PLEASE REFLECT ON GEM DIAMONDS’ PERFORMANCE IN 2022

I would describe 2022 as a year of steady improvement as we continued to build on the solid foundations laid over the past few years. The diligent approach we took towards protecting our people and local communities from the ravages of COVID-19 was very successful and, while we did not achieve our aim of eliminating all injuries from the workplace, I am pleased with the progress we made on improving the culture around health and safety, including fewer incidents.

Like almost every other business, we have been impacted by the recent material rise in energy costs. In addition, we are heavily reliant on the South African electricity grid, and the sharp rise in the frequency of load shedding by Eskom has been painful. Our operations rely on stable power and, without it, we had no choice but to utilise back-up diesel generators to manage the increased disruptions to our grid energy supply.

The rise in energy costs also placed significant pressure on vulnerable local communities. This impact reinforced the importance of the work we do to build resilience in the rural communities surrounding our operations.

From an environmental perspective, this past year saw significantly increased rainfall in Lesotho which, besides being positive for the local agricultural industry, resulted in improved levels in our water storage dams. Our freshwater catchment systems worked well to contain the additional water, and we now have security of water supply for approximately nine years at current projected usage. In addition, our recent work on tailings management and storage has proven to be very effective, with our external advisers satisfied that our systems and processes are operating well and that the physical structures managed the exceptionally heavy wet season as designed.

Our local community focus has been firmly on ensuring that the contributions we make to social and economic upliftment, specifically in health, education, small business development and infrastructure improvement, were accelerated during the year. We have numerous projects underway, and Gem Diamonds and Letšeng are both held in high regard across Lesotho for the community work we do. We must continue to foster this respect and constantly refine our contributions by listening closely to the people who need our assistance, enabling us to find practical solutions for the greatest possible benefit.

HOW WOULD YOU DESCRIBE GEM DIAMONDS’ RESPONSE TO CLIMATE CHANGE?

Climate change is the existential threat of our lifetime, and this realisation is increasingly reflected in the behaviour of nationstates and companies globally. A consensus on how corporate entities should react to this challenge, and how they should plan and communicate their efforts to combat climate change, continues to evolve.

At Gem Diamonds, we take a proactive and pragmatic approach to understanding and addressing climate change. We developed a comprehensive ESG strategy for the Group, supported by a clear governance framework. During 2022, we conducted a baseline analysis to enable us to define a set of metrics and targets, and made good progress on defining ways in which we can lower our carbon footprint. While this is not without its challenges given Letšeng’s remote location, progressively deepening pits and near-complete reliance on the South African energy grid, we recognise that it is imperative that we identify sensible, cost-effective courses of action throughout the business to address this important issue. We are very aware of the trade-offs that exist when allocating our finite resources and are committed to finding the right moral, ethical and practical balance in making our contribution to this challenge.

HOW WOULD YOU DESCRIBE THE PERFORMANCE OF GEM DIAMONDS’ BOARD?

I am pleased with the progress we have made in recent years to improve the governance and functioning of the Board. During 2022, we again conducted an externally facilitated Board effectiveness review and from it we received much positive feedback. This affirmed the value derived from implementing the suggestions of prior reviews, specifically where we have adjusted the alignment of our structures and the independence, gender and diversity of our Board.

The evaluation concluded that our Board Committees operate effectively and that overall, our Board has a good balance of independence, experience, and gender and cultural diversity. We have received valuable recommendations from the review on how to equip the Board to make the important strategic decisions required for the Group over the short to medium term, and how to increase the visibility of the Board with important stakeholders. We will implement these during 2023 and will continue to work to extract full value from the already strong position.

I believe that one of the Board’s most important tasks is to assist management in developing a well-defined corporate strategy. As a Board, we have devoted significant time to this process, including holding a regular dedicated strategy session at each quarterly meeting. As a team, we continue to confront evolving challenges and must ensure we take the time to consider, understand and debate relevant issues, including the strategic opportunities and responses management presents to us.

Stakeholder engagement is a key focus for Gem Diamonds. During the year, the Board engaged constructively with management, government, employees and communities on the strategic pathways for Letšeng and Ghaghoo. I was particularly pleased with the liaison work done with employees by the Board’s employee engagement representative, Mazvi Maharasoa, through whom the Board maintained direct contact with this important stakeholder group.

PLEASE PROVIDE AN OUTLOOK FOR 2023

The year ahead is likely to be characterised by a continuation of the cost pressures we saw unfold in 2022. Our ongoing efforts to contain costs will require productivity and efficiency improvements to maintain value for shareholders. We must continue to adapt by being innovative, demonstrating strong leadership and providing an environment where every single employee can contribute to the Group’s ongoing success to the best of their ability.

I believe we have built a strong platform upon which to improve the sustainability of our business. Our new ESG strategy will help us develop concrete action plans to lower our actual energy usage and carbon emissions, further enhance our relationships with critical local stakeholders in Lesotho, and improve the overall governance of our business. Finally, we will never cease working to improve our safety performance with the aim of achieving our goal of zero harm for our entire workforce.

PLEASE REFLECT ON GEM DIAMONDS’ PERFORMANCE OVER THE PAST YEAR. WHAT WERE THE HIGHLIGHTS, CHALLENGES AND OPPORTUNITIES?

Our health and safety performance improved compared to 2021, when site supervision and access to the site for training, oversight and audits were limited due to COVID-19. Our collaboration with external subject matter experts on organisational safety maturity, leadership coaching and critical controls is well entrenched and delivering results. Lost time injuries (LTIs) were halved in 2022 compared to 2021. However, our target remains zero harm, so we will continue to enhance our safety efforts.

The frequent rains diluted nitrate concentrate into the storage dams, and funding for our full-scale bioremediation project in the RTZ valley was approved. The project will be operational by Q3 2023. We plan to power the plant through solar energy to reduce the load on the existing power infrastructure.

During the year, two reports of tailings storage facilities (TSFs) failures were noted at other mines, resulting in catastrophic consequences. TSFs remain a risk if they are not diligently managed. Dam safety has been a strategic focus for Gem Diamonds over the last few years, and we issue a full report on dam management at each quarterly Board sustainability meeting.

Gem Diamonds has recruited world-recognised external consultants to audit our dams every six months. The external audits from these experts have returned favourable reports on the reduction in risk due to the additional work we have implemented on strict internal policies and controls and to stabilise the walls.

The Sustainability Committee takes tailings safety exceptionally seriously. Dam safety and management is reported in every meeting, and we prioritise visits to the dams when we are on site. We have prepared a case study that describes our work and progress in this regard, which can be found here.

WHAT WERE THE COMMITTEE’S KEY FOCUS AREAS IN 2022?

Sustainability today comprises a broad spectrum of focus areas: safety, health, decarbonisation, and environmental and community impact. In February 2022, we updated the terms of reference for the Sustainability Committee to include all aspects of sustainability as understood in the market.

Maintaining effective oversight in all these areas remained a priority, with safety and decarbonisation at the forefront as we progressed on our TCFD roadmap and commenced developing our decarbonisation targets.

GEM DIAMONDS FORMALLY ADOPTED TCFD IN 2021. PLEASE DESCRIBE HOW THE GROUP HAS EMBRACED THE FRAMEWORK FROM A LEADERSHIP AND GOVERNANCE PERSPECTIVE.

Gem Diamonds has outlined a clear three-year roadmap to full TCFD adoption. In 2021, we focused on our foundation phase, building the systems and gathering information to support meaningful, science-based decision-making. Our second phase, which we completed in 2022, helped us to understand the risks we face and reflect on our organisational resilience. We looked at enhancing leadership support and involvement, adopted a carbon-pricing model, and held various workshops to better understand the routes to decarbonisation and the potential investments required.

Looking ahead, the third year of our TCFD roadmap will see us establishing clear metrics and targets for monitoring and measuring our performance and exposure.

PLEASE DISCUSS GEM DIAMONDS’ PROGRESS CONCERNING WATER MANAGEMENT AND STEWARDSHIP INITIATIVES

The Letšeng mine operates at an altitude of 3 200 metres. Therefore, we rely on collecting rainwater to reuse on site. We implemented measures to improve our water recycling initiatives in the processing plants, successfully reducing the amount of water required for our operation.

We are proud of the innovative work we are doing on bioremediation and look forward to commissioning the project in Q3 2023.

WHAT WILL YOUR FOCUS AREAS AS SUSTAINABILITY COMMITTEE CHAIRPERSON BE IN 2023?

We intend to look at the following key topics in 2023:

• Developing our UN SDG commitments for our next three-year programme, from 2024 to 2027.
• Commissioning our bioremediation project in Q3 2023.
• Continuing to prioritise safety through regular site visits, the Organisational Safety Maturity process, and learning from our interventions in 2022.
• Enhancing our rehabilitation programmes in suitable areas.

ARE THERE ANY THANKS OR APPRECIATION YOU WOULD LIKE TO EXTEND IN YOUR REVIEW?

I want to thank the Sustainability Committee for their input and support over the year. It is a privilege to be part of the Gem Diamonds team, whose passion and commitment enabled us not only to deliver excellent operations results, but also to generate the funding that allows us to support our community initiatives.

A big “thank you” to Danielle Kriel, our Health, Safety, Social and Environment (HSSE) and Sustainability Manager, for setting the standards and ensuring we comply with world-class measures. Thanks also go to Brandon de Bruin, our Chief Operating Officer, and our senior management, who ensure that those standards are effectively implemented and adhered to.

Finally, it is gratifying to be part of a company that takes governance and sustainability seriously. As a Board, we have excellent systems of control that ensure comprehensive feedback from management, who are demonstrably committed to sustainability. This enables us to make informed decisions and ensure Gem Diamonds remains a responsible corporate citizen.

OVERVIEW

This past year was marked by consistent progress against our business and sustainability goals, with a highlight being the progress made against our TCFD roadmap. We developed and adopted an internal carbon-pricing model, a decarbonisation strategy, and an emissions reduction target of 30% by 2030 (off our 2021 baseline).

We recorded an improved safety performance that reflects the maturity of the programmes we have adopted. As we emerged from an environment defined by the response to the COVID-19 pandemic, we continued with programmes that improve our ability to support the mental and physical health of our employees.

We regained momentum in terms of social initiatives delayed by COVID-19 restrictions on movement and communication, and enhanced our approach to developing community-led projects that become sustainable, income-generating enterprises.

We have a good record of water stewardship, and this remained a focus during the year. Furthermore, TSF safety continued to be a priority, and we are proud of our world-class tailings safety management, to which we devote considerable time and resources.

The most significant challenges we faced in 2022 were cost escalations and supply constraints with regard to energy. We know this will again be a major issue in 2023. This ongoing problem means we must make increasingly large investments in stable electricity generation capacity.

We originally installed our emergency and standby generation capacity to protect Letšeng from short-term environmental risks at our mine, such as adverse weather events interrupting our electricity supply. As the energy crisis in South Africa escalated, we had to enhance the energy generation and diesel storage infrastructure to be able to meet our energy demands over extended periods. We have a large and skilled team examining practical options for generating energy without reliance on fossil fuels.

Against the backdrop of the energy crisis, we investigated the constraints and opportunities for renewable energy at Letšeng. We expect to advance this analysis in 2023, focusing on determining practical applications. This work ties into our decarbonisation goals over the long term; in the short term, it will provide access to the energy we require at a sustainable cost.

APPRECIATION AND CLOSING

I would like to extend my appreciation to the Government of the Kingdom of Lesotho for its willingness to take the energy supply issue seriously, acknowledge its impact on the profitability of business, and seek out and support proposed solutions.

We continue to augment our response to the weather conditions at Letšeng and the ongoing energy supply situation. We will maintain our focus on safety and continue to drive safety awareness and understanding. We anticipate that 2023 will be another year of steady, measurable progress against our strategic objectives, for which we are well prepared.

HOW WOULD YOU DESCRIBE 2022 FROM A SUSTAINABILITY PERSPECTIVE?

This past year has seen significant progress on the integration of sustainability into our everyday business and operations. Our focus and effort in maturing our safety culture over the past few years has paid dividends with a much improved safety performance in 2022, recording only three LTIs (2021: six). Our target, however, remains “zero harm”, so we will continue with our organisational safety culture work to continually improve and drive our safety culture across the operations.

In 2022 we experienced a significant increase in electricity supply interruptions at Letšeng, primarily as a result of increasingly frequent and longer periods of load shedding by Eskom, South Africa’s power utility. This required an unprecedented increase in the use of our diesel-fuelled generators to power the treatment plants, accommodation blocks, clinic and other necessary site infrastructure, which materially increased our diesel consumption during the year. At the same time we were impacted by a global rise in inflation and energy costs following Russia’s invasion of Ukraine. The significant increase in the cost of diesel together with the increased usage of our diesel generators materially impacted our costs. The more frequent load shedding caused repeated shutdown-related interruptions to plant, generator and equipment performance, causing greater wear and tear, requiring more frequent maintenance and introducing an increased risk of equipment breakdowns. In the circumstances, consistent and stable supply of power has been elevated to our highest risk and will continue to receive prioritised focus and attention in 2023.

Pleasingly, our continued focus on opportunities and initiatives to improve operational efficiencies to reduce our costs, energy consumption and carbon emissions played a significant role in our ability to manage the impact of increased load shedding and diesel cost. This focus reflects the maturing of the Group’s mindset and culture. We are proud of the fact that with the initiatives implemented in 2022, in particular those related to reduced waste and shorter haulage distances, we managed to reduce our carbon emissions despite increased diesel use and persistent interruptions to the electricity supply.

We constantly work to improve our reporting and governance systems to enhance trust and transparency and instil a sense of ownership in the organisation and for our stakeholders. These efforts are paying dividends in our ability to identify, plan and implement innovative and value-adding initiatives that contribute significantly to our goals of reducing costs and our carbon footprint. Our three-year roadmap to full implementation of the TCFD recommendations remains on track, with phase 1 and phase 2 objectives being met in 2021 and 2022, respectively. Phase 3 objectives to establish clear metrics and targets for monitoring and managing our exposure will be delivered in 2023. The awards we won for our work on water management, biodiversity offsetting, health and safety, and climate reporting, are gratifying acknowledgements of our work and the degree to which we have long prioritised these activities.

After a challenging four-year drought at Letšeng which ended in 2021, the continued increase in rainfall in 2022 has been a windfall in terms of augmenting our available water supply. Mothusi, our freshwater dam, now has freshwater supply for approximately nine years at current usage rates. However, the significant precipitation poses additional challenges for the management of our tailings facilities, freshwater storage capacity and stormwater management. I am pleased that our focused work over the past two years in improving stormwater management systems, and our ability to manage water levels at our TSFs and effectively pump water out of the pits and elsewhere, placed us in a good position to effectively manage these challenges.

Our relationships with our stakeholders are paramount to, and safeguard, our licence to operate, and we take our responsibilities in this regard seriously. Elections in Lesotho in October 2022 went smoothly, and we maintain productive relationships with the newly elected national Government of the Kingdom of Lesotho. As the COVID-19 pandemic receded, we ensured that we adapted back to normal life and operations safely and responsibly. We continue to provide occupational health therapists and counselling on site for use by staff who feel they need the support – the mental wellness initiatives we implemented have proven valuable as part of our greater occupational health programmes.

HAVE THERE BEEN ANY CHANGES TO GEM DIAMONDS’ APPROACH TO SUSTAINABILITY OVER THE PAST YEAR?

There is an increased expectation from organisations operating in the extractives industry to prioritise governance and sustainability, and we believe we have delivered on those expectations.

Our focus in 2022 has been on further integrating sustainability thinking into all levels of our business, and I am pleased to see such significant progress in this regard. Safety, energy, water management and decarbonisation were our primary focus areas in 2022 and I foresee this continuing into 2023. We remain fully committed to our work to encourage and preserve biodiversity, reduce waste, and communicate and collaborate with our communities.

WHAT WERE YOUR FOCUS AREAS IN 2022?

The past year’s focus has predominantly been on ensuring the consistency and managing the cost of our energy supply, as it is increasingly clear that there will be no quick or easy fix to the spiralling crisis at Eskom.

There is a strong synergy between our energy use reduction and energy-efficiency work and our decarbonisation strategy. Lower energy consumption, be it grid or fuel, through better and more efficient products and processes, reduces both costs and carbon emissions. In 2022, we drove these synergies more fully into our thinking, frameworks and governance structures, and operational processes at every level of the Group. We held several workshops with the Gem Diamonds and Letšeng Boards to discuss the challenges we face in this regard, the range of solutions we are considering, and the strategic objectives we must drive to implement these solutions.

Water management also remained a primary focus in 2022. Two years ago, we came to the end of an extended drought and were concerned about water availability on site. Our main freshwater dam fell below 30% capacity during the drought, becoming a material risk to continued operations. Due to high rainfalls in 2021 and 2022, we paused our dam augmentation plans as Mothusi filled to 95% capacity at the end of the reporting period. The contrast between our situation three years ago and today is a sharp reminder of the complexity of operating in such a dynamic environment and the potential impact of climate change in the years to come. Fortunately, we are well served by the many years of hard work we invested in our stormwater, water control and water management systems and our focus on ensuring that water is appropriately managed as a scarce and valuable commodity.

From an environmental perspective, we continue to closely monitor nitrate levels in water that leaves our mine site. Our pilot bioremediation plant produced excellent results in the treatment of water with high nitrate levels, and we have worked hard to complete the design of, and secure an appropriate site for, a larger plant to be commissioned for the treatment of water in 2023.

We also implemented operational measures to reduce the potential of nitrates entering the environment, including improving the combustion efficiency of explosives. These initiatives, alongside improved stormwater management procedures, further reduce the impact of nitrates in water that could leave our site.

Safe and effective tailings management remains a priority and our commitment remains to fully implement the applicable recommendations of the GISTM by Q2 2023. To ensure we meet our goals, we appointed two leading, internationally respected external consultants in tailings safety and management to our Tailings Review Board, which meets regularly with the Tailings Management Committee to ensure that tailings management safety, reviews and actions are well guided, monitored and managed.

Refer to the Operations review of our Annual Report and Accounts 2022 for a case study on our tailings management responses.

PLEASE DISCUSS GEM DIAMONDS’ CSI ACTIVITIES AND APPROACH TO PARTNERSHIPS

Our approach to community projects is informed by our goal that these projects become sustainable without ongoing support from Gem Diamonds. To achieve this, we recognise the value of partnering with non-governmental organisations (NGOs) that are properly equipped to guide and train communities on the skills they need to manage sustainable businesses.

These learnings arose directly from the devastating impact of COVID-19 on small businesses in our PACs. When the pandemic hit, our dairy and vegetable projects were in the process of being handed over to the community structures that would manage them going forward. While the pandemic resulted in 18 months of lost business, it also highlighted the need to further support the project managers through extended handover periods by means of focused skills training and business incubators.

Pleasingly, we have already started seeing the results of these partnerships. The dairy project reworked its entire production strategy to reduce its reliance on inputs and increase its production quantities. This resulted in developing a refined five-year handover model, involving partnerships with NGOs and subject matter experts to better prepare communities for the ongoing running of their businesses.

HOW ARE GEM DIAMONDS’ CSI ACTIVITIES LINKED TO ENVIRONMENTAL AND GOVERNANCE CONCERNS?

We foster mutually beneficial relationships through frequent, transparent and mutually respectful engagement, aligned with a robust governance structure that has the necessary flexibility to allow for timeous responses to adverse events.

We are committed to the UN SDGs, and in 2020, developed and implemented a three-year SDG programme (adopting six UN SDGs), which we have successfully completed. The new year allows us to re-examine our SDG priorities as we continue to actively integrate the SDGs into our operations, projects and planning. Our CSI strategy, for example, requires any new project to contribute positively to at least two SDGs. All our relevant SDGs are well understood within Gem Diamonds and inform how we work and do business.

WHAT OPPORTUNITIES FOR IMPROVEMENT CURRENTLY PRESENT THEMSELVES?

The current energy supply crisis, combined with our decarbonisation and cost optimisation goals, provides an opportunity to align the business with sustainable energy solutions. Towards the end of 2022, we began a comprehensive eight-week power-usage study to better understand what we can practically take off the grid by introducing renewable or alternative energy or a hybrid thereof.

In addition, the good progression of our bioremediation plans will contribute to a positive environmental impact, as evidenced by the pilot plant.

We continue to improve our organisational safety culture work, mature our safety culture, and keep our safety drive consistent. Our ultimate goal is zero harm, and there are always opportunities for improvement.

WHAT ARE YOUR FOCUS AREAS FOR 2023?

The focus for 2023 will be our continued adaptation to the uncertain supply and rising costs of energy. We will drive our emissions reduction and energy efficiency objectives as we continue to explore renewable energy solutions that are suited to our unique operating context and in line with our decarbonisation strategy.

From a water management perspective, we will focus on stormwater, bioremediation and quality management, while maintaining a world-class management framework for the safety of our tailings facilities.

Finally, we will continue to maintain constructive, mutually beneficial relationships with our host nation and neighbouring communities.

APPRECIATION

I would like to thank the Board and the Sustainability Committee, in particular Mike Brown, for their input and support over the year. With this support we are able to successfully drive the integration of sustainability into all aspects of our business. Also, to my fellow executives and senior managers and all those at the operations, thank you for the support, hard work and focus on identifying, assessing and implementing value adding initiatives that have had a positive impact on safety, costs and decarbonisation. It is a privilege to work in a company with people who are passionate about and fully committed to a sustainable future.