Operating context

Some of the diamond sector's key trends and the factors that are influencing our business include:

TRENDS
AND
IMPACT

Depressed small, commercial diamond market
The demand for smaller commercial goods remains under pressure.

Robust demand for exceptional diamonds
The demand for Letšeng's high-value diamonds remains resilient to fluctuating market prices, and prices stayed firm in 2017.

Millennial consumers
As millennials become an increasingly influential part of our consumer market, their behaviour and values influence market trends. Research conducted by the Diamond Producer's Association (DPA), of which Gem Diamonds is a member, has shown that the millennial generation value authenticity and rarity. The DPA's recent campaign has, therefore, focused on the slogan 'Real is rare. Real is a diamond', highlighting the unique nature of diamonds.

Focus on responsible sources of jewellery
Consumers are looking to use their purchasing power to support brands they believe in and punish those perceived to be perpetrating social ills. The bad publicity the diamond trade has received concerning 'blood diamonds' has resulted in increasing importance placed on where and how diamonds are mined.

Socio-political uncertainty
Greater risks in emerging market economies – social, regulatory and political risk can lead to rapidly fluctuating environments.

Currency volatility
We receive our revenue in US$, while we incur costs in local currencies. Volatility of these currencies against the dollar affects our profitability and cash-flow.

Heightened activism
In the connected, digital age, heightened activism means that remaining, and being seen as, a responsible corporate citizen is critical to protecting companies brands.

OUR RESPONSE

The strategic focus of the Group remains on creating value by focusing on mining and selling diamonds as efficiently and responsibly as possible. We entrench sustainability into every facet of our business.

By maintaining safe operations and minimising social and environmental impacts, we safeguard our social licence to operate and promote our corporate brand.

We fully support the objectives of the Kimberley Process, which aims to eliminate the global trade in conflict diamonds and adhere strictly to its provisions.

In response to the depressed market for smaller commercial goods and following the placement of Ghaghoo on care and maintenance, we are currently pursuing the sale of this asset.

Due to the robust demand for the exceptional diamonds of Letšeng, a successful pilot tender viewing was held in Tel Aviv in October as part of the sales strategy to expand marketing footprint to international sales.

Changes to the political and regulatory environments are closely monitored. Where necessary we engage in dialogue with the relevant government representatives, building relationships and remaining well informed of developments in this sphere.

It's our policy to hedge a portion of future diamond sales in the short term when appropriate, reducing the risk of currency volatility.