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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.40 | -4.63% | 8.24 | 8.28 | 8.96 | 8.60 | 8.22 | 8.22 | 251,127 | 15:39:01 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Misc Nonmtl Minrls, Ex Fuels | 140.29M | -2.13M | -0.0154 | -5.35 | 11.37M |
From Apr 2019 to Apr 2024
TIDMGEMD
RNS Number : 6740S
Gem Diamonds Limited
13 March 2019
Wednesday, 13 March 2019
Gem Diamonds Limited
Full Year 2018 Results
Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Full Year Results for the year ending 31 December 2018 (the "Period").
FINANCIAL RESULTS:
-- Revenue of US$267.3 million (US$214.3 million in 2017) -- Underlying EBITDA of US$82.3 million (US$48.6 million before exceptional items in 2017) -- Profit for the year US$46.6 million (US$20.8 million before exceptional items in 2017) -- Attributable profit US$26.0 million (US$9.1 million before exceptional items in 2017) -- Earnings per share 18.80 US cents (6.56 US cents before exceptional items in 2017)
-- Cash on hand of US$50.8 million as at 31 December 2018 (US$43.3 million attributable to Gem Diamonds)
OPERATIONAL RESULTS:
Letšeng
-- Carats recovered of 126 875 (111 811 in 2017) -- Waste tonnes mined of 25.8 million tonnes (29.7 million tonnes in 2017) -- Ore treated of 6.5 million tonnes (6.4 million in 2017) -- Average value of US$2 131 per carat achieved (US$1 930 in 2017) -- Record fifteen diamonds larger than 100 carats each recovered (seven in 2017)
-- 138.28 carat white diamond achieved US$ 60 428 per carat, the highest dollar per carat achieved for a white rough diamond during the year
Technology and innovation
-- Installation of non-mechanical diamond liberations at Letšeng
-- US$3m pilot plant to detect diamonds within kimberlite at Letšeng on track to be commissioned during Q2 2019
Dividend
The Board has resolved not to propose the payment of a dividend in respect of the 2018 financial year and ongoing focus on the Business Transformation, in order to strengthen the balance sheet.
Commenting on the results today, Clifford Elphick, Chief Executive of Gem Diamonds, said:
"Gem Diamonds achieved a good set of results, characterised by the recovery of 15 diamonds greater than 100 carats, a record for a single calendar year. Production in 2018 also included the highest recovery of diamonds greater than 20 carats, with 80% of revenue primarily generated by diamonds greater than 10 carats.
The mine plan for Letšeng was revised during 2018, with the aim of further reducing the waste stripping through the steepening of inter-ramp slope angles. Mining in accordance with this plan has commenced and is expected to significantly increase the net present value of the mine.
The Business Transformation process has progressed well and remains on-track to achieve the target of US$100 million in cost savings and efficiencies by 2021. By December 2019, the initiatives already implemented are expected to deliver US$64 million to the end of 2021."
The Company will host a live audio webcast presentation of the full year results today, 13 March 2019, at 10:00 GMT. This can be viewed on the Company's website: www.gemdiamonds.com
FOR FURTHER INFORMATION:
Gem Diamonds Limited
ir@gemdiamonds.com
Celicourt Communications
Mark Antelme / Joanna Parker
Tel: +44 (0) 207 520 9265
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 100% 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.
CHAIRMAN'S STATEMENT
A record number of recoveries of diamonds greater than 100 carats at Letšeng, including the 910 carat Lesotho Legend, combined with a focused drive to optimise business processes and enhance efficiencies, have generated a strong financial performance for 2018.
Dear shareholders,
On behalf of the Board, it is my pleasure to present the Gem Diamonds 2018 Annual Report. This report affords me the opportunity to reflect on the past financial year and to share the progress made against the Company's stated objectives.
Reflecting on 2018
During 2018, the Board and management have focused squarely on delivering the Company's strategic priorities of Extracting Maximum Value from Operations, Working Safely and Responsibly and Maintaining our Social Licence and Preparing for Our Future. These three overarching objectives, which have been communicated to all our stakeholders, underpin how we work and what we do.
I am pleased to advise that this past year was characterised by a record number of recoveries of large, high-quality diamonds, coupled with substantial progress on implementing the objectives of the Business Transformation programme, which are designed to ensure sustainable growth.
Given the pleasing results, it is tempting to overlook the context from which these successes have been wrought. The positive results achieved in 2018 should be viewed against the backdrop of a difficult year for the global diamond mining industry. While pricing for Letšeng's high value goods remained resilient, prices for smaller goods struggled due to a combination of ample new production over the last two years and the emergence of more competition from the man-made diamond sector.
In 2017, the Company launched a Business Transformation programme with the aim of improving our financial and operational performance in order to secure a more profitable and sustainable future for the benefit of all our stakeholders.
Much work has been done to improve the efficiency of our business processes and to optimise diamond recoveries in order to extract the maximum possible value from our asset. I am pleased to report that the Company has made impressive progress over the past year and remains on track to achieve the cumulative four-year target of US$100 million in incremental revenue, productivity improvements and cost savings by the end of 2021. While every aspect of our business has been placed under scrutiny, we have been careful to ensure that any cost reductions or changes to business processes do not compromise the safety of our staff, the sustainability of the operations or the welfare of the communities amongst which we operate.
The orebody at the Letšeng mine exhibits a particularly coarse distribution in the size of the diamonds it contains. This inevitably makes it challenging to avoid damaging diamonds during the crushing and extraction process and the Company is determined to find a solution to this problem. Steady progress was made during 2018 towards achieving the stated objectives of using technology to identify diamonds that are fully enclosed within kimberlite, and to liberate these diamonds using a non-mechanical process. The successful application of such technology would sharply lower diamond damage and thereby improve the size distribution of the products recovered while also lowering operating costs. (For more information, refer to Technology and Innovation on page 35).
The statutory process for the renewal of the Letšeng mining lease is underway, and during the year the Prime Minister of Lesotho announced his Government's intention to renew the lease - a clear demonstration of the positive partnership that exists between Gem Diamonds and the Government of Lesotho. Good progress has been made and it is anticipated that the renewed mining lease will be issued in the near future.
In early 2017 the Ghaghoo mine in Botswana was placed on care and maintenance as a consequence of the weak state of the diamond market for the category of diamonds produced by this operation. During the year, a formal sale process commenced, and further updates on this process will be provided in due course.
The Lesotho Legend - building a legacy
One of the highlights of the year was the discovery in January of a 910-carat Type IIa, D-colour rough diamond at the Letšeng mine. This find is of historical importance as it is the fifth largest gem-quality diamond ever recovered, and the largest diamond unearthed at Letšeng. Reflecting the iconic nature of the stone, as well as the splendour of its country of origin, the diamond was named the Lesotho Legend and was sold on tender in Antwerp for US$40 million in March 2018.
In line with our ongoing desire to build meaningful, long-term and mutually beneficial relationships with our surrounding communities, and to mark the recovery of the Lesotho Legend, the 910 Community Project was initiated. Following consultation with community leaders, and in line with the agricultural focus of many of our other social initiatives, the construction and development of a commercial poultry and egg farming co-operative was identified as the preferred community project. A feasibility study has been commissioned to better understand the potential socio-economic impact of this project and to determine the investment required.
The aim of all community projects is to create viable and sustainable community income streams that last beyond the life of the mine and, in this way, ensure the surrounding community derives a direct benefit from the mineral wealth of the area.
Ensuring a safe and responsible working environment
The health and safety of everyone working at Gem Diamonds is our highest priority, and we are committed to providing a safe, healthy and nurturing work environment for all our employees, contractors and visitors.
While we continually strive for zero harm, regrettably, four employees suffered LTIs during 2018, up from one in 2017. All four LTIs occurred in the first quarter of the year and in each case a detailed investigation was undertaken with corrective actions implemented to mitigate the risk of any recurrence. I am pleased to report that no further LTIs occurred during the remainder of the year. Furthermore, while the Group-wide LTIFR rose marginally from 0.04 in 2017 to 0.15, the Group-wide AIFR reached a historical low of 1.45, down from 2.02 in 2017.
Our commitment to zero harm means not only preventing injury, but also creating a safety culture that is underpinned by a deep sense of mutual care and collaboration across the workforce. In the year ahead, we will continue to invest in safety training and capability building in order to further embed a strong safety and health culture throughout the organisation.
It is pleasing to note that during 2018 there were no major or significant environmental or stakeholder incidents reported at any of our operations. Moreover the quality of the environmental, safety and community engagement initiatives of the Company have once again been recognised by the receipt of a FTSE4Good commendation award in December 2018.
Dam safety in focus
Waste rock, tailings and water containment and storage facilities are all an integral part of the mining process. We recognise that if not engineered and managed correctly they can constitute a serious hazard. Recent events involving tailings dam failures have highlighted that risk management at every stage of the lifecycle of our water and tailings storage facilities is critically important.
The Company takes a highly proactive approach in this matter to ensure that the safety of all water, rock and tailings facilities is continually managed according to international best practice. Dam safety remains a standing agenda item at operational and Group HSSE sub-committee meetings and at Group Board meetings where findings from our stringent structural stability monitoring processes, including internal and external inspections and audits, are regularly received and reviewed. The approach also includes interaction with local communities and stakeholders situated downstream from the mine. (For further detail on how the Group ensures the highest standards of dam safety management, refer to the Sustainable Development Reporting platform www.gemdiamonds.com.)
Building long-term, transparent and mutually beneficial relationships with stakeholders
To ensure the sustainability of our business, we remain focused on delivering returns for our investors while seeking to optimise the benefit that surrounding communities derive from our activities. We understand that it is our task to do everything possible to extract the maximum value possible from the unique resource for which we are responsible, for the benefit of all stakeholders.
Working with government
We endeavour at all times to work closely with local and national governments. In Lesotho, the Government is a 30% shareholder in our Letšeng mine and this ensures that the wider country benefits directly from our operation.
In 2018, Gem Diamonds contributed a total of US$52.5 million to the Lesotho fiscus in the form of taxes, royalties and dividends. We are fiercely proud of this large contribution to the economy which cements Letšeng as one of the largest single taxpayers in the country.
Supporting local communities
With a workforce of over 2 000 people, the Letšeng mine is a substantial employer in Lesotho. In addition to this direct local employment, the Company endeavours to procure as many goods and services as possible from the local economy. During 2018 the total in-country procurement amounted to US$152.3 million which equated to 92% of our total procurement spend, in turn generating significant benefits for the local economy and the broader population of Lesotho.
Gem Diamonds works closely with the communities surrounding the Letšeng mine to identify meaningful social projects to support. During the year, this collaboration continued with material investments made into a range of community and social programmes, including continued investment into our dairy farming project. Additionally, following a consultation process, we commenced construction of a footbridge that will allow year-round access for several communities to crucial services and infrastructure such as schools, local markets and transportation routes. This project will make a significant difference to people's daily lives and will support critical socio-economic development in the area. (For further detail on these and other community projects, refer to the Sustainable Development report on page 37).
A focus on sustainable returns for our shareholders
The Board is committed to delivering sustainable shareholder returns and it remains the policy of the Board to pay a dividend to shareholders when the financial position of the Company permits.
Notwithstanding the 2018 results, following a review of the current state of the global diamond market, the Board has decided that no dividend will be paid in respect of the 2018 financial year. We believe that the focus on strengthening our balance sheet and positioning ourselves for the future will be to the long-term benefit of shareholders.
Corporate governance
During 2018, the Financial Reporting Council released the 2018 UK Corporate Governance Code, which is applicable for reporting periods starting on or after 1 January 2019. This new code emphasises the importance of building trust by forging strong relationships with key stakeholders. It calls for companies to create a corporate culture that is aligned with the company purpose and business strategy, promotes integrity and values diversity.
The Directors welcome and support the objectives of the code, and to ensure that we are aligned to its goals, we have introduced a systematic review of our governance policies and their terms of reference. This process will ensure that practices throughout the Group remain consistent with our current high standard of governance. During 2019, the Board will report on the outcome of this review and any changes that are deemed necessary to meet the objectives of the new code.
Directorate changes
As announced in last year's Annual Report, Mike Brown joined the Board in January 2018 as an independent non-Executive Director and as Chairman of the HSSE Committee. Mike has had a long and successful career in the diamond industry and brings a wealth of operational and corporate experience to the Board.
Furthermore, Johnny Velloza joined the Board in July 2018 as an Executive Director. Following his resignation as Group COO during the year, we were pleased to announce that Johnny was prepared to remain on the Board as a non-Executive Director, ensuring the Group continues to benefit from his extensive industry and organisational experience.
Gavin Beevers, who served as a non-Executive director of Gem Diamonds for over 10 years and was a former senior De Beers executive, agreed to return as Technical Advisor to operations until a suitable replacement for Johnny is found.
The Nominations Committee continues to review the skills and experience of the Board to ensure its composition enables the delivery of the Group's strategy.
Outlook and appreciation
Mining is a cyclical industry, but also one that involves taking decisions that have implications over long periods of time. We understand that it is our task to balance these periodically competing timelines and that our focus must remain on positioning the business to thrive throughout the cycle. Going forward, management will continue to drive the rigorous approach to efficiency embodied in the Business Transformation programme and will ensure that the improvements become embedded in our operational systems and culture for the long-term benefit of all stakeholders.
Gem Diamonds remains committed to creating a positive contribution to the communities surrounding its operations and in particular to the Basotho nation, ensuring that the country benefits from the sustainable and responsible development of its natural resources. Proactive and continuous engagement with relevant stakeholders to enable the achievement of this goal remains a priority.
I would like to thank my fellow Board members for their wisdom and contribution during the year. I want to express my appreciation to the Governments of Lesotho and Botswana for their ongoing support, which enables the responsible extraction of diamonds to the benefit of all our stakeholders.
On behalf of the Board, I would like to extend a special thanks to all of our employees and contractors for their dedication and hard work during the past year. The Company's achievements in 2018 would not have been possible without your support, your attention to detail and your tireless commitment to continuously improving every aspect of what we do.
Harry Kenyon-Slaney
Non-Executive Chairman
12 March 2019
VIABILITY STATEMENT
In accordance with the revised UK Corporate Governance Code, the Board has assessed the viability of the Group over a period significantly longer than 12 months from the approval of the financial statements. The Board concluded that the most relevant time period for consideration for this assessment is a three-year period from the approval of the financial statements, considering the Group's current position and the potential impact of the principal risks documented on pages 11 to 15 that could impact the viability of the Group. This period also coincides with the Group's business and strategic planning period, which is reviewed annually, led by the CEO and involving all relevant functions including operations, sales and marketing, financial, treasury and risk. The Board participates fully in the annual review process by means of structured Board meetings and annual strategic sessions. A three-year period gives management and the Board sufficient and realistic visibility in the context of the industry and environment that the Group operates in.
The Business Transformation incremental revenue, productivity improvements and cost savings set to achieve the US$100 million target by the end of 2021 and sustainable US$30 million per annum savings thereafter is included in the assessment period. At Letšeng, the focus is on organic growth with particular emphasis on optimising mine planning, improving mining efficiencies and increasing plant uptime. At Ghaghoo, the key objective is to dispose of the mine in line with the Group's strategic objective to dispose of non-core assets.
For the purpose of assessing the Group's viability, the Board focused its attention on the more critical principal risks categorised within the strategic, external and operational risks together with the likely effectiveness of the potential mitigations that management reasonably believes would be available to the Company over this period. Although the business and strategic plan reflects the Directors' best estimate of the future prospects of the Group, they have also tested the potential impact on the Group of a number of scenarios over and above those included in the plan, by quantifying their financial impact and overlaying this on the detailed financial forecasts in the plan.
The scenarios tested considered the Group's revenue, EBITDA, cash flows and other key financial ratios over the three-year period. The scenarios tested included the compounding effect of:
-- a decrease in forecast rough diamond prices from the historical prices achieved and anticipated planned reserve prices;
-- a strengthening of local currencies to the US dollar from expected market forecasts; and
-- a delay beyond the three-year period in the implementation and benefit of the Business Transformation initiatives not yet implemented.
With the current net cash* position of US$17.5 million as at 31 December 2018 and available standby facilities of US$57.8 million, the Group would be able to withstand the impact of these scenarios occurring over the three-year period, due to the cash-generating nature of the Group's core asset, Letšeng, and its flexibility in adjusting its operating plans within the normal course of business.
Based on the robust assessment of the principal risks, prospects and viability of the Group, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending March 2022.
* Net cash is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility).
PRINCIPAL RISKS AND UNCERTAINTIES
How we approach risk
The Group is exposed to a variety of risks and uncertainties that could have a financial, operational and compliance impact on its performance, reputation and long-term growth. The effective identification, management and mitigation of these risks and uncertainties is a core focus of the Group as they are key to achieving the Company's strategic objectives.
The risk management framework shown below illustrates the Group's approach to risk management.
The Board and its Committees have identified the following key strategic, operational and external risks which have been set out in no order of priority. This is not an exhaustive list, but rather a list of the most material risks currently facing the Group. The impact of these risks, individually or collectively, could potentially affect the ability of the Group to operate profitably and generate positive cash flows in the medium to long term. The risks are actively monitored and managed as detailed below.
The Group's strategy which is based on three key priorities, Extracting Maximum Value from Operations, Working Responsibly and Maintaining Social Licence, and Preparing for Our Future is set out on pages 6 to 7, and, together with the KPIs identified to measure these objectives on pages 8 to 9 are linked to the risks below.
Hot Features
Premium
Board of Directors
Accountable for risk management within the Group.
Provide stakeholders with assurance that key risks are properly
identified, assessed, mitigated
and monitored.
Maintains a formal risk management policy for the Group and formally
evaluates
the effectiveness of the Group's risk management process.
Confirms that the risk management process is accurately aligned to the
strategy and performance
objectives of the Group.
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Audit Committee
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Monitors the Group's risk management processes.
Responsible for addressing the corporate governance requirements of
risk management and monitoring
each operational site's performance with risk management.
Review the status of risk management and reports on a bi-annual basis.
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HSSE Committee
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Provides assurance to the Board that appropriate systems are in place
to identify and manage
health, safety and environmental risks.
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Risk Officer
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Enhancing the Group's enterprise risk management, the Risk Officer has
the
responsibility to develop, communicate, coordinate and monitor the
enterprise-wide risk management
activities within the Group.
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Management
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Accountable to the Board for designing, implementing and monitoring
the process of risk management
and integrating it into the day-to-day activities of the Group.
Identifies internal and external
risks affecting the Group and implements appropriate risk responses
consistent with the Group's
risk appetite and tolerances.
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Group internal audit
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Oversight Use the outputs of risk assessments to compile the strategic
three-year rolling and annual
internal audit coverage plan and evaluates the effectiveness of
controls. Formally review
the effectiveness of the Group's risk management processes.
Top-down
approach
- setting the risk
appetite and
tolerances,
strategic
objectives and
accountability
Responsibility for the
management of
the risk
management
framework
Bottom-up
approach -
ensures a sound
risk management
process and
establishes
Governance formal reporting structures
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Risk management framework
1 2 3 4 5
Type of risk Strategic Operational
------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Description Success of Business Transformation (BT) Growth and return to shareholders Production interruption Underperforming mineral resource Diamond damage
and impact The successful implementation and sustainability of the BT The volatility of the Group's share price and lack of The Group may experience material mine and/ The Group's mineral resource drives the mine plan. Letšeng's most valuable Type II diamonds are highly
process is highly dependent on growth has or plant shutdowns or periods of decreased production Uncertainty or underperformance of mineral susceptible to damage during the
change management, skills and certain contract a negative impact on the Group's market capitalisation. due to various events. Any such event resources could affect the Group's ability to operate mining and recovery process. To minimise such damage
renegotiations. Constrained cash flows add pressure on returns to could result in damage to facilities, personal injury or profitably. creates a potential upside for the Group.
In turn, the Group's cash resources are impacted if the shareholders. death, environmental damage, delays Limited knowledge of the resource could lead
initiatives are not sustainably impacted. Following the placing of Ghaghoo on care and maintenance, in mining and processing activities potentially to an inability to forecast or plan accurately or
the Group is currently solely dependent resulting in monetary losses and possible optimally, and lead to financial risk.
upon the Letšeng mine for its revenues, profits and legal liability. Letšeng relies on the use of With Letšeng being the world's lowest grade operating
cash flows. external contractors to conduct its mining kimberlite mine, the risk of resource
and its processing activities. If there is a dispute underperformance is elevated.
with
any of the contractors, the Group's operations could be
materially impacted.
----------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------
Mitigation A dedicated team at the Corporate office and on site at With limited expansionary opportunities, the Board has The likelihood of possible process interruption events Various bulk sampling programmes, and geological mapping Diamond damage is regularly monitored and analysed through
Letšeng have been tasked to ensure concentrated its focus on organic growth is continually reviewed, and the appropriate and modelling methods to significantly studies and variance analyses
the successful implementation and ongoing sustainability to extract the maximum value from current operations. controls, processes and business continuity plans (BCPs) improve the Group's understanding of and confidence in the
of the BT. are in place to immediately mitigate mineral resources.
Consultants have been employed to assist in the planning these risks. The Group maintains insurance against BCPs are tested for execution with findings implemented to
and implementation of the transformation certain risks that are associated with address any weaknesses identified.
process and initiatives. its business in amounts that it believes to be
Areas within organisational health which are necessary to reasonable in the current environment and status
inform the success and sustainability of operations.
of the transformation process are identified and monitored In the event of climate conditions causing road closure,
through an annual formal OHI survey restricted access to the mining pits
and bi-annual health checks. or power interruption, a two-week supply of ore
stockpiles, diesel, power supply consumable
stores and food rations are maintained to ensure
production is not interrupted.
----------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------
Strategy Extracting Maximum Value from Our Operations; Working Extracting Maximum Value from Our Operations; Preparing for Extracting Maximum Value from Our Operations; Working Extracting Maximum Value from Our Operations; Preparing for Extracting Maximum Value from Our Operations; Preparing for
affected Responsibly and Maintaining Social Licence; Our Future. Responsibly and Maintaining Social Licence. Our Future. Our Future.
Preparing for Our Future.
----------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------
2018 actions
and * The BT cumulative four-year target of US$100 million * Business improvement achieved across all operations. * Despite poor climate conditions and power outages, * The core drilling programme at Letšeng, to firm * Blast designs, crusher settings and screen cut off
outcomes to 2021 remains on track for delivery. no up on the existing resource, was concluded. sizes were continually reviewed to identify any
production interruption occurred. improvements to limit diamond damage.
* A new LoM plan at Letšeng was approved. Mining
* The second OHI survey conducted reflected a positive in accordance with this plan will significantly * Independent mining specialists, SRK Consulting Canada
improvement. increase the mine's net present value. * Major contracts at Letšeng were successfully have been appointed to assist with interpretation and * Inhouse breakage indices show some improvement and
renegotiated. analysis of the results of the drilling programme. the estimated revenue loss through breakage reduced
marginally over the previous year.
* Major contracts at Letšeng were successfully * Progress made in development of innovative
renegotiated. technologies to reduce diamond damage. * The resource performed in line with expectations by
achieving an overall Mine Call Factor (MCF) of 99%; * A record of 15 diamonds >100 carats were recovered at
grade of 1.94; and overall US$ per carat of US$2 131. Letšeng during 2018, including the 910 carat
* Identified a contract management role to ensure * The Group's share price increased by 54% over the Lesotho Legend. Production in 2018 also included the
improved contract management processes. year highest recovery of diamonds >20 carats in a single
year.
* Progress was made in the statutory process for the
renewal of Letšeng's mining lease during 2018. * Progress made in development of innovative
The Group anticipates a new mining lease to be issued technologies to reduce diamond damage.
during 2019 ahead of its expiry in 2024.
----------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------
6 7 8 9 10 11 12
Type of risk Operational Operational External
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------ ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Description Security of product Cash generation Attracting and retaining appropriate skills Health, Safety, Social and Environmental (HSSE) Rough diamond demand and prices Country, political environment and compliance with Currency volatility
and impact Theft is an inherent risk factor in the diamond The lack of cash generation can negatively impact the The success of the Group's objectives and sustainable The risk that a major health, safety, social or Numerous factors beyond the control of the Group may affect legislation The Group receives its revenue in US dollar, while its
industry. Group's ability to effectively operate, growth depends on its ability to attract environmental incident may occur is inherent the price and demand for diamonds, The Group operates in various jurisdictions. The political cost base is incurred in the local
Due to the low frequency of high-value diamonds at fund capital projects and repay debt. and retain key suitably qualified and experienced in mining operations. including international economic and political trends; environment of these various jurisdictions currency of the various countries within which the Group
Letšeng, theft can have a material personnel, especially in an environment These risks could impact the safety of employees, licence projected supply from existing mines; may adversely impact its ability to operate effectively and operates. The volatility of these
impact on the Group. and industry where skills shortages are prevalent and in to operate, Company reputation and supply and timing of production from new mines; and profitably. Emerging market economies currencies trading against the US dollar impacts the
This could result in significant losses and negatively jurisdictions where localisation compliance with debt facility agreements. consumer trends. are generally subject to greater risks, including Group's profitability and cash.
affect revenue and cash flows. policies exist. Recent dam failures in Brazil has turned the global These factors can significantly impact the ability to regulatory and political risk, and can be
spotlight on dam integrity. generate cash flows and to fund operations exposed to a rapidly changing environment laws and
and growth plans. regulations in each jurisdiction are different
There is a risk that any one of these operations may fail
to comply with its country's specific
legal or regulatory requirement.
------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ -----------------------------------------------------------
Mitigation The Group demands a zero tolerance on breaches of The Group has the flexibility to reassess its capital The Group has development programmes, performance-based The Group has implemented appropriate HSSE policies which Market conditions are continually monitored to identify Changes to the political environment and regulatory Exchange rates fluctuations are closely monitored.
product security. projects and operational strategies. bonus schemes and long-term reward are subjected to a continuous improvement trends that pose a threat or create developments are closely monitored. Where It is the Group's policy to hedge a portion of future
Security measures are constantly reviewed and Treasury management procedures are in place to monitor cash and retention schemes. review. opportunity for the Group. necessary, the Group engages in dialogue with relevant diamond sales when weakness in the local
implemented to minimise this risk. and capital projects expenditure. Remuneration Committees at subsidiary level review Dam safety and integrity assurance is a continuous and Based on existing market conditions, the Group has the government representatives to build currency reach levels where it would be appropriate. Such
Security infrastructure and technologies are invested The Group has appropriate standby facilities available. current remuneration policies, skills and significant area of high focus. ability to preserve cash and manage relationships and to remain well informed of all legal and contracts are generally short term
in and supported through both internal Cost controls and monitoring measures are a continual focus succession planning together with a review of the The Group has an ongoing rigorous monitoring programme with balance sheet strength through flexibility in its sales regulatory developments impacting in nature.
and external surveillance processes. and short/mid-term mine plans training budgets. an early-warning system in place. processes and the ability to reassess its operations.
A Diamond Recovery Protection Committee has been are actively reviewed to optimise cash flows and The Group's scholarship programme offers bursaries for This is regularly tested and used to ensure the emergency its capital projects and operational strategies. The Group relies on each operation's local advisers in
established at Letšeng to monitor security profitability. tertiary education and internship programmes readiness of potentially affected The quality of Letšeng's high-value production has respect of legal, environmental compliance,
processes. guaranteeing permanent employment. communities. been less susceptible to fluctuating banking, financing and tax matters to ensure compliance
The Group maintains diamond specie insurance. The technical services subsidiary provides assurance, market conditions. with material regulatory and governmental
oversight and technical assistance to developments.
the operations.
Extensive engagements with the Labour and Mining
Ministry to implement efficient work permit
processing and to develop plans for local employee
upskilling.
------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ -----------------------------------------------------------
Strategy Extracting Maximum Value from Our Operations. Extracting Maximum Value from Our Operations; Preparing for Extracting Maximum Value from Our Operations; Working Working Responsibly and Maintaining Social Licence. Extracting Maximum Value from Our Operations. Working Responsibly and Maintaining Social Licence; Extracting Maximum Value from Our Operations.
affected Our Future. Responsibly and Maintaining Social Licence; Preparing for Our Future.
Preparing for Our Future.
------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ -----------------------------------------------------------
2018 actions
and * External and internal audits were conducted at * The Group generated US$138.3 million from operating * The OHI survey showed improvement in areas of role * The Group achieved a fatality-free year. * The overall sentiment in the rough and polished * Positive engagement with the Government of Lesotho * Hedges were entered into during the year to mitigate
outcomes Letšeng that improved product security activities, improving the overall net cash(1) clarity, knowledge sharing, talent development and diamond markets improved marginally in 2018 compared continues. the risk associated with the volatility of the
processes. position of US$1.4 million in December 2017 to career opportunities. in 2017. LSL/ZAR against the US dollar.
US$17.5 million at the end of the year. * Four LTI's were reported resulting in an LTIFR of
0.15 and AIFR of 1.45. * Progress on Letšeng mining lease renewal made.
* Security reviews have been instituted to monitor * Successfully obtained work permits and exemptions * Diamond prices (in particular the smaller, commercial The Group anticipates a new mining lease to be issued
security processes every two months. * The Group has US$57.8 million of available facilities during the year. quality goods) remained under pressure. This was during 2019.
on hand at 31 December 2018. * Letšeng retained its ISO 14001 certification for further compounded by the launch of De Beers'
environmental management and was granted ISO 45001 synthetic diamond fashion jewellery.
* Rollover of retention plan implemented at certification for occupational health and safety * Lesotho Chamber of mines was formally registered and
* Of the BT cumulative four-year US$100.0 million Letšeng. management. chaired by Letšeng with regular meetings being
target, US$19.4 million flowed in 2018. * Letšeng's high-value diamonds remained in high held.
demand and continued to achieve firm prices.
* Formal engagements strategy plan implemented with
* Tender viewings for Letšeng's diamonds solely regular feedback given to/by government and
took place in Antwerp until tender viewings were associated departments.
expanded to Tel Aviv in October 2017. These continued
successfully during 2018.
* There were no strikes or lockouts during the year
across the Group.
* Ghaghoo remained on care and maintenance with no
stakeholder issues. The Government in Botswana has
been supportive of the disposal process under taken.
------------------------------------------------------- ------------------------------------------------------------ --------------------------------------------------------- ------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------ -----------------------------------------------------------
CHIEF EXECUTIVE'S REVIEW
The focus on extracting maximum value from the Group's operations through enhancing operating efficiencies and investing in innovative technologies has delivered a strong operational performance, a record carat production and strong shareholder returns during 2018.
The Group's strategy is built on three pillars, namely: extracting maximum value from our operations; working responsibly and maintaining our social licence to operate; and preparing for our future. This integrated approach to enhance our business performance allows the Group to adapt to challenges and opportunities as they arise, enabling the achievement of the long-term goal of sustainable shareholder returns.
2018 performance
Against the backdrop of a challenging year for the diamond mining industry, Gem Diamonds achieved pleasing results characterised by the recovery of 15 diamonds greater than 100 carats, a record for a single calendar year. Production in 2018 also included the highest recovery of diamonds greater than 20 carats in weight.
The most notable recovery for the year was the 910 carat Lesotho Legend, which sold for US$40.0 million (US$43 956 per carat). This diamond is the largest recovered from Letšeng to date and is the fifth largest gem-quality diamond ever recovered. The recovery of a diamond of this quality and size affirms the world-class calibre of the Letšeng mine. While this diamond was an exceptional find, it was one of several notable recoveries(1) including a 4.06 carat pink diamond, which achieved the highest dollar per carat for the year of US$64 067 per carat and a 138.20 carat white diamond which sold for US$8.4 million (US$60 428 per carat), making it the highest dollar per carat achieved during the year for a Letšeng white rough diamond.
The market for the Letšeng mine's large, high-quality white rough diamonds remained resilient throughout the year. An average price of
US$2 131(2) per carat was achieved, up 10% from US$1 930(2) per carat in 2017.
At Letšeng, planned major maintenance work conducted on the plants during May, together with enhanced efficiencies from various Business Transformation initiatives, improved plant runtime resulting in a significant increase in the tonnages treated during the second half of 2018. Carats recovered during 2018 increased by 13% to 126 875 (2017: 111 811 carats). A total of 125 111 carats were sold, generating revenue of US$267.3 million, an underlying EBITDA of US$82.3 million and earnings per share of 18.80 US cents. The Group ended the year in a net cash(3) position of US$17.5 million compared to US$1.4 million in the previous year.
(1) Refer to the Gem Diamonds website for photographs of notable diamond recoveries (www.gemdiamonds.com).
(2) Includes carats extracted at rough valuation.
(3) Calculated as the sum of cash and cash equivalents less drawn down facilities (excluding asset-based finance facility).
Extracting maximum value from operations
The Business Transformation has progressed well and remains on-track to achieve the target of US$100 million in cost savings and efficiencies by 2021, with an anticipated sustainable annual net benefit of US$30 million from 2022 onwards.
The initiatives already implemented are expected to deliver US$63.7 million over the next four years. Of these initiatives, US$4.9 million relate to once-off savings through working capital management and the sale of non-core assets, and the balance of US$58.8 million represents cumulative recurring annualised benefits over the targeted period in mining, processing and corporate activities. The Group remains committed to identifying and implementing additional efficiencies and cost savings to augment these results.
The success of the Business Transformation process is underpinned by the organisational health of the Group. In 2017 an independent organisational health index (OHI) survey was conducted at the outset of the process in order to identify organisational health practice areas requiring improvement. A second survey was conducted during the latter part of 2018 and it is pleasing to report that the results from this survey demonstrated that the Group successfully reached an overall organisational health improvement.
The LoM plan for the Letšeng mine was revisited during 2018, with the aim of further reducing the waste stripping required to expose Kimberlite in both the Main and Satellite pipes through the steepening of inter-ramp slope angles. Mining in accordance with this plan has commenced and is expected to significantly increase the net present value of the mine.
As previously reported a formal process to dispose of the Ghaghoo asset is underway and satisfactory progress has been made.
Preparing for the future
In order to build towards ensuring a profitable and sustainable future for Gem Diamonds through focused investment, it is important to continually seek innovative ways of identifying, recovering and liberating Letšeng's high-value diamonds.
During the year, the Company, through its subsidiary Gem Diamonds Innovation Solutions, (GDIS) continued to make good progress in the development of its two key technologies to i) identify locked diamonds within kimberlite; and, ii) to liberate diamonds using a non-mechanical process. These technologies are aimed primarily at limiting diamond damage and reducing operating costs. The Company approved a US$3.0 million pilot plant to be constructed at Letšeng which employs innovative technology to identify diamonds within kimberlite ore. This project will also include the use of a prototype high-voltage pulse generating unit to liberate the diamonds. We anticipate the pilot plant to be commissioned during Q2 2019. The results and outcomes emanating from the pilot plant operation will determine the way forward in respect of these technologies.
Good progress has been made in the statutory process for the renewal of the Letšeng mining lease during 2018.
Working responsibly and maintaining our social licence
Gem Diamonds remains committed to delivering shareholder returns in a responsible and sustainable way. The Group believes that long-term profitability goes hand-in-hand with upholding and promoting the rights and welfare of its employees and project communities.
Health and safety remains a top priority for the Group, and I am pleased, once again, to report a fatality-free year. Four LTIs were recorded during the year. I wish to reaffirm Gem Diamonds' commitment to eliminating workplace injuries in line with its goal of achieving zero harm.
Recognising the potential risk that dams pose to host communities and the environment, dam safety has long been of the utmost importance to Gem Diamonds. The Group undertakes full lifecycle management of tailings storage facilities in accordance with the highest structural stability standards including international best practice. A rigorous monitoring programme is in place to ensure any risks to the operation or the surrounding communities and is timeously identified and mitigated.
Moreover, in order to safeguard downstream communities, an early-warning system, together with community training and awareness programmes, is used to support emergency response readiness in the unlikely event of a failure. (For further detail on how the Group ensures the highest standards of dam safety management, refer to the Sustainable Development Reporting Platform www.gemdiamonds.com.)
Project affected communities are vital stakeholders, and the Group continues to work closely with such communities. Throughout the year, investment continued to be made into several community programmes which are designed to support community needs through self-sustaining initiatives, such as the dairy farming project launched in 2017, the Vegetable Farming Project launched in 2015 and the Four Woolsheds Construction Project launched in 2013. Furthermore, in celebration of the recovery of the Lesotho Legend, the 910 Community Project was launched. Following consultation with community leaders, the construction and development of a commercial poultry and egg farming co-operative was identified as the preferred community project. A feasibility study has been commissioned to better understand the potential socio-economic impact of this project and to determine the investment required.
Investment in education is one of the most impactful and sustainable contributions that the Group can make and its Scholarship Programme, therefore, remains a priority. Through this initiative, bursaries are offered to students currently studying or interested in studying for tertiary qualifications relating to the development of the natural resources of Lesotho. To improve skills within the country, Gem Diamonds also offers an Internship Programme at the Letšeng mine, guaranteeing two years of work, with permanent employment offered to top candidates at the end of that period.
From an environmental perspective, I am pleased to report that during 2018, the Group maintained its exemplary record of zero reportable environmental incidents.
Outlook
The emphasis for 2019, and beyond, remains on positioning Gem Diamonds for continued sustainable growth by leveraging the Group's strengths and by focused investment. Through this disciplined focus on value creation, the Group aims to continue the positive momentum generated in 2018.
I would like to extend my appreciation to Johnny Velloza for the work he has carried out during his time as Chief Operating Officer (COO), and to thank him for electing to continue contributing to the Group's success through his role as a non-Executive Director of the Board. In addition, I would like to take this opportunity to thank Gavin Beevers, who had served as a non-Executive Director of Gem Diamonds for many years, for agreeing to return as Technical Advisor to operations while we seek a suitable candidate to fill the role of COO.
My sincere gratitude goes out to all our employees - your efforts at driving efficiencies and constant dedication to making every aspect of our business better have defined our success.
Finally, I would like to thank our shareholders for their continued support and assure them of our commitment to achieving excellence.
Clifford Elphick
Chief Executive Officer
12 March 2019
GROUP FINANCIAL PERFORMANCE
Building a solid platform for maximum wealth creation.
2018 marked a very positive year for Gem Diamonds with strong operational and financial performance driving an improved cash position. This was the result of the culmination of a number of Business Transformation initiatives, operational enhancements and business process optimisations providing the platform to extract maximum value from our operations.
Robust tender revenues achieved at Letšeng during 2018 were underpinned by strong operational results with a record 15 diamonds greater than 100 carats and an improved number of diamonds greater than 20 carats being recovered during the year. Included in these recoveries, is the remarkable 910 carat Lesotho Legend that sold for US$40 million and contributed significantly towards the Group's improved revenue, cash position and strengthened balance sheet.
Compared to 2017, underlying EBITDA increased to US$82.3 million from US$45.0 million and attributable profit increased to US$26.0 million from US$5.5 million. The Group's net cash(*) position improved to US$17.5 million by year end compared to US$1.4 million in 2017.
Cost containment remains a challenge as the Group operates in a high inflationary and difficult macro-economic environment. In addition, both plants were also stopped for major planned shutdowns during the first half of the year, increasing operating costs while treating lower volumes of ore tonnes. The benefit of these improvements was reflected in the notable improvement in plant uptime during the second half of the year. At Letšeng, increased load and hauling distances and fuel increases of 22% year on year further added to cost increases, which were partly contained by the successful implementation of various Business Transformation initiatives and strict cost management discipline. The successful implementation of several Business Transformation initiatives resulted in a contribution of US$19.4 million, net of fees and costs, to the Group's results during the year and the cumulative four-year target to 2021 of US$100 million in revenue, productivity improvements and cost savings remains on track.
The strong financial performance ensured debt repayments were fulfilled as they became due and the positive outlook aided in the renewal of the LSL250.0 million unsecured revolving credit facility at Letšeng for a further three years at an increased value of LSL500.0 million.
* Net cash is calculated as cash and short-term deposits less drawn down bank facilities (exluding asset-based finance facility).
Revenue
Group revenue of US$267.3 million in 2018, primarily derived from its mining operations in Lesotho (Letšeng), was 25% higher than that achieved in 2017. Letšeng achieved an average of US$2 131(**) per carat (US$1 930(**) per carat in 2017) following an improvement in the frequency of the recovery of large, high-quality white diamonds, including the sale of the Lesotho Legend. The total carats sold increased by 17% to 125 111 carats, the highest number ever to be sold in a calendar year.
Initiatives within the Business Transformation which would have a direct revenue impact within the processing workstream, contributed US$16.9 million during the year, before associated operating and implementation costs. This mainly related to the implementation of a mobile XRT sorting machine to re-treat tailings material, which contributed 11 360 to carats sold during 2018.
** Includes carats extracted at rough valuation.
Summary of financial performance US$ million 2018 2017 --------------------------------------------------------------------------- ------------ ------------ Revenue 267.3 214.3 Royalty and selling costs (22.9) (18.8) Cost of sales(1, 3) (152.1) (141.3) Corporate expenses (10.0) (9.2) ---------------------------------------------------------------------------- ------------ ------------ Underlying EBITDA(2) 82.3 45.0 Depreciation and mining asset amortisation (8.6) (8.9) Share-based payments (1.4) (1.5) Other income 0.4 0.8 Foreign exchange gain/(loss) 2.2 (1.3) Net finance costs (1.9) (3.8) ---------------------------------------------------------------------------- ------------ ------------ Profit before tax 73.0 30.3 Income tax expense (26.4) (13.1) ---------------------------------------------------------------------------- ------------ ------------ Profit for the year 46.6 17.2 Non-controlling interests (20.6) (11.7) ---------------------------------------------------------------------------- ------------ ------------ Attributable profit 26.0 5.5 ---------------------------------------------------------------------------- ------------ ------------ Earnings per share (US cents) 18.80 3.96 ---------------------------------------------------------------------------- ------------ ------------ (1) Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation. (2) Underlying earnings before interest, tax, depreciation and mining asset amortisation (EBITDA) as defined in Note 4 of the notes to the consolidated financial statements. (3) Including Ghaghoo's care and maintenance costs for 2018 which are included in other operating income and expense in the statutory statement of profit or loss. US$ million 2018 2017 ------------------------------------------------- ----- ----- Group revenue summary Letšeng sales - rough 266.6 206.8 Ghaghoo sales - rough - 2.4 Sales - polished margin 0.2 0.6 Sales - other 0.4 0.6 Impact of movement in own manufactured inventory 0.1 3.9 -------------------------------------------------- ----- ----- Group revenue 267.3 214.3 -------------------------------------------------- ----- -----
Royalties consist of an 8% levy paid to the government of Lesotho on the value of diamonds sold by Letšeng. Selling costs relating to diamond selling and marketing-related expenses are incurred by the Group's sales and marketing operation in Belgium. During the year, royalties and selling costs increased by 22% to US$22.9 million, in line with revenue.
Operational expenses
While revenue is generated in US dollar, the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. Although the local currency closing rates were weaker for the year, the average Lesotho loti (LSL) (pegged to the South African rand) and Botswana pula (BWP) were slightly stronger against the US dollar during the year, which negatively impacted underlying US dollar reported costs. Group cost of sales was US$152.1 million, compared to US$141.3 million in the prior year, the majority of which was incurred at Letšeng.
%
Exchange rates 2018 2017 change
----------------------- ----- ----- -------
LSL per US$1.00
Average exchange rate 13.25 13.31 -
Year-end exchange rate 14.39 12.38 16
------------------------ ----- ----- -------
BWP per US$1.00
Average exchange rate 10.20 10.34 (1)
Year-end exchange rate 10.73 9.83 9
------------------------ ----- ----- -------
US$ per GBP1.00
Average exchange rate 1.34 1.29 4
Year-end exchange rate 1.27 1.35 (6)
------------------------ ----- ----- -------
Letšeng mining operation
Cost of sales for the year was US$145.9 million, up 14% from US$127.6 million in 2017. Total waste stripping costs amortised of US$68.2 million were incurred compared to US$67.9 million in 2017.
In line with the mine plan, Letšeng mined 25.8 million tonnes of waste compared to 29.7 million in 2017. Notwithstanding the major shutdowns in H1 2018 to replace the scrubber shell, tonnes treated were 1% higher than 2017 due to improved run time of the Letšeng plants experienced in H2 2018. Ore tonnes treated were 6.5 million tonnes, of which 2.2 million tonnes were sourced from the Satellite pipe compared to 2.1 million tonnes in 2017. Carats recovered improved by 13% to 126 875 (2017: 111 811) of which the mobile XRT sorting machine contributed
11 905 carats, sourced from both 2018 re-treated tailings (5 672 carats) and pre--2018 re-treated tailings (6 233 carats). The cost of operating this machine was LSL1.61 per tonne treated.
Non-cash
Unit cost per Business Transformation accounting
tonne treated Operating costs (BT) costs charges(2)
------------- ------------------------------ ------ ------------------------- ----------- ----------- ----------
XRT
Once-off sorting Fees and Total
Direct 3rd Plant main- machine employee direct Total
cash operator tenance Sub- operating reward operating operating
costs(1) costs costs total costs scheme cash costs Charges(2) cost
------------- --------- --------- -------- ------ ------------- ---------- ----------- ----------- ----------
2018 (LSL) 141.54 24.18 2.82 168.54 1.61 12.36 182.51 112.63 295.14
------------- --------- --------- -------- ------ ------------- ---------- ----------- ----------- ----------
2017 (LSL) 134.20 15.34 - 149.54 - - 149.54 116.03 265.57
% change 5% 58% - 13% - - 22% (3%) 11%
------------- --------- --------- -------- ------ ------------- ---------- ----------- ----------- ----------
2018 (US$) 10.68 1.83 0.21 12.72 0.12 0.93 13.77 8.50 22.27
------------- --------- --------- -------- ------ ------------- ---------- ----------- ----------- ----------
2017(US$) 10.09 1.15 - 11.24 - - 11.24 8.72 19.96
% change 6% 59% - 13% - - 23% (3%) 12%
------------- --------- --------- -------- ------ ------------- ---------- ----------- ----------- ----------
(1) Direct mine cash costs represent all operating costs, excluding royalty and selling costs.
(2) Non-cash accounting charges include waste stripping cost amortised, inventory and ore
stockpile adjustments, and excludes depreciation and mining asset amortisation.
Direct cash cost per tonne treated increased by 5%. Stringent cost control and the impact of the cost savings derived from the Business Transformation initiatives implemented at Letšeng assisted in containing this increase in costs amid local country inflation, increased ore mining hauling distances of 6% and increased average fuel price of 22% year on year. The Business Transformation initiatives delivered US$5.2 million of cost savings, net of operating and implementation costs, during 2018.
The third plant operator contractor cash costs per tonne treated in local currency increased by 58%. This cost is a function of the revenue generated by the sales from diamonds recovered through the contractor plant and the increase in costs is due to the additional revenue generated during the year.
The scrubber shell in Plant 2 that cracked in the latter part of 2017 was replaced for a capital amount of LSL11.8 million, of which LSL8.6 million was spent in 2018. Associated once-off repairs and maintenance costs of LSL18.4 million are included in operating costs for the year, resulting in a LSL2.82 increase in unit costs.
Consultant fees and an employee incentive plan related to the successful delivery of the Business Transformation initiatives increased unit costs by LSL12.36 per tonne treated. Both these costs are self-funded through the gains of the Business Transformation.
The non-cash accounting charges per tonne treated decreased mainly due to ending the year with a higher value of diamond inventory. This was slightly offset by higher waste amortisation costs as a result of processing more Satellite pipe material during 2018. The amortisation charge attributable to the Satellite pipe ore accounted for 80% of the total waste stripping amortisation charge in 2018 (2017: 79%).
The total operating costs (post-non-cash accounting charges) per tonne treated were LSL295.14, which is 11% higher than 2017 of LSL265.57 per tonne treated.
The increase in the local currency waste cash cost per waste tonne mined increased by 8% to LSL35.78 (2017: LSL33.23). This was largely driven by increased waste mining hauling distances of 19% and increased fuel price of 22% year on year.
Ghaghoo care and maintenance operation
Costs incurred at Ghaghoo for the year amounted to US$5.7 million (including US$1.1 million costs associated with the potential sale of the mine) and have been recognised in the income statement. Costs continued to be incurred in 2018 relating to the dewatering of the underground and the re-sealing of the fissure, which was damaged following an earthquake in 2017.
Corporate expenses
Corporate expenses relate to central costs incurred by the Group through its technical and administrative offices in South Africa and head office in the United Kingdom and are incurred in South African rand and British pound. Corporate costs for the year were US$10.0 million (2017: US$9.2 million). Included in these costs are US$0.5 million relating to Business Transformation fees and employee reward scheme (2017: US$0.1 million) and US$0.2 million relating to project costs (2017: US$0.5 million), resulting in normalised corporate costs of US$9.3 million.
The share-based payment charge for the year was US$1.4 million. During the year, a new award was granted in terms of the long-term incentive plan (LTIP), whereby 1 450 000 nil-cost options were granted to certain key employees and Executive Directors. The vesting of the options to key employees is subject to the satisfaction of certain market and non-market performance conditions over a three-year period, in line with previous awards within the LTIP.
Underlying EBITDA and attributable profit
Based on the operating results, the Group generated an underlying EBITDA of US$82.3 million. The improved underlying EBITDA from US$45.0 million in 2017 was mainly driven by the higher revenue achieved. In total, Business Transformation initiatives contributed US$12.7 million to the Group's underlying EBITDA. Profit attributable to shareholders was US$26.0 million equating to 18.80 US cents per share, based on a weighted average number of shares in issue of 138.7 million.
The Group's effective tax rate was 36.1%. The tax rate reconciles to the statutory Lesotho corporate tax rate of 25.0% rather than the statutory UK corporate tax rate of 19.0% as this is now the jurisdiction in which the majority of the Group's taxes are incurred. Deferred tax assets were not recognised on losses incurred in non-trading operations.
Capital expenditure
The Group invested US$23.0 million into capital projects, of which US$20.7 million was incurred at Letšeng.
Two of the major ongoing capital projects at Letšeng are the extension of the tailings storage facility (estimated project cost of US$13.7 million) and the construction of the mining complex (estimated project cost of US$18.5 million). During 2018, US$8.8 million and US$8.1 million respectively was spent on these projects. The mining complex was completed during the year within the estimated total project cost and the tailings storage facility project which commenced in late 2017 is on track to be completed during H1 2020.
In line with the continuing strategy of reducing diamond damage through the early detection of large diamonds, the construction of a US$3.0 million pilot plant by GDIS at Letšeng was approved during the year. GDIS was established in Cyprus during 2017 to house all the Group's innovation and technology research and development projects. During 2018 US$1.8 million was invested into this project, which is on track to be commissioned in Q2 2019.
Financial position and funding overview
The Group ended the year with cash on hand of US$50.8 million (2017: US$47.7 million) of which US$43.3 million is attributable to Gem Diamonds and US$0.2 million is restricted. At year end, the Group had utilised facilities of US$33.3 million, resulting in a net cash position* of US$17.5 million (2017: US$1.4 million). Further standby undrawn facilities of US$57.8 million remain available, comprising US$23.0 million at Gem Diamonds and US$34.8 million at Letšeng.
The Group generated cash from operating activities of US$138.3 million (2017: US$97.4 million) before investment in waste stripping costs at Letšeng of US$79.3 million and capital expenditure of US$23.0 million.
Contributing to the Group's closing cash balance of US$50.8 million is US$6.7 million due to direct cash saving Business Transformation initiatives relating to the sale of non-core assets and reduced waste stripping rates. This is in addition to the US$12.7 million EBITDA improvement detailed above, totalling an overall contribution of US$19.4 million from Business Transformation during the year.
During 2018 Letšeng paid dividends of US$69.1 million to its two shareholders, resulting in a net cash inflow of US$43.6 million to Gem Diamonds (70% shareholding) and a cash outflow from the Group for withholding taxes of US$4.8 million and payment of the government of Lesotho's (30% shareholding) share of dividend of US$20.7 million.
During 2018, the Letšeng Diamonds LSL250.0 million three-year unsecured revolving working capital facility jointly held with Standard Lesotho Bank and Nedbank Capital was renewed for a further three years to July 2021 and increased to LSL500.0 million. A more favourable interest rate on this facility was negotiated of Lesotho prime rate less 1.5% with the remaining terms and conditions being in line with the previous facility. At year end, the full LSL500.0 million (US$34.8 million) was available for drawdown.
Repayments of US$5.0 million on the Gem Diamonds Limited facility, relating to the Ghaghoo US$25.0 million debt, were made during the year. The outstanding balance of US$20.0 million will be repaid in quarterly instalments, with the final repayment due on 31 December 2020. Similarly, repayments of LSL24.0 million (US$1.8 million) were made on the project debt facility for the construction of the relocated mining complex at Letšeng . The outstanding balance of LSL191.0 million (US$13.3 million) will be repaid by September 2022.
* Net cash is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility).
Summary of loan facilities as at 31 December 2018
Amount Drawn down Available
Term/ (US$ (US$ (US$
Company description Lender Expiry Interest rate(1) million) million) million)
--------------- --------------- --------------- --------------- ---------------- --------- ---------- ---------
London US$
Gem Diamonds Three-year RCF three-month
Limited and term loan Nedbank December 2020 LIBOR + 4.5% 45.0 20.0 23.0
--------------- --------------- --------------- --------------- ---------------- --------- ---------- ---------
Standard
Lesotho Bank
Letšeng and Nedbank Lesotho prime
Diamonds Three-year RCF Lesotho July 2021 rate minus 1.5% 34.8 - 34.8
--------------- --------------- --------------- --------------- ---------------- --------- ---------- ---------
Tranche 1
5.5-year (R180 million)
Letšeng project South African
Diamonds facility Nedbank/ECIC March 2022 JIBAR + 3.15% 12.5 10.9 -
--------------- --------------- --------------- --------------- ---------------- --------- ---------- --------- September 2022 Tranche 2 (LSL35 million) South African JIBAR + 6.75% 2.4 2.4 - --------------- ---------------------------------------------------------------- --------- ---------- --------- Total 94.7 33.3 57.8 ------------------------------------------------------------------------------------ --------- ---------- --------- (1) At 31 December 2018 LIBOR was 2.80% and JIBAR was 7.15%.
Dividend
Based on the Group's continued focus on strengthening its balance sheet and positioning itself for the future, the Board resolved not to propose the payment of a dividend, notwithstanding the improved 2018 results.
Outlook
Focus in 2019 will be the implementation of the revised mine plan to drive down Letšeng's waste stripping costs and increase Satellite pipe contribution, together improving the net present value (NPV) of the operation. This together with furthering the optimisation of the operations and delivering the target of the Business Transformation will enable the Company to repay financial debts as they become due and complete its capital projects on time, thereby positioning the Company for the future which will be in the interests of long-term benefit improvement to its shareholders.
Michael Michael
Chief Financial Officer
12 March 2019
BUSINESS TRANSFORMATION
Significant progress made towards achieving US$100 million cumulative cash cost savings and productivity improvements to 2021
Delivering value
After its commencement in the second half of 2017, the Business Transformation continued its momentum in 2018. The cumulative four-year target to 2021 of US$100 million in revenue, productivity improvements and cost savings remains on track. This target is stated net of implementation costs, consultant fees and an employee incentive plan related to the successful delivery of initiatives contributing to the overall target.
The focus in 2018 remained on mine planning optimisation, mining efficiencies and improvements, increased plant uptime, asset and contract management, capital discipline and continued stringent cost controls.
There were 325 initiatives identified and pursued during 2018 and by year end, initiatives which are expected to contribute US$63.7 million to the cumulative US$100 million target had been implemented. Of these implemented initiatives, US$4.9 million relates to once-off savings and the balance of US$58.8 million relates to cumulative recurring annualised benefits over the four-year period. The majority of the implemented initiatives were within the mining and processing workstreams, totalling US$53.3 million. US$20.7 million of the implemented initiatives have been cash flowed to date, of which US$19.4 million flowed in 2018.
Business Transformation also aims to improve resource-use efficiencies, thereby reducing the financial cost of mining while at the same time containing the impact on our communities and the environment. The reduction of our carbon footprint benefits the natural environment and reduces the levels of air pollution exposure for our communities and employees. This aligns with our Group strategy of maximising benefit for our communities and minimising our impact on the environment.
During the year, mining and processing initiatives which improved fuel use and energy requirements respectively, contributed to the overall energy efficiency improvement reported by the Group in 2018. Examples of these initiatives include:
-- employing a fleet management system to monitor and aid in the reduction of: - service and maintenance requirements; - idle and queue time through improved loading and hauling scheduling; - load spillage; and - fuel consumption due to driver error. -- improving road and tyre maintenance; and
-- installing early weather warning systems preempting power failures for timely switch-over to generators avoiding power loss at the plants and subsequent high energy demands on startup.
At the outset, it was recognised that the success of the Business Transformation would be underpinned by the organisational health of the Group. An independent organisational health index (OHI) survey was conducted in Q3 2017 to identify organisational health practice areas requiring improvement through a 'quartile' rating score. This resulted in the identification of 48 organisational health initiatives to be implemented over a 18-month period with the aim of improving the OHI survey score by at least one quartile. During the year 39 organisational health initiatives were implemented addressing priority practices including accountability; direction; leadership; innovation; learning; and motivation. A follow up OHI survey was conducted in Q4 2018 and the Group successfully reached its overall quartile improvement target. following this survey new initiatives continue to be identified in areas which require further improvement within organisational health.
In addition, the Business Transformation employee recognition and reward scheme, which is self-funded through the gains of the Business Transformation, was developed and implemented with the first payment made in July 2018 in respect of the first wave of implemented initiatives.
Subsequent to year end, implemented initiatives have reached approximately US$79 million mainly due to the finalisation of the steeper slopes pit design in January 2019.
2019 focus
-- To implement the remaining initiatives contributing to the US$100m cumulative four-year target.
-- To ensure sustainability of the Business Transformation initiatives. -- To transition into a sustainable Continuous Improvement business environment.
The transition from Business Transformation into Continuous Improvement will focus primarily on behaviours that drive everyday improvements and a relentless pursuit of excellence. This will endeavour to embed a culture of continuous improvement, sustainably capturing additional value through the implementation of initiatives that drive efficiencies and improvements.
The table on the next page references the cumulative four-year target of US$100 million together with the status of implementation of the primary contributing initiatives.
Initiative Activity and Tracking against
and target target Objective Impact Status US$100m target
Mining
-------------------
US$42 million Drill, load and Reduce mining -- Reduce waste Implemented(1) US$44 million
haul activities: costs through: unit costs and US$22.8 million
US$31 million -- improving waste stripping A reduction in
efficiencies and capitalisation mining rates
rates; and -- Reduce ore unit implemented in Q2
reviewing tenure costs 2018 primarily
of mining based on the
contractor; optimisation of
-- optimising the mining fleet
support equipment and support
requirements and equipment,
associated cost; increased truck
-- improving haul capacity through
roads to optimise installing greedy
truck speeds; boards and
-- increasing improving haul
truck capacity by road conditions.
7% by installing Work in
greedy boards; and progress(2)
-- improving drill Further rate
rates by 30% by reductions
modernising the targeted through
drilling fleet continuous
with a maintenance of
cost-efficient haul roads,
autonomous improving truck
system speeds, optimising
shift changes and
drill rates.
Targeting further
benefit through
improved diesel
consumption
initiatives.
------------------- ------------------- ------------------- ------------------- -------------------
Pit design: Opportunities to -- Reduce waste Work in
US$6 million steepen current tonnes and waste progress(2)
slope angles with stripping (Implemented(1)
the benefit of capitalisation after year end)
reducing waste Blasting trials to
tonnes over ensure reliable
the LoM. berm retention
were undertaken
during 2018 and
completed
in Q4 2018.
Following positive
results this
initiative was
formally
implemented in
January
2019 with the
adoption of the
new mine plan.
This initiative is
expected to
contribute US$13.0
million to the
four-year target.
This initiative
was implemented 12
months earlier
than initially
estimated.
------------------- ------------------- ------------------- ------------------- -------------------
Blasting Changing blasting -- Reduce direct Implemented(1)
practices: patterns and cash costs US$5.2 million
US$5 million practices, Reduced the number
accessories and of primers used
explosive mix, per blast hole in
leading to a both ore and
reduction waste. Introduced
in blasting saver
consumables by up plugs in waste
to 30%. blasting to reduce
the volume of
explosives
required.
Secured early
settlement
discounts with
explosive
suppliers.
Work in
progress(2)
Additional
blasting
initiatives being
tested to further
reduce explosive
consumables and
accessories.
------------------- ------------------- ------------------- ------------------- -------------------
Processing
US$34 million Plant uptime: 66 initiatives -- Increase ore Implemented(1) US$31 million
US$16 million identified to improve tonnes treated US$3.1 million
plant uptime through: -- Net revenue Once-off
-- improved maintenance increase implementation of
scheduling (planned and a scrubber bypass
unplanned); which mitigated
-- improving ore feed the loss of tonnes
management; due to the
-- improving stability Plant 2 extended
of power supply; and shutdown in H1
-- reducing operational 2018 for planned
delays. maintenance and to
replace the
scrubber.
Initiatives
identified to
improve ore feed
to the Plants were
implemented by Q4
2018.
Work in
progress(2)
Further plant
uptime initiatives
are being
implemented at
different stages
during the
four-year
period, and the
benefits are
expected to ramp
up during 2019.
------------------- ------------------------- ------------------- ------------------- -------------
Additional Deploy an XRT machine to -- Increase carats Implemented(1)
throughput: re-treat tailings recovered US$18.7 million
US$16 million -- Net revenue The XRT sorting
increase machine recovered
11 905 carats from
re-treating
tailings, being
significantly
higher than
initially
estimated.
------------------- ------------------------- ------------------- ------------------- -------------
Review and renegotiate -- Reduce direct Implemented(1)
the Alluvial Ventures cash costs US$2.6 million
contract for the The Alluvial
operation of the third Ventures contract
plant has been
at Letšeng. renegotiated to
realign the profit
margin share and
to extend the
tenure to
mid-2020.
------------------- ------------------------- ------------------- -------------------
Plant consumables: Efficient usage and -- Reduce direct Implemented(1)
US$2 million reduce consumption of cash costs US$0.6 million
plant consumables. Improved
flocculant and
coagulant
combination
product introduced
and a new
flocculant
recovery
unit at Plant 1
commissioned to
reduce consumption
of consumables.
Work in
progress(2)
Further
initiatives to
optimise the usage
of plant
consumables are
being implemented.
------------------- ------------------------- ------------------- ------------------- -------------
Initiative Activity and Tracking against
and target target Objective Impact Status US$100m target
Working capital and overheads
-------------------
US$4 million Working capital: -- Improve working -- Reduce working Implemented(1) US$8 million
US$1 million capital management capital (once off US$0.7 million
with specific cash benefit) Draw down of slow
focus on redundant moving stock and
and slow-moving the rebasing of
plant economic order
inventory at quantities has
Letšeng. been implemented.
-- The working The sale of scrap
capital initiative material has
is a once-off commenced.
benefit which is Work in
expected to progress(2)
deliver over Further redundant
a 12 - 18 month stock and scrap
period. metal has been
identified for
sale.
------------------- ------------------- ------------------- ------------------- -------------------
Overheads: -- Reducing -- Reduce direct Implemented(1)
US$3 million support service cash costs US$6.3 million
costs at Initiatives
Letšeng implemented at
through contract Letšeng as
reviews and follows:
focused contract -- The catering
management. and housekeeping
-- Implementing contract was
stricter spend reviewed and
control procedures renegotiated.
on administrative -- Entered into
and support costs new IT network
at Letšeng. provider contracts
-- Reducing the offering improved
Letšeng technological
corporate office services
footprint and and rates.
other office costs -- The corporate
office footprint
has been reduced
through the
sub-leasing of
excess office
space.
-- Reviewed
insurance
requirements and
providers and
implemented
savings.
-- Improved on
mine diesel issue
procedures and
eliminated diesel
additives from
equipment
where not
required.
-- Initiatives
targeting office
cost reductions
were implemented.
Work in
progress(2)
Additional
initiatives to
reduce overheads
at Letšeng,
including further
energy saving
opportunities have
been identified
and are in the
process of being
implemented.
------------------- ------------------- ------------------- ------------------- -------------------
Corporate activities
-------------------
US$20 million Non-core assets: -- Selling -- Reduce direct Implemented(1) US$17 million
US$16 million non-core mining cash costs US$1.4 million
fleet and -- Once-off cash Assets associated
redundant stock at benefit with Ghaghoo ie
Ghaghoo. the aircraft
servicing
the mine, certain
non-core mining
fleet and
inventory have
been sold.
------------------- ------------------- ------------------- ------------------- -------------------
-- Reduce or -- Reduce direct Work in
eliminate the cash costs progress(2)
ongoing care and A formal sales
maintenance costs process for the
at Ghaghoo. Ghaghoo mine with
appointed
corporate advisers
was initiated
during the year
and remains
ongoing.
------------------- ------------------- ------------------- ------------------- -------------------
-- Selling other -- Once-off cash Implemented(1)
non-core assets benefit US$0.7 million
across the Group. The sale of the
investment
property in Dubai
was completed in
November.
Work in
progress(2)
Additional
non-core assets
across the Group
have been
identified for
sale.
------------------- ------------------- ------------------- -------------------
Corporate costs -- Implementation -- Reduce direct Implemented(1)
US$4 million of stricter spend cash costs US$1.9 million
control procedures The following
on admin and initiatives across
support costs and the United
focusing Kingdom, South
on fit-for-purpose Africa, Belgium
operations. and Botswana
-- Downsizing operations
office footprint were implemented:
in the United -- Office
Kingdom, South footprints in the
Africa and United Kingdom and
Botswana. Botswana reduced.
-- Strict spend
control through
one centralised
cost approval
office
implemented.
-- Focused control
of travel
expenditure and
associated costs.
-- Reduced Annual
Report publishing
and printing
costs.
-- Reduced
professional fees.
Work in
progress(2)
Reduction of
membership
association fees,
reduced office
footprint in South
Africa, reduced
audit and
audit-related fees
and numerous other
initiatives are
being implemented
to further
reduce Corporate
costs.
------------------- ------------------- ------------------- ------------------- -------------------
(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 over the four-year period (2018 to 2021).
(2.) Work in progress - means an initiative has been planned and a business case has been approved for implementation. Associated implementation costs may have been incurred.
LET ENG
2018 in review -- Recovery of the 910 carat Lesotho Legend, largest Letšeng diamond ever recovered, sold for US$40.0 million -- Recovered 15 diamonds larger than 100 carats at Letšeng, a record for the mine -- Life of mine plan revised with steeper inter-ramp slope angles implemented -- Average price of US$2 131 per carat achieved -- Retained ISO 14001 certification and obtained ISO 45001 certification (previously OHSAS 18001) -- Recorded four LTIs Operational performance 2018 2017 % change --------------------------------------------------- --------------- --------------- ----------- Waste tonnes mined 25 809 076 29 718 985 (13) Ore tonnes mined 6 139 077 6 717 905 (9) Ore tonnes treated 6 532 596 6 439 299 1 Carats recovered - all sources(1) 126 875 111 811 13 Grade(1) recovered (cpht) 1.94 1.74 11 Carats sold 125 111 107 152 17 Average price per carat (US$) 2 131 1 930 10 ---------------------------------------------------- --------------- --------------- ----------- (1) Based on carats produced from the Letšeng Plants, Alluvial Ventures (AV) plant and recovery tailings treatment.
Operational performance
During 2018, Letšeng reduced its waste tonnes mined by 3.9 million to 25.8 million tonnes. This reduction was achieved through improved drilling and blasting techniques enabling the incorporation a number of Business Transformation initiatives, most notably the steeper inter-ramp slope angles. This steepening has resulted in significantly lower life of mine (LoM) stripping ratios while increasing and bringing forward the ore tonnage mined from the higher-value Satellite pipe, considerably increasing the mine's LoM net present value (NPV).
Tonnes treated during 2018 increased to 6.5 million tonnes, of which Letšeng's plants treated 5.4 million (2017: 5.3 million), with the remaining 1.1 million tonnes treated by Alluvial Ventures (AV) the third party contractor (2017: 1.1 million). The contract with AV has been extended to mid-2020. The contribution from the higher-value Satellite pipe material increased by 3% to 2.2 million tonnes. Of the total ore treated, 61% was sourced from the Main pipe, 33% from the Satellite pipe and 6% from the Main pipe stockpiles.
Both Letšeng plants were stopped during May for planned major maintenance work, adversely affecting the availability of the plants during H1 2018. The planned replacement of the scrubber shell in Plant 2 was completed on schedule. However, an unexpected and significant repair to its concrete foundation delayed the shutdown by 10 days. The impact of this additional downtime was mitigated by the temporary installation of a scrubber bypass conveyor. Following this extensive maintenance and the enhanced efficiencies resulting from various Business Transformation initiatives, the plant's runtime improved. This resulted in a significant increase in the tonnage treated during H2 2018. Furthermore, attention was given to ensuring that feed rates were well-controlled and consistent to enable process stability, with the objective being value over volume. Workstreams are in place to continue with plant improvements to enhance value.
Overall grade for 2018 was 1.94cpht, due in part to the Business Transformation initiative to re-treat tailings material through a mobile XRT sorting machine. This machine recovered 11 905 carats in 2018, of which 6 233 related to historical (pre-2018) tailings material. Carats recovered from all sources in 2018 totalled 126 875, representing an increase of 13% from 2017.
The safety and integrity of dams is an area of high focus for Letšeng management. There are three dams at Letšeng, namely the Patiseng tailings storage facility (TSF) which is in continual use, the old TSF which is only used as a standby facility, and the Mothusi Dam which is used as a fresh water facility only.
In addition to inhouse monitoring, involving stringent safety checks and inspections conducted on a daily, weekly and monthly basis, audits by external consultants are routinely performed every year, or more often as required. Any identified risks are mitigated and any required remedial steps immediately implemented. An early-warning system, involving communication and alarm systems together with community training and awareness programmes, is tested and used to ensure the emergency readiness of potentially affected communities.
Letšeng has reviewed the construction methods, operating procedures and inspections of old and recently constructed slimes and water dams both internally and with independent expert consultants. The Letšeng dams have each been constructed using the "downstream" method. The emergency procedures and actions in the event of a wall failure have also been reviewed and several drills involving the mine site and downstream communities are regularly held. (For further detail on how the Group ensures the highest standards of dam safety management, refer to the Sustainable Development Reporting Platform www.gemdiamonds.com.)
Large diamond recoveries
Letšeng recovered a record 15 diamonds greater than 100 carats during 2018, including the magnificent 910-carat Lesotho Legend, which was the largest diamond ever recovered at Letšeng and the fifth largest gem-quality diamond recovered globally. The trend for improved recoveries in 2018 was consistent across all size categories, with a 21% increase from 2017 for the total number of diamonds recovered greater than 20 carats.
Number of large diamond recoveries 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 ----------------------------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- >100 carats 15 7 5 11 9 6 3 6 7 6 7 60 - 100 carats 22 19 21 15 21 17 17 22 11 11 18 30 - 60 carats 83 74 70 65 74 60 77 66 66 79 96 20 - 30 carats 137 113 83 126 123 82 121 121 101 111 108 ------------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Total diamonds >20 carats 257 213 179 217 227 165 218 215 185 207 229 ------------------------------------ ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Capital projects
In line with the continuing strategy of early detection of large diamonds and diamond damage reduction, the construction of a c.US$3 million pilot plant, by Gem Diamonds Innovation Solutions, at Letšeng was approved during the year. Construction has commenced and is due to be commissioned in Q2 2019. For more detail, refer to the Technology and Innovation section on page 35.
To facilitate the expansion of the open pits, the construction of the Letšeng mining complex was completed on schedule and below budget. The c.US$13.7 million capital project for the extension of the tailings storage facility was approved in November 2017 and is on track to be completed during H1 2020. During 2018, US$8.8 million was spent on this project, bringing total spend to c.US$9.7 million by the end of 2018.
Details of overall costs and capital expenditure incurred at Letšeng during the year are included in the Group Financial Performance section on pages 21 to 26.
Mineral resources and reserves
The core drilling programme that commenced in September 2017 was concluded in December 2018. It included 12 drill holes (3 151 metres) in the Main pipe and 16 drill holes (3 962 metres) in the Satellite pipe. The aim of the programme was to gather additional data on the distribution of the subdomains within each of the main historical domains and to improve confidence in the external pipe morphologies to a depth of 300 metres below the current pit floors in both pipes.
Independent resource and mining specialists, SRK Consulting Canada, were appointed to assist with the design, quality control, logging and interpretation of the drilling programme, as primary inputs to the broader project related to updating the Resource and Reserve Statement. Core logging and sampling for petrography and mineral chemistry analyses have been completed, and work has commenced on updating the 3D geological models. Once these elements have been completed and the distribution of the subdomains are defined, the investigation will proceed to sampling and processing of core, both historical and recent core, for microdiamond analysis in 2019 and 2020.
Preliminary models, based on the recent core drilling, suggest that both pipe shell morphologies and volumes to 300 metres below the pit floor are in line with expectations.
An additional three core holes were drilled for geotechnical purposes (1 252 metres), in support of the mine plan incorporating steeper inter-ramp slope angles. Recovered grades were in line with expected grades per domain, achieving an overall Mine Call Factor (MCF) of 99%.
Health, safety, social and environment (HSSE)
Letšeng's occupational health, safety and environmental management systems underwent independent audits during 2018 to evaluate its performance against the standards published by the International Standards Organisation (ISO). Following these audits, the operation retained its ISO 14001 certification for environmental management for the fourth consecutive year and was awarded ISO 45001 certification for occupational health and safety management. The ISO 45001 standard has replaced the OHSAS 18001 standard.
The operation recorded four LTI's during Q1 2018 and subsequently re-affirmed its commitment to identifying and mitigating potential health and safety risks. The protection of the natural environment, within which Letšeng operates, is key to the sustainable success of the organisation, and the operation recorded no major or significant environmental incidents during 2018.
Letšeng is committed to working closely and in collaboration with its stakeholders, and no major or significant stakeholder incidents were recorded during 2018. The operation's project affected communities (PACs) play a vital role in the success of the operation and Letšeng is committed to ensuring that PACs benefit from the operation. In accordance with this commitment, Letšeng invested c.US$0.8 million towards community projects. Investments in projects are made following an inclusive stakeholder consultation process. The majority of this investment was allocated towards infrastructure, including a footbridge that allows year-round access for several communities to crucial services and local infrastructure, and to small and medium enterprise development associated with our flagship dairy project. To mark the recovery of the Lesotho Legend, the 910 Community Project was initiated. In line with the agricultural focus of many of our other social initiatives, it was determined that the project would entail the construction and development of a commercial poultry and egg farming co-operative. A feasibility study has been commissioned to better understand the potential socio-economic impact of this endeavour and the investment required.
2019 focus
-- Continue to enhance efficiency and implement cost reduction initiatives, as identified on pages 27 to 29 (Business Transformation).
-- Focus on value over volume by continuing with well-controlled and consistent feed rates to enable process stability.
-- Commission the pilot plant to validate the technology for the early detection of large diamonds.
-- Further review the mine plan to lower the stripping ratios and enhance the mine's NPV.
-- Continue to focus on enhancing the mining fleet and activities to reduce diesel consumption.
SALES, MARKETING AND MANUFACTURING
2018 in review -- Letšeng achieved an average price of US$2 131 per carat -- The 910 carat Lesotho Legend, the fifth largest gem quality diamond ever recovered, was sold for US$40 million -- 44 diamonds sold for more than US$1.0 million for a total value of US$137.2 million -- 138.20 carat achieved US$60 428 (highest dollar per carat achieved for a Letšeng white rough diamond since 2015)
Gem Diamonds continues to invest in its sales, marketing and manufacturing operations to pursue ways of maximising revenue through a combination of marketing channels, including tenders, strategic partnerships and extractions for manufacturing to capture additional margins further along the diamond pipeline.
Sales and marketing
The Group's rough diamond production is marketed and sold by Gem Diamonds Marketing Services in Belgium. Letšeng's rough diamonds are viewed and sold through an open tender in Antwerp and viewings for large diamond tenders are also held in Tel Aviv, Israel. All rough diamonds are sold on tender, unless extracted for either manufacturing or strategic partnerships.
Following viewings by clients in Antwerp and Tel Aviv, Gem Diamonds' electronic tender platform allows clients the flexibility to participate in each tender from anywhere in the world. The tender process is managed in a transparent manner and combined with professionalism and focused client care and management, it has led to a unique Gem Diamonds experience, securing client loyalty and supporting the objective to achieve highest prices for the Group's rough diamonds.
Select rough diamonds from Letšeng which have been manufactured into polished diamonds are sold by Gem Diamonds Marketing Services through direct selling channels to prominent high-end clients.
Operational performance
During the year, the Group continued to build its premium client base. Currently, the Group has 496 approved clients. Eight large, high-value rough diamond tenders and four small rough diamond tenders were held for Letšeng during the year, all of which were very well attended, with an average attendance of 139 clients per tender. The Group continually engages with its clients to understand their challenges and needs and, where possible, accommodates these in its marketing strategy. In this regard, viewings in Tel Aviv which were piloted in H2 2017, has now become a regular viewing destination for Letšeng's large diamond tenders.
Prices achieved for Letšeng's large, high-value diamonds remained firm during the year. The recovery and timely sale of the 910 carat Lesotho Legend and the flexible marketing channels used in the sale of Letšeng's high-quality diamonds contributed to achieving an average price of US$2 131 per carat in 2018.
Rough diamond analysis and manufacturing
Baobab's advanced mapping and analysis of Letšeng's large exceptional rough diamonds supports the Group in analysing and assessing the value of Letšeng's rough diamonds that are presented for sale on tender, sold into strategic partnerships with select clients or extracted for manufacturing. This ensures that robust reserve prices are set for the Group's high-value diamonds at each tender and informs strategic selling, partnering or manufacturing decisions.
To attain highest value for Letšeng's top-quality diamonds, certain high-value rough diamonds are selected for manufacturing.
Operational performance
Baobab continued to provide specialised services to the Group and to third-party clients. Services to third-party clients contributed additional revenue of US$0.2 million to the Group.
To take advantage of the stronger rough diamond market experienced during the year, no diamonds were extracted for manufacturing during 2018. This illustrates the benefit of a flexible marketing strategy to capitalise on the fluctuation of the rough and polished diamond markets.
2019 focus
-- Continue to build on the unique Gem Diamonds marketing experience. -- Development and implementation of an enhanced electronic tender platform.
TECHNOLOGY AND INNOVATION
2018 in review -- Installation of the non-mechanical liberation unit at Letšeng, as a non-mechanical means of liberating diamonds -- Proof of concept validation for detecting diamonds within kimberlite host rock -- Capital allocation for the construction of a pilot plant, incorporating the proof of concept technology
Gem Diamonds Innovation Solutions was established in Cyprus in 2017 to house all the Group's innovation and technology research and development projects.
Operational performance
Diamond damage is ubiquitous among producers of larger high-value gem diamonds. Furthermore, the Letšeng mine has a unique diamond distribution with a significant portion of its revenue held in the +5mm fraction (greater than two carats). The Group has been working to mitigate the impact of diamond damage on Letšeng's production for many years. While incremental improvements have been achieved through optimising operating practices and various technological enhancements, tweaking conventional technology will not realise the step changes required to significantly reduce diamond damage.
The potential changes for significantly improving revenue through reducing diamond damage are:
-- the early identification of liberated diamonds; -- identification of diamonds within kimberlite; and -- a non-mechanical means of liberating these diamonds within kimberlite.
Gem Diamonds has made significant progress on the identification, validation and testing of technologies from various industries to complement its innovation drive of early detection and non-mechanical means of liberating diamonds.
Diamond detection
Gem Diamonds successfully validated the detection of diamonds within kimberlite using scanning technology in conjunction with proprietary imaging and sorting algorithms. Following the successful proof of concept, the Company approved US$3 million for the construction of a pilot plant at Letšeng. The design and construction of the plant remains on target to be commissioned during Q2 2019.
Diamond liberation
Once a diamond has been identified within the kimberlite, the next step is to liberate this diamond without causing any damage. A non-mechanical liberation unit was developed inhouse, that utilises high voltage pulse power for the selective fragmentation of composite materials, as a means of liberating the encapsulated diamonds. Testing of this unit at Letšeng mine commenced in the beginning of 2018, at altitude, with substantial progress made throughout the year. The pilot project will also include the use of the non-mechanical diamond liberation unit.
For more information around this process, please go to www.gemdiamonds.com.
2019 focus
-- Construction and commission of pilot plant at Letšeng during Q2 of 2019 -- Extended testing of the pilot plant and technology in a production environment -- Enhancement and upscaling of detection technology to process particles up to 150mm in size -- Non-mechanical means of fragmenting even larger particles to liberate detected diamonds
RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with International Financial Reporting Standards (IFRS). Having taken advice from the Audit Committee, the Board considers the report and accounts taken as a whole, are fair, balanced and understandable and that they provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
The Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
Preparation of the financial statements
The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group, and of their profit or loss for that period. In preparing the Group financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable and prudent; -- state whether they have been prepared in accordance with IFRS;
-- state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the Group financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose, with reasonable accuracy at any time, the financial position of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors confirm that the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group and the undertakings included in the consolidation taken as a whole. In addition, suitable accounting policies have been selected and applied consistently.
Information, including accounting policies, has been presented in a manner that provides relevant, reliable, comparable and understandable information, and additional disclosures have been provided when compliance with the specific requirements in IFRS have been insufficient to enable users to understand the financial impact of particular transactions, other events and conditions on the Group's financial position and financial performance. Where necessary, the Directors have made judgements and estimates that are reasonable.
The Directors of the Company have elected to comply with the Companies Act, 2006, in particular the requirements of Schedule 8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 of the United Kingdom pertaining to Directors' remuneration which would otherwise only apply to companies incorporated in the UK.
Michael Michael
Chief Financial Officer
12 March 2019
INDEPENT AUDITOR'S REPORT
To the shareholders of gem diamonds limited
Report on the audit of the consolidated financial statements
Opinion
We have audited the consolidated financial statements of Gem Diamonds Limited and its subsidiaries (the Group) set out on pages 98 to 143, which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated statement of profit or loss, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2018, and its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISA). Our responsibilities under those standards are further described in the auditor's responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code), the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (IESBA Code) and other independence requirements applicable to performing audits of the group. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code, IESBA Code, and in accordance with other ethical requirements applicable to performing the audit of the group. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the auditor's responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
Key audit matter How the matter was addressed in the audit
Revenue recognition Our audit procedures included among others:
In the current year, the Group recognised revenue * We evaluated management's impact analysis of adopting
amounting to US$267.3 million (2017: US$214.3 IFRS 15 in the current year.
million).
IFRS 15 Revenue from Contracts with Customers became
applicable to the Group from 1 January * We evaluated the accounting treatment of each of the
2018. Management elected the modified retrospective various revenue stream arrangements.
approach for adoption.
The Group has several different sales arrangements,
consisting of selling rough diamonds through * We assessed a sample of rough diamond sales in the
tenders, partnerships arrangements or joint operation current year to:
arrangements, and also includes a proportionate
share of the cutting and polishing margin uplift
generated from the selling of polished diamonds * Underlying invoices
from the partnership and joint operation arrangements.
In the current year, revenue from the
sale of rough diamonds amounted to US$266.8 million * Payments from customers
(2017: US$213.5 million), which comprise
99.8% (2017: 99.6%) of Group revenue.
Revenue is driven by the nature of each sales type and * Delivery notes or receipt confirmations from
the characteristics of each diamond counterparties.
being sold such as the colour, clarity, carat size,
shape of the stone and delivery date of
diamonds to the customer. * We evaluated the elimination of intercompany sales
The diversity of the sales arrangements increases the transactions upon consolidation.
complexity and extent of audit effort
required to assess and validate the occurrence,
measurement and completeness of revenue recognised. * We evaluated the completeness of current year
Refer to the accounting policies (page 106) and Note 2 revenues by analysing management's reconciliation of
of the Annual Financial Statements rough and polished diamonds that were produced and
(page 118). sold during the year as well as diamonds on hand at
year end. We assessed the opening and closing
inventory (carats), diamonds produced and purchased,
boiling and tender losses and current year sales to
supporting audit evidence.
* We furthermore also considered the reasonableness of
the Group's related disclosures in the financial
statements by comparing that to the requirements of
IFRS 15.
-------------------------------------------------------------
Impairment of goodwill Our audit procedures included among others:
In accordance with IAS 36 Impairment of Assets, * We considered and assessed management's approach to
management performs an annual impairment assessment identifying indicators of impairment for completeness,
for goodwill allocated to the Letšeng cash focusing on changes in diamond prices and market
generating unit (CGU) by comparing the carrying capitalisation.
amount of the CGU, including goodwill, to its value in
use.
Management used a discounted cash flow model to * We tested the methodology applied in the value in use
determine the value in use of the CGU. The calculation relative to the requirements of IAS 36
key area of judgement relates to the Group's Impairment of Assets and tested the mathematical
assessment of future cash flows. The future cash accuracy of management's cash flow forecasts.
flows use forward looking estimates, which are
inherently difficult to determine with precision
and judgement is applied to determine key inputs. This * We involved EY internal valuations specialists to
determination is dependent on several assist in evaluating management's key estimates and
assumptions, which include: judgements, which included management's price,
* Inflation forecasts inflation rates, exchange rates and discount rates
assumptions.
* future diamond prices
* We evaluated the reasonability of management's
estimate of the value in use and forecast cash flows
* exchange rates by considering evidence available to support
assumptions and the reliability of past forecasts.
This included agreeing key cash flow inputs such as
* operating costs operating expenditure, future capital expenditure and
reserve and resource-life data to the Group's latest
approved plans and budgets.
* capital expenditure
* We evaluated management sensitivity analysis for the
* production impact that diamond prices and operating expenditure
may have on the value in use.
* discount rates
* We assessed the period over which the impairment test
is performed, including the assumptions in the mine
Due to the significant judgements involved in plan, and the current stage of the mining licence
estimating the key inputs to calculate the value renewal process.
in use, additional audit effort, emphasis and
executive involvement was required.
During the year management recorded US$nil (2017: * We considered the disclosures in relation to
US$nil) impairment of PPE or goodwill. impairment review and estimates made in the financial
Refer to the accounting policies (page 106) and Note statements to the requirements of IFRS.
11 of the Annual Financial Statements
(page 125).
-------------------------------------------------------------
Other information
The directors are responsible for the other information. The other information comprises the information included in the Annual Report set out on pages 1 to 94, other than the consolidated financial statements and our auditor's report thereon.
Our opinion on the consolidated financial statements does not cover the other information, except to the extent otherwise explicitly stated in this report, and we do not express an audit opinion or any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
When we read the Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance.
Responsibilities of the Directors for the consolidated financial statements
The Directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as the Directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Directors are responsible for assessing the group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISA, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
-- Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
-- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.
-- Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
-- Conclude on the appropriateness of the directors' use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the group to cease to continue as a going concern.
-- Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
-- Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on Other Legal and Regulatory Requirements
In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Ernst & Young LLP, incorporated in the UK, served as auditor of Gem Diamonds Limited from 2007 until 2017, which was 11 years. Ernst & Young Incorporated has been appointed as the auditor of Gem Diamonds Limited for the first time in respect of the year ended 31 December 2018, and accordingly has been the auditors of Gem Diamonds Limited for one year.
Ernst & Young Inc.
Ernest Adriaan Lodewyk Botha - Director
Chartered Accountant (CA)
Registered Auditor
Johannesburg, South Africa
12 March 2019
CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 31 December 2018
2017
US$'000 2017
2018 Before US$'000 2017
US$'000 exceptional Exceptional US$'000
Notes Total items items(1) Total
--------------------------------------------------------- ----- --------- ------------ ------------ ---------
Revenue 2 267 290 214 296 - 214 296
Cost of sales (154 953) (146 177) (3 605) (149 782)
--------------------------------------------------------- ----- --------- ------------ ------------ ---------
Gross profit 112 337 68 119 (3 605) 64 514
Other operating income and expenses 3 (5 045) 793 - 793
Royalties and selling costs (22 905) (18 828) - (18 828)
Corporate expenses (10 319) (9 496) - (9 496)
Share-based payments 26 (1 437) (1 526) - (1 526)
Foreign exchange gain/(loss) 4 2 205 (1 347) - (1 347)
--------------------------------------------------------- ----- --------- ------------ ------------ ---------
Operating profit/(loss) 4 74 836 37 715 (3 605) 34 110
Net finance costs 6 (1 847) (3 801) - (3 801)
--------- ------------ ------------ ---------
Finance income 2 033 630 - 630
Finance costs (3 880) (4 431) - (4 431)
--------- ------------ ------------ ---------
Profit/(loss) before tax for the year 72 989 33 914 (3 605) 30 309
Income tax expense 7 (26 348) (13 075) - (13 075)
--------------------------------------------------------- ----- --------- ------------ ------------ ---------
Profit/(loss) for the year 46 641 20 839 (3 605) 17 234
Attributable to:
Equity holders of parent 26 017 9 083 (3 605) 5 478
Non-controlling interests 20 624 11 756 - 11 756
--------------------------------------------------------- ----- --------- ------------ ------------ ---------
Earnings per share (cents) 8
- Basic earnings for the year attributable to ordinary
equity holders of the parent 18.8 6.6 - 4.0
- Diluted earnings for the year attributable to ordinary
equity holders of the parent 18.3 6.4 - 3.9
--------------------------------------------------------- ----- --------- ------------ ------------ ---------
(1) Refer to Note 5, Exceptional items.
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
for the year ended 31 December 2018
2018 2017
US$'000 US$'000
-------------------------------------------------------------------------------------------- -------- --------
Profit for the year 46 641 17 234
Other comprehensive income that could be reclassified to the statement of profit or loss in
subsequent periods
Exchange differences on translation of foreign operations (43 217) 21 565
--------------------------------------------------------------------------------------------- -------- --------
Other comprehensive (expense)/income for the year, net of tax (43 217) 21 565
--------------------------------------------------------------------------------------------- -------- --------
Total comprehensive income for the year, net of tax 3 424 38 799
Attributable to:
Equity holders of the parent (3 638) 23 640
Non-controlling interests 7 062 15 159
--------------------------------------------------------------------------------------------- -------- --------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 December 2018
2018 2017
Notes US$'000 US$'000
---------------------------------------------------------------- ------- ---------- ----------
ASSETS
Non-current assets
Property, plant and equipment 9 289 640 305 542
Intangible assets 10 13 272 15 422
Receivables and other assets 12 347 22
---------------------------------------------------------------- ------- ---------- ----------
303 259 320 986
---------------------------------------------------------------- ------- ---------- ----------
Current assets
Inventories 13 33 084 34 065
Receivables and other assets 12 5 433 7 777
Cash and short-term deposits 14 50 812 47 704
---------------------------------------------------------------- ------- ---------- ----------
89 329 89 546
---------------------------------------------------------------- ------- ---------- ----------
Assets held for sale 15 859 2 097
---------------------------------------------------------------- ------- ---------- ----------
Total assets 393 447 412 629
---------------------------------------------------------------- ------- ---------- ----------
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Issued capital 16 1 390 1 387
Share premium 885 648 885 648
Other reserves 16 (152 029) (123 811)
Accumulated losses(1) (578 834) (604 851)
---------------------------------------------------------------- ------- ---------- ----------
156 175 158 373
---------------------------------------------------------------- ------- ---------- ----------
Non-controlling interests 72 103 85 783
---------------------------------------------------------------- ------- ---------- ----------
Total equity 228 278 244 156
---------------------------------------------------------------- ------- ---------- ----------
Non-current liabilities
Interest-bearing loans and borrowings 17 19 954 33 279
Trade and other payables 18 1 555 1 609
Provisions 20 17 876 17 306
Deferred tax liabilities 21 74 054 78 579
---------------------------------------------------------------- ------- ---------- ----------
113 439 130 773
---------------------------------------------------------------- ------- ---------- ----------
Current liabilities
Interest-bearing loans and borrowings 17 14 212 13 064
Trade and other payables 18 28 554 23 360
Income tax payable 19 8 964 1 276
---------------------------------------------------------------- ------- ---------- ----------
51 730 37 700
---------------------------------------------------------------- ------- ---------- ----------
Total liabilities 165 169 168 473
---------------------------------------------------------------- ------- ---------- ----------
Total equity and liabilities 393 447 412 629
---------------------------------------------------------------- ------- ---------- ----------
(1) Included in profit or loss for the year and accumulated in equity are amounts relating
to assets held for sale. Refer to Note 15, Assets held for sale.
Approved by the Board of Directors on 12 March 2019 and signed on its behalf by:
CT Elphick M Michael
Director Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2018
Attributable to the equity
holders of
the parent
Accumu-
lated
(losses)/ Non-
Issued Share Own Other retained controlling Total
capital(1) premium(1) shares reserves(1) earnings Total interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------- ----------- ----------- -------- ------------- -------------- -------- ------------ --------
Balance at 1
January 2018 1 387 885 648 _ (123 811) (604 851) 158 373 85 783 244 156
Total
comprehensive
income - - - (29 655) 26 017 (3 638) 7 062 3 424
----------- ----------- -------- ------------- -------------- -------- ------------ --------
Profit for the
year - - - - 26 017 26 017 20 624 46 641
Other
comprehensive
income - - - (29 655) - (29 655) (13 562) (43 217)
----------- ----------- -------- ------------- -------------- -------- ------------ --------
Share capital
issued 3 - - - - 3 - 3
Treasury
shares - - - - - - - -
Share-based
payments (Note
26) - - - 1 437 - 1 437 - 1 437
Dividends paid - - - - - - (20 742) (20 742)
--------------- ----------- ----------- -------- ------------- -------------- -------- ------------ --------
Balance at
31 December
2018 1 390 885 648 - (152 029) (578 834) 156 175 72 103 228 278
--------------- ----------- ----------- -------- ------------- -------------- -------- ------------ --------
Balance at 1
January 2017 1 384 885 648 (1) (143 498) (610 329) 133 204 70 623 203 827
Total
comprehensive
income - - - 18 161 5 478 23 639 15 160 38 799
----------- ----------- -------- ------------- -------------- -------- ------------ --------
Profit for the
year - - - - 5 478 5 478 11 756 17 234
Other
comprehensive
income - - - 18 161 - 18 161 3 404 21 565
----------- ----------- -------- ------------- -------------- -------- ------------ --------
Share capital
issued 3 - - - - 3 - 3
Treasury shares - - 1 - - 1 - 1
Share-based
payments
(Note 26) - - - 1 526 - 1 526 - 1 526
--------------- ----------- ----------- -------- ------------- -------------- -------- ------------ --------
Balance at 31
December 2017 1 387 885 648 - (123 811) (604 851) 158 373 85 783 244 156
--------------- ----------- ----------- -------- ------------- -------------- -------- ------------ --------
(1) Refer to Note 16, Issued capital and reserves, for further detail.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2018
2018 2017
Notes US$'000 US$'000
------------------------------------------------------- ----- -------- ---------
Cash flows from operating activities 138 339 97 395
-------- ---------
Cash generated by operations 22.1 149 755 110 795
Working capital adjustments 22.2 1 916 (9 892)
------------------------------------------------------- ----- -------- ---------
151 671 100 903
Interest received 2 033 630
Interest paid (2 742) (3 210)
Income tax paid (12 623) (928)
-------- ---------
Cash flows used in investing activities (99 449) (101 158)
-------- ---------
Purchase of property, plant and equipment (22 963) (17 787)
Waste stripping costs capitalised (79 294) (84 009)
Proceeds from sale of property, plant and equipment 2 808 638
-------- ---------
Cash flows (used in)/generated by financing activities (30 766) 17 469
-------- ---------
Interest-bearing loans and borrowings (repaid)/raised 22.3 (10 024) 17 469
- Interest-bearing loans and borrowings repaid (12 937) (46 601)
- Interest-bearing loans and borrowings raised 2 913 64 070
Dividends paid to non-controlling interests (20 742) -
-------- ---------
Net increase in cash and cash equivalents 8 124 13 706
Cash and cash equivalents at beginning of year 47 704 30 787
Foreign exchange differences (5 016) 3 211
-------- ---------
Cash and cash equivalents at end of year held at banks 50 659 47 531
Restricted cash at end of year 153 172
-------- ---------
Cash and cash equivalents at end of year 14 50 812 47 704
------------------------------------------------------- ----- -------- ---------
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 December 2018
1. NOTES TO THE FINANCIAL STATEMENTS
1.1 Corporate information
1.1.1 Incorporation
The holding company, Gem Diamonds Limited (the Company), was incorporated on 29 July 2005
in the British Virgin Islands (BVI). The Company's registration number is 669758.
These financial statements were authorised for issue by the Board on 12 March 2019.
The Group is principally engaged in the exploration and development of diamond mines.
1.1.2 Operational information
The Company has the following investments directly and indirectly in subsidiaries at 31 December
2018:
Name and registered address Share- Cost of Country of
of company holding investment(1) incorporation Nature of business
----------------------------- -------- -------------- --------------- ----------------------------
Subsidiaries
Gem Diamond Technical 100% US$17 RSA Technical, financial and
Services (Proprietary) management consulting
Limited(2) services.
Illovo Corner
24 Fricker Road
Illovo Boulevard
Illovo
2196
----------------------------- -------- -------------- --------------- ----------------------------
Gem Equity Group Limited(2) 100% US$52 277 BVI Dormant investment company
Ground Floor, Coastal holding 1% in Gem Diamonds
Building Botswana (Proprietary)
Wickhams Cay II Limited, 2% in
Roadtown Gem Diamonds Marketing
Tortola Services BVBA, 1% in Baobab
VG 1130 Technologies BVBA and 0.1%
British Virgin Islands in Gem Diamonds
Marketing Botswana
(Proprietary) Limited.
----------------------------- -------- -------------- --------------- ----------------------------
Letšeng Diamonds 70% US$126 000 303 Lesotho Diamond mining and holder
(Proprietary) Limited(2) of mining rights.
Letšeng Diamonds House Letšeng Diamonds
Corner Kingway and Old School (Proprietary) Limited holds
Roads 100% of the A class shares
Maseru and 70% of the B class
Lesotho shares in Letšeng
Diamonds Manufacturing
(Proprietary) Limited,
which is a company
established in Lesotho to
operate the in-country
diamond cutting and
polishing. The company is
currently dormant.
----------------------------- -------- -------------- --------------- ----------------------------
Gem Diamonds Botswana 100% US$5 844 579 Botswana Diamond mining; evaluation
(Proprietary) Limited(2) and development; and holder
Suite 103, GIA Centre of mining licences and
Diamond Technology Park concessions.
Plot 67782, Block 8
Gaborone
Botswana
----------------------------- -------- -------------- --------------- ----------------------------
Gem Diamonds Investments 100% US$17 531 316 UK Investment holding company
Limited(2) holding 100% in each of Gem
20 - 22 Bedford Row Diamonds Technology DMCC,
London Calibrated
WC1R 4JS Diamonds Investment
United Kingdom Holdings (Proprietary)
Limited and Gem Diamonds
Innovation Solutions CY
Limited(3) ; 99.9% in Gem
Diamonds Marketing Botswana
(Proprietary) Limited; 99%
in Baobab
Technologies BVBA; and 98%
in Gem Diamonds Marketing
Services BVBA, a marketing
company that
sells the Group's diamonds
on tender in Antwerp.
----------------------------- -------- -------------- --------------- ----------------------------
(1) The cost of investment represents original cost of investments at acquisition dates.
(2) No change in the shareholding since the prior year.
(3) Gem Diamonds Innovation Solutions CY Limited was incorporated during the prior year as
an intellectual property holding company.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.1 Corporate information (continued)
1.1.3 Segment information
For management purposes, the Group is organised into geographical units as its risks and required
rates of return are affected predominantly by differences in the geographical regions of the
mines and areas in which the Group operates or areas in which operations are managed. The
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 through Ghaghoo) and sales and marketing of diamonds
through Gem Diamonds Marketing Botswana (Proprietary) Limited. Ghaghoo was placed on care
and maintenance in February 2017;
- 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.
Segment performance is evaluated based on operating profit or loss. Intersegment transactions
are entered into under normal arm's length terms in a manner similar to transactions with
third parties. Segment revenue, segment expenses and segment results include transactions
between segments. Those transactions are eliminated on consolidation.
Segment revenue is derived from mining activities, polished manufacturing margins, and Group
services.
During the prior year, the Ghaghoo mine, forming part of the Botswana segment, was placed
on care and maintenance. .
The following table presents revenue and profit/(loss), and asset and liability information
from operations regarding the Group's geographical segments:
BVI, RSA,(1)
UK and
Lesotho Botswana Belgium Cyprus Total
Year ended 31 December 2018 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------------------- ---------- --------- --------- ------------ ---------
Revenue
Total revenue 262 636 - 267 370 9 440 539 446
Intersegment (262 636) - (432) (9 088) (272 156)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
External customers - - 266 938 352 267 290
Depreciation and amortisation 76 537 43 204 120 76 904
- Depreciation and mining asset amortisation 8 332 43 204 120 8 699
- Waste stripping cost amortisation 68 205 - - - 68 205
Share-based equity transactions 317 15 6 1 099 1 437
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Segment operating profit/(loss) 88 815 (5 529) 2 025 (10 475) 74 836
Net finance costs 743 (190) - (2 400) (1 847)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Profit/(loss) before tax 89 558 (5 719) 2 025 (12 875) 72 989
Income tax expense (26 348)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Profit for the year 46 641
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Segment assets 358 646 4 000 3 249 27 552 393 447
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Segment liabilities 62 753 4 036 689 23 637 91 115
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Other segment information
Capital expenditure
- Property, plant and equipment(2) 22 628 - 1 880 899 25 407
- Waste cost capitalised 79 294 - - - 79 294
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Total capital expenditure 101 922 - 1 880 899 104 701
-------------------------------------------------- ---------- --------- --------- ------------ ---------
(1) No revenue was generated in BVI.
(2) Capital expenditure includes non-cash movements in rehabilitation assets relating to changes
in rehabilitation estimates for the Lesotho segment.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.1 Corporate information (continued)
1.1.3 Segment information (continued)
Included in annual revenue for the current year is revenue from two customers which amounted
to US$88.3 million arising from sales reported in the Belgium segments.
Segment liabilities do not include net deferred tax liabilities of US$74.1 million.
Total revenue for the current year are higher than that of the prior year mainly as a result
of the higher volume of exceptional large diamonds recovered at the Lesotho segment, specifically
bolstered by the recovery and sale of the 910 carat Lesotho Legend.
BVI, RSA,(1)
UK and
Lesotho Botswana Belgium Cyprus Total
Year ended 31 December 2017 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------------------- ---------- --------- --------- ------------ ---------
Revenue
Total revenue 201 532 2 427 214 045 8 835 426 839
Intersegment (201 177) (2 427) (592) (8 347) (212 543)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
External customers 355 - 213 453 488 214 296
Depreciation and amortisation 75 439 38 701 279 76 457
- Depreciation and mining asset amortisation 7 538 38 701 279 8 556
- Waste stripping cost amortisation 67 901 - - - 67 901
Share-based equity transactions 375 62 3 1 086 1 526
Exceptional costs - (3 605) - - (3 605)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Segment operating profit/(loss) 53 301 (7 944) 873 (12 120) 34 110
Net finance costs (1 486) (369) - (1 946) (3 801)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Profit/(loss) before tax 51 815 (8 313) 873 (14 066) 30 309
Income tax expense (13 075)
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Profit for the year 17 234
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Segment assets 394 886 5 635 2 843 9 265 412 629
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Segment liabilities 51 658 4 530 303 33 403 89 894
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Other segment information
Capital expenditure
- Property, plant and equipment(2) 15 499 227 25 533 16 284
- Waste cost capitalised 84 009 - - - 84 009
-------------------------------------------------- ---------- --------- --------- ------------ ---------
Total capital expenditure 99 508 227 25 533 100 293
-------------------------------------------------- ---------- --------- --------- ------------ ---------
(1) No revenue was generated in BVI.
(2) Capital expenditure includes non-cash movements in rehabilitation assets relating to changes
in rehabilitation estimates for the Lesotho segment.
Included in annual revenue for the 2017 year is revenue from a single customer which amounted
to US$29.0 million arising from sales reported in the Lesotho and Belgium segments.
Segment liabilities do not include net deferred tax liabilities of US$78.6 million.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies
1.2.1 Basis of preparation
The financial statements of the Group have been prepared in
accordance with International
Financial Reporting Standards (IFRS). These financial statements have
been prepared under
the historical cost basis. The accounting policies have been
consistently applied except for
the adoption of the new standards and interpretations detailed on the
following pages.
The functional currency of the Company and certain of its
subsidiaries is US dollar, which
is the currency of the primary economic environment in which the
entities operate. All amounts
are expressed in US dollar. The financial statements of subsidiaries
whose functional and
reporting currency is in currencies other than US dollar have been
converted into US dollar
on the basis as set out in Note 1.2.16, Foreign currency
translations.
The preparation of financial statements in conformity with IFRS
requires the use of certain
critical accounting estimates. It also requires management to
exercise its judgement in the
process of applying the Group's accounting policies. The areas
involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are
significant to the financial
statements, are disclosed in Note 1.2.28, Critical accounting
estimates and judgement.
Changes in accounting policies and disclosures
New and amended standards and interpretations
The Group applied IFRS 15 for the first time from 1 January 2018. The
nature and effect of
the changes as a result of the adoption of this new standard is
described below. Other than
the changes described below, the accounting policies adopted are
consistent with those of
the previous financial year.
Several other amendments and interpretations applied for the first
time in 2018, but did not
have an impact on the consolidated financial statements of the Group
and, hence, have not
been disclosed. The Group has not early adopted any standards,
interpretations or amendments
that have been issued but are not yet effective.
IFRS 15 Revenue from Contracts with Customers
The Group is required to apply IFRS 15 for annual reporting periods
beginning on or after
1 January 2018. Management has assessed the core principle of IFRS
15, that the Group will
recognise revenue to depict the transfer of promised diamond sales to
customers in an amount
that reflects the consideration to which the Group expects to be
entitled in exchange for
the diamond sales. The standard requires entities to apportion
revenue earned from contracts
to individual promises, or performance obligations, on a relative
standalone selling price
basis, based on a five-step model.
The impacts of implementing IFRS 15 on the Group results are as
follows:
* Under IFRS 15 the revenue recognition model changed
from one based on the transfer of risk and reward of
ownership to the transfer of control of ownership.
The Group's revenue is predominantly derived from the
sale of rough diamonds. Diamond sales are made
through a competitive tender process and are
recognised when the performance obligations have been
satisfied, at the time the buyer obtains control of
the diamond(s), costs can be reliably measured, and
receipt of proceeds are probable. The Group has
reviewed the terms and conditions of the current
tender contracts entered into with each of the buyers
and as the transfer of risks and rewards generally
coincides with the transfer of control at a point in
time, is satisfied that, based on the terms of the
current contracts, there is no change to the timing
of revenue recognition on tender sales under IFRS 15.
* IFRS 15 introduces the concept of performance
obligations that are defined as a 'distinct' promised
good or service. This will have an impact on the
timing of revenue recognised where the Group enters
into partnership arrangements, whereby there is rough
diamond revenue and an additional uplift revenue
recognised on polished margin received. revenue from
the sale of the rough diamond will be recorded when
all performance obligations are met, being at the
time of the sale of the rough diamond to the partner.
Revenue from additional uplift is considered to be
variable consideration. This variable consideration
will generally be significantly constrained. This is
on the basis that the ultimate additional uplift
received will depend on a range of factors that are
highly susceptible to factors outside the Group's
influence. The Group has reviewed the terms and
conditions of its current contracts pertaining to
such scenarios and are satisfied that there is no
change to the timing of the additional uplift
recognised on such sales under IFRS 15.
The modified retrospective approach was applied which had no impact
on the Group results,
had IAS 18 Revenue been applied, revenue of US$267.3 million would
have been recognised in
2018. No expedients were utilised.
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments:
Recognition and measurement
for annual periods beginning on or after 1 January 2018; bringing
together all three aspects
of the accounting for financial instruments: Classification and
measurement impairment and
hedge accounting.
The Group has assessed the impact of IFRS 9 and based on the nature
of the financial instruments
held, determined that IFRS 9 does not have an impact on the Group
results.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.1 Basis of preparation (continued)
Standards issues but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of
issuance of the Group's Financial Statements, that the Group reasonably expects will have
an impact on its disclosures, financial position or performance when applied at a future date,
are disclosed below. The Group intends to adopt these standards when they become effective.
The other standards and interpretations that are issued, but not yet effective, are not expected
to impact the Group, and have therefore not been listed.
Standard, amendment or interpretation Effective period commencing on or after
---------------------------------------------------------------- ----------------------------------------
IFRS 16 Leases The new standard requires lessees to 1 January 2019
recognise assets and liabilities on their
balance sheets
for most leases, many of which may have
been off balance sheet in the past. The
Group is currently
in the process of quantifying the impact
of the change as detailed below.
-------- ------- ------------------------------------------ ----------------------------------------
IFRS 16 Leases
The standard is effective for years commencing on or after 1 January 2019. The standard will
be adopted by the Group for the financial reporting period commencing 1 January 2019.
IFRS 16 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. Leases where the exceptions
are applicable may be treated similarly to operating leases under the current standard IAS
17 Leases.
A lessee measures its lease obligation at the present value of future lease payments, and
recognises a right of use asset initially measured at the same amount as the lease obligation,
adjusted for lease prepayments, lease incentives received, the lessee's initial direct costs
and an estimate of restoration, removal and dismantling costs. Right of use assets are subsequently
treated in a similar way to other assets such as property, plant and equipment or intangible
assets dependent on the nature of the underlying item. The lease obligation is subsequently
measured at amortised cost using the effective interest rate, giving rise to interest expense.
An assessment has been performed, on the Group's agreements, to determine whether the agreements
are within the scope of IFRS 16 and whether they will be classified as a finance or operating
lease in terms of the classification requirements.
The Group is currently in the process of determining the impact of the application of IFRS
16, however it is expected to have a significant impact on the Group's financial statements,
particularly in relation to the recognition of right of use assets, lease liabilities, depreciation,
operating expenses, finance expenses and EBITDA. It is expected that the most significant
impact will be the change in accounting for the moveable equipment leases, with remaining
lease terms of between one and seven years. The lease payments made during 2018 amounted to
US$68.2 million (2017: US$60.0 million).
The Group will apply the modified retrospective approach and is currently considering the
application of exceptions related to short-term and low-value asset leases.
Information on the undiscounted amount of the Group's operating lease commitments under IAS
17, the current leasing standard, is disclosed in Note 23, Commitments and contingencies.
Business environment and country risk
The Group's operations are subject to country risk being the economic, political and social
risks inherent in doing business in certain areas of Africa and Europe. These risks include
matters arising out of the policies of the government, economic conditions, imposition of
or changes to taxes and regulations, foreign exchange rate fluctuations and the enforceability
of contract rights.
The consolidated financial information reflects management's assessment of the impact of these
business environments on the operations and the financial position of the Group. The future
business environment may differ from management's assessment.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.2 Going concern
The Company's business activities, together with the factors likely to affect its future development,
performance and position are set out in the Strategic Review on pages 1 to 44. The financial
position of the Company, its cash flows and liquidity position are described in the Strategic
Review on pages 21 to 26 in the Annual Report and Accounts. In addition, Note 25, Financial
risk management, includes the Company's objectives, policies and processes for managing its
capital; its financial risk management objectives; details of its financial instruments; and
its exposures to credit risk and liquidity risk.
After making enquiries which include reviews of forecasts and budgets, timing of cash flows,
borrowing facilities and sensitivity analyses and considering the uncertainties described
in this report either directly or by cross-reference, the Directors have a reasonable expectation
that the Group and the Company have adequate financial resources to continue in operational
existence for the foreseeable future. For this reason, they continue to adopt the going concern
basis in preparing the Annual Report and Accounts of the Company.
These financial statements have been prepared on a going concern basis which assumes that
the Group will be able to meet its liabilities as they fall due for the foreseeable future.
1.2.3 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company
and entities controlled by the Company.
Subsidiaries
Subsidiaries are consolidated from the date of their acquisition, being the date on which
the Group obtains control, and continue to be consolidated until the date that such control
ceases. An investor controls an investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through
its power over the investee. To meet the definition of control in IFRS 10, all three of the
following criteria must be met:
(a) an investor has power over an investee;
(b) the investor has exposure, or rights, to variable returns from its involvement with the
investee; and
(c) the investor has the ability to use its power over the investee to affect the amount of
the investor's returns.
The financial statements of subsidiaries used in the preparation of the consolidated financial
statements are prepared for the same reporting year as the parent company and are based on
consistent accounting policies. All intragroup balances and transactions, including unrealised
profits arising from them, are eliminated in full.
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary not attributable, directly
or indirectly, to the parent company and is presented separately within equity in the consolidated
statement of financial position, separately from equity attributable to owners of the parent.
Losses within a subsidiary are attributed to the non-controlling interest even if that results
in a deficit balance.
1.2.4 Exploration and evaluation expenditure
Exploration and evaluation activity involves the search for mineral resources, the determination
of technical feasibility and the assessment of commercial viability of an identified resource.
Exploration and evaluation activity includes:
* acquisition of rights to explore;
* researching and analysing historical exploration
data;
* gathering exploration data through topographical,
geochemical and geophysical studies;
* exploratory drilling, trenching and sampling;
* determining and examining the volume and grade of the
resource;
* surveying transportation and infrastructure
requirements; and
* conducting market and finance studies.
Administration costs that are not directly attributable to a specific exploration area are
charged to the income statement. Licence costs paid in connection with a right to explore
in an existing exploration area are capitalised and amortised over the term of the permit.
Exploration and evaluation expenditure is capitalised as incurred. Capitalised exploration
expenditure is recorded as a component of property, plant and equipment at cost less accumulated
impairment charges. As the asset is not available for use, it is not depreciated.
All capitalised exploration and evaluation expenditure is monitored for indications of impairment.
Where a potential impairment is indicated, assessments are performed for each area of interest
in conjunction with the group of operating assets (representing a cash-generating unit (CGU))
to which the exploration is attributed. To the extent that exploration expenditure is not
expected to be recovered, it is charged to the income statement. Exploration areas where reserves
have been discovered, but require major capital expenditure before production can begin, are
continually evaluated to ensure that commercial quantities of reserves exist or to ensure
that additional exploration work is under way as planned.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.5 Development expenditure
When proved reserves are determined and development is sanctioned, capitalised exploration
and evaluation expenditure is reclassified within property, plant and equipment to development
expenditure. As the asset is not available for use, during the development phase, it is not
depreciated. On completion of the development, any capitalised exploration and evaluation
expenditure already capitalised to development asset, together with the subsequent development
expenditure, is reclassified within property, plant and equipment to mining assets and depreciated
on the basis as laid out in Note 1.2.6, Property, plant and equipment.
All development expenditure is monitored for indicators of impairment annually.
1.2.6 Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated
impairment losses. Cost includes expenditure that is directly attributable to the acquisition
and construction of the items, among others, professional fees, and for qualifying assets,
borrowing costs capitalised in accordance with the Group's accounting policies.
Subsequent costs to replace a component of an item of property, plant and equipment that is
accounted for separately, is capitalised when the cost of the item can be measured reliably,
with the carrying amount of the original component being written off. All repairs and maintenance
are charged to the income statement during the financial period in which they are incurred.
Depreciation commences when an asset is available for use. Depreciation is charged so as to
write off the depreciable amount of the asset to its residual value over its estimated useful
life, using a method that reflects the pattern in which the asset's future economic benefits
are expected to be consumed by the Group.
Item Method Useful life
----------------------------- ----------------- ----------------------------------------------------
Mining assets Straight line Lesser of life of mine or period of lease
Decommissioning assets Straight line Lesser of life of mine or period of lease
Leasehold improvements Straight line Lesser of three years or period of lease
Plant and equipment Straight line Three to 10 years
Other assets Straight line Two to five years
Pre-production and in production stripping costs
Costs associated with removal of waste overburden are classified as stripping costs.
Stripping activities that are undertaken during the production phase of a surface mine may
create two benefits, being either the production of inventory or improved access to the ore
to be mined in the future. Where the benefits are realised in the form of inventory produced
in the period, the production stripping costs are accounted for as part of the cost of producing
those inventories. Where production stripping costs are incurred and where the benefit is
the creation of mining flexibility and improved access to ore to be mined in the future, the
costs are recognised as a non-current asset, referred to as a 'stripping activity asset',
if:
(a) future economic benefits (being improved access to the orebody) are probable;
(b) the component of the orebody for which access will be improved can be accurately identified;
and
(c) the costs associated with the improved access can be reliably measured.
The stripping activity asset is separately disclosed in Note 9, Property, plant and equipment.
If all the criteria are not met, the production stripping costs are charged to the statement
of profit or loss as operating costs. The stripping activity asset is initially measured at
cost, which is the accumulation of costs directly incurred to perform the stripping activity
that improves access to the identified component of ore, plus an allocation of directly attributable
overhead costs. If incidental operations are occurring at the same time as the production
stripping activity, but are not necessary for the production stripping activity to continue
as planned, these costs are not included in the cost of the stripping activity asset. If the
costs of the stripping activity asset and the inventory produced are not separately identifiable,
a relevant production measure is used to allocate the production stripping costs between the
inventory produced and the stripping activity asset. The stripping activity asset is subsequently
amortised over the expected useful life of the identified component of the orebody that became
more accessible as a result of the stripping activity. Based on proven and probable reserves,
the expected average stripping ratio over the average life of the area being mined is used
to amortise the stripping activity. As a result, the stripping activity asset is carried at
cost less amortisation and any impairment losses.
The average life of area cost per tonne is calculated as the total expected costs to be incurred
to mine the orebody divided by the number of tonnes expected to be mined. The average life
of area stripping ratio and the average life of area cost per tonne are recalculated annually
in light of additional knowledge and changes in estimates. Changes in the stripping ratio
are accounted for prospectively as a change in estimate.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.7 Non-current assets held for sale
The Group classifies non-current assets and disposal groups as held for sale to equity holders
of the parent if their carrying amounts will be recovered principally through a distribution
rather than through continuing use. Such non-current assets and disposal groups classified
as held for sale are measured at the lower of their carrying amount and fair value less costs
to sell. Costs to sell are the incremental costs directly attributable to the sale, excluding
the finance costs and income tax expense.
The criteria for held-for-sale classification is regarded as met only when the sale is highly
probable, and the asset or disposal group is available for immediate distribution in its present
condition. Actions required to complete the distribution should indicate that it is unlikely
that significant changes to the distribution will be made or that the distribution will be
withdrawn. Management must be committed to the sale expected within one year from the date
of the classification.
Property, plant, equipment and intangible assets are not depreciated or amortised once classified
as held for sale.
Assets and liabilities classified as held for sale are presented separately as current items
in the statement of financial position.
1.2.8 Goodwill and other intangible assets
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition
date fair value of the consideration transferred and the amount recognised for the non-controlling
interest (and where the business combination is achieved in stages, the acquisition date fair
value of the acquirer's previously held equity interest in the acquiree) over the net identifiable
amounts of the assets acquired and the liabilities assumed in exchange for the business combination.
Assets acquired and liabilities assumed in transactions separate to the business combinations,
such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements,
are accounted for separately from the business combination in accordance with their nature
and applicable IFRS. Identifiable intangible assets, meeting either the contractual legal
or separability criterion are recognised separately from goodwill. Contingent liabilities
representing a present obligation are recognised if the acquisition date fair value can be
measured reliably.
If the aggregate of the acquisition date fair value of the consideration transferred and the
amount recognised for the non-controlling interest (and where the business combination is
achieved in stages, the acquisition date fair value of the acquirer's previously held equity
interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent
liabilities, and the fair value of any pre-existing interest held in the business acquired,
the difference is recognised in profit and loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
For the purpose of impairment testing, goodwill acquired in a business combination is, from
the acquisition date, allocated to each of the Group's CGUs (or groups of CGUs) that are expected
to benefit from the combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated
shall represent the lowest level within the entity at which the goodwill is monitored for
internal management purposes, and shall not be larger than an operating segment before aggregation.
Where goodwill forms part of a CGU and part of the operation within that unit is disposed
of, the goodwill associated with the operation disposed of is included in the carrying amount
of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation
disposed of and the portion of the CGU retained.
1.2.9 Financial assets
Management determines the classification of its investments at initial recognition and re-evaluates
this designation at every reporting date. Currently the Group only has financial assets at
amortised cost.
When financial assets are recognised initially, they are measured at fair value plus (in the
case of investments not at fair value through profit or loss) directly attributable costs.
Financial assets at amortised cost
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are included in current assets, except those
with maturities greater than 12 months after the reporting date. These are classified as non-current
assets. Such assets are carried at amortised cost using the effective interest rate method,
less any allowance for impairment, if the time value of money is significant. Gains and losses
are recognised in the statement of profit or loss when the loans and receivables are derecognised
or impaired, as well as through the amortisation process. A provision for impairment of trade
receivables is established when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of receivables. The amount of the
provision is the difference between the asset's carrying amount and the present value of estimated
future cash flows, discounted at an appropriate interest rate. The amount of the provision
is recognised in the income statement.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.10 Financial liabilities
Interest-bearing borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings
are subsequently stated at amortised cost; any difference between proceeds (net of transaction
costs) and the redemption value is recognised in the income statement, unless capitalised
in accordance with Note 1.2.26, finance costs, over the period of the borrowings, using the
effective interest rate method.
Bank overdrafts are recognised at amortised cost.
1.2.11 Fair value measurement
The Group measures financial instruments at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer
the liability takes place either:
* in the principal market for the asset or liability;
or
* in the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's
ability to generate economic benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the asset in its highest and best
use.
The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data is available to measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial
statements are categorised within the fair value hierarchy, described as follows, based on
the lowest level input that is significant to the fair value measurement as a whole:
* Level 1: Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
* Level 2: Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is directly or indirectly observable.
* Level 3: Valuation techniques for which the lowest
level input that is significant to the fair value
measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring
basis, the Group determines whether transfers have occurred between levels in the hierarchy
by reassessing categorisation (based on the lowest level input that is significant to the
fair value measurement as a whole) at the end of each reporting period.
1.2.12 Impairments
Non-financial assets
Assets that are subject to amortisation or depreciation are reviewed for impairment if it
is determined that there is an indication of impairment in accordance with IAS 36. Goodwill
is assessed for impairment on an annual basis. An impairment loss is recognised for the amount
by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset's fair value less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset. Non-financial assets that were previously impaired are reviewed
for possible reversal of the impairment at each reporting date.
A previously recognised impairment loss is reversed only if there has been a change in the
estimates used to determine the asset's recoverable amount since the last impairment loss
was recognised. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would have
been determined, net of depreciation, had no impairment loss been recognised for the asset
in prior years. Such a reversal is recognised in the income statement. After such a reversal
the depreciation charge is adjusted in future periods to allocate the asset's revised carrying
amount, less any residual value, on a systematic basis over its remaining useful life.
Financial assets
The Group assesses at each reporting date whether a financial asset or group of financial
assets is impaired.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
Assets carried at amortised cost
If there is objective evidence that an impairment loss on assets carried at amortised cost
has been incurred, the amount of the loss is measured as the difference between the asset's
carrying amount and the present value of estimated future cash flows (excluding future expected
credit losses that have not been incurred) discounted at the financial asset's original effective
interest rate (ie the effective interest rate computed at initial recognition). The carrying
amount of the asset is reduced through the use of an allowance account. The amount of the
loss is recognised in the income statement.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can
be related objectively to an event occurring after the impairment was recognised, the previously
recognised impairment loss is reversed, to the extent that the carrying value of the asset
does not exceed its amortised cost at the reversal date, any subsequent reversal of an impairment
loss is recognised in the income statement.
In relation to trade receivables, a provision for impairment is made when there is objective
evidence (such as the probability of insolvency or significant financial difficulties of the
debtor) that the Group will not be able to collect all of the amounts due under the original
terms of the invoice. The carrying amount of the receivable is reduced through the use of
an allowance account. Impaired debts are derecognised when they are assessed as uncollectible.
1.2.13 Inventories
Inventories, which include rough diamonds, ore stockpiles and consumables, are measured at
the lower of cost and net realisable value. The amount of any write-down of inventories to
net realisable value and all losses, is recognised in the period the write-down or loss occurs.
Cost is determined as the average cost of production, using the weighted average method. Cost
includes directly attributable mining overheads, but excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less
the estimated costs of completion and the estimated costs to be incurred in marketing, selling
and distribution.
1.2.14 Cash and cash equivalents
Cash and cash equivalents are carried in the statement of financial position at amortised
cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and
other short-term, highly liquid investments with original maturities of three months or less.
For the purpose of the cash flow statement, cash and cash equivalents consist of cash and
cash equivalents as defined above, net of outstanding bank overdrafts.
1.2.15 Issued share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds.
1.2.16 Foreign currency translations
Presentation currency
The results and financial position of the Group's subsidiaries which have a functional currency
different from the presentation currency are translated into the presentation currency as
follows:
Statement of financial position items are translated at the closing rate at the reporting
date;
Income and expenses for each income statement are translated at average exchange rates (unless
this average is not a reasonable approximation of the cumulative effect of the rates prevailing
on the transaction dates, in which case income and expenses are translated at the dates of
the transactions); and
Resulting exchange differences are recognised as a separate component of equity.
Details of the rates applied at the respective reporting dates and for the income statement
transactions are detailed in Note 16, Issued capital and reserves.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange
rates prevailing at the dates of the transactions. Foreign exchange gains or losses resulting
from the settlement of such transactions and from the translation at the period-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the income statement. Non-monetary items that are measured in terms of cost in a foreign
currency are translated using the exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value was determined. Monetary items for each statement of
financial position presented are translated at the closing rate at the reporting date.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.17 Share-based payments
Employees (including Senior Executives) of the Group receive remuneration in the form of share-based
payment transactions, whereby employees render services as consideration for equity instruments
(equity-settled transactions). In situations where some or all of the goods or services received
by the entity as consideration for equity instruments cannot be specifically identified, they
are measured as the difference between the fair value of the share-based payment and the fair
value of any identifiable goods or services received at the grant date. For cash-settled transactions,
the liability is remeasured at each reporting date until settlement, with the changes in fair
value recognised in the income statement.
Equity-settled transactions
The cost of equity-settled transactions with employees is measured by reference to the fair
value at the date at which they are granted and is recognised as an expense over the vesting
period, which ends on the date on which the relevant employees become fully entitled to the
award. Fair value is determined using an appropriate pricing model. In valuing equity-settled
transactions, no account is taken of any vesting conditions, other than conditions linked
to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately vest, except for awards where vesting
is conditional upon a market condition, which are treated as vesting irrespective of whether
or not the market condition is satisfied, provided that all other performance conditions are
satisfied.
At each reporting date before vesting, the cumulative expense is calculated, representing
the extent to which the vesting period has expired and management's best estimate of the achievement
or otherwise of non-market conditions and of the number of equity instruments that will ultimately
vest or, in the case of an instrument subject to a market condition, be treated as vesting
as described above. The movement in cumulative expense since the previous reporting date is
recognised in the income statement, with a corresponding entry in equity.
Where the terms of an equity-settled award are modified, or a new award is designated as replacing
a cancelled or settled award, the cost based on the original award terms continues to be recognised
over the original vesting period. In addition, an expense is recognised over the remainder
of the new vesting period for the incremental fair value of any modification, based on the
difference between the fair value of the original award and the fair value of the modified
award, both as measured on the date of the modification. No reduction is recognised if this
difference is negative.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date
of cancellation, and any cost not yet recognised in the income statement for the award is
expensed immediately.
Where an equity-settled award is forfeited, it is treated as if vesting conditions had not
been met and all costs previously recognised in the income statement for the award are reversed
and recognised in income immediately.
Management applies judgement when determining whether share options relating to employees
who resigned before the end of the service condition period are cancelled or forfeited as
referred under policy 1.2.28, Critical accounting estimates and judgements.
1.2.18 Provisions
Provisions are recognised when:
* the Group has a present legal or constructive
obligation as a result of a past event; and
* a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures expected to be required to
settle the obligation, using a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the obligation. The increase in the provision
due to the passage of time is recognised as a finance cost.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.19 Restoration and rehabilitation
The mining, extraction and processing activities of the Group normally give rise to obligations
for site restoration and rehabilitation. Rehabilitation works can include facility decommissioning
and dismantling, removal and treatment of waste materials, land rehabilitation, and site restoration.
The extent of the work required and the estimated cost of final rehabilitation, comprising
liabilities for decommissioning and restoration, are based on current legal requirements,
existing technology and the Group's environmental policies, and is reassessed annually. Cost
estimates are not reduced by the potential proceeds from the sale of property, plant and equipment.
Provisions for the cost of each restoration and rehabilitation programme are recognised at
the time the environmental disturbance occurs. When the extent of the disturbance increases
over the life of the operation, the provision and associated asset is increased accordingly.
Costs included in the provision encompass all restoration and rehabilitation activity expected
to occur. The restoration and rehabilitation provisions are measured at the expected value
of future cash flows, discounted to their present value. Discount rates used are specific
to the country in which the operation is located. The value of the provision is progressively
increased over time as the effect of the discounting unwinds, which is recognised in finance
charges. Restoration and rehabilitation provisions are also adjusted for changes in estimates.
When provisions for restoration and rehabilitation are initially recognised, the corresponding
cost is capitalised as an asset where it gives rise to a future benefit and depreciated over
future production from the operation to which it relates.
1.2.20 Taxation
Income tax for the period comprises current and deferred tax. Income tax is recognised in
the income statement except to the extent that it relates to items charged or credited directly
to equity, in which case it is recognised in equity. Current tax expense is the expected tax
payable on the taxable income for the period, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the statement of financial position liability method, providing
for temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for taxation purposes.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
to the period when the asset is realised or the liability is settled based on the tax rates
(and tax laws) that have been enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable
profits will be available against which the asset can be utilised. Deferred tax assets are
reduced to the extent that it is no longer probable that the related tax benefit will be realised.
In respect of taxable temporary differences associated with investments in subsidiaries, associates
and jointly controlled entities, deferred tax is provided except where the timing of the reversal
of the temporary differences can be controlled by the Group and it is probable that the temporary
differences will not reverse in the foreseeable future.
In respect of deductible temporary differences associated with investments in subsidiaries,
associates and jointly controlled entities, deferred tax assets are only recognised to the
extent that it is probable that the temporary differences will reverse in the foreseeable
future and taxable profit will be available against which the temporary differences can be
utilised.
Withholding tax is recognised in the income statement when dividends or other services which
give rise to that withholding tax are declared or accrued respectively. Withholding tax is
disclosed as part of current tax.
Royalties
Royalties incurred by the Group comprise mineral extraction costs based on a percentage of
sales paid to the local revenue authorities. These obligations arising from royalty arrangements
are recognised as current payables and disclosed as part of royalty and selling costs in the
income statement.
Royalties and revenue-based taxes are accounted for under IAS 12 when they have the characteristics
of an income tax. This is considered to be the case when they are imposed under government
authority and the amount payable is based on taxable income - rather than based on quantity
produced or as a percentage of revenue. For such arrangements, current and deferred tax is
provided on the same basis as described above for other forms of taxation. The royalties incurred
by the Group are considered not to meet the criteria to be treated as part of income tax.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.21 Employee benefits
Provision is made in the financial statements for all short-term employee benefits. Liabilities
for wages and salaries, including non-monetary benefits, benefits required by legislation,
annual leave, retirement benefits and accumulating sick leave obliged to be settled within
12 months of the reporting date, are recognised in trade and other payables and are measured
at the amounts expected to be paid when the liabilities are settled. Benefits falling due
more than 12 months after the reporting date are discounted to present value. The Group recognises
an expense for contributions to the defined contribution pension fund in the period in which
the employees render the related service.
Bonus plans
The Group recognises a liability and an expense for bonuses. The Group recognises a liability
where contractually obliged or where there is a past practice that has created a constructive
obligation. These liabilities are recognised in trade and other payables and are measured
at the amounts expected to be paid when the liabilities are settled.
1.2.22 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance
of the arrangement at inception date of whether the fulfilment of the arrangement is dependent
on the use of a specific asset or assets or the arrangement conveys a right to use the asset.
A reassessment is made after inception of the lease only if one of the following applies:
(a) There is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) A renewal option is exercised or extension granted, unless the term of the renewal or
extension was initially included in the lease term;
(c) There is a change in the determination of whether fulfilment is dependent on a specific
asset; or
(d) There is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease 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).
Group as a lessee
Leases where the lessor retains substantially all the risks and rewards of ownership are classified
as operating leases. Payments made under operating leases (net of any incentives received
from the lessor) are charged to the income statement on a straight-line basis over the period
of the lease. When the Group is a party to a lease where there is a contingent rental element
associated within the agreement, a cost is recognised as and when the contingency materialises.
1.2.23 Revenue from contracts with customers
Revenue comprises net invoiced diamond sales to customers excluding VAT. Diamond sales are
made through a competitive tender process and recognised when the Group's performance obligations
have been satisfied at the time the buyer obtains control of the diamond(s), at an amount
that the Group expects to be entitled in exchange for the diamond(s). Where the Group makes
rough diamonds sales to customers and retains a right to an interest in their future sale
as polished diamonds, the Group records the sale of the rough diamonds but such contingent
revenue on the onward sale is only recognised at the date when the polished diamonds are sold.
The following revenue streams are recognised:
* Rough diamonds which are sold through a competitive
tender process, partnership agreements and joint
operation arrangements;
* Polished diamonds and other products which are sold
through direct sales channels;
* Additional uplift on partnership arrangements; and
* Additional uplift on joint operation arrangements.
The sale of rough diamonds is the core business of the Group, with other revenue streams contributing
marginally to total revenue.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.23 Revenue from contracts with customers (continued)
Revenue through joint operation arrangements is recognised for the sale of the rough diamond
according to each party's percentage entitlement as per the joint operation arrangement. Contractual
agreements are entered into between the Group and the joint operation partner whereby both
parties control jointly the cutting and polishing activities relating to the diamond. All
decisions pertaining to the cutting and polishing of the diamonds require unanimous consent
from both parties. Once these activities are complete, the polished diamond is sold, after
which the revenue on the remaining percentage of the rough diamond is recognised, together
with additional uplift on the joint operation arrangement. For more detail on how these arrangements
have been included in the financial statements refer to Note 3, Revenue. The Group portion
of inventories related to these transactions is included in the total inventories balance,
refer to Note 13, Inventories.
Revenue through partnership arrangements is recognised for the sale of the rough diamond,
with an additional uplift based on the polished margin achieved. Management recognises the
revenue on the sale of the rough diamond when it is sold to a third party, as there is no
continuing involvement by management in the cutting and polishing process and control has
passed to the third party. Revenue from additional uplift is considered to be variable consideration.
This variable consideration will generally be significantly constrained. This is on the basis
that the ultimate additional uplift received will depend on a range of factors that are highly
susceptible to factors outside the Group's influence.
Rendering of service
Revenue from services relating to third-party diamond manufacturing is recognised in the accounting
period in which the services are rendered, when the Group's performance obligations have been
satisfied, at an amount that the Group expects to be entitled to in exchange for the services.
Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred
to the customer. If the Group performs by transferring goods or services to a customer before
the customer pays consideration or before payment is due, a contract asset is recognised for
the earned consideration that is conditional. The Group does not have any contract assets
as performance and a right to consideration occurs within a short period of time and all rights
to consideration are unconditional.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which
the Group has received consideration (or an amount of consideration is due) from the customer.
If a customer pays consideration before the Group transfers goods or services to the customer,
a contract liability is recognised when the payment is made or the payment is due (whichever
is earlier). Contract liabilities are recognised as revenue when the Group performs under
the contract. The Group does not have any contract liabilities as the transfer of goods or
services performance occurs within a short period of time of receiving the consideration.
1.2.24 Interest income
Interest income is recognised on a time proportion basis using the effective interest rate
method.
1.2.25 Dividends
Dividends are recognised when the amount of the dividend can be reliably measured and the
Group's right to receive payment is established.
1.2.26 Finance costs
Finance costs are generally expensed as incurred, except where they relate to the financing
of construction or development of qualifying assets requiring a substantial period of time
to prepare for their intended future use. Finance costs are capitalised up to the date when
the asset is ready for its intended use.
1.2.27 Dividend distribution
Dividend distributions to the Group's shareholders are recognised as a liability in the Group's
financial statements in the period in which the dividends are approved by the Group's shareholders.
1.2.28 Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make estimates
and judgements and form assumptions that affect the reported amounts of the assets and liabilities,
the reported revenue and costs during the periods presented therein, and the disclosure of
contingent liabilities at the date of the financial statements. Estimates and judgements are
continually evaluated and are based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future and the resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material adjustment to the financial
results or the financial position reported in future periods are discussed below.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.28 Critical accounting estimates and judgements (continued)
Estimates
Ore reserves and associated life of mine (LoM)
There are numerous uncertainties inherent in estimating ore reserves and the associated LoM.
Therefore, the Group must make a number of assumptions in making those estimations, including
assumptions as to the prices of commodities, exchange rates, production costs and recovery
rates. Assumptions that are valid at the time of estimation may change significantly when
new information becomes available. Changes in the forecast prices of commodities, exchange
rates, production costs or recovery rates may change the economic status of ore reserves and
may, ultimately, result in the ore reserves being restated. Where assumptions change the LoM
estimates, the associated depreciation rates, residual values, waste stripping and amortisation
ratios, and environmental provisions are reassessed to take into account the revised LoM estimate.
Refer to Note 9, Property, plant and equipment.
Impairment reviews
The Group determines if goodwill is impaired at least on an annual basis, while all other
significant operations are tested for impairment when there are potential indicators which
may require impairment review. This requires an estimation of the recoverable amount of the
relevant cash-generating unit under review. Recoverable amount is the higher of fair value
less costs to sell and value in use. While conducting an impairment review of its assets using
value-in-use impairment models, the Group exercises judgement in making assumptions about
future rough diamond prices, exchange rates, volumes of production, ore reserves and resources
included in the current LoM plans, production costs and macro-economic factors such as inflation
and discount rates. Changes in estimates used can result in significant changes to the consolidated
income statement and consolidated statement of financial position. The results of the impairment
testing performed did not indicate any impairments.
The key assumptions used in the recoverable amount calculations, determined on a value-in-use
basis, are listed below:
Valuation basis
Discounted present value of future cash flows.
LoM and recoverable value of reserves and resources
Economically recoverable reserves and resources, carats recoverable and grades achievable
are based on management's expectations of the availability of reserves and resources at mine
sites and technical studies undertaken by in-house and third-party specialists. Reserves remaining
after the current LoM plan have not been included in determining the value in use of the operations.
Cost and inflation rate
These costs for Letšeng are determined based on management's experience and the use of
contractors over a period of time whose costs are fairly reasonably determinable. Mining costs
have been based on the mining contract. Costs of extracting and processing which are reasonably
determinable are based on management's experience. Long-term local inflation rates of 4% to
6% were used for operating costs and capital cost escalators.
Exchange rates
Exchange rates are estimated based on an assessment at current market fundamentals and long-term
expectations. The US dollar/Lesotho loti (LSL) exchange rate used was determined with reference
to the closing rate at 31 December 2018 of LSL14.39.
Diamond prices
The diamond prices used in the impairment test have been set with reference to recent prices
achieved, the Group's medium-term forecast and market trends. Long-term diamond price escalation
reflects the Group's assessment of market supply/demand fundamentals.
Discount rate
The discount rate of 12.2% for revenue (2017: 11.9%) and 15.8% for costs (2017: 16.0%) used
for Letšeng represents the before-tax risk-free rate adjusted for market risk, volatility
and risks specific to the asset and its operating jurisdiction.
Market capitalisation
In the instance where the Group's asset carrying values exceed market capitalisation, this
results in an indicator of impairment. The Group believes that this position does not represent
an impairment as all significant operations were assessed for impairment during the year and
no impairments were recognised.
Sensitivity
The value in use for Letšeng indicated sufficient headroom, and no reasonable change
in the key assumptions will result in an impairment.
Refer to Note 11, Impairment testing, for further detail.
1. NOTES TO THE FINANCIAL STATEMENTS (continued)
1.2 Summary of significant accounting policies (continued)
1.2.28 Critical accounting estimates and judgements (continued)
Judgements
Capitalised stripping costs (deferred waste)
Waste removal costs (stripping costs) are incurred during the development and production phases
at surface mining operations. Furthermore, during the production phase, stripping costs are
incurred in the production of inventory as well as in the creation of future benefits by improving
access and mining flexibility in respect of the ore to be mined, the latter being referred
to as a 'stripping activity asset'. Judgement is required to distinguish between these two
activities at Letšeng. The orebody needs to be identified in its various separately identifiable
components. An identifiable component is a specific volume of the orebody that is made more
accessible by the stripping activity. Judgement is required to identify and define these components
(referred to as 'cuts'), and also to determine the expected volumes (tonnes) of waste to be
stripped and ore to be mined in each of these components. These assessments are based on a
combination of information available in the mine plans, specific characteristics of the orebody
and the milestones relating to major capital investment decisions.
Judgement is also required to identify a suitable production measure that can be applied in
the calculation and allocation of production stripping costs between inventory and the stripping
activity asset. The ratio of expected volume (tonnes) of waste to be stripped for an expected
volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the
current period ratio of actual volume (tonnes) of waste to the volume (tonnes) of ore is considered
to determine the most suitable production measure.
These judgements and estimates are used to calculate and allocate the production stripping
costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates
are also used to apply the stripping ratio calculation in determining the amortisation of
the stripping activity asset. Refer to Note 9, Property, plant and equipment, for further
detail.
1.2.29 Exceptional items
The Group presents, as exceptional items on the face of the statement of profit or loss, those
material items of income and expenses which, because of the nature and expected infrequency
of the events giving rise to them, merit separate presentation to allow shareholders to better
understand the elements of financial performance in the year, so as to facilitate comparison
with prior periods and to assess better trends in financial performance. Refer to Note 5,
Exceptional items, for further detail.
2. REVENUE
2018 2017
US$'000 US$'000
-------------------------------------------------------------------------- -------- --------
Sale of goods 266 822 213 517
Rendering of services 468 779
--------------------------------------------------------------------------- -------- --------
267 290 214 296
No revenue was generated through joint operation arrangements in the year
(2017: US$0.4 million).
--------------------------------------------------------------------------- -------- --------
3. Other income and expenses before exceptional items
Sundry income 602 155
Sundry expenses(1) (6 342) -
Profit on disposal of property, plant and equipment 695 638
---------------------------------------------------------------------------------- ----------- ----
(5 045) 793
------------------------------------------------------------------------------------- ----------- ----
(1) Included in the 2018 sundry expenses are care and maintenance costs incurred at the Ghaghoo
mine. In 2017 these costs were reflected in cost of sales.
2018 2017
US$'000 US$'000
-------------------------------------------------------------------------------- --------- ---------
4. OPERATING PROFIT/(loss) BEFORE EXCEPTIONAL ITEMS
Operating profit includes the following:
Depreciation and amortisation
Depreciation and mining asset amortisation (8 648) (8 813)
Waste stripping costs amortised (68 205) (67 901)
--------------------------------------------------------------------------------- --------- ---------
(76 853) (76 714)
(Less)/add: Depreciation and mining asset amortisation capitalised to inventory (51) 307
--------------------------------------------------------------------------------- --------- ---------
(76 904) (76 407)
------------------------------------------------------------------------------------ --------- ---------
Amortisation of intangible assets - (52)
--------------------------------------------------------------------------------- --------- ---------
(76 904) (76 459)
------------------------------------------------------------------------------------ --------- ---------
Inventories
Cost of inventories recognised as an expense (146 396) (136 847)
--------------------------------------------------------------------------------- --------- ---------
(146 396) (136 847)
------------------------------------------------------------------------------------ --------- ---------
Foreign exchange gain/(loss)
Foreign exchange gain/(loss) 2 205 (1 347)
--------------------------------------------------------------------------------- --------- ---------
2 205 (1 347)
------------------------------------------------------------------------------------ --------- ---------
Operating lease expenses as a lessee
Mine site property (131) (137)
Equipment and service leases (68 174) (59 932)
Contingent rental - Alluvial Ventures (11 924) (7 421)
Leased premises (1 807) (2 168)
--------------------------------------------------------------------------------- --------- ---------
(82 036) (69 658)
------------------------------------------------------------------------------------ --------- ---------
Auditor's remuneration - EY
Group financial statements (279) (386)
Statutory (175) (161)
Other audit-related services(1) (106) (107)
--------------------------------------------------------------------------------- --------- ---------
(560) (654)
------------------------------------------------------------------------------------ --------- ---------
Auditor's remuneration - other audit firms
Statutory (20) (15)
--------------------------------------------------------------------------------- --------- ---------
(20) (15)
------------------------------------------------------------------------------------ --------- ---------
4. OPERATING PROFIT/(loss) BEFORE EXCEPTIONAL ITEMS (continued)
Other non-audit fees - EY
Tax services advisory and consultancy (20) (31)
Other services (3) -
----------------------------------------------------------------------------------------- -------- --------
(23) (31)
-------------------------------------------------------------------------------------------- -------- --------
Other non-audit fees - other audit firms
Internal audit (1) (1)
Tax services advisory and consultancy - (9)
----------------------------------------------------------------------------------------- -------- --------
(1) (10)
-------------------------------------------------------------------------------------------- -------- --------
Employee benefits expense
Salaries and wages(2) (20 123) (17 732)
----------------------------------------------------------------------------------------- -------- --------
Underlying earnings before interest, tax, depreciation and mining asset amortisation
(underlying
EBITDA) before exceptional items
Underlying EBITDA is shown, as the Directors consider this measure to be a relevant
guide
to the operational performance of the Group and excludes such non-operating costs as
listed
below. The reconciliation from operating profit to underlying EBITDA is as follows:
Operating profit before exceptional items 74 836 37 715
Other operating income/(expense)(3) (421) (793)
Foreign exchange (gain)/loss (2 205) 1 347
Share-based payments 1 437 1 526
Depreciation and mining asset amortisation (excluding waste stripping cost amortised) 8 611 8 783
----------------------------------------------------------------------------------------- -------- --------
Underlying EBITDA before exceptional items 82 258 48 578
----------------------------------------------------------------------------------------- -------- --------
(1) Other audit-related services by EY relate to the interim review on the half-year
results
for the six months ended 30 June.
(2) Includes contributions to defined contribution plan of US$0.5 million (31 December
2017:
US$0.4 million). An average of 401 employees excluding contractors were employed during
the
period (2017: 412).
(3) Other operating income/(expenses) in the statement of profit or loss has been
adjusted
for
costs associated with Ghaghoo. These costs are considered to be operating costs for the
Group
and therefore are included in underlying EBITDA.
5. EXCEPTIONAL ITEMS
Ghaghoo - (3 605)
-------------------------------------------------------------------- ---- --------------------------
- (3 605)
----------------------------------------------------------------------- ---- --------------------------
The Ghaghoo mine was placed on care and maintenance on 31 March 2017. Cost incurred during
the prior year which were not costs under normal case and maintenance status or were once-off
in nature, were classified as exceptional items. These included development costs, retrenchment
costs and once-off costs to renegotiate contracts on a care and maintenance basis and once-off
costs associated with the additional dewatering and sealing of the fissure as a result of
an earthquake during the year.
2018 2017
US$'000 US$'000
---------------------------------------------------------------------------------- --- -------- --------
6. NET FINANCE COSTS
Finance income
Bank deposits 2 032 630
Other 1 -
--------------------------------------------------------------------------------------- -------- --------
Total finance income 2 033 630
Finance costs
Bank overdraft (1 886) (1 247)
Finance costs on borrowings (916) (1 963)
Finance costs on unwinding of rehabilitation and decommissioning provision (1 078) (1 221)
--------------------------------------------------------------------------------------- -------- --------
Total finance costs (3 880) (4 431)
--------------------------------------------------------------------------------------- -------- --------
(1 847) (3 801)
7. INCOME TAX
Income tax expense
Income statement
Current
- Overseas (16 147) (6 032)
Withholding tax
- Overseas (4 984) (140)
Deferred
- Overseas (5 217) (6 903)
--------------------------------------------------------------------------------------- -------- --------
(26 348) (13 075)
------------------------------------------------------------------------------------------ -------- --------
Profit before taxation 72 989 30 309
--------------------------------------------------------------------------------------- -------- --------
2018 2017
% %
---------------------------------------------------------------------------------- --- -------- --------
Reconciliation of tax rate
Applicable income tax rate 25.0 25.0
Permanent differences 1.1 10.9
Unrecognised deferred tax assets 1.9 10.5
Effect of overseas tax at different rates 1.3 (3.8)
Withholding tax 6.8 0.5
--------------------------------------------------------------------------------------- -------- --------
Effective income tax rate 36.1 43.1
--------------------------------------------------------------------------------------- -------- --------
The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than
the statutory UK corporation tax rate of 19.0% as this is the jurisdiction in which the majority
of the Group's taxes are incurred, following the Ghaghoo mine being placed on care and maintenance.
2018 2017
US$'000 US$'000
------------------------------------------------------------------------------------ ---------- ----------
8. EARNINGS PER SHARE
The following reflects the income and share data used in the basic and diluted
earnings per
share computations:
Profit for the year after exceptional items 46 641 17 234
Less: Non-controlling interests (20 624) (11 756)
------------------------------------------------------------------------------------- ---------- ----------
Net profit attributable to equity holders of the parent for basic and diluted
earnings 26 017 5 478
The weighted average number of shares takes into account the treasury shares at year
end.
------------------------------------------------------------------------------------ ---------- ----------
Weighted average number of ordinary shares outstanding during the year ('000) 138 731 138 482
------------------------------------------------------------------------------------- ---------- ----------
Earnings per share are calculated by dividing the net profit attributable to ordinary equity
holders of the parent by the weighted average number of ordinary shares outstanding during
the year.
Diluted earnings per share are calculated by dividing the net profit attributable to ordinary
equity holders of the parent by the weighted average number of ordinary shares outstanding
during the year after taking into account future potential conversion and issue rights associated
with the ordinary shares.
2018 2017
Number Number
of shares of shares
------------------------------------------------------------------------------------ ---------- ----------
Weighted average number of ordinary shares outstanding during the year 138 731 138 482
Effect of dilution:
- Future share awards under the Employee Share Option Plan 3 265 2 860
------------------------------------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares outstanding during the year adjusted for
the effect
of dilution 141 996 141 342
------------------------------------------------------------------------------------- ---------- ----------
There have been no other transactions involving ordinary shares or potential ordinary shares
between the reporting date and the date of completion of these financial statements.
9. PROPERTY, PLANT AND EQUIPMENT
Explo-
ration
and De- Lease-(1) Plant
Stripping develop- commis- hold and
activity Mining ment sioning improve- equip- Other
asset asset assets assets ment ment assets(2) Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- --------- -------- -------- -------- --------- -------- --------- ---------
As at
31 December 2018
Cost
Balance at 1 January 2018 465 206 124 013 161 733 4 347 42 307 108 165 24 373 930 144
Additions 79 294 220 - - 23 22 530 171 102 238
Net movement in
rehabilitation provision - - - 1 944 - - - 1 944
Disposals - - (44) - (3) - (411) (458)
Reclassifications - - - - 19 846 (20 282) 436 -
Assets held for sale (Note
15) - - - - - - (2 124) (2 124)
Foreign exchange
differences (71 105) (6 320) (12 799) (797) (6 976) (15 048) (2 546) (115 591)
--------------------------- --------- -------- -------- -------- --------- -------- --------- ---------
Balance at 31 December 2018 473 395 117 913 148 890 5 494 55 197 95 365 19 899 916 153
--------------------------- --------- -------- -------- -------- --------- -------- --------- ---------
Accumulated
depreciation/amortisation
Balance at 1 January 2018 291 536 51 084 160 107 4 302 24 928 71 293 21 352 624 602
Charge for the year 68 205 2 056 - 4 2 937 2 674 977 76 853
Disposals - - - - (1) - (370) (371)
Assets held for sale
(Note 15) - - - - - - (1 267) (1 267)
Foreign exchange
differences (43 329) (1 488) (12 666) (637) (3 225) (9 734) (2 225) (73 304)
--------------------------- --------- -------- -------- -------- --------- -------- --------- ---------
Balance at 31 December 2018 316 412 51 652 147 441 3 669 24 639 64 233 18 467 626 513
--------------------------- --------- -------- -------- -------- --------- -------- --------- ---------
Net book value at 31
December 2018 156 983 66 261 1 449 1 825 30 558 31 132 1 432 289 640
--------------------------- --------- -------- -------- -------- --------- -------- --------- ---------
(1) Borrowing costs of US$1.6 million incurred in respect of the LSL215.0 million facility
at Letšeng (refer to Note 17, Interest-bearing loans and borrowings) were capitalised
to the leasehold improvements. The weighted average capitalisation rate used to determine
the amount of borrowing costs eligible for capitalisation was 10.49%.
(2) Other assets comprise motor vehicles, computer equipment, furniture and fittings, and
office equipment.
9. PROPERTY, PLANT AND EQUIPMENT (continued)
Explo-
ration
and De- Lease-(1) Plant
Stripping develop- commis- hold and
activity Mining ment sioning improve- equip- Other
asset asset assets assets ment ment assets(2) Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- --------- -------- --------- -------- --------- -------- --------- --------
As at
31 December 2017
Cost
Balance at 1 January 2017 339 404 119 146 148 034 6 009 35 404 86 149 23 133 757 279
Additions 84 009 - 1 547 - 51 15 499 690 101 796
Net movement in
rehabilitation provision - - - (2 157) - - - (2 157)
Disposals - - - - - - (2) (2)
Reclassifications - 226 - - 3 104 (3 593) 263 -
Assets held for sale (Note
15) - - - - - - (1 962) (1 962)
Foreign exchange
differences 41 793 4 641 12 152 495 3 748 10 110 2 251 75 190
--------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Balance at
31 December 2017 465 206 124 013 161 733 4 347 42 307 108 165 24 373 930 144
--------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Accumulated
depreciation/amortisation
Balance at 1 January 2017 199 389 48 089 148 034 3 573 19 614 62 517 18 864 500 080
Charge for the year 67 901 2 080 - 305 3 192 2 102 1 134 76 714
Disposals - - - - - - (2) (2)
Assets held for sale (Note
15) - - - - - - (480) (480)
Foreign exchange
differences 24 246 915 12 073 424 2 122 6 674 1 836 48 290
--------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Balance at
31 December 2017 291 536 51 084 160 107 4 302 24 928 71 293 21 352 624 602
--------------------------- --------- -------- --------- -------- --------- -------- --------- --------
Net book value at
31 December 2017 173 670 72 929 1 626 45 17 379 36 872 3 021 305 542
--------------------------- --------- -------- --------- -------- --------- -------- --------- --------
(1) Borrowing costs of US$1.3 million incurred in respect of the LSL215.0 million facility
at Letšeng (refer to Note 17, Interest-bearing loans and borrowings) were capitalised
to the leasehold improvements. The weighted average capitalisation rate used to determine
the amount of borrowing costs eligible for capitalisation was 12.11%.
(2) Other assets comprise motor vehicles, computer equipment, furniture and fittings, and
office equipment.
10. INTANGIBLE ASSETS
Intangibles Goodwill Total
US$'000 US$'000 US$'000
----------------------------------- ----------- -------- --------
As at 31 December 2018
Cost
Balance at 1 January 2018 791 15 422 16 213
Foreign exchange difference - (2 150) (2 150)
------------------------------------ --- ----------- -------- --------
Balance at 31 December 2018 791 13 272 14 063
------------------------------------ --- ----------- -------- --------
Accumulated amortisation
Balance at 1 January 2018 791 - 791
Amortisation - - _
----------------------------------- ----------- -------- --------
Balance at 31 December 2018 791 - 791
------------------------------------ --- ----------- -------- --------
Net book value at 31 December 2018 - 13 272 13 272
------------------------------------ --- ----------- -------- --------
As at 31 December 2017
Cost
Cost
Balance at 1 January 2017 783 13 970 14 753
Foreign exchange difference 8 1 452 1 460
------------------------------------ --- ----------- -------- --------
Balance at 31 December 2017 791 15 422 16 213
------------------------------------ --- ----------- -------- --------
Accumulated amortisation
Balance at 1 January 2017 739 - 739
Amortisation 52 - 52
------------------------------------ --- ----------- -------- --------
Balance at 31 December 2017 791 - 791
------------------------------------ --- ----------- -------- --------
Net book value at 31 December 2017 - 15 422 15 422
------------------------------------ --- ----------- -------- --------
2018 2017
US$'000 US$'000
------------------------------------------------------------------------------------- -------- --------
11. IMPAIRMENT TESTING
Goodwill impairment testing is undertaken on Letšeng Diamonds annually and when
there
are indications of impairment. The most recent test was undertaken at 31 December
2018. In
assessing whether goodwill has been impaired, the carrying amount of Letšeng
Diamonds
is compared with its recoverable amount. For the purpose of goodwill impairment
testing in
2018, the recoverable amount for Letšeng Diamonds has been determined based on a
value-in-use
model, similar to that adopted in the past.
Goodwill
Letšeng Diamonds 13 272 15 422
----------------------------------------------------------------------------------------- --- -------- --------
Balance at end of year 13 272 15 422
----------------------------------------------------------------------------------------- --- -------- --------
Movement in goodwill relates to foreign exchange translation from functional to presentation
currency.
The discount rate is outlined below and represents the nominal pre-tax rate. This rate is
based on the weighted average cost of capital (WACC) of the Group and adjusted accordingly
at a risk premium for Letšeng Diamonds, taking into account risks associated therein.
2018 2017
% %
------------------------------------------------------------------------------------- -------- --------
Discount rate - applied to revenue
Letšeng Diamonds 12.2 11.9
Discount rate - applied to costs
Letšeng Diamonds 15.8 16.0
----------------------------------------------------------------------------------------- --- -------- --------
11. IMPAIRMENT TESTING (continued)
Value in use
Cash flows are projected for a period up to the date that the open pit mining is expected
to cease, based on the optimised life of mine plan implemented during the year. This mine
plan takes into account the available reserves based on relevant inputs such as diamond pricing,
costs and geotechnical parameters.
Sensitivity to changes in assumptions
It was assessed that no reasonable possible change in any of the key assumptions would cause
Letšeng's carrying amount to exceed its recoverable amount.
The Group will continue to test its assets for impairment where indications are identified
and may, in future, record additional impairment charges or reverse any impairment charges
to the extent that market conditions improve and to the extent permitted by accounting standards.
Refer to Note 1.2.28, Critical accounting estimates and judgements, for further details on
impairment testing policies.
2018 2017
US$'000 US$'000
------------------------------------------------------------------------------------- -------- --------
12. RECEIVABLES AND OTHER ASSETS
Non-current
Other receivables - 22
Prepayments(1) 347 -
----------------------------------------------------------------------------------------- --- -------- --------
347 22
--------------------------------------------------------------------------------------------- -------- --------
Current
Trade receivables 184 91
Prepayments(1) 1 038 2 537
Deposits 97 151
Other receivables 329 973
VAT receivable 3 785 4 025
----------------------------------------------------------------------------------------- --- -------- --------
5 433 7 777
--------------------------------------------------------------------------------------------- -------- --------
The carrying amounts above approximate their fair value.
Terms and conditions of the receivables:
Analysis of trade receivables
Neither past due nor impaired 135 57
Past due but not impaired:
Less than 30 days 49 34
30 to 60 days - -
60 to 90 days - -
90 to 120 days - -
------------------------------------------------------------------------------------- -------- --------
184 91
--------------------------------------------------------------------------------------------- -------- --------
(1) Following the restructuring of the Company's US$35.0 million facility to an increased
facility of US$45.0 million during 2017, the facility was reassessed as required by IFRS 9
Financial Instruments. The costs incurred to restructure the facility were reclassified to
prepayments and amortised over the term of the facility. Refer to Note 17, interest-bearing
loan and borrowings. Included in prepayments are facility restructuring costs of US$0.7 million
(2017: US$1.0 million).
2018 2017
US$'000 US$'000
--------------------------------------------------------------------------------------- -------- --------
13. INVENTORIES
Diamonds on hand 18 531 16 190
Ore stockpiles 2 585 5 149
Consumable stores 11 968 12 726
---------------------------------------------------------------------------------------- --- -------- --------
33 084 34 065
-------------------------------------------------------------------------------------------- -------- --------
Inventory is carried at the lower of cost and net realisable value. No net realisable
value
adjustments were recorded.
14. CASH AND SHORT-TERM DEPOSITS
Cash on hand 1 2
Bank balances 16 093 24 423
Short-term bank deposits 34 718 23 279
---------------------------------------------------------------------------------------- --- -------- --------
50 812 47 704
-------------------------------------------------------------------------------------------- -------- --------
The amounts reflected in the financial statements approximate fair value.
Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term
deposits are generally call deposit accounts and earn interest at the respective short-term
deposit rates.
At 31 December 2018, the Group had restricted cash of US$0.2 million (31 December 2017: US$0.2
million).
The Group's cash surpluses are deposited with major financial institutions of high-quality
credit standing predominantly within Lesotho and the United Kingdom.
At 31 December 2018, the Group had US$57.8 million (31 December 2017: US$36.2 million) of
undrawn facilities, representing the LSL500.0 million (US$34.8 million) three-year unsecured
revolving working capital facility at Letšeng and US$23.0 million from Tranche 2 of the
Company's US$45.0 million three-year unsecured revolving credit facility.
For further details on these facilities, refer to Note 17, Interest-bearing loans and borrowings.
2018 2017
US$'000 US$'000
--------------------------------------------------------------------------------------- -------- --------
15. ASSETS HELD FOR SALE
Investment property(1) - 615
Property, plant and equipment(2) 859 1 482
---------------------------------------------------------------------------------------- --- -------- --------
859 2 097
-------------------------------------------------------------------------------------------- -------- --------
(1) In the prior year, the directors of the Company resolved to dispose of the investment
property in Dubai. The property was sold on 4 November 2018 for US$0.7 million resulting in
a profit on disposal of US$0.1 million.
(2) In the prior year, the Directors of the Company resolved to dispose of the aircraft which
serviced the Ghaghoo mine. The aircraft was sold on 10 January 2018 for US$1.7 million resulting
in a profit on disposal of US$0.2 million.
On 20 December 2018, the Directors of the Company resolved to dispose of the aircraft which
serviced the Letšeng mine. An agreement of sale was entered into with an interested party
on 20 December 2018 and the aircraft was sold on 30 January 2019. Included in profit for the
year and accumulated in equity is revenue from external charters of US$0.3 million and cost
of sales of US$0.3 million relating to the aircraft.
16. ISSUED CAPITAL AND RESERVES
Issued capital
31 December 2018 31 December 2017
Number of Number of
shares shares
'000 US$'000 '000 US$'000
------------------------------------------------------- ----------- --------- ---------- --------
Authorised - ordinary shares of US$0.01 each
As at year end 200 000 2 000 200 000 2 000
-------------------------------------------------------- --- ----------- --------- ---------- --------
Issued and fully paid
Balance at beginning of year 138 620 1 387 138 361 1 384
Allotments during the year 276 3 259 3
-------------------------------------------------------- --- ----------- --------- ---------- --------
Balance at end of year 138 896 1 390 138 620 1 387
-------------------------------------------------------- --- ----------- --------- ---------- --------
Share premium
Share premium comprises the excess value recognised from the issue of ordinary shares at par
value.
Foreign Share-
currency based
translation equity
reserve reserve Total
US$'000 US$'000 US$'000
---------------------------- ------------ -------- ---------
Other reserves
Balance at 1 January 2018 (177 984) 54 173 (123 811)
Other comprehensive expense (29 655) - (29 655)
----------------------------- ------------ -------- ---------
Total comprehensive expense (29 655) - (29 655)
Share-based payments - 1 437 1 437
----------------------------- ------------ -------- ---------
Balance at 31 December 2018 (207 639) 55 610 (152 029)
----------------------------- ------------ -------- ---------
Balance at 1 January 2017 (196 145) 52 647 (143 498)
Other comprehensive expense 18 161 - 18 161
----------------------------- ------------ -------- ---------
Total comprehensive expense 18 161 - 18 161
Share-based payments - 1 526 1 526
----------------------------- ------------ -------- ---------
Balance at 31 December 2017 (177 984) 54 173 (123 811)
----------------------------- ------------ -------- ---------
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising
from the translation of foreign entities. The South African, Lesotho, Botswana and United
Arab Emirate subsidiaries' functional currencies are different to the Group's functional currency
of US dollar. The rates used to convert the operating functional currency into US dollar are
as follows:
Currency 2018 2017
--------------------------------- ----------------------------------------- ------------- -------------
Average rate ZAR/LSL to US$1 13.25 13.31
Year end ZAR/LSL to US$1 14.39 12.38
Average rate Pula to US$1 10.20 10.34
Year end Pula to US$1 10.73 9.83
Average rate Dirham to US$1 3.67 3.67
Year end Dirham to US$1 3.67 3.67
---------------------------------- ------------------------------------------ ------------- -------------
16. ISSUED CAPITAL AND RESERVES (continued)
Share-based equity reserves
For details on the share-based equity reserve, refer to Note 26, Share-based payments.
Capital management
For details on capital management, refer to Note 25, Financial risk management.
17. INTEREST-BEARING LOANS AND BORROWINGS
2018 2017
Effective interest rate (%) Maturity US$'000 US$'000
-------------------------------- --------------------------------- ------------------ -------- --------
Non-current
LSL215.0 million bank loan
facility(1)
Tranche 1 South African JIBAR + 3.15% 31 March 2022 7 508 12 391
Tranche 2 South African JIBAR + 6.75% 30 September 2022 1 784 888
-------------------------------- --------------------------------- ------------------- --- -------- --------
US$45.0 million bank loan
facility(2)
London US$ three-month LIBOR +
Tranche 1 4.5% 31 December 2020 10 000 20 000
-------------------------------- --------------------------------- ------------------- --- -------- --------
Asset based finance facility(3) South African Prime Lending Rate 1 January 2024 662 _
-------------------------------- --------------------------------- ------------------ -------- --------
19 954 33 279
------------------------------------------------------------------------------------------ -------- --------
Current
LSL215.0 million bank loan
facility(1)
Tranche 1 South African JIBAR + 3.15% 31 March 2022 3 337 1 939
Tranche 2 South African JIBAR + 6.75% 30 September 2022 649 _
-------------------------------- --------------------------------- ------------------ -------- --------
US$45.0 million bank loan
facility(2)
London US$ three-month LIBOR +
Tranche 1 4.5% 31 December 2020 10 000 5 000
London US$ three-month LIBOR +
Tranche 2 4.5% 31 December 2020 - 6 125
-------------------------------- --------------------------------- ------------------- --- -------- --------
Asset based finance facility(3) South African Prime Lending Rate 1 January 2024 226 _
-------------------------------- --------------------------------- ------------------ -------- --------
14 212 13 064
------------------------------------------------------------------------------------------ -------- --------
(1) LSL215.0 million (US$15.0 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$12.5 million) debt facility
supported by the Export Credit Insurance Corporation (ECIC) (five years tenure); and
- Tranche 2: Lesotho loti denominated LSL35.0 million (US$2.4 million) term loan facility
without ECIC support (five years and six months tenure).
The loan is an unsecured project debt facility which was signed jointly with Nedbank and the
ECIC on 22 March 2017 for the total funding of the construction of the Letšeng mining
support services complex. The loan is repayable in equal quarterly payments commencing in
September 2018.
At year end LSL191.0 million (US$13.3 million) remains outstanding, with LSLnil (US$nil) available
to be drawn down under this facility.
The South African rand-based interest rates for the facility at 31 December 2018 are:
- Tranche 1: 10.30%; and
- Tranche 2: 13.90%.
Total interest for the year on this interest-bearing loan was US$1.6 million and has been
capitalised to leasehold improvements. Refer to Note 9, property, plant and equipment.
(2) 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 were rescheduled
and commenced in September 2018 with a final repayment due on 31 December 2020; and
- Tranche 2: this tranche of US$20.0 million relates to an RCF and includes an upsize mechanism
whereby this tranche will increase by a ratio of 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 year end US$20.0 million had been drawn down relating to Tranche 1 and US$nil million relating
to Tranche 2. This resulted in US$23.0 million remaining undrawn under Tranche 2. The US$-based
interest rate for this facility at 31 December 2018 is 7.30%.
(3) Asset Based Finance Facility
The Group, through its subsidiary, Gem Diamond Technical Services, entered into a US$0.9 million
Asset Based Finance Facility with Nedbank Limited for the purchase of a mobile X-Ray transmission
machine to be leased to Letšeng Diamonds . The facility is for five years and bears interest
at the South African Prime Lending rate which was 10.25% at 31 December 2018. The facility
is repayable in equal monthly payments, commencing in February 2019.
Other facilities
In addition, at 31 December 2018, the Group through its subsidiary Letšeng Diamonds,
has a LSL500.0 million (US$34.8 million) three-year unsecured revolving working capital facility
jointly with Standard Lesotho Bank and Nedbank Capital, which was renewed in July 2018. There
was no draw down of this facility at year end.
2018 2017
US$'000 US$'000
--------------------------------------------------------------------------------------- -------- --------
18. TRADE AND OTHER PAYABLES
Non-current
Severance pay benefits(1) 1 555 1 609
---------------------------------------------------------------------------------------- --- -------- --------
1 555 1 609
-------------------------------------------------------------------------------------------- -------- --------
Current
Trade payables(2) 12 672 14 764
Accrued expenses(2) 11 019 5 580
Leave benefits 499 672
Royalties and withholding taxes(2) 2 572 376
Operating lease 1 538 1 668
Other 254 300
---------------------------------------------------------------------------------------- --- -------- --------
28 554 23 360
-------------------------------------------------------------------------------------------- -------- --------
Total trade and other payables 30 109 24 969
---------------------------------------------------------------------------------------- --- -------- --------
Terms and conditions of the trade and other payables:
(1) The severance pay benefits arise due to legislation within the Lesotho
jurisdiction, requiring
that two weeks of severance pay be provided for every completed year of service,
payable on
retirement.
(2) These amounts are mainly non-interest-bearing and are settled in accordance with
terms
agreed between the parties.
The carrying amounts above approximate fair value.
19. Income tax payable
Reconciliation of movement in income tax payable
Balance at 1 January 2018 1 276 (3 932)
Payments made during the year (12 623) (928)
Tax charge per income statement 21 131 6 162
Foreign exchange differences (820) (26)
---------------------------------------------------------------------------------------- --- -------- --------
Balance at 31 December 2018 8 964 1 276
---------------------------------------------------------------------------------------- --- -------- --------
20. PROVISIONS
Rehabilitation provisions 17 876 17 306
---------------------------------------------------------------------------------------- --- -------- --------
Reconciliation of movement in rehabilitation provisions
Balance at beginning of year 17 306 16 630
Increase/(decrease) during the year 1 944 (2 157)
Unwinding of discount rate 1 078 1 221
Foreign exchange differences (2 452) 1 612
---------------------------------------------------------------------------------------- --- -------- --------
Balance at end of year 17 876 17 306
---------------------------------------------------------------------------------------- --- -------- --------
Rehabilitation provisions
The provisions have been recognised as the Group has an obligation for rehabilitation of the
mining areas. The provisions have been calculated based on total estimated rehabilitation
costs, discounted back to their present values over the life of mine at the mining operations.
The pre-tax discount rates are adjusted annually and reflect current market assessments.
In determining the amounts attributable to the rehabilitation provision at the Lesotho mining
area, management used a discount rate of 6.6% (31 December 2017: 6.9%), estimated rehabilitation
timing of seven years (31 December 2017: eight years) and an inflation rate of 5.3% (31 December
2017: 5.2%). At the Botswana mining area, management used the latest estimated costs to rehabilitate,
considering its care and maintenance state. In addition to the changes in the discount rates,
inflation and rehabilitation timing, the increase in the provision is attributable to the
annual reassessment of the estimated closure costs performed at the operations together with
the ongoing rehabilitation spend during the year at Letšeng.
2018 2017
US$'000 US$'000
---------------------------------------------------------------------------- -------------- -------------
21. DEFERRED TAXATION
Deferred tax assets
Accrued leave 253 581
Operating lease liability 2 382
Provisions 5 491 4 188
----------------------------------------------------------------------------- --- -------------- -------------
5 746 5 151
--------------------------------------------------------------------------------- -------------- -------------
Deferred tax liabilities
Property, plant and equipment (75 470) (79 323)
Prepayments (292) (369)
Unremitted earnings (4 038) (4 038)
----------------------------------------------------------------------------- --- -------------- -------------
(79 800) (83 730)
--------------------------------------------------------------------------------- -------------- -------------
Net deferred tax liability (74 054) (78 579)
Reconciliation of deferred tax liability
Balance at beginning of year (78 579) (65 676)
Movement in current period:
- Accelerated depreciation for tax purposes (6 667) (6 348)
- Accrued leave (1) (181)
- Operating lease liability 26 61
- Prepayments 44 35
- Provisions 1 381 (170)
- Tax losses utilised in the year - (35)
- Foreign exchange differences 9 742 (6 265)
----------------------------------------------------------------------------- --- -------------- -------------
Balance at end of year (74 054) (78 579)
----------------------------------------------------------------------------- --- -------------- -------------
The Group has not recognised a deferred tax liability for all taxable temporary differences
associated with investments in subsidiaries because it is able to control the timing of dividends
and only part of the temporary difference is expected to reverse in the foreseeable future.
The gross temporary difference in respect of the undistributable reserves of the Group's subsidiaries
for which a deferred tax liability has not been recognised is US$43.2 million (31 December
2017: US$87.9 million).
The Group has estimated tax losses of US$211.1 million (31 December 2017: US$207.6 million).
All tax losses are generated in jurisdictions where tax losses do not expire. No deferred
tax asset was recognised.
2018 2017
Notes US$'000 US$'000
----- --------------------------------------------------------------- ----- -------- --------
22. CASH FLOW NOTES
22.1 Cash generated by operations
Profit before tax for the year 72 989 30 309
Adjustments for:
Depreciation and amortisation on property, plant and equipment 8 699 8 558
Waste stripping cost amortised 4 68 205 67 901
Finance income 6 (2 033) (630)
Finance costs 6 3 880 4 431
Unrealised foreign exchange differences (8 201) (1 773)
Profit on disposal of property, plant and equipment (695) (638)
Movement in prepayment 426 (116)
Other non-cash movements 5 048 1 227
Share-based equity transaction 1 437 1 526
-------------------------------------------------------------------------- ----- -------- --------
149 755 110 795
-------------------------------------------------------------------------- ----- -------- --------
22.2 Working capital adjustment
(Increase)/decrease in inventory (3 660) 97
(Increase) in receivables (261) (369)
Increase/(decrease) in trade and other payables 5 837 (9 620)
-------------------------------------------------------------------------- ----- -------- --------
1 916 (9 892)
-------------------------------------------------------------------------- ----- -------- --------
22.3 Cash flows from financing activities
Balance at beginning of year 46 343 27 757
Net cash (used in)/generated by financing activities (10 024) 17 469
- financial liabilities repaid (12 937) (46 601)
- financial liabilities raised 2 913 64 070
Non-cash movement - FCTR (2 212) 1 117
Interest accrued 59 -
-------------------------------------------------------------------------- ----- -------- --------
Balance at year end 17 34 166 46 343
-------------------------------------------------------------------------- ----- -------- --------
23. COMMITMENTS AND CONTINGENCIES
Commitments
Operating lease commitments - Group as lessee
The Group has entered into commercial lease arrangements for rental of office premises.
These
leases have remaining periods of between one and seven years with an option of renewal at
the end of the period. The terms will be negotiated during the extension option periods
catered
for in the agreements. There are no restrictions placed upon the lessee by entering into
these
leases.
Future minimum rentals payable under non-cancellable operating leases:
- Within one year 1 150 1 548
- After one year but not more than five years 4 980 5 667
- More than five years 2 631 4 680
--------------------------------------------------------------------------------------------- --- ----- ------
8 761 11 895
------------------------------------------------------------------------------------------------- ----- ------
2018 2017
US$'000 US$'000
23. COMMITMENTS AND CONTINGENCIES (continued)
Mining leases
Mining lease commitments represent the Group's future obligation arising from
agreements entered
into with local authorities in the mining areas that the Group operates.
The period of these commitments is determined as the lesser of the term of the
agreement,
including renewable periods, or the life of the mine. The estimated lease obligation
regarding
the future lease period, accepting stable inflation and exchange rates, is as follows:
- Within one year 139 163
- After one year but not more than five years 652 788
- More than five years 825 940
---------------------------------------------------------------------------------------- --- -------- --------
1 616 1 891
-------------------------------------------------------------------------------------------- -------- --------
Moveable equipment lease
The Group has entered into commercial lease arrangements which include the provision of
loading,
hauling and other transportation services payable at a fixed rate per tonne of ore and
waste
mined; power generator equipment payable based on a consumption basis; and rental
agreements
for various mining equipment based on a fixed monthly fee. The terms will be negotiated
during
the extension option periods catered for in the agreements or at any time sooner if
agreed
by both parties.
- Within one year 45 234 47 475
- After one year but not more than five years 80 813 146 460
- More than five years - -
--------------------------------------------------------------------------------------- -------- --------
126 047 193 935
-------------------------------------------------------------------------------------------- -------- --------
Capital expenditure
Approved but not contracted for 3 618 14 760
Approved and contracted for 6 228 6 438
---------------------------------------------------------------------------------------- --- -------- --------
The main capital expenditure approved but not contracted for relates to the extension of the
footprint of the Patiseng tailings storage facility of US$3.2 million (2017: US$13.7 million)
which will provide deposition space until 2024 as well as the construction of a pilot diamond
detection plant at Letšeng of US$2.8 million . The expenditure will be incurred over
the next two years.
Contingent rentals - Alluvial Ventures
The contingent rentals represent the Group's obligation to a third party (Alluvial Ventures)
for operating a third plant on the Group's mining property at Letšeng Diamonds. The rental
is determined when the actual diamonds mined by Alluvial Ventures are sold. The rental agreement
is based on 40% to 60% of the value (after costs) of the diamonds recovered by Alluvial Ventures
and is limited to US$1.5 million per individual diamond. As at the reporting date, such future
sales cannot be determined.
Letšeng Diamonds Educational Fund
In terms of the mining agreement entered into between the Group and the Government of the
Kingdom of Lesotho, the Group has an obligation to provide funding for education and training
scholarships. The quantum of such funding is at the discretion of the Letšeng Diamonds
Education Fund Committee. The amount of the funding provided for the current year was US$0.1
million (31 December 2017: US$0.1 million).
Contingencies
The Group has conducted its operations in the ordinary course of business in accordance with
its understanding and interpretation of commercial arrangements and applicable legislation
in the countries where the Group has operations. In certain specific transactions, however,
the relevant third party or authorities could have a different interpretation of those laws
and regulations that could lead to contingencies or additional liabilities for the Group.
Having consulted professional advisers, the Group has identified possible disputes approximating
US$0.1 million (December 2017: US$0.5 million) and tax claims within the various jurisdictions
in which the Group operates approximating US$1.3 million (December 2017: US$0.7 million).
There are no possible disputes relating to Ghaghoo's care and maintenance status included
in these contingencies.
There remains a risk that further tax liabilities may potentially arise. While it is difficult
to predict the ultimate outcome in some cases, the Group does not anticipate that there will
be any material impact on the Group's results, financial position or liquidity.
24. RELATED PARTIES
Related party Relationship
------------------------------------------------------------------------------- --------------------------
Jemax Management (Proprietary) Limited Common director
Gem Diamond Holdings Limited Common director
Government of Lesotho Non-controlling interest
Refer to Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.
Refer to the Directors' Report for information regarding the Directors.
2018 2017
US$'000 US$'000
-------------------------------------------------------------------------------
Compensation to key management personnel (including Directors)
Share-based equity transactions 872 1 099
Short-term employee benefits 2 652 3 066
3 524 4 165
Fees paid to related parties
Jemax Management (Proprietary) Limited (111) (102)
Royalties paid to related parties
Government of Lesotho (20 850) (16 200)
Lease and licence payments to related parties
Government of Lesotho (131) (137)
Sales to/(purchases from) related parties
Jemax Management (Proprietary) Limited - (8)
Amount included in trade payables owing to related parties
Jemax Management (Proprietary) Limited (8) (10)
Amounts owing to related party
Government of Lesotho (275) (325)
Dividends paid
Government of Lesotho (20 742) -
Jemax Management (Proprietary) Limited provided administrative services with regard to the
mining activities undertaken by the Group. The above transactions were made on terms agreed
between the parties and were made on terms that prevail in arm's length transactions.
25. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's activities expose it to a variety of financial risks:
* market risk (including commodity price risk and
foreign exchange risk);
* credit risk; and
* liquidity risk.
The Group's overall risk management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the Group's financial performance.
Risk management is carried out under policies approved by the Board of Directors. The Board
provides principles for overall risk management, as well as policies covering specific areas,
such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial
instruments and non-derivative financial instruments, and investing excess liquidity.
There have been no changes to the financial risk management policy since the prior year.
25. FINANCIAL RISK MANAGEMENT (continued)
Capital management
For the purpose of the Group's capital management, capital includes the issued share capital,
share premium and liabilities on the Group's statement of financial position. The primary
objective of the Group's capital management is to ensure that it maintains a strong credit
rating and healthy capital ratios in order to support its business and maximise shareholder
value. The Group manages its capital structure and makes adjustments to it, in light of changes
in economic conditions. To maintain or adjust the capital structure, the Group may issue new
shares or restructure its debt facilities. The management of the Group's capital is performed
by the Board.
The Group's capital management, among other things, aims to ensure that it meets financial
covenants attached to its interest-bearing loans and borrowings. Breaches in meeting the financial
covenants would permit the bank to immediately call loans and borrowings. There have been
no breaches of the financial covenants in the current year.
At 31 December 2018, the Group had US$57.8 million (31 December 2017: US$36.2 million) debt
facilities available and continues to have the flexibility to manage the capital structure
more efficiently by the use of these debt facilities, thus ensuring that an appropriate gearing
ratio is achieved.
The debt facilities in the Group are as follows:
Unsecured - Standard Lesotho Bank and Nedbank Capital (a division of Nedbank Limited) - three-year
unsecured revolving credit facility - LSL500.0 million (US$34.8 million)
The Group, through its subsidiary, Letšeng Diamonds, has an LSL500.0 million (US$34.8
million), three-year unsecured revolving working capital facility which was renewed in July
2018. The facility bears interest at the Lesotho prime rate minus 1.5%.
At year end, there is no drawdown on this facility.
Unsecured - Nedbank Limited and Export Credit Insurance Corporation (ECIC) - five years and
six months project debt facility - LSL215.0 million (US$15.0 million)
The Group, through its subsidiary, Letšeng Diamonds, has an unsecured project debt loan
facility consisting of two tranches as follows:
* Tranche 1: South African rand denominated ZAR180.0
million (US$12.5 million) debt facility supported
ECIC (five years' tenure); and
* Tranche 2: Lesotho loti denominated LSL35.0 million
(US$2.4 million) term loan facility without ECIC
support (five years and six months' tenure).
The facility is repayable in equal quarterly payments, which commenced in September 2018 and
bears interest as follows:
* Tranche 1: Johannesburg ZAR interbank three-month
JIBAR + 3.15%; and
* Tranche 2: Johannesburg ZAR interbank three-month
JIBAR + 6.75%.
At year end LSL191.0 million (US$13.3 million) remains outstanding, with no available balance
to be drawn down under this facility.
Secured - Nedbank Capital (a division of Nedbank Limited) - three years and six months' secured
debt facility - US$45.0 million
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; and
* Tranche 2: this tranche of US$20.0 million is a RCF
and includes an upsize mechanism whereby it will
increase by a ratio of 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.
This RCF bears interest at London USD Interbank three-month LIBOR + 4.5%.
At year end US$20.0 million had been drawn down relating to Tranche 1 and US$nil million relating
to Tranche 2. This resulted in US$23.0 million remaining undrawn under Tranche 2.
Asset Based Finance Facility
The Group, through its subsidiary, Gem Diamond Technical Services, entered into an Asset Based
Finance Facility with Nedbank Limited for the purchase of an X-Ray transmission machine. The
facility is for five years and bears interest at the South African Prime Lending rate which
was 10.25% at 31 December 2018. The facility is repayable in equal monthly payments, commencing
in February 2019.
At year end US$0.9 million had been drawn down on this facility.
25. FINANCIAL RISK MANAGEMENT (continued)
Capital management (continued)
(a) Market risk
(i) Commodity price risk
The Group is subject to diamond price risk. Diamonds are not homogeneous products and the
price of rough diamonds is not monitored on a public index system. The fluctuation of prices
is related to certain features of diamonds such as quality and size. Diamond prices are marketed
in US dollar and long-term US dollar per carat prices are based on external market consensus
forecasts and contracted sales arrangements adjusted for the Group's specific operations.
The Group does not have any financial instruments that may fluctuate as a result of commodity
price movements.
(ii) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various
currency exposures, primarily with respect to the Lesotho loti, South African rand and Botswana
pula. Foreign exchange risk arises when future commercial transactions, recognised assets
and liabilities are denominated in a currency that is not the entity's functional currency.
The Group's sales are denominated in US dollar which is the functional currency of the Company,
but not the functional currency of the operations.
The currency sensitivity analysis below is based on the following assumptions:
Differences resulting from the translation of the financial statements of the subsidiaries
into the Group's presentation currency of US dollar, are not taken into consideration.
The major currency exposures for the Group relate to the US dollar and local currencies of
subsidiaries. Foreign currency exposures between two currencies where one is not the US dollar
are deemed insignificant to the Group and have therefore been excluded from the sensitivity
analysis.
The analysis of the currency risk arises because of financial instruments denominated in a
currency that is not the functional currency of the relevant Group entity. The sensitivity
has been based on financial assets and liabilities at 31 December 2018. There has been no
change in the assumptions or method applied from the prior year.
Sensitivity analysis
There were no material financial assets or financial liabilities denominated in a currency
that is not the functional currency of the relevant Group entity, and therefore if the US
dollar had appreciated/(depreciated) by 10% against currencies significant to the Group at
31 December 2018, income before taxation would not have been materially impacted. There would
be no effect on equity reserves other than those directly related to income statement movements.
(iii) Forward exchange contracts
The Group enters into forward exchange contracts to hedge the exposure to changes in foreign
currency of future sales of diamonds at Letšeng Diamonds. The Group performs no hedge
accounting. At 31 December 2018, the Group had no forward exchange contracts outstanding (31
December 2017: US$nil).
(iv) Interest rate risk
The Group's income and operating cash flows are substantially independent of changes in market
interest rates. The Group's cash flow interest rate risk arises from borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest rate risk. At the time of
taking new loans or borrowings, management uses its judgement to decide whether it believes
that a fixed or variable rate borrowing would be more favourable to the Group over the expected
period until maturity.
Sensitivity analysis
If the interest rates on the interest-bearing loans and borrowings (increased)/decreased by
60 basis points during the year, profit before tax would have been US$0.2 million (lower)/higher
(31 December 2017: US$0.3 million). The assumed movement in basis points is based on the currently
observable market environment, which remained consistent with the prior year.
25. FINANCIAL RISK MANAGEMENT (continued)
Capital management (continued)
(b) Credit risk
The Group's potential concentration of credit risk consists mainly of cash deposits with banks,
trade receivables and other receivables. The Group's short-term cash surpluses are placed
with the banks that have investment grade ratings. The maximum credit risk exposure relating
to financial assets is represented by the carrying value as at the reporting dates. The Group
considers the credit standing of counterparties when making deposits to manage the credit
risk.
Considering the nature of the Group's ultimate customers and the relevant terms and conditions
entered into with such customers, the Group believes that credit risk is limited as customers
pay on receipt of goods.
No other financial assets are impaired or past due and accordingly, no additional analysis
has been provided.
No collateral is held in respect of any impaired receivables or receivables that are past
due but not impaired.
(c) Liquidity risk
Liquidity risk arises from the Group's inability to obtain the funds it requires to comply
with its commitments including the inability to sell a financial asset quickly at a price
close to its fair value. Management manages the risk by maintaining sufficient cash, marketable
securities and ensuring access to financial institutions and shareholding funding. This ensures
flexibility in maintaining business operations and maximises opportunities. The Group has
available debt facilities of US$57.8 million at year end.
The table below summarises the maturity profile of the Group's financial liabilities at 31
December based on contractual undiscounted payments:
2018 2017
US$'000 US$'000
Floating interest rates
Interest-bearing loans and borrowings
- Within one year 16 626 16 835
- After one year but not more than five years 22 008 40 374
--- ------------- ------------
Total 38 634 57 209
--- ------------- ------------
Trade and other payables
- Within one year 28 554 23 360
- After one year but not more than five years 1 555 1 609
--- ------------- ------------
Total 30 109 24 969
--- ------------- ------------
26. SHARE-BASED PAYMENTS
The expense recognised for employee services received during the year is shown in the
following
table:
Equity-settled share-based payment transactions charged to the income statement 1 437 1 526
---------------------------------------------------------------------------------------------- --- ----- -----
1 437 1 526
-------------------------------------------------------------------------------------------------- ----- -----
The long-term incentive plans are described below:
Long-term incentive plan (LTIP)
Certain key employees are entitled to a grant of options, under the LTIP of the Company. The
vesting of the options is dependent on employees remaining in service for a prescribed period
(normally three years) from the date of grant. The fair value of share options granted is
estimated at the date of the grant using an appropriate simulation model, taking into account
the terms and conditions upon which the options were granted. It takes into account projected
dividends and share price fluctuation co-variances of the Company.
There is a nil or nominal exercise price for the options granted. The contractual life of
the options is 10 years and there are no cash settlement alternatives. The Company has no
past practice of cash settlement.
26. SHARE-BASED PAYMENTS (continued)
LTIP 2007 Award - September 2012
In September 2012, 936 000 nil-cost options were granted to certain key employees (excluding
Executive Directors) under the LTIP of the Company. Of the total number of shares, 312 000
were nil value options and 624 000 were market value options. The exercise price of the market
value options is GBP1.78 (US$2.85), which was equal to the market price of the shares on the
date of grant. The awards which vest over a three-year period in tranches of a third of the
award each year, dependent on the performance targets for the 2013, 2014 and 2015 financial
years being met, are exercisable between 1 January 2016 and 31 December 2023. This award became
exercisable on 1 January 2016. Of the 936 000 options originally granted, 18 544 are still
outstanding following the resignation of a number of employees and the exercising of these
options.
LTIP 2007 Award - March 2014
In March 2014, 625 000 nil-cost options were granted to certain key employees under the LTIP
of the Company. The vesting of the options will be subject to the satisfaction of certain
performance as well as service conditions classified as non-market conditions. The options
which vest over a three-year period in tranches of a third of the award each year are exercisable
between 19 March 2017 and 18 March 2024. If the performance or service conditions are not
met, the options lapse. As the performance conditions are non-market-based they 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 GBP1.74 (US$2.87). This
award became exercisable on 19 March 2017. Of the 625 000 options originally granted, 30 000
are still outstanding following the resignation of a number of employees and the exercising
of these options.
LTIP 2007 Award - June 2014
In June 2014, 609 000 nil-cost options were granted to the Executive Directors under the LTIP
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. Of the 609 000 nil-cost
options, 152 250 relates to market conditions with the remaining 456 750 relating to non-market
conditions. The options which vest are exercisable between 10 June 2017 and 9 June 2024. 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. At each financial year end, the Company will assess the likelihood of these conditions
being met with a relevant adjustment to the cumulative charge as required. The fair value
of the nil-cost options relating to non-market conditions is GBP1.61 (US$2.70). The fair value
of the options granted, relating to the market conditions, is estimated at the date of the
grant using a Monte Carlo simulation model, taking into account the terms and conditions upon
which the options were granted, projected dividends, share price fluctuations, the expected
volatility, the risk-free interest rate, expected life of the options in years and the weighted
average share price of the Company. This award became exercisable on 10 June 2017. Of the
609 000 options originally granted, 89 857 are still outstanding following the resignation
of an Executive Director during the previous year and the exercising of these options.
LTIP 2007 Award - April 2015
In April 2015, 660 000 nil-cost options were granted to certain key employees under the LTIP
of the Company. The vesting of the options will be subject to the satisfaction of certain
performance as well as service conditions classified as non-market conditions. The options
which vest after a three-year period are exercisable between 1 April 2018 and 31 March 2025.
If the performance or service conditions are not met, the options lapse. As the performance
conditions are non-market-based they 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 GBP1.33 (US$1.97). Of the 660 000 options originally
granted, 69 379 are still outstanding following the resignation of a number of employees and
the lapsing of awards due to certain performance conditions not having been met.
In addition, 740 000 nil-cost options were granted to the Executive Directors under the LTIP
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. Of the 740 000 nil-cost
options, 185 000 relate to market conditions with the remaining 555 000 relating to non-market
conditions. The options which vest are exercisable between 1 April 2018 and 31 March 2025.
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. At each financial year end, the Company will assess the likelihood of these conditions
being met with a relevant adjustment to the cumulative charge as required. The fair value
of the nil cost options relating to the market conditions is GBP1.33 (US$1.97). The fair value
of these options is estimated in a similar manner as the June 2014 LTIP. Of the 740 000 options
originally granted, 58 128 are still outstanding following the resignation of an Executive
Director during the previous year and the lapsing of awards due to certain conditions not
having been met.
26. SHARE-BASED PAYMENTS (continued)
LTIP 2007 Award - March 2016
In March 2016, 1 400 000 nil-cost options were approved to be granted to certain key employees
and Executive Directors under the LTIP 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. A total of 185 000 of the options granted relate to market
conditions. The options vest after a three-year period and are exercisable between 15 March
2019 and 14 March 2026. 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 GBP0.99 (US$1.40). The
fair value of the options relating to market conditions is estimated in a similar manner as
the June 2014 and April 2015 LTIP. Of the total options originally granted, 937 938 are still
outstanding following the resignation of a number of employees and the lapsing of awards due
to certain performance conditions not having been met.
LTIP 2017 Award - July 2017
In July 2017, 595 000 nil-cost options were granted to certain key employees under the renewed
LTIP 2017 rules of the Company. The vesting of the options will be subject to the satisfaction
of certain performance as well as service conditions classified as non-market conditions.
The options which vest after a three-year period are exercisable between 4 July 2020 and 3
July 2027. If the performance or service conditions are not met, the options lapse. As the
performance conditions are non-market-based they 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 GBP0.86 (US$1.11). Of the 595 000 options
originally granted, 437 418 are still outstanding following the resignation of a number of
employees and the lapsing of awards due to certain performance conditions not having been
met.
In addition, 740 000 nil-cost options were granted to the Executive Directors under the LTIP
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. Of the 740 000 nil-cost
options, 185 000 relate to market conditions with the remaining 555 000 relating to non-market
conditions. The options which vest are exercisable between 4 July 2020 and 3 July 2027. 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. At each financial year end, the Company will assess the likelihood of these conditions
being met with a relevant adjustment to the cumulative charge as required. The fair value
of the nil-cost options relating to the market conditions is GBP0.86 (US$1.11). The fair value
of these options is estimated in a similar manner as the June 2014, April 2015 and March 2016
LTIP. Of the 740 000 options originally granted, 638 000 are still outstanding following the
resignation of an Executive Director.
LTIP 2017 Award - March 2018
In March, 1 450 000 nil-cost options were granted to certain key employees and Executive Directors
under the LTIP 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.
185 000 of the options granted relate to market conditions. The options vest after a three-year
period and are exercisable between 20 March 2021 and 19 March 2028. 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 GBP0.96 (US$1.34) and the option grants are settled by issuing
shares. Of the 1 450 000 options originally granted, 1 258 352 are still outstanding following
the resignation of a number of employees.
26. SHARE-BASED PAYMENTS (continued)
ESOP
In September 2017, 47 200 shares which were previously held in the Company Employee Share
Trust were granted to certain key employees involved in the Business Transformation of the
Group. The fair value of the award was valued at the share price of the Company at the date
of the award of GBP0.71 (US$0.96). All shares remain outstanding at the end of the year
The following table illustrates the number ('000) and movement in share options during the
year:
2018 2017
'000 '000
----------------------------------------------------------------------------------------- ------- -------
Outstanding at beginning of year 47 6
Granted during the year - 47
Exercised during the year - (6)
------------------------------------------------------------------------------------------ --- ------- -------
Balance at end of year 47 47
------------------------------------------------------------------------------------------ --- ------- -------
Exercisable at end of year - -
----------------------------------------------------------------------------------------- ------- -------
ESOP for March 2018, July 2017, March 2016, April 2015, June 2014, March 2014 and
September
2012 (LTIP)
The following table illustrates the number ('000) and movement in the outstanding share
options
during the year:
Outstanding at beginning of year 3 612 3 529
Granted during the year 1 450 1 335
Exercised during the year(1) (241) (246)
Forfeited (1 283) (1 006)
------------------------------------------------------------------------------------------ --- ------- -------
Balance at end of year 3 538 3 612
------------------------------------------------------------------------------------------ --- ------- -------
Exercisable at end of year 266 311
------------------------------------------------------------------------------------------ --- ------- -------
The following table lists the inputs to the model used for the market conditions awards granted
during the current and prior year:
LTIP LTIP LTIP LTIP LTIP LTIP
March July March April June September
2018 2017 2016 2015 2014 2012
----------- ----------- ----------- ----------- ----------- -----------
Dividend yield (%) - 2.00 2.00 2.00 - -
Expected volatility (%) 40.00 40.21 39.71 37.18 37.25 42.10
Risk-free interest rate (%) 1.2 0.67 0.97 1.16 1.94 0.33
Expected life of option (years) 3.00 3.00 3.00 3.00 3.00 3.00
Weighted average share price
(US$) 1.35 1.24 1.56 2.10 2.70 2.85
Fair value of nil value options
(US$) 1.34 1.11 1.40 1.97 1.83 2.85
Fair value of market value
options (US$) 0.74 - - - - 1.66
Model used Monte Carlo Monte Carlo Monte Carlo Monte Carlo Monte Carlo Monte Carlo
----------- ----------- ----------- ----------- ----------- -----------
The fair value of share options granted is estimated at the date of the grant using a Monte
Carlo simulation model, taking into account the terms and conditions upon which the options
were granted, projected dividends, share price fluctuations, the expected volatility, the
risk-free interest rate, expected life of the option in years and the weighted average share
price of the Company. The expected volatility was based on the annual historic volatility
over the past three years.
(1) Options were exercised regularly throughout the year. The weighted average share price
during the year was GBP0.92 (US$1.23).
27. FINANCIAL INSTRUMENTS
Set out below is an overview of financial instruments, other than the non-current and current
portions of the prepayment disclosed in Note 12, Receivables and other assets, which do not
meet the criteria of a financial asset. These prepayments are carried at amortised cost.
2018 2017
Notes US$'000 US$'000
------------- -------------
Financial assets at amortised cost
Cash (net of overdraft) 14 50 812 47 704
Receivables and other assets 4 395 5 889
------------- -------------
Total 55 207 53 593
------------- -------------
Total non-current - 22
Total current 55 207 53 571
Financial liabilities at amortised cost
Interest-bearing loans and borrowings 17 34 166 46 343
Trade and other payables 18 30 109 24 969
------------- -------------
Total 64 275 71 312
------------- -------------
Total non-current 21 509 34 888
Total current 42 766 36 424
------------- -------------
The carrying amounts of the Group's financial instruments held approximate their fair value.
There were no open hedges at year end.
Fair value hierarchy
All financial instruments for which fair value is measured or disclosed in the financial statements
are categorised within the fair value hierarchy, based on the lowest level input that is significant
to the fair value measurement as a whole, as follows:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level input that is significant to the
fair value measurement is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable.
There were no transfers between Level 1 and Level 2 fair value measurements or any transfers
into or out of Level 3 fair value measurements during the period.
Other risk management activities
The Group is exposed to foreign currency risk on future sales of diamonds at Letšeng
Diamonds. In order to reduce this risk, the Group enters into forward exchange contracts to
hedge this exposure. The Group performs no hedge accounting.
28. DIVIDENDS PAID AND PROPOSED
There were no dividends proposed for the 2018 or 2017 financial years.
29. MATERIAL PARTLY OWNED SUBSIDIARY
Financial information of Letšeng Diamonds, a subsidiary which
has a material non-controlling interest, is provided below.
Proportion of equity interest held by non-controlling interests
Country of
incorporation 2018 2017
Name and operation US$'000 US$'000
Letšeng Diamonds (Proprietary) Limited Lesotho
Accumulated balances of material non-controlling
interest 67 692 80 842
Profit allocated to material non-controlling
interest 20 985 11 599
The summarised financial information of this
subsidiary is provided below. This information
is based on amounts before intercompany eliminations.
Summarised statement of profit or loss for
the year ended 31 December
Revenue 262 636 203 924
(133
Cost of sales (152 360) 608)
Gross profit 110 276 70 316
Royalties and selling costs (21 159) (16 374)
Other income/(costs) 1 262 (1 438)
Operating profit 90 379 52 504
Net finance income 743 (1 486)
Profit before tax 91 122 51 018
Income tax expense (21 172) (12 354)
Profit for the year 69 950 38 664
Total comprehensive income 69 950 38 664
Attributable to non-controlling interest 20 985 11 599
Dividends paid to non-controlling interest 20 742 -
Summarised statement of financial position
as at 31 December
Assets
Non-current assets
Property, plant and equipment and intangible
assets 298 565 317 002
Current assets
Inventories, receivables and other assets,
and cash and short-term deposits 60 092 78 408
Total assets 358 657 395 410
Non-current liabilities
Trade and other payables, provisions and deferred
tax liabilities 95 371 102 850
Current liabilities
Interest-bearing loans and borrowings and
trade and other payables 37 649 23 088
Total liabilities 133 020 125 938
Total equity 225 638 269 472
Attributable to:
Equity holders of parent 157 946 188 630
Non-controlling interest 67 692 80 842
Summarised cash flow information for the year
ended 31 December
Operating 82 718 121 334
Investing (99 931) (99 508)
Financing 195 12 054
Net (decrease)/increase in cash and cash equivalents (17 018) 33 880
30. EVENTS AFTER THE REPORTING PERIOD
On 30 January 2019, the aircraft which has been disclosed as an asset held for sale, was sold
for US$2.1 million. Refer to Note 15, Assets held for sale. No other fact or circumstance
has taken place between the end of the reporting period and the approval of the financial
statements which, in our opinion, is of significance in assessing the state of the Group's
affairs.
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
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