'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.

FOCUS FOR 2013:

• 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.

Phase 1 of the Ghaghoo underground mine in Botswana progressed with the construction of the decline tunnel using an open face tunnel shield through the sand overburden. Progress for the decline tunnel was slower than planned through an area of unconsolidated sand, interspersed with unanticipated harder material. Approximately 206 meters of tunnel have been completed as at 31 December 2012 and a further 298 meters of tunnel development is required to reach the basalt country rock. Thereafter 650 meters of basalt development will be required to reach the planned bottom of the decline. Construction of the processing plant is now substantially complete.

In May 2012, a tragic accident involving a sudden and rapid inrush of sand at the face of the tunnel development tragically resulted in two fatalities. Following a detailed investigation, with additional safety precautions having been agreed to, the Department of Mines gave its permission for the project to continue. Tunnel development re-commenced in the third quarter of 2012.

In light of the current economic climate, the Directors have reviewed the Ghaghoo project to extend the project's development period in order to optimise the Company's capital expenditure profile and maintain its strong balance sheet in the event of any further deterioration in market conditions.