First Property Group Annual Report 2006

Plain-text annual report

Annual Report 2006 CONTENTS 1 Introduction 2-3 Highlights and Summary of Results 4-5 6-9 Activities at a Glance Chairman’s Statement 10-21 Chief Executive Ofﬁcer’s Statement 22-23 Diamond Market Review 24-27 Mining, processing, distribution and marketing 28-29 Directors’ Report 30-31 Directors’ Remuneration Report 32-36 Corporate Governance Statement 37 38 Directors Group Contact Details FINANCIAL STATEMENTS Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Recognised Income and Expense Consolidated Balance Sheet Consolidated Cash Flow Statement 41 42 42 43 44 45-76 Notes to the Annual Financial Statements 77-80 Notice of Annual General Meeting Petra Diamonds is a growing force in winning Petra Diamonds is a growing force in winning diamonds from Africa’s rich resources. diamonds from Africa’s rich resources. n o i t c u d o r t n I Adonis Pouroulis, Chairman; “I am delighted to report on the progress we have made over the past year. Petra has continued to grow, strengthening our position within the market place whilst signiﬁ cantly expanding our prospects on the ground. We continue to be very encouraged by the favourable prospects for the diamond industry globally and believe that the diamond ﬁ elds of Africa offer some of the most exciting opportunities available. I am conﬁ dent that with the range of our portfolio and the depth of the skills base now within the group, we are positioned to maintain our rate of growth”. Page 1 Sierra Leone Kono Angola Alto Cuilo Botswana Kalahari South Africa Helam Sedibeng Star s t h g i l h g i H Page 2 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Angola • Project Alto Cuilo (“Alto Cuilo”) - exceptional exploration progress continued with a substantial increase in the number and surface area of kimberlite discoveries; analysis of drill core revealed exceptional indicator mineral chemistry, comparative to some of the world’s major economic mines; as at 30 June 2006, funding of US$22.8 million advanced by BHP Billiton (budget of US$20 million approved for the year to June 2007, also to be funded by BHP Billiton) • Petra enters into Strategic Cooperation Agreement with AIM-quoted Xceldiam Limited (“Xceldiam”) with regard to Project Luangue Botswana • Acquisition of Kalahari Diamonds Limited in September 2005 • Petra’s operations in Botswana fully integrated into the Petra Group • Petra’s technical team put in place a revised Kalahari exploration programme, with the focus on larger as well as smaller kimberlite identiﬁ cation Sierra Leone • Kono project in Sierra Leone commences small scale production in June 2006, on time and on budget • Petra has met its funding requirements to earn a 51% interest in the project • Work programme to accelerate in order to better determine the grade and extent of the resource, and to enable increased production South Africa • Production of 175,011 carats from the South African mines for the year to 30 June 2006 (2005: 143,673 carats), an increase of 21.8% • The South African mines generated an operating cash ﬂ ow of US$677,000 for the year to June 2006 • Diamonds of 76 and 67 carats recovered from the Sedibeng mine, the stones being sold for US$465,000 and US$704,265 respectively Post Year-end Highlights • Petra issued a US$20 million unsecured, interest free bond, convertible at 130 pence per share, to Al Rajhi Holdings W.L.L., a major Saudi Arabian based investment group; the ﬁ nancing strengthens Petra’s treasury on an interest free basis, giving Petra the ﬂ exibility to act quickly on potential growth opportunities • Project Alto Cuilo – identiﬁ cation of the 50th kimberlite; bulk sample drill Page 3 and plant on site, with the bulk sample rig commissioned and drilling underway Summary of Results Revenue * Gross proﬁ t on mine – South African operations ** Exploration expenses ** Administration expenses Loss before depreciation, amortisation and foreign exchange movements Loss for the year CAPEX Cash at bank * 2005 Revenue – June only, post Crown merger effective 31 May 2005 ** Gross proﬁ t and exploration expenses before depreciation and amortisation Loss per share (cents) Production (carats)† †Production for the 12 months to 30 June 2005 2006 US$ 2005 US$ 20,868,757 2,275,245 3,320,887 768,258 (2,056,395) (6,422,352) (6,481,669) (3,963,956) (5,330,698) (9,954,745) (18,864,456) (21,018,778) 8,222,611 2,722,187 7,019,644 27,591,394 (13.11) (28.43) 175,011 143,673 Petra has taken signiﬁ cant strides during the past year towards achieving its objective of becoming a mid-tier diamond producer. e c n a l g a t a s e i t i v i t c A Page 4 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Alto Cuilo Angola Botswana Kalahari Diamonds Angola (full review on pages 10 to 12) Botswana (full review on pages 14 to 15) Project Alto Cuilo Kalahari Diamonds It is widely accepted that Angola may hold some of the Botswana is the world’s number one producer of world’s best kimberlite diamond deposits. Petra’s focus diamonds by value. In September 2005, Petra acquired is the Alto Cuilo project in the north-east of the country. Kalahari Diamonds, giving Petra access to the largest land area under diamond exploration in Botswana. Exploration activities at Project Alto Cuilo yield ever more exciting results; as at July 2006, 50 kimberlitic Kalahari Diamonds is the holder of approximately occurrences had been identiﬁ ed by drilling and highly 55,000kms2 of highly prospective diamond exploration encouraging diamond indicator minerals had been licences. The acquisition of Kalahari represented a recovered, which are comparable to other economic signiﬁ cant step forward in Petra’s strategy of building kimberlite deposits around the world. Bulk sampling a world class exploration base. is now underway to ascertain grade and value from a selection of prioritised kimberlites. Since the acquisition of Kalahari Diamonds, Petra has refocused exploration to include both large kimberlites BHP Billiton is Petra’s JV partner at Alto Cuilo and, as (greater than 20 hectares) as well as smaller kimberlites at 30 June 2006, BHP Billiton had provided funding of (approx imately 10 hectares) that would not necessarily US$22.8 million in respect of exploration activities. be detectable under deep Kalahari cover. Project Luangue The acquisition of Kalahari also gave Petra access Petra has entered into a Strategic Cooperation to the Gope kimberlite ﬁ eld that is known to host Agreement with AIM-quoted Xceldiam with regards to six or seven kimberlites. Petra’s track record in the Project Luangue, consolidating Petra’s position in the development of medium sized ore bodies will enable Alto Cuilo region. the efﬁ cient evaluation of such kimberlite occurrences Petra holds warrants to acquire an effective 10% in Project Luangue for £14 million by way of warrants Petra has technical support in Botswana from BHP staggered to December 2008. Petra also has a right of Billiton and rights to deploy BHP Billiton’s Falcon ﬁ rst refusal over Xceldiam’s interest in Luangue. technology. and, if economic, to turn them to account. Sierra Leone Kono Project Helam Star Sedibeng South Africa Sierra Leone (full review on pages 16 to 17) South Africa (full review on pages 18 to 20) Kono Project Helam, Sedibeng and Star mines The Kono Project area is located in the world renowned The South African mines are kimberlite ﬁ ssure Koidu diamond ﬁ eld in the Kono district of east Sierra operations, each with a remaining life of mine greater Leone. Petra Diamonds has a 51% interest in the Kono than 15 years. Project alongside AIM and TSX quoted Mano River Resources Inc. The mines produced 175,000 carats in the year to June 2006, an increase of 21.8% on the 2005 production The Kono Project is a kimberlite ﬁ ssure project; early of 143,673 carats. Petra plans to continue to further stage results are highly encouraging. The ﬁ ssure strike increase the carat production from South Africa in the Page 5 length may be greater than that of Petra’s South African year to June 2007 and beyond, giving the Group healthy production operations. Diamond recovery from the ﬁ rst production revenues. The current US$/Rand exchange bulk samples from the Lion ﬁ ssures commenced in rate gives further revenue upside. June 2006. Petra believes that the Kono Project has the potential of diamonds by volume and the largest employer in After De Beers, Petra is South Africa’s largest producer to yield high grades of approximately 100 carats per diamond mining. hundred tonnes, as indicated by the original Mano mini bulk sample of Lion 5 which returned an average grade Diamonds of 76 and 67 carats were recovered from the of 94 carats per hundred tonnes (which Petra repeated Sedibeng mine during the year, the stones being sold with its own sampling results). for US$465,000 and US$704,265 respectively. Sinking of the ﬁ rst two bulk sampling shafts on diamondiferous ﬁ ssure combined with aggressive exploration trenching activities is underway. Bulk sampling infrastructure is in place alongside the pro– duction plant. Continuous exploration and information processing activities are providing a clearer picture of the multiplicity of ﬁ ssures and their potential within the Kono licence area. Petra is now a well-established mid-tier producer and explorer of diamonds. t n e m e t a t S s ’ n a m r i a h C Page 6 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Dear Shareholder, It is with great pleasure that I present the 2006 ﬁ nancial statements. The past ﬁ nancial year has seen your Company grow into an established and integrated diamond miner and explorer and we have continued to develop the various in-house skills that will enable us to further increase our production base. These abilities are evident across all our mining Angola operations – through our production in South Africa, Kimberlite Exploration the development of complex diamond exploration Alto Cuilo once again delivered excellent exploration re- programmes in Botswana, the progress made at Alto sults. The number of kimberlite occurrences discovered Cuilo in Angola and the establishment of our mining surpassed the 50 mark, a signiﬁ cant milestone. The rate operations in Sierra Leone. We have shown that Petra also of these discoveries increased as additional core drilling possesses the corporate depth and principals required to equipment was commissioned on site. develop a solid working relationship with a major, as is the case with BHP Billiton. To date it is estimated that the surface area of kimberlite discovered at Alto Cuilo is in excess of 1,500 hectares. Petra is now a well-established mid-tier producer and Furthermore, we have achieved an exceptional success explorer of diamonds. Our focus and expertise lie on the rate of 83% of magnetic anomalies drilled being conﬁ rmed African continent, a continent that, although still mired as kimberlitic. Of the total of 249 magnetic anomalies in poverty, in 2005 produced around 62% by value of identiﬁ ed so far, 60 have now been drilled and a total of the world’s rough diamond output. It is one of our main 50 have been conﬁ rmed as kimberlitic. This serves as a goals to create sustainable economic development reminder of the size and extent of the project, together by investing in projects with long economic lives. The with the standard of exploration results. There are very economic beneﬁ t of discovering a large, economic few kimberlite projects anywhere in the world that have kimberlite is substantial, not only to a company like had such success in identifying kimberlites, but when Petra but also to the economy of the African countries the surface area of the discoveries at Alto Cuilo is taken in which we operate. The refocusing of international into account, the results are even more remarkable. exploration dollars in Africa, whatever the commodity, makes for an exciting and often vibrant environment in which to work. It is pleasing to see Africa gaining mining and exploration momentum and that the investing community worldwide acknowledges Africa’s natural resource wealth. We also welcome the wide-reaching reforms currently sweeping the diamond industry which promise to give more autonomy to Africa’s producer nations and more direct employment down the diamond beneﬁ ciation chain, from mine to market. Petra is the proud employer of over 2,000 people and actively contributes to the economic development of the African countries in which it operates. Petra only operates in countries that are committed to the Kimberley process for the marketing of diamond production; such sound, environmentally aware and responsible investment in the African diamond industry will only assist in the development of countries in which we operate and the continent as a whole. Petra achieved a great deal during the year and some of the highlights are covered below. At the same time, analysis of kimberlite core delivered some highly encouraging diamond indicator mineral results together with a favourable mantle geotherm conducive for diamond formation. Diamond indicator mineral chemistry is crucial in terms of assessing a kimberlite’s likelihood of hosting diamonds. The results at Alto Cuilo are very exciting because they are comparable to other major economic kimberlite deposits around the world. The large diameter drill rig has now been commissioned on site in anticipation of the mini-bulk sample programme scheduled for later this year. The results of this sampling campaign will give a better understanding of the kimberlite deposits and will start yielding critical data relating to grade and price per carat. Accompanying the drill rig is a 10 tonne per hour Dense Media Separation (“DMS”) plant that will be used solely for the processing of kimberlite material retrieved from the large diameter drill rig. This rig will initially stockpile 200 tonne bulk samples and the DMS plant, which is a custom-made closed circuit unit designed speciﬁ cally CHAIRMAN’S STATEMENT continued for kimberlite bulk sampling, will start treating the I wish to acknowledge the important role BHP Billiton samples. A ranking of priority kimberlite targets for has played in the evolution of Alto Cuilo. We have found large diameter drilling has been drawn up and may be their work to be of the highest standard and their spirit revised as more results become available. The ranking is of partnership to be one where all partners beneﬁ t. At based on mineral chemistry results, the surface area of the same time our Angolan partners have also been of the various kimberlites and the logistics of plant access the utmost assistance in taking Alto Cuilo to the next to the various targets. Initial bulk sampling results are level and I thank both Endiama and Moyoweno for their anticipated by December 2006. ongoing support. Petra and BHP Billiton are working together at Alto Cuilo, with BHP Billiton funding the exploration and related South Africa costs. As at 30 June 2006, BHP Billiton had advanced The South African operations increased production by funding of US$22.8 million to the project, and a budget 21.8% from 143,673 carats for the year to June 2005 to of US$20 million has been approved for the year to 175,011 carats for the year to June 2006. The Company June 2007, also to be funded by BHP Billiton. This is a is targeting to increase production from its existing substantial exploration spend for any mineral commodity, operations again this year. and we look forward to working with BHP Billiton to further develop Alto Cuilo over the coming year. The year also saw some exceptionally large and beautiful stones being mined. Diamonds of 76 and On 30 May 2006 the Company also announced a 67 carats were recovered from the Sedibeng mining strategic cooperation alliance with Xceldiam Limited, complex and the stones sold for US$465,000 and Page 7 an AIM listed diamond explorer with exploration US$704,265 respectively. rights at Project Luangue just north of Alto Cuilo. The projects share a common border and Petra notes with interest the early drilling success at Project Luangue as announced on 25 July 2006. Core drilling at Project Luangue returned excellent ﬁ rst results, with drilling on the ﬁ rst target intersecting kimberlite. This news supports Petra’s belief that Project Luangue may host kimberlite geology similar to that of Alto Cuilo and Petra looks forward to further developments from Project Luangue. The agreement with Xceldiam puts Petra in a position to signiﬁ cantly increase its exploration interests in the area, should it choose to do so. Alluvial Exploration The alluvial programme continues in order to further evaluate the potential for economically viable alluvial deposits. A feasibility study has been commissioned on a small alluvial block of ground adjacent to the existing 65 tonne per hour DMS plant. Petra’s initial investment in plant and earth moving equipment will serve as the infrastructure to process and mine these alluvial deposits. Alluvial exploration also continues elsewhere in the project area. As shareholders may be aware, to date over 1 500 carats of kimberlite and alluvial diamonds have been recovered from the sampling operations. It is believed that apart from production of diamonds, invaluable exploration information will also be gleaned from these alluvial programmes. Tight costs and increased efﬁ ciencies were achieved on the operations as further investments in mining mechanisation were made which will result in increased efﬁ ciencies for the coming year. Although two of the three mines operated well, technical difﬁ culties were experienced at the Star mine. These problems, mainly the construction of the new ventilation shaft, will be overcome in the coming year and it is anticipated that Star will achieve its production target and contribute to Group results. Botswana Kalahari Diamonds Limited, which was acquired effective 30 September 2005, is now a fully integrated part of the Petra Group giving your Company a prime position in Botswana, the world’s largest diamond producer by value. The Kalahari ground is situated in what we believe to be highly prospective diamond territory and the period under review has seen encouraging exploration results. Field exploration in Botswana gained momentum whilst a shift was made in philosophy to include the search for those kimberlites Page 8 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d less than 20 hectares in size. Anomalies were identiﬁ ed adopt US Dollars as its reporting currency with effect in the Gope, Orapa and Mabutsane/Thswaane blocks. from 1 July 2005. The coming year will see follow-up ground work including drilling of various anomalies in these areas. Concurrently, existing kimberlite deposits on our ground will be further examined for possible economic viability. Sierra Leone Developments on the Kono project moved ahead apace during the year. In just under a year of establishing a foothold in Sierra Leone, Petra commenced trial mining operations. This entailed the construction in-house of a 75 tonne per hour DMS as well as the sinking of shafts to access the diamond bearing kimberlite ﬁ ssures. All of this was done within budget and on time. Kono produced its ﬁ rst diamonds from the project on schedule in June of this year. In terms of Petra’s joint venture agreement with Mano River Resources, Petra has met the requirement to spend US$3 million on the project to earn a 51% interest, and the parties are now funding project expenditure on a 51/49 basis. The coming year will see an increased rate in shaft sinking which will allow increased access to different kimberlite dyke faces. This will in turn enable a better determination of grade and quality and ultimately lead to an increase in diamond production. The aggressive rolling exploration and trenching method has proven to be both very effective and cost efﬁ cient and it is envisaged that six additional trenches will be opened, the ﬁ ssure penetrated and the results evaluated by December 2006. This approach will provide Petra with a better understanding of the diamondiferous ﬁ ssures available, their potential and the project strategy ahead. The relationship between Petra management and the various relevant authorities in Sierra Leone, in particular in the Kono district, remains strong and we thank the Sierra Leonean authorities for being openly accommodative of foreign investment. Also, our joint The gross proﬁ t on mine from the South African mines’ operations for the year to 30 June 2006 was US$3,320,887 (2005: US$768,258). After exploration expenses, Group administration expenses and ﬁ nancing costs, the loss before depreciation, amortisation and foreign exchange movements for the year was US$5,330,698 (2005: US$9,954,745). After unrealised foreign exchange losses on intercompany loans of US$6,114,780 (2005: US$892,065), amortisation of intangibles of US$2,832,355 (2005: US$8,186) and depreciation of US$5,706,977 (2005: US$1,125,260), the loss after tax for the year to 30 June 2006 was US$18,864,456 (2005: US$21,018,778). Group net cash outﬂ ow for the year is stated after taking account of the investment in Xceldiam Limited of US$1,271,410 (2005: Nil), repayment of all outstanding convertible loan notes of US$1,239,403, cash inﬂ ow from the acquisition of Kalahari Diamonds of US$5,560,464 as well as the settlement in July 2005 of the Helam mine acquisition costs and various term loans. A charge of US$2,832,355 has been recognised in respect of the amortisation of licences during the year, being the accounting adjustment in accordance with IFRS of intangible assets of US$17,620,258, which were brought into the balance sheet following the acquisition of Kalahari Diamonds Limited in September 2005. The results from the Crown South African production operations acquired were consolidated into the Petra Group results from 1 June 2005. Therefore, the comparative period to June 2005 includes results of the South African operations acquired for one month and the period to 30 June 2006 includes a full 12 months results. The results for the year to 30 June 2005 have been restated, as with effect from 1 July 2005 the Company has complied with IFRS 2 Share-Based Payments, in respect of share options granted to management. venture partner, Mano River Resources Inc, has been Funding very supportive in our efforts and I thank them for their On 18 September 2006, Petra announced the issue of a valuable assistance. Results As the principal functional currency of the Group’s business transactions in Angola, Botswana and Sierra Leone is US Dollars and in South Africa diamond sales are made in US Dollars, the Group has decided to US$20 million unsecured, interest free convertible bond, convertible at 130 pence per share, to Al Rajhi Holdings W.L.L., a major Saudi Arabian based investment group. This ﬁ nancing strengthens Petra’s treasury on an interest free basis, without dilution to existing shareholders, and gives Petra the ability to actively consider revenue and production growth opportunities that have the CHAIRMAN’S STATEMENT continued Page 9 potential to fast-track Petra’s development and further social awareness programmes. The local population entrench the Company as a mid-tier diamond producer. has access to a fully funded and well equipped clinic The ﬁ nancing will also serve to underpin our funding where all ﬁ rst line consultations are available, the clinic should we decide to expand our exploration interests being staffed by Angolan doctors and nurses as well as by exercising our warrants as part of the Xceldiam expatriate trauma paramedics. A local primary school has cooperation agreement. Nabera Both Petra and Nabera continue to work with Alexkor and the South African Government with regards to the “value add” and management fees that are due to the Nabera consortium, in which Petra is a 29.5% shareholder. Whilst, for reasons outside of Petra’s control, progress has been disappointing, the Board remains focused on an acceptable resolution to the outstanding claims. Objectives and strategy Petra’s objective is to become an independent world-class gemstone diamond producer. This will be achieved by holding a highly prospective exploration portfolio ensuring future growth, organically expanding the Group’s production proﬁ le and by geographically diversifying the country spread and risk. Our focus, however, will remain on the African continent. Our strategy is therefore to explore and develop our projects in Angola, Botswana and Sierra Leone whilst increasing production from the South African operations. Production is expected to slowly build-up from Sierra Leone as greater knowledge is gained from the various kimberlite ﬁ ssures. We will also continue to analyse other opportunities, which meet our strict acquisition criteria, for future inclusion to enhance the growth of the business. The diamond industry remains robust on the fundamentals of supply and demand. With an increase in demand and without the commensurate increase in global production the outlook for any new diamond mine is good. Whilst operating on the African continent key partnerships are vital and we as a group will foster our existing partnerships further and seek to strengthen new ones. been built and currently there are around 100 learners from the community attending. Local farmers have also been assisted to produce agricultural products using more modern methods and then giving them a market in terms of the project’s consumption and requirements. Such development is not only applicable to our Angolan operations and there are similar examples of other similar social development projects in other countries in which the Group operates. Staff I wish to thank our staff for their continued dedication and hard work. The core team of the Company (both Petra and Crown pre-merger) has remained intact and I am grateful for this. It is with this staff continuity that we have managed to grow the business and withstand the ups and downs of the resources sector. We all share the same goal of seeing Petra become an independent, strong voice and contributor to the diamond industry. Without the employees of Petra this is not possible. Some of our people work in difﬁ cult situations, as often deposits are found in remote parts of the world. They do this with an enthusiasm and pride in their work and I am extremely proud to be a part of this ﬂ ourishing and dynamic business. I would like to thank two directors who left the Company during the past year. Charles Finkelstein made a signiﬁ cant contribution over the years as a non-executive director; he not only assisted your Company through difﬁ cult times in its formative stages but was also a window into the ever-changing diamond world. I would also like to thank Kevin Dabinett for the dedication and support he gave to your Company and wish him every success for the future. Social development Petra believes it important to improve the lives of the communities in the areas in which we operate. For example, at Alto Cuilo we have assisted in the introduction of primary and secondary health care, education, sustainable job creation, health and safety training and Adonis Pouroulis Chairman 26 October 2006 t n e m e t a t S s ’ r e c i f f O e v i t u c e x E f e i h C Page 10 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Angola Sierra Leone Alto Cuilo Angola Botswana South Africa Diamonds – Contributing to ‘The African Renaissance’ Petra Diamonds’ focus remains on the diamond ﬁ elds of Africa, where we have operated successfully for nearly 10 years, and where there is the opportunity to discover new and rich deposits. Whilst the diamond industry in South Africa is relatively mature, developing countries such as Angola and Sierra Leone are open again for business and offer some of the most prospective hunting ground for diamonds in the world. At the same time, modern exploration techniques could uncover dramatic new ﬁ nds in Botswana, home already to the world’s largest producing diamond mine. Petra views Angola as one of the most prospective in the exploration at Alto Cuilo reaching a special milestone during July 2006 with the discovery of the 50th kimberlite at the project. It is now estimated that the surface area of kimberlite discovered at Alto Cuilo is in excess of 1,400 hectares, ranking the project ﬁ rmly by size as one of the most important diamond projects countries for diamonds globally and the Company’s in development today. ﬂ agship Project Alto Cuilo, a joint venture with BHP Billiton, lies in the north-east of the country. Petra Kimberlite Programme has two further Angolan projects in the same region, Medio Kwanza and Muriege, though the Company is not currently active at these concessions, with its focus being on the development of Alto Cuilo. Alto Cuilo Petra’s exploration programme at Alto Cuilo over the last year has further substantiated its potential as a major diamond project. Exploration continues to make solid progress, with further increases in the number of kimberlites identiﬁ ed and analysis of drill core revealing exceptional indicator mineral chemistry. Ongoing drilling of the anomalies identiﬁ ed by the Midas low level helicopter aeromagnetic survey resulted Petra currently has three core drill rigs working full time on site, which have accelerated the exploration programme signiﬁ cantly, and as at the date of this review core drilling totals 26,000 metres on 190 holes. Drilling has also commenced in the previously untested north east of the project area where 4 of the 50 kimberlites discovered to date have recently been identiﬁ ed. The importance of this accelerated drilling programme is evident when it is considered that of the total 249 magnetic anomalies, 60 have now been drilled and 50 have been conﬁ rmed as kimberlitic. This success rate of 83% is exceptional and surpasses the norms for global kimberlite exploration. GENERAL REVIEW continued Analysis of diamond indicator mineral chemistry is at Alto Cuilo utilising a large diameter drill rig and the Page 11 very important in terms of predicting whether or not diamond indicator mineral analysis has assisted in a a kimberlite is likely to hold an economic deposit of more informed identiﬁ cation of the priority kimberlite diamonds. It is accepted by the world’s kimberlite targets for this programme. The programme will experts that the higher the count of the acknowledged generate a better understanding of the kimberlite diamond stability ﬁ eld indicators, the higher the deposits as well as producing critical data relating to likelihood of the kimberlite hosting economic grades. grade and value per carat. Petra has therefore been highly encouraged to discover that kimberlite core tested so far at Alto Cuilo has The large diameter drill rig (“LDD rig”) has commenced returned results that are consistent with diamond- operation and will initially stockpile 200 tonne bulk producing kimberlites globally. samples from each selected kimberlite, to be treated by the 10 tonne per hour Dense Media Separation Key data revealed was as below: (“DMS”) plant which is expected to be commissioned in November 2006. This lead time will enable the (i) Chrome diopside analysis has returned a favourable exploration team to stockpile sufﬁ cient material to mantle geotherm, indicating that there is a high enable the DMS plant to go directly to full capacity probability that the kimberlite will have sampled treatment of the samples when it is commissioned. material derived from the earth’s diamond stability Priority targets have already been identiﬁ ed and ranked ﬁ eld at a temperature favourable for the formation for LDD drilling according to mineral chemistry, surface of diamonds; area and logistical considerations. (ii) Peridotitic garnet analysis revealed pressure- The LDD rig is a RB40 drill rig from Prakla Bohrtechnic temperature conditions compatible with the in Germany and will be drilling holes with a diameter of presence of diamond stability ﬁ eld G10 garnets 43 centimetres (17 inches) to depths of up 350 metres. derived from well within the diamond stability ﬁ eld; The LDD rig is able to extract volumes of material large and enough to enable Petra to evaluate macro diamonds that may be contained therein, as well as giving more (iii) Eclogitic garnet analysis also gave excellent results, accurate data relating to overall grade and carat value. with an abundance of high sodium eclogitic garnets in some kimberlites, further increasing the potential The commencement of bulk sampling is a signiﬁ cant for quality diamondiferous kimberlite. step in the development of Alto Cuilo, following the extensive exploration that has been carried out to The stage is now set to commence ﬁ rst bulk sampling date. . t n o c t n e m e t a t S s ’ r e c i f f O e v i t u c e x E f e i h C Page 12 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Alluvial Programme BHP Billiton Joint Venture The potential for Alto Cuilo to host economic alluvial BHP Billiton continues to sole fund exploration at Alto deposits continues to be explored and an ongoing Cuilo and as at 30 June 2006 had advanced funding of pitting and trenching programme continues in order to US$22.8 million to PDAC in respect of exploration at Alto further evaluate this possibility. Valuable exploration Cuilo, equating to a 53.3% interest in PDAC. In addition, information is also recorded from these activities. a budget of circa US$20 million, to be funded by BHP Billiton, has been approved for the year to June 2007. Preliminary Diamond Valuation To date over 1,500 carats of kimberlite and alluvial The partnership with BHP Billiton is of great importance diamonds have been recovered from the sampling to Petra and has enabled us to dramatically accelerate operations at Alto Cuilo. BHP Billiton previously the progression of this unique project, and we will completed a preliminary valuation, based on an initial continue to work together to build upon the mutually 310 carats recovered from the kimberlite samples, beneﬁ cial association. which determined an average value of US$295 per carat. This is an excellent result and in excess of Petra’s Xceldiam - Strategic Cooperation previous estimates of US$200 per carat. On 30 May 2006 Petra entered into a Strategic Cooperation Agreement with Xceldiam Limited with regard to the Endiama / Local Partnerships Luangue and Alto Cuilo diamond exploration projects. Petra Diamonds Alto Cuilo Limited (“PDAC”), the The projects share a common border and it is the area Petra/BHP Billiton JV company, is in partnership at within 20 kilometres either side of this common border Alto Cuilo with Endiama, the ofﬁ cial state diamond where exploration activities are focused, based on the mining company of Angola, and Moyoweno, a local geological and diamond prospectivity. Xceldiam and Angolan company. The good relationships with our Petra will share information and cooperate on technical, local partners have contributed enormously to the operational and other related matters with regard to the success at the Alto Cuilo project and we appreciate development of these projects. their input and support. PDAC is proud to be working in partnership with both Endiama and Moyoweno to Petra notes with interest the early drilling success at help develop an exciting and vibrant diamond industry Project Luangue as announced on 25 July 2006. Core in Angola, which in turn will contribute to the socio- drilling returned excellent ﬁ rst results, with drilling economic development of the country as a whole. It is on the ﬁ rst target intersecting kimberlite. This news our experience that Angola is receptive to, and indeed supports Petra’s belief that Project Luangue may host welcoming of, foreign investment and we will continue kimberlite geology similar to that of Project Alto Cuilo to work in close harmony with our local partners going and Petra looks forward to further developments from forward. Project Luangue. Page 13 . t n o c t n e m e t a t S s ’ r e c i f f O e v i t u c e x E f e i h C Page 14 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Botswana Sierra Leone Botswana Kalahari Diamonds Angola South Africa On 30 September 2005 Petra acquired Kalahari Diamonds Limited (“Kalahari”) in a share-for-share transaction. The acquisition of Kalahari represents a signiﬁcant step in Petra’s strategy of building a quality exploration portfolio to complement its current producing mines and diversifying its asset base. Further to the acquisition of Kalahari, Petra is one of the largest holders of diamond exploration ground in Botswana, with approximately 55,000 km2 of highly prospective licences held through its wholly owned Botswana subsidiary, Sekaka Diamonds (Pty) Limited. Modern exploration techniques mean it is now possible to identify kimberlite anomalies covered by Kalahari sand cover which has previously prevented the discovery of new diamond deposits in Botswana. Petra has an agreement with BHP Billiton to direct the deployment of the proprietary Falcon technology, an airborne gravity Botswana is the world’s largest diamond producer by system which assists in identifying anomalies through value, with large producing mines at Jwaneng, Orapa, the sand cover. Letlhakane and Damatshaa. The Orapa and Jwaneng kimberlite pipes are of exceptional size and host Petra’s exploration ﬁ eld effort has gathered momentum reserves and resources that support a life of mine in this year as management has extended the exploration excess of 20 years at present mining rates. remit to search for smaller kimberlites as well as larger Botswana offers a modern and highly developed mining, commercial and ﬁnancial environment. Diamonds Gope kimberlite targets. contribute 70% to Botswana’s export earnings and The acquisition of Kalahari gave Petra access to the these revenues ensure that 90% of Botswanans have Gope kimberlite ﬁ eld, that was already known to host access to education and that there is near universal six or seven kimberlites. Geophysical targets from health coverage. The real beneﬁ ts brought to Botswana Xcalibur and Falcon surveys ﬂ own by Petra in this by its diamond industry serve as an encouraging area have been prioritised for further investigation and prototype for other African countries with emerging their geophysical ‘responses’ compared to the known diamond potential. kimberlites from the orientation survey conducted GENERAL REVIEW continued GENERAL REVIEW continued during the year. Their spatial relationship has also been Mabutsane / Tshwane compared to the known kimberlitic indicator minerals A ground gravity survey was carried out over the Page 15 (“KIM”) anomaly that was identiﬁ ed by previous exploration companies. This KIM halo is offset from the known Gope kimberlites by at least 12 kilometres, and is therefore probably not related to the known bodies, implying that there could be potentially large, undiscovered kimberlites in the Gope ﬁ eld. A total of 41 targets have now been investigated in the Gope area by follow up ground geophysics, identifying a number of co-incident gravity and magnetic anomalies with similar characteristics to known Gope kimberlites within, and directly adjacent to, the KIM halo. A drilling large gravity-only anomaly previously drilled in the Mabutsane/Tshwane area. This was considered the best mode of follow up as speciﬁ c gravity determinations on cuttings recovered from this hole failed to explain the cause of the anomaly and to facilitate geophysical modeling of the causative body. Modeling was carried out by the BHP Billiton Falcon unit in Melbourne, and the 3D SolidEarth™ model produced indicates a large pipe-like ‘unit’ extending from about 200 metres depth to about 1800 metres depth. This was conﬁ rmed by a model produced by Xcalibur using magnetic data from programme to test these anomalies will commence in this anomaly. The top of this unit is deeply concave and the latter part of this year. was not penetrated by the borehole drilled by Petra in 2005. Orapa South Ground follow-up geophysics has started on the 13 anomalies in the north of the Orapa South ﬂ ight blocks, directly south of the producing Orapa kimberlite ﬁ eld, and a mere 10 kilometres from AK6, a diamondiferous kimberlite which is currently being evaluated by De Beers and African Diamonds. This locality has a Kalahari sand cover of up to 50 metres and thus a dedicated KIM survey will also be undertaken, so as to assist in the selection and interpretation of anomalies. Orapa North Trenching on 9 anomalies was chosen as the preferred method of ground follow-up for the Orapa North area as If a kimberlite model is to be assumed, the model suggests about 4 lobes of low density material, coalescing at depth. One may expect these lobes to form one very large crater, which, given the absence of kimberlite indicator minerals in the drill hole and surrounds, could have been inﬁ lled by late Karoo group rocks and later, covered again by the Kalahari sand beds seen today. A decision will be made during this year whether to deepen the existing hole in the centre of the anomaly, or to drill on the edge of the anomaly where the causative body could be closer to surface. Kalahari sand cover is negligible and calcrete horizons The ﬁ nal Tshwane data has been received from BHP seldom exceed 3 metres in thickness. Samples were Billiton and anomalies are in the process of being taken from all trenches for heavy mineral extraction at selected for ground follow-up work. Petra’s preparation laboratory at Swartruggens, South Africa. . t n o c t n e m e t a t S s ’ r e c i f f O e v i t u c e x E f e i h C Page 16 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Sierra Leone Sierra Leone Kono Project Angola Botswana South Africa Petra has a joint venture with Mano River Resources in Sierra Leone which allowed Petra to earn a 51% equity interest in the Kono diamond project by investing US$3 million in the project over a three-year period. This threshold has been surpassed during the year, with total spend by Petra as of 30 June 2006 of US$4.4 million, and Mano is now contributing funding to maintain their 49% share. hour Dense Media Separation (“DMS”) plant and this was successfully commissioned in early June 2006. The Company was subsequently able to commence the treatment of samples comprising mixed and diluted material from exploration and shaft sinking operations. First diamonds were duly recovered from the Kono project on schedule in June 2006. The recovery of 44 diamonds, totaling 5.6 carats and including a 1.4 carat stone, from the small amount of material processed was highly encouraging, though the scale of the test work means that Petra is not in a position yet to arrive at any representative grade. Sample testing continues and Petra will report on The strike length of the Kono kimberlite dykes exceeds the total strike length of Petra’s South African kimberlite further ﬁ ndings when available. dyke operations and Petra believes the Kono project has the potential to yield high grades of approximately Exploration Development 100 carats per hundred tonne. First Diamond Production Petra had set a target for ﬁ rst diamond production from Kono by mid 2006, less than a year after the Company had begun operations in Sierra Leone, and this target was met due to the completion on time of a number of key objectives. The construction of the central base camp in Yengema Village was completed on schedule in May 2006. Petra constructed in-house a 75 tonne per Shaft sinking operations continue to proceed well and a sound infrastructure is in place alongside the DMS plant. Two shafts, both of which are on kimberlite ﬁ ssure, are in progress, Black Rock and Lost Shaft. The shafts will be sunk to a depth of around 30 metres before stopes are prepared to access production test tons of ﬁ ssure. In addition, exploration trenching has uncovered two very promising diamondiferous ﬁ ssure strikes at Levuma on the Lion 5 dyke extensions and Yendema, GENERAL REVIEW continued GENERAL REVIEW continued GENERAL REVIEW continued Page 17 south west of the original Lion 2 dyke strike. Exploration trenching is underway at Bundofulahan, a ﬁ ssure strike north of Lion 4. At Bardu, a south-west extension of the Lion 5 dyke extension also exists, with exploration results expected by September 2006. The aggressive rolling exploration trenching method has proven to be a very effective and cost efﬁ cient method of quickly exploring the ﬁ ssures surrounding the central base camp and processing infrastructure. It is envisaged that six additional trenches will be opened, the ﬁ ssure penetrated and the results evaluated by The shaft sinking programme will be signiﬁ cantly December 2006. The integrated result of the above mentioned activities will provide Petra with a better understanding of the diamondiferous ﬁ ssures available, their potential and the project strategy ahead. Petra is faced with a large quantity of diamondiferous ﬁ ssures available on the Kono concessions but is conﬁ dent that the strong progress made in the last year has helped enormously to reﬁ ne and prioritise the bulk sampling and exploration focus going forward. stepped up by the implementation of a second shift supported by additional shaft sinking specialists from Petra’s South African operations. The aim is to phase over from shaft sinking to stoping activities as soon as possible in order to gain access to production test tons in the quarter to December. This is necessary in order to accurately determine the grade of the deposit and to get a sample of diamonds large enough to ascertain the quality of the diamonds by December 2006. The roll out of three test shafts up to a depth of 20 metres on the most promising diamondiferous dyke strikes recently uncovered by exploration trenching will enable Petra to gain access to mini-bulk samples in order to identify and determine the most promising kimberlite dykes. If the results are favourable the test shafts could be seamlessly converted into bulk sampling and mining shafts. . t n o c t n e m e t a t S s ’ r e c i f f O e v i t u c e x E f e i h C Page 18 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d South Africa Sierra Leone Angola Helam Star Sedibeng Botswana South Africa Petra has increased production from its three mines in South Africa from 143,673 carats (year to June 2005) to 175,011 carats (year to June 2006). This production increase is notable as it was achieved despite severe operational problems presented by power outages, heavy rainfall and occasionally poor ground conditions. Management is conﬁ dent that the ongoing operational improvement of the mines will ensure steady production in the coming years. complete to 20 level and the further deepening of this shaft system to 25 level is on a 3-year schedule. In the interim, the build-up tons will be delivered from second lease as set out above. At Edward shaft, a surface ore handling system similar to John shaft is nearing completion and will assist in reducing costs. Underground shaft sinking has progressed to 25 level (23 and 24 are the active levels) so as to ensure continued production from this section. Instead of sinking another subshaft, innovative engineering solutions are being applied to enhance the duty cycle of the existing sub-winder (other than the Helam At the Helam mine, several major steps toward the sinking of another sub-shaft). semi-mechanisation of the mine have been completed which will result eventually in a reduction in labour In the semi-mechanisation drive a ﬂ eet of 14 mechanised cost. Foremost among these achievements is the loaders is now operational, complete with the air and ﬁ nalisation of the skip-hoisting system at John shaft, electrical reticulation as well as the maintenance to which enables the Company to hoist unrestricted keep these loaders operational. tons from underground as they become available. In addition, the second lease incline hoisting system has Surface exploration has been stepped up at Helam so been fully commissioned and tonnage build-up from as to identify and possibly develop a new shaft system this section will now commence as additional levels from surface to the western extensions of the Edward are added on. The deepening of John main shaft is now shaft ﬁ ssures. GENERAL REVIEW continued GENERAL REVIEW continued GENERAL REVIEW continued Unfortunately, Petra had to contend with severe the fact that the Burns section ﬂ oods ﬁ rst), resulting in Page 19 thunderstorms over the year which resulted in power a depression of grade. outages and ﬂ ood interruptions. The Company’s electrical standby system currently only allows for In all other respects, the mine is on track with 15 emergency services and is therefore being upgraded level on both the Burns and Wynandsfontein sections so as to better cope during the next wet season. Minor well established. The 14 level main access haulage to labour disruptions also led to some lost production but Wynandsfontein has been rescheduled for completion Petra will continue to work towards managing such by June 2007 and will assist in depressing operational eventualities going forward. costs. Sinking (slyping) of the main shaft from 12 to 14 level is continuing and deepening to 16 level is soon to Star commence. At the Star production lagged behind projected levels, mainly due to issues concerning ventilation, and work The building of the plant front-end crushing section has is continuing to improve this situation. The raise bore been completed and commissioned. Star mine has an drilling from surface to 13 level (a vertical hole some extremely hard ore so the introduction of a rolls crusher 520 metres with a diameter of 1.4 metres) has been will assist in the reduction of diamond breakage and completed by the contractor. The required return- subsequently increase the grade of diamond recovery. ventilation airway has been completed on 13 level and ventilation districts in the Burns operational sections will Sedibeng (Messina and Dancarl operations) be established after Petra has completed the support Production is going well at Sedibeng, although of the bad ground conditions in certain sections of the slightly behind schedule. The delays in production raise bore hole. This work is expected to be completed have resulted from power outages during the afore during the ﬁ rst half of FY 2007 to further improve the mentioned periods of severe thunderstorm activity, underground ventilation conditions. The improved resulting in ﬂ ooding of the lower levels, as well as conditions will assist in increasing production from poor ground conditions on 23 level where anticipated underground operations. ﬁ ssure development did not materialise and gave only “stringers”. Stope development on this level has now, Further problems relating to loss of production however, been achieved. resulted from power outages during thunderstorms with attendant ﬂ ooding, as well as power outages due In all other respects the mine is performing well. Shaft to cable theft on the national electric supply grid. The sinking on the Messina section is progressing and at abovementioned further resulted in ore being drawn year-end the shaft was 8 metres short of 24 level. preferably from the Wynandsfontein section (due to . t n o c t n e m e t a t S s ’ r e c i f f O e v i t u c e x E f e i h C Development of the 20 south drive is on track and at Capex has been approved for the construction of year-end was 50m short of being vertically beneath the a complete new 100 tonne per hour DMS diamond Dancarl main shaft. The next step is to raise bore from recovery plant, which will cater for all production from this level into the bottom of Dancarl shaft at 16 level. the Sedibeng mining and tailings. It will incorporate all Once this is done, the shaft will be deepened to 21 the modiﬁ cations that we have learnt will be of beneﬁ t level and a new winder will be installed on surface to to our operation, in particular ensuring the protection handle the increased duty cycle with greater tonnage of large diamonds. The plant is being fabricated at the from the Dancarl section. In the interim, production Helam mine facility and is planned to be commissioned from Dancarl is progressing well with 15 level solidly in the third quarter of FY 2007. It is anticipated that established and the re-establishment of the shaft to 16 the new plant will result in a dramatic reduction in level in progress. operating costs and a signiﬁ cant improvement in In terms of brownﬁ elds exploration, a 2,000 tonne test was conducted on the southern portions of the Dancarl RESOURCE ESTIMATES diamond security. ﬁ ssures. Results returned grades compatible with the The South African reserves and resources conﬁrm the thin nature of the ﬁ ssures in this locality, with grade potential for long-life production operations. Further, being depressed by large amounts of sidewall dilution “brownﬁ elds” exploration has the potential to identify and resultant low kimberlite percentage. Exploration new areas of production from the current operations Page 20 in the lower levels is also being executed to determine and work in this area has been intensiﬁ ed. A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d the grade of the known “magazine ﬁ ssure” which is some 60 metres distant from our current operations. Resources (estimated) Proven, probable reserves & inferred resources ROM tonnes (‘000)** Grade ROM (cpht)** Total carats (‘000)** Price/carat US$ Value US$ (million) Helam Sedibeng Star Total 1,936,000 1,700,000 3,886,000 7,522,000 28 44 81 59 542,000 748,000 3,147, 000 4,437,000 250 135.5 200 149.6 74 232.8 117 517.9 **Adjusted from Snowden’s report dated 1st February 2005 BLACK ECONOMIC EMPOWERMENT In summation, I am delighted with the progress we The Company views Black Economic Empowerment have made across all our projects over the past year. (“BEE”) as an essential process to address historic This progress could not have been achieved without wrongs and give previously disadvantaged groups the skills, work ethic and dedication of our staff and I in South Africa the opportunity to participate in would like to extend management’s sincere thanks to and beneﬁ t from the exceptional mineral wealth of our hard working and spirited team. We are proud to their country. However, BEE is a pragmatic growth have developed a group of the highest calibre and in strategy, as well as a moral initiative, and affords Petra our people we have perhaps our greatest asset. the opportunity to forge new partnerships in South Africa and acquire further projects. Good progress has been made to achieve the objectives of South African legislation through the 25.5% BEE ownership of Sedibeng. Legislation requires 15% ownership by 2009 and 26% ownership by 2014 across Petra’s South Johan Dippenaar African operations. More transactions are planned for Chief Executive Ofﬁ cer the year to June 2007. 26 October 2006 Page 21 w e i v e R t e k r a M d n o m a i D Page 22 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Although diamonds have been discovered in well over South Africa has put in place measures to structurally 35 countries, the bulk of the production (by value) change the way diamond wealth is shared among comes from just six countries, Botswana, Russia, corporate entities and the state. The South African Canada, South Africa, Angola and DRC. Over 60% of the Diamond Amendment Act has the objective of ensuring world’s production (by value) comes from the African signiﬁ cantly higher levels of diamond beneﬁ ciation continent; even so, Africa has still been relatively with the country. Mutually beneﬁ cial results require under-explored and Petra believes it therefore holds corporate and political stewardship and dialogue signiﬁ cant promise. There are regions within Africa that between government and producers; provided that have produced alluvial diamonds for well over half a competitive conditions are maintained and that century without the primary kimberlite sources of the policies are consistent, enabling producers to sell at alluvial deposits having yet been discovered, so there internationally competitive prices that recognise the is a real opportunity for exploration companies using inherent risk of mine development, Petra supports the modern techniques. South African Government’s objectives to increase the The diamond value chain (or diamond pipeline) consists of level of beneﬁ ciation activities. exploration, mining, sorting, distribution, trading of rough From Supply Controlled to Demand Driven stones, processing (converting the rough into polished), Environment grading for polished sales and/or retail consumption, jewellery manufacturing, and retail. Presently, we ﬁ nd ourselves in a “constructive upheaval” in which a myriad of contemporary corporate and consumer values are progressively having a profound impact on the very In today’s corporate environments, it has become an imperative to align legal and ethical compliances with business and marketing strategies and to ensure a similar focus on the entire value chain. foundations of the diamond value chain from the miners Diamond miners have always recognised the “value” to the consumers. The progression of diamonds through the pipeline takes global rough diamond production of around US$12.7 billion to around US$19.3 billion in polished diamonds at polished wholesale prices. Ultimately, on the downstream end of the pipeline, the activity translates into around US$65 billion in worldwide diamond jewellery retail sales, including the non-diamond components such as precious metals, semiprecious stones, designs, distribution costs, marketing and advertising. Recognising the Aspirations of Producer Governments The major producer governments are now investigating other opportunities that arise from having substantial diamond resources and corresponding production. From an economic perspective, sustainable and equitable management of diamond resources needs to be applied in a responsible manner so that the countries in question derive beneﬁ ts corresponding to their mineral wealth. of their marketing rights – but they rarely considered using their leverage to secure part of the downstream revenues. Petra’s management is closely following these international trends as we recognise that Petra may well become far more than “just” an explorer and miner. We now witness the successful development and integration of new marketing methods, such as branding, internet, vertical integration, franchising, joint-ventures with manufacturers and a range of other innovative and potentially very rewarding options. These new marketing methods are transforming the industry into a truly competitive, fully demand-driven market, accompanied by an accelerated growth in retail demand for diamond jewellery. Fundamental structural changes of an entire value chain are not without risk. The players involved are comforted by the widely accepted forecast that worldwide diamond demand will signiﬁ cantly exceed supply in the ﬁ nal years of this decade, especially for the better, more ‘exceptional’ goods. The pursuit for vertical integration has caused the industry to make considerable investments in downstream marketing Government policies are now shifting focus to diamond and promotion, brand development, and investments in beneﬁ ciation and economic diversiﬁ cation. For example, jewellery manufacturing and retail stores. several new diamond cutting factories are expected to become operational in countries like Botswana, which has traditionally not been the case. Throughout the past few years we have seen consecutive year-on-year growth in consumer demand; Page 23 pipeline. All these developments will further heighten consumer conﬁ dence in the industry and bolster investor conﬁ dence in the companies involved in the value chain. The changes are bold, innovative and exciting - the diamond business of tomorrow presents challenges, promises and opportunities and each and every player will have to consider their strategies and business model accordingly. indeed, the ﬁ rst part of this decade recorded better growth rates than the industry saw throughout the 1990s. Consumer demand is healthy, especially in emerging markets such as India, the Gulf countries (enjoying high oil revenues), and China. The diamond industry traditionally relied on controlling supply to the market. Diamond producers are now adopting business models aimed at making the industry more responsive to the increasingly sophisticated and brand-conscious consumer preferences and at creating accelerated growth in consumer demand. The transformation from a supply controlled to demand driven approach requires the entire industry to dramatically change its marketing approaches. This is a major transformation and all role players will watch the transformation with interest. Johan Dippenaar There are other external factors impacting the value Chief Executive Ofﬁ cer chain as well. In a business environment post Enron 26 October 2006 and with the past concerns surrounding conﬂ ict diamonds, we see greater transparency, greater This market review has been compiled with the assistance corporate accountability, and a renewed commitment of Chaim Even-Zohar and his staff at Tacy Limited, Diamond to ethical and legal compliance issues throughout the Industry Consultants. Page 24 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Mining, processing, distribution and marketing The demand for rough diamonds is predicted to rise by at least ﬁ ve percent each year until the end of the decade. We aim to be a world-class diamond group and mid-tier producer of gemstone diamonds. 1Geology: The cross section shown here provides a closer look at the earth’s crust and underlying mantle. Just below the crust is the portion of the mantle called the lithosphere, which is rigid and acts like rock. Below this is the asthenosphere, a more plastic, ﬂ owing region that enables the overlying crustal plates to move in what is known as plate tectonics. The demand for rough diamonds is predicted to rise by at least ﬁ ve percent each year until the end of the decade. We aim to be a world- class diamond group and mid-tier producer of gemstone diamonds. Our strategy will therefore be to effectively explore and develop our projects in Angola, Botswana and Sierra Leone. This will be underpinned and supported by production from the mines in South Africa. 2Surfacing: 2Surfacing: Surfacing: Diamonds ascend to the earth’s surface in rare molten rock, or magma, that originates at great depths. Carrying diamonds and other samples from the earth’s mantle, this magma rises and erupts in small but violent volcanoes. The magma itself does not contain diamond; instead, it acts as an elevator that carries deep-formed rocks and material upward. The magma for such a volcano must originate at a depth where diamonds can be formed, 90 miles (150 km) deep or more (three times or more the depth of source magma for most volcanoes); this is a relatively rare occurrence. Just beneath such volcanoes is a carrot-shaped “pipe” ﬁ lled with volcanic rock, mantle fragments, and some embedded diamonds. The rock is called kimberlite after the city of Kimberley, South Africa, where the pipes were ﬁ rst discovered in the 1870s. Another rock that provides diamonds is lamproite. Kimberlite deposits are known as blue ground for the deeper serpentinized part of the deposits, or as yellow ground for the near surface smectite clay and carbonate weathered and oxidized portion. Volcaniclastic RockPyroclastic RockCraterSurfaceKimberlite sillsMagneticKimberlite dykesRoot ZoneDiatreme dykesDiatreme 3Mining a kimberlite pipe: 3Mining a kimberlite pipe: Mining a kimberlite pipe: Mining of a diamond-bearing pipe starts with the excavation of a pit into the pipe. In this process, called “open-pit” or “open-cast” mining, the initially loose and eventually hard ore material is removed with large hydraulic shovels and ore trucks. Hard rock is drilled and blasted with explosives so the broken material can be removed. When deep, rich ore warrants it, the mining goes underground with vertical shafts descending to horizontal drifts, or passageways that enter the pipe. In bedrock adjacent to the pipe, shafts are sunk and drifts are tunneled into the pipe. This is known as block caving. Concrete-lined tunnels are excavated under a large vertical section, perhaps 140 to 180 meters of kimberlite. Along the tunnels are draw points, or openings in the concrete casing where kimberlite is drilled and blasted to cave in a section above the tunnel. Broken kimberlite falls through the draw points and is scraped out of the tunnel with a drag or scraper bucket attached to a cable and winch, working much like a clothes line on a pulley. The kimberlite above the tunnels falls under its own weight and leads to a slow, continuous caving of ground that is removed through the draw points. The scraped kimberlite rubble is loaded into cars on a lower level and moved to a crusher underground. The crushed ore is then conveyed to skips that carry the ore up the vertical shaft for processing. 4Processing diamond ore: 4Processing diamond ore: Processing diamond ore: Once a mining operation yields ore, the diamonds must be sorted from the other materials. This process relies primarily on diamond’s high density. An old but effective method is to use a washing pan, which forces heavy minerals like diamond to the bottom and waste to the Page 25 top. Cones and cyclones use swirling heavy ﬂ uids mixed with crushed ore to achieve density separations. �� LEFT: This diagram shows how cones (left) and cyclones (right) use heavy-media separation. Diamond-bearing concentrate is mixed with a ﬂ uid near the density of diamond. Separation occurs in cones and cyclones by swirling the mixture at low and high velocities respectively. In the cone, �� rotational mixing permits lighter minerals to ﬂ oat to the top and run out as overﬂ ow, while diamonds and dense minerals sink to the bottom and are sucked out with a compressed air siphon. In the cyclone, fast rotation of the suspension drives heavy minerals to the conical wall, where they sink to the bottom and are extracted, while ﬂ oat waste minerals are sucked from the center of the vortex. Cyclones are about 99.999% efﬁ cient at concentrating diamonds and similarly dense minerals from the original ore. �� RIGHT: The x-ray separator system acts on a thin stream of particles from �� the concentrate accelerated off a moving belt into the air, where they encounter an intense beam of x-rays. Any diamond ﬂ uoresces in the x-rays, activating a photomultiplier that triggers a jet of air, deﬂ ecting the �� diamonds into a collector bin �� Mining, processing, distribution and marketing continued Diamonds are the most coveted of all precious gems. The diamond will likely continue to be a highly coveted jewel, because, well, “A Diamond is Forever.” 5Sorting and distributing: 5Sorting and distributing: Sorting and distributing: The ultimate purpose of sorting is to estimate an asking price for the rough diamonds. Diamonds then are sold off to either diamond dealers and jewellers who sell the gems, or are sold for industrial use. Diamonds are the most coveted of all precious gems. While this has not always been the case, diamonds are nonetheless exquisite gems that go through a long, tedious reﬁ ning process from the time they are pulled from the ground to when you see them in the jewellery store. And, while some of the mystique of diamonds may be gone - they’re just carbon, after all - the diamond will likely continue to be a highly coveted jewel, Page 26 because, well, “A Diamond is Forever.” A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Charles Greig & Son 6Gem diamond industry 6Gem diamond industry Gem diamond industry Diamonds do not show all of their beauty as rough stones; instead, they must be cut and polished to exhibit the characteristic ﬁ re and brilliance that diamond gemstones are known for. Diamonds are cut into a variety of shapes that are generally designed to accentuate these features. Diamonds which have been prepared as gemstones are sold on diamond exchanges called bourses. There are 24 registered diamond bourses. This is the ﬁ nal tightly controlled step in the diamond supply chain; wholesalers and even retailers are able to buy relatively small lots of diamonds at the bourses, after which they are prepared for ﬁ nal sale to the consumer. Diamonds which are not cut to the speciﬁ cations of Tolkowsky’s round brilliant shape (or subsequent variations) are known as “fancy cuts.” Popular fancy cuts include the baguette (from the French, meaning rod or loaf of bread), marquise, princess (square outline), heart, briolette (a form of the rose cut), and pear cuts. A large trade in gem-grade diamonds exists. One hallmark of the trade in gem-quality diamonds is its remarkable concentration: wholesale trade and diamond cutting is limited to a few locations. Page 27 t r o p e R ’ s r o t c e r i D The Directors present their Report together with the and around the Helam Diamond Mine for R2,500,000 audited ﬁ nancial statements of the Group for the year (US$343,874). The option expires on 15 October 2011. ended 30 June 2006. SHARE CAPITAL PRINCIPAL ACTIVITIES Details of changes to share capital during the year can Petra is focused on the mining and exploration of be found in Note 19 to the ﬁ nancial statements. diamonds in Africa. Petra’s strategy is to build a portfolio of revenue producing and exploration assets, achieving SUBSTANTIAL SHAREHOLDINGS the objective of becoming a successful mid-tier diamond At 30 September 2006 the following interests in the producer and explorer. ordinary shares of the Company represented more than 3% of the issued share capital (other than interests set BUSINESS REVIEW out above in the Board of Directors Interests). A detailed review of the Group’s operations and ﬁ nances for the year and events subsequent to the year end are set out in the Chairman’s Statement on pages 6 to 9 and in Note 32. RESULTS AND DIVIDENDS Page 28 The Group’s loss for the year amounted to US$18,864,456 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d (2005: loss US$21,018,778). The Directors do not recommend the payment of a dividend for the year (2005: US$ nil). BOARD OF DIRECTORS AND THEIR INTERESTS The interests of the Directors and their families in the issued share capital of the Company (other than in respect of options to acquire ordinary shares which are detailed in the Remuneration Report on pages 30 and 31 and Note 19 to the ﬁ nancial statements) were as follows: Saad Investments Company Limited Kalahari Diamond Resources Plc ANZ Nominees Limited Al Rajhi Holdings W.L.L. Chase Nominees Limited Credit Suisse Client Nominees Limited HSBC Global Custody Nominees Limited Euroclear Nominees Limited BNY (OCS) Nominees Limited Number of ordinary shares Percentage of issued capital 22,651,387 15.05% 16,166,529 10.74% 11,093,955 7.37% 8,853,333 5.88% 8,142,700 5.41% 6,767,744 4.50% 5,900,000 3.92% 5,756,885 3.83% Number of shares at 30 June 2006 Number of shares at 30 June 2005 7,535,000 7,535,000 2,407,122 2,407,122 640,000 640,000 50,000 2,000 640,000 640,000 10,000 2,000 A Pouroulis V Ruffer J Dippenaar J Davidson D Abery C Segall WB Nominees Limited 5,401,701 5,594,204 3.72% 3.59% EMPLOYEES The Group’s employment policies have been developed to ensure that the Group attracts and retains the required calibre of management and staff by creating an environment that rewards achievement, enthusiasm and team spirit. Effective communication and consultation is key to this and the Group endeavours to ensure the appropriate level of employee involvement and communication. 7,500,000 ordinary shares in the Company are held by a The Group is committed to the principle and achievement trust of which A Pouroulis is a beneﬁ ciary. of equal opportunities in employment irrespective of There were no changes in Directors’ share interests between the year end and the date of this Report. An option was granted on 25 June 2004 to J Dippenaar and J Davidson to acquire the game farm situated on sex, religion, race or marital status. Full consideration is given to applications from disabled persons who apply for employment where the requirements of the position can be adequately ﬁ lled by a disabled person, having regard to their particular abilities and aptitude. DIRECTORS’ REPORT continued CREDITORS PAYMENT POLICY AUDITORS It is the Group’s policy that payments to suppliers are The Directors appointed BDO Stoy Hayward LLP as made in accordance with those terms and conditions auditors to the Company with effect from the audit for agreed between the Group and its suppliers, provided the year to June 2006. The Directors thank KPMG Audit that all terms and conditions have been complied plc for their audit services in previous years. with. GOING CONCERN Following a review of the Company’s ﬁ nancial position, the Directors have concluded that sufﬁ cient ﬁ nancial resources will be available to meet the Company’s current and foreseeable working capital requirements. In accordance with Section 89 of the Bermuda Companies Act, a resolution to conﬁ rm the appointment of BDO Stoy Hayward LLP as auditors of the Company is to be proposed at the Annual General Meeting to be held on 8 December 2006. On this basis, they consider it appropriate to prepare By order of the Board the ﬁ nancial statements on a going concern basis. David Abery Director 26 October 2006 Page 29 DIRECTORS RESPONSIBILITIES Bermudan company law and generally accepted best practice require the Directors to prepare ﬁ nancial statements for each ﬁ nancial year which give a true and fair view of the state of affairs of the Group and the proﬁ t or loss of the Group for that period. In preparing these accounts the Directors are required to: • select suitable accounting policies and apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the ﬁ nancial statements; and • prepare the ﬁ nancial statements on the going concern basis unless it is inappropriate to presume that the Company and the Group will continue in business. The Directors are responsible for keeping proper accounting records, for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. t r o p e R n o i t a r e n u m e R ’ s r o t c e r i D The Remuneration Committee is responsible for PERFORMANCE RELATED BONUSES determining the remuneration and incentive packages In order to retain and incentivise the executive Directors for the executive Directors and senior management. and senior management, performance related bonuses will The employment terms for executive Directors and be awarded on the achievement of agreed performance senior management are designed to attract and criteria that are approved by the Remuneration Committee. retain individuals of the right calibre; incentives are It is the policy of the Board that the performance criteria of structured so as to align their interests with those of all such bonuses should be relevant and stretching. the shareholders by rewarding them for enhancing shareholder value. SHARE OPTIONS REMUNERATION POLICY The Board believes that the granting of share incentives encourages a broad alignment of the interests of the The remuneration policy aims to attract and retain executive Directors and senior management with the executives who are incentivised to achieve performance earnings and asset growth of the Company to the therefore serving the best interests of the shareholders. mutual beneﬁ t of both shareholders and participants. In framing and implementing the Directors’ remuneration During the year the Company adopted IFRS 2 with policy, consideration has been given to matters set out respect to the treatment of employee share options, in the Combined Code. details of which can be found in Notes 30 and 31 to the Page 30 BASE SALARIES The policy of the Board is to pay base salaries which are competitive with those paid to executives in organisations of similar size and market sector. ﬁ nancial statements. As at 30 June 2006 the following options for employees were in place to subscribe for ordinary shares in the Company. A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Adonis Pouroulis David Abery Johan Dippenaar Jim Davidson Senior management Exercise Price 30.0p 35.0p 40.0p 45.0p 44.0p 85.0p 79.5p 44.0p 85.0p 79.5p 85.0p 79.5p 85.0p 79.5p 44.0p 54.5p 56.75p A$1.12 A$1.36 65.75p 79.5p Date of grant 22 April 1997 22 April 1997 22 April 1997 22 April 1997 At 30 June 2006 At 30 June 2005 Expiry date 11 April 2007 100,000 100,000 11 April 2007 100,000 100,000 11 April 2007 100,000 100,000 11 April 2007 100,000 100,000 5 September 2003 5 September 2013 750,000 750,000 16 June 2005 31 May 2006 16 June 2015 250,000 250,000 31 May 2016 250,000 — 5 September 2003 5 September 2013 750,000 750,000 16 June 2005 31 May 2006 16 June 2005 31 May 2006 16 June 2005 31 May 2006 16 June 2015 250,000 250,000 31 May 2016 250,000 — 16 June 2015 750,000 750,000 31 May 2016 250,000 — 16 June 2015 750,000 750,000 31 May 2016 250,000 — 5 September 2003 5 September 2013 385,000 385,000 28 June 2004 28 June 2014 — 133,334 13 September 2004 13 September 2014 50,000 50,000 24 September 2004 24 September 2014 238,875 276,375 28 January 2005 28 January 2015 72,500 86,250 27 November 2005 27 November 2015 500,000 31 May 2006 31 May 2016 500,000 — — DIRECTORS’ REMUNERATION REPORT continued The following share options were exercised and lapsed during the year. Estate of W Roberts Kevin Dabinett Senior management Exercise price 30.0p 35.0p 40.0p 45.0p 54.5p 54.5p A$1.12 A$1.36 A$1.12 A$1.36 54.5p 54.5p Date of grant Date of exercise Number of options exercised/lapsed 11 April 1997 11 April 1997 11 April 1997 11 April 1997 28 June 2004 28 June 2004 24 September 2004 28 January 2005 24 September 2004 28 January 2005 28 June 2004 28 June 2004 22 July 2005 22 July 2005 22 July 2005 22 July 2005 31 May 2006 Lapsed* 12 June 2006 12 June 2006 Lapsed* Lapsed* 31 March 2006 Lapsed* 50,000 50,000 50,000 50,000 250,000 500,000 9,375 3,438 28,125 10,312 133,334 266,666 *These share options lapsed due to the employees leaving the Company. DIRECTORS’ REMUNERATION The following table gives a breakdown of the remuneration of the individual Directors who held ofﬁ ce during the year Page 31 ended 30 June 2006. Executive Directors A Pouroulis K Dabinett* D Abery J Dippenaar J Davidson Non-executive Directors** C Segall # C Finkelstein*** V Ruffer # Base remuneration Performance related bonus US$ US$ Other US$ 253,448 237,254 253,448 253,448 253,448 64,706 – – 186,314 64,706 64,706 64,706 – – – 2006 Total US$ 318,154 423,568 318,154 318,154 318,154 2005 Total US$ 305,941 279,096 374,171 77,758 77,758 1,251,046 258,824 186,314 1,696,184 1,114,724 26,679 7,410 8,893 42,982 – – – – – _ – – 26,679 7,410 8,893 42,982 27,854 9,285 9,285 46,424 K Dabinett left the company effective 31 May 2006 * ** The Board determines the non-executive Directors’ fees in the absence of the relevant non-executive Director *** C Finkelstein resigned as a non-executive director effective 30 April 2006 # Member of the Remuneration and Audit Committees It is estimated that under arrangements currently in force, the aggregate base remuneration and beneﬁ ts to be paid to the executive and non-executive Directors for the ﬁ nancial year end 30 June 2007 will be US$1,050,000. By order of the Board David Abery Director 26 October 2006 t n e m e t a t S e c n a n r e v o G e t a r o p r o C Page 32 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d CORPORATE GOVERNANCE STATEMENT The agenda for scheduled meetings is prepared in Effective corporate governance is a priority of the Board conjunction with the Chairman, Chief Executive Ofﬁ cer and outlined below are details of how the Company and Finance Director. Standing items include the Chief has applied the principles of corporate governance Executive Ofﬁ cer’s report, Finance Director’s report, as set out in the Combined Code (“the Code”). Under ﬁ nancial reports, strategic matters, governance and the rules of the Alternative Investment Market (“AIM”) compliance. Submissions are circulated in advance. the Company is not required to comply with the Code Executives are regularly involved in Board discussions and the Board considers that the size of the Group and Directors have other opportunities, including does not warrant compliance with all of the Code’s visits to operations, for contact with a wider group of requirements. The Board fully supports the principles employees. on which the Combined Code is based and considers that the Company has complied with a number of key requirements. This statement also outlines the main corporate governance practices which comply with the Australian Stock Exchange Limited (“ASX”) Corporate Governance Council Principles of Good Corporate Governance and Best Practice Recommendations (“ASX CGC Recommendations”). BOARD OF DIRECTORS Role of the Board The Board’s primary role is the protection and enhancement of long-term shareholder value. Details of the Board’s procedures in respect to each of these areas are further outlined below. Director education The Group educates new Directors about the nature of the business, current issues, the corporate strategy and the expectations of the Group concerning performance of Directors. Directors also have the opportunity to visit Group facilities and meet with management to gain a better understanding of business operations. Directors are given access to continuing education opportunities to update and enhance their skills and knowledge. To fulﬁ l this role, the Board is responsible for the Composition of the Board overall corporate governance of the Group including The composition of the Board is determined using the formulating its strategic direction, approving and following principles: monitoring capital expenditure, setting remuneration, • The Board should comprise Directors with a appointing, removing and creating succession policies broad range of expertise both nationally and for Directors and senior management, establishing internationally. goals for management and monitoring the achievement • Directors appointed by the Board are subject to of these goals, and ensuring the integrity of internal election by shareholders at the following Annual control and management information systems. It is also General Meeting and thereafter Directors are subject responsible for approving and monitoring ﬁ nancial and to re-election at least every three years. other reporting. Board process The Board has accepted the following deﬁ nition of an independent Director: To assist in the execution of its responsibilities, the “An independent Director is a director who is not a Board has established an Executive Committee to member of management (a non-executive director) manage the Company on a day-to-day basis. Members and who: of this Committee are A Pouroulis, J Dippenaar, D Abery • is not a substantial shareholder of the Company or an and J Davidson. Members of this committee meet ofﬁ cer of, or otherwise associated, directly or indirectly, informally from time to time and no minutes are kept with a substantial shareholder of the Company; of proceedings. The full Board holds scheduled meetings, and any extraordinary meetings at such other times as may be necessary to address any signiﬁ cant matters that may arise. In between meetings, decisions are adopted by way of written resolutions. • has not within the last three years been employed in an executive capacity by the Company or another Group member, or been a Director after ceasing to hold any such employment; • is not a principal of a professional adviser to the Company or another Group member; CORPORATE GOVERNANCE STATEMENT continued Page 33 • is not a signiﬁ cant consultant, supplier or customer of the experience, knowledge and expertise of potential the Company or another Group member, or an ofﬁ cer directors before any appointment is made and adheres of or otherwise associated, directly or indirectly, with to the principle of establishing a board comprising a signiﬁ cant consultant, supplier or customer; directors with a blend of skills, experience and attributes • has no signiﬁ cant contractual relationship with the appropriate to the Company and its business. The main Company or another Group member other than as a criterion for the appointment of Directors is an ability to Director of the Company; add value to the Company and its business. All Directors • is free from any interest and any business or other appointed by the Board are subject to election by relationship which could, or could reasonably be shareholders at the following Annual General Meeting perceived to, materially interfere with the Director’s of the Company. The Board will review the utility of a ability to act in the best interests of the Company.” Nomination Committee as it enters the next stage of its The composition of the Board is reviewed on an annual basis to ensure that the Board has the appropriate mix of expertise and experience. When a vacancy exists, through whatever cause, or where it is considered that the Board would beneﬁ t from the services of a new Director with particular skills, the Board determines the selection criteria for the position based on the skills deemed necessary for the Board to best carry out its responsibilities and then appoints the most suitable candidate who must stand for election at the next general meeting of shareholders. The Board consists of four executive Directors and two development, and one will be established if and when considered appropriate by the Board. Conﬂ ict of interest Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conﬂ ict with those of the Company. Where the Board believes that a signiﬁ cant conﬂ ict exists, the Director concerned does not receive the relevant Board papers and is not present at the meeting whilst the item is considered. The Board has developed policies to assist Directors to disclose potential conﬂ icts of interest. non-executive Directors. Of the two non-executive Director dealings in company shares Directors, C Segall is considered independent. While the The Constitution permits Directors to acquire shares majority of the Board is not considered independent for in the Company. Company policy prohibits directors the purpose of the deﬁ nition above, the Board considers and senior management from dealing in shares that the composition is appropriate given the size of the or exercising options whilst in possession of price Company. In particular, the Board is of the opinion that sensitive information except in unusual circumstances, this composition gives the necessary mix of industry 42 days after either the release of the Company’s half- speciﬁ c and broad business experience necessary for year and annual results, the annual general meeting or the effective governance of the Company, for setting any major announcement. strategic direction, and for creating shareholder value. The executive Directors are responsible for the day-to- day running of the Group. All executive and non-executive Directors may take Directors and senior management must notify and get approval from the Chairman of the Board before they deal in shares or exercise options in the Company. independent advice, at the expense of the Company, Independent professional advice and access to if considered necessary in the performance of their company information duties. Directors are expected to bring an independent Each Director has the right of access to all relevant judgement to bear on issues of strategy, performance, Company information and to the Company’s executives resource and standards of conduct. and, subject to prior consultation with the Chairman, may seek independent professional advice at the Nomination Committee Group’s expense. The Board has not established a Nomination Committee as the Board considers a separately established Remuneration of non-executive Directors committee is not warranted and its functions and When setting fees and other compensation for non- responsibilities can be adequately and efﬁ ciently executive Directors, the Board takes independent discharged by the Board as a whole. The Board assesses advice and applies international benchmarks. Director’s Page 34 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d fees cover all main Board activities and membership The Combined Code requires that the effectiveness of committees. Further information is contained in the of the system of internal control be reviewed by the Directors’ Remuneration Report on page 31. Directors, including ﬁ nancial, operational and risk AUDIT COMMITTEE management. In September 1999 the Turnbull report was published which offered guidance to directors on The Audit Committee comprises Charles Segall and complying with the internal control requirements of the Volker Ruffer (both being non-executive Directors) Combined Code. Although the Board considers that the and is chaired by Charles Segall. The Committee may, size of the Group does not warrant compliance with all if considered necessary, take independent advice at the Code’s requirements, the Board has implemented the expense of the Company. The Committee makes a reporting structure, as detailed below, to review all recommendations to the Board on the appointment aspects of internal control and will continue to develop of the external auditors, their independence and the process throughout the 2007 ﬁ nancial year: the level of their fees; it reviews the ﬁ ndings of the • Financial reporting – the Company will report to external auditors and ensures appropriate action is shareholders quarterly and half-yearly, as required by taken by management; it reviews the Group’s interim the ASX Listing Rules. The Chief Executive Ofﬁ cer and and annual ﬁ nancial statements prior to submission Finance Director state in writing to the Board that to the Board; it reviews the Group’s statement on the Company’s ﬁ nancial reports present a true and internal control systems, considers the effectiveness fair view in all material respects of the Company’s of internal ﬁ nancial controls and any internal audit ﬁ nancial condition and operational results and are resource, making recommendations for changes if in accordance with relevant accounting standards. appropriate, and institutes and reviews special projects They also state the Company’s ﬁ nancial reports are and investigations on any matter as it sees ﬁ t. founded on a sound system of risk management and internal compliance and control, which implements REMUNERATION COMMITTEE the policies adopted by the Board and that this The Remuneration Committee comprises Charles Segall system is operating efﬁ ciently and effectively in all and Volker Ruffer (both being non-executive Directors) material respects. and is chaired by Charles Segall. The Committee may, • Continuous disclosure – the Company has a policy, if considered necessary, take independent advice at based on existing policies and practices as a company the expense of the Company. The main responsibilities dual-listed on the AIM and ASX, that all shareholders of the Remuneration Committee are to determine and investors have equal access to the Company’s on behalf of the Board and shareholders the overall information and has procedures to ensure that all policy for executive remuneration; to determine the price sensitive information will be disclosed to the base salary, beneﬁ ts, performance related bonus and AIM and ASX in accordance with the continuous any equity participation schemes (including share disclosure requirements of the AIM and ASX Listing options) for each of the executive Directors and other Rules. These procedures include; senior management of the Group; and to approve all – A comprehensive process to identify matters that Directors’ service contracts. The Committee ensures may have a material effect on the price of the that a signiﬁ cant proportion of the executive Directors’ Company’s securities; remuneration is directly related to the performance of – The Chief Executive Ofﬁ cer and Finance Director the Group. being responsible for interpreting the Company’s policy and where necessary informing the Board; INTERNAL CONTROL FRAMEWORK – The Finance Director being responsible for all The Board is responsible for the Group’s system of communications with AIM and ASX; internal control and for reviewing its effectiveness. – All information provided to the AIM and ASX being It should be recognised that such a system can only immediately posted to the Company’s website at provide reasonable and not absolute assurance against www.petradiamonds.com. material misstatement or loss, as it is designed to manage rather than eliminate those risks that may affect the Company in achieving its business objectives. • Overview of the risk management system – the Board adopts practices designed to identify signiﬁ cant areas of business risk and to effectively manage those CORPORATE GOVERNANCE STATEMENT continued risks in accordance with the Group’s risk proﬁ le. which the Group’s operations are based in relation This includes assessing, monitoring and managing to its exploration and mining activities. The Group’s operational, ﬁ nancial reporting, and compliance risks exploration and mining activities are concentrated in for the Group. Africa. The Group has an Environmental Management • Risk proﬁ le – the Group has not established a Programme in place for each prospecting and mining separate Risk Management Committee. Instead, the permit. Board, as part of its usual role and through direct involvement in the management of the Group’s operations ensures risks are identiﬁ ed, assessed and appropriately managed. Where necessary, the Board will draw on the expertise of appropriate external consultants to assist in dealing with or mitigating risk. Major risks arise from such matters as actions by competitors, government policy changes, the impact of exchange rate movements on diamond sales, difﬁ culties in sourcing goods and services, environment, occupational health and safety, ﬁ nancial reporting, and the purchase, development and use of information systems. The Group is committed to achieving a high standard of environmental performance. The Board is responsible for the regular monitoring on environmental exposures and compliance with environmental regulations. The Board believes that the Group has adequate systems in place for the management of its environmental requirements and is not aware of any breach of those environmental requirements as they apply to the Group. • Internal audit – the Group does not have a formally established internal audit function. The Board ensures compliance with the internal controls and risk management procedures previously mentioned. Page 35 • Risk management and compliance and control – the • Ethical standards – all Directors, managers and Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. The Board’s internal control processes are comprehensive and comprise: – Operating unit controls – operating units conﬁ rm compliance with ﬁ nancial controls and procedures including information system controls. employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group. Every employee has a nominated supervisor to whom they may refer issues arising from their employment. • Conﬂ ict of interest – Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conﬂ ict with those of the Group. – Functional speciality reporting – key areas Where the Board believes that a signiﬁ cant conﬂ ict subject to regular reporting to the Board include exists for a Director on a Board matter, the Director operations, safety, environment and legal matters. concerned does not receive the relevant Board Practices have been established to ensure: – Capital expenditure and revenue commitments papers and is not present at the meeting whilst the item is considered. • Code of conduct – the Group has established a above a certain size obtain prior Board approval. documented Code of Conduct. The Group has – Financial exposures are controlled, including the adopted certain induction procedures to inform potential use of derivatives. newly appointed directors, managers and employees – Occupational health and safety standards and of their rights and their duty to act with utmost management systems are monitored and reviewed integrity and objectivity. The Code of Conduct is to achieve high standards of performance and designed to guide compliance with legal and other compliance with regulations. obligations to the Company’s stakeholders. – Business transactions are properly authorised and • Performance assessment – the Company has executed. adopted self-evaluation processes to measure Board – Financial reporting accuracy and compliance with performance. The performance of all Directors is the ﬁ nancial reporting regulatory framework. assessed through analysis, review and speciﬁ c • Environmental regulation – the Group’s operations are subject to signiﬁ cant environmental regulation under international law and the laws of the jurisdictions in discussion by the Board of issues relating to individual Director’s attendance at and involvement in Board meetings, interaction with management, Page 36 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d performance of allocated tasks and any other All documents that are released publicly will matters identiﬁ ed by the Board or other Directors. be made available on the Group’s website at Any signiﬁ cant issues identiﬁ ed are actioned by the www.petradiamonds.com. Board on an ongoing basis. The evaluation of key executives is carried out by the Chief Executive Ofﬁ cer via ongoing monitoring of management performance. The Company has established an Employee Share Option Scheme, whereby it can issue options to eligible employees to subscribe for shares in the Company at set prices. COMMUNICATION WITH SHAREHOLDERS Whilst the Board has not formally documented the Group’s continuous disclosure procedures, the Board, as part of its usual role, provides shareholders with information using comprehensive continuous disclosure processes which includes identifying matters that may have a material effect on the price of the Company’s securities, notifying them to the AIM and ASX, posting them on the Company’s website, and issuing media releases. In summary, the continuous disclosure processes operate as follows: • The Finance Director is responsible for all communications with the AIM and ASX. Matters that may have an effect on the price of the Company’s securities will be advised to the AIM and ASX on the day they are discovered. Senior executives monitor all areas of the Company’s internal and external environment. • The Annual Report is distributed to all shareholders. The Board ensures that the Annual Report includes The Board encourages full participation of shareholders at shareholders’ meetings to ensure a high level of accountability and identiﬁ cation with the Group’s strategy and goals. The shareholders are requested to vote on the appointment of Directors and changes to the Company’s bye-laws (constitution). Copies of the bye-laws are available to any shareholder who requests it. The Board ensures that the external auditors attend the Company’s Annual General Meeting and other meetings where it is appropriate to do so. EXTERNAL AUDITORS The Executive Directors review the performance of the external auditors on an annual basis and normally meet with them during the year to: • Discuss the external audit plans, identifying any signiﬁ cant changes in structure, operations, internal controls or accounting policies likely to impact on the ﬁ nancial statements and to review the fees proposed for the audit work to be performed. • Review the periodic reports prior to lodgement and release, and any signiﬁ cant adjustments required as a result of the auditor’s ﬁ ndings, and to recommend Board approval of these documents, prior to announcement of results. • Review the results and ﬁ ndings of the auditor, the adequacy of accounting and ﬁ nancial controls, and to monitor the implementation of any recommendations relevant information about the operations of the made. Group during the year, changes in the state of affairs of the Group and details of future developments, as well as all required disclosures. • All announcements made to the market, and related information (including information provided to analysts and the media), will be released to the AIM and ASX and placed on the Company’s website. • The full texts of notices of meetings and associated explanatory material are placed on the Company’s website, along with results of such meetings. • Review the draft ﬁ nancial report and recommend Board approval of the ﬁ nancial report. • As required, to organise, review and report on any special reviews or investigations deemed necessary by the Board. s r o t c e r i D Adonis Pouroulis, aged 36, is a mining engineer with a mining degree from the University of the Witwatersrand in Johannesburg. On leaving university he was involved for one year working in South African gold mines thereafter for a further year investigating mining propositions in the former Soviet Union. In 1997 he created and founded Petra Diamonds Limited and ﬂ oated the company on the AIM of the London Stock Exchange in April of the same year. Executive Chairman Adonis Pouroulis Johan Dippenaar (CA), aged 49, was previously the CEO of Crown Diamonds. He is a chartered accountant by profession and a member of the South African Institute of Chartered Accountants with over 18 years experience in the management of companies of which 16 years has been in the management of mining companies. Chief Executive Ofﬁ cer Johan Dippenaar Page 37 David Abery (ACA), aged 44, is a Chartered Accountant (ICAEW), who brings to Petra extensive experience as a ﬁ nance Director in both the South African and UK business environments, as well as an in-depth knowledge of AIM. Prior to Petra, Mr Abery was Finance Director of Mission Testing plc, the Gatwick based software testing consultancy successfully ﬂ oated on AIM in December 2000. Before that, he was Head of Finance for Tradepoint Financial Networks plc (consequently renamed Virt-x plc), the high-tech electronic stock exchange which was also quoted on AIM. Finance Director David Abery Jim Davidson, aged 61, was previously Technical Director of Crown Diamonds. He is responsible for all Petra’s geological matters and group technical development. He is a qualiﬁ ed geologist and a member of the Geological Society of South Africa with over 20 years experience in mine management Technical Director Jim Davidson Non-executive Directors Non-executive Director Volker Ruffer Volker Ruffer, aged 67, consults for KPMG Frankfurt where he specialises in international tax planning, mergers, acquisitions and company re-organisations. He was previously managing partner from 1972 to 1994. He holds a Masters degree in business administration from the University of Munster, Germany. Deputy chairman and non-executive Director Charles Segall Charles Segall, aged 65, is a director of the Atlantic Trust Company Limited of South Africa where he specialises in providing trustee services. He is admitted as an attorney of the High Court of South Africa. s l i a t e D t c a t n o C p u o r G Page 38 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d BERMUDA Secretary and registered ofﬁ ce Michael Ashford 2 Church Street, Hamilton, HM11, Bermuda Company Registration Number: EC23123 Telephone: +1 441 295 5950 E-mail: mbashford@cdp.bm Web: www.cdp.bm Legal advisers to the Company (As to Bermuda Law ) Conyers Dill & Pearman Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda Telephone: +1 441 295 1422 E-mail: info@cdp.bm Web: www.cdp.bm AUSTRALIA Legal advisers to the Company (As to Australia Law ) Blake Dawson Waldron 221 St. George’s Terrace, Perth WA 6000, Australia, DX 169, Perth Telephone: +61 8 9366 8000 E-mail: roger.davies@bdw.com Web: www.bdw.com ASX Registrars Computershare Registry Services Pty Ltd Level 2, Reserve Bank Building, 45 St Georges Terrace, Perth, WA 6000 Telephone: +61 8 9323 2000 Facsimile: +61 8 9323 2033 Contact: Ms Melissa Neil E-mail: Melissa.neil@computershare.com.au Public Relations Field Public Relations 231 South Road, Mile End, SA 5031 Telephone: +61 8 8234 9555 Facsimile: +61 8 9234 9566 Contact: Mr Kevin Skinner Mobile: +61 414 822631 E-mail: Kevin@ﬁ eldpr.com.au GROUP CONTACT DETAILS Group Head Ofﬁ ce Elizabeth House, 9 Castle Street, St. Helier, Jersey, JE4 2QP PO Box 1075, Elizabeth House, 9 Castle Street, St. Helier, Jersey, JE4 2QP Website: www.petradiamonds.com Email: info@petradiamonds.com ADVISERS UNITED KINGDOM Nominated adviser and broker Collins Stewart 9th Floor, 88 Wood Street, London, EC2V 7QR Tel: +44 20 7523 8000 Email: jguy@collins-stewart.com Web: www.collins-stewart.com AIM Registrars Capita IRG (Offshore) Limited 44 The Esplanade, Jersey, Channel Islands, JE4 0XQ Telephone: +44 20 8639 2486 E-mail: kstafford@capitaregistrars.com Web: www.capitaregistrars.com Auditors BDO Stoy Hayward LLP 8 Baker Street, London, W1U 3LL Telephone: +44 20 7486 5888 E-mail: scott.knight@bdo.co.uk Web: www.bdo.co.uk Financial PR Consultants Parkgreen Communications 1st Floor, Ireland House, 150 New Bond Street, London, W1S 2AQ Telephone: +44 20 7493 3713 E-mail: justine.howarth@parkgreenmedia.com Web: www.parkgreenmedia.com Legal advisers to the Company (As to English Law ) Memery Crystal 44 Southampton Buildings, London, WC2A 1AP Telephone: +44 20 7242 5905 E-mail: lgregory@memerycrystal.com Web: www.memerycrystal.com Principal Bankers Barclays Bank Plc 38 Hans Crescent, Knightsbridge London, SW1X OL2 Telephone: +44 20 7114 7200 E-mail: tony.young@barclays.co.uk Web: www.barclays.co.uk Page 39 Page 40 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d FINANCIAL STATEMENTS Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Recognised Income and Expense Consolidated Balance Sheet Consolidated Cash Flow Statement 41 42 42 43 44 45-76 Notes to the Annual Financial Statements 77-80 Notice of Annual General Meeting t r o p e R ’ s r o t i d u A t n e d n e p e d n I INDEPENDENT AUDITORS’ REPORT TO THE authorised to do so by our prior written consent. Save SHAREHOLDERS OF PETRA DIAMONDS LIMITED as above, we do not accept responsibility for this report We have audited the Group ﬁnancial statements (the to any other person or for any other purpose and we ﬁnancial statements) of Petra Diamonds Limited for hereby expressly disclaim any and all such liability. the year ended 30 June 2006 which comprise the Consolidated Income Statement, the Consolidated Basis of audit opinion Balance Sheet, the Consolidated Cash Flow Statement, the Group Statement of Recognised Income and Expense and the related notes. These ﬁnancial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors The Directors’ responsibilities for preparing the report and the ﬁnancial statements in accordance with We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the ﬁnancial statements. It also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of the ﬁnancial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and applicable law and International Financial Reporting adequately disclosed. Standards (IFRS) are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the ﬁnancial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufﬁcient evidence to give reasonable assurance that the ﬁnancial Page 41 We report to you our opinion as to whether the statements are free from material misstatement, ﬁnancial statements give a true and fair view and whether caused by fraud or other irregularity or error. have been properly prepared in accordance with the In forming our opinion we also evaluated the overall Companies Act 1981 as currently enacted in Bermuda. adequacy of the presentation of information in the We also report to you if, in our opinion, the company ﬁnancial statements. has not kept proper accounting records or if we have not received all the information and explanations we In our opinion: require for our audit. • the Group ﬁnancial statements give a true and fair We read other information contained in the report to consider whether it is consistent with the audited ﬁnancial statements. The other information comprises Highlights and Summary of Results, Activities at a Glance, Chairman’s Statement, Chief Executive Ofﬁcer’s Statement, Diamond Market Review, Mining, processing, distribution and marketing, Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement. Our responsibilities do not extend to any other information. Our report has been prepared pursuant to the requirements of the Companies Act 1981 as enacted in Bermuda relating to the responsibilities of auditors and for no other purpose. No person is entitled to rely view, in accordance with IFRS, of the state of the Group’s affairs as at 30 June 2006 and of its loss for the year then ended; • the Group ﬁnancial statements have been properly prepared in accordance with the provisions of the Companies Act 1981 as enacted in Bermuda; BDO Stoy Hayward LLP Chartered Accountants on this report unless such a person is a person entitled London to rely upon this report by virtue of and for the purpose 26 October 2006 of the Companies Act 1981 or has been expressly Consolidated Income Statement for the year ended 30 June 2006 Revenue Cost of sales Gross (loss)/profit Exploration expenditure Operating expenditure – other Impairment of goodwill Financial income Financial expense Net financing costs Loss before tax Income tax expense Loss for the year Notes 2006 US$ Restated 2005 US$ 4 5 6 7 8 20,868,757 2,275,245 (23,178,587) (1,970,087) (2,309,830) 305,158 (4,924,437) (7,063,678) (12,596,449) (4,856,021) — (8,972,587) 411,107 (565,201) (154,094) 36,462 (402,177) (365,715) (19,984,810) (20,952,843) 1,120,354 (65,935) (18,864,456) (21,018,778) Basic and diluted loss per share – cents 10 (13.11) (28.43) Consolidated Statement of Recognised Income and Expense for the year ended 30 June 2006 Loss for the year Exchange adjustments on translation of subsidiary and branch undertakings recognised directly in equity Total recognised income and expense relating to the year The notes on pages 45 to 76 form part of the annual ﬁnancial statements. 2006 US$ Restated 2005 US$ (18,864,456) (21,018,778) 1,561,653 1,161,255 (17,302,803) (19,857,523) Page 42 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Consolidated Balance Sheet at 30 June 2006 ASSETS Property, plant and equipment Intangible assets Investment in associates Investments – listed Investments – unlisted Trade and other receivables Total non-current assets Inventories Trade and other receivables Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Issued capital Share premium account Foreign currency translation reserve Share-based payment reserve Accumulated loss Total equity Liabilities Interest-bearing loans and borrowings Trade and other payables Provisions Deferred tax liabilities Total non-current liabilities Interest-bearing loans and borrowings Trade and other payables Provisions Total current liabilities Total liabilities Total equity and liabilities The notes on pages 45 to 76 form part of the annual financial statements. The financial statements were authorised for issue by the Directors on 26 October 2006. Page 43 Notes 2006 US$ Restated 2005 US$ 11 12 13 14 15 17 16 17 18 19 20 20 20 20 22 23 24 25 22 23 24 66,045,627 73,467,724 13,105,561 335,947 — 1,271,410 4,785,697 164,402 — — — 161,442 85,372,697 73,965,113 2,197,605 2,760,378 7,019,644 11,977,627 1,405,165 2,806,105 27,591,394 31,802,664 97,350,324 105,767,777 27,031,103 23,500,190 123,189,903 101,775,127 2,541,087 972,962 4,102,740 354,670 (81,608,667) (62,748,364) 72,126,388 66,984,363 2,914,960 867,823 1,697,756 9,932,634 15,413,173 1,149,646 6,658,735 2,002,382 429,753 2,000,507 1,716,998 11,930,797 16,078,055 11,600,585 9,061,468 2,043,306 9,810,763 22,705,359 25,223,936 38,783,414 97,350,324 105,767,777 Consolidated Cash Flow Statement for the year ended 30 June 2006 Loss after taxation for the year (18,864,456) (21,018,778) Notes 2006 US$ Restated 2005 US$ Page 44 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Depreciation of property plant and equipment – exploration Depreciation of property plant and equipment – mining Depreciation of property plant and equipment – other Amortisation of intangible assets Loss/(profit) on sale of property plant and equipment Impairment of intangible assets Impairment of goodwill Interest received Interest paid Present value adjustment on rehabilitation provision Foreign exchange loss Operating loss before working capital changes Decrease/(increase) in trade and other receivables (Decrease)/increase in trade and other payables Increase in inventories Cash utilised in operations Interest paid Taxation movement Net cash utilised by operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Acquisition of subsidiary net of cash acquired Interest received Increase in investments Acquisition of property, plant and equipment Development expenditure Net cash from investing activities Cash flows from financing activities Net proceeds from the issue of share capital Decrease in long-term borrowings Net cash from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of exchange rate fluctuations on cash held 35,687 5,630,717 40,573 2,832,355 26,717 — — (411,107) 565,201 140,783 633,140 463,100 29,020 8,186 (1,607) 136,872 8,972,587 (36,462) 402,177 — 6,114,780 892,065 (3,888,750) 140,515 (9,519,700) (1,011,327) (3,604,742) 1,953,312 (792,440) (51,792) (8,145,417) (8,629,507) (565,201) (402,177) (1,120,354) — (9,830,972) (9,031,684) 41,447 3 5,560,464 411,107 (1,271,410) 1,607 103,527 36,462 — 11 11 (4,152,748) (2,538,654) (4,069,863) (183,533) (3,481,003) (2,580,591) 469,404 32,494,444 (7,605,319) (392,723) (7,135,915) 32,101,721 (20,477,890) 20,489,446 27,591,394 (123,860) 6,808,208 293,740 Cash and cash equivalents at end of the year 18 7,019,644 27,591,394 The notes on pages 45 to 76 form part of the annual ﬁnancial statements. Notes to the Annual Financial Statements for the year ended 30 June 2006 1. ACCOUNTING POLICIES Petra Diamonds Limited is registered and domiciled in Bermuda. The financial statements incorporate the principal accounting policies set out below, which are consistent with those adopted in the previous financial year, other than the adoption of IFRS 2, as detailed below. 1.1 Statement of compliance The Group financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB), and interpretations issued by the International Financial Reporting Interpretations Committees of the IASB. 1.2 Basis of preparation The Group financial statements are prepared on the historical cost basis and are presented in US Dollars. For the year to 30 June 2005 the Group reported in Pounds Sterling and during the current year the Group adopted US Dollars as its functional reporting currency. The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Page 45 The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of revision and future periods if the revision affects both current and future periods. The accounting policies set out below have been applied consistently to all periods presented in these financial statements by all Group entities. Currency reporting The Group changed its functional currency during the 2006 financial year from Pounds Sterling to US Dollars. The principal functional currency of the Group’s business transactions in Angola, Botswana and Sierra Leone is US Dollars; in South Africa diamond sales are made in US Dollars. In order to provide comparatives in US Dollars the audited financial statements as at 30 June 2005 were translated at a rate of US$1.79 to £1 for balance sheet items and an average rate of US$1.86 to £1 for income statement items. Change in accounting policy During the year to 30 June 2006 the Company adopted IFRS 2 with respect to the treatment of employee share options. In order to comply with IFRS 2, the Company now expenses the fair value of share-based employee options with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The comparative numbers have been appropriately restated. Note 30 discloses the financial impact on the Company’s results as a result of the adoption of IFRS 2. 1.3 Basis of consolidation Subsidiaries Subsidiaries are those entities over whose financial and operating policies the Group has the power to exercise control. The Group financial statements incorporate the assets, liabilities and results of operations of the Company and its subsidiaries. The results of subsidiaries acquired and disposed of during a financial year are included from the effective dates of acquisition to the effective dates of disposal. Where necessary, the accounting policies of subsidiaries are changed to ensure consistency with the policies adopted by the Group. Associates An associate is an enterprise over whose financial and operating policies the Group has the power to exercise significant influence and which is neither a subsidiary nor a joint venture of the Group. The equity method of accounting for associates is adopted in the Group financial statements. In applying the equity method, account is taken of the Group’s share of accumulated retained earnings and movements in reserves from the effective date on which an enterprise becomes an associate and up to the effective date of disposal. Notes to the Annual Financial Statements for the year ended 30 June 2006 1. ACCOUNTING POLICIES (continued) 1.3 Basis of consolidation (continued) The share of associated retained earnings and reserves is generally determined from the associate’s latest audited financial statements. Where the Group’s share of losses of an associate exceeds the carrying amount of the associate, the associate is carried at nil. Additional losses are only recognised to the extent that the Group has incurred obligations or made payments on behalf of the associate. Where the Group does not exercise any significant influence the investment is stated at cost less any impairment. Joint ventures Joint ventures are arrangements where the Group has joint control, established by contractual agreement. Where this is through a separate legal entity, the consolidated financial statements include the Group’s proportionate share of the entitys’ assets, liabilities, revenue and expenses with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases. Where the arrangement is through a pooling of assets the Group maintains ownership of the assets and records its share of revenue and expenses. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the enterprises. Unrealised gains arising from transactions with associates are eliminated against the investment in the associates. Unrealised losses on transactions with associates are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment. 1.4 Property, plant and equipment Property, plant and equipment are stated at historic cost less accumulated depreciation and accumulated impairment losses. Where an item of property, plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of property, plant and equipment. Depreciation is provided on the straight-line basis over the estimated useful lives of assets. Page 46 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d The depreciation rates are as follows Mining assets: Plant, machinery and equipment Units of production method Mineral properties Units of production method Exploration and other assets: Plant and machinery 10% – 20% straight-line basis Office equipment 10% straight-line basis Computer equipment 25% straight-line basis Motor vehicles 20% straight-line basis Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is probable that future economic benefits from the use of that asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred. Repairs and maintenance which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Surpluses/(deficits) on the disposal of property, plant and equipment are credited/(charged) to income. The surplus or deficit is the difference between the net disposal proceeds and the carrying amount of the asset. Notes to the Annual Financial Statements for the year ended 30 June 2006 1. ACCOUNTING POLICIES (continued) 1.5 Leases Finance leases Leases that transfer substantially all the risks and rewards of ownership of the underlying asset to the Group are classified as finance leases. Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease, and depreciated over the estimated useful life of the asset. The capital element of future obligations under the leases is included as a liability in the balance sheet. Lease payments are allocated using the effective interest rate method to determine the lease finance cost, which is charged against income over the lease period, and the capital repayment, which reduces the liability to the lessor. Operating leases Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as operating leases. Payments made under operating leases are charged against income on a straight-line basis over the period of the lease. 1.6 Intangible assets Evaluation and exploration costs are written off in the year in which they are incurred. Pre-production expenditure is only capitalised once feasibility studies indicate commercial viability and the Board takes the decision to develop the project further. Capitalisation of pre-production expenditure ceases when the project is capable of commercial production whereupon it is amortised on a unit of production basis. Page 47 Mineral rights are capitalised at cost and are amortised on a unit of production basis for operating mines and over the estimated useful life for prospecting rights. Goodwill for all business combinations is accounted for by applying the purchase method. Goodwill represents amounts arising on acquisition of subsidiaries, associates and joint ventures. Goodwill represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash generating units and is not amortised but is tested annually for impairment. In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment in the associate. Negative goodwill arising on acquisition is recognised directly in profit or loss. 1.7 Impairment The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If there is any indication that an asset may be impaired, its recoverable amount is estimated. The recoverable amount is the higher of its net selling price and its value in use. For intangible assets that are not yet available for use, goodwill or intangible assets with an indefinite useful life, an impairment test is performed at each balance sheet date. In assessing value in use, the expected future pre-tax cash flows from the asset are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is recognised whenever the carrying amount of an asset exceeds its recoverable amount. For an asset that does not generate cash inflows that are largely independent of those from other assets the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised in the income statement whenever the carrying amount of the cash-generating unit exceeds its recoverable amount. A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior years. For goodwill a recognised impairment loss is not reversed. Page 48 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Notes to the Annual Financial Statements for the year ended 30 June 2006 1. ACCOUNTING POLICIES (continued) 1.8 Financial instruments Measurement Financial instruments are initially recorded at cost, which includes transaction costs. Subsequent to initial recognition these instruments are reported as set out below. Trade and other receivables Trade and other receivables originated by the Group are stated at cost less provision for doubtful debts. Non- current trade and other receivables are stated at amortised cost. Cash and cash equivalents Cash and cash equivalents are stated at fair value, based on the relevant exchange rates at balance sheet date. Financial liabilities Non-derivative financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisations. Derivative instruments Derivative instruments are stated at fair value. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at cost less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest rate basis. Gains and losses on subsequent measurement of financial instruments Gains and losses arising from a change in the fair value of financial instruments that are not part of a hedging relationship are included in net profit or loss in the period in which the change arises. Gains and losses from measuring the hedging instruments relating to a fair value hedge at fair value are recognised immediately in net profit or loss. Gains and losses from re-measuring the hedging instruments relating to a cash flow hedge to fair value are initially recognised directly in equity. If the hedged firm commitment or forecast transaction results in the recognition of an asset or a liability, the cumulative amount recognised in equity up to the transaction date is adjusted against the initial measurement of the asset or liability. For other cash flow hedges, the cumulative amount recognised in equity is included in net profit or loss in the period when the commitment or forecast transaction affects profit or loss. Where the hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative unrealised gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to occur, the cumulative unrealised gain or loss is recognised in the income statement immediately. Offset Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when the company has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. 1.9 Revenue Revenue comprises net invoiced diamond sales, option fees, and management fees to customers excluding VAT, investment income and other non-operating income. Revenue is recognised when significant risks and rewards of ownership are transferred to the buyer, costs can be measured reliably and receipt of future economic benefits is probable. 1.10 Investment income Interest is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is probable that such income will accrue to the Group. Notes to the Annual Financial Statements for the year ended 30 June 2006 1. ACCOUNTING POLICIES (continued) 1.11 Tax Current tax comprises tax payable calculated on the basis of the expected taxable income for the year, using the tax rates enacted at the balance sheet date, and any adjustment of tax payable for previous years. Deferred tax is provided using the balance sheet liability method, based on temporary differences. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the balance sheet date. Deferred tax is charged to the income statement except to the extent that it relates to a transaction that is recognised directly in equity, or a business combination that is an acquisition. The effect on deferred tax of any changes in tax rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity. A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Page 49 1.12 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will occur, and where a reliable estimate can be made of the amount of the obligation. Where the effect of discounting is material, provisions are discounted. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Decommissioning, mine closure and environmental rehabilitation The estimated cost of decommissioning, mine closure and environmental rehabilitation is based on current legal requirements and existing technology. A provision is raised based on the present value of the estimated costs. These costs are included in the cost of the related asset. The capitalised assets are depreciated in accordance with the accounting policy for property, plant and equipment. Annual increases in the provision, as a result of the change in the net present value, are charged to the income statement. The cost of the ongoing programmes to prevent and control pollution and ongoing rehabilitation costs of the Group’s operations, is charged against income as incurred. The obligation to restore environmental damage caused through operations is raised as the relevant operations take place. Assumptions have been made as to the remaining life of existing operations based on studies conducted by independent technical advisers. 1.13 Foreign currency Foreign currency transactions Transactions in foreign currencies are recorded at rates of exchange ruling at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Gains and losses arising on translation are credited to or charged against income. The results of operations not reporting in US Dollars are translated at the average rates of exchange during the period as this is considered to be a reasonable approximation of the actual rates during the year and the operations balance sheets are translated at exchange rates ruling at the balance sheet date. Exchange differences which arise from the translation of the results and balance sheets of foreign subsidiary operations are taken to reserves. Financial statements of foreign entities Assets and liabilities of foreign entities are translated at rates of exchange ruling at the financial year-end; and income and expenditure and cash flow items are translated at rates of exchange ruling at the date of the transaction. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate ruling at the balance sheet date. Exchange differences arising from the translation of foreign entities are taken directly to a foreign currency translation reserve. Page 50 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Notes to the Annual Financial Statements for the year ended 30 June 2006 1. ACCOUNTING POLICIES (continued) 1.14 Short-term employee benefits The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service. The provisions for employee entitlements to wages, salaries and annual leave represent the amount which the Group has a present obligation to pay as a result of employees’ services provided to the balance sheet date. The provisions have been calculated based on current wage and salary rates. 1.15 Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held on call with banks, and investments in money market instruments, net of bank overdrafts, all of which are available for use by the Group unless otherwise stated. 1.16 Employee defined contribution schemes Obligations for contributions to defined contribution provident schemes are recognised as an expense in the income statement as incurred. 1.17 Share-based payments The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured based on the Black- Scholes model, taking into account the terms and conditions upon which the instruments were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. The exercise price is fixed at the date of grant and no compensation is due at the date of grant. On exercise, equity is increased by the amount of the proceeds received. 1.18 Inventories Inventories, which include rough diamonds, are stated at the lower of cost-of-production on the weighted average basis or estimated net realisable value. Cost price includes direct labour, other direct costs and related production overheads. Net realisable value is the estimated selling price in the ordinary course of business less marketing costs. Consumable stores are stated at the lower of cost on the weighted average basis or estimated replacement value. 1.19 Convertible note Convertible notes that can be converted to share capital at the option of the holder, where the number of shares issued does not vary with changes in their fair value, are accounted for as compound financial instruments. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds. The equity component of the convertible notes is calculated as the excess of the issue proceeds over the present value of the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion option. The interest expense recognised in the income statement is calculated using the effective interest rate method. 1.20 Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing mining or exploration activities, or in providing products or services within a particular economic environment, which is subject to risks and rewards that are different from those of other segments. The basis of segment reporting is representative of the internal structure used for management reporting. 1.21 Investments Investments are stated at cost. The carrying value of the investments is reviewed at each balance sheet date to determine whether there is any indication of impairment. Notes to the Annual Financial Statements for the year ended 30 June 2006 2. SEGMENT INFORMATION Segment information is presented in respect of the Group’s business and geographical segments. The primary format is based on the Group’s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income earning assets and revenue, interest- bearing borrowings and expenses and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. Eliminations consist of those inter-group transactions associated with acquisitions of business combinations. Business and geographical segments The Group comprises the following business segments: Mining – extraction and sale of rough diamonds from mining operations in South Africa. Exploration – exploration activities in Angola, Sierra Leone and South Africa. Business segments 2006 Revenue from external customers Segment result Operating loss Net financing income/ (costs) Income tax Loss for year Segment assets Total assets Segment liabilities Total liabilities Cash flows from operations Cash flows from investing Cash flows from financing Capital expenditure Depreciation and amortisation Impairment losses Mining US$ Exploration US$ Eliminations Consolidated US$ US$ Page 51 20,868,757 — (2,309,829) (14,968,544) (4,862,172) (14,968,544) (1,178,884) 1,024,790 1,120,354 — — 20,868,757 — (17,278,373) — (19,830,716) — — (154,094) 1,120,354 (4,920,702) (13,943,754) — (18,864,456) 64,677,253 32,673,071 64,677,253 32,673,071 19,436,688 5,787,248 19,436,688 5,787,248 677,480 (10,508,452) — — — — — 97,350,324 97,350,324 25,223,936 25,223,936 (9,830,972) (3,529,914) 1,544,211 (1,495,300) (3,481,003) (712,276) (6,423,639) 8,118,313 104,298 5,630,717 2,908,615 — — — — — — (7,135,915) 8,222,611 8,539,332 — Geographical segments Angola Botswana South Africa Sierra Leone Jersey Consolidated 2006 Revenue from external customers US$ — US$ US$ — 20,868,757 US$ — 4,785,697 13,380,911 74,777,905 4,405,811 US$ US$ — — — 20,868,757 97,350,324 (9,830,972) — — — — — (357,262) (9,473,710) — — (3,529,914) (4,069,864) 4,118,775 (3,481,003) 357,254 (712,276) 4,069,864 (10,850,757) (7,135,915) 60,472 4,092,276 4,069,863 — — — — — 8,222,611 — Segment assets Cash flows from operations Cash flows from investing Cash flows from financing Capital expenditure Impairment losses Notes to the Annual Financial Statements for the year ended 30 June 2006 2. SEGMENT INFORMATION (continued) Page 52 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Business segments – Restated 2005 Revenue from external customers Segment result Operating profit/(loss) Net financing income/ (costs) Income tax Profit/(loss) for year Segment assets Total assets Segment liabilities Total liabilities Cash flows from operations Cash flows from investing Cash flows from financing Capital expenditure Depreciation and amortisation Impairment losses Geographical segments restated 2005 Revenue from external customers Mining US$ Exploration US$ Eliminations US$ Consolidated US$ 2,275,245 — — 2,275,245 305,158 (20,440,219) — (20,135,061) 69,459 (20,656,587) — (20,587,128) 133,804 (499,519) (65,935) — — — (365,715) (65,935) 137,328 (21,156,106) — (21,018,778) 80,873,782 80,501,594 (55,607,599) 105,767,777 80,873,782 80,501,594 (55,607,599) 105,767,777 33,296,165 5,848,510 (361,261) 38,783,414 33,296,165 5,848,510 (361,261) 38,783,414 630,346 (9,662,028) (43,388) (2,537,203) (381,066) 32,482,787 350,939 2,187,715 463,100 670,346 (8,972,587) (136,872) — — — — — — (9,031,684) (2,580,591) 32,101,721 2,538,654 1,133,446 (9,109,459) Angola US$ Botswana US$ South Africa US$ Sierra Leone US$ Jersey US$ Consolidated US$ — — 2,275,245 — — 2,275,245 Segment assets 5,167,883 — 100,263,947 335,947 — 105,767,777 Cash flows from operations Cash flows from investing Cash flows from financing Capital expenditure Impairment losses (5,704,479) (2,168,720) 8,716,035 2,187,715 — — — — — — (3,327,205) — — (9,031,684) (325,493) (189,905) 103,527 (2,580,591) (9,789,503) 183,536 32,991,653 32,101,721 350,939 (9,109,459) — — — — 2,538,654 (9,109,459) The Group commenced activities in Botswana effective 1 October 2005 on the acquisition of Kalahari Diamonds Ltd. Therefore there are no comparative numbers for the year to June 2005. Notes to the Annual Financial Statements for the year ended 30 June 2006 3. ACQUISITION OF SUBSIDIARY The Company acquired the issued share capital in Kalahari Diamonds Limited (“Kalahari”), for US$21,997,991, effective 30 September 2005. The consideration was satisfied by the issue of 16,166,529 Petra shares. Kalahari, through its wholly owned Botswana subsidiary, Sekaka Diamonds (Pty) Limited, is the holder of a substantial number of diamond prospecting licences in Botswana. In the nine months to 30 June 2006, Kalahari recorded an exploration loss, before depreciation and amortisation, of US$ 2,177,756. If the acquisition had occurred on 1 July 2005, the Group’s loss for the year to 30 June 2006 would have increased by US$1,391,374. Effect of the acquisition The acquisition had the following effect on the Group’s assets and liabilities. Kalahari’s net assets at acquisition date: Consolidated fair value of net assets of entity acquired: Plant and equipment Prospecting licences Cash assets Receivables Accruals and payables Book values US$ Fair value adjustments US$ Carrying values US$ 176,384 — 176,384 1,283,470 16,336,788 17,620,258 Page 53 5,560,464 95,394 (1,454,509) — — — 5,560,464 95,394 (1,454,509) Consideration amount satisfied in shares 5,661,203 16,336,788 21,997,991 The fair value adjustment of US$16,336,788 arose as a result of the revaluation of the Prospecting licences purchased from Sekaka Diamonds (Pty) Limited. 4. COST OF SALES Raw materials and consumables used Employee expenses Depreciation of mining assets Changes in inventory of finished goods 5. EXPLORATION EXPENDITURE Employee expenses Depreciation of exploration assets Amortisation of intangible assets Drilling costs Equipment hire Other exploration costs 2006 US$ 6,292,071 12,214,540 5,630,717 2005 US$ 735,256 873,419 463,100 (958,741) (101,688) 23,178,587 1,970,087 313,182 1,846,344 35,687 2,832,355 633,140 8,186 1,277,973 1,770,287 207,689 257,551 1,058,999 1,746,722 4,924,437 7,063,678 Notes to the Annual Financial Statements for the year ended 30 June 2006 6. OPERATING EXPENDITURE – OTHER Auditors’ remuneration Current auditors – audit services – other services Previous auditors – audit services Depreciation of property plant and equipment Foreign exchange losses Operating lease rentals Page 54 Staff costs A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Bid and project expenditure Impairment of intangible assets Profit on disposal of property plant and equipment Administration expenses – mining operations Other charges In addition to the above, the 2006 audit fee payable by the Group to its newly appointed auditors is $172,549. 7. NET FINANCING COSTS On bank loans and overdrafts Other debt finance costs Financial expense Interest received 2006 US$ — — 2005 US$ — — 368,132 40,573 6,114,780 222,257 218,735 29,020 892,065 348,767 1,804,326 1,796,198 359,743 — 26,717 1,421,192 — 136,872 (1,608) 90,778 2,238,729 1,345,194 12,596,449 4,856,021 (412,485) (152,716) (565,201) 411,107 (154,094) (54,584) (347,593) (402,177) 36,462 (365,715) Notes to the Annual Financial Statements for the year ended 30 June 2006 2006 US$ 2005 US$ — — (1,120,354) (1,120,354) % 65,935 65,935 2005 US$ % 2006 US$ (19,984,810) (20,952,843) Page 55 (30.00) (5,995,443) (30.00) (6,285,853) 0.53 (0.05) 1.43 33.69 5.61 105,613 (9,102) 286,204 6,733,082 1,120,354 12.83 (0.02) 3.81 13.07 (0.31) 2006 US$ 2,688,249 (4,189) 798,304 2,737,554 (65,935) 2005 US$ 8. TAXATION Current taxation – Current tax expense Deferred taxation – Current period Reconciliation of tax rate Loss before taxation Tax at UK corporate rate Effects of: Non-deductible expenses Non-taxable income Assessed loss not utilised Effect of tax rates in foreign jurisdictions Total tax charge 9. DIRECTORS AND EMPLOYEES Staff costs (excluding the non-executive Directors) during the year were as follows: Wages and salaries – mining Wages and salaries – exploration Wages and salaries – administration Social security costs Provident fund costs The number of employees at the various mining and exploration operations (excluding the non-executive Directors of the Group) at the end of the period was 1,853 (2005:1,832), employed as follows: Mining and exploration Administration 12,214,540 873,419 313,182 1,846,344 1,631,632 1,606,514 1,722 170,972 7,145 182,539 14,332,048 4,515,961 Number Number 1,793 60 1,853 1,776 56 1,832 Notes to the Annual Financial Statements for the year ended 30 June 2006 9. DIRECTORS AND EMPLOYEES (continued) Remuneration in respect of Executive and non-executive Directors was as follows: Page 56 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Executive Directors A Pouroulis K Dabinett D Abery J Dippenaar J Davidson Non-executive Directors C Segall C Finkelstein V Ruffer 10. LOSS PER SHARE Loss for the year Base remuneration Performance related bonus US$ US$ Other US$ 2006 Total US$ 2005 Total US$ 253,448 237,254 253,448 253,448 253,448 64,706 — 318,154 305,941 — 186,314 423,568 279,096 64,706 64,706 64,706 — — — 318,154 318,154 318,154 374,171 77,758 77,758 1,251,046 258,824 186,314 1,696,184 1,114,724 Performance related bonus US$ Fees US$ 26,679 7,410 8,893 42,982 — — — — Other US$ — — — — 2006 Total US$ 2005 Total US$ 26,679 27,854 7,410 8,893 9,285 9,285 42,982 46,424 2006 US$ 2005 US$ (18,864,456) (21,018,778) Shares Shares Basic weighted average number of ordinary shares in issue 143,916,416 73,937,847 Basic loss per share – cents Due to the Group’s loss for the year, the diluted loss per share is the same as the basic loss per share. The adoption of IFRS 2 during the year did not have a significant impact on the basic loss per share calculation. Weighted average number of ordinary shares As at 1 July 2005 Effect of shares issued during the period Weighted number at 30 June 2006 Cents (13.11) Cents (28.43) 73,937,847 67,849,976 69,978,569 6,087,871 143,916,416 73,937,847 Notes to the Annual Financial Statements for the year ended 30 June 2006 Page 57 11. PROPERTY, PLANT AND EQUIPMENT Plant and machinery Mining assets US$ Plant and machinery Exploration assets US$ Computers and office equipment Exploration assets US$ Motor vehicles Exploration assets US$ Mineral properties Mining assets US$ Total US$ Cost Balance at 1 July 2004 — 2,889,259 182,215 319,378 — 3,390,852 Exchange differences 953,943 7,148 Business combination 33,345,599 — (5,199) 13,284 64,006 957,631 1,977,529 — 33,474,649 66,833,532 Additions Disposals 295,628 252,324 117,052 1,868,816 4,834 2,538,654 — — — (12,311) — (12,311) Balance at 30 June 2005 34,595,170 3,148,731 307,352 2,239,889 34,437,114 74,728,256 Balance at 1 July 2005 34,595,170 3,148,731 307,352 2,239,889 34,437,114 74,728,256 Exchange differences (2,867,505) (2,160) (12,968) (2,216) (2,808,768) (5,693,617) Business combination — Additions Disposals Transfer from intangible assets 8,118,313 (5,552) 335,947 — — — — 98,847 82,287 (26,168) 77,537 22,011 (9,265) — — Transfer to investments — (3,122,653) (149,811) (2,230,948) — — — — — 176,384 8,222,611 (40,985) 335,947 (5,503,412) Balance at 30 June 2006 Depreciation Balance at 1 July 2004 Exchange differences 40,176,373 23,918 299,539 97,008 31,628,346 72,225,184 — — 52,378 (11,118) 50,970 (3,644) 65,979 (6,554) — — 169,327 (21,316) Disposals 274,545 490,284 40,581 140,938 178,911 1,125,259 Provided in the year — — — (12,738) — (12,738) Balance at 30 June 2005 274,545 531,544 87,907 187,625 178,911 1,260,532 Balance at 1 July 2005 274,545 531,544 87,907 187,625 178,911 1,260,532 Exchange differences (22,756) (2,148) Disposals — Provided in the year 3,420,604 — 147 (6,776) (15,437) 48,541 48 (14,829) (46,461) (8,338) — (23,775) 27,571 2,210,113 5,706,976 Transfer to investments — (505,821) (31,270) (180,624) — (717,715) Balance at 30 June 2006 3,672,393 23,722 82,965 26,282 2,374,195 6,179,557 Carrying amounts At 1 July 2004 — 2,836,881 131,245 253,399 — 3,221,525 At 30 June 2005 34,320,625 2,617,187 219,445 2,052,264 34,258,203 73,467,724 At 1 July 2005 34,320,625 2,617,187 219,445 2,052,264 34,258,203 73,467,724 At 30 June 2006 36,503,980 196 216,574 70,726 29,254,151 66,045,627 The Group leases plant and machinery under a number of finance lease agreements. At the end of each of the leases the Group has the option to purchase the plant and machinery. At 30 June 2006, the net carrying amount of leased plant and machinery was US$151,972 (2005: US$679,362). The leased equipment secures finance lease obligations (as discussed in Note 22). Notes to the Annual Financial Statements for the year ended 30 June 2006 12. INTANGIBLE ASSETS Pre- production expenditure US$ Goodwill US$ Mineral rights US$ Prospecting licences US$ Total US$ Cost Balance at 1 July 2004 Exchange differences Transfer to property plant and equipment — — — Acquisition by business combination 8,671,552 148,175 Development expenditure — 183,533 Balance at 30 June 2005 8,671,552 335,947 152,916 8,671,552 335,947 152,916 — 9,160,415 Page 58 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Balance at 1 July 2005 Exchange differences Transfer to property plant and equipment Acquisition by business combination Development expenditure — — — — Balance at 30 June 2006 8,671,552 Amortisation Balance at 1 July 2004 Exchange differences Impairment Provided in the year Balance at 30 June 2005 Balance at 1 July 2005 Exchange differences Impairment Provided in the year — — (8,671,552) — (8,671,552) (8,671,552) — — — Balance at 30 June 2006 (8,671,552) — 162,335 4,239 (9,419) — — — — — — — — — — 162,335 (5,180) — 8,819,727 183,533 9,160,415 — — (1,692,720) (1,692,720) (335,947) — — — — — — — — — — — — — — — — — (335,947) 17,620,258 17,620,258 — — 152,916 15,927,538 24,752,006 (18,510) 10,652 (136,872) (8,186) (152,916) — — — — — (18,510) 10,652 (8,808,424) (8,186) (8,824,468) (152,916) — (8,824,468) — — — 10,378 10,378 — — (2,832,355) (2,832,355) (152,916) (2,821,977) (11,646,445) Carrying amounts At 1 July 2004 At 30 June 2005 At 1 July 2005 At 30 June 2006 — — — — — 143,825 335,947 335,947 — — — — — 143,825 335,947 335,947 — — 13,105,561 13,105,561 The amortisation of intangible assets has arisen due to the Board taking the view that Kalahari’s prospecting licences have an average remaining life of four years. Therefore the intangible asset recorded on the acquisition of Kalahari of US$17,620,258 (Note 3) has been amortised for the nine month period from 1 October 2005 to 30 June 2006. The amortisation charge is recognised in exploration expenditure in the income statement. Notes to the Annual Financial Statements for the year ended 30 June 2006 13. INVESTMENTS IN ASSOCIATES Interests in associates At year end the Group had interests in the following: Namibia Mining House (Pty) Ltd Nabera Mining (Pty) Ltd Country Namibia South Africa Petra Diamonds Alto Cuilo Ltd British Virgin Islands Summary of ﬁnancial information on associates – 100 percent Ownerships 2006 35.0% 29.5% 47.0% 2005 35.0% 29.5% 100.0% 2006 Assets Liabilities Equity Revenues Namibia Mining House (Pty) Ltd — — — Nabera Mining (Pty) Ltd 4,173 (921,600) 917,427 — — (Loss) — (50,674) Page 59 Petra Diamonds Alto Cuilo Ltd 40,985,151 (41,760,383) 775,232 2,718,171 (701,796) 2005 Namibia Mining House (Pty) Ltd — — — Nabera Mining (Pty) Ltd 10,306 (290,420) 280,114 Petra Diamonds Alto Cuilo Ltd 27,264,695 (27,338,127) (73,432) If the investments in associates had been included at cost, they would have been included at the following amounts: Cost Amounts written off Net book amount 14. INVESTMENTS – LISTED Balance at beginning of year Purchased during the year Balance at the end of year — — — 2006 US$ 20,453,042 (20,453,042) — 30 June 2006 US$ — 1,271,410 1,271,410 — (68,780) (74,432) 2005 US$ 831 (831) — 30 June 2005 US$ — — — The Company purchased 1,555,555 ordinary shares in Xceldiam Ltd at a placing price of 45 pence (US$0.82) per share. The market value at 30 June 2006 was US$1,200,776 Notes to the Annual Financial Statements for the year ended 30 June 2006 15. INVESTMENT – UNLISTED Balance at beginning of year Transfer from property plant and equipment at net book value Balance at the end of year The investment comprises the assets, previously disclosed under Note 11, contributed by the Company to the Joint Venture project with BHP Billiton at Alto Cuilo in Angola. Page 60 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d 16. INVENTORIES Diamonds held for resale Consumable and stores 17. TRADE AND OTHER RECEIVABLES Current Trade receivables Other receivables Prepayments Non-current Rehabilitation guarantee The rehabilitation guarantee comprises a risk policy which is anticipated to be recov- ered upon successful rehabilitation of one of the Group’s mines. 18. CASH AND CASH EQUIVALENTS Unsecured Cash at bank and on hand Secured Fixed and ﬂoating charge deposit 30 June 2006 US$ — 4,785,697 4,785,697 30 June 2005 US$ — — — 1,843,967 1,084,812 353,638 320,353 2,197,605 1,405,165 46,565 743,140 2,689,916 1,901,659 23,897 161,306 2,760,378 2,806,105 164,402 164,402 161,442 161,442 7,019,644 25,105,799 — 2,485,595 7,019,644 27,591,394 As security for the Company’s obligations to the Convertible Note Holders the Company had pledged A$3,3 million (US$2,485,595) in a ﬁxed and ﬂoating charge deposit. The Company’s obligations to the Convertible Note Holders was satisﬁed on 30 November 2005. A controlled entity, Helam Mining Pty Ltd, has a R10,000,000 (US$1,375,496) overdraft facility with First National Bank, a division of FirstRand Bank Limited. At year end the overdraft, which forms part of the above cash balances, was drawn down to R1,950,239 (US$268,255). The weighted average interest rate for the overdraft as at 30 June 2006 is 11.57% Notes to the Annual Financial Statements for the year ended 30 June 2006 Number of shares 2006 US$ Number of shares 2005 US$ 19. ISSUED CAPITAL Authorised – ordinary shares of 10p each As at 1 July 2005 and 30 June 2006 200,000,000 35,892,000 200,000,000 35,892,000 Issued and fully paid At 1 July Allotments during the year Conversion of convertible notes At 30 June 130,949,456 23,500,190 67,849,976 12,176,357 16,863,649 3,347,105 63,086,597 11,321,521 1,011,993 183,808 12,883 2,312 148,825,098 27,031,103 130,949,456 23,500,190 Allotments during the year were in respect of shares issued for the acquisition of Kalahari Diamonds Limited, the conversion of Convertible Note Holders into ordinary shares and the exercise by employees of Company share options. Options Holder Williams de Broë Plc Exercise price Total value Expiry 85.0p US$308,771 17 June 2008 Page 61 Williams de Broë Plc have an option over 200,843 ordinary shares in the Company exercisable for a period of three years from 17 June 2005 at an exercise price of 85p. The option over 200,843 shares was exercised in full on 3 October 2006. Warrants Holder Photon Global Limited Photon Global Limited Photon Global Limited Photon Global Limited Employee share options Holder A Pouroulis D Abery J Dippenaar J Davidson Senior management Shares Exercise price Expiry 1,500,000 1,000,000 833,333 833,333 30.0p 31 December 2007 100.0p 31 December 2007 55.85p 55.85p 14 August 2006 14 August 2006 Shares Exercise price Expiry 100,000 100,000 100,000 100,000 750,000 250,000 250,000 750,000 250,000 250,000 750,000 250,000 750,000 250,000 385,000 50,000 238,875 72,500 500,000 500,000 30.0p 35.0p 40.0p 45.0p 44.0p 85.0p 79.5p 44.0p 85.0p 79.5p 85.0p 79.5p 85.0p 79.5p 44.0p 11 April 2007 11 April 2007 11 April 2007 11 April 2007 5 September 2013 16 June 2015 31 May 2016 5 September 2013 16 June 2015 31 May 2016 16 June 2015 31 May 2016 16 June 2015 31 May 2016 5 September 2013 56.75p 13 September 2014 A$1.12 24 September 2014 A$1.36 28 January 2015 65.75p 27 November 2015 79.5p 31 May 2016 Notes to the Annual Financial Statements for the year ended 30 June 2006 Share premium account US$ Foreign currency translation reserve US$ Share-based payment reserve US$ Accumulated loss US$ 20. RESERVES Balance at 1 July 2004 34,041,633 2,962,470 — (42,615,103) Implementation of IFRS 2 (refer note 30) — — 140,833 (140,833) Restated balance at 1 July 2004 34,041,633 2,962,470 140,833 (42,755,936) Loss for the year Transfer from reserves of subsidiary Equity based share options — — — — — — — — (21,018,778) 233,194 213,837 (213,837) Exchange differences – adoption of US$ reporting currency (241,084) (20,985) Exchange differences – translation of subsidiaries — 1,161,255 Premium allotments during the year Share issue costs Convertible notes issued Balance at 30 June 2005 70,888,365 (2,923,175) 9,388 — — — — — — — — 1,006,993 — — — — 101,775,127 4,102,740 354,670 (62,748,364) Balance at 1 July 2005 101,775,127 4,102,740 — (62,393,694) Implementation of IFRS 2 (refer note 30) — — 354,670 (354,670) Restated balance at 1 July 2005 101,775,127 4,102,740 354,670 (62,748,364) Loss for the year Equity based share options Transfer from reserves of subsidiary Exchange differences Premium allotments during the year Share issue costs Convertible notes issued Balance at 30 June 2006 Share premium reserve — — — — — (1,561,653) 20,550,930 (57,472) 921,318 — — — 618,292 — — — — — (18,864,456) — — 4,153 — — — 123,189,903 2,541,087 972,962 (81,608,667) The share premium reserve comprises the excess value recognised from the issue of ordinary shares at par value. Foreign currency translation reserve The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities. Share-based payment reserve The share-based payment reserve comprises the fair value of employee options as measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. Page 62 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Notes to the Annual Financial Statements for the year ended 30 June 2006 21. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS Opening shareholders’ funds Implementation of IFRS 2 Restated opening shareholders’ funds Loss for the year Transfer from subsidiaries reserves Exchange differences – adoption of US$ reporting currency Movement in share-based payment reserve New share capital subscribed Movement in foreign currency translation reserves Net movement in shareholders’ funds Closing shareholders’ funds 22. INTEREST BEARING LOANS AND BORROWINGS Current Bank overdraft – secured Bank loan – secured (i) Bank loan – secured (ii) Bank loan – secured (iii) Bank loan – secured (iv) Convertible note – secured (v) Loan unsecured (vi) Loan unsecured Bank loan unsecured Lease and instalment purchase liabilities (vii) Lease and instalment purchase liabilities (vii) Non-Current Bank loan – secured (i) Bank loan – secured (ii) Bank loan – secured (iii) Bank loan – secured (iv) Lease and instalment purchase liabilities (vii) (i) Bank loans secured First National Bank Page 63 2006 US$ 2005 US$ 66,984,363 6,652,204 — 140,833 66,984,363 6,793,037 (18,864,456) (21,018,778) — 233,194 4,153 618,292 744,924 213,837 24,945,689 78,856,894 (1,561,653) 1,161,255 5,142,025 60,191,326 72,126,388 66,984,363 — 322,012 29,423 77,537 386,395 567,392 29,889 126,930 — — — 2,206,678 41,200 664,644 — — — 3,589,200 4,503,463 409 47,699 157,360 1,149,646 11,600,585 234,856 287,741 — 84,621 952,482 1,722,374 — — 5,248 57,391 2,914,960 429,753 Helam has a term loan facility with First National Bank and at year end an amount of R1,921,331 (US$264,279) was drawn on the loan, R213,906 (US$29,423) payable within the next 12 months and R1,707,425 (US$234,856) payable over a period of five years. The effective interest rate for the term loan at 30 June 2006 was 11.57% and the final instalment is due on 30 November 2012. The above facilities are secured against properties of Helam for up to R7,850,000 (US$1,079,765) and a R8,000,000 (US$1,100,398) general notarial bond over moveable assets along with unlimited letters of suretyship from Star Diamonds (Pty) Ltd and Messina Diamonds (Pty) Ltd and a letter of joint suretyship for R2,000,000 (US$275,100 ) from Directors Mr J Dippenaar and Mr J Davidson. The facilities with First National Bank are subject to annual review. Notes to the Annual Financial Statements for the year ended 30 June 2006 Page 64 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d 22. INTEREST BEARING LOANS AND BORROWINGS (continued) (ii) Bank loan – secured Industrial Development Corporation of South Africa A controlled entity, Messina Investment Limited, has a R563,704 (US$77,537) interest free loan with the Industrial Development Corporation of South Africa Limited. The loan is payable within the next 12 months and has a final repayment date of 28 February 2007. The loan is guaranteed by two controlled entities, Star Diamonds (Pty) Ltd and Messina Diamonds (Pty) Ltd. (iii) Bank loan – secured Industrial Development Corporation of South Africa The Sedibeng Joint Venture (“Sedibeng JV”), which comprises subsidiaries of the Company, Messina Diamonds (Pty) Limited (“Messina”) and Dancarl Diamonds (Pty) Limited (“Dancarl”), has a loan facility of R30,000,000 (US$4,126,490) with the Industrial Development Corporation of South Africa (“IDC”) to fund future capital expenditure at the Messina and Dancarl mines. The drawdown value of the loan facility at 30 June 2006 is R9,733,766 (US$1,338,877), R2,809,128 (US$386,395) payable within the next 12 months and R6,924,638 (US$952,482) payable over a period greater than 12 months. The loan is repayable over 60 months at 0.5% below the prevailing South African prime lending interest rate. The effective interest rate for the loan facility at 30 June 2006 is 11.57% and the final instalment is due on 01 August 2011. As security for the loan, Messina has signed suretyship as co-principal debtor and registered a general notarial bond over Messina’s movable assets in favour of the IDC. (iv) Bank loan – secured Rand Merchant Bank A controlled entity, Autumn Star Investment Holdings (Pty) Ltd (“Autumn Star”) has a loan agreement with FirstRand Ltd (“FirstRand”) for a loan facility of R16,500,000 (US$2,269,570). At 30 June 2006 an amount of R16,646,831 (US$2,289,766) was outstanding on the loan facility, R4,125,000 (US$567,392) payable within the next 12 months and R12,521,831 (US$1,722,374) payable over a period of four years. The loan is repayable in annual instalments of R4,125,000 (US$567,392) commencing 1 August 2006. Interest is payable biannually at 0.5% below the prevailing South African prime lending interest rate. The effective interest rate for the loan facility at 30 June 2006 is 11.30% and the final instalment is due on 1 August 2009. Autumn Star and Messina Investments Limited have signed suretyship for the loan in favour of FirstRand. (v) Convertible note – secured A controlled entity, Crown Diamonds NL, had 16,078,191 (US$2,206,678) convertible notes on issue at the beginning of the year. During the year, 6,660,430 Crown Diamonds NL convertible notes were converted into 1,011,993 ordinary shares of the Company. The notes were convertible into ordinary shares of the Company, at the option of the note holder or repayable on 30 November 2005. Movements in secured convertible notes 30 June 2006 Number 30 June 2005 Number 30 June 2006 US$ 30 June 2005 US$ Balance at beginning of year 16,078,191 — 2,206,678 — Balance acquired through business combination Exchange differences — — 17,034,750 — 2,291,196 — (94,399) 45,475 Redeemed during the year (9,417,761) (871,559) (1,239,403) (118,442) Converted to ordinary shares (6,660,430) (85,000) (872,876) (11,551) Balance at the end of year — 16,078,191 — 2,206,678 Notes to the Annual Financial Statements for the year ended 30 June 2006 22. INTEREST BEARING LOANS AND BORROWINGS (continued) (vi) Loan – unsecured A controlled entity, Helam Mining (Pty) Ltd, is indebted to Directors Mr J Dippenaar and Mr J Davidson for a total of R299,529 (US$41,200). The loan is unsecured and earns interest at 11% pa. In July 2005 a repayment of R4,128,027 (US$622,850) was made against these Directors’ loans, reducing the balance from R4,427,556 (US$664,050). (vii) Lease and hire purchase liabilities The lease and hire purchase liabilities are secured over plant and equipment with a net carrying value of US$151,972. The effective interest rate varies between 11.02% and 11.30% with monthly instalments varying between R11,560 (US$1,590) and R29,504 (US$4,508). The remaining periods range from 1 month to 13 months. 23. TRADE AND OTHER PAYABLES Current Trade payables Settlement of purchase consideration for controlled entity (i) Settlement of purchase consideration for controlled entity (ii) Settlement of purchase consideration for controlled entity (ii) Provident fund contributions Other creditors Interest on loans Non-current Amounts owing to associates 2006 US$ 2005 US$ 3,457,178 3,055,506 Page 65 — — 549,628 3,800,000 1,750,000 117,724 1,333,833 — 750,000 197,978 486,046 222,310 6,658,735 9,061,468 11,546 52,038 Settlement of purchase consideration for controlled entity (i) and (ii) 1,500,000 2,502,381 Reduction for deferred settlement (ii) (643,723) (553,912) 867,823 2,000,507 (i) The residual purchase price of US$549,628 (AUD$711,489) with regards to the acquisition of Messina Investments Limited was settled in full on 5 July 2005. (ii) The settlement of part of the purchase price of the Helam Diamond mine (as defined) of US$3,800,000 was paid on 5 July 2005. The balance of US$3,250,000 is payable from 50% of the cash surplus of the Helam Diamond mine (as defined) over three years as follows: Current US$1,750,000 for the year ending 31 December 2006 payable by 30 April 2007 Non-current US$1,500,000 for the year ending 31 December 2007 payable by 30 April 2008 Any shortfall in the amount payable in any one year can be carried forward to the next year until such time that the total amount payable of US$3,250,000 has been extinguished. The reduction in the acquisition price from the deferred settlement is determined in accordance with IFRS 3 – Business Combinations. The deferred settlement value has been determined after applying a cost of funding rate of 8.5% pa to the three-year repayment schedule detailed above. The reduction in the acquisition price from the deferred settlement at the date of acquisition by a controlled entity, Crown Diamonds NL in July 2004 was determined to be US$770,160. During the year, the reduction in the acquisition price was increased by US$320,384. The reduction in the acquisition price will be amortised over the three-and-half-year term commencing from the date of acquisition of the Helam Diamond mine by Crown Diamonds NL. For the year to 30 June 2006 the amount of interest was US$230,573. Notes to the Annual Financial Statements for the year ended 30 June 2006 24. PROVISIONS Balance at 1 July 2004 Acquired by business combination Net provisions made during the year Exchange differences Balance at 30 June 2005 Current Non-current Balance at 30 June 2005 Page 66 Balance at 1 July 2005 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Acquired by business combination Net provisions made during the year Balance at 30 June 2006 Current Non-current Balance at 30 June 2006 Employee entitlements Employee entitlements US$ Rehabilitation US$ Total US$ 576,749 — 576,749 927,944 1,658,661 2,586,605 516,152 22,461 10,888 47,449 527,040 69,910 2,043,306 1,716,998 3,760,304 2,043,306 — 2,043,306 — 1,716,998 1,716,998 2,043,306 1,716,998 3,760,304 2,043,306 1,716,998 3,760,304 — — — (40,924) (19,242) (60,166) 2,002,382 1,697,756 3,700,138 2,002,382 — 2,002,382 — 1,697,756 1,697,756 2,002,382 1,697,756 3,700,138 The provision for employee entitlements relates to accrued leave, provident fund contributions, performance bonuses and other accruals. The provision is based on estimates made, where appropriate, from historical information. The Group expects to incur the liability over the next 12 months. Rehabilitation The provision is the estimated cost of the environmental rehabilitation at each site, which is based on current legal requirements and existing technology. Notes to the Annual Financial Statements for the year ended 30 June 2006 25. DEFERRED TAXATION Balance at beginning of the year Acquisition of business combination Income statement charge Foreign currency translation difference Balance at the end of year Comprising: – capital allowances – provisions – prepayments and accruals – forex allowances – tax losses Deferred tax not raised Deferred tax liability 2006 US$ 2005 US$ 11,930,799 — — 11,527,209 (1,120,354) 65,935 (877,811) 337,655 9,932,634 11,930,799 12,884,658 15,082,158 (625,511) (646,837) 1,313 863 (314,666) (675,871) (29,286,079) (22,301,568) (17,340,285) (8,541,255) 27,272,919 20,472,054 9,932,634 11,930,799 Page 67 Deferred tax assets as above, have not been raised due to the uncertainty over the future recoverability of these assets. 26. FINANCIAL INSTRUMENTS Exposure to currency, credit and interest rate risk arise in the normal course of the Group’s business. The Group may from time to time use financial instruments to help manage these risks. The Directors review and agree policies for managing each of these risks. Credit risk The Group disposes of its product through a tender process on a recognised bourse. This mitigates the need to undertake credit evaluations. Where the final product is not disposed of on a tender basis the Directors undertake suitable credit evaluations before passing ownership of the product. At the balance sheet date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of the financial asset in the balance sheet. Foreign currency risk The Group is exposed to foreign currency risk on sales, purchases and borrowings. The currencies giving rise to this risk are primarily Pounds Sterling and South African Rands. At the end of the year the Company held US$2,941,290 of monetary assets in Pounds Sterling, US$304,382 in South African Rands and US$62,399 in Australian Dollars. Foreign exchange differences on retranslation of these assets and liabilities are taken to the income statement. From time to time the Group may acquire forward contracts to fix the exchange rate on future transactions. Interest rate risk The Group has borrowings that incur interest at floating rates and no interest rate swaps are used. Management constantly monitors the floating interest rates so that action can be taken should it be considered necessary. Effective interest rates and re-pricing analysis In respect of income-earning financial assets and interest bearing financial liabilities, the following table indicates their effective interest rates and age analysis at the balance sheet date. Each interest bearing financial liability reprices based on the respective country specific prime lending rates as disclosed in Note 22, with the exception of the Convertible notes and the secured loan from the Industrial Development Corporation of South Africa which are fixed rate and interest free respectively. Page 68 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Notes to the Annual Financial Statements for the year ended 30 June 2006 26. FINANCIAL INSTRUMENTS (continued) 30 June 2006 Cash and cash equivalents (US$ ‘000) Effective interest rate 4.03% Notes 18 Cash Interest bearing loans and borrowings Bank loan – secured 22(i) 11.57% Bank loan – secured 22(ii) Bank loan – secured 22(iii) Bank loan – secured 22(iv) Convertible note – secured Loan – unsecured Finance leases – secured 22(v) 22(vi) — 11.57% 11.30% — 11.30% 22(vii) 11.30% 6 months or less 6–12 months 1–2 years 2–5 years More than 5 years 7,020 — — — — 14 38 283 567 — 41 24 967 15 39 284 — — — 25 363 40 — 242 567 — — 5 854 138 — 531 1,155 — — 1,824 57 — — — — — 57 Total 7,020 264 77 1,340 2,289 — 41 54 4,065 30 June 2005 Cash and cash equivalents (US$ ‘000) Cash Notes 18 Effective interest rate 6 months or less 6–12 months Total 1–2 years 2–5 years More than 5 years 4.50% 27,591 27,591 — — — — Interest bearing loans and borrowings Bank overdraft secured 22 Bank loan – secured 22(i) Bank loan – secured 22(ii) 11.02% 11.02% — 322 317 213 322 14 65 Bank loan – secured 22(iii) 10.47% 4,503 4,503 Convertible note – secured Loan – unsecured Loan – unsecured Finance leases – secured 22(v) 22 22(vi) 11.00% 7.09% 11.00% 2,207 3,589 664 2,207 3,589 664 22(vii) 10.75% 215 79 12,030 11,443 — 16 65 — — — — 78 159 — 32 83 — — — — 54 169 — 124 — — — — — 4 128 — 131 — — — — — — 131 27. EMPLOYEE BENEFITS The Group participates in a defined contribution provident fund scheme for the benefit of the employees and executive Directors. The assets of the scheme are administered by trustees in a fund independent from the Group. Notes to the Annual Financial Statements for the year ended 30 June 2006 28. COMMITMENTS Operating leases: Non-cancellable operating lease rentals are payable as follows: Less than one year Between one and five years The Group leases its offices under operating leases. The leases run for periods of three years with an option to renew after that date. The leases are currently on a month to month basis with a three month notice period. Lease payments are increased annually to reflect market rentals. The leases do not include contingent rentals. During the year ended 30 June 2006 US$222,257 was recognised as an expense in the income statement in respect of operating leases, as disclosed in note 6. 2006 US$ 2005 US$ 94,003 — 208,165 80,001 29. CONTINGENT LIABILITIES Page 69 Details of contingent liabilities where the probability of future payments/receipts is not considered remote are set out below, as well as details of contingent liabilities and contingent assets, which although considered remote, the Directors consider should be disclosed. The Directors are of the opinion that provisions are not required in respect of these matters, as it is not probable that a future sacrifice of economic benefits will be required or the amount is not capable of reliable measurement. Contingent liabilities not considered remote Performance bond with government instrumentalities which are secured by way of fixed charges over realty, a general notarial bond over movable assets and a guarantee from two Directors in respect of various mining licences and supply contracts. 923,151 1,007,485 Performance bond with government instrumentality secured by way of a deposit in respect of a mining licence. 163,768 159,827 Delayed settlement of US$1,450,000 to Star Mining Limited within 30 days of lodgement of the 2006 annual financial statements if Messina Investments Ltd and its controlled entities (“Messina”) earns net profit after tax at the South African level of at least AUD$6,000,000 for the financial year ending 2006. If Messina earns between 70% and 100% of the AUD$6,000,000 the US$1,450,000 will be apportioned accordingly. Star Mining Limited may elect to receive any settlement due in shares being 85% of the average share price prior to settlement. Delayed settlement of US$1,450,000 to Star Mining Limited within 30 days of lodgement of the 2007 annual financial statements if Messina earns net profit after tax at the South African level of at least AUD$6,000,000 for the financial year ending 2007. If Messina earns between 70% and 100% of the AUD$6,000,000 the US$1,450,000 will be apportioned accordingly. Star Mining Limited may elect to receive any settlement due in shares being 85% of the average share price prior to settlement. 1,450,000 1,450,000 1,450,000 1,450,000 Notes to the Annual Financial Statements for the year ended 30 June 2006 Page 70 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d 29. CONTINGENT LIABILITIES (continued) Contingent liabilities considered remote A former Director of Crown Diamonds NL has lodged a claim for AUD$1,193,407 (US$871,036) being a project sourcing fee resulting from the acquisition of Helam Mining (Pty) Ltd. In the Directors’ opinion, disclosure of any further information about this matter would be prejudicial to the interests of the Company. Indemnities have been provided to Directors in respect of liabilities to third parties arising from their positions, except where the liability arises out of conduct involving a lack of good faith. No monetary limit applies to these agreements. New legislation In South Africa the Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRDA) was signed into law on 3 October 2002 and was promulgated on 1 May 2004. The MPRDA seeks to facilitate participation by historically disadvantaged South Africans in mining ventures and to ensure that unexploited mineral rights are turned to account by applying the “use it and keep it” principle. To give effect to these two broad objectives, the right to prospect and mine for all minerals vests in the State and applications will be made directly to the State for those rights. The transitional provisions of the MPRDA facilitate the conversion of prospecting and mining rights currently held at common law and under the Minerals Act (termed, old order rights in the MRDA) to the new forms of prospecting and mining rights contemplated by the MRDA (new order rights). The conversion applicant will have two years in the case of prospecting and five years in the case of mining to lodge their rights for conversion. For successful conversion, applicants will be required to be in possession of a valid prospecting permit or mining authorisation and to have been physically prospecting or mining (as the case may be) on the area to which their application relates as at the promulgation date. Furthermore, conversion applicants will have to satisfy the specified criteria for conversion, which in the case of the conversion of a mining right requires, among other things, the applicant to submit an undertaking as to how it will give effect to the black economic empowerment provisions of the MPRDA. The substance and detail for these black economic empowerment provisions are contained in a document entitled, “broad-based socio-economic empowerment charter” (the “empowerment charter”), which empowerment charter was agreed upon by the South African Government, representatives of the South African mining industry and organised labour and which empowerment charter was issued in October 2002. The empowerment charter embraces a set of criteria such as ownership, human resource development, employment equity and procurement. Specifically, on the issue of ownership, the empowerment charter requires mining companies to achieve 26% ownership in mining companies by historically disadvantaged South Africans within ten years of the promulgation date. Compliance will be assessed by reference to a “score-card”, a draft of which was circulated to key stakeholders in the mining industry on 21 January 2003 and was released for public comment on 19 February 2003. At this stage the potential financial impact of this new legislation on the consolidated entity’s operations, if any, cannot be determined. Environmental The controlled entities of the Company provide for all known environmental liabilities. While the Directors of each of those entities and the Company believe that, based upon current information, their current provisions for environmental rehabilitation are adequate, there can be no assurance that material new provision will not be required as a result of new information or regulatory requirements with respect to known mining operations or identification of new rehabilitation obligations at other mine operations. Notes to the Annual Financial Statements for the year ended 30 June 2006 30. ADOPTION OF IFRS 2 (SHARE-BASED EMPLOYEE OPTIONS) During the year, the Company adopted IFRS 2 with respect to the treatment of employee share options. In order to comply with IFRS 2, the Company now expenses the fair value of share-based employee options with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The comparative numbers have been appropriately restated. The effect of the change is as follows: Increase in net loss due to increase in personnel costs following the adoption of IFRS 2: – 30 June 2004 – 30 June 2005 Restatement of opening accumulated losses in respect of prior year adjustment Gross US$ Taxation US$ Net US$ (140,833) (213,837) (354,670) — — — (140,833) (213,837) (354,670) 31. SHARE-BASED OPTIONS Page 71 The Company has an established share option programme that entitles the Remuneration Committee, at its discretion, to grant share options to directors and senior management. The terms and conditions of the share options granted during the year ended 30 June 2006 are disclosed below. Share options granted prior to 7 November 2002 have, in accordance with the transitional provisions and recognition and measurement principles in IFRS 2, not been taken into account. The share-based option expense has been calculated using the Black-Scholes model. Fair value of share options and assumptions for the 12 months ended 30 June 2006: Fair value at measurement date Exercise price Share price 30 June 2006 Expected volatility Option life Expected dividends Risk-free interest rate (based on national government bonds) Directors Senior management 21.7p – 41.9p 9.6p – 30.5p 44p – 85p 44p – 79.5p 99.50p 50% 99.50p 50% 10 years 1 – 10 years — — 4.73% 4.82% - 5.25% The expected volatility is based on historic volatility, adjusted for any extreme changes in the share price during the historic period. During the year 596,147 options were exercised and the Company expensed US$602,246 related to the fair value of employee share options (refer to Note 30 for prior year adjustments). Notes to the Annual Financial Statements for the year ended 30 June 2006 31. SHARE-BASED OPTIONS (continued) The terms and conditions of the grants are as follows, whereby all options are settled by delivery of shares: Employees entitled Grant date Number Vesting conditions Remaining life of options (years) Options granted to directors 22 April 1997 400,000 Options granted to senior management Page 72 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d 5 September 2003 1,500,000 16 June 2005 2,000,000 31 May 2006 1,000,000 5 September 2003 385,000 13 September 2004 50,000 24 September 2004 238,875 28 January 2005 72,500 27 November 2005 500,000 31 May 2006 500,000 1/3 rd per annum from grant date 1/3 rd per annum from grant date Subject to performance of share price 1/3 rd per annum from grant date 1/3 rd per annum from grant date 1/3 rd per annum from grant date 25% from grant date for 2 years, then 50% in 3rd year 25% from grant date for 2 years, then 50% in 3rd year 1/3 rd per annum from grant date 1/3 rd per annum from grant date 1 7 9 10 7 8 8 9 9 10 2006 Weighted average price 2006 Number 2005 Weighted average price 2005 Number 31. SHARE-BASED OPTIONS (continued) Outstanding at beginning of the year 60.66p 6,030,959 46.47p 3,735,000 Forfeited during the year Exercised during the year Granted during the year 63.97p (788,437) 54.50p (366,666) 48.71p (596,147) — — 76.06p 2,000,000 79.71p 2,662,625 Outstanding at the end of the year 65.97p 6,646,375 60.66p 6,030,959 Exercisable at the end of the year 2,417,844 1,611,667 The options outstanding at 30 June 2006 have an exercise price in the range of 44p to 85p and a weighted average contractual life of eight years. Notes to the Annual Financial Statements for the year ended 30 June 2006 32. POST-BALANCE SHEET EVENTS Convertible Bond Issue On 19 September 2006 the Company issued a US$20 million unsecured interest free convertible bond (“the Convertible”) as well as the grant of warrants over 2 million shares (“the Warrant”). The Convertible and Warrant agreements were completed on 18 September 2006 and were issued to Al Rajhi Holdings W.L.L., a member of the Al Rajhi group, a major Saudi Arabian based investment group. The Convertible and the Warrant are convertible or exercisable at an exercise price of 130 pence per Petra share. If not converted, the Convertible is repayable in full on 18 September 2009. The Warrant is exercisable any time from date of drawdown under the Convertible and expires on 18 September 2009. On 5 October 2006 the Company drew down US$20 million under the terms of the Convertible. New Shares Issued On 6 July 2006 the Company issued 1,666,666 new shares at a price of 55.85p following the exercise of warrants by Photon Global Limited. 33. RELATED PARTIES Subsidiaries and associates Details of subsidiaries are disclosed in Note 34. Directors Page 73 Details relating to Directors’ emoluments and shareholdings in the Company are disclosed in Note 9 and the Directors’ Report respectively. Details relating to Directors’ loans are disclosed in Note 22(vi) and the Directors’ Report. Shareholders The principal shareholders of the Company are detailed in the Directors’ Report on page 28. Contingent liabilities Details of contingent liabilities are disclosed in Note 29. RELATED PARTY TRANSACTIONS Nabera Mining (Pty) Limited The Company is a 29.5% shareholder in Nabera Mining (Pty) Limited (“Nabera”), the company that managed the Alexkor diamond mine between 1999 and 2001. During the year ended 30 June 2006 Petra Diamonds paid expenses on behalf of Nabera amounting to R5,811 (US$799) (30 June 2005 R672,056 (US$100,795)). The expenses were incurred in relation to the recovery of the management fee and value-added due to Nabera from Alexkor Limited and the South African Government. All such expenses incurred on Nabera’s behalf will be reimbursed to the Company on receipt of the management fee and value added. Transactions with related parties take place at terms and conditions no more favourable than to third parties. Notes to the Annual Financial Statements for the year ended 30 June 2006 34. SUBSIDIARIES AND ASSOCIATES At 30 June 2006 the Group held 20% or more of the allotted share capital of the following: Country of incorporation Class of share capital held Proportion held Nature of business Afropean Diamonds (Pty) Ltd Alltop Investments (Pty) Ltd South Africa Australia Ordinary Ordinary Autumn Star Trading 192 (Pty) Ltd South Africa Ordinary Basama Diamonds Ltd Seychelles Ordinary Blue Diamond Mines (Pty) Ltd Compass Mining Services (Pty) Ltd Crown Diamonds NL Crown Resources (Pty) Ltd Dalestar Corporation (Pty) Ltd South Africa Australia Australia South Africa Australia Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 40% 51% 100% 100% 100% 100% 100% Dancarl Diamonds (Pty) Ltd South Africa Ordinary 100% Dimeng Diamond Holdings (Pty) Ltd South Africa Ordinary 59% Page 74 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Engiminas Consultoria e Enginharia LDA Helam Mining (Pty) Ltd Ida Valley (Pty) Ltd Angola South Africa Australia Johannesburg Diamond Trading Corporation (Pty) Ltd South Africa Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 100% United Kingdom Australia Kalahari Diamonds Ltd* Kamara Holdings (Pty) Ltd Madeline Alluvial Diamonds and Mineral Development (Pty) Ltd South Africa Ordinary 100% Dormant Majestic Resources (Pty) Ltd Majestic Resources South Africa (Pty) Ltd Australia South Africa Ordinary Ordinary 100% 100% Messina Diamond Mine (Pty) Ltd South Africa Ordinary 100% Messina Investments Limited Nabera Holdings (Pty) Ltd Nabera Mining (Pty) Ltd Namibia Mining House (Pty) Ltd Nooitgedacht Diamonds (Pty) Ltd Paardekraal Properties (Pty) Ltd South Africa South Africa South Africa Namibia South Africa South Africa Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 29.50% 35% 100% 100% Pagvlei Mining (Pty) Ltd South Africa Ordinary 100% Investment holding Dormant Mining and exploration Investment holding Dormant Mining and exploration Dormant Dormant Dormant Mining and exploration Mining and exploration Dormant Mining and exploration Mining and exploration Mining and exploration Dormant Dormant Dormant Dormant Mining and exploration Mining and exploration Mining and exploration Dormant Dormant Dormant Services provision Dormant Notes to the Annual Financial Statements for the year ended 30 June 2006 34. SUBSIDIARIES AND ASSOCIATES (continued) Petra Diamonds Alto Cuilo Ltd Petra Diamonds Angola Services Ltd Country of incorporation Class of share capital held Proportion held British Virgin Islands British Virgin Islands Ordinary 47% Ordinary 100% Petra Diamonds Namibia (Pty) Ltd Namibia Ordinary 100% Nature of business Mining and exploration Mining and exploration Mining and exploration Services provision Petra Diamonds Southern Africa (Pty) Ltd South Africa Power Corporation Angola Ltd Santara Holdings (Pty) Ltd Sedibeng Diamond Mine JV Sekaka Diamonds (Pty) Ltd* Star Diamond Mine (Pty) Ltd Union Investments Corporation (Pty) Ltd Bermuda Australia South Africa Botswana South Africa South Africa Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Vulcan Mining (Pty) Ltd Australia Ordinary 100% 70% Exploration 100% Dormant 57.5% Mining and exploration 100% Exploration 100% 100% 100% Mining and exploration Dormant Dormant Page 75 * Kalahari Diamonds Ltd and Sekaka Diamonds (Pty) Ltd are subsidiaries acquired as a result of the Kalahari Diamonds Ltd acquisition in September 2005. Although the Company owns only 40% of Autumn Star Trading 192 (Pty) Ltd (“Autumn”), the Company has consolidated its investment in Autumn on the basis of respective risks and obligations. The Company will continue to consolidate the results of Autumn until such time that the other equity shareholders start to proportionately share in the associated risks. Shareholders Information for the year ended 30 June 2006 The following additional information is required by the Australian Stock Exchange Limited Listing Rules. SHAREHOLDINGS The information is made available up to 30 September 2006. SUBSTANTIAL SHAREHOLDERS Twenty Largest Holders as at 30 September 2006: Page 76 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d Saad Investments Company Limited Kalahari Diamond Resources Plc ANZ Nominees Limited Al Rajhi Holdings W.L.L. Credit Suisse Client Nominees Limited HSBC Global Custody Nominees Limited Euroclear Nominees Limited BNY (OCS) Nominees Limited WB Nominees Limited Artemis Nominees Limited Chase Nominees Limited Societe Diamantaire CH Finkelstein and Company NV Chetwynd Nominees Limited Vidacos Nominees Limited Mellon Nominees (UK) Limited Barclays Nominees (Geurnsey) Limited Dartington Portfolio Nominees Limited HSBC Global Custody Nominee (UK) Limited Dresdner Bank AG London Branch Account HSBC Global Custody Nominee (UK) Limited DISTRIBUTION OF HOLDERS 1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 and over Fully Paid Ordinary Percentage of Capital Held 22,651,387 16,166,529 11,093,955 8,853,333 6,767,744 5,900,000 5,756,885 5,594,204 5,401,701 4,762,802 4,278,000 4,189,944 3,500,000 2,662,500 2,502,406 2,467,833 2,055,658 1,627,274 1,553,982 1,503,062 119,289,199 15.05% 10.74% 7.37% 5.88% 4.50% 3.92% 3.83% 3.72% 3.59% 3.16% 2.84% 2.78% 2.33% 1.77% 1.66% 1.64% 1.37% 1.08% 1.03% 1.00% 79.27% Listed Fully Paid Ordinary 936 781 190 200 77 2,184 The number of shareholders holding less than a marketable parcel of ordinary shares on the Australian Stock Exchange at 30 September 2006 was 113. Voting Rights The voting rights attaching to ordinary shares (“shares”) are set out in Clauses 4.4, 4.5 and 4.7 of the Company’s Bye- Laws. In summary, subject to the provision of Companies Act (1981) of Bermuda, ASX Listing Rules, the Company’s Bye-Laws and any rights or restrictions for the time being attached to any class of shares, at a general meeting of shareholders: (a) each shareholder is entitled to vote and may vote in person or by proxy; (b) on a show of hands, every person present who is a shareholder or a proxy has one vote; and (c) on a poll, every person present who is a shareholder or as a proxy shall, in respect of each fully paid share held, or in respect of which they act as a proxy, have one vote. Notice of Annual General Meeting for the year ended 30 June 2006 Notice is hereby given that the ninth Annual General Meeting of Petra Diamonds Limited (the Company) will be held at 11:00 am on Friday, 8 December 2006 at the offices of Memery Crystal LLP, 44 Southampton Buildings, London, WC2A 1AP for the purpose of considering and, if thought fit, passing the following resolutions: 1. STATUTORY ACCOUNTS That the financial statements of the Company for the year ended 30 June 2006, together with the Reports of the Directors and Auditors, be received. 2. APPOINTMENT OF AUDITORS That BDO Stoy Hayward LLP of 8 Baker Street, London, W1U 3LL be appointed as auditors of the Company to hold office until the conclusion of the next general meeting at which accounts are laid, or until their successors are appointed and that the Directors be authorised to fix the remuneration of the auditors. 3. RE-ELECTION OF DIRECTORS That each of (a) Adonis Pouroulis and (b) Charles Segall (each to be separately proposed and voted upon), who retire in Page 77 accordance with the Company’s Bye-Laws, each be and are hereby re-elected as directors of the Company to hold office until the date on which his office is otherwise vacated. By order of the Board A Pouroulis Chairman 26 October 2006 Registered office Clarendon House, 2 Church Street, Hamilton HM11, Bermuda Company registration number: EC23123 Notice of Annual General Meeting for the year ended 30 June 2006 EXPLANATORY NOTES These explanatory notes form part of the Notice of Meeting. NOTES A member entitled to attend and vote at the above meeting may appoint a proxy to attend and vote in their stead on a show of hands or on a poll. A proxy need not be a member of the Company. A member who is entitled to cast two or more votes at the meeting may appoint up to two proxies. To be valid, the form of the proxy must be lodged with: • • the Company’s UK branch registrars, Capita IRG plc (Proxies), PO Box 25, Beckenham, Kent BR3 4TU; or the Company’s Australian share registrars, Computershare Registry Services Pty Ltd, Level 2 Reserve Bank Building, 45 St George’s Terrace, Perth WA 6000 (fax (08) 9323 2033), not less than 48 hours before the time appointed for the meeting or any adjournment thereof. ITEM 3, RE-ELECTION OF DIRECTORS Information on the experience and qualifications of directors seeking re-election is included in the Company’s Annual Report. The Directors of the Company believe the resolution is in the best interests of the Company and its members and unanimously recommend that members vote in favour of it. Page 78 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d FORM OF PROXY for the year ended 30 June 2006 PETRA DIAMONDS LIMITED I/We of being a member(s) of Petra Diamonds Limited (the Company) hereby appoint the Chairman of the Meeting or as my/our proxy to vote on my/our behalf on the resolutions to be proposed at the 2006 Annual General Meeting of the members of the Company to be held at 11:00 am on Friday, 8 December 2006 and at every adjournment thereof as indicated Page 79 below or, in the absence of any such indication, my/our proxy shall vote or abstain as he/she thinks fit: The resolutions Item No 1 Statutory accounts Item No 2 Appointment of auditors Item No 3 Re-election of directors 3 (a) Re-election of Adonis Pouroulis 3 (b) Re-election of Charles Segall Signed this Signature For Against Abstain day of 2006 Notes 1. Proxies are entitled to vote on a poll or on a show of hands. 2. Members shall place an ‘X’ in the box indicating the way in which their vote is to be cast. 3. If the member is a corporation, the proxy should be signed either by a duly authorised officer or attorney or be completed under the common seal of the Company. 4. Members wishing to appoint their own proxy, who need not be a member, should fill in the name of their proxy in the space provided with or without deleting the words ‘the Chairman of the Meeting or’. 5. This proxy should be completed and dispatched so as to arrive at: • the Company’s UK branch registrars, Capita IRG plc (Proxies), PO Box 25, Beckenham, Kent BR3 4TU; or • the Company’s Australian share registrars, Computershare Registry Services Pty Ltd, Level 2 Reserve Bank Building, 45 St Georges Terrace, Perth WA 6000 (fax (08) 9323 2033), not less than 48 hours before the time appointed for the meeting or any adjournment thereof. 6. A member may vote for or against the re-election of the directors as a whole by placing an ‘X’ in the appropriate box. If a member wishes to vote for or against the re-election of one or more of the directors he/she should place an ‘X’ indicating those directors he/she is voting for or against, as the case may be, in the appropriate box. 7. Any alterations to this Form of Proxy should be initialled by the member. Page 80 A n n u a l R e p o r t 2 0 0 6 i P e t r a D a m o n d s L i m i t e d

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