Petra Diamonds Limited Annual Report and Accounts 2013
Unearthing value
in diamonds
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Members of the construction crew at 63 Level in Block 4,
the current mining production area at Finsch.
Petra Diamonds Limited Annual Report and Accounts 2013
Overview
Contents
Petra Diamonds is a leading
independent diamond mining group
and an important supplier of rough
diamonds to the international market.
The Company is listed on the Main Market
of the London Stock Exchange and is a
constituent of the FTSE 250.
Petra conducts all its operations according
to the highest ethical standards and will
only operate in countries which are
members of the Kimberley Process.
Petra continues to achieve its
strategy of growth, as reflected
by our performance in FY 2013:
Our Performance
Page 4
Chairman’s Statement
Page 6
Our Strategy and KPIs
Page 20
Discover more about Petra online
petradiamonds.com
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Overview
2 Our Business
4 Our Performance
6 Chairman’s Statement
Strategic Review
10 CEO’s Review
14 Our Business Model
16 Our Market
20 Our Strategy and
Key Performance Indicators
24 Our Assets and Expansion
26 Risks
Performance Review
32 Financial Review
36 Operational Review
36 Finsch
38 Cullinan
40 Koffiefontein
41 Kimberley Underground
42 Williamson
43 Petra’s Partners
44 Resource and Exploration Management
Sustainability
48 Our Commitment
Corporate Governance
54 Introduction
56 Board of Directors
58 The Report of the Board
66 Report of the Audit Committee
69 Report of the Nomination Committee
70 Report of the HSSE Committee
71 Directors’ Remuneration Report
82 Directors’ Report
Group Accounts
88 Independent Auditors’ Report – Group
89 Consolidated Income Statement
90 Consolidated Statement of Other
Comprehensive Income
91
Consolidated Statement of Changes in Equity
93 Consolidated Statement of Financial Position
94 Consolidated Statement of Cashflows
95 Notes to the Annual Financial Statements
134 Five-year Summary of Consolidated Figures
135 Shareholder and Corporate Information
137 Glossary
Annual Report and Accounts 2013 Petra Diamonds Limited
1
Overview
Our Business
A diamond mining group
of global significance
Exceptional growth World-class assets
Petra’s development has established
the Company as London’s largest quoted
diamond mining group and its exceptional
growth profile positions the Group
as a unique investment opportunity.
Petra is a first-rate operator of
diamond mining assets, with five
producing mines in South Africa,
one in Tanzania and an exploration
programme in Botswana.
A RISING PRODUCTION PROFILE
$ Petra has capitalised on structural changes in the
diamond industry to grow rapidly by acquisition.
OPERATING MINES
$ Petra is focused on Africa, which produces ca. 60%
of the world’s diamonds by value.
$ Group production has increased more than tenfold
from ca. 200,000 carats in FY 2008 to 2.67 million
carats in FY 2013.
$ Petra is now targeting ca. 3.0 million carats in
FY 2014, rising to ca. 5.0 million carats by FY 2019.
$ The Group’s production portfolio incorporates
the full range of kimberlite ‘hardrock’ operations,
combining four underground pipe mines with
one large, high-volume open pit mine and one
low-tonnage, high-grade fissure mine.
FY 2013 PERFORMANCE VS FY 2012
ROUGH DIAMOND
PRODUCTION
+21%
REVENUE
+27%
PROFIT FROM
MINING ACTIVITY
+34%
ADJUSTED EBITDA
+36%
$ The Group’s two flagship assets are Finsch and
Cullinan, which together accounted for 86% of Group
production and 73% of Group revenue in FY 2013.
EXPLORATION
$ Petra’s exploration activities are focused in
Botswana, the world’s largest diamond producer
by value and host to two of the world’s most
important diamond mines, Orapa and Jwaneng.
Our Performance
Page 4
Our Assets
Page 24
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Petra Diamonds Limited Annual Report and Accounts 2013
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Clear strategy
Focus on sustainability
Through its strong and responsible
leadership, Petra is investing in the
expansion and optimisation of its
world-class assets in order to deliver
significantly increased production.
Petra is committed to the responsible
development of its assets to the benefit
of all stakeholders. The Company seeks
to achieve leading health and safety,
environmental and social performance.
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INCREASE OUTPUT
Petra’s transparent growth profile is fully
financed using existing treasury, operational
cashflows and debt facilities.
CREATING VALUE
Petra creates value by optimising and extending
the lives of its mines to deliver sustainable,
long-term operations.
OPTIMISE RECOVERIES
Petra designs and implements bespoke
recovery solutions to capture each mine’s
optimal rough diamond profile.
ENSURING STABILITY
Petra’s mine plans for its core assets in South Africa
and Tanzania will ensure stable employment for
the mines’ employees.
DRIVE EFFICIENCIES
The Petra Group is defined by a culture
of rigorous cost control well suited to
maximising returns from its assets.
BENEFITING COMMUNITIES
Corporate social responsibility is integral to the
way the Group structures and operates its mining,
development and exploration projects, and this
strategy will provide continued benefits for Petra’s
local communities for many years to come.
Our Strategy
Page 20
Sustainability
Page 48
Annual Report and Accounts 2013 Petra Diamonds Limited
3
Overview
Our Performance
Another year of growth
Petra offers an exceptional growth profile and is on track to steadily increase
annual production to 5 million carats by FY 2019.
What we’ve achieved
ROUGH DIAMOND PRODUCTION
Million carats
REVENUE
US$ million
2.67
402.7
+21%
2.67
+27%
402.7
ADJUSTED OPERATING
CASHFLOW 4 US$ million
132.8
+57%
132.8
2.2
316.9
1.2
1.1
1.1
220.6
177.7
94.4
84.6
67.8
49.0
(3.8)
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Financial Highlights
$ Revenue up 27% to US$402.7 million (FY 2012: US$316.9 million).
$ Profit from mining activity1 up 34% to US$138.6 million
(FY 2012: US$103.3 million).
$ Adjusted EBITDA2 up 36% to US$122.4 million
(FY 2012: US$90.3 million).
$ Net profit after tax of US$27.9 million
(FY 2012: US$2.1 million loss).
$ Adjusted net profit after tax3 up 22% to US$48.3 million
(FY 2012: US$39.6 million).
$ Adjusted operating cashflow4 up 57% to US$132.8 million
(FY 2012: US$84.6 million).
$ Basic EPS: 6.30 cents per share (FY 2012: 0.48 cents per share loss).
$ Adjusted EPS: 10.31 cents per share (FY 2012: 7.82 cents
per share).
$ Cash at bank: US$26.2 million (30 June 2012: US$47.3 million).
$ Diamond debtors (all settled shortly after Year end)
of US$74.8 million (FY 2012: US$25.1 million).
$ Diamond inventories of US$31.5 million
(FY 2012: US$24.5 million).
$ Loans and borrowings: US$147.0 million
(FY 2012: US$69.2 million).
$ Facilities undrawn (net of US$3.6 million utilised for foreign
exchange settlement lines (30 June 2012: US$nil)) and available
to the Group of US$71.3 million (30 June 2012: US$66.3 million);
net debt in line with management’s expectations.
Key Performance Indicators
Page 21
4
Petra Diamonds Limited Annual Report and Accounts 2013
Operational Highlights
$ Production up 21% to 2,668,305 carats
(FY 2012: 2,208,862 carats).
$ Rand (South Africa) and US$ (Tanzania) on-mine unit cash
costs (per total tonne treated) well controlled with above
inflationary cost increases offset by increased throughput.
$ Capex invested (including capitalised finance costs) at operations
of US$198.3 million (FY 2012: US$138.0 million), in accordance
with the roll-out of the Group’s expansion programmes.
$ Group Lost Time Injury Frequency Rate (“LTIFR”) for the
Year reduced to 0.67 (FY 2012: 1.13). This is an encouraging
trend considering the increase in activities as the capital
programmes progress.
Corporate Highlights
$ Restructure and optimisation of debt facilities undertaken
in November 2012 increased the Group’s ZAR debt and
working capital facilities by R900 million to R1.6 billion,
with the US$ portion of the debt facilities (US$60 million)
remaining unchanged.
$ Board changes: Tony Lowrie appointed as Senior Independent
Non-Executive Director in September 2012; Dr Omar Kamal
stepped down as a Non-Executive Director in February 2013.
$ Further to the termination of the sales process for the
Fissure Mines, the Sedibeng and Star mines were placed
onto care and maintenance post Year end, whilst the Helam
mine continues to be operated within the Group on a normal
commercial basis.
What’s next
REVENUE US$
FY 2014 and FY 2019 are projected targets
based on management estimates.
GROSS PRODUCTION Carats
FY 2014 and FY 2019 are projected targets based on management estimates.
ca. 1bn
ca. 5.0m
402.7m ca. 450.0m
2.67m
ca. 3.0m
FY 2013
FY 2014
FY 2019
FY 2013
FY 2014
FY 2019
Growing revenue
FY 2014 and FY 2019 figures
are calculated using a 4%
annual real price increase.
Growing production
Group production is predicted to grow +12% in FY 2014 to ca. 3.0 million
carats and is on track to reach ca. 5.0 million carats by FY 2019.
Outlook
$ Certain of Petra’s South African mines were affected by
a two-week period of industrial action, which commenced
on Thursday 29 August 2013. Normal operations resumed
at the affected mines from Monday 16 September 2013.
$ Based on the strong production run rate with which Petra
commenced FY 2014 (including partial production during the
industrial action), the Company remains on track for full year
production to increase ca. 12% to 3.0 million carats in FY 2014.
$ Expansion plans remain on target to increase production
to 5.0 million carats by FY 2019.
$ Rough diamond market expected to remain steady in FY 2014
due to constrained supply and a firmer US market, the world’s
major market for polished diamonds, as well as continued
growth in China, albeit at a lower rate than over recent years.
See more
Petra’s Vision
Page 20
Our Assets and Expansion
Page 24
The Group uses several non-GAAP measures above and throughout this report, including adjusted mining and processing costs, profit from mining activities, adjusted EBITDA,
adjusted net profit after tax, adjusted earnings per share and adjusted operating cashflow. As these are non-GAAP measures, they should not be considered as replacements
for IFRS measures. The Company’s definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies.
1. Stated before retrenchment costs, depreciation and share-based expense.
2. Adjusted EBITDA is EBITDA (profit before interest, tax and depreciation) stated before share-based expense, net unrealised foreign exchange losses, retrenchment costs,
non-recurring transaction costs and impairment charges.
3. Stated before retrenchment costs, impairment charges, non-recurring transaction costs and net unrealised foreign exchange losses.
4. Adjusted operating cashflow is operating cashflow stated before the movement in year end diamond debtors, excluding unrealised foreign exchange translation movements.
Refer to page 33 of the Financial Review for further detail.
5. Stated before retrenchment costs, impairment charges, non-recurring transaction costs and net unrealised foreign exchange losses.
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Annual Report and Accounts 2013 Petra Diamonds Limited
5
Overview
Chairman’s Statement
Delivering strong growth
Our goal has always been to build a world-class diamond group
and we continue to make solid progress in this regard.
Dear Shareholder,
I am delighted to introduce Petra’s 2013 Annual Report and to
report on a further period in which the Company consolidated
its position as a leading independent diamond producer.
Delivering on our strategy
Our goal has always been to build a world-class diamond group
and we continue to make solid progress in this regard. In FY 2013,
we delivered further production and revenue growth and
confirmed that our expansion plans are on track.
Over the years, Petra has honed a company culture that
focuses on efficiencies and minimisation of overheads, placing
the Group in a strong position to maximise value from its
assets. This is evident in our financial results, with profit from
mining activity up 34% to US$138.6 million, adjusted EBITDA
up 36% to US$122.4 million, adjusted operating cashflow up 57%
to US$132.8 million and a net profit after tax of US$27.9 million
(as opposed to a loss of US$2.1 million in FY 2012).
Commitment to sustainable business in Africa
Petra has a positive role to play in Africa, which is where we have
developed extensive experience in the operation of world-class
diamond mines. We create value by optimising and investing in
our assets with the aim of delivering long-life operations and
significantly increased production. Petra’s mines are typically
located in rural areas where they are an important employer,
meaning that the economic benefit generated for our local
communities is significant and our operations support many
more people than the number of direct employees.
The challenges associated with operating in Africa, particularly
with regards to recent labour relations in South Africa, are well
publicised but the many positives of operating in the region often
go unsung. We believe the continent offers great opportunities
to do business in the diamond sector, and the countries where
we operate encompass world-class orebodies, temperate climates,
skilled workforces with generations of diamond experience and
well-developed infrastructure. We are proud to contribute to a
long-term future for the diamond industry in Africa and believe
that the responsible extraction of this valuable resource can
contribute to driving socio-economic development.
Corporate Governance
Petra continued to make progress in terms of its corporate
governance in FY 2013, with the appointment of Tony Lowrie
as the Company’s Senior Independent Director. This is a key UK
corporate governance requirement and previously Petra did
not have a Director acting in this role. Tony brings a wealth
of relevant expertise to the Company, having an association
of over 35 years with the equities business and being currently
a non-executive director of Kenmare Resources plc,
also a FTSE 250 mining company.
I would also like to thank Dr Omar Kamal for the valued
contribution he made to the Company during his tenure as a
Director. Dr Omar Kamal, the representative of one of Petra’s
major shareholders, Al Rajhi Holdings W. L. L., stepped down
from the Board in February 2013.
Sustainability
Page 48
Adonis Pouroulis
Non-Executive Chairman
Petra is a special company
being driven forward
by a special team.
Stay up to date with Petra’s
progress and growth on our
investor website.
See more online
petradiamonds.com/investors
6
Petra Diamonds Limited Annual Report and Accounts 2013
Employee development
Our people play a vital role in the
successful delivery of our strategy.
Petra is committed to the training and
development of employees in order to
ensure the current and future skills needs
of the organisation are met, and we offer
both legally required and career-oriented
training in both the technical and
non-technical disciplines that exceeds
legislated training requirements. Petra
recently completed the Skills Audit Project
to evaluate employee skills in the context
of the skills required by our business,
now and in future. The project helped
the Company to refine its approach
to training and employee development.
ca. US$4.5m
SPENT ON EMPLOYEE TRAINING
Striving for zero harm
Outlook
Over the years, the Group has experienced a number of
challenges, but its ability to face and overcome such challenges
has helped ready the Group for its future success.
Reflecting on another successful year, I would like to especially
thank our host Governments of South Africa, Tanzania and
Botswana, as well as our black economic empowerment
partners and the Petra Diamonds Employee Trust for their
continued support.
Finally I would like to thank all Petra employees for their
incredible commitment and hard work. It is not easy to
maintain the level of growth that we have achieved and
continue to achieve. Petra is undoubtedly a special company
and it is being driven forward by a special team.
Adonis Pouroulis
Chairman
11 October 2013
Corporate Governance
Page 54
The health and safety of employees and contractors is
Petra’s most important consideration. The Group’s safety
performance improved in FY 2013, with a 41% reduction
in the Company’s LTIFR. This was an encouraging trend
considering the increase in activities as the Group’s
capital programmes progressed. Much of this improved
performance can be attributed to safety awareness
campaigns run by the Group, particularly during the
holiday season towards the end of the calendar year,
which all formed part of the integrated health and safety
programmes in place at each operation.
0.67
LOST TIME INJURY FREQUENCY RATE
Annual Report and Accounts 2013 Petra Diamonds Limited
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Strategic Review
Members of the plant operations
team at Finsch performing a mini risk
assessment in preparation for their work
The success of our business depends
on our workforce.
We believe that employees who are empowered
and accountable for their actions work to the best
of their ability, and have fostered a culture whereby
innovation and creativity in the workplace
is encouraged and rewarded.
Strategic Review
CEO’s Review
A year of significant progress
FY 2013 marked a further progression of our strategy to develop a world-class
diamond mining group.
I am pleased to report that FY 2013 (“the Year”) marked a further
progression of our strategy to develop a world-class diamond
mining group. The key successes of the Year were the delivery
of further substantial growth in production (+21% to 2.67 Mcts)
and revenue (+27% to US$402.7 million), alongside the acceleration
of our expansion programmes, all of which were achieved
with an improved safety performance, demonstrating our
focus on this key area.
However, the Year was not without challenges and our performance
was impacted by a delay in the roll-out of the Cullinan tailings
project, the volatility of the ROM grade at Cullinan due to the
mature nature of the current working areas, and the labour
relations climate in South Africa. Despite this, the focus that we
apply to addressing such challenges meant that in Q4 FY 2013
we recorded very strong production (772,103 carats), which
bodes well for further production growth in FY 2014.
Petra’s expansion programmes are now progressing apace,
as evidenced by the substantial uplift in development metres
recorded at both Finsch and Cullinan for the Year. The development
will continue to accelerate in FY 2014, with access being established
to the Finsch Block 5 Sub-Level Cave during FY 2014 and initial
production tonnages from FY 2015. Access to the Cullinan C-Cut
Phase 1 is on schedule for FY 2015, with initial production
tonnages from FY 2016.
The schematic ‘Moving into undiluted ore’ to the right
demonstrates how our expansion programmes will open
up new mining areas in pure kimberlite.
As the production profile at both these major mines gradually
switches over from diluted to undiluted ore, the diamond
content of the ore mined will increase significantly. At the same
time as we gain access to these higher grade tonnages, our unit
costs will further improve due to higher volumes and increased
efficiencies, particularly in the ore-handling systems, and we
therefore expect to substantially increase our operating
margins in the coming years.
Petra’s approach is to continually seek opportunities to optimise
its mine plans. The most important concepts in mining are access
to the orebody and optimal production flexibility; these focus
areas will ensure that a mine can withstand foreseen or unforeseen
production issues (including grade volatility), as well as take
advantage of opportunities, such as the potential for future
ramp-ups. This thinking was evident in the refinements we
announced in our Market Guidance update on 12 August 2013,
with a particular emphasis on optimisation of ore-handling
systems, establishing ways to access undiluted ore as early
as possible and maximising access to an orebody’s footprint,
thereby enhancing all-important production flexibility.
Johan Dippenaar
Chief Executive Officer
SUMMARY
$ The delivery of further substantial growth
was achieved with an improved safety
performance, demonstrating our focus
on this key area.
$ Our expansion programmes are now
progressing apace, as evidenced by the
substantial uplift in development metres
recorded at both Finsch and Cullinan
for the Year.
$ As the production profile at both Finsch and
Cullinan gradually switches over from diluted
to undiluted ore, the diamond content of
the ore mined will increase significantly.
$ Our unit costs will be further improved
due to higher volumes and increased
efficiencies, particularly in the ore-handling
systems, and we therefore expect to
substantially increase our operating
margins in the coming years.
10
Petra Diamonds Limited Annual Report and Accounts 2013
SCHEMATIC SHOWING AN INDICATIVE KIMBERLITE OREBODY AND BLOCK CAVING IN PROGRESS
Surface level
MINED OUT
OPEN PIT
Waste rock
Mature block cave
Virgin
kimberlite ore
Undiluted
ore
Undercut
level
Production level
Rim tunnel
Loaders
Moving into undiluted ore
$ Block caving is a traditional and safe
mining method started in kimberlite
mining; provides access to higher
volumes of ore than other methods
$ Current underground mining taking
place in diluted, mature caves
$ Expansion programmes to take next
‘cut’ by deepening and establishing
new sub level and block caves
in undiluted kimberlite
Spiral decline
$ Grades expected to rise significantly,
increasing margin per tonne mined:
Finsch ~34cpht to ~56cpht
Cullinan ~31cpht to ~50cpht
$ Will reduce wear and tear on
processing systems (waste rock
is harder and more abrasive
than kimberlite)
Petra continues to demonstrate expertise in the recovery of
diamonds through the optimal configuration of our processing
plants. No two diamond kimberlites are the same and we always
look to ensure recovery of the full value spectrum afforded by
a particular orebody. This was demonstrated by our decision
to lower the bottom cut at Finsch to recover more diamonds
in the small size ranges, which are of particularly high value
at that mine. Our successful recovery of ‘specials’ also attests
to this expertise and it was particularly encouraging to sell the
first +US$1 million stones from both Kimberley Underground
and Williamson under Petra management during the Year,
following the in-house construction/refurbishment and
commissioning of the plants at both operations.
Structural changes continue in our industry and we note the
recent move of De Beers’ marketing operations from London
to Gaborone in Botswana as a positive for both the region and
for Petra. Southern Africa is becoming a major rough diamond
hub and we are well positioned to benefit from the heightened
activity, particularly given the ever increasing number of diamond
buyers coming to the region.
FY 2013 operations
FY 2013 diamond production increased 21% to 2.67 Mcts, slightly
above the previously revised market guidance of 2.65 Mcts.
The year on year increase was mainly due to Finsch’s contribution
for a full 12 month period (FY 2012 included circa nine months’
production from the date of acquisition) and Williamson
successfully achieving the planned levels of production following
the commissioning of its rebuilt plant at the end of FY 2012.
Revenue increased 27% to US$402.7 million (FY 2012: US$316.9 million),
primarily due to increased volumes coupled with the sale of
the 25.5 carat blue diamond from Cullinan for US$16.9 million in
May 2013. Carats sold increased 22% to 2,539,844 (FY 2012: 2,084,429),
in line with the increasing trend of production.
Increase in effective interests in South African operations
Effective 1 January 2013, the Group increased its effective
interest in each of its South African operations by acquiring
a 49.24% interest in Nelesco 651 (Pty) Ltd, which in turn provided
a 49.24% effective interest in Sedibeng Mining (Pty) Ltd,
one of Petra’s South African empowerment partners.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Strategic Review
CEO’s Review continued
Finsch had a strong first full year under Petra management, contributing
53% of Group production by volume and 40% of Group revenue for FY 2013.
Production combined operations
Sales
Revenue
Diamonds sold
Production
Total tonnes treated
ROM diamonds
Tailings, surface and alluvial diamonds
Total diamonds
Opex
On-mine cash cost
Capex
Expansion
Sustaining
Borrowing costs capitalised
Total
Unit
FY 2013
FY 2012
Variance
US$m
Carats
Tonnes
Carats
Carats
Carats
US$m
US$m
US$m
US$m
US$m
402.7
2,539,844
316.9
2,084,429
14,853,762
2,038,115
630,190
10,367,722
1,872,120
336,742
2,668,305
2,208,862
263.4
138.8
47.2
12.3
198.3
234.3
102.5
29.2
6.3
138.0
+27%
+22%
+43%
+9%
+87%
+21%
+12%
+35%
+62%
+95%
+44%
12
Petra Diamonds Limited Annual Report and Accounts 2013
Whilst economic conditions continue to remain challenging, we believe that the long-term
outlook for the Group is positive. Petra has compiled a high quality portfolio of producing
assets and will continue to significantly increase production in the years to come.
Life-long learning
Petra helps combat South Africa’s illiteracy rate by offering part time adult basic education and training (“ABET”), providing
employees with the opportunity to gain a minimum level of education and thereby setting them up for potential further
education and development opportunities, as well as instilling a culture of life-long learning. The Company has access to
ABET facilities at all of its South African operations. In Tanzania, the workforce has a much higher level of basic education.
Industrial action in South Africa
Post Year end, certain of the Company’s South African mines
(Cullinan, Koffiefontein, Kimberley Underground and Helam)
were affected by industrial action which commenced on
Thursday 29 August 2013, with normal operations resuming
from Monday 16 September 2013.
However, despite the industrial action, due to the strong
production run rate with which Petra commenced FY 2014,
the Company remains on track for full year production
to increase ca. 12% to 3.0 Mcts in FY 2014.
Outlook
Whilst economic conditions continue to remain challenging,
we believe that the long-term outlook for the Group is positive.
Petra has compiled a high quality portfolio of producing assets
and will continue to significantly increase production in the
years to come, supplying into what is expected to be a buoyant
diamond market. True sustainability remains central to the way
we structure all projects, ensuring that all our stakeholders
benefit from our future success.
None of this would be possible without the hard work and
motivation of our team, as well as our valued partnerships
with our Government and BEE partners. I would like to thank
you all for your individual contribution to realising our strategy.
Johan Dippenaar
Chief Executive Officer
11 October 2013
Annual Report and Accounts 2013 Petra Diamonds Limited
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Strategic Review
Our Business Model
Through its strong and responsible leadership, Petra is investing in the expansion
and optimisation of its world-class assets in order to deliver significantly increased
production in the years to come. Underpinning Petra’s business model is a focus
on safety and sustainability, thereby driving value for all stakeholders.
How we add value
World-class
Assets
Petra has acquired five
of the world’s important
diamond mines and in so
doing has compiled a major
diamond resource of over
300 million carats.
Investing
Petra has committed significant
capital in order to extend the
lives of its mines.
Expansion
Petra has expansion plans in place
at each of its operations and is
seeking to discover new, economic
kimberlites through its exploration
programme in Botswana.
Our Assets and Expansion
Page 24
S O N S A F E T Y AND SUSTAINABILIT
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B ILIT Y
A
Focus on
Safety and sustainability
Corporate social responsibility
is integral to the way the Group
structures and operates its
mining, development and
exploration projects.
Petra strives to make a real
contribution to the ‘triple bottom
line’ (people, profit and planet).
This includes enhancing its local
environment to the benefit of
employees and communities.
The Company achieves this through
various initiatives that aim to
stimulate local socio-economic
development, as well as by
upholding high standards of
environmental stewardship.
Sustainability
Page 48
Read our
Sustainability Report
petradiamonds.com/
sustainability
14
Petra Diamonds Limited Annual Report and Accounts 2013
World-class
Leadership
Strong and responsible
governance ensure the Company
can identify and mitigate risks,
as well as recognise and
capitalise on opportunities.
Optimising
Petra is focused on ‘value’ as
opposed to ‘volume’ production
and plans its mining and processing
to capture a mine’s optimal rough
diamond profile.
Growth
Petra has set out a transparent
growth path which is expected
to see production rise from
2.67 million carats in FY 2013
to 5 million carats by FY 2019.
Our Assets and Expansion
Page 24
Stakeholder
Value
Petra’s exceptional growth
profile is expected to deliver
substantially higher revenues
and earnings over time, which
will in turn deliver value
to all stakeholders.
Our Strategy
Page 20
Where we apply it
Increase output
Petra is extending the lives of its world-class assets
by opening up new mining areas and delivering access
to undiluted ore.
Optimise recoveries
Ongoing refinements ensure that the Group’s processing
plants are configured to recover the full value spectrum
afforded by a particular orebody. The Company also focuses
on security at each asset.
Increase efficiencies
Petra continues to drive efficiencies across its mines.
Key focus areas are optimisation of ore-handling systems,
initiatives to manage power and water usage and
effective use of labour.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Strategic Review
Our Market
There is a positive long-term outlook for the rough diamond market due to inherent
supply constraints which suggest that supply will struggle to keep pace with demand.
Petra provides investors with a premier investment opportunity offering direct
exposure to the diamond market.
Petra’s market position
A strong market position
De Beers, Alrosa and Rio Tinto remain the dominant players
in the diamond market.
Beneath the majors, there are only four sizeable quoted diamond
producers, being (by order of market capitalisation) Dominion
Diamond Corporation, Petra Diamonds, Gem Diamonds and
Lucara Diamond Corporation.
Based on FY 2013 production of 2.67 million carats and sales
of US$402.7 million, Petra accounted for 2% of world supply
by volume and 3% by value.
Given the scarcity of economic diamond deposits
worldwide, barriers to enter this elite group
of diamond producers are high.
SHARE OF WORLD DIAMOND PRODUCTION
(BY VOLUME)
ca. 33%
ca. 7 %
2013
ca. 60%
Source:
Petra Diamonds and other
company records
MAJOR PRODUCERS
De Beers
Alrosa
Rio Tinto
MID-TIER QUOTED PRODUCERS
Petra Diamonds
Dominion Diamond Corporation
Gem Diamonds
Lucara Diamond Corporation
NON-QUOTED PRODUCERS
Non-quoted producers such as
Democratic Republic of Congo,
Zimbabwe and Angola
WORLDWIDE ROUGH DIAMOND
PRODUCTION (BY VOLUME)
128 million
carats
WORLDWIDE ROUGH DIAMOND
PRODUCTION (BY VALUE)
US$12.6bn
Source: Kimberley Process Certification Scheme
Source: Kimberley Process Certification Scheme
Large scale resources
In terms of resources (the number of ‘carats in the ground’
estimated as yet to be mined at Petra’s operations), the Group’s
major resource base of 309.6 million carats is estimated
to be the largest in the world outside the majors.
Petra has the largest resource base of any mid-tier
diamond producer.
GROSS RESOURCE BASE
Finsch 16%
Cullinan 65%
Koffiefontein 2%
Kimberley Underground 2%
Williamson 13%
Fissures 2%
16
Petra Diamonds Limited Annual Report and Accounts 2013
Supply and demand
Diamond deposits are scarce
A key characteristic of diamond deposits is their scarcity,
in contrast to many other commodities, with only around
30 significant kimberlite mines operating in the world today.
To date, the most important discoveries (other than Argyle
in Australia) have clustered into three regions of the world:
southern Africa, Siberia and western Canada.
See a map of the world’s major
diamond producers
petradiamonds.com/about-us/
the-diamond-market
Profitable, large-scale kimberlites are therefore difficult to find
and can take a long time to bring into production (up to 10–15
years from discovery). Despite the large amount of money
invested into diamond exploration in the last few decades,
there have been no major new discoveries for around 20 years.
Petra’s growth strategy has therefore been to acquire existing
mines, where the opportunity exists to invest in and optimise
these assets in order to extend their lives.
The success rate for finding an economic, diamond-
bearing kimberlite is estimated to be around 1%.
Source: De Beers, Nomura research
GLOBAL DIAMOND PRODUCTION Million carats
Source: Kimberley Process Statistics
DIAMOND JEWELLERY SALES MARKETS
Source: RBC Capital Markets/De Beers
200
150
100
50
0
26%
26%
2000
48%
16%
34%
2017
50%
2004
2006
2008
2010
2012
USA
Far East
Rest of World
Note: 2017 figures
are estimated
Supply is limited...
Many of the world’s largest diamond mines are now past their
peak production levels and some are currently undergoing an
open-pit to underground transition, which inherently limits
tonnage output. Furthermore, some of the world’s major
diamond mines are expected to come to the end of their
useful lives within the next ten years.
Whilst certain new mines are planned to come on stream,
there is nothing of significant size to make up for this
downward trend in production.
...whilst demand is growing
Demand growth for diamonds is being driven by the
urbanisation trend and the growing middle classes in emerging
markets, with an additional 1.3 billion people forecast to attain
middle income status by 2030 and a further 2.6 billion by 2050
(HSBC ‘Consumer in 2050’ report).
Demand is shifting from west to east, as the Far East (classified
as Japan, China, Hong Kong, Taiwan, India and the Gulf) rapidly
develops consumer preferences for diamonds.
However, unlike most other commodities, diamonds also provide
exposure to the economic recovery ongoing in the US, which
remains the world’s dominant diamond consumer.
It is possible that the world has already seen
peak diamond production.
The Far East is expected to account for
approximately half of global demand by 2017.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Strategic Review
Our Market continued
Factors driving the market
The ultimate late cycle commodity
The chart to the right demonstrates China’s per capita consumption
of various basic materials relative to the US at its ‘steady state’
consumption rates. Whilst China already consumes more than
the US on a per capita consumption of early cycle materials, such
as steel and cement, there remains large potential upside for late
cycle commodities such as diamonds, as consumption per capita
in emerging regions is still far below that of mature markets.
Likewise diamonds are late cycle in terms of discretionary consumer
purchases. As disposable income rises, consumers eventually
aspire to buy and own gem set jewellery.
CHINA’S PER CAPITA CONSUMPTION OF
KEY COMMODITIES Relative to the US (100%)
CONCRETE (250%)
STEEL (120%)
NICKEL
ZINC
GOLD
ALUMINIUM
COPPER
PLATINUM
TIO2
PULP
DIAMONDS
n
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a
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u
t
a
s
%
120
100
80
60
40
20
0
There is large potential upside for late cycle
commodities such as diamonds in China.
National GDP increase
Source: Bank of America Merrill Lynch Global Metals and Mining Research
% OF FIRST TIME BRIDES WHO RECEIVE A
DIAMOND-ONLY ENGAGEMENT RING
Source: De Beers
80
77
?
31
10
5
1940 1990
1965 1995
1994 2010 PEAK
USA
JAPAN
CHINA
USA
50 years
CAGR 4.2%
JAPAN
30 years
CAGR 9.5%
CHINA
16 years
CAGR 23.9%
Mass luxury will drive the market...
As a new consumer market matures, diamonds are no longer
the preserve of a wealthy elite and a mass market is able to
flourish once consumer disposable income allows. Evidence
suggests that the Chinese and Indian markets are thereby
starting to follow the US trend, with retailers stating that these
markets will be driven by ‘mass luxury’ – i.e. affordable diamond
jewellery ranging from US$200 to +US$2,000 per item.
As in the West, mass luxury purchases in the East are underpinned
by the bridal/wedding market, followed by other opportunities
to celebrate life’s most momentous occasions, such as birthdays,
anniversaries and new births.
...plus widespread use in luxury goods
Over the last few years, the prices of smaller gem quality
diamonds have increased at a faster rate than those of larger
diamonds due to their high demand across a wide range of
luxury goods, but particularly in the watches segment.
Likewise, there is a now a trend for all manner of luxury goods
to be adorned with diamonds, such as pens, mobile phones
and other portable digital devices.
Even jewellery set with other gemstones, such as emeralds, rubies
and sapphires, very often includes smaller white diamonds as
these serve to perfect and add lustre to a central coloured stone.
The number of China’s brides receiving a diamond
engagement ring grew by a CAGR of 23.9% from
1994 to 2010.
Smaller gem quality diamonds are in high demand
due to use across a wide range of luxury goods.
18
Petra Diamonds Limited Annual Report and Accounts 2013
The diamond market in FY 2013
Diamond prices
The rough diamond market was stable in FY 2013, with less
volatility than has been experienced over recent years. Petra’s
rough diamond prices were essentially flat during H1 of FY 2013,
whilst firmer prices were seen during H2.
US$16.9 million; this equates to a remarkable US$663,144 per carat,
which is possibly one of the highest value per carats ever achieved
for a rough stone.
Blue diamonds are incredibly rare, which only adds to their allure.
Cullinan is the world’s most important source of blues.
Petra expects prices to remain stable for FY 2014, with the
potential for pricing upside, due to constrained supply and
a firmer US market, the world’s major market for polished
diamonds, as well as continued growth in China, albeit at a
lower rate than over recent years. Recent economic data for
the luxury goods sector suggests robust demand in most major
markets, as well as some indicators of green shoots in Europe.
Prices achieved for FY 2013 were largely in line with Petra’s
guidance for the Year and the Company’s guidance pricing for
FY 2014, as published on 12 August 2013, is listed below. This
price guidance excludes revenue from ‘exceptional diamonds’
(+US$5 million stones). Taking into account variation from year
to year, on an average annual basis such stones have added
in excess of US$16 million per annum over the last five years.
Petra’s focus on optimising recoveries is evident in the number
of special diamonds sold, with the majority coming from Cullinan
as usual. The Company sold 13 stones exceeding US$1 million
each during the Year, for total revenue of US$39.5 million
(FY 2012: eight stones valued at US$14.4 million).
The most valuable Petra diamond in FY 2013 was an exceptional
25.5 carat blue diamond from Cullinan (pictured right), which sold for
ACTUAL ROUGH DIAMOND PRICES FOR THE YEAR AND GUIDANCE PRICING FOR FY 2014
Mine
Finsch
Cullinan
Koffiefontein
Kimberley Underground
Helam
Williamson
Guidance
weighted
average1
US$/ct
FY 2014
Actual
weighted
average1
US$/ct
FY 2013
Actual
weighted
average1
US$/ct
FY 2012
1132
139
518
301
145
254
120
163 3
471
295
140 4
254
138
128
487
320
2554
236
1. The weighted average prices are the average of the mix of ROM and tailings production, as Petra tenders production from each mine on a mixed ROM/tailings parcel basis.
2. The average expected value at Finsch is guided lower due to the increase in recovery of smaller diamonds as noted on page 36.
3. The FY 2013 average value at Cullinan includes the 25.5 carat blue diamond sold for US$16.9 million; the average value for FY 2013 excluding this stone was US$142 per carat.
4. Prior guidance and actual results relate to the ‘Fissure Mines’ as a combined business unit, whereas FY 2014 relates to the Helam mine only, as Sedibeng and Star are both
now on care and maintenance.
Despite some volatility, the upward trend
in diamond pricing is firmly in place.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Our Strategy and Key Performance Indicators
Petra’s strategy is to create value by optimising and extending the lives
of its world-class diamond mines to deliver sustainable, long-term operations
and significantly increased production.
Our vision
Petra’s vision is to build a world-class diamond group.
Our objectives
The Group is focused on cash-generative diamond production and has honed
a culture over the years that focuses on efficiencies and minimisation of overheads,
in order to maximise value from its assets.
1
INCREASE
OUTPUT
2
OPTIMISE
RECOVERIES
3
INCREASE
EFFICIENCIES
OUR TARGETS
Targeting 5 million carats
by FY 2019
Aiming to improve operating
margins at each mine
Maintaining a culture
of effective cost control
HOW WE MEASURE
$ Rough diamond production
$ Revenue
$ Safety
$ Profit from mining activity
$ Adjusted operating cashflow
$ Capex
Sustainability
Underpinning Petra’s strategy is a focus on safety and sustainability,
thereby driving value for all stakeholders.
Sustainability
Page 48
See our Sustainability Report online
petradiamonds.com/sustainability
20
Petra Diamonds Limited Annual Report and Accounts 2013
1 Increase output
KEYS TO ACHIEVING
KEY PERFORMANCE INDICATORS
$ Meeting tonnage targets in line
with business plan and aligning
plants to optimise recoveries
$ Management of ROM grades
at Finsch and Cullinan until
expansion programmes open
up new areas and create access
to undiluted ore
$ Successful roll out of expansion
programmes, particularly
at Finsch and Cullinan
FY 2013 ACHIEVEMENTS
$ Group production +21%
to 2.67 Mcts
$ Finsch performed strongly
in its first full year under
Petra management
$ Williamson achieved planned
production levels further to
restarting production in Q4
FY 2012
FOCUS FOR FY 2014
$ Group production +12%
to ca. 3.0 Mcts
$ Total tonnes treated +18%
to ca. 17.5 Mt
$ Continuing focus on the roll-out
of key expansion programmes
ROUGH DIAMOND PRODUCTION
Million carats
REVENUE
US$ million
2.67
402.7
+21%
2.67
+27%
402.7
2.2
316.9
1.2
1.1
1.1
220.6
177.7
94.4
09
10
11
12
13
09
10
11
12
13
Description
Petra has set out a clear and
transparent growth profile, with
production expected to rise year
on year to reach ca. 5 million carats
by FY 2019.
Description
Petra’s growth path is expected to see
production rising every year to FY 2019,
which is in turn expected (dependent
on rough diamond prices) to deliver
commensurate growth in revenue.
Performance for the Year
FY 2013 production increased 21% to
2.67 million carats. The increase was
mainly due to Finsch’s contribution
for a full 12 month period and
Williamson successfully achieving
planned levels of production
following the commissioning of its
rebuilt plant at the end of FY 2012.
Performance for the Year
Revenue grew 27% to US$402.7 million,
primarily due to increased volumes
coupled with the sale of the 25.5 carat
blue diamond from Cullinan for
US$16.9 million in May 2013.
Risk management
Petra takes great care to set realistic
operational targets, based on detailed
mine production planning. Production
performance throughout the year is
monitored closely and if an operation
falls behind, remedial steps are taken
to address the lost production.
Risk management
The key factors affecting revenue
growth are delivery on production
targets, which can be managed by the
Group, and diamond prices, which are
outside of the Group’s control. Petra
sells its diamonds via competitive
tender, which is a fair and well proven
method of price discovery.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Strategic Review
Our Strategy and Key Performance Indicators continued
2 Optimise recoveries
KEYS TO ACHIEVING
KEY PERFORMANCE INDICATORS
$ Focus on safety as number
one management priority
$ Focus on ‘value’ as opposed
to ‘volume’ production
SAFETY LTIFR
0.67
PROFIT FROM MINING
ACTIVITY US$ million
-41%
138.6
FY 2013 ACHIEVEMENTS
1.03
1.13
+34%
138.6
$ LTIFR rate improved, despite
the acceleration of Petra’s
expansion plans
$ Bottom cut lowered at
Finsch to capture higher
value smaller diamonds
$ 13 diamonds recovered and
sold for +US$1 million each
FOCUS FOR FY 2014
$ Continue striving for a zero
harm workplace
$ Ongoing plant refinements
across the Group’s operations
$ Continue to optimise plant
processing and security
0.80
0.71
0.67
103.3
76.4
67.2
09
10
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7.8
09
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13
Description
The health and safety of employees
is Petra’s number one priority. LTIFR
is the number of lost time injuries
multiplied by 200,000 and divided
by the number of hours worked.
Petra uses this indicator to track
the Group’s annual performance.
Performance for the Year
Group LTIFR for the Year reduced
to 0.67. This is an encouraging trend
considering the increase in activities
as the capital programmes progress
and the much higher number of
contractors working on site.
Description
Profit from mining activity (stated
before retrenchment costs, depreciation
and share-based expense) reflects the
operating margins of Petra’s assets.
Petra’s expansion plans aim to access
major undiluted ore blocks; this is
expected to substantially increase
future margins over time.
Performance for the Year
Profit from mining activity increased
34% to US$138.6 million, further to
the increased production and sales
for the Year, combined with a stable
environment for diamond pricing.
This represents an operating margin
of 34%, slightly higher than the margin
of 33% achieved in FY 2012.
Risk management
Management’s focus on a zero harm
environment requires a zero tolerance
approach towards any action that
results in potential injury to employees,
contractors or visitors. In addition to
appropriate risk management processes,
Petra has strategies, systems and
training in place to promote a safe
working environment.
Risk management
Rigorous operational and financial
discipline is required in order to
keep operating costs in check. A
comprehensive annual budgeting
process covering all expenditure is
undertaken and approved by the
Board. Monthly reporting highlights
variances and remedial action can
therefore be taken on a timely basis.
22
Petra Diamonds Limited Annual Report and Accounts 2013
3 Increase efficiencies
KEYS TO ACHIEVING
KEY PERFORMANCE INDICATORS
$ Continuous review
and assessment of
areas for improvements
$ Key focus areas are power
and water usage, security
and effective use of labour
FY 2013 ACHIEVEMENTS
$ Inflationary cost pressures
well controlled
$ Capex key deliverables
progressed in line with
expectations and in accordance
with the roll-out of the Group’s
expansion programmes
FOCUS FOR FY 2014
$ Continue to drive efficiencies
across the mines
$ Continue to closely monitor
and control Capex
ADJUSTED OPERATING
CASHFLOW US$ million
132.8
+57%
132.8
CAPEX
US$ million
198.3
+44%
198.3
84.6
67.8
138.0
110.9
49.0
(3.8)
36.8
25.5
09
10
11
12
13
09
10
11
12
13
Description
Petra is focused on generating strong
operating cashflow. The Group’s
strategy is to apply these operating
cashflows to fund the Group’s
substantial Capex profile, which will
lay the foundations for long-term
sustainable production growth.
Performance for the Year
Adjusted operating cashflow (IFRS
operating cashflow adjusted for the
movement in FY 2013 versus FY 2012
diamond debtors, excluding unrealised
foreign exchange movements) of
US$132.8 million was considerably
higher than FY 2012 (US$84.6 million),
due to the growth recorded in revenue
and profit from mining activity.
Risk management
Strong financial and operational
management, disciplined monitoring
and reporting, long-term cashflow
forecasting and strong banking and
equity relationships assist the Group
in managing liquidity.
Description
It is key to the Group’s production
expansion that capital expenditure is
achieved and development rolled out
in line with stated business plans.
Performance for the Year
Capex for the year increased to
US$198.3 million, in accordance with
the roll-out of the Group’s expansion
programmes. The largest Capex
increases were recorded at Finsch
and Cullinan, further to the significant
acceleration of the development
programmes at both mines.
Risk management
The Group’s annual budgeting process
includes detailed Capex requirements
per operation and is approved by
the Board. Capex is monitored and
variances assessed on a monthly basis.
The Group continually reviews its
cashflow planning to ensure that
Capex plans are adequately financed.
Annual Report and Accounts 2013 Petra Diamonds Limited
23
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Strategic Review
Our Assets and Expansion
Petra has a well-diversified portfolio, with
controlling interests in six producing mines
– five in South Africa and one in Tanzania –
and an exploration programme in Botswana.
Our Assets
Kalahari
Diamonds
(exploration)
Botswana
Helam
Cullinan
Finsch
Kimberley
Underground
Koffiefontein
South Africa
REVENUE
CONTRIBUTION
Finsch 40%
Cullinan 33%
Koffiefontein 4%
Kimberley
Underground 8%
Fissures 4%
Williamson 11%
Williamson
Tanzania
Finsch
A major producer with
world-class infrastructure
Cullinan
One of the world’s most
celebrated diamond mines
$ Produces a number of +50 carat stones
annually, highly commercial goods
of +5 carats and is rich in gem quality
smaller diamonds.
$ Cullinan is renowned for large, top
quality gem diamonds (including the
3,106ct Cullinan diamond) and is the most
important source of blue diamonds.
$ FY 2013 production of 1,412,465 carats
and revenue of US$160.6 million.
$ FY 2013 production of 868,975 carats
and revenue of US$133.0 million.
$ Major resource base of 50.9 Mcts.
$ World-class resource base of 200.8
Mcts (including 17.0 Mcts tailings).
Koffiefontein
One of the world’s top kimberlite
mines by diamond value
$ Regularly produces exceptional
white diamonds of between five
and 30 carats in size.
$ FY 2013 production of 34,800 carats
and revenue of US$16.6 million.
$ Resource base of 6.0 Mcts.
Operational Review
Page 36
Operational Review
Page 38
Operational Review
Page 40
Kimberley Underground
Operation comprises
Bultfontein, Dutoitspan and
Wesselton kimberlite pipes
$ Production characterised by the better
colour commercial white diamonds
highly sought after by manufacturers.
$ FY 2013 production of 115,400 carats
and revenue of US$33.4 million.
$ Resource base of 7.2 Mcts.
Fissure Mines
Portfolio of three mines
(Helam, Sedibeng and Star)
$ Further to the termination of the public
disposal process in respect of the Fissure
Mines, the Company is continuing to
run Helam on a commercial basis, whilst
Sedibeng and Star have been placed
on care and maintenance.
$ FY 2013 production of 72,287 carats
and revenue of US$17.2 million.
$ Resource of 5.3 Mcts.
Williamson
Tanzania’s most important
diamond producer
$ Renowned for beautifully rounded
white goods and ‘bubblegum’
pink diamonds.
$ FY 2013 production of 164,376 carats
and revenue of US$41.9 million.
$ Major resource base of 39.4 Mcts.
Operational Review
Page 41
Operational Review
Page 42
24
Petra Diamonds Limited Annual Report and Accounts 2013
Our Commitment
Our commitment to invest in our mines enables
Petra to have a clear roadmap to 5 Mctpa
by FY 2019.
$ Growth profile focuses on brownfield expansion –
strategy to recapitalise existing mines.
$ Fully financed Capex profile using treasury,
cashflows and debt facilities.
4
Review the ‘Capex Guidance’ on Petra’s
website for further information on the
Company’s Capex profile to FY 2019 at:
petradiamonds.com/investors/
analysts/analyst-guidance
3
FY 2013 Capex per operation:
1 CULLINAN
US$89.0m
$ Expansion Capex of US$64.0 million, sustaining Capex of
US$17.2 million and borrowing costs capitalised of US$7.8 million
$ Expansion plan to increase production from ca. 870,000 ctpa
to ca. 2.2 Mctpa by FY 2019 (underground and tailings)
5
1
2013
Total
Capex
2
2 FINSCH
US$48.6m
3 KOFFIEFONTEIN
US$20.4m
$ Expansion Capex of US$33.5 million, sustaining Capex of
US$10.6 million and borrowing costs capitalised of US$4.5 million
$ Expansion Capex of US$10.9 million and sustaining
Capex of US$9.5 million
$ Expansion plan to increase production from 1.4 Mctpa to
ca. 1.8 Mctpa by FY 2016 and to ca. 2.0 Mctpa by FY 2019
(underground and tailings)
$ Expansion plan to increase production from 34,800 ctpa
to ca. 105,000 ctpa by FY 2017 (underground only)
4 KIMBERLEY UNDERGROUND
US$21.6m
5 WILLIAMSON
US$11.7m
$ Expansion Capex of US$17.6 million and sustaining Capex
of US$4.0 million
$ Expansion Capex of US$8.4 million and sustaining Capex
of US$3.3 million
$ Expansion plan to increase production from ca. 115,000 ctpa
to ca. 130,000 ctpa by FY 2016
$ Expansion plan to increase production from ca. 160,000 ctpa
to ca. 300,000 ctpa by FY 2017
Annual Report and Accounts 2013 Petra Diamonds Limited
25
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Strategic Review
Risks
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 risks below
as being the principal strategic, operational and external risks (in no order of priority).
Risk management
Risk management is the overall responsibility of the Board. The Audit Committee also plays an important role.
Executive Directors
Three Executive Directors
Corporate Risk Management
Operations Risk Management
Board of Directors
Seven members
Chairman
Three Executive Directors
Three independent Non-Executive
Directors including the Senior Independent
Non-Executive Director
Board Committees
Audit Committee
Nomination Committee
Remuneration Committee
Strategic risk
Retention of Key Personnel
The successful achievement of the Group’s strategy, business
plans and objectives depends upon its ability to attract and
retain certain key personnel.
Board responsibility
The Executive Directors, the Remuneration Committee
and the Nomination Committee.
Mitigation
Petra believes that employees who are empowered and
accountable for their actions work to the best of their ability
and are able to fulfil their true potential. The Group’s
employment policies and terms are designed to attract,
incentivise and retain individuals of the right calibre.
FY 2013 risk management
The Company has further developed its remuneration
strategy with the formalisation of performance based bonuses
for key management, a deferred bonus system based on
continued employment with the Company, the 2011 LTSP and
the 2012 PSP (see pages 75 to 77 of the Directors’ Remuneration
Report for more information) which is designed to reward
management for delivery against the Company’s long-term key
objectives, as well as retain key management for the longer term.
Operational risk
Mining and Production Risks
The mining of diamonds from underground kimberlite deposits
involves an intrinsic degree of risk from various factors, including
geological, geotechnical and seismic factors, industrial and
mechanical accidents, unscheduled plant shutdowns, technical
failures, ground or water conditions and inclement or hazardous
weather conditions.
Board responsibility
The Executive Directors.
Mitigation
All of Petra’s existing kimberlite operations have long histories
of production and therefore the geology and economics of each
mine are well understood. Petra’s work to expand the lives of
its assets is classed as ‘brownfield’ expansion, and therefore the
existing knowledge of the deposits eliminates much of the risk
associated with developing a new diamond mine.
FY 2013 risk management
The Group’s management team is comprised of key personnel
with a substantial and specialised knowledge of mechanised and
underground mining and diamond recovery, and this skills base
enables the Company to manage mining and production risks.
26
Petra Diamonds Limited Annual Report and Accounts 2013
Operational risk
ROM Grade Volatility
At the Group’s underground pipe mines (Finsch, Cullinan,
Koffiefontein, Kimberley Underground), Petra is currently
operating in ‘mature’ caves, meaning that the block of ore being
mined is now heavily diluted. Once the majority of the kimberlite
ore has been removed, waste rock is able to ingress into the
production areas and dilutes the overall diamond grade.
Board responsibility
The Executive Directors.
Operational risk
Expansion and Project Delivery Risks
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.
Board responsibility
The Executive Directors.
Operational risk
Social, Safety and Environmental
The Group’s success depends upon its safety, social and
environmental performance, as failure to comply with relevant
legislation in South Africa, Tanzania or Botswana could lead to
delays or suspension of its mining and exploration activities.
Board responsibility
The Executive Directors and the HSSE Committee.
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Mitigation
The objective of Petra’s development programmes at its
underground mines is to take the next ‘cut’ of the respective
orebody, by opening up and establishing new production areas
in deeper areas of undiluted kimberlite. The Group production
profile will start changing from diluted to undiluted ore from
FY 2015 onwards, and ROM grades are forecast to rise circa 50%
once purely undiluted ore is being mined.
FY 2013 risk management
As expected, Petra experienced volatility in ROM grades at
Cullinan and Finsch. The Company is managing this issue by
developing access to undiluted ‘gapfiller’ tonnes which can
be drawn whilst the expansion plans progress. Process plant
changes have also been introduced to further mitigate
the impact of volatile grades.
Mitigation
Petra has an enviable track record in the management
of underground diamond mining 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 which 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. Petra operates six
producing mines, which provides flexibility in terms
of overall portfolio performance.
FY 2013 risk management
Activity associated with Petra’s underground development
programmes, notably at Finsch and Cullinan, picked up
considerably in FY 2013, as evidenced by the substantial
increase in development metres recorded for the Year.
Expansion plans are on track and progressing as expected.
As mentioned in the “Retention of Key Personnel” section,
performance based bonuses coupled with the 2011 LTSP
will help ensure necessary focus on project delivery
from all levels of management.
Mitigation
The Group takes its responsibilities in these areas seriously and
monitors its performance across these areas on a regular basis.
The HSSE Committee assists the Board in obtaining assurance that
appropriate systems are in place to deal with the management
of health, safety, social and environmental risks.
FY 2013 risk management
The HSSE Committee has identified the material sustainability
issues facing the Group and ensured that these are monitored
and effectively reported to the Board on an ongoing basis.
Annual Report and Accounts 2013 Petra Diamonds Limited
27
Strategic Review
Risks continued
Financial risk
Financing Risks
Petra has a significant Capex programme over the years
to FY 2019, with Capex forecast to peak in FYs 2014 and 2015.
The Company plans to finance this Capex from operating
cashflows and Group debt facilities. Lack of adequate
available cashflows could delay development work.
Board responsibility
The Executive Directors and the Audit Committee.
Mitigation
Whilst Management prepares detailed plans, the 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.
FY 2013 risk management
Petra’s Capex for FY 2013 was well controlled and was
in accordance with the roll-out of the Group’s expansion
programmes. The Company actively monitors the terms of its
debt financing arrangements to ensure that it remains well
within the various covenants and ratios within these agreements.
External risk
Diamond Price Risk
The Company’s financial performance is closely linked to the
price of diamonds which are influenced by numerous factors
beyond the Company’s control, including international
economic conditions, world diamond production levels
and consumer trends.
Board responsibility
The Executive Directors.
Mitigation
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.
FY 2013 risk management
The rough diamond market was stable in FY 2013, with prices
essentially flat in H1 before firming in H2. The Company sells its
rough diamonds via competitive tender in both Johannesburg
and Antwerp, and believes that this sales process maximises
the value of its production.
External risk
Currency Risk
With Petra’s operations mainly in South Africa, but diamond
sales based in US Dollars, the volatility and movement in the
Rand 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.
Board responsibility
The Executive Directors.
Mitigation
The Group continually monitors the movement of the Rand
against the 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 in the Rand deems it
appropriate. Such contracts are generally short-term in nature.
FY 2013 risk management
In FY 2013, the increasing size of Petra’s tenders combined
with significant ZAR/US$ volatility resulted in active currency
management being particularly important to address exchange
rate risks. Hedges were structured on a short dated basis and
the Company took advice from two specialist banks in order
to advise on exchange rate hedging strategies.
28
Petra Diamonds Limited Annual Report and Accounts 2013
External risk
Country and Political Risk
Petra’s operations are predominantly based in South Africa,
with lesser exposure to Tanzania and Botswana. Emerging
market economies are generally subject to greater risks,
including legal, regulatory, economic, withholding tax and
political risks, and are potentially subject to rapid change.
Board responsibility
The Executive Directors and the Audit Committee.
Mitigation
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.
FY 2013 risk management
Petra experienced brief labour disruptions at certain of its
South African mines in October 2012 and September 2013 –
see risk to follow on ‘Labour unrest in South Africa’.
External risk
Labour unrest in South Africa
During FY 2013, the labour unrest experienced in South Africa
was well publicised and focused attention on the social challenges
facing the country. Whilst the problems were most acute within
the platinum and gold sectors, all industries with high labour
components were at one point affected by this movement.
Board responsibility
The Executive Directors.
Mitigation
Petra believes that dialogue is the key and the Company is
highly focused on continuing to communicate openly with
employees, trade unions and local community representatives.
All of Petra’s efforts are focused on long-term, sustainable
operations, which are structured for the benefit of all
stakeholders, including employees.
FY 2013 risk management
Petra’s South African operations were affected by brief
work stoppages during October 2012 and, post Year end,
in September 2013. These disruptions were not as significant
as those experienced in the platinum and other sectors,
and the Company was able to resume operations in a
timely manner.
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Annual Report and Accounts 2013 Petra Diamonds Limited
29
Performance Review
Petra’s approach is to continually
optimise its mine plans.
Key focus areas are optimisation of ore-handling
systems, creating access to undiluted ore as
early as possible and maximising access to an
orebody’s footprint.
Performance Review
Financial Review
An impressive year of growth
Petra’s management is focused on generating cashflows from its operations,
which are currently used to help fund the Company’s capital expansion programmes,
assisted by the Group’s debt facilities.
Revenue
Gross mine revenue increased 27% to US$402.7 million
(FY 2012: US$316.9 million), primarily due to increased volumes
coupled with the sale of the exceptional 25.5 carat blue diamond
from Cullinan for US$16.9 million in May 2013.
Mining and processing costs
The mining and processing costs for the Year are, as in past periods,
comprised of on-mine cash costs as well as other operational
expenses. A breakdown of the total mining and processing costs
for the Year is set out to the right.
On-mine cash costs increased by 12%, due to:
$ inclusion of Finsch for 12 months (FY 2012: nine months)
(8% of the increase);
$ inflationary increases, including the impact of electricity
and labour costs (9% of the increase);
$ treatment of higher tonnages across the operations
versus FY 2012 (9% of the increase); and
$ offset by a depreciating Rand against the US Dollar (less 14%).
Certain cost categories in South Africa have increased in excess
of South African inflation (South African CPI stood at 5.5% at
30 June 2013). Petra’s cost focus, coupled with higher tonnage
throughput, enabled the Group to partially mitigate the direct
effect of inflationary pressures. Two key areas where costs
escalated at a higher level than South African CPI are
electricity and labour.
Electricity prices rose by 16% during the Year and a further
increase of ca. 9% has been approved by the South African
National Energy Regulator for FY 2014. Petra’s electricity
usage accounted for approximately 14% of South African cash
on-mine costs. Petra endeavours to manage its electricity
consumption as the Group’s production profile increases
and the Company has achieved good success in this area.
In South Africa, labour accounted for approximately 41% of
on-mine cash costs at the pipe mines and 68% of on-mine cash
costs at the Fissure Mines. As in the past, the Company anticipates
that future labour cost increases will continue to be slightly
above inflation.
As the bulk of Petra’s operating costs are incurred in ZAR, the 14%
weakening of the average ZAR exchange rate against the US Dollar
(FY 2013: R8.839/US$1 versus FY 2012: R7.768/US$1) negated
some of the increased costs in Rand terms as mentioned above.
Unit costs on a mine by mine basis are covered in the
Operational Review from pages 36 to 42.
With regards to FY 2014, on 12 August 2013
the Company provided operational and
corporate guidance, which can be accessed at
petradiamonds.com/investors/analysts/
analyst-guidance
David Abery
Finance Director
SUMMARY
$ Revenue rose 27% to US$402.7 million due
to higher production levels in FY 2013.
$ Profit from mining activity rose 34%
to US$138.6 million, reflecting an overall
margin of ca. 34%.
$ Adjusted EBITDA rose 36% to
US$122.4 million in line with the increased
production and sales, combined with
a stable diamond market.
$ Adjusted operating cashflow rose 57%
to US$132.8 million, demonstrating
management’s focus on this area.
$ A net profit after tax of US$27.9 million
was recorded for the year, reflecting
the impact of the Group’s solid trading
in FY 2013.
32
Petra Diamonds Limited Annual Report and Accounts 2013
FY 2013 – BREAKDOWN OF MINING AND PROCESSING COSTS
On-mine
cash costs1
US$m
263.4
234.3
FY 2013
FY 2012
Diamond
royalties
US$m
Inventory
movement
US$m
Group
technical,
support and
marketing
costs2
US$m
3.7
1.4
(13.6)
(19.4)
16.8
6.3
Adjusted
mining and
processing
costs
US$m
270.3
222.6
Depreciation
US$m
42.4
40.7
Share-
based
expense
US$m
Retrenchment
costs
US$m
Total
mining
and
processing
costs
(IFRS)
US$m
1.4
0.6
2.6
—
316.7
263.9
Includes all direct cash operating expenditure at operational level, i.e. labour, consumables, utilities and on-mine overheads.
1.
2. Certain technical, support and marketing activities are conducted on a centralised basis; results include Petra’s SPV set up to partially fund its mining rehabilitation obligations.
Mining profit
The Company’s profit from mining activity increased 34%
to US$138.6 million (FY 2012: US$103.3 million), further to the
increased production and sales for the Year, combined with a
stable environment for diamond pricing. Despite mining being
currently limited to mature and diluted areas at most of the
operations, profit from mining activity for the Group reflected
an overall margin of ca. 34% for the Year (FY 2012: ca. 33%).
Transaction costs
Transaction costs of US$0.5 million (FY 2012: US$3.1 million),
which were of a non-recurring nature, relate to the disposal
process for the Fissure Mines, which was carried out during the
Year but did not conclude in a sale. The prior year costs relate
to the professional fees and expenses associated with the
London Stock Exchange Main Market step-up (US$2.7 million)
and the Finsch acquisition (US$0.4 million).
Adjusted operating cashflow
Adjusted operating cashflow (IFRS operating cashflow adjusted
for the cash effect of the increase in Year-end diamond debtors)
of US$132.8 million, was considerably higher than FY 2012
(US$84.6 million), due to the growth recorded in revenue
and profit from mining activity.
Operating cashflow per the Consolidated Statement of
Cashflows was US$73.0 million (FY 2012: US$77.2 million) but
management considers the adjusted figure to be a more useful
view of the underlying growth in operating cashflow as the
increase in diamond debtors (30 June 2013: US$74.8 million,
versus 30 June 2012: US$24.5 million) of ca. US$50 million year
on year (due to the large tender that closed shortly before
Year-end) reduced the underlying increase in operating
cashflow. This movement includes non-cash foreign exchange
translation and so the cashflow impact exceeds US$50 million.
Exploration
Petra maintains a focused exploration programme in Botswana.
Exploration expenditure (before depreciation) for the Year of
US$4.8 million (FY 2012: US$3.0 million) increased due to Petra’s
work programme at the KX36 kimberlite and the surrounding
area (refer to page 45 for further detail on exploration activities).
Petra expects exploration spend to be ca. US$4.5 million
in FY 2014.
Corporate overhead – general and administration (“G&A”)
Corporate overhead (before depreciation, share-based payments
and transaction costs) increased to US$11.4 million for the Year
(FY 2012: US$10.0 million), in line with the Group’s continued
growth and development.
For FY 2014, the corporate G&A overhead is expected to be
ca. US$12.0 million; management will continue to keep these
central costs well controlled and managed.
Depreciation
Depreciation for the Year increased to US$42.8 million
(FY 2012: US$41.0 million), mainly due to a full 12 months of
depreciation on the Finsch assets and an overall production
increase at the other operations.
Net unrealised foreign exchange loss
Effective 1 July 2012, the Group reorganised its intra-Group
funding arrangements and restructured its treasury structure.
This has removed significant foreign exchange translation
exposure from the Consolidated Income Statement, as the
Rand loans are now held between entities with Rand functional
currencies. This served to significantly reduce the Group’s net
unrealised foreign exchange loss for FY 2013 to US$4.7 million
(FY 2012: US$38.6 million loss).
Net finance expense
Net finance expense of US$3.4 million (FY 2012: US$1.8 million
income) is comprised of interest received on the Group’s cash
balances of US$0.4 million, net interest receivable from BEE
partners’ loans of US$1.0 million and net realised foreign
exchange gains of US$2.8 million, offset by various finance
expenses, being:
$ a charge for the unwinding of the present value adjustment
for Group rehabilitation costs of US$2.6 million; and
$ interest on (i) the Group’s working capital facility of
US$0.1 million and (ii) the Group’s Absa/RMB/IFC debt
facilities of US$4.9 million (stated after the capitalisation
of interest of US$12.3 million associated with the funding
of assets under development).
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Annual Report and Accounts 2013 Petra Diamonds Limited
33
Performance Review
Financial Review continued
In November 2012, Petra completed an optimisation of its existing debt
structure, serving to increase the Group’s debt and working capital facilities.
GROUP ADJUSTED EBITDA
FY 2012 vs. FY 2013
85.8
47.7
2.8
1.8
1.4
122.4
90.3
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DEBT FACILITIES
US$ million
51
25
81
30
35
Amortising term (ABSA and RMB)
Amortising term (IFC)
Revolving credit (ABSA and RMB)
Revolving credit (IFC)
Working capital (ABSA and FNB)
Tax charge
The tax charge of US$24.6 million (FY 2012: US$10.5 million)
arises due to deferred tax (net of charges and credits),
reflecting the utilisation of certain capital allowances,
predominantly at Finsch and Cullinan, during the Year.
Impairment and retrenchment costs
During the Year, the Group decided to put both Sedibeng
and Star on care and maintenance subsequent to the disposal
process which did not yield an acceptable offer. Management
reviewed the carrying value of operational assets at each mine
and recognised an overall impairment loss of US$12.6 million
(FY 2012: US$nil), being management’s assessment of the
higher of fair value less cost to sell and value in use of the
mines. Further details are provided in note 8. The Group has
also provided U$2.6 million (FY 2012: US$nil) for retrenchment
costs at Sedibeng and Star.
Adjusted net profit
An adjusted net profit after tax attributable to equity holders
of US$52.3 million (refer to note 13) was recorded for the Year
(FY 2012: US$39.2 million), adjusted for unrealised foreign
exchange movements, retrenchment costs, impairment charges
and transaction costs. The Company recorded an adjusted
profit of 10.31 cents per share (FY 2012: 7.82 cents per share
– refer to note 13). These adjusted profit figures are considered
to be more appropriate in comparing results year on year.
Group profit
A net profit after tax of US$27.9 million was recorded for the
Year (FY 2012: US$2.1 million loss), reflecting the impact of the
Group’s solid trading for the Year. The prior year’s results were
substantially impacted by the non-cash, unrealised loss on
foreign exchange of US$38.6 million, which was significantly
lower for FY 2013 due to the restructuring of the Group’s
treasury structure (as noted in “Net unrealised foreign
exchange loss” on page 33).
Cash and diamond debtors
As at 30 June 2013, Petra had cash in hand of US$26.2 million
(30 June 2012: US$47.3 million) and diamond debtors of
US$74.8 million (FY 2012: US$25.1 million), which were settled
in the normal course of business shortly after Year end.
Of the cash balances, US$14.1 million was held as unrestricted
cash, US$10.3 million was held by Petra’s reinsurers as security
deposits on the Group’s cell captive insurance structure
(with regards to the Group’s environmental guarantees) and
US$1.8 million was held by Petra’s bankers as security for
other environmental rehabilitation bonds lodged with the
Department of Mineral Resources in South Africa.
Diamond debtors of US$74.8 million related to the June 2013
tender and were significantly higher than FY 2012 levels, due to
the June tender being the largest held by Petra to date, again
due to the strong production levels of Q4 FY 2013.
Diamond inventories
As at 30 June 2013, the Company had diamond inventories of
ca. US$31.5 million (ca. 348,403 carats) (30 June 2012: US$24.5 million
(ca. 221,748 carats)), due to the increased production levels
in Q4 FY 2013 compared to the comparative period.
34
Petra Diamonds Limited Annual Report and Accounts 2013
Capex for the year increased to US$198.3 million, in accordance
with the roll-out of the Group’s expansion programmes.
for more information mine by mine), US$12.3 million
on capitalised borrowing costs with regards to the expansion
Capex (FY 2012: US$6.3 million) and US$47.2 million on sustaining
Capex (FY 2012: US$29.2 million). Refer to note 2 “Segment
information” on page 104 for a breakdown of Capex for the
Year and a reconciliation of corporate and Helam Projects
timing eliminations to the additions of US$191.2 million
in the “Property, plant and equipment” note 14.
Expansion Capex increased in line with the roll-out of the Group’s
expansion programmes, mainly at Finsch and Cullinan; refer
to the Operational Review on pages 36 to 42 for more detail.
The increased level of sustaining Capex was largely due to
Finsch being included for a full 12 month period, coupled with
planned major equipment replacements. Sustaining Capex
was also allocated for new trackless equipment purchased
in relation to the project to open up access to additional ore
on the 645 Level at Cullinan from FY 2014 onwards (one of
the initiatives to manage the ROM grade at Cullinan until
the new block cave is in place in the C-Cut).
Group Capex includes US$4.4 million for the Year
(FY 2012: US$11.1 million), which was incurred by the Group’s
internal projects facility in terms of projects/equipment under
construction and which will be reflected as ‘on-mine’ Capex
once these projects are finalised and invoiced to the
respective operation.
More Information on Capex
Page 25
David Abery
Finance Director
11 October 2013
BEE loans receivable
The BEE loans of US$85.2 million (FY 2012: US$89.4 million)
due to Petra arise from:
$ Petra having financed the BEE partners’ share of the purchase
consideration of the Finsch, Cullinan, Koffiefontein and
Kimberley Underground acquisitions; and
$ Petra having financed the BEE partners’ share of the working
and development capital that has been required for certain
of the mines.
The decrease in the BEE loans over FY 2012 is due to
the retranslation of the Rand-based loans into US Dollars
(FY 2013: R9.88/US$1 versus FY 2012: R8.16/US$1), partially
offset by interest accrued. The BEE loans are included in
“Loans and other receivables” under “Non-current assets”
on the face of the Consolidated Statement of Financial Position
– refer to page 93.
Loans and borrowings
The Group had loans and borrowings at Year end of US$147.0 million
(FY 2012: US$69.2 million).
In November 2012, Petra completed an increase and reorganisation
of its existing debt structure by agreeing revised debt facilities
with FirstRand Bank Limited (acting through its Rand Merchant
Bank (“RMB”) and First National Bank (“FNB”) divisions), Absa
Corporate and Investment Banking (“Absa”) (a division of Absa
Bank Limited and a member of Barclays) and the International
Finance Corporation (“IFC”) (a member of the World Bank Group).
This served to increase the Group’s ZAR debt and working capital
facilities by R900 million to R1.6 billion, with the US$ portion
of the debt facilities (US$60 million) remaining unchanged.
The revised facilities comprise of an amortising term facility
(“ATF”) of R800 million (US$81.0 million) and US$35 million,
a revolving credit facility (“RCF”) of R300 million (US$30.4 million)
and US$25 million and a working capital facility (“WCF”)
of R500 million (US$50.6 million).
At 30 June 2013 the Group had undrawn borrowing facilities
of US$71.3 million (30 June 2012: US$66.3 million), net of
US$3.6 million utilised for foreign exchange settlement lines
(30 June 2012: US$nil).
Other liabilities
Other than trade and other payables of US$64.7 million
(comprising US$23.8 million trade creditors, US$17.4 million
employee related accruals and US$23.5 million other payables),
the remaining liabilities on the balance sheet mainly comprise
provisions for rehabilitation liabilities, amounts owing due
to the financing of the minorities, post-retirement employee
related provisions and deferred tax.
Capex
Operations Capex for the Year was US$198.3 million
(FY 2012: US$138.0 million), split as to US$138.8 million
on expansion Capex (FY 2012: US$102.5 million) (see page 25
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Annual Report and Accounts 2013 Petra Diamonds Limited
35
Performance Review
Operational Review
Finsch
One of the world’s major diamond mines, Finsch benefits from top quality
infrastructure, including a modern processing plant which was recently upgraded.
DELIVERING OUR STRATEGY
OUTPUT A strong first full
year under Petra management,
contributing 53% of Group
production by volume.
RECOVERIES Plant cut-off
reduced to capture higher value
small diamonds.
EFFICIENCIES Operating costs
held in line with expectations.
REVENUE CONTRIBUTION
40%
PRODUCTION
(ROM + TAILINGS) carats
1,412,465 +28%
REVENUE
US$160.6m +17%
AVERAGE PRICE PER CARAT
US$120 -13%
ROM TONNES
2,609,935 +15%
ROM GRADE
34.1 cpht -7%
ON-MINE CASH COST PER TONNE
R139
+4%
Performance in FY 2013
Finsch performed strongly for the Year, contributing 1,412,465 carats
(FY 2012: 1,104,618 carats) and revenue of US$160.6 million
(FY 2012: US$136.9 million).
In line with Petra’s strategy to optimise recoveries from each asset, the plant
cut-off was reduced at Finsch towards the latter part of the Year to increase
recovery of the high quality smaller goods produced by the Finsch orebody,
with a resultant increase in both ROM and tailings grades in Q4 over the
previous quarter. Although this plant change resulted in a reduced average
value per carat, due to the increased volumes of the smaller diamonds,
it served to increase gross revenues and contained value per tonne.
ROM grades for FY 2013 declined to 34.1 cpht (FY 2012: 36.8 cpht) due to the
increasing dilution of the current mature Block 4 working areas; however the
plant changes noted above are expected to provide some positive effect
on ROM grade before the development plan provides first access to
undiluted ore (from FY 2015 onwards).
Tailings throughput of 2,600,611 tonnes at a grade of 20.1 cpht delivered
522,106 carats.
Costs
The weighted average unit operating cost of R139/t (FY 2012: R134/t) at
Finsch was in line with management’s expectations. Above-inflationary
cost pressures associated with labour and electricity were partially offset
by increased levels of throughput resulting in a 4% unit cash cost increase
(compared to South African CPI of 5.5%).
Development plan
Petra’s expansion plan at Finsch will take production from ca. 1.4 Mctpa
to ca. 1.8 Mctpa by FY 2016 and then on to ca. 2.0 Mctpa by FY 2019. With
gross resources of 50.9 Mcts, Petra’s initial mine plan has a life of 17 years,
but resources in residual Block 6 and the Precursor kimberlite are expected
to prolong the actual LOM for considerably longer.
Production is currently entirely from Block 4, a mature block where the ore
is by now heavily diluted with waste rock. In order to provide earlier access
to undiluted ore before the main Block 5 Cave is put in place, Petra will use
the sub-level cave (“SLC”) mining method over four levels from the 710 metre
level (“mL”) to 780 mL at a rate of 3.2 Mtpa. Once the transition is then
made from mining the SLC to the main Block 5 Cave, which is currently
planned at the 900 mL, tonnages will increase to 3.5 Mtpa from FY 2021.
On 12 August 2013, Petra announced enhancements to the expansion plan
at Finsch, which focus on revisions to the ore-handling system (including
the implementation of a conveyor system which can transfer 710–780 mL
SLC material to the existing loading and hoisting infrastructure on 650 mL),
a further enlarged footprint of the Block 5 SLC and the doubling up of crusher
capacity to complement the enhanced ore-handling and engineering
infrastructure planned at the SLC and the Block 5 Cave (originally planned
on the Block 5 Cave elevation only).
These measures will serve to improve production flexibility, give
the ability to manage grades more efficiently and enable the earlier
decommissioning of the Block 4 automated ore-handling infrastructure,
resulting in long-term savings in operating costs, as well as the added
benefit of production efficiencies.
36
Petra Diamonds Limited Annual Report and Accounts 2013
A drill rig ready for use underground at Finsch.
Finsch’s rally to read
In FY 2013 Finsch, in partnership with
neighbouring mines, organised the annual
‘Rally to Read’, an initiative supported by South
Africa’s Department of Education, which delivers
educational materials to some of the most
under-resourced schools in its local communities.
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ROM throughput is guided at 2.83 Mt for FY 2014 at a grade of ca. 32–33 cpht.
As the mine’s production profile gradually changes from diluted to undiluted
ore, the ROM grade is expected to increase to ca. 36 cpht by FY 2015,
to ca. 43 cpht by FY 2016 and to ca. 56 cpht by FY 2017 (up from previous
guidance of 47 cpht, assisted by the aforementioned plant changes),
when full production is sourced from undiluted ore.
The development of the declines and access tunnels, which are key
deliverables at this stage of the project, are progressing in line with
expectations, and development and drilling contractor services have been
put in place. The successful progression of the programme is demonstrated
by the significant increase in development metres achieved for the Year
(2,311 metres in FY 2013 versus 169 metres in FY 2012). Raiseboring
activities also commenced during Q4 FY 2013 and yielded 165 metres.
Treatment of the ‘Pre 79 Tailings’ is planned at 2.65 Mt for FY 2014 and
expected to be mined for a further two to three years (including FY 2014)
at a grade of ca. 21–22 cpht (increased from prior guidance as a result of
the aforementioned plant changes). Once the ‘Pre 79 Tailings’ have been
depleted, treatment of the ‘Post 79 Tailings’ will continue until FY 2020,
at a lower estimated grade of approximately 10 cpht.
Capex
Capex of US$48.6 million for the Year (FY 2012: US$12.0 million) reflects
a full 12 month period of sustaining Capex for operating Finsch, as well
as the progression of the expansion project and associated underground
development in FY 2013 as mentioned above. The majority of sustaining
Capex was spent on the replacement of equipment reaching the end
of its useful life.
More detail online
petradiamonds.com/operations/
operating-mines/finsch
Annual Report and Accounts 2013 Petra Diamonds Limited
37
Performance Review
Operational Review continued
Cullinan
One of the world’s most celebrated diamond mines, Cullinan is renowned
as an important source of large, high value diamonds and very rare blue diamonds.
DELIVERING OUR STRATEGY
OUTPUT Petra is opening up new
mining areas to manage ROM grade,
until the development plan delivers
access to undiluted ore.
RECOVERIES Nine diamonds
sold for +US$1m each in FY 2013,
including 25.5ct blue diamond.
EFFICIENCIES Development
plan will drive efficiencies (simplified
ore-handling and streamlined
processing plant).
REVENUE CONTRIBUTION
33%
PRODUCTION
(ROM + TAILINGS) carats
868,975
0%
REVENUE
US$133.0m +19%
AVERAGE PRICE PER CARAT
US$1631 +27%
1. US$142 per carat excluding the 25.5ct blue diamond
sold for US$16.9m.
ROM TONNES
2,595,004 +4%
ROM GRADE
30.7 cpht -8%
ON-MINE CASH COST PER TONNE
R158
-11%
Performance in FY 2013
Cullinan’s revenue increased to US$133.0 million (FY 2012: US$112.0 million)
despite flat production, due to a higher contribution from ‘specials’.
Cullinan is renowned as an important source of large top-quality white
diamonds (Type IIa) and very rare top-quality blue diamonds (Type IIb),
and in FY 2013, nine diamonds (including the exceptional 25.5 carat blue
diamond) were each sold for more than US$1 million.
FY 2013 production of 868,975 carats (FY 2012: 867,780 carats) was impacted
by a combination of the lower ROM grade and the delay in the roll-out of the
tailings expansion project. The lower ROM grade of 30.7 cpht (FY 2012: 33.3 cpht)
was due to the increased dilution of the current mining areas.
As part of the Company’s ongoing initiatives to manage the lower ROM grade
prior to accessing the C-Cut, Petra has been working to open up access to
tonnages in the BA5 production area and on the 645 mL, which had formerly
been closed down. This part of the orebody has a historically proven higher
frequency of high value stones, and increased pillar mining from this area
in Q4 contributed towards both a strengthening ROM grade (to ca. 33.0 cpht)
and an increased number of special stone recoveries (H2 FY 2013 revenue
of US$84.4 million versus H1 FY 2013 revenue of US$48.6 million).
Petra will continue to support ROM grade in FY 2014 by mining Block B
pillar tonnes and accessing higher grade undiluted tonnes on the BA5 645 mL.
Given this approach, Petra is guiding ROM production of ca. 2.75 Mt
for FY 2014, at a grade of ca. 31 – 32 cpht.
Tailings production disappointed in FY 2013, as only 1.5 Mt were treated
(at a grade of 5.0 cpht) versus expectations of ca. 2.7 Mt. This lower
throughput was caused by various delays, including strikes in the transport
sector which hampered delivery of steel and other materials.
During the Year, Petra revised its plans for the tailings operation at Cullinan
due to the early production results and grades achieved. Further investment
in tailings treatment facilities has been put on hold whilst further analysis
is undertaken. Tailings production is currently planned to increase to
ca. 2.7 Mtpa for FY 2014 at a grade of ca. 5 – 6 cpht and to remain at this
level, rather than ramping up to the previous forecast of 4 Mtpa. However,
the grade is expected to increase to ca. 7.5 cpht from FY 2015, due to
continuous plant improvements, including the re-crush facilities.
Costs
Unit cash operating costs at Cullinan decreased by 11% to R158/t (FY 2012: R177/t)
mainly due to the increased volumes of tailings throughput. Longer-term, once
the development plan has significantly progressed in the years to come, 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
Cullinan contains a world-class diamond resource of 200.8 Mcts (including
17.0 Mcts in tailings), and the Company is capitalising on this by undertaking
an expansion programme at the mine to take annual production to 2.2 Mcts
by FY 2019 (comprising 2.0 Mcts ROM and 0.2 Mcts tailings). This expansion
plan, known as C-Cut Phase 1, will establish a new block cave on the western
side of the orebody in the upper portion of the major C-Cut resource
(estimated to contain some 133 Mcts in total) and will also involve a large
tailings operation. Petra’s current mine plan has a life of 17 years, but
given that the major portions of this world-class resource will remain
untapped, the actual LOM could be in excess of 50 years.
As at Finsch, this development plan will enable the tonnage profile to
gradually switch from diluted to undiluted ore. Petra therefore expects
the ROM grade to increase to ca. 35 cpht by FY 2015, ca. 37 cpht by FY
2016 and to in excess of 50 cpht by FY 2019, when the C-Cut Phase 1 block
cave is in full production.
38
Petra Diamonds Limited Annual Report and Accounts 2013
Tailings retreatment underway at Cullinan.
More detail online
petradiamonds.com/operations/
operating-mines/cullinan
Conserving protected habitats
Petra maintains large conservation areas
adjacent to some of its operations, such as
the game farm outside Cullinan, which provide
protected habitats for local vegetation
and wildlife.
C-Cut Phase 1 is on track, with the development of the declines, access
tunnels and shaft deepening all progressing in line with expectations.
Tunnel development activity ramped up significantly for the Year, yielding
a total of 4,147 metres for FY 2013 (FY 2012: 771 metres), while raiseboring,
which commenced during the Year, delivered 626 metres (FY 2012: nil).
During FY 2013, a number of refinements were approved to allow for increased
flexibility in delivery of Cullinan’s expansion project and to equip the mine’s
infrastructure to handle tonnages from across the whole footprint of the
orebody (16 hectares versus the 5 hectare block which will be accessed for
C-Cut Phase 1), should there be a future decision to ramp up the operation
above the current planned 4 Mtpa rate.
These refinements followed progress with detailed planning, design
and costing work, which resulted in additional capital requirements
to cater for enhanced engineering requirements, specifically:
$ the upgrading of support specifications to cater for the anticipated
longer life of the block cave;
$ the inclusion of a permanent batching plant to deliver concrete to shaft
and production infrastructure, freeing up shaft time and reducing
potential production disruptions; and
$ the optimisation of the 880 mL ore-handling systems (including
crushers, conveyors and the shaft barrel from 581 mL to 930 mL),
allowing for potential future production ramp-ups utilising the entire
C-Cut footprint.
Capex
Capex of US$89.0 million for the Year (FY 2012: US$54.4 million) was in line
with the progression of Cullinan’s development programme. The majority
of the capital was spent on underground development and infrastructure,
the commencement of the shaft deepening project and the continued
construction of the tailings treatment facility. Sustaining Capex included
new trackless equipment purchased in relation to the BA5 project to open
up access to ore on the 645 mL.
Annual Report and Accounts 2013 Petra Diamonds Limited
39
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Performance Review
Operational Review continued
Koffiefontein
One of the world’s top kimberlite mines by average value per carat.
DELIVERING OUR STRATEGY
OUTPUT Production supplemented
by Ebenhaezer satellite pipe until
development plan increases ROM
tonnage throughput.
RECOVERIES High average value
per carat of US$471 for FY 2013,
despite lower value Ebenhaezer
carats in the mix.
EFFICIENCIES Conveyor
ore-handling installations to service
SLC are in final commissioning.
REVENUE CONTRIBUTION
4%
PRODUCTION (ROM +
EBENHAEZER + TAILINGS) carats
34,800
-13%
REVENUE
US$16.6m -12%
AVERAGE PRICE PER CARAT
US$471 -3%
ROM TONNES
239,161 -52%
ROM GRADE
6.0 cpht +22%
ON-MINE CASH COST PER TONNE
R136
+9%
Performance in FY 2013
Koffiefontein is one of the world’s top kimberlite mines by average value
per carat, achieving US$471 for FY 2013, despite the fact that the overall
average has to some extent been reduced by the higher proportion of
lower value Ebenhaezer production in the total sales mix.
Diamond production for FY 2013 declined by 13% to 34,800 carats
(FY 2012: 40,117 carats). Underground production (239,161 tonnes in FY 2013
at a grade of 6.0 cpht) continues to be supplemented with production
from the Ebenhaezer satellite pipe (1,242,360 tonnes in FY 2013 at a grade
of 1.6 cpht), where pre-mining of initial lower grade areas progressed in
Q4 FY 2013, with the Company now having established access to higher
grade ore. Koffiefontein is now in a position to deliver improved
results for FY 2014.
Costs
Due to the high contribution from the lower-cost Ebenhaezer open pit,
the on-mine cash operating unit cost of R136/t remained relatively low
(FY 2012: R125/t), despite production constraints and cost pressures
associated with electricity and labour increases.
Development Plan
Petra’s expansion plan at Koffiefontein is expected to increase production
from 34,800 ctpa in FY 2013 to ca. 105,000 ctpa by FY 2017. Petra will therefore
be ramping up ROM production to 1.1 Mtpa by FY 2017. The current mine
plan has a life of 12 years, but the orebody remains open at depth so the
actual LOM could be considerably longer.
ROM throughput of 0.33 Mt is planned for FY 2014, consistent with H2 FY 2013
ROM production. ROM grade is guided at ca. 9 – 10 cpht, due to an increased
contribution of tonnages from higher grade areas.
Surface mining of the Ebenhaezer satellite pit will continue in FY 2014,
with ca. 1.2 Mt planned to be treated at a grade of ca. 2.7 cpht, and it is
expected to continue for two to three years (including FY 2014), whilst
mining of underground ROM tonnes is ramped up.
Petra’s mine plan involves the installation of a SLC between 560 mL and
580 mL, before installing a new block cave at 690mL. The revised mining
lay-out for the SLC (which will accelerate access to fresh kimberlite ore)
was finalised in FY 2013 and detailed design commenced. Development
work on the underground tunnel infrastructure is underway, while
ore-handling conveyor installations servicing the SLC are in the final
stages of commissioning.
In FY 2013, a revision to the mine design has led to ca. 450 Kt more tonnes
being accessible from the Koffiefontein SLC, as well as an expected increase
in the average grade from 8.7 cpht to ca. 9–10 cpht (due to the focus on
higher grade areas). The new targeted areas are expected to produce a
significant number of Type IIa diamonds (for which Koffiefontein is well
known), which should have a positive impact on the average US$/carat values.
Capex
Capex for the Year of US$20.4 million was primarily focused on underground
development and purchasing of plant, mining and surface equipment.
40
Petra Diamonds Limited Annual Report and Accounts 2013
More detail online
petradiamonds.com/operations/
operating-mines/koffiefontein
Kimberley Underground
Comprising three mines – Bultfontein, Dutoitspan and Wesselton –
which were at the heart of South Africa’s early diamond rush in Kimberley.
DELIVERING OUR STRATEGY
OUTPUT Ramp up of plant
throughput continued in FY 2013,
leading to considerably
higher production.
RECOVERIES A 95.0ct white
diamond sold for US$1.1m, being first
+US$1m stone from operation under
Petra management.
EFFICIENCIES Continuing to
increase throughput will further
improve unit costs per tonne.
REVENUE CONTRIBUTION
8%
PRODUCTION (ROM ONLY) carats
115,400 +69%
REVENUE
US$33.4m +69%
AVERAGE PRICE PER CARAT
US$295 -8%
ROM TONNES
804,725 +37%
ROM GRADE
14.3 cpht +23%
ON-MINE CASH COST PER TONNE
R2651
-10%
1. On-mine cash costs exclude costs assigned
to ROM stockpiles.
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Performance in FY 2013
The Kimberley Underground operation comprises three kimberlite pipe
mines: Bultfontein and Dutoitspan (serviced by Joint Shaft and the Joint
Shaft plant) and Wesselton (serviced by the Wesselton Shaft and the
Wesselton plant) – both plant facilities were constructed and commissioned
by Petra’s in-house team, following takeover of the operation. A substantial
stockpile of ore at each plant was built up while the Joint Shaft and
Wesselton treatment plants were being constructed (estimated to be
ca. 500 Kt at Year end).
At Kimberley Underground, the ramp up of plant throughput continued
throughout the Year, with total carats produced increasing by 69% to
115,400 carats (FY 2012: 68,422 carats). The ROM grade of 14.3 cpht was
in line with guidance. Petra continues to be encouraged by the quality
of the Kimberley Underground production and during the Year a 95 carat
white diamond sold for US$1.1 million, being the first +US$1 million stone
from the operation under Petra management.
Costs
Unit costs of R265/t (FY 2012: R295/t) improved as expected due
to an increase in tonnages treated.
Development plan
Petra’s mine plan at Kimberley Underground is to take production to an
annual average steady state of ca. 130,000 ctpa by FY 2016.
Planned ROM tonnes mined for FY 2014 and FY 2015 are 800 Kt and 900 Kt
respectively, whereas planned plant throughput for FY 2014 and FY 2015 is
1.1 Mt (augmented by material from the stockpiles at surface). Underground
ROM tonnes are planned to ramp-up to in excess of 1 Mtpa by FY 2016,
by which point the stockpiles will have been depleted.
Capex
Capex of US$21.6 million for the Year (FY 2012: US$21.0 million) mainly related
to Wesselton plant and additional mining and engineering infrastructure.
More detail online
petradiamonds.com/operations/
operating-mines/kimberley-underground
Annual Report and Accounts 2013 Petra Diamonds Limited
41
Performance Review
Operational Review continued
Williamson
Tanzania’s only important diamond producer, Williamson is based upon the 146 hectare
Mwadui kimberlite pipe.
Performance in FY 2013
Williamson is an open pit operation, based upon the mining of the
146 hectare Mwadui kimberlite. Since taking over the mine in early 2009,
Petra has implemented the Phase 1 development programme, which involved
a substantial rebuild of the existing plant and major pit reshaping work,
and production successfully recommenced in Q4 FY 2012.
Williamson delivered 150,342 carats of ROM production in FY 2013
(FY 2012: 42,855 carats), supplemented by 14,035 carats of alluvial
production (which is carried out by contractors). Petra continues to be
encouraged by the high quality of the Williamson production and it is
positive to note that a 35.8 carat Williamson stone sold for US$1.3 million
during the June 2013 tender, being the first +US$1 million stone from
Williamson under Petra’s stewardship.
Costs
The on-mine cash cost per total tonnes treated reduced to US$12/t
(FY 2012: US$18/t) as the mine moved out of the start-up phase.
Development Plan
On 12 August 2013, Petra announced plans to increase ROM production to
ca. 3.6 Mt in FY 2014, before steadily ramping up to ca. 5 Mtpa by FY 2017,
which at a grade of ca. 6.0 cpht will deliver ca. 300,000 carats. This is an
increase from previous guidance of 3.6 Mtpa, due to a focus on the plant
design to deliver energy efficiency and water recovery circuit improvements,
resulting in the ability to increase throughput.
Petra will continue to consider approaches to increase production beyond
5 Mtpa, but an expansion plan above this level is dependent upon security
of appropriate electricity and water supplies. The Company will provide
an update on this as and when appropriate.
Petra’s current mine plan for Williamson has a life of 20 years, but given
that the Mwadui kimberlite hosts a major resource of 39.4 Mcts, there
is potential to extend the LOM considerably.
Capex
Capex reduced to US$11.7 million for the Year (FY 2012: US$22.0 million)
and was predominantly spent on finalising the rebuilt plant and on other
production related activities, including pit shaping/shale removal,
haul road construction and slimes/tailings handling facilities.
Focus on safety
DELIVERING OUR STRATEGY
OUTPUT Production recommenced
in Q4 FY 2012 and ramped up to
planned levels in FY 2013.
RECOVERIES A 35.8ct white
diamond sold for US$1.3m, being
first +US$1m stone from operation
under Petra management.
EFFICIENCIES Focus on the
plant design to deliver energy
efficiency and water recovery
circuit improvements.
REVENUE CONTRIBUTION
11%
PRODUCTION (ROM + ALLUVIAL)
carats
164,376 +188%
REVENUE
US$41.9m +261%
AVERAGE PRICE PER CARAT
US$254 +7%
ROM TONNES
2,730,133 +230%
ROM GRADE
5.5 cpht
+6%
ON-MINE CASH COST PER TONNE
US$12
-33%
In FY 2013, Williamson reached a milestone of achieving 2.7 million
man hours worked without recording a lost time injury (“LTI”), which is
an exceptional safety performance.
42
Petra Diamonds Limited Annual Report and Accounts 2013
Petra’s Partners
The Company’s partnerships are key in terms of stakeholder sustainability
and the long-term success of its operations.
In South Africa, the Company has partner shareholders in
its operations who represent the interests of black economic
empowerment (“BEE”) shareholders. These BEE partners include
various commercial BEE entities (including women’s groups),
as well as, importantly, the Petra Diamonds Employee Trust.
In Tanzania, Petra’s partner is the Government of the United
Republic of Tanzania at the Williamson mine, the country’s
most important diamond producer.
Petra
Diamonds
Limited
BEE and government
Petra Diamonds Employee Trust 5%
Senakha Diamonds Investments (Pty) Ltd 21%
(Sedibeng Mining (Pty) Ltd 17%, Lexshell 844 Investments
(Pty) Ltd 2%, Namoise Mining (Pty) Ltd 2%)
Petra Diamonds Employee Trust 12%
Thembinkosi Mining Investments (Pty) Ltd 14%
(Sedibeng Mining (Pty) Ltd 6.16%, Umnotho WeSizwe Group
(Pty) Ltd 5.04%, Namoise Mining (Pty) Ltd 2.8%)
Re Teng Diamonds 30%
(Sedibeng Mining (Pty) Ltd 15%, Thari Resources (Pty) Ltd
6%, Petra Diamonds Employee Trust 5%, Blue Diamond
Mines (Pty) Ltd (Petra) 4%)
26%
26%26%
30%
26%
Sedibeng Mining (Pty) Ltd
26%
Sedibeng Mining (Pty) Ltd
26%
Sedibeng Mining (Pty) Ltd
26%
25%
Sedibeng Mining (Pty) Ltd
Government of the United Republic of Tanzania
Operations
Finsch
Cullinan
Koffiefontein
Kimberley
Underground
Helam
Star
Sedibeng
Williamson
74%
74%
70%
74%
74%
74%
74%
75%
100%
Botswana
exploration
1.
Other than the direct percentage interests above, Petra has (i) an interest in Sedibeng Mining (Pty) Ltd (refer note 3 of the Financial Statements on pages 105 and 106)
and (ii) an interest in Re Teng Diamonds (Pty) Ltd (refer note 30 of the Financial Statements on page 129).
Annual Report and Accounts 2013 Petra Diamonds Limited
43
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Performance Review
Resource and Exploration Management
Ensuring long-life operations
Exploration continues in Botswana and the careful management of Petra’s major
diamond resources will ensure sustainable, long-life mining operations for the Group.
Resources
The Petra Group manages one of the world’s largest diamond
resources. This major resource implies that the potential mine
lives of Petra’s core assets could be considerably longer than
the current mine plans in place at each operation or could
support significantly higher production rates.
Gross Reserves and Resources
As at 30 June 2013, the Group’s gross diamond Resources
(inclusive of Reserves) had increased by 2.5% to 309.6 Mcts,
from 302.1 Mcts as at 30 June 2012. This is mainly due to an
increase in gross Resources at Finsch as a result of decreasing
the bottom cut-off used in the Resource estimation from
1.5mm to 1.0mm. This is in line with the decrease to the bottom
cut-off at the Finsch production plant, effected by Petra
during FY 2013, thereby serving to increase the grade
and recoverable carats over the life of the mine.
The Group’s gross diamond Reserves increased 14.3% to 54.4 Mcts
(30 June 2012: 47.6 Mcts), mainly due to an increase in gross
Reserves at Cullinan. This has resulted from the increased number
of new tunnels that have been brought into production and
the detailed mine plans being run through the PCBC block cave
scheduling and simulation software, thereby allowing for
a more representative Reserves figure to be calculated.
General notes on reporting criteria
1. Resources are reported inclusive of Reserves.
2. Tonnes are reported as millions; contained diamonds
are reported as per million carats.
3. Tonnes are metric tonnes and are rounded to the
nearest 100,000 tonnes; carats are rounded to the nearest
10,000 carats; rounding off of numbers may result
in minor computational discrepancies.
4. Resource tonnages and grades are reported exclusive
of external 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. Reserves and Resources have been reported in accordance
with the South African code for the reporting of mineral
reserves and mineral resources (SAMREC 2007).
7. The Petra 2013 Resource Statement 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 of Petra.
8. All Reserves and Resources have been independently reviewed
and verified by John Kilham, Pr. Sci. Nat. (reg. No. 400018/07),
a competent person with 33 years’ relevant experience in
the diamond mining industry, who was appointed as an
independent consultant by the Company for this purpose.
Jim Davidson
Technical Director
The following table summarises the Reserves
and Resources status of the combined Petra Group
operations as at 30 June 2013:
Category
Reserves
Proved
Probable
Subtotal
Resources
Measured
Indicated
Inferred
Gross
Tonnes
(millions)
Grade
(Cpht)
Contained
diamonds
(Mcts)
1.8
127.3
129.1
14.7
452.4
1251.3
39.1
42.1
42.1
8.4
49.5
6.7
18.0
0.71
53.66
54.36
1.24
224.09
84.25
309.58
Sub-total
1,718.5
Petra’s full 2013 Resource Statement
can be found online at
petradiamonds.com/operations/
reserves-and-resources
44
Petra Diamonds Limited Annual Report and Accounts 2013
Exploration
Petra’s exploration programme is focused in Botswana, which
offers an exceptional basis for diamond exploration in that it
ranks highly with regards to prospectivity, has a low risk profile
and an attractive fiscal regime. The Company has diamond
prospecting licences in country covering approximately 21,520 km2,
all of which is ‘on craton’.
Petra’s focus at present remains the evaluation of the KX36
kimberlite discovery and an intensified search for other
kimberlites in the surrounding area.
Following the completion of the final processing of the KX36
mini bulk sample material in mid February 2013, with a total of
ca. 285 carats recovered (including three stones of approximately
5 carats, two of which were of gem quality), detailed analysis
of all micro/macrodiamond results and the petrographic
and mineral chemistry data obtained from the +800 tonnes
of kimberlite and calcrete processed was completed
and is currently being interpreted.
In provisional analysing of possible reasons for the realised
diamond grade to be lower than previously predicted, two
main factors were identified: diamond breakage and the
relatively fine diamond size frequency distribution (“SFD”)
obtained (probably in itself a result of diamond breakage).
A diamond damage study undertaken by Dr Paddy Lawless
indicated significant breakage for stones larger than the 3 DTC
diamond sieve size. Diamond breakage would have occurred
during the drilling process because of the high ‘breakout forces’
encountered with the tricone drilling bits, with diamond
fragments smaller than 1mm being lost to the undersize
material. The quantified diamond breakage translates into
a potential ‘up-grade’ factor of 1.36 for all large diameter
drill (“LDD”) holes, in terms of total carats recovered.
The fine diamond SFD is possibly related to diamond breakage,
or the fact that LDD samples are not large enough to recover
a representative quantity of larger diamonds. Both these issues
will be addressed through an additional bulk sampling
programme, currently being planned for FY 2014.
A third phase of a narrow diameter drilling (“NDD”) programme,
involving eight inclined HQ core boreholes of between 250m and
400m, is nearing completion. The objective of this programme
is to improve delineation of the KX36 pipe and to provide
additional geological and geotechnical information. It is
anticipated that all information available to date will be
integrated in H1 FY 2014 to establish an initial resource
model and classification for KX36.
In late FY 2012, a detailed deflation (soil) sampling programme
was commenced to investigate the immediate surrounds of KX36
for other kimberlites that, together with KX36, may form a
kimberlite cluster. To date, ca. 6,000 deflation samples have
been collected and despatched for analysis. This programme
is now nearing completion. Initial results indicate a zone of
anomalous kimberlite indicator minerals (“KIM”) extending
south-west from KX36.
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The SkyTem Airborne Electromagnetic Survey
conducted over KX36 and surrounds in FY 2013.
In addition to the sampling campaign, Petra has carried out
a ca. 3,900 line km airborne electromagnetic survey over the KX36
region and the final processed data was received in H2 FY 2013.
The geo-electrical signature of KX36 is clearly identifiable in
the survey data and some additional high interest targets with
similar signatures in the immediate area had been identified by
Year end. All geophysical and soil sampling data will be used to
select a final set of priority drill targets in the vicinity of KX36.
The first exploration drilling is planned to commence in H1 FY 2014.
On a more regional scale, geophysical, geological, soil sampling
and drilling data are being compiled into one new comprehensive
regional geographic information system database for regional
target generation. The Company continues to review its
exploration holdings in Botswana and further desktop studies
led to the identification of three new prospecting licences covering
1,140km2 of prospective ground contiguous to the Kokong
kimberlite field. An application for these licences was
submitted in late FY 2013.
Jim Davidson
Technical Director
11 October 2013
Annual Report and Accounts 2013 Petra Diamonds Limited
45
Sustainability
A positive role to play
in our communities.
Petra’s mines are typically located in rural areas where
they are an important employer and support a much
larger number of people than those directly employed
by the Company.
Sustainability
Our Commitment
Sustainable growth
Petra’s strategy is to build a sustainable long-term future for the business,
which in turn will deliver value to all stakeholders
Williamson was the overall winner
for the category ‘Large Scale
Minerals Projects’ in Tanzania’s
Presidential 2012 awards on
Corporate Social Responsibility
and Empowerment.
Petra reports in detail on its sustainability
performance annually.
See our Sustainability Report online
petradiamonds.com/sustainability
Petra Diamonds is committed to the
responsible development of its assets
to the benefit of all stakeholders.
Petra’s strategy is to create value by
optimising and extending the lives of its
world-class diamond mines to deliver
sustainable, long-term operations and
significantly increased production.
As at 30 June 2013, Petra’s workforce
encompassed over 5,000 people
in South Africa, Tanzania and Botswana
and as such the Company is a significant
employer in Africa. Corporate social
responsibility is integral to the way the
Group structures and operates its mining,
development and exploration projects,
and this strategy aims to benefit Petra’s
employees and local communities
for many years to come.
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Governance
Health and Safety
Petra’s strategy is to build a sustainable
long-term future for the business and
continued effective governance, in line with
the Company’s growing size and stature,
is considered integral to achieving these aims.
Petra’s Health, Safety, Social and Environmental (“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.
The HSSE Committee is chaired by the Company’s Chief Executive,
Johan Dippenaar. The HSSE Committee’s purpose is to drive the
development of the Group’s policies on all relevant HSSE issues
and to ensure that the Board is cognisant of, and takes account
of, corporate social responsibility best practice.
In particular its role is to focus on ensuring that effective
systems and standards, procedures and practices are in place
and to monitor the correct implementation of these procedures
across the Group. In FY 2013, the key focus for the Committee
was to assess the material sustainability issues facing the Group,
particularly in light of the high growth rate of the business
year on year.
The Company’s 2013 Sustainability Report will be published
in November 2013 and will be available for inspection at the
28 November 2013 AGM. Within this report, Petra discloses
KPIs for material environmental, social and governance (“ESG”)
matters and provides forward looking objectives with regards
to each KPI. The Company reviews the effectiveness of its ESG
strategy through a review of these KPIs.
More information on the HSSE Committee
Page 70
The health and safety of employees is Petra’s
top priority. The Company’s approach to
health and safety is centred upon a process
of continuous risk assessment.
There is a high level of health and safety performance across
Petra’s operations. In order to drive continuous improvement,
the Company undertakes regular internal and external audits
to ensure it meets developing best practice standards and
complies with international standards, as well as relevant local
laws and regulations. These audits enable Petra to identify
best practice at individual mines which can be rolled out
across the rest of the Group.
All Petra’s underground pipe mines are now OHSAS 18001 certified,
an international occupational health and safety management
system specification; Finsch and Cullinan achieved re-certification
during the Year, whereas Koffiefontein and Kimberley Underground
achieved certification for the first time in FY 2013.
Petra has adopted the Mining Industry Occupational Safety
and Health (“MOSH”) guidelines, an initiative by the South African
Chamber of Mines to improve health and safety standards across
the industry through the identification, promotion and application
of best practice. Through MOSH, Petra has implemented
additional best practice initiatives, which have had a positive
impact on the Group’s safety performance.
The improvement in Petra’s LTIFR to 0.67 in FY 2013 (FY 2012: 1.13)
represents a good performance in relation to underground
mining operations and can be attributed to successful safety
awareness programmes run during the Year.
Annual Report and Accounts 2013 Petra Diamonds Limited
49
Sustainability
Our Commitment continued
Our People
Environment
Petra believes that employees who are
empowered and accountable for their
actions work to the best of their ability,
and the Company has therefore fostered
a culture whereby innovation and creativity
in the workplace is encouraged and rewarded.
Petra conducts its operations in an
environmentally sustainable manner by
using resources responsibly, protecting
and restoring the environments where
it operates and mitigating the impacts
of its operations.
Petra is committed to the training and development of employees
in order to ensure the current and future skills needs of the
organisation are met, and the Company offers both legally
required and career-oriented training in both the technical
and non-technical disciplines.
As a growing company, Petra requires a productive and effective
workforce who can lead the Company through its next stages
of development. In addition to technical skills, this requires the
ability to lead and motivate teams, to measure and manage
team performance, manage resources, systems and processes,
and develop and implement action plans to ensure operational
objectives are met. Petra’s leadership development programme
is an important strategic tool to assist the organisation in the
identification and development of employees who display
the potential to fulfil leadership positions in the future.
Petra is committed to implementing internationally recognised
environmental management processes, developing long-term
sustainable practices and meeting international best practice.
The Company aims to continually improve its environmental
management systems and promote environmental awareness
among employees and the community in which it operates.
Environmental responsibility is integrated into strategic
planning, management systems and daily activities and Petra
conducts regular internal and external audits of its operations.
The Company’s objective is that the Environmental Management
Systems in place at each operation should comply with ISO 14001,
which is a voluntary international environmental management
standard. All the underground pipe mines have now achieved
this goal, whilst Williamson is scheduled for certification
by the end of FY 2014.
The Company also offers ABET (adult basic education and
training) in order to provide employees with a minimum level
of education, thereby providing the basis for lifelong learning.
Petra recorded a number of improvements in environmental
management and monitoring during FY 2013, including of
carbon emissions, water usage and recycling of materials.
Petra encourages diversity in the workforce and treats its
employees with respect and dignity. In FY 2013, the Company
revised its Group Code of Ethical Conduct, which sets out
expectations of employees with regards to areas such as
appropriate conduct in the workplace and fraud prevention, as
well as including new and revised recommendations on key areas
such as human rights, whistle-blowing and anti-bribery policies.
Minimising energy use is an economical and an environmental
prerogative and the Group has therefore implemented initiatives
to reduce energy consumption and increase energy efficiency
wherever possible. Such measures served to decrease the Group’s
energy consumption per tonne in FY 2013 from 46kWh/t
to 31kWh/t.
The Company is continuously revisiting its rehabilitation
and closure plans to leave its mining areas in an improved
environmental condition upon completion of mining activities.
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Communities
Product Assurance
Positive relationships with local communities
around the Company’s operations are vital
to securing support for Petra’s activities and
maintaining its social licence to operate.
Petra is committed to upholding the high
value placed on diamonds, which are given
to celebrate life’s most special moments
and are considered as prized possessions.
The Group takes a holistic and structured approach to corporate
social responsibility and contributes to its local communities
through a variety of initiatives.
Proactive and consistent engagement is central to
Petra’s community programmes and the Company works
in partnership with Governments, communities (through the
local municipalities that are elected to represent them) and
other identified stakeholders to ensure that its operations
have a long-term positive impact on host communities and
to minimise any negative impacts.
Petra’s operations are predominantly located in remote areas
which have a low level of socio-economic development and
high unemployment.
The Company’s community development efforts therefore
aim to contribute to these local communities through initiatives
which focus on alleviating the issues identified through its
community engagement programmes, namely: sustainable
job creation; poverty alleviation; skills transfer; and local
enterprise development.
Effectively managing the expectations of all stakeholders is an
increasingly important challenge for the Company, which can only
be mitigated through open and transparent communication.
All operations focus on engaging with local community
representatives to report on the progress of projects,
which can then be communicated back to the community.
Stakeholder engagement is a key tool which is used by the
Company to identify and address material issues and risks
to its sustainability performance.
The Company will only operate in countries which are members
of the Kimberley Process and only sells diamonds that have been
mined from Petra-owned operations, thereby providing assurance
that 100% of its production is certified as ‘conflict-free’.
Petra monitors and manages each step in the diamond
production process to the highest ethical standards: from
exploration and mining, through to processing, sorting and
finally marketing and sale. The Company is committed to a
transparent and equitable sales process and is proud to offer
the majority of its production for sale in Johannesburg,
thereby contributing to beneficiation in Africa.
Petra’s marketing team maintains an open dialogue with
all customers and customer satisfaction is considered a priority.
Petra receives feedback from clients regarding production,
assortments, market movements and pricing. Any feedback
regarding production is noted and considered for the next
production cycle.
Petra has an open door policy with clients if they have any queries
or concerns, and the Company always assists as far as possible.
Confidentiality is of the utmost importance to Petra. When
previewing production, each client is allocated a private viewing
room and invoices are issued directly to the clients. No tender
information is divulged about results or top buyers and other
related matters.
During FY 2013, there were no incidents of regulatory
non-compliance or complaints raised with regards to the Company’s
sales and marketing processes.
See our Sustainability Report online
petradiamonds.com/sustainability
Annual Report and Accounts 2013 Petra Diamonds Limited
51
Corporate Governance
The Mine Overseer and Electrician Aide of the groundhandling section
discuss the use of personal protective equipment in the lamproom at Finsch
Effective corporate governance
is essential
Petra will continue to review and reinforce our
governance and risk management procedures
as it continues on its growth path.
Corporate Governance
Introduction
Dear shareholder,
It is the Group’s strategy to build a sustainable long-term future for the business
and to maximise shareholder value; continued effective corporate governance,
in line with best practice standards and the Company’s increasing size and stature,
is integral to achieving these aims.
FY 2013 Governance Highlights:
$ the appointment of Tony Lowrie as Senior Independent
Director, a position for which his years of business
experience in the financial sector ably qualified him;
$ further to the appointment of Mr Lowrie and the resignation
of Dr Kamal, the number of independent Non-Executive
Directors (“iNEDs”) on the Petra Board (excluding the Chairman)
now stands at 50% (in compliance with corporate
governance requirements);
$ strengthening of Audit, Remuneration and Nominations
Committees through the appointment of Mr Lowrie,
both in terms of composition and skills;
$ the completion of a rigorous and formal Board effectiveness
and performance review process; and
$ the implementation of the Group’s Anti-Bribery Policy
and the revision of the Group Code of Ethical Conduct.
The Petra Board composition has changed significantly over
the last two years, as is appropriate given the Company’s rapid
development and its move in FY 2012 from AIM to the Main
Market of the London Stock Exchange. We identified the
principal areas of governance improvement when joining
the Main Market and have continued to address these areas.
We benefit from the guidance of our iNEDs, who provide
valuable input to Board and Committee discussions, including
strategic matters. Petra’s Nomination Committee considers
our Board to have a good balance of highly relevant business,
governance, mining and Africa experience, however it will
continue to review Board composition going forward.
In line with one of the core values at the heart of Petra – ‘Let’s
do it better’ – we are looking to continuously improve across
all areas of our business, and we will continue to review and
reinforce our governance and risk management procedures
as the Company continues on its growth path.
Finally, my fellow Board members and I look to lead by
example and ensure that a culture of integrity, hard work
and accountability is spread right through the business,
from the top down.
Adonis Pouroulis
Non-Executive Chairman
11 October 2013
Adonis Pouroulis
Non-executive Chairman
My fellow Board members
and I look to lead by example
and ensure that a culture
of integrity, hard work and
accountability is spread right
through the business,
from the top down.
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Petra Diamonds Limited Annual Report and Accounts 2013
Composition of the Board
The Code provides that iNEDs should comprise at least half the Board, excluding the Chairman.
Chairman
Executives
Independent
Non-Executives
Adonis Pouroulis
Non-Executive Chairman
Johan Dippenaar
Chief Executive Officer
David Abery
Finance Director
Jim Davidson
Technical Director
Pat Bartlett
Gordon Hamilton
Tony Lowrie
(appointed 12 September 2012)
UK Corporate Governance Code Compliance
Petra is not subject to a code of corporate governance in its
country of incorporation, Bermuda. However, as a Main Market
listed company, Petra is required to comply with the UK Corporate
Governance Code 2010 (the “Code”) or to explain in this statement
why it has not complied in certain areas. Additionally, the Petra
Board considers it core to the Group’s status and development
that it lives and complies with corporate governance best practice
wherever possible.
The Company continued to make good progress during FY 2013 in
resolving previously explained items of non-compliance with the
Code; areas of non-compliance during the Year are set out below,
together with the reason for any continuing non-compliance.
3)
1)
Board Composition – the Code requires that the Company
appoints a senior independent director and in September 2012,
Mr Lowrie was appointed the Company’s Senior Independent
Director and this Code provision was satisfied. The Code
requires that at least half the Board members, excluding
the Chairman, should comprise independent non-executive
directors. Following the appointment of Mr Lowrie and the
resignation of Dr Kamal during the Year, the percentage of
iNEDs (excluding the Chairman in accordance with the Code)
increased to 50% and the Code provision was satisfied.
The appointment of Mr Lowrie to the Audit and
Remuneration Committees ensured that the Company
satisfies the relevant composition requirements set out
by the Code for those committees.
A copy of the UK Corporate Governance
Code is available on the Financial
Reporting Council’s website at:
http://www.frc.org.uk
2) Remuneration of Non-Executive Directors (“NEDs”)
– Petra’s Non-Executive Chairman holds options granted
prior to the Company’s step-up to the Main Market of the
London Stock Exchange, representing a form of performance
related benefits. Whilst the Code states that NEDs should
not receive performance related remuneration, these are
legacy arrangements and there have been no further option
or share incentive awards to the Non-Executive Chairman
since 17 March 2010. Other than this exception, the Group has
incorporated the principles of the Code when determining
remuneration for NEDs (for further information, please review
the Directors’ Remuneration Report on page 78).
Internal Audit – the Company currently has no formally
constituted internal audit function further to changes to
the management structure in the Year; rather it allocates
responsibility to certain members of its head office
operations finance team to regularly review the activities
of the various mines within the Group and carry out specific
internal control reviews as required. The reports prepared
are then submitted to the Executive Directors. The Audit
Committee has reviewed the need and appropriateness
of a formally constituted internal audit function and has
agreed that such function will be formed and appropriately
staffed during FY 2014.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Corporate Governance
Board of Directors
Adonis Pouroulis (43)
Non-Executive Chairman
Johan Dippenaar (56)
Chief Executive Officer
Role Mr Pouroulis leads the Board of Directors and works with
the Executive Directors on strategy and other matters. He serves
as Chairman of the Nomination Committee.
Role Mr Dippenaar leads the management of the Group,
implements the agreed strategy and runs the business
on a day-to-day basis. He chairs the HSSE Committee.
Appointment date March 1997
Appointment date June 2005
Qualifications Mining engineer – University of Witwatersrand,
South Africa
Qualifications Chartered accountant – member of the South
African Institute of Chartered Accountants
Experience 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. He 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.
Experience Since 1990 Mr Dippenaar has been involved in
the leadership and management of 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. Since the merger, he has led Petra through a period of
significant growth, taking the Company’s annual production
from ca. 175,000 carats in FY 2006 to 2.67 million carats
in FY 2013, and establishing the Company as a leading
independent producer.
External appointments Non-executive director
of Chariot Oil & Gas plc
External appointments None
David Abery (50)
Finance Director
Jim Davidson (68)
Technical Director
Role Mr Abery leads the financial management of the Group and
is responsible for financing, treasury, financial controls, reporting,
legal, investor relations, compliance and corporate governance.
Role Mr Davidson leads the technical management team and is
responsible for the direction and implementation of the Group’s
technical and exploration programmes.
Appointment date July 2003
Appointment date June 2005
Qualifications Chartered accountant – ICAEW
Experience Mr Abery has 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 implementation of a number
of innovative financing transactions. He is responsible for
all matters pertaining to Petra’s UK listing.
External appointments None
Qualifications Geologist – member of the Geological Society
of South Africa and registered with the South African Council
for Natural Scientific Professions
Experience Mr Davidson is an acknowledged world authority
on kimberlite geology and exploration, as well as an expert on
the optimal recovery of diamonds through plant processes and
other automated methods. 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.
External appointments None
56
Petra Diamonds Limited Annual Report and Accounts 2013
Tony Lowrie (71)
Independent Non-Executive Director
Dr Pat Bartlett (68)
Independent Non-Executive Director
Role Senior Independent Director and member of the Audit,
Remuneration and Nomination Committees.
Role Independent Non-Executive Director and member
of the Audit, Remuneration and Nomination Committees.
Appointment date September 2012
Appointment date November 2011
Qualifications Royal Commission – Sandhurst Military Academy
Experience Mr Lowrie has over 36 years’ association with the
equities business and is an experienced non-executive director.
He has had a lengthy and distinguished career, which included
senior positions with the Hoare Govett group and HG Asia
Securities. Between 1996 and 2004 he was chairman of ABN
AMRO Asia Securities and was formerly also a managing director
of ABN AMRO Bank. He has been a non-executive director of
Allied Gold Mining plc, Dragon Oil plc, J.D. Wetherspoon plc,
as well as several other quoted Asian closed end funds.
External appointments Non-executive director of the
Edinburgh Dragon Fund and non-executive director
of Kenmare Resources plc
Qualifications Member of the South African Institute of Mining
and Metallurgy; registered Professional Natural Scientist
Experience Dr Bartlett was formerly chief geologist for
De Beers until his retirement in 2003 and is an acknowledged
leading expert on kimberlite geology and block caving. He has
extensive experience working across Southern Africa and has
in-depth knowledge of several of the mines acquired by Petra,
having previously worked at Finsch, Koffiefontein, Kimberley
Underground and Cullinan. Since retiring from De Beers,
he has consulted on block caving projects for BHP Billiton,
Anglo American and Rio Tinto.
External appointments Director of the Board of Trustees for
the De Beers Benefit Society and the De Beers Pension Fund
Note On 4 February 2013, Dr Omar Kamal, a representative
of one of the Company’s major shareholders, Al Rajhi Holdings
W.W.L., stepped down from the Board. Dr Kamal’s letter of
resignation did not highlight any governance issues which
he felt required addressing.
Gordon Hamilton (68)
Independent Non-Executive Director
Role Independent Non-Executive Director, Chairman of the
Audit and Remuneration Committees and a member of the
Nomination Committee.
Appointment date November 2011
Qualifications Chartered accountant – ICAEW
Experience Mr Hamilton retired from Deloitte & Touche LLP in
2006 after more than 30 years as a partner primarily responsible
for multinational and FTSE 350 company audits, mainly in the
mining, oil 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. Gordon has extensive experience as a non-executive
director across a wide range of businesses.
External appointments Non-executive director of Barloworld
Limited, Nedbank Private Wealth and other related companies
within the Nedbank Group
Annual Report and Accounts 2013 Petra Diamonds Limited
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Corporate Governance
The Report of the Board
The Role of the Board
In accordance with the provisions of the Code, Petra is headed
by an effective Board which remains committed to the
long-term success of the Company. There exists a clear
distinction of responsibilities between the Chairman
and the Chief Executive.
Assessment of Director independence
The Company’s Non-Executive Chairman, Adonis Pouroulis, is
not considered independent according to corporate governance
guidelines due to his having served as Chairman since the
incorporation of the Company in 1997, having acted as Chief
Executive Officer until 2005, having been granted options
under the 1997 and 2005 Executive Share Option Schemes and
being eligible to receive benefits of membership from the
Group’s life insurance scheme. However, as part of their Board
evaluation exercise in FY 2013, the Company’s iNEDs determined
that whilst not considered to be independent for the reasons
stated, Mr Pouroulis demonstrated integrity in judgement,
character and action. Furthermore, his contribution, leadership
and accumulated experience and track record of building
natural resource companies justified their recommendation
that shareholders support his re-election to the Board
at the Company’s forthcoming Annual General Meeting.
In accordance with the Code, the Board considers Mr Hamilton,
Mr Lowrie and Dr Bartlett to be independent. All three iNEDs
are independent of any relationship listed in the provisions of
the Code in FY 2013. None of the iNEDs received any fees from
the Company in FY 2013 other than their contractual iNED fees,
as set out on page 78 of the Directors’ Remuneration Report.
Dr Kamal, who resigned during FY 2013, was not considered to
be independent as he represented the Group’s largest shareholder.
Our Board
DIRECTORS’ EXPERIENCE/
BACKGROUNDS
Mining 4
Geology 2
Finance 4
Capital markets 4
Audit 2
Africa 6
BOARD COMPOSITION
Executive Directors
Independent
Non-Executive
Directors
Non-Executive
Director
Matters reserved for the Board
The Board has a formal schedule of matters reserved that can only be decided upon by the Board. This schedule is reviewed
and agreed upon by the Board each year. The key matters are:
$ vision and strategy;
$ production and trading results;
$ Financial Statements and reporting
(supported by the Audit Committee);
$ financial strategy, including debt and other
external financing sources;
$ budgets, expansion projects, capital
expenditure and business plans;
$ material acquisitions and divestments;
$ corporate governance and compliance
(supported by the Audit Committee);
$ risk management and internal controls
(supported by the Audit Committee);
$ material health, safety, social and environmental matters
(supported by the HSSE Committee);
$ appointments and succession plans
(supported by the Nomination Committee); and
$ remuneration (supported by the Remuneration Committee).
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Petra Diamonds Limited Annual Report and Accounts 2013
The Board’s role
The Board’s role is the protection and enhancement
of shareholder value.
In order to ensure the effective operation of the Board,
there is a clear division between the responsibilities of the
Chairman, the Chief Executive, the Senior Independent Director
and the Independent Non-Executive Directors.
In order to fulfil this role, the Board:
$ provides leadership of the Company within a framework
of prudent and effective controls which enable risk
to be assessed and managed;
$ sets the Company’s strategic aims, ensures that the necessary
financial and human resources are in place for the Company
to meet its objectives and reviews management performance;
$ develops and promotes a collective vision of the Company’s
purpose, culture, values and the behaviour it wishes to
promote in conducting business and ensures that its obligations
to its shareholders and others are understood and met; and
$ carries out all duties with due regard for true sustainability
and the long-term success of the Company.
Chairman
The Chairman’s role is to:
$ ensure good corporate governance;
$ lead the Board, ensuring the effectiveness of the Board
in all aspects of its role; and
$ set the Board’s agenda and ensure that all Directors
are encouraged to participate fully in the activities
and decision-making process of the Board.
Chief Executive Officer
The Chief Executive Officer’s role is to:
$ lead and provide strategic direction to the Company’s
management team;
$ run the Company on a day-to-day basis;
$ be responsible, along with the executive team,
for implementing the decisions of the Board
and its Committees; and
$ be the Company’s spokesperson, communicating
with external audiences, such as investors,
analysts and the media.
Senior Independent Director
Independent Non-Executive Directors
The Senior Independent Director’s role is to:
$ provide a sounding board for the Chairman and serve
as an intermediary for the other Directors as necessary;
$ be available to shareholders if they have concerns which
contact through the normal channels of Chairman, Chief
Executive or other Executive Directors has failed to resolve
or for which such contact is inappropriate; and
$ lead the NEDs in undertaking the evaluation of the
Chairman’s performance appraisal.
The Independent Non-Executive Directors’ role is to:
$ challenge opinions of the Executive Directors, provide
fresh insight in terms of strategic direction and bring
their diverse experience and expertise to the benefit
of the leadership of the Company;
$ assess the performance of the Chairman;
$ scrutinise the performance of the Executive Directors
in terms of meeting agreed goals and objectives;
$ monitor the reporting of performance;
$ ensure that the financial information, controls
and systems of risk management within the Group
are robust and defensible;
$ determine the appropriate levels of remuneration
of the Executive Directors; and
$ appoint or remove Executive Directors
to or from the Board, when necessary.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Corporate Governance
The Report of the Board continued
Meetings attended by Directors in FY 2013
Attendance of Directors at the meetings of the Board and its committees in FY 2013:
Attended
Attended by invitation
Adonis Pouroulis
Johan Dippenaar
David Abery
Jim Davidson
Pat Bartlett
Gordon Hamilton
Tony Lowrie
Omar Kamal
Board
meetings and
conference calls
Board visit to
South African
operations
Audit
Committee
Remuneration
Committee
Nomination
Committee
n/a
Neither the Executive Directors nor the Chairman attended the Remuneration Committee meetings when it considered matters
in relation to their own remuneration.
All Directors attended the 2012 Annual General Meeting.
Board calendar – FY 2013
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Board (main meetings)
Board (conference calls/
administration)
Board visit to
South African operations
Audit Committee
Remuneration Committee
Nomination Committee
iNEDs with Chairman
(without Executive team)
Board, Chairman and
individual Director
evaluation exercise
Annual General Meeting
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Petra Diamonds Limited Annual Report and Accounts 2013
Board process
1. Board Committees
The Committees currently established by the Board are:
Board of Directors
Audit Committee
The Audit Committee is
responsible for overseeing the
Group’s financial reporting,
internal and external audit,
internal control and risk
management systems, and
compliance, whistleblowing
and fraud policies
Remuneration Committee
The Remuneration Committee
is responsible for advising the
Board on the remuneration of
Executive Directors and
setting an overall policy for
remunerating the Group’s
employees
Nomination Committee
The Nomination Committee
leads the process for Board
appointments, re-election and
succession of the Directors and
the Chairman
HSSE Committee
The HSSE Committee, whilst
not a formally constituted
Board Committee, is chaired
by Mr Dippenaar. It is
responsible for the Health,
Safety, Social and
Environmental policy and
compliance within the Group
Gordon Hamilton
Chairman
Gordon Hamilton
Chairman
Adonis Pouroulis
Chairman
Johan Dippenaar
Chairman
Tony Lowrie
Tony Lowrie
Gordon Hamilton
Patrick Bartlett
Patrick Bartlett
Tony Lowrie
David Abery
Alternate Chairman
Members of
Senior Management
Patrick Bartlett
5. Other commitments
Executive Directors may, subject to Board consent, accept
external appointments to act as non-executive directors of
other companies. However, the Board would reserve the right
to review such appointment to ensure that no conflict of
interest would arise and that the time spent on fulfilling
such obligations would not affect the respective Director’s
contribution to Petra. Any fees for such appointments would
normally be retained by the Director concerned. Currently,
none of the Executive Directors have any such external
appointments. The Chairman and iNEDs would also be required
to inform the Board of any proposed new directorships and a
similar review process would be undertaken to ensure they can
adequately fulfil their obligations as Directors of the Company.
2. Executive Directors
The Executive Directors are responsible for the execution of
the Company’s strategy and the management of the Company
on a day-to-day basis. The Executive Directors are Mr Dippenaar,
Mr Davidson and Mr Abery.
3. NED meetings
The Chairman held private meetings with the iNEDs during the
Year, enabling free discussions without the Executive Directors
present. The purpose of these meetings was to update the
iNEDs on the various activities of the Group where necessary
before a formal board meeting, in particular when the
Executive Directors were reviewing matters of strategy,
the budgetary process and other corporate activities.
4. Board time allocation
The Board believes that all the Directors are able to allocate
sufficient time to the Company to fulfil their obligations. None
of the Directors’ performance evaluations indicated concern
that a Director’s allocation of time was insufficient. Directors’
biographies and duties can be found on pages 56 to 59 and during
the Year there have been no changes to their respective duties.
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Corporate Governance
The Report of the Board continued
Board objectives
Strategy
Board and
Committee
composition
Risk management
Board process
Progress in FY 2013
Objectives for FY 2014
$ The continuing evaluation of the Group’s growth
and project expansion plans, in accordance with
the Group’s stated objective to reach production
of ca. 5 million carats by FY 2019, ensuring sufficient
time and attention is given to considering new
value-add opportunities as they arise.
$ The appointment of a Senior Independent
Director to the Board.
$ Discussion of succession planning
for the Executive Directors.
$ The strengthening of the Board’s Committees
following the appointment of Mr Lowrie
as Senior Independent Director.
$ Ensuring the Board had a full understanding of
the labour relations developments in South Africa
and potential impact on the Company.
$ The implementation of the Group Anti-Bribery
Policy and the revision of the Group Code
of Ethical Conduct.
$ A full Board visit to the South African operations,
with a specific focus on viewing the expansion
project delivery at Finsch and Cullinan.
$ Increased communication between the Executive
and Non-Executive teams in between Board
meetings, of both a formal and informal nature.
$ The introduction of an electronic Board pack system,
ensuring a timeous and secure one-stop access
point for Board packs and related documentation
to further enhance Board effectiveness.
$ Continue to review and monitor at Board level
the Group’s production results and delivery
against the approved expansion and
development plans.
$ Continue to evaluate growth opportunities
in the diamond sector that have the potential
to deliver significant shareholder value.
$ Continue to consider Board composition,
taking into account diversity and relevant
expertise and experience.
$ Continue to consider succession planning.
$ Implement a Group internal audit function,
as approved by the Audit Committee.
$ Ongoing review of the Company’s financing
arrangements to ensure, as key factors change,
that it is well managed and planned ahead
of time.
$ A further full Board site visit to appropriate
Group operations that are material to the Group’s
results and future development, with a focus
on engagement with Group Senior Management.
$ Continue the level of communication between
all Board Directors, both on a formal and
informal nature to ensure that all Directors
are continually fully informed of the Group’s
business and in a position to contribute both
during and outside of formal Board meetings.
$ Continue to provide relevant training programmes
to Directors in order to ensure that all Board
members stay abreast of relevant developments.
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Induction of new Directors
At Petra, appropriate training and industry-related briefings are
provided to all Directors on appointment to the Board, taking
into account their individual qualifications and experience.
In addition, the respective Directors are given access to
appropriate corporate documents, including the Company’s
annual reports, sustainability reports, Main Market prospectus,
the Bye-Laws and Committee Terms of Reference and other
key policies, enabling them to familiarise themselves with
the current Group activities.
In April 2013, the full Board carried out a visit to Petra’s South
African operations in order for the new iNEDs to familiarise
themselves with the core activities of the Group and to meet
the Senior Management team and the other employees so
important to driving the future success of the Group. The visit
included a detailed session on South Africa’s regulated health,
safety, social and environmental landscape, including an overview
of Petra’s compliance and sustainability programmes across
the South African operations.
Director training
Ongoing training is arranged to suit each Director’s individual
needs and covers relevant areas such as industry developments,
financial reporting, governance, regulatory changes and HSSE.
The Chairman reviews and agrees with each Director their
training and development needs.
Conflicts of interest
Whilst conflicts should be avoided, the Board acknowledges
that instances arise where this is not always possible. In such
circumstances, Directors are required to notify the Chairman
before the conflict arises and the details are recorded in the
minutes. If a Director notifies the Board of such an interest,
they are excluded from any related discussion and decision.
Board performance and evaluation
The Board agreed that the FY 2013 Board evaluation would be
delivered internally. The evaluation exercise was undertaken in
May 2013, making use of individual questionnaires drawn up
under the guidance of the Chairman and the Senior
Independent Director. These questionnaires focused on:
$ the Board’s performance;
$ the Audit Committee’s performance;
$ the Remuneration Committee’s performance;
$ the Nomination Committee’s performance;
$ the individual Director’s performance; and
$ the Chairman’s performance (led by the Senior
Independent Director).
The results of the exercise were shared with the Board.
The overall result of the evaluation exercise was that the Board
was considered to be effective, although certain areas were
identified for focus as set out below. Recognising the Code
requirement, Petra will hold an externally facilitated evaluation in
FY 2014, and thereafter every three years. The Senior Independent
Director led an evaluation of the Chairman with the iNEDs, further
to consultation and input from the other Directors of the Board.
Actions taken in response to the 2013 Board and Committee evaluation
2013 evaluation recommendations
Proposed actions in response
To further participate in training in their specific areas of
expertise as well as other areas relevant to their position.
Directors to continue to attend seminars and workshops in
their specialised areas of expertise and other relevant areas.
To continue to focus on the Board’s composition, considering
succession and diversity.
For further Committee consideration in FY 2014.
To continue to evaluate each NED in accordance with
the provisions of the Code in respect of independence.
The evaluation found no issues relating to a lack
of independence by any NED, save for the position
of the Chairman (refer ‘Assessment of Director
Independence’ – page 58).
To encourage individual members to maintain the high levels
of time allocated to Group interaction.
NEDs devoted a substantial portion of their time to the
Company in performance of their duties and it was agreed
that this level of valuable input should be maintained.
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63
Corporate Governance
The Report of the Board continued
Activity of the Board
The activities of the Board can be summarised as follows:
Individual Board meeting dates are set in a format to address
key events in the corporate calendar. The Board’s schedule is
formalised for the various issues under discussion, thereby
ensuring adequate consideration time.
Given that meetings involve significant travel by many Directors,
the holding of the Board and Committee meetings occurs over
two days. This allows for considerable interaction by the members,
both in formal meetings and outside thereof. The use of free
time to discuss issues allows for clarification and engagement,
meaning that debate during the meeting is more effective. It is
also outside of the formal meetings that input on specific issues
can be addressed, with individual Directors drawing on their
personal experiences.
Packs for the Board meetings are prepared by management
following input on the agendas formulated by the respective
Chairmen, and circulated electronically. Distribution is arranged
prior to the meeting, thereby allowing the Directors time to
consider the variety of issues to be presented and debated.
This also allows Directors the opportunity to seek clarity on
issues which they have identified. In the minutes of the meetings,
issues identified for follow-up are set out, ensuring that matters
raised by the Directors are reported back timeously.
Management arranges an annual site visit for the Board,
allowing the operations to be reviewed and enabling the Board
and Senior Management to interact.
Directors dealing in Company shares
In accordance with the Company’s Share Dealing Code, Directors
and Senior Management are prohibited from dealing in shares
or exercising share options whilst in possession of price sensitive
information. Directors and Senior Management are required to
seek approval from the Chairman (in the case of the Directors)
or the Finance Director (in the case of Senior Management) before
dealing in shares or exercising share options in the Company.
Independent professional advice and access to
Company information
All Directors have access to advice from the Company’s auditors,
legal advisers and brokers, as well as from other professional
advisers, where appropriate. Such advice is at the expense
of the Company if considered necessary in the performance
of their duties. Each Director has the right to access to all
relevant Company information.
Remuneration of NEDs
The Board took independent advice from Deloitte and applied
the appropriate benchmarks to set the NEDs’ remuneration.
NED fees provide for service on the Board and the Committees.
Further information is contained in the Directors’ Remuneration
Report on page 78.
Investor relations calendar for FY 2013
July
FY 2012 Trading Update – investor/
analyst conference call
August
Analyst guidance issued for FY 2013
September
FY 2012 results – analyst
presentation/webcast and investor
roadshow in UK, Canada and US
October
Annual report published
November
AGM
Q1 FY 2013 Interim Management
Statement Investor/analyst
conference call
December
Morgan Stanley Digging Deeper
Conference – London
January
H1 FY 2013 Trading Update –
investor/analyst conference call
Investor/analyst visit to Finsch
February
GMP Jamboree and Indaba
Conferences in South Africa
FY 2013 Interim Results – analyst
presentation/webcast and investor
roadshow in UK
Q3 FY 2013 Interim Management
Statement – Investor/analyst
conference call
Bank of America Merrill Lynch Global
Metals Mining & Steel Conference –
Barcelona
RBC African Precious Metals
Conference – London
March
April
May
June
64
Petra Diamonds Limited Annual Report and Accounts 2013
Annual general meeting (“AGM”)
Shareholders are encouraged to participate at all shareholder
meetings and especially the AGM, ensuring that there is
a high level of accountability and identification with the
Group’s strategy and goals. The full Board (unless unavoidable
circumstances dictate otherwise) are present at the AGM. The
Board Committee chairmen are there to answer any questions
which shareholders might raise with reference to their activity.
The Company’s external auditors attend the AGM.
Equal access and continuous disclosure
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 Listing Rules and the
Disclosure Rules and Transparency Rules. All public announcements
are simultaneously posted on the Company’s website at
www.petradiamonds.com.
The Company’s Annual Report and Accounts is made available
to all Shareholders. The Board ensures that the Annual Report
and Accounts includes all relevant information about the
operations of the Group during the Year.
eCommunications and Shareholder Portal
Shareholders previously passed a resolution to allow the
Company to use electronic means and its website to send or
supply statutory documents and communications to Shareholders.
Shareholders have the flexibility to receive such communications
from Petra electronically, should they so choose, and can update
their preferences at any time either by contacting Capita IRG
(see contact details on page 135) or by logging into the
Shareholder Portal (see below).
In addition to providing Shareholders with greater choice,
eCommunications has allowed the Company to reduce its costs
and environmental impact and to speed up the provision of
such information to Shareholders.
To offer Shareholders even more flexibility,
a Shareholder Portal via Capita Registrars has
been set up at www.capitashareportal.com
offering a whole host of shareholder
services online
Insurance for Directors and Officers
The Company has arranged appropriate Directors’ and Officers’
Insurance cover in respect of legal claims against its Directors
and Management. During FY 2013, no claims were submitted
in terms of the provision of the policy.
Communication with Shareholders
Petra supports an open dialogue with Shareholders, which
ensures that Shareholders’ needs and objectives and their views
on the Company’s performance are understood, as well as
demonstrating the high emphasis placed on engagement and
shareholder value by the Board. Investor relations is an important
aspect of the Company’s overall communications strategy.
Petra has a dedicated in-house Corporate Communications
Manager 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 corporate communications team
regularly provides feedback to management and all members
of the Board on shareholder and analyst communication, and
ensures that analyst research notes are circulated as received.
As part of Petra’s proactive investor relations approach,
the CEO, Finance Director and the Corporate Communications
Manager commit time to hold regular formal and informal
meetings in person with the Company’s Shareholders, in
addition to twice yearly roadshows which coincide with
the publication of Petra’s interim and preliminary Financial
Statements. The Company also hosts 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 are stored
thereafter at http://www.petradiamonds.com/investors/
financial-reports-and-results.
In addition, the Chairman communicates directly with shareholders
and holds meetings in person as and when appropriate and the
NEDs, both as part of the induction process and subsequently,
are also provided with opportunities to meet with shareholders
throughout the year. Petra’s Senior Independent Director is
available to Shareholders to hear concerns that contact with the
Chairman, CEO or Finance Director may have failed to resolve,
or for which such contact was inappropriate.
Petra’s website, www.petradiamonds.com, provides
comprehensive and transparent information on the Company
to all stakeholders, including investors looking to potentially
make an investment decision. As such, the website is regularly
reviewed and kept up to date with new information. It also
makes available the Company’s Annual and Sustainability
Reports to all stakeholders.
The corporate communications team continually evaluates
new methods by which to engage its shareholder base
and aims towards best practice investor communications
for a FTSE 250 company.
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65
Corporate Governance
Report of the Audit Committee
The Audit Committee had a highly productive year, working well
together to provide assurance on the Group’s financial, governance
and internal audit controls.
Gordon Hamilton, Chairman of the Audit Committee
Independent
Non-Executive Directors
Gordon Hamilton
Chairman of the
Audit Committee
Pat Bartlett
Tony Lowrie
(appointed 12 September 2012)
Gordon Hamilton
Chairman
FY 2013 highlights
$ Review and approval of the half-year and full-year results.
$ Review of the work and independence of the external auditors.
$ Introduction of the Group’s Anti-Bribery Policy.
$ Review and approval of the new Group treasury
company structure.
$ Oversaw the rotation process of the Petra audit partner
at BDO LLP in accordance with best practice.
$ Review of the FY 2013 Audit Committee Report prepared
by BDO LLP and active engagement in considering the key
audit and accounting judgements highlighted therein.
The members of the Audit Committee (“the Committee”) are
considered to have the appropriate experience in order to monitor
and ensure the integrity of the Group’s financial, governance,
internal audit, internal control and risk management systems.
The Chairman, Mr Hamilton, spent more than 30 years as a
partner at Deloitte LLP primarily responsible for multinational
and FTSE 350 listed company audits and remains abreast
of continuing professional developments.
Mr Lowrie joined the Committee upon his appointment to the
Petra Board on 12 September 2012 and brings his many years of
business experience across international banking and financial
sectors to the benefit of the Committee.
Role of the Audit Committee
The principal functions of the Audit Committee include
the following:
$ to monitor the integrity of all Financial Statements issued
by the Company and any formal announcements relating to
the Company’s financial performance, reviewing significant
financial reporting judgements contained in them;
$ to ensure that Petra’s internal controls and risk management
systems are effective;
$ to review and challenge where necessary accounting policies
and practices, decisions requiring a major element of judgement,
the clarity of disclosures, compliance with accounting standards,
and compliance with regulatory and legal requirements;
$ to consider the need for the Company to create an internal
audit function and, if deemed appropriate, recommend
the creation of such function to the Board, ensuring
it is adequately resourced and effective;
$ to consider the appointment, re-appointment or removal
of the external auditors and to recommend the remuneration
and terms of engagement of the external auditors;
$ to assess the external auditors’ independence and objectivity;
$ to review the engagement of the external auditors to ensure
the provision of non-audit services by the external audit
firm does not impair its independence or objectivity; and
$ to give due consideration to relevant laws and regulations,
including the provisions of the Code and the requirements
of the Listing Rules.
Activity in FY 2013
The Committee invites the Group Chairman and Executive
Directors to attend the meetings as appropriate. In addition,
the Committee as a whole and, on occasion, the Chairman of the
Committee meet separately with the audit partner to discuss
significant audit, accounting and governance developments.
In addition to chairing formal meetings of the Audit Committee
and sessions with the external auditors, Mr Hamilton was regularly
in Johannesburg and met with Mr Abery and his corporate and
operational teams to discuss the financial activities of the Group.
66
Petra Diamonds Limited Annual Report and Accounts 2013
The meetings during FY 2013 included presentations by BDO LLP
regarding the results of the FY 2012 audit, the interim review
for H1 FY 2013 and the audit planning proposal for FY 2013, as
well as the results of the FY 2013 audit subsequent to year end.
The Committee considered and approved the Financial Statements
and formal financial announcements made during the Year,
including key financial reporting judgements and accounting
policies as a part of that review.
During FY 2013, the BDO audit partner responsible for the
external audit was rotated in accordance with BDO internal
policy and relevant professional ethical standards surrounding
independence (IFAC International Ethics Standards Board Code
of Ethics). As the Committee has primary responsibility for
recommending the appointment, re-appointment and removal of
the external auditors, discussions were held with BDO LLP regarding
the selection and appointment of the new audit partner.
BDO LLP has been the Group’s external auditors for eight years
since the year ended 30 June 2006 (following a formal tender).
Regarding placing the audit out on tender, the Company
recognises the importance of audit independence and, based
upon the forthcoming UK Corporate Governance Code 2012
and Financial Reporting Council transition guidelines, currently
intends to put the audit out to tender when the next partner
rotation is due to take place.
The Committee may, if considered necessary, take independent
advice at the expense of the Company. Other than BDO LLP as
the external auditors, no other external consultants have been
engaged by the Audit Committee during FY 2013 to obtain
such advice.
Business ethics
In FY 2013, the Committee submitted the Group’s new
Anti-Bribery Policy to the Board for approval. This policy was
subsequently circulated throughout the Group, published on
Petra’s corporate website at petradiamonds.com/about-us/
corporate-governance/the-uk-bribery-act and on the Group
employee intranet. It has also been made available to the
Group’s third party contractors.
In addition, the Group’s Code of Ethical Conduct was revised
during the Year and strengthened with regards to developments
in relevant legislation. This Code, along with the Anti-Bribery
Policy is the subject of ongoing presentations and training
for Petra employees and contractors.
The Company has established a dedicated telephone hotline
and email through which interested parties may report on
events which are deemed to have fallen foul of the provisions
of the Policy and Ethics Code, including financial irregularities
such as fraud or bribery. To date, there have been no calls made
to the hotline to report non-compliance with the Group’s Code
of Ethical Conduct, fraud or financial irregularities.
More information on Petra’s commitment
to business ethics can be found at
petradiamonds.com/about-us/
corporate-governance/business-ethics
Public reporting
The Committee reviewed and provided comment on both the
financial and non-financial information in the Group’s Annual
Report. Accounting matters are discussed by the Finance Director
and his team and the Chairman of the Audit Committee.
Key auditing matters are discussed with the audit partner
ahead of Committee meetings.
The Committee, on behalf of the Board, has a process of review
that has enabled it to confirm that the information in the
Annual Report and half-year results presents a fair, balanced
and understandable assessment of the Group’s position and
prospects and it believes this will enable shareholders to assess
the Company’s performance, business model and strategy.
Internal controls and risk management
The Board is responsible for the Group’s system of internal
control and for reviewing its effectiveness. 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, at least annually, including financial, operational
and risk management.
System of internal control
The Committee continued to review the effectiveness of
the Company’s risk management and internal control systems.
The reviews covered material controls, including financial,
operational and compliance controls, and confirmed that
appropriate controls have been in operation for the Year
under review and to date.
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.
Details of the identified key risks, how they are mitigated
and specific action taken during FY 2013 are set out on pages
26 to 29 of this report.
Internal controls and risk management
The Committee regularly reviews the adequacy and
effectiveness of the Group’s internal control procedures and
risk management systems through regular reports from the
Group’s key financial managers, business units and corporate
teams, and through consideration of the external auditors’
Audit Committee reports and face to face discussion between
the audit partner and the Audit Committee Chairman and
Committee members.
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Annual Report and Accounts 2013 Petra Diamonds Limited
67
Corporate Governance
Report of the Audit Committee continued
Internal controls and risk management continued
The Board’s internal control processes, which include those over
the financial reporting process, are comprehensive and include:
$ operating unit controls – operating units comply with financial
controls and procedures including information system controls;
$ capital expenditure controls – the Group is currently involved
in major capital projects at its mines; details of the controls
to ensure that the projects remain on time and within
budget are reported to the Board quarterly;
$ functional reporting – key areas subject to regular reporting
to the Board include operations and production, finance,
investor relations, technical, safety, human resources, corporate
social responsibility, environment and legal matters;
$ internal audit function – whilst the Group has currently no
formal internal audit function, it has been agreed that such
a function will be formed and appropriately staffed during
FY 2014. Currently, review of the internal controls takes place
under the auspices of the Group’s operations finance team,
who prepare reports for submission to the Executive Directors.
The team regularly undertakes reviews of activities on the
various Group mines, both independently and at the request
of mine management, to ensure compliance with standard
policies and procedures; and
$ Group Code of Ethical Conduct – the Group has revised
its Code of Ethical Conduct. The Code of Ethical Conduct
is designed to guide compliance with legal and other
obligations to the Company’s stakeholders.
Practices have been established to ensure:
$ financial exposures are controlled, including the use
of derivatives;
$ environmental performance is regularly monitored to ensure
the Group is in compliance with 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, with reports being prepared
for submission to the Board by the Anti-Bribery Officer;
$ business transactions are properly authorised
and executed; and
$ financial reporting accuracy and compliance
with the financial reporting regulatory framework.
In FY 2013, no material weaknesses in internal control were
identified. Whilst being satisfied that controls and risk
management remain appropriate for the Group’s activities, the
Audit Committee continues to undertake a thorough review of
internal controls, risk management procedures, internal audit
resourcing and strategy to ensure that its practices develop and
remain appropriate. When internal control reviews identified
necessary or beneficial improvements, appropriate steps have
been taken to ensure the control environment is effective.
68
Petra Diamonds Limited Annual Report and Accounts 2013
Non-audit services
The Audit Committee requires that any non-audit services to be
performed by BDO LLP are formally approved by the Committee.
Audit-related services do not require pre-approval and encompass
actions necessary to perform an audit, including internal control
testing procedures; providing comfort letters to management
and/or underwriters; and performing regulatory audits.
The provision of any non-audit service is subject to careful
consideration, focused on the extent to which provision
of such non-audit service may impact the independence
or perceived independence of the auditors. The auditors
are required to provide details of their assessment of
the independence considerations, measures available
to guard against independence threats and safeguard
the audit independence.
The Audit Committee notes that BDO LLP acted as a
reporting accountant for the move from AIM to the Main
Market listing in FY 2012. In approving the non-audit service,
the Audit Committee considered the auditor independence
to be appropriately safeguarded, given a variety of factors
including the fact that the non-audit service was non-recurring
in nature, it was delivered by a separate engagement team to
safeguard independence and it is commonplace for an incumbent
audit firm to act as reporting accountant on such transactions.
During FY 2013, BDO LLP provided no non-audit services
to the Group.
External auditors
As part of its meetings, the Committee proposed the
re-appointment of BDO LLP to act as auditors for FY 2014,
having considered the independence, objectivity, tenure
and effectiveness of BDO LLP and the audit process.
Auditors’ remuneration
US$ million
Audit services
Non-audit services
Total
FY 2013
FY 2012
0.7
—
0.7
0.6
0.71
1.3
1. US$0.7 million was the cost in respect of admission to the Main Market.
It is common practice for incumbent auditors to act as reporting accountants.
The Company performed a review of comparable transactions and consistently
found that companies who had been admitted to the Main Market of the
London Stock Exchange in recent years had routinely used incumbent audit
firms to provide such services.
The Committee fully considered the objectivity and
independence of BDO LLP as part of re-appointment
considering all current ethical guidelines. The auditors’
fees were approved as part of this process.
The Audit Committee Terms of Reference
were reviewed during FY 2013 and remain in
line with best practice. They can be accessed
on the Company’s website at
petradiamonds.com/about-us/
corporate-governance/board-committees
Corporate Governance
Report of the Nomination Committee
I take pleasure in welcoming Tony Lowrie to the Petra Board as the
Senior Independent Director, as the first Director to formally fulfil
this important governance role for the Petra Group.
Adonis Pouroulis, Chairman of the Nomination Committee
Non-Executive Chairman
Adonis Pouroulis
Chairman of the
Nomination Committee
Independent Non-Executive
Directors
Pat Bartlett
Gordon Hamilton
Tony Lowrie
(appointed 12 September 2012)
Adonis Pouroulis
Non-Executive Chairman
FY 2013 Nomination Committee highlights
$ Preparation of a detailed role specification with regards
to the search for a Senior Independent Director
$ The appointment of Tony Lowrie as Senior
Independent Director
$ Oversight of the Board performance evaluation exercise
Role of the Nomination Committee
The principal functions of the Nomination Committee include
the following:
$ to review the structure, size and composition of the Board
(including appropriate skills, knowledge, experience and
diversity), and to make recommendations to the Board
with regards to any changes;
$ to identify, nominate and recommend, for the approval
of the Board, appropriate candidates to fill Board vacancies
as and when they arise;
$ to make recommendations to the Board concerning
membership of the Audit and Remuneration Committees;
$ to satisfy itself, with regards to succession planning, that
plans are in place with regards to both Board and Senior
Management positions; and
$ to assess and, if appropriate recommend to the Board
the re-election by shareholders at the AGM of any Director
under the retirement and re-election provisions of the
Company’s Bye-Laws.
Activity in FY 2013
The Committee’s focus for the Year was the identification
of a candidate who would have the right attributes required
of a Senior Independent Director of a FTSE 250 mining company.
A search consultant, independent to the Company, was engaged
to assist with the recruitment process.
A shortlist was put together and evaluated, following which
the Nomination Committee recommended the appointment of
Mr Lowrie, who fulfilled the requirements of a Senior Independent
Director with strong financial and UK capital markets experience,
given his 35 years within the equities business, as well as his
specific experience acting as an iNED of other FTSE 250
mining companies.
Diversity
Petra understands that diversity is important to the effective
functioning of a Board. The Petra Board is considered to have a
broad but highly relevant skillset; however the Committee will
continue to evaluate its composition going forward and any
new appointments would be based on a range of factors,
including diversity.
The Nomination Committee’s Terms of
Reference can be accessed on the Company’s
website at petradiamonds.com/about-us/
corporate-governance/board-committees
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Annual Report and Accounts 2013 Petra Diamonds Limited
69
Corporate Governance
Report of the HSSE Committee
FY 2013 marked the first full year of operation for the HSSE Committee
and we focused on addressing safety performance and the other HSSE
matters most material to the Group.
Johan Dippenaar, Chairman of the HSSE Committee
Role of the HSSE Committee
The principal functions of the HSSE Committee include
the following:
$ to evaluate the effectiveness of the Group’s policies and
systems for identifying and managing health, safety, social
and environmental risks within the Group’s operations;
$ to assess the policies and systems within the Group for
ensuring compliance with applicable legal and regulatory
requirements with respect to health, safety, social and
environmental aspects;
$ to assess the performance of the Group with regards to the
impact of health, safety, social and environmental decisions and
actions upon employees, communities and other stakeholders;
$ to review management’s investigation of all fatalities
and serious accidents within the Group and actions
taken by management as a result of such fatalities
and serious accidents;
$ to evaluate the quality and integrity of any reporting
to external stakeholders concerning health, safety, social
and environmental aspects; and
$ to review the Group’s performance indicators in connection
with health, safety, social and environmental aspects.
Additional HSSE activity details are contained
in the Company’s annual Sustainability Report,
which can be found on the Company’s
website at petradiamonds.com/
sustainability
A copy of the revised HSSE Committee’s
Terms of Reference can be accessed on the
Company’s website at petradiamonds.com/
sustainability/hsse-committee
Chief Executive Officer
Johan Dippenaar
Senior Management
Group Operations Manager
Head of Mining Operations
Group Support Manager
Group Legal Services Manager
Group SHE Manager
Grou
Group Environmental Coordinator
Johan Dippenaar
Chairman
FY 2013 HSSE Committee highlights
$ Review of relevant legislation and regulations, reporting
to the Board on levels of compliance as appropriate.
$ Review of international guidelines and best practice
in respect of Petra’s sustainability reporting.
$ Introduction of a revised Group Code of Ethical Conduct,
providing a reference point on the high standard of conduct
we expect from all Petra employees.
$ Focus on labour relations and improved employee
communication, with a number of internal communications
initiatives launched and rolled out.
$ Oversaw the commencement of Group carbon emissions
reporting and consideration of the various emissions
disclosure mechanisms.
$ Monitoring of HSSE performance and reporting
to the Board on any material issues.
$ Review of the Group’s compliance with the Global
Reporting Initiative Guidelines, using the Indicator
as a useful review measure.
70
Petra Diamonds Limited Annual Report and Accounts 2013
Corporate Governance
Directors’ Remuneration Report
Dear shareholder,
I am pleased to present the Directors’ Remuneration Report for FY 2013.
Petra is a leading diamond mining group that offers shareholders
an exceptional growth and value proposition. The Remuneration
Committee’s (“the Committee”) objective is to operate a
remuneration policy which reinforces the Company’s
ambitious growth strategy.
The Committee is cognisant of the unique nature of the
organisation, as well as the specialist skills and experience
required in the industry in which we operate, and will continue
to consider the levels of salaries, as well as performance pay,
against this specific background. The Committee is of the view
that the Group’s remuneration policies, which are weighted
towards performance pay, support the objectives of Petra
and its shareholders.
Salary increases for FY 2014 (effective 1 July 2013) for the
Executive Directors were less than the average increases made
across the Group’s wider workforce. The bonus outcomes for
FY 2013 reflect the Group’s production and revenues, as well as
successful delivery of key corporate and operational objectives
in what were challenging circumstances over the past year.
Further details regarding Directors’ remuneration are set out
in the main body of this report.
Gordon Hamilton
Chairman of the Remuneration Committee
11 October 2013
Gordon Hamilton
Chairman of the Remuneration Committee
Our objective is to operate
a remuneration policy which
reinforces the Company’s
ambitious growth strategy.
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Annual Report and Accounts 2013 Petra Diamonds Limited
71
Corporate Governance
Directors’ Remuneration Report continued
Membership of the
Remuneration Committee
Chairman
Gordon Hamilton
Members
Pat Bartlett
Tony Lowrie
(appointed on 12 September 2012)
Role and responsibilities of the Remuneration Committee
The Committee is responsible for determining on behalf
of the Board and shareholders:
$ the Company’s general policy on the remuneration
of the Chairman, the Executive Directors and the
Senior Management team;
$ the total individual remuneration for the Chairman,
Executive Directors and Senior Management, including base
salary, benefits, performance bonuses and share awards;
$ the design and operation of the Company’s share
incentive plans;
$ performance conditions attached to variable incentives; and
$ service contracts for Executive Directors.
The full Terms of Reference for the
Remuneration Committee have been
approved by the Board and are available
on the Company’s website at
petradiamonds.com/about-us/
corporate-governance/board-committees
Operation of the Committee
Where appropriate, the Chairman and Executive Directors attend
Committee meetings to provide suitable context regarding the
business. Individuals who attend meetings do not participate
in discussions which determine their own remuneration.
The Committee engages the services of Deloitte LLP to provide
independent advice to the Committee relating to remuneration
matters. During the Year, Deloitte LLP and the Deloitte firm in
South Africa also provided unrelated tax and general advisory
services to the Company. Deloitte’s Tanzanian practice (a separate
Deloitte Touche Tohmatsu entity) undertakes the local statutory
audit for Williamson Diamonds Ltd, a subsidiary of the Petra Group.
BDO LLP remain the Group auditors.
Remuneration strategy
The Company’s remuneration strategy was adopted following
an in-depth review undertaken in 2011 and 2012. The Committee
engaged with major shareholders to consult on the proposed
approach, with the primary objective to develop a remuneration
framework that fully supported the delivery of Petra’s strategic
ambitions, whilst taking into account evolving best practice.
The Committee spent considerable time developing suitable
performance metrics to fully support the Company’s strategy,
aligned to performance outcomes that create long-term
shareholder value. Petra has acquired and developed an
exceptional portfolio of assets and the next phase of
development is focused on executing the capital expansion
programmes required to achieve a substantial increase in
production levels. Delivering on these programmes is key
to delivering exceptional shareholder value and therefore,
for long-term incentives, our approach includes a balance
of total shareholder return and achievement of capital
expansion project and production targets.
Remuneration policy
Our management team is highly regarded in the market and
brings unique skills to bear that are extremely sought after
within the specialised diamond sector. Petra’s culture is very
much performance driven and, against this background,
our approach to remuneration is guided by the following
overarching principles:
$ the employment terms for Executive Directors and Senior
Management are designed to attract, motivate and retain
high calibre individuals who will drive the performance of
the business. The Group competes for talent with major
mining companies and packages need to be competitive
in this market;
$ remuneration packages should be weighted towards
performance-related pay;
$ performance measures should be tailored to Petra’s strategic
goals and targets should be demanding;
$ share-based rewards should be meaningful – the Committee
believes long-term share awards provide alignment with the
long-term interests of shareholders and the Company;
$ remuneration structures should take into account best practice
developments, but these should be applied in a manner which
is appropriate for Petra’s industry and specific circumstances.
Approval of FY 2012 Directors’ Remuneration Report
The Directors’ Remuneration Report for FY 2012 was approved
at the November 2012 Annual General Meeting, with 99.94%
of votes cast approving the FY 2012 Report.
72
Petra Diamonds Limited Annual Report and Accounts 2013
Remuneration for Executive Directors – summary of key elements
Salary
$ Comprises annual base salary
$ Influenced by role, scope, individual performance
and experience, and market positioning
Base salaries effective from July 2013:
$ Johan Dippenaar £303,050
$ David Abery
£282,150
$ Jim Davidson
£282,150
Benefits
Annual bonus
$ Cash allowance
$ Group life, disability and critical illness insurance
Executive Directors receive an allowance of 10%
of salary in lieu of both pension and other benefits
$ Short-term annual incentive based on
performance during the financial year
$ Linked to key financial, operational
and strategic objectives
Maximum award of up to 150% of base salary.
For FY 2013, 25% of the award earned for the Year
has been deferred for two years into shares
(or a cash equivalent)
For FY 2014, the bonus will be linked to:
$ carat production;
$ cost management;
$ profit;
$ project/expansion plan delivery;
$ health, safety, social and environmental objectives; and
$ strategic and corporate priorities.
2012 Performance
Share Plan
(“2012 PSP”)
$ Conditional share awards which vest subject
to achievement of performance targets
Normal maximum award of up to 150% of base
salary (plan maximum of 200% of salary)
$ Aligned to shareholder value and Petra’s
long-term delivery objectives
Performance measured over three financial years
against the following metrics:
$ Total Shareholder Return (“TSR”) relative to FTSE
350 mining companies;
$ absolute TSR;
$ carat production; and
$ project/expansion plan delivery.
The last award under the 2005 ESOS was granted
in March 2010. Outstanding awards are subject
to share price targets
The awards under the 2011 LTSP are based on carat
production and project/expansion plan delivery.
The performance period for outstanding awards
ends on 30 June 2016
Legacy
arrangements
$ Share awards under two legacy plans:
the 2005 Executive Share Option Scheme
(“2005 ESOS”) and the 2011 Longer-Term
Share Plan (“2011 LTSP”)
$ No intention to grant further awards to Executive
Directors under these two legacy plans
$ The last awards to Executive Directors under
the 1997 Executive Share Option Scheme
(“1997 ESOS”) were exercised in December 2012
and subsequently there are no further share
awards outstanding under the plan for
Executive Directors
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Annual Report and Accounts 2013 Petra Diamonds Limited
73
Corporate Governance
Directors’ Remuneration Report continued
How does Petra’s remuneration strategy link with its corporate strategy?
Performance measures for incentives
Production
$ Growth in carat production is at the core of Petra’s strategy and is therefore fully embedded
in the performance measurement framework
Expansion project delivery
$ Progress is measured as part of the short-term annual bonus, and the long-term share awards
include stretching targets supporting Petra’s long-term ambitions
Profit and costs
HSSE
$ Petra remains focused on managing costs and profitability. Profit and cost measures form
part of the annual bonus metrics
$ Health, safety, social and environmental measures are explicitly included as part of the annual
bonus framework, reflecting Petra’s commitment to corporate responsibility
Total shareholder return
$ Share awards are linked to value created for shareholders by measuring both relative
and absolute TSR
Base salary and benefits
The base salaries for Executive Directors are determined by the Committee taking into account a range of factors including role,
scope, the individual’s performance and experience, and positioning against comparable roles in other mining companies of similar
size and complexity. When considering salary increases, the Committee is also mindful of general economic conditions and salary
increases for the broader Company employee population. Base salaries are normally reviewed to take effect from the start
of the financial year on 1 July.
For FY 2014, the Committee has determined that the base salaries (per annum) for Executive Directors should be as below:
Mr Dippenaar
Mr Abery
Mr Davidson
Base salary
to
30 June 2013
£
290,000
270,000
270,000
Base salary
from
1 July 2013
£
303,050
282,150
282,150
Base salaries for the Executive Directors were increased by 4.5% (effective 1 July 2013), which is less than the average increases
made across the Group.
Other benefits
In lieu of pension plan participation and other benefits, the Executive Directors receive a cash benefit supplement of 10% of base
salary. Other than membership of the Group management life insurance scheme (including disability and critical illness), Executive
Directors are not provided with any further benefits and do not participate in a Company pension scheme.
Annual performance bonus
The annual bonus plan is designed to reward and incentivise performance over the financial year. The bonus framework uses a
balanced scorecard approach, linked to the financial, operating and strategic objectives of the Company. The maximum bonus for
Executive Directors for delivery of exceptional performance is capped at 150% of base salary. Prior to determining bonus outcomes,
the Committee considers performance in the round to ensure that actual bonuses are appropriate.
For FY 2013, the Committee’s assessment of performance against the balanced scorecard of key measures and milestone
achievements in the Year included the following key achievements:
$ production increased 21% to 2.67 million carats;
$ the major expansion programmes at Finsch and Cullinan are on track and in line with expectations;
$ revenue increased 27% to US$402.7 million;
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Petra Diamonds Limited Annual Report and Accounts 2013
Annual performance bonus continued
$ profitability improved with adjusted EBITDA increasing 36% to US$122.4 million, adjusted operating cashflow increasing 57%
to US$132.8 million and adjusted net profit after tax increasing 22% to US$48.3 million; and
$ Group LTIFR reduced to 0.67 (FY 2012: 1.13), an encouraging trend in the context of the increased activity coupled with the expansion
programme progress.
On the basis of this review, the Committee determined that the bonus for Executive Directors would be 72.5% of the maximum
award (equating to 108.75% of base salary), of which 25% (as was the case for FY 2012) is deferred for two years into shares
(or a cash equivalent). The deferred amount for FY 2012 and FY 2013 is subject to a malus provision.
Breakdown of metric type for FY 2014 balance scorecard
Metrics
Profitability (including EBITDA, net profit and cost management)
Production and project delivery (carat production and delivery against project milestones)
Corporate (including corporate and strategic priorities and health, safety, social and environmental performance)
% of total
award
40%
30%
30%
2012 PSP
The Committee believes that long-term share awards should form a key part of the remuneration policy and provide a direct
means of aligning reward with both the long-term performance of the Company and the interests of shareholders. Long-term
share awards are granted under the 2012 PSP (approved by shareholders at the January 2012 AGM).
Against the background of the Committee’s remuneration strategy (as set out earlier in this report), the performance targets
for the 2012 PSP awards granted to Executive Directors during the Year are based on a combination of absolute and relative total
shareholder return (50% of the total award) and operational delivery and carat production targets (50% of the total award).
The award is split into the following elements:
TSR (50%)
TSR vs FTSE 350 mining companies
25% of award
Absolute TSR
25% of award
Delivery and
production (50%)
Carat production
25% of award
Expansion project delivery
25% of award
$ Half of the award is linked to returns made for shareholders
$ The first element is linked to relative TSR measured against other
mining peers
$ The second element is based on absolute TSR so that reward is linked
to creation of absolute value for shareholders
$ During the next phase of growth, increasing production is a key
objective that is central to Petra’s stated strategy
$ The production target is expressed as a cumulative target so that
the Company needs to deliver performance throughout the
performance period
$ The Company is committed to realising value from its asset
portfolio; key to this is the successful delivery of expansion projects
at its core operations
$ This element is based on an assessment of performance at each mine
where a significant expansion programme is in place
$ The assessment at the end of the period is based on an agreed
framework with vesting based on the weighted average score out
of ten across all mines; the objectives for each mine are approved
by the Committee and the Board
$ The assessment is based on various factors including the
achievement of key milestones, execution, timeframe of delivery
and management of costs
In line with best practice, the vesting of awards is also subject to a malus provision which enables the Committee to reduce, cancel
or impose further conditions on an award in various circumstances such as serious misstatement or a serious failure of risk management.
The Committee has the discretion to adjust the performance targets in exceptional circumstances, for example significant
acquisitions/disposals or a significant change in business strategy.
In respect of FY 2013, the Executive Directors were granted a maximum share award with a face value of 150% of base salary.
Full vesting is subject to achievement of performance targets measured over the three financial years ending on 30 June 2015.
Annual Report and Accounts 2013 Petra Diamonds Limited
75
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Corporate Governance
Directors’ Remuneration Report continued
2012 PSP continued
The targets for outstanding awards under the 2012 PSP are set out below:
TSR vs FTSE 350 mining companies – 25% of award
Below median
Median
TSR
No portion
of element vests
25% of
element vests
100% of
element vests
Upper quartile
Absolute TSR – 25% of award
Straight-line vesting between these points
Less than
8% per annum
8% per annum
16% per annum
Carat production – 25% of award
FY 2012 award (1 July 2011–30 June 2014)
FY 2013 award (1 July 2012–30 June 2015)
Expansion project delivery–25% of award
Straight-line vesting between these points
Delivery and production
No portion
of element vests
25% of
element vests
80% of
element vests
100% of
element vests
Less than
7.6m carats
Less than
8.8m carats
Lower than
6 out of 10
7.6m carats
8.0m carats
8.4m carats
8.8m carats
9.3m carats
9.8m carats
6 out of 10
8 out of 10
10 out of 10
Carat targets have been adjusted to reflect the previously announced revised mining scope for Finsch (enlargement of the Block 4
Sub-Level Cave footprint and deferral of the main Block 5 Cave) and to exclude the Fissure Mines. Major shareholders were advised
of these adjusted targets.
Legacy plans
Petra has three legacy plans which were adopted by the Company prior to moving from AIM to the Main Market.
The Committee does not intend to grant further awards to Executive Directors under any of these plans and would only
do so in very exceptional circumstances.
(i) 1997 Employee Share Option Scheme
The Company previously operated the 1997 ESOS (introduced in 1997), whereby it can issue options to eligible employees
(including Executive Directors and Senior Management) to subscribe for shares in the Company at set prices.
Following the exercise in December 2012 of vested share options originally granted in 2003, there are now no further outstanding
awards held by Executive Directors under this plan.
(ii) 2005 Employee Share Option Scheme
The Company previously operated the 2005 ESOS (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.
The last award under this plan was granted to the Executive Directors in March 2010.
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Petra Diamonds Limited Annual Report and Accounts 2013
Legacy plans continued
(iii) 2011 Longer-Term Share Plan
The 2011 LTSP was implemented prior to the step up to the Main Market. This share plan was implemented to address (i) the retention
of the Executive Directors and Senior Management over the period to 2016, which is a pivotal period for the Company as the
expansion programmes are rolled out across the Group; and (ii) the lack of share awards to the Executive Directors and Senior
Management since March 2010. The performance targets for awards under the 2011 LTSP were considered as part of the FY 2012
review and were designed to support the next phase of the Company’s development by focusing on key operational priorities
over an extended four-year time horizon. No further awards will be made to Executive Directors under the 2011 LTSP.
The performance targets for the awards granted to Executive Directors will be assessed over the four-year period to 30 June
2016. The targets are set out below. The carat targets have been adjusted in a manner consistent with the approach adopted for
the 2012 PSP described earlier in this report.
Up to 50% of the award may vest based on performance against accelerated vesting targets. For the production element, up to
12.5% of the element may vest if the accelerated target of 8.4 million carats cumulative production is delivered to 30 June 2015,
rising to 50% for an accelerated target of 9.3 million carats cumulative production. The assessment of performance conditions,
malus and exceptional adjustment provisions are in line with the 2012 PSP.
2011 LTSP
Performance targets for the awards granted to Executive Directors, four-year period to 30 June 2016
No portion
of element vests
25% of
element vests
80% of
element vests
100% of
element vests
Carat production – 50% of award
Less than 11.7m carats
11.7m carats
12.3m carats
12.8m carats
Expansion project delivery – 50% of award
Lower than 6 out of 10
6 out of 10
8 out of 10
10 out of 10
Straight-line vesting between qualifying points
Shareholding guidelines
It is the Company’s policy that each of the Executive Directors holds a meaningful number of Petra shares. The guideline is a
minimum of one year’s basic salary for the applicable Director. Executive share ownership is further supported by the opportunity
to acquire shares through the Company’s bonus deferral and share incentive schemes. Where Executives are unable to hold additional
shares (due to exchange control regulations), the use of cash equivalents linked to the share price provides alignment with shareholders.
The current share interests of the Executive Directors are detailed on page 82 of the Directors’ Report and are repeated below.
Executive Directors currently exceed the guideline for Petra share ownership.
Executive Director
Role
Mr Dippenaar
Chief Executive Officer
Mr Abery
Finance Director
Mr Davidson
Technical Director
Shareholding
(number of shares)
as at 30 June 2013
640,000
1,979,649
640,000
Service contracts
The Executive Director service contracts are terminable by 12 months’ written notice on either side and contain non-compete and
non-solicitation clauses (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 NEDs have letters of appointment with the Company. 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. On termination, the NEDs would be entitled to payment of fees for the
one month contractual notice period.
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Annual Report and Accounts 2013 Petra Diamonds Limited
77
Corporate Governance
Directors’ Remuneration Report continued
Service contracts continued
Director
Role
Date of contract
Term
Notice period
by Company
or Director
12 months
12 months
12 months
Executive Directors
Mr Dippenaar
Mr Abery
Mr Davidson
Non-Executive Directors1
Mr Pouroulis
Mr Lowrie
Dr Bartlett
Mr Hamilton
Chief Executive Officer
Finance Director
Technical Director
28 November 2011
28 November 2011
28 November 2011
n/a
n/a
n/a
Non-Executive Chairman
Senior Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
28 November 2011
12 September 2012
28 November 2011
28 November 2011
36 months
36 months
36 months
36 months
1 month
1 month
1 month
1 month
Non-Executive Directors’ remuneration
Adonis Pouroulis
Non-Executive Chairman; Chairman of Nomination Committee
Basic annual fee: £140,000
Dr Patrick Bartlett
iNED
Basic annual fee: £50,000
Tony Lowrie
(appointed 12 September 2012)
Senior iNED
Basic annual fee: £70,000
Gordon Hamilton
iNED; Chairman of Audit Committee and Remuneration
Committee
Basic annual fee: £50,000
Committee chair fees: £20,000
Total: £70,000
Chairman and iNEDs’ fees
The remuneration of iNEDs is determined by the Chairman and Executive Directors.
With effect from 28 November 2011, Mr Pouroulis moved from the position of Executive Chairman to that of Non-Executive
Chairman. As a consequence of his previous role, Mr Pouroulis has a number of outstanding share options which were granted
under the Company’s 2005 ESOS. Following his move to the position of Non-Executive Chairman and in line with provision D.1.3
of the UK Corporate Governance Code, Mr Pouroulis will not participate in any future Company share scheme arrangements.
Mr Pouroulis continues to receive the benefit of membership of the Group’s life insurance scheme.
NEDs receive a fixed basic fee for their normal services rendered during the Year and a fee for chairmanship of Committees.
The annual fees for NEDs are provided above. All fees are payable in cash.
The additional fee paid for chairmanship of the Audit and Remuneration Committee is £10,000 in each case. There is no additional
fee for chairmanship of the Nomination or HSSE Committees.
iNEDs do not participate in the Company’s bonus arrangements, share schemes or pension plans, and for FY 2013 (in accordance with
the Company’s normal policy) did not receive any other remuneration from the Company outside of the fee policy outlined above.
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Petra Diamonds Limited Annual Report and Accounts 2013
Performance graph
The graph below shows a comparison between the TSR for Petra shares for the five-year period to 30 June 2013 and the TSR
for the companies comprising the FTSE 350 Mining Index over the same period. This index has been selected to provide a relevant
sector comparator to Petra. The TSR measure is based on a 30 trading day average.
TOTAL SHAREHOLDER RETURN
Based on 30 trading day average
Petra Diamonds
FTSE 350 Mining Index
160
140
120
100
80
60
40
20
0
Source: Datastream
June 08
June 09
June 10
June 11
June 12
June 13
Directors’ emoluments
The following table gives a breakdown of the remuneration of the individual Directors who held office in FY 2013. Although the
Company’s reporting currency is US Dollars, these figures are stated in Pounds Sterling so as to be aligned with the Directors’
service contracts.
Basic salary
and fees
£
290,000
270,000
270,000
140,000
Executive Directors
Mr Dippenaar
Mr Abery
Mr Davidson
Chairman
Mr Pouroulis
Non-Executive Directors
Dr Bartlett
Mr Hamilton
Mr Lowrie
Dr Kamal3
50,000
70,000
56,144
23,836
Cash
in lieu of
pension and
benefits1
£
29,000
27,000
27,000
—
—
—
—
—
For the year ended 30 June 2013
Annual
performance
bonus – paid
in cash
£
Annual
performance
bonus
– deferred
into shares
£
Non-cash
benefits2
£
5,484
4,898
3,018
2,539
—
—
—
—
236,531
220,219
220,219
78,844
73,406
73,406
—
—
—
—
—
—
—
—
—
—
2013
Total
£
639,859
595,523
593,643
2012
Total
£
566,800
534,695
532,895
142,539
137,022
50,000
70,000
56,144
23,836
29,722
41,611
—
38,167
1,169,980
83,000
15,939
676,969
225,656
2,171,544
1,880,912
1. The Executive Directors receive a cash benefit supplement in lieu of pension and other benefits, calculated as 10% of their basic salary.
2. Non-cash benefits comprise contributions made by the Company to the Group’s life assurance, disability and critical illness scheme.
3. Dr Kamal stepped down from the Board on 5 February 2013. Prior to stepping down, Dr Kamal received an annual fee of £40,000 per annum.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Corporate Governance
Directors’ Remuneration Report continued
Directors’ interests in the 2012 PSP
As at 30 June 2013, Executive Directors held the following interests (shares) in the 2012 PSP:
Date of
award
Outstanding
at 1 July
2012
Awarded
during the
Year
Vested
during the
Year
Lapsed
during the
Year
Outstanding
at 30 June
2013
Mr Dippenaar
15 May 2012
267,516
—
20 December 2012
—
418,672
Total
267,516
418,672
Mr Abery
15 May 2012
248,408
—
20 December 2012
—
389,798
Total
248,408
389,798
Mr Davidson
15 May 2012
248,408
—
20 December 2012
—
389,798
Total
248,408
389,798
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
267,516
418,672
686,188
248,408
389,798
638,206
248,408
389,798
638,206
Performance
period
1 July 2011–
30 June 2014
1 July 2012–
30 June 2015
1 July 2011–
30 June 2014
1 July 2012–
30 June 2015
1 July 2011–
30 June 2014
1 July 2012–
30 June 2015
1. The performance conditions applicable to the 2012 PSP consist of: (a) TSR relative to FTSE 350 mining companies (25%); (b) absolute TSR (25%); (c) carat production (25%);
and (d) project delivery (25%). Further details of the performance conditions are set out in the “2012 Performance Share Plan” section of this report.
2. The share price on 15 May 2012 was 133.0 pence and on 20 December 2012 was 109.7 pence. The 30 day trading average price to the date preceding the date of the award,
which was used to calculate the maximum share award, was 157.0 pence and 103.9 pence respectively.
Directors’ interests in the 2011 LTSP
As at 30 June 2013, the Executive Directors held the following interests (shares) under the 2011 LTSP:
Date of
award
Outstanding
at 1 July
2012
Awarded
during the
Year
Vested
during the
Year
Lapsed
during the
Year
Outstanding
at 30 June
2013
Mr Dippenaar
15 May 2012
400,000
Total
Mr Abery
15 May 2012
Total
Mr Davidson
15 May 2012
Total
400,000
400,000
400,000
400,000
400,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
400,000
400,000
400,000
400,000
400,000
400,000
Performance
period
1 July 2012–
30 June 2016
1 July 2012–
30 June 2016
1 July 2012–
30 June 2016
1. The performance conditions applicable to the 2011 LTSP consist of (a) carat production (50%) and (b) project delivery (50%). Further details of the performance conditions
are set out in the “Legacy plans” section of this report.
2. The share price on 15 May 2012 was 133.0 pence.
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Petra Diamonds Limited Annual Report and Accounts 2013
Directors’ interests in share options
As at 30 June 2013, the following share options were outstanding:
Date of
grant
Exercisable
from
Exercise
price
(pence)
Options
outstanding
at 1 July
2012
Granted
in Year
Lapsed
in Year
Exercised
in Year
Options
outstanding
at 30 June
2013
Expiry date
Mr Pouroulis
1997 and
2005 ESOS
Total
Mr Dippenaar
2005 ESOS
Total
Mr Abery
1997 and
2005 ESOS
Total
Mr Davidson
2005 ESOS
Total
5 Sep 2003
5 Sep 2006
16 June 2005 16 June 2008
31 May 2009
31 May 2006
12 March 2009 12 March 2012
30 Sep 2012
17 March 2010 17 March 2013
30 Sep 2009
16 June 2005 16 June 2008
31 May 2009
31 May 2006
12 March 2009 12 March 2012
30 Sep 2012
17 March 2010 17 March 2013
30 Sep 2009
5 Sep 2003
5 Sep 2006
16 June 2005 16 June 2008
31 May 2009
31 May 2006
12 March 2009 12 March 2012
30 Sep 2012
17 March 2010 17 March 2013
30 Sep 2009
16 June 2005 16 June 2008
31 May 2009
31 May 2006
12 March 2009 12 March 2012
30 Sep 2012
17 March 2010 17 March 2013
30 Sep 2009
44.0
85.0
79.5
27.5
45.5
60.5
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
500,000
250,000
250,000
250,000
100,000
100,000
1,450,000
750,000
250,000
750,000
350,000
350,000
2,450,000
500,000
250,000
250,000
750,000
350,000
350,000
2,450,000
750,000
250,000
750,000
350,000
350,000
2,450,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— 500,000
—
—
—
—
—
—
—
—
—
—
—
5 Sep 2013
250,000 16 June 2015
250,000 31 May 2016
250,000 12 March 2019
100,000
30 Sep 2019
100,000 17 March 2020
— 500,000
950,000
—
—
—
—
—
—
—
—
—
—
—
750,000 16 June 2015
250,000 31 May 2016
750,000 12 March 2019
350,000
30 Sep 2019
350,000 17 March 2020
— 2,450,000
— 500,000
—
—
—
—
—
—
—
—
—
—
—
5 Sep 2013
250,000 16 June 2015
250,000 31 May 2016
750,000 12 March 2019
350,000
30 Sep 2019
350,000 17 March 2020
— 500,000 1,950,000
—
—
—
—
—
—
—
—
—
—
—
750,000 16 June 2015
250,000 31 May 2016
750,000 12 March 2019
350,000
30 Sep 2019
350,000 17 March 2020
— 2,450,000
1. The closing market price of an ordinary share on 30 June 2013 was 114.7 pence.
2. On 19 December 2012, Mr Pouroulis and Mr Abery exercised vested options originally granted in 2003. The share price on 19 December 2012 (the date of these exercises)
was 106.5 pence.
3. During FY 2013, the highest market price was 131.6 pence and the lowest market price was 97.0 pence.
Gordon Hamilton
Chairman of the Remuneration Committee
11 October 2013
Annual Report and Accounts 2013 Petra Diamonds Limited
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Corporate Governance
Directors’ Report
The Directors recognise that it is important that a mining company such as Petra aims
to introduce a dividend policy when appropriate in the Company’s development.
Stock exchange listing
The Company’s shares are admitted to the premium segment
of the Official List and are traded on the Main Market of the
London Stock Exchange. The ordinary shares themselves are
not admitted to CREST, but dematerialised depositary interests
representing the underlying ordinary shares issued by Capita
IRG Trustees Limited can be held and transferred through the
CREST system. The rights attached to the ordinary shares are
governed by the Companies Act 1981 (Bermuda) (as amended)
and the Company’s Bye-Laws.
The Company is a constituent of the FTSE 250.
Directors and their interests
The interests of the Directors and their families in the issued
share capital of the Company as at 30 June 2013 (other than in
respect of share incentives granted to the Directors, which are
detailed in the Directors’ Remuneration Report on pages 80
to 81 and note 27 to the Financial Statements) were as follows:
Name
Mr Pouroulis1,2
Mr Dippenaar
Mr Davidson
Mr Abery2
Dr Bartlett
30 June 2013
30 June 2012
9,564,650
9,564,650
640,000
640,000
640,000
640,000
1,979,649
1,979,649
—
—
Mr Gordon Hamilton
70,000
70,000
Mr Tony Lowrie3
Dr Omar Kamal4
—
n/a
n/a
—
1 7,735,000 ordinary shares in the Company are held by a trust of which Mr Pouroulis
is a beneficiary.
2 3,659,299 ordinary shares in the Company are held by a trust of which Mr Pouroulis
and Mr Abery are beneficiaries.
3 Mr Lowrie was appointed to the Board on 12 September 2012.
4 Dr Kamal resigned from the Board on 4 February 2013.
There have been no changes to the Directors’ interests since
30 June 2013 to the date of this Management Report.
The Directors present their Management Report, which
includes the Corporate Governance Statement on pages 54
to 65, together with the audited Financial Statements of the
Group for the year ended 30 June 2013 on pages 88 to 133.
For the purpose of DTR4.1.8R, this Directors’ Report plus any
cross-references made herein is deemed the ‘Management
Report’ and should be read with the annual Financial Statements
on pages 88 to 133.
Principal activities
Petra 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 six producing mines:
five in South Africa (Finsch, Cullinan, Koffiefontein, Kimberley
Underground and Helam) and one in Tanzania (Williamson).
Petra also has controlling interests in the Sedibeng and Star
mines in South Africa, which were placed on care and
maintenance subsequent to the Year end. In addition,
the Company has an exploration operation in Botswana.
Business review
The Annual Report and Accounts has been prepared to
provide shareholders with a fair and balanced review of
Petra’s business, the outlook for the future developments
of the Group, as well as the principal risks and uncertainties
which could affect the Group’s performance.
Going concern
Following a review of the Group’s financial position and
forecasts, the Directors have concluded, having taken into
account key assumptions including (but not limited to) production
levels, diamond price and exchange rate sensitivities, flexibility
around capital expansion expenditure and debt facility headroom,
that sufficient financial resources will be available to meet
the Group’s current and foreseeable cashflow requirements
for a period of at least 12 months from the date of this report.
On this basis, they consider it appropriate to prepare the
Financial Statements on a going concern basis.
Dividend policy
No dividend has been declared or paid in the current or prior
Year. The Directors recognise that it is important that a mining
company such as Petra aims to introduce a dividend policy
when appropriate in the Company’s development. The Board
will formalise the Group’s dividend policy when the Group’s
free cashflow, currently being reinvested in expanding its key
operations, is sufficient to support the ongoing payment
of a dividend.
82
Petra Diamonds Limited Annual Report and Accounts 2013
Substantial shareholdings
The interests as indicated in the table below in the ordinary
shares of the Company represented more than 3% of the
issued share capital as at 30 September 2013.
Number
of shares
Percentage
of issued
share capital
Al Rajhi Holdings W.L.L.
66,525,600
13.1%
Saad Investments Company
Limited/Awal Bank
T.Rowe Price1
JPMorgan Asset Management
Holdings Inc.
BlackRock Investment
(UK) Limited
Prudential plc group
of companies2
The Capital Group
Companies, Inc.
60,844,185
52,756,589
39,603,194
37,221,723
31,143,330
18,998,011
11.9%
10.4%
7.8%
7.3%
6.1%
3.7%
1. T. Rowe Price holds 51,615,487 shares with voting rights attached to them, being
10.1% of Petra voting rights.
2. Of this holding, 30,929,516 shares are held by M&G Investment Funds 3.
Company Bye-Laws
The Company is incorporated in Bermuda and the City Code
therefore does not formally apply to the Company. The Company’s
Bye-Laws were amended in November 2011 to incorporate material
City Code protections appropriate for a company to which
the City Code does not apply.
The amended Bye-Laws now require that all Directors stand for
re-election annually at the Company’s Annual General Meeting.
The Bye-Laws of the Company may only be
amended by a resolution of the Board and by
a resolution of the shareholders. The Bye-Laws
of the Company can be accessed here:
petradiamonds.com/investors/
company-documents
Share capital
The Company has one class of shares of 10p each (the “Ordinary
Shares”). Details of the Company’s authorised and issued
Ordinary Share capital together with any changes to the
share capital during the Year are set out in note 20 to the
Financial Statements.
Power to issue shares
At the AGM held on 29 November 2012 (“the 2012 AGM”),
authority was given to the Directors to allot unissued Relevant
Securities (as defined in the Bye-Laws) in the Company up to a
maximum aggregate nominal value of £14,430,557.00, being an
amount equal to the unissued share capital of the Company
as at 19 October 2012.
The Directors are seeking approval from shareholders to renew
this authority at the 2013 AGM to be held on 28 November 2013,
further details of which are set out in the Notice of the 2013 AGM.
A special resolution passed at the 2012 AGM granted authority
to the Directors to allot equity securities (as defined in the
Bye-Laws) in the Company for cash (a) on a non-pre-emptive
basis pursuant to the rights issue or other offer to shareholders
and (b) otherwise up to an aggregate nominal value of
£2,528,472.15 (being equal to approximately 5% of the issued
share capital of the Company as at 19 October 2012).
The Directors are also seeking approval from shareholders
to renew this authority at the 2013 AGM to be held on
28 November 2013, further details of which are set out
in the Notice of the 2013 AGM.
Share rights
Shareholders have the right to receive notice of and attend any
general meeting of the Company. Each shareholder who is present
in person (or, being a corporation, by representative) or by
proxy at a general meeting on a show of hands has one vote
and, on a poll, every such holder present in person (or, being
a corporation, by representative) or by proxy shall have one
vote in respect of every Ordinary Share held by them.
There are no shareholders who carry any special rights
with regards to the control of the Company.
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Annual Report and Accounts 2013 Petra Diamonds Limited
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Corporate Governance
Directors’ Report continued
Restriction on transfer of shares
There are no restrictions on the transfer of Ordinary Shares
other than:
$ the Board may at its absolute discretion refuse to register
any transfer of Ordinary Shares over which the Company
has a lien or which are not fully paid up provided it does
not prevent dealings in the Ordinary Shares on an open
and proper basis. During the Year, the Board did not
place a lien on any shares nor did it refuse to transfer
any Ordinary Shares;
$ the Board may also refuse to register a transfer if it is not
satisfied that all the applicable consents, authorisations
and permissions of any governmental body or agency
in Bermuda have been obtained;
$ certain restrictions may from time to time be imposed
by laws and regulations;
$ pursuant to the Company’s share dealing code whereby the
Directors and employees of the Company require approval
to deal in the Company’s Ordinary Shares; and
$ where a person with at least a 0.25% interest in the
Company’s shares has been served with a disclosure notice
and has failed to provide the Company with information
concerning interests in those Ordinary Shares.
Repurchase of shares
The Company may purchase its own shares for cancellation or
to acquire them as Treasury Shares (as defined in the Bye-Laws)
in accordance with the Companies Act 1981 (Bermuda) on such
terms as the Board shall think fit. The Board may exercise all the
powers of the Company to purchase or acquire all or any part
of its own shares in accordance with the Companies Act 1981
(Bermuda), provided, however, that such purchase may not be
made if the Board determines in its sole discretion that it may
result in a non de minimis adverse tax, legal or regulatory
consequence to the Company, any of its subsidiaries or any
direct or indirect holder of shares or its affiliates.
Website publication
The Directors are responsible for ensuring the Annual Report
and the Financial Statements are made available on a website.
Financial Statements are published on the Company’s website
in accordance with legislation in the United Kingdom governing
the preparation and dissemination of Financial Statements,
which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company’s website (as well
as the integrity of the Financial Statements contained therein)
is the responsibility of the Directors.
Appointment and replacement of Directors
The Directors shall have power at any time to appoint any
person as a director to fill a vacancy on the Board occurring
as a result of the death, disability, removal, disqualification
or resignation of any Director or to fill any deemed vacancy
arising as a result of the number of directors on the Board
being less than the maximum number of directors that may
be appointed to the Board from time to time.
The Company may by resolution at any special general meeting
remove any Director before the expiry of their period of office.
Notice of such meeting convened for the purpose of removing
a Director shall contain a statement of the intention to do so
and be served on such Director not less than 14 days before
the meeting and at such meeting to be heard on the motion
for such Director’s removal.
A Director may be removed (with or without cause) by notice
in writing by all of their co-Directors, provided such notice
is delivered to the Secretary and such Director.
Al Rajhi Holdings W.L.L. (“Al Rajhi”) has a right to appoint a
Director, provided its shareholding in the Company is greater
than 10%. Dr Kamal stepped down from the Board on
5 February 2013 and as at the date of this report, there are
no immediate plans to appoint a new Al Rajhi representative.
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.
In addition to the Group’s website (petradiamonds.com), which
is regularly updated with current news about the Group, Petra
maintains an employee-only intranet, which gives access to all
Group policies and procedures, information on key personnel
and who to contact should an employee have a specific query
or concern.
Certain mines also produce a regular employee newsletter
which highlight key developments and provide insight into
areas such as integrity, accountability, personal finance, safety
and wellbeing. All the mines have highly visible notice boards,
where important and current employee information is available.
The Group is committed to the principle and achievement
of equal opportunities in employment irrespective of gender,
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 regards to their particular
abilities and aptitude.
84
Petra Diamonds Limited Annual Report and Accounts 2013
Directors’ responsibilities pursuant to DTR4
The Directors confirm to the best of their knowledge:
$ the Group’s Financial Statements have been prepared in
accordance with IFRS and Article 4 of the IAS Regulation and
give an true and fair view of the assets, liabilities, financial
position and profit and loss of the Group; and
$ the Annual Report includes a fair review of the development
and performance of the business and the financial position
of the Group together with a description of the principal
risks and uncertainties that they face.
Auditors
As far as each of the Directors is aware, at the time this report
was approved:
$ there is no relevant available information of which the
auditors are unaware; and
$ they have taken all steps that ought to have been taken to
make themselves aware of any relevant audit information and
to establish that the auditors are aware of that information.
In accordance with Section 89 of the Companies Act 1981
(Bermuda) (as amended), a resolution to confirm the
appointment of BDO LLP as auditors of the Company is to be
proposed at the 2013 AGM to be held on 28 November 2013.
The Financial Statements were approved by the Board of
Directors on 11 October 2013 and are signed on its behalf by:
David Abery
Director
11 October 2013
Employee share schemes
The Company operates various employee share incentive
schemes. Further details of these schemes are set out in the
Directors’ Remuneration Report on pages 75 to 77 and note 27
of the Financial Statements.
Financial instruments
The Group makes use of financial instruments in its operations
as described in note 25 of the Financial Statements.
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.
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report
and the Financial Statements in accordance with the
Companies Act 1981 (Bermuda) (as amended).
Company law requires the Directors to prepare Financial Statements
for each financial year. Under that law the Directors have elected
to prepare the Group Financial Statements in accordance with
International Financial Reporting Standards (“IFRS”) as adopted
by the European Union. Under company law, the Directors must
not approve the Financial Statements unless they are satisfied
that they give a true and fair view of the state of affairs of the
Group and of the profit and loss for the Group for that period.
In preparing the Financial Statements, the Directors are
required to:
$ select suitable accounting policies and then apply them
consistently;
$ make judgements and accounting estimates that are
reasonable and prudent;
$ 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
$ prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate 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 and enable them to ensure
that the Financial Statements comply with the Companies Act 1981
(Bermuda) and, as regards to the Group Financial Statements,
Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
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Annual Report and Accounts 2013 Petra Diamonds Limited
85
Group Accounts
88 Independent Auditors’ Report – Group
89 Consolidated Income Statement
90 Consolidated Statement of Other
Comprehensive Income
91
Consolidated Statement of Changes in Equity
93 Consolidated Statement of Financial Position
94 Consolidated Statement of Cashflows
95 Notes to the Annual Financial Statements
134 Five-year Summary of Consolidated Figures
135 Shareholder and Corporate Information
137 Glossary
Independent Auditors’ Report – Group
To the members of Petra Diamonds Limited
We have audited the Financial Statements of Petra Diamonds Limited for the year ended 30 June 2013 which comprise the
Consolidated Income Statement, the 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 (“IFRSs”) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in accordance with the Bermuda Companies Act 1981. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them
in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions
we have formed.
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 IFRSs as adopted by
the European Union, 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.
The Directors are required to comply with the requirements of rules 9.8.7 and 9.8.7A of the Listing Rules of the UK Financial
Conduct Authority in preparing their Annual Report.
Auditor’s responsibility
Our responsibility is to audit and express an opinion on these Financial Statements in accordance with the Bermuda Companies
Act 1981 and International Standards on Auditing (as issued by the International Federation of Accountants (“IFAC”)). 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 and fair presentation of Financial Statements in order to design appropriate 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 Financial Statements:
$ present fairly, in all material respects, the state of the Group’s affairs as at 30 June 2013 and of its financial performance
and its cashflows for the year then ended;
$ have been properly prepared in accordance with IFRSs as adopted by the European Union; and
$ have been prepared in accordance with the requirements of the Companies Act 1981 as enacted in Bermuda.
Report on other legal and regulatory requirements
Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Company’s compliance
with the nine provisions of the UK Corporate Governance Code specified for our review. We have nothing to report in this respect.
Scott McNaughton
BDO LLP
Chartered Accountants
London
United Kingdom
11 October 2013
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
88
Petra Diamonds Limited Annual Report and Accounts 2013
Consolidated Income Statement
For the year ended 30 June 2013
US$ million
Revenue
Mining and processing costs
Other direct income
Exploration expenditure
Corporate expenditure
Impairment charge
Total costs
Other financial income
Unrealised foreign exchange gain
Other financial expense
Unrealised foreign exchange loss
Financial income
Financial expense
Profit before tax
Income tax charge
Profit/(loss) for the year
Profit/(loss) for the year attributable to:
Equity holders of the parent company
Non-controlling interest
Earnings per share attributable to the equity holders
of the parent during the year
From continuing operations:
Basic profit/(loss) – US$ cents
Diluted profit/(loss) – US$ cents
The notes on pages 95 to 133 form part of these Financial Statements.
Notes
4
5
6
7
8
9
9
10
12
12
2013
402.7
(316.7)
6.2
(4.9)
(14.1)
(12.6)
2012
316.9
(263.9)
9.0
(3.1)
(13.7)
—
(342.1)
(271.7)
12.7
2.0
(16.1)
(6.7)
14.7
(22.8)
52.5
(24.6)
27.9
32.0
(4.1)
27.9
6.30
6.13
19.1
—
(17.3)
(38.6)
19.1
(55.9)
8.4
(10.5)
(2.1)
(2.4)
0.3
(2.1)
(0.48)
(0.48)
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89
Consolidated Statement of Other Comprehensive Income
For the year ended 30 June 2013
US$ million
Profit/(loss) for the year
Exchange differences recognised on translation of the share-based payment reserve
Exchange differences on translation of foreign operations
Exchange differences on non-controlling interest
Valuation loss on available-for-sale financial asset
Total comprehensive expense for the year
Total comprehensive income and expense 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 and expense.
The notes on pages 95 to 133 form part of these Financial Statements.
2013
27.9
0.2
(97.9)
(4.7)
(0.1)
(74.6)
(65.8)
(8.8)
(74.6)
2012
(2.1)
0.2
(34.4)
(4.9)
(0.2)
(41.4)
(36.8)
(4.6)
(41.4)
90
Petra Diamonds Limited Annual Report and Accounts 2013
Consolidated Statement of Changes in Equity
For the year ended 30 June 2013
US$ million
At 1 July 2012
Profit/(loss) for the year
Other comprehensive
(expense)/income
Non-controlling interest
purchased (note 3)
Transfer between reserves for exercise
of options and warrants
Equity settled share-based payments
Allotments during the year:
– Share options exercised
– Warrants exercised
At 30 June 2013
—
—
—
—
—
0.2
0.4
—
—
—
—
—
1.0
2.7
Share
Foreign
currency
premium translation
reserve
account
Share-
based
payment
reserve
Share
capital
Other
reserves
Retained
losses
Attributable
Non-
to the controlling
interest
parent
85.7
651.1
(45.1)
10.3
—
(0.7)
(63.7)
637.6
—
32.0
32.0
27.4
(4.1)
—
Total
equity
665.0
27.9
(97.9)
0.2
(0.1)
—
(97.8)
(4.7)
(102.5)
—
—
—
—
—
—
(0.5)
3.9
—
—
—
—
—
—
—
(8.9)
(8.9)
(2.3)
(11.2)
0.5
—
—
—
—
3.9
1.2
3.1
—
—
—
—
—
3.9
1.2
3.1
86.3
654.8
(143.0)
13.9
(0.8)
(40.1)
571.1
16.3
587.4
The notes on pages 95 to 133 form part of the Financial Statements.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Consolidated Statement of Changes in Equity
For the year ended 30 June 2013 continued
US$ million
At 1 July 2011
(Loss)/profit for the year
Other comprehensive
(expense)/income
Transfer between reserves for exercise
of options and warrants
Equity settled share-based payments
Allotments during the year:
– Share options exercised
– Warrants exercised
At 30 June 2012
Share
Foreign
currency
premium translation
reserve
account
Share-
based
payment
reserve
Share
capital
84.8
645.6
(10.7)
—
—
—
—
0.4
0.5
—
—
—
—
1.1
4.4
—
(34.4)
—
—
—
—
9.7
—
0.2
(0.6)
1.0
—
—
Other
reserves
Retained
losses
Attributable
Non-
to the controlling
interest
parent
(0.5)
(61.9)
667.0
—
(2.4)
(2.4)
32.0
0.3
Total
equity
699.0
(2.1)
(0.2)
—
(34.4)
(4.9)
(39.3)
—
—
—
—
0.6
—
—
—
—
1.0
1.5
4.9
—
—
—
—
—
1.0
1.5
4.9
85.7
651.1
(45.1)
10.3
(0.7)
(63.7)
637.6
27.4
665.0
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 less share issue costs.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange differences arising from the translation of entities
with a functional currency other than US Dollars and foreign exchange differences on net investments in foreign operations.
Share-based payment reserve
The share-based payment reserve comprises:
$ the fair value of employee and director options as measured at grant date and spread over the period during which
the employees or directors become unconditionally entitled to the options;
$ the fair value of shares awarded under the 2011 Longer-term Share Plan and the 2012 Performance Share Plan measured at
grant date (inclusive of market based vesting conditions) with estimated numbers of awards to vest due to non-market based
vesting conditions evaluated each period and the fair value spread over the period during which the employees or directors
become unconditionally entitled to the awards;
$ the fair value of warrants as measured at grant date and recognised immediately to reflect the vesting conditions; and
$ 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$0.8 million
(30 June 2012: US$0.7 million). The Directors do not consider there to be objective evidence that the available-for-sale financial
asset is permanently impaired.
Retained losses
The retained losses comprise the Group’s cumulative accounting profits and losses incurred since incorporation.
Non-controlling interest
Non-controlling interest comprises amounts attributable to BEE (in South Africa) and Government (in Tanzania) shareholders in
the Finsch, Cullinan, Koffiefontein, Kimberley Underground, Helam, Sedibeng JV, Star and Williamson mines. The non-controlling
interest share of total comprehensive expense includes US$8.8 million total comprehensive expense (30 June 2012: US$4.6 million
total comprehensive expense) for the year.
92
Petra Diamonds Limited Annual Report and Accounts 2013
Consolidated Statement of Financial Position
At 30 June 2013
US$ million
ASSETS
Non-current assets
Property, plant and equipment
Available-for-sale financial assets
Deferred tax asset
Loans and other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents – including restricted amounts
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
Trade and other payables
Provisions
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
2013
2012
14
24
18
17
18
19
20
21
22
23
24
21
22
23
735.6
0.1
5.9
85.4
827.0
53.7
93.7
26.2
173.6
1,000.6
86.3
654.8
(143.0)
13.9
(0.8)
(40.1)
571.1
16.3
587.4
109.9
65.3
67.3
64.1
306.6
37.1
64.7
4.8
106.6
413.2
1,000.6
740.5
0.2
9.3
89.6
839.6
47.8
56.5
47.3
151.6
991.2
85.7
651.1
(45.1)
10.3
(0.7)
(63.7)
637.6
27.4
665.0
46.9
66.6
85.0
54.4
252.9
22.1
49.0
2.2
73.3
326.2
991.2
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93
The notes on pages 95 to 133 form part of the Financial Statements.
The Financial Statements were approved and authorised for issue by the Directors on 11 October 2013.
Consolidated Statement of Cashflows
For the year ended 30 June 2013
US$ million
Profit before taxation for the year from continuing operations
Depreciation of property, plant and equipment
Impairment
Decrease in other provisions
Provision for retrenchments
Other finance income
Unrealised foreign exchange gain
Other finance expense
Unrealised foreign exchange loss
Present value adjustment of rehabilitation provision – change in assumptions
Profit on sale of property, plant and equipment
Share-based payment provision
Acquisition costs in respect of Finsch
Operating profit before working capital changes1
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Increase in inventories
Cash generated from operations
Finance expense
Taxation paid (corporate income tax)
Net cash generated from operating activities
Cashflows from investing activities
Acquisition of assets at Finsch net of cash
Acquisition costs in respect of Finsch assets and liabilities
Acquisition of property, plant and equipment (including cash interest paid
and capitalised of U$9.3 million (30 June 2012: US$6.3 million))
Payments for acquisition of increased interest in the Group’s South African mines
Dividend received
Proceeds from sale of property, plant and equipment
Finance income
Transfer from restricted cash deposits
Net cash utilised in investing activities
Cashflows from financing activities
Proceeds from the issuance of share capital
Increase in borrowings
Repayment of borrowings
Net cash generated by/(utilised in) financing activities1
Net decrease 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
Notes
14
8
23
9
9
9
9
27
3
3
3
19
19
2013
52.5
42.8
12.6
(0.2)
2.6
(12.7)
(2.0)
16.1
6.7
(1.9)
—
3.3
—
119.8
(57.3)
28.6
(15.5)
75.6
(2.6)
—
73.0
—
—
(190.6)
(0.6)
6.6
—
0.4
3.9
(180.3)
4.3
98.9
(9.2)
94.0
(13.3)
31.3
(3.9)
14.1
2012
8.4
41.0
—
(0.7)
—
(19.1)
—
17.3
38.6
(4.8)
(0.1)
1.0
0.4
82.0
4.5
4.3
(11.6)
79.2
(2.0)
—
77.2
(192.0)
(0.4)
(135.5)
(11.2)
—
1.4
1.8
212.0
(123.9)
6.4
—
(20.0)
(13.6)
(60.3)
96.9
(5.3)
31.3
1. In the prior year US$2.7 million of transaction costs in respect of step up from AIM to the Main Market of the London Stock Exchange have been reallocated from Cashflows
from financing activities to Cash generated from operations as this is considered a more appropriate classification. The adjustments to profit before tax previously included
US$2.7 million for the transaction costs, with the cash outflow then presented in Cashflows from financing activities.
The notes on pages 95 to 133 form part of the Financial Statements.
Significant non-cash transactions which are not reflected in the Consolidated Statement of Cashflows are set out in note 29.
94
Petra Diamonds Limited Annual Report and Accounts 2013
Notes to the Annual Financial Statements
For the year ended 30 June 2013
1. Accounting policies
Petra Diamonds Limited (“Petra” or “the Company”), a limited liability company listed on the Main Market of the London Stock
Exchange, is registered in Bermuda and 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 detailed in note 1.2,
consistent with those adopted in the previous year’s Financial Statements.
1.1 Basis of preparation
The Financial Statements of the Company and its subsidiaries and associates (“the Group”) 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 Strategic Review and the Performance 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.
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 or R).
The Group Financial Statements are presented in US Dollars (US$). Further details are provided on the foreign currency accounting
policy in note 1.13. ZAR balances are translated to US Dollars at R9.88 as at 30 June 2013 (30 June 2012: R8.16) and at an average
rate of R8.83 for transactions during the year ended 30 June 2013 (30 June 2012: R7.76).
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 on or prior to 1 July 2012 which have been adopted by the Group for the first time this year and which have
not had a material effect:
Effective period
commencing
on or after
Impact on Group
IAS 12
IAS 1
Amendment – Deferred Tax: Recovery of Underlying Assets
Amendment – Presentation of Items of Other Comprehensive Income
1 January 2012 No material impact
1 July 2012 No material impact
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 2012 or later periods and which the Group has decided not to adopt early or which
are yet to be EU endorsed. These are:
IFRS 10
IFRS 11
IFRS 12
IFRS 13
IFRIC 20
IFRS 7
IAS 27
IAS 28
IAS 19
IAS 32*
IFRS 9*
Consolidated Financial Statements
Joint Arrangements
Disclosure of Interests in Other Entities
Fair Value Measurement
Stripping Costs in the Production Phase of a Surface Mine
Disclosures – Offsetting Financial Assets and Financial Liabilities
Amendment – Separate Financial Statements
Amendment – Investments in Associates and Joint Ventures
Amendment – Employee Benefits
Annual improvements to IFRSs (2009–2011 Cycle)
Offsetting Financial Assets and Financial Liabilities
Financial Instruments
* Not yet adopted by the European Union.
Effective period
commencing
on or after
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
1 January 2013
1 January 2014
1 January 2015
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Annual Report and Accounts 2013 Petra Diamonds Limited
95
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
1. Accounting policies continued
1.2 New standards and interpretations applied continued
The Group is currently assessing the impact of these standards on the financial statements. Those anticipated to be significant
to the Group are as follows:
IFRS 12 – The new standard amends disclosures regarding interests in other entities including subsidiaries, joint arrangements,
associates and unconsolidated structured entities. The disclosures are intended to help users understand the judgements and
assumptions made by a reporting entity when deciding how to classify its involvement with another entity; help users understand
the interest that non-controlling interests have in consolidated entities; and help users assess the nature of the risks associated
with interests in other entities. The Group anticipates changes to its disclosure as a result of this standard and is currently
assessing the impact.
IAS 19 – The amendment to IAS 19 Employee Benefits withdraws the corridor method that the Group uses in its accounting policy.
Before the amendments, IAS 19 permitted leaving actuarial gains and losses unrecognised if they were within a ‘corridor’ and
deferred recognition of actuarial gains and losses outside the corridor in profit or loss (the corridor approach). The amendments
to IAS 19 result in the elimination of the corridor approach. They also require immediate recognition of actuarial gains and losses
and the return on plan assets in the Consolidated Statement of Other Comprehensive Income. There are additional amendments
to presentation. The Group is currently quantifying the impact as pension and medical aid liabilities are, by their nature, long-term
and subject to assumptions.
IFRIC 20 – This interpretation applies to waste removal (stripping) costs that are incurred in surface mining activity, during the
production phase of the mine (production stripping costs). The Group has recently commenced production from its open cast
mine (Williamson) and so this standard is anticipated to be relevant in future periods. IFRIC 20 requires that, to the extent that
the benefit from the stripping activity is realised in the form of inventory produced, the directly attributable costs of that
activity should be treated as ore stockpile inventory. To the extent that the benefit is the improved access to ore, the directly
attributable costs should be treated as a non-current ‘stripping activity asset’, if the following criteria are met:
$ it is probable that the future economic benefit (improved access to the orebody) associated with the stripping activity
will flow to the entity;
$ the entity can identify the component of the orebody for which access has been improved; and
$ the costs relating to the improved access to that component can be measured reliably.
The stripping activity asset is initially measured at cost and is treated as an enhancement of an existing asset, not as an
independent asset. Subsequently the stripping activity asset is accounted for in a manner consistent with that adopted for the
asset it has enhanced and is depreciated on a units of production basis (as described in the depreciation accounting policy note 1.4),
over the expected useful life of the identified component of the orebody that becomes more accessible as a result of the
stripping activity. The Group will adopt IFRIC 20 in the year ended 30 June 2014 and is currently assessing its impact.
1.3 Basis of consolidation
Subsidiaries
Subsidiaries are those entities over whose financial and operating policies the Group has the power to exercise control. The Group
Financial Statements incorporate the assets, liabilities and results of operations of the Company and its subsidiaries. The results
of subsidiaries acquired and disposed of during a financial year are included from the effective dates of acquisition to the date
control ceases. 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 acquisition 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 Income Statement and 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’ proportionate share of the acquiree’s identifiable net assets (after any relevant fair value adjustments to the assets,
liabilities and contingent liabilities recognised as part of the business combination). 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
with the existing shareholder.
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. 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.
96
Petra Diamonds Limited Annual Report and Accounts 2013
1. Accounting policies continued
1.3 Basis of consolidation continued
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.
The Group holds an equity interest in one of its South African BEE partners which has non-controlling interests in the Group’s mines
through its investment in Nelesco 651 (Pty) Limited (“Nelesco”), detailed in note 3 and note 16. Where the Group acquires interests
in a company which holds non-controlling interests in the Group’s existing consolidated subsidiaries, the acquisition is treated as
a change in the Group’s ownership interests that does not result in a loss of control and is accounted for as an equity transaction
with the existing shareholders, reflecting the economic objective of the transaction. As a result, the non-controlling interest is
reduced and the difference between the consideration paid and non-controlling interest reduction is recognised within retained
losses. Subsequent to acquisition, the Group reflects profits and losses attributable to the shareholders of the parent company
based on the effective interest (direct and indirect interests).
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.
The Group depreciates its mining assets using a unit of production or straight-line basis, depending on its assessment of the most
appropriate method for the individual asset. When a units of production basis is used, the relevant assets are depreciated at a rate
determined as the tonnes of ore treated (typically production facility assets) or hoisted (typically underground development and
conveying assets) from the relevant orebody section, divided by the Group’s estimate of ore tonnes held in reserves and resources
which have sufficient geological and geophysical certainty and are economically viable. The relevant reserves and resources are
matched to the existing assets which will be utilised for their extraction. The assets depreciated in the units of production method
are existing assets. Future capital expenditure is only subject to depreciation over remaining reserves and resources once incurred.
The Group depreciates its assets according to the relevant sections of the orebody over which they will be utilised. A key estimate
involves determination of future production units assigned to on-mine shared infrastructure, which is an ongoing assessment given
the mining plan and development projects. Shared infrastructure is defined as common infrastructure enabling ore extraction,
treatment and related support services, shared across more than one section of the orebody (such as the mine shaft).
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. Assets under construction, such as the
Group’s expansion projects, start to be depreciated once the asset is ready and available for use and commercially viable levels
of production are being obtained.
The depreciation rates are as follows:
Mining assets:
Plant, machinery and equipment
Units of production method or 4%–33% straight-line basis depending on the nature of the asset
Mineral properties
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
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.
Surplus/(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.
Annual Report and Accounts 2013 Petra Diamonds Limited
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Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
1. Accounting policies continued
1.5 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 units 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 have been proven, is capitalised within mineral properties. Amortisation only occurs
upon commencement of commercial production. No brownfield exploration costs have been capitalised in the Consolidated
Statement of Financial Position.
1.6 Intangible assets
Prospecting licences are capitalised at cost and are amortised over the original licence life of the associated prospecting right.
Amortisation is included within exploration expenditure.
1.7 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 fair value less cost to sell 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. The life
of mine plan is the approved management plan at the reporting date for ore extraction and its associated capital expenditure.
The capital expenditure included in the impairment model does not include capital expenditure to enhance the asset performance
outside of the existing life of mine plan. Details of each life of mine are provided in note 8. The ore tonnes included in the reserves
and resources statement, which management consider economically viable, often includes ore tonnes in excess of those used
in the life of mine model and therefore the impairment test. 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. Each mine represents a separate cash-generating unit.
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 8 for detailed disclosure of the results of impairment reviews performed.
1.8 Financial instruments
Financial assets
The Group classifies its financial assets into the following categories and the Group’s accounting policy for each category is as follows:
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 category 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 at the reporting date. 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 2013 a
cumulative loss of US$0.8 million (30 June 2012: US$0.7 million) was recorded in other reserves in respect of the available-for-sale
financial assets.
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Petra Diamonds Limited Annual Report and Accounts 2013
1. Accounting policies continued
1.8 Financial instruments continued
Financial liabilities
The Group classifies its financial liabilities into one category; other liabilities. The Group’s accounting policy is as follows:
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 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 any premium payable on redemption, as well
as any interest or coupon payable while the liability is outstanding.
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. Trade receivables are recorded net of such provisions.
The 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.
1.9 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.
1.10 Finance and other income
Finance and other income comprises 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.
1.11 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.
1.12 Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, for which it is
probable that an outflow of economic benefits will occur and where a reliable estimate can be made of the amount of the obligation.
Where the effect of discounting is material, provisions are discounted. The discount rate used is a pre-tax rate that reflects
current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Decommissioning, mine closure and environmental rehabilitation
The obligation to restore environmental damage caused through mining is raised as the relevant mining takes place. Assumptions
have been made as to the remaining life of existing operations based on studies conducted by independent technical advisers.
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Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
1. Accounting policies continued
1.12 Provisions continued
Decommissioning, mine closure and environmental rehabilitation continued
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. Increases in the provision, as a result of the unwinding of discounting are charged to the Consolidated Income
Statement within 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.
Changes to the present value of the obligation due to changes in assumptions are recognised as adjustments to the provision
together with an associated increase/(decrease) in the related decommissioning asset to the extent that a decommissioning asset
exists. In circumstances where the decommissioning asset has been fully amortised the adjustment is recognised within other
direct income.
1.13 Foreign currency
Foreign currency transactions
Transactions in foreign currencies are recorded at rates of exchange ruling at the transaction date. Monetary assets and liabilities
denominated in foreign currencies are translated at the rate of exchange ruling at the 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 or the effective rate when a transaction is hedged (refer to note 3). 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.
1.14 Short-term employee benefits
The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.
The provisions for employee entitlements to wages, salaries and annual leave represent the amount which the Group has a present
obligation to pay as a result of employees’ services provided to the reporting date. The provisions have been calculated based
on current wage and salary rates.
1.15 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held on call with banks, investments in money market instruments,
and net of bank overdrafts, all of which are available for use by the Group unless otherwise stated. Restricted cash represents
amounts held by banks, the Group’s insurance cell captive and other financial institutions as guarantees in respect of environmental
rehabilitation obligations in respect of the Group’s South African mines.
1.16 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.
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Petra Diamonds Limited Annual Report and Accounts 2013
1. Accounting policies continued
1.16 Employee pension schemes continued
Defined benefit scheme continued
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 in the period
in which it is incurred. 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 every second year unless the
actuarial assumptions are considered to have materially changed since the previous external valuation, in which case the valuation
is revisited earlier.
1.17 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 actuarial calculation is performed by a qualified actuary using the projected
unit credit method every second year unless the actuarial assumptions are considered to have materially changed since the
previous external valuation, in which case the valuation is revisited earlier.
1.18 Share-based payments
Employee and Director share option scheme
The fair value of options granted to employees or Directors 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 or Directors 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.
2011 Longer-term Share Plan (“LTSP”) and 2012 Performance Share Plan (“PSP”)
Share-based awards granted under the LTSP and PSP are valued using the Monte Carlo model at the date of grant and the associated
expense recognised over the vesting period during which the associated vesting conditions are satisfied unconditionally by the
beneficiaries with a corresponding increase in reserves.
Where the awards are subject to non-market based performance conditions, the expense will be adjusted subject to the actual
vesting outcome of those specific performance conditions.
The LTSP performance conditions are non-market based (i.e. production which is independent of the Company’s share price)
such that performance conditions are not reflected in the fair value of the award at grant date; however, at each reporting period
the Company will assess the likelihood of the conditions being met and revise the cumulative expense accordingly. In the event
that vesting conditions are not met the charge is reversed.
The PSP performance conditions are a combination of market based (i.e. movement/growth in company share price) and
non-market based conditions. The vesting conditions attributable to market based are valued by taking into account the considered
likelihood of meeting the vesting condition at the date the fair value is calculated. Unlike non-market conditions, no adjustment
is made for changes in the likelihood of the market conditions being met. The non-market based vesting conditions are treated
as per the LTSP above.
When a share award or option is cancelled it is treated as an acceleration of vesting, and the Group recognises immediately
the amount that otherwise would have been recognised for services received over the remainder of the vesting period.
1.19 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. Net realisable value also incorporates
costs of processing in the case of the ore stockpiles. 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.
1.20 Segment reporting
A segment is a distinguishable component of the Group that is engaged either in providing mining or exploration activities, or in
providing products or services within a particular economic environment, which is subject to risks and rewards that are different from
those of other segments. The basis of segment reporting is representative of the internal structure used for management reporting.
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Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
1. Accounting policies continued
1.21 Assets held for sale
Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less
costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through
a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and
the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale,
which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Property,
plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised.
If the Group has classified an asset (or disposal group) as held for sale, but the criteria above are no longer met, the Group ceases
to classify the asset (or disposal group) as held for sale. The Group measure a non-current asset that ceases to be classified as held
for sale (or ceases to be included in a disposal group classified as held for sale) at the lower of: a) its carrying amount before the
asset (or disposal group) was classified as held for sale, adjusted for any depreciation, amortisation or revaluations that would
have been recognised had the asset (or disposal group) not been classified as held for sale, and b) its recoverable amount at the
date of the subsequent decision not to sell.
1.22 Borrowing costs
Borrowing costs, including any up-front costs and warrant 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. The commencement date for capitalisation is when
(a) the Group incurs expenditures for the qualifying asset; (b) it incurs borrowing costs; and (c) it undertakes activities that are
necessary to prepare the asset for its intended use or sale. Capitalisation of borrowing costs continues up to the date when the
assets are substantially ready for their use or sale. When the Group’s borrowings are refinanced, the difference between the carrying
amount of a financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration
paid, including any non-cash assets transferred or liabilities assumed, is accelerated when the refinancing is considered to be a
substantial modification of terms. The refinancing is considered a substantial modification if either the quantitative tests set out
by IFRS are breached or the Directors consider the qualitative factors (coupon rate, security, term, etc.) to be a substantial modification.
Other borrowing costs are recognised as an expense in the period in which the borrowing cost is incurred.
1.23 Critical accounting estimates and judgements
The preparation of the Consolidated Financial Statements requires management to make estimates and judgements and form
assumptions that affect the reported amounts of the assets and liabilities, reported revenue and costs during the periods
presented therein, and the disclosure of contingent liabilities at the date of the Financial Statements. Estimates and judgements
are continually evaluated and based on 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.
Life of mine and ore reserves/resources
There are numerous risks inherent in estimating ore reserves and resources and the associated current life of mine plan. The life
of mine plan is the current approved management plan for ore extraction that considers specific ore reserves and resources and
associated capital expenditure. The life of mine plan frequently includes less tonnes than the total reserves and resources that
are set out in the Group’s Reserves and Resources Statement and which management may consider to be economically viable
and capable of future extraction.
Management must make a number of assumptions when making estimates of reserves and resources, 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 resources and may ultimately result in the restatement of the ore reserves
and resources and potential impairment to the carrying value of the mining assets and life of mine.
The current life of mine plan is used to determine the ore tonnes and capital expenditure in the impairment tests.
Ore reserves and resources, both those included in the life of mine and certain additional tonnes which form part of reserves
and resources considered to be sufficiently certain and economically viable, also impact the depreciation of mining assets
depreciated on a unit of production basis, as set out in note 1.4. Ore reserves and resources further impact the estimated
date of decommissioning and rehabilitation.
Impairment reviews
While conducting an impairment review of its assets, the Group exercises judgement in making assumptions about future rough
diamond prices, volumes of production, ore reserves and resources included in the current life of mine plans, feasibility studies,
future development and production costs and macroeconomic factors such as inflation and discount rates. Changes in estimates
used can result in significant changes to the Consolidated Income Statement and Statement of Financial Position. The Group prepares
value in use impairment models and assesses mining assets for impairment. The carrying value of the Helam and Kimberley
Underground mining assets are sensitive to rough diamond prices, foreign exchange rates, forecasted growth in production rates
and the successful exploitation of orebodies. The policy in respect of impairment reviews is set out in note 1.7 and details
of impairment reviews carried out during the year are set out in note 8.
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1. Accounting policies continued
1.23 Critical accounting estimates and judgements continued
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 5.6%–7.9% (30 June 2012: 7.7%–8.9%), estimated rehabilitation
timing of 12 to 52 years (30 June 2012: 10 to 50 years) and an inflation rate range of 1.8%–5.9% (30 June 2012: 5.6%–6.9%). The Group
estimates the cost of rehabilitation with reference to approved environmental plans filed with the local authorities. Changes to
estimates are recognised when such plans are approved, given uncertainties which may exist until the point of approval.
The carrying value of rehabilitation provisions at the reporting date is US$56.3 million (30 June 2012: US$73.2 million).
Pension scheme
The Company operates a defined benefit scheme and a defined contribution scheme. The pension charge or income for the defined
benefit scheme is regularly assessed in accordance with the advice of a qualified actuary using the projected unit credit method
and was updated for 30 June 2013. The most important assumptions made in connection with the scheme valuation and charge
or income are the return on the funds, the average yield of South African Government long dated bonds, salary increases, withdrawal
rates, life expectancies and the current South African consumer price index. The details of these assumptions are set out in note 31.
Post-retirement medical fund
The Company operates a post-employment health care liability scheme. The benefit liability for the post-employment health care
liability scheme is regularly assessed in accordance with the advice of a qualified actuary using the projected unit credit method.
The most recent actuarial valuation was at 30 June 2012 and the Directors have reviewed the assumptions at 30 June 2013 and consider
them to remain materially appropriate. The most important assumptions made in connection with the scheme valuation and
charge or income are the health care cost of inflation, the average yield of South African Government long dated bonds and
salary increases, withdrawal rates and life expectancies. The details of these assumptions are set out in note 32.
Valuation of share options and share-based incentives
In determining the fair value of share-based payments made during the year to employees and Directors, a number of assumptions
have been made by management. Significant judgements include the determination of appropriate inputs to valuation models
and assessment of the likelihood of vesting. The details of these assumptions are set out in note 27.
Deferred tax
Judgement is applied in making assumptions about recognition of deferred tax assets. Judgement is required in respect of
recognition of such deferred tax assets including the timing and value of estimated future taxable income, as well as the timing
of rehabilitation costs and the availability of associated taxable income.
Inventory and inventory stockpile
Judgement is applied in making assumptions about the value of inventories and inventory stockpiles, including diamond prices,
production grade and expenditure to determine the extent to which the Group values inventory and inventory stockpiles.
Depreciation
Judgement is applied in making assumptions about the depreciation charge, including the estimated useful life of individual assets
and residual values and the appropriate units of production tonnes. The assumptions are reviewed at least annually by management.
Net investments in foreign operations
Management assess the extent to which intra-group loans to foreign operations that give rise to unrealised foreign exchange gains
and losses are considered to be permanent as equity or repayable in the foreseeable future. The foreign exchange on permanent
as equity loans are recorded in foreign currency translation reserve until such time as the operation is sold, whilst the foreign
exchange on loans repayable in the foreseeable future are recorded in the Consolidated Income Statement.
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.
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 year 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, South Africa and Antwerp,
Belgium 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$730.0 million (30 June 2012: US$741.7 million), Tanzania US$96.5 million
(30 June 2012: US$95.6 million), Botswana US$0.4 million (30 June 2012: US$0.5 million) and Jersey US$0.1 million (30 June 2012: US$1.8 million).
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103
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
2. Segment information continued
The Group’s property, plant and equipment included in non-current assets are located in South Africa US$638.7 million (30 June 2012:
US$644.4 million), Tanzania US$96.5 million (30 June 2012: US$95.6 million) and Botswana US$0.4 million (30 June 2012: US$0.5 million).
South Africa – mining activities
Tanzania
– mining
activities
Botswana
Jersey
Cullinan
2013
Finsch
2013
Koffiefontein
2013
Kimberley
Underground
2013
133.0
160.6
16.6
33.4
Fissure
Mines
2013
17.2
Williamson
2013
Exploration
2013
Corporate
administration
2013
Inter-
segment
2013
Consolidated
2013
41.9
—
—
—
402.7
49.5
61.2
(9.4)
(0.2)
(12.1)
(3.8)
(4.9)
(14.1)
0.8
67.0
—
1.7
—
3.0
—
0.6
—
0.2
(12.6)
0.3 3
—
0.4
—
—
—
—
—
—
51.2
64.2
(8.8)
—
(24.4)
(3.4)
(4.9)
(14.1)
0.8
(12.6)
6.2
60.6
12.7
2.0
(16.1)
(6.7)
(24.6)
4.1
32.0
542.8
241.5
92.2
87.9
85.9
121.1
0.9
1,824.8
(1,996.5)
1000.6
322.9
186.0
88.2
106.1
131.9
240.0
31.7
877.1
(1,570.7)
413.2
89.0
48.6
20.4
21.6
7.03
11.7
—
5.4
(12.5)
191.2
Operating
segments
US$ million
Revenue
Segment
result1
Impairment
charges
Other direct
income
Operating
profit/(loss)2
Other financial
income
Unrealised
foreign
exchange gain
Other financial
expense
Unrealised
foreign
exchange loss
Income tax
expense
Non-controlling
interest
Profit
attributable to
equity holders
of the parent
company
Segment
assets
Segment
liabilities
Capital
expenditure
1. Included in the segment result is total depreciation of US$42.8 million incurred at Cullinan US$11.2 million, Finsch US$15.8 million, Koffiefontein US$2.2 million, Kimberley Underground
US$9.0 million, Helam US$1.2 million, Sedibeng JV US$0.4 million, Star US$0.1 million, Williamson US$2.5 million, Exploration US$0.1 million and Corporate administration US$0.3 million.
2. Operating profit is equivalent to revenue of US$402.7 million less total costs of US$342.1 million as disclosed in the Consolidated Income Statement.
3. Capital expenditure at the Fissure Mines includes work in progress of US$4.4 million in respect of the manufacture of plant and equipment for other mines within the Group.
Other direct income in respect of the Fissure Mines includes US$35.9 million of revenue and US$36.9 million of costs in respect of the projects division at Helam for the manufacture
of plant and equipment for other mines within the Group.
Segment assets and liabilities include inter-company receivables and payables which are eliminated on consolidation.
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Petra Diamonds Limited Annual Report and Accounts 2013
2. Segment information continued
South Africa – mining activities
Tanzania
– mining
activities
Botswana
Jersey
Operating
segments
US$ million
Revenue
Segment
result1
Other direct
income
Operating
profit/(loss)2
Other financial
income
Other financial
expense
Unrealised
foreign
exchange loss
Income tax
expense
Non-controlling
interest
Loss
attributable to
equity holders
of the parent
company
Segment
assets
Segment
liabilities
Capital
expenditure
Cullinan
2012
Finsch
2012
Koffiefontein
2012
Kimberley
Underground
2012
112.0
136.9
18.9
19.8
Fissure
Mines
2012
17.7
Williamson
2012
Exploration
2012
Corporate
administration
2012
Inter-
segment
2012
Consolidated
2012
11.6
—
—
—
316.9
25.1
60.2
(6.7)
(6.1)
(10.7)
(9.1)
(3.1)
(13.7)
4.2
1.2
0.7
3.1
(0.5) 3
0.3
—
—
29.3
61.4
(6.0)
(3.0)
(11.2)
(8.8)
(3.1)
(13.7)
0.3
—
0.3
36.2
9.0
45.2
19.1
(17.3)
(38.6)
(10.5)
(0.3)
(2.4)
379.1
234.4
49.6
89.3
110.3
108.1
13.7
1,154.1
(1,147.4)
991.2
200.9
199.8
33.3
107.3
137.7
225.9
35.2
452.8
(1,066.7)
326.2
54.4
12.0
11.5
21.0
16.93
20.73
0.5
0.3
—
137.3
1. Included in the segment result is total depreciation of US$41.0 million incurred at Cullinan US$14.4 million, Finsch US$14.2 million, Koffiefontein US$2.0 million, Kimberley Underground
US$5.2 million, Helam US$1.1 million, Sedibeng JV US$2.0 million, Star US$0.2 million, Williamson US$1.6 million, Exploration US$0.1 million and Corporate administration US$0.2 million.
2. Operating profit is equivalent to revenue of US$316.9 million less total costs of US$271.7 million as disclosed in the Consolidated Income Statement.
3. Capital expenditure at the Fissure Mines includes work in progress of US$11.1 million in respect of the manufacture of plant and equipment for other mines within the Group. Other direct
income in respect of the Fissure Mines includes US$38.4 million of revenue and US$39.3 million of costs in respect of the projects division at Helam for the manufacture of plant and
equipment for other mines within the Group. Capital expenditure at Williamson includes US$19.5 million of cash costs capitalised in respect of the plant rebuild and expansion programme.
The Group acquired Finsch effective 14 September 2011.
Segment assets and liabilities include inter-company receivables and payables which are eliminated on consolidation.
3. Acquisitions
30 June 2013
Acquisition of 49.24% of Nelesco 651 (Pty) Ltd
With effect from 1 January 2013, the transaction whereby the Group acquired a 49.24% interest in Nelesco 651 (Pty) Ltd
(“Nelesco”) completed. Nelesco owns 100% of the shares of Sedibeng Mining (Pty) Ltd (“Sedibeng Mining”).
Sedibeng Mining has direct and indirect interests in each of Petra’s South African operations. Sedibeng Mining has no investments
other than its interests in these mines. Petra consolidated the mines prior to the increase in its effective interest.
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105
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
3. Acquisitions continued
30 June 2013 continued
Acquisition of 49.24% of Nelesco 651 (Pty) Ltd continued
Mine
Cullinan
Finsch
Koffiefontein
Kimberley Underground
Helam
Sedibeng JV
Star
Sedibeng Mining’s
interest (%)
Resultant Group’s
effective interest (%)
6.16
17.01
15.00
26.00
26.00
25.50
26.00
77.03
82.38
81.39
86.80
86.80
87.06
86.80
The total cash consideration paid by Petra was US$17.8 million. The total included US$11.2 million paid as consideration for the Group’s
acquisition of the interest in its non-controlling interests and US$6.6 million consideration paid to acquire Nelesco, as an equivalent
amount of cash was retained in Nelesco at completion and was wholly attributable to the Group under the terms of the transaction.
The Company paid US$0.6 million in the current year with all other amounts having been paid to vendor in prior periods (which were
classified under trade and other receivables in the Consolidated Statement of Financial Position). On completion of the transaction,
the Group became entitled to a dividend of US$6.6 million from Nelesco and received US$6.6 million in cash.
Effect of the acquisition
The purchase had the following effect on the Group:
US$ million
Book value of additional effective % interest acquired
Fair value of consideration paid:
– Settled in cash
Excess of carrying value of additional effective % interest purchased over fair value consideration paid
(2.3)
11.2
(8.9)
As set out in note 1.3 of the Group’s accounting policies, the acquisition of the non-controlling interests has been treated as a change
in the Group’s ownership interests that does not result in a change of control. This has been accounted for as an equity transaction
with the existing shareholders, reflecting the economic objective of the transaction which was to increase the Group’s effective
ownership of its mines.
The carrying value of the effective percentage interest acquired of US$2.3 million as at 1 January 2013 has been deducted from
the Group’s non-controlling interest balance relating to the Group’s mines. The US$8.9 million deficit of the carrying value of the
effective percentage acquired in the Group’s mines over the fair value consideration of US$11.2 million has been recognised directly
in equity and attributed to the Group. The initial investment in associate value of US$6.6 million was reduced to US$nil by the
US$6.6 million dividend on completion. Nelesco has no significant other profits or losses since the Group acquired its interest.
Refer to note 1.3 for the Group’s accounting policy and note 16 for the details of the investment in Nelesco.
Sedibeng Mining is one of Petra’s BEE partners and holds direct interests in the Kimberley Underground, Helam, Sedibeng JV and Star
mines and indirect interests in Finsch, Cullinan and Koffiefontein through its shareholding in Thembinkosi Mining Investments (Pty)
Ltd (“Thembinkosi”), Senakha Diamonds Investments (Pty) Ltd (“Senakha”) and Re Teng Diamonds (Pty) Ltd (“Re Teng Diamonds”)
respectively. The Group has a non-current receivable due from Sedibeng Mining of US$19.0 million (30 June 2012: US$16.7 million)
and a non-current payable due to Sedibeng Mining of US$4.6 million (30 June 2012: US$2.8 million). Included in Net finance expense
(note 9) the Group has finance income due from Sedibeng Mining of US$1.7 million (30 June 2012: US$1.8 million) and finance expense
payable to Sedibeng Mining of US$0.7 million (30 June 2012: US$0.8 million). These sums arise due to the funding that the Group
has provided to Sedibeng Mining to finance its interests in Koffiefontein (through Re Teng Diamonds), Kimberley Underground
and Sedibeng JV mines.
Senakha, another of Petra’s BEE partners, holds a 21% direct interest in the Finsch mine. The Group has a non-current receivable
due from Senakha of US$36.7 million (30 June 2012: US$40.0 million) and a non-current payable due to Senakha of US$36.7 million
(30 June 2012: US$40.0 million). Included in Net finance expense (note 9) the Group has finance income due from Senakha of
US$4.1 million (30 June 2012: US$3.5 million) and finance expense payable to Senakha of US$4.1 million (30 June 2012: US$3.5 million).
These sums arise due to the funding that the Group has provided to Senakha to finance its interests in Finsch.
Re Teng Diamonds, another of Petra’s BEE partners, holds a 30% direct interest in the Koffiefontein mine. The Group has an interest
free receivable due from Re Teng Diamonds of US$1.2 million (30 June 2012: US$1.2 million) – refer to notes 18 and 28.
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Petra Diamonds Limited Annual Report and Accounts 2013
3. Acquisitions continued
30 June 2012
Acquisition of Finsch
On 21 January 2011, the Company announced that the Group had entered into an agreement, (together with its Finsch BEE partners
(“BEE partners”)), to acquire 100% of the trade and assets of the Finsch mine in South Africa from De Beers for a cash consideration
of R1.425 billion.
The acquisition was completed on 14 September 2011 when the Group took control of the mine and was made by Finsch Diamond
Mine (Pty) Ltd (“FDM”) (formerly Afropean Diamonds (Pty) Ltd), a subsidiary of the Company in which the Group has a 74% interest.
The other 26% of FDM is owned by the BEE partners.
Prior to the acquisition, the Company and its BEE partners agreed to advance debt funding to FDM, (in proportion to their respective
equity interests), so that FDM could finance the purchase of Finsch from De Beers. As part of the transaction, the Company advanced
the BEE partners’ share of the R1.425 billion funds directly to FDM so that it could complete the acquisition. The loan advanced by
the Company to the BEE partners and the loan from the BEE partners to FDM were therefore non-cash transactions (see note 29).
Using the loans it had received to fund the acquisition, FDM’s net assets were unchanged on the transaction and, therefore,
there was no change in the non-controlling interest in the Group.
In US$, the final cash consideration paid was US$192 million, reflecting the benefit of an effective hedge of the foreign exchange
risk on the firm commitment to acquire Finsch.
Costs of US$0.4 million associated with the acquisition were expensed in full in the Consolidated Income Statement.
It was not practical to obtain the turnover and operating results for the Finsch mine for the period from 1 July 2011 to the date of
acquisition, as the Finsch turnover and operating results were treated as a branch within a larger corporate by the vendor and were
not available to the Group. The Finsch mine generated revenue from the date of acquisition to 30 June 2012 of US$136.9 million.
Effect of the acquisition
The acquisition had the following effect on the Group’s assets and liabilities:
Finsch net assets at acquisition date
US$ million
Mining property, plant and equipment
Land
Inventory consumables and stores
Trade and other receivables
Environmental liabilities
Medical aid and provisions
Employee-related payables
Trade and other payables
Net assets acquired
Satisfied as follows:
Cash consideration paid by the Group
Book values
Fair value
adjustments
Fair values
235.3
0.7
4.1
1.6
(16.2)
(5.1)
(2.7)
(3.2)
214.5
(13.2)
—
(0.7)
(1.6)
(7.5)
(0.2)
0.6
0.1
(22.5)
222.1
0.7
3.4
—
(23.7)
(5.3)
(2.1)
(3.1)
192.0
192.0
Judgement was applied in determining the fair value adjustments in respect of the Finsch acquisition. The fair value adjustments
to property, plant and equipment, trade and other receivables, inventory and consumable stores, environmental liabilities and
medical aid provisions were to ensure these amounts were reflected at fair value.
4. Mining and processing costs
US$ million
Raw materials and consumables used
Employee expenses
Depreciation of mining assets
Diamond royalty
Changes in inventory of finished goods and stockpiles
2013
149.7
134.5
42.4
3.7
(13.6)
316.7
2012
138.0
103.2
40.7
1.4
(19.4)
263.9
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107
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
5. Other direct income
US$ million
Profit on disposal of fixed assets
Revaluation of environmental rehabilitation liability – change in assumption/estimate
Other mining income
6. Exploration expenditure
US$ million
Employee expenses
Depreciation of exploration assets
Drilling, sampling and air survey expenses
Rental and equipment hire
Other exploration expenses
7. Corporate expenditure
US$ million
Auditors’ remuneration:
– Audit services1
Depreciation of property, plant and equipment
Operating lease rentals – buildings
Other charges
Share-based expense – Directors
Share-based expense – Senior Management
Other staff costs
Total staff costs
Transaction costs2
2013
—
(1.9)
(4.3)
(6.2)
2012
(0.1)
(4.8)
(4.1)
(9.0)
2013
2012
1.0
0.1
3.0
0.1
0.7
4.9
1.0
0.1
1.6
0.1
0.3
3.1
2013
2012
0.7
0.3
0.7
4.2
1.4
0.5
5.8
7.7
0.5
0.6
0.2
0.6
3.6
0.3
0.1
5.2
5.6
3.1
14.1
13.7
1. Audit fees for the year ended 30 June 2013 stated above refer to fees for the 2012 audit and audit fees for the year ended 30 June 2012, refer to fees for the 2011 audit.
2. In the current year, transaction costs comprise those costs incurred when the Group was considering the disposal of the Fissure Mines together with other costs associated with
the Group’s refinancing. In the prior period, transaction costs comprised Finsch acquisition costs (US$0.4 million) and costs related to the step up from AIM to the Main Market
of the London Stock Exchange (US$2.7 million). The costs in respect of the step up to the Main Market included US$0.7 million paid to the auditors for non-audit services in their
capacity as reporting accountants.
All share-based payments are in respect of equity-settled share option schemes and share award schemes as stated in note 27.
8. Impairment of operational assets and investments
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 over its useful economic life. 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
as set out in notes 1.7 and 1.23. Any change in these assumptions can have a significant effect on the recoverable amount and could
lead to a revision of recorded impairment losses.
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Petra Diamonds Limited Annual Report and Accounts 2013
8. Impairment of operational assets and investments continued
30 June 2013
At 31 December 2012, the Group had, in conjunction with its BEE partners, decided to undertake a sale process in respect of its
fissure mine operations, comprising the Helam, Sedibeng JV and Star mines in South Africa (the “Fissure Mines”). On initial
reclassification of the Fissure Mines as held for sale, the Group recognised Consolidated Income Statement charges of US$17.8 million,
being management’s re-measurement to fair value less costs to sell the discontinued Fissure Mines in a disposal group, allocated
to property, plant and equipment. During H2 FY 2013, the sale process was concluded without an acceptable funded offer being
received. The mines were declassified out of held for sale status accordingly and the fair value adjustment of US$17.8 million was
reversed to the extent of the lower of carrying value (adjusted for depreciation that would have arisen), value in use and fair
value less cost to sell of each mine as assessed following the end of the sale process. The reversal totalled US$5.2 million.
Accordingly, the Group recognised an impairment loss for the year relating to operational assets at Sedibeng JV and Star of
US$12.6 million (30 June 2012: US$nil). The Group has formally decided to put both Sedibeng JV and Star on care and maintenance,
meaning that they will not be actively mined until the economic viability of those mines improve. Management reviewed the
Helam operational assets for indicators of impairment and following the assessment no impairment of property, plant and
equipment was considered appropriate. Details of the impairment test assessments are shown in notes 8.1 and 8.2.
Impairment
(US$ million)
Sedibeng JV
Star
Total
Asset class
Property, plant
and equipment
Mineral properties
Underground development
Buildings
Mining property, plant
and equipment
Property, plant
and equipment
Mineral properties
Underground development
Buildings
Mining property, plant
and equipment
Segment
Impairment
Fissure mines
11.8
Carrying
value
1.8
Fissure mines
3.4
3.4
0.9
4.1
0.8
—
0.2
—
0.6
12.6
0.5
2.3
30 June 2012
During the year ended 30 June 2012, the Group had reviewed the carrying value of its investments and operational assets for
indicators of impairment and following the assessment no impairment of investments, property, plant and equipment or reversal
of impairment gains in prior years were considered appropriate.
8.1 Impairment testing assumptions
a) Impaired operations: Sedibeng JV and Star
30 June 2013
The recoverable values for Sedibeng JV and Star were derived by estimating the expected values to be recovered through the sale
of these assets, less cost to sell, which gave rise to a value in excess of the value in use.
30 June 2012
Subsequent to the 30 June 2012 year end, the Group announced its intention to sell the Fissure Mines. In the absence of appropriate
comparable transactions or market prices, a value in use basis was used to assess year-end asset carrying values for Sedibeng JV
as well as the Helam mine (which is not impaired at 30 June 2013 and is therefore detailed in note 8.2). The key assumptions used
in determining the recoverable value calculations for Helam and Sedibeng JV at 30 June 2012, determined on a value in use basis, were
diamond prices, a before-tax risk-free rate per RSA Government bonds adjusted for market risk and volatility, diamond prices,
inflation rates, exchange rates, life of mine ore reserves and resources and life of mine capital expenditure. No impairment was
considered to exist based on the value in use models but it was noted that the carrying values were sensitive to diamond prices
and achieving forecast production growth rates.
The recoverable amount of Star was assessed using fair value less cost to sell.
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109
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
8. Impairment of operational assets and investments continued
8.2 Impairment tests – other mining operations 30 June 2013 and 30 June 2012
a) Non-impaired 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 Sedibeng JV and Star, the Group also performed impairment testing for Cullinan, Finsch, Helam,
Koffiefontein, Kimberley Underground and Williamson. The results of the impairment testing performed did not indicate any
impairments on the remaining mining operations. As set out in the Group’s accounting policies, only reserves and resources
and capital expenditure plans included within the Group’s life of mine plans are used. 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
Explanation
Recoverable value of
reserves and resources
Economically recoverable reserves and resources are based on management’s expectations based on the
availability of reserves and resources at mine sites and technical studies undertaken in-house and by third
party specialists. Resources remaining after the current life of mine plans have not been included
in impairment testing for the above operations.
Life of mine – reserves
and resources
Cullinan – Life of mine includes C-cut Phase 1 and reprocessing of certain tailings over the next 17 years
(30 June 2012: 18 years); total resource processed 101 Mt (57.6 Mt underground ROM and 43.4 Mt tailings)
(30 June 2012: 115.0 Mt (65.3 Mt underground ROM and 49.7 Mt tailings)) at a rate of 5.5 Mtpa (2.8 Mtpa
underground ROM tonnes and 2.7 Mtpa tailings tonnes) (30 June 2012: 5.7 Mtpa (3.0 Mtpa underground ROM
tonnes and 2.7 Mtpa tailings tonnes)) increasing to 6.7 Mtpa (4.0 Mtpa underground ROM tonnes and 2.7 Mtpa
tailings tonnes) (30 June 2012: 8.0 Mtpa (4.0 Mtpa underground ROM tonnes and 4.0 Mtpa tailings tonnes)).
Finsch – Life of mine includes Block 5 over the next 17 years (30 June 2012: 18 years); total resource
processed 74.5 Mt (53.0 Mt underground ROM and 21.5 Mt tailings) (30 June 2012: 87.1 Mt (61.3 Mt
underground ROM and 25.8 Mt tailings)) at a rate of 5.5 Mtpa (2.8 Mtpa underground ROM tonnes and
2.7 Mtpa tailings tonnes) (30 June 2012: 5.6 Mtpa (2.8 Mtpa underground ROM tonnes and 2.8 Mtpa
tailings tonnes) increasing to 6.2 Mtpa (3.2 Mtpa underground ROM tonnes and 3.0 Mtpa tailings tonnes))
(30 June 2012: 7.0 Mtpa (3.5 Mtpa underground ROM tonnes and 3.5 Mtpa tailings tonnes)).
Helam – 17 years (30 June 2012: 18 years) life of mine plan; total resource processed 1.9 Mt (30 June 2012: 2.0 Mt)
at a rate of 0.1 Mtpa (30 June 2012: 0.1 Mtpa).
Koffiefontein – 12 years (30 June 2012: 13 years) life of mine plan; total resource processed 14.2 Mt
(12.0 Mt underground ROM and 2.2 Mt surface/tailings tonnes) (30 June 2012: 22.3 Mt (13.3 Mt underground
ROM tonnes and 9.0 Mt surface/tailings tonnes)) at a rate of 1.5 Mtpa (0.3 underground ROM tonnes and
1.2 Mtpa surface/tailings tonnes) (30 June 2012: 1.7 Mtpa (0.3 Mtpa underground and 1.4 Mtpa surface/
tailings tonnes) reducing to 1.1 Mtpa (1.1 Mtpa underground and 0.0 Mtpa surface/tailings tonnes)).
Kimberley Underground – 13 years (30 June 2012: 10 years) life of mine plan; total resource processed 12.8 Mt
(30 June 2012: 9.8 Mt) at a rate of 1.1 Mtpa increasing to 1.25 Mtpa (30 June 2012: 1.0 Mtpa).
Williamson – 20 years (30 June 2012: 18 years) life of mine plan: total resource processed 95.5 Mt (30 June 2012:
64.0 Mt) at a rate of 3.9 Mtpa increasing to 5.0 Mtpa (30 June 2012: 3.0 Mtpa increasing to 3.6 Mtpa).
Life of mine – capital
expenditure
Management has estimated the timing and quantum of the capital expenditure based on the Group’s
current life of mine plans for each operation. There is no inclusion of capital expenditure to enhance
the asset beyond exploitation of the life of mine plan orebody.
Diamond prices
Diamond prices are based on guidance prices as shown on page 19. The ROM US$/carat price range
used in the calculations was US$140–US$650 (30 June 2012: US$140–US$600).
110
Petra Diamonds Limited Annual Report and Accounts 2013
8. Impairment of operational assets and investments continued
8.2 Impairment tests – other mining operations 30 June 2013 and 30 June 2012 continued
a) Non-impaired operations continued
Key assumptions
Explanation
Discount rate
The discount rate used for the South African operations represents the before-tax risk-free rate per the RSA
Government bonds adjusted for market risk, volatility and risks specific to the asset.
The discount rate used for Williamson represents the before-tax risk-free rate per the Tanzanian
Government bonds adjusted for market risk, volatility and risks specific to the asset.
Inflation rate
Exchange rates
Long-term inflation rate of 4.0% (30 June 2012: 4.0%) above a long-term US inflation rate of 2.5%
(30 June 2012: 2.5%) per annum was used for US$ diamond prices. Long-term inflation rates of 3.5%–7.5%
(30 June 2012: 3.5%–5.0%) 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$/R exchange rate range used commenced at R9.00 (30 June 2012: R8.00), further devaluing at 3.5%
(30 June 2012: 3.5%) per annum.
Valuation basis
Discounted present value of future cashflows.
Sensitivity
Management notes that a 3.4%/7.4% movement in diamond prices or a 7.8%/21.2% movement in production
(for FY 2014, FY 2015 and FY 2016) or a 3.6%/8.0% movement in foreign exchange rates as compared to
the R9.00/US$ base foreign exchange rate for FY 2014 at Kimberley Underground and Helam would result
in a break-even impairment scenario. In addition, the impairment test for Helam and Kimberley Underground
includes initial increases in production tonnes of 36% and 37% respectively for FY 2014 compared to FY 2013
actuals. Helam and Kimberley Underground have the lowest headroom of the mines already detailed.
The diamond prices used in the impairment test have been set with reference to recent market trends and
long-term diamond price escalators reflect the Group’s assessment of market supply/demand fundamentals,
although short-term volatility remains possible within the market. Foreign exchange rates of R9.00:US$1
are considered to be conservatively forecast given current exchange rates, but the ZAR-USD exchange rate
volatility remains. The production growth included in the forecasts is considered sufficiently probable, given
the commissioning and ongoing optimisation of the Wesselton plant at Kimberley Underground,
the expected reduction in Section 54 safety stoppages and operational management strategies.
9. Net financing (expense)/income
US$ million
Gross interest on bank loans and overdrafts1
Interest on bank loans and overdrafts capitalised1
Net interest expense on bank loans and overdrafts1
Other debt finance costs1
Unwinding of present value adjustment for rehabilitation costs
Realised foreign exchange losses
Unrealised foreign exchange losses2
Financial expense
Realised foreign exchange gains and other
Unrealised foreign exchange gains
Interest received on loans and other receivables
Interest received on bank deposits
Financial income
2013
(17.3)
12.3
(5.0)
(8.2)
(2.6)
(0.3)
(6.7)
(22.8)
3.1
2.0
9.2
0.4
14.7
(8.1)
2012
(7.7)
6.3
(1.4)
(9.8)
(5.9)
(0.2)
(38.6)
(55.9)
7.6
—
9.7
1.8
19.1
(36.8)
1. Calculated using the effective interest method in respect of financial liabilities calculated at amortised cost. Included in the current year interest on bank loans and overdrafts
is the extinguishment of historical borrowing costs on refinancing as a result of a significant modification in the financing arrangements as detailed in note 21.
2. In prior years, foreign exchange movements on retranslation of Rand denominated loans, not classified as permanent as equity under IFRS, by companies in the Group which did not
have a Rand functional currency were recognised in the Condensed Consolidated Income Statement. Effective 1 July 2012, the Group reorganised its intra-Group funding arrangements
and restructured its treasury structure, which has removed significant foreign exchange translation exposure; as the Rand loans are now held between entities with Rand
functional currencies.
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Annual Report and Accounts 2013 Petra Diamonds Limited
111
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
10. Taxation
US$ million
Current taxation
– Current tax credit
Deferred taxation
– Current period (origination and reversal of temporary differences)
Reconciliation of tax rate
– Profit before taxation
Tax at South African corporate rate of 28%
Effects of:
– Tax charge at rates in foreign jurisdictions
– Non-deductible expenses
– Non-taxable income
– Tax losses and timing differences not recognised
Total tax charge
2013
—
24.6
24.6
52.5
14.7
3.5
4.5
(7.6)
9.5
24.6
2012
—
10.5
10.5
8.4
2.4
7.7
5.7
(3.7)
(1.6)
10.5
During the year, the Group did not utilise taxation benefits of previously unrecognised tax losses which reduce the current
taxation payable (30 June 2012: US$nil). Tax losses not utilised do not have an expiry period in the country in which they arise, unless
the entity ceases to continue trading. Gross tax losses available but not utilised as at 30 June 2013 amount to US$147.0 million
(30 June 2012: US$101.4 million) and primarily arise in South Africa and Tanzania; amounts stated provide tax benefit at 28%,
being the tax rate in South Africa, and 30%, being the tax rate in Tanzania. Gross other temporary differences as at 30 June 2013
amount to US$24.6 million (30 June 2012: US$8.6 million) and arise in South Africa. The Group has amended the presentation of the
prior year tax reconciliation to reflect the notional tax on profits at the tax rate applicable to South African operations rather than
the 0% tax rate applicable to the parent, as this is considered to be more meaningful for users of the Financial Statements.
The prior year tax reconciliation line items have been amended to reflect this change and allocation changes determined
to be necessary to reflect the Group’s tax profile.
11. Directors’ and employees’ remuneration
Staff costs (excluding the Non-Executive Directors) during the year were as follows:
US$ million
Wages and salaries – mining
Wages and salaries – exploration
Wages and salaries – administration
Pension – administration
The number of employees (excluding the Non-Executive Directors and contractors)
employed was as follows:
Mining and exploration
Administration
2013
134.5
1.0
7.6
0.1
143.2
2012
103.2
1.0
5.5
0.1
109.8
Number
Number
4,902
237
5,139
4,536
232
4,768
Key management is considered to be the Executive Directors and the Non-Executive Directors. Total remuneration for the year,
which includes base salary, cash benefits and annual performance bonus, for the Executive Directors was US$2.9 million
(30 June 2012: US$2.6 million). The share-based payment charge relating to the Executive Directors for the year was US$1.4 million
(30 June 2012: US$0.3 million). See note 27 in respect of share-based payments.
The Chairman received remuneration, which comprises base remuneration, of US$0.2 million (30 June 2012: US$0.2 million).
Non-Executive Directors received remuneration, which includes base remuneration, of US$0.3 million (30 June 2012: US$0.2 million).
Further detail in respect of the Executive Directors’, Chairman’s and Non-Executive Directors’ remuneration during the year
is disclosed in the Directors’ Remuneration Report on pages 71 to 81.
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Petra Diamonds Limited Annual Report and Accounts 2013
12. Earnings per share
Numerator
Profit/(loss) for the year
Denominator
Weighted average number of ordinary shares used in basic EPS
As at 1 July
Effect of shares issued during the year
As at 30 June
Dilutive effect of potential ordinary shares
Total
2013
US$
Total
2012
US$
32,008,858
(2,409,520)
Shares
Shares
505,654,430
2,362,221
499,874,009
2,013,545
508,016,651
501,887,554
Shares
14,093,941
Shares
—
Weighted average number of ordinary shares in issue used in diluted EPS
522,110,592
501,887,554
Basic profit/(loss) per share – US$ cents
Diluted profit/(loss) per share – US$ cents
US cents
US cents
6.30
6.13
(0.48)
(0.48)
In the current year, the number of potentially dilutive ordinary shares, in respect of employee share options, Executive Director
and Senior Management share award schemes and warrants is 14,093,941. These potentially dilutive ordinary shares may have a
dilutive effect on future earnings per share. In the prior year, the impact of potentially dilutive ordinary shares of 14,411,634 was
anti-dilutive, therefore they were excluded for the prior year diluted earnings per share calculation. There have been no significant
post balance sheet changes to the number of options and warrants to impact the dilutive number of ordinary shares.
13. Adjusted earnings per share
In order to show earnings per share from operating activities on a consistent basis, an adjusted earnings per share is presented which
excludes certain items as set out below. It is emphasised that the adjusted earnings per share is a non-GAAP measure. The Petra
Board considers the adjusted earnings per share to better reflect the underlying performance of the Group. The Company’s definition
of adjusted earnings per share may not be comparable to other similarly titled measures reported by other companies.
Numerator
Profit/(loss) for the year
Adjustments:
Net unrealised foreign exchange loss (note 9)
Transaction costs (note 7)
Retrenchment costs (note 23)
Impairment charges (note 8)
Adjusted profit for the year
Denominator
Weighted average number of ordinary shares used in adjusted basic EPS
As at 1 July
Effect of shares issued during the year
As at end of year
Dilutive effect of potential ordinary shares
Weighted average number of ordinary shares in issue used in diluted adjusted
earnings per share
Adjusted basic profit per share – US$ cents
Adjusted diluted profit per share – US$ cents
2013
US$
2012
US$
32,008,858
(2,409,520)
4,670,690
536,248
2,603,377
12,560,534
38,604,888
3,070,563
—
—
52,379,707
39,265,931
Shares
Shares
505,654,430
2,362,221
499,874,009
2,013,545
508,016,651
501,887,554
Shares
Shares
14,093,941
14,411,634
522,110,592
516,299,188
US cents
US cents
10.31
10.03
7.82
7.61
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Annual Report and Accounts 2013 Petra Diamonds Limited
113
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
14. Property, plant and equipment
US$ million
Cost
Balance at 1 July 2011
Exchange differences
Business combination
Additions
Transfer of assets under construction
Change in rehabilitation asset
Disposals
Balance at 30 June 2012
Balance at 1 July 2012
Exchange differences
Additions
Transfer of assets under construction
Change in rehabilitation asset
Disposals
Balance at 30 June 2013
Depreciation
Balance at 1 July 2011
Exchange differences
Disposals
Provided in the year
Balance at 30 June 2012
Balance at 1 July 2012
Exchange differences
Disposals
Impairment charge
Provided in the year
Balance at 30 June 2013
Net book value
At 30 June 2012
At 30 June 2013
Plant and
Plant and
machinery machinery
Motor
vehicles
mining exploration exploration exploration
assets1
assets
assets
assets
Computers
and office
equipment
333.2
(53.6)
222.8
58.1
44.2
1.5
(5.8)
600.4
600.4
(103.9)
58.0
30.1
(8.3)
(0.8)
575.5
55.4
(10.9)
(5.0)
39.8
79.3
79.3
(18.6)
(0.5)
9.2
41.9
111.3
521.1
464.2
1.4
(0.2)
—
0.1
—
—
—
1.3
1.3
(0.2)
—
—
—
—
1.1
0.1
—
—
—
0.1
0.1
—
—
—
—
0.1
1.2
1.0
1.3
(0.3)
—
0.4
—
—
—
1.4
1.4
(0.4)
1.8
—
—
—
2.8
0.6
(0.1)
—
0.2
0.7
0.7
(0.2)
—
—
0.3
0.8
0.7
2.0
0.3
(0.1)
—
0.3
—
—
—
0.5
0.5
(0.1)
0.1
—
—
—
0.5
0.1
—
—
0.1
0.2
0.2
(0.1)
—
—
0.1
0.2
0.3
0.3
Mineral
properties
mining
assets2
Assets
under
construction
mining
assets3
130.7
(21.2)
—
—
—
—
—
101.6
(18.1)
—
78.4
(44.2)
—
—
Total
568.5
(93.5)
222.8
137.3
—
1.5
(5.8)
109.5
117.7
830.8
109.5
(18.4)
—
—
—
—
117.7
(29.8)
131.3
(30.1)
—
—
830.8
(152.8)
191.2
—
(8.3)
(0.8)
91.1
189.1
860.1
10.9
(1.8)
—
0.9
10.0
10.0
(1.8)
—
3.4
0.5
12.1
—
—
—
—
—
—
—
—
—
—
—
67.1
(12.8)
(5.0)
41.0
90.3
90.3
(20.7)
(0.5)
12.6
42.8
124.5
99.5
117.7
740.5
79.0
189.1
735.6
1. The mining assets are secured against the loan facilities as set out in note 21.
2. Mineral properties are in respect of various mines within the Group and the useful life determinants are disclosed in note 1.4.
3. Assets under construction include expansion projects and stay in business capital expenditure of mining property, plant and equipment at the Finsch, Cullinan, Koffiefontein,
Kimberley Underground, and Williamson mines of US$125.2 million (30 June 2012: US$85.4 million).
The Group’s total commitments at year end were in respect of assets under construction and future capital expenditure projects
of US$87.2 million (30 June 2012: US$28.5 million). Borrowing costs of US$12.3 million (30 June 2012: US$6.3 million) have been
capitalised to assets under construction.
114
Petra Diamonds Limited Annual Report and Accounts 2013
15. Intangible assets
US$ million
Cost
Balance at 1 July 2012 and 30 June 2013
Amortisation
Balance at 1 July 2012 and 30 June 2013
Net book value
At 30 June 2012
At 30 June 2013
Total
14.5
(14.5)
—
—
Prospecting licences
Prospecting licences in Botswana are fully amortised. The Group continues to conduct exploration activities in Botswana.
During the year, exploration expenditure of US$4.9 million (30 June 2012: US$3.1 million) was expensed in respect of exploration
activities within Botswana.
16. Investments in associates
Interests in associates
At year end, the Group had interests in the following companies:
Nelesco 651 (Pty) Ltd1
Namibia Mining House (Pty) Ltd
Nabera Mining (Pty) Ltd
Organizações Moyoweno – Comércio Geral Lda
Country
South Africa
Namibia
South Africa
Angola
Ownership
2013
49.2%
35.0%
29.5%
40.0%
2012
—
35.0%
29.5%
40.0%
1. Refer to note 3 for detail relating to the acquisition of 49.24% of Nelesco 651 (Pty) Ltd.
The unrecognised share of losses of the associates in aggregate is US$nil (30 June 2012: US$nil) and no individual associate has assets,
liabilities or trading activity that are significant. The assets, liabilities and trading results of Nelesco are not material to the Group,
other than its 100% shareholding in Sedibeng Mining which gives rise to indirect interests in certain Petra mines as set out in note
3. If the investments in associates had been included at cost, they would have been included at US$nil (30 June 2012: US$nil).
17. Inventories
US$ million
Diamonds held for resale
Work in progress stockpiles
Consumables and stores
Livestock
Provision for impairment of slow moving consumables and stores
2013
31.5
13.8
8.5
0.2
54.0
(0.3)
53.7
2012
24.5
15.3
8.5
0.2
48.5
(0.7)
47.8
As at 30 June 2013, diamonds (inventories held for resale) with a cost value of US$4.7 million (30 June 2012: US$13.7 million) have been
written down by US$1.0 million (30 June 2012: US$3.8 million) to fair value less costs to sell of US$3.7 million (30 June 2012: US$9.9 million)
(due to fair value less cost to sell being below cost) within the overall carrying value of US$31.5 million (30 June 2012: US$24.5 million).
The movement in provisions against slow moving consumables and stores resulted in a charge to the income statement of US$nil
(30 June 2012: US$0.4 million).
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Annual Report and Accounts 2013 Petra Diamonds Limited
115
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
18. Trade and other receivables
US$ million
Current
Trade receivables
Other receivables
Prepayments1
Non-current
Other
BEE partners2
2013
74.8
12.7
6.2
93.7
0.2
85.2
85.4
2012
25.1
11.9
19.5
56.5
0.2
89.4
89.6
1. Included within prepayments is US$nil (30 June 2012: US$16.6 million) relating to a deposit paid for further investment in the Group’s South African projects (refer to note 3).
2. Interest on loans advanced to BEE partners (refer to notes 3 and 28) is charged at the prevailing South African prime interest rate plus 2%. The movement in the year includes accrued
interest and foreign exchange retranslation. The loans are repayable from future cashflows attributable to those loan holders generated from the underlying mining operations.
The financial assets classified as loans and receivables included in receivables are as follows:
US$ million
Current trade receivables
Other receivables (excluding VAT and prepayments)
Non-current receivables
2013
74.8
0.1
85.4
160.3
2012
25.1
4.5
89.6
119.2
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 tender’s proximity to year end. The trade receivables relating to the year-end tender have
all been received post year end. No receivables are considered to be past due or impaired.
The carrying values of these loans and receivables are denominated in the following currencies:
US$ million
Pounds sterling
South African Rand
US Dollars
19. Cash
US$ million
Cash and cash equivalents – unrestricted
Cash – restricted
2013
5.1
143.2
12.0
160.3
2013
14.1
12.1
26.2
2012
1.0
102.9
15.3
119.2
2012
31.3
16.0
47.3
As security for the Group’s rehabilitation obligations at the Sedibeng JV and Star mines, the Company has ceded US$1.8 million
(30 June 2012: US$6.0 million) in a fixed deposit. The restricted cash will return to the Group’s sole control when the above
mentioned operations are transferred to the Group’s rehabilitation insurance product which currently includes the Finsch, Cullinan,
Koffiefontein, Kimberley Underground and Helam mines. The insurance product has secured cash assets of US$10.3 million
(30 June 2012: US$10.0 million) held in a cell captive. The Group has a commitment to pay insurance premiums over the next
year of US$3.2 million (30 June 2012: US$3.8 million) to fund the insurance product. The rehabilitation provisions are disclosed
in note 23.
20. Issued capital
US$ million
Authorised – ordinary shares of 10p each
Number of shares
2013
Number of shares
2012
As at 1 July 2012 and 30 June 2013
650,000,000
115.2
650,000,000
115.2
Issued and fully paid
At 1 July
Allotments during the year
At 30 June
505,654,430
3,946,618
509,601,048
85.7
0.6
86.3
499,874,009
5,780,421
505,654,430
84.8
0.9
85.7
Allotments during the year were in respect of the exercise of 2,100,000 warrants held over ordinary shares by the International
Finance Corporation and the exercise of 1,846,618 share options held by employees and Directors.
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Petra Diamonds Limited Annual Report and Accounts 2013
20. Issued capital continued
Allotments during the prior year were in respect of the exercise of 3,464,259 warrants held over ordinary shares by RBC Capital
Markets and Rand Merchant Bank (“RMB”) and the exercise of 2,316,162 share options held by employees.
Warrants
Holder
International Finance Corporation
International Finance Corporation
International Finance Corporation
Expiry
2 November 2012
2 November 2013
2 November 2014
Exercise
price
(pence)
90
95
100
2013
Number
of warrants
—
2,100,000
2,100,000
2012
Number
of warrants
2,100,000
2,100,000
2,100,000
During the year warrants over 2,100,000 ordinary shares were exercised by the International Finance Corporation at an exercise
price of 90 pence.
In the prior year, warrants over 3,464,259 ordinary shares were exercised by RBC Capital Markets and RMB. RMB exercised
2,100,000 warrants over ordinary shares at an exercise price of 100 pence and RBC Capital Markets exercised 1,364,259 warrants
over ordinary shares at an exercise price of 80 pence.
The Black-Scholes methodology was used to value the warrants on issue.
21. Interest-bearing loans and borrowings
US$ million
Current
Bank loan – secured (i)
Bank loan – secured (ii)
Bank loan – secured (iii)
Bank loan – secured (iv)
Non-current
Bank loan – secured (i)
Bank loan – secured (iii)
Bank loan – secured (iv)
Associate loans
2013
1.4
28.8
5.3
1.6
37.1
23.6
52.8
33.5
—
109.9
2012
—
—
11.3
10.8
22.1
—
19.9
23.4
3.6
46.9
(i) Bank loans – secured
FirstRand, Absa and IFC – Revolving Credit Facility (“RCF”)
On 16 November 2012 the Company entered into agreements with FirstRand Bank Ltd (acting through its Rand Merchant Bank
(“RMB”) and First National Bank divisions), Absa Corporate and Investment Banking (“Absa”) (a division of Absa Bank Ltd and a
member of Barclays) and the International Finance Corporation (“IFC”) (a member of the World Bank Group) with regards to new
Group debt facilities. The new facilities replace all of the Group’s previous bank debt and working capital facilities.
The facilities comprise of a RCF of R300 million (US$30.4 million) and US$25 million. The RCF is available for draw-down up to
August 2018. The RCF bears interest at the South African JIBAR rate plus 5.5% (ZAR facility) and the United States LIBOR rate plus
5.5% (US$ facility). The RCF is repayable by September 2018. Only the US$ portion of the RCF was drawn down at year end. The
interest rate at 30 June 2013 is 5.7% (30 June 2012: nil%).
The RCF is secured on the Group’s interests in Finsch, Cullinan, Koffiefontein, Kimberley Underground and Williamson.
In the prior year, the Company (through its wholly owned subsidiary FDM) entered into an agreement with RMB (a division of
FirstRand Bank Ltd) with regards to debt facilities of R400 million (US$49.0 million). The facilities comprised a revolving credit
facility of R300 million (US$36.8 million) and a working capital facility of R100 million (US$12.2 million). These facilities have
been replaced as detailed above.
(ii) Bank loans – secured
FirstRand and Absa – Working Capital Facility (“WCF”)
As part of the new Group debt facilities, the Company’s previous WCF for its South African subsidiaries has been renegotiated
and increased to R500 million (US$50.6 million) (30 June 2012: R70.0 million (US$8.6 million)) with FirstRand and Absa. The facility
comprises a R350 million (US$35.4 million) overdraft facility and a R150 million (US$15.2 million) foreign exchange settlement line.
The facility is subject to an annual review and is repayable on demand. The loan incurs interest at the South African Prime rate
less 0.5%. The interest rate for the WCF at 30 June 2013 is 8.0% (30 June 2012: nil%).
The WCF is secured on the Group’s interests in Finsch, Cullinan, Koffiefontein, Kimberley Underground and Williamson.
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117
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
21. Interest-bearing loans and borrowings continued
(iii) Bank loans – secured
FirstRand and Absa – Amortising Term Facility (“ATF”)
As part of the new Group debt facilities entered into on 16 November 2012, the previous ATF has been renegotiated and increased
from R300 million (US$30.4 million) to R800 million (US$81.0 million). The ATF is available for the Company’s draw-down up to and
including 20 December 2013. The loan is repayable in five semi-annual payments commencing on 20 March 2016 with a final payment
due on 20 March 2018. The loan incurs interest at the South African JIBAR rate plus 4.0% payable quarterly (March, June, September
and December). The interest rate for the debt facility at 30 June 2013 is 9.1% (30 June 2012: 10.1%).
The ATF is secured on the Group’s interests in Finsch, Cullinan, Koffiefontein, Kimberley Underground and Williamson.
(iv) Bank loans – secured
IFC – Amortising Term Facility (“ATF”)
The historical loan facility of US$40 million was renegotiated and revised terms agreed. As at year end the outstanding balance of
US$35 million was fully drawn down. The accrued interest on the loan at year end is US$0.1 million. The loan is repayable in five annual
payments commencing on 20 March 2016 with the final payment due on 20 March 2018. The loan incurs interest at the US$ LIBOR rate
plus 4.0% payable quarterly (March, June, September and December). The interest rate for the debt facility at 30 June 2013 is 4.3%
(30 June 2012: 5.2%).
Historically the IFC and RMB were granted 6.3 million warrants each over Petra shares, a number of which have subsequently been
part exercised in accordance with the terms of the warrants. No new warrants were granted on the refinanced loans. During the
year the IFC exercised 2,100,000 warrants. The warrants vested on grant and the warrant expiry dates are in equal tranches at the
end of years two, three and four from the warrant grant date. The warrant exercise prices for the remaining tranches are 95 pence
and 100 pence respectively. The Black-Scholes methodology as outlined in IFRS 2 was used to value the warrants. The unamortised fair
value of the warrants has been accelerated in the year and disclosed in note 9 as part of gross interest expense on bank loans
and overdraft, as part of the refinancing that was considered to represent a substantial modification of terms under IFRS.
The ATF is secured on the Group’s interests in Finsch, Cullinan, Koffiefontein, Kimberley Underground and Williamson.
There are no significant differences between the fair value and carrying value of loans and borrowings.
22. Trade and other payables
US$ million
Current
Trade payables
Deferred consideration1
Accruals and other payables
Taxation payable
Non-current
Amounts owing to BEE partners2
2013
23.8
2.3
38.6
64.7
—
64.7
65.3
65.3
2012
17.2
2.8
29.0
49.0
—
49.0
66.6
66.6
Current
1. The Group is liable to pay US$3.2 million (30 June 2012: US$3.2 million) (US$2.3 million after discounting (30 June 2012: US$2.8 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 ended 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$3.2 million has been extinguished.
At year end no portion of the liability had been repaid and the total liability is carried forward.
2. The loans (refer to notes 3 and 28) bear interest at the prevailing South African prime interest rate. The movement in the year includes accrued interest and foreign exchange
retranslation. The loans are repayable from future cashflows from the underlying operations only when the loans advanced to BEE partners (refer to note 18) have been repaid
in full to the Group.
The financial liabilities included in trade and other payables (which exclude taxation) are as follows:
US$ million
Trade payables
Other payables (includes deferred consideration)
Non-current trade payables owing to BEE partners
2013
23.8
40.9
65.3
130.0
2012
17.2
31.8
66.6
115.6
The carrying values of financial liabilities classified as trade and other payables are denominated in the following currencies:
US$ million
Botswana pula
Pounds sterling
South African Rand
US Dollar
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Petra Diamonds Limited Annual Report and Accounts 2013
2013
0.7
2.6
104.0
22.7
130.0
2012
0.3
1.8
103.2
10.3
115.6
23. Provisions
US$ million
Balance at 1 July 2011
Acquired through acquisition
Decrease in rehabilitation liability provision –
change in estimate
Increase in provisions
Unwinding of present value adjustment
of rehabilitation provision
Exchange differences
Balance at 30 June 2012
Current
Non-current
Balance at 30 June 2012
Balance at 1 July 2012
Decrease in rehabilitation liability provision –
change in estimate
Increase in provisions
Unwinding of present value adjustment
of rehabilitation provision
Exchange differences
Balance at 30 June 2013
Current
Non-current
Balance at 30 June 2013
Retrenchment
Post-retirement
medical fund
and income tax
Rehabilitation
—
—
—
—
—
—
—
—
—
—
—
—
2.6
—
—
2.6
2.6
—
2.6
9.5
5.3
—
1.4
—
(2.2)
14.0
2.2
11.8
14.0
14.0
—
1.3
—
(2.1)
13.2
2.2
11.0
13.2
55.8
23.7
(3.3)
—
5.9
(8.9)
73.2
—
73.2
73.2
73.2
(10.2)
—
2.6
(9.3)
56.3
—
56.3
56.3
Total
65.3
29.0
(3.3)
1.4
5.9
(11.1)
87.2
2.2
85.0
87.2
87.2
(10.2)
3.9
2.6
(11.4)
72.1
4.8
67.3
72.1
Employee entitlements and other provisions
The provisions relate to provision for an unfunded post-retirement medical fund, retrenchment costs and income tax. The provision
for the post-retirement medical fund is further disclosed in note 32. The provision for taxation is based on estimates made, where
appropriate, from historical information and professional advice. The provision for retrenchments is based on estimates and relates
to Sedibeng JV and Star, as the care and maintenance plans and associated retrenchment plans were communicated to employees
prior to year end.
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:
$ Koffiefontein of US$6.2 million (30 June 2012: US$6.8 million), provided over 12 years which reflects management’s current
estimated decommissioning period;
$ Cullinan of US$12.2 million (30 June 2012: US$14.7 million) provided over 52 years which reflects management’s current estimated
decommissioning period including the C-cut Phase 1 and 2;
$ Finsch of US$18.4 million (30 June 2012: US$23.0 million) provided over 20 years which reflects management’s current estimated
decommissioning period including Block 5 and certain Block 6 tonnes;
$ Kimberley Underground of US$9.0 million (30 June 2012: US$9.9 million) provided over 13 years which reflects management’s
current estimated decommissioning period;
$ Williamson of US$7.5 million (30 June 2012: US$15.3 million) provided over 20 years which reflects management’s current estimated
decommissioning period; and
$ Helam, Sedibeng JV and Star of US$3.0 million (30 June 2012: US$3.5 million) provided over 12 years which reflects management’s
current estimated decommissioning period.
The vast majority of the rehabilitation expenditure is expected to be incurred at the end of mining.
The reduction in the provisions are attributable to unrealised foreign exchange on retranslation from functional to presentational
currency, together with a reduction at Williamson arising due to changes in inflation and discount rates.
The significant assumptions and uncertainties are disclosed in note 1.23. Cash and cash equivalents have been secured in respect
of rehabilitation provisions, as disclosed in note 19.
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119
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
24. Deferred taxation
US$ million
Balance at beginning of the year
Income statement charge
Foreign currency translation difference
Balance at the end of the year
Comprising:
Deferred tax asset
Deferred tax liability
2013
45.1
24.6
(11.5)
58.2
(5.9)
64.1
58.2
2012
37.7
10.5
(3.1)
45.1
(9.3)
54.4
45.1
The deferred tax assets and liabilities are offset to determine the amounts stated in the Statement of Financial Position when
the taxes can legally be offset and will be settled net.
Deferred taxation comprises:
US$ million
Deferred tax liability:
– Property, plant and equipment
– 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:
– Property, plant and equipment
– Foreign exchange allowances
Deferred tax asset:
– Capital allowances
– Provisions and accruals
– Foreign exchange allowances
– Tax losses
Net deferred taxation liability/(asset)
Total
155.5
0.3
155.8
(81.5)
(17.7)
(2.5)
(42.1)
(143.8)
12.0
Total
152.5
0.1
152.6
(83.3)
(17.1)
(1.8)
(37.3)
(139.5)
13.1
2013
Recognised
2013
Unrecognised
155.5
0.3
155.8
(78.3)
(15.5)
(0.8)
(3.0)
(97.6)
58.2
—
—
—
(3.2)
(2.2)
(1.7)
(39.1)
(46.2)
(46.2)
2012
Recognised
2012
Unrecognised
152.5
0.1
152.6
(81.3)
(16.8)
(1.8)
(7.6)
(107.5)
45.1
—
—
—
(2.0)
(0.3)
—
(29.7)
(32.0)
(32.0)
Deferred tax assets of US$5.9 million (30 June 2012: US$9.3 million) have been recognised in respect of tax losses and other
temporary differences to be utilised by future taxable profits at Kimberley Underground, which incurred tax losses during the year.
The Directors believe it is probable these tax assets will be recovered through future taxable income or the reversal of temporary
differences, reflecting increased treatment capacity as the Wesselton plant has now been commissioned.
Movements in deferred tax include amounts recognised in the income statement, together with foreign exchange retranslation.
The income statement charge for the year comprises movements in deferred tax of US$20.0 million (30 June 2012: US$21.3 million)
in respect of property, plant and equipment and associated capital allowances, US$0.4 million credit (30 June 2012: US$7.4 million credit)
in respect of provisions and US$3.7 million (30 June 2012: US$0.9 million credit) in respect of tax losses, with the remainder
US$1.3 million (30 June 2012: $2.5 million credit) comprised of immaterial items.
120
Petra Diamonds Limited Annual Report and Accounts 2013
25. Financial instruments
Exposures to currency, liquidity, market price, credit and interest rate risk arise in the normal course of the Group’s business.
This note describes the Group’s objectives, policies and processes for managing those risks and the methods used to measure them.
The Group uses financial instruments, in particular forward currency option contracts, to help manage foreign exchange risk.
The Directors review and agree policies for managing each of these risks. Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised,
in respect of each class of financial asset, financial liability and equity instrument, are disclosed in note 1.
The details of the categories of financial instruments of the Group are as follows:
US$ million
2013
2012
Financial assets:
Loans and receivables:
– Non-current trade receivables
– Trade receivables
– Other receivables (excluding prepayments and VAT)
– Cash and cash equivalents – restricted
– Cash and cash equivalents – unrestricted
Available-for-sale financial assets (Level 1 valuation)
Financial liabilities:
Held at amortised cost:
– Non-current amounts owing to BEE partners
– Non-current loans and borrowings
– Current loans and borrowings
– Trade and other payables (includes deferred consideration)
85.4
74.8
0.1
12.1
14.1
0.1
89.6
25.1
4.5
16.0
31.3
0.2
186.6
166.7
65.3
109.9
37.1
64.7
277.0
66.6
46.9
22.1
49.0
184.6
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 and payables bear interest. Available-for-sale financial assets are valued based on the share
price at the reporting date. A loss of US$0.1 million (30 June 2012: US$0.2 million) has been recognised in the Consolidated Statement
of Other Comprehensive Income in respect of the reduction of the available-for-sale financial assets to fair value.
The available-for-sale financial assets were valued using Level 1 of the financial instrument valuation hierarchy using quoted prices.
The currency profile of the Group’s financial assets and liabilities is as follows:
US$ million
Financial assets:
Botswana pula
Pounds sterling
South African Rand
US Dollar
Financial liabilities:
Botswana pula
Pound sterling
South African Rand
US Dollar
2013
2012
0.5
8.3
144.9
32.9
186.6
0.7
2.5
191.0
82.8
277.0
0.8
2.5
141.4
22.0
166.7
—
36.3
137.9
10.4
184.6
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121
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
25. Financial instruments continued
Principal financial instruments
Further quantitative information in respect of these risks is presented throughout these Financial Statements.
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, prior to any
payments to the BEE partners, from future cashflows generated by the Group’s operations in which the BEE partners hold
interests. The amounts due from the Group’s principal BEE partner are recoverable either through cashflows from the mines
against which the loans were originally made or through cashflows from other Group mines in which the BEE has an interest,
by virtue of a contractual agreement.
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 19 for restricted cash secured in respect of
rehabilitation obligations. At year end the Group had undrawn borrowing facilities of US$71.3 million (30 June 2012: US$66.3 million),
net of US$3.6 million utilised for foreign exchange settlement lines (30 June 2012: US$nil).
Foreign exchange risk
Foreign exchange risk arises because the Group has operations located in parts of the world where the functional currency is not
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 having converted US Dollar diamond revenues
to local currencies. 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:
$ the currency in which the revenue expected to be generated from the commissioning of the capital expenditure will be denominated;
$ 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 sensitivity analysis to foreign currency rate changes is as follows:
US$ million
Financial assets:
Botswana pula
Pounds sterling
South African Rand
US Dollar
Financial liabilities:
Botswana pula
Pounds sterling
South African Rand
US Dollar
30 June 2013
Year-end
US$ rate
Year-end
amount
US$
strengthens 10%
US$
weakens 10%
0.1168
0.6574
0.1012
1.0000
0.1168
0.6574
0.1012
1.0000
0.5
8.3
144.9
32.9
186.6
0.7
2.5
191.0
82.8
277.0
0.5
7.5
130.4
32.9
171.3
0.6
2.2
171.9
82.8
257.5
0.6
9.1
159.4
32.9
202.0
0.8
2.8
210.1
82.8
296.5
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Petra Diamonds Limited Annual Report and Accounts 2013
25. Financial instruments continued
Foreign exchange risk continued
US$ million
Financial assets:
Botswana pula
Pounds sterling
South African Rand
US Dollar
Financial liabilities:
Pounds sterling
South African Rand
US Dollar
30 June 2012
Year-end
US$ rate
Year-end
amount
US$
strengthens 10%
US$
weakens 10%
0.1304
0.6367
0.1225
1.0000
0.6367
0.1225
1.0000
0.8
2.5
141.4
22.0
166.7
36.3
137.9
10.4
184.6
0.7
2.3
127.2
22.0
152.2
32.7
124.1
9.3
166.1
0.9
2.8
155.5
22.0
181.2
39.9
151.7
11.4
203.0
The table above reflects the impact of a 10% cumulative currency movement over the next 12 months and is shown
for illustrative purposes.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital, capital expenditure, 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 and or debt.
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 as disclosed in note 1.1. The maturity analysis of the actual cash payments
due in respect of loans and borrowings is set out in the table overleaf. 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 those terms are set out in note 22,
as reflected under non-current.
Maturity analysis
The below maturity analysis reflects cash and cash equivalents and loans and borrowings based on actual cashflows rather than
carrying values.
US$ million
Cash
Cash and cash equivalents – unrestricted
Cash – restricted
Total cash
Loans and borrowings
Bank loan – secured
Bank loan – secured
Bank loan – secured
Bank loan – secured
Cashflow of loans and borrowings
30 June 2013
Notes
Interest
rate
6 months
or less
6–12
months
Total
1–2
years
2–5
years
19 0.1%–4.5%
19 0.1%–4.5%
21(i)
21(ii)
21(iii)
21(iv)
5.7%
8.0%
9.1%
4.3%
14.1
12.1
26.2
30.8
28.8
77.9
40.7
178.2
14.1
—
14.1
0.8
28.8
2.5
0.7
32.8
—
—
—
0.8
—
2.8
0.8
4.4
—
—
—
1.5
—
5.2
1.5
8.2
—
12.1
12.1
27.7
—
67.4
37.7
132.8
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123
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
25. Financial instruments continued
Liquidity risk continued
Maturity analysis continued
US$ million
Cash
Cash and cash equivalents – unrestricted
Cash – restricted
Total cash
Loans and borrowings
Bank loan – secured
Bank loan – secured
Other loans1
Cashflow of loans and borrowings
Notes
Interest
rate
6 months
or less
6–12
months
Total
1–2
years
2–5
years
30 June 2012
19 0.1%–4.5%
19 0.1%–4.5%
21(iii)
21(iv)
21
10.1%
5.2%
9.5%
31.3
16.0
47.3
40.0
40.3
—
80.3
31.3
—
31.3
5.7
5.4
—
—
—
—
5.5
5.3
—
11.1
10.8
—
—
—
10.4
10.3
—
20.7
—
16.0
16.0
18.4
19.3
—
37.7
1. The loans have been reclassified to non-current trade and other payables as this is considered a more appropriate classification. The loans bear interest at the prevailing South African
prime interest rate and are repayable from future cashflows from the underlying operations only when the loans advanced to BEE partners (refer to note 18) have been repaid
in full to the Group.
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 table below reflects the impact of a 100% basis points change in interest rates over the next
12 months and is shown for illustrative purposes.
The effect of an interest rate increase/(decrease) on the Group in the year is as follows:
US$ million
Bank loan – secured
Bank loan – secured
Bank loan – secured
Bank loan – secured
US$ million
Bank loan – secured
Bank loan – secured
Other loans1
Notes
21(i)
21(ii)
21(iii)
21(iv)
Notes
21(iii)
21(iv)
21
Year-end
interest
rate
5.7%
8.0%
9.1%
4.3%
Year-end
interest
rate
10.1%
5.2%
9.5%
30 June 2013
Year-end
interest-
bearing
liability
25.0
28.8
58.1
35.1
147.0
30 June 2012
Year-end
interest-
bearing
liability
31.2
34.2
—
65.4
Interest
rate
increases
1%
Interest
rate
(decreases)
1%
0.2
0.3
0.6
0.3
1.4
Interest
rate
increases
1%
0.3
0.3
—
0.6
(0.2)
(0.3)
(0.6)
(0.3)
(1.4)
Interest
rate
(decreases)
1%
(0.3)
(0.3)
—
(0.6)
1. The loans have been reclassified to non-current trade and other payables as this is considered a more appropriate classification. The loans bear interest at the prevailing South African
prime interest rate and are repayable from future cashflows from the underlying operations only when the loans advanced to BEE partners (refer to note 18) have been repaid
in full to the Group.
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Petra Diamonds Limited Annual Report and Accounts 2013
25. Financial instruments continued
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$/R 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:
$ to safeguard the ability of the entity to continue as a going concern; and
$ 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 liabilities (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 2013 and 30 June 2012 are as follows:
US$ million
Total debt
Cash and cash equivalents
Net debt
Total equity attributable to equity holders of the parent company
Net debt to equity ratio
2013
277.0
(26.2)
250.8
571.1
0.44:1
2012
184.6
(47.3)
137.3
637.6
0.21:1
The Group manages its capital structure by the issue of ordinary shares, raising debt finance where appropriate, and managing
Group cash and cash equivalents.
26. Contingent liabilities
Environmental
The controlled entities of the Company provide for all known environmental liabilities. While the Directors believe that, based
upon current information, the 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.
27. Share-based payments
The Company has established share plans to address the retention of Directors and Senior Management over the period to FY 2016,
which is a pivotal period as the expansion programmes are rolled out across the Group. The total share-based payment charge of
US$3.9 million (30 June 2012: US$1.0 million) comprises US$3.3 million (30 June 2012: US$1.0 million) charged to the income
statement and US$0.6 million (30 June 2012: US$nil) capitalised within property, plant and equipment.
Share grants to Directors: 2011 LTSP, 2012 PSP and deferred awards
The share-based payment awards are considered to be equity settled, albeit they can be cash settled at the Company’s option.
The fair value of the 2011 LTSP and 2012 PSP granted during the current and prior year and the assumptions used in the Monte Carlo
model are as follows:
2011 LTSP – non-market-based subject to performance conditions
Fair value
Grant date
Share price at grant date
Life of award
Expected dividends
2012
133.0p
15 May 2012
133.0p
3.4 years–4.4 years
—
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Annual Report and Accounts 2013 Petra Diamonds Limited
125
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
27. Share-based payments continued
Share grants to Directors: 2011 LTSP, 2012 PSP and deferred awards continued
2012 PSP – market and non-market-based performance conditions
2013
2012
Fair value (PSP absolute TSR/PSP relative TSR/PSP non-market)
Grant date
Share price at grant date
Expected volatility
Life of award
Expected dividends
Performance period
Correlation
Risk-free interest rate (based on national Government bonds)
39.0p/60.0p/110.0p
20 December 2012
109.7p
51%
2.8 years
—
3 years
41%
0.5%
47.0p/85.0p/133.0p
15 May 2012
133.0p
53%
2.4 years
—
3 years
41%
0.4%
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, 1,198,268 PSP (30 June 2012: 764,332) shares were awarded at a fair value price
of 109.7 pence (30 June 2012: 133.0 pence). There were no shares awarded under the 2011 LTSP (30 June 2012: 1,200,000). The correlation
factor used above is based on analysis of historical correlation rates between the Company and mining companies within the FTSE
350. The grant date fair values incorporate the effect of the relevant market-based conditions. The awards have no exercise price.
On 18 December 2012, the Executive Directors of the Company were granted a total of 196,911 deferred awards over ordinary shares
in the Company. The deferred share awards were fair valued using a Black-Scholes model at the date of grant. The share price at
grant date was 110.0 pence. The awards represent 25% of the total bonus in respect of performance for the financial year ended
30 June 2012. The awards vest on 30 June 2014 and vesting is subject to continued employment. These awards have no exercise price.
Further information on the terms of the awards (including their vesting conditions) can be found on pages 75 to 77 of the Directors’
Remuneration Report, together with a reconciliation of the awards for the year and the remaining contractual term on pages 80 to 81.
Share grants to Senior Management: 2011 LTSP
The share-based payment awards are considered to be equity settled, albeit they can be cash settled at the Company’s option.
The fair value of the 2011 LTSP granted to Senior Management during the year and the assumptions used in the Monte Carlo
model are as follows:
2011 LTSP – non-market-based subject to performance conditions
2013
2012
Fair value
Grant date
Share price at grant date
Life of award
Expected dividends
118.1p
25 September 2012
118.1p
3.4 years–4.4 years
—
—
—
—
—
—
During the year, 7,055,000 2011 LTSP (30 June 2012: nil) shares were awarded. These awards have no exercise price. The awards vest
in full based on performance conditions measured over the period ending 30 June 2016. The awards have the same performance
targets as the awards to Directors under the 2011 LTSP and have been valued using a Monte Carlo model. Further information
on the performance targets of the awards can be found on page 77 of the Directors’ Remuneration Report.
The interests of Senior Management under the 2011 LTSP are as follows:
Outstanding at beginning of the year
Granted during the year
Outstanding at the end of the year
Exercisable at the end of the year
2013
Weighted
average
exercise price
(pence)
—
—
—
—
Number
—
7,055,000
7,055,000
—
The awards outstanding at 30 June 2013 have no exercise price and a weighted average remaining contractual life of 3.4 years
to 4.4 years.
Employee and Director 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. There were no new employee share options granted during the year (30 June 2012: nil).
The share-based payment expense has been calculated using the Black-Scholes model. All share options are equity-settled.
126
Petra Diamonds Limited Annual Report and Accounts 2013
27. Share-based payments continued
Employee and Director share options continued
The terms and conditions of the options in issue, whereby all options are equity settled by delivery of shares, are as follows:
Employees and Directors entitled
Grant date
Number
Vesting period
Options granted
to Directors
Options granted to
Senior Management
16 June 2005
31 May 2006
12 March 2009
30 September 2009
17 March 2010
28 January 2005
27 November 2005
31 May 2006
31 July 2006
12 March 2009
30 September 2009
17 March 2010
25 November 2010
2,000,000
1,000,000
2,500,000
1,150,000
1,150,000
12,500
48,098
97,544
210,608
2,539,668
1,568,006
2,395,003
483,333
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
1/3 per annum from grant date
25% from grant date for 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
Remaining life
of options
(years)
2
3
6
7
7
2
2
3
5
6
7
7
8
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
2013
2012
Weighted
average
exercise price
(pence)
49.5
58.2
—
42.1
—
52.9
52.5
Weighted
average
exercise price
(pence)
47.8
46.4
—
39.6
—
49.1
49.5
Number
17,079,428
(78,050)
—
(1,846,618)
—
15,154,760
14,993,167
Number
19,583,923
(188,333)
—
(2,316,162)
—
17,079,428
14,506,959
The weighted average market price of the shares in respect of options exercised during the year was 108.9 pence (30 June 2012:
170.4 pence). The options outstanding at 30 June 2013 have an exercise price in the range of 27.5 pence to 96.0 pence (30 June 2012:
27.5 pence to 96.0 pence) and a weighted average remaining contractual life of five years (30 June 2012: six years).
Employees received cash payments of US$43,278 (30 June 2012: US$nil) 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$36,926 (30 June 2012: US$nil) in the
Consolidated Income Statement.
Warrants
During the year 2,100,000 (30 June 2012: 3,464,259) warrants were exercised with an option price of 90 pence (30 June 2012:
80 pence to 100 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
Exercised during the year
Granted during the year
Outstanding at the end of the year
Exercisable at the end of the year
2013
2012
Weighted
average
exercise price
(pence)
95.0
90.0
—
97.5
97.5
Weighted
average
exercise price
(pence)
93.9
92.1
—
95.0
95.0
Number
6,300,000
(2,100,000)
—
4,200,000
4,200,000
Number
9,764,259
(3,464,259)
—
6,300,000
6,300,000
The warrants outstanding at 30 June 2013 have an exercise price in the range of 95 pence to 100 pence (30 June 2012: 90 pence
to 100 pence) and a weighted average remaining contractual life of one year (30 June 2012: two years).
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Annual Report and Accounts 2013 Petra Diamonds Limited
127
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
28. Related parties
Subsidiaries, associates and joint ventures
Details of subsidiaries and associates are disclosed in note 30 and note 16 respectively.
Directors
Details relating to Directors’ emoluments are disclosed in note 11 and in the Directors’ Remuneration Report on pages 71 to 81.
Details relating to Directors’ shareholdings in the Company are disclosed in the Director’s Report on page 82. Key management
remuneration is disclosed in note 11.
There are no loans to Directors or Senior Management.
During the year, a subsidiary of the Group paid US$1.7 million (R14.9 million) (30 June 2012: US$2.7 million (R22.3 million)) to Zeren (Pty) Ltd
(“Zeren”) in respect of an exclusivity agreement covering specialised plant and equipment. The cumulative amount paid to Zeren
is US$8.6 million (R85.5 million) (30 June 2012: US$8.6 million (R70.6 million)) and is shown under property, plant and equipment in
the Consolidated Statement of Financial Position. 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.
During the year, the Group paid an additional US$0.6 million (30 June 2012: US$11.2 million) to Sirius Resource Fund 1 Ltd (“Sirius”)
as part of a transaction whereby the Company acquired from Sirius 49.24% of the share capital of Nelesco. The cumulative amount
paid to Sirius is US$17.8 million. Refer note 3 for detail regarding the transaction. Mr Pouroulis is a director of Sirius Investment
Management (GP) Ltd, the general partner of Sirius Investment LP Inc, a licensed investment advisory firm.
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$25.9 million (30 June 2012: US$29.6 million) and a non-current payable due to Thembinkosi of US$24.0 million (30 June 2012:
US$26.6 million). Included in net finance expense (note 9) the Group has finance income due from Thembinkosi of US$2.5 million
(30 June 2012: US$3.2 million) and finance expense payable to Thembinkosi of US$1.2 million (30 June 2012: US$2.4 million).
These sums arise due to the funding that the Group has provided to Thembinkosi to finance its interests in Cullinan. Mr Abery
is a director of Umnotho. Mr Pouroulis and Mr Abery are beneficiaries of a trust that is a shareholder in Umnotho.
Shareholders
The principal shareholders of the Company are detailed in the Directors’ Report on page 83.
29. Significant non-cash transactions
US$ million
2013
2012
Operating activities
Depreciation of property, plant and equipment
Impairment
Decrease in provisions
Other finance expense – other
Other finance expense – unwinding of present value adjustment for rehabilitation costs
Other finance expense – post-retirement medical fund
Unrealised foreign exchange gain
Unrealised foreign exchange loss
Present value adjustment of rehabilitation provision – change in assumptions
Profit on sale of property, plant and equipment
Provision for retrenchments
Share-based payment provision
Investing activities
Non-cash capital expenditure (capitalisation of borrowing costs, employee costs)
Non-cash rehabilitation asset adjustment – change in estimate
Non-cash interest receivable on investing activity
Investing activities
Non-cash interest payable on investing activity
42.8
12.6
(0.2)
2.4
2.6
1.3
(2.0)
6.7
(1.9)
—
2.6
3.3
56.4
6.0
(8.2)
9.2
7.0
6.9
6.9
41.0
—
(0.7)
1.0
5.9
1.4
(18.2)
56.8
(4.8)
(0.1)
—
1.0
83.3
1.5
1.5
9.7
12.7
7.9
8.0
During the year the Group renegotiated new debt facilities with FirstRand Bank Limited, Absa and the IFC. These facilities
replaced all of the Group’s previous bank debt and working capital facilities. There was no cash repayment and subsequent
re-draw of the previous facilities as part of the transaction and it is therefore non-cash in nature.
During the prior year non-cash transactions were recorded, being a non-current receivable due from Senakha (the Group’s main
BEE partner at Finsch) of US$38.0 million and a non-current payable due to Senakha of US$38.0 million. These amounts arose due
to the funding that the Group provided to Senakha to finance its interests in Finsch. A further US$11.9 million of BEE non-current
receivable and payable arose on the transaction, totalling BEE funding of US$49.9 million to FDM (refer to note 3). The US$11.9 million
was non-cash and offset in the Consolidated Statement of Financial Position as an agreement is in place which permits the Group
to offset and settle on a net basis.
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Petra Diamonds Limited Annual Report and Accounts 2013
30. Subsidiaries
At 30 June 2013 the Group held 20% or more of the allotted share capital of the following significant subsidiaries:
Autumn Star Investments (Pty) Ltd1
Blue Diamond Mines (Pty) Ltd3
Crown Resources (Pty) Ltd
Cullinan Diamond Mine (Pty) Ltd
Cullinan Investment Holdings Ltd
Dancarl Diamonds (Pty) Ltd1
Ealing Management Services
(Pty) Ltd
Finsch Diamond Mine (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 Botswana (Pty) Ltd
Petra Diamonds Jersey Treasury Ltd4
Petra Diamonds Netherlands
Treasury B.V.4
Petra Diamonds Southern Africa
(Pty) Ltd
Premier Rose Management
Services (Pty) Ltd
Sedibeng Diamond Mine JV5
Star Diamonds (Pty) Ltd
Wilcroft Company Ltd
Williamson Diamonds Ltd
Country of
incorporation
South Africa
South Africa
South Africa
South Africa
British Virgin Islands
South Africa
South Africa
South Africa
South Africa
United Kingdom
Unincorporated JV
Unincorporated JV
South Africa
South Africa
Botswana
Jersey
Class
of share
capital held
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Netherlands
Ordinary
South Africa
Ordinary
South Africa
Unincorporated JV
South Africa
Bermuda
Tanzania
Ordinary
Ordinary
Ordinary
Ordinary
Direct
percentage
held 2013)2
Direct
percentage
held 2012
40%
100%
100%
74%
100%
40%
100%
74%
74%
100%
74%
70%
100%
100%
100%
100%
100%
100%
100%
74.5%
74%
100%
75%
Nature of business
Mining and exploration
Mining and exploration
Mining and exploration
Mining and exploration
Investment holding
Mining and exploration
Services provision
Mining and exploration
Mining and exploration
Investment holding
Mining and exploration
Mining and exploration
Mining and exploration
Investment holding
Exploration
Treasury
Treasury
40%
100%
100%
74%
100%
40%
100%
74%
74%
100%
74%
70%
100%
100%
100%
—
—
100%
Services provision
100%
74.5%
74%
100%
75%
Services provision
Mining and 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. The Group increased its effective interest in Cullinan (77.03%), Finsch (82.38%), Helam (86.80%), Koffiefontein (81.39%), Kimberley Underground (86.80%), Sedibeng JV (87.06%)
and Star (86.80%) through its investment in Nelesco (refer to note 3).
3. The Company owns 13.33% of Re Teng Diamonds (Pty) Ltd, through Blue Diamond Mines (Pty) Ltd, which increases its effective interest in Koffiefontein Mine JV to 74%.
4. Petra Diamonds Jersey Treasury Ltd and Petra Diamonds Netherlands Treasury B.V. were incorporated during the current financial year.
5. The Company owns an effective 57.5% of Sedibeng JV through its investment in Messina Diamonds (Pty) Ltd and an effective 17% of Sedibeng JV through its investment
in Autumn Star Investments (Pty) Ltd.
31. 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 and Finsch 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 9.19% (30 June 2012: 8.95%), based on the average yield of South African Government long dated bonds
of 8.46% (30 June 2012: 8.95%), and that salaries will be increased at 7.59% (30 June 2012: 7.77%), based on current South African
consumer price index of 6.59% (30 June 2012: 6.77%). The market value of the assets of the defined benefit scheme at 30 June 2013
is R160.4 million (US$16.2 million) (30 June 2012: R139.0 million (US$17.0 million)) and the actuarial valuation of the assets on an
ongoing basis represented 94.4% (30 June 2012: 109.0%) of the benefit of R169.9 million (US$17.2 million) (30 June 2012: R128.0 million
(US$15.7 million)) that had accrued to members allowing for expected future increases in earnings. The notional pension deficit is
R9.5 million (US$1.0 million) (30 June 2012: pension surplus R11.0 million (US$1.3 million)). The notional deficit, arising due to actuarial
losses, is not recognised given it is within the IAS 19 corridor. The pension fund values are converted using the year-end foreign
exchange rate of US$1:R9.88 (30 June 2012: US$1:R8.16).
Annual Report and Accounts 2013 Petra Diamonds Limited
129
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Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
31. Pension scheme continued
Defined benefit scheme continued
US$ million
Defined benefit obligations
Present value of funded obligations
Fair value of plan assets
Unrecognised net loss/(gain) – IAS 19 corridor/Paragraph 58
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 corridor/Paragraph 58
Net surplus for defined benefit obligations at 30 June
(Expense)/income recognised in the income statement
Current service cost
Finance expense
Expected return on assets
Recognition in terms of Paragraph 58
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 gains
Net transfers in
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 expense
Contributions by members
Actuarial losses
Net transfers in
At 30 June
Actuarial gains and losses
Actuarial gains on plan assets
Actuarial losses on plan liabilities
Analysis of plan assets
Cash
Equity
Bonds
Property
Other – offshore
130
Petra Diamonds Limited Annual Report and Accounts 2013
2013
2012
(17.2)
16.2
1.0
—
—
(0.4)
0.4
—
—
(0.4)
(1.2)
1.2
—
(0.4)
17.0
(3.0)
1.2
(1.0)
0.5
—
1.5
16.2
(15.7)
2.8
1.0
(0.4)
(1.2)
(0.1)
(2.1)
(1.5)
(17.2)
—
(2.1)
64.5%
12.1%
14.8%
3.5%
5.1%
(15.7)
17.0
(1.3)
—
—
(0.4)
0.4
—
—
(0.4)
(1.3)
1.4
(0.1)
(0.4)
19.4
(3.2)
1.4
(2.0)
0.6
0.8
—
17.0
(17.6)
2.7
2.0
(0.4)
(1.3)
(0.1)
(1.0)
—
(15.7)
0.8
(1.0)
63.4%
10.1%
17.7%
3.8%
5.0%
100.0%
100.0%
31. Pension scheme continued
Defined benefit scheme continued
US$ million
Principal actuarial assumptions
Discount rate
Expected return on plan assets
Future salary increases
Inflation
Future pension increases
Determination of estimated pension expense for the year ended 30 June 2014
(based on current accounting policy)
Member contributions
Company contributions
Benefit payments
Deferred cumulative actuarial gains/(losses)
Funded status
Net change on assets
Net change on liabilities
2013
% per annum
2012
% per annum
8.46%
9.19%
7.59%
6.59%
4.94%
0.1
0.4
(1.1)
(1.0)
(0.8)
1.5
0.7
8.95%
8.95%
7.77%
6.77%
5.08%
0.2
0.4
(2.1)
1.3
(2.4)
1.9
(0.5)
US$ million
2013
2012
2011
2010
Defined benefit obligation trends
(before Paragraph 58 and corridor)
Plan assets
Plan liabilities
(Deficit)/surplus
16.2
(17.2)
(1.0)
17.0
(15.7)
1.3
19.4
(17.6)
1.8
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 2013 date is as follows:
Male
Female
2013
15.92
20.02
18.3
(14.2)
4.1
2012
15.92
20.02
Further to the acquisition of the defined benefit fund, the Group has no experience adjustments.
32. 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 acquisitions of Cullinan and Finsch 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 regularly 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 2012
and management has reviewed the valuation report for 30 June 2013 and deemed the assumptions used at 30 June 2012 to be
appropriate for the period ending 30 June 2013. 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 7.25% (30 June 2012: 7.25%), based on the average yield of relevant South African Government
long dated bonds of 8.75% (30 June 2012: 8.75%), and that salaries will be increased at 6.25% (30 June 2012: 6.25%). The actuarial
accrued liability unfunded status of the post-employment health care liability scheme at 30 June 2013 is R108.2 million (US$11.0 million)
(30 June 2012: R96.5 million (US$11.8 million)). The post-employment health care liability values are converted using the year-end
foreign exchange rate of US$1:R9.88 (30 June 2012: US$1:R8.16).
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131
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
32. Post-retirement medical fund continued
US$ 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
Foreign exchange movement on opening balances
Arising on acquisition of subsidiary
Net expense recognised in the income statement
Net discount rate change
Change in assumptions
Changes in % continuing at post-employment
Membership changes
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
Foreign exchange movement on opening balances
Arising on acquisition of subsidiary
Net expense recognised in the income statement
Net discount rate change
Change in assumptions
Changes in % continuing at post-employment
Membership changes
Liabilities at fair market value as at 30 June
Principal actuarial assumptions
Discount rate
Healthcare cost inflation
Future salary increases
Net replacement ratio
Net discount rate
Normal retirement age (years)
Fully accrued age (years)
2013
11.0
11.0
11.8
(2.1)
—
1.3
—
—
—
—
11.0
0.3
1.0
1.3
0.3
1.0
1.3
11.8
(2.1)
—
1.3
—
—
—
—
11.0
2012
11.8
11.8
7.3
(1.7)
5.3
1.2
2.0
(2.7)
1.1
(0.7)
11.8
0.3
0.9
1.2
0.3
0.9
1.2
7.3
(1.7)
5.3
1.2
2.0
(2.7)
1.1
(0.7)
11.8
2013
%
per annum
2012
%
per annum
8.75%
7.25%
6.25%
75.00%
1.40%
60.0
60.0
8.75%
7.25%
6.25%
75.00%
1.40%
60.0
60.0
1. The principal actuarial assumptions are those assumptions used in the prior year valuation as the Group obtains a valuation report every two years. These assumptions will thus
differ to the assumptions used in note 31.
132
Petra Diamonds Limited Annual Report and Accounts 2013
32. Post-retirement medical fund continued
US$ million
Determination of estimated post-retirement medical fund expense for the year ended
30 June 2014 (based on current accounting policy)
Current service cost
Finance expense
Benefit payments
US$ million
Actuarial accrued liability
Funded status
2013
11.0
2012
11.8
2013
2012
0.4
1.0
(0.1)
2011
7.3
0.4
0.9
(0.1)
2010
5.2
Sensitivity analysis
Healthcare 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 2013
1% increase
1% decrease
11.0
—
13.3
20.9%
9.2
(16.4%)
30 June 2012
1% increase
1% decrease
11.8
—
14.3
20.9%
9.8
(16.4%)
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 2013
11.0
—
30 June 2012
11.8
—
Retirement
one year
earlier
11.6
5.4%
Retirement
one year
earlier
12.5
5.8%
Retirement
one year
later
10.4
(5.5%)
Retirement
one year
later
11.2
(5.5%)
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Annual Report and Accounts 2013 Petra Diamonds Limited
133
Five-year Summary of Consolidated Figures
For the year ended 30 June 2013
US$ million
Income statement
Revenue
Adjusted mining and processing costs1
Profit from mining activity1
Adjusted EBITDA2
Adjusted net profit/(loss) after tax3
Net profit/(loss) after tax – Group
Balance sheet
Current assets
Non-current assets
Total assets
Borrowings (short and long term)
Current liabilities
Total Equity
Movement in cash
Net cash generated from operating activities
Adjusted cash generated from/(utilised by) operating activities4
Net cash utilised in investing activities
Net cash generated by/(utilised in) financing activities
Net (decrease)/increase in cash and cash equivalents
Ratios and other key information
Basic earnings/(loss) per share attributable to the equity holders
of the Company – US$ cents
Adjusted basic earnings/(loss) per share attributable to the equity holders
of the Company – US$ cents5
Capex
Cash at bank6
2013
2012
2011
20107
2009
402.7
316.9
220.6
163.7
69.3
(270.3)
(222.6)
(146.9)
(98.9)
(64.0)
138.6
122.4
48.3
27.9
173.6
827.0
1,000.6
147.0
69.5
587.4
103.3
90.3
39.6
(2.1)
151.6
839.6
991.2
69.0
51.2
76.4
67.1
34.1
59.2
413.6
558.0
971.6
90.1
47.6
67.2
70.9
69.3
70.2
87.4
404.0
491.4
64.5
32.5
665.0
699.0
290.9
7.8
(8.6)
(28.7)
(89.0)
44.8
197.4
242.2
101.7
28.7
57.3
73.0
132.8
77.2
84.6
50.9
67.8
48.8
49.0
4.6
(3.8)
(180.3)
(123.9)
(330.7)
(52.6)
(113.1)
94.0
(13.3)
(13.6)
(60.3)
349.8
70.0
21.7
17.9
95.5
(13.0)
6.30
(0.48)
12.83
22.65
(50.23)
10.31
191.2
26.2
7.82
137.3
47.3
8.41
22.30
(16.60)
110.9
324.9
25.5
34.5
36.8
11.1
The Group uses several non-GAAP measures above and as these are non-GAAP measures, they should not be considered as replacements for IFRS measures. The Company’s
definition of these non-GAAP measures may not be comparable to other similarly titled measures reported by other companies.
1. Stated before retrenchment costs, depreciation and share-based expense.
2. Adjusted EBITDA is EBITDA (profit before interest, tax and depreciation) stated before share-based expense, net unrealised foreign exchange losses, retrenchment costs,
non-recurring transaction costs and impairment charges and reversals.
3. Stated before retrenchment costs, impairment charges and reversals, non-recurring transaction costs and net unrealised foreign exchange losses.
4. Adjusted operating cashflow stated before the movement in year end diamond debtors, excluding unrealised foreign exchange translation movements.
5. Stated before retrenchment costs, impairment charges and reversals, non-recurring transaction costs and net unrealised foreign exchange losses.
6. Cash at bank comprises unrestricted cash and restricted cash balances.
7. 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 Ltd from Al Rajhi Holdings W.L.L., Petra consolidated 100% of revenue and 26% minority interests in line with IFRS.
134
Petra Diamonds Limited Annual Report and Accounts 2013
Shareholder and Corporate Information
Petra Diamonds Limited
Registered office
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Group management office
Elizabeth House
9 Castle Street
St. Helier
Jersey JE4 2QP
Tel: +44 1534 700 000
Bankers
Barclays Bank plc
1 Churchill Place
Canary Wharf
London E14 5HP
Tel: +44 20 7114 7200
www.barclays.co.uk
Solicitors
Bermuda – Conyers Dill & Pearman
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Tel: +1 441 295 1422
United Kingdom – Memery Crystal LLP
44 Southampton Buildings
London WC2A 1AP
Tel: +44 20 7242 5905
Jersey – Ogier
Ogier House
The Esplanade
St. Helier
Jersey JE4 9WG
Tel: +44 1534 504 000
Joint financial advisers and stockbrokers
Canaccord Genuity Limited
88 Wood Street
London EC2V 7QR
Tel: +44 20 7523 8000
www.canaccordgenuity.com
RBC Capital Markets
Riverbank House
2 Swan Lane
London EC4R 3BF
Tel: +44 20 7653 4000
www.rbccm.com
Company registration number
EC 23123
Company Secretary
JTC Management Limited
Elizabeth House
9 Castle Street
St. Helier
Jersey JE4 2QP
Tel: +44 1534 700 000
PR Advisers
Buchanan
107 Cheapside
London EC2V 6DN
Tel: +44 20 7466 5000
www.buchanan.uk.com
Registrar
Capita Registrars (Jersey) Limited
12 Castle Street
St. Helier
Jersey JE2 3RT
Tel: UK: 0871 664 0300 (calls cost 10p a minute plus network
extras, lines are open 8.30am-5.30pm Mon-Fri GMT)
International: +44 208 639 3399
Website: www.capitaregistrars.com
Email: ssd@capitaregistrars.com
Auditor
BDO LLP
55 Baker Street
London W1U 7EU
Tel: +44 207 486 5888
Annual Report and Accounts 2013 Petra Diamonds Limited
135
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Shareholder and Corporate Information
continued
Financial calendar
Accounting period end
FY 2013 Trading Update
FY 2013 Preliminary Results
2013 Annual Report published
Q1 FY 2014 Interim Management Statement
Annual General Meeting
Interim accounting period end
H1 FY 2014 Trading Update
FY 2014 Interim results
Q3 FY 2014 Interim Management Statement
30 June 2013
30 July 2013
16 September 2013
11 October 2013
November 2013
28 November 2013
31 December 2013
January 2014
February 2014
May 2014
Internet
The Group operates a website which can be found at
www.petradiamonds.com. This site is regularly updated to
provide relevant information about the Group. In particular
all of the Group’s announcements and presentations are
made available and there is a dedicated Investors section
at www.petradiamonds.com/investors.
Registrar
Any enquiries concerning your shareholding should be
addressed to the Company’s Registrar. The Registrar should
be notified promptly of any change in a shareholder’s
address or other details.
Shareholder Portal
The Company has set up an online Shareholder Portal,
www.capitashareportal.com, which offers a host of
shareholder services online.
Investor relations
Requests for further copies of the Annual Report and Accounts,
or other investor relations enquiries, should be addressed
to the investor relations team in the London office on
+44 20 7494 8203 or InvestorRelations@petradiamonds.com.
eCommunications
Shareholders have the flexibility to receive communications
from Petra electronically, should they so choose, and can
update their preferences at any time either by contacting
Capita IRG or by logging into the Shareholder Portal.
Ordinary shares
There was a total of 509,601,048 ordinary shares in issue
at 30 June 2013.
Share price information
The latest information on the ordinary share price is
available in the Investors section of the corporate website
at www.petradiamonds.com/investors/share-price-information.
Closing share prices for the previous business day are quoted
in most daily newspapers and, throughout the working day,
time delayed share prices are broadcast on the text pages
of the principal UK television channels.
Share dealing services
The sale or purchase of shares must be done through a
stockbroker or share dealing service provider. The London
Stock Exchange provides a “Locate a broker” facility on its
website, which gives details of a number of companies offering
share dealing services. For more information, please visit the
Private investors section at www.londonstockexchange.com/
traders-and-brokers/private-investors/home/private-
investors.htm.
Please note that the Directors of the Company are not seeking
to encourage shareholders to either buy or to sell shares.
Shareholders in any doubt about what action to take are
recommended to seek financial advice from an independent
financial adviser authorised pursuant to the Financial
Services and Markets Act 2000.
Shareholder security
Shareholders are advised to be wary of any unsolicited advice,
offers to buy shares at a discount, or offers of free reports
about the Company. Details of any share dealing facilities
that the Company endorses will be included in Company
mailings or on our website. More detailed information
can be found at www.moneymadeclear.fsa.gov.uk.
136
Petra Diamonds Limited Annual Report and Accounts 2013
Glossary
“AGM”
“alluvial”
annual general meeting
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
“ Indicated
Resource”
“BEE”
black economic empowerment
“Block caving”
“calcrete”
“Bulk sample”
a method of mining in which large blocks of
ore are undercut so that the ore breaks and
caves under its own weight. The undercut
zone is initially drilled and blasted and some
broken ore is drawn down to create a void
into which initial caving of the overlying ore
can take place. As more broken ore is drawn
progressively following cave initiation, the
cave propagates upwards through the
orebody or block until the overlying rock
also caves and surface subsidence occurs.
The broken ore is removed through the
production or extraction level developed
below the undercut level. Once the caves
have been propagated, it is a low cost
mining method which is capable of
automation to produce an underground
“rock factory”
hardened deposits of calcium carbonate
formed in the near surface environment
in arid or semi-arid environments
a large sample for the purpose of estimating
the grade of a diamond deposit and to
produce a large enough quantity of diamonds
to enable an evaluation of diamond quality
“ Inferred
Resource”
“kimberlite”
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
“Capex”
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”
“ deflation soil
sampling”
the lowest grade of mineralised material
considered economic to extract; used
in the calculation of the ore reserves
in a given deposit
sampling the topmost soil layer to obtain
heavy mineral grains that have been
concentrated by wind action in arid or
semi-arid environments
“diamondiferous” containing diamonds
“drawpoint”
an opening through which ore from a higher
level can fall and subsequently be loaded
“EBITDA”
“EPS”
“fissure”
“FY”
“grade”
earnings before interest, tax, depreciation
and amortisation
earnings per share
informal term for a narrow, vertical,
vein-like kimberlite dyke
Petra’s 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
“iNED”
independent non-executive director
“ kimberlite
indicator
minerals”
minerals that can help locate the presence
and establish the diamond-bearing
potential of kimberlite
“Kt”
“LHD”
“LOM”
“LTI”
“LTIFR”
thousand tonnes
load haul dumper
life of mine
lost time injury; a work-related injury
resulting in the employee/contractor being
unable to attend work on the day following
the injury
lost time injury frequency rate; the number
of LTIs multiplied by 200,000 and divided
by the number of hours worked
“macrodiamond”
diamonds too large to pass through
a 0.5mm screen
“Mctpa”
“Mcts”
“ Measured
Resource”
million carats per annum
million carats
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
Annual Report and Accounts 2013 Petra Diamonds Limited
137
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Glossary
continued
“microdiamond”
diamonds small enough to pass through
a 0.5mm screen
“Mini bulk sample” a large sample, commonly in the order of
50 tonnes to 100 tonnes, for the purpose
of determining the exploration potential
of a diamond prospect
“Mt”
“Mtpa”
“NED”
“NGOs”
“open pit”
“orebody”
million tonnes
million tonnes per annum
Non-Executive Director
non-governmental organisations
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
“overburden”
material of little or no value, which overlies
rock formations of economic interest
“pa”
“PCBC”
per annum
a highly sophisticated software package
commonly used by companies involved in
block caving for mine planning purposes
“petrographic”
referring to the detailed description
of rocks, usually under the microscope
“ Probable
Reserves”
the economically mineable material derived
from a measured and/or indicated diamond
resource. It is estimated with a lower level
of confidence than a proven reserve. It is
inclusive of diluting materials and allows
for losses that may occur when the material
is mined. Appropriate assessments, which
may include feasibility studies, have been
carried out, including consideration of,
and modification by, realistically assumed
mining, metallurgical, economic, marketing,
legal, environmental, social and governmental
factors. These assessments demonstrate at
the time of reporting that extraction is
reasonably justified
“Proved Reserves” the economically mineable material derived
from a measured diamond resource. It is
estimated with a high level of confidence.
It is inclusive of diluting materials and
allows for losses that may occur when the
material is mined. Appropriate assessments,
which may include feasibility studies, have
been carried out, including consideration of,
and modification by, realistically assumed
mining, metallurgical, economic, marketing,
legal, environmental, social and governmental
factors. These assessments demonstrate
at the time of reporting that extraction
is reasonably justified
“raiseboring”
“rehabilitation”
a method of developing vertical or
inclined excavations by drilling a pilot
hole, then reaming the pilot hole
to the required dimensions
the process of restoring mined land to
a condition approximating to a greater
or lesser degree its original state
“re-crush system” processes oversized material from the
Primary crushers, further reducing it in size
138
Petra Diamonds Limited Annual Report and Accounts 2013
“ROM”
“RSA”
“shaft”
“SHE”
“SLC”
“slimes”
run-of-mine
Republic of South Africa
a vertical or inclined excavation in rock for
the purpose of providing access to an orebody.
Usually equipped with a hoist at the top, which
lowers and raises a conveyance for handling
workers and materials
safety, health and environment
sub-level cave
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
“stockpile”
a store of unprocessed ore
“sub-level caving” follows the same basic principles as the
Block Caving mining method, however work
is carried out on intermediate levels; the
caves are smaller in size and not as long
lasting. This method of mining is quicker
to bring into production than block caving,
as the related infrastructure does not
require the level of permanence needed for
a long-term block cave. This method is used
to supplement Block Caving in order to
provide production flexibility
“tailings”
material left over after processing ore
“tailings dump”
“tonnage”
dumps created of waste material from
processed ore after the economically
recoverable metal or mineral has
been extracted
quantities where the tonne is an appropriate
unit of measure; typically used to measure
reserves of target commodity bearing
material or quantities of ore and waste
material mined, transported or milled
“tpa”
“tpm”
tonnes per annum
tonnes per month
“ trackless
equipment”
equipment that does not operate
on tracks (rails)
“type II diamonds” type II diamonds have no measurable
nitrogen impurities, meaning they are often
of top quality in terms of colour and clarity.
$ type IIa diamonds make up 1-2% of all
natural diamonds. These diamonds are
almost or entirely devoid of impurities,
and consequently are usually colourless.
Many large famous diamonds, such as the
Cullinan and the Koh-i-Noor, are Type IIa.
$ type IIb make up about 0.1% of all natural
diamonds. In addition to having very low
levels of nitrogen impurities comparable
to Type IIa diamonds, Type IIb diamonds
contain significant boron impurities
which is what imparts their blue/grey
colour. All blue diamonds are Type IIb,
making them one of the rarest natural
diamonds and very valuable.
“ underground
pipe mines”
Petra’s underground kimberlite pipe mines,
being Finsch, Cullinan, Koffiefontein and
Kimberley Underground
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