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6Gem DiamondsAnnual Report 20152015 highlightsFinancial highlightsUS millionFY2015FY2014RevenueCorporate expensesUnderlying EBITDAProfit for the year (before exceptional items)Profit for the year (after exceptional items)Basic earnings per share (EPS) (before exceptional items) (cents)Basic EPS (after exceptional items) (cents)Cash and short-term depositsBank loans .4106.060.457.925.824.0110.737.1%changeê8ê6ê2é 12é 34é 17é 57ê 23ê 18Refer to Note 3, Operating profit, for definition of non-GAAP measures.Operational highlightsHSSE highlightsWaste tonnes mined (millions)24.0252019.117.419.9 5 star rating for Letšengmanagement of HSSE13.715105020112012201320142015Production tonnes treated (millions)86.86.66.266.57.0 4 star rating for Ghaghoomanagement of HSSEZero42020112012201320142015Carats produced (thousands)200200Letšeng achieves 142015474920142015Capital expenditure (US million)6052504030Lost time injury-free andfatality-free year292520100201120122013ISO 14001 andOHSAS 18001certification

Strategic reportBusiness overviewStrategic reportManagement reviewLetšengStrategic reportOperating reviewGovernanceGhaghoo   Eleven 100 caratsrecovered during the year,making this a new recordfor the mine   89 107 carats soldduring the year achievingUS 14.4 million and US 162average US per carat   The largest diamondrecovered during the year,a 357 carat Type IIdiamond, sold forUS 19.3 million, obtainingthe highest US valueever achieved for a singleLetšeng diamond   Largest diamond recoveredduring the year was48 carats   Plant 2 Phase 1 upgradecompleted in March, onschedule and within budgetincreasing capacity by250 000 tonnes per annum   Optimised life ofmine plan approved andimplemented in Maysignificantly enhancing themine’s net present valuethrough optimised wastestripping and highergrade, higher-valueSatellite pipe ore beingmined   Coarse Recovery Plantconstruction completedon schedule and withinbudget. The unit recovereda high-quality 52 caratType II diamond on itsfirst day of operation   US 65 226 per carat wasthe highest US per caratachieved during the yearfrom a 108 carat Type IIdiamond   Achieved 430 consecutivelost time injury (LTI) andfatality-free days   Gem Diamonds sharesplatform with LesothoPrime Minister atCommonwealth Conferencein Malta to promoteinvestment in Lesotho   Recovered two bluediamonds of 2.19 and1.49 carats, being thelargest blue diamondsrecovered to date   Achieved 418 consecutiveLTI and fatality-free days   The water fissure wassuccessfully sealed   Recovered gradeexceeded reserve gradeFinancialstatementsGem DiamondsAnnual Report 20157Group   Michael Lynch-Bell, anexperienced mining andmetals non-ExecutiveDirector, appointed asnon-Executive Directorand Audit CommitteeChairman   Maiden dividend of5 US cents per share paidto shareholders, amountingto US 6.9 million   Refinanced US 41 millionworth of facilities forextended periods   The Diamond ProducersAssociation was formed,with Gem Diamonds asa founding memberalong with industry peers– De Beers, Alrosa andRio Tinto   Corporate costs reduced by24% since 2011

8Gem DiamondsAnnual Report 2015Chairman’s statementA strong set of resultsDear shareholder,It is my pleasure to present theGem Diamonds’ 2015 Annual Report.I believe this report offers a fair andbalanced account of the business, itsperformance over the last year and itsprospects going forward.Strategic focusStrategic clarityInvesting in low-cost, high-return innovativeprojectsRobust corporate governanceDividend paying policyAlthough 2015 was a challenging yearfor the diamond mining industry, it ispleasing to report that the Group hasdelivered a strong set of results, bothoperationally and financially. Despitecontinued downward pressure on bothrough and polished diamond pricesduring the period, particularly in thecommercial diamonds, robust priceswere achieved for the Group’s high-endLetšeng diamonds. These strong resultsare the outcome of the strategic planadopted by the Board two years agowhereby the focus was placed onmaximising revenue from core assetsthrough enhancing operationalefficiencies and investing in low-costand high-return innovative projects.This strategic focus has positionedGem Diamonds well for sustainablegrowth and, following another strong setof results during 2015, notwithstandingchallenging market conditions, theGroup ended the year with net cash ofUS 55.3 million. Moreover, the Groupachieved a remarkable milestone withno lost time injuries recorded at anyGem Diamonds’ operations during 2015.This achievement is a hallmark of strongoperational management.Roger DavisThe Group continued to demonstratecapital discipline and, at Letšeng, wehave successfully completed various lowcapital incremental growth projects ontime and on budget. The addition of thePlant 2 upgrade to the treatment plantand the new Coarse Recovery Plant hasresulted in a rise in the recoveries of theimportant 100 carat diamonds from anaverage of six per year to 11 in 2015. Inaddition, the revised optimised life ofmine plan for Letšeng which wasimplemented during the year hassignificantly enhanced the value ofthe mine.

Strategic reportBusiness overviewStrategic reportManagement reviewAt Ghaghoo, it is pleasing that theinitial key objectives set out for thedevelopment of Phase 1 of this assetwere achieved and are all the morenoteworthy due to the challengingunderground conditions encountered.The depressed market has impactedthe prices achieved for our Ghaghooproduction. Consequently, in the currentclimate, and after reviewing variousoptions, it was considered prudent todownsize the operation for 2016 toreduce cash consumed during its finaldevelopment. It is important to notethat Ghaghoo remains a key futureoption for the Group and its expansionopportunities, when diamond pricesimprove, will further deliver on theBoard’s strategic plan.Gem Diamonds continues to seekopportunities to maximise revenue fromthe sale of its rough diamonds througha combination of channels, includingtenders, auctions, off-take arrangementsand partnerships. The Group’s multichannel marketing strategy is effectivelymanaged by the Gem Diamonds salesand marketing team in Antwerp andcontinues to develop relationships withnew and existing clients.DividendA maiden dividend of US 6.9 million(5 US cents per share) was paid toshareholders in June 2015 in respect ofthe 2014 year. This was a significantmilestone for the Company. Followingthe positive results achieved in 2015and in applying the dividend policyimplemented in the prior year, the Boardis pleased to recommend the payment ofan ordinary cash dividend of 5 US centsper share (US 6.9 million) which will beproposed at the 2016 Annual GeneralMeeting. In addition, a special dividendof 3.5 US cents per share (US 4.8 million)will also be proposed representing thecash saving arising from the settlementof a previous tax assessment. The Groupwill continue to adopt a prudent capitalmanagement strategy and stringent costcontrols at the operations in order toremain in a position to recommenddividend payments to shareholders.Strategic reportOperating reviewGovernanceFinancialstatementsStriving for zero harm andpositive contributionsGem Diamonds strives to mine itsdiamonds in such a way that promotessocially and environmentally desirableoutcomes. It is therefore pleasing toreport that in addition to having anLTI-free year during 2015, no major orsignificant environmental or stakeholderincidents were recorded.The Group is dedicated to creating andmaintaining stakeholder relationshipsthat forge shared value and leave apositive legacy in its project affectedcommunities. Focused engagement atall levels of the business ensures thatcommunity projects are relevant andfeedback is incorporated into strategiesgoing forward. In addition, robustinternational best practice guidelines areimplemented across the Group to ensureoptimal governance.Ensuring high levels ofcorporate governanceThe Board is committed to the higheststandards of corporate governanceand believes that strong corporategovernance is key to the Group’s abilityto create sustainable returns for allstakeholders. The Board thereforecontinues to support the principlesencompassed in the revised UKCorporate Governance Code.During the year, the Board welcomedMichael Lynch-Bell as an independentnon-Executive Director and the AuditCommittee Chairman. Mr Lynch-Bell waspreviously a senior resources partnerat Ernst & Young (EY) for over 27 years.His wealth of experience through hisnon-executive directorships at threeother mining and mineral companies willcomplement the skill set of the Board.Gem DiamondsAnnual Report 20159After eight years of service as ChiefOperating Officer and Executive Director,Alan Ashworth has announced hisintention to retire in June 2016. The Boardwould like to express its appreciation toAlan for his significant contribution to theGroup over the years.OutlookAlthough 2016 has seen a positive startwith improved rough diamond pricesbeing reported across the industry,significant global economic uncertaintyremains. Nevertheless, throughdisciplined execution of its core strategy,I believe that the Group is well positionedto further maximise shareholder returns.I would like to take this opportunity toacknowledge the hard work of thepeople who have made the successesof the 2015 year possible. I would liketo give my heartfelt thanks to my fellowBoard members for their insightfulleadership and express my appreciationto the Gem Diamonds managementteam. I would also like to thank our hostgovernments of Lesotho and Botswanaand, of course, our shareholders for theircontinued confidence and support.Finally, I would like to thank allGem Diamonds employees for theirdedication and hard work throughoutthe year.Roger DavisNon-Executive Chairman14 March 2016

10Gem DiamondsAnnual Report 2015Our strategyGem Diamonds’ strategy is based on three broad pillars – growth, value creationand sustainability.We believe this offers us the flexibility to generate maximum returns for our shareholders in a sustainable manner. Our focus isprimarily on extracting diamonds through mining. To complement our main focus of mining, we have expanded our attention furtheralong the diamond value chain through our strategic sales, marketing and manufacturing activities. Our overarching objective is todeliver sustainable returns for our investors while optimising the benefit for our communities and minimising our impacton the environment.StrategyGrowthValue creationSustainabilityOrganic growthOptimising the Letšeng mine anddeveloping the Ghaghoo mine usingavailable capital to deliver increasedreturns to shareholders.Operational excellenceFocusing on cost reductions andenhancing current production efficiency.Stakeholders and communitiesBuilding long term, transparent andmutually beneficial relationships with allstakeholder groups.External growthAssessing external opportunities againststrict investment criteria.Value accretive opportunitiesGenerating additional value throughsales and marketing capabilities,incorporating manufacturing anddownstream initiatives.Optimising returnsImproving the quality of our assetsthrough life of mine extensions.Strengthening the capital structure.Optimising revenue achieved fordiamond production through reductionsin diamond damage and theft.Health, safety and environmentPromoting a culture of zero harm andresponsible care as our workforce is ourmost valued asset.Delivering sustainable returns for ourinvestors while optimising the benefit forour communities and minimising ourimpact on the environment.Value createdKPIKPIKPIRevenue: US 249 millionCapital expenditure: US 49 millionLost time injury frequency rate: 0.00Underlying EBITDA: US 104 millionProduction tonnes treated: 7.0 millionAll injury frequency rate: 2.87Return on average capital employed:20%Carats produced: 200 078Zero fatalitiesWaste tonnes mined: 24.0 millionZero major or significant communityand environmental incidentsBasic EPS (before exceptional item):30.2 US centsFree cash generated: US 14 millionZero major or significant incidentsof HSSE legal non-complianceCorporate social investment (CSI)spend: US 0.6 million

Strategic reportBusiness overviewStrategic reportManagement reviewStrategic reportOperating reviewGovernanceFinancialstatementsGem DiamondsAnnual Report 201511How we differentiate ourselvesOur assetsLetšeng, our core asset, produces thehighest US per carat diamonds in theworld. We implement innovativesolutions to further enhance this value.The full development of Ghaghoo offersan opportunity to further enhance theGem Diamonds investment proposition.Strong balance sheet managementWe focus on maximising revenue fromour core assets through enhancingoperational efficiencies and investing inlow capital, quick payback projects. Thiscash generation and capital disciplinehas positioned us well for sustainablegrowth into the long term.Shareholder returnWe are committed to sustainingshareholder value through theimplementation of appropriate dividendpolicies and we aim to pay dividendsannually.Corporate responsibilityMaintaining safe operations andminimising social and environmentalimpact safeguards our social licenceto operate and further promotes ourcorporate brand.ingI deginet Analysing and mapping ourexceptional diamonds to understandand achieve highest rough valuethrough multiple selling channels.Manufacturing of select high-valuerough diamonds, unlockingadditional value throughpolished sales.Identifying, evaluating anddeveloping diamond depositsthat are potentially valuable.ssingecoPrWhat weWhatwe dodouIdentifying the valuable,economical and technicallyfeasible part of theResource to be minedeservesMining in both open-pitand underground minesefficiently and productivelyas safe as possibleMiningResoPlanning and developingRIncreasing recoveries andimprove finished productquality through initiativesof reducing diamonddamage and theft andincreasing liberation ofdiamondsntifyingercSal es,markdmanractufuanRobust corporate governanceWe are committed to the pursuit of bestpractice in governance principles. Wehold to the fact that effective corporategovernance is essential to securing theGroup’s long-term success and viability.Focused risk management is a coreelement of our business. Our Board hasoverall accountability for ensuring thatrisk is effectively managed, reviewed andcontinually assessed across the Group.

12Gem DiamondsAnnual Report 2015Key performance indicatorsKey performance indicators are used to assess the performance of the Groupagainst its strategy. These indicators are monitored continuously to effectivelyevaluate the performance of the Group over the short, medium and long term.GrowthUnderlying EBITDA (US million)/Underlying EBITDA margin (%)Revenue (US 01320142492015180160140120100806040200Return on average capital employed(ROACE) 22013DefinitionDefinitionDefinitionRevenue represents the value of goodssold during the year (both rough andpolished) and measures the level ofoperating activity and growth of thebusiness. Revenue for the year is asreported in the consolidated incomestatement and excludes revenue achievedby Ghaghoo on the basis that themine had not reached full commercialproduction by the end of the year.Underlying EBITDA means earningsbefore interest, tax, depreciation andamortisation. It excludes share-basedpayments, other income, foreignexchange differences and exceptionalitems.Underlying EBITDA margin is calculatedas underlying EBITDA as a percentage ofrevenue. Both these indicators provide ameasure of the operating profitability ofthe business. Refer to Note 3, Operatingprofit, in the financial statements for thecalculation of underlying EBITDA.ROACE is a pre-tax measure of theefficiency with which the Groupgenerates operating profits from itscapital. ROACE is calculated as underlyingEBITDA (as per Note 3, Operatingprofit, in the financial statements) lessdepreciation and amortisation (EBIT)divided by average capital employed(being total equity and non-currentliabilities per the consolidated statementof financial position).CommentaryCommentaryCommentaryThe Group is committed to maximisingthe value achieved on rough andpolished diamond sales. In a year ofadverse global market conditions, Grouprevenue decreased by 8% compared to2014 driven by a lower volume of roughcarat sales of 6% and a lower overallUS per carat achieved of 9% fromLetšeng’s production. Ghaghoo held itsfirst sale during February 2015, and intotal completed three sales during theyear, generating US 14.4 million whichis not included in Group revenue. Totalsales for the year was US 263.9 millionincluding these sales.Underlying EBITDA has remained inline with that achieved in the prioryear, with underlying EBITDA marginat 42% outperforming the prior year’smargin. This reflects the continuedcost management and the focus onoperational efficiency during the year,notwithstanding the lower revenueachieved. Underlying EBITDA does notinclude any results from Ghaghoo dueto the mine not having reached fullcommercial production.The weakening of the Lesotho loti(pegged to the South African rand) andthe British pound has had a positiveimpact on the translation of the localcosts into US dollars.Pre-tax ROACE achieved 20%, in line withthe prior year, based on similar levelsof underlying EBITDA. Prior years’ ROACEis as reported at that point in time andincludes all operations in existence inthose relevant years.The key performance indicators exclude the impact of any discontinued or disposed operations in the prior years unless otherwise stated.

Strategic reportBusiness overviewStrategic reportManagement reviewStrategic reportOperating reviewFinancialstatementsGovernanceGem DiamondsAnnual Report 201513KPIs that are used as a measure in the incentive arrangements for the remuneration of executi

2 Gem Diamonds Annual Report 2015 About Gem Diamonds Gem Diamonds is a leading producer of high-value diamonds. The Group owns the Letšeng mine in Lesotho and the Ghaghoo mine in Botswana. The Letšeng mine is renowned for its regular production of large, top colour, exceptional white diamonds, making it the highest average dollar per carat .