216 CARAT WHITE DIAMOND RECOVERED AT LETŠENG MINE

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14 Feb 2007

The information contained herein is restricted and is not for publication, release or distribution, directly or indirectly, in or into the United States, Australia, Canada or Japan or to residents or citizens of Australia, Canada or Japan.

The information contained herein does not amount to, nor should it be construed as, an "offer to the public" in relation to South African residents.

This announcement is an advertisement and not a prospectus and investors should not subscribe for or purchase any shares referred to in this announcement except on the basis of information in the prospectus (the "Prospectus") to be published by Gem Diamonds Limited ("Gem Diamonds" or the "Company") in due course in connection with the admission of the ordinary shares in the capital of the Company ("Ordinary Shares") to the Official List of the Financial Services Authority and to trading on London Stock Exchange plc's main market for listed securities ("Admission"). Copies of the Prospectus will, following publication, be available from the Company's registered office and 2 Eaton Gate, London, SW1W 9BJ, being the Company's principal place of business in the UK.

Gem Diamonds Limited

("Gem Diamonds" or the "Company")

Gem Diamonds, a diamond mining business comprising a balanced portfolio of a producing kimberlite mine, development projects and long-term prospects, located across central and southern Africa, today announces the successful pricing of its initial public offering (the "IPO") to institutional and certain other investors in the UK and elsewhere of Ordinary Shares on the main market of the London Stock Exchange (the "Offer").

The offer price has been set at 950 pence per Ordinary Share (the "Offer Price").
  • Based on the Offer Price, the market capitalisation of Gem Diamonds immediately following the Offer will be approximately £550 million. Assuming FTSE index inclusion, and based on current market valuations, Gem Diamonds would rank number 218 in the FTSE 250.
  • The Offer comprises 30 million new Ordinary Shares and 1.285 million existing Ordinary Shares, together representing approximately 54% of the approximately 57.9 million Ordinary Shares in issue following completion of the Offer.
  • The Company intends to use the proceeds from the Offer to:
    • Bring into production selected development projects in the CAR and DRC.
    • Continue to explore and assess remaining exploration targets of the Company,its subsidiaries and subsidiary undertakings (the "Group").
    • Pursue further growth opportunities through the acquisition of further mines, projects or prospects.
  • The Ordinary Shares in the Offer are being placed with a broad base of institutional investors following a roadshow across the UK and the United States and with certain non-executive directors of the Company, employees of the Group and persons connected with the Company and/or senior management within the Group.
  • An over-allotment option of up to 4.1 million Ordinary shares, representing approximately 13 per cent. of the Ordinary shares comprised in the Offer has been granted, exercisable for a period of up to 30 days from commencement of conditional dealings in the Ordinary Shares, consisting entirely of new Ordinary Shares.
  • Conditional dealings will commence on the London Stock Exchange at 8:00 am (London time) today under the ticker "GEMD".
  • It is expected that Admission of the Ordinary Shares to the Official List of the Financial Services Authority and to trading on the London Stock Exchange's market for listed securities will become effective, and unconditional dealings will commence, at 8:00 am (London time) on Monday, 19 February 2007.
  • Directors of the Company (the "Directors"), employees and their related interests will continue to hold approximately 21.5% of the Ordinary Shares following the Offer (prior to the exercise of the over-allotment option). The Directors and the senior management of the Group have agreed to enter into lock-up arrangements for a period of 24 months after Admission, under which they can sell 50% of all shares held by them prior to IPO, and remaining in their post IPO shareholding, after 12 months and the remaining 50% after 24 months.
Commenting on today's announcement, Clifford Elphick, Executive Chairman and Chief Executive Officer of Gem Diamonds said:

"We are very encouraged by the strong support received for Gem Diamonds' IPO. Shareholders who invested in last year's equity private placement have remained supportive of the Company as we enter the public equity markets. We are also especially pleased with the quality of the investors joining us and welcome them as new shareholders. The collective support of these investors affords us the considerable financial strength necessary to pursue further growth opportunities. We look forward to embarking on the next phase of our development as a publicly listed company."

The following individuals have been appointed to the Board of Directors:
Clifford Elphick Executive Chairman and Chief Executive Officer
Kevin Burford Chief Financial Officer
Graham Wheelock Chief Mineral Resource Manager
Roger Davis Senior Non-Executive Director
Gavin Beevers Non-Executive Director
Dave Elzas Non-Executive Director

Any allocations under the Offer will be conditional on Admission. All dealings on the London Stock Exchange between commencement of conditional dealings and the commencement of unconditional dealings will be on a "when issued" basis. If the Offer does not become unconditional, all such dealings will be of no effect and any such dealings will be at the sole risk of the parties concerned.

JPMorgan Cazenove Limited ("JPMorgan Cazenove") is Sole Sponsor, Global Co-ordinator and Bookrunner for the IPO. JPMorgan Cazenove is also acting as Financial Adviser to Gem Diamonds and as Stabilising Manager.

Enquiries
JPMorgan Cazenove Limited

Ian Hannam
Neil Passmore
Tel: +44 207 588 2828

Merlin

David Simonson
Bridget Fury
Tel: +44 207 653 6620

Gem Diamonds Limited

Graham Wheelock
Tel: +44 7799 831912
Kevin Burford
Tel: +27 83 308 5062
Angela Parr
Tel: +27 83 578 3885
Newman Leach
Tel: +41 79 456 8813

TERMS AND CONDITIONS

The Offer will be conducted in accordance with the terms and conditions set out below. Words and phrases defined in the Prospectus shall have the same respective meanings in these terms and conditions. Any prospective investor that wishes to participate in the Offer (and who is eligible to do so in accordance with the provisions of the Prospectus and the terms and conditions set out below) will be making an offer to acquire Ordinary Shares and will be deemed to have read and understood the Pathfinder Prospectus, dated 2 February 2007 (the "Pathfinder Prospectus") and the information supplementing and updating the Pathfinder Prospectus published on a restricted access website made available to prospective investors (the Pathfinder Prospectus as so supplemented and updated being referred to as the "Time of Sale Information") in their entirety and to be participating on the terms and conditions, and to be making the representations, warranties and acknowledgements and undertakings, contained in the Prospectus and set out below.

Only persons who are invited to do so may participate in the Offer. Invitations to participate will be made by telephone by JPMorgan Cazenove. Allocations of Ordinary Shares will be confirmed to investors orally and a contract note will be despatched as soon as possible thereafter. JPMorgan Cazenove's oral confirmation to an investor will constitute a legally binding commitment upon the investor to purchase the number of Ordinary Shares at the Offer Price allocated to the investor on the terms and conditions set out in the Prospectus, the contract note and below and in accordance with the Company's constitutional documents.

It is expected that Depositary Interests representing Ordinary Shares allotted or sold to investors in the Offer will be delivered in uncertificated form to the CREST stock account of JPMorgan Cazenove or its nominee which will hold them as nominee on behalf of the investor until settlement. Details of Depositary Interests are set out in the Prospectus, Part XII "Depositary Interests". Settlement will be on delivery versus payment basis on the date of Admission. Interest will be chargeable daily on payments to the extent that value is received after the due date at the rate of 5 percentage points above prevailing LIBOR.

Upon settlement, Depositary Interests representing Ordinary Shares allotted or sold in the Offer will be delivered to the CREST account of the investor or other person specified to JPMorgan Cazenove by the investor for that purpose. Provided that delivery is to a CREST account for the investor or its nominee or a person (or its nominee) for which the investor has contracted as agent, delivery will be free from any liability to UK stamp duty or stamp duty reserve tax.

If an investor does not comply with the obligation to make payment in full on the date of Admission, JPMorgan Cazenove may sell Ordinary Shares allocated to the investor on behalf of such investor and retain from the proceeds an amount equal to the Offer Price of each such Ordinary Share, plus any interest due. The investor will, however, remain liable for any shortfall below the Offer Price and be required to pay any stamp duty or stamp duty reserve tax (together with any interest or penalties) which may arise upon any transaction in the Ordinary Shares on behalf of the investor.

The Offer is conditional upon Admission and commencement of trading occurring by not later than 8 a.m. on 19 February 2007 (or such later time and/or date as the Company and JPMorgan Cazenove may agree) and on the Underwriting Agreement becoming unconditional and not having been terminated in accordance with its terms.

If (a) the conditions in the Underwriting Agreement are not satisfied or waived by JPMorgan Cazenove or (b) the Underwriting Agreement is terminated, the Offer will lapse and all rights and obligations which any investor may have accrued shall cease and determine at such time and no claim can be made in respect thereof.

By participating in the Offer an investor agrees that its rights and obligations are conditional upon the Underwriting Agreement becoming unconditional and not being terminated and that such rights and obligations will not be capable of rescission or termination by the investor.

JPMorgan Cazenove reserves the right to waive or to extend the time and/or date for fulfilment of certain of the conditions in the Underwriting Agreement. Any such extension or waiver will not affect the commitments of any investor. Neither JPMorgan Cazenove nor the Company shall have any liability to the investor (or to any other person whether acting on behalf of an investor or otherwise) in respect of any decision it may make as to whether or not to waive or to extend the time and/or date for the satisfaction of any condition in the Underwriting Agreement.

No investor will be entitled to receive any fee or commission in connection with the Offer.

TERMS AND CONDITIONS - REPRESENTATIONS AND WARRANTIES
By participating in the Offer each investor (for itself and anyone on whose behalf it is acting) will:
  • represent and warrant that it has read the Prospectus, the Time of Sale Information and these terms and conditions in their entirety;
  • acknowledge that it has been invited to participate in the Offer;
  • represent, warrant and agree that it has neither received nor relied on any other information, representation, warranty or statement (express or implied) made by or on behalf of JPMorgan Cazenove or the Company, other than the Prospectus (and any supplementary prospectus) and the Time of Sale Information and the announcement of which these terms form part and neither of the Company nor JPMorgan Cazenove will be liable for the decision of the investor to accept the invitation to participate in the Offer based on any other information, representation, warranty or statement;
  • represent and warrant that, at the time Ordinary Shares are offered to and purchased by the investor, it will be the beneficial owner of such Ordinary Shares and it is not a resident of Canada, Australia or Japan;
  • acknowledge that the Ordinary Shares have not been and will not be registered under the securities legislation of the United States, Canada, Australia, or Japan and, subject to certain exceptions, may not be offered, sold, taken up, renounced, delivered or transferred, directly or indirectly, within those jurisdictions;
  • represent and warrant that it is entitled to purchase Ordinary Shares under the laws of all relevant jurisdictions which apply to it and that it has fully observed such laws and obtained all such governmental and other consents which may be required thereunder and complied with all necessary formalities (including, without limitation, exchange control regulations) and paying any issue, transfer or other taxes due in any such jurisdiction in respect of the Ordinary Shares acquired under the Offer;
  • warrant to the Company and JPMorgan Cazenove that, in connection with the application made on its behalf, it has complied with and observed all applicable laws and regulations having the force of law and obtained any requisite governmental or other consents which may be required, and that it has not taken any action or omitted to take any action which will or may result in the Company or JPMorgan Cazenove or any of their respective subsidiaries or their respective directors, officers, agents, employees or advisers acting in breach of the legal or regulatory requirements of any jurisdiction in connection with the Offer or the application made on its behalf;
  • represent and warrant that if the Ordinary Shares were offered to the investor in the United States, it has signed and delivered to JPMorgan Cazenove or its US affiliate a letter making representations and warranties in form approved by JPMorgan Cazenove;
  • represent and warrant that it has complied with all obligations binding on it in connection with money laundering and terrorist financing under the Proceeds of Crime Act 2002, the Terrorism Act 2003 and the Money Laundering Regulations 2003 (the "Regulations") and, if making payment on behalf of a third party, that satisfactory evidence has been obtained and recorded by it to verify the identity of the third party as required by the Regulations;
  • represent and warrant that it and any person acting on its behalf fall within paragraph 3(a) of Schedule 11 to the Financial Services and Markets Act 2000, being a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business, and within Article 19 and/or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, and undertake that it will acquire, hold, manage or dispose of any Ordinary Shares that are allocated to it for the purposes of its business;
  • represent and warrant that prior to the expiry of a period of six months from the date of Admission it will not offer or sell any Ordinary Shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their business or otherwise in circumstances which will not result in an offer to the public in the United Kingdom within the meaning of the section 85 (1) of the Financial Services and Markets Act 2000;
  • represent and warrant that it and any person acting on its behalf have all necessary capacity and have obtained all necessary consents and authorities to enable it to commit to a participation in the Offer and to perform its obligations in relation thereto (including, without limitation, in the case of any person on whose behalf it is acting, all necessary consents and authorities to agree to the terms set out or referred to in this announcement);
  • represent and warrant to the Company and JPMorgan Cazenove that it has made its own investigation into the tax and/or exchange control consequences of the purchase, receipt, ownership and disposal of Ordinary Shares to be purchased by it and has not relied on the Company, JPMorgan Cazenove or their respective subsidiaries or their respective directors, officers, agents, employees or advisers for any advice with respect to tax and/or exchange control related issues;
  • represent and warrant to the Company and JPMorgan Cazenove that the issue to it of Ordinary Shares will not give rise to a liability under any of sections 67, 70, 93 or 96 of the Finance Act 1986 (depositary receipts and clearance services);
  • acknowledge that the Ordinary Shares have not been and will not be registered under the Securities Act and, subject to certain exceptions, may not be offered or sold in the United States;
  • acknowledge that the dates and times (other than the long stop date of 31 March 2007) referred to in these terms and conditions and the Prospectus and Time of Sale Information (and any supplementary prospectus) may be altered by JPMorgan Cazenove and/or the Company;
  • undertake that it and any person acting on its behalf will pay for the Ordinary Shares allocated to it in accordance with these terms and conditions on the due time and date set out herein failing which the relevant Ordinary Shares may be placed with other investors or sold as JPMorgan Cazenove in its sole discretion may determine and without liability to the investor;
  • acknowledge that participation in the Offer is on the basis that it is not and will not be a client of JPMorgan Cazenove and that JPMorgan Cazenove has no duties (whether fiduciary or otherwise) or responsibilities to it for providing the protections afforded to clients or customers of JPMorgan Cazenove nor for providing advice in relation to the Offer nor in respect of any representations, warranties, undertakings or indemnities contained in the Underwriting Agreement nor for the exercise or performance of any of JPMorgan Cazenove's rights and obligations thereunder, including the right to waive or vary conditions or exercise any termination right;
  • acknowledge that where it or any person acting on its behalf is dealing with JPMorgan Cazenove, any money held in an account with JPMorgan Cazenove on its behalf and/or any person acting on its behalf will not be treated as client money within the meaning of the relevant rules and regulations of the Financial Services Authority which therefore do not require JPMorgan Cazenove to segregate such money as that money will be held by it under a banking relationship and not as trustee;
  • irrevocably authorise the Company and JPMorgan Cazenove as its agent to do all things necessary to effect registration in its name of the Ordinary Shares agreed to be acquired and authorise any director of the Company or JPMorgan Cazenove to execute and/or complete any document of title required therefore;
  • warrant to the Company and JPMorgan Cazenove that it has not sent copies of the Pathfinder Prospectus, the Time of Sale Information, the Prospectus (or any supplementary prospectus) or any other document relating to the Offer to any other person;
  • 22 acknowledge that to the extent permitted by law, all representations, warranties and conditions, expressed or implied and whether statutory or otherwise (including, without limitation, pre-contractual regulations but excluding any fraudulent representations) are expressly excluded in relation to the Ordinary Shares and the Offer;
  • acknowledge that the rights and remedies of each of the Company and JPMorgan Cazenove under these terms and conditions are in addition to any rights and remedies which would otherwise be available to it and the exercise or partial exercise of any one will not prevent the exercise of others or full exercise;
  • undertake that the person whom it specifies for registration as holder of the Ordinary Shares will be (i) the investor itself or (ii) a nominee of the investor, and that it and any person acting on its behalf agrees to purchase on the basis that the Ordinary Shares will be allocated to the CREST account of JPMorgan Cazenove which will hold them as nominee on behalf of the investor until settlement;
  • acknowledge that any agreements entered into by the investor pursuant to these terms and conditions shall be governed by and construed in accordance with the laws of England and that it submits (on its behalf and on behalf of any investor on whose behalf it is acting) to the exclusive jurisdiction of the English courts as regards any claim, dispute or matter arising out of any such contract and agrees that nothing shall limit the rights of the Company and/or JPMorgan Cazenove to bring any action, suit or proceeding arising out of or in connection with any agreements in any other manner permitted by law or in any other competent jurisdiction; and
  • agree that the Company and JPMorgan Cazenove and others will rely upon the truth and accuracy of the foregoing representations, warranties and acknowledgements and undertakings which are given to JPMorgan Cazenove for itself and on behalf of the Company and are irrevocable.

The agreement to settle an investor's acquisition (and/or the acquisition of a person for whom such investor is contracting as agent) free of stamp duty and stamp duty reserve tax depends on the settlement relating only to an acquisition by it and/or such person direct from the Company or the Selling Shareholders of the Ordinary Shares in question. Such agreement assumes that the Ordinary Shares are not being acquired in connection with arrangements to issue depositary receipts or to transfer the Ordinary Shares into a clearance service. If there are any such arrangements, or the settlement relates to any other dealing in the Ordinary Shares, stamp duty or stamp duty reserve tax may be payable, for which neither the Company nor JPMorgan Cazenove will be responsible. If this is the case, each investor should seek its own advice and notify JPMorgan Cazenove accordingly.

This announcement is for information only and does not constitute an invitation to underwrite, subscribe or otherwise acquire or dispose of any ordinary shares in the capital of the Company.

The contents of this announcement, which have been prepared by and are the sole responsibility of the Company, have been approved solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000 by JPMorgan Cazenove Limited of 20 Moorgate, London EC2R 6DA which is acting exclusively for the Company and no one else in connection with the Offer. It will not regard any other person (whether or not a recipient of this announcement) as its clients and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for giving advice in relation to the Offer, the contents of this announcement or any transaction or arrangement referred to herein.

This announcement may not be distributed, directly or indirectly, in or into the United States, Canada, Australia or Japan. This announcement does not constitute or form part of an offer to sell or issue, or any solicitation of an offer to buy or subscribe for, any securities referred to herein in the United States or in any other jurisdiction. The Offer and the distribution of this announcement and other information in connection with the Offer in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not amount to, nor should it be construed as, an "offer to the public" in relation to South African residents.

The securities mentioned herein have not been, and will not be, registered under the U.S. Securities Act of 1933 as amended (the "Securities Act"), and may not be offered or sold in the United States (as such term is defined in Regulation S under the Securities Act) unless they are registered under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. No public offer of the Shares is being made in the United States or elsewhere.

The price and value of securities may go up as well as down. Persons needing advice should contact a professional adviser.

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the outlook on the diamond mining industry.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, the factors to be described in the risk factors section of the Prospectus, and the factors to be described in the financial review and prospects section of the Prospectus.

Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this announcement reflect the Company's view with respect to future events as at the date of this announcement and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth strategy and liquidity. Save as required by law or by the Listing Rules of the Financial Services Authority, the Company undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this announcement that may occur due to any change in its expectations or to reflect events or circumstances after the date of this announcement.

Information in this announcement or any of the documents relating to the Offer cannot be relied upon as a guide to future performance.

In connection with the Offer, JPMorgan Cazenove Limited, as stabilising manager, or any of its agents, may (but will be under no obligation to), to the extent permitted by applicable law, over-allot and effect other transactions with a view to supporting the market price of the ordinary shares of the Company at a level higher than that which might otherwise prevail in the open market. JPMorgan Cazenove Limited is not required to enter into such transactions and such transactions may be effected on any stock market, over-the-counter market or otherwise.

In connection with the Offer, the Company has granted to JPMorgan Cazenove Limited an over-allotment option which will be exercisable in whole or in part, upon notice by JPMorgan Cazenove Limited from the date of the commencement of conditional trading for a period of 30 calendar days thereafter. Pursuant to such over-allotment option, JPMorgan Cazenove Limited may require the Company to issue additional ordinary shares up to a maximum of 4.1 million Ordinary Shares, representing approximately 13 per cent of the total number of Ordinary Shares comprised in the Offer at the Offer Price to cover over-allotments, if any, made in connection with the Offer and to cover any short positions resulting from such over-allotments and/or from sales of Ordinary Shares effected by it during the stabilisation period. Any Ordinary Shares issued by the Company following the exercise of the over-allotment option will be issued on the same terms and conditions as the Ordinary Shares being issued in the Offer.