Chairman Roger Davis's statement 

The focus on maximising the revenue from our core assets through enhancing operating efficiencies and investing in innovative technologies has delivered improved earnings and has positioned Gem Diamonds for sustainable growth.

Our investment proposition

  • Diamond market fundamentals
  • Strategic and structural clarity
  • Dividend paying policy
  • Letšeng: value enhancing opportunities
  • Ghaghoo: near term asset valuation upside
  • Robust corporate governance

In 2011, Gem Diamonds mapped out a clear strategy built on three pillars, namely value creation, growth and sustainability. This broad-based approach has allowed the Group to adapt to short-term opportunities and challenges while moving towards its long-term goal of sustainable shareholder returns.
During 2014, the Group made great strides in achieving its stated objectives:
Maintaining a robust financial position and cash flows
The continued enhancement of the Group’s cash position and balance sheet strength allows it to react proactively to market and operational conditions in order to meet its medium and longer-term objectives.
Group revenue rose by 27% over the prior year, with cash on hand at the end of the year of US$110.7 million. The Group achieved a total shareholder return of 23% in 2014.

Based on the positive results achieved since the implementation of the above strategy, the Board is pleased to recommend maiden cash dividend of 5 US cents per share. The Board has adopted a policy that will determine the appropriate dividend each year based on consideration of the Company’s cash resources, the level of free cash flow and earnings generated during the year, and the expected funding commitments for capital projects relating to our growth strategy and will aim to pay a total dividend at an approximately consistent proportion of sustaining net earnings. Dividends are expected to be declared by the Board annually with the full-year results. This policy demonstrates our commitment to returning value to shareholders.

Improving the revenue line at Letšeng through innovation
The Letšeng mine in Lesotho is synonymous with exceptional diamonds. It is, therefore, imperative that the Group continually invests in innovative ways of identifying, recovering and preserving these high-value diamonds. During 2014, the mine continued to reap the benefits of the technological investments made in the previous years. In addition, further focused projects, including the installation of the new Coarse Recovery Plant, which will further improve diamond recovery, and the Plant 2 Phase 1 upgrade, which will increase throughput, reduce breakage and improve diamond liberation, are set to advance Gem Diamonds’ strategic objective of increasing revenues at Letšeng. These projects represent relatively low capital investments in keeping with the Group’s focus of maintaining capital discipline in all of its operations.

Gem Diamonds’ technical skills have come to the fore in the development of the Ghaghoo mine in Botswana, delivering the capital project on time and within budget. It is also pleasing to report that the first diamonds produced during commissioning have been of a better quality and average size than those recovered during the exploration phase. It has also been noteworthy that the presence of rare coloured diamonds in the resource has been confirmed.

The mine development showcases Gem Diamonds’ commitment to best practice in relation to its project affected communities and the environment. The communities affected by the Ghaghoo mine have been involved and consulted from the outset with the aim of achieving broader stakeholder value. In addition, numerous ecological and archaeological surveys; visual and socio-economic impact assessments; as well as an extensive public participation process have been conducted. Information gathered during this process underpinned the Group’s approach to minimising Ghaghoo’s ecological footprint and maximising the benefit for all stakeholders. A Ghaghoo Community Trust has been established and local community representatives sit in Trust meetings. The Trust has made a number of material interventions in community projects, long before the first diamond was sold and will continue to do so as the mine enters the next phase of development.

Continued excellence in sales, marketing and manufacturing initiatives
Positioned at the very top end of the diamond market, Gem Diamonds’ Letšeng mine consistently produces some of the world’s most remarkable diamonds, making it the highest average dollar per carat kimberlite diamond producer in the world and achieved an average of US$2 540* per carat in 2014. Letšeng’s tenders attract the world’s top diamantaires who continue to pay the highest prices for these exceptional diamonds, allowing Letšeng’s rough production to remain relatively resilient to market fluctuations.
Of note, during the year Letšeng recovered its highest number of diamonds greater than 20 carats in a single year, since acquisition in 2006. This included seven +100 carat diamonds, five of which together achieved a total of US$37.4 million The largest diamond recovered during the year, a 299.3 carat yellow diamond, was sold into a partnership arrangement at the beginning of 2015, which will see Letšeng further benefiting from 50% of the resulting polished uplift.

Committed to the highest health and safety standards
Safeguarding the well-being of employees is both a moral and business imperative. Despite a strong overall safety performance during the year, the loss of life of one of our employees, Mr Segolame Mashumba, in January 2014, is a tragedy that has sharpened our focus on safeguarding the health and safety of our employees. On behalf of the Board and the Group, we once again send our heartfelt condolences to the family. I wish to reaffirm the Group’s commitment to eliminating fatalities at work and reducing incidences of injury in line with our all-encompassing goal of achieving zero harm.

Gem Diamonds is deeply aware of its responsibility towards the areas in which it operates, both in terms of environmental stewardship and socio-economic development. The Group recognises that its long-term viability is closely linked to the success and well-being of the communities in which it operates and strives to contribute positively to these communities. A comprehensive sustainable development programme is in place at each operation, supported in terms of strategic guidance by the HSSE Committee, at Board level. (Refer to the full 2014 Sustainable Development Report on the Gem Diamonds website.)
Corporate governance

The Group’s commitment to robust corporate governance supports its ability to create sustainable returns for all stakeholders. During September 2014, the UK Corporate Governance Code was amended. The Board agrees with and supports the Code, and the Gem Diamonds’ governance framework was amended accordingly. The Group is thus well positioned to introduce the necessary changes as required.

During the year, the Group’s Board of Directors submitted themselves to a Board evaluation process aimed at enhancing Board governance. I am pleased to report that no major issues were identified and the feedback received will be incorporated into the Group’s governance framework.

After eight years of service as Company Secretary, André Confavreux retired at age 70 on 11 January 2015. The Board would like to express its appreciation to André for his significant contribution to the Group over the years. Following André’s retirement, Glenn Turner has added the role of Company Secretary to his current duties as Executive Director.

The long-term outlook for the diamond market remains strong. Despite a weakening of prices in the fourth quarter of 2014, partly due to concerns over bank lending and liquidity, the Group expects some firming in the market as banks in Dubai and elsewhere take steps to fill the funding gap that triggered these concerns. The medium to long-term outlook for diamond demand, therefore, is expected to remain favourable, with diamond prices beginning to trend upward in the second half of 2015.

The strategic focus for the year ahead will remain on creating value by focusing on mining and selling diamonds efficiently and responsibly. We remain confident in our ability to continue delivering returns to our shareholders through this focused execution of strategy as is demonstrated by the Group’s dividend policy.

The 2014 results are a testimony to the calibre of people employed at Gem Diamonds and I would like to thank my fellow Board members for their wisdom and contribution during the year. On behalf of the Board, I would like to thank our employees for their tireless efforts and commitment to Gem Diamonds as well as our shareholders for their support as we continue to deliver on our strategy and build long-term value.

Roger Davis
Non-Executive Chairman
16 March 2015