in place.
During the year we launched the first rolling three-year cycle to further integrate the UN Sustainable Development Goals (SDGs) into the Group's systems and processes. The project aims to embed the objectives of the goals in our decision-making and thereby further enhance Gem Diamonds' positive impact in line with relevant UN recommendations.
GENERATING SUSTAINABLE RETURNS FOR OUR SHAREHOLDERS
The focus on cash generation and preservation during the year saw the Group move from a net debt position of US$10.2 million at the start of the year to a net cash position of US$34.6 million at year end. While some of the longer-term development capital expenditure was postponed, this represents a prudent approach to expenditure in a time of heightened uncertainty.
In line with our commitment to delivering sustainable shareholder returns, the Board's policy is to pay a dividend to shareholders when the financial strength of the Group permits.
As a result of the Group's strong cash generation during the year and improved financial position, the Board is pleased to recommend that a dividend of 2.5 US cents be declared in respect of the 2020 financial year. The Board is committed to sustaining shareholder value through the implementation of appropriate dividend policies.
OUTLOOK
Although the supply/demand dynamics of the diamond market remain positive, particularly for the unique high-value diamonds produced at Letšeng, our immediate concern remains the ongoing protection of our people from the COVID-19 pandemic, which continues to cast a shadow over southern Africa. Our immediate priorities for 2021 therefore remain the provision of a safe operating environment for all our employees and support to the Lesotho Government in securing vaccines for our workforce and local communities.
The work we did in prior years to reduce costs, lower overheads, streamline systems and improve efficiencies stood us in good stead in 2020 and has provided an excellent foundation for the year ahead. We will build on this momentum and make the most of the opportunities we have created through the BT and CI programmes. In addition, we need to unlock the commercial potential in the pioneering work being done to reduce diamond damage through our technology and innovation projects and to advance the use of blockchain technology in providing a full and transparent record of origin for every diamond produced at Letšeng.
FINAL REMARKS
I would like to thank my fellow Board members for their valuable and extensive contributions during the past year. On behalf of the Board, I would also like to thank our long-standing partners at Letšeng, the Lesotho Government, and the leaders of our host communities, all of whom have helped us to navigate what has been a challenging year.
The Group's management and employees deserve a special note of appreciation for their commitment and tenacity during 2020. The Group moved swiftly and resolutely during extremely challenging and uncertain circumstances to contain the spread and impact of a devastating pandemic that could have had an equally devastating impact on our business. I have been tremendously impressed by the resilience and capability of management and employees throughout the organisation to run a technically, commercially and physically complex business, often with remote leadership.
I want to extend my condolences to the families and friends of colleagues who have lost loved ones as a result of the pandemic or related complications. The COVID-19 pandemic is far from over and, at the time of writing, things continue to be extremely difficult in southern Africa. Until vaccinations have been rolled out to a large part of the population, we must remain extremely vigilant.
Harry Kenyon-Slaney
Chairperson
10 March 2021
PRINCIPAL RISKS AND UNCERTAINTIES
HOW WE APPROACH RISK
The Group's risk management framework aims to identify, manage and mitigate the risks and uncertainties to which the Group is exposed. Effective risk management and mitigation reduce the likelihood that financial, operational and compliance impacts could materially affect the Group's performance, reputation and long-term growth.
The risk management framework combines top-down and bottom-up approaches with appropriate governance and oversight, as shown in the table below.
Hot Features
Premium
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 policy for the Group and evaluates the of the framework
effectiveness of the Group's
risk management process accordingly. It confirms that the process
is accurately aligned to
the Group's strategy and performance objectives.
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 on health, safety, social and
a biannual basis. It is environmental risks. It monitors
responsible for addressing the the Group's performance within
corporate these categories and drives
governance requirements of risk proactive risk mitigation
management and for monitoring strategies
each operational site's to secure the social licence to
performance. operate in the future.
-------------------------------- ---------------------------------
Responsibility MANAGEMENT
Management is accountable to the Board for developing,
implementing, communicating and monitoring
risk management processes and integrating them into the Group's
day-to-day activities. It
identifies risks affecting the Group, including internal and
external, current and emerging
risks. It implements appropriate risk responses consistent with
the Group's risk appetite
and tolerance.
------------------------------------------------------------------- --------------------------------
GROUP INTERNAL AUDIT
Group Internal Audit formally reviews the effectiveness of the
Group's risk management processes.
The outputs of risk assessments are used to compile the strategic Bottom-up approach -
three-year rolling and annual ensures a sound risk management
internal audit coverage plan and evaluate the effectiveness of process and establishes formal
controls. reporting structures
------------------------------------------------------------------- --------------------------------
Prior to 2020, risk was an agenda item in Board meetings, but from the start of 2020 a stand-alone risk review meeting was added to the quarterly Board and Committee meetings to allow sufficient time to explore the risks fully and to assess management's scenarios and plans. The Board reviews the risk register and interrogates the most critical risks in detail, debating mitigating plans with management.
Risk Management Framework
The Board and its Committees have identified the most material risks facing the Group, including strategic, operational and external risks, both current and emerging. These risks are actively monitored and managed as their impact, individually or collectively, could affect the Group's ability to operate profitably and generate positive cash flows in the medium to long term. The risk disclosures follow guidelines from the IIRC's <IR> Framework to clarify the distinction between inherent and residual risk, indicate risk movements, and link the areas of the business model and strategy to each risk.
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.
How COVID-19 made us re-evaluate risk
COVID-19 has increased the emphasis on identifying the possible implications of external macro risks and low-probability/high-consequence events to inform appropriate contingency plans. These risks can be mitigated by ensuring we continue to build resilience and flexibility into our leadership and operational processes and our leaders are equipped to quickly quantify the size and scale of the emerging issue and adapt accordingly.
Insurance cover is an important aspect of risk mitigation. It transfers potential financial implications due to any primary risk of the Group materialising. The COVID-19 pandemic led to an increased risk perception in the insurance market as a result of increasing claims and a declining premium pool. Insurers have decreased their exposure to the mining industry. As a result, the renewal of appropriate insurance has become challenging leading to additional exclusions, reduced cover, increasing deductibles/excesses payable and increasing premiums.
Although insurance cover does not eliminate the operational controls needed to manage and mitigate risk, it offsets the potential financial loss should the risk materialise. Reduced cover consequently directly impacts the Group's cash management risk.
The Group is considering various options to minimise risk in the absence of insurance cover, including a self-insurance structure and enhanced business continuity procedures.
Risk type Operational Operational Strategic and operational Operational Operational and external Operational and external External Operational and external
Description Cash management Diamond damage Knowledge of the resource Security of product Information Technology (IT) and Operational Technology (OT) Detrimental effect of COVID-19 on all spheres of the Rough diamond demand and prices Production interruption
systems, and cybersecurity business
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Impact Reduced cash flows may negatively affect the Group's Letšeng's valuable Type II diamonds are highly Letšeng's low-grade orebodies (average carats Theft is an inherent risk in the diamond industry. The The Group's operations rely on secure IT and OT systems to COVID-19 not only caused infections and deaths worldwide Numerous factors beyond the control of the Group may affect Material mine and/or plant shutdowns or periods of
ability to effectively operate, repay susceptible to damage during the mining recovered per tonne of ore processed) and high-value nature of the product at process and record financial and but also wreaked havoc on the mining the price and demand for diamonds. decreased production could arise due to
debt and fund capital projects. and recovery process. This affects the demand for the its dependence on the regular recovery of large Letšeng could result in theft and significant losses operating data in its information management systems. If sector, leading to the closure of mines and marketing These factors include international economic and political various events. These events could lead to personal injury
Group's large high-value diamonds and high-quality diamonds make the operation sensitive which would negatively affect revenue these systems are compromised, there channels during the global lockdowns. trends, as well as consumer trends. or death, environmental impacts,
The risk is directly impacted by other principal risks such the prices achieved resulting in reduced cashflow and to resource variability. Mineral resource and cash flows. could be a material adverse impact on the Group. Even though the medium- to long-term demand is forecast to damage to infrastructure and delays in mining and
as rough diamond demand and prices, profitability. underperformance could affect the Group's ability Gem Diamonds' main priority is the welfare of its outpace supply, in the short term processing activities and could potentially
diamond damage, knowledge of the resource, security of to operate profitably. employees, contractors and all those around the prevailing climate of global economic uncertainty and result in financial losses and possible legal liability.
product and the detrimental effect its operations and corporate offices. The Company is taking liquidity constraints within the
of COVID-19 on all spheres of the business. all necessary precautions to protect diamond sector is causing pressure in rough diamond The Group relies on the use of external contractors in its
its people and to ensure the sustainability of the pricing. These trends are discussed on mining and processing activities.
business. page 13 and directly affect Gem Diamonds' cash flows and Disputes with these contractors could materially impact the
EBITDA and its ability to fund operations, Group's operations.
projects and growth plans.
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Opportunity Cash constraints drive more efficient capital expenditure Improvements to blasting techniques and the introduction of Improving knowledge of the orebody through bulk sampling, Advanced security control measures increase employee and IT solutions such as machine learning and artificial Successfully navigating the crisis improves the Group's Additional viewings in new areas could introduce new Operating at or near steady-state levels improves
if managed and cost disciplines. new technology can reduce damage, geological mapping and ahead of product safety and improve revenue. intelligence could provide an opportunity competitive position. Closure of marginal clients and improve prices realised. efficiencies due to stability of production.
thereby improving value recovered. face drilling supports effective forecasting and the to assess mining and processing practices, which could mines reduces supply of rough diamonds and could support New channels to market could increase the price the Group
ability to plan accurately and optimally, improve efficiencies and diamond recoveries. diamond prices. achieves on certain diamonds. Focused contract management impacts positively on cash
which will improve operating efficiencies and cash flows. generation through improved procurement
Technologies such as blockchain offer opportunities to Ensuring we protect the wellbeing of our employees and and contract renegotiation practices.
create value in the Group's sales and contractors and playing an active role
marketing channels (see page 47). in community and government initiatives, we strengthen our
relationships with these key stakeholders.
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Key Extracting maximum value Extracting maximum value Extracting maximum value Extracting maximum value Extracting maximum value Extracting maximum value Extracting maximum value Extracting maximum value
priorities
Preparing for our future Preparing for our future Preparing for our future Working responsibly and maintaining our social licence Preparing for our future Working responsibly and maintaining our social licence Preparing for our future Working responsibly and maintaining our social licence
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Area of
business * Funding the business model * Increased diamond pricing * Natural capital inputs and outputs of carats * Outputs of carats recovered * Entire business model * Entire business model * Funding the business model * Reduced operational activity could lead to a decline
model recovered in financial capital and outputs
affected
* Outputs of carats recovered * Increased financial outputs * Sales and marketing activities
* LoM affects the long-term viability of the business * Negative outcomes decline natural and human capital
model
* Reduced financial inputs * Human capital and safety outcomes * Chosen distribution channels
* Increased financial outputs
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Mitigation
* Reassessment of capital expenditure and operational * Continuous diamond damage monitoring and analysis to * Furthering orebody knowledge through various bulk * Advanced security access control and surveillance * Application of technical and process IT controls in * Detection and prevention strategies developed and * Monitoring of market conditions and trends * Continuous review of business continuity plans
strategies identify opportunities to reduce diamond damage sampling programmes, combined with geological mappi system in place, complemented by off-site line with industry-accepted standards implemented at all mines and offices
ng surveillance
and modelling methods * Flexibility in sales processes and utilisation of * Bespoke contract management role fulfilled to ensure
* Treasury management practices in place * Breakage and value loss studies at the mine and in * Appropriate back-up procedures in place * Various flexible strategies available for a multiple sales and marketing channels, and increased proper contract management and minimise potential for
Antwerp * Zero tolerance on nonconformance to policy and successful tender process viewing opportunities disputes and disruptions
* Improving confidence in ore volumes and grades per regulations
* Weekly cashflow reviews rock type through grade control, reduced ore blendi * Firewalls and other appropriate security applications
* Optimisation of blast design and fragmentation ng, in place * Cash preservation, cost management and cash flow * Virtual viewing opportunities * Appropriate insurance maintained
results increased bulk sampling, measuring (density and * Monitoring of security process effectiveness by the planning initiatives in place
* Foreign exchange management moisture content), regularly updating geological Diamond Recovery Protection Committee (a subcommittee
models, monitoring and controlling external and of the Letšeng Board) * Regular testing of back-up restorations * Ability to enter into partnership agreements with * Appropriate levels of resources maintained (fuel,
* Online system in place to monitor plant parameters internal dilution and waste rafts and focusing on * Ongoing negotiations with bankers to ensure access to manufacturers to share in the upside of the polished stockpiles, etc.) to mitigate certain production
* Access to available facilities and evaluate trends within the treatment process waste management facilities on a needs basis diamonds interruptions
* Appropriate diamond specie insurance cover in place * Consultations with professional external advisers
when needed to better understand evolving risks and
* Delivering of BT targets * Evaluation of new technology to detect diamonds * Improving understanding of diamond populations, siz any mitigating factors to be implemented * COVID-19 protocols to minimise disruptions as a * Maintaining the integrity of the tender process * Improvements implemented in the management of
within kimberlite e * Regular vulnerability assessments complemented with result of infection and procurement strategies to contractors' procurement practices.
frequency distribution and value profiles per internal and independent third-party assurance audits ensure availability of spares, equipment, etc.
* Regular review of the mine plan to optimise cash flow kimberlite type through rigorous daily and monthly undertaken * IT management policies * Reduction in supply in the market with greater demand
and to identify rescheduling opportunities * Review and update of current diamond breakage data plotting and trend analysis for Letšeng goods caused by current offtake
initiative plan and implementation of diamond damage * Community initiatives including provision of PPE and agreement between a diamond trader and a mine
project plan food parcels, awareness programmes and ongoing
* Early engagement with lenders to renew facility training and support
agreements * Reduced sales opportunities in 2020 resulting in
* On-mine Diamond Value Management Committee to oversee decreased supply of high-value diamonds
and drive the focus of overall value recovery
* The ability to reduce operating costs in times of
uncertainty
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Heatmap key 1 2 3 4 5 6 7 8
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Risk Increased Unchanged Unchanged Increased Increased New risk Decreased Increased
exposure
------------------------------------------------------------ ------------------------------------------------------------ ---------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Risk type Strategic Strategic and operational External and operational Strategic and operational Strategic and operational Strategic and operational External
Description Limited opportunities for growth Workforce Environmental Social licence to operate Health and safety Sustainability of Business Transformation Currency volatility
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Impact The volatility of the Group's share price and lack of Achieving the Group's objectives and sustainable growth Climate and environmental issues, such as the recent dam Gem Diamonds' social licence to operate arises from the The risk that a major health or safety incident, such as a The BT process identified savings and efficiencies of The Group receives its revenue in US dollars, and costs
growth negatively impacts the Group's depends on the ability to attract failures reported by other companies, approval of its stakeholders, particularly dam failure, may occur within the US$100 million over four years from are incurred in the local currency
market capitalisation. Constrained cash flows also add and retain key suitably qualified and experienced are recognised as top global risks by the World Economic employees, regulators, project- affected communities Group is inherent in mining operations. These risks could 2018, with ongoing sustainable benefit of US$30 million of the countries in which the Group operates.
pressure on returns to shareholders. personnel. Gem Diamonds operates in an environment Forum and investors are increasingly and society, to conduct its business. impact the wellbeing of employees, per annum from 2022 onwards. The sustainability
The Group currently relies on a single mine for its and industry where shortages in experience and skills are focused on environmental performance. Failure to manage This approval is an outcome of the way the Group project- affected communities, our licence to operate, the of the BT benefit is highly dependent on organisational Exchange rate volatility between these currencies and
revenues, profits and cash flows. prevalent, and in jurisdictions climate and environmental issues will manages issues such as ethics, labour practices Company's reputation and compliance health, change management, skills, the US dollar impacts the Group's profitability
with localisation policies. impact on compliance to mining lease and debt facility and sustainability in our wider environment, as well as with its mining lease agreement. workforce motivation and behaviour and contract and cash flow.
agreements. our risk management and engagement renegotiations.
activities with stakeholders.
Environmental regulations, pressure from surrounding Failure to sustain the savings identified could impact
communities and failure to manage vital the Group's cash resources.
natural resources can affect the Group's ability to operate
sustainably.
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Opportunity Focusing on existing operations could unlock further Skills retention and continuous improvement initiatives Responsible environmental stewardship improves relationships Realising the Group's vision to make a meaningful and Improving employee health and wellness can increase morale, Delivery of the BT target improves cash flow and Earning capability in currencies stronger than
if managed value through rationalisation and efficiency build the Group's human capital and with regulators and communities sustainable contribution to the countries reduce absenteeism and improve credibility and positions the Group ahead currencies in which operational costs are incurred
improvements. can create a competitive advantage. while strengthening our brand. Increased investor focus on in which we operate builds Gem Diamonds' reputation productivity. Ensuring that effective safety policies and of the industry. results in maximum financial benefit to Letšeng.
environmental responsibility could with employees, government, regulators, processes are in place reduces risk
translate into a competitive advantage. communities and investors. to our workforce, strengthens our relationships with
employees and regulators, and safeguards
the Group's reputation.
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Key Working responsibly and maintaining our social licence Extracting maximum value Extracting maximum value Working responsibly and maintaining our social licence Extracting maximum value Extracting maximum value Extracting maximum value
priorities
Preparing for our future Working responsibly and maintaining our social licence Working responsibly and maintaining our social licence Preparing for our future Working responsibly and maintaining our social licence Working responsibly and maintaining our social licence
Preparing for our future Preparing for our future Preparing for our future
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Area of * Financial capital inputs and outcomes
business * Entire business model * Human, intellectual and financial capital inputs into * Natural capital inputs into the business model and * Social capital and viability of business model * Social, relational and human capital and viability of * Entire business model
model the business model negative outcomes in the case of environmental business model if outcomes are negative
affected incidents
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Mitigation
* Group strategy review performed with objective of * Human resources practices are designed to identify * Appropriate sustainability and environmental policies, * Appropriate health, safety and sustainability * Appropriate health and safety policies and practices, * Dedicated BT task team * A framework to enter into short-term hedging
improving the share price through: skills shortages and implement development programmes subject to continuous improvement review, implemented policies in place which are subject to continuous subject to continuous improvement reviews, instruments is in place
and succession planning for employees improvement reviews implemented
* Ongoing monitoring through regular review meetings
* Delivering the BT target * Behaviour-based care programme, which instils * Appropriate treasury management procedures are in
* Incentives are in place to retain key individuals environmental stewardship, implemented * Appropriate CSI spend catered for within the new * Corrective actions identified from incident place
through performance-based bonuses and long-term share mining lease agreement investigations and internal and external audits * Delivered US$79 million to date, with medium/low ri
* Advancing early identification and anti-breakage awards implemented timeously sk
technology * Climate change adaptation plan implemented of delivering remaining balance
* UN SDG framework adopted
* Remuneration Committees are set up at a GDL and * Dam safety management framework implemented
* Assessing M&A and diversification opportunities Letšeng level. They review current remuneration * Dam safety management framework implemented * CI roll out commenced at Letšeng with pilot in
policies, skills and succession planning * Regular engagement with relevant Government the Mining department completed
Department Ministries * ISO 45001 accreditation obtained
* Annual social and environmental management plan
(SEMP) audit programme implemented
* Dam safety management framework implemented * Verification module developed for the Electronic
Business Management System that will improve
* ISO 14001 accreditation obtained management and implementation of recommended
corrective actions
* UN SDG framework adopted
* Safety management and leadership programme (focusing
on behaviour-based safety culture) implemented
* Rehabilitation and closure management strategy
adopted and updated annually
* Water management framework completed
* Concurrent rehabilitation strategy implemented
* Group shared natural resources management strategy
implemented
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Heatmap key 9 10 11 12 13 14 15
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
Risk New risk Decreased Decreased Decreased Unchanged Decreased Decreased
exposure
-------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------- -------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------- --------------------------------------------------------
EMERGING RISKS
The assessment of emerging risks is embedded within the risk management function of the Group. Emerging risks identified during these assessments are reported to the subsidiary boards on a structured quarterly basis and to the corporate office as they are identified.
Management evaluates emerging risks and presents them to the Board for consideration and evaluation.
Emerging risks are risks that:
-- are likely to materialise or impact over a longer time frame than existing risks; -- do not have much reference from prior experience; and
-- are likely to be assessed and monitored against vulnerability, velocity and preparedness when determining likelihood and impact.
The current emerging risks on the Group's radar are:
-- lab-grown diamonds (16); -- generational shifts in consumer preferences - social influencers (17); -- the rate of advancement of digital technologies such as blockchain (18); and -- future workforce (automation, skills for the future, etc.) (19).
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 25 to 35 that could impact the Group's viability.
While the Group maintains a full business model, based predominantly on the life of mine (LoM) 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 strategic 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 LoM, 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 Company over this period.
The Group's credit facilities (excluding project term loans) total US$70.8 million when fully unutilised, with US$34.0 million expiring on 18 July 2021, US$30.0 million expiring on 31 December 2021 and the balance of US$6.8 million being a general banking facility with no set expiry date (refer Note 18, Interest-bearing loans and borrowings). The Group's viability assessment assumes that these facilities will be successfully restructured, and their expiry dates extended, based on advanced discussions with lenders and previous successful renewals.
COVID-19
Uncertainty exists around the ongoing impact of the pandemic on the Group. The Group is in a good position to mitigate the impact of any operational disruption that may be caused by potential further COVID-19-related lockdowns. International travel restrictions could have an impact on the frequency of diamond tenders and the ability to generate revenue on its regular tender cycles.
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.
Effect Extent of Related principal risks Area of business model affected
sensitivity
analysis
A decrease in 32%
forecast * Rough diamond demand and prices * Entire business model i.e. inputs, ac
rough diamond tivities,
revenue from outputs and outcomes
reduced * Production interruption
market prices
or production
volumes * Knowledge of the resource
* Detrimental effect of COVID-19 on all spheres of the
business
------------ ----------------------------------------------------------- --------------------------------------------
A 32%
strengthening * Currency volatility * Financial capital inputs and outcomes
of local
currencies to
the US dollar * Detrimental effect of COVID-19 on all spheres of the
from expected business
market
forecasts
------------ ----------------------------------------------------------- --------------------------------------------
The Group's current net cash(2) position of US$34.6 million as at 31 December 2020 and available facilities of US$60.8 million would enable it to withstand the impact of these scenarios over the three-year period. 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 March 2024.
1 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP measures.
2 Net cash is calculated as cash and short-term deposits less drawndown bank facilities (excluding asset-based
finance facility and insurance premium financing).
CHIEF EXECUTIVE'S REVIEW
"In the face of the significant disruption caused by COVID-19, the fundamentals of Gem Diamonds' business remain sound and our strategy intact."
- Clifford Elphick -
In the face of the significant disruption caused by COVID-19, the fundamentals of Gem Diamonds' business remain sound and our strategy intact. Despite the extreme uncertainty at the start of the pandemic the fast and decisive action we took, combined with the organisational improvements of the last few years and strong stakeholder relationships, supported a good operational performance, strong cash flows and an improved financial cash position at the end of the year.
Our first priority was to make sure our people were safe. We took the potential threat to their health extremely seriously and acted quickly to do what we could to protect them, which included immediately establishing a testing laboratory on site at Letšeng.
Following the Lesotho Government's lockdown order, as soon as it was safe to restart operations and we had the necessary authorisations, we worked hard to get back to full production as fast as we could. We managed to ramp up well ahead of many operations in similar positions, greatly reducing the loss of production. This success was in no small part due to the in-country skills and expertise we have developed at Letšeng, since certain required skills and individuals were unable to be physically at the mine.
The quick return to production, Letšeng's top-quality diamonds and our excellent relationships with our customers allowed us to sell diamonds and generate revenue when many other producers could not. Despite the pressure on the diamond market, these factors helped us to achieve a 17% higher overall average price per carat than in 2019.
Most of the BT cost-efficiency initiatives are now fully embedded in day-to-day operations and the CI initiative is being rolled out. The changed working conditions during COVID-19 and extensive engagements with our contractors and suppliers identified additional efficiencies and new ways of working that helped to further reduce costs, which contributed to strong operating cashflows. It is pleasing to announce that the Board has recommended a dividend of 2.5 US cents per share.
While we are pleased with the Group's performance for the year in the face of these challenges, we are deeply saddened and offer our condolences to the families of the seven employees who passed away to date from suspected COVID-19-related complications.
STRATEGIC FOCUS: WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE
The Group's COVID-19 response included a significant contribution to ensuring the health of members of surrounding communities and supporting the Lesotho Government's programmes, as described on page 50.
We aim to create and sustain a workplace safety culture that is underpinned by a deep sense of mutual care and collaboration across the workforce. We are pleased with the improvement in our safety statistics this year but remain diligent in implementing our safety protocols in line with our commitment to promoting a culture of zero harm and responsible care. There were no fatalities and one LTI during the year, compared to one fatality and seven LTIs in 2019. The Group-wide LTIFR decreased to 0.04 (2019: 0.28) and the lowest AIFR in a decade was recorded.
Our strategic focus on working responsibly includes our commitment to environmental responsibility, which is discussed in detail on pages 48 to 50. A rigorous ongoing monitoring and management programme is in place to ensure any risks regarding Letšeng's freshwater dam and two tailings storage facilities (TSFs), which are designed and managed to international best practice, are timeously identified and mitigated. We are currently assessing our TSF management process against the Global Industry Standard on Tailings Management launched in August 2020 and developing an action plan to ensure conformance. A technical visit to the mine was undertaken in November 2020 by an independent expert and the compilation of a draft Independent Tailings Review Board (ITRB) structure and Terms of Reference is underway.
Supporting local communities and contributing to national priorities
Gem Diamonds invests in surrounding communities to improve educational outcomes, develop infrastructure and stimulate local enterprises to create self-sustaining employment independent of the mine. Some of these projects were delayed due to disruptions caused by COVID-19 and we continue to engage with stakeholders regarding project status, any further COVID-19 impact on progress and alternative projects to address immediate needs in current circumstances.
In addition to community support, the Letšeng mine makes a substantial contribution to the Lesotho economy, providing jobs for more than 1 702(1) people and supporting the local economy and the broader population of Lesotho through local procurement initiatives. In 2020, due to the reduced production and the 30-day shutdown period, in-country procurement decreased 23% to US$126.9 million (2019: US$164.6 million), of which US$2.2 million was procured directly from PACs (2019: US$2.4 million) and US$27.4 million (2019: US$30.5 million) from regional communities around Letšeng. The Company's investment in training also improves individual skills in the area.
No major or significant stakeholder incidents were reported at any of Gem Diamonds' operations during the year (2019: none) and there were also no incidents involving any violation of the rights of the indigenous people on whose land the Group operates (2019: none).
STRATEGIC FOCUS: EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS
Despite the challenging operating environment, Gem Diamonds produced solid results that included the recovery of 16 diamonds greater than 100 carats (2019: 11). Exceptional recoveries during the year include a 439 carat white Type IIa diamond, a 183 carat white Type IIa diamond and a 166 carat white Type IIa diamond reaffirming the quality of the mine's production.
While the overall diamond market was under extreme pressure, our proactive steps to ensure the safety of customers and provide additional analysis of the diamonds on tender resulted in the average price achieved increasing 17% to US$1 908 per carat (2019: US$1 637 per carat) from the sale of 99 172 carats (2019: 111 292).
Tonnes treated for the year decreased 19% year on year impacted by the 30-day shutdown at Letšeng and subsequent phased ramp-up of the two plants and we continue to focus on enhancing value over volume in our treatment of ore through the plants. Carats recovered decreased 12% to 100 780 (2019: 113 974), which was in line with the reduced tonnes treated due to the COVID-19-related shutdown in Q2. Letšeng's operational performance is discussed in detail on page 43.
Revenue increased 4% to US$189.6 million (2019: US$182.0 million), which translates to underlying EBITDA(2) of US$53.2 million and earnings per share of 9.8 US cents. Cash flow was a key focus given the crisis conditions prevalent for most of the year and cash flow from operations increased 73% to US$96.2 million for the year, allowing the Group to move from a net debt position of US$10.2 million at the start of the year to a net cash(3) position of US$34.6 million at the end of 2020. More information regarding the Group's financial results is available in the Chief Financial Officer's report on page 36.
The process to sell the Ghaghoo mine, which remains on care and maintenance, continues, but was significantly delayed during the year due to the impact of COVID-19. Management remains committed to the sale and will conclude the process in 2021.
1 Includes contractors.
2 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.
3 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).
STRATEGIC FOCUS: PREPARING FOR THE FUTURE
The Group's improved balance sheet at year end provides a sound platform from which to navigate the current uncertain environment. The reduced costs and improved efficiencies realised through the BT initiatives were critical in maximising operational cash flows during the year and the operational benefits from the CI initiative currently being rolled out are already evident. These initiatives are discussed on page 46.
Non-essential capital expenditure was deferred wherever possible to preserve cash, but not at the expense of projects necessary to sustain operations.
We continue to advance two key technologies to identify locked diamonds within kimberlite and to liberate diamonds using a non-mechanical process. While the pilot project was hindered largely by the COVID-19-related lockdown and travel restrictions and did not make the progress during the year we would have liked, we have identified new technical partners to advance the pilot and believe that the benefits in reduced diamond damage and lower operating costs will be realised in time.
Gem Diamonds is cognisant of the risks presented by climate change and conscious of the need to minimise emissions and our environmental impact more broadly. The immediate climate-related challenge at Letšeng remains water management. Effective water management is crucial for the viability of our business. This refers not only to the preservation of natural resources for the benefit of host communities but also to the cost implications of water consumption on our business.
OUTLOOK
In the year ahead, our immediate focus will be on ensuring the health of our employees and contractors during the COVID-19 second and possible future waves. We will also continue to support surrounding communities and assist the Lesotho Government in its efforts to manage the impact of the pandemic, including doing what we can to facilitate access to effective vaccination programmes.
At an operational level, we will continue to realise the benefits of the BT programme and roll out the CI project, drive efficiencies and cost-reduction initiatives to maximise cash flows and maintain our status as a responsible, safe and low-cost operation.
APPRECIATION
I would like to thank the Board and our Chairperson for their support and guidance during the year. A special thanks goes to the management teams for their energy and tenacity in implementing the strategy in extremely challenging conditions.
My appreciation also extends to the Lesotho Government for its help in allowing us to restart our operation. Our customers bought our product at good prices during uncertain times and we thank them for their support and trust. In closing, thank you to our shareholders for their confidence and belief in our vision.
Clifford Elphick
Chief Executive Officer
10 March 2021
CHIEF FINANCIAL OFFICER'S REVIEW
"Management was able to normalise operations and maintain cash reserves through effective sales processes and cash preservation initiatives."
- Michael Michael -
FINANCIAL OVERVIEW 2020
The Group's immediate focus in the first half of the year was to manage the severe operational challenges brought on by the swift onset of the COVID-19 pandemic. Management was able to normalise operations and maintain cash reserves through effective sales processes and cash-preservation initiatives. in the short to medium term the focus moved to optimising cash generation through further operational efficiencies to ensure the continued sustainability of the business in a challenging environment.
Significant operating and capital cost reduction and deferment measures were implemented in the second quarter which, together with the ability to successfully hold tenders and generate revenue, contributed to positive cash generation. Following the forced shutdown of operations at Letšeng due to the Lesotho Government's lockdown order in March and April, planned waste mining activities was successfully deferred to resume in July; and in the second half of the year the primary focus was on continued and safe operations, curbing the spread of COVID-19 on site and cash generation.
Although tender revenues initially tracked the weaker market for rough diamonds following the onset of COVID-19, there was a marked improvement in sentiment in the second half of the year. With the focus on the higher-value satellite ore, Letšeng produced good high-quality large diamonds, which included 16 diamonds greater than 100 carats during the year, compared to 11 in 2019.
Underlying EBITDA(2) from continuing operations increased to US$53.2 million (after COVID-19 standing costs of US$3.9 million incurred during the lockdown period) from US$41.0 million in 2019. Profit attributable to shareholders from continuing operations for the year was US$16.9 million, equating to earnings per share from continuing operations of 12.1 US cents on a weighted average number of shares in issue of 139.3 million. After including the loss of US$3.3 million from the Ghaghoo discontinued operation, the Group's attributable profit was US$13.6 million with earnings per share after discontinued operations of 9.8 US cents.
The Group ended the year with a cash balance of US$49.8 million and drawndown facilities of US$15.2 million, resulting in a net cash position of US$34.6 million (2019: net debt of US$10.2 million) and unutilised available facilities of US$60.8 million.
Summary of financial performance
Please refer to the full annual financial statements starting on page 113.
US$ million 2020 2019
Revenue 189.6 182.0
Royalty and selling costs (19.8) (16.9)
Cost of sales(1) (104.7) (114.7)
COVID-19 Standing costs (3.9) -
Corporate expenses (8.0) (9.4)
Underlying EBITDA2 from continuing operations 53.2 41.0
Depreciation and mining asset amortisation (9.1) (14.7)
Share-based payments (0.6) (0.8)
Other income - 1.1
Other expenses - (0.3)
Foreign exchange (loss)/gain (0.9) 3.6
Net finance costs (4.4) (5.8)
Profit before tax from continuing operations 38.2 24.1
Income tax expense (10.7) (9.0)
Profit for the year from continuing operations 27.5 15.1
Non-controlling interests (10.6) (8.0)
Attributable profit from continuing operations 16.9 7.1
Loss from discontinued operations (3.3) (4.5)
Attributable net profit 13.6 2.6
Earnings per share from continuing operations (US cents) 12.1 5.1
Loss per share from discontinued operations (US cents) (2.3) (3.2)
Dividends per share (US cents) 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
Revenue of US$189.6 million was generated at Letšeng, achieving an average price of US$1 908 per carat(1) (2019: US$1 637 per carat). The Group sold 34 diamonds for more than US$1.0 million each, contributing US$77.6 million to revenue.
The Group's increased revenue was mainly driven by achievement of a higher average price per carat and increased large diamond recoveries.
Letseng 12-month rolling average (US$ per carat)
Q4 2019 1 637
---------------------
Q1 2020 1 568
---------------------
Q2 2020 1 636
---------------------
Q3 2020 1 850
---------------------
Q4 2020 1 908
---------------------
US$ million 2020 2019
Group revenue summary
Letšeng sales - rough 189.2 182.1
Sales - polished margin 0.6 -
Impact of movement in inventory (0.2) (0.1)
------ ------
Group revenue 189.6 182.0
------ ------
Extracted diamond inventory on hand at the end of the year decreased to US$0.6 million (2019: US$0.9 million).
1 Includes carats extracted at rough valuation and carry-over inventory.
Expenditure
Operating expenditure and COVID-19 standing costs
Group cost of sales decreased by 9% to US$104.7 million from US$114.7 million in 2019 as a result of the cash preservation measures and the continued focus to reduce costs in line with the BT initiatives. Total waste-stripping costs amortised were US$43.4 million compared to US$43.1 million in 2019.
Certain standing charges that were incurred during the shutdown and ramp-up periods where normal waste stripping and carat production levels were disrupted , were recognised as abnormal costs, and in terms of IAS 2 Inventories have been expensed immediately and disclosed separately from cost of sales. These costs amount to Lesotho loti LSL48.5 million (US$2.9 million). In addition, US$1.0 million was incurred to implement protocols to address the risk and contain the spread of COVID-19 at the operations and Letseng's surrounding communities.
Total operating costs in local currency increased by 6% to LSL1 740.8 million compared to LSL1 649.6 million in 2019 and includes the impact of non-cash accounting charges. The unit cost per tonne increased 30% to LSL320.20 per tonne from LSL245.92 per tonne treated in 2019. This increase was driven by the reduced tonnes treated and the proportionate mix of ore mined during the year. Although the total waste-stripping costs amortised during the year was similar to 2019, the increased contribution from Satellite pipe material (which carries a higher stripping ratio and associated amortisation charge) impacted the unit cost. During the year, 2.8 million tonnes of this material were treated (2019: 1.6 million) which increased the total amortisation charge to LSL131.56 per tonne treated compared to LSL92.88 in 2019. The increase in the non-cash accounting charges per tonne treated, impacted by waste-stripping amortisation, was offset by the timing differences of the inventory and stockpile movements during the year.
Letšeng Unit Cost Analysis
Waste cash
Direct Plant 3 BT & CI Total Non-cash Total costs per
Unit cost per cash operator associated direct accounting operating waste tonnes
tonne treated costs costs Subtotal costs cash costs charges cost mined
-------- ---------- --------- ------------ ------------ ------------ ----------- -------------
2020 (LSL) 183.94 15.73 199.67 1.79 201.46 118.74 320.20 43.70
2019 (LSL) 150.61 20.40 171.01 10.15 181.16 64.76 245.92 38.62
% change 17 11 30 13
-------- ---------- --------- ------------ ------------ ------------ ----------- -------------
2020 (US$) 11.17 0.95 12.12 0.11 12.23 7.21 19.44 2.65
2019 (US$) 10.42 1.41 11.83 0.71 12.54 4.48 17.02 2.67
% change 2 (2) (2) 0
-------- ---------- --------- ------------ ------------ ------------ ----------- -------------
Direct cash cost per tonne treated is LSL201.46, representing an 11% increase from 2019. Waste cash cost per waste tonne mined increased by 13% to LSL43.70 (2019: LSL38.62). These cash cost increases are a direct result of the lower volumes treated (5.4 million tonnes compared to 6.7 million tonnes in 2019) and waste tonnes mined (15.6 million tonnes compared to 24.0 million tonnes in 2019) during the year respectively. Total direct cash costs, including waste cash costs, decreased by 18% to LSL 1 775.7 million from LSL2 158.8 million in 2019 as a result of the lower volume of mining activities and cash preservation and deferment measures implemented during the year.
Letšeng pays the third plant operator contractor according to the revenue generated by the sales from diamonds recovered through the contractor plant. In 2020, the cash costs in local currency decreased by 23% in line with the reduction in carats recovered and sold.
BT and CI associated costs of US$0.6 million were incurred relating to initiatives implemented during the year, resulting a unit cost impact of LSL1.79 per tonne treated.
Exchange rate influences
Revenue is generated in US dollars, while the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. Local currency rates for the Lesotho loti (LSL) (pegged to the South African rand) and Botswana pula (BWP) were weaker against the US dollar during the year (compared to 2019), which reduced the Group's US dollar-reported costs.
Exchange rates 2020 2019 % change
LSL per US$1.00
Average exchange
rate 16.47 14.45 14
Year end exchange
rate 14.69 13.98 5
------ ------ ---------
BWP per US$1.00
Average exchange
rate 11.45 10.76 6
Year end exchange
rate 10.80 10.58 2
------ ------ ---------
GBP per US$1.00
Average exchange
rate 0.78 0.78 -
Year end exchange
rate 0.73 0.75 (3)
------ ------ ---------
1 Non-cash accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and the impact of adopting IFRS 16 Leases, and exclude depreciation and mining asset amortisation.
2 Direct mine cash costs represent all operating costs, excluding royalty and selling costs.
Royalties and marketing costs
Royalties are paid to the Government of the Kingdom of Lesotho on the value of rough diamonds sold by Letšeng in terms of the operation's mining lease. The Group's sales and marketing operation in Belgium incurs costs relating to diamond selling and marketing. During the year, royalties and selling costs increased by 17% to US$19.8 million (2019: US$16.9 million) in line with the increase in revenue and the increase in royalties from October 2019 from 8% to 10%.
Rough diamond extractions and partnership sales
Letšeng entered into partnership arrangements during the year for the sale of four rough diamonds totalling 240 carats. The partnership arrangements allow for Letšeng to share in the margin uplift on the sale of the resultant polished diamonds, which added revenue to the Group of US$0.6 million in 2020.
Corporate expenses
Central costs are incurred by the Group to provide expertise in all areas of the business model to realise maximum value from the Group's assets. These costs are incurred at the technical and administrative offices in South Africa (in South African rand) and head office in the UK (in British pounds).
Baseline corporate costs for the year were US$7.9 million, a 4% increase compared to 2019 of US$7.7 million. The benefits from the corporate cost initiatives implemented through BT continue to be realised. During the year, US$0.1 million in costs were incurred relating to BT and ad hoc projects (2019: US$1.7 million), resulting in an overall saving of US$1.4 million compared to 2019. The saving is largely due to the suspension of all ad hoc projects during the COVID-19 pandemic.
Historical corporate costs data (US$ milllion)
2015 2016 2017 2018 2019 2020
------ ----- ----- ----- ----- -----
Baseline costs 11.6 10.5 9.0 9.3 7.7 7.9
Project costs 0.1 0.5 0.2 0.7 1.7 0.1
------ ----- ----- ----- ----- -----
Underlying EBITDA(1) and attributable profit
Group underlying EBITDA(1) from continuing operations increased by 30% to US$53.2 million (2019: US$41.0 million) as a result of the increase in revenue and the reduction in costs through cash preservation initiatives. Profit attributable to shareholders was US$13.6 million, which translates to 9.8 US cents per share based on a weighted average number of shares in issue of 139.3 million.
1 Refer Note 4, Operating profit on page 145, for the definition of non-GAAP measures.
Statement of financial position - selected indicators
US$ million 2020 2019
Property, plant and equipment 304 003 323 853
Receivables and other assets 5 839 6 337
Inventory 26 740 32 517
Cash and short-term deposits 49 821 11 303
Assets held for sale 3 528 3 943
Non-current: interest-bearing loans and borrowings (1 701) (6 009)
Current: interest-bearing loans and borrowings (14 385) (16 332)
Liabilities associated with assets held for sale (4 224) (4 221)
Deferred tax (78 209) (83 124)
Provisions (12 331) (15 588)
Income tax (payable)/receivable (11 834) 8 176
--------- ---------
Capital expenditure
The Group's focus on cash preservation during COVID-19 resulted in limited capital spend and the deferral of a number of capital projects. Letšeng's capital spend was incurred mainly on continued core drilling; micro diamond analysis and mineral resource studies to firm up the existing mineral resource base (US$0.7 million) (2019: US$0.5 million); and the studies and engineering designs for the construction of the replacement Primary Crusher Area of US$0.3 million (2019: US$0.7 million). In addition, US$0.1 million was spent on COVID-19 screening equipment and hardware.
Total capital expenditure (excluding waste stripping) decreased to US$1.6 million during the year (2019: US$9.7 million).
Cash at hand
The Group generated cash from operating activities (before capital and waste investment of US$48.7 million) of US$96.2 million. The Group ended the year with cash on hand of US$49.8 million (2019: US$11.4 million), of which US$36.2 million is attributable to Gem Diamonds. All scheduled debt repayments during the year were made, totalling US$13.5 million. The overall result is a net increase in cash of US$44.8 million year on year.
Letšeng declared a dividend of LSL400.0 million (US$27.0 million) in 2020 of which LSL250.0 million (US$16.8 million) was paid during 2020, with a further LSL150.0 million (US$10.2 million) payable in March 2021.
Cash movement (US$ million)
Cash and facilities December 2019 81
Letšeng - cash generated 105
Net income tax received 6
Letšeng - waste costs capitalised (47)
Net Financial liabilities repaid (incl. IFRS 16) (8)
Corporate costs (8)
Dividends to NCIs (5)
Net finance costs (3)
Ghaghoo costs (3)
Investment in PPE (2)
FCTR 4
Cash and facilities December 2020 111
-----
Loans and borrowings
At year end, the Group had utilised facilities of US$15.2 million, resulting in a net cash position of US$34.6 million and available facilities of US$60.8 million, comprising a net debt position of US$5.7 million (after US$10.0 million drawdown) at Gem Diamonds and a net cash position of US$40.3 million at Letšeng.
The Group optimised the capital structure to ensure Letšeng's debts were fully repaid at the end of the year, even under COVID-19 circumstances, to ensure lower overall gearing in the medium term should the pandemic have extended implications. The Group has renegotiated the Gem Diamonds' three-year revolving credit facility that expired in December 2020 for a further 12 months up to 31 December 2021. The Group engages regularly with lenders and credit providers to ensure continued access to funding and to manage the Group's cash flow requirements during these current turbulent times.
Repayment of the remaining US$10.0 million balance on the Gem Diamonds Limited facility, relating to the Ghaghoo US$25.0 million debt, was repaid in quarterly instalments during the year, with the final repayment made in December 2020. During 2020, Gem Diamonds accessed US$14.0 million of its three-year RCF. A capital repayment of US$6.0 million was made on the RCF facility in December 2020, ending the year with a US$10.0 million outstanding balance.
Letšeng made repayments of LSL57.3 million (US$3.5 million) on its project debt facility for the construction of the mining workshop complex. The outstanding balance of LSL76.3 million (US$5.2 million) will be repaid by September 2022.
Funding discussions for the replacement PCA continues while the appropriate timing for the commencement of the project is being considered.
The Group has commenced a consolidated debt refinancing of its key credit facilities and has appointed Nedbank Corporate and Investment Banking as the sole mandated lead arranger to drive this process on its behalf.
Summary of loan facilities as at 31 December 2020
Amount US$ Drawn down Available
Company Term/ description Lender Expiry Interest rate(1) million US$ million US$ million
Existing facilities
London US$
three-month
London
Interbank
Gem Diamonds December Offered Rate
Limited(2) 12-Month RCF Nedbank 2021 (LIBOR) + 5.0% 30.0 10.0 20.0
---------------------- ------------- ----------- ----------------- ------------ ------------ ------------
Standard
Lesotho
Bank and
Letšeng Nedbank Lesotho prime
Diamonds Three-year RCF Lesotho July 2021 rate minus 1.5% 34.0 - 34.0
---------------------- ------------- ----------- ----------------- ------------ ------------ ------------
Tranche 1 (R180
million) South
Nedbank/ African
Export Johannesburg
Credit Interbank
Letšeng Five-and-a-half-year Insurance Average Rate
Diamonds project facility Corporation March 2022 (JIBAR) + 3.15% 12.3 4.1 -
---------------------- ------------- ----------- ----------------- ------------ ------------ ------------
September
2022 Tranche 2 (LSL35 million) South African JIBAR + 6.75% 2.3 1.1 -
----------- --------------------------------------------------------------------- ------------ ------------ ------------
Annual South African
Letšeng Overdraft review in prime rate
Diamonds facility Nedbank March minus 0.7% 6.8 - 6.8
---------------------- ------------- ----------- ----------------- ------------ ------------ ------------
Total 85.4 15.2 60.8
------------ ------------ ------------
1 At 31 December 2020 LIBOR was 0.24% and JIBAR was 3.65%.
2 Refer Note 18 of the Annual Financial Statements for the reconciliation of the US$30 million facility.
Discontinued operation
In line with the strategic objective to dispose of non-core assets, the Board and management remain committed to the sale of Ghaghoo. The binding agreement that Gem Diamonds entered into in June 2019 for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited lapsed due to certain suspensive conditions not being met, however the process was again opened to other prospective buyers during the year and has entered into an exclusivity agreement with an interested party with whom potential sale discussins are continuing.
The sales process faced considerable delays in 2020 largely due to the impact of COVID-19 and in particular the related travel restrictions that prohibited site visits for due diligence purposes. The process is expected to be concluded in 2021.
The operation remains on care and maintenance and is classified as a discontinued operation in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Care and maintenance costs were significantly reduced to US$3.3 million (2019: US$4.5 million) and have been recognised and disclosed separately in the Consolidated Statement of Profit or Loss. The reduction in costs was mainly due to the renegotiation of key contracts following the suspension of the de-watering programme. The suspension realised savings relating to reduced fuel consumption on site and ancillary costs associated with de-watering. Further cost reductions were driven by insurance premium decreases, termination of a transport contract, reducing the workforce in line with reduced care and maintenance operations and renegotiation of a generator rental contract.
Share-based payment
The share-based payment charge for the year was US$0.6 million (2019: US$0.8 million). On 9 June, 1 249 000 nil-cost options were granted to certain key employees and Executive Directors under the long-term incentive plan of the Group with similar conditions as previous awards granted under this scheme.
DIVID
As a result of the Group's disciplined capital and cash management, and its strong cash generation during the year in a challenging environment, the Board is pleased to recommend the payment of an ordinary cash dividend of 2.5 US cents in respect of the 2020 financial year. The dividend is subject to shareholder approval at the scheduled AGM to be held on 2 June 2021.
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 28%. 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 as a result of deferred tax assets not recognised on losses incurred in operations during the year, partially offset by a reduction in the deferred tax liability on unremitted earnings. Governments in various countries introduced certain tax payment deferment measures to reduce the impact of COVID-19 on companies during the lockdown period, and where applicable all taxes were paid before year-end, in line with the deferrals offered.
During the year the Group received a net tax refund of US$5.9 million in taxes. The US$7.6 million of overpaid taxes relating to the 2019 tax year at Letšeng was refunded during the year. Following the solid financial results at Letšeng, a further tax obligation of US$11.3 million relating to the 2020 tax year is due for payment by March 2021.
As disclosed in the 2019 Annual Report and Accounts, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA) in December 2019, contradicting the application of certain tax treatments in the current Income Tax Act. An objection was lodged by Letšeng in March, which was supported by the opinion of senior counsel, together with an application for the suspension of any payment deemed due. The application for suspension of payment was accepted. The LRA has subsequently lodged an application to the Lesotho High Court pertaining to this matter, which Letšeng is opposing and a court date has been set for 3 August 2021. There has therefore been no change in the judgement applied and the accounting treatment for this matter (refer Note 1.2.28, Critical accounting estimates and judgment for further detail.)
SENSITIVITIES
The Group is exposed to a range of external factors that are outside of its control in the conduct of its business. The Group has the necessary resilience, balance sheet strength and access to funds to adjust for shifts in these factors. The graph below illustrates the sensitivity of 2020's EBITDA to various factors that have the most significant impact on our ability to create value.
SENSITIVITY IMPACT OF 1% CHANGE (US$ MILLION)
Royalties rate change (absolute) 1.8
Average selling price for rough diamonds sold 1.7
Operating cost per tonne - direct cash cost 1.1
Exchange differences 1.1
Diesel price or volume 0.1
Corporate expenses 0.1
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OUTLOOK
While the full impact of COVID-19 on the diamond industry and the Group's operations is still unfolding, the Group expects that in the medium to long term, rough diamond prices will be supported by favourable demand and supply fundamentals. These include continued growth in demand from markets such as China and India, supported by a projected fall-off in rough diamond supply. This dynamic is expected to benefit high-quality diamonds in particular, where shortages of certain categories of these rough diamonds were already evident during the year.
The Group's business priorities were quickly adapted to the new reality created by COVID-19 and numerous operational projects were deferred to focus on normalising the business. The Group continues to monitor developments and considers the potential primary risks to be disruptions in production resulting in lower throughput and the risk of reduced revenue due to downward pressure on diamond prices and/or decreased demand.
The Group's focus remains on areas of optimisation and cash preservation through re-evaluation of all operational and financial management initiatives, while keeping employees and surrounding communities safe. Effective capital allocation and cost reductions aim to ensure the financial and funding resilience needed to operate in extremely challenging times and to achieve the Group's strategic objectives.
Michael Michael
Chief Financial Officer
10 March 2021
OPERATIONAL REVIEW
HIGHLIGHTS
-- Zero fatalities and one LTI -- Group AIFR at 0.76, the lowest in a decade
-- Recovered 16 diamonds greater than 100 carats, including a 439 carat, a 183 carat and a 166 carat Type IIa white diamond
-- Sold 34 diamonds for more than US$1.0 million each
-- Average price of US$1 908 per carat achieved despite the impact of COVID-19 (2019: US$1 637)
-- The Group effectively handled an unprecedented crisis
-- Continued benefits and savings realised from BT initiatives and CI programme successfully rolled out in mining operations
-- Excellent collaboration with contractors and suppliers ensured safe and responsible continued operations and the sustainability of the business
-- Fourth consecutive year of ISO 14001 and 45001 certifications
CHALLENGES
-- COVID-19 and the 30-day shutdown at Letšeng mine
-- COVID-19 disruptions affected haul truck and other critical equipment, and spares availability
-- Processing at Letšeng plants below budget due to (i) an increase in planned maintenance to improve equipment reliability and plant stability; and (ii) intermittent power interruptions
KEY PROJECTS 2020
-- Implemented a Safety Turnaround Strategy, adopted at the end of 2019
-- Ensured the safety and wellbeing of our workforce and PACs during COVID-19 while adapting operations and strategic priorities for the changed operating environment
-- Enhanced customer engagement to realise maximum sales opportunities -- Ensured transitioning of BT into CI (see page 46) -- Completed feasibility study to replace and upgrade the PCA facility -- Investigated further options to reduce waste mining
-- Reduced diamond damage through changing blasting patterns successfully rolled out at Letšeng
-- Reduced processing throughput to improve plant stability through more consistent feed rate
-- Progressd studies and core drilling relating to the updating of the Resource and Reserve Statement
PERFORMANCE
Line managers at Letšeng report to the COO on a weekly basis. This was increased to daily meetings at Letšeng and weekly meetings at Ghaghoo following the onset of the pandemic and the resultant operational impacts.
Weekly meetings were held with contractors, line management and the COO to ensure alignment and understand challenges in addressing COVID-19 impacts.
Over and above quarterly reports to the Board, the COO and CFO meet with a non-Executive Director about operational governance on a weekly basis.
Weekly cash flow meetings with Letšeng are held and line managers submit a monthly operational report to both the COO and CFO, which provides performance feedback on metrics involving:
-- health and safety; -- COVID-19 testing and management; -- production and operational performance; -- TSF management and monitoring; and -- current projects' progress discussions.
Safety
Letšeng's approach to safety is built on the culture of behaviour-based care at work and a commitment to zero harm. The Group's intensified focus on safety and the benefits of visible leadership and training is evident in the positive operational safety trends seen in 2020. One LTI was recorded at Letšeng during 2020 (2019: seven); and the LTIFR decreased to 0.04 (2019: 0.28). The Group reported the lowest AIFR in a decade after the AIFR improved to 0.76 (2019: 0.97). Although the focus on the Safety Turnaround Strategy implemented in 2020 saw a decrease in LTIs during 2020, management has also implemented pro-active actions to prevent the recurrence of certain near-miss incidents that could potentially have severe outcomes. Letšeng is putting into effect a strategy to reduce LTIs, and to ensure behaviour-based care is integrated at the operation to continue to reduce all safety incidents. There were no LTIs during 2020 at Ghaghoo or anywhere else in the Group.
KPI Unit 2020 2019 % change Fatalities Number 0 1 (100) LTIFR 200 000 man hours 0.04 0.28 (86)
AIFR 200 000 man hours 0.76 0.93 (19)
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Operations
KPI Unit 2020 2019 % change
Ore mined tonnes 5 594 639 6 297 805 (11)
Ore treated tonnes 5 436 396 6 707 791 (19)
Carats recovered(1) carats 100 780 113 974 (12)
Carats sold carats 99 172 111 292 (11)
Average price per carat US$/carat 1 908 1 637 17
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1 Includes carats produced from the Letšeng plants, the Alluvial Ventures (AV) plant and the tailings treatment plant.
Letšeng suspended operations and placed the mine on care and maintenance from 28 March to 26 April in compliance with the Government of Lesotho's lockdown order. Mining and ore treatment restarted in a phased approach in April and ramp-up to full production at both treatment plants was achieved in May, with waste mining recommencing in July, in accordance with a revised 2020 mine plan.
Waste tonnes mined decreased 35% to 15.6 million tonnes from 24.0 million tonnes in 2019, impacted by the shutdown of operations in Q2, the focus on cash preservation and based on a revised 2020 mining plan. Availability of primary waste diggers and waste hauling trucks was lower than call due to reduced availability of critical spares and maintenance services, largely as a result of the imposed COVID-19-related lockdowns and travel restrictions.
Ore tonnes treated during 2020 of 5.4 million tonnes comprised 4.5 million tonnes treated by Letšeng's plants (2019: 5.6 million) and 0.9 million tonnes treated by the third-party processing contractor Alluvial Ventures (AV) (2019: 1.1 million). Of the total ore treated, 2.6 million was sourced from the Main pipe, 2.8 million from the Satellite pipe with only a negligible number of tonnes from the Main pipe stockpiles. Ore tonnes treated was impacted by the shutdown and phased ramp-up, the planned reduction in processing feed rates to improve plant stability with the aim of increasing diamond recoveries, electricity supply interruptions, and and an increase in planned maintenance to ensure equiment reliability. Due mainly to the lost processing time during the shutdown period and phased ramp-up in Q2, a higher proportion of Satellite pipe ore was treated in 2020 to maximise revenue and cash generation, particularly in the second half of the year. The coarser and harder Satellite pipe material, however, negatively impacts throughput capacity in the plants.
Total carats recovered in 2020 decreased 12% to 100 780 (2019: 113 974), largely as a result of no tonnes being treated during the 30-day shutdown period and reduced tonnes during the ramp-up phase.
The BT initiative to re-treat historic and current recovery tailings through the mobile XRT sorting machine yielded 1 341 carats in 2020 (2019: 5 420 carats). The decrease compared to 2019 is largely due to improved recoveries within the coarse recovery system and the depletion of historic coarse recovery tailings material.
Overall grade for 2020 was 1.85cpht, an increase of 9% on the 1.70cpht realised in 2019 due to the higher contribution of Satellite pipe ore in 2020, which has a higher grade relative to Main pipe ore. The grade for the ore processed during the year was in line with its expected reserve grade.
Large diamond recoveries
In 2020 Letšeng recovered 16 diamonds greater than 100 carats each (2019:11); and total diamonds recovered greater than 10 carats increased by 5% year on year.
Number of large diamond recoveries 2020 2019 FY average
2009 - 2019
> 100 carats 16 11 8
60 - 100 carats 29 20 18
30 - 60 carats 102 82 72
20 - 30 carats 115 139 114
10 - 20 carats 500 472 426
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Total diamonds > 10 carats 762 724 639
----- ----- -------------
Letšeng +100 carat
diamonds recovered
2012 3
2013 6
2014 9
2015 11
2016 5
2017 7
2018 15
2019 11
2020 16
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Mineral resources and reserves
While studies related to the updating of Letšeng's Resource and Reserve Statement continued throughout 2020, there were considerable delays due to the lockdowns in Lesotho, South Africa and Canada. Analysis and interpretation of results progressed, including comprehensive petrography, mineral chemistry (Mantle Mapper and chromite microprobe test work) and microdiamond analysis of drill core and grab samples, all of which complement the core logging data and guide the 3D geological modelling process.
Bulk sampling of the various volumetrically significant subdomains is ongoing within the mining and treatment production schedules. The low grades of all kimberlites at Letšeng mean that substantial bulk samples are required to collect sufficient diamond data to confidently estimate grade and diamond value.
The timeline for updating the Resource and Reserve Statement was further impacted by the relatively internal geology recognised during the detailed petrographic studies on historical and new core obtained during the 2017-2018 drilling programme. As a result, additional core drilling is required to confirm the classification of certain portions of the Resource as Indicated.
The necessary additional core drilling commenced with a new drill rig purchased in November 2020. This drilling programme was designed to increase drillhole density in certain areas and confirm internal contacts. Logging and sampling of the core will be carried out at Letšeng in parallel with external petrographic analysis to complete the work required for the Resource and Reserve Statement and the supporting technical report.
Diamond sales
Travel and other COVID-19-related restrictions implemented in many countries worldwide, and particularly in Belgium, Israel and India, impacted on the Group's sales process. Flexible tender processes were successfully introduced in strict compliance with COVID-19 health and safety protocols, including appropriate social distancing guidelines and sanitation measures. This allowed for sales to be conducted by limited tender and/or allowing clients to view diamonds virtually before tendering. Additional rough diamond analysis information of selected large high-value diamonds was provided to assist clients who could not physically attend the tenders to virtually view the diamonds prior to bidding on the tender platform.
Six rough diamond tender viewings were held in Antwerp and one in Tel Aviv during the year. A total of 99 172 carats were sold by Gem Diamonds Marketing Services (2019: 111 292). Letšeng generated rough diamond revenue of US$189.2 million (2019: US$182.0 million), at an average price of US$1 908 per carat (2019: US$1 637).
Capital projects
Capital requirements for 2020 were reviewed as a result of COVID-19 with savings realised and a portion of planned capital expenditure deferred to future years. During the year, the limited capital spend related to the progress of the resource and reserve statement, the expansion of the Patiseng Tailings Storage Facility and the initial design work to replace the ageing primary crushing area (PCA). Details of overall costs and capital expenditure incurred at Letšeng during the period are included in CFO report on pages 36 to 42.
Business Transformation (BT) and Continuous Improvement (CI)
The Group's Business Transformation (BT) programme started in 2018, with the goal of delivering US$100 million in revenue, productivity and cost savings (against the 2017 base) by the end of 2021. 325 initiatives were identified to create a step change in efficiency, productivity and cost management, and to position Gem Diamonds favourably in its peer group. The BT programme included four primary workstreams - mining, processing, working capital and overheads, and corporate activities.
The target included US$7.1 million in once-off savings and US$92.9 million in cumulative recurring annualised benefits over the four-year period. This 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.
The successful implementation of the underlying initiatives over the past three years created a solid operational, financial and cultural platform for the Group to navigate the challenging operating environment over the past few years and more recently to absorb the external shock of the COVID-19 pandemic. The process underpinning the material initiatives that contribute to the US$100 million target are embedded and sustainable and, notwithstanding the 30-day shutdown and reduced operations in Q2 2020 which negatively impacted certain of the initiatives, the full delivery of the target by end 2021 remains on track. By the end of the year, the BT programme delivered US$79.2 million of the target.
-- 14 employees from across the levels part of CI Steering Committee -- 15 champions trained -- 25 employees making up taskforces -- 12 eomplyees up skilled and accredited as trainers through 'train the trainer' principle -- 4 300 hours of CI, leadership, visual management and problem solving -- 700 employees introduced to CI
BT programme annual cash saving (US$ million)
2018 2019 2020 2021
Cumulative saving 21 55 79 100
----- ----- ----- -----
Mining 5 17 16 11
Processing 13 12 2 4
Working capital and overheads 1 2 3 2
Corporate activities 2 3 3 4
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Many of the BT processes focused on improved efficiencies in the use of our natural resources, which also mitigate the operational impact on the natural environment. This supports the Group's strategy of maximising benefit for our communities and minimising our impact on the environment.
The transition from BT to CI at Letšeng is progressing well. CI focuses on behavioural strategies and the implementation of meaningful key performance indicators for effective visual management and problem solving (using the 5-WHY methodology) at all levels. CI, supported by software training, enables the Group to continuously improve efficiencies by unlocking the inherent capabilities of employees at all levels to implement CI best practices, build effective teams, drive incremental improvements and create a high-performance culture. The successful implementation of CI in the Mining area at Letšeng has resulted in marked operational efficiencies, such as improved adherence to drilling parameters and blasting quality during 2020. Roll-out to the Treatment and Services areas has commenced. Taskforce members in Treatment have been identified and they have undergone the introductory training.
Dam safety and integrity
Tailings dam integrity is an ongoing area of focus for mining companies and investors, in recognition of the possible adverse impact that a failure at one of these facilities may have on human lives and the natural environment. Letšeng has three dams on site - (i) the Patiseng tailings storage facility (TSF), which is currently in use for the deposition of coarse and fine slimes tailings, (ii) the old TSF, which is a semi-dormant facility currently used only for emergency deposition of fines tailings, and (iii) the Mothusi Dam, which is the mine's freshwater supply resource. These dams were constructed using the 'centre line and downstream tipping' method(1) . Most recent dam failures reported in the mining industry were related to dams built using 'upstream' construction methods.
The relevant details of these facilities are available in Gem Diamonds' voluntary disclosure as part of the Investor Mining & Tailings Safety initiative set up by the Church of England, which can be found under the Company's name at http://tailing.grida.no/ . Read more about progress in 2020 on page 50.
Reducing diamond damage
The unique diamond distribution in Letšeng's orebody comprises a high proportion of larger high-value Type II diamonds that are more susceptible to damage in mining and processing. Reducing diamond damage therefore provides an important opportunity for Gem Diamonds to significantly enhance revenue.
Opportunities to reduce diamond damage that show the most potential include:
-- early identification of diamonds within kimberlite; and -- non-mechanical means of liberating these diamonds within kimberlite.
Over the last five years, Gem Diamonds has made significant progress in identifying, validating and testing technologies from various industries that show potential for early detection and non-mechanical liberation of diamonds.
Following the successful proof of concept, the Group's wholly owned subsidiary, Gem Diamonds Innovation Solutions, constructed and commissioned a pilot plant at Letšeng in 2019 to test the technology under operating conditions. The pilot plant combines scanning technology that uses proprietary imaging and sorting algorithms to detect diamonds within kimberlite with high-voltage pulse power for non-mechanical fragmentation of composite materials to liberate the encapsulated diamonds.
A steering committee is in place to oversee the project, chaired by the CEO. Advancing of the pilot during the year was negatively impacted by COVID-19, the revised capital expenditure plan, inconstant electricity and water supply, and challenges with the reliability of certain key components. The work done to date demonstrates the potential of the technology to reduce diamond damage and the Group remains committed to the project. New partners were identified to advance the pilot processing plant to detect diamonds within kimberlite and further enhancement and testing will continue in 2021.
Providing clarity for customers
Increasing consumer interest in social and environmental factors when making buying decisions, particularly among younger consumers, provides an opportunity for ethical and responsible producers like Gem Diamonds. Blockchain technology is a way to securely link the source of rough diamonds with the final polished diamonds, proving their authenticity, provenance and traceability, and supporting ethical sourcing and processing in the diamond value chain. Solutions currently available offer consumers information about the country of origin of their diamonds, as well as the positive impact the mine and the broader industry have on the communities and countries in which they operate. We have been participating in the GIA's Diamond Origin programme since the start of 2020 and have been sending large, high-value diamonds for rough analysis as time and lockdown regulations allow.
FUTURE FOCUS AREAS 2021
Our focus to further reduce waste stripping will continue. An analysis was completed in 2020 to further steepen pit slope angles. A trial to further steepen the west side of the Satellite pipe is scheduled to commence in H1 2021.
Following the completion of the design work of the replacement PCA, the application for funding continues while the appropriate timing for the commencement of the project is being considered.
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 .
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
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 the report and accounts taken as a whole, are fair, balanced and understandable and that they provide the information necessary for shareholders to assess the Company'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 Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
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 position 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 and profit or loss 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 and financial performance. Where necessary, the Directors have made judgements and estimates that are reasonable.
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
10 March 2021
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 118 to 173, which comprise the consolidated statement of financial position as at 31 December 2020, 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 2020, 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
COVID-19 impact: Uncertainty with Our audit procedures included amongst others the following:
assumptions used to forecast the * We involved the EY internal valuation specialists as
prospective financial information part of our team to assist in evaluating management's
applied in the impairment and going impairment methodology and key assumptions used in
concern models. the impairment calculations;
Management performs an annual
impairment test on goodwill as required * Our valuation specialists calculated an independent
by IAS 36 Impairment weighted average cost of capital (WACC) to compare to
of Assets and an annual going concern management's WACC's. Our independent WACC
assessment using discounted and recalculation was based on publicly available market
undiscounted cash flows. data for comparable companies for the Letšeng
Goodwill relates to the Group's Cash Generating Unit (CGU);
investment in the Letšeng Diamond
mine.
* Our valuation specialists calculated an independent
During the year, the Covid-19 pandemic net present value (NPV) to compare to management's
and the resulting lockdown restrictions NPV;
halted production
at the Group's Letšeng mine for a
period. It further impacted trading and * Our valuation specialists assessed the reasonability
reduced the of the significant inputs and assumptions used in the
number of tenders due to the impairment and going concern models, such as diamond
availability of goods and lockdown prices, exchange rates, inflation rates, by comparing
restrictions. them to independent sources;
There is an inherent uncertainty in
forecasting and discounting future cash * We have performed sensitivity analyses around the key
flows, which forms assumptions used in the impairment and going concern
the basis of the Group's value in use models. We did this by increasing and decreasing the
calculations used in the impairment following assumptions in the model to determine the
model and the going impact on the headroom between the value of the
concern assessment. This was amplified recorded assets of the CGU and the value in use as
due to the economic and other effects calculated and the ability to continue as a going
of the Covid-19 concern. These included:
pandemic including uncertainty around
the duration of the pandemic and timing
of the recovery o Exchange rates
of the various world economies. The o Diamond prices
recent volatility in diamond prices, o Carats sold
exchange rates and * We have compared FY2020 budgeted results utilised,
discount rates resulted in additional against latest actual results available to understand
audit work in assessing the Group's management's ability to accurately estimate future
impairment model cash flows;
and ability to continue as a going
concern.
* We evaluated the progress on the renewal of the
As disclosed in Note 12 Impairment borrowing facilities through inquiry and inspection
testing and Note 1.2.2 Going Concern, of communications with lenders;
the Group uses discounted
and undiscounted cash flows to
determine the value in use for each * We assessed the adequacy of the Group's disclosures
cash generating unit and in terms of IAS 36 and IAS 1 in terms of the Going
also Group's ability to continue as a Concern, in the notes to the consolidated financial
going concern, on the basis of the statements.
following key assumptions:
* Diamond prices;
* Inflation rates;
* Production costs and volumes;
* Capital expenditure;
* Renewal of borrowing facilities;
* Discount rates; and
* Exchange rates
Given the above factors, the goodwill
impairment and the assessment of cash
flows in the going
concern model, 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.
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Other information
Management is responsible for the other information. The other information comprises the information included in the 185-page document titled "Gem Diamonds Limited Annual report and accounts 2020". The other information does not include the consolidated financial statements and our auditor's reports thereon.
Our opinion on the consolidated financial statements does not cover the other information and we do not express 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 and those charged with governance, 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 skepticism 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)
10 March 2021
102 Rivonia Road
Sandton
Private Bag X14
Sandton
2146
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
FOR THE YEARED 31 DECEMBER 2020
2020 2019
Notes US$'000 US$'000
-------------------------------------------------------------------------------------- ------ ----------
CONTINUING OPERATIONS
Revenue from contracts with customers 2 189 647 182 047
Cost of sales (113 802) (129 482)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Gross profit 75 845 52 565
Other operating (expense)/income 3 (3 911) 845
Royalties and selling costs (19 843) (16 904)
Corporate expenses (7 992) (9 418)
Share-based payments 28 (555) (784)
Foreign exchange (loss)/gain 4 (880) 3 550
Reclassification of foreign currency translation reserve 5 - 4
-------------------------------------------------------------------------------------- ------ ---------- ----------
Operating profit 4 42 664 29 858
Net finance costs 6 (4 411) (5 808)
---------- ----------
- Finance income 382 668
- Finance costs (4 793) (6 476)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Profit before tax for the year from continuing operations 38 253 24 050
-------------------------------------------------------------------------------------- ------ ---------- ----------
Income tax expense 7 (10 711) (9 020)
Profit after tax for the year from continuing operations 27 542 15 030
DISCONTINUED OPERATION
Loss after tax from discontinued operation 16 (3 264) (4 454)
-------------------------------------------------------------------------------------- ------ ---------- ----------
Profit for the year 24 278 10 576
-------------------------------------------------------------------------------------- ------ ---------- ----------
Attributable to:
Equity holders of parent 13 641 2 617
Non-controlling interests 10 637 7 959
-------------------------------------------------------------------------------------- ------ ---------- ----------
Earnings per share (cents) 8
- Basic earnings for the year attributable to ordinary equity holders of the parent 9.8 1.9
- Diluted earnings for the year attributable to ordinary equity holders of the parent 9.6 1.8
Earnings per share (cents) for continuing operations
- Basic earnings for the year attributable to ordinary equity holders of the parent 12.1 5.1
- Diluted earnings for the year attributable to ordinary equity holders of the parent 11.9 5.0
-------------------------------------------------------------------------------------- ------ ---------- ----------
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
2020 2019
Notes US$'000 US$'000
---------------------------------------------------------------------------------------- ------ ---------
Profit for the year 24 278 10 576
Other comprehensive income that will be reclassified to the Consolidated Statement of
Profit
or Loss in subsequent periods
Reclassification of foreign currency translation reserve, net of tax 5 - (4)
Exchange differences on translation of foreign operations, net of tax (14 049) 4 512
---------------------------------------------------------------------------------------- ------ --------- ---------
Other comprehensive (loss)/income for the year, net of tax (14 049) 4 508
---------------------------------------------------------------------------------------- ------ --------- ---------
Total comprehensive income for the year, net of tax 10 229 15 084
Attributable to:
Equity holders of the parent 3 779 1 763
Non-controlling interests 6 450 13 321
---------------------------------------------------------------------------------------- ------ --------- ---------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
2020 2019
Notes US$'000 US$'000
--------------------------------------------------------------- ------ ----------
ASSETS
Non-current assets
Property, plant and equipment 9 304 005 323 853
Right-of-use asset 10 4 823 8 454
Intangible assets 11 12 997 13 653
Receivables and other assets 13 153 -
Deferred tax assets 23 6 346 7 871
--------------------------------------------------------------- ------ ---------- ----------
328 324 353 831
--------------------------------------------------------------- ------ ---------- ----------
Current assets
Inventories 14 26 741 32 517
Receivables and other assets 13 5 686 6 337
Income tax receivable 21 106 8 189
Cash and short-term deposits 15 49 820 11 303
--------------------------------------------------------------- ------ ---------- ----------
82 353 58 346
--------------------------------------------------------------- ------ ---------- ----------
Assets held for sale 16 3 528 3 943
--------------------------------------------------------------- ------ ---------- ----------
Total assets 414 205 416 120
--------------------------------------------------------------- ------ ---------- ----------
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital 17 1 397 1 391
Share premium 885 648 885 648
Other reserves 17 (212 164) (202 857)
Accumulated losses (511 808) (525 449)
--------------------------------------------------------------- ------ ---------- ----------
163 073 158 733
--------------------------------------------------------------- ------ ---------- ----------
Non-controlling interests 84 422 85 424
--------------------------------------------------------------- ------ ---------- ----------
Total equity 247 495 244 157
--------------------------------------------------------------- ------ ---------- ----------
Non-current liabilities
Interest-bearing loans and borrowings 18 1 702 6 009
Lease liabilities 19 4 902 8 539
Trade and other payables 20 2 029 1 936
Provisions 22 12 331 15 588
Deferred tax liabilities 23 84 538 90 995
--------------------------------------------------------------- ------ ---------- ----------
105 502 123 067
--------------------------------------------------------------- ------ ---------- ----------
Current liabilities
Interest-bearing loans and borrowings 18 14 385 16 332
Lease liabilities 19 1 836 1 940
Trade and other payables 20 28 823 26 390
Income tax payable 21 11 940 13
--------------------------------------------------------------- ------ ---------- ----------
56 984 44 675
--------------------------------------------------------------- ------ ---------- ----------
Liabilities directly associated with the assets held for sale 16 4 224 4 221
--------------------------------------------------------------- ------ ---------- ----------
Total liabilities 166 710 171 963
--------------------------------------------------------------- ------ ---------- ----------
Total equity and liabilities 414 205 416 120
--------------------------------------------------------------- ------ ---------- ----------
Approved by the Board of Directors on 10 March 2021 and signed on its behalf by:
C Elphick M Michael Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
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 2020 1 391 885 648 (202 857) (525 449) 158 733 85 424 244 157
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Total
comprehensive
loss - - (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
17) 6 - (6) - - - -
Share-based
payments
(Note 28) - - 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 16) - - (53 046) (192 252) (245 298) - (245 298)
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Balance at 1
January 2019 1 390 885 648 (152 029) (578 834) 156 175 72 103 228 278
Total
comprehensive
income
(loss)/income - - (854) 2 617 1 763 13 321 15 084
------------- ------------- ------------ ------------ ---------- ---------------- -------------
Profit for the
year - - - 2 617 2 617 7 959 10 576
Other
comprehensive
income
(loss)/income - - (854) - (854) 5 362 4 508
------------- ------------- ------------ ------------ ---------- ---------------- -------------
Share capital
issued (Note
17) 1 - - - 1 - 1
Transfer
between
reserves(2) - - (50 768) 50 768 - - -
Share-based
payments
(Note 28) - - 794 - 794 - 794
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Balance at 31
December 2019 1 391 885 648 (202 857) (525 449) 158 733 85 424 244 157
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
Attributable
to
discontinued
operation
(Note 16) - - (51 916) (190 107) (242 023) - (242 023)
--------------- ------------- ------------- ------------ ------------ ---------- ---------------- -------------
1 Other reserves relate to Foreign currency translation reserves and Share based equity reserves. Refer Note 17, Issued capital and reserves for further detail.
2 In 2019 the Company elected to release share-based equity reserve relating to lapsed and exercised options to accumulated (losses)/retained earnings.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER 2020
2020 2019
Notes US$'000 US$'000
------------------------------------------------------------------- ------ ---------
Cash flows from operating activities 96 227 55 490
--------- ---------
Cash generated by operations 24.1 93 050 81 644
Working capital adjustments 24.2 464 (2 854)
Interest received 382 668
Interest paid (3 558) (5 181)
Income tax received/(paid) 21 5 889 (18 787)
------------------------------------------------------------------- ------ --------- ---------
Cash flows used in investing activities (48 718) (80 769)
--------- ---------
Purchase of property, plant and equipment 9 (1 571) (9 671)
Waste stripping costs capitalised 9 (47 167) (73 175)
Proceeds from sale of property, plant and equipment 20 2 077
------------------------------------------------------------------- ------ --------- ---------
Cash flows from financing activities (12 995) (14 076)
--------- ---------
Lease liabilities repaid 19 (1 906) (1 901)
Net financial liabilities repaid 24.3 (6 431) (12 175)
--------- ---------
Financial liabilities repaid (55 638) (47 056)
Financial liabilities raised 49 207 34 881
--------- ---------
Dividends paid to non-controlling interests (4 658) -
------------------------------------------------------------------- ------ --------- ---------
Net increase/(decrease) in cash and cash equivalents 34 514 (39 355)
Cash and cash equivalents at beginning of year 11 443 50 812
Foreign exchange differences 3 870 (24)
------------------------------------------------------------------- ------ --------- ---------
Cash and cash equivalents 49 827 11 443
--------- ---------
Cash and cash equivalents at end of year - continuing operation 15 49 820 11 303
--------- ---------
Cash and cash equivalents held at banks 49 820 11 188
Restricted cash - 115
--------- ---------
Cash and cash equivalents at end of year - discontinued operation 16 7 140
--------- ---------
Cash and cash equivalents held at banks 7 83
Restricted cash - 57
------------------------------------------------------------------- ------ --------- ---------
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
FOR THE YEARED 31 DECEMBER 2020
1. NOTES TO THE ANNUAL 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 10 March 2021.
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
2020:
------------------------------------------------------------------------------------------------------------
Name and Share-holding Cost of Country of Nature of business
registered address investment(1) incorporation
of company
-------------------
Subsidiaries
------------------- -------------- -------------- -------------- ---------------------------------------
Gem Diamond 100% US$17 RSA Technical, financial and management
Technical Services consulting services.
(Proprietary)
Limited(2)
Illovo Corner
24 Fricker Road
Illovo Boulevard
Johannesburg
South Africa
------------------- -------------- -------------- -------------- ---------------------------------------
Gem Equity Group 100% US$52 277 BVI Dormant holding investment company in
Limited(3) process of being voluntarily
2nd Floor, Coastal liquidated.
Building
Wickhams Cay II
PO Box 2221
Roadtown
Tortola
British Virgin
Islands
------------------- -------------- -------------- -------------- ---------------------------------------
Letšeng 70% US$126 000 Lesotho Diamond mining and holder of mining
Diamonds 303 rights. Letšeng Diamonds
(Proprietary) (Proprietary) Limited holds
Limited(2) 100% of the A class shares and 70% of
Letšeng the B class shares in Letšeng
Diamonds House Diamonds Manufacturing
Corner Kingsway (Proprietary) Limited, which is a
and Old School dormant company established in Lesotho
Roads to operate the in-country
Maseru diamond cutting and polishing.
Lesotho
------------------- -------------- -------------- -------------- ---------------------------------------
Gem Diamonds 100% US$5 844 579 Botswana Diamond mining; evaluation and
Botswana development; and holder of mining
(Proprietary) licences and concessions4.
Limited(2,4)
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 Calibrated Diamonds
Limited(2) Investment Holdings
Suite 1, 3rd (Proprietary) Limited; Gem Diamonds
Floor, Innovation Solutions CY Limited;
11-12 St. James Baobab Technologies BVBA;
Square, London and Gem Diamonds Marketing Services
SW1Y 4LB United BVBA, a marketing company that sells
Kingdom the Group's diamonds
on tender in Antwerp.
------------------- -------------- -------------- -------------- ---------------------------------------
1 The cost of investment represents original cost of investments at acquisition dates.
2 No change in the shareholding since the prior year.
3 During the year Gem Equity Group (GEG) sold its investments, 2% in Gem Diamonds Marketing
Services BVBA and 1% in Baobab Technologies investments, to Gem Diamonds Investments Limited.
Following the sale of GEG's investments the GEG Board of Directors resolved to voluntarily
liquidate GEG. As the operation is being closed and not sold the closure has been classified
as an abandonment by the Company.
4 The 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 16, 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, ie Board of Directors. The main geographical regions and the type of products
and services from which each reporting segment derives its revenue from are:
* Lesotho (diamond mining activities);
* Belgium (sales, marketing and manufacturing of
diamonds);
* BVI, RSA, UK and Cyprus (technical and administrative
services); and
* Botswana (diamond mining activities), 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 (Ghaghoo Diamond Mine), which during the prior year was classified as
a discontinued operation held for sale and separately disclosed, continues to be classified
as such as management remain committed to the sales process. Refer Note 16, Asset held for
sale.
During the year GEG, a dormant investment company, was abandoned. Following the sale of its
investments the Board of Directors of GEG resolved to voluntarily liquidate the operation,
which remains an ongoing process and is expected to be concluded subsequent to year end 31
December 2020. GEG is 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 Group
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:
Total
BVI, RSA UK Continuing Discontinued
Year ended 31 Lesotho Belgium and Cyprus(1) operations operation 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 618 189 028 - 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)/income (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 assets 396 040 1 694 6 597 404 331 3 528 407 856
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
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 drawndown 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 18, 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 six customers which amounted to US$66.9
million arising from sales reported in the Belgium segments.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.3
million and US$84.5 million respectively.
Total revenue for the year is higher than that of the prior year mainly due to higher sales
prices achieved of US$1 908 (2019: US$1 637).
During the year, COVID-19 had the following impact on revenue:
* Production volumes were negatively impacted as a
result of Letšeng's production ceasing on 28
March - 26 April 2020, in line with the COVID-19
lockdown restrictions instituted by the Government of
Lesotho.
* Six sales tenders were held compared to eight sales
tenders during the prior year.
Total
BVI, RSA UK Continuing Discontinued
Year ended 31 Lesotho Belgium and Cyprus(1) operations operation(2) Total
December 2019 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------- -------------- -------------- -------------- ----------- ------------- -----------
Revenue from
contracts with
customers
Total revenue 179 313 182 788 8 440 370 541 - 370 541
Intersegment (179 313) (741) (8 440) (188 494) - (188 494)
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
External customers - 182 047 - 182 047 - 182 047
Depreciation and
amortisation 57 293 374 539 58 206 - 58 206
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
- Depreciation and mining
asset amortisation 14 164 374 539 15 077 - 15 077
- Waste stripping cost
amortisation 43 129 - - 43 129 - 43 129
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Share-based equity
transactions 264 6 514 784 10 794
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Segment operating
profit/(loss) 38 524 863 (9 529) 29 858 (4 274) 25 584
Net finance costs (3 792) (262) (1 754) (5 808) (180) (5 988)
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Profit/(loss) before tax 34 732 601 (11 283) 24 050 (4 454) 19 596
Income tax expense (8 228) (151) (641) (9 020) - (9 020)
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Profit/(loss) for the year 15 030 (4 454) 10 576
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
EBITDA 49 014 1 206 (9 221) (40 999) (4 389) 36 610
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Segment assets 393 107 2 477 8 722 404 306 3 943 408 249
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Segment liabilities 59 854 600 16 293 76 747 4 221 80 968
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Other segment
information
Net cash and short-term
deposits(3) (2 964) 1 505 (8 881) (10 340) 140 (10 200)
Capital
expenditure
- Property, plant and
equipment 8 166 324 1 196 9 843 - 9 843
- Net movement in
rehabilitation(4) 157 - - 157 - 157
- Waste cost capitalised 73 175 - - 73 175 - 73 175
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Total capital expenditure 81 498 324 1 196 83 018 - 83 018
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
Average number of
employees employed under
contracts of service 362 6 24 392 33 425
--------------------------- -------------- -------------- -------------- ----------- ------------- -----------
1 No revenue was generated in BVI and Cyprus.
2 The results of Gem Diamonds Botswana, which has been classified as a discontinued operation
held for sale and which was previously included in the Botswana segment, has been reclassified
to the discontinued operation segment.
3 Calculated as cash and short-term deposits less drawndown 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 18, Interest-bearing loans and
borrowings).
4 Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates
for the Lesotho segment.
Included in annual revenue for the 2019 year is revenue from one customer which amounted to
US$21.1 million arising from sales reported in the Belgium segments.
Segment assets and liabilities do not include deferred tax assets and liabilities of US$7.9
million and US$91.0 million respectively.
1.2 Summary of significant accounting policies
1.2.1 Basis of preparation
The financial statements of the Group have been prepared in accordance with International
Financial Reporting Standards (IFRS), as issued by the International Accounting Standards
Board (IASB). These financial statements have been prepared under the historical cost basis
except for assets and liabilities measured at fair value. The accounting policies have been
consistently applied except for the adoption of the new standards and interpretations detailed
on the following pages.
The functional currency of the Company and certain of its subsidiaries is US dollar, which
is the currency of the primary economic environment in which the entities operate. All amounts
are presented in US dollar and rounded to the nearest thousand. The financial results of subsidiaries
whose functional and reporting currency is in currencies other than US dollar have been converted
into US dollar on the basis as set out in Note 1.2.16, Foreign currency translations.
The preparation of financial statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to exercise its judgement in the
process of applying the Group's accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are significant to the financial
statements, are disclosed in Note 1.2.28, Critical accounting estimates and judgements.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The Group adopted certain standards and amendments for the first time, which are effective
for annual periods beginning on or after 1 January 2020 and are listed in the table. The adoption
of these new accounting pronouncements has not had a significant impact on the consolidated
financial statements of the Group nor on the accounting policies, methods of computation or
presentation applied by the Group.
-------------------------------------------------------------------------------------------------------------
Amendments and New Standards Description
------------------------------------
The Conceptual Framework for Revised Conceptual Framework for Financial Reporting
Financial Reporting
------------------------------------ -----------------------------------------------------------------------
Amendments to IFRS 3 Definition of a business
------------------------------------ -----------------------------------------------------------------------
Amendments to IAS 1 and IAS 8 Definition of material
------------------------------------ -----------------------------------------------------------------------
Amendments to IFRS 9, IAS 39 and Interest rate benchmark reform - Phase 1
IFRS 7
------------------------------------ -----------------------------------------------------------------------
Amendments to IFRS 16 COVID-19 Related Rent Concessions
------------------------------------ -----------------------------------------------------------------------
Amendment to IFRS 16 - COVID-19 Related Rent Concessions
The amendment to IFRS 16, COVID-19 Related Rent Concessions, which is effective for annual
financial reporting periods beginning on or after 1 June 2020 has been early adopted by the
Group during the current financial reporting period.
The amendment in the form of a practical expedient, provides optional relief to lessees on
the treatment of rent concessions occurring as a direct consequence of the COVID-19 pandemic.
The expedient allows lessees to account for such rent concessions as if they were not lease
modifications if all of the following conditions are met:
(a) the change in lease payments results in revised consideration for the lease that is substantially
the same as, or less than, the consideration for the lease immediately preceding the change;
(b) any reduction in lease payments affects only payments originally due on or before 30 June
2021; and
(c) there is no substantive change to other terms and conditions of the lease.
The practical expedient was applied to all leases where there was a change in lease payments
granted by lessors as a direct consequence of COVID-19 related rental concessions. For leases
where concessions have been given in the form of forgiveness, the Group included the forgiveness
as negative variable lease payments in the Consolidated Statement of Profit or Loss. For leases
where concessions have been given in the form of payment deferrals, the Group continued to
account for the lease liability and right-of-use asset using the rights and obligations of
the existing lease, with a separate lease payable being recognised for the payment deferred
in the period when the allocated lease cash payment is due. This adoption did not have a material
impact on the Group. Refer Note 10, Right-of-use assets and Note 19, Lease liabilities.
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, and Description Effective date*
improvements
----------------------------------
IFRS 17 Insurance contracts 1 January 2023
---------------------------------- ------------------------------------- ----------------------------------
Amendments to IFRS 9, IAS 39, Interest Rate Benchmark Reform - 1 January 2021
IFRS 7, IFRS 4 and IFRS 16 Phase 2
---------------------------------- ------------------------------------- ----------------------------------
Amendments to IAS 37 Onerous contracts - cost of 1 January 2022
fulfilling a contract
---------------------------------- ------------------------------------- ----------------------------------
Amendments to IFRS 3 Reference to the Conceptual 1 January 2022
Framework
---------------------------------- ------------------------------------- ----------------------------------
Amendments to IAS 16 Property, plant and equipment 1 January 2022
proceeds before intended use
---------------------------------- ------------------------------------- ----------------------------------
Amendments to IAS 1 Classification of liabilities as 1 January 2023
current or non-current
---------------------------------- ------------------------------------- ----------------------------------
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets Pending
between an Investor and its
Associate or Joint Venture
---------------------------------- ------------------------------------- ----------------------------------
Improvement IFRS 1 Subsidiary as a first-time adopter 1 January 2022
---------------------------------- ------------------------------------- ----------------------------------
Improvement IFRS 9 Fees in the '10 per cent' test for 1 January 2022
derecognition of financial
liabilities
---------------------------------- ------------------------------------- ----------------------------------
Improvement IAS 41 Agriculture - Taxation in fair value 1 January 2022
measurements
---------------------------------- ------------------------------------- ----------------------------------
* Annual periods beginning on or after.
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.
The Group and its funders have 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 is effective from 1 January 2021. The
IBOR reform may potentially have an impact on the JIBAR and LIBOR linked interest-bearing
loans and borrowings, which includes the LSL215.0 million unsecured project debt facility
between Letšeng Diamonds and Nedbank Limited and the Export Credit Insurance Corporation
(ECIC) and the US$30.0 million revolving credit facility between Gem Diamonds Limited and
Nedbank Capital. Refer Note 18, Interest-bearing loans and borrowings for more information
regarding the maturities and the related benchmark rates subject to the IBOR reform on these
loans. The Group will continue to assess the impact of these amendments on the Group's Consolidated
Annual Financial Statements until initial application.
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 and Europe. 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 Company'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 Company,
its cash flows and liquidity position are presented in the Annual Report and Accounts. In
addition, Note 27, Financial risk management, includes the Company'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 2020 was US$34.6 million (31 December 2019: net debt US$10.2
million) and with its undrawn facilities of US$60.8 million, its liquidity (defined as net
cash and undrawn facilities) of US$95.4 million remains strong. However, the Group's Revolving
Credit facilities, which total US$70.8 million when fully unutilised, mature within the next
12 months, with US$34.0 million maturing in July 2021, US$30.0 million expiring on 31 December
2021 and the balance of US$6.8 million being a general banking facility with no set expiry
date (Refer Note 18, Interest-bearing loans and borrowings). Management have commenced discussions
with lenders to restructure and extend the maturity dates of these facilities and are confident
that the facilities will be restructured as per previous successful renewals. The uncertainty
that exists around the ongoing impact of COVID-19 on future cashflows was considered by performing
sensitivities on diamond pricing and diamond production volumes and continued strengthening
of the US$ 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 and the Company have 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 Annual Report and Accounts of the Company.
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 2020.
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 as referred under Note 1.2.28, Critical accounting estimates and judgements.
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 9, 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 as referred under Note 1.2.28, Critical accounting estimates and judgements.
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, 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 9, 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. If the costs of the stripping
activity asset and the inventory produced are not separately identifiable, a relevant production
measure is used to allocate the production stripping costs between the inventory produced
and the stripping activity asset.
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. Based on proven and probable reserves, the expected average stripping ratio over
the average life of the area being mined is used to amortise the stripping activity asset.
As a result, the stripping activity asset is carried at cost less amortisation and any impairment
losses. The average life of area cost per tonne is calculated as the total expected costs
to be incurred to mine the orebody divided by the number of tonnes expected to be mined. The
average life of area stripping ratio and the average life of area cost per tonne 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 16, 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
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 measures financial instruments at fair value at each reporting date.
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 basis, the Group determines whether transfers have occurred between
levels in the fair 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
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 17, 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).
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 program 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 component on the basis of the relative stand-alone price of
the lease component and the aggregate stand-alone price of the 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 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 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.
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 performance 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 Dividends
Dividends are 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.
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 9, Property, plant and equipment.
Exploration and evaluation expenditure
This policy requires management to make certain estimates and assumptions as to future events
and circumstances, in particular whether economically viable extraction operations are viable
where reserves have been discovered and whether indications of impairment exist. Any such
estimates and assumptions may change as new information becomes available. Refer Note 9, Property,
plant and equipment.
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 22, 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 12, 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.
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
4% to 5.3% (2019: 4% to 6%) 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 2020 of LSL14.69 (31 December 2019: LSL13.98).
Diamond prices
The 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 10.8% for revenue (2019: 11.2%) and 14.3% for costs (2019: 14.7%) 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 12, Impairment testing.
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 9, Property, plant and equipment, for further detail.
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 28, Share-based payments, for further
detail.
Identifying uncertainties over tax treatments
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. In March 2020, Letšeng lodged an objection to the assessment, which
was supported by the opinion of senior counsel, together with an application for the suspension
of payment. The suspension of payment was accepted. The LRA has subsequently lodged an application
to the Lesotho High Court pertaining to this matter, to which Letšeng is opposing. The
matter has been set down for hearing in August 2021.
Management do not believe an uncertain tax position exists as:
* there is no ambiguity in the application of the
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 and reflects good prospects of
success in setting aside the amended tax assessment.
No provision or contingent liability, relating to the amended tax assessment in question,
is required to be raised in the 2020 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 25, Commitments and contingencies.
2020 2019
US$'000 US$'000
------------------------------------------------------------------------------------------ ---------
2. REVENUE FROM CONTRACTS WITH CUSTOMERS
Sale of goods 189 028 182 046
Partnership arrangements 618 -
Rendering of services 1 1
----------------------------------------------------------------------------------------------- --------- ---------
189 647 182 047
----------------------------------------------------------------------------------------------- --------- ---------
The revenue from the sale of goods 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$0.6 million represents the additional uplift
from partnership arrangements for which revenue is recognised when the amount is guaranteed
(2019: Nil).
The revenue from the rendering of services mainly represents the services rendered on
third-party
diamond analysis and manufacturing, for which the revenue is recognised over time as the
services
are rendered.
No revenue was generated from joint operation arrangements during the current or prior year.
2020 2019
US$'000 US$'000
------------------------------------------------------------------------------------------ ---------
3. OTHER OPERATING (EXPENSES)/INCOME
Sundry income 26 90
Sundry expenses (23) (7)
(Loss)/profit on disposal and scrapping of property, plant and equipment (30) 762
COVID-19 Standing costs (3 884) -
------------------------------------------------------------------------------------------ --------- ---------
(3 911) 845
----------------------------------------------------------------------------------------------- --------- ---------
COVID-19 standing costs
In compliance with the Government of Lesotho's lockdown order, Letšeng temporarily
suspended
operations between 28 March and 26 April and placed the mine on care and maintenance. After
successfully engaging with the Government of Lesotho to designate mining as an essential
service,
a restart and ramp-up plan was implemented commencing in May, whereby normal production
levels
for both treatment plants were achieved by 27 May, with incidental waste mining commencing
in May and reaching normal levels in July. During the care and maintenance and ramp-up
periods
where normal waste stripping and carat production levels were disrupted, certain standing
fixed mining contract and ore stockpile movement costs incurred were recognised as abnormal
costs and have been expensed immediately in the Statement of profit or loss. Of these costs,
US$1.0 million related to costs incurred to implement protocols throughout the Group to
address
the risk and curb the spread of COVID-19.
2020 2019
US$'000 US$'000
-------------------------------------------------------------------------------------- ------------
4. OPERATING PROFIT
Operating profit includes such non-operating costs and income as listed below:
Depreciation and amortisation
Depreciation and amortisation excluding waste stripping costs (7 046) (12 400)
Depreciation of right-of-use assets (2 043) (2 526)
Waste stripping costs amortised (43 420) (43 129)
------------------------------------------------------------------------------------------- ---------- ------------
(52 509) (58 055)
(Less): Depreciation and mining asset amortisation capitalised to inventory 19 (151)
------------------------------------------------------------------------------------------- ---------- ------------
(52 490) (58 206)
------------------------------------------------------------------------------------------- ---------- ------------
Inventories
Cost of inventories recognised as an expense (105 524) (114 678)
------------------------------------------------------------------------------------------- ---------- ------------
Foreign exchange (loss)/gain
Foreign exchange (loss)/gain (880) 3 550
------------------------------------------------------------------------------------------- ---------- ------------
Lease expenses not included in lease liability
Mine site property (69) (146)
Equipment and service lease (7 280) (6 377)(1)
Contingent rental - Alluvial Ventures (5 190) (9 472)
Leased premises - (152)
------------------------------------------------------------------------------------------- ---------- ------------
(12 537) (16 147)(1)
------------------------------------------------------------------------------------------- ---------- ------------
Auditor's remuneration - EY
Group financial statements (296) (296)
Statutory (176) (155)
------------------------------------------------------------------------------------------- ---------- ------------
(472) (451)
------------------------------------------------------------------------------------------- ---------- ------------
Auditor's remuneration - other audit firms
Statutory (17) (17)
Other non-audit fees - EY
Tax compliance (5) (34)
Tax services advisory and consultancy (13) (9)
Other services(2) - (15)
------------------------------------------------------------------------------------------- ---------- ------------
(18) (58)
------------------------------------------------------------------------------------------- ---------- ------------
Other non-audit fees - other audit firms
Internal audit - (2)
Tax services advisory and consultancy (15) -
-------------------------------------------------------------------------------------- ---------- ------------
(15) (2)
------------------------------------------------------------------------------------------- ---------- ------------
Employee benefits expense
Salaries and wages(3) (15 782) (20 467)(4)
------------------------------------------------------------------------------------------- ---------- ------------
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 42 664 29 858
Other operating income(5) 27 (845)
Foreign exchange loss/(gain) 880 (3 550)
Share-based payments 555 784
Depreciation and amortisation (excluding waste stripping cost amortised) 9 070 14 752
------------------------------------------------------------------------------------------- ---------- ------------
Underlying EBITDA before discontinued operation 53 196 40 999
------------------------------------------------------------------------------------------- ---------- ------------
1 These expenses consist of mining activities outsourced to a mining contractor. In 2019 the
expense incorrectly included the portion of expenses which are capitalised to the Stripping
Actvity Asset, the comparatives have been corrected to exclude the capitalised expenses. This
did not impact the totals included within the Consolidated Annual Financial Statements nor
the earnings per share of 2019. Refer Significant accounting policies Note 1.2.6, Property
Plant and equipment, Note 1.2.28, Critical accounting estimates and judgements, Note 9, Property,
plant and equipment and Note 19, Lease liabilities.
2 Includes services related to the sale of assets.
3 Includes contributions to defined contribution plan of US$0.5 million (31 December 2019:
US$0.5 million). An average of 381 employees excluding contractors were employed during the
period (2019: 425).
4 In 2019 the discontinued operation salaries and wages were incorrectly included in this
disclosure, however this did not impact the totals included within the Consolidated Annual
Financial Statements nor the Earnings per share of 2019. The comparative has been corrected
to exclude the salaries and wages related to the discontinued operation.
5 Excludes COVID-19 standing costs which are considered as operating costs.
5. RECLASSIFICATION OF FOREIGN CURRENCY TRANSLATION RESERVE
During the prior year the Group abandoned Gem Diamonds Marketing Botswana (Proprietary) Limited,
the sales and marketing office for Ghaghoo's diamonds and Gem Diamonds Technology DMCC. As
the operations were closed and not sold the closure was classified as an abandonment, which
resulted in the recycling of the foreign currency translation reserve. There was no profit
or loss on the abandonment.
2020 2019
US$'000 US$'000
---------------------------------------------------------------------------- ---------
6. NET FINANCE COSTS
Finance income
Bank deposits 358 668
Other 24 -
---------------------------------------------------------------------------- --------- ---------
Total finance income 382 668
Finance costs
Bank overdraft - (459)
Finance costs on borrowings (3 297) (3 981)
Finance costs on lease liabilities (608) (1 087)
Finance costs on unwinding of rehabilitation and decommissioning provision (888) (949)
--------------------------------------------------------------------------------- --------- ---------
Total finance costs (4 793) (6 476)
--------------------------------------------------------------------------------- --------- ---------
(4 411) (5 808)
--------------------------------------------------------------------------------- --------- ---------
2020 2019
US$'000 US$'000
-------------------------------------------------------------------------- ------------
7. INCOME TAX EXPENSE
Current
- Foreign (11 593) (1 805)
Withholding tax
- Foreign (529) (143)
Deferred
- Foreign 1 411 (7 072)
------------------------------------------------------------------------------- ------------- ------------
Income tax expense (10 711) (9 020)
------------------------------------------------------------------------------- ------------- ------------
Profit before taxation from continuing operations 38 253 24 050
------------------------------------------------------------------------------- ------------- ------------
% %
-------------------------------------------------------------------------- ------------- ------------
Reconciliation of tax rate
Applicable income tax rate 25.0 25.0
Permanent differences (3.0) 0.8
Unrecognised deferred tax assets 3.0 7.9
Effect of foreign tax at different rates 1.7 3.2
Withholding tax 1.3 0.6
------------------------------------------------------------------------------- ------------- ------------
Effective income tax rate 28.0 37.5
------------------------------------------------------------------------------- ------------- ------------
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than
the statutory UK corporation tax rate of 19.0% as this is the jurisdiction in which the majority
of the Group's taxes are incurred.
------------------------------------------------------------------------------------------------------------
2020 2019
US$'000 US$'000
------------------------------------------------------------------------ ------------------
8. 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: 24 278 10 576
------------------ ------------------
- Continuing operations 27 542 15 030
- Discontinued operation (3 264) (4 454)
------------------ ------------------
Less: Non-controlling interests (10 637) (7 959)
----------------------------------------------------------------------------- ------------------ ------------------
Net profit attributable to ordinary equity holders of the parent for basic
and diluted earnings 13 641 2 617
----------------------------------------------------------------------------- ------------------ ------------------
Weighted average number of ordinary shares outstanding during the year
('000) 139 273 138 964
----------------------------------------------------------------------------- ------------------ ------------------
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.
2020 2019
Number of shares Number of shares
------------------------------------------------------------------------ ------------------ ------------------
Weighted average number of ordinary shares outstanding during the year 139 273 138 964
Effect of dilution:
- Future share awards under the Employee Share Option Plan 2 341 2 640
----------------------------------------------------------------------------- ------------------ ------------------
Weighted average number of ordinary shares outstanding during the year
adjusted for the effect
of dilution 141 614 141 604
----------------------------------------------------------------------------- ------------------ ------------------
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.
---------------------------------------------------------------------------------------------------------------------
9. PROPERTY, PLANT AND EQUIPMENT
Exploration
Stripping and
activity Mining develop-ment Decom-missioning Leasehold Plant and Other
asset asset assets assets Improvement equipment assets(1) Total
US$'000 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) 377 (16 520)
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
Balance at 31 December 2020 401 443 49 189 - 4 119 26 204 59 150 5 439 545 543
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
Net book value at 31 December
2020 185 912 65 861 - - 29 751 20 318 2 162 304 005
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
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 A reassessment of assets' useful lives was undertaken at Letšeng with certain assets'
useful lives being realigned from the period of mining lease to the life of mine. The reduction
in depreciation charge of US$3.4 million is expected to continue into the future. Refer Note
1.2.6 Property, plant and equipment.
Exploration
Stripping and
activity Mining develop-ment Decom-missioning Lease-hold Plant and Other
asset asset assets assets Improvement(1) equipment assets(1) Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------- ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
As at 31 December 2019
Cost
Balance at 1 January 2019 473 395 117 913 148 890 5 494 55 197 95 365 19 899 916 153
Additions 73 175 434 - - 19 8 727 506 82 861
Net movement in
rehabilitation provision - - - 157 - - - 157
Disposals - - - - - (292) (343) (635)
Reclassifications - 2 634 - - 8 085 (11 328) 609 -
Assets held for sale (Note
16) - - (150 911)(2) - (6 821) (10 195) (14 683) (173 230)
Foreign exchange differences 16 013 1 080 2 021 171 1 739 2 480 1 011 24 515
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
Balance at 31 December 2019 562 583 122 061 -(2) 5 822 58 219 84 757 6 999 849 821
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
Accumulated
depreciation/
amortisation/impairment
Balance at 1 January 2019 316 412 51 652 147 441 3 669 24 639 64 233 18 467 626 513
Charge for the year 43 129 1 963 - 310 5 279 4 223 625 55 529
Disposals - - - - - - (320) (320)
Assets held for sale (Note
16) - - (149 441)(2) - (6 821) (10 195) (14 683) (171 661)
Foreign exchange differences 9 847 321 2 000 123 768 1 867 981 15 907
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
Balance at 31 December 2019 369 388 53 936 -(2) 4 102 23 901 60 128 5 133 525 968
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
Net book value at 31 December
2019 193 195 68 125 -(2) 1 720 34 318 24 629 1 866 323 853
------------------------------ ---------- -------- ------------- ----------------- --------------- ---------- ---------- ----------
1 Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office
equipment.
2 In 2019 only a portion of the exploration and development asset cost and accumulated depreciation
was allocated to the asset held for sale, however this asset only related to the asset held
for sale. The previously incorrectly unallocated portion of cost and accumulated depreciation
of US$9.4 million, which had a net book value of nil, has been corrected in the prior period
property, plant and equipment reconciliation and allocated to asset held for sale. This correction
did not impact the totals included within the Consolidated Annual Financial Statements nor
the reported earnings per share.
Right-of-use assets
-------------------------------------------------------------------------------
Plant and equipment Buildings Total
US$'000 Motor vehicles US$'000 US$'000 US$'000
---------------------------- --------------------------- ----------------------- ------------ -----------
10. RIGHT-OF-USE ASSETS
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
---------------------------------- --------------------------- ----------------------- ------------ -----------
As at 31 December 2019
Cost
Balance at 1 January 2019 1 350 1 620 6 642 9 612
Additions 616 - 540 1 156
Foreign exchange differences 46 36 136 218
---------------------------------- --------------------------- ----------------------- ------------ -----------
Balance at 31 December 2019 2 012 1 656 7 318 10 986
---------------------------------- --------------------------- ----------------------- ------------ -----------
Accumulated depreciation
Balance at 1 January 2019
Charge for the year 977 360 1 189 2 526
Foreign exchange differences 3 1 2 6
---------------------------------- --------------------------- ----------------------- ------------ -----------
Balance at 31 December 2019 980 361 1 191 2 532
---------------------------------- --------------------------- ----------------------- ------------ -----------
Net book value at 31 December
2019 1 032 1 295 6 127 8 454
---------------------------------- --------------------------- ----------------------- ------------ -----------
Buildings comprise office buildings in Maseru, Antwerp, London and Johannesburg. Plant and
equipment mainly comprise back-up power generating equipment utilised at Letšeng. Motor
vehicles mainly comprise vehicles utilised by contractors at Letšeng.
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, Letšeng entered into a new contract with its existing ore processing
contractor. The original contract, which was assessed as containing a lease on adoption on
1 January 2019, was cancelled. 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. All assets and liabilities associated with the original lease were derecognised.
Furthermore, Gem Diamonds Limited (GDL) 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$0.2 million
relating to the derecognition of leases in the Group have been recognised in the Consolidated
Statement of Profit or Loss. Refer Note 19, Lease Liabilities and Note 24.1, Cash generated
by operations.
During the year the Group recognised income of US$0.3 million (2019: US$0.6 million) from
the sub-leasing of office buildings in Maseru. The Group expects to receive the following
lease payments from the operating sub-leasing in the following years:
-------------------------------------------------------------------------------------------------------------
US$ '000's
---------------------------------------------------------
2021 105
--------------------------------------------------------------- --------------------------------------------------
2022 111
--------------------------------------------------------------- --------------------------------------------------
2023 117
--------------------------------------------------------------- --------------------------------------------------
2024 123
--------------------------------------------------------------- --------------------------------------------------
2025 96
--------------------------------------------------------------- --------------------------------------------------
The Group early adopted IFRS 16 - COVID-19 Related Rent Concessions and applied the practical
expedient to all rental concessions received as a direct consequence of the COVID-19 pandemic.
This adoption did not have a material impact on the Group. Refer Note 1.2.1, Basis of preparation.
Intangibles Goodwill(1) Total
US$'000 US$'000 US$'000
---------------------------------------------------- ------------------ ----------------- -------------
11. INTANGIBLE ASSETS
As at 31 December 2020
Cost
Balance at 1 January 2020 791 13 653 14 444
Foreign exchange difference - (656) (656)
---------------------------------------------------------- ------------------ ----------------- -------------
Balance at 31 December 2020 791 12 997 13 788
---------------------------------------------------------- ------------------ ----------------- -------------
Accumulated amortisation
Balance at 1 January 2020 791 - 791
Amortisation - - -
---------------------------------------------------- ------------------ ----------------- -------------
Balance at 31 December 2020 791 - 791
---------------------------------------------------------- ------------------ ----------------- -------------
Net book value at 31 December 2020 - 12 997 12 997
---------------------------------------------------------- ------------------ ----------------- -------------
As at 31 December 2019
Cost
Balance at 1 January 2019 791 13 272 14 063
Foreign exchange difference - 381 381
---------------------------------------------------------- ------------------ ----------------- -------------
Balance at 31 December 2019 791 13 653 14 444
---------------------------------------------------------- ------------------ ----------------- -------------
Accumulated amortisation
Balance at 1 January 2019 791 - 791
Amortisation - - -
Balance at 31 December 2019 791 - 791
---------------------------------------------------------- ------------------ ----------------- -------------
Net book value at 31 December 2019 - 13 653 13 653
---------------------------------------------------------- ------------------ ----------------- -------------
1 Goodwill allocated to Letšeng Diamonds. Refer Note 12, Impairment for impairment testing.
2020 2019
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
12. 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 2020.
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
2020, 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 12 997 13 653
----------------------------------------------------------------------------------------------- --------- ---------
Balance at end of year 12 997 13 653
----------------------------------------------------------------------------------------------- --------- ---------
Movement in goodwill relates to foreign exchange translation from functional to
presentation
currency, as disclosed within Note 11, 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.
2020 2019
% %
----------------------------------------------------------------------------------------- --------- ---------
Discount rate - Letšeng Diamonds
Applied to revenue 10.8 11.2
Applied to costs 14.3 14.7
----------------------------------------------------------------------------------------------- --------- ---------
Value in use
Cash flows are projected for a period up to the date that the open pit mining is expected
to cease in 2034. 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 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 2020 exceeded the carrying value
by US$83.0 million (31 December 2019: US$86.0 million). The valuation is sensitive to input
assumptions particularly in relation to the foreign exchange assumption of the US dollar (US$)
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 in the second half of 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 10% strengthening of the LSL to the US$ to US$1:LSL13.20 or a further reduction
of 9% to the starting diamond prices would result in the recoverable amount equating to the
carrying value, with other valuation assumptions remaining the same.
As a result, no impairment charge was recognised during the year.
2020 2019
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
13. RECEIVABLES AND OTHER ASSETS
Non-current
Deposits 153 -
----------------------------------------------------------------------------------------- --------- ---------
Current
Trade receivables 22 89
Prepayments 1 349 1 087
Deposits - 94
Other receivables 135 797
VAT receivable 4 180 4 270
----------------------------------------------------------------------------------------------- --------- ---------
5 686 6 243
----------------------------------------------------------------------------------------------- --------- ---------
The carrying amounts above approximate their fair value due to the short-term maturities
of
the instruments.
Analysis of trade receivables based on their terms and conditions
Neither past due nor impaired - 39
Past due but not impaired:
Less than 30 days 22 50
30 to 60 days - -
60 to 90 days - -
90 to 120 days - -
----------------------------------------------------------------------------------------- --------- ---------
22 89
----------------------------------------------------------------------------------------------- --------- ---------
Based on the nature of the Group's client base, other financial assets and the negligible
exposure to credit risk, the expected credit loss is insiginificant and has no impact on the
Group.
---------------------------------------------------------------------------------------------------------------------
2020 2019
US$'000 US$'000
----------------------------------------------------------------
14 INVENTORIES
Diamonds on hand
Ore stockpiles
Consumable stores
-----------------------------------------------------------------
15 558 21 743
---------------------------------------------------------------------
2 365 1 816
8 818 8 958
--------------------------------------------------------------------- ----------------------------- ---------
26 741 32 517
----------------------------- ---------
Inventory is carried at the lower of cost or net realisable value. During the year no write
-- downs to net realisable value were recorded.
-----------------------------------------------------------------------------------------------------
2020 2019
US$'000 US$'000
----------------------------------------------------------------
15. CASH AND SHORT-TERM DEPOSITS
Cash on hand 4 1
Bank balances 35 456 10 971
Short-term bank deposit 14 360 331
---------------------------------------------------------------------- ------------------- -------------------
49 820 11 303
---------------------------------------------------------------------- ------------------- -------------------
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 2020, the Group had US$60.8 million (31 December 2019: US$69.9 million) of
undrawn facilities, representing the LSL500.0 million (US$34.0 million) three-year unsecured
revolving working capital facility at Letšeng, the Letšeng ZAR100.0 million (US$6.8
million) working capital facility and US$20.0 million from the Company's 12 month unsecured
revolving credit facility. For further details on these facilities, refer Note 18, Interest-bearing
loans and borrowings.
16. ASSETS HELD FOR SALE
In line with the strategic objective to dispose of non-core assets, the Board and Management
remain committed to the sale of Gem Diamonds Botswana (Pty) Ltd which owns the Ghaghoo Diamond
Mine. The binding agreement that Gem Diamonds entered into in June 2019 for the sale of 100%
of the share capital of GDB lapsed due to certain suspensive conditions not having been met,
however Management again opened the process to other prospective buyers during the year and
has entered into an exclusivity arrangement with an interested party with whom potential sale
discussions are continuing. The sales process faced considerable delays in 2020 largely due
to the impact of COVID-19 and in particular the related travel restrictions that prohibited
site visits which had been requested for due diligence purposes. This process is expected
to be concluded in 2021.
During the year, some consumable inventory items were written off relating to expired explosives
and plant consumables; and spares and accessories for automotives no longer on site.
The asset held for sale is carried at carrying value which is lower than fair value less costs
to sell. The fair value is based on unobservable market offers from potential buyers for the
disposal group, accordingly the non-recurring fair value measurement is included in level
3 of the fair value hierarchy.
The trading results of the operation continue to be classified as a discontinued operation
held for sale and are presented as follows:
2020 2019
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
Gross profit - -
Other costs (2 816) (4 389)
Inventory write-down (240) -
Share-based payments (6) (10)
Foreign exchange gain - 125
----------------------------------------------------------------------------------------------- --------- ---------
Operating loss (3 062) (4 274)
Net finance costs (202) (180)
----------------------------------------------------------------------------------------------- --------- ---------
Loss before tax from discontinued operation (3 264) (4 454)
Income tax expense - -
----------------------------------------------------------------------------------------- --------- ---------
Loss after tax from discontinued operation attributable to equity holders of the parent (3 264) (4 454)
----------------------------------------------------------------------------------------------- --------- ---------
Loss per share from discontinued operation (cents)
Basic (2.3) (3.2)
Diluted (2.3) (3.1)
----------------------------------------------------------------------------------------------- --------- ---------
Gem Diamonds Botswana incurred rental expenses from short-term leases of US$0.9 million (31
December 2019: US$1.6 million) during the year.
Gem Diamonds Botswana has estimated tax losses of US$185.2 million (31 December 2019: US$184.9
million) for which no deferred tax asset has been recognised. Deferred tax assets of US$0.3
million were recognised to the extent of the deferred tax liabilities. These have been offset
in the table below.
2020 2019
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
ASSETS
Non-current assets
Property, plant and equipment 1 533 1 568
----------------------------------------------------------------------------------------------- --------- ---------
Current assets
Inventories 1 774 2 136
Receivables and other assets 214 99
Cash and short-term deposits 7 140
----------------------------------------------------------------------------------------------- --------- ---------
1 995 2 375
----------------------------------------------------------------------------------------------- --------- ---------
Total assets 3 528 3 943
----------------------------------------------------------------------------------------------- --------- ---------
LIABILITIES
Non-current liabilities
Provisions 3 753 3 613
----------------------------------------------------------------------------------------------- --------- ---------
Current liabilities
Trade and other payables 471 608
Total liabilities 4 224 4 221
----------------------------------------------------------------------------------------------- --------- ---------
The net cash flows attributable to the discontinued operation held for sale are as
follows:
Operating cash outflows (2 920) (4 323)
Investing - -
Financing cash inflows(1) 2 850 4 384
Foreign exchange (loss)/gain on translation of cash balance (63) 2
----------------------------------------------------------------------------------------------- --------- ---------
Net cash (outflow)/inflow (133) 63
----------------------------------------------------------------------------------------------- --------- ---------
1 Financing provided by Gem Diamonds Botswana (Pty) Ltd's holding company, being Gem Diamonds
Limited, to fund care and maintenance costs.
17. ISSUED SHARE CAPITAL AND RESERVES
Share capital
31 December 2020 31 December 2019
------------------------------------------------ ------------------------------
Number of shares Number of shares
US$'000 US$'000 US$'000 US$'000
----------------------- ----------------------- ----------------------- ----------------- -----------
Authorised - ordinary
shares of US$0.01 each
As at year end 200 000 2 000 200 000 2 000
Issued and fully paid
balance at beginning of
year 138 984 1 391 138 896 1 390
Allotments during the year 628 6 88 1
Balance at end of year 139 612 1 397 138 984 1 391
----------------------------- ----------------------- ----------------------- ----------------- -----------
Share premium
Share premium comprises the excess value recognised from the issue of ordinary shares above
its par value.
Other reserves
Foreign currency Share-based equity
translation reserve reserve Total
US$'000 US$'000 US$'000
----------------------- ----------------------- ----------------------- ------------------------------
Balance at 1 January 2020 (208 493) 5 636 (202 857)
Other comprehensive income (9 862) - (9 862)
----------------------------- ----------------------- ----------------------- ------------------------------
Total comprehensive income (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)
----------------------------- ----------------------- ----------------------- ------------------------------
Balance at 1 January 2019 (207 639) 55 610 (152 029)
Other comprehensive expense (854) - (854)
----------------------------- ----------------------- ----------------------- ------------------------------
Total comprehensive expense (854) - (854)
Share-based payments - 794 794
Transfer between reserves(1) - (50 768) (50 768)
----------------------------- ----------------------- ----------------------- ------------------------------
Balance at 31 December 2019 (208 493) 5 636 (202 857)
----------------------------- ----------------------- ----------------------- ------------------------------
1 In the prior year the Company elected to release share-based equity reserve relating to
lapsed and exercised options to accumulated (losses)/retained earnings.
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 (2019: United
Arab Emirates operation abandoned in 2019) 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 2020 2019
----------------------- ----------------------- ------------------------------
Average rate ZAR/LSL to US$1 16.47 14.45
Year end ZAR/LSL to US$1 14.69 13.98
Average rate Pula to US$1 11.45 10.76
Year end Pula to US$1 10.80 10.58
Average rate Dirham to US$1 - 3.67
Year end Dirham to US$1 - 3.67
----------------------------- ----------------------- ----------------------- ------------------------------
Share-based equity reserves
For details on the share-based equity reserve, refer Note 28, Share-based payments.
Capital management
For details on capital management, refer Note 27, Financial risk management.
18. INTEREST-BEARING LOANS AND BORROWINGS
2020 2019
Effective interest rate Maturity US$'000 US$'000
--------------------------------- --------------------------------- ------------------- ---------
Non-current
LSL215.0 million bank loan
facility
Tranche 1 South African JIBAR + 3.15% 31 March 2022 477 4 291
Tranche 2 South African JIBAR + 6.50% 30 September 2022 817 1 168
ZAR12.8 million asset-based
finance facility South African Prime Lending Rate 1 January 2024 408 550
--------------------------------- --------------------------------- ---------
1 702 6 009
--------------------------------------------------------------------------------------------- --------- ---------
Current
LSL215.0 million bank loan
facility
Tranche 1 South African JIBAR + 3.15% 31 March 2022 635 3 433
Tranche 2 South African JIBAR + 6.75% 30 September 2022 3 268 667
--------------------------------- --------------------------------- ------------------------- --------- ---------
LSL14.5 million insurance
premium finance 2.95% fixed interest 30 June 2021 542 -
--------------------------------- --------------------------------- ------------------- --------- ---------
US$30.0 million bank loan London US$ three-month LIBOR +
facility 5.0% 31 December 2021 9 700 -
US$45.0 million bank loan
facility
London US$ three-month LIBOR +
Tranche 1 4.5% 31 December 2020 - 10 000
London US$ three-month LIBOR
Tranche 2 +4.5% 31 December 2020 - 2 000
--------------------------------- --------------------------------- ------------------------- --------- ---------
ZAR12.8 million asset-based
finance facility South African Prime Lending Rate 1 January 2024 176 232
--------------------------------- --------------------------------- ------------------------- --------- ---------
ZAR1.8 million insurance premium
finance 2.5% fixed interest 1 May 2021 64 -
--------------------------------- --------------------------------- ------------------- --------- ---------
14 385 16 332
--------------------------------------------------------------------------------------------- --------- ---------
LSL215.0 million (US$14.6 million) bank loan facility at Letšeng Diamonds
This loan comprises two tranches of debt as follows:
* Tranche 1: South African rand denominated ZAR180.0
million (US$12.2 million) debt facility supported by
the Export Credit Insurance Corporation (ECIC) (five
years tenure); and
* Tranche 2: Lesotho loti denominated LSL35.0 million
(US$2.4 million) term loan facility without ECIC
support (five years and six months 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 LSL76.3 million (US$5.2 million) (31 December 2019: LSL133.7 million (US$9.6 million))
remains outstanding.
The South African rand-based interest rates for the facility at 31 December 2020 are:
* Tranche 1: 10.10% (31 December 2019: 9.95%); and
* Tranche 2: 6.50% (31 December 2019: 13.55%).
The South African prime lending rate has reduced materially during the year due to the South
African Reserve Bank reducing the repo rate to provide relief during the COVID-19 pandemic.
Total interest for the year on this interest-bearing loan was US$0.6 million (31 December
2019: US$2.2 million).
US$30.0 million (2019: US$45.0 million) bank loan facility at Gem Diamonds Limited
This facility was a three-and-a-half-year revolving credit facility (RCF) with Nedbank Capital
which consisted of two tranches:
* Tranche 1: related to the Ghaghoo US$25.0 million
debt whereby capital repayments commenced in
September 2018 with final repayment made on 31
December 2020; and
* Tranche 2: this tranche of US$20.0 million related to
an RCF which included an upsize mechanism whereby the
tranche increased by a ratio of 0.6:1 for every
repayment made under Tranche 1.
Upon expiry of the RCF on 31 December 2020, it was rolled into a US$30.0 million facility
with no tranches for a period of 12 months. The facility will expire on 31 December 2021.
At year end US$Nil million (31 December 2019: US$10.0 million) had been drawn down under the
facility under Tranche 1 and US$10.0 million (31 December 2019: US$2.0 million) under Tranche
2 which was rolled into a new US$30.0 million RCF. This resulted in US$20.0 million remaining
undrawn under the new RCF. Facility rolling fees of US$0.3 million were incurred, which were
capitalised to the loan balance, resulting in the disclosure of a net US$9.7 million loan
balance. The capitalised rolling fees will be amortised and accounted for as finance costs
within profit or loss over the period of the facility (2020: nil). The US dollar-based interest
rate for this facility at 31 December 2020 is 4.72% (31 December 2019: 6.44%).
Total interest for the year on this interest-bearing RCF was US$1.2 million (31 December 2019:
US$1.7 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. At year end ZAR8.6 million (US$0.6 million) remains outstanding (31 December
2019: ZAR 10.9 million, US$0.8 million). The facility is repayable over five years and bears
interest at the South African Prime Lending rate, which was 7.00% at 31 December 2020 (31
December 2019: 10.00%).
Total interest for the year on this interest-bearing ABF was US$0.1 million (31 December 2019:
US$0.1 million).
ZAR14.5 million insurance premium finance
The Group through its subsidiary Letšeng Diamonds, entered into a LSL14.5 million (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. At year end LSL7.5
million (US$0.5 million) remains outstanding. The funding is repayable in 12-monthly instalments
and bears a fixed interest rate of 2.95%. Total interest on this funding is LSL0.4 million
(US$25.9 thousand) of which LSL0.3 million (US$18.9 thousand) was paid during the year.
ZAR1.8 million insurance premium finance
The Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR1.8 million
(US$0.1 million) 12-month funding agreement with Premium Finance Partners (Proprietary) Limited
for its annual Group Umbrella Liability insurance premium. At year end US$64.3 thousand remains
outstanding. The funding is repayable in 10-monthly instalments and bears interest at a fixed
rate of 2.50%. Total interest on this funding is ZAR45.2 thousand (US$2.7 thousand) of which
ZAR18.3 thousand (US$1.1 thousand) interest was paid during the year.
Other facilities
The Group through its subsidiary Letšeng Diamonds, has a LSL500.0 million (US$34.0 million)
three-year unsecured revolving working capital facility jointly with Standard Lesotho Bank
and Nedbank Capital, which was renewed in July 2018 and expires in July 2021. The facility
is expected to be renewed during 2021. There was no draw down of this facility at year end.
The Group, through its subsidiary, Letšeng Diamonds, has a ZAR100.0 million (US$6.8 million)
overdraft facility with Nedbank Limited (acting through its Nedbank Corporate and Investment
Banking division). There was no draw down of this facility at year end.
2020 2019
US$'000 US$'000
------------------------------------------------------------------------ -------------
19. LEASE LIABILITIES
Non-current 4 902 8 539
Current 1 836 1 940
------------------------------------------------------------------------------ ------------- -------------
Total lease liabilities 6 738 10 479
------------------------------------------------------------------------------ ------------- -------------
Reconciliation of movement in lease liabilities
As at 1 January 10 479 11 043
Additions 1 175 1 156
Interest expense 608 1 087
Lease payments (2 522) (2 988)
Derecognition of lease (2 296) -
Foreign exchange differences (705) 181
------------------------------------------------------------------------------ ------------- -------------
As at 31 December 6 739 10 479
------------------------------------------------------------------------------ ------------- -------------
Lease payments comprise payments in principle of US$1.9 million (31 December 2019: US$1.9
million) and repayments of
interest US$0.6 million (31 December 2019: US$1.1 million).
The Group recognised variable lease payments of US$41.4 million (31 December 2019: US$53.6
million) for the year ended
31 December 2020 which consist of mining activities outsourced to a mining contractor. Total
costs incurred for the year
amount to US$41.4 million (31 December 2019: US$53.6 million) of which US$34.1 million (31
December 2019:
US$47.2 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.
Residual value guarantees of US$0.1 million (31 December 2019: US$0.1 million) exist on leases
for backup power generating
equipment at Letšeng, which represents the cost to decommission and return the power
generating equipment to the
supplier at the end of the lease term.
2020 2019
US$'000 US$'000
----------------------------------------------------------------------- -------------
20. TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits(1) 2 029 1 936
----------------------------------------------------------------------------- -------------- -------------
Current
Trade payables(2) 12 892 13 368
Accrued expenses(2) 8 169 8 817
Leave benefits 685 615
Royalties and withholding taxes(2) 3 955 3 573
Dividend payable to non-controlling interest 3 064 -
Other 58 17
----------------------------------------------------------------------------- -------------- -------------
28 823 26 390
----------------------------------------------------------------------------- -------------- -------------
1 The severance pay benefits arise due to legislation within the Lesotho jurisdiction, requiring
that two weeks of severance pay be provided for every completed year of service, payable on
retirement.
2 These amounts are mainly non-interest bearing and are settled in accordance with terms agreed
between the parties.
Royalties consist of a levy paid to the Government of the Kingdom of Lesotho on the value
of diamonds sold by Letšeng.
In November, Letšeng declared a LSL400.0 million dividend (US$24.8 million), of which
LSL150.0 million remains unpaid at year end (US$10.2 million). The dividend payable to the
Non-controlling interest represents 30% of the unpaid dividend, payable to the Government
of Lesotho.
The carrying amounts above approximate fair value.
2020 2019
US$'000 US$'000
-------------------------------------------------- ---------
21. INCOME TAX PAYABLE/(RECEIVABLE)
Reconciliation of movement in income tax payable
Balance at 1 January (8 176) 8 964
Payments received/(made) during the year 5 889 (18 787)
Income tax charge 11 593 1 948
Foreign exchange differences 2 528 (301)
-------------------------------------------------------- --------- ---------
Balance at 31 December 11 834 (8 176)
-------------------------------------------------------- --------- ---------
Split as follows
Income tax receivable (106) (8 189)
Income tax payable 11 940 13
-------------------------------------------------------- --------- ---------
2020 2019
US$'000 US$'000
--------------------------------------------------------------------------------------- ---------
22. PROVISIONS
Rehabilitation provisions 12 331 15 588
--------------------------------------------------------------------------------------------- --------- ---------
Reconciliation of movement in rehabilitation provisions
Balance at 1 January 15 588 17 876
Decrease during the year (3 125) (295)
Unwinding of discount rate 888 1 130
Transferred to liabilities directly associated with the asset held for sale (Note 16) - (3 613)
Foreign exchange differences (1 020) 490
--------------------------------------------------------------------------------------------- --------- ---------
Balance at 31 December 12 331 15 588
--------------------------------------------------------------------------------------------- --------- ---------
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 the Lesotho mining
area, management used a discount rate of 9.7% (31 December 2019: 6.7%), estimated rehabilitation
timing of 15 years (31 December 2019: 17 years) and an inflation rate of 5.3% (31 December
2019: 5.0%). At the Botswana mining area, management used the available estimated costs to
rehabilitate, considering its care and maintenance state. In addition to the changes in the
discount rates, inflation and rehabilitation timing, the (decrease)/increase in the provision
at Letšeng and Ghaghoo (Refer Note 16, Asset held for sale) respectively is 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.
2020 2019
US$'000 US$'000
-------------------------------------------------------------------------- --------------
23. DEFERRED TAXATION
Deferred tax assets
Lease liabilities 1 683 2 705
Accrued leave 263 52
Provisions 4 400 5 114
-------------------------------------------------------------------------------- -------------- --------------
6 346 7 871
-------------------------------------------------------------------------------- -------------- --------------
Deferred tax liabilities
Property, plant and equipment (79 902) (84 532)
Right-of-use assets (1 236) (2 174)
Prepayments (218) (251)
Unremitted earnings (3 182) (4 038)
-------------------------------------------------------------------------------- -------------- --------------
(84 538) (90 995)
-------------------------------------------------------------------------------- -------------- --------------
Net deferred tax liability (78 192) (83 124)
Reconciliation of net deferred tax liability
Balance at beginning of year (83 124) (74 054)
Movement in current period:
- Accelerated depreciation for tax purposes 548 (6 914)
- Accrued leave 21 (4)
- Operating lease liability - (351)
- Unremitted earnings 857 -
- Prepayments 29 41
- Provisions 12 (351)
- Lease liabilities (582) 2 626
- Right-of-use assets 527 (2 112)
- Foreign exchange differences 3 520 (2 005)
-------------------------------------------------------------------------------- -------------- --------------
Balance at end of year (78 192) (83 124)
-------------------------------------------------------------------------------- -------------- --------------
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$97.1 million (31 December
2019: US$127.9 million).
The Group has estimated tax losses of US$34.0 million (31 December 2019: US$27.5 million).
All tax losses are generated in jurisdictions where tax losses do not expire. No deferred
tax assets were recognised on these losses.
2020 2019
Notes US$'000 US$'000
----------------------------------------------------------------------------- ------ ---------
24. CASH FLOW NOTES
24.1 Cash generated by operations
Profit before tax for the year - continuing operations 38 253 24 050
Loss for the year - discontinued operation (3 264) (4 454)
Adjustments for:
Depreciation and amortisation excluding waste stripping 4 7 027 12 551
Depreciation on right-of-use assets 10 2043 2 526
Waste stripping cost amortised 4 43 420
Finance income 6 (382) 43 129
Finance costs 6, 16 4 994 (668)
Unrealised foreign exchange differences (4 019) 6 656
Loss/(profit) on disposal and scrapping of property, plant and equipment 30 (4 184)
Gain on derecognition of leases (150) (762)
Inventory write down 16 240 -
Reclassification of foreign currency translation reserve - -
Movement in prepayment - (4)
Bonus, leave and severance provisions raised 4 317 (647)
Share-based payments 561 3 108(1)
Adjustments for: 794
Environmental rehabilitation realignment - (451)(1)
Gain on abandoment (20) -
----------------------------------------------------------------------------- ------ --------- ---------
93 050 81 644
------------------------------------------------------------------------------------ ------ --------- ---------
24.2 Working capital adjustment
Decrease/(Increase) in inventory 3 489 (851)
Decrease in receivables 1 316 1 596
Decrease in payables (4 341) (3 599)
------------------------------------------------------------------------------------ ------ --------- ---------
464 (2 854)
------------------------------------------------------------------------------------ ------ --------- ---------
24.3 Cash flows from financing activities (excluding lease liabilities)
Balance at beginning of year 22 341 34 166
Net cash used in financing activities (6 431) (12 175)
--------- ---------
- Financial liabilities repaid (55 638) (47 056)
- Financial liabilities raised 49 207 34 881
--------- ---------
Interest paid (2 884) (4 094)
Non-cash movements 3 060 4 444
--------- ---------
- Interest accrued 2 884 4 094
- Financial liabilities raised(2) 1 047 -
- Foreign exchange differences (871) 350
------------------------------------------------------------------------------------ ------ --------- ---------
Balance at year end 18 16 086 22 341
------------------------------------------------------------------------------------ ------ --------- ---------
1 These amounts have been disaggregated in the current year for comparative purposes, and
were previously grouped and disclosed as other non-cash movements in 2019.
2 This amount 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 installments
to the lender. Refer Note 18, Interest bearing loans and borrowings.
2020 2019
US$'000 US$'000
----------------------------------------------------------------------------------------- ---------
25. 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 162 149
- After one year but not more than five years 695 862
- More than five years 993 1 821
----------------------------------------------------------------------------------------------- --------- ---------
1 850 2 832
----------------------------------------------------------------------------------------------- --------- ---------
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 52 855 59 267
- After one year but not more than five years 181 904 254 218
----------------------------------------------------------------------------------------------- --------- ---------
234 759 313 485
----------------------------------------------------------------------------------------------- --------- ---------
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 37 39
- After one year but not more than five years 50 69
----------------------------------------------------------------------------------------------- --------- ---------
87 108
----------------------------------------------------------------------------------------------- --------- ---------
Capital expenditure
Approved but not contracted for 1 091 3 299
Approved and contracted for 372 1 490
----------------------------------------------------------------------------------------------- --------- ---------
1 463 4 789
----------------------------------------------------------------------------------------------- --------- ---------
The main capital expenditure approved relates to investment in continued tailings storage
extension of US$1.0 million (31 December 2019: US$0.6 million), investment at the mining fleet
maintenance workshop of US$0.3 million (31 December 2019: nil) and the purchase of safety
equipment and vehicles US$0.1 million. The expenditure is expected to be incurred over the
next 12 months but will be assessed in line with the uncertainty presented by the COVID-19
pandemic.
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% of the value (after costs) of the diamonds recovered by Alluvial
Ventures and is limited to US$1.4 million per individual diamond. As at the reporting date,
such future sales cannot be determined.
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 2019: US$0.2 million).
The Group monitors possible tax claims within the various jurisdictions in which the Group
operates. Management applies judgement in identifying uncertainties over tax treatments and
concluded that there were no uncertain tax treatments relating to the current year. Refer
Note 1.2.28, Critical accounting estimates and judgements. There remains a risk that further
tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome
in some cases, the Group does not anticipate that there will be any material impact on the
Group's results, financial position or liquidity.
26. RELATED PARTIES
----------------------------------------------------------------------------------------------------------------------
Related party Relationship
-------------------------------------------------------
Jemax Management (Proprietary) Limited Common director
------------------------------------------------------- -------------------------------------------------------------
Government of the Kingdom of Lesotho Non-controlling interest
------------------------------------------------------- -------------------------------------------------------------
Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.
2020 2019
US$'000 US$'000
------------------------------------------------------- ------------------------------
Compensation to key management personnel (including
Directors)
Share-based equity transactions 344 440
Short-term employee benefits 3 612 3 063
------------------------------------------------------- ----------------------------- ------------------------------
3 956 3 503
------------------------------------------------------- ----------------------------- ------------------------------
Fees paid to related parties
Jemax Management (Proprietary) Limited (83) (83)
------------------------------------------------------- ----------------------------- ------------------------------
Royalties paid to related parties
Government of the Kingdom of Lesotho (18 425) (15 459)
------------------------------------------------------- ----------------------------- ------------------------------
Lease and licence payments to related parties
Government of the Kingdom of Lesotho (132) (146)
------------------------------------------------------- ----------------------------- ------------------------------
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited (4) (5)
------------------------------------------------------- ----------------------------- ------------------------------
Amount included in trade payables owing to related
parties
Jemax Management (Proprietary) Limited (9) (9)
------------------------------------------------------- ----------------------------- ------------------------------
Amounts owing to related party
Government of the Kingdom of Lesotho (3 955) (3 537)
------------------------------------------------------- ----------------------------- ------------------------------
Dividends declared
Government of the Kingdom of Lesotho (7 452) -
------------------------------------------------------- ----------------------------- ------------------------------
Dividends payable
Government of the Kingdom of Lesotho (3 064) -
------------------------------------------------------- ----------------------------- ------------------------------
Jemax Management (Proprietary) Limited provided administrative services with regard to the
mining activities undertaken by the Group. A controlling interest is held by an Executive
Director of the Company.
The above transactions were made on terms agreed between the parties and were made on terms
that prevail in arm's length transactions.
27. 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 2020, the Group had US$60.8 million (31 December 2019: US$69.9 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 18, 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 and contracted sales arrangements adjusted for the
Group's specific operations.
The Group does not have any financial instruments that may
fluctuate as a result of commodity
price movements.
(ii) Foreign exchange 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.
* 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
2020.
There has been no change in the assumptions or method applied
from the prior year.
Sensitivity analysis
At year end, Letšeng had US$31.1 million cash on hand.
If the US dollar had appreciated/(depreciated)
by 10% against the LSL, the Group profit before tax at 31
December 2020 would have been US$2.8
million (lower)/higher (31 December 2019: immaterial).
(iii) Forward exchange contracts
The Group enters into forward exchange contracts to hedge the
exposure to changes in foreign
currency of future sales of diamonds at Letšeng
Diamonds. The Group performs no hedge
accounting. At 31 December 2020, the Group had no forward
exchange contracts outstanding (31
December 2019: US$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 (2019: 60 basis points) during the year,
profit before tax and equity would
have been US$0.1 million (lower)/higher (31 December 2019:
US$0.2 million). The assumed movement
in basis points is based on the currently observable market
environment, which has been impacted
by the COVID-19 pandemic.
b) Credit risk
The Group's potential concentration of credit risk consists mainly of cash deposits with
banks,
trade receivables 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 the carrying
value
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.
No other financial assets are impaired or past due and accordingly, no additional
analysis
has been provided.
The Group did not hold any form of collateral or credit enhancements for its credit
exposures
during the 31 December 2020 and 31 December 2019 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 sell a financial asset quickly 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$60.8 million at year end (2019: US$69.9 million).
The table below summarises the maturity profile of the Group's financial liabilities at
31
December based on contractual undiscounted payments, excluding discontinued operation:
2020 2019
US$'000 US$'000
--------------------------- ------------------------------
Floating interest rates
Interest-bearing loans and
borrowings
- Within one year 14 960 17 734
- After one year but not
more than five years 1 750 6 636
--------------------------- ----------------------------- ------------------------------
Total 16 710 24 370
--------------------------- ----------------------------- ------------------------------
Lease liabilities
- Within one year 2 375 2 895
- After one year but not
more than five years 5 880 10 416
--------------------------- ----------------------------- ------------------------------
Total 8 255 13 311
--------------------------- ----------------------------- ------------------------------
Trade and other payables
- Within one year 28 823 26 390
- After one year but not
more than five years 2 029 1 936
--------------------------- ----------------------------- ------------------------------
Total 30 852 28 326
--------------------------- ----------------------------- ------------------------------
2020 2019
US$'000 US$'000
----------------------------------------------------- --------------------------------
28. 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 555 784
Equity-settled share-based payment transactions charged to
the statement of profit or loss
- discontinued operation 6 10
----------------------------------------------------------- ---------------- --------------------------------
561 794
----------------------------------------------------------- ---------------- --------------------------------
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 four 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);
* if the performance or service conditions are not met,
the options lapse;
* the performance conditions relating to the non-market
conditions are not reflected in the fair value of the
award at grant date;
* once the awards vest, they are exercisable for seven
years (ie. contractual term is 10 years); and
* the vested awards are equity settled.
To Executive Directors:
* the awards vest over a three-year period;
* the vesting of the award is dependent on service
conditions and both market and non-market performance
conditions;
* 75% of the awards granted are subject to non-market
conditions and 25% to market conditions by reference
to the Company's total shareholder return (TSR) as
compared to a group of principal competitors;
* if the performance or service conditions are not met,
the options lapse;
* the performance conditions relating to the non-market
conditions are not reflected in the fair value of the
award at grant date;
* once the awards vest, they are exercisable for seven
years (ie. contractual term is 10 years); and
* the vested awards are equity settled.
The fair value of the Nil value awards is based on the observable Gem Diamonds Limited share
price on the date of award with no adjustments to the price made.
The following table reflects details of all the awards within the 2007 LTIP that remain
outstanding:
LTIP LTIP LTIP LTIP LTIP September
March 2016 April 2015 June 2014 March 2014 2012
----------------- ---------------- ---------------- ---------------- -------------- ----------------
Number of options
granted - Nil value 1 215 000 1 215 000 456 750 625 000 312 000
Number of options
granted - Market
value 185 000 185 000 152 250 - 624 000
Date exercisable 15 March 2019 1 April 2018 10 June 2017 19 March 2017 1 January 2016
Options outstanding 146 451 53 114 58 209 15 000 -
Dividend yield (%) 2.00 2.00 0.00 0.00 0.00
Expected volatility(1)
(%) 39.71 37.18 37.25 - 42.10
Risk-free interest
rate(2) (%) 0.97 1.16 1.94 - 0.33
Expected life of
option (years) 3.00 3.00 3.00 3.00 3.00
Exercise price (US$) nil nil nil nil 2.85
Exercise price (GBP) nil nil nil nil 1.78
Weighted average share
price (US$) 1.56 2.10 2.70 2.87 2.85
Fair value of nil
value options (US$) 1.40 1.97 2.70 2.87 2.85
Fair value of nil
value options (GBP) 0.99 1.33 1.61 1.74 1.78
Fair value of market
value options (US$) 0.69 1.18 1.83 - 1.66
Fair value of market
value options (GBP) 0.49 0.80 1.09 - 1.04
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.
LTIP 2017 Award
Under the 2017 LTIP rules, there are four awards where options are still outstanding.
All the awards were issued on the same basis as the 2007 LTIP.
During the current year, one new award was made as follows:
LTIP 2017 Award - June 2020
On 9 June, 1 249 000 nil-cost options were granted to certain key employees and Executive
Directors. 180 000 of the options granted relate to market conditions. The options vest after
a three-year period and are exercisable between 9 June 2023 and 8 June 2030. 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,
and therefore the Company will assess the likelihood of these conditions being met with a
relevant adjustment to the cumulative charge as required at each financial year end. The fair
value of the nil-cost options is GBP0.15 (US$0.19). Of the 1 249 000 options originally granted,
1 229 356 are still outstanding following the resignation of a number of employees, the lapsing
of awards due to certain performance conditions not having been met and management's estimates
of the vesting of the remaining tranches.
The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:
LTIP June 2020 LTIP March 2019 LTIP March 2018 LTIP July 2017
----------------- ---------------- ---------------- ---------------- --------------------------------
Number of options
granted - nil value 1 069 000 1 160 500 1 265 000 1 150 000
Number of options
granted - market
value 180 000 142 500 185 000 185 000
Date exercisable 9 June 2023 20 March 2022 20 March 2021 4 July 2020
Options outstanding 1 229 356 1 102 732 1 034 136 248 584
Dividend yield (%) 0.00 0.00 0.00 2.00
Expected volatility(1)
(%) 47.00 43.00 40.00 40.21
Risk-free interest
rate(2) (%) 0.34 1.2 1.2 0.67
Expected life of
option (years) 3.00 3.00 3.00 3.00
Exercise price nil nil nil nil
(US$)
Exercise price nil nil nil nil
(GBP)
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$) 0.19 0.58 0.74 0.72
Fair value of market
value options (GBP) 0.15 0.44 0.53 0.56
Model used Monte Carlo Monte Carlo Monte Carlo Monte Carlo
----------------- ---------------- ---------------- ---------------- --------------------------------
The following table illustrates the number ('000) and movement in the outstanding share options
during the year:
2020 2019
US$'000 US$'000
----------------------------------------------------- --------------------------------
Outstanding at beginning of year 4 002 3 538
Granted during the year 1 249 1 303
Exercised during the year(3) (480) (81)
Forfeited (884) (758)
----------------------------------------------------------- ---------------- --------------------------------
Balance at end of year 3 887 4 002
----------------------------------------------------------- ---------------- --------------------------------
Exercisable at end of year 535 613
----------------------------------------------------------- ---------------- --------------------------------
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.
3 Options were exercised regularly throughout the year. The weighted average share price during
the year was GBP0.39 (US$0.50). (2019: GBP0.80 (US$1.02))
The weighted average remaining contractual life for the share options outstanding as at 31
December 2020 was 7.5 years (2019: 8.0 years).
The weighted average fair value of the share options outstanding as at 31 December 2020 was
US$0.79 (2019: US$1.02).
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$0.96). These shares vested on 18 March 2019 and became immediately
exercisable. The fair value of these outstanding awards at 31 December 2020 was GBP0.41 (2019:
GBP0.41). The shares outstanding at the end of the year are as follows:
2020 2019
US$'000 US$'000
----------------------------------------------------- --------------------------------
Outstanding at beginning of year 47 47
Granted during the year - -
Exercised during the year (30) -
----------------------------------------------------- ---------------- --------------------------------
Balance at end of year 17 47
----------------------------------------------------------- ---------------- --------------------------------
Exercisable at end of year 17 47
----------------------------------------------------------- ---------------- --------------------------------
29. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the current portions of
the prepayment disclosed in Note 13, Receivables and other assets, which do not meet the criteria
of a financial asset. These prepayments are carried at amortised cost.
2020 2019
Notes US$'000 US$'000
---------------------------------------------- --------------------------------------- ----------
Financial assets at amortised cost
Cash (net of overdraft) - continuing operations 16 49 821 11 303
Cash - discontinued operation 17 7 140
Receivables and other assets - continuing
operations 14 4 490 4 735
Receivables and other assets - discontinued
operation 17 195 99
Total 54 513 16 277
---------------------------------------------------- --------------------------------------- ---------- ----------
Total non-current 153 -
---------------------------------------------- --------------------------------------- ---------- ----------
Total current 54 360 16 277
---------------------------------------------------- --------------------------------------- ---------- ----------
Financial liabilities at amortised cost
Interest-bearing loans and borrowings 19 16 087 22 341
Trade and other payables - continuing operations 21 30 852 28 325
Trade and other payables - discontinued operation 17 471 608
---------------------------------------------------- --------------------------------------- ---------- ----------
Total 47 410 51 274
---------------------------------------------------- --------------------------------------- ---------- ----------
Total non-current 3 730 16 484
Total current 43 680 45 269
---------------------------------------------------- --------------------------------------- ---------- ----------
The carrying amounts of the Group's financial instruments held approximate their fair value.
There were no open hedges at year end (2019: nil).
30. PROPOSED DIVIDS ON ORDINARY SHARES
Proposed ordinary cash dividend of US$3.5 million for 2020 based on 2.5 US cents per share
(2019: US$ nil).
Proposed dividends on ordinary shares are subject to approval at the AGM to be held on 2 June
2021 and are not recognised as a liability as at 31 December.
31. EVENTS AFTER THE REPORTING PERIOD
No 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.
32. 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.
2020 2019
Name Country of incorporation and operation US$'000 US$'000
---------------------------------------------- --------------------------------------- ----------
Letšeng Diamonds (Proprietary) Limited Lesotho
Accumulated balances of material non-controlling
interest 79 906 76 427
Profit allocated to material non-controlling
interest 10 683 8 319
The summarised financial information of this
subsidiary is provided below. This
information
is based on amounts before intercompany
eliminations.
Summarised statement of profit or loss for
the year ended
31 December
Revenue 186 579 179 785
Cost of sales (112 081) (127 244)
---------------------------------------------------- --------------------------------------- ---------- ----------
Gross profit 74 498 52 541
Royalties and selling costs (19 043) (15 715)
Other (expenses)/income (6 695) 3 333
---------------------------------------------------- --------------------------------------- ---------- ----------
Operating profit 48 760 40 159
Net finance costs (2 840) (3 792)
---------------------------------------------------- --------------------------------------- ---------- ----------
Profit before tax 45 920 36 367
Income tax expense (10 307) (8 637)
---------------------------------------------------- --------------------------------------- ---------- ----------
Profit for the year 35 613 27 730
Total comprehensive income 35 613 27 730
---------------------------------------------------- --------------------------------------- ---------- ----------
Attributable to non-controlling interest 10 683 8 319
Dividends paid to non-controlling interest (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 325 009 340 646
Current assets
Inventories, receivables and other assets, and cash
and short-term deposits 78 098 53 476
---------------------------------------------------- --------------------------------------- ---------- ----------
Total assets 403 107 394 122
---------------------------------------------------- --------------------------------------- ---------- ----------
Non-current liabilities
Interest-bearing loans and borrowings, trade and
other payables, provisions, lease liabilities
and deferred tax liabilities 101 203 109 385
Current liabilities
Interest-bearing loans and borrowings and trade and
other payables 35 553 29 981
---------------------------------------------------- --------------------------------------- ---------- ----------
Total liabilities 136 756 139 366
---------------------------------------------------- --------------------------------------- ---------- ----------
Total equity 266 351 254 756
---------------------------------------------------- --------------------------------------- ---------- ----------
Attributable to:
Equity holders of parent 186 446 178 329
Non-controlling interest 79 906 76 427
Summarised cash flow information for the year
ended
31 December
Operating cash inflows 105 471 70 108
Investing cash outflows (48 700) (81 314)
Financing cash outflows (20 640) (6 701)
Foreign exchange differences 2 787 (15)
---------------------------------------------------- --------------------------------------- ---------- ----------
Net increase/(decrease) in cash and cash
equivalents 38 918 (17 922)
---------------------------------------------------- --------------------------------------- ---------- ----------
REPORT ON PAYMENTS TO GOVERNMENTS
FOR THE YEARED 31 DECEMBER 2020
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 2020 financial year, as required under the United Kingdom's (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 2020 financial reporting period, extractive activities were conducted in Lesotho while the operation in Botswana was under care and maintenance. All payments made in relation to the Botswana entity were under the materiality level and therefore not reported.
Extractive activities
Extractive activities relate to the exploration, prospection, discovery, development and extraction of minerals, oil, natural gas deposits or other materials. Gem Diamonds Limited, through its subsidiaries, is engaged in diamond mining activities.
Scope of payments
The report discloses only those significant payments made to governments arising from extractive activities.
Government
Government includes any national, regional, or local authority of a country. It includes a department, agency or undertaking (ie corporation) controlled by that authority.
Payment types disclosed at legal entity level
Production entitlements
There were no payments of this nature for the year ended 31 December 2020.
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 2020.
Signature, discovery, and production bonuses
There were no payments of this nature to governments for the year ended 31 December 2020.
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 2020.
Cash flow basis
Payments reported are on a cash flow basis and may differ to amounts reported in the Gem Diamonds Limited 2020 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, that are equal to or exceed US$110 000 (GBP86 000), are disclosed in this report. All payments below this threshold have been excluded.
Reporting currency
The payments to government have been reported in US dollar.
Payments made in currencies other than US dollar were translated at the relevant annual average rate for the year ended 31 December 2020.
SUMMARY REPORT
Taxes Royalties Licence fee Total
Operation Country US$'000 US$'000 US$'000 US$'000
Letšeng Diamonds (Proprietary) Limited Lesotho (8 707)(1) 18 236 144 9 673
--------- ----------- ---------- ------------ ---------
Total (8 707) 18 236 144 9 673
----------- ---------- ------------ ---------
1 Letšeng Diamonds (Proprietary) Limited was in a net refund position during the year due to refunds on income taxes received which was paid in 2019.
Lesotho Taxes Royalties Licence fee Total
Letšeng Diamonds (Proprietary) Limited US$'000 US$'000 US$'000 US$'000
Lesotho Revenue Authority (8 707) - - (8 707)
--------- ---------- ------------ ---------
Government of Kingdom of Lesotho - 18 236 144 18 380
--------- ---------- ------------ ---------
1 Letšeng Diamonds (Proprietary) Limited was in a net refund position during the year due to refunds on income taxes received which was paid in 2019.
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