GEM DIAMONDS ANNOUNCES: US$45 M CAPITAL INVESTMENT IN LETŠENG

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25 Jan 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The information contained herein is restricted and is not for publication, release or distribution, directly or indirectly, in or into the United States, Australia, Canada or Japan or to residents or citizens of Australia, Canada or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 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 to the Official List of the Financial Services Authority and to trading on London Stock Exchange plc's main market for listed securities (the "Prospectus"). 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.

Fundraising intended to bring selected development projects into production in DRC and CAR, evaluate exploration targets and pursue acquisition opportunities

Gem Diamonds Limited ("Gem Diamonds" or the "Company") today announces its intention to seek a listing of its ordinary shares on the Main Market of the London Stock Exchange and to proceed with an offer of ordinary shares to institutional investors (excluding South African residents) (the "Global Offer") that is expected to be complete in February 2007.

COMPANY OVERVIEW

  • Gem Diamonds is 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.
  • Led by Clifford Elphick, the Company's directors and senior management have significant expertise in, and experience of, diamond mining with a proven ability to execute transactions in order to develop the Group's portfolio.
  • Since it was established in July 2005, the Company has pursued an accelerated growth strategy and aims to become one of the world's leading diamond producers.
  • The Group has one long life producing kimberlite mine, Letšeng, in the Kingdom of Lesotho:
    • Characterised by regular production of large gem quality diamonds over 100 carats, Letšeng recently recovered the 603 carat Lesotho Promise - one of the fifteen largest gem quality diamonds publicly reported as being recovered, and subsequently sold for US$12.4 million.
    • An expansion of Letšeng is currently underway and is expected to approximately double production by the second quarter of 2008, once it is operating at full capacity. Based on projected production levels of 430,000 tonnes per month the life of mine at Letšeng is approximately 35 years.
  • The Group has five development projects; four in the Democratic Republic of Congo (DRC) and one in the Central African Republic (CAR).
    • The projects in the DRC include both alluvial and prospective kimberlite targets, with alluvial sampling programmes underway and production forecast at one of the projects from the second half of 2007.
    • In the CAR, the Group is focusing its exploration programme on an alluvial river project, with a bulk sampling plant expected to be erected and commissioned in March 2007.
  • The Company is also evaluating other additional mines, projects and prospects, primarily in sub-Saharan Africa.
  • The key investment criteria for any acquisition target or joint venture are as follows:
    • For producing assets, operations must be of such a nature that the Company can lend its expertise to increasing performance and/or profitability.
  • For development and exploration projects:
    • large scale alluvial projects; and
    • those which have either a high potential for kimberlite discovery or where there is the existence of known kimberlites which are yet to be developed.
    • The Group has agreed a conditional Cooperation Agreement with an option to acquire an interest in the Chiri Concession in Angola, which sets out the terms on which the Group will conduct a feasibility study to assess the commercial viability of what is believed to be a diamondiferous kimberlite.

SUMMARY OF THE GLOBAL OFFER AND USE OF PROCEEDS

  • The Global Offer will comprise an offer to institutions and certain other people invited to participate in the Global Offer of new and existing ordinary shares into the United Kingdom and certain other jurisdictions. The Company will grant an over-allotment option of new ordinary shares of up to 10 per cent. of the Global Offer.
  • The Company intends to use the proceeds from the Global Offer to:
    • Bring into production selected development projects in the CAR and DRC.
    • Continue to explore and assess the Group's remaining exploration targets.
    • Pursue further growth opportunities through the acquisition of further mines, projects or prospects.
  • It is currently anticipated that the Global Offer will be completed in February 2007.
Commenting on the Company's proposed listing on the London Stock Exchange, Clifford Elphick, Chief Executive Officer of the Company said:

"We have an exceptional team at Gem Diamonds with considerable experience across all the key technical aspects of the diamond mining industry, positioning the Company to grow into one of the world's leading diamond producers. Following a successful private capital fundraising in 2006 and the completion of two significant transactions, we are confident that a listing on the London Stock Exchange provides the platform from which to achieve the Group's growth plan."

JPMorgan Cazenove Limited is Sponsor, Global Co-ordinator and Sole Bookrunner for the proposed IPO. JPMorgan Cazenove is also acting as Financial Adviser to the Company.

Enquiries:
JPMorgan Cazenove Limited

Ian Hannam
Neil Passmore
Tel: +44 207 588 2828

Merlin

David Simonson
Bridget Fury
Tel: +44 20 7653 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

Company

  • The Company was founded in July 2005 by Clifford Elphick, a highly experienced diamond mining executive, who was previously Managing Director of E Oppenheimer & Son. Gem Diamonds has assembled an experienced team, with combined experience of over 150 years in the mining industry. Since its formation, the Group has acquired interests in a number of diamond assets in central and southern Africa and entered into several joint venture arrangements. As a result, the Group now holds concessions through the following:
  • an effective 70 per cent. interest in Letšeng Diamonds (Pty) Ltd ("Letšeng Diamonds") The Group acquired economic control of Letšeng Diamonds in July 2006. Pursuant to the terms of the acquisition, the Company purchased 76 per cent. of the issued share capital of Letšeng Diamonds in September 2006 with a contractual obligation to decrease the holding to 70 per cent. by transferring 6 per cent. of the issued share capital to the Government of the Kingdom of Lesotho;
  • a 100 per cent. interest in Gem Diamond Mining Company of Africa RDC sprl, ("Gem RDC") a DRC-based subsidiary, established in March 2006. It currently holds six reconnaissance permits and a 90 per cent. interest in a small mining permit in the DRC all located in the area known as the "diamond triangle" south of Tshikapa;
  • a 72 per cent. interest in Gem Diamond Longatshimo Mining Company sprl ("GDL"), another DRC-based subsidiary formed in September 2006. The remaining shares are held by two Congolese individuals. GDL holds eight small mining permits at the Longatshimo project located south of Tshikapa in the "diamond triangle" in close proximity to the Gem RDC concessions;
  • a 49.99 per cent. interest in Kabongo Development Company sprl ("KDC"). The Company acquired 49.99 per cent. of KDC with effect from April 2006. KDC holds one small mining permit, nine reconnaissance permits and 14 mining permits divided across the project areas in the DRC some of which are in the "diamond triangle" but that which the Company considers to be the most prospective is further up the Kasai River at Mbelenge; and
  • a 75 per cent. interest in Gem Diamond Centrafrique sa ("Gem Diamond Centrafrique"). The Company established Gem Diamond Centrafrique in July 2006 with a 25 per cent. interest being granted to the Government of the CAR. Gem Diamond Centrafrique holds a mining licence and exploration permit on the Mambéré River.

In addition, the Group has agreed a conditional Cooperation Agreement with an option to acquire an interest in the Chiri Concession in Angola, which sets out the terms on which the Group will conduct a feasibility study to assess the commercial viability of what is believed to be a diamondiferous kimberlite.

Board of Directors

Clifford Elphick - Executive Chairman and Chief Executive Officer

Clifford joined Anglo American Corporation of South Africa in 1986 in the Corporate and International Finance Division. He was seconded to E Oppenheimer and Son as Harry Oppenheimer's personal assistant in 1988. In 1990 he was appointed Managing Director of E Oppenheimer and Son, a position he held until leaving the E Oppenheimer and Son group in December 2004. During that time, Clifford was also a director of Central Holdings, Anglo American and DB Investments. Following the buy-out of De Beers in 2000, Clifford served on the De Beers Executive Committee. Clifford founded the Group in July 2005.

Kevin Burford - Chief Financial Officer

Kevin has over 20 years' experience in the mining industry having worked for De Beers and Anglo American between 1985 and 2005 and Xstrata in 2005. Kevin has held various strategic leadership positions covering finance, supply chain, IT, risk management, internal audit and business strategy. Kevin completed his articles with Coopers and Lybrand in 1998 and is a registered Chartered Accountant in South Africa. Kevin joined the Group in January 2006.

Graham Wheelock - Chief Mineral Resource Manager

Graham spent 23 years at Anglo American and De Beers working on gold, diamonds and heavy mineral sands. He served as Mineral Resources Manager at Namdeb and Namaqualand diamond mines and in alluvial exploration projects across the globe. From 2004 to 2005, Graham led the De Beers Global Exploration Targeting Team for both kimberlites and alluvials. Graham joined the Group in August 2005.

Gavin Beevers - Proposed Non Executive Director

Gavin has agreed to join the board of the Company. He was the Director - Operations of De Beers at De Beers' Corporate Headquarters from April 2000 until his retirement in 2004. Gavin joined De Beers in 1979 as a section engineer on secondment to the Orapa Diamond Mine in Botswana, after four years on the copper belt in Zambia. After eleven years in Botswana, working at both the Jwaneng and Orapa Mines, he was appointed Assistant General Manager at De Beers Marine in Cape Town. In 1994 he returned to Botswana as General Manager at Orapa and Letlhakane Mines. From January 1996 to March 2000, Gavin held the position of Deputy Managing Director of Debswana Diamond Company in Botswana.

Dave Elzas - Non Executive Director

Dave Elzas has over 15 years experience in international investment banking. Between 1994 and 2000 Mr. Elzas served as a senior executive and subsequently Managing Director of the Beny Steinmetz Group, a diversified investment concern which included the Steinmetz Diamond Group. In this role he acquired knowledge, experience and understanding of the diamond industry. Between 1996 and 1999 Dave was a member of the board of directors of the management company of the Hermitage Fund, one of the largest foreign investment funds in Russia. Dave is currently the Senior Partner and CEO of the Geneva Management Group, an international wealth management and financial services company.

Additionally, the Company is currently in advanced stage negotiations with a further potential Non Executive Director, and is optimistic that it will be in a position to confirm the appointment of this individual to the Board before the admission of shares to trading.

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 who are acting exclusively for the Company and no one else in connection with the Global Offer. They will not regard any other person (whether or not a recipient of this announcement) as their clients and will not be responsible to anyone other than the Company for providing the protections afforded to their clients nor for giving advice in relation to the Global 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 Global Offer and the distribution of this announcement and other information in connection with the Global 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 Global Offer cannot be relied upon as a guide to future performance.

In connection with the Global 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 Global Offer, the Company will grant 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 10% of the total number of ordinary shares comprised in the Global Offer at the offer price to cover over-allotments, if any, made in connection with the Global 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 Global Offer.