‘Ghaghoo’ is the name of a locally abundant camel thorn acacia tree, and is the name historically used by locals to refer to the area, before geological exploration teams arrived over thirty years ago, renaming the area ‘Gope’ - literally translated meaning ‘nowhere’.

The mine, with the Gope 25 kimberlite pipe, is located around 45km within the eastern border of the Central Kalahari Game Reserve, and the highest environmental standards will be strictly adhered to, to ensure minimal environmental impact from the mine’s development. Independent advisors, Marsh Environmental Services, a division of Marsh (Pty) Ltd, were appointed to undertake an environmental impact assessment which included a stakeholder engagement process. For more information on Marsh Environmental Services’ independent assessment process, please visit their website, www.marsh-africa.com. Ghaghoo’s environmental impact assessment report received final approval in October 2008.

In early 2010, an updated resource statement for Ghaghoo was undertaken by three independent experts. An increase in grade from new statistical modelling, and volume through the re-interpretation of drilling results, led to an upgrading in Ghaghoo’s total carat resource to 20.5 million carats, at an increased average US$162 per carat, with a total in situ value of US$3.3 billion. Two blue diamonds were also recovered from samples during the valuation work: a find of some significance in such a small parcel, given such diamonds’ extreme rarity.

In August 2010 Gem Diamonds presented the Botswana Government with an updated study on Ghaghoo, including the option of an underground mine, which would require significantly less capital to develop. A decline was settled on as the most cost effective access method, and construction of the first phase began in 2011. Production is scheduled to commence in 2013 at an initial rate of 100,000 carats per annum, rising steadily to a peak steady state production of 780,000 carats per annum.

FOCUS FOR 2012:

• Continue to develop the underground mine
• Refine options for post Phase 1

Gem Diamonds’ Board approved a capital budget of US $85 million in March 2011, for the construction of Phase 1 of the Ghaghoo underground mine, with a production capacity of 720 000 tonnes per annum. The objective of Phase 1 is to confirm the grade, diamond prices and the recovery processes, including the use of autogenous milling, which is expected to increase diamond liberation. Results from Phase 1 will underpin a study aimed at defining the way forward for mining at Ghaghoo.

A decline was settled on as the most cost effective access method for the underground mine and construction of Phase 1 began mid 2011, with production on schedule to commence in mid 2013.

Work on construction of the main camp site at the mine which commenced during the second quarter of 2011 was largely completed by the end of 2011, with accommodation for 220 people. Earth-works activities for the development of Phase 1 including the portal for the decline began in July 2011, following which, mobilisation for the underground access began during the fourth quarter of 2011. As expected, tunnel development has progressed slowly in the early stages, with approximately 53 meters completed as at the date of this report, and a further 450 meters to reach the basalt country rock. Thereafter 650 metres of development is required to reach the ore body. Production from the sub-level cave will follow in the second half of 2013.

Procurement of the long lead items for the plant began in mid 2011 with a view to a construction start scheduled for second quarter 2012, for commissioning to start during the first quarter 2013.

All construction and sand decline work is being carried out by contractors, with electrical power for the operation supplied by on-site diesel generators and water for Phase 1 sourced from boreholes within the mining lease area.

Phase 1 of the mine development has a capital cost of US $85 million of which US $19 million was spent in 2011.