P
e
t
r
a
D
i
a
m
o
n
d
s
L
i
m
i
t
e
d
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
1
Annual Report and Accounts 2011
Discover Petra Diamonds
Petra Diamonds is a leading independent diamond mining group
and an increasingly important supplier of rough diamonds to
the international market. The Company has a well-diversified
portfolio, with interests in eight producing mines: seven in South
Africa (Finsch, Cullinan, Koffiefontein, Kimberley Underground,
Helam, Sedibeng and Star) and one in Tanzania (Williamson).
Petra offers an exceptional growth profile, with a core objective to steadily
increase annual production to over 5 million carats by FY 2019. The Group
has a major resource base in excess of 300 million carats.
Petra conducts all its operations according to the highest ethical standards
and will only operate in countries which are members of the Kimberley
Process. The Company is quoted on AIM (AIM: PDL) and has announced its
plans to apply for admission, with a premium listing, of its entire issued
share capital to the Official List of the UK Listing Authority and for admission
to trading on the London Stock Exchange’s Main Market.
Image above: The 507 carat Cullinan Heritage diamond.
Cover image: The Finsch mine in South Africa.
Discover more about Petra
www.petradiamonds.com
Overview
Discover Petra Diamonds
01 2011 Highlights: at a Glance
02 Our Assets: at a Glance
04 Our Strategy: at a Glance
04 The Diamond Market
06 Chairman’s Statement
Business Review
08 CEO’s Review
10 The Diamond Market
12 Operational Review
12 Cullinan
14 Finsch
16 Koffiefontein
18 Kimberley Underground
20 Williamson
22 Fissure Mines
23 Exploration
24 Reserves and Resources
28 Financial Review
31 Key Performance Indicators
Corporate Governance
32 Risk Management
34 Corporate Social Responsibility
36 Board of Directors
38 Directors’ Report
41 Corporate Governance Statement
46 Directors’ Remuneration Report
Financial Statements
49 Independent Auditor’s Report
50 Consolidated Income Statement
51 Consolidated Statement of
Other Comprehensive Income
52 Consolidated Statement
of Changes in Equity
54 Consolidated Statement
of Financial Position
55 Consolidated Statement
of Cashflows
56 Notes to the Annual
Financial Statements
Glossary
2011 Highlights: at a Glance
O
v
e
r
v
i
e
w
Financial Highlights
U Revenue: US$220.6 million
(FY 20101: US$163.7 million)
U Profit from mining activity2: US$76.4 million
(FY 2010: US$67.2 million)
U Operating cashflow: US$50.6 million
(FY 2010: US$48.8 million)
U Adjusted EBITDA3: US$67.1 million
(FY 2010: US$70.9 million)
U Profit after tax: US$59.2 million
(FY 20101: US$70.2 million)
U EPS4: 12.83 cents per share, post the issue
of 136,698,212 new shares in January 2011
(FY 2010: 22.65 cents per share)
U Cash at bank at 30 June 20115: US$324.9 million
(FY 2010: US$34.5 million)
Operations Highlights
U Production of 1,117,795 carats (FY 2010: 1,164,856)
U Diamond prices rose steadily from October 2010
to highs in June 2011; since July 2011, rough prices
have adjusted downwards and economic uncertainty
may continue to cause volatility in the short term
Corporate Highlights
U Acquisition of world-class Finsch mine for R1.425 billion
(ca. US$192 million) completed post year end on
14 September 2011
U Equity fundraising of US$325 million to fund Finsch
acquisition and strengthen Company balance sheet
U US$83 million debt facilities in place with IFC and
Rand Merchant Bank
Outlook
U After an initial bedding down period, Finsch is expected
to add ca. 125,000 carats per month to Petra’s output,
adding at least 1 Mcts for FY 2012
U The Group gross resources (including Finsch) have
increased to over 300 Mcts
U London Stock Exchange Main Market step-up expected
U Expansion plans on target to increase production to over
in December 2011
5 Mcts by FY 2019
U Long-term outlook for diamond market remains positive
U Sound cost control despite inflationary pressures
due to strong supply and demand fundamentals
1. For the Period 1 July to 16 November 2009, Petra accounted for its interest in Cullinan under the gross method of proportional consolidation, recognising 50% of revenue
and 13% minority interests. With effect from 17 November 2009, the effective date of control for accounting purposes that Petra acquired the remaining 50% interest
in Cullinan Investment Holdings Limited from Al Rajhi Holdings W.L.L., Petra consolidates 100% of revenue and 26% minority interests in line with IFRS.
2. Stated before impairments, depreciation, amortisation, share based expense, foreign exchange gains, interest paid, inventory fair value adjustment and deferred taxation
on inventory fair value adjustment.
3. EBITDA disclosures are “adjusted EBITDA”, being stated before impairments, share based expense, foreign exchange gains and recycling of foreign exchange differences
on exploration projects.
4. Stated after non-controlling interests (representing black economic empowerment (“BEE”) partners’ interests in the Group) of US$6.0 million (FY 2010: US$6.7 million).
5. Cash at bank comprises unrestricted cash and restricted cash balances of US$96.9 million and US$228 million respectively (30 June 2010: US$24.8 million and US$9.7 million).
The restricted balance of US$228 million as at 30 June 2011 included the consideration held in escrow for the acquisition of Finsch, which completed post Period end.
Gross production
Million carats
1.12
Gross revenue
US$ million
220.6
Group adjusted EBITDA3
US$ million
Profit after tax1
US$ million
67.1
59.2
1.20
1.00
0.80
0.60
0.40
0
250
200
150
100
50
0
100
75
50
25
0
-25
75
50
25
0
-25
-50
-75
-100
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
Annual Report and Accounts 2011 Petra Diamonds Limited
01
Helam
Cullinan
Williamson
Finsch
Sedibeng
Star
Kimberley Underground
Koffiefontein
Overview
Our Assets: at a Glance
4,685
Helam
Cullinan
Petra has a well-diversified
portfolio, with controlling interests
in eight producing mines: seven in
South Africa and one in Tanzania
Focus on Africa – source of ~60% of
the world’s gem diamonds by value
Kimberley Underground
Koffiefontein
Sedibeng
Finsch
Star
Employees (excluding contractors) (as at 30 October 2011)
Finsch
Cullinan
Koffiefontein
Kimberley
Underground
Williamson
Helam
Star
Sedibeng
Kalahari
Petra Group
4,654
Tanzania
Williamson
Botswana
Kalahari Diamonds
(exploration)
Cullinan
Finsch
Koffiefontein
Kalahari Diamonds
(exploration)
The world’s most celebrated
diamond mine
South Africa’s second largest
diamond mine
One of the world’s top kimberlite
mines by average diamond value
Cullinan earned its place in history
as the source of the Cullinan diamond
in 1905, the largest gem diamond ever
at 3,106 carats rough
Key facts:
U Renowned for large, top quality gem diamonds –
has produced 745 diamonds of +100 carats
and a quarter of all diamonds of +400 carats
U Only reliable source of highly prized,
rare blue diamonds
U World-class resource base of 203.7 Mcts
(including tailings)
U Expansion plan to increase production
from ca. 895,000 ctpa to 2.4 Mctpa by
FY 2019 (underground and tailings)
U 16 year initial mine plan
A major producer with world-class
infrastructure and modern plant
Exceptional infrastructure and
underground operation
Key facts:
U Major resource base of 43.7 Mcts, incl.
25.8 Mcts in reserves
U Known to produce large, special diamonds –
produced ca. 27 stones of +45 carats pa over
last four years
U Expansion plan to increase production
from ~1.5 Mctpa to just under 2 Mctpa
by FY 2018 (underground and tailings)
U 18 year initial mine plan
Key facts:
U Regularly produces exceptional white
diamonds of between five and 30 carats
in size
U Resource base of 6.1 Mcts
U Expansion plan to increase production
from ca. 48,000 ctpa to +100,000 ctpa
by FY 2017 (underground and tailings)
U 14 year initial mine plan
Petra ownership
74%
Petra ownership
74%
Petra ownership
74%
26% BEE partners (14% Thembinkosi
Mining Investments (Pty) Ltd, 12% Petra
Diamonds Employee Share Trust)
26% BEE partners (21% Senakha
Diamonds Investments (Pty) Ltd,
5% Petra Diamonds Employee Share Trust)
26% BEE partner Re-Teng Diamonds
(Pty) Ltd
02
Petra Diamonds Limited Annual Report and Accounts 2011
O
v
e
r
v
i
e
w
South Africa
Helam
Cullinan
Williamson
p12
For more
information on
our operational
performance
Finsch
Sedibeng
Star
Kimberley Underground
Koffiefontein
Kimberley Underground
Fissure Mines
Williamson
Kimberley is the heart of
South Africa’s diamond industry
Portfolio of three fissure mines:
Helam, Sedibeng and Star
Operation comprises three mines:
Bultfontein, Dutoitspan and Wesselton
Narrow vein, low tonnage “fissure” mines
Petra’s only open pit operation
At 146 hectares, Williamson is the
largest kimberlite pipe ever to be mined
economically on a continuous basis,
having been operated for over 70 years
Key facts:
U Historic source of large diamonds and
fancy yellows
U Resource base of 7.1 Mcts
U Expansion plan to increase production from
ca. 57,000 ctpa to ca. 150,000 ctpa by FY 2013
U 11 year initial mine plan
Key facts:
U Fissures are the narrow root zones of
kimberlites (after the main pipe has been
eroded away)
U Low tonnage operations but high grade
U Expansion plan to increase production
from ca. 87,000 ctpa to ca.140,000 ctpa
by FY 2015
U Resource base of 5.0 Mcts
U >11 year initial mine plan
Key facts:
U Renowned for high value white
and “bubblegum” pink diamonds
U Major resource base of 40.1 Mcts
U 3 Mtpa plant to come into production
in Q3 FY 2012
U 17 year initial mine plan
Kalahari Diamonds
(exploration)
Petra ownership
74%
26% BEE partner Sedibeng Mining (Pty) Ltd
Petra ownership
Helam:
Sedibeng:
Star:
74% Petra, 26% BEE partner Sedibeng
Mining (Pty) Ltd
74.5% Petra, 17.85% BEE partner Sedibeng
Mining (Pty) Ltd, 7.65% BEE partner Bokone
Properties (Pty) Ltd
74% Petra, 26% BEE partner Sedibeng
Mining (Pty) Ltd
Petra ownership
75%
25% United Government
of the Republic of Tanzania
Annual Report and Accounts 2011 Petra Diamonds Limited
03
Overview
Our Strategy: at a Glance
Our focus
Our objectives
Our vision is to develop
a diamond mining group
of global significance
The Group
focused on
is
cash-generative diamond production,
with a core objective to continue
to grow rough diamond output
and increase its stature as a leading
diamond mining group.
Petra’s planned growth in production
will place the Group in a strong
position to benefit from the positive
long term fundamentals of the
diamond industry.
t p u t
u
O
p
t
i
creas e o
In
Focused on
cash-generative
diamond
production
m
i
s
e
r
e
c
o
v
e
r
ie
s
s
e
i
c
n
Drive efficie
The Diamond Market
Although current economic uncertainty may
continue to impact on diamond pricing in the
short term, there is a positive long term outlook
for the rough diamond market due to inherent
production constraints which suggest that supply
will struggle to keep pace with demand.
Many of the world’s major diamond mines are in decline and
cannot maintain previous high levels of output. Whilst some
new mines are coming on stream in the next few years,
there is nothing of significant size to make up for this
shortfall and there have been no important new discoveries
since the early 1990s.
Meanwhile, demand for diamonds continues to rise, in both
established and new markets. The fastest growing new
consumer markets for diamonds are China and India, both
of which are recording double digit growth year-on-year.
04
Petra Diamonds Limited Annual Report and Accounts 2011
Market facts:
U Diamond market performed very strongly in FY 2011 –
prices reached all-time highs in H2; since Period end,
rough prices have adjusted downwards due to global
economic uncertainty
U Robust market underscored by firm retail demand,
causing shortfalls in certain categories
U Liquidity in pipeline continued to improve in FY 2011 and
added further confidence to rough market
U Exceptional growth seen in prices of smaller gem
diamonds in line with trend to use them across luxury
goods, especially watches
U Global diamond jewellery market grew +8% in 2010
U US remains dominant market accounting for 38%
of worldwide consumption
U China and India continued exceptional growth in 2010,
up +25% and +31% in local currency respectively
U Far East (China, Hong Kong, Taiwan, India and Gulf)
expected to account for ~40% of global demand by 2015
O
v
e
r
v
i
e
w
Maximise
returns
How we are achieving our objectives
Steadily growing
annual production,
with a target of over
5 million carats
by FY 2019
» Acquisition of Finsch mine – expected to more
than double Petra’s production in its first full
year of operation
» Petra has built a world-class resource base, which
forms the bedrock of future production growth
» Utilise all of the resources under Petra management
including tailings deposits
Aiming to improve
operating margins
at each mine
over time
» Programmes to deepen underground mines to
establish new block caves and provide access to
undiluted ore
» Focus on “value” as opposed to “volume”
production – i.e. monitor the market to establish
the optimal rough diamond size and quality ranges
to be recovered
» Optimise plant processing and security to ensure
recovery of the full spectrum of diamonds
Maintaining a
culture of effective
cost control
» Contain costs on a unit basis despite
inflationary pressures
» Utilise in-house skills wherever appropriate
to execute capex programmes
» Keep tight control on corporate overhead
Breakdown of global diamond consumer
demand in 2010
Rising demand
Strong demand growth opportunities from China and India
Taiwan 2%
Gulf 8%
India 10%
China/HK 11%
US 38%
Japan 11%
ROW 20%
Source: De Beers 2010 Results — 11 February 2011
Source: Deutsche Bank and Alrosa — “Diamonds set to sparkle” — 19 April 2011
Annual Report and Accounts 2011 Petra Diamonds Limited
05
Overview
Chairman’s Statement
We are working together to further
establish our status as one of the world’s
leading diamond mining groups
Summary of Chairman’s Statement
» Acquisition of Finsch, one of the world’s important
diamond mines, in line with our strategy to acquire
long-life assets with substantial diamond resources.
» Petra is focused on Africa, which is the source of some
60% of the world’s diamonds by value. We have
established a significant marketing operation in
Johannesburg where we sell the bulk of our production.
» Petra is moving to the next stage of its corporate
development as we prepare for our step-up from AIM
to the Main Market of the London Stock Exchange
in December 2011.
» The long term outlook for the rough diamond market
remains positive due to inherent production constraints,
which suggest that supply will struggle to keep pace
with demand.
Dear shareholder,
It gives me great pleasure to introduce
Petra’s 2011 Annual Report and to provide
an overview of the key highlights of the year.
This was a period of significant progress
for Petra Diamonds, which is now firmly
established as London’s
largest quoted
diamond mining company.
to acquire
An exceptional growth profile
The major milestone since my previous
Chairman’s Report
in October 2010 was
undoubtedly the acquisition of Finsch, the
second largest diamond mine in South Africa.
Finsch is an important diamond producer and its
addition to Petra’s portfolio is in line with our
strategy
long-life assets with
substantial diamond resources which can deliver
strong cashflows and earnings to the Group.
Petra was chosen by De Beers as the winning
bidder for Finsch in a competitive bidding
process, a reflection of our strong track record,
technical capacity and the emphasis we place on
sustainability. Our focus is to now deliver on our
core objective to increase Group production to
over 5 million carats by FY 2019.
Petra was delighted to win several quoted company awards in 2010 and 2011 as recognition
of the Company’s continued successful development, both from an operational and
corporate perspective.
“AIM Transaction
of the Year” –
(2010 AIM
Awards)
About the category:
2010 was a highly successful year for Petra, when the Company raised US$120
million in an equity fundraising, acquired a further 37% of its flagship Cullinan
mine, completed the acquisition of the Kimberley Underground mines and sold
the 507 carat Cullinan Heritage diamond for US$35 million, the highest price
on record for a rough diamond.
Picture shows:
Chairman Adonis Pouroulis accepting the 2010 award.
“AIM Transaction
of the Year” –
(2011 AIM
Awards)
About the category:
Petra completed the landmark acquisition of the Finsch mine in 2011 for
US$192 million, further to an equity placing in which the Company raised
US$325 million. The acquisition was a continuation of Petra’s strategy to build
a world-class miner, adding an eighth producing mine to the Company’s
portfolio and consolidating Petra’s position as London’s largest quoted
diamond mining group.
Picture shows:
Finance Director David Abery accepting the 2011 award.
06
Petra Diamonds Limited Annual Report and Accounts 2011
O
v
e
r
v
i
e
w
Adonis Pouroulis, Chairman
An African success story
Petra is focused on Africa, which is the source
of some 60% of the world’s diamonds by
value, and where we have built up a first-rate
team, in terms of the depth of its skill-set
and its experience in the management of
diamond mining operations. With a portfolio
encompassing eight producing mines – seven
in South Africa and one in Tanzania – as well
as a prospective exploration programme in
Botswana, Petra is a significant employer on
the continent, with over 4,600 employees.
We have established a significant marketing
operation in Johannesburg, where we sell the
bulk of our South African production, and
have a sales office in Antwerp, where we sell
production from the Williamson mine in
Tanzania. Due to the quality and growing size
of our output, which includes world-class
gems such as the 7 carat, flawless, fancy vivid
blue “Star of Josephine” and the 507 carat
“Cullinan Heritage”, we now count many of
the world’s foremost manufacturers as regular
Petra clients, who travel from all over the world
to South Africa to participate in our tenders.
We have secured the future for several of Africa’s
important diamond mines, which are at the heart
of their local communities. As well as providing
employment to our workforce, our mines have a
wider positive impact in terms of stimulating
social and economic upliftment, as outlined
in our annual Sustainability Report, which
is available on the Petra Diamonds website.
We see Africa growing in stature on the world
stage as the continent continues to develop at
a rapid rate and we are proud that Petra is one
of its many modern success stories.
Corporate development
Petra is moving to the next stage of its
corporate development as we prepare for
our move from AIM to the Main Market of the
London Stock Exchange in December 2011.
The Company joined AIM in 1997 and the
market has provided an ideal platform for the
high growth achieved by Petra in recent years.
line with our continued corporate
In
development, we have today appointed two
independent Non-Executive Directors to the
Petra Board, Dr Patrick Bartlett and Gordon
Hamilton, who both bring a wealth of relevant
experience and expertise in the financial and
mining worlds. Following these appointments,
I moved from Executive to Non-Executive
Chairman, though my commitment to Petra
will, of course, remain unchanged. I very
much look forward to working with the
enlarged Board and to taking the Company
forward after Petra’s step up to the Main Market.
Sadly, I must also mark the loss of long-time
Petra Non-Executive Director Charles Segall,
who passed away in July 2011. Charles was a
great friend and loyal colleague, who inspired
all with the enthusiasm he felt for his life and
work. He will be much missed.
A sparkling outlook
Although current economic uncertainty may
continue to impact on diamond pricing in the
short term, the long term outlook for the
rough diamond market remains positive due
to inherent production constraints, which
suggest that supply will struggle to keep pace
with demand. Many of the world’s largest
diamond mines are now past their peak and
are moving underground in order to sustain
the growth
their mine lives, meaning that they will see
significant drops in production as surface
tonnages are curtailed. At the same time,
in
rising prosperity and
consumption from emerging economies such
as China and India should ensure that demand
continues to rise, leading many commentators
to predict a likely scenario of rising rough
diamond prices in the medium to long term.
Petra is very well placed to benefit from
these fundamentals.
Partnerships are key to Petra’s continued
success and I would like to especially thank our
host Governments of South Africa, Tanzania
and Botswana, as well as our main black
economic empowerment partners, Sedibeng
Mining (Pty) Ltd, Umnotho weSizwe Group
(Pty) Ltd, Namoise Mining (Pty) Ltd and the
Petra Diamonds Employee Share Trust.
Finally I would like to thank all our employees
for the hard work which is the driving force
behind Petra. We are all aware that we are
building a truly special Group, but the journey
often requires extra effort and dedication. We
have a first-rate team in place, with an
emphasis on getting the job done, and we are
working together to further establish our
status as one of the world’s leading diamond
mining groups.
Adonis Pouroulis
Non-Executive Chairman
28 November 2011
“Best Investor
Communications”
(2011 UK
Stockmarket
Awards)
About the category:
This category recognises those companies which have most effectively
disseminated information to existing and potential shareholders across
the full range of media – official RNS press releases, their annual report,
webcasts, their website and via their public relations representative – regarding
all aspects of their financial performance, strategy and market positioning.
Picture shows:
Corporate Communications Manager Cathy Malins accepting the award.
Annual Report and Accounts 2011 Petra Diamonds Limited
07
Business Review
CEO’s Review
The 2011 financial year has seen
a further remarkable period of
progression for Petra
Summary of CEO’s Review
» The Group recorded significant
revenue growth and a net profit
after tax of US$59.2 million; agreed
to acquire the major Finsch mine
in South Africa from De Beers;
and significantly strengthened
its balance sheet.
» Petra is now following an
accelerated growth path.
Our core objective is to deliver
on our expansion plans and
we continue to strengthen our
mine management teams and
internal skills-set appropriately.
» The Group’s Lost Time Injury
Frequency Rate in FY 2011
was 0.80, an improvement on
FY 2010’s performance of 1.03
and demonstrating management’s
focus on this area across all of
our operations.
» We plan to move to the Main
Market of the London Stock
Exchange in December 2011 and
are targeting to enter the FTSE 250.
The 2011 financial year (“FY 2011” or “the
Period”) saw a further remarkable period of
progression for Petra: the Company recorded
significant revenue growth and a net profit
after tax of US$59.2 million; agreed to
acquire the major Finsch mine in South Africa
from De Beers; and significantly strengthened its
balance sheet, all set against the backdrop of
a healthy rough diamond market.
The acquisition of Finsch completed post year
end on 14 September 2011 and is a landmark
development for Petra. Finsch is a long-life,
major diamond producer which introduces
another flagship asset to complement and
balance the Cullinan mine in Petra’s portfolio.
The acquisition increases the Company’s gross
resource base to over 300 million carats, which
is one of the world’s largest diamond resources.
Petra is now following an accelerated growth
path. Whereas previously we targeted annual
production of 3 million carats by FY 2019,
the Group is now on track, due to the inclusion
of Finsch, to reach over 5 million carats by
FY 2019. Our core objective is to deliver on
our expansion plans and we continue to
strengthen our mine management teams and
internal skills-set appropriately.
With regards to financing the roll-out of
the expansion plans, Petra completed debt
facilities with IFC and RMB of approximately
US$83 million in November 2010. Both banks
carried out detailed due diligence on Petra;
the IFC’s involvement is particularly notable
as it reflects the important socio-economic
benefits Petra can bring to the Mwadui area of
Tanzania by providing a long-term, sustainable
future for the Williamson mine.
In order to satisfy the Finsch acquisition
consideration of R1.425 billion (US$192 million
as at 14 September 2011, when the acquisition
consideration was settled), Petra completed an
equity fundraising with new and existing
investors, raising £205 million (approximately
US$325 million as at 21 January 2011, when
the raising was completed). The Company
enjoyed a positive response to the fundraising,
which was significantly oversubscribed, and the
high quality names on our share register show
that Petra is supported by some of the
UK’s most reputable institutional investors.
Petra is now London’s largest quoted diamond
mining group. We have used the AIM market well
to facilitate our ambitious growth plans, and we
are now preparing to develop the Company’s
stature further by stepping up to the Main Market
of the London Stock Exchange. In line with the
Company’s continued corporate development,
we have today appointed two independent
Non-Executive Directors, Dr Patrick Bartlett and
Gordon Hamilton, and we are looking to appoint
one or more further independent Non-Executive
Directors to the Board as soon as is practicable
in FY 2012.
In terms of our safety performance, the Group’s
Lost Time Injury Frequency Rate in FY 2011
was 0.80, an improvement on FY 2010’s
performance of 1.03 and demonstrating
management’s focus on this area across all of
our operations. It is with deep regret that an
employee lost his life in an accident on
31 January 2011 in an underground production
section of the Koffiefontein mine. No other
employees were injured or endangered in the
incident. Petra is striving for a zero harm
environment across all its operations and works
closely with the relevant regulatory bodies
in South Africa, Tanzania and Botswana
in order to fully comply with all health and
safety legislation.
Visit this report online
ar11.petradiamonds.com
08
Petra Diamonds Limited Annual Report and Accounts 2011
Johan Dippenaar, CEO
Petra is London’s largest quoted diamond
mining group
B
u
s
i
n
e
s
s
R
e
v
i
e
w
Production remained relatively flat for FY 2011
versus FY 2010 due to:
U a strategic focus (as part of Petra’s core
objective
revenues) on
to maximise
“value production” as opposed to “volume
production”, which led the Company to
raise the bottom-cuts in the treatment
plants of the Cullinan, Koffiefontein and
Kimberley Underground mines during
FY 2011;
U the planned stoppage of main pit production
at Williamson whilst the expansion plan
is underway;
U the planned depletion of high grade OSP
tailings material at Cullinan;
U lower than projected volumes treated at
initial
Kimberley Underground due
commissioning difficulties at
Joint
Shaft plant, which have now been largely
overcome; and
to
the
U unseasonably heavy rainfall – Petra, like
many other mining companies with South
African operations, was affected by the
very high rainfall levels during FY 2011,
especially where processing wet stockpile
and tailings material.
Further information on Petra’s operational
performance for the year can be found in
the individual mine reviews which commence
on page 12 of this Annual Report.
Outlook
Looking forward to the coming financial
year, we will see a step-change in production
further to the integration of the Finsch mine.
We plan to step up to the Main Market of
the London Stock Exchange in December
2011 and are targeting to enter the FTSE 250,
further stimulating investment and liquidity.
We foresee medium to long term health in the
diamond market, despite any short-term
volatility
current economic
uncertainty, due to the sound long-term
fundamentals in place and the continued
growth in demand from both established and
emerging markets.
caused by
I would like to extend my thanks to the Petra
team, which encompasses my fellow Board
members, our Senior Management team,
all of our Group employees and our valued
Government and BEE partners, for the hard
work and spirit which
is driving our
Company forward.
Petra is focused on excelling in all areas – striving
to be a “best-in-class” operator, a responsible
corporate citizen and a pre-eminent diamond
investment opportunity – and we believe that
we will go on to deliver positive returns to all
our stakeholders.
Johan Dippenaar
CEO
28 November 2011
Note: the Diamond Market and Operational Reviews
to follow form part of the CEO’s Review.
Production
Combined operations
Sales
Gross revenue
Diamonds sold
Production
ROM diamonds
Tailings and alluvial diamonds
Total diamonds
Unit
FY 2011
FY 2010
Variance
US$m
carats
carats
carats
carats
220.6
1,174,825
177.71,2
1,125,098
1,027,609
90,186
1,117,795
1,050,874
113,982
1,164,856
+24%
+4%3
-2%
-21%
+4%
Notes:
1. The revenue for FY 2010 included the sale of the 507 carat Cullinan Heritage diamond for US$35.3 million.
2. Gross revenue for FY 2010 was US$177.7 million; Group revenue for FY 2010 was US$163.7 million due to the partial consolidation of Cullinan during FY 2010.
3. Although overall production fell by 4%; carats sold increased by 4% due to the movement in opening and closing stock levels.
Annual Report and Accounts 2011 Petra Diamonds Limited
09
Business Review
CEO’s Review
The Diamond Market
The Diamond Market
Petra anticipated a positive outlook for the
diamond industry in FY 2011 and the market did
indeed perform strongly, with rough prices in all
categories increasing throughout the year. The
robust market was underscored by firm retail
demand, particularly from China, India and, to a
lesser degree, the US.
Rough diamonds produced globally in 2010
133m carats
+6%
Average value per carat mined globally in 2010
US$90
+30%
Source: Kimberley Process Certification Scheme
The table below sets out the tender prices per carat achieved during the Period:
Mine
Cullinan
Average price for
H2 FY 2011
(US$)
178
Average price for
H1 FY 2011
(US$)
120
Average price for
FY 2011
(US$)
148
Koffiefontein
Kimberley Underground
Fissures
Williamson
Note: the prices above, as in the mine by mine tables to follow, are the average of the mix of ROM and tailings production, as Petra tenders production from each
564
333
244
302
470
285
192
264
756
355
289
314
mine on a mixed ROM/tailings parcel basis.
10
Petra Diamonds Limited Annual Report and Accounts 2011
Average price for
FY 2010
(US$)
141
(101 excluding the
Cullinan Heritage)
402
n/a
185
157
Petra anticipated a positive outlook for the
diamond industry in FY 2011 and the market
did indeed perform strongly, with rough prices
in all categories increasing throughout the
year. The robust market was underscored by
firm retail demand, particularly from China,
India and, to a lesser degree, the US.
In calendar year 2010, some 133 million
carats of rough diamonds were produced
globally, worth just under US$12 billion
(Source: Kimberley Process Certification
Scheme). This is up around 6% from 2009’s
total of 125 million carats, worth US$8.6
billion, with much of the rise in value being
attributable to a strong increase in rough
diamond prices from year to year and an
increase in production caused by producers
ramping up operations following strategic
shut-downs during the global economic
downturn of
late 2008/early 2009. The
average value per carat mined in 2010 globally
was US$90 per carat (2009: US$69 per carat).
The 2010 production level of 133 million
carats remains below the previous highs
of 176 million carats in 2005 and 2006
(Source: Kimberley Process Certification
Scheme) and it is forecast to remain flat or
start to decline in the coming years as
new sources of production cannot make
up for the decrease in supply from the
world’s ageing major diamond mines. It is
possible that the world has already seen peak
diamond production.
Whilst supply to the market is forecast to
remain constrained, demand for diamonds
continues to rise in both established and new
markets as global wealth and consumer
spending increase. De Beers calculates that
the global diamond jewellery market grew
by over 8% in 2010, whilst the US, which
remains the largest single consumer market
for diamonds with around 38% of global
demand, grew by over 7% in 2010. Demand
in emerging markets grew at substantially
fastest growing new
higher
consumer markets for diamonds are China
and India, both of which recorded double
digit growth in 2010, up over 25% and 31%
in local currency respectively. These markets
rapid
are predicted
expansion, accounting for more than 50%
of incremental growth over the next five years,
and the Far East (China, Hong Kong, Taiwan,
India and the Gulf) is expected to eventually
account for around 40% of global demand by
2015 (source: De Beers).
to continue
rates. The
their
As far as Petra’s tender results are concerned,
prices rose steadily from October 2010 to the
end of FY 2011.
Since July 2011, the industry has seen rough
diamond prices adjust downwards from the
June 2011 highs. Petra (along with many
other industry participants) is confident that
prices will stabilise in the near future, although
the Company does not expect to see the price
highs of June 2011 for some time.
The long term fundamentals of the market
remain strong. Positive results from industry
bellwethers Tiffany’s and Signet demonstrate
that consumer demand remains robust.
In China and India, many new diamond
jewellery stores need inventory and this is
driving a large portion of the wholesale
demand. Investment demand for diamonds is
also rising, given their appeal as a hard asset
investment class, and several new physical
diamond investment funds launched during
the Period. Global economic uncertainty may,
however, continue to cause some volatility
in rough pricing in the short term.
Petra sells the majority of its South African
production in Johannesburg and its Tanzanian
production in Antwerp. Many of the world’s
foremost manufacturers are regular Petra
clients and interest is expected to increase
further now that the Finsch production is
incorporated into the Group. Petra manages
all of its sales internally and has recently
expanded its marketing team to manage the
level of activity further to the completion of
the Finsch acquisition, which is expected to
add ca. 125,000 carats per month to Petra’s
output after an initial bedding down period.
B
u
s
i
n
e
s
s
R
e
v
i
e
w
2010 showing global production by volume and by value
Source: Kimberley Process Certification Scheme
By volume (carats)
By value (US$)
Other 23%
Other 16%
Canada 9%
South Africa 10%
Congo, Democratic
Republic of
15%
Russian
Federation
26%
Angola 8%
South Africa 15%
Botswana
17%
Canada
19%
Botswana
22%
Russian
Federation
20%
Total = 133.1 million
Total = US$12.0 billion
Annual Report and Accounts 2011 Petra Diamonds Limited
11
Business Review
CEO’s Review
Operational Review
Cullinan: At a Glance
Cullinan is renowned as an important source
of large and high value Type II diamonds and
in its history has produced four of the world’s
top 20 high quality large diamonds, 745 stones
of +100 carats and more than a quarter of all
diamonds +400 carats. In FY 2011, 11 stones
from Cullinan each sold for in excess of
US$1 million; such stones are regarded as a
regular feature of Cullinan’s production profile.
Performance summary:
» The average value per carat at Cullinan was US$148 for FY 2011,
up 47% in comparison to the US$101 achieved in FY 2010 (after
adjusting for the sale of the Cullinan Heritage for US$35 million).
» Cullinan performed well in terms of throughput, with total tonnages
treated (ROM and tailings) exceeding expectations.
» Expansion programme at the mine to take annual production
to 2.4 Mcts by FY 2019.
» Capex at Cullinan increased to US$33.9 million for the Period.
12
Petra Diamonds Limited Annual Report and Accounts 2011
Revenue contribution:
64%
Revenue
US$140.2m
+10%
14%
Diamonds sold
944,405 carats
+4%
Average price per carat
US$148
+5%
8%
4%
The average value per carat (ROM and tailings
combined) at Cullinan was US$148 for
FY 2011, up 47% in comparison to the
US$101 achieved in FY 2010 (being the
average for FY 2010 of US$141 after adjusting
for the sale of the 507 carat Cullinan Heritage
for US$35 million).
Cullinan is renowned as an important source of
large and high value Type II diamonds and in its
history has produced four of the world’s top 20
high quality large diamonds, 745 stones of +100
carats and more than a quarter of all diamonds
+400 carats. In FY 2011, 11 stones from Cullinan
each sold for in excess of US$1 million; such
stones are regarded as a regular feature of
Cullinan’s production profile.
Cullinan performed well in terms of throughput,
with total tonnages treated (ROM and tailings)
exceeding expectations. ROM grade of 36.6 cpht
was approximately 6% lower than the prior year
of 38.9 cpht, due to:
U an increase of the bottom-cut for slimes
discard from 0.8mm to 1.3mm (partially
contributing to the increased average
value per carat achieved); and
U the far higher than average rainfall experienced
in many parts of South Africa, including
Cullinan, which
in ore-handling
results
difficulties relating to the clay, mud and
moisture content of the ore.
ROM grade at Cullinan is expected to remain
under pressure whilst production continues to
be from the mature areas of the mine, due to
the significant dilution of the ore drawn in
these older production zones. However, the
grade is forecast to rise to 50 cpht once the
FY 2011 – gross numbers
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Grade
Diamonds recovered
Tailings production
Tonnes treated
Grade
Diamonds recovered
Total production
Tonnes treated
Diamonds recovered
Costs
On-mine cost per tonne
Total capex
new cave is established from FY 2015 onwards
as part of the C-Cut development programme
on the 830m level and undiluted ore is mined
and treated.
tailings
throughput
Although
increased
significantly to 575,605t during the Period,
carats produced from tailings dropped by 49%
to 44,246 carats as the high grade OSP tailings
dump was depleted as planned in the preceding
year. The Company is now processing the
regular tailings material. The tailings grade of
7.7 cpht achieved for the Period is expected to
rise to approximately 10 cpht from FY 2012,
once a re-crush system of material larger than
6mm has been incorporated into the operation.
Despite South African cost pressures, unit
costs per tonne at Cullinan decreased by 2%
due to increased volumes and other initiatives
to mitigate cost pressures. Longer term, once
the development plan has
significantly
progressed, further unit cost efficiencies are
expected to be driven by initiatives such as
a simplified ore-handling system underground
and further streamlining of the plant.
Development plan update
Cullinan contains a world-class resource base
of 203.7 Mcts (including 16.9 Mcts in tailings),
and the Company is planning to capitalise on
this by undertaking an expansion programme
at the mine to take annual production to 2.4
Mcts by FY 2019 (comprising 2.0 Mcts ROM
and 0.4 Mcts tailings). This expansion plan will
eventually access the first portions of the
major C-Cut resource (estimated to contain
some 133.1 Mcts) and will also involve a large
tailings operation.
B
u
s
i
n
e
s
s
R
e
v
i
e
w
The C-Cut development programme at
Cullinan is on track to access a new block cave
which will produce at a rate of 2.0 Mcts per
annum for around 16 years. The decline to
access the new production level has passed
the 839m level below surface, with the
breakaway for the 830m undercut level having
been established. Tenders have been received for
shaft deepening (and related infrastructure) to
930m below surface and the award of this
contract is imminent.
Petra is currently investigating the addition
of a decline on the northern side of the pit
which has the potential to fast-track the
kimberlite development of the new block cave
and subsequent production build-up.
Whilst the C-Cut development programme is
underway, Petra has established new drawpoints
in both the BB1E and AUC South sections of the
Cullinan pipe. This will allow the Company to
draw from these production areas to maintain
volumes and manage the grade whilst the new
block cave is established in the C-Cut.
Capex at Cullinan increased to US$33.9 million
for the Period, predominantly applied to the
underground development work, the continued
upgrading of the plant and the new underground
fleet equipment.
Petra continues to ramp up a major tailings
operation at Cullinan to treat the 165 Mt tailings
deposit and a new modular, tailings plant is
currently under construction. The Company
plans to treat 1 Mt of tailings in FY 2012,
gradually increasing to ca. 4 Mt from FY 2014.
Unit
US$m
carats
US$
tonnes
cpht
carats
tonnes
cpht
carats
tonnes
carats
ZAR
US$m
FY 2011
FY 2010
140.2
944,405
148
2,323,403
36.6
851,193
575,605
7.7
44,246
127.0
903,861
141
2,160,907
38.9
841,293
248,380
34.9
86,638
2,899,008
895,439
2,409,287
927,931
164
33.9
167
20.4
Variance
+10%
+4%
+5%
+8%
-6%
+1%
+132%
-78%
-49%
+20%
-4%
-2%
n/a
Annual Report and Accounts 2011 Petra Diamonds Limited
13
Business Review
CEO’s Review
Operational Review Continued
Finsch: At a Glance
Purchase consideration
US$192m
Major reserves and resources contribution
43.7 Mcts
Initial annual production contribution
1.5 Mctpa
+45 carat stones
Average of 27 stones of
+45 carats recovered per
annum over the last four years
Finsch is one of the world’s major diamond mines
and is expected to more than double Petra’s
annual production (steady state), contributing
ca. 1.5 Mctpa initially to Group production, rising
to nearly 2 Mctpa by FY 2018.
Highlights:
» Acquisition completed on 14 September 2011 and Petra assumed
management immediately.
» Finsch contributes a major resource base to the Group of 43.7 Mcts,
including 25.8 Mcts in the reserve category.
» Petra’s current mine plan forecasts initial diamond production
of approximately 1.5 Mctpa in its first full year of ownership.
» Petra foresees a long life for the operation and has a current mine
plan of 18 years, though the orebody remains open-ended at depth.
» Capex over the next six years for the underground and infrastructure
development programme is estimated to be approximately
US$348 million (in 2011 money terms).
14
Petra Diamonds Limited Annual Report and Accounts 2011
A further flagship mine for Petra
In January 2011, Petra announced that it
(together with its empowerment partners)
had entered into an agreement to acquire
the Finsch diamond mine in South Africa from
De Beers Consolidated Mines (“DBCM”) for
R1.425 billion. The acquisition completed
on 14 September 2011 and as the mine was
acquired as a going concern, Petra assumed
management (including production, revenues
and cashflow) immediately.
location affords
Rationale for the acquisition
Finsch offers a seamless fit with Petra’s current
operations in South Africa. As the asset is
situated approximately 165km north-west of
regional
the
Kimberley,
operational management
synergies with
Petra’s Koffiefontein, Kimberley Underground
and Sedibeng
(fissure) operations. The
addition of another major mine to Petra’s
portfolio also serves to increase the Group’s
critical mass, with numerous benefits across
areas such as the sharing of technical expertise,
in
personnel and economies of
procurement. Petra will
its
experience of extracting optimal value from
previous acquisitions.
scale
leverage off
Finsch mine plan
The Finsch orebody is mined using the
high volume, low cost block-cave mining
technique, also used at Petra’s Cullinan and
Kimberley Underground operations. Mining at
Finsch is currently taking place in Block 4 of
the orebody at a depth of 630m. Finsch
currently mines approximately 3.2 Mtpa from
Block 4 at a current grade of over 35 cpht. The
Block 4 cave is towards the end of its life and
is expected to be depleted by FY 2015.
levels
Subsequent to the depletion of Block 4,
underground production will be derived
principally from Block 5, a new block cave
beneath the current operations. Petra intends
to maintain
from
production
underground during the transition from
the Block 4 cave to the Block 5 cave by
developing smaller sub-level caves within
the Precursor orebody
(adjacent to the
main orebody) at Block 4 level and within
Block 5 itself. By so doing, Petra expects to
levels
maintain underground production
at approximately 3.2 Mtpa, ramping up to
around 3.5 Mtpa by FY 2018 once the Block 5
cave is fully operational.
retreatment. Finsch
Underground production is supported by
tailings
is currently
treating the Pre-1979 tailings, which have
a recovered grade of approximately 19 cpht.
The Pre-1979 tailings are expected to be
treated at a rate of approximately 3.5 Mtpa
until depleted in FY 2015. Thereafter, tailings
from later mining operations, which carry a
lower grade of approximately 10 cpht, remain
available for treatment. It is expected that
tailings production will cease in FY 2020.
of
production
Petra’s current mine plan forecasts initial
diamond
approximately
1.5 Mctpa (comprising approximately 900,000
carats from underground and 600,000 carats
from tailings) in its first full financial year of
ownership, increasing with the commencement
of the Block 5 cave to a steady state production
of nearly 2 Mctpa. Given the major resource of
43.7 Mcts at Finsch (including 25.8 Mcts in the
reserve category and 2.5 Mcts in tailings), Petra
foresees a long life for the operation and has a
current mine plan of 18 years, though the
orebody remains open-ended at depth.
For planning purposes, Petra had originally
assumed an average of US$135 per carat
for ROM production and US$80 per carat
for
subsequently
upgraded its medium term price expectations
to US$180 per carat for ROM and US$95 per
carat for tailings.
tailings. Management
Whilst diamond prices have fallen from the
highs of June 2011 when management
upgraded its medium term price expectations,
management remains confident that when
the rough diamond market recovers, its
medium term price expectations for Finsch will
be comfortably achieved.
Financing
The purchase consideration for Finsch of
R1.425 billion (US$192 million) was settled
out of Petra’s internal cash resources, further
to the equity placing in January 2011 which
raised £205 million (ca. US$325 million).
Petra has fully funded the BEE partners’ 26%
share of the acquisition consideration via loans,
which will be repaid by the BEE partners from
their share of future Finsch cashflows.
The capex over the next six years for the
underground and
infrastructure development
programme is estimated to be approximately
US$348 million (in 2011 money terms, assuming a
constant exchange rate of R6.75:US$1) and is
expected to be financed from a combination of the
Group’s debt facilities and operational cashflow.
B
u
s
i
n
e
s
s
R
e
v
i
e
w
Annual Report and Accounts 2011 Petra Diamonds Limited
15
Business Review
CEO’s Review
Operational Review Continued
Koffiefontein: At a Glance
Koffiefontein
is one of the world’s top
kimberlite mines by average value per carat,
achieving US$564 for FY 2011, up 40% on the
comparative period despite the fact that the
overall average was to some extent reduced by
the higher proportion of lower value tailings
production in the total sales mix.
64%
Revenue contribution:
14%
Performance summary:
» Post-Period end, a six carat pink diamond from Koffiefontein was sold
for US$601,000.
» The high average value per carat achieved in FY 2011 caused revenue
at Koffiefontein to rise by 35%.
Revenue
US$30.8m
8%
+35%
» Reduced underground production was mainly due to a greater than
Diamonds sold
expected level of waste ingress in the current mining areas.
» Unit costs per tonne improved during the Period due to the higher
volumes of lower cost tailings tonnages processed.
54,640 carats
-4%
Average price per carat
US$564
+40%
4%
16
Petra Diamonds Limited Annual Report and Accounts 2011
Koffiefontein
is one of the world’s top
kimberlite mines by average value per carat,
achieving US$564 for FY 2011, up 40% on the
comparative period despite the fact that the
overall average has to some extent been
reduced by the higher proportion of lower
value tailings production in the total sales mix.
Post-Period end, a six carat pink diamond
from Koffiefontein was sold for US$601,000,
illustrating the exceptional fancy pinks that
this mine can produce.
The high average value per carat achieved
in FY 2011 caused revenue at Koffiefontein
to rise by 35% to US$30.8 million for the
Period, despite the fall in production. ROM
production for the year was 35,139 carats
(H1 FY 2011: 27,390 carats; H2 FY 2011:
7,749 carats). Tailings production was
12,817 carats for the Period (H1 FY 2011:
7,110 carats; H2 FY 2011: 5,707 carats).
The reduced underground production at
Koffiefontein was mainly due to a greater than
expected level of waste ingress from the remnant
columns at 48 Level resulting in revised plans
and reduced extraction in H2. The tonnage
shortfalls at Koffiefontein were exacerbated
by the production stoppages, remedial actions
and retraining at the mine following the fatality
in January 2011. Production at the high grade
FY 2011 – gross numbers
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Grade
Diamonds recovered
Tailings/Ebenhaezer production
Tonnes treated
Grade
Diamonds recovered
Total production
Tonnes treated
Diamonds recovered
Costs
On-mine cost per tonne
Total capex
52 Recovery Level was interrupted for most
of H2 FY 2011 as a result.
the waste
ingress and
Whilst
reduced
production from 52 Level have significantly
affected the ROM grade at Koffiefontein
(3.1 cpht in H2 FY 2011 as compared to
5.9 cpht in H1 FY 2011), the development
work to access high grade ore at the 58
Level front cave has been expedited and
cave initiation is planned for H2 FY 2013.
As at Cullinan, Petra’s development plan at
Koffiefontein will eventually establish new
production levels where the Company will
have access to fresh, undiluted ore. Once this
has been achieved, in the longer term Petra
expects the overall grade at Koffiefontein to
improve to ca. 8 cpht, but it is expected that
lower grades will be reported until FY 2014.
Unit costs per tonne improved during the Period
due to the higher volumes of lower cost tailings
tonnages processed.
Development plan update
Petra is well advanced in the establishment of
an expansion plan at Koffiefontein and annual
production is expected to exceed 1 Mtpa in
approximately three years and reach 1.2 Mtpa
in approximately five years. This will deliver over
100,000 carats per annum (ROM and tailings)
by FY 2017.
Capex of US$11.0 million for the Period was
mostly spent on underground development
and mining equipment.
B
u
s
i
n
e
s
s
R
e
v
i
e
w
To give operational flexibility, Petra has
recommenced production at the satellite
is an open-cast
Ebenhaezer pipe, which
operation at a maximum depth of 35m and with
a surface area of five hectares. The Company will
use tonnages from Ebenhaezer to augment the
capacity of the plant at Koffiefontein.
The ramping up of the tailings programme
at Koffiefontein is now complete, with the
Company reaching its targeted throughput
tailings material.
Unit
US$m
carats
US$
tonnes
cpht
carats
tonnes
cpht
carats
tonnes
carats
ZAR
US$m
FY 2011
30.8
54,640
564
712,988
4.9
35,139
675,147
1.9
12,817
FY 2010
22.8
56,707
402
884,058
6.0
53,026
243,714
3.0
7,234
1,388,135
47,956
1,127,772
60,260
115
11.0
123
4.6
Variance
+35%
-4%
+40%
-19%
-18%
-34%
+177%
-36%
+77%
+23%
-20%
-7%
n/a
Annual Report and Accounts 2011 Petra Diamonds Limited
17
Business Review
CEO’s Review
Operational Review Continued
Kimberley Underground: At a Glance
64%
14%
FY 2011 marked the first full year for Kimberley
Underground under Petra management, following
completion of the acquisition in May 2010.
The Company was particularly encouraged by
the prices achieved for Kimberley Underground
production, with the average per carat of
US$333 for the Period considerably exceeding
initial expectations.
Revenue contribution:
8%
Performance summary:
» Kimberley Underground comprises three kimberlite pipe mines:
Bultfontein, Dutoitspan and Wesselton.
» The slimes and tailings disposal difficulties were largely addressed
during the Period and tonnages processed increased in H2.
Revenue
US$18.2m
4%
» Petra has constructed a new plant at Joint Shaft to service the
Diamonds sold
Bultfontein and Dutoitspan pipes.
» Petra announced a revised business plan for processing at Wesselton
at the time of the Company’s full year Trading Update in July 2011.
» Production ramping up to 150,000 ctpa by FY 2013.
54,733 carats
Average price per carat
US$333
18
Petra Diamonds Limited Annual Report and Accounts 2011
FY 2011 marked the first full year for Kimberley
Underground under Petra management,
following completion of the acquisition in
May 2010. The Company was particularly
encouraged by
for
Kimberley Underground production, with the
average of US$333 per carat for the Period
considerably exceeding initial expectations.
the prices achieved
The Kimberley Underground operation
comprises
three kimberlite pipe mines:
Bultfontein and Dutoitspan (serviced by Joint
Shaft and the newly built Joint Shaft plant)
and Wesselton (serviced by the Wesselton
Shaft, though currently without processing
facility). A substantial stockpile of ore,
estimated to be 0.3 Mt, has been built
up on surface at Wesselton whilst no
processing facility has been available.
The slimes and tailings disposal difficulties with
the new plant at Joint Shaft were largely
addressed during H2 FY 2011 and tonnages
processed increased from 176,527 in H1
FY 2011 to 267,128 in H2 FY 2011. At the
current bottom-cut discard size of 2mm,
the grade is expected to revert to the planned
14 cpht during FY 2012 as the oversize circuit
has now been brought
into production.
The Joint Shaft plant is expected to deliver
approximately 80,000 carats for FY 2012.
Petra announced a revised business plan for
processing at Wesselton at the time of the
Company’s full year Trading Update in July 2011,
B
u
s
i
n
e
s
s
R
e
v
i
e
w
which involves a combination of a mobile pan
plant together with a new plant (similar
to that constructed at Joint Shaft). The
mobile pan plant operation
is currently
being commissioned and is expected to
process some 40,000 tpm. Subsequently, the
main plant at Wesselton is expected to be
commissioned in April 2012 and will treat
a further 40,000 tpm. Wesselton is expected
to contribute approximately 50,000 carats
during FY 2012.
Unit costs of approximately R191 per tonne were
negatively impacted by reduced throughput.
Management expects the unit costs to improve
once the Wesselton plant is fully operational.
Of the US$13 million capex, approximately
US$9.5 million was spent on improvements
to the Joint Shaft treatment plant. A further
US$3.5 million was applied to the acquisition
of adjacent land, buildings and infrastructure
relating to water reticulation and slimes handling
facilities (by assuming a rehabilitation guarantee).
FY 2011 – gross numbers
Sales
Revenue
Diamonds sold
Average price per carat
Total production (all ROM)
Tonnes treated
Grade
Diamonds recovered
Costs
On-mine cost per tonne2
Total capex
Unit
US$m
carats
US$
tonnes
cpht
carats
ZAR
US$m
FY 2011
18.2
54,733
333
443,655
12.9
57,402
191
13.0
FY 20101
Variance
n/a
n/a
n/a
9,141
14.9
1,362
n/a
10.2
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Notes:
1. The acquisition of Kimberley Underground completed in May 2010 and therefore comparable FY 2010 results are not available.
2. On-mine cash costs exclude costs assigned to ROM stockpiles.
Annual Report and Accounts 2011 Petra Diamonds Limited
19
Business Review
CEO’s Review
Operational Review Continued
Williamson: At a Glance
64%
14%
8%
The rebuild of the original plant at Williamson
has progressed well. As previously announced,
Petra revisited its plans with regards to this
plant, deciding to carry out an enhanced rebuild
rather than a lower key refurbishment. The
rebuilt plant is expected to be in production in
Q3 FY 2012. It is anticipated that this 3 Mtpa
plant will treat approximately 0.5 to 0.9 Mt
in FY 2012, at an expected grade of 6 cpht.
Revenue contribution:
4%
Performance summary:
» No treatment of main pit material at Williamson in FY 2011,
as the project to rebuild the 3 Mtpa plant was underway.
» Contract mining of alluvial diamonds recovered 29,510 carats,
sold for an average value of US$302.
Revenue
US$9.5m
-34%
» The ROM stockpile at Williamson increased to approximately
Diamonds sold
900,000 tonnes, estimated to contain in excess of 45,000 carats.
» Rebuild of the original plant at Williamson progressed well and
it is expected to be in production in Q3 FY 2012.
31,555 carats
-66%
Average price per carat
US$302
+92%
20
Petra Diamonds Limited Annual Report and Accounts 2011
There was no treatment of main pit material
at Williamson in FY 2011, as the project to
rebuild the 3 Mtpa plant was underway.
Contract mining of alluvial diamonds
recovered 29,510 carats, sold for an average
value of US$302. Alluvial production
is
expected to be lower in FY 2012 due to
the depletion of available alluvial gravels.
The ROM stockpile at Williamson, which has been
established by Petra due to the pit-shaping
operations, increased to approximately 900,000
tonnes as at 30 June 2011, estimated to contain
in excess of 45,000 carats.
Development plan update
The rebuild of the original plant at Williamson
has progressed well. As previously announced,
Petra revisited its plans with regards to this
plant, deciding to carry out an enhanced
rebuild rather than a lower key refurbishment.
in
The rebuilt plant
production in Q3 FY 2012. It is anticipated
that this 3 Mtpa plant will treat approximately
0.5 to 0.9 Mt in FY 2012, at an expected
grade of 6 cpht.
is expected to be
Capex at Williamson of US$36.6 million
(including US$0.8 million borrowing costs
capitalised) was spent as follows:
U
U
US$18.8 million on the rebuild of the
3 Mtpa plant; and
US$17 million on other production related
activities,
including pit shaping/shale
removal, haul road construction and slime
handling facilities.
FY 2011 – gross numbers
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Grade
Diamonds recovered
Alluvial production
Tonnes treated
Grade
Diamonds recovered
Total production
Tonnes treated
Diamonds recovered
Costs
Cash cost per tonne1
Total capex
B
u
s
i
n
e
s
s
R
e
v
i
e
w
These electricity supply issues have also meant
that the Company is revisiting the timing of
the longer-term expansion project, where the
Company has previously announced that it is
planning to establish a 10 Mtpa operation.
Further information will follow in due course
when the Company has completed its analysis,
including the revised timing of the roll-out of
the new plant.
Over recent months, there have been power
supply issues in Tanzania which have impacted
upon likely power supply to the mine. The
Government of Tanzania is addressing these
the Company
issues and
power supply
continues to monitor the situation carefully.
Due to these power disruptions that have been
experienced on mine, orders were placed for
generators that will provide sufficient power to
run the 3 Mtpa plant. The anticipated
production for FY 2012 is therefore lower than
the guidance given in Petra’s Trading Update of
19 July 2011 as the planned start-up of the
rebuilt plant has been deferred until the
standby electricity is available.
Unit
US$m
carats
US$
tonnes
cpht
carats
tonnes
cpht
carats
tonnes
carats
US$m
US$m
FY 20111
9.5
31,555
302
n/a
n/a
n/a
530,689
5.6
29,510
530,689
29,510
n/a
36.6
FY 20101
14.4
91,901
157
1,334,656
6.3
84,241
423,665
4.0
16,830
1,758,321
101,071
n/a
11.6
Variance
-34%
-66%
+92%
n/a
n/a
n/a
+25%
+40%
+75%
-70%
-71%
n/a
n/a
Note:
1. During FY 2010 the mine was in a bulk sampling phase and in FY 2011 the mine results represent alluvial production only; neither period reflects conditions associated
with normal production.
Annual Report and Accounts 2011 Petra Diamonds Limited
21
Business Review
CEO’s Review
Operational Review Continued
Fissure Mines: (Helam, Sedibeng, Star)
Helam and Sedibeng put in a strong
performance for the Period, with
revenue for the Fissures unit as a
whole up 62% to US$21.8 million
and overall production up 18% to
87,488 carats. The average value
per carat achieved also increased
32% to US$244.
Revenue
US$21.8m
+62%
Diamonds sold
89,491 carats
+23%
Average price per carat
US$244
+32%
For FY 2012, Petra expects a similar level of combined production across the fissure portfolio to FY 2011.
At Star, where operations are challenging, a disappointing performance was recorded for the year, as reflected in the impairment charge noted
in the financial review on page 29.
Unit costs remained flat despite cost pressures specifically relating to electricity and labour. The majority of the US$5.2 million capex was spent
on continuing underground development across the fissure mines, including a head gear installation at Sedibeng’s Dancarl shaft.
Fissure mines
FY 2011 – gross numbers
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Grade
Diamonds recovered
Tailings production
Tonnes treated
Grade
Diamonds recovered
Total production
Tonnes treated
Diamonds recovered
Costs
On-mine cost per tonne
Total capex
Unit
US$m
carats
US$
tonnes
cpht
carats
tonnes
cpht
carats
tonnes
carats
ZAR
US$m
FY 2011
21.8
89,491
244
183,506
45.7
83,876
52,389
6.9
3,612
235,895
87,488
684
5.21
FY 2010
13.5
72,629
185
168,840
42.0
70,950
30,640
10.7
3,282
199,480
74,232
669
2.5
Variance
+62%
+23%
+32%
+9%
+9%
+18%
+71%
-36%
+10%
+18%
+18%
+2%
n/a
Note:
1. Capex for the fissure mines was US$5.2 million; a further US$11.0 million capex spend was incurred in respect of the Helam projects manufacturing facility for equipment
under construction that had not yet been invoiced to the respective Petra Group operation.
22
Petra Diamonds Limited Annual Report and Accounts 2011
Exploration:
Kalahari Diamonds:
Exploration programme in Botswana
Best address
diamond exploration
in the world
for
» Botswana is world’s largest producer
of diamonds by value
» Petra has one of the largest diamond
in
land holdings
exploration
the country
Botswana – Kalahari Diamonds
Petra’s exploration activity
is focused on
Botswana, which is considered to be one of the
best addresses in the world for diamond
exploration, given its stability, its attractive fiscal
regime and its superb geological prospectivity.
During FY 2011, large tracts of well-explored
ground that had come to the end of their
seven year licence tenure were relinquished,
resulting in a total current landholding of
some 22,250km2, which is one of the largest
diamond exploration holdings in the country.
Geophysical ground follow-up and Heavy
Mineral Analysis of 46 high priority targets
selected from High Resolution Airborne
Magnetic data were completed across Petra’s
various project areas. At the end of the
Period, six targets had been drilled as part
of an ongoing exploration drilling campaign
– no additional kimberlites were discovered.
In addition, a 4,500 line km Xcalibur HiRes
Airborne Magnetic Gradiometer survey was
successfully commissioned and conducted
over historical kimberlite indicator mineral
recoveries in the Kukama East project area.
The application of Xcalibur Airborne
Geophysics’ horizontal gradient magnetic
acquisition system remains Petra’s primary
exploration tool to be utilised in clearly
defined areas of interest and a 22,000 line
km survey covering newly acquired ground
is planned.
Delineation/evaluation drilling (five boreholes,
the
totalling 1,730m) undertaken on
diamondiferous KX36 kimberlite discovered last
year was completed by Period end. All boreholes
were surveyed (directional) and a down-hole
geophysical wireline logging programme was
successfully completed. Following detailed
lithological logging of all drillcore retrieved,
samples were submitted for petrographic and
micro-diamond analyses. All results (expected
early FY 2012) will be used to update the
(Gemcom) model
existing 3D geological
to assist with the calculation of material
volumes and a preliminary grade estimate.
Significant progress has also been made
with both the geophysical and geological
3D modelling of the portion of kimberlite
BK1S discovered on Petra ground adjoining
the Damtshaa Mining Licence in mid-2008.
Results will be used for the calculation of
material volumes for the portion of the
kimberlite body BK1 that falls outside the
Debswana Mining Lease and within Petra’s
prospecting licence.
B
u
s
i
n
e
s
s
R
e
v
i
e
w
» Current landholding of 22,250km²
Kalahari Diamonds Limited is a diamond
exploration company that has been
active in Botswana since 2002.
Initially formed to explore for diamonds
under an exploration alliance with BHP
Billiton, it has achieved considerable
success under Petra’s management as
evidenced by the discovery of five new
kimberlites since 2006.
Kalahari Diamonds holds its exploration
licences in Botswana through its wholly
owned subsidiary Sekaka Diamonds
(Pty) Ltd (“Sekaka Diamonds”).
The map on the right shows Sekaka
Diamonds’ current landholding in
Botswana (as at 30 June 2011).
Map showing Petra’s current landholding
in Botswana (as at 30 June 2011).
Annual Report and Accounts 2011 Petra Diamonds Limited
23
Business Review
Reserves and Resources
The Petra Group controls one
of the largest diamond resources
in the world
Petra controls one of the world’s largest
diamond resources and the consolidation of
this major carat base has been a key strategic
objective for the Group. Taking into account
the rough diamond supply/demand imbalance
which is forecast to emerge in the coming
years, Petra’s “carats in the ground” are
expected to become increasingly valuable over
time and the Group’s growing production will
be an ever more important source of supply.
The careful management of such a large resource
will ensure sustainable,
long-life mining
operations for the Petra Group for many years
to come. It also provides flexibility in terms of
organic growth, dependent on diamond and
capital market conditions.
Whilst quoted on AIM, Petra had previously
reported resources exclusive of reserves. The
Company now reports resources inclusive of
reserves in line with best practice for a company
of Petra’s size and complexity. Carats in the
Probable and Proved Reserve categories are now
also reported in the Indicated and Measured
Resource categories without the application of
modifying factors, which has resulted in an
apparent increase in the total carats base from
302.7 million carats to 305.7 million carats.
Both reporting formats are compliant with the
guidelines of the SAMREC Code.
Gross Reserves and Resources
As at 30 June 2011 (on this revised reporting basis),
the Group’s total resource was 305.7 million carats
(stated inclusive of Finsch which contributed a total
of 43.7 million carats on a gross basis to the
Group), including 49.2 million carats in reserves.
Attributable Reserves and Resources
As at 30 June 2011, the Group’s attributable
resource was 226.6 million carats (stated
inclusive of Finsch which contributed 32.3 million
carats on an attributable basis to the Group),
including 36.4 million carats in reserves.
Summary of reserves and resources by status as at 30 June 2011 (stated inclusive of Finsch)
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
Cullinan
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
16.623
111.789
128.412
7.03
42.99
38.34
1.169
48.062
49.231
12.304
82.726
95.030
7.04
42.99
38.34
0.866
35.566
36.432
15.726
463.302
1,248.126
1,727.154
8.29
48.35
6.44
11.638
1.304
343.830
223.999
80.397
932.496
17.70 305.701 1,287.965
8.30
48.22
6.42
0.966
165.809
59.847
17.60 226.622
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
41.082
41.082
—
48.58
48.58
—
19.958
19.958
—
30.400
30.400
—
48.58
48.58
—
14.769
14.769
—
265.339
168.502
433.842
—
—
—
196.351
186.780
70.39
10.04
124.692
16.918
46.95 203.698 321.043
—
—
138.217
70.39
10.04
12.519
46.95 150.736
Notes:
1. Resource bottom cut-off: 1mm.
2. Reserve bottom cut off: 1mm.
3. Resource tonnes and grade in current mining blocks are based on block cave depletion modelling and include external waste.
4. Reserve carats and grades are factorised as per the following resource to reserve liberation factors: “Brown” kimberlite 75.8%, “Grey” kimberlite 71.4% and
Hypabyssal kimberlite 71.8%.
5. Probable Reserves have increased in accordance with the mine planning for the C-Cut Phase 1 and the addition of 18 new drawpoints in the current mining blocks.
24
Petra Diamonds Limited Annual Report and Accounts 2011
Finsch
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
Jim Davidson, Technical Director
B
u
s
i
n
e
s
s
R
e
v
i
e
w
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
58.598
58.598
—
54.408
43.132
97.539
—
43.99
43.99
—
25.779
25.779
—
43.362
43.362
—
43.99
43.99
—
19.076
19.076
—
47.98
40.71
44.76
—
26.102
17.558
43.661
—
40.262
31.917
72.179
—
47.98
40.71
44.76
—
19.316
12.993
32.309
Notes:
1. Resource bottom cut-off: 1.47mm.
2. Reserve bottom cut-off 1.47mm.
3. Reserve tonnes and grade are based on block cave depletion modelling and include external waste.
Koffiefontein
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
15.179
6.551
21.730
15.179
34.702
90.412
140.293
3.20
9.57
5.12
3.20
8.35
3.04
4.37
0.485
0.627
1.112
11.232
4.848
16.080
0.485
11.232
2.898
25.679
66.905
2.751
6.135 103.817
3.20
9.57
5.12
3.20
8.35
3.04
4.37
0.359
0.464
0.823
0.359
2.144
2.036
4.540
Notes:
1. Resource bottom cut-off (Koffiefontein underground and Ebenheazer): 0.5mm.
2. Resource bottom cut-off (Eskom tailings): 1mm.
3. Reserve bottom cut-off: 1mm.
4. 690L Probable Reserve moved back to Indicated Resource pending mine plan re-evaluation based on numerical modelling.
Annual Report and Accounts 2011 Petra Diamonds Limited
25
Business Review
Reserves and Resources
Continued
Petra’s “carats in the ground” are expected
to become increasingly valuable over time
and the Group’s growing production will be
an ever more important source of supply
Kimberley Underground
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
3.515
3.515
—
9.393
56.303
65.696
—
12.98
12.98
—
18.97
9.44
10.80
—
0.456
0.456
—
1.782
5.314
7.095
—
2.601
2.601
—
6.951
41.664
48.615
—
12.98
12.98
—
18.97
9.44
10.80
—
0.338
0.338
—
1.318
3.932
5.251
Notes:
1. Resource bottom cut-off (Dutoitspan West Extension): 1mm.
2. Resource bottom cut-off (all other underground blocks): 0.5mm.
3. Reserve bottom cut-off: 1mm.
4. Changes in Probable Reserves due to a reduction in ROM grade based on accurate waste measurements taken from producing drawpoints at Bultfontein and Dutoitspan.
Wesselton ROM grade based on 1060L bulk sampling, adjusted for external waste.
Williamson
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
—
—
—
98.634
888.123
986.756
—
—
—
—
5.00
3.96
4.06
—
—
—
—
—
—
—
—
73.975
4.928
35.158
666.092
40.086 740.067
—
—
—
—
5.00
3.96
4.06
—
—
—
—
3.696
26.368
30.065
Notes:
1. Resource bottom cut-off: 1mm.
2. Resource depletion calculated from in-pit survey.
3. Stockpile of 955,000 tonnes of RVK and BVK accumulated since plant shutdown at the end of March 2010.
4. Increase in total carats based on an increase in RVK tonnages in the northern section of the open pit delineated by diamond drilling during 2010.
26
Petra Diamonds Limited Annual Report and Accounts 2011
Fissure mines combined (Helam, Sedibeng, Star)
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Total Resources inclusive of Reserves
B
u
s
i
n
e
s
s
R
e
v
i
e
w
Gross
Net attributable
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
1.444
2.044
3.488
0.547
0.827
1.654
3.028
47.35
60.78
55.22
149.61
182.60
163.12
166.00
0.684
1.242
1.926
0.82
1.509
2.698
5.026
1.071
1.514
2.586
0.406
0.612
1.226
2.244
47.29
60.74
55.17
149.39
182.46
163.00
165.85
0.507
0.920
1.426
0.606
1.117
1.998
3.722
Notes:
1. Resource bottom cut-off: 1mm.
2. Reserve bottom cut-off: 1mm.
3. Measured Resources are classified as one level below current workings or where a block is bounded above and below by current workings.
4. Indicated Resources are classified as two levels below Measured Resources.
5. Inferred Resources are classified as three levels below Indicated Resources.
6. Measured and Indicated Resources have been converted to Reserves by applying historically derived external dilution and in-stope loss factors to resource tonnages and grades.
7. Increase in Inferred Resource based on the diamond drilling programme at Sedibeng.
General notes on reporting criteria
1. Resources are reported inclusive of Reserves.
2. Tonnes are reported as millions; contained diamonds are reported as million carats.
3. Tonnes are metric tonnes and are rounded to the nearest 1,000 tonnes; carats are rounded to the nearest 1,000 carats; rounding off
of numbers may result in minor computational discrepancies.
4. Resource tonnages and grades are reported exclusive of internal waste, unless where otherwise stated.
5. Reserve tonnages and grades are reported inclusive of external waste, mining and geological losses and plant modifying factors; reserve carats
will generally be less than resource carats on conversion and this has been taken into account in the applicable statements.
6. The Reserves and Resources Statement shown above is based on information compiled internally within the Group under the guidance and
supervision of Jim Davidson, Pr. Sci. Nat. (reg. No. 400031/06). Jim Davidson has over 30 years’ relevant experience in the diamond industry
and is a full-time employee and Director of Petra.
7. All Reserves and Resources have been independently verified by Dr Patrick Bartlett, Pr. Sci. Nat. (reg. No. 400060/87) as a competent person,
in his report dated 23 November 2011. Dr Bartlett is a competent person with over 30 years’ relevant experience in the diamond mining
industry, who was appointed as an independent consultant by the Company for this purpose. A Competent Person’s Report was not produced
in arriving at the Reserves and Resources independent verification. Dr Bartlett was subsequently appointed as an independent Non-Executive
Director of the Company on 28 November 2011; the Company is of the clear opinion that prior to Dr Bartlett’s appointment to the Board, he
was an independent consultant to the Company and there were no conflicts of interest or other matters arising that would affect his
independence as an expert consultant.
Jim Davidson
Technical Director
28 November 2011
Annual Report and Accounts 2011 Petra Diamonds Limited
27
Business Review
Financial Review
Gross revenue of US$220.6 million
was recorded for the Period, an
increase of 24% on the prior year
Summary of Financial Review
» Gross revenue of US$220.6 million was
recorded for the Period, an increase of
24% on the US$177.7 million gross
revenue recorded in the 12 months
to 30 June 2010.
» Gross mining and processing costs
(before depreciation) for the South
African operations increased in ZAR
terms by approximately 25%.
» A profit on mining activity of
US$76.4 million was recorded for the
Period, against a profit of US$67.2 million
for the corresponding period.
» Petra maintains a focused and
cost-effective exploration
programme in Botswana.
» In January 2011, Petra completed
a successful placing of 136,698,212
shares at 150 pence per share with
institutional and other investors,
raising gross proceeds of £205 million.
» After settling the Finsch consideration
and trading to 16 September 2011,
Petra had cash at bank of approximately
US$78.6 million.
Revenue
Gross revenue of US$220.6 million was
recorded for the Period, an increase of 24% on
the US$177.7 million gross revenue recorded
in the 12 months to 30 June 2010 (Group
revenue for FY 2010 was US$163.7 million
due to partial consolidation of Cullinan during
FY 2010; for FY 2011, gross revenue and
Group revenue are the same).
The increase in gross revenue was mainly due
to the steady rise in rough diamond prices
from October 2010, as evidenced by revenue
of US$90.0 million in H1 FY 2011, rising to
US$130.6 million in H2 FY 2011. Adjusting for
the exceptional sale of the US$35 million
Cullinan Heritage diamond in FY 2010, revenue
would have been up by 55% year-on-year.
Mining and processing costs
Gross mining and processing costs (before
depreciation) for the South African operations
increased in ZAR terms by approximately 25%
due to:
U
U
upwards pressure on electricity and labour
costs (accounting for 11% of the increase);
treatment of higher tonnages across
the operations in FY 2011 versus the
previous year (accounting for 8% of the
increase); and
U
the
the
ramp-up of production at
Kimberley Underground mine (accounting
for the remaining 6% of the increase).
The volatility in the rand is a significant factor in
reporting the Group’s costs on a US$ basis. In
US$ reporting terms, consolidated mining and
processing costs
the
strengthening of the rand during the Period
(by approximately 8%).
increased due
to
Certain cost categories
in South Africa
increased significantly in excess of South
African inflation (South African CPI stood at
5.0% by 30 June 2011). However, Petra’s low
cost culture, coupled with higher tonnage
throughput, enabled the Group to partially
mitigate the direct effect of the high
inflationary pressures experienced during
28
Petra Diamonds Limited Annual Report and Accounts 2011
the Period. Costs on a unit basis across the
South African operations were therefore well
contained, as demonstrated by the on-mine
in the
cost per tonne figures reported
Operational Review.
Two key areas where costs are under pressure
in South Africa are:
Energy
Inflationary pressures on costs can mainly
be ascribed to electricity prices, which rose
by 25% in FY 2011. A further increase has
been approved by
the National Energy
Regulator in excess of 25% for FY 2012. Petra’s
electricity usage accounted for approximately
13% of cash on-mine costs for the Period.
Petra continuously endeavours to manage
its electricity consumption as the Group’s
production profile increases and the Company
has achieved good success in this area.
Labour
Labour currently accounts for approximately 47%
of cash on-mine costs at the pipe mines and 63%
of cash on-mine costs at the fissure mines. Going
into FY 2012, we anticipate that labour cost
increases will continue to be above inflation.
Mining profit
A profit on mining activity of US$76.4 million
was recorded for the Period, against a profit
of US$67.2 million for the corresponding
period (the profit for FY 2010 included the
profit on the sale of the 507 carat Cullinan
Heritage). This mining profit reflects the
strengthening in diamond prices throughout
the Period, combined with Petra’s stringent
cost control.
Exploration
Petra maintains a focused and cost-effective
exploration programme in Botswana and
exploration expenditure before depreciation
of US$0.1 million (FY 2010: US$0.1 million))
remained relatively flat for the Period at
US$1.3 million (FY 2010: US$1.2 million income
due to Angolan withdrawal). Please refer to
page 23 in this report for comment on
exploration activities.
David Abery, Finance Director
A net profit after tax of US$59.2 million
was recorded for the year
B
u
s
i
n
e
s
s
R
e
v
i
e
w
Corporate overhead
Corporate overhead increased slightly to
US$8.0 million for the Period (FY 2010:
US$7.5 million), reflecting the increasing
size of
the Group. Tight control of
corporate overhead remains of key importance
to management.
Net impairment charge and reversal
In FY 2009, as required in accordance with IAS 36
“Impairment of Assets”, the Company impaired
the carrying value of the Helam and Star mines by
US$12.9 million and US$10.8 million respectively.
These impairments arose due to the significant
downward adjustment in diamond prices that
was experienced
the global economic
in
downturn at the time.
Rough diamond prices recovered significantly
since the FY 2009 impairment, and therefore,
in accordance with IAS 36, the Directors have
reviewed the carrying value of both mines.
The impairment recorded in FY 2009 for Helam of
US$12.9 million was reversed in the Period with
an impairment reversal of US$11.7 million being
recognised (the difference of US$1.2 million is due
to depreciation adjustment on the impairment
from FY 2009 to FY 2011). With regards to Star,
where operations continue to be challenging, the
Directors further impaired the carrying value by
US$5.2 million. The net effect of the reversal
at Helam and the further impairment at Star is
a net impairment reversal of US$6.5 million.
Depreciation
Depreciation for the Period was US$22.4 million
(FY 2010: US$11.9 million). The increase was
mainly attributable to:
U
U
Cullinan (US$5.7 million) due to additions
to fixed assets and the consolidation
of 100% of expenses following the
acquisition of a further 37% interest
in Cullinan in November 2009; and
Kimberley Underground (US$2.6 million)
due to significantly increased production
during the Period, as compared to FY
2010; depreciation is applied on a units of
production basis.
Net unrealised foreign exchange gain
During the Period, the Group reported
net unrealised foreign exchange gains of
US$18.6 million (FY 2010: US$0.8 million)
which arose on the annual retranslation
of foreign subsidiary intercompany loans.
Net finance expense
The Group incurred net finance expense
of US$3.5 million (FY 2010: US$0.5 million).
This was comprised of:
U
U
U
interest payable on the Group’s IFC/RMB
debt facility of US$0.7 million (stated after the
capitalisation of interest of US$3.5 million
in accordance with IAS 23); interest on
the Al Rajhi loan (which was settled in
November 2010) of US$0.9 million; interest
on the Group’s working capital facility of
US$0.3 million;
interest accretion on
the Al Rajhi/
Cullinan deferred cash consideration
of US$1.8 million; and
the charge for the unwinding of the
present value adjustment
for Group
rehabilitation costs of US$3.8 million.
These interest charges are offset by:
U
U
U
interest received on the Group’s cash
balances of US$2.2 million;
net interest receivable from BEE partners’
loans of US$1.5 million; and
realised foreign exchange gains of
US$0.3 million.
Tax charge
A tax charge of US$5.2 million (FY 2010:
credit of US$1.2 million) is comprised of
a deferred tax charge (net of charges and
credits) of US$6.4 million and a South African
income tax credit of US$1.2 million resulting
from a reversal of a prior period provision.
Group profit
A net profit after tax of US$59.2 million was
recorded for the year (FY 2010: US$70.2 million).
The Company recorded a profit of 12.83 cents
per share, after the issue of 136,698,212
new shares in January 2011 (FY 2010: 22.65
cents per share).
Cash
As at 30 June 2011, Petra had cash at
bank of US$324.9 million (30 June 2010:
US$34.5 million). In January 2011, Petra completed
a successful placing of 136.7 million shares at
150 pence per share with institutional and
other investors, raising gross proceeds of
£205 million (approximately US$325 million).
The placing proceeds were utilised as follows:
U
U
US$192 million for the acquisition of Finsch
(completed on 14 September);
US$30 million for working capital requirements
at Finsch;
Annual Report and Accounts 2011 Petra Diamonds Limited
29
Business Review
Financial Review
Continued
Operating cashflows generated
Profit on mining activity
Net profit after tax
US$50.6m
US$76.4m
US$59.2m
Operating cashflow
Petra’s management is focused on cashflow
generation from its operations. Operating
cashflows of US$50.6 million were generated
for the Period (FY 2010: US$48.8 million).
Capital expenditure
Total capex for the Period was US$110.9 million
(FY 2010: US$33.4 million), being capex of
US$107.4 million (refer to the Operational
Review for a breakdown of this spend by
operation) and capitalisation of capex related
borrowing costs of US$3.5 million. This
increased capex spend reflects the acceleration
of the Company’s development programmes,
most notably at Cullinan, Williamson and
additional assets of US$3.5 million at Kimberley
Underground assumed in exchange for the
environmental rehabilitation liability specific to
these assets.
David Abery
Finance Director
28 November 2011
Cash continued
U
US$15 million to settle part of the
deferred Al Rajhi/Cullinan consideration
(remaining balance of US$20 million due
December 2011); and
U
the remainder being applied to accelerate
capex and for general Group working
capital purposes.
After settling the Finsch consideration and
trading to 16 September 2011, Petra had cash
at bank of approximately US$78.6 million.
As at 30 June 2011, cash at bank comprised
unrestricted cash and restricted cash balances
of US$96.9 million and US$228 million
respectively (30 June 2010: US$24.8 million
and US$9.7 million). The restricted balance of
US$228 million was high as US$213.2 million
was defined as restricted whilst the Finsch
consideration remained in escrow. An additional
US$14.8 million of the 30 June 2011 balance
is held by Petra’s bankers as security for
environmental rehabilitation bonds lodged
by the bankers with the South African
Department of Mineral Resources.
Diamond inventories
As at 30 June 2011, Petra also had diamond
inventories of approximately US$13.3 million
(FY 2010: US$15.0 million), being production
post the cut-off date for the Company’s
tender in June 2011.
Debt
In November 2010, Petra agreed terms with
IFC (a member of the World Bank Group) and
RMB, a division of FirstRand Bank Limited,
with regards to a new five and a half year debt
facility of approximately US$83.5 million
(US$40 million to be provided by IFC and
approximately US$43.5 million (R300 million)
to be provided by RMB).
As at 30 June 2011, debt of US$90.1 million (FY
2010: US$64.5 million) was mainly comprised of:
U
US$69.6 million drawn down on the
IFC/RMB facilities (net of a US$8.6 million
adjustment in accordance with IAS 32
and IAS 39 for the accounting treatment
of facility fees and warrant costs associated
with the IFC/RMB facilities, and US$2.7 million
in interest accretion on the facilities); the
gross cash drawn down on the facilities
was US$75.5 million; and
U
US$18.7 million (US$20 million gross)
due to Al Rajhi in December 2011 (the
deferred Cullinan consideration).
With regards to the IFC/RMB debt facilities,
US$8.0 million remains available for draw-down
by the Company before November 2012.
Repayment of capital is by way of eight
semi-annual payments
in
November 2012. The interest rates on the
facilities are: IFC US$ loan – six month US$
LIBOR plus 4.5% margin; RMB ZAR loan –
three month JIBAR plus 4.5% margin. The
deferred consideration owed to Al Rajhi is
interest free.
commencing
The BEE loans due to Petra arise from:
U
Petra having financed the BEE partners’
share of
the acquisition costs of
Cullinan, Koffiefontein and Kimberley
Underground; and
U
Petra having financed working and
development capital
that has been
required for certain of the mines.
All BEE loans are repayable out of free
cashflow from the operations, with Petra
having the first call on such cash until the BEE
loans are repaid.
30
Petra Diamonds Limited Annual Report and Accounts 2011
Key Performance Indicators
Petra uses various performance measures to help evaluate
the performance of the business on a continuous basis and
the following performance measures are those the Board
believe most effectively evaluate the performance of the
Group as a whole.
Safety
Group Lost Time Injury Frequency Rate
(“LTIFR”)
Rough diamond production (gross)
Carats (‘000s)
Revenue (gross)
US$ million
0.80
1,117,795
220.6
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
1,200
1,000
800
600
400
200
0
250
200
150
100
50
0
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
The safety of employees is the top priority for
Petra’s management. FY 2011’s LTIFR showed
an improvement on the prior year’s performance,
demonstrating management’s focus on this area
across all of Petra’s operations. However, very
regrettably, there was a fatality at the Koffiefontein
mine in January 2011. Management is striving for
zero harm in the workplace.
After several years of strong growth, production
was relatively flat in FY 2011 due to a strategic
focus on “value” as opposed to “volume”
production, issues at Koffiefontein and Kimberley
Underground, and unseasonably heavy rainfall
in South Africa. The completion of Finsch in
September 2011 means that the Company
expects to increase production to over 2 Mcts in
FY 2012.
revenue was up 24%
Gross mine
to
US$221 million, being mainly due to the
steady increase in rough diamond prices from
October 2010 to the of end June 2011, as
evidenced by revenue of US$90 million in the first
half rising to US$131 million in the second half.
Adjusting
for the exceptional sale of the
US$35 million Cullinan Heritage diamond
in FY 2010, revenue would have been up 55%.
B
u
s
i
n
e
s
s
R
e
v
i
e
w
On-mine profit
US$ million
76.4
80
60
40
20
0
Operating cashflows
US$ million
50.6
Capex
US$ million
110.9
60
50
40
30
20
10
0
-10
120
100
80
60
40
20
0
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
2007
2008
2009
2010
2011
FY 2011’s mining profit reflects the strengthening
in diamond prices throughout the year, combined
with Petra’s stringent cost control. The generation
of an on-mine profit in FY 2009 at the height of
the global economic downturn demonstrates the
robustness of Petra’s assets and the quality of its
management team.
Petra is focused on generating strong operating
cashflows and as Finsch comes on-line and
production
increases, substantial operating
cashflow growth is expected. Petra’s strategy
is to apply these operating cashflows to fund
the Group’s capex profile which will
lay
the
long-term sustainable
for
production growth.
foundations
is to substantially
Petra’s strategy
increase
its production profile, which will be achieved
by the expansion and development of its
major mines, specifically Cullinan, Finsch and
Williamson. It is key to the Group’s production
expansion that capex spend is achieved and
development rolled out in line with stated
business plans.
Annual Report and Accounts 2011 Petra Diamonds Limited
31
Corporate Governance
Risk Management
The Group is exposed to a number of risks and uncertainties
which could have a material impact on its long-term development
and performance and management of these risks is an integral
part of the management of the Group.
The Board has identified the following as being the principal
strategic and operational risks (in no order of priority).
Risk
Description
Mitigation/Comments
Mining and
Production
The mining of diamonds from underground
kimberlite deposits involves an intrinsic
degree of risk from various factors, including
geological, geotechnical
seismic
factors, industrial and mechanical accidents,
unscheduled plant shutdowns, technical
failures, ground or water conditions and
inclement or hazardous weather conditions.
and
All of Petra´s existing kimberlite operations have long
histories of production and therefore the geology and
economics of each mine are well understood. This
knowledge of the deposits allows management to
eliminate much of the risk associated with operating
a diamond mine.
Risk
Description
Mitigation/Comments
Diamond Prices
The Company’s financial performance is
closely linked to diamond prices which are
influenced by numerous factors beyond the
Company’s control, including international
economic conditions, world production levels
and consumer trends.
The management of the Group closely monitors
developments in the international diamond market
(across the pipeline from the rough market to the
retail consumer market) to be in a position to react in
a timely manner to changes in rough diamond prices
and demand.
Risk
Description
Mitigation/Comments
Expansion
and Project
Delivery
Petra has set out a clear and transparent
growth profile to increase annual production
to over 5 million carats by FY 2019. Actual
production may vary from estimates of future
production for a variety of reasons and it
should be noted that long term assumptions
may be subject to change as the Company
continually evaluates its projects to optimise
efficiency and production profitability.
Petra has an enviable track record in the management
of underground diamond operations and is respected as
one of the “best in class” teams in the diamond mining
industry. With regards to potential budget or time
overruns that could impact the completion of these
expansion projects, the Group has established procedures
to control, monitor and manage the roll-out of its
development plans.
Risk
Description
Mitigation/Comments
Retention of
Key Personnel
The successful achievement of the Group’s
strategies, business plans and objectives
depends upon its ability to attract and retain
certain key personnel.
Part of Petra’s success is due to the fostering of a management
culture where management is empowered and where
innovation and creativity in the workplace is encouraged.
Petra’s employment terms are designed to attract, incentivise
and retain individuals of the right calibre.
32
Petra Diamonds Limited Annual Report and Accounts 2011
Risk
Financing
Description
Mitigation/Comments
Petra has a significant capex programme over
the years to FY 2019, with capex forecast to
peak in FYs 2012 to 2015. The Company plans
to mainly finance this capex from operating
cashflows. Lack of adequate available cashflows
could delay development work.
Whilst management prepares detailed plans, actual
capex may differ from estimates. In order to mitigate
this, capex requires a tiered level of approval and
variances to capex plans are monitored on a timely
basis. The Company continually and regularly reviews its
cashflow planning to ensure that capex plans are
adequately financed.
Risk
Description
Mitigation/Comments
Country and
Political
Petra’s operations are predominantly based in
South Africa, with lesser exposure to Tanzania
and Botswana. Emerging market economies
could be subject to greater risks, including
legal, regulatory, economic and political risks,
and are potentially subject to rapid change.
The Petra team is highly experienced at operating in
Africa. Petra routinely monitors political and regulatory
developments in its countries of operation. In addition
the Company actively engages in dialogue with relevant
Government representatives in order to keep abreast of
all key legal and regulatory developments applicable to
its operations. Petra has a number of internal processes
and checks in place to ensure that it is wholly compliant
with all relevant regulations in order to maintain its mining
or exploration licences within each country of operation.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Risk
Currency
Description
Mitigation/Comments
With Petra’s operations mainly in South Africa,
but diamond sales based in US dollars, the
volatility and movement
is
a significant factor to the Group. Also, the
Group undertakes transactions in a number of
different currencies. Fluctuations in these
currencies may have a significant impact on the
Group’s performance.
in the rand
The Group continually monitors
the movement
of the rand against the US dollar and takes expert
advice from its bankers in this regard. It is the Group’s
policy to hedge a portion of future diamond sales when
weakness
it appropriate.
Such contracts are generally short term in nature.
Management seeks to mitigate other transaction risks
by matching assets and liabilities in the same currency
and where appropriate hedging material exposure.
rand deems
the
in
Risk
Description
Mitigation/Comments
Social,
Safety and
Environmental
The Group’s success may depend upon
its social, safety and environmental performance,
as failures can lead to delays or suspension of its
mining activities.
The Group takes its responsibilities in these areas
seriously and monitors its performance across these
areas on a regular basis.
Annual Report and Accounts 2011 Petra Diamonds Limited
33
Corporate Governance
Corporate Social Responsibility
Corporate social responsibility and sustainability is very important to Petra
and is integral to the way the Group structures and operates its mining,
development and exploration projects. The Petra Group now encompasses
over 4,600 people in South Africa, Tanzania and Botswana, and as such is
a significant employer in Africa. Petra is proud to have taken over various
operations and to have put in place long mining lives, which will ensure
continuous stable employment for the Company’s workforce.
Petra recognises that its
business and operations
have an impact on a wide
range of stakeholders.
These include broader
economic, social and
environmental impacts.
The Company recognises
that it has a responsibility
to mitigate potential
negative impacts and
to actively endeavour
to initiate and support
positive impacts that are
sustainable after mining
has ceased.
The Company has outlined its key sustainable
development policies and practices below,
but for more information shareholders should
review Petra’s Sustainable Development Report,
which is available on the Group’s website.
HSSE Committee
Petra recently formed the Group’s Health,
Safety, Social and Environmental (“HSSE”)
Committee. The HSSE Committee’s role is to
formulate and recommend to the Board the
Group’s policy on all relevant health, safety,
social and environmental issues as they affect
the Group’s operations and it will ensure that
the Board is cognisant of, and takes account
of, mining corporate social responsibility best
practice. In particular it will focus on ensuring
that effective
standards,
procedures and practices are in place and will
monitor the correct and legal implementation
of these procedures across the Group.
systems and
The HSSE Committee is also responsible in
conjunction with the Executive Committee
for reviewing management’s investigation
of incidents or accidents that occur in order
to assess whether policy
improvements
are required.
Operational Health and Safety
The health and safety of employees is a priority
for Petra and the Company adheres to the
most stringent practices for health and safety.
In addition to appropriate risk management
processes, Petra has various strategies and
systems in place to ensure that working places
are safe and that employees are equipped to
work safely. A great emphasis is based on
training in this area and Petra’s management
continually strives to raise safety awareness at
all levels. Petra encourages the active participation
of employees and their representatives in health
and safety issues and aims to encourage a healthy
lifestyle for its workforce.
Community and Social
Petra is cognisant that, as a mining company,
it is exploiting a finite resource and that there
is a window of opportunity for the Company
to play a role in the social and economic
upliftment of the communities in which it
operates. Petra is committed to identifying
sustainable projects in conjunction with local
communities themselves, as well as local
authorities. The Group takes a holistic and
structured approach to corporate social
responsibility and uses training and skills
development
lives of
to enhance
employees and community members alike.
the
Environment
Petra
the
recognises and acknowledges
need to conduct environmentally sustainable
exploration, mining and related activities.
It is dedicated to promoting and maintaining
high standards of environmental management
within all of our operations by means of
advocating environmental awareness to our
employees as well as implementing sound and
solid procedures and monitoring processes.
The Company’s operations are subject to
significant environmental regulation under
according to applicable local legislation.
The Kimberley Process
Petra will only ever operate in countries which
are members of the Kimberley Process. The
Kimberley Process is a collaboration between
Governments, NGOs and the diamond industry,
who joined together to stem the flow of “conflict
diamonds” – rough diamonds used by rebel
movements to finance wars against legitimate
governments. It was set up to assure consumers
that by purchasing diamonds they were not
financing war and human rights abuses and the
Kimberley Process Certification Scheme imposes
extensive requirements on its members to enable
them to certify shipments of rough diamonds as
conflict free.
Petra’s Sustainable Development Reports
can be accessed on the Petra website
www.petradiamonds.com
34
Petra Diamonds Limited Annual Report and Accounts 2011
The nursery at
Williamson has
the capacity to
raise 500,000
seedlings annually.
This rhino at the
Cullinan nature
reserve has been
de-horned to protect
it from poachers.
Petra’s corporate social responsibility principles are as follows:
Principle
Description
Petra conducts itself
according to the highest
ethical and corporate
governance standards
Petra will operate according to the highest ethical and corporate governance
standards and is committed to conducting itself in a way that is mindful
of the economic, social and environmental impacts on society.
Petra is a fair employer
Petra is a fair employer and treats it employees with respect and dignity.
The Company will uphold the basic human rights of employees, contractors
and community members.
Health and safety of
employees is of the
utmost priority
The health and safety of employees is of the utmost priority for the Company.
Health and safety committees, comprising both management and employee
representatives, as well as health and safety collective agreements, are in
place at all operations, in line with the relevant legislation in the Company’s
countries of operation. These committees meet on a regular basis to discuss
and resolve health and safety related challenges.
A strong commitment to
local economic development
Petra has a strong commitment to local economic development and
to having a positive impact on the social, economic and institutional
development of its host communities. The Company works to purposefully
identify sustainable projects in conjunction with local leaders and
authorities, which will serve the community, making a long term
contribution to the sustainability of the local communities.
Emphasis on environmental
stewardship throughout life
cycles of operations
Petra places a great deal of emphasis on environmental stewardship
throughout the life cycle of its operations – from exploration to closure.
The Company will, as a minimum, comply with the environmental
regulations in the countries in which it operates and will implement
environmental management and auditing systems based on good practice.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
The responsible mining
and sale of our diamonds
Petra believes in the responsible mining and sale of its diamonds. Petra will
only operate in countries which are members of the Kimberley Process and,
as a legitimate diamond miner operating in South Africa and Tanzania,
100% of Petra’s production is fully traceable and conflict free.
Engagement with
stakeholders
Petra will engage with stakeholders – employees and unions, shareholders,
community members, representatives from Government and regulators –
in an open and transparent manner and will voluntarily report on its
objectives and performance in respect of sustainable development on
a regular basis.
Annual Report and Accounts 2011 Petra Diamonds Limited
35
Corporate Governance
Board of Directors
Adonis Pouroulis
Age 41
Non-Executive Chairman
(Mr Pouroulis moved to Non-Executive Chairman on 28 November 2011)
Year of Appointment: 1997
Committees: Nomination Committee (Chairman)
Qualifications: Mining Engineer – University of Witswatersrand,
South Africa
Expertise: Mr Pouroulis is a mining entrepreneur whose expertise lies in
the discovery and exploration of natural resources across Africa, including
diamonds, precious/base metals, coal and oil and gas, and bringing these assets
into production. Mr Pouroulis founded Petra Diamonds in 1997 and it became
the first diamond company to float on AIM. He has since chaired Petra as it has
developed into a mid-tier diamond producer of global significance and London’s
largest quoted diamond mining group.
Johan Dippenaar
Age 54
Chief Executive Officer
Year of Appointment: 2005
Committees: Executive Committee; HSSE Committee
Qualifications: Chartered Accountant – member of the South African
Institute of Chartered Accountants
Expertise: Mr Dippenaar has over 20 years’ experience in the leadership
and management of producing diamond mining companies. Prior to his
appointment as CEO of Petra, he was CEO of ASX-quoted Crown Diamonds
which merged with Petra in 2005. Mr Dippenaar built Crown Diamonds’
portfolio up from one fissure mine to three and, since the merger, has led Petra
through a period of extraordinary growth, taking the Group’s portfolio of
producing diamond mines from three to eight and firmly establishing the
Company as a leading independent producer.
David Abery
Age 49
Finance Director
Year of Appointment: 2003
Committees: Executive Committee
Qualifications: Chartered Accountant – member of the Institute
of Chartered Accountants in England and Wales
Expertise: Mr Abery brings to Petra extensive experience as a Chief Financial
Officer in both the South African and UK business environments. He has been
integral to the structuring and delivery of strategic Group corporate development
and acquisitions at Petra, as well as the instigation of a number of innovative
financing transactions. Mr Abery is responsible for all matters pertaining to
Petra’s UK listing and maintains regular communication with the UK market.
Jim Davidson
Age 67
Technical Director
Year of Appointment: 2005
Committees: Executive Committee
Qualifications: Geologist – member of the Geological Society
of South Africa and registered with the South African Council
for Natural Scientific Professions
Expertise: Mr Davidson is an acknowledged world authority on kimberlite
geology and exploration, who has pioneered research into kimberlite indicator
mineral chemistry and microdiamond analysis. He has spent in excess of 30 years
associated with diamond exploration and mining, of which over 20 years have
included mine management in South Africa, and was formerly Head of Diamond
Exploration in Southern Africa for BP Minerals (subsequently Rio Tinto) before
joining Crown Diamonds.
36
Petra Diamonds Limited Annual Report and Accounts 2011
Independent Non-Executive Directors
Non-Executive Director
Dr Pat Bartlett
Age 66
Year of Appointment: 2011
Committees: Audit Committee; Remuneration Committee;
Nomination Committee
Qualifications: Ph.D. Mining Engineering; Member of the South African
Institute of Mining and Metallurgy; registered Professional Natural Scientist
Dr Bartlett is an acknowledged expert on kimberlite geology and on the design
and geotechnical aspects of block cave mining. He has presented numerous
technical papers at international mining conferences throughout the world on
all aspects of the geotechnical design of block cave mines and the geotechnical
risks associated with massive mining operations. He was formerly a Chief Geologist
for De Beers with responsibility for all De Beers kimberlite mines in South Africa; he
retired from De Beers in 2003 in order to pursue consulting work. Dr Bartlett has
previously acted as an independent technical adviser to Petra. Dr Bartlett has
extensive experience working across Southern Africa and has an in-depth
knowledge of several of Petra’s mines, having previously worked at Finsch,
Koffiefontein, Kimberley Underground and Cullinan, where he was a geologist
from 1983 to 2003, responsible for all geological and geotechnical aspects of
this major diamond mine. Since retiring he has been involved in block caving
projects for BHP Billiton, Anglo American and Rio Tinto. He was elected to the
Board of Trustees for the De Beers Benefit Society in 2010 and the De Beers
Pension Fund in 2011.
Dr Kamal is not considered to be “independent” as he represents Al Rajhi Holdings
W.L.L. (“Al Rajhi”), Petra’s largest shareholder, which holds 13% of the Company’s
issued share capital.
Dr Omar Kamal
Age 38
Year of Appointment: 2010
Committees: n/a
Qualifications: Ph.D. Management (Banking and Finance)
Expertise: Dr Kamal is a Managing Director of Investments for Al Rajhi,
Petra’s largest shareholder, where his main responsibility is co-managing the
international investments in various asset classes with a focus on equities, private
equity, and real estate. In addition, Dr Kamal possesses a broad spectrum of expertise
and knowledge ranging from his past experience as an academic, working in
the financial industry (both in Islamic banking and in conventional banking) and
as a strategy consultant with a global financial services firm.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Gordon Hamilton
Age 66
Year of Appointment: 2011
Committees: Audit Committee (Chairman); Remuneration Committee
(Chairman – pending the appointment of a third independent
Non-Executive Director); Nomination Committee
Qualifications: Chartered Accountant – ICAEW
Mr Hamilton has extensive experience as a non-executive director across a
wide range of businesses including the Johannesburg Stock Exchange listed
Barloworld, Fairbairn Private Bank and other related companies within the
Nedbank Group, and the London Stock Exchange listed Lloyd’s of London
insurance underwriter Beazley, for all of which he also chairs their audit
committees. Mr Hamilton retired from Deloitte & Touche LLP in 2006 after more
than 30 years as a partner primarily responsible for multinational and FTSE 100
listed company audits, mainly in the mining, oil and gas and aerospace and defence
industries, as well as heading the Deloitte South Africa desk in London. He
served for nine years until 2011 as a member of the UK Financial Reporting
Review Panel.
Annual Report and Accounts 2011 Petra Diamonds Limited
37
Corporate Governance
Directors’ Report
The Directors present their report together with the audited financial statements of the Group for the year ended 30 June 2011.
Principal activities
Petra Diamonds is a leading independent diamond mining group and an increasingly important supplier of rough diamonds to the international
market. The Company has a well‑diversified portfolio, with controlling interests in eight producing mines: seven in South Africa (Finsch, Cullinan,
Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star) and one in Tanzania (Williamson). In addition, Petra has an exploration
operation in Botswana.
Business review
A detailed review of the Group’s operational and financial performance for the year and events subsequent to the year end is set out in this
Annual Report in the Overview on pages 1 to 7, the Business Review on pages 8 to 31 (which includes a section on Key Performance Indicators
on page 31) and note 29 to the financial statements.
Results and dividends
The Group’s net profit after tax for the year amounted to US$59.2 million (2010: US$70.2 million). The Directors do not recommend the
payment of a dividend for the year (2010: US$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 46 to 48 and note 21 to the financial statements) were as follows:
Adonis Pouroulis1,2
Johan Dippenaar
David Abery2
Jim Davidson
Charles Segall2
Dr Patrick Bartlett³
Gordon Hamilton³
Dr Omar Kamal
shares at
Number of Number of
shares at
30 June 2011 30 June 2010
9,564,650 9,564,650
640,000
640,000
1,979,649 1,979,649
640,000
1,380,122 1,380,122
Nil
Nil
Nil
Nil
Nil
Nil
640,000
Notes:
1. 7,735,000 ordinary shares in the Company are held by a trust of which Mr Pouroulis is a beneficiary.
2. 5,037,421 ordinary shares in the Company are held by a trust of which Mr Pouroulis, Mr Abery and the estate of Mr Segall are beneficiaries (Mr Segall passed away in
July 2011, post‑year end).
3. Dr Bartlett and Mr Hamilton were appointed post‑year end on 28 November 2011.
Other than noted above with regards to the passing of Mr Segall, there were no changes in Directors’ share interests between the year end and
the date of this report.
Share capital
Details of changes to share capital during the year can be found in note 21 to the financial statements.
38
Petra Diamonds Limited Annual Report and Accounts 2011
Substantial shareholdings
At 31 October 2011 the interests as indicated in the table below 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).
Significant shareholders (insofar as the Company is aware)
Al Rajhi Holdings W.L.L.
Saad Investments Company Limited/Awal Bank
JP Morgan Asset Management U.K. Limited
Capital Group International, Inc
Scottish Widows Investment Partnership
BlackRock Investment (UK) Limited
T. Rowe Price
M&G Investments
Kames Capital
Ignis Investment Services Limited
Directors
Number Percentage of
issued share
capital
13.3%
12.2%
8.6%
7.3%
6.4%
4.2%
4.1%
3.6%
3.3%
3.0%
2.8%
of ordinary
shares
66,525,600
60,844,185
43,231,516
36,691,116
32,216,384
20,994,369
20,471,750
18,086,225
16,439,120
14,915,549
14,204,421
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 26 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 (“IFRS”) as adopted by the European Union and the rules of the London Stock Exchange for companies trading securities on AIM.
The Directors have chosen to prepare financial statements for the Group in accordance with IFRS, as adopted by the European Union.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
In preparing these financial statements, the Directors are required to:
U select suitable accounting policies and then apply them consistently;
U make judgements and accounting estimates that are reasonable and prudent;
U
state whether they have been prepared in accordance with IFRS, as adopted by the European Union, subject to any material departures
disclosed and explained in the financial statements; and
U prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
Annual Report and Accounts 2011 Petra Diamonds Limited
39
Corporate Governance
Directors’ Report
Continued
Directors’ responsibilities continued
The Directors are responsible for keeping accounting records that are sufficient to show and explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial position of the Company. They are also responsible for safeguarding the assets of the Company
and for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the Annual Report and financial statements are made publically available on the Company’s website.
The maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the
ongoing integrity of the financial statements contained therein.
Auditors
As far as each of the Directors is aware, at the time this report was approved:
U there is no relevant available information of which the auditors are unaware; and
U
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 LLP as auditors of the Company
is to be proposed at the Annual General Meeting to be held in January 2012.
By order of the Board
David Abery
Director
28 November 2011
40
Petra Diamonds Limited Annual Report and Accounts 2011
Corporate Governance Statement
Petra Diamonds Limited is incorporated in Bermuda. There is no formal corporate governance code in Bermuda but the Company subscribes to
the principles of the UK Corporate Governance Code (“the Code”). Although the Company does not at the present time comply with all of the
Code requirements, the Directors are committed to making the appropriate changes to meet the Code’s requirements wherever possible and
appropriate for Petra.
As Petra continues to grow, the Board carries out regular reviews of its corporate governance policy and practices, with the objective that these
will continue to evolve in line with the Group’s increasing size and stature. Integral to these reviews are appraisals of the Group’s system of
internal controls, including financial, operational and compliance controls and risk management systems. Petra is committed to maintaining the
highest standards of business conduct and ethics, as well as compliance with all applicable laws, rules and regulations, corporate reporting and
disclosure, and all other matters deemed to protect the best interests of the Company’s shareholders.
FY 2012 is an important year in terms of Petra’s corporate development, given the Company’s step‑up to the Main Market of the London Stock
Exchange and anticipated inclusion in the FTSE 250. In accordance with the Company’s objective of adhering with the Code, the Company has
significantly strengthened its Board with the appointment of two independent Non‑Executive Directors (“NEDs”), Dr Bartlett and Mr Hamilton.
At the same time as these two appointments, Mr Pouroulis moved from Executive to Non‑Executive Chairman, in line with best practice.
The Company will be appointing one or more further independent NEDs as soon as is practicable in FY 2012.
Following the appointment of the new NEDs, Petra revised its Board Committee Charters and these are available on Petra’s website at
www.petradiamonds.com. Petra has, following the appointment of the independent NEDs, changed the composition of its Audit and
Remuneration Committees and has established a Nomination Committee and a Board represented Health, Safety, Social and Environmental
(“HSSE”) Committee for the first time.
Board of Directors
Role of the Board
The Board’s primary role is the protection and enhancement of shareholder value. To fulfil this role, the Board (and Board Committees where
appropriate) is responsible for the overall corporate governance of the Group, including formulating the Group’s strategic direction, appointing
Directors and Senior Management, setting remuneration, establishing goals for management and monitoring the achievement of these goals,
approving and monitoring capital expenditure, and ensuring the integrity of internal control and management information systems. The Board
is also ultimately responsible for approving and monitoring financial and other reporting.
The Chairman is responsible for the leadership of the Board. At each Board meeting, the Chairman ensures significant time is devoted to key
strategic issues. When setting Group strategy, the Board agrees a shared vision of what the Company is aiming to achieve and over what time
period, as well as an understanding of what is required in order to achieve the objectives. This strategy is communicated to Petra’s Senior
Management and to the various employee groups in each division of the Company. Externally, strategy is communicated to shareholders via
direct meetings or public materials (such as Stock Exchange announcements and the Company website). The Executive Directors of Petra are
ultimately responsible for executing the strategy as laid out by the Board. All Directors bring independent judgement to bear on issues of strategy,
performance and standards of conduct.
One of the roles of the independent NEDs is to scrutinise the performance of the Executive Directors in terms of meeting agreed goals and
objectives and to monitor the reporting of performance. In addition, they play a key role with regards to ensuring that the financial information,
controls and systems of risk management within the Group are robust and defensible, as well as with regards to determining the appropriate
levels of remuneration of Executive Directors, and they are integral to the appointment or removal of Executive Directors to or from the Board,
when necessary.
As covered above, Petra intends to appoint one or more additional independent NEDs as soon as is practicable in FY 2012. Although at this time
Petra has not formally appointed a Senior Independent NED, this decision will be made when the new candidate(s) is/are appointed. Petra fully
appreciates the need to appoint a Senior Independent NED, who will provide a sounding board for the Chairman and serve as an intermediary
for the other Directors as necessary. The Senior Independent NED will be available to shareholders if they have concerns which contact through
the normal channels of Chairman, CEO or other Executive Directors has failed to resolve or for which such contact is inappropriate.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Composition of the Board
The Board currently consists of three Executive Directors, the Non‑Executive Chairman, one NED and two independent NEDs. The Non‑Executive
Chairman is Mr Pouroulis (who stepped down from Executive Chairman to Non‑Executive Chairman on 28 November 2011), the CEO is
Mr Dippenaar, the Finance Director is Mr Abery, the Technical Director is Mr Davidson, the NED, who is not deemed to be independent,
is Dr Kamal (as he represents Al Rajhi Holdings W.L.L. which holds 13% of Petra’s issued share capital) and the independent NEDs are Dr Bartlett
and Mr Hamilton (both appointed 28 November 2011).
Post‑year end, the Board lost a long‑serving member, being Mr Charles Segall, who sadly passed away in July 2011. Mr Segall had served on the
Board of Petra as a NED since it listed on the AIM market in 1997.
The composition of the Board is reviewed on an ongoing basis to ensure that the Board has the appropriate mix of expertise and experience.
Directors appointed by the Board are subject to election by shareholders at the following Annual General Meeting and thereafter Directors are,
in accordance with the Company’s bye‑laws, subject to re‑election on an annual basis. When a Board 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.
Annual Report and Accounts 2011 Petra Diamonds Limited
41
Corporate Governance
Corporate Governance Statement
Continued
Board of Directors continued
Composition of the Board continued
As noted above, on 28 November 2011, Petra appointed two independent NEDs in order to strengthen its Board. The Board allocated a
considerable amount of time to the identification and selection process for the new independent NEDs by undertaking a structured and focused
search process to identify appropriate candidates and took advice from its London corporate advisers in this regard. The Board is satisfied that it
has identified candidates with the appropriate mix of financial and technical expertise to suit the specific requirements of the Petra team. Further
to the appointment of the new independent NEDs, a Nomination Committee was formed and this committee will consider and nominate
candidates for Board approval going forward.
Board process
The Board believes that all Directors need to be able to allocate sufficient time to the Company in order to discharge their responsibilities
effectively. The full Board meets formally at least four times per year, at such other times as may be necessary to address any significant matters
that may arise, and also communicates regularly between these meetings.
The Board is supplied on a regular basis with appropriate and timely information relating to all aspects of the Group and has regular opportunities,
including visits to operations, for contact with a wider group of employees, including Senior Management. In addition, the Directors are free to
seek any further information they consider necessary in order to discharge their duties effectively. The collective responsibility of the Board
ensures that all Directors are involved in the process of arriving at significant decisions.
The agenda for full Board meetings is prepared in conjunction with the Chairman and the Executive Directors and all documents that are relevant
to the agenda of the Board meeting are distributed to the Board in advance of the meeting. Standing items include the CEO’s Review, Finance
Director’s Review, management accounts, strategic matters, long‑term business planning, governance and compliance. Senior Management are
involved in the preparation of Board papers and submissions and are able to contact any member of the Board should they feel the need to do so.
Board meetings take place away from the Group’s offices and typically last for the whole day and are arranged so as to allow the Board time to engage
in informal discussions regarding the activities of the Group, its competitors, the capital markets and the diamond and mining sectors in general.
To assist in the execution of the Company’s strategy, the Board has established an Executive Committee to manage the Company on a day‑to‑day
basis. Members of this Committee are Mr Dippenaar, Mr Abery and Mr Davidson. Further to the appointment of the independent NEDs as noted
above, the Chairman will hold meetings with the NEDs without Mr Dippenaar, Mr Abery and Mr Davidson present, in compliance with the Code.
Board performance
The Company has adopted self‑evaluation processes to measure Board performance. The performance of 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 individual Directors. Any significant issues
identified are actioned by the Board on an ongoing basis. In addition, the independent NEDs will meet without the Chairman at least annually
to appraise the Chairman’s performance and on such other occasions as are deemed appropriate. The evaluation of key Senior Management
is carried out by the Executive Committee.
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 conflict is clearly recorded in the Board minutes and if considered appropriate (due to the
nature of the conflict) by the rest of the Board, the Director concerned is not present at the meeting whilst the item is considered.
Director dealings in Company shares
Company policy prohibits Directors and Senior Management from dealing in shares or exercising share options whilst in possession of price
sensitive information. Directors and Senior Management must notify and get approval from the Chairman/Finance Director before they deal
in shares or exercise share options in the Company.
Independent professional advice and access to company information
Each Director has right of access to all relevant Company information and to the Company’s Senior Management.
All Directors have access to advice from the Company’s retained auditors, legal advisers and NOMAD (whilst on AIM), as well as to other
independent professional advisers (as appropriate), at the expense of the Company if considered necessary in the performance of their duties.
Director education
The Group educates new Directors about the nature of the business, current issues, the corporate strategy and timeline for key objectives to be
met, and the expectations of the Group concerning the performance of the Directors. Directors also have the opportunity to visit Group
operations and meet with the operational management to gain a better understanding of Petra’s business.
Directors are given access to continuing education opportunities to update and enhance their skills and knowledge.
Remuneration of NEDs
When setting fees for NEDs, the Board takes independent professional advice and applies appropriate benchmarks. Directors’ fees cover all
NED activities and membership of committees. Further information is contained in the Directors’ Remuneration Report on page 47.
D&O Insurance
The Company has arranged appropriate Directors’ and Officers’ insurance cover in respect of legal claims against its Directors.
42
Petra Diamonds Limited Annual Report and Accounts 2011
Board Committees
The Board currently has an Audit Committee, a Remuneration Committee, a Board‑level HSSE Committee and on 28 November 2011 it formed
a Nomination Committee. The purpose of these committees is to delegate responsibility to Directors with specific skills and knowledge and to
facilitate the Board’s overall role. The Board periodically reviews the membership of its committees to ensure that committee membership is
refreshed; with the appointment of new independent NEDs, membership of these committees will become more appropriate and relevant. The
Group provides the committees with sufficient resources to undertake their duties. The Committee Charters are available on Petra’s website at
www.petradiamonds.com.
Audit Committee
For FY 2011, Petra’s Audit Committee comprised Dr Kamal and Mr Segall and was chaired by Dr Kamal. Further to the appointment of the
independent NEDs on 28 November 2011, Petra changed the composition of its Audit Committee, which now comprises Mr Hamilton and
Dr Bartlett, and is chaired by Mr Hamilton. Mr Hamilton is considered to have the appropriate financial expertise and experience for this role as
he was formerly a Senior Audit Partner at Deloitte & Touche LLP specialising in UK‑listed company audits. Upon the appointment of one or more
additional independent NEDs, Petra will expand the number of members in this Committee.
The Audit Committee meets formally at least twice per year; three Audit Committee meetings were held during FY 2011. The Audit Committee
invites the Finance Director and Senior Financial Management to attend the meetings as appropriate; the invitees would leave the meeting on
matters relevant to their own performance or duties.
The Audit Committee also meets with the external auditors independent of Executive Management. The Audit Committee may, if considered
necessary, take independent advice at the expense of the Company.
The Audit 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 and monitors the
integrity of financial reporting and reviews the Group’s interim and full year results 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; assesses the Company’s arrangements for staff whistle‑blowing and the detection of internal
fraud; and institutes and reviews special projects and investigations on any matter as it sees fit.
Remuneration Committee
For FY 2011, Petra’s Remuneration Committee comprised Mr Segall and Dr Kamal and was chaired by Mr Segall. Further to the appointment of
the independent NEDs on 28 November 2011, Petra changed the composition of its Remuneration Committee, which now comprises Mr Hamilton
and Dr Bartlett, and is chaired by Mr Hamilton (pending the appointment of a further independent NED to the Board).
The Remuneration Committee meets formally at least twice per year and two Remuneration Committee meetings were held during FY 2011.
The Remuneration Committee invites Executive Directors to attend the meetings as appropriate; the invitees would leave the meeting on matters
relevant to their own remuneration or performance.
The Remuneration Committee may meet with the Company’s external remuneration consultants independent of Executive Management.
The Remuneration Committee may, if considered necessary, take further 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 for each of the
Executive Directors and other Senior Management of the Group; and to approve all Directors’ service contracts.
No Director or Senior Manager is involved in deciding their own remuneration.
The Chairman and other Executive Directors may accept external appointments subject to the Board’s consent to act as NEDs of other companies
and would normally retain any fees for such appointments.
Mr Hamilton is currently chairing both the Audit Committee and the Remuneration Committee and when the appropriate additional independent
NED is appointed, it is expected that this new Director will chair the Remuneration Committee.
Nomination Committee
Although corporate governance guidelines recommend that the Company should have a Nomination Committee, prior to November 2011 the
Board had not established such a committee as the Board had considered that a separately established committee of this nature was not
warranted in relation to the Company’s size and stage of development, as its functions and responsibilities were adequately and efficiently
discharged by the Board as a whole.
However, the Petra Board now considers such a committee to be appropriate to the Group’s increased scale and stature and therefore
a Nomination Committee was formed on 28 November 2011 upon the appointment of the new independent NEDs to the Board.
Petra’s Nomination Committee comprises Mr Pouroulis, Mr Hamilton and Dr Bartlett and is chaired by Mr Pouroulis. The Nomination Committee
will meet formally at least twice a year.
The main responsibilities of the Nomination Committee are evaluating the balance of skills, knowledge and experience of the Board, the size,
structure and composition of the Board, retirements and appointments of additional and replacement Directors and will make appropriate
recommendations to the Board on such matters.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Annual Report and Accounts 2011 Petra Diamonds Limited
43
Corporate Governance
Corporate Governance Statement
Continued
Board Committees continued
HSSE Committee
The HSSE Committee comprises one Executive Director (Mr Dippenaar) and appropriate members of Petra Senior Management; it is chaired by
Mr Dippenaar. This is a new Board‑level Committee that was established in September 2011. The HSSE Committee will meet formally at least
twice a year.
The HSSE Committee’s role is to formulate and recommend to the Board the Group’s policy on all relevant HSSE issues as they affect the Group’s
operations and it will ensure that the Board is cognisant of, and takes account of, mining corporate social responsibility best practice. In particular
it will focus on ensuring that effective systems and standards, procedures and practices are in place and will monitor the correct and legal
implementation of these procedures across the Group.
The HSSE Committee is also responsible in conjunction with the Executive Committee for reviewing management’s investigation of incidents or
accidents that occur in order to assess whether policy improvements are required.
Internal controls and risk management
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 Code requires that the effectiveness of the system of internal
control be reviewed by the Directors, including financial, operational and risk management.
The Board, on an ongoing basis, conducts reviews of the effectiveness of the Company’s risk management and internal control systems and
reports to shareholders that they have done so. The review covers all material controls, including financial, operational and compliance controls.
The Group has not established a separate Board‑level risk 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.
Please refer to pages 32 and 33 where the Group has identified key risks and how they are mitigated.
The Board’s internal control processes are comprehensive and comprise:
U
operating unit controls – operating units confirm compliance with financial controls and procedures including information system controls;
U
U
U
functional reporting – key areas subject to regular reporting (on a quarterly basis) to the Board include operations/production, finance,
investor relations, technical, safety, human resources, corporate social responsibility, environment and legal matters;
internal audit function – the Group has an internal audit function. The internal audit manager operates under the direction of the Finance
Director and any matters arising of a material nature are brought to the attention of the Board. The Board ensures compliance with the
internal controls and risk management procedures previously mentioned; and
Group Code of Conduct – the Group has established a documented Code of Conduct. The Group has induction procedures to inform newly
appointed 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.
Practices have been established to ensure:
U
capex commitments above a certain size obtain prior Board approval;
U
financial exposures are controlled, including the potential use of derivatives;
U
U
U
environmental performance is regularly monitored to ensure the Group is in compliance with all 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;
occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance
and compliance with regulations;
ethical standards are monitored as 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;
U
business transactions are properly authorised and executed; and
U
financial reporting accuracy and compliance with the financial reporting regulatory framework.
44
Petra Diamonds Limited Annual Report and Accounts 2011
Communication with shareholders and continuous disclosure
The Company supports open dialogue between shareholders and the Board so that the Board understands shareholders’ needs and objectives
and their views on the Company’s performance. Investor relations is an important aspect of the Company’s overall communications strategy and
Petra has a dedicated in‑house communications and investor relations function based in London to ensure that any investor query or concern is
responded to and dealt with efficiently and in a timely manner. Petra’s investor relations team regularly provides feedback to management on all
such shareholder communication.
As part of Petra’s proactive investor relations approach, management and the investor relations team commit time to hold regular formal and
informal meetings in person with the Company’s shareholders in order to get direct feedback and input on strategy and performance. The
Company also hosts financial results webcasts at least twice a year which are broadcast live on the Company’s website to ensure that all
shareholders can participate in the presentation, regardless of their location, and stored thereafter at www.petradiamonds.com.
The Board encourages all members, including its NEDs, to develop an understanding of the views of major shareholders about the Company,
either through direct meetings in person, analysts’ or brokers’ briefings or through the submission of regular feedback documents following
shareholder interaction.
The Board encourages full participation of shareholders at shareholder meetings to ensure a high level of accountability and identification with
the Group’s strategy and goals. Shareholders are requested to vote on the appointment of Directors and changes to the Company’s bye‑laws.
Copies of the bye‑laws are available on the Company website at www.petradiamonds.com. The Board ensures that the external auditors attend
the Company’s Annual General Meeting and other meetings where it is appropriate to do so. The Chairman arranges for the Chairmen of its
various committees to be available to answer questions at the Annual General Meeting.
Petra ensures that all shareholders and investors have equal access to the Company’s information and has procedures to ensure that all price
sensitive information is disclosed to shareholders in accordance with the continuous disclosure requirements of the AIM Rules. Once Petra steps
up to the Main Market of the London Stock Exchange, it will comply in full with both the Listing Rules and the Disclosure and Transparency Rules.
All public announcements are immediately posted to the Company’s website at www.petradiamonds.com.
The Company’s Annual Report is made available 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. Notices of shareholder meetings and associated explanatory material are placed on the Company’s website.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Annual Report and Accounts 2011 Petra Diamonds Limited
45
Corporate Governance
Directors’ Remuneration Report
The Remuneration Committee is responsible for determining the remuneration and incentive packages for the Executive Directors and
Senior Management.
Remuneration Committee
Details of the Remuneration Committee are set out in the Corporate Governance Statement on pages 41 to 45 of this report. The Committee
seeks independent advice from external consultants as appropriate. The Committee has engaged the services of Deloitte LLP, Global Employer
Services, London in providing remuneration advisory services.
Remuneration policy
The employment terms for Executive Directors and Senior Management are designed to attract, motivate and retain individuals of the right
calibre. Incentives are structured so as to align their interests with those of the shareholders by rewarding Executive Directors and Senior
Management for enhancing shareholder value.
The Group competes for management talent with other major mining companies and the remuneration strategy is designed to allow the
Company to attract and retain high quality executives. The Committee ensures that a significant proportion of the Executive Directors’
remuneration is directly related to the performance of the Group, in order to promote the long‑term success of the Company.
In setting the remuneration policy and levels for the Executive Directors, the Committee takes into account the pay and employment conditions
of the wider employee population within the Company.
Review of Executive Directors’ remuneration in 2011/12
Given the planned move to a Main Market listing on the London Stock Exchange and potential entry to the FTSE 250, the Board is mindful that
the Company’s remuneration arrangements will need to reflect both the forward‑looking strategy of the business and its status as a fully listed
company. Accordingly, the Company is undertaking a review of the remuneration arrangements for the Executive Directors and Senior
Management team. An important part of this review will be to ensure that remuneration practices reflect UK corporate governance best practice
in relation to executive pay.
Base salaries
The policy of the Company is to pay base salaries which are competitive with those paid to Executive Directors and Senior Management
in organisations of similar size and complexity in the mining sector.
Performance‑related bonuses
In order to retain and incentivise the Executive Directors and Senior Management, performance‑related bonuses, as approved by the Remuneration
Committee, are awarded based on the performance of the Company and the individual for the Period under review. It is the policy of the Board
that bonuses will only be paid on achieving performance and results which are stretching.
To date, the Petra Group has grown rapidly by the acquisition of world‑class assets which have then been integrated into the Group. In this
context the Board has been of the view that, rather than set static targets, it was in the best interests of the Group to assess performance at the
end of the year based on achievements in relation to integration and delivery on newly acquired mines as well as existing assets. Bonuses were
therefore based on a subjective but challenging assessment of the performance of the Company and individual.
However, now that the Group has matured after several years of acquisitions and asset integration and has a clearly stated production growth
profile, the Board and Remuneration Committee will now include performance measures that are applicable, relevant and stretching in the
context of the Group’s stated production growth profile and other strategic goals. It is intended that, following the review of remuneration, the
performance conditions will take account of certain key operational deliverables, as well as health and safety performance. The Committee will
provide shareholders with appropriate disclosure of the new framework and bonus out‑turns.
Whilst there is no formal maximum limit under the current bonus plan, bonuses have traditionally been no higher than 100% of salary. Going forward,
it is intended that the Company will set a maximum bonus potential as a percentage of salary, subject to pre‑determined performance targets.
Share incentives
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 creation of shareholder value. The Company operates an Employee Share Option Scheme (introduced in 2005), whereby
it can issue options to eligible employees (including Executive Directors and Senior Management) to subscribe for shares in the Company
at set prices.
Options awarded to Executive Directors are subject to performance conditions. Share options granted to date have been subject to the performance
condition that, in order to vest and be exercisable, the market value of the Company’s shares must increase in value by an amount greater than 10%
in excess of the UK Retail Price Index rise (“RPI”) in year one for one‑third of the grant to vest, by 20% over the RPI between the date of grant and
the second anniversary of grant for the second third of the grant to vest, and by 30% over the RPI between the date of grant and the third
anniversary of grant for the final third of the grant to vest. The Board considered that a performance condition based on share price growth targets
was aligned with shareholders and appropriate for the Company’s strategy at the time that the share options were granted.
46
Petra Diamonds Limited Annual Report and Accounts 2011
Share incentives continued
Petra intends to consider the introduction of new share plans as part of the 2011/12 review of executive remuneration, taking into account best
practice for a Main Market FTSE company. This will include consideration of the performance metrics and targets which are appropriately aligned
to Petra’s future strategy. It is also intended that the share plans will include dilution and individual limits.
As at 30 June 2011 the following share options were in issue to the Executive Directors to subscribe for ordinary shares in the Company.
Grant date
05/09/03
13/09/04
24/09/04
28/01/05
16/06/05
27/11/05
31/05/06
31/07/06
12/03/09
30/09/09
17/03/10
25/11/10
Total
Expiry date
05/09/13
13/09/14
24/09/14
28/01/15
16/06/15
27/11/15
31/05/16
31/07/16
12/03/19
30/09/19
16/03/20
25/11/20
Exercise price
(pence)
44.0
56.75
46.5
56.5
85.0
65.75
79.5
96.0
27.5
45.5
60.5
92.8
Mr Pouroulis
500,000
—
—
—
250,000
—
250,000
—
250,000
100,000
100,000
—
1,450,000
Mr Dippenaar
n/a
n/a
n/a
n/a
750,000
—
250,000
—
750,000
350,000
350,000
—
2,450,000
Mr Abery
500,000
—
—
—
250,000
—
250,000
—
750,000
350,000
350,000
—
2,450,000
Mr Davidson
n/a
n/a
n/a
n/a
750,000
—
250,000
—
750,000
350,000
350,000
—
2,450,000
Senior
Management
—
50,000
75,000
23,750
—
84,300
166,388
236,812
4,470,000
2,117,671
3,060,002
500,000
10,783,923
Total
1,000,000
50,000
75,000
23,750
2,000,000
84,300
1,166,388
236,812
6,970,000
3,267,671
4,210,002
500,000
19,583,923
As at 30 June 2011, the total number of Petra shares under option was 19,583,923 (representing 3.9% of the Company’s issued share capital)
of which the number granted to the Directors is 8,800,000 (representing 1.8% of the Company’s issued share capital).
The Company is cognisant of best market practice, including the guidelines of the Association of British Insurers (ABI), and therefore the number
of Petra shares under option is significantly less than 10% of the Company’s issued share capital and the Petra shares under option are
appropriately split between grants to Executive Directors and other employees, including Senior Management.
Shareholding guidelines
It is the Company’s policy that each of the Executive Directors holds a meaningful number of Petra shares, a minimum being equal to one year’s
basic salary for the applicable Director.
Directors’ remuneration
The Board determines the NEDs’ fees in the absence of the relevant NED. The NEDs are paid fees for their services; no bonuses or other
amounts are paid. The following table gives a breakdown of the remuneration of the individual Directors who held office during the year
ended 30 June 2011. Although the Company’s reporting currency is US dollars, these figures are stated in pounds sterling as the Directors’
service contracts denominate the payments in pounds sterling.
Executive Directors
A Pouroulis²
J Dippenaar
D Abery
J Davidson
Non‑Executive Directors
C Segall³
O Kamal
Base
remuneration
£
Non‑cash
benefits¹
£
Performance‑
related bonus
£
2011
Total
£
2010
Total
£
120,000
230,000
230,000
230,000
25,000
35,000
2,129
4,800
4,800
3,792
—
—
90,000
170,000
170,000
170,000
—
—
212,129
404,800
404,800
403,792
1,425,521
25,000
35,000
60,000
216,000
405,000
405,000
405,000
1,431,000
25,000
13,125
38,125
1. Non‑cash benefits comprise contributions made by the Company to the Group life assurance, disability and critical illness scheme.
2. Mr Pouroulis was Executive Chairman for FY 2011 and became Non‑Executive Chairman with effect from 28 November 2011.
3. Mr Segall sadly passed away in July 2011.
C
o
r
p
o
r
a
t
e
G
o
v
e
r
n
a
n
c
e
Annual Report and Accounts 2011 Petra Diamonds Limited
47
Corporate Governance
Directors’ Remuneration Report
Continued
Directors’ service contracts and appointment letters
On 28 November 2011, the Executive Directors each entered into updated employment agreements with the Company. Each of these agreements
is terminable by 12 months’ written notice on either side and contain non‑compete, non‑solicitation and dealing with customers/clients and
non‑solicitation of Directors or senior employees restrictions following termination. In the event of termination by the Company of an Executive
Director’s employment, the contractual Remuneration Package (incorporating base salary and benefits), reflecting the 12 month notice period,
would normally be payable. The Remuneration Committee’s policy is to emphasise the duty of the terminated party to mitigate any loss caused
by the early termination to the fullest extent possible. In these circumstances, any payments may be made on a monthly basis.
On 28 November 2011, the Non‑Executive Directors entered into letters of appointment with the Company. Other than Dr Kamal (who entered into
an updated letter of appointment), the appointments are for an initial term of three years which is terminable by one month’s written notice on
either side at any time and the appointment letter contains appropriate confidentiality provisions. On termination, the Non‑Executive Directors
(other than Dr Kamal) would be entitled to payment of fees for the 1 month contractual notice period. Dr. Kamal’s appointment is terminable on
Al Rajhi Holdings W.L.L ceasing to have a right to appoint a Director under the Al Rajhi Holdings W.L.L. Option Agreement. Dr. Kamal’s appointment
also contains a confidentiality provision.
Details of all Directors’ contracts are summarised below:
Directors
Executive Directors
Mr Dippenaar
Mr Abery
Mr Davidson
Non‑Executive Directors
Mr Pouroulis
Mr Hamilton
Dr Bartlett
Dr Kamal
Date of contract
Unexpired term
Notice period by
Company or Director
28 November 2011
28 November 2011
28 November 2011
28 November 2011
28 November 2011
28 November 2011
28 November 2011
n/a
n/a
n/a
36 months
36 months
36 months
n/a
12 months
12 months
12 months
1 month
1 month
1 month
Pensions
Petra operates a defined benefit scheme and a defined contribution scheme. The defined benefit scheme was acquired as part of the acquisition
of Cullinan Diamond Mine (Pty) Limited and is closed to new members. The assets of the pension schemes are held separately from those of the
Group’s assets.
By order of the Board
Gordon Hamilton
Remuneration Committee Chairman
28 November 2011
48
Petra Diamonds Limited Annual Report and Accounts 2011
Independent Auditor’s Report
To the shareholders of Petra Diamonds Limited
We have audited the financial statements of Petra Diamonds Limited (“Petra”) for the year ended 30 June 2011 which comprise the
Consolidated Income Statement and Consolidated Statement of Other Comprehensive Income, the Consolidated Statement of Changes in Equity,
the Consolidated Statement of Financial Position, the Consolidated Statement of Cashflows and the related notes. The financial reporting
framework that has been applied in their preparation is the Bermuda Companies Act 1981 and International Financial Reporting Standards
as adopted by the European Union (“IFRS”).
Our report has been prepared pursuant to the requirements of the Bermuda Companies Act 1981 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 the Bermuda 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.
Directors’ responsibility for the financial statements
As explained more fully in the Statement of Directors’ Responsibilities, the Directors are responsible for the preparation and fair presentation
of the financial statements in accordance with the Bermuda Companies Act 1981 and IFRS, and for such internal control as the Directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to audit and express an opinion on these financial statements in accordance with the Bermudan Companies Act 1981
and International Standards on Auditing (as issued by the International Federation of Accountants). Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatement.
An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgement, including the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers the internal control relevant to the entity’s preparation of financial statements that
give a true and fair view in order to design repetition audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on financial statements
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group and its
financial performance and cashflows for the year then ended in accordance with IFRS and have been prepared in accordance with the Bermuda
Companies Act 1981.
Report on other legal and regulatory requirements
We read the other information contained in annual report and consider the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements. The other information comprises the three other main sections of Petra’s
2011 Annual Report: the ‘Overview’, the ‘Business Review’ and the ‘Corporate Governance’ section. Our responsibilities do not extend to any
other information.
BDO LLP
Chartered Accountants
London
United Kingdom
28 November 2011
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
49
Financial Statements
Consolidated Income Statement
For the year ended 30 June 2011
US$ million
Revenue
Other income
Total operating income
Fair value uplift on acquisition of Cullinan Investment Holdings Limited (“CIHL”)
Recycling of foreign exchange differences on exploration projects
Total income
Mining and processing costs
Other direct income
Exploration expenditure
Corporate expenditure
Impairment reversal
Impairment charge
Total costs
Financial income
Financial expense
Net financing income
Profit before tax
Income tax (charge)/credit
Profit for the year
Profit for the year attributable to:
Equity holders of the parent company
Non‑controlling interest
Profit per share attributable to the equity holders of the parent during the year
From continuing operations:
Basic profit – US$ cents
Diluted profit – US$ cents
Notes
4
5
6
7
8
9
9
10
11
13
13
2011
220.6
—
220.6
—
—
220.6
(169.7)
2.7
(1.4)
(9.4)
11.7
(5.2)
(171.3)
42.5
(27.4)
15.1
64.4
(5.2)
59.2
53.2
6.0
59.2
12.83
12.35
—
—
2010
163.7
5.4
169.1
31.0
12.3
212.4
(137.7)
2.4
0.2
(8.6)
(143.7)
27.6
(27.3)
0.3
69.0
1.2
70.2
63.5
6.7
70.2
22.65
22.20
50
Petra Diamonds Limited Annual Report and Accounts 2011
Consolidated Statement of Other Comprehensive Income
For the year ended 30 June 2011
US$ million
Profit for the year
Exchange differences recognised on translation of the share‑based payment reserve
Recycling of foreign exchange differences on exploration projects
Exchange differences on translation of foreign operations
Exchange differences on non‑controlling interest
Valuation loss on available‑for‑sale financial asset
Total comprehensive income for the year
Total comprehensive income for the year attributable to:
Equity holders of the parent company
Non‑controlling interest
There is no taxation arising from items of other comprehensive income.
The notes on pages 56 to 96 form part of these financial statements.
2011
59.2
0.2
—
15.4
4.0
(0.4)
78.4
68.4
10.0
78.4
—
2010
70.2
(0.5)
(12.3)
(6.9)
(0.1)
50.4
43.7
6.7
50.4
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
51
Financial Statements
Consolidated Statement of Changes in Equity
For the year ended 30 June 2011
Share
premium
account
Foreign
currency Share‑based
payment
reserve
translation
reserve
347.5
(26.1)
Share
capital
61.4
US$ million
At 1 July 2010
Profit for the year
Other comprehensive income
4% non‑controlling interest purchased
– Koffiefontein (note 3(a))
26% disposal of Helam1
26% disposal of Star1
Transfer between reserves for exercise
of options and warrants
Equity‑settled share‑based payments
Share‑based payments cancelled2
Equity warrants issued3
Allotments during the year:
– Share options exercised
– Warrants exercised
Share issue costs
At 30 June 2011
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
0.4
1.3
—
1.3
10.2
(17.6)
—
15.4
—
—
—
—
—
—
—
—
—
—
—
– Fundraising
21.7
304.2
Other
reserves
Retained
losses
Attributable
to the
parent
Non‑
controlling
interest
Total
equity
(0.1)
(130.0)
257.3
33.6
290.9
—
(0.4)
53.2
—
—
—
—
—
—
—
—
—
—
—
—
0.9
6.0
3.9
4.1
—
—
—
—
—
—
—
53.2
15.2
0.9
6.0
3.9
—
1.9
(0.8)
7.9
325.9
1.7
11.5
(17.6)
6.0
4.0
(1.7)
(6.0)
(3.9)
—
—
—
—
—
—
—
—
59.2
19.2
(0.8)
—
—
—
1.9
(0.8)
7.9
325.9
1.7
11.5
(17.6)
4.6
—
0.2
—
—
—
(4.1)
1.9
(0.8)
7.9
—
—
—
—
84.8
645.6
(10.7)
9.7
(0.5)
(61.9)
667.0
32.0
699.0
1. During the year, the Group disposed of 26% of its shareholding in Helam and Star to Petra’s black economic empowerment (“BEE”) partners which represented a change
in ownership interest in which the Group retained control.
2. Employees received cash payments of US$0.8 million during the year in respect of options cancelled. The payments equate to the fair value at the date of cancellation and
the Group recognised a charge to equity in accordance with IFRS 2 together with the acceleration of the remaining unamortised fair value in respect of the options of
US$0.1 million in the Consolidated Income Statement.
3. The fair value of warrants granted during the year is disclosed in note 28.
The notes on pages 56 to 96 form part of the financial statements.
52
Petra Diamonds Limited Annual Report and Accounts 2011
Consolidated Statement of Changes in Equity
For the year ended 30 June 2011 Continued
Foreign
currency Share‑based
payment
reserve
translation
reserve
Other
reserves
Retained
losses
Attributable
to the
parent
Non‑
controlling
interest
US$ million
At 1 July 2009
Profit for the year
Other comprehensive income
Non‑controlling interest acquired
Equity‑settled share‑based payments
Transfer of equity portion
of convertible bond
Allotments during the year:
– Fundraising
– Settlement of loans and borrowings
– Acquisition of second 50% of CIHL
– Share options exercised
Share issue costs
At 30 June 2010
Share
capital
33.5
Share
premium
account
212.9
—
—
—
—
—
20.0
1.9
6.0
—
—
—
—
—
—
—
99.9
9.0
33.8
0.1
(8.2)
(6.9)
—
(19.2)
—
—
—
—
—
—
—
—
1.8
—
(0.5)
—
1.7
—
—
—
—
—
1.6
4.6
4.0
—
(0.1)
—
—
(197.5)
63.5
—
—
—
(4.0)
4.0
—
—
—
—
—
—
—
—
—
—
47.8
63.5
(19.8)
—
1.7
—
119.9
10.9
39.8
0.1
(6.6)
9.5
6.7
—
17.4
—
—
—
—
—
—
—
Total
equity
57.3
70.2
(19.8)
17.4
1.7
—
119.9
10.9
39.8
0.1
(6.6)
61.4
347.5
(26.1)
(0.1)
(130.0)
257.3
33.6
290.9
Share capital
The share capital comprises the issued ordinary shares of the Company at par.
Share premium account
The share premium account 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
and foreign exchange differences on net investments in foreign operations.
Share‑based payment reserve
The share‑based payment reserve comprises:
U 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;
U the fair value of warrants as measured at grant date and recognised immediately to reflect the vesting conditions; and
U amounts transferred to retained losses in respect of exercised and lapsed warrants and options.
Other reserves
The other reserves comprise the cumulative gains or losses arising from available for sale financial assets of US$0.5 million
(30 June 2010: US$0.1 million).
Retained losses
The retained losses comprise the Group’s cumulative accounting losses incurred since incorporation.
Non‑controlling interest
Non‑controlling interest comprises amounts attributable to third party shareholders in the Cullinan, Kimberley Underground, Koffiefontein, Star,
Helam and Sedibeng mines. The non‑controlling interest of total comprehensive income includes US$10.0 million (30 June 2010: US$6.7 million)
of profit for the year.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
53
Financial Statements
Consolidated Statement of Financial Position
At 30 June 2011
US$ million
ASSETS
Non‑current assets
Property, plant and equipment
Available‑for‑sale financial assets
Loans and other receivables
Total non‑current assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents – unrestricted
Cash and cash equivalents – restricted
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium account
Foreign currency translation reserve
Share‑based payment reserve
Other reserves
Retained losses
Attributable to equity holders of the parent company
Non‑controlling interest
Total equity
LIABILITIES
Non‑current liabilities
Loans and borrowings
Trade and other payables
Provisions
Deferred tax liabilities
Total non‑current liabilities
Current liabilities
Loans and borrowings
Other current liabilities – firm commitment
Trade and other payables
Current tax payable
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2011
2010
14
17
19
18
19
26
20
20
21
22
23
24
25
22
26
23
23
24
501.4
0.4
51.1
552.9
32.9
49.8
6.0
96.9
228.0
413.6
966.5
84.8
645.6
(10.7)
9.7
(0.5)
(61.9)
667.0
32.0
699.0
71.4
29.0
63.1
37.7
201.2
18.7
6.0
39.4
—
2.2
66.3
267.5
966.5
371.0
0.8
32.2
404.0
29.4
23.5
24.8
9.7
87.4
491.4
61.4
347.5
(26.1)
4.6
(0.1)
(130.0)
257.3
33.6
290.9
47.1
23.2
50.0
30.3
150.6
17.4
29.2
1.1
2.2
49.9
200.5
491.4
—
—
The notes on pages 56 to 96 form part of the financial statements.
The financial statements were approved and authorised for issue by the Directors on 28 November 2011.
54
Petra Diamonds Limited Annual Report and Accounts 2011
Consolidated Statement of Cashflows
US$ million
Notes
Profit before taxation for the year from continuing 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
Reversal of impairment
Impairment
Profit on sale of Kono project
Loss/(profit) on sale of property, plant and equipment
Recycling of foreign exchange differences on exploration projects
Release of fair value uplift on sales of inventory acquired through second 50% acquisition of CIHL
Fair value uplift on acquisition of additional 50% of CIHL
(Increase)/decrease in provisions
Finance income
Finance expense
Share‑based payment provision
Payments for share options cancelled
Foreign exchange gain
Operating profit before working capital changes
Increase in trade and other receivables
Increase in trade and other payables
Increase in inventories
Cash generated from operations
Finance expense
Taxation paid
Net cash generated from operating activities
Cashflows from investing activities
Proceeds from sale of property, plant and equipment
Cash acquired with acquisition of subsidiary
Acquisition of assets at Kimberley Underground net of cash
Acquisition of assets at Kimberley Underground pre‑acquisition
Acquisition of 4% interest in Koffiefontein
Finance income
Acquisition of property, plant and equipment
Loans advanced to BEE partners
Transfer to restricted cash deposits
Net cash utilised in investing activities
Cashflows from financing activities
Proceeds from the issuance of share capital
Payment of share placing costs
Increase in non‑current borrowings
Repayment of non‑current borrowings
Repayment of current borrowings
Net cash generated from financing activities
Net 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
10
3
2011
64.4
0.1
22.2
0.1
—
(11.7)
5.2
—
0.3
—
—
—
1.4
(7.7)
11.5
1.9
(0.8)
(18.9)
68.0
(24.8)
12.5
(3.5)
52.2
(1.2)
(0.4)
50.6
0.1
—
0.3
—
(0.8)
2.2
(105.2)
(8.7)
(218.3)
(330.4)
339.1
(17.6)
75.6
(15.0)
(32.3)
349.8
70.0
24.8
2.1
96.9
—
—
—
—
—
—
2010
69.0
0.1
11.6
0.2
1.0
(0.8)
(3.7)
(12.3)
26.4
(31.0)
(2.1)
(7.8)
12.6
0.9
(5.1)
59.0
(0.3)
4.6
(11.2)
52.1
(1.6)
(1.7)
48.8
3.9
0.4
(2.0)
(16.6)
0.4
(33.4)
(5.3)
(52.6)
120.1
(6.6)
(43.8)
(48.0)
21.7
17.9
6.7
0.2
24.8
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
The notes on pages 56 to 96 form part of the financial statements.
Significant non‑cashflow transactions which are not reflected in the Consolidated Statement of Cashflows are set out in note 31.
Annual Report and Accounts 2011 Petra Diamonds Limited
55
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011
1. Accounting policies
Petra Diamonds Limited (“Petra” or “the Company” or “the Group”), a limited liability company quoted on AIM, is registered in Bermuda with
its group management office domiciled in Jersey. The Company’s registered address is 2 Church Street, Hamilton, 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 and IFRIC Interpretations)
issued by the International Accounting Standards Board (“IASB”), as adopted by the European Union (“IFRS”).
Going concern
The Group’s business activities, together with factors likely to affect its future development, performance and position are set out in the CEO’s
Review and the Business Review. The financial position of the Group, its cashflows and borrowing facilities are set out in the CEO’s Review
and the Financial Review. The notes to the financial statements set out the Group’s objectives, policies and processes for managing its capital,
exposures to credit risk and liquidity risk. As detailed in note 22(vii), the Group is to repay the deferred Al Rajhi Holdings W.L.L./Cullinan
consideration of US$18.7 million in December 2011.
The Directors have reviewed the Group’s current cash resources, funding requirements and ongoing trading of the operations. As a result of the
review, the going concern basis has been adopted in preparing the financial statements and the Directors have no reason to believe that the
Group will not be a going concern in the foreseeable future based on forecasts and available cash resources.
Currency reporting
The functional currency of the Company is pounds sterling (GBP) and the functional currency of the Group’s business transactions in Botswana
and Tanzania is US dollars. The functional currency of the South African operations is South African rand (ZAR); reference to transactions in
South African rand in the Annual Report is denoted by an R. The Group financial statements are presented in US dollars. Also refer to the
foreign currency accounting policy in note 1.14. ZAR balances are translated to US dollars at R6.83 (30 June 2010: R7.65) as at 30 June 2011
and at an average rate of R7.00 (30 June 2010: R7.61) for transactions during the year ending 30 June 2011.
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 2010 which have been adopted by the Group for the first time this year:
IAS 32
IFRS 1
IFRS 1
IFRS 2
General
IFRIC 19
Amendment – Classification of Rights Issues
Amendment – First‑time Adopters of IFRS
Additional Exemptions for First‑time Adopters
Amendment – Group Cash‑settled Share‑based Payment Transactions
Improvements to IFRS (2009)
Extinguishing Financial Liabilities with Equity Instruments
Effective period
commencing on or after
1 February 2010
1 July 2010
1 January 2010
1 January 2010
1 January 2010
1 July 2010
Impact on Group
No
No
No
No
No
No
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 2011 or later periods and which the Group has decided not to adopt early. These are:
IAS 24
IFRIC 14
IFRS 7*
IFRS 1*
IAS 12*
IAS 1*
IFRS 9*
IFRS 10*
IFRS 11*
IFRS 12*
IFRS 13*
IFRIC 20
IAS 27*
IAS 28*
IAS 19*
Revised – Related Party Disclosures
Amendment – IAS 19 Limit on a Defined Benefit Asset
Improvements to IFRSs (2010)
Amendment – Transfer of Financial Assets
Amendment – Severe Hyperinflation and Removal of Fixed Dates
for First‑time Adopters
Amendment – Deferred Tax: Recovery of Underlying Assets
Amendment – Presentation of Items of Other Comprehensive Income
Financial Instruments
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Stripping Costs in the Production Phase of a Surface Mine
Amendment – Separate Financial Statements
Amendment – Investments in Associates and Joint Ventures
Amendment – Employee Benefits
* Not yet adopted by the European Union.
The Group is currently assessing the impact of these standards on the financial statements.
Effective period commencing on or after
1 January 2011
1 January 2011
1 January 2011
1 July 2011
1 July 2011
1 January 2012
1 July 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
56
Petra Diamonds Limited Annual Report and Accounts 2011
1. Accounting policies continued
1.3 Basis of consolidation
Subsidiaries
Subsidiaries are those entities over which 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.
Business combinations
The results of business combinations are accounted for using the purchase method. In the Consolidated Statement of Financial Position, the
acquiree’s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of
acquired operations are included in the Consolidated Statement of Other Comprehensive Income from the date on which control is obtained.
Business combinations are deconsolidated from the date control ceases. The interest of non‑controlling shareholders in the acquiree is initially
measured at the non‑controlling shareholders’ proportion of the fair value of the assets, liabilities and contingent liabilities recognised. All costs
incurred on business combinations are charged to the Consolidated Income Statement.
Changes in the Group’s ownership interests that do not result in a loss of control are accounted for as equity transactions.
Non‑controlling interests
Non‑controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity. Non‑controlling interests
consist of the amount of those interests at the date of the original business combination and the non‑controlling shareholder’s share of changes
in equity since the date of the combination. As a result of the revision to IAS 27 “Consolidated and Separate Financial Statements”,
the non‑controlling interests’ share of losses, where applicable, are attributed to the non‑controlling interests irrespective of whether the
non‑controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses.
Associates
An associate is an enterprise over whose financial and operating policies the Group has the power to exercise significant influence and which
is neither a subsidiary nor a joint venture of the Group. The equity method of accounting for associates is adopted in the Group financial
statements. In applying the equity method, account is taken of the Group’s share of accumulated retained earnings and movements in reserves
from the effective date on which an enterprise becomes an associate and up to the effective date of disposal.
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 gains or losses 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
Units of production method
Units of production method
Exploration and other assets:
Plant and machinery
Office equipment
Computer equipment
Motor vehicles
10%–20% straight‑line basis
10% straight‑line basis
25% straight‑line basis
20% straight‑line basis
Mineral properties for the Group’s operating mines, Cullinan, Williamson, Koffiefontein, Kimberley Underground, Helam, Sedibeng and Star are
based on current life of mine plans. The current mine plans indicate useful life of mines of between 12 and 22 years. Resources remaining after
the current life of mine plans have not been included in depreciation calculations.
Cullinan mining assets relating to the C‑Cut block of the mine have not been depreciated as the C‑Cut has not yet been accessed. Assets
transferable to the C‑Cut phase one development are being depreciated over the specific tonnes associated with the identified areas. All other
Cullinan assets are being depreciated over the life of mine of specific areas mined.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
57
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
1. Accounting policies continued
1.4 Property, plant and equipment continued
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.
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.
Surpluses/(deficits) on the disposal of property, plant and equipment are credited/(charged) to the Consolidated Income Statement. The surplus
or deficit is the difference between the net disposal proceeds and the carrying amount of the asset.
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 Consolidated Statement of Financial Position.
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 Exploration and evaluation costs
Exploration and evaluation costs on greenfield sites 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 where upon it is amortised on a unit of
production basis.
Exploration and evaluation expenditure on brownfield sites, being those adjacent to deposits already being mined or where the economic
feasibility of existing deposits has yet to be proven, is capitalised within mineral properties. Amortisation only occurs upon commencement
of commercial production.
1.7 Intangible assets
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. Amortisation is included within mining and processing costs or exploration expenditure as appropriate.
1.8 Impairment
The carrying amounts of the Group’s assets are reviewed at each reporting 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 cashflows 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 Consolidated 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.
Refer to note 9 for detailed disclosure of the results of reversal of impairments and impairment reviews performed. Reversal of impairments and
impairment charges and reversals are credited/(charged) to a separate line item under total costs in the Consolidated Income Statement.
1.9 Financial instruments
Financial assets
The Group classifies its financial assets into one of the following categories and 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 that were not designated and effective for hedge accounting at inception. They are carried
in the Consolidated Statement of Financial Position at fair value with changes in fair value recognised in the Consolidated Income Statement
in the finance income or finance expense line. 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.
58
Petra Diamonds Limited Annual Report and Accounts 2011
1. Accounting policies continued
1.9 Financial instruments continued
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 and loans and other receivables. 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, less
provision for impairment.
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 the Consolidated Statement of Other Comprehensive Income and accumulated in other reserves.
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. The Group only holds quoted investments. Available for sale financial assets are fair valued at each reported date and reviewed as set out
above. As at 30 June 2011 a cumulative loss of US$0.5 million (30 June 2010: loss of US$0.1 million) was recorded in other reserves in respect
of the available‑for‑sale financial assets.
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 that were not designated and effective for hedge accounting at inception
(see Financial Assets on page 58 for “in‑the‑money” derivatives). The liabilities are carried in the Consolidated Statement of Financial Position at fair
value with changes in fair value recognised in the Consolidated Income Statement in the finance income or finance expense line.
Other liabilities
Trade payables and other short‑term and long‑term monetary liabilities
Trade payables and other short‑term and long‑term monetary liabilities, which are initially recognised at fair value, are subsequently carried
at amortised cost using the effective interest method.
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 Consolidated Statement of Financial Position.
“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 that relevant derivative contracts are entered into, the Group may designate the derivative for hedge accounting.
Where a hedge instrument is designated for hedge accounting at inception, the Group formally assesses, at inception and on an ongoing basis,
whether the derivatives are highly effective in offsetting changes in the fair value or cashflows of the hedged item.
Cashflow hedges
Changes in the fair value of a derivative that is effective in offsetting changes in the cashflow of the hedged item, and that is designated and
qualifies as a cashflow hedge, are recognised directly in equity. Changes in the fair value of derivatives that do not qualify for hedge accounting
or were not designated for hedge accounting at inception are recognised in the Consolidated Income Statement. Amounts recognised in equity are
transferred to the Consolidated Income Statement in the Period during which the hedged forecast impacts net profit or loss. Any ineffective element
of a cashflow hedge, which has been designated for hedge accounting, is taken to the Consolidated Income Statement. The Group has not had
any hedging instruments designated as cashflow hedges for hedge accounting as at 30 June 2011 or 30 June 2010.
Fair value hedges
Where derivatives are used to hedge the Group’s exposure to fair value risk and qualify and are designated as fair value hedges, both the
derivative and hedged item are measured at fair value with changes in fair value recognised in the Consolidated Income Statement within
financial income/(expense). During the year, the Group has designated forward currency contracts and restricted foreign currency deposits
as hedging instruments; representing a fair value hedge of the foreign exchange risk on the firm commitment to purchase the Finsch mine. The
hedging instruments are recognised in the Consolidated Statement of Financial Position at fair value and changes in fair value are recognised in the
Consolidated Income Statement. The change in the fair value of the unrecognised firm commitment attributable to the hedged risk (foreign
exchange variation) is recognised as an “other asset/(liability)” and recognised within the Consolidated Income Statement to the extent that the
hedge is effective.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
59
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
1. Accounting policies continued
1.9 Financial instruments continued
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 cashflows 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 Consolidated 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.
Fair value hierarchy
Financial assets and liabilities measured at fair value are classified according to their fair value hierarchy as disclosed in note 26.
1.10 Revenue
Revenue comprises net invoiced diamond sales to customers excluding VAT. Diamond sales are made through a competitive tender process and
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. This is deemed to be the point at which the tender is awarded.
Revenue from test production on projects pending confirmation of commercial viability is credited to revenue and an equal amount charged
to cost of sales and credited to mineral properties so as to record zero margin.
1.11 Finance and other income
Finance and other income comprise income from interest and other non‑operating 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.
1.12 Tax
Current tax comprises tax payable calculated on the basis of the expected taxable income for the year, using the tax rates enacted or substantively
enacted at the reporting 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 Consolidated Income Statement except to the extent that it relates to a transaction that is recognised directly
in Other Comprehensive Income, or a business combination that is an acquisition. The effect on deferred tax of any changes in tax rates
is recognised in the Consolidated Income Statement, except to the extent that it relates to items previously charged or credited directly to Other
Comprehensive Income.
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.
1.13 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 and rehabilitation will generally occur on or after the closure of the mine, 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 Consolidated Income Statement. Annual
increases in the provision due to the unwinding of the discount are recognised as a finance expense. 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.
60
Petra Diamonds Limited Annual Report and Accounts 2011
1. Accounting policies continued
1.14 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 reporting date. Gains and losses arising on translation are credited to,
or charged against, income. The issue of shares are included in share capital and share premium at the prevailing US$/sterling spot rate at the
date of the transaction.
Financial statements of foreign entities
Assets and liabilities of foreign entities (i.e. those with a functional currency other than US$) are translated at rates of exchange ruling at the
financial year end; income and expenditure and cashflow items are translated at rates of exchange ruling at the date of the transaction or at rates
approximating the rates of exchange at the date of the translation where appropriate. 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 reporting date. Exchange
differences arising from the translation of foreign entities are taken directly to a foreign currency translation reserve.
Foreign operations
Unrealised gains and losses arising on the translation of loans to subsidiaries into the currency in which they are denominated and that are not
expected to be repaid in the foreseeable future are treated as part of the net investment in foreign operations. The unrealised foreign exchange gains
and losses attributable to foreign operations are taken directly to the Consolidated Statement of Other Comprehensive Income and reflected in
the foreign currency translation reserve.
Unrealised gains and losses arising on the translation of loans to subsidiaries into the currency in which they are denominated and that
are expected to be repaid in the foreseeable future are recognised in the Consolidated Income Statement.
1.15 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 reporting date. The provisions have been calculated based on current wage and salary rates.
1.16 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. Restricted cash represents amounts held by banks as
a guarantee in respect of environmental rehabilitation obligations in respect of the Group’s South African mines and deposits held in escrow
accounts not freely available to the Group.
1.17 Employee pension schemes
Defined contribution scheme
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the Consolidated Income Statement
as incurred.
Defined benefit scheme
The defined benefit liability or asset recognised in the financial statements represents the present value of the defined benefit obligation
as adjusted for unrecognised actuarial gains and losses and unrecognised past service costs, and reduced by the fair value of plan assets.
Any net asset recognised is limited to unrecognised actuarial losses, plus the present value of available refunds and any reduction in future
contributions that the Company is entitled to in terms of Section 15E of the Pension Funds Act in South Africa.
Actuarial gains and losses are recognised to the extent that, at the beginning of the financial period, any cumulative unrecognised actuarial gain
or loss exceeds 10% of the greater of the present value of the projected benefit obligation and the fair value of the plan assets (“the corridor”),
that portion is recognised in the Consolidated Statement of Other Comprehensive Income over the expected average remaining service lives
of participating employees. Actuarial gains or losses within the corridor are not recognised.
The actuarial calculation is performed by a qualified actuary using the projected unit credit method.
1.18 Post‑retirement medical fund
The Group operates a post‑retirement medical fund, which is unfunded and therefore recognised as a liability on the Consolidated Statement
of Financial Position within provisions. The liability is based on an actuarial valuation performed at each year‑end reporting date.
1.19 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.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
61
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
1. Accounting policies continued
1.20 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.
1.21 Convertible notes
Convertible notes that can be converted to share capital at the option of the holder, where the number of shares issued does not vary with changes
in their fair value, are accounted for as compound financial instruments and are accordingly split between debt and equity 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 cashflows, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion
option. The interest expense recognised in the Consolidated Income Statement is calculated using the effective interest rate method (also see
interest‑bearing borrowings in note 1.9).
1.22 Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing mining or exploration activities, or in providing
products or services within a particular economic environment, which is subject to risks and rewards that are different from those of other
segments. The basis of segment reporting is representative of the internal structure used for management reporting.
1.23 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.
1.24 Critical assumptions 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 management’s historical experience and other 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.
Judgements
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, rough diamond and other 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 reserves and potential impairment to the carrying value of the mining assets and life of mine. The determination of the life of mine and
ore reserves also impacts the depreciation of mining assets depreciated on a unit of production basis, as set out in note 1.4.
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, future development and production costs. Changes in estimates used can result in significant
changes to the Consolidated Income Statement. The policy in respect of impairment reviews is set out in note 1.8 and details of impairment
reviews carried out during the year are set out in note 9.
Taxation judgement
The Group has received a number of historical tax claims in respect of its mining operations, relating to the period prior to the operations
being acquired by the Group. Judgement is applied by management, having consulted with local tax advisers, on the probability of payments
being made to settle the claims. A provision of US$2.2 million (30 June 2010: US$2.2 million) has been made in respect of these claims.
Capitalisation of feasibility and development costs at the Williamson mine
Judgement has been applied by management during the prior year in determining whether feasibility expenditure should be capitalised or
expensed. The Group embarked on a feasibility study at the Williamson mine through an intensive bulk sampling programme with a view to better
understanding the ore‑body. This was done to optimise the design of the treatment plant to further increase production in the future. Based on
management’s judgements, direct expenditure was considered to be capital in nature and was capitalised on the basis that the future economic
benefits of the mining assets were expected to flow to the Group in line with guidance from IAS 16. All other costs are expensed as care and
maintenance costs. During the current year, the Group incurred costs as part of its refurbishment and expansion project to upgrade the plant.
All direct costs incurred by the Group, including internal development costs, which are directly attributable to bringing the asset into use and
which increase the future economic benefits that will flow to the Group, have been capitalised.
62
Petra Diamonds Limited Annual Report and Accounts 2011
1. Accounting policies continued
1.24 Critical assumptions and judgements continued
Assumptions and estimates
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 range of 8%–9% (30 June 2010: 6%–9%), current life of mine plans of 11 to 53 years
(30 June 2010: 11 to 53 years) and an inflation rate range of 6.9%–7.0% (30 June 2010: 5.5%–7.0%). The carrying value of rehabilitation
provisions at the reporting date is US$55.8 million (30 June 2010: US$44.7 million).
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 Consolidated Income Statement in respect
of share‑based payments for the year is US$1.9 million (30 June 2010: US$1.7 million).
Valuation of warrants
In determining the fair value of warrants issued during the year, a number of assumptions have been made by management. The details
of these assumptions are set out in note 28. The fair value of the warrants is debited against pre‑payments until such time as the loan is drawn
down. When the loan is drawn down, the fair value is debited against the interest bearing non‑current borrowings and the effective interest rate
and associated accretion charges adjusted accordingly. The fair value of the warrants for the year is US$7.9 million (30 June 2010: US$nil) of which
US$6.8 million (30 June 2010: US$nil) has been debited against the interest‑bearing non‑current borrowings.
During FY 2010, a number of assumptions were made by management in respect of warrants issued as part of a capital raising exercise.
The details of these assumptions are set out in note 28. The fair value of the warrants (US$1.6 million) was debited against the share
premium account, being a directly attributable cost of the capital raising exercise.
Deferred tax
Judgement is applied in making assumptions about future taxable income, including diamond prices, production, rehabilitation costs
and expenditure to determine the extent to which the Group recognises deferred tax assets.
2. Segment information
Segment information is presented in respect of the Group’s operating and geographical segments:
Mining – the extraction and sale of rough diamonds from mining operations in South Africa and Tanzania.
Exploration – exploration activities in Botswana. In the prior year, the Group exited from exploration activities in Sierra Leone as a result
of the disposal of its interest in Basama Diamonds Ltd. The Group exited from exploration activities in Angola during FY 2009 and realised profits
on disposal of HS Angolan assets in FY 2010.
Segments are based on the Group’s management and internal reporting structure. Management reviews the Group’s performance by reviewing
the results of the mining activities in South Africa and Tanzania, reviewing the results of the exploration activities in Botswana and reviewing the
corporate administration expenses in Jersey. Each segment derives, or aims to derive, its revenue from diamond mining and diamond sales,
except for the corporate and administration cost centre.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.
Segment results are calculated after charging direct mining costs and depreciation. Unallocated items comprise mainly interest‑earning assets
and income, interest‑bearing borrowings and expenses, and corporate assets and expenses. Segment capital expenditure is the total cost
incurred during the Period to acquire or construct segment assets that are expected to be used for more than one period. Eliminations comprise
transactions between Group companies that are cancelled on consolidation. The results are not materially affected by seasonal variations.
Revenues are generated from tenders held in Johannesburg and Antwerp for external customers from various countries, the ultimate customers
of which are not known to the Group.
The Group’s non‑current assets are located in South Africa US$472.5 million (30 June 2010: US$358.6 million), Tanzania US$79.9 million
(30 June 2010: US$44.6 million) and Jersey US$0.5 million (30 June 2010: US$0.8 million).
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
63
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
2. Segment information continued
Operating segments
US$ million
Revenue
Segment result
Other income/(expense)
Operating profit/(loss)
Reversal of impairment – Fissures
Impairment – Fissures
Financial income
Financial expense
Income tax expense
Non‑controlling interest
Profit attributable to equity holders
of the parent company
Segment assets
Segment liabilities
Share‑based payments
Capital expenditure
South Africa – mining activities
Kimberley
Cullinan Koffiefontein Underground
2011
18.2
(0.3)
(0.4)
(0.7)
2011
140.2
47.0
1.9
48.9
2011
30.8
(1.2)
0.5
(0.7)
Tanzania –
mining
activities
Botswana
Corporate
Fissures Williamson
2011
9.5
(6.8)
0.3
(6.5)
2011
21.8
(5.4)
0.4
(5.0)
11.7
(5.2)
2011
—
12.1
—
12.1
2011
—
(1.5)
—
(1.5)
2011
0.1
(3.8)
—
(3.8)
Exploration administration Inter‑segment Consolidated
2011
220.6
40.1
2.7
42.8
11.7
(5.2)
42.5
(27.4)
(5.2)
(5.9)
409.7
199.3
0.2
33.9
57.7
30.1
0.2
11.0
71.5
77.9
—
13.0
110.1
140.5
0.1
16.2
90.0
196.0
0.1
36.6
8.8
27.2
—
—
1,000.7
320.2
1.3
0.2
(782.0)
(723.7)
—
—
59.2
966.5
267.5
1.9
110.9
Capital expenditure at the Helam Projects internal equipment manufacturing operation (a division within the Fissure operations) includes
work‑in‑progress of US$11.0 million in respect of the manufacture of plant and equipment for other mines within the Group. Other income
in respect of the Fissure mines includes US$21.2 million of revenue and US$21.4 million of costs in respect of Helam projects for the manufacture of plant
and equipment for other mines within the Group. Segment assets and liabilities include inter‑company receivables and payables which are eliminated
on consolidation. Capital expenditure at Williamson includes US$35.8 million of cash costs capitalised in respect of the plant rebuild and
expansion programme.
Operating segments
US$ million
Revenue
Segment result
Other income
Operating profit/(loss)
Fair value uplift on CIHL acquisition
Recycling of foreign exchange differences
on exploration projects
Financial income
Financial expense
Income tax credit
Non‑controlling interest
Profit attributable to equity holders
of the parent company
Segment assets
Segment liabilities
Share‑based payments
Capital expenditure
320.4
177.4
0.3
17.3
South Africa – mining activities
Kimberley
Cullinan Koffiefontein Underground
2010
—
(4.9)
0.2
(4.7)
2010
112.7
24.2
1.2
25.4
2010
22.8
0.2
0.6
0.8
Tanzania –
mining
activities
Angola
Botswana
Sierra Leone
Corporate
Fissures Williamson
2010
14.4
(6.0)
0.3
(5.7)
2010
13.5
(5.4)
0.1
(5.3)
Exploration administration Inter‑segment Consolidated
2010
163.7
17.6
7.8
25.4
31.0
2010
—
(1.9)
0.5
(1.4)
2010
0.3
11.4
4.2
15.6
2010
—
—
0.7
0.7
65.6
40.9
0.2
4.6
47.5
54.4
—
19.6
83.6
112.4
0.2
2.5
48.9
144.3
0.1
11.6
7.2
37.9
—
—
601.4
213.6
0.9
0.1
(683.2)
(580.4)
—
(5.9)
12.3
27.6
(27.3)
1.2
(6.7)
63.5
491.4
200.5
1.7
49.8
Capital expenditure at Kimberley Underground includes US$16.4 million of capital expenditure incurred prior to acquisition. Capital expenditure
at Williamson includes US$7.8 million of feasibility costs capitalised. Other income in respect of the Fissure mines includes US$15.8 million of
revenue and US$15.1 million of costs in respect of the manufacture of plant and equipment for other mines within the Group. Segment assets
and liabilities include inter‑company receivables and payables which are eliminated on consolidation.
64
Petra Diamonds Limited Annual Report and Accounts 2011
3. Acquisitions
30 June 2011
(a) Increase in effective interest in the Koffiefontein mine to 74%
On 10 December 2010, the Company increased its effective interest in the Koffiefontein mine in South Africa from 70% to 74% for a cash
consideration of R6.0 million (US$0.8 million).
The additional 4% interest in Koffiefontein was purchased by Blue Diamond Mines (Pty) Ltd, a wholly owned subsidiary of the Company, through
the acquisition of a shareholding in Re‑Teng Diamonds (Pty) Ltd, the holding company of Petra’s BEE partners at Koffiefontein; the interests in
Koffiefontein are now Petra 74%, BEE partners 26%.
In the year to 30 June 2011, Koffiefontein recorded a net loss before taxation of R1.4 million (US$0.2 million). If the acquisition had occurred on
1 July 2010, the Group’s share of the loss from the Koffiefontein mine for the year to 30 June 2011 would have increased by R0.06 million
(US$0.01 million) and the non‑controlling interest share would have reduced accordingly.
Effect of the acquisition
The purchase had the following effect on the Group’s assets and liabilities:
Koffiefontein net assets at acquisition date
US$ million
Book value of net assets at 10 December 2010
Book value of 4% interest acquired
Fair value of consideration paid:
– Settled in cash
Excess of carrying value of 4% interest purchased over fair value consideration paid
43.8
1.7
0.8
0.9
In accordance with IAS 27, as the purchase represents a transaction with existing shareholders which has not resulted in the gain or loss
of control, the carrying value of the 4% interest acquired of US$1.7 million as at 10 December 2010 has been deducted from the Group’s
non‑controlling interest balance relating to Koffiefontein. The US$0.9 million excess of the carrying value of the 4% acquired in Koffiefontein
over the fair value consideration of US$0.8 million has been recognised directly in equity and attributed to the Group.
30 June 2010
(b) Investment in the Cullinan mine
On 15 July 2008 Petra, as a shareholder in CIHL, acquired a 37% interest in the Cullinan mine in South Africa. Petra held a 50% interest
in, and jointly controlled, CIHL. CIHL has a 74% interest in, and controls, Cullinan Diamond Mine (Pty) Ltd, the company which acquired the
assets and liabilities of the Cullinan mine from De Beers Consolidated Mines Ltd (“DBCM”); CIHL consolidates the Cullinan operations and
recognises a 26% non‑controlling interest, being the interests of Petra’s BEE partners in the Cullinan mine. In the Period ending 30 June 2009,
the Group used the proportionate method of consolidation and therefore reflected 50% of the Cullinan operating results, assets and liabilities,
and a 13% non‑controlling interest.
On 17 December 2009, the Company acquired Al Rajhi Holdings W.L.L.’s (“Al Rajhi”) 50% interest in CIHL, which in turn increased Petra’s
ownership in the mine to 74%. On acquisition of Al Rajhi’s 50% interest in CIHL, the Company assumed responsibility for the US$80.0 million
Cullinan loan (plus accrued interest of approximately US$9.6 million) that was due to Al Rajhi. The consideration was satisfied by the issue of
36 million Petra shares (fair value of US$39.8 million based on the prevailing share price at the transaction date) and a deferred consideration of
US$35.0 million payable by December 2011. The deferred consideration has been discounted over a period of 24 months using a discount factor
of 6% to US$31.0 million at acquisition. The discounted deferred consideration balance is being accreted over the period of 24 months to the full
settlement value of US$35.0 million. During the year, the Group settled US$15.0 million of the deferred consideration and the discounted liability
was adjusted accordingly. After this US$15.0 million payment, the balance of the deferred consideration that is payable by 31 December 2011
is US$20.0 million.
There are two elements to the accounting for the transaction to acquire Al Rajhi’s 50% interest. Under IFRS 3 (revised), the transaction
was accounted for as a stepped acquisition. Petra’s original equity interest in CIHL has been revalued to fair value (based upon the fair value
of the purchase consideration of the second 50%) of US$71.0 million as at the date of the acquisition of the second 50%, resulting in an income
statement gain of US$31.0 million as reflected on the income statement as the fair value uplift on the acquisition of CIHL.
The second 50% of CIHL acquired was recognised at fair value on the acquisition date. The fair value of the consideration paid was used as the best
estimate of the fair value of the net assets acquired; this gave rise to a fair value adjustment of US$61.8 million to the mining property, plant and
equipment, mineral properties, and inventory (deferred taxation was provided on the fair value adjustment). The Group now has a 100% interest
in CIHL, which has a 74% interest in and controls the Cullinan operations; CIHL consolidates the Cullinan operations and reflects a 26%
non‑controlling interest. The Group therefore now also consolidates the Cullinan mine as a subsidiary with a 26% non‑controlling interest.
Full consolidation commenced on the acquisition date of 17 November 2009, being the date on which control passed. The passing of control
occurred prior to the formal completion of the transaction. Prior to this date, the Group used the gross method of proportional consolidation.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
65
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
3. Acquisitions continued
30 June 2010 continued
(b) Investment in the Cullinan mine continued
In the 12 months to 30 June 2010, the CIHL group recorded a net profit before taxation of US$57.5 million. If the acquisition had occurred
on 1 July 2009, the Group’s profit from the CIHL group for the Period ending 30 June 2010 would have increased by US$1.4 million. The underlying
Cullinan mine generated revenue for the 12 months to 30 June 2010 of R966.9 million (US$127.0 million) and revenue of R748.6 million
(US$98.3 million) since the date of the acquisition of the second 50% of CIHL. Costs associated with the acquisition have been expensed in full
in the income statement.
Effect of the acquisition
The acquisition had the following effect on the Group’s assets and liabilities:
CIHL net assets at acquisition date
US$ million
Mining property, plant and equipment, mineral properties and inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax
Environmental liabilities
Long‑term payables
Employee related payables
Trade and other payables
Net assets acquired
Non‑controlling interest
Fair value of assets attributable to the parent company
Satisfied as follows:
– Consideration satisfied in shares
– Present value of deferred loan consideration
– Fair value of initial 37% equity stake
Fair value cost of business combination
Book
values
166.8
87.2
0.8
5.2
(15.0)
(131.0)
(11.1)
(11.3)
91.6
Fair value
adjustments
85.9
—
—
(24.1)
—
—
—
—
61.8
Fair
values
252.7
87.2
0.8
(18.9)
(15.0)
(131.0)
(11.1)
(11.3)
153.4
(11.6)
141.8
39.8
31.0
71.0
141.8
(c) Acquisition of the Kimberley Underground mines assets
On 19 May 2010, the Company announced the completion of its previously announced transaction with DBCM to acquire the mining and
associated assets (“Assets”) previously used by DBCM in the operation of the Kimberley Underground diamond mines in Kimberley, South Africa.
The Company and DBCM entered into the agreement for the sale of the Kimberley Underground Assets in September 2007, however the
transaction took longer than originally anticipated to complete due to complexities related to the New Order Mining Right, which have now been
completely resolved.
The consideration of R78.5 million (US$10.4 million) was settled by Petra assuming DBCM’s rehabilitation obligations with regards
to Kimberley Underground of R63.5 million (US$8.4 million) and the payment in cash by Petra to DBCM of R15.0 million (US$2.0 million).
During the period from September 2007 to the date of acquisition, certain pre‑acquisition expenditure was capitalised on the basis that
the future economic benefits of the mining assets were expected to flow to the Group as disclosed in note 1.4 of the financial statements
for the year ending 30 June 2009. All other costs were expensed as care and maintenance costs. Care and maintenance costs of R53.9 million
(US$7.1 million) were expensed. Costs related to ore stockpiles of R37.6 million (US$4.9 million) and fixed assets costs of R204.6 million
(US$27.0 million) were included in inventory and fixed assets respectively and treated as part of the consideration paid, as set out in the
table below.
As set out above, the Group incurred care and maintenance costs in respect of the Kimberley Underground mine in the pre‑acquisition period;
these care and maintenance costs would have given rise to a loss before taxation of the same amount. In the 12 months to 30 June 2010,
Kimberley Underground incurred care and maintenance costs of US$2.1 million which were recorded in the books of the Group. Therefore
if the acquisition had occurred on 1 July 2009 there would have been no change to the losses recorded in respect of Kimberley Underground.
Kimberley Underground recorded no revenues in the pre or post‑acquisition period.
66
Petra Diamonds Limited Annual Report and Accounts 2011
3. Acquisitions continued
30 June 2010 continued
(c) Acquisition of the Kimberley Underground mines assets continued
Effect of the acquisition
The acquisition had the following effect on the Group’s assets and liabilities:
Kimberley Underground net assets at acquisition date
US$ million
Mining property, plant and equipment, mineral properties and inventories
Trade and other receivables
Cash and cash equivalents
Deferred tax
Environmental liabilities
Trade and other payables
Net assets acquired
Non‑controlling interest
Fair value of assets attributable to the parent company
Satisfied as follows:
– Consideration satisfied in cash
– Expenditure capitalised
– Contribution from non‑controlling interests
Fair value cost of business combination
Book
values at
acquisition
date
10.0
—
—
—
(8.4)
—
1.6
Pre‑
acquisition
expenditure
capitalised
31.9
1.8
0.1
—
—
(11.8)
22.0
Total
acquired
book
Fair value
values adjustments
0.5
41.9
—
1.8
—
0.1
(0.1)
—
—
(8.4)
—
(11.8)
0.4
23.6
Fair
values
42.4
1.8
0.1
(0.1)
(8.4)
(11.8)
24.0
(6.2)
17.8
2.0
22.0
(6.2)
17.8
Judgement was applied by management in determining whether pre‑acquisition expenditure should be capitalised or expensed. Management
exercised judgement based on whether the Group exercised control over the asset, a consideration of guidance from IAS 11, and an assessment of
the nature of the expenditure which was incurred to bring the mining asset back into a condition in which it can be utilised for mining and
production. Based on management’s judgements, expenditure was considered to be capital in nature and was capitalised on the basis that the
future economic benefits of the mining assets are expected to flow to the Group. All other costs were expensed as care and maintenance costs.
The Group has capitalised and expensed pre‑acquisition costs during the year as set out above.
(d) Acquisition of subsidiary Williamson Diamond Mine (“Williamson”)
On 10 November 2008, Petra acquired the entire share capital of Wilcroft Company Ltd from Cheviot Holdings, a wholly owned subsidiary of
De Beers Société Anonyme (“De Beers”) for a cash consideration of US$10 million. A fair value adjustment of US$5.7 million to mineral
properties arose at the date of acquisition as a result of the premium attributable to the mineral properties purchased (grossed up for deferred
taxation) from De Beers. During the Period ending 30 June 2010, the mineral properties fair value adjustment of US$5.7 million was increased
to US$7.1 million gross of tax as a result of a review of the acquisition book values for trade and other receivables and inventories.
The Company continued with the feasibility study at Williamson until 31 March 2010 at which point management considered the feasibility study
to be substantially complete and had achieved sufficient understanding of the orebody and plant requirements. To the date that the feasibility
was confirmed, all direct costs net of associated revenue were capitalised as part of the Williamson feasibility project. Subsequently, having
confirmed the commercial feasibility, a programme of plant rebuild and expansion commenced and direct costs associated with the plant rebuild
and expansion have been capitalised. The plant rebuild costs are capitalised when the works are considered to have enhanced the economic
returns of the asset. Williamson generated revenue for the 12 months to 30 June 2010 of US$14.4 million.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
67
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
3. Acquisitions continued
30 June 2010 continued
(d) Acquisition of subsidiary Williamson Diamond Mine (“Williamson”) continued
Effect of the acquisition
The effect of the fair value adjustment on acquisition had the following effect on the Group’s assets and liabilities:
Williamson net assets at acquisition date (revised)
US$ million
Fair value of net assets of entity acquired
Mining property, plant and equipment
Mineral properties
Trade and other receivables
Inventory
Cash assets
Deferred tax
Environmental liabilities
Trade and other payables
Inter‑group loans
Consideration amount satisfied in cash
Book
values
18.8
—
4.3
6.4
1.2
—
(11.0)
(8.3)
(97.9)
(86.5)
Fair value
adjustments
—
7.1
(0.8)
(3.8)
—
(1.7)
—
(2.2)
97.9
96.5
Fair
values
18.8
7.1
3.5
2.6
1.2
(1.7)
(11.0)
(10.5)
—
10.0
(e) Disposal of interest in the Kono project
On 4 May 2010, Petra announced that it had reached agreement with Stellar Diamonds plc (“Stellar”) to exchange its interest in the Kono Diamond
Project (“Kono”) in Sierra Leone for shares in Stellar, the project’s joint venture partner. The Kono kimberlite fissure project, whilst at an advanced
stage of exploration and demonstrating positive project parameters, was not of a suitable scale to contribute to the Group’s objective on
delivering substantial production and revenue growth from its portfolio of assets. Kono had no carrying value in Petra’s Consolidated Statement
of Financial Position and therefore there were no impairments to be recognised by Petra with regards to the divestment.
The terms of the acquisition were that Stellar issue to Petra 4,500,000 new ordinary Stellar shares (at a price of £0.14 per share) for a total
consideration of £0.6 million (US$0.9 million) in return for Petra’s interest in Kono, held via joint venture company Basama Diamonds Ltd. As a
result of the Stellar shares being issued to Petra, Petra became a 4.45% shareholder in Stellar. Petra has agreed (subject to certain exceptions) not to
dispose of any of the Stellar shares for 12 months from the date of completion of the transaction, which was 24 May 2010. As part of the
transaction both Petra and Stellar agreed to form a cooperation agreement whereby Stellar will give Petra the first option to joint venture any
project in the Stellar portfolio which Stellar seeks to develop with a partner. Petra’s interest in the Kono project was fully impaired as at 30 June 2009
and therefore 100% of the consideration was recorded as a gain in other income of US$0.9 million (£0.6 million).
4. Other income
US$ million
Profit on sale of residual Angolan assets
Profit on sale of interest in the Kono project
Management and consulting fees
5. Mining and processing costs
US$ million
Raw materials and consumables used
Employee expenses
Depreciation of mining assets
Changes in inventory of finished goods
6. Other direct (income)
US$ million
Loss on disposal of fixed assets
Care and maintenance
Other mining income
68
Petra Diamonds Limited Annual Report and Accounts 2011
2011
—
—
—
—
2011
77.7
75.0
22.2
(5.2)
169.7
2011
0.3
—
(3.0)
(2.7)
2010
3.7
0.9
0.8
5.4
2010
77.5
53.9
11.6
(5.3)
137.7
2010
0.1
2.0
(4.5)
(2.4)
7. Exploration expenditure
US$ million
Employee expenses
Depreciation of exploration assets
Amortisation of intangible assets
Drilling and air survey expenses
Rental and equipment hire
Other exploration expenses
2011
0.5
0.1
—
0.5
0.1
0.2
1.4
2010
0.5
0.1
1.0
0.1
0.1
(2.0)
(0.2)
The credit of US$2.0 million to other exploration expenses in the prior year relates to the reversal of a provision for closure costs in Angola;
the Angolan assets were sold during FY 2010 which resulted in a much lower level of costs being incurred than originally anticipated.
8. Corporate expenditure
US$ million
Auditors’ remuneration:
– Audit services
– Non‑audit services
Depreciation of property, plant and equipment
Operating lease rentals – buildings
Staff costs
Other charges
Share‑based payments:
– Directors
– Senior Management
2011
0.4
0.1
0.1
0.4
4.3
2.8
0.6
0.7
9.4
—
2010
0.4
0.2
0.4
3.6
3.1
0.7
0.2
8.6
In addition to the above, the audit fee payable in 2012 in respect of the 2011 audit by the Group to its current auditors is US$0.5 million.
All share‑based payments are in respect of equity‑settled share option schemes as stated in note 28.
9. Impairment and reversal of impairments of operational assets and investments
In accordance with IAS 36 “Impairment of Assets”, when events or changes in market conditions indicate that tangible or intangible assets may
be impaired, such assets are reviewed in detail to determine whether their carrying value is higher than their recoverable value, which could lead
to recording an impairment loss (recoverable value is the higher of value in use and fair value less costs to sell). Value in use is estimated by
calculating the present value of the future cashflows expected to be derived from the asset. Fair value less costs to sell is based on the most
reliable information available (market statistics, recent transactions, etc.). The discounted cashflow basis has been used to calculate a value in use
for the mining operations for those mines for which value in use exceeds fair value less cost to sell.
Impaired assets are reviewed annually to determine whether any substantial change to their fair value amounts previously impaired would
require reversal.
When determining recoverable values of investments and property, plant and equipment, assumptions and estimates are made, based
primarily on historical performance, market outlooks, obsolescence and sale or liquidation disposal values. Any change in these assumptions can
have a significant effect on the recoverable amount and could lead to a revision of recorded impairment losses.
30 June 2011
During the year to 30 June 2011, the Group has reviewed the carrying values of its investments and operational assets for indicators of impairment
and, following that assessment, a reversal of a prior impairment to Helam’s property, plant and equipment and a further impairment to Star’s
property, plant and equipment is considered to be appropriate. The reversal of previous impairment charges at Helam reflects improved diamond
prices, production and cashflows and has been determined net of depreciation which would have arisen if the asset had not been impaired.
The additional impairment to Star reflects continued production levels which are insufficient to support the carrying value on a value in use basis.
The impairment of Star has been determined based on fair value less costs to sell which is considered to exceed value in use. Impairment reversals
of US$11.7 million (30 June 2010: US$nil) have been recorded in the income statement for 2011 in respect of Helam’s assets. Impairment
charges of US$5.2 million have been recorded in the income statement in respect of Star’s assets for 2011 (30 June 2010: US$nil).
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
69
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
9. Impairment and reversal of impairments of operational assets and investments continued
30 June 2011 continued
Impairment reversal
US$ million
Helam Mining (Pty) Ltd
Segment
Fissure mines
Asset class
Property, plant and equipment
Mineral properties
Underground development
Buildings
Mining property, plant and equipment
Forex movement
Subtotal
Net book
Reversal of
value¹ impairment
15.2
9.0
7.4
4.8
1.0
2.0
(3.5)
11.7
—
9.0
Carrying
value
24.2
(3.5)
20.7
1. Net book value refers to the carrying value of the amounts including the previous impairments.
2. Helam’s assets were previously impaired in December 2008 by US$12.9 million (R114.5 million) using an exchange rate of US$1:R8.87. In FY 2011 the initial impairment of
R114.5 million in the subsidiary was reversed less depreciation that would have been incurred had the impairment never taken place. The resulting impairment reversal was
US$15.2 million (R103.7 million) using an exchange rate of US$1:R6.83. US$3.5 million of the reversal has been recognised in the foreign currency translation reserve to
take into account the movement in the foreign exchange rate from the date of the initial impairment to date of the reversal when translating the rand value to US dollars,
with US$11.7 million recognised as an income statement gain.
Operational assets impaired
US$ million
Star Diamonds (Pty) Ltd
Subtotal
Net impairment reversal – Helam and Star
Asset class
Property, plant and equipment
Underground development
Land and buildings
Mining property, plant and equipment
Segment
Fissure mines
Net book
value
7.0
7.0
Impairment
raised
(5.2)
(1.7)
(2.1)
(1.4)
(5.2)
6.5
Carrying
value
1.8
1.8
30 June 2010
During the year to 30 June 2010, the Group reviewed the carrying values of its investments and operational assets for indicators of impairment and
following that assessment no impairment of investments, property, plant and equipment or reversal of impairment losses incurred in prior periods was
considered appropriate. This assessment was based on the assumptions set out in notes 9.1 and 9.2. Impairments of US$nil were recorded in 2010.
9.1 Impairment testing assumptions
a) Helam Mining (Pty) Ltd and Star Diamonds (Pty) Ltd
The key assumptions used in determining the recoverable value calculations for Helam, determined on a value in use basis, are listed in the table
below in respect of the years ending 30 June 2011 and 30 June 2010:
Key assumptions
Recoverable value of reserves and resources
Diamond prices
Discount rate
Inflation rate
Exchange rates
Life of mine
Stay in business capital expenditure
Valuation basis
Sensitivity
Explanation
Economically recoverable reserves and resources are based on management’s expectations based on
the availability of reserves at mine sites and technical studies undertaken in‑house and by third party
specialists. Refer to “Life of mine” below for further information.
Long‑term diamond prices are based on prevailing market conditions and the last available diamond
tender price. The US$/carat price used in the calculations was US$185 (30 June 2010: US$90).
The discount rate used represents the before tax risk free rate per the RSA Government bonds adjusted
for market risk and volatility.
Long‑term inflation rate of 4% (30 June 2010: 0%) above a long‑term US inflation rate of
2.5% (30 June 2010: 2.5%) per annum was used for US$ diamond prices. Long‑term inflation
rate of 3.5% (30 June 2010: 3.5%) above the prevailing US inflation rate was used for
Opex and capex valuations.
Exchange rates are based on external market consensus and after considering long‑term market
expectations. The US$/ZAR exchange rate range used commenced at R6.99 (30 June 2009: R7.60);
further devaluing at 3.5% (30 June 2010: 3.5%) per annum.
20 years (30 June 2010: 21 years) life of mine; total extractable resource 2.03 Mt (30 June 2010: 2.6 Mt)
at extraction rate of 101 Ktpa (30 June 2010: 125 Ktpa).
Management has estimated the timing of the capital expenditure based on the Group’s current and
future financing plans for the operation.
Discounted present value of future cashflows.
Management does not consider there to be any reasonable change in assumption which may give rise
to an impairment loss.
70
Petra Diamonds Limited Annual Report and Accounts 2011
9. Impairment and reversal of impairments of operational assets and investments continued
30 June 2010 continued
9.1 Impairment testing assumptions continued
a) Helam Mining (Pty) Ltd and Star Diamonds (Pty) Ltd continued
Star’s impairment has been determined based on the recoverable amount at 30 June 2011. The Directors have assessed the recoverable amount
using fair value less costs to sell. The carrying value of assets was determined with reference to the plant and equipment that management
considers to be saleable or transferrable to other mines within the Group for use in a manner which will generate sufficient future economic
value to support the carrying value of those specific assets. The carrying value of these assets approximates fair value less cost to sell for the cash
generating unit.
9.2 Impairment tests – other mining operations
The Group performs impairment testing on an annual basis of all operations and when there are potential indicators which may require
impairment. In addition to Helam Mining (Pty) Ltd and Star Diamonds (Pty) Ltd, the Group also performed impairment testing for Cullinan
Diamond Mine (Pty) Ltd, Koffiefontein Mine JV, Kimberley Underground Mines JV, Sedibeng JV and Williamson Diamonds Ltd. The results
of the impairment testing performed did not indicate any additional impairments on the remaining mining operations. The key assumptions used
in determining the recoverable value calculations, determined on a value in use basis, are listed in the table below:
Key assumptions
Recoverable value of reserves and resources
Diamond prices
Discount rate
Inflation rate
Exchange rates
Life of mine
Stay in business capital expenditure
Valuation basis
Sensitivity
Explanation
Economically recoverable reserves and resources are based on management’s expectations
based on the availability of reserves at mine sites and technical studies undertaken in‑house
and by third party specialists. Refer to “Life of mine” below for further information.
Long‑term diamond prices are based on prevailing market conditions and the last available
diamond tender price. The US$/carat price range used in the calculations was US$180–US$640
(30 June 2010: US$90–US$420).
The discount rate used for the South African operations represents the before tax risk‑free rate
per the RSA Government bonds adjusted for market risk and volatility.
The discount rate used for Williamson Diamonds Ltd represents the before tax risk‑free rate per
the Tanzanian Government bonds adjusted for market risk and volatility.
Long‑term inflation rate of 4% (30 June 2010: 0%) above a long‑term US inflation rate of 2.5%
(30 June 2010: 2.5%) per annum was used for US$ diamond prices. Long‑term inflation rates
of 3.5% to 4.5% (30 June 2010: 3.5%) above the prevailing US inflation rate were used for
Opex and capex valuations.
Exchange rates are based on external market consensus and after considering long‑term
market expectations. The US$/ZAR exchange rate range used commenced at R6.99
(30 June 2010: R7.60), further devaluing at 3.5% (30 June 2010: 3.5%) per annum.
Cullinan – 16 years (30 June 2010: 17 years) life of mine plan; total extractable resource
54.4 Mt (30 June 2010: 56.6 Mt) at extraction rate of 2.4 Mtpa increasing to 4.0 Mtpa
(30 June 2010: 2.4 Mtpa).
Koffiefontein – 14 years (30 June 2010: 15 years) life of mine plan; total extractable
resource 16.1 Mt (30 June 2010: 23.5 Mt) at extraction rate of 0.9 Mtpa increasing to
1.2 Mtpa (30 June 2010: 0.9 Mtpa).
Kimberley Underground Mines JV – 11 years (30 June 2010: 12 years) life of mine plan;
total extractable resource 9.4 Mt (30 June 2010: 9.9 Mt) at extraction rate of 1.0 Mtpa
(30 June 2010: 0.8 Mtpa).
Sedibeng JV – 11 years (30 June 2010: 12 years) life of mine plan; total extractable resource
1.4 Mt (30 June 2010: 1.579 Mt) at extraction rate of 126 Ktpa (30 June 2010: 126 Ktpa).
Williamson Diamonds Ltd – 17 years (30 June 2010: 18 years) life of mine plan: total
extractable resource 155.9 Mt (30 June 2010: 158 Mt) at extraction rate of 2.7 Mtpa increasing
to 10.0 Mtpa (30 June 2010: 8.8 Mtpa).
Resources remaining after the current life of mine plans have not been included in impairment
testing for the above operations.
Management has estimated the timing of the capital expenditure based on the Group’s current
and future financing plans for each operation.
Discounted present value of future cashflows.
Management notes that a 5% movement in diamond prices as compared to the average for
FY 2011 at Sedibeng would result in break‑even. Sedibeng has the lowest headroom of the
mines detailed above. Management does not consider there to be any reasonable change in
assumption which may give rise to any impairment loss at the remaining mines.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
71
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
10. Net financing income
US$ million
Interest expense on bank loans and overdrafts¹
Gross interest expense on bank loans and overdrafts¹
Interest expense on bank loans and overdrafts capitalised¹
Other debt finance costs¹
Unwinding of present value adjustment for rehabilitation costs
Realised foreign exchange losses
Other foreign exchange losses realised
Unrealised foreign exchange losses
Financial expense
Realised foreign exchange gains
Gain on partial settlement of long‑term liability²
Other unrealised foreign exchange gains
Net change in fair value of hedged item and instrument
Net change in fair value of hedged item in a fair value hedge
Net change in fair value of hedging instrument in a fair value hedge
Interest received on loans and other receivables
Interest received on bank deposits
Financial income
1. Calculated using the effective interest method in respect of financial liabilities calculated at amortised cost.
2. The gain is primarily on the settlement of the Al Rajhi convertible bond.
11. Taxation
US$ million
Current taxation
– Current tax credit
Deferred taxation
– Current Period
Reconciliation of tax rate
– Profit before taxation
Tax at Bermudan corporate rate of 0%
Effects of:
– Tax rates in foreign jurisdictions
– Non‑deductible expenses
– Adjustment in respect of prior Periods
– Assessed losses utilised
– Temporary differences
– Assessed losses and capital allowances not utilised
Current tax credit
Deferred tax movement
Total tax (charge)/credit
2011
(1.0)
(4.5)
3.5
(6.7)
(3.8)
—
(0.4)
(15.5)
(27.4)
0.7
—
34.1
—
(6.0)
6.0
5.5
2.2
42.5
15.1
2011
1.2
(6.4)
(5.2)
64.4
—
(6.0)
(1.0)
1.1
18.1
(5.6)
(5.4)
1.2
(6.4)
(5.2)
—
—
—
—
2010
(1.6)
(1.6)
(8.4)
(2.6)
(0.1)
(0.1)
(14.5)
(27.3)
4.5
4.2
15.3
3.2
0.4
27.6
0.3
2010
0.1
1.1
1.2
69.0
—
(6.2)
(2.5)
0.2
13.5
0.3
(5.2)
0.1
1.1
1.2
During the year, the Group realised a taxation benefit of previously unrecognised tax losses which reduced the current taxation payable by US$0.6 million
(30 June 2010: US$1.7 million). Previously the Group did not recognise the tax losses as deferred tax assets (refer to note 25). Tax losses not
utilised do not have an expiry period in the country in which they arise, unless the entity ceases to continue trading. Tax losses available but not
utilised as at 30 June 2011 amount to US$62.2 million (30 June 2010: US$50.6 million) and primarily arise in South Africa (US$37.0 million) and
Tanzania (US$25.2 million); amounts stated include both tax losses and unredeemed capital allowances and are stated at 28% being the tax rate
in South Africa and 35% being the tax rate in Tanzania.
72
Petra Diamonds Limited Annual Report and Accounts 2011
12. Directors’ and employees’ remuneration
Staff costs (excluding the Non‑Executive Directors) during the year were as follows:
US$ million
Wages and salaries – mining
Wages and salaries – exploration
Wages and salaries – administration
Pension
2011
75.0
0.5
4.3
0.1
79.9
2010
53.9
0.5
3.4
0.1
57.9
In addition, during the year the Group capitalised US$4.7 million of wages and salaries relating to the rebuild and expansion projects at
Williamson. During the prior year, the Group capitalised US$8.2 million of salaries and wages relating to the feasibility study at Williamson.
Number
Number
The number of employees (excluding the Non‑Executive Directors and contractors) at the various
mining and exploration operations of the Group at the end of the Period was 3,902
(30 June 2010: 3,701), employed as follows:
Mining and exploration
Administration
3,729
173
3,902
Remuneration in respect of Executive and Non‑Executive Directors was as follows:
US$ million
Executive Directors
A Pouroulis
D Abery
J Dippenaar
J Davidson
Base
remuneration
Performance‑
related
bonus
0.2
0.4
0.4
0.4
1.4
0.1
0.3
0.3
0.3
1.0
2011
Total
0.3
0.7
0.7
0.7
2.4
3,553
148
3,701
2010
Total
0.3
0.6
0.6
0.6
2.1
The Directors are considered to be key management.
Non‑Executive Directors
Non‑Executive Directors received remuneration of US$0.1 million (30 June 2010: US$0.1 million).
Further detail in respect of Executive and Non‑Executive Directors remuneration during the year is disclosed in the Directors’ Remuneration Report
on pages 47 and 48. The IFRS 2 charge relating to the Executive Directors for the year was US$0.6 million (30 June 2010: US$0.7 million).
See note 28 in respect of share‑based payments.
13. Earnings per share
Numerator
Profit for the year
Denominator
Weighted average number of ordinary shares used in basic EPS
As at 1 July
Effect of shares issued during the year
As at 30 June
Dilutive effect of potential ordinary shares
Weighted average number of ordinary shares in issue used in diluted EPS
Basic profit per share – cents
Diluted profit per share – cents
Total
2011
US$
53,193,664
Total
2010
US$
63,485,409
Shares
Shares
352,803,021
61,912,017
414,715,038
Shares
16,034,806
430,749,844
US cents
12.83
12.35
184,005,523
96,241,934
280,247,457
Shares
5,717,632
285,965,089
US cents
22.65
22.20
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
73
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
13. Earnings per share continued
In the current year, the number of potentially dilutive ordinary shares, in respect of employee share options and warrants is 16,034,806. These
potentially dilutive ordinary shares may have a dilutive effect on future earnings per share. There are no share options and warrants that have
been excluded from the potentially dilutive ordinary shares of 16,034,806 (30 June 2010: 5,973,185 excluded from potentially dilutive shares).
In the prior year the number of potentially dilutive ordinary shares, in respect of employee share options and warrants was 5,717,632. There have
been no significant post balance sheet changes to the number of options and warrants to impact the dilutive number of ordinary shares.
14. Property, plant and equipment
US$ million
Cost
Balance at 1 July 2009
Exchange differences
Business combination1
Feasibility production revenue2
Feasibility production expenditure2
Additions
Disposals
Balance at 30 June 2010
Balance at 1 July 2010
Exchange differences
Impairment (reversed/raised) (note 9)
Additions
Disposals
Balance at 30 June 2011
Depreciation
Balance at 1 July 2009
Exchange differences
Disposals
Provided in the year
Balance at 30 June 2010
Balance at 1 July 2010
Exchange differences
Reversal of impairment (note 9)
Disposals
Provided in the year
Balance at 30 June 2011
Net book value
At 30 June 2010
At 30 June 2011
Plant and
Plant and
machinery machinery
exploration
assets
mining
assets³
Computers
and office
equipment
exploration
assets
Motor
vehicles
exploration
assets
Mineral
Assets
under
properties construction
mining
assets5
mining
assets4
142.8
1.3
95.4
—
—
19.1
(0.5)
258.1
258.1
28.6
3.4
46.1
(3.0)
333.2
18.4
0.5
(0.3)
11.0
29.6
29.6
5.3
0.8
(2.1)
21.8
55.4
228.5
277.8
1.2
—
—
—
—
—
—
1.2
1.2
0.2
—
—
—
1.4
(0.1)
—
—
—
(0.1)
(0.1)
0.1
—
—
0.1
0.1
1.3
1.3
1.1
—
—
—
—
0.1
—
1.2
1.2
—
—
0.1
—
1.3
0.2
—
—
0.2
0.4
0.4
0.1
—
(0.1)
0.2
0.6
0.8
0.7
Assets
advanced
to project
Alto Cuilo
6.1
0.3
—
—
—
—
(6.4)
—
—
—
—
—
—
—
5.6
0.2
(5.8)
—
—
—
—
—
—
—
—
Total
209.0
1.2
173.1
(14.4)
22.2
25.5
(6.9)
409.7
409.7
39.3
11.6
110.9
(3.0)
568.5
32.2
0.9
(6.1)
11.7
38.7
38.7
6.6
1.6
(2.2)
22.4
67.1
0.2
—
—
—
—
—
—
0.2
0.2
—
—
0.1
—
0.3
0.1
—
—
—
0.1
0.1
—
—
—
—
0.1
39.1
(0.8)
71.3
(14.4)
22.2
—
—
117.4
117.4
5.1
8.2
—
—
130.7
8.0
0.2
—
0.5
8.7
8.7
1.1
0.8
—
0.3
10.9
18.5
0.4
6.4
—
—
6.3
—
31.6
31.6
5.4
—
64.6
—
101.6
—
—
—
—
—
—
—
—
—
—
—
0.1
0.2
108.7
119.8
31.6
101.6
—
—
371.0
501.4
1. In the prior year, the Group capitalised pre‑acquisition costs at Kimberley Underground. The expenditure incurred pre‑completion was capitalised on the basis that it was
common practice under IFRS 3 (applicable prior to 1 July 2009) 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 IAS 11 (construction contracts) which permits costs incurred in respect of future activity to be
capitalised where it is probable that those costs will be recovered.
2. Feasibility production expenditure and revenue are in respect of the Williamson feasibility study as disclosed in note 1.24.
3. The mining assets are secured against the loan facilities disclosed in note 22(iv) and 22(v).
4. Mineral properties are in respect of various mines within the Group and the useful life, based on current life of mine plans, is disclosed in note 1.4.
5. Assets under construction include refurbishments of mining property, plant and equipment at the Cullinan, Kimberley Underground, Koffiefontein and Williamson mines.
The only contractual commitments the Group had at year end were in respect of assets under construction of US$11.6 million (30 June 2010: US$0.3 million). Borrowing
costs of US$3.5 million (30 June 2010: US$nil) have been capitalised to assets under construction.
74
Petra Diamonds Limited Annual Report and Accounts 2011
15. Intangible assets
US$ million
Cost
Balance at 1 July 2009 and 30 June 2010
Balance at 1 July 2010 and 30 June 2011
Amortisation
Balance at 1 July 2009
Provided in the year
Balance at 30 June 2010
Balance at 1 July 2010 and 30 June 2011
Net book value
At 30 June 2010
At 30 June 2011
Total
14.5
14.5
(13.5)
(1.0)
(14.5)
(14.5)
—
—
Prospecting licences
Prospecting licences in Botswana were fully amortised in the prior year. The Group continues to conduct exploration activities in Botswana. During the
year exploration expenditure of US$1.4 million (30 June 2010: US$1.8 million) was expensed in respect of exploration activities within Botswana.
16. Investments in associates
Interests in associates
At year end, the Group had interests in the following companies:
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Organizações Moyoweno – Comércio Geral Lda
Summary of financial statements of associates (US$ million):
2011
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Organizações Moyoweno – Comércio Geral Lda
2010
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Organizações Moyoweno – Comércio Geral Lda
Country
Namibia
South Africa
Angola
Ownerships
2011
35.0%
29.5%
40.0%
Assets
—
—
0.8
Liabilities
—
(1.3)
(0.4)
Equity
—
(1.2)
(0.4)
Revenues
—
—
—
2010
35.0%
29.5%
40.0%
(Loss)
after tax
—
(0.1)
—
—
—
0.8
—
(1.1)
(0.4)
—
(1.0)
(0.4)
—
—
—
—
(0.1)
(0.1)
The unrecognised share of losses in aggregate is US$nil (30 June 2010: US$nil). If the investments in associates had been included at cost, they
would have been included at US$nil (30 June 2010: US$nil).
The initial investments by the Group in Namibia Mining House (Pty) Ltd, Nabera Mining (Pty) Ltd and Organizações Moyoweno – Comércio Geral Lda
(“Moyoweno”) have all been impaired in full in prior periods. Moyoweno’s financial year end is 31 December, the statutory reporting period for
companies based in Angola, and its primary asset is a 13% investment in the Alto Cuilo project in Angola, from which the Group withdrew in
2009. Interim financial information for Moyoweno has been used as at year end for the Group. The Group has no contractual or constructive
obligation to fund the net deficit positions of its associates.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
75
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
17. Available‑for‑sale financial assets
US$ million
Balance at 1 July
Acquisition (4.45% shareholding)
Fair value adjustment taken to other reserves (no tax implications)
Balance at 30 June
2011
0.8
—
(0.4)
0.4
—
2010
0.9
(0.1)
0.8
The Company owns 4,500,000 ordinary shares in Stellar Diamonds plc (“Stellar”). At year end the Company adjusted the fair value of its investment in
Stellar to the fair market value of £0.3 million (30 June 2010: £0.5 million), being US$0.4 million (30 June 2010: US$0.8 million). The movement of
US$0.4 million (30 June 2010: US$0.1 million) was taken to other reserves. The reduction in value is not considered significant by management and
the fair value reached £0.6 million during the year before reducing to £0.3 million at year end.
18. Inventories
US$ million
Diamonds held for resale
Work in progress stockpiles
Consumables and stores
Livestock
Provision for impairment of slow moving consumables and stores
2011
13.3
14.8
4.9
0.2
33.2
(0.3)
32.9
2010
15.0
9.6
4.8
0.1
29.5
(0.1)
29.4
As at 30 June 2011, diamonds (inventories held for resale) with a value of US$2.6 million (30 June 2010: US$6.5 million) are carried at fair value
less costs to sell (due to fair value less cost to sell being below cost), resulting in a charge to the income statement of US$1.2 million (30 June 2010:
US$0.3 million).
19. Trade and other receivables
US$ million
Current
Trade receivables
Other receivables¹
Prepayments²
Non‑current
Rehabilitation guarantee³
BEE partners4
2011
20.6
20.9
8.3
49.8
0.2
50.9
51.1
2010
2.9
12.6
8.0
23.5
0.2
32.0
32.2
1. Included within other receivables are amounts related to funding advanced to joint venture BEE partners on the Koffiefontein and Kimberley Underground mines assets of
US$5.3 million (30 June 2010: US$2.6 million), rehabilitation deposits and other deposits of US$5.5 million (30 June 2010: US$5.2 million) and Value Added Tax refunds of
US$7.2 million (30 June 2010: US$4.9 million) receivable. The rehabilitation deposit is available to the Group in the short term or upon successful rehabilitation of the mines.
2. Included within prepayments is US$5.0 million (30 June 2010: US$4.6 million) relating to a deposit paid for further investment in the Group’s South African projects.
The original US$6.0 million payment, which will be deducted in full from any future acquisition consideration, was made by a Group company with pounds sterling as
its functional currency, resulting in unrealised exchange rate fluctuations in the US dollar equivalent for presentational purposes only.
3. The rehabilitation guarantee comprises an insurance risk policy which will be recovered upon the successful rehabilitation at the Sedibeng JV operation.
4. Interest on loans advanced to BEE partners is charged at the prevailing South African prime interest rate plus 2%. The loans are repayable from future cashflows generated
from the underlying mining operations.
The financial assets classified as loans and receivables included in receivables are as follows:
US$ million
Current trade receivables
Other receivables (excluding VAT)
Non‑current trade receivables
2011
20.6
13.7
51.1
85.4
2010
2.9
8.9
32.2
44.0
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 two days of awarding the rough diamond sales tender to the successful bidder and were significant at year end due to the tenders’
proximity to year end. The trade receivables relating to the year‑end tender have all been received post‑year end. No other receivables are
considered to be past due or impaired.
76
Petra Diamonds Limited Annual Report and Accounts 2011
19. Trade and other receivables continued
The carrying values of these loans and receivables are denominated in the following currencies:
US$ million
Pounds sterling
South African rand
US dollars
20. Cash
US$ million
Cash and cash equivalents – unrestricted
Cash – restricted
2011
0.9
83.2
1.3
85.4
2011
96.9
228.0
324.9
2010
1.9
39.1
3.0
44.0
2010
24.8
9.7
34.5
Under the terms of the agreement to purchase the Finsch mine from DBCM (refer to note 29), the Group deposited funds to settle the purchase
consideration into an escrow deposit account. At 30 June 2011, the amounts held on deposit totalled US$213.2 million.
As security for the Group’s rehabilitation obligations at the Helam, Star, Sedibeng and Kimberley Underground mines, the Company has ceded
US$14.8 million (30 June 2010: US$9.7 million) in a fixed deposit. The restricted cash will return to the Group’s sole control when the above
mentioned operations are included in the Group’s rehabilitation insurance product which currently includes the Cullinan and Koffiefontein
mines. The Group has a commitment to pay insurance premiums over the next three years of US$23.3 million to fund the insurance product.
The rehabilitation provisions are disclosed in note 24.
A controlled entity, Helam Mining (Pty) Ltd, has a R10.0 million (US$1.5 million) (30 June 2010: R10 million (US$1.3 million)) overdraft facility
with First National Bank, a division of FirstRand Bank Ltd. At year end and at 30 June 2010, the overdraft was not utilised. When utilised,
the overdraft is off‑set against other cash balances held with First National Bank as it forms part of the Group’s operational cash balances.
The weighted average interest rate for the overdraft as at 30 June 2011 is 0% (30 June 2010: 0%). For additional facilities available to the Group
refer to note 22.
21. Issued capital
US$ million
Authorised – ordinary shares of 10p each
As at 1 July 2010 and 30 June 2011
Issued and fully paid
At 1 July
Allotments during the year
At 30 June
Number of shares
2011
Number of shares
2010
650,000,000
115.2
400,000,000
76.3
352,803,021
147,070,988
499,874,009
61.4
23.4
84.8
184,005,523
168,797,498
352,803,021
33.5
27.9
61.4
Allotments during the year were in respect of 136,698,212 shares issued as part of a capital fundraising exercise, the exercise of 8,292,777
warrants held over ordinary shares by Canaccord Genuity and RMB, and the exercise of 2,079,999 share options held by employees.
Allotments during the prior year were in respect of 121,200,000 shares issued as part of a capital fundraising exercise, the issue of 36,000,000
shares as part consideration for the acquisition of an additional 50% interest in CIHL, the issue of 11,363,636 shares in respect of a US$15 million
Al Rajhi loan repayment and the exercise of 233,862 share options held by employees.
Warrants
Holder
Canaccord Genuity
RBC Capital Markets
Rand Merchant Bank
International Finance Corporation
International Finance Corporation
International Finance Corporation
Expiry
17 December 2011
17 December 2011
2 November 2014
2 November 2012
2 November 2013
2 November 2014
Exercise price
(pence)
80
80
100
90
95
100
2011
Number of warrants
—
1,364,259
2,100,000
2,100,000
2,100,000
2,100,000
2010
Number of warrants
4,092,777
1,364,259
—
—
—
—
As part of the debt facilities referred to in note 22 parts (iv) and (v), 12,600,000 warrants over Petra shares were granted to IFC (6,300,000) and
RMB (6,300,000), with an exercise price ranging between 90 pence – 100 pence per warrant and which vested on 3 November 2010.
During the year warrants over 4,092,777 ordinary shares at an exercise price of 80 pence were exercised by Canaccord Genuity. RMB exercised
2,100,000 warrants over ordinary shares at an exercise price of 90 pence and a further 2,100,000 warrants over ordinary shares at an exercise
price of 95 pence.
The Black‑Scholes methodology as outlined in IFRS 2 has been used to value the warrants, as set out in note 28.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
77
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
21. Issued capital continued
Employee share options
Holder
Directors
A Pouroulis
D Abery
J Dippenaar
J Davidson
Senior Management
Total
Shares
500,000
250,000
250,000
250,000
100,000
100,000
500,000
250,000
250,000
750,000
350,000
350,000
750,000
250,000
750,000
350,000
350,000
750,000
250,000
750,000
350,000
350,000
50,000
75,000
23,750
84,300
166,388
236,812
4,470,000
2,117,671
3,060,002
500,000
19,583,923
Exercise price
(pence)
Expiry
44.0
85.0
79.5
27.5
45.5
60.5
44.0
85.0
79.5
27.5
45.5
60.5
85.0
79.5
27.5
45.5
60.5
85.0
79.5
27.5
45.5
60.5
56.75
46.5
56.5
65.75
79.5
96.0
27.5
45.5
60.5
92.8
5 September 2013
16 June 2015
31 May 2016
12 March 2019
30 September 2019
16 March 2020
5 September 2013
16 June 2015
31 May 2016
12 March 2019
30 September 2019
16 March 2020
16 June 2015
31 May 2016
12 March 2019
30 September 2019
16 March 2020
16 June 2015
31 May 2016
12 March 2019
30 September 2019
16 March 2020
13 September 2014
24 September 2014
28 January 2015
27 November 2015
31 May 2016
31 July 2016
12 March 2019
30 September 2019
16 March 2020
25 November 2020
The current number of shares reserved for issue under the share option scheme is 19,583,923, the terms and conditions of which are disclosed
in note 28.
22. Interest‑bearing loans and borrowings
US$ million
Current
Bank loan – secured (i)
Bank loan – secured (ii)
Bank loan – secured (iii)
Bank loan – unsecured (vi)
Deferred consideration (vii)
Non‑current
Bank loan – secured (i)
Bank loan – secured (iv)
Bank loan – secured (v)
Loan – unsecured (vi)
Deferred consideration (vii)
Associate loans
78
Petra Diamonds Limited Annual Report and Accounts 2011
2011
—
—
—
—
18.7
18.7
—
36.5
33.1
—
—
1.8
71.4
2010
0.1
0.3
—
17.0
—
17.4
0.1
15.0
32.0
47.1
—
—
—
22. Interest‑bearing loans and borrowings continued
(i) Bank loans – secured
First National Bank
During the year, Helam Mining (Pty) Ltd settled its term loan facility (capital and interest) of R0.9 million (US$0.2 million) with First National Bank.
The Group’s borrowings at 30 June 2010 were R0.9 million (US$0.2 million) with an effective interest of 9.92%.
Helam Mining (Pty) Ltd, Star Diamonds (Pty) Ltd, Messina Diamonds (Pty) Ltd and Directors Mr Dippenaar and Mr Davidson have been released
from the general notarial bond over moveable assets, unlimited letters of suretyship and letters of joint suretyship signed for the loan facility
in favour of First National Bank.
(ii) Bank loan – secured
Industrial Development Corporation of South Africa
On 1 October 2010, the Sedibeng JV settled its loan (capital and interest) of R2.8 million (US$0.4 million) with the Industrial Development Corporation
of South Africa (“IDC”). The Group’s borrowings at 30 June 2010 were R2.2 million (US$0.3 million) with an effective interest rate of 9.92%.
Messina Diamonds (Pty) Ltd has been released from the suretyship as co‑principal debtor and the general notarial bond over its moveable assets
in favour of the IDC.
(iii) Bank loans – secured
First National Bank
The Company’s South African subsidiaries have a total loan facility of R70.0 million (US$10.2 million) (30 June 2010: R70.0 million (US$9.1 million))
with First National Bank of which Rnil (US$nil) (30 June 2010: Rnil (US$nil)) has been drawn down.
The above facility is secured by a guarantee issued by the Company, suretyships from Star Diamonds (Pty) Ltd, Helam Mining (Pty) Ltd, Sedibeng JV
and Blue Diamond Mines (Pty) Ltd, and cessions of inter‑group loans payable in favour of First National Bank.
(iv) Bank loans – secured
Rand Merchant Bank (“RMB”)
On 4 November 2010, the Company announced the financial close and completion of a R300 million (US$43.5 million) loan facility with RMB.
The loan facility is available for the Company’s draw‑down for up to 24 months from the agreement date and has a capital repayment holiday
period to 14 September 2012. The loan is repayable in eight semi‑annual payments commencing after the capital repayment holiday period with
the final payment due on 15 March 2016. The loan incurs interest at the South African three month JIBAR rate plus 4.5% and is payable in
semi‑annual payments from the commencement date of the loan facility. The effective interest rate for the debt facility at 30 June 2011 is 14.0%.
On 3 November 2010, as a term of the debt facility, RMB was granted 6.3 million warrants over Petra shares. The warrants vest on grant and the
warrant expiry dates will be in equal tranches at the end of years two, three and four from the warrant grant date. The warrant exercise prices
for each tranche are 90 pence, 95 pence and 100 pence respectively. The Black‑Scholes methodology as outlined in IFRS 2 has been used to value
the warrants, as set out in note 28.
The portion of facility fees and warrant fair value charges of R17.6 million (US$4.4 million) associated with the facility drawn‑down have been
debited against the gross draw‑down value of R267.1 million (US$39.0 million), in accordance with IAS 32 and IAS 39, to reflect a net interest
bearing liability of R249.5 million (US$36.5 million). The remaining R6.5 million (US$0.9 million) of facility fees and warrant fair value charges
associated within the undrawn facility are held in prepayments as the loan facility is expected to be utilised.
The above facility is secured by various encumbrances and pledges, concluded in respect of certain assets belonging to the Group
including the Cullinan mine mining right; moveable and immovable assets at Cullinan mine; the shares in Cullinan Diamond Mine (Pty) Ltd,
Blue Diamond Mines (Pty) Ltd and Williamson Diamonds Ltd.
(v) Bank loans – secured
International Finance Corporation (“IFC”)
On 4 November 2010, the Company announced the financial close and completion of a US$40.0 million loan facility with the IFC. The loan
facility is available for the Company’s draw‑down for up to 24 months from the agreement date and a has capital repayment holiday period to
14 September 2012. The loan is repayable in eight semi‑annual payments commencing after the capital repayment holiday period, with the final
payment due on 15 March 2016. The loan incurs interest at the US$ six month LIBOR rate plus 4.5% and is payable in semi‑annual payments
from commencement date of the loan facility. The effective interest rate for the debt facility at 30 June 2011 is 8.9%.
On 3 November 2010, as a term of the debt facility, the IFC was granted 6.3 million warrants over Petra shares. The warrants vest on grant and
the warrant expiry dates will be in equal tranches at the end of years two, three and four from the warrant grant date. The warrant exercise prices
for each tranche are 90 pence, 95 pence and 100 pence respectively. The Black‑Scholes methodology as outlined in IFRS 2 has been used to value
the warrants, as set out in note 28.
The portion of facility fees and warrant fair value charges of US$4.2 million associated with the facility drawn‑down have been debited against
the gross draw‑down value of US$36.5 million, in accordance with IAS 32 and IAS 39, to reflect a net interest bearing liability of US$33.1 million.
The remaining US$0.4 million of facility fees and warrant fair value charges associated within the undrawn facility are held in prepayments as
the loan facility is expected to be utilised.
The above facility is secured by various encumbrances and pledges, concluded in respect of certain assets belonging to the Group
including the Cullinan mine mining right; moveable and immoveable assets at Cullinan mine; the shares in Cullinan Diamond Mine (Pty) Ltd,
Blue Diamond Mines (Pty) Ltd and Williamson Diamonds Ltd.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
79
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
22. Interest‑bearing loans and borrowings continued
(vi) Loan – unsecured
Al Rajhi
On 20 November 2010, the Company settled its loan (capital and interest) of US$32.8 million (30 June 2010: US$32.0 million) with Al Rajhi.
The Group’s borrowings at 30 June 2010 were US$32.0 million with an effective interest rate of 8%.
(vii) Deferred Cullinan consideration
Al Rajhi
The deferred consideration of US$35.0 million, which formed part of the consideration paid for the acquisition of the additional 50% interest in
CIHL, has been discounted over a period of 24 months using a discount factor of 6%. The discounted deferred consideration balance is being
accreted over the period of 24 months to the full settlement value. During the year, a portion (US$15.0 million) of the deferred consideration
capital amount was repaid leaving a capital balance of US$20 million to be settled in December 2011. At year end the discounted deferred
consideration balance is US$18.7 million (30 June 2010: US$32.0 million).
There are no significant differences between the fair value and carrying value of loans and borrowings.
23. Trade and other payables
US$ million
Current
Trade payables
Deferred consideration (i)
Accruals and other payables
Taxation payable
Non‑current
Amounts owing to BEE partners (ii)
2011
11.5
2.8
25.1
39.4
—
39.4
29.0
29.0
2010
9.4
2.9
16.9
29.2
1.1
30.3
23.2
23.2
Current
(i)
The Group is liable to pay US$3.2 million (30 June 2010: US$3.2 million) (US$2.8 million after deducting the deferred consideration discount
(30 June 2010: US$2.9 million)) being the balance of the Helam Mining (Pty) Ltd purchase price which is payable from 50% of the cash
surplus generated by Helam Mining (Pty) Ltd for the years ending 31 December 2006 and 2007.
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$2.8 million has been extinguished. At year end no portion of the liability had been repaid and the total liability will be carried forward to
June 2012.
(ii) The loans bear interest at the prevailing South African prime interest rate. The loans are repayable from future cashflows from the underlying
operations only when the loans advanced to BEE partners (refer to note 19) have been repaid in full to the Group.
The financial liabilities included in trade and other payables (which exclude taxation) are as follows:
US$ million
Trade payables
Other payables (includes deferred consideration)
Non‑current trade payables owing to BEE partners
The carrying values of financial liabilities classified as other liabilities are denominated in the following currencies:
US$ million
Botswana pula
Pounds sterling
South African rand
US dollar
2011
11.5
27.9
29.0
68.4
2011
—
1.8
54.2
12.4
68.4
2010
9.4
19.8
23.2
52.4
2010
0.1
1.0
41.7
9.6
52.4
80
Petra Diamonds Limited Annual Report and Accounts 2011
24. Provisions
US$ million
Balance at 1 July 2009
Arising on business combination
Increase in provisions
Unwinding of present value adjustment of rehabilitation provision
Exchange differences
Balance at 30 June 2010
Current
Non‑current
Balance at 30 June 2010
Balance at 1 July 2010
Increase in provisions
Unwinding of present value adjustment of rehabilitation provision
Exchange differences
Balance at 30 June 2011
Current
Non‑current
Balance at 30 June 2011
Post‑retirement
medical fund
and income tax
4.2
2.3
0.9
—
0.1
7.5
2.2
5.3
7.5
7.5
1.4
—
0.6
9.5
2.2
7.3
9.5
Rehabilitation
26.0
15.8
—
2.6
0.3
44.7
—
44.7
44.7
44.7
3.9
3.8
3.4
55.8
—
55.8
55.8
Total
30.2
18.1
0.9
2.6
0.4
52.2
2.2
50.0
52.2
52.2
5.3
3.8
4.0
65.3
2.2
63.1
65.3
Employee entitlements and other provisions
The provisions relate to provision for an unfunded post retirement medical fund and income tax. The provision for the post‑retirement medical
fund is further disclosed in note 34. The provision for taxation is based on estimates made, where appropriate, from historical information and
professional advice.
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 estimates the present value of the rehabilitation expenditure at each mine as follows:
U
Koffiefontein mine of US$7.8 million (30 June 2010: US$6.4 million), provided over the current life of mine plan of 14 years;
U
Cullinan mine of US$18.9 million (30 June 2010: US$15.5 million) provided over the estimated total life of mine of 53 years;
U
Kimberley Underground mines of US$14.1 million (30 June 2010: US$8.3 million) provided over the current life of mine plan of 11 years;
U
Williamson mine of US$12.9 million (30 June 2010: US$12.1 million) provided over the current life of mine plan of 17 years; and
U
Helam, Star and Sedibeng of US$2.1 million (30 June 2010: US$2.4 million) (the Fissure mines) provided over their current life of mine plan
of approximately 17 years.
The majority of the rehabilitation expenditure is expected to be incurred at the end of the life of the respective mine. This is represented by the
current life of mine plans for the mines, with the exception of Cullinan which is expected to be rehabilitated after 53 years, of which 16 years are
included in the current life of mine plan. The 53 year period assumes mining of the C‑Cut.
The significant assumptions and uncertainties are disclosed in note 1.24. Cash and cash equivalents have been secured in respect of rehabilitation
provisions, as disclosed in notes 19 and 20.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
81
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
25. Deferred taxation
US$ million
Balance at beginning of the year
Adjustment as a result of business combination
Income statement charge/(credit)
Foreign currency translation difference
Balance at the end of the year
Deferred taxation comprising:
US$ million
Deferred tax liability:
– Capital allowances
– Prepayments and accruals
– Foreign exchange allowances
Deferred tax asset:
– Capital allowances
– Provisions and accruals
– Foreign exchange allowances
– Tax losses
Net deferred taxation liability/(asset)
US$ million
Deferred tax liability:
– Capital allowances
– Prepayments and accruals
– Foreign exchange allowances
Deferred tax asset:
– Capital allowances
– Provisions and accruals
– Foreign exchange allowances
– Tax losses
Net deferred taxation liability/(asset)
2011 deferred taxation schedule of movements
US$ million
Deferred tax liability:
– Capital allowances
– Prepayments and accruals
– Foreign exchange allowances
Deferred tax asset:
– Capital allowances
– Provisions and accruals
– Foreign exchange allowances
– Tax losses
Net deferred tax liability movement
82
Petra Diamonds Limited Annual Report and Accounts 2011
2011
30.3
—
6.4
1.0
37.7
2010
7.4
24.1
(1.1)
(0.1)
30.3
2011
Recognised
2011
Unrecognised
88.3
0.1
2.7
91.1
(39.0)
(9.1)
(1.3)
(4.0)
(53.4)
37.7
—
—
—
—
(1.4)
(0.6)
(0.3)
(32.8)
(35.1)
(35.1)
2010
Recognised
2010
Unrecognised
64.3
—
0.3
64.6
(27.4)
(6.7)
—
(0.2)
(34.3)
30.3
7.7
0.3
1.1
9.1
(10.3)
(0.6)
(1.0)
(12.8)
(24.7)
(15.6)
Income
statement
Statement of
financial
position
24.0
0.1
2.4
(11.6)
(2.4)
(2.3)
(3.8)
6.4
—
—
—
—
—
—
—
—
Total
88.3
0.1
2.7
91.1
(40.4)
(9.7)
(1.6)
(36.8)
(88.5)
2.6
Total
72.0
0.3
1.4
73.7
(37.7)
(7.3)
(1.0)
(13.0)
(59.0)
14.7
Total
24.0
0.1
2.4
(11.6)
(2.4)
(2.3)
(3.8)
6.4
25. Deferred taxation continued
2010 deferred taxation schedule of movements
US$ million
Deferred tax liability:
– Capital allowances
– Foreign exchange allowances
Deferred tax asset:
– Capital allowances
– Provisions and accruals
– Foreign exchange allowances
– Tax losses
Net deferred tax liability movement
Less deferred tax adjustment for CIHL inventory fair value uplift¹
Income statement credit
Total
54.7
0.1
(27.4)
(6.5)
1.2
0.9
23.0
Income
statement
Statement of
financial
position
35.6
0.1
(24.9)
(6.5)
1.1
0.9
6.3
(7.4)
(1.1)
19.1
—
(2.5)
—
0.1
—
16.7
1. The deferred tax adjustment of US$7.4 million is in respect of a deferred tax asset raised by the Group on inventory that has been fair valued at the date of acquiring the
additional 50% in CIHL. Subsequent to the acquisition, the inventory was sold and the deferred tax liability released.
Deferred tax assets of US$5.0 million have been recognised in respect of tax losses to be utilised by future taxable profits at Kimberley Underground.
The Directors believe it is probable these tax assets will be recovered through future taxable income or the reversal of temporary differences.
Losses were recorded in FY 2010 as the mine only started production in May 2010; a taxable profit was generated in FY 2011. The utilised tax
losses expiry period is detailed in note 11 and deductible temporary differences have no expiry period.
26. Financial instruments
Exposures to currency, liquidity, market price, credit and interest rate risk arise in the normal course of the Group’s business. The Group may from
time to time use financial instruments to help manage these risks. The Directors review and agree policies for managing each of these risks.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis
on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument, are disclosed
in note 1.
The details of the categories of financial instruments of the Group are as follows:
US$ million
Financial assets:
Loans and receivables:
– Non‑current trade receivables
– Trade receivables
– Other receivables
– Cash and cash equivalents – restricted
– Cash and cash equivalents – unrestricted
Available‑for‑sale financial assets (level 1 valuation)
Fair value designated hedge:
– Derivative financial instruments (level 2 valuation)
Financial liabilities:
Held at amortised cost:
– Non‑current amounts owing to BEE partners
– Loans and borrowings
– Trade and other payables (includes deferred consideration)
Fair value designated hedge:
– Other current liabilities – firm commitment (level 2 valuation)
2011
2010
51.1
20.6
13.7
228.0
96.9
0.4
6.0
416.7
29.0
90.1
39.4
6.0
164.5
32.2
2.9
8.9
9.7
24.8
0.8
—
79.3
23.2
64.5
30.3
—
118.0
There is no significant difference between the fair value of financial assets and liabilities and the carrying values set out in the table above, noting
that non‑current receivables bear interest and are therefore not discounted. Available‑for‑sale financial assets are valued based on the share price
at the reporting date. A loss of US$0.4 million (30 June 2010: US$0.1 million) has been recognised in the Consolidated Statement of Other
Comprehensive Income in respect of the reduction of the available‑for‑sale financial assets to fair value.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
83
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
26. Financial instruments continued
Fair value measurement hierarchy
IFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value
hierarchy that reflects the significance of the inputs used in making the fair value measurement. The fair value hierarchy has the following levels:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(i.e. derived from prices) (Level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The level of the financial asset or financial liability in the fair value hierarchy is determined on the basis of the lowest level input that is significant to
the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels. The only
financial instruments held by the Group that were carried at fair value were the available for sale financial asset, forward currency contracts and
South African rand deposits designated as hedging instruments for the Finsch acquisition. The available‑for‑sale financial assets were valued
using Level 1 of the hierarchy using quoted prices. The hedging instrument and hedged item were valued by broker statements using observable
market prices.
The currency profile of the Group’s financial assets and liabilities is as follows:
US$ million
Financial assets:
Botswana pula
Pounds sterling
South African rand
US dollar
Financial liabilities:
Botswana pula
Pound sterling
South African rand
US dollar
2011
0.1
290.6
120.5
5.5
416.7
—
59.7
92.3
12.5
164.5
2010
0.1
6.5
54.1
18.6
79.3
0.1
1.0
42.2
74.7
118.0
The Group is exposed through its operations to one or more of the following risks:
U
credit risk;
U
foreign exchange risk;
U
liquidity risk;
U
interest rate risk; and
U
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:
U
trade and other receivables (current and non‑current);
U
cash at bank;
U
trade and other payables (current and non‑current);
U
loans and borrowings;
U
hedging instruments; and
U
firm commitments.
84
Petra Diamonds Limited Annual Report and Accounts 2011
26. Financial instruments continued
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 reporting 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 Consolidated Statement of Financial Position. 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 nor impaired to be good.
Credit risk associated with loans to BEE partners is mitigated by a contractual obligation for the loans to be repaid from future cashflows prior
to any payments being paid to the BEE partners from future cashflows generated by the operations.
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 seven to 30 days. Refer to note 20 for restricted cash secured in respect of rehabilitation obligations and
the purchase of the Finsch mine. At year end the Group had undrawn borrowing facilities of US$18.5 million (30 June 2010: US$10.4 million).
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 translation 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 cashflow 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:
U
the currency in which the revenue expected to be generated from the commissioning of the capital expenditure will be denominated;
U
U
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
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.
The purchase price of Finsch was fixed in South African rands and as such created a foreign currency risk for the Group. The Group entered into
forward exchange contracts and held South African rands in escrow accounts to mitigate the foreign currency risk on the Finsch purchase price.
The foreign currency effect on the Group’s financial assets and liabilities is as follows:
US$ million
Financial assets:
Botswana pula
Pounds sterling
South African rand
US dollar
Financial liabilities:
Pounds sterling
South African rand
US dollar
Year‑end
US$ rate
0.1523
0.6243
0.1463
1.0000
0.6243
0.1463
1.0000
30 June 2011
Year‑end
amount
US$
strengthens 10%
US$
weakens 10%
0.1
290.6
120.5
5.5
416.7
59.7
92.3
12.5
164.5
0.1
261.5
108.4
5.5
375.5
53.7
83.0
12.5
149.2
0.1
319.7
132.5
5.5
457.8
65.6
101.5
12.5
179.6
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
85
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
26. Financial instruments continued
Foreign currency risk continued
US$ million
Financial assets:
Botswana pula
Pounds sterling
South African rand
US dollar
Financial liabilities:
Botswana pula
Pounds sterling
South African rand
US dollar
Year‑end
US$ rate
0.1390
0.6637
0.1307
1.0000
0.1390
0.6637
0.1307
1.0000
30 June 2010
Year‑end
amount
US$
strengthens 10%
US$
weakens 10%
0.1
6.5
54.1
18.6
79.3
0.1
1.0
42.2
74.7
118.0
0.1
5.8
48.7
18.6
73.2
0.1
0.9
38.0
74.7
113.7
0.1
7.1
59.5
18.6
85.3
0.1
1.1
46.4
74.7
122.3
The Directors consider a 10% currency movement to be the maximum likely cumulative change over the next 12 months.
Derivatives
US$ million
Derivative financial assets
Derivatives designated as hedging instruments
Forward foreign exchange contracts – fair value hedges
Total derivatives designated as hedging instruments
Total derivative financial assets
Less non‑current portion
Current portion
2011
2010
6.0
6.0
6.0
—
6.0
—
—
—
—
—
The fair value of the derivative financial assets is split between current and non‑current depending on the remaining maturity of the forward
exchange contract and its contractual cashflows. The fair value of the Group’s foreign exchange contracts is based on broker quotes.
The maximum exposure to credit risk at the reporting date is the fair value of the derivative assets in the Consolidated Statement of Financial Position.
The derivative financial assets have a maturity profile of less than three months.
The Group took out forward foreign exchange contracts and held deposits in South African Rands to manage the foreign exchange risk associated
with the unrecognised firm commitment to purchase the Finsch mine for R1.425 billion (refer note 29) after the year end. The Group entered into
short‑term forward currency contracts to hedge the foreign currency risk.
The material principal amount of the forward contracts designated as fair value hedging instruments was US$86.4 million. The hedging instruments
were effective at inception and at year end. The fair value of the hedging instruments is recognised as an asset in the Consolidated Statement of
Financial Position and an equal liability (“other current liabilities – firm commitment”) has been recognised reflecting the cumulative foreign
exchange movement attributable to the unrecognised firm commitment. The movements (US$6.0 million gain and US$6.0 million loss) are
recognised in financial income.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debt instruments. It is
the risk that the Group will encounter difficulty in meeting its financial obligations and when necessary will seek to raise funds through the issue
of shares.
It is the policy of the Group to ensure that it will always have sufficient cash to allow it to meet its liabilities when they fall due. To achieve
this aim, the Group maintains cash balances and funding facilities at levels considered appropriate to meet ongoing obligations.
Cashflow is monitored on a regular basis. Projections reflected in the Group working capital model indicate that the Group will have sufficient
liquid resources to meet its obligations under all reasonable expected circumstances. The maturity analysis of the actual cash payment due in
respect of loans and borrowings is set out in the table opposite. The maturity analysis of trade and other payables are in accordance with those
terms and conditions agreed between the Group and its suppliers. For trade and other payables, payment terms are 30 days, provided all terms
and conditions have been complied with. Exceptions to agreed terms are set out in note 23, as reflected under non‑current.
86
Petra Diamonds Limited Annual Report and Accounts 2011
26. Financial instruments continued
Maturity analysis
The below maturity analysis reflects cash and cash equivalents and loans and borrowings based on actual carrying values rather than
actual cashflows.
US$ million
Cash
Cash and cash equivalents – unrestricted
Cash – restricted
Total cash
Loans and borrowings
Bank loan – secured
Bank loan – secured
Deferred consideration
Associate loans
Cashflow of loans and borrowings
US$ million
Cash
Cash and cash equivalents – unrestricted
Cash – restricted
Total cash
Loans and borrowings
Bank loan – secured
Bank loan – secured
Loan – unsecured
Deferred consideration loan – unsecured
Cashflow of loans and borrowings
Notes
20
20
22(iv)
22(v)
22(vii)
22
Notes
20
20
22(i)
22(ii)
22(vi)
22(vii)
Effective
interest
rate
0.1%–5.8%
0.1%–5.8%
14.0%
8.9%
6.0%
9.5%
Effective
interest
rate
0.1%–5.8%
0.1%–5.8%
9.92%
9.92%
8%
6%
30 June 2011
Total
6 months
or less
6–12
months
1–2
years
2–5
years
96.9
228.0
324.9
36.5
33.1
18.7
1.8
90.1
97.4
96.9
228.0
324.9
—
—
18.7
—
18.7
20.0
—
—
—
—
—
—
—
—
—
—
—
—
9.8
9.1
—
—
18.9
18.9
—
—
—
26.7
24
—
1.8
52.5
58.5
30 June 2010
Total
6 months
or less
6–12
months
1–2
years
2–5
years
24.8
9.7
34.5
0.2
0.3
32.0
32.0
64.5
70.2
24.8
9.7
34.5
—
0.3
17.0
—
17.3
18.7
—
—
—
0.1
—
—
—
0.1
0.1
—
—
—
0.1
—
15.0
32.0
47.1
51.4
—
—
—
—
—
—
—
—
—
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. An analysis of the sensitivity to interest rate changes is presented
below. The Directors consider 100 basis points to be the maximum likely change in interest rates over the next 12 months.
The effect of an interest rate increase/(decrease) on the Group’s interest charge in the year is as follows:
US$ million
Bank loan – secured
Bank loan – secured
Deferred consideration loan – unsecured
Associate loans
Notes
22(iv)
22(v)
22(vii)
Year‑end
interest
rate
14.0%
8.9%
6%
9.5%
30 June 2011
Year‑end
interest‑
bearing
liability
36.5
33.1
18.7
1.8
90.1
Interest
rate
increases
1%
0.3
0.3
—
0.1
0.7
Interest
rate
(decreases)
1%
(0.3)
(0.3)
—
(0.1)
(0.7)
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
87
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
26. Financial instruments continued
Interest rate risk continued
US$ million
Bank loan – secured
Bank loan – secured
Loan – unsecured
Deferred consideration loan – unsecured
Year‑end
interest
rate
9.92%
9.92%
8%
6%
Notes
22(i)
22(ii)
22(vi)
22(vii)
30 June 2010
Year‑end
interest‑
bearing
liability
0.2
0.3
32.0
32.0
64.5
Interest
rate
increases
1%
—
—
—
—
—
Interest
rate
(decreases)
1%
—
—
—
—
—
The loans disclosed in note 22 parts (vi) and (vii) are a fixed interest rate loan or a discounted deferred consideration and therefore are not
exposed to fluctuations in interest rates.
Each interest‑bearing financial liability is restated to show the cashflows arising based on the respective country specific prime lending rates
as disclosed in note 22.
Other market price risk
The Group generates revenue from the sale of rough and polished 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$/ZAR spot rate at the date of sale, makes it difficult to accurately extrapolate the impact the fluctuations in diamond prices
would have on the Group’s revenue.
Capital disclosures
Capital is defined by the Group to be the capital and reserves attributable to equity holders of the parent company. The Group’s objectives when
maintaining capital are:
U
to safeguard the ability of the entity to continue as a going concern; and
U
to provide an adequate return to shareholders.
The Group monitors capital on the basis of the debt to equity ratio. This ratio is calculated as net debt to equity. Net debt is calculated
as total debt (excluding provisions and deferred tax liabilities) less restricted and unrestricted cash and cash equivalents. Equity comprises
all components of equity attributable to equity holders of the parent company.
The debt to equity ratios at 30 June 2011 and 30 June 2010 are as follows:
US$ million
Total debt
Cash and cash equivalents
Net debt/(funds)
Total equity attributable to equity holders of the parent company
Net (funds)/debt to equity ratio
2011
164.5
(324.9)
(160.4)
667.0
(0.24):1
2010
118.0
(34.5)
83.5
257.3
0.32:1
The Group manages its capital structure by the issue of ordinary shares, raising debt finance where appropriate, and managing Group cash and
cash equivalents.
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.
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.
88
Petra Diamonds Limited Annual Report and Accounts 2011
28. Share‑based payments
Employee share options
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 2011 are disclosed below.
The share‑based payment expense has been calculated using the Black‑Scholes model. All share options are equity settled.
Fair value of share options granted during the year and assumptions are as follows:
Fair value at measurement date
Exercise price
Share price at grant date
Expected volatility
Vesting period
Option life
Expected dividends
Risk‑free interest rate (based on national Government bonds)
2011
31.0p–51.2p
92.8p
97.0p
79.2%
1–3 years
10 years
— —
2010
20.8p–35.7p
45.5p–60.5p
64p–66p
68%–71%
1–3 years
10 years
0.98%–2.48%
0.98%–2.48%
The expected volatility is based on historic volatility of the Group’s share price, adjusted for any extreme changes in the share price during the
historic period. During the year, 2,079,999 (30 June 2010: 233,862) options held by employees were exercised and the Company expensed
US$1.9 million (30 June 2010: US$1.7 million) related to the fair value of employee share options. During the year, 130,000 (30 June 2010: 492,805)
options with a weighted average option price of 43.4 pence lapsed, 504,079 (30 June 2010: 16,666) share options with a weighted average
option price of 42.4 pence (30 June 2010: 9.0 pence) were cancelled immediately before vesting and 500,000 (30 June 2010: 8,186,000) share
options were granted at an option price of 92.8 pence.
The terms and conditions of the options in issue 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
12 March 2009
30 September 2009
17 March 2010
13 September 2004
24 September 2004
28 January 2005
27 November 2005
31 May 2006
31 July 2006
12 March 2009
30 September 2009
17 March 2010
25 November 2010
Vesting period
Number
1/3 per annum from grant date
1,000,000
1/3 per annum from grant date
2,000,000
1/3 per annum from grant date
1,000,000
1/3 per annum from grant date
2,500,000
1/3 per annum from grant date
1,150,000
1/3 per annum from grant date
1,150,000
50,000
1/3 per annum from grant date
75,000 25% from grant date for two years,
then 50% in third year
23,750 25% from grant date for two years,
then 50% in third 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
84,300
166,388
236,812
4,470,000
2,117,671
3,060,002
500,000
Remaining life
of options
(years)
2
4
5
8
9
9
3
3
4
4
5
7
8
9
9
10
Outstanding at beginning of the year
Cancelled during the year
Lapsed 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
2011
2010
Weighted
average
exercise price
(pence)
48.60
42.39
43.42
51.05
92.80
47.88
51.38
Number
21,798,001
(504,079)
(130,000)
(2,079,999)
500,000
19,583,923
11,770,578
Weighted
average
exercise price
(pence)
45.46
15.92
62.76
49.07
53.08
48.60
37.73
Number
14,355,334
(16,666)
(492,805)
(233,862)
8,186,000
21,798,001
5,052,102
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
89
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
28. Share‑based payments continued
Employee share options continued
The weighted average market price of the shares in respect of options exercised during the year was 156.87 pence (30 June 2009: 45.72 pence).
The options outstanding at 30 June 2011 have an exercise price in the range of 27.5 pence to 96 pence (30 June 2009: 27.5 pence to 96 pence)
and a weighted average remaining contractual life of seven years (30 June 2010: eight years).
Employees received cash payments of US$0.8 million during the year in respect of options cancelled. The payments equate to the fair value at the
date of cancellation and the Group recognised a charge to equity in accordance with IFRS 2 together with the acceleration of the remaining
unamortised fair value in respect of the options of US$0.1 million in the income statement.
Warrants
As part of the debt facilities referred to in note 22 parts (iv) and (v), 12,600,000 warrants over Petra shares were granted to the IFC (6,300,000) and
RMB (6,300,000). The fair value of the 12,600,000 warrants has been calculated using the Black‑Scholes model and debited against pre‑payments
until such time as the loan is drawn down. The warrants were fair valued at US$7.9 million. When the loan is drawn down, the fair value is
debited against the interest bearing non‑current borrowings and the effective interest rate and associated accretion charges adjusted accordingly
(refer note 22 parts (iv) and (v)).
The fair value of the 5,457,037 warrants in issue as at 30 June 2010 was debited against the share premium account being a directly attributable
cost of the December 2009 capital raising exercise.
Fair value at measurement date
Exercise price
Share price at date of grant
Expected volatility
Warrant life
Expected dividends
Risk‑free interest rate (based on national Government bonds)
2011
36.2p–41.7p
90p, 95p and 100p
102.0p
43%–63%
2–4 years
—
0.65%–1.16%
2010
18.5p
80p
72.2p
71%
2 years
1.73%
—
The expected volatility is based on historic volatility of the Group’s share price, adjusted for any extreme changes in the share price during the
historic period. During the year nil warrants (30 June 2010: 2,000,000) lapsed and 8,292,777 (30 June 2010: nil) were exercised with option
prices in the range of 80 pence to 95 pence.
The terms and conditions of the grants are as follows, whereby all warrants are settled by delivery of shares:
Outstanding at beginning of the year
Lapsed 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
2011
2010
Weighted
average
exercise price
(pence)
80.00
—
86.33
95.00
93.98
93.98
Number
5,457,036
—
(8,292,777)
12,600,000
9,764,259
9,764,259
Weighted
average
exercise price
(pence)
130.00
130.00
—
80.00
80.00
80.00
Number
2,000,000
(2,000,000)
—
5,457,036
5,457,036
5,457,036
The warrants outstanding at 30 June 2011 have an exercise price in the range of 90 pence – 100 pence (30 June 2010: 80 pence) and a weighted
average remaining contractual life of three years (30 June 2010: two years).
29. Post‑balance sheet events
Acquisition of Finsch
On 21 January 2011, the Company announced that it, together with its BEE partners, had entered into an agreement to acquire the Finsch mine in
South Africa as a going concern (assets and assumed liabilities) from De Beers for R1.425 billion with the Company’s wholly owned subsidiary Afropean
Diamonds (Pty) Ltd acquiring a 74% interest and the BEE partners a 26% interest. On 14 September 2011, the Company announced the completion of
the Finsch acquisition, which represented the date the Group acquired control of the mine. As part of the transaction, the Company funded
its BEE partners’ share of the R1.425 billion consideration through loans to the BEE partners. The final cash consideration paid in US$ terms was
US$192 million reflecting the benefit of an effective hedging strategy to hedge the foreign exchange risk on the firm commitment to acquire Finsch.
90
Petra Diamonds Limited Annual Report and Accounts 2011
29. Post‑balance sheet events continued
Acquisition of Finsch continued
Effect of the acquisition
The acquisition will have the following effect on the Group’s assets and liabilities:
Finsch net assets at acquisition date
US$ million
Mining property, plant and equipment
Land
Inventory consumables and stores
Trade and other receivables
Environmental liabilities
Long‑term payables
Employee‑related payables
Trade and other payables
Net assets acquired
Non‑controlling interest (26%)
Fair value of net assets attributable to the parent company
Satisfied as follows:
Total cash consideration paid by the Company and BEE consortium
Book
values
234.6
0.7
4.1
1.6
(16.2)
(17.1)
(5.1)
(5.6)
197.0
Provisional
fair value
adjustments
(2.5)
—
(1.0)
(1.6)
—
0.1
—
—
(5.0)
Provisional
fair values
232.1
0.7
3.1
—
(16.2)
(17.0)
(5.1)
(5.6)
192.0
(49.9)
142.1
192.0
The Company has only recently taken control of the mine and as a result the fair values presented are provisional and subject to revision
in accordance with IFRS.
30. Related parties
Subsidiaries, associates and joint ventures
Details of subsidiaries, associates and joint ventures are disclosed in note 32 and note 16 respectively.
Directors
Details relating to Directors’ emoluments and shareholdings in the Company are disclosed in note 12 and in the Directors’ Report (page 38) and
the Directors’ Remuneration Report (page 47) respectively. Key management remuneration is disclosed in note 12.
There are no material loans to Directors or Senior Management that have not been disclosed in the notes.
During the year a subsidiary of the Company paid US$5.6 million (R39.2 million) (30 June 2010: US$1.2 million (R8.9 million)) to Zeren (Pty) Ltd
(“Zeren”) for the purchase of specialised plant and equipment. The equipment was supplied to a subsidiary of the Company at Zeren’s cost and,
given its specialised nature, on an exclusive basis. Mr Dippenaar, Mr Davidson and Mr Abery are all Directors of the Company and are also
directors and shareholders of Zeren.
Within the balance sheet as at 30 June 2011 is an amount of US$5.0 million (2010: US$4.6 million) which was paid by the Company to Sirius
Resource Fund 1 Limited (”Sirius”) as part of a transaction whereby the Company intends to acquire from Sirius an increased interest in the
Group’s South African operations. Mr Pouroulis was previously an investment consultant to Sirius Investment Management LP (“SIM”) which
provides investment advisory services to Sirius. During the year to June 2011 Mr Pouroulis was appointed a director of SIM (subsequent to the
payment to Sirius referred to above).
Umnotho weSizwe Group (Pty) Ltd (“Umnotho”), one of Petra’s BEE partners, holds a 36% interest in the Cullinan mine BEE holding company,
Thembinkosi Mining Investments (Pty) Ltd (“Thembinkosi”). The Group has a non‑current receivable due from Thembinkosi of US$31.0 million
and a non‑current payable due to Thembinkosi of US$29.0 million. These sums arise due to the funding that the Group has provided to Umnotho
to finance its interests in the Cullinan mine. Mr Abery is a director of Umnotho. Mr Pouroulis and Mr Abery are beneficiaries of a trust that is a
shareholder in Umnotho.
Shareholders
The principal shareholders of the Company are detailed in the Directors’ Report on page 39.
Transactions with non‑controlling interests are detailed in note 22 parts (vi) and (vii).
Nabera Mining (Pty) Ltd
The Company is a 29.5% shareholder in Nabera Mining (Pty) Ltd (“Nabera”), the company that managed the Alexkor diamond mine between
1999 and 2001. During the year ended 30 June 2011, Petra did not incur any expenses on behalf of Nabera (30 June 2010: Rnil (US$nil)). Prior
period expenses were incurred in relation to the recovery of the management fee and other amounts due to Nabera from Alexkor Limited and
the South African Government. The total expenses incurred on Nabera’s behalf of US$0.3 million will be reimbursed to the Company on receipt
of the management fee and other amounts due.
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
91
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
31. Significant non‑cash transactions
US$ million
Operating activities
Share‑based payments
Foreign exchange gain
Reversal of impairment
Impairment
Recycling of foreign exchange differences on exploration projects
Release of fair value uplift on sales of inventory acquired through second 50% acquisition of CIHL
Fair value uplift on acquisition of additional 50% of Cullinan
Increase/(decrease) in provisions
Shares issued to repay non‑current liabilities
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss/(profit) on sale of property, plant and equipment
Finance income
Finance expense
Investing activities
Non‑cash capital expenditure (capitalisation of borrowing costs and other)
Non‑cash interest from BEE partners
2011
1.9
(18.9)
(11.7)
5.2
—
—
—
1.4
—
22.4
—
0.3
(7.7)
11.5
4.4
5.7
5.5
11.2
2010
0.9
(5.1)
—
(12.3)
26.4
(31.0)
(2.1)
(15.0)
11.9
1.0
(3.7)
(7.8)
12.6
(24.2)
3.2
3.2
—
—
32. Subsidiaries
At 30 June 2011 the Group held 20% or more of the allotted share capital of the following significant subsidiaries:
Afropean Diamonds (Pty) Ltd
Autumn Star Investments (Pty) Ltd¹
Blue Diamond Mines (Pty) Ltd
Crown Resources (Pty) Ltd
Cullinan Diamond Mine (Pty) Ltd²
Cullinan Investment Holdings Ltd²
Dancarl Diamonds (Pty) Ltd¹
Ealing Management Services (Pty) Ltd
Helam Mining (Pty) Ltd
Kalahari Diamonds Ltd
Kimberley Underground Mines JV
Koffiefontein Mine JV
Messina Diamonds (Pty) Ltd
Messina Investments Ltd
Petra Diamonds Southern Africa (Pty) Ltd
Premier Rose Management Services (Pty) Ltd¹
Sedibeng Diamond Mine JV³
Sekaka Diamonds (Pty) Ltd
Star Diamonds (Pty) Ltd
Wilcroft Company Ltd
Williamson Diamonds Ltd
Class of
incorporation
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
British Virgin Islands Ordinary
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
United Kingdom Ordinary
Unincorporated JV Ordinary
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
South Africa Ordinary
Unincorporated JV Ordinary
Botswana Ordinary
South Africa Ordinary
Bermuda Ordinary
Tanzania Ordinary
Country of share capital Percentage
held held 2011
74%
40%
100%
100%
74%
100%
40%
100%
74%
100%
74%
70%4
100%
100%
100%
100%
57.5%
100%
74%
100%
75%
Percentage
held 2010
100%
40%
100%
100%
74%
100%
40%
—
100%
100%
74%
70%
100%
100%
100%
100%
57.5%
100%
100%
100%
75%
Nature of business
Mining and exploration
Mining and exploration
Mining and exploration
Mining and exploration
Mining and exploration
Mining and exploration
Mining and exploration
Services provision
Mining and exploration
Investment holding
Mining and exploration
Mining and exploration
Mining and exploration
Investment holding
Services provision
Services provision
Mining and exploration
Exploration
Mining and exploration
Investment holding
Mining and exploration
1. Although the Company owns 40% of Autumn Star Investments (Pty) Ltd and Dancarl Diamonds (Pty) Ltd, the Company has consolidated its investments on the basis
of control and management of daily and strategic operational activities.
2. CIHL, Cullinan Diamond Mine (Pty) Ltd and Premier Rose Management Services (Pty) Ltd are all subsidiary companies, as a result of the additional 50% acquisition of CIHL
from Al Rajhi in FY 2010 (refer note 3(b)).
3. The Company owns an effective 57.5% of Sedibeng Diamond Mine JV (“Sedibeng”), through its investment in Messina Diamonds (Pty) Ltd and an effective 17% of Sedibeng
through its investment in Autumn Star Investments (Pty) Ltd.
4 The Company owns an effective 74% of Koffiefontein Mine JV, through its investment in Re‑Teng Diamonds (Pty) Ltd (refer note 3(a)).
92
Petra Diamonds Limited Annual Report and Accounts 2011
33. Pension scheme
The Company operates a defined benefit scheme and defined contribution scheme. The defined benefit scheme was acquired as part of the
acquisition of Cullinan Diamond Mine (Pty) Ltd and is closed to new members. All new employees are required to join the defined contribution
scheme. The assets of the pension schemes are held separately from those of the Group’s assets.
Defined benefit scheme
The defined benefit scheme, which is contributory for members, provides benefits based on final pensionable salary and contributions.
The pension charge or income for the defined benefit scheme is assessed in accordance with the advice of a qualified actuary using the projected
unit credit method. The most important assumptions made in connection with the charge or income were that the return on the funds will be
9.01% (30 June 2010: 11.39%), based on the average yield of South African Government long dated bonds plus 6.47%, and that salaries will
be increased at 7.30% (30 June 2010: 7.20%), based on current South African consumer price index plus 1%. The market value of the assets of
the defined benefit scheme at 30 June 2011 is R132.8 million (US$19.4 million) (30 June 2010: R140.1 million (US$18.3 million)) and the actuarial
valuation of the assets on an ongoing basis represented 116.1% (30 June 2010: 128.7%) of the benefit of R120.6 million (US$17.6 million)
(30 June 2010: R108.8 million (US$14.2 million)) that had accrued to members allowing for expected future increases in earnings. The pension
surplus is R12.2 million (US$1.8 million) (30 June 2010: R31.3 million (US$4.1 million)). The pension fund values are converted using the
year‑end foreign exchange rate of US$1:R6.83 (30 June 2010: US$1:R7.65).
US$ million
Defined benefit obligations
Present value of funded obligations
Fair value of plan assets
Unrecognised net gain – paragraph 58 limit
Recognised surplus for defined benefit obligations
Movements in present value of the defined benefit
obligations recognised in the statement of financial position
Net surplus for the defined benefit obligation as at 1 July
Net expense recognised in the income statement
Contributions by employer
Unrecognised surplus due to IAS 19 paragraph 58 limit
Net surplus for defined benefit obligations at 30 June
2011
(17.6)
19.4
(1.8)
—
—
(0.4)
0.4
—
—
2010
(14.2)
18.3
(4.1)
—
—
(0.4)
0.4
—
—
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
93
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 continued
33. Pension scheme continued
Defined benefit scheme continued
Refer to note 1.17 for details of the limit applied to recognition of pension surplus asset.
US$ million
Income/(expense) recognised in the income statement
Current service cost
Finance expense
Expected return on assets
Unrecognised net gain
Recognition in terms of IAS 19 paragraph 58A
Change in the fair value of the defined benefit assets
Net surplus for the defined benefit obligation as at 1 July
Foreign exchange movement on opening balances
Expected return on assets
Benefits paid to members
Contributions
Actuarial losses
At 30 June
Change in the present value of the defined benefit obligations
At 1 July
Foreign exchange movement on opening balance
Benefits paid to members
Current service cost
Finance cost
Contributions by members
Actuarial losses
At 30 June
Actuarial gains and losses
Actuarial losses on plan assets
Actuarial losses on plan liabilities
Analysis of plan assets
Cash
Equity
Bonds
Property
Other – offshore
Principal actuarial assumptions
Discount rate at 30 June
Expected return on plan assets at 30 June
Future salary increases
Inflation
Future pension increases
US$ million
Determination of estimated pension expense for the year ended 30 June 2012
Member contributions
Company contributions
Benefit payments
Deferred cumulative actuarial gains/(losses)
Funded status
Net change on assets
Net change on liabilities
94
Petra Diamonds Limited Annual Report and Accounts 2011
2011
(0.5)
(1.4)
2.2
4.6
(5.3)
(0.4)
18.3
2.0
1.8
(2.4)
0.6
(0.9)
19.4
(14.2)
(1.5)
2.4
(0.5)
(1.4)
(0.2)
(2.2)
(17.6)
(0.9)
(2.2)
100.00%
—
—
—
—
100.00%
2011
%
per annum
9.01%
9.01%
7.30%
6.30%
4.74%
0.2
0.4
(2.6)
1.8
1.1
(3.4)
(2.3)
2010
(0.4)
(1.2)
2.0
0.3
(1.1)
(0.4)
18.0
0.6
2.0
(2.0)
0.5
(0.8)
18.3
(13.4)
(0.4)
2.0
(0.4)
(1.2)
(0.2)
(0.6)
(14.2)
(0.8)
(0.6)
10.00%
75.00%
15.00%
—
—
100.00%
2010
%
per annum
9.39%
11.39%
7.20%
6.20%
4.65%
0.2
0.4
(2.2)
4.1
(0.8)
(0.6)
(1.4)
33. Pension scheme continued
Defined benefit scheme continued
US$ million
Defined benefit obligation trends
Plan assets
Plan liabilities
Surplus/(deficit)
2011
19.4
(17.6)
1.8
2010
18.3
(14.2)
4.1
2009
18.0
(13.4)
4.6
Assumptions regarding future mortality experience are set based on advice in accordance with published statistics and experience in the fund.
The average life expectancy in years of a pensioner retiring at the age of 65 on 30 June 2011 date is as follows:
Male
Female
2011
18.01
22.52
2010
18.01
22.52
Further to the acquisition of the defined benefit fund, the Group has no experience adjustments.
34. Post‑retirement medical fund
The Company operates a post‑employment health care liability scheme. The post‑employment health care liability scheme was acquired as part
of the acquisition of Cullinan Diamond Mine (Pty) Ltd and is closed to new members. All new employees will be responsible for funding their
own post‑employment health care liability costs.
The benefit liability for the post‑employment health care liability scheme is assessed in accordance with the advice of a qualified actuary using
the projected unit credit method. The Group obtained a valuation using a third party actuary at 30 June 2010 and management has updated
that valuation report for 30 June 2011. This is considered sufficient to achieve a materially accurate valuation. The Group’s post‑employment
health care liability consists of a commitment to pay a portion of the members’ post‑employment medical scheme contributions. This liability
is also generated in respect of dependants who are offered continued membership of the medical scheme on the death of the primary member.
The most important assumptions made in connection with the charge or income were that the health care cost of inflation will be 6.75%
(30 June 2010: 6.75%), based on the average yield of South African Government long dated bonds of 9.25% (30 June 2010: 9.25%), and
that salaries will be increased at 5.75% (30 June 2010: 5.75%). The actuarial accrued liability funded status of the post‑employment health care
liability scheme at 30 June 2011 is R45.5 million (US$6.7 million) (30 June 2010: R40.7 million (US$5.2 million)). The post‑employment health
care liability values are converted using the year‑end foreign exchange rate of US$1:R6.83 (30 June 2010: US$1:R7.65).
US$ million
Post‑retirement medical fund
Present value of post‑employment medical care obligations
Unfunded status at 30 June
Movements in present value of the post‑retirement
medical fund obligations recognised in the statement of financial position
Net liability for the post retirement medical fund obligation as at 1 July
Arising on acquisition of subsidiary
Net expense recognised in the income statement
Net discount rate change
Changes in % continuing at post‑employment
Membership changes
Medical care inflation
Other
Net liability for post‑employment medical care obligations at 30 June
Expense recognised in the income statement
Current service cost
Finance expense
The expense is recognised in the following line items in the income statement
Mining and processing costs
Finance expense
Reconciliation of fair value of scheme liabilities
At 1 July
Arising on acquisition of subsidiary
Net expense recognised in the income statement
Net discount rate change
Changes in % continuing at post‑employment
Membership changes
Medical care inflation
Other
Liabilities at fair market value as at 30 June
2011
6.7
6.7
5.3
—
0.8
—
—
—
—
0.6
6.7
0.2
0.6
0.8
0.2
0.6
0.8
5.3
—
0.8
—
—
—
—
0.6
6.7
2010
5.3
5.3
2.0
2.5
0.7
0.1
(1.3)
0.3
0.9
0.1
5.3
0.3
0.4
0.7
0.3
0.4
0.7
2.0
2.5
0.7
0.1
(1.3)
0.3
0.9
0.1
5.3
F
i
n
a
n
c
i
a
l
S
t
a
t
e
m
e
n
t
s
Annual Report and Accounts 2011 Petra Diamonds Limited
95
Financial Statements
Notes to the Annual Financial Statements
For the year ended 30 June 2011 Continued
34. Post‑retirement medical fund continued
Principal actuarial assumptions
Discount rate at 30 June
Health care cost inflation
Future salary increases
Net replacement ratio
Net discount rate
Normal retirement age (years)
Fully accrued age (years)
US$ million
Determination of estimated post‑retirement
medical fund expense for the year ended 30 June 2012
Current service cost
Finance expense
Benefit payments
Cumulative actuarial gains/(losses)
Unfunded status
Net change on liabilities
US$ million
Actuarial accrued liability
Funded status
2011
6.7
%
per annum
%
per annum
9.25%
6.75%
5.75%
60.00%
2.34%
60.0
60.0
2011
0.2
0.6
(0.1)
—
1.3
1.3
2010
5.2
9.25%
6.75%
5.75%
60.00%
2.34%
60.0
60.0
2010
0.2
0.5
(0.1)
—
0.7
0.7
2009
2.0
Sensitivity analysis
Health care inflation rate
The effect of a 1% increase or decrease in the health care inflation rate on the post‑retirement medical fund accrued liability is as follows:
US$ million
Accrued liability
% difference
US$ million
Accrued liability
% difference
30 June 2011
6.7
—
30 June 2010
5.3
—
Average retirement age
The table below shows the impact of a one year change in the expected average retirement age:
US$ million
Accrued liability
% difference
US$ million
Accrued liability
% difference
30 June 2011
6.7
—
30 June 2010
5.3
—
1% increase
7.9
19.7%
1% increase
6.4
19.9%
Retirement
one year
earlier
6.9
4.5%
Retirement
one year
earlier
5.6
5.9%
1% decrease
4.5
(31.8%)
1% decrease
4.4
(15.8%)
Retirement
one year
later
6.2
(6.0%)
Retirement
one year
later
5.0
(5.5%)
96
Petra Diamonds Limited Annual Report and Accounts 2011
Glossary
“alluvial”
“autogenous mill”
deposits of diamonds which have been removed from the
primary source by natural erosive action over millions of years,
and eventually deposited in a new environment such as a river
bed, an ocean floor or a shoreline
so-called due to the self-grinding of the ore: a rotating drum
throws larger rocks of ore in a cascading motion which causes
impact breakage of larger rocks and compressive grinding of
finer particles
“BEE”
“capex”
black economic empowerment
capital expenditure
“carat” or “ct”
a measure of weight used for diamonds, equivalent to 0.2 grams
“Cpht”
“Craton”
carats per hundred tonnes
a part of the Earth’s crust which has been relatively stable for
a very long period
“ctpa”
carats per annum
“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
“diamondiferous”
containing diamonds
“drawpoint”
openings on the sides of the drift going up into a block cave
“EBITDA”
“EPS”
“feasibility study”
“fissure”
“FY”
“grade”
earnings before interest, tax, depreciation and amortisation
earnings per share
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
informal term for a narrow, vertical, vein-like kimberlite dyke
financial year (1 July to 30 June)
the content of diamonds, measured in carats, within a volume
or mass of rock
“H1” or “H2”
first half, or second half, of the financial year
“hypabyssal rock”
“Indicated Resource”
“Inferred Resource”
“kimberlite”
an igneous rock that originates at medium to shallow depths
within the crust and contains intermediate grain size and often
porphyritic texture
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)
a brecciated ultrabasic igneous rock containing phlogopite
mica, bronzite pyroxene and ilmenite; kimberlites may or may
not contain diamonds
“ kimberlite indicator minerals that can help locate the presence and establish the
minerals”
diamond-bearing potential of kimberlite
“ktpa”
“Mctpa”
“Mcts”
thousand tonnes per annum
million carats per annum
million carats
“Measured Resource”
“Mt”
“Mtpa”
“open pit”
“orebody”
“OSP”
“pa”
“Probable Reserves”
“Proved Reserves”
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
million tonnes
million tonnes per annum
mining in which ore that occurs close to the Earth’s surface
is extracted from a pit or quarry
a continuous well-defined mass of material of sufficient ore
content to make extraction feasible
optical sort plant; a plant designed to capture diamonds that
don’t fluoresce well under X-ray (i.e. Type II diamonds)
per annum
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
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
“rehabilitation”
the process of restoring mined land to a condition approximating
to a greater or lesser degree its original state
“ROM”
“shaft”
“slimes”
“stockpile”
“tailings”
“tailings dump”
run-of-mine
an underground vertical or inclined passageway
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 1mm in size
a store of unprocessed ore
material left over after processing ore
dumps created of waste material from processed ore after the
economically recoverable metal or mineral has been extracted
“tpa”
“tpm”
tonnes per annum
tonnes per month
“Type II diamonds”
Type II diamonds are defined by containing no detectable
nitrogen and are often colourless or brown
Elizabeth House
PO Box 1075
9 Castle Street
St Helier
Jersey JE4 2QP
Tel: +44 1534 700 111
Fax: +44 1534 700 007
Email: info@petradiamonds.com
www.petradiamonds.com