SETTLEMENT OF CONVERTIBLE BONDS

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26 May 2009

Gem Diamonds (LSE:GEMD) announces that it has purchased all of its outstanding Variable Rate Convertible Bonds (the "Bonds") (which had an aggregate principal amount of US$16 million outstanding as at 22nd May 2009) for which Gem Diamonds paid US$ 15.76 million (being 98.5% of the aggregate principal amount outstanding) plus accrued interest of US$ 143,999.99. The immediate purchase of these Bonds, which were originally due to mature on the 2nd October 2009 will save the Company interest payments and 1.5% of the outstanding aggregate principal amount. In accordance with their terms and conditions, Gem Diamonds shall immediately procure that the Bonds are cancelled.

The purchase and cancellation of the Bonds is in line with the Company's strategy stated in the prospectus of 3rd April 2009 to use funds raised in the recent "Placing" to repay the Company's outstanding debts.

Other than for ongoing working capital requirements, Gem Diamonds now has no other outstanding debt obligations. In the Interim Management Statement released on the 19th May 2009, Gem Diamonds announced that it had gross cash of US$ 123 million (prior to the purchase of the Bonds).

For further information:
Gem Diamonds Limited

Richard Chetwode, Investor Relations
Tel: +44 (0) 203 043 0280
Mob: +44 (0) 759 006 4883

Pelham PR

Candice Sgroi
Tel: +44 (0) 207 337 1533

James Henderson
Tel: +44 (0) 207 337 1501

About Gem Diamonds

Gem Diamonds Limited (LSE: GEMD) is a global diamond company that has been pursuing a long term growth strategy through targeted acquisitions and the development of existing assets. Under current market conditions, the Company is focused on the development of its cash generative assets and has curtailed all non-essential capital and development expenditure.

The Company's portfolio comprises producing kimberlite and lamproite mines, development projects and exploration assets, as well as diamond beneficiation centres. Operations and projects are situated in Angola, Australia, Botswana, the Central African Republic, the Democratic Republic of Congo, Dubai, Lesotho, Mauritius and Indonesia.

With Letšeng's production of the world's most remarkable white diamonds and Ellendale's production of rare fancy yellow diamonds, Gem Diamonds is focused towards higher value diamonds. This segment of the market is expected to deliver attractive long term returns