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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.50 | 5.88% | 9.00 | 8.12 | 9.58 | 9.00 | 9.00 | 9.00 | 15,380 | 08:16:24 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Misc Nonmtl Minrls, Ex Fuels | 140.29M | -2.13M | -0.0154 | -5.52 | 11.73M |
From Apr 2019 to Apr 2024
TIDMGEMD
RNS Number : 2679L
Gem Diamonds Limited
05 September 2019
Half Year 2019 results
Thursday 5 September 2019
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Half Year Results for the period ending 30 June 2019 (the "Period").
FINANCIAL RESULTS:
-- Revenue US$91.3 million (US$167.7 million in H1 2018) -- Underlying EBITDA US$25.3 million (US$70.7 million in H1 2018) -- Attributable profit, from continuing operations US$6.6 million (US$26.8 million in H1 2018) -- Basic earnings per share 4.8 US cents from continuing operations (19.4 US cents in H1 2018) -- Cash on hand US$25.8 million -- Available loan facilities of US$61.5 million
-- Ghaghoo care and maintenance costs of US$2.4 million reported as loss from discontinued operation
-- Adopted IFRS 16 - Leases
OPERATIONAL RESULTS:
Letšeng
-- Sold a 13.32 carat pink diamond for US$8.8 million, achieving a record price of US$656 934 per carat
-- Recovered 3 diamonds greater than 100 carats -- Implemented inter-ramp pit slope steepening, resulting in a lower LoM strip ratio -- Average price of US$1 697 per carat achieved -- Reported one fatality and two lost time injuries
Business Transformation
-- US$42 million has been realised net of implementation costs and fees in the first 18-months of the 4-year Business Transformation programme
-- US$ 100 million in incremental revenue, productivity improvements and cost savings to end 2021 is on track
Technology and Innovation
-- Construction of the 'detecting diamonds within kimberlite' pilot plant at Letšeng was completed with commissioning and ramp-up planned for latter part of Q3 2019
Commenting on the results today, Clifford Elphick, Chief Executive of Gem Diamonds, said:
"Letšeng achieved US$ 1 697 per carat for the Period with the sale of the 13.32 carat pink diamond achieving a Letšeng record of US$ 656 934 per carat, reaffirming the unique quality of Letšeng's diamond production. The prices achieved for the Period are 10% up from the prices achieved in the preceding 6-month period, notwithstanding the planned limited contribution from the Satellite pipe ore and current diamond market conditions.
The Group has successfully implemented the business transformation programme, already achieving US$42 million net of fees, and is on track to deliver the planned US$100 million in cost savings and efficiencies by 2021."
The Company will host a live audio webcast presentation of the half year results today, 5 September 2019, at 9:30 BST. This can be viewed on the Company's website: www.gemdiamonds.com
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.
FOR FURTHER INFORMATION:
Gem Diamonds Limited
Susan Wallace, Company Secretarial department
ir@gemdiamonds.com
Celicourt Communications
Mark Antelme / Jimmy Lea
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 and is currently in the process of selling its 100% share of the Ghaghoo mine in Botswana. 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.
Interim Business Review
The first half of 2019 (the Period) started exceptionally well, with the recovery of a 13.32 carat pink diamond which sold for a Letšeng record of US$656 934 per carat, reaffirming the unique quality of the mine's diamond production. A further four diamonds greater than 100 carats were also sold and Letšeng achieved an average price of US$1 697 per carat from the sale of 55 714 carats. The prices achieved for the Period, 10% up from the prices achieved in H2 2018, are notwithstanding the planned limited contribution from the Satellite pipe material and current diamond market conditions.
It is however with regret and sadness that following a fatality-free period of 6 years at Letšeng, a fatality occurred in February whereby an operator of a sub-contractor's vehicle was involved in a vehicle accident. The Group remains committed to its goal of zero harm to its people and the environment and strives to achieve its operational goals within its sustainable development framework.
At Letšeng, mining progressed well and in line with the new steeper inter-ramp pit slope mine plan, successfully reducing waste mined by 3.2 million tonnes during the Period when compared to the previous pit design. Ore treated was mainly sourced from the lower-value part of the orebodies with 2.9 million tonnes of Main pipe ore treated and only 0.4 million tonnes of Satellite pipe ore, resulting in overall throughput of 3.3 million tonnes with 56 668 carats being recovered compared to 61 596 carats in H1 2018. During H2 2019, mining will be transitioning into a new cut back in the Satellite pipe which will accommodate the increase in planned Satellite pipe ore contribution. The construction work to extend the tailings storage facility progressed well during the Period. The aim of the project is to create sufficient storage capacity for coarse tailings disposal until the end of 2024. US$11.2 million of the total approved capital costs of US$13.7 million has been spent with the remaining costs expected to be incurred during 2021 to 2024 on completion of the extended storage facilities.
The Group generated underlying EBITDA from continuing operations of US$25.3 million (H1 2018: US$70.7 million), resulting in an attributable profit from continuing operations of US$6.2 million (H1 2018: US$26.8 million) and an earnings per share from continuing operations of 4.5 US cents (H1 2018: 19.4 US cents) on a weighted average number of shares in issue of 138.9 million. In line with the strategic objective to dispose of non-core assets, a binding agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, which owns the Ghaghoo diamond mine, was entered into. This resulted in the operation and the associated results being classified as a discontinued operation. The Group ended the Period with a cash balance of US$25.8 million and drawn down facilities of US$26.5 million, resulting in a net debt position of US$0.7 million and unutilised available facilities of US$61.5 million.
The Group successfully concluded implementing the Business Transformation programme and is on track to deliver the planned US$100 million in revenue, productivity and cost saving by 2021. To Period end, the programme has cash flowed US$42 million of the total target to the business, net of fees. The contract with the external consultant who assisted with the implementation was closed out during the Period and management have commenced implementing an internal Continuous Improvement plan to ensure the sustainability of the benefits.
Good progress was also made during the Period with the Company's two key technologies to identify locked diamonds within kimberlite and to liberate diamonds using a non-mechanical process. These technologies are aimed primarily at limiting diamond damage and lowering operating costs. The construction of the 'detecting diamonds within kimberlite' pilot plant at Letšeng was completed and commissioning and ramp up commenced post Period end. The pilot plant was completed for US$3.0 million as planned.
The application for renewal of the Letšeng Mining Lease was submitted in March 2018, and in April 2018, at the Commonwealth Heads of Government meeting in London, the Prime Minister of Lesotho announced the Lesotho Government's intention to renew the lease. The full terms of the renewed mining lease are subject to a statutory negotiation process with the Lesotho Mining Board and, when agreed, will be contained in a new mining lease agreement. Statutory negotiations have proceeded satisfactorily and are anticipated to be concluded by the end of this year.
The sale of the Ghaghoo mine was vigorously pursued during the Period. In June 2019, the Company entered into a binding agreement with Pro Civil (Pty) Ltd to sell Ghaghoo, for US$5.4 million. The sale, which is subject to regulatory approvals in Botswana, is expected to be concluded in H2 2019.
The Board also appointed Ms Mazvi Maharosoa as an independent non-Executive Director on 1 July 2019. Mazvi brings a wealth of diamond experience, skills and diversity to the Board and her intimate knowledge of Lesotho will be of great benefit to the business.
Diamond market
Pressure on pricing of smaller, commercial type rough diamonds has continued with inventories in the manufacturing and polished markets remaining high following a disappointing 2018 holiday season and weak subsequent restocking. Furthermore, the persistence of financing challenges specifically in the mid-stream segment has caused cash flow concerns for a number of manufacturing operations. This, in many cases, has forced manufacturers to reduce stock levels resulting in increased diamond supply by diamond producers in an already saturated market.
During the Period rough prices of large, high-value diamonds have shown signs of weakness, albeit to a much lesser extent than the smaller, commercial type rough diamonds. The price for Letšeng's large, ultra-high-quality production is, however, expected to be less vulnerable to market pressures over time.
In the medium to long term, rough diamond prices are expected to be supported by the favourable demand/supply fundamentals, which are underpinned by a continued growth in demand from emerging markets coupled with a limited growth in supply. In the short term, supply is expected to decrease with the depletion of existing mines.
Health, safety, corporate social responsibility and environment (HSSE)
The Group reports one fatality and two Lost Time Injuries (LTIs) during the Period, resulting in a Group-wide Lost Time Injury Frequency Rate (LTIFR) of 0.16. The Group-wide All Injury Frequency Rate (AIFR) is 0.94 for the Period. No major or significant environmental or stakeholder incidents were reported during the Period and close collaboration with project affected communities continued with investment being made into small and medium enterprise development, education and infrastructure.
Operating review: Letšeng
H1 2019 in review
-- Sold a 13.32 carat pink diamond for US$8.8 million, achieving a record price of US$656 934 per carat
-- Recovered 3 diamonds greater than 100 carats -- Implemented inter-ramp pit slope steepening, resulting in a lower LoM strip ratio -- Average price of US$1 697 per carat achieved -- Reported one fatality and two Lost Time Injuries
Operational performance
Hot Features
Premium
H1 2019 H1 2018
================================== ====================== =========================
Waste mined (tonnes) 13 150 417 13 492 867
================================== ====================== =========================
Ore mined (tonnes) 3 181 762 2 740 951
================================== ====================== =========================
Ore treated (tonnes) 3 339 620 2 991 802
================================== ====================== =========================
Carats recovered - all sources(1) 56 668 61 596
================================== ====================== =========================
Grade recovered(1) (cpht) 1.70 2.06
================================== ====================== =========================
Carats sold 55 714 61 696
================================== ====================== =========================
Average price per carat (US$) 1 697 2 742
================================== ====================== =========================
(1) Includes carats produced from the Letšeng Plants, the Alluvial Ventures (AV) plant and the tailings treatment plant (.)
Gem Diamonds owns 70% of Letšeng Diamonds (Letšeng) in partnership with the Government of the Kingdom of Lesotho, which owns the remaining 30%. Letšeng was acquired in July 2006. The Letšeng mine, famous for its exceptional top-quality diamonds and having the highest proportion of large, high-value diamonds, is the highest average dollar per carat kimberlite diamond mine in the world.
During the Period, Letšeng's waste mining continued in line with the requirements of the updated long-term mine plan that incorporates the Business Transformation initiative to steepen the inter-ramp slope angles. This initiative, which was implemented from 1 January 2019, has reduced the tonnes of waste mined during the Period by 3.2 million compared to the previous pit design over the same period.
Tonnes treated during H1 2019 were 3.3 million tonnes, of which Letšeng's plants treated 2.8 million (H1 2018: 2.5 million), with the remaining 0.5 million tonnes treated (H1 2018: 0.5 million) by Alluvial Ventures (AV), the third-party processing contractor. Tonnes treated were higher than H1 2018, which was negatively impacted by the shutdown to repair various elements of the plant, including the replacement of the scrubber shell in Plant 2. In line with the current mine plan and planned mining schedule for H1 2019, the contribution from the higher-value Satellite pipe amounted to 0.4 million tonnes (H1 2018: 1.0 million tonnes) and of the total ore treated, 84% was sourced from the Main pipe, 11% from the Satellite pipe and 5% from the Main pipe stockpiles. The planned lower contribution of the higher-value Satellite pipe ore during the Period was mainly due to transitioning into a new cutback, which was accessed in June and is planned to deliver 1.4 million tonnes in H2 2019. The operational focus in the plants is to continue enhancing value over volume with well controlled and consistent feed rates to enable process stability, increased plant uptime and reliability. As part of this focus, improvements were implemented to the fine Dense Medium Separation (DMS) circuit towards the end of the Period in order to improve the feed rate in Plant 2. In order to implement these improvements, the feed rate to the DMS circuit in Plant 2 was reduced and capped for a limited period, negatively impacting the volume of tonnes treated in H1 2019.
Carats recovered from all sources were 56 668, representing a decrease of 8% from H1 2018, notwithstanding the increase in tonnes treated, and was mainly driven by the mining mix treated during the Period. The Business Transformation initiative to re-treat tailings material through a tailings treatment plant continued during the Period and 2 711 carats were recovered in H1 2019 (H1 2018: 5 368). Overall grade for H1 2019 was 1.70 carats per hundred tonnes (cpht) mainly impacted by the higher contribution of Main pipe ore, which has a lower grade relative to Satellite pipe ore. The grade for the ore processed during the Period is in line with its expected reserve grade of 1.70 cpht.
As tabled below, the frequency of large diamond recoveries reduced during the Period, in line with treating less high-value Satellite pipe material during H1 2019 compared to the previous period.
Frequency of recovery of large diamonds
FY Average H1 2018 H1 2019
2008 -
2018
=================== ========== ======= =======
Number of diamonds
=================== ========== ======= =======
>100 carats 7 10 3
=================== ========== ======= =======
60-100 carats 18 13 9
=================== ========== ======= =======
30-60 carats 74 38 36
=================== ========== ======= =======
20-30 carats 111 63 72
=================== ========== ======= =======
Total diamonds
> 20 carats 210 124 120
=================== ========== ======= =======
The US$13.7 million capital project for the required extension of Letšeng's tailings storage facility which commenced in November 2017 is on track. To date US$11.2 million has been spent on the project, of which US$1.5 million was incurred during the Period.
Following the completion of the core drilling and logging programme in 2018, the resource models and preliminary 3D geological solids of the dominant domains have been generated. These models are expected to be finalised in Q4 2019, which will feed into the updated Reserve and Resource statement.
Details of overall costs and capital expenditure incurred at Letšeng during the Period are included in the Group financial performance section.
Diamond sales
Four tenders were completed during H1 2019, with a total of 55 714 carats sold in Antwerp through Gem Diamonds Marketing Services (GDMS), a wholly owned Gem Diamonds subsidiary. Letšeng generated rough diamond revenue of US$94.5 million, at an average price of US$1 697 per carat.
HSSE
The core of the safety ethos at Letšeng is to build on the culture of behaviour-based care at work and to strive for zero harm. Additional targeted health and safety management initiatives have been implemented to further improve the safety performance on the mine following the unfortunate fatality recorded in Q1 2019. In addition, 2 LTI's were recorded at Letšeng during H1 2019, resulting in an LTIFR of 0.17 and an AIFR of 0.99 for the Period.
Zero significant or major environmental incidents have occurred at the operation during the Period. Letšeng is working to continue mitigating all potential impacts on the environment with water protection and waste management being a key focus during the Period.
No significant or major stakeholder incidents were recorded in the Period. Letšeng continued with the successful implementation of its corporate social investment (CSI) plan with focus on infrastructure and small and medium enterprise development in project affected communities.
H2 2019 and onwards
The focus at Letšeng will be on the following key areas:
-- Maximising the treatment of the planned higher-value Satellite pipe material; -- Further enhancing the mining fleet and activities to reduce diesel consumption; and -- Monitoring the feed rates through Plant 2 following the DMS improvements implemented.
.
Operating review: Sales, marketing and manufacturing
H1 2019 in review
-- US$94.5 million with an average price of US$1 697 per carat was achieved for Letšeng's production
-- 15 rough diamonds sold for greater than US$1.0 million each at a total value of US$41.6 million
-- 13.32 carat pink diamond was sold for US$656 934 per carat, making it the highest US$ per carat achieved for a Letšeng rough diamond
-- Newly developed electronic tender platform successfully implemented
The Group's in-house sales and marketing function provides a flexible sales strategy with multiple marketing channels to maximise revenue from the Group's production. This is achieved through competitive tenders and other targeted sales and marketing channels for its rough and polished diamonds.
The Group's rough diamond analysis capabilities provide in-depth knowledge of the value of Letšeng's large, rough diamonds and are vital in the setting of appropriate reserve prices for the diamonds sold at each tender.
The Group may choose to manufacture some of its own large, high-value rough diamonds and also has the flexibility to place exceptional diamonds into strategic partnership arrangements with select customers in order to achieve additional margins along the diamond value chain.
Sales and marketing
Letšeng's rough diamond production is marketed and sold by Gem Diamonds Marketing Services (GDMS) in Antwerp through an electronic tender platform. A new electronic tender platform has been developed over the past 12 months and has been successfully implemented. Important features of the new platform include an improved user-friendly client interface, automated just-in-time communication with clients, improved security and access controls and an interactive integrated Know Your Customer (KYC) database. The tender platform will go live for the September 2019 tender.
The Letšeng tender viewings in Tel Aviv have proven to be successful and as such, have now become part of the annual tender viewing schedule.
During the first half of 2019, 55 714 carats were sold on tender for US$94.5 million, achieving an average price of US$1 697 per carat.
The highlight of the Period was the sale of a 13.32 carat pink diamond for US$8.8 million which is the highest US$ per carat achieved for a Letšeng rough diamond at US$656 934 per carat. Four greater than 100 carat diamonds were sold for a total value of US$14.9 million.
Other notable sales included a 6.99 carat pink diamond that sold for US$171 245 per carat and a 4.15 carat pink diamond that sold for US$105 222 per carat. The highest US$ per carat achieved for a D-colour Type IIa diamond was US$48 255 for a 70.69 carat diamond.
Analysis and manufacturing
Rough diamonds selected for own manufacturing are analysed, planned and managed by Baobab Technologies (Baobab), a 100% subsidiary of Gem Diamonds. The final polished diamonds are sold by GDMS through direct selling channels to reputable high-end diamantaires. There were no diamonds extracted for manufacturing and no polished diamonds sold during the Period.
Project review: Technology and Innovation
H1 2019 in review
-- Construction of the 'detecting diamonds within kimberlite' pilot plant at Letšeng completed with commissioning and ramp-up planned for latter part of Q3 2019
Gem Diamonds Innovation Solutions (GDIS) was established in Cyprus in 2017 to house all the Group's innovation and technology research and development projects.
Project Progress
GDIS has made significant progress on the identification, validation and testing of technology from various industries to complement its innovation drive of early detection and non-mechanical means of liberating diamonds. Following the successful validation of the detection of diamonds within kimberlite, the design and construction of the US$3.0 million pilot plant at Letšeng has been completed. This enables extended testing of the detection and liberation technology in a production environment. As the first ore has been processed through the plant, no major deficiencies have been noted that will constrain the ramp-up of the plant in Q3 2019.
Various enhancements have been made to the proprietary imaging and sorting algorithms that will be tested in the pilot plant over the upcoming months. The prototype non-mechanical liberation unit has been integrated in the pilot plant flowsheet and its ability to effectively liberate the detected diamonds, without causing any damage, will be assessed in H2 2019.
H2 2019 and onwards
-- Pilot plant production ramp-up and continued testing of detection and liberation technology;
-- Evaluation and improvement of detection and liberation parameters to determine recovery efficiencies and deliver repeatable results; and
-- Determine parameters that enable upscaling of detection and liberation technology to process particles up to 150mm in size.
Business Transformation
The cumulative 4-year target of US$100 million in revenue, productivity improvements and cost savings to 2021 remains on track. This target has been set relative to the 2017 results, when the Business Transformation commenced, and all values are converted at an exchange rate of USD1:ZAR13 for the full 4-year period when tracking progress against this target.
Initiatives which are expected to deliver the targeted US$100 million by 2021 have been implemented. Of these implemented initiatives, US$7.1 million relates to once-off savings and the balance of US$92.9 million relates to cumulative recurring annualised benefits over the 4-year period. Since inception of the Business Transformation up to the end of the Period, US$42 million of the total benefit has been realised, net of implementation costs, consultant fees and the employee incentive plan. Focus remains on ensuring the sustainability of the implemented initiatives and implementing recently identified initiatives which are expected to contribute to the overall value of the Business Transformation.
The financial impact over the 4-year period on the balance sheet (B/S) and income statement (I/S) in terms of net revenue increase (I/S), cost reduction (I/S) and cash improvement (B/S) of the implemented initiatives and the resulting cash flowed to date is illustrated below:
(US$ million) Target Initiatives implemented Cash flowed =========================== ====== ======================= =========== Net revenue increase (I/S) 27 17 7 =========================== ====== ======================= =========== Cost reduction (I/S) 42 18 1 =========================== ====== ======================= =========== Cash (B/S) 31 12 2 =========================== ====== ======================= =========== Total 100 47 11 =========================== ====== ======================= ===========
The success and sustainability of the Business Transformation is underpinned by the organisational health of the Group. Of the 48 organisational health initiatives identified following the Organisational Health Index (OHI) survey conducted in Q3 2017, 45 have been implemented and the remaining three initiatives are in final stages of being implemented. New initiatives continue to be identified in areas which require further improvement within organisational health.
The organisation is in the process of implementing a Continuous Improvement plan which will focus on standardisation, visual management, capability building and promoting specific continuous improvement behaviors.
The table below references the cumulative 4-year target of US$100 million (as reported in the 2017 and 2018 Annual Reports) together with the status of implementation of the primary contributing initiatives.
Initiative Activity Objective Impact Status Tracking
& Target & Target against
US$100m
target
Mining
US$42 Drill, load Reduce mining Reduce Implemented(1) US$24.0 US$42.7
million and haul costs through: waste unit million million
activities: * improving efficiencies and rates and reviewing tenure costs and A reduction in mining
US$31.0 of mining contractor; waste rates implemented
million stripping in Q2 2018 primarily
capitalisation based on the optimisation
* optimising support equipment requirements and of the mining fleet
associated cost; Reduce and support equipment,
ore unit improved load balancing,
costs improved maintenance
* improving haul roads to optimise truck speeds; practices and improved
haul road and pit
floor conditions.
* increasing truck capacity by 7% by installing greedy
boards; and Improved diesel
consumption initiatives
have been identified
* improving drill rates by 30% by modernising the and are expected
drilling fleet with a cost-efficient autonomous to contribute additional
system. value from Q4 2019.
=========== ============ ============================================================ =============== ========================================================== =========
Pit design: Opportunities Reduce Implemented(1) US$10.8
US$6.0 to steepen current waste tonnes million
million slope angles and waste This initiative
with the benefit stripping was implemented
of reducing waste capitalisation in January 2019,
tonnes over the 12 months earlier
LoM. than initially estimated,
with the adoption
of the new mine
plan. During the
Period there was
a reduction of 3.2
million waste tonnes
mined compared to
the previous pit
design.
=========== ============ ============================================================ =============== ========================================================== =========
Blasting Changing blasting Reduce Implemented(1) US$7.9
practices: patterns and direct million
US$5.0 practices, accessories cash costs Achieved 22% reduction
million and explosive in cost of blasting
mix, leading consumables and
to a reduction accessories per
in blasting consumables tonne mined compared
by up to 30%. to 2017 through:
* reducing the number of primers used per blasting in
Applying available both ore and waste;
early settlement
discounts with
explosives supplier. * introducing saver plugs in waste blasting; and
* eliminating sub-drilling in kimberlite.
Applied improved
payment terms with
consumable suppliers
and secured alternative
suppliers for specific
blasting consumables
and accessories.
=========== ============ ============================================================ =============== ========================================================== =========
1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.
Initiative Activity Objective Impact Status Tracking
& Target & Target against
US$100m
target
Processing
US$34 Plant 46 initiatives Increase Implemented(1) US$34.5
million uptime: identified to ore US$7.2 million
US$16.0 improve plant tonnes million
million uptime through: treated 59 initiatives
* improved maintenance scheduling (planned and have
unplanned); Net been
revenue implemented
increase to improve
* improving ore feed management; plant
uptime, with
the
* improving stability of power supply; and benefits
expected
to continue to
* reducing operational delays. ramp
up during the
latter
part of 2019
and
into 2020.
Additional
initiatives
to further
enhance
plant uptime
are
in the process
of
being
implemented.
=========== ============= =================================================== ========== =============== =========
Additional Deploy a tailings Increase Implemented(1)
throughput: treatment plant carats US$23.2
US$16.0 to re-treat tailings. recovered million
million In addition to
Net the
revenue carats
increase recovered
in 2017 and
2018,
the tailings
treatment
plant
recovered
2 711 carats
during
the Period
from
re-treating
tailings.
=========== ============= =================================================== ========== =============== =========
Review and renegotiate Reduce Implemented(1)
the Alluvial direct US$2.8
Ventures contract cash million
for the operation costs The Alluvial
of the third Ventures
plant at Letšeng. contract has
been
renegotiated
to
realign the
profit
margin share
and
to extend the
tenure
initially to
mid-2020.
============= =================================================== ========== ===============
Plant Efficient usage Reduce Implemented(1)
consumables: and reduction direct US$1.3
US$2.0 of plant consumables. cash million
million costs An improved
flocculant
and coagulant
combination
product was
introduced
and new
flocculant
recovery units
to
reduce the
consumption
of consumables
have
been
commissioned
at both Plant
1
and Plant 2. A
20%
reduction in
plant
consumables
per
tonne treated
has
been realised.
=========== ============= =================================================== ========== =============== =========
1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.
Initiative Activity Objective Impact Status Tracking
& Target & Target against
US$100m
target
Working capital and overheads
US$4 Working Improve Reduce Implemented(1) US$1.2 US$8.1
million capital: working working million million
US$1.0 capital capital Draw down of slow-moving
million management (once off Process Plant stock
with specific cash and the rebasing
focus on benefit) of economic order
redundant quantities has been
and implemented and
slow-moving the sale of scrap
plant material and excess
inventory and redundant stock
at is ongoing.
Letšeng.
The working
capital
initiative is
a once-off
benefit
which is
expected
to deliver
over
a 12 -18 month
period.
=========== =============== ========== ============================================================ =========
Overheads: Reduce support Reduce Implemented(1) US$6.9
US$3.0 service costs direct million
million at cash All identified initiatives
Letšeng costs within this workstream
through have been implemented
contract at Letšeng
reviews and as follows:
focused * the catering and housekeeping contract was reviewed
contract and renegotiated;
management.
Implement
stricter * entered into new IT network provider contracts
spend control offering improved technological services and rates;
procedures on
administrative
and support * the corporate office footprint has been reduced
costs through the sub-leasing of excess office space;
at
Letšeng
Reduce the * reviewed insurance requirements and providers and
Letšeng implemented savings;
corporate
office
footprint and * improved on-mine diesel issue procedures and
other office eliminated the use of diesel additives from equipment
costs where not required;
* initiatives targeting office cost reductions were
implemented; and
* energy saving opportunities implemented using smart
controllers on heating, geysers and lighting.
=========== =============== ========== ============================================================ =========
1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.
Initiative Activity Objective Impact Status Tracking
& Target & Target against
US$100m
target
Corporate activities
US$20 Non-core Selling Reduce Implemented(1) US$1.5 US$14.4
million assets: non-core direct million million
US$16.0 mining fleet cash Assets associated
million and redundant costs with Ghaghoo i.e.
stock at the aircraft servicing
Ghaghoo. Once-off the mine, certain
cash non-core mining
benefit fleet and inventory
have been sold.
========== ================ ========= =========================================================== =========
Reduce or Reduce Implemented(1) US$5.2
eliminate direct million
the ongoing cash Initiatives to reduce
care costs generator diesel
and maintenance consumption and
costs at underground water
Ghaghoo pumping requirements
have been implemented
to reduce certain
care and maintenance
costs.
A binding agreement
to sell the Ghaghoo
mine was entered
into, in June 2019.
Subject to regulatory
approvals within
Botswana, the transaction
is expected to be
completed in H2
2019 after which
all care and maintenance
costs associated
with Ghaghoo will
cease.
========== ================ ========= =========================================================== =========
Selling other Once-off Implemented(1) US$2.6
non-core assets cash million
across the benefit Identified non-core
Group. assets have been
sold, the two most
material being the
investment property
in Dubai and the
corporate aircraft.
========== ================ ========= ===========================================================
Corporate Implementation Reduce Implemented(1) US$5.1
costs of stricter direct million
US$4.0 spend cash All identified initiatives
million control on costs relating to operations
admin in the United Kingdom,
and support South Africa, Belgium
costs and Botswana operations
and focusing have been implemented
on as follows:
fit-for-purpose * office footprints in the United Kingdom, Botswana an
operations. d
Downsizing South Africa reduced;
office
footprint in
the United * strict spend control through one centralised cost
Kingdom, approval office implemented;
South Africa
and Botswana.
* focused control of travel expenditure and associated
costs;
* reduced Annual Report publishing and printing costs;
* reduced professional fees i.e. insurance, audit,
diamond analysis, consultant and brokering fees and
membership fees; and
* optimised treasury practices.
========== ================ ========= =========================================================== =========
1. "Implemented" - means that all key activities to realise the value of an initiative have been completed and no further action is required for the benefit to begin to accrue and be realised.
Group financial performance
H1 2019 in review
-- Revenue US$91.3 million (US$167.7 million in H1 2018) -- Underlying EBITDA(1) US$25.3 million (US$70.7 million in H1 2018) -- Attributable profit, from continuing operations US$6.6 million (US$26.8 million in H1 2018) -- Basic earnings per share 4.8 US cents from continuing operations (19.4 US cents in H1 2018) -- Cash on hand US$25.8 million
-- Loss from discontinued operations US$2.4 million relating to Ghaghoo (US$2.6 million in H1 2018)
-- Adopted 'IFRS 16 - Leases' on 1 January 2019 US$ millions H1 2019 H1 2018(3) (US$ million) ================================================= ====================== ================= Revenue 91.3 167.7 Royalty and selling costs (8.4) (14.7) Cost of sales(2) (52.5) (77.0) Corporate expenses (5.1) (5.3) ================================================= ====================== ================= Underlying EBITDA(1) from continuing operations 25.3 70.7 ================================================= ====================== ================= Depreciation and mining asset amortisation (7.1) (4.4) Share-based payments (0.6) (0.8) Other income 1.4 0.3 Foreign exchange gain 2.4 2.1 Net finance costs (2.7) (0.6) Profit before tax from continuing operations 18.7 67.3
================================================= ====================== ================= Income tax expense (6.6) (23.8) ================================================= ====================== ================= Profit for the Period from continuing operations 12.1 43.5 Non-controlling interests (5.5) (16.7) ================================================= ====================== ================= Attributable profit from continuing operations 6.6 26.8 ================================================= ====================== ================= Loss from discontinued operations (2.4) (2.6) ================================================= ====================== ================= Attributable net profit 4.2 24.2 ================================================= ====================== ================= Earnings per share from continuing operations (US cents) 4.8 19.4 ================================================= ====================== ================= Loss per share from discontinued operations (US cents) (1.8) (1.9) ================================================= ====================== =================
1 Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) as defined in Note 5 of the condensed notes to the consolidated interim financial statements
(2 Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation)
(3 Prior year comparatives have been restated due to the recognition of the discontinued operation)
The Group generated an Underlying EBITDA(1) of US$25.3 million. The profit attributable to shareholders from continuing operations for the Period was US$6.6 million, equating to an earnings per share from continuing operations of 4.8 US cents on a weighted average number of shares in issue of 138.9 million. After including the loss of US$2.4 million from Ghaghoo, the discontinued operation, the Group's attributable profit reduced to US$4.2 million with earnings per share of 3.0 US cents. The forecast effective tax rate for the full year is 37.2% and has been applied to the actual results for the Period. This rate is the result of profits generated by Letšeng being taxed at 25.0% and deferred tax assets not recognized on losses incurred in non-trading operations, partially offset by a reduction in the deferred tax liability on unremitted earnings.
Letšeng produced strong operational results during the Period which included 3.2 million waste tonnes saving from the previous pit design as a result of steepening the inter-ramp slope angles. In addition, the uptime and reliability of the Plants improved, resulting in a 12% increase in tonnes treated for the Period compared to H1 2018, from 3.0 million to 3.3 million tonnes.
The Group successfully implemented the planned Business Transformation initiatives that will deliver US$100 million in cost savings and revenue improvements by 2021 of which US$18.1 million, net of provision for fees and costs, contributed to the Group's results during the Period.
The Group adopted IFRS 16 - Leases, that requires a lessee to recognise a Right-of-use asset and lease obligations for all leases except for short-term leases, or leases of low value assets. The Group adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of 1 January 2019. This resulted in an increase in Underlying EBITDA(1) of US$1.6 million due to allocating costs that would have previously been disclosed as cost of sales to a Right-of-use asset and the recognition of the Right-of-use assets resulted in increased depreciation of US$1.4 million for Period.
Revenue
The Group's revenue of US$91.3 million was generated at Letšeng, at an average of US$1 697 per carat (US$2 742 per carat in H1 2018) which was 10% higher than that achieved for the immediately preceding six-month period, H2 2018, of US$1 537 per carat. Contributing US$8.8 million to revenue, is the recovery of a 13.32 carat pink diamond that sold for a Letšeng record of US$656 934 per carat. As Letšeng transitioned into a new cutback during the Period, the planned lower contribution of the higher-value Satellite pipe ore reduced both price and volume of carats sold during the Period, when compared to H1 2018, which had a higher contribution from the Satellite pipe ore and the recovery and sale of the 910 carat Lesotho Legend for US$40 million.
Business Transformation initiatives contributed US$11.5 million to revenue during the Period. This mainly related to the re-treating of tailings material through the tailings treatment plant.
Letšeng revenue
H1 2019 H1 2018
============================== ======================= ================
Carats sold 55 714 61 696
============================== ======================= ================
Average price per carat (US$) 1 697 2 742
============================== ======================= ================
Group revenue summary
H1 2019 H1 2018
========================================= ========================= ================
Sales - rough 94.5 169.2
========================================= ========================= ================
Sales - polished margin - 0.2
========================================= ========================= ================
Sales - other - 0.2
========================================= ========================= ================
Tender receipts received post Period-end (3.2) (1.9)
========================================= ========================= ================
Group revenue 91.3 167.7
========================================= ========================= ================
In line with the Group's policy on the timing of revenue recognition, receipts relating to diamonds sold for US$3.2 million in the final tender of the Period, were received on 2 July 2019 and therefore not recognised as Revenue during the Period.
Royalties consist of an 8% levy paid to the Lesotho Revenue Authority on the sale of diamonds in Lesotho. Diamond selling and marketing-related expenses are incurred by the Group's sales and marketing operation in Belgium. During the Period, royalties and selling costs decreased by 43% to US$8.4 million, in line with the sales in the Period.
Costs
While revenue is generated in US dollars, 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 Period (compared to the same period in 2018) which reduced underlying US dollar costs and the Group's US dollar reported costs.
Exchange rates H1 2019 H1 2018 % change ============================== ===================== ======================== ======================= LSL per US$1.00 ============================== ===================== ======================== ======================= Average exchange rate for the Period 14.20 12.32 15% ============================== ===================== ======================== ======================= Period-end exchange rate 14.10 13.71 3% ============================== ===================== ======================== ======================= BWP per US$1.00 ============================== ===================== ======================== ======================= Average exchange rate for the Period 10.65 9.78 9% ============================== ===================== ======================== ======================= Period-end exchange rate 10.62 10.40 2% ============================== ===================== ======================== ======================= US$ per GBP1.00 ============================== ===================== ======================== ======================= Average exchange rate for the Period 1.29 1.38 (7%) ============================== ===================== ======================== ======================= Period-end exchange rate 1.27 1.32 (4%) ============================== ===================== ======================== =======================
Group cost of sales for the Period reduced to US$52.5 million, compared to US$77.0 million in H1 2018, largely driven by a decrease in waste stripping amortisation costs, due to a different mining mix at Letšeng, and Business Transformation initiatives that delivered US$4.0 million of cost savings. Total waste stripping costs amortised were US$15.7 million compared to US$34.2 million in H1 2018.
In local currency, total operating costs decreased by 21% to LSL741.0 million in H1 2019 compared to LSL936.7 million in H1 2018, resulting in total operating costs per tonne treated of LSL221.89, which is 29% lower than H1 2018 of LSL313.09 per tonne treated. The 12% increase in tonnes treated during the Period further reduced reported unit costs.
Unit cost Operating costs Business Transformation Accounting
per tonne (BT) costs charges(5)
treated
=========== ================================= ========= ========================= ========= ========== =========
Direct 3(rd) Once-off Sub-total Tailings Fees and Total Charges Total
cash Plant maintenance treatment employee direct operating
LSL costs(4) operator costs plant reward scheme operating cost
costs operating cash
costs costs
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
H1 2019 148.28 13.67 - 161.95 1.63 10.52 174.10 47.79 221.89
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
H1 2018 144.87 22.95 5.76 173.58 1.72 20.76 196.06 117.03 313.09
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
% Change 2% -40% - -7% -5% -49% -11% -49% -29%
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
US$
====================== ========= =========== ========= ========= ============== ========= ========== =========
H1 2019 10.44 0.96 - 11.40 0.11 0.74 12.25 3.37 15.62
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
H1 2018 11.76 1.86 0.47 14.09 0.14 1.69 15.92 9.50 25.42
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
% Change -11% -48% - -19% -21% -56% -23% -65% -39%
=========== ========= ========= =========== ========= ========= ============== ========= ========== =========
(4) Direct mine cash costs represent all operating costs, excluding royalty and selling costs
(5) Accounting charges include waste stripping cost amortised, inventory and ore stockpile adjustments, and the impact of adopting IFRS 16 - Leases, and excludes depreciation and mining asset amortisation.
Direct cash costs are LSL148.28, representing a 2% increase from H1 2018. Waste cash cost per waste tonne mined increased by 3% to LSL35.63 (H1 2018: LSL34.46), in line with reduced volume mined. These cash cost increases were driven by local country inflation, increase in fuel price of 11% and increased hauling distances of 9% for ore and 6% for waste. The cost savings derived from Business Transformation initiatives specifically targeting contractor mining rates and efficiencies within blasting and plant consumables partially offset these increases.
3rd Plant operator costs per tonne treated in local currency decreased by 40%. This cost is a function of the revenue generated by the sales from diamonds recovered through the contractor plant and the decrease in costs is directly linked to the lower revenue generated during the Period.
The Business Transformation costs relate to operating costs of the tailings treatment plant (that continues to re-treat tailings material), consultancy fees and a provision for an employee reward scheme. With the conclusion of the consultancy agreement during the Period and the expected conclusion of the employee rewards scheme in H2 2019, no further costs are anticipated to be incurred post 2019.
The accounting charges per tonne treated decreased mainly due to the lower waste amortisation costs as a result of treating 66% less high-value Satellite pipe material during the Period, which has a higher amortisation charge associated to it. The amortisation charge attributable to the Satellite pipe ore accounted for only 41% of the total waste stripping amortisation charge in the Period (H1 2018: 82%). In addition, the implementation of IFRS 16 - Leases, reduced the operating costs by LSL6.90 per tonne treated due to these costs being re-allocated to lease liabilities in the statement of financial position in line with the new accounting requirements.
Other operating information
(US$ million) H1 2019 H1 2018 =========================================== ========================== =================== Waste cost capitalised 37.3 42.9 =========================================== ========================== =================== Waste stripping cost amortised 15.7 34.2 =========================================== ========================== =================== Depreciation and mining asset amortisation 7.1 4.4 =========================================== ========================== =================== Capital expenditure 4.4 10.9 =========================================== ========================== ===================
Depreciation and mining asset amortisation increased to US$7.1 million during the Period driven by the commencement of depreciation on the completed Letšeng mining complex and the recognition of Right-of-use assets in accordance with IFRS 16 - Leases which attracted additional depreciation of US$1.4 million in the Period.
Discontinued operation (Ghaghoo operation on care and maintenance)
In line with the strategic objective to dispose of non-core assets, Gem Diamonds Limited entered into a binding agreement with Pro Civil (Pty) Ltd (Pro Civil) for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited (GDB), which owns the Ghaghoo diamond mine, for US$5.4 million. The sale, subject to regulatory approvals in Botswana, is expected to be concluded in the H2 2019.
In line with the requirements of IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, the operation was classified as a Discontinued Operation during the Period. Care and maintenance costs of US$2.4 million have been recognised and disclosed separately in the income statement for the Period and disclosed separately in the statement of financial position at the lower of its carrying value and fair value less costs to sell.
Diamond manufacturing operation
Extracted diamond inventory on hand at the end of the Period of US$0.4 million remained unchanged from 31 December 2018. There were no diamonds extracted for manufacturing during the Period and no polished diamonds sold.
Corporate office
Corporate costs relate to central costs incurred by the Group through its technical and administrative offices in South Africa and the United Kingdom and are incurred in both South African Rand and British Pound. General corporate costs for the Period were US$4.1 million (H1 2018: US$4.6 million) continuing the trend of reducing corporate costs and realising the benefits from the corporate cost initiatives implemented through Business Transformation. In addition to these savings, the costs reduced due to a 15% and 7% stronger US$ exchange rate against the South African Rand and British Pound respectively. The remaining US$1.0 million corporate costs incurred relate to US$0.6 million (H1 2018: US$0.5 million) of Business Transformation costs and US$0.4 million (H1 2018: US$0.2 million) of project costs incurred. The Business Transformation costs mainly relate to a provision for an employee reward scheme which is self-funded through the gains of the Business Transformation and no further costs in this regard are anticipated to be incurred post 2019.
The share-based payment charge for the Period was US$0.6 million (H1 2018: US$0.8 million). On 20 March 2019, 1 303 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term Incentive Plan of the Company with similar conditions as previous awards granted under this scheme.
Financial position and funding review
The Group generated cash from operating activities of US$23.3 million (30 June 2018: US$97.6 million) during the Period. The reduced waste stripping costs and the ability to defer capital expenditure contributed to positive cash management whilst mining focused in lower value areas. A significant tax payment of US$13.8 million at Letšeng relating predominantly to the high profits of 2018 was paid during the Period and all scheduled loan debt repayments were made.
Capital expenditure was US$4.4 million and mainly comprised the extension of the footprint of the Patiseng tailings storage facility (US$1.5 million), various sustaining capital projects at Letšeng and US$0.7 million on the completion of the 'detecting diamonds within kimberlite' pilot plant.
The Group ended the Period with cash on hand of US$25.8 million (31 December 2018: US$50.8 million) of which US$22.4 million is attributable to Gem Diamonds and US$0.2 million is restricted. At Period end, the Group had utilised facilities of US$26.5 million, resulting in a net debt position of US$0.7 million and undrawn facilities of US$61.5 million available, comprising US$26.0 million at Gem Diamonds and US$35.5 million at Letšeng, ensuring the Group is adequately funded.
Due to the impact of the lower contribution from the high-value Satellite pipe and significant tax payments during the Period, Letšeng did not pay dividends during the Period. Taking into account current cash flows, the Company has not proposed an interim dividend.
Summary of loan facilities as at 30 June 2019
US$ million
Term/
Company Description Lender Expiry Interest Rate(1) Amount Utilised Available
============= ================= ================== ========== ================= ======== ========== ===========
3-year RCF London US$
Gem Diamonds and term December three-month
Limited loan Nedbank 2020 Libor + 4.5% 45.0 15.0 26.0
============= ================= ================== ========== ================= ======== ========== ===========
Standard Lesotho Lesotho prime
Letšeng Bank and Nedbank rate minus
Diamonds 3-year RCF Lesotho July 2021 1.5% 35.5 - 35.5
============= ================= ================== ========== ================= ======== ========== ===========
Tranche 1
5.5-year (ZAR 180m)
Letšeng project Nedbank / March South African
Diamonds facility ECIC 2022 JIBAR + 3.15% 12.8 9.4 -
============= ================= ================== ========== ================= ======== ========== ===========
Tranche 2
(LSL 35m)
September South African
2022 JIBAR + 6.75% 2.5 2.1 -
========== ==================================================================== ======== ========== ===========
Total 95.8 26.5 61.5
=================================================================================== ======== ========== ===========
(1) At 30 June 2019 LIBOR was 2.33% and JIBAR was 7.03%.
H2 2019 and onwards
The Group will focus on optimising its cash position through:
-- Effective capital allocation and capital discipline;
-- Ensuring the Group is adequately funded to support the strategic objectives of the operations;
-- Concluding the sale of the Ghaghoo mine; and -- Concluding the negotiations on the renewal of Letšeng's mining lease.
Principal risks and uncertainties
The Group's principal risks and uncertainties that could have a material financial, operational and compliance impact on its performance and long-term growth as presented in the Business Overview of the 2018 Annual Report (pages 11 to 15), were reassessed to consider the current market and operational conditions, and they remain unchanged.
The continued effective monitoring, identification, management and mitigation of these risks and uncertainties remain a core focus of the Group as they are key to achieving the Company's strategic objectives. Although there may be additional risks unknown to the Group and other risks, currently believed to be immaterial, which could have a significant impact on the Group's operational and financial results if they materialise, the following material key risks (in no particular order of priority) may impact the Group over the next six months:
Operational risks
Underperforming mineral resource
The Group's ability to operate profitably in the short and medium term are influenced by estimates of ore reserves that are based on uncertain assumptions that, if changed, could result in the need to restate ore reserves and mine plans and would negatively affect the Group's ability to operate profitably in the short and medium term.
Production interruption
The Group may experience material mine and/or plant shutdowns due to various events. Any such event could result in personal injury or death; damage to facilities or the environment or delays in mining and processing activities which could potentially result in monetary losses and possible legal liability. The Group also relies on the use of external contractors to manage its mining and processing activities. If there is a dispute with any of the contractors, the Group's operations could be materially impacted.
Cash generation
External and /or unforeseen internal events may negatively affect the Group's ability to effectively operate, fund capital projects and repay debt.
Health, safety, social and environment (HSSE)
The risk that a major health, safety, social or environmental incident may occur within the Group is inherent in mining operations and could impact the safety of employees, license to operate, company reputation and compliance with bank facility agreements.
External risks
Rough diamond demand and prices
Numerous factors beyond the control of the Group may affect the price and demand for diamonds. The medium to long-term fundamentals of the diamond market remain intact, with demand forecast to outpace supply. In the short term the prevailing climate of global economic uncertainty and liquidity constraints, within the mid-stream segment, may cause some volatility in rough diamond pricing. Laboratory grown diamonds are becoming a larger factor in the market, being marketed by their producers as environmentally superior and at discounted prices. These external events may negatively affect the Group's ability to effectively operate, fund capital projects and repay debt.
Country, political environment and compliance with legislation
The political environments of the various jurisdictions that the Group operates within may adversely impact the ability to operate effectively and profitably. Emerging market economies are generally subject to greater risks, including political risk, and can be exposed to a rapidly changing environment.
Clifford Elphick
Chief Executive Officer
4 September 2019
Half-yearly financial statements
30 June 2019
Contents
Responsibility Statement of the Directors in Respect of the Half-yearly Report and the Financial Statements
Interim Consolidated Statement of Profit or Loss
Interim Consolidated Statement of Comprehensive Income
Interim Consolidated Statement of Financial Position
Interim Consolidated Statement of Changes in Equity
Interim Consolidated Statement of Cash Flows
Condensed Notes to the Consolidated Interim Financial Statements
Responsibility Statement of the Directors in Respect of the Half-yearly Report and Financial Statements
PURSUANT TO DISCLOSURE AND TRANSPARENCY RULES (DTR) 4.2.10
The Directors confirm that, to the best of their knowledge, this condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting and that the Half-yearly Report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
(a) an indication of important events that have occurred during the first six months of the financial year and their impact on this condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) material related-party transactions in the first six months of the year and any material changes in the related-party transactions described in the Gem Diamonds Limited Annual Report 2018.
The names and functions of the Directors of Gem Diamonds Limited are listed in the Annual Report for the year ended 31 December 2018 and updates have been disclosed in the Interim Business Review on pages 1 to 17.
For and on behalf of the Board
Michael Michael
Chief Financial Officer
4 September 2019
Interim Consolidated Statement of Profit or Loss
for the six months ended 30 June 2019
30 June 30 June
2019(1) 2018*(1)
Notes US$'000 US$'000
================================= ===== ==== ==== ============== ============ =====================
CONTINUING OPERATIONS
Revenue 3 91 337 167 683
Cost of sales (59 629) (81 204)
==================================================== ============== ============ =====================
Gross profit
Other operating income 31 708 86 479
Royalties and selling costs 1 393 304
Corporate expenses (8 365) (14 704)
Share-based payments (5 090) (5 400)
Foreign exchange gain 13 (601) (777)
2 395 2 130
================================================= ============== ============ =====================
Operating profit 3 21 440 68 032
Net finance costs (2 733) (636)
Finance income
Finance costs
==================================================== ============ =====================
518 1 195
(3 251) (1 831)
============ =====================
Profit before tax from continuing
operations 18 707 67 396
Income tax expense 7 (6 616) (23 846)
==================================================== ============== ============ =====================
Profit from continuing
operations 12 091 43 550
==================================================== ============== ============ =====================
DISCONTINUED OPERATIONS
Loss from discontinued
operations 4 (2 428) (2 611)
==================================================== ============== ============ =====================
Profit for the Period 9 663 40 939
==================================================== ============== ============ =====================
Attributable to:
Equity holders of parent 4 162 24 234
Non-controlling interests 5 501 16 705
==================================================== ============== ============ =====================
Earnings per share (cents)
* Basic earnings for the Period attributable to
ordinary equity holders of the parent 3.00 17.48
- Diluted earnings for the Period attributable to
ordinary equity holders of the parent 2.93 17.03
==================================================================== ============ =====================
Earnings per share for continuing operations (cents)
- Basic earnings for the Period attributable to ordinary
equity holders of the parent 4.75 19.37
- Diluted earnings for the Period attributable to
ordinary equity holders of the parent 4.64 18.87
==================================================================== ============ =====================
1 Unaudited
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (Refer to Note 4, Discontinued operation)
Interim Consolidated Statement of
Comprehensive Income
for the six months ended 30 June 2019
30 June 30 June
2019(1) 2018*(1)
US$'000 US$'000
========================================================== ====================== ================
Profit for the Period 9 663 40 939
Other comprehensive income that could be classified
to the income statement in subsequent periods
Exchange differences on translation of foreign operations 3 028 (30 003)
========================================================== ====================== ================
Other comprehensive income/(expense) net of tax 3 028 (30 003)
========================================================== ====================== ================
Total comprehensive income 12 691 10 936
Attributable to:
Equity holders of parent 2 289 4 008
Non-controlling interests 10 402 6 928
========================================================== ====================== ================
Total comprehensive income net of tax 12 691 10 936
========================================================== ====================== ================
1 Unaudited
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (Refer to Note 4, Discontinued operation)
Interim Consolidated Statement of
Financial Position
as at 30 June 2019
30 June 31 December
2019(1) 2018(2)
US$'000 US$'000
================================================ === ============ ==================
ASSETS
Non-current assets
Property, plant and equipment 9 314 008 289 640
Right-of-use assets 2 11 077 -
Intangible assets 13 540 13 272
Receivables and other assets 10 173 347
================================================ === ============ ==================
338 798 303 259
================================================ === ============ ==================
Current assets
Inventories 30 296 33 084
Receivables and other assets 10 5 146 5 433
Income tax receivable 4 196 -
Cash and short-term deposits 11 25 673 50 812
================================================ === ============ ==================
65 311 89 329
================================================ === ============ ==================
Assets held for sale 18 - 859
Assets directly associated with the asset
of the discontinued operation classified
as held for sale 4 3 907 -
================================================ === ============ ==================
Total assets 408 016 393 447
================================================ === ============ ==================
EQUITY AND LIABILITIES
Equity attributable to equity holders of
the parent
Issued capital 12 1 391 1 390
Share premium 885 648 885 648
Other reserves (153 294) (152 029)
Accumulated losses (573 921) (578 834)
159 824 156 175
================================================ === ============ ==================
Non-controlling interests 82 827 72 103
================================================ === ============ ==================
Total equity 242 651 228 278
================================================ === ============ ==================
Non-current liabilities
Interest-bearing loans and borrowings 14 13 065 19 954
Lease liabilities 2 9 346 -
Trade and other payables 1 807 1 555
Provisions 15 273 17 876
Deferred tax liabilities 81 238 74 054
================================================ === ============ ==================
120 729 113 439
================================================ === ============ ==================
Current liabilities
Interest-bearing loans and borrowings 14 14 297 14 212
Lease liabilities 2 2 147 -
Trade and other payables 23 587 28 554
Income tax payable 465 8 964
40 496 51 730
================================================ === ============ ==================
Liabilities directly associated with the
asset of the discontinued operation classified
as held for sale 4 4 140 -
================================================ === ============ ==================
Total liabilities 165 365 165 169 ================================================ === ============ ================== Total equity and liabilities 408 016 393 447 ================================================ === ============ ================== 1 Unaudited 2 Audited
Interim Consolidated Statement of Changes in Equity
for the six months ended 30 June 2019
Attributable
to equity holders
of the parent
==========================
Accu-
Issued Share Own Other mulated Non-controlling Total
capital premium Shares reserves(2) losses Total interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
================= ============= ================ ============ ============ ============ ============== ======================== ========
Balance at 1
January (578
2019 1 390 885 648 - (152 029) 834) 156 175 72 103 228 278
IFRS 16
implementation
adjustment - - - - 751 751 322 1 073
================= ============= ================ ============ ============ ============ ============== ======================== ========
Restated balance
at (578
1 January 2019 1 390 885 648 - (152 029) 083) 156 926 72 425 229 351
================= ============= ================ ============ ============ ============ ============== ======================== ========
Profit for the
Period - - - - 4 162 4 162 5 501 9 663
Other
comprehensive
(expense)/income - - - (1 873) - (1 873) 4 901 3 028
============= ================ ============ ============ ============ ============== ======================== ========
Total
comprehensive
(expense)/
Income - - - (1 873) 4 162 2 289 10 402 12 691
================= ============= ================ ============ ============ ============ ============== ======================== ========
Share capital
issued
(Note 12) 1 - - - - 1 - 1
Share-based
payments
(Note 13) - - - 608 - 608 - 608
Balance at
30 June (573
2019(1) 1 391 885 648 - (153 294) 921) 159 824 82 827 242 651
================= ============= ================ ============ ============ ============ ============== ======================== ========
Balance at 1
January (604
2018 1 387 885 648 - (123 811) 851) 158 373 85 783 244 156
Profit for the
Period - - - - 24 234 24 234 16 705 40 939
Other
comprehensive (20
expense - - - (20 226) - 226) (9 777) (30 003)
============= ================ ============ ============ ============ ============== ======================== ========
Total
comprehensive
(expense)/
income - - - (20 226) 24 234 4 008 6 928 10 936
================= ============= ================ ============ ============ ============ ============== ======================== ========
Share capital
issued
(Note 12) 1 - - - - 1 - 1
Share-based
payments
(Note 13) - - - 783 - 783 - 783
Dividends paid to
non-controlling
interests - - - - - - (15 527) (15 527)
================= ============= ================ ============ ============ ============ ============== ======================== ========
Balance at 30
June 885 (143 (580
2018(1) 1 388 648 - 254) 617) 163 165 77 184 240 349
================= ============= ================ ============ ============ ============ ============== ======================== ========
1 Unaudited
2 Other reserves relate to Foreign currency translation reserve and Share based equity reserve
Interim Consolidated Statement of Cash Flows
for the six months ended 30 June 2019
30 June 30 June
2019(1) 2018(1)
Notes US$'000 US$'000
===================================================== =============== ============
Cash flows from operating activities
Cash generated by operations 15.1 23 299 97 636
=============== ============
41 446 99 781
Working capital adjustments 15.2 (3 024) 4 967
===================================================== =============== ============
38 422 104 748
Interest received 518 1 195
Interest paid (1 808) (1 160)
Income tax paid (13 833) (7 147)
=============== ============
Cash flows used in investing activities (39 625) (51 984)
===================================================== =============== ============
Purchase of property, plant and equipment 9
Letšeng waste stripping costs capitalised 9
Proceeds from sale of property, plant and equipment (4 396) (10 918)
(37 350) (42 904)
2 121 1 838
=============== ============
Cash flows used in financing activities (8 975) (18 812)
===================================================== =============== ============
Net financial liabilities repaid (8 975) (3 285)
=============== ============
* Financial liabilities raised 5 281 2 840
* Financial liabilities repaid (14 256) (6 125)
=============== ============
Dividends paid to non-controlling interests - (15 527)
Net (decrease)/increase in cash and cash equivalents (25 301) 26 840
Cash and cash equivalents at beginning of the Period 25 511 74 544
Foreign exchange differences 326 (4 057)
=============== ============
Cash and cash equivalents at the end of the Period
- continuing operations 25 673 70 353
=============== ============
Cash and cash equivalents held at banks 25 573 70 248
Restricted cash 100 105
=============== ============
Cash and cash equivalents at the end of the Period
- discontinued operation 163 134
=============== ============
Cash and cash equivalents held at banks 105 78
Restricted cash 58 56
=============== ============
1 Unaudited
Condensed Notes to the Consolidated
Interim Financial Statements
for the six months ended 30 June 2019
1. Corporate information 1.1 Incorporation and authorisation
The holding company, Gem Diamonds Limited (the Company), was incorporated on 29 July 2005 in the British Virgin Islands. The Company's registration number is 669758.
The financial information shown in this report relating to Gem Diamonds Limited and its subsidiaries (the Group) was approved by the Board of Directors on 4 September 2019, is unaudited and does not constitute statutory financial statements. The report of the auditors on the Group's 2018 Annual Report and Accounts was unqualified.
The Group is principally engaged in operating diamond mines.
2. Basis of preparation and accounting policies 2.1 Basis of presentation
The condensed consolidated interim financial statements for the six months ended 30 June 2019 (the Period) have been prepared in accordance with IAS 34 Interim Financial Reporting. The condensed consolidated interim financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's Annual Financial Statements for the year ended 31 December 2018.
Going concern
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Interim Business Review on pages 1 to 17. The financial position of the Group, its cash flows and liquidity position are described in the Interim Business Review on pages 12 to 15.
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 this half-yearly report and accounts of the Group.
2.2 Significant accounting policies
The accounting policies adopted in the preparation of the condensed consolidated interim financial statements are consistent with those followed in the preparation of the Group's Annual Financial Statements for the year ended 31 December 2018, except for the adoption of new standards and amendments as of 1 January 2019. The Group adopted IFRS 16 for the first time on 1 January 2019. The nature and effect of the changes as a result of the adoption of this new standard is described below. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
IFRS 16 Leases
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model.
The nature of the effect of adoption of IFRS16
The Group has lease contracts for various items of buildings, plant and equipment and vehicles. Before the adoption of IFRS 16 the Group determined whether an arrangement contained a lease based on whether the fulfilment of the arrangement was dependent on the use of a specific asset or assets or the arrangement conveyed a right to use the asset. A reassessment would be made after inception of the lease only if one of the following applied: (a) There was a change in contractual terms, other than a renewal or extension of the arrangement; (b) A renewal option was exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; (c) There was a change in the determination of whether fulfilment is dependent on a specific asset; or (d) There was a substantial change to the asset. Where a reassessment was made, lease accounting commenced or ceased from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b).
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
2.2 Significant accounting policies (continued)
Leases where the lessor retained substantially all the risks and rewards of ownership were classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) were charged to the statement of profit or loss on a straight-line basis over the period of the lease. When the Group was a party to a lease where there was a contingent rental element associated within the agreement, a cost was recognised as and when the contingency materialised.
Upon adoption of IFRS 16, the Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The standard provides specific transition requirements and practical expedients, which have been applied by the Group. The Group did not have any finance leases at the time IFRS 16 was adopted on 1 January 2019.
Leases previously accounted for as operating leases
The Group recognised a new category of assets, namely right-of-use assets and lease liabilities for those leases previously classified as operating leases, except for short-term leases and leases of low-value assets. For all leases, the right-of-use assets were recognised based on the amount equal to the lease liabilities on the date of initial application (ie. 1 January 2019). Lease liabilities were recognised based on the present value of the remaining lease payments, discounted using the incremental borrowing rate at the date of initial application as it was not practical to use the rate implicit in the lease.
The Group also applied the available practical expedients wherein it:
-- Used a single discount rate to a portfolio of leases with reasonably similar characteristics
-- Applied the short-term leases exemptions to lease contracts with a lease term that ends within 12 months of the date of initial application
-- Applied the materiality exemption to lease contracts for which the underlying asset is of low value
-- Excluded the initial direct costs from the measurement of the right-of-use asset at the date of initial application
-- Used hindsight for historical lease payments made to determine the value of the liability and right of use asset at date of initial application where the contract did not refer to an annual fixed escalation rate
-- Used hindsight to determine the lease term if the contract contained options to extend or terminate the lease
-- Elected not to separate the lease and non-lease component where it was not practical to do so and therefore accounted for the full contract amount in terms of IFRS 16
Based on the foregoing, as at 1 January 2019:
-- Right-of-use assets of US$11.1 million were recognised and presented separately in the statement of financial position.
-- Additional lease liabilities of US$11.1 million were recognised and presented separately in the statement of financial position.
-- Trade and other payables of US$1.4 million related to previous operating leases were derecognised, which resulted in an increase in the deferred tax liability of US$0.4 million.
-- The implementation resulted in an increase in retained earnings of US$0.8 million and an increase in the non-controlling interest, of US$0.3 million.
1 January
2019
The effect of adoption of IFRS16 as at 1 January 2019 US$'000
(increase/(decrease) is as follows:
============================================================= ==========
Assets
Right-of-use assets 11 055
Total assets 11 055
============================================================= ==========
Liabilities
Lease liabilities 11 055
Deferred tax liability 358
Trade and other payables (1 431)
============================================================= ==========
Total liabilities 9 982
============================================================= ==========
Equity
Retained earnings 751
Non-controlling interest 322
============================================================= ==========
Total adjustments to equity 1 073
============================================================= ==========
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
2.2 Significant accounting policies (continued)
As the Ghaghoo mining operation was placed on care and maintenance, the entity only has short-term leases and leases of low-value assets. Therefore, the adoption of IFRS 16 at Ghaghoo did not have an impact at a Group level.
The lease liabilities as at 1 January 2019 can be reconciled to the operating lease commitments as at 31 December 2018 as follows:
1 January
2019
US$'000
====================================================== ==========
Operating lease commitments as at 31
December 2018 136 423
Weighted average incremental borrowing
rate as at 1 January 2019 10%
Discounted operating lease commitments
at 1 January 2019 128 490
Less:
Commitments relating to short-term leases (102)
Variable lease payments (120 899)
Out of scope leases e.g.
mining leases (1 069)
Add:
Arrangements not previously separately disclosed
as operating leases commitments 4 635
===================================================== ==========
Lease liabilities as at
1 January 2019 11 055
====================================================== ==========
Amounts recognised in the statement of financial position and profit or loss at Period end:
Right-of-use assets
===================================================== =============
Plant Motor Lease
and equipment Vehicles Buildings Total liabilities
====================== ================ =========== ============ =============
As at 1 January
2019 1 350 1 620 8 085 11 055 11 055
Additions 1 080 - 118 1 198 1 198
Depreciation charge
for the Period (527) (183) (659) (1 369) -
Interest expense - - - - 517
Lease payments - - - - (1 391)
Foreign exchange
differences 35 31 127 193 114
======================= ================ =========== ============ ======== =============
As at 30 June
2019 1 938 1 468 7 671 11 077 11 493
======================== ================ =========== ============ ======== =============
Future cashflows to which the lessee is potentially exposed that are not reflected in the measurement of lease liabilities:
30 June
2019
US$'000
=========================== =========
Residual value guarantees 75
As at 30 June
2019 75
================================= =========
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
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. Other regions where no direct mining activities take place are organised into geographical regions in the areas where the operations are managed. 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);
-- Botswana (diamond mining activities), classified as discontinued operation in current Period;
-- Belgium (sales, marketing and manufacturing of diamonds); and -- BVI, RSA, UK and Cyprus (technical and administrative services).
Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment.
In the current Period the Ghaghoo diamond mine, which is in the process of being sold, has been classified as a discontinued operation and has been disclosed separately. As a result of the materiality of Gem Diamonds Marketing Botswana, and the nature of the operation (the sales and marketing of diamonds), the operation has been reclassified to the Belgium segment.
Segment performance is evaluated based on operating profit or loss. Inter-segment 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 present revenue and profit, and asset and liability information from operations regarding the Group's geographical segments:
BVI, Total
Six months ended RSA, continuing Discontinued
30 June 2019(1) Lesotho Belgium UK and operations operations Total
US$'000 US$'000 Cyprus(2) US$'000 US$'000 US$'000
US$'000
======================== ========== ========== =========== ============ =============== ==========
Revenue
Total revenue 93 112 91 536 4 451 189 099 - 189 099
Inter-segment (93 112) (199) (4 451) (97 762) - (97 762)
======================== ========== ========== =========== ============ =============== ==========
External customers - 91 337 - 91 337 - 91 337
======================== ========== ========== =========== ============ =============== ==========
Segment operating
profit/(loss) 25 731 733 (5 024) 21 440 (2 337) 19 103
Net finance
costs (2 733) (91) (2 824)
======================== ========== ========== =========== ============ =============== ==========
Profit before
tax 18 707 (2 428) 16 279
Income tax expense (6 616) - (6 616)
======================== ========== ========== =========== ============ =============== ==========
Profit for the Period 12 091 (2 428) 9 663
======================== ========== ========== =========== ============ =============== ==========
1 Unaudited
2 No revenue was generated in BVI or Cyprus
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
3. Segment information (continued)
BVI, Total
Six months ended RSA, continuing Discontinued
30 June 2018(1) Lesotho Belgium(2) UK and operations operations Total
US$'000 US$'000 Cyprus(3) US$'000 US$'000 US$'000
US$'000
===================== ========== ============= =========== ============ ================= ==========
Revenue
Total revenue 166 657 167 616 4 273 338 546 - 338 546
(166 (170
Inter-segment 657) (158) (4 048) (170 863) - 863)
===================== ========== ============= =========== ============ ================= ==========
External customers - 167 458 225 167 683 - 167 683
===================== ========== ============= =========== ============ ================= ==========
Segment operating
profit/
(loss) 72 726 1 232 (5 926) 68 032 (2 512) 65 520
Net finance
costs (636) (99) (735)
===================== ========== ============= =========== ============ ================= ==========
Profit before
tax 67 396 (2 611) 64 785
Income tax expense (23 846) - (23 846)
===================== ========== ============= =========== ============ ================= ==========
Profit for the
Period 43 550 (2 611) 40 939
===================== ========== ============= =========== ============ ================= ==========
1 Unaudited
(2) The results of Gem Diamonds Marketing Botswana, previously included in the Botswana segment, have been reclassified to the Belgium segment
3 No revenue was generated in BVI or Cyprus
BVI,
RSA, Total
UK and continuing Discontinued
Lesotho Botswana Belgium Cyprus operations operations Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
===================== ========== =========== ========== ========= ============= =============== ==========
Segment assets
===================== ========== =========== ========== ========= ============= =============== ==========
30 June 2019(*) 379 408
1 591 - 6 249 18 269 404 109 3 907 016
31 December 358 393
20182 646 4 000 3 249 27 552 393 447 - 447
===================== ========== =========== ========== ========= ============= =============== ==========
Segment liabilities
===================== ========== =========== ========== ========= ============= =============== ==========
30 June 2019(*)
1 59 162 - 1 129 19 696 79 987 4 140 84 127
31 December
20182 62 753 4 036 689 23 637 91 115 - 91 115
===================== ========== =========== ========== ========= ============= =============== ==========
(1) Unaudited
(2) Audited
(*) The results of Gem Diamonds Marketing Botswana, previously included in the Botswana segment, have been reclassified to the Belgium segment
Included in revenue is revenue from three customers which amounted to US$41.1 million (revenue from a single customer, in the prior period, amounted to US$45.1 million) arising from sales reported in the Lesotho and Belgium segments.
Segment assets and liabilities do not include net deferred tax liabilities of US$81.3 million (31 December 2018: US$74.1 million).
Total revenue for the Period is lower than that of the prior period mainly as a result of the lower volume of large diamonds recovered during the Period. The revenue of the prior period was specifically bolstered by the recovery and sale of the 910 carat Lesotho Legend which sold for US$40.0 million.
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
4. Discontinued operation
The Ghaghoo mine was placed on care and maintenance on 31 March 2017 and in June 2019 the Company entered into a binding agreement for the sale of 100% of the share capital of Gem Diamonds Botswana Proprietary Limited, which owns the Ghaghoo diamond mine, for US$5.4 million. The sale, subject to regulatory approvals in Botswana, is expected to be concluded in H2 2019. As a result, the trading results of the operation have been classified as discontinued operations.
The results of the operation for the Periods ended 30 June 2019 and 30 June 2018 are as follows:
30 June 30 June
20191 2018(1)
US$'000 US$'000
============================================ ====================== ==============
Gross profit - -
Other costs (2 332) (2 476)
Share-based payments (7) (6)
Foreign exchange gain/(loss) 2 (30)
============================================ ====================== ==============
Operating loss (2 337) (2 512)
Net finance costs (91) (99)
Loss before tax from discontinued operation (2 428) (2 611)
Income tax - -
============================================ ====================== ==============
Loss after tax from discontinued operation (2 428) (2 611)
============================================ ====================== ==============
Loss per share from discontinued operation
Basic (1.75) (1.89)
Diluted (1.71) (1.84)
============================================ ====================== ==============
The assets and liabilities attributable to the 30 June
discontinued operation are as follows: 20191
US$'000
=============================================== ======================
ASSETS
Non-current assets
Property, plant and equipment 1 542
=============================================== ======================
1 542
=============================================== ======================
Current assets
Inventories 2 122
Receivables and other assets 80
Cash and short-term deposits 163
=============================================== ======================
2 365
=============================================== ======================
Total assets 3 907
=============================================== ======================
LIABILITIES
Non-current liabilities
Provisions 3 508
=============================================== ======================
3 508
=============================================== ======================
Current liabilities
Trade and other payables 632
=============================================== ======================
632
=============================================== ======================
Total liabilities 4 140
=============================================== ======================
(1) Unaudited
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
4. Discontinued operation (continued)
The net cashflows attributable to the discontinued 30 June 30 June
operation are as follows: 20191 2018(1)
US$'000 US$'000
=================================================== ====================== ========
Operating 84 (179)
Investing - 74
Foreign exchange gain/(loss) on translation of
cash balance 1 (4)
=================================================== ====================== ========
Cash inflow/(outflow) 85 (109)
=================================================== ====================== ========
1 Unaudited
5. Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) before discontinued operation
Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the performance of the Group and excludes such non-operating costs as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:
30 June 30 June
20191 2018(*1)
US$'000 US$'000
====================================================== ============== ========================
Operating profit 21 440 68 032
Foreign exchange gain (2 395) (2 130)
Share-based payments 601 777
Other operating income (1 393) (304)
Depreciation and mining asset amortisation (excluding
waste stripping cost amortised) 7 054 4 338
====================================================== ============== ========================
Underlying EBITDA before discontinued operation 25 307 70 13
====================================================== ============== ========================
(1) Unaudited
* Prior period figures have been restated for the reclassification impact of accounting for the discontinued operation (Refer to Note 4, Discontinued operation)
6. Seasonality of operations
The Group's sales environment with regard to its diamond sales is not materially impacted by seasonal and cyclical fluctuations. The mining operations may be impacted by seasonal weather conditions. Appropriate mine planning and ore stockpile build-up ensures that mining can continue during adverse weather conditions.
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
7. Income tax expense
30 June 30 June
20191 2018(1)
US$'000 US$'000
================= ============== =======================
Income statement
Current
- Overseas (1 003) (14 797)
Withholding tax
- Overseas (69) (3 708)
Deferred
- Overseas (5 544) (5 341)
================= ============== =======================
(6 616) (23 846)
================= ============== =======================
1 Unaudited
The forecast effective tax rate for the full year from continuing operations is 37.2% (31 December 2018: 36.1%) and has been applied to the actual results from continuing operations for the Period. Discontinued operations (refer to Note 4, Discontinued operation), have been excluded from the forecast effective tax rate for the full year and taxed separately. There is no tax effect on the loss from Discontinued operations as a result of previously recognised losses.
The forecast effective tax rate for the full year is above the Lesotho statutory tax rate of 25% primarily as a result of withholding tax of 10% on dividends from Letšeng and deferred tax assets not recognised on losses incurred in non-trading operations.
8. Dividends paid and proposed
There were no dividends proposed in 2019 for the 2018 financial year. The dividend policy is dependent on the results of the Group's operations, its financial condition, cash requirements, future prospects, profits available for distribution and other factors deemed to be relevant at that time.
9. Property, plant and equipment
During the Period, the Group invested US$4.4 million (30 June 2018: US$10.9 million) into property, plant and equipment, of which US$3.5 million (30 June 2018: US$10.5 million) related to Letšeng.
Letšeng's capital spend was incurred mainly on the completion of the mining support services complex (US$0.6 million) (30 June 2018: US$4.0 million), the extension of the footprint of the Patiseng tailings storage facility (US$0.9 million) (30 June 2018: US$3.4 million), continued core drilling and micro diamond analysis to firm up the existing mineral resource base (US$0.5 million)(30 June 2018: US$0.5 million) and US$0.5 million on security system upgrades.
Letšeng further invested US$37.3 million (30 June 2018: US$42.9 million) in deferred stripping costs which were capitalised. Amortisation of the deferred stripping asset (waste stripping cost amortisation) of US$15.6 million (30 June 2018:US$34.2 million) was charged to the Statement of Profit or Loss during the Period. The amortisation is directly related to the areas that were mined during the Period and their associated waste to ore strip ratios.
Depreciation and mining asset amortisation of US$7.3 million (30 June 2018: US$4.5 million) was charged to the Statement of Profit or Loss during the Period. The increase in this charge was driven by the commencement of depreciation on the completed Letšeng mining complex and the recognition of Right-of-use assets in accordance with IFRS 16 - Leases which attracted additional depreciation of US$1.4 million in the Period.
In addition to the above, foreign exchange movements on translation affecting property, plant and equipment decreased the asset balances by US$5.7 million (30 June 2018: US$29.5 million).
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
10. Receivables and other assets
30 June 31 December
20191 20182
US$'000 US$'000
================== ================= ===================
Non-current
Prepayments 173 347
================== ================= ===================
173 347
================== ================= ===================
Current
Trade receivables 156 184
Prepayments(3) 536 1 038
Deposits 92 97
Other receivables 361 329
VAT receivables 4 001 3 785
================== ================= ===================
5 146 5 433
================== ================= ===================
(1) Unaudited
(2) Audited
(3) Included in prepayments are loan facility restructuring costs of US$0.6 million, relating to the Company's US$45.0 million bank loan facility, which will be amortised over the period of the loan.
11. Cash and short-term deposits
30 June 31 December
20191 20182
US$'000 US$'000
============================= ============== ===================
Cash on hand 3 1
Bank balances 13 816 16 093
Short-term bank deposits 11 854 34 718
============================= ============== ===================
Cash and short-term deposits 25 673 50 812
============================= ============== ===================
1 Unaudited
2 Audited
At 30 June 2019, the Group had restricted cash of US$0.2 million (31 December 2018: US$0.2 million).
Finance income relates to interest earned on cash and short-term deposits.
Finance costs include interest incurred on bank overdraft and borrowings, finance lease liabilities and the unwinding of rehabilitation provisions.
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
12. Issued capital and reserves
30 June 20191 31 December 20182
===================================== =========================================== ==========================
Number US$'000 Number
of shares of shares US$'000
'000 '000
===================================== ===================== ==================== ==========================
Authorised - ordinary shares
of US$0.01 each
As at Period/Year 200 000 2 000 200 000 2 000
===================== ==================== ============================
Issued and fully paid
Balance at beginning of Period/Year 138 896 1 390 138 620 1 387
Allotments during the Period/Year 88 1 276 3
===================================== ===================== ==================== ==========================
Balance at end of Period/Year 138 984 1 391 138 896 1 390
===================================== ===================== ==================== ==========================
1 Unaudited
2 Audited
13. Share-based payments
Long-term Incentive Plan 2017 Award - March 2019
On 20 March, 1 303 000 nil-cost options were granted to certain key employees and Executive Directors under the Long-term Incentive Plan 2017 of the Company. The vesting of the options will be subject to the satisfaction of certain market and non-market performance conditions over a three-year period. The satisfaction of certain performance as well as service conditions are classified as non-market conditions. 142 500 of the options granted relate to market conditions. The options vest after a three-year period and are exercisable between 20 March 2022 and 19 March 2029. 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 GBP0.90 (US$1.19) and the option grants are settled by issuing shares.
The expense disclosed in the interim consolidated Statement of Profit or Loss income statement is made up as follows:
30 June 30 June
20191 20181
US$'000 US$'000
================================================== ============== ===============
Equity-settled share-based payment transactions
- charged to the Statement of Profit or Loss -
continuing operations
Equity-settled share-based payment transactions 601 777
- charged to the Statement of Profit or Loss -
discontinued operation 7 6
608 783
================================================== ============== ===============
1 Unaudited
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
14. Interest-bearing loans and borrowings
30 June 31 December
20191 20182
Effective interest rate Maturity US$'000 US$'000
===================================================== =============== ===================
Non-current
LSL215.0 million bank loan facility3
===================================================== =============== ===================
Tranche 1 South African JIBAR + 3.15% 31 March
2022(3) 5 957 7 508
===================================================== =============== ===================
Tranche 2 South African JIBAR + 6.75% 30 Sept
2022(3) 1 489 1 784
===================================================== =============== ===================
US$45.0 million bank loan facility4
===================================================== =============== ===================
Tranche 1 London US$ three-month LIBOR+4.5% 31
Dec 20204 5 000 10 000
Asset Based Finance Facility5 South African Prime
Lending rate 1 January 20245 619 662
===================================================== =============== ===================
13 065 19 954
===================================================== =============== ===================
Current
LSL215.0 million bank loan facility3
===================================================== =============== ===================
Tranche 1 South African JIBAR + 3.15% 31 March
2022(3) 3 404 3 337
===================================================== =============== ===================
Tranche 2 South African JIBAR + 6.75% 30 September
2022(3) 662 649
===================================================== =============== ===================
US$45.0 million bank loan facility4
===================================================== =============== ===================
Tranche 1 South African JIBAR + 4.5% 31 Dec 20204 10 000 10 000
===================================================== =============== ===================
Asset Based Finance Facility5 South African Prime
Lending rate 1 January 20245 231 226
===================================================== =============== ===================
14 297 14 212
===================================================== =============== ===================
1 Unaudited
2 Audited
(3) LSL215.0 million (US$ 15.3 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$12.8 million) debt facility supported by the Export Credit Insurance Corporation (ECIC) (five years tenure); and
Tranche 2: Lesotho Loti denominated LSL35.0 million (US$2.5 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 Period end LSL162.3 million (US$11.5 million) (31 December 2018: LSL191.0 million (US$13.3 million)) remains outstanding.
The South African Rand based interest rates for the facility at 30 June 2019 are:
Tranche 1: 10.18%
Tranche 2: 13.78%
Total interest for the Period on this interest-bearing loan was US$0.3 million.
(4) US$ 45.0 million bank loan facility at Gem Diamonds Limited
This facility is a three-year revolving credit facility (RCF) with Nedbank Capital and consists of two tranches:
Tranche 1: relates to the Ghaghoo US$25.0 million debt whereby capital repayments commenced in September 2018 with a final repayment due on 31 December 2020;
Tranche 2: this relates to a US$20.0 million RCF and includes an upsize mechanism whereby this tranche will increase by a ratio 0.6:1 for every repayment made under Tranche 1. This will result in the available facility increasing to US$35.0 million once Tranche 1 is fully repaid.
At Period end US$15.0 million of the Tranche 1 debt remains outstanding. This has resulted in the Tranche 2 RCF increasing to US$26.0 million, all of which remained undrawn at Period end. The US$-based interest rate for this facility at 30 June 2019 is 6.83%.
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
14. Interest-bearing loans and borrowings (continued)
(5) Asset Based Finance Facility
The Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.9 million) Asset Based Finance Facility with Nedbank Limited for the purchase of an X-Ray transmission machine (the asset), the asset serves as security for the facility. At Period end ZAR11.9 million (US$0.9 million) remains outstanding. The facility is repayable over5 years and bears interest at the South African Prime Lending rate, which was 10.25% at 30 June 2019.
Other facilities
In addition, at 30 June 2019, the Group through its subsidiary Letšeng Diamonds, has a LSL500.0 million (US$35.5 million) three-year unsecured revolving working capital facility jointly with Standard Lesotho Bank and Nedbank Capital, which was renewed in July 2018. At Period end the full facility was available for draw down.
15. Cash flow notes
30 June 30 June
20191 2018(1)
US$'000 US$'000
------------------------------------------------- --------- -----------
15.1 Cash generated by operations
Profit before tax for the Period - continuing
operations 18 707 67 396
Profit before tax for the Period - discontinued
operation (2 428) (2 611)
Adjustments for:
Depreciation and amortisation on property,
plant and equipment 7 284 4 510
Waste stripping cost amortisation 15 649 34 202
Finance income (518) (1 195)
Finance costs 3 342 1 831
Unrealised foreign exchange differences (3 046) (6 528)
Profit on disposal of property, plant and
equipment (1 169) (367)
Movements in prepayments (206) (74)
Other non-cash movements 3 223 1 735
Share-based equity transaction 608 783
41 446 99 781
======================================================== ========= ===========
15.2 Working capital adjustments
Decrease/(increase) in inventories 1 076 (817)
Decrease in receivables 2 578 853
(Decrease)/increase in trade and other payables (6 678) 4 931
======================================================== ========= ===========
(3 024) 4 967
======================================================== ========= ===========
15.3 Cash flows from financing activities
Balance at beginning of Period 34 166 46 343
Net cash used in financing activities (8 975) (3 285)
========= ===========
- financial liabilities raised 5 281 2 840
- financial liabilities repaid (12 395) (6 125)
- lease liabilities repaid (1 861) -
========= ===========
Net non-cash movement 13 665 (1 692)
========= ===========
- FCTR 346 (1 692)
- lease liabilities raised 12 533 -
- interest on lease liabilities 786 -
========= ===========
Balance Period end 38 855 41 366
======================================================== ========= ===========
1 Unaudited
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
16. Commitments and contingencies
The Board has approved capital projects of US$8.4 million (31 December 2018: US$9.8 million) of which US$1.9 million (31 December 2018: US$6.2 million) has been contracted at 30 June 2019. The main capital expenditure approved relates to Letšeng's Patiseng tailings storage facility of US$2.0 million, mineral resource studies of US$1.5 million and accommodation block expansion of US$1.0 million. The expenditure is expected to be incurred over the next 12 months.
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 relating to ongoing employee-related legal costs approximating US$0.2 million (31 December 2018: US$0.1 million) and tax claims within the various jurisdictions in which the Group operates approximating US$1.3 million (31 December 2018: US$1.3 million).
17. Related parties
Relationship
Jemax Management (Proprietary) Limited Common director
Gem Diamond Holdings Limited
Common director
Government of Lesotho
Non-controlling interest
30 June 30 June
20191 2018(1)
US$'000 US$'000
===================================================== ========= ==========
Compensation to key management personnel (including
Directors)
Share-based equity transactions 325 468
Short-term employee benefits 2 032 1 684
===================================================== ========= ==========
2 357 2 152
===================================================== ========= ==========
Fees paid to related parties
Jemax Management (Proprietary) Limited (49) (55)
Royalties paid to related parties
Government of Lesotho (7 680) (13 439)
Lease and license payments to related parties
Government of Lesotho (162) (141)
Purchases from related parties
Jemax Management (Proprietary) Limited (3) (6)
Amount included in trade payables owing to related
parties
Jemax Management (Proprietary) Limited (8) (10)
Amounts owing to related party
Government of Lesotho (299) (502)
Dividends paid
Government of Lesotho - (15 527)
===================================================== ========= ==========
(1) Unaudited
Condensed Notes to the Consolidated
Interim Financial Statements continued
for the six months ended 30 June 2019
18. Assets held for sale
30 June 31 December
20191 2018(2)
US$'000 US$'000
======================================== ============ ===============
Property, plant and equipment - 859
======================================== ============ ===============
- 859
===================================================== ===============
(1) Unaudited
(2) Audited
On 30 January 2019, the aircraft which serviced the Letšeng
mine and was disclosed as an asset held for sale at 31 December
2018, was sold for US$2.1 million.
19. Events after the reporting Period
No other fact or circumstance has taken place between the Period end and the approval of the financial statements which, in our opinion, is of significance in assessing the state of the Group's affairs.
Contact Details and Advisers
Gem Diamonds Limited
Registered office
Coastal Building, Ground Floor Wickham's Cay II
Road Town, Tortola
British Virgin Islands
Head office
2 Eaton Gate
London SW1W 9BJ United Kingdom
T: +44 (0) 203 043 0280
F: +44 (0) 203 043 0281
Financial adviser and sponsor
JPMorgan Casenove Limited
20 Moorgate
London EC2R 6DA
United Kingdom
T: +44 (0) 20 7588 2828
F: +44 (0) 20 7155 9000
Financial adviser
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street London EC2Y 9LY United Kingdom
Tel: +44 (0) 20 3100 2000
Fax: +44 (0) 20 3100 2099
Panmure Gordon & Co.
One New Change
London EUM 9AF United Kingdom
T: +44 20 7886 2500
Legal adviser
Linklaters
One Silk Street London EC2Y 8HQ
United Kingdom
T: +44 (0) 20 7456 2000
F: +44 (0) 207456 2222
Auditors
Ernst & Young Incorporated
102 Rivonia Road
Sandton
2146
South Africa
T: +27 (0) 11 772 3000
Financial PR Adviser
Celicourt Communications
Adam House
7-10 Adam Street, The Strand
London WC2N6AA United Kingdom
T: +44 (0) 20 8434 2643
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR CKQDKOBKDNCK
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September 05, 2019 02:00 ET (06:00 GMT)
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