The Quarterly Carat XII Tsunami or tidal?

Transcription

1 fn1 Mining Kieron Hodgson +44 () Jamie Campbell +44 () November 216 Sector stance: Cautious Companies covered: Stock Rec Price* Target Price Firestone Diamonds Buy Gem Diamonds Buy Gemfields Buy Lucapa Diamond Company Buy.42.5 Petra Diamonds Buy *Priced at close of 15 November 216 This is a marketing communication The Quarterly Carat XII Tsunami or tidal? Looking back at 216, we have been impressed that despite the many welldocumented headwinds, the diamond industry has performed better than expected, considering how the year started. As the critical Q4 retail period gets underway, efforts made to improve consumer demand will be judged. 217 will see the long awaited influx of new mine production adding around 5% to global inventories, potentially resulting in pricing pressures throughout the value chain. Conversely, one segment, we believe that could weather the storm is high value investment grade diamonds, as inflationary concerns drive asset diversification strategies. Rough prices: It s all about the supply Rough diamond demand has remained relatively firm throughout 216, assisted by factors unrelated to actual consumption such as servicing credit facilities, trading and sustaining manufacturing facilities. But as new production centres commence rough diamond sales (Liqhobong, Gahcho Kué, Renard et al) in early 217, there is a justifiable concern rough prices may need to be re-priced lower in the absence of a commensurate decline in supplies from existing producers. One segment we do however see the potential for continued price appreciation is in high-value investment quality diamonds. We believe high net worth individuals seeking inflation protection will continue to seek out high value coloured and white diamonds as an asset diversification strategy. Polished prices: Continuing to trend lower Polished prices, from multiple sources, continue to point to a continuation of the trend of lower prices, certainly whilst trading activities decline in the near term. Whilst the outcome of the upcoming retail period remains uncertain, abundant inventories and the prospect of increasing rough supplies in 217 are likely to limit any significant price appreciation near term. Retail: Into the holiday season we go once more Sentiment towards diamond retail remains mixed, the recent US election result and the potential impact on the largest market for diamond sales is unclear at best. Moving into the all-important festive period, the retail market, starting with Diwali and then moving into the U.S., will once again hold the key to how the diamond industry fares in the early months of 217, before the demands of the Chinese New Year are seen. Miners: Individual merits expected to drive performance in 217 Despite our view of limited growth in rough diamond prices in the near term; it would seem to be contradictory to be anything other than negative on the diamond miners. However, we believe that idiosyncratic factors to each company can provide the catalyst for share price appreciation over the next 12 months. We thereby reiterate our Buy recommendations on Firestone (TP raised to 68p from 34p) Gem Diamonds (TP: Unchanged at 162p), Gemfields (TP: 64p from 61p), Lucapa (TP: Unchanged at A$.5c) and Petra Diamonds (TP: Unchanged at 154p). Panmure Gordon (UK) Limited Please refer to the important disclosures shown on the inside back cover

2 The Quarterly Carat XII Contents CONTENTS Introduction... 3 Rough Diamond Market... 4 Polished Diamond Market... 8 Retail Market... 1 General Diamond Sector News Mining Company Review Company Sections: Firestone Diamonds Gem Diamonds... 2 Gemfields Lucapa Diamond Company Petra Diamonds Stat Pack November 216 2

3 The Quarterly Carat XII Introduction INTRODUCTION The Quarterly Carat is designed to provide an objective review of the diamond market over the previous three months and a look ahead to key developments in the future. We aim to provide commentary ranging from exploration to extraction, cutting and polishing through to the retail market. Our mining coverage primarily focusses on the performance of UK-listed diamond companies. However, we will also aim to provide a global overview, covering all of the significant contributors to the diamond industry. The Quarterly Carat is published shortly after the end of each quarter and will consist of five segments. Quarterly round up; in this section we give an insight into the pricing and demand characteristics of the rough diamond, polished diamond and retail markets. General diamond sector news; in this section we will give an overview of other important news releases during the quarter, including import and export data and economic indicators. Mining company review; in this section we will give an overview of news, results and company statements from the UK-listed diamond mining companies. We will also review any other significant newsflow and production companies. Stat pack; This contains simple graphical reference tables and charts covering import and export data, economic indicators and other important diamond market information. Glossary of terms; Finally, we have included a simple easy reference guide covering many of the technical, geological and general terms often used in the diamond industry, but not often defined or clear cut. 17 November 216 3

4 Jan-9 May-9 Sep-9 Jan-1 May-1 Sep-1 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 The Quarterly Carat XII Rough Diamond Market ROUGH DIAMOND MARKET As many investors are aware, rough diamond prices are notoriously difficult to track due to the opaque nature of the industry, the multitude of grade classifications and a lack of exchange traded, standardised derivative products. To attempt to gauge the value of rough diamonds entering the marketplace we have used a combination of data available from the Diamond Trading Company (DTC) sight sales, individual company tenders, Rapaport and other market participants combined with industry supply and demand indicators to provide a bias-free analysis of the diamond market. De Beers holds ten sights a year through the Diamond Trading Company One of the most relevant gauges of the diamond industry is through the De Beers sight sales. The Company holds ten sales of rough diamonds per year called sights through their Diamond Trading Company network. DTC sales are held roughly every five weeks. De Beers sales ($m) % 6% 5% 4% 3% 2% 1% % -1% -2% Estimated value ($M) LHS Year on Year % change RHS Source Panmure Gordon Rough diamond production from the major producers has continued to increase throughout 216 TRADING STABLE, FOR NOW Recent trading, up to Sight 9, has seen a definitive improvement in sentiment towards rough diamond sales, when considering the travails of the latter months of 215. Rough diamond production from the major producers has continued to increase throughout 216, despite the recent cuts to upper production ranges at Alrosa and Rio Tinto. De Beers recent Sight values of $47million (provisional), $494million and $63million, imply the company s revenues will undoubtedly improve on the poor 215, but the consistency of Sight values has noticeable in 216, ranging from $47million (provisional) to $66million with prices significantly less volatile too as demand into the festive period was relatively robust. We believe global production in 217 can exceed 13Mcts, appreciably higher than our estimated 126.8Mcts in 216 PRODUCTION GROWTH A CONCERN IN 217? We continue to undertake a comprehensive analysis of global diamond mines, development assets and probable mines to gain a clear understanding of the supply side of the mined diamond industry. According to our analysis of revised production plans recently announced, coupled with the commissioning of new projects Liqhobong, Gahcho Kué, Renard, plus production from Petra s Cullinan C-Cut we believe global production in 217 can exceed 13Mcts, appreciably higher than our estimated 126.8Mcts in 216, despite the declines in production in Zimbabwe. 17 November 216 4

5 The Quarterly Carat XII Rough Diamond Market Long-term production profile of global diamond mines (cts) 2m 18m Diavik 16m 14m Ekati Karowe Liqhobong 12m Catoca Gahcho Kue Grib 1m Venetia 8m 6m 4m 2m Finsch Orapa Argyle Jwaneng m Global production (actual) Global production (estimated) Milestones Source De Beers, Panmure Gordon We estimate that up to 11 mines commence production by 225. Additional production is being absorbed and not only in emerging markets. Elevated inventory levels will be a feature of diamond producers well into 217. SUPPLY RISKS RISING, BUT PEAK DIAMOND WAS IN 25. We estimate that up to 11 mines commence production by 225, adding around 18 million carats per annum to global production, an increase of 15% to the latest Kimberley Process production data. Despite this growth, the closure of just one or two major operations such as the Argyle mine (slated to close in 223), or a delay in a major expansion project, such as that of the Venetia underground project, would change the supply dynamics immediately. We have previously discussed the impact of exhausting the Marange fields in Zimbabwe. We also note that additional production is being absorbed and not only in emerging markets. The U.S. accounts for almost 4% of global diamond consumption: if we assume that US consumption remains in line with global inflation of around 3%, until 225, (about half the current growth rate), the U.S. would consume close to 9 million additional carats, or half the anticipated production growth forecasted for the industry. AS THE INVENTORY OVERHANG REMAINS PERTINENT Despite the producers reflecting better sales figures in 216, it is unlikely that global inventory levels will have been significantly reduced from the levels reported at the end of December 215. We are increasingly of the opinion that elevated inventory levels will be a feature of diamond producers well into 217. Our view is that whilst the major producers retain higher than normal levels of inventory, the offsetting benefit of the weakness in their respective operational currencies has effectively removed the immediate urgency to liquidate these inventories and we anticipate a less disruptive release of stocks over an extended period of time albeit dependent upon demand. 17 November 216 5

6 E 217E 218E The Quarterly Carat XII Rough Diamond Market Panmure Gordon Global Rough Diamond Price Index ($/ct) Global ave $/ct (actual) Global ave $/ct (forecast) Source Kimberley Process, Panmure Gordon We maintain our confidence in the diamond industry over the long term. The risk for rough prices to be re-priced lower because of increasing supply, is higher than at any time in the last 24 months Key to the continued recovery of rough diamond prices will be a mitigation of the negative drivers that affected the industry during the second half of 214 and remain pertinent to this day. Abundant rough supply in excess of economic demand; The need to reduce inventories held by producers; Reduced availability for finance; Manufacturing margins impacted by rough prices and US Dollar strength; Asian retail demand normalising; New mines potentially enlarging existing inventory overhang, and; Undisclosed lab-grown diamonds being mixed with natural stones. Despite our notable concerns, we maintain our confidence in the diamond industry over the long term. We anticipate that rough prices, on the back of improving retail demand and an eventual reduction in producer inventory levels, will start to see a stabilisation as supply growth wanes before ultimately turning negative from 218/219. That said, whilst negative forces continue to prevail in the polished segment, rough prices have not been impacted to the degree many had forecasted. Rough prices have remained relatively robust in 216, primarily due to the need to service credit facilities, turnover boxes for margin and to sustain increasingly uneconomic manufacturing facilities. But we are increasingly concerned that as new production centres commence their own sales (Liqhobong, Gahcho Kué, Renard et al) in early 217, the risk for rough prices to be repriced lower because of the increasing supply, is higher than at any time in the last 24 months, in the absence of a without a commensurate decline in supplies from existing producers. 17 November 216 6

7 The Quarterly Carat XII Rough Diamond Market We have provided a table detailing our near to medium term forecasts for rough diamond pricing. PANMURE GORDON DIAMOND PRICE ASSUMPTIONS In response to the points we have raised to date, we have provided a table detailing our near to medium term forecasts for rough diamond pricing. We apply these forecasts to our company valuation analyses and the reasons for changes made to these forecasts. We do not anticipate any change to our previous estimates of a 5% decline in average rough diamond prices in 216. Performance through 217 will depend upon variable demand trends causing shortages in certain goods thus resulting in significant variation performances. Our 217 forecasts remain unchanged, however we retain our preference for large, higher value goods over smaller, lower quality goods that we believe will bear the brunt of the trend of substitution towards synthetic diamonds. Panmure Gordon average rough diamond price assumptions (%) 215A 216E 217E 218E Price change -15% -5% +5% +3% Source Panmure Gordon 17 November 216 7

8 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 % change The Quarterly Carat XII Polished Diamond Market POLISHED DIAMOND MARKET To monitor the transactions in the polished diamond market, we amalgamate multiple pricing sources to provide investors with the most accurate picture of this segment of the diamond value chain. We use a combination of data available from Rapaport, Polishedprices.com, manufacturers, brokers and consultants in addition to listed and private companies to gain a better understanding of the marketplace and current trends. Highlighted below are the recent annual and year-to-date performances according to the Rapaport Price List, the industry s primary source for diamond price and market information. Certified Polished Diamond and Price changes Categories YTD.3 Carat Carat Carat Carat Source Used with permission of Rapaport USA, Inc. Copyright Martin Rapaport. All rights reserved RAPI: Polished Price Trend (% change) 6.% 4.% 2.%.% -2.% -4.% -6.% -8.%.3 Carat.5 Carat 1 Carat 3 Carat Source Used with permission of Rapaport USA, Inc. Copyright Martin Rapaport. All rights reserved The performance of retailers during Diwali, Christmas and the Chinese New Year will hold the key to restocking efforts throughout the value chain in early 217. After experiencing broadly positive pricing trends in early 216, polished diamond prices have trended lower ahead of what is the traditionally quieter last two months of the year for polished dealers as the majority of orders have been concluded in time for the global holiday season. As always, the performance of retailers during Diwali, Christmas and the Chinese New Year will hold the key to restocking efforts throughout the value chain in early 217. Indian manufacturers will now shut for between two and four weeks and whilst inventory levels are higher this time of the year, Rapaport volumes +23% by volume and 9% by value since 1 January, the closure of manufacturing facilities will see a slight draw on global polished inventories that remain stubbornly high. 17 November 216 8

9 14/1/29 14/5/29 14/9/29 14/1/21 14/5/21 14/9/21 14/1/211 14/5/211 14/9/211 14/1/212 14/5/212 14/9/212 14/1/213 14/5/213 14/9/213 14/1/214 14/5/214 14/9/214 14/1/215 14/5/215 14/9/215 14/1/216 14/5/216 14/9/216 The Quarterly Carat XII Polished Diamond Market RAPI vs. Polished Prices DIAM1CRT Index - on 11/9/16 (L1) PLPHAAI Index (R1) Source Panmure Gordon, Bloomberg We constantly monitor polished price indices to gauge a holistic view of the polished diamond industry and with all the major indices pointing lower for the year, Rapaport, PolishedPrices.com, Mercury Diamond Index, Idex, it is safe to conclude that whilst some categories have performed better than others, the overall trend is lower for 216 to date. Mercury Diamond Index registered annualised losses 23 times in 25 months. Our concern is for a continuation in trend that has seen some indices reach levels not seen since the lows of 21 with the Mercury Diamond Index registering annual losses 23 times in 25 months. Month on month comparisons registered 16 declines out of 25, but the overriding theme is clear, the industry is finally adjusting to what is likely to be longer term liquidity, demand and supply characteristics. Mercury Diamond Global Tracker TM Source Mercury Diamond TM 17 November 216 9

10 1/11/1996 1/9/1997 1/7/1998 1/5/1999 1/3/2 1/1/21 1/11/21 1/9/22 1/7/23 1/5/24 1/3/25 1/1/26 1/11/26 1/9/27 1/7/28 1/5/29 1/3/21 1/1/211 1/11/211 1/9/212 1/7/213 1/5/214 1/3/215 1/1/216 1/11/216 The Quarterly Carat XII Retail Market RETAIL MARKET Sentiment towards diamond retail remains mixed, the recent US election result and the potential impact on the largest market for diamond sales is unclear at best. Chow Tai Fook has launched a 4T verification programme Sentiment towards diamond retail remains mixed, the recent US election result and the potential impact on the largest market for diamond sales is unclear at best. Another factor is the abundance of polished goods available, as evinced by consistently lower polished prices through the year. Moving into the all-important festive period, the retail market, predominantly in the in the U.S., will once again hold the key to how the diamond industry fares in the early months of 217 before the results of the Chinese New Year filter through accordingly. As we noted previously, Chinese Retail levels have now normalised to longer-term averages and buyers have returned, albeit restocking efforts are far more related to actual demand trends than associated with store roll-out programmes. Positively, it is now expected that like for like sales declines will start to ease given the relatively soft comparisons for 217 and underlying economic growth of around 6% for Mainland China. CHOW TAI FOOK FIGHTS SYNTHETIC DIAMONDS Synthetic diamonds continue to pose a real threat to the long term growth of diamond consumption, predominantly in the smaller, lower value segment and in response Chow Tai Fook, the world s largest diamond Jewellery Company has launched a 4T verification programme. The company claims one of the biggest concerns among consumers today is whether their diamond is real and as such, decreed that all products must be transparent, traceable, thoughtful and truthful. The advantage for CTF is the company is vertically integrated and can monitor both rough and polished diamonds through the manufacturing process, which is then inscribed with a T-Mark. SWISS WATCH MANUFACTURERS PAINT A PESSIMISTIC PICTURE The number of Swiss watch executives with a pessimistic outlook for the nation s timepiece industry has doubled since 215 as exports in the first half slumped to the lowest level in five years. Exports of Swiss watches fell in the six months to June to $9.8 billion, from $1.5 billion a year earlier. Sales to China and Hong Kong have fallen for 18 consecutive months Overtaking last year s concern, the strength of the Swiss Franc, global demand, primarily in Asia has become the biggest risk for Swiss watch industry executives. Sales to China and Hong Kong have fallen for 18 consecutive months. US Consumer Confidence Index Source Thomson Reuters Datastream 17 November 216 1

11 The Quarterly Carat XII Retail Market BARNEYS The well-known retailer has introduced a collection of lab-grown diamond jewellery. The collection features stones from Diamond Foundry in designs from three designers. There remains some controversy over the stores description of the stones as it classes them as cultivated, a term not ratified by the FTC. Blue Nile has been acquired by Bain Capital and Bow Street LLC in an all-cash $5m bid. BLUE NILE The internet based retailer (albeit with a growing bricks and mortar presence) has been gobbled up by Bain Capital and Bow Street LLC in a healthy all-cash $5m. The news follows lower than expected third quarter results that saw sales drop 4.3% to $15.1 million, with net income just $1.3 million (vs. $2 million the prior year). The primary reason for the decline was an 8.5% decline in sales of the group s core engagement ring segment. CHOW TAI FOOK Following a theme, Chow Tai Fook reported a 3% decline in same store sales in Hong Kong and Macau, only slightly beaten by the 22% decline in Mainland China. Retail sales fell from the high base last year, down 33% in Hong Kong and Macau and down 17% in Mainland China for the three months that ended 3 September. The declines were driven by collapsing gold sales, down 36% in Hong Kong and Macau and 27% lower on the Mainland. Gem-set jewellery declined 23% in Hong Kong and Macau and only 17% in Mainland China. Luk Fook opened its second store in New York LUK FOOK In a sign of further geographical diversification, Luk Fook opened its second store in New York, primarily seeking to target the city s large Chinese community. Luk Fook also announced second quarter same-store retail sales that saw a 37% decline in gold sales, albeit from higher than expected sales in 215. Gem-set jewellery fared better though with a 14% decline and revenues 3% lower in Mainland China. GRAFF DIAMONDS Graff Diamonds has unveiled the Graff Venus, the largest D flawless heart-shape diamond in the world. The D-colour, flawless, type IIa diamond weighs cts and was cut from the 357ct rough diamond recovered from Gem Diamonds Letšeng mine and subsequently sold for $19.6 million. Graff confirmed that from discovery to completion of the cut stone, the process took 18 months. The company even developed special tools to cut the stone. RICHEMONT Richemont s jewellery sales fell in the first six months of the company s fiscal year despite resilient demand meant the division declined at a slower pace than other divisions at the luxury group. Sales fell 2% to $2.19 billion in the six months ended 3 September 216 but flat on a constant exchange rates basis. An area for concern was the 25% decline in timepiece sales to $2.34 billion, driven by lower demand for fine watches. Sales at Cartier, Van Cleef & Arpels and Giampiero Bodino, fell 13% reflecting the decline in watch sales. Overall, group sales fell 13% to $5.67 whilst profits fell 51% to $61.6 million. 17 November

12 The Quarterly Carat XII Retail Market RIO TINTO The star of the 216 Argyle Pink Diamonds Tender was undoubtedly the oval-shaped polished, 2.83ct Argyle Violet sold for an undisclosed amount. The diamond is the largest violet diamond recovered from Argyle, which has only produced 12 carats of polished violet diamonds in 32 years. The Chroma Collection featured 63 pink, red and violet diamonds from the Argyle mine. The tender, named the Chroma Collection featured 63 pink, red and violet diamonds from the Argyle mine. According to Rio Tinto, the sale registered the highest ever price per carat achieved since sales started in 1984 with pink diamonds increasing in value by more than 3% in 15 years. TITAN Titan announced second quarter sales to 3 September that saw profit grow 23.5% to $27.1 million (on flat sales of $4 million), as the Indian jewellery retailer benefited from an uptick in demand for diamond studded jewellery. The company noted that the strong performance continued into third quarter. 17 November

13 1/12/1986 1/2/1988 1/4/1989 1/6/199 1/8/1991 1/1/1992 1/12/1993 1/2/1995 1/4/1996 1/6/1997 1/8/1998 1/1/1999 1/12/2 1/2/22 1/4/23 1/6/24 1/8/25 1/1/26 1/12/27 1/2/29 1/4/21 1/6/211 1/8/212 1/1/213 1/12/214 1/2/216 The Quarterly Carat XII General Diamond Sector News GENERAL DIAMOND SECTOR NEWS BELGIUM Enthusiasm has been returning, albeit cautiously as rough trading jumped in September as rough diamonds continued to outperform polished. Rough exports rose 61% to $1.42 billion and rough imports increased 39% to $1.21 billion. By volume, rough exports jumped 26% to 1.78 million carats. Polished exports however declined 11% to $1.24 billion, while polished imports declined 5% to $1.28 billion Septembers Hong Kong s jewellery and watch sales fell at their slowest pace this year HONG KONG Encouragingly, Septembers Hong Kong s jewellery and watch sales fell at their slowest pace this year. Sales, which also include clocks and other valuable gifts, fell 12% to $675.8 million, a notable improvement on last month s 26.5% decline. INDIA Early feedback has noted jewellery sales in India improved during the Diwali festival as lower gold prices and the removal of Rs5 and Rs1, notes in a surprise move by the Indian Government. Some retailers have seen gold sales jump 25% compared to Diwali last year. Tanishq, one of India s largest brands, noted sales growth of 39% between Dussehra on October 11 and Diwali. India s polished diamond exports increased 3% year on year to $2.5 billion in September, according to the nation s Gem & Jewellery Export Promotion Council. Polished imports fell 21% to $184.6 million. However, rough diamond imports surged 71% to $1.8 billion and rough exports more than doubled. Mozambique has commenced discussions with the Kimberley Process about membership Polished diamond imports and exports showed growth in September with exports rising 18% to $1.73 billion with average prices 24% higher at $2,22/ct MOZAMBIQUE Whilst not exactly a well-known diamond producing country, Mozambique has commenced discussions with the Kimberley Process about membership following the discovery of diamonds earlier this year in the country. Currently better known for ruby production, primarily at Gemfields expansive Montepuez operation, membership of the best practise organisation can only improve the global perception of diamond and gemstone production from the country. UNITED STATES OF AMERICA US trade data continues to support a more positive stance with both polished diamond imports and exports showing healthy growth with exports rising 18% in September to $1.73 billion with average prices 24% higher at $2,22/ct. Polished imports rose 33% to $2.18 billion. Positively, total weights increased as well, +7% to 988,97cts. US CPI Jewellery Source Bloomberg 17 November

14 13/11/215 2/11/215 27/11/215 4/12/215 11/12/215 18/12/215 25/12/215 1/1/216 8/1/216 15/1/216 22/1/216 29/1/216 5/2/216 12/2/216 19/2/216 26/2/216 4/3/216 11/3/216 18/3/216 25/3/216 1/4/216 8/4/216 15/4/216 22/4/216 29/4/216 6/5/216 13/5/216 2/5/216 27/5/216 3/6/216 1/6/216 17/6/216 24/6/216 1/7/216 8/7/216 15/7/216 22/7/216 29/7/216 5/8/216 12/8/216 19/8/216 26/8/216 2/9/216 9/9/216 16/9/216 23/9/216 3/9/216 7/1/216 14/1/216 21/1/216 28/1/216 4/11/216 11/11/216 The Quarterly Carat XII Mining Company Review MINING COMPANY REVIEW The Diamond sector, on average, saw a strong recovery of value during the first quarter of 216, recovering much of the lost ground from 215 alongside the wider mining sector. But as the year progressed, the sector was largely left behind by the gold and diversified mining companies. Whilst the absolute performance of diamonds has lagged peer commodities, such as gold (>15% in 216), silver (>23%) and iron ore (>75% in 216), we believe the longer term fundamentals remain robust for price appreciation, albeit with lower volatility. We have provided a detailed summary of our coverage list, highlighting our project valuations, price targets and recommendations. Despite our view of limited growth in rough diamond prices in the near term, it would seem to be contradictory to be anything other than negative on the diamond miners. However, we believe that idiosyncratic factors to each company can provide the catalyst for share price appreciation over the next 12 months. We thereby reiterate our Buy recommendations on Firestone (TP raised to 68p from 34p) Gem Diamonds (TP: Unchanged at 162p), Gemfields (TP: 64p from 61p), Lucapa (TP: Unchanged at A$.5c) and Petra Diamonds (TP: Unchanged at 154p). Diamond sector comparison data Company Share price (p) We have provided a detailed summary of our coverage list, highlighting our project valuations, price targets and recommendations. Target Price (p) Upside potential (%) P/E FY17 (x) P/E FY18 (x) NAV/share ( /p) DiamondCorp# N/A N/A N/A N/A N/A N/A U/R Firestone Diamonds N/A Buy Gem Diamonds# Buy Gemfields Buy Lucapa#* Buy Petra Diamonds Buy Note*Lucapa prices reported in Australian cents #denotes a Panmure Gordon corporate client Source Panmure Gordon, prices as at 14/4/16 Rec. Share price performance of UK listed peers to date Rebase Anglo American to 1 Rebase Petra Diamonds to 1 Rebase Gem Diamonds to 1 Rebase Gemfields to 1 Rebase Firestone Diamonds to 1 Rebase Diamondcorp to 1 Source Thomson Reuters Datastream 17 November

15 The Quarterly Carat XII Mining Company Review Nine month production of 27.9 million carats, down 6% y-o-y ALROSA ALROSA announced Q3 and nine month production and preliminary sales data on 2 October that guided to sales of 8.3 million carats of diamonds in the quarter, including 5.8 million carats of gem-quality diamonds at an average price of $165 per carat and 2.5 million carats of industrial diamonds at an average price of $7 per carat. Revenue from rough diamond sales was guided to $976 million in Q3 216 and no less than $3.5 billion for the nine months. The company announced nine month production of 27.9 million carats, down 6% y-o-y, driven by the following operational factors: Decrease in gravels processing from Nyurba Division's alluvial placers due to adjustment of 216 production plan, lower ore production at Aikhal underground mine due to processing of additional volumes from Komsomolskaya pipe at the Processing Plant No. 8 and following the termination of openpit mining at Udachnaya pipe. The company noted that due to a decrease in its gravels processing at alluvial deposits, anticipated production in 216 has been reduced to 37 million carats from at least 39 million carats. ANGLO AMERICAN/DE BEERS Anglo American announced a Q3 production report on 25 October highlighting the steady improvement in fortunes at De Beers. The company noted improved sales conditions when compared to the previous year with consolidated rough diamond sales 77% higher at 5.3 million carats. Diamond production rose 4% vs. Q3 FY215 to 6.3 million carats Diamond production rose 4% vs. Q3 FY215 to 6.3 million carats, driven by a 12% increase at Debswana to 4.5 million carats. Output at Jwaneng jumped 47% after output in Q3 FY215 was cut for planned maintenance. Production at Orapa declined 22% align aggregate production to trading conditions. Production at DBCM (South Africa) increased by 6 % to 1.1 million carats largely as a result of processing higher grades at Venetia and increased throughput at Voorspoed. Production at Namdeb Holdings (Namibia) decreased by 13% to.4 million carats with lower grades at Namdeb Land, and the Debmar Pacific vessel being in port for planned maintenance in Q3 216 at Debmarine Namibia. Production in Canada decreased by 48% to.2 million carats due to Snap Lake being placed on care and maintenance in December 215. This was partially offset by first production at Gahcho Kué. Production guidance for 216 remains unchanged at 26Mcts and 28Mcts. De Beers has launched an online trading service that enables third parties to sell polished diamonds to other businesses on the company s auction platform In another interesting move, De Beers has launched an online trading service that enables third parties to sell polished diamonds to other businesses on the company s auction platform. The platform is initially focussing on single stones, weighing more than 5cts, or fancy colours. The platform, open to sellers that comply with a declaration of integrity, adds to the rough trading platform announced in June. Importantly, all diamonds must come with evidence of manufacturing history and go through a three-level screening process to identify synthetic or treated stones. 17 November

16 The Quarterly Carat XII Mining Company Review Q3 FY216 processing volumes rose 22% vs. Q3 FY215 to 58kt driven by higher ore availability DOMINION DIAMOND CORP Dominion Diamond s Q3 FY216 processing volumes rose 22% vs. Q3 FY215 to 58kt driven by higher ore availability, particularly from A-418 which experienced poor ground conditions in the third quarter of calendar 215. Diamonds recovered in the period matched the improvement in processing volumes, increasing 22% year on year to 1.54 million carats. Diamonds recovered in Q3 FY215 included approximately 4, carats recovered from Coarse Ore Rejects ("COR"). Recovered grades whilst higher remained below plan in the quarter as a result of increased underground dilution caused by granite sloughing from the walls of the open pit. The company has said it will update the market should there be any impact on the current years mining plan. The development of the A-21 pipe continues to progress according to plan. During the quarter, the closure of the dike was completed as expected. Elsewhere, Ekati saw operations resumed at full capacity on 21 September following a suspension of operations since a fire in the Ekati processing plant on 23 June. LUCARA DIAMOND Lucara Diamond s Q3 FY216 to 3 September, announced on 8 November, saw revenues drop to $38.1 million from $9.9 million, albeit year to date revenues rose to $229.4 million from $158.6 million. Average values for the year are $85/ct up from the previous year s $56/ct largely driven by improved recoveries and the sale of the 813ct Constellation Diamond. The company announced a surprise loss with their Q3 results The company announced a surprise loss though, $3.8 million (vs. Q3 FY215: $44.2 million). Cash balances remain solid at $49.7 million following the $137 million dividend distribution during the quarter. Operationally,.7mt of ore was mined in Q3. Waste was 3.1mt with overall processing volumes 19.5% ahead of plan. As a result of the strong operational performance, Lucara has reduced cost guidance from $29-$31/tonne to $25-$28/tonne. Gahcho Kué processed ~13kt of ore and produced 198kcts MOUNTAIN PROVINCE DIAMONDS Mountain Province Diamonds reported that the Gahcho Kué diamond mine in Canada s Northwest Territories processed ~13kt of ore and produced 198kcts on a 1% basis. The company s share from its 49% stake is ~97kcts. Mining and processing continues and it is expected that the operation will achieve commercial production in early 217. Recent production has yielded a 5ct gem quality white diamond and several fancy yellow diamonds. RIO TINTO Rio Tinto reported mixed diamond production in Q3 FY216 as production at Argyle fell 1% year on year but rose 3% for the nine month period. Overall production at Argyle is 1.4Mcts with Diavik production 2% higher at 3Mcts. Rio Tinto is forecasting total diamond production in 216 of 18-2Mcts Rio Tinto is forecasting total diamond production in 216 of 18-2Mcts, slightly reducing the upper estimate from 21Mcts. ROCKWELL DIAMONDS Rockwell Diamonds saw second quarter results weaker than expected as mining grades and diamond prices fell. Second quarter results recorded a loss following a 36% decline in sales to $1 million in the three months that ended August 31. Average prices also fell 13% to $1,56 per carat. Rough diamond sales fell 14% to $7.9 million and the miner reported a $45k loss compared to a profit of $9k the previous year. In September, Rockwell s likeable CEO James Campbell resigned, with his replacement Tjaart Willemse claiming the company was in a state of despair. 17 November

17 The Quarterly Carat XII Mining Company Review STELLAR DIAMONDS Stellar Diamonds plc the London listed diamond company focused on West Africa announced in October that an Independent Competent Person s Report has been completed on the Tongo and Tonguma projects in Sierra Leone. The CPR confirms the Project s initial inferred recoverable resource of 4 million carats. In its announcement of 22 August 216, the company a proposed acquisition of the Tonguma project to combine it with the existing Tongo project. The subsequent independent preliminary economic assessment for the Project estimated a pre-tax NPV1 of $172 million and an IRR of 49%. First sale of diamonds from Renard will take place in Antwerp on 14 November STORNOWAY DIAMOND CORPORATION Stornoway Diamond Corporation announced Q3 results to 3 September on 14 November which confirmed the first sale of diamonds will take place in Antwerp on 14 November, two months ahead of schedule. Ore processing commenced on July 15, 216. Initial production is based on ore sourced directly from the Renard 2-3 open pits and supplemented from stockpiled ore as required. During the quarter, 91,1 tonnes were processed with attributable production of 111,556 carats. Mining in the Renard 2-3 and Renard 65 open pits stood at 11,57,23 tonnes, or 14% of plan, with 1,295,194 tonnes of ore stockpiled. Underground mine development stood at 2,63 meters, or 97% of plan. It is expected the company will announce commercial production status by the end of the year. TRANS HEX Alluvial diamond producer, Trans Hex Group confirmed on 31 October that the takeover offer for the South Africa-based diamond miner has been declared unconditional after competition authorities approved the deal October 26. Cream Magenta and Metcap, both of which are owned by South African retail tycoon Christo Wiese, offered R3.94/share for the company in concert with RAC Investment Holdings. 17 November

18 The Quarterly Carat XII Firestone Diamonds Firestone Diamonds Exciting times (Remains Unchanged) Target Price: 68p (34p) Share Price: 56p (Price at close 15 November 216) Stock Codes FDI.L / FDI LN Market Cap 176m Last Published Research: 15 April 216 Analyst Kieron Hodgson +44 () kieron.hodgson@panmure.com Specialist Sales Jamie Campbell +44 () jamie.campbell@panmure.com Absolute & Relative Performance N D J F M A M J J A S O N D J F M A M J J A S O N Absolute Relative to DS Mining Source Datastream Firestone Diamonds Liqhobong Diamond Mine has moved into the final stages of ramping-up production at a deposit that has seen several false starts since the original discovery in the 195 s. With construction now complete and first diamonds being recovered, the undeniable value locked in the Liqhobong deposit can now start to be realised. We reiterate our Buy recommendation and raise our target price to 68p (34p), based upon a comprehensive review of the asset. Production increasing with first diamonds recovered Firestone Diamonds announced on 21 October a progress update on construction at the Liqhobong Diamond Mine in Lesotho, as at 3 September, whilst also providing a post-period end update that confirmed diamond production had commenced with first ore treated through the plant as scheduled with diamonds, including fancy yellows, reporting to the sort house. Importantly the project remains within budget and fully funded with first diamond sales planned for January 217. Valuation reassessed with further upside evident Following the recent company update we have undertaken a thorough review of our ascribed valuation for the Liqhobong Diamond Mine. FY17 production guidance remains at 38k 45kcts with costs of $12-14/t reiterated. PG forecasts are for 4kcts but a more conservative $17/t processed. Maintain Buy recommendation, target price increased to 68p (34p) Our price target, generated using a blended average of NPV/Share and earnings per share, implies a price target of 68p (34p). Firestone, through a well-respected management team, led by Stuart Brown, has concluded all major construction activities and begun the process of increasing throughput rates towards commercial production. 216 has seen steady progress in the company s share price and following our upgrade to Buy on 13 January at 18.75p, the shares have increased ~2% as the Liqhobong Diamond Mine moves ever closer to production. Following a comprehensive review of our production forecast, FX and risk assumptions, NPV9.6 of the Liqhobong Diamond Mine increases to $317.4 million vs. $238 million, equal to 81p per share. We continue to attribute no value to the company s other operations neither do we include any additional assumptions for any high value exceptional diamonds Liqhobong has the potential to produce, providing further potential upside. Year End Sales PBTA EPS DPS ord P/E EV/EBITDA Yield June ($m) ($m) ( ) ( ) (x) (x) (%) 215A. (13.6) (4.4). n/a (24.7). 216E.5 (9.) (58.7). 217E 47.5 (22.3) (3.6). n/a E Source Company Data, Panmure Gordon 16 November

19 Firestone Diamonds The Numbers THE NUMBERS Turnover and operating margin EPS normalised and DPS Free cash flow and net cash/(debt) Bull Points Target of 1Mcts by 218 Diamond outlook positive Liqhobong project funding completed Potential upside in diamond values Bear Points 48 9 Development risk Production risk Change in market sentiment FX risk Turnover Margin DPS -8 EPS normalised Net Cash/(Debt) Free cash flow yield Profit & loss account ($m) Year to June 215A 216E 217E 218E 219E 22E Sales Cost of sales Gross profit Administrative expenses Other operating expenses EBITDA Depreciation & amortisation Operating profit Associates & other income Finance costs PBT normalised Abnormal items PBT reported Taxation Minorities & preference dividends Profit attributable to shareholders Summary cash flow Statement ($m) Year to June 215A 216E 217E 218E 219E 22E Operating profit Operating profit discontinued Depreciation & amortisation Other non-cash movements Change in working capital Other cash movements Operating cash flow Taxation paid Net Investment Income & Other Funding Capital expenditure (net) Free cash flow (Acquisitions)/disposals Dividends paid Shares issued/(repurchased) Other financing Movement in net cash/(debt) Net Cash/(Debt) Balance sheet ($m) As at end June 215A 216E 217E 218E 219E 22E Goodwill and intangibles Tangible fixed assets Working capital Assets employed Other assets/(liabilities) Net cash/(debt) Provisions Net Assets (REPORTED) Shareholders Funds Minority Interests November

20 The Quarterly Carat XII Gem Diamonds (Remains Unchanged) Target Price: 162p Share Price: 111p (Price at close 15 November 216) Stock Codes Market Cap 154m GEMD.L / GEMD LN Last Published Research: 1 November 216 Analyst Kieron Hodgson +44 () kieron.hodgson@panmure.com Specialist Sales Jamie Campbell +44 () jamie.campbell@panmure.com Absolute & Relative Performance N D J F M A M J J A S O N D J F M A M J J A S O N Absolute Relative to DS Total UK Market Source Datastream Gem Diamonds Tough quarter, but opportunity remains Gem Diamonds announced Q3 results during the quarter that confirmed the tough operating environment the company has had to navigate, given the weather and lower Letšeng prices received. We recently adjusted our near term forecasts incorporating lower anticipated prices at the company s final tender of 216. Despite our caution, we continue to see significant value longer term and believe the patience will one day be rewarded. We reiterate our Buy recommendation and target price of 162p. Q3 Trading update Gem Diamonds released its Q3 FY216 update on 1 November in which the company reiterated full year production guidance. Revenues of $61.5 million (Q3 FY215: $65.6 million), from three tenders held to October, achieved an average value of $1,619/ct (Q3 FY215: $2,578/ct). Comparison to the previous year s performance should consider a significantly lower proportion of higher value satellite ore processed, 22% vs. 45% in 215. In addition, Q3 FY215 saw three +1ct diamonds sold, including a 357ct Type IIa that raised $19.3 million. Letšeng production impacted, as expected In line with previous statements highlighted in the impact of the adverse weather conditions experienced during July and August, total diamond recoveries declined 15% to 24,388cts from a total of 1.4 million tonnes of ore grading an average 1.51cpht, the reduction primarily attributable to strategic stockpiles being processed during the 1-day period that the Main pit and Satellite pits were inaccessible. Retain Buy recommendation and 162p target price Our price target, generated by using a blended average of NPV/per share and EPS, implies a price target of 162p. We recently undertook a comprehensive review of our forecasts for Gem s operations and we continue to believe there is significant unappreciated value in the Letšeng asset. That said, we have taken a conservative view on pricing at Letšeng for the remainder of the year. Despite carrying Ghaghoo at a negative value, our NPV for Gem Diamonds operations (ex-cash) still offers considerable upside at 22p. Gem Diamonds currently trades on a sub-average NAV/per share multiple of.55x, FY217 P/E multiple of <1x, falling to <9x in FY218 with a forecasted dividend yield of around 3%. Year End Sales PBTA EPS DPS ord P/E EV/EBITDA Yield Dec ($m) ($m) ( ) ( ) (x) (x) (%) 215A E (21.4) 8.5 n/a E E Source Company Data, Panmure Gordon 17 November 216 2

21 Gem Diamonds The Numbers THE NUMBERS Turnover and operating margin EPS normalised and DPS Free cash flow and net cash/(debt) Bull Points World class, high-value resource Large stone demand robust Diamond market fundamentals strong Strong balance sheet Bear Points Risk of production shortfalls Risk of Capex overruns Global growth weakens Risk of labour disputes Turnover Margin EPS normalised Net Cash/(Debt) 7 DPS Free cash flow Yield Profit & loss account ($m) Year to December 215A 216E 217E 218E 219E 22E Sales Cost of sales Gross profit Administrative expenses Other operating expenses EBITDA Depreciation & amortisation Operating profit Associates & other income Finance costs PBT normalised Abnormal items PBT reported Taxation Minorities & preference dividends Profit attributable to shareholders Summary cash flow Statement ($m) Year to December 215A 216E 217E 218E 219E 22E Operating profit Operating profit discontinued Depreciation & amortisation Other non-cash movements Change in working capital Other cash movements Operating cash flow Taxation paid Net Investment Income & Other Funding Capital expenditure (net) Free cash flow (Acquisitions)/disposals Dividends paid Shares issued/(repurchased) Other financing Movement in net cash/(debt) Net Cash/(Debt) Balance sheet ($m) Year to December 215A 216E 217E 218E 219E 22E Goodwill and intangibles Tangible fixed assets Working capital Assets employed Other assets/(liabilities) Net cash/(debt) Provisions Net Assets (REPORTED) Shareholders Funds Minority Interests November

22 The Quarterly Carat XII Gemfields (Remains Unchanged) Target Price: 64p (61p) Share Price: 49p (Price at close 15 November 216) Stock Codes Market Cap 268m GEM.L / GEM LN Last Published Research: 1 November 216 Analyst Kieron Hodgson +44 () kieron.hodgson@panmure.com Specialist Sales Jamie Campbell +44 () jamie.campbell@panmure.com Absolute & Relative Performance N D J F M A M J J A S O N D J F M A M J J A S O N Absolute Relative to DS Mining Source Datastream Gemfields Happily adding value Gemfields announced a market update covering the period to 3 September 216 which, whist experiencing lower emerald grades, gives us no immediate concern. Kagem often sees grade variability and the nature of quarterly production reports can highlight this. We remain highly excited about the long term opportunity the Montepuez ruby operation retains, as highlighted at the company s recent investor day. Production continues to be marginally ahead of our forecasts and we keenly await the results of both the emerald and ruby sales in December. We retain our Buy recommendation and increase our target price to 64p (61p) following a review of our long term forecasts. Emeralds: lower grade impacting output Kagem produced 6.Mcts in Q1 FY17 (7.5Mcts in Q1 FY16) as average grades slipped to 174cpt. We are not at this time hitting the panic button as Kagem does often see some notable variation in grade as seen in previous years, although our current forecasts of 3Mcts at an average of 23cpt will be monitored. Total operating costs declined to $1.2m from $11.4m a year previous on lower tonnages, but total rock handling costs of $2.37/t remain under our estimates of $2.6/t. The next sale, comprising of predominantly higher quality rough emerald is scheduled for December in Singapore. Rubies: Solid quarter During the period operations at Montepuez operation focussed on the higher grade (lower value) amphibolite resource. This resulted in a significant uplift in grades to an average of 44cpt (7cpt), we forecast longer term grades of 25cpt and expect this to normalise throughout the year. Total operating costs improved year on year at $5.8m from $6.1m. Total rock handling costs of $4.27/t remain comfortably under our estimates of $5.7/t. The next sale, comprising of mixed quality goods is scheduled for December in Singapore. Valuation reassessed with further upside evident Following the recent company update we have undertaken a thorough review of our ascribed valuation for the both the Kagem and Montepuez operations. As a result of the amended long term production volumes, values and FX rates our group NAV increases to 113p/share from 18p/share. Retain Buy recommendation with increased 64p (61p) target price Our price target, generated by using a blended average of NAV/per share and earnings per share, implies a price target of 64p. Our group NAV of 113p/share (18p) reflects our longer term emerald and ruby price assumptions and FX forecasts. We continue to believe Gemfields offers an unrivalled proposition for investors, providing precious stone consumption growth through two world class mining operations, Kagem and Montepuez, as well as exposure to the luxury goods segment via the Company s Fabergé brand. The company also offers additional opportunities for growth through additional production sources in Zambia, Colombia and Ethiopia. We reiterate our Buy recommendation with a new target price of 64p. Year End Sales PBTA EPS DPS ord P/E EV/EBITDA Yield June ($m) ($m) ( ) ( ) (x) (x) (%) 216A E E E Source Company Data, Panmure Gordon 17 November

23 Gemfields The Numbers THE NUMBERS Turnover and operating margin EPS normalised and DPS Free cash flow and net cash/(debt) Bull Points 193 World s leading ethical gemstone producer Primary source of emeralds and beryl World class ruby and amethyst deposits Distribution through Faberge division Bear Points Risk of production shortfalls Risk of Capex overruns Global growth weakens Risk of government intervention Turnover Margin DPS EPS normalised Net Cash/(Debt) Free cash flow Yield Profit & loss account ($m) Year to December 216A 217E 218E 219E 22E Sales Cost of sales Gross profit Administrative expenses Other operating expenses EBITDA Depreciation & amortisation Operating profit Associates & other income..... Finance costs PBT normalised Abnormal items..... PBT reported Taxation Minorities & preference dividends Profit attributable to shareholders Summary cash flow Statement ($m) Year to December 216A 217E 218E 219E 22E Operating profit Operating profit discontinued..... Depreciation & amortisation Other non-cash movements Change in working capital Other cash movements Operating cash flow Taxation paid Net Investment Income & Other Funding..... Capital expenditure (net) Free cash flow (Acquisitions)/disposals..... Dividends paid Shares issued/(repurchased)..... Other financing Movement in net cash/(debt) Net Cash/(Debt) Balance sheet ($m) Year to December 216A 217E 218E 219E 22E Goodwill and intangibles Tangible fixed assets Working capital Assets employed Other assets/(liabilities) Net cash/(debt) Provisions Net Assets (REPORTED) Shareholders Funds Minority Interests November

24 The Quarterly Carat XII Lucapa Diamonds Company (Remains Unchanged) Target Price: A$.5 Share Price: A$.42 (Price at close 15 November 216) Stock Codes Market Cap LOM.ax / LOM AU A$136m Last Published Research: 28 October 216 Analyst Kieron Hodgson +44 () kieron.hodgson@panmure.com Specialist Sales Jamie Campbell +44 () jamie.campbell@panmure.com Absolute & Relative Performance N D J F M A M J J A S O N D J F M A M J J A S O N Absolute Relative to DS Mining Source Datastream Lucapa Diamond Company Production and sales performance ahead of plan Lucapa released its quarterly activities report for the period ended 3 September 216 on 28 October which saw the company confirm that the strong operational performance announced at the interims, continued in Q3. A further sales record announced on 14 November coupled with record production and further cash distributions underscore the scale of the opportunity Lucapa offers. We reiterate our Buy recommendation and recently raised target price of A$.5c. Continued operational improvements In the period to 3 September, the Lulo Diamond Project through the mining company Sociedade Mineira Do Lulo (SML), recovered a record 8,853cts, including 137 special diamonds (>1.8cts) weighing a total of 3,21cts. 9 month production of 14,521cts is currently run-rating significantly ahead of our former expectations as are mining grades of 1.4 carats per 1m³ driven by the exceptional 13.7 carats per 1m³ grade in Q3. Notable recoveries during the period included diamonds weighing 172cts and 14cts as well as a 39ct pink diamond, the largest and most valuable fancy colour diamond recovered to date. Post period end, Lucapa announced further large stone recoveries including diamonds weighing 77cts, 72cts and 71cts. Further impressive diamond sales underpin the opportunity Announced on 14 November, SML announced the sale of 2,812cts for gross proceeds of $6.3 million equal to an average value of $2,222/ct. The sale represents a continuation of exceptional sales figures to date that has generated $51million in 216, including $16 million from the sale of the exceptional 44ct 4 th February Stone. Given the strong performance in 216, SML is now considering the timing of its next tender in either December or January. During the third quarter, SML generated $1.3 million from the sale of 7,837cts (+26% yoy) conducted by SODIAM, the Angolan Governments diamond marketing division, at three separate diamond sales held during the period. Nine month sales are now $36.5million and average $2,935/ct, comfortably ahead of our full year estimate of $2,445/ct. Kimberlite exploration efforts increasing Early commissioning issues with the company s Sedidril rig have been resolved but given its limitations, management have now acquired a track-mounted Hanjin drill rig, currently being shipped from Korea and contracted a second rig from the nearby town of Saurimo to assist in the drilling programme until the new drill rig arrives on site. We are reassured by these actions as it will enable the drilling programme to both expand laterally and at depth Reiterate Buy recommendation and recently increased TP of A$.5c Our price target, normally generated by using a blended average of NAV/per share and earnings per share, is not applicable at this time. Our group target of A$.5c reflects our longer term diamond price and FX forecasts. We ascribe no value to the kimberlite opportunities other than what has already been contributed by Lucapa but we believe that should a drilling programme define economically viable targets, we could envisage a valuation significantly in excess of the current market capitalisation. Year End Sales PBTA EPS DPS ord P/E EV/EBITDA Yield Dec (A$m) (A$m) ( ) ( ) (x) (x) (%) 215A. (3.6) (1.4). n/a (38.1). 216E E E Source Company Data, Panmure Gordon 17 November

25 Lucapa Diamond Company The Numbers THE NUMBERS Turnover and operating margin EPS normalised and DPS Free cash flow and net cash/(debt) Bull Points Potential world class diamond deposits Diamond demand remains strong Self-funding business model Kimberlite programme initiated Bear Points Risk of production shortfalls Risk of Capex overruns Global growth weakens Risk of labour or partner disputes Turnover Margin DPS 1 EPS normalised Net Cash/(Debt) Free cash flow Profit & loss account ($m) Year to June 214A 215A 216E 217E 218E 219E Sales Cost of sales Gross profit Administrative expenses Other operating expenses EBITDA Depreciation & amortisation Operating profit Associates & other income Finance costs PBT normalised Abnormal items PBT reported Taxation Minorities & preference dividends Profit attributable to shareholders Summary cash flow Statement ($m) Year to December 214A 215A 216E 217E 218E 219E Operating profit Operating profit discontinued Depreciation & amortisation Other non-cash movements Change in working capital Other cash movements Operating cash flow Taxation paid Net Investment Income & Other Funding Capital expenditure (net) Free cash flow (Acquisitions)/disposals Dividends paid Shares issued/(repurchased) Other financing Movement in net cash/(debt) Net Cash/(Debt) Balance sheet ($m) As at end December 214A 215A 216E 217E 218E 219E Goodwill and intangibles Tangible fixed assets Working capital Assets employed Other assets/(liabilities) Net cash/(debt) Provisions Net Assets (REPORTED) Shareholders Funds Minority Interests November

26 The Quarterly Carat XII Petra Diamonds (Remains Unchanged) Target Price: 154p Share Price: 149p (Price at close 15 November 216) Stock Codes Market Cap 788m PDL.L / PDL LN Last Published Research: 24 October 216 Analyst Kieron Hodgson +44 () kieron.hodgson@panmure.com Specialist Sales Jamie Campbell +44 () jamie.campbell@panmure.com Absolute & Relative Performance N D J F M A M J J A S O N D J F M A M J J A S O N Absolute Relative to DS Total UK Market Source Datastream Petra Diamonds Improving Cullinan production mix can be the catalyst Petra s Q1 trading update demonstrated that operationally, the company continues to deliver on its stated production goals. Reassuringly, diamond prices achieved in the company s recent tenders slightly outperformed wider market trends, we believe driven by an improving product mix from Cullinan. Q1 FY217 Trading update Petra Diamonds announced a trading update for the three months to 3 September 216 on 24 October that exceeded our initial expectations for the start of the year. Production rose by 3% to ~1.1Mcts, keeping the company on track to meet guidance. Key to the investment case, grades at both Cullinan and Finsch operations are now seeing the benefit of undiluted ore being recovered from new caves, which we believe will see a significant change in grades over the next 18 months. Elsewhere, Kimberley production is slightly ahead of our forecasts whilst Koffie and Williamson are in line with our expectations. Diamond prices holding firm as revenues exceed historical norms Petra s first quarter sales of 745kcts raised a total of $94.7 million with a further $66.4million raised from the sale of a further 574kcts following the period end sees the company potentially establish a new high water mark for H1 sales with the third sale anticipated in early December. A good comparison is Q1 FY15 when in a strong market Petra generated $1.8m including the sale of a 122ct blue diamond for $23.5million. Achieved prices remain flat on a like-for-like basis throughout the production centres with Cullinan achieving $18/ct excluding specials, giving us confidence in the long term. Finsch and Koffie were a little behind guidance at $95/ct and $483/ct respectively. The Kimberley operations achieved $87/ct from tailings only, but not enough to impact our forecasts significantly at this time. Balance sheet, whilst a concern for many, still remains within guidance At the period end, net debt stood at $463million with $7million of facilities undrawn and available with diamond inventories of 92kcts ($69million). However it should be considered that these figures exclude the impact of the $66.4million received post period end for the second tender of 217 and that the company remains comfortably within current banking covenants. Maintain Buy recommendation and 154p price target Our price target, generated using a blended average of NPV per share and earnings per share, implies a price target of 154p. Following a comprehensive review of our production forecasts for Petra s operations, our longer term diamond price assumptions and FX forecasts we believe Petra once again offers good value for investors. Despite concerns over the near-term for rough diamond demand, we believe the long-term investment case supporting Petra remains compelling and that the commissioning of the new Cullinan plant will generate significant returns for shareholders. Year End Sales PBTA EPS DPS ord P/E EV/EBITDA Yield June ($m) ($m) ( ) ( ) (x) (x) (%) 216A E E E Source Company Data, Panmure Gordon 17 November

27 Petra Diamonds The Numbers THE NUMBERS Turnover and operating margin EPS normalised and DPS Free cash flow and net cash/(debt) Bull Points 4th largest diamond resource base Target of 5Mcts pa production by FY219 Diamond market fundamentals strong Capex projects fully funded Bear Points Risk of production shortfalls Risk of Capex overruns Global growth weakens Risk of labour disputes Turnover Margin EPS normalised Net Cash/(Debt) DPS Free cash flow yield Profit & loss account ($m) Year to June 215A 216A 217E 218E 219E 22E Sales Cost of sales Gross profit Administrative expenses Other operating expenses EBITDA Depreciation & amortisation Operating profit Associates & other income Finance costs PBT normalised Abnormal items PBT reported Taxation Minorities & preference dividends Profit attributable to shareholders Summary cash flow Statement ($m) Year to December 215A 216A 217E 218E 219E 22E Operating profit Operating profit discontinued Depreciation & amortisation Other non-cash movements Change in working capital Other cash movements Operating cash flow Taxation paid Net Investment Income & Other Funding Capital expenditure (net) Free cash flow (Acquisitions)/disposals Dividends paid Shares issued/(repurchased) Other financing Movement in net cash/(debt) Net Cash/(Debt) Balance sheet ($m) As at end December 215A 216A 217E 218E 219E 22E Goodwill and intangibles Tangible fixed assets Working capital Assets employed Other assets/(liabilities) Net cash/(debt) Provisions Net Assets (REPORTED) Shareholders Funds Minority Interests November

28 E 217E 218E The Quarterly Carat XII Stat Pack STAT PACK Major Diamond Mines & Development Projects Worldwide Source Panmure Gordon Panmure Gordon Global Rough Diamond Price Index ($/ct) Bloomberg Global ave $/ct (actual) Global ave $/ct (forecast) Source Panmure Gordon, Kimberley Process Certified Polished Diamond Price changes (%) Categories YTD.3 Carat Carat Carat Carat Source Used with permission of Rapaport USA, Inc. Copyright Martin Rapaport. All rights reserved 17 November

29 15/11/211 15/1/212 15/3/212 15/5/212 15/7/212 15/9/212 15/11/212 15/1/213 15/3/213 15/5/213 15/7/213 15/9/213 15/11/213 15/1/214 15/3/214 15/5/214 15/7/214 15/9/214 15/11/214 15/1/215 15/3/215 15/5/215 15/7/215 15/9/215 15/11/215 15/1/216 15/3/216 15/5/216 15/7/216 15/9/216 15/11/216 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 The Quarterly Carat XII Stat Pack Panmure Gordon s Global 216 Diamond Production Database (non-exhaustive) 45,, 43,8, 4,, 35,, 3,, 25,, 2,, 15,, 14,25, 15,, 17,, 2,, 1,, 5,, - 2, 257,5 5, 1,2, 1,88, 6,62, 6,893,7 Tanzania Lesotho Sierra Leone Zimbabwe Namibia Angola South Africa Canada Democratic Republic of Congo Australia Botswana Russia RAPI: Polished Price Trend (% change) 6.% Source Company data, government data, Kimberly Process, Panmure Gordon 4.% 2.%.% -2.% -4.% -6.% -8.%.3 Carat.5 Carat 1 Carat 3 Carat Rupee vs. Dollar 75 Source Used with permission of Rapaport USA, Inc. Copyright Martin Rapaport. All rights reserved US DOLLAR/IND RUPEE FX FIXING - EXCHANGE RATE Source Panmure Gordon, Bloomberg 17 November

30 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 13/11/215 4/12/215 25/12/215 15/1/216 5/2/216 26/2/216 18/3/216 8/4/216 29/4/216 2/5/216 1/6/216 1/7/216 22/7/216 12/8/216 2/9/216 23/9/216 14/1/216 4/11/216 The Quarterly Carat XII Stat Pack Anglo American Petra Diamonds Rebase Anglo American to 1 Rebase All Share to 1 Rebase Petra Diamonds to 1 Rebase All Share to 1 Source Thomson Reuters Datastream Source Thomson Reuters Datastream Gem Diamonds Gemfields Rebase Gem Diamonds to 1 Rebase All Share to 1 Source Thomson Reuters Datastream Rebase Gemfields to 1 Rebase All Share to 1 Source Thomson Reuters Datastream Firestone Diamonds DiamondCorp Rebase Firestone Diamonds to 1 Rebase All Share to 1 Rebase Diamondcorp to 1 Rebase All Share to 1 Source Thomson Reuters Datastream Source Thomson Reuters Datastream ALROSA Lucapa Diamond Rebase ALROSA to 1 Rebase Russia RTS Index to 1 Source Thomson Reuters Datastream Rebase Lucapa Diamonds to 1 Rebase S&P/ASX 2 to 1 Source Thomson Reuters Datastream 17 November 216 3

31 15/11/211 15/2/212 15/5/212 15/8/212 15/11/212 15/2/213 15/5/213 15/8/213 15/11/213 15/2/214 15/5/214 15/8/214 15/11/214 15/2/215 15/5/215 15/8/215 15/11/215 15/2/216 15/5/216 15/8/216 15/11/216 15/11/211 15/2/212 15/5/212 15/8/212 15/11/212 15/2/213 15/5/213 15/8/213 15/11/213 15/2/214 15/5/214 15/8/214 15/11/214 15/2/215 15/5/215 15/8/215 15/11/215 15/2/216 15/5/216 15/8/216 15/11/216 15/11/211 15/2/212 15/5/212 15/8/212 15/11/212 15/2/213 15/5/213 15/8/213 15/11/213 15/2/214 15/5/214 15/8/214 15/11/214 15/2/215 15/5/215 15/8/215 15/11/215 15/2/216 15/5/216 15/8/216 15/11/216 15/11/211 15/2/212 15/5/212 15/8/212 15/11/212 15/2/213 15/5/213 15/8/213 15/11/213 15/2/214 15/5/214 15/8/214 15/11/214 15/2/215 15/5/215 15/8/215 15/11/215 15/2/216 15/5/216 15/8/216 15/11/216 15/11/211 15/2/212 15/5/212 15/8/212 15/11/212 15/2/213 15/5/213 15/8/213 15/11/213 15/2/214 15/5/214 15/8/214 15/11/214 15/2/215 15/5/215 15/8/215 15/11/215 15/2/216 15/5/216 15/8/216 15/11/216 15/11/211 15/2/212 15/5/212 15/8/212 15/11/212 15/2/213 15/5/213 15/8/213 15/11/213 15/2/214 15/5/214 15/8/214 15/11/214 15/2/215 15/5/215 15/8/215 15/11/215 15/2/216 15/5/216 15/8/216 15/11/216 The Quarterly Carat XII Stat Pack Diamonds-.3 Carat Commercial Index Diamonds-.3 Carat Fine Index Source Thomson Reuters Datastream Source Thomson Reuters Datastream Diamonds-.5 Carat Commercial Index Diamonds-.5 Carat Fine Index Source Thomson Reuters Datastream Source Thomson Reuters Datastream Diamonds-1 Carat Commercial Index Diamonds-1 Carat Fine Index Source Thomson Reuters Datastream Source Thomson Reuters Datastream 17 November

32 1/11/1996 1/5/1997 1/11/1997 1/5/1998 1/11/1998 1/5/1999 1/11/1999 1/5/2 1/11/2 1/5/21 1/11/21 1/5/22 1/11/22 1/5/23 1/11/23 1/5/24 1/11/24 1/5/25 1/11/25 1/5/26 1/11/26 1/5/27 1/11/27 1/5/28 1/11/28 1/5/29 1/11/29 1/5/21 1/11/21 1/5/211 1/11/211 1/5/212 1/11/212 1/5/213 1/11/213 1/5/214 1/11/214 1/5/215 1/11/215 1/5/216 1/11/216 14/1/29 14/4/29 14/7/29 14/1/29 14/1/21 14/4/21 14/7/21 14/1/21 14/1/211 14/4/211 14/7/211 14/1/211 14/1/212 14/4/212 14/7/212 14/1/212 14/1/213 14/4/213 14/7/213 14/1/213 14/1/214 14/4/214 14/7/214 14/1/214 14/1/215 14/4/215 14/7/215 14/1/215 14/1/216 14/4/216 14/7/216 14/1/216 The Quarterly Carat XII Stat Pack RAPI vs. Polished Prices DIAM1CRT Index - on 11/9/16 (L1) PLPHAAI Index (R1) Source Panmure Gordon, Bloomberg US Consumer Confidence Index Source Thomson Reuters Datastream 17 November

33 15/11/211 15/1/212 15/3/212 15/5/212 15/7/212 15/9/212 15/11/212 15/1/213 15/3/213 15/5/213 15/7/213 15/9/213 15/11/213 15/1/214 15/3/214 15/5/214 15/7/214 15/9/214 15/11/214 15/1/215 15/3/215 15/5/215 15/7/215 15/9/215 15/11/215 15/1/216 15/3/216 15/5/216 15/7/216 15/9/216 15/11/216 13/11/215 27/11/215 11/12/215 25/12/215 8/1/216 22/1/216 5/2/216 19/2/216 4/3/216 18/3/216 1/4/216 15/4/216 29/4/216 13/5/216 27/5/216 1/6/216 24/6/216 8/7/216 22/7/216 5/8/216 19/8/216 2/9/216 16/9/216 3/9/216 14/1/216 28/1/216 11/11/216 The Quarterly Carat XII Stat Pack Share Price Performance of UK listed peers to date (p) Rebase Anglo American to 1 Rebase Petra Diamonds to 1 Rebase Gem Diamonds to 1 Rebase Gemfields to 1 Rebase Firestone Diamonds to 1 Rebase Diamondcorp to 1 Source Thomson Reuters Datastream Diamonds vs. Precious metals Rebase Polished Prices Diamond Index to 1 Rebase Gold Bullion LBM U$/Troy Ounce to 1 Rebase Silver Fix LBM Cash Cents/Troy 'DEAD' to 1 Rebase London Platinum Free Market $/Troy oz to 1 Source Thomson Reuters Datastream 17 November

34 Jan-9 Apr-9 Jul-9 Oct-9 Jan-1 Apr-1 Jul-1 Oct-1 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 The Quarterly Carat XII Stat Pack Global production (ct) 2m 18m Diavik 16m 14m Ekati Karowe Liqhobong 12m Catoca Grib Gaucho Kue 1m Venetia 8m Argyle 6m Finsch Jwaneng 4m Orapa 2m m Global production (actual) Global production (estimated) Milestones Source Panmure Gordon Estimated DTC Sight sales ($m) 9 7% 8 6% 7 5% 6 4% 5 3% 4 2% 3 1% 2 % 1-1% -2% Estimated value ($M) LHS Year on Year % change RHS Source Panmure Gordon 17 November

35 The Quarterly Carat XII Glossary of Terms GLOSSARY OF TERMS Term Alluvial diamonds Anomaly Barren Basalt Bottom end Bulk sample Carat Certificate Chrome-diopside Conflict diamonds Cpht Cut-off grade Cutting Dense Media Separation (DMS) Diamond drilling Diamond grade Diamond value Diamondiferous Dilution Dolerite Dyke Feasibility study Garnet In situ Indicated diamond rescue Inferred diamond resource Kimberlite Kimberley Process Marine diamonds Matrix MBS Measured Diamond Resource Opencast or open pit Ore body Overburden Parcel Percussion drilling Primary deposit Probable reserves Proven reserves Rehabilitation Definition Diamond deposits eroded from kimberlite pipes, located in rivers or marine environments. A feature that differs from the surrounding area, potentially indicating an area of exploratory interest. Kimberlitic structure that does not contain diamonds Fine grains of igneous rock brought to the earths surface through volcanic eruptions A Generic term used to describe the lower value stones in a parcel. A large sample often hundreds of tonnes, processed through operational plant machinery to determine the grade of the target area Unit of weight for diamonds. One carat = 2mg Document awarded to a polished stone by an accredited institute confirming the weight, clarity, cut and colour A chrome end member of a group of minerals often found in kimberlitic bodies Diamonds that originated from areas of conflict, controlled by oppressive regimes or unrecognised ruling parties, using the sale of stones to fund their activities Carat per hundred tonnes Lowest grade of minerals calculated to be economical to extract. Will also impact the rate of throughput the plant can handle The process of manufacturing rough into polished stones The process of separating individual minerals from its waste product using a flotation process. Drilling method, whereby a diamond tipped drill is used to extract the core of a targeted prospect zone Content of diamonds measured carats measured in its surrounding rock, referred to as cpht The estimated value of the diamonds contained within a deposit, referred to as price per carat. Contains diamonds Waste material mixed with the prospective ore during processing Medium grains of igneous rock brought to the earths surface through volcanic eruptions Vertical columns of igneous rock Definitive estimation of costs, equipment requirements, production and revenues generated if a mine is developed A Silicate material. Pyrope, the magnesium rich variety is often found in kimberlite bodies In its original place, often used to refer to the location of resources Based upon sampling and testing, a reasonable estimate can be given for the potential average value, quality, colour and tonnage of an area A Low confidence level estimation of a resource base derived from assumed geological data Host rock for diamonds. Diamondiferous pipes contain diamond bearing rock transported to the earth s surface via volcanic eruptions Joint government, diamonds industry and civil initiative that impose legal requirements on participants to certify all shipments contain conflict free diamonds Diamonds eroded from a kimberlite body and deposited on an ocean bed, a form of alluvial diamond Fine grained rock that supports larger structures Mini Bulk Sample. One to hundreds of tonnes of kimberlite as the early stage in determining the viability of a deposit. A resource that tonnages, densities, grade, physical characteristics, shape and valuation can be estimated with a high degree of confidence. Surface mining whereby ore is extracted from a pit. The size and shape will be determined by the ore body itself Continuous or closely positioned material in such densities that extraction is economical The rock that must be removed so that the target ore body can be reached A collection of diamonds in various sizes compiled for a single package Drilling method where rock is broken into small pieces by a rotary drill and then blown up the hole for sampling Diamonds contained in their source rock, also known as Kimberlite, dykes, fissures and lamproite deposits Economically viable material calculated from a measured and/or an indicated diamond resource. Probable resources have a lower level of confidence than proven resources Economically viable material calculated from a measured diamond resource. Proven resources also include a dilution calculation The process or restoring land mined back to its original state. Some authorities will insist on improving the land beyond its original state, i.e. nature reserves etc. continued 17 November

36 The Quarterly Carat XII Glossary of Terms Term Sample Sight Slimes Slimes dam Stockpile Strip Stripping ratio Tailings Tailings dam Waste rock Weathered rock Upper cut off Yield Definition Removal of a small amount of ore, which is used to estimate the grade of the deposit. Kimberlite samples can be several hundred tonnes The name given to the 1 DTC sales per annum The waste product discharged from the processing plant without being treated. Diamond waste slimes are usually below 1mm The storage facility for the slime waste from the processing facility Stores of unprocessed ore or lower quality tailings requiring retreatment The removal of waste material that covers the targeted ore body Ration of ore to waste rock Waste product from extraction or processing, tailings may still contain low grades of recoverable material that could be economical in times of high prices Dams or dumps created to store the tailings prior to reprocessing or disposal Rock with insufficient diamond content to be economically viable Rock that has been eroded over time by natural methods Size of screen to separate oversized material to be crushed prior to processing Actual grade of ore recovered after mining and processing Source Panmure Gordon 17 November

37 The Quarterly Carat XII GIA Diamond Clarity Grading Scale GIA diamond clarity grading scale Category Flawless Internally Flawless GIA DIAMOND CLARITY GRADING SCALE Very, Very Slightly Included Very Slightly Included Slightly Included Included Grade FL IF VVS 1 VVS 2 VS 1 VS 2 SI 1 SI 2 I1 I2 I3 Flawless Internally Flawless Very, Very Slightly Included Very Slightly Included Slightly Included Included Category (FL) diamonds have no inclusions or blemishes visible at 1x magnification. Category (IF) diamonds have no inclusions visible at 1x magnification, only small blemishes on the diamond surface. Category (VVS) diamonds have minute inclusions that are difficult for a skilled grader to see at 1x magnification. The VVS category is divided into two grades; VVS1 denotes a higher clarity grade than VVS2. Pinpoints and needles set the grade at VVS. Category (VS) diamonds have minor inclusions that are difficult to somewhat easy for a trained grader to see when viewed at 1x magnification. The VS category is divided into two grades; VS1 denotes a higher clarity grade than VS2. Typically the inclusions in VS diamonds are invisible without magnification, however infrequently some VS2 inclusions may still be visible. An example would be on a large emerald cut diamond which has a small inclusion under the corner of the table. Category (SI) diamonds have noticeable inclusions that are easy to very easy for a trained grader to see when viewed at 1x magnification. The SI category is divided into two grades; SI1 denotes a higher clarity grade than SI2. These may or may not be noticeable to the naked eye. Category (I) diamonds have obvious inclusions that are clearly visible to a trained grader at1x magnification. Included diamonds have inclusions that are usually visible without magnification or have inclusions that threaten the durability of the stone. I category is divided into three grades; I1 denotes a higher clarity grade than I2, which in turn is higher than I3. Inclusions in I1 diamonds often are seen to the unaided eye. I2 inclusions are easily seen; while I3 diamonds have large and extremely easy to see inclusions that typically impact the brilliance of the diamond, as well as having inclusions that are often likely to threaten the structure of the diamond. 17 November

38 PRICE HISTORY CHARTS 17 November

39 Distribution of investment ratings for equity research (as of 1 Jun 16) Rating: GUIDELINE (return targets may be modified by risk or liquidity issues) Overall Global Distribution (Banking Client*) Buy Total return of >1% in next 12 months Buy Hold Sell Hold Total return >-1% and <+1% in next 12 months 74% (45%) 2% (3%) 6% (%) Sell Total return <-1% in next 12 months * Indicates the percentage of each category in the overall distribution that were banking and/or corporate broking clients This marketing communication has been prepared in accordance with COBS 12.3 on behalf of Panmure Gordon (UK) Limited ("Panmure Gordon"), as defined in the Financial Services and Markets Act 2. It is not investment research in accordance with the legal requirements designed to promote investment research independence and is also not subject to any prohibition on dealing ahead of the dissemination of investment research. It may not be reproduced, redistributed or copied in whole or in part for any purpose. From time to time, we may offer investment banking and other services (IBS) to all companies mentioned in this report. Panmure Gordon & Co acts as corporate broker to Gem Diamonds and DiamondCorp in the UK and Financial Advisor to Lucapa Diamond. We buy and sell these securities from customers on a principal basis. Accordingly, we may at any time have a long or short position in any such securities. We may make a market in the securities of all companies mentioned in this report. This report has been approved in the UK by Panmure Gordon solely for the purposes of section 21 of the Financial Services and Markets Act 2. In the UK, this report is directed at and is for distribution only to persons who (i) fall within Article 19(1) (persons who have professional experience in matters relating to investments) or Article 49(2)(a) to (d) (high net worth companies, unincorporated associations etc.) of the Financial Services and Markets Act 2 (Financial Promotions) Order 25 (as amended) or (ii) are professional customers or eligible counterparties of Panmure Gordon (all such persons together being referred to as "relevant persons"). This report must not be acted on or relied upon by persons in the UK who are not relevant persons. Panmure Gordon may buy and sell these securities from customers on a principal basis. Accordingly, we may at any time have a long or short position in any such securities. Panmure Gordon is not a US registered broker-dealer. Transactions undertaken in the US in any security mentioned herein must be effected through a US-registered broker-dealer in accordance with SEC Rule 15a-6. Neither this report nor any copy or part thereof may be distributed in any other jurisdiction where its distribution maybe restricted by law and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. Distribution of this report in any such other jurisdiction may constitute a violation of UK or US securities laws, or the law of any such other jurisdiction. This report does not constitute an offer or solicitation to buy or sell any securities referred to herein. It should not be so construed, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. The information in this report, or on which this report is based, has been obtained from sources that Panmure Gordon believes to be reliable and accurate. However, it has not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties. The information or opinions are provided as at the date of this report and are subject to change without notice. The information and opinions provided in this report take no account of the investors individual circumstances and should not be taken as specific advice on the merits of any investment decision. Investors should consider this report as only a single factor in making any investment decisions. Further information is available upon request. No member of the Panmure Gordon accepts any liability whatsoever for any direct or consequential loss howsoever arising, directly or indirectly, from any use of this report or its contents. By accepting this report you agree to be bound by the foregoing limitations. 17 November

40 NOTICE TO US INVESTORS This report is not "Globally Branded" as defined in FINRA Rule 15 for purposes of distribution in the US. This report was prepared, approved, published and distributed by Panmure Gordon (UK) Limited, a company located outside of the United States (a non-us Group Company ). This report is distributed in the U.S. by Panmure Gordon Securities Limited, a U.S. registered broker dealer, on behalf of Panmure Gordon (UK) Limited, only to major U.S. institutional investors (as defined in Rule 15a-6 under the U.S. Securities Exchange Act of 1934 (the Exchange Act )) pursuant to the exemption in Rule 15a-6 and any transaction effected by a U.S. customer in the securities described in this report must be effected through Panmure Gordon Securities Limited. Neither the report nor any analyst who prepared or approved the report is subject to U.S. legal requirements or the Financial Industry Regulatory Authority, Inc. ( FINRA ) or other regulatory requirements pertaining to research reports or research analysts. No non-us Group Company is registered as a broker-dealer under the Exchange Act or is a member of the Financial Industry Regulatory Authority, Inc. or any other U.S. self-regulatory organization. Analyst Certification. Each of the analysts identified in this report certifies, with respect to the companies or securities that the individual analyses, that (1) the views expressed in this report reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly dependent on the specific recommendations or views expressed in this report. Please bear in mind that (i) Panmure Gordon (UK) Limited is the employer of the research analyst(s) responsible for the content of this report and (ii) research analysts preparing this report are resident outside the United States and are not associated persons of any US regulated broker-dealer and that therefore the analyst(s) is/are not subject to supervision by a US brokerdealer, and are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with US rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. Important US Regulatory Disclosures on Subject Companies. This material was produced by Analysts of Panmure Gordon (UK) Limited solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the United States of America by Panmure Gordon Securities Limited and elsewhere in the world by Panmure Gordon (UK) Limited or an authorized affiliate of Panmure Gordon (UK) Limited. This document does not constitute an offer of, or an invitation by or on behalf of Panmure Gordon (UK) Limited or its affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources, which Panmure Gordon (UK) Limited or its Affiliates consider to be reliable. Panmure Gordon (UK) Limited does not accept any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Panmure Gordon Securities Limited assumes responsibility for the research reports content in regards to research distributed in the U.S. Panmure Gordon Securities Limited or its affiliates has not managed or co-managed a public offering of securities for the subject company in the past 12 months, has not received compensation for investment banking services from the subject company in the past 12 months, does not expect to receive and does not intend to seek compensation for investment banking services from the subject company in the next 3 months. Panmure Gordon Securities Limited has never owned any class of equity securities of the subject company. There are not any other actual, material conflicts of interest of Panmure Gordon Securities Limited at the time of the publication of this research report. As of the publication of this report Panmure Gordon Securities Limited, does not make a market in the subject securities. For further information and regulatory disclosures, please refer to By accepting this report you agree to be bound by the foregoing limitations. This is non-independent research, a marketing communication Panmure Gordon (UK) Limited (Registered Office) Panmure Gordon Securities Limited One New Change US Broker Dealer London EC4M 9AF One New Change +44 () London EC4M 9AF Member of the London Stock Exchange +44 () Authorised and regulated by the Financial Conduct Authority Member of the Financial Industry Regulatory Authority, Inc. ( FINRA ) Copyright 216 The Panmure Group: All rights reserved Member of the Securities Investor Protection Corporation ( SIPC )