TIDMGEMD
RNS Number : 6013H
Gem Diamonds Limited
17 March 2015
17 March 2015
GEM DIAMONDS FULL YEAR 2014 RESULTS
Gem Diamonds Limited (the Company) is pleased to announce its
Full Year results for the period ending 31 December 2014.
During 2014, Gem Diamonds demonstrated a strong operational
performance, delivering on a number of strategic objectives,
resulting in a robust financial position and maiden dividend. The
Company continued to focus on enhancing operational efficiencies
and investing in innovative technologies at both Letšeng and
Ghaghoo, delivering improved earnings and positioning Gem Diamonds
for long term sustainable growth.
FINANCIAL RESULTS
-- Revenue US$271 million, up 27 %
-- Underlying EBITDA US$104 million, up 35 %
-- Attributable net profit US$33 million, up 57 %
-- Basic EPS 24 US cents, up 57 %
-- Cash on hand US$111 million as at 31 December 2014 (net after
debt); (US$99.4 million attributable to Gem Diamonds)
OPERATIONAL HIGHLIGHTS
LET ENG:
-- Carats recovered of 108 569
-- Average of US$2 540 per carat
-- Tonnes treated of 6.4 million
-- Waste tonnes moved of 19.8 million
GHAGHOO:
-- The Phase 1 capital project has been completed on time and on budget
-- Final commissioning and optimisation of the plant is in progress
-- A total of 10 167 carats recovered during commissioning,
(including a 20 carat white diamond, a 17 carat white diamond and a
three carat orange diamond)
DIVIDEND
-- 5 US cents per share
-- Total dividend of US$6.9 million
-- Record date: 8 May 2015
-- Payment date: 9 June 2015
Commenting on the results today, Clifford Elphick, Chief
Executive Officer of Gem Diamonds, said:
"2014 was a solid year both financially and operationally for
Gem Diamonds. We successfully delivered on a number of key growth
objectives including bringing Ghaghoo into production,
significantly enhancing operational efficiencies at Letšeng and
delivering a maiden dividend. With a continued focus on cost
control, the Company is in a very strong position financially with
cash balance of US$111 million, supported by the high average price
per carat of US$2 540 achieved for the year. As we expand from a
single producing mine to two producing mines, with the ramp up of
production at Ghaghoo, we will start to see a significant shift in
production figures.
Whilst there have been a number of challenges in the diamond
market recently, the medium to long term fundamentals look
positive. This, combined with the resilience of Letšeng diamonds to
pricing constraints, leaves Gem Diamonds well placed to take
advantage of the favourable supply/demand dynamics in the market in
order to continue its growth in 2015 and beyond".
The Company will be hosting a webcast presentation on its full
year results at 9.30am today. A copy of the full Annual Report 2014
and a live audio webcast of the presentation will be available on
the Company's website: www.gemdiamonds.com
For further information:
Gem Diamonds Limited
Sherryn Tedder, Investor Relations
Tel: +44 (0) 20 3043 0280
Bell Pottinger
Daniel Thole / Joanna Boon
Tel :+44 (0) 20 3772 2500
ABOUT GEM DIAMONDS
Gem Diamonds is a leading global diamond producer of high value
diamonds. The company owns 70% of the Letšeng mine in Lesotho and
100% of the Ghaghoo mine in Botswana. The Letšeng mine is famous
for the production of large, top colour, exceptional white
diamonds, making it the highest dollar per carat kimberlite diamond
mine in the world. Since Gem Diamonds' acquisition of Letšeng in
2006, the mine has produced four of the twenty largest white gem
quality diamonds ever recorded.
Gem Diamonds has a growth strategy based on the expansion of the
Letšeng mine and bringing the Ghaghoo mine into production, while
maintaining its strong balance sheet. The Company seeks to maximise
revenue and margin from its rough diamond production by pursuing
cutting, polishing and sales and marketing initiatives further
along the diamond value chain. With favourable supply/demand
dynamics expected to benefit the industry over the medium to long
term, particularly at the high end of the market supplied by Gem
Diamonds, this strategy positions the Company well to generate
attractive returns for shareholders in the coming years.
Chairman's statement
2014 was characterised by the delivery of a robust financial
performance and the recommendation of our first dividend. The focus
on maximising the revenue from our core assets through enhancing
operating efficiencies and investing in innovative technologies has
delivered improved earnings and has positioned Gem Diamonds for
sustainable growth.
Our investment proposition
-- Diamond market fundamentals
-- Strategic and structural clarity
-- Dividend paying policy
-- Letšeng: value enhancing opportunities
-- Ghaghoo: near term asset valuation upside
-- Robust corporate governance
Dear shareholder,
It gives me great pleasure to present Gem Diamonds' 2014 Annual
Report.
Strategic review
In 2011, Gem Diamonds mapped out a clear strategy built on three
pillars, namely value creation, growth and sustainability. This
broad-based approach has allowed the Group to adapt to short-term
opportunities and challenges while moving towards its long-term
goal of sustainable shareholder returns. During 2014, the Group
made great strides in achieving its stated objectives:
Maintaining a robust financial position and cash flows
The continued enhancement of the Group's cash position and
balance sheet strength allows it to react proactively to market and
operational conditions in order to meet its medium and longer-term
objectives.
Group revenue rose by 27% over the prior year, with cash on hand
at the end of the year of US$110.7 million. The Group achieved a
total shareholder return of 23% in 2014.
Dividend
Based on the positive results achieved since the implementation
of the above strategy, the Board is pleased to recommend maiden
cash dividend of 5 US cents per share. The Board has adopted a
policy that will determine the appropriate dividend each year based
on consideration of the Company's cash resources, the level of free
cash flow and earnings generated during the year, and the expected
funding commitments for capital projects relating to our growth
strategy and will aim to pay a total dividend at an approximately
consistent proportion of sustaining net earnings. Dividends are
expected to be declared by the Board annually with the full-year
results. This policy demonstrates our commitment to returning value
to shareholders.
Improving the revenue line at Letšeng through innovation
The Letšeng mine in Lesotho is synonymous with exceptional
diamonds. It is, therefore, imperative that the Group continually
invests in innovative ways of identifying, recovering and
preserving these high-value diamonds. During 2014, the mine
continued to reap the benefits of the technological investments
made in the previous years. In addition, further focused projects,
including the installation of the new Coarse Recovery Plant, which
will further improve diamond recovery, and the Plant 2 Phase 1
upgrade, which will increase throughput, reduce breakage and
improve diamond liberation, are set to advance Gem Diamonds'
strategic objective of increasing revenues at Letšeng. These
projects represent relatively low capital investments in keeping
with the Group's focus of maintaining capital discipline in all of
its operations.
While the political unrest that occurred in Lesotho during 2014
posed a possible challenge, the mine, situated four hours from the
capital, Maseru, remained unaffected. The state of affairs in the
country has since stabilised, with elections having taken place on
28 February 2015 under the watchful eye of the South African
Development Community (SADC) representatives headed by South
Africa's Deputy President, Cyril Ramaphosa.
Bringing the Ghaghoo mine into production
Gem Diamonds' technical skills have come to the fore in the
development of the Ghaghoo mine in Botswana, delivering the capital
project on time and within budget. It is also pleasing to report
that the first diamonds produced during commissioning have been of
a better quality and average size than those recovered during the
exploration phase. It has also been noteworthy that the presence of
rare coloured diamonds in the resource has been confirmed.
The mine development showcases Gem Diamonds' commitment to best
practice in relation to its project affected communities and the
environment. The communities affected by the Ghaghoo mine have been
involved and consulted from the outset with the aim of achieving
broader stakeholder value. In addition, numerous ecological and
archaeological surveys; visual and socio-economic impact
assessments; as well as an extensive public participation process
have been conducted. Information gathered during this process
underpinned the Group's approach to minimising Ghaghoo's ecological
footprint and maximising the benefit for all stakeholders. A
Ghaghoo Community Trust has been established and local community
representatives sit in Trust meetings. The Trust has made a number
of material interventions in community projects, long before the
first diamond was sold and will continue to do so as the mine
enters the next phase of development.
Continued excellence in sales, marketing and manufacturing
initiatives
Positioned at the very top end of the diamond market, Gem
Diamonds' Letšeng mine consistently produces some of the world's
most remarkable diamonds, making it the highest average dollar per
carat kimberlite diamond producer in the world and achieved an
average of US$2 540* per carat in 2014. Letšeng's tenders attract
the world's top diamantaires who continue to pay the highest prices
for these exceptional diamonds, allowing Letšeng's rough production
to remain relatively resilient to market fluctuations.
Of note, during the year Letšeng recovered its highest number of
diamonds greater than 20 carats in a single year, since acquisition
in 2006. This included seven +100 carat diamonds, five of which
together achieved a total of US$37.4 million The largest diamond
recovered during the year, a 299.3 carat yellow diamond, was sold
into a partnership arrangement at the beginning of 2015, which will
see Letšeng further benefiting from 50% of the resulting polished
uplift.
Committed to the highest health and safety standards
Safeguarding the well-being of employees is both a moral and
business imperative. Despite a strong overall safety performance
during the year, the loss of life of one of our employees, Mr
Segolame Mashumba, in January 2014, is a tragedy that has sharpened
our focus on safeguarding the health and safety of our employees.
On behalf of the Board and the Group, we once again send our
heartfelt condolences to the family. I wish to reaffirm the Group's
commitment to eliminating fatalities at work and reducing
incidences of injury in line with our all-encompassing goal of
achieving zero harm.
Gem Diamonds is deeply aware of its responsibility towards the
areas in which it operates, both in terms of environmental
stewardship and socio-economic development. The Group recognises
that its long-term viability is closely linked to the success and
well-being of the communities in which it operates and strives to
contribute positively to these communities. A comprehensive
sustainable development programme is in place at each operation,
supported in terms of strategic guidance by the HSSE Committee, at
Board level. (Refer to the full 2014 Sustainable Development Report
on the Gem Diamonds website.)
Corporate governance
The Group's commitment to robust corporate governance supports
its ability to create sustainable returns for all stakeholders.
During September 2014, the UK Corporate Governance Code was
amended. The Board agrees with and supports the Code, and the Gem
Diamonds' governance framework was amended accordingly. The Group
is thus well positioned to introduce the necessary changes as
required.
During the year, the Group's Board of Directors submitted
themselves to a Board evaluation process aimed at enhancing Board
governance. I am pleased to report that no major issues were
identified and the feedback received will be incorporated into the
Group's governance framework.
After eight years of service as Company Secretary, André
Confavreux retired at age 70 on 11 January 2015. The Board would
like to express its appreciation to André for his significant
contribution to the Group over the years. Following André's
retirement, Glenn Turner has added the role of Company Secretary to
his current duties as Executive Director.
Outlook
The long-term outlook for the diamond market remains strong.
Despite a weakening of prices in the fourth quarter of 2014, partly
due to concerns over bank lending and liquidity, the Group expects
some firming in the market as banks in Dubai and elsewhere take
steps to fill the funding gap that triggered these concerns. The
medium to long-term outlook for diamond demand, therefore, is
expected to remain favourable, with diamond prices beginning to
trend upward in the second half of 2015.
The strategic focus for the year ahead will remain on creating
value by focusing on mining and selling diamonds efficiently and
responsibly. We remain confident in our ability to continue
delivering returns to our shareholders through this focused
execution of strategy as is demonstrated by the Group's dividend
policy.
The 2014 results are a testimony to the calibre of people
employed at Gem Diamonds and I would like to thank my fellow Board
members for their wisdom and contribution during the year. On
behalf of the Board, I would like to thank our employees for their
tireless efforts and commitment to Gem Diamonds as well as our
shareholders for their support as we continue to deliver on our
strategy and build long-term value.
Roger Davis
Non-Executive Chairman
16 March 2015
Chief executive officer's overview
Letšeng continues to drive strong operational performance and
exceptional financial results during 2014. Prices of both rough and
polished diamonds firmed over the first three quarters before
declining moderately in the final quarter. Despite this softer
trend, the final Letšeng tender of 2014 saw very strong prices
achieved and demonstrates the Group's commitment to implementing
the strategy adopted in 2011 to create sustainable growth and
production despite the market conditions. As our second mine,
Ghaghoo, ramps up, we look forward to the contribution Botswana's
first underground diamond mine will make.
2014 achievements
-- Maintained robust financial position and cash flows
-- Operations expanded from a single producing mine to two
-- Maiden dividend
-- Improved Letšeng revenue line and plant optimisation
-- Completed Ghaghoo capital project on time and on budget
-- Continued excellence in sales, marketing and manufacturing initiatives
Operational performance
Letšeng
At Letšeng, a year of solid operational performance saw an
improvement over the prior year's production results, with costs
well controlled. Plant enhancements and improved blasting
techniques, as well as greater access to ore from the higher grade,
higher value Satellite orebody over the prior year, resulted in an
improvement in the grade, size and quality of the diamonds
produced.
During the year, Letšeng issued a revised resource statement to
reflect a significant increase in the Letšeng indicated resource
category which had been extended in depth to approximately 350
metres below the current mine pits on both Satellite and Main pipe
orebodies. This extension has resulted in a significant increase in
the indicated resource tonnage and contained carats but has also
allowed for a significant increase in the Letšeng probable
reserves, with the entire 22 year life of mine plan now classified
as reserve.
The growth focus at the Letšeng mine during 2014 remained on
relatively low capex expansion projects with near-term returns. Two
such projects were advanced significantly during the year:
The new Coarse Recovery Plant remains on track for completion at
the end of the second quarter of 2015. This plant will optimise the
treatment of the high-value, coarse fraction of ore using X-ray
transmissive (XRT) technology that will improve the recovery of the
high-value Type II diamonds. Significant improvements to security
measures and advanced diamond accounting processes will also result
from the construction of the new Coarse Recovery Plant.
Implementation of the Plant 2 Phase 1 upgrade project commenced
in the third quarter of 2014 and is on track to be completed in
early 2015. The project is expected to result in an increased
treatment capacity of 250 000 tonnes per annum and further reduce
diamond damage and improve diamond liberation. Subsequent upgrades
to the plant will be considered once the current projects are
completed, and plant performance has been fully evaluated.
The operational improvements undertaken this year, together with
the projects that are currently under way and those considered for
the future, position Letšeng as a long life open pit operation.
Optimisation of the life of mine plans, which take these
improvements into account, will deliver on the longer-term plan for
Letšeng going forward.
Ghaghoo
As Botswana's first underground diamond mine, the Ghaghoo mine
has showcased Gem Diamonds' ability to add value to existing assets
through technical innovation. By pursuing an underground mining
option, the Group achieved significant cost savings, reduced its
potential environmental impact and has served to pave the way for a
new era of mining in challenging mining conditions (including
deposits covered with significant overburden). This point was
reinforced by the President of Botswana when he officiated the
opening of the Ghaghoo mine in September 2014.
Gem Diamonds is developing Ghaghoo in a phased approach. The
first phase is aimed at confirming diamond grades and prices, as
well as testing different mining and processing techniques. In
subsequent phases, production will be increased as appropriate in a
cost effective manner.
The mine is currently in Phase 1 with the capital project
complete and commissioning progressing well. As at 31 December
2014,
48 023 tonnes of ore had been treated, with 10 167 carats
recovered, including a 20 carat white diamond, a 17 carat white
diamond, and a three carat orange diamond (the recovery of which
confirms the presence of valuable coloured diamonds in the
orebody). After year end, a 35 carat diamond was recovered, which
is the largest diamond recovered at Ghaghoo to date. The first
tender of 10 167 carats was held in February of 2015, following
viewings held in Gaborone and Antwerp and achieved US$210 per
carat. As is usual in the development of the marketing of a new
mine's production, it will take at least six months of tender sales
and the subsequent sale of the polished diamonds by clients, in
order for a reliable average price to emerge. As part of the mine's
Phase 1 plan, a production rate of approximately 60 000 tonnes per
month is expected to be achieved by mid-2015.
During the year, a significant ingress of water was encountered
at Ghaghoo following the intersection of a fissure in the basalt
country rock. This challenge has been overcome through swift and
efficient technical response, allowing the development of the
tunnels to proceed with minimal disruption to mine development.
Sales, marketing and manufacturing
The Group continues to invest in its marketing and manufacturing
operations to ensure the highest returns on its production.
During the year Letšeng recovered seven +100 carat diamonds,
five of these exceptional diamonds (a 197.6 carat, a 162.02 carat,
a 161.31 carat, a 132.55 carat and a 112.6 carat) together achieved
a total sales value of US$37.4 million, representing 14% of
Letšeng's total revenue. The largest diamond recovered in 2014 was
a 299.3 carat yellow diamond, which was extracted and sold into a
partnership arrangement in early 2015, where Letšeng will further
share in 50% of the uplift from the eventual polished sales
value.
For the full year Letšeng sold 108 963 carats (2013: 97 294),
achieving an average price of US$2 540* per carat, up 24% from US$2
043* per carat in the prior year.
Health, safety, social and environment (HSSE)
The sustainability of the Group is strongly dependent on
maintaining its social licence to operate. As a result, the health
and safety of employees and contractors, environmental
responsibility, legal compliance and social relevance remain key
enablers of the Group's continued success.
The Group manages its environmental footprint with great care.
Across all operations there is a continual focus on improving
energy efficiency, reducing direct impact and enhancing
biodiversity. It is pleasing to report that for the sixth
consecutive year no major environmental incidents occurred across
the Group.
Gem Diamonds works in close collaboration with its project
affected communities to ensure that the social projects implemented
make a meaningful contribution to these communities. With the
opening of the Ghaghoo mine, the Group's involvement in the
surrounding community has intensified. The Ghaghoo Community Trust
has been funded as part of the development of the mine and these
funds allocated to support community projects during 2014. In
addition, employment opportunities have been taken up by many in
the project affected communities and the medical facilities on the
mine have been made available to treat emergencies in the
surrounding communities. Moreover, Ghaghoo continues to equip and
maintain the boreholes, which are used by the communities within
the Central Kalahari region.
Outlook
As the Group's operations expand from a single producing mine to
two producing mines, with the ramp up of production at Ghaghoo, the
Group will start seeing a significant shift in production figures
going forward. The Group will continue to focus on improving
operational efficiencies and pursuing innovative technologies.
Taking these steps, I am confident that the Group is well placed to
take advantage of the favourable supply/demand dynamics in the
market in order to produce continued growth in 2015 and beyond.
I wish to express my sincere appreciation to our employees. Your
continued pursuit of excellence has made the success of Gem
Diamonds possible. I would also like to thank the Board for their
guidance during the year, as well as our shareholders for their
continued support.
Clifford Elphick
Chief Executive Officer
16 March 2015
GROUP FINANCIAL PERFORMANCE
Capital and cash management discipline has placed the Group in a
well-funded position to recommend the payment of its maiden
dividend of 5 US cents per share, which enforces its strategy of
delivering additional value to its shareholders.
Financial highlights
-- Revenue of US$271 million - up 27%
-- Underlying EBITDA of US$104 million - up 35%
-- Attributable profit of US$33 million - up 57%
-- Basic EPS of 24 US cents - up 57%
-- Cash on hand of US$111 million
-- Maiden dividend of 5 US cents per share
2014 2013
US$ million US$ million
Total Total
------------------------------------------- ------------ ------------
Revenue 270.9 212.8
Royalties and selling costs (24.7) (18.5)
Cost of sales (129.6) (103.1)
Corporate expenses (12.4) (13.8)
------------------------------------------- ------------ ------------
Underlying EBITDA 104.2 77.4
Depreciation and mining asset amortisation (15.2) (17.3)
Share-based payments (1.7) (0.9)
Other income 0.2 0.7
Foreign exchange gain 5.2 0.6
Finance income/(cost) 0.2 (1.6)
Reversal of impairment of assets - 0.1
------------------------------------------- ------------ ------------
Profit before tax 92.9 59.0
Income tax expense (35.0) (20.8)
------------------------------------------- ------------ ------------
Profit for the year 57.9 38.2
Non-controlling interests (24.7) (17.0)
------------------------------------------- ------------ ------------
Attributable profit for the year 33.2 21.2
Earnings per share (US cents) 24.0 15.3
------------------------------------------- ------------ ------------
Revenue
The Group's revenue is primarily derived from its two business
activities, namely its mining operations at Letšeng and its rough
diamond manufacturing operation in Antwerp. Revenue does not
include any contribution from the mining operation at Ghaghoo, as
the mine had not reached full commercial production during the
year. The first sale of carats recovered during commissioning
concluded after year end. Overall, the Group revenue increased by
27%, driven by 12% higher volume of rough carat sales from Letšeng
and 24% higher diamond prices achieved. Management interventions
initiated during 2013, effective mining plans and favourable
external market conditions for the majority of 2014 have all
resulted in a positive impact on revenue.
Mining operations
The demand for rough diamonds remained strong during 2014, with
high prices achieved for Letšeng's production, particularly the
high-quality, large diamonds for which the mine is renowned. The
benefit of the additional investment in waste stripping in the
Satellite pipe at Letšeng in 2013 was realised in 2014, as
increased volumes of the higher-value, higher-grade Satellite pipe
ore was mined during the year. The Satellite to Main pipe ore ratio
was 31:69 during the year, compared to 16:84 in the prior year. The
increased contribution of the higher-grade Satellite pipe ore,
together with the higher than expected performance of the reserve
grade during the year resulted in Letšeng recovering 108 569
carats, a 14% increase from the prior year.
2014 2013
------------------------------------------------- --------------------- ------
Average price per carat (US$)(1) 2 540 2 043
------------------------------------------------- --------------------- ------
Carats sold(1) 108 963 97 294
------------------------------------------------- --------------------- ------
Group revenue summary (US$ million)
Sales - rough 276.8 198.8
------------------------------------------------- --------------------- ------
Sales - polished margin 5.8 6.3
------------------------------------------------- --------------------- ------
Sales - other 0.4 0.3
------------------------------------------------- --------------------- ------
Impact of movement in own manufactured inventory (12.1) 7.4
------------------------------------------------- --------------------- ------
Group revenue 270.9 212.8
------------------------------------------------- --------------------- ------
(1) Includes carats extracted for polishing at rough valuation.
The combination of increased mining in the higher-value
Satellite pipe, the positive impact of the new crushers installed
during 2013 and favourable market conditions, resulted in a higher
average value obtained for Letšeng's rough diamond exports. US$2
540* per carat was achieved in 2014 from the sale of 108 963
carats, compared to the average price of US$2 043* per carat
achieved in 2013 from 97 294 carats. This resulted in an overall
increase of 39% in Letšeng's rough revenue compared to the prior
year and an EBITDA margin of 46% (2013: 42%).
Diamond manufacturing operation
The diamond manufacturing operation in Antwerp contributed
US$5.8 million to Group revenue (through additional polished margin
generated) and US$3.9 million to EBITDA. During the year, 1 232
carats valued at a rough market value of US$17.2 million were
extracted from the Letšeng exports for manufacturing. In total,
polished diamonds with an initial rough value of US$5.1 million
were sold during the year and US$15.0 million remained in inventory
at the end of the current year, compared to US$2.9 million at the
end of the prior year. The year-on-year polished inventory movement
decreased the Group revenue by US$12.1 million.
Royalties and selling costs
Royalties and selling costs in the Group of US$24.7 million
mainly comprise mineral extraction costs paid to the Lesotho
Revenue Authority of 8% on the sale of diamonds and diamond
marketing-related expenses.
Cost of sales
The focus for 2014 remained on continued operational excellence
through cost reductions and enhancing production efficiencies. Cost
of sales for the period was US$129.6 million, the majority of which
was incurred at Letšeng, and includes waste stripping costs
amortised of US$49.3 million (2013: US$34.8 million). The benefits
of the newly negotiated mining contract, procuring a larger mining
fleet and improved production throughput contributed to improved
unit costs. Cost of sales does not include any operational costs
incurred at Ghaghoo, as the mine did not reach its intended
sustaining operational levels, and therefore all costs were
recognised as part of the asset's carrying value during 2014.
The LSL (pegged to the South African rand) and the Botswana pula
(BWP) were weaker than the prior year, positively impacting US
dollar reported costs during the year. Conversely, the British
pound (GBP) strengthened against the US dollar during the year,
negatively impacting GBP corporate costs.
Exchange rates 2014 2013 % change
----------------------------------- ----- ----- --------
LSL per US$1.00
Average exchange rate for the year 10.85 9.65 12
Year end exchange rate 11.57 10.47 11
----------------------------------- ----- ----- --------
BWP per US$1.00
Average exchange rate for the year 8.98 8.40 7
Year end exchange rate 9.51 8.78 8
----------------------------------- ----- ----- --------
US$1.00 per GBP
Average exchange rate for the year 1.65 1.56 6
Year end exchange rate 1.56 1.66 (6)
----------------------------------- ----- ----- --------
Year ended Year ended
31 December 31 December
Letšeng costs 2014 2013
----------------------------------------------------- ------------ ------------
US$ (per unit)
Direct cash cost (before waste) per tonne treated(1) 12.70 13.34
Operating cost per tonne treated(2) 19.64 15.85
Waste cash cost per waste tonne mined 2.22 2.71
----------------------------------------------------- ------------ ------------
Local currency (per unit) LSL
Direct cash cost (before waste) per tonne treated(1) 137.75 128.68
Operating cost per tonne treated(2) 213.08 152.92
Waste cash cost per waste tonne mined 24.07 26.12
----------------------------------------------------- ------------ ------------
(1) Direct cash costs represent all operating cash costs, excluding royalty
and selling costs.
(2) Operating costs include waste stripping cost amortised, inventory and
ore stockpile adjustments, and excludes depreciation.
Total direct cash costs (before waste) at Letšeng, in local
currency, were LSL884.6 million compared to LSL801.1 million in
2013. This resulted in unit costs per tonne treated for the year of
LSL137.75 (2013: LSL128.68). This increase of 7% is primarily
attributable to general inflation increases of approximately 6%;
above inflationary fuel and power increases; additional costs
relating to back up power facilities and diamond reduction
initiatives, offset by savings achieved through the new mining
contract arrangements.
Operating costs per tonne treated increased to LSL213.08 per
tonne from LSL152.92 per tonne, mainly due to increased waste
stripping cost amortised, driven by the different waste to ore
strip ratios for the particular ore processed. Letšeng
significantly increased mining ore from the Satellite pipe during
the year, which carries a higher amortisation charge than the Main
pipe. As a result, the amortisation charge attributable to the
Satellite pipe ore accounted for 64% of the total waste stripping
amortisation charge in 2014 (2013: 48%).
Year ended Year ended
31 December 31 December
Other operating information (US$ million) 2014 2013
-------------------------------------------------- -------------- -------------
Waste cost capitalised 51.5 59.3
Waste stripping costs amortised 49.3 34.9
Depreciation and mining asset amortisation 15.2 16.0
Capital expenditure(1) 11.3 9.9
-------------------------------------------------- -------------- -------------
(1) Capital expenditure excludes movements in rehabilitation assets relating
to changes in rehabilitation estimates.
Local currency waste cash cost per waste tonne mined decreased
by 8% as a result of the newly negotiated mining contract and the
use of larger equipment improving overall efficiencies. Following
the estimation change in respect of the waste mined out of the
surveying review, which was disclosed in 2012, waste costs will be
recovered from the mining contractor over the eight year term of
the new contract and this has been raised as a prepayment in the
Statement of Financial Position. The impact on the waste stripping
cost amortised in the current year due to the change in estimate is
a credit of US$0.9 million.
Corporate expenses
As a result of the streamlining of the corporate structure
initiated in 2013, corporate expenses have further decreased,
notwithstanding inflation, from US$13.8 million in 2013 to US$12.4
million in 2014, which now represents the full impact of the
restructuring initiatives. Corporate expenses relate to central
costs incurred by the Group and are incurred in both South African
rand and British pounds.
Share-based payments
Share-based payment costs for the year amounted to US$1.7
million compared to US$0.9 million in 2013. There were two
Long-term Incentive Plan (LTIP) options granted during March and
June of 2014. In March, 625 000 nil-cost options were granted to
certain key employees. The vesting of these options will be subject
to the satisfaction of certain performance and service conditions
classified as non-market conditions. In June, 609 000 nil-cost
options were granted to the Executive Directors. The vesting of
these options will be subject to the satisfaction of certain
performance conditions over a three-year period. The share-based
payment cost associated with the new awards had a US$0.6 million
impact on the current year charge.
Net finance income
Net finance income mainly comprises interest received from
surplus cash from the Letšeng operation and the finance income
adjustment relating to the impact of raising the non-current
prepayment at fair value relating to the waste estimation change.
This income was partially offset by the unwinding of the current
environmental provisions and interest on interest-bearing
liabilities.
Income tax expense
The Group's effective tax rate was 37.6%, above the UK statutory
tax rate of 21.5%. This tax rate is driven by tax of 25% on profits
generated by Letšeng, withholding tax of 10% on dividends from
Letšeng and deferred tax assets not recognised on losses incurred
in non-trading operations.
EBITDA and attributable profit
The impact of the positive trading activities for the year has
resulted in underlying EBITDA of US$104.2 million, up by US$26.8
million (35%) from the prior year. The profit attributable to
shareholders for the year was US$33.2 million (up 57% from US$21.2
million in 2013) equating to 24.0 US cents per share (up 57% from
15.3 US cents in 2013) on a weighted average number of shares in
issue of 138 million.
Financial position and funding review
The Group's robust cash position was maintained, with US$110.7
million cash on hand at year end, of which US$99.4 million was
attributable to Gem Diamonds and US$0.2 million restricted. The
Group generated cash flow from operating activities of US$133.7
million before the investment in waste mining and capital
expenditure.
Enhancing the Group's funding strategy of incorporating
appropriate debt levels into the capital structure, additional debt
funding of LSL140.0 million (US$12.1 million) for the funding of
the Coarse Recovery Plant, and US$25.0 million to fund the
remaining Phase 1 development spend at Ghaghoo was raised during
the year. Both these facilities were fully drawn down by year end,
resulting in a net cash position of US$73.6 million, with undrawn
facilities of US$41.6 million still available as at 31 December
2014.
Investments in property, plant and equipment amounted to
US$101.3 million, the largest component of which was US$54.0
million incurred in waste stripping costs at Letšeng. The Group
also invested US$11.3 million at Letšeng, in connection with the
Coarse Recovery Plant, Plant 2 Phase 1 upgrade, additional resource
extension drilling and other sustaining capital costs. US$35.1
million was invested in Ghaghoo, representing the remaining Phase 1
capital project costs (US$26.2 million) together with six months'
operational costs during the commissioning phase (US$8.9 million).
These costs continued to be recognised as part of the carrying
value of the asset until such time as the mine is capable of
operating at sustainable levels.
During the year, Letšeng declared dividends of US$92.0 million
of which US$57.9 million flowed to Gem Diamonds and US$34.1 million
flowed outside of the Group representing withholding taxes of
US$6.5 million and payment to the Government of Lesotho of US$27.6
million for its minority portion.
Outlook
Capital and cash management discipline has placed the Group in a
well-funded position to recommend the payment of its maiden
dividend of 5 US cents per share, which enforces its strategy of
delivering additional value to its shareholders. This dividend is
subject to shareholder approval at the scheduled AGM to be held on
2 June 2015, and would be anticipated to be paid on 9 June 2015.
The total dividend would be US$6.9 million, equating to 21% of 2014
net earnings.
Focus will be on converting the Ghaghoo mine from a development
project into sustaining operational activities and achieving steady
state production by the end of the first half of 2015. Optimising
steady state production costs will be of high priority with the aim
of generating a positive contribution to EBITDA.
Letšeng is operationally geared to mine a more consistent mix of
Satellite and Main pipe ore. In addition, the potential added value
benefits following the completion of the Coarse Recovery Plant and
the Plant 2 Phase 1 project in the first half of 2015 provides a
strong platform from which to build during 2015 and beyond.
The Group will continue to pursue cost control, operational
efficiencies and growth opportunities on an ongoing basis to
achieve its objectives of delivering shareholder return over the
short, medium and long term.
Michael Michael
Chief Financial Officer
16 March 2015
Operating review - Letšeng
At Letšeng, plant improvements and improved blasting techniques,
as well as greater access to ore from the higher-grade satellite
orebody resulted in an improvement in the grade, size and quality
of the diamonds produced, exceeding all prior year production
levels.
Letšeng
Operational highlights
-- Highest number of +20 carat diamonds recovered
-- The recovered grade outperformed the 2014 reserve estimate by 7%
-- Five +100 carat diamonds sold achieved US$37.4 million in
total, representing 14% of total sales
-- Early introduction of the new mining contract resulted in
improved efficiencies and cost savings
Large diamond recoveries
Frequency of recoveries of large diamonds at Letšeng
Number of diamonds* 2008 2009 2010 2011 2012 2013 2014
-------------------------- ----- ----- ----- ----- ----- ----- -----
>100 carats 7 5 6 5 3 7 7
-------------------------- ----- ----- ----- ----- ----- ----- -----
60 - 100 carats 16 10 10 19 13 16 21
-------------------------- ----- ----- ----- ----- ----- ----- -----
30 - 60 carats 74 76 61 59 61 50 69
-------------------------- ----- ----- ----- ----- ----- ----- -----
20 - 30 carats 88 98 89 91 110 71 101
-------------------------- ----- ----- ----- ----- ----- ----- -----
Total diamonds
>20 carats 185 189 166 174 187 144 198
-------------------------- ----- ----- ----- ----- ----- ----- -----
* Letšeng's treatment plants only. (Excludes Contractor
Plant production.)
Year Year
ended ended
Letšeng operational 31 December 31 December
performance 2014 2013 % change
------------------------- ------------ ------------ --------
Tonnes treated 6 421 704 6 225 821 3
Waste tonnes mined 19 884 721 19 072 657 4
Carats recovered 108 569 95 053 14
------------------------- ------------ ------------ --------
Operational performance
Letšeng reported a year of robust operational performance,
exceeding all prior year production levels. For the year Letšeng
treated a total of 6.4 million tonnes of ore compared to the 6.2
million tonnes in 2013. Of the total ore treated for the year, 69%
was sourced from the Main pipe and 31% from the Satellite pipe,
compared to 84% Main and 16% Satellite ore in 2013. The recovered
grade has outperformed the 2014 reserve estimate by 7% and this can
be attributed to a concerted effort to improve mining, treatment
and geological controls, as well as the increased recovery of fine
diamonds through improved liberation and dilution control. The
higher recovered grade and increased Satellite pipe contribution to
the mining mix resulted in 108 569 carats being recovered in 2014,
a 14% increase from the prior year.
Waste stripping at Letšeng increased in line with the mine plan
and the requirement to access the higher-grade Satellite ore in
higher proportions. Waste moved was 19.9 million tonnes, up 4% from
2013. During the first half of 2014, the mining contractor
delivered larger mining equipment that included five new 100 tonne
dump trucks and two new 300 tonne hydraulic excavators, thereby
improving the waste mining efficiency in line with the current and
medium-term increase in waste mining.
Significant improvements to sidewall control and blasting of the
pit slopes have allowed the slope angles of the mine to be
increased safely. This will result in lower stripping ratios,
thereby significantly reducing the total cost of mining over
the life of the mine. Optimisation of the long-term mine plan,
taking into account the steeper slope angles, commenced toward the
end of the year and will be ready for review early in 2015.
New mining contract
Letšeng successfully renegotiated its contract with the mining
contractor a year ahead of the expiry of the previous contract.
This has resulted in improved unit costs for eight years, effective
from 1 January 2014. The introduction of the new larger mining
equipment has resulted in improved loading and hauling
efficiencies, contributing to reduced mining costs.
Focus on diamond damage
With diamond damage remaining a key focus area, a number of
initiatives in both mining and processing were embarked upon during
the past year to reduce diamond damage even further. Changes to
mine blasting practices and operations have resulted in improved
fragmentation of the ore for the treatment plants, which
contributes to reducing diamond damage. These efforts, in
conjunction with the installation of the secondary and tertiary
crushers in 2013; the lining of the cyclone underflow boxes; and
the optimisation of crusher gaps and crusher operations have
resulted in a reduced breakage trend in the valuable Type II
diamonds.
Building on the successful installation of the crushers in 2913,
further enhancements were made to the plants, which had a positive
impact on the diamond breakage trend. New liner configurations for
the Plant 1 and Plant 2 secondary crushers were finalised and
adopted, resulting in improved throughputs, as well as better
fragmentation.
Expansion and improvement programme
Following several studies it was decided that the Plant 2 Phase
1 upgrade would be implemented and that the Plant 2 Phase 2 upgrade
project would be examined further after the implementation of Phase
1. The Plant 2 Phase 1 project was approved by the Board in June
2014 at a capital cost of US$4.7 million and will be completed in
Q1 2015. The Plant 2 Phase 1 upgrade project will increase
Letšeng's production capacity by 250 000 tonnes per annum and is
also expected to further reduce diamond damage.
Construction on the new Coarse Recovery Plant started in Q3 of
2014. Construction and commissioning is expected to be completed by
the end of Q2 2015. This new plant will create a single access,
secure facility, and will use XRT sorters to process all of the
+5mm diamond concentrate to ensure improved diamond recovery of the
high-value Type II diamonds, which typically have a low
fluorescence and are not easily recovered using regular
fluorescence-based X-ray technology.
State of the art security systems have been designed for the new
Coarse Recovery Plant, which will include X-ray scanning of all
personnel exiting the recovery plant.
Skills
The issue of skills attraction and retention remains a material
risk to the Letšeng operation. Aside from the normal factors
ascribed to working in remote areas and remunerating skilled
employees in a globally weak currency, localisation challenges,
difficulties experienced in obtaining work permits for expatriates
and increasing competition from other diamond companies in Lesotho
for skilled personnel have exacerbated the risk.
An exercise focusing on a global search for qualified and
experienced Lesotho citizens who were willing to work in Lesotho
indicated that there is a limited pool of available skills.
Extensive engagements with Lesotho Government officials on this
matter have commenced. Indications are that the stakeholders will
adopt a collaborative approach to addressing the skills challenge.
Furthermore, an intensified effort is being made to invest in the
development of existing employees.
HSSE
Letšeng was awarded, for the second consecutive year, the
highest possible rating for HSSE management according to the IRCA
global system. The 2014 external HSSE audit resulted in a five star
rating which reflects the continued focus on the effective
management of risks to the health and safety of the mine's
employees and project affected communities, as well as Letšeng's
approach to safeguarding the natural environment in which it
operates.
On 23 October 2014 Letšeng reached a significant milestone of
365 days without an LTI. Unfortunately, immediately following this
milestone Letšeng experienced an LTI. The incident was
comprehensively investigated, the root causes determined and
appropriate corrective actions taken to prevent recurrences.
No major or significant environmental incidents were recorded at
Letšeng during 2014.
To improve the lives and social well-being of the communities
affected by mining activities, Letšeng continues to work closely
with the project affected communities and relevant community and
governmental forums. During 2014, Letšeng invested approximately
US$0.3 million towards community investment projects, the amount of
which is anticipated to increase in 2015 in line with the maturity
of the corporate social investment (CSI) plan and as more projects
are implemented. The majority of Letšeng's investment spend went
towards infrastructure development, small and medium enterprise and
education. To this end, Letšeng's invested US$59 587 towards
educational scholarships and initiatives. Letšeng undertook a herd
boys training campaign which was focused on outdoor survival skills
to aid surviving harsh winter conditions in the Lesotho mountains.
The operation also built and equipped three health posts in Lesotho
during 2014. These health posts were handed over to the department
of health as they continue
to expand access to medical services in Lesotho.
At the end of 2014, 92% of Letšeng's workforce comprised Lesotho
citizens with 18% originating from project affected
communities.
Sustainable development in action
Indigenous plant nursery
Letšeng assisted the local community members in the neighbouring
Khubelu valley with the establishment of an indigenous plant
nursery. The project aims is to have the communities sell
indigenous plants to local projects and businesses, thereby
generating an income for the community and furthering
self-sustainability.
The mine provided training to community members which
included:
- conservation of endangered plant species;
- propagation of indigenous plants;
- establishing an environment conducive to plant growth; and
- nursery management.
The community is in the process of securing the correct
infrastructure for the nursery and the project is well under
way.
Focus for 2015
-- Complete the Plant 2 Phase 1 upgrade
-- Complete the construction and commissioning of the Coarse
Recovery Plant
-- Complete mine planning studies incorporating steeper slope
angles, reducing and delaying the peak
of waste stripping and the optimal mining rates from both pits
to derive optimal returns
-- Re-review the optimal timing for commencement of underground
mining
-- Undertake further studies into the next phase(s) of the
expansion programme
-- Improving efficiencies through continuous improvement
programmes
-- Continuation of test work with new waste sorting
techniques
-- Continuation of the drive to reduce diamond damage
Operating review - Ghaghoo
The Ghaghoo diamond mine was officially opened by His Excellency
the President of Botswana, Seretse Khama Ian Khama, on 5 September
2014. The mine reached an important milestone with the completion
of the Phase 1 capital project which entailed developing an access
decline through 80 metres of sand overburden and three production
tunnels in the first level of mining.
Ghaghoo
Operational highlights
-- The Phase 1 development of the Ghaghoo mine has been completed on time and on budget
-- Final commissioning and optimisation of the plant to achieve
nameplate production output is in progress
-- A total of 10 167 carats recovered during commissioning, (including a 20 carat white diamond,
a 17 carat white diamond and a three carat orange diamond)
Total resource
20.5 million carats (as at 1 January 2014)
In-situ value
US$4.9 billion (as at 1 January 2014)
Operational performance
The Ghaghoo diamond mine was officially opened by His Excellency
the President of Botswana, Seretse Khama Ian Khama, on 5 September
2014.
The mine reached an important milestone with the completion of
the Phase 1 capital project, which entailed developing an access
decline through 80 metres of sand overburden and three production
tunnels in the first level of mining.
The tunnels in the old sampling level (140 metres below surface)
were intersected in August 2014. These tunnels were dewatered and
inspected and found to be stable and free of harmful gases.
To facilitate production, two 1 200mm diameter ventilation holes
were drilled and one has been equipped as an emergency escape
route.
The planned ramp up to approximately 60 000 tonnes per month and
final commissioning by December 2014 were delayed due to an
unforeseen intersection of a major water fissure along the basalt
rim tunnel of the first production level. The water fissure was
successfully sealed and measures were taken to rehabilitate the
underground workings, including the reinforcing of underground
tunnels, installing additional pumping and water handling
capacities, drilling of dewatering boreholes around the kimberlite
pipe and sealing of the water fissure.
During the year, production was drawn from the trial stope on
Level 0, 134 metres below surface, and from the development tunnels
in Level 1. The ore drawn from these was used in the commissioning
of the processing plant. The processing plant is in the final
stages of commissioning and further optimisation work is in
progress. 48 023 tonnes of ore was treated, resulting in the
recovery of 10 167 carats during the year. The recovered grade
during the commissioning period has averaged just above 21 carats
per hundred tonnes (cpht) compared to an expectation of
approximately 27cpht, but was negatively impacted by highly diluted
ore from the margins of the pipe and plant inefficiencies during
early commissioning. During the latter part of the year, following
an optimisation process at the treatment plant, the grade showed
improvement and it is expected that reserve grades will be achieved
as both the plant and mining operations reach steady state
production levels.
HSSE
Ghaghoo is a maturing organisation that is improving its
management systems, including the HSSE management system. The
operation was recognised for its improvement of HSSE management
when it was awarded a four star rating for its external HSSE audit
for a second consecutive year in 2014. Regrettably a fall of ground
incident occurred on 11 January and resulted in the death of Mr
Segolame Mashumba. A comprehensive and thorough accident
investigation found that the incident was a result of a series of
consecutive actions that combined to weaken the rock mass to such
an extent that a very small amount of force was required to cause
failure. Work practices have been revised and an extensive training
programme has been implemented.
On 4 November 2014 a further fall of ground occurred, resulting
in three LTIs. This incident was investigated and appropriate
actions were taken to address the root causes to prevent recurrence
of the incident.
Ghaghoo established a community trust in 2014. This trust is
made up of representatives from the mine as well as representatives
from the project affected communities as well as representatives
from the mine.
No major or significant environmental incidents occurred during
2014.
Ghaghoo established a community trust in 2014. This trust is
made up of representatives from the mine as well as representatives
from the project affected communities as well as representatives
from the mine. Ghaghoo has increased its CSI activity in local
communities during the year, with a focus on education. The mine
has adopted the Kaudwane Primary School as part of its social
investment strategy and appointed a number of Kaudwane residents as
part of its short-term labour project. The project is aimed at
building capacity and providing local community members with work
experience and skills. Other programmes have been identified as
part of the CSI plan for implementation in 2015.
At year end, 93% of the Ghaghoo workforce were Batswana
citizens, 19% of which originated from project affected
communities.
Sustainable development in action
Adoption of the Kaudwane Primary School
Ghaghoo officially adopted the Kaudwane Primary School on 24
June 2014. An official adoption ceremony was held to mark this
event and to facilitate good relations between the Ghaghoo diamond
mine and the Kaudwane community. The school identified various
projects that they required assistance with, including
infrastructure and maintenance upgrades.
Extensive maintenance has been undertaken to improve the
ablution facilities of the school, and the classrooms have been
provided with electricity after the generator was serviced. More
projects are planned for implementation during 2015.
Focus for 2015
-- Continue the transition of processes and systems from the project phase to operations phase
-- Continue ramping-up mining and production to nameplate
capacity and maintain a focus on sustaining those levels.
(Production is expected to ramp-up to reach steady state during the
first half of 2015).
-- Optimise the processing plant
-- Advance the decline to open up Level 2 in 2015
-- Increase the number carats for sale and the frequency of tenders held
(An initial sale of 10 096 carats took place in Gaborone and
Antwerp during February 2015.
Operating review - Sales, marketing and manufacturing
The Group continues to invest in and grow the intellectual
property in its sales, marketing and manufacturing operations, with
the objective of ensuring that the highest returns are achieved for
its rough and polished diamonds.
Sales, marketing and manufacturing
Operational highlights
-- US$276.8 million* with an average price of US$2 540* per
carat was achieved for Letšeng's high-value production
-- 59* rough diamonds for greater than US$1.0 million each
-- Polished sales through the manufacturing division contributed
US$5.8 million in additional revenue to the Group
*Includes carats extracted for polishing at rough valuation.
Sales and marketing
The Group's rough diamond production is marketed by Gem Diamonds
Marketing Services and sold through an electronic tender platform.
The tender platform is designed to enhance engagement with
customers by allowing continuous access, flexibility and
communication, as well as ensuring transparency during the tender
process. Although tender viewings of the Group's diamonds take
place in Antwerp, the electronic tender platform allows customers
the flexibility to participate in each tender from anywhere in the
world. This flexibility together with the professional and
transparent manner in which the tender is managed, as well as the
high-calibre clients who participate in the tenders, contributes to
the achievement of the highest market-driven prices for the Group's
rough diamond production. In addition to the Letšeng production,
Gem Diamonds Marketing Services will also be tendering the Ghaghoo
rough diamond production in 2015, with viewings scheduled to take
place in Gaborone and Antwerp.
Rough diamonds selected for polishing are manufactured at
Baobab, and the resulting polished diamonds are sold by Gem
Diamonds Marketing Services through direct selling channels to
prominent high-end clients.
Focus for 2015
Sales and marketing - Gem Diamonds Marketing Services
-- Continue to achieve highest prices for the Group's rough and
polished diamonds through optimised sales and marketing
activities
-- Develop and implement the market strategy and sales channels
for the Ghaghoo rough production to achieve highest prices
-- Identify diamond sales and marketing opportunities in other strategic jurisdictions
Analysis and manufacturing
Baobab Technologies' advanced mapping and analysis of Letšeng's
exceptional rough diamonds assists the Group in assessing
appropriate true values of its rough diamonds that are presented
for sale on tender or sold through any other sales channel. This
ensures that robust reserve prices are set for its diamonds at each
tender and assists in the making of strategic selling, partnering
or manufacturing decisions.
In order to access the highest value for its top-quality
diamonds, the Group also selectively manufactures some of its own
high-value rough diamonds through Baobab and places other
exceptional diamonds into strategic partnership arrangements with
select clients.
During 2014, Baobab Technologies received 933 carats of
high-value diamonds for processing, with a rough market value of
US$12.9 million from Letšeng and continued to cut and polish third
party goods. Included in this amount was the manufacture of two
high-value diamonds a 124 carat diamond, which resulted in 12
exceptional polished diamonds with a total weight of 40.63 carats
(including a 10 carat, D Flawless, Emerald cut), and a 95 carat
diamond, which resulted in four exceptional polished diamonds with
a total weight of 34.53 carats (including a 18 carat, D Flawless,
Round and a 10 carat, D Flawless, Round). All of the polished
stones from these two diamonds achieved Excellent grading for cut
grade, polish and symmetry by the GIA.
Focus for 2015
Analysis and manufacturing - Baobab
-- Continue to analyse Letšeng's large, high-value diamonds to
ensure deep understanding of product value on each
Letšeng tender
-- Obtain best possible polished results for Letšeng's rough
diamonds extracted for manufacturing
-- Increase business activities by polishing more high-value
diamonds for customers outside the Group
Principal risks and uncertainties
The Group is exposed to a number of risks and uncertainties that
could have a material impact on its performance and long-term
development. The effective identification, management and
mitigation of these risks and uncertainties are a core focus of the
Group, as they are key to the Company's objectives and strategy
being achieved. Central to Gem's approach to risk management is
having the right Board and Senior Management team in place, with
such members combining extensive experience of diamond mining,
corporate governance, risk management and the local operating
conditions in Lesotho and Botswana.
Risk management is the overall responsibility of the Board,
assisted primarily by the Audit and HSSE Committees, who together
identify and assess any change in risk exposure, together with the
potential financial and non-financial impacts and likelihood of
occurrence.
Given the long-term nature of the Group's mining operations, the
Group's risks are unlikely to alter significantly on a yearly
basis. However, inevitably the level of risk can change, as could
the Group's risk appetite. The Board and its Committees have
identified the following key risks. This is not an exhaustive list,
but rather a list of the most material risks facing the Group. The
impact of these risks individually or collectively could
potentially affect the ability of the Group to operate profitably
and generate positive cash flows in the medium to long term. As a
result, these risks are actively monitored and managed, as detailed
below in no order of priority.
Description and impact Mitigation 2014 actions and outcomes
------------------------------ ---------------------------------- ---------------------------------
Market risks
Rough diamond prices
-----------------------------------------------------------------------------------------------------
Numerous factors beyond Market conditions are The market for rough
the control of the Group continually monitored and polished diamonds
may affect the price to identify current trends firmed over the first
and demand of diamonds. that will pose a threat three quarters in 2014
These factors include or create an opportunity before softening in the
international economic for the Group. The Group final quarter as a result
and political trends, has flexibility in its of recent concerns over
as well as consumer trends. sales processes and the bank lending and liquidity.
The funding of growth ability to reassess its Despite this, diamond
plans could also be adversely capital projects and prices achieved outperformed
affected by constrained operational strategies the mineral reserve prices,
cash flows impacted by in light of current market improving Group revenues.
negative market conditions. conditions to preserve Operational efficiency
cash balances. initiatives and current
Strict treasury management projects in the form
procedures are also in of the new Coarse Recovery
place to monitor cash Plant and Plant 2 Phase
and capital projects 1 upgrade are geared
expenditure. to providing increased
revenue and margin.
The Group has a strong
balance sheet with cash
reserves of US$110* million
plus existing undrawn
facilities of US$42*
million.
* As at 31 December 2014.
------------------------------ ---------------------------------- ---------------------------------
Operational risks
Mineral resource risk
-----------------------------------------------------------------------------------------------------
The Group's mineral resources Various bulk sampling Letšeng resource
influence the operational programmes combined with drilling and bulk sampling
mine plans and affect geological mapping and programmes were successfully
the generation of sufficient modelling methods significantly completed during the
margins. Under-performance improve the Group's understanding year. The results of
of its mineral resources of and confidence in these programmes together
could affect the Group's the mineral resources with other geological
ability to operate profitably and assist in optimising work have resulted in
in the medium to long the mining thereof. a significant increase
term. in the indicated resource
category and probable
reserves. The entire
open pit life of mine
plan is now classified
as reserve.
------------------------------ ---------------------------------- ---------------------------------
Operational risks continued
A major production interruption
-----------------------------------------------------------------------------------------------------
The Group may experience The Group continually Letšeng sources
material mine and/or reviews the likelihood its power through the
plant shutdowns or periods and consequence of possible Lesotho Electricity Corporation,
of decreased production different events and which in turn is sourced
due to a number of different ensures that the appropriate from the South African
events. Any such event management controls, electricity provider,
could negatively affect processes and business Eskom, who have had challenges
the Group's operations continuity plans are in providing consistent
and impact both profitability in place to mitigate power in South Africa
and cash flows. this risk. and neighbouring dependent
states. In light of this,
improvements in power
monitoring and the provision
of backup power supply
were undertaken at Letšeng,
reducing the impact of
lengthy outages.
In addition, a review
of critical spares for
the treatment plants;
improved sidewall control;
and geotechnical monitoring
during the year were
undertaken, which further
mitigate possible production
down time.
Following significant
water ingress at Ghaghoo
in July, improved water
handling and management
systems have been introduced.
------------------------------ ---------------------------------- ---------------------------------
Diamond theft
-----------------------------------------------------------------------------------------------------
Theft is an inherent Security measures are The new Coarse Recovery
risk factor in the diamond constantly reviewed and Plant, which incorporates
industry. implemented in order enhanced security features
to minimise this risk. is well underway and
on target to be completed
by the end of the second
quarter of 2015. Upgrades
to the existing security
systems and facilities
continued at Letšeng
throughout the year.
The Phase 1 capital project
at Ghaghoo was completed
and included appropriate
diamond security systems
and facilities.
------------------------------ ---------------------------------- ---------------------------------
Diamond damage
-----------------------------------------------------------------------------------------------------
Letšeng's valuable Diamond damage is regularly Building on the success
Type II diamonds are monitored and analysed. of the new crushers installed
highly susceptible to Continuous studies are in the prior year, numerous
damage during the mining conducted to further further initiatives continue
and recovery process implement modifications to be implemented with
and the opportunity to and identify opportunities the aim of reducing diamond
reduce such damage creates to reduce such damage. damage, with improved
potential upside for blasting practices having
the Group. had a significant impact.
The Plant 2 Phase 1 upgrade,
which was approved during
the year and on track
to be completed by the
end of the first quarter
of 2015, is further aimed
at reducing the impact
of diamond damage.
------------------------------ ---------------------------------- ---------------------------------
Expansion and project delivery
-----------------------------------------------------------------------------------------------------
The Group's growth strategy Project governance structures Studies on the Letšeng
is based on delivery have been implemented expansion projects continued
of expansion projects, to ensure that the projects to advance during the
premised on various studies, are monitored and risks year. The new Coarse
cost indications and managed at an appropriate Recovery Plant and Plant
future market assumptions. level. 2 Phase 1 upgrade projects
In assessing the viability, Flexibility in the execution were approved and completion
costs and implementation of projects allows the thereof is anticipated
of these projects, risks Group to react quickly on time and within budget
concerning cost overruns to changes in market by the end of the second
and/or delays may affect and operational conditions. quarter of 2015.
the effective implementation The Phase 1 development
and execution thereof. of Ghaghoo was completed
within budget. The initial
ramp up was delayed due
to significant water
ingress, however, improved
water handling and management
systems, which were quickly
introduced, have reduced
the impact of the delay
and as a result, the
mine is on track for
delivery by the end of
the first half of 2015.
------------------------------ ---------------------------------- ---------------------------------
HSSE-related risks
----------------------------------------------------------------------------------------------------
The risk that a major The Group has reviewed While the Group's overall
health, safety, social and published policies safety performance remains
or environmental incident in this regard and significant satisfactory, a fatality
may occur within the resources have been allocated was recorded at the Ghaghoo
Group is inherent in to continuously improve, underground mine.
mining operations. review, recommend, implement Letšeng and Ghaghoo
and monitor compliance maintained their five-star
throughout the various and four-star ratings
operations within the respectively for their
Group. This is overseen external HSSE audits.
by the HSSE Committee Corporate social investment
of the Board. into the Group's project
Further to this, the affected communities
Group engages independent continued throughout
third parties to review the year.
and provide assurance
on processes currently
in place.
The Group actively participates
and invests in corporate
social initiatives and
the involvement of members
of the communities who
sit on the respective
corporate social responsibility
committees is critical
to the success thereof.
------------------------------ -------------------------------- ----------------------------------
Strategic risks
Political risks
----------------------------------------------------------------------------------------------------
The political environments Changes to the political Political unrest was
of the various jurisdictions environment and regulatory experienced during the
that the Group operates developments are closely year in Lesotho; however
within may adversely monitored. Where necessary, no disruptions were experienced
impact the ability to the Group engages in at the Letšeng Mine.
operate effectively and dialogue with relevant The Group took part in
profitably. Emerging government representatives its ongoing dialogues
market economies are in order to remain well with representative stakeholders,
generally subject to informed of all legal gaining insight into
greater risks, including and regulatory developments the progress and status
regulatory and political impacting its operations of the political developments
risk, and are potentially and to build relationships. leading up to the elections
subject to rapid change. in February 2015. The
Group further implemented
specific procedures to
mitigate the impact of
any unrest. There were
no strikes or lockouts
during the year at either
operation.
------------------------------ -------------------------------- ----------------------------------
Retention of key personnel and skills shortages
----------------------------------------------------------------------------------------------------
The successful achievement The Group's human resources An intensified effort
of the Group's objectives practices, which are is being made to invest
and sustainable growth regularly reviewed, are in the development of
depends on its ability designed to identify existing identified key
to attract and retain areas of skills shortages, employees through structured
key suitably qualified and actions such as development training and development
and experienced personnel, programmes are implemented programmes. Extensive
especially in an environment to mitigate such risks. engagements with respective
and industry where skills In addition, these practices government departments
shortages are prevalent are designed to attract, are ongoing as part of
and in jurisdictions incentivise and retain the effort to develop
where localisation policies individuals of the appropriate plans for local upskilling.
exist. calibre through performance A review and amendments
A global review for qualified based bonus schemes and of remuneration policies
and experienced Lesotho long-term reward and and the Employee Share
citizens undertaken during retention schemes. Option Plan (ESOP) were
the year confirmed this implemented during the
skills shortage. year. The amendments
to the ESOP incorporated
a broader base of participants.
------------------------------ -------------------------------- ----------------------------------
Financial risks
Exchange rates
----------------------------------------------------------------------------------------
The Group receives its The impact of the exchange Local currencies in the
revenue in US dollars, rates and fluctuations jurisdictions in which
while its cost base is are closely monitored. the Group operates have
incurred in local currencies It is the Group's policy weakened against the
of the various countries to hedge a portion of US dollar during the
within which the Group future diamond sales year. This has had a
operates. The weakening when weakness in the positive impact on the
of the US dollar relative local currencies indicates Group's results.
to these local currencies it to be appropriate. Numerous hedges were
and the volatility of Such contracts are generally taken out in the latter
these currencies trading short term in nature. part of the year to take
against the US dollar advantage of the weakened
will impact the Group's currencies.
profitability.
----------------------------- ----------------------------- --------------------------
Responsibility statement of the Directors in respect of the
Annual Report and financial statements
The Directors are responsible for preparing the Annual Report
and the Group financial statements in accordance with International
Financial Reporting Standards (IFRS). Having taken advice from the
Audit Committee, the Board considers the report and accounts taken
as a whole, is fair, balanced and understandable and that it
provides the information necessary for shareholders to assess the
Company's performance, business model and strategy.
The strategic report and Directors' report, includes a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
Preparation of the financial statements
The Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and parent company and of their profit or
loss for that period. In preparing the Group financial statements,
the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with IFRS;
-- state whether applicable IFRS have been followed, subject to
any material departures disclosed and explained in the parent
company financial statements; and
-- prepare the financial statements on the going-concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group's
transactions and disclose, with reasonable accuracy at any time,
the financial position of the Group. They are also responsible for
safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that the financial statements, prepared in
accordance with IFRS, give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the
undertakings included in the consolidation taken as a whole. In
addition, suitable accounting policies have been selected and
applied consistently.
Information, including accounting policies, has been presented
in a manner that provides relevant, reliable, comparable and
understandable information and additional disclosures have been
provided when compliance with the specific requirements in IFRS
have been insufficient to enable users to understand the financial
impact of particular transactions, other events and conditions on
the Group's financial position and financial performance. Where
necessary, the Directors have made judgements and estimates that
are reasonable and prudent.
The Directors of the Company have elected to comply with certain
Companies Act and Listing Rules (LR) which would otherwise only
apply to companies incorporated in the UK - namely:
(a) the Directors' statement under LR 9.8.6R(3) (statement by
the Directors that the business is a going concern); and
(b) the requirements of Schedule 8 to The Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 of the
United Kingdom pertaining to Directors' remuneration that UK quoted
companies are required to comply with.
Michael Michael
Chief Financial Officer
16 March 2015
Independent auditor's report to the members of Gem diamonds
Limited
Opinion on financial statements
In our opinion the Group financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 December 2014 and of its profit for the year then ended;
and
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRS).
What we have audited
We have audited the Group financial statements of Gem Diamonds
Limited (the Group) for the year ended 31 December 2014 which
comprise the Consolidated Income Statement, Consolidated Statement
of Comprehensive Income, the Consolidated Statement of Financial
Position, the Consolidated Statement of Changes in Equity, the
Consolidated Statement of Cash Flows and the related notes 1 to 27.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRS.
This report is made solely to the Company's members, as a body,
in accordance with the terms of our engagement letter dated 11
March 2015. Our audit work has been undertaken so that we might
state to the Company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 92, the directors are responsible for the
preparation of the Group financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit and express an opinion on the Group financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards require us
to comply with the Auditing Practices Board's Ethical Standards for
Auditors.
In addition, the Company has also instructed us to report,
whether in our opinion:
-- the Directors' Report and the Strategic Report for the
financial year for which the Group financial statements are
prepared are consistent with the financial statements;
-- the information given in the Corporate Governance Statement
with respect to internal control and risk management systems in
relation to financial reporting processes and about share capital
structures is consistent with the financial statements;
-- the section of the Directors' Remuneration Report that is
described as audited has been properly prepared in accordance with
the basis of preparation described therein;
Report if we are not satisfied that:
-- adequate accounting records have been kept (including returns
from those branches which have not been visited);
-- the accounts are in agreement with the records and returns; or
-- we have obtained all the information and explanations which
we consider necessary for the purpose of the audit; and
Review the Directors' Statement in relation to going concern as
set out on pages 87 and 88, which, for a premium listed UK
incorporated company, is specified for review by the Listing Rules
of the Financial Conduct Authority.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of:
-- whether the accounting policies are appropriate to the
Group's circumstances and have been consistently applied and
adequately disclosed;
-- the reasonableness of significant accounting estimates made by the directors; and
-- the overall presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the Annual Report to identify material
inconsistencies with the audited financial statements and to
identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired
by us in the course of performing the audit. If we become aware of
any apparent material misstatements or inconsistencies, we consider
the implications for our report.
Our assessment of focus areas and response
We identified the following risks that had the greatest effect
on the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. Details of
why we identified these issues as focus areas and our audit
response are set out in the table below.
Area of focus How our audit addressed the area
of focus
Revenue recognition
Refer to the Audit Committee Report on page 63 and the revenue disclosures
in Note 2 to the annual financial statements
Diamonds are sold through three
revenue streams as follows: * We identified and observed controls around the
* rough diamonds sold on tender; revenue process in understanding management's
internal processes and the control environment.
* selected diamonds sold through partnership
arrangements; and * We challenged management's recognition of revenue,
covering all revenue streams of the Group. This
involved agreeing revenue transactions to underlying
* diamonds extracted for purposes of own manufacturing agreements, invoices and supporting calculations.
and sold thereafter in polished form.
* For partnership arrangements, we also assessed and
We focused on this area due to challenged as to when the risks and rewards were
the inherent risk related to the transferred. We verified this to supporting
recognition and measurement of agreements.
revenue, particularly on partnership
arrangements and diamonds extracted
for purposes of own manufacturing. * We confirmed that intercompany sales transactions
For partnership arrangements, revenue properly eliminated and verified the completeness of
is earned on the sale of the rough consolidation entries.
diamond, with an additional uplift
recognised on the polished margin
achieved. Judgement is involved * We performed cut-off testing at year end by selecting
in determining when the risks and transactions close to the period end, and we
rewards of ownership transfer on reconciled inventory movements related to diamonds
rough diamond sales and also on extracted for purposes of own manufacturing in
the uplift element. validating the completeness of revenue.
For diamonds extracted for purposes
of own manufacturing, no revenue
is recognised until the diamonds
are sold to third parties; however,
there are a number of intercompany
transactions that must be eliminated
in the consolidated financial statements,
and there is risk related to the
completeness of sales recognised
through the extraction process
in light of the polishing losses
that result from the manufacturing
process.
Impairment of property, plant and equipment and goodwill
Refer to the Audit Committee Report on page 63 and the disclosures
of impairment testing in Note 10 to the annual financial statements
At 31 December 2014, the carrying
value of property, plant and equipment * We assessed management's process of identifying
was US$374.9 million and the carrying impairment indicators and evaluated management's
value of goodwill was US$17.8 million. analysis of whether the Group's market capitalisation
We focused on this area due to compared to the Group's net asset value represented
the significant size of the carrying an indicator of impairment in 2014.
value of asset balances and the
judgements applied by management
in assessing whether indictors * We considered the appropriateness of management's
of impairment exist and in determining conclusions related to whether impairment triggers
key assumptions used in impairment existed by challenging the rationale applied and the
tests. completeness of factors assessed.
Our procedures focused on management's
Letšeng goodwill impairment
test and the judgements involved * We audited the Letšeng goodwill impairment test
in determining the appropriate model, including the reasonableness of forecast cash
cash-generating unit and the significant flows and underlying assumptions through a comparison
assumptions applied in the future of current year actual results and trends.
cash flow forecast, including expected
diamond prices and discount rates.
* We challenged management's price and discount rate
assumptions with the assistance of our valuations
specialists and performed sensitivity testing on
these key assumptions to confirm that no reasonable
change in the estimated headroom would result in
impairment.
* From the evidence we obtained through our audit
procedures, we also assessed the sufficiency of
disclosures surrounding management's goodwill
impairment test in the consolidated financial
statements.
Key judgements relating to the production start date of the Ghaghoo
mine
Refer to the Audit Committee Report on page 63 and Note 1.2.26 to
the annual financial statements
We focused on this area due to
the judgements and estimates applied * We challenged management's analysis and conclusion on
by management in determining whether the development stage of the Ghaghoo mine throughout
the Ghaghoo mine had reached production 2014, including an assessment of the key judgements
or continued to be in the development applied and factors considered. For each key
stage during the year. judgement, we analysed the results achieved to date
Management determined that the and evaluated the reasonableness of the mine's
Ghaghoo mine had not reached operations operations as intended by management.
as intended by management in 2014
and was still in the development
stage based on an assessment of * We also audited costs capitalised to the Ghaghoo
key judgements and activity to mining project in accordance with IAS 16 by agreeing
date, including: amounts to underlying documentation and validating
* the extent of testing of the mine plant and that the capitalisation criteria was met.
equipment;
* the unanticipated high volumes of water from basalt
fissures which were encountered during the latter
part of the year causing a delay in reaching a steady
state of production; and
* the ability to sustain ongoing production of
inventory.
Our application of materiality
The scope of our work is influenced by materiality. We apply the
concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and
in forming our audit opinion.
Materiality US$4.7 million
Performance US$2.3 million
materiality
Reporting US$0.2 million
threshold
We determined planning materiality of the Group to be US$4.7
million (2013: US$2.9 million), which is 5% of pre-tax profit. Our
planning materiality has increased by 62% compared with 2013 given
the higher pre-tax profit recognised by the Group in 2014. This
provided a basis for determining the nature, timing and extent of
risk assessment procedures, identifying and assessing the risk of
material misstatement and determining the nature, timing and extent
of further audit procedures. We assessed our materiality
calculation based on the pre-tax profit of the Group as we
considered that to be the most relevant performance measure to the
stakeholders of the entity given the production stage of the
Group's Letšeng mine.
On the basis of our risk assessment, together with our
assessment of the Group's overall control environment, our
judgement was that overall performance materiality (ie our
tolerance for misstatement in an individual account or balance) for
the Group should be 50% of planning materiality, namely US$2.3
million (2013: US$1.5 million). Our objective in adopting this
approach was to ensure that total detected and audit differences in
all accounts did not exceed our planning materiality level.
Audit work at individual reporting components, covering entities
in Belgium, Botswana, Lesotho, Mauritius, South Africa, and the
United Kingdom, is undertaken based on a percentage of our total
performance materiality. The performance materiality set for each
reporting component is based on the relative size of the component
and our view of the risk of misstatement at that reporting
component. In the current year, the range of performance
materiality allocated to reporting components was US$420 000 to
US$1.6 million.
We agreed with the Audit Committee that we would report to the
Committee all audit differences that remain uncorrected and that
exceed US$233 000 (2013: US$150 000), as well as differences below
that threshold that, in our opinion, warranted reporting on
qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations.
An overview of the scope of our audit
Following our assessment of the risk of material misstatement to
the Group financial statements, we selected seven reporting
components which represent the principal business units within the
Group and account for 100% of the Group's Revenue, 99% of the
Group's pre-tax profit and 98% of the Group's total assets. Two of
these components were subject to a full scope audit, while the
remaining five were subject to a specific or limited scope audit
where the extent of audit work was based on our assessment of the
risks of material misstatement and of the materiality of the
Group's business operations in that reporting component, and
therefore, we do not test all accounts at specific scope entities.
They were also selected to provide an appropriate basis for
undertaking audit work to address the risks of material
misstatement identified above. For the remaining components, we
performed other procedures to confirm that there were no
significant risks of material misstatement in the Group financial
statements.
The audit work performed in the seven reporting components was
executed at levels of materiality applicable to each individual
entity, which were lower than Group materiality.
The Group audit team follows a programme of planned site visits.
This year, the Group audit partner visited all full and specific
scope locations, including visits to the Letšeng and Ghaghoo mines.
The Group team reviewed key working papers audited by reporting
component teams, participated in reporting component teams'
planning procedures, including discussions on fraud and error, and
attended the audit closing meetings for all reporting
components.
Opinion on other matters prescribed by the terms of our
engagement letter
In our opinion:
-- the information given in the Directors' Report and Strategic
Report for the financial year for which the Group financial
statements are prepared is consistent with the financial
statements;
-- the information given in the Corporate Governance Statement
set out on page 58 with respect to internal control and risk
management systems in relation to financial reporting processes and
about share capital structures is consistent with the financial
statements; and
-- the part of the Remuneration Report of the Company that has
been described as audited has been properly prepared in accordance
with the basis of preparation as described therein.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to
you if, in our opinion, information in the Annual Report is:
-- materially inconsistent with the information in the audited financial statements; or
-- apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in the
course of performing our audit; or
-- is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider
the annual report is fair, balanced and understandable and whether
the Annual Report appropriately discloses those matters that we
communicated to the Audit Committee which we consider should have
been disclosed.
Under the Listing Rules, we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the UK Corporate Governance
Code, specified in our review.
Under the terms of our engagement letter, we are required to
report to you if, in our opinion:
-- adequate accounting records have not been kept (including
returns from those branches which have not been visited); or
-- the accounts are not in agreement with the records and returns; or
-- we have not obtained all the information and explanations
which we consider necessary for the purpose of the audit; or
-- where the Company has voluntarily complied with items
specified for review by the Listing Rules of the Financial Conduct
Authority for premium listed UK incorporated companies or the UK
Companies Act 2006 and instructed us to review such items
namely:
-- the Directors' Statement, set out on pages 87 and 88, in relation to going concern;
-- the requirements of Schedule 8 to the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations 2008 of the
United Kingdom pertaining to Directors' remuneration that UK quoted
companies are required to comply with.
Ernst & Young LLP
London
16 March 2015
Consolidated income statement
for the year ended 31 December 2014
2014 2013
US$'000 US$'000
Notes Total Total
--------------------------------- ----- --------- ---------
Revenue 2 270 890 212 828
Cost of sales (144 495) (120 136)
--------------------------------- ----- --------- ---------
Gross profit 126 395 92 692
Other operating income 134 746
Royalties and selling costs (24 692) (18 485)
Corporate expenses (12 628) (14 124)
Share-based payments 24 (1 740) (932)
Foreign exchange gain 3 5 242 606
Reversal of impairment of assets 3 - 155
--------------------------------- ----- --------- ---------
Operating profit 3 92 711 60 658
--------- ---------
Net finance income/(cost) 4 219 (1 639)
Finance income 3 430 1 218
--------- ---------
Finance costs (3 211) (2 857)
Profit before tax for the year 92 930 59 019
Income tax expense 5 (34 983) (20 855)
--------------------------------- ----- --------- ---------
Profit for the year 57 947 38 164
Attributable to:
Equity holders of parent 33 217 21 170
Non-controlling interests 24 730 16 994
--------------------------------- ----- --------- ---------
Earnings per share (cents) 6
Basic earnings per share 24.0 15.3
Diluted earnings per share 23.9 15.2
--------------------------------- ----- --------- ---------
Consolidated statement of comprehensive income
for the year ended 31 December 2014
2014 2013
US$'000 US$'000
------------------------------------------------------ -------- --------
Profit for the year 57 947 38 164
Other comprehensive income that could be reclassified
to the income statement in
subsequent periods
Exchange differences on translation of foreign
operations (37 307) (64 612)
------------------------------------------------------- -------- --------
Other comprehensive expense for the year, net
of tax (37 307) (64 612)
------------------------------------------------------- -------- --------
Total comprehensive income/(expense) for the year 20 640 (26 448)
Attributable to:
Equity holders of the parent 2 908 (32 272)
Non-controlling interests 17 732 5 824
------------------------------------------------------- -------- --------
Total comprehensive income/(expense) for the year,
net of tax 20 640 (26 448)
------------------------------------------------------- -------- --------
Consolidated statement of financial position
as at 31 December 2014
Notes 2014 2013
US$'000 US$'000
---------------------------------------------------- ----- --------- ---------
Assets
Non-current assets
Property, plant and equipment 7 374 927 373 625
Investment property 8 615 615
Intangible assets 9 18 181 20 202
Receivables and other assets 11 2 877 -
Other financial assets 10 28
---------------------------------------------------- ----- --------- ---------
396 610 394 470
---------------------------------------------------- ----- --------- ---------
Current assets
Inventories 12 28 770 29 326
Receivables and other assets 11 7 598 6 749
Other financial assets 4 13
Income tax receivable 353 -
Cash and short-term deposits 13 110 738 71 178
---------------------------------------------------- ----- --------- ---------
147 463 107 266
---------------------------------------------------- ----- --------- ---------
Total assets 544 073 501 736
Equity and liabilities
Equity attributable to equity holders of the parent
Issued capital 14 1 383 1 383
Share premium 885 648 885 648
Treasury shares(1) (1) (1)
Other reserves 14 (97 753) (69 408)
Accumulated losses (484 874) (518 091)
---------------------------------------------------- ----- --------- ---------
304 403 299 531
---------------------------------------------------- ----- --------- ---------
Non-controlling interests 61 014 70 879
---------------------------------------------------- ----- --------- ---------
Total equity 365 417 370 410
---------------------------------------------------- ----- --------- ---------
Non-current liabilities
Interest-bearing loans and borrowings 15 7 261 -
Trade and other payables 16 1 274 1 109
Provisions 17 19 543 23 186
Deferred tax liabilities 19 57 467 64 824
---------------------------------------------------- ----- --------- ---------
85 545 89 119
---------------------------------------------------- ----- --------- ---------
Current liabilities
Interest-bearing loans and borrowings 15 29 841 -
Other financial liabilities 18 249 -
Trade and other payables 16 43 711 37 086
Income tax payable 19 310 5 121
---------------------------------------------------- ----- --------- ---------
93 111 42 207
---------------------------------------------------- ----- --------- ---------
Total liabilities 178 656 131 326
---------------------------------------------------- ----- --------- ---------
Total equity and liabilities 544 073 501 736
---------------------------------------------------- ----- --------- ---------
(1) Shares held by Gem Diamonds Limited Employee Share Trust.
Approved by the Board of Directors on 16 March 2015 and signed on
their behalf by:
CT Elphick M Michael
Director Director
Consolidated statement of changes in equity
for the year ended 31 December 2014
Attributable to the
equity
holders of the parent
Accumulated
(losses)/ Non-
Issued Share Own Other retained controlling Total
capital(2) premium(2) shares(1) reserves(2) earnings Total interests equity
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Balance at 1
January
2014 1 383 885 648 (1) (69 408) (518 091) 299 531 70 879 370 410
----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Profit for the
year - - - - 33 217 33 217 24 730 57 947
Other
comprehensive (30
expense - - - (30 309) - 309) (6 998) (37 307)
----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Total
comprehensive
income/(expense) - - - (30 309) 33 217 2 908 17 732 20 640
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Share-based
payments
(Note 24) - - - 1 964 - 1 964 - 1 964
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Dividends paid - - - - - - (27 597) (27 597)
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Balance at 31
December
2014 1 383 885 648 (1) (97 753) (484 874) 304 403 61 014 365 417
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Balance at 1
January
2013 1 383 885 648 (1) (17 130) (539 261) 330 639 70 993 401 632
----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Profit for the
year - - - - 21 170 21 170 16 994 38 164
Other
comprehensive
expense - - - (53 442) - (53 442) (11 170) (64 612)
----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Total
comprehensive
income/(expense) 1 383 885 648 (1) (53 442) 21 170 (32 272) 5 824 (26 448)
Share-based
payments
(Note 24) - - - 1 164 - 1 164 - 1 164
Dividends paid - - - - - - (5 938) (5 938)
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
Balance at 31
December
2013 1 383 885 648 (1) (69 408) (518 091) 299 531 70 879 370 410
----------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------
(1) Being shares held by Gem Diamonds Limited Employee Share Trust.
(2) Refer to Note 14, Issued capital and reserves, for further detail.
Consolidated statement of cash flows
for the year ended 31 December 2014
2014 2013
Notes US$'000 US$'000
Cash flows from operating activities 133 736 87 614
========= ========
Cash generated by operations 20.1 153 577 114 462
Working capital adjustments 20.2 59 (17 491)
========= ========
153 636 96 971
Interest received 2 575 1 218
Interest paid (521) (517)
Income tax paid (21 954) (10 058)
------------------------------------------------------- ----- --------- --------
Cash flows used in investing activities (101 301) (73 730)
========= ========
Purchase of property, plant and equipment (47 364) (29 651)
Waste cost capitalised (53 996) (59 278)
Proceeds from sale of property, plant and equipment 59 1 191
Purchase of other financial assets - (22)
Cash received from disposal of subsidiary(1) - 14 030
========= ========
Cash flows generated by/(used in) financing activities 10 309 (8 529)
========= ========
Financial liabilities raised/(repaid) 37 906 (2 591)
Dividends paid to non-controlling interests 22 (27 597) (5 938)
========= ========
Net increase in cash and cash equivalents 42 744 5 355
Cash and cash equivalents at beginning of year 71 178 70 842
Foreign exchange differences (3 184) (5 019)
======================================================= ===== ========= ========
Cash and cash equivalents at end of year held with
banks 110 574 70 998
Restricted cash at end of year 13 164 180
========= ========
Cash and cash equivalents at end of year 13 110 738 71 178
======================================================= ===== ========= ========
(1) This relates to the receipt of proceeds in 2013 as a result of
the disposal of the operations in Australia in 2012.
Notes to the annual financial statements
for the year ended 31 December 2014
1. Notes to the financial statements
1.1 Corporate information
1.1.1 Incorporation
The holding company, Gem Diamonds Limited (the Company), was
incorporated on 29 July 2005 in the British Virgin Islands
(BVI). The Company's registration number is 669758.
These financial statements were authorised for issue by the
Board on 16 March 2015.
The Group is principally engaged in the exploration and development
of diamond mines.
1.1.2 Operational information
The Company has the following investments directly in subsidiaries
at 31 December 2014:
Country
Share- Cost of of
Name of company holding investment(1) incorporation Nature of business
======================= ======== ============== =============== ==============================
Subsidiaries
Gem Diamond Technical 100% US$17 RSA Technical, financial
Services (Proprietary) and management consulting
Limited(2) services.
======================= ======== ============== =============== ==============================
Gem Equity Group 100% US$52 277 BVI Dormant investment company
Limited(2) holding 1% in Gem Diamonds
Botswana (Proprietary)
Limited, 2% in Gem Diamonds
Marketing Services BVBA,
1% in Baobab Technologies
BVBA and 0.1% in Calibrated
Gem Botswana (Proprietary)
Limited.
======================= ======== ============== =============== ==============================
Letšeng Diamonds 70% US$126 000 Lesotho Diamond mining and holder
(Proprietary) 303 of mining rights.
Limited(2)
======================= ======== ============== =============== ==============================
Gem Diamonds Botswana 100% US$27 752 Botswana Diamond mining; evaluation
(Proprietary) 144 and development; and
Limited(2) holder of mining licences
and concessions.
======================= ======== ============== =============== ==============================
BDI Mining Corp(2) 100% US$82 064 BVI Dormant investment company.
783
======================= ======== ============== =============== ==============================
Gem Diamonds Australia 100% US$293 960 Australia Dormant investment company.
Holdings(2) 521
======================= ======== ============== =============== ==============================
Gem Diamonds 100% US$17 531 UK Investment holding company
Investments Limited(2) 316 holding 100% in each
of Gem Diamonds Technology
(Mauritius) Limited,
Gem Diamonds Technology
DMCC and Calibrated
Diamonds Investment
Holdings (Proprietary)
Limited; 99.9% in Calibrated
Gem Botswana (Proprietary)
Limited; 99% in Baobab
Technologies BVBA and
98% in Gem Diamonds
Marketing Services BVBA,
a marketing company
that sells the Group's
diamonds on tender in
Antwerp.
======================= ======== ============== =============== ==============================
(1) The cost of investment represents original cost of investments
at acquisition dates.
(2) No change in the shareholding since the prior year.
1.1.3 Segment information
For management purposes, the Group is organised into geographical
units as its risks and required rates of return are affected
predominantly by differences in the geographical regions
of the mines and areas in which the Group operates. Other
regions where no direct mining activities take place are
organised into geographical regions in the areas where the
operations are managed. The main geographical regions and
the type of products and services from which each reporting
segment derives its revenue from are:
Lesotho (diamond mining activities).
Botswana (diamond mining activities).
Belgium (sales, marketing and manufacturing of diamonds).
Mauritius (manufacturing of diamonds).
BVI, RSA and UK (technical and administrative services).
The Mauritius and Belgium operations have been aggregated
into one operating segment, as management monitors these
two operations as one, due to the similarity of their services
provided.
Management monitors the operating results of the geographical
units separately (except for Belgium and Mauritius) for the
purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated
based on operating profit or loss.
Inter-segment transactions are entered into under normal
arm's-length terms in a manner similar to transactions with
third parties. Segment revenue, segment expenses and segment
results include transactions between segments. Those transactions
are eliminated on consolidation.
Segment revenue is derived from mining activities, polished
manufacturing margins and Group services.
The following table presents revenue and profit, asset and
liability information from operations regarding the Group's
geographical segments:
Belgium
and BVI, RSA
Year ended 31 December Lesotho Botswana Mauritius and UK Total
2014 US$'000 US$'000 US$'000 US$'000 US$'000
================================ ========= ======== ========== ======== =========
Revenue
Total revenue 277 908 - 272 221 8 877 559 006
Inter-segment (276 429) - (3 141) (8 546) (288 116)
================================ ========= ======== ========== ======== =========
External customers 1 479 - 269 080 331(1) 270 890
Results
Depreciation and amortisation 62 800 - 1 063 607 64 470
========= ======== ========== ======== =========
Depreciation and mining
asset amortisation 13 488 - 1 063 607 15 158
Waste stripping cost
amortised 49 312 - - - 49 312
========= ======== ========== ======== =========
Share-based equity
transactions 488 - - 1 252 1 740
================================ ========= ======== ========== ======== =========
Segment operating profit/(loss) 107 527 (75) (1 977) (12 764) 92 711
Net finance income 219
================================ ========= ======== ========== ======== =========
Profit before tax 92 930
Income tax expense (34 983)
================================ ========= ======== ========== ======== =========
Profit for the year 57 947
================================ ========= ======== ========== ======== =========
Segment assets 321 464 139 987 7 430 75 192 544 073
================================ ========= ======== ========== ======== =========
Segment liabilities 68 212 9 304 968 42 705 121 189
================================ ========= ======== ========== ======== =========
Other segment information
Capital expenditure
- Property, plant and
equipment* 7 720 42 086 92 40 49 938
- Waste cost capitalised 51 484 - - - 51 484
================================ ========= ======== ========== ======== =========
Total capital expenditure 59 204 42 806 92 40 101 422
================================ ========= ======== ========== ======== =========
(1) No revenue was generated in BVI.
* Capital expenditure includes non-cash movements in rehabilitation
assets relating to changes in rehabilitation estimates for
the Lesotho and Botswana segments and capitalisation of share-based
payments for the Botswana segment.
Segment liabilities do not include deferred tax liabilities
of US$57.5 million.
Belgium
and BVI, RSA
Year ended 31 December Lesotho Botswana Mauritius and UK Total
2013 US$'000 US$'000 US$'000 US$'000 US$'000
==================================== ========= ======== ========== ========== =========
Revenue
Total revenue 201 310 - 212 897 9 001 423 208
Inter-segment (199 556) - (2 390) (8 434) (210 380)
------------------------------------ --------- -------- ---------- ---------- ---------
External customers 1 754 - 210 507 567(1) 212 828
Results
Depreciation and amortisation 51 067 - 869 415 52 351
========= ======== ========== ========== =========
Depreciation and mining
asset amortisation 16 301 - 869 415 17 585
Waste stripping cost
amortisation 34 766 - - - 34 766
========= ======== ========== ========== =========
Share-based equity
transactions 385 - - 547 932
(Reversal of impairment)/impairment
of assets 58 - - (213) (155)
==================================== ========= ======== ========== ========== =========
Segment operating profit/(loss) 76 605 24 (2 396) (13 575) 60 658
Net finance cost (1 639)
==================================== ========= ======== ========== ========== =========
Profit before tax 59 019
Income tax expense (20 855)
==================================== ========= ======== ========== ========== =========
Profit for the year 38 164
==================================== ========= ======== ========== ========== =========
Segment assets 343 322 107 004 8 740 42 670 501 736
==================================== ========= ======== ========== ========== =========
Segment liabilities 42 922 5 632 13 694 4 254 66 502
==================================== ========= ======== ========== ========== =========
Other segment information
Capital expenditure
- Property, plant and
equipment* 7 915 20 712 566 41 29 234
- Waste cost capitalised 59 278 - - - 59 278
===================================== ========= ========= ==== ========
Total capital expenditure 67 193 20 712 566 41 88 512
===================================== ========= ========= ==== ========
(1) No revenue was generated in BVI.
* Capital expenditure includes non-cash movements in rehabilitation
assets relating to changes in rehabilitation estimates for
the Lesotho and Botswana segments and capitalisation of share-based
payments for the Botswana segment.
Included in the prior year annual revenue is revenue from
a single customer which amounted to US$22.6 million arising
from sales reported in the Lesotho and Belgium segments.
Segment liabilities do not include deferred tax liabilities
of US$64.8 million.
1.2.1 Basis of presentation
The financial statements of the Group have been prepared
in accordance with International Financial Reporting Standards
(IFRS). These financial statements have been prepared under
the historical cost basis. The accounting policies have been
consistently applied except for the adoption of the new standards
and interpretations detailed below.
The functional currency of the Company and certain of its
subsidiaries is US dollar, which is the currency of the primary
economic environment in which the entities operate. All amounts
are expressed in US dollar. The financial statements of subsidiaries
whose functional and reporting currency is in currencies
other than US dollar have been converted into US dollar on
the basis as set out in Note 1.2.16, Foreign currency translations.
The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in
the process of applying the Group's accounting policies.
The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant
to the financial statements are disclosed in Note 1.2.26,
Critical accounting estimates and judgements.
The Group has also adopted the following standards and interpretations
from 1 January 2014:
Investment Entities - Amendments to IFRS 10, IFRS 12 and
IAS 27
These amendments provide an exception to the consolidation
requirement for entities that meet the definition of an investment
entity under IFRS 10 Consolidated Financial Statements and
must be applied retrospectively, subject to certain transition
relief. The exception to consolidation requires investment
entities to account for subsidiaries at fair value through
profit or loss. These amendments have no impact on the Group
as none of the entities in the Group qualify to be an investment
entity under IFRS 10.
IAS 32 Offsetting Financial Assets and Financial Liabilities
- Amendments to IAS 32
These amendments clarify the meaning of 'currently has a
legally enforceable right to set-off' and the criteria for
non-simultaneous settlement mechanisms of clearing houses
to qualify for offsetting and is applied retrospectively.
These amendments have no impact on the Group.
IFRIC 21 Levies
IFRIC 21 clarifies that an entity recognises a liability
for a levy when the activity that triggers payment, as identified
by the relevant legislation, occurs. For a levy that is triggered
upon reaching a minimum threshold, the interpretation clarifies
that no liability should be anticipated before the specified
minimum threshold is reached. As the Group applies the requirements
of this standard in recognising liabilities for levies, such
as royalty payments to governments, the application of this
new standard did not have an impact on the financial results
of the Group.
IAS 36 Recoverable Amount Disclosures for Non-Financial Assets
- Amendments to IAS 36
The amendment clarifies the disclosures required in relation
to the recoverable amount of impaired assets if that amount
is based on fair value less costs of disposal. The amendments
remove the requirement to disclose the recoverable amount
for each cash-generating unit for which the carrying amount
of goodwill or intangible assets with indefinite useful lives
allocated to that unit is significant. The Group adopted
this amendment and removed the disclosure of recoverable
amounts previously disclosed.
IAS 39 Novation of Derivatives and Continuation of Hedge
Accounting - Amendments to IAS 39
These amendments provide relief from discontinuing hedge
accounting when novation of a derivative designated as a
hedging instrument meets certain criteria and retrospective
application is required. These amendments have no impact
on the Group as the Group does not enter into any hedges.
Standards issued but not effective
The standards and interpretations that are issued, but
not yet effective, up to the date of issuance of the Group's
financial statements are disclosed below. The Group intends
to adopt these standards if applicable when they become
effective.
Standard
or interpretation Effective date*
IFRS 9 Financial Classification and measurement IFRS 9 -
Instruments of financial assets and 1 January 2018
financial liabilities as
defined in IAS 39. The
Group is still currently
assessing the impact.
IFRS 15 Revenue from The new revenue standard 1 January 2017
Contracts introduces a single, principles-based,
with Customer five-step model for the
recognition of revenue
when control of a good
or service is transferred
to the customer. The Group
is still currently assessing
the impact.
IFRS 14 Regulatory IFRS 14 is an optional 1 January 2016
Deferral Accounts standard that allows an
entity, whose activities
are subject to rate regulation,
to continue applying most
of its existing accounting
policies for regulatory
deferral account balances
upon its first-time adoption
of IFRS. The Group's activities
are currently not subject
to rate regulation and
therefore this standard
does not apply to the Group.
Should the Group's activities
change in this regard,
the Group will assess the
impact at that time.
IAS 16 Clarification The amendments clarify 1 January 2016
/IAS 38 of Acceptable the principle in IAS 16
Methods of Property, Plant and Equipment
Depreciation and IAS 38 Intangible Assets
and Amortisation that revenue reflects a
pattern of economic benefits
that are generated from
operating a business rather
than the economic benefits
that are consumed through
use of an asset. As such,
the ratio of revenue generated
to total revenue expected
to be generated cannot
be used to depreciate property,
plant and equipment and
may only be used in very
limited circumstances to
amortise intangible assets.
As this revenue ratio is
not currently used as a
method of depreciation,
it is anticipated that
this standard will not
impact the Group. Should
the Group's policies change
in this regard, the Group
will assess the impact
at that time.
* Annual periods beginning on or after.
Business environment and country risk
The Group's operations are subject to country risk being
the economic, political and social risks inherent in doing
business in certain areas of Africa and Europe. These
risks include matters arising out of the policies of the
government, economic conditions, imposition of or changes
to taxes and regulations, foreign exchange rate fluctuations
and the enforceability of contract rights.
The consolidated financial information reflects management's
assessment of the impact of these business environments
on the operations and the financial position of the Group.
The future business environment may differ from management's
assessment.
1.2.2 Going concern
The Company's business activities, together with the factors
likely to affect its future development, performance and
position are set out in the Strategic Review on pages
24 to 34. The financial position of the Company, its cash
flows and liquidity position are described in the Strategic
Review on pages 20 to 23. In addition, Note 23, Financial
risk management, includes the Company's objectives, policies
and processes for managing its capital; its financial
risk management objectives; details of its financial instruments
and its exposures to credit risk and liquidity risk.
After making enquiries which include reviews of forecasts
and budgets, timing of cash flows, borrowing facilities
and sensitivity analyses and considering the uncertainties
described in this report either directly or by cross-reference,
the Directors have a reasonable expectation that the Group
and the Company have adequate financial resources to continue
in operational existence for the foreseeable future. For
this reason, they continue to adopt the going-concern
basis in preparing the Annual Report and accounts of the
Company.
These financial statements have been prepared on a going-concern
basis which assumes that the Group will be able to meet
its liabilities as they fall due for the foreseeable future.
Refer to Note 23, Financial risk management for statements
on the Company's objectives, policies and processes for
managing its capital; details of its financial instruments
and hedging activities; its exposures to market risk in
relation to commodity price and foreign exchange risks;
cash flow interest rate risk; credit risk and liquidity
risk.
1.2.3 Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and entities controlled
by the Company.
Subsidiaries
Subsidiaries are consolidated from the date of their acquisition,
being the date on which the Group obtains control, and
continue to be consolidated until the date that such control
ceases. An investor controls an investee when it is exposed,
or has rights, to variable returns from its involvement
with the investee and has the ability to affect those
returns through its power over the investee. To meet the
definition of control in IFRS 10, all three criteria must
be met, being:
(a) an investor has power over an investee;
(b) the investor has exposure, or rights, to variable
returns from its involvement with the investee; and
(c) the investor has the ability to use its power over
the investee to affect the amount of the investor's returns.
The financial statements of subsidiaries used in the preparation
of the consolidated financial statements are prepared
for the same reporting year as the parent company and
are based on consistent accounting policies. All intra-group
balances and transactions, including unrealised profits
arising from them, are eliminated in full.
A change in the ownership interest of a subsidiary, without
loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it (i) derecognises
the assets (including goodwill) and liabilities of the
subsidiary; (ii) derecognises the carrying amount of any
non-controlling interest; (iii) derecognises the cumulative
translation differences, recorded in equity; (iv) recognises
the fair value of the consideration received; (v) recognises
the fair value of any investment retained; (vi) recognises
any surplus or deficit in profit or loss; and (vii) reclassifies
the parent's share of components previously recognised
in other comprehensive income to profit or loss or retained
earnings, as appropriate.
1.2.4 Exploration and evaluation expenditure
Non-controlling interests
Non-controlling interests represent the equity in a subsidiary
not attributable, directly and indirectly, to the parent
company and is presented separately within equity in the
consolidated statement of financial position, separately
from equity attributable to owners of the parent. Losses
within a subsidiary are attributed to the non-controlling
interest even if that results in a deficit balance.
Exploration and evaluation activity involves the search
for mineral resources, the determination of technical
feasibility and the assessment of commercial viability
of an identified resource. Exploration and evaluation
activity includes:
* acquisition of rights to explore;
* researching and analysing historical exploration
data;
* gathering exploration data through topographical,
geochemical and geophysical studies;
* exploratory drilling, trenching and sampling;
* determining and examining the volume and grade of the
resource;
* surveying transportation and infrastructure
requirements; and
* conducting market and finance studies.
Administration costs that are not directly attributable
to a specific exploration area are charged to the income
statement. Licence costs paid in connection with a right
to explore in an existing exploration area are capitalised
and amortised over the term of the permit.
Exploration and evaluation expenditure is capitalised
as incurred. Capitalised exploration expenditure is recorded
as a component of property, plant and equipment at cost
less accumulated impairment charges. As the asset is not
available for use, it is not depreciated.
All capitalised exploration and evaluation expenditure
is monitored for indications of impairment. Where a potential
impairment is indicated, assessments are performed for
each area of interest in conjunction with the group of
operating assets (representing a cash-generating unit
(CGU)) to which the exploration is attributed. To the
extent that exploration expenditure is not expected to
be recovered, it is charged to the income statement. Exploration
areas where reserves have been discovered, but require
major capital expenditure before production can begin,
are continually evaluated to ensure that commercial quantities
of reserves exist or to ensure that additional exploration
work is under way as planned.
1.2.5 Development expenditure
When proved reserves are determined and development is
sanctioned, capitalised exploration and evaluation expenditure
is reclassified within property, plant and equipment to
development expenditure. As the asset is not available
for use, during the development phase, it is not depreciated.
On completion of the development, any capitalised exploration
and evaluation expenditure already capitalised to development
expenditure, together with the subsequent development
expenditure, is reclassified within property, plant and
equipment to mining assets and depreciated on the basis
as laid out in Note 1.2.6, Property, plant and equipment.
All development expenditure is monitored for indicators
of impairment annually.
1.2.6 Property, plant and equipment
Property, plant and equipment is recorded at cost less
accumulated depreciation and accumulated impairment losses.
Cost includes expenditure that is directly attributable
to the acquisition and construction of the items, among
others, professional fees, and for qualifying assets,
borrowing costs capitalised in accordance with the Group's
accounting policy.
Subsequent costs to replace a component of an item of
property, plant and equipment that is accounted for separately,
is capitalised when the cost of the item can be measured
reliably, with the carrying amount of the original component
being written off. All repairs and maintenance are charged
to the income statement during the financial period in
which they are incurred.
Depreciation commences when an asset is available for use.
Depreciation is charged so as to write off the depreciable
amount of the asset to its residual value over its estimated
useful life, using a method that reflects the pattern in
which the asset's future economic benefits are expected to
be consumed by the Group.
Item Method Useful life
====================== ============== ===========================
Lesser of life of mine and
Mining assets Straight line period of lease
Lesser of life of mine and
Decommissioning assets Straight line period of lease
Lesser of three years and
Leasehold improvements Straight line period of lease
Plant and equipment Straight line Three to 10 years
Lesser of period of lease
Finance lease assets Straight line or five years
Other assets Straight line Two to five years
====================== ============== ===========================
Pre-production stripping costs
The capitalisation of pre-production stripping costs as part
of exploration and development assets ceases when the mine
is commissioned and ready for production. Subsequent stripping
activities that are undertaken during the production phase
of a surface mine may create two benefits, being either the
production of inventory or improved access to the ore to
be mined in the future. Where the benefits are realised in
the form of inventory produced in the period, the production
stripping costs are accounted for as part of the cost of
producing those inventories. Where production stripping costs
are incurred and where the benefit is the creation of mining
flexibility and improved access to ore to be mined in the
future, the costs are recognised as a non-current asset,
referred to as a 'stripping activity asset', if:
(a) future economic benefits (being improved access to the
orebody) are probable;
(b) the component of the orebody for which access will be
improved can be accurately identified; and
(c) the costs associated with the improved access can be
reliably measured.
The stripping activity asset is separately disclosed in Note
7, Property, plant and equipment. If all the criteria are
not met, the production stripping costs are charged to the
income statement as operating costs. The stripping activity
asset is initially measured at cost, which is the accumulation
of costs directly incurred to perform the stripping activity
that improves access to the identified component of ore,
plus an allocation of directly attributable overhead costs.
If incidental operations are occurring at the same time as
the production stripping activity, but are not necessary
for the production stripping activity to continue as planned,
these costs are not included in the cost of the stripping
activity asset. If the costs of the stripping activity asset
and the inventory produced are not separately identifiable,
a relevant production measure is used to allocate the production
stripping costs between the inventory produced and the stripping
activity asset. The stripping activity asset is subsequently
amortised over the expected useful life of the identified
component of the orebody that became more accessible as a
result of the stripping activity. Based on proven and probable
reserves, the expected average stripping ratio over the average
life of the area being mined is used to amortise the stripping
activity. As a result, the stripping activity asset is carried
at cost less amortisation and any impairment losses.
The average life of area cost per tonne is calculated as
the total expected costs to be incurred to mine the orebody
divided by the number of tonnes expected to be mined. The
average life of area stripping ratio and the average life
of area cost per tonne are recalculated annually in light
of additional knowledge and changes in estimates. Changes
in the stripping ratio are accounted for prospectively as
a change in estimate.
An asset's carrying amount is written down immediately to
its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with the carrying amount of the asset. These are
included in the income statement.
1.2.7 Investment property
Investment property is initially recognised using the cost
model. Subsequent recognition is at cost less accumulated
depreciation and less any accumulated impairment losses.
Rental income from investment property is recognised on a
straight-line basis over the term of the lease. Initial direct
costs incurred in negotiating and arranging the lease are
capitalised to investment property and depreciated over the
lease term. Depreciation is calculated on a straight-line
basis as follows:
Investment property No depreciation is provided due to depreciable
amount being zero
Initial direct costs capitalised
to investment property Five years
1.2.8 Business combinations, goodwill and other intangible assets
Business combinations and goodwill
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate
of the consideration transferred, measured at acquisition
date fair value and the amount of any non-controlling interest
in the acquiree. The choice of measurement of non-controlling
interest, either at fair value or at the proportionate share
of the acquiree's identifiable net assets, is determined
on a transaction-by-transaction basis. Acquisition costs
incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification
and designation in accordance with the contractual terms,
economic circumstances and pertinent conditions as at the
acquisition date. This includes the separation of embedded
derivatives in host contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Subsequent changes to the fair value of the contingent consideration
which is deemed to be an asset or liability will be recognised
in accordance with IFRS 13 in the income statement. If the
contingent consideration is classified as equity, it should
not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of
the aggregate of the acquisition date fair value of the consideration
transferred and the amount recognised for the non-controlling
interest (and where the business combination is achieved
in stages, the acquisition date fair value of the acquirer's
previously held equity interest in the acquiree) over the
net identifiable amounts of the assets acquired and the liabilities
assumed in exchange for the business combination. Assets
acquired and liabilities assumed in transactions separate
to the business combinations, such as the settlement of pre-existing
relationships or post-acquisition remuneration arrangements
are accounted for separately from the business combination
in accordance with their nature and applicable IFRS. Identifiable
intangible assets, meeting either the contractual legal or
separability criterion are recognised separately from goodwill.
Contingent liabilities representing a present obligation
are recognised if the acquisition date fair value can be
measured reliably.
If the aggregate of the acquisition date fair value of the
consideration transferred and the amount recognised for the
non-controlling interest (and where the business combination
is achieved in stages, the acquisition date fair value of
the acquirer's previously held equity interest in the acquiree)
is lower than the fair value of the assets, liabilities and
contingent liabilities and the fair value of any pre-existing
interest held in the business acquired, the difference is
recognised in profit and loss.
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is,
from the acquisition date, allocated to each of the Group's
cash-generating units (or groups of cash-generating units)
that are expected to benefit from the combination, irrespective
of whether other assets or liabilities of the acquiree are
assigned to those units. Each unit or group of units to which
goodwill is allocated shall represent the lowest level within
the entity at which the goodwill is monitored for internal
management purposes and not be larger than an operating segment
before aggregation.
Where goodwill forms part of a cash-generating unit and part
of the operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in
the carrying amount of the operation when determining the
gain or loss on disposal of the operation. Goodwill disposed
of in this circumstance is measured based on the relative
values of the operation disposed of and the portion of the
cash-generating unit retained.
Concessions and licences
Concessions and licences are shown at cost. Concessions and
licences have a finite useful life and are carried at cost
less accumulated amortisation and accumulated impairment
losses. Amortisation is calculated using the straight-line
method to allocate the cost of concessions and licences over
the shorter of the life of mine or term of the licence once
production commences.
1.2.9 Other financial assets
Management determines the classification of its investments
at initial recognition and re-evaluates this designation
at every reporting date. Currently the Group only has financial
assets at fair value through profit or loss and loans and
receivables.
When financial assets are recognised initially, they are
measured at fair value plus (in the case of investments,
not at fair value through profit or loss) directly attributable
costs.
Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets
held for trading, and those designated at fair value through
profit or loss. Upon initial recognition, a financial asset
is classified in this category if acquired principally
for the purpose of selling in the short term or if so designated
by management. Derivatives are also categorised as held
for trading unless they are designated as hedges. Gains
and losses on investments held for trading are recognised
in profit or loss. Assets in this category are classified
as current assets if they are either held for trading or
are expected to be realised within 12 months of the reporting
date.
Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted
in an active market. They are included in current assets,
except those with maturities greater than 12 months after
the reporting date. These are classified as non-current
assets. Such assets are carried at amortised cost using
the effective interest rate method, less any allowance
for impairment, if the time value of money is significant.
Gains and losses are recognised in the income statement
when the loans and receivables are derecognised or impaired,
as well as through the amortisation process. A provision
for impairment of trade receivables is established when
there is objective evidence that the Group will not be
able to collect all amounts due according to the original
terms of receivables. The amount of the provision is the
difference between the asset's carrying amount and the
present value of estimated future cash flows, discounted
at an appropriate interest rate. The amount of the provision
is recognised in the income statement.
1.2.10 Financial liabilities
Interest-bearing borrowings
Borrowings are recognised initially at fair value, net
of transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between proceeds
(net of transaction costs) and the redemption value is
recognised in the income statement, unless capitalised
in accordance with Note 1.2.24, Finance costs, over the
period of the borrowings, using the effective interest
rate method.
Bank overdrafts are recognised at amortised cost.
Fair value through profit or loss
Financial liabilities at fair value through profit or loss
include financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair
value through profit or loss.
Financial liabilities are classified as held for trading
if they are acquired for the purpose of selling in the
near term. Gains or losses on liabilities held for trading
are recognised in the income statement.
1.2.11 Fair value measurement
The Group measures financial instruments at fair value
at each reporting date.
Fair value is the price that would be received to sell
an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the
liability takes place either:
* in the principal market for the asset or liability;
or
* in the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible
by the Group.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants
act in their economic best interest.
A fair value measurement of a non-financial asset takes
into account a market participant's ability to generate
economic benefits by using the asset in its highest and
best use or by selling it to another market participant
that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate
in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of
relevant observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured
or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows,
based on the lowest level input that is significant to
the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
Level 2 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement
is directly or indirectly observable.
Level 3 - Valuation techniques for which the lowest level
input that is significant to the fair value measurement
is unobservable.
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy
by reassessing categorisation (based on the lowest level
input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
1.2.12 Impairments
Non-financial assets
Assets that are subject to amortisation or depreciation
are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may
not be recoverable. Goodwill is assessed for impairment
on an annual basis. An impairment loss is recognised for
the amount by which the asset's carrying amount exceeds
its recoverable amount. The recoverable amount is the higher
of an asset's fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax
discount rate that reflects current market assessments
of the time value of money and the risks specific to the
asset. For the purpose of assessing impairment, assets
are grouped at the lowest levels for which there are separately
identifiable cash inflows (cash-generating units). Non-financial
assets that were previously impaired are reviewed for possible
reversal of the impairment at each reporting date.
A previously recognised impairment loss is reversed only
if there has been a change in the estimates used to determine
the asset's recoverable amount since the last impairment
loss was recognised. If that is the case, the carrying
amount of the asset is increased to its recoverable amount.
That increased amount cannot exceed the carrying amount
that would have been determined, net of depreciation, had
no impairment loss been recognised for the asset in prior
years. Such a reversal is recognised in the income statement.
After such a reversal the depreciation charge is adjusted
in future periods to allocate the asset's revised carrying
amount, less any residual value, on a systematic basis
over its remaining useful life.
Financial assets
The Group assesses at each reporting date whether a financial
asset or group of financial assets are impaired.
Assets carried at amortised cost
If there is objective evidence that an impairment loss
on assets carried at amortised cost has been incurred,
the amount of the loss is measured as the difference between
the asset's carrying amount and the present value of estimated
future cash flows (excluding future expected credit losses
that have not been incurred) discounted at the financial
asset's original effective interest rate (ie the effective
interest rate computed at initial recognition). The carrying
amount of the asset is reduced through use of an allowance
account. The amount of the loss shall be recognised in
the income statement.
If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised,
the previously recognised impairment loss is reversed,
to the extent that the carrying value of the asset does
not exceed its amortised cost at the reversal date, any
subsequent reversal of an impairment loss is recognised
in the income statement.
In relation to trade receivables, a provision for impairment
is made when there is objective evidence (such as the probability
of insolvency or significant financial difficulties of
the debtor) that the Group will not be able to collect
all of the amounts due under the original terms of the
invoice. The carrying amount of the receivable is reduced
through use of an allowance account. Impaired debts are
derecognised when they are assessed as uncollectible.
1.2.13 Inventories
Inventories, which include rough diamonds, ore stockpiles
and consumables, are measured at the lower of cost and
net realisable value. The amount of any write-down of inventories
to net realisable value and all losses, is recognised in
the period the write-down or loss occurs. Cost is determined
as the average cost of production, using the 'weighted
average method'. Cost includes directly attributable mining
overheads, but excludes borrowing costs.
Net realisable value is the estimated selling price in
the ordinary course of business, less the estimated costs
of completion and the estimated costs to be incurred in
marketing, selling and distribution.
1.2.14 Cash and cash equivalents
Cash and cash equivalents are carried in the statement
of financial position at amortised cost. Cash and cash
equivalents comprise cash on hand, deposits held at call
with banks, other short-term, highly liquid investments
with original maturities of three months or less.
For the purpose of the cash flow statement, cash and cash
equivalents consist of cash and cash equivalents as defined
above, net of outstanding bank overdrafts.
1.2.15 Issued share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of
new shares or options are shown in equity as a deduction
from the proceeds.
1.2.16 Foreign currency translations
Presentation currency
The results and financial position of the Group's subsidiaries
which have a functional currency different from the presentation
currency are translated into the presentation currency
as follows:
* statement of financial position items are translated
at the closing rate at the reporting date;
* income and expenses for each income statement are
translated at average exchange rates (unless this
average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses
are translated at the dates of the transactions); and
* resulting exchange differences are recognised as a
separate component of equity.
Details of the rates applied at the respective reporting
dates and for the income statement transactions are detailed
in Note 14, Issued capital and reserves.
Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates
of the transactions. Foreign exchange gains or losses resulting
from the settlement of such transactions and from the translation
at the period-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised
in the income statement. Non-monetary items that are measured
in terms of cost in a foreign currency are translated using
the exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the
date when the fair value was determined. Monetary items
for each statement of financial position presented are
translated at the closing rate at the reporting date.
1.2.17 Share-based payments
Employees (including Senior Executives) of the Group receive
remuneration in the form of share-based payment transactions,
whereby employees render services as consideration for
equity instruments (equity-settled transactions). In situations
where some or all of the goods or services received by
the entity as consideration for equity instruments cannot
be specifically identified, they are measured as the difference
between the fair value of the share-based payment and the
fair value of any identifiable goods or services received
at the grant date. For cash-settled transactions, the liability
is remeasured at each reporting date until settlement,
with the changes in fair value recognised in the income
statement.
Equity-settled transactions
The cost of equity-settled transactions with employees
is measured by reference to the fair value at the date
at which they are granted and is recognised as an expense
over the vesting period, which ends on the date on which
the relevant employees become fully entitled to the award.
Fair value is determined using an appropriate pricing model.
In valuing equity-settled transactions, no account is taken
of any vesting conditions, other than conditions linked
to the price of the shares of the Company (market conditions).
No expense is recognised for awards that do not ultimately
vest, except for awards, where vesting is conditional upon
a market condition, which are treated as vesting irrespective
of whether or not the market condition is satisfied, provided
that all other performance conditions are satisfied.
At each reporting date before vesting, the cumulative expense
is calculated, representing the extent to which the vesting
period has expired and management's best estimate of the
achievement or otherwise of non-market conditions and of
the number of equity instruments that will ultimately vest
or, in the case of an instrument subject to a market condition,
be treated as vesting as described above. The movement
in cumulative expense since the previous reporting date
is recognised in the income statement, with a corresponding
entry in equity.
Where the terms of an equity-settled award are modified
or a new award is designated as replacing a cancelled or
settled award, the cost based on the original award terms
continues to be recognised over the original vesting period.
In addition, an expense is recognised over the remainder
of the new vesting period for the incremental fair value
of any modification, based on the difference between the
fair value of the original award and the fair value of
the modified award, both as measured on the date of the
modification. No reduction is recognised if this difference
is negative.
Where an equity-settled award is cancelled, it is treated
as if it had vested on the date of cancellation, and any
cost not yet recognised in the income statement for the
award is expensed immediately.
Where an equity-settled award is forfeited, it is treated
as if vesting conditions had not been met and all costs
previously recognised in the income statement for the award
is reversed and recognised in income immediately.
1.2.18 Provisions
Provisions are recognised when:
* the Group has a present legal or constructive
obligation as a result of a past event; and
* a reliable estimate can be made of the obligation.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation, using
a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
obligation. The increase in the provision due to the passage
of time is recognised as finance costs.
1.2.19 Restoration and rehabilitation
The mining, extraction and processing activities of the
Group normally give rise to obligations for site restoration
and rehabilitation. Rehabilitation works can include facility
decommissioning and dismantling, removal and treatment
of waste materials, land rehabilitation, and site restoration.
The extent of the work required and the estimated cost
of final rehabilitation, comprising liabilities for decommissioning
and restoration, are based on current legal requirements,
existing technology and the Group's environmental policies
and is reassessed annually. Cost estimates are not reduced
by the potential proceeds from the sale of property, plant
and equipment.
Provisions for the cost of each restoration and rehabilitation
programme are recognised at the time the environmental
disturbance occurs. When the extent of the disturbance
increases over the life of the operation, the provision
and associated asset is increased accordingly. Costs included
in the provision encompass all restoration and rehabilitation
activity expected to occur. The restoration and rehabilitation
provisions are measured at the expected value of future
cash flows, discounted to their present value. Discount
rates used are specific to the country in which the operation
is located. The value of the provision is progressively
increased over time as the effect of the discounting unwinds,
which is recognised in finance charges. Restoration and
rehabilitation provisions are also adjusted for changes
in estimates.
When provisions for restoration and rehabilitation are
initially recognised, the corresponding cost is capitalised
as an asset where it gives rise to a future benefit and
depreciated over future production from the operation to
which it relates.
1.2.20 Taxation
Income tax for the period comprises current and deferred
tax. Income tax is recognised in the income statement except
to the extent that it relates to items charged or credited
directly to equity, in which case it is recognised in equity.
Current tax expense is the expected tax payable on the
taxable income for the period, using tax rates enacted
or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years.
Deferred tax is provided using the statement of financial
position liability method, providing for temporary differences
between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for
taxation purposes.
Deferred tax assets and liabilities are measured at the
tax rates that are expected to apply to the period when
the asset is realised or the liability is settled based
on the tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that
it is probable that future taxable profits will be available
against which the asset can be utilised. Deferred tax assets
are reduced to the extent that it is no longer probable
that the related tax benefit will be realised.
In respect of taxable temporary differences associated
with investments in subsidiaries, associates and jointly
controlled entities, deferred tax is provided except where
the timing of the reversal of the temporary differences
can be controlled by the Group and it is probable that
the temporary differences will not reverse in the foreseeable
future.
In respect of deductible temporary differences associated
with investments in subsidiaries, associates and jointly
controlled entities, deferred tax assets are only recognised
to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit
will be available against which the temporary differences
can be utilised.
Withholding tax is recognised in the income statement when
dividends or other services which give rise to that withholding
tax are declared or accrued respectively. Withholding tax
is disclosed as part of current tax.
Royalties
Royalties incurred by the Group comprise mineral extraction
costs based on a percentage of sales paid to the local
revenue authorities. These obligations arising from royalty
arrangements are recognised as current payables and disclosed
as part of royalty and selling costs in the income statement.
Royalties and revenue-based taxes are accounted for under
IAS 12 when they have the characteristics of an income
tax. This is considered to be the case when they are imposed
under government authority and the amount payable is based
on taxable income - rather than based on quantity produced
or as a percentage of revenue. For such arrangements, current
and deferred tax is provided on the same basis as described
above for other forms of taxation. The royalties incurred
by the Group are considered not to meet the criteria to
be treated as part of income tax.
1.2.21 Employee benefits
Provision is made in the financial statements for all short-term
employee benefits. Liabilities for wages and salaries,
including non-monetary benefits, benefits required by legislation,
annual leave, retirement benefits and accumulating sick
leave obliged to be settled within 12 months of the reporting
date, are recognised in trade and other payables and are
measured at the amounts expected to be paid when the liabilities
are settled. Benefits falling due more than 12 months after
the reporting date are discounted to present value. The
Group recognises an expense for contributions to the defined
contribution pension fund in the period in which the employees
render the related service.
Bonus plans
The Group recognises a liability and an expense for bonuses.
The Group recognises a liability where contractually obliged
or where there is a past practice that has created a constructive
obligation. These liabilities are recognised in trade and
other payables and are measured at the amounts expected
to be paid when the liabilities are settled.
1.2.22 Leases
The determination of whether an arrangement is, or contains,
a lease is based on the substance of the arrangement at
inception date of whether the fulfilment of the arrangement
is dependent on the use of a specific asset or assets or
the arrangement conveys a right to use the asset. A reassessment
is made after inception of the lease only if one of the
following applies:
(a) there is a change in contractual terms, other than
a renewal or extension of the arrangement;
(b) a renewal option is exercised or extension granted,
unless the term of the renewal or extension was initially
included in the lease term;
(c) there is a change in the determination of whether fulfilment
is dependent on a specific asset; or
(d) there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence
or cease from the date when the change in circumstances
gave rise to the reassessment for scenarios (a), (c) or
(d) and at the date of renewal or extension period for
scenario (b).
Group as a lessee
Leases of property, plant and equipment where the Group
has, substantially, all the risks and rewards of ownership
are classified as finance leases. Finance leases are capitalised
at the lease's inception at the lower of the fair value
of the leased property and the present value of the minimum
lease payments. Each lease payment is allocated between
the liability and finance charges so as to achieve a constant
rate on the finance balance outstanding. The corresponding
lease obligations, net of finance charges, are included
in financial liabilities.
The interest element of the finance cost is charged to
the income statement over the lease period so as to produce
a constant periodic rate of interest on the remaining balance
of the liability for each year. The property, plant and
equipment acquired under finance leases are depreciated
over the shorter of the asset's useful life and the lease
term.
Leases where the lessor retains substantially all the risks
and rewards of ownership are classified as operating leases.
Payments made under operating leases (net of any incentives
received from the lessor) are charged to the income statement
on a straight-line basis over the period of the lease.
When the Group is a party to a lease where there is a contingent
rental element associated within the agreement, a cost
is recognised as and when the contingency materialises.
Group as a lessor
Assets leased out under operating leases are included in
investment property. Rental income is recognised on a straight-line
basis over the lease term. Refer to Note 1.2.7, Investment
property, for further information on the treatment of investment
property.
1.2.23 Revenue
Revenue is measured at fair value of the consideration
received or receivable and comprises the fair value for
the sale of goods, net of value added tax, rebates and
discounts and after eliminated sales within the Group.
Revenue is recognised as follows:
Sale of goods
The sale of rough diamonds (which are made through competitive
tender processes or through partnership arrangements),
the sale of polished diamonds and other products (which
are made through direct sale transactions) and additional
uplift on partnership arrangements are recognised when
the significant risks and rewards of ownership have been
transferred to the customer and can be measured reliably
and receipt of future economic benefits is probable. For
the additional uplift made on partnership arrangements,
certain estimates and judgements are made by management
as referred under policy 1.2.26 Critical accounting estimates
and judgements.
Rendering of service
Sales of services relating to third party diamond manufacturing,
are recognised in the accounting period in which the services
are rendered, and it is probable that the economic benefits
associated with the transaction will flow to the entity,
by reference to completion of the specific transaction
assessed on the basis of the actual service provided as
a proportion of the total services to be provided.
Interest income
Interest income is recognised on a time-proportion basis
using the effective interest rate method.
Dividends
Dividends are recognised when the amount of the dividend
can be reliably measured and the Group's right to receive
payment is established.
1.2.24 Finance costs
Finance costs are generally expensed as incurred, except
where they relate to the financing of construction or
development of qualifying assets requiring a substantial
period of time to prepare for their intended future use.
Finance costs are capitalised up to the date when the
asset is ready for its intended use.
1.2.25 Dividend distribution
Dividend distributions to the Group's shareholders are
recognised as a liability in the Group's financial statements
in the period in which the dividends are approved by the
Group's shareholders.
1.2.26 Critical accounting estimates and judgements
The preparation of the consolidated financial statements
requires management to make estimates and judgements and
form assumptions that affect the reported amounts of the
assets and liabilities, the reported revenue and costs
during the periods presented therein, and the disclosure
of contingent liabilities at the date of the financial
statements. Estimates and judgements are continually evaluated
and are based on historical experience and other factors,
including expectations of future events that are believed
to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the
future and the resulting accounting estimates will, by
definition, seldom equal the related actual results. The
estimates and assumptions that have a significant risk
of causing a material adjustment to the financial results
or the financial position reported in future periods are
discussed below.
Life of mine
There are numerous uncertainties inherent in estimating
ore reserves and the associated life of mine. Therefore
the Group must make a number of assumptions in making
those estimations, including assumptions as to the prices
of commodities, exchange rates, production costs and recovery
rates. Assumptions that are valid at the time of estimation
may change significantly when new information becomes
available. Changes in the forecast prices of commodities,
exchange rates, production costs or recovery rates may
change the economic status of ore reserves and may, ultimately,
result in the ore reserves being restated. Where assumptions
change the life of mine estimates, the associated depreciation
rates, residual values, waste stripping and amortisation
ratios, and environmental provisions are reassessed to
take into account the revised life of mine estimate.
Exploration and evaluation expenditure
This policy requires management to make certain estimates
and assumptions as to future events and circumstances,
in particular whether economically viable extraction operations
are viable where reserves have been discovered and whether
indications of impairment exist. Any such estimates and
assumptions may change as new information becomes available.
Development expenditure
Judgement is applied by management in determining when
a project has reached a stage at which economically recoverable
reserves exist and that development may be sanctioned.
Management is required to make certain estimates and assumptions
similar to those described above for capitalised exploration
and evaluation expenditure.
Revenue
Management has entered into arrangements to increase the
revenue earned on the sale of rough diamonds. Under these
arrangements, revenue is earned for the sale of the rough
diamond, with an additional uplift based on the polished
margin achieved. These are referred to as partnership arrangements
in these financial statements. Management recognises the
revenue on the sale of the rough diamond at the point at
which it is sold to the third party, as there is no continuing
involvement by management in the cutting and polishing
process and the significant risks and rewards have passed
to the third party. Judgement is applied by management
in determining when additional uplift is recognised and
measured with regard to rough diamonds sold into partnership
arrangements. Management is required to make certain estimates
and assumptions based on when the uplift can be reliably
measured. This occurs when the third party sells these
goods, at which point in time the value of the final polished
goods are determined.
Property, plant and equipment - recoverable amount
The calculation of the recoverable amount of an asset requires
significant judgements, estimates and assumptions, including
future demand, technological changes, exchange rates, interest
rates and others.
Impairment of goodwill
The Group determines if goodwill is impaired at least on
an annual basis. This requires an estimation of the recoverable
amount of the cash-generating unit to which the goodwill
relates. Recoverable amount is the higher of fair value
less costs to sell and value in use. Fair value calculations
require the Group to make estimates of the amount for which
the cash-generating unit could be sold. Estimating the
value in use requires the Group to make an estimate of
the expected future cash flows from the cash-generating
unit and a market-related pre-tax discount rate in order
to calculate the present value of those cash flows.
Impairment of assets
The Group assesses each cash-generating unit annually to
determine whether any indication of impairment exists.
Where an indicator of impairment exists, a formal estimate
of the recoverable amount is made, which is considered
to be the higher of the fair value less costs to sell and
value in use. These assessments require the use of estimates
and assumptions such as long-term diamond prices, discount
rates, future capital requirements, exploration potential
and operating performance. Fair value is determined as
management's best estimate of the amount that would be
obtained from the sale of the asset in an arm's-length
transaction between knowledgeable and willing parties.
Fair value for mine assets is generally determined as the
present value of estimated future cash flows arising from
the continued use of the asset using assumptions that an
independent market participant may take into account. Cash
flows are discounted by an appropriate discount rate to
determine the net present value.
The Group has made a judgement in determining if, in the
instance where the Group's asset carrying values exceed
its market capitalisation, this results in an indicator
of impairment. The Group believes that the market capitalisation
position does not represent an indicator of impairment
as all significant operations were assessed during the
year and there were no indicators of impairment. The goodwill
in the Group which is reported in the Letšeng mining
and polished diamond manufacturing operations is tested
annually, with no impairment evident in the current year.
Refer to Note 10, Impairment testing, for further detail.
Provision for restoration and rehabilitation
Significant estimates and assumptions are made in determining
the amount of the restoration and rehabilitation provisions.
These deal with uncertainties such as changes to the legal
and regulatory framework, magnitude of possible contamination,
and the timing, extent and costs of required restoration
and rehabilitation activity.
Taxation
The determination of the Group's obligations and expense
for taxes requires an interpretation of tax law and therefore
certain assumptions and estimates are made.
Capitalised stripping costs (deferred waste)
Waste removal costs (stripping costs) are incurred during
the development and production phases at surface mining
operations. Furthermore, during the production phase, stripping
costs are incurred in the production of inventory as well
as in the creation of future benefits by improving access
and mining flexibility in respect of the ore to be mined,
the latter being referred to as a 'stripping activity asset'.
Judgement is required to distinguish between these two
activities at Letšeng. The orebody needs to be identified
in its various separately identifiable components. An identifiable
component is a specific volume of the orebody that is made
more accessible by the stripping activity. Judgement is
required to identify and define these components (referred
to as 'cuts'), and also to determine the expected volumes
(tonnes) of waste to be stripped and ore to be mined in
each of these components. These assessments are based on
a combination of information available in the mine plans,
specific characteristics of the orebody and the milestones
relating to major capital investment decisions.
Judgement is also required to identify a suitable production
measure that can be applied in the calculation and allocation
of production stripping costs between inventory and the
stripping activity asset. The ratio of expected volume
(tonnes) of waste to be stripped for an expected volume
(tonnes) of ore to be mined for a specific component of
the orebody, compared to the current period ratio of actual
volume (tonnes) of waste to the volume (tonnes) of ore
is considered to determine the most suitable production
measure.
These judgements and estimates are used to calculate and
allocate the production stripping costs to inventory and/or
the stripping activity asset(s). Furthermore, judgements
and estimates are also used to apply the stripping ratio
calculation in determining the amortisation of the stripping
activity asset.
Stripping ratio
Estimated recoverable reserves are used in determining
the amortisation of mine-specific assets. Amortisation
is calculated by using the expected average stripping ratio
over the average life of the area being mined. The average
stripping ratio is calculated as the number of tonnes of
waste material expected to be removed during the life of
area, per tonne of ore mined. The average life of area
cost per tonne is calculated as the total expected costs
to be incurred to mine the orebody divided by the number
of tonnes expected to be mined. The average life of area
stripping ratio and the average life of area cost per tonne
are recalculated annually in light of additional knowledge
and changes in estimates. Changes in the stripping ratio
are accounted for prospectively as a change in estimate.
Production start date
The phase of each mine construction project is assessed
to determine when a mine moves into the production phase.
The criteria used to assess the start date are determined
by the unique nature of each mine's construction project
and includes factors such as the complexity of a plant
and its location. Various relevant criteria are considered
to assess when the mine is substantially complete and ready
for its intended use and moves into the production phase.
At this point, all related amounts are reclassified from
'exploration and development assets' to 'mining assets',
'stripping activity asset' and/or 'property, plant and
equipment'. Some of the criteria would include but are
not limited to the following:
* the level of capital expenditure compared to the
construction cost estimates;
* completion of a reasonable period of testing of the
mine plant and equipment;
* ability to produce inventory in saleable form; and
* ability to sustain ongoing production of inventory.
Production start date continued
When a mine construction project moves into the production
phase, the capitalisation of certain mine construction
costs ceases and costs are either regarded as inventory
or expensed, except for capitalisable costs related to
mining asset additions or improvements, production phase
stripping costs capitalisable as stripping activity asset(s),
and exploration expenditure that meets the criteria for
capitalisation. It is also at this point that depreciation/amortisation
commences.
Management made the key judgement that the Ghaghoo mine
had not reached production start date during the year based
on the following:
- the unanticipated high volumes of water from basalt fissures
which were encountered during the latter part of the year
causing a delay in reaching steady state production, and
- specific areas in the plant did not allow the commissioning
process to progress to its intended production state,
As a result, the mine was not in the condition necessary
for it to be capable of operating in the manner intended
by management and therefore the mine remained in its construction
phase with all costs incurred during the year being capitalised
to the Exploration and Development asset category of Note
7, Property, plant and equipment.
Share-based payments
Judgement is applied by management in determining whether
the share options relating to employees who resigned before
the end of the service condition period have been cancelled
or forfeited in light of their leaving status. Where employees
do not meet the requirements of a good leaver as per the
rules of the long-term incentive plan (LTIP), no award
will vest and this will be treated as cancellation by forfeiture.
The expenses relating to these charges previously recognised
are then reversed. Where employees do meet the requirements
of a good leaver as per the rules of the LTIP, some or
all of an award will vest and this will be treated as a
modification to the original award. The future expenses
relating to these awards are accelerated and recognised
as an expense immediately.
1.2.27 Exceptional items
The Group presents as exceptional items on the face of
the income statement, those material items of income and
expenses which, because of the nature and expected infrequency
of the events giving rise to them, merit separate presentation
to allow shareholders to understand better the elements
of financial performance in the year, so as to facilitate
comparison with prior periods and to assess better trends
in financial performance.
2. Revenue
2014 2013
US$'000 US$'000
=================================================== ======== ========
Sale of goods 269 870 212 020
Rendering of services 1 020 808
======================================================= ======== ========
270 890 212 828
======================================================= ======== ========
Finance income is reflected in Note 4, Net finance
income/(cost).
======================================================= ======== ========
3. Operating profit
2014 2013
US$'000 US$'000
==================================================== ========= =========
Operating profit includes the following:
Other operating income
Profit on disposal of property, plant and equipment 49 689
======================================================== ========= =========
Depreciation and amortisation
Depreciation and mining asset amortisation (16 991) (19 558)
Waste stripping costs amortised (49 312) (34 766)
-------------------------------------------------------- --------- ---------
(66 303) (54 324)
Less: Depreciation capitalised to development 1 957 1 454
Less: Depreciation and mining asset amortisation
capitalised to inventory 33 519
-------------------------------------------------------- --------- ---------
(64 313) (52 351)
Amortisation of intangible assets (157) (159)
======================================================== ========= =========
(64 470) (52 510)
======================================================== ========= =========
Reversal of impairment
Reversal of impairment - Chiri(1) - 159
Impairment - Project Kholo(2) - (58)
Net reversal of impairment - other assets - 54
======================================================== ========= =========
- 155
======================================================== ========= =========
Inventories
Cost of inventories recognised as an expense (129 195) (102 843)
Write-down of inventories to net realisable value - (90)
======================================================== ========= =========
Foreign exchange gain
Foreign exchange gain 5 508 1 480
Mark-to-market revaluations on forward exchange
contracts (266) (874)
======================================================== ========= =========
5 242 606
======================================================== ========= =========
Operating lease expenses as a lessee
Mine site property (90) (90)
Equipment and service leases (39 535) (43 665)
Contingent rental - Alluvial Ventures (8 489) (9 605)
Leased premises (2 716) (1 743)
=================================================== =========== ==========
(50 830) (55 103)
=================================================== =========== ==========
Auditor's remuneration - Ernst & Young
Audit fee
Group financial statements (443) (479)
Statutory (183) (331)
=================================================== =========== ==========
(626) (810)
=================================================== =========== ==========
Auditor's remuneration - other
Statutory (25) (18)
=================================================== =========== ==========
(25) (18)
=================================================== =========== ==========
(1) This relates to the sale of assets in 2013, relating to the
Chiri Concession in Angola, which was previously fully impaired
in 2012. The Group no longer holds this concession in Angola.
(2) During 2011, the Group approved the expansion at the Letšeng
mine (Project Kholo). During 2012, Project Kholo as originally
envisaged was re-evaluated and as a result certain capital expenditure
incurred on items that had been assessed as no longer having an
enduring benefit to the operation, were written off.
2014 2013
US$'000 US$'000
======================================================== ======== ========
Other non-audit fees - Ernst & Young
Tax services advisory and consultancy (13) (73)
Corporate finance services - (320)
Tax compliance services (11) (13)
Other services (42) (86)
Other assurance services (151) (87)
======================================================== ======== ========
(217) (579)
======================================================== ======== ========
Other non-audit fees - other
Internal audit (356) (132)
Tax services advisory and consultancy (101) (163)
======================================================== ======== ========
(457) (295)
======================================================== ======== ========
Employee benefits expense
Salaries and wages(1) (22 334) (20 845)
======================================================== ======== ========
(1) Includes contributions to defined contribution
plan of US$0.8 million (31 December 2013: US$0.9
million).
======================================================== ======== ========
Underlying earnings before interest, tax, depreciation
and mining asset amortisation (EBITDA)
Underlying EBITDA is shown, as the Directors consider
this measure to be a relevant guide to the performance
of the Group. The reconciliation from operating
profit to underlying EBITDA is as follows:
Operating profit 92 711 60 503
Foreign exchange gain (5 242) (606)
Share-based payments 1 740 932
Other operating income (134) (746)
Depreciation and mining asset amortisation (excluding
waste stripping cost amortised) 15 158 17 296
======================================================== ======== ========
Underlying EBITDA 104 233 77 379
======================================================== ======== ========
4. Net finance income/(cost)
2014 2013
US$'000 US$'000
======================================================= ======== ========
Finance income
Bank deposits 2 575 992
Other 855 226
=========================================================== ======== ========
Total finance income 3 430 1 218
Finance costs
Bank overdraft (116) (143)
Interest on debt, borrowings and trade and other
payables(1) (2 029) (1 501)
Finance costs on unwinding of rehabilitation provision (1 066) (1 213)
=========================================================== ======== ========
Total finance costs (3 211) (2 857)
=========================================================== ======== ========
219 (1 639)
=========================================================== ======== ========
(1) Included in interest on debt, borrowings and trade and other
payables is a provision for interest on potential tax liabilities
which are under dispute.
5. Income tax expense
2014 2013
US$'000 US$'000
========================================== ======== ========
Income statement
Current
- Overseas (30 626) (12 980)
Withholding tax
- Overseas (6 565) (1 498)
Deferred
- Overseas 2 208 (6 377)
=========================================== ======== ========
(34 983) (20 855)
============================================== ======== ========
Profit before taxation 92 930 59 019
=========================================== ======== ========
Reconciliation of tax rate %%
========================================== ======== =======
Applicable income tax rate 21.5 23.3
Permanent differences 4.0 6.1
Unrecognised deferred tax assets 1.1 1.5
Effect of overseas tax at different rates 4.0 1.9
Withholding tax 7.0 2.5
=========================================== ======== ========
Effective income tax rate 37.6 35.3
=========================================== ======== ========
6. Earnings per share
The following reflects the income and share data used in the basic
and diluted earnings per share computations:
2014 2013
US$'000 US$'000
======================================================= ========== ==========
Profit for the year 57 947 38 164
Less: Non-controlling interests (24 730) (16 994)
=========================================================== ========== ==========
Net profit attributable to equity holders of the
parent for basic and diluted earnings 33 217 21 170
The weighted average number of shares takes into
account the treasury shares at year end.
------------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares outstanding
during the year ('000) 138 204 138 194
=========================================================== ========== ==========
Earnings per share amounts are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year.
Diluted earnings per share are calculated by dividing the net profit
attributable to ordinary equity holders of the parent by the weighted
average number of ordinary shares outstanding during the year after
taking into account future potential conversion and issue rights
associated with the ordinary shares.
Number Number
of shares of shares
2014 2013
======================================================= ========== ==========
Weighted average number of ordinary shares outstanding
during the year 138 204 138 194
Effect of dilution:
- Future share awards under the Employee Share
Option Plan 962 710
=========================================================== ========== ==========
Weighted average number of ordinary shares outstanding
during the year adjusted for the effect of dilution 139 166 138 904
=========================================================== ========== ==========
There have been no other transactions involving ordinary shares
or potential ordinary shares between the reporting date and the
date of completion of these financial statements.
===================================================================================
7. Property, plant and equipment
Exploration
and
Stripping develop- Decommis- Leasehold Plant
activity Mining ment sioning improve- and Other
As at 31 December asset asset assets(1) assets ment equipment(2) assets(3) Total
2014 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
==================== ========= ======== =========== ========= ========= ============= ========== ========
Cost
Balance at 1 January
2014 216 133 130 981 94 339 13 014 19 891 92 814 12 818 579 990
Additions 54 642 - 38 668 - 80 11 536 2 609 107 535
Reallocated to
prepayments (Note
11) (3 158) - - - - - - (3 158)
Net movement in
rehabilitation
provision - - 616 (3 571) - - - (2 955)
Disposals - - - - - (25) (103) (128)
Reclassifications - 1 177 81 - 4 439 (6 237) 540 -
Foreign exchange
differences (23 665) (6 797) (9 623) (1 035) (2 062) (9 534) (1 285) (54 001)
Balance at
31 December 2014 243 952 125 361 124 081 8 408 22 348 88 554 14 579 627 283
======================== ========= ======== =========== ========= ========= ============= ========== ========
Accumulated
depreciation/
amortisation
Balance at 1 January
2014 100 843 42 625 - 3 144 8 544 44 993 6 216 206 365
Charge for the
year 49 312 2 477 - 880 2 459 8 435 2 740 66 303
Disposals - - - - - (25) (91) (116)
Foreign exchange
differences (12 076) (668) - (378) (1 059) (5 268) (747) (20 196)
======================== ========= ======== =========== ========= ========= ============= ========== ========
Balance at
31 December 2014 138 079 44 434 - 3 646 9 944 48 135 8 118 252 356
======================== ========= ======== =========== ========= ========= ============= ========== ========
Net book value
at 31 December
2014 105 873 80 927 124 081 4 762 12 404 40 419 6 461 374 927
======================== ========= ======== =========== ========= ========= ============= ========== ========
Exploration
and
Stripping develop- Decommis- Leasehold Plant
activity Mining ment sioning improve- and Other
As at 31 December asset asset assets(1) assets ment equipment(2) assets(3) Total
2013 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
===================== ========= ======== =========== ========= ========= ============= ========== =========
Cost
Balance at 1 January
2013 199 404 140 846 90 460 18 353 17 362 119 100 12 239 597 764
Additions 59 278 - 20 050 - 299 10 023 1 211 90 861
Net movement in
rehabilitation
provision - - (392) (1 957) - - - (2 349)
Disposals - - - - (85) (2 976) (67) (3 128)
Reclassifications - 7 566 (4 672) - 5 871 (10 319) 1 554 -
Foreign exchange
differences (42 549) (17 431) (11 107) (3 382) (3 556) (23 014) (2 119) (103 158)
===================== ========= ======== =========== ========= ========= ============= ========== =========
Balance at
31 December 2013 216 133 130 981 94 339 13 014 19 891 92 814 12 818 579 990
===================== ========= ======== =========== ========= ========= ============= ========== =========
Accumulated
depreciation/
amortisation
Balance at 1 January
2013 84 662 40 493 - 2 613 8 610 48 051 4 730 189 159
Charge for the
year 34 766 3 396 - 1 170 2 104 10 278 2 610 54 324
Disposals - - - - (85) (2 479) (62) (2 626)
Impairment reversal - - - - - (386) - (386)
Foreign exchange
differences (18 585) (1 264) - (639) (2 085) (10 471) (1 062) (34 106)
===================== ========= ======== =========== ========= ========= ============= ========== =========
Balance at
31 December 2013 100 843 42 625 - 3 144 8 544 44 993 6 216 206 365
===================== ========= ======== =========== ========= ========= ============= ========== =========
Net book value
at 31 December
2013 115 290 88 356 94 339 9 870 11 347 47 821 6 602 373 625
===================== ========= ======== =========== ========= ========= ============= ========== =========
(1) Borrowing costs of US$0.6 million (31 December 2013: US$nil)
incurred in respect of the $25.0 million facility for the remaining
spend on the Phase 1 Ghaghoo development (refer to Note 15, Interest-bearing
loans and borrowings) were capitalised to the development asset.
The weighted average capitalisation rate used to determine the
amount of borrowing costs eligible for capitalisation was 4.04%.
(2) Included in plant and equipment is capital work in progress
of US$20.2 million (31 December 2013: US$19.3 million). Borrowing
costs of US$0.5 million (31 December 2013: US$nil) incurred in
respect of the LSL140.0 million bank loan facility for the total
funding of the new Coarse Recovery Plant at Letšeng (refer
to Note 15, Interest-bearing loans and borrowings) is included
in capital work in progress. The weighted average capitalisation
rate used to determine the amount of borrowing costs eligible for
capitalisation was 5.07%.
(3) Other assets comprise motor vehicles, computer equipment, furniture
and fittings, and office equipment.
8. Investment property
The investment property consists of a commercial unit located in
the Almas Towers in Dubai. The unit is being let out in terms of
a rental agreement which was renegotiated during 2014. The rental
agreement is for a period of two years commencing 1 October 2014.
2014 2013
US$'000 US$'000
====================================================== ======== ========
Cost
Balance at 1 January 617 617
========================================================== ======== ========
Balance at 31 December 617 617
========================================================== ======== ========
Accumulated depreciation
Balance at 1 January 2 1
Depreciation - 1
========================================================== ======== ========
Balance at 31 December 2 2
========================================================== ======== ========
Net book value at 31 December 615 615
========================================================== ======== ========
Fair value(1) 1 164 1 099
========================================================== ======== ========
Amounts recognised in profit or loss
Rental income 54 53
Direct operating expenses (16) (20)
========================================================== ======== ========
The future minimum rental income under the rental
agreement in aggregate and for each of the following
periods are as follows:
- Within one year 59 57
- After one year but not more than five years 44 35
- More than five years - -
====================================================== ======== ========
103 92
========================================================== ======== ========
(1) No independent valuation was performed. Fair value was based
upon an overview of property sales (units within the same building
as the investment property) during 2014, weighted towards the most
recent sales activity, which is valued using a Level 2 input in
terms of the fair value hierarchy.
9. Intangible assets
Intangibles Goodwill Total
As at 31 December 2014 US$'000 US$'000 US$'000
======================================= ============= ======== ========
Cost
Balance at 1 January 2014 786 19 680 20 466
Foreign exchange difference (2) (1 862) (1 864)
=========================================== ============= ======== ========
Balance at 31 December 2014 784 17 818 18 602
=========================================== ============= ======== ========
Accumulated amortisation
Balance at 1 January 2013 264 - 264
Amortisation 157 - 157
=========================================== ============= ======== ========
Balance at 31 December 2014 421 - 421
=========================================== ============= ======== ========
Net book value at 31 December 2014 363 17 818 18 181
=========================================== ============= ======== ========
Intangibles Goodwill Total
As at 31 December 2013 US$'000 US$'000 US$'000
======================================= ============= ======== ========
Cost
Balance at 1 January 2013 786 24 292 25 078
Foreign exchange difference - (4 612) (4 612)
=========================================== ============= ======== ========
Balance at 31 December 2013 786 19 680 20 466
=========================================== ============= ======== ========
Accumulated amortisation
Balance at 1 January 2012 105 - 105
Amortisation 159 - 159
=========================================== ============= ======== ========
Balance at 31 December 2013 264 - 264
=========================================== ============= ======== ========
Net book value at 31 December 2013 522 19 680 20 202
=========================================== ============= ======== ========
Impairment of goodwill within the Group was tested in accordance
with the Group's policy. Refer to Note 10, Impairment testing, for
further details.
10. Impairment testing
2014 2014
US$'000 US$'000
=========================================================== ========= ========
Goodwill
Goodwill acquired through business combinations
has been allocated to the individual cash-generating
units, as follows:
- Letšeng Diamonds 17 818 18 229
- Calibrated Diamonds - 1 451
=========================================================== ========= ========
Balance at end of year 17 818 19 680
=========================================================== ========= ========
Goodwill that was previously allocated to the Calibrated Diamonds
cash-generating unit has been allocated in full to the Letšeng
Diamonds cash-generating unit in the current year as a result of
there being a change in the assessment of the cash-generating units
within the Group.
Movement in goodwill relates to foreign exchange translation from
functional to presentation currency.
Discount rates are outlined below (based on a blended rate), and
represent the real pre-tax rates. These rates are based on the weighted
average cost of capital (WACC) of the Group and adjusted accordingly
at a risk premium of each cash-generating unit, taking into account
risks associated with different cash-generating units.
2014 2013
% %
=========================================================== ========= ========
Discount rate for each cash-generating unit
- Letšeng Diamonds 13.7 12.5
- Calibrated Diamonds - 13.1
=========================================================== ========= ========
Goodwill impairment testing is undertaken annually and whenever
there are indications of impairment. The most recent test was undertaken
at 31 December 2014. In assessing whether goodwill has been impaired,
the carrying amount of the cash-generating unit is compared with
its recoverable amount. For the purpose of goodwill impairment testing
in 2014, the recoverable amount for Letšeng Diamonds has been
determined based on a value-in-use model.
Value in use
Cash flows are projected for a period up to the date that mining
is expected to cease, based on management's expectations at the
time of completing the testing, and is limited to the lesser of
the current economic resource or the remaining 10-year mining lease
period. This date depends on a number of variables, including recoverable
reserves and resources, the forecast selling prices and the associated
mining and treatment costs.
Key assumptions used in the calculations
The key assumptions used in the calculation for goodwill asset impairment
are:
* recoverable reserves and resources;
* expected carats recoverable;
* expected grades achievable;
* expected US$/carat prices;
* expected plant throughput;
* costs of extracting and processing;
* expected yield on polished; and
* discount rates.
Economically recoverable reserves and resources, carats recoverable
and grades achievable are based on management's current expectation
and mine plan, supported by the evaluation work undertaken by appropriately
qualified persons. The impairment test is most sensitive to changes
in commodity prices and discount rates.
Long-term US$ per carat prices are based on external market consensus
forecasts as published by independent marketing consultants adjusted
for the Group's specific operations. Plant throughput is based on
current plant facilities and processing capacities. The Plant 2
Phase 1 upgrade project to increase the current Plant 2 capacity
by 250 000 tonnes per annum has commenced during the year and majority
of the costs have been incurred in 2014. This upgrade will result
in the increased throughput rate almost immediately after commissioning
and is due to be completed by the end of Q1 2015. The additional
250 000 tonnes have therefore been included in the future years
when calculating the value in use. Costs are determined on management's
experience and the use of contractors over a period of time whose
costs are fairly reasonably determinable. Mining costs for the next
eight years (effective 1 January 2014) have been based on the negotiated
mining contract which was concluded during the year. Costs of extracting
and processing which are reasonably determinable are based on managements
experience. Expected yield on polished has been based on management's
experience.
The foreign exchange rates have been based on current spot exchange
rates at the date of the value-in-use calculation.
Sensitivity to changes in assumptions
Given the current volatility in the market, adverse changes in key
assumptions could result in changes to impairment charges.
For the purpose of testing for impairment of goodwill using the
value-in-use basis for Letšeng mining operations, it was assessed
that no reasonably possible change in any of these key assumptions
would cause its carrying amount to exceed its recoverable amount.
The Group will continue to test its assets for impairment where
indications are identified and may in future record additional impairment
charges or reverse any impairment charges to the extent that market
conditions improve and to the extent permitted by accounting standards.
11. Receivables and other assets
2014 2013
US$'000 US$'000
====================================================== ========= ========
Non-current
Prepayments(1) 2 877 -
=========================================================== ========= ========
Current
Trade receivables 106 1 002
Prepayments(1) 1 250 739
Deposits 419 230
Other receivables 167 134
VAT receivable 5 656 4 644
=========================================================== ========= ========
7 598 6 749
=========================================================== ========= ========
(1) A total prepayment of US$3.2 million (comprising a non-current
portion of US$2.9 million and a current portion of US$0.3 million)
has been reallocated from the stripping activity asset disclosed
in Note 7, Property, plant and equipment. This represents the current
value of waste costs to be recovered from the mining contractor
over the term of the new contract (eight years from 1 January 2014)
as a result of the estimation change in respect of the waste mined
out of the surveying review which was disclosed in 2012. The waste
tonnes and strip ratio for future cuts have been reassessed and
have resulted in a credit to the waste stripping cost amortised
charge (included in cost of sales) of US$1.4 million and a finance
income adjustment of US$0.9 million in the year.
The carrying amounts above approximate their fair
value.
Terms and conditions of the receivables:
2014 2013
US$'000 US$'000
====================================================== ========= ========
Analysis of trade receivables
Neither past due nor impaired 56 939
Past due but not impaired:
Less than 30 days 34 31
30 to 60 days 16 32
60 to 90 days - -
====================================================== ========= ========
106 1 002
=========================================================== ========= ========
12. Inventories
2014 2013
US$'000 US$'000
================================ ======== ========
Diamonds on hand 17 460 18 806
Ore stock piles 2 055 3 281
Consumable stores 9 255 7 239
===================================== ======== ========
28 770 29 326
===================================== ======== ========
Net realisable value write-down - 90
===================================== ======== ========
2014 2013
US$'000 US$'000
================================================= ============= =============
13. Cash and short-term deposits
Cash on hand 2 9
Bank balances 56 925 22 724
Short-term bank deposits 53 811 48 445
====================================================== ============= =============
110 738 71 178
====================================================== ============= =============
The amounts reflected in the financial statements approximate fair
value.
Cash at banks earn interest at floating rates based on daily bank
deposit rates. Short-term deposits are generally call deposit accounts
and earn interest at the respective short-term deposit rates.
At 31 December 2014, the Group had restricted cash of US$0.2 million
(31 December 2013: US$0.2 million).
The Group's cash surpluses are deposited with major financial institutions
of high-quality credit standing predominantly within Lesotho and
the United Kingdom.
At 31 December 2014, the Group has US$41.6 million (31 December
2013: US$43.9 million) of undrawn facilities representing a US$20.0
million three-year unsecured revolving credit facility and an LSL250.0
million (US$21.6 million) three-year revolving working capital
facility.
During the year, two new facilities were concluded and were fully
drawn down at 31 December 2014. For further details on these facilities,
refer to Note 15, Interest-bearing loans and borrowings.
====================================================================================
14. Issued capital and reserves
Issued capital 31 December 2014 31 December 2013
Number of Number of
shares shares
'000 US$'000 '000 US$'000
=================================== ========== ======== ========= =======
Authorised - ordinary shares of
US$0.01 each
As at year end 200 000 2 000 200 000 2 000
======================================== ========== ======== ========= =======
Issued and fully paid
Balance at beginning of year 138 270 1 383 138 267 1 383
Allotments during the year - - 3 -
======================================== ========== ======== ========= =======
Balance at end of year 138 270 1 383 138 270 1 383
======================================== ========== ======== ========= =======
Share premium
Share premium comprises the excess value recognised from the issue
of ordinary shares at par value.
Treasury shares
The Company established an Employee Share Option Plan (ESOP) on
5 February 2007. Under the terms of the ESOP, the Company granted
options to employees of over 376 500 ordinary shares with a nil
exercise price upon listing.
At listing, the Gem Diamonds Limited Employee Share Trust acquired
376 500 ordinary shares by subscription from the Company as part
of the initial awards under the ESOP arrangement at nominal value
of US$0.01.
During the current year, there were no shares exercised (31 December
2013: 14 667) and no shares lapsed (31 December 2013: nil). At 31
December 2014, 65 550 shares were held by the trust (31 December
2013: 65 550).
Other reserves
Foreign
currency
translation Share-based
reserve equity reserve Total
US$'000 US$'000 US$'000
============================ ============ =============== ========
Balance at 1 January 2014 (116 242) 46 834 (69 408)
Other comprehensive expense (30 309) - (30 309)
============================ ============ =============== ========
Total comprehensive expense (30 309) - (30 309)
Share-based payments - 1 964 1 964
============================ ============ =============== ========
Balance at 31 December 2014 (146 551) 48 798 (97 753)
============================ ============ =============== ========
Balance at 1 January 2013 (62 800) 45 670 (17 130)
============================ ============ =============== ========
Other comprehensive expense (53 442) - (53 442)
============================ ============ =============== ========
Total comprehensive expense (53 442) - (53 442)
============================ ============ =============== ========
Share-based payments - 1 164 1 164
============================ ============ =============== ========
Balance at 31 December 2013 (116 242) 46 834 (69 408)
============================ ============ =============== ========
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign
exchange differences arising from the translation of foreign entities.
During the year, the South African, Lesotho, Botswana, Mauritian
and United Arab Emirate subsidiaries' functional currencies were
different to the Group's functional currency of US dollar. The
rates used to convert the operating functional currency into US
dollar are as follows:
Currency 2014 2013
======================================== =================== ======= =======
ZAR/LSL to
Average rate US$1 10.85 9.65
ZAR/LSL to
Period end US$1 11.57 10.47
Average rate Pula to US$1 8.98 8.40
Period end Pula to US$1 9.51 8.78
Average rate Rupee to US$1 30.65 30.75
Period end Rupee to US$1 31.75 30.05
Dirham to
Average rate US$1 3.67 3.67
Dirham to
Period end US$1 3.67 3.67
======================================== =================== ======= =======
Share-based equity reserves
For details on the share-based equity reserve, refer to Note 24,
Share-based payments.
Capital management
For details on capital management, refer to Note 23, Financial
risk management.
15. Interest-bearing loans and borrowings
Effective
interest 2014 2013
rate % Maturity US$'000 US$'000
==================================== ============== ============== ======== ========
Non-current
South African
Jibar +
LSL140.0 million bank loan facility 4.95% 30 June 2017 7 261 -
==================================== ============== =================== ======== ========
7 261 -
======================================================================= ======== ========
Current
South African
Jibar +
LSL140.0 million bank loan facility 4.95% 30 June 2017 4 841 -
London US$
three-month
Libor +
US$25.0 million bank loan facility 4% 30 April 2015 25 000 -
==================================== ============== =================== ======== ========
29 841 -
======================================================================= ======== ========
LSL140.0 million bank loan facility at Letšeng Diamonds
This loan is a three-year unsecured project debt facility signed
jointly with Standard Lesotho Bank and Nedbank Limited on 26 June
2014 for the total funding of the new Coarse Recovery Plant. The
loan is repayable in 10 quarterly payments commencing 31 March
2015 with a final payment due on 30 June 2017. The interest rate
for the facility at 31 December 2014 is 11.08%.
US$25.0 million bank loan facility at the Company
This loan is a nine-month unsecured facility which was signed with
Nedbank Capital on 16 January 2014 for the remaining spend on the
Ghaghoo Phase 1 development. The loan expired in October 2014,
but has been extended in the interim to 30 April 2015 to cater
for the process of concluding the refinancing thereof into a six-year
secured project debt facility which will expire on 31 December
2020. At the time of finalisation, this facility will be split
into its short-term and long-term component. The interest rate
for the facility at 31 December 2014 is 4.26%.
Total interest for the year on the interest-bearing loans and borrowings
was US$1.1 million (2013: US$nil) which has been capitalised to
the carrying value of the assets as borrowing costs.
There are no significant differences between the fair value and
carrying value of loans and borrowings.
16. Trade and other payables
2014 2013
US$'000 US$'000
=============================================== ============ ============
Non-current
Operating lease 82 2
Severance pay benefits(1) 1 192 1 107
==================================================== ============ ============
1 274 1 109
==================================================== ============ ============
Current
Trade payables(2) 12 544 12 023
Accrued expenses(2) 25 962 20 790
Leave benefits 835 790
Royalties(2) 3 245 2 761
Operating lease 575 141
Other 550 581
==================================================== ============ ============
43 711 37 086
==================================================== ============ ============
Total trade and other payables 44 985 38 195
==================================================== ============ ============
The carrying amounts above approximate fair value.
Terms and conditions of the trade and other payables:
(1) The severance pay benefits arise due to legislation, within
the Lesotho jurisdiction, requiring that two weeks of severance
pay be provided for every completed year of service, payable on
retirement.
(2) These amounts are mainly non-interest bearing and are settled
in accordance with terms agreed between the parties. Included in
accrued expenses is an interest-bearing payable. The interest thereon
has been provided for in finance costs. Refer to Note 4, Net finance
income/(cost).
17. Provisions
2014 2013
US$'000 US$'000
=========================================================== ========= =========
Rehabilitation provisions 19 543 23 186
=========================================================== ========= =========
Reconciliation of movement in provisions
Balance at beginning of year 23 186 29 496
Arising during the year 616 442
Decrease in rehabilitation provisions (3 571) (2 791)
Unwinding of discount rate 1 336 1 213
Foreign exchange differences (2 024) (5 174)
=========================================================== ========= =========
Balance at end of year 19 543 23 186
=========================================================== ========= =========
Rehabilitation provisions
The provisions have been recognised as the Group has an obligation
for rehabilitation of the mining areas. The provisions have been
calculated based on total estimated rehabilitation costs, discounted
back to their present values. The pre-tax discount rates are adjusted
annually and reflect current market assessments. These costs are
expected to be utilised over a life of mine at the mining operation.
In determining the amounts attributable to the rehabilitation provisions,
management used a discount rate range of 7.0% to 7.5% (31 December
2013: 5.5% to 7.5%), estimated rehabilitation timing of 10 to 13
years (31 December 2013: 11 to 14 years) and an inflation rate
range of 5.9% to 6.0% (31 December 2013: 5.6% to 6.0%). In addition
to the changes in the discount rates, inflation and rehabilitation
timing, the decrease in the provision is attributable to the reassessment
of the estimated closure costs.
===== =================================================================================
18. Other financial liabilities
2014 2013
US$'000 US$'000
========================================================== ========= ===========
Current
Forward exchange contract 249 -
========================================================== ========= ===========
The Group enters into forward exchange contracts to hedge the exposure
to changes in foreign currency of future sales of diamonds at Letšeng
Diamonds. The forward exchange contract is the revaluation on the
market-to-market financial liabilities at year end. The Group performs
no hedge accounting.
The forward exchange contracts are measured using a Level 2 input
in terms of the fair value hierarchy, thus basing its fair value
on observable spot exchange rates, the yield curves of the respective
currencies as well as the currency basis spreads between the respective
currencies.
19. Deferred taxation
2014 2013
US$'000 US$'000
====================================================== =========== =========
Deferred tax assets
Accrued leave 50 45
Operating lease liability 7 5
Provisions 5 140 5 919
=========================================================== =========== =========
5 197 5 969
=========================================================== =========== =========
Deferred tax liabilities
Property, plant and equipment (58 293) (66 951)
Prepayments (333) (154)
Provisions - 350
Unremitted earnings (4 038) (4 038)
=========================================================== =========== =========
(62 664) (70 793)
=========================================================== =========== =========
Net deferred tax liability (57 467) (64 824)
=========================================================== =========== =========
Reconciliation of deferred tax liability
Balance at beginning of year (64 824) (71 277)
Movement in current period:
- Accelerated depreciation for tax purposes 2 906 (6 404)
- Accrued leave 11 (22)
- Operating lease liability 120 6
- Prepayments (124) (146)
- Provisions (297) (1)
- Tax losses utilised in the year (408) 190
- Foreign exchange differences 5 149 12 830
=========================================================== =========== =========
Balance at end of year (57 467) (64 824)
=========================================================== =========== =========
The Group has not recognised a deferred tax liability for all taxable
temporary differences associated with investments in subsidiaries
because it is able to control the timing of dividends and only
part of the temporary difference is expected to reverse in the
foreseeable future. The gross temporary difference in respect of
the undistributable reserves of the Group's subsidiaries for which
a deferred tax liability has not been recognised is US$39.0 million
(31 December 2013: US$46.3 million).
The Group has estimated tax losses of US$306.8 million (31 December
2013: US$293.0 million). No deferred tax assets have been recognised
in respect of such losses at 31 December 2014 as management considers
that it is not probable that the losses in those entities will
be utilised against taxable profits in those entities in the foreseeable
future.
Of the US$306.8 million estimated tax losses (31 December 2013:
US$293.0 million), US$4.8 million losses in various jurisdictions
(31 December 2013: US$3.2 million), expire as follows:
31 December 31 December
2014 2013
US$'000 US$'000
=============================================== ============== ===========
2015 2 2
2016 5 6
2017 1 177 1 244
2018 1 914 1 914
2019 1 699 -
==================================================== ========= ===========
4 797 3 166
==================================================== ========= ===========
20. Cash flow notes
20.1 Cash generated by operations
2014 2013
Notes US$'000 US$'000
======================================== ===== ======== ========
Profit before tax for the year 92 930 59 019
Adjustments for:
Depreciation and amortisation
on property, plant and equipment 3 15 158 17 744
Waste stripping cost amortised 3 49 312 34 766
Reversal of impairment of assets 3 - (155)
Write-down of inventory 3 - 90
Finance income 4 (3 430) (1 218)
Finance costs 4 3 211 2 857
Mark-to-market revaluations 266 984
Unrealised foreign exchange differences (7 942) 620
Profit on disposal of property,
plant and equipment 3 (49) (689)
Movement in prepayments 138 160
Other non-cash movements 2 243 7
Share-based equity transaction 24 1 740 932
============================================== ===== ======== ========
153 577 114 462
============================================== ===== ======== ========
20.2 Working capital adjustments
Increase in inventories (1 969) (10 962)
Increase in receivables (1 560) (4 009)
Increase/(decrease) in trade and
other payables 3 588 (2 520)
============================================== ===== ======== ========
59 (17 491)
============================================== ===== ======== ========
21. Commitments and contingencies
Commitments
Operating lease commitments - Group as lessee
The Group has entered into commercial lease arrangements for rental
of office premises. These leases have a period of between two and
12 years with an option of renewal at the end of the period. The
terms will be negotiated during the extension option periods catered
for in the agreements. There are no restrictions placed upon the
lessee by entering into these leases.
Future minimum rentals payable under non-cancellable operating
leases:
2014 2013
US$'000 US$'000
==================================================== ========= =========
- Within one year 1 444 1 813
- After one year but not more than five years 4 997 5 437
- More than five years 10 313 11 126
========================================================= ========= =========
16 754 18 376
========================================================= ========= =========
Mining leases
Mining lease commitments represent the Group's future obligation
arising from agreements entered into with local authorities in
the mining areas that the Group operates.
The period of these commitments is determined as the lesser of
the term of the agreement, including renewable periods, or the
life of the mine. The estimated lease obligation regarding the
future lease period, accepting stable inflation and exchange rates,
is as follows:
2014 2013
US$'000 US$'000
==================================================== ========= =========
- Within one year 132 84
- After one year but not more than five years 611 381
- More than five years 1 711 735
========================================================= ========= =========
2 454 1 200
========================================================= ========= =========
Moveable equipment lease
The Group has entered into commercial lease arrangements which
include the provision of loading, hauling and other transportation
services payable at a fixed rate per tonne of ore and waste mined;
power generator equipment payable based on a consumption basis;
and rental agreements for various mining equipment based on a fixed
monthly fee.
The contract at Letšeng pertaining to the loading and hauling
which was due to terminate at the end of 2014 was renegotiated
during the year and therefore future commitment amounts have been
based on the new contract which has an eight-year term, effective
1 January 2014.
2014 2013
US$'000 US$'000
======================================================== ========== =========
- Within one year 32 942 29 422
- After one year but not more than five years 189 170 718
- More than five years 100 486 -
======================================================== ========== =========
322 598 30 140
======================================================== ========== =========
Capital expenditure
Approved but not contracted for 5 197 40 070
Approved and contracted for 10 794 3 853
======================================================== ========== =========
The majority of capital expenditure commitments relate to the finalisation
of the new Coarse Recovery Plant and the Plant 2 Phase 1 upgrade
at Letšeng.
Contingent rentals - Alluvial Ventures
The contingent rentals represent the Group's obligation to a third
party (Alluvial Ventures) for operating a third plant on the Group's
mining property at Letšeng Diamonds. The rental is determined
when the actual diamonds mined by Alluvial Ventures are sold. The
rental agreement is based on 50% - 70% of the value (after costs)
of the diamonds recovered by Alluvial Ventures and is limited to
US$1.2 million per individual diamond. As at the reporting date,
such future sales cannot be determined.
Letšeng Diamonds Educational Fund
In terms of the mining agreement entered into between the Group
and the Government of the Kingdom of Lesotho, the Group has an
obligation to provide funding for education and training scholarships.
The quantum of such funding is at the discretion of the Letšeng
Diamonds Education Fund Committee. The amount of the funding provided
for the current year was US$0.1 million (31 December 2013: US$0.1
million).
Contingencies
The Group has conducted its operations in the ordinary course of
business in accordance with its understanding and interpretation
of commercial arrangements and applicable legislation in the countries
where the Group has operations. In certain specific transactions,
however, the relevant third party or authorities could have a different
interpretation of those laws and regulations that could lead to
contingencies or additional liabilities for the Group. Having consulted
professional advisers, the Group has identified possible disputes
approximating US$3.5 million (December 2013: US$3.6 million) and
tax claims within the various jurisdictions in which the Group
operates approximating US$1.4 million (December 2013: US$1.2 million).
There remains a risk that further tax liabilities may potentially
arise. While it is difficult to predict the ultimate outcome in
some cases, the Group does not anticipate that there will be any
material impact on the Group's results, financial position or liquidity.
22. Related parties
Related party
Relationship
Jemax Management (Proprietary) Limited Common director
Jemax Aviation (Proprietary) Limited Common director
Gem Diamond Holdings Limited Common director
Non-controlling
Government of Lesotho interest
Geneva Management Group (UK) Limited Common director
======================================================== ==================
Refer to Note 1.1.2, Operational information, for information regarding
shareholding in subsidiaries.
Refer to the Directors' Report for information regarding the Directors.
2014 2013
US$'000 US$'000
======================================================== ======== ========
Compensation to key management personnel (including
Directors)
Share-based equity transactions 1 447 1 054
Short-term employee benefits 7 170 5 819
============================================================= ======== ========
8 617 6 873
============================================================= ======== ========
Fees paid to related parties
Jemax Aviation (Proprietary) Limited (73) (82)
Jemax Management (Proprietary) Limited (181) (98)
============================================================= ======== ========
Royalties paid to related parties
Government of Lesotho (22 102) (15 868)
============================================================= ======== ========
Lease and licence payments to related parties
Government of Lesotho (114) (112)
============================================================= ======== ========
Sales to/(purchases) from related parties
Jemax Aviation (Proprietary) Limited (36) 214
Geneva Management Group (UK) Limited (6) (6)
============================================================= ======== ========
Amount included in trade receivables owing by/(to)
related parties
Jemax Aviation (Proprietary) Limited 28 51
Jemax Management (Proprietary) Limited (8) (8)
============================================================= ======== ========
Amounts owing to related party
Government of Lesotho (3 167) (2 425)
============================================================= ======== ========
Dividends paid
Government of Lesotho (27 597) (5 938)
============================================================= ======== ========
Jemax Management (Proprietary) Limited and Jemax Aviation (Proprietary)
Limited provided administrative and aviation services with regard
to the mining activities undertaken by the Group. Geneva Management
Group (UK) Limited provided administration, secretarial and accounting
services to the Company. The above transactions were made on terms
agreed between the parties and were made on terms that prevail
in arm's-length transactions.
=================================================================================
23. Financial risk management
Financial risk factors
The Group's activities expose it to a variety of financial risks:
(a) Market risk (including commodity price risk and foreign exchange
risk);
(b) Credit risk; and
(c) Liquidity risk.
The Group's overall risk management programme focuses on the unpredictability
of financial markets and seeks to minimise potential adverse effects
on the Group's financial performance.
Risk management is carried out under policies approved by the Board
of Directors. The Board provides principles for overall risk management,
as well as policies covering specific areas, such as foreign exchange
risk, interest rate risk, credit risk, use of derivative financial
instruments and non-derivative financial instruments, and investing
excess liquidity.
There have been no changes in the financial risk management policy
since the prior year.
Capital management
The capital of the Company is the issued share capital, share premium
and treasury shares on the Group's statement of financial position.
The primary objective of the Group's capital management is to ensure
that it maintains a strong credit rating and healthy capital ratios
in order to support its business and maximise shareholder value.
The Group manages its capital structure and makes adjustments to
it, in light of changes in economic conditions. To maintain or
adjust the capital structure, the Group may issue new shares. The
management of the Group's capital is performed by the Board.
At 31 December 2014, the Group has US$41.6 million (31 December
2013: US$43.9 million) debt facilities available and continues
to have the flexibility to manage the capital structure more efficiently
by the use of these debt facilities thus ensuring that an appropriate
gearing ratio is achieved.
The debt facilities in the Group are as follows:
Unsecured - Standard Lesotho Bank - revolving credit facility
The Group, through its subsidiary, Letšeng Diamonds, has a
LSL250.0 million (US$21.6 million), three-year unsecured revolving
working capital facility. This facility is in the process of being
renewed for an additional three-year term and by year end an initial
term sheet had been signed. The renewed facility will bear interest
at the Lesotho prime rate.
At year end, there is no drawdown on this facility.
Unsecured - Nedbank Capital (a division of Nedbank Limited) - revolving
credit facility
The Company has a US$20.0 million three-year unsecured revolving
credit facility which is due for renewal in January 2016. This
facility bears interest at London USD Interbank three-month LIBOR
+5.33%.
At year end there is no drawdown on this facility.
Unsecured - Nedbank Capital (a division of Nedbank Limited) - nine-month
facility; currently being extended and refinanced through a six-year
project debt facility
This loan is a nine-month unsecured US$25.0 million facility which
was signed with Nedbank Capital on 16 January 2014 for the remaining
spend on the Ghaghoo Phase 1 development. The loan expired in October
2014, but has been extended in the interim to 30 April 2015 to
cater for the process of concluding the refinancing thereof into
a six-year secured project debt facility which will expire on 31
December 2020. The current facility bears interest at London USD
Interbank three-month LIBOR + 4% and the refinanced facility will
bear interest at London USD Interbank three-month LIBOR + 5.5%
At year end, this facility was fully drawn down.
Unsecured - Standard Lesotho Bank and Nedbank Limited - three-year
unsecured project debt facility for the new Coarse Recovery Plant
For the completion of the new Coarse Recovery Plant, a three-year
unsecured LSL140.0 million facility was concluded in June 2014.
This facility bears interest at South African JIBAR + 4.95%.
At year end, this facility was fully drawn down.
(a) Market risk
(i) Commodity price risk
The Group is subject to commodity price risk. Diamonds are not
homogeneous products and the price of rough diamonds is not monitored
on a public index system. The fluctuation of prices is related
to certain features of diamonds such as quality and size. Diamond
prices are marketed in US dollar and long-term US$ per carat prices
are based on external market consensus forecasts and contracted
sales arrangements adjusted for the Group's specific operations.
The Group does not have any financial instruments that may fluctuate
as a result of commodity price movements.
(ii) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange
risk arising from various currency exposures, primarily with respect
to the Lesotho loti, South African rand and Botswana pula. Foreign
exchange risk arises when future commercial transactions, recognised
assets and liabilities are denominated in a currency that is not
the entity's functional currency.
The Group's sales are denominated in US dollar which is the functional
currency of the Company, but not the functional currency of the
operations.
The currency sensitivity analysis below is based on the following
assumptions:
Differences resulting from the translation of the financial statements
of the subsidiaries into the Group's presentation currency of US
dollar, are not taken into consideration.
The major currency exposures for the Group relate to the US dollar
and local currencies of subsidiaries. Foreign currency exposures
between two currencies where one is not the US dollar are deemed
insignificant to the Group and have therefore been excluded from
the sensitivity analysis.
The analysis of the currency risk arises because of financial instruments
denominated in a currency that is not the functional currency of
the relevant Group entity. The sensitivity has been based on financial
assets and liabilities at 31 December 2014. There has been no change
in the assumptions or method applied from the prior year.
Sensitivity analysis
If the US dollar had appreciated/(depreciated) 10% against currencies
significant to the Group at 31 December 2014, income before taxation
would have been US$0.1 million higher/(lower) (31 December 2013:
US$0.1 million). There would be no effect on equity reserves other
than those directly related to income statement movements.
(iii) Forward exchange contracts
The Group enters into forward exchange contracts to hedge the exposure
to changes in foreign currency of future sales of diamonds at Letšeng
Diamonds. The Group performs no hedge accounting. At 31 December
2014, the Group has US$20.0 million notional cover (31 December
2013: US$nil) forward exchange contracts outstanding.
(iv) Cash flow interest rate risk
The Group's income and operating cash flows are substantially independent
of changes in market interest rates. The Group's cash flow interest
rate risk arises from borrowings. Borrowings issued at variable
rates expose the Group to cash flow interest rate risk. At the
time of taking new loans or borrowings management uses its judgement
to decide whether it believes that a fixed or variable rate borrowing
would be more favourable to the Group over the expected period
until maturity.
(b) Credit risk
The Group's potential concentration of credit risk consists mainly
of cash deposits with banks and other receivables. The Group's
short-term cash surpluses are placed with the banks that have investment
grade ratings. The maximum credit risk exposure relating to financial
assets is represented by the carrying value as at the reporting
dates. The Group considers the credit standing of counterparties
when making deposits to manage the credit risk.
Considering the nature of the Group's ultimate customers and the
relevant terms and conditions entered into with such customers,
the Group believes that credit risk is limited as customers pay
on receipt of goods.
No other financial assets are impaired or past due and accordingly,
no additional analysis has been provided.
No collateral is held in respect of any impaired receivables or
receivables that are past due but not impaired.
(c) Liquidity risk
Liquidity risk arises from the Group's inability to obtain the
funds it requires to comply with its commitments including the
inability to sell a financial asset quickly at a price close to
its fair value. Management manages the risk by maintaining sufficient
cash, marketable securities and ensuring access to shareholding
funding. This ensures flexibility in maintaining business operations
and maximises opportunities. Furthermore, the Company has available
debt facilities of US$41.6 million at year end.
The table below summarises the maturity profile of the Group's
financial liabilities at 31 December based on contractual undiscounted
payments:
2014 2013
US$'000 US$'000
========================================================== ========== =========
Floating interest rates
Interest-bearing loans and borrowings
- Within one year 31 381 -
- After one year but not more than five years 8 041 -
========================================================== ========== =========
Total 39 422 -
========================================================== ========== =========
Trade and other payables
- Within one year 43 711 37 086
- After one year but not more than five years 1 274 1 109
========================================================== ========== =========
Total 44 985 38 195
========================================================== ========== =========
24. Share-based payments
The expense recognised for employee services received during the
year is shown in the following table:
2014 2013
US$'000 US$'000
======================================================= ========= ========
Equity-settled share-based payment transactions
charged to the income statement 1 740 932
Equity-settled share-based payment transactions
capitalised 224 232
============================================================ ========= ========
1 964 1 164
============================================================ ========= ========
The long-term incentive plans are described below:
Employee Share Option Plan (ESOP)
Certain key employees are entitled to a grant of options, under
the ESOP of the Company. The vesting of the options is dependent
on employees remaining in service for a prescribed period (normally
three years) from the date of grant. The fair value of share options
granted is estimated at the date of the grant using a Black Scholes
simulation model, taking into account the terms and conditions upon
which the options were granted. It takes into account projected
dividends and share price fluctuation co-variances of the Company.
There is a nil or nominal exercise price for the options granted
at admission of the Company. The contractual life of the options
is 10 years and there are no cash settlement alternatives. The Company
has no past practice of cash settlement.
24. Share-based payments
The expense recognised for employee services received during the
year is shown in the following table:
2014 2013
US$'000 US$'000
======================================================= ========= ========
Equity-settled share-based payment transactions
charged to the income statement 1 740 932
Equity-settled share-based payment transactions
capitalised 224 232
============================================================ ========= ========
1 964 1 164
============================================================ ========= ========
The long-term incentive plans are described below:
Employee Share Option Plan (ESOP)
Certain key employees are entitled to a grant of options, under
the ESOP of the Company. The vesting of the options is dependent
on employees remaining in service for a prescribed period (normally
three years) from the date of grant. The fair value of share options
granted is estimated at the date of the grant using a Black Scholes
simulation model, taking into account the terms and conditions upon
which the options were granted. It takes into account projected
dividends and share price fluctuation co-variances of the Company.
There is a nil or nominal exercise price for the options granted
at admission of the Company. The contractual life of the options
is 10 years and there are no cash settlement alternatives. The Company
has no past practice of cash settlement.
Non-Executive share awards
In order to align the interests of the Chairman and independent
Directors with those of the shareholders, the non-Executive Directors
were invited to subscribe for shares at nominal value on terms set
out in the prospectus. The non-Executive Directors shall not be
eligible to participate in the short-term incentive bonus scheme
(STIBS) or ESOP or any other performance-related incentive arrangements
which may be introduced by the Company from time to time. There
are currently no non-Executive share awards.
ESOP for March 2012 (long-term incentive plan (LTIP))
On 20 March 2012, 1 347 000 options were granted to certain key
employees under the LTIP of the Company. Of the total number of
shares, 449 000 were nil value options and 898 000 were market value
options. The exercise price of the market value options is GBP3.00
(US$4.76), which was equal to the market price of the shares on
the date of the grant. Of the 1 347 000 options originally granted,
only 747 000 are still outstanding following the resignation of
a number of employees. The vesting of the options will be subject
to the satisfaction of performance conditions over a three-year
period that is considered appropriately stretching. The awards which
vest on 20 March 2015 are exercisable between 20 March 2015 and
20 March 2022. If the performance conditions are not met, the options
lapse. The fair value of the options granted is estimated at the
date of the grant using a Monte Carlo simulation model, taking into
account the terms and conditions upon which the options were granted,
projected dividends, share price fluctuations, the expected volatility,
the risk-free interest rate, expected life of the options in years
and the weighted average share price of the Company. The contractual
life of each option granted is three years.
ESOP for September 2012 (LTIP)
On 11 September 2012, 936 000 options were granted to certain key
employees (excluding Executive Directors) under the LTIP of the
Company. Of the total number of shares, 312 000 were nil value options
and 624 000 were market value options. The exercise price of the
market value options is GBP1.78 (US$2.85), which was equal to the
market price of the shares on the date of grant. Of the 936 000
options originally granted, only 528 000 are still outstanding following
the resignation of a number of employees. The awards which vest
over a three-year period in tranches of a third of the award each
year, dependent on the performance targets for the 2013, 2014 and
2015 financial years being met, are exercisable between 1 January
2016 and 31 December 2023. The vesting of the options is subject
to performance conditions based on goals relating to the Group and
individual performance which are classified as non-market conditions.
The fair value of these options is estimated in a similar manner
as the March 2012 LTIP.
ESOP for March 2014 (LTIP)
In March 2014, 625 000 nil-cost options were granted to certain
key employees under the LTIP of the Company. The vesting of the
options will be subject to the satisfaction of certain performance
as well as service conditions classified as non-market conditions.
The options which vest over a three-year period in tranches of a
third of the award each year are exercisable between 19 March 2017
and 18 March 2024. If the performance or service conditions are
not met, the options lapse. As the performance conditions are non-market-based
they are not reflected in the fair value of the award at grant date,
and therefore the Company will assess the likelihood of these conditions
being met with a relevant adjustment to the cumulative charge as
required at each financial year end. The fair value of the nil-cost
options is GBP1.74 (US$2.87).
ESOP for June 2014 (LTIP)
In June 2014, 609 000 nil-cost options were granted to the Executive
Directors under the LTIP of the Company. The vesting of the options
will be subject to the satisfaction of certain market and non-market
performance conditions over a three-year period. Of the 609 000
nil-cost options, 152 250 relates to market conditions with the
remaining 456 750 relating to non-market conditions. The options
which vest are exercisable between 10 June 2017 and 9 June 2024.
If the performance or service conditions are not met, the options
lapse. The performance conditions relating to the non-market conditions
are not reflected in the fair value of the award at grant date.
At each financial year end, the Company will assess the likelihood
of these conditions being met with a relevant adjustment to the
cumulative charge as required. The fair value of the nil-cost options
relating to non-market conditions is GBP1.61 (US$2.70). The fair
value of the options granted, relating to the market conditions,
is estimated at the date of the grant using a Monte Carlo simulation
model, taking into account the terms and conditions upon which the
options were granted, projected dividends, share price fluctuations,
the expected volatility, the risk-free interest rate, expected life
of the options in years and the weighted average share price of
the Company.
Movements in the year
ESOP
The following table illustrates the number ('000) and movement in
share options during the year:
2014 2013
'000 '000
================================================ ======= ==================
Outstanding at beginning of year 18 33
Exercised during the year - (15)
================================================ ======= ==================
Balance at end of year 18 18
================================================ ======= ==================
Exercisable at end of year - -
================================================ ======= ==================
The following table lists the inputs to the model used for the plan
for the awards granted under the ESOP:
Dividend yield (%) -
Expected volatility (%) 22
Risk-free interest rate (%) 5
Expected life of option (years) 10
Weighted average share price 18.28
Model used Black Scholes
================================================ ======= ==================
The fair value of share options granted is estimated at the date
of the grant using a Black Scholes simulation model, taking into
account the terms and conditions upon which the options were granted,
projected dividends, share price fluctuations, the expected volatility,
the risk-free interest rate, expected life of the option in years
and the weighted average share price of the Company.
The ESOP is an equity-settled plan and the fair value is measured
at the grant date.
ESOP for June 2014, March 2014, September 2012, March 2012 and 2011
(LTIP)
The following table illustrates the number ('000) and movement in
the outstanding share options during the year:
2014 2013
'000 '000
================================================ ======= ==================
Outstanding at beginning of year 2 073 4 501
Granted during the year 1 234 -
Exercised during the year - (3)
Forfeited (862) (2 425)
================================================ ======= ==================
Balance at end of year 2 445 2 073
================================================ ======= ==================
The following table lists the inputs to the model used for the market
conditions awards granted during the current and prior year:
LTIP LTIP LTIP
June September March LTIP
2014 2012 2012 2011
=================================== =========== =========== =========== ===========
Dividend yield (%) - - - -
Expected volatility (%) 37.25 42.10 63.88 66.32
Risk-free interest rate (%) 1.94 0.33 1.20 1.59
Expected life of option (years) 3.00 3.00 3.00 3.00
Weighted average share price (US$) 2.70 2.85 4.76 4.38
Fair value of nil value options
(US$) 1.83 2.85 3.76 3.01
Fair value of market value options
(US$) - 1.66 2.27 1.95
Model used Monte Carlo Monte Carlo Monte Carlo Monte Carlo
=================================== =========== =========== =========== ===========
The fair value of share options granted is estimated at the date
of the grant using a Monte Carlo simulation model, taking into account
the terms and conditions upon which the options were granted, projected
dividends, share price fluctuations, the expected volatility, the
risk-free interest rate, expected life of the option in years and
the weighted average share price of the Company.
25. Dividends proposed
2014 2013
US$'000 US$'000
================================================== ========= =========
Proposed dividends on ordinary shares
Final cash dividend for 2014: 5 cents per
share (2013: nil) 6 913 -
=================================================== === ========= =========
Proposed dividend on ordinary shares is subject to approval at the
AGM to be held on 2 June 2015 and is not recognised as a liability
as at 31 December.
==============================================================================
26. Material partly owned subsidiaries
Financial information of Letšeng Diamonds, a subsidiary which
has a material non-controlling interest, is provided below.
Proportion of equity interest held by non-controlling interests
Country
of
incorporation
Name and operation 2014 2013
================================================= =============== ========= ==========
Letšeng Diamonds (Proprietary) Limited Lesotho 30% 30%
Accumulated balances of material non-controlling
interest 66 148 72 454
Profit allocated to material non-controlling
interest 24 782 15 702
================================================================== === ========= ==========
The summarised financial information of this subsidiary is provided
below. This information is based on amounts before inter-company
eliminations.
Summarised income statement for the year
ended
31 December
2014 2013
US$'000 US$'000
================================================= =============== ========= ==========
Revenue 277 908 201 310
Cost of sales (138 293) (114 150)
================================================================== === ========= ==========
Gross profit 139 615 87 160
Royalties and selling costs (22 379) (16 099)
Other income/(costs) 3 384 (860)
================================================================== === ========= ==========
Operating profit 120 620 70 201
Net finance income/(costs) 2 045 (614)
Profit before tax 122 665 69 587
================================================================== === ========= ==========
Income tax expense (40 059) (17 246)
================================================================== === ========= ==========
Profit for the year 82 606 52 341
================================================================== === ========= ==========
Total comprehensive income 82 606 52 341
================================================================== === ========= ==========
Attributable to non-controlling interest 24 782 15 702
Dividends paid to non-controlling interest 27 597 5 938
================================================================== === ========= ==========
Summarised statement of financial position
as at 31 December
2014 2013
US$'000 US$'000
================================================ ========== =========
Assets
Non-current assets
Property, plant and equipment and intangible
assets 252 397 281 017
Current assets
Inventories, receivables and other assets
and cash and short-term deposits 81 958 64 862
================================================= === ========== =========
Total assets 334 355 345 879
================================================= === ========== =========
Non-current liabilities
Trade and other payables, provisions and
deferred tax liabilities 69 557 81 951
Current liabilities
Interest-bearing loans and borrowings and
trade and other payables 44 306 22 415
================================================= === ========== =========
Total liabilities 113 863 104 366
================================================= === ========== =========
Total equity 220 492 241 513
================================================= === ========== =========
Attributable to:
Equity holders of parent 154 345 169 059
Non-controlling interest 66 148 72 454
Summarised cash flow information for the
year ended 31 December
Operating 82 581 85 961
Investing (62 730) (68 782)
Financing (15 496) (8 529)
================================================= === ========== =========
Net increase in cash and cash equivalents 4 355 8 650
================================================= === ========== =========
27. Events after the reporting period
No other fact or circumstance has taken place between the end of
the reporting period and the approval of the financial statements
which, in our opinion, is of significance in assessing the state
of the Group's affairs.
=============================================================================
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR PKADDNBKBCND
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