Gem Diamonds Limited ($GEMD)

Ladies and gentlemen, and welcome to Gem Diamonds' Full Year Results Presentation for the year ended 31 December 2025. The presenters today are Clifford Elphick, CEO of Gem Diamonds; Michael Michael, CFO; and Brandon de Bruin, COO. Please use the Q&A function on the top of your screen to send through any questions. All questions will be answered at the end of the presentation. I will now hand over to Clifford.

Good morning, everybody, and thank you for your time. Thank you for your attendance. As you can see, this is the 2025 Gem Diamonds' annual report and accounts presentation. If we can turn over the page, please. The disclaimer. I'm sure you're all very aware of all of this. Let's not dwell on this. The next page, please. Right. It's me, Michael and Brandon. You're all familiar with us. So let's look at the year-end review. We recovered some 90,000 carats. That is a little less than a normal year for us. And that is based on the ore mix. It was what was anticipated from the ore which we processed. On the dollar per carat side, $1,100 per carat achieved for the year. Again, this is a little lot from our normal dollar per carat and that is also a reflection partly of the ore provenance, Main Pipe versus satellite, but also, of course, the ongoing pressures on diamond prices. That led to a revenue of just shy of $100 million. It was a tale of 2 halves really. The first half of the year under sustained pricing pressure. We were in a negative EBITDA loss. Very happy to have turned that around to a positive $4 million EBITDA for the year, and that was really a good effort. We have a basic loss for the year before pre-exceptional items, and Michael will talk to that in some detail. Our net debt finished the year at $20 million. We're quite pleased with this because we generated quite a lot of cash during the year, and we're able to reduce this debt by some $8 million. Our all injury frequency rate. This is at a very low level. We're very pleased with that, as you will see from some graphs further on. We've achieved our decarbonization target well ahead of the schedule, which we had set ourselves. And again, that's something that we are well pleased with. And our facilities remain -- we have some facilities of some nearly $70 million available to us. So that's the snapshot of the year. Let's go into some more detail. Talking about the world as a whole, the economic backdrop, 3.2% growth for 2025 wasn't bad. And also China, although some doubt about the 5%, it seems that they did meet their target. And there's a slight change in attitude in China towards spending money on diamonds. It's starting to happen, which is good news. The tariff and the geopolitical tensions during the year really created substantial uncertainties and lack of confidence and uncertainty doesn't help us in the diamond industry at all. Of course, the war first in June, the attack on Iran and then subsequently, towards the end of the year, things getting, obviously getting tough. All of this from a global economic backdrop was really not helpful. Turning specifically to the diamond market. The year was a tough one with continued pressure on the rough and polished diamond prices. And you will all have seen the major De Beers, but also junior diamond producers, all of us under significant pressure because of these pricing issues. What is starting to become apparent and the industry is at last grappling with this distinction between synthetic diamonds and natural mined goods. The advertising campaign has begun. Work is being done and many of the midstream traders, manufacturers are running their own campaigns and talking about the distinctions and you're starting to get a clear distinction emerging between two basically different products. One is a very inexpensive product. You buy it, you walk out of the store and you have absolutely zero value in your hands as it were. And the other, of course, is natural, is more expensive and retains value. On the other hand, we saw that the ultra high-end luxury brands, we're talking Van Cleef & Arpels, Tiffany. LVMH is top-end jewelry. They all had very good years. And in particular, the Van Cleef & Arpels results stick out. We focus on that a lot because we supply into their programs, into their needs and it's been quite interesting to see decimation at the very low end, the core quality smaller goods. And yet at the top end, there's been this positive movement. Our position is as the top end in the kimberlite producers. And we believe that we are well positioned. We've seen price increases starting in the fourth quarter of 2025. We started to see a shortage of goods in the market, and our customers were bidding up, and we have seen that continue into the first quarter of 2026. And that is a cause for some optimism. We entered -- as a result of the difficulties which we were experiencing in the market and therefore, the need to look after our balance sheet, look after our cash position, not squander any money, we entered into what we termed the business resilience program. This was I think, extremely well executed. It took a short time to complete the planning for it. We implemented it. And within months, we were starting to see the benefits of that resilience program implementation. Of course, given different pricings and the pressure, which the industry has been under, we look at our long-term mine plan at all times, and we have to optimize and shift the delivery of ore. We're fortunate to have the two parts. And so it does give us a measure of flexibility, not complete flexibility, but a measure. And so that is the position as far as Gem is concerned. Let's turn over, please. Let me just speak a little bit about this program, and then I'm going to hand over to Brandon. As I said, when it became clear that we had to react quite aggressively to what was confronting us, it really was a question of rapid action with those two conservation of cash and the balance sheet protection at top of mind. So we immediately accessed some additional higher-value satellite ore and reduce the waste mining volumes that obviously increases revenue, reduces costs. But unfortunately, that was not enough. And therefore, we had to rationalize the workforce. We had a situation where the Board and senior management agreed to salary sacrifices and also we slimmed the Board down because in a small company such as ours, that is a deadweight as it were from an expense point of view. Obviously, there are many positive things which come out of a listed board, but it was appropriate to slim this down as far as we possibly can and within the limits of stock exchange regulations. CapEx was scrubbed, all CapEx and we look at that and turn it over time and time. And again, an essential CapEx is done, but non-essential and longer-term CapEx was put on hold. And of course, the obvious thing was to relook at all of our supplier contracts and just renegotiate and renegotiate and push and shove. And this resulted, as you can see at the bottom of this page, in monthly savings of $1.5 million. We reduced -- it allowed us to build cash in the second half and reduced our debt by some $8 million. The EBITDA turnaround of $6.5 million resulted in a net EBITDA for the year of just under $4 million and we got some additional revenue from satellite pipe ore. So this was a reaction to those situations. And I think I'd like to say it was very well implemented, rapidly and decisively. And we are very happy to see the results which emerged. Brandon, will you take over, please?

Thanks, Clifford. I agree, I think rapid change in management and work in the H2, taking into account the challenges we saw in H1, in particular with price and the driving impact on operations, but we'll get into those over the next few slides. Starting with our priority, which is our safety. I'm very happy to report an excellent safety performance in 2025 with zero fatalities. We've again for the second and third year running had record low AIFR of 0.41, our all injury frequency rate. And you can see that in the graph a continuous downward trend, which is what we're driving towards. And only 2 LTIs in the year, which give us a very low LTIFR ratio as well. That was against 3 LTIs in the previous year. So all the efforts that we introduced and mine plan changes and management changes that we did in H2 to reduce costs and contain spending, we continued our focus on safety and had good outcomes throughout the year. We had no major significant environmental incidents and again, no major significant social incidents and had very good efforts with our communities. We turn the page to the sustainability. As Clifford mentioned, we have reached our 30% reduction in carbon emissions in our Scope 1 and 2 reduction, which is our grid and diesel power, in particular. This has been largely based on reduction of volumes, in particular, on waste mining. So that had an impact on our Scope 1 reductions. But also there were a number of energy efficiency initiatives that have been implemented over the past few years, which have added to our reduction in our emissions. Our focus going forward is to maintain this 30% reduction in Scope 1 and 2 carbon emissions against our 2021 baseline. And as you've seen in the mine plan that we released to the market in September last year, there is increase in waste tonnes coming in '27 and '28. And that is as we introduce the next cutback in the Satellite Pipe, there will be an increase in waste. So notwithstanding that, our focus is to maintain a 30% reduction in our Scope 1 and 2 emissions. Our CSI projects. I'm pleased to say that notwithstanding the challenges that we faced last year from a financial perspective, we met our obligations in terms of our lease, mining lease and our obligations to the -- and our focus on CSI project was on education, infrastructure and SME development, and that went well last year. Our residue tailing facilities remain well managed and aligned to the GISTM and remain top class, no concerns. We retained our safety and environmental ISO 14001 and 45001 certification. And this we've managed to do since 2018 on an annual basis following the relevant audits. We also retained our FTSE4Good status and our integration of eight adopted UN SDGs. We recently completed a gap analysis to ensure we are contributing meaningfully to these goals, and I'm pleased to say that our efforts are contributing meaningfully. We can flip the page. As mentioned, operationally, 2025 was a very positive year, in particular, building in the changes that we implemented in H2, saw very positive results from operational perspective. 2025 was our first full year of mining and treatment being in-sourced, and we are certainly seeing the benefits from both the cost and operational efficiency perspective. We adapted our mine planning in H2 last year to manage the prevailing economic conditions, with -- most of the value of that coming out from a reduction in waste through the redesign of the final cutback in the Main Pipe, which is Cut 4 West, and also a deferral of waste mining in the Satellite Pipe for two reasons. One, we introduced additional satellite ore, as Clifford mentioned, in 2025 by extending the current cutback. And we, therefore, have the opportunity to push out the commencement of the next cutback while we finish the extension in the Cut 5 West. So that allowed us to contribute a significant amount of additional satellite ore in 2025, which is reflected in our results and our revenue in particular in H2. The deferral and redesign of the cutback and reduction of waste has not impacted our ability to ensure that we maintain our 5 million tonnes per annum of ore availability. And as Clifford mentioned, that is mainly due to the flexibility that -- or the limited flexibility that we have with two pipes and redesign in the Mine Plan. So as you can see, our waste tonnes in the graph, our waste tonnes reduced to approximately 2 million tonnes last year. And we maintained a 5 million and in fact, in 2025, 5.2 million of treated ore through the year. From a treatment perspective, our focus was on a consistent feed rate to the plant, and we changed methodology there during the year by introducing front-end loading into the plants, which provides a consistent feed. And that allowed the plants to continue to run stably and increasing operating time while maintaining a consistent run rate. So we had good operational efficiencies in the plants and the feeding to the plants. We also managed to reduce treatment costs following in-sourcing significantly, and this added to the numbers that Clifford mentioned in previous slides in terms of our monthly savings. Our long-term Mine Plan, we optimized that and released that to the market in September. There was a change to our Main Pipe mining, which reduced the waste requirements and then also bringing in additional satellite tonnes. This, we continuously look at and in particular, in the prevailing economic conditions, we will continue to do that and be flexible to ensure that we are able to move and change things as we need. On the next page, please, Jannine, thank you. 90,000 carats recovered. This was in line with the great expectations and the ore mix. Different to previous years, our ore contribution from Satellite Pipe reduced to 26%, which is well below previous years in terms of the contribution. The Satellite Pipe has got a higher grade, which is more carats and has got higher value than the Main Pipe. So a lower contribution that does impact on our grade and value. We did recover 9 greater than 100 carat diamonds. Unfortunately, we assume most of them came from the Main pipe, given the overall quality of those diamonds was not at the standard that we usually see with Satellite Pipe. In the table below, we can also see in a couple of the size categories, the impact of lower volumes of Satellite Pipe and lower grade. But on the whole, a pretty good performance from the recoveries that we did get out of the treated last year. I think on that, if I can hand back to Clifford for the sales and marketing.

Yes, if you look at the graph at the bottom, it tells the story of a decline in average dollar per carat as a result of all those factors we spoke about before. And in particular, the onward march of synthetics into the diamond industry. What I would say is that the last quarter of 2025 saw a pleasing turnaround in this. This is obviously the average for the year, pleasing turnaround in this. And we've seen that continue in the first quarter of this year. So the average dollar per carat for our goods is really now in a different place to what this is for the year. And I'm hoping that, as the year goes on, we will see that this was the bottom of the market as it were. So the detail in the bullet points, 9 diamonds greater than 100 carats were recovered and sold. And from the previous chart, you saw that was pretty much on average. 14 diamonds sold for more than $1 million and 22 diamonds for more than $20,000 per carat. If you look at the pie chart on the bottom right, you can see that some 73% of the revenue at the mine was from the greater than 10.8 carats, large diamonds and of course, then the 5 to 10 carats. So our mine -- and the point of this is to try and make the point that we find ourselves in a slightly different category to most normal diamond mines. And if you look to the future of higher-priced, higher-quality goods doing well and not suffering under the same yoke as synthetic diamonds have done at the bottom end of the market. I think this is quite an important pie chart to look at. Let's keep going. Right? Michael, over to you.

Thank you, Clifford, and good morning, everyone. And as you can see on the income statement here, we've displayed this now in three columns with a separate column for the exceptional items, which I'll talk to shortly and what Clifford had alluded to on the overview slide. But firstly, I want to concentrate on the first column, our operating results under normal trading activities. You will see that our revenue dropped to $98.4 million, about $55-odd million lower than the previous year, driven mainly by the reduction of carats, which we've spoken about in Brandon's section, again, driven by lower satellite contribution, 26% in the current year versus 44% in the prior year. And we ended up getting 88,380 carats available for sale versus 109,967 in the previous year. So a volume reduction had a significant impact. Simultaneously, though, our dollar per carat dropped to an average of $1,105 per carat versus $1,390 per carat, and that was all the other aspects under the marketing section and that Clifford alluded to. Royalties and selling costs represent 10% royalty to the government of Lesotho plus sales and marketing costs in Belgium. The lower amount dropped from $16.5 million to $5.9 million, driven by the lower revenue as the royalty is a variable of that, but you're also grateful to the government of Lesotho for giving us a remission of royalties for the last 4 months of the year, which contributed to reducing that cost and assisting with some cash flow. Cost of sales is down 20%, down to $83 million from $100 million. I'll talk to costs in more detail. There's various elements to that, and I'll deal with that on the next slide. Corporate costs, again, also down 27%, notwithstanding inflation of 6% in South Africa. And again, also driven by the business resilience program that implemented some salary sacrifices that were introduced and trying to maintain cost to a bare minimum. Underlying EBITDA was the outcome there of $3.9 million. Again, Clifford alluded to the fact that at half year, we were at a $2.6 million loss of EBITDA, and ending the year with a $3.9 million, meant a $6 million plus turnaround in H2. The depreciation and mining asset amortization stand at about $12 million. The difference is, there is the average exchange rate, which was weaker in the current year from a South African perspective. Going then down net finance costs, we were in debt throughout the year and therefore, had significant interest costs flowing through, but less than the prior year as we tried to dwindle the debt down. Other income mainly represents foreign exchange gains achieved during the year. Income tax in the current year was a positive number, a benefit charge, and that was because of the losses incurred and some of the overpayment of taxes that we had done during the period. Non-controlling interest represents 30% of the Letseng operation, and that's the government's share in the company, Letseng Diamonds. Our attributable loss or net loss for the year was $8.6 million, and that represented into a $0.061 loss per share based on about 140 million shares in issue during the course of the year. If I then go and talk to the exceptional items, there's three key areas that impacted us during the year. The first item, the most material there is impairment, taking into account the strong exchange rate at the end of the year to 16.57, plus the market conditions in terms of our revenue profile and running our model through the program to test for impairment that resulted in a $77 million impairment on our assets. We also had to write down our inventories. That was the stockpile. Again, that was mainly driven by the low exchange rate at the end of the period, and that resulted in a $3.5 million write-down of our stockpile. There's an income tax benefit to that of $17.6 million, that's 25% that resulted in a loss after tax of $63 million for those two portions. And then taking into account the non-controlling interest, we ended up in an attributable loss of $44 million just on the exceptional items. And then the last item is the loss from discontinued operations. Following our relinquishment of the Ghaghoo operation during the course of the year and abandoning then that asset and being relieved of all obligations in there, we ended up with a small profit of about $1.5 million on the winding up of the company. But unfortunately, due to foreign currency translation reserves, which we have to flush through our income statement of about $52-odd million, we resulted in an overall loss from that operation of $51 million, all of that being a non-cash item and then resulting in an attributable loss for all exceptional items of $95.4 million. Taking all of that into account, we ended up the year with $104 million loss from operations and a net loss of $0.74 per share. If I then go to the next slide and talk to the unit costs. You will see that we had an 11% decrease in our total direct cash operating costs down to LSL 220 per a tonne. Most of that driven again by cost efficiencies, the business resilient program in H2, and that's notwithstanding of local inflation in Lesotho of about 5%. Non-cash accounting charges also reduced by 45% down to LSL 62 a tonne, driven again by the lower satellite contribution there, on a positive side to both the costs. The Satellite Pipe has a higher amortization charge, when we treat that ore, and so our amortization dropped to $29 million from $35 million in the prior year. And there was also an increase in inventory at the end of the year, which had a positive impact on our non-cash accounting charges. Overall operating costs then dropped by 22% to LSL 286 per tonne and bringing that back into dollars, it ended up at $16 per tonne versus $19.98 in the prior year. Waste tonnes mined, you'll see there's a big decrease in the volume from 5.4 million down to 2 million, and that had an impact on the overall unit cost, even though we had significant saving in gross costs on waste, but our unit cost jumped up 16% to LSL 71.9 per tonne, and that was because of the fixed cost element within that structure, which resulted with an increase on the lower volumes. Again, taking the exchange rate into account, our total waste costs then increased to $4.02 per tonne in dollar terms compared to $3.37 in the prior year. If I look at the financial position, non-current assets, our property, plant and equipment and mining assets, that dropped to $216 million from $291 million, mainly driven there -- the main impact again was the impairment of $77 million, which reduced that value down to $216 million. Current assets increased to $55 million from $40.7 million last year. Again, as mentioned, increase in inventory, and we have an insurance fund where we've been building funds over for the last 5 years, and when that matures in June, and that will give us the flexibility to draw down on that facility of about $8 million, and that now is included in current assets, which contributed to the increase in the current assets. You'll see we're in income tax refund position this year. We have had to pay provisional taxes in the current year based on our last year profits and our results this year were lower than that. So we will be in a refund position and hopefully receive those funds in quarter 2 this year. If I just then look at the liability side, you'll see our interest-bearing loans increased slightly from $21 million to $24 million. That's made up of about $13 million drawn down on our revolving credit facilities. And then we've got $11 million term debt on -- for two facilities, the one being the primary crushing area and the mining fleet, which we purchased a couple of years ago. Non-current liabilities, $14 million represents the environmental obligation at Letseng. And then our current liabilities significantly dropped this year, again because of the royalty relief we had that we didn't have a royalty obligation at the end of the year, and there were no bonuses paid in the current year -- in the prior year, in 2025, and there was no provision in the accounts at that point in time. If I then go to our cash management. Pleasing to state that under the tough circumstances we faced during the year, we were able to still meet all our debt covenant obligations with no issues reporting there. Our group cash ended the year at $3.8 million, down from $12.9 million in the prior year. Net debt was up to $20.1 million from $7.3 million last year. But again, just pleasing from half year, we dropped this, which was $28 million, down by some $8 million to $20.1 million. Available facilities at the end of the year was $68.3 million, so we still had significant access to funds. But importantly, our group facilities do expire in December '26 at the end of this year. And our renewal process in line with our normal arrangements with the lenders will commence in Q2 '26. And obviously, that's a key area of focus for us this year is to have these facilities renew and available for us in the coming years. On the right side, there's a table there. I've spoken about corporate costs, but you can see how the corporate costs have decreased over time, especially from 2021, '22, hovering above $8.5 million down to $5.6 million as it currently stands. I got a graph, a waterfall there on the cash movement during the year, $13 million, as mentioned, cash at the beginning of the year, the little gray box at the bottom. Letseng generating operating cash flow of $41 million. You will see there we paid $12 million under income tax, $7.6 million related to the prior year 2024 tax obligation that was paid in March this year. And then the remaining $5 million was paid based on provisional taxes for 2025, but still will end up with a refund position, because we owe about $3.5 million. So we've overpaid that and reflected on the balance sheet. Working capital increased. We had an outflow there of $12 million, again, increased in inventory. So we've invested some in terms of our balance sheet. And then we had a reduction in our payables, as mentioned previously, which also had an outflow saving. And then Letseng's capital -- waste costs capitalized was $10 million. And then just flowing through the rest of the items, we ended up with $4 million of cash at the end of the year. The last slide then that we had is just the guidance, which will be available for review in terms of forecasting our 2026 position during the course of the years. Clifford, that's it for me. I'll hand back to you.

Okay. Thank you, everybody. Thank you for attending. There is a Q&A facility. If you'd like to ask any questions, and we can respond to that. I've opened the Q&A on my side. I see there are no posts yet. Let me just wait a couple of minutes, seconds and see if anybody would like to ask a question or else any comments, which we can talk to. No posts yet that I can respond to. As you know, you're always free to send an e-mail or call Michael, myself or Brandon, independently. If you don't want to put anything up on the screen now, and we are happy to answer that. It appears nobody wishes to post any questions. So I think that will bring the results presentation to an end. If I could just say, once again, I see there's a whole lot of people on here, and thank you all for attending. Appreciate your time and hope that what we have said puts you in an accurate position to understand the activities of the company and where the trends and the movements are. So thank you, everybody. Appreciate your attendance.