Full Year 2021 Results

RNS Number : 0608F
Gem Diamonds Limited
17 March 2022
 

Thursday, 17 March 2022

 

Gem Diamonds Limited

Full Year 2021 Results

 

Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds", the "Company" or the "Group") announces its Full Year Results for the year ending 31 December 2021 (the "Period").

 

FINANCIAL RESULTS:

· Revenue of US$201.9 million (US$189.6 million in 2020)

· Underlying EBITDA from continuing operations of US$57.4 million (US$53.2 million in 2020)

· Profit for the year from continuing operations US$31.1 million (US$27.5 million in 2020)

· Attributable profit from continuing operations US$18.5 million (US$16.9 million in 16.9)

· Earnings per share from continuing operations 13.2 US cents (12.1 US cents in 2020)

· Cash on hand of US$31.1 million as at 31 December 2021 (US$23.5 million attributable to Gem Diamonds)

 

DIVIDEND

· Ordinary dividend of 2.7 US cents per share proposed by the Directors and subject to approval by the shareholders at the 2022 AGM

· The dividend will be paid on 21 June 2022 to shareholders who are on the register of members on the record date of 20 May 2022 (ex-div date 19 May 2022)


OPERATIONAL RESULTS:

Letšeng

· Carats recovered of 115 335 (100 780 carats in 2020)

· Waste tonnes mined of 18.7 million tonnes (15.6 million tonnes in 2020)

· Ore treated of 6.2 million tonnes (5.4 million tonnes in 2020)

· Average value of US$1 835 per carat achieved (US$1 908 in 2020)

· The highest dollar per carat achieved for a white rough diamond during the year was US$47 574 per carat

 

COVID-19

One of the Group's priorities in 2021 was to safeguard its employees, contractors and surrounding communities from COVID-19 and, in doing so, it was able to operate uninterrupted throughout the year. Almost 100% of the Group's workforce has now been fully vaccinated against COVID-19.

 

TCFD and Climate

The Group adopted the recommendations of the Task Force on Climate-related Financial Disclosures during the year and concluded Phase 1 of its three-year TCFD roadmap. The Group took a measured and science-based approach to conclude its Group-wide climate change scenario analysis and to develop a climate change strategy, and will continue to do so while setting targets, metrics and setting its decarbonisation strategy.

 

Commenting on the results today, Clifford Elphick, Chief Executive Officer of Gem Diamonds, said:


"Gem Diamonds has delivered positive operational and financial results notwithstanding the continued challenges brought about by the COVID-19 pandemic on the availability of skills, equipment, spares and other aspects of the supply chain. One of our priorities remains the safety of our employees, contractors and surrounding communities and we are pleased that we were able to assist the Lesotho Government in its fight against COVID-19 with a donation of 20 000 vaccines and a new 4x4 ambulance capable of reaching remote communities. To date, nearly 100% of the Group's workforce has been vaccinated.

 

The Group has continued with its climate change journey and we're pleased with the progress made in 2021. Our science-based approach will stand us in good stead over the coming years in managing the physical and transition risks. We are also continuing to explore the opportunities that climate change might bring to our operations.

 

The continuing recovery of the diamond market in 2021 was evidenced by the robust prices achieved for Letšeng's large, high-value diamonds and there was also a significant improvement in the prices achieved for smaller diamonds. This resulted in positive cash flows and allowed Gem Diamonds to end the year in a strong financial position.

 

We are pleased to announce that based on the results achieved in 2021, the Board has proposed the payment of an ordinary dividend of 2.7 US cents per share." 

 

The Company will host a live audio webcast presentation of the full year results today, 17 March 2022, at 9:30 GMT. This can be viewed on the Company's website: www.gemdiamonds.com

 

The page references in this announcement refer to the Annual Report and Accounts 2021, which can be found on the Company's website: www.gemdiamonds.com .

 

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67

 

FOR FURTHER INFORMATION:

Gem Diamonds Limited

ir@gemdiamonds.com

Celicourt Communications

Mark Antelme / Felicity Winkles

Tel: +44 (0)20 8434 2643

 

ABOUT GEM DIAMONDS:

Gem Diamonds is a leading global diamond producer of high value diamonds. The Company owns 70% of the Letšeng mine in Lesotho. The Letšeng mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world.

 

CHAIRPERSON'S STATEMENT

 

The Board took measures in 2021 to enhance risk management, improve stakeholder relations and meet the board independence requirements of the UK Governance Code.

 

Dear shareholders,

 

On behalf of your Board of Directors, I am pleased to share the Gem Diamonds Annual Report and Accounts for 2021, which describes both the Group's performance during the past year and the progress we have made against our longer-term strategic objectives.

 

2021 was certainly not without its challenges, with a combination of the impact of renewed COVID-19 waves and restrictions, planned periods of mining in lower grade areas of the resource and extreme weather conditions. Pleasingly, notwithstanding these challenges, operational stability improved significantly towards the end of the year. We also saw the positive effect of several important safety interventions (including a 24-hour 'Stop for Safety' campaign in June 2021) returning the operation to its usual strong level of safety performance following a number of disappointing safety incidents in the first half of the year. In parallel, robust global demand for our large high-value diamonds resulted in a solid financial performance of EBITDA of US$57.4 million, an increase of 8% on 2020, and revenue of US$201.9 million.

 

CONTINUOUSLY IMPROVING OUR GOVERNANCE APPROACH

As stewards of the interests of all stakeholders of the Group, the Directors strive to continuously improve governance and oversight. Good governance is the bedrock upon which the Group's reputation rests and it underpins operational efficiency, the relationships we have with employees, local communities and governments, and the respect we have for and in which we are held by our shareholders and the wider market. Ultimately, good governance is a crucial element in the sustainability of our business and the preservation of value for all stakeholders.

 

The Board's priorities in 2021:

· Ensuring safe and stable operations during the COVID-19 pandemic.

· Enhancing risk management systems and processes.

· Overseeing the adoption of the TCFD recommendations and Group climate change strategy.

· Resolving certain shareholder concerns regarding the Board's independence.

· Overseeing the renewal of the Group's funding arrangements.

· Overseeing the pending sale of the Ghaghoo mine.

 

"Good governance is a crucial element in the sustainability of our business and the preservation of value for all stakeholders"

- Harry Kenyon-Slaney -

 

During the past year, we worked hard to further refine our risk management systems and processes. This has enabled us to improve the identification, quantification and mitigation of operational and wider environmental and societal risks, and to assess their potential impact against the risk tolerance levels we judge appropriate for the Group. Practical examples include the restructuring of our insurance cover to mitigate the substantial recent increase in insurance cost and further refinement of our tailings management systems to align them fully with the ICMM's GISTM. Effective risk management and ongoing stakeholder engagement ensure that the Board is kept appraised of issues as they emerge and evolve, and that new opportunities are brought to the Board's attention.

 

As part of our governance process, we continually review our approaches to combatting systemic challenges. This year we have again reassessed and refreshed our positions on human rights, modern slavery, corruption and climate change. I am pleased that all employees and contractors have reaffirmed their commitment to these statements.

 

ADDRESSING SAFETY AND CLIMATE CHANGE

We regard the safety and health of our workforce as our highest priority and, while we are not complacent and can always do better, our track record over recent years has been solid. It was therefore a concern to the Board that our safety performance deteriorated during the first six months of 2021, but management took swift action to turn the situation around. The Letšeng mine was shut down for a full day in a 'Stop for Safety' campaign to allow the workforce to be addressed. A new safety culture programme was launched to reinforce the message that production must happen safely or not at all. Pleasingly the second half of the year showed a sharp recovery. The AIFR for the full year was 0.93.

 

Letšeng is located in a remote and pristine region of the world and the Board has always been sensitive to the need to operate in an environmentally responsible manner. In 2021, the existential threat of climate change moved to the centre of the public's consciousness and is top of mind for political and business leaders. As a mining company that is necessarily a sizeable consumer of energy, we have commenced the process of both understanding our contribution to greenhouse gas emissions and what we can do to limit it. Climate change is now a topic of discussion at every Board meeting and is a top priority in our risk management system.

 

Gem Diamonds has adopted six priority goals from the 17 UN SDGs and our ongoing inclusion in the FTSE4Good index is an external validation that our positive ESG practices align with global standards and expectations. There were no major or significant environmental incidents reported at any of our operations during the year.

 

VALUING DIVERSITY, SKILLS AND EXPERIENCE

While ours is a small Board, appropriate for the size of the Group, we are committed to aligning with the requirements of the UK Corporate Governance Code. In May, Johnny Velloza (previously deputy CEO) stepped down from the Board to ensure that the Board meets the independence requirements of the Code. We are grateful to Johnny for his significant contribution and commitment over the last five years and we continue to benefit from his technical expertise as a strategic adviser.

 

We welcomed Rosalind Kainyah MBE to the Board. Rosalind has decades of experience in corporate and environmental law, government relations, political risk management and sustainability. Her experience in diamond mining includes an Executive Director position at the De Beers Group and she adds valuable ESG and leadership skills to the Board.

 

The Nominations Committee oversees board and senior management succession planning, and this important work ensures that the Group's leadership is appropriately sized, regularly refreshed, diverse and equipped with the necessary skills. We believe that the Board, as currently constituted, contains the right balance of critical thinking capabilities, skills and experience and that the complementary perspectives included ensure appropriate independent oversight of the Group.

 

We are proud of our track record of local appointments and promotions with a representation of nearly 98% Lesotho nationals at Letšeng and steadily improving gender diversity throughout the Group.

 

LISTENING TO OUR STAKEHOLDERS

As the operator and 70% owner of the Letšeng mine, we regard ourselves as guests of the people of Lesotho. We endeavour to always maintain constructive, open and honest dialogue with local communities and government partners. We consider their priorities and ensure that they in turn understand the nature of our business and Letšeng's significant contribution to the national economy.

 

Since joining the Board in July 2019, Mazvi Maharasoa has been the designated non-Executive Director for workforce engagement. She engages directly with employee representatives and provides the Board with an unfiltered view on issues that people wish to raise. This engagement process has broadened our understanding of various concerns and has enhanced the channels via which employees can communicate with management and see their issues being resolved. The Board values this process as it gives us reassurance that employee voices are heard at the top of the organisation and has helped to strengthen our relationships with them. These interactions have been particularly important while access to the mine has been restricted during the COVID-19 pandemic.

 

ENTRENCHING AN ETHICAL CULTURE

Gem Diamonds has always maintained a strong set of ethical principles that remain the firm foundation of everything we do. We insist on transparency and have no tolerance for fraud, theft, modern slavery, child labour or any other wrongdoing. The culture espoused by the Board and senior management is one of transparency, openness, a willingness to challenge and to change, and these principles promote high standards of ethical behaviour throughout the Group. To support these principles we maintain a rigorous system of internal controls, a comprehensive internal audit programme and an anonymous whistleblowing facility.

 

SUSTAINABLE RETURNS FOR OUR SHAREHOLDERS

In line with our dividend policy to pay a dividend to shareholders when the financial strength of the Group allows, we are pleased to propose that a dividend of 2.7 US cents per share be declared for the 2021 financial year.

 

ACKNOWLEDGING OUR STAKEHOLDERS' CONTRIBUTIONS

Operating a large mine high in the Maluti Mountains of Lesotho under the constraints of COVID-19-related travel and access restrictions once again provided a considerable test for everyone at Gem Diamonds during 2021. Management's ability to oversee the operation remotely for extended periods is a testament first and foremost to the ability and fortitude of our workforce, to the quality of the systems and culture in place at the mine and the strength of our relationships with local community leaders and with the Government of the Kingdom of Lesotho.

 

On behalf of the Board, I therefore want to thank everyone who has contributed to the Group's success this past year despite considerable disruption to their lives and those of their families. We thank our employees, contractors, our community partners, the Government of the Kingdom of Lesotho and our shareholders for their ongoing support. Finally, I wish to thank my fellow Directors for the dedication and commitment they showed and the valuable contributions they made during the year.

 

BEING CONFIDENT ABOUT THE FUTURE

While there are some signs that the COVID-19 pandemic may be starting to wane, there remains a risk of further resurgences. The success of our efforts to largely shield our people over the past two years has given us confidence that we have the systems and processes in place to deal with this risk, to keep our people safe and maintain the supply chain that our operations depend on.

 

2021 marked the end of the four-year period over which we delivered in excess of the target of US$100 million by achieving US$110.0 million in revenue, productivity and cost savings generated through the Business Transformation programme launched in 2017. In 2022, our goal is to build on the success of this effort by further improvement of our operational consistency through the focused implementation of a rigorous continuous improvement culture. In addition, we vigorously continue to exploit opportunities to optimise the mine plan and to reduce our waste profile, investigate future options to explore underground mining at Letšeng and progress several technological innovations in our processing plants.

 

The climate change scenario analysis that the Group undertook in 2021 provides a strong foundation to incorporate climate change-related risks and opportunity considerations into future business plans, strategies and feasibility studies.

 

Diamond prices have recovered steadily since the second half of 2020 due to an improving market outlook and declining supply. Prices increased further in 2021 and it is pleasing to note that this trend has continued into 2022. While predicting the frequency of the recovery of large diamonds is impossible in the short term, consistent delivery of plant throughput volumes is the best way to yield results over time.

 

Harry Kenyon-Slaney

Chairperson

16 March 2022

 

 

RISK MANAGEMENT

 

HOW WE APPROACH RISK

The Group's risk management framework, which is fully integrated within strategic and operational planning, aims to identify, manage and mitigate the risks and uncertainties to which the Group is exposed and combines top-down and bottom-up approaches with appropriate governance and oversight, as shown in the graphic below.

 

Oversight

BOARD OF DIRECTORS

The Board is responsible for risk management in the Group and provides stakeholders with assurance that key risks are properly identified, assessed, mitigated and monitored. The Board maintains a formal risk management framework for the Group and formally evaluates the effectiveness of the Group's risk management process. It confirms that the process is accurately aligned with the Group's strategy and performance objectives.

 

At the quarterly risk review meeting, the Board reviews the risk register, assesses management's scenarios and plans, interrogates the most critical risks in detail and debates mitigating plans with management.

 

Top-down approach -

sets the risk appetite and tolerances, strategic objectives and accountability for the management of the framework

Governance

AUDIT COMMITTEE

The Audit Committee monitors the Group's risk management processes, reviews the status of risk management, and reports to the Board on a biannual basis. It is responsible for addressing the corporate governance requirements of risk management and for monitoring risk management at each operation.

SUSTAINABILITY COMMITTEE

The Sustainability Committee provides assurance to the Board that appropriate systems are in place to identify and manage health, safety, social and environmental risks. It monitors the Group's performance within these categories and drives proactive risk mitigation strategies to secure the safe and responsible operations and the social licence to operate in the future.

 

Responsibility

MANAGEMENT

Management develops, implements, communicates and monitors risk management processes and integrates them into the Group's day-to-day activities. It identifies risks affecting the Group, including internal and external, current and emerging risks. It implements appropriate risk responses consistent with the Group's risk appetite and tolerance.

 

GROUP INTERNAL AUDIT

Group Internal Audit formally reviews the effectiveness of the Group's risk management processes. The outputs of risk assessments are used to compile the strategic three-year rolling and annual internal audit coverage plan and evaluate the effectiveness of controls.

 

Bottom-up approach -

ensures a sound risk management process and establishes formal reporting structures

 

Risk management framework

The Board and its Committees oversee the most relevant and significant current and emerging risks facing the Group which include strategic, operational and external risks. These risks are actively monitored, managed and mitigated to the extent possible as their impact, individually or collectively, could affect the Group's ability to achieve its objectives.

 

While Gem Diamonds' risk management framework focuses on risk identification and mitigation, many factors that give rise to these risks also offer opportunities. The Group monitors existing and emerging opportunities and incorporates them into the strategy where they support the Group's vision.

 

The learnings from COVID-19 led to increased emphasis on identifying the possible implications of external macro risks and low-probability and high-consequence events to inform appropriate contingency plans. These risks are mitigated by building resilience and flexibility into our leadership and operational processes, and ensuring the Group is equipped to quickly quantify the size and scale of the emerging issue and adapt accordingly. Insurance cover plays an important role in risk mitigation, enabling the transfer of certain risk elements within the primary risk categories of the Group. While it does not eliminate the need for operational controls to manage and mitigate risk, it offsets the financial loss should the risk materialise.

 

Insurers have continued to decrease their exposure to the mining industry due to the risk perception created by the COVID-19 pandemic, as well as claims in the industry due to the looting experienced in South Africa in July 2021. As a result, the renewal of appropriate insurance has become challenging, leading to additional exclusions, reduced cover, increasing deductibles or excesses payable and increasing premiums. Reduced cover consequently directly impacts the Group's cash management risk. In response to these challenges, the Group has decided to adopt a new risk transfer strategy to address the substantial changes in the insurance market by developing a sustainable insurance solution for the Group in the medium to long term.

 

1. Climate Change

Risk: Climate change-related risks (transitional and physical risks) are recognised as top global risks and investors are increasingly focused on the management of these risks. Climate change presents significant present and future risks and opportunities to the Group, that if not identified and managed responsibly could negatively impact the organisation's long-term resilience.

 

Opportunity: Opportunities for improvements in energy and operational efficiency, innovation and growth.

 

Risk Response:

• TCFD adoption and climate change strategy development.

• Governance and management practices implemented.

• Structured TCFD Adoption Committee meetings.

• New reporting standards adopted.

• Adoption of UN SDG framework

• GHG emissions monitoring and reporting.

Risk type: Strategic, Operational and External

 

Strategic impact: Preparing for our future.

 

Working responsibly and maintaining our social licence.

 

Business model impact:

Affects the entire business model.

 

2. Diamond damage

Risk: Letšeng's valuable Type IIa diamonds are highly susceptible to damage during the mining and recovery process. This affects revenue generated by the Group's large, high-value diamonds resulting in reduced cash flow and profitability.

 

Related opportunities: Reduction in diamond damage will result in higher prices achieved, resulting in improved cash flow and profitability.

 

Risk Response:

• Continuous diamond damage monitoring and analysis to identify opportunities to reduce diamond damage.

• Optimising blasting and processing activities to reduce possible diamond damage.

• Development of early identification and improved liberation technology.

Risk type : Strategic and Operational

 

Strategic impact:

Extracting maximum value from our operations.

 

Preparing for our future.

 

Business model impact:

Reduces financial inputs, increases diamond prices realised and output of carats recovered, increasing financial outputs.

 

3. Diamond Resources and Reserves

Risk: Letšeng's low-grade orebodies makes the operation sensitive to resource variability. Inadequate information on the geological continuity, distribution, grade, and quality of diamonds within the orebodies increases the risk that production targets may not be achieved and reduces confidence in the performance of the resource. Unexpected variability in key resource/reserve criteria, such as volume, tonnage, grade and price, can significantly impact the operation's forecasting and financial stability, both in the short and medium term, and can influence decisions regarding future growth.

 

Related opportunity: Having access to adequately detailed and reliable exploration, sampling and testing data enables the operation to reasonably assume geological, grade and quality continuity within defined domains, and improves planning and forecasting accuracy.

Risk Response:

• Gathering geological evidence on variations within the resource (lithology, density, volume/tonnage, grade, diamond population size and value distributions), applying industry best practice and engaging independent experts to audit and advise.

• Ongoing pit mapping, petrography, drilling, and 3D modelling.

• Grade control, bulk sampling, density and moisture content measurements (on-site and independent lab verification), dilution control, stockpile management, data management, quality control and internal auditing of production data (including geological, processing, recovery and sales data).

• Managing the Diamond Accounting System and Mineral Resource Management (MRM) database, monitoring recovery data on daily and monthly basis, as well as per export period, to follow trends in diamond distributions, large stone frequencies and average diamond prices per kimberlite domain.

 

Risk type: External and Operational

 

Strategic impact:

Extracting maximum value from our operations.

 

Preparing for our future.

 

Business model impact:

Affects natural capital inputs and outputs of carats recovered. Life of mine affects the long-term viability of the business model.

4. Security of product

Risk: Theft is an inherent risk in the diamond industry. The high-value nature of the product at Letšeng makes it susceptible to theft and significant losses, which would negatively affect revenue and cash flows.

 

Related opportunities: Advanced security control measures increase employee and product safety and improves revenue.

Risk Response:

• Zero tolerance on non- conformance to policy and regulations.

• Advanced security access control and surveillance system in

• place, complemented by off-site surveillance.

• Monitoring of security process effectiveness by the Diamond Recovery Protection Committee (subcommittee of the Letšeng Board).

• Appropriate diamond specie insurance cover in place.

• Regular vulnerability assessments complemented by internal and independent third-party assurance audits undertaken.

 

Risk type: Strategic and Operational

 

Strategic impact:

Extracting maximum value from our operations.

 

Working responsibly and maintaining our social licence.

 

Business model impact:

Affects outputs of carats recovered, which increases financial outputs. Improves human capital and safety outcomes.

 

5. Variability in cash generation

Risk: Variability in cash flows from operational activities and currency fluctuations can negatively affect the Group's ability to effectively operate, repay debt and fund capital projects. This risk is directly impacted by other principal risks such as rough diamond demand and prices, diamond damage, and diamond resources and reserves.

 

Related opportunities:

Cash constraints drive more efficient capital allocation and cost discipline.

 

Consistent and regular cash flows provides predictability to maintain an appropriate capital allocation strategy.

 

Risk Response:

• Appropriate treasury management procedures and framework to enter into short-term hedging instruments are implemented to mitigate the effects of currency volatility on cash flows.

• Rigorous cost and capital discipline is in place.

• Funding facilities are in place to manage any variability in the short to medium term.

• Ongoing CI programme to drive operational efficiencies.

Risk type: External and Strategic

 

Strategic impact:

Extracting maximum value from our operations.

 

Preparing for our future.

 

Business model impact:

Affects funding and financial capital inputs and outcomes.

6. Information Technology (IT) and Operational Technology (OT) systems, and cybersecurity

Risk : The Group's operations rely on secure IT and OT systems to process and record financial and operating data in its information management systems. If these systems are compromised, there could be a material adverse impact on the Group.

 

Related opportunities: Stability to the business with no production interruption.

 

Risk Response:

• Application of technical and process IT controls in line with industry- accepted standards.

• Appropriate back-up procedures, firewalls and other appropriate security applications in place.

• Regular testing of back-up restorations.

• IT management policies.

Risk type : Strategic and Operational

 

Strategic impact:

Extracting maximum value from our operations.

 

Preparing for our future.

 

Business model impact: Affects the entire business model.

 

7. Health Safety and Wellness

Risk: The probability of a major health or safety incident occurring within the Group is inherent in mining operations. These incidences could impact the wellbeing of employees, PACs, our licence to operate, the Company's reputation and compliance with its mining lease agreement.

 

Related opportunities:

Improving employee health and wellness can increase morale, reduce absenteeism and improve productivity.

 

Effective safety policies and processes in place reduces risk to our workforce, strengthens our relationships with employees and regulators, and safeguards our reputation.

Risk Response:

• Appropriate health and safety policies and practices are in place.

• Corrective actions identified from incident investigations and internal and external audits implemented timeously.

• Dam safety management framework implemented and alignment with the GISTM.

• ISO 45001 accreditation maintained.

• Safety management and leadership programme; detection and prevention strategies are developed and implemented.

• Training and awareness campaigns.

• Psychological support considerations for the full workforce.

• Continually assess organisational health to address current and emerging issues.

• Flexible shift configuration to assess alternatives to limit community transmission and transfer to the workplace.

 

Risk type: Strategic and Operational.

 

Strategic impact:

Extracting maximum value from our operations.

 

Working responsibly and maintaining our social licence.

 

Business model impact:

Affects the entire business model.

8. Production interruption

Risk: Material mine and/or plant shutdowns, pit closures or periods of decreased production could arise due to various events. These events could lead to personal injury or death, environmental impacts, damage to infrastructure and delays in mining and processing activities and could result in financial losses and possible legal liability.

 

The Group relies on the use of external contractors in its mining and processing activities. Disputes with these contractors could materially impact the Group's operations.

 

Related opportunities: Focused contract management supports operating at or near steady-state levels which improves efficiencies due to stability of production.

 

Robust business continuity plans are in place which results in limited delays due to disruptions.

 

Risk Response:

• Continuous review of business continuity plans.

• Bespoke contract management role fulfilled to ensure proper contract management and minimise potential for disputes and disruptions.

• Appropriate insurance maintained.

• Appropriate levels of resources maintained (fuel, stockpiles, etc) to mitigate certain production interruptions.

• Improvements implemented in the management of contractors' procurement practices.

Risk type: Operational and External

 

Strategic impact:

Extracting maximum value from our operations.

 

Working responsibly and maintaining our social licence.

 

Business model impact:

Reduced operational activity could lead to a decline in financial capital and outputs. Negative outcomes decrease natural and human capital .

9. Rough

diamond demand and prices

Risk: Numerous factors beyond the control of the Group may affect the price and demand for diamonds. These factors include international economic and political trends, as well as consumer trends. Medium- to long-term demand is forecast to outpace supply, but short-term uncertainty and liquidity constraints within the diamond sector may affect rough diamond pricing.

 

Related opportunities: Reduced supply and increased demand may result in improved revenue resulting in positive cash flows

Risk Response:

• Monitoring of market conditions and trends.

• Flexibility in sales processes and utilisation of multiple sales and marketing channels, and increased viewing opportunities.

• Ability to enter into partnership agreements with manufacturers to share in the upside of the polished diamonds.

• Maintaining the integrity of the tender process.

• Reduction in supply in the market with greater demand for Letšeng goods caused by current offtake agreement between a diamond trader and a competitive mine.

Risk type: External

 

Strategic impact:

Extracting maximum value from our operations.

 

Preparing for our future.

 

Business model impact:

Affects funding of the business model, sales and marketing activities and chosen distribution channels.

10. Creating and preserving value for shareholders

Risk: The volatility of the Group's share price and lack of growth negatively impacts the Group's market capitalisation. Constrained cash flows could impact on returns to shareholders. The Group currently relies on a single mine with a finite life for its revenues, profits and cash flows.

 

Related opportunities: Focusing on existing operations could unlock further value through rationalisation and efficiency improvements.

 

Risk Response:

The Groups strategy review has the objective of improving the share price through:

• Continuous Improvement initiatives.

• Investigating early identification and anti-breakage technology.

• Assessing mergers and acquisitions and diversification opportunities.

Risk type: Strategic

 

Strategic impact:

Working responsibly and maintaining our social licence.

 

Preparing for our future.

 

Business model impact:

Affects the entire business model.

11. Workforce

Risk: Achieving the Group's objectives and sustainable growth depend on the ability to attract and retain suitably qualified and experienced key employees. Gem Diamonds operates in an environment and industry where shortages in experience and skills are prevalent.

 

Related opportunities : Skills retention and Continuous Improvement initiatives build the Group's human capital and can create a competitive advantage.

Risk Response:

• Human resources practices are designed to identify skills shortages and implement development programmes and succession planning for employees.

• Incentives are in place to retain key individuals through performance- based bonus and long-term share awards.

• Remuneration practices are in place which review current remuneration policies, skills and succession planning.

• Development of training plans to address areas where skills shortages are identified, in conjunction with government agencies.

Risk type : Strategic and Operational

 

Strategic impact:

Extracting maximum value from our operations.

 

Working responsibly and maintaining our social licence.

 

Preparing for our future.

 

Business model impact:

Affects human, intellectual and financial capital inputs into the business model.

 

12. Environmental

Risk: Environmental issues are recognised as top global risks by the World Economic Forum and investors are increasingly focused on environmental performance. Failure to manage vital natural resources, environmental regulations and pressure from neighbouring communities can affect the Group's ability to operate sustainably.

 

Related opportunities: Responsible environmental stewardship improves relationships with regulators and communities while strengthening our brand. Increased focus on environmental responsibility could translate into a competitive advantage.

Risk Response:

• Implemented appropriate Sustainability and Environmental policies which are subject to a continuous improvement review.

• The current behaviour-based care programme instils environmental stewardship.

• A dam safety management framework has been implemented.

• Annual social and environmental management plan audit programme has been implemented.

• ISO 14001 accreditation maintained.

• Adopted a UN SDG framework.

• Rehabilitation and closure management strategy adopted and updated annually.

• Implementation of the water management framework.

• Concurrent rehabilitation strategy implemented.

• Group shared natural resources management strategy implemented.

 

Risk type: External and Operational

 

Strategic impact:

Extracting maximum value from our operations.

 

Working responsibly and maintaining our social licence.

 

Preparing for our future.

 

Business model impact:

Affects natural capital inputs into the business model and negative outcomes in the case of environmental incidents.

13. Social licence to operate

Risk: The Group's social licence to operate is underpinned by the support of its stakeholders, particularly employees, regulators, PACs and society. This support is an outcome of the way the Group manages issues such as ethics, labour practices and sustainability in our wider environment, as well as our risk management and engagement activities with stakeholders.

 

Related opportunities: Realising the Group's vision to make a meaningful and sustainable contribution to the countries in which we operate builds the Group's reputation with employees, government, regulators, communities and investors.

Risk Response

• Appropriate CSI strategy based on community needs analysis which provides infrastructure, access to education and healthcare, and supports local economic development.

• Adoption of relevant standards, best practices and strategies.

• Appropriate Governance structures across all levels of the Group.

• Regular engagement with government and regulators.

Risk type: Strategic and Operational.

 

Strategic impact:

Working responsibly and maintaining our social licence.

 

Preparing for our future.

 

Business model impact:

Affects social capital and the viability of the business model.

 

 

EMERGING RISKS

The Group risk framework includes an assessment of emerging risks which are indicators of future conditions from which new opportunities and threats can arise.

 

The Group's consideration of emerging risk includes those risks that:

• are likely to materialise or impact over a longer time frame than existing risks.

• do not have much reference from prior experience.

• are likely to be assessed and monitored against vulnerability, velocity and preparedness when determining likelihood and impact.

 

The current emerging risks and opportunities being monitored by the Group are:

• although the invasion of Russia into the Ukraine and consequential sanctions applied is a current event; the social, political and economic effect of this on commodity prices, supply chains and market conditions is unknown..

• lab-grown diamonds.

• generational shifts in consumer preferences - social influencers.

• the rate of advancement of digital technologies such as blockchain.

• future workforce (automation, skills for the future, etc).

• uncertainty around carbon tax.

 

VIABILITY STATEMENT

The Board has assessed the viability of the Group over a period significantly longer than 12 months from the approval of the financial statements in accordance with the UK Corporate Governance Code. The Board considers three years from the approval of the financial statements to be the most relevant period for consideration for this assessment, given the Group's current position and the potential impact of the principal risks documented on pages 37 to 44 on the Group's viability.

 

While the Group maintains a full business model, based predominantly on the life of mine plan for Letšeng, the Group's annual business and strategic planning process also uses a three-year time horizon. This process is led by the CEO and involves all relevant functions including operations, technology and innovation, sales and marketing, finance, treasury and risk. The Board participates in the annual review process through structured Board meetings and annual strategy review sessions. A three-year period provides sufficient and realistic visibility in the context of the industry and environment in which the Group operates, even though the life of mine, the mining lease tenure and available estimated reserves exceed three years.

 

The business and strategic plan reflects the Directors' best estimate of the Group's prospects. The Directors evaluated several additional scenarios to assess the potential impact on the Group by quantifying their financial impact and overlaying this on the detailed financial forecasts in the plan.

 

The Board's assessment of the Group's viability focused on the critical principal risks categorised within the strategic, external and operational risk types, together with the effectiveness of the potential mitigations that management reasonably believes would be available to the Group over this period.

 

REFINANCING OF GROUP FACILITIES

The refinancing of the Group's facilities which was completed in December 2021, significantly increased the Group's available facilities from US$67.6 million immediately before the refinancing to US$83.3 million thereafter, when fully unutilised. US$77.0 million of these facilities mature in December 2024, with the balance of US$6.3 million being a general banking facility with no set expiry date, but which is reviewed annually.

 

COVID-19

While there are promising signs that the impact of the COVID-19 pandemic may be dissipating, there remains a potential risk of further resurgences. The Group is confident in its ability to manage through any such resurgence given its experience and success to date, especially following the successful roll-out of vaccinations at Letšeng. The Group predominantly holds viewings for its rough tender sales in Antwerp, although viewings have been held in Tel Aviv and more recently in Dubai. Although international travel has been subject to changing levels of restrictions, the main diamond sales market in Antwerp has remained open. Diamond sales are concluded on Gem Diamonds' electronic tender platform which can be accessed from anywhere in the world. The Group is confident that it will be able to continue to hold tender viewings in Antwerp despite any potential COVID-19 travel restrictions.

 

CLIMATE CHANGE

The Board is cognisant of the risks presented by climate change and conscious of the need to minimise emissions. A Group-specific climate change scenario analysis has been conducted whereby the short- to medium- and longer-term physical and transitional risks were assessed. The short- to medium-term impacts fall within the viability period. The physical risks identified for Letšeng, such as drought, strong winds, extreme precipitation and cold, is similar to its current operating conditions. The operation is therefore well-geared to manage these conditions within its current and medium term operational activities, cost structure and business planning. Additional cash investment required in the event of these short- to medium-term physical risks materialising has been assessed as low with no material impact on the current operations and viability of the Group.

 

In terms of transitional risks, as users of grid-supplied and fossil fuel energy, the short-term focus is on improving energy efficiencies in our operational processes and reducing combustion-related fossil fuel use. Options are being assessed in the context of the size, nature and location of the Group's operations, the required investment and the expectations of our main stakeholders. Any material investment during the viability period is considered unlikely. Due to the uncertainty of the cost and timing of implementation of carbon-related taxes, the impact of such taxes on the Group's operations and cash flows has been excluded from the viability assessment and scenario stress testing. Management and the Board will continue to assess these impacts as the information becomes more certain.

 

STRESS TESTS

The scenarios tested considered the Group's revenue, EBITDA1, cash flows and other key financial ratios over the three-year period. The scenarios tested included the compounding effect of the factors below and were applied independently of each other.

 

1  Refer Note 4, Operating profit on page 179 for the definition of non-GAAP measures.

 

Effect

Extent of sensitivity analysis

Related principal risks

Area of business model affected

A decrease in forecast rough diamond revenue from reduced market prices or production volumes caused by

unforeseen production disruption due to either COVID-19 restrictions or climate- related events.

 

20%

• Rough diamond demand and prices.

• Production interruption.

• Diamond damage.

• Diamond resources and reserves.

• Entire business model ie inputs, activities, outputs and outcomes.

A strengthening of local currencies to the US dollar from expected market forecasts.

 

23%

• Variability in cash generation.

• Financial capital inputs and outcomes.

 

CONCLUSION

The Group's current net cash1 position of US$20.9 million as at 31 December 2021 and available facilities of US$74.3 million would enable it to withstand the impact of these scenarios over the three-year period. The revolving credit facilities which expire on 22 December 2024, has a 24-month extension period and the Group will follow all necessary processes to extend the facilities for this available period, as it has in the past. This position is supported by the cash-generating nature of the Group's core asset, Letšeng, and its flexibility in adjusting its operating plans within the normal course of business. Based on the robust assessment of the principal risks, prospects and viability of the Group, the Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending 31 December 2024.

 

1   Net cash is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility and insurance premium financing).

 

 

CHIEF EXECUTIVE'S REVIEW

 

We performed strongly in 2021 and operated in a safe and responsible manner to protect the wellbeing of our workforce.

 

Letšeng has a unique ore body with diamonds that are of the highest value of any kimberlite mine, and the most beautiful found anywhere in the world. Despite the many COVID-19-related challenges encountered during the year, the Group ended the year in a strong cash position (net cash of US$20.9 million) with the average price of Letšeng goods exceeding US$2 000 per carat in Q4. This robust pricing for Letšeng's large, high-quality diamonds has continued into 2022.

 

We aim to extract maximum value for our stakeholders by operating safely, responsibly and efficiently and exploring new technologies to reduce diamond damage during the diamond liberation process. Achieving the highest average prices of any kimberlite mine in the world requires an effective, transparent and competitive tender sales process which we boast in Antwerp and, more recently, in Dubai. In addition, the Group adheres to internationally recognised systems and processes which provide our clients and their customers the assurance that our diamonds are ethically mined.

 

EXTRACTING MAXIMUM VALUE FROM OUR OPERATIONS

The strategy during the second year of COVID-19 impact on our operations focused on driving the extraction of greater value from our assets.

 

The Group's Letšeng operation delivered a solid operating performance, despite the significant challenges presented by travel restrictions, supply chain constraints, extreme weather conditions and intermittent external power outages on site.

 

Tonnes treated increased 15% year on year as operations returned to normal after the COVID-19 shutdowns in 2020. Carats recovered increased 14% to 115 335 (2020: 100 780).

 

Six diamonds greater than 100 carats were recovered during the year, which is comparable to the 13-year average of eight, albeit lower than the 16 such diamonds recovered in 2020. Exceptional recoveries during the year included the two large high-quality Type IIa white diamonds of 367 and 245 carats which sold for US$26 160 per carat and US$40 139 per carat, respectively. Letšeng's operational performance is discussed in more detail on page 60.

 

The diamond market has recovered to levels not seen in some time and demand for the high-quality white diamonds produced at Letšeng is particularly strong. 21 diamonds sold for more than US$1 million each, generating revenue of US$64.5 million (2020: 34 diamonds contributing US$72.6 million). The average price achieved during the year decreased 4% to US$1 835 per carat (2020: US$1 908 per carat) from the sale of 109 697 carats (2020: 99 172). The decrease in the prices achieved compared to 2020 relates mainly to fewer large and exceptional diamond recoveries, and the overall quality of the diamonds recovered as a result of the areas of the resource mined during the year. The Group successfully hosted its first trial tender viewing in Dubai in September, making it easily accessible for important clients from the UAE, India and Israel to participate in the tender. The viewings were well-attended and contributed to the robust prices achieved. The Group will hold its next Dubai viewing in March 2022.

 

"We are committed to operating in an environmentally responsible way."

- Clifford Elphick -

 

Group revenue increased 6% to US$201.9 million (2020: US$189.6 million), which translates to underlying EBITDA1 of US$57.4 million and earnings per share of 10.5 US cents. Operational cash generated amounted to US$71.3 million resulting in a net cash2 position of US$20.9 million at the end of 2021. The Group-wide debt refinancing was successfully concluded during the year. An additional funder joined the lender group, bringing the total number of lenders to three. The Group's revolving credit facilities were increased from US$61.3 million to US$77.0 million, in dollar equivalent, and renewed for a three-year period.

 

Based on the positive financial performance of the Group in 2021, we are pleased to announce that the Board has proposed a dividend of 2.7 US cents per share. More information regarding the Group's financial results is included in the CFO review on page 52.

 

WORKING RESPONSIBLY AND MAINTAINING OUR SOCIAL LICENCE

Gem Diamonds aims to sustain a workplace safety culture founded on mutual care and collaboration across the workforce. We continue to roll out programmes to drive a behavioural, organisational and culture ethos of safe conduct in the workplace.

 

In the past year, there were no fatalities (2020: none), six LTIs (2020: 1), and we achieved an overall AIFR of 0.93.

 

We are committed to operating in an environmentally responsible way. Our tailings storage facility management process aligns with the ICMM's GISTM which ensures the responsible management and monitoring of the tailings storage and freshwater facilities with regular inspections by external experts.

 

We invest in our surrounding communities through our well- established CSI programme to improve educational outcomes, develop infrastructure and stimulate local enterprises to create self-sustaining employment independent of the mine. Implementing these programmes was a significant highlight in 2021 as we were able to successfully implement a number of 2020 projects delayed by the COVID-19 lockdowns, while also commencing with those projects planned for 2021. In addition, we were active in repairing roads, footbridges and other PAC infrastructure damaged by the extraordinary flooding in the Patiseng valley in the first quarter of the year.

 

We are particularly proud of the pipeline of in-country mining skills we have developed that will serve Letšeng, and Lesotho as a country, well into the future. We started operations with 250 people in 2006, more than half of whom were expatriates. There are now 1 591 people working at Letšeng, of whom 98% are Basotho. This is due to our significant investment in transferring of skills, sponsoring the studies of students in mining and business-related disciplines, and in coaching initiatives specific to our needs.

 

Responsible social and environmentally sourced diamonds are a consumer priority. We have adopted six of the UN SDGs and continue to support the GIA's use of blockchain technology to assure consumers of our diamonds' ethical footprint.

 

There were no major or significant stakeholder incidents reported during the year.

 

GEM DIAMONDS' CONTRIBUTION TO LESOTHO

• Jobs for 1 591 employees and contractors of which 98% are Basotho nationals.

• Local procurement US$158.7 million.

• Local procurement directly from PACs US$3.4 million.

• Local procurement from regional communities US$31.4 million.

• Investment in training to improve individual skills.

• 48 bursaries and scholarships for local students.

• Vaccine and ambulance donations.

 

1  Refer Note 4, Operating profit on page 179 for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.

2  Net cash/(debt) is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility and insurance premium financing).

 

OPERATING THROUGH COVID-19

The challenge for our business over the last two years has been to keep our workforce safe, find ways to run efficiently and uninterrupted during COVID-19 and generate a return for our shareholders. We demonstrated our care and agility at the start of the pandemic by quickly establishing a testing laboratory, strict controls and protocols, giving confidence to employees, contractors, communities and the Government of the Kingdom of Lesotho that we were serious about keeping our people safe. The Group has incurred significant expenditure in implementing its COVID-19 protocols with the majority being spent at Letšeng, where an estimated LSL26.4 million (LSL17 375 per employee) was spent on COVID-19 management and prevention to date.

 

When vaccinations started in Lesotho in the second half of 2021, we acquired and donated 20 000 vaccines to the Lesotho Department of Health. As part of the national vaccination programme, we worked with the Department of Health to allow our workforce the opportunity to be vaccinated on site. We are proud to report that 99% of our workforce is fully vaccinated to date.

 

As a result of our early and proactive interventions, the mine operated continuously throughout 2021. However, travel restrictions made it challenging for Group management, contractors and certain technical skills to access the mine, and ongoing supply chain disruptions affected the timeous replenishment of essential spares and equipment. We remain alert to the effects of the pandemic on mental health and in response targeted wellness initiatives have been rolled out at the Johannesburg office and a full-time psychologist was appointed at Letšeng to support the workforce at the mine.

 

Focusing on climate change

We are cognisant of the risks presented by climate change and conscious of the need to minimise emissions and our environmental impact more broadly. Letšeng's physical location exposes the operation to extreme weather conditions including drought, strong wind, heavy rain, extreme cold and snow. The operation is well set up to manage these conditions and is experienced in sheltering and supporting our PACs when necessary.

 

We held climate change workshops and completed a Group-specific climate change scenario analysis to deepen our understanding of climate-related risks and its likely impacts on the Group. The TCFD framework is proving to be a useful tool to identify and assess climate change- related issues.

 

As users of grid and fossil fuel energy, our short-term focus is on improving energy efficiencies in our operating processes and reducing combustion-related fossil fuel use. We are assessing our options in the context of the size, nature and location of our operations, the required investment and the expectations of our main stakeholders.

 

The Group has appointed independent external subject matter experts to provide input into the climate change considerations that will inform governance, risk management and strategy decisions as well as climate change-related targets for the Group. Our approach to climate change is included on page 26.

 

PREPARING FOR THE FUTURE

The four-year BT target of US$100 million was exceeded by the end of the year with the achievement of US$110.0 million, and many of the embedded initiatives will continue to create value for the Group. We continue to foster a culture of continuous improvement to identify and execute value driving initiatives and look forward to realising the benefits thereof in the near future.

 

Our capital plans include funding for projects that will sustain growth and value creation. Advancing technologies to reduce diamond damage during processing is a focus and while the potential is clear, the slow pace of progress during the year was disappointing.

 

The current open pit mine plan for both Main and Satellite pipes extends to 2036. In preparing for the future, we are exploring the trade-off between the next cutback in Satellite pipe versus an earlier underground access to this ore body in a safe and efficient manner. To inform our decision in this regard, we deepened our knowledge of the resource body in 2021 through an extensive resource drilling programme and will continue this process into 2022.

 

OUTLOOK

The current strong diamond demand and the ongoing decrease in the number of diamond producers, suggests that the fundamentals are supportive for achieving higher diamond prices in the future. We will prioritise stable and consistent production while driving efficiencies and managing costs to maximise cash flows, sustain an appropriate capital return to shareholders and maintain our status as a responsible, safe and low-cost operation.

 

Russia's recent invasion of the Ukraine has created political turmoil and the impact on the global economy, and the diamond market in particular, is uncertain at this stage.

 

Our future success depends on ensuring access to the requisite technical expertise, which will require further investments in skills development and retention initiatives, as well as effective succession planning. We remain focused on safeguarding the health of employees and contractors against COVID-19 for as long as it persists. We will continue to support our PACs and assist the Government of the Kingdom of Lesotho in its efforts to manage the impact of the pandemic.

 

APPRECIATION

In closing, I thank the Board and our Chairperson for their leadership during the year. The management teams once again demonstrated their commitment to the Group, and I thank them for their exceptional efforts during another difficult year.

 

We thank our customers for their continued trust and patronage, and our shareholders for their support. I would like to acknowledge the Government of the Kingdom of Lesotho for allowing us to continue to operate in a safe and responsible manner through three COVID-19 waves during the year.

 

 

Clifford Elphick

Chief Executive Officer

16 March 2022

 

 

CHIEF FINANCIAL OFFICER'S REVIEW

 

Gem Diamonds generated positive cash flow and ended the year in a strong financial position, proposing a shareholder dividend for the second consecutive year.

 

• Underlying EBITDA from continuing operations increased 8% to US$57.4 million from US$53.2 million in 2020

• Earnings per share from continuing operations: 13.2 US cents

• Profit attributable to shareholders from continuing operations: US$18.5 million

• Group's attributable profit: US$14.8 million

• The Group ended the year in a net cash position of US$20.9 million (2020: US$34.6 million)

• Unutilised available facilities of US$74.3 million

 

"The successful refinancing of our facilities, which includes a sustainability-linked loan, further embeds our commitment to delivering the Group's ESG strategy."

- Michael Michael -

 

We generated another strong set of results and positive cash flows in 2021, against the backdrop of ongoing COVID-19 challenges. Our effective and early interventions in response to COVID-19 enabled operations to continuing uninterrupted throughout 2021, with an ongoing focus on protecting employees and contractors against infection whilst maximising production and continues to sell our diamonds at the highest obtainable market price.

 

Production throughput was constrained during the year with three waves of COVID-19 impacting the availability of equipment, spares, skills and supply chain management. This resulted in the Group resetting some of its full year production targets, although the strong performance in Q4 resulted in some of those metrics being exceeded. The diamond market showed significant recovery and we achieved US$1 835 per carat for the year.

 

We successfully concluded the Group-wide debt refinancing during the year by renewing our revolving credit facilities at an amount of US$77.0 million for a three-year period. US$32.3 million of this amount is a Sustainability Linked Loan (SLL) which links the margin and resultant interest rate on the loans to the Group's ESG performance, which is aligned to its sustainability strategy.

 

In further support of our commitment to sustainability and climate change-related matters, Phase 1 of our TCFD Adoption Strategy was concluded during the year by establishing the necessary foundations to support meaningful, science-based decision making. The TCFD-related workstreams completed during 2021 included:

• Establishing robust board and management governance structures;

• Strengthening the enterprise risk management processes to ensure the full ambit of climate risk are considered and managed;

• Concluding our climate change scenario analysis; and

• Identifying, assessing and plotting the impact of our physical and transition risks over the short-, medium- and long-term.

 

Underlying EBITDA2 from continuing operations increased to US$57.4 million, from US$53.2 million in 2020. Profit attributable to shareholders from continuing operations for the year was US$18.5 million, equating to earnings per share from continuing operations of 13.2 US cents on a weighted average number of shares in issue of 140.3 million.

 

The Group ended the year with a cash balance of US$31.1 million and drawn down facilities of US$10.2 million, resulting in a net cash position of US$20.9 million (2020: net cash of US$34.6 million) and unutilised facilities of US$74.3 million.

 

Summary of financial performance

Refer to the full annual financial statements starting on page 147.

 

US$ million

2021

2020

Revenue

201.9

189.6

Royalty and selling costs

(21.9)

(19.8)

Cost of sales1

(113.0)

(104.7)

COVID-19 costs/standing costs

(0.7)

(3.9)

Corporate expenses

(8.9)

(8.0)

Underlying EBITDA2 from continuing operations

57.4

53.2

Depreciation and mining asset amortisation

(8.6)

(9.1)

Share-based payments

(0.4)

(0.6)

Other income

0.1

-

Foreign exchange gain/(loss)

1.9

(0.9)

Net finance costs

(3.7)

(4.4)

Profit before tax from continuing operations

46.7

38.2

Income tax expense

(15.6)

(10.7)

Profit for the year from continuing operations

31.1

27.5

Non-controlling interests

(12.6)

(10.6)

Attributable profit from continuing operations

18.5

16.9

Loss from discontinued operations

(3.7)

(3.3)

Attributable net profit

14.8

13.6

Earnings per share from continuing operations (US cents)

13.2

12.1

Loss per share from discontinued operations (US cents)

(2.7)

(2.3)

Dividends per share (US cents)

2.7

2.5




1  Including waste stripping costs amortisation but excluding depreciation and mining asset amortisation.

2  Underlying EBITDA as defined in Note 4, Operating profit of the notes to the consolidated financial statements.

 

Revenue

Rough diamond revenue of US$201.3 million was generated at Letšeng, achieving an average price of US$1 835 per carat (2020: US$1 908 per carat). The Group sold 21 diamonds for more than US$1.0 million each, contributing US$64.5 million to revenue.

 

The Group's increased revenue was mainly driven by higher volumes through normalised production (following the COVID-19-related disruptions in 2020) and improved market conditions. The overall dollar per carat achieved was negatively impacted by a decrease in large diamond recoveries during the year when compared to 2020.

 

Letšeng entered into partnership arrangements during the year that allows them to share in the margin uplift on the sale of the resultant polished diamonds. In 2021, additional revenue of US$0.3 million (2020: US$0.6 million) was generated from these partnership arrangements.

 

Letšeng Unit Cost Analysis

Unit cost per tonne treated

Direct cash costs1

Third plant operator costs

Total direct

cash operating costs

Non-cash accounting

charges2

Total operating

cost

Waste cash costs per waste tonne

mined

2021 (LSL)

185.59

15.53

201.12

70.63

271.75

44.44

2020 (LSL)

185.73

15.73

201.46

118.74

320.20

43.70

% change

-

(1)

-

(41)

(15)

2

2021 (US$)

12.55

1.05

13.60

4.78

18.38

3.00

2020 (US$)

11.28

0.95

12.23

7.21

19.44

2.65

% change

11

11

11

(33)

(5)

13

 

1  Direct cash costs represent all operating costs, excluding royalties and selling costs.

2  Non-cash accounting charges include waste stripping amortised, inventory and ore stockpile adjustments, finance lease costs and exclude depreciation and mining asset amortisation.

 

US$ million

2021

2020

Group revenue summary



Letšeng sales - rough

201.3

189.1

Sales - polished margin

0.3

0.6

Impact of movement in inventory

0.3

(0.2)

Group revenue

201.9

189.6

 

Expenditure

 

OPERATING EXPENDITURE

Group cost of sales increased by 8% to US$113.0 million from US$104.7 million in 2020. In 2021, the Group incurred US$0.7 million to manage and maintain protocols to contain the spread of COVID-19 at its operations (2020: US$1.0 million). In 2020, an additional US$2.9 million standing charges were incurred during the shutdown and ramp-up periods at Letšeng. Total waste-stripping costs amortised increased by 8% to US$46.8 million compared to US$43.4 million in 2020.

 

Total operating costs in local currency decreased by 4% to LSL1 677.4 million compared to LSL1 740.8 million in 2020 which includes the impact of non-cash accounting charges.

 

The unit cost per tonne treated decreased 15% to LSL271.75 (2020: LSL320.20 per tonne treated) due to more consistent operational throughputs and an increase in tonnes treated compared to 2020.

 

Direct cash costs (excluding waste) increased by 13% to LSL1 241.4 million in line with the increase of ore tonnes treated to 6.2 million, a 15% increase compared to 2020. Waste cash costs increased by 22% to LSL829.4 million which was also in line with the 20% increase in waste tonnes mined (18.7 million tonnes compared to 15.4 million tonnes in 2020). Direct cash costs per tonne treated of LSL185.59 which is similar to 2020. Waste cash cost per waste tonne mined increased marginally to LSL44.44 (2020: LSL43.70).

 

Third plant operator costs reflect payments to the contractor which are calculated from revenue generated by the sales from diamonds recovered through the contractor plant. In 2021, the total cash costs in local currency increased by 12% in line with the increase in carats recovered and sold.

 

Non-cash accounting charges: comprise waste amortisation, stockpile and diamond inventory movements and finance lease costs. The total impact of these charges in 2021 was LSL436.0 million compared to LSL645.6 million in 2020. The decrease is mainly driven by a build-up of ore stockpile to standard levels as mining activities normalised. An increase in diamond inventory on hand at year-end of about 3 500 carats driven by a higher grade mining mix post the last export of the year, also contributed to the decrease. Total waste amortisation charges decreased to LSL669.1 million (2020: LSL690.1 million), impacting the unit cost by LSL108.41 per tonne treated (2020: LSL131.56).

 

The diesel theft as discussed on page 115 had no material effect on operating costs or the unit cost per tonne treated.

 

US-DOLLAR REPORTED COSTS

Gem Diamonds' revenue is generated in US dollars, while the majority of operational expenses are incurred in the relevant local currency in the operational jurisdictions. Local currency rates for the Lesotho loti (LSL) (pegged to the South African rand) and Botswana pula (BWP) were stronger against the US dollar (compared to 2020), which increased the Group's US dollar-reported costs and decreased local currency cash flow generation. The fluctuation of the exchange rates are set out in the table below:

 

Exchange rates

2021

2020

% change

LSL per US$1.00




Average exchange rate

14.79

16.47

(10)

Year end exchange rate

15.96

14.69

9

BWP per US$1.00




Average exchange rate

11.09

11.45

(3)

Year end exchange rate

11.76

10.80

9

GBP per US$1.00




Average exchange rate

0.73

0.78

(6)

Year end exchange rate

0.74

0.73

1

 

ROYALTIES AND MARKETING COSTS

In terms of Letšeng's mining lease, Gem Diamonds pays royalties to the Government of Lesotho on the value of rough diamonds sold. The Group's sales and marketing operation in Belgium incurs costs relating to diamond selling and marketing. Royalties and selling costs increased by 11% to US$21.9 million (2020: US$19.8 million) in line with the increase in revenue.

 

CORPORATE EXPENSES

The technical and administrative offices in South Africa and head office in the UK provide expertise in all areas of the business to realise maximum value from the Group's assets. Central costs are incurred in South African rand and British pounds respectively.

 

Baseline corporate costs were US$8.2 million, a 4% increase compared to US$7.9 million in 2020. The benefits from the corporate cost initiatives implemented through BT continue to be realised. During the year, US$0.7 million in costs were incurred on ad hoc projects (2020: US$0.1 million), an increase of US$0.6 million compared to 2020, when all ad hoc projects were suspended due to COVID-19. Current year costs were impacted by the stronger South African Rand and British Pound against the US dollar.

 

Total expenditure for the year relating to the adoption of TCFD and CCSA amounted to US$0.2 million.

 

Historical corporate costs data (US$ milllion)


2017

2018

2019

2020

2021

Baseline costs

9.0

 9.3

7.7

7.9

8.2

Project costs

0.2

0.7

1.7

0.1

0.7

 

 

Underlying EBITDA1 and attributable profit

Group underlying EBITDA1 from continuing operations increased by 8% to US$57.4 million (2020: US$53.2 million) as a result of the increase in revenue. Profit attributable to shareholders was US$14.8 million, which translates to 10.5 US cents per share based on a weighted average number of shares in issue of 140.3 million.

 

1  Underlying EBITDA as defined in Note 4, Operating profit of the notes to the consolidated financial statements.

 

Statement of financial position - selected indicators

 

US$ million

2021

2020

Property, plant and equipment

293 627

304 005

Receivables and other assets

5 373

5 839

Inventory

31 158

26 741

Income tax receivable

1 191

-

Cash and short-term deposits

30 913

49 820

Assets held for sale

2 097

3 528

Non-current: interest-bearing loans and borrowings

(8 340)

(1 702)

Current: interest-bearing loans and borrowings

(2 704)

(14 385)

Liabilities associated with assets held for sale

(4 100)

(4 224)

Deferred tax

(77 355)

(78 192)

Provisions

(11 202)

(12 331)

Income tax payable

-

(11 834)

 

CAPITAL EXPENDITURE

The Group's capital expenditure increased following the cash preservation focus in 2020. Letšeng's capital spend was incurred mainly on the completion of a single-occupancy accommodation block, the purchase and installation of an additional X-ray sorting machine, the replacement of an overland conveyor for one of the tailings storage facilities and expenditure on progressing the drilling work to develop our Resource and Reserve Statement. Total capital expenditure (excluding waste stripping) increased to US$4.0 million during the year (2020: US$1.6 million).

 

CASH AT HAND

Group cash generated from operating activities (before capital and waste investment of US$68.7 million) was US$71.3 million. At year end, cash on hand totalled US$31.1 million (2020: US$49.8 million), of which US$23.5 million is attributable to Gem Diamonds. All scheduled capital debt repayments during the year were made, totalling US$4.0 million. The overall result is a decrease in net cash of US$13.7 million year on year.

 

Letšeng declared and paid a dividend of LSL200.0 million (US$12.5 million) in 2021. Gem Diamonds paid a dividend to its shareholders of 2.5 US cents per share, totalling US$3.5 million after approval by the AGM in June 2021.

 

LOANS AND BORROWINGS

The Group-wide debt refinancing was successfully concluded on 23 December 2021. Letšeng's LSL500.0 million and Gem Diamonds' US$30.0 million revolving credit facilities (RCF), that were due to expire in December 2021, were refinanced for LSL750.0 million and US$30.0 million respectively, for an initial three-year period. The facilities were therefore increased from US$61.3 million to US$77.0 million, in dollar equivalent. Security for the facilities over Gem Diamonds' bank accounts and its shareholding in Letšeng was implemented after year-end.

 

The funding partners to the new facility agreement are Nedbank, Standard Bank and new to the Group, Firstrand Bank (through their respective operations). Nedbank's portion of the funding, totalling US$32.3 million, is a Sustainability-Linked Loan (SLL), which is an innovative structure that links the margin and resultant interest rate on the SLL to the Group's ESG performance. The margin on the SLL will decrease subject to the Group meeting certain carbon reduction and water conservation KPIs that are aligned with the Group's sustainability strategy.

 

The measurement dates for these KPIs are 31 December 2022 and 31 December 2023.

 

At year end, the Group had utilised facilities of US$10.2 million, resulting in a net cash position of US$20.9 million and available facilities of US$74.3 million, mainly comprising a net debt position of US$5.5 million (after US$9.0 million drawdown) at Gem Diamonds and a net cash position of US$24.2 million at Letšeng. Gem Diamonds ended the year with a US$9.0 million outstanding balance.

 

Letšeng made repayments of LSL56.9 million (US$3.8 million) on its project debt facility for the construction of the mining workshop complex. The outstanding balance of LSL19.0 million (US$1.2 million) will be repaid by September 2022.

 

The Group engages regularly with funders and credit providers to ensure continued access to funding and to manage cash flow requirements.

 

Summary of loan facilities as at 31 December 2021

 

Company

Term/description/ expiry

Lender

Interest rate1

Amount

US$ million

Drawn down /Balance due US$ million

Available US$ million

Gem Diamonds Limited

Three-and-a-half-year RCF

 

Expires 22 December 2024

Nedbank

 

Standard Bank

 

FirstRand Bank

Facility A

(US$30 million): LIBOR + 6.5%2

30.0

9.0

21.0

Letšeng Diamonds

Three-year revolving credit facility

 

Expires 22 December 2024

Standard Lesotho Bank

 

Nedbank Lesotho

 

First National Bank of Lesotho

Facility B

(LSL450 million): Central Bank of Lesotho rate + 4.75%2

28.2

-

28.2

Nedbank

Facility C

(ZAR300 million): JIBAR + 4.55%2

18.8

-

18.8

Letšeng Diamonds

Five-and-a-half-year project facility

 

Tranche A: expires September 2022

 

Nedbank

 

Export Credit Insurance Corporation

Tranche A

(LSL35 million): South African JIBAR + 6.75%

2.2

0.4

-


Tranche B: expires March 2022

Tranche B

(R180 million): South African JIBAR + 3.15%

11.3

0.8

-

Letšeng Diamonds

General banking facility

 

Annual review in March

Nedbank

LSL100 million South African prime rate minus 0.7%

6.3

-

6.3

Total




96.8

10.2

74.3

 

1  At 31 December 2021 LIBOR was 0.08% and JIBAR was 3.89%.

2  Margin will decrease with 1.5% upon implementation of the security condition.

 

DISCONTINUED OPERATION

In line with the strategic objective to dispose of non-core assets, the Board and management remain committed to the sale of the Ghaghoo diamond mine in Botswana. Following the exclusivity agreement in the prior year, a binding share sale agreement was entered into for the sale of the mine in 2021. The agreement was subject to the fulfilment of certain suspensive conditions, including obtaining competition authority and regulatory approvals within Botswana. Prior to year end, the regulatory conditions were fulfilled and approvals were obtained from the Botswana Competition Authority. Although the transaction was not yet concluded by year end, management is pursuing to close it out as soon as possible.

 

The operation remains on care and maintenance and is classified as a discontinued operation and asset held for sale per IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Care and maintenance cash and non-cash costs amounted to US$3.7 million (2020: US$3.3 million) and have been recognised and disclosed separately in the Consolidated Statement of Profit or Loss. The increase in costs was mainly due to a non-cash impairment of redundant stock and spares during the year.

 

INSURANCE

Letšeng submitted a business interruption claim to its insurers for insured losses arising out of the 30-day COVID-19-related Government shutdown period in 2020 when the mine was required to be placed on care and maintenance. This claim has been rejected by the insurer and Letšeng has commenced the process to pursue it further.

 

Increased risk perception in the mining industry due to the COVID-19 pandemic and dam wall failures reported by other companies around the world have led to insurers decreasing their exposure to the industry. This has resulted in the renewal of appropriate insurance becoming challenging, leading to additional exclusions, reduced cover, increasing deductibles or excesses payable and increasing premiums. In response, the Group has implemented a new risk transfer strategy to address the substantial changes in the insurance market by developing a sustainable insurance solution for the Group in the medium to long term.

 

The Group assessed its potential maximum risk exposure and its history of insurance claims as a basis to transition its conventional approach to insurance cover to a more flexible model by retaining higher insurance excesses which resulted in an insurance premium saving. To mitigate the increased risk exposure of the higher deductibles in the unlikely event of an unexpected loss, the Group entered into a five-year Multi-aggregate Protection Insurance Policy.

 

SHARE-BASED PAYMENTS

The share-based payment charge for the year was US$0.4 million (2020: US$0.6 million). On 2 June 2021, shareholders approved the 2021 Remuneration Policy which included the introduction of a post-termination shareholding, an employee pension alignment plan as well as the new Gem Diamonds Incentive Plan (GDIP) for Executive Directors. No awards in line with the new GDIP or the existing Long-Term Incentive Plan (LTIP) were made in 2021.

 

Dividend

The Board is committed to sustaining shareholder value through the implementation of appropriate dividend policies and we aim to pay a dividend when the financial strength of the Group permits. The Board's proposed dividend in March 2021 of 2.5 US cents per share (US$3.5 million) was approved and paid to shareholders in June.

 

Based on the Group's financial performance during the year, the Board is proposing a dividend of 2.7 US cents per share (US$3.8 million). The dividend is subject to shareholder approval at the scheduled AGM on 8 June 2022.

 

TAXATION

The Group has applied all relevant principles in accordance with prevailing legislation in assessing its tax obligations. The Group's effective tax rate was 33.4%. Most of the Group's taxes are incurred in Lesotho, which has a corporate tax rate of 25%. The effective tax rate is above the Lesotho corporate tax rate mainly due to deferred tax assets not recognised on losses incurred in other operations and permanent differences which are non-deductible for tax purposes.

 

As disclosed in the prior year, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA) in December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. An objection to the amended tax assessment was lodged with the LRA in March 2020, which was supported by the opinion of senior counsel. The LRA subsequently lodged a court application for the review and setting aside of the applicable regulations to the Lesotho High Court pertaining to this matter, which Letšeng is opposing and a court date is expected to be set in June 2022.

 

On 7 February 2022 Letšeng received an application from the LRA to amend its original grounds for the court application. Letšeng's counsel continues to review the LRA's proposed amendment of its case and has opposed the new application by the LRA. Senior counsel advice has been obtained for the new circumstances. This advice still reflects good prospects of success. There has therefore been no change in the judgement applied and the accounting treatment for this matter (refer Note 1.2.28, Critical accounting estimates and judgments for further detail).

 

SENSITIVITIES

A range of external factors outside of the Group's control have an impact on its ability to create financial value. The Group has the necessary resilience, balance sheet strength and access to funds to adjust for shifts in these factors. The graph below illustrates the sensitivity of 2021's EBITDA to various factors that have the most significant impact on our ability to create value.

 

SENSITIVITY IMPACT OF 1% CHANGE (US$ MILLION)

Royalties rate change (absolute)

2.0

Average selling price for rough diamonds sold

2.0

Operating cost per tonne - direct cash cost

0.9

Exchange differences

1.1

Diesel price or volume

0.1

Corporate expenses

0.1

 

OUTLOOK

The Group's focus remains on operational consistency and cost management to optimise cash flows, which together with appropriate funding facilities will enable it to meet its operational and capital requirements.

 

Michael Michael

Chief Financial Officer

16 March 2022

 

 

OPERATIONS REVIEW

 

2021 OVERVIEW

 

• Zero fatalities, successful 'Stop for Safety' campaign and focus on maturing operational safety culture.

• Exceeded BT four-year target, achieving US$110.0 million by 31 December 2021.

• 99% of workforce fully vaccinated to date.

• Improved, adapted, and implemented our COVID-19 protocols and procedures to protect the safety and wellbeing of our people while continuing operations through three COVID-19 waves in a safe and responsible manner.

• Recovered six diamonds greater than 100 carats, including a 367 carat and a 245 carat large high-quality Type IIa white diamonds.

• Sold 21 diamonds for over US$1.0 million each, generating revenue of US$64.5 million.

• Highest prices achieved:

• US$119 886 per carat for a 3.4 carat pink diamond.

• US$47 574 per carat for a 65 carat Type IIa white diamond.

• Average price of US$1 835 per carat achieved.

• Supported our PACs through COVID-19 and repaired flood-damaged infrastructure.

• Fifth consecutive annual ISO 14001 and 45001 certifications.

• Group-level climate change scenario analysis completed.

• Reduced waste costs by reducing haulage distances for Main pipe waste.

• Advanced the resource core drilling programme.

• Completed a preliminary conceptual underground study to evaluate for Satellite pipe.

• Completed designs for the replacement PCA.

• Successful trial of steeper slopes in Satellite pipe to significantly reduce waste and increase ore availability.

• New fines X-ray sorting machine to treat fine recovery tailings commissioned.

• Enhanced and optimised process control to stabilise plant feed conditions.

• Initial surface miner trials completed in Q2 and Q3.

 

PERFORMANCE

 

Safety

The Group's safety approach is founded on our commitment to zero harm and belief that all injuries are preventable. Letšeng recorded zero fatalities but six LTIs during 2021, resulting in an LTIFR of 0.24 (2020: 0.04) and an AIFR of 0.93 (2020: 0.76). An organisational safety culture initiative was implemented to advance the maturity of our operational safety practices and reduce the frequency of safety incidents experienced in H1, through focused interventions including a 24-hour 'Stop for Safety' campaign and critical control management.

 

Safety performance

Unit

H1 2020

H2 2020

FY 2020

H1 2021

H2 2021

FY 2021

Fatalities

Number

0

0

0

0

0

0

LTIs

Number

0

1

1

4

2

6

LTIFR

200 000 man hours

0.00

0.08

0.04

0.32

0.16

0.24

AIFR

200 000 man hours

0.33

1.07

0.76

1.29

0.57

0.93

 

The safety case study below, outlines the key 2021 safety interventions implemented to mature our safety culture at Letšeng and improve safety performance.

 

MATURING OUR ORGANISATIONAL SAFETY CULTURE

Our safety journey in 2021 reflects the Group's deep commitment to zero harm and the belief that all injuries are preventable.

 

During the first half of 2021, Letšeng recorded a series of safety incidents that led the leadership team taking to shut down operations for 24 hours for safety-focused engagements with the entire workforce.

 

The site-wide 'Stop for Safety' campaign was the first of its kind for the Group and Letšeng and was aimed at understanding the root causes of increased safety incidents, reaffirm the commitment to zero harm and to design a targeted strategy to address the identified root causes and other concerns raised by the workforce during the intensive engagements.

 

This campaign took place on 8 June. Group Executive Management and Letšeng's leadership teams, accompanied by our contractors' executive and operational management, engaged extensively with the workforce. An additional session for employees not on duty on the day was held the following week.

A comprehensive list of actions was put together to immediately address matters raised during these sessions, which spanned a range of topics, including:

• The continuing impacts of the COVID-19 pandemic.

• Fatigue management.

• Health and safety.

• Human resource management and leadership.

 

As part of the discussions, the workforce requested more regular employee engagement forums to discuss safety and other matters, and as such, monthly employee engagement sessions were established.

 

Following the 'Stop for Safety', we appointed external safety specialists to review our safety practices and identify opportunities for improvement. In support of this process, a safety perception survey was conducted in October to map the Group's current safety maturity level. The findings of the safety perception survey informed a safety-focused response plan to implement strategic programmes that aim to develop and mature safety practices and organisational culture at Letšeng.

 

The strategic safety programmes initiated in 2021 include:

• Critical control management.

• Incident investigation and management.

• Safety-focused leadership coaching.

• Just Culture Model development.

 

In addition to the above programmes, we are maturing from reacting to lagging indicators, which measure failures post- incident to leading indicators that measure performance and indicate whether safety and health controls are effective at managing safety risk, thus being more proactive in our safety strategy. This approach will be monitored and measured through a leading indicator safety committee that will meet monthly to conduct retrospective analysis of all the leading indicators to identify trends or potential red flags to allow a proactive response.

 

We recognise that with one operating mine, there is limited opportunity for cross-operational knowledge sharing and we have identified a need for external assistance to transfer knowledge, experience and expertise on safety-related matters. We have constituted a committee of experienced individuals, our 'Grey Hair Council', from a broad industry base with deep insight into industry leading safety practices. In 2021, this council provided valuable guidance and insights into actual safety incidents, which have been integrated into our safety response and management plans.

 

We remain committed to zero harm and continue to look for innovative ways to deepen our understanding of how we can keep ourselves and our teams safe.

 

Operations

 

KPI

Unit

2021

2020

% change

Ore mined

tonnes

6 298 863

5 594 639

13

Ore treated

tonnes

6 213 098

5 436 396

12

Carats recovered1

carats

115 335

100 780

14

Carats sold

carats

109 697

99 172

11

Average price per carat

US$/carat

1 835

1 908

(4)

 

1   Includes carats produced from the Letšeng plants, the Alluvial Ventures plant and the tailings treatment plant.

 

The Group's Letšeng operation continued operating safely and responsibly throughout the year notwithstanding the ongoing impact of COVID-19 on the availability of spares and equipment, limited access to skills and services due to travel restrictions and supply chain disruptions, and lost shifts due to required quarantining. Fatigue and mental health challenges placed significant strain on the management and the workforce.

 

Waste tonnes mined increased 20% to 18.7 million tonnes from 15.6 million tonnes in 2020 (2020 being impacted by the 30-day COVID-19 shutdown).

 

The trial to further steepen the west side of the Satellite pipe was safely and successfully managed during the year, with blasting and berm retention controls well entrenched. A similar slope steepening programme is planned for the final cutbacks in the Main pit. This will significantly reduce waste volumes and related costs, and expose more ore over the life of the Main pipe open pit.

 

Ore mined in 2021 of 6.3 million tonnes (2020: 5.6 million tonnes) was in line with the requirements of the plants and stockpile management.

 

Although a successful year overall, the Letšeng operations experienced many challenges during the year, including:

• intermittent Main pit closures due largely to extreme weather conditions and spillage caused by the split-shell mining method as one cutback is completed while the next starts.

• regional power grid instability and unplanned power cuts.

• a breakdown of the primary jaw crusher at the end of the third quarter.

• unscheduled and extended maintenance of critical plant equipment.

 

Ore treated during 2021 of 6.2 million tonnes (2020: 5.4 million tonnes) comprised 5.2 million tonnes treated by Letšeng's plants (2020: 4.5 million) and 1.0 million tonnes treated by Alluvial Ventures, the third-party processing contractor (2020: 0.9 million).

 

Of the total ore treated, 2.7 million was sourced from the Main pipe, 3.3 million from the Satellite pipe with 0.2 million tonnes treated from the Main pipe stockpiles.

 

During the year we reduced the PCA throughput to ensure the longevity of our current PCA while the construction of the replacement PCA commences in 2022 and for commissioning in 2023. The new PCA comprises a twin module design with a combined throughput of c.1 000 tonnes/hour.

 

Total carats recovered in 2021 increased 14% to 115 335 carats (2020: 100 780 carats). Carats recovered increased by 1% when compared to 2019, which was a more comparable year not impacted by COVID-19. The BT initiative to re-treat historic and current recovery tailings through the mobile X-ray transmission sorting machine recovered 1 098 carats in 2021 (2020:1 341 carats). An additional 213 carats were recovered by the new fines X-ray sorting machine that was installed and commissioned in H2 with expected full production in H1 2022.

 

Overall grade for 2021 was 1.85cpht which is aligned with 2020 and in line with the expected reserve grade. The contribution from Satellite pipe material accounted for 54% of all material treated during the year (2020: 52%).

 

Revised Mine Plan

Following the change in design of the Satellite pit, resulting in the successful implementation of steeper slopes in 2019, and further steepening and pit design optimisation over the last three years, more ore has been exposed. This has resulted in the availability of ore from the Satellite pipe extending late into 2025, compared to the 2019 plan where it was depleted in mid- 2023. This has allowed the commencement of the waste stripping related to the next cutback (Cut 6 West / C6W) of the Satellite pit to be delayed to 2024.

 

In 2021, a preliminary conceptual study of an early-access underground in the Satellite pit was completed. An underground feasibility study will be commissioned in 2022 to assess the viability of an earlier shift to underground mining of the Satellite pipe and to evaluate the trade-off between this and C6W. The trade-off analysis between C6W and underground mining of the Satellite pit will be completed in 2023.

 

Our long-term mine plan has been revised accordingly to commence waste stripping related to C6W in 2024, previously 2022. At this rate of waste stripping, Satellite ore from C6W will be available from 2029. Pending the outcome of the proposed underground feasibility study, Satellite C6W cutback may be replaced by the early commencement of underground mining with the intention of bringing forward access to Satellite ore post the completion of Satellite Cut 5 West in 2025.

 

The waste mining profile for the next two years has therefore been reduced to an estimated 11.0 million and 11.6 million tonnes respectively. At this rate of waste stripping, Satellite ore from C6W will be available from 2029.

 

Large diamond recoveries

In 2021 Letšeng recovered six diamonds greater than 100 carats and total diamonds recovered greater than 10 carats increased by 4% year on year, mostly in the 10 to 20 carat size category. Although recoveries throughout the categories are mostly in line with the 13-year averages, the lower number of diamonds in the large categories (60 to 100 carats and greater than 100 carats) can be primarily attributed to the areas of the resource that were mined in 2021 versus what was mined in 2020. 2020 was a record year for these two categories of larger diamonds. A total of 122 greater than 100 carat diamonds have been recovered at Letšeng since 2006.

 

Number of large diamond recoveries

2021

2020

FY average

2008-2020

> 100 carats

6

16

8

60 - 100 carats

16

29

19

30 - 60 carats

81

102

76

20 - 30 carats

122

115

114

10 - 20 carats

570

500

433

Total diamonds > 10 carats

795

762

650

 

 

Letšeng 60 - 100 and +100 carat diamonds

Year

+100 Carat diamonds

60 - 100 Carat diamonds

2021

6

16

2020

16

29

2019

11

20

2018

15

22

2017

7

19

2016

5

21

2015

11

15

2014

9

21

2013

6

17

 

Mineral resources and reserves

A primary focus in 2021 was advancing the resource core drilling programme in the Main and Satellite pipes, using the new drill rig purchased at the end of 2020. As the new drilling crews and management systems were embedded, the number of shifts increased, and the drilling process accelerated. The main challenge facing demarcated drilling programme remains the competition with production activities for access to the drilling sites, which were all positioned in the pits. Although completion of the core drilling programme was a high priority, continued production activities remained paramount.

 

Resource drilling in the Satellite pipe progressed well and nine delineation drillholes were completed. The kimberlite contact of the Satellite pipe along the western wall deviated out slightly from the expected position at the current mining elevation and posed certain geotechnical risks. A series of 19 additional holes were drilled for geotechnical purposes at intervals along the length of the western wall to resolve the immediate risk to the mine design and pit wall stability. These drillholes detected an increase in the pipe margin, adding further ore to the resource base of Satellite pipe. Detailed petrography of the core is in progress and updated geological models are expected by mid-2022.

 

Resource drilling in the Main pipe proved more difficult, with ground conditions hampering drilling progress and resulting in several holes having to be abandoned and redrilled. Delays experienced related to excessive rainfall and the commencement of mining activities on the upper benches in the new cutback (Cut 4 East), creating unsafe working conditions for the drilling crews below and periodically restricting access to the drilling sites.

 

Two additional contractor drill rigs were brought to site to reduce the impact on the timeline for completion of the drilling programme and updating of the Resource and Reserve Statement. By year end, the objectives of the drilling programme in Satellite pipe had been met and only four of the 14 planned drillholes in Main pipe remained to be completed.

 

Diamond sales

Six rough diamond tender viewings were held in Antwerp and a first trial tender viewing was held in Dubai in September. Travel and other COVID-19-related restrictions had little impact on attendance at the tender viewings and demand remained strong throughout the year.

 

A total of 109 697 carats were sold in 2021 (2020: 99 172) and Letšeng generated rough diamond revenue of US$201.3 million (2020: US$189.2 million), at an average price of US$1 835 per carat (2020: US$1 908).

 

The Group supports the GIA's blockchain technology to inform and assure consumers about the ethical and socially supportive footprint of the diamonds being purchased. Blockchain technology can link the source of rough diamonds to the final polished diamonds, proving their authenticity, provenance and traceability, and supporting ethical sourcing and processing in the diamond value chain.

 

Capital projects

Although limited, capital was appropriately spent during 2021 in line with operational requirements. Certain capital was deferred into 2022 without putting the continuation of operations at risk. A number of key capital projects are planned for 2022, including the replacement of the PCA, the completion of the resource core drilling programme to inform Lesteng's Resource and Reserve Statement, the construction of the bioremediation plant, further evaluation of the underground development opportunities and expansion of the Patiseng coarse tailings storage facility. Details of overall costs and capital expenditure incurred at Letšeng during the year are included in the CFO review on pages 52 to 59.

 

Business Transformation

The Group's BT programme concluded at the end of 2021, exceeding the targeted US$100 million1 in revenue, productivity and cost savings (against the 2017 base) by achieving a total of US$110.0 million, as set out below. The programme identified 325 initiatives to create a step change in efficiency, productivity and cost management, and to position Gem Diamonds favourably in its peer group.

 

1   The target is stated net of implementation costs, consultant fees and an employee incentive plan that rewarded the successful delivery of initiatives contributing to the overall target.

 

BT programme annual cash saving (US$ million)

 


2018

2019

2020

2021

21

55

79

110

Mining

5

17

16

21

Processing

4

12

2

4

Working capital and overheads

2

2

3

2

Corporate activities

4

3

3

4

 

The targeted US$100 million comprised US$7.1 million in once-off savings and US$103.0 million in cumulative recurring annualised benefits over four primary workstreams - mining, processing, working capital and overheads, and corporate activities. The implemented initiatives are sustainably embedded in the operation and continue to deliver benefits in reduced costs and improved efficiencies that have been critical in maximising operational cash flows, which was crucial in the Group's ability to successfully absorb the external shock of the COVID-19 pandemic.

 

Continuous Improvement

The CI programme aims to implement behavioural strategies and meaningful KPIs to create effective visual management tools and problem solving at all levels. The CI methodology, supported by training and coaching, enables the Group to continuously improve efficiencies by unlocking the inherent capabilities of employees at all levels to implement best practices, build effective teams and drive incremental improvements. Although severely hampered by COVID-19 restrictions and constraints, CI was successfully implemented in Mining at Letšeng in 2020, with the roll-out to the Treatment and Services areas commencing in 2021. In 2022, the programme will focus on training and focused coaching to improve skills and experience at the supervisory level.

 

A key strategic objective for the Group is to continuously identify opportunities to unlock value within our business. During 2021, we focused on continuous improvement opportunities to reduce mining-related costs and improve resource use efficiencies. At Letšeng, waste hauling distance is a major driver of both current and future mining costs and fossil fuel combustion-related greenhouse gas emissions.

 

We identified an opportunity to reduce both mining costs and greenhouse gas emissions through shorter mining waste haulage distances of our waste from the Main pit. Following extensive collaboration between our environmental and mining teams, a new mine waste dumping plan was designed and implemented. The revised plan has reduced the haulage distance of waste from the Main pit by 30%, resulting in a significant long- term reduction of the associated operational costs and diesel consumption, and advancing our sustainability objectives to lower carbon emissions.

 

By working together to design innovative solutions, we are able to unlock shared value and drive Group goals with regards to maximising value, managing costs and reducing our environmental footprint.

 

Dam safety and integrity

Letšeng has three dams on site - (i) the Patiseng tailings storage facility, which is currently in use for the deposition of coarse tailings and fine tailings, (ii) the Old Tailings Storage Facility, which is sporadically used for fine tailings deposition, and (iii) the Mothusi Dam, which is the mine's freshwater supply resource. Letšeng's dams were constructed using the 'centre line and downstream tipping' method1, which is a safer method of construction than the 'upstream' construction methods used in most recent dam failures reported in the mining industry.

 

We have aligned our tailings dam failures in the mining industry have shown the severe adverse impact these can have on human lives and the natural environment. Tailings dam integrity is consequently an ongoing area of significant focus for mining companies and investors.

 

The Group has aligned its tailings storage facility management code of practice to that of the ICMM's GISTM and established appropriate governance structures at both operational and Group levels to provide oversight and assurance of continued safe and responsible management of our tailings storage facilities. The relevant details of Letšeng's tailings storage facilities are available in our voluntary disclosure as part of the Investor Mining and Tailings Safety initiative set up by the Church of England, which can be found under the Company's name at http://tailing.grida.no/. Further information is available on page 78.

 

1   A discussion of the construction and applicability of the various types of tailings facilities is available on the International Council of Mining and Metals website at www.icmm.com/en-gb/environment/tailings.

 

Preventing diamond damage

The large high-value Type II diamonds in Letšeng's orebody are more susceptible to damage through the mining and treatment processes. Diamond damage negatively impacts the value and in turn the sales prices realised for these diamonds. Reducing damage to these diamonds provides an important opportunity to significantly enhance revenue.

 

Our main focus in this regard has been on identifying, validating and testing technologies from various industries that show potential to identify diamonds within kimberlite at an early stage and liberate these using non-mechanical means. In 2019, the Group's wholly owned subsidiary, Gem Diamonds Innovation Solutions, constructed and commissioned a pilot plant at Letšeng to test this technology under operating conditions. Progress on the detection components of this pilot plant has been limited to the development of the detection and ejection algorithms and further development is required to enhance this technology. The materials handling component of the pilot plant now forms part of Letšeng's new fines XRT system that was commissioned in H2 of 2021.

 

Sale of Ghaghoo

A binding share sale agreement was entered into for the sale of the Ghaghoo diamond mine in Botswana to Okwa Diamonds Pty Ltd, an entity owned by Vast Resources PLC (Vast) and Botswana Diamonds PLC (BOD). The agreement is subject to the fulfilment of certain suspensive conditions including obtaining the competition authority and regulatory approvals within Botswana. Regulatory conditions have been fulfilled and written approvals have been obtained from the Botswana Competition Authority and, in December 2021, the Ministry of Mineral Resources, Green Technology and Energy Security of Botswana. However, the completion date for the transaction has been extended by two months to 31 March 2022 to allow BOD to secure an alternative financing partner to replace Vast.

 

OUR PLANS FOR 2022

A pre-evaluation of the feasibility of an earlier shift to underground operation will start early in 2022 and the replacement of the PCA will commence in the first half of the year. The contract with Alluvial Ventures, which runs the third processing plant, expired at the end of 2021 and has been extended to 30 June 2022. We are currently evaluating several options for a replacement 1.0 to 1.2 million tonne per annum XRT plant. Work continues to steepen slopes to optimise the mining plan for Main pipe and we will begin planning for the tailings extension at Patiseng. A number of other projects are planned to optimise mining efficiencies, improve production, decrease costs and reduce emissions in line with our commitment to decarbonisation.

 

FINANCIAL STATEMENTS

 

RESPONSIBILITY STATEMENT OF THE DIRECTORS IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

 

The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with International Financial Reporting Standards (IFRS). Having taken advice from the Audit Committee, the Board considers this report and financial statements taken as a whole, are fair, balanced and understandable and that they provide the information necessary for shareholders to assess the Group's performance, business model and strategy.

 

The Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Group faces.

 

PREPARATION OF THE FINANCIAL STATEMENTS

The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group, and of their profit or loss for that period. In preparing the Group financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRS;

· state whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the Group financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

 

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose, with reasonable accuracy at any time, the financial performance, the financial position and cash flow of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The Directors confirm that the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position at year end, cash flow and profit or loss for the year then ended of the Group and the undertakings included in the consolidation taken as a whole. In addition, suitable accounting policies have been selected and applied consistently.

 

Information, including accounting policies, has been presented in a manner that provides relevant, reliable, comparable and understandable information, and additional disclosures have been provided when compliance with the specific requirements in IFRS have been insufficient to enable users to understand the financial impact of particular transactions, other events and conditions on the Group's financial position, cash flow and financial performance. Where necessary, the Directors have made judgements and estimates that are considered reasonable and prudent.

 

The Directors of the Company have elected to comply with the Companies Act, 2006, in particular the requirements of Schedule

8 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2013 of the United Kingdom pertaining to Directors' remuneration which would otherwise only apply to companies incorporated in the UK.

 

 

Michael Michael

Chief Financial Officer

16 March 2022

 

 

INDEPENDENT AUDITOR'S REPORT

 

To the Shareholders of Gem Diamonds Limited

 

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

 

Opinion

We have audited the consolidated financial statements of Gem Diamonds Limited and its subsidiaries (the Group) set out on pages 152 to 211, which comprise the consolidated statement of financial position as at 31 December 2021, and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

 

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2021, and of its consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.

 

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for Auditors' Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements of the Group and in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits of the Group and in South Africa. The IRBA Code is consistent with the corresponding sections of the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor's opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

 

We have fulfilled the responsibilities described in the Auditor's Responsibilities for the Audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

 

Key Audit Matter

How the matter was addressed in the audit

GOODWILL IMPAIRMENT

Management performs an annual impairment test on goodwill as required by IAS 36 Impairment of Assets using discounted future cash flows. Goodwill relates to the Group's investment in the Letšeng Diamond mine.

 

There is an inherent uncertainty in forecasting and discounting future cash flows, which forms the basis of the Group's value in use calculations used in the impairment model. This was amplified due to the economic and other effects of the continued Covid-19 pandemic including uncertainty around the duration of the pandemic and timing of the recovery of the various world economies. The continued volatility in diamond prices, exchange rates and discount rates resulted in additional audit work in assessing the Group's impairment model.

 

As disclosed in Note 11 Impairment testing and Note 1.2.28 Critical accounting estimates and judgements, the Group uses discounted cash flows to determine the value in use for each cash generating unit, on the basis of the following key assumptions:

• Diamond prices;

• Inflation rates;

• Production costs and volumes;

• Capital expenditure;

• Discount rates; and

• Exchange rates.

 

Given the above factors, the goodwill impairment, particularly in the diamond mining industry, required significant audit attention in the current year through extended sensitivity and stress testings with different scenarios including the use of our valuation experts.

 

Our audit procedures included amongst others the following:

 

• We involved our EY internal valuation specialists as part of our team to assist in evaluating management's impairment methodology and key assumptions used in the impairment calculations;

• Our valuation specialists calculated two independent weighted average cost of capital (WACC) rates (Revenue and costs) to compare to management's WACC's. Our independent WACC recalculations were based on publicly available market data for comparable companies for the Letšeng Cash Generating Unit (CGU);

• Our valuation specialists calculated an independent net present value (NPV) to compare to management's NPV;

• Our valuation specialists assessed the reasonability of the significant inputs and assumptions used in the impairment models, such as diamond prices, exchange rates, inflation rates, by comparing them to independent sources;

• We have performed sensitivity analyses around the key assumptions used in the impairment model. We did this by increasing and decreasing the following assumptions in the model to determine the impact on the headroom between the value of the recorded assets of the CGU and the value in use as calculated. These included:

• WACC; and

• Diamond prices

• We assessed the adequacy of the Group's disclosures in terms of IAS 36, in the notes to the consolidated financial statements.

 

Other Information

Management is responsible for the other information. The other information comprises the information included in the 224-page document titled 'Gem Diamonds Annual Report and Accounts 2021'. The other information does not include the consolidated financial statements and our auditor's report thereon.

 

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

 

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

 

Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

 

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

 

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identity during our audit.

 

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.

 

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

 

 

Ernst & Young Inc.

Director - Philippus Dawid Grobbelaar

Registered Auditor

Chartered Accountant (SA)

16 March 2022

102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146

 



 

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2021

 


Notes

2021

US$'000

2020

US$'000

CONTINUING OPERATIONS




Revenue from contracts with customers

 2

201 859

189 647

Cost of sales


(121 587)

(113 802)

Gross profit


80 272

75 845

Other operating expense

3

(591)

(3 911)

Royalties and selling costs


(21 918)

(19 843)

Corporate expenses


(8 886)

(7 992)

Share-based payments

27

(395)

(555)

Foreign exchange gain/(loss)

4

1 929

(880)

Operating profit

4

50 411

42 664

Net finance costs

5

(3 742)

(4 411)

- Finance income


202

382

- Finance costs


(3 944)

(4 793)

Profit before tax for the year from continuing operations


46 669

38 253

Income tax expense

6

(15 562)

(10 711)

Profit after tax for the year from continuing operations


31 107

27 542

DISCONTINUED OPERATION




Loss after tax from discontinued operation

15

(3 754)

(3 264)

Profit for the year


27 353

24 278

Attributable to:




Equity holders of parent


14 767

13 641

Non-controlling interests


12 586

10 637

Earnings per share (cents)

7



- Basic earnings for the year attributable to ordinary equity holders of the parent


10.5

9.8

- Diluted earnings for the year attributable to ordinary equity holders of the parent


10.4

9.6

Earnings per share (cents) for continuing operations




- Basic earnings for the year attributable to ordinary equity holders of the parent


13.2

12.1

- Diluted earnings for the year attributable to ordinary equity holders of the parent


13.0

11.9

 

 

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021


Notes

2021

US$'000

2020

US$'000

Profit for the year


27 353

24 278

Other comprehensive loss that will be reclassified to the Consolidated Statement of




Profit or Loss in subsequent periods




Exchange differences on translation of foreign operations, net of tax


(21 196)

(14 049)

Other comprehensive loss for the year, net of tax


(21 196)

(14 049)

Total comprehensive income for the year, net of tax


6 157

10 229

Attributable to:




Equity holders of the parent


(154)

3 779

Non-controlling interests


6 311

6 450

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021


Notes

2021

US$'000

2020

US$'000

ASSETS




Non-current assets




Property, plant and equipment

8

293 627

304 005

Right-of-use assets

9

3 137

4 823

Intangible assets

10

11 962

12 997

Receivables and other assets

12

1 278

153

Deferred tax assets

22

5 117

6 346



315 121

328 324

Current assets




Inventories

13

31 158

26 741

Receivables and other assets

12

4 095

5 686

Income tax receivable

20

1 232

106

Cash and short-term deposits

14

30 913

49 820



67 398

82 353

Assets held for sale

15

2 097

3 528

Total assets


384 616

414 205

EQUITY AND LIABILITIES




Equity attributable to equity holders of the parent




Issued capital

16

1 406

1 397

Share premium


885 648

885 648

Other reserves

16

(226 697)

(212 164)

Accumulated losses


(500 550)

(511 808)



159 807

163 073

Non-controlling interests


86 843

84 422

Total equity


246 650

247 495

Non-current liabilities




Interest-bearing loans and borrowings

17

8 340

1 702

Lease liabilities

18

3 851

4 902

Trade and other payables

19

2 095

2 029

Provisions

21

11 202

12 331

Deferred tax liabilities

22

82 472

84 538



107 960

105 502

Current liabilities




Interest-bearing loans and borrowings

17

2 704

14 385

Lease liabilities

18

973

1 836

Trade and other payables

19

22 188

28 823

Income tax payable

20

41

11 940



25 906

56 984

Liabilities directly associated with the assets held for sale

15

4 100

4 224

Total liabilities


137 966

166 710

Total equity and liabilities


384 616

414 205

 

Approved by the Board of Directors on 16 March 2022 and signed on its behalf by:

 

 

C Elphick   M Michael

Director  Director

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

 

Attributable to the equity holders of the parent


Issued capital

US$'000

Share premium

US$'000

Other reserves1

US$'000

Accumulated (losses)/ retained earnings

US$'000

Total

US$'000

Non-controlling interests U5$'000

Total equity

US$'000

Balance at 1 January 2021

1 397

885 648

(212 164)

(511 808)

163 073

84 422

247 495

Total comprehensive (loss)/ income

-

-

(14 921)

14 767

(154)

6 311

6 157

Profit for the year

-

-

-

14 767

14 767

12 586

27 353

Other comprehensive loss

-

-

(14 921)

-

(14 921)

(6 275)

(21 196)

Share capital issued (Note 16)

9

-

(9)

-

-

-

-

Share-based payments (Note 27)

-

-

397

-

397

-

397

Dividends declared (Note 29)

-

-

-

(3 509)

(3 509)

(3 890)

(7 399)

Balance at 31 December 2021

1 406

885 648

(226 697)

(500 550)

159 807

86 843

246 650

Attributable to discontinued operation (Note 15)

-

-

(52 893)

(196 006)

(248 899)

-

(248 899)

Balance at 1 January 2020

1 391

885 648

(202 857)

(525 449)

158 733

85 424

244 157

Total comprehensive (loss)/income

-

-

(9 862)

13 641

3 779

6 450

10 229

Profit for the year

-

-

-

13 641

13 641

10 637

24 278

Other comprehensive loss

-

-

(9 862)

-

(9 862)

(4 187)

(14 049)

Share capital issued (Note 16)

6

-

(6)

-

-

-

-

Share-based payments (Note 27)

-

-

561

-

561

-

561

Dividends declared

-

-

-

-

-

(7 452)

(7 452)

Balance at 31 December 2020

1 397

885 648

(212 164)

(511 808)

163 073

84 422

247 495

Attributable to discontinued operation (Note 15)

-

-

(53 046)

(192 252)

(245 298)

-

(245 298)

 

1 Other reserves relate to Foreign currency translation reserves and Share based equity reserves. Refer Note 16, Issued capital and reserves for further detail.

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021


Notes

2021

US$'000

2020

US$'000

Cash flows from operating activities


71 307

96 227

Cash generated by operations

23.1

103 902

93 050

Working capital adjustments

23.2

(7 107)

464

Interest received


202

382

Interest paid

18, 23.3

(2 457)

(3 558)

Income tax paid

20

(23 329)

(1 268)1

Income tax received

20

96

7 1571

Cash flows used in investing activities


(68 686)

(48 718)

Purchase of property, plant and equipment

8

(3 985)

(1 571)

Waste stripping costs capitalised

8

(64 725)

(47 167)

Proceeds from sale of property, plant and equipment


24

20

Cash flows used in financing activities


(19 025)

(12 995)

Lease liabilities repaid

18

(1 660)

(1 906)

Net financial liabilities repaid

23.3

(7 194)

(6 431)

Financial liabilities repaid


(26 393)

(55 638)

Financial liabilities raised


19 199

49 207

Dividends paid to holders of the parent


(3 486)

-

Dividends paid to non-controlling interests


(6 685)

(4 658)

Net (decrease)/ increase in cash and cash equivalents


(16 404)

34 514

Cash and cash equivalents at beginning of year


49 827

11 443

Foreign exchange differences


(2 366)

3 870

Cash and cash equivalents at end of year


31 057

49 827

Cash and cash equivalents at end of year - continuing operation

14

30 913

49 820

Cash and cash equivalents at end of year - discontinued operation

15

144

7

 

1   These amounts were presented on a net basis in the prior year and have been disaggregated and presented separately in the current year. This reclassification had no impact on the financial statements.

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021

 

1.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.1

Corporate information

 

1.1.1

Incorporation

The holding company, Gem Diamonds Limited (the Company), was incorporated on 29 July 2005 in the British Virgin Islands (BVI) and is domiciled in the United Kingdom (UK). The Company's registration number is 669758.

 

These financial statements were authorised for issue by the Board on 16 March 2022.

 

The Group is principally engaged in operating diamond mines.

 

1.1.2

Operational information

The Company has the following investments directly and indirectly in subsidiaries at 31 December 2021. During the prior year Gem Equity Group Limited, a 100% held dormant investment holding company, was abandoned. Following the sale of its investments within the prior year the Board of Directors of Gem Equity Group Limited resolved to voluntarily liquidate the company. The liquidation was finalised on 2 July 2021 and the company no longer exists at year end. In addition, Calibrated Diamonds Investment Holdings (Proprietary) Limited, a 100% held subsidiary of Gem Diamonds Investments Limited was deregistered during the year after being dormant for several years.

 


Name and registered address of company

Share-holding

Cost of investment¹

Country of incorporation

Nature of business


Subsidiaries






Gem Diamond Technical

Services (Proprietary)

Limited2

Illovo Corner

24 Fricker Road

Illovo Boulevard

Johannesburg

South Africa

100%

US$17

RSA

Technical, financial and management

consulting services.


Letšeng Diamonds

(Proprietary) Limited2

L etšeng Diamonds House

Corner Kingsway and Old

School Roads

Maseru

Lesotho

70%

US$126 000 303

Lesotho

Diamond mining and holder of mining

rights.


Gem Diamonds Botswana

(Proprietary) Limited2,3

Suite 103, GIA Centre

Diamond Technology Park

Plot 67782, Block 8

Gaborone

Botswana

100%

US$5 844 579

Botswana

Diamond mining; evaluation and

development; and holder of mining licences and concessions.


Gem Diamonds

Investments Limited2

Suite 1, 3rd Floor,

11-12 St. James Square,

London

SW1Y 4LB United Kingdom

100%

US$17 531 316

UK

Investment holding company holding

100% in each of Gem Diamonds Innovation Solutions CY Limited, a

company holding intellectual property relating to development of technology to innovate mining processes; Baobab Technologies BVBA, a diamond analysis and valuation facility in Belgium; and 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 Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), which is in the process of being sold, has been classified as a discontinued operation held for sale since 30 June 2019 and disclosed separately (refer Note 15, Asset held for sale).

 

1.1.3

Segment information

For management purposes, the Group is organised into geographical units as its risks and required rates of return are affected predominantly by differences in the geographical regions of the mines and areas in which the Group operates or areas in which operations are managed. The below measures of profit or loss, assets and liabilities are reviewed by the Chief Operating Decision- Maker, i.e. Board of Directors. The main geographical regions and the type of products and services from which each reporting segment derives its revenue from are:

Lesotho (diamond mining activities);

Belgium (sales, marketing and manufacturing of diamonds);

BVI, RSA, UK and Cyprus (technical and administrative services); and

Botswana (diamond mining activities), classified as discontinued operation held for sale since 30 June 2019.

 

Management monitors the operating results of the geographical units separately for the purpose of making decisions about resource allocation and performance assessment.

 

Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), which was classified as a discontinued operation held for sale and disclosed separately from 2019, continues to be classified as such at year end as management remain committed to the sales process. Refer Note 15, Asset held for sale.

 

During the prior year Gem Equity Group, a dormant investment holding company registered in the BVI, was abandoned. Following the sale of its investments within the prior year the Board of Directors of Gem Equity Group resolved to voluntarily liquidate the company. The company no longer exists as the liquidation was finalised on 2 July 2021 at a minimal liquidation professional fee paid by Gem Diamonds Limited. There was no further impact on the Group's results in the current year from the company. GEG was classified as part of the BVI, RSA, UK and Cyprus segment. Calibrated Diamonds Investment Holdings (Proprietary) Limited (CDIH), a 100% held subsidiary of Gem Diamonds Investments Limited was deregistered during the year after being dormant for several years. There was no impact on the Group's results in the current year from this company. CDIH was classified as part of the BVI, RSA, UK and Cyprus segment.

 

Segment performance is evaluated based on operating profit or loss. Intersegment transactions are entered into under normal arm's length terms in a manner similar to transactions with third parties. Segment revenue, segment expenses and segment results include transactions between segments. Those transactions are eliminated on consolidation.

 

Segment revenue is derived from mining activities, polished manufacturing margins, and diamond analysis and manufacturing services.

 

The following tables presents revenue from contracts with customers, profit/(loss) for the year, EBITDA and asset and liability information from operations regarding the Group's geographical segments:

 


Year ended 31 December 2021

Lesotho

US$'000

Belgium

US$'000

BVI, RSA UK and Cyprus1

US$'000

Total Continuing operations

US$'000

Discontinued operation

US$'000

Total

US$'000










Revenue from contracts with customers








Total revenue

198 816

202 461

7 031

408 308

-

408 308


Intersegment

(198 581)

(837)

(7 031)

(206 449)

-

(206 449)


External customers

235

201 624

-

201 859

-

201 859


Depreciation and amortisation

54 012

350

1 063

55 425

-

55 425


- Depreciation and mining asset amortisation

7 199

350

1 063

8 612

-

8 612


- Waste stripping cost amortisation

46 813

-

-

46 813

-

46 813


Share-based equity transactions

(105)

(4)

(286)

(395)

(2)

(397)


Segment operating profit/(loss)

59 008

1 238

(9 835)

50 411

(3 533)

46 878


Net finance costs

(2 395)

(1)

(1 346)

(3 742)

(221)

(3 963)


Profit/(loss) before tax

56 613

1 237

(11 181)

46 669

(3 754)

42 915


Income tax expense

(14 661)

(178)

(723)

(15 562)

-

(15 562)


Profit/(loss) for the year

41 952

1 059

(11 904)

31 107

(3 754)

27 353


EBITDA

64 328

1 625

(8 584)

57 369

(2 047)

55 322


Segment non-current assets

306 777

161

1 788

308 726

1 413

310 139


Segment assets

369 105

1 985

6 312

377 402

2 097

379 499


Segment liabilities

39 440

351

11 603

51 394

4 100

55 494


Other segment information








Net cash and short-term deposits2

24 175

1561

(5 014)

20 722

144

20 866


Capital expenditure








- Property, plant and equipment

3 952

7

32

3 991

-

3 991


- Net movement in rehabilitation asset3

(1 345)

-

-

(1 345)

-

(1 345)


- Waste cost capitalised

64 725

-

-

64 725

-

64 725


Total capital expenditure

67 332

7

32

67 371

-

67 371


Average number of employees employed under contracts of service

 

304

 

6

 

22

 

332

 

22

 

354


 

1 No revenue was generated in BVI and Cyprus.

2 Calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility, insurance premium financing and credit underwriting fees). Refer Note 17, Interest bearing loans and borrowings.

3 Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.

 


Included in revenue for the current year is revenue from two customers who individually contributed 10% or more to total revenue. This revenue in total amounted to US$73.0 million arising from sales reported in the Belgium segment.

 

Segment non-current assets do not include deferred tax assets of US$5.1 million and financial instruments of US$1.3 million. Included in the non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current assets located in the Company's country of domicile, the UK, of US$0.1 million.

 

Segment assets and liabilities do not include deferred tax assets and liabilities of US$5.1 million and US$82.5 million respectively.

 

Total revenue for the year is higher than that of the prior year mainly due to higher volume of carats sold of 109 697 (2020: 99 172). An average sales price of US$1 835 (2020: US$1 908) was achieved.

 


Year ended 31 December 2020

Lesotho

US$'000

Belgium

US$'000

BVI, RSA UK and Cyprus1

US$'000

Total Continuing operations

US$'000

Discontinued operation2

US$'000

Total

US$'000


Revenue from contracts with customers








Total revenue

186 801

189 825

5 997

382 623

-

382 623


Intersegment

(186 183)

(796)

(5 997)

(192 976)

-

(192 976)


External customers

618

189 029

-

189 647

-

189 647


Depreciation and amortisation

50 636

391

1 463

52 490

-

52 490


- Depreciation and mining asset amortisation

7 216

391

1 463

9 070

-

9 070


- Waste stripping cost amortisation

43 420

-

-

43 420

-

43 420


Share-based equity transactions

157

6

392

555

6

561


Segment operating profit/(loss)

49 061

1 354

(7 751)

42 664

(3 062)

39 602


Net finance costs

(2 742)

(6)

(1 663)

(4 411)

(202)

(4 613)


Profit/(loss) before tax

46 319

1 348

(9 414)

38 253

(3 264)

34 989


Income tax expense

(10 790)

(179)

258

(10 711)

-

(10 711)


Profit/(loss) for the year

35 529

1 169

(9 156)

27 542

(3 264)

24 278


EBITDA

59 038

1 748

(7 588)

53 198

(2 943)

50 255


Segment non-current assets

318 611

504

2 710

321 825

1 533

323 358


Segment assets

396 040

1 694

6 597

404 331

3 528

407 859


Segment liabilities

63 733

496

13 719

77 948

4 224

82 172


Other segment information








Net cash and short-term deposits2

40 311

877

(6 565)

34 623

7

34 630


Capital expenditure








- Property, plant and equipment

1 535

7

29

1 571

-

1 571


- Net movement in rehabilitation asset3

(3 125)

-

-

(3 125)

-

(3 125)


- Waste cost capitalised

47 167

-

-

47 167

-

47 167


Total capital expenditure

45 577

7

29

45 613

-

45 613


Average number of employees employed under contracts of service

323

6

21

350

31

381


 

1 No revenue was generated in BVI and Cyprus.

2 Calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility, insurance premium financing and rolling fees capitalised to the Company's US$30.0 million bank loan facility). Refer Note 17, Interest bearing loans and borrowings.

3 Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.

 


Included in annual revenue for the 2020 year is revenue from six customers who individually contributed 10% or more to total revenue. This revenue in total amounted to US$66.9 million arising from sales reported in the Belgium segment.

 

Segment non-current assets do not include deferred tax assets of US$6.3 million and financial instruments of US$0.2 million. Included in the non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current assets located in the Company's country of domicile, the UK, of US$0.3 million.

 

Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.3 million and US$84.5 million respectively.

 

1.2

Summary of significant accounting policies

 

1.2.1

Basis of preparation

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). These financial statements have been prepared under the historical cost basis except for assets and liabilities measured at fair value. The accounting policies have been consistently applied except for the adoption of the new standards and interpretations detailed on the following pages.

 

The functional currency of the Company and certain of its subsidiaries is US dollar, which is the currency of the primary economic environment in which the entities operate. All amounts are presented in US dollar and rounded to the nearest thousand. The financial results of subsidiaries whose functional and reporting currency is in currencies other than US dollar have been converted into US dollar on the basis as set out in Note 1.2.16, Foreign currency translations.

 

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 1.2.28, Critical accounting estimates and judgements.

 

Changes in accounting policies and disclosures

 

New and amended standards and interpretations

The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or after 1 January 2021 (unless otherwise stated). The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

 

The nature and effect of these changes as a result of the adoption of these new pronouncements are described below. Other than the changes described below, the accounting policies adopted are consistent with those of the previous financial year.

 

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 - Interest rate benchmark reform Phase 2

The amendment addresses issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative benchmark interest rate. In the prior year, the Group and its funders commenced a comprehensive debt refinancing programme of the Group's facilities. The refinancing programme incorporates the consideration of any risk posed to the Group by phase two of the IBOR reform, which was effective from 1 January 2021. The IBOR reform may potentially have an impact on the South African JIBAR, and LIBOR linked interest-bearing loans and borrowings The interest-bearing loans and borrowings subject to the South African JIBAR rate include the LSL215.0 million unsecured project debt facility between Letšeng Diamonds, Nedbank Limited and the Export Credit Insurance Corporation (ECIC) and the ZAR300.0 million revolving credit facility between Letšeng Diamonds and Nedbank Limited. The interest-bearing loans and borrowings subject to the US$ three-month LIBOR rate include the US$30.0 million revolving credit facility between Gem Diamonds Limited, Nedbank Limited, Standard Bank of South Africa Limited and Firstrand Bank Limited. Both the South African JIBAR and the LIBOR rates are yet to transition to alternative benchmark rates at the reporting period end. Refer to Note 17, Interest- bearing loans and borrowings for more information regarding the maturities and the related benchmark rates subject to the IBOR reform on these loans and/or borrowing facilities. At year end, it is not possible to estimate the potential impact of the amendment as no alternative rates have been published by the regulatory bodies or negotiated with the funders, however, in terms of the agreement, the LIBOR rate on the US$30.0 million revolving credit facility of Gem Diamonds Limited will be replaced by 30 June 2022. The Group will continue to assess the impact of the interest rate benchmark reform as the revised benchmark rates are published or negotiated with the funders. This assessment will include considerations on how the practical expedients available within the amendments will impact the Group's interest rate benchmarking.

 

New standards issued but not yet effective

The new standards, amendments and improvements that are issued, but not yet effective, up to the date of issuance of the Group's consolidated financial statements are listed in the table below. These standards, amendments and improvements have not been early adopted and it is expected that, where applicable, these standards, amendments and improvements will be adopted on each respective effective date. The impact of the adoption of these standards cannot be reasonably assessed at this stage.

 


New standards, amendments, and improvements

Description

Effective date*


IFRS 17

Insurance contracts

1 January 2023


Amendment to IFRS 16

Covid 19-Related Rent Concessions beyond 30 June 2021

1 April 2021


Amendments to IAS 37

Onerous contracts - cost of fulfilling a contract

1 January 2022


Amendments to IFRS 3

Reference to the Conceptual Framework

1 January 2022


Amendments to IAS 16

Property, plant and equipment proceeds before intended use

1 January 2022


Amendments to IAS 1

Classification of liabilities as current or non-current

1 January 2023


Amendments to IAS 8

Definition of Accounting Estimates

1 January 2023


Amendments to IAS 1 and IFRS Practice Statement 2

Disclosure of Accounting Policies

1 January 2023


Amendments to IAS 12

Deferred Tax related Assets and Liabilities arising from a Single Transaction

1 January 2023


Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Pending


Improvement IFRS 1

Subsidiary as a first-time adopter

1 January 2022


Improvement IFRS 9

Fees in the '10 per cent' test for derecognition of financial liabilities

1 January 2022


Improvement IAS 41

Agriculture - Taxation in fair value measurements

1 January 2022


 

*   Annual periods beginning on or after.

 


Business environment and country risk

The Group's operations are subject to country risk being the economic, political and social risks inherent in doing business in certain areas of Africa, Europe and the United Kingdom. These risks include matters arising out of the policies of the government, economic conditions, imposition of or changes to taxes and regulations, foreign exchange rate fluctuations and the enforceability of contract rights.

 

The consolidated financial information reflects management's assessment of the impact of these business environments and country risks on the operations and the financial position of the Group. The future business environment may differ from management's assessment.

 

1.2.2

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position have been assessed by management. The financial position of the Group, its cash flows and liquidity position are presented in the Annual Report and Accounts. In addition, Note 26, Financial risk management, includes the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to market risk, credit risk and liquidity risk.

 

The Group's net cash at 31 December 2021 was US$20.9 million (31 December 2020: net cash US$34.6 million). Following the successful refinancing of the Group's facilities for a three-year period from 23 December 2021, the Group's undrawn facilities at 31 December 2021 amounted to US$74.3 million, resulting in strong liquidity (defined as net cash and undrawn facilities) of US$95.2 million (31 December 2020: US$95.4 million). The Group's Revolving Credit facilities, which total US$77.0 million when fully unutilised, mature on 22 December 2024. The balance of US$6.3 million is a general banking facility with no set expiry date , but is reviewed annually (Refer Note 17, Interest-bearing loans and borrowings). The uncertainty that exists around the ongoing impact of COVID-19 on future cashflows was considered by performing sensitivities on diamond pricing and diamond production volumes and continued strengthening of the US$ against the Lesotho Loti.

 

After making enquiries which include reviews of forecasts and budgets, timing of cash flows, borrowing facilities and sensitivity analyses and considering the uncertainties described in this report either directly or by cross-reference, the Directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Group Financial Statements.

 

These financial statements have been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due for the foreseeable future.

 

1.2.3

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company as at 31 December 2021.

 

Subsidiaries

Subsidiaries are consolidated from the date of their acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. To meet the definition of control in IFRS 10, all three of the following criteria must be met: (a) an investor has power over an investee; (b) the investor has exposure, or rights, to variable returns from its involvement with the investee; and (c) the investor has the ability to use its power over the investee to affect the amount of the investor's returns. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All intragroup balances and transactions, including unrealised gains and losses arising from them, are eliminated in full.

 

Non-controlling interests

Non-controlling interests represent the equity in a subsidiary not attributable, directly or indirectly, to the parent company and is presented separately within equity in the consolidated statement of financial position, separately from equity attributable to owners of the parent. Losses within a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

 

1.2.4

Exploration and evaluation expenditure

Exploration and evaluation activity involves the search for mineral resources, the determination of technical feasibility and the assessment of commercial viability of an identified resource. Exploration and evaluation activity includes:

• acquisition of rights to explore;

• researching and analysing historical exploration data;

• gathering exploration data through topographical, geochemical and geophysical studies;

• exploratory drilling, trenching and sampling;

• determining and examining the volume and grade of the resource;

• surveying transportation and infrastructure requirements; and

• conducting market and finance studies.

 

Administration costs that are not directly attributable to a specific exploration area are charged to the statement of profit or loss. Licence costs paid in connection with a right to explore in an existing exploration area are capitalised, as a component of property, plant and equipment, and amortised over the term of the permit.

 

Exploration and evaluation expenditure is capitalised as incurred. Capitalised exploration expenditure is recorded as a component of property, plant and equipment, as an exploration and development asset, at cost less accumulated impairment charges. As the asset is not available for use, it is not depreciated.

 

All capitalised exploration and evaluation expenditure is monitored for indications of impairment. Where a potential impairment is indicated, assessments are performed for each area of interest in conjunction with the group of operating assets (representing a cash-generating unit (CGU) to which the exploration is attributed. To the extent that exploration expenditure is not expected to be recovered, it is charged to the statement of profit or loss. Exploration areas where reserves have been discovered, but require major capital expenditure before production can begin, are continually evaluated to ensure that commercial quantities of reserves exist or to ensure that additional exploration work is under way as planned.

 

Management is required to make certain estimates and judgements when determining whether the commercial viability of an identified resource has been met and when determining whether indicators of impairment exist.

 

1.2.5

Development expenditure

When proved reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure is reclassified from exploration phase to development phase. As the asset is not available for use, during the development phase, it is not depreciated. On completion of the development phase, any capitalised exploration and evaluation expenditure already capitalised to a development asset, together with the subsequent development expenditure, is reclassified within property, plant and equipment to mining assets and depreciated on the basis as laid out in Note 1.2.6, Property, plant and equipment.

 

All development expenditure is monitored for indicators of impairment annually. Management is required to make certain estimates and judgements when determining whether indicators of impairment exist.

 

 

1.2.6

Property, plant and equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition and construction of the items, to get the asset in its condition and location for its intended use among others, professional fees, and for qualifying assets, borrowing costs capitalised in accordance with the Group's accounting policies.

 

Subsequent costs to replace a component of an item of property, plant and equipment that is accounted for separately, is capitalised when the cost of the item can be measured reliably, with the carrying amount of the original component being written off. All repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.

 

Depreciation commences when an asset is available for use. Depreciation is charged so as to write off the depreciable amount of the asset to its residual value over its estimated useful life, using a method that reflects the pattern in which the asset's future economic benefits are expected to be consumed by the Group.

 


Item

Method

Useful life1


Mining assets

Straight line

Lesser of life of mine or period of mining lease


Decommissioning assets

Straight line

Lesser of life of mine or period of mining lease


Leasehold improvements

Straight line

Three years; or lesser of life of mine or period of mining lease


Plant and equipment

Straight line

Three to 15 years


Other assets

Straight line

Two to eight years


 

1  Certain asset classes are depreciated over the lesser of life of mine, or period of mining lease. Prior to 1 January 2020, the period of mining lease was shorter than the life of mine. On 1 January 2020 a reassessment of assets' useful lives was performed at Letšeng which resulted in a revision of assets' useful lives being made from a remaining useful life of five years (original period of mining lease) to 15 years (life of mine) due to the extension of the Letšeng mining lease. Furthermore, also within the prior year the useful life of plant and equipment was reassessed from a useful life of 10 years to the remaining life of mine (15 years); and the useful life of vehicles, categorised within the "Other assets category", were reassessed from five years to eight years.

 


An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (i.e., at the date the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognised.

 

The asset's residual values, useful lives and methods of depreciation are reviewed annually. Changes in the expected residual values, expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the depreciation period or method, as appropriate, and are treated as changes in accounting estimates, and adjusted for prospectively, if appropriate.

 

Pre-production and in production stripping costs

Costs associated with removal of waste overburden are classified as stripping costs.

 

Stripping activities that are undertaken during the production phase of a surface mine may create two benefits, being either the production of inventory or improved access to the ore to be mined in the future. Where the benefits are realised in the form of inventory produced in the period, the production stripping costs are accounted for as part of the cost of producing those inventories. Where production stripping costs are incurred and where the benefit is the creation of mining flexibility and improved access to ore to be mined in the future, the costs are recognised as a non-current asset if:

(a)  future economic benefits (being improved access to the orebody) are probable;

(b)  the component of the orebody for which access will be improved can be accurately identified; and

(c)  the costs associated with the improved access can be reliably measured.

 

The non-current asset recognised is referred to as a 'stripping activity asset' and is separately disclosed in Note 8, Property, plant and equipment. If all the criteria are not met, the production stripping costs are charged to the statement of profit or loss as operating costs. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of ore, plus an allocation of directly attributable overhead costs.

 

If incidental operations are occurring at the same time as the production stripping activity, but are not necessary for the production stripping activity to continue as planned, these costs are not included in the cost of the stripping activity asset. Given the deep vertical nature of the pit, all stripping costs are capitalised on a cut/component basis for each cut in the mine planning process.

 

The stripping activity asset is subsequently amortised over the expected useful life of the identified component of the orebody that became more accessible as a result of the stripping activity. The net book value of the stripping asset and future expected stripping costs to be incurred for that component is depreciated using the units of production over the proven and probable reserves, in order to match the total stripping costs of the cut to the economic benefits created by the cut. As a result, the stripping activity asset is carried at cost less amortisation and any impairment losses. The future stripping costs of the cut/component and the expected ore to be mined of that cut/component are recalculated annually in light of additional knowledge and changes in estimates. Changes in the stripping ratio are accounted for prospectively as a change in estimate.

 

Management applies judgement to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s) as referred under Note 1.2.28, Critical accounting estimates and judgements.

 

1.2.7

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

 

1.2.8

Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Such non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the sale, excluding the finance costs and income tax expense.

 

The criteria for held-for-sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that it will be withdrawn. Management must be committed to the sale expected within one year from the date of the classification.

 

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

 

Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position.

 

A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

(a)  represents a separate major line of business or geographical area of operations;

(b)  is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

(c)  is a subsidiary acquired exclusively with a view to re-sale.

 

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the statement of profit or loss.

 

Additional disclosures are provided in Note 15, Assets held for sale. All other notes to the financial statements include amounts for continuing operations, unless indicated otherwise.

 

1.2.9

Goodwill

Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree) over the fair value of the net identifiable amounts of the assets acquired and the liabilities assumed in the business combination.

 

Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre- existing relationships or post-acquisition remuneration arrangements, are accounted for separately from the business combination in accordance with their nature and applicable IFRS.

 

Identifiable intangible assets, meeting either the contractual legal or separability criterion are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition date fair value can be measured reliably.

 

If the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree) is lower than the fair value of the net identifiable amounts of the assets acquired and the liabilities assumed in the business combination, the difference is recognised in profit and loss.

 

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's CGUs (or groups of CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which the goodwill is monitored for internal management purposes, and shall not be larger than an operating segment before aggregation.

 

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the CGU retained.

 

1.2.10

Financial instruments

The Group shall only recognise a financial instrument when the Group becomes a party to the contractual provisions of the instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

 

Financial assets

Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date based on the business model for managing these financial assets and the contractual cash flow characteristics. Currently the Group only has financial assets at amortised cost which consist of receivables and other assets, and cash and short- term deposits which is held within a business model to collect contractual cash flows and for which the contractual cash flow characteristics are solely payments of principal interest. When financial assets are recognised initially, they are measured at fair value plus (in the case of financial assets not at fair value through profit or loss) directly attributable transaction costs. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date.

 

Financial assets at amortised cost

Financial assets at amortised cost are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except those with maturities greater than 12 months after the reporting date. These are classified as non-current assets. Such assets are carried at amortised cost using the effective interest rate method, if the time value of money is significant, less any allowance for impairment. Gains and losses are recognised in the statement of profit or loss when the financial assets at amortised cost are derecognised or impaired, as well as through the amortisation process.

 

Derecognition

A financial asset is primarily derecognised when the rights to receive cash flows from the asset have expired or the Group has transferred its rights to receive cash flows from the asset. Gains or losses from derecognition of financial assets are recognised in the statement of profit or loss.

 

Financial liabilities

The Groups Interest-bearing loans and borrowings and trade and other payables financial liabilities are subsequently stated at amortised cost using the effective interest rate method, with any difference between proceeds (net of transaction costs) and the redemption value being recognised in the statement of profit or loss, unless capitalised in accordance with Note 1.2.7, Borrowing costs, over the contractual period of the financial liability.

 

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Gains or losses from derecognition of financial liabilities are recognised in the statement of profit or loss.

 

1.2.11

Fair value measurement

The Group's financial instruments or transactions that are classified to be measured at fair value on a recurring basis are measured at fair value at each reporting date and financial instruments and transactions that are measured at fair value on a non-recurring basis are measured at fair value at the reporting date for which fair value measurement is relevant.

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

in the principal market for the asset or liability; or

in the absence of a principal market, in the most advantageous market for the asset or liability.

 

The principal or the most advantageous market must be accessible by the Group.

 

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

 

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

 

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

 

For assets and liabilities that are recognised in the financial statements that are measured at fair value on a recurring and non- recurring basis, the Group determines whether transfers have occurred between levels in the fair value hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

 

1.2.12

Impairments

Non-financial assets

The Group assesses, at each reporting date, whether there is an indication that an asset (or CGU) may be impaired in accordance with IAS 36. Goodwill is assessed for impairment on an annual basis and when circumstances indicate that the carrying value may be impaired. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

 

Non-financial assets that were previously impaired are reviewed for possible reversal of the impairment at each reporting date. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such a reversal is recognised in the statement of profit or loss. After such a reversal the depreciation charge is adjusted in future periods to allocate the asset's revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Impairment losses relating to goodwill cannot be reversed in future periods.

 

Financial assets

Financial assets carried at amortised cost

The Group recognises an allowance for expected credit losses (ECLs) for all financial assets at amortised costs in the statement of profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

 

For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

 

1.2.13

Inventories

Inventories, which include rough diamonds, ore stockpiles and consumables, are measured at the lower of cost and net realisable value. The amount of any write-down of inventories to net realisable value and all losses, is recognised in the period the write-down or loss occurs. Cost is determined as the average cost of production, using the weighted average method. Cost includes directly attributable mining overheads, but excludes borrowing costs.

 

Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs to be incurred in marketing, selling and distribution.

 

1.2.14

Cash and cash equivalents

Cash and cash equivalents are carried in the statement of financial position at amortised cost. Cash and cash equivalents comprise cash on hand, deposits held at call with banks, and other short-term, highly liquid investments with original maturities of three months or less.

 

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

 

1.2.15

Issued share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

 

1.2.16

Foreign currency translations

Presentation currency

The results and financial position of the Group's subsidiaries which have a functional currency different from the Group's presentation currency are translated into the Group's presentation currency as follows:

statement of financial position items are translated at the closing rate at the reporting date;

income and expenses for each statement of profit or loss are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

resulting exchange differences are recognised as a separate component of equity.

 

Details of the rates applied at the respective reporting dates and for the statement of profit or loss transactions are detailed in Note 16, Issued capital and reserves.

 

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains or losses resulting from the settlement of such transactions and from the translation at the period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of profit or loss. Non-monetary items that are measured in terms of cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Monetary items for each statement of financial position presented are translated at the closing rate at the reporting date.

 

1.2.17

Share-based payments

Employees (including Senior Executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments (equity-settled transactions). In situations where some or all of the goods or services received by the entity as consideration for equity instruments cannot be specifically identified, they are measured as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received at the grant date.

 

Equity-settled transactions

The cost of equity-settled transactions with employees are measured by reference to the fair value of the equity instruments at the date at which they are granted and is recognised as an expense over the vesting period, which ends on the date on which the relevant employees become fully entitled to the award. Fair value is determined using an appropriate pricing model. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the Company (market conditions).

 

On a cumulative basis, over the vesting period of an award, no expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied.

 

At each reporting date before vesting, the cumulative expense is calculated, representing the extent to which the vesting period has expired and management's best estimate of the achievement of the vesting conditions or otherwise of the non-market vesting conditions and of the number of equity instruments that is expected to ultimately vest or, in the case of an instrument subject to a market condition, be treated as vesting as described above. The movement in cumulative expense since the previous reporting date is recognised in the statement of profit or loss, with a corresponding entry in equity.

 

Where the terms of an equity-settled award are modified, or a new award is designated as replacing a cancelled or settled award, the cost based on the original award terms continues to be recognised over the original vesting period. In addition, an expense is recognised over the remainder of the new vesting period for the incremental fair value of any modification, based on the difference between the fair value of the original award and the fair value of the modified award, both as measured on the date of the modification. No reduction is recognised if this difference is negative, due to the fact that it would not be beneficial to the employees.

 

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the statement of profit or loss for the award is expensed immediately. Where an equity-settled award is forfeited, it is treated as if vesting conditions had not been met and all costs previously recognised are reversed and recognised in income immediately within the year of forfeiture.

 

Management applies judgement when determining whether share options relating to employees who resigned before the end of the service condition period are cancelled or forfeited as referred under Note 1.2.28, Critical accounting estimates and judgements.

 

The Group periodically releases the share-based equity reserve to retained earnings in relation to lapsed, forfeited and exercised options.

 

1.2.18

Provisions

Provisions are recognised when:

the Group has a present legal or constructive obligation as a result of a past event; and

a reliable estimate can be made of the obligation.

 

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation, using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.

 

1.2.19

Restoration and rehabilitation provision

The mining, extraction and processing activities of the Group normally give rise to obligations for site restoration and rehabilitation. Rehabilitation works can include facility decommissioning and dismantling, removal and treatment of waste materials, land rehabilitation, and site restoration. The extent of the work required and the estimated cost of final rehabilitation, comprising liabilities for decommissioning and restoration, are based on current legal requirements, existing technology and the Group's environmental policies, and is reassessed annually. Cost estimates are not reduced by the potential proceeds from the sale of property, plant and equipment.

 

Provisions for the cost of each restoration and rehabilitation programme are recognised at the time the environmental disturbance occurs. When the extent of the disturbance increases over the life of the operation, the provision and associated asset is increased accordingly. Costs included in the provision encompass all restoration and rehabilitation activity expected to occur. The restoration and rehabilitation provisions are measured at the expected value of future cash flows, discounted to their present value, using a pre- tax discount rate. Discount rates used are specific to the country in which the operation is located or reasonable alternatives if in- country information is not available. The value of the provision is progressively increased over time as the effect of the discounting unwinds, which is recognised in finance charges. Restoration and rehabilitation provisions are also adjusted for changes in estimates.

 

When provisions for restoration and rehabilitation are initially recognised, the corresponding cost is capitalised as a decommissioning asset where it gives rise to a future benefit and depreciated over future production from the operation to which it relates.

 

Management is required to make significant estimates and assumptions when determining the amount of the restoration and rehabilitation provisions as referred under Note 1.2.28, Critical accounting estimates and judgements.

 

1.2.20

Taxation

Income tax for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to the extent that it relates to items charged or credited directly to equity or to other comprehensive income, in which case the tax consequences are recognised directly in equity and other comprehensive income respectively. Current tax expense is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

 

Deferred tax is provided using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

 

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

 

The Group offsets deferred income tax assets and deferred income tax liabilities if, and only if, it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred income tax assets and deferred income tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

 

In respect of taxable temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, deferred tax is provided except where the timing of the reversal of the temporary differences can be controlled by the Group and it is probable that the temporary differences will not reverse in the foreseeable future.

 

In respect of deductible temporary differences associated with investments in subsidiaries, associates and jointly controlled entities, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. Withholding tax is recognised in the statement of profit or loss when dividends or other services which give rise to that withholding tax are declared or accrued respectively. Withholding tax is disclosed as part of current tax.

 

Royalties

Royalties incurred by the Group comprise mineral extraction costs based on a percentage of sales paid to the local revenue authorities. These obligations arising from royalty arrangements are recognised as current payables and disclosed as part of royalty and selling costs in the statement of profit or loss.

 

Royalties and revenue-based taxes are accounted for under IAS 12 when they have the characteristics of an income tax. This is considered to be the case when they are imposed under government authority and the amount payable is based on taxable income - rather than based on quantity produced or as a percentage of revenue. For such arrangements, current and deferred tax is provided on the same basis as described above for other forms of taxation. The royalties incurred by the Group are considered not to meet the criteria to be treated as part of income tax.

 

1.2.21

Employee benefits

Provision is made in the financial statements for all short-term employee benefits. Liabilities for wages and salaries, including non- monetary benefits, benefits required by legislation, annual leave, retirement benefits and accumulating sick leave obliged to be settled within 12 months of the reporting date, are recognised in trade and other payables and are measured at the amounts expected to be paid when the liabilities are settled. Benefits falling due more than 12 months after the reporting date are measured at the amount the obligation is expected to be settled or discounted to present value using a pre-tax discount rate where relevant or where time value of money is expected to be significant. The Group recognises an expense for contributions to the defined contribution pension fund in the period in which the employees render the related service.

 

Bonus plans

The Group recognises a liability and an expense for bonuses. The Group recognises a liability where contractually obliged or where there is a past practice that has created a constructive obligation. These liabilities are recognised in trade and other payables and are measured at the amounts expected to be paid when the liabilities are settled.

 

1.2.22

Leases

At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement whether it depends on a specified asset, whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of the asset. For leases that contain one lease component and one or more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease and non-lease component on the basis of the individual relative stand-alone price of all lease and non-lease components and the aggregate stand-alone price of all lease and non-lease components. The lease component is accounted for under the requirements of IFRS 16 and the non-lease component is accounted for using the relevant IFRS standard based on the nature of the non-lease component.

 

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (ie, the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, costs to dismantle, restore and remove the right-of-use asset, and lease payments made at or before the commencement date less any lease incentives received. After the commencement date, the right-of-use assets are measured using a cost model. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. Right-of-use assets are subject to impairment. Refer Note 1.2.12, Impairments.

 

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as an expense in the period on which the event or condition that triggers the payment occurs.

 

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification to the terms and conditions of the lease or if there is a lease reassessment.

 

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (ie, those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be qualitatively and quantitatively of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

 

Group as a lessor

Where the Group is a lessor, it determines at inception whether the lease is a finance or operating lease. When a lease transfers substantially all the risks and rewards of ownership of the underlying asset then the lease is a finance lease; otherwise the lease is an operating lease.

 

Where the Group is an intermediate lessor, the interest in the head lease and the sub-lease is accounted for separately and the lease classification of a sub-lease is determined by reference to the Right-of-use-asset arising from the head lease. Income from operating leases is recognised on a straight-line basis over the lease term.

 

1.2.23

Revenue from contracts with customers

Revenue comprises net invoiced diamond sales to customers excluding VAT. Diamond sales are made through a competitive tender process and recognised when the Group's performance obligations have been satisfied at the time the buyer obtains control of the diamond(s), at an amount that the Group expects to be entitled in exchange for the diamond(s). Where the Group makes rough diamond sales to customers and retains a right to an interest in their future sale as polished diamonds, the Group records the sale of the rough diamonds but such contingent revenue on the onward sale is only recognised at the date when the polished diamonds are sold or when polished sales prices are mutually agreed between the customer and the Group.

 

The following revenue streams are recognised:

rough diamonds which are sold through a competitive tender process, partnership agreements and joint operation arrangements;

polished diamonds and other products which are sold through direct sales channels;

additional uplift (on the value from rough to polished) on partnership arrangements; and

additional uplift (on the value from rough to polished) on joint operation arrangements.

 

The sale of rough diamonds is the core business of the Group, with other revenue streams contributing marginally to total revenue.

 

Revenue through joint operation arrangements is recognised for the sale of the rough diamond according to each party's percentage entitlement as per the joint operation arrangement. Contractual agreements are entered into between the Group and the joint operation partner whereby both parties control jointly the cutting and polishing activities relating to the diamond. All decisions pertaining to the cutting and polishing of the diamonds require unanimous consent from both parties. Once these activities are complete, the polished diamond is sold, after which the revenue on the remaining percentage of the rough diamond is recognised, together with additional uplift on the joint operation arrangement. The Group portion of inventories related to these transactions is included in the total inventories balance.

 

Revenue through partnership arrangements is recognised for the sale of the rough diamond, with an additional uplift based on the polished margin achieved. Management recognises the revenue on the sale of the rough diamond when it is sold to a third party, as there is no continuing involvement by management in the cutting and polishing process and control has passed to the third party. Revenue from additional uplift is considered to be a variable consideration. This variable consideration will generally be significantly constrained. This is on the basis that the ultimate additional uplift received will depend on a range of factors that are highly susceptible to factors outside the Group's influence. Management recognises revenue on the additional uplift when the polished diamond is sold by the third party or the polished sales prices are mutually agreed between the third party and the Group and the additional uplift is guaranteed, as this is the point in time at which the significant constraints are lifted or resolved from the Polished Margin revenue.

 

Rendering of service

Revenue from services relating to third-party diamond manufacturing is recognised in the accounting period in which the services are rendered, when the Group's performance obligations have been satisfied, at an amount that the Group expects to be entitled to in exchange for the services.

 

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. The Group does not have any contract assets as performance and a right to consideration occurs within a short period of time and all rights to consideration are unconditional.

 

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. The Group does not have any contract liabilities as the transfer of goods or services occurs within a short period of time of receiving the consideration.

 

1.2.24

Interest income

Interest income is recognised on a time proportion basis using the effective interest rate method.

 

1.2.25

Dividend income

Dividend income is recognised when the amount of the dividend can be reliably measured and the Group's right to receive payment is established.

 

1.2.26

Finance costs

Finance costs are recognised on a time proportion basis using the effective interest rate method.

 

1.2.27

Dividend distribution

Dividend distributions to the Group's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved by the Group's shareholders.

 

1.2.28

Critical accounting estimates and judgements

The preparation of the consolidated financial statements requires management to make estimates and judgements and form assumptions that affect the reported amounts of the assets and liabilities, the reported income and expenses during the periods presented therein, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

The Group makes estimates and assumptions concerning the future and the resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the financial results or the financial position reported in future periods are discussed below.

 

COVID-19

The Group has considered the impact of COVID-19 on its significant accounting judgements and estimates. The Group's main source of estimation uncertainty is in relation to assumptions used for the assessment of impairment and impairment reversal of assets. No further significant estimates have been identified as a result of COVID-19, although the pandemic has increased the level of uncertainty inherent in all future cash flow forecasts.

 

Task Force on Climate-related Financial Disclosures (TCFD)

In preparing the Consolidated Financial Statements management has considered the impact of climate change, particularly in the context of the disclosures included in the Strategic Report this year detailing the phased approach strategy which the Group has adopted in implementing the TCFD requirements and the high level overview of some climate-related risks and opportunities. These considerations did not have a material impact on the financial reporting estimates and judgements, consistent with the assessment that climate change is not expected to have a significant impact on the Group's going concern assessment to March 2023 nor viability over the next three years. These considerations also had no material impact on any Property, Plant and Equipment or Commitments. For Letšeng, the physical risks identified of extreme weather conditions, are similar to its current operating conditions of drought, high wind, extreme precipitation and cold events. The operation is therefore well set up to manage these conditions within its current reporting and accounting framework. As users of grid-supplied and fossil fuel energy, our short-term focus is on improving energy efficiencies in our operational processes and to reducing combustion related fossil fuel use. Due to the uncertainty of the cost and timing of implementation of carbon-related taxes, the impact of such taxes on the Group's operations and cash flows has been excluded from the going concern, viability assessment and impairment review.

 

Estimates

Ore reserves and associated life of mine (LoM)

There are numerous uncertainties inherent in estimating ore reserves and the associated LoM. Therefore, the Group must make a number of assumptions in making those estimations, including assumptions as to the prices of diamonds, exchange rates, production costs and recovery rates. Assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of diamonds, exchange rates, production costs or recovery rates may change the economic status of ore reserves and may, ultimately, result in the ore reserves being restated. Where assumptions change the LoM estimates, the associated depreciation rates, residual values, waste stripping and amortisation ratios, and environmental provisions are reassessed to take into account the revised LoM estimate. Refer Note 8, Property, plant and equipment, Note 10, Intangible assets and Note 21, Provisions.

 

Provision for restoration and rehabilitation

Significant estimates and assumptions are made in determining the amount of the restoration and rehabilitation provisions. These deal with uncertainties such as changes to the legal and regulatory framework, magnitude of possible contamination, and the timing, extent and costs of required restoration and rehabilitation activity. Refer Note 21, Provisions, for further detail.

 

Judgement

Impairment reviews

The Group determines if goodwill is impaired at least on an annual basis, while all other significant operations are tested for impairment when there are potential indicators which may require impairment review. This requires an estimation of the recoverable amount of the relevant CGU under review. Recoverable amount is the higher of fair value less costs to sell and value in use. While conducting an impairment review of its assets using value-in-use impairment models, the Group exercises judgement in making assumptions about future rough diamond prices, exchange rates, volumes of production, ore reserves and resources included in the current LoM plans, production costs and macro-economic factors such as inflation and discount rates. Changes in estimates used can result in significant changes to the consolidated statement of profit or loss and consolidated statement of financial position. The results of the impairment testing performed did not indicate any impairments in the current year. Refer Note 11, Impairment testing, for further estimates and judgements applied.

 

The key assumptions used in the recoverable amount calculations, determined on a value-in-use basis, are listed below:

 

Valuation basis

Discounted present value of future cash flows.

 

LoM and recoverable value of reserves and resources

Economically recoverable reserves and resources, carats recoverable and grades achievable are based on management's expectations of the availability of reserves and resources at mine sites and technical studies undertaken by in-house and third-party specialists. Reserves remaining after the current LoM plan have not been included in determining the value in use of the operations. The LoM of Letšeng is to 2037 (2020: 2034).

 

Cost and inflation rate

Operating costs for Letšeng are determined based on management's experience and the use of contractors over a period of time whose costs are fairly reasonably determinable. Mining and processing costs in the short to medium term have been based on the agreements with the relevant contractors. In the longer term, management has applied local inflation rates of 5.0% (2020: 4.0% to 5.3%) for operating costs in addition to a depth escalation factor for mining costs as a result of mining in deeper areas within both pits.

 

Capital costs in the short-term has been based on management's capital program after which a fixed percentage of operating costs have been applied to determine the capital costs necessary to maintain current levels of operations.

 

Exchange rates

Exchange rates are estimated based on an assessment at current market fundamentals and long-term expectations. The US dollar/Lesotho loti (LSL) exchange rate used was determined with reference to the closing rate at 31 December 2021 of LSL15.96 (31 December 2020: LSL14.69).

 

Diamond prices

The medium-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends and the Group's medium-term forecast. Long-term diamond price escalation reflects the Group's assessment of market supply/demand fundamentals.

 

Discount rate

The discount rate of 11.5% for revenue (2020: 10.8%) and 13.4% for costs (2020: 14.3%) used for Letšeng represents the before-tax risk-free rate adjusted for market risk, volatility and risks specific to the asset and its operating jurisdiction.

 

Market capitalisation

In the instance where the Group's asset carrying values exceed market capitalisation, this results in an indicator of impairment. The Group believes that this position does not represent an impairment as all significant operations were assessed for impairment during the year and no impairments were recognised.

 

Sensitivity

The value in use for Letšeng indicated sufficient headroom, and the further changes to key assumptions which could result in impairment are disclosed in Note 11, Impairment testing.

 

Provision for restoration and rehabilitation and deferred tax thereon

Judgement is applied when calculating the closure costs associated with the restoration of the Letšeng mine site. These include the following:

There are no costs associated with the backfill of the open pits due to no in-country legislation requirements; and

There are no costs associated with dismantling permanent buildings as these will be handed over to various parties in consultation with the Lesotho Government when the end of life is reached.

 

Deferred tax assets are recognised on provisions for rehabilitation as management will ensure appropriate tax planning to ensure sufficient taxable income is available to utilise all deductions in the future.

 

Capitalised stripping costs (deferred waste)

Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations. Furthermore, during the production phase, stripping costs are incurred in i) the production of inventory and ii) in the creation of future benefits by improving access and mining flexibility in respect of the ore to be mined, (the 'stripping activity asset'). Judgement is required to distinguish between these two activities at Letšeng. The orebody needs to be identified in its various separately identifiable components. An identifiable component is a specific volume of the orebody that is made more accessible by the stripping activity. Judgement is required to identify and define these components (referred to as 'cuts'), and also to determine the expected volumes (tonnes) of waste to be stripped and ore to be mined in each of these components. These assessments are based on a combination of information available in the mine plans, specific characteristics of the orebody and the milestones relating to major capital investment decisions.

 

Judgement is also required to identify a suitable production measure that can be applied in the calculation and allocation of production stripping costs between inventory and the stripping activity asset. The ratio of expected volume (tonnes) of waste to be stripped for an expected volume (tonnes) of ore to be mined for a specific component of the orebody, compared to the current period ratio of actual volume (tonnes) of waste stripped to the volume (tonnes) of ore mined is considered to determine the most suitable production measure.

 

These judgements and estimates are used to calculate and allocate the production stripping costs to inventory and/or the stripping activity asset(s). Furthermore, judgements and estimates are also used to apply the stripping ratio calculation in determining the amortisation of the stripping activity asset. Refer Note 8, Property, plant and equipment and Note 13, Inventories.

 

Share-based payments

Judgement is applied by management in determining whether the share options relating to employees who resigned before the end of the service condition period have been cancelled or forfeited in light of their leaving status. Where employees do not meet the requirements of a good leaver as per the rules of the long-term incentive plan (LTIP), no award will vest and this will be treated as cancellation by forfeiture. The expenses relating to these charges previously recognised are then reversed. Where employees do meet the requirements of a good leaver as per the rules of the LTIP, some or all of an award will vest and this will be treated as a modification to the original award. The future expenses relating to these awards are accelerated and recognised as an expense immediately. Refer Note 27, Share-based payments, for further detail.

 

Identifying uncertainties over tax treatments

As disclosed in the prior year, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA) in December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. An objection to the amended tax assessment was lodged with the LRA in March 2020, which was supported by the opinion of senior counsel. The LRA subsequently lodged a court application for the review and setting aside of the applicable regulations to the Lesotho High Court pertaining to this matter, which Letšeng is opposing and a court date is expected to be set in June 2022.

 

On 7 February 2022, Letšeng received an application from the LRA to amend its original grounds for the court application. Letšeng's counsel continues to review the LRA's proposed amendment and has opposed the new application by the LRA.

 

Management do not believe an uncertain tax position exists as:

there is no ambiguity in the application of the published Lesotho Income Tax Act;

there has been no change in the application of the Income Tax Act and resulting tax; and

senior counsel advice, which is legally privileged, has been obtained for the new circumstances. This advice still reflects good prospects of success.

 

No provision or contingent liability, relating to the amended tax assessment in question, is required to be raised in the 2021 Annual Financial Statements.

 

Equipment and service lease

The major components of Letšeng's ore-extraction mining activities are outsourced to a mining contractor. The mining contractor performs these functions using their own equipment. Management applied judgement when evaluating whether the contract between Letšeng and the mining contractor contained a lease. While it was concluded there was a lease, lease payments are variable in nature as the lease payment vary based on the tonnes of ore and waste mined and hence no right of use asset or liability could be measured. A portion of the lease payment is expensed in the consolidated statement of profit or loss and the portion relating to waste removal/stripping costs is capitalised to the waste stripping asset in the proportions referred to under the estimate and judgements applied to the Capitalised stripping costs (deferred waste) above. Refer Note 24, Commitments and contingencies.



2021

US$'000

2020

US$'000

2.

REVENUE FROM CONTRACTS WITH CUSTOMERS




Sale of goods

201 610

189 028


Partnership arrangements

235

618


Rendering of services

14

1



201 859

189 647


The revenue from the sale of goods mainly represents the sale of rough diamonds, for which revenue is recognised at the point in time at which control transfers.

 

The revenue from partnership arrangements of US$0.2 million represents the additional uplift from partnership arrangements for which revenue is recognised when the significant constraints are lifted or resolved and the amount of revenue is guaranteed (2020: US$0.6 million). At year end 894 carats (2020: 485 carats) have significant constraints in recognising revenue relating to the additional uplift.

 

The revenue from the rendering of services mainly represents the sales of rough diamonds on behalf of third parties, for which revenue is recognised at the time when performance obligations are met, and services rendered on third-party diamond analysis and manufacturing, for which the revenue is recognised over time as the services are rendered.

 

No revenue was generated from joint operation arrangements during the current or prior year (2021: Nil) (2020: Nil).

 



 



2021

US$'000

2020

US$'000

3.

OTHER OPERATING (EXPENSES)/INCOME




Sundry income

116

26


Sundry expenses

(12)

(23)


Profit/(loss) on disposal and scrapping of property, plant and equipment

16

(30)


COVID-19 costs/standing costs

(711)

(3 884)


COVID-19 standing costs

During the prior year, COVID-19 standing costs consisted of US$2.9 million which related to certain standing fixed mining contract and ore stockpile movement costs which were incurred during the brief period that the mine suspended operations in compliance with the Lesotho lockdown order and was placed on care and maintenance, and were recognised as abnormal costs and expensed immediately in the Consolidated Statement of Profit or Loss. The remaining US$1.0 million related to costs incurred to implement protocols throughout the Group to address the risk and curb the spread of COVID-19. In the current year, there were no abnormal standing costs incurred. Costs of US$0.7 million were incurred relating to continued protocols for curbing the spread of the virus.

(591)

(3 911)





 



2021

US$'000

2020

US$'000

4.

OPERATING PROFIT




Operating profit includes operating costs and income as listed below:




Depreciation and amortisation




Depreciation and amortisation excluding waste stripping costs

(6 927)

(7 027)


Depreciation of right-of-use assets

(1 685)

(2 043)


Waste stripping costs amortised

(46 813)

(43 420)



(55 425)

(52 490)


Inventories




Cost of inventories recognised as an expense

(113 737)

(105 524)


Foreign exchange




Foreign exchange gain/(loss)

1 929

(880)


Lease expenses not included in lease liability




Mine site property

(170)

(69)


Equipment and service lease

(8 462)

(7 280)


Contingent rental - Alluvial Ventures

(6 483)

(5 190)



(15 115)

(12 539)


Auditor's remuneration - EY




Group financial statements

(238)

(296)


Statutory

(190)

(176)



(428)

(472)


Auditor's remuneration - other audit firms




Statutory

(20)

(17)


Other non-audit fees - EY




Tax compliance

-

(5)


Tax services advisory and consultancy

-

(13)


Other services1

(41)

-



(41)

(18)


Other non-audit fees - other audit firms




Tax services advisory and consultancy

(45)

(15)


Employee benefits expense




Salaries and wages2

(17 767)

(18 781)


Underlying earnings before interest, tax, depreciation and mining asset amortisation (underlying EBITDA) before discontinued operation




Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to the operational performance of the Group and excludes such non-operating costs and income as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:




Operating profit

50 411

42 664


Other operating (income)/expense3

(120)

27


Foreign exchange (gain)/loss

(1 929)

880


Share-based payments

395

555


Depreciation and amortisation (excluding waste stripping cost amortised)

8 612

9 070


Underlying EBITDA before discontinued operation

57 369

53 196


 

1 Includes services related to forensic investigation performed on allegations of diesel theft at Letšeng.

2 Includes contributions to defined contribution plan of US$0.6 million (31 December 2020: US$0.5 million). An average of 354 employees excluding contractors were employed during the period (2020: 381).

3 Excludes COVID-19 costs/standing costs which are considered as operating costs.

 



2021

US$'000

2020

US$'000

5.

NET FINANCE COSTS




Finance income




Bank deposits

197

358


Other

5

24


Total finance income

202

382


Finance costs




Finance costs on borrowings

(2 232)

(3 297)


Finance costs on lease liabilities

(525)

(608)


Finance costs on unwinding of rehabilitation and decommissioning provision

(1 187)

(888)


Total finance costs

(3 944)

(4 793)



(3 742)

(4 411)

 



2021

US$'000

2020

US$'000

6.

INCOME TAX EXPENSE




Current




- Foreign

(10 197)

(11 593)


Withholding tax




- Foreign

(639)

(529)


Deferred




- Foreign

(4 726)

1 411


Income tax expense

(15 562)

(10 711)


Profit before taxation from continuing operations

46 669

38 253



%

%


Reconciliation of tax rate




Applicable income tax rate

25.0

25.0


Permanent differences

2.3 1

(3.0)


Unrecognised deferred tax assets

3.1

3.0


Effect of foreign tax at different rates

1.6

1.7


Withholding tax

1.4

1.3


Effective income tax rate

33.4

28.0


The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than the statutory UK corporation tax rate of 19.0% as this is the jurisdiction in which the majority of the Group's taxes are incurred.

 

1 Permanent differences mainly comprise CSI at Letšeng Diamonds, legal fees of a capital nature and share-based payments, all of which are non-deductible for tax purposes.

 



 



2021

US$'000

2020

US$'000

7.

EARNINGS PER SHARE




The following reflects the income and share data used in the basic and diluted earnings per share computations:




Profit for the year:

27 353

24 278


  Continuing operations

31 107

27 542


  Discontinued operation

(3 754)

(3 264)


Less: Non-controlling interests

(12 586)

(10 637)


Net profit attributable to ordinary equity holders of the parent for basic and diluted earnings

 

14 767

 

13 641


Number of ordinary shares outstanding during the year ('000)

140 516

139 612


Weighted number of share options exercised during the year ('000)

(223)

(339)


Weighted average number of ordinary shares outstanding during the year ('000)

140 293

139 273


Basic earnings per share attributable to ordinary equity holders of the parent (cents)

10.5

9.8


 

Earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

 

Diluted earnings per share are calculated by dividing the net profit attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year after taking into account future potential conversion and issue rights associated with the ordinary shares.





2021

Number of shares

2020

Number of shares


Weighted average number of ordinary shares outstanding during the year Effect of dilution:

- Future share awards under the Employee Share Option Plan

140 293

 

1 796

139 273

 

2 341


Weighted average number of ordinary shares outstanding during the year adjusted for the effect of dilution

 

142 089

 

141 614


Diluted earnings per share attributable to ordinary equity holders of the parent (cents)

10.4

9.6






There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

 

 

8.

PROPERTY, PLANT AND EQUIPMENT

 



Stripping activity asset

US$'000

Mining asset

US$'000

Decom-missioning assets

US$'000

Lease-hold Improve-ment

US$'000

Plant and equipment

US$'000

Other assets1

US$'000

Total

US$'000


As at 31 December 2021









Cost









Balance at 1 January 2021

587 355

115 050

4 119

55 955

79 468

7 601

849 548


Additions

64 725

-

-

36

3 850

105

68 716


Net movement in rehabilitation









provision

(1 069)

-

-

(138)

(138)

-

(1 345)


Disposals

-

-

-

(508)

(932)

(191)

(1 631)


Reclassifications

-

-

-

473

(810)

337

-


Foreign exchange differences

(51 453)

(7 051)

(350)

(4 400)

(6 934)

(548)

(70 736)


Balance at

31 December 2021

 

599 558

 

107 999

 

3 769

 

51 418

 

74 504

 

7 304

 

844 552


Accumulated depreciation/









amortisation/impairment









Balance at 1 January 2021

401 443

49 189

4 119

26 204

59 150

5 438

545 543


Charge for the year

46 708

910

-

3 187

2 375

560

53 740


Disposals

-

-

-

(508)

(929)

(187)

(1 624)


Foreign exchange differences

(33 445)

(5 225)

(350)

(2 235)

(5 052)

(427)

(46 734)


Balance at

31 December 2021

 

414 706

 

44 874

 

3 769

 

26 648

 

55 544

 

5 384

 

550 925


Net book value at 31 December 2021

 

184 852

 

63 125

 

-

 

24 770

 

18 960

 

1 920

 

293 627

 

 

 

1  Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.


 



Stripping activity asset

US$'000

Mining asset

US$'000

Decom-missioning assets

US$'000

Lease-hold Improve-ment

US$'000

Plant and equipment

US$'000

Other assets1

US$'000

Total

US$'000


As at 31 December 2020









Cost









Balance at 1 January 2020

562 583

122 061

5 822

58 219

84 757

6 999

840 441


Additions

47 167

-

-

7

1 561

3

48 738


Net movement in rehabilitation









provision

(990)

-

(1 373)

(381)

(381)

-

(3 125)


Disposals

-

-

-

-

-

(85)

(85)


Scrapping2

-

(2 929)

-

(610)

(993)

(444)

(4 976)


Reclassifications

-

504

-

674

(1 751)

573

-


Foreign exchange differences

(21 405)

(4 586)

(330)

(1 954)

(3 725)

555

(31 445)


Balance at 31 December 2020

587 355

115 050

4 119

55 955

79 468

7 601

849 548


Accumulated depreciation/ amortisation/impairment









Balance at 1 January 2020

369 388

53 936

4 102

23 901

60 128

5 133

516 588


Charge for the year3

43 420

1 174

88

2 834

2 513

458

50 487


Disposals

-

-

-

-

-

(41)

(41)


Scrapping2

-

(2 929)

-

(567)

(987)

(488)

(4 971)


Foreign exchange differences

(11 365)

(2 992)

(71)

36

(2 504)

376

(16 520)


Balance at 31 December 2020

401 443

49 189

4 119

26 204

59 150

5 438

545 543


Net book value at 31 December 2020

 

185 912

 

65 861

 

-

 

29 751

 

20 318

 

2 163

 

304 005

 

 

 

1  Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.

2  Certain assets at Letšeng that were no longer in use were scrapped.

3  The 2020 reassessment of assets' useful lives undertaken at Letšeng resulted in certain assets' useful lives being realigned from the period of mining lease to the life of mine. This resulted in a reduction in depreciation charge which will continue into the future. Refer Note 1.2.6, Property, plant and equipment.


 



Right-of-use assets



Plant and equipment US$'000

Motor vehicles US$'000

Buildings

US$'000

Total

US$'000

9.

RIGHT-OF-USE ASSETS






As at 31 December 2021






Cost






Balance at 1 January 2021

2 217

364

6 444

9 025


Additions

-

-

507

507


Derecognition of lease

(2 141)

(260)

(768)

(3 169)


Foreign exchange differences

(20)

(10)

(422)

(452)


Balance at 31 December 2021

56

94

5 761

5 911


Accumulated depreciation






Balance at 1 January 2021

1 737

255

2 210

4 202


Charge for the year

437

75

1 173

1 685


Derecognition of lease

(2 141)

(260)

(523)

(2 924)


Foreign exchange differences

(13)

(7)

(169)

(189)


Balance at 31 December 2021

20

63

2 691

2 774


Net book value at 31 December 2021

36

31

3 070

3 137


As at 31 December 2020






Cost






Balance at 1 January 2020

2 012

1 656

7 318

10 986


Additions

821

-

354

1 175


Derecognition of lease

(585)

(1 019)

(988)

(2 592)


Foreign exchange differences

(31)

(273)

(240)

(544)


Balance at 31 December 2020

2 217

364

6 444

9 025


Accumulated depreciation

Balance at 1 January 2020

 

980

 

361

 

1 191

 

2 532


Charge for the year

793

114

1 136

2 043


Derecognition of lease

(115)

(175)

(196)

(486)


Foreign exchange differences

79

(45)

79

113


Balance at 31 December 2020

1 737

255

2 210

4 202


Net book value at 31 December 2020

480

109

4 234

4 823








At year end, plant and equipment mainly comprise printing equipment utilised at Gem Diamond Technical Services. Motor vehicles mainly comprise vehicles utilised by contractors at Letšeng. Buildings comprise office buildings in Maseru, Antwerp, London and Johannesburg.

 

Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

 

During the year, the lease contract for back-up power generating equipment and the lease for certain vehicles used on the mine at Letšeng came to an end. The assets and liabilities associated with these leases have been derecognised. A new lease for back-up power generating equipment is in the process of being negotiated. In the interim, Letšeng is renting existing back-up power generating equipment on a month-to-month basis. Furthermore, Gem Diamonds Limited and Gem Diamonds Technical Services entered into new contracts for the rental of office space in London and Johannesburg respectively. The new contracts were assessed as containing leases, which resulted in the recognition of the new associated right-of-use assets and lease liabilities. The original contracts were both cancelled and all associated assets and liabilities were derecognised.

 

In the prior year, Letšeng entered into a new contract with its existing ore processing contractor. The new contract was assessed as not containing a lease as Letšeng no longer retained the right to control the use of the assets associated with the contract. The original contract, which was assessed as containing a lease on adoption on 1 January 2019, was cancelled and all associated assets and liabilities were derecognised. Furthermore, in the prior year, Gem Diamonds Limited entered into a new contract for the rental of its office space in London. The new contract was assessed as containing a lease resulting in the recognition of the associated assets and liabilities. The original contract was cancelled, and the associated assets and liabilities were derecognised.

 

Total gains of US$0.1 million (2020: US$0.2 million) relating to the derecognition of leases in the Group have been recognised in the Consolidated Statement of Profit or Loss. Refer Note 18, Lease Liabilities and Note 23.1, Cash generated by operations. During the year the Group recognised income of US$0.3 million (2020: US$0.3 million) from the sub-leasing of office buildings in Maseru. The Group expects to receive the following lease payments from the operating sub-leasing in the following years:

 



US$ '000


2022

358


2023

381


2024

405


2025

245





Intangibles

US$'000

Goodwill1

US$'000

Total

US$'000

10.

INTANGIBLE ASSETS





As at 31 December 2021





Cost





Balance at 1 January 2021

791

12 997

13 788


Foreign exchange difference

-

(1 035)

(1 035)


Scrapping

(791)

-

(791)


Balance at 31 December 2021

-

11 962

11 962


Accumulated amortisation





Balance at 1 January 2021

791

-

791


Amortisation

-

-

-


Scrapping

(791)

-

(791)


Balance at 31 December 2021

-

-

-


Net book value at 31 December 2021

-

11 962

11 962


As at 31 December 2020





Cost





Balance at 1 January 2020

791

13 653

14 444


Foreign exchange difference

-

(656)

(656)


Balance at 31 December 2020

791

12 997

13 788


Accumulated amortisation





Balance at 1 January 2020

791

-

791


Amortisation

-

-

-


Balance at 31 December 2020

791

-

791


Net book value at 31 December 2020

-

12 997

12 997


 

1 Goodwill allocated to Letšeng Diamonds. Refer Note 11, Impairment testing.

 



2021

US$'000

2020

US$'000

11.

IMPAIRMENT TESTING



Impairment testing



Goodwill impairment testing is undertaken on Letšeng Diamonds annually and when there are indications of impairment. The most recent test was undertaken at 31 December 2021. In assessing whether goodwill has been impaired, the carrying amount of Letšeng Diamonds is compared with its recoverable amount. For the purpose of goodwill impairment testing in 2021, the recoverable amount for Letšeng Diamonds has been determined based on a value-in-use model, similar to that adopted in the past.



Goodwill



Letšeng Diamonds

11 962

12 997


Balance at end of year

11 962

12 997


 

Movement in goodwill relates to foreign exchange translation from functional to presentation currency, as disclosed within Note 10, Intangible assets.

 

The discount rate is outlined below and represents the nominal pre-tax rate. This rate is based on the weighted average cost of capital (WACC) of the Group and adjusted accordingly at a risk premium for Letšeng Diamonds, taking into account risks associated therein.

 




2021

%

2020

%


Discount rate - Letšeng Diamonds



Applied to revenue

11.5


Applied to costs

13.4

14.3





Value in use

Cash flows are projected for a period up to the date that the open pit mining is expected to cease in 2037 (in terms of IAS 36). This is based on the latest available mine plan and is shorter than the mining lease period which extends to 2029 with an exclusive option to renew for a further 10 years to 2039. This mine plan takes into account the available reserves and other relevant inputs such as diamond pricing, costs and geotechnical parameters.

 

Sensitivity to changes in assumptions

The Group will continue to test its assets for impairment where indications are identified.

 

Refer Note 1.2.28, Critical accounting estimates and judgements, for further details on impairment testing policies.

 

The short and medium-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent market trends and anticipated market supply and the Group's medium-term forecast. Long-term diamond price escalation reflects the Group's assessment of market supply/demand fundamentals. The valuation of Letšeng at 31 December 2021 exceeded the carrying value at an attributable level by US$35.1 million (31 December 2020: US$83.0 million). The valuation is sensitive to input assumptions particularly in relation to the foreign exchange assumption of the US dollar (US$) to the Lesotho loti (LSL) and the future price growth for diamonds. The Group has assumed an appropriate price increase for its diamonds following the market improvement noted in the diamond prices during the year.

 

A range of alternative scenarios have been considered in determining whether there is a reasonably possible change in the foreign exchange rates in conjunction with a reasonably possible change in the diamond price recovery, which would result in the recoverable amount equating to the carrying amount. A 5% strengthening of the LSL to the US$ to US$1:LSL15.15 or a further reduction of 4% to the starting diamond prices would result in the recoverable amount equating to the current carrying value (at year end exchange rate), with other valuation assumptions remaining the same.

 

As a result, no impairment charge was recognised during the year.

 



2021

US$'000

2020

US$'000

12.

RECEIVABLES AND OTHER ASSETS



Non-current



Deposits

109


Insurance Asset1

1 169

-



1 278

153


Current



Trade receivables

25


Prepayments2

975


Deposits

19


Other receivables

122


VAT receivable

2 954

4 180



4 095

5 686


The carrying amounts above approximate their fair value due to the nature of the instruments.



Analysis of trade receivables based on their terms and conditions



Neither past due nor impaired

2


Past due but not impaired:



Less than 30 days

-


30 to 60 days

-


60 to 90 days

-


90 to 120 days

23

-



25

22


 

1  During the year, the Group, through its subsidiary Letšeng, transitioned its conventional approach to insurance cover towards a more flexible approach, through retaining higher insurance excesses, thereby obtaining an insurance premium saving and ultimately preserving cashflow. To mitigate the increased risk exposure of the higher deductible in the unlikely event of an unexpected loss, Letšeng entered into a LSL100.0 million (US$6.2 million) Multi-aggregate Protection Insurance Policy with The Lesotho National Insurance Group (LNIGC) on 1 October 2021. This policy has a tenure of 4 years and 9 months, consisting of five premium payments of LSL20.0 million (US$1.3 million), each payable annually in advance (refer Note 24, Commitments and contingencies). This policy gives Letšeng the right to claim up to LSL50.0 million for each-and-every- loss and LSL100.0 million in the aggregate (subject to terms and conditions contained in the policy), from inception of the policy. On expiry of the policy in June 2026, all unutilised funds within the policy are due and payable to Letšeng. A non-current financial asset has been recognised for the unutilised premium paid to date, net of underwriting and fronting fees as expensed within other operating expenses. The non-current financial asset is measured at amortised cost in line with IFRS 9. Interest is earned on the unrealised premium and recognised as finance income. The first premium payment was financed through a 10-month loan through Premium Finance Partners (Proprietary) Limited. This non-current financial asset is ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 17, Interest Bearing Loans and Borrowings.

2  Prepayments include insurance premiums prepaid at Letšeng Diamonds of US$0.3 million (31 December 2020: US$0.6 million) and Gem Diamonds Technical Services of US$0.2 million (31 December 2020: US$0.1 million) which were funded through Premium Finance Partners (Proprietary) Limited. This prepayment is ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 17, Interest Bearing Loans and Borrowings.

 

Based on the nature of the Group's client base and the negligible exposure to credit risk through its client base, insurance asset and other financial assets, the expected credit loss is insignificant and has no impact on the Group.

 



2021

US$'000

13.

INVENTORIES




Diamonds on hand

18 303


Ore stockpiles

4 702


Consumable stores

8 153

8 818



31 158

26 741


 

Inventory is carried at the lower of cost or net realisable value. There were no write-downs recorded to net realisable value in the current or prior year.

 



2021

US$'000

14.

CASH AND SHORT-TERM DEPOSITS




Cash on hand

3


Bank balances

27 673


Short-term bank deposit

3 237

14 360



30 913

49 820





The amounts reflected in the financial statements approximate fair value due to the short-term maturity and nature of cash and short-term deposits.

 

Cash at banks earn interest at floating rates based on daily bank deposit rates. Short-term deposits are generally call deposit accounts and earn interest at the respective short-term deposit rates.

 

The Group's cash surpluses are deposited with major financial institutions of high-quality credit standing predominantly within Lesotho and the United Kingdom.

 

At 31 December 2021, the Group had US$74.3 million (31 December 2020: US$60.8 million) of undrawn facilities, representing the LSL750.0 million (US$47.0 million) three-year unsecured revolving working capital facility at Letšeng, the Letšeng ZAR100.0 million (US$6.3 million) general banking facility and US$21.0 million from the Company's unsecured revolving credit facility. For further details on these facilities, refer Note 17, Interest-bearing loans and borrowings.

 

15.

ASSETS HELD FOR SALE

Since 2019, in line with the strategic objective to dispose of non-core assets, the Board and Management have remained committed to the sale of Gem Diamonds Botswana (Pty) Ltd (GDB), which owns the Ghaghoo diamond mine. Notwithstanding the lapsing in the prior year during January 2020 of the initial sales agreement which was entered into in June 2019, management remained committed and again opened the process to other prospective buyers and on 23 August 2021 entered into a binding share sale agreement with Okwa Diamonds (Pty) Ltd (Okwa Diamonds), the entity with which an exclusivity agreement had been entered into in November 2020. Okwa Diamonds, an SPV company registered in Botswana, which is owned by Vast Resources PLC (Vast), a mining and resource development company listed on AIM (a sub-market of the London Stock Exchange), and by Botswana Diamonds PLC (BOD), a diamond exploration and project development company listed on AIM and the Botswana Stock Exchange. Vast and BOD are both parties to the share sale agreement and guarantee the obligations of Okwa Diamonds. Under the share sale agreement, the purchaser would pay a total consideration of US$4.0 million, payable in two instalments of US$2.0 million each, the first of which would be payable five days after the date on which the last suspensive condition is fulfilled or waived.

 

The suspensive conditions included obtaining the competition authority and regulatory approvals within Botswana. The competition authority and regulatory conditions were fulfilled prior to year end and written approvals were obtained from the Botswana Competition Authority and the Ministry of Mineral Resources, Green Technology and Energy Security of Botswana. The agreement had an initial longstop date of 31 January 2022.

 

In January 2022, after the reporting period, Vast informed Gem Diamonds and BOD that it did not intend to continue with the transaction due to its inability to meet the funding suspensive condition. BOD confirmed its commitment to conclude the transaction as originally envisaged as soon as possible and has informed Gem Diamonds Limited that it has identified an alternative financing partner which will, subject to any approvals that are required, replace Vast as the initial financing partner. Gem Diamonds Limited and BOD remain committed to the sale of GDB and are working together towards a mutually beneficial outcome and have agreed to extend the longstop date from 31 January 2022 to 31 March 2022.

 

As the transaction was not successfully concluded by year end, GDB continued to be disclosed as a discontinued operation held for sale at year end based on the circumstances detailed above.

 

During the year, certain consumable inventory items which were not being used in the mine's care and maintenance operations were written off relating to expired explosives and plant consumables; underground mining consumables and spares and accessories for automotives no longer on site. The asset held for sale is carried at carrying value which is lower than fair value less costs to sell. The fair value is based on the unobservable market offer from the potential buyer for the disposal group, accordingly the non-recurring fair value measurement is included in level 3 of the fair value hierarchy.

 

The trading results of the operation continue to be classified as a discontinued operation held for sale and are presented as follows:

 



 



2021

US$'000

2020

US$'000


Gross profit

-


Other costs

(2 070)


Inventory write-down

(1 455)


Share-based payments

(2)


Foreign exchange gain

(6)

-


Operating loss

(3 533)


Net finance costs

(221)

(202)


Loss before tax from discontinued operation

(3 754)


Income tax expense

-

-


Loss after tax from discontinued operation attributable to equity holders of the parent

(3 754)

(3 264)


Loss per share from discontinued operation (cents)



Basic

(2.7)


Diluted

(2.6)

(2.3)





Gem Diamonds Botswana incurred rental expenses from short-term leases of US$0.5 million (31 December 2020: US$0.9 million) during the year.

 

Gem Diamonds Botswana has estimated tax losses of US$173.0 million (31 December 2020: US$185.2 million), which carry no expiry date, for which no deferred tax asset has been recognised. Deferred tax assets of US$0.3 million (31 December 2020: US$0.3 million) were recognised to the extent of the deferred tax liabilities. These have been offset in the table below.

 



2021

US$'000

2020

US$'000


ASSETS



Non-current assets



Property, plant and equipment

1 413

1 533


Current assets



Inventories

477


Receivables and other assets

63


Cash and short-term deposits

144

7



684

1 995


Total assets

2 097

3 528


LIABILITIES



Non-current liabilities



Provisions

3 654

3 753


Current liabilities



Trade and other payables

446


Total liabilities

4 100

4 224


The net cash flows attributable to the discontinued operation held for sale are as follows:



Operating cash outflows

(2 186)


Investing

-


Financing cash inflows1

2 332


Foreign exchange loss on translation of cash balance

(9)

(63)


Net cash inflow/(outflow)

137

(133)


 

1 Financing provided by Gem Diamonds Botswana (Pty) Ltd's holding company, being Gem Diamonds Limited, to fund care and maintenance costs.

 

16.

ISSUED SHARE CAPITAL AND RESERVES


Share capital



31 December 2021

31 December 2020



Number of shares

US$'000

US$'000

Number of shares

US$'000

US$'000


Authorised - ordinary shares of US$0.01 each






As at year end

200 000

2 000

200 000

2 000


Issued and fully paid balance at beginning of year

139 612

1 397

138 984

1 391


Allotments during the year

903

9

628

6


Balance at end of year

140 515

1 406

139 612

1 397








Share premium


Share premium comprises the excess value recognised from the issue of ordinary shares above its par value.




Other reserves



Foreign currency translation reserve

US$'000

Share- based equity reserve

US$'000

 

 

 

Total

US$'000


Balance at 1 January 2021

(218 355)

6 191

(212 164)


Other comprehensive loss

(14 921)

-

(14 921)


Total comprehensive loss

(14 921)

-

(14 921)


Share capital issue

-

(9)

(9)


Share-based payments

-

397

397


Balance at 31 December 2021

(233 276)

6 579

(226 697)


Balance at 1 January 2020

(208 493)

5 636

(202 857)


Other comprehensive loss

(9 862)

-

(9 862)


Total comprehensive loss

(9 862)

-

(9 862)


Share capital issue

-

(6)

(6)


Share-based payments

-

561

561


Balance at 31 December 2020

(218 355)

6 191

(212 164)




Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities. The South African, Lesotho and Botswana subsidiaries' functional currencies are different to the Group's presentation currency of US dollar. The rates used to convert the operating functional currency into US dollar are as follows:



Currency

2021

2020


Average rate

ZAR/LSL to US$1

14.79

16.47


Year end

ZAR/LSL to US$1

15.96

14.69


Average rate

Pula to US$1

11.09

11.45


Year end

Pula to US$1

11.76

10.80







Share-based equity reserves

For details on the share-based equity reserve, refer Note 27, Share-based payments.

 

Capital management

For details on capital management, refer Note 26, Financial risk management.

 

17.

INTEREST-BEARING LOANS AND BORROWINGS

A consolidated Group-wide refinancing of revolving credit facilities (RCF) took place during the year with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking Division) (Nedbank) appointed as sole mandated lead arranger. Financial close of the three-year RCF took place on 23 December 2021. The salient features of the new consolidated RCF are as follows:

Three funders are participating in the RCF, namely Nedbank (US$34.7 million), Standard Bank of South Africa Limited (US$23.1 million) and Firstrand Bank Limited (through their various operations) (US$19.2 million). All draw downs will be made in this same ratio;

The RCF of Gem Diamonds Limited remains unchanged at US$30.0 million and the Letšeng Diamonds RCF has increased from LSL500.0 million (31 December 2020: US$34.0 million) to US$47.0 million, made up of two facilities of LSL450.0 million and ZAR300.0 million;

As at 31 December 2021, the RCF is unsecured;

On 28 February 2022, subsequent to year end, Gem Diamonds Limited provided security for the RCF over its bank accounts domiciled in the United Kingdom and on 15 March 2022 the security over its 70% shareholding in Letšeng Diamonds (carrying value: US$256.2 million, which includes net cash and short-term deposits of US$24.2 million) was implemented. This security has the impact of decreasing the interest rate margin on all facilities by 1.5% from 15 March 2022 and converting the facilities into secured facilities;

The Nedbank Limited portions of the RCF, being US$13.5 million for Gem Diamonds Limited and ZAR300.0 million for Letšeng Diamonds are Sustainability-linked loans, whereby the interest rate can be reduced if certain sustainability performance targets to be measured on 31 December 2022 and 31 December 2023 are achieved. This has had no impact on the classification or measurement of these facilities as at 31 December 2021;

The facilities also include an additional US$20.0 million accordion option for Gem Diamonds, the utilisation of which is subject to all necessary internal credit and other approvals from all funders. There was no utilisation of this facility during the current year.

 



Effective interest rate

Maturity

2021

US$'000

2020

US$'000


Non-current






LSL215.0 million bank loan facility






Tranche A

South African JIBAR + 6.50%

30 September 2022

-

477


Tranche B

South African JIBAR + 3.15%

31 March 2022

-

817


ZAR12.8 million asset-based finance facility

South African Prime Lending Rate

1 January 2024

202

408


LSL450.0 million and ZAR300.0 million bank loan facility Credit underwriting fees

-

22 December 2024

(525)

-


US$30.0 million bank loan facility

London US$ three-month LIBOR + 6.50%

22 December 2024

8 663

-





8 340

1 702


Current






ZAR1.8 million insurance premium finance

2.5%

1 May 2021

-

64


LSL14.5 million insurance premium finance

2.95%

3 July 2021

-

542


US$30.0 million bank loan facility

London US$ three-month LIBOR + 5.0%

31 December 2021

-

9 700


LSL7.3 million insurance premium finance

2.35%

1 June 2022

305

-


ZAR3.5 million insurance premium finance

2.5%

1 July 2022

155

-


LSL20.0 million insurance premium finance

3.2%

1 July 2022

880

-


LSL215.0 million bank loan facility






Tranche A

South African JIBAR + 6.75%

30 September 2022

439

635


Tranche B

South African JIBAR + 3.15%

31 March 2022

752

3 268


ZAR12.8 million asset-based finance facility

South African Prime Lending Rate

1 January 2024

173

176





2 704

14 385








LSL215.0 million (US$13.5 million) bank loan facility at Letšeng Diamonds

This loan comprises two tranches of debt as follows:

Tranche A: Lesotho loti denominated LSL35.0 million (US$2.2 million) term loan facility without Export Credit Insurance Corporation (ECIC) support (five years and six months tenure); and

Tranche B: South African rand denominated ZAR180.0 million (US$11.3 million) debt facility supported by the ECIC (five years tenure).

 

The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 22 March 2017 to fund the construction of the Letšeng mining support services complex. The loan is repayable in equal quarterly payments which commenced in September 2018. At year end LSL19.0million (US$1.2 million) (31 December 2020: LSL76.3 million (US$5.2 million)) remains outstanding.

 

The South African rand-based interest rates for the facility at 31 December 2021 are:

Tranche A: 10.63% (31 December 2020: 10.10%); and

Tranche B: 7.03% (31 December 2020: 6.50%).

 

Total interest for the year on this interest-bearing loan was US$0.4 million (31 December 2020: US$0.6 million).

 

LSL450.0 million and ZAR 300.0 million (US$47.0 million) bank loan facility at Letšeng Diamonds

Following the consolidated refinancing on 23 December 2021, the Group, through its subsidiary Letšeng Diamonds, has a LSL450.0 million and ZAR300.0 million (US$47.0 million) three-year revolving credit facility jointly with Nedbank Lesotho Limited, Standard Lesotho Bank Limited, First National Bank of Lesotho Limited, Firstrand Bank Limited (acting through its Rand Merchant Bank division) and Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division).

 

The facility expires on 22 December 2024 and has a 24-month renewal option. The LSL450.0 million facility is subject to interest at the Central Bank of Lesotho rate plus 4.75% and the ZAR300.0 million facility is subject to South African JIBAR plus 4.55%.

 

The facility was unsecured as at 31 December 2021, however, following the implementation of the security, subsequent to period end, on 15 March 2022, the interest rate will decrease to Central Bank of Lesotho rate plus 3.25% and the ZAR300.0 million facility is subject to South African JIBAR plus 3.05% respectively. There was no draw down on this facility at year end.

 

Credit underwriting fees of US$0.5 million (31 December 2020: US$ nil) which were incurred as part of the refinancing were capitalised to the Group's consolidated interest-bearing loans and borrowings, albeit that Letšeng did not have any draw downs on its RCF at year end. The capitalised fees will be amortised and accounted for as finance costs within profit or loss over the period of the facility. Arranging fees of US$0.2 million which were incurred as part of the refinancing were expensed to profit or loss for the year.

 

US$30.0 million bank loan facility at Gem Diamonds Limited

This new facility is a three-year RCF with Nedbank Limited (acting through its London branch), Standard Bank of South Africa Limited (acting through its Isle of Man branch) and Firstrand Bank Limited (acting through its Rand Merchant Bank division) for US$13.5 million, US$9.0 million and US$7.5 million, respectively. All draw downs will be made in these ratios.

 

The facility expires on 22 December 2024 and has a 24-month renewal option.

 

The previous RCF of US$30.0 million with Nedbank Limited which was due to expire on 31 December 2021, was replaced with the new RCF on 23 December 2021. On this date, the outstanding balance on the previous RCF was US$15.0 million and after a capital repayment of US$6.0 million, the new RCF was recognised at US$9.0 million.

 

At year end US$9.0 million (31 December 2020: US$10.0 million) had been drawn down resulting in US$21.0 million (31 December 2020: US$20.0 million) remaining undrawn. Credit underwriting fees of US$0.3 million (31 December 2020: US$0.3 million facility rolling fees) were capitalised to the loan balance, resulting in the disclosure of a net US$8.7 million (31 December 2020: US$9.7 million) loan balance. The capitalised fees will be amortised and accounted for as finance costs within profit or loss over the period of the facility. Arranging fees of US$0.1 million which were incurred as part of the refinancing were expensed to profit or loss for the year.

 

The US$-based interest rate for this facility at 31 December 2021 was 6.72% (31 December 2020: 5.22%) which comprises London US$ three-month LIBOR plus 6.50%.

 

The facility was unsecured as at 31 December 2021, however, following the implementation of the security, subsequent to period end, on 15 March 2022, the interest rate will decrease to London US$ three-month LIBOR plus 5.00%.

 

Total interest for the year on this interest-bearing RCF was US$1.0 million (31 December 2020: US$1.2 million).

 

ZAR12.8 million (US$0.9 million) Asset-Based Finance facility

In January 2019, the Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.9 million) Asset Based Finance (ABF) facility with Nedbank Limited for the purchase of a mobile X-Ray transmission machine (the asset). The asset serves as security for the facility and has a carrying value of ZAR2.5 million (US$0.2 million) as at 31 December 2021 (31 December 2020: ZAR4.9 million (US$0.3 million)). At year end ZAR6.0 million (US$0.4 million) remains outstanding (31 December 2020: ZAR8.6 million (US$0.6 million)). The facility is repayable over five years and bears interest at the South African Prime Lending rate, which was 7.25% at 31 December 2021 (31 December 2020: 7.0%).

 

Total interest for the year on this interest-bearing ABF was US$34 thousand (31 December 2020: US$0.1 million).

 

LSL7.3 million insurance premium finance

The Group through its subsidiary Letšeng Diamonds, entered into a LSL7.3million (US$0.5 million) 9-month funding agreement with Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk insurance premium. At year end LSL4.9million (US$0.3million) remains outstanding. The funding is repayable in 9 monthly instalments, payable in advance. Total interest on this funding is LSL0.2 million (US$11.6 thousand) of which LSL0.1 million (US$4.8 thousand) was paid during the year. All respective insurance premiums prepaid at year end have been ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets.

 

LSL14.5 million insurance premium finance

In the prior year, the Group through its subsidiary Letšeng Diamonds, entered into a LSL14.5million (US$1.0 million) 12-month funding agreement with Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk insurance premium. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets. This financing was fully repaid on 3 July 2021.

 

LSL20.0 million insurance premium finance for Multi-aggregate Protection Insurance Policy

The Group through its subsidiary Letšeng Diamonds, entered into a LSL20.0 million (US$1.3 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited to finance the initial premium of LSL20.0 million on the Multi-aggregate Insurance Policy. At year end LSL14.0 million (US$0.9 million) remains outstanding. The funding is repayable in 10 monthly instalments, payable in advance. Total interest on this funding is LSL0.6 million (US$43.3 thousand) of which LSL0.2 million (US$15.1 thousand) was paid during the year. The unutilised premium paid, recognised as an insurance asset, has been ceded as security in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets.

 

ZAR3.5 million insurance premium finance

The Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR3.5 million (US$0.2 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited for its annual Group Umbrella Liability insurance premium. At year end ZAR2.5 million (US$154.9 thousand) remains outstanding. The funding is repayable in 10 monthly instalments. Total interest on this funding is ZAR88.1 thousand (US$5.5 thousand) of which ZAR33.1 thousand (US$2.1 thousand) interest was paid during the year. All respective insurance premiums prepaid at year end have been ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets.

 

ZAR1.8 million insurance premium finance

In the prior year, the Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR1.8 million (US$0.1 million) 10-month funding agreement with Premium Finance Partners (Proprietary) Limited for its annual Group Umbrella Liability insurance premium. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets. This financing was fully repaid on 1 May 2021.

 

Other facilities

In addition, Letšeng Diamonds has a ZAR100.0 million (US$6.3 million) overdraft facility with Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division) renewable annually. There was no draw down on this facility at year end.

 



2021

US$'000

2020

US$'000

18.

LEASE LIABILITIES




Non-current

3 851

4 902


Current

973

1 836


Total lease liabilities

4 824

6 738


Reconciliation of movement in lease liabilities




As at 1 January

6 738

10 479


Additions

507

1 175


Interest expense

525

608


Lease payments

(2 185)

(2 522)


Derecognition of lease

(352)

(2 296)


Foreign exchange differences

(409)

(706)


As at 31 December

4 824

6 738


 

Lease payments comprise payments in principle of US$1.7 million (31 December 2020: US$1.9 million) and repayments of interest US$0.5 million (31 December 2020: US$0.6 million).

 

The Group recognised variable lease payments of US$50.0 million (31 December 2020: US$41.4 million) for the year ended 31 December 2021 which consist of mining activities outsourced to a mining contractor. Total costs incurred for the year amount to US$50.0 million (31 December 2020: US$41.4 million) of which US$41.5 million (31 December 2020: US$34.1 million) has been capitalised to the Stripping Asset. Refer Note 1.2.6, Property Plant and equipment, Note 1.2.28, Critical accounting estimates and judgements, Equipment and service lease, Note 4, Operating profit.

 

During the year, the lease relating to backup power generating equipment at Letšeng expired and was therefore derecognised. A new lease for back-up power generating equipment is in the process of being negotiated. In the interim, Letšeng is renting existing backup power generator equipment on a month-to-month basis, which amounted to US$0.4 million for the year which has been included in profit or loss.

 



2021

US$'000

2020

US$'000

19.

TRADE AND OTHER PAYABLES




Non-current




Severance pay benefits1

2 095

 2 029


Current




Trade payables2

10 778

12 892


Accrued expenses2

5 413

8 169


Leave benefits

639

685


Royalties2

4 996

3 2503


Withholding taxes2

341

7053


Dividend payable to non-controlling interest

-

3 064


Other

21

58



22 188

28 823


 

1  The severance pay benefits arise due to legislation within the Lesotho jurisdiction, requiring that two weeks of severance pay be provided for every completed year of service, payable on retirement.

2  These amounts are mainly non-interest bearing and are settled in accordance with terms agreed between the parties.

3  These amounts were presented on a net basis in the prior year and have been disaggregated and presented separately in the current year.

 

Royalties consist of a levy paid to the Government of the Kingdom of Lesotho on the value of diamonds sold by Letšeng. Withholding taxes consist of taxes paid on dividends and other services to the Lesotho Revenue Authorities.

 

The carrying amounts above approximate fair value.

 



2021

US$'000

2020

US$'000

20.

INCOME TAX (RECEIVABLE)/PAYABLE




Reconciliation of movement in income tax payable




Balance at 1 January

11 834

(8 176)


Payments made during the year

(23 329)

(1 268)1


Refunds received during the year

96

7 1571


Income tax charge

10 197

11 593


Foreign exchange differences

11

2 528


Balance at 31 December

(1 191)

11 834


Split as follows




Income tax receivable

(1 232)

(106)


Income tax payable

41

11 940


 

1 These amounts were presented on a net basis in the prior year and have been disaggregated and presented separately in the current year.



2021

US$'000

2020

US$'000

21.

PROVISIONS




Rehabilitation provisions

11 202

12 331


Reconciliation of movement in rehabilitation provisions




Balance at 1 January

12 331

15 588


Decrease during the year

(1 345)

(3 125)


Unwinding of discount rate

1 187

888


Foreign exchange differences

(971)

(1 020)


Balance at 31 December

11 202

12 331






Rehabilitation provisions

The provisions have been recognised as the Group has an obligation for rehabilitation of the mining areas. The provisions have been calculated based on total estimated rehabilitation costs, discounted back to their present values over the LoM at the mining operations. The pre-tax discount rates are adjusted annually and reflect current market assessments.

 

In determining the amounts attributable to the rehabilitation provision at Letšeng, management used a discount rate of 9.8% (31 December 2020: 9.7%), estimated rehabilitation timing of 14 years (31 December 2020: 15 years) and an inflation rate of 5.3% (31 December 2020: 5.3%). At Ghaghoo (Refer Note 15, Asset held for sale), management used the available estimated costs to rehabilitate, considering its care and maintenance state. The decrease in the provision at Letšeng is mainly attributable to the annual reassessment of the estimated closure costs performed at the operations together with the ongoing rehabilitation spend during the year at Letšeng.

 



2021

US$'000

2020

US$'000

22.

DEFERRED TAXATION




Deferred tax assets




Lease liabilities

1 225

1 683


Accrued leave

321

263


Provisions

3 571

4 400



5 117

6 346


Deferred tax liabilities




Property, plant and equipment

(78 202)

(79 902)


Right-of-use assets

(900)

(1 236)


Prepayments

(188)

(218)


Unremitted earnings

(3 182)

(3 182)



(82 472)

(84 538)


Net deferred tax liability

(77 355)

(78 192)


Reconciliation of net deferred tax liability




Balance at beginning of year

(78 192)

(83 124)


Movement in current period:




- Accelerated depreciation for tax purposes

(4 249)

548


- Accrued leave

(2)

21


- Unremitted earnings

-

857


- Prepayments

30

29


- Provisions

(429)

12


- Lease liabilities

(350)

(582)


- Right-of-use assets

273

527


- Foreign exchange differences

5 564

3 520


Balance at end of year

(77 355)

(78 192)


 

The Group has not recognised a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries because it is able to control the timing of dividends and only part of the temporary difference is expected to reverse in the foreseeable future. The gross temporary difference in respect of the undistributed reserves of the Group's subsidiaries for which a deferred tax liability has not been recognised is US$99.5 million (31 December 2020: US$97.1 million). There are no income tax consequences attached to the payment of dividends by Gem Diamonds Limited to its shareholders.

 

The Group, excluding Ghaghoo, has estimated tax losses of US$40.3 million (31 December 2020: US$34.0 million). All tax losses are generated in jurisdictions where tax losses do not expire. No deferred tax assets were recognised on these losses as management do not foresee any taxable profits or taxable temporary differences against which to utilise these.

 


Notes

2021

US$'000

2020

US$'000

23.

CASH FLOW NOTES




23.1

Cash generated by operations





Profit before tax for the year - continuing operations


46 669

38 253


Loss for the year - discontinued operation


(3 754)

(3 264)


Adjustments for:





Depreciation and amortisation excluding waste stripping

4

6 927

7 027


Depreciation on right-of-use assets

4, 9

1 685

2 043


Waste stripping cost amortised

4

46 813

43 420


Finance income

5

(202)

(382)


Finance costs

5, 15

4 165

4 994


Unrealised foreign exchange differences


(2 426)

(4 019)


(Profit)/loss on disposal and scrapping of property, plant and equipment


(16)

30


Gain on derecognition of leases


(107)

(150)


Inventory write down

15

1 455

240


Bonus, leave and severance provisions raised


2 284

4 317


Share-based payments


397

561


Gain on abandonment of investment


-

(20)


Bad debts written off


12

-




103 902

93 050

23.2

Working capital adjustment





(Increase)/decrease in inventory


(8 255)

3 489


Decrease in receivables


5 072

1 316


Decrease in payables


(3 924)

(4 341)




(7 107)

464

23.3

Cash flows from financing activities (excluding lease liabilities)





Balance at beginning of year


16 087

22 341


Net cash used in financing activities


(7 194)

(6 431)


- Financial liabilities repaid


(26 393)

(55 638)


- Financial liabilities raised


19 199

49 207


Interest paid


(1 927)

(2 884)


Non-cash movements


4 078

3 061


- Interest accrued


1 927

2 884


- Unwinding of facility rolling fees


300

-


- Financial liabilities raised1


2 082

1 047


- Foreign exchange differences


(231)

(870)


Balance at year end

17

11 044

16 087







1  This amount mainly relates to funding obtained for insurance premium finance. The funding was paid directly by the lender to the third party and is being repaid by the Group in monthly instalments to the lender. Refer Note 17, Interest bearing loans and borrowings.

 



2021

US$'000

2020

US$'000

24.

COMMITMENTS AND CONTINGENCIES




Commitments




Mining leases




Mining lease commitments represent the Group's future obligation arising from agreements entered into with local authorities in the mining areas that the Group operates.

The period of these commitments is determined as the lesser of the term of the agreement, including renewable periods, or the LoM. The estimated lease obligation regarding the future lease period, accepting stable inflation and exchange rates, is as follows:




- Within one year

145

162


- After one year but not more than five years

760

695


- More than five years

784

993



1 689

1 850






Equipment and service lease




The Group has entered into lease arrangements for the provision of loading, hauling and other transportation services payable at a fixed rate per tonne of ore and waste mined; power generator equipment payable based on a consumption basis; and rental agreements for various mining equipment based on the fleet utilised. All lease payments relating to this lease are variable in nature. A portion of the lease payment is therefore expensed in the Consolidated statement of profit or loss and the portion relating to waste removal/stripping costs is capitalised to the waste stripping asset in the proportions referred to under the estimate and judgements applied to the Capitalised stripping costs (deferred waste). Refer Note 1.2.28, Critical accounting estimates. The terms of this lease are negotiated during the extension option periods catered for in the agreements or at any time sooner if agreed by both parties.




- Within one year

39 290

52 855


- After one year but not more than five years

89 241

181 904



128 531

234 759


Multi-aggregate protection policy

The Group, through its subsidiary Letšeng entered into a LSL100.0 million (US$6.2 million) Multi-aggregate Protection Insurance Policy with the Lesotho National Insurance Group (LNIGC) on 1 October 2021. This policy has a tenure of 4 years and 9 months, consisting of five premium payments of LSL20.0 million (US$1.3 million), each payable annually in advance. As at 31 December 2021 the Group has committed to making the four remaining premium payments, as well as the annual insurance risk finance service fee of 7% on an annual premium of LSL1.4 million (US$0.1 million) and the surplus reserve finance cost fee of 1.5% on the cumulative net premiums surplus balance carried over each year. These fees are either deductible from premium or payable upfront at the option of Letšeng. The Group has elected to deduct the fees from the annual premiums, therefore no additional cash commitment relating to these fees and the future cash flow commitments are stated at the future premiums payable over the remaining insurance period. Refer Note 12, Receivables and other assets for further detail on the policy.




- Within one year

1 253

-


- After one year but not more than five years

3 759

-



5 012

-






Letšeng Diamonds Educational Fund




In terms of the mining agreement entered into between the Group and the Government of the Kingdom of Lesotho, the Group has an obligation to provide funding for education and training scholarships. The quantum of such funding is at the discretion of the Letšeng Diamonds Education Fund Committee.




- Within one year

54

37


- After one year but not more than five years

64

50



118

87


Capital expenditure




Approved but not contracted for

19 335

1 091


Approved and contracted for

855

372



20 190

1 463






The main capital expenditure approved relates to the investment in the new primary crushing area at Letšeng of US$15.0 million. Other smaller capital expenditure, all at Letšeng, relates to investment in continued tailings storage extension of US$1.3 million (31 December 2020: US$1.0 million), the construction of an employee centre of US$0.8 million linked to the successful completion of the Business Transformation target, further mineral resource and reserve studies of US$0.5 million and detailed engineering designs relating to the new primary crushing area of US$0.5 million. The expenditure is expected to be incurred over the next 12 months.

 

Contingent rentals - Alluvial Ventures

The contingent rentals represent the Group's obligation to a third party (Alluvial Ventures) for operating a third plant on the Group's mining property at Letšeng Diamonds. The rental is determined when the actual diamonds mined by Alluvial Ventures are sold. The agreement is based on 39.5% to 60% (2020: 39.5% to 60%) of the value (after costs) of the diamonds recovered by Alluvial Ventures and is limited to US$1.4 million (2020: US$1.4 million) per individual diamond. As at the reporting date, such future sales cannot be estimated reliably due to the variability within these estimations.

 

Contingencies

The Group has conducted its operations in the ordinary course of business in accordance with its understanding and interpretation of commercial arrangements and applicable legislation in the countries where the Group has operations. In certain specific transactions, however, the relevant third party or authorities could have a different interpretation of those laws and regulations that could lead to contingencies or additional liabilities for the Group. Having consulted professional advisers, the Group has identified possible disputes approximating US$0.2 million (December 2020: US$0.2 million).

 

The Group monitors possible tax claims within the various jurisdictions in which the Group operates. Management applies judgement in identifying uncertainties over tax treatments and concluded that there were no uncertain tax treatments relating to the current year. Refer Note 1.2.28, Critical accounting estimates and judgements. There remains a risk that further tax liabilities may potentially arise. While it is difficult to predict the ultimate outcome in some cases, the Group does not anticipate that there will be any material impact on the Group's results, financial position or liquidity.

 

25.

RELATED PARTIES


Related party

Relationship


Jemax Management (Proprietary) Limited

Common director


Government of the Kingdom of Lesotho

Non-controlling interest


 

Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.





2021

US$'000

2020

US$'000


Compensation to key management personnel (including Directors)




Share-based equity transactions

248

344


Short-term employee benefits

4 655

3 562


Post-employment benefits (including severance pay and pension)

152

93



5 055

3 999


Fees paid to related parties




Jemax Management (Proprietary) Limited

(93)

(83)


Royalties paid to related parties




Government of the Kingdom of Lesotho

(20 214)

(18 425)


Lease and licence payments to related parties




Government of the Kingdom of Lesotho

(70)

(132)


Sales to/(purchases from) related parties




Jemax Management (Proprietary) Limited

(6)

(4)


Non-executive director

11

-


Amount included in trade payables owing to related parties




Jemax Management (Proprietary) Limited

(8)

(9)


Amounts owing to related party




Government of the Kingdom of Lesotho

(5 337)

(3 955)


Dividends declared




Government of the Kingdom of Lesotho

(3 890)

(7 452)


Dividends payable




Government of the Kingdom of Lesotho

-

(3 064)






Jemax Management (Proprietary) Limited provided administrative services with regards to the mining activities undertaken by the Group. A controlling interest is held by an Executive Director of the Company.

 

The transaction relating to the non-executive director was for the sale of a polished diamond. All proceeds were received prior to year end.

 

The above transactions were made on terms agreed between the parties and were made on terms that prevail in arm's length transactions.





26.

FINANCIAL RISK MANAGEMENT

Financial risk factors

The Group's activities expose it to a variety of financial risks:

market risk (including commodity price risk, foreign exchange risk and interest rate risk);

credit risk; and

liquidity risk.

 

The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance.

 

Risk management is carried out under policies approved by the Board of Directors. The Board provides principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investing excess liquidity.

 

There have been no changes to the financial risk management policy since the prior year.

 

Capital management

For the purpose of the Group's capital management, capital includes the issued share capital, share premium and liabilities on the Group's statement of financial position. The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may issue new shares or restructure its debt facilities. The management of the Group's capital is performed by the Board.

 

The Group's capital management, among other things, aims to ensure that it meets financial covenants attached to its interest- bearing loans and borrowings. Breaches in meeting the financial covenants would permit the bank to immediately call loans and borrowings. There have been no breaches of the financial covenants in the current year.

 

At 31 December 2021, the Group had US$74.3 million (31 December 2020: US$60.8 million) of undrawn debt facilities and continues to have the flexibility to manage the capital structure more efficiently by the use of these debt facilities, thus ensuring that an appropriate gearing ratio is achieved.

 

Refer Note 17, Interest bearing loans and borrowings for detail on the debt facilities in the Group.

 


a)

Market risk



(i)

Commodity price risk

The Group is subject to diamond price risk. Diamonds are not homogeneous products and the price of rough diamonds is not monitored on a public index system. The fluctuation of prices is related to certain features of diamonds such as quality and size. Diamond prices are marketed in US dollar and long-term US dollar per carat prices are based on external market consensus forecasts. The Group does not have any financial instruments that may fluctuate as a result of commodity price movements.

 



(ii)

Foreign exchange rate risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Lesotho loti, South African rand and Botswana pula. Foreign exchange risk arises when future commercial transactions, recognised assets and liabilities are denominated in a currency that is not the entity's functional currency.

 

The Group's sales are denominated in US dollar which is the functional currency of the Company, but not the functional currency of the operations.

 

The currency sensitivity analysis below is based on the following assumptions:

Differences resulting from the translation of the financial statements of the subsidiaries into the Group's presentation currency of US dollar, are not taken into consideration;

The major currency exposures for the Group relate to the US dollar and local currencies of subsidiaries. Foreign currency exposures between two currencies where one is not the US dollar are deemed insignificant to the Group and have therefore been excluded from the sensitivity analysis; and

The analysis of the currency risk arises because of financial instruments which are denominated in a currency that is not the functional currency of the relevant Group entity. The sensitivity has been based on financial assets and liabilities at 31 December 2021 and 31 December 2020.

 

There has been no change in the assumptions or method applied from the prior year.

 

Sensitivity analysis

At year-end, Letšeng had US$22.1 million (2020: US$31.1 million) cash on hand held in US$. If the US dollar had appreciated/ (depreciated) by 10% against the LSL, the Group's profit before tax and equity at 31 December 2021 would have been US$2.4 million higher/(lower) (31 December 2020: US$2.8 million).

 



(iii)

Forward exchange contracts

From time to time, the Group enters into forward exchange contracts to hedge the exposure to changes in foreign currency of future sales of diamonds at Letšeng Diamonds. The Group performs no hedge accounting. At 31 December 2021, the Group had no forward exchange contracts outstanding (31 December 2020: US$nil).

 



(iv)

Interest rate risk

The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's cash flow interest rate risk arises from borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. At the time of taking new loans or borrowings, management uses its judgement to decide whether it believes that a fixed or variable rate borrowing would be more favourable to the Group over the expected period until maturity.

 

  Sensitivity analysis

If the interest rates on the interest-bearing loans and borrowings (increased)/decreased by 80 basis points (2020: 80 basis points) during the year, profit before tax and equity would have been US$0.1 million (lower)/higher (31 December 2020: US$0.1 million). The assumed movement in basis points is based on the currently observable market environment, which remained consistent with the prior year and assumed a continued impact of the COVID-19 pandemic for the year.

 


b)

Credit risk

The Group's potential concentration of credit risk consists mainly of cash deposits with banks, trade receivables, insurance asset and other receivables. The Group's short-term cash surpluses are placed with banks that have investment grade ratings, to minimise the exposure to credit risk to the lowest level possible from the perspective of the Group's cash and cash equivalents. The maximum credit risk exposure relating to financial assets is represented by their carrying values as at the reporting dates.

 

The Group considers the credit standing of counterparties when making deposits to manage the credit risk.

 

Considering the nature of the Group's ultimate customers and the relevant terms and conditions entered into with such customers, the Group believes that credit risk is limited as the customers pay and settle their accounts on the date of receipt of goods.

 

The Group's insurance premiums are placed with insurers and underwriters that have high-quality credit standings, to minimise the exposure to credit risk to the lowest level possible from the perspective of the Group's insurance asset.

 

No other financial assets are impaired or past due and accordingly, no additional ECL or credit risk analysis has been provided.

 

The Group did not hold any form of collateral or credit enhancements for its credit exposures during the 31 December 2021 and 31 December 2020 financial reporting periods.

 


c)

Liquidity risk

Liquidity risk arises from the Group's inability to obtain the funds it requires to comply with its commitments including the inability to realise a financial asset in a short period of time at a price close to its fair value. Management manages the risk by maintaining sufficient cash, marketable securities and ensuring access to financial institutions and shareholding funding. This ensures flexibility in maintaining business operations and maximises opportunities. The Group has available debt facilities of US$74.3 million at year end (2020: US$60.8 million).

 

The table below summarises the maturity profile of the Group's financial liabilities at 31 December based on contractual undiscounted payments, excluding discontinued operation:

 




2021

US$'000

2020

US$'000



Floating interest rates





Interest-bearing loans and borrowings





- Within one year

2 758

14 960



- After one year but not more than five years

8 856

1 750



Total

11 614

16 710



Lease liabilities





- Within one year

1 459

2 375



- After one year but not more than five years

4 282

5 880



Total

5 741

8 255



Trade and other payables





- Within one year

22 188

28 823



- After one year but not more than five years

2 095

2 029



Total

24 283

30 852

 



2021

US$'000

2020

US$'000

27.

SHARE-BASED PAYMENTS




The expense recognised for employee services received during the year is shown in the following table:




Equity-settled share-based payment transactions charged to the statement of profit or loss




- continuing operation

395

555


Equity-settled share-based payment transactions charged to the statement of profit or loss




- discontinued operation

2

6



397

561

 


The long-term incentive plans are described below:

 

Long-term incentive plan (LTIP)

Certain key employees are entitled to a grant of options, under the LTIP of the Company. The vesting of the options is dependent on employees remaining in service for a prescribed period (normally three years) from the date of grant. The fair value of share options granted is estimated at the date of the grant using an appropriate simulation model, taking into account the terms and conditions upon which the options were granted. It takes into account projected dividends and share price fluctuation co-variances of the Company.

 

There is a nil or nominal exercise price for the options granted. The contractual life of the options is 10 years and there are no cash settlement alternatives. The Company has no past practice of cash settlement.

 

The Company's LTIP policy is reviewed every 10 years.

 

LTIP 2007 Award

Under the 2007 LTIP rules, there are three awards where options are still outstanding.

 

All four awards were awarded on the following basis:

 

To key employees (excluding Executive Directors):

the awards vest over a three-year period in tranches of a third of the award each year;

the vesting of the award is dependent on service conditions and certain performance targets being met for the same three-year period (classified as non-market conditions). These non-market condition awards are referred to as Nil Value options in the tables below;

if the performance or service conditions are not met, the options lapse;

the performance conditions relating to the non-market conditions are not reflected in the fair value of the award at grant date;

once the awards vest, they are exercisable for seven years (i.e. contractual term is 10 years); and

the vested awards are equity settled.

 

To Executive Directors:

the awards vest over a three-year period;

the vesting of the award is dependent on service conditions and both market and non-market performance conditions;

75% of the awards granted are subject to non-market conditions (referred to as Nil Value options in tables below) and 25% to market conditions (referred to as Market Value options in tables below) by reference to the Company's total shareholder return (TSR) as compared to a group of principal competitors;

if the performance or service conditions are not met, the options lapse;

the performance conditions relating to the non-market conditions are not reflected in the fair value of the award at grant date;

once the awards vest, they are exercisable for seven years (i.e. contractual term is 10 years); and

the vested awards are equity settled.

 

The fair value of the Nil value awards is based on the observable Gem Diamonds Limited share price on the date of award with no adjustments to the price made.

 

The following table reflects details of all the awards within the 2007 LTIP that remain outstanding:

 

 



LTIP March 2016

LTIP April 2015

LTIP June 2014

LTIP March 2014


Number of options granted - Nil value

1 215 000

1 215 000

456 750

625 000


Number of options granted - Market value

185 000

185 000

152 250

-


Date exercisable

15 March 2019

1 April 2018

10 June 2017

19 March 2017


Options outstanding

34 287

5 000

-

5 000


Dividend yield (%)

2.00

2.00

0.00

0.00


Expected volatility1 (%)

39.71

37.18

37.25

-


Risk-free interest rate (%)

0.97

1.16

1.94

-


Expected life of option (years)

3.00

3.00

3.00

3.00


Exercise price (US$)

nil

nil

nil

nil


Exercise price (GBP)

nil

nil

nil

nil


Weighted average share price (US$)

1.56

2.10

2.70

2.87


Fair value of nil value options (US$)

1.40

1.97

2.70

2.87


Fair value of nil value options (GBP)

0.99

1.33

1.61

1.74


Fair value of market value options (US$)

0.69

1.18

1.83

-


Fair value of market value options (GBP)

0.49

0.80

1.09

-


Model used

Monte Carlo

Monte Carlo

Monte Carlo

-


 

1  Expected volatility was based on the average annual historic volatility of the Company's share price over the previous three years.

2  The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.

 


LTIP 2017 Award

Under the 2017 LTIP rules, there are three awards where options are still outstanding.

 

All the awards were issued on the same basis as the 2007 LTIP.

 

During the current year there were no new awards granted in terms of the LTIP.

 

The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:

 



LTIP June 2020

LTIP March 2019

LTIP March 2018

LTIP July 2017


Number of options granted - Nil value

1 069 000

1 160 500

1 265 000

1 150 000


Number of options granted - Market value

180 000

142 500

185 000

185 000


Date exercisable

9 June 2023

20 March 2022

20 March 2021

4 July 2020


Options outstanding

1 068 132

964 198

302 639

73 917


Dividend yield (%)

0.00

0.00

0.00

2.00


Expected volatility1 (%)

47.00

43.00

40.00

40.21


Risk-free interest rate2 (%)

0.34

1.2

1.2

0.67


Expected life of option (years)

3.00

3.00

3.00

3.00


Exercise price (US$)

nil

nil

nil

nil


Exercise price (GBP)

nil

nil

nil

nil


Weighted average share price (US$)

0.39

1.20

1.35

1.24


Fair value of nil value options (US$)

0.39

1.20

1.35

1.11


Fair value of nil value options (GBP)

0.31

0.90

0.96

0.86


Fair value of market value options (US$)

0.19

0.58

0.74

0.72


Fair value of market value options (GBP)

0.15

0.44

0.53

0.56


Model used

Monte Carlo

Monte Carlo

Monte Carlo

Monte Carlo


 

1  Expected volatility was based on the average annual historic volatility of the Company's share price over the previous three years.

2  The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.

 


The following table illustrates the number ('000) and movement in the outstanding share options during the year:

 



2021

'000

2020

'000


Outstanding at beginning of year

3 887

4 002


Granted during the year

-

1 249


Exercised during the year1

(855)

(480)


Forfeited

(579)

(884)


Balance at end of year

2 453

3 887


Exercisable at end of year

454

535


 

1 Options were exercised regularly throughout the year. The weighted average share price during the year was £0.60 (US$0.83) (2020: £0.39 (US$0.50).

 


The weighted average remaining contractual life for the share options outstanding as at 31 December 2021 was 7.5 years (2020: 7.9 years).

 

The weighted average fair value of the share options outstanding as at 31 December 2021 was US$0.65 (2020: US$0.79).

 

ESOP

In September 2017, 47 200 shares which were previously held in the Company Employee Share Trust were granted to certain key employees involved in the Business Transformation of the Group. The Company Employee Share Trust was deregistered in 2017 following the grant of these shares. The fair value of the award was valued at the share price of the Company at the date of the award of £0.71 (US$0.96). These shares vested on 18 March 2019 and became immediately exercisable. The fair value of these outstanding awards at 31 December 2021 was £0.47 (US$0.65) (2020: £0.41 (US$0.52)). The shares outstanding at the end of the year are as follows:

 



2021

'000

2020

'000


Outstanding at beginning of year

17

47


Granted during the year

-

-


Exercised during the year

(7)

(30)


Balance at end of year

10

17


Exercisable at end of year

10

17

 

28.

FINANCIAL INSTRUMENTS

Set out below is an overview of financial instruments, other than the current portions of the prepayment disclosed in Note 12, Receivables and other assets, which do not meet the criteria of a financial asset. These prepayments are carried at amortised cost.

 



Notes

2021

US$'000

2020

US$'000


Financial assets at amortised cost





Cash - continuing operations

14

30 913

49 820


Cash - discontinued operation

15

144

7


Receivables and other assets - continuing operations

12

4 398

4 490


Receivables and other assets - discontinued operation

15

45

195


Total


35 500

54 512


Total non-current


1 278

153


Total current


34 222

54 359


Financial liabilities at amortised cost





Interest-bearing loans and borrowings

17

11 044

16 087


Trade and other payables - continuing operations

19

24 283

30 852


Trade and other payables - discontinued operation

15

446

471


Total


35 773

47 410


Total non-current


10 435

3 730


Total current


25 338

43 680


 

The carrying amounts of the Group's financial instruments held approximate their fair value.

 

There were no open hedges at year end (2020: nil).

 





2021

US$'000

2020

US$'000

29.

DIVIDENDS DECLARED AND PROPOSED




Declared dividends on ordinary shares




Final ordinary cash dividend for 2020: 2.5 US cents per share (2019: Nil)

3 509

-


 

The 2020 proposed dividend was approved on 2 June 2021 and a final cash dividend of 2.5 US cents per share was paid to shareholders on 15 June 2021.

 

A proposed ordinary cash dividend of 2.7 US cents per ordinary share for 2021 is subject to approval at the AGM to be held on 8 June 2022 and is not recognised as a liability as at 31 December.

 

30.

EVENTS AFTER THE REPORTING PERIOD

Events which occurred after the reporting period relating to the discontinued operation and the status of the sales process have been disclosed in Note 15 Assets held for sale. These events did not require any adjustments to the financial statements.

 

Events which occurred after the reporting period relating to the successful implementation of the security on certain revolving credit facilities within the Group have been disclosed in Note 17 Interest-bearing loans and borrowings. These events did not require any adjustments to the financial statements.

 

On 23 February 2022, the South African corporate income tax rate was reduced from 28% to 27% for companies with years of assessment ending on or after 31 March 2023. The change in tax rate will affect recorded deferred tax assets and liabilities and effective tax rate in the future. The new corporate tax rate of 27% is considered to be substantively enacted on 23 February 2022 and is expected to not have a material impact on the Group. This event did not require any adjustment to the financial statements and will be applicable to Gem Diamonds Technical Services, the Group's South African subsidiary.

 

Progress relating to the amended tax assessment issued to Letšeng by the LRA has been disclosed in Note 1.2.28 Critical accounting estimates and judgements.

 

An ordinary cash dividend of 2.7 US cents for the 2021 financial year has been proposed. This is subject to approval at the AGM to be held on 8 June 2022.

 

No other fact or circumstance has taken place between the end of the reporting period and the approval of the financial statements which, in our opinion, is of significance in assessing the state of the Group's affairs or requires adjustments or disclosures.

 

31.

MATERIAL PARTLY OWNED SUBSIDIARY

Financial information of Letšeng Diamonds, a 70% held subsidiary which has a material non-controlling interest, with the remaining 30% being held by the Government of the Kingdom of Lesotho, is provided below.

 


Name

Country of incorporation and operation

2021

US$'000

2020

US$'000


Letšeng Diamonds (Proprietary) Limited

Lesotho




Accumulated balances of material non-controlling interest


76 845

79 906


Profit allocated to material non-controlling interest


12 458

10 683


The summarised financial information of this subsidiary is provided below. This information is based on amounts before intercompany eliminations.





Summarised statement of profit or loss for the year ended





31 December





Revenue


198 510

186 579


Cost of sales


(120 751)

(112 081)


Gross profit


77 759

74 498


Royalties and selling costs


(20 879)

(19 043)


Other income/(expenses)


1 110

(6 695)


Operating profit


57 990

48 760


Net finance costs


(2 470)

(2 840)


Profit before tax


55 520

45 920


Income tax expense


(13 993)

(10 307)


Profit for the year


41 527

35 613


Total comprehensive income


41 527

35 613


Attributable to non-controlling interest


12 458

10 683


Dividends paid to non-controlling interest


(6 685)

(4 658)


Dividends payable to non-controlling interest


-

(3 064)


Summarised statement of financial position as at 31 December





Assets





Non-current assets





Property, plant and equipment, deferred tax assets, intangible assets and receivables and other assets


313 028

352 009


Current assets





Inventories, receivables and other assets, and cash and short-term deposits


61 455

78 098


Total assets


374 483

403 107


Non-current liabilities





Interest-bearing loans and borrowings, trade and other payables, provisions, lease liabilities and deferred tax liabilities


95 261

101 203


Current liabilities





Interest-bearing loans and borrowings, trade and other payables and lease liabilities


23 072

35 553


Total liabilities


118 333

136 756


Total equity


256 150

266 351


Attributable to:





Equity holders of parent


179 305

186 445


Non-controlling interest


76 845

79 906


Summarised cash flow information for the year ended





31 December





Operating cash inflows


77 824

105 471


Investing cash outflows


(68 655)

(48 700)


Financing cash outflows


(30 582)

(20 640)


Foreign exchange differences


1 271

2 787


Net (decrease)/increase in cash and cash equivalents


(20 142)

38 918

 

 

REPORT ON PAYMENTS TO GOVERNMENTS

for the year ended 31 December 2021

 

INTRODUCTION

This report provides an overview of the payments made to governments by Gem Diamonds Limited and its subsidiaries (the Group) for the 31 December 2021 financial year, as required under the UK Report on Payments to Governments Regulations 2014 (as amended December 2015). These UK Regulations enact domestic rules in line with Directive 2013/34/EU (the EU Accounting Directive (2013) and apply to companies that are involved in extractive activities.

 

This report is also filed with the National Storage Mechanism intended to satisfy the requirements of the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority in the UK.

 

The Gem Diamonds Limited LEI number is 213800RC2PGGMZQG8L67.

 

BASIS FOR PREPARATION

 

Reporting entities

This report includes payments to governments made by subsidiaries in the Group that are engaged in extractive activities. During the 2021 financial year, extractive activities were conducted in Lesotho while the operation in Botswana was under care and maintenance. All payments made in relation to the Botswana entity were under the materiality level and therefore not reported.

 

Extractive activities

Extractive activities relate to the exploration, prospection, discovery, development and extraction of minerals, oil, natural gas deposits or other materials. Gem Diamonds Limited, through its subsidiaries, is engaged in diamond mining activities.

 

Scope of payments

The report discloses only those significant payments made to governments arising from extractive activities.

 

Government

Government includes any national, regional, or local authority of a country. It includes a department, agency or undertaking (i.e. corporation) controlled by that authority.

 

Payment types disclosed at legal entity level

 

PRODUCTION ENTITLEMENTS

There were no payments of this nature for the year ended 31 December 2021.

 

TAXES

These are payments on the entity's income, production, or profits, excluding taxes levied on consumption such as value added taxes, personal income taxes or sales taxes in line with in-country legislation.

 

ROYALTIES

These are payments for the right to extract diamonds and are determined on percentage of sales in terms of in-country legislation and/or mining lease agreements.

 

DIVIDENDS

These are dividend payments, other than dividends paid to a government as an ordinary shareholder of an entity unless paid in lieu of production entitlements or royalties. There were no dividend payments of this nature to governments for the year ended 31 December 2021.

 

SIGNATURE, DISCOVERY, AND PRODUCTION BONUSES

There were no payments of this nature to governments for the year ended 31 December 2021.

 

LICENCE FEES

These are fees paid for acquisition of leases and licences, including annual renewal fees, in order to obtain and maintain access to the areas in which extractive activities are performed.

 

PAYMENTS FOR INFRASTRUCTURE IMPROVEMENTS

There were no payments of this nature to governments for the year ended 31 December 2021.

 

Cash flow basis

Payments reported are on a cash flow basis and may differ to amounts reported in the Gem Diamonds Limited 2021 Annual Report and Accounts, which are prepared on an accrual basis.

 

Materiality level

In line with the guidance provided in the Report on Payments to Governments Regulations, payments made as a single payment, or as a series of related payments, which are equal to or exceed US$110 000 (£86 000), are disclosed in this report. All payments below this threshold have been excluded.

 

Reporting currency

The payments to government have been reported in US dollar.

 

Payments made in currencies other than US dollar were translated at the relevant annual average rate for the year ended 31 December 2021.

 

SUMMARY REPORT

 

Operation

Country

Taxes

US$'000

Royalties

US$'000

Licence fee US$'000

Total

US$'000

Letšeng Diamonds (Proprietary) Limited

Lesotho

23 104

18 050

150

41 304

Total


23 104

18 050

150

41 304

 

 






Lesotho

Letšeng Diamonds (Proprietary) Limited


Taxes

US$'000

Royalties

US$'000

Licence fee US$'000

Total

US$'000







Lesotho Revenue Authority


23 104

-

-

23 104

Government of Kingdom of Lesotho


-

18 050

150

18 200

 

 

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