Introduction

While the 2018 year was characterised by the recoveries of exceptional, high-quality diamonds, 2019 was a milestone year for Gem Diamonds given the successful conclusion of the mining lease renewal at Letšeng. This agreement signals the continuation of a longstanding, mutually beneficial partnership between Gem Diamonds and the people of Lesotho. Furthermore, we believe that the renewal was also a firm endorsement of the Company’s significant economic and social contribution to the country.

Understanding our market context

2019 was a turbulent year for the diamond industry, and especially for listed diamond stocks.  Prices for smaller, commercial-type goods remained under pressure with polished inventory levels remaining high. Furthermore, the persistence of financing challenges, specifically in the midstream segment, have caused cash-flow concerns for a number of manufacturing operations. This, in many cases, has forced manufacturers to reduce stock levels, resulting in increased supply by diamond producers in an already saturated market.

During the year, this pricing pressure began to extend to large high-value diamonds – which had previously been protected from this exposure – albeit to a much lesser extent than the smaller, commercial-type rough diamonds. The price for Letšeng's  large, high-quality production is, however, expected to remain less vulnerable to market pressures over time.

In the medium to long term, we anticipate that rough diamond prices will be bolstered by favourable demand/supply fundamentals, underpinned by continued growth in demand from emerging markets, coupled with limited increase in supply. In the short term, supply is expected to decrease with the depletion of existing mines.

Fostering mutually beneficial partnerships

That Gem Diamonds was entrusted with the Letšeng lease, which is by any measure one of the Lesotho people's most valuable assets, indicates to me that we have earned the trust of the government and of the people who elected that government. The lease renewal is an acknowledgement of our commitment to being a responsible custodian of this precious asset. In fact, at the opening ceremony for the newly constructed footbridge and Chief’s office at Pae-la-Itlhatsoa, Lesotho’s Honourable Minister of Mines commented that he is “very proud of the Letšeng mine... they truly are part of this community.”

This sentiment is both deeply appreciated and reciprocated. The Letšeng mine operates within a complex socio-economic environment that existed before Gem Diamonds was present and will continue to exist long after the full life of the mine. We recognise that we must earn our place in this community and that there are no short cuts to becoming valued partners in the region. Receiving such a commendation from the Minister was a validation of the extensive work we have done in this regard, and a recognition of our role in creating mutual value, of which we are incredibly proud.

Safeguarding the health and well-being of our people

We seek to engage, develop and retain our incredible employees, understanding that our people make the success of the Group possible. We are committed to providing a working environment that actively promotes their health and safety, as well as providing opportunities for further training and professional development.

It is therefore with regret and sadness that I report that following a fatality-free period of six years at Letšeng, a fatality occurred in February 2019, whereby an operator of a subcontractor's vehicle was involved in a vehicle accident.  

The core of our safety ethos is to build on the culture of behaviour-based care at work and to strive for zero harm, seeking to achieve our operational goals within a sustainable development framework. During the year, extensive work was carried out to further entrench this ethos. (For more information, please see our safety case study: Ensuring safety is at the forefront of our thinking.)

Ensuring sustainable business transformation

During the 2019 year, the Group successfully concluded the implementation of the Business Transformation programme and is on track to deliver the planned US$100 million in revenue, productivity and cost-saving by 2021.

Going forward, the focus has shifted to ensuring the sustainability of these improvements. Therefore, to derive lasting benefit from the initiatives already instituted and to ingrain a culture of further improvement, we have implemented a business-wide Continuous Improvement (CI) programme, appointing a Head of CI, and two managers to head up the initiative in terms of mining and processing respectively, in what has effectively become a CI department.

Looking ahead

We continue to seek ways to improve our performance across all pillars of our business – financial and operational, governance and ethics, social, employees and environmental. We therefore look forward to the launch of our organisational purpose and UN SDG programmes in 2020. We anticipate that this work will provide the platform to formalise and expand many of the cultural and sustainability drives that have developed throughout the organisation over the years

Appreciation

I want to extend my appreciation to the Board for their wise counsel and guidance throughout the year.

I would also like to thank our employees across the Group for making the Business Transformation process a success. Moreover, the fact that the Lesotho Government has seen fit to entrust us with its most valuable asset is an acknowledgement of the contribution we have each made, individually and collectively, over the past 15 years.  

The mining lease renewal also reflects the support and willingness to establish a mutually beneficial relationship on the part of the government and mining ministry. For that, I would like to thank them.

Finally, to all our stakeholders, thank you for your continued support.

Clifford Elphick
Chief Executive Officer