23rd Apr 2008 07:01
Gem Diamonds Limited23 April 2008 GEM DIAMONDS LIMITED (Gem Diamonds) or (the Company) ANNUAL RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 was Gem Diamonds first financial year as a listed company. The Company'sfocus for the year was the execution of its acquisition strategy outlined at thetime of its IPO as well as the development of existing assets to increaseproduction. During the year capital raised on IPO was deployed on acquisitionsin Australia, Botswana, DRC and Indonesia which are all now under Gem Diamonds'control. The Letseng Mine's processing capacity was increased with the construction ofits second plant and early stage operations in central Africa were progressed.Sales in Q108 of rough and polished diamonds from Letseng, Cempaka and Ellendalediamonds have all shown strong price increases. HIGHLIGHTS - Global diamond mining company with assets in seven countries - Listed on LSE in February 2007 raising US$636 million - Revenue of US$153 million - EBITDA of US$74 million - Targeted acquisition strategy successfully pursued - Diversified diamond resource with in situ value of US$11.4 billion - Three producing operations with circa 750 000 carats expected for 2008 - Positive results from diamond beneficiation trials Commenting on these results, Gem Diamonds CEO, Clifford Elphick said: "The past year has seen Gem Diamonds achieve many of the milestones outlined atthe time of its IPO. These strong financial results demonstrate the merit ofthe Company's strategy to focus on the top end of the diamond market. A sectorthat continues to show remarkable price increases in line with strong demandfundamentals. Gem Diamonds enters 2008 with three producing mines situated in differentcountries, all of which are in expansion mode and producing diamonds thatcontinue to achieve extraordinary prices. Development projects throughout Africaprovide an opportunity to more than double the current production levels. Whilst the current US economic climate presents a challenge, opportunitiesabound throughout the diamond value chain to deliver returns to ourshareholders. Our outlook remains extremely positive." For further information:Gem Diamonds Limited Pelham PRClifford Elphick Candice SgroiTel: +44 203 043 0280 Tel: +44 789 446 2114 James HendersonGem Diamond Technical Services Tel : +44 207 743 6673Angela ParrTel: +27 83 578 3885 1 CHIEF EXECUTIVE OFFICER'S REVIEW Having listed Gem Diamonds on the LSE on 14 February 2007, the management team'sprimary aim was to deliver on the plans outlined in the Prospectus. Theobjective was to grow in scale and generate returns. To achieve this, theCompany focused on the execution of its acquisition strategy as well as thedevelopment of existing assets to increase production. Of the US$636 millionraised on IPO, US$390.6 million was utilised acquiring prospects and projects inAustralia, Botswana, DRC and Indonesia, all of which are now under Gem Diamonds'control. 1.1 Lesotho Gem Diamonds owns 70% of Letseng Diamonds in partnership with the Government ofthe Kingdom of Lesotho which owns the remaining 30%. Acquired in late 2006 forUS$118.5 million, Letseng has delivered exceptional returns for itsshareholders. In 2006, Letseng sold 53 000 carats at an average price of US$1578 per carat. Since Gem Diamonds took control it has almost doubled annualproduction to a forecast 101 000 carats for 2008, improved diamond prices bybetween 50 - 100% for similar goods and expanded the resource base significantlyafter accounting for depletion over the period. In 2007 Letseng continued to produce some of the world's most remarkablediamonds including the 493 carat Letseng Legacy and a 215 carat internallyflawless white diamond which sold for US$21 000 and US$38 600 per caratrespectively. Five +100 carat diamonds in total were recovered from Letseng during the year.Letseng has two kimberlite pipes and from acquisition to November 2007 miningwas focused on the Satellite Pipe. In December 2007 production shifted to theMain Pipe when hard rock was exposed, allowing cut three of the Satellite Pipeto commence. Prior to this mining of the weathered kimberlite on the Main Pipewas undertaken by contractors Alluvial Ventures. Diamond prices achieved overthe year increased steadily, a trend which has continued into 2008. Diamondsmined from the Satellite Pipe sold on average over the year for US$2 201 againstUS$1 602 for 2006. In the first quarter 2008, diamonds from a blended ore sourcewere sold for an average price of US$2 500 per carat, ahead of expectations. 1.2 Letseng Diamonds Production Statistics FY07 FY06Tonnes mined andprocessed (millions) 4.0 3.1Letseng Diamonds grade (cpht) 2.09 1.91Alluvial Ventures grade (cpht) 1.28 1.10Carats produced 73 916 54 677Carats sold Letseng Diamonds 60 234 46 020Carats sold Alluvial Ventures 16 639 6 793Achieved US$/ct Letseng Diamonds 2 201 1 602Achieved US$/ct Alluvial Ventures 1 164 1 416 With life of mine at Letseng's acquisition of 70 years, the decision was takento double the mine's processing capacity with the construction of a secondprocessing plant. Combined with the current 2.6mtpa processing plant, the twoplants will have a 5.3mtpa processing capacity. Construction of the second plant was completed subsequent to the year end.Commissioning started on schedule in the first quarter of 2008 and the plant isbuilding up to full production which is expected to be reached during the secondquarter of 2008. Resource updates undertaken at the end of 2007 dramatically upgraded the in situvalue of the Letseng mine from US$4.7 billion to US$6.7 billion. This increaseis attributable to a 36% increase in estimated in situ tonnes and a 14% increasein the value of Letseng's diamonds. With this enlarged resource, Letseng'sresource is sufficient to provide 46 years worth of ore at current mining rates.Further plans to increase production optimally are being developed and will beformalised by late 2008. 1.3 Australia Gem Diamonds acquired a controlling interest in Kimberley Diamonds, a listedAustralian diamond mining company, in late November 2007. Kimberley Diamondsowns the Ellendale mine with production comprising a high proportion of gemdiamonds. The mine's fancy and vivid yellow diamonds are an important componentof the production mix. Kimberley Diamonds also holds a 39% interest in BlinaDiamonds, a listed alluvial diamond mining and diamond exploration companyadjacent to the Ellendale mine. Following the completion of the acquisition, the Kimberley Diamonds' board wasreconstituted and a new managing director, Alistair Croll, was subsequentlyappointed in February 2008. The acquisition of Kimberley Diamonds presented a low risk opportunity to gainaccess to a proven source of high quality diamonds in a stable politicalenvironment. The mine was constructed with an 8mtpa capacity and a good onsitemanagement team was in place. However, the mine was running at 60% of capacitywith no mine plan. Limited access to capital hindered operations and optimaldiamond sales processes. Since Gem Diamonds' involvement and subsequentacquisition of Kimberley Diamonds, Ellendale has been adequately capitalised,modifications have been made to the processing plants and the sales techniquehas been improved. The net effect of which is that the mine is expected toprocess 8.5 million tonnes in 2008 to produce almost 600 000 carats at pricesthat have achieved a 39% increase from US$152 per carat to US$216 per carat todate. Further increases to the design capacity are underway and in 2009,Ellendale is expected to process 10.5 million tonnes. What was a marginal operation and a loss making business is being turned toprofit and management continue to target opportunities to increase margins. Theone challenge that Kimberley Diamonds does face is its high Australian dollarfixed cost base which when combined with sales in a weakening US dollar presentsa currency risk. 1.4 Botswana Gem Diamonds acquired Gope Exploration from De Beers and Xstrata in May 2007 forUS$34.1 million. Gope Exploration was the holder of a suspended retentionlicense covering the Gope 25 kimberlite deposit in the Central Kalahari GameReserve ('CKGR'). A Mining License Application was submitted in July 2007 andSection 51 negotiations with the Government of Botswana will commence shortly.These negotiations will determine the key terms of the mining license. Should a mining license be granted the Company will develop Gope into a 6mtpamine producing over a million carats per annum. The capital estimate remains inthe region of US$450 million and debt financing for this project is beingnegotiated. To secure a mining license at Gope, the existing Environmental Impact Assessment('EIA'), which was completed in 1998, required revising. Due to the sensitivityof the area around Gope a decision was taken to conduct a full Social andEnvironmental Impact Assessment ('SEIA') as part of the EIA. PublicParticipation meetings, which form an integral part of the SEIA, were held withall interested and affected parties including communities inside and around theCKGR. Whilst disputes surrounding the CKGR were the subject of court action and hadattracted negative publicity for some time, the Company was of the view thatthese disputes were mainly a matter between the State and its citizens, and didnot pertain to the development of a mine at Gope. In all discussions heldbetween Gope Exploration, its independent advisors tasked to complete the SEIAand the relevant communities, indications have been that local communities arestrongly in favour of a mine being developed at Gope. This does not detract from the significant responsibility that Gope Explorationhas to develop this mine with the utmost consideration for its social andenvironmental impact. 1.5 Indonesia BDI Mining was acquired by Gem Diamonds in May 2007 for US$78.2 million. It owns80% of the Cempaka alluvial diamond mine in south Kalimantan, Indonesia inpartnership with the Government of Indonesia which owns the remaining 20%. BDIMining also owned the Woodlark Gold Project which was subsequently sold forUS$27 million. The alluvial deposits at the Cempaka mine consist of the Danau Seran and Cempakapaleo-channels. The former, which is significantly smaller but was of a highergrade, was mined since the commencement of the operations in 2004, and is almostdepleted. Mining moved to the Cempaka channel in the second half of 2007. BDI Mining's Cempaka mine produces high quality white diamonds as well as anarray of coloured diamonds. Limited capital and mining expertise had hamperedproduction and thereby increased unit costs. This provided the opportunity forthe Company whose operational strategy at Cempaka was to ramp up cubic metresprocessed, driving down unit costs and simultaneously seek better diamond pricesthrough improved sales techniques. All three of these initiatives weresuccessful with cubic metres processed up from an annualised 130 000 bcm onacquisition to 672 000 bcm annualised by year end. Annualised processing of 960000 bcm is targeted. Some 10 400 carats from Cempaka were sold during 2007 prior to Gem Diamondsacquisition of BDI Mining at an average price of US$218 per carat. A revision ofthis sale process was under-taken by Gem Diamonds and in 2008 an average priceof US$331 per carat has been achieved, representing a 51% increase over previousprices. At these levels, Cempaka remains a small operation for Gem Diamonds. To maximisethe return on investment, production levels need to increase. Feasibilitystudies in this regard are ongoing and results are expected in late 2008. 1.6 DRC Gem Diamonds' operations in the DRC comprise a number of alluvial diamondprojects and a kimberlite exploration programme across three broad areas namelyMbelenge, Lubembe and Longatshimo. These interests are held via a number of companies in which Gem Diamonds hasbetween an 80% and 100% shareholding, having increased its stake during the yearin the largest of these, Kabongo Development Company, from 49.99% to 100%. The Company's intention with its alluvial projects was to get into productionrapidly and in a low cost manner. This was achieved at both Mbelenge and Lubembewhere operations were set up on time and on budget whilst overcoming thesignificant logistical hurdles associated with operating in the DRC. Commissioning of the DMS plant commenced at Mbelenge in late June 2007, slightlyahead of the schedule and the plant was regularly achieving design throughput byyear end. Mining was focused on the river terraces of the Kasai River. Whilstgrades realised were and remain lower than forecast in this first area of focus,the quality of the diamonds was in line with expectations at US$83 per carat. Mining at Lubembe commenced in the modern day river and was undertaken with anumber of dredge units. The dredging programme was not as efficient asanticipated and production was limited. The recovered grades were howeverconsistently higher than expected and diamonds were sold for approximately US$86per carat in line with expectations. In light of these results the decision was taken to focus on resourcedevelopment at all three alluvial projects on a lower cost basis until theCompany is confident that these operations can be run profitably. A resourceupdate undertaken at the year end downgraded the average grade across the DRC'salluvial projects, but increased the volume of diamondiferous gravels, the neteffect of which is that the in situ resource is valued at approximately US$164million. Aeromagnetic and helimag surveys in 2006 and 2007 in Lubembe and Longatshimogenerated 59 higher interest geophysical anomalies. Of these, 23 of the moreaccessible targets were drilled but no kimberlite was intersected. Theremainder, which are in more remote locations, will be investigated in 2008. The different diamond populations evident in the Kasai province indicate thatnot all primary sources are likely to lie in northern Angola, as conventionalthinking currently suggests. The Company is therefore confident that analternate proximal primary source exists. 1.7 CAR Gem Diamonds holds a 75% interest in Gem Diamonds Centrafrique SA, inpartnership with the Government of the CAR which holds the remaining 25%. GemDiamonds Centrafrique holds exclusive exploration and mining rights to the800km2 Mambere Concession. In the target area on the Mambere River known locally as 'le Buckle', a samplingcampaign was carried out across the terrace and modern river gravels in 2007. At1.19 cpht the diamond grades from the terraces were determined sub-economic atthe current cost base and sampling moved downstream of le Buckle in early 2008.A partial river diversion was constructed in January 2008 and more encouraginggrades averaging 20 cpht were recovered in February and March 2008. The value ofthese diamonds has been estimated at US$140 per carat. Work to determine theextent of the resource is in progress. 1.8 Angola A Cooperation Agreement was signed in January 2007 between Gem Diamonds andAvantis Angola with respect to a feasibility study to be conducted on the knownChiri kimberlite in the Lunda Sul Province of Angola in which Avantis has a 25%interest. An Option Agreement whereby Gem Diamonds can acquire an effective11.25% interest in Chiri from Avantis Angola was signed at the same time. Afurther opportunity to increase Gem Diamonds interest to 20% was also agreed. Gem Diamonds regards Chiri as a highly promising undeveloped kimberlite. Drilledand subsequently illegally mined during Angola's civil war, Chiri'sdiamondiferous nature is well known but its grade not yet confirmed. During 2007 a project team were recruited and Luanda offices were established. A10 tph DMS sampling plant and large diameter drill rig have been procured andare in transit to the site where a camp has been established. The preliminaryfeasibility report is expected by the end of 2008. 1.9 Beneficiation Margins in the diamond business vary widely across the value chain. Overallhowever the Company's experience is that the highest margins are achieved in themining and jewellery retailing segments. Due to the high value of Gem Diamonds' production across its three mines, anumber of options exist for Gem Diamonds to capture downstream margin. In late2007 two trials were conducted with Antwerp based Matrix Diamond Technologypolishing 267 carats of highly complex rough diamonds from Letseng into 80.2polished carats. These polished diamonds were sold in two separate tenderssubsequent to year end, the first of which was the first time a tender ofpolished diamonds had taken place in Antwerp. The results of these beneficiation trials were positive with both tendersachieving record prices per carat for certain polished diamonds. An averageprice per carat of US$90 000 was received. Trials on Ellendale yellow diamondshave been initiated. It is too early to accurately quantify the additional revenue that this processof beneficiation could bring to the Group. However, the Company is cognisant ofthe fact that in order to achieve the final margin capture, the application of apremium brand and marketing strategy to the polished diamonds is an importantfactor. Gem Diamonds enters 2008 with three producing mines situated in differentcountries, all of which are in expansion mode and producing diamonds thatcontinue to achieve extraordinary prices. Development projects throughout Africaprovide an opportunity to more than double the current production levels. Whilst the current US economic climate presents a challenge, opportunitiesabound throughout the diamond value chain to deliver returns to ourshareholders. Our outlook remains extremely positive. 2 Diamond Market Review 2007 started as a strong year for the diamond sector which, despite theemergence of the sub prime crisis, did not weaken as the year progressed. With an estimated 45% of all diamond consumption occurring in the US, aweakening US economy represents a significant risk to the overall industry.However it is misleading to view diamonds as a single commodity. Through 2007 and subsequently in 2008, the bottom end of the rough and polisheddiamond market experienced some difficulties and this situation is expected tocontinue. However Gem Diamonds' production from Letseng, with the highestaverage price per carat of any kimberlite mine, as well as Cempaka andEllendale, with high diamond value profiles, is valued at multiples of the worldaverage. It is this segment of the rough and polished diamond market thatperformed best in 2007 and 2008 has begun extremely positively. According to WWW International Diamond Consultants ('WWW'), prices in the verytop quality rough diamonds increased by 50% to 100%, depending on size, in 2007.This trend started in late 2006, continued through 2007 and, in January 2008alone, a further increase of more than 10% in prices for top quality roughdiamonds occurred. Encouragingly, the increase in this segment of the rough diamond market has beenreplicated in the polished diamond market where there have been a stream ofrecord prices paid. This much was evident in the Letseng polished tender ofJanuary 2008 where a five carat diamond sold for US$133 000 per carat, exceedingwhat had been the long standing bench mark price of US$100 000 per carat for a Dflawless polished diamond. The increase in polished prices for these exclusivegems has outstripped all expectations. One of the driving forces for this surge in prices in both rough and polishedtop quality diamonds has been the realisation in the diamond trading marketsthat the liquidation of the De Beers stockpile is now complete and a shortage ofthese rare gems is developing. There is no known significant new source ofdiamonds coming into production in the foreseeable future that is likely toease this shortage. In fact, WWW predicts that the real shortage for roughdiamonds will only really begin to take effect in 2011. Combining this shortagewith demand from the new wealth centres of the Far East and Russia and withincreased demand from the Middle East, augurs well for a strong price growth. Looking forward therefore, there is no reason to expect anything more severethan a levelling off of recent very high prices in these key areas of GemDiamonds' production profile despite the broader current economic circumstances.In fact if 2008 continues as it has started, Gem Diamonds expects those mineswith a high quality profile in all the sizes to benefit from firm to improvingprices over the course of the year. 3 CHIEF FINANCIAL OFFICER'S REVIEW I am pleased to present the Group's maiden Annual Financial Results as a listedentity in which the Group is able to report revenue of US$152.7 million as wellas earnings before interest, tax, depreciation and amortisation ('EBITDA')1 ofUS$73.5 million. This EBITDA was achieved as follows: (US$ millions) 12 months ended December 2007 6 months ended December 2006Revenue 152.7 50.4Royalties and sales costs (16.6) (3.9)Cost of sales (before depreciationand amortisation) (44.2) (15.5)Corporate expenses (17.4) (7.8)Share of loss in associate (1.0) (0.5)EBITDA 73.5 22.7Depreciation (7.6) (2.2)Other income 0.2 -Foreign exchange gain/(loss) 14.7 (9.3)Net finance income/(costs) 20.1 (0.2)Trading profit 100.9 11.0Amortisation (13.0) (3.1)Share based payments (19.5) -Profit before tax 68.4 7.91 EBITDA unless indicated to the contrary, is before exceptional items and share based payments. Exceptionalitems are significant items of income and expense which due to their nature or expected infrequency arepresented separately in the Consolidated Income Statement. 3.1 Revenue Revenue of US$151.9 million was generated in 2007 from the sale of roughdiamonds recovered at Letseng Diamonds where the number of carats sold andprices achieved improved significantly from that of the prior period. Sales of rough diamonds from other mines as well as those of polished diamondson hand at the end of 2007 occurred subsequent to year end. Diamonds recoveredbut not sold are held at the lower of cost or net realisable value on thebalance sheet. Revenue generated from diamonds recovered and sold fromdevelopment projects in Central Africa in 2007 are netted off againstexploration expenditure, the net amount of which is capitalised to the balancesheet. 3.2 Royalties and Sales Costs Royalties and selling costs relate to a 2.5% commission paid to agents based inAntwerp, which will reduce to 1.75% in the course of 2008 when the second plantat Letseng is at full production, as well as an 8% royalty payable to theLesotho Revenue Authority on the sale of Letseng's diamonds. 3.3 Cost Of Sales Cost of sales for the year was US$44.2 million before non-cash costs of on minedeprecation of US$7.6 million and amortisation on mining assets of US$13.0million. The bulk of this relates to sales at Letseng Diamonds. 3.4 Corporate Expenses Corporate expenses relate to central costs incurred by Gem Diamonds and itsservices subsidiary Gem Diamond Technical Services. Central costs were in linewith those budgeted for the year. 3.5 Share of Loss In Associate The share of loss in associate relates to losses incurred in Kabongo DevelopmentCompany ('KDC') of US$1.0 million prior to the Company increasing its holding to100% in October 2007. 3.6 Foreign Exchange Gains A foreign exchange gain was earned as a result of the Company's decision toconvert capital raised on IPO in Sterling into US dollars. This decision wasmade on the basis that the Company's functional currency is US dollars. Afurther foreign exchange gain was made on funds transferred to Australia tosettle the Kimberley Diamonds acquisition. 3.7 Finance Income Net finance income received reflects the interest accrued on the capital raisedat IPO in mid-February 2007. The rate at which interest is earned in 2008 willdecline in line with global interest rates. 3.8 Share Based Payments As set out in the Company's Prospectus, the Company is authorised to issue up to2.5% of shares in issue at IPO (i.e. 2.5% of 57 865 209) to non-ExecutiveDirectors of which 2.25% have been allocated to date. Going forward the Companyintends to make awards to Executive Directors and other Senior Executives of upto 1% of the total shares in issue in any one financial year. 3.9 Taxation US$17.1 million of tax charges relate to income and withholding taxes paid bythe Group to revenue authorities. The balance of US$10.8 million is deferredtax. The effective tax rate of 41% is above the average tax rate across theGroup of 30% as a result of unrecognised deferred tax assets. These unrecogniseddeferred tax assets mainly comprise tax losses across the Group the benefit ofwhich may be realised in future years. The effective cash tax rate was 25%. 3.10 Minority Interests Minority interests represent the 30% in Letseng Diamonds which is held by theCompany's partner, the Government of Lesotho. 3.11 Earnings Attributable To Shareholders Earnings attributable to shareholders for the year were US$23.2 million equatingto 40 US cents per share on a weighted average basis (40 US cents per share fordilutive earnings). The weighted average number of shares in issue during theyear was 57.5 million shares. At year end shares in issue were 62.4 million. 3.12 Inventory In line with the decision to review the sales processes at a number of recentlyacquired companies, diamonds recovered at Ellendale and Cempaka were accumulatedfor sale in early 2008. Sales of these diamonds were held in January andFebruary 2008 and significantly reduced the inventory holding. 3.13 Cash The Group started the period with US$51.9 million in cash resources. This wassupplemented by net cash raised of US$606.9 million, proceeds of which werearrived at as follows: - 30 000 000 shares issued on 14 February 2007 at £9.50; - A further 4 100 000 shares issued on 23 February 2007 in the greenshoeallocation at £9.50; and - Less cash costs incurred in the year on the raising of this capital of US$29.3million. During the period US$390.6 million of this cash was applied to the acquisitionsdetailed below. US$109.6 million was invested in property, plant and equipmentat existing operations. 3.14 Acquisitions and Disposals In line with the Group strategy a number of acquisitions were made during theyear: BDI Mining In May 2007, the Company acquired BDI Mining for a cash consideration of US$78.2million, which owned 80% of the producing Cempaka alluvial diamond mine inIndonesia. BDI Mining also owned 100% of the Woodlark Gold Project in Papua NewGuinea which was disposed of for a consideration of US$27 million. The net cashprice of Cempaka was therefore US$51.2 million. BDI Mining was consolidated into the Group accounts from June 2007. There were no diamond sales during theperiod and as such no revenue was generated and the majority of the operatingcosts were taken to inventory which is held at the lower of cost or netrealisable value. Gope Exploration In May 2007, the Group acquired 100% of Gope Exploration for a totalconsideration of US$34.1 million. KDC Gem Diamonds started the year as a 49.9% shareholder in KDC and acquired theremaining 50.1% in October 2007 for US$56.1 million. KDC owns various licensesand concessions in the DRC, the bulk of which are in the Mbelenge and Lubembeareas. Kimberley Diamonds In November 2007, the Group acquired Kimberley Diamonds for a total cashconsideration of US$249.2 million of which US$14.5 million was settled afteryear end. Kimberley Diamonds owns the producing Ellendale mine operating inWestern Australia. Kimberley Diamonds was fully consolidated from 1 December2007. With three producing mines in different countries, Gem Diamonds has expanded andde-risked its earning capacity. Acquisitions are now fully operationally andfinancially integrated and 2008 is expected to be a year of solid organicgrowth. CONSOLIDATED INCOME STATEMENT FOR THE 12 months ended 6 months ended 31 December 31 December(US$'000) 2007 2006 Revenue 152 706 50 441Cost of sales (64 759) (20 773)GROSS PROFIT 87 947 29 668Royalties and sales costs (16 558) (3 937)Corporate expenses (17 371) (7 809)Share-based payments (19 531) -Foreign exchange gain/(loss) 14 654 (9 284)Other income 245 4OPERATING PROFIT 49 386 8 642Net finance income/(costs) 20 085 (235) Finance income 23 363 3 354 Finance costs (3 278) (3 589)Share of loss in associate (1 030) (525)PROFIT BEFORE TAXATION 68 441 7 882Income tax expense (27 941) (7 543)PROFIT FOR THE PERIOD 40 500 339Attributable to:Equity holders of parent 23 227 (5 121)Minority interest 17 273 5 460PROFIT FOR THE PERIOD 40 500 339 Earnings per share- Basic, for profit/(loss) for the period 40 (24)attributable to equity holders of the parent (cents)- Diluted, for profit/(loss) for the period 40 (24)attributable to equity holders of the parent (cents) CONSOLIDATED BALANCE SHEETAS AT 31 December 31 December(US$'000) 2007 2006ASSETSNon-current assetsProperty, plant and equipment 863 529 192 332Intangible assets 71 685 27 958Investment in associate - 20 044Loans owing by associate - 14 783Other assets 2 366 -Deferred taxation 962 481 938 542 255 598Current assetsInventories 41 145 7 315Receivables 12 505 13 017Loans receivable 1 663 8 719Cash and cash equivalents 183 536 51 907 238 849 80 958TOTAL ASSETS 1 177 391 336 556EQUITY AND LIABILITIESEquity attributable to equity holders of the parentIssued share capital 624 253Share premium 787 487 162 775Treasury shares (3) -Other reserves 56 968 4 724Retained income/(accumulated losses) 8 243 (14 984) 853 319 152 768Minority interest 81 361 45 319TOTAL EQUITY 934 680 198 087Non-current liabilitiesOther financial liabilities 16 688 51 014Provisions 22 529 2 584Deferred taxation 110 684 46 759Trade and other payables 421 317 150 322 100 674Current liabilitiesOther financial liabilities 15 330 9 304Trade and other payables 64 995 21 736Income tax payable 10 362 6 755Bank overdraft 1 702 - 92 389 37 795TOTAL LIABILITIES 242 711 138 469TOTAL EQUITY AND LIABILITIES 1 177 391 336 556 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the period/year Other reservesended 31 December(US$'000) Issued Share Treasury FCTR Share-based Revaluation (Accu-mulated Minority Total share premium shares equity Reserve losses)/ capital reserve retained interest income Balance at 1 July 170 59 705 - (48) 2 362 - (9 863) - 52 3262006Share capital 83 108 378 - - - - - - 108 461issuedTotal recognised - - - 2 410 - - (5 121) 5 413 2 702income and expensesfor the period Foreign currency - - - 2 410 - - - (47) 2 363translation reserve Loss for the - - - - - - (5 121) 5 460 339period Transaction costs - (5 308) - - - - - - (5 308)on share capitalissued Acquisition of - - - - - - - 42 527 42 527subsidiaries Dividends declared - - - - - - - (2 621) (2 621)Balance at 31 253 162 775 - 2 362 2 362 - (14 984) 45 319 198 087December 2006Share capital 371 665 618 (3) - - - - - 665 986issuedTotal recognised - - - 12 189 - - 23 227 17 273 52 689income and expenses for the period Foreign currency - - - 12 189 - - - - 12 189translation reserve Profit for the - - - - - - 23 227 17 273 40 500period Transaction costs - (40 906) - - - - - - (40 906)on share capitalissued Share-based - - - - 20 267 - - - 20 267payments Acquisition of - - - - - 19 788 - 22 069 41 857subsidiaries Dividends declared - - - - - - - (3 300) (3 300)Balance at 31 624 787 487 (3) 14 551 22 629 19 788 8 243 81 361 934 680December 2007 CONSOLIDATED CASH FLOW STATEMENTFor the 12 months ended 31 6 months ended 31 December December(US$'000) 2007 2006 CASH FLOW FROM OPERATING ACTIVITIESCash generated by operations 76 506 13 962Working capital adjustments (29 190) 244 47 316 14 206Finance income 23 363 3 354Finance costs (2 913) (2 258)Tax paid (18 188) (604)Dividends paid to minorities (5 921) - 43 657 14 698CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (109 621) (7 911)Purchase of intangible assets (683) (439)Loans and receivables repaid/(granted) 5 281 (11 740)Purchase of other assets (229) 3Acquisitions (390 624) (118 524)Loans acquired (44 617) -Proceeds from disposal of group held for sale 27 017 - (513 476) (138 611)CASH FLOWS FROM FINANCING ACTIVITIESProceeds on share capital issued 636 277 108 461Proceeds on issue of bonds - 52 500Transaction costs on share capital issued (29 340) (5 308)Transaction costs on issue of bonds - (2 739)Financial liabilities repaid (8 841) (1 550) 598 096 151 364NET INCREASE IN CASH AND CASH EQUIVALENTS 128 277 27 451Cash and cash equivalents at the beginning of the period 51 907 23 750Foreign exchange revaluations 1 650 706CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 181 834 51 907 NOTES TO THE ANNUAL RESULTS ANNOUNCEMENT 1. Segment Information The primary segment reporting format is geographical as the Group's risks andrates of return are affected predominantly by differences in the geographicalregions of the mines and areas in which the Group operates. Other regions whereno direct mining activities take place are combined into a single geographicalregion. The main geographical regions are: - Kingdom of Lesotho ('Lesotho') - Australia - Indonesia - Botswana - Democratic Republic of Congo ('DRC') - Central African Republic ('CAR') - British Virgin Islands and South Africa (Provision of technical andadministrative services) ('BVI and South Africa') Secondary segment information is reported on business activities. The mainbusiness activities are: - Mining activities of known diamond resources. These include allelements of diamond mining, including exploitation of kimberlite and lamproitepipes and alluvial deposits ('Mining activities'); - Exploration and resource development activities involvingdetermination of technical feasibility and assessment of commercial viability ofidentified resources ('Exploration and resource development activities'); and - Group function and provision of technical and administrative services('Group services'). Inter-segment transactions are entered into under terms agreed between theparties. Segment revenue, segment expense and segment results includetransactions between segments. Those transactions are eliminated onconsolidation. Primary reporting - geographical segments: The following table presents revenue and profit and certain asset and liabilityinformation regarding the Group's geographical segments for the periods. Year ended 31 Lesotho Australia DRC Indonesia Botswana CAR BVI and TotalDecember 2007 South AfricaUS$'000SalesTotal sales 151 905 - 249 76 - - 14 180 166 410Inter-segment sales - - - - - - (13 704) (13 704)Sales to external 151 905 - 249 76 - - 476 152 706customersSegment results 80 189 5 895 (1 632) (6 373) (80) 1 735 (30 348) 49 386Net finance income 20 085Share of loss in (1 030)associateProfit before 68 441taxationIncome tax expense (27 941)Profit for the 40 500periodAssetsSegment assets 324 261 409 453 175 233 114 025 39 954 14 813 99 652 1 177 391Total assets 324 261 409 453 175 233 114 025 39 954 14 813 99 652 1 177 391Segment liabilities 87 693 55 199 35 186 31 243 1 052 436 31 902 242 711Other segmentinformationCapital expenditure- Property, plant 68 357 303 235 142 737 106 436 36 823 7 459 10 891 675 938and equipment- Intangible assets - - 26 691 16 124 - 66 - 42 881Depreciation 14 803 3 002 723 4 167 3 733 489 23 920Other non-cash flowitems- Share based 2 159 - 758 98 54 257 16 941 20 267equity transactions Period ended 31 December 2006 BVI and(6 months)US$'000 Lesotho DRC CAR South Africa TotalSalesTotal sales 50 330 - - 3 458 53 788Inter-segment sales - - - (3 347) (3 347)Sales to external customers 50 330 - - 111 50 441Segment results 24 133 (823) (202) (14 466) 8 642Net finance income (235)Share of loss in associate (525)Profit before taxation 7 882Income tax expense (7 543)Profit for the period 339 AssetsSegment assets 253 067 16 664 7 279 39 502 316 512Investment in associate - 20 044 - - 20 044Total assets 253 067 36 708 7 279 39 502 336 556Segment liabilities 67 851 414 254 69 950 138 469Other segment informationCapital expenditure- Property, plant and equipment 188 996 204 3 161 119 192 480- Intangible assets 26 771 439 - - 27 210Depreciation 6 550 24 148 47 6 769Other non-cash flow items- Share based equity transactions - - - - - 2. Acquisitions Acquisition of BDI Mining On 29 May 2007, the Group acquired 100% of the share capital of BDI Mining, adiamond mining and gold exploration group which owned a producing alluvialdiamond mine and a gold development project. BDI Mining through its indirectwholly owned subsidiary, Ashton MMC Pte Limited, owns 80% in PT. Galuh Cempaka,which holds the mining rights to Cempaka Diamond Mine in Indonesia. BDI Miningalso indirectly owned 100% of Woodlark Mining Limited which owns the WoodlarkGold Project located in Papua New Guinea. The Group disposed of Woodlark MiningLimited on 30 June 2007. The provisional fair value of the identifiable assets and liabilities of BDIMining as at the date of acquisition and the corresponding carrying amountsimmediately before the acquisition were: Carrying Recognised values at values at acquisition acquisitionProperty, plant and equipment 13 670 80 681Intangible assets 303 42Other financial assets 10 10Inventories 212 309Trade and other receivables 539 539Cash and cash equivalents 3 739 3 739 18 473 85 320Held for sale assets 12 347 25 301Total assets 30 820 110 621Financial liabilities 2 145 2 157Trade and other payables 5 039 5 021Deferred tax liabilities - 21 315Provisions 287 392Income tax payable 2 352 4 650 9 823 33 535Held for sale liabilities 19 19Total liabilities 9 842 33 554Net assets 20 978 77 067 Fair value of net assets 77 067Less: Minority interest (11 172)Attributable portion of fair value of net assets acquired 65 895Plus: Goodwill on acquisition 16 083Total cost 81 978 The total cost of the combination was US$82.0 million which comprised the purchase consideration and directlyattributable costs associated with the acquisition.Cash outflow on acquisitionPurchase consideration 81 978Net cash acquired with the subsidiary (3 756)Net cash paid 78 222 From the date of acquisition, BDI Mining has contributed US$0.1 million torevenue and incurred a loss of US$6.1 million. If the combination had taken place at the beginning of the year, BDI Miningwould have contributed US$2.5 million to revenue and a loss of US$13.7 millionto the Group. The goodwill arises as a result of the requirement to recognise a deferred taxliability calculated as the difference between the tax effect of the fair valueof the assets and liabilities and their tax bases. This balance was subject toimpairment testing as at 31 December 2007 and it has been determined that noimpairment existed. Acquisition of KDC During 2006, the initial 49.99% share capital of KDC was acquired for US$18.0million. During October 2007, the Group acquired the remaining 50.01% sharecapital of the company for US$56.1 million, resulting in KDC now being a whollyowned subsidiary of the Group. As part of the latest acquisition, theshareholder's loan of US$5.9 million was acquired, resulting in a net sharepurchase cost of US$50.2 million. The provisional fair value of the identifiable assets and liabilities of KDC asat the date of acquisition and the corresponding carrying amounts immediatelybefore the acquisition were: Carrying Recognised values at values at acquisition acquisitionProperty, plant and equipment 34 428 134 133Intangible assets 18 18Deferred tax asset 1 428 -Inventories 1 242 1 242Trade and other receivables 530 530Cash and cash equivalents 214 214 37 860 136 137Financial liabilities 43 377 43 377Trade and other payables 1 812 1 813Deferred tax liabilities - 29 510Provisions 271 613Income tax payable 1 1 45 461 75 314Net (liabilities)/assets (7 601) 60 823 Fair value of net assets 60 823Plus: Post acquisition loss of associate acquired 1 736Less: Revaluation surplus (19 783)Attributable portion of fair value of net assets acquired 42 776Plus: Goodwill on acquisition 25 604Total cost 68 380 Cash outflow on acquisitionPurchase consideration 68 380Initial acquisition (18 000)Net cash acquired with the subsidiary (214)Net cash paid 50 166 From the date of acquisition, KDC has net contributed US$0.3 million to revenueand incurred a loss of US$2.5 million. The entity is currently in the resourcedevelopment phase. If the combination had taken place at the beginning of the year, KDC would havecontributed US$0.3 million to revenue and a loss of US$7.9 million to the Group. The goodwill arises as a result of the requirement to recognise a deferred taxliability calculated as the difference between the tax effect of the fair valueof the assets and liabilities and their tax bases. This balance was subject toimpairment testing as at 31 December 2007 and it has been determined that noimpairment existed. Acquisition of Kimberley Diamonds On 26 November 2007, the Group acquired a controlling interest in KimberleyDiamonds, an Australian diamond mining company which owns the Ellendale Mine inAustralia. Ellendale is renowned for its fancy yellow diamonds. At year end, theGroup held an effective 96% of the issued share capital with the compulsoryacquisition of the remaining 4% of the share capital completed subsequent toyear end. Kimberley Diamonds also holds a 39% interest in Blina Diamonds NL ('Blina'), an ASX Listed alluvial diamond mining and exploration company. Blina is consolidated on the grounds of effective control even though the Groupowns less than 50% of the shares. The Group is able to govern the financial andoperating policies of the company by virtue of being the largest singleshareholder of the company and dominating the composition of Blina's board ofdirectors, thereby having the ability to cast the majority of votes at meetingsof the board of directors. During the year, the Group entered into a hedge to protect the US$ purchaseprice of the acquisition of Kimberley Diamonds in Australia. The transactionclosed out during the course of the year and the cost of the acquisition wasaccounted for at the hedge rate. No amounts were credited to equity or to profitand loss. The provisional fair value of the identifiable assets and liabilities ofKimberley Diamonds as at the date of acquisition and the corresponding carryingamounts immediately before the acquisition were: Carrying Recognised values at values at acquisition acquisitionProperty, plant and equipment 175 533 301 225Other assets 1 938 1 938Investments 21 21Inventories 13 697 14 370Trade and other receivables 2 471 2 471Cash and cash equivalents 659 659 194 319 320 684Financial liabilities 26 237 26 237Trade and other payables 25 172 25 172Provisions 8 508 8 508 59 917 59 917Net assets 134 402 260 767 Fair value of net assets 260 767Less: Minority interest (10 897)Total cost 249 870 Cash outflow on acquisitionPurchase consideration 249 870Outstanding payment on purchase (14 487)Net cash acquired with the subsidiary (659)Net cash paid 234 724 From the date of acquisition, Kimberley Diamonds has not contributed to revenueand incurred a loss of US$1.1 million. If the combination had taken place at the beginning of the year, KimberleyDiamonds would have contributed US$68.1 million to revenue and a loss of US$36.4million to the Group. Acquisition of Gope Exploration The Group acquired 100% of Gope Exploration for a total cost consideration ofUS$34.1 million. The effective date of the acquisition was 15 May 2007, the daythe last suspensive condition was met. The Company holds a retention license inBotswana. A known kimberlite pipe lies within the area of this retentionlicense. The acquisition of Gope Exploration is considered to be an assetacquisition and is not recognised as a business combination. Acquisition of Letseng Diamonds On 1 July 2006, the Group acquired 70% of the share capital of Letseng Diamonds,an unlisted company in Lesotho which holds the mining rights and operationalassets of the Letseng Diamond Mine. The final fair value of the identifiable assets and liabilities of LetsengDiamonds as at the date of acquisition and the corresponding carrying amountsimmediately before the acquisition were: Carrying Recognised values at values at acquisition acquisitionProperty, plant and equipment 31 408 184 386Inventories 4 854 4 854Trade and other receivables 2 144 2 144Cash and cash equivalents 8 074 8 074 46 480 199 458Financial liabilities 1 441 3 684Trade and other payables 5 757 5 757Deferred tax liabilities 7 099 45 343Provisions 2 409 2 409Income tax payable 509 509 17 215 57 702Net assets 29 265 141 756 Fair value of net assets 141 756Less: Minority interest (42 527) 99 229Plus: Goodwill on acquisition 26 771Cost 126 000 CostPurchase consideration 131 096Costs associated with the acquisition 188Sale of 3% to the Government of Lesotho (5 284) 126 000 Cash outflow on acquisitionPurchase consideration 126 000Outstanding payment on sale (4 498)Outstanding amount due on sale of 3% to the Government of Lesotho 5 284Costs associated with the acquisition paid in prior period (188)Net cash acquired with the subsidiary (8 074)Net cash paid 118 524 Letseng Diamonds was acquired in the prior year and therefore its results havebeen included in the Group results for the full year. 3 BASIS OF PRESENTATION The information in this results announcement has been extracted from the Group'sAnnual Report for the year ended 31 December 2007 which has been prepared inaccordance with International Financial Reporting Standards and on a basisconsistent with the accounting policies applied for preparation of financialstatements included in the Group's prospectus published on 14 February 2007,except for any changes in accounting policies detailed below. The Annual Results announcement and the Annual Financial Statements wereapproved by the Board on 22 April 2008. Following that the auditors have issuedan unqualified audit opinion. 4. CHANGE IN ACCOUNTING POLICY The Group now accounts for stripping costs as follows: Stripping costs incurred during the production phase to remove additionaloverburden or waste ore are deferred when they give access to future economicbenefits and charged to operating costs using the expected average strippingratio over the average life of the area being mined. The average stripping ratiois calculated as the number of tonnes of waste material expected to be removedduring the life of area, per tonne of ore mined. The average life of area cost per tonne is calculated as the total expectedcosts to be incurred to mine the orebody divided by the number of tonnesexpected to be mined. The average life of area stripping ratio and the averagelife of area cost per tonne is recalculated annually in light of additionalknowledge and changes in estimates. Changes in the stripping ratio are accountedfor prospectively as a change in estimate. The Group previously accounted for stripping costs as follows: Post production mine stripping costs are expensed to profit or loss as incurred. The impact of this change in accounting policy is immaterial in 2006 andtherefore comparative figures have not been restated. 5. EARNINGS PER SHARE 12 months ended 6 months ended 31 December 31 December(US$'000) 2007 2006The following reflects the income and share data used in the basicand diluted earnings per share computations:Profit for the period 40 500 339Less: minority interests (17 273) (5 460)Net profit attributable to equity holders of the parent 23 227 (5 121)Weighted average number of ordinary shares in issue during the period 57 399 21 011('000)Profit/(loss) per share (cents) 40 (24)Diluted profit/(loss) per share (cents) 40 (24)Profit/(loss) per share amounts are calculated by dividing profit/(loss) for the period attributable to ordinaryequity holders by the weighted average number of ordinary shares outstanding during the period. Diluted profit/(loss) per share is calculated by dividing the net profit attributable to ordinary equity holders of theparent by the weighted average number of ordinary shares outstanding during the period after taking into account futurepotential conversion and issue rights associated with ordinary shares. The potential dilution of future potential conversion and issue rights has no earnings saving impact on the basicearnings attributable to the equity holders of the parent Number Number of of shares shares ('000) ('000)Weighted average number of ordinary shares in issue during the period 57 399 21 011Effect of dilution:- Future share awards to non-Executive Directors contracted for 419 -- Future share awards under the Employee Share Option Programme 229 -- Future share awards to Executive Directors and senior executives 174 -under the Executive Share Growth PlanWeighted average number of ordinary shares in issue during the period 58 221 21 011adjusted for the effect of dilution The convertible bonds have an anti-dilutive effect on the earnings of the Groupand as such are not included in the dilutive earnings per share calculation. 6. DIVIDENDS PAID AND PROPOSED The directors do not intend recommending the declaration of a dividend. Thedirectors will reconsider the Company's dividend policy as the Company advancesthe development of its operations. The directors envisage that, at such time,the Company's dividend policy will be determined based on, and dependant on, theresults of the Group's operations, its financial condition, cash requirements,future prospects, profits available for distribution and other factors deemed tobe relevant at the time. 7 INCOME TAX EXPENSE 12 months ended 6 months ended 31 December 31 December(US$'000) 2007 2006Income statementCurrent (15 802) (6 492)- UK (3 891) -- Overseas (11 911) (6 492) Withholding tax (1 312) (612) Deferred (10 827) (439)- Overseas (10 827) (439) (27 941) (7 543) This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Gem Diamonds Di