![Graphics]()

2nd Floor, Coastal Building,

Wickham’s Cay II, PO Box 2221, Road Town,

Tortola, British Virgin Islands, Registration number: 669758

#### GEM DIAMONDS LIMITED

#### www.gemdiamonds.com

#### GEM DIAMONDS ANNUAL REPORT AND ACCOUNTS 2021

## ANNUAL REPORT

## AND ACCOUNTS

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

1

### CONTENTS

#### PRESENTING THE GEM

#### DIAMONDS ANNUAL REPORT

#### AND ACCOUNTS 2021

1

#### STRATEGIC REPORT

2

Our guiding principles 3

The salient features of 2021 4

2021 in numbers 6

How the Group is structured 7

Our business model 8

Why invest in Gem Diamonds 10

Overarching business drivers 11

Chairperson's statement 14

Our stakeholder relationships 17

Our strategy 22

Our approach to climate change 26

Risk management 37

Viability statement 45

#### PERFORMANCE REVIEW

47

Chief Executive's review 48

Chief Financial Officer's review 52

Operations review 60

Sustainability 67

#### GOVERNANCE

86

Chairperson's introduction to corporate governance 87

Governance at a glance 90

Directorate and executive management 92

Corporate governance statement 94

Nominations committee 106

Sustainability committee 109

Audit committee 113

Remuneration committee 118

#### DIRECTORS' REPORT

144

#### FINANCIAL STATEMENTS

147

#### REPORT ON PAYMENTS TO

#### GOVERNMENTS

212

#### ADDITIONAL INFORMATION

215

Abbreviations and definitions 216

Contact details and advisers 217

Directors' and Executive Management CVs 218

Disclosures related to the recommendations of the TCFD 223

This icon indicates additional information available

on the Group’s website at www.gemdiamonds.com

This icon refers the reader to further information

about the Group’s sustainable development activities

on the Group’s website at www.gemdiamonds-

reports.co.za/reports/sd-2022/index.php

This QR code refers the reader to the Group’s

website www.gemdiamonds.com

The Annual Report and Accounts (this report) covers Gem Diamonds Limited

and its subsidiaries (the Group) for the financial year ended 31 December

2021. The Annual Report should be read in conjunction with the Sustainability

Report where we detail environmental, social and governance matters.

### PRESENTING THE GEM DIAMONDSANNUAL REPORT AND ACCOUNTS 2021

This report has been prepared in accordance with:

• Applicable English and British Virgin Islands law.

• Regulations and best practice as advised by the Financial

Reporting Council (FRC) and the Department of Business,

Innovation and Skills in the United Kingdom (UK).

• Guidance from the Value Reporting Foundation’s Integrated

Reporting <IR> Framework, which is publicly available at

www.integratedreporting.org.

• Guidance from the Global Reporting Initiative (GRI)

Standards as updated in 2021.

• Guidance from the Task Force on Climate-related Financial

Disclosures (TCFD).

• Guidance from the International Finance Corporation

Environmental, Health and Safety (IFC EHS) Guidelines and

Equator Principles.

• Applicable standards of the International Organization for

Standardisation (ISO).

• Information on payments made to governments was

compiled as required under the UK’s Report on Payments

to Governments Regulations 2014 (as amended December

2015) as applicable to companies involved in extractive

activities. It is also intended to satisfy the requirements of the

Disclosure and Transparency Rules of the Financial Conduct

Authority in the UK.

• International Financial Reporting Standards (IFRS).

• The UK Corporate Governance Code 2018, which is publicly

available at www.frc.org.uk.

#### THE 2021 REPORTING SUITE

In addition to this report, our reporting suite includes:

#### Sustainability Report 2021 (report andinteractive platform)

Additional information and case studies on the Group’s

sustainability activities can be found on www.gemdiamonds-

reports.co.za/reports/sd-2022/index.php and in our 2021

Sustainability Report.

#### Our Approach to Climate ChangeReport

Additional information on the Group’s approach to climate

change and related financial disclosures can be found on

www.gemdiamonds.com/results-reports-presentations.php and

in our 2021 Our Approach to Climate Change report.

#### Board approval of this report

The Board, supported by the Audit Committee, acknowledges

its responsibility to ensure the integrity and completeness

of this report. The Board applied its collective mind to the

preparation and presentation of this report. We consider the

broader interests of our workforce and other stakeholders,

including the communities and environment in which we

operate, when making decisions. We believe that the report

provides a balanced and appropriate representation of the

Group’s performance, strategy and material risks. Acting

fairly and in good faith, we considered what is most likely to

promote the sustainability and success of Gem Diamonds in

the long term.

The Board approved the Annual Report and Accounts 2021,

which includes the Strategic Report on pages 2 to 46, on

16 March 2022.

![Graphics]()

Gem Diamonds Limited Annual Report and Accounts

2

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

3

# STRATEGIC REPORT

### OUR GUIDING PRINCIPLES

#### CARAT

#### CUT COLOUR

#### CLARITY

#### Purpose

#### Unearthing unique possibilitiesThe way we do things (values)

Care – We listen and respond responsibly to the needs of our

employees, communities and shareholders. We honour our

commitments to all stakeholders, and we care for the natural

environment in which we operate.

Trust – We empower our people and trust them to make

decisions that will deliver on our strategy.

Ethical – We have zero tolerance for bribery and corruption

and conduct ourselves in a manner consistent with good

governance practices. We pride ourselves on being socially and

environmentally responsible.

Respect – We cultivate an open and transparent culture

where we value the beliefs, ideas and contributions of all our

stakeholders. Everyone matters and is treated equally. We pride

ourselves on the respect we have for all our stakeholders and

the natural environment in which we operate.

Flexible and open-minded – We encourage and consider

ideas from employees and project-affected communities while

remaining responsive and agile.

Passionate and fun  – We enjoy the work that we are fortunate to

do and the people we do it with. We seek opportunities to explore

and develop while encouraging a healthy work-life balance.

#### Culture

At Gem Diamonds we invest in our workforce to create an

environment where every person is proud to be part of our

family. Mutual respect and care are not only shared throughout

the Group but extend to the wider society and the natural

environment in which we operate. Individuals are valued for their

differences and are empowered to thrive, grow and contribute to

a common goal, holding themselves and each other accountable

for delivering on their promises.

Refer to our Chairperson’s statement on page 14.

#### Vision

#### To support, develop and empower

our people so that:

• A meaningful, sustainable contribution can be made

to the countries in which we operate.

• We can deliver long-term value to our shareholders.

• Our employees can benefit in the short and long term.

![Graphics]()

2021

5

Gem Diamonds Limited Annual Report and Accounts

4

### THE SALIENT FEATURES OF 2021

Zero fatalities. Lost time injury performance improved significantly

in the second half of the year following the ‘Stop for Safety’

campaign held in June 2021 and the implementation of several

specific interventions to drive organisational safety culture maturity.

Refer to our case study on page 61 for more information.

109 697 carats sold, an increase of 11%, in six well-attended tenders,

including a first trial viewing in Dubai. Prices achieved reflect a

continued recovery in the diamond market, supported by strong

consumer demand, particularly in the US and China.

Group tailings storage facility standards and policies have

been appropriately aligned with the International Council on

Mining and Metals’ (ICMM) Global Industry Standard on Tailings

Management (GISTM), and relevant governance structures have

been established. Tailings management expenditure, including

the profiling of the old tailings storage facilities (TSF), amounted to

US$2.8 million for the year.

Strong delivery on corporate social investment (CSI) projects, including projects delayed in 2020 due to COVID-19-related lockdowns

and restrictions. Localised flooding in the first quarter of 2021 caused significant damage to roads and infrastructure, restricting access

to project-affected communities (PACs) and further delaying CSI project execution. US$0.8 million was invested in COVID-19 relief and

CSI projects in communities during the year.

A binding share sale agreement was entered

into for the sale of the Ghaghoo diamond

mine in Botswana. Regulatory conditions and

approvals are in place and the transaction is

expected to be complete by 31 March 2022.

6.2 million tonnes of ore treated, an increase

of 15% compared to 2020, notwithstanding

numerous challenges during the year, including

the ongoing impacts of COVID-19 on people

and critical supply chains, extreme weather

conditions, power supply interruptions, poor

plant performance and a breakdown of the

primary jaw crusher in Q3.

A total of US$0.7 million was invested towards

the operational response to mitigate the

impact of COVID-19 on our workforce and

operations to date. 99% of the workforce is fully

vaccinated to date.

Refer to our case study on page 82 for more

information.

The Business Transformation (BT) four-year

cumulative target of US$100.0 million in

revenue, productivity and cost savings was

exceeded by the end of 2021 by achieving

US$110.0 million.

The Group successfully concluded its Climate

Change Scenario Analysis (CCSA) to identify

and assess its physical climate change risks

as part of the adoption of the Task Force on

Climate-related Financial Disclosures (TCFD)

recommendations. A total of US$0.2 million

was invested in climate change-related work

during the year.

Successful conclusion of the Group-wide debt

refinancing. An additional funder joined the

lender group, bringing the total number of

funders to three. The Group’s revolving credit

facilities were increased from US$61.3 million

to US$77.0 million, in dollar equivalent. Security

for the RCFs was implemented after year end.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

6

7

Measure 2021 2020 % change

Average price per carat achieved (US$)  1 835  1 908  (4)

Revenue (US$ million)  201.9  189.6 6

Total direct cash cost (excluding waste costs) per tonne treated (LSL)  201.1 201.5 –

Total direct cash cost (including waste costs) per tonne treated (LSL)  335.5 326.6 3

Total operating cost per tonne treated (LSL)  271.8 320.2 (15)

EBITDA

1

(US$ million)  57.4 53.2 8

Profit for the year (from continuing operations) (US$ million)  31.1  27.5 13

Corporate costs (US$ million)  8.9 8.0 11

Basic EPS

2

(from continuing operations) (US cents)  13.2  12.1 9

Cash and short-term deposits (US$ million)  31.1  49.8 (38)

Cash generated from operating activities  71.3 96.2 (26)

Drawn down bank facilities (US$ million)  10.2  15.2 (33)

Net cash

3

(US$ million)  20.9  34.6 (40)

Available bank facilities (US$ million)  74.3  60.8 22

Cumulative Business Transformation benefits delivered (US$ million)  110.0 79.2 39

Average number of employees (including contractors)  1 671 1 702  (2)

Gender diversity (% female employees) 22 20 10

Skills development (training hours)  33 694 13 101  157

Fatalities  0  0 –

Lost time injuries (LTIs)  6  1 500

Lost time injury frequency rate (LTIFR) 0.24  0.04 500

All Injury Frequency Rate (AIFR) 0.93 0.76 22

COVID-19 response investment (US$ million) 0.7 1.1 (36)

COVID-19 vaccination rate (%)  98  n/a n/a

ISO 45001 (occupational health and safety) certification  Yes  Yes –

Capital expenditure (US$ million)  4.0  1.6 150

Ore tonnes treated (millions)  6.2  5.4 15

Waste tonnes mined (millions)  18.7  15.6 20

Carats recovered (thousands)  115.3  100.8 14

Carats sold (thousands)  109.7  99.2 11

Corporate Social Investment (CSI) (US$ million)  0.8  0.3 167

Major or significant stakeholder incidents  0  0 –

Major or significant environmental incidents  0  0 –

Greenhouse gas emissions (tCO

2

e) 153 864 135 694 13

ISO 14001 (environmental management) certification  Yes  Yes –

Gem Diamonds Limited Annual Report and Accounts

6

### 2021 IN NUMBERS

Financial

Operational

People

Sustainability

### HOW THE GROUP IS STRUCTURED

TECHNICAL AND ADMINISTRATIVE SERVICES

A wholly owned South African mining services

company providing technical support to the Group

across the entire value chain.

Gem Diamond Technical Services (100% owned)

GHAGHOO

An underground diamond mining

development in Botswana placed on care

CPFOCKPVGPCPEGKPCPFENCUUKƂGFCUC

discontinued operation held for sale since

2019. The Group is currently concluding the

sale process.

Gem Diamonds Botswana (100% ownership)

SALES AND MARKETING

The Group’s diamond sorting, sales and marketing operation in Belgium:

• Maximises the revenue achieved on diamond sales.

• Develops the Gem Diamonds brand in the market.

• Enhances customer relationships.

Most of our diamonds are sold through a tender process. Technical

mapping and analysis determine the value of Letšeng's large high-

quality rough diamonds and is used to achieve the highest rough value

through multiple selling channels.

The Group’s electronic tender platform provides an enhanced

GZRGTKGPEGHQTENKGPVUCPFUKIPKƂECPVN[KPETGCUGUKPVGTPCNGHƂEKGPEKGU

in the sales and marketing function, while ensuring highest obtainable

prices on an international market.

Gem Diamonds Marketing Services (100% ownership)

DIAMOND ANALYSIS AND

MANUFACTURING

The Group’s high-tech rough diamond analysis

operation in Belgium:

• Estimates the value of exceptional large

high-value rough diamonds through

technical mapping and analysis.

• Manages the manufacturing process of

selected diamonds through third-party

OCPWHCEVWTGTUHQTƂPCNRQNKUJGFUCNG

Baobab Technologies (100% ownership)

TECHNOLOGY AND INNOVATION

A Cyprus company that houses the Group’s

innovation and technology research and

development projects and related intellectual

property rights.

Gem Diamonds Innovation Solutions (100% ownership)

LETŠENG

1WTƃCIUJKRQRGPRKVFKCOQPFOKPGKP.GUQVJQ

is the highest achieving average US$ per carat

kimberlite mine in the world.

The operation focuses on mining and processing

QTGUCHGN[TGURQPUKDN[CPFGHƂEKGPVN[HTQOKVUVYQ

kimberlite pipes (Main and Satellite) which are 17.0ha

and 5.2ha, respectively. Ore is processed through

three treatment plants with an annual throughput of

6.5 million to 7.0 million tonnes and carat recoveries

of 100 000 carats to 120 000 carats.

Letšeng Diamonds is 70% owned by Gem Diamonds Limited

and 30% owned by the Government of the Kingdom of Lesotho

with a lease period until 2029, with an exclusive option to renew

until 2039.

HEAD OFFICE

The Group’s holding company, listed

on the London Stock Exchange which

provides oversight of governance

structures and overall strategy, is

based in London, United Kingdom.

Gem Diamonds Limited

1

Refer Note 4, Operating profit on page 179 for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.

2

Refer to Group financial performance for GAAP measures.

3

Net cash is a non-GAAP measure and calculated as cash and short-term deposits less drawndown bank facilities (excluding the asset-based finance facility and insurance

premium financing).

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

8

9

#### ROUGH DIAMONDS POLISHED DIAMONDS DIAMOND JEWELLERY

PRODUCTION SALES MANUFACTURING

• Mining ore and waste

• Processing ore

• Recovering diamonds

• Sorting diamonds

• Rough diamond analysis and sorting

• Sale of rough diamonds

Design and manufacturing of

diamond jewellery

Rough diamonds manufactured into

polished diamonds

• Wholesale of polished diamonds

• Trading in polished diamonds

Retail sales to the end consumer

Blockchain solutions connect the end user and the producer. Read more on page 24.

#### OUTCOMES: 2021 DELIVERY

Total carbon footprint of 153 864tCO

2

e

Zero major or significant environmental incidents

8.9 million m

3

of water recycled

100% of diamond exports comply with the Kimberley Process

Letšeng rehabilitation provision of US$11.2 million

Since inception, Gem Diamonds has worked in partnership with the Government of

Lesotho to make a positive contribution to national priorities. We continue to support

government’s efforts to combat COVID-19 and invest in initiatives in PACs that support

long-term and sustainable development.

The Sustainability Report provides a comprehensive report on environmental, social

and governance matters.

Gem Diamonds has adopted six United Nations Sustainable Development Goals (UN

SDGs) as part of our Sustainability Framework:

Zero fatalities

LTIFR of 0.24

AIFR of 0.93

99% of employees fully vaccinated against COVID-19 to date

Human rights training included in employee induction programme

Zero major or significant stakeholder incidents

Supply chain controls in place to prevent child and forced labour

Invested US$0.2 million in community and country COVID-19

prevention programmes

Resettled PACs: 0

Letšeng in-country procurement: US$158.7 million

Letšeng paid royalties of US$18.0 million

Focus on cash generation and cost containment during the year

Cash generated per share 0.51 US cents

Basic earnings per share (BEPS) from continuing operations

13.2 US cents

Average price per carat achieved of US$1 835

Return on average capital employed of 27%

Earnings before interest, tax, depreciation and amortisation (EBITDA)

of US$57.4 million

Revenue of US$201.9 million

#### OUTPUTS

Rough carats sold: 109 697

Rough carats recovered: 115 335

697 >10ct diamonds, contributing 71% of revenue

21 diamonds selling for more than US$1 million, contributing

US$64.5 million to revenue

#### INPUTS REQUIRED

Letšeng is a long-term asset with an open pit resource base with the potential for further underground expansion. It is a low-cost operation

with a track record of successful mine plan optimisation and cost-reduction initiatives.

• Mine lease period to 2029 with an exclusive option to renew to 2039.

• Total mineral resource of 5 million carats.

• 1 153 404 GJ of energy consumed.

• 1.15m

3

water per tonne treated.

• Social and Environmental Management Plans implemented.

• Workforce of 1 671 people (including contractors) with an absenteeism rate of 4.5 days per annum per person.

• US$0.9 million investment in COVID-19 response.

• Highly experienced global management team.

• 451 registered clients.

#### OUR APPROACH

• The health, wellness and development of our workforce are priorities throughout the Group.

• The Group continues to take all necessary precautions in line with its COVID-19 protocols to ensure the welfare of our employees, contractors

and the communities in which we operate, and the continuation of safe and responsible operations.

• Zero tolerance for harm of employees, human rights violations, bribery and corruption.

• The Group values and safeguards its social licence to operate.

Top revenue drivers:

• Resource grade performance

• Diamond market

• Number of large (>10ct) high-quality diamonds recovered

• Exceptional large, high-value diamond recoveries

• Reduction in diamond damage

• Main versus Satellite pipe ore mix at Letšeng

Top cost drivers:

• Necessary waste stripping

• Increasing depth of pits, longer haulage distances

• Cost of remoteness of mines

• Foreign exchange rate fluctuations

• COVID-19 impact on supply chains

• Available undrawn debt facilities US$74.3 million.

• Annual capex investment of US$4.0 million.

Rough diamond

Cut and polished diamond\* The diamond in

jewellery state\*

Our viability statement on page 45 explains how the outcomes ultimately lead to a sustainable business model that delivers on our vision.

\*Images supplied by Graff Diamonds International.

TYPICAL DIAMOND VALUE CHAIN

SALES

MANUFACTURE JEWELLERY RETAIL SALES

### OUR BUSINESS MODEL

#### OUR BUSINESS MODEL CONTINUED

![Graphics]()

Gem Diamonds Limited Annual Report and Accounts

10

11

### OVERARCHING BUSINESS DRIVERS

Presenting the Gem Diamonds annual report and accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Payments to governments | Additional information

11

2021

OPERATING RESPONSIBLY

Shareholders, funders, regulators,

employees, communities, consumers and

other stakeholders expect companies to

behave responsibly at all times. This includes

providing safe working conditions and fair

labour practices for its workforce, operating

in an environmentally responsible manner,

ensuring safe operation and governance

of dams and tailings storage facilities

and contributing to global, national and

regional sustainability priorities.

Consumers, shareholders and funders are

increasingly interested in ESG factors when

making buying, investment and lending

decisions.

Refer to the climate and sustainability

sections on pages 26 and 67 of this report,

and the Sustainability Report for more

insight.

GEM DIAMONDS’ POSITION

We are committed to ethical business practices and regard corporate governance

as an essential aspect of long-term sustainability and value creation. Workplace

safety is an absolute priority and we are continuously improving our safety

systems and processes. The Group remains strongly committed to environmental

sustainability and Gem Diamonds’ inclusion in the FTSE4Good index recognises the

high standards of ESG practices we have in place. We have adopted six UN SDGs

and

the TCFD recommendations, and have successfully aligned our tailings storage

facility management practices with the ICMM’s GISTM.

All diamond exports comply with the Kimberley Process

1

. Gem Diamonds also

participates in the Gemological Institute of America’s (GIA) Diamond Origin

programme, which provides consumers with information regarding the country of

origin of their diamonds, as well as the positive impact the diamonds we mine have

on the communities and countries in which we operate.

US$0.9 million invested in environmental stewardship

(2020: US$0.5 million)

0.93 AIFR

(2020: 0.76)

Zero major or significant environmental and stakeholder incidents reported

(2020: Zero)

SUSTAINABLE RETURNS

Our future requires that we generate

sustainable returns for shareholders, while

continuing to create value for our other

stakeholders.

Refer to the CEO Review and the CFO

Review on pages 48 and 52 respectively for

more information on the Group’s financial

results and position.

GEM DIAMONDS’ POSITION

Our strategic focus on extracting maximum value from our operations prioritises

production optimisation and consistency, continuously improving efficiencies,

reducing costs and generating cash flow. Since the start of the COVID-19 pandemic,

the Group has prioritised cash flow generation and maintaining cash reserves. By

ensuring sustainable returns, the Group can continue to access equity and debt

funding to sustain current operations, maintain a sustainable dividend policy, and

invest in our preparations for the future.

US$57.4 million EBITDA

2

(2020: US$53.2 million EBITDA)

2

### WHY INVEST IN GEM DIAMONDS

The Group has a number of attributes that make it a unique and

#### compelling investment proposition.

#### Large, high-value diamonds

Integrated environmental,

#### social and governance (ESG)

#### strategy

Low-cost operator

#### Responsible, agile leadershipDisciplined capital allocation

#### Embedded Board governance

Transparent, world-class multi-

#### channel sales and marketing

#### Cash generating, strong

#### balance sheet and proven

#### financial resilience

#### Long life asset

#### Internal growth opportunities

1

The Kimberley Process (KP) unites administrations, civil societies, and industry in reducing the flow of conflict diamonds around the world. For more information visit:

https://www.kimberleyprocess.com.

2

Refer Note 4, Operating profit on page 179, for the definition of non-GAAP measures.

![Graphics]()

12

13

Presenting the Gem Diamonds annual report and accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Payments to governments | Additional information

2021

13

Gem Diamonds Limited Annual Report and Accounts

12

#### OVERARCHING BUSINESS DRIVERS CONTINUED OVERARCHING BUSINESS DRIVERS CONTINUED

MARKET DEMAND FOR

DIAMONDS

Demand for rough diamonds is driven by

consumer demand for jewellery which

depends on global economic growth and

disposable income. The growing custom of

diamonds used in bridal jewellery in India

and China, the increased use of diamonds

across a wider range of luxury goods, and

the continued growth in the number of

high-net-worth individuals worldwide

support growth in demand for polished

diamonds.

GEM DIAMONDS’ POSITION

We sell our diamonds on tender and we are therefore, to a large extent, subject to

immediate market forces. Diamonds from Letšeng are at the top end of the market

in terms of size, colour, quality and price. High-net-worth customers for large high-

quality polished diamonds tend to be less affected by global economic fluctuations

and historically the prices for larger high-quality diamonds have proven more resilient

to market pressures.

Rough diamond prices have seen a strong recovery since the middle of 2020, with

prices for larger high-value diamonds accelerating quickly. Prices on our smaller

diamonds (<5 carats) have also improved significantly in 2021, which has been

supported by price increases imposed for smaller diamonds by De Beers and ALROSA

in Q1 2022. Contributing factors supporting a positive diamond market in 2021

included positive market sentiment, a decrease in the supply of similar size, quality

and value diamonds in the market, improved demand for high-value polished

diamonds from China in particular, and depleted stock levels at manufacturers.

Notwithstanding the continued recovery of the diamond market, the average price

per carat achieved for Letšeng’s diamonds during the year was 4% compared to 2020.

This was mainly due to fewer large diamond recoveries (seven greater than 100 carat

diamonds sold compared to 16 in 2020, and 16 diamonds between 60 and 100 carats

compared to 29 in 2020) due to lower value areas of the resource that were mined.

Rough vs. Polished price chart – 52-Week

ROUGH (B2B) POLISHED (B2C)

Indexed to value of 100 on January 2, 2021 As of December 27, 2021

1 Dec 211 Oct 211 Aug 211 June 211 April 211 Feb 21

60

100

140

Source: Data provided by Paul Zimnisky (www.paulzimnisky.com). Rough diamond price is based on the Zimnisky

Global Rough Diamond Price Index. More information can be found at www.roughdiamondindex.com. Polished

diamond price is based on data gathered via sampling of online retailers, specifically round, 0.3-1.5 carat, near-

colourless, VS-clarity, VG-cut diamonds).

The above graph reflects the increase of both rough and polished diamond prices

during 2021 indexed to 2 January 2021.

US$1 835 average price per carat achieved in 2021

(2020: US$1 908 per carat)

71% of revenue derived from diamonds greater than 10.8 carats in 2021

(2020: 81%)

DIAMOND SUPPLY

The supply of diamonds is directly linked to

the economics of diamond mining in that

extended periods of low rough diamond

prices lead to mine closures and a resultant

decrease in supply. Large producers tend

to maintain stockpile inventory, primarily in

lower value commercial diamonds, which

they release into the market when demand

starts to improve, resulting in a slower price

increase in the short term following such

increases in demand.

The supply of lab-grown diamonds is

increasing, along with their size and

quality. These diamonds sell at a significant

discount to natural diamonds and continue

to take market share, particularly for smaller,

commercial type diamonds. The impact on

natural diamond demand and price is not

yet fully understood and will depend on

consumer preferences and perceptions.

GEM DIAMONDS’ POSITION

Annual global rough diamond production is expected to steadily decrease to around

110 million carats by 2030, having peaked in 2017 at 151 million carats. Current

production volumes of around 118 million carats are fast approaching the forecasted

2030 levels of 110 million carats, largely due to a combination of aged mine closures,

closure of marginal mines as a result of the impact of COVID-19, and the suspension

or slowdown of certain other operations. The shortfall in large high-quality rough

diamonds grew further in 2021, largely due to reduced supply into the market since

the start of the COVID-19 pandemic in March 2020 and peer company exclusive take-

off arrangements to single buyers.

We have a number of initiatives in place to reduce diamond damage in mining and

processing to improve the recovery of large, undamaged high-value diamonds.

The Group continues to investigate new technologies for early detection and non-

mechanical liberation of these special diamonds without damage.

Demand for Letšeng’s large, high-value diamonds continues to be strong and

competition from lab-grown diamonds is yet to be seen on this end of the premium

market.

118 million carats global rough diamond production in 2021 (estimated)

(2020: 107 million carats)

SOCIAL CONTRIBUTION

The Letšeng mine, which is co-owned

with the Government of the Kingdom of

Lesotho, is an important employer and

makes a significant positive contribution

to the economy and social development of

the country.

Refer to the sustainability section on page

67 and the Sustainability Report for more

insight.

GEM DIAMONDS’ POSITION

We regard ourselves as guests in the countries we operate in, and endeavour at

all times to maintain strong and constructive relationships with our employees,

communities, regulators, governments and wider society. Our vision commits us to

supporting, developing and empowering our people, and to making a meaningful,

sustainable contribution to the countries and communities in which we operate.

The Group’s social investments in surrounding communities aim to improve

education, develop infrastructure (roads, bridges and water supply) and stimulate

local enterprises to create self-sustaining employment independent of the mine.

Refer to our community engagement and impact case study on page 80.

The Letšeng mine makes a substantial contribution to the Lesotho economy through

dividends, royalties and tax contributions, and provides jobs for more than 1 592

people. This number does not include casual workers who are regularly employed at

Letšeng on a short-term basis. The mine also provides procurement opportunities to

support the local economy and the broader population of Lesotho.

48 Student scholarships since 2006

US$48.3 million paid in dividends, royalties and taxes in Lesotho

(2020: US$12.3 million)

US$0.8 million invested in local communities

(2020: US$0.2 million)

US$158.7 million Letšeng in-country procurement

(2020: US$126.2 million)

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

14

15

### CHAIRPERSON’S STATEMENT

Dear shareholders,

On behalf of your Board of Directors, I am pleased to share the

Gem Diamonds Annual Report and Accounts for 2021, which

describes both the Group’s performance during the past year

and the progress we have made against our longer-term strategic

objectives.

2021 was certainly not without its challenges, with a combination

of the impact of renewed COVID-19 waves and restrictions,

planned periods of mining in lower grade areas of the resource

and extreme weather conditions. Pleasingly, notwithstanding

these challenges, operational stability improved significantly

towards the end of the year. We also saw the positive effect of

several important safety interventions (including a 24-hour ‘Stop

for Safety’ campaign in June 2021) returning the operation to its

usual strong level of safety performance following a number of

disappointing safety incidents in the first half of the year. In parallel,

robust global demand for our large high-value diamonds resulted

in a solid financial performance of EBITDA of US$57.4 million, an

increase of 8% on 2020, and revenue of US$201.9 million.

#### CHAIRPERSON’S STATEMENT CONTINUED

“Good governance is a crucial element in

the sustainability of our business and the

preservation of value for all stakeholders”

#### – Harry Kenyon-Slaney –

#### CONTINUOUSLY IMPROVING OUR

#### GOVERNANCE APPROACH

As stewards of the interests of all stakeholders of the Group,

the Directors strive to continuously improve governance and

oversight. Good governance is the bedrock upon which the

Group’s reputation rests and it underpins operational efficiency,

the relationships we have with employees, local communities

and governments, and the respect we have for and in which we

are held by our shareholders and the wider market. Ultimately,

good governance is a crucial element in the sustainability of our

business and the preservation of value for all stakeholders.

The Board’s priorities in 2021:

• Ensuring safe and stable operations during the

COVID-19 pandemic.

• Enhancing risk management systems and processes.

• Overseeing the adoption of the TCFD

recommendations and Group climate change strategy.

• Resolving certain shareholder concerns regarding the

Board’s independence.

• Overseeing the renewal of the Group’s funding

arrangements.

• Overseeing the pending sale of the Ghaghoo mine.

During the past year, we worked hard to further refine our risk

management systems and processes. This has enabled us to

improve the identification, quantification and mitigation of

operational and wider environmental and societal risks, and to

assess their potential impact against the risk tolerance levels we

judge appropriate for the Group. Practical examples include the

restructuring of our insurance cover to mitigate the substantial

recent increase in insurance cost and further refinement of our

tailings management systems to align them fully with the ICMM’s

GISTM. Effective risk management and ongoing stakeholder

engagement ensure that the Board is kept appraised of issues as

they emerge and evolve, and that new opportunities are brought

to the Board’s attention.

As part of our governance process, we continually review our

approaches to combatting systemic challenges. This year we have

again reassessed and refreshed our positions on human rights,

modern slavery, corruption and climate change. I am pleased that

all employees and contractors have reaffirmed their commitment

to these statements.

#### ADDRESSING SAFETY AND

#### CLIMATE CHANGE

We regard the safety and health of our workforce as our highest

priority and, while we are not complacent and can always do

better, our track record over recent years has been solid. It was

therefore a concern to the Board that our safety performance

deteriorated during the first six months of 2021, but management

took swift action to turn the situation around. The Letšeng mine

was shut down for a full day in a ‘Stop for Safety’ campaign to allow

the workforce to be addressed. A new safety culture programme

was launched to reinforce the message that production must

happen safely or not at all. Pleasingly the second half of the year

showed a sharp recovery. The AIFR for the full year was 0.93.

Letšeng is located in a remote and pristine region of the world

and the Board has always been sensitive to the need to operate

in an environmentally responsible manner. In 2021, the existential

threat of climate change moved to the centre of the public’s

consciousness and is top of mind for political and business

leaders. As a mining company that is necessarily a sizeable

consumer of energy, we have commenced the process of both

understanding our contribution to greenhouse gas emissions

and what we can do to limit it. Climate change is now a topic of

discussion at every Board meeting and is a top priority in our risk

management system.

Gem Diamonds has adopted six priority goals from the 17 UN

SDGs and our ongoing inclusion in the FTSE4Good index is an

external validation that our positive ESG practices align with global

standards and expectations. There were no major or significant

environmental incidents reported at any of our operations during

the year.

#### VALUING DIVERSITY, SKILLS AND

#### EXPERIENCE

While ours is a small Board, appropriate for the size of the Group,

we are committed to aligning with the requirements of the UK

Corporate Governance Code. In May, Johnny Velloza (previously

deputy CEO) stepped down from the Board to ensure that the

Board meets the independence requirements of the Code.

We are grateful to Johnny for his significant contribution and

commitment over the last five years and we continue to benefit

from his technical expertise as a strategic adviser.

We welcomed Rosalind Kainyah MBE to the Board. Rosalind

has decades of experience in corporate and environmental

law, government relations, political risk management and

sustainability. Her experience in diamond mining includes an

Executive Director position at the De Beers Group and she adds

valuable ESG and leadership skills to the Board.

The Nominations Committee oversees board and senior

management succession planning, and this important work

ensures that the Group’s leadership is appropriately sized,

regularly refreshed, diverse and equipped with the necessary

skills. We believe that the Board, as currently constituted, contains

the right balance of critical thinking capabilities, skills and

experience and that the complementary perspectives included

ensure appropriate independent oversight of the Group.

We are proud of our track record of local appointments and

promotions with a representation of nearly 98% Lesotho nationals

at Letšeng and steadily improving gender diversity throughout

the Group.

#### LISTENING TO OUR

#### STAKEHOLDERS

As the operator and 70% owner of the Letšeng mine, we regard

ourselves as guests of the people of Lesotho. We endeavour to

always maintain constructive, open and honest dialogue with

local communities and government partners. We consider their

priorities and ensure that they in turn understand the nature of

our business and Letšeng’s significant contribution to the national

economy.

Since joining the Board in July 2019, Mazvi Maharasoa has been the

designated non-Executive Director for workforce engagement.

She engages directly with employee representatives and provides

the Board with an unfiltered view on issues that people wish to

raise. This engagement process has broadened our understanding

of various concerns and has enhanced the channels via which

employees can communicate with management and see their

issues being resolved. The Board values this process as it gives

us reassurance that employee voices are heard at the top of the

organisation and has helped to strengthen our relationships with

them. These interactions have been particularly important while

access to the mine has been restricted during the COVID-19

pandemic.

The Board took measures in 2021 to enhance risk management, improve

stakeholder relations and meet the board independence requirements

of the UK Governance Code.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

16

17

#### ENTRENCHING AN ETHICAL

#### CULTURE

Gem Diamonds has always maintained a strong set of ethical

principles that remain the firm foundation of everything we

do. We insist on transparency and have no tolerance for fraud,

theft, modern slavery, child labour or any other wrongdoing. The

culture espoused by the Board and senior management is one of

transparency, openness, a willingness to challenge and to change,

and these principles promote high standards of ethical behaviour

throughout the Group. To support these principles we maintain

a rigorous system of internal controls, a comprehensive internal

audit programme and an anonymous whistleblowing facility.

#### SUSTAINABLE RETURNS FOR OUR

#### SHAREHOLDERS

In line with our dividend policy to pay a dividend to shareholders

when the financial strength of the Group allows, we are pleased

to propose that a dividend of 2.7 US cents per share be declared

for the 2021 financial year.

#### ACKNOWLEDGING OUR

#### STAKEHOLDERS’ CONTRIBUTIONS

Operating a large mine high in the Maluti Mountains of Lesotho

under the constraints of COVID-19-related travel and access

restrictions once again provided a considerable test for everyone

at Gem Diamonds during 2021. Management’s ability to oversee

the operation remotely for extended periods is a testament first

and foremost to the ability and fortitude of our workforce, to the

quality of the systems and culture in place at the mine and the

strength of our relationships with local community leaders and

with the Government of the Kingdom of Lesotho.

On behalf of the Board, I therefore want to thank everyone who

has contributed to the Group’s success this past year despite

considerable disruption to their lives and those of their families.

We thank our employees, contractors, our community partners,

the Government of the Kingdom of Lesotho and our shareholders

for their ongoing support. Finally, I wish to thank my fellow

Directors for the dedication and commitment they showed and

the valuable contributions they made during the year.

#### BEING CONFIDENT ABOUT THEFUTURE

While there are some signs that the COVID-19 pandemic

may be starting to wane, there remains a risk of further

resurgences. The success of our efforts to largely shield our

people over the past two years has given us confidence that

we have the systems and processes in place to deal with this

risk, to keep our people safe and maintain the supply chain

that our operations depend on.

2021 marked the end of the four-year period over which

we delivered in excess of the target of US$100 million by

achieving US$110.0 million in revenue, productivity and

cost savings generated through the Business Transformation

programme launched in 2017. In 2022, our goal is to

build on the success of this effort by further improvement

of our operational consistency through the focused

implementation of a rigorous continuous improvement

culture. In addition, we vigorously continue to exploit

opportunities to optimise the mine plan and to reduce

our waste profile, investigate future options to explore

underground mining at Letšeng and progress several

technological innovations in our processing plants.

The climate change scenario analysis that the Group

undertook in 2021 provides a strong foundation to

incorporate climate change-related risks and opportunity

considerations into future business plans, strategies and

feasibility studies.

Diamond prices have recovered steadily since the second

half of 2020 due to an improving market outlook and

declining supply. Prices increased further in 2021 and it is

pleasing to note that this trend has continued into 2022.

While predicting the frequency of the recovery of large

diamonds is impossible in the short term, consistent delivery

of plant throughput volumes is the best way to yield results

over time.

Harry Kenyon-Slaney

Chairperson

16 March 2022

#### CHAIRPERSON’S STATEMENT CONTINUED

### OUR STAKEHOLDER RELATIONSHIPS

Our relationships and transparent and regular engagement with our

stakeholders supports improves decision-making, promotes sustainability

and ensures Gem Diamonds’ positive contribution to society.

STAKEHOLDER MANAGEMENT

Gem Diamonds’ strong relationships with stakeholders, particularly employees, regulators, communities and society, underpins the Group’s

social licence to operate. The relationships built and information obtained through regular engagements with these stakeholders, provides

relevant input for decision-making, promotes the long-term sustainability of the Group and enables our contribution to wider society.

The Board is responsible for stakeholder engagement and relevant stakeholder views and strategic issues are regularly reviewed, clearly

understood and underpin the work of the Board. We consider the views of stakeholders when making decisions regarding strategy,

sustainability, remuneration, CSI and other relevant matters.

Our stakeholder engagement strategy guides interactions with stakeholders. Various engagement channels are utilised, which include:

Electronic channels Written communication Direct interaction Media

• Company website

• Virtual meetings

• Email and SMS

communications

• Electronic tender platform

• Sustainability platform

• Annual Report and

Accounts

• Sustainability Report

• TCFD Report

• Quarterly and interim

results statements and

presentations

• Newsletters

• In-person meetings

• AGMs

• Investor roadshows

• Results presentations

• Industry conferences

• Tenders

• Informal interaction

• Independent analysis of

community needs

• Community representative

meetings

• Corporate Social

Responsibility Investment

(CSRI) Committee

meetings

• Press releases

• Interviews

• Media briefings

The effectiveness of stakeholder engagement in the Group is included in the annual Board evaluation process and personal performance

objectives (that determine short-term incentive bonuses) for Executive Directors include a weighting for strengthening key stakeholder

relationships.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

18

19

#### STAKEHOLDER ENGAGEMENT

#### Shareholders

Our shareholders include institutional shareholders (63% of shares) and private shareholders (37% of shares). Shareholders are the owners

of the Group, and the Board is ultimately accountable to them for performance. Gem Diamonds’ strategy aims to maximise shareholder

value in a sustainable manner. Shareholders represent a potential source of funding for future expansion opportunities.

The Chairperson, Senior Independent Director and Executive Directors engage regularly with shareholders at requested meetings, during

roadshows to larger investors and at the AGM, which is attended by all Directors. The investor relations function is the responsibility of

the Chief Legal and Commercial Officer. Feedback from these meetings is reported back to the Board at the Board meetings.

Shareholder interests include:

• Growth opportunities.

• Sustainable returns and capital allocation.

• Cash flow generation and balance sheet strength.

• Corporate governance and ethics.

• ESG considerations including climate change and tailings facility management.

• Responsible environmental and social practices.

• Fair executive remuneration practices.

ENGAGEMENTS POST THE AGM

At the Group AGM in June, Resolution 14 (Authority to allot shares) passed with 71.99% of participating shareholders voting in favour,

while Resolution 15 (The disapplication of pre-emption rights) and Resolution 16 (The further disapplication of pre-emption rights) did

not pass with the proportion of votes against these resolutions exceeding 20%.

The Board is disappointed in the outcome of these votes given that these resolutions followed the provisions of the Pre-Emption Group’s

Statement of Principles for the disapplication of pre-emption rights and reflected UK listed company market practice. In accordance

with Provision 4 of the UK Corporate Governance Code, the Company engaged with the significant shareholder who voted against

these resolutions. This is the second consecutive year that these resolutions were not passed, and due to the standing policy of this

shareholder on these matters, it is unlikely to be resolved. The Board will continue to regularly consider their approach to this matter.

MAJORITY INTEREST IN SHARES

On 15 February 2022, the Company was notified of the following major interests (at or above 3%) in the issued ordinary shares of the

Company in accordance with the DTR 5:

Shareholders Number of ordinary shares % shareholding

Sustainable Capital Limited 30 469 182 21.9

Graff Investments Limited 20 861 931 15.0

Lansdowne Partners Limited 18 677 221 13.4

Aberforth Partners LLP 17 187 672 12.3

Gem Diamonds Holdings Limited 9 325 000 6.7

Hosking Partners LLP 6 209 593 4.5

There were no further updates at the date of this report. Changes in major interests in the Company are updated on the Company’s website

as and when they occur. The shareholder base comprises 140.5 million issued ordinary shares of US$0.01 each. There are institutional

shareholders that hold 88.9 million shares (63%) and private shareholders who hold 51.6 million shares (37%).

#### Employees and contractors

Our strength lies in the quality of our workforce that is instrumental

in running our operations and delivering our strategy. With a

remote mining location and a small pool of local talent, the

retention and development of skills is always a priority. Regular

engagement with our workforce ensure that we understand and

address their needs.

Management engages with the workforce through daily informal

interactions, via the Company’s website and other electronic

channels, and through the quarterly Letšeng newsletter. Visible

field leadership visits and regular ‘toolbox talks’ with smaller shift

teams provide further opportunities for engagement. During

2021, Group and contractor management was often unable to

physically visit the operations due to travel restrictions and had to

use virtual engagement channels.

A 24-hour ‘Stop for Safety’ campaign was held at Letšeng in

June to address and engage with employees and contractors to

understand root causes of the deterioration in safety performance

following an increase in the frequency of safety incidents in H1.

This provided a critical opportunity for employees to engage

directly with senior management and executives. Following

feedback from these engagements, 225 safety interventions were

actioned in 2021. Refer to our safety case study on page 61 for

more details.

Mazvi Maharasoa, a non-Executive Director, is the Board’s

representative who engages with the broader workforce and

provides direct feedback to the Board on the key concerns

raised. In 2021, she chaired several meetings with employee

representatives. Matters raised during these meetings were

addressed at Board and senior management level and employees

were kept informed throughout the process. In response to

these employee engagements, management adjusted the

communications strategy to include more in-person meetings,

which were felt to be lacking due to COVID-19 social distancing

requirements and restrictions on large gatherings.

Employees and contractors value:

• Fair treatment and remuneration.

• Health and safety, including safe working conditions

during COVID-19.

• Opportunities for advancement.

• Skills development.

Key employee projects for 2021

A tailor-made leadership programme was launched at Letšeng

during the last quarter of 2021. The programme focuses on

developing key competencies specific to our operations. In

addition, emphasis was placed on developing skillsets to support

a culture of continuous improvement.

Management trialled a new shift roster and considered how to

change shifts to better meet the needs of employees. The shift

roster was amended to allow for longer off periods for employees

to spend more continuous time with their families.

Management reviewed and amended the Letšeng succession

planning policy. The revised policy was approved in November

2021 and will be implemented in 2022. The main change to the

policy was the introduction of a formal Succession Committee

that will review and monitor compliance to the succession

management policy and guidelines. Notable succession success

stories for 2021 include the local appointments of the Head of

Operations and Head of Finance at Letšeng.

Motooane Thinyane was appointed as the Head of

Operations in March 2021. The appointment followed

his successful career at Letšeng over the previous seven

years as engineering manager. During 2020 he assumed

responsibility for the operation when COVID-19 travel

restrictions impacted the ability of Group management to

travel to site, and successfully led the operation through

this challenging period.

Makhomo Motaung was appointed as Head of Finance

in March 2021. She was first employed at Letšeng in

June 2011 as a financial accountant. She was promoted

to finance manager in 2014 and stepped up to lead the

finance team at the beginning of 2020.

These two appointments mark an important milestone

for Letšeng as all Executive Management positions

are held by Basotho nationals. It is a testament to the

continued focus and dedication to the Group's diversity,

inclusion and localisation policies.

At Letšeng, a full-time psychologist was appointed to assist

employees cope with mental health issues, especially related

to the impact of COVID-19. An employee wellness provider was

appointed to assist employees in the Johannesburg office. Refer

to our case study on how we have responded to the COVID-19

pandemic on pages 82.

The ‘Stop for Safety’ day in June 2021 (refer to page 61) indicated

the need for further engagements to address certain specific

concerns among employees and contractors. Monthly follow-up

sessions were held with employees led by Letšeng management

to provide feedback on the actions taken to address the

concerns raised.

#### OUR STAKEHOLDER RELATIONSHIPS CONTINUED OUR STAKEHOLDER RELATIONSHIPS CONTINUED

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

20

21

#### Bankers, insurers and funders

Providers of capital allow the Group to invest in capital projects

and expansion opportunities. Insurance enables the transfer of

certain risk elements as part of the Group’s risk mitigation strategy.

The finance department engages with bankers and funders on

an ongoing basis regarding facilities, compliance with covenants

and debt renegotiations. At each operation, the finance team

interacts with insurance brokering consultants around renewal

anniversaries with oversight from Group risk management.

Providers of finance interests include:

• Responsible management of the Group’s financial position

to ensure commitments can be met as they fall due.

• ESG practices and regulatory compliance.

• Effective management of tailings storage facilities.

• Transparency in reporting potential material matters in a

timeous manner.

The risk perception of the mining industry by banks, funders and

insurers has increased significantly since the start of COVID-19.

A number of international catastrophic tailings storage facility

failures has also reduced the risk appetite for the mining industry.

This led to tighter lending criteria as well as increased exclusions,

deductibles and premiums on insurance policies which were

further affected by insurance claims due to the civil unrest

experienced in South Africa in July 2021. Aggregate limits are

being imposed on insurance policies and Director and Officer

liability cover is becoming more difficult to secure. Insurers will

likewise be assessing climate change risks in determining whether

to provide cover or adjust premiums for extreme weather risk. The

Group has implemented a new risk transfer strategy to address

these challenges. Refer to page 58 in the CFO review for more

details.

Letšeng submitted a business interruption claim to its insurers

for insured losses arising out of the 30-day COVID-19-related

shutdown period in 2020 when the mine was required by Lesotho

regulations to be placed on care and maintenance. This claim has

been rejected by the insurer and Letšeng intends to pursue the

matter further.

The Group-wide debt refinancing was successfully concluded

with the renewal of the Group’s revolving credit facilities for

an amount of US$77.0 million for a three-year period. US$32.3

million of the facilities are Sustainability-Linked Loans (SLLs)

where the margin and resultant interest rate will decrease if the

Group meets certain carbon reduction and water conservation

key performance indicators (KPIs) that are aligned to the Group’s

sustainability strategy. Refer to page 67 for more information on

how we manage our carbon and water footprints.

#### Project-affected communities

Letšeng’s PACs play a vital role in the success of the operation and

we are committed to ensuring that these communities develop

and benefit from the operation.

Letšeng’s Community Liaison Officer (CLO) engages with the

surrounding communities, government officials and community

elected representatives. PACs select community representatives

who sit on the CSRI subcommittee of the Letšeng Board,

creating a direct link between communities’ needs and Board

decision-making. In addition to regular community engagement

forums, a grievance mechanism is in place for PAC members to

submit grievances directly to mine management. Social and

environmental impact assessments and community needs

analyses identify the most pressing community needs and

concerns through consultation processes facilitated through

independent external specialists. The needs and concerns

identified through these independent studies form the foundation

of our CSI strategies and community engagement plans.

Community needs and concerns include:

• Basic infrastructure provision and local economic

development.

• Improved access to education, skills development

and healthcare.

• Regular engagement with PACs and updates regarding

progress on community projects.

• Responsible and safe mining, environmental and

social practices.

• Local employment opportunities.

• COVID-19-related support through PPE provision and other

critical aid during the pandemic.

• Operational support in response to climate-related impacts,

such as extreme weather events.

A community needs analysis was conducted during the year. Refer

to the Sustainability Report for further details on our approach to

community engagement and investment.

Letšeng continued to support surrounding communities during

the COVID-19 pandemic, details of which can be found in the

Sustainability Report.

#### Customers

Gem Diamonds’ relationship with its customers supports demand

for its unique diamonds and helps to ensure the best prices

are achieved.

We interact with customers regularly in the normal course of

business, at tenders, and communicate through the Company

website and press releases. Customers also have access to our

electronic tender platform which is used to provide specific

tender-related information.

Customers care about:

• Consistent availability of large, high-quality diamonds.

• Regular and transparent tenders.

• The ability to participate in tenders safely during COVID-19.

• Responsible environmental and social practices.

Six tenders were held in Antwerp in 2021, with the first trial

viewing held in Dubai in September. The response from the Dubai

diamond market was overwhelmingly positive and it made a

significant contribution to the results achieved during this tender.

Refer to page 24 where we describe our participation in the GIA’s

blockchain initiative to link the source of rough diamonds to the

final polished diamonds.

#### OUR STAKEHOLDER RELATIONSHIPS CONTINUED OUR STAKEHOLDER RELATIONSHIPS CONTINUED

#### Regulators and government

Mining is a highly regulated industry and the Government of the

Kingdom of Lesotho is a 30% shareholder in Letšeng, the Group’s

flagship mine. It is therefore essential that good relationships

are maintained with these key stakeholders to ensure ongoing

economically sustainable operations.

Engagements with regulators are held as required by relevant

legislation and we interact with government regularly regarding

operational challenges where support is required, employment

and progress on community initiatives, and to support local and

national COVID-19 priorities.

Government and regulator priorities include:

• Health and safety.

• Good governance and ethics.

• Responsible environmental and social practices.

• Community relationships and investments.

• Local employment and procurement.

• Contribution to Lesotho gross domestic product (GDP)

through dividends, royalties and tax contributions.

• Support for government COVID-19 priorities.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

22

23

### OUR STRATEGY

The goal of our strategy is to maximise stakeholder value in a sustainable manner. It aligns with the Group’s purpose, vision and values,

which provide a broader context to our business activities that emphasises our commitment to creating social benefit and our duty to be

responsible stewards of the natural resources of the countries that we operate in.

The Group strategy is developed by the management team, led by the CEO, and presented to the Board for review and approval. The

strategy is reviewed each year against developments in regulations, governance requirements, current market conditions and the short-,

medium- and long-term outlook. Where necessary, the strategy is revised to adjust for any such developments.

Our three strategic priorities aim to deliver maximum value for all stakeholders:

EXTRACTING MAXIMUM VALUE

FROM OUR OPERATIONS

WORKING RESPONSIBLY AND

MAINTAINING OUR SOCIAL

LICENCE

PREPARING FOR OUR FUTURE

#### 2021 STRATEGY REVIEW

In November 2021, the strategy was reviewed in the context of current macro, industry and operational conditions (including the ongoing

impact of COVID-19 and the climate-related risks and opportunities identified in Phase 1 of the TCFD adoption strategy) and their effect on

the diamond market, industry peers and the Group’s operations. The review included an assessment of various potential opportunities to

create stakeholder value, including technologies and diversification across assets, commodities, industries, business models and operating

structures. We assess both internal and external opportunities on an ongoing basis and engage with stakeholders to investigate compelling

options to unlock value.

Although emerging issues, such as the COVID-19 pandemic, require short-term responses, our medium- to long-term strategic objectives

remain intact and the business model remains effective to support these strategic priorities. Our agility to adjust tactics in the short to

medium term contributes to protecting and preserving long-term fundamentals and strategy.

The Group’s overarching business drivers are set out on page 11, and we aim to control costs while recovering the highest-quality diamonds

to sell as effectively as possible. The short- to medium-term priority remains maximising value from our Letšeng operation through three

main focus areas:

Optimising the current

operating model

We continue to investigate and implement new ways to optimise our operating model to ensure we

are running efficiently and appropriately.

Using early identification and

anti-breakage technology

We are enhancing technology that shows potential to improve diamond recovery, reduce diamond

damage and decrease costs by improving early identification of diamonds within kimberlite and a

non-mechanical method of liberating diamonds from kimberlite.

Reducing diamond damage Preventing diamond damage from mining and processing activities is a key focus to improve the price

achieved for rough diamonds. This includes continued redesign of blasting patterns as appropriate,

improving the front end of our processing plants and providing stable feed to the concentration

circuits of the plants. A project was successfully completed in 2021 to improve process controls to

ensure plant stability and improve diamond recoveries.

The tables below further define our strategic objectives and links them to relevant KPIs and targets. More information is also included in the

CEO review, page 48, the CFO review, page 52, and the Operations Review, page 60.

1. Extracting maximum value from our operations

What this objective entails KPIs related to the objective

• Optimise operating model

• Reduce diamond damage

• Embed a culture of continuous improvement

• Underlying EBITDA

1

• Return on average capital employed

• Basic earnings per share

• Cash generated from operating activities

• Ore tonnes treated

• Carats recovered

• >20 carat diamond recoveries

• Average US$ per carat achieved

2021 performance

Our workforce, communities, supply chains and production continued to be negatively impacted by COVID-19. Our Letšeng operation

experienced a number of challenges related to mining and its processing plants during the year. Cash generated from operating activities

amounted to US$71.3 million during the year, resulting in a net cash position at the end of the year of US$20.9 million. The CFO review

on page 52 discusses the Group’s financial performance and position.

The BT four-year target of US$100 million in revenue, productivity and cost savings was exceeded, by the end of the year by achieving

US$110.0 million. The BT programme is discussed on page 65.

Letšeng implemented an improved mine waste dumping strategy during the year that not only reduced hauling distances and related

operating costs per tonne, but also resulted in a measurable reduction in diesel consumption and associated greenhouse gas emissions.

Refer to page 65 for further information on this initiative.

Partnership agreements with strategic manufacturers resulted in Letšeng earning an additional US$0.2 million in the polished uplift on

the sale of these diamonds during the year.

#### OUR STRATEGY CONTINUED

1

Refer Note 4, operating profit on page 179, for the definition of non-GAAP measures.

US$ per carat achieved

1 930

2 131

1 637

1 908

1 835

20212020201920182017

Underlying EBITDA

1

(US$ million)

49

88

41

53

57

20212020201920182017

Return on average capital employed (%)

12

21

7

12

14

20212020201920182017

Basic earnings per share (BEPS)

(pre-exceptional items) (US cents)

6.6

22.9

5.1

9.8

10.5

20212020201920182017

Cash generated from operating activities (US$ million)

97

138

55

96

71

20212020201920182017

Ore tonnes treated (million)

target: 6.1 – 6.3

6.5 6.5

6.7

5.4

6.2

20212020201920182017

Carats recovered (thousand)

120

127

114

101

115

20212020201920182017

target: 110 – 114

>20 carat recoveries (number of diamonds)

213

257

252

262

225

20212020201920182017

Revenue (US$ million)

214

267

182

190

202

20212020201920182017

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

24

25

2. Working responsibly and maintaining our social licence

What this objective entails KPIs related to the objective

• Promote a culture of zero harm and responsible care

• Adoption of six priority UN SDGs:

› No poverty

› Good health and wellbeing

› Clean water and sanitation

› Decent work and economic growth

› Reduced inequalities

› Responsible consumption and production

• Participating in the GIA’s blockchain technology initiative

• Zero fatalities

• LTIFR

1

• AIFR

1

• Zero major environmental or stakeholder incidents

• Sustainability legal compliance

• Community investment

• ISO certifications

1

Measures the safety performance of the Group (including contractors) and is expressed as a frequency rate per 200 000 man hours

2021 performance

Zero fatalities were recorded during 2021. The Group recorded six LTIs, increasing the Group’s AIFR and LTIFR year on year. Most of the safety

incidents occurred in the first half of the year, which led to a 24-hour ‘Stop for Safety’ campaign being held at Letšeng in June 2021. More

information on the campaign and safety interventions implemented during the second half of the year is provided on page 61.

The COVID-19 Detection and Management Protocol remains in place and has proven extremely effective in ensuring the welfare of

employees, contractors and surrounding communities, and curbing the spread of COVID-19. A focused education and information

campaign resulted in 99% of our workforce being fully vaccinated to date.

There were no major or significant environmental or stakeholder incidents during the year and Letšeng successfully piloted its

bioremediation technology for water treatment. We expanded on the Group’s knowledge around how climate change will affect our

people, operations and PACs. Bolstering our resilience to the physical and transitional impacts of climate change and working with

stakeholders to improve the readiness and resilience of our PACs, ensures that we protect our social licence to operate and continue

to operate responsibly. Improving our resource use efficiencies within the mining value chain, such as energy and water reduces our

environmental footprint and operating costs, and ensures that we continue to operate responsibly and in a sustainable manner.

We continue to invest in local communities and strengthen our relationships with our key stakeholders. Refer to pages 77 and 80 for

more information on our social licence to operate.

Letšeng achieved ISO 14001 and 45001 recertification in July 2021. The Group aligned its tailings facility management code of practice

with the ICMM's GISTM and put the appropriate related governance structures in place to effectively monitor the continued safe and

responsible management of our tailings storage facilities. No incidents of structural instability regarding dam integrity were recorded

during the year. The Group adopted the recommendations of the TCFD and commenced with Phase 1 of the adoption strategy which

worked to establish a science-based foundation for our climate-related risk and opportunity identification process. Refer to page 26 for

our approach to climate change.

The Group submitted 352 rough diamonds to the GIA during the year to undergo its Rough Diamond Analysis Service. The GIA collects

data and images of the rough diamonds and uses individual markers and data identified during the analysis to scientifically match

polished diamonds to its original rough diamond which enables it to confirm the diamond’s original source. This origin information is

indicated on the GIA certificate of the polished diamond which is available to retailers and end-consumers. Available materials include a

brochure and mobile application that trace a diamond’s journey from formation through discovery and mining, polishing and grading,

and describes the beneficial impact of diamonds in a given country. The mobile application also includes report data and images of the

rough and polished diamond. For more information, see https://www.gia.edu/diamond-origin-report-service.

Fatalities

0 0

1

0 0

20212020201920182017

LT IFR

0.04

0.15

0.28

0.04

0.24

20212020201920182017

AIFR

2.02

1.45

0.93

0.75

0.93

20212020201920182017

3. Preparing for our future

What this objective entails KPIs related to the objective

• Advance innovative technologies focusing on reducing

diamond damage and reducing costs

• Assess external growth opportunities

• Long-term mine planning and optimisation

• Capital expenditure

• Waste tonnes mined

• Extending life of mine

• Mining in accordance with life of mine plan

• Mergers and acquisitions

2021 performance

We continue to investigate technologies for reducing diamond damage and reducing costs. We continually assess external growth

opportunities but did not identify any available assets within the diamond industry that offered compelling value to our shareholders

during the year.

The current Letšeng long-term mine plan was reviewed during the year and a revised mine plan was designed which will be implemented

in 2022. Details of the revised mine plan can be found in the Operations Review on page 60.

A conceptual study on the potential economic viability and mining method for underground expansion of the Satellite pipe at Letšeng

(with the potential to include the Main pipe in the future) commenced during the year. Further and more detailed studies in this regard

will be undertaken in 2022.

During the year, a pilot project was undertaken to test a surface miner on site at Letšeng. The pilot project resulted in c.122 000 tonnes

of ore of varying hardness being mined and treated. The outcome of the test was inconclusive as to its potential positive impact on

diamond damage and recovery, but the consistency and size of the in-pit material mined was encouraging and showed a potential

increase in plant throughput through better fragmented material being fed to the plants. Further evaluation of the various surface miner

designs, operability and total cost of ownership is planned in 2022.

The work undertaken during the year to identify and respond to both physical and transition risks associated with climate change,

ensures that we can appropriately plan for and mitigate the impact of climate change risks on our operations in the future.

Capital expenditure (US$ million)

18

23

10

2

4

20212020201920182017

target: 6 – 8

Waste tonnes mined (million)

29.7

25.8

24.0

15.6

18.7

20212020201920182017

target: 18 – 20

#### OUR STRATEGY CONTINUEDOUR STRATEGY CONTINUED

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

26

27

“Sustainability requires a continuous balance between

capital investment, sustainable growth, reducing the

unavoidable impacts of operational activities and creating

stakeholder value. These considerations are increasingly

integrated into our business and financial planning, which

has enhanced our ability to determine costs and benefits at

an early stage of deliberation.

Our financial performance supports the broader goals of the

business to leave a positive legacy for generations to come in

terms of sustainable corporate social responsibility projects,

responsible environmental stewardship, opportunities for

decent work, skills development, training programmes and

driving forward our six UN SDGs.

Across the industry we have seen an increased interest from

investors in ESG performance, and we’re pleased to be able

to respond by demonstrating both our work over the past

several years and our future planning in this regard.”

–Michael Michael –

–Group CFO –

### OUR APPROACH TO CLIMATE CHANGE

We believe that climate-related issues are intrinsically linked to

creating value for all stakeholders. Therefore, these issues formed

part of the Board’s considerations when reviewing strategy, risk

management, annual budgets and business plans as well as

developing action plans and Group policies. In support of our

existing commitment to sustainability and climate change-

related matters, the Board officially adopted the TCFD framework

in June 2021. It will be implemented over three years.

We are committed to understanding and responding to climate

change in a way that is measured and rooted in science, supports

our business sustainability, and considers the needs of our host

countries and local communities. To this end, we have developed

a TCFD roadmap that outlines our path and allows us to deepen

our understanding and respond effectively.

Our objective is to ensure that our science-based targets and

decarbonisation strategy are established by the end of 2022 and

implementation is scheduled to commence by the end of 2023 in

alignment with our TCFD roadmap below.

#### GOVERNANCE

#### How we govern climate-related risks and opportunities

Board

The Board is ultimately responsible for the governance of climate-related risks and opportunities and is supported by the Sustainability

and Audit Committees. The Board embraces a science-based approach to understanding the impact of climate change and continues to

deepen its understanding of the physical and transition risks, along with associated opportunities.

To ensure effective oversight, the Board and Committees received quarterly reports, updates and presentations on climate change-related

matters and the progress made in adopting the recommendations of the TCFD. During 2021, these reports included information on:

• Physical and transition risks.

• Resource use performance and efficiencies.

• Carbon tax.

• Carbon footprint reduction opportunities.

• Major project considerations related to climate matters and decarbonisation.

The climate change-related data and performance information presented to the Board and Committees informed the 2021 reviews of

the Group strategy, risk management framework, annual budgets and business plans. The Board and Committees also considered climate

change-related data and performance when setting the Group’s internal KPIs and non-financial personal performance metrics for senior

management.

#### OUR APPROACH TO CLIMATE CHANGE CONTINUED

Management

The Group’s CFO holds overall accountability for the integration

of climate-related issues into annual budgets and business plans,

financial disclosures and risk management. The Group’s COO

holds overall accountability for sustainability, including climate-

related issues. He is supported by the HSSE and Sustainability

Manager, who is responsible for day-to-day management of

climate-related work within the Group and reporting matters

such as TCFD and the Carbon Disclosure Project (CDP).

“Climate change has become a priority in our planning

from the Board down to operational level, and we start

from the position that efficiencies are necessary not only

to reduce costs and increase revenues, but to reduce our

carbon emissions, mitigate any climate risk and enhance the

sustainability of the business.”

– Michael Michael –

– Group CFO –

#### OUR TCFD ROADMAP

Phase 1 – 2021 Phase 2 – 2022 Phase 3 – 2023

Establish the necessary governance,

strategy and risk foundations to support

meaningful, science-based decision-

making.

Understand the climate-related risks

Gem Diamonds faces to reassess our

organisational resilience.

Identify climate-related opportunities

available to the Group and establish clear

metrics and targets for decarbonisation.

Monitor and manage our climate-related

exposure and measure against our

decarbonisation targets.

In 2022, the Group will embark on the next phase of its TCFD adoption strategy, which will focus on:

• Deepening our understanding of the climate-related risks Gem Diamonds faces.

• Reflecting on the resilience of our strategy, taking into consideration different climate-related scenarios, including a 2°C or lower

scenario.

• Establishing climate-related performance targets that will underpin the Group’s decarbonisation strategy.

#### 2021 HIGHLIGHTS

Established robust Board and

management governance

structures.

Strengthened the enterprise risk

management processes to ensure

climate risk is considered and

managed.

Completed the climate change

scenario analysis.

Identified and assessed physical

and transition risks over the short,

medium and long term.

Board and senior leadership

trained in the science behind

climate change and related

studies.

Strengthened the Board’s ESG

skills and experience with the

appointment of Rosalind Kainyah.

Top-down approach –

sets the risk appetite

and tolerances,

strategic objectives and

accountability for the

management of the

framework

BOARD

Ultimately responsible for the Group strategy, risk and governance of climate-related

risks and opportunities.

Oversight

Bottom-up approach –

ensures a sound risk

management process

and establishes formal

reporting structures

TCFD ADOPTION STEERING COMMITTEE

Management forum responsible for ensuring climate change-related risks and

opportunities are appropriately identified and subsequently elevated through the

established governance and operational structures.

Governance

AUDIT COMMITTEE

Reviews and monitors matters concerning strategy and governance and reports to

the Board on these issues.

SUSTAINABILITY COMMITTEE

Reviews matters regarding existing and planned metrics and targets, performance

and operational objectives.

Responsibility

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

28

29

In June 2021 Gem Diamonds established a TCFD Adoption

Steering Committee, a management forum responsible for

ensuring climate change-related risks and opportunities are

appropriately identified and subsequently elevated through the

established governance structures.

The Committee meets monthly and members include the CFO,

COO, Group Financial Controller and HSSE and Sustainability

Manager. Internal and external attendees are invited to provide

input into the process as appropriate. The TCFD Adoption Steering

Committee drives an integrated approach to climate change by

identifying and assessing climate-related issues through both

internal assessments and external independent studies. In 2021,

the TCFD Adoption Steering Committee commissioned the

following external and independent studies to build the Group’s

climate-related knowledge base:

• Climate Change Scenario Analysis.

• Carbon and water footprints.

• Physical and transition risk assessments.

• Scope 1 and 2 carbon footprint reduction opportunity

assessment.

• Materiality assessment.

#### STRATEGY

The impacts of climate-related risks and opportunities on our business,

#### strategy and financial planning.

Our strategy aims to sustainably maximise stakeholder value in alignment with its commitment to be responsible stewards of natural

resources. Gem Diamonds identified three strategic priorities, listed below, that underpin how the Group creates maximum value for all

stakeholders. We believe that climate-related issues can affect the Group’s performance within these priorities and impact our business,

strategy, financial planning and performance.

#### OUR APPROACH TO CLIMATE CHANGE CONTINUEDOUR APPROACH TO CLIMATE CHANGE CONTINUED

The TCFD Adoption Steering Committee also worked with the

relevant internal functions to bolster the integration of climate

change considerations throughout the Group, including:

• Enterprise risk management.

• Communication and reporting.

• Insurance.

• Financial planning and disclosure.

• Project management.

• Internal audit.

• Engineering.

• Mining.

• Treatment.

The TCFD Adoption Steering Committee’s findings are reported to

the Board and the Audit and Sustainability Committees by the HSSE

and Sustainability Manager on a quarterly basis. Reports on existing

and planned metrics and targets, performance and operational

objectives are reported to the Sustainability Committee. At the

same time, the Audit Committee reviews matters concerning

strategy, governance and risk. Both Committees report to the Board

on these issues. In addition, the HSSE and Sustainability Manager

presents to the Board each quarter on emerging climate-related

issues and developments such as carbon tax, regulatory changes

and technological developments.

Strategic priority

EXTRACTING MAXIMUM VALUE

FROM OUR OPERATIONS

WORKING RESPONSIBLY AND

MAINTAINING SOCIAL LICENCE

PREPARING FOR OUR FUTURE

Climate considerations

Operational initiatives to improve

efficiencies thereby reducing operating

costs and ensuring future availability of

resources for all stakeholders.

Bolstering our resilience to the physical

impacts of climate change while working

with our PACs to improve their readiness

and resilience, ensures that Gem Diamonds

can protect its social licence to operate

and continue to work responsibly with our

stakeholders.

The impact of climate change can already

be seen around the world. The work we

undertook in 2021 to identify and respond to

both physical and transition risks associated

with climate change ensures that we can

appropriately strategise for and mitigate

against the impact of climate change in

our future. The Group’s existing business

continuity and disaster management plans

include considerations for extreme natural

events, which we have responded to since

we started mining in 2006.

2021 integration

In 2021, Letšeng implemented an

improved waste rock dumping strategy

that reduced hauling distances and

resulted in a measurable reduction in fossil

fuel consumption, related carbon emissions

and costs. Our integrated approach ensures

alignment between sustainability and

operational objectives. Refer to page 65

for more information on this initiative.

As a result of localised flooding in the

Patiseng valley during the first half of 2021,

water supply infrastructure, access roads and

footbridges in our PACs were swept away.

We rebuilt the damaged infrastructure and

used the findings from our climate change

work findings to design an improved

water supply structure, using borehole and

groundwater systems rather than surface

water. This limits the impact of future

flooding and drought on water supply.

While Gem Diamonds is currently in the

foundation phase of its TCFD journey, the

business identified climate-related risks

and opportunities through externally

commissioned studies and internal

assessment processes.

The 2021 Group risk and strategy workshops identified strategic and financial planning processes that should consider climate-related

risks and opportunities over the short, medium and long term. As outlined in the table on the next page, the timeframes adopted by

Gem Diamonds for the short, medium, and long term, align with accepted industry practice and consider the mine lease period for our

operating mine, Letšeng.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

30

31

#### UNPACKING OUR CLIMATE

#### CHANGE SCENARIO ANALYSIS

Understanding climate-related risks and opportunities allows

us to align our business strategy with stakeholder demands

of the industry, enhance sustainability efforts throughout the

organisation, create resilience to the climate change-related

impacts and maximise value for all stakeholders.

During 2021, Gem Diamonds engaged an independent external

expert to conduct an organisation-specific CCSA that considers

a mix of quantitative and qualitative information. Data from

the Carbon Brief and World Bank Climate Change Knowledge

Portal was used to determine climate-related physical impacts

specific to the Group's locations. The current open pit life of

mine for Letšeng was considered in determining appropriate

timeframes in the short, medium and long term.

The Shared Socio-Economic Pathway model is a GHG

concentration trajectory model, adopted by the International

Panel on Climate Change (IPCC) and includes consideration

for 1.4°C, 1.9°C, 3.3°C and 6.0°C temperature increases. The

6.0°C datasets were used as critical information and represent

the world economy in the current format without climate

adaptation and initiatives. These four climate scenarios,

modelled on potential temperature increases by the end

of the century, were included in the Group’s assessment of

physical climate-related impacts.

General circulation models (GCMs), also called global climate

models, which simulate the physics of the climate itself, were

used. These models consider the flows of air and water in

the atmosphere and/or the oceans, as well as the transfer

of heat. The most recent subset of GCMs now incorporate

biogeochemical cycles and can simulate the carbon cycle,

nitrogen cycle, atmospheric chemistry, ocean ecology and

changes in vegetation and land use, which all affect how

the climate responds to human-caused GHG emissions.

An ensemble of GCMs was used to determine our Group

locations' climate-related changes and impacts. To understand

the impact of climate-related events on our mining activity,

we linked climate issues to production impact by considering

factors such as human health and behaviour, water, energy

and vegetation changes. Parameters such as temperature, heat

waves, cold waves, floods, droughts, hurricanes, and storms

directly affect human health and behaviour. Precipitation,

evaporation, drought and wind factors will generally increase

operational challenges and present a resultant risk to the

mining sector.

This research reflects our measured and science-based

approach to understanding the impact of climate change and

will inform the work that will be performed in Phases 2 and 3

of our TCFD roadmap.

Our operations are located in remote areas, making them susceptible to more frequent extreme weather events due to climate change. While

we continue to deepen our understanding of the expected physical risks under various scenarios, climate change has already impacted our

operations and forms part of our business continuity planning. For more information on how we are managing and mitigating the impact of

extreme weather events, refer to our environmental section on page 70.

The table below provides a high-level overview of some of the risks and opportunities identified during 2021. Where opportunities for

improvement over the short term were identified, the related processes were enhanced, and the foundations for further integration and

consideration of climate-related issues in 2022 were established.

#### OUR APPROACH TO CLIMATE CHANGE CONTINUED OUR APPROACH TO CLIMATE CHANGE CONTINUED

Our mining operations require significant amounts of energy, and

Letšeng receives its electricity supply from the South African grid.

Increasing global demand for renewable energy, concerns about

climate change and greenhouse gas (GHG) emissions, actual and

proposed taxation of carbon emissions and limited availability of

alternative energy sources will affect the price and availability of

energy. Higher energy demand in countries that are supplied with

electricity through South Africa and grid instability in South Africa

could increase electricity supply interruptions and associated use

of diesel-powered generators. Greater focus on transitioning the

South African electricity supply sector to renewable energy can

also increase energy supply interruptions. Additionally, changes

“We have historically maintained numerous funding facilities across the Group with varying expiry periods. Although this provides

a degree of flexibility, we decided to consolidate our funding position, and expand on our funding partnerships.

As a result, Firstrand Bank has joined Nedbank and Standard Bank in a consolidated funding facility, which increased our revolving

credit facilities to $77.0 million, in dollar equivalent.

An exciting aspect of the funding is that a portion of the facility is linked to sustainability performance targets. This is a first for our

Group and it clearly marks a milestone in terms of our commitments to ESG and the way ESG commitments are embedded in our

financial models.”

– Michael Michael –

– Group CFO –

Climate-related risks Potential financial impact

Climate-related

opportunities

Potential financial impact

Short term: 1–3 years

Short-term processes include annual business and financial planning, performance reporting, short-term capital and contract negotiations.

Increase in occurrence of

moderate precipitation.

Enhanced emissions reporting

obligations.

Enhanced ESG obligations.

Increased operating costs.

Increased capital investment.

Increased resource efficiencies

and reducing our reliance on

fossil fuels.

Enhanced water use strategies.

Waste reduction and recycling

initiatives.

Reduced operating costs.

Increased capital investment.

Medium term: 3–5 years, long term: 5–10 years

Medium to long-term processes include strategy development, social and environmental management plans, rehabilitation planning,

capital management plans, financing and capital investments and operational planning, including contract negotiations and future-

focused projects.

Increase in occurrence and

severity of precipitation.

Rising mean temperature.

Strong winds.

Increased frequency of and

duration of droughts.

Failure of electricity providers

to move to a low carbon

economy.

Substitution of technology with

lower emission alternatives.

Social risks due to resource

constraints, particularly in

developing countries.

Evolving regulatory context

regarding carbon tax.

Increased costs of carbon-

intensive products i.e. diesel.

Reputational risk.

Increased capital investment.

Increased operating cost.

Reduced revenue from

decreased production capacity.

Increased insurance premium

or insurance unavailability.

Research, development and

implementation costs of new

technology.

Inappropriate investment

decisions.

Identify opportunities to

transition to renewable energy

sources.

Position Gem Diamonds as

an ethical and responsible

producer of low carbon

footprint diamonds.

Use of new technologies.

Reduced exposure to carbon

and fossil fuel pricing.

Increased capital availability.

Reputational benefits.

Decreased operating costs.

Increased capital investment.

in energy laws and regulations in various jurisdictions, such as

taxation on carbon emissions or fossil fuel-based energy, may

impact energy costs and technology available for use. Limitations

on grid electricity supply and increased energy prices could

negatively impact our operating activities, costs, and cash flows.

In line with our TCFD roadmap, in 2022 we will conduct

comprehensive physical and transition risk exposure assessments

and determine the materiality of potential financial impacts on

financial performance and position. This will assist us in indicating

the materiality of the risks in the short, medium and long term, as

well as the Group’s resilience against climate issues, and identify

appropriate mitigation strategies.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

32

33

“Our work to understand and mitigate the effects of climate

change is not new, but the degree to which it has been

explicitly embedded into business structures and financial

planning has increased significantly. In particular, to enhance

reporting on the financial and strategic considerations

related to climate change, Gem Diamonds is integrating the

recommendations of the TCFD into the Group’s governance

and risk management structures, strategy and reporting

platforms.

The processes to plan for and deal with the effects of climate

change are therefore increasingly embedded, as are the

results of the CCSA, which allows us to mitigate risk more

effectively. How we implement our investment decisions

and take our decarbonisation and climate change impacts

into account is becoming more sophisticated. However,

it remains a complex and rapidly changing focus area by

its nature.

For example, just two years ago the persistent drought

encouraged discussions around building supplementary

dams to ensure our sustainability from a water-availability

perspective. This year we saw severe rainfall and flooding.

These extremities of weather events are expected to become

more common, which clearly makes forecasting and

budgeting a complex endeavour. We are, however, making

progress on our ability to do so, especially by ensuring

that these considerations are included at the beginning of

planning processes, and involve all affected stakeholders in

the business.”

– Michael Michael –

– Group CFO –

Gem Diamonds has a robust risk management process and

framework in place to identify, manage and mitigate current

and emerging risks and uncertainties. Our risk management

framework combines a top-down and bottom-up approach to

ensure appropriate governance and oversight.

The Board is responsible for risk management in the Group,

including climate-related risks, ensuring that all risks are

appropriately identified, assessed, mitigated and monitored.

Risks are assessed and prioritised in terms of potential impact,

probability of occurrence and effectiveness of controls

across short-, medium- and long-term time frames. The

impact of a specific risk is assessed within the categories of

finance, reputation, regulation, health and safety, climate and

environment, and social and community. A standalone risk

review meeting of the Board is held quarterly to explore all

risks, including climate-related risks, in depth and fully assess

management scenarios and plans.

Our climate-related risks are integrated into the Group’s risk

management framework. In assessing the Group’s principal risks,

the impact of climate change is considered a key element and

impact determinator. Refer to pages 37 to 44 for the Group’s risk

management section.

In 2022, we will undertake an extensive exposure assessment of

climate-related risks to mature our understanding of the potential

impacts and opportunities.

OUR APPROACH TO CLIMATE CHANGE CONTINUEDOUR APPROACH TO CLIMATE CHANGE CONTINUED

RISK MANAGEMENT

How we identify, assess and manage climate-related risks

Top-down approach –

Board

Audit Committee

Sustainability

Committee

• The Board has ultimate responsibility for climate-related risk management.

• The Audit Committee regularly receives reports on risk, strategy and governance

processes related to climate change and the associated financial disclosures.

• The Audit Committee has oversight of climate-related risks and potential

financial, strategy and business planning impacts, through presentations to the

Board during separate quarterly risk meetings.

• The Sustainability Committee assures the Board that appropriate systems

are in place to identify and manage climate-related health, safety, social and

environmental impacts.

Manage

and

Monitor

• Management, through the TCFD Adoption Steering Committee, assesses the

materiality of climate-related risks identified through the risk identification

process.

• Based on this assessment, a risk management plan is developed and presented

to the Audit and Sustainability Committees and Board for approval.

• Emerging and existing regulatory requirements related to climate issues are

monitored and addressed by the Audit and Sustainability Committees of which

the HSSE and Sustainability Manager is an invitee.

Assess

• Gem Diamonds has established internal and external processes to identify

climate-related risks.

• Quarterly risk workshops for department heads provide management oversight

of climate-related risks. The outcomes of the risk workshops inform updates to

the Group risk register, these are presented to the Board through the quarterly

risk review meetings.

• Approved risk management plans are implemented by management at Group

and site level. This is monitored and managed through TCFD Adoption Steering

Committee meetings, quarterly technical reviews, management risk workshops,

quarterly risk reviews, and Committee and Board meetings.

Identify

Bottom-up approach –

Management

TCFD Adoption

Steering Committee

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

34

35

OUR APPROACH TO CLIMATE CHANGE CONTINUED OUR APPROACH TO CLIMATE CHANGE CONTINUED

TARGETS AND METRICS

The targets and metrics used to assess and manage relevant climate-related

risks and opportunities where such information is material

The Group monitors a wide range of metrics to inform its

assessment of climate-related risks and opportunities. Prior to 2021,

the following metrics and trends were measured and monitored:

• Carbon footprint.

• Water footprint.

• Freshwater dam levels.

• Precipitation patterns.

• Energy consumption trends.

• Environmental expenditure.

• Land use and rehabilitation activities.

For information on our GHG emissions, including Scope 1, 2 and

3 emissions, and other climate-related metrics refer to page 35.

In addition to these metrics, we also monitor developments in

areas that may impact our transition risks:

• Current and emerging climate-related regulations.

• Regional renewable energy developments.

• Existing and proposed carbon pricing such as carbon tax.

• New technology.

Following the adoption of the TCFD recommendations, we also

track our climate change-related expenditure. In 2021, we spent

US$0.9 million on environmental protection measures and US$0.2

million specifically related to climate change.

Non-financial performance indicators related to climate metrics

are included in Group Executives’ personal performance targets,

Group performance targets and as part of the Group’s annual

incentive plan. Refer to the Remuneration Committee Report on

page 118 for more information.

In 2021, the Group worked on improving the internal KPIs and

targets around climate change. Our internal KPIs aim to improve

resource use efficiencies, reduce our carbon footprint and

advance our water stewardship goals. In line with our Group

sustainability strategy, Gem Diamonds included carbon reduction

and water conservation KPIs in its sustainability-linked loan (SLL).

The interest rate on the SLL decreases if performance targets are

achieved.

In 2022, the Group will embark on the next phase of its TCFD

adoption strategy, which will focus on establishing climate-

related performance targets that will underpin the Group’s

decarbonisation strategy. Gem Diamonds is committed to a

science-based approach to setting targets and metrics. Our

objective is to ensure that our science-based targets and

decarbonisation strategy are implemented by the end of 2023

in alignment with our TCFD adoption roadmap, refer to page 26.

#### Our carbon, energy and waterfootprints

CARBON FOOTPRINT

The Gem Diamonds carbon footprint was calculated in

accordance with the GHG Protocol Corporate Accounting

and Reporting Standard, an accounting tool to manage GHG

emissions. The standard was developed through a decade-long

partnership between the World Resources Institute and the World

Business Council for Sustainable Development. It includes IPCC

GHG inventory guidelines for specific heating values, carbon

content, densities and emission factors.

Our carbon footprint was also calculated in accordance with

the International Organisation for Standardisation (ISO) 14064-1

Part 1: Specification with guidance at the organisation level for

quantification and reporting of GHG emissions and removals.

In 2021, the total carbon footprint for the Group was

153 864 tonnes of carbon dioxide equivalent (tCo

2

e) (2020:

135 694 tCo

2

e). This includes direct GHG emissions (Scope 1),

energy indirect GHG emissions (Scope 2) and material Scope 3

emissions.

In 2020, our Letšeng mine suspended operations from 28 March

to 26 April due to the Lesotho Government’s COVID-19-related

lockdown. During May, operational activities were ramped up

and planned waste mining activities were successfully deferred

to resume in July. This suspension of operations explains the

reduced 2020 carbon footprint. A three-year view of our carbon

emission performance is detailed on the next page.

Carbon emissions (tCO

2

e) 2021 2020 2019

Scope 1 (direct) (tCO

2

e) 62 672 53 568 75 359

Scope 2 (indirect) (tCO

2

e) 67 473 61 320 67 870

Total Scope 1 and 2 (tCO

2

e) 130 145 114 888 143 229

Scope 3 (indirect) (tCO

2

e) 23 718 20 807 29 739

Total Scope 1, 2 and 3 (tCO

2

e) 153 864 135 694 172 968

Total tonnes mined (ore and waste) 24 962 356 21 167 606 30 327 114

Ore tonnes treated 6 213 098 5 436 396 6 707 791

Scope 1 and 2 (tCO

2

e)/Tonnes mined (ore and waste) 0.005 0.005 0.005

Scope 1 and 2 (tCO

2

e)/Tonne ore treated 0.021 0.021 0.021

The Group's carbon footprint is primarily driven by electricity consumption, and mobile and stationary fuel combustion at Letšeng. Scope

1 emissions made up 41% of the 2021 total carbon footprint. 92% of the Scope 1 emissions are related to mobile combustion activity at

Letšeng with the remainder related to stationary combustion, liquefied petroleum gas and explosives. Scope 2 emissions make up 44% of

Group emissions, driven by grid electricity consumption at Letšeng. Our carbon intensity reporting is based on Scope 1 and 2 emissions.

Less than 1% of the Group’s total CO

2

emissions originated from its UK-based office.

ENERGY CONSUMPTION

The Group-wide energy consumption (for Scope 1 and 2 activities) in 2021 was 320 381 029kWh (2020: 278 103 602 kWh). 99% of Scope

1 and 2 energy consumption in 2021 is attributable to Letšeng. Less than 1% of our Scope 1 and 2 energy consumption originated from

our UK-based operations. The COVID-19-related operational suspension of our Letšeng mine during 2020 explains the reduced energy

consumption during 2020. Below is a three-year view of our energy consumption performance.

Our principal energy sources are grid electricity and diesel. Scope 1 energy consumption in 2021 was primarily driven by mobile and

stationary diesel combustion activities at our Letšeng operation. Group-wide Scope 1 energy consumption decreased by 18.7% from 2019

to 2021, resulting in a 9% improvement in our energy efficiency ratio for ore tonnes treated. The energy efficiency improvements are

because on a reduction in waste tonnes, steeper slopes and an optimised mine waste dumping strategy.

Energy consumption (kWh) 2021 2020 2019

Scope 1 (kWh) 251 743 229 215 725 348 309 639 385

Scope 2 (kWh)  68 637 800 62 378 253 69 751 658

Total Scope 1 and 2 (kWh) 320 381 029 278 103 602 379 391 043

Total tonnes mined (ore and waste) 24 962 356 21 167 606 30 327 114

Ore tonnes treated 6 213 098 5 436 396 6 707 791

kWh/Tonnes mined (ore and waste) 12.83 13.14 12.51

kWh/Tonnes ore treated 51.57 51.16 56.56

Our Letšeng operation is located in a remote location, requiring long-distance transmission of power. Scope 2 energy consumption for the

Group is primarily driven by grid electricity consumption at the Letšeng operation. As our operations move towards lower carbon emissions

targets, power sources and technology, our operations will continue to be evaluated to secure stable and cost-effective supply and reduce

our carbon emissions.

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

36

37

### RISK MANAGEMENT

#### HOW WE APPROACH RISK

The Group’s risk management framework, which is fully integrated within strategic and operational planning, aims to identify, manage and

mitigate the risks and uncertainties to which the Group is exposed and combines top-down and bottom-up approaches with appropriate

governance and oversight, as shown in the graphic below.

#### Risk management framework

The Board and its Committees oversee the most relevant and

significant current and emerging risks facing the Group which

include strategic, operational and external risks. These risks

are actively monitored, managed and mitigated to the extent

possible as their impact, individually or collectively, could affect

the Group’s ability to achieve its objectives.

While Gem Diamonds’ risk management framework focuses on

risk identification and mitigation, many factors that give rise to

these risks also offer opportunities. The Group monitors existing

and emerging opportunities and incorporates them into the

strategy where they support the Group’s vision.

The learnings from COVID-19 led to increased emphasis on

identifying the possible implications of external macro risks

and low-probability and high-consequence events to inform

appropriate contingency plans. These risks are mitigated

by building resilience and flexibility into our leadership and

operational processes, and ensuring the Group is equipped to

quickly quantify the size and scale of the emerging issue and

adapt accordingly. Insurance cover plays an important role in

risk mitigation, enabling the transfer of certain risk elements

within the primary risk categories of the Group. While it does

not eliminate the need for operational controls to manage and

mitigate risk, it offsets the financial loss should the risk materialise.

Top-down approach –

sets the risk appetite

and tolerances,

strategic objectives and

accountability for the

management of the

framework

BOARD OF DIRECTORS

The Board is responsible for risk management in the Group and provides stakeholders

with assurance that key risks are properly identified, assessed, mitigated and monitored.

The Board maintains a formal risk management framework for the Group and formally

evaluates the effectiveness of the Group’s risk management process. It confirms that

the process is accurately aligned with the Group’s strategy and performance objectives.

At the quarterly risk review meeting, the Board reviews the risk register, assesses

management’s scenarios and plans, interrogates the most critical risks in detail and

debates mitigating plans with management.

Oversight

SUSTAINABILITY COMMITTEE

The Sustainability Committee provides

assurance to the Board that appropriate

systems are in place to identify and

manage health, safety, social and

environmental risks. It monitors the

Group’s performance within these

categories and drives proactive risk

mitigation strategies to secure the safe

and responsible operations and the

social licence to operate in the future.

AUDIT COMMITTEE

The Audit Committee monitors the

Group’s risk management processes,

reviews the status of risk management,

and reports to the Board on a biannual

basis. It is responsible for addressing the

corporate governance requirements of

risk management and for monitoring risk

management at each operation.

Governance

Bottom-up approach –

ensures a sound risk

management process

and establishes formal

reporting structures

Responsibility

MANAGEMENT

Management develops, implements, communicates and monitors risk management

processes and integrates them into the Group's day-to-day activities. It identifies risks

affecting the Group, including internal and external, current and emerging risks. It

implements appropriate risk responses consistent with the Group’s risk appetite and

tolerance.

GROUP INTERNAL AUDIT

Group Internal Audit formally reviews the effectiveness of the Group’s risk

management processes. The outputs of risk assessments are used to compile the

strategic three-year rolling and annual internal audit coverage plan and evaluate the

effectiveness of controls.

WATER CONSUMPTION

The Group water footprint (net water usage) for 2021 was 7.1 million cubic metres (m

3

) (2020: 6.0 million m

3

). The COVID-19-related

operational suspension of our Letšeng mine in 2020 explains the reduced water consumption during the year. Below is a three-year view

of our water consumption performance.

The total volume of water recycled within our production processes increased by 11.3% from 2019 to 2021. This is due to water use

efficiencies in recycling water, seepage from the Patiseng tailings facility and wastewater from the sewerage treatment plant back into the

processing plants.

Water consumption (million m

3

) 2021 2020 2019

Net water usage  7.1 6.0 7.6

Water withdrawal and capture 3.8 3.5 5.6

Water recycled  8.9 8.8 7.9

Water loss through evaporation, entrainment, and seepage  3.1 3.2 2.7

Total tonnes mined (ore and waste) 24.9 21.1 30.3

Ore tonnes treated 6.2 5.4 6.7

Net water use (m

3

)/Tonnes mined (ore and waste) 0.29 0.28 0.25

Net water use (m

3

)/Tonnes ore treated 1.15 1.11 1.13

Recycled water (m

3

)/Tonnes mined (ore and waste) 0.36 0.42 0.26

Recycled water (m

3

)/Tonnes ore treated 1.44 1.63 1.18

#### OUR APPROACH TO CLIMATE CHANGE CONTINUED

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

38

39

#### RISK MANAGEMENT CONTINUED

Insurers have continued to decrease their exposure to the mining industry due to the risk perception created by the COVID-19 pandemic,

as well as claims in the industry due to the looting experienced in South Africa in July 2021. As a result, the renewal of appropriate insurance

has become challenging, leading to additional exclusions, reduced cover, increasing deductibles or excesses payable and increasing

premiums. Reduced cover consequently directly impacts the Group’s cash management risk. In response to these challenges, the Group

has decided to adopt a new risk transfer strategy to address the substantial changes in the insurance market by developing a sustainable

insurance solution for the Group in the medium to long term.

Exposure increased

Exposure unchanged

Exposure reduced

1. Climate

Change

Risk: Climate change-related risks

(transitional and physical risks) are

recognised as top global risks and

investors are increasingly focused

on the management of these

risks. Climate change presents

significant present and future risks

and opportunities to the Group,

that if not identified and managed

responsibly could negatively

impact the organisation’s long-term

resilience.

Opportunity: Opportunities for

improvements in energy and

operational efficiency, innovation

and growth.

Risk Response:

• TCFD adoption and climate change

strategy development.

• Governance and management

practices implemented.

• Structured TCFD Adoption Steering

Committee meetings.

• New reporting standards adopted.

• Adoption of UN SDG framework

• GHG emissions monitoring and

reporting.

Risk type: Strategic,

Operational and External

Strategic impact: Preparing

for our future

Working responsibly and

maintaining our social licence

Business model impact:

Affects the entire business

model

2. Diamond

damage

Risk: Letšeng’s valuable Type IIa

diamonds are highly susceptible

to damage during the mining

and recovery process. This affects

revenue generated by the Group's

large, high-value diamonds

resulting in reduced cash flow and

profitability.

Related opportunities: Reduction

in diamond damage will result in

higher prices achieved, resulting in

improved cash flow and profitability

Risk Response:

• Continuous diamond damage

monitoring and analysis to identify

opportunities to reduce diamond

damage.

• Optimising blasting and processing

activities to reduce possible

diamond damage.

• Development of early identification

and improved liberation

technology.

Risk type: Strategic and

Operational

Strategic impact:

Extracting maximum value

from our operations

Preparing for our future

Business model impact:

Reduces financial inputs,

increases diamond prices

realised and output of carats

recovered, increasing financial

outputs

3. Diamond

Resources

and

Reserves

Risk: Letšeng’s low-grade orebodies

makes the operation sensitive to

resource variability. Inadequate

information on the geological

continuity, distribution, grade, and

quality of diamonds within the

orebodies increases the risk that

production targets may not be

achieved and reduces confidence

in the performance of the resource.

Unexpected variability in key

resource/reserve criteria, such

as volume, tonnage, grade and

price, can significantly impact the

operation’s forecasting and financial

stability, both in the short and

medium term, and can influence

decisions regarding future growth.

Related opportunity: Having

access to adequately detailed and

reliable exploration, sampling and

testing data enables the operation

to reasonably assume geological,

grade and quality continuity within

defined domains, and improves

planning and forecasting accuracy.

Risk Response:

• Gathering geological evidence

on variations within the resource

(lithology, density, volume/tonnage,

grade, diamond population size

and value distributions), applying

industry best practice and engaging

independent experts to audit and

advise.

• Ongoing pit mapping, petrography,

drilling, and 3D modelling.

• Grade control, bulk sampling,

density and moisture content

measurements (on-site and

independent lab verification),

dilution control, stockpile

management, data management,

quality control and internal auditing

of production data (including

geological, processing, recovery and

sales data).

• Managing the Diamond Accounting

System and Mineral Resource

Management (MRM) database,

monitoring recovery data on daily

and monthly basis, as well as per

export period, to follow trends in

diamond distributions, large stone

frequencies and average diamond

prices per kimberlite domain.

Risk type: External and

Operational

Strategic impact:

Extracting maximum value

from our operations

Preparing for our future

Business model impact:

Affects natural capital

inputs and outputs of carats

recovered. Life of mine affects

the long-term viability of the

business model

4. Security

of product

Risk: Theft is an inherent risk in the

diamond industry. The high-value

nature of the product at Letšeng

makes it susceptible to theft and

significant losses, which would

negatively affect revenue and cash

flows.

Related opportunities: Advanced

security control measures increase

employee and product safety and

improves revenue.

Risk Response:

• Zero tolerance on non-

conformance to policy and

regulations.

• Advanced security access control

and surveillance system in

place, complemented by off-site

surveillance.

• Monitoring of security process

effectiveness by the Diamond

Recovery Protection Committee

(subcommittee of the Letšeng

Board).

• Appropriate diamond specie

insurance cover in place.

• Regular vulnerability assessments

complemented by internal and

independent third-party assurance

audits undertaken.

Risk type: Strategic and

Operational

Strategic impact:

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Business model impact:

Affects outputs of carats

recovered, which increases

financial outputs. Improves

human capital and safety

outcomes

#### RISK MANAGEMENT CONTINUED

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

40

41

5. Variability

in cash

generation

Risk: Variability in cash flows from

operational activities and currency

fluctuations can negatively affect

the Group’s ability to effectively

operate, repay debt and fund

capital projects. This risk is directly

impacted by other principal risks

such as rough diamond demand

and prices, diamond damage, and

diamond resources and reserves.

Related opportunities:

Cash constraints drive more

efficient capital allocation and

cost discipline.

Consistent and regular cash flows

provides predictability to maintain

an appropriate capital allocation

strategy.

Risk Response:

• Appropriate treasury management

procedures and framework to

enter into short-term hedging

instruments are implemented to

mitigate the effects of currency

volatility on cash flows.

• Rigorous cost and capital discipline

is in place.

• Funding facilities are in place to

manage any variability in the short

to medium term.

• Ongoing CI programme to drive

operational efficiencies.

Risk type: External and

Strategic

Strategic impact:

Extracting maximum value

from our operations

Preparing for our future

Business model impact:

Affects funding and financial

capital inputs and outcomes

6. Information

Technology (IT)

and

Operational

Technology (OT)

systems, and

cybersecurity

Risk: The Group’s operations rely

on secure IT and OT systems to

process and record financial and

operating data in its information

management systems. If these

systems are compromised, there

could be a material adverse impact

on the Group.

Related opportunities: Stability

to the business with no production

interruption.

Risk Response:

• Application of technical and process

IT controls in line with industry-

accepted standards.

• Appropriate back-up procedures,

firewalls and other appropriate

security applications in place.

• Regular testing of back-up

restorations.

• IT management policies.

Risk type: Strategic and

Operational

Strategic impact:

Extracting maximum value

from our operations

Preparing for our future

Business model impact:

Affects the entire business

model

7. Health Safety

and Wellness

Risk: The probability of a major

health or safety incident occurring

within the Group is inherent in

mining operations. These incidences

could impact the wellbeing of

employees, PACs, our licence to

operate, the Company’s reputation

and compliance with its mining

lease agreement.

Related opportunities:

Improving employee health and

wellness can increase morale,

reduce absenteeism and improve

productivity.

Effective safety policies and

processes in place reduces risk to

our workforce, strengthens our

relationships with employees and

regulators, and safeguards our

reputation.

Risk Response:

• Appropriate health and safety

policies and practices are in place.

• Corrective actions identified from

incident investigations and internal

and external audits implemented

timeously.

• Dam safety management

framework implemented and

alignment with the GISTM.

• ISO 45001 accreditation maintained.

• Safety management and leadership

programme; detection and

prevention strategies are developed

and implemented.

• Training and awareness campaigns.

• Psychological support

considerations for the full workforce.

• Continually assess organisational

health to address current and

emerging issues.

• Flexible shift configuration to assess

alternatives to limit community

transmission and transfer to the

workplace.

Risk type: Strategic and

Operational

Strategic impact:

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Business model impact:

Affects the entire business

model

8. Production

interruption

Risk: Material mine and/or plant

shutdowns, pit closures or periods

of decreased production could

arise due to various events. These

events could lead to personal injury

or death, environmental impacts,

damage to infrastructure and delays

in mining and processing activities

and could result in financial losses

and possible legal liability.

The Group relies on the use of

external contractors in its mining

and processing activities. Disputes

with these contractors could

materially impact the Group’s

operations.

Related opportunities: Focused

contract management supports

operating at or near steady-state

levels which improves efficiencies

due to stability of production.

Robust business continuity plans

are in place which results in limited

delays due to disruptions.

Risk Response:

• Continuous review of business

continuity plans.

• Bespoke contract management

role fulfilled to ensure proper

contract management and

minimise potential for disputes and

disruptions.

• Appropriate insurance maintained.

• Appropriate levels of resources

maintained (fuel, stockpiles, etc)

to mitigate certain production

interruptions.

• Improvements implemented in

the management of contractors’

procurement practices.

Risk type: Operational and

External

Strategic impact:

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Business model impact:

Reduced operational activity

could lead to a decline in

financial capital and outputs.

Negative outcomes decrease

natural and human capital

#### RISK MANAGEMENT CONTINUED RISK MANAGEMENT CONTINUED

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

42

43

9. Rough

diamond

demand and

prices

Risk: Numerous factors beyond the

control of the Group may affect the

price and demand for diamonds.

These factors include international

economic and political trends, as

well as consumer trends. Medium-

to long-term demand is forecast

to outpace supply, but short-term

uncertainty and liquidity constraints

within the diamond sector may

affect rough diamond pricing.

Related opportunities: Reduced

supply and increased demand may

result in improved revenue resulting

in positive cash flows

Risk Response:

• Monitoring of market conditions

and trends.

• Flexibility in sales processes and

utilisation of multiple sales and

marketing channels, and increased

viewing opportunities.

• Ability to enter into partnership

agreements with manufacturers to

share in the upside of the polished

diamonds.

• Maintaining the integrity of the

tender process.

• Reduction in supply in the market

with greater demand for Letšeng

goods caused by current offtake

agreement between a diamond

trader and a competitive mine.

Risk type: External

Strategic impact:

Extracting maximum value

from our operations

Preparing for our future

Business model impact:

Affects funding of the business

model, sales and marketing

activities and chosen

distribution channels

10. Creating and

preserving

value for

shareholders

Risk: The volatility of the Group’s

share price and lack of growth

negatively impacts the Group’s

market capitalisation. Constrained

cash flows could impact on returns

to shareholders. The Group currently

relies on a single mine with a finite

life for its revenues, profits and cash

flows.

Related opportunities: Focusing

on existing operations could unlock

further value through rationalisation

and efficiency improvements.

Risk Response:

The Groups strategy review has the

objective of improving the share price

through:

• Continuous Improvement initiatives.

• Investigating early identification and

anti-breakage technology.

• Assessing mergers and acquisitions

and diversification opportunities.

Risk type: Strategic

Strategic impact:

Working responsibly and

maintaining our social licence

Preparing for our future

Business model impact:

Affects the entire business

model

11. Workforce

Risk: Achieving the Group’s

objectives and sustainable growth

depend on the ability to attract

and retain suitably qualified and

experienced key employees.

Gem Diamonds operates in an

environment and industry where

shortages in experience and skills

are prevalent.

Related opportunities: Skills

retention and Continuous

Improvement initiatives build the

Group’s human capital and can

create a competitive advantage.

Risk Response:

• Human resources practices are

designed to identify skills shortages

and implement development

programmes and succession

planning for employees.

• Incentives are in place to retain key

individuals through performance-

based bonus and long-term share

awards.

• Remuneration practices are in place

which review current remuneration

policies, skills and succession

planning.

• Development of training plans to

address areas where skills shortages

are identified, in conjunction with

government agencies.

Risk type: Strategic and

Operational

Strategic impact:

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

Business model impact:

Affects human, intellectual and

financial capital inputs into the

business model

12. Environmental

Risk: Environmental issues are

recognised as top global risks by

the World Economic Forum and

investors are increasingly focused

on environmental performance.

Failure to manage vital natural

resources, environmental

regulations and pressure from

neighbouring communities can

affect the Group’s ability to operate

sustainably.

Related opportunities:

Responsible environmental

stewardship improves relationships

with regulators and communities

while strengthening our brand.

Increased focus on environmental

responsibility could translate into a

competitive advantage.

Risk Response:

• Implemented appropriate

Sustainability and Environmental

policies which are subject to a

continuous improvement review.

• The current behaviour-based care

programme instils environmental

stewardship.

• A dam safety management

framework has been implemented.

• Annual social and environmental

management plan audit

programme has been implemented.

• ISO 14001 accreditation maintained.

• Adopted a UN SDG framework.

• Rehabilitation and closure

management strategy adopted and

updated annually.

• Implementation of the water

management framework.

• Concurrent rehabilitation strategy

implemented.

• Group shared natural resources

management strategy

implemented.

Risk type: External and

Operational

Strategic impact:

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

Business model impact:

Affects natural capital inputs

into the business model and

negative outcomes in the case

of environmental incidents

#### RISK MANAGEMENT CONTINUED RISK MANAGEMENT CONTINUED

![Graphics]()

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

2021

Gem Diamonds Limited Annual Report and Accounts

44

45

#### EMERGING RISKS

The Group risk framework includes an assessment of emerging

risks which are indicators of future conditions from which new

opportunities and threats can arise.

The Group’s consideration of emerging risk includes those risks

that:

• are likely to materialise or impact over a longer time frame

than existing risks.

• do not have much reference from prior experience.

• are likely to be assessed and monitored against vulnerability,

velocity and preparedness when determining likelihood and

impact.

The current emerging risks and opportunities being monitored

by the Group are:

• although the invasion of Russia into the Ukraine and

consequential sanctions applied is a current event; the social,

political and economic effect of this on commodity prices,

supply chains and market conditions is unknown.

• lab-grown diamonds.

• generational shifts in consumer preferences – social

influencers.

• the rate of advancement of digital technologies such as

blockchain.

• future workforce (automation, skills for the future, etc).

• uncertainty around carbon tax.

#### RISK MANAGEMENT CONTINUED

13. Social licence

to operate

Risk: The Group's social licence

to operate is underpinned by

the support of its stakeholders,

particularly employees, regulators,

PACs and society. This support is

an outcome of the way the Group

manages issues such as ethics,

labour practices and sustainability

in our wider environment, as

well as our risk management

and engagement activities with

stakeholders.

Related opportunities: Realising

the Group’s vision to make a

meaningful and sustainable

contribution to the countries

in which we operate builds

the Group's reputation with

employees, government, regulators,

communities and investors.

Risk Response:

• Appropriate CSI strategy based on

community needs analysis which

provides infrastructure, access

to education and healthcare,

and supports local economic

development.

• Adoption of relevant standards, best

practices and strategies.

• Appropriate Governance structures

across all levels of the Group.

• Regular engagement with

government and regulators.

Risk type: Strategic and

Operational

Strategic impact:

Working responsibly and

maintaining our social licence

Preparing for our future

Business model impact:

Affects social capital and the

viability of the business model

### VIABILITY STATEMENT

The Board has assessed the viability of the Group over a period

significantly longer than 12 months from the approval of the

financial statements in accordance with the UK Corporate

Governance Code. The Board considers three years from the

approval of the financial statements to be the most relevant

period for consideration for this assessment, given the Group’s

current position and the potential impact of the principal risks

documented on pages 37 to 44 on the Group’s viability.

While the Group maintains a full business model, based

predominantly on the life of mine plan for Letšeng, the Group’s

annual business and strategic planning process also uses a

three-year time horizon. This process is led by the CEO and

involves all relevant functions including operations, technology

and innovation, sales and marketing, finance, treasury and risk.

The Board participates in the annual review process through

structured Board meetings and annual strategy review sessions.

A three-year period provides sufficient and realistic visibility in

the context of the industry and environment in which the Group

operates, even though the life of mine, the mining lease tenure

and available estimated reserves exceed three years.

The business and strategic plan reflects the Directors’ best

estimate of the Group’s prospects. The Directors evaluated several

additional scenarios to assess the potential impact on the Group

by quantifying their financial impact and overlaying this on the

detailed financial forecasts in the plan.

The Board’s assessment of the Group’s viability focused on the

critical principal risks categorised within the strategic, external

and operational risk types, together with the effectiveness of

the potential mitigations that management reasonably believes

would be available to the Group over this period.

#### REFINANCING OF GROUP

#### FACILITIES

The refinancing of the Group’s facilities which was completed

in December 2021, significantly increased the Group’s available

facilities from US$67.6 million immediately before the refinancing

to US$83.3 million thereafter, when fully unutilised. US$77.0

million of these facilities mature in December 2024, with the

balance of US$6.3 million being a general banking facility with no

set expiry date, but which is reviewed annually.

#### COVID-19

While there are promising signs that the impact of the COVID-19

pandemic may be dissipating, there remains a potential risk of

further resurgences. The Group is confident in its ability to manage

through any such resurgence given its experience and success to

date, especially following the successful roll-out of vaccinations

at Letšeng. The Group predominantly holds viewings for its rough

tender sales in Antwerp, although viewings have been held in Tel

Aviv and more recently in Dubai. Although international travel has

been subject to changing levels of restrictions, the main diamond

sales market in Antwerp has remained open. Diamond sales

are concluded on Gem Diamonds’ electronic tender platform

which can be accessed from anywhere in the world. The Group is

confident that it will be able to continue to hold tender viewings

in Antwerp despite any potential COVID-19 travel restrictions.

#### CLIMATE CHANGE

The Board is cognisant of the risks presented by climate

change and conscious of the need to minimise emissions.

A Group-specific climate change scenario analysis has been

conducted whereby the short- to medium- and longer-term

physical and transitional risks were assessed. The short- to

medium-term impacts fall within the viability period. The

physical risks identified for Letšeng, such as drought, strong

winds, extreme precipitation and cold, is similar to its current

operating conditions. The operation is therefore well-geared to

manage these conditions within its current and medium term

operational activities, cost structure and business planning.

Additional cash investment required in the event of these short-

to medium-term physical risks materialising has been assessed

as low with no material impact on the current operations and

viability of the Group.

In terms of transitional risks, as users of grid-supplied and fossil fuel

energy, the short-term focus is on improving energy efficiencies

in our operational processes and reducing combustion-related

fossil fuel use. Options are being assessed in the context of the

size, nature and location of the Group’s operations, the required

investment and the expectations of our main stakeholders. Any

material investment during the viability period is considered

unlikely. Due to the uncertainty of the cost and timing of

implementation of carbon-related taxes, the impact of such taxes

on the Group’s operations and cash flows has been excluded from

the viability assessment and scenario stress testing. Management

and the Board will continue to assess these impacts as the

information becomes more certain.

#### STRESS TESTS

The scenarios tested considered the Group’s revenue, EBITDA

1

,

cash flows and other key financial ratios over the three-year

period. The scenarios tested included the compounding effect of

the factors below and were applied independently of each other.

1

Refer Note 4, Operating profit on page 179, for the definition of non-GAAP measures.

![Graphics]()

Gem Diamonds Limited Annual Report and Accounts

46

2021

47

#### CONCLUSION

The Group’s current net cash

1

position of US$20.9 million as at 31 December 2021 and available facilities of US$74.3 million would enable it

to withstand the impact of these scenarios over the three-year period. The revolving credit facilities which expire on 22 December 2024, has

a 24-month extension period and the Group will follow all necessary processes to extend the facilities for this available period, as it has in the

past. This position is supported by the cash-generating nature of the Group’s core asset, Letšeng, and its flexibility in adjusting its operating

plans within the normal course of business. Based on the robust assessment of the principal risks, prospects and viability of the Group, the

Board confirms that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall

due over the three-year period ending 31 December 2024.

Effect Extent of sensitivity

analysis

Related principal risks Area of business model

affected

A decrease in forecast rough diamond

revenue from reduced market prices

or production volumes caused by

unforeseen production disruption due to

either COVID-19 restrictions or climate-

related events.

20% • Rough diamond demand

and prices

• Production interruption

• Diamond damage

• Diamond resources and

reserves

• Entire business model ie

inputs, activities, outputs

and outcomes

A strengthening of local currencies to the

US dollar from expected market forecasts.

23% • Variability in cash

generation

• Financial capital inputs

and outcomes

#### VIABILITY STATEMENT CONTINUED

1

Net cash is calculated as cash and short-term deposits less drawn down bank facilities (excluding asset-based finance facility and insurance premium financing).

# PERFORMANCEREVIEW

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

49

Gem Diamonds Limited Annual Report and Accounts

48

“We are committed to

#### operating in an environmentally

#### responsible way.”

#### – Clifford Elphick –

### CHIEF EXECUTIVE’S REVIEW

The Group’s Letšeng operation delivered a solid operating

performance, despite the significant challenges presented by

travel restrictions, supply chain constraints, extreme weather

conditions and intermittent external power outages on site.

Tonnes treated increased 15% year on year as operations

returned to normal after the COVID-19 shutdowns in 2020. Carats

recovered increased 14% to 115 335 (2020: 100 780).

Six diamonds greater than 100 carats were recovered during the

year, which is comparable to the 13-year average of eight, albeit

lower than the 16 such diamonds recovered in 2020. Exceptional

recoveries during the year included the two large high-quality Type

IIa white diamonds of 367 and 245 carats which sold for US$26 160

per carat and US$40 139 per carat, respectively. Letšeng’s

operational performance is discussed in more detail on page 60.

The diamond market has recovered to levels not seen in some

time and demand for the high-quality white diamonds produced

at Letšeng is particularly strong. 21 diamonds sold for more

than US$1 million each, generating revenue of US$64.5 million

(2020: 34 diamonds contributing US$72.6 million). The average

price achieved during the year decreased 4% to US$1 835 per

carat (2020: US$1 908 per carat) from the sale of 109 697 carats

(2020: 99 172). The decrease in the prices achieved compared

Letšeng has a unique ore body with diamonds that are of the

highest value of any kimberlite mine, and the most beautiful

found anywhere in the world. Despite the many COVID-19-related

challenges encountered during the year, the Group ended the

year in a strong cash position (net cash of US$20.9 million) with

the average price of Letšeng goods exceeding US$2 000 per

carat in Q4. This robust pricing for Letšeng’s large, high-quality

diamonds has continued into 2022.

We aim to extract maximum value for our stakeholders by

operating safely, responsibly and efficiently and exploring new

technologies to reduce diamond damage during the diamond

liberation process. Achieving the highest average prices of any

kimberlite mine in the world requires an effective, transparent

and competitive tender sales process which we boast in Antwerp

and, more recently, in Dubai. In addition, the Group adheres to

internationally recognised systems and processes which provide

our clients and their customers the assurance that our diamonds

are ethically mined.

#### EXTRACTING MAXIMUM VALUE

#### FROM OUR OPERATIONS

The strategy during the second year of COVID-19 impact on our

operations focused on driving the extraction of greater value

from our assets.

#### GEM DIAMONDS’ CONTRIBUTION TO LESOTHO

Jobs for 1 591 employees and contractors of which 98% are Basotho nationals.

Local procurement

#### US$158.7 million

.

Local procurement directly from PACs

#### US$3.4 million

.

Local procurement from regional communities

#### US$31.4 million

.

Investment in training to improve individual skills.

48 bursaries and scholarships for local students.

Vaccine and ambulance donations.

to 2020 relates mainly to fewer large and exceptional diamond

recoveries, and the overall quality of the diamonds recovered as

a result of the areas of the resource mined during the year. The

Group successfully hosted its first trial tender viewing in Dubai

in September, making it easily accessible for important clients

from the UAE, India and Israel to participate in the tender. The

viewings were well-attended and contributed to the robust

prices achieved. The Group will hold its next Dubai viewing in

March 2022.

Group revenue increased 6% to US$201.9 million (2020:

US$189.6 million), which translates to underlying EBITDA

1

of US$57.4 million and earnings per share of 10.5 US cents.

Operational cash generated amounted to US$71.3 million

resulting in a net cash

2

position of US$20.9 million at the end

of 2021. The Group-wide debt refinancing was successfully

concluded during the year. An additional funder joined the lender

group, bringing the total number of lenders to three. The Group’s

revolving credit facilities were increased from US$61.3 million to

US$77.0 million, in dollar equivalent, and renewed for a three-year

period.

Based on the positive financial performance of the Group in 2021,

we are pleased to announce that the Board has proposeed a

dividend of 2.7 US cents per share. More information regarding

the Group’s financial results is included in the CFO review on

page 52.

#### WORKING RESPONSIBLY AND

#### MAINTAINING OUR SOCIAL

#### LICENCE

Gem Diamonds aims to sustain a workplace safety culture

founded on mutual care and collaboration across the workforce.

We continue to roll out programmes to drive a behavioural,

organisational and culture ethos of safe conduct in the workplace.

In the past year, there were no fatalities (2020: none), six LTIs

(2020: 1), and we achieved an overall AIFR of 0.93.

We are committed to operating in an environmentally responsible

way. Our tailings storage facility management process aligns with

the ICMM’s GISTM which ensures the responsible management

and monitoring of the tailings storage and freshwater facilities

with regular inspections by external experts.

We invest in our surrounding communities through our well-

established CSI programme to improve educational outcomes,

develop infrastructure and stimulate local enterprises to

create self-sustaining employment independent of the mine.

Implementing these programmes was a significant highlight in

2021 as we were able to successfully implement a number of

2020 projects delayed by the COVID-19 lockdowns, while also

commencing with those projects planned for 2021. In addition,

we were active in repairing roads, footbridges and other PAC

infrastructure damaged by the extraordinary flooding in the

Patiseng valley in the first quarter of the year.

We are particularly proud of the pipeline of in-country mining

skills we have developed that will serve Letšeng, and Lesotho as

a country, well into the future. We started operations with 250

people in 2006, more than half of whom were expatriates. There

are now 1 591 people working at Letšeng, of whom 98% are

Basotho. This is due to our significant investment in transferring

of skills, sponsoring the studies of students in mining and

business-related disciplines, and in coaching initiatives specific

to our needs.

Responsible social and environmentally sourced diamonds are

a consumer priority. We have adopted six of the UN SDGs and

continue to support the GIA’s use of blockchain technology to

assure consumers of our diamonds’ ethical footprint.

There were no major or significant stakeholder incidents reported

during the year.

1

Refer Note 4, Operating profit on page 179, for the definition of non-GAAP (Generally Accepted Accounting Principles) measures.

2

Net cash is a non-GAAP measure and calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility and insurance

premium financing).

CHIEF EXECUTIVE’S REVIEW CONTINUED

We performed strongly in 2021 and operated in a safe and responsible

manner to protect the wellbeing of our workforce.

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

51

Gem Diamonds Limited Annual Report and Accounts

50

#### OPERATING THROUGH COVID-19

The challenge for our business over the last two years has been

to keep our workforce safe, find ways to run efficiently and

uninterrupted during COVID-19 and generate a return for our

shareholders. We demonstrated our care and agility at the start

of the pandemic by quickly establishing a testing laboratory,

strict controls and protocols, giving confidence to employees,

contractors, communities and the Government of the Kingdom

of Lesotho that we were serious about keeping our people safe.

The Group has incurred significant expenditure in implementing

its COVID-19 protocols with the majority being spent at Letšeng,

where an estimated LSL26.4 million (LSL17 375 per employee)

was spent on COVID-19 management and prevention to date.

When vaccinations started in Lesotho in the second half of

2021, we acquired and donated 20 000 vaccines to the Lesotho

Department of Health. As part of the national vaccination

programme, we worked with the Department of Health to allow

our workforce the opportunity to be vaccinated on site. We are

proud to report that 99% of our workforce is fully vaccinated

to date.

As a result of our early and proactive interventions, the mine

operated continuously throughout 2021. However, travel

restrictions made it challenging for Group management,

contractors and certain technical skills to access the mine,

and ongoing supply chain disruptions affected the timeous

replenishment of essential spares and equipment. We remain

alert to the effects of the pandemic on mental health and in

response targeted wellness initiatives have been rolled out at the

Johannesburg office and a full-time psychologist was appointed

at Letšeng to support the workforce at the mine.

Focusing on climate change

We are cognisant of the risks presented by climate change

and conscious of the need to minimise emissions and our

environmental impact more broadly. Letšeng’s physical

location exposes the operation to extreme weather

conditions including drought, strong wind, heavy rain,

extreme cold and snow. The operation is well set up to

manage these conditions and is experienced in sheltering

and supporting our PACs when necessary.

We held climate change workshops and completed a

Group-specific climate change scenario analysis to deepen

our understanding of climate-related risks and its likely

impacts on the Group. The TCFD framework is proving to

be a useful tool to identify and assess climate change-

related issues.

As users of grid and fossil fuel energy, our short-term

focus is on improving energy efficiencies in our operating

processes and reducing combustion-related fossil fuel

use. We are assessing our options in the context of the

size, nature and location of our operations, the required

investment and the expectations of our main stakeholders.

The Group has appointed independent external

subject matter experts to provide input into the climate

change considerations that will inform governance, risk

management and strategy decisions as well as climate

change-related targets for the Group. Our approach to

climate change is included on page 26.

#### PREPARING FOR THE FUTURE

The four-year BT target of US$100 million was exceeded by the end

of the year with the achievement of US$110.0 million, and many

of the embedded initiatives will continue to create value for the

Group. We continue to foster a culture of continuous improvement

to identify and execute value driving initiatives and look forward to

realising the benefits thereof in the near future.

Our capital plans include funding for projects that will sustain

growth and value creation. Advancing technologies to reduce

diamond damage during processing is a focus and while the

potential is clear, the slow pace of progress during the year was

disappointing.

The current open pit mine plan for both Main and Satellite pipes

extends to 2036. In preparing for the future, we are exploring the

trade-off between the next cutback in Satellite pipe versus an earlier

underground access to this ore body in a safe and efficient manner.

To inform our decision in this regard, we deepened our knowledge

of the resource body in 2021 through an extensive resource drilling

programme and will continue this process into 2022.

#### CHIEF EXECUTIVE’S REVIEW CONTINUED CHIEF EXECUTIVE’S REVIEW CONTINUED

#### OUTLOOK

The current strong diamond demand and the ongoing decrease

in the number of diamond producers, suggests that the

fundamentals are supportive for achieving higher diamond prices

in the future. We will prioritise stable and consistent production

while driving efficiencies and managing costs to maximise cash

flows, sustain an appropriate capital return to shareholders and

maintain our status as a responsible, safe and low-cost operation.

Russia's recent invasion of the Ukraine has created political

turmoil and the impact on the global economy, and the diamond

market in particular, is uncertain at this stage.

Our future success depends on ensuring access to the requisite

technical expertise, which will require further investments in

skills development and retention initiatives, as well as effective

succession planning. We remain focused on safeguarding the

health of employees and contractors against COVID-19 for as long

as it persists. We will continue to support our PACs and assist the

Government of the Kingdom of Lesotho in its efforts to manage

the impact of the pandemic.

#### APPRECIATION

In closing, I thank the Board and our Chairperson for their

leadership during the year. The management teams once again

demonstrated their commitment to the Group, and I thank them

for their exceptional efforts during another difficult year.

We thank our customers for their continued trust and patronage,

and our shareholders for their support. I would like to acknowledge

the Government of the Kingdom of Lesotho for allowing us to

continue to operate in a safe and responsible manner through

three COVID-19 waves during the year.

Clifford Elphick

Chief Executive Officer

16 March 2022

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

53

Gem Diamonds Limited Annual Report and Accounts

52

### CHIEF FINANCIAL OFFICER’S REVIEW

Gem Diamonds generated positive cash flow and ended the year in a

strong financial position, proposing a shareholder dividend for the second

consecutive year.

#### “The successful refinancing of

#### our facilities, which includes a

#### sustainability-linked loan, further

#### embeds our commitment to

#### delivering the Group’s ESG strategy.”

– Michael Michael –

cing of

#### udes a

#### n, further

nt to

#### ESG strategy.”

Underlying EBITDA from continuing

operations increased 8% to

#### US$57.4 million

from US$53.2 million in 2020

Group’s attributable profit:

#### US$14.8 million

(2020: US$13.6 million)

The Group ended the year in a

net cash position of

#### US$20.9 million

(2020: US$34.6 million)

Unutilised available facilities of

#### US$74.3 million

(2020: US$60.8 million)

Profit attributable to shareholders

from continuing operations:

#### US$18.5 million

(2020: US$16.9 million)

Earnings per share from continuing operations:

#### 13.2 US cents

(2020: 12.1 US cents)

We generated another strong set of results and positive cash flows

in 2021, against the backdrop of ongoing COVID-19 challenges. Our

effective and early interventions in response to COVID-19 enabled

operations to continuing uninterrupted throughout 2021, with an

ongoing focus on protecting employees and contractors against

infection whilst maximising production and continues to sell our

diamonds at the highest obtainable market price.

Production throughput was constrained during the year with

three waves of COVID-19 impacting the availability of equipment,

spares, skills and supply chain management. This resulted in the

Group resetting some of its full year production targets, although

the strong performance in Q4 resulted in some of those metrics

being exceeded. The diamond market showed significant

recovery and we achieved US$1 835 per carat for the year.

We successfully concluded the Group-wide debt refinancing

during the year by renewing our revolving credit facilities at an

amount of US$77.0 million for a three-year period. US$32.3 million

of this amount is a Sustainability Linked Loan (SLL) which links the

margin and resultant interest rate on the loans to the Group’s ESG

performance, which is aligned to its sustainability strategy.

In further support of our commitment to sustainability and

climate change-related matters, Phase 1 of our TCFD Adoption

Strategy was concluded during the year by establishing the

necessary foundations to support meaningful, science-based

decision making. The TCFD-related workstreams completed

during 2021 included:

• Establishing robust board and management governance

structures;

• Strengthening the enterprise risk management processes

to ensure the full ambit of climate risk are considered and

managed;

• Concluding our climate change scenario analysis; and

• Identifying, assessing and plotting the impact of our physical

and transition risks over the short-, medium- and long-term.

Underlying EBITDA

2

from continuing operations increased to

US$57.4 million, from US$53.2 million in 2020. Profit attributable

to shareholders from continuing operations for the year was

US$18.5 million, equating to earnings per share from continuing

operations of 13.2 US cents on a weighted average number of

shares in issue of 140.3 million.

The Group ended the year with a cash balance of

US$31.1 million and drawn down facilities of US$10.2 million,

resulting in a net cash position of US$20.9 million (2020: net cash

of US$34.6 million) and unutilised facilities of US$74.3 million.

#### Summary of financial performance

Refer to the full annual financial statements starting on page 147.

US$ million 2021 2020

Revenue 201.9 189.6

Royalty and selling costs (21.9) (19.8)

Cost of sales

1

(113.0) (104.7)

COVID-19 costs/standing costs (0.7) (3.9)

Corporate expenses (8.9) (8.0)

Underlying EBITDA

2

from

continuing operations 57.4 53.2

Depreciation and mining asset

amortisation (8.6) (9.1)

Share-based payments (0.4) (0.6)

Other income 0.1 –

Foreign exchange gain/(loss) 1.9 (0.9)

Net finance costs (3.7) (4.4)

Prot before tax from

continuing operations 46.7 38.2

Income tax expense (15.6) (10.7)

Prot for the year from continuing

operations 31.1 27.5

Non-controlling interests (12.6) (10.6)

Attributable prot from

continuing operations 18.5 16.9

Loss from discontinued operations (3.7) (3.3)

Attributable net prot 14.8 13.6

Earnings per share from continuing

operations (US cents) 13.2 12.1

Loss per share from discontinued

operations (US cents) (2.7) (2.3)

Dividends per share (US cents) 2.7 2.5

1

Including waste stripping costs amortisation but excluding depreciation and

mining asset amortisation.

2

Underlying EBITDA as defined in Note 4, Operating profit of the notes to the

consolidated financial statements.

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

55

Gem Diamonds Limited Annual Report and Accounts

54

#### Revenue

Rough diamond revenue of US$201.3 million was generated at Letšeng, achieving an average price of US$1 835 per carat (2020: US$1 908

per carat). The Group sold 21 diamonds for more than US$1.0 million each, contributing US$64.5 million to revenue.

The Group’s increased revenue was mainly driven by higher volumes through normalised production (following the COVID-19-related

disruptions in 2020) and improved market conditions. The overall dollar per carat achieved was negatively impacted by a decrease in large

diamond recoveries during the year when compared to 2020.

Letšeng entered into partnership arrangements during the year that allows them to share in the margin uplift on the sale of the resultant

polished diamonds. In 2021, additional revenue of US$0.3 million (2020: US$0.6 million) was generated from these partnership arrangements.

Letšeng Unit Cost Analysis

Unit cost

per tonne

treated

Direct

cash

costs

1

Third plant

operator costs

Total direct

cash

operating costs

Non-cash

accounting

charges

2

Total

operating

cost

Waste cash

costs per

waste tonne

mined

#### 2021 (LSL) 185.59 15.53 201.12 70.63 271.75 44.44

2020 (LSL) 185.73 15.73 201.46 118.74 320.20 43.70

% change – (1) – (41) (15) 2

2021 (US$) 12.55 1.05 13.60 4.78 18.38 3.00

2020 (US$) 11.28 0.95 12.23 7.21 19.44 2.65

% change 11 11 11 (33) (5) 13

US$ million 2021 2020

Group revenue summary

Letšeng sales – rough 201.3 189.1

Sales – polished margin 0.3 0.6

Impact of movement in inventory 0.3 (0.2)

Group revenue 201.9 189.6

#### Expenditure

OPERATING EXPENDITURE

Group cost of sales increased by 8% to US$113.0 million

from US$104.7 million in 2020. In 2021, the Group incurred

US$0.7 million to manage and maintain protocols to contain

the spread of COVID-19 at its operations (2020: US$1.0 million).

In 2020, an additional US$2.9 million standing charges were

incurred during the shutdown and ramp-up periods at Letšeng.

Total waste-stripping costs amortised increased by 8% to US$46.8

million compared to US$43.4 million in 2020.

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

Total operating costs in local currency decreased by 4% to

LSL1 677.4 million compared to LSL1 740.8 million in 2020 which

includes the impact of non-cash accounting charges.

The unit cost per tonne treated decreased 15% to LSL271.75

(2020: LSL320.20 per tonne treated) due to more consistent

operational throughputs and an increase in tonnes treated

compared to 2020.

• Direct cash costs (excluding waste) increased by 13% to

LSL1 241.4 million in line with the increase of ore tonnes

treated to 6.2 million, a 15% increase compared to 2020.

Waste cash costs increased by 22% to LSL829.4 million

which was also in line with the 20% increase in waste tonnes

mined (18.7 million tonnes compared to 15.4 million tonnes

in 2020). Direct cash costs per tonne treated of LSL185.59

which is similar to 2020. Waste cash cost per waste tonne

mined increased marginally to LSL44.44 (2020: LSL43.70).

• Third plant operator costs reflect payments to the

contractor which are calculated from revenue generated by

the sales from diamonds recovered through the contractor

plant. In 2021, the total cash costs in local currency increased

by 12% in line with the increase in carats recovered and sold.

1

Direct cash costs represent all operating costs, excluding royalties and selling costs.

2

Non-cash accounting charges include waste stripping amortised, inventory and ore stockpile adjustments, finance lease costs, and exclude depreciation and mining asset amortisation.

• Non-cash accounting charges: comprise waste

amortisation, stockpile and diamond inventory movements

and finance lease costs. The total impact of these charges

in 2021 was LSL436.0 million compared to LSL645.6 million

in 2020. The decrease is mainly driven by a build-up of ore

stockpile to standard levels as mining activities normalised.

An increase in diamond inventory on hand at year-end of

about 3 500 carats driven by a higher grade mining mix post

the last export of the year, also contributed to the decrease.

Total waste amortisation charges decreased to LSL669.1

million (2020: LSL690.1 million), impacting the unit cost by

LSL108.41 per tonne treated (2020: LSL131.56).

The diesel theft as discussed on page 115 had no material effect

on operating costs or the unit cost per tonne treated.

US-DOLLAR REPORTED COSTS

Gem Diamonds’ revenue is generated in US dollars, while the

majority of operational expenses are incurred in the relevant

local currency in the operational jurisdictions. Local currency

rates for the Lesotho loti (LSL) (pegged to the South African

rand) and Botswana pula (BWP) were stronger against the US

dollar (compared to 2020), which increased the Group’s US

dollar-reported costs and decreased local currency cash flow

generation. The fluctuation of the exchange rates are set out in

the table below:

Exchange rates 2021 2020 % change

LSL per US$1.00

Average exchange rate 14.79 16.47 (10)

Year end exchange rate 15.96 14.69 9

BWP per US$1.00

Average exchange rate 11.09 11.45 (3)

Year end exchange rate 11.76 10.80 9

GBP per US$1.00

Average exchange rate 0.73 0.78 (6)

Year end exchange rate 0.74 0.73 1

ROYALTIES AND MARKETING COSTS

In terms of Letšeng’s mining lease, Gem Diamonds pays royalties

to the Government of Lesotho on the value of rough diamonds

sold. The Group’s sales and marketing operation in Belgium

incurs costs relating to diamond selling and marketing. Royalties

and selling costs increased by 11% to US$21.9 million (2020:

US$19.8 million) in line with the increase in revenue.

CORPORATE EXPENSES

The technical and administrative offices in South Africa and head

office in the UK provide expertise in all areas of the business to

realise maximum value from the Group’s assets. Central costs are

incurred in South African rand and British pounds respectively.

Baseline corporate costs were US$8.2 million, a 4% increase

compared to US$7.9 million in 2020. The benefits from the

corporate cost initiatives implemented through BT continue

to be realised. During the year, US$0.7 million in costs were

incurred on ad hoc projects (2020: US$0.1 million), an increase of

US$0.6 million compared to 2020, when all ad hoc projects were

suspended due to COVID-19. Current year costs were impacted

by the stronger South African Rand and British Pound against the

US dollar.

Total expenditure for the year relating to the adoption of TCFD

and CCSA amounted to US$0.2 million.

BASELINE COSTS PROJECT COSTS

Historical corporate costs data (US$ million)

20212020201920182017

0.2

0.7

1.7

0.1

0.7

9.0

9.3

7.7

7.9

8.2

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

57

Gem Diamonds Limited Annual Report and Accounts

56

Cash movement (US$ million)

AVAILABLE FACILITIES

8

7

6

4

3

2

2

2

Cash and

facilities

December

2021

FCTRNet

nance

costs

Ghagoo

costs

Dividends to

shareholders

Investment

in PPE

Working

capital

Dividends

to NCIs

Corporate

costs

Net nancial

liabilities

repaid

Tax

paid

Letšeng -

waste costs

capitalised

Letšeng -

cash

generated by

operations

Cash and

facilities

December

2020

50

61

115

65

24

9

74

31

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

#### Underlying EBITDA

1

#### and attributableprofit

Group underlying EBITDA

1

from continuing operations increased

by 8% to US$57.4 million (2020: US$53.2 million) as a result of

the increase in revenue. Profit attributable to shareholders was

US$14.8 million, which translates to 10.5 US cents per share based

on a weighted average number of shares in issue of 140.3 million.

#### Statement of financial position –selected indicators

US$ million 2021 2020

Property, plant and equipment 293 627 304 005

Receivables and other assets 5 373 5 839

Inventory 31 158 26 741

Income tax receivable 1 191 –

Cash and short-term deposits 30 913 49 820

Assets held for sale 2 097 3 528

Non-current: interest-bearing loans and

borrowings (8 340) (1 702)

Current: interest-bearing loans and

borrowings (2 704) (14 385)

Liabilities associated with assets

held for sale (4 100) (4 224)

Deferred tax (77 355) (78 192)

Provisions (11 202) (12 331)

Income tax payable – (11 834)

CAPITAL EXPENDITURE

The Group’s capital expenditure increased following the cash

preservation focus in 2020. Letšeng’s capital spend was incurred

mainly on the completion of a single-occupancy accommodation

block, the purchase and installation of an additional X-ray sorting

machine, the replacement of an overland conveyor for one of

the tailings storage facilities and expenditure on progressing the

drilling work to develop our Resource and Reserve Statement.

Total capital expenditure (excluding waste stripping) increased to

US$4.0 million during the year (2020: US$1.6 million).

CASH AT HAND

Group cash generated from operating activities (before capital

and waste investment of US$68.7 million) was US$71.3 million.

At year end, cash on hand totalled US$31.1 million (2020:

US$49.8 million), of which US$23.5 million is attributable to Gem

Diamonds. All scheduled capital debt repayments during the

year were made, totalling US$4.0 million. The overall result is a

decrease in net cash of US$13.7 million year on year.

Letšeng declared and paid a dividend of LSL200.0 million

(US$12.5 million) in 2021. Gem Diamonds paid a dividend to its

shareholders of 2.5 US cents per share, totalling US$3.5 million

after approval by the AGM in June 2021.

1

Underlying EBITDA as defined in Note 4, Operating profit of the notes to the consolidated financial statements.

LOANS AND BORROWINGS

The Group-wide debt refinancing was successfully concluded on

23 December 2021. Letšeng’s LSL500.0 million and Gem Diamonds’

US$30.0 million revolving credit facilities (RCF), that were due to

expire in December 2021, were refinanced for LSL750.0 million

and US$30.0 million respectively, for an initial three-year period.

The facilities were therefore increased from US$61.3 million to

US$77.0 million, in dollar equivalent. Security for the facilities over

Gem Diamonds’ bank accounts and its shareholding in Letšeng

was implemented after year-end.

The funding partners to the new facility agreement are Nedbank,

Standard Bank and new to the Group, Firstrand Bank (through

their respective operations). Nedbank’s portion of the funding,

totalling US$32.3 million, is a Sustainability-Linked Loan (SLL),

which is an innovative structure that links the margin and

resultant interest rate on the SLL to the Group’s ESG performance.

The margin on the SLL will decrease subject to the Group meeting

certain carbon reduction and water conservation KPIs that are

aligned with the Group’s sustainability strategy.

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

The measurement dates for these KPIs are 31 December 2022 and

31 December 2023.

At year end, the Group had utilised facilities of US$10.2 million,

resulting in a net cash position of US$20.9 million and available

facilities of US$74.3 million, mainly comprising a net debt position

of US$5.5 million (after US$9.0 million drawdown) at Gem

Diamonds and a net cash position of US$24.2 million at Letšeng.

Gem Diamonds ended the year with a US$9.0 million outstanding

balance.

Letšeng made repayments of LSL56.9 million (US$3.8 million)

on its project debt facility for the construction of the mining

workshop complex. The outstanding balance of LSL19.0 million

(US$1.2 million) will be repaid by September 2022.

The Group engages regularly with funders and credit providers

to ensure continued access to funding and to manage cash flow

requirements.

Summary of loan facilities as at 31 December 2021

Company

Term/description/

expiry Lender Interest rate

1

Amount

US$ million

Drawn down/

Balance due

US$ million

Available

US$ million

Gem Diamonds

Limited

Three-and-a-

half-year RCF

Expires

22 December 2024

Nedbank

Standard Bank

Firstrand Bank

Facility A

(US$30 million):

LIBOR + 6.5%

2

30.0 9.0 21.0

Letšeng Diamonds Three-year revolving

credit facility

Expires

22 December 2024

Standard Lesotho

Bank

Nedbank Lesotho

First National Bank

of Lesotho

Facility B

(LSL450 million):

Central Bank of

Lesotho rate +

4.75%

2

28.2 – 28.2

Nedbank Facility C

(ZAR300 million):

JIBAR + 4.55%

2

18.8 – 18.8

Letšeng Diamonds Five-and-a-half-year

project facility

Tranche A: expires

September 2022

Nedbank

Export Credit

Insurance

Corporation

Tranche A

(LSL35 million)

South African JIBAR

+ 6.75%

2.2 0.4 –

Tranche B: expires

March 2022

Tranche B

(R180 million)

South African JIBAR

+ 3.15% 11.3 0.8 –

Letšeng Diamonds General banking

facility

Annual review in

March

Nedbank LSL100 million

South African

prime rate minus

0.7%

6.3 – 6.3

#### Total 96.8 10.2 74.3

1

At 31 December 2021 LIBOR was 0.08% and JIBAR was 3.89%.

2

Margin will decrease with 1.5% upon implementation of the security condition.

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

59

Gem Diamonds Limited Annual Report and Accounts

58

DISCONTINUED OPERATION

In line with the strategic objective to dispose of non-core assets,

the Board and management remain committed to the sale of the

Ghaghoo diamond mine in Botswana. Following the exclusivity

agreement in the prior year, a binding share sale agreement was

entered into for the sale of the mine in 2021. The agreement

was subject to the fulfilment of certain suspensive conditions,

including obtaining competition authority and regulatory

approvals within Botswana. Prior to year end, the regulatory

conditions were fulfilled and approvals were obtained from the

Botswana Competition Authority. Although the transaction was

not yet concluded by year end, management is pursuing to close

it out as soon as possible.

The operation remains on care and maintenance and is classified

as a discontinued operation and asset held for sale per IFRS 5

Non-current Assets Held for Sale and Discontinued Operations.

Care and maintenance cash and non-cash costs amounted to

US$3.7 million (2020: US$3.3 million) and have been recognised

and disclosed separately in the Consolidated Statement of Profit

or Loss. The increase in costs was mainly due to a non-cash

impairment of redundant stock and spares during the year.

INSURANCE

Letšeng submitted a business interruption claim to its insurers

for insured losses arising out of the 30-day COVID-19-related

Government shutdown period in 2020 when the mine was

required to be placed on care and maintenance. This claim has

been rejected by the insurer and Letšeng has commenced the

process to pursue it further.

Increased risk perception in the mining industry due to the

COVID-19 pandemic and dam wall failures reported by other

companies around the world have led to insurers decreasing

their exposure to the industry. This has resulted in the renewal

of appropriate insurance becoming challenging, leading to

additional exclusions, reduced cover, increasing deductibles

or excesses payable and increasing premiums. In response, the

Group has implemented a new risk transfer strategy to address

the substantial changes in the insurance market by developing

a sustainable insurance solution for the Group in the medium to

long term.

The Group assessed its potential maximum risk exposure and its

history of insurance claims as a basis to transition its conventional

approach to insurance cover to a more flexible model by retaining

higher insurance excesses which resulted in an insurance

premium saving. To mitigate the increased risk exposure of the

higher deductibles in the unlikely event of an unexpected loss,

the Group entered into a five-year Multi-aggregate Protection

Insurance Policy.

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

SHARE-BASED PAYMENTS

The share-based payment charge for the year was US$0.4 million

(2020: US$0.6 million). On 2 June 2021, shareholders approved the

2021 Remuneration Policy which included the introduction of a

post-termination shareholding, an employee pension alignment

plan as well as the new Gem Diamonds Incentive Plan (GDIP) for

Executive Directors. No awards in line with the new GDIP or the

existing Long-Term Incentive Plan (LTIP) were made in 2021.

Dividend

The Board is committed to sustaining shareholder value

through the implementation of appropriate dividend policies

and we aim to pay a dividend when the financial strength

of the Group permits. The Board’s proposed dividend in

March 2021 of 2.5 US cents per share (US$3.5 million) was

approved and paid to shareholders in June.

Based on the Group’s financial performance during the

year, the Board is proposing a dividend of 2.7 US cents per

share (US$3.8 million). The dividend is subject to shareholder

approval at the scheduled AGM on 8 June 2022.

#### TAXATION

The Group has applied all relevant principles in accordance with

prevailing legislation in assessing its tax obligations. The Group’s

effective tax rate was 33.4%. Most of the Group’s taxes are incurred

in Lesotho, which has a corporate tax rate of 25%. The effective

tax rate is above the Lesotho corporate tax rate mainly due to

deferred tax assets not recognised on losses incurred in other

operations and permanent differences which are non-deductible

for tax purposes.

As disclosed in the prior year, an amended tax assessment was

issued to Letšeng by the Lesotho Revenue Authority (LRA) in

December 2019, contradicting the application of certain tax

treatments in the current Lesotho Income Tax Act 1993. An

objection to the amended tax assessment was lodged with the

LRA in March 2020, which was supported by the opinion of senior

counsel. The LRA subsequently lodged a court application for

the review and setting aside of the applicable regulations to the

Lesotho High Court pertaining to this matter, which Letšeng is

opposing and a court date is expected to be set in June 2022.

On 7 February 2022 Letšeng received an application from the LRA

to amend its original grounds for the court application. Letšeng’s

counsel continues to review the LRA’s proposed amendment of

its case and has opposed the new application by the LRA. Senior

counsel advice has been obtained for the new circumstances. This

advice still reflects good prospects of success. There has therefore

been no change in the judgement applied and the accounting

treatment for this matter (refer Note 1.2.28, Critical accounting

estimates and judgements for further detail).

#### SENSITIVITIES

A range of external factors outside of the Group’s control have an

impact on its ability to create financial value. The Group has the

necessary resilience, balance sheet strength and access to funds

to adjust for shifts in these factors. The graph below illustrates the

sensitivity of 2021’s EBITDA to various factors that have the most

significant impact on our ability to create value.

#### SENSITIVITY IMPACT OF 1% CHANGE

#### US$ MILLION

%

Royalties rate change (absolute)

2.0

Average selling price for rough diamonds sold

2.0

Operating cost per tonne – direct cash cost

0.9

Exchange differences

1.1

Diesel price or volume

0.1

Corporate expenses

0.1

#### OUTLOOK

The Group’s focus remains on operational consistency and

cost management to optimise cash flows, which together with

appropriate funding facilities will enable it to meet its operational

and capital requirements.

Michael Michael

Chief Financial Officer

16 March 2022

#### CHIEF FINANCIAL OFFICER’S REVIEW CONTINUED

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

61

Gem Diamonds Limited Annual Report and Accounts

60

### OPERATIONS REVIEW

#### 2021 OVERVIEW

• Zero fatalities, successful ‘Stop for Safety’ campaign and focus on maturing operational safety culture.

• Exceeded BT four-year target, achieving US$110.0 million by 31 December 2021.

• 99% of workforce fully vaccinated to date.

• Improved, adapted, and implemented our COVID-19 protocols and procedures to protect the safety and wellbeing of our people while

continuing operations through three COVID-19 waves in a safe and responsible manner.

• Recovered six diamonds greater than 100 carats, including a 367 carat and a 245 carat large high-quality Type IIa white diamonds.

• Sold 21 diamonds for over US$1.0 million each, generating revenue of US$64.5 million.

• Highest prices achieved:

› US$119 886 per carat for a 3.4 carat pink diamond.

› US$47 574 per carat for a 65 carat Type IIa white diamond.

• Average price of US$1 835 per carat achieved.

• Supported our PACs through COVID-19 and repaired flood-damaged infrastructure.

• Fifth consecutive annual ISO 14001 and 45001 certifications.

• Group-level climate change scenario analysis completed.

• Reduced waste costs by reducing haulage distances for Main pipe waste.

• Advanced the resource core drilling programme.

• Completed a preliminary conceptual underground study to evaluate for Satellite pipe.

• Completed designs for the replacement PCA.

• Successful trial of steeper slopes in Satellite pipe to significantly reduce waste and increase ore availability.

• New fines X-ray sorting machine to treat fine recovery tailings commissioned.

• Enhanced and optimised process control to stabilise plant feed conditions.

• Initial surface miner trials completed in Q2 and Q3.

#### PERFORMANCE

#### Safety

The Group's safety approach is founded on our commitment to zero harm and belief that all injuries are preventable. Letšeng recorded

zero fatalities but six LTIs during 2021, resulting in an LTIFR of 0.24 (2020: 0.04) and an AIFR of 0.93 (2020: 0.76). An organisational safety

culture initiative was implemented to advance the maturity of our operational safety practices and reduce the frequency of safety incidents

experienced in H1, through focused interventions including a 24-hour ‘Stop for Safety’ campaign and critical control management.

Safety performance Unit H1 2020  H2 2020 FY 2020 H1 2021 H2 2021 FY 2021

Fatalities Number 0 0 0 0 0 0

LTIs Number 0 1 1 4 2 6

LTIFR 200 000 man hours 0.00 0.08 0.04 0.32 0.16 0.24

AIFR 200 000 man hours 0.33 1.07 0.76 1.29 0.57 0.93

The safety case study below, outlines the key 2021 safety interventions implemented to mature our safety culture at Letšeng and improve

safety performance.

#### OPERATIONS REVIEW CONTINUED

Our safety journey in 2021 reflects the Group’s deep

commitment to zero harm and the belief that all injuries are

preventable.

During the first half of 2021, Letšeng recorded a series of safety

incidents that led the leadership team taking to shut down

operations for 24 hours for safety-focused engagements with

the entire workforce.

The site-wide ‘Stop for Safety’ campaign was the first

of its kind for the Group and Letšeng and was aimed at

understanding the root causes of increased safety incidents,

reaffirm the commitment to zero harm and to design a

targeted strategy to address the identified root causes and

other concerns raised by the workforce during the intensive

engagements.

This campaign took place on 8 June. Group Executive

Management and Letšeng’s leadership teams, accompanied

by our contractors’ executive and operational management,

engaged extensively with the workforce. An additional

session for employees not on duty on the day was held the

following week.

A comprehensive list of actions was put together to

immediately address matters raised during these sessions,

which spanned a range of topics, including:

• The continuing impacts of the COVID-19 pandemic.

• Fatigue management.

• Health and safety.

• Human resource management and leadership.

As part of the discussions, the workforce requested more

regular employee engagement forums to discuss safety and

other matters, and as such, monthly employee engagement

sessions were established.

Following the ‘Stop for Safety’, we appointed external

safety specialists to review our safety practices and identify

opportunities for improvement. In support of this process, a

safety perception survey was conducted in October to map the

Group’s current safety maturity level. The findings of the safety

perception survey informed a safety-focused response plan

to implement strategic programmes that aim to develop and

mature safety practices and organisational culture at Letšeng.

The strategic safety programmes initiated in 2021 include:

• Critical control management.

• Incident investigation and management.

• Safety-focused leadership coaching.

• Just Culture Model development.

In addition to the above programmes, we are maturing from

reacting to lagging indicators, which measure failures post-

incident to leading indicators that measure performance and

indicate whether safety and health controls are effective at

managing safety risk, thus being more proactive in our safety

strategy. This approach will be monitored and measured

through a leading indicator safety committee that will meet

monthly to conduct retrospective analysis of all the leading

indicators to identify trends or potential red flags to allow a

proactive response.

We recognise that with one operating mine, there is limited

opportunity for cross-operational knowledge sharing and

we have identified a need for external assistance to transfer

knowledge, experience and expertise on safety-related

matters. We have constituted a committee of experienced

individuals, our ‘Grey Hair Council’, from a broad industry

base with deep insight into industry leading safety practices.

In 2021, this council provided valuable guidance and insights

into actual safety incidents, which have been integrated into

our safety response and management plans.

We remain committed to zero harm and continue to look for

innovative ways to deepen our understanding of how we can

keep ourselves and our teams safe.

MATURING OUR ORGANISATIONAL SAFETY CULTURE

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

62

63

#### Operations

KPI Unit 2021 2020 % change

Ore mined tonnes 6 298 863 5 594 639 13

Ore treated tonnes 6 213 098 5 436 396 12

Carats recovered

1

carats 115 335 100 780 14

Carats sold carats 109 697 99 172 11

Average price per carat US$/carat 1 835 1 908 (4)

1

Includes carats produced from the Letšeng plants, the Alluvial Ventures plant and the tailings treatment plant.

Total carats recovered in 2021 increased 14% to 115 335 carats

(2020: 100 780 carats). Carats recovered increased by 1% when

compared to 2019, which was a more comparable year not

impacted by COVID-19.

The BT initiative to re-treat historic and current recovery tailings

through the mobile X-ray transmission sorting machine recovered

1 098 carats in 2021 (2020:1 341 carats). An additional 213 carats

were recovered by the new fines X-ray sorting machine that was

installed and commissioned in H2 with expected full production

in H1 2022.

Overall grade for 2021 was 1.85cpht which is aligned with 2020

and in line with the expected reserve grade. The contribution

from Satellite pipe material accounted for 54% of all material

treated during the year (2020: 52%).

#### Revised Mine Plan

Following the change in design of the Satellite pit, resulting in the

successful implementation of steeper slopes in 2019, and further

steepening and pit design optimisation over the last three years,

more ore has been exposed. This has resulted in the availability of

ore from the Satellite pipe extending late into 2025, compared to

the 2019 plan where it was depleted in mid-2023. This has allowed

the commencement of the waste stripping related to the next

cutback (Cut 6 West / C6W) of the Satellite pit to be delayed to 2024.

In 2021, a preliminary conceptual study of an early-access

underground in the Satellite pit was completed. An underground

feasibility study will be commissioned in 2022 to assess the viability

of an earlier shift to underground mining of the Satellite pipe and to

evaluate the trade-off between this and C6W. The trade-off analysis

between C6W and underground mining of the Satellite pit will be

completed in 2023.

Our long-term mine plan has been revised accordingly to

commence waste stripping related to C6W in 2024, previously

2022. At this rate of waste stripping, Satellite ore from C6W will

be available from 2029. Pending the outcome of the proposed

underground feasibility study, Satellite C6W cutback may be

replaced by the early commencement of underground mining

with the intention of bringing forward access to Satellite ore post

the completion of Satellite Cut 5 West in 2025.

The waste mining profile for the next two years has therefore

been reduced to an estimated 11.0 million and 11.6 million

tonnes respectively. At this rate of waste stripping, Satellite ore

from C6W will be available from 2029.

#### OPERATIONS REVIEW CONTINUED

The Group’s Letšeng operation continued operating safely and

responsibly throughout the year notwithstanding the ongoing

impact of COVID-19 on the availability of spares and equipment,

limited access to skills and services due to travel restrictions

and supply chain disruptions, and lost shifts due to required

quarantining. Fatigue and mental health challenges placed

significant strain on the management and the workforce.

Waste tonnes mined increased 20% to 18.7 million tonnes from

15.6 million tonnes in 2020 (2020 being impacted by the 30-day

COVID-19 shutdown).

The trial to further steepen the west side of the Satellite pipe was

safely and successfully managed during the year, with blasting

and berm retention controls well entrenched. A similar slope

steepening programme is planned for the final cutbacks in the

Main pit. This will significantly reduce waste volumes and related

costs, and expose more ore over the life of the Main pipe open pit.

Ore mined in 2021 of 6.3 million tonnes (2020: 5.6 million tonnes)

was in line with the requirements of the plants and stockpile

management.

Although a successful year overall, the Letšeng operations

experienced many challenges during the year, including:

• Intermittent Main pit closures due largely to extreme weather

conditions and spillage caused by the split-shell mining

method as one cutback is completed while the next starts.

• Regional power grid instability and unplanned power cuts.

• A breakdown of the primary jaw crusher at the end of the

third quarter.

• Unscheduled and extended maintenance of critical plant

equipment.

Ore treated during 2021 of 6.2 million tonnes (2020: 5.4 million

tonnes) comprised 5.2 million tonnes treated by Letšeng’s plants

(2020: 4.5 million) and 1.0 million tonnes treated by Alluvial

Ventures, the third-party processing contractor (2020: 0.9 million).

Of the total ore treated, 2.7 million was sourced from the Main

pipe, 3.3 million from the Satellite pipe with 0.2 million tonnes

treated from the Main pipe stockpiles.

During the year we reduced the PCA throughput to ensure

the longevity of our current PCA while the construction of the

replacement PCA commences in 2022 and for commissioning

in 2023. The new PCA comprises a twin module design with a

combined throughput of c.1 000 tonnes/hour.

LoM Ore Waste Prole Incl. Deferred SC6W at 3Mtpa

SATELLITE PIT WASTE

WASTE MINED – t

ORE MINED – t

MAIN PIT WASTE MAIN PIPE ORE

SATELLITE PIPE ORE

203620352034203320322031203020292028202720262025202420232022 203620352034203320322031203020292028202720262025202420232022

0

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

30 000 000

0

1 000 000

2 000 000

3 000 000

4 000 000

5 000 000

6 000 000

7 000 000

8 000 000

#### OPERATIONS REVIEW CONTINUED

#### Large diamond recoveries

In 2021 Letšeng recovered six diamonds greater than 100 carats and total diamonds recovered greater than 10 carats increased by 4%

year on year, mostly in the 10 to 20 carat size category. Although recoveries throughout the categories are mostly in line with the 13-year

averages, the lower number of diamonds in the large categories (60 to 100 carats and greater than 100 carats) can be primarily attributed to

the areas of the resource that were mined in 2021 versus what was mined in 2020. 2020 was a record year for these two categories of larger

diamonds. A total of 122 greater than 100 carat diamonds have been recovered at Letšeng since 2006.

Number of large diamond recoveries 2021 2020

FY average

2008-2020

> 100 carats 6 16 8

60 – 100 carats 16 29 19

30 – 60 carats 81 102 76

20 – 30 carats 122 115 114

10 – 20 carats 570 500 433

Total diamonds > 10 carats 795 762 650

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

64

65

#### Mineral resources and reserves

A primary focus in 2021 was advancing the resource core drilling

programme in the Main and Satellite pipes, using the new drill

rig purchased at the end of 2020. As the new drilling crews

and management systems were embedded, the number of

shifts increased, and the drilling process accelerated. The main

challenge facing demarcated drilling programme remains the

competition with production activities for access to the drilling

sites, which were all positioned in the pits. Although completion

of the core drilling programme was a high priority, continued

production activities remained paramount.

Resource drilling in the Satellite pipe progressed well and nine

delineation drillholes were completed. The kimberlite contact of

the Satellite pipe along the western wall deviated out slightly from

the expected position at the current mining elevation and posed

certain geotechnical risks. A series of 19 additional holes were

drilled for geotechnical purposes at intervals along the length of

the western wall to resolve the immediate risk to the mine design

and pit wall stability. These drillholes detected an increase in the

pipe margin, adding further ore to the resource base of Satellite

pipe. Detailed petrography of the core is in progress and updated

geological models are expected by mid-2022.

Resource drilling in the Main pipe proved more difficult, with

ground conditions hampering drilling progress and resulting

in several holes having to be abandoned and redrilled. Delays

experienced related to excessive rainfall and the commencement

of mining activities on the upper benches in the new cutback (Cut

4 East), creating unsafe working conditions for the drilling crews

below and periodically restricting access to the drilling sites.

Two additional contractor drill rigs were brought to site to

reduce the impact on the timeline for completion of the

drilling programme and updating of the Resource and Reserve

Statement. By year end, the objectives of the drilling programme

in Satellite pipe had been met and only four of the 14 planned

drillholes in Main pipe remained to be completed.

#### Diamond sales

Six rough diamond tender viewings were held in Antwerp and a

first trial tender viewing was held in Dubai in September. Travel

and other COVID-19-related restrictions had little impact on

attendance at the tender viewings and demand remained strong

throughout the year.

A total of 109 697 carats were sold in 2021 (2020: 99 172) and

Letšeng generated rough diamond revenue of US$201.3 million

(2020: US$189.2 million), at an average price of US$1 835 per carat

(2020: US$1 908).

The Group supports the GIA’s blockchain technology to inform

and assure consumers about the ethical and socially supportive

footprint of the diamonds being purchased. Blockchain

technology can link the source of rough diamonds to the final

polished diamonds, proving their authenticity, provenance and

traceability, and supporting ethical sourcing and processing in

the diamond value chain.

#### OPERATIONS REVIEW CONTINUED

Letšeng 60 – 100 and +100 carat diamonds

+100 CARAT DIAMONDS 60 – 100 CARAT DIAMONDS

0

5

10

15

20

25

30

202120202019201820172016201520142013

6

9

11

17

21

15

7

15

11

6

16

19

22

29

20

16

5

21

#### Capital projects

Although limited, capital was appropriately spent during 2021 in

line with operational requirements. Certain capital was deferred

into 2022 without putting the continuation of operations at risk.

A number of key capital projects are planned for 2022, including

the replacement of the PCA, the completion of the resource core

drilling programme to inform Letšeng’s Resource and Reserve

Statement, the construction of the bioremediation plant, further

evaluation of the underground development opportunities and

expansion of the Patiseng coarse tailings storage facility. Details of

overall costs and capital expenditure incurred at Letšeng during

the year are included in the CFO review on pages 52 to 59.

#### Business Transformation

The Group’s BT programme concluded at the end of 2021,

exceeding the targeted US$100 million

1

in revenue, productivity

and cost savings (against the 2017 base) by achieving a total of

US$110.0 million, as set out below. The programme identified 325

initiatives to create a step change in efficiency, productivity and

cost management, and to position Gem Diamonds favourably in

its peer group.

The targeted US$100 million comprised US$7.1 million in

once-off savings and US$103.0 million in cumulative recurring

annualised benefits over four primary workstreams – mining,

processing, working capital and overheads, and corporate

activities. The implemented initiatives are sustainably embedded

in the operation and continue to deliver benefits in reduced costs

and improved efficiencies that have been critical in maximising

operational cash flows, which was crucial in the Group’s ability to

successfully absorb the external shock of the COVID-19 pandemic.

#### Continuous Improvement

The CI programme aims to implement behavioural strategies

and meaningful KPIs to create effective visual management tools

and problem solving at all levels. The CI methodology, supported

by training and coaching, enables the Group to continuously

improve efficiencies by unlocking the inherent capabilities

of employees at all levels to implement best practices, build

effective teams and drive incremental improvements. Although

severely hampered by COVID-19 restrictions and constraints, CI

was successfully implemented in Mining at Letšeng in 2020, with

the roll-out to the Treatment and Services areas commencing in

2021. In 2022, the programme will focus on training and focused

coaching to improve skills and experience at the supervisory level.

#### OPERATIONS REVIEW CONTINUED

BT programme annual cash saving (US$ million)

MINING PROCESSING

WORKING CAPITAL AND OVERHEADS CORPORATE ACTIVITIES

Cumulative saving

21

55

110

79

2021202020192018

517

3

16

2

3

4

21

4

2

13

1

2

12

2

4

1

The target is stated net of implementation costs, consultant fees and an employee incentive plan that rewarded the successful delivery of initiatives contributing to the overall target.

A key strategic objective for the Group is to continuously

identify opportunities to unlock value within our business.

During 2021, we focused on continuous improvement

opportunities to reduce mining-related costs and

improve resource use efficiencies. At Letšeng, waste

hauling distance is a major driver of both current and

future mining costs and fossil fuel combustion-related

greenhouse gas emissions.

We identified an opportunity to reduce both mining

costs and greenhouse gas emissions through shorter

mining waste haulage distances of our waste from the

Main pit. Following extensive collaboration between our

environmental and mining teams, a new mine waste

dumping plan was designed and implemented. The

revised plan has reduced the haulage distance of waste

from the Main pit by 30%, resulting in a significant long-

term reduction of the associated operational costs and

diesel consumption, and advancing our sustainability

objectives to lower carbon emissions.

By working together to design innovative solutions, we

are able to unlock shared value and drive Group goals

with regards to maximising value, managing costs and

reducing our environmental footprint.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

66

67

#### Dam safety and integrity

Letšeng has three dams on site – (i) the Patiseng tailings storage

facility, which is currently in use for the deposition of coarse

tailings and fine tailings, (ii) the Old Tailings Storage Facility, which

is sporadically used for fine tailings deposition, and (iii) the Mothusi

Dam, which is the mine’s freshwater supply resource. Letšeng’s

dams were constructed using the ‘centre line and downstream

tipping’ method

1

, which is a safer method of construction than

the ‘upstream’ construction methods used in most recent dam

failures reported in the mining industry.

We have aligned our tailings dam failures in the mining industry

have shown the severe adverse impact these can have on

human lives and the natural environment. Tailings dam integrity

is consequently an ongoing area of significant focus for mining

companies and investors.

The Group has aligned its tailings storage facility management code

of practice to that of the ICMM’s GISTM and established appropriate

governance structures at both operational and Group levels to

provide oversight and assurance of continued safe and responsible

management of our tailings storage facilities. The relevant details

of Letšeng’s tailings storage facilities are available in our voluntary

disclosure as part of the Investor Mining and Tailings Safety initiative

set up by the Church of England, which can be found under the

Company’s name at http://tailing.grida.no/. Further information is

available on page 78.

#### Preventing diamond damage

The large high-value Type II diamonds in Letšeng’s orebody are

more susceptible to damage through the mining and treatment

processes. Diamond damage negatively impacts the value and

in turn the sales prices realised for these diamonds. Reducing

damage to these diamonds provides an important opportunity

to significantly enhance revenue.

Our main focus in this regard has been on identifying, validating

and testing technologies from various industries that show

potential to identify diamonds within kimberlite at an early stage

and liberate these using non-mechanical means. In 2019, the

Group’s wholly owned subsidiary, Gem Diamonds Innovation

Solutions, constructed and commissioned a pilot plant at Letšeng

to test this technology under operating conditions. Progress on

the detection components of this pilot plant has been limited to

the development of the detection and ejection algorithms and

further development is required to enhance this technology. The

materials handling component of the pilot plant now forms part

of Letšeng’s new fines XRT system that was commissioned in H2

of 2021.

#### Sale of Ghaghoo

A binding share sale agreement was entered into for the sale of

the Ghaghoo diamond mine in Botswana to Okwa Diamonds Pty

Ltd, an entity owned by Vast Resources PLC (Vast) and Botswana

Diamonds PLC (BOD). The agreement is subject to the fulfilment

of certain suspensive conditions including obtaining the

competition authority and regulatory approvals within Botswana.

Regulatory conditions have been fulfilled and written approvals

have been obtained from the Botswana Competition Authority

and, in December 2021, the Ministry of Mineral Resources, Green

Technology and Energy Security of Botswana. However, the

completion date for the transaction has been extended by two

months to 31 March 2022 to allow BOD to secure an alternative

financing partner to replace Vast.

#### OUR PLANS FOR 2022

A pre-evaluation of the feasibility of an earlier shift to underground

operation will start early in 2022 and the replacement of the PCA

will commence in the first half of the year. The contract with

Alluvial Ventures, which runs the third processing plant, expired at

the end of 2021 and has been extended to 30 June 2022. We are

currently evaluating several options for a replacement 1.0 to 1.2

million tonne per annum XRT plant. Work continues to steepen

slopes to optimise the mining plan for Main pipe and we will

begin planning for the tailings extension at Patiseng. A number

of other projects are planned to optimise mining efficiencies,

improve production, decrease costs and reduce emissions in line

with our commitment to decarbonisation.

#### OPERATIONS REVIEW CONTINUED

1

A discussion of the construction and applicability of the various types of tailings facilities is available on the International Council of Mining and Metals website at

www.icmm.com/en-gb/environment/tailings.

### SUSTAINABILITY

#### MATERIAL MATTERS

Our material matters are topics that directly or indirectly impact our ability to create or preserve economic, environmental and social

value for our organisation, our stakeholders and society at large. Therefore, material matters include risks that must be managed and

opportunities that could be captured to enhance the viability of the business in the short, medium and long term.

#### How we determine materiality

A list of possible material matters was developed following a detailed materiality review, which considered internal and external research.

This year we used a double materiality lens, prioritising our material matters in terms of their impact on our financial and operational

performance as well as their impact on society, communities and the environment.

#### INPUTS

++=

Conduct a thorough

review of the

external

operating context

Conduct a detailed

review of the

internal operating

environment

and business

performance

Prioritise and verify

identified material

matters

Report against our

identified material

matters

• An online survey to rank material

matters was circulated to the Board and

employees across the operations

• Global operating context

• Global risk registers

• Industry research

• Peer reports

• Review material risks

• Review prior material matters

• UN SDGs

• Internal documentation

• Media releases

• Financial results

• The approved matters form the basis

of our sustainability reporting.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

68

69

#### SUSTAINABILITY CONTINUED

Impact on Gem Diamonds’ financial and

operational performance

234

Impact on society, communities and environment

4

3

2

#### Results for all material matters

LABELS

Financial and operational

A Maintaining a strong revenue stream and

managing costs

B  Enhancing balance sheet strength

C  Protecting the premium brand of

diamonds

D  Ensuring product security

E  Managing and mitigating macro socio and

economic risks

Governance and ethics

F Implementing effective ESG strategies,

which are managed at Board level

G Prioritising business integrity

H Ensuring transparent governance and

remuneration practices

I  Ensuring legal, regulatory and governance

excellence

J  Raising standards across the pipeline

Employees

K  Providing a safe working environment

L  Attracting and retaining qualified people

M  Providing skills development opportunities

for employees

N Ensuring our employees remain healthy

O  Engaging with employees and elected

representatives

Social

P  Safeguarding our communities

Q  Ensuring positive engagement with our

stakeholders

R  Minimising our potentially negative social

impact

S  Working with communities to understand

and meet their needs

T  Supporting our communities through

localisation to create shared value

Environment

U  Managing our environmental footprints

V  Managing and addressing climate change

and extreme natural events

W  Protecting biodiversity and enhancing

conservation

X  Ensuring consistent electricity supply and

minimising energy consumption

Y  Planning for mine closure

#### WORKING TOWARDS GLOBAL GOALS

We are embedding material United Nations (UN) Sustainable Development Goals (SDGs) in the Group’s systems and processes while

we implement the recommendations of the TCFD to ensure we create sustainable value for our stakeholders.

In accordance with our sustainability strategy, we have started with the following six UN SDGs, to be implemented over a three-year

rolling cycle, as this is a manageable and achievable target with widespread impact.

#### SUSTAINABILITY CONTINUED

A

B

K

D

L

C

E

N

I

X

S

P

T

U

R

H

Y

V

F

G

W

J

M

O

Q

No poverty Good health and

wellbeing

Clean water and

sanitation

Decent work and

economic growth

Reduced

inequalities

Responsible

consumption and

production

Sustainability

principles

underpin our

priorities

Upholding

business

integrity

Prioritising

environmental

protection

Creating a safe

and healthy

working

environment

Prioritising the

development and

well-being of our

employees

Improving

resource use

efficiencies

Optimising

socio-economic

benefit

The SDGs

support,

contextualise

and inform

the principles

#### The interconnectedness of value creation

Across the business, we are focusing on practical and implementable measures to deliver maximum value for stakeholders.

Three key priorities support our strategy in delivering maximum value for stakeholders:

Working responsibly and

maintaining a social licence

to operate

Business integrity

Environmental stewardship

Organisational health and safety

Enhancing community benefits

Preparing for our future

Business integrity

Environmental stewardship

Organisational health and safety

Advancing our people

Resource efficiency

Enhancing community benefits

Extracting maximum value from

our operations

Business integrity

Organisational health and safety

Advancing our people

2020 2021 2022

Perform a gap analysis to

evaluate alignment with each

UN SDG

Focus on addressing any

shortfalls identified in the first

year and further strengthen

achievements

Evaluate the success of those

measures to ensure their

sustainable application

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

70

71

#### ENVIRONMENTAL

Our commitment to responsible environmental stewardship and the UN SDGs compels us to better understand and manage our impact on

the natural environment, mitigating climate change and other environmental risks, so that we leave a positive legacy for future generations.

#### Our future

We remain committed to environmental responsibility, including

rigorous and ongoing monitoring of our water management,

reducing our environmental footprint, the recommendations of

the TCFD and upholding our commitment to the UN SDGs.

In 2022, we will advance our TCFD roadmap to appropriately respond

to relevant climate change-related risks and opportunities. We will

review our operation-specific SEMPs for improved impact mitigation,

implement our concurrent rehabilitation plan at Letšeng and aim

to develop and implement carbon, water and waste management

initiatives while maintaining and improving environmental standards.

#### Material matters

MANAGING OUR ENVIRONMENTAL FOOTPRINTS

Our context

We strive to responsibly manage our environmental impacts

by measuring, monitoring and minimising our consumption,

considering our water and carbon footprints and waste within our

value chain. We ensure responsible consumption with the utmost

respect for the natural resources we need.

We are working with operations to identify initiatives that reduce

our costs, resource consumption and our carbon, energy and water

footprints. These initiatives are predominantly focused on scope 1

and scope 2 carbon emissions, being (mobile and stationary fuel

combustion and grid electricity) as these represent approximately

84% of the Group’s total carbon footprint.

In addition, we understand that responsible waste management

plays a significant role in the sustainability of our business and long-

term protection of our environment. Our operation, which mainly

generates waste rock and residues from production processes,

ensures responsible management and disposal of

all mineral and

non-mineral wastes.

Our approach

Carbon

We understand that it is a global imperative to reduce our carbon

footprint. Our goal is to reduce our carbon emissions to avoid any

dangerous anthropogenic interference in our climate system.

Our decarbonisation strategy considers all stakeholders and will

be implemented in a way that maintains our goal of mining in

a responsible manner. Letšeng operates in a country without

wide-scale access to renewables, as such a flexible and innovative

approach to decarbonisation is required. Refer to managing and

addressing climate change and extreme natural events in the

Sustainability report for more information.

Our carbon footprint is monitored and measured bi-annually

to develop and implement initiatives that mitigate our

environmental impact.

Water

Our operations are reliant on the continuous supply of water. We

collect rainwater in our freshwater and process water storage

facilities for operations and consumption on site. We are mindful

of our valuable relationship with our PACs, especially regarding

#### SUSTAINABILITY CONTINUEDSUSTAINABILITY CONTINUED

#### Related sustainability principles

Improving resource use efficiencies

Prioritising environmental protection

Optimising socio-economic benefits

#### Related UN SDGs

We launched the first rolling three-year cycle to embed the SDGs

into our systems, processes and decision-making during the year.

The following UN SDGs relate to our environmental pillar:

Refer to our Sustainability Report and Our Approach to Climate

Change Report for more information on our approach to

integrating these UN SDGs into our business operations.

#### Snapshot of our performance

In 2020, operations were suspended at Letšeng from 28 March to 26 April due to the Lesotho Government’s COVID-19-related lockdown.

Operational activities were ramped up during May and planned waste mining activities was successfully deferred to resume in July. The

suspension of operations explains the reduced resource consumption during 2020. For comparative purposes we have provided both 2019

and 2020 resource consumption data.

Zero major environmental incidents

for the 13

th

consecutive year

Zero significant environmental

incidents

for the 8

th

consecutive year

#### US$0.9 million

invested in environmental

protection during 2021 (2020:

US$0.5 million)

#### US$14.9 million

environmental rehabilitation

provision (2020: US$16.1 million)

No fines for environmental

transgressions

or non-compliance

with host country legislation for

the 12

th

consecutive year

ICMM

Global Industry Standard

for Tailings Management

adopted

and dam safety management

framework implemented

Annual social and environmental

management plan (SEMP) audit

programme implemented

ISO 14001

accreditation retained

Rehabilitation and closure

management strategy adopted

and updated

#### 8.9 million m

3

of water

recycled. (2020: 8.8 million m

3

,

2019:

7.9 million m

3

)

Total carbon footprint of

#### 153 864 tCo

2

e (2020:

135 694 tCo

2

e, 2019: 172 968

tCo

2

e)

#### US$0.2 million

invested towards adopting the

recommendations of the TCFD

#### Our goals

• Understanding the long-term implications of climate change on our operations.

• Identifying further opportunities to decarbonise our operational activities.

• Managing the effects of extreme weather on our operations.

• Reducing consumption, particularly of fossil fuels, remains a focus as we identify and evaluate renewable energy solutions.

• Implement innovative waste management strategies taking into consideration the remote location of our operations and limited

formal waste disposal facilities within our host countries.

• Prioritising water conservation throughout the Group.

Water is one of the most valuable natural resources and is

expected to become increasingly constrained over time.

Safeguarding water sources through reduced consumption

and quality stewardship is a priority globally as well as within

the Mokhotlong region where our Letšeng operation is based.

Since Gem Diamonds started operating the Letšeng  mine

in 2006, the operation has prioritised the stewardship of

water through a water management plan. The operational

approach to water management has matured over time to

align with appropriate best practice standards and operational

trends in water use and impact. A comprehensive water

monitoring protocol has been implemented at Letšeng, looking

at both water quality on-site and downstream, as well as

consumption volumes through mining and treatment activities.

In 2014, our Letšeng operation adopted a site-specific nitrate

management plan. As part of this plan, the operation researched

new water treatment technologies in collaboration with external

subject matter experts. Working with the University of the Free

State, bioremediation was identified as a priority technology

for further assessment. This led to the development of our

bioremediation nitrate treatment solution, which was subjected

to an intensive research and review process involving various

experts both regionally and internationally.

Bioremediation is a strategy that uses naturally occurring micro-

organisms to break down chemical compounds, such as nitrate,

into less toxic substances, such as nitrogen gas (N2). The passive

bioremediation method of remediation is especially appealing

as it does not produce any toxic or hazardous waste products.

Not only does bioremediation create significantly less waste than

alternative treatment methods, such as reverse osmosis, but it is

also more cost efficient and not as labour intensive.

At Letšeng, the bioremediation project is aimed at reducing

blasting-related nitrate levels from water emanating from the

mining operations’ facilities such as waste rock dumps and

tailings storage facilities. During 2021, our bioremediation

pilot plant was upgraded and re-commissioned to assess

the denitrification efficiency of the improved technology.

The pilot demonstrated the effectiveness of treating nitrates

using naturally occurring micro-organisms.

A full-scale bioremediation plant is now designed with

construction to commence in 2022. This plant will treat water

seeping from the waste rock dumps, historically the water source

with the highest levels of nitrate. The treated water will then be

discharged from this plant, into a newly constructed wetland to

ensure sufficient water supply for downstream users.

MANAGING OUR IMPACTS THROUGH BIOREMEDIATION

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

72

73

access to sufficient potable water, food security and stakeholder

engagement. We know that we cannot secure water resources for

our mine without ensuring that the water requirements of our PACs

are met. Our Group water management policy considers the water

needs of all stakeholders. Various operational departments have

implemented initiatives to reduce process water consumption,

secure adequate water reserves to operate during potential future

drought conditions and ensure stable access to water for PACs.

The water catchment facility below our Patiseng TSF captures

seepage and recycles water back into our processing plants.

This reduces the use of freshwater for processing and prevents

nitrates, related to the use of explosives, from entering the

natural environment. We have also created a wetland in our Qa

Qa catchment with endemic plants that absorb nitrates and

purify run-off during the summer months. The Group successfully

completed its bioremediation pilot plant study during 2021, with

plans to construct a full-scale bioremediation plant in our RTZ

catchment during 2022. Bioremediation uses naturally occurring

micro-organisms within the soil to absorb nitrates from water,

refer to our case study on page 71 for more information.

Waste

We continually seek ways to improve our waste reduction

efforts to minimise our impact on the natural environment and

surrounding communities. Our mining operations have waste

management plans for effective waste handling.

Non-mineral waste generated at our operations is managed

inline with the waste hierarchy; reduce, reuse, recycle and as last

option dispose. During 2021, we focused on reducing three main

sources of waste – food, plastic and polystyrene waste.

To minimise food waste as much as possible, the catering and

environmental teams identified and implemented initiatives to

reduce the volumes of food waste. In addition, to more effectively

manage food waste, Letšeng purchased a food shredder

that ensures improved composting and fermentation rates

of the waste. The compost and compost tea (a product of the

fermentation process) is used to bolster rehabilitation trials and

concurrent rehabilitation projects.

The Letšeng operation also ran campaigns focused on reducing

plastic waste, which included a total ban on bringing plastic to

site during November. It also aligned with a national initiative

‘Plastic Free Wednesdays’ during 2021. Staff were provided with

reusable lunchboxes to replace single use containers for food

storage. We continue to look at introducing sustainable initiatives

to reduce plastic use and waste in 2022.

The operations are compliant with the Basel Convention on the

Control of Transboundary Movement of Hazardous waste and

ensure that relevant permits are in place when hazardous waste

is moved from Lesotho to South Africa, as there are currently no

hazardous waste disposal sites in Lesotho. Hazardous waste is

then responsibly disposed of in South Africa at certified sites, that

issue safe disposal certificates.

Mineral waste at Letšeng is retained on site in structures

designed for this purpose. These structures comply with Lesotho’s

requirements and international best practice standards. Our

non-mining operations generate small quantities of domestic

#### SUSTAINABILITY CONTINUEDSUSTAINABILITY CONTINUED

waste. During 2021 we advanced our adoption of the ICMM

Global Industry Standard on Tailings Management. Appropriate

governance committees were established to oversee the

adoption and alignment of operational practice with the

standard, including the constitution of an internal tailings review

board consisting of two world renowned tailings facility and risk

management experts.

Operationally we continue to look at ways to minimise the mining

and movement of mineral waste. Our steeper slope project has

significantly reduced the mining and movement of mineral

waste, and further opportunities in this regard are being explored.

Our performance

Carbon

At Letšeng, we have implemented numerous initiatives reducing

our carbon emissions, such as steepening the slopes of the pit

walls to reduce waste movement and shortening our waste

hauling distances by optimising our routes. These initiatives

reduce our carbon emissions through reduced fuel consumption.

Refer to page 65 for the case study on our optimised waste

dumping strategy and to Our Approach to Climate Change

Report for our carbon emissions performance metrics.

Water

We actively minimise freshwater use by recycling and reusing

water on site, recovering run-off water, managing the impact and

flow of stormwater, and economising our water consumption.

Our stormwater management system is designed to catch

and redirect stormwater drainage into our freshwater dam and

we continually explore additional catchment and freshwater

supply opportunities for the operation and its PACs. Refer to

our Sustainability Report and Our Approach to Climate Change

Report for our water consumption performance metrics.

Waste

Effective waste management and awareness campaigns

continued, and a food waste shredder and an incinerator were

installed and commissioned during the year at Letšeng to

improve waste management.

MANAGING AND ADDRESSING CLIMATE CHANGE

AND EXTREME NATURAL EVENTS

Our context

It is widely accepted that human influence has warmed the

atmosphere, ocean and land, causing widespread rapid changes

to the planet and the climate system as a whole. Human-induced

climate change has already affected weather patterns across

the globe. The International Panel on Climate Change (IPCC)

Working Group 1 predicts that the world will exceed 1.5°C global

temperature increase within the next two decades.

Our operations are located in remote areas, making them susceptible

to more frequent extreme weather events due to climate change.

These weather events include snowstorms, extreme temperatures,

flash floods and drought. Understanding climate related risks and

potential impacts is key to assess our organisational exposure and

resilience to climate change. It also provides guidance to update

business continuity plans and operational strategies to mitigate the

impact of climate change related risks.

Historical natural events in Lesotho include hailstorms, snowstorms,

droughts and frost days. The longest drought in over 200 years was

recorded between 1991 and 1995, which negatively impacted

communities and the economy within Lesotho.

Lesotho frequently experiences localised floods, damaging basic

service infrastructure in already impoverished communities, with

75% of the Lesotho population residing in rural areas, and are

exposed to the effects of extreme weather including extreme cold,

snow and other precipitation events.

Our approach

We are cognisant of the risks presented by climate change and

its potential impact on our operations and stakeholders. This

year, we adopted the TCFD framework and implemented its

recommendations throughout the Group.

We view climate change through two lenses in line with the

framework’s recommendations. Firstly, we ensure operational

resilience and continuity in terms of the physical risks, including

extreme weather events. Secondly, we are preparing for the

transition to a low-carbon economy.

Refer to Our Approach to Climate Change on page 26 for more

information on our TCFD adoption roadmap and climate change-

related work.

During 2021 the Group undertook a CCSA to assess which

physical climate change-related risks will emerge at our

locations over the short-, medium- and long-term. The CCSA

was based on a mix of quantitative and qualitative data and

information sourced from the Carbon Brief and World Bank

climate change knowledge portal. This data and information

informed the short-, medium- and long-term models developed

for all locations that the Group operates in.

The CCSA especially focused on Letšeng, currently our only

operating mine. It also took into consideration the life of mine

of the operation.

Four temperature increase scenarios were included in the CCSA,

namely 1.4°C, 1.9°C, 3.3°C, and 6.0°C. These scenarios were

informed by shared socio-economic pathways (SSPs). The SSPs

were developed by climate scientists to model the greenhouse

gas concentration trajectory, and was subsequently adopted

by the IPCC. The 6.0°C scenario represents the current world

economy continuing to function under the current conditions

of little to no climate adaption or global GHG emissions

reduction initiatives.

The physical weather parameters considered in the modelling

included:

• Temperature

• Wind

• Frost days

• Heat days

• Cold waves

• Heat waves

• Precipitation events

• Drought likelihood

The risk to the Group, in terms of potential physical climate

impact, was assessed considering the following aspects:

• Human health

• Water resource availability

• Energy and electricity

• Vegetation

The CCSA identified the following physical climate change-

related risks that could impact on the Letšeng operation:

• Temperatures will increase over the next two decades.

• The number of frost days at the operation will increase.

• The operation will, on average, experience reduced

precipitation and more frequent severe drought periods.

• Sporadic occurrences of thunderstorms and hailstorms will

be more extreme.

The above physical climate change-related risks will inform an

operational exposure assessment to drive the Group adaptation

and mitigation strategy.

The last three years have seen an acceleration of climate change

related information and regulations. The Group has embraced

this and is actively incorporating these into relevant climate

change strategies and plans, such as the Letšeng climate change

adaptation and water management plans. These updates will

also include the specific physical climate-change related risks

identified through the CCSA.

The Group has its two assets located in extreme natural

environments, and it has been managing and responding to

extreme natural events since 2006. The operational business

continuity plans, disaster management plans, and all other

operational procedures and systems are informed by the extreme

weather already experienced at these locations. The Letšeng

operation maintains a two-week supply of food and diesel, should

extreme weather disrupt access and energy supply. In addition,

our medical teams are suitably equipped with extensive training

in high-altitude rescues and treatment under extreme conditions.

Our water management systems also consider potential natural

events. Dams and storage facilities are managed so that there

is excess capacity to handle a sudden influx of water without

compromising safety.

During 2021, the prolonged drought in Lesotho ended with

localised flooding. Our water management strategy prioritises

water saving, recycling and catchment efficiency initiatives

to preserve water and ensure it is always treated as a precious

resource. At the same time, our teams respond swiftly to assist

communities during periods of flood and drought. The increased

frequency of extreme flooding and prolonged drought periods

illustrate the potential impacts of climate change at our Letšeng

operation.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

74

75

#### SUSTAINABILITY CONTINUED

The Group commissioned independent energy advisors to

identify opportunities to improve energy efficiency and reduce

energy related emissions as a result of reduced consumption or

cleaner energy sources. The assessment included mobile and

stationary combustion related fossil fuel consumption and grid

supplied electricity.

The various studies undertaken during 2021 also identified

a number of challenges that the Group need to consider in its

decarbonisation assessments:

• The remaining life of open pit mine at Letšeng impacts on

the feasibility of any capital-intensive projects.

• The mine operates in a region that is protected as a nesting zone

for endangered vultures, as a result, wind power development is

not possible within a 40km radius of the operation.

• The location specific irradiance of the Letšeng mine indicates

that a maximum of 5.5 hours a day is available for energy

yield through solar PV.

• The extreme low temperatures at Letšeng eliminates the

possibility of Biodiesel replacing or substituting traditional

mineral diesel due to the biodiesel thickening within the fuel

system at low temperatures.

• As of 2021, no renewable or alternative electricity sources

are available to Letšeng to replace the existing grid supplied

electricity supply.

At Ghaghoo, energy consumption has reduced since the

operation was placed under care and maintenance in 2017 with

further reductions in 2020 and 2021 following the reduction of

our underground dewatering activities. One generator remains

in use for essential services and there is a back-up generator

when needed.

Our performance

Frequent load shedding and extreme storm events have increased

the use of generators at Letšeng. These energy interruptions are

potentially damaging and costly as machinery must shutdown

safely and not mid-use. Restarting machinery also consumes

more power and could damage equipment. Power interruptions

therefore pose a risk to our operations. To mitigate this risk, we

ensure that load shedding schedules and regional weather

predictions reports are integrated into our production planning

to facilitate an effective change-over to generator power.

We have disclosed our carbon, energy and water footprint

performance metrics in our Sustainability Report and Our

Approach to Climate Change Report.

PLANNING FOR MINE CLOSURE

Our context

Mining is one of the main contributors to the gross domestic product

(GDP) of the countries in which we operate. It offers considerable

direct and indirect employment opportunities during a mine’s

lifespan. However, there is potential for adverse environmental and

socio-economic impacts if mines are not managed responsibly

during and post its lifespan. Rehabilitating environmental impact

only is not sufficient to responsibly close a mine, and our mine

closure plans therefore also consider the socio-economic status and

impacts of potential mine closure on our PACs.

#### SUSTAINABILITY CONTINUED

Our approach

We take a long-term view of the land under our management,

recognising that adverse impacts must be remediated to

demonstrate responsible stewardship of natural resources. All our

project life cycles focus on the rehabilitation of our mine lease

areas, during and post life of mine.

We follow best practice when planning mine-closure programmes.

This is part of our responsibility to our host countries and the

communities close to our mines. Our operations have integrated

rehabilitation plans that are supported through concurrent

rehabilitation and annual reassessment of rehabilitation strategies.

This approach ensures that we meet our closure objectives

as responsibly and efficiently as possible. We also quantify

unforeseen mine rehabilitation and restoration costs, and make

adequate financial provision in the Group’s financial statements.

As Letšeng is located in the extreme highlands of Lesotho,

guidance on successful rehabilitation is scarce. Since 2012, a

series of trials have examined different rehabilitation applications

to test closure criteria and estimate the mine’s rehabilitation

and closure costs. These trials replicate the rehabilitation of the

mine’s main waste residue disposal facilities: fine tailings (slimes),

coarse tailings and waste rock. The trials use waste rock and

tailings reserves with minimal topsoil requirements, and examine

vegetation rehabilitation and restoration of natural ecosystems.

Topsoil is essential for successful vegetation and it is considered

a critical component to the successful post-mining rehabilitation

of the mine.

In addition to these initiatives, several academic studies are

underway, in collaboration with the National University of Lesotho

and North-West University in South Africa, at Letšeng to inform

rehabilitation and support mining strategies and techniques that

enables concurrent rehabilitation.

Our Ghaghoo mine remains under care and maintenance. We

continue to review its rehabilitation plans as we investigate

restorative initiatives to reduce the end of mine life liability.

We engage with independent experts at Letšeng and Ghaghoo

to understand the work needed to ensure safe and responsible

end of life mine closure. Letšeng’s rehabilitation plans and

resultant liability are reviewed externally every year. In 2021,

the end of mine life rehabilitation provision reduced to US$14.9

million (2020: US$16.1 million) following improved concurrent

rehabilitation planning.

Our performance

• US$14.9 million environmental rehabilitation provision (2020:

US$16.1 million).

• 6 174h a of land under our management (2020: 6 174ha).

• 1.95ha newly disturbed by mining operations (2020: 10.2ha).

• Total disturbed land to 776.15ha (2020: 774.2ha).

• Rehabilitation and closure plans were updated.

• Rehabilitation and revegetation trials at Letšeng are proving

successful.

Our performance

We adopted the TCFD recommendations and implemented

phase one of our three phase TCFD roadmap. The implementation

of phase one included:

• Improved climate change governance structures.

• Enhanced organisational risk processes to integrate

climate change.

• Completion of a detailed climate scenario analysis to ensure

science-based data inform decisions.

• Appropriate training to ensure understanding of climate

change across the business.

• A strategy process which integrates climate change

considerations.

• Updating the climate change adaptation plan.

• Updating the stormwater management and catchment plan.

ENSURING CONSISTENT ELECTRICITY SUPPLY AND

MINIMISING ENERGY CONSUMPTION

Our context

The consistent and stable supply of power is critical for mining

operations. The Letšeng mining operation accounts for the vast

majority of the Groups energy consumption, both in terms of

fossil fuel-based energy and grid-based electricity. Therefore,

our energy efficiency initiatives are focused on reducing the

energy consumption profile at Letšeng. Our one direct source of

grid electricity at the mine is grid-based electricity through the

Lesotho national grid, which is fed through the South African

national electricity supplier Eskom. Grid instability and rotational

load shedding by Eskom affects the Letšeng operation as the

electricity supply to Lesotho is cut periodically to protect the

South African national grid.

To ensure a consistent supply of energy to the mining operations

and associated infrastructure, a generator-based power supply

system is in place. The generators are operated when extreme

weather or Eskom-related electricity cuts impact production.

The Ghaghoo mine, which is currently on care and maintenance,

is powered by an on-site generator as no access to grid-based

electricity exists at that location. The Groups’ office-based

locations are all fed through grid electricity.

Our approach

As part of the work that the Group is doing to reduce its carbon

emissions, we have identified several opportunities relating to

energy and electricity that will assist us as we strive to decarbonise

the business and evaluate which opportunities are feasible for the

Group to implement. The Group recognises the need to transition

appropriately to energy sources that are less carbon intensive

than the traditional fossil fuel-based energy sources that currently

power our operations.

During 2021, the Group assessed several energy-saving initiatives,

specifically at Letšeng as the primary energy consumer. Our

approach to energy saving initiatives considers both short- and

long-term initiatives. The following initiatives were implemented

in 2021.

By optimising heating systems, we were

able to reduce the energy requirements for

accommodation heating by

19%

Through the implementation of technology that

staggers energy demand related to lighting

and water

heating, we

reduced the peak power demand in the

accommodation facilities by 28%

The Letšeng operation implemented a ISO 50001

aligned energy management system that further

informs the operational approach to manage, track

and protect energy supply as well as track and

minimise energy consumption.

We reduced our waste rock hauling distances,

resulting in a reduction of our carbon emissions

and diesel consumption.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

76

77

#### SUSTAINABILITY CONTINUED

PROTECTING BIODIVERSITY AND ENHANCING

CONSERVATION

Our context

While mining is a significant contributor to host nations’ socio-

economic prosperity, it can also have a significant environmental

impact. Gem Diamonds is committed to mitigating environmental

damage, protecting biodiversity and enhancing conservation

efforts.

Letšeng is located in the Maluti Drakensberg Transboundary

Park, a legally protected key biodiversity area. All potential

biodiversity impacts of the mining activities were assessed as part

of the SEIA process and the SEMPs include consideration for the

management and mitigation of direct, indirect and cumulative

impacts. Operational Biodiversity Management Plans have been

developed for Letšeng and are reviewed annually, biodiversity

monitoring is conducted every two years to inform further

possible updates to our management plans.

Our approach

We are responsible for protecting the biodiversity of indigenous

flora and fauna surrounding our mine. Through our closure

planning, rehabilitation strategy and biodiversity management

plans, we ensure biodiversity is included in our financial planning

and long-term strategy objectives.

We collaborate extensively with our host countries, PACs,

regulators, scientists and other industry stakeholders to

implement practical environmental protection strategies.

Ultimately, we aim to ensure environmental and socio-

economic sustainability and prosperity for our host countries,

PACs and business. Bioremediation is the cornerstone of our

water quality conservation efforts and a critical part of our

stakeholder relationships.

Our biodiversity risk assessments take into consideration all

threatened, migratory and endemic species as well as regionally

relevant ecosystem services such as rangeland, wetlands,

grassland and water. At Letšeng, the biodiversity offset strategy

has been implemented to mitigate mining related impacts on

biodiversity. The offset strategy includes:

• No-go areas, protected from any development.

• An indigenous plant garden.

• An artificial wetland construction programme.

• Native seed propagation and rehabilitation trial programme.

• Concurrent rehabilitation plan.

• Grazing management plan in collaboration with subsistence

farmers in the region.

Our annual biodiversity monitoring found positive rangeland

performance over the 2020-2021 period and increased biomass

production in the mine lease area as a result of biodiversity

initiatives. The Spiral Aloe (Aloe polyphylla) is a protected plant

that is endemic to Lesotho and threatened to near extinction.

Despite being declared a protected plant in Lesotho since 1938,

their in-country numbers have been declining.

During 2021, the Letšeng biodiversity monitoring noted a

high density of both adult (894) and seedling (70) Spiral Aloes,

and no indication of illegal harvesting on site. The successful

establishment of the Spiral Aloe is indicative of the successful

biodiversity management strategy implemented at the operation.

In addition, the monitoring also confirmed that the mammalian

diversity on site has remained stable for the 2015-2021 period.

Letšeng hosts 39.5% of all mammalian species found in Lesotho.

Our performance

• Conservation plans updated annually.

• Biannual mammal-monitoring protocol rolled out.

• Completed a wetland rehabilitation and biodiversity offset

project.

#### SOCIAL

The Group’s purpose ‘Unearthing unique possibilities’, is directly underpinned by three strategic priorities: extracting maximum value from

operations, preparing for our future, and working responsibly and maintaining our social licence to operate.

Our social licence to operate depends on regular engagement with government and local communities, as well as financial and practical

support, to address challenges with mutually beneficial and sustainable solutions. As responsible operators and social partners in our host

countries, we endeavour to maintain healthy and constructive relationships with governments and our PACs.

As mining life is finite, we need to establish CSI projects that continue to create value in our absence.

#### SUSTAINABILITY CONTINUED

#### Our goals

• Supporting our PACs following localised flooding in 2021

that damaged infrastructure and washed away access roads.

• Extending our support of existing CSI projects to ensure

their independence and sustainability following the impact

of COVID-19.

• Reducing costs and enhancing operational efficiencies while

balancing the needs of our stakeholders.

• Working to implement both the 2021 CSI strategy and

projects postponed from 2020 resulting from the COVID-19

related lockdowns and restrictions.

#### Our future

• Strengthen our partnership with our PACs through CSI

initiatives that support the creation of lasting mutually

beneficial industries, through extended support.

• Enhance communication and stakeholder engagement.

• Mature our integration of UN SDGs into our corporate social

responsibility strategy.

#### Snapshot of our performance

#### US$0.2 million invested in COVID-19

community relief (2020: US$0.1 million)

#### US$0.8 million invested in social

projects (2020: US$0.3 million)

#### US$164.9 million

spent on local procurement (2020: US$126.9 million)

#### Zero major or significant community

incidents(2020: zero)

#### Related UN SDGs

We launched the first rolling three-year cycle to embed the UN

SDGs into our systems, processes and decision-making during

the year. The following UN SDGs relate to our social pillar:

Refer to our Sustainability Report and Our Approach to Climate

Change Report for more information on our approach to

integrating these UN SDGs into our business operations.

#### Related sustainability principles

Prioritising environmental protection

Optimising socio-economic benefit

Prioritising the development and wellbeing of our

employees

#### Material matters

SAFEGUARDING OUR COMMUNITIES

Our context

Since the start of the COVID-19 pandemic, our primary objective

has at all times been to operate safely and responsibly, ensuring

the safety and health of our workforce, their families and the

communities surrounding our operations while also supporting

Lesotho’s national effort to curb the spread of the virus.

At Letšeng, 98% of our workforce resides in Lesotho, and therefore

we recognise that embedding a safe and responsible workplace

practice at Letšeng directly and indirectly benefits and protects

vulnerable PACs. Our mining operations face daily challenges

due to their remote locations, including extreme weather, difficult

transport routes and limited public infrastructure. While these

circumstances pose significant operational challenges, they can also

impact the health and well-being of the communities surrounding

our operations. In addition to the challenges community members

face due to their natural and built environment, our responsibility

as a good corporate citizen is to protect our communities against

any potential risks posed by our mining operations and support

our communities during times of crisis.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

78

79

Our TSFs are integral in to mining operations, yet they present

a substantial risk if not responsibly managed. In response to

global TSF failure-events, the ICMM developed and finalised the

GISTM for its member companies. Gem Diamonds has adopted

the GISTM and aligned its existing TSF Code of Practice with the

recommendations of the Standard.

Our approach

We follow a comprehensive social and environmental engagement

programme to help us identify the need of PACs. The Letšeng

operation has committed to investing 1% of annual turnover or a

minimum of LSL5 million towards community initiatives every year.

In addition, following the recovery and sale of special diamonds,

those greater than 300 carats, 1% of the diamond’s sale value is

directed to social projects. These obligations are included in our

Mining Lease agreement with the Government of Lesotho.

During 2021, Letšeng engaged an external independent party to

conduct a needs analysis within the Mokhotlong and Thaba-Tseka

districts. The findings of the needs analysis informed the five-

year community investment strategy, ensuring that the identified

community needs directly inform the CSI strategy.

COVID-19

We leverage our infectious disease management platform to help

raise awareness about COVID-19 by engaging extensively with

government, medical experts and communities. The goal is to

protect our workforce and support Lesotho locally and nationally

in minimising the impact of the pandemic.

We continue to support the Lesotho government in its fight

against COVID-19, and in 2021 Letšeng donated 20 000 vaccines,

oxygen concentrators, personal protective equipment and an

ambulance. Approximately 99% of our Letšeng workforce have

been vaccinated.

Dam safety and integrity

Globally, the most recent dam failures are attributed to ‘upstream’

construction methods. Letšeng has three dams on site: the

Patiseng TSF, the Old TSF and the freshwater Mothusi Dam – all

constructed using ‘centre line and downstream construction

methods, which is recognised as a safe and stable construction

method’. Gem Diamonds prioritises the safe and responsible

management of its tailings and freshwater storage facilities to

mitigate any potentially significant risk posed by these facilities.

The Letšeng facilities undergo stringent daily, weekly and monthly

inspections during which various factors are surveyed, including

water level, beach length, freeboard and overall structural stability.

Furthermore, we have implemented an early-warning system

with continuous community training and awareness programmes

to ensure communities’ emergency readiness in the unlikely

event of a failure. Ensuring the integrity of our mining waste and

freshwater storage facilities also safeguards our communities.

We are proactive in monitoring dam safety in terms of our

GISTM aligned Dam Safety Protocol. Stringent dam wall safety

monitoring involves regular internal and external inspections and

audits throughout the year. The findings and recommendations

are reported to the sustainability subcommittees and the Board.

For more information about our TSFs, read the Gem Diamonds

voluntary disclosure as part of the Investor Mining and Tailings

Safety Initiative of the Church of England.

We also regularly monitor natural springs and local boreholes in

and around our PACs. Over the years, we have seen an increase

of E. coli bacteria from livestock fouling the community water

sources while grazing or drinking. To assist the communities and

mitigate the risk of bacterial infection from the E.coli, we provide

clean potable water to local communities.

Road safety

As basic transport infrastructure and road services in the region

and communities surrounding Letšeng is inadequate, we

regularly upgrade roads, clear snow, scatter salt on iced access

roads and remove vehicles obstructing access to communities

and the mine. In the event of vehicle accidents and other road

emergencies, the Letšeng clinic and healthcare workers, which

include advanced life support paramedics, are often the closest

and best equipped to assist. In 2021, the clinic responded to

13 accidents on national roads and 60 injured people from the

public were treated in our clinic.

Our performance

• Zero incidents of compromised dam integrity were recorded

in 2021 (2020: zero).

• In 2021, the Letšeng emergency team responded to 22

emergency calls (2020: 12) from PACs of which 13 were

motor vehicle-related (2020: 9).

ENSURING POSITIVE ENGAGEMENT WITH OUR

STAKEHOLDERS

Our context

The strength of our relationships with our stakeholders, particularly

employees, regulators, PACs and host governments ensures our

social licence to operate. These relationships depend on our effective

management of ethics, labour practices, environmental and social

responsibility, and our risk management and engagement activities

with stakeholders. Our culture of care encourages us to engage,

listen and respond responsibly to our stakeholders’ needs. Our

decision-making is helped by regular stakeholder engagements,

enabling us to create value for society at large and promote our

long-term sustainability. Refer to page 17 for more information

about stakeholder engagement and management.

As Lesotho has high levels of unemployment, inequality and

poverty, we have a responsibility to contribute positively and

sustainably to the economy and to our PACs during and beyond

life of mine. Letšeng is guided by our stakeholder engagement

and corporate social investment strategy in this regard. For more

information, read our Optimising positive social outcomes case

study in the Sustainability Report.

Our approach

Our community engagement approach is informed by operation-

specific social and environmental impact assessments (SEIAs) and

community needs analyses following extensive public participation.

It is also aligned with host country legislation and international

best practice guidelines such as the Equator Principles and the

International Finance Corporation (IFC) Performance Standards on

Environmental and Social Sustainability.

#### SUSTAINABILITY CONTINUED

Acknowledging our communities’ unique cultural and traditional

context is essential, and we aim to engage transparently and

respectfully. We achieve this by employing suitably qualified and trained

people. Furthermore, our operations have a stakeholder consultation

framework to ensure regular, meaningful engagement. We integrate

feedback from these engagements in our decision-making. At Letšeng,

community representatives communicate with the CSI department

as a sustainable and culturally effective link between PACs and the

mine. Community representatives sit on the CSI subcommittee of the

Letšeng Board, which meets quarterly to discuss the implementation

and sustainability of current and planned projects.

Community engagement at Ghaghoo was downscaled when the

mine was placed on care and maintenance in 2017. Although this

reduced CSI project-related investment at Ghaghoo, we continue to

support the Gope community close to the mine with potable water,

medical care, and inclusion in regular health and safety campaigns.

Our performance

• No major or significant stakeholder incidents occurred at any

of our operations (2020: none).

• No incidents involving any violation of the rights of the

indigenous people on whose land the Group operates

(2020: none).

• COVID-19-related aid and assistance provided to PACs.

• 20 000 vaccines donated to the Government of Lesotho.

• US$0.9 invested to minimise the impact of the COVID-19

pandemic in Lesotho.

MINIMISING OUR POTENTIALLY NEGATIVE SOCIAL

IMPACT

Our context

As our mines are in remote rural locations, we recognise and respect

the importance of protecting the surrounding communities’ well-

established cultures and social structures. We believe it is our

duty to support the upliftment of these communities’ economic,

environmental and social sustainability potential, promoting

practices that protect human rights in every aspect of our operations.

Our approach

Our six priority UN SDGs are integrated into our community

investment strategy to ensure that projects contribute to both

local needs and global goals.

Our overarching impact assessments are guided by Free, Prior

and Informed Consent (FPIC) guidelines. FPIC is a specific right

that pertains to indigenous peoples and is recognised in the

United Nations Declaration on the Rights of Indigenous Peoples

(UNDRIP). It allows them to give or withhold consent to a project

that may affect them or their territories.

We align our community engagements and CSI projects with

international best practices and sustainability principles. Our

informed approach uses information gathered in community

needs analyses and SEIAs. These assessments include extensive

public participation to understand our PACs’ needs and

concerns. The goal is to minimise adverse mining impacts while

identifying opportunities for positive outcomes. Our SEIAs involve

biodiversity surveys as well as studies of soil, water and air quality,

archaeological surveys, visual and socio-economic impact

assessments, and an extensive public participation process.

Our performance

• Zero incidents involving the violation of the rights of

indigenous communities (2020: zero).

• We continued to engage with PACs through established and

enhanced forums in a safe and responsible manner.

• Zero major or significant community grievances were

lodged (2020: zero).

WORKING WITH COMMUNITIES TO UNDERSTAND

AND MEET THEIR NEEDS

Our context

Lesotho is a developing country with high poverty rates. The

three districts bordering our Letšeng mine are home to some of

the most impoverished communities in Lesotho. The diamond

and textile industries are the primary contributors to the country’s

export economy. We contribute towards our host communities

through the payment of taxes and royalties as well as our

sustainable development investments, local employment and

procurement practices. To ensure that our investments create

meaningful change, we focus on authentic engagement with

our communities to understand their needs and implement

sustainable projects.

Our approach

We value our mutually beneficial relationships with our PACs

as this ensures our long-term sustainability. We comply with

regulations and legal requirements and go beyond legislation

to make a meaningful impact and meet our host communities’

needs.

Each project in our CSI programme follows a five-year plan to

ensure sustainability. Our CSI projects focus on education, health,

infrastructure, the environment and enterprise development.

We include the SDGs in conceptualising new CSI initiatives to

contribute to achieving these goals. Refer to our Sustainability

Report and Our Approach to Climate Change Report for

more information.

We also value education, mentorship and skills transfer. Our

scholarship programme works with the government to identify

scarce skills, particularly in mining, engineering, emergency

medical care, geology and finance. Since the scholarship

programme was launched in 2006, 48 scholarships have been

awarded to deserving young Basotho. 47 of whom have

graduated successfully and 25 of whom are employed full-time

at the mine.

Our performance

• CSI investment of US$0.8million (2020: US$0.3 million).

• Externally led community Needs Analysis.

• The Tlokoeng and Mokhotlong egg circles were completed

at the end of October, farmers subsequently began

supplying eggs to the Letšeng mine.

#### SUSTAINABILITY CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

80

81

• We provided ongoing support to our flagship dairy and

vegetable projects when handover was delayed due to the

COVID-19 pandemic.

• Since its inception, we have issued 48 scholarships and over

100 interns have received valuable experience at Letšeng

mine.

SUPPORTING OUR COMMUNITIES THROUGH

LOCALISATION TO CREATE SHARED VALUE

Our context

Localisation is crucial in creating shared value for our host

countries and communities. We therefore employ people from

our PACs and engage with local businesses in our supply chain

to contribute meaningfully to the well-being of our communities

while meeting our business needs.

Our approach

The Letšeng mine is a major contributor to Lesotho’s economy,

providing jobs for more than 1 600 people and supporting socio-

economic development through focused local procurement initiatives.

We recruit locally and match available local skills with our operational

requirements wherever possible. In total, 98% of our Group’s workforce

are citizens of our host countries.

We also ensure that our goods and services are purchased from local

suppliers who comply with necessary standards, and we help these

entrepreneurs develop their businesses.

Our performance

• 98% of Letšeng’s workforce comprises Lesotho nationals

(2020: 98%).

• Group in-country procurement was US$164.9 million (2020:

US$126.9 million) of which US$3.4 million was procured

directly from PACs (2020: US$2.2 million) and US$31.4 million

(2020: US$27.4 million) from communities around Letšeng.

#### SUSTAINABILITY CONTINUED

At Gem Diamonds, we are committed to creating meaningful

and lasting change. We want to leave a positive legacy in the

countries in which we operate through contributions to local

economies, maximising local employment and procurement,

as well as developing sustainable CSI projects. We take an

integrated approach on how we achieve this, understanding

how inextricably linked the issues of sustainability, society and

the environment are.

While our CSI activities have focused on PACs at our operating

mine in Lesotho, where the need is the greatest, we also

acknowledge that we are a part of a global community striving

to address larger issues. To this point, we have integrated

the UN SDGs into our decision-making process, with six of

the 17 UN SDGs identified as key to our communities and

organisational objectives.

COVID-19 has caused severe health and economic devastation

for communities across the globe and Lesotho was no

different. In 2020, as the crisis first unfolded and numerous

travel and other restrictions were imposed, we shifted our

focus to supporting our PACs and the Lesotho nation at large.

CSI funds were allocated towards the most urgent of needs,

including food aid and PPE provision, as well as training health

care workers and the donation of a mobile testing lab.

In 2021, we refocused on our longer-term CSI goals as the impact

of COVID-19 on our operations stabilised. However, before we

could fully return to our CSI agenda, localised flooding in the

Mokhotlong district impacted the accessibility of seven of the

nine villages located downstream from the mine. Roads were

washed away and villages became inaccessible. We responded

swiftly to support and assist our communities affected by the

floods, and immediately started work to rebuild damaged

infrastructure (including footbridges, access roads, water

TAKING A HOLISTIC APPROACH TO COMMUNITY ENGAGEMENT AND IMPACT

provision infrastructure and schools). We are is well versed in

assisting our PACs during extreme weather events, and pride

ourselves on our resilience to these events both operationally

and in assisting our communities. Our climate change-related

studies which confirm the probability of the increasing

occurrence of extreme weather events that are likely to affect

local communities, are used to inform appropriate community

response plans and disaster management procedures.

We recognise the importance of the well-established cultures

and social structures in the local communities surrounding

our operations. We therefore take a holistic approach to

community engagement, informed by specific social and SEIAs

and community need analyses. The SEIAs and community

needs analysis are informed by extensive public participation,

host country legislation and international best practice

guidelines such as the World Bank Equator Principles and the

International Finance Corporation’s Performance Standards on

Environmental and Social Performance.

Our community needs analysis, delayed in 2020 due to COVID-

19-related lockdowns, was recommissioned during 2021.

The externally facilitated needs analysis not only reviewed

the existing CSI projects, but also engaged directly with

PACs to understand their immediate needs. This approach to

understanding and prioritising the needs of our PACs directly

informs our five-year CSI strategy, which incorporates our UN

SDG priorities to maximise impact.

The bisecting crisis of climate change and COVID-19, with

numerous knock-on effects on economic growth and social

cohesion, are expected to adversely impact our communities.

We are committed to developing sustainable, informed

interventions that empower our host communities and create

a real impact in their lives, long after our mine is closed.

#### SUSTAINABILITY CONTINUED

#### EMPLOYEES

Our primary objective is safeguarding the health and safety of our employees, their families and surrounding communities – everyone

should work and live in a safe environment every day.

We promote equality, diversity and professional development for employees at every business level with attention to their physical and

psychological wellbeing.

#### Related UN SDGs

We launched the first rolling three-year cycle to embed the UN

SDGs into our systems, processes and decision-making during

the year. The following UN SDGs relate to our employees pillar:

Refer to our Sustainability Report and Our Approach to Climate

Change Report for more information on our approach to

integrating these UN SDGs into our business operations.

#### Snapshot of our performance

#### Zero fatalities (2020: zero)

#### Six lost time injuries (LTIs)

(2020: one)

Lost time injury frequency rate

(LTIFR) of

0.24

(2020: 0.04)

#### US$0.7 million

invested in COVID-19

mitigation measures at Letšeng

(2020:US$1.1million)

All injury frequency rate (AIFR):

0.93 (2020: 0.76)

#### US$37.4 million

spent on employee

remuneration and benefits

(2020: US$31.8 million)

Letšeng retained ISO 45001

ce

rtification

More than 17 800 COVID-19

tests at Letšeng (2020: 13 000)

67 599 proactive safety

management actions

(2020: 55 547)

#### Related sustainability principles

Creating a safe and healthy working environment

Prioritising the development and wellbeing of our

employees

Optimising socio-economic benefit

#### Our goals

• Continuously mitigating the impact of COVID-19 on our workforce and PACs.

• Addressing our operational safety culture through a comprehensive leadership and safety campaign.

• Attracting and retaining talent with the required skills and relevant experience.

#### Our future

We will continue ensuring our employees’ safety and health as the pandemic continues, leveraging our existing COVID-19 management

protocols and vaccination programme to keep our workforce safe.

We will continue to deepen our understanding of the safety culture maturity of our workforce at our mining operations and strengthen our

leadership teams to support our zero harm goal. Refer to our organisational safety culture case study for more information.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

82

83

#### SUSTAINABILITY CONTINUED

#### Material matters

PROVIDING A SAFE WORKING ENVIRONMENT

Our context

Letšeng is the highest diamond mine in the world and the

remoteness and extreme natural environment contributes to

extreme operating conditions. We therefore experience unique

occupational health and safety challenges requiring specialist

knowledge, rigorous planning and exceptional leadership to

embed a culture of zero harm.

Our approach

Believing that every injury is preventable, our goal of zero harm is

underpinned by a culture of care and accountability that is driven by

each employee and advocated for by every leader. We do not only

classify a safety incident based on its impact on people or property,

but more importantly on its potential for impact or injury. Every safety

incident and near miss must be reported and appropriately investigated

to implement effective corrective actions and prevent future incidents.

Following an increase in the frequency of safety incidents

in the first half of 2021, leadership halted all operations at

Letšeng for 24 hours to launch a focused safety campaign

aimed at understanding the root causes of the recent safety

performance and identify appropriate preventative measures.

These discussions with the workforce during the shutdown

informed a safety intervention programme, which resulted in an

improved safety performance during the second half of the year.

More information on the various safety interventions, including

our organisational safety perception survey and formation of our

‘Grey Hair Council’ can be found in the safety case study page 61.

We take a firm stand against non-compliance with our high

safety standards for employees, contractors and sub-contractors.

Non-compliance leads to disciplinary action against employees

(including dismissal) and contractors (including blacklisting and

banning offending contractor employees from site).

Our performance

• AIFR: 0.93 (2020: 0.76).

• Zero fatalities (2020: zero).

• Six LTIs across the Group during 2021 (2020: one), resulting in

a Group-wide LTIFR of 0.24 (2020: 0.04).

• 1 restricted work injury (RWI) across the Group during 2021

(2020: four).

• US$0.7 million spent on ongoing COVID-19 protocols

to protect our employees and contractors (2020:

US$1.1 million).

• ISO 45001 certification retained at Letšeng.

ATTRACTING AND RETAINING QUALIFIED PEOPLE

Our context

Skills shortages in the mining sector, exacerbated by our remote

location as we strive to employ local people, elevates our focus

on being an employer of choice. Gem Diamonds therefore

invests considerable resources in attracting and retaining talent,

skills, expertise and experience.

#### SUSTAINABILITY CONTINUED

Our approach

Our strength is in the quality of our people. To attract and retain

talented individuals, we must understand and address employee

needs, offer market-related salaries, cultivate a supportive working

environment and offer career development opportunities.

We understand that frequent engagement and communication

is critical to cultivating a collaborative working environment that

facilitates the development and retention of employees. Since

the onset of the COVID-19 pandemic, we have engaged regularly

with our people to understand their needs.

We recognise that competitive remuneration plays a significant

role in attracting and retaining qualified people. We remunerate

our employees in line with market-related rates without

discrimination based on race or gender. We also ensure that our

lowest-graded employees are remunerated above the minimum

wage of the host country. While Lesotho and Botswana do not

prescribe a minimum wage for the mining sector, we use the

construction industry wage guidelines as the standard. We

also ensure that minimum requirements for remuneration are

stipulated in our labour contracts.

In total, 9.9% of the workforce at Letšeng was compensated at

the operation’s minimum wage (2020: 3.4%). In 2021, the lowest-

graded permanent employees at Letšeng received 55.6% above

the construction sector’s minimum wage (2020: 54%). Other Gem

Diamonds employees are remunerated above the minimum

wage in line with market-related rates.

We provide benefits and incentives over and above basic

remuneration to attract and retain top talent. Incentives retain

key individuals through performance-based bonuses and long-

term share awards.

We have committees at Group and subsidiary levels to review

current remuneration policies, skills and succession planning.

Furthermore, non-financial metrics are included in employee and

leadership scorecards in line with sustainability goals. Refer to the

remuneration report for more information.

Of our permanent workforce at Letšeng, 93% of employees

subscribe to the mandatory government retirement provision

scheme. Letšeng contributes 7.5% of employees’ annual salaries

to this scheme and employees contribute 7.5%. The remaining

7% comprises fixed-term contract employees who are not eligible

for this benefit but paid a fixed-term contract allowance at 20%.

Employees at our Ghaghoo mine receive a statutory payment

upon contract completion, equal to 15% of basic monthly salary

for each month of employment.

South Africa and London-based employees are remunerated on

a cost-to-company basis, enabling them to elect their retirement

schemes and contributions. At our Belgian operations, employees

contribute 25% of their salaries to a mandatory government

retirement scheme (2020: 25%).

In line with our commitment to zero harm, we strive to ensure a

safe and healthy working environment throughout the Group’s

operations. Following the onset of the COVID-19 pandemic, we

responded by proactively managing the emerging challenges,

enabling us to protect our workforce and allowing operations

to continue in a safe manner.

Our Letšeng operation worked with all key stakeholders,

including our workforce, PACs and the Government of Lesotho,

to identify how to:

• Collaboratively mitigate the impact of the pandemic.

• Curb the spread of the virus, both at our operations and

in our PACs.

• Practically support the Government and our

communities.

For more information on the support given to our PACs and

Government partners, which includes the donation of 20 000

vaccines, oxygen concentrators, personal protective equipment

and an ambulance, refer to the social section on page 77.

To ensure we could continue operations safely, a COVID-19

response plan was implemented. The response plan focused on:

• Adhering to COVID-19 protocols and procedures such

as appropriate PPE, social distancing, sanitising and

quarantining.

• Wide-scale screening and testing.

• An on-site vaccination programme.

We also took the host country regulations and associated

alert levels into account, adjusting the on-site protocols and

procedures as needed.

Throughout the year, we continued with COVID-19 screening

and testing at staff transportation points, before travelling to

site, and on site. A quarantine and contact tracing procedure

was implemented to limit transmission of the virus. Team

members who tested positive or showed symptoms were

immediately isolated, assessed and safely transported to their

homes or a regulated medical quarantine facility.

A key highlight of 2021 was the successful roll-out of our

vaccination drive. While 52% of the world population was fully

vaccinated against COVID-19 as at 31 December 2021, only

COMBATTING COVID-19 – AN INTEGRATED APPROACH

34% of the eligible population in Lesotho was fully vaccinated.

In this context, it is pleasing to report that the focus and effort to

raise awareness and drive a vaccination campaign throughout

our operations achieved a 99% vaccination rate to date. The

success of this programme is due to an extensive on-site

information campaign and our collaboration with the Lesotho

Ministry of Health to have the workforce vaccinated on site.

We are conscious of the impact COVID-19 has had on our entire

workforce both in the workplace and at home. These impacts

have manifested themselves in mental health, fatigue and

operational performance issues. To address these, we focused on

regular employee engagement and a full-time psychologist was

appointed to provide mental health support to our workforce.

Our COVID-19 strategy has enabled us to continue operating

safely and responsibly and is reflective of our commitment

to work with our stakeholders and partners to keep our

employees, communities and host countries safe.

As long as the pandemic remains a risk to our people, we will

continue to support the Lesotho Government in its efforts

to combat the virus and will follow emerging medical and

scientific research to inform our safety practices on site to keep

our people safe and our operations open.

#### OUR

#### COVID-19

#### RESPONSE

US$ 1.8 million

invested at

Letšeng

30 820

Covid-19 tests

conducted

2 371 rapid

antigen tests

conducted

24 926 rapid

antibody tests

conducted

3 677 PCR tests

conducted

US$ 1 150

invested per

Letšeng

employee

99%

vaccination

rate

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

84

85

#### SUSTAINABILITY CONTINUED

Our performance

• 353 employees (2020: 357) and 1305 contractor employees (2020: 1 535) at year end.

• The average number of employees was 354 (2020: 377) and the average number of contractor employees was 1 317 (2020: 1 466).

• US$37.4 million was spent on employee wages, benefits and incentives (2020: US$31.8 million).

• The Group-wide absenteeism rate was 4.5 days per person (2020: 1.8 days).

• 2.3% Group-wide voluntary staff turnover (2020: 6.1%).

• Zero cases of discrimination were recorded (2020: zero).

Employee demographics (%)

2021 Male Female Local <30 31-50 >50

Board 71 29 43 0 0 100

Senior

management

72 28 100 0 67 33

Middle

management

79 21 89 6 75 19

Total 78 22 98 7 76 17

2020 Male Female Local <30 31-50 >50

Board 86 14 29 0 29 71

Senior

management

67 33 78 0 67 33

Middle

management

81 19 85 7 85 8

Total 80 20 98 10 77 13

ENSURING OUR EMPLOYEES REMAIN HEALTHY

Our context

Improving employee health and wellness increases morale,

reduces absenteeism and improves productivity. As our mines

are in extreme locations with limited public infrastructure, we

rely on our on-site clinics to provide the necessary emergency,

occupational and primary healthcare for our employees. We also

prioritise our employees’ mental well-being through tailored

counselling and engagement programmes.

Our approach

We strive to provide an environment that actively encourages and

supports employee well-being and healthy lifestyles. Effective safety

policies and processes reduce risks, strengthen our relationships with

employees and regulators, and safeguard the Group’s reputation.

All new employees complete a full medical examination during

induction. Similarly, when an employee departs, we perform an exit

medical examination.

Our primary healthcare and total occupational disease cases were

lower than previous years. No cases of malaria or cholera were

reported at our operations for the fourth consecutive year.

At the onset of COVID-19, we began implementing our precautions

to ensure the welfare of our workforce. COVID-19 protocols and

prevention measures are adjusted as the pandemic progresses.

We implemented active COVID-19 testing at Letšeng to screen

and monitor people entering the site. In addition, people showing

symptoms of the virus are immediately isolated, assessed and safely

transported to their homes or a regulated medical quarantine

facility.

An enhanced physical and mental health programme supports our

workforce in coping with additional pressures during this period. A

mental health practitioner was employed by our Letšeng this year

and we contracted ICAS for our Johannesburg employees. ICAS is a

leading provider of employee wellness services.

As many of our employees and their families reside in our local

communities, we also understand the importance of protecting

our surrounding communities. We continued our efforts to support

the Government of Lesotho in their fight to curb the spread of

COVID-19. Refer to the social section on page 77 for our progress

in 2021.

Our performance

• Fully equipped clinic at Letšeng to deal with on site and

occupational medical needs.

• 99% of employees fully vaccinated to date.

• 100% pre-employment medical examination rate at Letšeng

(2020: 100%).

• 100% exit medical examination rate at Letšeng (2020: 100%).

• Decrease in occupational health cases to 348 (2020: 503).

• 7 232 serious disease prevention and management

interventions (2020: 3 611).

#### SUSTAINABILITY CONTINUED

ENGAGING WITH EMPLOYEES AND ELECTED

REPRESENTATIVES

Our context

We seek to maintain and consistently improve engagement and

communication with our workforce to understand their needs

and challenges and to enhance workforce relations. Our Letšeng

operation remains non-unionised while Ghaghoo became

unionised in 2016.

Our approach

Our approach to employee engagement continues to evolve in

line with best practice and our unique circumstances.

Non-Executive Director Mazvi Maharasoa leads employee

engagement, ensuring that employee concerns are heard at

Board level. Engagements in 2021 included an open forum

discussion with employees identifying their representatives.

We maintain a freedom of association policy, and our employees

are free to join unions and other collective-bargaining

organisations. We aim to swiftly address employee grievances

and proactively engage with our employees and their elected

representatives to facilitate this. We have established policies and

procedures to guide our operations. Our policy provisions are

based on our detailed change management system and the host

country’s legislation. We ensure that our employees are notified

of significant or material changes to the operations or working

environments through these established policies and procedures.

Our management team also provides frequent engagement with

our workforce through multiple forums, including daily toolbox

talks, weekly visible felt leadership visits, town hall meetings

(subject to COVID-19 protocols) and weekly newsletters.

This year, our engagements highlighted the need to optimise our

employees’ shift rotations to maximise their time at home. Letšeng

operates continuously with shift configurations in line with local

legislative requirements, and operational and market demands.

We endeavour to ensure the safety of our workforce during shift

rotations and strive to minimise shift disruptions. Following the

‘Stop for Safety’ engagements in 2021, an alternative schedule

was requested, assessed, successfully piloted and implemented.

We are satisfied that adequate mechanisms are in place to

record and address workforce’ grievances, and we maintain good

relationships with our workforce and relevant bodies. Refer to our

stakeholder section for more information on our engagements

with employees.

Our performance

• Zero strikes or lockouts were recorded in 2021 (2020: zero).

• Constructive engagement with employee representatives

continued in 2021.

PROVIDING SKILLS DEVELOPMENT OPPORTUNITIES

FOR EMPLOYEES

Our context

To remain competitive, we require exceptional people. While we

invest in recruiting specialist skills as required, we also empower

Gem Diamonds employees to further their careers by providing

learning and development opportunities.

Our approach

We invest in the training and development of our employees

and identify skills shortages to implement relevant development

programmes as well as focused succession planning for

employees. We train and develop our employees through various

internal and external programmes, and have a well-established

mentorship culture. All employees have clear development plans

that incorporate key competencies. These plans are monitored

regularly with annual performance reviews to ensure our people

are engaged and meet business objectives.

Formal policies support our succession planning. In 2021, these

policies were reviewed in depth, updated, enhanced and aligned

to the Board’s commitment to diversity and inclusion.

In addition to on-site technical training, we have implemented

a strategy to support our commitment to skills development.

Our internship programme, which has been in place since 2009,

focuses on offering practical field experience for new graduates.

To date, we have had 48 graduates with 53% offered permanent

employment. Our scholarship programme provides current

and future employees the opportunity to study at recognised

institutions. Since the programme’s inception in 2006, Letšeng

has awarded 48 scholarships to young Lesotho citizens to study

mining, engineering, emergency medical care and finance. The

appointment of our heads of operations and finance at Letšeng,

both graduates of our Gem Diamonds development process, was

a highlight of 2021. During the year, we also developed an on-site

leadership coaching programme that will be rolled out in 2022.

Our performance

• Senior management training: 209 hours (2020: 176 hours)

• Middle management training: 4 503 hours (2020: 1 136 hours).

• Non-management training: 28 982 hours (2020: 5 092 hours).

• 14% of employee career reviews performed (2020: 16%).

• 20% of female employees received reviews (2020: 17%).

• 11% of male employees received reviews (2020: 19%).

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

87

Gem Diamonds Limited Annual Report and Accounts

86

Gem Diamonds Limited Annual Report and Accounts

86

# GOVERNANCE

“Strong governance and

#### governance processes have

#### ensured our smooth operations

#### throughout the pandemic.”

– Harry Kenyon-Slaney –

### CHAIRPERSON’S INTRODUCTION TO

### CORPORATE GOVERNANCE

#### FOCUS AREAS 2021

At Gem Diamonds, we take our responsibility as the public stewards

of the interests of shareholders seriously. In 2021, the Board focused

on further improvement of our corporate governance processes

and policies. Throughout the COVID-19 pandemic, our vision and

the way we do things (refer to page 3) has allowed us to continue

operating, despite the challenges presented. The Board’s and

Committees’ primary focus areas included:

• Ensuring sustainable operations, keeping employees

and local communities safe and supporting the Lesotho

Government during COVID-19.

• Advancing the organisational safety culture and reducing

safety incidents.

• Resolving certain shareholder concerns regarding the Board’s

independence.

• Overseeing the Group’s renegotiated funding arrangements.

• Overseeing TCFD adoption and implementation across the

Group.

• Enhancing the risk management systems and processes.

• Overseeing the pending sale of Ghaghoo mine.

• Maintaining disciplined financial control.

• Considering an appropriate capital return to shareholders.

• Refinement of risk management processes including

insurance risk transfer opportunities.

• Consideration of conceptual underground expansion

studies.

• Overseeing the delivery of CSI commitments and activities.

• Overseeing the implementation of the Group’s insurance risk

transfer strategy.

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

89

Gem Diamonds Limited Annual Report and Accounts

88

#### Factoring others into decision-making

#### CHAIRPERSON’S INTRODUCTION TO CORPORATE GOVERNANCE

#### CONTINUED

#### PRINCIPAL DECISIONS 2021

Refer to our Committee reports on pages 106 to 143, which

give more detail regarding the major decisions taken by Board

Committees as part of their mandate of support to the Board.

#### GOVERNANCE

Throughout the year ended December 2021, the Group has

been in compliance with the provisions set out in the 2018 UK

Corporate Governance Code. Gem Diamonds has consistently

applied the principles of good governance contained in the

Code and voluntary disclosures in relation to the Miscellaneous

Reporting Regulation during the year. Further information on our

compliance with the provisions of the Code is available in our

2021 Compliance Statement on page 90.

#### TRANSPARENT REPORTING

The Board and reporting team have applied their minds to ensure

the Annual Report and Accounts 2021 is transparent and provides

meaningful disclosures on our activities and values. We welcome

any feedback or further information requests.

#### FUTURE FOCUS AREAS 2022

The primary Board focus for 2022 is the continued health and

safety of our workforce and PACs as we manage the impact of

COVID-19. We will be guided by the Sustainability Committee

on how our stakeholders’ needs are evolving in response to the

pandemic.

As climate change moves to the centre of the corporate agenda,

we will continue to monitor our climate and environmental impact.

We are attuned to the need to reduce our energy consumption

and related greenhouse gas emissions and investigate cleaner

energy solutions to improve the environmental performance of

the business. We will also continue with the implementation of

Phase 2 of our TCFD roadmap.

Our Audit and Risk Committee will focus on improving its

oversight into risk practices and financial controls.

Succession planning for both Board and Executive Management

will remain a focus. We recognise the inherent value in diversity

and having a range of perspectives, aptitudes and experiences.

We continue to track the diversity of culture, gender and skills

across the Group.

#### Unearthing unique

#### possibilities s172

Fair shareholder

engagement

• Engagement page 17

• Conflict of interest page 98

Long-term consequences

• Capital allocation page 53

• Business model page 8

• Risk appetite and risk

page 37

Employee interests

• Engagement page 19

• Diversity page 103

• Remuneration page 118

Other stakeholder

interests

• Other engagement

page 17

• Supply chain page 20

• Payments to

governments page 212

Ethical business conduct

• TCFD page 26

• UN SDGs page 69

Ethical business

conduct

• Culture, values and

purpose page 3

• Anti-bribery and

corruption page 96

• Human rights page 96

• Tax Policy page 58

Details of the Board’s formal annual evaluation of its own

performance, the performance of the Board Committees and

individual Directors are available on page 103. Outcomes will be

actioned in 2022.

We recognise that we are guests of the Lesotho Government and

engagement with this important stakeholder is a constant Board

focus. We will therefore maintain constructive, open and honest

dialogue with the Government of Lesotho.

#### FURTHER ENGAGEMENT

My fellow Board members and I will be available at the 2022 AGM

on 8 June 2022 to respond to any questions our shareholders may

have on this report or on any of the Committees’ activities and I

look forward to welcoming those of you who are able to attend.

If you wish to discuss any aspect of our governance

arrangements, please contact me via our Company Secretary at

ir@gemdiamonds.com.

#### HOW WE PERFORM OUR DUTIES

The main methods used by the Directors to perform their duties

include:

STRATEGY

The Board oversees, interrogates and approves the annual

strategy review, which considers the concerns of key stakeholders

and developments in regulations, governance requirements,

current market conditions and the short-, medium- and long-

term outlook (refer pages 22 to 25).

RISK MANAGEMENT

The Board oversees and has ultimate responsibility for the Group’s

risk management processes, ensuring that key risks are properly

identified, assessed, mitigated and monitored.

SUSTAINABILITY COMMITTEE

Provides assurance to the Board that appropriate systems

and policies are in place to identify and responsibly manage

sustainability-related matters.

EXTERNAL ASSURANCE

Provided by audits and certification in terms of international

management systems.

ORGANISATIONAL CULTURE

The Board sets the ethical tone for the Group and ensures that the

organisational culture aligns with our purpose and values.

STAKEHOLDER ENGAGEMENT

The Board monitors stakeholder engagement to ensure the

Group is cognisant of key stakeholders’ main concerns and

interests (refer pages 17 to 21).

#### CHAIRPERSON’S INTRODUCTION TO CORPORATE GOVERNANCE

#### CONTINUED

Harry Kenyon-Slaney

Chairperson

16 March 2022

#### SECTION 172(1) STATEMENT

The Board of Directors confirms that during the year under

review, it has acted to promote the long-term success of

the Company for the benefit of shareholders, while having

due regard to the matters set out in section 172(1)(a) to (f )

of the Companies Act, 2006, being:

(a)  the likely consequences of any decision in the long

term;

(b)  the interests of the Company’s employees;

(c)  the need to foster the Company’s business

relationships with suppliers, customers and others;

(d)  the impact of the Company’s operations on the

community and the environment;

(e)  the desirability of the Company maintaining a

reputation for high standards of business conduct;

and

(f )  the need to act fairly between members of the

Company.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

90

91

#### GOVERNANCE AT A GLANCE CONTINUED

#### GOVERNANCE FRAMEWORK

Delegation of certain matters to Board sub-committees

Executive directors and management

There are six formally constituted Committees of the Board, each of which has specific terms of reference.

The Board is responsible for the overall conduct of the Group’s business, with its primary focus as follows:

• Setting the Group’s purpose and values, establishing the overall strategy and satisfying itself that these are aligned

with the Group’s culture.

• Ensuring the employee policies and practices are consistent with the Group’s values and support its long-term success, and

regularly assess and monitor the Group’s culture.

• Establishing procedures to manage risk and oversee the internal control framework.

• Considering the views of shareholders and other key stakeholders when making decisions.

• Ensuring adequate succession planning.

• Approving changes to the Group’s capital and corporate structure.

• Determining the remuneration policy.

• Monitoring the effectiveness of and reporting on corporate governance.

The Board

Our principal

risks and

uncertainties

page 37

S172 statement

page 89

Our strategy

page 22

The Board delegates the execution of strategy and the day-to-day management of the business to the Executive directors and management

Audit

Committee

(page 113)

Reviewing and

monitoring:

• The integrity of the

financial and narrative

statements and other

financial information

provided to

shareholders;

• The Group’s system of

internal controls and

risk management;

• The internal and

external audit process

and auditors; and

• The processes for

compliance with laws,

regulations and ethical

codes of practice.

Nominations

Committee

(page 106)

• Ensure a formal,

rigorous and

transparent procedure

for the appointment

of new directors to the

Board;

• Lead the process for

Board appointments;

• Ensure Board

composition is regularly

reviewed and refreshed;

• Oversee the

development of a

diverse pipeline for

succession; and

• Work and liaise in

respect of any

remuneration package

to be offered to any

new appointment of

the Board.

Sustainability

Committee

(page 109)

• Promote a culture of

zero harm and

responsible care;

• Minimise

environmental impact

and reduce resource

consumption;

• Achieve the goal of

sustainable

development; and

• Review and monitor

the Group’s approach,

policies and measures

on health, safety,

corporate social

responsibility and the

environment.

Remuneration

Committee

(page 118)

• Ensure remuneration

policies and practices

are designed to support

strategy and promote

long-term sustainable

success and reward

fairly and responsibly,

with a clear link to

corporate and

individual performance,

having regard for

statutory and

regulatory

requirements; and

• Ensure executive

remuneration is aligned

to purpose, values and

attainment of

long-term strategy.

Standing and Share

Scheme Committee

Facilitate the

administration of the

Board’s delegated

authority.

### GOVERNANCE AT A GLANCE

#### Governance is a system and process, not a single activity, and requires a

systematic approach that incorporates strategic planning, risk mitigation and

#### performance management.

#### UK CORPORATE GOVERNANCE

#### CODE – COMPLIANCE

#### STATEMENT

The Board confirms that for the year ended

31 December 2021, the Principles of good corporate

governance contained in the 2018 UK Corporate

Governance Code (the Code) have been consistently

applied. The Company fully complied with all the provisions

of the Code. Page 94 illustrates how the Governance

section has been structured around the Principles

contained in the Code.

#### MAJOR BOARD DECISIONS

• Review of the appropriateness of incentive calculations.

• No political donations during 2021.

• Continued capital allocation to COVID-19 response.

• Review of the restructuring of insurance arrangements.

• Adopting the recommendations of the TCFD and

overseeing the implementation of the first phase of

the TCFD adoption roadmap.

• Reviewing the underground mining plan programmes.

• Review of the new funding and security arrangements.

#### KEY GOVERNANCE ACTIVITIES

• Supporting and overseeing management’s response to COVID-19.

• Monitoring the Group’s cash preservation and cash generation initiatives.

• Overseeing, interrogating and approving the annual strategy review.

• Reviewing and debating key risks and mitigating actions with management.

• Overseeing progress achieved in the BT and CI programmes.

• Assessing significant estimates and judgements applied in the valuation of the carrying value of mining assets and

impairment testing in the context of the impact of COVID-19 on pricing and production capability.

• Overseeing the advancement of sustainability objectives throughout the Group.

• Overseeing progress with the adoption of TCFD recommendations and the Group-wide CCSA.

• Overseeing alignment with the ICMM's GISTM.

• Overseeing diversity and inclusion throughout the organisation.

• Overseeing and supporting management’s engagements with funders to refinance Group debt.

#### HIGHLIGHTS AS AT 31 DECEMBER 2021

Board gender diversity

29%

Board and committee meeting attendance

100%

Board independence

50%

Board ethnic minorities

29%

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

Delegation of certain matters to Board sub-committees

Executive directors and management

![Graphics]()

Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

92

93

### DIRECTORATE AND EXECUTIVE MANAGEMENT

#### DIRECTORATE AND EXECUTIVE MANAGEMENT CONTINUED

2021

1 2

3

4

5

7

6

8

9

### DIRECTORATE AND EXECUTIVE MANAGEMENT

1. HARRY KENYON-SLANEY (61)

Independent non-Executive Chairperson

BSc Geology (Southampton University),

International Executive Programme

(INSEAD France)

Chairperson

Member

Member

2. MICHAEL LYNCH-BELL (68)

Independent non-Executive Director

BA Hons Economics and Accountancy (University of

Sheeld); FCA of the Institute of Chartered Accountants

in England and Wales

Chairperson

Chairperson

Member

6. CLIFFORD ELPHICK (61)

ivÝiVÕÌÛi"vwViÀ

BCom (University of Cape Town); BCompt Hons

(University of South Africa)

8. GLENN TURNER (61)

ivi}>>`iÀV>"vwViÀ>`

Company Secretary

BA; LLB (University of Cape Town); LLM (Cambridge)

7. MICHAEL MICHAEL (51)

iv>V>"vwViÀ

BCom Hons (Rand Afrikaans University); CA(SA)

9. BRANDON DE BRUIN (50)

iv"«iÀ>Ì}"vwViÀ

BCom; LLB (University of the Witwatersrand);

Attorney (South Africa) and Solicitor

(England and Wales)

3. MIKE BROWN (61)

Independent non-Executive Director

BSc Engineering; Mining PR Eng (ECSA)

Engineering (University of Witwatersrand); Strategic

Executive Programme

(London Business School)

Chairperson

Member

Member

4. MAZVI MAHARASOA (52)

Non-Executive Director

LLM International and Commercial Law

(University of Buckingham)

Member

5. ROSALIND KAINYAH (64)

Independent non-Executive Director

BA (Hons) (University of Ghana), LLB (Hons) (University of

London), LLM (University College, University of London),

Member of the Bar of England & Wales (Gray’s Inn),

MCIArb

Member

Member

Member

Committee icons

Audit Remuneration

Nominations Sustainability

Non-Executive Directors

Executive Directors

Executive Management

10. JACO HOUMAN (47)

Senior Manager - Technical and Projects

B.Eng(Met) (University of Pretoria); MBA (University of

Witwatersrand Business School)

10

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

94

95

### CORPORATE GOVERNANCE STATEMENT

#### BOARD LEADERSHIP AND GROUP

#### PURPOSE

#### Effective Board

The Board comprises a range of relevant skills, knowledge and

perspective, with extensive collective experience in the mining

industry (refer to page 102). The Board’s focus areas (refer to

page 87) support the guidance of the Code by promoting the

long-term sustainable success of the Group, generating value for

all stakeholders and contributing to wider society.

The Board oversees, interrogates and approves the annual strategy

prepared by Executive Management. This year’s review took place

in November 2021 and assessed the continuing relevance of the

strategy in the current local and global context, the potential

impact of current and emerging risks (refer to page 37) and the

appropriateness of the current business model (refer to page 8)

for long-term value creation.

Key areas discussed by the Board during the strategy review

included:

• Alignment of the strategic priorities with the Group’s

purpose, vision, values and culture.

• The strategy’s contribution to the achievement of the

Group’s vision in 2021, including its meaningful, sustainable

contributions to the countries in which we operate.

• Climate-related risks and consideration of the short-,

medium- and long-term impact on future decision-making,

strategy and business planning considerations and financial

implications.

• Updates on the performance of the diamond market and

Gem Diamonds’ position in the diamond industry.

• Opportunities to unlock value across operations and

commodities, operational structure, capital restructuring, use

of technology, revised mine planning, cost efficiencies and

strategic partnerships.

• Review of corporate activities.

The Board is supported by the Board Committees, which focus on

specific areas of the business (refer to page 91) and report back

to the Board through their chairs to ensure that Board meetings

use time effectively.

#### Purpose, values and culture

A number of metrics are utilised to monitor workplace culture,

providing information on the collective experience within the

organisation and the prevalent patterns of behaviour to inform

areas for future focus. During the year, the Board and senior

management continued to promote the Company’s sustainable

success by reinforcing the purpose, values and goals and

ensuring they remain relevant and aligned with strategy metrics

to monitor culture including turnover and absenteeism rates,

training data, recruitment reward and promotion decisions,

whistleblowing, grievance and ‘speak-up’ data, Board interaction

with senior management and workforce, and health and safety

data. Refer to workforce engagement on page 19 to read how

the Board monitors company culture through regular employee

engagement.

#### Governance framework and Board

#### resources

The Group’s corporate governance framework and processes

provide effective oversight of the business to ensure long-

term value creation and benefit for all stakeholders. Strategy

development and execution is supported by:

• Clear lines of accountability and responsibility.

• Linking the strategic priorities to KPIs that can be tracked to

monitor delivery on the strategy.

• Regular feedback and sharing of information to inform

timeous decisions.

• Engaging with key stakeholders to ensure their concerns

and interests are included where relevant (refer to page 17).

• Maintaining an effective risk management framework

(refer to page 37) aligned with the Group’s strategy and

performance objectives, and supported by comprehensive

internal controls and regular assurance.

• Independent insight and knowledge from the non-Executive

Directors.

Clear information flows have been established between the Board

and Executive Management which allows greater time at Board

meetings to focus on strategy and key decisions. The information

supplied to the Board aims to provide the depth necessary for

effective debate without being excessive. Where relevant, the

person responsible for the report attends the Board meeting to

provide further information and give Directors the opportunity to

develop a deeper understanding of the issue. Presentations from

external subject matter experts in relevant areas expose Directors

and Executive Management to a broader range of views.

INDEPENDENT ADVICE

The Directors have access to Executive Management and the

advice and services of the Company Secretary. The Company

Secretary is accountable to the Board for compliance with all

governance matters and assists with professional development

as required.

All Directors, either independently or collectively, may take

independent professional advice at the expense of the Company,

in the conduct of their duties, subject to prior consultation with

the Chairperson.

COMPANY SECRETARY

The Company Secretary has access to an independent firm of

Chartered Secretaries in Public Practice (Bruce Wallace Associates)

to ensure all company secretarial and governance issues are

attended to and the Board is apprised of all compliance and best

practice matters throughout the year.

#### CORPORATE GOVERNANCE STATEMENT CONTINUED

#### HOW THIS SECTION IS

#### STRUCTURED

The Governance section aligns with the structure and Principles

(A to R) of the 2018 UK Corporate Governance Code (the ‘Code’)

and illustrates how we have applied the Code Principles and

complied with the provisions.

1

Board leadership and Group purpose

Pages 94 to 96

A Effective Board

B Purposes, values and culture

C Governance framework and Board resources

D Stakeholder engagement

E Employee policies and practices

2

Division of responsibilities

Pages 96 to 101

F Board roles

G Independence

H External commitments and conflicts of interest

I Key activities of the Board in 2021

3

Composition, succession and evaluation

Pages 102 to 104

J Changes to the Board

K Board skills, experience and knowledge

L Annual Board evaluation

4

Audit, risk and internal control

Pages 104 to 105

M

Financial reporting

External auditor

Internal audit

N Review of the Annual Report and Accounts 2021

O

Internal financial controls

Risk management

5

Remuneration

Page 105

P Linking remuneration with purpose and strategy

Q Remuneration Policy review

R

Performance outcomes in 2021

Strategic targets

PROTECTION

In line with the Company’s Articles of Association, the Company

has, and continues to maintain, indemnities granted by the

Company to the Directors of the Company and the Company’s

associated companies, to the extent permitted by and consistent

with BVI law and the UK Companies Act, 2006 and rules made by

the UK Listing Authority. Neither the insurance nor the indemnity

provide cover where the Director or Group employee has acted

fraudulently or dishonestly.

#### Stakeholder engagement

The Board recognises the importance of effective communication

and seeks to maintain open and transparent relationships with

all its stakeholders. Pages 17 to 21 contains a detailed analysis of

stakeholder engagement during 2021.

ANNUAL GENERAL MEETING

Due to restrictions on travel and public gatherings at the time,

the 2021 AGM took place as a closed meeting. The meeting

addressed the formal resolutions in the notice of meeting and

shareholders were invited to submit questions in advance. Voting

on all resolutions was conducted by poll vote. The results of

the resolutions were announced through the Regulatory News

Services and on the Company’s website.

In accordance with the Code, if any resolution put to shareholders

receives over 20% votes against, the Board will seek to actively

engage with investors to understand their concerns and publish a

report on the actions taken and any next steps within six months

of the meeting. As discussed on page 18, at the 2021 AGM three

resolutions received more than 20% votes against them and

members of the Board and the Executive Management team

engaged with one of the Company’s larger shareholders on the

concerns raised. This is the second consecutive year that these

resolutions were not passed; however, due to the standing policy

of the shareholder on these matters, it is unlikely to be resolved.

The Company released an updated statement in December 2021

on actions taken in response to the votes received, which can be

viewed on the Company’s website

www.gemdiamonds.com.

The 2022 AGM will be held on Wednesday 8 June 2022. It will be

held both virtually and in person, if permitted by the prevailing

COVID-19 restrictions at the time. Details of the resolutions to

be proposed at the AGM can be found in the Notice of AGM,

which will be published on the Company’s website and sent to

shareholders who requested to continue to receive paper copies

a minimum of 20 business days before the meeting. Shareholders

who receive electronic communications can access the Annual

Report and Accounts 2021 and the AGM documentation through

the Company’s website.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

96

97

#### Employee policies and practices

EMPLOYEE POLICIES AND INVOLVEMENT

The Group prioritises the health, safety and effective performance

of employees, as well as maintaining positive employee

relations. The Group encourages a direct relationship with open

communication between employees and management. Mazvi

Maharasoa, a non-Executive Director, is the Board’s representative

who engages with the broader workforce and provides direct

feedback to the Board on the key concerns raised. In 2021,

she chaired several meetings with employee representatives.

Matters raised during these meetings were addressed at Board

and management level and employees were kept informed

throughout the process. Employees are informed about the

Group’s performance and objectives through direct and ongoing

communication with management as well as the Company’s

website, published information, the circulation of press cuttings

and Group announcements.

Gem Diamonds is committed to achieving equality irrespective

of gender, religion, race or marital status, and equal opportunity

is a fundamental principle in the Group. Applications from people

with disabilities are welcomed for positions they can adequately

fill, having regard for their abilities and aptitude. Where existing

employees become disabled, it is the Group’s policy, where

practical, to provide continuing employment under normal terms

and conditions and to provide training, career development and

promotion to disabled employees wherever possible.

The Group aims to attract and retain top-calibre management

and employees by creating a work environment that incentivises

enhanced performance. Guidelines and frameworks covering

remuneration benefits, performance management, career

development, succession planning, recruitment, expatriate

employment and the alignment of human resources

management and policies have been implemented by the Group

and are in line with international best practice. Each operating

unit manages its human resources requirements locally, within

the Group’s guidelines and frameworks.

The Modern Slavery Statement, in accordance with the Slavery

Act, is updated and published on the Group website annually.

BRIBERY ACT

The Group has a zero-tolerance approach to acts of bribery

and corruption involving any of its employees, third-party

representatives or associates and is committed to upholding

and complying with the requirements of the UK Bribery Act. The

Group’s terms of business require all customers and third parties

with whom business is transacted to adopt the same zero-

tolerance approach to bribery and corruption as implemented

by the Board. The Group anti-bribery and corruption policy is

currently being reviewed by the Board.

Refer to the Audit Committee report on page 113.

WHISTLEBLOWING PROGRAMME

Independently operated and confidential toll-free phone hotlines

are in place in each country where the Group operates. Online

submissions through gemdiamonds.ethicpoints.com can also be

done. Individuals can report any breach of the Group’s business

CHAIRPERSON AND CHIEF EXECUTIVE OFFICER

The respective responsibilities of the Chairperson and the Chief Executive Officer are clearly defined and separate, ensuring a clear division

of responsibilities between the leadership of the Board and the executive leadership of the Company’s business. The Chairperson is

responsible for creating the conditions for the effective working of the Board. The Chief Executive Officer is responsible for the leadership,

operations and management of the Group within the strategy and business plan agreed by the Board. Their individual responsibilities,

together with the responsibilities of the Senior Independent Director and non-Executive Directors, align with the requirements of the Code

and are detailed on the following pages.

Role of Chairperson

Harry Kenyon-Slaney

Role of Chief Executive Officer

Clifford Elphick

• Provides effective leadership to the Board, ensures it

operates effectively and sets the highest standards of

corporate governance.

• Provides strategic guidance to the executive team.

• Sets the agenda, style and tone of Board discussions.

• Through the Nominations Committee, ensures the Board

comprises individuals with appropriate skill sets, experience,

knowledge and diversity and that succession plans are in

place for the Board and senior management team.

• Ensures the Company maintains effective communication

with shareholders and that the Board understands their

views and concerns.

• Works with the CEO to ensure the Board receives accurate

and timely information on the performance of the Group.

• Leads the evaluation of the performance of the Board, its

Committees and individual Directors.

• Encourages a culture of openness and discussion to foster a

high-performing collegial team of Directors.

• Ensures relevant stakeholder and shareholder views, as

well as strategic issues, are regularly reviewed, clearly

understood and underpin the work of the Board.

• Facilitates the relationship between the Board and the CEO.

• Ensures adequate time is available for discussion on all

agenda items.

• Develops a business strategy for the Group to be approved

by the Board.

• Produces business plans for the Group to be approved by

the Board.

• Oversees management of the executive resource and

succession planning processes and presents the output

from these to the Board and Nominations Committee.

• Ensures effective business and financial controls and risk

management processes are in place across the Group, as

well as compliance with all relevant laws and regulations.

• Makes recommendations to the Board on the appropriate

delegation of authority within the Group.

• Keeps the Board informed about the performance of the

Group and brings to the Board’s attention all matters that

materially affect, or are capable of materially affecting,

the performance of the Group and the achievement of its

strategy.

• Develops, for the Board’s approval, appropriate values and

standards to guide all activities undertaken by the Group.

• Provides clear and visible leadership in responsible business

conduct.

#### CORPORATE GOVERNANCE STATEMENT CONTINUEDCORPORATE GOVERNANCE STATEMENT CONTINUED

principles through these channels, including but not limited to,

bribery, breaches of ethics and fraud. A training and awareness

programme on the whistleblowing facility was rolled out at

Letšeng during the year.

All whistleblowing incidents reported are referred by the

Group Internal Auditor or Company Secretary to the relevant

operations where they are fully investigated. The results of these

investigations are reported to the Boards of local operations and

the Audit Committee. Group Internal Audit periodically reviews

the design and effectiveness of the hotline and reports the results

to the Audit Committee.

During the year, a whistleblowing report was received alleging

diesel theft at Letšeng. Details of how this was managed can be

found in the Audit Committee report on page 113.

The Board is satisfied that the whistleblowing programme is being

used correctly by concerned individuals and that all queries raised

during the year have been properly investigated and reported.

DATA PROTECTION

The Group’s Privacy Policy can be found on its website at

www.gemdiamonds.com/privacy.php. A dedicated email address

is available for any correspondence relating to data protection

and privacy queries dataprotection@gemdiamonds.com which

is reviewed by the Chief Legal and Commercial Officer. No

correspondence was received during the year.

#### DIVISION OF RESPONSIBILITIES

#### Board roles

The governance framework on page 91 sets out the primary role

of the Board.

The Board meets regularly, covering strategic issues, such as

operational and financial performance, risk management and

other critical business concerns and has a formal schedule of

matters reserved for its decision. The agenda for each Board

meeting includes discussion, decision-making and sufficient time

and appropriate resource allocation surrounding these matters.

While all Directors have equal responsibility in terms of the law for

managing the Group’s affairs, Executive Management is responsible

for running the business within the parameters established by the

Board and for producing clear, accurate and timely information

and reports to enable the Board to monitor and assess the Group’s

performance. Financial and operational performance are reviewed

at each Board meeting and Directors receive regular updates

on the Group’s performance across a range of metrics. Regular

reports presented to the Board include health and safety reports;

CSI and stakeholder matters report, TCFD and climate-related risk

reports, risk management reports; tailings facility integrity reports;

operations reviews; sales and marketing reports; half-year and

full-year financial results; employee surveys; BT and CI status and

investor relations updates. Executive Management draws on the

expertise and experience of the non-Executive Directors.

Directors are encouraged to express their views freely and, where

they have concerns about the running of the Group or a proposed

course of action, they may ask that these be recorded in the minutes

where appropriate. No such concerns were raised during 2021.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

98

99

Role of Senior Independent Director

Michael Lynch-Bell

Role of Non-Executive Directors

• Acts as a sounding board and provides support to the

Chairperson.

• Serves as an intermediary for other Directors if necessary.

• Makes himself available to shareholders if concerns they

have raised with the executive team and/or the Chairperson

have not been satisfactorily resolved.

• Leads the non-Executive Directors in the performance

review of the Chairperson.

• Ensures there is a clear division of responsibilities between

the Chairperson and the CEO.

• Plays a leading role in succession planning for the

Chairperson.

• Scrutinise the performance of Executive Management in

meeting agreed goals and objectives and monitoring the

reporting of performance.

• Review the integrity of financial information and determine

whether internal controls and systems of risk management

are robust.

• Determine the Company’s policy for executive

remuneration, as well as the remuneration packages for

the Chairperson and Executive Directors through the

Remuneration Committee.

• Ensure a satisfactory dialogue with shareholders on strategy,

remuneration policy and other relevant matters as well as

engagement with key stakeholders.

• Strengthen links between the Board and the workforce by

designating a non-Executive Director who, in conjunction

with management, develops and implements workforce

engagement initiatives and reports to the Board on relevant

matters, or issues of concern, highlighted by the workforce.

• Provide a wide range of skills and independence, including

independent judgement on issues of strategy, performance

and risk management.

For more information on the roles of Board Committees refer

www.gemdiamonds.com/corporate-governance.php.

#### CORPORATE GOVERNANCE STATEMENT CONTINUED

#### Independence

Non-Executive Directors are required to be independent in

character and judgement. In applying the independence test,

the Board considers relationships with Executive Management,

major shareholders, subsidiary and associated companies and

other parties with whom the Company transacts business against

predetermined materiality thresholds. The Board considers the

majority of the non-Executive Directors, i.e. Harry Kenyon-Slaney,

Michael Lynch-Bell, Rosalind Kainyah and Mike Brown, to be

independent in accordance with the Code. Mazvi Maharasoa brings

a wealth of skills and experience to the Board; however, under the

criteria of the Code, she cannot be considered independent due to

her previous role within the Group. Mazvi is only a member of the

Sustainability Committee. Our Nominations Committee Report on

page 106 discusses the matter in more detail.

The letters of appointment for the non-Executive Directors

and the contracts of the Executive Directors are available for

inspection at the place of business of the Company in London.

#### External commitments and conflicts ofinterest

EXTERNAL COMMITMENTS

External commitments are detailed in the Directors’ CVs on

page 218.

CONFLICTS OF INTEREST

The UK Companies Act (the Act) requires Directors to avoid

any situation where they may have a direct or indirect interest

that conflicts, or may conflict, with the Group’s interests, unless

approved by the non-interested Directors. In accordance with this

Act, the Company operates a procedure, which was reviewed with

no changes by the Board in October, to ensure the disclosure of

conflicts and, if appropriate, the consideration and authorisation

of them by non-conflicted Directors. The Board maintains a

register of ‘conflicts of interest’ that it reviews annually (most

recently in November 2021). The Company voluntarily complies

with this requirement. The Board considered all external Directors’

appointments made during the year.

DEALINGS IN SHARES AND THE UK MARKET ABUSE

REGIME

The Company’s share dealing policy and reporting procedures

are in line with the UK Market Abuse Regulations implemented in

July 2016 and updated in June 2021.

RELATED-PARTY TRANSACTIONS

Other than those disclosed in Note 25 of the financial statements,

the Company did not have any transactions with, nor did it make

loans to, related parties during the period in which any Director

had any interest.

#### CORPORATE GOVERNANCE STATEMENT CONTINUEDCORPORATE GOVERNANCE STATEMENT CONTINUED

Operational  • Oversight of the Group’s response to COVID-19.

• Oversight of the organisational safety culture strategy implemented at

Letšeng.

• Review of quarterly management reports on operational performance.

• Review and approval of the 2022 business plan.

• Oversight of progress achieved in the BT and CI programmes.

• Oversight of TCFD adoption and climate change strategy development.

• Oversight of responsible tailings facility management and alignment with

ICMM's GISTM.

• Oversight of CSI strategy.

• Oversight of environmental conservation and stewardship performance.

• Review of progress on technology initiatives.

• Updates on Mineral Resource Management and the mapping of resources.

Strategy and financing • Annual strategy review in November 2021.

• Ongoing review of KPIs to assess delivery of strategy during the year.

• Monitoring of the Group’s cash-preservation and cash-generation initiatives.

• Oversight of the process of ensuring access to funding facilities and rolling

over debt falling due or expiring.

• Review and approval of planned capital expenditure.

• Oversight of process to integrate climate change-related issues into strategy

planning.

Risk management and

internal control

• Review of risk management processes and updated risk register, including

emerging risks.

• Review of updates from the Audit Committee on internal control and

assurance functions.

• Review of regular updates from the Sustainability Committee on the

identification and management of health, safety, environmental, community

investment and relationship, tailings and water storage facilities and climate

change-related risks.

• Review of the impact of the increased risk perception of insurance markets

on risk management.

• Review the implementation of an insurance risk transfer strategy.

#### Key activities of the Board in 2021

Key activities of the Board in relation to various focus areas:

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

100

101

#### CORPORATE GOVERNANCE STATEMENT CONTINUEDCORPORATE GOVERNANCE STATEMENT CONTINUED

Corporate and

performance reporting

• Regular review of financial performance and position.

• Monitoring of cash flow forecasts.

• Review of updates from the Remuneration Committee on key focus areas.

• Review and approval of quarterly updates, interim results and final results

and the relevant announcements.

• Oversight of climate-related financial disclosures as recommended by the

TCFD.

• Review and approval of 2020 Annual Report and Accounts, and the

Sustainability Report.

Governance • Monitoring and maintenance of the separation of roles between the

Chairperson and CEO.

• Annual review and update of Committee terms of reference and evaluation

of Committee composition.

• Approval of appointments to the Board Committees.

• Review and approval of updates to key policies.

• Oversight of succession plans for the Board and senior management.

• Participation in annual evaluation of the Board, Committees and Directors.

• Review of regular governance updates from the Company Secretary.

• Review of matters reserved for the Board.

• Review of Directors’ independence and conflicts of interest.

• Engagement with significant shareholders and the Remuneration

Committee regarding the votes against resolutions 14, 15 and 16 at the

2021 AGM.

Stakeholder engagement • Oversight of CSI strategy development and performance.

• Measuring the Group’s culture through a number of metrics, including

employee engagement through a designated non-Executive Director.

Refer to pages 17 to 21

#### CORPORATE GOVERNANCE STATEMENT CONTINUED

MEETING ATTENDANCE

Four scheduled Board meetings were held during 2021. The

terms of reference for the Audit, Nominations, Sustainability

and Remuneration Committees can be viewed on the Group’s

website together with the matters reserved for the Board.

www.gemdiamonds.com/corporate-governance.php.

If Board approval is required between Board meetings, Board

members are emailed the details, including supporting

information for decision-making. The decision of each Board

member is communicated, recorded and ratified as necessary, at

the following Board meeting.

Director Board:

4 held

Audit:

4 held

Remuneration:

4 held

Nominations:

4 held

Sustainability:

4 held

Executive Board members

C Elphick 4/4 N/A N/A N/A  N/A

M Michael 4/4 N/A N/A N/A N/A

Non-Executive Board members

H Kenyon-Slaney 4/4 N/A 4/4 4/4 4/4

M Lynch-Bell 4/4 4/4 4/4 4/4 N/A

M Brown 4/4 4/4 1/1\* 4/4 4/4

J Velloza 1/1\* N/A N/A N/A 1/1\*

M Maharasoa 4/4 N/A N/A N/A 4/4

R Kainyah 3/3\* 3/3\* 3/3\* N/A 3/3\*

J Velloza stepped down from the Board and the Sustainability Committee with effect from 1 May 2021.

R Kainyah was appointed to the Board and to the Remuneration, Audit and Sustainability Committees with effect from 1 May 2021.

\*  Full attendance of all meetings up to resignation from/since appointment to the Board or Committee on 1 May 2021.

NON-EXECUTIVE DIRECTORS’ MEETINGS

The non-Executive Directors meet independently of the Executive Directors, in accordance with the practice adopted by many listed

companies.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

102

103

#### CORPORATE GOVERNANCE STATEMENT CONTINUED CORPORATE GOVERNANCE STATEMENT CONTINUED

#### COMPOSITION, SUCCESSION AND

#### EVALUATION

#### Changes to the Board

In 2021 the Board approved a formal Selection and Appointment

policy which ensures that the procedure for appointing new

Directors is formal, rigorous and transparent, and appointments

are made on merit, against objective criteria and with due regard

for the benefits of diversity on the Board.

Johnny Velloza stepped down from the Board with effect from

1 May 2021 to take up a technical consulting role in the Group

and Rosalind Kainyah MBE joined the Board as an independent

non-Executive Director from the same date.

The Board comprises a broad and highly relevant skill set, and

the Nominations Committee continues to make appointments

based on merit while considering diversity (of gender, social and

ethnic background), cognitive and personal strengths and the

specialist skill set required by the business. Further details are in

the Nominations Committee report on page 106.

Board Committee membership was amended during the

year to consider the changes to the Board and allocation of

appropriate skills to those Committees, also taking into account

independence.

RE-ELECTION

The Nominations Committee’s report is set out on pages 106 to

108. The Articles of Association (82) provide that a third of Directors

retire annually by rotation and, if eligible, offer themselves for re-

election. However, in accordance with the Code, all the Directors

retire at the AGM and, subject to being eligible, offer themselves

for re-election. Details of the Directors’ service contracts are

included on pages 126 and 128. The Nominations Committee

has considered and concluded that the Board has demonstrated

commitment to its role. The Committee is also satisfied that the

collective skills, experience, background and knowledge of the

Company’s Directors enable the Board and its Committees to

conduct their respective duties and responsibilities effectively.

#### Board skills, experience and knowledge

The Board conducts an annual review of the composition and

chairmanship of its primary Committees, namely the Audit,

Nominations, Sustainability and Remuneration Committees. The

Company complies with the requirement of the Code that there

should be a balance of Executive and non-Executive Directors so

that no individual or group can dominate the Board’s decision-

making.

As a mining company, the efficiency of the day-to-day operations,

in both the medium and long term, is essential to the Group’s

progress in producing shareholder value. Knowledge of the

diamond industry is crucial to fostering new business opportunities

and enhancing the Group’s sales and marketing strategies.

Knowledge of financial markets is also necessary to ensure

fulfilment of the Group’s strategy. The biographies, which can

be found on pages 92 to 93, provide more information on each

Director’s competencies. All Directors allocate sufficient time to

the Group to fulfil their responsibilities effectively.

The non-Executive Directors possess a range of experience and

competencies and bring independent judgement to bear on

issues of strategy, performance and resources that is vital to the

success of the Group.

Technical/Engineering

Legal/Regulatory

Health and safety

M&A/Capital markets

Environmental/Social

Financial/Audit and Risk

International markets

Core industry

Senior executive

Board skills and experience (%)

100%

57%

81%

81%

52%

67%

67%

62%

62%

BOARD DIVERSITY

The Board recognises the importance of the Hampton-Alexander reviews as well as the Parker reviews and their objective to improve

gender and ethnic diversity in executive leadership and senior management. Similarly, the Board is conscious of trends evidenced in the

Code to increase diversity in boardrooms. There is a focus from the Board on gender and ethnic diversity at Board level and in the succession

pipeline. The Group recognises the importance of diversity at all levels and the diversity and inclusion policy covers both Board diversity and

the Company’s approach across the organisation. The Board has steadily worked to increase diversity and has moved from a position of 0%

female and ethnic minority in 2018 to 29% female and ethnic minority on the Board in 2021. It is also significant that 98% of the total Group

workforce are Lesotho nationals and 22% of the total workforce is female.

Succession planning is a key priority across the Group with a

focus on the development of women and ethnic minorities into

leading roles, which drives a diverse pipeline of talent.

Further detail on the Group framework to succession planning

can be found in the Nominations Committee report on page 106.

More information on gender-based employment is contained in

the Sustainability Report.

TRAINING AND INDUCTION

A formal and tailored induction is provided to new Directors on

joining the Board. This includes meetings with management and

access to external auditors and covers the Board Committees they

join. In addition, ongoing support and resources are provided

to Directors to extend and refresh their skills, knowledge and

familiarity with the Group. Professional development and training

are provided through four measures:

• regular updates on changes (actual and proposed) in laws

and regulations affecting the Company or its business;

• planning, including site visits, to ensure Directors are familiar with

Group operations, including its commitment to and application

of the Group’s corporate and social responsibility policies;

• creating opportunities for professional and skills training,

such as Committee chairmanship; and

• appropriate Board presentations and formal professional

seminars.

SITE VISITS

Visiting the Group’s operations and interacting with senior

management and employees is an integral part of the Directors’

ongoing knowledge of the business. Travel restrictions limited

the opportunity for site visits since the start of COVID-19. Johnny

Velloza visited Letšeng in February and Mike Brown visited

Letšeng three times during the year. Executive Directors, Clifford

Elphick and Michael Michael each visited Letšeng once during

the year and Clifford visited the sales and marketing office in

Antwerp once in November.

#### Annual Board evaluation

In accordance with the Code, the Board is responsible for

undertaking a formal and rigorous annual evaluation of its own

performance and that of its Committees and individual Directors.

This year, an internal evaluation was conducted in December,

facilitated by Bruce Wallace Associates. The review was initiated

by the Board and arranged by the Nominations Committee

and covered both overall and individual performance as well

as effectiveness of the Board and its Committees. The review

took the form of a questionnaire based around a number of

themes, including the Board and Company’s response to events

of the preceding months, strategy formulation, stakeholder

engagement and risk management. The findings were

consolidated into a report which, along with recommendations,

was circulated to all Directors and discussed at the March 2022

#### Female

#### Board 29%

#### SeniorManagement17%Managementpipeline41%Ethnic minority

#### Board 29%

#### SeniorManagement50%Managementpipeline76%

#### GEM DIVERSITY AND INCLUSION STATISTICS

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

104

105

Board meeting. The overall findings from the evaluation were

positive and demonstrated significant progress on some of the

key findings from the previous year’s evaluation, such as the

implementation of a formal Board Selection and Appointments

policy and the appointment of Rosalind Kainyah to satisfy

the Board’s independence requirement. During 2021 there

was significant focus on succession planning and stakeholder

engagement and the outcome of the evaluation confirmed not

only this, but further highlighted the Board’s view that more can

be done in these areas during 2022.

The Board and Committees will implement the recommendations

from the evaluation in 2022.

#### AUDIT, RISK AND INTERNAL

#### CONTROL

#### Financial reporting

The Board is conscious of its responsibility to present a fair,

balanced and understandable assessment of the Group’s position

and prospects and is satisfied that the Strategic Report on pages

2 to 46 meets this obligation. The Responsibility Statement of the

Directors in respect of the Annual Report and Accounts 2021 is

set out on page 1.

Financial reporting to the Board is continuously modified and

enhanced to cater for changing circumstances. The Group’s

comprehensive planning and financial reporting procedures

include detailed operational business plans for the year ahead and

a three-year rolling plan, as well as consideration of sustainability

matters such as climate-related risks and opportunities as

recommended by the TCFD. The Board reviews and approves

the Group’s annual business plan, which is prepared in co-

operation with all Group functions based on specified economic

and sustainability assumptions. Performance is monitored and

relevant action taken throughout the year through monthly

reporting of KPIs and updated forecasts for the year, together with

information on key risk areas.

In addition, routine management reports, including results to date

and updated forecasts for the year, are prepared and presented to

the Board. Detailed consolidated management accounts, as well

as an executive summary, are circulated prior to each scheduled

Board meeting. Between Board meetings, summary update reports

covering matters such as operational performance, sustainability,

sales results, cash flow and progress on strategic issues are

circulated to Board members and senior executives.

External auditor

A principle of the Code is that the Board should establish formal

and transparent arrangements for considering how it should

apply the financial reporting and internal control principles and

for maintaining an appropriate relationship with the Group’s

external auditor, EY. These responsibilities are delegated to and

discharged by the Audit Committee.

The lead audit partner is based in Johannesburg, South Africa.

Further information regarding the appointment of EY SA is

detailed in the Audit Committee report on pages 113 to 117.

As required under section 418 of the Companies Act, 2006,

to which the Directors have voluntarily elected to conform,

each Director confirms that to the best of their knowledge and

belief, there is no information relevant to the preparation of the

Auditor’s Report of which the Company’s auditor is unaware and

the Directors have taken all reasonable steps to make themselves

aware of any relevant audit information and establish that the

Company’s auditor is aware of that information.

A resolution to reappoint EY SA as the Company’s auditor and to

authorise the Board to determine the auditor’s remuneration will

be proposed at the 2022 AGM.

#### Internal audit

The Group Internal Audit function, as an independent assurance

provider, is an important element of the overall process by

which the Audit Committee and the Board obtain the required

assurance that risks are being effectively managed and controlled

and the Group’s control environment is adequate and effective.

The Group Internal Audit function is provided through an in-

house Internal Audit team supplemented by external industry

experts when required. Group Internal Audit function reports

directly to the Audit Committee and is responsible for co-

ordinating the Group’s risk-based audit approach and evaluating

its effectiveness. The team contributes to the improvement of the

risk management process, control environment and governance

systems. Various ad hoc assignments are also performed during

the year at the request of management.

The risk-based audit plan, approved by the Audit Committee,

covers all operating units, focusing on the principal risks. It

involves discussions with management on the risks identified

in the subsidiaries’ and Group risk registers, emerging risks,

operational changes and capital projects. Findings and agreed

actions are reported to management and the Audit Committee.

#### Review of the Annual Report andAccounts 2021

The Board, supported by the Audit Committee, is responsible for

ensuring the integrity and completeness of the Group’s Annual

Report and Accounts and Half-Year Report. The Board reviews the

reports and applies its collective mind to their preparation and

presentation to ensure they provide a fair, transparent, balanced,

understandable and appropriate representation of the Group’s

performance, strategy and material risks.

#### Internal financial controls

The Board is responsible for the Group’s overall approach to

risk management and internal control, which is embedded

in all key operations. In accordance with the Guidance on Risk

Management, Internal Control and Related Financial and Business

Reporting Guidance published by the FRC in September 2014,

the Board has defined the processes adopted for its ongoing

monitoring and assessment and relies on reviews undertaken by

the Audit Committee throughout the year. In addition, regular

management reporting and a balanced assessment of key risks

and controls is an important component of Board assurance.

#### CORPORATE GOVERNANCE STATEMENT CONTINUEDCORPORATE GOVERNANCE STATEMENT CONTINUED

The principal aim of the system of internal control is the management

of business risks that significantly threaten the fulfilment of the

Group’s business and strategic objectives, with a view to enhancing

the value of shareholders’ investments and safeguarding assets. To

support this aim, the Board adopted the TCFD recommendations

during 2021, providing a framework for the identification, disclosure

and management of climate-related risks. The internal control

systems have been designed to manage rather than eliminate the risk

of failure, to achieve business objectives, and to provide reasonable

but not absolute assurance that the Group’s business objectives will

be achieved within the risk tolerance levels identified by the Board.

The system of internal control includes the controls over compliance

with regulatory and legal requirements.

The Directors have reviewed the effectiveness of the system of

internal control. For the review, the Audit Committee considered

reports dealing with Internal Audit plans and outcomes, as well as risk

logs and management representations. The diesel theft at Letšeng

that was brought to the attention of the Audit Committee via the

whistleblowing programme evidenced a potential breakdown of

internal control. Details of how this was managed can be found in

the Audit Committee report on p

age 115. A full report of the work

carried out by the Audit Committee on behalf of the Board is set

out in the Audit Committee report on pages 113 to 117.

INVESTMENT APPRAISAL

Capital expenditure is managed through a budgetary process

and authorisation levels. For expenditure beyond specific levels,

detailed written proposals are submitted to the Board. The

approval procedure for investments includes funding options

and a detailed calculation of return based on current assumptions

that are consistent with those included in management reports.

Post-investment reviews are carried out after the project is

complete and, for material projects, steering Committees are

established to monitor the progress against the approved plan.

Details regarding the Group’s capital expenditure decisions

during 2021 are available in the CFO’s review on page 52.

Commercial, legal and financial due diligence are carried

out, using external consultants as appropriate, in respect of

acquisitions and disposals.

#### Risk management

Risks are monitored continually and formally reviewed annually.

A more comprehensive report of the Group’s principal and

emerging risks and how these are managed and/or mitigated can

be found on pages 37 to 44 of the Strategic Report.

The Group’s operations perform regular risk assessment reviews and

maintain risk registers. Objectives in the business plan are aligned

with risks and a summary of the key risks, related internal controls,

accountabilities and further mitigating actions are tabled and

approved by the Audit Committee. The Sustainability Committee

provides assurance that sustainability-related risks, including health,

safety, environmental and climate are monitored and managed

appropriately. The Audit Committee at times delegates its authority

to the Board for completeness. The Audit Committee and the Board,

where appropriate, are kept informed on progress against the plans

and any significant changes to review the risk profile. This enables

the relevant management and non-Executive Directors to holistically

review the risk, mitigate it and implement controls as necessary.

The Board reviews risks and risk management at a stand-alone

quarterly risk review meeting that allows sufficient time to

fully explore risks and test management’s scenarios and plans.

During these meetings, the Board reviews the risk register and

interrogates the most critical risks in detail, debating mitigation

plans with management.

#### REMUNERATION

#### Linking remuneration with purpose andstrategy

The remuneration policy links executive remuneration to the

underlying health and performance of the Group through

relevant social and environmental indicators of performance. The

financial and non-financial KPIs used to measure performance

align with our strategy, which in turn supports the Group’s

purpose to Unearth Unique Possibilities.

#### Remuneration Policy review

DIRECTORS’ REMUNERATION

While the Board is ultimately responsible for Directors’

remuneration, the Remuneration Committee, consisting

of independent non-Executive Directors, is responsible for

determining the remuneration and conditions of employment

of Executive Directors, as well as the Chairperson. The Directors’

remuneration policy was amended and approved by shareholders

at the 2021 AGM. The details of the Directors’ remuneration policy

and all Directors’ remuneration are detailed in the report on

remuneration on pages 118 to 143.

#### Performance outcomes in 2021

No adjustments were made to performance conditions set at the

beginning of the year to account for the impact of COVID-19 on

the operations and the formulaic GDIP outcome for the business

scorecard was 26.8% of the maximum of 85%. The Remuneration

Committee believes that the formulaic vesting outcome is a fair

reflection of the Group’s underlying performance and therefore

no discretionary adjustment was applied.

Based on the performance to 31 December 2021, 60.1% of the

long-term incentive share awards made under the 2019 ESOP will

vest in March 2022, subject to continued employment at that time.

The GDIP business scorecard is shown on page 136 and the ESOP

award calculation on page 138.

#### Strategic targets

The 2021 Gem Diamonds Incentive Plan (GDIP) rewards

performance 15% on personal factors and 85% on business

performance. This 85% business weighting aligns with the

strategic focus areas Preparing for our Future (10% weighting),

Extracting Maximum Value (55%) and Working Responsibly and

Maintaining Our Social Licence (20%). More information on the

GDIP scorecard is available on page 136.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

106

107

### NOMINATIONS COMMITTEE

Harry Kenyon-Slaney

Non-Executive Chairperson

The role of the Committee is to:

• ensure a formal, rigorous and transparent procedure for the appointment of new Directors to

the Board.

• lead the process for Board appointments and make recommendations to the Board.

• assist the Board in ensuring its composition is regularly reviewed and refreshed, considering

the length of service of the Board as a whole, so it is effective and able to operate in the best

interests of shareholders.

• ensure plans are in place for orderly succession to positions on the Board and the

Executive Committee.

• oversee the development of a diverse pipeline for succession.

• work and liaise with other Board Committees as appropriate, including the Remuneration

Committee in respect of any remuneration package to be offered to any new appointment

of the Board.

Membership as at 31 December 2021:

• H Kenyon-Slaney

• M Brown

• M Lynch-Bell

Other attendees:

• C Elphick

• Secretary (Bruce Wallace Associates)

2021 value-adding activities Link to strategic pillar

Board composition

The composition, skills and independence of the Board remained key topics for the Committee during the

year. The objective of the Committee is to ensure that the Board retains a balanced composition and that

all members have the necessary skills and experience to contribute actively to the ongoing success of the

business.

In line with the UK Corporate Governance Code, the Committee assessed the independence of all non-

Executive Directors. This involved a review of both the external appointments held by each Director and

of any potential or actual conflicts of interests recorded. The Committee noted the external appointments

held by Board members which were considered to be in accordance with the parameters of the Code and

to not affect their current duties to the Board. One non-Executive Director, Mazvi Maharasoa, is not deemed

‘independent’ in accordance with the Code. However, as with other non-Executive Directors, her extensive

experience of the mining industry, and particularly the regional context within which the Group operates, is

regarded as being hugely valuable. All non-Executive Directors provide constructive challenge and robust

scrutiny of matters that come before the Board and, after careful consideration, the Committee and the

Board were satisfied that Mazvi Maharasoa demonstrates the qualities of independence in carrying out her

duties. All Board members were recommended for re-election and election at the 2021 AGM.

The Committee oversaw the appointment of Rosalind Kainyah, following a rigorous recruitment process

through an independent search consultant, Jack Hammer Executive Search. Jack Hammer Executive Search

was engaged as it has a global reach of more than 50 countries and over several industries and has a track

record for successful placements of non-Executive Directors. Jack Hammer Executive Search had no other

connection to the Company or its Directors during the year.

In November 2021 the Committee approved a Board Selection and Appointments policy, thereby ensuring

that appointments to the Board are made in a way which will promote the success and strategic direction

of the Group.

Succession planning

The Committee maintains a proactive approach to succession planning and regularly reviews succession

planning across the organisation through a succession framework. This ensures candidates have been

identified to fill key roles in both planned and emergency situations and that appropriate development

plans are in place. The competencies and experience required in the boardroom were regularly assessed as

part of the succession planning process and the Committee will continue to review the need to secure any

particular or specific skills.

The Committee further extended its succession planning review from senior management to the next

level of management, considering emerging talent and key roles with a particular focus on maintaining

momentum on diversity. Development plans for potential successors will be progressed during the year.

Diversity

There remains a commitment to diversity in the boardroom just as the Company is committed to equal

opportunities at all levels within the organisation. The Committee continued to be supportive of this

objective during the year and focused appointments and succession planning on ensuring gender and

ethnic diversity as well as ensuring that a wide range of experience, backgrounds, perspectives and skills

were available to facilitate effective decision-making.

In line with its commitment, the diversity of the Board was enhanced through the appointment of Rosalind

Kainyah. Further to this there was an improvement in the diversity of the leadership pipeline through the

appointment of women to senior management and management positions. Further detail on the Group's

diversity and inclusion approach can be found on page 103.

#### NOMINATIONS COMMITTEE CONTINUED

Legal/Regulatory

M&A/Capital markets

Technical/Engineering

Environmental/Social

Health and safety

Financial/Audit and Risk

Core industry

International markets

Senior executive

Nomination Committee skills (%)

100%

100%

78%

78%

44%

89%

67%

67%

67%

The Nominations Committee comprises three non-Executive

Directors and one Executive Director. The Committee’s terms of

reference provides for a formal and transparent procedure for the

Committee to follow in executing its responsibilities. The terms

of reference of the Nominations Committee is reviewed annually,

and subsequently reviewed and approved by the Board to ensure

it continues to be fit for purpose and in line with best practice and

governance principles. The last review was performed in June

2021 to ensure it was compliant with the new Code.

In order to meet UK corporate governance independence

expectations and to specifically address comments from voting

institutions around Board independence, Johnny Velloza stepped

down from the Board on 1 May 2021 and assumed an important

technical consulting role in the Company. Following Johnny

Velloza stepping down, Rosalind Kainyah MBE joined the Board

on 1 May 2021.

The change in Board composition initiated a review of the

Committee membership to ensure the relevant skills and

experience of the Board are appropriately positioned. Rosalind

Kainyah was appointed to the Remuneration, Audit and

Sustainability Committees and Mike Brown stepped down from

the Remuneration Committee. The Committee continued to

assess the Board’s composition, evaluate the composition of the

various Committees and monitor developments in corporate

governance to ensure the Group remains at the forefront of good

governance practices.

The Committee initiated an internal board evaluation in October

2021 and the outcomes will be discussed at the March 2022

Board meeting. A summary of the evaluation approach and

recommendations can be found on page 103.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

108

109

2021 value-adding activities Link to strategic pillar

Board effectiveness

The Committee considered the 2020 internal Board evaluation outcomes and addressed the

recommendations along with some of the key findings, such as the implementation of a formal Board

Selection and Appointments policy and the appointment of Rosalind Kainyah to satisfy the Board’s

independence requirement. In addition, it oversaw the 2021 internal Board evaluation, which covered Board,

Committee and individual Director performance. The details are discussed on page 103.

The findings from the internal evaluation were discussed in March 2022 and reported to the Board. The

Committee will monitor progress on the implementation of the recommendations during the coming year.

An annual reassessment of the Board skills matrix serves to provide assurance that the measured skills remain

fit for purpose and supports the Group strategy. In March 2021 the Committee approved an amended skills

matrix. The new skills matrix comprises four core skills and five sector specific skills which is aligned with the

Glass Lewis descriptions of the criteria used to appraise Director skills.

Committee membership

The Committee and the Board remain committed to complying with the provisions of the Code. Following

the appointment of Rosalind Kainyah the Committee recommended changes to the Audit, Remuneration

and Sustainability Committees’ membership during the year, in order to enable the newly appointed non-

Executive Director to be included on those Committees where other members would benefit from her

knowledge and expertise, particularly as it relates to sustainability and ESG matters. All Board Committees

are compliant with the provisions of the Code.

Future focus areas

The Committee will maintain its focus on ensuring the Board’s composition is strong and diverse, providing

support and advice to enable management to steer the Group in an increasingly volatile and fast-paced

environment, while always promoting exemplary governance practices in the boardroom.

The Committee will continue to monitor alignment of talent and succession planning throughout the

organisation to the needs of the business and to the Group’s long-term strategy. Development plans for

potential successors will continue to be progressed during the coming year.

The Committee will review the ESG competence and skills of the Board and whether succession plans

explicitly address ESG competency.

The Committee will review continued legislative and regulatory action on board composition and diversity

targets set by the FCA.

The Committee will conduct an external Board evaluation and continue to hone Board skills, experience

and operational effectiveness to ensure a high level of performance in Board activities in the best interests

of all stakeholders.

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

#### NOMINATIONS COMMITTEE CONTINUED

### SUSTAINABILITY COMMITTEE

Mike Brown

Non-Executive Director

The role of the Committee is to oversee, on behalf of the Board, the Group policies pertaining to

sustainability matters and to assist the Board in fulfilling its governance and oversight responsibilities

in order to:

• promote a culture of zero harm and responsible care through effective risk management that

prioritises the workforce, creating a safe and healthy environment.

• minimise environmental impact and improve resource use efficiencies.

• promote corporate social responsibility with a lasting positive impact in PACs and host

countries.

• achieve the goal of sustainable development, meeting the needs of the present while

sustaining the ability of future generations to support their needs.

• review and monitor the Group’s approach, policies and measures on sustainability matters.

Membership as at 31 December 2021:

• M Brown

• R Kainyah

• M Maharasoa

• H Kenyon-Slaney

Other attendees

• B de Bruin

• G Turner

• HSSE and Sustainability Manager

• Secretary (Bruce Wallace Associates)

M&A/Capital markets

Financial/Audit and Risk

Technical/Engineering

International markets

Health and safety

Legal/Regulatory

Environmental/Social

Core industry

Senior executive

Sustainability Committee skills (%)

100%

75%

67%

67%

67%

83%

58%

50%

42%

Included in the responsibility of the Committee are the following

sustainability matters:

Safety – achieving a culture of zero harm in the Group

Health and wellbeing – occupational hygiene, community

health matters and the health and wellbeing of the workforce.

Environment – protection of the environment, natural resource

stewardship, mine rehabilitation and closure.

Climate change – financial impact, risks and opportunities

related to climate change, operational mitigation and adaptation

measures.

Corporate social responsibility – relationships with PACs, socio-

economic development projects, community development,

human rights and the UN SDGs.

Socio-economic issues – including such issues as contributions

to national socio-economic development, licencing, long-term

economic development, land access and corporate governance.

Supply chain – specifically local and inclusive procurement,

supplier assurance and the impact of procurement decisions on

health and the environment.

Mike Brown visited Letšeng on three occasions during the year.

Johnny Velloza visited Letšeng in February. These visits specifically

focused on:

• Safety culture and performance.

• Tailings management.

• Risk management with regards to heavy machinery and

equipment and pit safety.

• CSI projects.

• Bioremediation and water management.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

110

111

#### SUSTAINABILITY COMMITTEE CONTINUED

2021 value-adding activities Link to strategic pillar

Working towards a culture of zero harm

The Committee continued to monitor critical health and safety matters during 2021, including:

• Management of the COVID-19 impacts and vaccination roll-out;

• Tailings and water storage facilities management; and

• Organisational safety culture drive.

The Committee received quarterly reports on health and safety performance throughout the Group with

particular focus on the COVID-19 management strategy and the vaccination programme. The Committee

received feedback on the impact of COVID-19 on production activities and the measures the Group

implemented to protect its workforce, operate responsibly and build resilience through vaccination.

The Committee received regular reports on safety performance trends, including LTIs and near-misses.

In response to concerning trends, the Committee approved appropriate mitigation strategies such as

establishing a council of safety and mining experts to review safety reports and advise on appropriate

controls, commissioning a safety culture perception survey to assess the maturity of safe behaviour within

the organisation and partnering with external safety consultants to mature the safety framework and

culture at Letšeng, and to provide coaching on effective safety leadership. The Committee also received

incident investigation reports on significant safety incidents and approved several immediate and long-

term interventions to address the root causes of the incidents, such as implementing a Critical Control

Management Strategy.

The Committee received feedback on the progress made to assess conformance with the ICMM GISTM and

measures implemented to align existing practices with those outlined in the standard. There were regular

reports on the tailings and water storage facilities at Letšeng, and these reports provided assurance that

the facilities were functional and were being effectively monitored and managed in a safe and responsible

manner.

The Committee received feedback on independent audits conducted to provide assurance on safe and

responsible business practices and to identify opportunities for improvement of the health and safety

management system. These audits included:

• Legal compliance.

• ISO 45001 occupational health and safety management.

• Tailings storage and fresh water facilities.

• Health and safety systems management.

#### SUSTAINABILITY COMMITTEE CONTINUED

2021 value-adding activities Link to strategic pillar

Promoting corporate social responsibility

Corporate social responsibility matters remain a priority and following COVID-19-related delays in 2020 the

Committee focused on the below matters during 2021:

• Completion of an updated community needs analysis.

• Development of a UN SDG-aligned five-year CSI strategy.

• Emergency flood response and infrastructure restoration.

• Medical and health service assistance.

• Implementation of the planned 2021 CSI programme.

The Committee is pleased to report no major or significant stakeholder incidents were recorded during the

year. The Committee continued to monitor the impact of the global COVID-19 pandemic on its PACs and

received reports on the progress made in delivering the 2021 CSI strategy. The strategy included projects

delayed in 2020 as a result of COVID-19 restrictions, basic infrastructure provision and continued COVID-19

aid to communities, including the donation of 20 000 vaccinations and an ambulance.

The Committee received feedback following the 2021 community needs analysis, reviewed the updated

CSI strategy and approved the integration of the Group’s six priority UN SDGs into the five-year investment

strategy. The Committee oversaw the voluntary submissions of the Group’s tailings management processes in

line with the Group's adoption of the ICMM GISTM to promote fair and transparent stakeholder engagement

and relations.

Minimising environmental impact

The Committee is pleased to report that no major or significant environmental incidents were recorded

during 2021. The Committee continues to monitor the environmental impact of the Group's operations and

oversees the various strategies aimed at mitigating this impact. During 2021 the Committee focused on the

following environmental matters:

• Efficient water management and stewardship.

• Advancing the Bioremediation project.

• Enhancing the concurrent rehabilitation strategy.

• Biodiversity conservation.

• Compliance with adopted best practice standards.

The Committee received reports on waste and water management throughout the Group, and oversaw

the completion of rehabilitation efforts on the old TSF at Letšeng. The Committee received feedback on

the 2021 rehabilitation strategy review and approved the Letšeng concurrent rehabilitation plan. The

Committee oversaw the continuing successful implementation of the nitrate management plan at Letšeng,

which included projects such as leachate testing and the Bioremediation pilot plant.

The Committee also received external non-financial audit reports on the management of environmental

parameters and the resulting impact on the environment to benchmark the Group's performance and

identify improvement opportunities. These reports included:

• The Group Carbon and Water Footprints.

• ISO 14001 Environmental systems audit.

• The SEMP compliance audit report.

#### SUSTAINABILITY COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

112

113

2021 value-adding activities Link to strategic pillar

Sustainability Strategy and Reporting

The Committee received reports on the advancement of sustainability-focused projects within the Group

and approved updates to Group processes as appropriate. The Sustainability projects included:

• Adopting the recommendations of the TCFD and developing an appropriate climate change strategy.

• Integrating the Group’s six priority UN SDGs into business strategy.

• Updating the stakeholder impact materiality assessment.

• Developing the sustainability communication strategy.

• Integrating new best practice standards into the Group sustainability audit protocol.

Future focus areas

The Committee’s core focus areas for 2022 include:

• Maturing of organisational safety culture and safety focused leadership coaching.

• Commence construction of the full-scale bioremediation project.

• Improving resource use efficiency and reducing non-mineral waste.

• COVID-19 operational resilience and vaccination programme.

• Delivery of corporate sustainability KPIs.

• Implementation of the Group’s UN SDG framework.

• Implementation of the five-year CSI Strategy.

• Advancement of the Group climate change strategy and TCFD adoption.

• Continued implementation of global best practice standards.

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

#### SUSTAINABILITY COMMITTEE CONTINUED

Michael Lynch-Bell

Chairperson

Non-Executive Director

The role of the Committee is to assist the Board in fulfilling its oversight responsibilities by reviewing

and monitoring:

• The integrity of the financial and narrative statements and other financial information, including

climate-related financial disclosures, provided to shareholders.

• The Group’s system of internal controls and risk management.

• The internal and external audit process and auditors.

• The processes for compliance with laws, regulations and ethical codes of practice.

Membership as at 31 December 2021:

• M Lynch-Bell

• M Brown

• R Kainyah

Other attendees:

• H Kenyon-Slaney

• C Elphick

• M Maharasoa

• M Michael

• B de Bruin

• Group Financial Controller

• HSSE and Sustainability Manager

• External and internal audit

• Secretary (Bruce Wallace Associates)

M&A/Capital markets

Technical/Engineering

Financial/Audit and Risk

Health and safety

Legal/Regulatory

Core industry

Environmental/Social

International markets

Senior executive

Audit Committee skills (%)

100%

78%

78%

78%

67%

67%

67%

56%

56%

### AUDIT COMMITTEE

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

114

115

2021 value-adding activities Link to strategic pillar

External auditor and audit effectiveness

During the year, the Committee fully considered the effectiveness, objectivity, skills, capacity and

independence of EY SA, considering all current ethical guidelines, and was satisfied that all criteria were met.

The auditor’s fee was approved as part of this process.

In advance of the 2021 audit, the Committee reviewed and assessed the appropriateness of the external

auditor’s plan, audit strategy, scoping, materiality and audit risks. The significant areas of audit focus

identified by the external auditors to be addressed during the course of the audit which were in line with

the previous year, were primarily: revenue recognition, impairment of property, plant and equipment

and goodwill, the continued treatment of Ghaghoo as a discontinued operation and the application of

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, COVID-19-related matters, deferred

waste stripping calculation, taxation, rehabilitation provisions, bank facility renewals and share-based

payments. Additional areas of audit focus in the current year related to the diesel theft at Letšeng which

was identified through the Letšeng whistleblowing facility during the year, and the cyber breach which

occurred subsequent to year end. The key audit matter during the year was the goodwill impairment

as mentioned in the Independent Auditor’s Report on page 149. The Committee was satisfied that all

material audit risks were covered within the auditor’s scope. The Committee assessed the materiality level

applied as appropriate to identify relevant audit risks.

Following the audit, EY SA presented its findings to the Committee and met separately with the Committee

Chairperson to discuss key audit findings, judgements and estimates. This provided an opportunity to assess

the audit work performed, understand how management’s assessments had been challenged and assess

the quality of conclusions drawn. The Committee also made enquiries of senior management to obtain its

feedback on the audit process and considered this feedback in its assessment.

In line with the Code and the duty of the Committee to assess the effectiveness of the audit process, a

detailed assessment by way of a survey was again carried out during the year focusing on the 2020 audit.

This survey enabled the Committee to assess the extent to which the audit strategy was appropriate for

the Group’s activities and addressed the risks the business faced, including factors such as: independence,

materiality, the auditor’s risk assessment versus the Committee’s own risk assessment and the extent of the

Group auditor’s participation in the subsidiary component audits. The responses formed the Committee’s

assessment of the effectiveness of the audit, citing minor areas of improvement around the efficiency of

the audit process and collaboration of all audit specialist teams involved. The Committee commended the

auditor’s conclusion of the audit, considering the COVID-19 backdrop of remote working conditions and

constrained capacity of audit team members.

Auditor appointment and independence

The Committee remains satisfied with the performance of EY SA and recommended its reappointment to

the Board. The lead engagement partner has served three of his five consecutive years. Other senior primary

audit employees will serve no longer than seven consecutive years with a two-year cooling-off period.

The Committee assessed the tenure of the partners and senior employees as adequate, considering the

transition to EY SA in early 2019.

The provision of any non-audit service requires Committee pre-approval if above a certain level and

is subject to careful consideration, focused on the extent to which provision of such non-audit services

may impact the independence or perceived independence of the auditor. EY was engaged to assist with a

forensic investigation to be performed at Letšeng following allegations of theft of diesel used in the mining

operation raised through the whistleblowing facilities. The Committee noted that these services are not

permissible services in terms of the FRC requirements (the Group aims to comply with these requirements),

but considered the value as immaterial and this investigation as being the most effective way to attend to

this incident. The Committee received regular reports on any proposed non-audit work to be undertaken by

EY and monitored the fees in line with the delegation of authority framework. All such fees during the year

were below the Committee’s thresholds for approval. Through monitoring these activities, the Committee

ensured it safeguarded auditor objectivity and independence. The fees for such work amounted to US$41

283. This was against the external audit fee of US$427 511, representing 9.7% of external audit fees.

2021 value-adding activities Link to strategic pillar

Anti-bribery and corruption

The policy which was approved in 2020 remained in effect during the year, with there being no incidents of

bribery during the year. The Committee is satisfied that the policy remains robust regarding compliance and

diligence procedures and will be reviewing an updated policy in 2022.

Acting on whistleblowing

The Committee reviewed and monitored the actions and progress of all the whistleblowing reports that

arose. The whistleblowing line is an important tool to promote and encourage transparency and identify

potential areas of irregularities within the Group. During the year, 25 reports (16 relating to contractors)

were received through the whistleblowing line, of which 23 were closed before the end of the year and two

remained under investigation. The majority of the reports related to labour practices and remuneration

matters. The most significant whistleblowing report received related to allegations of theft of diesel

used in the mining operation. Management immediately commenced an internal investigation which

confirmed the allegations, suspended the suspects involved and implemented additional procedures to

mitigate any further loss. EY Forensics were engaged to do an investigation which identified collusion and

weakness in internal controls that resulted in the override of controls. The matter was referred to the local

police and the Group’s insurers. The Committee found the investigation process remained transparent

and actions taken in response to these reports to be swift and appropriate.

The Committee approved the Group’s Fraud and Whistleblowing policy which remained unchanged from

the previous year’s review.

Monitoring internal audit

The principal matters reported by the Group Internal Auditor, based on its strategic and risk-based audit

plan, were reviewed by the Committee and it continued to monitor management’s responsiveness to the

findings and recommendations from the Internal Auditor. Risk management effectiveness, health, safety and

environmental, asset management and procurement were focus areas for Group Internal Audit during the

year. The 2022 Internal Audit plan was approved by the Committee and is linked to the current risk profile

of the organisation.

There was no change to the Internal Audit Charter which was approved in June 2020.

The Committee assessed the effectiveness of Group Internal Audit during the year by conducting a survey

which included:

• a self-assessment of the Committee on its responsibility for the effectiveness of the Group Internal

Audit function in the context of the Group’s overall risk management system;

• an assessment by the Committee of the Internal Audit function focusing on Group Internal Audit’s

understanding of the Group, integrity and objectivity, independence, structure, resources, planning,

governance, reporting and relationships within the Group; and

• an assessment by the Group management structure of the Internal Audit function focusing on

Group Internal Audit’s planning, execution of work, reporting, integrity, objectivity, independence,

competence and due professional care.

The responses formed the Committee’s assessment of the effectiveness of the Group Internal Audit which

was found to be effective. The Committee also considered if additional resources were required to extend

the internal audit function but concluded that the current structure was appropriate for the size and

requirements of the Group.

#### AUDIT COMMITTEE CONTINUED AUDIT COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

116

117

2021 value-adding activities Link to strategic pillar

Risk management and internal controls

Although the Committee maintained its oversight on the principal and emerging risks during the year, in line

with the Code’s requirements for all Board members to focus on risk management, the separate quarterly

Risk Meetings continue to be held as an extension of the main Board meeting with all Board members

attending. The main risk areas that the Board concentrated on and considered were:

• climate change;

• the residual impact of COVID-19 throughout the business model;

• the tax uncertainty relating to the amended assessment by the Lesotho Revenue Authority;

• dam wall safety; and

• the challenging insurance market.

The detailed principal and emerging risks are discussed further pages 37 to 44.

As a result of the challenging insurance market, the risk appetite was reconsidered and a programme to self-

insure a portion of the risk was implemented through the 2021 insurance renewal process.

The Committee assessed the appropriateness of the cover and the ability to transfer any potential financial

implications of the risks materialising. Based on the revised insurance strategy, the Committee reviewed the

revised enterprise risk management framework.

The Committee considered the internal controls in place throughout the year as being effective. Further to

the forensic investigation on the diesel theft, the Committee considered the internal controls in place and

what additional procedures were implemented to ensure the potential for a similar breach was mitigated.

Information Technology (IT)

Following a Malware breach on the Letšeng IT systems in February 2022, the Committee considered the

security protocols and the process undertaken to restore IT systems. The Committee further considered the

impact on the operations, the timing and efficiency to restore normal IT functionality, the effectiveness of

the Business Continuity Plan and concluded that the impact of any data extracted was not significant and

did not result in any reporting obligations.

The Committee was satisfied that back-up data was successfully restored with only a few days of lost data

which has been recaptured in all material respects, and that there was no material impact on operating

activities.

Annual review

During the year the Committee updated its terms of reference to ensure these encompassed the updated

provisions from the Code. The Board evaluation undertaken included a review of the Audit Committee’s

performance within its remit.

Climate-related financial disclosures

Following the Group’s adoption of the TCFD recommendations in June, the Audit Committee regularly

received reports on risk, strategy and governance processes related to climate change and the associated

financial disclosures. The Audit Committee had oversight of climate-related risks and potential financial,

strategy and business planning impacts, through presentations to the Board during separate quarterly Risk

Meetings. During 2021, the Audit Committee received feedback on:

• progress regarding the Group TCFD Adoption strategy;

• the Board and Management Governance structures established related to climate change;

• identifying and assessing climate-related risks;

• the Group's readiness for climate-related financial disclosure reporting; and

• assurance, through the Sustainability Committee, on climate-related risk management effectiveness.

2021 value-adding activities Link to strategic pillar

Financial disclosure

The Committee continued to ensure that the Group’s Annual Report and Accounts 2021 and the Half-Year

Report 2021 were fair, balanced and understandable by challenging and debating the judgements made by

management and ensuring the information necessary for shareholders to assess the Group’s performance,

business model and strategy is provided. EY SA audited the Financial Statements included from pages 147 to

211 for the year ended 31 December 2021 and issued an unmodified audit opinion in this regard.

The significant issues reviewed by the Committee relating to the 2021 results were:

• The assumptions in the Group’s financial forecasts incorporating the successful roll over of the Group’s

debt facilities and the status of forecast future covenant compliance, mitigating actions available to the

Group, and the appropriateness of the going concern and viability assumptions and related disclosures.

The Committee assessed the disclosures in the Annual Report and Financial Statements in respect of

going concern and covenant compliance and concluded that they were appropriate. Refer to Note 1.2.2,

Going concern on page 162 for further details.

• The significant estimates and judgements applied in the valuation of the carrying value of mining assets,

intangible assets and impairment testing, considering the impact of COVID-19 on pricing, production

capabilities and exchange rate fluctuations. The Committee critically reviewed the key assumptions and

parameters (diamond price forecasts, foreign exchange rates against current rates and the discount rates

applied in assessing the valuations) in the LoM plan for Letšeng that supported the impairment tests

performed by management, together with the sensitivity analysis performed under various scenarios.

The Committee noted the diamond price recovery in the LoM plan given the recovery of the diamond

market experienced in the year. Changes to the underlying operational plan, costs and capital expenditure

assumptions did not materially change the LoM valuation. There was no impairment charge necessary

and Letšeng’s carrying value remained above its recoverable value. The Committee further reviewed the

relevant disclosure in the Financial Statements to ensure compliance with reporting standards.

• The judgements applied by management in the continued assessment of Ghaghoo as a discontinued

operation, 30 months since its initial assessment, and the application of IFRS 5 Non-current Assets

Held for Sale and Discontinued Operations to its results. The Committee assessed the delays caused

in the conclusion of the sales process and supported management assumptions on the basis that the

Company remains fully committed to the sale.

• The assumptions relating to the classification of tax uncertainties and the treatment and disclosure

thereof in relation to the amended tax assessment issued to Letšeng by the LRA in December 2019,

contradicting the application of certain tax treatments in the current Income Tax Act.

Future focus areas

Specific focus areas for 2022 are to:

• monitor the implementation of the revised enterprise risk management framework;

• continue to assess principal and emerging risks and consider the impact of climate change on any of these risks;

• continue to assess the quality and effectiveness of the external audit and the procedures and controls

to ensure auditor independence; and

• ensure continued adequate reporting against relevant sustainability standards such as the TCFD

recommendations and UN SDGs.

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

#### AUDIT COMMITTEE CONTINUED AUDIT COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

118

119

### REMUNERATION COMMITTEE

The Committee believes that the remuneration policy is

appropriate to motivate and reward senior Executives

and align their interests with the Group’s purpose and

values as well as the interests of the shareholders.

STRUCTURE

Annual statement, which includes an ‘at a glance’ of

remuneration decisions Page 119

2021 Remuneration Policy Page 122

Annual report on remuneration Page 129

Michael Lynch-Bell

Chairperson

Non-Executive Director

#### FOCUS AREAS 2021

• Adoption of the 2021 remuneration policy to ensure robust

and motivational incentives.

• Employee remuneration and related policies and the

alignment of incentives and rewards with culture and

strategy.

• The link of appropriate ESG measures to executive pay.

• Performance conditions and targets for incentive plans given

the impact of COVID-19 and the focus on stabilisation and

business recovery.

• The composition of the total reward package for the Group

and any constituent parts which could have discouraged the

promotion of individuals from minority groups.

• Implementation of a post-termination shareholding policy.

• Gender pay data to establish whether pay gaps are present.

• The most effective way to engage with employees on how

executive pay aligns with the Group’s strategy and the wider

employee group.

• Re-evaluate alignment of executive pension contributions to

that of the wider employee group.

#### FUTURE FOCUS AREAS 2022

• Understand how the Group’s compensation programmes

consider employees’ needs beyond fair and equitable

remuneration.

• Review the effectiveness of current ESG metrics linked to

executive pay and consider whether further Human Capital

Management (HCM) topics are material to the business and

should be monitored.

• Given the changing responsibilities of the Committee,

review its composition, terms of reference and operation.

• Consider whether Diversity, Equity and Inclusion (DE&I)

metrics should be linked to executive pay.

• Engagement with employees through formalised structures

on executive pay and how it supports strategy.

#### REMUNERATION COMMITTEE CONTINUED

During the year the Group commenced a preliminary conceptual

study on the potential economic viability and mining method for

underground expansion of the Satellite pipe at Letšeng (with the

potential to include the Main pipe in the future).

The Group also successfully concluded its CCSA to identify and

assess its physical climate change risks as part of the adoption of

the TCFD recommendations.

In this context, the Committee’s key decisions during the year

related to the following areas:

GEM DIAMONDS INCENTIVE PLAN (GDIP)

As in the previous incentive plan (STIBS), the GDIP was based

on a range of financial, operational and personal objectives

that support the delivery of the Group’s key strategic priorities,

with 85% linked to business performance and 15% to personal

performance.

The resulting formulaic GDIP outcome for the business scorecard

was 26.8% of maximum (which accounted for 85% of the GDIP);

the personal performance outcomes (accounting for 15% of

the GDIP) averaged 13% across the Executive Directors. The

Committee considered whether the GDIP outcome accurately

reflects the underlying performance of the business and the wider

employee and shareholder experience, and was satisfied that it

does. The Committee exercised no discretion in determining the

outcome of the GDIP.

ESOP

The 2019 ESOP rewards performance against total shareholder

return against a tailored diamond mining peer comparator

group (25% weighting), delivery of the BT programme (25%),

and profit and production (50%), all measured over a three-year

performance period.

The Company’s three-year TSR over the period was at the top

of the peer comparator group, which resulted in 100% of the

element vesting. 25% (out of a maximum of 25%) and 20.24%

(out of a maximum of 50%) of the BT and profit and production

elements will respectively vest, based on performance over the

three-year period. Overall, 60.1% of the share awards granted

to the Executive Directors under the 2019 ESOP will vest on

20 March 2022, subject to continued employment at that time.

The specific targets and outturns underlying these elements

are discussed in detail on page 139 of the Annual Report

on Remuneration. The Committee believes the formulaic

vesting outcome is a fair reflection of the Group’s underlying

performance and therefore no discretionary adjustment

was applied.

We have not included a CEO pay ratio in this report, as the

Company has only one employee based in the UK, and any

resulting ratios would not be meaningful.

#### ANNUAL STATEMENT

Dear shareholders

On behalf of the Board, I am pleased to present the Remuneration

Committee’s Directors’ Remuneration Report for 2021. The

report is presented in three sections: this Annual statement, the

Directors’ Remuneration Policy (page 122) and the Annual Report

on Remuneration (page 129).

#### Linking Executive Directors’ remuneration with our purpose and strategy

Executive remuneration is focused on the underlying health and

performance of the Group and considers key drivers, including

relevant ESG factors. Performance metrics consist of both

financial and non-financial KPIs linked to our strategy, which in

turn support the Group’s purpose to unearth unique possibilities.

These unique possibilities are relevant for our employees, the

communities in which we operate and shareholders alike. Each

strategic pillar is linked to an element of remuneration as set out

on pages 122 to 128 of the Directors’ Remuneration Policy.

#### Remuneration decisions taken during

2021

2021 marked the end of the four-year BT programme launched

in 2017. We delivered in excess of the targeted US$100

million in revenue, productivity and cost savings by achieving

US$110.0 million. During 2021, the Group faced numerous

waves of the COVID-19 pandemic. Rapid roll-out of testing,

establishment of the analysis laboratory on site in 2020, the

stringent continuation of protocols and use of these facilities

enabled uninterrupted operations. In conjunction with the British

Government, the Group donated 20 000 vaccines to the Lesotho

Government. This project fast-tracked the successful roll-out of

vaccinations covering 99% of the workforce at the mine to date.

Across the Group there were no salary cuts during 2021 as a

result of the impact of COVID-19, no employees were furloughed,

and no government assistance was taken up.

Despite the challenges of 2021, the Group ended the year with

a cash balance of US$31.1 million and drawn-down facilities of

US$10.2 million, resulting in a net cash position of US$20.9 million.

Underlying EBITDA from continuing operations increased 8% to

US$57.4 million from US$53.2 million in 2020. A cash dividend

of 2.5 US cents was paid during the year. In light of the positive

financial results in 2021, the Board is again proposing a dividend

of 2.7 US cents per share, as part of sustaining its capital returns

policy.

With the results and cash flows generated by the Group, the

Group’s share performance has been positive. The Group achieved

a c.18.7% absolute total shareholder return for 2021 and was at

the top of its peer group over the three-year period ended 2021.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

120

121

#### REMUNERATION COMMITTEE CONTINUED

#### Implementation of the remuneration policy in 2022

The Executive Directors’ salaries were reviewed in February 2022,

considering relevant benchmarks and in-country inflation. The

review is in line with the general practice of considering the wider

employee group when applying inflation as a base for salary

increases across the Group. Based on all considerations, including

current market conditions, the Remuneration Committee

determined that base salaries would be increased by 4%.

For 2022, the GDIP will remain unchanged with a maximum annual

award opportunity of 180% of salary. Group performance will

continue to be measured with reference to a business scorecard

linked to the Group’s three strategic focus areas: Extracting

Maximum Value from Our Operations; Working Responsibly and

Maintaining Our Social Licence; and Preparing for Our Future.

Group performance will be weighted 85% of maximum, with the

remaining 15% linked to personal performance.

The incentive will be paid 55% in cash and 45% will be awarded

through the issue of nil-cost options vesting in one-third annual

tranches after one, two and three years, subject to continued

employment and good/bad leaver provisions over this period.

Vested awards will also be subject to a two-year post-vesting

holding period, during which time Executive Directors may not

sell shares except to cover taxes associated with the exercising

of share options. Malus and clawback provisions will apply

during the performance period and for a period of two years

following payment.

The Committee has reconsidered the timing over which the

Executive Director pensions will align with that of the wider

employee group, taking into account market practice and

guidance from investors, and concluded that the alignment

should be brought forward to 1 January 2023. As a result, the

Executive Director pensions will reduce with 1.1% and 0.9%

of salary for the CEO and CFO respectively on 1 April 2022 (as

originally planned), with a further reduction of 4.7% for the CEO

and 3.7% for the CFO taking effect on 1 January 2023, to be fully

aligned with workforce pensions at that time.

At the February 2022 meeting, the Committee also considered

the level of share ownership required under the shareholding

guidelines and concluded that this should be raised from 100%

to 200% of salary for the Executive Directors.

Refer to pages 140 to 141 for further details on the implementation

of the 2022 remuneration policy.

#### Engagement

I look forward to receiving your support at our 2022 AGM.

The Board considers it important that shareholders have

the opportunity to raise questions with the Board. As

such, shareholders are invited to send any questions that

they may have on this report or in relation to any of the

Committee activities. Please feel free to contact me through

Minelle Zech, the Group Human Resources Manager on

mzech@gemdiamonds.com.

Michael Lynch-Bell

Chairperson of the Remuneration Committee

16 March 2022

REMUNERATION COMMITTEE CONTINUED

REMUNERATION AT A GLANCE

Fostering a culture of transparent and fair remuneration which supports our

purpose and strategy and is aligned with wider employee considerations

COMPONENT

BASIC SALARY

• Market-competitive base salary to

recruit and retain individuals.

• No prescribed minimum or maximum

annual increase.

BENEFITS

• Cash allowance in lieu of non-cash

benefits.

PENSION

• Retirement benefits that are

appropriately competitive.

• Alignment with wider employee

group by January 2023.

GDIP

• Participants can receive a maximum of up to 180% of their base salary.

• For threshold- and target-level performance, the incentive earned is up to 20% and 50% of maximum opportunity, respectively.

• Group scorecard targets may include one or more of the three key strategic priority areas.

• Award to be delivered 55% in cash and 45% in nil-cost share options vesting in one-third annual tranches after one, two and three

years, and subject to a two-year post-vest holding period.

100% REMUNERATION COMMITTEE ATTENDANCE

#### NO MALUS OR CLAWBACK

PROVISIONS TRIGGERED IN 2021

WIDER CONSIDERATIONS FOR EMPLOYEES IN 2021

+5.2% Approved inflationary increase to comparative

employees’ basic salaries effective from 1 January 2021

(excluding Directors)

13.2%

7.5% Executive Director pension alignment

by January 2023 (accelerated compared to that previously

adopted in the 2021 remuneration policy)

Similar performance scorecards for management incentive

schemes across the Group

BASIS OF PREPARATION

This report has been prepared in accordance with the principles of the UK Companies Act 2006, Schedule 8 of The Large and Medium-

sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and the UK Market Abuse Regulations. The external

auditor of Gem Diamonds has audited information within this remuneration report which has been marked as such.

BASIC SALARY AND SHAREHOLDING

SHAREHOLDING

100% of salary (to be raised to 200% in 2022)

CEO

Total shareholding

784% of salary

CFO

Total shareholding

52% of salary

PENSION AND BENEFITS:

• Pension contributions for the CEO and CFO reduced respectively by 1.2% and

0.9% of salary.

• No change was made to allowances for non-cash benefits.

TOTAL NON-EXECUTIVE DIRECTOR FEE

365 500 < £750 000

MAXIMUM AGGREGATE PER THE ARTICLES

GDIP

PROFILE OF SCORECARD

%

Individual 15%

Group 85%

Extracting Maximum Value

from Our Operations

55%

Working Responsibly and Maintaining

Our Social Licence

20%

Preparing for Our Future 10%

TOTAL

100%

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

122

123

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

#### REMUNERATION POLICY 2022

The Remuneration Policy was approved by the shareholders at

the AGM on 2 June 2021 and became effective from this date. The

Committee considered the relevance of the policy at its February

2022 meeting and concluded that two areas of implementation

would be toughened to reflect market practice and guidance

from investors. Pensions for the Executive Directors will now be

reduced to align with that of the wider employee group by 1

January 2023 (rather than by 2026 as under the approved Policy)

and the shareholding requirement will be increased from 100%

to 200% of salary.

The Remuneration Policy is designed to provide a level of

remuneration which attracts, retains and motivates executives of

a suitably high calibre to manage the business, implement the

Group’s strategy and maximise long-term shareholder wealth.

It is intended that, as far as possible, remuneration policies and

practices will conform to best practice in the markets in which

#### Policy table for Executive Directors

SALARY

Purpose and link to

strategy

To offer a market-competitive base salary to recruit and retain individuals of the high calibre necessary

to execute the Company’s business strategy.

Operation Base salaries are reviewed annually with changes effective from 1 April.

Salaries are typically set after considering the salary levels in companies of a similar size, complexity

and risk profile, the responsibilities of each individual role, progression within the role, and individual

performance.

In setting salaries for Executive Directors, the Committee takes note of the overall approach to salary

reviews for the wider employee group.

Opportunity There is no prescribed minimum or maximum annual increase.

It is expected that salary increases for Executive Directors will ordinarily be (in percentage of salary

terms) in line with those of the wider employee group in countries of a similar inflationary environment.

In certain circumstances (for example, where there is a change in responsibility, role size or complexity,

or progression in the role), the Committee has discretion to award higher increases to ensure salary

levels remain competitive.

Performance measures N/A

BENEFITS

Purpose and link to

strategy

To provide competitive benefits considering the market value of the role and benefits offered to the

wider UK management population, in line with the Company’s strategy to keep remuneration simple

and consistent.

Operation Executive Directors receive a cash allowance in lieu of non-cash benefits.

Opportunity The benefit value may vary by role to reflect market practice. It is not anticipated that the current

cost of benefits (as set out in the Annual Report on Remuneration) will increase materially over the

term of this policy, though the Committee retains discretion to approve a higher cost in exceptional

circumstances.

Performance measures N/A

PENSION

Purpose and link to

strategy

To provide retirement benefits that are appropriately competitive.

Operation Executive Directors receive a cash allowance in lieu of pension.

Opportunity The CEO and the CFO respectively receive pension benefits from 1 April 2022 equal to 12.2%, and

11.2% of their salary. Pension benefits will be reduced to 7.5% of salary effective 1 January 2023 to be

fully aligned with that of the wider employee group.

Any new Executive Director will receive pension benefits aligned to that of the wider employee group

(currently 7.5%) at the time of appointment.

Performance measures N/A

the Group operates, will be aligned with shareholder interests

and will promote effective management of business risk.

The Committee’s policy is to weight remuneration towards

variable pay in order to provide base salaries and benefits that

are fair, and variable pay incentives linked to the achievement of

realistic performance targets relative to the Group’s strategy and

corporate objectives.

The Committee is satisfied that the proposed policy is clear,

simple, and appropriately aligned with the Group’s strategy, risk

appetite and culture, and that the incentives are appropriately

capped.

#### How good governance informs policy design

The table below sets out the application of the Principles of

the Code relating to the design of remuneration policies and

practices:

Clarity

Targets for annual cash incentives and share awards are aligned to the Group’s strategic priorities.

This provides clarity to shareholders and other stakeholders on the relationship between the

successful delivery of the Group’s strategy and remuneration paid.

Simplicity

The remuneration policy is designed to be simple and clear while complying with all relevant

regulatory requirements and meeting shareholder expectations. It simplifies remuneration

elements further by combining the cash and deferred shares components into a single GDIP.

Risk

The Committee is aware of the risks that can result from excessive rewards and believes that the

robust target-setting and long history of applying discretion to formulaic outcomes reflects this.

Malus and clawback provisions in the remuneration policy further mitigate this risk.

Proportionality

The Committee’s overriding discretion ensures that remuneration outcomes are aligned with

Group performance.

Predictability

The GDIP ensures a simpler but more predictable range of performance outcomes that align with

the business model, ensuring predictable pay outcomes that do not reward poor performance.

Culture

As reflected in the Chairperson’s statement on page 119, the Committee considers overall pay

and conditions for employees across the Group when determining Executive Director outcomes.

Personal and Group performance measures include non-financial metrics linked to the Group’s

purpose and culture.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

124

125

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

GDIP

Purpose and link to

strategy

To drive and reward performance against financial and non-financial KPIs, as well as personal objectives,

all of which are directly linked to business strategy.

Operation The GDIP is reviewed annually by the Committee at the start of the year to ensure the opportunity and

performance measures are appropriate and continue to support business strategy.

The Committee has discretion to adjust the formulaic outcome of the bonus to more accurately reflect

the underlying business and personal performance during the year.

Performance is measured over one year, and earned awards are delivered 55% in cash and 45% in

nil-cost share options vesting in one-third annual tranches after one, two and three years, subject

to continued employment and good/bad leaver provisions over this period. Vested awards are also

subject to a two-year post-vesting holding period.

Malus and clawback provisions may be applied for a period of two years following payment in

exceptional circumstances, including, but not limited to, misstatement, misconduct or error.

Opportunity Participants can receive a maximum of up to 180% of their base salary.

For threshold-level and target-level performance, the award earned is up to 20% and 50% of maximum

opportunity, respectively.

Performance measures Performance is determined by the Committee annually by reference to a scorecard of Group targets

as detailed in the Group’s business plan and encapsulated in specific KPIs, as well as a discretionary

assessment of personal performance.

Group scorecard targets may include one or more of the three key strategic priority areas of Extracting

Maximum Value from Our Operations, Working Responsibly and Maintaining Our Social Licence, and

Preparing for Our Future. The Group scorecard will typically account for 85% of performance bonus in

any one year.

Details of the measures and weightings for the current year are provided in the Annual Report on

Remuneration.

#### Shareholding guidelines

The in-post guideline was increased in February 2022 to requiring

Executive Directors to hold 200% of their salary in beneficially

owned shares (previously 100% of salary under the 2021 approved

policy). Until the guideline has been met, Executive Directors will

be required to retain 50% of vested awards under the GDIP or any

other share-based incentive.

The post-termination shareholding for Executive Directors

requires that the in-post shareholding requirement is maintained

for a period of a year following cessation of employment, to be

achieved through the continued holding of vested share awards

granted after the introduction of the 2021 Remuneration Policy.

A formal policy has been implemented to ensure in- and

post-termination shareholding requirements are managed

appropriately.

#### Pay for performance: scenario analysis for 2022

The table and subsequent graph below illustrates an estimate

of the potential future remuneration for the Executive Directors

and the potential split between the different elements of pay

under four performance scenarios: fixed, at target, maximum, and

maximum +50% share price appreciation. Potential remuneration

is calculated on the incentive opportunities set out in the 2021

remuneration policy applied to the salaries effective 1 April 2022.

The maximum GDIP is 180% of the salary.

The fixed scenario includes base salary, pension and benefits only.

The at-target scenario includes fixed remuneration as above, plus

target pay-out of the GDIP.

The maximum scenario includes fixed remuneration, plus full

pay-out and vesting of all incentives.

The maximum +50% scenario is the same as the maximum

scenario as the deferred share element of the GDIP is not subject

to performance conditions over the deferral period.

The assumptions are summarised in the table below:

#### Notes to policy table

PAYMENTS FROM EXISTING ARRANGEMENTS

Executive Directors will be eligible to receive remuneration or

other payments in respect of any award granted or payment

agreed prior to the approval and implementation of the 2021

remuneration policy, or prior to the individual becoming a

Director, if in the opinion of the Committee the payment was not

in consideration for the individual becoming a Director. Details of

any such awards or payments are disclosed in the Annual Report

on Remuneration.

SELECTION OF PERFORMANCE MEASURES (GDIP)

Performance measures used in the Group’s executive incentive

scheme – the GDIP – are selected to ensure incentives reinforce

the Company strategy and align executive interests closely with

those of shareholders. It is the Committee’s opinion that the

financial and non-financial measures used in the GDIP support

the strategic priorities of Extracting Maximum Value from Our

Operations, Working Responsibly and Maintaining Our Social

Licence, and Preparing for Our Future, and are well accepted

measures for the mining sector.

Performance targets are set to be stretching but achievable,

considering a range of reference points including the Group’s

business plan, its strategic priorities and the economic

environment in which the Group operates. The Committee

believes it has a robust approach to target setting and the

maximum outcomes are achievable only for exceptional

performance.

REMUNERATION POLICY FOR OTHER EMPLOYEES

Salary reviews are implemented with a consistent approach

across the Group and consider the level of responsibility,

experience, individual performance, market levels and the

Group’s ability to pay.

Senior management (below Board level) remuneration is

reviewed by the Remuneration Committee. Senior management

and management level employees participate in an annual

bonus scheme on a similar basis as the Executive Directors,

although the weighting on Group performance measures

increases with seniority and share awards vary appropriately

according to organisational level.

Other employees participate in an annual bonus linked to

operational metrics.

Component Fixed At target Maximum

Maximum +50% share

price appreciation

Salary Base salary for 2022

Benefits 5.5% and 6.0% of salary for the CEO and the CFO respectively

Pension 12.2% and 11.2% of salary for the CEO and the CFO respectively, in 2022

GDIP (cash) 0% of maximum 50% of maximum 100% of maximum 100% of maximum

GDIP (deferred shares) 0% of maximum 50% of maximum 100% of maximum 100% of maximum

CFO (%)

Maximum +50MaximumOn-targetMinimum Maximum +50MaximumOn-targetMinimum

CEO (%)

40 40

33

33

27 27

57

24

19

100

396 700 1 003 1 003 602 1 063 1 523 1 523

40

40

33 33

2727

57

24

19

100

Total (£’000) Total (£’000)

FIXED REMUNERATION GDIP (CASH) GDIP (DEFERRED SHARES)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

126

127

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

#### Approach to remuneration on

#### executive recruitment

The Committee will follow the Remuneration Policy as set out

in the policy table when recruiting new Executive Directors.

Any arrangement specifically established to recruit an external

Executive Director would be capped at the limits described in

the policy table on appointment. Where an individual forfeits

outstanding incentive payments and/or contractual rights at a

previous employer because of their appointment, the Committee

may offer additional compensatory payments or awards (buy-

out) in such form as it considers appropriate. Any such buy-

out compensation would be on a comparable basis to the

forfeited benefit, considering factors including the performance

conditions attached to these awards, the likelihood of conditions

being met, and the remaining vesting period of these awards. The

Committee would normally use the remuneration components

under the regular policy to make such buy-out awards, but may

also exercise its discretion under Listings Rule 9.4.2 if an alternative

incentive structure were required. Where an Executive Director is

required to relocate from their home location to take up their role,

the Committee may provide reasonable, time-limited assistance

with relocation in line with local market norms.

In the case of internal promotions, any commitments made

prior to promotion and the approval of the remuneration policy

(except for pension entitlements) will be honoured. Where the

new appointee has an initial salary set below market, any shortfall

will be managed with phased increases over a period of several

years, subject to the individual’s performance and development

in the role.

The table below provides details of exit payments under different leaver scenarios.

Incentive  Scenario Time of payment/vesting

Calculation of payment/

vesting

GDIP awards, prior to

end of performance

period

Death, disability, ill health, redundancy,

retirement, or any other reasons the

Committee may determine (normally

not including resignation or where

there are concerns as to performance)

Normal payment date,

although the Committee has

discretion to accelerate (for

example, in relation to death)

Performance against targets

will normally be assessed by

the Committee at the end

of the year and any resulting

award is normally pro-rated

for the proportion of the year

worked

Change of control (whether or not

employment is terminated as a result)

Immediately, on change of

control

Performance against targets

will normally be assessed by

the Committee up to the date

of change of control and any

resulting award is normally pro-

rated for time

All other reasons Not applicable No award is paid

GDIP (unvested

nil-cost options)

Death, disability, ill health, redundancy,

retirement, or any other reasons the

Committee may determine (normally

not including resignation or where

there are concerns as to performance)

Normal vesting date, although

the Committee has discretion

to accelerate

Unvested awards will normally

be pro-rated for time unless the

Committee decides otherwise

Change of control (whether or not

employment is terminated as a result)

Immediately, on change of

control

Unvested awards will normally

be pro-rated for time unless the

Committee decides otherwise

All other reasons Not applicable Awards lapse

GDIP (nil-cost

options/shares in

holding period)

Death, disability, ill health, redundancy,

retirement, or any other reasons the

Committee may determine (normally

not including resignation or where

there are concerns as to performance)

Normal vesting date, although

the Committee has discretion

to accelerate

Not applicable

Change of control (whether or not

employment is terminated as a result)

Immediately, on change of

control

Not applicable

All other reasons Normal release date, although

the Committee has discretion

to accelerate

Not applicable

#### Service contracts

The Company’s policy is to limit termination payments to pre-established contractual arrangements. If the employment of an Executive

Director is terminated, any compensation payable will be determined in accordance with the terms of the service contract between the

Company and the employee, as well as the rules of any incentive plans. Details of the Executive Directors’ service contracts are summarised

in the table below.

Director Contract date Unexpired Notice period Contractual termination payment

CT Elphick 13 February 2007

Rolling contract 12 months

Pay basic salary on summary termination. Benefits are

payable only at the Committee’s discretion.

M Michael 22 April 2013

#### Payments for loss of office under all service contracts

On termination of an Executive Director’s contract, payments equal to salary in lieu of notice may be made monthly during the notice

period. Benefits are payable only at the Committee’s discretion. Payment in lieu of unused annual leave entitlement can be made at the

effective salary rate at the point of termination.

Where employment is terminated by the Company and the departing Executive Director has a legal entitlement (under statute or otherwise)

to additional amounts, these would need to be met. Should the Company wish to enter into a settlement agreement and the individual

seeks independent legal advice, the Committee retains discretion to settle any claims by or on behalf of the Executive Director in return for

making an appropriate payment and contributing to the legal fees incurred by the Executive Director in connection with the termination

of employment.

In exceptional circumstances, the Committee may approve new contractual arrangements with departing Executive Directors including

(but not limited to) settlement, confidentiality, outplacement services, restrictive covenants and/or consultancy arrangements. These will

be used only in circumstances where the Committee believes it is in the best interests of the Company and its shareholders to do so.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

128

129

#### Non-Executive Directors

Non-Executive Directors do not receive benefits from the Company and they are not eligible to participate in any cash or share-based

incentive scheme.

Directors’ fees

Purpose and link to strategy To attract and retain a high-calibre Chairperson and non-Executive Directors with

experience relevant to the Company.

Operation Fees are reviewed annually, with any changes effective from 1 April.

Fees are typically set after considering current market levels, time commitment and

responsibilities involved.

All non-Executive Directors, including the Chairperson, are each paid an all-inclusive fee.

No additional fees are paid for chairing Committees.

All fees are payable monthly in cash in arrears.

The non-Executive Directors do not participate in any of the Group’s incentive plans. No

other benefits or remuneration are provided to non-Executive Directors.

Opportunity There is no prescribed maximum annual increase.

It is expected that fee increases will typically be in line with market levels of fee inflation.

In certain circumstances (for example, where there is a change in time commitment

required or a material misalignment with market), the Committee has the discretion to

adjust fee levels to ensure they remain competitive.

The maximum aggregate annual fee for all non-Executive Directors, including the

Chairperson, allowed by the Company’s Articles of Association, is £750 000.

Director Contract date Unexpired term Notice period

Contractual

termination payment

H Kenyon-Slaney 6 June 2017

Rolling appointment Three months

No provision for payment

of compensation

M Brown 1 January 2018

M Lynch-Bell 15 December 2015

M Maharasoa 1 July 2019

R Kainyah 1 May 2021

#### Considerations of shareholder views

The Committee considers shareholder views and the guidelines

of investor bodies when determining remuneration. The

Committee values feedback from shareholders on the Company’s

remuneration policy and commits to consulting shareholders in

advance of any significant changes to the policy. Details on the

votes received on the 2020 Annual Report on Remuneration and

2021 Remuneration Policy (at the 2021 AGM) are provided in the

Annual Report on Remuneration.

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

#### External directorships

Executive Directors are permitted to accept external directorships

with prior approval of the Chairperson. Approval will only be

given where the appointment does not present a conflict of

interest with the Group’s activities and the experience gained will

be beneficial to the development of the individual. Where fees

are payable in respect of such appointments, these would be

retained by the Executive Director. Refer to page 133 for further

details.

#### ANNUAL REPORT ON REMUNERATION

This report provides information regarding the implementation of the Company’s approved 2021 Remuneration Policy during the financial

year ended 31 December 2021, and how the 2021 Remuneration Policy will be implemented in 2022. This Annual Report on Remuneration

will be subject to an advisory vote at our 2022 AGM on 8 June 2022.

#### Role, composition and experience of the Committee

The Committee’s terms of reference are available on the Company’s website and comply with the UK Corporate Governance Code.

Michael Lynch-Bell

Chairperson

Non-Executive Director

The role of the Committee is to assist the Board to fulfil its responsibility to shareholders to ensure

that:

• Remuneration policy and practices of the Group are designed to support strategy and promote

long-term sustainable success, and reward fairly and responsibly, with a clear link to corporate

and individual performance, having regard to statutory and regulatory requirements; and

• Executive remuneration is aligned to Group purpose and values and linked to the delivery of

the Group’s long-term strategy.

Membership as at 31 December 2021:

• M Lynch-Bell

• H Kenyon-Slaney\*

• R Kainyah (member from 2 June 2021)

• M Brown (member until 1 June 2021)

Other attendees:

• C Elphick\*

• M Michael\*

• Group Human Resources Manager

• Ellason (Independent remuneration consultants)

• Secretary (Bruce Wallace Associates)

\*  Except when issues relating to their own remuneration are discussed.

Technical/Engineering

Health and safety

Legal/Regulatory

Financial/Audit and Risk

M&A/Capital markets

Environmental/Social

Core industry

International markets

Senior executive

Remuneration Committee skills (%)

100%

78%

78%

78%

67%

67%

67%

56%

44%

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

130

131

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

2021 activities Link to strategic pillar

Reviewed the remuneration policy to ensure it is appropriate to motivate and reward senior executives and

align their interests with the Company’s purpose and values, as well as the interest of shareholders

Considered the effectiveness of short- and long-term incentive structures and the alignment with

shareholder expectations

Reviewed the implementation of in- and post-termination shareholding policies

Reviewed the range of non-financial performance metrics in variable remuneration

Ensured incentives include an appropriate balance of financial and non-financial elements for the long-term

sustainability of the organisation

Applied its collective mind to the determination of discretionary elements in the GDIP scorecard and the

appropriateness of the formulaic output from the incentive calculations, to ensure these accurately reflect

performance during the year

Reviewed and approved the terms of reference of the Committee

Reviewed and approved the Directors’ Remuneration Report for 2020

Reviewed and approved base salaries and total remuneration for the Executive Directors and fees for non-

Executive Directors and reviewed senior management remuneration in line with consideration of recent

developments in remuneration market trends and best practice

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

CONSIDERATION OF INDEPENDENCE

Ellason LLP was appointed by the Committee in January 2021 and provided independent remuneration advice to the Committee

and attended Committee meetings during 2021. Ellason LLP provides remuneration advice to a large portfolio of clients, including

many in the FTSE350 and FTSE Small Cap, reassuring the Committee that the advice provided is appropriate and relevant.

Ellason LLP is a signatory to, and abides by, the Remuneration Consultants Group Code of Conduct. Further details can be found at

www.remunerationconsultantsgroup.com.

Ellason LLP does not provide non-remuneration services to the Group and is in no other way connected to the Group, and is therefore

considered to be independent. The fees payable in relation to work for the Committee in 2021 were US$29 278, excluding VAT.

#### Summary of shareholder voting

The table below shows the results of the advisory vote on the 2020 Annual Report on Remuneration at the 2021 AGM, and the binding vote

on the 2021 Remuneration Policy at the 2021 AGM.

For Against Total votes cast Withheld

2020 Annual Report on

Remuneration

Total number of votes   100 217 068   11 542 203   111 759 271   85 471

Percentage of votes cast 89.7% 10.3% – –

2021 Remuneration

Policy

Total number of votes   101 332 434   10 512 308   111 844 742  –

Percentage of votes cast 90.6% 9.4% – –

#### Wider employee considerations

The Committee considers Executive Director remuneration

in the context of pay policies and practices across the wider

employee group. We value and appreciate the contribution

made by our employees and aim to provide them with market-

competitive remuneration and benefit packages. Our approach

to remuneration for our wider employee group is similar to that

of Executive Directors and includes both fixed and performance-

based components.

Base salaries are reviewed annually, and any increases become

effective from either 1 January or 1 March, dependent on

operation-specific remuneration policies. The Committee reviews

salary increases for the wider employee group and significant

changes in practice or policy.

All employees participate in an annual discretionary bonus

scheme that rewards both an employee’s contribution to the

performance of the Group and their individual performance.

The majority of our employees receive an employer pension

contribution equal to 7.5% of salary per annum and may opt to

join a medical aid scheme to which the Company contributes

50% up to a capped amount.

We have an open, collaborative and inclusive management

structure and engage regularly with our employees on a range of

issues. The designated non-Executive Director, Mazvi Maharasoa,

conducts formal engagement sessions with employees across

the Group. The structure of the engagement sessions was

reviewed during 2021 to determine whether the quality of the

sessions could be improved. Following the review, a formal

engagement plan was approved for 2022 which would see the

Remuneration Committee Chairperson annually attend one

engagement session per operational site. This would afford

the opportunity for engagement with the workforce as to how

executive remuneration supports strategy and aligns with that of

the employees. Company culture is monitored and assessed by

the Board on a quarterly basis against pre-determined metrics.

#### Gender pay considerations

We have not included a UK gender pay gap report, as the Company

has only one employee based in the UK, and any resulting ratios

would not be meaningful. The Committee reviewed gender pay

across the various employee levels in the Group and is satisfied

that no material differences exist between genders.

#### Relative importance of spend on pay

The table below shows the percentage change in total employee

pay expenditure and shareholder distributions (ie dividends,

share buy-backs and return of capital) from the financial

year ended 31 December 2020 to the financial year ended

31 December 2021.

2021 US$ 2020 US$ % increase

Distribution to

shareholders

1

3 794 431 3 509 082 0.1

Employee

remuneration

2

19 347 781 19 735 981 (2)

Return of capital

3

–  – –

1

The proposed distribution to shareholders on the 2022 dividend payment date is currently unknown, therefore the distribution is valued using the shares in issue as at 31 January 2022.

The 2020 figures have been adjusted to reflect the actual distribution on the dividend payment date of 15 June 2021.

2

Includes salary, pension and benefits, bonus, accounting charge for the ESOP, and employer national insurance contribution.

3

Any other significant distributions and payments or other uses of profit or cash-flow deemed to assist in understanding the relative importance of spend on pay.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

132

133

#### Pay for performance

The graph shows the Company’s TSR performance compared to the performance of the TSR Peer Group and the FTSE 350 Mining Index over

the 10-year period to 31 December 2021. The TSR Peer Group has been selected to provide a diamond miner comparator group and the

FTSE 350 Mining Index has been selected as the Group and the constituents of the index are affected by similar commercial and economic

factors. The table below the graph details the CEO’s single figure of remuneration and actual variable pay outcomes over the same period.

Value of £100 invested on 1 January (Gem Diamonds vs. FTSE350 Mining Index and 2021 TSR Peers (£))

0

50

100

150

200

20212020201920182017201620152014201320122011

MEDIAN 2021 TSR PEERSFTSE 350 MINING INDEXGEM DIAMONDS LTD

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

CEO single figure of

remuneration (£) 797 755 564 419 776 406 892 935 879 719 611 314 681 191 995 161 891 643 989 921 1 006 724

Annual bonus outcome

(% of maximum) 75 13 61 83 74 – 20 83 63 66 39

ESOP vesting outcome

(% of maximum) –––––28.3 14.5 21.4 25.9 65.9 60.1

#### The percentage change in Director remuneration compared to other employee pay

The table on the next page shows a comparison of the annual change of each individual Director’s pay to the annual change in average

employee pay for the year ended 31 December 2021. Average employee pay is calculated using a mean average. The parent company

consists of only one employee who is not a Director, and the Company therefore chose to voluntarily disclose the change in Directors’

remuneration compared to a wider employee comparator group, as this will provide a more representative comparison. Where there is a

year-on-year increase in base salary or fees paid to the Directors, this is due to reinstatement of salaries and fees following COVID-19-related

sacrifices in 2020.

2021 2020

Base

salaries

1

(% change)

Benefits

(% change)

2

Annual

bonuses

(% change)

3

Base salaries

(% change)

Benefits

(% change)

Annual

bonuses

(% change)

Executive Directors

C Elphick 4.1 (0.9) (27.1) (1.3) – 3.7

M Michael 4.1 (0.7) (27.1) (1.3) – 4.7

Non-Executive Directors

H Kenyon-Slaney 4.1 – – (14.5) – –

M Lynch-Bell 4.1 – – (16.0) – –

M Brown 4.1 – – (16.0) – –

J Velloza

4

4.1 – – (12.0) – –

M Maharasoa 4.1 – – 96.0 – –

R Kainyah

5

––––––

Average pay of comparator group

employees

6

5.9 – (19.9) (2.0) 0.7 4.9

1

The annual percentage change in salary is calculated by reference to actual salary paid for the financial year ended 31 December 2021, compared to the financial year ended

31 December 2020. The increase in salaries and fees reflect the reinstatement to contractual levels following the COVID-19-related sacrifice in 2020.

2

The annual percentage change in benefits is calculated by reference to the benefits as a % of salary in respect of the financial year ended 31 December 2021, compared to the financial

year ended 31 December 2020.

3

The annual percentage change in bonus is calculated by reference to the % of annual salary achieved for the financial year ended 31 December 2021, compared to the financial year

ended 31 December 2020. For 2021, the cash portion of the GDIP is included and the deferred portion is excluded.

4

Stepped down from the Board on 1 May 2021. Fees were calculated on a full-time equivalent basis.

5

Appointed to the Board on 1 May 2021.

6

Average employee pay is calculated by reference to the mean average pay of employee comparator group.

#### Executive Directors’ external appointments

Apart from interests in private entities, only Clifford Elphick holds any significant executive directorship or appointments outside the Group.

He is appointed as the non-Executive Chairperson of Zanaga Iron Ore Co Limited, which listed on the AIM Market of the London Stock

Exchange in November 2010. Total fees paid to Clifford Elphick by Zanaga are £83 000. Any fees paid to Clifford Elphick in fulfilling these

external roles are retained by him.

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

134

135

#### Salary increases

The Committee did not approve any salary increases for the Executive Directors in 2021:

Executive Director

2021 salary

£

2020

1

salary

£

%

increase

C Elphick 491 902 491 902 –

M Michael 324 635 324 635 –

1

This figure does not reflect the COVID-19 salary sacrifice of 4.1% during 2020

#### Pension and other benefits

No formal pension provision is made by the Company. Instead, Executive Directors receive a cash allowance in lieu of pension. In 2021,

the pension allowance for the CEO and CFO was reduced to 13.3% and 12.1% of salary respectively, in line with the commitment to align

pensions with the wider employee group over time. Executive Directors received a cash allowance in lieu of other non-cash benefits, the

values of which were 5.5% and 6.0% of salary respectively for the CEO and the CFO.

#### Implementation of remuneration policy for 2021

TOTAL SINGLE FIGURE OF REMUNERATION FOR DIRECTORS

The table below sets out the total single figure remuneration received by each Director for 2021 and the prior year. Although the Group’s

reporting currency is US dollars, these figures are stated in sterling, as the Directors’ emoluments are based in sterling.

Salary and fees

1

Cash payments in lieu of

other non-cash benefits

2

Cash payments in

lieu of pension

2

Total fixed

remuneration GDIP (cash)

3

STIB

3

GDIP

(share

options)

4

ESOP

4

Total variable

remuneration Total

2021

£

2020

£

2021

£

2020

£

2021

£

2020

£

2021

£

2020

£

2021

£

2020

£

2021

£

2021

£

2020

£

2021

£

2020

£

2021

£

2020

£

Executive Directors

C Elphick  491 902  472 611  27 055  25 994  66 899  68 529  585 856  567 134 191 404 326 379  156 604   72 860   96 408   420 868   422 787   1 006 724   989 921

M Michael  324 635  311 904  19 478  18 714  40 011  40 547  384 124  371 165 129 533 218 643  105 981   53 853   71 258   289 367   289 901   673 491   661 066

Non-Executive Directors

H Kenyon-Slaney  122 400  117 600 – – – –  122 400  117 600 – – ––– – –  122 400  117 600

M Lynch-Bell  56 100  53 900 – – – –  56 100  53 900 – – ––– – –  56 100  53 900

M Brown  56 100  53 900 – – – –  56 100  53 900 – – ––– – –  56 100  53 900

J Velloza

5

37 400  107 800 – – – –  37 400  107 800 – – –– 11 649  –  11 649   37 400   119 449

M Maharasoa  56 100  53 900 – – – –  56 100  53 900 – – ––– – –  56 100  53 900

R Kainyah

6

37 400  – – – – –  37 400  – – – ––– – –  37 400  –

1

Salary and fees. The increase relates to the reinstatement of salaries following the COVID-19 sacrifice in 2020.

2

Benefits and pension: cash payments in lieu.

3

Includes the cash component of the GDIP (in 2021) and previous STIB (in 2020).

4

The 2021 GDIP (share options) figures relate to the value of deferred nil-cost share options to be awarded in 2022 following the release of the annual results. The 2021 ESOP figures relate

to the values at vesting of awards vesting on performance over the three-year period ended 31 December 2021. The share price on the vesting date is currently unknown, therefore the

awards are valued using the three-month average share price to 31 December 2021 of 52.69 pence. The 2021 values at vesting reflect the impact of a 42% reduction in share price over

the period. The 2020 figures have been adjusted to reflect the share price on the vesting date of 63.6 pence.

5

Fees are 50% standard fees and 50% additional fees related to special projects. J Velloza stepped down from the Board as of 1 May 2021.

The 2021 fees relate to the period 1 January 2021 to 30 April 2021. ESOP vesting relates to awards granted prior to his appointment as a non-Executive Director.

6

R Kainyah was appointed to the Board in May 2021. The 2021 fees relate to the period 1 May 2021 to 31 December 2021.

GDIP IN RESPECT OF 2021 PERFORMANCE

Executive Directors participated in the GDIP in 2021, a discretionary incentive arrangement focused on the strategic areas of Extracting

Maximum Value from Our Operations, Working Responsibly and Maintaining Our Social Licence, and Preparing for Our Future, all of which

are underpinned by specific KPIs and included in the business plan approved by the Board.

In 2021, the maximum award opportunity for the Executive Directors was 180% of base salary. The earned incentive is paid in cash (55%)

and a nil-cost share award (45%), vesting subject to continued employment over three years. Pay-out is based 85% on a business scorecard

and 15% on personal objectives assessed on a discretionary basis by the Remuneration Committee. The business scorecard performance

measures, targets and actual outturns for 2021 are disclosed in full in the table on page 136.

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

136

137

Performance measure

Weighting

(% of max) Threshold Stretch

Actual

performance

Pay-out

(% of max)

#### Preparing for Our Future

As set out in strategic focus areas 10.0

Judged by Committee on a discretionary basis

8.5

#### Extracting Maximum Value

Underlying EBITDA (US$ millions) 30.0 61.2 82.9 57.4 –

Costs

» Corporate costs (US$ millions) 1.5 7.2 6.5 7.2 0.3

» Cost per tonne (LSL) 13.5 347 314 386 –

Carats recovered (carats) 10.0 111 273  136 000  115 335  3.0

Working Responsibly and

#### Maintaining Our Social Licence

Any fatality will result in 100% forfeiture of this element 5.0 – – – 5.0

All Injury Frequency Rate (AIFR)  5.0 2.20 1.25 0.93 5.0

Lost Time Injury Frequency Rate (LTIFR)  5.0 0.11 – 0.24 –

Any major environmental/community incident will

result in 100% forfeiture of this element 5.0 – – – 5.0

85.0 26.8

Preparing for Our Future

Following the implementation of the BT programme in 2017 and the approval of the Bankable Plan for the Group of US$40 million

(US$31 million annual and US$9 million once-off savings), a four-year US$100 million target was set in 2018 (to be delivered by end of 2021).

This was impacted by COVID-19 and the operational shutdown due to the in-country lockdown in 2020. Notwithstanding these challenges,

the US$100 million four-year target was exceeded by achieving US$110.0 million on time.

During 2021, the Group faced numerous waves of the COVID-19 pandemic. Rapid roll-out of testing, establishment of the analysis laboratory

on site in 2020, and the stringent continuation of protocols and use of these facilities in 2021 enabled uninterrupted operations.

The Group undertook a comprehensive debt refinancing project due to the expiry of its current facilities. The objective was to expand

its lender group and to further upsize the Group’s available facilities. This was successfully concluded and in addition, US$32.3 million

of the facilities are Sustainability-Linked Loans where the margin and resultant interest rate will decrease if the Group meets certain

carbon reduction and water conservation KPIs that are aligned with the Group’s sustainability strategy. These facilities are renewable in

December 2024 and strengthen the Group’s balance sheet appropriately for the next three years. Further to this, the Group successfully

concluded its CCSA to identify and assess its physical climate change risks as part of the adoption of the TCFD recommendations.

In-country Competition Commission and Government approvals were received in terms of the Conditions Precedent as set out in the sales

agreement for the disposal of the Ghaghoo asset. However, the sale was not concluded prior to year end, as the purchaser requested an

extension of time to secure an alternative financing partner.

During the year the Group commenced a preliminary conceptual study on the potential economic viability and mining method for

underground expansion of the Satellite pipe at Letšeng (with the potential to include the Main pipe in the future).

The Committee reviewed performance in this area during 2021 on a holistic basis, and determined that a score of 8.5 out of 10 was

appropriate.

Personal performance

15% of the GDIP is linked to personal performance, with objectives linked to each Executive Director’s individual areas of responsibility and

designed to collectively support the achievement of the Group’s strategic targets for the year. Individual targets comprised contributions

to the Group’s overall performance and the delivery of strategic projects and initiatives as set out by the Board, including operational

performance, strengthening of key stakeholder relationships, bank financing, treasury management, ESG objectives and strategy

development and implementation. Following the Committee's consideration of the Executive Directors' personal performance as set out in

the tables below, the Committee awarded scores of 12.5% and 13.5% (out of 15%) respectively for the CEO and CFO.

#### Clifford Elphick

Strategic focus area Performance

• During the year, numerous assets and projects were reviewed and potential parties were engaged as part

of the strategic focus on growth and expansion.

• The continued participation in the GIA's blockchain initiative provides assurance to end-consumers

around the provenance of the rough diamonds and the contribution of the diamond industry to Lesotho.

• The first Dubai trial tender viewing was held in September, making it easily accessible for important clients

from the UAE, India and Israel to participate in the tender. The response was overwhelmingly positive and

contributed to the robust prices achieved.

• Succession planning across the Group was progressed with an increased focus on diversity and inclusion.

This specifically led to the appointments of the Head of Operations and Head of Finance at Letšeng.

Training spend on the development of female employees was significantly higher than in prior years.

• The gap analysis on the adopted UN SDG framework was completed in 2021, laying the foundation for

implementation in 2022.

• Behaviour driving culture was monitored on a quarterly basis and initiatives were implemented to ensure

that it continued to align with business goals.

#### Michael Michael

Strategic focus area Performance

• Comprehensive debt refinancing was concluded which added a new funder to the lender group and

resulted in an increase of facilities at Letšeng. This strengthened the Group's balance sheet appropriately

for the next 3 years.

• During the year a review of the Group’s capital allocation was undertaken. The reviewed dividend policy

was implemented and a dividend payment was effected.

• Continuous Improvement projects were rolled out in the year achieving financial benefits. These projects

included waste reduction through shorter haulage (c. LSL30.0 million p.a.), electricity efficiencies through

geyser and heating timers as well as drilling efficiencies through drilling depth accuracy.

• The Group successfully concluded and delivered the CCSA to identify and assess the physical climate

change risks as part of the adoption of the TCFD recommendations. The scenario analysis considered four

climate-related scenarios, which will allow the Group to work towards developing an effective response.

• Various risk management processes were embedded and advanced during the year. These included the

conclusion of the insurance risk transfer process and establishment of a LSL100m self-insurance fund.

Extracting maximum value

from our operations

Working responsibly and

maintaining our social licence

Preparing for our future

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

138

139

The formulaic outcome from the business scorecard for Group performance was 26.8% (out of the maximum 85%) which, combined with

the personal element, resulted in formulaic GDIP outcomes of 39.3% and 40.3% of maximum for the CEO and the CFO, respectively.

Based on business and personal performance, the GDIP incentive for 2021 was as follows:

Total

Performance

score (%) Cash (£)

Deferred

nil-cost

options (£)

1

Total (#)

Executive Directors as at 31 December 2021

C Elphick 39.3  191 404  156 604 348 008

M Michael 40.3  129 533   105 981  235 514

1

The deferred nil-cost options will be granted in 2022 and will be subject to the rules as set out in the Directors Remuneration Policy on page 122.

ESOP: 2019 AWARDS VESTING IN 2022

The Executive Directors were granted awards of performance shares in March 2019, which are set out in the table below.

Date of

grant

Number

options

granted

Share price

on date of

award

£

Face value

on date of

award

£

Face value

as % of

salary Vesting date

Executive Directors as at 31

December 2021

C Elphick 20 March 2019 230 000 0.904  207 920  44 20 March 2022

M Michael 20 March 2019 170 000 0.904  153 680  50 20 March 2022

Vesting of the awards was dependent on relative TSR against companies in the diamond mining sector (25% of the award) and BT (25%)

measured over the period 1 January 2019 to 31 December 2021. Profit and production (50%) were measured on an annual basis with respect

to the business plan for the year, with final vesting based on the average achievement of targets over the three years. The performance

conditions that applied to these awards are summarised in the table below.

PERFORMANCE MEASURE

Weighting

(% of max)

Performance

period

Threshold

(20% vesting)

Stretch

(80% vesting)

Super stretch

(100% vesting)

Actual

performance

Vesting

outcome

(% of max)

TSR versus diamond mining

peer group

25 3 years Median 75th

percentile

85th

percentile

Top of group 25.0

BT 25 3 years 90.0 100.0 110.0 110.0 25.0

Underlying EBITDA (US$ million) 10 2019 55.2 82.8 81.0 40.9 –

2020 46.5 69.8 76.7 53.2 3.8

2021 60.9 91.4 100.6 57.4 –

Average 1.3

EPS (US cents) 10 2019 10.3 15.4 17.0 5.1 0

2020 8.7 13.0 14.3 9.8 3.1

2021 15.2 22.7 25.0 10.5 –

Average 1.0

US$ per carat 10 2019 1 624 2 198 2 417 1 637 2.1

2020 1 490 2 015 2 217 1 908 6.8

2021 1 396  1 888  2 077  1 835  7.4

Average 5.4

Ore tonnes treated (millions) 10 2019 6.6 6.9 7.2 6.7 3.8

2020 6.6 6.9 7.3 5.4 –

2021 5.5 5.7 6.0 5.1 –

Average 1.3

Carats recovered (carats) 10 2019  109 800  128 100  140 300  113 974 3.4

2020 114 890 134 039 146 804 100 780 –

2021 122 400  142 800  156 400  115 335  –

Average 1.1

100 60.1

For each measure, for achievement between threshold and stretch, and stretch and super stretch, the award vested on a straight-line basis.

Achievement of less than threshold received no vesting.

Based on performance to 31 December 2021, 60.1% of the maximum award will vest for Clifford Elphick and Michael Michael in March 2022,

subject to their continued employment at the time.

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

140

141

DETAILS OF OUTSTANDING AWARDS OF PERFORMANCE OPTIONS TO DIRECTOR

Performance

options

as at

1 January

2021

1

Granted

in the

year

Vested

in the

year

Lapsed

in the

year

Exercise

price

£ Date of grant

Earliest normal

exercise date Expiry date

Performance

options

outstanding

as at

31 December

2021

M Michael 37 088

2

– – – 177.6

11 September

2012

1 January

2016

31 December

2023 37 088

Audited

1

An option is a right to acquire shares granted under the plan including, unless indicated otherwise, a zero-cost option. The three-month average share price to December 2021 was

52.69 pence. The highest and lowest closing prices in the year were 65 pence and 43.6 pence respectively. Details of the vesting conditions for awards made under the ESOP are included

in note 27 of the financial statements and a full set of the rules will be available for inspection at the AGM.

2

These awards were granted to M Michael before he became a Director.

DIRECTORS’ SHAREHOLDING AND INTERESTS IN SHARES

Details of interests in the share capital of the Company of those Directors in office as at 31 December 2021 are given below. It is confirmed

that there were no changes to the Directors’ holdings between 31 December 2021 and the date of this report. The GDIP deferred scheme

options are not included in the table below. No Director held an interest in the shares of any subsidiary company.

Performance

shares held

Performance

options held

Shares owned

outright as at

31 December

2021

Subject to

perfor-

mance

conditions

Unvested

and

subject to

continued

employ-

ment only

Vested

but not

exercised

Subject

to perfor-

mance

conditions

Vested

but not

exercised

Total

sharehold-

ing as a %

of salary

Share-

holding

guideline

met

Executive Directors

C Elphick

1

9 325 000 230 000 138 280 – – – 999% 

M Michael 171 849 170 000 102 207 112 042 – 37 088 52%

2

Non-Executive Directors

H Kenyon-Slaney 50 000  ––––––n/a

M Lynch-Bell – ––––––n/a

M Brown

67 124  ––––––n/a

M Maharasoa – ––––––n/a

R Kainyah – ––––––n/a

Audited

1

CT Elphick is interested in these ordinary shares by virtue of his interest as a potential beneficiary in a discretionary trust, which has an indirect interest in those ordinary shares.

2

In terms of the shareholding guidelines, M Michael is required to retain at least 50% of his vested awards until the guideline has been met.

#### Implementation of remuneration policy for 2022

The Committee determined that base salaries will be increased by 4% for 2022:

2022 salary

£

2021 salary

£

%

increase

Executive Director

C Elphick 511 578 491 902 4

M Michael 337 620 324 635 4

PENSION AND BENEFITS

The Executive Directors will continue to receive cash supplements in lieu of pension and benefits in 2022. From 1 April 2022, the CEO and

CFO pension benefits will reduce to 12.2% and 11.2% of basic salary, respectively. Effective 1 January 2023, pension benefits will further

reduce to 7.5% of basic salary to align with that of the wider employee group; the timing of this alignment has been accelerated (versus

that disclosed in last year’s report) based on the Committee’s consideration of recent investor guidance and market practice. Pension

contributions to any new Executive Director appointments will be capped at the prevailing wider employee group pension rate at the time.

The current allowance in lieu of non-cash benefits will remain unchanged from 2021.

GEM DIAMONDS INCENTIVE PLAN

The Executive Directors will participate in the GDIP in line with the remuneration policy, with a maximum award opportunity of 180% of

salary, and with pay-out based on a scorecard of financial, operational and personal objectives measured over the financial year.

The performance measures will continue to support the delivery of the Group’s key strategic priorities as set out on page 22 of this Annual

Report and Accounts 2021, with 85% linked to business performance and 15% to personal performance. For the business performance

element, performance may continue to be linked to the Group’s three key strategic priorities of Extracting Maximum Value from Our

Operations; Working Responsibly and Maintaining Our Social Licence; and Preparing for Our Future. The weightings that apply to the

elements of the scorecard for 2022 are summarised in the table below.

Personal performance

15%

Group performance

85%

Preparing for Our Future

10%

As set out in strategic focus areas  10%

Extracting Maximum Value

55%

Underlying EBITDA (US$) 30%

Costs 15%

Carats recovered (carats) 10%

Working Responsibly, Maintaining Social Licence

20%

This element of the bonus captures several key metrics around the Group’s environmental, safety and social performance. Consistent

with the other measures for the GDIP scorecard, the exact measures and targets will be disclosed in full in the 2022 remuneration report.

Targets are considered sensitive and will be disclosed in full on a retrospective basis in next year’s report. In approving these targets, the

Committee considered a range of perspectives on performance outcomes, including internal and external reference points.

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

DILUTION

Employee share awards may be satisfied with newly issued shares

subject to aggregate dilution limits. The issue of shares to satisfy

awards under the Company’s share schemes will not exceed 10%

of the Company’s issued ordinary share capital in any rolling 10-

year period. As of 31 December 2021, a total of 14 051 555 shares

(10% of issued share capital) may be issued pursuant to all current

awards outstanding over the last 10 years.

As at 31 December 2021, the Company’s headroom position,

which remains within the current IA Guidelines, was as shown in

the chart to the right:

#### DILUTION HEADROOM

%

Headroom 6.58

Outstanding options 3.42

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

142

143

#### REMUNERATION COMMITTEE CONTINUED REMUNERATION COMMITTEE CONTINUED

Date of grant

Performance

shares

1

as at

1 January

2021

Granted in

the year

Vested in

the year

Lapsed in

the year

Exercised in

the year

Exercise price

US$

Market value

at date of

grant

US$

Earliest normal

exercise date Expiry date

Performance

shares

outstanding

as at

31 December

2021

C Elphick (CEO) 10-Jun-14 58 209  –   –   –   58 209   0.01   556 200  10-Jun-17 10-Jun-24 –

01-Apr-15 33 425  –   –   –  33 425  0.01   453 100  01-Apr-18 01-Apr-25 –

15-Mar-16 49 300  –   –   –  49 300  0.01   322 000  15-Mar-19 15-Mar-26 –

04-Jul-17 59 633  –  –  – 59 633  0.01   253 000  04-Jul-20 04-Jul-27 –

20-Mar-18 230 000  –   151 586   78 414   151 586  0.01 308 200 20-Mar-21 20-Mar-28 –

20-Mar-19 230 000 – – – –  0.01   274 454  20-Mar-22 20-Mar-29 230 000

09-Jun-20 230 000 – – – –  0.01   92 742  09-Jun-23 09-Jun-30 230 000

No shares were

awarded in 2021 – ––– ––– –

Total 890 567 – 151 586 78 414 352 153 – – – – 460 000

M Michael (CFO) 11-Sep-12 –  –   –   –  –  0.01   68 400  01-Jan-16 31-Dec-23 –

10-Jun-14 –  –   –   –  –  0.01   302 400  10-Jun-17 10-Jun-24 –

01-Apr-15 –  –   –   –  –  0.01   334 900  01-Apr-18 01-Apr-25 –

15-Mar-16 –  –   –   –  –  0.01   238 000  15-Mar-19 15-Mar-26 –

04-Jul-17 –  –  – – –  0.01   187 000  04-Jul-20 04-Jul-27 –

20-Mar-18  170 000   –   112 042   57 958  –  0.01   227 800  20-Mar-21 20-Mar-28 112 042

20-Mar-19  170 000  – – – –  0.01   202 858  20-Mar-22 20-Mar-29  170 000

09-Jun-20  170 000 – – – –  0.01   68 548  09-Jun-23 09-Jun-30  170 000

No shares were

awarded in 2021 – ––– ––– –

Total 510 000 – 112 042 57 958 –––––

452 042

Audited

1

Conditional right to acquire shares.

CHAIRPERSON AND NON-EXECUTIVE DIRECTOR FEES

Chairperson and non-Executive Director fees were reviewed in February 2022. Considering appropriate industry benchmarks, it was

decided that fees for the Chairperson will be increased by 10% to £134 640 annually, and the fees for non-Executive Directors will be

increased by 4% to £58 344 annually.

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

145

Gem Diamonds Limited Annual Report and Accounts

144

#### DIRECTORS’ REPORT CONTINUED

### DIRECTORS’ REPORT

The Directors are pleased to submit the financial statements of

the Group for the year ended 31 December 2021.

As a British Virgin Islands-registered company, Gem Diamonds

Limited is not required to conform with the Companies Act,

2006. However, the Directors have elected to conform to the

requirements of the Companies Act, 2006.

This requires that the Directors present a Strategic Report

and a Directors’ Report to inform shareholders of the Group’s

performance and prospects and help them assess whether the

Directors performed their fiduciary duty. The 2021 Annual Report

and Accounts discloses how the Directors have performed their

duty to ensure the Group’s continued success, in line with the

Companies Act, 2006.

To ensure compliance with Disclosure Guidance and Transparency

Rules (DTR) 4.1.5R(3) and DTR 4.1.8R, the required content of the

Management Report can be found in the Strategic Report, the

Performance Review and the Directors’ Report, the Governance

section and other sections of the 2021 Annual Report and

Accounts, indicated by a reference.

The Strategic Report can be found on pages 2 to 46. This has

been prepared to provide the shareholders with a fair review of

the Group’s business including a description of its principal risks

and uncertainties. It may not be relied upon by anyone, including

the Company’s shareholders, for any other purpose.

Forward-looking statements

The Strategic Report and other sections of this report contain

forward-looking statements. Forward-looking statements, by their

nature, involve several risks, uncertainties and future assumptions

because they relate to events and/or depend on circumstances

that may or may not occur in the future. This means that actual

results and outcomes may differ materially from those expressed or

implied by the forward-looking statements. No assurance can be

given that the forward-looking statements in the Strategic Report

will be realised. Statements about the Directors’ expectations,

beliefs, hopes, plans, intentions and strategies are subject to

change and are based on expectations and assumptions about

future events, circumstances and other factors which are, in many

instances, outside the Company’s control. The information in the

Strategic Report has been prepared based on the knowledge

and information available to the Directors at the date of its

preparation. The Company is under no obligation to update or

revise the Strategic Report during the financial year ahead. The

expectations set out in the forward-looking statements are

reasonable but may be influenced by a wide range of variables

which could cause actual results or trends to differ materially.

Forward-looking statements need to be read in context with

actual historic information provided. The Company’s shareholders

are cautioned not to place undue reliance on the forward-looking

statements. Shareholders should note that the Strategic Report

has not been audited.

#### CORPORATE GOVERNANCE

DTR 7.2 requires certain information be included in a corporate

governance statement set out in the Directors’ Report. The

Group has an existing practice of issuing a separate Corporate

Governance Code Compliance Report as part of its Annual

Report and Accounts. The information required by the Disclosure

Guidance and Transparency Rules and the UK Financial Conduct

Authority’s Listing Rules (LR 9.8.6) is located on pages 2 to 85.

#### DIRECTORS

The Directors, as at the date of this report, are listed on pages

92 to 93 together with their biographical details. Details of the

Directors’ interests in shares and share options of the Company

can be found on page 140.

#### Directors who held office during

#### the year and date of appointment/ resignation

Appointment Resignation

#### Executive

#### Directors

C Elphick 20 January 2006 n/a

M Michael 22 April 2013 n/a

#### Non-Executive Directors

H Kenyon-Slaney 6 June 2017 n/a

M Brown 1 January 2018 n/a

M Lynch-Bell 15 December 2015 n/a

J Velloza 1 July 2018 1 May 2021

M Maharasoa 1 July 2019 n/a

R Kainyah  1 May 2021 n/a

#### PROTECTION AVAILABLE TO

#### DIRECTORS

By law the Directors are ultimately responsible for most aspects

of the Group’s business dealings. As a result, they face potentially

significant personal liability under criminal or civil law, or the UK

Listing, Prospectus and Disclosure and Transparency Rules and

face a range of penalties including private or public censure, fines

and/or imprisonment. In line with normal market practice, the

Group believes that it is in its best interests to protect its Board

members from the consequences of innocent error or omission.

This allows the Group to attract prudent individuals to act as

Directors.

The Group therefore has, and continues to maintain, at its

expense, a Director and Officer’s liability insurance policy to

provide indemnity, in certain circumstances, for the benefit of

Directors and other Group employees.

Refer to the Corporate Governance statement on page 94 for

further details.

#### DIRECTORS’ INTERESTS

No Director had, at any time during the year, a material interest in

any contract of significance in relation to the Company’s business.

The interest of Directors in the shares of the Company is included

on page 140.

#### SUPPLIERS AND CUSTOMERS

We engage extensively with contractors and suppliers to ensure

alignment, mutual understanding and the sustainability of all

parties especially during COVID-19 operating conditions.

We have ongoing communication with customers and our sales

processes have been adapted to COVID-19 operating conditions.

We achieved market-related prices for our diamonds throughout

the year.

Refer to the our stakeholder relationships section on pages 17

and 21 for more details on our engagement with suppliers,

contractors and customers.

#### RESULTS AND DIVIDENDS

The Group’s attributable profit after taxation amounted to

US$14.8 million (2020: US$13.6 million).

The Group’s detailed financial results are set out in the financial

statements on pages 147 to 211.

Based on positive earnings generated and disciplined cash

management the Board proposes that a dividend be declared

for the 2021 financial year. The Board has a dividend policy in

place that sets the appropriate dividend each year, based on

consideration of the Group’s cash resources; the level of free

cash flow and earnings generated during the year; and expected

funding commitments for future capital projects. The Board has

a policy to consider special dividends in the event of significant

diamond recoveries and to consider a share buyback programme

should the opportunity arise.

#### GOING CONCERN

The Group business activities, together with the factors likely to

affect its future development, performance and position, are set

out in the Strategic Report on pages 2 to 85. The financial position

of the Group, its cash flows and liquidity position are described in

the Strategic Report on pages 52 to 59. In addition, Note 26 and

Note 28 to the financial statements include the Group’s objectives,

policies and processes for managing its capital; its financial risk

management objectives; details of its financial instruments; and

its exposures to credit and liquidity risk.

The Directors have a reasonable expectation that the Group

has adequate financial resources to continue operations for the

foreseeable future. This follows a review of forecasts, budgets,

timing of cash flows, debt facilities, sensitivity analyses and the

uncertainties disclosed in this report. For this reason, the Directors

continue to adopt the going concern basis in preparing the

Annual Report and Accounts of the Group.

#### VIABILITY STATEMENT

In accordance with provision 30 of the 2018 UK Corporate

Governance Code, the Directors have assessed the prospect of

the Group over a period longer than 12 months as required by

the ’going concern’ provision. The viability statement, aligned

with Provision 31 of the 2018 UK Corporate Governance Code, is

included in the Strategic Report on page 45.

#### SUBSEQUENT EVENTS

Refer Note 30 of the financial statements for details of events

subsequent to the reporting date.

#### SHARE CAPITAL AND VOTING

#### RIGHTS

Details of the authorised and issued share capital of the Company,

including the rights pertaining to each share class, are set out in

Note 16 to the financial statements.

As at 16 March 2022, there were 140.5 million fully paid ordinary

shares of US$0.01 each in issue and listed on the official list

maintained by the Financial Conduct Authority in its capacity as

the UK Listing Authority.

The Company has one class of ordinary shares. Shareholders have

the right to receive notice of and attend, speak and vote at any

general meeting of the Company. Shareholders may be present in

person (or, being a corporation, by representative), or by proxy at

a general meeting. Every shareholder present in person (or, being

a corporation, by representative) or by proxy will have one vote in

respect of every ordinary share they hold. The appointment of a

proxy to vote at a general meeting must be received no less than

48 hours before the meeting’s appointed time.

Shareholders have the right to participate in dividends and other

distributions according to their respective rights and interests in

the profit of the Company.

No shareholders have any special rights with regard to the control

of the Company. The Company is not aware of any agreements

between shareholders which may result in restrictions on

transfers or voting rights, save as mentioned below.

There are no restrictions on the transfer of ordinary shares other

than:

• As set out in the Company’s Articles of Association.

• Certain restrictions may from time to time be imposed by

laws and regulations.

• Pursuant to the Company’s share dealing code whereby the

Directors and employees of the Company require approval

to deal in the Company’s ordinary shares.

At the AGM held in June 2021, shareholders authorised the

Company to make on-market purchases of up to 14 016 955

of its ordinary shares, representing approximately 10% of the

Company's issued share capital at that time. During 2021, the

Company did not purchase any shares.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

146

147

At the 2022 AGM, shareholders will be asked to renew this

authority. The Directors continue to consider various options and

keep the authorisation under regular review. The 2022 Notice of

AGM will set out the details regarding exercising voting rights and

proxy appointments.

#### MAJOR INTERESTS IN SHARES

Details of the major interests (at or above 3%) in the issued

ordinary shares of the Company are set out in the Strategic Report

on page 18.

#### RESOURCE DEVELOPMENT

The Group’s resource development activities focused on

enhancing the understanding of existing resources at Letšeng.

The Operations Review on page 60 provides more detail on these

activities. For information on the current Resources and Reserves

Statement visit the Group’s website:

www.gemdiamonds.com.

#### CORPORATE SOCIAL

#### RESPONSIBILITY AND

#### SUSTAINABILITY

Read more about the Group’s 2021 Sustainability Performance,

including CSI investment, community participation and

environmental management in the Sustainability Report which is

available at

www.gemdiamonds.com.

#### POLITICAL DONATIONS

The Group made no political donations during 2021.

#### TCFD, GHG EMISSIONS AND ENERGY CONSUMPTION

#### SUMMARY

Information on the Group’s adoption of the TCFD

recommendations, carbon footprint and energy consumption in

2021 can be found in the Our Approach to Climate Change and

Sustainability sections on pages 26 and 67 respectively.

By order of the Board

Harry Kenyon-Slaney

Non-Executive Chairperson

16 March 2022

#### DIRECTORS’ REPORT CONTINUED

2021

147

# FINANCIAL

# STATEMENTS

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

148

149

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 this report

and financial statements taken as a whole, are fair, balanced and

understandable and that they provide the information necessary

for shareholders to assess the Group’s performance, business

model and strategy.

The Strategic Report and Directors’ Report include a fair review

of the development and performance of the business and the

position of the Group and the undertakings included in the

consolidation taken as a whole, together with a description of the

principal risks and uncertainties that the Group faces.

#### 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 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

Group 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 performance, the financial position and cash flow

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 at year end, cash flow and profit or

loss for the year then ended of the Group 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, cash flow and

financial performance. Where necessary, the Directors have made

judgements and estimates that are considered reasonable and

prudent.

The Directors of the Company have elected to comply with the

Companies Act, 2006, in particular the requirements of Schedule

8 to The Large and Medium-sized Companies and Groups

(Accounts and Reports) Regulations 2013 of the United Kingdom

pertaining to Directors’ remuneration which would otherwise

only apply to companies incorporated in the UK.

Michael Michael

Chief Financial Officer

16 March 2022

### RESPONSIBILITY STATEMENT OF THE

### DIRECTORS IN RESPECT OF THE ANNUAL

### REPORT AND FINANCIAL STATEMENTS

### INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Gem Diamonds Limited

#### REPORT ON THE AUDIT OF THE

#### CONSOLIDATED FINANCIAL

#### STATEMENTS

#### Opinion

We have audited the consolidated financial statements of Gem

Diamonds Limited and its subsidiaries (the Group) set out on

pages 152 to 211, which comprise the consolidated statement of

financial position as at 31 December 2021, and the consolidated

statement of profit or loss, consolidated statement of other

comprehensive income, consolidated statement of changes in

equity and the consolidated statement of cash flows for the year

then ended, and notes to the financial statements, including a

summary of significant accounting policies.

In our opinion, the accompanying consolidated financial

statements present fairly, in all material respects, the consolidated

financial position of the Group as at 31 December 2021, and of its

consolidated financial performance and consolidated cash flows

for the year then ended in accordance with International Financial

Reporting Standards.

#### Basis for Opinion

We conducted our audit in accordance with International

Standards on Auditing (ISAs). Our responsibilities under those

standards are further described in the Auditor’s Responsibilities for

the Audit of the consolidated financial statements section of our

report. We are independent of the Group in accordance with the

Independent Regulatory Board for Auditors’ Code of Professional

Conduct for Registered Auditors (IRBA Code) and other

independence requirements applicable to performing audits of

financial statements of the Group and in South Africa. We have

fulfilled our other ethical responsibilities in accordance with the

IRBA Code and in accordance with other ethical requirements

applicable to performing audits of the Group and in South Africa.

The IRBA Code is consistent with the corresponding sections

of the International Ethics Standards Board for Accountants’

International Code of Ethics for Professional Accountants

(including International Independence Standards). We believe

that the audit evidence we have obtained is sufficient and

appropriate to provide a basis for our opinion.

#### Key Audit Matters

Key audit matters are those matters that, in our professional

judgement, were of most significance in the audit of the

consolidated financial statements of the current period. These

matters were addressed in the context of the audit of the

consolidated financial statements as a whole, and in forming

the auditor’s opinion thereon, and we do not provide a separate

opinion on these matters. For each matter below, our description

of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s

Responsibilities for the Audit of the consolidated financial statements

section of our report, including in relation to these matters.

Accordingly, our audit included the performance of procedures

designed to respond to our assessment of the risks of material

misstatement of the consolidated financial statements. The results

of our audit procedures, including the procedures performed to

address the matters below, provide the basis for our audit opinion

on the accompanying consolidated financial statements.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

150

151

Key Audit Matter How the matter was addressed in the

#### audit

GOODWILL IMPAIRMENT

Management performs an annual impairment test on goodwill as

required by IAS 36 Impairment of Assets using discounted future

cash flows. Goodwill relates to the Group’s investment in the Letšeng

Diamond mine.

There is an inherent uncertainty in forecasting and discounting

future cash flows, which forms the basis of the Group’s value

in use calculations used in the impairment model. This was

amplified due to the economic and other effects of the continued

Covid-19 pandemic including uncertainty around the duration

of the pandemic and timing of the recovery of the various world

economies. The continued volatility in diamond prices, exchange

rates and discount rates resulted in additional audit work in

assessing the Group’s impairment model.

As disclosed in Note 11 Impairment testing and Note 1.2.28 Critical

accounting estimates and judgements, the Group uses discounted

cash flows to determine the value in use for each cash generating

unit, on the basis of the following key assumptions:

• Diamond prices;

• Inflation rates;

• Production costs and volumes;

• Capital expenditure;

• Discount rates; and

• Exchange rates.

Given the above factors, the goodwill impairment, particularly in

the diamond mining industry, required significant audit attention

in the current year through extended sensitivity and stress testings

with different scenarios including the use of our valuation experts.

Our audit procedures included amongst others the following:

• We involved our internal valuation specialists as part of our

team to assist in evaluating management’s impairment

methodology and key assumptions used in the impairment

calculations;

• Our valuation specialists calculated two independent

weighted average cost of capital (WACC) rates (Revenue

and costs) to compare to management’s WACC’s. Our

independent WACC recalculations were based on publicly

available market data for comparable companies for the

Letšeng Cash Generating Unit (CGU);

• Our valuation specialists calculated an independent net

present value (NPV) to compare to management’s NPV;

• Our valuation specialists assessed the reasonability of the

significant inputs and assumptions used in the impairment

models, such as diamond prices, exchange rates, inflation

rates, by comparing them to independent sources;

• We have performed sensitivity analyses around the key

assumptions used in the impairment model. We did this by

increasing and decreasing the following assumptions in the

model to determine the impact on the headroom between

the value of the recorded assets of the CGU and the value in

use as calculated. These included:

› WACC; and

› Diamond prices

• We assessed the adequacy of the Group’s disclosures in

terms of IAS 36, in the notes to the consolidated financial

statements.

#### INDEPENDENT AUDITOR’S REPORT CONTINUED INDEPENDENT AUDITOR’S REPORT CONTINUED

#### Other Information

Management is responsible for the other information. The other

information comprises the information included in the 224-page

document titled ‘Gem Diamonds Annual Report and Accounts

2021’. The other information does not include the consolidated

financial statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements does not

cover the other information and we do not express any form of

assurance conclusion thereon.

In connection with our audit of the consolidated financial

statements, our responsibility is to read the other information and,

in doing so, consider whether the other information is materially

inconsistent with the consolidated financial statements or our

knowledge obtained in the audit or otherwise appears to be

materially misstated. If, based on the work we have performed,

we conclude that there is a material misstatement of this other

information, we are required to report that fact. We have nothing to

report in this regard.

#### Responsibilities of Management for the Consolidated Financial Statements

Management is responsible for the preparation and fair

presentation of the consolidated financial statements in

accordance with IFRSs, and for such internal control as

management determines is necessary to enable the preparation

of consolidated financial statements that are free from material

misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management

is responsible for assessing the Group’s ability to continue as a

going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless

management either intends to liquidate the Group or to cease

operations, or has no realistic alternative but to do so.

Auditor’s Responsibilities for the

#### Audit of the Consolidated Financial

#### Statements

Our objectives are to obtain reasonable assurance about whether

the consolidated financial statements as a whole are free from

material misstatement, whether due to fraud or error, and to

issue an auditor’s report that includes our opinion. Reasonable

assurance is a high level of assurance, but is not a guarantee that

an audit conducted in accordance with ISAs will always detect

a material misstatement when it exists. Misstatements can arise

from fraud or error and are considered material if, individually or

in the aggregate, they could reasonably be expected to influence

the economic decisions of users taken on the basis of these

consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise

professional judgement and maintain professional scepticism

throughout the audit. We also:

• Identify and assess the risks of material misstatement of the

consolidated financial statements, whether due to fraud or

error, design and perform audit procedures responsive to

those risks, and obtain audit evidence that is sufficient and

appropriate to provide a basis for our opinion. The risk of not

detecting a material misstatement resulting from fraud is

higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations,

or the override of internal control.

• Obtain an understanding of internal control relevant to

the audit in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose

of expressing an opinion on the effectiveness of the Group’s

internal control.

• Evaluate the appropriateness of accounting policies used

and the reasonableness of accounting estimates and related

disclosures made by management.

• Conclude on the appropriateness of management’s use of

the going concern basis of accounting and, based on the

audit evidence obtained, whether a material uncertainty

exists related to events or conditions that may cast

significant doubt on the Group’s ability to continue as a

going concern. If we conclude that a material uncertainty

exists, we are required to draw attention in our auditor’s

report to the related disclosures in the consolidated financial

statements or, if such disclosures are inadequate, to modify

our opinion. Our conclusions are based on the audit

evidence obtained up to the date of our auditor’s report.

However, future events or conditions may cause the Group

to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content

of the consolidated financial statements, including the

disclosures, and whether the consolidated financial

statements represent the underlying transactions and events

in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the

financial information of the entities or business activities

within the group to express an opinion on the consolidated

financial statements. We are responsible for the direction,

supervision and performance of the group audit. We remain

solely responsible for our audit opinion.

We communicate with those charged with governance regarding,

among other matters, the planned scope and timing of the

audit and significant audit findings, including any significant

deficiencies in internal control that we identity during our audit.

We also provide those charged with governance with a statement

that we have complied with relevant ethical requirements

regarding independence, and to communicate with them all

relationships and other matters that may reasonably be thought

to bear on our independence, and where applicable, actions

taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with

governance, we determine those matters that were of most

significance in the audit of the consolidated financial statements

of the current period and are therefore the key audit matters.

We describe these matters in our auditor’s report unless law or

regulation precludes public disclosure about the matter or when,

in extremely rare circumstances, we determine that a matter

should not be communicated in our report because the adverse

consequences of doing so would reasonably be expected to

outweigh the public interest benefits of such communication.

Ernst & Young Inc.

Director – Philippus Dawid Grobbelaar

Registered Auditor

Chartered Accountant (SA)

16 March 2022

102 Rivonia Road, Sandton, Private Bag X14, Sandton, 2146

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

152

153

Notes

2021

US$’000

2020

US$’000

#### CONTINUING OPERATIONS

Revenue from contracts with customers  2 201 859 189 647

Cost of sales (121 587) (113 802)

Gross prot 80 272 75 845

Other operating expense 3 (591) (3 911)

Royalties and selling costs  (21 918) (19 843)

Corporate expenses (8 886) (7 992)

Share-based payments 27 (395) (555)

Foreign exchange gain/(loss) 4 1 929 (880)

Operating prot 4 50 411 42 664

Net nance costs 5 (3 742) (4 411)

– Finance income 202 382

– Finance costs (3 944) (4 793)

Prot before tax for the year from continuing operations 46 669 38 253

Income tax expense 6 (15 562) (10 711)

Prot after tax for the year from continuing operations 31 107 27 542

#### DISCONTINUED OPERATION

Loss after tax from discontinued operation 15 (3 754) (3 264)

Prot for the year 27 353 24 278

Attributable to:

Equity holders of parent 14 767 13 641

Non-controlling interests 12 586 10 637

Earnings per share (cents) 7

– Basic earnings for the year attributable to ordinary equity holders of the parent 10.5 9.8

– Diluted earnings for the year attributable to ordinary equity holders of the parent 10.4 9.6

Earnings per share (cents) for continuing operations

– Basic earnings for the year attributable to ordinary equity holders of the parent 13.2 12.1

– Diluted earnings for the year attributable to ordinary equity holders of the parent 13.0 11.9

CONSOLIDATED STATEMENT OF PROFIT OR LOSS

FOR THE YEAR ENDED 31 DECEMBER 2021

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2021

Notes

2021

US$’000

2020

US$’000

Prot for the year 27 353 24 278

Other comprehensive loss that will be reclassified to the Consolidated Statement of

Profit or Loss in subsequent periods

Exchange differences on translation of foreign operations, net of tax (21 196) (14 049)

Other comprehensive loss for the year, net of tax (21 196) (14 049)

Total comprehensive income for the year, net of tax 6 157 10 229

Attributable to:

Equity holders of the parent (154) 3 779

Non-controlling interests 6 311 6 450

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

154

155

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2021

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2021

Notes

2021

US$’000

2020

US$’000

#### ASSETS

Non-current assets

Property, plant and equipment 8 293 627 304 005

Right-of-use assets 9 3 137 4 823

Intangible assets 10 11 962 12 997

Receivables and other assets 12 1 278 153

Deferred tax assets 22 5 117 6 346

315 121 328 324

Current assets

Inventories 13 31 158 26 741

Receivables and other assets 12 4 095 5 686

Income tax receivable 20 1 232 106

Cash and short-term deposits 14 30 913 49 820

67 398 82 353

Assets held for sale 15 2 097 3 528

Total assets 384 616 414 205

#### EQUITY AND LIABILITIES

Equity attributable to equity holders of the parent

Issued capital 16 1 406 1 397

Share premium 885 648 885 648

Other reserves 16 (226 697) (212 164)

Accumulated losses (500 550) (511 808)

159 807 163 073

Non-controlling interests 86 843 84 422

Total equity 246 650 247 495

Non-current liabilities

Interest-bearing loans and borrowings 17 8 340 1 702

Lease liabilities 18 3 851 4 902

Trade and other payables 19 2 095 2 029

Provisions 21 11 202 12 331

Deferred tax liabilities 22 82 472 84 538

107 960 105 502

Current liabilities

Interest-bearing loans and borrowings 17 2 704 14 385

Lease liabilities 18 973 1 836

Trade and other payables 19 22 188 28 823

Income tax payable 20 41 11 940

25 906 56 984

Liabilities directly associated with the assets held for sale 15 4 100 4 224

Total liabilities 137 966 166 710

Total equity and liabilities 384 616 414 205

Approved by the Board of Directors on 16 March 2022 and signed on its behalf by:

C Elphick M Michael

Director Director

Attributable to the equity holders of the parent

Issued

capital

US$’000

Share

premium

US$’000

Other

reserves

1

US$’000

Accumu-

lated

(losses)/

retained

earnings

US$’000

Total

US$’000

Non-

controlling

interests

US$’000

Total

equity

US$’000

Balance at 1 January 2021 1 397 885 648 (212 164) (511 808) 163 073 84 422 247 495

Total comprehensive (loss)/

income – – (14 921) 14 767  (154) 6 311 6 157

Profit for the year – – – 14 767 14 767 12 586 27 353

Other comprehensive loss – – (14 921) – (14 921) (6 275) (21 196)

Share capital issued (Note 16) 9 – (9) – – – –

Share-based payments (Note 27) – – 397 – 397 – 397

Dividends declared (Note 29) – – – (3 509) (3 509) (3 890) (7 399)

Balance at 31 December 2021 1 406 885 648 (226 697) (500 550) 159 807 86 843 246 650

Attributable to discontinued operation

(Note 15) – – (52 893) (196 006) (248 899) – (248 899)

Balance at 1 January 2020 1 391 885 648 (202 857) (525 449) 158 733 85 424 244 157

Total comprehensive (loss)/income – – (9 862) 13 641 3 779 6 450 10 229

Profit for the year – – – 13 641 13 641 10 637 24 278

Other comprehensive loss – – (9 862) – (9 862) (4 187) (14 049)

Share capital issued (Note 16) 6 – (6) – – – –

Share-based payments (Note 27) – – 561 – 561 – 561

Dividends declared –––––(7 452)  (7 452)

Balance at 31 December 2020 1 397 885 648 (212 164) (511 808) 163 073 84 422 247 495

Attributable to discontinued operation

(Note 15) – – (53 046) (192 252) (245 298) – (245 298)

1

Other reserves relate to Foreign currency translation reserves and Share based equity reserves. Refer Note 16, Issued capital and reserves for further detail.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

156

157

Notes

2021

US$’000

2020

US$’000

Cash ows from operating activities 71 307 96 227

Cash generated by operations 23.1 103 902 93 050

Working capital adjustments 23.2 (7 107) 464

Interest received 202 382

Interest paid 18, 23.3 (2 457) (3 558)

Income tax paid 20 (23 329) (1 268)

1

Income tax received 20 96 7 157

1

Cash ows used in investing activities (68 686) (48 718)

Purchase of property, plant and equipment 8 (3 985) (1 571)

Waste stripping costs capitalised 8 (64 725) (47 167)

Proceeds from sale of property, plant and equipment 24 20

Cash ows used in nancing activities (19 025) (12 995)

Lease liabilities repaid 18 (1 660) (1 906)

Net financial liabilities repaid 23.3 (7 194) (6 431)

Financial liabilities repaid (26 393) (55 638)

Financial liabilities raised 19 199 49 207

Dividends paid to holders of the parent (3 486) –

Dividends paid to non-controlling interests (6 685) (4 658)

Net (decrease)/ increase in cash and cash equivalents (16 404) 34 514

Cash and cash equivalents at beginning of year 49 827 11 443

Foreign exchange differences (2 366) 3 870

Cash and cash equivalents at end of year 31 057 49 827

Cash and cash equivalents at end of year – continuing operation 14 30 913 49 820

Cash and cash equivalents at end of year – discontinued operation 15 144 7

1

These amounts were presented on a net basis in the prior year and have been disaggregated and presented separately in the current year. This reclassification had no impact on the
financial statements.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2021

1. NOTES TO THE CONSOLIDATED 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)

and is domiciled in the United Kingdom (UK). The Company’s registration number is 669758.

These financial statements were authorised for issue by the Board on 16 March 2022.

The Group is principally engaged in operating diamond mines.

1.1.2 Operational information

The Company has the following investments directly and indirectly in subsidiaries at 31 December 2021. During the prior year

Gem Equity Group Limited, a 100% held dormant investment holding company, was abandoned. Following the sale of its

investments within the prior year the Board of Directors of Gem Equity Group Limited resolved to voluntarily liquidate the company.

The liquidation was finalised on 2 July 2021 and the company no longer exists at year end. In addition, Calibrated Diamonds

Investment Holdings (Proprietary) Limited, a 100% held subsidiary of Gem Diamonds Investments Limited was deregistered during

the year after being dormant for several years.

Name and registered

address of company

Share-

holding

Cost of

investment¹

Country of

incorporation Nature of business

Subsidiaries

Gem Diamond Technical

Services (Proprietary)

Limited

2

Illovo Corner

24 Fricker Road

Illovo Boulevard

Johannesburg

South Africa

100% US$17 RSA Technical, financial and management

consulting services.

Letšeng Diamonds

(Proprietary) Limited

2

Letšeng Diamonds House

Corner Kingsway and Old

School Roads

Maseru

Lesotho

70% US$126 000 303 Lesotho Diamond mining and holder of

mining rights.

Gem Diamonds Botswana

(Proprietary) Limited

2,3

Suite 103, GIA Centre

Diamond Technology Park

Plot 67782, Block 8

Gaborone

Botswana

100% US$5 844 579 Botswana Diamond mining; evaluation and

development; and holder of mining licences

and concessions.

Gem Diamonds

Investments Limited

2

Suite 1, 3rd Floor,

11–12 St. James Square,

London

SW1Y 4LB United Kingdom

100% US$17 531 316 UK Investment holding company holding

100% in each of Gem Diamonds Innovation

Solutions CY Limited, a company holding

intellectual property relating to development

of technology to innovate mining processes;

Baobab Technologies BV, a diamond analysis

and valuation facility in Belgium; and

Gem Diamonds Marketing Services BV, 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.

3

Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), which is in the process of being sold, has been classified as a discontinued operation held for

sale since 30 June 2019 and disclosed separately (refer Note 15, Asset held for sale).

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

158

159

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

#### 1.1 Corporate information (continued)

1.1.3 Segment information (continued)

The following tables presents revenue from contracts with customers, profit/(loss) for the year, EBITDA and asset and liability

information from operations regarding the Group’s geographical segments:

Year ended 31 December 2021

Lesotho

US$’000

Belgium

US$’000

BVI, RSA

UK and

Cyprus

1

US$’000

Total

Continuing

operations

US$’000

Discontinued

operation

US$’000

Total

US$’000

Revenue from contracts with

customers

Total revenue 198 816 202 461 7 031 408 308 – 408 308

Intersegment (198 581) (837) (7 031) (206 449) – (206 449)

External customers

235 201 624 – 201 859 – 201 859

Depreciation and amortisation 54 012 350 1 063 55 425 – 55 425

– Depreciation and mining asset

amortisation

7 199 350 1 063 8 612 – 8 612

– Waste stripping cost amortisation 46 813 – – 46 813 – 46 813

Share-based equity transactions (105) (4) (286) (395) (2) (397)

Segment operating prot/(loss)

59 008 1 238 (9 835) 50 411 (3 533) 46 878

Net finance costs (2 395) (1) (1 346) (3 742) (221) (3 963)

Prot/(loss) before tax

56 613 1 237 (11 181) 46 669 (3 754) 42 915

Income tax expense (14 661) (178) (723) (15 562) – (15 562)

Prot/(loss) for the year

41 952 1 059 (11 904) 31 107 (3 754) 27 353

EBITDA

64 328 1 625 (8 584) 57 369 (2 047) 55 322

Segment non-current assets

306 777 161 1 788 308 726 1 413 310 139

Segment assets

369 105 1 985 6 312 377 402 2 097 379 499

Segment liabilities

39 440 351 11 603 51 394 4 100 55 494

Other segment information

Net cash and short-term deposits

2

24 175 1561 (5 014) 20 722 144 20 866

Capital expenditure

– Property, plant and equipment 3 952 7 32 3 991 – 3 991

– Net movement in rehabilitation asset

3

(1 345) – – (1 345) – (1 345)

– Waste cost capitalised 64 725 – – 64 725 – 64 725

Total capital expenditure

67 332 7 32 67 371 – 67 371

Average number of employees

employed under contracts of service 304 6 22 332 22 354

1

No revenue was generated in BVI and Cyprus.

2

Calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility, insurance premium financing and credit underwriting

fees). Refer Note 17, Interest bearing loans and borrowings.

3

Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.

Included in revenue for the current year is revenue from two customers who individually contributed 10% or more to total revenue.

This revenue in total amounted to US$73.0 million arising from sales reported in the Belgium segment.

Segment non-current assets do not include deferred tax assets of US$5.1 million and financial instruments of US$1.3 million.

Included in the non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current assets located in the Company’s

country of domicile, the UK, of US$0.1 million.

Segment assets and liabilities do not include deferred tax assets and liabilities of US$5.1 million and US$82.5 million respectively.

Total revenue for the year is higher than that of the prior year mainly due to higher volume of carats sold of 109 697 (2020: 99 172).

An average sales price of US$1 835 (2020: US$1 908) was achieved.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

#### 1.1 Corporate information (continued)

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 or areas in which

operations are managed. The below measures of profit or loss, assets and liabilities are reviewed by the Chief Operating Decision-

Maker, i.e. Board of Directors. 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);

• Belgium (sales, marketing and manufacturing of diamonds);

• BVI, RSA, UK and Cyprus (technical and administrative services); and

• Botswana (diamond mining activities), classified as discontinued operation held for sale since  June .

Management monitors the operating results of the geographical units separately for the purpose of making decisions about

resource allocation and performance assessment.

Gem Diamonds Botswana (Proprietary) Limited (Ghaghoo Diamond Mine), which was classified as a discontinued operation held

for sale and disclosed separately from 2019, continues to be classified as such at year end as management remain committed to the

sales process. Refer Note 15, Asset held for sale.

During the prior year Gem Equity Group, a dormant investment holding company registered in the BVI, was abandoned. Following

the sale of its investments within the prior year the Board of Directors of Gem Equity Group resolved to voluntarily liquidate the

company. The company no longer exists as the liquidation was finalised on 2 July 2021 at a minimal liquidation professional fee

paid by Gem Diamonds Limited. There was no further impact on the Group’s results in the current year from the company. GEG was

classified as part of the BVI, RSA, UK and Cyprus segment. Calibrated Diamonds Investment Holdings (Proprietary) Limited (CDIH),

a 100% held subsidiary of Gem Diamonds Investments Limited was deregistered during the year after being dormant for several

years. There was no impact on the Group’s results in the current year from this company. CDIH was classified as part of the BVI, RSA,

UK and Cyprus segment.

Segment performance is evaluated based on operating profit or loss. Intersegment 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 diamond analysis and manufacturing

services.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

160

161

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

#### 1.1 Corporate information (continued)

1.1.3 Segment information (continued)

Year ended 31 December 2020

Lesotho

US$’000

Belgium

US$’000

BVI, RSA

UK and

Cyprus

1

US$’000

Total

Continuing

operations

US$’000

Discontinued

operation

2

US$’000

Total

US$’000

Revenue from contracts with

customers

Total revenue 186 801 189 825 5 997 382 623 – 382 623

Intersegment (186 183) (796) (5 997) (192 976) – (192 976)

External customers 618 189 029 – 189 647 – 189 647

Depreciation and amortisation 50 636 391 1 463 52 490 – 52 490

– Depreciation and mining asset

amortisation 7 216 391 1 463 9 070 – 9 070

– Waste stripping cost amortisation 43 420 – – 43 420 – 43 420

Share-based equity transactions 157 6 392 555 6 561

Segment operating prot/(loss) 49 061 1 354 (7 751) 42 664 (3 062) 39 602

Net finance costs (2 742) (6) (1 663) (4 411) (202) (4 613)

Prot/(loss) before tax 46 319 1 348 (9 414) 38 253 (3 264) 34 989

Income tax expense (10 790) (179) 258 (10 711) – (10 711)

Prot/(loss) for the year 35 529 1 169 (9 156) 27 542 (3 264) 24 278

EBITDA 59 038 1 748 (7 588) 53 198 (2 943) 50 255

Segment non-current assets 318 611 504 2 710 321 825 1 533 323 358

Segment assets 396 040 1 694 6 597 404 331 3 528 407 859

Segment liabilities 63 733 496 13 719 77 948 4 224 82 172

Other segment information

Net cash and short-term deposits

2

40 311 877 (6 565) 34 623 7 34 630

Capital expenditure

– Property, plant and equipment 1 535 7 29 1 571 – 1 571

– Net movement in rehabilitation asset

3

(3 125) – – (3 125) – (3 125)

– Waste cost capitalised 47 167 – – 47 167 – 47 167

Total capital expenditure 45 577 7 29 45 613 – 45 613

Average number of employees

employed under contracts of service 323 6 21 350 31 381

1

No revenue was generated in BVI and Cyprus.

2

Calculated as cash and short-term deposits less drawn down bank facilities (excluding the asset-based finance facility, insurance premium financing and rolling fees

capitalised to the Company’s US$30.0 million bank loan facility). Refer Note 17, Interest bearing loans and borrowings.

3

Non-cash movements in rehabilitation assets relating to changes in rehabilitation estimates for the Lesotho segment.

Included in annual revenue for the 2020 year is revenue from six customers who individually contributed 10% or more to total

revenue. This revenue in total amounted to US$66.9 million arising from sales reported in the Belgium segment.

Segment non-current assets do not include deferred tax assets of US$6.3 million and financial instruments of US$0.2 million.

Included in the non-current assets BVI, RSA, UK and Cyprus segment disclosure are non-current assets located in the Company’s

country of domicile, the UK, of US$0.3 million.

Segment assets and liabilities do not include deferred tax assets and liabilities of US$6.3 million and US$84.5 million respectively.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «ViÃ

1.2.1  Basis of preparation

The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS), as

issued by the International Accounting Standards Board (IASB). These financial statements have been prepared under the historical

cost basis except for assets and liabilities measured at fair value. The accounting policies have been consistently applied except for

the adoption of the new standards and interpretations detailed on the following pages.

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 presented in US dollar and rounded to the nearest thousand. The

financial results 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 1.2.28, Critical accounting estimates and judgements.

Changes in accounting policies and disclosures

New and amended standards and interpretations

The Group applied for the first-time certain standards and amendments, which are effective for annual periods beginning on or

after 1 January 2021 (unless otherwise stated). The Group has not early adopted any other standard, interpretation or amendment

that has been issued but is not yet effective.

The nature and effect of these changes as a result of the adoption of these new pronouncements are described below. Other than

the changes described below, the accounting policies adopted are consistent with those of the previous financial year.

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 – Interest rate benchmark reform Phase 2

The amendment addresses issues that might affect financial reporting when an existing interest rate benchmark is replaced with

an alternative benchmark interest rate. In the prior year, the Group and its funders commenced a comprehensive debt refinancing

programme of the Group’s facilities. The refinancing programme incorporates the consideration of any risk posed to the Group by

phase two of the IBOR reform, which was effective from 1 January 2021. The IBOR reform may potentially have an impact on the

South African JIBAR, and LIBOR linked interest-bearing loans and borrowings The interest-bearing loans and borrowings subject

to the South African JIBAR rate include the LSL215.0 million unsecured project debt facility between Letšeng Diamonds, Nedbank

Limited and the Export Credit Insurance Corporation (ECIC) and the ZAR300.0 million revolving credit facility between Letšeng

Diamonds and Nedbank Limited. The interest-bearing loans and borrowings subject to the US$ three-month LIBOR rate include the

US$30.0 million revolving credit facility between Gem Diamonds Limited, Nedbank Limited, Standard Bank of South Africa Limited

and Firstrand Bank Limited. Both the South African JIBAR and the LIBOR rates are yet to transition to alternative benchmark rates at

the reporting period end. Refer to Note 17, Interest- bearing loans and borrowings for more information regarding the maturities

and the related benchmark rates subject to the IBOR reform on these loans and/or borrowing facilities. At year end, it is not possible

to estimate the potential impact of the amendment as no alternative rates have been published by the regulatory bodies or

negotiated with the funders, however, in terms of the agreement, the LIBOR rate on the US$30.0 million revolving credit facility of

Gem Diamonds Limited will be replaced by 30 June 2022. The Group will continue to assess the impact of the interest rate benchmark

reform as the revised benchmark rates are published or negotiated with the funders. This assessment will include considerations on

how the practical expedients available within the amendments will impact the Group’s interest rate benchmarking.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

162

163

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.1  Basis of preparation (continued)

New standards issued but not yet eective

The new standards, amendments and improvements that are issued, but not yet effective, up to the date of issuance of the Group’s

consolidated financial statements are listed in the table below. These standards, amendments and improvements have not been

early adopted and it is expected that, where applicable, these standards, amendments and improvements will be adopted on each

respective effective date. The impact of the adoption of these standards cannot be reasonably assessed at this stage.

New standards,

amendments, and

improvements Description Eective date\*

IFRS 17 Insurance contracts 1 January 2023

Amendment to IFRS 16 Covid 19-Related Rent Concessions beyond 30 June 2021 1 April 2021

Amendments to IAS 37 Onerous contracts – cost of fulfilling a contract 1 January 2022

Amendments to IFRS 3 Reference to the Conceptual Framework 1 January 2022

Amendments to IAS 16 Property, plant and equipment proceeds before intended use 1 January 2022

Amendments to IAS 1 Classification of liabilities as current or non-current 1 January 2023

Amendments to IAS 8 Definition of Accounting Estimates 1 January 2023

Amendments to IAS 1

and IFRS Practice Statement 2

Disclosure of Accounting Policies 1 January 2023

Amendments to IAS 12 Deferred Tax related Assets and Liabilities arising from a Single Transaction 1 January 2023

Amendments to IFRS 10 and

IAS 28

Sale or Contribution of Assets between an Investor and its Associate

or Joint Venture

Pending

Improvement IFRS 1 Subsidiary as a first-time adopter 1 January 2022

Improvement IFRS 9 Fees in the ’10 per cent’ test for derecognition of financial liabilities 1 January 2022

Improvement IAS 41 Agriculture – Taxation in fair value measurements 1 January 2022

\* 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, Europe and the United Kingdom. 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 and country

risks 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 Group’s business activities, together with the factors likely to affect its future development, performance and position have

been assessed by management. The financial position of the Group, its cash flows and liquidity position are presented in the Annual

Report and Accounts. In addition, Note 26, Financial risk management, includes the Group’s objectives, policies and processes for

managing its capital; its financial risk management objectives; details of its financial instruments; and its exposures to market risk,

credit risk and liquidity risk.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.2 Going concern (continued)

The Group’s net cash at 31 December 2021 was US$20.9 million (31 December 2020: net cash US$34.6 million). Following the

successful refinancing of the Group’s facilities for a three-year period from 23 December 2021, the Group’s undrawn facilities

at 31 December 2021 amounted to US$74.3 million, resulting in strong liquidity (defined as net cash and undrawn facilities) of

US$95.2 million (31 December 2020: US$95.4 million). The Group’s Revolving Credit facilities, which total US$77.0 million when fully

unutilised, mature on 22 December 2024. The balance of US$6.3 million is a general banking facility with no set expiry date, but is

reviewed annually (Refer Note 17, Interest-bearing loans and borrowings). The uncertainty that exists around the ongoing impact

of COVID-19 on future cashflows was considered by performing sensitivities on diamond pricing and diamond production volumes

and continued strengthening of the US$ against the Lesotho Loti.

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 has 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 Group Financial Statements.

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.

1.2.3 Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company

as at 31 December 2021.

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 of the following criteria must be met: (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 intragroup balances and transactions, including unrealised gains and losses arising

from them, are eliminated in full.

Non-controlling interests

Non-controlling interests represent the equity in a subsidiary not attributable, directly or 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.

1.2.4 Exploration and evaluation expenditure

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 statement of profit or loss.

Licence costs paid in connection with a right to explore in an existing exploration area are capitalised, as a component of property,

plant and equipment, and amortised over the term of the permit.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

164

165

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.4 Exploration and evaluation expenditure (continued)

Exploration and evaluation expenditure is capitalised as incurred. Capitalised exploration expenditure is recorded as a component

of property, plant and equipment, as an exploration and development asset, 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 statement of profit or loss. 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.

Management is required to make certain estimates and judgements when determining whether the commercial viability of an

identified resource has been met and when determining whether indicators of impairment exist.

1.2.5 Development expenditure

When proved reserves are determined and development is sanctioned, capitalised exploration and evaluation expenditure is

reclassified from exploration phase to development phase. As the asset is not available for use, during the development phase,

it is not depreciated. On completion of the development phase, any capitalised exploration and evaluation expenditure already

capitalised to a development asset, 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. Management is required to make certain estimates

and judgements when determining whether indicators of impairment exist.

1.2.6 Property, plant and equipment

Property, plant and equipment are 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, to get the asset in its condition and

location for its intended use among others, professional fees, and for qualifying assets, borrowing costs capitalised in accordance

with the Group’s accounting policies.

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 statement of profit or loss 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

1

Mining assets Straight line Lesser of life of mine or period of mining lease

Decommissioning assets Straight line Lesser of life of mine or period of mining lease

Leasehold improvements Straight line Three years; or lesser of life of mine or period of mining lease

Plant and equipment Straight line Three to 15 years

Other assets Straight line Two to eight years

1

Certain asset classes are depreciated over the lesser of life of mine, or period of mining lease. Prior to 1 January 2020, the period of mining lease was shorter than the life of

mine. On 1 January 2020 a reassessment of assets’ useful lives was performed at Letšeng which resulted in a revision of assets’ useful lives being made from a remaining useful

life of five years (original period of mining lease) to 15 years (life of mine) due to the extension of the Letšeng mining lease. Furthermore, also within the prior year the useful life

of plant and equipment was reassessed from a useful life of 10 years to the remaining life of mine (15 years); and the useful life of vehicles, categorised within the “Other assets

category”, were reassessed from five years to eight years.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.6 Property, plant and equipment (continued)

An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal (i.e., at the date

the recipient obtains control) or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on

derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is

included in the statement of profit or loss when the asset is derecognised.

The asset’s residual values, useful lives and methods of depreciation are reviewed annually. Changes in the expected residual values,

expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to

modify the depreciation period or method, as appropriate, and are treated as changes in accounting estimates, and adjusted for

prospectively, if appropriate.

Pre-production and in production stripping costs

Costs associated with removal of waste overburden are classified as stripping costs.

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 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 non-current asset recognised is referred to as a ‘stripping activity asset’ and is separately disclosed in Note 8, Property, plant and

equipment. If all the criteria are not met, the production stripping costs are charged to the statement of profit or loss 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. Given the deep

vertical nature of the pit, all stripping costs are capitalised on a cut/component basis for each cut in the mine planning process.

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. The net book value of the stripping asset and future expected stripping

costs to be incurred for that component is depreciated using the units of production over the proven and probable reserves, in

order to match the total stripping costs of the cut to the economic benefits created by the cut. As a result, the stripping activity asset

is carried at cost less amortisation and any impairment losses. The future stripping costs of the cut/component and the expected

ore to be mined of that cut/component 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.

Management applies judgement to calculate and allocate the production stripping costs to inventory and/or the stripping activity

asset(s) as referred under Note 1.2.28, Critical accounting estimates and judgements.

1.2.7 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset that necessarily takes a

substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other borrowing

costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in

connection with the borrowing of funds.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

166

167

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.8  Non-current assets held for sale and discontinued operations

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally

through a sale transaction rather than through continuing use. Such non-current assets and disposal groups classified as held for

sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly

attributable to the sale, excluding the finance costs and income tax expense.

The criteria for held-for-sale classification is regarded as met only when the sale is highly probable, and the asset or disposal group

is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that

significant changes to the sale will be made or that it will be withdrawn. Management must be committed to the sale expected

within one year from the date of the classification.

Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale.

Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position.

A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is

classified as held for sale, and:

(a) represents a separate major line of business or geographical area of operations;

(b) is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or

(c) is a subsidiary acquired exclusively with a view to re-sale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or

loss after tax from discontinued operations in the statement of profit or loss.

Additional disclosures are provided in Note 15, Assets held for sale. All other notes to the financial statements include amounts for

continuing operations, unless indicated otherwise.

1.2.9 Goodwill

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 fair value of the net

identifiable amounts of the assets acquired and the liabilities assumed in 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 net identifiable amounts of the assets acquired and the liabilities

assumed in the business combination, 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 CGUs (or groups

of CGUs) 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 shall not be larger than an operating segment before

aggregation.

Where goodwill forms part of a CGU 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 CGU retained.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.10 Financial instruments

The Group shall only recognise a financial instrument when the Group becomes a party to the contractual provisions of the

instrument. A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity

instrument of another entity.

Financial assets

Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every

reporting date based on the business model for managing these financial assets and the contractual cash flow characteristics.

Currently the Group only has financial assets at amortised cost which consist of receivables and other assets, and cash and short-

term deposits which is held within a business model to collect contractual cash flows and for which the contractual cash flow

characteristics are solely payments of principal interest. When financial assets are recognised initially, they are measured at fair value

plus (in the case of financial assets not at fair value through profit or loss) directly attributable transaction costs. Purchases or sales

of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place

(regular way trades) are recognised on the trade date.

Financial assets at amortised cost

Financial assets at amortised cost 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, if the

time value of money is significant, less any allowance for impairment. Gains and losses are recognised in the statement of profit or

loss when the financial assets at amortised cost are derecognised or impaired, as well as through the amortisation process.

Derecognition

A financial asset is primarily derecognised when the rights to receive cash flows from the asset have expired or the Group has

transferred its rights to receive cash flows from the asset. Gains or losses from derecognition of financial assets are recognised in the

statement of profit or loss.

Financial liabilities

The Groups Interest-bearing loans and borrowings and trade and other payables financial liabilities are subsequently stated at

amortised cost using the effective interest rate method, with any difference between proceeds (net of transaction costs) and the

redemption value being recognised in the statement of profit or loss, unless capitalised in accordance with Note 1.2.7, Borrowing

costs, over the contractual period of the financial liability.

Derecognition

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Gains or losses from

derecognition of financial liabilities are recognised in the statement of profit or loss.

1.2.11 Fair value measurement

The Group’s financial instruments or transactions that are classified to be measured at fair value on a recurring basis are measured at

fair value at each reporting date and financial instruments and transactions that are measured at fair value on a non-recurring basis

are measured at fair value at the reporting date for which fair value measurement is relevant.

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.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

168

169

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.11 Fair value measurement (continued)

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is 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 that are measured at fair value on a recurring and non-

recurring basis, the Group determines whether transfers have occurred between levels in the fair value 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-nancial assets

The Group assesses, at each reporting date, whether there is an indication that an asset (or CGU) may be impaired in accordance

with IAS 36. Goodwill is assessed for impairment on an annual basis and when circumstances indicate that the carrying value

may be impaired. 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.

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 statement

of profit or loss. 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. Impairment losses relating to goodwill cannot

be reversed in future periods.

Financial assets

Financial assets carried at amortised cost

The Group recognises an allowance for expected credit losses (ECLs) for all financial assets at amortised costs in the statement of profit

or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows

that the Group expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will

include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided

for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit

exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit

losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

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, and other short-term, highly liquid investments with original maturities of three

months or less.

For the purpose of the consolidated statement of cash flows, 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 Group’s presentation

currency are translated into the Group’s presentation currency as follows:

• statement of financial position items are translated at the closing rate at the reporting date;

• income and expenses for each statement of profit or loss 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 statement of profit or loss transactions are detailed in

Note 16, 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 statement of

profit or loss. 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.

Equity-settled transactions

The cost of equity-settled transactions with employees are measured by reference to the fair value of the equity instruments 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).

On a cumulative basis, over the vesting period of an award, 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.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

170

171

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.17 Share-based payments (continued)

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 of the vesting conditions or otherwise of the non-market vesting

conditions and of the number of equity instruments that is expected to 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 statement of profit or loss, 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, due to the fact that it would not be beneficial to the

employees.

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 statement of profit or loss 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 are reversed and recognised in income immediately

within the year of forfeiture.

Management applies judgement when determining whether share options relating to employees who resigned before the end of

the service condition period are cancelled or forfeited as referred under Note 1.2.28, Critical accounting estimates and judgements.

The Group periodically releases the share-based equity reserve to retained earnings in relation to lapsed, forfeited and exercised

options.

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

discount 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 a finance cost.

1.2.19 Restoration and rehabilitation provision

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, using a pre-

tax discount rate. Discount rates used are specific to the country in which the operation is located or reasonable alternatives if in-

country information is not available. 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 a decommissioning

asset where it gives rise to a future benefit and depreciated over future production from the operation to which it relates.

Management is required to make significant estimates and assumptions when determining the amount of the restoration and

rehabilitation provisions as referred under Note 1.2.28, Critical accounting estimates and judgements.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.20 Taxation

Income tax for the period comprises current and deferred tax. Income tax is recognised in the statement of profit or loss except to

the extent that it relates to items charged or credited directly to equity or to other comprehensive income, in which case the tax

consequences are recognised directly in equity and other comprehensive income respectively. 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.

The Group offsets deferred income tax assets and deferred income tax liabilities if, and only if, it has a legally enforceable right to

set off current tax assets and current tax liabilities and the deferred income tax assets and deferred income tax liabilities relate to

income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either

to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future

period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

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 statement of profit or loss 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 statement of profit or loss.

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 measured

at the amount the obligation is expected to be settled or discounted to present value using a pre-tax discount rate where relevant

or where time value of money is expected to be significant. 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.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

172

173

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.22 Leases

At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement

whether it depends on a specified asset, whether the Group obtains substantially all the economic benefits from the use of that

asset, and whether the Group has the right to direct the use of the asset. For leases that contain one lease component and one or

more additional lease or non-lease components, the Group allocates the consideration in the contract to each lease and non-lease

component on the basis of the individual relative stand-alone price of all lease and non-lease components and the aggregate

stand-alone price of all lease and non-lease components. The lease component is accounted for under the requirements of IFRS 16

and the non-lease component is accounted for using the relevant IFRS standard based on the nature of the non-lease component.

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (ie, the date the underlying asset is available

for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for

any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial

direct costs incurred, costs to dismantle, restore and remove the right-of-use asset, and lease payments made at or before the

commencement date less any lease incentives received. After the commencement date, the right-of-use assets are measured

using a cost model. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated

useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the

exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. Right-of-use assets are subject

to impairment. Refer Note 1.2.12, Impairments.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to

be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease

incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual

value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the

Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. The

variable lease payments that do not depend on an index or a rate are recognised as an expense in the period on which the event

or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement

date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities

is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease

liabilities is remeasured if there is a modification to the terms and conditions of the lease or if there is a lease reassessment.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (ie, those leases that have a lease term of

12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets

recognition exemption to leases of office equipment that are considered to be qualitatively and quantitatively of low value. Lease

payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term.

Group as a lessor

Where the Group is a lessor, it determines at inception whether the lease is a finance or operating lease. When a lease transfers

substantially all the risks and rewards of ownership of the underlying asset then the lease is a finance lease; otherwise the lease is

an operating lease.

Where the Group is an intermediate lessor, the interest in the head lease and the sub-lease is accounted for separately and the lease

classification of a sub-lease is determined by reference to the Right-of-use-asset arising from the head lease. Income from operating

leases is recognised on a straight-line basis over the lease term.

1.2.23 Revenue from contracts with customers

Revenue comprises net invoiced diamond sales to customers excluding VAT. Diamond sales are made through a competitive tender

process and recognised when the Group’s performance obligations have been satisfied at the time the buyer obtains control of the

diamond(s), at an amount that the Group expects to be entitled in exchange for the diamond(s). Where the Group makes rough

diamond sales to customers and retains a right to an interest in their future sale as polished diamonds, the Group records the sale of

the rough diamonds but such contingent revenue on the onward sale is only recognised at the date when the polished diamonds

are sold or when polished sales prices are mutually agreed between the customer and the Group.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.23 Revenue from contracts with customers (continued)

The following revenue streams are recognised:

• rough diamonds which are sold through a competitive tender process, partnership agreements and joint operation

arrangements;

• polished diamonds and other products which are sold through direct sales channels;

• additional uplift (on the value from rough to polished) on partnership arrangements; and

• additional uplift (on the value from rough to polished) on joint operation arrangements.

The sale of rough diamonds is the core business of the Group, with other revenue streams contributing marginally to total revenue.

Revenue through joint operation arrangements is recognised for the sale of the rough diamond according to each party’s

percentage entitlement as per the joint operation arrangement. Contractual agreements are entered into between the Group

and the joint operation partner whereby both parties control jointly the cutting and polishing activities relating to the diamond.

All decisions pertaining to the cutting and polishing of the diamonds require unanimous consent from both parties. Once these

activities are complete, the polished diamond is sold, after which the revenue on the remaining percentage of the rough diamond

is recognised, together with additional uplift on the joint operation arrangement. The Group portion of inventories related to these

transactions is included in the total inventories balance.

Revenue through partnership arrangements is recognised for the sale of the rough diamond, with an additional uplift based on

the polished margin achieved. Management recognises the revenue on the sale of the rough diamond when it is sold to a third

party, as there is no continuing involvement by management in the cutting and polishing process and control has passed to the

third party. Revenue from additional uplift is considered to be a variable consideration. This variable consideration will generally

be significantly constrained. This is on the basis that the ultimate additional uplift received will depend on a range of factors that

are highly susceptible to factors outside the Group’s influence. Management recognises revenue on the additional uplift when the

polished diamond is sold by the third party or the polished sales prices are mutually agreed between the third party and the Group

and the additional uplift is guaranteed, as this is the point in time at which the significant constraints are lifted or resolved from the

Polished Margin revenue.

Rendering of service

Revenue from services relating to third-party diamond manufacturing is recognised in the accounting period in which the services

are rendered, when the Group’s performance obligations have been satisfied, at an amount that the Group expects to be entitled

to in exchange for the services.

Contract assets

A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group transfers

goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised

for the earned consideration that is conditional. The Group does not have any contract assets as performance and a right to

consideration occurs within a short period of time and all rights to consideration are unconditional.

Contract liabilities

A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration

(or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or

services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier).

Contract liabilities are recognised as revenue when the Group performs under the contract. The Group does not have any contract

liabilities as the transfer of goods or services occurs within a short period of time of receiving the consideration.

1.2.24 Interest income

Interest income is recognised on a time proportion basis using the effective interest rate method.

1.2.25 Dividend income

Dividend income is recognised when the amount of the dividend can be reliably measured and the Group’s right to receive

payment is established.

1.2.26 Finance costs

Finance costs are recognised on a time proportion basis using the effective interest rate method.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

174

175

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.27 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.

1.2.28 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 income and expenses 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.

COVID-19

The Group has considered the impact of COVID-19 on its significant accounting judgements and estimates. The Group’s main

source of estimation uncertainty is in relation to assumptions used for the assessment of impairment and impairment reversal of

assets. No further significant estimates have been identified as a result of COVID-19, although the pandemic has increased the level

of uncertainty inherent in all future cash flow forecasts.

Task Force on Climate-related Financial Disclosures (TCFD)

In preparing the Consolidated Financial Statements management has considered the impact of climate change, particularly in the

context of the disclosures included in the Strategic Report this year detailing the phased approach strategy which the Group has

adopted in implementing the TCFD requirements and the high level overview of some climate-related risks and opportunities. These

considerations did not have a material impact on the financial reporting estimates and judgements, consistent with the assessment

that climate change is not expected to have a significant impact on the Group’s going concern assessment to March 2023 nor viability

over the next three years. These considerations also had no material impact on any Property, Plant and Equipment or Commitments.

For Letšeng, the physical risks identified of extreme weather conditions, are similar to its current operating conditions of drought,

high wind, extreme precipitation and cold events. The operation is therefore well set up to manage these conditions within its

current reporting and accounting framework. As users of grid-supplied and fossil fuel energy, our short-term focus is on improving

energy efficiencies in our operational processes and to reducing combustion related fossil fuel use. Due to the uncertainty of the

cost and timing of implementation of carbon-related taxes, the impact of such taxes on the Group’s operations and cash flows has

been excluded from the going concern, viability assessment and impairment review.

Estimates

Ore reserves and associated life of mine (LoM)

There are numerous uncertainties inherent in estimating ore reserves and the associated LoM. Therefore, the Group must make

a number of assumptions in making those estimations, including assumptions as to the prices of diamonds, 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 diamonds, 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 LoM estimates, the associated depreciation rates, residual values, waste stripping and amortisation ratios, and environmental

provisions are reassessed to take into account the revised LoM estimate. Refer Note 8, Property, plant and equipment, Note 10,

Intangible assets and Note 21, Provisions.

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. Refer Note 21, Provisions, for further detail.

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.28 Critical accounting estimates and judgements (continued)

Judgement

Impairment reviews

The Group determines if goodwill is impaired at least on an annual basis, while all other significant operations are tested for

impairment when there are potential indicators which may require impairment review. This requires an estimation of the recoverable

amount of the relevant CGU under review. Recoverable amount is the higher of fair value less costs to sell and value in use. While

conducting an impairment review of its assets using value-in-use impairment models, the Group exercises judgement in making

assumptions about future rough diamond prices, exchange rates, volumes of production, ore reserves and resources included in the

current LoM plans, production costs and macro-economic factors such as inflation and discount rates. Changes in estimates used

can result in significant changes to the consolidated statement of profit or loss and consolidated statement of financial position.

The results of the impairment testing performed did not indicate any impairments in the current year. Refer Note 11, Impairment

testing, for further estimates and judgements applied.

The key assumptions used in the recoverable amount calculations, determined on a value-in-use basis, are listed below:

Valuation basis

Discounted present value of future cash flows.

LoM and recoverable value of reserves and resources

Economically recoverable reserves and resources, carats recoverable and grades achievable are based on management’s

expectations of the availability of reserves and resources at mine sites and technical studies undertaken by in-house and third-party

specialists. Reserves remaining after the current LoM plan have not been included in determining the value in use of the operations.

The LoM of Letšeng is to 2037 (2020: 2034).

Cost and inflation rate

Operating costs for Letšeng are determined based on management’s experience and the use of contractors over a period of time

whose costs are fairly reasonably determinable. Mining and processing costs in the short to medium term have been based on the

agreements with the relevant contractors. In the longer term, management has applied local inflation rates of 5.0% (2020: 4.0% to 5.3%)

for operating costs in addition to a depth escalation factor for mining costs as a result of mining in deeper areas within both pits.

Capital costs in the short-term has been based on management’s capital programme after which a fixed percentage of operating

costs have been applied to determine the capital costs necessary to maintain current levels of operations.

Exchange rates

Exchange rates are estimated based on an assessment at current market fundamentals and long-term expectations. The US

dollar/Lesotho loti (LSL) exchange rate used was determined with reference to the closing rate at 31 December 2021 of LSL15.96

(31 December 2020: LSL14.69).

Diamond prices

The medium-term diamond prices used in the impairment test have been set with reference to recent prices achieved, recent

market trends and the Group’s medium-term forecast. Long-term diamond price escalation reflects the Group’s assessment of

market supply/demand fundamentals.

Discount rate

The discount rate of 11.5% for revenue (2020: 10.8%) and 13.4% for costs (2020: 14.3%) used for Letšeng represents the before-tax

risk-free rate adjusted for market risk, volatility and risks specific to the asset and its operating jurisdiction.

Market capitalisation

In the instance where the Group’s asset carrying values exceed market capitalisation, this results in an indicator of impairment.

The Group believes that this position does not represent an impairment as all significant operations were assessed for impairment

during the year and no impairments were recognised.

Sensitivity

The value in use for Letšeng indicated sufficient headroom, and the further changes to key assumptions which could result in

impairment are disclosed in Note 11, Impairment testing.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

176

177

#### 1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.28 Critical accounting estimates and judgements (continued)

Provision for restoration and rehabilitation and deferred tax thereon

Judgement is applied when calculating the closure costs associated with the restoration of the Letšeng mine site. These include

the following:

• There are no costs associated with the backfill of the open pits due to no in-country legislation requirements; and

• There are no costs associated with dismantling permanent buildings as these will be handed over to various parties in

consultation with the Lesotho Government when the end of life is reached.

Deferred tax assets are recognised on provisions for rehabilitation as management will ensure appropriate tax planning to ensure

sufficient taxable income is available to utilise all deductions in the future.

Capitalised stripping costs (deferred waste)

Waste removal costs (stripping costs) are incurred during the development and production phases at surface mining operations.

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.

Judgements and estimates are also used to apply the amortisation rate, future stripping costs of the cut/component and the

expected ore to be mined of that cut/component. Refer Note 8, 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. Refer Note 27, Share-based payments, for further detail.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

£°Ó -Õ>ÀÞ v Ã}wV>Ì >VVÕÌ} «Vià VÌÕi`®

1.2.28 Critical accounting estimates and judgements (continued)

Identifying uncertainties over tax treatments

As disclosed in the prior year, an amended tax assessment was issued to Letšeng by the Lesotho Revenue Authority (LRA) in

December 2019, contradicting the application of certain tax treatments in the current Lesotho Income Tax Act 1993. An objection to

the amended tax assessment was lodged with the LRA in March 2020, which was supported by the opinion of senior counsel. The

LRA subsequently lodged a court application for the review and setting aside of the applicable regulations to the Lesotho High Court

pertaining to this matter, which Letšeng is opposing and a court date is expected to be set in June 2022.

On 7 February 2022, Letšeng received an application from the LRA to amend its original grounds for the court application. Letšeng’s

counsel continues to review the LRA’s proposed amendment and has opposed the new application by the LRA.

Management do not believe an uncertain tax position exists as:

• there is no ambiguity in the application of the published Lesotho Income Tax Act;

• there has been no change in the application of the Income Tax Act and resulting tax; and

• senior counsel advice, which is legally privileged, has been obtained for the new circumstances. This advice still reflects good

prospects of success.

No provision or contingent liability, relating to the amended tax assessment in question, is required to be raised in the 2021 Annual

Financial Statements.

Equipment and service lease

The major components of Letšeng’s ore-extraction mining activities are outsourced to a mining contractor. The mining contractor

performs these functions using their own equipment. Management applied judgement when evaluating whether the contract

between Letšeng and the mining contractor contained a lease. While it was concluded there was a lease, lease payments are

variable in nature as the lease payment vary based on the tonnes of ore and waste mined and hence no right of use asset or liability

could be measured. A portion of the lease payment is expensed in the consolidated statement of profit or loss and the portion

relating to waste removal/stripping costs is capitalised to the waste stripping asset in the proportions referred to under the estimate

and judgements applied to the Capitalised stripping costs (deferred waste) above. Refer Note 24, Commitments and contingencies.

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

178

179

2021

US$’000

2020

US$’000

2.  REVENUE FROM CONTRACTS WITH CUSTOMERS

Sale of goods 201 610 189 028

Partnership arrangements  235 618

Rendering of services 14 1

201 859 189 647

The revenue from the sale of goods mainly represents the sale of rough diamonds, for which

revenue is recognised at the point in time at which control transfers.

The revenue from partnership arrangements of US$0.2 million represents the additional uplift

from partnership arrangements for which revenue is recognised when the significant constraints

are lifted or resolved and the amount of revenue is guaranteed (2020: US$0.6 million). At year end

894 carats (2020: 485 carats) have significant constraints in recognising revenue relating to the

additional uplift.

The revenue from the rendering of services mainly represents the sales of rough diamonds on

behalf of third parties, for which revenue is recognised at the time when performance obligations

are met, and services rendered on third-party diamond analysis and manufacturing, for which the

revenue is recognised over time as the services are rendered.

No revenue was generated from joint operation arrangements during the current or prior year

(2021: Nil) (2020: Nil).

#### 3. OTHER OPERATING (EXPENSES)/INCOME

Sundry income 116 26

Sundry expenses (12) (23)

Profit/(loss) on disposal and scrapping of property, plant and equipment 16 (30)

COVID-19 costs/standing costs (711) (3 884)

(591) (3 911)

COVID-19 standing costs

During the prior year, COVID-19 standing costs consisted of US$2.9 million which related to

certain standing fixed mining contract and ore stockpile movement costs which were incurred

during the brief period that the mine suspended operations in compliance with the Lesotho

lockdown order and was placed on care and maintenance, and were recognised as abnormal

costs and expensed immediately in the Consolidated Statement of Profit or Loss. The remaining

US$1.0 million related to costs incurred to implement protocols throughout the Group to address

the risk and curb the spread of COVID-19. In the current year, there were no abnormal standing

costs incurred. Costs of US$0.7 million were incurred relating to continued protocols for curbing

the spread of the virus.

2021

US$’000

2020

US$’000

#### 4. OPERATING PROFIT

Operating profit includes operating costs and income as listed below:

Depreciation and amortisation

Depreciation and amortisation excluding waste stripping costs (6 927) (7 027)

Depreciation of right-of-use assets (1 685) (2 043)

Waste stripping costs amortised (46 813) (43 420)

(55 425) (52 490)

Inventories

Cost of inventories recognised as an expense (113 737) (105 524)

Foreign exchange

Foreign exchange gain/(loss) 1 929 (880)

Lease expenses not included in lease liability

Mine site property (170) (69)

Equipment and service lease (8 462) (7 280)

Contingent rental – Alluvial Ventures (6 483) (5 190)

(15 115) (12 539)

Auditor’s remuneration – EY

Group financial statements (238) (296)

Statutory (190) (176)

(428) (472)

Auditor’s remuneration – other audit rms

Statutory (20) (17)

Other non-audit fees – EY

Tax compliance – (5)

Tax services advisory and consultancy – (13)

Other services

1

(41) –

(41) (18)

Other non-audit fees – other audit rms

Tax services advisory and consultancy (45) (15)

Employee benets expense

Salaries and wages

2

(17 767) (18 781)

Underlying earnings before interest, tax, depreciation and mining asset

amortisation (underlying EBITDA) before discontinued operation

Underlying EBITDA is shown, as the Directors consider this measure to be a relevant guide to

the operational performance of the Group and excludes such non-operating costs and income

as listed below. The reconciliation from operating profit to underlying EBITDA is as follows:

Operating profit 50 411 42 664

Other operating (income)/expense

3

(120) 27

Foreign exchange (gain)/loss (1 929) 880

Share-based payments 395 555

Depreciation and amortisation (excluding waste stripping cost amortised) 8 612 9 070

Underlying EBITDA before discontinued operation 57 369 53 196

1

Includes services related to forensic investigation performed on allegations of diesel theft at Letšeng.

2

Includes contributions to defined contribution plan of US$0.6 million (31 December 2020: US$0.5 million). An average of 354 employees excluding contractors were employed

during the period (2020: 381).

3

Excludes COVID-19 costs/standing costs which are considered as operating costs.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

180

181

2021

US$’000

2020

US$’000

#### 5. NET FINANCE COSTS

Finance income

Bank deposits 197 358

Other 5 24

Total nance income

202 382

Finance costs

Finance costs on borrowings (2 232) (3 297)

Finance costs on lease liabilities (525) (608)

Finance costs on unwinding of rehabilitation and decommissioning provision (1 187) (888)

Total nance costs

(3 944) (4 793)

(3 742) (4 411)

6.  INCOME TAX EXPENSE

Current

– Foreign (10 197) (11 593)

Withholding tax

– Foreign (639) (529)

Deferred

– Foreign (4 726) 1 411

Income tax expense

(15 562) (10 711)

Profit before taxation from continuing operations 46 669 38 253

% %

Reconciliation of tax rate

Applicable income tax rate 25.0 25.0

Permanent differences 2.3

1

(3.0)

Unrecognised deferred tax assets 3.1 3.0

Effect of foreign tax at different rates 1.6 1.7

Withholding tax 1.4 1.3

Eective income tax rate

33.4 28.0

The tax rate reconciles to the statutory Lesotho corporation tax rate of 25.0% rather than the statutory UK corporation tax rate of

19.0% as this is the jurisdiction in which the majority of the Group’s taxes are incurred.

1

Permanent differences mainly comprise CSI at Letšeng Diamonds, legal fees of a capital nature and share-based payments, all of which are non-deductible for tax purposes.

2021

US$’000

2020

US$’000

#### 7. EARNINGS PER SHARE

The following reflects the income and share data used in the basic and diluted earnings per

share computations:

Profit for the year: 27 353 24 278

Continuing operations 31 107 27 542

Discontinued operation (3 754) (3 264)

Less: Non-controlling interests (12 586) (10 637)

Net prot attributable to ordinary equity holders of the parent for basic and

diluted earnings 14 767 13 641

Number of ordinary shares outstanding during the year (‘000) 140 516 139 612

Weighted number of share options exercised during the year (‘000) (223) (339)

Weighted average number of ordinary shares outstanding during the year (‘000) 140 293 139 273

Basic earnings per share attributable to ordinary equity holders of the parent (cents) 10.5 9.8

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.

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.

2021

Number of

shares

2020

Number of

shares

Weighted average number of ordinary shares outstanding during the year 140 293 139 273

Effect of dilution:

– Future share awards under the Employee Share Option Plan 1 796 2 341

Weighted average number of ordinary shares outstanding during the year adjusted for the

effect of dilution 142 089 141 614

Diluted earnings per share attributable to ordinary equity holders of the parent (cents) 10.4 9.6

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.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

182

183

#### 8. PROPERTY, PLANT AND EQUIPMENT

Stripping

activity

asset

US$’000

Mining

asset

US$’000

De-

commis-

sioning

assets

US$’000

Lease-

hold

improve-

ment

US$’000

Plant and

equipment

US$’000

Other

assets

1

US$’000

Total

US$’000

As at 31 December 2021

Cost

Balance at 1 January 2021 587 355 115 050 4 119 55 955 79 468 7 601 849 548

Additions 64 725 – – 36 3 850 105 68 716

Net movement in rehabilitation

provision (1 069) – – (138) (138) – (1 345)

Disposals – – – (508) (932) (191) (1 631)

Reclassifications – – – 473 (810) 337 –

Foreign exchange differences (51 453) (7 051) (350) (4 400) (6 934) (548) (70 736)

Balance at

31December2021 599 558 107 999 3 769 51 418 74 504 7 304 844 552

Accumulated depreciation/

amortisation/impairment

Balance at 1 January 2021 401 443 49 189 4 119 26 204 59 150 5 438 545 543

Charge for the year 46 708 910 – 3 187 2 375 560 53 740

Disposals – – – (508) (929) (187) (1 624)

Foreign exchange differences (33 445) (5 225) (350) (2 235) (5 052) (427) (46 734)

Balance at

31December2021 414 706 44 874 3 769 26 648 55 544 5 384 550 925

Net book value at

31December2021 184 852 63 125 – 24 770 18 960 1 920 293 627



Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.

#### 8. PROPERTY, PLANT AND EQUIPMENT (continued)

Stripping

activity

asset

US$’000

Mining

asset

US$’000

De-

commis-

sioning

assets

US$’000

Lease-

hold

improve-

ment

US$’000

Plant and

equipment

US$’000

Other

assets

1

US$’000

Total

US$’000

As at 31December2020

Cost

Balance at 1 January 2020 562 583 122 061 5 822 58 219 84 757 6 999 840 441

Additions 47 167 – – 7 1 561 3 48 738

Net movement in rehabilitation

provision (990) – (1 373) (381) (381) – (3 125)

Disposals –––––(85) (85)

Scrapping

2

– (2 929) – (610) (993) (444) (4 976)

Reclassifications – 504 – 674 (1 751) 573 –

Foreign exchange differences (21 405) (4 586) (330) (1 954) (3 725) 555 (31 445)

Balance at 31December2020 587 355 115 050 4 119 55 955 79 468 7 601 849 548

Accumulated depreciation/

amortisation/impairment

Balance at 1 January 2020 369 388 53 936 4 102 23 901 60 128 5 133 516 588

Charge for the year

3

43 420 1 174 88 2 834 2 513 458 50 487

Disposals –––––(41) (41)

Scrapping

2

– (2 929) – (567) (987) (488) (4 971)

Foreign exchange differences (11 365) (2 992) (71) 36 (2 504) 376 (16 520)

Balance at 31December2020 401 443 49 189 4 119 26 204 59 150 5 438 545 543

Net book value at

31December 2020 185 912 65 861 – 29 751 20 318 2 163 304 005



Other assets comprise motor vehicles, computer equipment, furniture and fittings, and office equipment.

2

Certain assets at Letšeng that were no longer in use were scrapped.

3

The 2020 reassessment of assets’ useful lives undertaken at Letšeng resulted in certain assets’ useful lives being realigned from the period of mining lease to the life of mine.

This resulted in a reduction in depreciation charge which will continue into the future. Refer Note 1.2.6, Property, plant and equipment.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

184

185

Right-of-use assets

Plant and

equipment

US$’000

Motor

vehicles

US$’000

Buildings

US$’000

Total

US$’000

9. RIGHT-OF-USE ASSETS

As at 31 December 2021

Cost

Balance at 1 January 2021

2 217 364 6 444 9 025

Additions – – 507 507

Derecognition of lease (2 141) (260) (768) (3 169)

Foreign exchange differences (20) (10) (422) (452)

Balance at 31 December 2021 56 94 5 761 5 911

Accumulated depreciation

Balance at 1 January 2021

1 737 255 2 210 4 202

Charge for the year 437 75 1 173 1 685

Derecognition of lease (2 141) (260) (523) (2 924)

Foreign exchange differences (13) (7) (169) (189)

Balance at 31 December 2021 20 63 2 691 2 774

Net book value at 31 December 2021 36 31 3 070 3 137

As at 31 December 2020

Cost

Balance at 1 January 2020

2 012 1 656 7 318 10 986

Additions 821 – 354 1 175

Derecognition of lease (585) (1 019) (988) (2 592)

Foreign exchange differences (31) (273) (240) (544)

Balance at 31 December 2020 2 217 364 6 444 9 025

Accumulated depreciation

Balance at 1 January 2020

980 361 1 191 2 532

Charge for the year 793 114 1 136 2 043

Derecognition of lease (115) (175) (196) (486)

Foreign exchange differences 79 (45) 79 113

Balance at 31 December 2020 1 737 255 2 210 4 202

Net book value at 31 December 2020 480 109 4 234 4 823

At year end, plant and equipment mainly comprise printing equipment utilised at Gem Diamond Technical Services. Motor vehicles mainly

comprise vehicles utilised by contractors at Letšeng. Buildings comprise office buildings in Maseru, Antwerp, London and Johannesburg.

Right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

During the year, the lease contract for back-up power generating equipment and the lease for certain vehicles used on the mine at Letšeng

came to an end. The assets and liabilities associated with these leases have been derecognised. A new lease for back-up power generating

equipment is in the process of being negotiated. In the interim, Letšeng is renting existing back-up power generating equipment on a

month-to-month basis. Furthermore, Gem Diamonds Limited and Gem Diamonds Technical Services entered into new contracts for the

rental of office space in London and Johannesburg respectively. The new contracts were assessed as containing leases, which resulted in the

recognition of the new associated right-of-use assets and lease liabilities. The original contracts were both cancelled and all associated assets

and liabilities were derecognised.

In the prior year, Letšeng entered into a new contract with its existing ore processing contractor. The new contract was assessed as not

containing a lease as Letšeng no longer retained the right to control the use of the assets associated with the contract. The original contract,

which was assessed as containing a lease on adoption on 1 January 2019, was cancelled and all associated assets and liabilities were

derecognised. Furthermore, in the prior year, Gem Diamonds Limited entered into a new contract for the rental of its office space in London.

The new contract was assessed as containing a lease resulting in the recognition of the associated assets and liabilities. The original contract

was cancelled, and the associated assets and liabilities were derecognised.

9.  RIGHT-OF-USE ASSETS (continued)

Total gains of US$0.1 million (2020: US$0.2 million) relating to the derecognition of leases in the Group have been recognised in the

Consolidated Statement of Profit or Loss. Refer Note 18, Lease Liabilities and Note 23.1, Cash generated by operations. During the year the

Group recognised income of US$0.3 million (2020: US$0.3 million) from the sub-leasing of office buildings in Maseru. The Group expects to

receive the following lease payments from the operating sub-leasing in the following years:

US$ ‘000

2022 358

2023 381

2024 405

2025 245

Intangibles

US$’000

Goodwill

1

US$’000

Total

US$’000

#### 10. INTANGIBLE ASSETS

As at 31 December 2021

Cost

Balance at 1 January 2021

791 12 997 13 788

Foreign exchange difference – (1 035) (1 035)

Scrapping (791) – (791)

Balance at 31 December 2021

– 11 962 11 962

Accumulated amortisation

Balance at 1 January 2021

791 – 791

Amortisation –––

Scrapping (791) – (791)

Balance at 31 December 2021

–––

Net book value at 31 December 2021

– 11 962 11 962

As at 31 December 2020

Cost

Balance at 1 January 2020

791 13 653 14 444

Foreign exchange difference – (656) (656)

Balance at 31 December 2020

791 12 997 13 788

Accumulated amortisation

Balance at 1 January 2020

791 – 791

Amortisation –––

Balance at 31 December 2020

791 – 791

Net book value at 31 December 2020

– 12 997 12 997

1

Goodwill allocated to Letšeng Diamonds. Refer Note 11, Impairment testing.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

186

187

2021

US$’000

2020

US$’000

#### 11. IMPAI RMEN T TES T I N G

Impairment testing

Goodwill impairment testing is undertaken on Letšeng Diamonds annually and when there

are indications of impairment. The most recent test was undertaken at 31 December 2021. In

assessing whether goodwill has been impaired, the carrying amount of Letšeng Diamonds is

compared with its recoverable amount. For the purpose of goodwill impairment testing in 2021,

the recoverable amount for Letšeng Diamonds has been determined based on a value-in-use

model, similar to that adopted in the past.

Goodwill

Letšeng Diamonds 11 962 12 997

Balance at end of year

11 962 12 997

Movement in goodwill relates to foreign exchange translation from functional to presentation currency, as disclosed within

Note 10, Intangible assets.

The discount rate is outlined below and represents the nominal pre-tax rate. This rate is based on the weighted average cost

of capital (WACC) of the Group and adjusted accordingly at a risk premium for Letšeng Diamonds, taking into account risks

associated therein.

2021

%

2020

%

Discount rate – Letšeng Diamonds

Applied to revenue 11.5 10.8

Applied to costs 13.4 14.3

Value in use

Cash flows are projected for a period up to the date that the open pit mining is expected to cease in 2037 (in terms of IAS 36). This

is based on the latest available mine plan and is shorter than the mining lease period which extends to 2029 with an exclusive

option to renew for a further 10 years to 2039. This mine plan takes into account the available reserves and other relevant inputs

such as diamond pricing, costs and geotechnical parameters.

Sensitivity to changes in assumptions

The Group will continue to test its assets for impairment where indications are identified.

Refer Note 1.2.28, Critical accounting estimates and judgements, for further details on impairment testing policies.

The short and medium-term diamond prices used in the impairment test have been set with reference to recent prices achieved,

recent market trends and anticipated market supply and the Group’s medium-term forecast. Long-term diamond price escalation

reflects the Group’s assessment of market supply/demand fundamentals. The valuation of Letšeng at 31 December 2021 exceeded

the carrying value at an attributable level by US$35.1 million (31 December 2020: US$83.0 million). The valuation is sensitive to

input assumptions particularly in relation to the foreign exchange assumption of the US dollar (US$) to the Lesotho loti (LSL) and

the future price growth for diamonds. The Group has assumed an appropriate price increase for its diamonds following the market

improvement noted in the diamond prices during the year.

A range of alternative scenarios have been considered in determining whether there is a reasonably possible change in the

foreign exchange rates in conjunction with a reasonably possible change in the diamond price recovery, which would result in

the recoverable amount equating to the carrying amount. A 5% strengthening of the LSL to the US$ to US$1:LSL15.15 or a further

reduction of 4% to the starting diamond prices would result in the recoverable amount equating to the current carrying value (at

year end exchange rate), with other valuation assumptions remaining the same.

As a result, no impairment charge was recognised during the year.

2021

US$’000

2020

US$’000

12.  RECEIVABLES AND OTHER ASSETS

Non-current

Deposits 109 153

Insurance Asset

1

1 169 –

1 278 153

Current

Trade receivables 25 22

Prepayments

2

975 1 349

Deposits 19 –

Other receivables 122 135

VAT receivable 2 954 4 180

4 095 5 686

The carrying amounts above approximate their fair value due to the nature of the instruments.

Analysis of trade receivables based on their terms and conditions

Neither past due nor impaired 2 –

Past due but not impaired:

Less than 30 days – 22

30 to 60 days – –

60 to 90 days – –

90 to 120 days 23 –

25 22

1

During the year, the Group, through its subsidiary Letšeng, transitioned its conventional approach to insurance cover towards a more flexible approach, through retaining

higher insurance excesses, thereby obtaining an insurance premium saving and ultimately preserving cashflow. To mitigate the increased risk exposure of the higher

deductible in the unlikely event of an unexpected loss, Letšeng entered into a LSL100.0 million (US$6.2 million) Multi-aggregate Protection Insurance Policy with The Lesotho

National Insurance Group (LNIGC) on 1 October 2021. This policy has a tenure of 4 years and 9 months, consisting of five premium payments of LSL20.0 million

(US$1.3 million), each payable annually in advance (refer Note 24, Commitments and contingencies). This policy gives Letšeng the right to claim up to LSL50.0 million for

each-and-every-loss and LSL100.0 million in the aggregate (subject to terms and conditions contained in the policy), from inception of the policy. On expiry of the policy in

June 2026, all unutilised funds within the policy are due and payable to Letšeng. A non-current financial asset has been recognised for the unutilised premium paid to date,

net of underwriting and fronting fees as expensed within other operating expenses. The non-current financial asset is measured at amortised cost in line with IFRS 9. Interest

is earned on the unrealised premium and recognised as finance income. The first premium payment was financed through a 10-month loan through Premium Finance

Partners (Proprietary) Limited. This non-current financial asset is ceded in favour of Premium Finance Partners (Proprietary) Limited. Refer Note 17, Interest Bearing Loans

and Borrowings.

2

Prepayments include insurance premiums prepaid at Letšeng Diamonds of US$0.3 million (31 December 2020: US$0.6 million) and Gem Diamonds Technical Services of

US$0.2 million (31 December 2020: US$0.1 million) which were funded through Premium Finance Partners (Proprietary) Limited. This prepayment is ceded in favour of

Premium Finance Partners (Proprietary) Limited. Refer Note 17, Interest Bearing Loans and Borrowings.

Based on the nature of the Group’s client base and the negligible exposure to credit risk through its client base, insurance asset

and other financial assets, the expected credit loss is insignificant and has no impact on the Group.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

188

189

2021

US$’000

2020

US$’000

#### 13. INVENTORIES

Diamonds on hand 18 303 15 558

Ore stockpiles 4 702 2 365

Consumable stores 8 153 8 818

31 158 26 741

Inventory is carried at the lower of cost or net realisable value. There were no write-downs recorded to net realisable value in the

current or prior year.

2021

US$’000

2020

US$’000

#### 14. CASH AND SHORT-TERM DEPOSITS

Cash on hand 3 4

Bank balances 27 673 35 456

Short-term bank deposit 3 237 14 360

30 913 49 820

The amounts reflected in the financial statements approximate fair value due to the short-term maturity and nature of cash and

short-term deposits.

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.

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 2021, the Group had US$74.3 million (31 December 2020: US$60.8 million) of undrawn facilities, representing the

LSL750.0 million (US$47.0 million) three-year unsecured revolving working capital facility at Letšeng, the Letšeng ZAR100.0 million

(US$6.3 million) general banking facility and US$21.0 million from the Company’s unsecured revolving credit facility. For further

details on these facilities, refer Note 17, Interest-bearing loans and borrowings.

#### 15. ASSETS HELD FOR SALE

Since 2019, in line with the strategic objective to dispose of non-core assets, the Board and Management have remained committed

to the sale of Gem Diamonds Botswana (Pty) Ltd (GDB), which owns the Ghaghoo diamond mine. Notwithstanding the lapsing

in the prior year during January 2020 of the initial sales agreement which was entered into in June 2019, management remained

committed and again opened the process to other prospective buyers and on 23 August 2021 entered into a binding share sale

agreement with Okwa Diamonds (Pty) Ltd (Okwa Diamonds), the entity with which an exclusivity agreement had been entered

into in November 2020. Okwa Diamonds, an SPV company registered in Botswana, which is owned by Vast Resources PLC (Vast),

a mining and resource development company listed on AIM (a sub-market of the London Stock Exchange), and by Botswana

Diamonds PLC (BOD), a diamond exploration and project development company listed on AIM and the Botswana Stock Exchange.

Vast and BOD are both parties to the share sale agreement and guarantee the obligations of Okwa Diamonds. Under the share sale

agreement, the purchaser would pay a total consideration of US$4.0 million, payable in two instalments of US$2.0 million each, the

first of which would be payable five days after the date on which the last suspensive condition is fulfilled or waived.

The suspensive conditions included obtaining the competition authority and regulatory approvals within Botswana. The competition

authority and regulatory conditions were fulfilled prior to year end and written approvals were obtained from the Botswana

Competition Authority and the Ministry of Mineral Resources, Green Technology and Energy Security of Botswana. The agreement

had an initial longstop date of 31 January 2022.

In January 2022, after the reporting period, Vast informed Gem Diamonds and BOD that it did not intend to continue with the

transaction due to its inability to meet the funding suspensive condition. BOD confirmed its commitment to conclude the

transaction as originally envisaged as soon as possible and has informed Gem Diamonds Limited that it has identified an alternative

financing partner which will, subject to any approvals that are required, replace Vast as the initial financing partner. Gem Diamonds

Limited and BOD remain committed to the sale of GDB and are working together towards a mutually beneficial outcome and have

agreed to extend the longstop date from 31 January 2022 to 31 March 2022.

As the transaction was not successfully concluded by year end, GDB continued to be disclosed as a discontinued operation held for

sale at year end based on the circumstances detailed above.

During the year, certain consumable inventory items which were not being used in the mine’s care and maintenance operations

were written off relating to expired explosives and plant consumables; underground mining consumables and spares and

accessories for automotives no longer on site. The asset held for sale is carried at carrying value which is lower than fair value less

costs to sell. The fair value is based on the unobservable market offer from the potential buyer for the disposal group, accordingly

the non-recurring fair value measurement is included in level 3 of the fair value hierarchy.

The trading results of the operation continue to be classified as a discontinued operation held for sale and are presented as follows:

2021

US$’000

2020

US$’000

Gross profit – –

Other costs (2 070) (2 816)

Inventory write-down (1 455) (240)

Share-based payments (2) (6)

Foreign exchange gain (6) –

Operating loss

(3 533) (3 062)

Net finance costs (221) (202)

Loss before tax from discontinued operation

(3 754) (3 264)

Income tax expense – –

Loss after tax from discontinued operation attributable to equity holders of the parent

(3 754) (3 264)

Loss per share from discontinued operation (cents)

Basic (2.7) (2.3)

Diluted (2.6) (2.3)

Gem Diamonds Botswana incurred rental expenses from short-term leases of US$0.5 million (31 December 2020: US$0.9 million)

during the year.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

190

191

#### 15. ASSETS HELD FOR SALE (continued)

Gem Diamonds Botswana has estimated tax losses of US$173.0 million (31 December 2020: US$185.2 million), which carry no expiry

date, for which no deferred tax asset has been recognised. Deferred tax assets of US$0.3 million (31 December 2020: US$0.3 million)

were recognised to the extent of the deferred tax liabilities. These have been offset in the table below.

2021

US$’000

2020

US$’000

ASSETS

Non-current assets

Property, plant and equipment 1 413 1 533

Current assets

Inventories 477 1 774

Receivables and other assets 63 214

Cash and short-term deposits 144 7

684 1 995

Total assets

2 097 3 528

LIABILITIES

Non-current liabilities

Provisions 3 654 3 753

Current liabilities

Trade and other payables 446 471

Total liabilities

4 100 4 224

The net cash flows attributable to the discontinued operation held for sale are as follows:

Operating cash outflows (2 186) (2 920)

Investing – –

Financing cash inflows

1

2 332 2 850

Foreign exchange loss on translation of cash balance (9) (63)

Net cash inow/(outow)

137 (133)

1

Financing provided by Gem Diamonds Botswana (Pty) Ltd’s holding company, being Gem Diamonds Limited, to fund care and maintenance costs.

#### 16. ISSUED SHARE CAPITAL AND RESERVES

#### Share capital

31 December 2021 31 December 2020

Number

of shares

’000 US$’000

Number

of shares

‘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 139 612 1 397 138 984 1 391

Allotments during the year 903 9 628 6

Balance at end of year 140 515 1 406 139 612 1 397

Share premium

Share premium comprises the excess value recognised from the issue of ordinary shares above its par value.

#### 16. ISSUED SHARE CAPITAL AND RESERVES (continued)

Other reserves

Foreign

currency

translation

reserve

US$’000

Share-

based

equity

reserve

US$’000

Total

US$’000

Balance at 1 January 2021 (218 355) 6 191 (212 164)

Other comprehensive loss (14 921) – (14 921)

Total comprehensive loss (14 921) – (14 921)

Share capital issue – (9) (9)

Share-based payments – 397 397

Balance at 31 December 2021 (233 276) 6 579 (226 697)

Balance at 1 January 2020 (208 493) 5 636 (202 857)

Other comprehensive loss (9 862) – (9 862)

Total comprehensive loss (9 862) – (9 862)

Share capital issue – (6) (6)

Share-based payments – 561 561

Balance at 31 December 2020 (218 355) 6 191 (212 164)

Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities.

The South African, Lesotho and Botswana subsidiaries’ functional currencies are different to the Group’s presentation currency of

US dollar. The rates used to convert the operating functional currency into US dollar are as follows:

Currency 2021 2020

Average rate ZAR/LSL to US$1 14.79 16.47

Year end ZAR/LSL to US$1 15.96 14.69

Average rate Pula to US$1 11.09 11.45

Year end Pula to US$1 11.76 10.80

Share-based equity reserves

For details on the share-based equity reserve, refer Note 27, Share-based payments.

Capital management

For details on capital management, refer Note 26, Financial risk management.

#### 17. INTEREST-BEARING LOANS AND BORROWINGS

A consolidated Group-wide refinancing of revolving credit facilities (RCF) took place during the year with Nedbank Limited (acting

through its Nedbank Corporate and Investment Banking Division) (Nedbank) appointed as sole mandated lead arranger. Financial

close of the three-year RCF took place on 23 December 2021. The salient features of the new consolidated RCF are as follows:

• Three funders are participating in the RCF, namely Nedbank (US$. million), Standard Bank of South Africa Limited

(US$. million) and Firstrand Bank Limited (through their various operations) (US$. million). All draw downs will be made

in this same ratio;

• The RCF of Gem Diamonds Limited remains unchanged at US$. million and the Letšeng Diamonds RCF has increased from

LSL. million ( December : US$. million) to US$. million, made up of two facilities of LSL. million and

ZAR. million;

• As at  December , the RCF is unsecured;

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

192

193

#### 17. INTEREST-BEARING LOANS AND BORROWINGS (continued)

• On  February , subsequent to year end, Gem Diamonds Limited provided security for the RCF over its bank accounts

domiciled in the United Kingdom and on  March  the security over its % shareholding in Letšeng Diamonds (carrying

value: US$. million, which includes net cash and short-term deposits of US$. million) was implemented. This security

has the impact of decreasing the interest rate margin on all facilities by .% from  March  and converting the facilities

into secured facilities;

• The Nedbank Limited portions of the RCF, being US$. million for Gem Diamonds Limited and ZAR. million for

Letšeng Diamonds are Sustainability-linked loans, whereby the interest rate can be reduced if certain sustainability

performance targets to be measured on  December  and  December  are achieved. This has had no impact on the

classification or measurement of these facilities as at  December ;

• The facilities also include an additional US$. million accordion option for Gem Diamonds, the utilisation of which is subject to

all necessary internal credit and other approvals from all funders. There was no utilisation of this facility during the current year.

Effective interest rate Maturity

2021

US$’000

2020

US$’000

Non-current

LSL215.0 million bank loanfacility

Tranche A South African JIBAR + 6.50% 30 September 2022 – 477

Tranche B South African JIBAR + 3.15% 31 March 2022 – 817

ZAR12.8 million asset-based

nancefacility South African Prime Lending Rate 1 January 2024 202 408

LSL450.0 million and

ZAR300.0 million bank loan facility

Credit underwriting fees – 22 December 2024 (525) –

US$30.0 million bank loan facility

London US$ three-month

LIBOR + 6.50% 22 December 2024 8 663 –

8 340 1 702

Current

ZAR1.8 million insurance premium

nance

2.5% 1 May 2021 – 64

LSL14.5 million insurance premium

nance 2.95%  3 July 2021 – 542

US$30.0 million bank loan facility London US$ three-month LIBOR + 5.0% 31 December 2021 – 9 700

LSL7.3 million insurance premium

nance 2.35% 1 June 2022 305 –

ZAR3.5 million insurance premium

nance 2.5% 1 July 2022 155 –

LSL20.0 million insurance premium

nance 3.2% 1 July 2022 880 –

LSL215.0 million bank loanfacility

Tranche A South African JIBAR + 6.75% 30 September 2022 439 635

Tranche B South African JIBAR + 3.15% 31 March 2022 752 3 268

ZAR12.8 million asset-based

nance facility South African Prime Lending Rate 1 January 2024 173 176

2 704 14 385

#### 17. INTEREST-BEARING LOANS AND BORROWINGS (continued)

LSL215.0 million (US$13.5 million) bank loan facility at Letšeng Diamonds

This loan comprises two tranches of debt as follows:

• Tranche A: Lesotho loti denominated LSL35.0 million (US$2.2 million) term loan facility without Export Credit Insurance

Corporation (ECIC) support (five years and six months tenure); and

• Tranche B: South African rand denominated ZAR180.0 million (US$11.3 million) debt facility supported by the ECIC (five years tenure).

The loan is an unsecured project debt facility which was signed jointly with Nedbank and the ECIC on 22 March 2017 to fund

the construction of the Letšeng mining support services complex. The loan is repayable in equal quarterly payments which

commenced in September 2018. At year end LSL19.0million (US$1.2 million) (31 December 2020: LSL76.3 million (US$5.2 million))

remains outstanding.

The South African rand-based interest rates for the facility at 31 December 2021 are:

• Tranche A: 10.63% (31 December 2020: 10.10%); and

• Tranche B: 7.03% (31 December 2020: 6.50%).

Total interest for the year on this interest-bearing loan was US$0.4 million (31 December 2020: US$0.6 million).

LSL450.0 million and ZAR 300.0 million (US$47.0 million) bank loan facility at Letšeng Diamonds

Following the consolidated refinancing on 23 December 2021, the Group, through its subsidiary Letšeng Diamonds, has a

LSL450.0 million and ZAR300.0 million (US$47.0 million) three-year revolving credit facility jointly with Nedbank Lesotho Limited,

Standard Lesotho Bank Limited, First National Bank of Lesotho Limited, Firstrand Bank Limited (acting through its Rand Merchant

Bank division) and Nedbank Limited (acting through its Nedbank Corporate and Investment Banking division).

The facility expires on 22 December 2024 and has a 24-month renewal option. The LSL450.0 million facility is subject to interest at

the Central Bank of Lesotho rate plus 4.75% and the ZAR300.0 million facility is subject to South African JIBAR plus 4.55%.

The facility was unsecured as at 31 December 2021, however, following the implementation of the security, subsequent to period

end, on 15 March 2022, the interest rate will decrease to Central Bank of Lesotho rate plus 3.25% and the ZAR300.0 million facility is

subject to South African JIBAR plus 3.05% respectively. There was no draw down on this facility at year end.

Credit underwriting fees of US$0.5 million (31 December 2020: US$ nil) which were incurred as part of the refinancing were

capitalised to the Group’s consolidated interest-bearing loans and borrowings, albeit that Letšeng did not have any draw downs

on its RCF at year end. The capitalised fees will be amortised and accounted for as finance costs within profit or loss over the

period of the facility. Arranging fees of US$0.2 million which were incurred as part of the refinancing were expensed to profit or

loss for the year.

US$30.0 million bank loan facility at Gem Diamonds Limited

This new facility is a three-year RCF with Nedbank Limited (acting through its London branch), Standard Bank of South Africa

Limited (acting through its Isle of Man branch) and Firstrand Bank Limited (acting through its Rand Merchant Bank division) for

US$13.5 million, US$9.0 million and US$7.5 million, respectively. All draw downs will be made in these ratios.

The facility expires on 22 December 2024 and has a 24-month renewal option.

The previous RCF of US$30.0 million with Nedbank Limited which was due to expire on 31 December 2021, was replaced with the

new RCF on 23 December 2021. On this date, the outstanding balance on the previous RCF was US$15.0 million and after a capital

repayment of US$6.0 million, the new RCF was recognised at US$9.0 million.

At year end US$9.0 million (31 December 2020: US$10.0 million) had been drawn down resulting in US$21.0 million (31 December

2020: US$20.0 million) remaining undrawn. Credit underwriting fees of US$0.3 million (31 December 2020: US$0.3 million facility

rolling fees) were capitalised to the loan balance, resulting in the disclosure of a net US$8.7 million (31 December 2020: US$9.7

million) loan balance. The capitalised fees will be amortised and accounted for as finance costs within profit or loss over the period

of the facility. Arranging fees of US$0.1 million which were incurred as part of the refinancing were expensed to profit or loss for

the year.

The US$-based interest rate for this facility at 31 December 2021 was 6.72% (31 December 2020: 5.22%) which comprises London

US$ three-month LIBOR plus 6.50%.

The facility was unsecured as at 31 December 2021, however, following the implementation of the security, subsequent to period

end, on 15 March 2022, the interest rate will decrease to London US$ three-month LIBOR plus 5.00%.

Total interest for the year on this interest-bearing RCF was US$1.0 million (31 December 2020: US$1.2 million).

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

194

195

#### 17. INTEREST-BEARING LOANS AND BORROWINGS (continued)

ZAR12.8 million (US$0.9 million) Asset-Based Finance facility

In January 2019, the Group, through its subsidiary, Gem Diamond Technical Services, entered into a ZAR12.8 million (US$0.9 million)

Asset Based Finance (ABF) facility with Nedbank Limited for the purchase of a mobile X-Ray transmission machine (the asset).

The asset serves as security for the facility and has a carrying value of ZAR2.5 million (US$0.2 million) as at 31 December 2021 (31 December

2020: ZAR4.9 million (US$0.3 million)). At year end ZAR6.0 million (US$0.4 million) remains outstanding (31 December 2020:

ZAR8.6 million (US$0.6 million)). The facility is repayable over five years and bears interest at the South African Prime Lending rate,

which was 7.25% at 31 December 2021 (31 December 2020: 7.0%).

Total interest for the year on this interest-bearing ABF was US$34 thousand (31 December 2020: US$0.1 million).

LSL7.3 million insurance premium nance

The Group through its subsidiary Letšeng Diamonds, entered into a LSL7.3million (US$0.5 million) 9-month funding agreement with

Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk insurance premium. At

year end LSL4.9million (US$0.3million) remains outstanding. The funding is repayable in 9 monthly instalments, payable in advance.

Total interest on this funding is LSL0.2 million (US$11.6 thousand) of which LSL0.1 million (US$4.8 thousand) was paid during the

year. All respective insurance premiums prepaid at year end have been ceded in favour of Premium Finance Partners (Proprietary)

Limited. Refer Note 12, Receivables and other assets.

LSL14.5 million insurance premium nance

In the prior year, the Group through its subsidiary Letšeng Diamonds, entered into a LSL14.5million (US$1.0 million) 12-month

funding agreement with Premium Finance Partners (Proprietary) Limited for insurance premium finance for its annual Asset All Risk

insurance premium. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners

(Proprietary) Limited. Refer Note 12, Receivables and other assets. This financing was fully repaid on 3 July 2021.

LSL20.0 million insurance premium nance for Multi-aggregate Protection Insurance Policy

The Group through its subsidiary Letšeng Diamonds, entered into a LSL20.0 million (US$1.3 million) 10-month funding agreement

with Premium Finance Partners (Proprietary) Limited to finance the initial premium of LSL20.0 million on the Multi-aggregate Insurance

Policy. At year end LSL14.0 million (US$0.9 million) remains outstanding. The funding is repayable in 10 monthly instalments, payable in

advance. Total interest on this funding is LSL0.6 million (US$43.3 thousand) of which LSL0.2 million (US$15.1 thousand) was paid during

the year. The unutilised premium paid, recognised as an insurance asset, has been ceded as security in favour of Premium Finance

Partners (Proprietary) Limited. Refer Note 12, Receivables and other assets.

ZAR3.5 million insurance premium nance

The Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR3.5 million (US$0.2 million) 10-month

funding agreement with Premium Finance Partners (Proprietary) Limited for its annual Group Umbrella Liability insurance premium.

At year end ZAR2.5 million (US$154.9 thousand) remains outstanding. The funding is repayable in 10 monthly instalments. Total

interest on this funding is ZAR88.1 thousand (US$5.5 thousand) of which ZAR33.1 thousand (US$2.1 thousand) interest was paid

during the year. All respective insurance premiums prepaid at year end have been ceded in favour of Premium Finance Partners

(Proprietary) Limited. Refer Note 12, Receivables and other assets.

ZAR1.8 million insurance premium nance

In the prior year, the Group through its subsidiary Gem Diamonds Technical Services, entered into a ZAR1.8 million (US$0.1 million)

10-month funding agreement with Premium Finance Partners (Proprietary) Limited for its annual Group Umbrella Liability insurance

premium. In the prior year, all respective insurance premiums prepaid were ceded in favour of Premium Finance Partners (Proprietary)

Limited. Refer Note 12, Receivables and other assets. This financing was fully repaid on 1 May 2021.

Other facilities

In addition, Letšeng Diamonds has a ZAR100.0 million (US$6.3 million) general banking facility with Nedbank Limited (acting

through its Nedbank Corporate and Investment Banking division) renewable annually. There was no draw down on this facility at

year end.

2021

US$’000

2020

US$’000

#### 18. LEASE LIABILITIES

Non-current 3 851 4 902

Current 973 1 836

Total lease liabilities 4 824 6 738

Reconciliation of movement in lease liabilities

As at 1 January 6 738 10 479

Additions 507 1 175

Interest expense 525 608

Lease payments (2 185) (2 522)

Derecognition of lease (352) (2 296)

Foreign exchange differences (409) (706)

As at 31 December 4 824 6 738

Lease payments comprise payments in principle of US$1.7 million (31 December 2020: US$1.9 million) and repayments of interest

US$0.5 million (31 December 2020: US$0.6 million).

The Group recognised variable lease payments of US$50.0 million (31 December 2020: US$41.4 million) for the year ended

31 December 2021 which consist of mining activities outsourced to a mining contractor. Total costs incurred for the year amount

to US$50.0 million (31 December 2020: US$41.4 million) of which US$41.5 million (31 December 2020: US$34.1 million) has been

capitalised to the Stripping Asset. Refer Note 1.2.6, Property Plant and equipment, Note 1.2.28, Critical accounting estimates and

judgements, Equipment and service lease, Note 4, Operating profit.

During the year, the lease relating to backup power generating equipment at Letšeng expired and was therefore derecognised. A

new lease for back-up power generating equipment is in the process of being negotiated. In the interim, Letšeng is renting existing

backup power generator equipment on a month-to-month basis, which amounted to US$0.4 million for the year which has been

included in profit or loss.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

196

197

2021

US$’000

2020

US$’000

#### 19. TRADE AND OTHER PAYABLES

Non-current

Severance pay benefits

1

2 095 2 029

Current

Trade payables

2

10 778 12 892

Accrued expenses

2

5 413 8 169

Leave benefits 639 685

Royalties

2

4 996 3 250

3

Withholding taxes

2

341 705

3

Dividend payable to non-controlling interest – 3 064

Other 21 58

22 188 28 823

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.

3

These amounts were presented on a net basis in the prior year and have been disaggregated and presented separately in the current year.

Royalties consist of a levy paid to the Government of the Kingdom of Lesotho on the value of diamonds sold by Letšeng.

Withholding taxes consist of taxes paid on dividends and other services to the Lesotho Revenue Authorities.

The carrying amounts above approximate fair value.

2021

US$’000

2020

US$’000

20.  INCOME TAX (RECEIVABLE)/PAYABLE

Reconciliation of movement in income tax payable

Balance at 1 January  11 834 (8 176)

Payments made during the year (23 329)  (1 268)

1

Refunds received during the year 96 7 157

1

Income tax charge  10 197 11 593

Foreign exchange differences 11 2 528

Balance at 31 December

(1 191) 11 834

Split as follows

Income tax receivable (1 232) (106)

Income tax payable 41 11 940

1

These amounts were presented on a net basis in the prior year and have been disaggregated and presented separately in the

current year.

#### 21. PROVISIONS

Rehabilitation provisions 11 202 12 331

Reconciliation of movement in rehabilitation provisions

Balance at 1 January 12 331 15 588

Decrease during the year (1 345) (3 125)

Unwinding of discount rate 1 187 888

Foreign exchange differences (971) (1 020)

Balance at 31 December

11 202 12 331

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 over the LoM at the mining

operations. The pre-tax discount rates are adjusted annually and reflect current market assessments.

#### 21. PROVISIONS (continued)

Rehabilitation provisions (continued)

In determining the amounts attributable to the rehabilitation provision at Letšeng, management used a discount rate of 9.8%

(31 December 2020: 9.7%), estimated rehabilitation timing of 14 years (31 December 2020: 15 years) and an inflation rate of 5.3%

(31 December 2020: 5.3%). At Ghaghoo (Refer Note 15, Asset held for sale), management used the available estimated costs to

rehabilitate, considering its care and maintenance state. The decrease in the provision at Letšeng is mainly attributable to the

annual reassessment of the estimated closure costs performed at the operations together with the ongoing rehabilitation spend

during the year at Letšeng.

2021

US$’000

2020

US$’000

22. DEFERRED TAXATION

Deferred tax assets

Lease liabilities 1 225 1 683

Accrued leave 321 263

Provisions 3 571 4 400

5 117 6 346

Deferred tax liabilities

Property, plant and equipment (78 202) (79 902)

Right-of-use assets (900) (1 236)

Prepayments (188) (218)

Unremitted earnings (3 182) (3 182)

(82 472) (84 538)

Net deferred tax liability (77 355) (78 192)

Reconciliation of net deferred tax liability

Balance at beginning of year (78 192) (83 124)

Movement in current period:

– Accelerated depreciation for tax purposes (4 249) 548

– Accrued leave (2) 21

– Unremitted earnings  – 857

– Prepayments 30 29

– Provisions (429) 12

– Lease liabilities (350) (582)

– Right-of-use assets 273 527

– Foreign exchange differences 5 564 3 520

Balance at end of year

(77 355) (78 192)

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 undistributed reserves of the Group’s subsidiaries for which

a deferred tax liability has not been recognised is US$99.5 million (31 December 2020: US$97.1 million). There are no income tax

consequences attached to the payment of dividends by Gem Diamonds Limited to its shareholders.

The Group, excluding Ghaghoo, has estimated tax losses of US$40.3 million (31 December 2020: US$34.0 million). All tax losses are

generated in jurisdictions where tax losses do not expire. No deferred tax assets were recognised on these losses as management

do not foresee any taxable profits or taxable temporary differences against which to utilise these.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

198

199

Notes

2021

US$’000

2020

US$’000

#### 23. CASH FLOW NOTES

23.1 Cash generated by operations

Profit before tax for the year – continuing operations 46 669 38 253

Loss for the year – discontinued operation (3 754) (3 264)

Adjustments for:

Depreciation and amortisation excluding waste stripping 4 6 927 7 027

Depreciation on right-of-use assets 4, 9 1 685 2 043

Waste stripping cost amortised 4 46 813 43 420

Finance income 5 (202) (382)

Finance costs 5, 15 4 165 4 994

Unrealised foreign exchange differences (2 426) (4 019)

(Profit)/loss on disposal and scrapping of property, plant and equipment (16) 30

Gain on derecognition of leases (107) (150)

Inventory write down 15 1 455 240

Bonus, leave and severance provisions raised 2 284 4 317

Share-based payments 397 561

Gain on abandonment of investment – (20)

Bad debts written off 12 

103 902 93 050

23.2 Working capital adjustment

(Increase)/decrease in inventory (8 255) 3 489

Decrease in receivables 5 072 1 316

Decrease in payables (3 924) (4 341)

(7 107) 464

23.3 Cash ows from nancing activities (excluding lease liabilities)

Balance at beginning of year 16 087 22 341

Net cash used in nancing activities

(7 194) (6 431)

– Financial liabilities repaid (26 393) (55 638)

– Financial liabilities raised 19 199 49 207

Interest paid (1 927) (2 884)

Non-cash movements

4 078 3 061

– Interest accrued 1 927 2 884

– Unwinding of facility rolling fees 300 –

– Financial liabilities raised

1

2 082 1 047

– Foreign exchange differences (231) (870)

Balance at year end 17 11 044 16 087

1

This amount mainly relates to funding obtained for insurance premium finance. The funding was paid directly by the lender to the third party and is being repaid by the

Group in monthly instalments to the lender. Refer Note 17, Interest bearing loans and borrowings.

2021

US$’000

2020

US$’000

#### 24. COMMITMENTS AND CONTINGENCIES

Commitments

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 LoM. The estimated lease obligation regarding the future

lease period, accepting stable inflation and exchange rates, is as follows:

– Within one year 145 162

– After one year but not more than five years 760 695

– More than five years 784 993

1 689 1 850

Equipment and service lease

The Group has entered into lease arrangements for 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 the fleet utilised. All lease payments relating to this

lease are variable in nature. A portion of the lease payment is therefore expensed in the

Consolidated statement of profit or loss and the portion relating to waste removal/stripping

costs is capitalised to the waste stripping asset in the proportions referred to under the estimate

and judgements applied to the Capitalised stripping costs (deferred waste). Refer Note 1.2.28,

Critical accounting estimates. The terms of this lease are negotiated during the extension option

periods catered for in the agreements or at any time sooner if agreed by both parties.

– Within one year 39 290 52 855

– After one year but not more than five years 89 241 181 904

128 531 234 759

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

200

201

2021

US$’000

2020

US$’000

#### 24. COMMITMENTS AND CONTINGENCIES (continued)

Multi-aggregate protection policy

The Group, through its subsidiary Letšeng entered into a LSL100.0 million (US$6.2 million)

Multi-aggregate Protection Insurance Policy with the Lesotho National Insurance Group

(LNIGC) on 1 October 2021. This policy has a tenure of 4 years and 9 months, consisting of

five premium payments of LSL20.0 million (US$1.3 million), each payable annually in advance.

As at 31 December 2021 the Group has committed to making the four remaining premium

payments, as well as the annual insurance risk finance service fee of 7% on an annual premium of

LSL1.4 million (US$0.1 million) and the surplus reserve finance cost fee of 1.5% on the cumulative

net premiums surplus balance carried over each year. These fees are either deductible from

premium or payable upfront at the option of Letšeng. The Group has elected to deduct the fees

from the annual premiums, therefore no additional cash commitment relating to these fees and

the future cash flow commitments are stated at the future premiums payable over the remaining

insurance period. Refer Note 12, Receivables and other assets for further detail on the policy.

– Within one year  1 253 –

– After one year but not more than five years 3 759 –

5 012 –

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.

– Within one year 54 37

– After one year but not more than five years 64 50

118 87

Capital expenditure

Approved but not contracted for 19 335 1 091

Approved and contracted for 855 372

20 190 1 463

#### 24. COMMITMENTS AND CONTINGENCIES (continued)

The main capital expenditure approved relates to the investment in the new primary crushing area at Letšeng of

US$15.0 million. Other smaller capital expenditure, all at Letšeng, relates to investment in continued tailings storage extension

of US$1.3 million (31 December 2020: US$1.0 million), the construction of an employee centre of US$0.8 million linked to the

successful completion of the Business Transformation target, further mineral resource and reserve studies of US$0.5 million and

detailed engineering designs relating to the new primary crushing area of US$0.5 million. The expenditure is expected to be

incurred over the next 12 months.

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

agreement is based on 39.5% to 60% (2020: 39.5% to 60%) of the value (after costs) of the diamonds recovered by Alluvial Ventures

and is limited to US$1.4 million (2020: US$1.4 million) per individual diamond. As at the reporting date, such future sales cannot be

estimated reliably due to the variability within these estimations.

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$0.2 million (December 2020: US$0.2 million).

The Group monitors possible tax claims within the various jurisdictions in which the Group operates. Management applies

judgement in identifying uncertainties over tax treatments and concluded that there were no uncertain tax treatments relating

to the current year. Refer Note 1.2.28, Critical accounting estimates and judgements. 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.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

202

203

25. RELATED PARTIES

Related party Relationship

Jemax Management (Proprietary) Limited Common director

Government of the Kingdom of Lesotho Non-controlling interest

Refer Note 1.1.2, Operational information, for information regarding shareholding in subsidiaries.

2021

US$’000

2020

US$’000

Compensation to key management personnel (including Directors)

Share-based equity transactions 248 344

Short-term employee benefits 4 655 3 562

Post-employment benefits (including severance pay and pension) 152 93

5 055 3 999

Fees paid to related parties

Jemax Management (Proprietary) Limited (93) (83)

Royalties paid to related parties

Government of the Kingdom of Lesotho (20 214) (18 425)

Lease and licence payments to related parties

Government of the Kingdom of Lesotho (70) (132)

Sales to/(purchases from) related parties

Jemax Management (Proprietary) Limited (6) (4)

Non-executive director  11 –

Amount included in trade payables owing to related parties

Jemax Management (Proprietary) Limited (8) (9)

Amounts owing to related party

Government of the Kingdom of Lesotho (5 337) (3 955)

Dividends declared

Government of the Kingdom of Lesotho (3 890) (7 452)

Dividends payable

Government of the Kingdom of Lesotho – (3 064)

Jemax Management (Proprietary) Limited provided administrative services with regards to the mining activities undertaken by the

Group. A controlling interest is held by an Executive Director of the Company.

The transaction relating to the non-executive director was for the sale of a polished diamond. All proceeds were received prior to

year end.

The above transactions were made on terms agreed between the parties and were made on terms that prevail in arm’s length

transactions.

#### 26. FINANCIAL RISK MANAGEMENT

Financial risk factors

The Group’s activities expose it to a variety of financial risks:

• market risk (including commodity price risk, foreign exchange risk and interest rate risk);

• credit risk; and

• 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 to the financial risk management policy since the prior year.

Capital management

For the purpose of the Group’s capital management, capital includes the issued share capital, share premium and liabilities 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 or restructure its debt facilities. The management of the Group’s capital is performed by the Board.

The Group’s capital management, among other things, aims to ensure that it meets financial covenants attached to its interest-

bearing loans and borrowings. Breaches in meeting the financial covenants would permit the bank to immediately call loans and

borrowings. There have been no breaches of the financial covenants in the current year.

At 31 December 2021, the Group had US$74.3 million (31 December 2020: US$60.8 million) of undrawn debt facilities 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.

Refer Note 17, Interest bearing loans and borrowings for detail on the debt facilities in the Group.

a) Market risk

(i) Commodity price risk

The Group is subject to diamond 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 dollar per carat prices are based on external market

consensus forecasts. The Group does not have any financial instruments that may fluctuate as a result of commodity price

movements.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

204

205

#### 26. FINANCIAL RISK MANAGEMENT (continued)

Capital management (continued)

a) Market risk (continued)

(ii) Foreign exchange rate 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; and

• The analysis of the currency risk arises because of financial instruments which are 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  December  and  December .

There has been no change in the assumptions or method applied from the prior year.

Sensitivity analysis

At year-end, Letšeng had US$22.1 million (2020: US$31.1 million) cash on hand held in US$. If the US dollar had appreciated/

(depreciated) by 10% against the LSL, the Group’s profit before tax and equity at 31 December 2021 would have been

US$2.4 million higher/(lower) (31 December 2020: US$2.8 million).

(iii) Forward exchange contracts

From time to time, 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 2021, the

Group had no forward exchange contracts outstanding (31 December 2020: US$nil).

(iv) 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.

Sensitivity analysis

If the interest rates on the interest-bearing loans and borrowings (increased)/decreased by 80 basis points (2020: 80 basis

points) during the year, profit before tax and equity would have been US$0.1 million (lower)/higher (31 December 2020:

US$0.1 million). The assumed movement in basis points is based on the currently observable market environment, which

remained consistent with the prior year and assumed a continued impact of the COVID-19 pandemic for the year.

#### 26. FINANCIAL RISK MANAGEMENT (continued)

Capital management (continued)

(b) Credit risk

The Group’s potential concentration of credit risk consists mainly of cash deposits with banks, trade receivables, insurance asset

and other receivables. The Group’s short-term cash surpluses are placed with banks that have investment grade ratings, to

minimise the exposure to credit risk to the lowest level possible from the perspective of the Group’s cash and cash equivalents.

The maximum credit risk exposure relating to financial assets is represented by their carrying values 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 the customers pay and settle their accounts on the date of receipt

of goods.

The Group’s insurance premiums are placed with insurers and underwriters that have high-quality credit standings, to minimise

the exposure to credit risk to the lowest level possible from the perspective of the Group’s insurance asset.

No other financial assets are impaired or past due and accordingly, no additional ECL or credit risk analysis has been provided.

The Group did not hold any form of collateral or credit enhancements for its credit exposures during the 31 December 2021 and

31 December 2020 financial reporting periods.

(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 realise a financial asset in a short period of time at a price close to its fair value. Management manages the risk by

maintaining sufficient cash, marketable securities and ensuring access to financial institutions and shareholding funding. This

ensures flexibility in maintaining business operations and maximises opportunities. The Group has available debt facilities of

US$74.3 million at year end (2020: US$60.8 million).

The table below summarises the maturity profile of the Group’s financial liabilities at 31 December based on contractual

undiscounted payments, excluding discontinued operation:

2021

US$’000

2020

US$’000

Floating interest rates

Interest-bearing loans and borrowings

– Within one year  2 758 14 960

– After one year but not more than five years 8 856 1 750

Total

11 614 16 710

Lease liabilities

– Within one year 1 459 2 375

– After one year but not more than five years 4 282 5 880

Total

5 741 8 255

Trade and other payables

– Within one year 22 188 28 823

– After one year but not more than five years 2 095 2 029

Total

24 283 30 852

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

206

207

2021

US$’000

2020

US$’000

#### 27. SHARE-BASED PAYMENTS

The expense recognised for employee services received during the year is shown

in the following table:

Equity-settled share-based payment transactions charged to the statement of profit or loss

– continuing operation 395 555

Equity-settled share-based payment transactions charged to the statement of profit or loss

– discontinued operation 2 6

397 561

The long-term incentive plans are described below:

Long-term incentive plan (LTIP)

Certain key employees are entitled to a grant of options, under the LTIP 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 an appropriate 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. 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.

The Company's LTIP policy is reviewed every 10 years.

LTIP 2007 Award

Under the 2007 LTIP rules, there are three awards where options are still outstanding.

All four awards were awarded on the following basis:

To key employees (excluding Executive Directors):

• the awards vest over a three-year period in tranches of a third of the award each year;

• the vesting of the award is dependent on service conditions and certain performance targets being met for the same

three-year period (classified as non-market conditions). These non-market condition awards are referred to as Nil Value

options in the tables below;

• 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;

• once the awards vest, they are exercisable for seven years (i.e. contractual term is  years); and

• the vested awards are equity settled.

To Executive Directors:

• the awards vest over a three-year period;

• the vesting of the award is dependent on service conditions and both market and non-market performance conditions;

• % of the awards granted are subject to non-market conditions (referred to as Nil Value options in tables below) and % to

market conditions (referred to as Market Value options in tables below) by reference to the Company’s total shareholder

return (TSR) as compared to a group of principal competitors;

• 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;

• once the awards vest, they are exercisable for seven years (i.e. contractual term is  years); and

• the vested awards are equity settled.

The fair value of the Nil value awards is based on the observable Gem Diamonds Limited share price on the date of award with no

adjustments to the price made.

#### 27. SHARE-BASED PAYMENTS (continued)

The following table reflects details of all the awards within the 2007 LTIP that remain outstanding:

LTIP

March

2016

LTIP

April

2015

LTIP

June

2014

LTIP

March

2014

Number of options granted – Nil value

1 215 000 1 215 000 456 750 625 000

Number of options granted – Market value

185 000 185 000 152 250 –

Date exercisable 15 March 2019 1 April 2018 10 June 2017 19 March 2017

Options outstanding 34 287 5 000 – 5 000

Dividend yield (%) 2.00 2.00 0.00 0.00

Expected volatility

1

(%) 39.71 37.18 37.25 –

Risk-free interest rate

2

(%) 0.97 1.16 1.94 –

Expected life of option (years) 3.00 3.00 3.00 3.00

Exercise price (US$) nil nil nil nil

Exercise price (GBP) nil nil nil nil

Weighted average share price (US$) 1.56 2.10 2.70 2.87

Fair value of nil value options (US$) 1.40 1.97 2.70 2.87

Fair value of nil value options (GBP) 0.99 1.33 1.61 1.74

Fair value of market value options (US$) 0.69 1.18 1.83 –

Fair value of market value options (GBP) 0.49 0.80 1.09 –

Model used Monte Carlo Monte Carlo Monte Carlo –

1

Expected volatility was based on the average annual historic volatility of the Company’s share price over the previous three years.

2

The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.

LTIP 2017 Award

Under the 2017 LTIP rules, there are three awards where options are still outstanding.

All the awards were issued on the same basis as the 2007 LTIP.

During the current year there were no new awards granted in terms of the LTIP.

The following table reflects details of all the awards within the 2017 LTIP that remain outstanding:

LTIP

June

2020

LTIP

March

2019

LTIP

March

2018

LTIP

July

2017

Number of options granted – Nil value

1 069 000 1 160 500 1 265 000 1 150 000

Number of options granted – Market value

180 000 142 500 185 000 185 000

Date exercisable 9 June 2023 20 March 2022 20 March 2021 4 July 2020

Options outstanding 1 068 132 964 198 302 639 73 917

Dividend yield (%) 0.00 0.00 0.00 2.00

Expected volatility

1

(%) 47.00 43.00 40.00 40.21

Risk-free interest rate

2

(%) 0.34 1.2 1.2 0.67

Expected life of option (years) 3.00 3.00 3.00 3.00

Exercise price (US$) nil nil nil nil

Exercise price (GBP) nil nil nil nil

Weighted average share price (US$) 0.39 1.20 1.35 1.24

Fair value of nil value options (US$) 0.39 1.20 1.35 1.11

Fair value of nil value options (GBP) 0.31 0.90 0.96 0.86

Fair value of market value options (US$) 0.19 0.58 0.74 0.72

Fair value of market value options (GBP) 0.15 0.44 0.53 0.56

Model used

Monte Carlo Monte Carlo Monte Carlo Monte Carlo

1

Expected volatility was based on the average annual historic volatility of the Company’s share price over the previous three years.

2

The relevant risk-free interest rate is taken from a UK Treasury Bond issued which closely matches the lifetime of the option.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

208

209

#### 27. SHARE-BASED PAYMENTS (continued)

The following table illustrates the number (’000) and movement in the outstanding share options during the year:

2021

’000

2020

‘000

Outstanding at beginning of year 3 887 4 002

Granted during the year – 1 249

Exercised during the year

1

(855) (480)

Forfeited (579) (884)

Balance at end of year

2 453 3 887

Exercisable at end of year

454 535

1

Options were exercised regularly throughout the year. The weighted average share price during the year was £0.60 (US$0.83) (2020: £0.39 (US$0.50).

The weighted average remaining contractual life for the share options outstanding as at 31 December 2021 was 7.5 years

(2020: 7.9 years).

The weighted average fair value of the share options outstanding as at 31 December 2021 was US$0.65 (2020: US$0.79).

ESOP

In September 2017, 47 200 shares which were previously held in the Company Employee Share Trust were granted to certain key

employees involved in the Business Transformation of the Group. The Company Employee Share Trust was deregistered in 2017

following the grant of these shares. The fair value of the award was valued at the share price of the Company at the date of the

award of £0.71 (US$0.96). These shares vested on 18 March 2019 and became immediately exercisable. The fair value of these

outstanding awards at 31 December 2021 was £0.47 (US$0.65) (2020: £0.41 (US$0.52)). The shares outstanding at the end of the

year are as follows:

2021

’000

2020

‘000

Outstanding at beginning of year 17 47

Granted during the year – –

Exercised during the year (7) (30)

Balance at end of year

10 17

Exercisable at end of year

10 17

#### 28. FINANCIAL INSTRUMENTS

Set out below is an overview of financial instruments, other than the current portions of the prepayment disclosed in Note 12,

Receivables and other assets, which do not meet the criteria of a financial asset. These prepayments are carried at amortised cost.

Notes

2021

US$’000

2020

US$’000

Financial assets at amortised cost

Cash – continuing operations 14 30 913 49 820

Cash – discontinued operation 15 144 7

Receivables and other assets – continuing operations 12 4 398 4 490

Receivables and other assets – discontinued operation 15 45 195

Total

35 500 54 512

Total non-current

1 278 153

Total current

34 222 54 359

Financial liabilities at amortised cost

Interest-bearing loans and borrowings 17 11 044 16 087

Trade and other payables – continuing operations 19 24 283 30 852

Trade and other payables – discontinued operation 15 446 471

Total

35 773 47 410

Total non-current

10 435 3 730

Total current

25 338 43 680

The carrying amounts of the Group’s financial instruments held approximate their fair value.

There were no open hedges at year end (2020: nil).

2021

US$’000

2020

US$’000

#### 29. DIVIDENDS DECLARED AND PROPOSED

Declared dividends on ordinary shares

Final ordinary cash dividend for 2020: 2.5 US cents per share (2019: Nil) 3 509 

The 2020 proposed dividend was approved on 2 June 2021 and a final cash dividend of 2.5 US cents per share was paid to

shareholders on 15 June 2021.

A proposed ordinary cash dividend of 2.7 US cents per ordinary share for 2021 is subject to approval at the AGM to be held on

8 June 2022 and is not recognised as a liability as at 31 December.

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

210

211

#### 30. EVENTS AFTER THE REPORTING PERIOD

Events which occurred after the reporting period relating to the discontinued operation and the status of the sales process have

been disclosed in Note 15 Assets held for sale. These events did not require any adjustments to the financial statements.

Events which occurred after the reporting period relating to the successful implementation of the security on certain revolving

credit facilities within the Group have been disclosed in Note 17 Interest-bearing loans and borrowings. These events did not

require any adjustments to the financial statements.

On 23 February 2022, the South African corporate income tax rate was reduced from 28% to 27% for companies with years of assessment

ending on or after 31 March 2023. The change in tax rate will affect recorded deferred tax assets and liabilities and effective tax rate in

the future. The new corporate tax rate of 27% is considered to be substantively enacted on 23 February 2022 and is expected to not

have a material impact on the Group. This event did not require any adjustment to the financial statements and will be applicable to

Gem Diamonds Technical Services, the Group’s South African subsidiary.

Progress relating to the amended tax assessment issued to Letšeng by the LRA has been disclosed in Note 1.2.28 Critical accounting

estimates and judgements.

An ordinary cash dividend of 2.7 US cents for the 2021 financial year has been proposed. This is subject to approval at the AGM to be held

on 8 June 2022.

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 or requires adjustments or disclosures.

#### 31. MATERIAL PARTLY OWNED SUBSIDIARY

Financial information of Letšeng Diamonds, a 70% held subsidiary which has a material non-controlling interest, with the remaining

30% being held by the Government of the Kingdom of Lesotho, is provided below.

Name

Country of

incorporation

and operation

2021

US$’000

2020

US$’000

Letšeng Diamonds (Proprietary) Limited Lesotho

Accumulated balances of material non-controlling interest 76 845 79 906

Profit allocated to material non-controlling interest 12 458 10 683

The summarised financial information of this subsidiary is provided below.

This information is based on amounts before intercompany eliminations.

Summarised statement of prot or loss for the year ended

31December

Revenue

198 510 186 579

Cost of sales (120 751) (112 081)

Gross prot 77 759 74 498

Royalties and selling costs (20 879) (19 043)

Other income/(expenses) 1 110 (6 695)

Operating prot 57 990 48 760

Net finance costs (2 470) (2 840)

Prot before tax 55 520 45 920

Income tax expense (13 993) (10 307)

Prot for the year 41 527 35 613

Total comprehensive income 41 527 35 613

Attributable to non-controlling interest 12 458 10 683

Dividends paid to non-controlling interest (6 685) (4 658)

Dividends payable to non-controlling interest – (3 064)

Summarised statement of nancial position as at 31 December

Assets

Non-current assets

Property, plant and equipment, deferred tax assets, intangible assets and

receivables and other assets 313 028 325 009

Current assets

Inventories, receivables and other assets, and cash and short-term deposits 61 455 78 098

Total assets 374 483 403 107

Non-current liabilities

Interest-bearing loans and borrowings, trade and other payables, provisions, lease

liabilities and deferred tax liabilities 95 261 101 203

Current liabilities

Interest-bearing loans and borrowings, trade and other payables and lease

liabilities 23 072 35 553

Total liabilities 118 333 136 756

Total equity 256 150 266 351

Attributable to:

Equity holders of parent 179 305 186 445

Non-controlling interest 76 845 79 906

Summarised cash ow information for the year ended 31 December

Operating cash inflows 77 824 105 471

Investing cash outflows (68 655) (48 700)

Financing cash outflows (30 582) (20 640)

Foreign exchange differences 1 271 2 787

Net (decrease)/increase in cash and cash equivalents (20 142) 38 918

#### NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

#### FOR THE YEAR ENDED 31 DECEMBER 2021 (CONTINUED)

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

213

Gem Diamonds Limited Annual Report and Accounts

212

# REPORT ON

# PAYMENTS TO

# GOVERNMENTS

#### for the year ended 31 December 2021

#### INTRODUCTION

This report provides an overview of the payments made to

governments by Gem Diamonds Limited and its subsidiaries (the

Group) for the 31 December 2021 financial year, as required under

the UK Report on Payments to Governments Regulations 2014 (as

amended December 2015). These UK Regulations enact domestic

rules in line with Directive 2013/34/EU (the EU Accounting

Directive (2013) and apply to companies that are involved in

extractive activities.

This report is also filed with the National Storage Mechanism

intended to satisfy the requirements of the Disclosure Guidance

and Transparency Rules of the Financial Conduct Authority in the

UK.

The Gem Diamonds Limited LEI number is

213800RC2PGGMZQG8L67.

#### BASIS FOR PREPARATION

#### Reporting entities

This report includes payments to governments made by

subsidiaries in the Group that are engaged in extractive activities.

During the 2021 financial year, extractive activities were conducted

in Lesotho while the operation in Botswana was under care and

maintenance. All payments made in relation to the Botswana

entity were under the materiality level and therefore not reported.

#### Extractive activities

Extractive activities relate to the exploration, prospection,

discovery, development and extraction of minerals, oil, natural gas

deposits or other materials. Gem Diamonds Limited, through its

subsidiaries, is engaged in diamond mining activities.

#### Scope of payments

The report discloses only those significant payments made to

governments arising from extractive activities.

#### Government

Government includes any national, regional, or local authority

of a country. It includes a department, agency or undertaking

(i.e. corporation) controlled by that authority.

### REPORT ON PAYMENTS TO GOVERNMENTS

#### Payment types disclosed at legal entity level

PRODUCTION ENTITLEMENTS

There were no payments of this nature for the year ended

31 December 2021.

TAXES

These are payments on the entity’s income, production, or profits,

excluding taxes levied on consumption such as value added

taxes, personal income taxes or sales taxes in line with in-country

legislation.

ROYALTIES

These are payments for the right to extract diamonds and

are determined on percentage of sales in terms of in-country

legislation and/or mining lease agreements.

DIVIDENDS

These are dividend payments, other than dividends paid to a

government as an ordinary shareholder of an entity unless paid

in lieu of production entitlements or royalties. There were no

dividend payments of this nature to governments for the year

ended 31 December 2021.

SIGNATURE, DISCOVERY, AND PRODUCTION

BONUSES

There were no payments of this nature to governments for the

year ended 31 December 2021.

LICENCE FEES

These are fees paid for acquisition of leases and licences, including

annual renewal fees, in order to obtain and maintain access to the

areas in which extractive activities are performed.

PAYMENTS FOR INFRASTRUCTURE IMPROVEMENTS

There were no payments of this nature to governments for the

year ended 31 December 2021.

#### Cash flow basis

Payments reported are on a cash flow basis and may differ to

amounts reported in the Gem Diamonds Limited 2021 Annual

Report and Accounts, which are prepared on an accrual basis.

![Graphics]()

Gem Diamonds Limited Annual Report and Accounts

214

#### REPORT ON PAYMENTS TO GOVERNMENTS CONTINUED

#### Materiality level

In line with the guidance provided in the Report on Payments to

Governments Regulations, payments made as a single payment,

or as a series of related payments, which are equal to or exceed

US$110 000 (£86 000), are disclosed in this report. All payments

below this threshold have been excluded.

#### SUMMARY REPORT

Operation Country Taxes US$’000

Royalties

US$’000

Licence fee

US$’000 Total US$’000

Letšeng Diamonds (Proprietary) Limited Lesotho 23 104 18 050 150 41 304

Total 23 104  18 050 150 41 304

Lesotho

Letšeng Diamonds (Proprietary) Limited Taxes US$’000

Royalties

US$’000

Licence fee

US$’000 Total US$’000

Lesotho Revenue Authority 23 104 – – 23 104

Government of Kingdom of Lesotho – 18 050 150 18 200

#### Reporting currency

The payments to government have been reported in US dollar.

Payments made in currencies other than US dollar were

translated at the relevant annual average rate for the year ended

31 December 2021.

2021

215

# ADDITIONAL

# INFORMATION

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

216

217

#### ADDITIONAL INFORMATION CONTINUED

AGM Annual General Meeting

AIFR All injury frequency rate

AV Alluvial Ventures (a third-party contractor)

Basotho Lesotho nationals

BEPS Basic earnings per share

BT Business Transformation

BWP Botswana pula

CAGR Compound annual growth rate

CCSA Climate Change Scenario Analysis

CDP Carbon Disclosure Project

CEO Chief Executive Officer

CFO Chief Financial Officer

CI Continuous Improvement

CLO  Community Liaison Officer

CO

2

e Carbon dioxide equivalent

COO Chief Operating Officer

cpht Carats per hundred tonnes

CSI Corporate social investment

CSR Corporate social responsibility

CSRI  Corporate social responsibility investment

DMS Dense Medium Separation

DTR Disclosure Guidance and Transparency Rules

EBITDA Earnings before interest, tax, depreciation and

amortisation

EPS Earnings per share

ESG  Environmental, social and governance

ESOP Employee Share Option Plan

EU European Union

EY Ernst & Young

FCA Financial Conduct Authority

FRC Financial Reporting Council

FTSE Financial Times Stock Exchange

GCM General circulation model

GDIP Gem Diamonds Incentive Plan

GDP  Gross domestic product

GHG Greenhouse gas

GIA  Gemological Institute of America

GISTM  Global Industry Standard on Tailings

Management

GRI Global Reporting Initiative

ha Hectare

HSSE Health, safety, social and environment

IAS International Accounting Standards

ICMM  International Council on Mining and Metals

IFRS  International Financial Reporting Standard

IPCC  International Panel on Climate Change

ISO International Organization for Standardization

IT Information technology

JIBAR Johannesburg Interbank Agreed Rate

KPI Key Performance Indicator

LIBOR London Interbank Offered Rate

LoM Life of mine

LSL Lesotho loti

LTI Lost time injury

LTIFR Lost time injury frequency rate

LTIP Long-term incentive plan

MRM Mineral Resource Management

Net cash/

(debt)

The sum of cash and cash equivalents less

drawn down bank facilities (excluding asset-

based finance facility and insurance premium

financing)

PAC Project-affected community

PCA  Primary crushing area

PPE  Personal protective equipment

RCF Revolving credit facility

SDG  Sustainable Development Goal

SEIA Social and environmental impact assessment

SEMP Social and environmental management plan

SLL Sustainability-linked loan

STIB Short-term incentive bonus

TCFD Task Force on Climate-related Financial

Disclosures

The Board The Gem Diamonds Board of Directors

The Group The Gem Diamonds Company and its

subsidiaries

TSF Tailings storage facility

TSR Total shareholder return

UK United Kingdom

UN United Nations

US$ United States dollar

USA/US United Stated of America

VAT Value added tax

#### ABBREVIATIONS AND DEFINITIONS

#### ADDITIONAL INFORMATION CONTINUED

#### CONTACT DETAILS AND ADVISERS

#### GEM DIAMONDS LIMITED FINANCIAL ADVISER AND

#### SPONSOR

#### AUDITORS

#### Registered office JPMorgan Cazenove

#### Limited

#### Ernst & Young

#### Incorporated

2nd Floor, Coastal Building 20 Moorgate 102 Rivonia Road

Wickhams Cay II London EC2R 6DA Sandton

PO Box 2221 United Kingdom 2146

Road Town T: +44 (0) 20 7588 2828 South Africa

Tortola F: +44 (0) 20 7155 9000 T: +27 (0) 11 772 3000

British Virgin Islands

#### Head office

2 Eaton Gate

London SW1W 9BJ

United Kingdom

T: +44 (0) 203 043 0280

F: +44 (0) 203 043 0281

#### LEGAL ADVISER FINANCIAL ADVISERS FINANCIAL PUBLIC RELATIONS

#### ADVISER

#### Linklaters Liberum Capital Limited Celicourt Communications

One Silk Street Ropemaker Place, Level 12 Adam House

London EC2Y 8HQ 25 Ropemaker Street 7 – 10 Adam Street, The Strand

United Kingdom London EC2Y 9LY London WC2N 6AA

T: +44 (0) 20 7456 2000 United Kingdom United Kingdom

F: +44 (0) 20 7456 2222 T: +44 (0) 20 3100 2000 T: +44 (0) 20 7520 9265

F: +44 (0) 20 3100 2099

#### Panmure Gordon & Co.

One New Change

London EUM 9AF

United Kingdom

T: +44 20 7886 2500

#### FEEDBACK

#### Gem Diamonds Limited

Glenn Turner

T: +44 (0) 203 043 0280

E: IR@gemdiamonds.com

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

218

219

#### ADDITIONAL INFORMATION CONTINUED

Committee icons

Audit Remuneration Nominations Sustainability

#### DIRECTORS’ AND EXECUTIVE MANAGEMENT CVs

#### Non-Executive Directors

HARRY KENYON-

#### SLANEY (61)

NON-EXECUTIVE CHAIRPERSON

BSc Geology (Southampton University),

International Executive Programme

(INSEAD France)

CHAIRPERSON TENURE <9 YEARS

NO INDEPENDENCE CONFLICT EXISTS

Appointed to the Board in June 2017

#### Skills and experience

Harry has over 39 years of experience in the mining industry, principally with Rio

Tinto. He is a geologist by training and his experience spans operations, marketing,

projects, finance and business development. He has worked in South Africa, Australia

and the UK. Until 2015, Harry was a member of the Group Executive Committee

of Rio Tinto, where he held the roles of CEO of Energy and before that CEO of

Diamonds and Minerals. Prior to this he variously led Rio Tinto’s global titanium

dioxide business, was CEO of Rio Tinto’s listed subsidiary, Energy Resources of

Australia Limited, was general manager of operations at Palabora Mining Company

in South Africa and held senior marketing roles in copper, uranium and industrial

minerals. He began his career as an underground geologist with Anglo American on

the gold mines in South Africa.

#### Current external appointments

Harry is currently a senior adviser to McKinsey & Co.

Harry is a member of the advisory board of Schenck Process AG; and a non-Executive

Director of Sibanye-Stillwater; and several private companies.

Chairperson Member Member

#### MICHAEL LYNCH-BELL

(68)

NON-EXECUTIVE DIRECTOR

BA Hons Economics and Accountancy

(University of Sheffield); FCA of the Institute of

Chartered Accountants in England and Wales

Appointed to the Board in December 2015; appointed Senior Independent

Director in November 2017

#### Skills and experience

Michael spent a 38-year career with Ernst & Young (EY), having led its Global Oil

and Gas, UK IPO and Global Oil and Gas and Mining transaction advisory practices.

He was a member of EY’s assurance Practice from 1974 to 1996, when he transferred

to the Transaction Advisory Practice. He was also UK Alumni sponsor and a member

of the firm’s Europe, Middle East, India, and Africa and Global Advisory Councils.

He retired from EY as a partner in 2012 and continued as a consultant to the firm

until November 2013.

#### Current external appointments

Michael is currently chair of Little Green Pharma Ltd; and non-Executive Director

and chair of the Remuneration Committee of Barloworld Limited.

Chairperson Chairperson Member

#### ADDITIONAL INFORMATION CONTINUED

#### MIKE BROWN (61)

NON-EXECUTIVE DIRECTOR

BSc Engineering; Mining PR Eng (ECSA)

Engineering (University of Witwatersrand);

Strategic Executive Programme (London

Business School)

Appointed to the Board in January 2018

#### Skills and experience

Mike has over 37 years’ experience in the resources industry in operational, senior

management and director roles. He spent six years in Switzerland as the Managing

Director technical at Pala, where he oversaw all technical aspects of the mining

sector investments, including the risks associated with resource performance,

project management, ramp-up, operations, and the associated working capital and

financial controls. Prior to joining Pala, Mike spent 21 years with De Beers in southern

Africa in various roles, culminating in the post of chief operating officer where he

was accountable for five operating mines, including greenfield and brownfield

growth projects. He also managed the restructuring at De Beers Consolidated Mines

in 2005/2006 and again in 2009. Mike has overseen growth projects and building of

mines in Namibia, South Africa, Sierra Leone, Vietnam and USA.

#### Current external appointments

Mike is currently a non-Executive Director of Nevada Copper.

Chairperson Member Member

#### ROSALIND KAINYAH MBE

(64)

NON-EXECUTIVE DIRECTOR

BA (Hons) (University of Ghana), LLB (Hons)

(University of London), LLM (University College,

University of London), Member of the Bar of

England & Wales (Gray’s Inn), MCIArb

Appointed to the Board in May 2021

#### Skills and experience

Rosalind is the founder and Managing Director of Kina Advisory Limited, a trusted

adviser to Boards and Senior Executives of global companies on sustainability and

responsible business investment and partnerships in emerging markets. She trained

as a lawyer and is a member of the Bar of England and Wales and of the Chartered

Institute of Arbitrators. Rosalind has almost 30 years of combined international,

senior management, executive and board level experience. She has worked with

companies and organisations including Linklaters, Anglo American Corporation of

South Africa, De Beers, Tullow Oil plc, the United Nations Environment Programme

and ERM, and on projects across Africa, in the UK, Europe, North and South America,

Asia, and the South Pacific. As a result, she has a wide network and is respected

across a range of stakeholders from governments and corporates through civil

society organisations and media for her professional expertise and as a woman of

integrity and credibility.

#### Current external appointments

Rosalind is currently the Managing Director of Kina Advisory Limited and a non-

Executive Director for discoverIE plc, CalBank plc (Ghana) and two private companies.

Member Member Member

![Graphics]()

2021Gem Diamonds Limited Annual Report and Accounts

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

220

221

#### ADDITIONAL INFORMATION CONTINUED

#### MAZVI MAHARASOA (52)

NON-EXECUTIVE DIRECTOR

BLLM International and Commercial Law

(University of Buckingham)

Appointed to the Board in July 2019

#### Skills and experience

Mazvi has over 22 years’ experience in senior management positions, including

leading roles in the mining sector, having served as the resident director and chief

executive officer of Letšeng Diamonds Proprietary Limited until 2017. Furthermore,

Mazvi was also the founder and president of the Lesotho Chamber of Mines (2016).

Prior to her work in the mining industry, Mazvi was involved in the Ministry of

Natural Resources and the Central Bank of Lesotho, where she was the senior legal

counsel for each of these entities.

Since joining the Board, Mazvi has been appointed as the designated non-Executive

Director for workforce engagement.

#### Current external appointments

Mazvi is currently a non-Executive Director of First National Bank Lesotho Limited

and a non-Executive Director of several private companies.

Member

#### Executive Directors

#### CLIFFORD ELPHICK (61)

CHIEF EXECUTIVE OFFICER

BCom (University of Cape Town);

BCompt Hons (University of South Africa)

Founded Gem Diamonds in July 2005

#### Skills and experience

Clifford joined Anglo American Corporation in 1986 and was seconded to

E Oppenheimer & Son Proprietary Limited as Harry Oppenheimer’s personal

assistant in 1988. In 1990, he was appointed Managing Director of E Oppenheimer

& Son, a position he held until leaving in December 2004. During that time, Clifford

was also a Director of Central Holdings, Anglo American and DB Investments.

Following the privatisation of De Beers in 2000, Clifford served on the De Beers

Executive Committee.

#### Current external appointments

Clifford is currently the non-Executive Chairperson of Zanaga Iron Ore Co. Limited.

Committee icons

Audit Remuneration Nominations Sustainability

#### ADDITIONAL INFORMATION CONTINUED

#### MICHAEL MICHAEL (51)

CHIEF FINANCIAL OFFICER

BCom Hons (Rand Afrikaans University); CA(SA)

Appointed to the Board in April 2013

#### Skills and experience

Michael has over 22 years’ experience in financial management. He joined the

audit firm RSM Betty & Dickson in Johannesburg, South Africa in January 1993 and

became audit partner at the firm in March 2000. From August 2006 to February

2008 Michael was seconded to Gem Diamonds Limited to assist with the financial

aspects of the main London listing, including the financial reporting, management

accounting and tax relating to the initial public offering. In March 2008 Michael joined

Gem Diamonds on a full-time basis as the Group Financial Manager. On 2 April 2013

he was promoted to the position of Chief Financial Officer and appointed to the

Board.

#### Current external appointments

None

#### Executive Management

#### GLENN TURNER (61)

CHIEF LEGAL AND COMMERCIAL

OFFICER AND COMPANY SECRETARY

BA; LLB (University of Cape Town);

LLM (Cambridge)

Served on the Board from April 2008 to November 2017

#### Skills and experience

Glenn was called to the Johannesburg Bar in 1987, where he spent 14 years

practising as an advocate specialising in general commercial and competition

law and took silk in 2002. Glenn was appointed De Beers’ first general counsel in

2002 and was also a member of its Executive Committee. He was responsible for a

number of key initiatives during his tenure, including overseeing De Beers’ re-entry

into the USA.

#### Current external appointments

Glenn is currently a non-Executive Director of Agribiomed Limited and Lineout

Holdings Limited.

#### BRANDON DE BRUIN (50)

CHIEF OPERATING OFFICER

BCom; LLB (University of the Witwatersrand)

#### Skills and experience

Brandon joined Gem Diamonds in 2007 from Clifford Chance LLP. Practising in New

York and London, he specialised in debt and equity capital markets and corporate

finance gaining extensive commercial and legal experience in international corporate

and finance transactions, stock exchange listings in London, Luxembourg and New

York and in the UKLA (UK) and SEC (USA) rules and regulations. At Gem Diamonds,

Brandon has been responsible for numerous corporate and financial transactions.

He was head of the Group’s Sales, Marketing and Manufacturing division from 2013

to 2017 when he was appointed as the Group Business Transformation Officer. In

2019 Brandon was appointed as the Group Operations and Business Transformation

Executive and in 2021 as Chief Operating Officer.

#### Current external appointments

None

![Graphics]()

2021

Presenting the Gem Diamonds Annual Report and Accounts 2021 | Strategic report | Performance review

Governance | Directors’ report | Financial statements | Report on payments to governments | Additional information

223

Gem Diamonds Limited Annual Report and Accounts

222

#### JACO HOUMAN (47)

SENIOR MANAGER: TECHNICAL AND

PROJECTS

B.Eng(Met) (University of Pretoria); MBA

(University of Witwatersrand Business School)

#### Skills and experience

Jaco joined Gem Diamonds in 2016. His technical and managerial career

spans more than 25 years. He has a diverse background in areas of operational

excellence, design, production, technical support, Safety, Health, Environment

and Quality (SHEQ) and consulting. He has been involved in the development and

implementation of a turnaround plan, performance improvement initiatives, cost

reduction measures, volume expansion at an operation, project, and group level.

He has led and assisted in the development of technical strategies, pre-feasibility

and feasibility studies, design, commissioning and technical evaluation reviews.

He led the safety, occupational hygiene and environmental departments at a large

corporate for more than two years. He spent some time in business improvement

and applied financial modelling skills to enhance operational delivery through the

optimisation of the value chain to maximise value for the business.

#### Current external appointments

None

#### ADDITIONAL INFORMATION CONTINUED

Committee icons

Audit Remuneration Nominations Sustainability

#### ADDITIONAL INFORMATION CONTINUED

#### DISCLOSURES RELATED TO THE RECOMMENDATIONS OF THE TCFD

#### Governance

Disclose the organisation’s governance around climate-related risks and opportunities.

Recommended Disclosure References

Describe the Board's oversight of climate-

related risks and opportunities.

Our Approach to Climate Change, page 27. Our Sustainability Report, page 6 and 14. Our Annual

Report and Accounts 2021, pages 87, 90, 109 and 113. Our Sustainable Development Reporting

platform www.gemdiamonds-reports.co.za/reports/sd-20

22/index.php

Describe management's role in assessing

and managing climate-related risks and

opportunities.

Our Approach to Climate Change, page 27. Our Sustainability Report, page 27 and 42. Our Annual

Report and Accounts 2021, pages 37, 48 and 52. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-2

022/index.php

#### Strategy

Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and

financial planning, where such information is material.

Recommended Disclosure References

Describe the climate-related risks and

opportunities the organisation has

identified over the short, medium and

long term.

Our Approach to Climate Change, page 30. Our Sustainability Report, page 19. Our Annual

Report and Accounts 2021, pages 38 and 65. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-2

022/index.php

Describe the impact of climate-

related risks and opportunities on the

organisation's businesses, strategy and

financial planning.

Our Approach to Climate Change, page 29. Our Sustainability Report, page 22. Our Annual

Report and Accounts 2021, page 38. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-2

022/index.php

Describe the resilience of the organisation's

strategy, taking into consideration different

climate-related scenarios, including a 2°C or

lower scenario.

Our Approach to Climate Change, page 29. Our Sustainability Report, page 22. Our Annual

Report and Accounts 2021, page 38. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-

2022/index.php

#### Risk Management

Disclose how the organisation identifies, assesses and manages climate-related risks.

Recommended Disclosure References

Describe the organisation's processes for

identifying and assessing climate-related

risks.

Our Approach to Climate Change, page 32. Our Sustainability Report, page 22. Our Annual

Report and Accounts 2021, page 37. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-2

022/index.php

Describe the organisation's processes for

managing climate-related risks.

Our Approach to Climate Change, page 33. Our Sustainability Report, page 21. Our Annual

Report and Accounts 2021, page 37. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/

sd-2022/index.php

Describe how processes for identifying,

assessing and managing climate-related

risks are integrated into the organisation's

overall risk management.

Our Approach to Climate Change, page 32. Our Annual Report and Accounts 2021, page 37. Our

Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-

2022/index.php

#### Metrics and Targets

Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information

is material.

Recommended Disclosure References

Disclose the metrics used by the

organisation to assess climate-related

risks and opportunities in line with its

strategy and risk management process.

Our Approach to Climate Change, page 34. Our Sustainability Report, page 22. Our Annual

Report and Accounts 2021, page 73. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-20

22/index.php

Disclose Scope 1, Scope 2 and, if

appropriate, Scope 3 greenhouse gas

(GHG) emissions, and the related risks.

Our Approach to Climate Change, page 35. Our Sustainability Report, page 20. Our Annual

Report and Accounts 2021, page 35. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-2022

/index.php

Describe targets used by the organisation

to manage climate-related risks and

opportunities and performance against

targets.

Our Approach to Climate Change, page 34. Our Sustainability Report, page 22. Our Annual

Report and Accounts 2021, page 34. Our Sustainable Development Reporting platform

www.gemdiamonds-reports.co.za/reports/sd-2022/index.php

![Graphics]()

Gem Diamonds Limited Annual Report and Accounts

224

### NOTES

GREYMATTERFINCH # 15773