RECOMMENDED CASH OFFER OF A$300M BY GEM DIAMONDS LIMITED FOR KIMBERLEY DIAMOND COMPANY NL

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19 July 2007

Introduction

Gem Diamonds Limited (LSE: GEMD) ("Gem Diamonds") and Kimberley Diamond Company NL (ASX: KIM/AIM: KDC) ("Kimberley") are pleased to announce that they have reached agreement on the terms of a recommended cash offer by Gem Diamonds for all the issued and to be issued share capital of Kimberley.

Gem Diamonds is pursuing an accelerated growth strategy both through acquisitions and the development of existing assets which include a portfolio of a producing kimberlite mine an alluvial mine, numerous development projects and a number of exploration assets with long-term prospects. Established in July 2005, as at 18 July 2007 (being the last business day before this announcement) Gem Diamonds had an equity market capitalisation of approximately US$1.4 billion.

Kimberley is an independent ASX listed diamond producer operating the Ellendale Diamond Mine in Western Australia. The Ellendale mine produces gem and near gem quality diamonds including Kimberley's signature stone, the rare and highly valuable fancy yellow diamond.

Highlights

  • Cash offer of A$0.70 for each Kimberley share, representing a premium of approximately 33% to Kimberley's closing share price on 16 July 2007.
  • Offer values Kimberley at A$300 million (circa US$263 million).
  • The offer is unanimously recommended by Kimberley's directors who, in the absence of a superior offer, have agreed to accept the offer in respect of their own holdings.
  • Gem Diamonds has entered into arrangements to acquire approximately 14.9% of Kimberley from a range of Kimberley shareholders at the offer price of A$0.70.
  • Gem Diamonds will provide Kimberley with a A$10 million short term loan facility for working capital purposes.
  • Gem Diamonds intends to leverage its financial strength and technical expertise to deliver on the full potential of Kimberley's assets.
  • Production of high value fancy diamonds from Ellendale, Kimberley's primary mine, is strategically attractive to Gem Diamonds.
  • Following Gem Diamonds' acquisition of Cempaka, the acquisition of Ellendale further enhances Gem Diamonds' global diversity.
Commenting on the offer, Clifford Elphick, Chairman and CEO of Gem Diamonds, said:

"Gem Diamonds is pleased to announce this offer for Kimberley which enjoys the full support of the boards of both companies.

Whilst the Ellendale operation has faced challenges, I have no doubt that Gem Diamonds' technical expertise combined with its ongoing support of the current operational and technical management will ensure these challenges are overcome. Gem Diamonds' management is committed to the Ellendale staff and look forward to working with them to develop the mine to its full potential.

Kimberley presents a strong strategic fit within Gem Diamonds; both with the geographic diversification it contributes to the Group as well as with its high value fancy diamond production. Over time I am confident that these fancy diamonds will achieve higher prices when sold in combination with the high value Letšeng diamonds.

This will be Gem Diamonds' third acquisition since it floated on the LSE in February, and its largest to date. Ellendale brings a third producing asset to the Gem Diamonds portfolio and takes Gem Diamonds a step closer to its ambition of becoming one of the world's leading diamond producers."

Commenting on the offer, Miles Kennedy, Executive Chairman of Kimberley, said:

"This recommended cash offer will reposition Kimberley's Ellendale Project within the broader portfolio of international diamond assets assembled by Gem Diamonds. Gem Diamonds brings the required balance sheet strength to complete the production ramp-up at Ellendale and optimize production and marketing strategies to ensure the longevity of the operation."

Bid Conditions

The offer is subject the conditions which are set out in Appendix I to this announcement. The acquisition of Kimberley may constitute a Class 1 Transaction (as defined in the Listing Rules of the United Kingdom Financial Services Authority) for Gem Diamonds.

If so, Gem Diamonds will be required to seek the approval of its shareholders at an extraordinary general meeting ("EGM") of Gem Diamonds. In this event, a circular containing the time, date and venue of the Gem Diamonds EGM will be sent to Gem Diamonds shareholders as soon as is reasonably practicable.

Implementation Agreement

Gem Diamonds and Kimberley have entered into an Implementation Agreement in connection with the offer. Key terms of the Implementation Agreement include:

Gem Diamonds to provide working capital facility

Gem Diamonds has agreed to make available to Kimberley a facility for an amount of up to A$10 million for working capital purposes.

Break fee

Kimberley and Gem Diamonds have agreed that Kimberley will pay to Gem Diamonds a fee of A$2 million on the occurrence of certain agreed events at any time following this announcement, including if:

  • any Kimberley director fails to recommend the offer or makes a public statement which withdraws, revises revokes or qualifies any recommendation made previously; or
  • any Kimberley director recommends, promotes or otherwise endorses any proposal which competes with or would materially prejudice the prospects of success of the offer; or
  • a person other than Gem Diamonds or an associate of Gem Diamonds directly or indirectly acquires a legal or beneficial interest in, or control of, 50% or more of the Kimberley shares or (from Kimberley) the share capital of any of Kimberley's subsidiaries or acquires an interest in all or part of the assets of Kimberley and its subsidiaries.

Exclusivity and Non-Solicitation

Subject to its fiduciary duties to its shareholders, Kimberley has also agreed that, until the end of the offer period or the date which is six months after the date of the Implementation Agreement (whichever is earlier), not to solicit or initiate any other competing transaction.

Financing

The funds required to complete the offer will come from Gem Diamonds' existing cash reserves.

Timetable

Gem Diamonds expects to send its offer documentation (known as the Bidder's Statement) to Kimberley shareholders by 16 August 2007.

Enquiries:
Gem Diamond Technical Services (Pty) Ltd

Stephen Wetherall
Tel: +27 82 418 8735

Angela Parr
Tel: +27 83 578 3885

Kimberley Diamond Company NL

Miles Kennedy
Karl Simich
Arran Gracie
Tel: +61 8 9321 5887

Pelham PR (Public Relations Adviser to Gem Diamonds Limited)

Candice Sgroi
Tel: +44 207 743 6376
Tel: +44 7894 462 114

Read Corporate (incorporating Jan Hope & Partners) (Public Relations Advisers to Kimberley Diamond Company NL)

Nicholas Read
Tel: +61 8 9388 1474
Tel: +61 419 929 046

Gresham Advisory Partners Limited (Financial Adviser to Gem Diamonds Limited)

Michael Ashforth
Tel: +61 8 9486 7077

JPMorgan Cazenove (Corporate Broker to Gem Diamonds Limited)

Ian Hannam / Neil Passmore
Tel: + 44 207 588 2828

Argonaut and CIBC World Markets (Joint Financial Advisers to Kimberley Diamond Company NL)

Charles Fear (Argonaut)
Tel: +61 8 9224 6888

Neil Johnson (CIBC World Markets)

Tel: +61 2 9275 1306