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Annual Report 2008
Cover 11/19/08 5:35 PM Page 2
CONTENTS
Administrative information
Group head office
Elizabeth House
9 Castle Street
St. Helier
Jersey, JE4 2QP
www.petradiamonds.com
Email: info@petradiamonds.com
Advisers
Nominated adviser and broker
Collins Stewart
88 Wood Street
London, EC2V 7QR
Tel: +44 207 523 8000
Website: www.collins-stewart.com
Contact: Piers Coombs
Email: pcoombs@collins-stewart.com
Second broker
BMO Capital Markets
95 Queen Victoria Street
London, EC4V 4HG
Tel: +44 20 7246 5415
Contact: Jamie Strauss
Email: jamie.strauss@bmo.com
AIM registrars
Capita IRG (Offshore) Limited
44 The Esplanade, Jersey,
Channel Islands, JE4 0XQ
Tel: UK: 0871 664 0300 or
international: +44 208 639 3399
Website: www.capitaregistrars.com
Email: ssd@capitaregistrars.com
Auditors
BDO Stoy Hayward LLP
55 Baker Street
London, W1U 7EU
Tel: +44 207 893 2714
Website: www.bdo.co.uk
Contact: Scott Knight
Email: scott.knight@bdo.co.uk
Legal advisers
(As to English Law)
Memery Crystal
44 Southampton Buildings
London, WC2A 1AP
Tel: +44 207 242 5905
Website: www.memerycrystal.com
Contact: Lesley Gregory
Email: lgregory@memerycrystal.com
Principal bankers
Barclays Bank plc
38 Hans Crescent, Knightsbridge
London, SW1X OL2
Tel: +44 207 114 7200
Website: www.barclays.co.uk
Contact: Graham Whiteley
Email: graham.whiteley@barclays.co.uk
PR advisers – UK
The Hogarth Partnership
No. 1 London Bridge
London, SE1 9BG
Tel: +44 20 7357 9477
Website: www.hogarthpr.co.uk
Contact: Julian Walker
Email: PDL@hogarthpr.co.uk
PR advisers – South Africa
Russell & Associates
42 Glenhove Road
Melrose Estate
Johannesburg, South Africa
Tel: +27 (0)11 880 3924
www.rair.co.za
Contact: Charmane Russell
Email: charmane@rair.co.za
Secretary and registered office
Michael Ashford
2 Church Street, Hamilton
HM11, Bermuda
Company registration number: EC23123
Tel: +1 441 295 5950
Website: www.cdp.bm
Email: mbashford@cdp.bm
Legal advisers to the Company
(As to Bermuda Law)
Conyers Dill & Pearman
Clarendon House, 2 Church Street
Hamilton, HM11, Bermuda
Tel: +1 441 295 1422
Website: www.cdp.bm
Email: info@cdp.bm
Russell and Associates
1
Contents
2
Corporate profile
3
4
6
Financial highlights
Petra Diamonds at a glance
Chairman’s statement
10
CEO’s review
22
Board of directors
24
Review of operations
56
Reserves and resources
58 Mining, processing and distribution
62
Diamond market overview
68
Corporate social responsibility
76
Directors’ report
78
Directors’ remuneration report
80
Corporate governance statement
84
Independent auditors’ report
85
Consolidated income statement
85
Consolidated statement of
recognised income and expense
86
Consolidated balance sheet
87
Consolidated cash flow statement
88 Notes to the annual financial statements
126 Notice of AGM
127 Glossary of terms
IBC Administrative information
Cullinan mine, South Africa
Form of proxy
2
Corporate profile
CORPORATE
PROFILE
Petra Diamonds is a rapidly growing diamond mining group, focused on the African continent.
A number of recent acquisitions have established Petra as one of the world’s largest independent
diamond groups by resource, with a gross resource base of 265 million carats, and an estimated
value of US$27.3 billion. Petra’s objective is to continue to grow Group production, developing
its stature as a leading diamond producer in all of the countries in which it operates.
In South Africa, Petra has five producing mines – Cullinan, Koffiefontein, Helam, Sedibeng and
Star. The Group has also reached agreement to acquire two further assets from De Beers – the
Kimberley Underground mines, also in South Africa, and the Williamson mine in Tanzania. The
Group is on track to increase its annual production from 200,000 carats in the year to June 2008
to over 1 million carats in the year to June 2009. Complementing the Group’s production is an
exploration and development portfolio spread across the highly prospective diamond fields of
Angola, Botswana and Sierra Leone.
Petra will only commit to working in countries which are members of the Kimberley Process and
shareholders can remain assured that Petra’s diamonds will only ever be 100% conflict free. Petra
is listed in London under the share code PDL and is AIM’s largest diamond group by market
capitalisation.
Cullinan mine, South Africa
3
Financial highlights
Production
2005
2006
2007
2008
0
143,673
175,011
180,474
Carats
200,287
250,000
200,287
carats
Production has grown steadily over the past four years. Taking into account the completion of the Cullinan acquisition, Petra is targeting over
1 million carats of production (gross) in the 2009 financial year. The first year of production at Koffiefontein contributed almost 90,000 carats,
a significant portion of the total Group production figure of 200,287 carats.
Revenue
2005
2.3
2006
2007
2008
0
20.9
17.0
US$76.9m
US$m
76.9
80
Petra’s revenues increased by 352% during the period under review from US$17 million in 2007 to US$76.9 million in 2008. This substantial
increase reflects the expansion of the business and the success of the Company’s acquisition strategy.
EBITDA
3
2005
2006
2007
2008
-10
-9.9
-5.3
-5.2
0
US$25.5m
US$m
25.5
30
EBITDA3 for the period was US$25.5 million compared to a prior year loss of US$5.2 million. EBITDA3 is stated before share-based expense and
foreign exchange loss.
Profit after tax
2005
2006
2007
2008
-25
-21.0
-18.8
-20.9
1.9
0
US$1.9m
US$m
20
In line with increased revenues, Petra posted a profit after tax of US$1.9 million for the 2008 financial year. This is the first profit figure recorded
by the Group and reflects the progression from an exploration into a production-focused group.
Summary of results
12 months to 30 June 2008
12 months to 30 June 2007
Revenue 1
Gross profit 2
Other operating income
Exploration expense 2
Other operating expense 2
EBITDA3
Depreciation
Amortisation
Share based expense
Foreign exchange loss
Net finance income/(expense)
Loss from discontinued operations
Tax (charge)/credit
Net profit/(loss) after tax - Group
Notes:
1.The results for the year comprise Koffiefontein and Petra’s fissure mines, Helam, Sedibeng and Star. The acquisition of the Cullinan mine by the Petra Diamonds Cullinan Consortium was
US$ million
17.0
1.3
–
(1.2)
(5.3)
(5.2)
(6.5)
(3.7)
(0.4)
(4.8)
(1.6)
(0.6)
1.9
(20.9)
US$ million
76.9
39.2
1.1
(9.5)
(5.3)
25.5
(7.1)
(3.8)
(1.6)
(4.0)
0.2
(1.4)
(5.9)
1.9
completed on 15 July 2008 and Petra will account for its 37% interest in Cullinan from that date
2.Stated before depreciation, amortisation of intangibles, interest paid, foreign exchange losses and share-based payments
3.All EBITDA disclosures are “adjusted EBITDA”, being stated before share-based expense and foreign exchange loss
4
Petra Diamonds at a glance
Petra is focused on Africa, with producing operations and exploration
projects spanning the continent. Petra has five producing mines in
South Africa – Cullinan, Koffiefontein, Helam, Sedibeng and Star, with a sixth
operation to be added to the portfolio through the acquisition of the
Kimberley Underground mines. A recent expansion into Tanzania through
the acquisition of the Williamson mine from De Beers complements the
Group’s exploration and development portfolio which is spread across the
highly prospective diamond fields of Angola, Botswana and Sierra Leone.
5
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4
1
5
Petra Diamonds at a glance
South Africa - Cullinan
37% initial interest through Petra-led consortium; purchase completed July 2008
Second largest diamond resource in the world by in-situ value at 208 million carats (includes tailings)
Source of spectacular diamonds, including the Cullinan, the world’s largest ever found at 3,106
carats, a quarter of all the world’s diamonds over 400 carats in size, and highly prized blue diamonds
Current B-Cut operations support 1 million carats per annum production
Infrastructure and resources in place provide opportunity to significantly uplift production
BEE partners hold 26% through Thembinkosi Mining Investments (14%) and a Petra employee share
trust (12%)
Sale of a 39.19 carat blue diamond in October 2008 for US$8.8 million
South Africa - Koffiefontein
70% interest held; BEE partners, Re-Teng Diamonds holds 30%
Purchase completed in July 2007
Dramatic economic turnaround achieved in Petra’s hands
Now one of the world’s top kimberlite mines by average value per carat, achieving US$484 for the
2008 financial year
Annual production of 80,000 carats
South Africa - Kimberley Underground
Acquisition expected to complete by end of 2008, currently operated by Petra on care and maintenance
Diamond recoveries to commence in 2009
Targeted production of 100,000 carats per annum at US$160 per carat (based on historic information)
South Africa - Fissure Mines
Comprises the Helam, Sedibeng and Star mines
Petra has a 74.5% interest in Sedibeng and a 100% interest in both Helam and Star.
110,665 carats produced in the 2008 financial year
Average value achieved of US$211 per carat for the 2008 financial year, vs world average
of US$90
Tanzania - Williamson
Petra to acquire a 75% interest; acquisition expected to complete November 2008
Renowned for producing large, high value diamonds and fancy pink diamonds
Open pit operation mining the 146 hectare Mwadui kimberlite pipe
Major resource of approximately 40 million carats
Initially will add 150,000 carats per annum to Petra Group production, with potential to ramp up to
500,000 carats per annum
Angola - Alto Cuilo
41.2% kimberlite interest (on completion of BHP Billiton withdrawal)
Major kimberlite exploration project in diamond-rich north-eastern Angola
81 kimberlites confirmed, 8 of which are high priority and targets for current mini bulk sampling
campaign
Fast-tracked work programme focusing on enriched, near-surface resedimented volcaniclastic
kimberlite (RVK) deposits
Angola - Luangue
39% kimberlite interest (on completion of BHP Billiton withdrawal)
Contiguous to Alto Cuilo project, sharing same highly prospective geology
Drilling programme started July 2008
9 kimberlites confirmed so far but 138 anomalies identified in total (to date)
Botswana
100% interest in 48,500km2 ‘on craton’ prospecting licence area
Largest diamond exploration landholding in Botswana, the world’s largest diamond producer by value
36 known kimberlites and many other highly prospective anomalies for investigation
Encouraging results with new kimberlite discoveries, further testing and drilling in progress
Sierra Leone
51% interest in Kono project, JV with Stellar Diamonds
Advanced exploration, trial mining at two shafts
First parcel of Pol-K diamonds achieved US$152 per carat (September 2008)
Exploration potential in surrounding area, electromagnetic survey completed
1
1
1
1
2
3
3
4
5
6
Chairman’s statement
CHAIRMAN’S
STATEMENT
It is with great pleasure that I present to
you the results for the year to June 2008, a
period that completes Petra’s transition
from a junior mining company into a
diamond producer of global significance.
7
Chairman’s statement
We have completed the acquisitions of the Cullinan and Koffiefontein mines and reached agreement to
acquire a further two major producing assets, the Kimberley Underground mines in South Africa as well as,
post year end, the Williamson mine in Tanzania. As global diamond supply remains constrained, these
major mines, together with their reserves and resources, underpin our future success as an important
diamond producer.
The market for diamonds
Industry experts have forecast a significant and growing supply shortage of rough diamonds, expected to be
worth some US$5 billion by 2010 (source: BMO Capital Markets), and this shortfall has been reflected in
the strength of the market. Diamond prices rose, on average, by 40% from January 2007 to September 2008
(source: BMO Capital, September 2008), whilst the very high end goods grew far more rapidly, rising by
70% or more in the same period. Since this time we have seen a correction in prices due to the current
turbulence in the financial markets, however we remain confident about the medium to long term outlook.
Supply shortages grow more acute as demand continues to rise rapidly from emerging economies and, in
particular, the ever wealthier consumers of China, India, Russia and the Gulf States. It is difficult to see how
the industry will satisfy this rising demand, given the structural constraints on increasing production.
Accelerated growth
We have delivered on our objective of growing our production base with the landmark agreements to acquire
a further three major diamond mines: Cullinan, Kimberley Underground and Williamson. The acquisition of
Cullinan completed in July 2008, and we expect the Williamson and Kimberley Underground acquisitions to
complete in November and December 2008 respectively.
The Cullinan mine is a ‘company maker’ asset, in that it is the world’s second largest indicated diamond
resource by in-situ value. It is one of history’s most celebrated diamond mines, having produced some of the
most spectacular diamonds ever seen, including the Cullinan, the largest ever gem diamond at 3,106 carats.
It is likewise renowned as the world’s only significant source of blue diamonds, which are highly prized.
Kimberley Underground will add further substantial annual production (in excess of 100,000 carats) to the
Group. Kimberley Underground comprises three mines – Bultfontein, Wesselton and Dutoitspan – and it is a
little known fact that these mines have also historically produced famous and high-value diamonds, such as
The Oppenheimer, a 253.7 carat diamond which was recovered at Dutoitspan in 1964.
A further achievement for Petra is the agreement, signed in September 2008, to acquire a majority stake
(75%) in the Williamson mine. We are taking over the operation of Williamson as a going concern which
will increase Group production and revenues from November 2008. Our plan is to ramp-up the operation to
7.5 million tonnes per annum over a two year period, at which point the mine is expected to dramatically
enhance Group earnings. The Williamson acquisition also marks Petra’s entry into stable and investor-friendly
Tanzania, further diversifying the Group’s geographical spread across Africa.
The successful integration and financial results of the Koffiefontein mine have proven our ability to take on a
major mine and turn it to account, with the economic transformation of the mine being nothing short of
spectacular. Koffiefontein now holds its head high as one of the world’s top kimberlite mines by profit margin
and by carat value, achieving an average value per carat of US$484 for the Period.
With the acquisitions we have made, Petra is not only revitalising some of the world’s great diamond mines,
but is also breathing life into the surrounding communities, delivering true sustainable development. In South
Africa, we have also complied fully with black economic empowerment (“BEE”) legislation from the outset
across each of our transactions.
We are proud of the strong relationships we have cultivated and, in particular, I would like to thank De Beers
and the Department of Minerals and Energy for the work they have done to encourage growth and
development in the diamond industry, helping to facilitate broad ownership and competition within the South
African diamond sector.
Exploration progress
In Angola, we have assumed control of the neighbouring Alto Cuilo and Luangue exploration projects
following BHP Billiton’s decision to withdraw from the respective joint ventures. Whilst our joint ventures with
8
Chairman’s statement
BHP Billiton were rewarding, we are pleased to have the opportunity to take the exploration programmes
forward under our own direction. As one of the first foreign mining companies to enter Angola, our long
experience and history leaves us well positioned to be one of the country’s prominent diamond mining groups
in the future.
Botswana is the world’s largest diamond producer by value and we hold the largest diamond exploration
landholding in this highly prospective country. We continue to carry out a systematic and rigorous approach
to exploration and we remain very excited by the opportunities Botswana offers. Our success at finding new
kimberlites within areas which have previously been thoroughly explored proves that the country holds
excellent exploration potential.
In Sierra Leone we continue to be encouraged by the results of exploration and trial mining at our Kono
project, a joint venture with Stellar Diamonds.
We now expect to
comfortably exceed our
production target of
1 million carats in the year
to June 2009. This increased
production will be delivered
on a sound, well-planned
basis and always with the
highest regard for safety
and good practice.
Focus on our core business
Petra announced on 23 September 2008 the disposal of Calibrated Diamonds
Investment Holdings (Pty) Limited (“Calibrated”) to Gem Diamonds Limited
(“Gem Diamonds”) for a consideration of R47 million. Following the substantial and
successful growth of the Group’s production and revenue base, Petra decided to
dispose of the business to focus on its core skills of diamond production and
exploration.
The transaction with Gem Diamonds gives Petra options with regards to access to Gem
Diamonds’ beneficiation facilities. Petra will continue to evaluate its beneficiation
strategy over the medium term, particularly with regards to certain of its mines which are
renowned for the production of high value and large diamonds.
Continuing delivery
We now expect to comfortably exceed our production target of 1 million carats in the
year to June 2009. This increased production will be delivered on a sound, well-
planned basis and always with the highest regard for safety and good practice.
projects. These exploration projects, along with organic growth from our existing mines, form the building
Our production portfolio complements Petra’s world-class international exploration
blocks of future production.
Petra has now evolved into a diamond group of global significance with the acquisitions of Cullinan,
Kimberley Underground and most recently Williamson. Further, the success at Koffiefontein clearly
demonstrates our distinctive ability to turn such mines to account, and we look forward to achieving similar
results at the recent acquisitions. We have now established a world-class gross resource base of 265 million
carats, worth US$27.3 billion. I am confident that our exploration projects will, in time, increase this resource
base still further.
The transformation of Petra is due to the unwavering efforts of our management team in what have been, at
times, very challenging circumstances. I thank them for everything that has been achieved, and look forward
to the results that I have no doubt will be delivered from Petra’s enlarged asset base.
Adonis Pouroulis
Chairman
7 November 2008
9
Chairman’s statement
A rare 39.19 carat blue diamond recovered from
Cullinan mine, South Africa
10
CEO’s review
CEO’S REVIEW
I am pleased to provide a
review of what has been an
exceptional period
for Petra.
11
CEO’s review
In the period under review, we were successful in acquiring three more mines, each from De Beers, being
Cullinan, Kimberley Underground, and post year end, Williamson. Our revenues and margins have grown
substantially, largely due to the success at the Koffiefontein mine, enjoying its first year of production in our hands
and we have taken control of our highly prospective exploration projects in Angola; Alto Cuilo and Luangue.
Results
Revenue for the Period of US$76.9 million was recorded, an increase of 352% over the US$17.0 million for
2007. This growth was largely due to the first full year’s results from Koffiefontein, contributing revenue of
US$51 million to the Group. The increased revenue combined with sound control of mining costs led to a
gross profit on mine (before depreciation) of US$39.2 million, a substantial number for the Group (2007;
US$1.3 million) and provides evidence of the increasing quality of the assets in the Petra stable and
management’s success in turning them to account.
Adjusted EBITDA (stated before share-based expense and foreign exchange loss) of US$25.5 million
(2007; US$ 5.2 million loss) was impacted by Petra’s decision to take up control and sole funding of the
Angolan joint ventures, following BHP Billiton’s decision to withdraw. Petra’s spend in Angola for the year was
US$7.8 million, and as previously announced, Petra will review the work programmes and associated spend
early in 2009 on the basis of exploration results.
The Group prides itself in its well-managed cost culture and this came across in the contained group operating
expenses, a remarkable achievement given the increasing size of the Group’s operations and corporate
support requirements.
The Group net profit for the year amounted to US$1.9 million (2007: US$20.9 loss) and is stated after;
(i)
depreciation of US$7.1 million (2007: US$6.5 million);
(ii)
amortisation of intangibles of US$3.8 million (2007: US$3.7 million), which is in respect of the
Botswana prospecting licences;
(iii)
share-based expenses of US$1.6 million (2007: US$0.4 million);
(iv)
exchange losses of US$4.0 million (2007: US$4.8 million), the majority of which are due to unrealised
foreign exchange losses on the annual restatement of foreign subsidiary inter-company loans;
(v)
the operating expenses of Calibrated (US$1.4 million), which the Group announced on 23 September
2008 has been disposed of; and
(vi)
a tax charge of US$5.9 million, being tax payable of US$1.4 million relating to Koffiefontein and
Sedibeng and the balance of US$4.5 million being deferred tax.
Production - South Africa
Production and sales summary – combined Koffiefontein and Fissures Mines
Production
Diamonds produced
Sales
Revenue
Diamonds sold
Average price per carat
Unit
Carats
US$m
Carats
US$
Year ended
30 June 2008
Year ended
30 June 2007
200,287
77.32
230,172
336
180,474
16.7
122,821
136
Note 1: All production and sales figures are stated gross
Note 2: Group revenue of US$76.9 is lower due to inter-company transactions between the mines and Calibrated
12
CEO’s review
Cullinan
In November 2007, Petra signed a landmark deal (as part of the Petra-led Petra Diamonds Cullinan
Consortium (“PDCC”) to acquire the Cullinan diamond mine from De Beers for a cash consideration of
R1 billion. As with the acquisitions of Koffiefontein and the Kimberley Underground mines, this agreement
followed a rigorous and competitive tender process. Cullinan is renowned for producing many of the world’s
most famous diamonds, including the largest ever gem diamond, the ‘Cullinan’ at 3,106 carats rough, as
well as more than a quarter of all the world’s diamonds weighing more than 400 carats.
The PDCC comprises Petra Diamonds Limited (37% initial interest), Al Rajhi Holdings W.L.L. (“Al Rajhi”)
(37% initial interest) and PDCC’s BEE partners (26% interest). Importantly, the agreements in place between
Petra and Al Rajhi, who provided the majority of the funding for the transaction, give Petra the right to increase
its interest in PDCC (from Al Rajhi) to 60% based on performance of the mine and pre-agreed option
payments. The Cullinan transaction was structured to meet the requirements of the Minerals and Petroleum
Resources Development Act in that it supports broad-based BEE.
In July 2008, the acquisition of this iconic mine was completed. Petra has been operating the mine for four
months (at the time of writing this report), and all hand-over and integration projects have been concluded
very satisfactorily. I thank De Beers’ management, as well as the on-the-ground and legal teams from both
parties, for the smooth and effective implementation of this transaction.
During our first year of operation, we will focus on establishing the new economics of the mine, including
grade, value per carat, cost per tonne and overall production capacity of the infrastructure. For FY 2009,
we initially expected to mine the B-Cut at a planned rate of 1.4 to 1.8 million tonnes per annum, yielding
between 600,000 and 750,000 carats of diamonds. We then planned to progressively ramp up production
levels to around 1 million carats per annum from financial year 2010, which has the potential to deliver
annual revenues of some US$100 million (all figures are stated gross to the PDCC). However, based on
actual production to date from underground and the Optical Sorting Plant, we now expect production at
Cullinan to reach just short of 1 million carats for this financial year, 2009.
We are currently in the process of making major alterations to the processing of ore by implementing changes
within the plant, with the objective of improving the grade and placing emphasis on the recovery of the whole
spectrum of diamonds. By attending to projects such as these while applying a similar formula as we did
successfully at Koffiefontein – that is, flat management structures, lower overheads, in-house capital
development and project management – we are confident that we will turn in strong financial performances
at Cullinan and deliver the corresponding returns to shareholders.
In September, we held our first tender of goods from Cullinan and achieved an average value of
US$100 per carat for the parcel of 66,127 carats. The parcel included a 26.54 carat white diamond,
which sold for US$1,625,000. In the second tender held in October 2008, a 39.19 carat blue diamond
was sold for US$8.8 million. These values bode very well for the economic future of the mine and we look
forward to values increasing further as we bring our production enhancements to account.
Koffiefontein
Petra completed the acquisition of the Koffiefontein mine from De Beers in July 2007 and Petra has now been
producing at the mine for just over one year. Bringing this operation back into production has gone exceptionally
well and our mine management team has successfully turned Koffiefontein into a highly profitable operation.
Production for the year at Koffiefontein was 89,622 carats, with an average value per carat achieved of
US$484, making it one of the world’s top kimberlite mines by value. Recovered grade for the first year of
operation was 9.1 cpht, a reflection of the encouraging changes made by Petra in the treatment plant as well
as underground mining practices. This is a significant improvement on the grade modelled in the original
business plan of 7.4 cpht.
One of the ways in which Petra is able to add value to its operations is to focus on overhead cost structures
and, at the same time, ensure the optimisation of plant throughput. At Koffiefontein, for example, not only are
we running at higher grades than anticipated, but we are also achieving a good size distribution, especially
in the ‘special’ stones that in turn command an excellent price.
Costs and capital expenditure (“Capex”) were both in line with management expectations. The cash costs at
Koffiefontein ran at approximately R90 per tonne, a level which (other than inflation-based increases) we
expect to maintain. Capex for the Period was US$3.7 million, with total Capex spend at the mine for the
12 months to June 2009 expected to be US$5.0 million, including the installation of electricity
generation capacity.
13
CEO’s review
Ebenhaezer pipe, Koffiefontein mine, South Africa
14
CEO’s review
Notable recoveries during the Period included a 74.7 carat diamond which was sold in September 2007
for just over US$1 million and a 41.67 carat diamond sold in June 2008 for US$1.8 million. We were also
encouraged by the recovery of a fine quality, fancy pink diamond of 4.13 carats at Koffiefontein and this
was sold in our recent tender for US$226,666.
Koffiefontein mine
Production
Diamonds produced
Grade
Sales
Revenue
Diamonds sold
Average price per carat
Unit
Year ended
Year ended
30 June 2008
30 June 2007
Carats
Cpht
US$m
Carats
US$
89,622
9.1
51.0
105,479
484
44,423
7.7
–
–
–
Note 1: All production and sales figures are stated gross; Petra’s interest is 70%
Kimberley Underground
In September 2007 Petra reached agreement, following a competitive tender process, to acquire Kimberley
Underground from De Beers, for a total consideration of R78.5 million. The acquisition is expected to
complete in December 2008. Kimberley Underground comprises Wesselton, Dutoitspan and Bultfontein,
three historic mines which were at the heart of South Africa’s diamond rush in the late 1800s.
As Kimberley Underground last produced under De Beers in August 2005, Petra is currently operating the
mines on a care and maintenance basis on behalf of De Beers until all required mining authorisations are
received from the South African authorities. Sound progress has been made towards the commissioning of the
operations and we have been conducting a range of rehabilitation and maintenance activities at the mine,
such as the rehabilitation of the underground infrastructure, to ready the mine for production.
We decided that it would serve our purpose better to build our own custom plants at Kimberley Underground,
rather than purchase the old NTP plant, in keeping with the Petra ethos of carrying out such construction work
in-house wherever possible. To this end, fabrication is nearly complete and erection of the plants at site will
begin shortly. Commissioning is now scheduled for January 2009 and production build-up will commence in
February 2009. The plants have been designed to cater for the large diamonds known to exist in the
Kimberley mines, the largest of which previously recovered exceeded 800 carats. Petra expects diamond
recoveries and sales to begin in the first quarter of 2009.
Based on historical production and sales information, we expect annual sales in excess of 100,000 carats
at an average value of US$160 per carat once full production resumes, giving gross annual revenues in
excess of US$16 million and a mine life of at least 12 years.
Fissure Mines (Helam, Sedibeng and Star)
At the fissure mines, our attention has shifted from volume of carats produced to optimisation of revenues by
focus on grade and final recovery, resulting in the average value per carat achieved increasing from
US$136 for the year ending 30 June 2007 to US$211 for the Period. Average cash costs per tonne ran at
approximately R530 per tonne overall for the three fissure mines, a level which management is confident can
be substantially improved upon. Capex for the Period was US$3.45 million.
Production for the year at the fissure mines was 110,665 carats, lower than production for the financial year
to June 2007 of 136,051 carats. This was due to reduced tonnages hauled at the Helam mine, which is the
smallest contributor of our producing operations by value. Given the power issues with which we have had
to contend, management has at all times chosen to focus resources on those assets which add most value to
shareholders – being our larger and higher value kimberlite pipe mines. The skills shortages and power supply
situations in South Africa have meant that the Company is redirecting management attention towards
improving efficiencies via further mechanisation and other initiatives.
15
CEO’s review
The portfolio of fissure mines also produces diamonds of exceptional quality. A number of such stones
were recovered in the last year, including a 126.69 carat diamond which sold in our most recent tender
(post period end) for US$5.25 million.
Fissure Mines (Helam, Sedibeng and Star)
Production
Diamonds produced
Grade
Sales
Revenue
Diamonds sold
Average price per carat
Unit
Carats
Cpht
US$m
Carats
US$
Year ended
30 June 2008
Year ended
30 June 2007
110,665
41.9
26.3
124,693
211
136,051
42.1
16.7
122,821
136
Note 1: All production and sales figures are stated gross
Results from September 2008 tender
The Company held the first tender since the year end in September. The tender included approximately four
weeks of production from Cullinan (after the ownership of the mine was transferred to PDCC on 16 July 2008)
and eight weeks of production for the remaining South African operations. Although this tender was held in a
period during which softer market conditions were prevalent, prices remained firm. The results were as follows:
Carats sold
Total revenue
Value per carat
Cullinan
Koffiefontein
Fissure mines
Total SA operations
66,127
17,930
15,770
99,827
(US$)
6,597,291
8,241,803
8,349,392
1
2
23,188,486
(US$)
100
460
529
232
Notes: 1. Includes a 26.54 carat diamond which sold for US$1,625,000 (US$61,228 per carat)
2. Includes a 126.69 carat diamond which sold for US$5,251,000 (US$41,448 per carat)
Production – Tanzania
Williamson
In September 2008 (post year end), we announced that we had reached agreement to acquire a majority
stake in the legendary Williamson diamond mine in Tanzania, again from De Beers. The acquisition
is expected to complete in November 2008 and will give us a 75% shareholding in the mine, with the
Government of the United Republic of Tanzania holding the remaining 25%.
The Williamson mine is the largest kimberlite ever to be mined economically (at 146 hectares) and it also
holds the title of the world’s longest running diamond mine in continuous operation, as it has been producing
uninterruptedly now for 68 years. With this transaction, we will ensure a new and prosperous future for the
mine, where there remains a major resource of some 40 million carats.
This mine is renowned for regularly producing large and high-value diamonds, and it is also a significant source
of fancy, pink diamonds. The most famous example is the Williamson Pink, a 54.5 carat
rough diamond which was recovered in 1947. It was polished to form a round ‘brilliant’ cut and was presented
to the then Princess Elizabeth of England as the centre piece of a floral brooch for her forthcoming wedding to
Prince Phillip. At 23.6 carats, it is one of the largest polished diamonds of this colour ever recovered.
Williamson will initially add 150,000 carats a year to our production. However, our plan is to increase
throughput to around, or above, 7.5 million tonnes per annum, reducing unit operating costs and resulting
in an estimated annual production of some 500,000 carats and a mine life in excess of 20 years.
16
CEO’s review
Exploration – Angola
While for the most part it was a year of achievements, it has not been without its challenges. Foremost among
these must be our assumption of full responsibility for the direction of our Angolan exploration projects
following the exit of BHP Billiton from our two joint ventures in May 2008. While we were disappointed with
BHP Billiton’s decision, we are pleased to have the opportunity to increase our ownership in Alto Cuilo and
Luangue. These are two major exploration projects of enormous scope and scale, with similar kimberlite
cluster geology. Due to the large number of kimberlites and anomalies to be investigated on our concessions,
the prospect of establishing an economic diamond deposit remains much higher here than in other diamond
exploration regions.
Alto Cuilo
Alto Cuilo is a major exploration project, with a total of 249 anomalies identified using a Midas gradient
array low-level helicopter aeromagnetic survey. To date the drilling programme has tested 104 priority targets
of which 81 were confirmed to be kimberlites, an unusually high success rate in terms of kimberlite exploration.
The Alto Cuilo joint venture with BHP Billiton had previously focused on delineating economically viable,
large-tonnage kimberlite vents containing diatreme-facies volcaniclastic or tuffisitic kimberlite. Once we took
control of operations in April 2008, we chose to refocus the programme on the diamond-bearing potential
of crater-facies resedimented volcaniclastic kimberlite (“RVK”), and specifically the RVK typically encountered
along the rims of kimberlite craters.
We believe this exploration strategy gives us the best possible chance of finding a world-class kimberlite
deposit in this region of Angola, and our drilling campaign at Alto Cuilo has already yielded encouraging
results. The first kimberlite to have its RVK rim tested by our new bulk sampling campaign, AC16, achieved
a grade three times higher than that recorded in the primary tuffisitic material sampled previously from its vent.
Our work programme is now investigating the RVK rims of eight high-priority targets and kimberlite AC9 is of
particular interest, where our drilling has established large continuous areas of RVK. AC9 is now our first
ranked kimberlite based on heavy mineral analysis and proximity of RVK to surface. Should potentially
economic RVK deposits be discovered through bulk sampling, a more detailed work programme will follow
to quantify grades and tonnages.
Kimberlite AC16 (with a geophysically estimated surface area of 120 hectares) is one of Petra’s lower-ranked
kimberlites, but, due to ease of access and the presence of diamonds from previous sampling, Petra decided to
take a bulk sample from the RVK rim. Treatment of the bulk sample taken from kimberlite AC16 has now been
completed. The sample measured at 2,877 dry tonnes was taken from a five metre thick layer of outcropping
crater rim RVK and processed through a 10 tonne per hour Dense Media Separation plant (bottom cut-off 1mm).
A total of 273.38 carats has been recovered from the sample, giving a grade of 9.5 carats per hundred tonnes
(“cpht”) for the total material processed.
This result, as previously announced in July 2008 when the first part of the sample had been treated, is highly
significant as it is almost treble the grade achieved from BHP Billiton’s sampling of this kimberlite, where
primary tuffisitic kimberlite was sampled from the kimberlite vent and a grade of 3.6 cpht was recorded from
214 tonnes of material processed.
The full bulk sample results are listed in the table below:
AC16 – Bulk Sample Results
-1
+1
+3
+5
+7
+9
+11
+13
+15
+17 +19 +21
Total
-0.82 +0.82 +1.15 +1.47
+2 +2.35 +2.86 +3.85 +4.62 +4.93 +5.56 +7.09
0
0
322
782
975
352
230
137
27
6
14
7
1
2,853
5.16 22.63
57 39.18 41.21 45.56 20.64
5.78 17.47 14.76 3.99 273.38
Sieve
Size
mm
No. of
Stones
Total
Carats
An initial work programme budget of US$10 million is being funded from Petra’s internal cash resources over
the period to end December 2008. The exploration results will then be reviewed and a decision will be made
with regards to further investment at that time.
17
CEO’s review
Luangue
At the neighbouring Luangue, our work programme for the year confirmed its status as a world-class diamond
exploration project. A low-level, high-resolution “towed bird” aeromagnetic survey identified no less than 138
targets, with a total surface area estimated to be in excess of 8,000 hectares.
As with Alto Cuilo, we are targeting the RVK close to surface at the estimated crater rim locality, which has
been shown by exploration at Alto Cuilo to be the area most likely to host economic mineralisation, due to
diamond concentration and upgrade in stone size.
The budget of US$12 million for our initial work programme is being funded from our internal cash resources
over the period to end April 2009. The exploration results will then be reviewed and a decision will be made
with regards to further investment at that time.
Five kimberlites have already been identified by previous exploration work and an extensive narrow diameter
drilling (“NDD”) programme, which commenced in July 2008, is now underway to test 49 prioritised targets,
of which 26 total an estimated 1,800 hectares.
The first phase of the NDD programme has been designed to intersect near-surface proximal RVK deposits
based on the magnetic response from the airborne magnetic survey carried out late last year. To date
1,700 metres have been drilled in 12 narrow diameter holes on eight anomalies, resulting in the discovery of
four new kimberlites: L60, L76, L87 and L90. We have also confirmed that one kimberlite drilled previously,
L67, is significantly larger than was previously thought with its size now estimated to be 234 hectares.
Highlights of the drilling programme to date are three holes into anomaly L87 in the north-west corner of the
concession. The L87 anomaly covers 228 hectares in size, representing an elongate body that appears to
be made up of three lobes. Three narrow diameter drill holes positioned to test each lobe of the body have
all intersected RVK, with the best intersection to date occurring in BH L87-2 where RVK has been intersected
from 56 metres to 150 metres below surface.
Exploration – Botswana
In Botswana, we have achieved a number of notable successes with regards to our exploration programme,
including the discovery of two new kimberlites in previously heavily prospected terrain.
One such kimberlite is BK1S, which is contiguous to Debswana’s Damtshaa mining licence. The kimberlite
discovery extends northwards into the Damtshaa mining licence and the portion in our licence areas could
represent 20 to 30 percent of the total kimberlite, and we have therefore been in contact with Debswana in
relation to this discovery.
Our Botswana programme will continue to yield information as we get results back from the drilling campaign
underway in the Kukama project area. Targets include the GO173S kimberlite cluster which has been modelled
as a “champagne glass” shaped kimberlite with a potential estimated surface area of approximately 25 hectares.
The drilling campaign will also test kimberlites DK4 and DK6, in the near vicinity of the Jwaneng diamond
mine. Both kimberlites have been proven to be diamondiferous and our interpretation of the modelled data
suggests that they are larger than originally expected.
Exploration – Sierra Leone
Exploration and trial mining operations at our Kono project in Sierra Leone, a joint venture with Stellar
Diamonds, continue to yield encouraging results. The first parcel of Kono test production (1,064 carats) was
sold on tender this September, with the Pol-K shaft parcel of 866 carats achieving an average value per carat
of US$152. As diamond production from the trial mining increases over the coming months, we will be able
to offset total project expenditure against the revenues generated by regular diamond sales as well as further
establishing the parameters for a production decision.
Due to the considerable exploration potential at Kono, a 3,167 line km airborne electromagnetic geophysical
survey has been completed by Fugro Airborne Surveys, the objective being the discovery of kimberlite pipes
and blows. Processing of the data, which we outsourced to an external expert, is complete and final
interpretations will be available by the end of this year.
18
CEO’s review
Top teams with a track
record of delivery
19
CEO’s review
Cullinan mine, South Africa
20
CEO’s review
Cutting & Polishing
Petra announced on 23 September 2008 the disposal to Gem Diamonds of its entire interest in Calibrated,
a business it acquired in November 2006 for R47.0 million (US$5.9 million). This disposal follows the
substantial growth of Petra’s production and revenue base, and the Board’s decision to focus on the Group’s
core skills of diamond production and exploration.
Petra originally acquired Calibrated with the objective of growing Group revenues by cutting and polishing
(‘beneficiating’) Petra’s own rough diamond production using Calibrated’s proprietary technology processes.
However, since the acquisition of Calibrated, Petra has transformed its diamond production operations with
the acquisitions of the Cullinan, Koffiefontein, Kimberley Underground and Williamson diamond mines, with
a corresponding expected increase in Group production from 200,000 carats in FY 2008 to over 1 million
carats for FY 2009. Petra is expecting substantial revenue and cash flow growth from these assets and the
increased focus will enable the Company to maximise returns.
Petra will continue to evaluate its beneficiation strategy over the medium term, particularly with regards
to certain of its mines which are renowned for the production of high-value and large diamonds. Indeed,
the transaction agreement with Gem Diamonds includes an option which gives Petra future exposure to
Gem Diamonds’ beneficiation businesses soon to be established in Mauritius and Dubai.
Petra’s option (exercisable for a period of 30 months) to access these facilities is subject to capacity (after the
processing of Gem Diamonds’ own rough production) and payment at commercial rates.
In addition, Petra has an option (exercisable for a period of 24 months) to enter into separate negotiations with
Gem Diamonds to establish, using the Calibrated technology, a diamond analysis, cutting and polishing facility at
Cullinan, or elsewhere in South Africa, which Petra could then use for processing its production in the longer term.
Petra has retained ownership of the polished stones (594 carats) that have been cut by Calibrated Diamonds
from November 2006 to date and these diamonds will be sold by Petra in the near future.
Challenges
Rising costs
Rising costs in our operating environments have proved to be a challenge during the year. Inflation in
South Africa was pegged at around 12% for the duration of our financial year, with our primary input costs
for consumables such as fuel, steel, timber and explosives, for example, rising at a rate significantly in excess
of that. With labour accounting for around 55% of our on-mine cost base, the inflationary environment in South
Africa, combined with skills shortages, resulted in wage settlements of between 11% and 18%.
Energy
The power shortages that struck South Africa in early 2008 affected us, but less so than many of our industry
peers. While there was an impact on the rate of development at the Helam mine, the smallest contributor of
our producing operations by value, at our other operations we were able to stay on track and meet our
operational targets. We are in the process of installing diesel-powered standby electricity at all our operations
to counter any emergency cut-backs in the future and energy conservation strategies have been put in place
to operate within the constraints imposed by the power utility in the year ahead.
Skills shortages
The skills shortage being experienced across the industry in southern Africa has not abated, with a great deal
of competition between employers in attracting and retaining suitable staff. Fortunately, at Cullinan a
highly-skilled workforce was transferred to Petra and one which we believe will stand us in good stead across
our operations. At Kimberley Underground, we have had a reasonable amount of time leading up to
production and have staffed the mine appropriately.
Our experience at Petra, though, has shown that the internal development of resources is an important
function, along with the development of local school leavers. Most of our operations are based near small,
rural towns where there is very little opportunity for employment. By providing training and skills development,
we not only make a contribution to that community, but we develop our own valuable human capital resource.
We have taken great care in building and retaining the correct team to match the management and skills
requirements of our growing portfolio.
21
CEO’s review
Making a difference in the communities
In respect of the communities surrounding our operations, we are strongly committed to creating sustainable
economic activity and investing, responsibly, in those projects that have a meaningful impact on individuals.
As an emerging company, operating on a very different cost structure to the majors and bringing into
or sustaining production at operations that have been closed, or that might otherwise close, our greatest
contribution to any community must be that of job creation. Whilst at year-end we employed 4,000 people,
often the sole breadwinners in an extended family, the indirect job creation generated through local
expenditure by the company and employees is also important.
It is neither in Petra’s nor our communities’ interests to raise expectations that cannot be met. Rather, we have
chosen the route of engagement and often it is the non-financial contribution that cements our local
relationships. Examples of this approach include assistance with the maintenance of local police stations and
making available premises for a local orphanage.
Outlook
I would like to extend my thanks to our Board, management team and all of our employees as our success
during the year is a tribute to their collective efforts.
I am confident that the future development of Petra will continue to be exciting, and that in the year ahead
we will consolidate our acquisitions by turning in further substantial increases in revenue and margin.
I look forward to the year ahead and to reporting to shareholders on a very successful 2009.
Johan Dippenaar
Chief Executive Officer
7 November 2008
22
Board of directors
BOARD OF DIRECTORS
We are investing in new
facilities and the
most efficient working
practices to mine
diamonds.
23
Board of directors
3
4
2
Executive Chairman
1. Adonis Pouroulis
Adonis Pouroulis, aged 38, is a mining entrepreneur whose expertise lies in the discovery and exploration of
mineral resources such as diamonds, gold, platinum, coal and base metals - including iron ore, copper and
bauxite - and bringing these assets into production. Mr Pouroulis founded Petra Diamonds in 1997 and it
became the first diamond company to float on AIM. Mr Pouroulis has, with his fellow directors, built Petra into
South Africa’s second largest diamond producer, with a balanced portfolio combining major producing mines
and world-class exploration.
Chief Executive Officer
2. Johan Dippenaar
Johan Dippenaar (CA), aged 51, has nearly 20 years experience in the leadership and management
of diamond mining companies. Prior to his appointment as Chief Executive Officer (CEO) of Petra, he was
CEO of Crown Diamonds which merged with Petra in 2005. Since the merger with Crown, Mr Dippenaar
and his colleagues have led Petra through a period of extraordinary growth, during which time the Company
reached agreement to acquire four major mines from De Beers. Petra now has a production base of global
significance as well as a world-class diamond resource base. Mr Dippenaar is a chartered accountant by
profession and a member of the South African Institute of Chartered Accountants.
Finance Director
3. David Abery
David Abery (ACA), aged 46, is a Chartered Accountant (ICAEW), who brings to Petra extensive experience
as a Chief Financial Officer in both the South African and UK business environments, as well as an in-depth
knowledge of AIM. Mr Abery has been integral to the structuring and deliverance of strategic group corporate
development at Petra, as well as the instigation of a number of innovative financing mechanisms, which have
limited dilution for Petra’s shareholders. Mr Abery is an instrumental member of the Petra team, driving strategic
and commercial business development and linking in closely with the London market.
Technical Director
4. Jim Davidson
Jim Davidson, aged 63, is an acknowledged world authority on kimberlite geology and exploration, having
spent in excess of 30 years associated with diamond exploration and mining, of which 20 years have
included mine management in South Africa. As Head of Diamond Exploration in Southern Africa for BP
Minerals (subsequently Rio Tinto) in the 1980’s, Mr Davidson pioneered research into kimberlite indicator
mineral chemistry and microdiamond analysis, thereby establishing criteria for the prediction of diamond
grade based on these parameters, and set up an international database of kimberlites/lamporites before
doing inter-group disseminations on this subject matter. He is a qualified geologist and a member of the
Geological Society of South Africa and registered with the SACNSP.
Non-Executive Directors
Charles Segall
Charles Segall, aged 67, 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.
He is the Chairman of Petra's Audit and Remuneration committees.
Volker Ruffer
Volker Ruffer, aged 69, 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. He is
a member of Petra's Audit and Remuneration committees.
1
24
Review of operations
REVIEW
OF OPERATIONS
25
Review of operations
Targeting production of 1.5 to
2 million carats a year by 2010
A 51.88 carat stone, recovered from Koffiefontein and sold for
US$780,580 in December 2007
26
Review of operations
South Africa produced
15.2 million carats in 2007,
worth some US$1.4 billion
27
Review of operations
Production
The Petra Group’s production increased in the year to June 2008 by 11% from 180,474 carats (June 2007)
to 200,287 carats for the year to 30 June 2008. These figures incorporate Koffiefontein and the three fissure
mines, Helam, Sedibeng and Star. The acquisition of the Cullinan mine by the Petra Diamonds Cullinan
Consortium was completed on 15 July 2008, with the further acquisition of a 75% interest in the Williamson
mine in Tanzania announced in September 2008. Both of these operations will therefore be included in our
next set of financial results.
Petra expects production for FY 2009 to rise substantially, due to Cullinan and Williamson coming on stream,
combined with the completion of the Kimberley Underground acquisition towards December 2008. Petra has
put in place an accelerated production plan at Cullinan, with the objective of the Group reaching its
production target of over 1 million carats per annum in the financial year to June 2009. This is a whole year
earlier than originally planned and demonstrates how Petra has over-delivered against market expectations.
South Africa
South Africa, Africa’s southernmost nation, is a middle-income, emerging market with an abundant
supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors;
a stock exchange that ranks in the top twenty globally; and modern infrastructure supporting
an efficient distribution of goods to major urban centres throughout the region. Growth has been robust since
2004, as South Africa has reaped the benefits of macroeconomic stability and a global commodities boom.
South Africa’s main exports include gold, diamonds, metals and minerals, cars and machinery.
One of the leading diamond-producing nations, currently ranked number three in the world after Botswana
and Russia, South Africa produced 15.2 million carats in 2007, worth some US$1.4 billion (source:
Kimberley Process Certification Scheme).
Petra’s South African operations
Namibia
Sedibeng
Botswana
Helam
North West
Province
Limpopo
Mpumalanga
Gauteng
Johannesburg
Free State
KwaZulu-
Natal
Durban
Cullinan
Eastern Cape
Star
Kimberley Underground
Koffiefontein
Northern Cape
South Africa
Western Cape
Cape Town
28
Review of operations
South Africa - Cullinan
Name of operation: Cullinan
Description: Cullinan is one of the world’s most celebrated diamond mines and is renowned for producing
many of the most spectacular diamonds ever seen. It earned its place in history with the discovery of the
Cullinan diamond in 1905, the largest gem diamond ever found at 3,106 carats rough, and it has produced
more than a quarter of all the world’s diamonds weighing more than 400 carats. It is also the world’s only
significant source of truly rare and highly valuable blue diamonds.
The Cullinan kimberlite pipe is the second largest indicated diamond resource in the world by in-situ value
and totals some 208 million carats (including tailings).
In July 2008, Petra (as part of a Petra-led consortium) completed the landmark acquisition of the Cullinan mine
from De Beers for a total cash consideration of R1 billion. It has transformed Petra into one of the world’s
largest diamond groups on a gross resource basis and provides the opportunity for substantial production
growth going forward.
Cullinan vital statistics
Size of kimberlite pipe
Commencement of mining
32 hectares at surface
1903
Acquisition by Petra Diamonds
July 2008
Ownership
Petra Diamonds Limited: initial 37% (option to increase to 60%)
Operator
Total resources
Type of mining
Al Rajhi Holdings W.L.L.: initial 37%
Thembinkosi Mining Investments (Pty) Ltd: 14%
Petra Diamonds Employee Share Trust: 12%
Petra Diamonds
207.9 million carats
Underground block cave
Depth of mining (metres underground)
Status
747
Initial production will be expanded as the mine is fully assessed
and operational parameters established. A ramp-up mine plan
will follow this initial period of evaluation.
Ownership: The Petra Diamonds Cullinan Consortium (“PDCC”) acquired Cullinan as a going concern on
16 July 2008 and Petra is the technical operator of the mine on behalf of PDCC. PDCC comprises
Petra Diamonds Limited (37% initial interest), Al Rajhi Holdings W.L.L. (Al Rajhi) (37% initial interest) and
various BEE partners (26% interest), which include a 12% employee share trust stake. Petra can increase its
interest in PDCC (from Al Rajhi) to 60% based on performance of the mine and pre-agreed option payments.
Location: Cullinan is located some 30 kilometres east of Pretoria, in Gauteng Province, South Africa. The mine
is accessed by a tar road, and water and power facilities are readily available and in place.
Geology: The Cullinan Kimberlite pipe occurs within the stable, three billion year old Kaapvaal Craton and
intrudes rocks of the Transvaal Supergroup (Pretoria and Rooiberg Groups), Bushveld Complex and the
younger Waterberg Group.
Mining methods: The large pipe has allowed a variety of mining methods to be utilised in exploiting the
orebody. Open pit mining was carried out to a depth of 189 metres. Other mining methods used above the
gabbro sill included open benching and block caving. Initially, underground mining used the sub-level open
bench mining method but over time methods and systems were adapted according to differing ground
conditions. In the early 1970s cave mining using scrapers was implemented and sub-level open stoping was
implemented in the early 1980s. Petra is currently mining the B-Cut levels at a depth of 747 metres using
mechanised trackless block-cave mining.
Operating review: Petra completed the acquisition of Cullinan on 15 July 2008 and immediately assumed
control as operator of the mine. In September, Petra held the first tender of Cullinan diamonds and achieved
29
Review of operations
an average value of US$100 per carat for the parcel of 66,127 carats. The parcel included a 26.54 carat white
diamond, which sold for US$1,625,000. In October a 39.19 carat blue diamond was sold for US$8.8 million.
Outlook for 2009: During the first year of operation, Petra will focus on establishing the new economics
of the mine, including grade, value per carat, cost per tonne and overall production capacity of the
infrastructure. Due to this focus in the first financial year to June 2009, Petra will mine from the B-Cut at a rate
of 1.7 to 2.0 million tonnes per annum, which is expected to yield between 750,000 and 850,000 carats.
This will be augmented by production from the Optical Sorting Plant (“OSP”) tailings of approximately
100,000 carats. The OSP deposit of approximately 1.2 million tonnes cannot be included in the resource
statement, however since taking control of Cullinan, Petra has completed a series of OSP plant modifications
resulting in an initial recovered grade of 78 cpht, compared with the historic recovery rate of 28 cpht. Further
investigations to increase both grade and throughput are underway.
Production levels at the mine will be maintained at around 1 million carats per annum from financial year
2010, which has the potential to deliver annual revenues of some US$100 million. Further information on
the production plans from the OSP tailings and main tailings resource (16.8 million carats) will follow in due
course when Petra has further developed its mine planning in that regard.
Petra is in the process of making major alterations to the processing of ore by making changes within the
plant, with the objective of improving the grade while placing emphasis on the recovery of the whole spectrum
of diamonds. The mine is renowned for the production of large, high-value diamonds, including prized blue
diamonds, and all care will be taken to ensure the best possible chance of their recovery.
R400 million has been budgeted for the mine’s initial working capital and capex requirements and this has
been funded through the purchase financing package.
Reserves and Resources
Reserves and Resources
Category
Ore/Diamond Reserves
Proven
Probable
Total Diamond Reserves
Diamond Resources
Measured
Indicated
Gross
Net attributable4
Tonnes Grade Contained Tonnes Grade Contained
(millions)
(cpht) Diamonds (millions)
(cpht) Diamonds
–
–
16.188 52.12
16.188 52.12
(mcts)
–
8.437
8.437
(mcts)
Operator
–
–
Cullinan
5.990 52.12
5.990 52.12
3.122
3.122
Diamond Mine
(Pty) Ltd
255.825 71.42 182.706 94.656 71.42 67.602
Cullinan
165.369 10.15
421.194 47.36
6.208
16.780 61.186 10.15
199.486 155.842 47.36 73.810
Inferred
Total Diamond Resources
Total Carat Base (million)
Estimated Value1
(US$ million)
Notes:
1. Value calculated on US$90 / run of mine carat and US$40 / tailings carat.
2. Cullinan reserves and resources have been taken from the De Beers October 2006 internal scorecard classification (considered to be a
conservative classification) and depleted by mining conducted by De Beers from October 2006 to July 2008. Reserves and resources have
been re-classified in compliance with JORC 2004.
Diamond Mine
$17,874
207.923
$6,613
76.931
(Pty) Ltd
3. Optical Sorting Plant tailings are not included in the reserves and resources statement as they have not been systematically sampled and
thus do not have inferred status and are regarded as a deposit by Petra. However, a deposit of 1.16 million tonnes exists which has
historically been processed and which Petra is continuing to process, and Petra is achieving a grade in excess of 70 cpht.
Petra currently has a 37% interest in Cullinan. Petra can increase its interest in Cullinan to 60% based on the performance of the mine and
the payment of pre-agreed option payments.
4.
30
Review of operations
Cullinan – An illustrious history
The discovery of the Cullinan diamond
The pear-shaped,
530.20 carat
Great Star of Africa,
now resides in the
Tower of London and
is set in the British
Royal Sceptre.
On January 26 1905, during his morning inspection, mine superintendent Captain
Frederick Wells’ eye was caught by a glint of light on a wall shaft. Only nine metres
from the surface, he thought it was a piece of broken glass, placed there as a
practical joke, and so he used a pocket knife to pry it out. It was in fact a 1.5 pound
crystal, measuring 21/4 inches wide, 25/8 inches high and 37/8 inches long.
Still thinking it of limited value, but in order to check, he sent it for analysis only to
discover that it was a perfectly clear and colourless diamond weighing
3,106 carats - twice the size of the largest diamond found in the world at that point.
The diamond was named Cullinan and bought for £150,000 by the Transvaal
Government.
Legend persists that the stone was only half of its original size as its one smooth side
indicates a natural cleaving process having happened in the rock.
Transvaal Prime Minister Louis Botha’s proposal to give the Cullinan to King Edward VII
was approved by Parliament and accepted by the King in a 66th birthday
presentation on 9 November 1907.
Historic developments
1902
1903
1904
1905
Cullinan village created
around the Premier Mine
The Premier Mine
commences production
Premier Mine established as
one of South Africa’s most
productive mines
Colloquially known as
Cullinan Diamond Mine
More than 2,000 employees
by the end of the year
Elandsfontein farm purchased
for £52,000 by Sir Thomas
Cullinan, a Johannesburg
building contractor
Premier (Transvaal) Diamond
Mining Company Limited
registered on 1 December
Cullinan kimberlite pipe
discovered. At 32ha surface
area, the largest
diamondiferous kimberlite ever
found in South Africa
26 January Superintendent
Captain Frederick Wells
discovers rough diamond
weighing 3,106 carats
Diamond named The
Cullinan and sold to
Transvaal Government for
£150,000
Diamond sent to England in
unmarked postal box - while
a replica was publicly
accompanied by detectives
on a steamer from South
Africa as a diversion
1914
1930
1937
1985
By the outbreak of WW1
Premier Mine employed
c.14,000 people
De Beers acquired
controlling interest in Premier
through an arrangement with
Anglo American
Current Imperial State Crown
of Great Britain created by
Garrad & Co using the
Cullinan II, set centre front,
for the coronation of King
George VI on 12 May
Golden Jubilee Diamond
discovered at the Premier
Mine
Cut to 545.67 carats, it
supplants Cullinan I as the
largest cut diamond in the
world
31
Review of operations
Cutting the enormous stone
The Amsterdam firm of I. J. Asscher and Company was awarded the job
and the firm’s principal, Joseph Asscher studied the stone for three
months, assessing the optimum facets on which to cut.
After deciding the approach, on 10 February 1908, at 2:45 pm,
Asscher was ready. His first strike broke the cutter blade, with no damage
to the diamond, but his second stroke was perfect and split the stone as
planned. It is reported that Mijnheer Asscher promptly fainted with relief.
The two stones, weighing 1,977 and 1,040 carats respectively, were
then further cleaved into nine major stones, 96 brilliants and
9.5 carats of unpolished pieces, with a total weight of 1,063 carats –
65 per cent having been lost in the cutting process.
The two main stones, Cullinan I (The Great Star of Africa) and Cullinan
II (The Lesser Star of Africa) were given to King Edward VII, who also
bought the 11.5 carat ‘sixth Cullinan chip’ for Queen Alexandra.
The pear-shaped, 530 carat Great Star of Africa, now resides in the
Tower of London and is set in the British Royal Sceptre.
The 317 carat Lesser Star of Africa is also in the Tower of London in the
centre front band of the Imperial State Crown of Great Britain.
Cullinan is the world’s only reliable source of blue diamonds
1907
1908
The Cullinan presented to
England’s King Edward VII
on 9 November for his 66th
birthday
I.J. Asscher and Company (Amsterdam) appointed as diamond
cutter on 10 February
Cullinan I (530.2 carats) named as the Great Star of Africa,
incorporated into British Royal Sceptre with the Cross (originally
created in 1661)
Cullinan 1 is the second largest polished diamond in the world and
is the largest of nine large stones cut from the Cullinan Diamond as
well as 96 smaller brilliants and 9.5 carats of unpolished pieces
Cullinan II (317.4 carats) named as the Lesser Star of Africa and
is the fourth largest polished diamond in the world
1911
Sceptre first used as part of
the British Crown Jewels in
coronation of King George V
on 22 June
1997
2003
2007
2008
Premier (Transvaal) Diamond
Company amalgamated into
De Beers Consolidated
Premier renamed The
Cullinan mine by owners
De Beers to mark the mine’s
centenary
Petra Diamonds Cullinan
Consortium (PDCC)
announces proposed
acquisition of the Cullinan
mine for R1 billion
Cullinan mine acquisition
completed on 15 July
following regulatory and
Ministerial approval
Sources: Petra Diamonds, De Beers, Wikipedia,
DiamondVues.com,The Tower Of London,
EnglishMonarchs.co.uk
32
Review of operations
South Africa – Koffiefontein
Name of operation: Koffiefontein
Description: Koffiefontein is one of the world’s top kimberlite mines by average value per carat. The mine
produces high-value diamonds, a regular proportion of which are beautiful white diamonds between 5 and
30 carats in size, and the average value per carat achieved in the financial year to June 2008 was
US$484, against a world average of US$90. In 1994, a 232.34 carat diamond was recovered at
Koffiefontein, being the largest rough diamond ever produced by the mine.
Petra acquired Koffiefontein in July 2007 from De Beers for R81.9 million and, having conducted
care and maintenance activities at the mine in the 12 months prior to completion, was able to bring the mine
on stream immediately. This acquisition marked the initial implementation of Petra’s strategy to become a
significant diamond producer as historically, production had been solely from the fissure mines. The acquisition
has proved to be exceptional for the Petra Group as Koffiefontein is now a major contributor to group revenue,
and its high-value production is highly sought after in the international diamond market.
Koffiefontein vital statistics:
Size of kimberlite pipe
Commencement of mining
11.1 hectares at surface
1870 (mining started in the form of small claims which
were then amalgamated into the Koffiefontein mine)
Acquisition by Petra Diamonds
2007
Ownership
Operator
Total resources
Type of mining
Petra Diamonds: 70%
Re-Teng Diamonds (Pty) Limited: 30%
Petra Diamonds
6.0 million carats
Underground front cave
Depth of mining (metres underground)
490
Status
Full production
Location: The mine is located at Koffiefontein, in the Free State Province of South Africa, 110 kilometres
southeast of Kimberley.
Geology: The local geology consists of Karoo age shale and carbonaceous shale with intercalated dolerite
overlying granite gneiss basement. The main deposit is a kimberlite ore body known as the Koffiefontein pipe
which forms part of a cluster of kimberlite pipes and dykes that intrude Dwyka shales and Karoo dolerites.
Adjacent to the Koffiefontein pipe is a second kimberlite ore body known as the Ebenhaezer pipe, which is
approximately half the size, with a surface area of approximately six hectares.
Mining methods: The Koffiefontein pipe was originally mined as an open pit operation until 1981.
On completion of the open pit operations, the pit had a surface area of 44 hectares and a diameter of
750 metres, plus a depth in excess of 270 metres. Thereafter underground development began and the ore
is now mined from the underground workings using the front cave mining method to extract a 100 metre high
block of ore between 37 level and 48 level/49 level. Petra is currently mining Block 1 at a depth of
490 metres. Block 2 extends down from 490 metres to 590 metres. In addition, the kimberlite pipe has been
investigated by a drilling programme to a depth of 720 metres. Petra expects there to be significant additional
resources below the 690 metre level (current resource statement depth) which should extend the existing mine
life considerably.
Access to the underground operations is via the roadway decline down to 52 level (520 metres below
surface) and via No.2 Main Rock Shaft. Hoisting is via a vertical shaft that extends to a depth of 620 metres.
Preparation and execution for the next mining block at 59 level (590 metres below surface) is well advanced
with the decline development already underway. This new mining area is scheduled to begin production by
2012. Sufficient development has been completed through the year to secure ongoing production until the
new mining block comes online.
33
Review of operations
Koffiefontein: production for the year
was 89,622 carats, and the average
value per carat achieved was
US$484, positioning Koffiefontein as one
of the world’s top kimberlite mines
by value.
A 4.13 carat pink stone from the Koffiefontein mine
34
Review of operations
Operating review: The Petra team has now recorded its first full year of production at Koffiefontein, following
completion of the mine acquisition in July 2007. The mine management team has successfully turned
Koffiefontein from a loss-making mine into an economically viable and highly profitable operation. This has
been made possible by bringing the cost structure in line with the Petra Group, which as a smaller company
has much lower overheads in comparison with De Beers, and by right-sizing throughput and production. The
team also made key modifications in the plant, with the emphasis placed on recovery of the whole spectrum
of diamonds. Finally, Petra used its internal skills base wherever possible, rather than external contractors,
leading to substantial savings in areas such as engineering, development, support, plant design and
construction.
Production for the year was 89,622 carats, and the average value per carat achieved was
US$484, positioning Koffiefontein as one of the world’s top kimberlite mines by value. Recovered grade for
the first year of operation was 9.1 cpht, a reflection of the encouraging changes made to the treatment plant
as well as underground mining practices. This is a significant improvement on the grade modelled in Petra’s
original business plan of 7.4 cpht.
Koffiefontein is renowned for the production of exceptional diamonds. Such stones are scarce worldwide and
therefore achieve high prices. In the year to June 2008, Koffiefontein produced a 74.7 carat diamond which was
sold in September 2007 for US$1,010,000 (equivalent to US$13,556 per carat) and a 41.6 carat diamond
which was sold in June 2008 for US$1,790,000, (US$43,028 per carat). After the year end, a 4.13 carat
fancy pink diamond from Koffiefontein sold for US$226,666 (US$54,882 per carat) on tender in September
2008. Our strategy at Koffiefontein is to ensure that we have the best possible chance of recovering the better
quality and larger diamonds and every step of our processing system is geared towards this.
Costs and capex were both in line with management expectations. The cash costs at Koffiefontein ran
at approximately R90 per tonne, a level which (other than inflation based increases) we expect to maintain.
Capex for the Period was US$3.7 million, with total capex spend at the mine for the 12 months to June 2009
expected to be US$5.0 million, including the installation of electricity generation capacity.
Koffiefontein production:
Production
Diamonds produced
Grade
Sales
Revenue
Diamonds sold
Average price per carat
Unit
Carats
Cpht
US$m
Carats
US$
Note 1: All production and sales figures are stated gross; Petra’s interest is 70%
Year ended
30 June 2008
Year ended
30 June 2007
89,622
9.1
51.0
105,479
484
44,423
7.7
–
–
–
The only other economically important pipe in the kimberlite cluster at the Koffiefontein mine is the Ebenhaezer
pipe, which abuts against the Koffiefontein pipe and was mined by De Beers toward the end of their tenure.
The leading excavations of the pipe are only at a depth of 35 metres. This pipe is six hectares in surface area
and of a lower grade than the Koffiefontein pipe. Petra’s strategy will be to evaluate the potential of this
kimberlite and the current opinion is that it could be an economically viable open pit operation.
Outlook for 2009: The new tailings treatment plant at Koffiefontein is in the process of being commissioned
and once this is operational, Petra will commence the recovery of diamonds from the tailings resources.
35
Review of operations
Reserves and Resources:
Category
Gross
Net attributable
Tonnes Grade Contained Tonnes Grade Contained
(cpht) Diamonds
(cpht) Diamonds (millions)
(millions)
Ore/Diamond Reserves
Proven
Probable
Total Diamond Reserves
Diamond Resources
Measured
Indicated
Inferred
Total Diamond Resources
Total Carat Base (million)
Estimated Value
(US$ million)
(mcts)
(mcts)
Operator
18.385
18.482
36.867
3.69
8.76
6.23
0.678 12.869
1.619 12.938
2.297 25.807
3.69
8.76
6.23
0.475
1.133
1.608
Koffiefontein
JV
–
12.518
90.486
103.004
–
7.82
3.04
3.62
6.028
–
–
0.978
8.763
2.753 63.340
3.731 72.103
–
7.82
3.04
3.62
4.219
–
Koffiefontein
0.685
1.926
2.611
JV
$2,162
$1,513
Note: 1. Value calculated on US$450 / run of mine carat and US$70 / tailings carat.
2. Petra has a 70% interest in Koffiefontein.
South Africa – Kimberley Underground
Name of operation: Kimberley Underground
Description: Kimberley Underground comprises Bultfontein, Dutoitspan and Wesselton, three historic diamond
mines which were at the heart of the diamond rush in the Kimberley region of South Africa in the late 1800’s.
As with Cullinan and Koffiefontein, these mines have also produced spectacular diamonds in the past, such
as The Oppenheimer, a nearly perfectly-formed 253.7 carat yellow diamond crystal. The Oppenheimer
is one of the largest uncut diamonds in the world and was discovered in the Dutoitspan mine in 1964.
In September 2007 Petra reached agreement to acquire Kimberley Underground from De Beers and the
acquisition is expected to complete by the end of 2008. As Kimberley Underground ceased production in
August 2005, Petra is currently operating the mines under care and maintenance with ore being stockpiled
for processing once the acquisition is complete. Petra expects diamond recoveries and sales to begin in the
first few months of 2009.
Kimberley underground vital statistics
Size of kimberlite pipe
Commencement of mining
Acquisition by Petra Diamonds
Ownership
Operator
Total resources
Type of mining
Bultfontein: 9.7 hectares
Dutoitspan: 10.8 hectares
Wesselton: 8.7 hectares
Bultfontein: 1869
Dutoitspan: 1869
Wesselton: 1890
To be completed by end 2008
Petra Diamonds: 74% (once acquisition completes)
Sedibeng Mining: 26% (once acquisition completes)
Petra Diamonds
6.4 million carats
Bultfontein: rim loading section and block cave
Dutoitspan: slusher drift block caving
Wesselton: slusher drift block caving
Depth of mining (metres underground)
Bultfontein: 845
Dutoitspan: 870
Wesselton: 995
Status
Care and maintenance until acquisition completes
36
Review of operations
Location: The Kimberley Underground mines are located within the historic city of Kimberley, the provincial
capital of the Northern Cape Province in South Africa.
Geology: The kimberlite pipes in the Kimberley area have intruded into the horizontally bedded, black and
grey carbonaceous shales of the Karoo Supergroup, with minor interbedded sandstone and siltstone layers.
This formation conformably overlies an erratically developed Dwyka tillite, which seldom exceeds three metres
in thickness. This sequence has been intruded by a dolerite sill up to 30 metres thick. Locally this sill has acted
as a barrier to kimberlite intrusion with the resultant formation of kimberlite sills at or near the base of the
dolerite sill. The Karoo rocks unconformably overlie the Ventersdorp Supergroup strata of variable thickness.
The Ventersdorp Lavas in turn unconformably overlie the uneven Basement Granite.
Mining methods: Each kimberlite pipe has been mined using various mining methods. Bultfontein was most
recently mined by means of a rim loading section and a block cave. The Dutoitspan and Wesselton pipes
most recently employed slusher drift block caving prior to cessation of operations.
Kimberley Underground Mines are serviced by two separate shaft infrastructures. Joint Shaft services
the Bultfontein and Dutoitspan mines, which are close to each other. Wesselton is approximately
five kilometres away from Joint Shaft and is serviced by its own shaft infrastructure.
Operating review: The Kimberley Underground mines are currently operated by Petra under care and
maintenance with ore being stockpiled for processing once the acquisition is complete and all regulatory
approvals received. The rehabilitation of the block caves is continuing well. With the rehabilitation of a
closed mine, extreme care must be taken during the ramp-up process, and presently everything is going
according to plan.
Outlook for 2009: Petra anticipates that the acquisition of Kimberley Underground will complete by the end
of 2008, following which the Company can immediately commence diamond recoveries. The new plants,
which Petra is building in-house, have been designed to cater for the large diamonds known to exist in the
Kimberley mines, the largest of which previously recovered was over 800 carats in size. Petra expects
diamond recoveries and sales to begin in the first quarter of 2009.
Based on historical production and sales information, Petra expects annual sales from Kimberley Underground
in excess of 100,000 carats at an average of US$160 per carat once full production is renewed, giving
gross annual revenues in excess of US$16 million. It should be noted that the average value of US$160 per
carat is based on the last sales of Kimberley Underground production which was some three years ago and
Petra expects prices to now be substantially above this level.
Reserves and Resources:
Category
Ore/Diamond Reserves
Proven
Probable
Total Diamond Reserves
Diamond Resources
Measured
Indicated
Inferred
Total Diamond Resources
Total Carat Base (million)
Estimated Value1 (US$ million)
Gross
Net attributable3
Tonnes Grade Contained Tonnes Grade Contained
(millions)
(cpht) Diamonds (millions)
(cpht) Diamonds
(mcts)
(mcts)
Operator
–
–
–
–
–
–
3.073 19.96
3.073 19.96
0.614
0.614
2.274 19.96
2.274 19.96
0.454
0.454
Kimberley
Mines JV
–
–
–
–
–
5.794 20.00
1.159
4.287 20.00
9.68
48.113
53.907 10.79
6.428
9.68
4.655 35.604
5.814 39.891 10.79
4.756
–
0.858
3.444
4.302
$995
$736
Kimberley
Mines JV
Notes: 1.Value calculated on US$160 / run of mine carat.
2. Kimberley Underground reserves and resources have been taken from the De Beers October 2006 internal scorecard classification
(considered to be a conservative classification). No processing has taken place since that date. Reserves and resources have been
re-classified in compliance with JORC 2004.
3. The acquisition of Kimberley Underground is expected to complete by the end of 2008, at which point Petra will hold a 74% interest.
37
Review of operations
At Kimberley Underground Petra has rehabilitated all
infrastructure to such an extent that underground
mining production has commenced.
The rehabilitation of the block caves is continuing well.
Wesselton pipe, Kimberley Underground mine, South Africa
38
Review of operations
South Africa – Fissure Mines
The fissure mines – Helam, Sedibeng and Star – were acquired when Petra merged with ASX quoted
Crown Diamonds NL in May 2005. The average value per carat for Petra’s three fissure mines is running at
US$211, which is high compared with the world average of US$90 for a hard rock mine. The fissure mines
also regularly produce exceptional diamonds, including a number of stones which have sold for over
US$1 million each in the last few years. In September 2008, a 126.69 carat diamond from the fissures sold
for $5,251,000 (or $41,448 per carat).
Average cash costs per tonne ran at approximately R530 overall for the three fissure mines, a level which
management is confident can be substantially improved upon. Capex for the Period was US$3.45 million.
Fissure mines vital statistics:
Commencement of mining
Acquisition by Petra Diamonds
Ownership
Operator
Type of mining
Total resources
Type of mining
Helam: 1933
Sedibeng: 1952
Star: 1952
May 2005 (further to merger with Crown Diamonds NL)
Helam: 100% Petra Diamonds
Sedibeng: 74.5% Petra Diamonds, 25.5% BEE partners
Star: 100% Petra Diamonds
Petra Diamonds
Helam: Full shrinkage overhand stoping
Sedibeng: Full shrinkage overhand stoping
Star: Open stope underhand
4.8 million carats
Underground fissure mining
Depth of mining (metres underground)
Helam: 750
Sedibeng: 750
Star: 600
Full production
Status
Fissure mines combined production:
Production
Diamonds produced
Grade
Sales
Revenue
Diamonds sold
Average price per carat
Unit
Carats
Cpht
US$m
Carats
US$
Year ended
30 June 2008
Year ended
30 June 2007
110,665
41.9
26.3
124,693
211
136,051
42.1
16.7
122,821
136
Note 1: All production and sales figures are stated gross
39
Review of operations
Reserves and Resources
Category
Ore/Diamond Reserves
Proven
Probable
Total Diamond Reserves
Diamond Resources
Measured
Indicated
Inferred
Total Diamond Resources
Total Carat Base (million)
Estimated Value
(US$ million )
Gross
Net attributable3
Tonnes Grade Contained Tonnes Grade Contained
(millions)
(cpht) Diamonds (millions)
(mcts)
(cpht) Diamonds
(mcts)
1.435 56.49
2.050 70.31
3.485 64.62
–
–
–
–
1.453 175.42
1.453 175.42
4.800
$640
0.810
1.441
2.251
–
–
2.549
2.549
1.326 58.79
1.990 71.54
3.316 66.44
–
–
–
–
1.415 178.22
1.415 178.22
0.779
1.423
2.202
–
–
2.523
2.523
4.725
$595
Operator
Petra /
Sedibeng
Mine JV
Petra /
Sedibeng
Mine JV
Notes:
1. Value calculated on US$420 / carat for Sedibeng, US$220 / carat for Star and US$85 / carat for Helam.
2. Fissure mines; grades and fissure widths are extrapolated downwards below working levels from detailed historical records collected over
many decades of mining, with confirmation of fissure continuity by diamond drilling where necessary.
3. Petra has a 74.5% interest in Sedibeng and a 100% interest in both Helam and Star.
Name of operation: Helam
Location: Helam is located in the Swartruggens District of the North West Province in South Africa.
Geology: The fissure array consists of three kimberlite types which occur in four mining units. The fissures have
been exploited over a strike length of 7,000 metres and to a depth of 750 metres below surface at the
deepest point.
Mining methods: The three kimberlite fissures are accessed through an underground shaft system which covers
the four mining units: the John, Edward, Second Lease and Third Lease units. The mining method used is full
shrinkage overhand stoping and the mine continues to move towards greater mechanisation with the
deepening of the John shaft down to 23 level, with a planned depth to 26 level. The commissioning of this
shaft to these levels should be accomplished by 2010 and will make the two subshafts that currently hoist ore
to 14 level for transfer and hoisting to surface redundant, thereby making a significant reduction in double
handling, one of the biggest challenges at Helam.
Operating review: Mine infrastructure is being upgraded to support a 150,000 tonnes per annum operation
and the mechanisation programme is progressing well. The John main shaft has been deepened to the
23 level and is on target to reach full production down to the 26 level by the end of 2010. The shaft has
been modified from cage hoist to skip hoist. Electrical locomotives are being installed, allowing multiple loads
to be moved more quickly. A decline was driven from the 10 level to near the 19 level to open up the Second
Lease fissure to the existing main shaft. In addition, development is in progress to link Second Lease to the
existing deepened John shaft on the 22 level.
Outlook for 2009: The mechanisation process underway at Helam is expected to reduce operating costs and
increase productivity by the 2010 financial year.
40
Review of operations
Name of operation: Sedibeng
Location: The Sedibeng operation includes the Messina and Dancarl mines and is located in the Warrenton
District, Northern Cape Province in South Africa.
Geology: At surface the kimberlite fissures are intruded into flat-lying dolomitic limestones of the
Campbell-Rand Series of the Transvaal Supergroup. At a vertical depth of approximately 400 metres, the
Black Reef shales and quartzites of the Chuniespoort Series are encountered, which in turn unconformably
overlie andesitic lavas of the Ventersdorp Supergroup. At the deepest point of the mine (approx 750 metres)
the host rock is still the same.
Mining methods: Full shrinkage overhand stoping
Operating review: The mechanisation process at Sedibeng is the most advanced of all of Petra’s fissure mining
operations and continues to be upgraded. Raise boring is now being undertaken to deepen the Dancarl shaft
to 21 level. Drilling of the pilot hole to 21 level has been completed and the reaming process to one metre
is 50% complete, whereafter the slyping process to full shaft dimension will be executed. This process should
be completed by March 2009. A winder and headgear have already been secured for the new duty cycle
on this shaft and should be operational by mid 2009, opening up a block of ground in excess of half a million
tonnes for mining access. This ore will be hoisted directly into the new plant mentioned below, enhancing
mechanisation and security.
Petra’s internal equipment manufacturing arm completed the construction of a new 100 tph DMS diamond
recovery plant during 2007, which now caters for all production from Sedibeng mining and tailings. This
plant is resulting in a reduction in operating costs and a significant improvement in diamond recovery, as
evidenced by the recovery of the 126.69 carat diamond.
Outlook for 2009: The mechanisation process underway at Sedibeng will enable Petra to decrease the cost
of mining by the 2010 financial year and modestly increase production.
Name of operation: Star
Location: Star is located in the Theunissen District of the Free State Province in South Africa.
Geology: The Star mine property covers approximately 1,034 hectares and is composed of a combination
of mining leases, mining licences, diamond rights and free holdings on various segments and portions of farms
in the Free State. The mine exploits a series of kimberlite fissure segments over an east-west trending strike
length of 4.5 kilometres which is part of a more extensive 15 kilometre long series of fissures. The individual
fissures range in width between 5 centimetres and 80 centimetres, and average 45 centimetres.
Mining methods: Open stope underhand
Operating review: A series of upgrades have been implemented at the mine, including the manufacture of a
new plant and new ventilation shafts. The main shaft sinking programme has been successfully completed to
15 level. The cover drilling for the deepening of the main shaft to 16 level has been completed and the
commencement of shaft sinking is imminent. The decommissioning of the sub-shaft winder will thus occur in the
near future, thereby removing the cost of double handling. The ventilation shaft from surface to 13 level has
been secured as well as a second return ventilation raise between 14 and 13 level in the event of
emergencies. This greatly assists in handling the methane intersections that frequently occur in this mine. The
mine is currently producing at an annual rate of 32,000 tonnes.
Outlook for 2009: The mechanisation process underway at Star will enable Petra to increase production by
the 2010 financial year.
41
Review of operations
Tanzania
Tanzania’s robust economy reflects its stable political situation. Annual growth rate between 2000 and 2006
averaged 5.8%, one of the best performers in sub-Saharan Africa. In 2007 the country’s GDP amounted to
US$16.18 billion with a growth rate of 7.3%. In 2007 the GDP per capita amounted to US$1,300.
According to the World Bank, Tanzania ranked as the seventh most popular destination for foreign capital out
of the 47 sub-Saharan African countries listed, having attracted over US$2.8 billion of foreign direct
investment between 2000 and 2006.
In 2007, Tanzania produced nearly 280,000 carats, worth some US$28.3 million (source: Kimberley
Process Certification Scheme).
Petra’s Tanzanian operation
Lake
Victoria
N
Mwanza Arusha
Williamson
Kigoma
Tabora
Tanga
Tanzania
Darasalem
Dodoma
Lake
Tanganyika
0
800km
Lake
Nyasa
Name of operation: Williamson Mine
Description: The Williamson mine is an open pit diamond mine at Mwadui in the Shinyanga Province of
northern Tanzania. At 146 hectares, Williamson is the largest kimberlite pipe ever to be mined economically,
having been operated continuously as an open pit mine for almost 70 years. During this time it has produced
over 20 million carats, and there remains a major resource of some 40 million carats. The mine regularly
produces large, high-quality stones and is a source of rare and extremely valuable fancy pink diamonds.
In September 2008 Petra reached agreement to acquire Williamson from De Beers and the acquisition
is expected to complete in November 2008.
Williamson vital statistics:
Size of kimberlite pipe
Commencement of mining
146 hectares
1940
Acquisition by Petra Diamonds
To be completed November 2008
Ownership
Operator
Total resources
Type of mining
Depth of mining
Status
Petra Diamonds: 75% (once acquisition completes)
Government of the United Republic of Tanzania: 25%
Petra Diamonds
40.2 million carats
Open pit
90 metres at deepest point
Producing
42
Review of operations
Williamson will initially add
150,000 carats a year to
Petra’s production
43
Review of operations
Williamson mine, Tanzania
44
Review of operations
Location: Williamson is located at Mwadui, 40 kilometres north east of Shinyanga, the capital of the
Shinyanga Region in Tanzania.
Geology: The geology of the Mwadui deposit consists of a shale basin, Turbidite (Bouma) facies, granite
breccia, reworked volcanistic kimberlite deposits, and primary pyroclastic kimberlite (Stiefenhofer 2000).
The country rock consists of granite and gneiss. The Mwadui Pipe was emplaced in Archaean granitic
basement and meta-sediments. The meta-sediments include schists, phyllites, occasional quartzites and rare
banded iron stones. Many of the kimberlite occurrences in and around Shinyanga are characterised by the
presence of crater deposits, suggesting that minimal erosion has taken place in this region since the Tertiary
period when the kimberlites were emplaced. The country rock geology in the immediate vicinity of the pipe
is dominated by granites which can be divided into two distinct types; a younger porphyritic variety which
intruded an older gneissic suite.
Williamson is an example of a major diamond mine where operations are focused on the higher-grade
resedimented volcaniclastic kimberlite (“RVK”) material close to the rim of the kimberlite crater.
Petra’s exploration model at its Alto Cuilo and Luangue projects in Angola is similarly based upon delineating
one or more RVK deposits of significant size.
Mining methods:
The Williamson mine is a large open-pit operation, with a very low stripping ratio.
The current operation comprises the open-pit mine feeding the main plant (3.7 million tonnes per annum
capacity). There is also a dense media separation, multi-purpose plant and a pan plant on site. In 2007, the
mine treated approximately 3.2 million tonnes of ore, recovering 220,000 carats at a grade of 6.9 carats
per hundred tonnes. Total waste mined during 2007 was approximately 0.8 million tonnes, yielding a
stripping ratio of approximately 0.24 tonnes of waste per tonne of ore.
Operating review: Petra expects to complete the acquisition of Williamson in November 2008, and will
begin production at Williamson from this date. Operating activities and results will be included in the 2009
financial year.
Outlook for 2009: Williamson will initially add 150,000 carats a year to Petra’s production. During the first
year of operation the Company will focus on establishing the new economics of the mine, including grade,
value per carat, cost per tonne and overall production capacity of the infrastructure. Once these new
operating parameters have been established, Petra will consider an appropriate expansion programme which
will include autogenous milling so as to capitalise on the economies of scale offered by the large size of the
Mwadui resource. Indications are that the introduction of the new technology could increase throughput to
around, or above, 7.5 million tonnes per annum, reducing unit operating costs and resulting in an estimated
annual production of some 500,000 carats.
Reserves and Resources:
Category
Ore/Diamond Reserves
Proven
Probable
Total Diamond Reserves
Diamond Resources
Measured
Indicated
Inferred
Gross
Net attributable3
Tonnes Grade Contained Tonnes Grade Contained
(millions)
(cpht) Diamonds (millions)
(cpht) Diamonds
(mcts)
(mcts)
Operator
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
-–
–
–
Williamson
Diamonds
Limited
Williamson
Diamonds
Limited
Total Diamond Resources
995.040
92.623
902.417
4.98
3.94
4.04
4.616 69.467
4.98
3.462
35.546 676.813
3.94 26.660
40.162 746.280
4.04 30.122
40.162
Total Carat Base (million)
Estimated Value1
(US$ million)
Notes:
1. Value calculated on US$140 / run of mine carat.
2. Williamson resources have been taken from the De Beers December 2007 internal scorecard classification (considered to be a conservative
30.122
$5,623
$4,217
classification). Resources have been classified in compliance with the JORC code.
3. The acquisition of Williamson is expected to complete in November 2008, at which point Petra will hold a 75% interest.
45
Review of operations
In addition to the abovementioned resource, there are deposits yet to be classified, that include 41 million
tonnes of tailings dump and 14 million tonnes of alluvial gravels. The gravels are currently being worked on
a tribute basis and the tailings dumps have been processed in the past. As Petra’s new parameters for the
mine are established, programmes will be put into place to quantify these deposits.
Exploration
Complementing the Group’s production is an exploration and development portfolio spread across some of
the world’s most prospective diamond fields. Petra has a range of projects at varying stages of development
and it is these assets which will form the building blocks of future production.
Angola
Angola is one of the most prospective countries in Africa for diamond exploration, as evidenced by the fact
that certain of the diamond majors, such as De Beers, BHP Billiton and Alrosa, have active exploration
activities in the country, and it is expected by many to yield the world’s next large kimberlite diamond mine.
The north-east area of the country is rich in kimberlites, and the country’s major kimberlite mine, Catoca, is
approximately 35 kilometres from Petra’s assets. At 60 hectares in size, Catoca is the world’s fourth largest
kimberlite mine and it produces over 7 million carats per annum.
Currently ranked fifth in the world league of diamond producing countries, Angola aims to be among the
world’s three leading diamond producers in 2010. The country’s state-run diamond company, Endiama, has
indicated that Angola’s production could reach 10 million carats in 2008, compared with the 9.7 million
carats (worth US$1.2 billion) of 2007 (source: Kimberley Process Certification Scheme).
Petra’s Angolan operations
Matadi
Luanda
Benguela
Huambo
Namibe
Luangue
Alto Cuilo
Kananga
Mbuji-Mayi
Lukanga
N
Lubumbashi
Ndola
Kabwe
Lusaka
Zambezi
Legend
Petra conscession areas
0
125 250
500
750
1,000km
Name of operation: Alto Cuilo
Description: Alto Cuilo has been identified by analysts as one of the most exciting diamond exploration projects
in development today. It is a world-class exploration project, as evidenced by the large number of kimberlites
which have been discovered to date and the large size of these kimberlites (ranging up to 175 hectares).
46
Review of operations
Alto Cuilo vital statistics:
Size of concession
Date acquired by Petra Diamonds
Interest (kimberlite contract)
Operator
Status
2,670km2
1997
Petra Diamonds: 41.2% (upon completion of BHP Billiton’s
withdrawal)
Endiama: 51%
Moyoweno: 7.8%
Petra Diamonds
Advanced exploration – narrow diameter drilling and mini bulk
sampling underway
Location: Alto Cuilo is located in the Lunda Sul province of Angola, some 850 kilometres by road south-east
of Luanda, Angola’s capital.
Geology: The Alto Cuilo exploration project lies within the Lucapa corridor – a structural trend that hosts most
of the known kimberlites and alluvial diamond deposits in north-eastern Angola. Granite/gneiss basement
is overlain by Karoo sandstones and mudstones whose thickness is fault controlled and highly variable.
Karoo and basement lithologies are overlain by Cretaceous Calonda sands that are the same age as the
kimberlite intrusions, and a lack of significant erosion of Calonda and kimberlite lithologies has resulted in
almost complete preservation of the kimberlite craters. Calonda and kimberlites have been covered by as
much as 60 metres of Kalahari sands that have been incised by the current river systems, resulting in
kimberlites outcropping in some river valleys.
Review of progress: Alto Cuilo is a project of major scope and scale, with a total of 122 anomalies greater
than 8 hectares in size, which were identified across the licence area using a Midas gradient array low level
helicopter aeromagnetic survey. To date the drilling programme has tested 104 priority targets of which
81 were confirmed to be kimberlites, an unusually high success rate in terms of kimberlite exploration.
The Alto Cuilo JV with BHP Billiton had previously focused on delineating economically-viable, large-tonnage
kimberlite vents containing diatreme-facies volcaniclastic or tuffisitic kimberlite. Once Petra took control of
operations in April 2008, the Company chose to refocus the programme on the diamond-bearing potential
of crater-facies RVK, and specifically the RVK typically encountered along the rims of kimberlite craters. The
volcaniclastic and sedimentary processes that redistribute kimberlitic material during and directly after volcanic
eruptions often cause significant enhancement in both grade and stone size within the RVK layers, especially
where concentrated RVK lies close to the crater rim. These crater rims have the potential to contain substantial
deposits of economic diamond-bearing material, as is the case at other diamond mines with similar
mineralisation, such as Catoca in Angola and Williamson in Tanzania.
RVK rims in Kimberlites
Crater Facies Sands
Epiclastics
Proximal
Distal
RVK Rim
Pyroclastics
Tuff Ring washing back into Crater
forms RVK rim (reconcentration
of diamonds)
Tuff Ring
Crater Rim
Depth (km)
Country Rock Breccia
Diatreme Facies
0.0
0.3
0.8
47
Review of operations
The majority of the targets
are in the southern part of
the Luangue project area and
appear to be contiguous to
the Alto Cuilo kimberlite field
which has already been
proven to be diamondiferous.
Exploration activity, Angola
48
Review of operations
Petra’s new work programme to the end of 2008 is focused on a 276km2 area, targeting eight of the
81 kimberlites identified. These eight, ranging from an estimated 30 to 175 hectares in estimated surface
area, form a cluster and could be mined individually or together using a central process plant. The programme
will investigate the considerable amount of RVK that has been indicated by narrow diameter drilling (“NDD”)
at the rims of these eight targeted kimberlites. All of these kimberlites, where accessible, have supported
substantial levels of artisanal mining activity in the past.
Area of accelerated work programme
AC98
AC42
AC9
AC63
AC71
AC70
AC16
AC60
Priority 1
Priority 2
Priority 3
N
0
5
10
20km
Kimberlite AC16 (with a geophysically estimated surface area of 120 hectares) is one of Petra’s lower ranked
kimberlites, but, due to ease of access and the presence of diamonds from previous sampling, Petra decided
that it would be the first priority kimberlite to have a bulk sample taken from its RVK rim. Treatment of this bulk
sample has now been completed. The sample measured at 2,877 dry tonnes was taken from a five metre
thick layer of outcropping crater rim RVK and processed through a 10 tph dense media separation plant
(bottom cut-off 1mm). A total of 273.38 carats were recovered from the sample, giving a grade of 9.5 cpht
for the total material processed.
Final results for the RVK sample from AC16 are summarised in the table below.
AC16 – Bulk Sample Results
-1
+1
+3
+5
+7
+9
+11
+13
+15
+17 +19 +21
Total
-0.82 +0.82 +1.15 +1.47
+2 +2.35 +2.86 +3.85 +4.62 +4.93 +5.56 +7.09
0
0
322
782
975
352
230
137
27
6
14
7
1
2,853
5.16 22.63
57 39.18 41.21 45.56 20.64
5.78 17.47 14.76 3.99 273.38
Sieve
Size
mm
No. of
Stones
Total
Carats
This result is highly significant as it is almost treble the grade achieved from BHP Billiton’s sampling of this
kimberlite, where primary tuffisitic kimberlite was sampled from the kimberlite vent and averaged a grade of
3.6 cpht for 214 tonnes of material processed. The diamonds recovered in the sampling programme thus far
are similar in quality to the diamonds recovered during the BHP Billiton kimberlite and alluvial sampling
programme in this immediate locality during 2005 and 2006, which were valued well in excess of
US$200 per carat at that time. It should be mentioned that the bulk sample site represents one position on
the 3.5 kilometre circumference of AC16 where RVK outcrops due to erosion in a river valley. The rest of the
RVK rim does not outcrop and will be tested by MBS drilling. Bulk sampling will now focus on the RVK rims
of the other kimberlites earmarked for follow-up, the next being AC9.
In the NDD programme, designed to identify the presence of RVK rims close to surface, 47 narrow diameter
boreholes (7400 metres total) have been completed. At AC9, 907 metres of drilling in 9 holes has delineated
near-surface RVK on the north, west, and southern rims of the anomaly, which is now estimated to have a
surface area of 25 to 30 hectares from geophysics and drilling. This kimberlite is the first priority kimberlite
49
Review of operations
based on heavy mineral analysis (“HMA”) and proximity of RVK to surface. No microdiamond testing has
been carried out previously as the initial drilling of this kimberlite occurred very late in BHP Billiton’s tenure,
however the presence of abundant and intensive artisanal mining attests to it being significantly
diamondiferous. Four of the NDD boreholes from the previous programme intersected crater rim RVK and
indicate that this material is virtually continuous on the north, west and southern rims of the kimberlite. MBS
sites are being prepared and a bulk sample is currently being excavated where RVK has been located at a
depth of five metres from surface.
AC9 – NDD programme
Current drilling
on RVK rim
BH AC9 – 12
Magnetic anomaly
outline
BH AC9 – 11
Previous drilling towards
centre of anomaly
N
Narrow diameter diamond drill holes
0
200
400
800m
A total of 12 NDD boreholes (2,169 metres total) have been drilled on anomalies AC42 and AC110, which
together form a virtually contiguous kimberlite with a combined surface area of 112 hectares (estimated from
geophysics). These NDD boreholes targeted the high magnetic response on the southern portion of
AC42 that continues west onto the adjacent anomaly AC110. The NDD intersections have confirmed that
this magnetic high is due to the presence of RVK, the top of which has been intersected between 40 and
85 metres from surface in all boreholes. MBS drilling sites are currently being investigated for the impending
MBS programme.
Outlook: Petra is confident that Alto Cuilo has the potential to host one or more diamond deposits that would
add substantial value to Petra’s portfolio, and to Petra shareholders, and that refocusing the exploration
campaign on the crater facies RVK gives the best possible chance of finding such a kimberlite deposit.
The MBS drilling has been waiting for the NDD campaign to advance to a stage where areas of proximal
RVK have been located. This has been completed over anomalies AC9 and AC42, and NDD rigs are moving
to the other anomalies for further exploration of the crater rim RVK material. MBS drilling will commence at
AC9, where a minimum of 50 tonnes of RVK material will be taken from individual RVK units at each sample
site. MBS drilling will then proceed to AC42, and then to the other anomalies in the work programme.
Name of operation: Luangue
Description: The Luangue concession lies within the southern part of the diamond-rich Lunda-Norte province,
contiguous to the northern boundary of the Alto Cuilo project. Though it is at a much earlier stage of
development, Petra is similarly positive about its potential and initial indications are that it could hold one or
more substantial diamond deposits.
Petra’s knowledge and experience gained on Alto Cuilo’s exploration programme will be used as the key to
unlock Luangue’s considerable potential. In particular, knowledge of kimberlite indicator mineral (“KIM”)
signatures gained from exploration on Alto Cuilo will be applied to the Luangue drilling programme to speed
up the prioritisation of kimberlites for MBS testing, and in light of the MBS results from Alto Cuilo, RVK rims
will be targeted for mini-bulk sampling at Luangue.
50
Review of operations
Luangue vital statistics:
Size of concession
Date acquired by Petra Diamonds
Interest (kimberlite agreement)
3,000 km2
March 2007
Petra Diamonds: 39% (upon completion of BHP Billiton’s
Operator
Status
withdrawal)
Endiama: 51%
Bapsil: 10%
Petra Diamonds
Early stage exploration – narrow diameter drilling underway
Location: The Luangue project lies contiguous to the north of Alto Cuilo in Angola’s north-eastern diamond belt.
Geology: Like Alto Cuilo, the Luangue concession sits in the Lucapa corridor – a structural trend that hosts most
of the known kimberlites and alluvial diamond deposits in north-eastern Angola. The same host-rock
stratigraphy of basement granite/gneiss overlain by Karoo, Calonda, and Kalahari sediments is thought
to exist at Luangue based on the limited information from drilling to date, though the new aeromagnetic data
(see below) suggests that basement may be much closer to surface in the northern and eastern portions of the
Luangue concession, similar to the geological setting of the Catoca kimberlite, only 35 kilometres away.
Review of progress:
In December 2007, a helicopter-borne gradient array low-level, high-resolution
aeromagnetic survey was carried out over the Luangue project area (28,000 line kilometres at 100 metres
line spacing, covering approximately 90% of the total Luangue area). To further improve the resolution,
a “towed bird” configuration was also used as this serves to minimise magnetic interference. This survey
approach utilises highly sensitive technology and is capable of achieving very high quality and reliable results.
This is next generation exploration technology and is even more sensitive than that previously applied with
success at Alto Cuilo.
The results of this survey, released in May 2008, were highly encouraging with 138 anomalies identified.
The total surface area of the targets is in excess of 8,000 hectares, with certain individual targets up to
233 hectares (estimated) in surface area. A number of the targets are in the north of the Luangue project area,
including targets L119 and L120 at an estimated 50 hectares (estimated) and 215 hectares (estimated) in
size respectively. These two targets lie in the north east corner of the Luangue concession, with L120 being
just 35 kilometres to the west of the major Catoca diamond mine.
The majority of the targets are in the southern part of the Luangue project area and appear to
be contiguous to the Alto Cuilo kimberlite field which has already been proven to be diamondiferous.
Petra has commenced a NDD programme to test 49 prioritised targets, of which 26 total approximately
1,800 hectares. Drill holes will be positioned to intersect RVK close to surface at the estimated crater rim
locality, which has been shown by exploration at Alto Cuilo to be the area most likely to host economic
mineralisation, due to diamond concentration and upgrade in stone size. Preliminary modelling carried out
by Xcalibur Geophysics on the high resolution magnetic data for five of the high priority targets indicates cover
of less than 50 metres at the shallowest point. This is supported by drilling at known kimberlites on Luangue,
which have been intersected within 30 metres of surface.
The first phase of the NDD programme has been designed to intersect near-surface proximal RVK deposits
based on the magnetic response from the airborne magnetic survey carried out late last year. To date a total
of 2,228 metres have been drilled in 15 narrow diameter holes on eight anomalies, resulting in the discovery
of four new kimberlites: L60, L76, L87 and L90. In total, nine kimberlites have been discovered at Luangue,
as a further five kimberlites had already been identified by previous exploration work.
Highlights of the drilling programme to date are three holes into anomaly L87 in the north-west corner of the
concession. The L87 anomaly is 228 hectares in size, representing an elongate body that appears to be
made up of three lobes. Three narrow diameter drill holes positioned to test each lobe of the body have all
intersected RVK, with the best intersection to date occurring in BH L87-2 where RVK has been intersected from
56 metres to 150 metres below surface.
51
Review of operations
Exploration activity, Botswana
52
Review of operations
The alluvial potential of Luangue is better than at Alto Cuilo and alluvial exploration to date has recovered nearly
3,000 carats from the immediate vicinity of five of the targets, further supporting the potential of the area.
Outlook: Based on the knowledge, experience and exploration results gained from the neighbouring Alto
Cuilo concession, the Luangue project will produce a large number of kimberlites which will be effectively
prioritised for more detailed exploration. A second NDD rig will be added to the programme in the near future
to speed up the rate of this first phase of drilling. Detailed exploration will be fast tracked on priority
anomalies, concentrating on the near-surface RVK rim material. Road access to the northern portions of the
Luangue concession is currently being established, allowing the anomalies closest to the Catoca mine to be
tested for the first time.
Botswana
Botswana is the world’s largest producer of diamonds by value and host to the world’s richest diamond mine,
Jwaneng. It is also one of Africa's most stable countries and the continent’s longest continuous multi-party
democracy. The country is sparsely populated due to the Kalahari desert which makes up much of the territory.
The diamond industry has transformed Botswana into a middle-income nation and one of the most dynamic
economies in Africa. Diamond mining has fuelled much of its economic expansion and currently accounts for
more than one-third of GDP and 70-80% of export earnings. Other exports include copper, nickel, soda ash,
meat and textiles. Botswana produced 33.5 million carats in 2007, worth US$2.9 billion.
Petra’s Botswanan operations
Angola
N
Namibia
Zimbabwe
Francistown
Gaborone
South Africa
Legend
Petra diamond licences
Other diamond licences
Name of operation: Kalahari Diamonds
Description: In September 2005, Petra acquired 100% of Kalahari Diamonds Limited and subsequently
became the holder of the largest area under diamond prospecting licence in Botswana, currently approximately
48,500km2, all of which is “on craton”. Petra believes enhanced exploration techniques can be employed in
Botswana to good use, as much of the previous exploration work carried out across the country applied less
sophisticated procedures and equipment. The Company has already proven this theory with the discovery of
several new kimberlites in areas which have previously been extensively explored. There are 36 known
kimberlites in Petra’s licence areas and other highly prospective anomalies for further investigation.
Kalahari vital statistics:
Size of concession
Date acquired by Petra Diamonds
Interest
Operator
Status
48,500km2
September 2005
Petra Diamonds: 100%
Petra Diamonds
Early and advanced exploration – drilling campaign underway
in certain areas
53
Review of operations
Location: Petra’s licence areas cover approximately 48,500km2 throughout different regions of Botswana.
Geology: Due to Botswana’s poorly-exposed geology, covered in large swathes by Kalahari sand cover,
exploration techniques rely largely on geophysics. The Kalahari group covers most of Botswana, increasing
in depth from east to west. Karoo age flood basalts also cover large portions of Botswana, underlying the
Kalahari sand. As a result, the basement geology of most of Botswana is poorly exposed and understood,
and information is based on drilling. Botswana is the world’s largest producer of diamonds by value, hosting
several of the world’s major mines at Jwaneng, Orapa, Letlhakane and Damtshaa.
Review of progress:
Jwaneng
In 2007 Petra was pleased to be granted prospecting licences in the vicinity of the Jwaneng diamond mine.
These licence areas hold two kimberlites, DK4 and DK6, both of which have been proven to be
diamondiferous. The prospectivity of these kimberlites is in the process of being evaluated and Petra’s
interpretation of the modelled data indicates that both kimberlites could be larger than previously thought. A
drilling programme to investigate this, as well as to acquire fresh material for appraisal, is now underway.
Gope
Exploration activities on our ground holdings covering the Gope kimberlite field and the subsequent
commissioning of a 700km2 low level high resolution horizontal gradient magnetic (Xcalibur) survey in the area
led to the discovery of a new kimberlite, proving the exploration potential of an area which has been
thoroughly explored by other mining companies over the past 25 years.
In light of this significant development, the Gope Xcalibur survey data was used to generate further targets
and this exercise revealed several prominent anomalies worthy of further review. These anomalies were
selected for ground geophysical follow-up and the best targets have been selected for a drilling programme
included in our present 6,000 metre campaign, which commenced in August 2008.
The source of the historical KIM anomaly in the area remains largely unexplained due to its significant spatial
offset from the known kimberlites. The potential for undiscovered kimberlites in the Gope area thus remains
and this, coupled with the recent results obtained from the application of new exploration technologies,
contributes to our view that the area remains highly prospective.
Kukama
The Kukama project area, approximately 75 kilometres south-west of Gope, is another area viewed as being
highly prospective and our licence areas contain 16 known kimberlites. In this area, Petra has completed
target generation and selection utilising a 51,000 line kilometre high-resolution magnetic gradiometer
(Xcalibur) data, and geophysical ground follow-up of the targets is ongoing. 30 anomalies were selected for
ground follow-up, of which 15 have been elevated to drilling targets, as part of our 6,000 metre drilling
campaign in the Gope and Kukama areas.
The Kukama drilling programme will include approximately 2,000 metres of drilling on known kimberlites such
as the GO173S kimberlite cluster, as a second phase of investigation following initial geophysical and
geological modelling. GO173S has been modelled as a “champagne glass” shaped kimberlite with an
estimated surface area that could possibly reach 25 hectares in size. The current drilling campaign has been
designed to test this model, and to see if tuffisitic kimberlite can be intersected below the interpreted transition
zone between crater and diatreme facies as it would appear that previous drilling intersected country rock
breccias. Previous limited MBS test work by De Beers (restricted to the north of this kimberlite) returned various
grades, including one hole at 9.6 cpht. The remainder of this deposit remains untested.
The drilling programme is also designed to test the RVK potential of the diamondiferous Ki1 kimberlite (part of
the Kikao kimberlite cluster). The drilling of one hole has been completed with kimberlite intersected and cores
will be transported in from the field for interpretation. Also in this locality, a new kimberlite (Ki/Sek1/H1) has
been discovered during the current drilling programme with a geophysically interpreted size of nearly
four hectares. The kimberlite was intersected beneath a 20 metre thick layer of basalt which in turn was
covered by a 40 metre layer of Kalahari sand. The drilling programme is continuing.
54
Review of operations
The Kukama area, similarly to Gope, displays a large KIM anomaly of more than 25 kilometres in its longest
dimension. Likewise this KIM halo remains largely unexplained in that the known kimberlites in close proximity
to the anomaly do not carry the same mineral characteristics (in that they appear to be ilmenite deficient, thus
not contributing to the ilmenite anomaly halo). Therefore, it is likely that the kimberlite source of this halo is
yet to be discovered.
Orapa - Letlhakane
A 12,673 line kilometre high resolution magnetic gradiometer (Xcalibur) survey completed over the
‘Orapa North’ sections of Petra’s licence areas resulted in the identification of 20 targets selected for ground
follow-up. Of these, 10 were followed up in a 388 metre drilling programme with no kimberlite discovered.
Of significance, however, is the discovery of a new kimberlite, BK1S, in the Orapa - Letlhakane area, which
shares a common boundary with Debswana’s Damtshaa mining licence. The kimberlite is capped with basalt
and was first intersected at a depth of approximately 40 metres (hence escaping previous detection); some
holes were stopped at a depth of 100 metres, still in kimberlite. The kimberlite has been petrographically
classified by a leading independent kimberlite expert as an incipient transitional, hypabyssal-facies, partly
segregationary, macrocrystic, altered monticellite kimberlite and is rated as moderate to high interest with
respect to diamond potential.
This kimberlite discovery extends northwards into the Debswana mining licence and the portion in Petra’s
licence areas could represent 20% to 30% of a larger kimberlite. Petra has been in contact with Debswana
in relation to this discovery.
Outlook: Petra has an array of highly prospective targets to be further investigated and the Company will
continue to run a focused and methodical work programme in Botswana for the next year, having thus far
discovered three new kimberlites in previously heavily prospected terrain. The next phase of the exploration
programme is the 6,000 metre drilling programme which commenced in August in the Gope East, Gope
West and Kukama project areas, where 15 priority targets have been earmarked for drilling. Petra will also
conduct a detailed investigation of the recently discovered kimberlite BK1S in the Orapa-Letlhakane area and
other known diamondiferous kimberlites, focusing on the GO173 cluster in the Kukama area and the
diamondiferous kimberlites DK4 and DK6 in the Jwaneng area.
Petra will continue the acquisition of detailed ground geophysical data as follow-up to targets identified from
airborne geophysics and will also conduct a target generation exercise in the Mabutsane-Tshwaane area.
Sierra Leone
Sierra Leone emerged from a decade of civil war in 2002 and is showing signs of a successful transition,
with the first democratic elections carried out successfully in 2007. Investor and consumer confidence
continues to rise and the recent increase in political stability has led to a revival of economic activity, with
the country’s main exports being diamonds, rutile, cocoa, coffee and fish. In 2007, the country produced
just over 600,000 carats worth some US$141 million, a significant increase over 2004’s US$126 million
(source: Kimberley Process Certification Scheme).
Petra’s Sierra Leone operations
Conakry
Faranah
o
g
n
o
M
Falaba
Kabala
Guinea
Freetown
Waterloo
Kono
Sefadu
Lunsar
g
n
o
J
Bo
Mano
Gahnpa
Atlantic Ocean
Monrovia
Liberia
55
Review of operations
Name of operation: Kono
Description: Kono is a ‘fissure’ kimberlite project, where several different fissures have been identified.
Kono vital statistics:
Size of concession
Date acquired by Petra Diamonds
Ownership
Operator
Status
200km2
May 2005 (further to the merger with Crown Diamonds NL)
Petra Diamonds: 51%
Stellar Diamonds: 49%
Petra Diamonds
Advanced exploration – trial mining underway
Location: Kono is located in the Kono district, in the Eastern Province of Sierra Leone.
Geology: Diamonds were first discovered in the Kono district in 1930. Subsequent exploration defined
extensive alluvial diamond fields, with an exceptionally rich group of deposits in the Koidu area.
The kimberlites found in Sierra Leone are generally fissure style deposits, the narrow and vertical root zones
of kimberlite pipes where the top area has been eroded away. More than one type of kimberlite can be
present within dyke systems (multiple intrusive phases in both space and time) and the continuity and
complexity of the kimberlite lenses is dependent primarily on the characteristics of the host rock.
Review of progress: After an intensive and focused exploration programme, the Kono kimberlite project is
at an advanced stage of development. Trial mining is currently underway and two shafts are being
developed, Pol-K and Bardu, with processing of exploration and development material to date yielding
20,889 diamonds, weighing a total of 1,729 carats.
The Pol-K shaft and development is now at 64.5 metres depth. Stoping commenced in late August, allowing
for increased ore extraction and recovery of diamonds and enabling Petra to obtain a more representative
diamond grade and value. The current in-situ development grade at Pol-K has increased to 66 cpht
(19 February 2008: 63 cpht), and some 13,439 diamonds weighing 1,148 carats have been produced
from this kimberlite fissure.
At the Bardu shaft, where development is at 50 metres depth, a break out from the shaft has begun
and exploration development along strike has commenced; trial mining stopes will be established once
ground conditions permit. An in-situ development grade of 75 cpht is being recorded at Bardu and some
6,225 diamonds weighing 471 carats have been produced from this kimberlite fissure.
The first parcel of Kono test production (1,064 carats) was sold on tender this September, with the Pol-K shaft
parcel of 866 carats achieving an average value per carat of US$152.
Due to the considerable exploration potential at Kono, a 3,167 line kilometre airborne electromagnetic
geophysical survey has been completed by Fugro Airborne Surveys, the objective being the discovery of
kimberlite pipes and blows. Processing of the data is complete and has been delivered. The data has been
contracted out to an external expert and final interpretations should be available by the end of 2008.
Outlook: As diamond production from the trial mining increases over the coming months, Petra will be able
to offset total project expenditure against the revenues generated by regular diamond sales, as well as further
establish the parameters for a production decision.
56
Reserves and resources
RESERVES AND
RESOURCES
Cullinan mine, South Africa
57
Reserves and resources
Petra published an updated statement of the Group’s reserves and resources on 23 September 2008. Petra’s
reserve and resource estimate has changed beyond all recognition to the updated carat base of 265 million
carats gross (121 million carats attributable)
2008 carat base split per
operation (carats gross)
We have established a
world-class resource
base of 265 million
carats, worth
US$27.3 billion.
(October 2007: 11.38 million carats gross;
9.33 million carats attributable). The in-situ value
of US$27.3 billion gross (US$13.7 billion
attributable) is a transformational increase for the
Group (October 2007: US$1.9 billion gross/
US$1.5 billion attributable).
This increase is due to the inclusion of Cullinan,
the world’s second largest indicated diamond
resource by in-situ value at 208 million carats,
Williamson, a major resource of over 40 million
carats and Kimberley Underground, at over
6 million carats. A summary of the reserves and
resources for the combined Petra operations is
shown below.
The compilation of such a major resource base is perhaps one of the more significant achievements of the
Group in the last year, and it places Petra far above its peer group in terms of resource size. This has enabled
us to achieve a geographical spread as well as a diverse mix of mining operations, from underground to
open cast. We shall continue to deliver growth to our shareholders by bringing this world-class resource base
to account.
Summary of Reserves and Resources by status
– combined operations – September 2008
Cullinan
Koffiefontein
Kimberley Underground
Williamson
Fissure mines
207,922,971
6,027,729
6,427,679
40,162,000
4,800,699
Category
Gross
Net attributable
Tonnes
Grade Contained
Tonnes Grade Contained
(millions)
(cpht) Diamonds
(millions)
(cpht) Diamonds
2007 carat base split per
operation (carats gross)
Ore/Diamond Reserves
Proven
Probable
Total Diamond Reserves
Diamond Resources
Measured
Indicated
Inferred
Total Diamond Resources
Total Carat Base (million)
(mcts)
19.819
39.794
59.613
7.51
30.43
22.81
1.488
12.111
13.599
14.195
23.192
37.387
8.83
26.44
19.76
(mcts)
1.254
6.132
7.386
–-
–-
–-
–-
–-
–-
366.760
51.66
189.459
177.173
40.98
72.606
1,207.838
1,574.598
5.16
15.99
62.283
251.742
838.358
1,015.531
4.86
11.16
40.762
113.368
$27,293
Estimated Value (US$ million)
Note 1: “cpht” – carats per hundred tonnes; “mcts” – millions of carats
265.341
120.754
$13,674
Note 2: The statement is in respect of the Cullinan, Koffiefontein, Williamson, Kimberley Underground, Helam, Sedibeng and Star mines.
Although the acquisitions by Petra of majority interests in the Williamson and Kimberley Underground mines are only expected to
complete by end November and end December 2008 respectively, Petra considers it appropriate to disclose to shareholders the total
reserves and resources that will very shortly accrue to the Group.
Reserve and Resource expansion 2007-2008
Million carats, value (US$ million)
11.38
9.33
2007
2008
0
Gross
Attributable
265.34
120.75
US$1,976
US$1,515
US$27,293
US$13,674
280 millon
Koffiefontein
Fissure mines
6,449,721
4,931,382
58
Mining, processing and distribution
MINING, PROCESSING
AND DISTRIBUTION
Mining, processing and distribution
59
The process – from rock to ring
After millions of years embedded in ancient earth, a rock, a ’petra’ in ancient Greek, is brought to the surface.
Only a small number of these diamonds survive their explosive journey and fewer still are of a quality suitable
for use in a precious piece of jewellery. However, each diamond is unique and finds its own place in the
market based on its individual characteristics.
Exploration
Diamonds originate some 150 kilometres below the Earth’s crust and were transported to the surface by
molten rock, or magma, originating at great depths. The magma carries with it not only diamonds, but
samples of other minerals from its journey from deep below the Earth’s surface; some of these minerals, such
as garnets and other “indicator minerals”, have become key tools in diamond exploration.
Generally, kimberlites are found in clusters, with up to 10 found in close proximity to each other. However,
not all tend to be of the same age and even within a single occurrence, several different volcanic events over
different times may be present, adding to the complexity of sampling and proving the economic potential of
the ore body.
Geologists use many methods in kimberlite exploration, including satellite remote sensing, geophysics,
reconnaissance sampling and drilling in the ground to establish whether or not the pipe contains economic
quantities of diamonds. The first step is generally to identify areas that have suggestions of historical diamond
recovery, followed up by stream or deflation sampling for the evidence of the presence of kimberlite by the
recovery of indicator minerals. Thereafter, the use of geophysics to search for magnetic anomalies is applied.
Sampling and drilling are then used to confirm whether the anomalies are indeed kimberlites.
Once an anomaly has been confirmed as a kimberlite, heavy mineral analysis (“HMA”) sampling of
representative material is carried out as a quick and efficient method of assessing whether the kimberlite has
the potential to be diamondiferous. Micro-diamond and mini-bulk sampling are then used to establish if there
is the potential for those kimberlites prioritised by HMA sampling to host an economic concentration of
diamonds.
Mining
Hard rock mining
Mining of a diamond-bearing pipe starts with the excavation of a pit into the kimberlite pipe. In this process,
called “open-pit” or “open-cast” mining, the initially weathered 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 tunnelled into the pipe. This is known as block caving.
Concrete-lined tunnels are excavated under a large vertical section, perhaps 100 to 200 metres 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
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.
Fissure mining
Erosion will eventually wear down a kimberlite ore body until only the root zone remains, leaving only this
narrow ‘fissure’ zone to be mined. These fissures are vertical orebodies that are generally very narrow
(average width less than 70 centimetres) and contain better-quality diamonds than the average diatreme
bodies. Fissure mining, otherwise known as ‘dyke mining’, is complex because the narrow ore body delivers
a much lower tonnage operation. In addition, the fissures tend to pinch out, leading to a great premium being
placed on understanding the ore body and mining methods. More than one type of kimberlite can also be
present within dyke systems (multiple intrusive phases in both space and time) which can further complicate
the mining process. Few companies have successfully tackled fissures for long periods, and Petra is regarded
as the world leader in the field of mining these kimberlite fissures.
60
Mining, processing and distribution
Alluvial mining
Alluvial mining is a more straight-forward process. Operators strip the overburden to uncover the gravels,
which are then mined using the conventional open-pit method. Processing alluvial ore is generally cheaper
because it does not require blasting or major crushing before being sent to pan plants or dense media
separation (DMS) plants.
In this transportation and reworking of river gravels, only the strongest, least-fractured diamonds survive.
This means that diamonds found in old riverbeds generally are of higher quality than run-of-mine kimberlite
production, although grade is usually low.
Processing
Once a diamond operation yields ore, the diamonds must be sorted from the other materials. Excavated ore
is transported to a processing plant, which removes diamonds by virtue of their weight and density.
Hard rock ore is crushed first and then processed through the remaining plant systems, which consist of a
series of screens, jigs and scrubbers and a gravity pan or DMS plant to remove lighter material and create a
concentrate of heavy material.
Diamonds are then extracted by using an X-ray machine and/or grease table and checked by hand sorting.
Most diamonds luminesce under X-rays and can be identified and separated in final recovery. However some
diamonds, particularly more valuable type II stones, do not respond well to X-rays, so grease tables are used
to catch the diamonds. As diamonds are hydrophobic, meaning they repel water, they stick to grease while
the wet concentrate runs over the grease belts.
Waste material is piled into tailings dumps. Some tailings dumps may contain economic grades due to the
inefficient processing of high grade kimberlites and alluvial deposits. The opportunity exists to reprocess
tailings dumps in order to extract those diamonds that have been left behind.
Sorting and Distribution
Once mined, rough diamonds are delivered to sorting experts who categorise and assign a value to them,
no mean feat considering that no two diamonds are the same. Diamonds are sorted into parcels according
to their shape, size, clarity and colour, but within these categories there are thousands of variants which can
affect the price. It is here that gem quality diamonds are separated from industrial diamonds. Otherwise
known as ‘boart’, industrial diamonds are small, lower quality stones which can be used in equipment such
as drill bits and lathes.
Traditionally, the vast majority of diamonds were sold through the formal De Beers channels but it is now
common for many companies, such as Petra Diamonds, to sell their goods via tender. Diamantaires attend
these auctions at any one of the 24 registered diamond bourses around the world and place competing bids
to ‘win’ the diamond parcel of their choice.
Cutting and Polishing
The process of shaping a rough diamond into a polished gemstone is both an art and a science. A well-cut
diamond reflects light within itself, from one facet to another, as well as through the top of the diamond,
bringing out its spectral brilliance.
Mining, processing and distribution
61
The cutting and polishing of a diamond crystal always results in a dramatic loss of weight; rarely is it less than
50%. Sometimes the cutters compromise and accept lesser proportions and symmetry in order to avoid
inclusions or to preserve the carat rating.
After a stone has been cut, it is then polished and classified again, this time by its cut, colour, clarity
and carat weight, also known as the “Four Cs”. It is then sold via one of the registered diamond
exchanges (also known as “bourses”) located around the world or direct to wholesalers or diamond
jewellery manufacturers.
Retail
Diamonds have come to represent the ultimate gift of love and commitment, and it is therefore fitting that the
cornerstone of diamond jewellery sales worldwide is the engagement ring. Whilst diamonds qualify as luxury
goods, they are much more than this, expressing as they do powerful human emotions.
For hundreds of years, diamonds have been given to celebrate the most important moments in people’s lives,
such as engagements, weddings, anniversaries and the birth of a child. All over the world, thousands of
diamond retailers cater to these needs, from small, independent jewellers to mass market superstores, and we
have recently seen a huge growth in sales from online. Purveyors of antiques also have an important place in
the market given that the value of a diamond endures and appreciates over time.
As diamonds continue to broaden their socio-economic and geographical appeal, designers duly respond
and there is a diamond size and style to suit every taste.
The process of
shaping a rough
diamond into a
polished gemstone
is both an art and
a science.
62
Diamond market overview
DIAMOND MARKET
OVERVIEW
The luxury goods markets
in developing Asia will be driven by
the wealth effect and rapid expansion
by luxury retailers
A 116 carat diamond recovered from
Cullinan mine, South Africa
63
Diamond market overview
Highlights
Robust outlook for the diamond market, with experts agreeing that, in the medium
term, demand is predicted to outpace supply
The developing luxury goods markets in Asia will be driven by the wealth effect
and rapid expansion by luxury retailers
The major beneficiaries of the forecast supply shortfall will be producers of better
quality and large gems, these stones are truly rare and in very short supply
The supply/demand imbalance, coupled with increasing global wealth and
consumer spending shows the hallmarks of a long-term uptrend, sustainable for
many years to come
Market fundamentals
The positive fundamentals of the diamond market provide a compelling case for investment, with experts
agreeing that demand is predicted to outpace supply. Despite the growing expenditure in exploration
worldwide, there have been no major discoveries since the Ekati and Diavik mines in Canada in the early
1990s. Mine supply is tightening as existing reserves are depleted and the only two stockpiles of any
consequence, Russia and De Beers, have now been largely eroded.
As diamond analyst James Picton of BMO Capital Markets notes, “We believe the rough diamond market is
in the early stages of one of its longest periods of prosperity ever.” (January 2008)
Supply and demand in rough terms (at H1 2008 value)
Supply
Demand
$26bn
$24bn
$22bn
$20bn
$18bn
$16bn
$15bn
$14bn
$12bn
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: WWW International Diamond Consultants
Diamond supply
Structural constraints in the diamond mining industry, combined with a steadily declining mineral reserve base
and a continued lack of major new discoveries, continue to hamper the prospects of further supply growth.
Inventories of rough diamonds are at historically low levels, with the De Beers and Alrosa stockpiles now
virtually eliminated. Even in the most optimistic supply scenario there is a sizeable market shortfall.
Finding economic kimberlites is difficult with less than 1% of all orebodies discovered being brought
into production. There are only approximately 30 major diamond mines globally, and of the annual
US$12 billion world diamond production, only 13 mines produced US$300 million or more each.
In addition, the time taken from the discovery of a kimberlite to the start of production is usually in excess of
seven years.
On the supply side, the only significant new mines coming into production recently or in the next five
years are De Beers’ Snap Lake and Victor operations in Canada and the AK6 kimberlite in Botswana.
Snap Lake and Victor will add some 2 million carats to world supply, while AK6’s production should be
around 900,000 carats.
64
Diamond market overview
In a global supply of US$12 billion, this is not a great deal, particularly as Diavik, Ekati, Argyle, Venetia and
some of De Beers’ older mines will be slowing. The chart below shows the steady decline in global diamond
reserves:
header
n
o
i
t
c
u
d
o
r
p
f
o
t
f
e
l
s
r
a
e
Y
90
60
30
0
1982: Jwaneng and Argyle (AK1)
Enter production
1983: Jwaneng and Argyle (AK1)
Starts to ramp up production
1971: Orapa
Starts production
1986: Argyle (AK1)
Starts full production
Ekati
Diavik
1970
1975
1980
1985
1990
1995
2000
2005
Source: BHP Billiton. Reserves of major operating mines at annual production
In 2007 global diamond production fell 0.6% to US$12.1 billion. Total production by volume fell
4% to 168 million carats, whilst value per carat rose 5% to US$71.98 a carat for the year. The supply picture
worsens this year, with diamond production predicted to decrease by 10% to 138 million carats in 2008.
Going forward, production is expected to remain relatively flat, unless there are any new major discoveries,
whereas demand will continue to rise.
Global rough diamond supply 2005 to 2015
Carats in ‘000s
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
0
South Afica
Canada
Botswana
DRC
Source: James Allan, Botswana Resource Conference, July 2008
Namibia
Tanzania
Russia
Sierra Leone
Angola
Zimbabwe
Australia
Other
160,000,000
In September 2008, a survey conducted by Rio Tinto (and reported by Rapaport) concluded that diamond
professionals consider the shortage of rough supply as the most important challenge facing the diamond
industry during the next five years.
Demand drivers
Industry commentators agree, in the medium term, that demand for diamonds is likely to continue increasing at
a steady rate of around 3% per annum. The key drivers of demand are growth in GDP per capita, rising income
levels globally and cultural adaptation. Diamond consumption is driven by the later stages of economic
development and demand will benefit from the secular rise of the emerging economies. Increased globalisation
will continue to drive overall GDP growth and urban household income growth in the world’s major cities.
Whilst the US remains the main driver of diamond demand, accounting for some 45% of total diamond
consumption at present, the developing economies of China, India, Russia and the Middle East represent the
key growth areas. Diamond jewellery sales in China and India have entered a period of accelerated growth
65
Diamond market overview
Real GDP Growth (%)
Global
US
EU
China
India
Latin
America
0
2006
2010
BRICs
Source: Economist Intelligence Unit forecast for 2010 (August 2007)
12
fuelled by the rapid change and progress in these two markets. Brand investment by retailers and
manufacturers in these markets is strong and there is a cultural preference to display wealth and invest in
jewellery.
Research and Markets Group, having reported total Chinese jewellery sales at US$26 billion in 2007
(up 12.5% on 2006), has identified jewellery as the third largest consumer "hot spot" in China after real estate
and cars. Given that China currently accounts for just 6% of global GDP and 4% of global consumer
expenditure, but represents 22% of the world’s population, the growth opportunity is evident as the region is
aggressively targeted by luxury goods retailers.
Diamond consumption per capita in emerging regions is currently far below the established regions of the
US and Japan as illustrated in the chart below, and we can expect to see a corresponding uplift in demand
for diamonds in line with rising disposable incomes. It is predicted that 550 million Chinese will enter the
‘middle classes’ in the next 10 years.
Diamond consumption intensity
n
o
i
t
p
m
u
s
n
o
c
d
n
o
m
a
d
i
l
i
t
a
e
R
30.0
25.0
20.0
15.0
10.0
5.0
0
)
$
S
U
(
a
t
i
p
a
c
r
e
p
10,000
20,000
30,000
40,000
50,000
USA
Japan
India
Mainland China
GDP/capita (US$)
Despite current poor economic conditions in the US, slow but steady growth is expected over the longer term,
as diamond jewellery demand is expected to continue to grow in line with GDP. Growth will be mainly driven
by the increasing number of households entering high income brackets, the continued expansion of discount
retailers offering low-priced jewellery and an expected effort by manufacturers and retailers to provide new
product options.
Whilst there are fears about a US recession hurting demand for diamonds in the short term, there is evidence
that the rapidly rising demand in emerging markets is helping to make up for a US downturn. Harshad Mehta,
Chairman of the retail arm of Rosy Blue, one of the world’s largest diamantaires, stated in May 2008:
"Demand in the U.S. will slow down by about 15% this year, but demand from elsewhere will offset the sales
66
Diamond market overview
drop. In total, our sales will be even better than last year, especially from markets like Dubai.”
US diamond jewellery sales (US$bn)
n
b
$
S
U
36
34
32
30
28
26
24
22
20
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Higher demand at the high end
The major beneficiaries of a forecast shortage of rough diamonds for the jewellery trade will be producers of
better quality and large gems, the stones being truly rare and in very short supply.
Rapid growth of emerging economies such as China, India, Russia and the oil-rich Gulf states has multiplied
the number of high net worth individuals (“HNWIs”), many of whom are willing to pay ever higher prices for
fabulous jewellery and rare gemstones, there are currently 9.5 million HNWIs globally, a rise of 8% on the
previous year.
248 000
+7% Canada
485 000
+8% UK
798 000
+4% Germany
119 000
+16% Russia
2 920 000
+9% US
389 000
+8% France
300 000
+12% Middle East
345 000
+8% China
1 455 000
+4% Japan
100 000
+21% India
161 000
+10% Australia
120 000
+10% Brazil
100 000
+13% Africa
The map above shows the number of individuals with over US$1 million in investable assets as of 2006, with
their % growth over last year – Source: Merrill Lynch / Ledbury Research May 2008
67
Diamond market overview
The new wealthy
The number of ultra HNWIs (those with more than US$30 million) may represent just 1% of the HNWI
population but their numbers are growing at a faster pace, having increased at a compound annual growth
rate of some 13% over 2002-2006.
header
Poulation
Wealth
0%
35
99
65
1
100%
HNW
UHNW
Source: Merrill Lynch / Ledbury Research May 2008
The number of ultra HNWIs in China rose to 6,000 in 2008, overtaking the number in Japan (5,300) for
the first time. Solid economic growth should ensure that the number of HNWIs in the Asia-Pacific region
continues to grow at a rate of 8% per year over next four years. By 2012 their wealth should reach
US$13.9 trillion, up from US$9.5 trillion in 2007 (source: Cap Gemini Asia-Pacific Wealth Report 2008.)
To such ultra wealthy consumers, price is irrelevant and their demand for the small supply of top quality
diamonds has meant that prices for such stones have shown solid growth over the last few years.
Therefore, it is not surprising that we are witnessing increased investor interest in diamonds, with one dealer
likening the opportunity to buy a rare diamond to that of buying a rare work of art, with the price likely to
appreciate significantly over time. To take advantage of this trend, a fund named Diamond Circle Capital,
which was admitted to the London Stock Exchange in June 2008, became the first ever publicly-listed fund to
invest directly in polished diamonds as the physical underlying asset, specifically targeting large,
high-end stones.
Synthetic diamonds
It is now possible to create ‘man-made’ diamonds in laboratory conditions, but sophisticated detection
procedures are in place which can identify them as such. Disclosure remains key and it is accepted that an
industry priority should be to reduce the number of descriptors for man-made diamonds to enable consumers
to make an informed decision.
Synthetic diamonds currently remain a very small proportion of total supply. Improved technology could lead
to greater penetration and could impact the lower end of the market. However, cultural trends and consumer
preference for natural diamonds are likely to protect the higher end of the market.
The natural diamond market is very well established, having been in place for hundreds of years, and despite
cheaper alternatives being available, from cubic zirconia to Swarovski crystals, the market for natural
diamonds has continued to grow. A natural diamond offers a unique, intrinsic emotional value and is the gift
of choice for life’s most special and meaningful occasions, including engagements, births and anniversaries.
Conclusion
The argument for significant, sustained rough diamond price increases is largely supply driven. However, the
demand picture, and in particular the ability of diamonds to maintain and enhance their appeal over long
periods of history, and to broaden their socio-economic and geographical attraction, is also of great
importance.
Information Sources
BHP Billiton, Bloomberg, BMO Capital Markets, Cap Gemini, Cazenove, De Beers, Economist Intelligence Unit, IDEX, Kimberley Process
Certification Scheme, Ledbury Research, Merrill Lynch, Polished Prices, Rapaport, RBC Capital Markets, Research and Markets, Rio Tinto
Diamonds, WWW International Diamond Consultants.
68
Corporate social responsibility and sustainable development
CORPORATE SOCIAL
RESPONSIBILITY AND
SUSTAINABLE DEVELOPMENT
Corporate social responsibility and sustainable development
69
70
Corporate social responsibility and sustainable development
South Africa
Petra employs some 3,360 people in South Africa and is the second largest employer in the diamond industry
after De Beers.
Training
Petra’s focus remains on developing and training our workforce through educational programmes and skills
transfer initiatives. Petra is actively engaged with the Mining Qualifications Authority (MQA), the mining
industry’s recognised Sector Education and Training Authority (SETA). Training and development initiatives
provide our employees with the skills to improve not only their efficiency and safety in their working
environment but also their ability to progress within the Company. A leadership programme has been rolled
out across the South African operations as we look to develop the next generation of senior management from
within the Company. Petra provides support to local Adult Basic Education and Training (ABET) facilities,
which in turn provide a service to our employees and the local communities. By encouraging employee
attendance on ABET programmes, there is increased scope for the facilities to operate outside the mining
environment and Petra provides economic assistance to these facilities on a limited basis.
Safety
Petra is proud of the good track record it has built up with regards to fatality-free shifts at the operating mines
in South Africa. The current status is eight years fatality-free shifts at Sedibeng, four years each at Star and
Helam and one year at Koffiefontein (note: we have only operated the Koffiefontein mine for one year), giving
a combined total of 17 fatality-free years.
Health
HIV/AIDS remains a significant area of concern to companies, employees and communities in South Africa.
In the main, Petra’s HIV/AIDS programme is a preventative one, with a strong focus on creating awareness,
and there are several peer education training and safety awareness programmes in place across our
operations. At the Cullinan mine we have inherited an advanced and comprehensive HIV/AIDS programme.
At this site, voluntary counselling, testing and, where indicated, anti-retroviral therapy (ART) are available to
employees. This programme provides an ideal model for Petra to replicate across all its operations.
Environmental Practices
Petra is dedicated to making its operations as environmentally sustainable as practicable and
is fast making headway with its environmental commitments. We have not only been adhering to best
practice guidelines, but have also taken a leap forward with the addition of Cullinan to the Petra portfolio.
Cullinan is certified as being ISO14001 compliant, which means that the most stringent environmental
procedures and practices are upheld at all times. This certification is assessed by both internal and
independent auditors – Shangoni Management Services and Swiss Certification respectively – on
a regular basis.
Water monitoring is currently in operation at all of the mines and rehabilitation is being implemented, taking
into account the life cycle of the mines’ waste rock dumps. One such project is currently being taken up at
Star Diamonds, while another project is being carried out at Cullinan to determine which angles, seed mixes
and soil types are the best for rehabilitation. Aside from these projects, the people at Koffiefontein have taken
it upon themselves to germinate Camel Thorn seedlings in the hope of replacing alien and invasive species
of flora with these indigenous plants.
Kimberley Underground
The Kimberley Underground JV has recently sponsored 20 learners’ school fees for a year at the local
Dutoitspan Primary School. The sponsorship also includes two winter and two summer uniforms, stationery,
sports equipment and a gift for each learner.
Kimberley Underground is also actively involved in establishing a safe haven and referral centre for the
abused women and children of the Kimberley area. The Sinothando Centre provides these women and
children with counselling and access to social workers. The project is in collaboration with the Department
of Social Services.
Corporate social responsibility and sustainable development
71
Sedibeng
Petra’s Sedibeng mine supports the Selelo Child Project, in collaboration with Thabiso, a local NGO.
This project is a community based initiative which addresses the plight and needs of the growing number
of street children in the Warrenton area. Petra’s support is vital to ensure the sustainability of this project.
The Selelo Child Project provides these children with, amongst other things, regular meals and assistance
in order to attend school. It also provides activities to keep the children off the streets and offers a vital
safe haven when children feel threatened. The children are provided access to counsellors and social
workers who support them and provide them with guidance. For some of these children, the love and care
that they experience from those involved in the project is the most valuable gift of all.
Community involvement
Angola
Angola is a country still finding its feet after a lengthy civil war which ended in 2002, and Petra’s exploration
activities are accompanied by substantial involvement in social and economic initiatives to improve the lives
of our employees and those living in the communities surrounding the mining areas. Petra’s Angolan mining
operations cover some 6,000km2 in the north-east of the country, and the communities living within this area
total about 20,000 people.
Training
The Alto Cuilo and Luangue projects employ 335 people, 85% of whom are unskilled and drawn from the
villages located near the projects. Petra involves its employees in a wide range of training programmes to
develop a skills base in these communities. The semi-skilled and management positions are currently staffed
with a mixture of expatriate and Luandan expertise, but Petra’s training programmes are designed to empower
local employees and decrease Petra’s reliance on migrant and expatriate labour.
A pro-active ‘women in mining’ policy has been followed, and despite the challenges associated with
operating in a predominantly subsistence and rural economy, our Angolan operations have female employees
in the following positions: Director, General Manager, Logistics Manager, Deputy Financial Manager, Deputy
Operations Manager, Camp Manager, Geologist and a number of female trainee Geologists.
Safety
Building on the legacy of the BHP Billiton joint venture, Petra adheres to the most stringent practices of health
and safety in Angola and strives continually to train staff and raise safety awareness at all levels.
Community involvement
Petra has a well-established relationship with the communities located in and around the project areas, and
the Company has funded the building of a local primary school and assists with equipment and general
support for the school. The school currently caters for 100 learners from the surrounding community at Alto
Cuilo and a second school is being built for more distant communities. Petra also has good relationships with
the local authorities and regularly assists the local Government and police with transport and logistics.
Health
The company has ongoing HIV/AIDS and malaria education and prevention programmes. Petra now runs
two fully-funded and well-equipped clinics in the area to cater for the local community. The clinics are staffed
by Angolan doctors and nurses as well as by expatriate emergency medical technicians and treats around
400 patients per month. Petra is enormously proud of the significant impact the clinic has made on the
surrounding community, especially on infant mortality, over the past few years. The clinic is equipped to
handle and give primary assistance to trauma cases and in severe cases our ambulance transports patients
to the nearest hospital. In the last six months 35 evacuations were effected.
72
Corporate social responsibility and sustainable development
The brass marching band at Cullinan mine, South Africa
Corporate social responsibility and sustainable development
73
The Alto Cuilo project provides potable drinking water to the surrounding villages to limit the spread of water
borne disease such as cholera and improve local sanitation.
Environmental practices
The mining legislation in Angola places the onus on the operating company to ensure good environmental
policies are followed and Petra is fully committed to ensuring minimal environmental impact from its mining
activities. Areas which have been disturbed through mining are rehabilitated as soon as operations are
complete, the original top soil is replaced and it takes about three months for the natural vegetation to
re-establish itself in the mined area. Water used on site is sourced from the local river, and recycled through
a slimes dam process.
Successful treatment of trauma case at PAC Clinic
Recently the clinic at Alto Cuilo helped a local man recover from a black mamba snakebite. A black mamba
is one of the most deadly of all snakes and injects a neurotoxic venom that proves fatal in almost 100% of
cases if not treated immediately. The man was rushed to Petra’s clinic where he was treated with anti venom
and stabilised before being transferred to a hospital. He has now fully recovered from his ordeal.
The construction of a local primary school
A local primary school has been constructed in the Alto Cuilo area. The school currently caters for
100 pupils from the surrounding community at Alto Cuilo.
Botswana
Our Botswanan projects are at an early stage in their exploration development and as such, are not labour
or capital intensive. The exploration teams do not remain in one area for any length of time and their main
focus is on ensuring that the work done impacts as little as possible on the surrounding environment. Diamond
mining is well-established in Botswana and Petra works closely with the Botswana Government and the
Department of Wildlife and Tourism to ensure that all legislation is complied with and the necessary permits
obtained for its exploration activities.
As Petra’s exploration programme in Botswana continues to develop, and certainly as the Company looks to
establish an economically viable kimberlite mine, community interaction will become more involved and
similar programmes to those established in other countries of operation will be initiated.
Sierra Leone
Petra, with its JV partner Stellar Diamonds, provides a stable work environment and accompanying skills
development and community upliftment programmes in Sierra Leone, a country re-establishing its economy and
infrastructure after a decade-long civil war.
Petra is one of the largest formal employers in the Kono district of eastern Sierra Leone, employing
301 people. In an area dominated by a subsistence, agrarian economy, the benefit of this reliable
employment has a substantial multiplier effect, with Petra’s employees supporting an estimated
2,000 dependents within their households.
Safety
Petra adheres to the most stringent practices of health and safety in Sierra Leone and strives continually to train
staff and raise safety awareness at all levels.
Training
Petra places a high value on its human capital and on-the-job training relating to formal mining techniques is
provided, improving a skill set that is largely based on artisanal mining. This vocational training is key to both
Petra and the community as it not only improves the earning capability of the employees but provides Petra
with the opportunity to employ from a local workforce and not rely on expatriate labour.
74
Corporate social responsibility and sustainable development
Community involvement and local development
Various small business support programmes have been started to provide Petra’s Kono project with non-core
services, including tyre and motor repair workshops, a timber business, a metal recovery project and the
provision of locally produced fresh fruit and vegetables. These businesses are conducted with the support of
the local community leaders and some of the proceeds have been used by the community to upgrade local
schools. Petra has also assisted in rebuilding five local schools.
Petra has embarked on various road and bridge rehabilitation initiatives in the project area, with over
17 kilometres of road and four bridges completed. These roads provide Petra with easier access to its project
area and the community with improved local mobility and access to churches and community halls.
Petra is actively involved with the Sierra Leone Police; Motema Division, in the form of enhancing community
policing by providing technical level co-operation and support. This support enhances visible policing and
contributes to the increased level of security in the region.
Health
Petra, through the assistance of the Sierra Leone Department of Health attached to the Kono District, launched
a collective HIV/AIDS awareness campaign and presented two successful workshops to the employees.
This will now be an ongoing programme, with the emphasis on prevention and building of awareness.
Local wells have been cleaned at Petra’s initiative and clean water is now available to over 180 people as
a result. Petra also supports a healthy body, healthy mind approach, and has put a local sporting programme
in place which does much to boost morale and bring the community together.
Environmental Practices
The environment in Sierra Leone has been altered substantially by various historical events, and in particular
it is still scarred by the imprints of the decade long civil war. Petra takes care to ensure that its activities cause
minimal disruption and in all cases looks to enhance its local environment where possible.
The waste material (waste rock and tailings) from our operations can be put to good use, and is currently
employed for road surface upgrades, road rehabilitation and for stabilising erosion areas caused by artisanal
miners. It is also used to infill open pits previously created by artisanal mining, thereby decreasing the natural
breeding habitat of malaria-carrying mosquitoes. Water which accumulates underground is re-circulated to
settling pits on surface, from where the water recharges the local aquifer area. Surface water run-off from
areas such as the ore treatment plant is caught in water re-circulating dams for re-use.
Old Bridge Linking Upper-Bongema to Lower -Bongema Villages
Petra’s support made it possible to build a new bridge linking the Lower-Bongema with the Upper-
Bongema Villages. The bridge is used by the local villages to access the main road which links the
province with Freetown, the capital of Sierra Leone.
Sponsor of Nimikoro Football League
The newly established Nimikoro Football League was launched with Company support whereby six
different towns in the Chiefdom participated in a league on which a Nimikoro team was elected for future
participation in the district and the Chiefdom as a whole.
Corporate social responsibility and sustainable development
75
The Wellness clinic at Cullinan mine, South Africa
76
Directors’ report
The Directors present their Report together with the audited financial statements of the Group for the year ended 30 June 2008.
Principal activities
Petra Diamonds is an international diamond mining group with a balanced portfolio combining major producing mines and world class exploration
assets. The Group's operations are in South Africa, Angola, Botswana, Sierra Leone and Tanzania (where the acquisition of the Williamson mine
is set to complete in November 2008). Petra's objectives are to continue to grow production and to bring its major exploration assets to account,
developing its stature as a leading diamond producer in all of the countries in which it operates.
Business review
A detailed review of the Group's operations and finances for the year and events subsequent to the year end are set out in the Chairman's Statement
on pages 6 to 8, the Chief Executive Officer's Review on pages 10 to 21 and in note 29 to the financial statements.
Results and dividends
The Group's profit for the year amounted to US$1,978,300 (2007: loss US$20,948,926). The Directors do not recommend the payment of a
dividend for the year (2007: US$ 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 Directors’ remuneration report on pages 78 and 79 and note 18 to the financial statements) were as follows:
A Pouroulis
V Ruffer
J Dippenaar
J Davidson
D Abery
C Segall
Number of
shares at
30 June 2008
Number of
shares at
30 June 2007
7,735,000
2,407,122
640,000
640,000
150,000
2,000
7,535,000
2,407,122
640,000
640,000
50,000
2,000
7,735,000 ordinary shares in the Company are held by a trust of which A Pouroulis is a beneficiary.
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 and around the Helam mine for
R2,500,000 (US$319,587). The option expires on 15 October 2011.
Share capital
Details of changes to share capital during the year can be found in note 18 to the financial statements.
Substantial shareholdings
At 30 September 2008 the following interests in the ordinary shares of the Company represented more than 3% of the issued share capital (other
than interests set out above in the Board of Directors’ Interests).
Saad Investments Company Limited
JP Morgan Limited
Al Rajhi Holdings W.L.L.
Arc Securities
Number
of ordinary
shares
68,155,430
17,643,200
14,750,000
5,634,719
Percentage of
issued share
capital
37.0
9.6
8.0
3.1
77
Directors’ report
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.
The Group is committed to the principle and achievement of equal opportunities in employment irrespective of 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 filled by a disabled person, having regard to their particular abilities and aptitude.
Creditors’ payment policy
It is the Group's policy that payments to suppliers are made in accordance with those terms and conditions agreed between the Group and its
suppliers, provided that all terms and conditions have been complied with.
Financial instruments
The Group makes use of financial instruments in its operations as described in note 25 of the financial statements.
Going concern
Following a review of the Group’s financial position, the Directors have concluded that sufficient financial resources will be available to meet the
Group’s current and foreseeable working capital requirements. On this basis, they consider it appropriate to prepare the financial statements on a
going concern basis.
Directors’ responsibilities
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of
the company, for safeguarding the assets of the company and for taking reasonable steps for the prevention and detection of fraud and other
irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's
website. Legislation in Bermuda governing the preparation and dissemination of the financial statements and other information included in Annual
Reports may differ from legislation in other jurisdictions.
The directors are responsible for preparing the annual report and the financial statements in accordance with the Bermuda Companies Act 1981.
The directors are also required to prepare financial statements for the group in accordance with International Financial Reporting Standards as
adopted by the European Union (IFRSs) and the rules of the London Stock Exchange for companies trading securities on the Alternative Investment
Market. The directors have chosen to prepare financial statements for the company in accordance with IFRSs.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the company's financial position,
financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards
Board's 'Framework for the preparation and presentation of financial statements'. In virtually all circumstances, a fair presentation will be achieved
by compliance with all applicable IFRS’s. A fair presentation also requires the Directors to:
(cid:1) consistently select and apply appropriate accounting policies;
(cid:1) present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
and
(cid:1) provide additional disclosures when compliance with the specific requirements in IFRS’s is insufficient to enable users to understand the impact
of particular transactions, other events and conditions on the entity's financial position and financial performance.
Auditors
As far as each of the Directors is aware, at the time this report was approved:
(a)
(b)
there is no relevant available information of which the auditors are unaware; and
they have taken all steps that ought to have been taken to make themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
In accordance with Section 89 of the Bermuda Companies Act, a resolution to confirm 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 19 December 2008.
By order of the Board
David Abery
Director
7 November 2008
78
Directors’ remuneration report
The Remuneration Committee is responsible for determining the remuneration and incentive packages for the executive Directors and senior
management. The employment terms for executive Directors and senior management are designed to attract and retain individuals of the right calibre;
incentives are structured so as to align their interests with those of the shareholders by rewarding them for enhancing shareholder value.
Remuneration policy
The remuneration policy aims to attract and retain executives who are incentivised to achieve performance therefore serving the best interests of
the shareholders. In framing and implementing the Directors' remuneration policy, consideration has been given to matters set out in the Combined
Code.
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.
Performance related bonuses
In order to retain and incentivise the executive Directors and senior management, performance related bonuses will be awarded on the achievement
of agreed performance criteria that are approved by the Remuneration Committee. It is the policy of the Board that the performance criteria of all
such bonuses should be relevant and stretching.
Share options
The Board believes that the granting of share incentives encourages a broad alignment of the interests of the executive Directors and senior
management with the earnings and asset growth of the Company to the mutual benefit of both shareholders and participants. As at 30 June 2008
the following options for employees were in place to subscribe for ordinary shares in the Company.
Adonis Pouroulis
David Abery
Johan Dippenaar
Jim Davidson
Senior management
Exercise
price
Date of
grant
Expiry
date
44.0p
85.0p
79.5p
156.0p
125.0p
44.0p
85.0p
79.5p
156.0p
125.0p
85.0p
79.5p
156.0p
125.0p
85.0p
79.5p
156.0p
125.0p
44.0p
56.75p
A$1.12
A$1.36
65.75p
79.5p
96.0p
122.5p
134.5p
156.0p
125.0p
5 September 2003
16 June 2005
31 May 2006
2 March 2007
7 December 2007
5 September 2013
16 June 2015
31 May 2016
2 March 2017
7 December 2017
5 September 2003
16 June 2005
31 May 2006
2 March 2007
7 December 2007
5 September 2013
16 June 2015
31 May 2016
2 March 2017
7 December 2017
16 June 2005
31 May 2006
2 March 2007
7 December 2007
16 June 2015
31 May 2016
2 March 2017
7 December 2017
16 June 2005
31 May 2006
2 March 2007
7 December 2007
16 June 2015
31 May 2016
2 March 2017
7 December 2017
5 September 2003
13 September 2004
24 September 2004
28 January 2005
27 November 2005
31 May 2006
31 July 2006
31 October 2006
24 November 2006
2 March 2007
7 December 2007
5 September 2013
13 September 2014
24 September 2014
28 January 2015
27 November 2015
31 May 2016
31 July 2016
31 October 2016
24 November 2016
2 March 2017
7 December 2017
At
30 June
2008
500,000
250,000
250,000
300,000
300,000
500,000
250,000
250,000
300,000
300,000
750,000
250,000
300,000
300,000
750,000
250,000
300,000
300,000
192,000
50,000
238,875
72,500
423,334
460,000
553,625
200,000
1,000,000
1,210,000
1,800,000
At
30 June
2007
500,000
250,000
250,000
300,000
–
500,000
250,000
250,000
300,000
–
750,000
250,000
300,000
–
750,000
250,000
300,000
–
206,000
50,000
238,875
72,500
490,000
480,000
563,625
200,000
1,000,000
1,230,000
–
79
Directors’ remuneration report
The following share options were exercised or lapsed during the year.
Senior management
Exercise
price
44.0p
65.75p
65.75p
79.5p
79.5p
65.75p
156p
Date of
grant
5 September 2003
27 November 2005
27 November 2005
31 May 2006
31 May 2006
27 November 2005
31 May 2006
Date
of
exercise
1 October 2007
7 May 2008
19 May 2008
6 June 2008
Lapsed*
Lapsed*
Lapsed*
Number of
options
exercised/
lapsed
14,000
13,333
13,333
16,666
43,334
40,000
10,000
* 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 office during the year ended 30 June 2008.
Base
remuneration
US$
Performance
related bonus
US$
Share-based
allocations*
US$
303,970
303,970
303,970
303,970
151,985
303,970
303,970
303,970
1,215,880
1,063,895
Fees
US$
50,078
10,016
60,094
Performance
related bonus
US$
–
–
–
193,049
193,049
193,049
193,049
772,196
Other
US$
–
–
–
Executive Directors
A Pouroulis
D Abery
J Dippenaar
J Davidson
Non-executive Directors**
C Segall #
V Ruffer #
2008
Total
US$
649,004
800,989
800,989
800,989
2007
Total
US$
476,443
476,443
476,443
476,443
3,051,971
1,905,772
2008
Total
US$
50,078
10,016
60,094
2007
Total
US$
43,477
9,662
53,139
* On initial grant the estimated option fair value is recognised as an employee expense in line with IFRS2 and spread over the period during which the employee
becomes unconditionally entitled to the options. This is a non-cash charge.
** The Board determines the non-executive Directors' fees in the absence of the relevant non-executive Director.
# Member of the Remuneration and Audit Committees.
It is estimated that under arrangements currently in force, the aggregate base remuneration and benefits to be paid to the executive and non-
executive Directors for the financial year end 30 June 2009 will be US$1.3 million.
By order of the Board
David Abery
Director
7 November 2008
80
Corporate governance statement
Effective corporate governance is a priority of the Board and outlined below are details of how the Company has applied the principles of
corporate governance as set out in the Combined Code (“the Code”). Under the rules of the Alternative Investment Market (“AIM”) the Company
is not required to comply with the Code and the Board considers that the size of the Group does not warrant compliance with all of the Code’s
requirements. The Board fully supports the principles on which the Code is based and considers that the Company has complied with a number
of key requirements.
Board of Directors
Role of the Board
The Board’s primary role is the protection and enhancement of long-term shareholder value. To fulfil this role, the Board is responsible for the overall
corporate governance of the Group, including formulating its strategic direction, approving and monitoring capital expenditure, setting
remuneration, appointing, removing and creating succession policies for Directors and senior management, establishing goals for management
and monitoring the achievement of these goals, and ensuring the integrity of internal control and management information systems. It is also
responsible for approving and monitoring financial and other reporting.
Board process
To assist in the execution of its responsibilities, the Board has established an Executive Committee to manage the Company on a day-to-day basis.
Members of this Committee are A Pouroulis, J Dippenaar, D Abery and J Davidson. Members of this committee meet informally from time to time
and no minutes are kept of proceedings. The full Board holds scheduled meetings, and any extraordinary meetings at such other times as may be
necessary to address any significant matters that may arise. In between meetings, decisions are adopted by way of written resolutions. The agenda
for scheduled meetings is prepared in conjunction with the Chairman, Chief Executive Officer and Finance Director. Standing items include the
Chief Executive Officer’s report, Finance Director’s report, financial reports, strategic matters, governance and compliance. Executives are regularly
involved in Board discussions and Directors have other opportunities, including visits to operations, for contact with a wider group of employees.
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 the performance of the 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.
Composition of the Board
The composition of the Board is determined using the following principles:
(cid:1) The Board should comprise Directors with a broad range of expertise both nationally and internationally.
(cid:1) Directors appointed by the Board are subject to election by shareholders at the following Annual General Meeting and thereafter Directors
are subject to re-election at least every three years.
The Board has accepted the following definition of an independent Director: “An independent Director is a director who is not a member of
management (a non-executive director) and who:
(cid:1) is not a substantial shareholder of the Company or an officer of, or otherwise associated, directly or indirectly, with a substantial shareholder
of the Company;
(cid:1) 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;
(cid:1) is not a principal of a professional adviser to the Company or another Group member;
(cid:1) is not a significant consultant, supplier or customer of the Company or another Group member, or an officer of or otherwise associated, directly
or indirectly, with a significant consultant, supplier or customer;
(cid:1) has no significant contractual relationship with the Company or another Group member other than as a Director of the Company;
(cid:1) is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the
Director’s ability to act in the best interests of the Company.”
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 benefit 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.
Corporate governance statement
81
The Board consists of four executive Directors and two non-executive Directors. While the Board is not considered independent for the purpose of
the definition above, the Board considers that the composition is appropriate given the size of the Company. In particular, the Board is of the
opinion that this composition gives the necessary mix of industry specific and broad business experience necessary for the effective governance
of the Company, for setting 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 independent advice, at the expense of the Company, if considered necessary in the
performance of their duties. Directors are expected to bring an independent judgement to bear on issues of strategy, performance, resource and
standards of conduct.
Nomination Committee
The Board has not established a Nomination Committee as the Board considers a separately established committee is not warranted and its
functions and responsibilities can be adequately and efficiently discharged by the Board as a whole. The Board assesses the experience,
knowledge and expertise of potential directors before any appointment is made and adheres to the principle of establishing a board comprising
directors with a blend of skills, experience and attributes appropriate to the Company and its business. The main criterion for the appointment of
Directors is an ability to add value to the Company and its business. All Directors appointed by the Board are subject to election by shareholders
at the following Annual General Meeting of the Company. The Board will review the utility of a Nomination Committee as it enters the next stage
of its development, and one will be established if and when considered appropriate by the Board.
Conflict of interest
Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Where the
Board believes that a significant conflict 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 conflicts of interest.
Director dealings in company shares
Company policy prohibits directors and senior management from dealing in shares or exercising options whilst in possession of price sensitive
information, except in unusual circumstances. 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 professional advice and access to company information
Each Director has the right of access to all relevant Company information and to the Company’s executives and, subject to prior consultation with
the Chairman, may seek independent professional advice at the Group’s expense.
Remuneration of non-executive Directors
When setting fees and other compensation for non-executive Directors, the Board takes independent advice and applies international benchmarks.
Director’s fees cover all main Board activities and membership of committees. Further information is contained in the Directors’ Remuneration Report
on page 78.
Audit Committee
The Audit Committee comprises Charles Segall and Volker Ruffer (both being non-executive Directors) and is chaired by Charles Segall. The
Committee may, if considered necessary, take independent advice at the expense of the Company. The Committee makes recommendations to
the Board on the appointment of the external auditors, their independence and the level of their fees; it reviews the findings of the external auditors
and ensures appropriate action is taken by management; it reviews the Group’s interim and annual financial statements prior to submission to the
Board; it reviews the Group’s statement on internal control systems, considers the effectiveness of internal financial controls and any internal audit
resource, making recommendations for changes if appropriate, and institutes and reviews special projects and investigations on any matter as it
sees fit.
Remuneration Committee
The Remuneration Committee comprises Charles Segall and Volker Ruffer (both being non-executive Directors) and is chaired by Charles Segall.
The Committee may, if considered necessary, take independent advice at the expense of the Company. The main responsibilities of the
Remuneration Committee are to determine on behalf of the Board and shareholders the overall policy for executive remuneration; to determine the
base salary, benefits, performance related bonus and any equity participation schemes (including share options) for each of the executive Directors
and other senior management of the Group; and to approve all Directors’ service contracts. The Committee ensures that a significant proportion
of the executive Directors’ remuneration is directly related to the performance of the Group.
Internal control framework
The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness. It should be recognised that such a system
can only provide reasonable and not absolute assurance against 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. The Combined Code requires that the effectiveness of the system of
internal control be reviewed by the Directors, including financial, operational and risk management. In September 1999 the Turnbull report was
published which offered guidance to directors on complying with the internal control requirements of the Combined Code. Although the Board
82
Corporate governance statement
considers that the size of the Group does not warrant compliance with all the Code’s requirements, the Board has implemented a reporting structure,
as detailed below, to review all aspects of internal control and will continue to develop the process throughout the 2009 financial year:
(cid:1) Financial reporting – the Company will report to shareholders half-yearly and annually, as required by the AIM Listing Rules. The Chief Executive
Officer and Finance Director state to the Board that the Company’s financial reports present a true and fair view in all material respects of the
Company’s financial condition and operational results and are in accordance with relevant accounting standards. They also state the
Company’s financial reports are founded on a sound system of risk management and internal compliance and control, which implements the
policies adopted by the Board and that this system is operating efficiently and effectively in all material respects.
(cid:1) Continuous disclosure – the Company has a policy, based on existing policies and practices as a company listed on the AIM, that all
shareholders and investors have equal access to the Company’s information and has procedures to ensure that all price sensitive information
will be disclosed to the AIM in accordance with the continuous disclosure requirements of the AIM Listing Rules. These procedures include;
– A comprehensive process to identify matters that may have a material effect on the price of the Company’s securities;
– The Chief Executive Officer and Finance Director being responsible for interpreting the Company’s policy and where necessary informing
the Board;
– The Finance Director being responsible for all communications with AIM;
– All information provided to the AIM being immediately posted to the Company’s website at www.petradiamonds.com.
(cid:1) Overview of the risk management system – the Board adopts practices designed to identify significant areas of business risk and to effectively
manage those risks in accordance with the Group’s risk profile. This includes assessing, monitoring and managing operational, financial
reporting and compliance risks for the Group.
(cid:1) Risk profile – the Group has not established a separate Risk Management Committee. Instead, the Board, as part of its usual role and through
direct involvement in the management of the Group’s operations ensures risks are identified, 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, difficulties
in sourcing goods and services, environment, occupational health and safety, financial reporting, and the purchase, development and use of
information systems.
(cid:1) Risk management and compliance and control – the 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 confirm compliance with financial controls and procedures including information system controls.
– Functional speciality reporting – key areas subject to regular reporting to the Board include operations, safety, environment and legal matters.
Practices have been established to ensure:
– Capital expenditure and revenue commitments above a certain size obtain prior Board approval.
– Financial exposures are controlled, including the potential use of derivatives.
– Occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance
and compliance with regulations.
– Business transactions are properly authorised and executed.
– Financial reporting accuracy and compliance with the financial reporting regulatory framework.
(cid:1) Environmental regulation – the Group’s operations are subject to significant environmental regulation under international law and the laws of
the jurisdictions in which the Group’s operations are based in relation to its exploration and mining activities. The Group’s exploration and
mining activities are concentrated in Africa. The Group has an Environmental Management Programme in place for each prospecting and
mining permit. 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.
(cid:1) 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.
(cid:1) Ethical standards – all Directors, managers and 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.
Corporate governance statement
83
(cid:1) Conflict of interest – Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of
the Group. Where the Board believes that a significant conflict exists for a Director on a Board matter, the Director concerned does not receive
the relevant Board papers and is not present at the meeting whilst the item is considered.
(cid:1) Code of conduct – the Group has established a documented Code of Conduct. The Group has adopted certain induction procedures to inform
newly appointed directors, managers and employees of their rights and their duty to act with utmost integrity and objectivity. The Code of
Conduct is designed to guide compliance with legal and other obligations to the Company’s stakeholders.
(cid:1) Performance assessment – the Company has adopted self-evaluation processes to measure Board performance. The performance of all
Directors is assessed through analysis, review and specific discussion by the Board of issues relating to individual Director’s attendance at and
involvement in Board meetings, interaction with management, performance of allocated tasks and any other matters identified by the Board
or other Directors. Any significant issues identified are actioned by the Board on an ongoing basis.
The evaluation of key executives is carried out by the Chief Executive Officer 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, posting them on the Company’s website, and issuing media releases.
In summary, the continuous disclosure processes operate as follows:
(cid:1) The Finance Director is responsible for all communications with the AIM. Matters that may have an effect on the price of the Company’s
securities will be advised to the AIM on the day they are discovered. Senior executives monitor all areas of the Company’s internal and external
environment.
(cid:1) The Annual Report is distributed to all shareholders. The Board ensures that the Annual Report includes relevant information about the operations
of the Group during the year, changes in the state of affairs of the Group and details of future developments, as well as all required disclosures.
(cid:1) All announcements made to the market, and related information (including information provided to analysts and the media), will be released
to the AIM and placed on the Company’s website.
(cid:1) The full texts of notices of meetings and associated explanatory material are placed on the Company’s website, along with results of such
meetings. All documents that are released publicly will be made available on the Group’s website at www.petradiamonds.com. The Board
encourages full participation of shareholders at shareholders’ meetings to ensure a high level of accountability and identification 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:
(cid:1) Discuss the external audit plans, identifying any significant changes in structure, operations, internal controls or accounting policies likely to
impact on the financial statements and to review the fees proposed for the audit work to be performed.
(cid:1) Review the periodic reports prior to lodgement and release, and any significant adjustments required as a result of the auditor’s findings, and
to recommend Board approval of these documents, prior to announcement of results.
(cid:1) Review the results and findings of the auditor, the adequacy of accounting and financial controls, and to monitor the implementation of any
recommendations made.
(cid:1) Review the draft financial report and recommend Board approval of the financial report.
(cid:1) As required, to organise, review and report on any special reviews or investigations deemed necessary by the Board.
84
Independent auditors’ report to the shareholders of Petra Diamonds Limited
We have audited the Group financial statements (“the financial statements”) of Petra Diamonds Limited for the year ended 30 June 2008 which
comprise the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated
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 applicable law and International Financial
Reporting Standards (IFRS) as adopted by the European Union 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 report to you our opinion as to whether the financial statements give a true and fair view in accordance with applicable law and IFRS as
adopted by the European Union. We also report to you if, in our opinion, the company has not kept proper accounting records or if we have not
received all the information and explanations we require for our audit.
We read other information contained in the report to consider whether it is consistent with the audited financial statements. The other information
comprises Corporate profile, Financial highlights, Petra Diamonds at a glance, Chairman’s statement, CEO’s review, Review of operations,
Reserves and resources, Mining, processing and distribution, The diamond market, Corporate social responsibility, 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 on this report unless such a person is a person entitled to rely upon this report by
virtue of and for the purpose of the Companies Act 1981 or has been expressly authorised to do so by our prior written consent. Save as above,
we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all
such liability.
Basis of audit opinion
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 adequately disclosed.
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 statements are free from material misstatement, whether caused by fraud or
other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial
statements.
Opinion
In our opinion the Group financial statements give a true and fair view, in accordance with IFRS as adopted by the European Union, of the state
of the Group’s affairs as at 30 June 2008 and of its profit for the year then ended.
BDO Stoy Hayward LLP
Chartered Accountants
London
7 November 2008
85
Consolidated income statement
For the year ended 30 June 2008
2008
US$
76,974,897
(43,498,407)
33,476,490
1,150,513
(14,484,792)
(7,097,383)
3,081,991
(6,833,796)
(3,751,805)
9,293,023
(5,925,821)
3,367,202
(1,388,902)
2007
US$
17,048,794
(21,003,936)
(3,955,142)
–
(6,091,669)
(5,834,471)
654,151
(7,034,185)
(6,380,034)
(22,261,316)
1,909,234
(20,352,082)
(596,844)
1,978,300
(20,948,926)
(7,209,338)
9,187,638
(20,948,926)
–
1,978,300
(20,948,926)
(3.17)
(13.21)
(3.93)
(13.60)
Notes
4
5
6
7
8
33
10
10
Revenue
Cost of Sales
Gross profit/(loss)
Other income
Exploration expenditure
Other operating expenditure
Financial income
Financial expense
Net financing costs
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year from continuing operations
Loss on discontinued operations (net of tax)
Profit/(loss) for the year
Attributable to:
Equity holders of the parent company
Minority interest
Loss per share attributable to the equity holders of the parent during the year:
From continuing operations
Basic and diluted loss per share attributable – US cents
From continuing and discontinued operations
Basic and diluted loss per share – US cents
Consolidated statement of recognised income and expense
Notes
For the year ended 30 June 2008
2008
US$
(3,351,183)
(138,299)
(3,489,482)
1,978,300
2007
US$
(8,677,941)
–
(8,677,941)
(20,948,926)
Exchange differences on translation of foreign operations
Loss on hedges recognised directly in equity
Net income recognised directly in equity
Profit/(Loss) for the year
Total recognised income and expense for the year
19
(1,511,182)
(29,626,867)
Attributable to:
Equity holders of the parent company
Minority interest
The notes on pages 88 to 125 form part of these financial statements.
(10,698,820)
9,187,638
(29,626,867)
–
(1,511,182)
(29,626,867)
86
Consolidated balance sheet
As at 30 June 2008
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investment in associates
Available for sale financial assets
Other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Non-current assets classified as held for sale
Total current assets
Total assets
Equity and liabilities
Equity
Share capital
Share premium account
Foreign currency translation reserve
Hedging reserve
Share based payment reserve
Other reserves
Accumulated loss
Attributable to equity holders of the parent company
Minority interest
Total equity
Non-current liabilities
Loans and borrowings
Trade and other payables
Provisions
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Derivative financial liabilities
Current tax payable
Liabilities directly associated with non-current assets classified as held for sale
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities
The notes on pages 88 to 125 form part of the financial statements.
The financial statements were approved and authorised for issue by the Directors
on 7 November 2008.
Notes
2008
US$
2007
US$
11
12
13
14
16
15
16
17
33
18
19
19
19
19
19
19
21
22
23
24
21
22
22
33
23
90,902,372
41,781,946
6,636,292
–
138,177
84,872,711
72,816,432
–
70,136
151,987
139,458,787
157,911,266
11,778,572
40,115,305
37,469,370
3,681,868
93,045,115
8,900,532
14,822,729
44,124,829
–
67,848,090
232,503,902
225,759,356
36,698,062
228,745,618
(9,488,037)
(138,299)
3,142,465
4,016,968
(109,766,931)
153,209,846
9,187,638
36,360,403
227,366,888
(6,136,854)
–
1,527,000
4,003,682
(102,557,593)
160,563,526
–
162,397,484
160,563,526
1,859,679
4,898,336
12,140,783
13,041,589
31,940,387
19,854,722
12,564,790
138,299
1,420,783
81,646
4,105,791
38,166,031
70,106,418
3,103,252
3,176,581
9,852,535
9,551,924
25,684,292
27,755,710
9,445,361
–
–
–
2,310,467
39,511,538
65,195,830
232,503,902
225,759,356
Consolidated cash flow statement
87
For the year ended 30 June 2008
2008
US$
7,904,121
1,159,072
5,772,464
142,017
3,803,634
96,593
3,047
(2,484,965)
2,239,386
133,277
1,629,783
4,594,410
24,992,839
(25,292,582)
4,810,330
(2,878,040)
1,632,547
(862,335)
2007
US$
(22,858,160)
1,115,782
5,274,209
113,283
3,740,928
–
(81,852)
(654,151)
1,307,715
186,121
749,406
4,811,205
(6,295,514)
(12,031,562)
13,747,215
(6,133,588)
(10,713,449)
(1,307,715)
Profit/(loss) before taxation for the year from continuing and discontinued operations
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
Impairment of investment
Loss/(profit) on sale of property plant and equipment
Finance income
Finance expense
Present value adjustment of rehabilitation provision
Share based payment provision
Foreign exchange loss
Operating profit/(loss) before working capital changes
Increase in trade and other receivables
Increase in trade and other payables
Increase in inventories
Cash generated from/(utilised in) operations
Finance expense
Net cash generated from/(utilised in) operating activities
770,212
(12,021,164)
Cash flows from investing activities
Proceeds from sale of property, plant and equipment
Proceeds from sale of intangibles
Acquisition of subsidiary net of cash acquired
Finance income
Acquisition of investments
Acquisition of property, plant and equipment
Development expenditure
Net cash utilised in investing activities
Cash flows from financing activities
Net proceeds from the issuance of share capital
Increase in non-current borrowings
Decrease in current borrowings
Net cash (utilised in)/generated 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
Cash and cash equivalents at end of the year
The notes on pages 88 to 125 form part of the financial statements.
Significant non-cash flow transactions which are not reflected in the cash flow
statement are set out in note 31.
919,655
22,354,768
–
2,484,965
(6,636,292)
(16,664,852)
(4,211,646)
(1,753,402)
2,966,654
416,466
(9,197,589)
(5,814,469)
(6,797,659)
44,124,829
142,200
568
–
1,934,936
654,151
–
(5,086,569)
(3,847,301)
(6,344,215)
36,087,171
19,424,564
–
55,511,735
37,146,356
7,019,644
(41,171)
37,469,370
44,124,829
88
Notes to the annual financial statements
For the year ended 30 June 2008
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 except as noted below, consistent with those adopted in the previous financial statements.
1.1
Basis of preparation
The Group financial statements are prepared in accordance with International Financial Reporting Standards (IFRS’s and IFRIC
Interpretations) issued by the International Accounting Standards Board (IASB), as adopted by the European Union (“IFRS”).
1.2 New standards and interpretations applied
The IASB has issued the following new standards, amendments to published standards and interpretations to existing standards
with effective dates prior to 1 July 2007 which have been adopted by the Group for the first time this year:
IFRS 7, Financial Instruments: disclosures and a complementary amendment to IAS 1, Presentation of Financial Statements –
capital disclosures – Effective date 1 January 2007. The Group has applied IFRS 7 and the amendment to IAS 1 to the accounts
for the period beginning on 1 July 2007; this application has resulted in increased disclosures.
IFRIC 10, Interim Financial Reporting and Impairment – effective for accounting periods beginning on or after 1 November
2006. There was no impact on the Group's accounts from the adoption of this IFRIC.
IFRIC 11, IFRS 2 – Group and Treasury Share Transactions – effective for accounting periods beginning on or after 1 March
2007. There was no impact on the Group's accounts from the adoption of this IFRIC.
New standards and interpretations not yet effective
Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the
Group's accounting periods beginning after 1 July 2008 or later periods and which the Group has decided not to adopt early.
These are:
IFRS 8, Operating Segments – effective for accounting periods beginning on or after 1 January 2009. As this is a disclosure
standard it will not have any impact on the results or net assets of the Group.
IAS 23, Borrowing Costs (revised) – effective for accounting periods beginning on or after 1 January 2009. The revised IAS 23
is still to be endorsed by the EU. The Group is currently assessing its impact on the financial statements.
Revised IFRS 3, Business Combinations and complementary Amendments to IAS 27, Consolidated and separate financial
statements – both effective for accounting periods beginning on or after 1 July 2009. The revised IFRS 3 and IAS 27 are still to
be endorsed by the EU. Management is currently assessing the impact of revised IFRS 3 and amendments to IAS 27 on the
accounts.
IFRIC 12, Service Concession Arrangements – effective for accounting periods beginning on or after 1 January 2008. IFRIC 12
is still to be endorsed by the EU. This IFRIC is not expected to have any impact on the financial statements of the Group.
IFRIC 13, Customer Loyalty Programmes – effective for accounting periods beginning on or after 1 July 2008. IFRIC 13 is still
to be endorsed by the EU. This IFRIC is not expected to have any impact on the financial statements of the Group.
IFRIC 14, IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – effective for
accounting periods beginning on or after 1 January 2008. IFRIC 14 is still to be endorsed by the EU. This IFRIC is not expected
to have any impact on the financial statements of the Group.
IFRIC 15, Agreements for the Construction of Real Estate – effective for accounting periods beginning on or after 1 January 2009.
IFRIC 15 is still to be endorsed by the EU. This IFRIC is not applicable to the Group as it is not operating in real estate sector.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation – effective for accounting periods beginning on or after 1 October
2008. IFRIC 16 is still to be endorsed by the EU. Management is currently assessing the impact of IFRIC 16 on the Group
financial statements.
Amendment to IFRS 2, Share-based payments: vesting conditions and cancellations – effective for accounting periods beginning
on or after 1 January 2009.This amendment is still to be endorsed by the EU. Management is currently assessing the impact of
the amendment on the Group financial statements.
Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation – effective for accounting periods beginning
on or after 1 January 2009. This amendment is still to be endorsed by the EU. Management is currently assessing the impact of
the amendment on the Group financial statements.
Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial
Instruments and Obligations Arising on Liquidation – effective for accounting periods beginning on or after 1 January 2009. This
amendment is still to be endorsed by the EU. Management is currently assessing the impact of the amendment on the Group
financial statements.
Notes to the annual financial statements
89
For the year ended 30 June 2008
1. Accounting policies (continued)
1.2 New standards and interpretations not yet effective (continued)
Amendments to IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly-Controlled Entity or Associate – effective for
accounting periods beginning on or after 1 January 2009. These amendments are still to be endorsed by the EU. This IFRIC is
not expected to have any impact as the Company does not prepare separate financial statements.
Improvements to IFRS – effective for accounting periods beginning on or after 1 July 2009. This improvements project is still to
be endorsed by the EU. The amendments take various forms, including the clarification of the requirements of IFRS and the
elimination of inconsistencies between Standards. Management is currently assessing the impact of the Amendment on the
accounts.
Currency reporting
The functional currency of the Group’s business transactions in Angola, Botswana, Sierra Leone and South African diamond sales
are US Dollars. Reference to transactions in South African Rand (ZAR) in the annual report is denoted by an R. The Group financial
statements are presented in US Dollars.
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 or 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.
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.
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.
The depreciation rates are as follows:
Mining assets:
Plant, machinery and equipment
Mineral properties
Exploration and other assets:
Plant and machinery
Office equipment
Computer equipment
Motor vehicles
Units of production method
Units of production method
10% – 20% straight-line basis
10% straight-line basis
25% straight-line basis
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.
90
Notes to the annual financial statements
For the year ended 30 June 2008
1. Accounting policies (continued)
1.4
Property, plant and equipment (continued)
Expenditure relating to an item of property, plant and equipment considered to be an asset under construction is capitalised when
it is probable that future economic benefits from the use of that asset will be realised.
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.
Capitalised expenditure in respect of Kimberley Underground mines
The Group has capitalised costs of US$3.2m during the year ended 30 June 2008 (30 June 2007: US$nil) in relation to the
Kimberley Underground mines. The acquisition of the Kimberley Underground mines is subject only to final regulatory approval
and since 14 September 2007 the Group has maintained the mine under a care and maintenance agreement with De Beers.
During that period expenditure has been incurred to bring the mining assets back into a condition in which it can be utilised for
mining and production. This expenditure is considered to be capital in nature and has been capitalised on the basis that the
future economic benefits of the mining assets are expected to flow to the Group. The Group also considers that they are
exercising control over the assets, although De Beers maintains a presence on site until such time as the final regulatory approvals
are received.
The expenditure incurred is capitalised on the basis that it is common practice for transaction costs incurred in respect of business
combinations to be capitalised where the business combination has not completed by the balance sheet date and by analogy
to IAS11 (Construction contracts) which permits costs incurred in respect of future activity to be capitalised where it is probable
that those costs will be recovered.
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 under 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.
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.
Project farm-ins
Where the Group enters into an agreement with a third party for the third party to fund specific expenditure for the exploration
and evaluation or development of a licence area, any consideration received by the Group in entering into that agreement is
treated as a disposal of part of the Group’s interest in that licence.
The consideration received is therefore credited against the expenditure previously capitalised by the Group in respect of the
licence. If the consideration received is greater than the expenditure already made by the Group, the excess credit is taken to
the income statement.
This policy is in accordance with industry practice for oil and gas and mining companies entering into such project farm-in
arrangements.
Notes to the annual financial statements
91
For the year ended 30 June 2008
1. Accounting policies (continued)
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.
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.
1.8
Financial instruments
Financial assets
The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was
acquired. The Group’s accounting policy for each category is as follows:
Fair value through profit or loss
This category comprises only in-the-money derivatives. They are carried in the balance sheet at fair value with changes in fair
value recognised in the consolidated income statement. The Group does not have any assets held for trading nor does it
voluntarily classify any financial assets as being at fair value through profit or loss.
Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. The
assets arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate
other types of contractual monetary assets including cash and cash equivalents. They are initially recognised at the fair value plus
transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the
effective interest method.
Available-for-sale
Non-derivative financial assets not included in the above categories are classified as available for sale and comprise principally
of the Group’s strategic investment in the entities not qualifying as subsidiaries, associates or jointly controlled entities. The assets
are carried at fair value with changes in fair value recognised directly in a separate component of equity (available-for-sale
reserve). Where a decline in the fair value of an available-for-sale financial asset constitutes objective evidence of impairment,
the amount of the loss is removed from equity and recognised in the consolidated income statement. Fair values of quoted
investments are based on current market prices. If the market for a financial asset is not active (and for unlisted securities), the
Group established fair value by using valuation techniques. Investments in equity instruments that do not have a quoted market
price in an active market and whose fair value cannot be measured reliably are measured at cost.
Financial liabilities
The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the asset was
acquired. Other than financial liabilities in a qualifying hedging relationship (see below), the Group’s accounting policy for each
category is as follows:
Fair value through profit or loss
This category comprises only out-of-the-money derivatives (see financial assets for in the money derivatives). The liabilities are
carried in the balance sheet at fair value with changes in fair value recognised in consolidated income statement.
Other liabilities
Trade payables and other short-term monetary liabilities
Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at
amortised cost using the effective interest method.
92
Notes to the annual financial statements
For the year ended 30 June 2008
1. Accounting policies (continued)
1.8
Financial instruments (continued)
Interest-bearing borrowings
Bank borrowings and the debt element of convertible debt issued are recognised initially at fair value less attributable transaction
costs. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method, which
ensures that any interest expense over the period to repayment is at a constant rate on the balance of liability carried in the
balance sheet. “Interest expense” in this context includes initial transaction costs and premium payable on redemption, as well
as any interest or coupon payable while the liability is outstanding.
Hedging instruments
Derivative financial instruments are initially measured at fair value on the contract date and are subsequently re-measured to fair
value at each reporting date. On the date the derivative contract is entered into, the Group designates the derivative for hedge
accounting. During the year the Group has only entered into hedges of forecast transactions (cash flow hedges). The Group
formally assesses, at inception and on an on-going basis, whether the derivatives are highly effective in offsetting changes in the
fair value or cash flows of the hedged item. Changes in the fair value of a derivative that is effective in offsetting changes in the
cash flow of the hedged item, and that is designated and qualifies as a cash flow hedge, are recognised directly in equity.
Changes in fair value of derivatives that do not qualify for hedge accounting are recognised in the income statement. Amounts
recognised in equity are transferred to the income statement in the period during which the hedged forecast impacts net profit
or loss. An ineffective element of a cash flow hedge, which has been designated for hedge accounting, is taken to the
income statement.
Impairment of financial assets
Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the
counterparty or default or significant delay in payment) that the Group will be unable to collect all the amounts due under the
terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of
the future expected cash flows associated with the impaired receivable. For trade receivables, which are reported net, such
provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the
income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written
off against the associated provision. As at 30 June 2008 there were no impairment provisions against financial assets
(30 June 2007: US$nil).
1.9
Revenue
Revenue comprises net invoiced diamond sales 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 apportioned 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.
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.
Notes to the annual financial statements
93
For the year ended 30 June 2008
1. Accounting policies (continued)
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.
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.
Change in accounting estimate
During the period, the Group changed its accounting estimate in respect of the unrealised gains and losses arising on the
translation of loans to subsidiaries into the currency in which they are denominated. Under the revised accounting estimate, loans
to foreign subsidiaries that are not expected to be repaid in the foreseeable future are treated as part of the net investment in
foreign operations. As a result unrealised foreign exchange gains and losses are reflected in the foreign currency translation
reserve. This represents a change from the accounting treatment adopted in prior years, under which unrealised foreign exchange
gains and losses arising on retranslation of loans to foreign operations were recognised in the income statement.
The revised accounting estimate is as a result of a re-assessment by the Directors due to a change in the Group’s circumstances;
the change in accounting estimate is applied prospectively. The revised accounting estimate better reflects the substance of the
loans to subsidiaries and presents financial results, which, in the opinion of the Directors better reflects the trading results of
the Group.
As a result, unrealised foreign exchange losses of US$7,241,913 arising in the year ended 30 June 2008 which relate to
foreign subsidiary loans, are now treated as part of the net investment in foreign operations have been recognised directly in
the foreign currency translation reserve. It is impractical to estimate the effect that this change will have on future periods.
The changes to the Group income statement and balance sheet relate to the Group’s South African and Botswana operations.
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, investments in money market instruments,
and net of bank overdrafts, all of which are available for use by the Group unless otherwise stated. The accounting policy for
cash and cash equivalents is as stated in note 1.8.
94
Notes to the annual financial statements
For the year ended 30 June 2008
1. Accounting policies (continued)
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 to employees 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 of production 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. Work in progress is stated at raw
material cost including allocated labour and overhead costs.
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 instrument and accordingly a split between debt
and equity is recorded in the Group’s financial statements. 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 fair value over the present value of the future cash flows, 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. Also see interest-bearing borrowings set out in note
1.8.
1.20 Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing mining, beneficiation 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 Borrowing costs
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised
as part of the cost of that asset. Other borrowing costs are recognised as an expense in the period in which the borrowing cost
is incurred.
1.22 Critical accounting estimates and judgements
The preparation of the consolidated financial statements requires management to make estimates and judgements and form
assumptions that affect the reported amounts of the assets and liabilities, reported revenue and costs during the periods presented
therein, and the disclosure of contingent liabilities at the date of the financial statements. Estimates and judgements are continually
evaluated and based on managements historical experience and other mitigating factors, including future expectations and
events that are believed to be reasonable. The estimates and assumptions that have a significant risk of causing a material
adjustment to the financial results of the Group in future reporting periods are discussed below.
Exploration and evaluation costs
Judgement is applied by management in determining whether exploration and evaluation expenditure should be capitalised or
expensed. Management exercise judgement based on the results of economic evaluations, pre-feasibility or feasibility studies as
set out in note 1.6. The carrying value of intangible assets (excluding non-current assets classified as held for sale), which includes
capitalised exploration and evaluation expenditure at the balance sheet date is US$41,781,946 (30 June 2007:
US$69,327,608).
Notes to the annual financial statements
95
For the year ended 30 June 2008
1. Accounting policies (continued)
1.22 Critical accounting estimates and judgements (continued)
Investments
The assessment of the recoverable amount of investments in associates engaged in mineral exploration requires significant
judgements based on the availability of information and estimated economic viability of exploration projects. The carrying
value of investments at the balance sheet date is US$6,636,292.
Life of mine and ore reserves
There are numerous risks inherent in estimating ore reserves and the associated life of a mine. Therefore management must
make a number of assumptions in making those estimates, including assumptions as to exchange rates, commodity prices,
recovery and production rates. Any such estimates and assumptions may change as new information becomes available.
Changes in exchange rates, commodity prices, recovery and production rates may change the economic viability of ore
reserves and may ultimately result in the restatement of the ore reserve and potential impairment to the carrying value of the
mining assets. The determination of the life of mine and ore reserves impacts the depreciation of mining assets depreciated
on a unit of production basis, as set out in note 1.4.
Provision for rehabilitation
Significant estimates and assumptions are made in determining the amount attributable to rehabilitation provisions. These
deal with uncertainties such as the legal and regulatory framework, timing and future costs. In determining the amount
attributable to rehabilitation provisions, management used a discount rate of 9.1% (30 June 2007: 9.1%), a life of mine of
12 to 18 years (30 June 2007: 10 years) and an inflation rate of 6.5% (30 June 2007: 6.5%). The carrying value of
rehabilitation provisions at the balance sheet date is US$12,140,783 (30 June 2007: US$9,852,535).
Valuation of share options
In determining the fair value of share-based payments made during the year to employees, a number of assumptions have
been made by management. The details of these assumptions are set out in note 28. The total charge to the income statement
in respect of share-based payments for the year is US$1,629,783 (30 June 2007: US$437,340).
Impairment reviews
While conducting an impairment review of its assets, the Group exercises judgement in making assumptions about future
rough diamond prices, ore reserves, rehabilitation costs, feasibility studies and future development and production costs.
Changes in estimates used can result in significant changes to the income statement. The policy in respect of impairment
reviews is set out in note 1.7.
Valuation of equity portion of compound instruments
Judgement is applied by management in determining the fair value of the equity portion of compound instruments. In
determining the fair value, management exercises judgement in making assumptions about the duration of the instrument, the
risk free interest rate at the time of issuing the compound instrument and the risk premium for compound instruments of a
similar nature. The total charge to the income statement in respect of interest accreted for compound instruments for the year
is US$1,310,191 (30 June 2007: US$915,265). The equity portion of compound instruments reflected in the Group’s
financial statements is US$4,016,968 (30 June 2007: US$4,003,682).
96
Notes to the annual financial statements
For the year ended 30 June 2008
2.
Segment information
Segment information is presented in respect of the Group’s business and geographical segments. The primary format, business segments,
is based on the Group’s management and internal reporting structure.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable
basis. Unallocated items comprise mainly income earning assets and revenue, interest-bearing borrowings and expenses and corporate
assets and expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected
to be used for more than one period.
Business and geographical segments
The Group comprises the following business segments:
Mining – extraction and sale of rough diamonds from mining operations in South Africa.
Exploration – exploration activities in Angola, Botswana, Sierra Leone and South Africa.
Beneficiation – cutting and polishing of rough diamonds.
Business segments
Revenue
Segment result
Operating loss
Financial income
Financial expense
Income tax
Minority interest
Loss for year
Segment assets
Total assets
Segment liabilities
Total liabilities
Cash flows from operations
Cash flows from investing
Cash flows from financing
Capital expenditure
Depreciation and amortisation
Geographical segments
Revenue
Segment assets
Segment Liabilities
Cash utilised in operations
Cash flows from investing
Cash flows from financing
Capital expenditure
Mining
2008
US$
Exploration
2008
US$
Beneficiation
2008
US$
Inter-
segment
2008
US$
Consolidated
2008
US$
77,295,691
–
37,199,561
(5,010,511)
827,039
(188,579)
(1,147,833)
76,974,897
(1,817,805)
30,182,666
28,727,290
(14,113,915)
(1,292,899)
(1,664,550)
11,655,926
752,464
(812,956)
(5,925,821)
(9,187,638)
2,407,773
(5,912,303)
12,534
(108,537)
–
–
–
–
(90,780)
3,081,991
(6,833,796)
(5,925,821)
(9,187,638)
–
–
13,553,339
(17,618,445)
(1,388,902)
(1,755,330)
(7,209,338)
95,818,569
132,552,544
4,132,789
95,818,569
132,552,544
4,132,789
54,144,288
15,880,484
54,144,288
15,880,484
81,646
81,646
39,420,437
(33,604,992)
(5,045,233)
(14,262,677)
12,496,741
(13,419,335)
15,397,513
5,772,464
2,966,654
5,333,003
5,010,511
12,534
4,638,212
145,982
94,212
–
–
–
–
–
–
–
–
–
232,503,902
232,503,902
70,106,418
70,106,418
770,212
(1,753,402)
(5,814,469)
20,876,498
10,877,187
Angola
2008
US$
Botswana
2008
US$
Sierra Leone
2008
US$
South Africa
2008
US$
Jersey
2008
US$
Consolidated
2008
US$
–
46,006,982
1,570,231
(7,822,959)
9,517
–
–
–
5,085,096
114,656
9,423
(93,807)
84,384
103,449
–
13,450,364
5,172,288
(423,744)
(4,211,646)
4,211,646
4,211,646
76,974,897
117,915,289
42,239,954
14,510,668
(13,556,961)
(9,834,485)
16,561,403
–
50,046,171
21,009,289
(5,503,176)
16,099,495
(276,014)
–
76,974,897
232,503,902
70,106,418
770,212
(1,753,402)
(5,814,469)
20,876,498
Notes to the annual financial statements
97
For the year ended 30 June 2008
2.
Segment information (continued)
The results from beneficiation activities represent those activities disclosed under discontinuing operations as set out in note 33.
Business segments
Revenue
Segment result
Operating loss
Financial income
Financial expense
Income tax
Loss for year
Segment assets
Total assets
Segment liabilities
Total liabilities
Cash utilised in operations
Cash flows from investing
Cash flows from financing
Capital expenditure
Depreciation and amortisation
Geographical segments
Revenue
Segment assets
Segment liabilities
Cash utilised in operations
Cash flows from investing
Cash flows from financing
Capital expenditure
Mining
2007
US$
Exploration
2007
US$
Beneficiation
2007
US$
Inter-
segment
2007
US$
16,712,146
(5,851,790)
336,648
(3,495,749)
(4,041,603)
–
(5,951,235)
1,909,234
(11,837,295)
651,767
(1,082,950)
–
–
(84,877)
(599,228)
2,384
–
–
(8,083,604)
(12,268,478)
(596,844)
87,227,690
137,374,026
1,157,640
87,227,690
137,374,026
1,157,640
32,165,070
32,108,430
32,165,070
32,108,430
922,330
922,330
(10,053,291)
(5,212,480)
(3,514,530)
4,818,397
5,274,209
(954,401)
(1,134,119)
57,698,000
4,115,473
4,885,117
(1,013,472)
2,384
1,328,265
–
84,876
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Consolidated
2007
US$
17,048,794
(9,432,416)
(16,478,126)
654,151
(7,034,185)
1,909,234
(20,948,926)
225,759,356
225,759,356
65,195,830
65,195,830
(12,021,164)
(6,344,215)
55,511,735
8,933,870
10,244,202
Angola
2007
US$
Botswana
2007
US$
Sierra Leone
2007
US$
South Africa
2007
US$
Jersey
2007
US$
Consolidated
2007
US$
–
52,318,248
12,988
(19,864)
4,684
101,158
–
–
9,318,811
54,787
1,638,195
(149,153)
3,093,099
155,132
–
8,369,539
3,165,035
(687,205)
(3,847,301)
3,847,301
3,847,301
16,712,146
106,890,457
40,439,879
(8,757,883)
(4,727,703)
(2,447,727)
4,818,397
336,648
48,862,301
21,523,141
(4,194,407)
2,375,258
50,917,904
113,040
17,048,794
225,759,356
65,195,830
(12,021,164)
(6,344,215)
55,511,735
8,933,870
The results from beneficiation activities represent those activities disclosed under discontinuing operations as set out in note 33.
98
Notes to the annual financial statements
For the year ended 30 June 2008
3. Acquisitions and disposals
3 (a) Acquisition of interest in associate
Organizações Moyoweno – Comércio Geral, Lda. (“Moyoweno”)
In August 2007 the Company acquired a 40% equity interest in Organizações Moyoweno – Comércio Geral,
Lda.(“Moyoweno”), an Angolan registered company, for US$6 million. Moyoweno’s sole asset is a 13% interest in the Alto Cuilo
kimberlite and alluvial exploration licences.
3 (b) Disposal of interest in subsidiary
Frannor Investments & Finance Limited
On 1 August 2007, the Company entered into an agreement ('Luangue Agreement') with BHP Billiton to develop the Luangue
diamond project ('Project Luangue') in north-eastern Angola.
Under the terms of the Luangue Agreement:
(i)
(ii)
BHP Billiton acquired 25% of the issued share capital of Frannor Investments and Finance Limited ("Frannor"), from Petra
for a cash consideration of US$22.35 million; the consideration has been treated as a disposal of the prospecting
licences and the total consideration of $22.35 million was credited against intangible assets acquired at the date of
acquisition as set out in note 1.6;
BHP Billiton's shareholding in Frannor will remain at 25% until BHP Billiton's earn-in date ('BHP Billiton Earn-in Date'),
defined as the earlier of (i) the formation of a kimberlite mining company or (ii) 180 days following the submission of a
Technical and Economic Viability Study in accordance with the Luangue kimberlite concession contract, provided that in
either case a BHP Billiton pre-feasibility study is completed beforehand. At the BHP Billiton Earn-in Date, BHP Billiton's
shareholding in Frannor will increase to 75%, with Petra holding the remaining 25% of Frannor;
(iii)
BHP Billiton will sole fund the development of Project Luangue up to the BHP Billiton Earn-in Date; and
(iv)
BHP Billiton refunded Petra's Project Luangue operating expenditure, of circa US$3.5 million.
On the 9 May 2008, BHP Billiton announced that it was transferring to the Company its interest in Project Luangue. BHP Billiton
and the Company have embarked on a negotiation process to facilitate the transfer of BHP Billiton’s 25% interest in Frannor back
to the Group.
As at 30 June 2008 the Company maintained its 75% shareholding in Frannor and consolidated 100% of Frannor's assets,
liabilities and operational results.
4. Cost of sales
Raw materials and consumables used
Employee expenses
Depreciation of mining assets
Changes in inventory of finished goods
Exploration expenditure
5.
Employee expenses
Depreciation of exploration assets
Amortisation of intangible assets
Drilling and air survey expenses
Equipment hire
Other exploration expenses
2008
US$
2007
US$
13,418,304
21,800,743
5,772,464
2,506,896
43,498,407
2,434,245
1,159,072
3,803,634
3,476,973
245,243
3,365,625
8,109,941
13,020,423
5,274,209
(5,400,637)
21,003,936
323,107
1,115,782
3,740,928
243,717
6,722
661,413
14,484,792
6,091,669
Notes to the annual financial statements
99
For the year ended 30 June 2008
2008
US$
2007
US$
315,325
5,002
142,017
127,225
2,847,418
5,232
3,047
–
96,593
413,300
1,512,441
772,196
857,587
195,437
19,394
113,283
153,739
1,888,271
55,293
(81,852)
1,794,312
–
–
1,259,254
253,656
183,684
7,097,383
5,834,471
(861,563)
(1,377,823)
(4,594,410)
(6,833,796)
597,026
52,561
2,432,404
3,081,991
(813,377)
(1,409,603)
(4,811,205)
(7,034,185)
–
39,933
614,218
654,151
(3,751,805)
(6,380,034)
(1,420,783)
–
(4,505,038)
(5,925,821)
1,909,234
1,909,234
6. Operating expenditure – other
Auditors’ remuneration
– audit services
– other services
Depreciation of property, plant and equipment
Operating lease rentals – buildings
Staff costs
Bid and project expenditure
Loss/(profit) on disposal of property, plant and equipment
Administration expenses – mining operations
Impairment of investment
Care and maintenance
Other charges
Share based payments
– directors
– senior management
In addition to the above, the audit fee payable in 2009 in respect of the 2008 audit by
the Group to its current auditors is US$346,260.
All share-based payments are in respect of equity settled share option schemes as stated
in note 28.
7. Net financing costs
On bank loans and overdrafts
Other debt finance costs – convertible bond
Unrealised foreign exchange losses
Financial expense
Realised foreign exchange gains on settlement of foreign exchange contracts
Interest received other
Interest received bank deposits
Financial income
Taxation
8.
Current Taxation
– Current tax expense
Deferred Taxation
– Current period
2008
%
US$
2007
%
US$
100
Notes to the annual financial statements
For the year ended 30 June 2008
Taxation (continued)
8.
Reconciliation of tax rate
Profit/(loss) before taxation from
continuing and discontinued
operations
Tax at Bermudan corporate rate
Effects of:
Tax rates in foreign jurisdictions
Non-deductible expenses
Non taxable income
Assessed loss not utilised
Current tax charge
Deferred tax movement
Total tax (charge)/credit
7,904,121
–
(6,656,197)
671,753
–
4,563,661
(1,420,783)
(4,505,038)
(5,925,821)
–
(84.21)
8.50
–
57.74
(17.97)
(57.00)
(74.97)
9. Directors’ and employees remuneration
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 2,824 (2007: 2,501), employed as follows:
Mining and exploration
Administration
Base
remuneration
US$
Performance
related bonus
US$
Share-based
allocations
US$
Executive Directors
A Pouroulis
D Abery
J Dippenaar
J Davidson
303,970
303,970
303,970
303,970
151,985
303,970
303,970
303,970
1,215,880
1,063,895
193,049
193,049
193,049
193,049
772,196
–
29.00
0.15
0.02
(29.17)
–
8.35
8.35
2008
US$
21,800,743
2,434,245
2,838,638
8,780
–
27,082,406
(22,858,160)
–
(6,628,867)
(35,220)
(4,298)
6,668,385
–
1,909,234
1,909,234
2007
US$
13,020,423
323,107
1,869,635
4,830
13,806
15,231,801
Number
Number
2,702
122
2,824
2008
Total
US$
649,004
800,989
800,989
800,989
2,421
80
2,501
2007
Total
US$
476,443
476,443
476,443
476,443
3,051,971
1,905,772
Notes to the annual financial statements
101
For the year ended 30 June 2008
Fees
US$
50,078
10,016
60,094
2008
Total
US$
50,078
10,016
60,094
2007
Total
US$
43,477
9,662
53,139
9. Directors’ and employees
remuneration (continued)
Non-executive Directors
C Segall
V Ruffer
The directors are considered to be the only key management to the Group’s business. The IFRS 2 charge relating to key management for the year
was US$772,196 (30 June 2007: US$253,656). See note 28 in respect of share-based payments.
Continuing
operations
2008
US$
Discontinued
operations
2008
US$
Total
2008
US$
Continuing
operations
2007
US$
Discontinued
operations
2007
US$
Total
2007
US$
10. Loss per
share
Numerator
Loss for the year
Denominator
Weighted average number of
ordinary shares
Shares in issue as at 1 July
Effect of shares issued during
5,820,436
1,388,902
7,209,338
20,352,082
596,844
20,948,926
181,448,193
181,448,193
181,448,193
143,916,416
143,916,416
143,916,416
the period
1,813,457
1,813,457
1,813,457
10,103,075
10,103,075
10,103,075
Weighted average as at 30 June
183,261,650
183,261,650
183,261,650
154,019,491
154,019,491
154,019,491
Shares
Shares
Shares
Shares
Shares
Shares
Basic weighted average number
of ordinary shares in issue
183,261,650
183,261,650
183,261,650
154,019,491
154,019,491
154,019,491
Basic loss per share – cents
Cents
(3.17)
Cents
(0.76)
Cents
(3.93)
Cents
(13.21)
Cents
(0.39)
Cents
(13.60)
Due to the Group’s loss for the year, the diluted loss per share is the same as the basic loss per share. The number of potentially dilutive ordinary
shares, in respect of employee share options, the convertable bond and warrants is 20,170,334. These potentially dilutive ordinary shares may
have a dilutionary effect on future earnings per share.
102
Notes to the annual financial statements
For the year ended 30 June 2008
11. Property, plant and equipment
Plant and
Plant and
and office
Motor
Mineral
Computers
Assets
under
Assets
machinery
machinery
equipment
vehicles
properties
construction
advanced
mining
exploration
exploration
exploration
assets
US$
assets
US$
assets
US$
assets
US$
mining
assets
US$
mining
to project
assets
US$
Alto Cuilo
US$
Total
US$
Cost
Balance at 1 July 2006
40,176,373
23,918
299,539
97,008 31,628,346
Exchange differences
Business combination
1,236,394
620
10,777,372
1,516,737
6,468
73,063
(157)
914,026
9,725
611,332
Additions
Disposals
6,736,174
(3,035,638)
–
–
Transfer between asset groups
1,394
(1,301)
196,150
72,023
1,929,523
(1,033)
(93)
–
–
(224,343)
–
Balance at 30 June 2007
55,892,069
1,539,974
574,094
178,599 34,858,884
Balance at 1 July 2007
55,892,069
1,539,974
574,094
178,599 34,858,884
(5,148,676)
(33,480)
(97,064)
(24,132)
(3,528,582)
–
–
–
–
–
–
–
–
–
5,503,412 77,728,596
–
2,157,351
– 12,988,229
–
–
–
8,933,870
(3,261,014)
–
5,503,412 98,547,032
5,503,412 98,547,032
–
(8,831,934)
–
Exchange differences
Business combination
Additions
Disposals
Transfer to non-current
assets classified as held
for sale
13,293,201
110,244
725,861
145,633
3,041,544
3,274,415
285,600 20,876,498
–
(80,738)
–
(28,396)
–
(317,629)
(118,608)
(47,762)
–
–
–
–
–
(109,134)
–
(483,999)
Balance at 30 June 2008
64,036,594
1,218,371
1,084,283
223,942 34,371,846
3,274,415
5,789,012 109,998,463
Depreciation
Balance at 1 July 2006
3,672,393
23,722
82,965
26,282
2,374,195
Exchange differences
Disposals
137,616
–
619
–
2,569
(1,007)
(633)
134,610
–
–
Provided in the year
1,828,735
71,329
61,364
43,654
3,445,474
Transfer between asset
groups
1,197
(1,104)
(93)
–
–
Balance at 30 June 2007
5,639,941
94,566
145,798
69,303
5,954,279
Balance at 1 July 2007
5,639,941
94,566
145,798
69,303
5,954,279
Exchange differences
Provided in the year
Transfer to non-current
assets classified as held
for sale
(700,996)
4,148,626
(25,599)
64,022
(23,638)
89,363
(11,918)
(563,793)
57,343
1,623,839
–
(234,659)
(76,953)
(14,228)
–
Balance at 30 June 2008
9,087,571
(101,670)
134,570
100,500
7,014,325
Net book value
At 1 July 2006
36,503,980
196
216,574
70,726 29,254,151
At 30 June 2007
50,252,128
1,445,408
428,296
109,296 28,904,605
At 1 July 2007
50,252,128
1,445,408
428,296
109,296 28,904,605
–
–
–
–
–
–
–
–
–
–
–
–
–
–
717,715
6,897,272
–
–
274,781
(1,007)
1,052,719
6,503,275
–
–
1,770,434 13,674,321
1,770,434 13,674,321
–
(1,325,944)
1,090,361
7,073,554
–
(325,840)
2,860,795 19,096,091
4,785,697 70,831,324
3,732,978 84,872,711
3,732,978 84,872,711
At 30 June 2008
54,949,023
1,320,041
949,713
123,442 27,357,521
3,274,415
2,928,217 90,902,372
Assets advanced to Project Alto Cuilo relate to property, plant and equipment provided to the Alto Cuilo project. Any income arising from the
contribution of these assets is contingent upon the successful development of the project.
Notes to the annual financial statements
103
For the year ended 30 June 2008
Intellectual
property
US$
Prospecting
licences
US$
Total
US$
–
(30,882)
3,519,706
3,488,824
3,488,824
34,884
(3,523,708)
–
–
–
–
–
–
–
–
–
–
–
15,927,538
870,891
59,173,312
15,927,538
840,009
62,693,018
75,971,741
79,460,565
75,971,741
1,002,409
–
(25,362,074)
79,460,565
1,037,293
(3,523,708)
(25,362,074)
51,612,076
51,612,076
(2,821,977)
495,121
(4,317,277)
(6,644,133)
(6,644,133)
1,136,460
(4,322,457)
(9,830,130)
(2,821,977)
495,121
(4,317,277)
(6,644,133)
(6,644,133)
1,136,460
(4,322,457)
(9,830,130)
13,105,561
13,105,561
3,488,824
3,488,824
69,327,608
72,816,432
69,327,608
72,816,432
–
41,781,946
41,781,946
Intangible assets
12.
Cost
Balance at 1 July 2006
Exchange differences
Business combination
Balance at 30 June 2007
Balance at 1 July 2007
Exchange differences
Transfer to non-current assets classified as held for sale
Disposals
Balance at 30 June 2008
Amortisation
Balance at 1 July 2006
Exchange differences
Provided in the year
Balance at 30 June 2007
Balance at 1 July 2007
Exchange differences
Provided in the year
Balance at 30 June 2008
Net book value
At 1 July 2006
At 30 June 2007
At 1 July 2007
At 30 June 2008
Country
Project
Development
stage
Period
years
2008
Amount
US$
2007
Amount
US$
Prospecting licences:
Angola
Botswana
Intellectual property:
South Africa*
Net book value at 30 June
Luangue
Kalahari
Early stage
Early stage
–
4
37,095,679
4,686,267
60,418,083
8,909,525
–
41,781,946
3,488,824
72,816,432
* Intellectual property has been transferred to current assets as non-current assets classified as held for sale as a result of the disposal by the
Company of its entire shareholding in Calibrated Diamonds Investment Holdings (Pty) Ltd.
104
Notes to the annual financial statements
For the year ended 30 June 2008
Investments in associates
13.
Interests in associates
At year end the Group had interests in the following companies:
Country
2008
2007
Ownerships
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Organizações Moyoweno – Comércio Geral Lda
Petra Diamonds Alto Cuilo Ltd
Namibia
South Africa
Angola
British Virgin Islands
35.0%
29.5%
40.0%
25.0%
35.0%
29.5%
–
31.0%
The Group’s interest in Petra Diamonds Alto Cuilo Ltd has been reduced to 25% as a result of BHP Billiton's increased financial contribution, which
has a dilutionary effect, to the Alto Cuilo project in Angola.
Summary of financial statements of associates:
2008
Assets
Liabilities
Equity
Revenues
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Organizações Moyoweno – Comércio Geral Lda
–
3,878
809,773
–
(958,675)
(400,000)
–
954,797
(409,773)
Petra Diamonds Alto Cuilo Ltd
83,787,015
(93,292,890)
9,505,876
–
–
–
–
(Loss)
after tax
–
(49,894)
(105,912)
(8,561,113)
2007
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Petra Diamonds Alto Cuilo Ltd
–
4,202
67,857,809
–
(984,808)
(68,802,571)
–
980,606
944,762
–
–
2,809,107
–
(175,577)
(358,985)
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
The above amounts relate to the initial investment by the Group in Petra Diamonds Alto Cuilo
Limited, Namibia Mining House (Pty) Limited, Nabera Mining (Pty) Limited and
Organizações Moyoweno – Comércio Geral, Lda (“Moyoweno”).
Moyoweno’s financial year end is 31 December and its primary asset is a 13% investment in
the Alto Cuilo project in Angola. The investment in Moyoweno is stated at cost.
2008
US$
2007
US$
27,089,334
(20,453,042)
6,636,292
20,453,042
(20,453,042)
–
Notes to the annual financial statements
105
For the year ended 30 June 2008
14. Available for sale financial assets
Balance at 1 July
Acquisition
Impairment
Balance at 30 June
During year the Company exercised the option to purchase an additional 777,778 ordinary
shares in Xceldiam Ltd at 1.7p.The Company has written down its investment in Xceldiam Ltd to
US$nil as the shares in Xceldiam Limited were suspended from trading on 19 September 2008.
Inventories
15.
Diamonds held for resale
Work in progress
Consumable and stores
Inventories are stated at cost.
16. Trade and other receivables
Current
Trade receivables
Other receivables*
Prepayments***
Non-current
Rehabilitation guarantee**
* Included within other receivables are amounts related to funding advanced to joint
venture Black Economic Empowerment partners on the Koffiefontein Mine assets of
US$4,518,998 (30 June 2007: US$2,228,476), rehabilitation deposits for Cullinan
Diamond Mine (Pty) Ltd of US$10,429,031 (30 June 2007: US$nil) and Value Added
Tax refunds of US$1,065,206 (30 June 2007: US$2,253,981) receivable.
** The rehabilitation guarantee comprises an insurance risk policy which will be recovered
upon the successful rehabilitation at the Sedibeng Diamond Mine operation.
*** Included within prepayments is US$4 million relating to a deposit paid for further
investment in the Group's South African projects.
The carrying values of the receivables are denominated in the following currencies:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollars
2008
US$
70,136
26,038
(96,174)
–
2007
US$
1,271,410
–
(1,201,274)
70,136
6,406,901
3,168,560
2,203,111
11,778,572
7,600,498
250,009
1,050,025
8,900,532
13,184,323
19,108,026
7,822,956
40,115,305
138,177
138,177
735,125
10,672,031
3,415,573
14,822,729
151,987
151,987
–
43,767
9,100,008
30,343,353
628,177
2,216
55,398
5,863,279
8,799,499
102,337
40,115,305
14,822,729
106
Notes to the annual financial statements
For the year ended 30 June 2008
16. Trade and other receivables (continued)
The financial assets classified as loans and receivables included in receivables are
as follows:
Current
Trade receivables
13,184,323
735,125
2008
US$
2007
US$
The trade receivables are all due within normal trading terms and there are no trade
receivables classified as past due. Trade receivables are due within 2 days of awarding the
rough diamond sales tender to the successful bidder. No other receivables are considered to
be past due or impaired.
The carrying values of these loans and receivables are denominated in the following
currencies:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollars
17. Cash and cash equivalents
Unsecured
Cash at bank and on hand
Secured
–
18,573
4,649,171
26,374,479
1,250,126
32,292,349
–
2,909
2,598,964
7,148,852
1,656,431
11,407,156
19,789,232
17,680,138
37,469,370
24,124,117
20,000,712
44,124,829
As security for the Group’s rehabilitation obligations at Koffiefontein Empowerment JV, Kimberley Underground Mine, Helam Mining (Pty) Ltd
(“Helam”), Star Diamond Mine (Pty) Ltd, Sedibeng Mining JV and hedging obligations, the Company has ceded US$17,680,138 in a fixed
deposit. The rehabilitation guarantees are disclosed under note 23.
A controlled entity, Helam, has a R10,000,000 (US$1,278,347) (30 June 2007: R10,000,000 (US$1,413,228)) 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 R8,388,169 (US$1,072,299) (30 June 2007: R3,916,537 (US$553,496)). The overdraft has been set-off against other cash balances held
with First National Bank as it forms part of the Group’s operational cash balances. The weighted average interest rate for the overdraft as at
30 June 2008 is 16.65% (30 June 2007: 13.9%).
Number
of shares
2008
US$
Number of
shares
2007
US$
Issued capital
18.
Authorised – ordinary shares of 10p each
As at 1 July 2007 and 30 June 2008
Issued and fully paid
At 1 July
Allotments during the year
At 30 June
300,000,000
60,117,000
300,000,000
60,117,000
181,448,191
2,557,332
184,005,523
36,360,403
337,659
36,698,062
148,825,098
32,623,093
181,448,191
27,031,103
9,329,300
36,360,403
Allotments during the prior year were in respect of 19,674,584 shares issued for the acquisition of Frannor Investments & Finance Ltd, an allotment
of 10,000,000 shares to Saad Investments Company Ltd, the exercise of 1,666,666 warrants held over ordinary shares by Photon Global Ltd
and 200,843 options held over ordinary shares by Williams de Broe Plc and the exercise of 1,081,000 share options held by employees.
Allotments during the year were in respect of 2,500,000 shares issued for the exercise of 2,500,000 warrants held over ordinary shares by
Photon Global Ltd and the exercise of 57,332 share options held by employees.
Notes to the annual financial statements
107
For the year ended 30 June 2008
18.
Issued capital (continued)
Warrants
Holder
Photon Global Limited
Photon Global Limited
Al Rajhi Holdings W.L.L.
Expiry
31 December 2007
31 December 2007
18 September 2009
Exercise
price
30p
100p
130p
2008
Number of
options
–
–
2,000,000
2007
Number of
options
1,500,000
1,000,000
2,000,000
During the year warrants over 1,500,000 and 1,000,000 ordinary shares at an exercise of 30p and 100p respectively were exercised. The
Black-Scholes methodology as outlined in IFRS 2 has been used to value the options and warrants, as set out in note 28.
Employee share options
Holder
Directors
A Pouroulis
D Abery
J Dippenaar
J Davidson
Senior Management
Total
Shares
500,000
250,000
250,000
300,000
300,000
500,000
250,000
250,000
300,000
300,000
750,000
250,000
300,000
300,000
750,000
250,000
300,000
300,000
192,000
50,000
238,875
72,500
423,334
460,000
553,625
200,000
1,000,000
1,210,000
1,800,000
12,600,334
Exercise
price
Expiry
44.0p
85.0p
79.5p
156.0p
125.0p
44.0p
85.0p
79.5p
156.0p
125.0p
85.0p
79.5p
156.0p
125.0p
85.0p
79.5p
156.0p
125.0p
44.0p
56.75p
A$1.12
A$1.36
65.75p
79.5p
96.0p
122.5p
134.5p
156.0p
125.0p
5 September 2013
16 June 2015
31 May 2016
2 March 2017
7 December 2017
5 September 2013
16 June 2015
31 May 2016
2 March 2017
7 December 2017
16 June 2015
31 May 2016
2 March 2017
7 December 2017
16 June 2015
31 May 2016
2 March 2017
7 December 2017
5 September 2013
13 September 2014
24 September 2014
28 January 2015
27 November 2015
31 May 2016
31 July 2016
31 October 2016
24 November 2016
2 March 2017
7 December 2017
The movement in director and senior management share options is disclosed in the Directors’ remuneration report on page 78 of the
financial statements.
108
Notes to the annual financial statements
For the year ended 30 June 2008
19. Capital and reserves
Foreign
Share
currency
Share-
based
Share
premium
translation
Hedging
payment
Other Accumulated
capital
US$
account
US$
reserve
US$
reserve
US$
reserve
US$
reserves
US$
loss
US$
Total
US$
Minority
interest
US$
Total
US$
At 1 July 2006
Exchange differences
recognised directly
in equity
Net income
recognised directly
in equity
Loss for the year
Total recognised
income and expense
for the year
Equity settled share-
based payments
Equity portion of
convertible bond
Exchange differences
Allotments during
the year
Share issue costs
27,031,103
123,189,903
2,541,087
–
–
–
–
–
–
–
–
–
–
–
–
–
14,706,573
9,329,300
–
90,200,058
(729,646)
(8,677,941)
(8,677,941)
–
(8,677,941)
–
–
–
–
–
At 30 June 2007
36,360,403
227,366,888
(6,136,854)
36,360,403
227,366,888
(6,136,854)
–
–
–
–
–
–
–
–
–
–
–
–
972,962
–
(81,608,667)
72,126,388
–
72,126,388
–
–
–
–
554,038
–
–
–
–
–
–
–
–
–
4,003,682
–
–
–
–
(8,677,941)
–
(20,948,926)
(8,677,941)
(20,948,926)
(20,948,926)
(29,626,867)
–
–
–
–
–
554,038
4,003,682
14,706,573
99,529,358
(729,646)
1,527,000
4,003,682
(102,557,593)
160,563,526
–
–
–
–
–
–
–
–
–
–
(8,677,941)
(8,677,941)
(20,948,926)
(29,626,867)
554,038
4,003,682
14,706,573
99,529,358
(729,646)
160,563,526
1,527,000
4,003,682
(102,557,593)
160,563,526
–
160,563,526
At 1 July 2007 as
previously reported
Exchange differences
recognised directly
in equity
Net income recognised
directly in equity
(Loss)/profit for the year
Total recognised
income and expense
for the year
Equity settled share-
based payments
Exchange differences
Allotments during
the year
–
–
–
–
–
–
–
–
(3,351,183)
(138,299)
(3,351,183)
–
(138,299)
–
(3,351,183)
(138,299)
–
–
–
–
–
–
–
–
–
(3,489,482)
–
(3,489,482)
–
(7,209,338)
(3,489,482)
(7,209,338)
–
9,187,638
(3,489,482)
1,978,300
(7,209,338)
(10,698,820)
9,187,638
(1,511,182)
–
(172,375)
–
(1,077,890)
510,034
2,456,620
–
–
–
–
–
–
1,622,704
(7,239)
–
13,286
–
–
–
–
–
1,622,704
(1,244,218)
2,966,654
–
–
–
1,622,704
(1,244,218)
2,966,654
At 30 June 2008
36,698,062
228,745,618
(9,488,037)
(138,299)
3,142,465
4,016,968
(109,766,931)
153,209,846
9,187,638
162,397,484
Share capital
The share capital comprises the issued ordinary shares of the Company at par.
Share premium reserve
The share premium reserve comprises the excess value recognised from the issue of ordinary shares at par.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of foreign entities.
Hedging reserve
The hedging reserve comprises the change in the fair value of derivative contracts which qualify as effective and are designated cash flow hedges.
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.
Other reserves
The other reserves comprise the equity portion of the interest free convertible bond and the fair value of the 2,000,000 warrants issued with the
convertible bond.
Accumulated loss
The accumulated loss comprises the Company’s cumulative accounting losses incurred since incorporation.
Notes to the annual financial statements
109
For the year ended 30 June 2008
2008
US$
2007
US$
160,563,526
(3,489,482)
(7,209,338)
1,622,704
2,966,654
(1,244,218)
–
72,126,388
(8,677,941)
(20,948,926)
554,038
98,799,712
14,706,573
4,003,682
(7,353,680)
88,437,138
153,209,846
160,563,526
31,170
1,028,957
567,738
–
18,221,774
5,083
32,334
1,208,439
582,956
9,015,083
16,911,583
5,315
19,854,722
27,755,710
158,935
780,090
564,172
356,482
1,859,679
208,941
1,710,083
1,184,228
–
3,103,252
20. Reconciliation of movement in equity
attributable to equity holders of parent
company
Opening shareholders' funds
Net income recognised in equity
Loss for the year
Movement in share-based payment reserve
New share capital issued
Exchange differences
Equity portion of convertible bond
Net movement in shareholders’ fund
Closing shareholders’ funds
21. Loans and borrowings
Current
Bank loan – secured (i)
Bank loan – secured (ii)
Bank loan – secured (iii)
Bank loan – secured (iv)
Convertible note – unsecured (v)
Lease and installment purchase liabilities (vi)
Non-current
Bank loan – secured (i)
Bank loan – secured (ii)
Bank loan – secured (iii)
Associate loans
(i) Bank loans secured
First National Bank
Helam has a term loan facility with First National Bank and at year end an amount of R1,487,151 (US$190,109) (30 June 2007: R1,707,293
(US$241,275)) was drawn on the loan, R243,864 (US$31,170) (30 June 2007: R228,825 (US$32,334)) payable within the next 12 months
and R1,243,287 (US$158,935) (30 June 2007: R1,478,468 (US$208,941)) payable over a period of five years. The effective interest rate
for the term loan at 30 June 2008 was 16.65% and the final installment is due on 30 November 2012.
The above facilities are secured against properties of Helam for up to R7,850,000 (US$1,003,503) (30 June 2007: R7,850,000
(US$1,109,384)) and a R8,000,000 (US$1,022,677) (30 June 2007: R8,000,000 (US$1,130,582)) 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$255,669) (30 June 2007: R2,000,000 (US$282,645)) from Directors Mr J Dippenaar and Mr J Davidson. The facilities with
First National Bank are subject to annual review.
110
Notes to the annual financial statements
For the year ended 30 June 2008
21. Loans and borrowings (continued)
(ii) Bank loan – secured
Industrial Development Corporation of South Africa
The Sedibeng Mining 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$3,835,042) (30 June 2007: R30,000,000
(US$4,239,683)) 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 2008 is R14,151,457 (US$1,809,048) (30 June 2007: R20,651,457
(US$2,918,522), R8,049,123 (US$1,028,957) (30 June 2007: R8,550,914 (US$1,208,439)) payable within the next 12 months and
R6,102,334 (US$780,090) (30 June 2007: R12,100,543 (US$1,710,083)) 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 2008 is 16.07% and the final installment is due on 1 August 2011.
As security for the loan, Messina has signed suretyship as co-principal debtor and registered a general notarial bond over Messina’s moveable
assets in favour of the IDC.
(iii) 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$2,109,273) (30 June 2007: R16,500,000 (US$2,331,826)). At 30 June 2008 an amount of R8,854,480
(US$1,131,910) (30 June 2007: R12,504,598 (US$1,767,184)) was outstanding on the loan facility, R4,441,188 (US$567,738) (30 June
2007: R4,125,000 (US$582,956)) payable within the next 12 months and R4,413,292 (US$564,172) (30 June 2007: R8,379,598
(US$1,184,228)) payable over a period greater than 12 months. The loan is repayable in annual installments of R4,125,000 (US$527,318)
(30 June 2007: R4,125,000 (US$582,956)) 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 2008 is 16.07% and the final installment is due on 1
August 2009. Autumn Star and Messina Investments Limited have signed suretyship for the loan in favour of FirstRand.
(iv) Bank loan – secured
First National Bank
A controlled entity, Petra Diamonds Southern Africa (Pty) Ltd had a term loan facility with First National Bank at 30 June 2007. The term loan was
repaid on 10 September 2007.
(v) Convertible bond – unsecured
On 19 September 2006 the Company issued a US$20 million unsecured interest free convertible bond (“the Convertible”).The Convertible is
convertible at an exercise price of 130 pence per Petra share at the election of the holder. If not converted, the Convertible is repayable in full on
18 September 2009. Warrants over 2,000,000 Petra shares at 130 pence per share have been issued to the holder of the Convertible, the
warrants are exercisable on or before 18 September 2009. The effective interest rate is 7.48%.
Movements in convertible bond
Balance at beginning of year
Issue of convertible bond
Equity portion
Interest accreted for the year
Balance at the end of year
30 June
2008
Number
7,677,337
–
–
–
7,677,337
30 June
2007
Number
–
7,677,337
–
–
7,677,337
30 June
2008
US$
16,911,583
–
1,310,191
30 June
2007
US$
–
20,000,000
(4,003,682)
915,265
18,221,774
16,911,583
(vi) Lease and hire purchase liabilities
The lease and hire purchase liabilities are secured over vehicles with a net carrying value of US$4,189 (30 June 2007: US$7,147). The final
installment is payable within the next 12 months.
There is no significant difference between the fair value and carrying value of loans and borrowings.
22. Trade and other payables
Current
Trade payables
Deferred consideration (i)
Reduction in deferred consideration (ii)
Provident fund contributions
Other payables
Derivative financial instruments (iii)
Non-current
Amounts owing to associates
Notes to the annual financial statements
111
For the year ended 30 June 2008
2008
US$
2007
US$
8,699,487
3,250,000
(426,245)
20,942
1,020,606
12,564,790
138,299
12,703,089
4,898,336
4,898,336
6,010,647
3,250,000
(376,075)
47,469
513,320
9,445,361
–
9,445,361
3,176,581
3,176,581
Current
(i)
The US$3,250,000, being the balance of the Helam Mining (Pty) Ltd purchase price, is payable from 50% of the cash surplus of Helam Mining
(Pty) Ltd as follows:
US$1,750,000 for the year ending 31 December 2006 payable by 30 April 2007.
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. At year end no portion of the liability had been repaid and the total liability will be carried forward to
June 2009.
(ii)
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% p.a 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$770,160. The reduction in the acquisition price will be amortised over the three-and-half-year term commencing from
the date of acquisition of the Helam Diamond mine by Crown Diamonds NL.
(iii) The derivative financial instruments represent forward exchange contracts entered into to hedge the Company’s future diamond sales and entity
acquisitions. The forward exchange contracts have the following maturity dates and cash flow impact:
Maturity
date
3 July 2008
7 July 2008
31 July 2008
30 September 2008
30 September 2008
31 October 2008
31 October 2008
28 November 2008
28 November 2008
Total
Currency
USD/ZAR
USD/ZAR
USD/ZAR
USD/ZAR
USD/ZAR
USD/ZAR
USD/ZAR
USD/ZAR
USD/ZAR
Put value
of US$
forward
2,900,000
50,000,000
2,000,000
2,000,000
3,000,000
2,000,000
2,000,000
2,000,000
3,000,000
Call value
of US$
forward
(2,900,000)
(50,000,000)
(1,000,000)
(1,000,000)
(3,000,000)
(1,000,000)
(2,000,000)
(1,000,000)
(3,000,000)
Net US$
cashflow
inflow/
(outflow)
(145,347)
(104,080)
(50,286)
(59,215)
151,521
(62,133)
87,841
(66,819)
110,219
(138,299)
112
Notes to the annual financial statements
For the year ended 30 June 2008
22. Trade and other payables (continued)
The following amounts in respect of derivative financial instruments have been included
in equity:
Opening balance
Recognised directly in equity
Closing balance
The carrying values of trade payables and other payables are denominated in the
following currencies:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollar
The financial liabilities classified as other liabilities included in payables are as follows:
Current
Trade payables
Derivative financial instruments
Other payables (includes deferred consideration)
The carrying values of these trade payables and other payables are denominated in the
following currencies:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollar
2008
US$
2007
US$
–
138,299
138,299
2,308,435
114,656
683,506
10,387,435
4,107,393
17,601,425
8,699,487
138,299
3,844,361
12,682,147
18,747
114,656
683,506
7,206,696
4,658,542
12,682,147
–
–
–
2,909,803
54,787
967,660
6,243,278
2,446,414
12,621,942
6,010,647
–
3,387,246
9,397,893
35,878
54,787
967,660
6,232,330
2,107,238
9,397,893
Notes to the annual financial statements
113
For the year ended 30 June 2008
Employee
entitlements
US$
2,002,382
24,522
283,563
2,310,467
2,310,467
–
2,310,467
2,310,467
1,795,324
Rehabilitation
US$
Total
US$
1,697,756
7,916,211
238,568
9,852,535
–
9,852,535
9,852,535
9,852,535
2,154,971
3,700,138
7,940,733
522,131
12,163,002
2,310,467
9,852,535
12,163,002
12,163,002
3,950,295
–
133,277
133,277
4,105,791
12,140,783
16,246,574
4,105,791
–
4,105,791
–
12,140,783
12,140,783
4,105,791
12,140,783
16,246,574
23. Provisions
Balance at 1 July 2006
Acquired by business combination
Movement in the year
Balance at 30 June 2007
Current
Non-current
Balance at 30 June 2007
Balance at 1 July 2007
Increase in provisions
Unwinding of present value adjustment
of rehabilitation provision
Balance at 30 June 2008
Current
Non-current
Balance at 30 June 2008
Employee entitlements
The provision for employee entitlements relates to accrued leave, performance bonuses and other accruals. The provision is based on estimates made,
where appropriate, from historical information. The Group expects to incur the liability within 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.
The Group expects to incur rehabilitation expenditure at Koffiefontein Mine of US$10,229,538, during its useful life of 12 years and rehabilitation
expenditure at Helam Mining (Pty) Ltd, Star Diamond Mine (Pty) Ltd and Sedibeng Mining JV (“the fissure mines”) of US$1,911,245 during the useful
life of the fissure mines which is approximately 18 years, from the date of this report. The majority of the rehabilitation expenditure is expected to be
incurred at the end of the life of mines. Cash and cash equivalents have been secured in respect of rehabilitation provisions, as disclosed in note 17.
24. Deferred taxation
Balance at beginning of the year
Adjustment as a result of business combination
Income statement
Foreign currency translation difference
Balance at the end of year
Comprising:
– capital allowances
– provisions
– prepayments and accruals
– forex allowances
– tax losses
Deferred tax not raised
Deferred tax liability
2008
US$
2007
US$
9,551,924
–
4,505,038
(1,015,373)
13,041,589
12,307,745
(339,153)
(1,130,679)
(3,071,503)
(31,650,628)
(23,884,218)
36,925,807
13,041,589
9,932,634
709,717
(1,909,234)
818,807
9,551,924
12,304,637
(724,061)
(200,042)
(1,297,496)
(38,674,478)
(28,591,440)
38,143,364
9,551,924
Deferred tax assets as above, have not been raised due to the uncertainty over the future recoverability of these assets. The tax benefits on the
temporary timing differences will be recognised over the useful life of the assets.
114
Notes to the annual financial statements
For the year ended 30 June 2008
25. Financial instruments
Exposures 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. Details of the
significant accounting policies and methods adopted, including the criteria for recognition,
the basis of measurement and the basis on which income and expenses are recognised, in
respect of each class of financial asset, financial liability and equity instrument are disclosed
in note 1. The details of the categories of financial instruments of the Group are as follows:
Financial assets:
Available for sale financial assets
Loans and receivables
– Trade receivables balances
– Other receivables
– Cash and cash equivalents
Financial liabilities:
– Loans and borrowings
– Trade payables and other payables
– Derivative financial instruments
There is no significant difference between the fair value of financial assets and liabilities and
the carrying values set out in the table above.
The currency profile of the Group financial assets and liabilities is as follows:
Financial assets:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollar
Financial liabilities:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollar
2008
US$
2007
US$
–
70,136
13,184,323
19,108,026
37,469,370
69,761,719
21,714,401
12,564,790
138,299
34,417,490
–
127,266
22,237,956
28,466,233
18,930,264
69,761,719
1,882,190
114,656
683,506
9,407,971
22,329,167
34,417,490
735,125
10,672,031
44,124,829
55,602,121
30,858,962
9,445,361
–
40,304,323
–
128,305
25,144,106
7,483,092
22,846,618
55,602,121
2,533,728
54,787
967,660
14,390,151
22,357,997
40,304,323
Notes to the annual financial statements
115
For the year ended 30 June 2008
25. Financial instruments (continued)
The Group is exposed through its operations to one or more of the following risks:
(cid:1) Credit risk;
(cid:1) Interest rate risk;
(cid:1) Foreign exchange risk;
(cid:1) Liquidity risk; and
(cid:1) Other market price risk.
In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s
objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of
these risks is presented throughout these financial statements.
Principal financial instruments
The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:
(cid:1) Trade and other receivables;
(cid:1) Cash at bank;
(cid:1) Trade and other payables;
(cid:1) Loans and borrowings including Convertible Bonds; and
(cid:1) Hedging instruments.
Credit risk
The Group sells its rough diamond production through a tender process on a recognised bourse. This mitigates the need to undertake credit
evaluations. Where production is not sold 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 assets in the balance sheet. The financial assets are carried at amortised cost, with no indication of impairment. The Group
considers the credit quality of loans and receivables that are neither past due or impaired to be good.
The Group cash balances are deposited with reputable banking institutions within the countries in which it operates. Excess cash is held in overnight
call accounts and term deposits ranging from 7 to 30 days. Refer to note 17 for cash secured in respect of rehabilitation obligations.
Foreign currency risk
Foreign exchange risk arises because the Group has operations located in parts of the world where the functional currency is not the same as the
Group's primary functional currency of US dollars. The Group’s net assets arising from its foreign operations are exposed to currency risk resulting
in gains and losses on retranslation into US dollars. Only in exceptional circumstances will the Group consider hedging its net investments in foreign
operations as generally it does not consider that the reduction in foreign currency exposure warrants the cash flow risk created from such hedging
techniques.
Foreign exchange risk also arises when individual Group operations enter into transactions denominated in a currency other than their functional
currency. The policy of the Group is, where possible, to allow Group entities to settle liabilities denominated in their local currency with the cash
generated from their own operations in that currency. In the case of the funding of non-current assets such as projects to expand productive capacity
entailing material levels of capital expenditure, the central Group treasury function will assist the foreign operation to obtain matching funding in
the functional currency of that operation and shall provide additional funding where required. The currency in which the additional funding is
provided is determined by taking into account the following factors:
(cid:1) the currency in which the revenue expected to be generated from the commissioning of the capital expenditure will be denominated;
(cid:1) the degree to which the currency in which the funding provided is a currency normally used to effect business transactions in the business
environment in which the foreign operation conducts business; and
(cid:1) the currency of any funding derived by the Company for onward funding to the foreign operation and the degree to which it is considered
necessary to hedge the currency risk of the Company represented by such derived funding.
116
Notes to the annual financial statements
For the year ended 30 June 2008
25. Financial instruments (continued)
The foreign currency effect on the Group’s financial assets and liabilities is as follows:
Financial assets:
Botswana pula
Pound sterling
South African rand
US Dollar
Financial liabilities:
Australian dollar
Botswana pula
Pound sterling
South African rand
US Dollar
Liquidity risk
Year end
US$ rate
Year end
amount
US$ strengthens
5%
US$ weakens
5%
0.1528
0.5014
0.1278
1.0000
0.1470
0.1528
0.5014
0.1278
1.0000
127,266
22,237,956
28,466,233
18,930,264
120,902
21,126,058
27,042,921
18,930,264
133,629
23,349,854
29,889,545
18,930,264
69,761,719
67,220,145
72,303,292
1,882,190
114,656
683,506
9,407,971
22,329,167
1,788,081
108,923
649,331
8,937,572
22,329,167
1,976,300
120,389
717,681
9,878,370
22,329,167
34,417,490
33,813,074
35,021,907
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It
is the risk that the Group will encounter difficulty in meeting its financial obligations.
It is the policy of the Group to ensure that it will always have sufficient cash to allow it to meet its liabilities when they fall due. To achieve this aim,
the Group maintains cash balances at levels considered appropriate to meet ongoing obligations.
Cash flow is monitored on a regular basis. Projections reflected in the Group working capital model indicate that the Group will have sufficient
liquid resources to meet its obligations under all reasonably expected circumstances. The maturity analysis of loans and borrowings is set out in
the table on page 117. The maturity analysis of trade and other payables are in accordance with those terms and conditions agreed between
the Group and its suppliers, for trade and other payables payment terms are 30 days, provided all terms and conditions have been complied
with. Exceptions to agreed terms are set out in note 22.
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. The sensitivity to interest rates is not considered significant to the Groups
interest bearing borrowings.
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 is restated based on the respective country specific prime lending
rates as disclosed in note 21, with the exception of the Convertible bond which is interest free.
Notes to the annual financial statements
117
For the year ended 30 June 2008
25. Financial instruments (continued)
Cash and Cash Equivalents (US$ '000)
Effective
interest
rate
Notes
6 months
or less
6-12
months
Total
1-2
years
2-5 More than
5 years
years
30 June 2008
Cash
17
1.76%
37,469
37,469
–
–
–
Loans and borrowings
Bank loan – secured
Bank loan – secured
Bank loan – secured
Convertible note – secured
Finance leases – secured
Associate loans
Cash flow of loans and
borrowings
30 June 2007
21(i)
21(ii)
21(iii)
21(v)
21(vi)
16.65%
16.07%
16.07%
7.48%
16.65%
16.07%
190
1,809
1,132
18,222
5
356
21,714
16
514
527
696
5
–
15
514
37
711
–
–
32
652
568
16,815
–
–
1,758
1,277
18,067
128
129
–
–
–
356
613
22,241
1,062
566
20,000
613
Cash
17
4.30%
44,125
44,125
–
–
–
Loans and borrowings
Bank loan – secured
Bank loan – secured
Bank loan – secured
Bank loan – secured
Convertible note – unsecured
Finance leases – secured
Cash flow of loans and
borrowings
Other market price risk
21(i)
21(ii)
21(iii)
21(iv)
21(v)
21(vi)
13.80%
13.42%
13.42%
11.30%
7.48%
13.80%
241
2,918
1,767
9,015
16,912
5
13
424
583
9,015
646
5
14
784
–
–
664
–
32
360
568
–
1,407
–
182
1,222
616
–
14,195
–
30,858
10,686
1,462
2,367
16,215
31,798
10,040
798
960
20,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
The Group generates revenue from the sale of rough diamonds. The significant number of variables involved in determining the selling prices of
rough diamonds, such as the uniqueness of each individual rough stone, the content of the rough diamond parcel and the ruling US$/ZAR spot
rate at the date of sale make it difficult to accurately extrapolate the impact the fluctuations in diamond prices would have on the Group’s revenue.
Capital disclosures
Capital is defined by the Group to be the capital and reserves attributable to equity holders of the parent Company. The Group’s objectives when
maintaining capital are:
(cid:1) to safeguard the ability of the entity to continue as a going concern and
(cid:1) to provide an adequate return to shareholders.
The Group monitors capital on the basis of the debt to equity ratio. This ratio is calculated as net debt to equity. Net debt is calculated as total
debt (excluding provisions and deferred tax liabilities) less cash and cash equivalents. Equity comprises all components of equity attributable to
equity holders of the parent Company.
118
Notes to the annual financial statements
For the year ended 30 June 2008
25. Financial instruments (continued)
The debt to equity ratios at 30 June 2008 and 30 June 2007 are as follows:
Total debt
Cash and cash equivalents
Net debt/(funds)
2008
US$
40,818,255
(37,469,370)
3,348,885
2007
US$
43,480,904
(44,124,829)
(643,925)
Total equity attributable to equity holders of the parent Company
153,209,846
160,563,526
Debt/(funds) to equity ratio
0.02:1
(0.01):1
The Group manages its capital adequacy structure by the issue of ordinary shares, raising debt
finance where appropriate, and managing Group cash and cash equivalents.
155,195
296,486
98,149
489,243
26. 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 five years
with an option to renew after that date. Lease payments are increased annually to reflect
market rentals. The leases do not include contingent rentals. During the year ended 30 June
2008 US$127,225 was recognised as an expense in the income statement in respect of
operating leases, as disclosed in note 6.
27. Contingent liabilities
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, 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.
Deferred consideration payable for strategic investment in future mining and exploration projects.
2,000,000
3,000,000
Calibrated Diamonds Investment Holdings (“CDIH”) deferred consideration
As part of the CDIH acquisition a deferred consideration is payable should agreed production threshold levels be achieved using the CDIH cutting
technology.
The deferred consideration is triggered, when CDIH cuts rough input of four threshold levels, being 2,500, 5,000, 7,500 and 10,000 carats
per month, for a consecutive period of two months in each case and will be settled by;
(i)
the issue of warrants over 750,000 Petra shares per threshold level at an exercise price of 114.5 pence per share (the closing mid market
price on 2 October 2006, the day prior to the signing of the heads for the transaction subject to the approval of the granting of such warrants
by the South African Reserve Bank), or at Petra's election (or if Reserve Bank approval is not received), by way of a cash amount equivalent
to the notional gain in the value of the warrants had they been granted; and
(ii)
the payment of an amount based on the EBITDA of CDIH. This amount will be calculated as a three times multiple of 28.36% of the EBITDA
of CDIH when each of the above threshold levels is met, less any such EBITDA payments already made in respect of meeting earlier thresholds.
On 23 September 2008, the Group announced the disposal of its shareholding in CDIH to GEM Diamonds Limited. One of the key terms of the
transaction was the settlement of the above deferred considerations by a once-off payment of R5 million (US$639,174) to be settled from the
proceeds of the transaction.
Notes to the annual financial statements
119
For the year ended 30 June 2008
27. Contingent liabilities (continued)
Contingent liabilities considered remote
i)
A former Director of Crown Diamonds NL has lodged a claim for AUD$1,193,407 (US$1,147,838) 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.
ii) 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 31 December 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.
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
new material provisions 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.
28. Share-based payments
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 2008 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 payment expense has been calculated using the Black-Scholes model. All share
options are equity settled.
Fair value of share options and assumptions for the 12 months ended 30 June 2008:
Fair value at measurement date
Exercise price
Share price 30 June 2008
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on national government bonds)
Fair value of share options and assumptions for the 12 months ended 30 June 2007:
Fair value at measurement date
Exercise price
Share price 30 June 2007
Expected volatility
Option life
Expected dividends
Risk-free interest rate (based on national government bonds)
Directors
14.7p – 53p
44p – 156p
103.5p
27%
10 years
–
4.41% – 4.73%
Directors
14.7p – 53p
44p – 156p
153p
27%
10 years
–
4.73%
Senior
management
5.9p – 39.5p
44p – 156p
103.5p
27%
1 – 10 years
–
4.31% – 5.35%
Senior
management
5.9p – 39.5p
44p – 156p
153p
27%
1 – 10 years
–
4.82% – 5.35%
The expected volatility is based on historic volatility, adjusted for any extreme changes in the share price during the historic period. During the year
57,332 (30 June 2007:1,089,000) options were exercised and the Company expensed US$1,629,783 (30 June 2007: US$437,340) related
to the fair value of employee share options.
120
Notes to the annual financial statements
For the year ended 30 June 2008
28. Share-based payments (continued)
The terms and conditions of the grants are as follows, whereby all options are settled by delivery of shares:
Employees entitled
Options granted to directors
Options granted to
senior management
Grant
date
5 September 2003
16 June 2005
31 May 2006
2 March 2007
6 December 2007
5 September 2003
13 September 2004
24 September 2004
28 January 2005
27 November 2005
31 May 2006
31 July 2006
31 October 2006
24 November 2006
2 March 2007
6 December 2007
Number
1,000,000
2,000,000
1,000,000
1,200,000
1,200,000
192,000
50,000
238,875
72,500
423,334
460,000
553,625
200,000
1,000,000
1,210,000
1,800,000
Vesting
conditions
1/3 per annum from grant date
Subject to performance of share price
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 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 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
Remaining
life of
options
(years)
5
7
8
9
10
5
6
6
7
7
8
9
9
9
9
10
Outstanding at beginning
of the year
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at the end
of the year
Exercisable at the end
of the year
2008
Weighted
average price
59.53p
81.80p
64.43p
123.96p
2008
Number
9,731,000
(73,334)
(57,332)
3,000,000
2007
Weighted
average price
65.97p
85.00p
33.96p
141.21p
2007
Number
6,646,375
(30,000)
(1,089,000)
4,203,625
74.70
12,600,334
59.53p
9,731,000
106p
6,620,372
99p
3,422,108
The weighted average market price of the options exercised during the year was 64.43p (30 June 2007: 153.98p). The options outstanding at
30 June 2008 have an exercise price in the range of 44p to 156p (30 June 2007: 44p to 156p) and a weighted average contractual life of
eight years (30 June 2007: nine years).
Notes to the annual financial statements
121
For the year ended 30 June 2008
29. Post-balance sheet events
Cullinan Diamond Mine (“Cullinan”)
On 15 July 2008 Petra Diamonds Limited as a member of the Petra Diamonds Cullinan Consortium (‘PDCC’) acquired Cullinan for a consideration
of R1 billion (US$125 million), from De Beers Consolidated Mines Limited ("De Beers"). The members of PDCC are Petra Diamonds Limited (37%
initial interest), Al Rajhi Holdings W.L.L (37% initial interest) and PDCC’s Black Economic Empowerment partners (26% interest). The Group’s share
of the consideration was R370 million (US$46.2 million) for an effective stake in Cullinan of 37%.
Effect of the acquisition
The acquisition had the following effect on the Group’s assets and liabilities.
Cullinan Diamond Mine net assets at acquisition date:
Fair value of net assets of entity acquired
Mining property, plant & equipment
Land
Mineral properties
Trade and other receivables
Inventory
Environmental liabilities
Employee related payables
Trade and other payables
Consideration amount satisfied in cash
Petra on acquisition share of net assets acquired (37%)
Book
values
US$
Fair value
adjustments
US$
Carrying
values
US$
119,886,470
3,247,650
–
9,630
1,417,993
(13,789,405)
(3,902,661)
(2,048,537)
13,928,860
133,815,330
–
6,250,000
–
–
–
–
–
3,247,650
6,250,000
9,630
1,417,993
(13,789,405)
(3,902,661)
(2,048,537)
125,000,000
46,250,000
The fair value adjustment of US$20,178,860 arose as a result of the premium attributable to the mining property, plant and equipment and land
purchased from De Beers. The allocation of the premium to mining property, plant and equipment and land is deemed to be provisional.
Williamson Diamond Mine (“Williamson”)
On 9 September 2008 Petra announced that it had entered into an agreement with Cheviot Holdings (“Cheviot”), a wholly owned subsidiary of
De Beers Societe Anonyme (“De Beers”), to acquire the entire share capital of Willcroft Company Limited (“Willcroft”) from Cheviot for a cash
consideration of US$10 million. The total cash consideration of US$10 million will be funded entirely from the Group’s internal cash resources.
Willcroft owns 75% of Williamson Diamonds Limited, the sole owner and operator of the Williamson mine, while the Government of the United
Republic of Tanzania owns the remaining 25%.
No pro-forma financial information as at the date of this report is available in respect of the Williamson mine and fair values of the assets and
liabilities have not been disclosed due to the proximity of the date of signing the agreement and the release of the Group’s results.
Calibrated Diamonds Investment Holdings (Pty) Limited ("CDIH")
On 22 September 2008, the Group disposed of the entire ordinary share capital of CDIH together with associated assets for a total cash
consideration of R47.0 million (US$5.9 million). CDIH was treated as a discontinued operation as at 30 June 2008, as set out in note 33.
122
Notes to the annual financial statements
For the year ended 30 June 2008
30. Related parties
Subsidiaries and associates
Details of subsidiaries and associates are disclosed in note 13 and note 32 respectively.
Directors
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 the Directors’ Report.
There are no material loans to Directors or senior management which have not been disclosed in the notes.
Shareholders
The principal shareholders of the Company are detailed in the Directors’ Report on page 76.
Transactions with principal shareholders are detailed in note 21 (v).
Contingent liabilities
Details of contingent liabilities are disclosed in note 27.
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 2008 Petra Diamonds paid expenses on behalf of Nabera amounting to R2,100 (US$268)
(30 June 2007 R911,925 (US$128,875)). The expenses were incurred in relation to the recovery of the management fee and value-add due to
Nabera from Alexkor Limited and the South African Government. All such expenses incurred on Nabera’s behalf will be reimbursed to the Company
on receipt of the management fee and value-add.
31. Significant non-cash transactions
Significant non cash transactions are set out below:
Operating activities
Share-based payments
Foreign exchange loss
Investing activities
Equity consideration for business combination
Impairment of listed investment
Financing activities
Convertible bond converted to equity reserves
2008
US$
2007
US$
1,629,783
4,594,410
6,224,193
–
–
–
–
–
749,406
4,811,205
5,560,611
61,885,994
(1,201,274)
60,684,720
4,003,682
4,003,682
Notes to the annual financial statements
123
For the year ended 30 June 2008
32. Subsidiaries and associates
At 30 June 2008 the Group held 20% or more of the allotted share capital of the following:
Afropean Diamonds (Pty) Ltd
Alltop Investments (Pty) Ltd
Autumn Star Investments
(Pty) Ltd*
Basama Diamonds Ltd
Blue Diamond Mines
(Pty) Ltd
BPL Diamonds Ltd
Calibrated Diamonds
Investment Holdings (Pty) Ltd2
Calibrated Diamonds (Pty) Ltd2
Compass Mining Services
(Pty) Ltd
Crown Diamonds NL
Crown Resources (Pty) Ltd
Cullinan Diamond Mine
(Pty) Ltd1
Cullinan Investment Holdings
Limited1
Dalestar Corporation (Pty) Ltd
Dancarl Diamonds (Pty) Ltd
Dimeng Diamond Holdings
(Pty) Ltd
Engiminas Consultoria e
Enginharia LDA
Frannor Investments and
Finance Ltd
Frannor Investments and
Financing (Pty) Ltd
Helam Mining (Pty) Ltd
Ida Valley (Pty) Ltd
Johannesburg Diamond Trading
Corporation (Pty) Ltd
Kalahari Diamonds Ltd
Kamara Holdings (Pty) Ltd
Koffiefontein Mine JV
Laser Optronic Technologies
(Pty) Ltd2
Madeline Alluvial Diamonds
and Mineral Development
(Pty) Ltd
Majestic Resources (Pty) Ltd
Majestic Resources South Africa
(Pty) Ltd
Messina Diamond Mine
(Pty) Ltd
Messina Investments Ltd
Nabera Holdings (Pty) Ltd
Nabera Mining (Pty) Ltd
Country of
incorporation
Class of share
capital held
Percentage
held 2008
Percentage
held 2007 Nature of business
South Africa
Australia
South Africa
Seychelles
Ordinary
Ordinary
Ordinary
Ordinary
South Africa
British Virgin Islands
Ordinary
Ordinary
South Africa
South Africa
Australia
Australia
South Africa
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
South Africa
Ordinary
British Virgin Islands
Australia
South Africa
Ordinary
Ordinary
Ordinary
100%^
100%^
40%^
51%^
100%^
100%^
100%^
100%^
100%^
100%^
100%^
37%**
50%**
100%^
100%^
100%^ Mining and exploration
100%^
Dormant
40%^ Mining and exploration
51%^ Mining and exploration
100%^ Mining and exploration
100%^ Mining and exploration
100%^
100%^
Investment holding
Beneficiation
100%^
100%^
100%^
Dormant
Dormant
Dormant
– Mining and exploration
– Mining and Exploration
100%^
100%^ Mining and exploration
Dormant
South Africa
Ordinary
59%^
59%^ Mining and exploration
Angola
Ordinary
100%^
100%^ Mining and Exploration
British Virgin Islands
Ordinary
100%^
100%^ Mining and Exploration
South Africa
South Africa
Australia
South Africa
United Kingdom
Australia
South Africa
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%^
100%^
100%^
100%^
100%^
100%^
70%^
100%^ Mining and Exploration
100%^ Mining and exploration
100%^
Dormant
100%^
100%^
100%^
Dormant
Services provision
Dormant
70%^ Mining and exploration
South Africa
Ordinary
100%^
100%^
Beneficiation
South Africa
Australia
Ordinary
Ordinary
100%^
100%^
100%^
100%^
Dormant
Investment holding
South Africa
Ordinary
100%^
100%^
Dormant
South Africa
South Africa
South Africa
South Africa
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
100%^
100%^
100%^
29.5%**
35%**
100%^
100%^ Mining and exploration
100%^
100%^
Investment holding
Dormant
29.5%** Mining and exploration
35%**
100%^
Dormant
Dormant
Namibia Mining House (Pty) Ltd
Namibia
Nooitgedacht Diamonds (Pty) Ltd
South Africa
124
Notes to the annual financial statements
For the year ended 30 June 2008
32. Subsidiaries and associates (continued)
At 30 June 2008 the Group held 20% or more of the allotted share capital of the following:
Organizações Moyoweno –
Comércio Geral Lda3
Paardekraal Properties (Pty) Ltd
Pacific Breeze Trading (Pty) Ltd2
Pagvlei Mining (Pty) Ltd
Petra Diamonds Alto Cuilo Ltd
Petra Diamonds Angola
Holdings Ltd
Petra Diamonds Angola
Services Ltd
Petra Diamonds Namibia
(Pty) Ltd
Petra Diamonds Southern
Africa (Pty) Ltd
Power Corporation Angola
(Pty) Ltd
Premier Rose Management
Services (Pty) Ltd1
Santara Holdings (Pty) Ltd
Sedibeng Diamond Mine JVa
Sekaka Diamonds (Pty) Ltd
Star Diamond Mine (Pty) Ltd
Union Investments
Corporation (Pty) Ltd
Vulcan Mining (Pty) Ltd
Country of
incorporation
Class of share
capital held
Percentage
held 2008
Percentage
held 2007 Nature of business
Angola
South Africa
South Africa
South Africa
British Virgin Islands
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
40%**
100%^
100%^
100%^
25%**
– Mining and exploration
100%^
Dormant
Dormant
100%^
100%^ Mining and exploration
31%** Mining and exploration
British Virgin Islands
Ordinary
100%^
100%^
Investment holding
British Virgin Islands
Ordinary
100%^
100%^ Mining and exploration
Namibia
Ordinary
100%^
100%^ Mining and exploration
South Africa
Ordinary
100%^
100%^
Services provision
Bermuda
Ordinary
70%^
70%^
Exploration
South Africa
Australia
South Africa
Botswana
South Africa
South Africa
Australia
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
50%^
100%^
57.5%^
100%^
100%^
100%^
100%^
Services provision
Dormant
–
100%^
57.5%^ Mining and Exploration
100%^
Exploration
100%^ Mining and exploration
100%^
100%^
Dormant
Dormant
1 Cullinan Investment Holdings Limited (“CIHL”), Cullinan Diamond Mine (Pty) Ltd and Premier Rose Management Services (Pty) Ltd are all newly
incorporated companies during the year, as a result of the acquisition of the Cullinan Diamond Mine assets from De beers.
2 Calibrated Diamonds Investment Holdings (Pty) Ltd, Calibrated Diamonds (Pty) Ltd, Laser Optronic Technologies (Pty) Ltd and Pacific Breeze
(Pty) Ltd are subsidiaries disposed of post year end as a result of the Calibrated Diamonds Investment Holdings (Pty) Ltd disposal on
22 September 2008.
3 Organizações Moyoweno – Comércio Geral Lda (“Moyoweno”) is an associate company as a result of the Group purchasing a 40% interest
in the company during the year. Moyoweno’s year end is 31 December.
a Although the Company owns only an effective 57.5% of Sedibeng Mine JV (“Sedibeng”), the Company has consolidated its investment in
Sedibeng on the basis of control.
* Although the Company owns only 40% of Autumn Star Investments (Pty) Ltd (“Autumn”), the Company has consolidated its investment in Autumn
on the basis of control.
^ Acquisition accounted
** Equity accounted
Notes to the annual financial statements
125
For the year ended 30 June 2008
33. Discontinued operations
Calibrated Diamonds Investment Holdings (Pty) Limited ("CDIH")
On 22 September 2008, the Group disposed of the entire ordinary share capital of CDIH together with associated assets for a total cash
consideration of R47.0 million (US$5.9 million).
CDIH net assets at 30 June 2008:
Net assets:
Property,plant and equipment – reclassified as non-current assets held for sale
Trade and other receivables
Inventories
Cash
Intangible assets – reclassified as non-current assets held for sale
Net loans from group companies
Trade and other payables – reclassified as directly associated with non-current assets held for sale
Result of discontinued operation:
Revenue
Expenses other than finance costs
Finance income
Finance costs
Tax expense
Loss for the year
Basic loss per share (US cents)
The cash flow statement includes the following:
Operating activities
Investing activities
Financing activities
Net cash from/(used in) discontinued operations
2008
US$
158,160
1,002,038
2,546,151
86,512
3,523,708
(5,996,775)
(81,646)
2008
US$
827,039
(2,119,938)
12,534
(108,537)
–
2007
US$
–
(599,228)
2,384
–
–
(1,388,902)
(596,844)
(0.76)
(0.39)
(5,045,233)
12,534
4,638,212
(394,487)
(1,013,472)
2,384
1,328,265
317,177
126
Notice of Annual General Meeting
For the year ended 30 June 2008
Notice is hereby given that the eleventh Annual General Meeting of Petra Diamonds Limited (the Company) will be held at 10:00 am on Friday,
19 December 2008 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 2008, together with the Reports of the Directors and Auditors, be
received.
2. Appointment of auditors
That BDO Stoy Hayward LLP of 55 Baker Street, London, W1U 7EU be re-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) James Davidson and (b) Volker Ruffer (each to be separately proposed and voted upon), who retire in 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
7 November 2008
Registered office
Clarendon House, 2 Church Street, Hamilton HM11, Bermuda
Company registration number: EC23123
Explanatory notes
For the year ended 30 June 2008
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 Registrars, The Registry, 34 Beckenham Road,
Beckenham, Kent BR3 4TU; 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.
127
Glossary of terms
For the year ended 30 June 2008
AIM
Alluvial
Audit
Bulk sample
CAPEX
Carat
Cross section
– London Stock Exchange's Alternative Investment Market.
– Diamond deposits which are located in sediments transported by river or marine systems.
– Checking mechanisms to verify the veracity of results.
– Large sample which is processed through a small-scale plant, not a laboratory.
– Capital expenditure.
– Unit of weight for diamonds. The metric carat equals 200 mg.
– A diagram or drawing that shows features transected by a vertical plane drawn at right angles to the longer axis of
a geologic feature.
Cut-off grade
– The lowest grade of mineralised material considered economic to extract; used in the calculation of the ore reserves
in a given deposit.
Diamond drilling – A drilling method, where the rock is cut with a diamond bit, to extract a core of the rock.
Diamond grade – The content of diamonds, measured in carats, within a volume or mass of rock.
Diamondiferous – Containing diamonds.
DMS
– Dense Medium Separation, a way of separating diamonds or heavy minerals from waste material using a flotation
process.
– The quantitative judgement of a variable.
– Prospecting, sampling, mapping, diamond drilling and other work involved in the search for mineralisation.
Estimation
Exploration
Feasibility study – A definitive engineering estimate of all costs, revenues, equipment requirements and production levels likely to be
achieved if a mine is developed. The study is used to define the economic viability of a project and to support the
search for project financing.
Garnet
Grade
– A silicate mineral. The magnesium-rich variety, pyrope, is commonly found in kimberlites.
– The relative quantity or percentage of diamonds within the rock mass. Measured as carats per hundred tonnes in this
report.
In situ
Indicated
diamond resource
Inferred
diamond resource
– In its original place, most often used to refer to the location of the mineral resources.
– That part of a diamond resource for which tonnage, densities, shape, physical characteristics, grade
and average diamond value can be estimated with a reasonable level of confidence. It is based on exploration
sampling and testing information gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm
geological and/or grade continuity but are spaced closely enough for continuity to be assumed and sufficient
diamonds have been recovered to allow a confident estimate of average diamond value (SAMREC Code).
– That part of a diamond resource for which tonnage, grade and average diamond value can be estimated with a
low level of confidence. It is inferred from geological evidence and assumed but not verified by geological and/or grade
continuity and a sufficiently large diamond parcel is not available to ensure reasonable representation of the diamond
assortment. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes that may be limited or of uncertain quality and reliability (SAMREC Code).
Kimberlite
– An ultra basic rock defined as a porphyritic alkalic peridotite containing phenocrysts of olivine and phlogopite.
KIM
MBS
Measured
diamond resource
Occurs as dykes or as characteristically carrot-shaped pipes.
– Kimberlite indicator minerals – diamonds, garnets, and several other minerals which are unique to kimberlitic rocks.
– Mini bulk sampling; the collection and processing of typically one to several hundred tonnes of kimberlite as part of
the initial steps on the road to establishing a grade of a given deposit.
– That part of a diamond resource for which tonnage, densities, shape, physical characteristics, grade and average
diamond value can be estimated with a high level of confidence. It is based on detailed and reliable exploration
sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity
and sufficient diamonds have been recovered to allow a confident estimate of average diamond value.
– That portion of a resource for which extraction is technically and economically feasible.
Mineable
– The presence of a target mineral in a mass of host rock.
Mineralisation
– Net asset value.
NAV
– Net present value.
NPV
– Surface mining in which the ore is extracted from a pit. The geometry of the pit may vary with the characteristics of
Opencast/
Open pit
– A continuous well-defined mass of material of sufficient ore content to make extraction feasible.
Orebody
– A collection of diamonds of various sizes made available for sale as a single package.
Parcel
Percussion drilling – A drilling method where the rock is broken by a compressed-air driven bit into chips that are blown up the hole to be
the ore body.
sampled.
128
Glossary of terms
Primary deposit – With reference to the deposition of diamonds, these deposits include kimberlite pipes, dykes, blows and fissures as
well as lamproites. Contrasted with alluvial.
– Potentially diamondiferous alluvial gravels derived from primary deposits.
Primary gravel
Probable reserves – The economically mineable material derived from a measured and/or indicated diamond resource. It is estimated
with a lower level of confidence than a proven reserve. It is inclusive of diluting materials and allows for losses that
may occur when the material is mined. Appropriate assessments, which may include feasibility studies, have been
carried out, including consideration of, and modification by, realistically assumed mining, metallurgical, economic,
marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of
reporting that extraction is reasonably justified.
Proven reserves – The economically mineable material derived from a measured diamond resource. It is estimated with a high level of
confidence. It is inclusive of diluting materials and allows for losses that may occur when the material is mined.
Appropriate assessments, which may include feasibility studies, have been carried out, including consideration of, and
modification by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and
governmental factors. These assessments demonstrate at the time of reporting that extraction is reasonably justified.
– The process of restoring mined land to a condition approximating to a greater or lesser degree its original state.
Reclamation standards are determined by the South African Department of Minerals and Energy Affairs and address
ground and surface water, topsoil, final slope gradients, waste handling and revegetation issues.
Rehabilitation
RVK
Sample
Sampling
Slimes
– Resedimented volcaniclastic kimberlite. Volcaniclastic kimberlite that has been redistributed by sedimentary processes
during and directly after volcanic eruptions.
– The removal of a small amount of rock pertaining to the deposit, which is used to estimate the grade of the deposit
and other geological parameters.
– Taking small pieces of rock at intervals along exposed mineralisation for assay (to determine the mineral content).
– The fine fraction of tailings discharged from a processing plant without being treated; in the case of diamonds, usually
that fraction which is less than 1 mm in size.
Slimes dam
Stockpile
Stone size
Stones
Tailings
Tailings dump
– A storage facility for all fine waste products from the processing plant.
– A store of unprocessed ore.
– Average size of the diamonds, expressed as carats/stone.
– Diamonds.
– The waste products of the processing circuit. These may still contain very small quantities of the economic mineral.
– Dumps created of waste material from processed ore after the economically recoverable metal or mineral has been
extracted.
Tonnage
– Quantities where the tonne is an appropriate unit of measure.Typically used to measure reserves of target commodity
bearing material or quantities of ore and waste material mined, transported or milled.
Yield/Recovered – The actual grade of ore realised after the mining and treatment process.
grade
Units Description
°
°C
cm
cpht
ct
ha
km
km2
m
m
m2
m3
R/t
t
tpa
tph
tpm
US$/ct
– Degree
– Degrees Celsius
– Centimetre
– Carat per hundred tonnes
– Carat
– Hectare
– Kilometre
– Square kilometres
– Metre
– Million
– Square metres
– Cubic metre
– South African Rand per tonne
– Tonne
– Tonnes per annum
– Tonnes per hour
– Tonnes per month
– United States Dollar per carat
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Annual Report 2008
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CONTENTS
Administrative information
Group head office
Elizabeth House
9 Castle Street
St. Helier
Jersey, JE4 2QP
www.petradiamonds.com
Email: info@petradiamonds.com
Advisers
Nominated adviser and broker
Collins Stewart
88 Wood Street
London, EC2V 7QR
Tel: +44 207 523 8000
Website: www.collins-stewart.com
Contact: Piers Coombs
Email: pcoombs@collins-stewart.com
Second broker
BMO Capital Markets
95 Queen Victoria Street
London, EC4V 4HG
Tel: +44 20 7246 5415
Contact: Jamie Strauss
Email: jamie.strauss@bmo.com
AIM registrars
Capita IRG (Offshore) Limited
44 The Esplanade, Jersey,
Channel Islands, JE4 0XQ
Tel: UK: 0871 664 0300 or
international: +44 208 639 3399
Website: www.capitaregistrars.com
Email: ssd@capitaregistrars.com
Auditors
BDO Stoy Hayward LLP
55 Baker Street
London, W1U 7EU
Tel: +44 207 893 2714
Website: www.bdo.co.uk
Contact: Scott Knight
Email: scott.knight@bdo.co.uk
Legal advisers
(As to English Law)
Memery Crystal
44 Southampton Buildings
London, WC2A 1AP
Tel: +44 207 242 5905
Website: www.memerycrystal.com
Contact: Lesley Gregory
Email: lgregory@memerycrystal.com
Principal bankers
Barclays Bank plc
38 Hans Crescent, Knightsbridge
London, SW1X OL2
Tel: +44 207 114 7200
Website: www.barclays.co.uk
Contact: Graham Whiteley
Email: graham.whiteley@barclays.co.uk
PR advisers – UK
The Hogarth Partnership
No. 1 London Bridge
London, SE1 9BG
Tel: +44 20 7357 9477
Website: www.hogarthpr.co.uk
Contact: Julian Walker
Email: PDL@hogarthpr.co.uk
PR advisers – South Africa
Russell & Associates
42 Glenhove Road
Melrose Estate
Johannesburg, South Africa
Tel: +27 (0)11 880 3924
www.rair.co.za
Contact: Charmane Russell
Email: charmane@rair.co.za
Secretary and registered office
Michael Ashford
2 Church Street, Hamilton
HM11, Bermuda
Company registration number: EC23123
Tel: +1 441 295 5950
Website: www.cdp.bm
Email: mbashford@cdp.bm
Legal advisers to the Company
(As to Bermuda Law)
Conyers Dill & Pearman
Clarendon House, 2 Church Street
Hamilton, HM11, Bermuda
Tel: +1 441 295 1422
Website: www.cdp.bm
Email: info@cdp.bm
Russell and Associates