core sector communique

GEM DIAMONDS LIMITED

Interim Management Statement, November 2011

Gem Diamonds Limited (LSE: GEMD) reports an Interim Management Statement (“IMS”) for the period 1 July to 1 November 2011 (“the period”).

Highlights during the period:

Letšeng[1]:

· The Letšeng mine continued to deliver a strong operational performance with production in line with expectations and the continued recovery of high value and exceptionally large diamonds.

· The Letšeng Star, a 550ct white gem diamond, was recovered at Letšeng on 19 August 2011 and was sold in October 2011 into a profit sharing arrangement, for a rough value of US$16.5 million.

· Letšeng continued to market diamonds on rough tender and extract diamonds for manufacturing in line with the sales and marketing strategy. Excluding the 550 carat Letšeng Star, the average value of the exports for Q3 2011 was US$2 426 per carat (US$1 680 per carat in Q3 2010).

· 15 rough diamonds achieved a value in excess of US$1m each during the period.

· Letšeng recovered a total of 50 rough diamonds that achieved prices greater than US$20 000 per carat in the period, totaling 152 for the year to date and contributing 69% of Letšeng’s revenue.

· Letšeng recovered 171 rough diamonds greater than 10.8 carats in size in the period and exported 22 733 carats for sale during Q3 2011, up 1% from 2010.

· The feasibility study for Project Kholo, Letšeng’s production expansion project, taking its own plant capacity from 5.7 to 10 million tonnes per annum, is on track and will be presented to the Board in November 2011.

Ellendale:

· Ellendale achieved an average price of US$5 153 per carat for its fancy yellow diamonds during Q3 2011 (US$2 791 per carat in Q3 2010).

· For its commercial goods, Ellendale achieved an average price of US$182 per carat during Q3 2011 (US$76 per carat in Q3 2010).

Ghaghoo:

· The first stage development of the Ghaghoo diamond mine in Botswana is progressing well and remains on schedule and within budget.

Cempaka:

· Gem Diamonds completed the sale of its 80% interest in its alluvial diamond mining company, PT Galuh Cempaka in Indonesia, on 28 October 2011 for a total consideration of US$5 million.

Group:

· The Group had US$144.9 million cash as at 30 September 2011, of which US$128.4 million is attributable to Gem Diamonds.

· During the period, Letšeng Diamonds declared a dividend of Maloti 280.5 million (US$40.1 million at date of declaration) which resulted in a net cash flow of US$28.1 million to Gem Diamonds and an outflow from the Group of US$14.8 million as a result of withholding taxes and payments of the Government of Lesotho’s portion of the dividend.

· The Group recorded no lost time injuries in the period and the Group-wide All Injury Frequency Rate (AIFR) at 30 September is 4.42, which is well below both the 2011 AIFR threshold of 5.05.

· The Group has recorded no major environmental and community incidents this year.

Gem Diamonds CEO, Clifford Elphick commented:

“We have enjoyed a good performance during the period, despite a softening in rough diamond prices, especially evident in lower quality diamonds, since the peaks of July 2011. Letšeng and Ellendale both achieved some excellent prices for their exceptional quality, top colour diamonds in recent sales. The Letšeng and Ellendale mines continue to deliver some of the world’s finest diamonds, cementing our position as a global leader in the supply of world class high end diamonds. We remain confident in the underlying fundamentals supporting the diamond market in the medium to long term and, in particular, in our section of the market.

“Ellendale’s production is disappointing, but measures are being taken to improve the situation. Very pleasingly the feasibility study on the expansion project at Letšeng, Project Kholo, continues apace with the project being presented to the Gem Diamonds’ November Board meeting; and the development of the Ghaghoo mine is advancing well according to schedule and on budget. These growth focussed initiatives will help Gem Diamonds to significantly enhance its production profile and increase its exposure to the positive impact of the diamond market supply/demand fundamentals in relation to long term diamond prices. We believe that the Letšeng mine as well as the Ghaghoo project offer potential to unlock considerable value for our shareholders and stakeholders.

“We have continued to take advantage of opportunities to gain additional exposure to the downstream value chain through our innovative sales and marketing strategy and we have successfully entered into a profit sharing arrangement through which we concluded the sale of the 550ct Letšeng Star. This is in line with our marketing strategy which is aimed at maximising revenue generation from our exceptional rough diamonds by seeking value-added initiatives further up the diamond value chain.”