Q4 2015 TRADING UPDATE

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31 December 2015 ("Q4 2015") or (the "Period")

LETŠENG:
Strong end to the year with full year production above guidance. Prices remain robust.
  • Produced 29 100 carats in Q4 2015 taking full year production to 108 579 carats.
  • Achieved planned waste tonnes and increased Satellite Pipe ore contribution.
  • Average price of US$ 2 117* per carat achieved in Q4 2015.
  • 9 rough diamonds achieved a value of greater than US$ 1.0 million each.
  • A total of three diamonds of greater than 100 carats each sold in the Period.
  • Zero Lost Time Injuries (LTIs) for the Period, resulting in a LTI free 2015 and a total of 430 consecutive LTI free days.

*Includes carats extracted for polishing at rough valuation.

Ghaghoo:
Grade remains higher than Reserve. Production slowdown planned.
  • Phase 1 objectives achieved:
  • Treatment target of 2 000 tonnes per day achieved on 21 January 2016 after surge bin commissioned.
  • Operating costs trend below US$ 50 per tonne.
  • Average recovered grade of 28.6cpht (compared to the average reserve grade of 27.8cpht).
  • Water fissure on Level 1 and the intersection in the ramp on Level 2 sealed.
  • 95 diamonds greater than 4.8 carats each were recovered during the Period, including 9 diamonds larger than 10.8 carats, with the largest being a 34.1 carat diamond.
  • 24 294 carats recovered during the Period.
  • Third parcel sold in December achieving an average price of US$ 150 per carat in weaker market conditions, bringing the total average US$ per carat achieved for 2015 to US$ 162 per carat.
  • Zero LTIs for the Period, resulting in an LTI free 2015 and a total of 418 consecutive LTI free days.
  • Production slowdown to reduce cash outflow during current market conditions.
FINANCIAL
Strong Balance Sheet maintained despite difficult market conditions. Dividend on track.
  • The Group ended the year with US$ 85.7 million cash on hand, of which US$ 71.7 million is attributable to Gem Diamonds.
  • The Group has drawn down US$ 30.4 million of its available facilities, resulting in a net cash position of US$ 55.3 million.
  • During the Period, Letšeng paid dividends of US$ 19.0 million, which resulted in a net cash flow of US$ 12.0 million to Gem Diamonds and a cash outflow from the Group of US$ 7.0 million as a result of withholding taxes and payment of the Government of Lesotho's dividend portion.
  • A total of US$ 39.2 million was paid by Letšeng in 2015, resulting in a total dividend cash inflow to the Company for the year of US$ 24.7 million.
  • Dividend payment for FY 2015 remains on track.

Gem Diamonds' CEO, Clifford Elphick commented:

"It is pleasing to see that the prices achieved for Letšeng' s diamonds during the fourth quarter have remained robust despite the challenging market conditions experienced throughout this Period. The large high quality diamonds, for which Letšeng is renowned, have contributed to a Q4 2015 average price of US$ 2 117 per carat which results in an average price for FY 2015 some 9% lower than FY 2014.

We continued to experience difficult underground conditions at Ghaghoo, but I am pleased to report that, following the commissioning of the surge bin on 21 January 2016, the Phase 1 planned treatment run rate of 2 000 tonnes per day was achieved. A sale of 49 120 carats achieved revenues of US$ 7.4 million at an average price of US$ 150 per carat, down from US$ 210 and US$ 165 per carat in the previous two sales held in February and July respectively. The fall in prices achieved has impacted the planned pace of the ramp up at Ghaghoo. Ghaghoo remains an important future option for the Group, however in the short term it is considered prudent to downsize the operation to minimise cash consumed by the development of this asset. Options are being assessed to expand the operation in order to achieve acceptable financial returns, as and when the diamond prices improve.

The Company has again continued to demonstrate it's ability to generate cash flows at Group level even in difficult market conditions. The company paid a maiden dividend during 2015, and is on track to recommend payment of a dividend for the 2015 financial year."