Chairman Roger Davis's statement 

Following the restructuring which took place in the prior year, Gem Diamonds’ focus for 2013 remained on extracting the maximum value from its existing assets in a responsible and sustainable manner. The technological and strategic investments made during the year, together with a more stable diamond market, resulted in improved revenue of US$213 million generated from the sale of 97 294 carats (an increase of 5% compared to revenue of US$202 million from the sale of 107 617 carats in the prior year) and stronger underlying EBITDA of US$77 million (up 18% from 2012).

The Group’s strategic focus centres on three core business objectives, namely growth, value creation and sustainability. Gem Diamonds’ primary growth strategy is focused on mining diamonds as efficiently as possible. This is based on the consolidation and optimisation of the Group’s core assets through the focused expansion of the flagship Letšeng operation, and the development of the Ghaghoo mine, while controlling costs and maintaining the Group’s strong financial position.

During 2013, the Group continued to enhance the Letšeng operation. In line with the Group strategy, selected expansion plans were reviewed. This resulted in a decision to scale back on part of the intended expansion project at Letšeng, phasing in the introduction of technologies aimed at improving production efficiency, thus minimising and spreading capital expenditure. One such example is the four new cone crushers installed during 2013, which led to a significant reduction in diamond damage and hence an increase in revenues.

The development of the Ghaghoo operation has progressed well during 2013 and despite the technical challenges faced, the mine development is currently on time and within the budget of US$96.0 million. The mine remains on track to commence commercial production in the second half of 2014.

Gem Diamonds’ secondary growth strategy is focused on maximising revenue and margins from rough diamond production by expanding sales and marketing capabilities, as well as pursuing diamond manufacturing and partnership arrangement initiatives down the diamond value chain.

The Group has an advanced diamond mapping technology at its disposal at Baobab Technologies BVBA, a 100% held Gem Diamonds subsidiary. The advanced mapping and analysis of Letšeng’s exceptional diamonds allows for accurate assessment of their value, enabling the Group to achieve optimal prices for its rough diamonds.

The in-house analytical and manufacturing ability of the Group also enables it to engage in the polishing and sales of select high-value diamonds. The Group also participates in strategic partnership arrangements on the manufacture and sale of exceptional, high-value polished diamonds.

The Group’s second core objective involves a focus on creating value through operational excellence. In line with this emphasis, strategic realignment occurred during 2012 and 2013, resulting in a number of assets, which did not meet the stringent requirements for value creation, being sold and the Group’s cost base being reduced.

Gem Diamonds’ broad-based strategy lends a resilience and flexibility to the way it does business, allowing it to react flexibly to market and operational conditions to extract maximum value for shareholders.

The Group’s third core objective involves sustainable development principles which underpin the Group’s strategy. Gem Diamonds’ sustainable approach to business reduces operating costs and enhances its reputation as a responsible and ethical corporate citizen in the countries in which it operates.

The health and safety of employees is a responsibility that is at the top of management’s list of operational priorities. The Group continues to implement the highest standards of HSSE governance, incorporating relevant international best practice guidelines.

Roger Davis
Non-executive chairman
17 March 2014