Foundations for the future
Petra Diamonds Limited
Annual Report and Accounts 2019
Petra Diamonds is a
leading independent
diamond mining group
and a consistent
supplier of gem-quality
rough diamonds to the
international market
Petra is quoted with a premium listing on the Main
Market of the London Stock Exchange under the ticker
‘PDL’, with US$650 million loan notes due in 2022 listed on
the Global Exchange Market of the Irish Stock Exchange.
It is a constituent of the FTSE4Good Index.
Highlights1
ROM TONNES
Mt
13.3 +10%
ROM CARATS
Mcts
3.8 +3%
REVENUE
US$ million
463.6 -6%
PROFIT FROM MINING
ACTIVITIES US$ million
161.1 -21%
NET LOSS AFTER TAX2
US$ million
258.1 -27%
NET DEBT
US$ million
564.8 +8%
ORE PROCESSED
Mt
14.9 +9%
ROUGH DIAMOND
PRODUCTION Mcts
3.9 +1%
OPERATIONAL FREE CASHFLOW
US$ million
70.5
ADJUSTED EBITDA
US$ million
153.0 -22%
ADJUSTED LOSS PER SHARE3
US$ cents per share
2.63
NET DEBT TO EBITDA
Ratio
3.9
1. Certain alternative performance measures (“APMs”) have been used in this report.
See page 156 for an explanation of relevance as well as their definition.
2. Including non-cash impairment charge of US$246.6 million.
3. From continuing operations.
Strategic Report
IFC Highlights
02 At a Glance
04 Chairman’s Statement
07 Chief Executive’s Statement
10 Our Business Model
12 Stakeholder Engagement
15 Our Market
20 Our Strategy
22 Key Performance Indicators
24 Financial Review
28 Operational Review
30 Finsch
32 Cullinan
34 Koffiefontein
35 Williamson
36 Risks Overview
38 Sustainability
Corporate Governance
50 Chairman’s Introduction
to Governance
52 Board of Directors
54 Corporate Governance Statement
65 Report of the Audit & Risk Committee
71 Viability Statement
72 Risk Management
76
78 Report of the Health, Safety
Report of the Nomination Committee
and Environmental Committee
80 Report of the Social, Ethics &
Diversity Committee
82 Directors’ Remuneration Report
Financial Statements
96 Directors’ Responsibilities Statement
97 Independent Auditors’ Report
104 Consolidated Income Statement
105 Consolidated Statement
of Other Comprehensive Income
106 Consolidated Statement
of Financial Position
107 Consolidated Statement of Cashflows
108 Consolidated Statement
of Changes in Equity
109 Notes to the Annual
Financial Statements
Supplementary Information
156 Alternative Performance Measures
157 Five-year Summary
of Consolidated Figures
158 FY 2019 Summary of Results
and Non-GAAP Disclosures
159 Petra’s Partners
161 FY 2019 Operations Results Tables
163 Debt Facilities Information
165 FY 2019 Resource Statement
168 Shareholder and Corporate Information
172 Glossary
Petra recovered a 20.08 carat Type IIb
blue diamond at the Cullinan mine on
23 September 2019, demonstrating that
the mine remains a significant source
of rare blue diamonds.
petradiamonds.com
Sustainability Report
petradiamonds.com/sustainability
At a Glance
Our purpose is to unearth the world’s most
beautiful product as responsibly and efficiently
as possible, to generate long-term value for
each of our stakeholders
One of the world’s largest
diamond resources
Prioritising safe and sustainable
business practices
GROUP RESOURCES Mcts
248
GROUP RESERVES Mcts
43
GROUP LTIFR
0.21
MAJOR ENVIRONMENTAL
INCIDENTS
0
The careful management of these resources will ensure
sustainable mining operations for the Group.
Our people are integral to our success and ensuring a safe
workplace is our first priority. Our goal is to put in place the
right actions today which will benefit the future of a project
and encourage its long-term sustainability in order to benefit
all our stakeholders.
FY 2019 Resource Statement Pages 165 to 167
Sustainability Pages 38 to 47
Concentrating on efficiencies
The right team, skills,
experience and culture
PROFIT FROM MINING
ACTIVITIES US$ million
161.1
OPERATIONAL FREE
CASHFLOW US$ million
70.5
ADJUSTED EBITDA
US$ million
153.0
EMPLOYEES
WORLDWIDE
3,833
CONTRACTORS
WORLDWIDE
2,955
CORPORATE OVERHEAD
US$ million
7.7
BOARD GENDER DIVERSITY
%
22
TRAINING AND DEVELOPMENT
SPEND US$ million
6.6
Identifying and delivering operational efficiencies across all
aspects of the business are central to the Group’s focus on
generating free cashflow. This is achieved by maximising
throughput, improving organisational structures and sharing
services across mines, maintaining disciplined on-site and
corporate cost control and ensuring ore-handling and
processing efficiencies.
The Group has built a team with great depth of experience in
the management of diamond mining operations, particularly
underground operations, as well as expertise operating in
Sub-Saharan Africa. Petra fosters a culture where management
is empowered to make decisions suitable to the relevant
operations and where innovation and creativity in the workplace
are encouraged and rewarded. The Company has further
strengthened its Board and Management in FY 2019.
Our Strategy Pages 20 and 21
Our People Page 43
02
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Focused on Africa
Petra has a diversified portfolio incorporating interests in
three underground producing mines in South Africa and one
open pit producing mine in Tanzania.
1
Finsch
A major producer with
top-quality infrastructure
2
Cullinan
One of the world’s most
celebrated diamond mines
PRODUCTION Mcts
1.8
REVENUE US$ million
170.2
PRODUCTION Mcts
1.7
REVENUE US$ million
171.4
3
Koffiefontein
One of the world’s top
kimberlite mines by
average value per carat
PRODUCTION Mcts
0.06
REVENUE US$ million
28.9
4
Williamson
Tanzania’s only significant
diamond producer
PRODUCTION Mcts
0.4
REVENUE US$ million
93.0
Operational Review Pages 28 to 35
Delivering from a diversified portfolio
Petra has a broad production profile, with its mines providing
the full spectrum of diamonds, including rare and highly prized
coloured diamonds. With increasing access across the full
footprint of the sub-level and block caves, six consecutive
quarters of consistent production have been achieved as
Petra transitions from a period of high capital investment
to a steady operational phase.
2
6
10
37
20
45
43
– Cullinan
3.9 Mcts
US$463.6m
REVENUE BY MINE %
PRODUCTION BY MINE %
– Finsch
– Koffiefontein – Williamson
45+
– Koffiefontein – Williamson37+
97+
– Run of mine (“ROM”)
– Tailings/other
– Cullinan
– Finsch
Our Market Pages 15 to 19
%
97
37
3
97% OF PRODUCTION FROM ROM
Annual Report and Accounts 2019 Petra Diamonds Limited
03
43
+
2
+
10
+
E
37
+
6
+
20
+
E
3
+
E
Chairman’s Statement
Solid foundations
Our team
I would like to thank Johan Dippenaar for his enormous
contribution to the development of Petra in his role as CEO
and for the endless dedication and commitment he showed
towards the Company. We are deeply grateful for all the work
he has done over the past 14 years.
FY 2019 has been a year of bedding down the development of
our assets and further setting them up for ongoing sustainable
and steady production. In order to reflect and reinforce this
shift in focus from heavy capital expenditure and development
towards consistent production into the future, we have
implemented changes in our Board and management team.
We were delighted to welcome our new CEO, Richard Duffy,
to the Board in April. With his impressive depth of global
mining experience, both in open pit and underground mining,
his unwavering focus on safety, delivery, productivity and
community relations, as well as his financial background,
not to mention his passion for Africa, I am confident that
he is the right leader to take Petra forward.
We strongly believe that all forms of diversity are essential
in building effective teams. Further refining the Board’s blend
of expertise, skills and diversity therefore forms an important
part of our succession planning and I am pleased that we took
strong steps during the Year towards these goals with the
appointment of Varda Shine and Bernard Pryor as independent
Non-Executive Directors. Further detail on the experience of
our Directors can be found on pages 52 and 53. The delivery
of our succession plans is still ongoing. We recognise that the
diversity of our entire team still needs widening to enable Petra
to benefit from the breadth of thought, opinion, perspective
and experience this offers. We are in the process of reviewing
relevant policies to ensure we have an appropriate diversity
policy in place as part of our overall sustainability framework.
Purpose, values and culture
At the heart of our business is our purpose to unearth the
world’s most beautiful product as responsibly and efficiently
as possible. In doing so, we aim to contribute to the sustainability
of our industry and deliver long-term value to each of our
stakeholders. This purpose is underpinned by our culture, which
bases itself on the five core values opposite. Leading from the
top, the Board and management team do their best to ensure
that we are living these values.
At the core of our culture is our focus on safety and this is
the most critical behavioural value we drive on a daily basis.
Demonstrating our commitment to achieving zero harm, the
Board signed an official health and safety pledge during the
Year; see case study on page 6. We aim to be an open, transparent
and collaborative organisation, in which innovative ideas and
solutions are encouraged. We try to afford everyone the
opportunity to acknowledge and learn from their mistakes,
thereby enabling the team to rectify errors and
implement solutions.
We invest in our operations and our people and always strive
to look for ‘a better way to do things’. We cultivate a spirit
of creativity as well as innovative and lateral thinking. It is our
firm belief that it is our willingness to be different that enables
Petra to achieve results. I hope this approach continues for the
years to come – in fact, it is vital that it does if Petra is to
negotiate the fast-changing demands of a different, changing
and technology-driven world.
As one of the world’s top five independent diamond producers
for the last decade we have travelled a long, exciting and, at
times, difficult road with both achievements and challenges
along the way. We are cognisant of some mistakes made but,
having reached the final stages of our development programmes,
we aim to heed lessons learnt and adapt where necessary to
ensure Petra’s successful future.
I will soon be stepping down as Chairman of Petra and therefore
would like to reflect on the Company’s remarkable journey from
a junior explorer to a leading independent diamond miner, with
production of 3.9 Mcts. On 30 April 1997, Petra was the first
diamond company, and one of the few natural resources stocks,
to list on London’s junior AIM market. Following its merger with
Crown Diamonds in 2005, the Company then went on to acquire
a number of the world’s significant diamond mines, achieve a
premium listing on the Main Market and embark on an ambitious
development programme, committing ca. US$1.7 billion in
investment to effectively create new mines with sustainable
mine plans.
Stakeholder engagement
Central to the running of a sustainable, long-term business is
effective stakeholder engagement and this is something we value
highly at Petra. Against the backdrop of continued operating and
regulatory challenges in FY 2019, we continue to co-operate closely
with stakeholders to help us navigate the best ways forward.
In Tanzania, we remain in discussions in relation to overdue VAT
receivables and the blocked parcel of diamonds. We also continue
to seek and take on board feedback from shareholders and are
very seriously committed to regaining trust.
Reflecting on the strengthening focus on Board/workforce
engagement in the UK governance environment, Petra aims to
introduce clear and formal systems to facilitate this. That said,
I am pleased to emphasise that, on an individual level, the
Directors already set aside significant time to visit operations,
meet employees and listen to their views and opinions.
04
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
At the heart of our business is our
purpose to unearth the world’s most
beautiful product as responsibly and
efficiently as possible.
This purpose is underpinned by our
culture, which bases itself on our
five core values.
Adonis Pouroulis
Non-Executive Chairman
Diamonds do good – driving change
A fundamental goal of our business as we move forward is
working towards a positive net impact. This will entail innovation
and optimisation at all levels of our operations as we aim to
produce in the most sustainable way. Our aim is to add, rather
than purely extract, value in all spheres and we are continuously
looking at ways to improve our environmental and societal
impact. I cover this in more detail in our Sustainability Report.
Supporting the sustainability of our industry, enhancing its
positive perception and promoting demand are priorities for
Petra. This is a cyclical industry and, whilst we are currently seeing
very challenging trading/conditions, the overarching medium-
to long-term supply demand dynamics remain intact, with notable
supply constraints on the horizon as a result of the closure of
various mines. The diamond industry has previously weathered
storms and continued its overall upward trajectory with far
less volatility than that witnessed in other materials. However,
we are not complacent and take our obligations as a diamond
producer seriously. One of the ways we look to do this is via
our membership with the Diamond Producers Association (“DPA”).
We are also working on some interesting collaborations to further
enhance the awareness of our operations and provenance of
our diamonds. We have a partnership with Boodles for which
it is branding jewellery with a letter ‘C’ to mark the unique
heritage of the contained diamonds, signifying they come
from our Cullinan mine. We are also working with Harvard
University on a study that aims to trace the origins of
Type II diamonds and their kimberlite host rock at Cullinan.
An important part of our contribution to the industry is our
continued emphasis on strong governance, and I discuss this,
along with our consideration of the new UK Corporate
Governance Code, on pages 50 and 51.
The role of synthetic diamonds in our industry is a much
debated topic at present and therefore I feel it important to
underline our determination to address any challenges in this
sphere head on. We believe that, with the correct identification
and classification, synthetic diamonds and natural diamonds
can coexist, with the former establishing a smaller, secondary
market. Through its ASSURE programme, the DPA is working to
independently and objectively test the performance of diamond
verification instruments, which we believe is an important step
in ensuring the accuracy of identification. That said, we have
confidence in consumers’ affinity for natural diamonds – one
of nature’s most beautiful and enduring creations, formed over
millions of years and given to celebrate some of life’s most
special moments. Fundamental to their value is their scarcity,
character and provenance and we therefore expect them to
continue to command a significant premium to the synthetic
diamonds segment.
Our values in action
Petra’s core values underpin everything we
do and we have used these throughout
our reporting to demonstrate how we
are living our values.
Let’s do no harm
Petra considers the health and safety of
its employees, and care for the environment,
as its top priorities. Management’s focus on
a zero harm environment requires a zero
tolerance approach for any action that
results in potential injury to employees.
Let’s make a difference
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 which aim to
stimulate local socio-economic development,
as well as by upholding high standards of
environmental stewardship.
Let’s do it right
Petra places a high priority on ethical
conduct. The Company believes in the
responsible mining and sale of its diamonds,
and will only operate in countries which are
members of the Kimberley Process. As a
legitimate diamond miner with operations
in South Africa and Tanzania, 100% of Petra’s
production is fully traceable and conflict free.
Let’s take control
Petra believes that employees who are
empowered and accountable for their actions
work to the best of their ability, and the
Company has fostered a culture whereby
innovation and creativity in the workplace are
encouraged and rewarded. We believe that
no one knows our operations better than
our own employees and the Company
looks to leverage its internal skills base
wherever possible.
Let’s do it better
Petra strives to generate efficiencies at
its operations and applies a ‘back-to-basics’
approach in order to review and assess areas
for improvement at all times; key focus areas
are power and water usage, security and
effective use of labour. We promote a culture
of continuous improvement, in which change
is embraced and seen as an opportunity.
Using past experience to improve future
performance is integral to the
Company’s success.
Annual Report and Accounts 2019 Petra Diamonds Limited
05
Strategic Report Chairman’s Statement continued
Summary
I would like to end by stressing that it has been a true honour to
serve on Petra’s Board for the past 23 years. I move on leaving
the Company in capable hands, knowing that the team can
further deliver on the goals we set out to achieve. I see a bright
future for the business, which can now focus on maximising
the potential of its well-diversified and high-quality asset
base. With the heavy capital investment phase largely behind
us, I believe that Petra is well positioned, with the right
collaborative, experienced and capable team, to further
optimise production from our diversified portfolio of mines,
thereby driving cashflow and reducing leverage.
I would like to thank each and every one of our Petra family
for their exceptional contribution to what is truly a unique
story. I know I speak on behalf of all the Board in also showing
our sincere gratitude for the support of our customers, investors,
communities, governments and suppliers – it has been a
privilege to share this journey with you. The search for Petra’s
next Chairman is well underway and I intend to step down by
the end of Q3 FY 2020.
Adonis Pouroulis
Non-Executive Chairman
14 October 2019
Putting safety first
Celebrating our diamonds
STRATEGY IN ACTION
VALUES IN ACTION
STRATEGY IN ACTION
VALUES IN ACTION
WORK RESPONSIBLY
LET’S DO NO HARM
WORK RESPONSIBLY
LET’S DO IT RIGHT
To demonstrate our unwavering commitment to safety
at work and as part of our work to further embed a
strong safety culture throughout the organisation, the
Board signed a health and safety pledge. The pledge was
officially launched throughout the Group in Q2 FY 2019
and is an important step in leading from the top in order to
drive our target of achieving a zero harm working environment.
Cullinan holds a special place in the history of diamonds as
it is the source of some of the most spectacular gems the
world has ever seen, including the 3,106 carat Cullinan
diamond, which went on to form the two largest cut
stones in the British Crown Jewels.
Sixth generation British jeweller Boodles has entered into
a partnership with Petra to offer its customers beautiful
diamonds from the Cullinan mine, each with their own
unique heritage and a guarantee of their ethical provenance.
Marking the start of this exciting new partnership is the
Gemini Bow Ring, featuring two important Victorian
emerald cut diamonds from the legendary Cullinan mine.
Find out more at
boodles.com/boodles-and-the-cullinan-mine
06
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Chief Executive’s Statement
Well positioned to deliver
Financial position
Revenue decreased by 6% to US$463.6 million due to Petra’s
realised diamond prices being down ca. 5% on a like-for-like
basis, in line with the wider market. This pressure on pricing
resulted in our adjusted EBITDA being down 22% to $153.0 million,
with an adjusted EBITDA margin of 33%, compared to 39% last year.
One of our key focus areas continues to be the identification
and realisation of opportunities to improve cost efficiencies
across the portfolio. Petra has now effectively completed its
significant capital expenditure programme and recorded lower
operational Capex of US$81.4 million during the Year, excluding
capitalised borrowing costs (down from US$129.6 million in FY 2018
and below the Company’s FY 2019 guidance of ca. US$93 million).
We were able to mitigate the difficult pricing environment to
a certain extent by keeping a tight grip on those factors within our
control, being production, costs and capital expenditure. This
led to Petra reaching an important milestone in FY 2019, with
the generation of US$70.5 million of operational free cashflow.
This is a notable turning point for Petra and reflects both the
positive benefits of our capital investment and the transition
to steady-state operational performance across our portfolio.
Updated cashflow projections, reflecting the weaker pricing
observed in recent months, indicate sufficient headroom
from available cash balances and existing banking facilities.
The continued market weakness and its expected impact on
the Company has been discussed with the South African Lender
Group1 which has confirmed its ongoing support. Both the ZAR1
billion (ca. US$70 million) revolving credit facility and the
ZAR500 million (ca. US$35 million) working capital facility
are currently undrawn and remain available.
Following our recent review of our life of mine (“LOM”) plans,
FY 2020 Capex guidance is maintained at ca. US$43 million, while
Capex for FY 2021 and FY 2022 is guided at ca. US$45–55 million
and ca. US$60–70 million respectively. Of this, ca. US$30 million
per annum relates to sustaining Capex and the balance to
underground development at Cullinan and Finsch. A significant
portion of the FY 2021 and FY 2022 expansionary Capex is
discretionary and can be rescheduled or curtailed should
current market conditions worsen.
Further to the LOM review, the Company also completed
impairment reviews on all assets in its portfolio. The changes to
the underlying operational plans, costs and capital expenditure
assumptions did not materially change compared to earlier
reviews of this nature and thus did not indicate any impairment
on a standalone basis. However, the revised starting price
assumptions, given recent weakness in the diamond market
and a decision to use a lower real price escalator compared to
earlier assumptions, resulted in each of the four operational
assets’ carrying values being partially impaired to reflect the
latest assessment of the recoverable value. An asset-level
non-cash impairment charge of US$223.7 million has therefore
been recognised in the financial results with further detail
provided in the Financial Review section on pages 24 to 27.
Compelling opportunities – Project 2022
My first priority at Petra has been to assess the business’ capacity
to deliver free cashflow and, as a result of this exercise, we
have launched Project 2022 to identify opportunities across the
business, drive efficiencies and facilitate continuous improvement.
Project 2022 targets delivery of US$150–200 million of free cashflow
by the end of FY 2022, with delivery weighted towards FY 2021
and FY 2022 and dependent on diamond pricing.
Annual Report and Accounts 2019 Petra Diamonds Limited
07
Petra reached an important milestone
during the Year, with the generation
of US$70.5 million of operational
free cashflow.
Richard Duffy
Chief Executive
Solid operational performance, a focus on safety
and strong foundations
Whilst FY 2019 saw some challenges in terms of a relatively
volatile market, as well as the Company’s transition from capital
expansion to steady-state production, we delivered a largely solid
operational performance. As operations continue to stabilise,
the Company is well positioned for the next chapter of delivery.
Petra’s overriding concern is the health and safety of both
its employees and contractors and the Company is committed
to achieving a zero harm work environment. We aim to have a
deeply ingrained safety culture, backed up by effective systems
and processes, with managers through all levels of the business
leading by example. Our focus on this most important area
delivered a continued improvement in our lost time injury
frequency rate (“LTIFR”) to 0.21 for the Year, as opposed
to 0.23 in FY 2018.
Production of 3.9 Mcts was in line with guidance. Diamonds
produced at Cullinan and Williamson exceeded guidance, offset
by lower than expected production at Finsch and Koffiefontein.
Run of mine (“ROM”) production increased to 3.8 Mcts –
representing ca. 97% of the Group’s overall production profile.
Based on production recorded in the first two months of
FY 2020 at ca. 705 Kcts, the Group is on track to achieve its
FY 2020 target of ca. 3.8 Mcts.
Operational Review Pages 28 to 35
Strategic Report Chief Executive’s Statement continued
Compelling opportunities – Project 2022 continued
Juan Kemp (previously General Manager at Cullinan) has been
appointed Projects Executive and will work closely with the
Company’s Executive Committee to drive the delivery of Project
2022 across the Group. A Central Project Team has been established,
together with Project Teams at each of the Company’s operations,
to ensure that opportunities are captured and delivered to the
business. The Company has appointed Partners in Performance,
a global management consulting firm, to support Juan and the
Project Team.
Project 2022 is a bottom-up assessment of the business and
the areas in focus include throughput at all operations (ca. 75%
of the target), cost efficiencies (ca. 10% of the target), strategic
sourcing (ca. 5% of the target) and other initiatives (ca. 10%
of the target), such as the sale of equipment and the resolution
of the blocked parcel and VAT receivables in Tanzania. The
diagnostic phase has now been completed at both Finsch
and Cullinan and has identified a number of throughput
enhancement opportunities, scheduled to be implemented
from Q2 FY 2020. In addition, further diagnostics are being
conducted to identify opportunities at Koffiefontein and
Williamson, together with on and off-mine expenditure.
In addition to the implementation of Project 2022, Petra’s
Board and management have conducted a strategic review
of the business. In the short term, we remain firmly focused
on the rigorous execution of Project 2022, which is expected
to reduce the Company’s elevated net debt levels against the
backdrop of a challenging diamond market. Addressing this
leverage will enable us to capture future organic growth
opportunities and reposition Petra as the leading mid-tier
diamond producer.
Our Strategy Pages 20 and 21
Market overview
The diamond market environment was challenging in FY 2019,
driven by a weakening in global markets, trade tensions
between the US and China, higher than normal polished
inventories and the sustained tightening of liquidity in the
midstream. More recent unrest in Hong Kong, escalating trade
tensions between the US and China and concerns regarding
growth in some of the world’s leading economies are further
headwinds facing the diamond market in the short term.
The major producers of rough diamonds have responded to
these difficult market conditions by restricting supply to the
market (both via production cuts and the deferral of rough
purchases). This action, combined with the forthcoming
seasonally stronger jewellery retail season, should provide
some stability in the market.
In terms of supply and demand, the outlook is more positive in
the medium to longer term, which is expected to be supportive
of rough diamond prices. Global supply fell 2%2 in 2018 to
148.4 Mcts valued at US$14.5 billion (2017: 150.9 Mcts valued at
US$14.1 billion). A further tightening of supply is expected over
time due to the closure of older mines and fewer new mines
coming on stream.
Demand remained relatively stable in 2018, with global
diamond jewellery sales growing ca. 4% to US$85.9 billion
according to industry reports. In the medium to long term,
marketing spending of the DPA, which has committed an
investment of over US$70 million for generic marketing in 2019,
and others in the sector is expected to stimulate purchases
of diamond jewellery in the leading markets of the US,
China and India.
Our first sales of FY 2020 have delivered revenue of US$61.6 million,
with prices down ca. 4% on a like-for-like basis compared with
Q4 FY 2019. While demand remained solid across all assortments,
it was weaker for larger white stones. In this weaker market
environment, it is important to recognise the flexibility offered
by Petra’s diversified production portfolio, which delivers the
full range of diamonds across the demand spectrum.
Our Market Pages 15 to 19
Commitment to our people
We acknowledge that our people are integral to our success and
we continued to commit significant resources to staff training
and development (with spend of US$6.6 million in FY 2019), as
well as focusing on succession planning. Initiatives such as our
Leadership Development Programme and Women in Leadership
Programme are developing the next generation of leaders.
Stakeholder engagement is vital to the long-term success
of the business and we place great emphasis on consistent and
meaningful engagement with all our stakeholders, both internal
and external. We are therefore pleased to report stable labour
relations for the Year, as well as continued improvement in our
community engagement practices.
Contributing to our host countries
Our economic contribution to the countries and communities
in which we operate remains an important focus for the Group.
Through local employment, the payment of taxes and royalties,
procurement from local suppliers and corporate social investment,
we positively contribute to these stakeholders. Maintaining
supportive relationships and playing a positive role in our local
communities are vital to the sustainable success of our operations.
Sustainability Pages 38 to 47
Outlook
Finally, I would like to thank my predecessor, Johan Dippenaar,
who led Petra through an impressive period of growth in carrying
out substantial and at times challenging capital programmes.
Following this significant investment, the Group is now well
positioned to deliver consistent, solid and sustainable production
from its diversified portfolio of mines. With a total resource of
nearly 250 million carats, Petra has organic growth opportunities
well beyond 2030, underpinned by a strong and committed team
that understands the business, both in terms of its challenges
and opportunities.
Petra has delivered solid results in both a difficult market and
during its continued transition from a capital expansionary to
a steady-state operational phase. The focus in the short term
continues to be on driving efficiencies across the business
through Project 2022 to provide a stable, consistent operating
platform. This will be supported by an appropriate organisational
structure and cost base to further enhance our cashflow
generation and significantly reduce our net debt, providing
for successful and sustainable operations over the long term.
I look forward to continuing to build relationships both
internally and externally, with all our stakeholders, and
to leading Petra on this next stage of its journey.
Richard Duffy
Chief Executive
14 October 2019
1. The South African Lender Group comprises Absa Bank Limited (acting through its Corporate and Investment Banking division), FirstRand Bank Limited (acting through its Rand Merchant
Bank division), Investec Asset Management Proprietary Limited and Nedbank Limited (acting through its Corporate and Investment Banking division (“the Lender Group”).
2. According to the Kimberley Process Statistics.
08
Petra Diamonds Limited Annual Report and Accounts 2019
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Financial Statements
Supplementary Information
Q&A
with Richard Duffy,
Chief Executive
Q Tell us a little more about your background.
I have been in mining for most of my working life,
initially at Anglo American and then AngloGold
Ashanti. I ran AngloGold’s African operations for
five years before assuming the role of CFO in 2013,
where I was tasked with addressing a significant
balance sheet liquidity concern. In 2015, after 27 years
in corporate mining, I went to work with a small
group of colleagues as co-founder and shareholder
of a renewable energy business, Africa Energy
Management Platform (“AEMP”). AEMP, in partnership
with global player Total Eren, constructed a 15MW
solar PV project for IAMGOLD’s Essakane mine in
Burkina Faso and is working on a number of other
projects in Africa.
Q What opportunities did you see at Petra?
One of the main attractions I saw was the quality of
the Group’s asset base. Petra operates four mines with
a well-diversified production profile and a number of
organic growth opportunities, providing a significant
competitive advantage. I also consider this to be an
exciting stage of the organisation’s development;
following the substantial capital investment in Petra’s
mines and plants, we can now work on delivering
reliable, cost competitive diamond production over
the longer term.
Aside from these points, my passion for South Africa
and the African continent drives my focus on delivering
a sustainable future for this business.
Q Can you give an idea of your first impressions
of Petra?
I have been very impressed by the capable and
experienced teams in place across our operations and
broader business. The Company is well positioned to
deliver on this recapitalisation programme, having
now established a solid foundation from which
to move forward. I have been impressed with the
elements of Petra’s culture I have seen so far, which
align well with the five values underpinning our
actions. The Petra team displays a ‘can do’ attitude,
enabling us to punch above our weight in finding
solutions to challenges and identifying opportunities.
Q Were you surprised by anything when you joined
the Company?
I hadn’t fully appreciated the breadth of the
capital investment programme across multiple sites
simultaneously or the global legacy of the mines we
have in our portfolio of assets.
Q What are your immediate priorities?
Our most immediate and pressing challenge is to
reduce our net debt and restore confidence in our
business. There is, however, no simple, short-term fix
for this and it will require the combined effort of all
team members to work towards delivering steady
and predictable operating performance. Project 2022
is central to driving efficiencies in improving and
optimising the business to significantly enhance
our free cashflow generation.
Q What cultural elements do you value most highly?
I value open, honest and transparent communication
and believe that effective teams, where roles and
responsibilities are well defined and understood,
and where we all assume accountability for our
deliverables, produce better outcomes than individuals
on their own. I strongly believe in ‘bad news early’, to
provide time for resources to be diverted to mitigate
or resolve the underlying issues.
Annual Report and Accounts 2019 Petra Diamonds Limited
09
Strategic Report
Our Business Model
Delivering long-term value
to our stakeholders
Our purpose of unearthing the world’s most beautiful product as responsibly and efficiently
as possible underpins our business model. In doing so, we will contribute to the sustainability
of our industry and deliver long-term value to each of our stakeholders.
INPUTS AND THEIR BENEFITS TO PETRA
WHAT WE DO
Responsible leadership
Š Sustainable operations
Š Uphold the high value placed
on diamonds
Project appraisal
Central to our approach
is the identification of
the right assets, where
we can add value.
People and skills
Š Company culture
Š Productive workforce
Š Specialist skills
High-quality assets
Š Significant resources
Š Long mine lives
Š Diverse product range
Financial capital
Š Responsible capital allocation
Š Access to diversified
sources of capital
Relationships
Š Mutually beneficial partnerships
Š Effective internal and external
stakeholder engagement
Š Licence to operate
Energy and water
Š Sustainable access to energy
and water
Technology and equipment
Š Extension of mine lives
Š Optimisation of operations
Mining and
development
Petra’s operations are
focused on ‘hard rock’
kimberlite pipe orebodies.
Processing
Ore is passed through
the processing plant to
extract the diamonds
from the rock.
Sorting and sales
Rough diamonds are sorted
into parcels and then sold
through a competitive
tender process.
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Supplementary Information
WORK RESPONSIBLY
D
R
I
V
E
O
P
T
I
M
I
S
A
T
I
O
N
Our strategic
objectives to support
our business.
Our Strategy
Pages 20 and 21
NSISTENT DELIVERY
CO
HOW WE DIFFERENTIATE
STAKEHOLDER VALUE CREATION
Š Petra’s technical team has decades of specialist experience
in the appraisal and valuation of diamond orebodies.
Š The Company is able to produce the full range of diamonds
from its diversified portfolio.
Š Petra focuses on long-life assets with the potential to
generate significant cashflow and structures its operations with
the long-term viability of the project in mind.
Š Safety is our number one priority and ingrained
in everything we do.
Š Hard rock orebodies can generally provide for much
better predictability and long-term planning than
alluvial deposits.
Š Strong operations team, with significant experience
in the management, mining and development
of diamond orebodies.
Š Petra is focused on value, rather than volume produced.
Š Plant processes are set to optimise revenue generation from
each individual mine’s orebody, by focusing on where the
value lies within its diamond population.
Š We embrace innovation and continually stay abreast
of the latest diamond processing technologies.
Š Security is managed through maintaining automated,
‘hands-off’ processes.
Š Petra runs its own diamond sales in a cost effective manner,
having developed marketing and sales expertise in house, and
therefore does not pay any sales commission to a third party.
Š Petra utilises a competitive tender process for its sales,
thereby providing a competitive pricing environment.
Š Petra’s sales are predominantly held in Johannesburg,
which encourages local participation and beneficiation,
as well as positioning South Africa as a key diamond hub
globally. Sales from Williamson are held in Antwerp.
Employees
Š Focus on safety
Š Sustainable employment
Š Culture of empowerment
Š Skills development
Š Itumeleng Petra Diamonds Employee
Trust (“IPDET”)
Š Employee health and wellbeing initiatives
Pages 42 and 43
Customers
Š Quality and consistent product offering
Š Confirmed provenance and heritage
Page 12
Shareholders/bondholders
Š Free cashflow generation
Š Future returns to investors
Page 13
Local communities
Š Job opportunities and
socio-economic upliftment
Š Efficient and responsible use
of natural resources
Š Promoting environmental awareness
Š Community health initiatives
Pages 46 and 47
Host Governments/regulators
Š Taxes and royalty payments
Š Positive impact on our countries of operation
Page 14
Suppliers
Š Benefits to local businesses and suppliers
Š Policy of sustainable local procurement
and supplier development
Pages 14 and 46
Annual Report and Accounts 2019 Petra Diamonds Limited
11
Strategic Report
Stakeholder Engagement
We aim to communicate effectively with all our stakeholders, thereby building strong
relationships which assist us in maintaining trust in our business, upholding our social licence
to operate and creating shared value.
Employees, contractors and trade unions
Customers
WHY THEY ARE IMPORTANT
Š Our people are at the centre of our business and are
integral to its success.
WHY THEY ARE IMPORTANT
Š Our customers buy the diamonds mined at our operations
and are therefore the primary source of revenue for the Group.
Š Without a skilled, productive, healthy and safe workforce,
Š Long-standing relationships with customers ensure an
Petra would be unable to implement its strategy.
ethical supply chain for our product.
HOW WE ENGAGE
Š Continuous communication with our client base
Š Open door policy and high level of business transparency
Š Full certification of our products
Š Site visits to operations
Š Industry advocacy via the DPA
HOW WE DELIVER VALUE
Š Conflict-free production
100%
Š Mcts sold
3.7 Mcts
Š DPA investment in consumer marketing for 2019
US$70 million
HOW WE HAVE CONSIDERED OUR IMPACT ON STAKEHOLDERS
AND ACTIONS TAKEN
Š We continue to encourage transparency in terms of diamond
provenance by collaborating with the Gemological Institute
of America (“GIA”) on its Diamond Origin2 programme.
Š The DPA commits significant funding to generic advertising
in order to stimulate consumer demand in the important
markets of the US, China and India.
Š Collaboration with British jeweller Boodles post-Year end
to celebrate the heritage of our Cullinan mine and the
provenance of our diamonds. A research project has also
been initiated with Harvard to better understand the
source of Cullinan’s Type II diamonds.
HOW WE ENGAGE
Š Workplace meetings and internal committees
Š Employee briefs, publications, notice boards
and electronic channels
Š Whistleblowing hotline
Š Engagement with mine forums and trade union representation
Š Employee engagement with the Board, including annual
CEO operations tour and Director sessions with employees
HOW WE DELIVER VALUE
Š Salaries, wages and other benefits
US$143.2 million
Š Employee training and development
US$6.6 million
Š Graduates of Leadership Development Programme1
138
HOW WE HAVE CONSIDERED OUR IMPACT ON STAKEHOLDERS
AND ACTIONS TAKEN
Š We launched our Women in Leadership Programme to
reflect the growing number of females in managerial
positions and support their ongoing development.
Š Progressive approach to internal communications. Regular
surveys to encourage strong employee engagement
and measure success.
Š We continuously look to embed culture and reinforce
our core values – an ethics roadshow was held to
re-emphasise ethical awareness and behaviour.
Š Continued provision of an independent whistleblowing
channel to enable employees, contractors and members
of the public to raise concerns. Issues are reported to the
Audit & Risk Committee.
1. Since inception in 2008.
2. Previously called Mine2Market.
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Shareholders and bondholders
Local communities
WHY THEY ARE IMPORTANT
Š Petra has raised financing over a number of years to enable
its development, thanks to support from the equity and
fixed income markets.
Š Clear, transparent and balanced communications are
important to enable a good understanding of our strategy,
business model and performance.
WHY THEY ARE IMPORTANT
Š The support of our local communities is an important
component of our licence to operate.
Š A positive role in the community will ensure
a sustainable future for Petra and contribute
to a favourable Company culture.
HOW WE ENGAGE
Š Regular briefings via public announcements, webcasts,
presentations and social media
Š Regular direct engagement via meetings, conferences
and site visits
Š Annual and sustainability reporting
Š Dedicated investor relations department
HOW WE DELIVER VALUE
Š Total production from FY 2006–FY 2019
29.4 Mcts
Š Total revenue from FY 2006–FY 2019
US$4.0 billion
Š Operating cashflow (before Capex) from FY 2006–FY 2019
US$1.2 billion
HOW WE HAVE CONSIDERED OUR IMPACT ON STAKEHOLDERS
AND ACTIONS TAKEN
Š Continued focused investor relations programme to ensure
sufficient engagement and provide feedback mechanisms.
Š Shareholder and bondholder feedback was communicated
to the Board and taken into account in strategic discussions.
Š Three-year Succession Plan included appointment of new
CEO and Non-Executive Directors; appointment of new
Chairman search announced.
HOW WE ENGAGE
Š Public participation processes and meetings
Š Community newsletters and local media partnerships
on socio-economic projects
Š Establishing positive relationships through ongoing
engagement with community structures
HOW WE DELIVER VALUE
Š Social and community training spend
US$1.8 million
Š Local South African community procurement spend
US$16.0 million
Š Internal and external stakeholder engagements held
93
HOW WE HAVE CONSIDERED OUR IMPACT ON STAKEHOLDERS
AND ACTIONS TAKEN
Š Decision taken to donate part of the tailings mineral
resources at Koffiefontein for artisanal mining and support
in establishing a mining and marketing process.
Š Full review of existing community feedback systems
and changes made to further integrate processes and
ensure all feedback is properly captured and addressed.
Š Continued community support provided in the form
of bursaries, scholarships, portable skills training and
school assistance.
Annual Report and Accounts 2019 Petra Diamonds Limited
13
Strategic Report Stakeholder Engagement continued
Host Governments, regulators and NGOs
Suppliers
WHY THEY ARE IMPORTANT
Š Support from Governments and regulators is required
WHY THEY ARE IMPORTANT
Š Suppliers provide the goods and services necessary to keep
for our social licence to operate.
Š Petra ensures it complies in all material respects with
relevant legislation in each of the countries in which it
operates. Where new legislation is enacted or regulations
are passed, Petra engages with Government when required.
HOW WE ENGAGE
Š Continuous consultation
Š Scheduled meetings
Š Membership of Minerals Council of South Africa
Š Regulatory site visits and audits
Š Active involvement as members of Government-initiated
forums and other consultative structures
HOW WE DELIVER VALUE
Š Taxes and royalties
US$49.9 million
Š DPA members net benefit creation1
US$16 billion
Š Estimated number of dependants on our direct employees2
ca. 40,000
HOW WE HAVE CONSIDERED OUR IMPACT ON STAKEHOLDERS
AND ACTIONS TAKEN
Š The Company closely monitors developments around
the Broad-Based Socio-Economic Empowerment Charter
for the mining industry.
Š Petra contributed to the DPA Trucost report, which
provides information on the socio-economic and
environmental impact of large-scale diamond mining.
Š Continued discussions in relation to overdue VAT
receivables and the blocked parcel in Tanzania.
our operations and expansion programmes running.
Š Dealing with suppliers who share our values is important
to Petra in order to ensure the ethical provenance of
our diamonds.
HOW WE ENGAGE
Š Supplier induction process
Š Supplier days and events
Š Local Enterprise Development centres
Š Continuous liaison
Š Open door policy
Š Engagement on Company policy and required
standards of practice
HOW WE DELIVER VALUE
Š South Africa procurement expenditure
US$199.4 million
Š Suppliers registered on eProcure Portal
ca. 2,000
Š Tanzania procurement expenditure
US$62.9 million
HOW WE HAVE CONSIDERED OUR IMPACT ON STAKEHOLDERS
AND ACTIONS TAKEN
Š Continued prioritisation of local procurement to encourage
economic development and community empowerment.
Š Supplier practices were covered in the Group-wide ethics
roadshow held in FY 2019.
Š Petra obtains warranties from its suppliers confirming that
they are not involved in unethical business practices, and
that they have internal measures in place to avoid bribery,
modern slavery, tax evasion, money laundering and human
rights abuses.
1. In 2016. Source: The Socio-economic and Environmental Impact of Large-Scale Diamond
Mining, a report by Trucost for the Diamond Producers Association – May 2019.
2. Using the accepted x10 multiplier effect for South Africa and Tanzania.
14
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Supplementary Information
Our Market
Uncertain global economic backdrop
Š Following strong growth in 2017, global GDP slowed slightly
to 3.6% in 2018 (most notably in H2), with global stock markets
recording a fall of 7.1%, according to the MSCI World Index.
Š Global growth is projected to slow further to 3.2% in 2019,
before improving to 3.5% in 2020.
Š Growth of 2.6% is expected in the United States (“US”), thanks
to robust exports and inventory accumulation, albeit with softer
domestic demand reflecting the effect of tariffs.
Š China saw a decline in growth to 6.6% in 2018, following the
implementation of regulatory measures as well as mounting
trade tensions. The IMF anticipates growth of 6.2% in 2019.
Consumer demand has been negatively influenced by the
slowing economy and the depreciation of the Chinese Yuan.
Sustained unrest in Hong Kong has further destabilised
this market.
Š Having marginally dipped in 2018, growth in India is
projected to increase to 7.0% in 2019 and 7.2% in 2020.
Š The luxury market grew 5% in 2018 to ca. EUR1.2 trillion.
Š Given the current level of global uncertainty brought about
by trade escalation risks and the potential for weakening
investment, there is a risk of forecast global growth being
negatively impacted.
Sources: IMF (July 2019 outlook), Conference Board, Bain.
Consumer confidence remains buoyant despite uncertain global backdrop
CONSUMER CONFIDENCE
140
130
120
110
100
90
80
Consumer
confidence indices
– US
– China
Aug 16
Feb 17
Aug 17
Feb 18
Aug 18
Feb 19
Aug 19
Based on Conference Board data for US and National Bureau of Statistics for China. Indices base: 1 August 2016.
Why is this relevant?
Global diamond demand growth is generally highly correlated
to global GDP growth and consumer confidence in the long term.
In spite of shorter-term global uncertainties and some risks to
the outlook, consumer sentiment remains buoyant, specifically
in the key diamond markets. However, the slowing near-term
global GDP growth outlook and growing uncertainty have the
potential to negatively impact diamond markets.
Recent industry developments
Midstream
There has been increased pressure on the midstream, with
a tightening of cutting-centre bank credit, leading to a lack
of liquidity, as well as high levels of inventory. This has been
further exacerbated by the devaluation of the Indian Rupee.
Petra’s response: Petra sells its diamonds on an open tender
basis, with participants viewing the assortments and placing
confidential electronic bids on the parcel of their choice. At
the end of the tender, the highest bidder wins the parcel. This
system suggests that bidders will only pay an amount on which
they expect to achieve a margin when reselling the diamonds.
Provenance
The diamond industry is proactively addressing the issue of
provenance and has taken various steps to assist consumers
in confidently identifying the origin of their diamonds. Digital
technologies (such as Blockchain) are contributing to increased
transparency throughout the value chain and other initiatives
are also in place to further increase confidence.
Petra’s response: We see this as a strong opportunity to
highlight the responsibility and transparency within the
industry, thereby promoting sustainable long-term demand
and protecting the value of diamonds. We are partnering with
Harvard on a study to better understand the origin of Type II
diamonds and have a collaboration with Boodles which highlights
the heritage of Cullinan and the provenance of its diamonds.
We also continue to work with GIA on its Origin programme.
Synthetic diamonds
Whilst there has been increasing commentary on synthetic
diamonds, global production is only estimated at 2 Mcts,
despite having been in existence for 60 years. According to
Bain, the retail price of gem-quality lab-grown diamonds has
nearly halved in the past two years, and wholesale prices
have dropped to one third.
Through its ASSURE programme, the DPA is working to
independently and objectively test the performance of
diamond verification instruments – read more on page 18.
Petra’s response: We believe that, with the correct identification
and classification, synthetic diamonds and natural diamonds can
coexist, with the former establishing a smaller, secondary market.
That said, we have confidence in consumers’ affinity for natural
diamonds. Fundamental to their value is their scarcity, character and
provenance and we therefore expect them to continue to command
a significant premium to the synthetic diamonds segment.
Annual Report and Accounts 2019 Petra Diamonds Limited
15
Strategic Report Our Market continued
Supply
Supply is forecast to decline in the coming years as a result
of the depletion of resources
HISTORICAL AND FORECAST GLOBAL DIAMOND SUPPLY Mcts per annum
Angola artisanals
Ekati
Argyle U/G Gahcho Kué
Udachnaya
Finsch
Orapa
Jwaneng
Peak
production
(2005)
Diavik
Catoca
Venetia
Karowe
Renard
200
150
100
50
0
A
5
4
9
1
A
0
7
9
1
A
9
7
9
1
A
4
8
9
1
A
9
8
9
1
A
4
9
9
1
A
9
9
9
1
A
4
0
0
2
A
9
0
0
2
A
4
1
0
2
F
9
1
0
2
F
4
2
0
2
F
9
2
0
2
Kimberley Process Statistics/Petra Diamonds.
Supply in 2018
Š According to Kimberley Process Statistics, whilst diamond
supply by value in 2018 increased by 2% to US$14.5 billion
(2017: US$14.1 billion), production by volume decreased by
2% to 148.4 Mcts (2017: 150.9 Mcts).
Š The decrease in production was largely due to mine closures
and lower output towards the end of mine lives. 2017
production was also respectively high as a result of a
number of projects which came on stream in late 2016.
Š Supply remains significantly below the highest year of
diamond production in 2005, where 177 Mcts was
considered to have represented ‘peak’ supply.
Source: Kimberley Process Statistics.
Impacts on supply outlook
Outlook
Š Argyle is set to close towards the end of 2020, removing
ca. 14 Mcts of annual production; it is currently the
producer of ca. 90% of the world’s pink diamonds.
Š Global rough diamond production is now widely expected to
be on a declining trend over the longer term as a result of the
depletion of existing mines.
Š Voorspoed in South Africa ceased operations in December 2018.
Š The Victor mine in Canada reached the end of its life during
Q2 2019.
Š Whilst there is some new supply coming on stream from
existing operations, it is not expected to redress the
balance of the significant supply decreases, particularly
over the longer term.
Š The success rate in diamond exploration is estimated to be
<1% with a notable lack of commercial discoveries evident.
Š Supply is forecast to steadily decrease to around 120 Mcts
in 2030.
Source: Panmure Gordon.
Petra’s strategy
Petra aims to deliver sustainable production from its diversified portfolio; the Group’s
orebodies are of significant size and collectively contain the third largest resources in the
world, suggesting relatively long lives of our mining operations. Petra is focused on
optimising its business and operations to maximise its profitability. As a result of poor
success rates in global diamond exploration, the Company does not commit material
resources to this.
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Supplementary Information
Demand
Global demographic shifts increasing purchasing power are expected
to support diamond demand over the long term
Demand remained relatively stable
Š The global consumer market for diamond jewellery
increased 4% in 2018 to US$85.9 billion.
Š The major US market, which accounts for over 50%
of demand, grew 4%.
Š Diamond jewellery sales in China, India and Southeast Asia,
accounting for ca. 30% of demand, grew by 5%.
Source: ALROSA.
Trends influencing demand
Š Increasing levels of global wealth are expected to underpin
demand for later-cycle products such as diamonds.
Š Continuing strong underlying fundamentals in the major
US market and growth in middle classes in China and India,
albeit with some downside risk on account of GDP
growth rates.
Š Sustained upsurge in ‘self-purchasing’.
Š Growing demand from online channels.
Š Continued generic marketing.
Š Potentially more spending power amongst Millennials and
Gen Z supporting diamond demand, albeit with different
consumer preferences to previous generations.
Demand backdrop
Š The global ultra high net worth individual population
is forecast to rise by 22% over the next five years.
Š Boosted by Asia’s strong economic performance, the
number of US$ millionaires is forecast to exceed 20 million
for the first time in 2019.
Š According to Brookings, global middles classes reached a
tipping point in 2018, increasing to ca. 3.8 billion people
worldwide, just over half of the world’s population, and
are expected to grow by 1.7 billion by 2030.
– Millennials (21-39)
36%
35%
– Gen Z (0-20)
WORLD POPULATION BY GENERATION – TOTAL 7.39 BILLION
– Older (40+)35+
29%
GLOBAL MILLIONAIRE
POPULATION
GLOBAL BILLIONAIRE
POPULATION
CEO Oxford Economics,
July 2018.
25m
20m
15m
10m
5m
0
3,000
2,000
1,000
0
2013
2018
2023F
2013
2018
2023F
Global Data Wealth Insight (published by Knight Frank).
DOMINANCE OF MIDDLE CLASSES EXPECTED TO SUPPORT
DEMAND FOR MASS MARKET GOODS
World population projections in 2030
6bn
5bn
4bn
3bn
2bn
1bn
0
450m
(-150m)
Poor
5.3bn
(+1.7bn)
2.3bn
(-900m)
Vulnerable
Middle class
300m
(+100m)
Rich
Projections by World Data Lab (published by Brookings). Figures in parenthesis
indicate the increase/decrease of number of people in each category by 2030.
Outlook
Š Demand is expected to continue to rise, with Bain
forecasting an average annual growth rate between 0–2%
in real value terms through to 2030.
Sources: Bain, Knight Frank, Brookings.
Petra’s strategy
As a founder member of the DPA, Petra commits annual funding towards generic diamond
marketing to support demand. Given the highly diversified nature of Petra’s portfolio, it is
capable of producing the full spectrum of diamond sizes and categories, from mass market
goods to highly sought after special stones.
Annual Report and Accounts 2019 Petra Diamonds Limited
17
Strategic Report29
+
36
+
I
Our Market continued
Our place in the market
One of the world’s largest
diamond resources
Petra accounts for 3% of supply
by value and volume
Petra has the third largest resources of global, listed diamond
producers which, combined with the significant size of our
orebodies, suggests relatively long lives of our mining
operations, with organic growth opportunities well
beyond 2030.
RESERVES AND RESOURCES Mcts
De Beers
ALROSA
Petra Diamonds
Resources (inclusive of reserves): 248 Mcts
Rio Tinto
– Reserves
– Resources
– ALROSA
– De Beers
– Rio Tinto
31%
25%
GLOBAL DIAMOND PRODUCTION BY VOLUME
– Other25+
Company Reports, Kimberley Process Statistics.
148 Mcts
– Petra
24%
12%
5%
3%
– Catoca
Petra operates in the highest margin segment of the value chain
POSITION IN VALUE CHAIN
Petra involved in:
Chain after Petra:
Diamond mining
Rough diamond
sales
Cutting and
polishing
Jewellery
manufacturing
Retail
Maintaining pipeline integrity via the ASSURE programme
The DPA has developed a universal standard to test the
performance of diamond verification instruments, which
are used to separate and/or identify diamonds from
synthetic diamonds.
Commenting on the ASSURE programme, Jean-Marc Lieberherr,
CEO of the DPA, said: “Through the ASSURE programme,
we will support the diamond trade, from independent jewellery
retailers to large diamond manufacturers, to make informed
decisions on how to ensure that undisclosed laboratory-grown
diamonds do not enter its natural diamond supply chain.”
18
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report24
+
12
+
3
+
5
+
31
+
I
Corporate Governance
Financial Statements
Supplementary Information
Market performance in FY 2019
The diamond market environment was challenging in FY 2019,
driven by a weakening in global markets, trade tensions
between the US and China, higher than normal polished
inventories and the sustained tightening of liquidity in the
midstream. More recent unrest in Hong Kong, escalating trade
tensions between the US and China, and concerns regarding
growth in some of the world’s leading economies are further
headwinds facing the diamond market in the short term. The
major producers of rough diamonds have responded to these
difficult market conditions by restricting supply to the market
(both via production cuts and the deferral of rough purchases).
This action, combined with the forthcoming seasonally stronger
jewellery retail season, which includes Thanksgiving in the US,
Christmas, Chinese New Year and Valentine’s Day, may assist
in terms of stabilising the market.
Petra’s strategy
Petra’s diversified production portfolio, which delivers the
full range of diamonds across the demand spectrum, offers a
certain amount of flexibility in volatile markets. As Petra sells
all rough diamonds on tender (other than selected large
special stones), it receives market price in its seven tenders
per year. While Petra can choose to withhold diamond lots for
sale should they not reach their reserve price, generally the
Company opts to sell all available goods and bank cashflow,
without trying to second guess future price movements.
Historical rough diamond prices
ROUGH DIAMOND PRICE INDEX – JAN 2004 TO JUN 2019
Nominal CAGR: 4.5%
400
300
200
100
0
Petra sales and prices
Š Carats sold by Petra in FY 2019 were 2% lower at 3,736,847
carats (FY 2018: 3,793,799 carats), with revenue 6% lower at
US$463.6 million (FY 2018: US$495.3 million), reflecting the
weaker diamond market. Petra’s average realised diamond
prices were ca. 5% lower, and a softening in demand was
noted across the size ranges but particularly in the lower
value, smaller stones.
Š Rough diamonds smaller than nine sieve size (smaller than
0.2 carats) account for ca. 44% of our production, however,
they account for less than 8% of our sales value.
Š Special stones continued to be recovered at Cullinan during
the Year, with the mine’s average price for FY 2019 positively
influenced by the sale of a 425 carat Type II gem quality
diamond for US$15 million and a 9.4 carat Type II blue
diamond which sold for US$5.4 million.
The first tender of FY 2020 achieved sales of US$61.6 million,
with prices down ca. 4% on a like-for-like basis compared
with Q4 FY 2019, reflecting weaker market conditions.
Demand remained solid across all assortments although
weaker for larger white stones.
DIAMOND PRICES ACHIEVED PER OPERATION
FY 2019
US$/ct
H2
FY 2019
US$/ct
H1
FY 2019
US$/ct
FY 2018
US$/ct
99
110
480
231
94
120
501
239
105
96
447
223
108
125
525
270
Mine
Finsch
Cullinan
Koffiefontein
Williamson
Outlook
4
0
n
u
J
5
0
n
u
J
6
0
n
u
J
7
0
n
u
J
8
0
n
u
J
9
0
n
u
J
0
1
n
u
J
1
1
n
u
J
2
1
n
u
J
3
1
n
u
J
4
1
n
u
J
5
1
n
u
J
6
1
n
u
J
7
1
n
u
J
8
1
n
u
J
9
1
n
u
J
Bloomberg
Š We expect the diamond market to remain challenging in
the near term. The start of the FY 2020 sales season saw
continued uncertainty in cutting centres given ongoing
unrest in Hong Kong and escalating trade tensions
between the US and China.
According to the Bloomberg rough diamond price index,
prices decreased a further 10% from Year end to 1 October.
Legacy of the Cullinan diamond mine
20.08 carat Type II blue diamond
The 425 carat D-colour Type II diamond, recovered in March 2019.
Petra recovered this 20.08 carat Type IIb blue diamond at the Cullinan mine
on 23 September 2019.
Annual Report and Accounts 2019 Petra Diamonds Limited
19
Strategic Report
Our Strategy
Stabilising and
optimising our
portfolio
We are driving the optimisation of
our diversified asset base to deliver
consistent production, enabling
sustainable revenue and free cashflow
to establish Petra as the leading
mid-tier diamond producer.
Our strategy is firmly underpinned
by our focus on safety and
sustainability, thereby ensuring
value for all stakeholders.
The way we deliver our strategy
is guided by our five values,
as detailed on page 5.
WORK RESPONSIBLY
D
R
I
V
E
O
P
T
I
M
I
S
A
T
I
O
N
NSISTENT DELIVERY
CO
Key Performance Indicators
Pages 22 and 23
Risk Management
Pages 72 to 75
Directors’ Remuneration Report
Pages 84 to 93
20
Petra Diamonds Limited Annual Report and Accounts 2019
Work responsibly
Committed to responsible development to create
value for all stakeholders
STRATEGY IN ACTION
Continued emphasis on further embedding safe working
practices, facilitating effective stakeholder engagement,
minimising our environmental impact and maximising our
societal benefits in order to ensure sustainable operations.
SAFETY
LTIFR
0.21
(FY 2018: 0.23)
PERCENTAGE OF RECYCLED
WATER USED ON MINE %
72
(FY 2018: 59%)
PERFORMANCE AGAINST FY 2019 OBJECTIVES
Š Safety remained our top priority and we again achieved
an improvement in LTIFR without any employee or
contractor fatalities
Met expectations
Š A safety campaign was implemented in accordance
with the Minerals Council of South Africa
Met expectations
Š The Company’s sustainability strategy was considered,
with a full review expected in FY 2020. An SED Committee
was formed during the Year and will oversee this review
Met expectations
COMMITMENTS AND OBJECTIVES FOR FY 2020
Š Continued commitment to safety and achieving our goal
of a zero harm workplace
Š Review the Company’s sustainability strategy, incorporating
an assessment of material risks and issues, overseen by
the SED and HSE Committees
Š Continue to engage effectively with our stakeholders
HOW WE ACHIEVE THIS
Š Strive for a zero harm workplace
Š Foster a dynamic Company culture, underpinned by our
purpose and values, in which employees are encouraged
to fulfil their true potential
Š Leverage strong relationships with our stakeholders
to support our licence to operate
Š Protect and enhance our environment
Š Uphold the high value placed on diamonds
Š Strive to go beyond compliance
KPIs
Š Safety, staff turnover, social and training spend,
water usage, carbon emissions
RISKS
Š Country and political, licence to operate, labour relations
REMUNERATION
Š HSE performance measures, SED performance measures
Strategic Report
Corporate Governance
Financial Statements
Supplementary Information
Consistent delivery
Focus on delivering steady-state operations
that generate sustainable free cashflow
STRATEGY IN ACTION
Achieving increased levels of production from undiluted
ore from the new mining areas with a continued focus
on value over volume.
TOTAL PRODUCTION
Mcts
3.9
(FY 2018: 3.8)
ROM PRODUCTION
As a % of overall production
97
(FY 2018: 95)
PERFORMANCE AGAINST FY 2019 OBJECTIVES
Š Production guidance and free cashflow generation were
achieved, but revenue was below expectations largely
due to weak diamond prices achieved
Below expectations
Š The Board and Management teams were further
augmented to ensure the optimal balance of skills and
experience for the Company’s next stage of development
Met expectations
Š The Company continued to focus on training
and development, investing US$6.6 million
Met expectations
COMMITMENTS AND OBJECTIVES FOR FY 2020
Š Focus on achieving steady-state production,
with guidance of ca. 3.8 Mcts
Š Continued evolution of our Board to drive the next
phase of the business
Š Continued employee training and development
HOW WE ACHIEVE THIS
Š Effective implementation of Project 2022 to deliver
US$150-200 million over three-year period in net free
cashflow over the next three years
Š Prioritise ‘value’ over ‘volume’ production and achieve
annual production targets
Š Ensure we have the right people and skills in place,
including appropriate Board and management structures
Š Training and development of employees; empower
operational management and employees
Š Commit the necessary long-term investment in order
to sustain and extend the lives of our assets
Š Use new technology where appropriate
to drive improvements
KPIs
Š Free cashflow generation, production, revenue, staff
turnover, training spend, TSR
RISKS
Š Diamond price, currency, country and political, mining
and production, ROM grade and product mix volatility,
labour relations, financing, licence to operate
REMUNERATION
Š Safety, free cashflow generation, production
performance measures, TSR performance measures
Drive optimisation
Driving efficiencies and improvements across
the business to enhance cashflow generation
and significantly reduce net debt, supported by an
appropriate organisational structure and cost base
STRATEGY IN ACTION
Consolidating the business via the sale of KEM JV and
ensuring the Group has the optimal management and
organisational structures to drive the next phase
of its development.
OPERATIONAL CAPEX
US$ million
81.4
(-37%)
CARBON INTENSITY
tCO2-e per carat
0.12
(-8%)
PERFORMANCE AGAINST FY 2019 OBJECTIVES
Š Operational Capex reduced significantly in line with
budget and the reducing capital expenditure profile.
Operational free cashflow of US$70.5 million
Met expectations
Š Mine operating system upgrades at Finsch were
delayed and the shaft plant interface project at
Cullinan was deferred
Below expectations
Š The sale of KEM JV was finalised but with losses recorded
Below expectations
Š Continued focus on improving our energy and water
usage per tonne
Met/
Below expectations, respectively
COMMITMENTS AND OBJECTIVES FOR FY 2020
Š Targeting Group Capex of ca. US$43 million
Š Deliver operational efficiencies and improvements across
the business according to the Project 2022 objectives to
improve free cashflow generation and reduce net debt
Š Continued focus on electricity and water efficiency
as well as carbon intensity
HOW WE ACHIEVE THIS
Š Effective implementation of Project 2022 to drive
efficiencies and improvements
Š Maximise throughput and maintain disciplined on-mine
cost control and efficient overhead structure
Š Focus on capital efficiency and continue optimisation
of portfolio and operating systems
Š Use new technology where appropriate to drive efficiencies
KPIs
Š Safety, free cashflow generation, profitability, capital
efficiency, TSR, carbon emissions and water usage
RISKS
Š Mining and production, ROM grade and product mix
volatility, labour relations, financing, licence to operate
REMUNERATION
Š Safety, free cashflow generation, profit and costs
performance measures, capital efficiency, TSR
performance measures
Annual Report and Accounts 2019 Petra Diamonds Limited
21
Strategic Report Key Performance Indicators
Petra uses various performance measures of both a financial and a non-financial nature,
which are linked to our strategic objectives, to help evaluate the ongoing performance of the
business. All Alternative Performance Measures (“APMs”) used are explained and defined on
page 156. The following performance measures are considered by management to be some of
the most important in terms of evaluating the overall performance of the Group year on year.
ROUGH DIAMOND
PRODUCTION1 Mcts
3.9 +1%
3.2
3.3
3.2
3.8
3.9
REVENUE1
US$ million
463.6 -6%
425.0
396.8
394.8
ADJUSTED EBITDA1
US$ million
153.0 -22%
495.3
463.6
195.4
139.3
151.4
142.6
153.0
15
16
17
18
19
15
16
17
18
19
15
16
17
18
19
PERFORMANCE AND TARGETS
Production increased 1% to 3.9 Mcts, in line with
guidance. FY 2020 guidance is ca. 3.8 Mcts,
with ROM production expected to remain
largely flat at 3.75 Mcts. Petra continues to
focus on value over volume and the majority
of ROM production in FY 2020 is anticipated to
come from the newly established underground
block and sub-level caves (“SLCs”), as well
as surface production at Williamson.
RISK MANAGEMENT
Realistic operational targets, based on
detailed mine production planning, with
production performance monitored closely.
PERFORMANCE AND TARGETS
Revenue decreased by 6% during the Year
due to the number of carats sold for the Year
decreasing 2% to 3.7 Mcts, as well as the
impact of a weaker diamond market and
product mix. Petra’s realised diamond prices
reduced by ca. 5% in line with market
movement during the period.
RISK MANAGEMENT
The key factors affecting revenue growth
are delivery on production targets, managing
grade volatility and product mix and diamond
prices (which are outside of the Group’s control).
PERFORMANCE AND TARGETS
Adjusted EBITDA decreased by 22%,
driven by lower diamond prices, and
represented an adjusted EBITDA margin
of 33% (FY 2018: 39%).
RISK MANAGEMENT
Rigorous operational and financial
discipline involving a comprehensive,
Board-approved annual budgeting process
and monthly monitoring.
OPERATIONAL FREE CASHFLOW
US$ million
70.5
70.5
-134.7
-150.6
-122.7
-61.3
OPERATIONAL CAPEX1,2
US$ million
81.4 -37%
274.1
288.4
226.2
SAFETY3
Group LTIFR
0.21 -9%
0.29
0.29
0.27
0.23
0.21
129.6
81.4
15
16
17
18
19
15
16
17
18
19
15
16
17
18
19
PERFORMANCE AND TARGETS
Petra reached an important milestone during the
Year, recording positive operational free cashflow
of US$70.5 million (FY 2018: US$61.3 million
outflow), reflecting the benefits of our capital
investment and the stabilisation of production
across the operations.
RISK MANAGEMENT
Strong financial and operational
management, disciplined cashflow
forecasting and strong banking and equity
relationships assist in managing liquidity.
PERFORMANCE AND TARGETS
Operational Capex (excluding capitalised
borrowing costs) reduced by 37% and was
below the Company’s FY 2019 guidance of
ca. US$93 million. This significant reduction
was in line with the effective completion
of Petra’s significant capital expenditure
programme. FY 2020 Capex is guided at
ca. US$43 million.
RISK MANAGEMENT
The Group’s annual budgeting process
includes detailed Capex requirements per
operation and is Board approved. Capex is
monitored and cashflow continually reviewed.
PERFORMANCE AND TARGETS
Group LTIFR for the Year improved further to
0.21, which is a strong achievement and broadly
in line with our ongoing target to achieve a
minimum 10% improvement in LTIFR annually.
This is a clear indication of the effectiveness
of the implemented management system.
We continue to target a zero harm
working environment.
RISK MANAGEMENT
In addition to appropriate risk management
processes, Petra has strategies, systems, effective
risk-based mitigating controls and training in
place to promote a safe working environment.
1. FY 2016–FY 2019 excludes KEM JV.
2. Excluding capitalised borrowing costs.
3. FY 2018 and before includes KEM JV; FY 2019 excludes.
4. Updated emissions reporting methodology implemented during FY 2017 means
that historical figures are not directly comparable.
22
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
STRATEGIC OBJECTIVES
WORK RESPONSIBLY
CONSISTENT DELIVERY
DRIVE OPTIMISATION
TOTAL SHAREHOLDER RETURN
Percentage change
-65
-21
-21
CARBON EMISSIONS3,4
Thousand tCO2-e/ct
0.12 -8%
WATER USAGE3,5
m3/t
3.61 +49%
-37
-65
-6
0.18
0.17
0.15
0.13
0.12
2.23
1.97
2.04
2.43
3.61
15
16
17
18
19
15
16
17
186
19
15
16
17
186
19
PERFORMANCE AND TARGETS
Total shareholder return decreased by 65%, due
to the depreciation of the share price during the
Year. Factors affecting the share price included
macro concerns about the headwinds facing
the diamond sector, as well as Company-specific
concerns related to the Group’s level of leverage.
RISK MANAGEMENT
Petra has taken action to address market
concerns. The Company has made changes
to its Board and Senior Management to drive
the next phase of the business, with the
priority being the generation of significant
free cashflow, via Project 2022, in order to
reduce net debt levels, against the backdrop
of a challenging diamond market.
STAFF TURNOVER3
%
8 -27%
17
11
9
8
7
PERFORMANCE AND TARGETS
Carbon emitted per carat continued its
decreasing trend, down 8%, due to the higher
number of carats produced for the Year, as
well as the Company’s focus on driving energy
efficiency. This exceeded the Company’s
target to achieve a 1% reduction in tCO2-e/ct
per annum.
RISK MANAGEMENT
The Group endeavours to minimise its overall
energy usage wherever possible and improve
energy efficiencies.
PERFORMANCE AND TARGETS
Petra’s total water usage per production
tonne increased by 49% to 3.61 m³/t, due to an
increase in the water usage per production
tonne at Cullinan, as well as the sale of KEM
JV which contributed to a low water usage
per production tonne previously.
RISK MANAGEMENT
The Group endeavours to continually
develop, implement and improve water
efficiency measures to reduce the consumption
per tonne processed.
TRAINING SPEND3
US$ million
6.6 -31%
9.5
8.5
6.7
5.8
6.6
SOCIAL SPEND3
US$ million
1.0 +0%
3.4
1.7
1.7
1.0
18
1.0
19
15
16
17
18
19
15
16
17
18
19
15
16
17
PERFORMANCE AND TARGETS
The staff turnover rate of 8% is considered
to be comparatively low and in line with
the broader mining sector. Petra endeavours
to maintain turnover rates consistent with
industry norms and has a number of initiatives
and programmes in place to develop and
retain its people.
RISK MANAGEMENT
The Group’s employment policies and
remuneration strategy are designed to
attract, incentivise and retain individuals
of the right calibre, as well as retain key
management for the longer term.
PERFORMANCE AND TARGETS
Our investment in employee training and
development remained constant in FY 2019
but the reason for the reduction seen above
is due to the inclusion of KEM JV in FY 2018
figures. Excluding KEM JV, FY 2018 spend was
ca. US$6.7 million. Actual spend in ZAR terms
increased by 5% year on year; however, due
to the ZAR weakening against the US Dollar,
the US Dollar was marginally lower. Due to
the fluctuation of the ZAR/US Dollar exchange
rate, Petra will continue to strive to achieve a
target of 5% of annual payroll in ZAR terms,
which is a more realistic target based on
current economic factors.
RISK MANAGEMENT
Petra maintains compliance with the regulatory
framework and supports a number of different
training and development programmes.
PERFORMANCE AND TARGETS
Social spend remained in line with last year’s
spend at US$1.0 million. Whilst Petra continues
to actively engage with local communities,
social spend levels specifically in South Africa
have been depressed for the last two years
on account of stakeholders being unable to
agree on suitable local economic development
projects, which was also exacerbated by the
political climate prior to the 2019 elections.
Petra targets base case spend of 1% of net
profit after tax (“NPAT”); however, this
calculation was not possible for FY 2019,
given the negative NPAT recorded.
RISK MANAGEMENT
Petra maintains compliance with the
regulatory framework, as well as continual
liaison and co-operation with social and
institutional stakeholders.
5. Consumption is reported per tonne fed to the various plants based on
gross tonnes treated, comprising ROM and tailings tonnes, as well as
development waste tonnes treated (where appropriate), while
specifically excluding recirculating tonnes.
6. Adjusted from previously published figure based on environmental
audit results.
See how performance indicators are linked to remuneration
in the Directors’ Remuneration Report Pages 84 to 93
Annual Report and Accounts 2019 Petra Diamonds Limited
23
Strategic Report Financial Review
Achieving positive
operational free cashflow
Depreciation
Depreciation for the Year decreased to US$106.7 million
(FY 2018: US$128.0 million), mainly due to prior year depreciation
reflecting accelerated depreciation associated with the old
Cullinan plant and older mining areas at Finsch and Cullinan
and the weakening of the Rand against the US Dollar
during the Year.
Impairment charge
As a result of the impairment review carried out at Cullinan,
Finsch, Koffiefontein and Williamson and the Group’s other
receivables during the Year, the Board recognised an overall
impairment charge of US$246.6 million (FY 2018: US$66.0 million
relating to Koffiefontein). Further details are provided in note 8
of the Financial Statements.
Asset level impairments across the mining operations
amount to US$223.7 million (representing some 18% of carrying
value of property, plant and equipment of US$1,187.5 million
pre-impairment), largely driven by reduced starting price
assumptions for rough diamonds, given current rough diamond
market conditions, and a reduction in the forward-looking pricing
escalator from 3% real per annum, in our previous assumptions,
to flat prices in real terms for FY 2021, followed by 2.8% per
annum real growth from FY 2022 to FY 2030, resulting in an
effective 2.5% annual real increase for the ensuing ten-year
period from FY 2021 to FY 2030. The underlying operational
assumptions did not materially change.
Loss on discontinued operations –
KEM JV and Helam
The loss on discontinued operations of US$49.9 million
(FY 2018: US$104.3 million loss on the reclassification of KEM JV
as a discontinued operation) relates to the Group’s disposal
during the Year of its interests in the KEM JV and Helam
operations and is made up of:
Š a US$3.6 million disposal consideration for KEM JV; and
Š the recycling of the foreign currency translation reserve
of US$2.1 million,
offset by:
Š net loss of US$1.5 million attributable to KEM JV and a net
loss of US$0.8 million at Helam for the period 1 July 2018
to disposal date;
Š net asset disposal of US$8.8 million (US$8.2 million KEM JV
and US$0.6 million Helam);
Š US$35.2 million recycling of non-controlling interest
(US$26.1 million KEM JV and US$9.1 million Helam);
Š US$2.0 million transfer of cash from the rehabilitation
guarantee cell captive; and
Š US$7.3 million impairment of the KEM JV purchase
consideration and current trade and other receivables.
Refer to note 34 of the Financial Statements
for the detailed breakdown.
We reached an important turning point
during the Year with the generation of
US$70.5 million of operational free cashflow,
reflecting the positive benefits of our
capital investment and the stabilisation
of production across the operations.
Jacques Breytenbach
Finance Director
Revenue
FY 2019 revenue decreased 6% to US$463.6 million (FY 2018:
US$495.3 million) due to the number of carats sold for the Year
decreasing 2% to 3,736,847 carats (FY 2018: 3,793,799 carats), as
well as the impact of a weaker diamond market and product
mix. Petra’s realised diamond prices reduced by ca. 5% in line
with the market movement in this period.
Profit from mining activities
Profit from mining activities decreased 21% to US$161.1 million
(FY 2018: US$205.1 million), due to lower revenue and increases
in mining and processing costs.
Corporate overhead – general and administration
Corporate overhead (before depreciation and share-based
payments) decreased 15% to US$7.7 million for the Year
(FY 2018: US$9.1 million).
Adjusted EBITDA
Adjusted EBITDA, being profit from mining activities less
exploration and corporate overhead, decreased by 22% to
US$153.0 million (FY 2018: US$195.4 million), representing an
adjusted EBITDA margin of 33% (FY 2018: 39%), driven by lower
diamond prices.
24
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Mining and processing costs
The mining and processing costs for the Year comprise on-mine cash costs as well as other operational expenses. A breakdown
of the total mining and processing costs for the Year is set out below.
On-mine cash
costs 1
US$m
Diamond
royalties
US$m
Diamond
inventory and
stockpile
movement
US$m
Group technical,
support and
marketing
costs 2
US$m
Adjusted
mining and
processing
costs
US$m
Total mining
and processing
costs (IFRS)
US$m
Depreciation 3
US$m
FY 2019
FY 2018
266.9
261.4
13.2
14.2
(2.9)
(9.5)
24.5
25.3
301.7
291.4
105.9
127.2
407.6
418.6
1. Includes all direct cash operating expenditure at operational level, i.e. labour, contractors, consumables, utilities and on-mine overheads.
2. Certain technical, support and marketing activities are conducted on a centralised basis.
3. Excludes exploration and corporate/administration.
Absolute on-mine cash costs in FY 2019 rose 2% (in line with expectations), despite ongoing inflationary pressures, due to:
Š an increase in production/volumes treated (2.0% increase); and
Š inflationary increases, including the impact of electricity and labour costs (7.5% increase),
offset by:
Š the effect of translating ZAR denominated costs at the South African operations at a weaker ZAR/USD exchange rate (7.5% decrease).
Net financial expense
Net financial expense of US$53.5 million (FY 2018:
US$85.8 million) comprises:
Š net unrealised foreign exchange gains of US$4.0 million
(FY 2018: US$26.2 million loss) representing (i) the unrealised
foreign exchange gains on the foreign currency retranslation of
cross border loans considered to be repayable in the foreseeable
future, (ii) unrealised losses on forward exchange contracts and
(iii) unrealised foreign exchange losses on Rights Issue proceeds
(refer to note 6 of the Financial Statements for further detail);
Š interest received on bank deposits of US$1.1 million
(FY 2018: US$3.5 million); and
Š net realised foreign exchange gains on settlement of forward
exchange contracts of US$1.0 million (FY 2018: US$0.9 million),
offset by:
Š interest on the Group’s debt and working capital facilities
of US$47.0 million (FY 2018: US$47.5 million) stated after
the capitalisation of interest of US$4.5 million (FY 2018:
US$15.2 million) associated with the funding of assets under
development; the year-on-year increase is as a result of
expansion programmes transitioning to production phases;
Š net interest payable on the BEE partner loans of US$8.6 million
(FY 2018: US$12.4 million); and
Š a charge for the unwinding of the present value adjustment
for Group rehabilitation costs of US$4.0 million (FY 2018:
US$4.1 million).
Tax credit/charge
The tax credit of US$45.8 million (FY 2018: US$13.8 million charge),
comprised deferred tax credits of US$53.9 million (FY 2018:
US$3.3 million charge), offset by an income tax charge of
US$8.1 million (FY 2018: US$10.5 million charge, which included
the one-off settlement with the South African Revenue Service
(“SARS”) on the right to claim a deduction on unutilised capital
allowances (US$8.2 million)). The income tax charge is mainly
attributable to taxable profits generated at Finsch.
The current period effective tax rate is lower than the
South African tax rate of 28% (the Group’s primary tax paying
jurisdiction) predominantly due to:
Š deferred tax credit specific to the Cullinan, Finsch
and Williamson impairment charge;
Š loss-making companies where deferred tax assets are
not recognised; and
Š loss-making companies within the Group based in tax
jurisdictions with a 0% tax rate (which, when consolidated,
increases the Group’s overall net loss resulting in a decreased
effective tax rate).
The tax credit for FY 2019 arises due to deferred tax (net of
charges and credits), reflecting principally the utilisation of certain
capital allowances and impact of the deferred taxation on the
impairment charge, predominantly at Cullinan and Finsch during
the Year, and South African current taxation payable at Finsch.
The cash taxes paid during the Year amounted to US$13.0 million
(FY 2018: US$7.5 million) mainly attributable to Finsch.
FY 2019 USD:ZAR EXCHANGE RATE – 1 JULY 2018 TO 30 JUNE 2019
High: 15.40
Open: 13.73
Low: 13.09
16.0
15.0
14.0
13.0
12.0
11.0
10.0
9.0
Average: 14.19
Close: 14.09
Jul 18
Aug 18
Sep 18
Oct 18
Nov 18
Dec 18
Jan 19
Feb 19
Mar 19
Apr 19
May 19
Jun 19
Annual Report and Accounts 2019 Petra Diamonds Limited
25
Strategic Report Financial Review continued
Group loss/profit
The Group’s net loss after tax is US$258.1 million
(FY 2018 net loss: US$203.1 million).
Earnings per share
Basic loss per share from continuing operations of
20.18 US$ cents was recorded (FY 2018: 15.85 US$ cents).
Adjusted loss per share from continuing operations (adjusted
for impairment charges, taxation credit on impairment charge,
taxation charge on unutilised Capex benefits, net unrealised
foreign exchange gains and losses, and loss on discontinued
operations) of 2.63 US$ cents was recorded (FY 2018:
0.50 US$ cents profit).
Operational free cashflow
During the Year, generation of operational free cashflow of
US$70.5 million (FY 2018: US$61.3 million outflow) reflects the
positive benefits of our capital investment and the stabilisation
of production across the operations. This positive cashflow
was offset by:
Š US$43.1 million (FY 2018: US$34.8 million) cash finance
expenses net of finance income and realised foreign
exchange gains;
Š US$46.7 million (FY 2018: US$31.0 million) advances to BEE
partners, largely related to servicing of BEE bank debt in line
with the Group’s stated intent of reducing consolidated net
debt for covenant measurement purposes (which includes
BEE banking facilities), with the advances recoverable
against future BEE partner distributions; and
Š US$5.5 million (FY 2018: US$nil) net advances and payments
to KEM JV further to the disposal.
Cash and diamond debtors
As at 30 June 2019, Petra had cash at bank of US$85.2 million
(30 June 2018: US$236.0 million). Of these cash balances,
US$71.7 million was held as unrestricted cash (30 June 2018:
US$221.6 million), US$12.6 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)
(30 June 2018: US$13.6 million) and US$0.9 million was held
by Petra’s bankers as security for other environmental
rehabilitation bonds lodged with the Department of Mineral
Resources (“DMR”) in South Africa (30 June 2018: US$0.8 million).
Diamond debtors at 30 June 2019 were US$23.8 million
(30 June 2018: US$75.0 million).
EBITDA-related covenants
Diamond inventory
Diamond inventory at 30 June 2019 increased to 666,201 carats/
US$57.5 million (FY 2018: 529,054 carats/US$54.0 million),
largely due to the South African June 2019 tender closing
eight business days earlier than in the comparative period.
Loans and borrowings
The Group had loans and borrowings (measured under IFRS)
at Year end of US$650.6 million (30 June 2018: US$754.8 million),
comprising the loan notes plus accrued interest of US$650.6 million
(30 June 2018: US$648.1 million) and bank loans and borrowings
of US$nil (30 June 2018: US$106.7 million). During the Year, the
Company settled (without cancelling) its bank loans and
borrowings (capital plus interest) of US$106.7 million with its
lending group. Bank debt facilities undrawn and available to
the Group at 30 June 2019 were US$106.6 million (30 June 2018:
US$2.6 million).
Net debt2 at 30 June 2019 was US$564.8 million
(30 June 2018: US$520.7 million).
Covenant measurements attached
to banking facilities
The Company’s EBITDA-related covenants associated
with its banking facilities are as outlined below.
The Group closely monitors and manages its liquidity
risk, and cash forecasts are regularly produced and run for
different scenarios, indicating that the Group has sufficient
cash reserves and banking facilities to meet its working
capital and capital development requirements under its
forecasts including sensitivities.
The impact of the recent weakness in the diamond market on
the Group’s operating results and cashflow position has been
discussed with the Lender Group1, including possible breaches
in its EBITDA-related covenants for the December 2019 and
June 2020 reporting periods. The Lender Group has reaffirmed
its ongoing support of the Group. The Company and the Lender
Group will further these discussions once the September tender
results have been finalised and processed, and the Company
has had the opportunity to further assess the impact on
forward-looking cashflow projections. This may include
covenant resets and/or waivers for the measurement period
under review in the Board’s assessment of the business as a
going concern, being a period of at least 18 months from Year
end. See the ‘Basis of preparation including going concern’ section
on page 109 of the Financial Statements for further information.
12 months to
30 Jun 2019
12 months to
31 Dec 2019
12 months to
30 Jun 2020
12 months to
31 Dec 2020
12 months to
30 Jun 2021
Consolidated net debt to consolidated EBITDA:
- Current covenant ratio:
- Previous covenant ratio:
Consolidated EBITDA to consolidated net finance charges:
- Current covenant ratio:
- Previous covenant ratio:
Consolidated net senior debt to book equity:
≤ 4.5x
≤ 2.5x
≥ 2.5x
≥4.0x
≤ 4.25x
≤ 3.5x
≤ 3.25x
≤ 2.5x
≤ 2.5x
≤ 2.5x
≤ 3.0x
≤ 2.5x
≥ 2.5x
≥ 2.75x
≥ 3.0x
≥ 3.25x
≥4.0x
≥4.0x
≥4.0x
≥4.0x
- Current covenant ratio
≤0.4x
≤0.4x
≤0.4x
≤0.4x
≤0.4x
1. The South African Lender Group comprises Absa Bank Limited (acting through its Corporate and Investment Banking division), FirstRand Bank Limited (acting through its Rand Merchant
Bank division), Investec Asset Management Proprietary Limited and Nedbank Limited (acting through its Corporate and Investment Banking division Trust (“the Lender Group”).
2. See APMs on page 156 for definition.
26
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report
Corporate Governance
Financial Statements
Supplementary Information
BEE loans receivable and payable
BEE loans receivable of US$109.6 million (FY 2018: US$64.7 million)
relate to the Group’s BEE partners’ financing of their interests
in the Koffiefontein mine, advances provided to the BEE partners
to enable the BEE partners to discharge interest and capital
commitments under the BEE Lender facilities (refer to note 15
of the Financial Statements regarding the guarantee provided
by the Company) and other advances to the BEE partners which
have enabled the Itumeleng Petra Diamonds Employee Trust
(“IPDET”) to make distributions to their beneficiaries (Petra
Directors and Senior Managers do not qualify as beneficiaries
under the IPDET Trust Deed). During the Year, Petra advanced
US$42.2 million (FY 2018: US$24.3 million) to facilitate the
servicing of capital and interest payments on behalf of the
BEE Partners and US$4.5 million (FY 2018: US$6.7 million)
for distributions to the beneficiaries of the IPDET and
shareholders of Kago.
The BEE loans payable of US$120.5 million (FY 2018: US$110.5 million)
relate to the initial acquisition loan funding advanced by the
Group’s BEE partners to the operations to acquire their investments
in Finsch and Cullinan. The repayment of these loans by the
mines to the BEE partners will be from future free cashflows
generated by the mining operations.
The South African Lenders to the Company’s BEE partners,
Absa Bank, Rand Merchant Bank and Investec, agreed post Year
end to an amended repayment profile of the ca. US$54.2 million
BEE banking debt. The balance, which was to be settled in two
instalments, November 2019 and May 2020, will now be spread
over the period to November 2021, with ca. US$5.0 million
payable in November 2019, followed by four equal biannual
instalments of US$12.3 million each from May 2020.
Refer to note 15 in the Financial Statements for further detail
on BEE loans receivable and payable.
Other liabilities
Other than trade and other payables of US$53.4 million
(comprising US$20.9 million trade creditors, US$2.7 million
employee-related accruals and US$29.8 million other payables)
(FY 2018: US$130.8 million), the remaining liabilities on the
balance sheet mainly comprise provisions for rehabilitation
liabilities, post-retirement employee-related provisions and
deferred tax.
Capex
Total Group Capex for the Year reduced to US$86.9 million
(FY 2018: US$145.5 million), comprising:
Š US$56.0 million expansion Capex (FY 2018: US$110.7 million);
Š US$25.4 million sustaining Capex (FY 2018: US$18.9 million);
Š US$3.7 million capitalised borrowing costs with regards
to the expansion Capex (FY 2018: US$15.2 million); and
Š corporate/exploration Capex of US$1.8 million (FY 2018:
US$0.7 million).
Capex
Finsch
Cullinan
Koffiefontein
Williamson
Sub-total – Capex
incurred by operations
Corporate/exploration
Total Group Capex1
Unit
FY 2019
FY 2018
US$m
US$m
US$m
US$m
US$m
US$m
US$m
24.1
46.3
6.1
8.6
85.1
1.8
86.9
54.0
73.9
12.3
4.6
144.8
0.7
145.5
1. Capex for the Year includes US$3.7 million (FY 2018: US$15.2 million) capitalised borrowing
costs, which is also included in the applicable mine-by-mine tables to follow.
Our strong operating performance was
offset by weaker diamond pricing, which
impacted on the Group’s net debt position.
Jacques Breytenbach
Finance Director
Jacques Breytenbach
Finance Director
14 October 2019
Project 2022: Driving the optimisation of our asset base
STRATEGY IN ACTION
VALUES IN ACTION
DRIVE OPTIMISATION
LET’S TAKE CONTROL
LET’S DO IT BETTER
Aim to identify and drive efficiencies and improvements across all aspects of the business to generate US$150–200 million
in free cashflow over a three-year period, areas in focus include:
Throughput at
all operations
Cost
efficiencies
Strategic
sourcing
Other
(ca. 75%)
(ca. 10%)
(ca. 5%)
(ca. 10%)
Annual Report and Accounts 2019 Petra Diamonds Limited
27
Strategic Report Operational Review
Introduction to
Operational Review
C-Cut block cave and the Finsch Block 5 SLC. The extraction
per ring blasted at Finsch improved between 20% and 125% for
different levels (see case study on page 29) whilst at Cullinan 91
out of a total of 107 draw bells in the C-Cut block cave had been
completed as at 30 June 2019. The remaining 16 draw bells will
be completed during H1 FY 2020 and will take around 12 months
to reach maturity (i.e. the fragmentation of the ore loaded from
the drawpoint improves resulting in higher productivity).
Maintaining strict capital discipline
At both Finsch and Cullinan, the planned rate of development
and completion of the expansion projects in FY 2019 was exceeded,
resulting in lower capital spend requirements for FY 2020. In
addition to this, certain capital items have been deferred following
a strict, but responsible, capital re-prioritisation process, resulting
in lower overall capital spend across operations and also following
into FY 2020. Importantly, however, this Capex deferral has been
considered in the context of the long-term viability of the operations
and will not affect the ongoing sustainability of the business.
Resources
Petra manages one of the world’s largest diamond resources
of almost 250 million carats and this major resource implies that
the potential mine lives of our core assets could be considerably
longer than the current mine plans in place at each operation
or could support higher production rates.
As at 30 June 2019, the Group’s gross diamond resources (inclusive
of reserves) decreased 15% to 248.15 Mcts (30 June 2018: 290.48 Mcts),
predominantly due to a new resource estimate for Cullinan, but
also for Finsch and Williamson as well as depletion by mining
activity at all operations and the disposal of Petra’s interest
in Helam. An interim resource estimate for Cullinan has been
completed and will be updated once the C-Cut sampling
programme is completed in December 2019. The Group’s gross
diamond reserves decreased 0.1% to 42.85 Mcts (30 June 2018:
42.92 Mcts) due to depletion, changes to block cave and SLC
designs at Finsch, and a reserve of 4.64 Mcts (66.0 Mt) being
declared at Williamson.
A LOM review was conducted shortly after Year end, which led to
a decision being taken that no further expansionary Capex would
be allocated in Koffiefontein’s base LOM plan subject to future
market conditions and the Group’s capital allocation strategy.
Focus for FY 2020 and Project 2022
The focus for FY 2020 will be on further improvements to
operational performance considering the appropriate balance
between cash returns and value accretive growth options from
within our current portfolio of assets. Through the implementation
of Project 2022, we believe that we will be able to implement
sustainable improvement initiatives faster, thus driving free
cashflow generation across operations.
Luctor Roode
Chief Operating Officer
14 October 2019
As always, our primary operational focus is to drive improvements
in the safety and occupational health of our employees whilst
caring for our environment. With this approach underpinning
our daily work, improving productivity and maintaining strict
capital discipline were central to our activity in FY 2019. As a
result, 14.9 Mt of ore was processed, recovering ca. 3.9 Mcts,
in line with expectations. In FY 2020 we will look to further build
on this performance, focusing on continuous improvement in
line with the goals set by Project 2022.
Driving safety and occupational health
The health and safety of all employees and other stakeholders
is our single most important value. It was therefore encouraging
to see a further improvement in the LTIFR to 0.21 (FY 2018: 0.23),
with no fatalities recorded, as well as a strong performance in
occupational health, hygiene and environmental indicators.
In collaboration with the Minerals Council of South Africa,
regulatory bodies and trade unions, we started FY 2019 with
an intensive safety campaign aiming to raise safety awareness
and enforce compliance to regulation, policies and procedures.
All levels of our organisation, including the Board, signed a
pledge committing to the following:
1. display the willpower and model the behaviour to ‘do no harm’;
2. lead by example to put safety ‘first, always and every day’;
3. as an individual, look after your own safety to return from
work ‘unharmed, every day’;
4. show concern in looking after the safety of your fellow
workers and ‘not look the other way’; and
5. operate in unity by treating one another with ‘care, dignity
and respect’.
Improving productivity
ROM tonnes treated increased 10% to 13.3 Mt (FY 2018: 12.1 Mt)
driven by an 11% increase in underground ROM tonnes mined
from the South African operations of 7.6 Mt (FY 2018: 6.9 Mt)
and a 9% increase in tonnages mined from the Williamson open
pit of 5.1 Mt (FY 2018: 4.7 Mt) whilst the contribution from surface
overburden ROM material at Finsch remained flat at 0.6 Mt.
The ramp-up of underground tonnages involved gaining access
across a larger footprint of the orebody at both the Cullinan
28
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Production, sales and capex summary¹
Unit
FY 2019
FY 2018
Variance
Sales
Diamonds sold
Revenue
Production
ROM diamonds
Tailings and other1 diamonds
Total diamonds
Tonnages
ROM tonnes
Tailings and other1 tonnes
Total tonnes
Capex
Expansion
Sustaining
Borrowing costs capitalised
Total
1. ‘Other’ represents alluvial diamond mining at Williamson.
Carats
US$m
Carats
Carats
Carats
Mt
Mt
Mt
US$m
US$m
US$m
US$m
3,736,847
3,793,799
463.6
495.3
3,763,622
111,324
3,874,946
3,649,704
186,132
3,835,836
13.3
1.6
14.9
56.0
25.4
3.7
85.1
12.1
1.6
13.7
110.7
18.9
15.2
144.8
-2%
-6%
3%
-40%
1%
10%
0%
9%
-49%
34%
-76%
-41%
Optimising extraction per ring from the Finsch SLC
STRATEGY IN ACTION
CONSISTENT DELIVERY
DRIVE OPTIMISATION
VALUES IN ACTION
LET’S TAKE CONTROL
LET’S DO IT BETTER
Actual drilled rings’ interaction
between levels.
Mining of an SLC requires multiple activities
to be executed at a very high standard
whilst seamlessly interacting with one
another. The cycles in the SLC mining process
include accurate ring drilling, charging the
drilled ring holes with explosives according
to specific charging instructions, blasting a
good quality ring, loading a specific amount
of tonnes from a blasted ring, secondary
drilling and blasting to contend with large,
oversize material and finally preparing the
tunnel for the next cycle. Each level in the
SLC requires a certain extraction rate per ring
blasted in order to maximise column extraction.
As a result of improved drilling accuracy and
the secondary drilling and blasting process,
we saw a significant improvement in ring
tonnage performance in FY 2019, with the
highest increase being 125%.
Accurate ring drilling
The drilling cycle, with a focus on accuracy
both in terms of correct length and location
of the ring of the SLC, is critically important.
The illustration to the left shows the drilled
rings’ interaction between tunnels and levels.
If either the length of the drill hole is incorrect
or if it deviates from the planned location,
it can cause pillars to remain, resulting in
unplanned stresses in tunnels and ultimately
sub-optimal extraction of ore.
This initially posed a challenge and we have
therefore worked to align the approach and
competency of the specialists to ensure that
navigation is carried out correctly. A measure
of drilling accuracy is the amount of blasted
tonnes extracted from a blasted ring as well
as the subsequent extraction of column
tonnes at the lower levels.
Secondary drilling and blasting
In terms of secondary drilling and blasting,
the behaviour of the cave poses a challenge
after the ring tonnage has been extracted.
As a result of larger oversize material, effective
and efficient secondary drilling and blasting
becomes vital. Improvements in the rate of
extraction have been influenced by:
Š improving the reaction time to deal
with oversize ore in the drawpoints when
they occur;
Š introducing a secondary blasting explosive
that can be inserted into a hang-up by
the drill rig, thereby removing the need
for human intervention at the face;
Š assigning priorities to certain tunnels,
with a maximum of three issued per
level; and
Š ensuring supervisory and management
staff are aligned as to the required draw
control needed per tunnel for the shift.
Annual Report and Accounts 2019 Petra Diamonds Limited
29
Strategic Report
Operational Review continued
Finsch
REVENUE
CONTRIBUTION
37% (47%)
CARAT
CONTRIBUTION
45% (54%)
Figures in parenthesis relate to FY 2018.
REVENUE
US$ million
170.2 -27%
PRODUCTION
Mcts
1.8 -15%
AVERAGE PRICE
PER CARAT US$
99 -8%
Underground production from the newly established Block 5 SLC ramped up
from 1.6 Mt in FY 2018 to 2.5 Mt in FY 2019.
WORK RESPONSIBLY
Finsch carries out portable skills training with its
employees prior to retirement and also trains
members of the community. Training in FY 2019
included computer, driving and agricultural skills.
CONSISTENT DELIVERY
Finsch maintained a flat profile of ROM tonnes
treated at 3 Mt, with increased contribution
from the Block 5 SLC.
DRIVE OPTIMISATION
The Block 5 SLC remains in a production build up
phase, with some production volatility. However,
nameplate capacity of the underground system
was achieved and exceeded at more regular
intervals during H2 FY 2019.
FY 2019 performance
Overall production decreased 15% to 1,755,768 carats (FY 2018:
2,073,477 carats) with ROM carat production decreasing 10%
to 1,724,265 carats (FY 2018: 1,926,467 carats) and tailings
production decreasing to 31,503 carats (FY 2018: 147,010 carats).
The contribution from underground ROM production remained
mostly flat at 1,504,722 carats (FY 2018: 1,507,561 carats) with
ore from the newly established Block 5 SLC replacing ore mined
from Block 4 which was depleted during FY 2018. The decrease
in overall ROM production is mainly due to the depletion of
surface overburden ROM stockpiles, decreasing to 219,544
carats (FY 2018: 418,905 carats) in line with the mine plan.
Overall, Finsch managed to maintain a flat profile of ROM
tonnes treated at 3,073,479 tonnes (FY 2018: 3,084,395 tonnes).
The tonnage contribution from the Block 5 SLC ramped up to
2.5 Mt (FY 2018: 1.6 Mt) with the remaining ROM ore supplemented
from surface overburden ROM stockpiles which came at a much
reduced grade as the stockpiles were depleted over the Year.
The Block 5 SLC production ramp up delivered 2.5 Mt, compared
to the plan of 2.7 Mt for the Year, impacted by delays during the
planned schedule for the winder upgrade project in December,
a 600m belt tear on one of the main underground conveyor
belts in January and low availabilities of the crusher and ground
handling system in May. The Block 5 SLC remains in a production
build up phase and barring the months mentioned above, it is
30
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Virtual reality
STRATEGY IN ACTION
WORK RESPONSIBLY
CONSISTENT DELIVERY
DRIVE OPTIMISATION
VALUES IN ACTION
LET’S TAKE CONTROL
LET’S DO IT BETTER
VR console and the concept
of ‘slot cutting’ demonstrated.
As part of the digital transformation process
taking place at Finsch, the significant
possibilities of virtual reality (“VR”) tours and
training have been introduced at the mine.
VR is a computer-generated simulation that
provides a representation of a real-life
situation or environment. Users are immersed
in the virtual world and equipment is used
to enable them to carry out training on
mining methods from the comfort and
safety of their office chair.
The advantages of VR include:
Š appealing and suitable to a variety
of learning styles;
Š elimination of risks and safety concerns;
Š reduction in training budgets and scalability;
Š the provision of realistic scenarios;
Š training can be carried out remotely
or in any given area or location;
Š improved retention and recall; and
Š simplification of complex problems
or situations.
VR technologies have the potential to
improve mine safety and productivity,
reduce equipment maintenance costs and
protect personnel. In the mining sector, VR
can be especially valuable on remote or
complex sites. As a training tool it is already
well established, particularly in the field of
surgery as well as flight simulators for pilots.
Petra has developed the following
training material in the form of
VR simulations:
Š slotting concept;
Š ring retreat methodology;
Š good blast versus bad blast;
Š hazard identification;
Š mudrush (Kimberley Bultfontein);
Š introduction to Cullinan 839L Block
Caving method; and
Š introduction to Finsch SLC method.
A safer and more productive working
environment can be created through
the use of VR training techniques.
encouraging to see the nameplate capacity of the underground
system being achieved and exceeded at more regular intervals
during H2 FY 2019. The focus is on maintaining these
production rates at a steady and consistent rate.
The ROM grade of 56.1 cpht (FY 2018: 62.5 cpht) compared
to guidance of 56–59 cpht was at the lower end mainly due
to lower grades of the ROM surface stockpiles (overburden
dumps), which are nearing depletion.
Revenue decreased by 27% to US$170.2 million (FY 2018:
US$231.9 million) mainly due to the shortfall in production
and the lower average value per carat, which was negatively
impacted by weaker prices in the market for smaller goods
as well as a product mix containing a lower than expected
incidence of gem-quality coarse diamonds. The variation should
reduce with the SLC progressing across the orebody on the various
levels, with more broken ore reporting to the lower levels.
Costs
The on-mine cash unit cost increased 18% to ZAR388/t
(FY 2018: ZAR329/t), mainly due to a decrease in tonnes
treated. The total on-mine cash cost for FY 2020 is guided
at ca. ZAR1,268 million. As the mine transitions from a
capital-intensive expansion phase into a steady-state production
phase, the right sizing and streamlining of the cost structure
at Finsch will remain a priority focus in FY 2020.
Capex
FY 2019 expansion Capex of US$13.6 million was mainly spent
on underground development and infrastructure relating to
the Block 5 SLC.
Outlook
FY 2020 ROM throughput is planned at 2.9–3.0 Mt with tonnage
from the Block 5 SLC planned at ca. 2.8 Mt (FY 2019: 2.5 Mt)
and 0.1–0.2 Mt to be sourced from the remaining economically
viable ROM surface overburden stockpiles. This is lower than
previous guidance of 3.2 Mt due to a slower than planned
ramp-up of the SLC as well as the depletion of the surface
ROM stockpiles. The Company will continue to assess options
to accelerate the ramp-up of production from the SLC to the
nameplate capacity of 3.2 Mtpa.
Finsch’s underground ROM grade is expected to remain within
guidance of 56–59 cpht. If the lower grade surface overburden
ROM stockpiles are included, the overall ROM grade will reduce
to 54–57 cpht. Negligible tailings production is planned for
FY 2020, with the Pre 79 Tailings resource coming to an end.
Whilst tailings production post FY 2020 does not form part
of the current mine plan, lower grade Post 79 Tailings material
remains available to supplement the underground operations
in the future.
Finsch mine and orebody schematic
petradiamonds.com/investors/analysts/
analyst-guidance
More detail online
petradiamonds.com/operations/
operating-mines/finsch
Annual Report and Accounts 2019 Petra Diamonds Limited
31
Strategic Report Operational Review continued
Cullinan
REVENUE
CONTRIBUTION
37% (34%)
CARAT
CONTRIBUTION
43% (36%)
Figures in parenthesis relate to FY 2018.
REVENUE
US$ million
171.4 +3%
PRODUCTION
Mcts
1.7 +21%
AVERAGE PRICE
PER CARAT US$
110 -12%
FY 2019 saw the recovery of four +100 carat gem quality stones during the Year, including
the 425.1 carat D colour Type II gem quality diamond that was sold for US$15 million.
WORK RESPONSIBLY
Recent upgrades to the processing plant reduced
the impact of transporting ore by curtailing the
length of conveyors used from 15km to 3km and
reducing the number of motors required for ore
transport from 589 to 84.
CONSISTENT DELIVERY
Production was 21% higher and underground
throughput increased from 3.7 Mt in FY 2018
to 4.1 in FY 2019.
DRIVE OPTIMISATION
Capital expenditure was focused on the C-Cut
Phase 1, the new plant and CC1 East projects.
The current shaft place system proved to be
reliable and will continue to be used in the short
term, following the deferral of the shaft plant
interface project.
Cullinan mine and orebody schematic
petradiamonds.com/investors/analysts/
analyst-guidance
More detail online
petradiamonds.com/operations/
operating-mines/cullinan
FY 2019 performance
Production increased 21% to 1,655,929 carats (FY 2018: 1,368,720
carats) mainly due to underground throughput increasing from
3.7 Mt in FY 2018 to 4.1 Mt in FY 2019 and further supplemented
by an increase in ROM grades from 35.9 cpht in FY 2018 to
38.6 cpht in FY 2019.
FY 2019 production from the newly established C-Cut and CC1
East mining areas increased to ca. 3.6 Mt in FY 2019 (FY 2018:
ca. 2.46 Mt) with the remaining tonnage being supplemented
from older B-Block mining areas.
A total of 0.9 Mt of tailings were treated with an average grade
of 6.9 cpht.
Revenue increased by 3% to US$171.4 million in FY 2019
(FY 2018: US$167.0 million), due to higher production offset
by the weaker average value per carat, largely driven by a low
incidence of larger, high value goods, specifically in H1 FY 2019,
when an average price of US$96 per carat was realised. This
improved during H2 FY 2019 as the C-Cut Phase 1 block cave
extended across a larger part of the footprint, yielding an average
sales price of US$120 per carat in H2 (positively impacted by
the sale of a 425 carat Type II gem quality diamond for US$15
million and a 9.4 carat Type II blue diamond for US$5.4 million),
resulting in a full year average price of US$110 per carat.
Four +100 carat gem quality stones were recovered during the
Year and, post Year end, a 132 carat D colour Type II gem quality
diamond and a 20.08 carat blue Type IIb stone were recovered,
reflecting the regular occurrence of such stones within the
Cullinan orebody and the ability of the plant to recover them.
32
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Costs
The on-mine unit cash cost per total tonne treated decreased
to ZAR234/t (FY 2018: ZAR239/t), mainly due to an increase in
tonnes treated. The total on-mine cash cost for FY 2020 is
guided at ca. ZAR1,269 million.
Capex
FY 2019 expansion Capex of US$37.2 million was mainly spent
on the C-Cut Phase 1, plant-related expenditure and CC1 East
projects. Based on the re-prioritisation of capital spend, the
construction of the shaft plant interface project has been
deferred. The current system has proven to be reliable and
will be utilised in the interim.
Outlook
The Company is guiding 4.0–4.2 Mt of ROM material to
be treated during FY 2020, higher than previous guidance of
4.0 Mtpa due to the additional contribution of production from
B-Block areas which remain available to be mined and treated.
The C-Cut Phase 1 project is planned to contribute ca. 3.5 Mt
and 0.5–0.7 Mt will be sourced predominantly from the CC1
East and remnant B-Block areas. The ROM grade is guided
at 38–42 cpht for FY 2020.
Tailings production has been curtailed for FY 2020 by ca. 0.1 Mcts
due to price pressure on smaller, lower quality diamonds. ROM
production will be prioritised, supplemented by low volumes
of higher-grade recovery tailings. The economic evaluation
of Cullinan’s substantial tailings resource will be monitored
continuously and could be included in future mine plans
should the market conditions and pricing of smaller
diamonds improve.
Cullinan contains a major diamond resource of 154.88 Mcts
(including 17.2 Mcts in tailings) and the Company will on an
ongoing basis review the mining plan to ensure that the full
extent of the large Cullinan orebody (ca. 16 ha at current
production depths) is utilised.
Innovative techniques in the C-Cut Phase 1 undercut pillar
STRATEGY IN ACTION
WORK RESPONSIBLY
CONSISTENT DELIVERY
DRIVE OPTIMISATION
VALUES IN ACTION
LET’S TAKE CONTROL
LET’S DO IT BETTER
Section view showing the conventional
undercut rings on the left and the
adjusted rings in the centre. Charged
portion is in red and grouted portions
are in green.
Geotechnical modelling is conducted prior to
the implementation of any block cave or
SLC in order to confirm the geotechnical
stability of the infrastructure, test the
validity of the design parameters and predict
the behaviour of the cave over its life.
At Cullinan, the C-Cut geotechnical studies
indicated a potential for the undercut to
experience high stresses in the final third of
the undercut, with the possibility of tunnel
closure. During Q2 FY 2019, some of the
undercut tunnels located in the final third of
the footprint did close as predicted; however,
through innovative planning and quick
reaction, the impact on the production
and extraction level was minimised.
The first step was to accelerate the undercut
to move as quickly as possible across the
footprint. This required mass blasting of
several rings as well as adapting the ring
design to accelerate the cycle of ring blasting.
Further to this, innovative blasting techniques
were required to break the undercut from the
extraction level. Blast preconditioning of those
pillars or stubs that could not be blasted on
the undercut level was identified as the
most suitable means to further protect the
extraction level. The blast holes required to
be drilled from the extraction level were 25
to 40m long compared to the ±10m long blast
holes previously drilled on the undercut level.
The drilling of these long holes required
a lengthier process to ensure the essential
drilling accuracy.
The ultimate success of the blast
preconditioning of the undercut pillar
will be confirmed once the five to six draw
bells below this area are constructed and
successfully brought into production.
Advanced geotechnical modelling enabled
the Group to proactively manage the
situation and limit convergence to a
small section within the affected area.
Annual Report and Accounts 2019 Petra Diamonds Limited
33
Strategic Report Operational Review continued
Koffiefontein
REVENUE
CONTRIBUTION
6% (5%)
CARAT
CONTRIBUTION
2% (1%)
REVENUE
US$ million
28.9 +6%
Figures in parenthesis relate to FY 2018.
PRODUCTION
Mcts
0.06 +21%
AVERAGE PRICE
PER CARAT US$
480 -9%
Koffiefontein reached the planned tonnages from the SLC despite the operational challenges
relating to plant availability as well as community unrest.
WORK RESPONSIBLY
Koffiefontein is planning to make certain tailings
mineral resources available for small scale
artisanal mining (see case study on page 47).
CONSISTENT DELIVERY
ROM production increased 21%, in spite of lower
production during Q2 as a result of community
unrest relating to municipal service delivery
and operational challenges experienced relating
to plant availability.
DRIVE OPTIMISATION
High tonnages extracted per ring blasted on
the first two levels of the SLC were achieved.
FY 2019 performance
ROM production increased 21% to 63,635 carats (FY 2018: 52,537
carats) further to the ramping up of the SLC to a planned 1.0 Mt,
notwithstanding lower production during Q2 as a result of
community unrest relating to municipal service delivery and
operational challenges experienced relating to plant availability.
A ROM grade of 6.4 cpht was achieved during the Year, lower
than expected due to the delayed ramp-up of the higher grade
ore facies on 60 Level (the third level of the SLC) which is mainly
due to better than expected tonnages extracted per ring
blasted on the first two levels.
Revenue increased by 6% to US$28.9 million (FY 2018: US$27.2
million) for the Year due to increased volumes offset by lower
prices achieved.
Costs
The on-mine cash unit cost decreased 24% to ZAR450/t
(FY 2018: ZAR 596/t), mainly due to increased throughput.
The total on-mine cash cost for FY 2020 is guided at
ca. ZAR433 million.
Capex
Capex of US$6.1 million mainly related to the SLC project.
Outlook
The SLC is expected to deliver ROM throughput of ca. 1 Mtpa
at an average grade of 8.0–8.5 cpht for FY 2020.
Koffiefontein mine and orebody schematic
petradiamonds.com/investors/analysts/
analyst-guidance
More detail online
petradiamonds.com/operations/
operating-mines/Koffiefontein
34
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Williamson
REVENUE
CONTRIBUTION
20% (14%)
CARAT
CONTRIBUTION
10% (9%)
Figures in parenthesis relate to FY 2018.
REVENUE
US$ million
93.0 +36%
PRODUCTION
Mcts
0.4 +17%
AVERAGE PRICE
PER CARAT US$
231 -14%
Strong operational performance at Williamson led to the highest level of production achieved
at the mine in over 40 years.
WORK RESPONSIBLY
Corporate social investment contributions
in the Kishapu district.
CONSISTENT DELIVERY
Production exceeded guidance and increased
by 17%, in spite of operations being impacted
by liquidity constraints.
DRIVE OPTIMISATION
Williamson saw a 9% increase in tonnages mined
from the open pit to 5.1 Mt.
FY 2019 performance
The mine performed well operationally with production up 17%
to 399,615 carats (FY 2018: 341,102 carats), the highest level of
production achieved by the mine in over 40 years. This is despite
operations being impacted by liquidity constraints due to
the parcel of 71,654 carats that remains blocked for export
and the overdue VAT receivables of US$32.9 million
(FY 2018: US$24.2 million).
Revenue increased by 36% to US$93.0 million in FY 2019 (FY 2018:
US$68.5 million) due to increased production and resultant higher
sales volumes, offset by lower prices per carat achieved.
Costs
On-mine cash costs increased 4% to US$11.1/t (FY 2018: US$10.7/t).
The positive impact on the unit cost of increased volumes
treated was offset by the normalisation of costs, following the
severe cost cutting measures implemented in FY 2018 required
due to the mine’s liquidity constraints. The total on-mine cash
cost for FY 2020 is guided at ca. US$62 million.
Capex
FY 2019 Capex of US$8.6 million mainly related to in-pit waste
stripping activities.
Outlook
ROM throughput is planned at ca. 5.0 Mt at a grade of
ca. 6.5–7.0 cpht for FY 2020, supplemented by alluvial
production of ca. 0.3 Mt at a grade of ca. 2.5 cpht.
Williamson mine and orebody schematic
petradiamonds.com/investors/analysts/
analyst-guidance
More detail online
petradiamonds.com/operations/
operating-mines/Williamson
Annual Report and Accounts 2019 Petra Diamonds Limited
35
Strategic Report Risks Overview
Principal risks and uncertainties
The Group is exposed to a number of risks and uncertainties
which could have a material impact on its performance and
long-term viability. The effective identification, management
and mitigation of these risks and uncertainties is a core focus
of the Group, as they are key to the Company’s strategy and
objectives being achieved.
Central to Petra’s approach to risk management is having the
right Board and Senior Management team in place, with such
members combining extensive experience of the specialist
worlds of diamond mining, rough diamond sales, health and
safety, human resources, skills development, diversity and
transformation, finance, corporate governance and risk
management, as well as in-depth knowledge of the local
operating conditions in South Africa and Tanzania and the
regulatory environments of all of the countries in which
Petra operates or has a corporate presence.
The Board oversees overall risk management, with Board
Committees providing an additional level of oversight.
The Executive Committee (“Exco”) is responsible for risk
management processes and systems and drives a culture of
individual employee accountability in implementing these.
Risk review process
Petra’s management and Internal Audit teams reviewed and
updated the Group’s principal risks with reference to the Group’s
internal risk registers in FY 2019. The Board and Exco conducted
an in-depth analysis and appraisal of the Group’s risk profile
shortly after Year end, which has led to the consolidation
and re-prioritisation of our risks, as outlined below.
Changes to categorisation of principal risks
in FY 2019
Further to the risk review process, certain individual risks are now
either partially consolidated within a broader risk category or
have been removed from principal risks on the basis that they are
not considered to be sufficiently material to the accomplishment
of Petra’s strategy. These risks continue to be considered and
managed at an operational level.
Safety continues to be Petra’s number one priority but is now
considered as part of the Company’s licence to operate, which
also includes Petra’s impacts on its environment as well as its
approach to employee retention and social factors such as
community relations.
Since Petra is now in the final stages of its major capital
programmes, expansion and project delivery and capital
discipline are no longer considered to be ‘principal’. Cost control
clearly remains a key focus of the Group, specifically in the
context of Project 2022, but is not included in the key risks.
Petra no longer considers synthetic diamonds as a separate,
principal risk, mainly due to the relatively small size of the market.
It is, however, considered within the diamond price risk, should
a significant threat from synthetic diamonds arise in future.
Risk appetite
Risk appetite reflects the nature and extent of risk that is
acceptable to Petra in order to achieve its objectives. This is
considered based on the consequences of such risks materialising
and also takes into account any relevant internal or external factors,
as well as the mitigating actions available. Petra will consider
strategic actions in the event that a risk exceeds its appetite.
Risk management framework
Top-down
Define risk
appetite; identify,
assess and
mitigate risk at
corporate level
Overall responsibility for the effectiveness of the Group’s risk management
and internal control and financial control systems
Board
Exco and
top-level
Senior
Management
Manages
risks on a
day-to-day basis
Monitors and
manages risk
management
processes and
internal controls
Audit & Risk
Committee
Supports the
Board in considering
risk management
and internal controls
Internal Audit
provides assurance
with regards to
the effective
functioning
of the internal
control systems
SED
Committee
Remuneration
Committee
Provides assurance
to the Board that
appropriate systems
are in place to
identify and manage
risks relating to
social, ethics and
diversity (including
transformation)
Ensures that
the Company’s
remuneration
strategy and
structure
supports the
consideration
and management
of risks and is
aligned to the
Company’s overall
strategy
HSE
Committee
Provides
assurance to
the Board that
appropriate
systems are in
place to identify
and manage
health, safety and
environmental
risks
Bottom-up
Identify, monitor,
report and
mitigate risk at
operational level
Senior and Middle Management
Accountable to the Exco and the Board for the design, implementation
and operation of risk management processes and systems
Consistent application of the Company’s internal systems and internal financial controls
Risk awareness and safety culture ingrained throughout the business
36
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
1
3
7
4
5
7
6
8
2
1
FY 2019
1
FY 2018
1. Diamond price
2. Currency
3. Country and political
4. Mining and production
5. ROM grade and product mix volatility
6. Labour relations
7. Financing
8. Licence to operate
The tabulation of the principal risks and the risk matrix (which relates to risk changes
that occurred during the Year only) was reviewed by the Audit & Risk Committee
and subsequently approved by the Board.
H
G
H
I
t
c
a
p
m
I
I
M
U
D
E
M
W
O
L
LOW
MEDIUM
Probability
HIGH
Principal risks
A summary of the risks identified as the Group’s principal external,
operating and strategic risks (in no order of priority) is listed below.
Risk
External risks
Risk
appetite
Risk
rating
Nature
of risk
Change in FY 2019
Full risk management commentary Pages 72 to 75
1 Diamond price High
High
Long
term
Diamond prices fell ca. 5% over the Year, driven by a weakening in
global markets, US/China trade tensions, higher than normal polished
inventories and the sustained tightening of liquidity in the midstream.
2 Currency
High
Medium Long
term
The ZAR/USD exchange rate continues to be volatile. The short-term
weakness in the Rand has the capacity to offset some of the diamond
price weakness.
3 Country
and political
High
High
Long
term
Regulatory uncertainty in South Africa has eased somewhat with the
completion of the 2019 elections and the publication of the new mining
charter. However, the risk of political instability remains, and certain
components of the charter remain under review. Petra is in ongoing
dialogue with the Government of Tanzania and local advisers in
relation to legislative developments, overdue VAT receivables
and the blocked parcel of diamonds from Williamson.
Medium Medium Long
term
Operations were largely stable in FY 2019 and production of 3.9 Mcts
was in line with guidance.
Operating risks
4 Mining and
production
5 ROM grade
and product
mix volatility
Medium Medium Short
term
6 Labour
relations
Medium Medium Short to
medium
term
ROM grades at Finsch, Cullinan, Koffiefontein and Williamson were in
line with expectations in terms of resource performance but a higher
level of waste dilution at Cullinan and Koffiefontein had a negative
impact. Williamson has a higher potential for volatility due to the size
and variability of the orebody. Some product mix volatility was
encountered across the operations.
The Company’s three-year wage agreement relating to its South African
operations remains in force for FY 2020 and stable labour relations were
experienced throughout the Year. As we move into the negotiation phase
of the next agreement, which is expected to commence in Q3 FY 2020,
there is potential for some volatility.
Strategic risks
7 Financing
Medium High
Short to
medium
term
The Group’s reliance on its banking facilities has the potential to be
increased by weakness in the diamond market, therefore heightening
financing risk as a result of possible breaches in covenants. However,
on the basis of existing cash resources and the continuing availability
of current facilities, further supported by positive engagements with the
Lender Group1, the Board assessed the liquidity headroom to be adequate.
8 Licence to
operate
Medium Medium Long
term
Continued compliance in all material aspects with relevant laws and
regulations. Incorporated in Petra’s licence to operate is its continued
focus on safety, as well as its impacts on the environment and its
approach to community relations.
1. See page 26 for a definition of Lender Group.
Annual Report and Accounts 2019 Petra Diamonds Limited
37
Strategic Report Sustainability
Driving sustainable operations
and stakeholder value
Our purpose is to unearth the world’s most beautiful product as responsibly
and efficiently as possible. In doing so, we will contribute to the sustainability
of our industry and deliver long-term value to each of our stakeholders.
Mining is an inherently long-term business and therefore our
operations are planned and structured with their sustainability
in mind. Our goal is to put in place the right actions today
which will benefit the future of a project, rather than focusing
on short-term outcomes. We aim to unearth the world’s most
beautiful product as responsibly and efficiently as possible.
In doing so, we look to contribute to the sustainability of our
industry and deliver long-term value to each of our stakeholders.
Our responsible, long-term approach is followed across all
aspects of the business, from our operational planning to the
way we structure our environmental and social management,
in alignment with the mine plan and potential mine life of
each asset.
HSE management is reinforced by the Group HSE Management
Framework and mine-level policies and strategies, covering all
key sustainability areas, as well as internationally recognised
standards such as OHSAS 18001 (health and safety), ISO 14001
(environment) and ISO 31000 (risk management).
Each of our operations has sustainability objectives and specific
indicators which are used to monitor and assess performance
against targets on a mine-by-mine basis, as well as at Group level.
In an effort to support the UN Sustainable Development Goals
(“SDGs”), we have linked each of our material topics with the
relevant goals to demonstrate the part we are playing in the
agenda to transform our world.
Our Board-level Committees were further enhanced during
the Year by the establishment of an SED Committee, which sits
alongside the HSE Committee. A robust system of reporting on
sustainability-related indicators is in place, with information
flowing from mine-level committees to the Group Operational
Steering Committee, Exco and then to the Board, via the HSE
and SED Committees.
The focus of our activities in FY 2019 continued to be on those
matters considered to be most material to Petra’s business and
which have the most significant impact on the delivery of our
strategy and future performance, and/or those which could
have a material impact on individuals, groups or communities
that are impacted by Petra’s operations. An overview of activities
is provided in this section of the Annual Report, with a more
complete update provided in the Company’s FY 2019
Sustainability Report.
FY 2019 Sustainability Report
petradiamonds.com/investors/results-reports
Read more at
petradiamonds.com/sustainability
38
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Sustainability performance in FY 2019
The Company has numerous sustainability objectives in place to drive and measure performance; some examples of key objectives
and related outcomes in FY 2019 are detailed below.
Material topic
Objectives
Responsible business
Š Review of Code of Ethical Conduct
Outcomes in FY 2019
Reviewed and updated; ethics
roadshow was carried out at
all operations
Š Continue working with the DPA to assist it in its goals
to sustain consumer demand for diamonds
Continued engagement with DPA
and contribution to the Trucost report
Š Continued dialogue with the Government of
Tanzania and local practitioners in relation to recent
legislative developments
Dialogue is ongoing and Petra
is hopeful of a holistic solution
for all stakeholders
Corporate
governance
Consumer
demand
Legal
compliance
Safety and occupational health
Safety
Š Zero fatalities and 10% reduction in LTIs
0 fatalities and 36% reduction in LTIs
Occupational
health
Š Zero compensated occupational diseases and 100%
investigation of occupational hygiene incidents
0 compensated and 100% incidents
investigated
People
Employee
retention and
development
Š Ensure employee development needs are met
Diversity
Š Launch Women in Leadership Programme
Labour
relations
Š Stable labour relations
Environment
Environmental
management
Climate change
and energy usage
Š Waste management strategies
Š 1% annual reduction in carbon emissions1
Water
management
Š Implementation of an integrated water
management strategy
Positive impacts
Generating
economic
benefit
Community
development
Š Further formalise supplier compliance
Š Increased community engagement
1. Measured over a five-year period (FY 2015 to FY 2020), from the base year of FY 2016.
US$6.6 million invested in training
and development
13 women participated in inaugural
programme
No industrial action took place
Successful implementation of waste
optimisation and single-use plastics
reduction strategies
8% reduction in carbon emissions per
carat to 0.12 tCO2-e/ct
Strategy implemented with three
distinct ambitions
Supplier Compliance Committee
established, aimed at improving
governance with regards to suppliers
Improved awareness of and response
to community issues via integration
of feedback into a social management
software system
Annual Report and Accounts 2019 Petra Diamonds Limited
39
Strategic Report Sustainability continued
Responsible business
100%of production
certified as ‘conflict free’
Corporate governance
FTSE4Good Index PETRA CONFIRMED
SED Committee ESTABLISHED IN FY 2019
AGAIN AS CONSTITUENT
Effective corporate governance is the backbone of Petra
and enables each part of the business to operate efficiently,
successfully and sustainably. Read more about how we apply
corporate governance on pages 54 to 64.
The Company established an SED Committee in FY 2019 to
reinforce the focus on these important topics throughout the
business by splitting the HSSE Committee into two separate
Board-appointed Committees. The HSE Committee’s
responsibilities are now more focused.
Ensuring ethical behaviour
We are committed to upholding the levels of corporate
governance we have maintained to date, but also to further
developing and implementing best practice right down
through the organisation.
Petra’s commitment to ethical behaviour is clearly set out
in the Group’s Code of Ethical Conduct and we expect all
employees, contractors, Directors and suppliers to conduct
themselves in accordance with this Code.
We will only operate in countries which are members of the
Kimberley Process and each of our diamonds is fully traceable
to its point of production, thereby providing assurance that
100% of our production is certified as ‘conflict free’.
Anti-bribery
Bribery is strictly prohibited by Petra. We have a Group
Anti-Bribery Policy in place which is made public on both the
Company’s intranet and website and which is implemented
through a training and communication plan. All Petra employees,
contractors and suppliers are informed about the policy as part
of the Company’s induction procedure.
During FY 2019 an ethics roadshow was held across the Company
to re-emphasise awareness around bribery and other governance
matters. The Audit & Risk Committee receives a security
intelligence report at each meeting, detailing the implementation
of the Anti-Bribery Policy and any investigations.
40
Petra Diamonds Limited Annual Report and Accounts 2019
Whistleblowing procedure
Petra has a whistleblowing procedure in place that provides
all Petra employees, contractors and suppliers, as well as any
member of the public, with the opportunity to independently
and anonymously report conduct that is in contravention of
the Code of Ethical Conduct or the Anti-Bribery Policy. In order
to uphold its independence, this service is outsourced. It is also
provided in all local languages in the countries in which Petra
operates as well as a number of international languages. All
‘tip-offs’ are directed to the service provider’s central facility,
then sent to the Group’s internal investigation teams for further
investigation and feedback, where required; outcomes are
presented to the Audit & Risk Committee.
Whistleblowing
STRATEGY IN ACTION
VALUES IN ACTION
WORK RESPONSIBLY
LET’S DO IT RIGHT
In FY 2019, Petra received 27 reports involving alleged
irregularities considered necessary to investigate. Of these
reports, 20 were resolved and closed and seven remain
under investigation.
Human rights
Petra is fully committed to upholding the human rights of its
stakeholders, as set out in the Group’s Human Rights Policy.
The Company therefore complies with and supports the UN
Universal Declaration of Human Rights as well as all legislation
pertaining to human rights in the countries where it operates.
Human rights are not considered to be a material risk to Petra’s
business, given that our operations are located in stable,
constitutional democracies and given the robust internal
systems we have in place.
Human rights issues are covered by internal operational policies
and procedures, with the Company’s Employment Equity Policy
and its Disciplinary Code and Procedures expressly forbidding
any kind of discrimination. Should a human rights grievance
occur, it is either managed through the operational grievance
procedures or, where it is seen as substantive in nature, by the
collective bargaining processes that are in place with
recognised labour unions.
In South Africa, human rights training is organised by Petra for
union representatives through the Commission for Conciliation,
Mediation and Arbitration (“CCMA”), which in turn disseminates
information to its members.
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Petra has aligned its principles with the International Labour
Organization Declaration on Fundamental Principles and Rights
at Work. This means we have zero tolerance for child labour,
forced labour or discrimination, and we respect the right of our
workers to form unions. There is no risk of child labour taking
place at any of Petra’s operations due to our rigorous
recruitment and pre-employment vetting process.
We do not consider there to be a risk of slavery or human
trafficking with regards to our operations or supply chain,
due to our due diligence processes within our employment
and supply chain management.
Consumer demand
Founder MEMBER OF THE DIAMOND PRODUCERS
US$85.9 billion GLOBAL DIAMOND JEWELLERY
ASSOCIATION (“DPA”)
MARKET IN 20181
While diamonds occupy a unique cultural position, in that they
are used to celebrate life’s most special moments, their continued
acceptance is reliant on ensuring continued consumer desirability.
The provenance of Petra’s diamonds is unique in that they are
sourced from some of the most renowned diamond mines in
the world.
We are committed to upholding the high value placed on natural
diamonds and seek to actively influence sustainable consumer
demand via the DPA. By promoting the integrity and reputation
of diamonds and the diamond industry, the DPA intends to play a
central role in ensuring the long-term sustainability of the sector.
As a member of the DPA, we are committed to high standards
of integrity and responsibility in all aspects of our business and
all activities of the diamond value chain from mine to consumer.
Diamonds do good
One of the key activities of the DPA in FY 2019 was the publication
of the Trucost ‘Total Clarity’ report, which examines and quantifies
the collective socio-economic and environmental impact of DPA
members’ diamond mining activities. Read more below.
Maintaining pipeline integrity
A fundamental imperative for the industry exists in adequately
and correctly disclosing product details. Natural diamonds
should always be distinguished from synthetic diamonds and
the DPA has launched the ASSURE programme in order to
support the diamond trade, from independent jewellery
retailers to large diamond manufacturers, in making informed
decisions on how to ensure that undisclosed laboratory-grown
diamonds do not enter its natural diamond supply chain.
Legal compliance
0 FINES PAID FOR REGULATORY NON-COMPLIANCE
All PETRA’S OPERATIONS HAVE ACCESS
TO A LIVE ‘LEGAL LIBRARY’
The mining sector is one of the most highly regulated
industries in the world. This is particularly relevant given the
strategic importance of certain commodities to host Governments.
Regulations applicable to mining companies are subject to
continual change and Petra therefore has the necessary
management structures across the Group to maintain its
adherence to all local legislation as well as access to a live legal
library covering the core areas applicable to our operations,
which contains all relevant international and national standards,
national legislation and regulations as well as local bye-laws
where applicable.
The Company closely monitors developments around the
Broad-Based Socio-Economic Empowerment Charter for the
Mining Industry published in September 2018 (“the Charter”).
It is important to note that the ownership requirements for
existing mining rights (such as those held by the Company in
respect of Finsch, Cullinan and Koffiefontein) remain the same
under the new Charter. The Minerals Council of South Africa
has launched a judicial review in respect of certain components
of the Charter and the Company, as a member of the Minerals
Council, follows the judicial proceedings.
In Tanzania, Petra is in ongoing dialogue with the Government
and local advisers in relation to recent legislative developments
and overdue VAT receivables. Petra also continues to communicate
with the Government in relation to the blocked parcel of
diamonds from Williamson.
DPA member commitments
petradiamonds.com/our-industry/industry-
overview/the-diamond-producers-association
The total benefits and impacts of diamond mining
In 2017, the DPA began a thorough analysis of the total value contribution of its
members, which mine 75% of the world’s annual diamond production. The purpose
of the study was to determine the socio-economic and environmental benefits and
impacts, as well as the economic benefits of diamond mining. ALROSA, De Beers Group,
Petra Diamonds and Rio Tinto participated in the data collection, which reviewed and
analysed data from the 2016 calendar year. In studying all the benefits and impacts, the
DPA and its members could “identify opportunities to minimise the impacts of the
industry whilst maximising the positive value created”. Key findings from report2 include:
1. According to
industry reports.
2. Total Value: The Socio-economic
and Environmental Impact of
Large-Scale Diamond Mining.
Š net benefits of US$16 billion, with
socio-economic and environmental
benefits outweighing environmental
and socio-economic impacts;
Š the most important benefits were
related to local procurement of goods
and services (valued at US$6.8 billion)
and the payment of wages and benefits
(valued at US$3.9 billion); and
Š the estimated carbon emissions
associated with energy use in
laboratory-grown diamond
production is nearly three times
greater than diamonds produced by
DPA members in 2016.
DPA’s Trucost report
total-clarity.com
Annual Report and Accounts 2019 Petra Diamonds Limited
41
Strategic Report Sustainability continued
Safety and occupational health
0.21
LTIFR
Safety
0 FATALITIES
100% OF STAFF TRAINED IN HEALTH
36% REDUCTION IN LOST TIME INJURIES
AND SAFETY STANDARDS
Ensuring our people return home safely on a daily basis
from work is Petra’s number one priority and is ingrained
into everything we do. The safety of all employees and other
stakeholders is therefore our single most important value.
We are committed to preventing and mitigating any negative
safety event or impact and also to identifying and capturing
opportunities to deliver positive impacts.
We provide safe working conditions and aim to prevent
work-related injuries, through the effective management
of strategic risks, safety and other risks and opportunities.
As an employer, we adopt a holistic approach to health and
safety management. While legal compliance is the first step
in managing this, we also continuously communicate and
engage with employees on health and safety-related issues
in order to obtain their input and co-operation with regard
to future planning and developments. Leading from the front
and setting the example (by proactively intervening, coaching,
guiding and correcting conditions and behaviour) in the workplace
is of paramount importance to ultimately achieving the
objective of zero harm.
Any significant risks that remain after control at source are
mitigated through codes of practice, policies, procedures,
working practices and management instructions.
42
Petra Diamonds Limited Annual Report and Accounts 2019
Health and safety material hazards and associated risks are
identified when developing work programmes. The outcomes
of continuous risk assessment, management walkabouts,
internal audits, and internal and regulatory inspections are
analysed, prioritised and formally actioned by means of remedial
action plans with assigned responsibilities and target dates.
Petra’s HSE Operational Risk Management Process consists
of mine-specific operational processes, with a three-tiered
analysis system to identify and treat all significant hazards
and associated risks.
LTIFR is the key performance measure we use for general safety
performance. Petra’s safety performance improvements, which
resulted in a lost time injury reduction of 36% and an LTIFR of
0.21 in FY 2019, can be attributed to the safety strategy focusing
on culture and leadership, systems and tools, hazard identification
and risk assessment, visibility and communication, review and
consequence management. The strategy was supported by
a ‘back to basics’ drive focused on management walkabouts,
serving leadership, coaching, proactive intervention, enforcement
of standards and practices in the workplace and consequence
management each day during every shift.
MEDICAL SCREENING
Occupational health
100% OF EMPLOYEES UNDERWENT
100% OF OUR EMPLOYEES WERE OFFERED VOLUNTARY
9,557 MEDICAL EXAMINATIONS CONDUCTED
TESTING FOR HIV/AIDS
In addition to keeping our employees safe, we also want to
encourage a workforce that is healthy in both body and mind,
taking into account prevalent local health issues, both physical
and mental. Our occupational health programme’s primary focus
is to eliminate exposure to harm and prevent occupational diseases
in the workplace. Where a condition cannot be prevented, we
ensure that all our employees are provided with appropriate
personal protective equipment. The other elements of our
health strategy include implementing employee health and
wellbeing programmes, access to appropriate medical care
and building partnerships with external health service providers
to strengthen health systems.
The key occupational health issues that can affect our workforce
relate to noise induced hearing loss and respiratory illnesses.
Outside the workplace, the main community health issues
are HIV/AIDS, tuberculosis (“TB”) and malaria (in Tanzania only)
as well as lifestyle diseases such as hypertension and diabetes.
Petra’s South African operations adopted the UNAIDS
Programme targets for HIV treatment in FY 2019. The Group
signed a Memorandum of Understanding with the Department
of Health in each of its three local provinces in South Africa
during the Year to focus on HIV/AIDS, TB and non-communicable
disease management. In January 2019 we started implementing
Isoniazid Preventive Therapy to all HIV/AIDS infected employees
to prevent TB infections as per South African national guidelines.
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
People
6,788
employees and contractors
Employee retention and development
8% STAFF TURNOVER RATE
US$6.6 million INVESTED IN STAFF TRAINING
138 EMPLOYEES HAVE GRADUATED
FROM LDP SINCE INCEPTION1
AND DEVELOPMENT
Petra recognises that the retention and development of
our people is one of the key drivers of our future success
and long-term sustainability as a company. Our people are
integral to our success and we place great importance on the
empowerment of our employees and on encouraging them to
fulfil their true potential, with the provision of training and
attractive career development opportunities. We believe this
will enable them to contribute better to the Company’s success
and also to have greater career satisfaction, thereby improving
morale, productivity and workforce retention.
Petra’s Leadership Development Programme (“LDP”) remains
an important strategic tool to assist in the identification and
development of employees who display the potential to fulfil
leadership positions in the future. Improvement of employees’
educational levels (where required) is addressed though
adult education and training and the amended senior
certificate programme.
Our focus is not merely on Petra’s current employees, but
also the next wave of employees in our local communities.
Therefore, we have programmes in place to prepare and equip
them with the skills they require. These initiatives include
providing support to selected schools in our communities to
improve performance in mathematics and science, thereby
feeding the education pipeline.
Petra places a high premium on continuously improving all
types of communication and engagement with its employees
and frequently reviews its Communication Management Policy
and Procedure Framework. The Company has various systems
and channels in place to facilitate the execution of its internal
communications strategy, including written and electronic
media, social media and a programme of face-to-face meetings.
Diversity
19% OF OUR WORKFORCE ARE WOMEN
34% OF PETRA’S INTERNS ARE WOMEN
33% OF LDP CANDIDATES ARE WOMEN
Petra recognises the importance of diversity, particularly given
the numerous studies that have identified the benefits to business of
more diverse teams when it comes to improved problem solving
and decision making. Increasing diversity is also a mandatory
requirement for companies operating in South Africa and a
best practice requirement for UK-listed companies.
Petra is committed to encouraging women in mining at all levels
of the business and therefore actively pursues their appointment,
as well as their development to fill more senior positions.
Petra’s overall objective is to achieve true equity by affording
women the appropriate training, development and progression
opportunities within the organisation across all job levels.
Petra has a number of initiatives aimed at developing
women into managerial positions, such as the LDP and Women
in Leadership Programme, which was launched in FY 2019 to
support and advance female Middle and Senior Management;
13 candidates participated in the programme. We are focused
on affording women an equal role as part of the next generation
of Petra employees and as a result 34% of our interns, 28% of
our engineering learnerships, 39% of our mining learnerships,
48% of our bursars supported during the financial Year and
38% of employees attending the various Management
Development Programmes in FY 2019 were women.
Petra has a Women in Mining Committee, which enables
women at Petra’s South African operations to share experiences,
identify challenges and promote development opportunities.
Labour relations
0 INSTANCES OF INDUSTRIAL ACTION
Principles ALIGNED WITH THE INTERNATIONAL LABOUR
ORGANIZATION DECLARATION ON FUNDAMENTAL
PRINCIPLES AND RIGHTS AT WORK
3-year WAGE AGREEMENT IN PLACE
SINCE SEPTEMBER 2017
We remain highly focused on managing labour relations, which
are essential to our productivity and strategy delivery, and on
maintaining effective communication channels with our
employees and the appropriate union representatives.
Petra did not experience any industrial action during the Year and
has seen largely stable labour relations over the last four years.
We respect our workforce’s right to exercise freedom of
association and collective bargaining, regulated by our Collective/
Recognition Agreements. Any union with sufficient representation
in the workplace may request recognition.
The Company’s IPDET plays an important role in our labour
relations strategy as annual distributions to employees are
considered to be a compelling motivator to drive enhanced
employee productivity and accountability.
1. In 2008.
Annual Report and Accounts 2019 Petra Diamonds Limited
43
Strategic Report
Sustainability continued
Environment
0major environmental incidents reported
for nine consecutive years
Environmental management
56% OF WASTE RECYCLED
100% OF SOUTH AFRICAN OPERATIONS ARE CERTIFIED
100% OF SUPPLIERS SCREENED
USING ENVIRONMENTAL CRITERIA
TO ISO 14001:2015
We recognise that our value emanates from the natural
world; therefore, protecting the environment in which we
operate is fundamental to the running of our business. The
principles of pollution prevention, compliance with legal and
adopted obligations and continual improvement, due to the
achievement of objectives and KPIs, are integrated into our
planning, management systems and daily activities.
An Environmental Management System is in place for each
mining licence, which sets out the detailed processes for the
identification of environmental risks and implementation of
action plans to mitigate the impacts of our activities. All our
South African operations are certified to the international
environmental standard ISO 14001:2015 through the British
Standards Institution (“BSI”). Williamson is not yet certified
but operates under the same principles.
44
Petra Diamonds Limited Annual Report and Accounts 2019
Our approach to risk management is based on a process
of continual improvement in hazard identification, risk
assessment, instilling awareness into the organisational culture
and enforcing adherence to control mechanisms. Updates to
the environmental baseline risk are implemented every five
years, or when processes change, after significant incidents
or disasters or by instruction from regulatory bodies.
The Company is consistently implementing processes to
improve waste management according to the internationally
recognised hierarchy of waste management and disposal and
sets annual objectives and KPIs to drive continual progress.
Overall volumes of combined waste generated in FY 2019
decreased by 66% to 6,777t, with a 31% decrease in hazardous
waste recorded.
We have implemented measures to integrate biodiversity
in the management of our operations as we recognise that
our activities have the potential to significantly affect this.
Protected areas equate to 57% of the total area owned
and managed by Petra.
Petra has a standardised Group-wide approach to concurrent
rehabilitation, with the objective of generating a non-detrimental,
sustainable solution for the environment and socio-economic
state of our communities that are left after mine closure. Third
party independent specialists assess the progress on rehabilitation
schedules on an annual basis. The environmental impact from
Petra’s mining activities is not expected to last long after the
cessation of operations, due to our strategic approach and
commitment to our values at each step of the mining
value chain.
IN CARBON FOOTPRINT
Climate change and energy usage
5th CONSECUTIVE YEAR OF ACHIEVING REDUCTION
33.6 kWh/t ELECTRICITY EFFICIENCY PER TONNE
0.03 tCO2-e/t CARBON EFFICIENCY PER TONNE
We recognise the growing importance of climate change, both
to the Company and to our stakeholders. By better evaluating
and understanding the risks and uncertainties that climate
change represents to our business, we will be able to manage
our assets in the most economically and environmentally
sustainable manner possible.
Driven by the unprecedented Paris Agreement and the global
call to action from the SDG on climate change, we support
the onus on industry to be actively involved in projects and
programmes to reduce the effects of global warming and
climate change, as caused by human activities. We believe that
amidst present policy uncertainty and future carbon constraints,
the continuing development and implementation of a
comprehensive climate change framework is not only crucial
to our Company’s competitive position but is also an essential
component of our commitment to be a leader in the diamond
mining industry.
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Climate change adaptation strategy
STRATEGY IN ACTION
VALUES IN ACTION
WORK RESPONSIBLY
LET’S MAKE
A DIFFERENCE
In recognition of the adverse circumstances that could
occur as a result of climate change, Petra has put in place
a climate change adaptation strategy, with the aim of
preparing itself for scenarios that include restrictions
on the availability of water from surface resources and
intense rainfall events. Higher rainfall intensity would
require improved freeboard at all pollution prevention
facilities and dirty water impoundments. There would
be more competition for resources that may lead to
reputational risk. Our adaptation goals are as follows:
Š Goal 1: Develop a corporate adaptation plan and initiate
implementation on operational level in the short
to medium term (2020–2025).
Š Goal 2: Climate considerations must be included
in project planning on a corporate level.
Š Goal 3: Develop an early warning system/network as
well as a climatic monitoring system to reduce
vulnerability in co-operation with Governments
and other mining companies.
Š Goal 4: Develop a vulnerability assessment
methodology to identify climate change needs.
We are targeting a 1% reduction per annum in our total
carbon emissions per carat as measured over a five-year
period (2015–2020). Our carbon emitted per carat has seen
a continuous improvement from 0.23 tCO2-e/ct in FY 2013
to 0.12 tCO2-e/ct in FY 2019.
CARBON INTENSITY
tCO2-e/ct
0.152
0.131
0.123
FY 2017
FY 20181
FY 2019
Petra continues to report to CDP and improved its score
for carbon disclosure to ‘B’ in FY 2019; we aim to progress
to an ‘A’ score in the next two years. The Company received
independent verification of GHG emissions reporting
according to ISO 16064-3 during the Year.
Managing our energy usage is an important method by which
we can limit our emissions, thereby combating climate change
and driving energy efficiency, which leads to significant
operational and financial benefits to the Company. Diamond
mining is less energy intensive than other types of mining, as
evidenced by the fact that energy consumption (specifically
electricity) only represented 15% of total cash on-mine costs
in FY 2019 (FY 2018: 14%). However, it is recognised that
non-renewable energy sources are finite and therefore likely to
become increasingly scarce over time. Our short to long-term
strategy is therefore to reduce our reliance on fossil fuel energy
resources and minimise overall energy usage wherever possible.
Petra’s total energy consumption for FY 2019 decreased by
24% to 2.3 million gigajoules (FY 2018: 3.0 million gigajoules),
due to the disposal of KEM JV.
Water management
72% OF WATER USED ON MINE IS RECYCLED
12,712,800m3 TOTAL CLEAN WATER USED
0.86m3/t CLEAN WATER INTAKE FOR PRODUCTION
BY THE GROUP
Petra has identified water demand and water conservation
management as its most significant environmental risk to
operations. This is mainly due to water scarcity in the areas
where we operate and the fact that our operations are water
intensive. Two of our operations are located in areas that
receive less than 600mm rainfall per annum.
Changes in temperature, as may be expected as a result of
climate change, will affect the availability of raw water for
treatment processes and impact on natural water resources
that sustain the communities around our operations. This is
expected to specifically impact Cullinan, which is situated
in Gauteng (the biggest area of commerce and employment
in South Africa).
In FY 2019, Petra implemented an integrated water management
strategy to: determine current and future operational water
needs by managing demand, quality and infrastructure; ensure
a resource capable of not only supporting production but also
improving the lives of those around us; and operate within the
regulatory framework provided by international, national and
local legislation.
In terms of efficiency, our total water usage per production
tonne increased by 49% to 3.61 m³/t (FY 2018: 2.43 m³/t), due
to an increase in the water usage per production tonne at
Cullinan, as well as the disposal of KEM JV that contributed
to a low water usage per production tonne previously.
Petra prides itself on the level of water recycling achieved
to date and we now recycle 72% of all water used on mine.
The total volume of recycled water used during FY 2019 was
38,391,412m3, a significant increase of 38% compared to FY 2018.
1. FY 2018 was restated following environmental auditing process.
Annual Report and Accounts 2019 Petra Diamonds Limited
45
Strategic Report Sustainability continued
Positive impacts
US$16 billion
net positive socio-economic and environmental
benefits of DPA members1
Generated economic benefit
US$49.9 million PAID IN TAXES AND ROYALTIES
US$143.2 million SPENT ON SALARIES
US$262.3 million TOTAL PROCUREMENT
SPEND
In addition to creating shareholder value, our economic
contribution to the countries and communities in which we
operate is an important focus for the Group. Through the
employment of local people, the payment of taxes and royalties,
procurement from suppliers and corporate social investment,
we are able to make a positive contribution to our stakeholders.
By ensuring a high level of transparency with regard to our
economic outputs, we can maintain confidence in Petra’s
contributions to society.
Petra publishes an annual Report on Payments to Governments,
which is available on our website.
Our supply chain
Petra’s Supply Chain department is responsible for managing
the Group’s inbound supply chain. It performs an important
role in terms of delivering on our production and expansion
plans by ensuring that the right goods and services are
delivered to the right location at the right time. The team is
also accountable for ensuring that our supply chain operates
safely, efficiently and according to the high level of ethical
conduct that we expect of our business.
We aim to obtain assurances from our suppliers that they are
engaged in ethical business practices, particularly in relation
to having internal measures in place to avoid bribery, modern
slavery, tax evasion and money laundering. The Company
similarly obtains warranties and representations from its
suppliers that they are not involved in any human rights
abuses. We retain the right to disassociate ourselves from any
entities that are in violation of these important principles.
Petra sources the majority of the goods and services for its
South African and Tanzania operations from those countries.
In excess of 2,000 suppliers have registered on the eProcure
Portal, which consists of both current and new suppliers. The
system has already impacted on some Group tenders, where
the number of potential suppliers has increased significantly
compared to past tenders.
Community development and engagement
US$1.0 million SOCIAL INVESTMENT
US$2.1 million LOANS DISBURSED THROUGH
93 INTERNAL AND EXTERNAL STAKEHOLDER
ED COMMUNITY FUND2
ENGAGEMENTS HELD
Maintaining supportive relationships and playing a positive role
in our local communities are vital to the sustainable success of
our operations. Due to the remote locations of our operations,
predominantly in areas of relatively low levels of socio-economic
development and high unemployment, Petra’s mines often
present the only major economic activity in the local area. In
line with our mission to unlock value for all our stakeholders,
our involvement in community development aims to contribute
to alleviating the most critical needs in our local communities
and to create life-changing opportunities.
Our community development work is focused on contributing
to the meaningful and long-term development of our host
communities via sustainable job creation, skills transfer
(education and training), enterprise development and
infrastructure development.
In order to address the scarcity of skills in our local communities,
our mines’ involvement starts at a grassroots level, in the form
of the maths and science school support programme and the
provision of scholarships. This is continued at tertiary education
level with opportunities provided through the bursary scheme,
the graduate development programme and the provision of
practical experience through our experiential training programme.
Petra supported 25 full-time bursars and awarded scholarships
to 46 learners in FY 2019.
We expect all suppliers and contractors to act with integrity
and respect for human rights. Therefore, compliance with our
Code of Ethical Conduct is explicitly required as part of the
general terms and conditions of contract with Petra. We have
vetting processes in place to ensure that we deal with reputable
businesses, but we will continue to strengthen these processes
as part of the ongoing formalisation of our supply chain practices.
Local businesses face a number of challenges, which include
access to funding, availability of skills (both management and
technical) and access to established supply chains. At Petra,
we strive to address these challenges through our Preferential
Procurement, Enterprise Development (“ED”) and Supplier
Development programmes, aimed at increasing localisation
and participation of local SMMEs in our supply chain.
1. Measured in 2016. Source: The Socio-economic and Environmental Impact of
Large-Scale Diamond Mining, a report by Trucost for the Diamond Producers
Association – May 2019.
2. Since inception in 2015.
46
Petra Diamonds Limited Annual Report and Accounts 2019
Strategic Report Corporate Governance
Financial Statements
Supplementary Information
Community stakeholder engagement
A proactive approach to stakeholder engagement is critical
in building relationships and upholding our social licence
to operate. Continuous progress is being made with the
implementation of a consistent and effective stakeholder
engagement approach across the Group. In addition to this
Petra has reviewed its community feedback systems and
effected the necessary changes to properly capture
and address issues raised.
In recent years, there has been a considerable shift in the
influence that stakeholders, especially local communities, have
on the operations of all companies – and in particular mining
companies – that operate in or close to them. This is witnessed
by the number of service delivery protests in South Africa,
many of which have called on mines to play a bigger part in
local development, and the increase in illegal mining. As an
example of this, Koffiefontein was impacted by lower production
during Q2 as a result of community unrest. This has encouraged
Petra to review its engagement approach, leading to a more
integrated approach that is better suited to the current
situation being adopted. It has also led to the formation
of a SED Board Committee.
Artisanal and small-scale mining (“ASM”)
Whilst there is no risk of artisanal mining taking place at Petra’s
underground operations, there is an ongoing risk of illegal artisanal
mining at Williamson and there is also a risk of illegal artisanal
mining taking place upon the tailings dumps at Petra’s South
African operations, due to the nature of these deposits being at
surface, meaning they can be more easily targeted.
The scale of illegal mining at Petra’s operations is not expected
to have a material impact upon Petra’s production in the short
to medium term. However, there are risks in terms of illegal
miners operating on Petra operations contravening a number
of regulations for which the Company is held responsible,
in particular in the areas of health and safety and
environmental management.
Facilitating artisanal small-scale mining
STRATEGY IN ACTION
VALUES IN ACTION
WORK RESPONSIBLY
LET’S MAKE
A DIFFERENCE
In FY 2019, a decision was taken to donate part of the
tailings mineral resources at Koffiefontein for ASM, following
a comprehensive business case and risk assessment. All relevant
stakeholders have been involved in setting up the formal
processes, structures and agreement.
This has involved engagement with the artisanal miners,
the DMR (including the South African Diamond and Precious
Metals Regulator) and the local authorities to reach an
optimal agreement.
Petra believes that legalised and regulated artisanal mining
has the capacity for positive social contributions through job
creation and stimulation of the local economy.
Annual Report and Accounts 2019 Petra Diamonds Limited
47
Strategic Report Effective
governance
Effective corporate governance and legal
compliance are the backbone of Petra and
enable each part of the business to operate
efficiently, successfully and sustainably.
Petra seeks to influence sustainable
consumer demand as the future of our
business is dependent on the aspiration of
consumers to buy and own diamonds. In line
with our value ‘Let’s do it better’, the Board
approved the establishment of a Social,
Ethics & Diversity Committee in FY 2019,
which sits alongside the amended Health,
Safety and Environmental Committee.
Corporate Governance
50 Chairman’s Introduction to Governance
52 Board of Directors
54 Corporate Governance Statement
65 Report of the Audit & Risk Committee
71 Viability Statement
72 Risk Management
76
78 Report of the Health, Safety
Report of the Nomination Committee
and Environmental Committee
80 Report of the Social, Ethics &
Diversity Committee
82 Directors’ Remuneration Report
Chairman’s Introduction to Governance
The long-term success and sustainability
of the Company is underpinned by our
focus on effective corporate governance.
By ensuring high governance standards,
Petra aims to contribute to the sustainability
of our industry and to deliver value to
each of our stakeholders.
Adonis Pouroulis
Non-Executive Chairman
Dear shareholder,
Strong and effective corporate governance sits at the heart
of Petra’s practices, which are always underpinned by our five
core values (as noted on page 5). Our Board looks to embed
these values and encourage the open, transparent and proactive
culture that will enable Petra to meet its strategic goals and
achieve its long-term purpose. I would like to take this
opportunity to focus on how our governance framework
is implemented and the way it operates in practice.
FY 2019 governance highlights are as follows:
Board strategy, structure and performance
As set out on pages 60 and 61, the Board made good progress
with its objectives in FY 2019 and has reassessed these objectives
throughout the Year, further streamlining them and ensuring
they are adequately measurable. Based on the outcomes of the
FY 2018 Board evaluation, various actions were taken during
the Year to address any shortcomings (this is covered in detail
on page 59) and a subsequent internal evaluation was again
held for FY 2019, concluding that the Board remains effective.
Highlighting the focus placed by the Board on health, safety,
environmental, social, ethical and diversity matters, the
Committee structure was altered in FY 2019. An HSE and SED
Committee have evolved from the HSSE Committee, with each
being chaired by iNEDs. This is expected to encourage and
50
Petra Diamonds Limited Annual Report and Accounts 2019
facilitate Board oversight and guidance of these important
issues. It will also allow the two Committees to focus on
specific areas of the business.
A process of reviewing the terms of reference of all Committees
commenced during the Year in order to standardise and ensure
effective delineation of responsibility.
Succession planning
Significant focus has been placed on succession planning and
Board membership during the Year. We have not only taken
good steps in ensuring the Board, Board Committees and
Senior Management are appropriate for Petra’s shift in focus
to steady-state operations, but I am delighted to note that
we have also achieved improved levels of diversity at higher
levels of the business. Various Board appointments were made
in line with our three-year Succession Plan and these are covered
in the Nomination Committee Report on pages 76 and 77.
A search process has commenced for a suitable successor for
the position of Chairman of the Board and an update will be
provided when appropriate. See page 58 for further detail.
We will continue to review the skills, expertise, composition
and balance of the Board on an ongoing basis as part of our
succession planning.
Diversity
The importance of diversity both from an ethical as well as
a business perspective cannot be overplayed and we remain
committed to improving diversity levels throughout the workforce,
management team and Board (read more about diversity on
page 43).
The SED Committee will play an important role in achieving
progress in this key area of the business, with diversity being
a central reporting parameter for the Committee.
The Company is also currently in the process of reviewing
relevant policies and ensuring it has an appropriate Diversity
Policy as part of its overall Sustainability Framework. See the
SED Committee Report on pages 80 and 81 for further detail.
Governance updates
The Board is in the process of reviewing the provisions of the
2018 UK Corporate Governance Code (“the new Code”) and I am
pleased to say that we already comply with a significant number
of these. We will be formally reporting on this in FY 2020.
The Board has also reviewed the Company’s Anti-Bribery Policy
and Code of Ethical Conduct and subsequently updated the
Code of Ethical Conduct to incorporate references to the
relevant provisions of the Criminal Finances Act, 2017 as part
of the Company’s commitment to preventing the facilitation
of tax evasion.
Stakeholder engagement and feedback
An important aspect of the new Code centres around Board
engagement with stakeholders. As a Board, we already have
significant interaction with certain of Petra’s stakeholders
(which are laid out in their entirety on pages 12 to 14). This
includes a formalised investor engagement agenda (with detail
available on page 63), enabling us to communicate with our top
shareholders and bondholders to seek their feedback on Petra’s
strategy and performance. These sessions allow for frank
discussions around the strengths and weaknesses of the business.
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
The Board has several opportunities throughout the year for
employee engagement, with Director site visits as well as informal
meetings, in which we welcome feedback and open communication.
In addition to this, we are committed to further developing our
workforce engagement and aim to introduce clear and formal
systems to facilitate this going forward.
As always, should any stakeholder like to speak to me or the
Senior Independent Director about any aspects of this Annual
Report or the Company’s performance, please do not hesitate
to get in contact via our Corporate Communications team
based in London (see page 168 for contact details).
Adonis Pouroulis
Non-executive Chairman
14 October 2019
Chair
Other members
Audit & Risk Committee
Gordon Hamilton
Overseeing the Group’s financial reporting, internal
and external audit, internal control and risk
management systems, and compliance,
whistleblowing and fraud policies
Remuneration Committee
Gordon Hamilton
Advising the Board on the remuneration of Executive
Directors and setting an overall policy for remunerating
the Group’s employees
Nomination Committee
Adonis Pouroulis
Leading the process for Board appointments
and re-election and succession of the Directors
and the Chairman of the Board
HSE Committee
Bernard Pryor
Overseeing the Group’s health, safety
and environmental systems and policies,
and monitoring of compliance
SED Committee
Octavia Matloa
Overseeing the Group’s social, ethics
and diversity systems and policies,
and monitoring of compliance
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Executive Committee
Richard Duffy
Assisting the CEO in the performance of his duties
and in dealing with the day-to-day activities
of the Company’s business
Dr Pat Bartlett
Tony Lowrie
Octavia Matloa
Bernard Pryor
Dr Pat Bartlett
Tony Lowrie
Varda Shine
Dr Pat Bartlett
Gordon Hamilton
Tony Lowrie
Dr Pat Bartlett
Richard Duffy
Luctor Roode
Jacques Breytenbach
Richard Duffy
Luctor Roode
Varda Shine
Jacques Breytenbach
Luctor Roode
Greg Stephenson
Annual Report and Accounts 2019 Petra Diamonds Limited
51
Corporate Governance
Board of Directors
1. Adonis Pouroulis (49)
Non-Executive Chairman
APPOINTMENT DATE March 1997
QUALIFICATIONS Mining Engineer – University of Witwatersrand,
South Africa.
SKILLS 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.
EXPERIENCE He founded Petra in 1997 and it became the first
diamond company to float on AIM. He has since chaired Petra
through its development into a mid-tier diamond producer of
global significance.
EXTERNAL APPOINTMENTS Non-Executive Director
of Chariot Oil & Gas plc and Director and Chairman
of Rainbow Rare Earths Limited.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
12,569,375 shares (30 June 2018: 12,569,375 shares).
N
4. Tony Lowrie (77)
Senior Independent Non-Executive Director
A
N R
APPOINTMENT DATE September 2012
QUALIFICATIONS Royal Commission – Sandhurst Military Academy.
SKILLS Mr Lowrie has over 45 years’ association with the equities
business and is an experienced non-executive director.
EXPERIENCE 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, Kenmare Resources plc, Dragon Oil plc
and J.D. Wetherspoon plc, as well as several other quoted Asian
closed end funds.
EXTERNAL APPOINTMENTS None.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
3,737,500 shares (30 June 2018: 3,737,500 shares).
2. Richard Duffy (55)
Chief Executive
APPOINTMENT DATE April 2019
H
S
E
5. Dr Pat Bartlett (74)
Independent Non-Executive Director
HRNA
APPOINTMENT DATE November 2011
QUALIFICATIONS B. Com degree – University of Witwatersrand,
South Africa, and an MBA from Henley Management College, UK.
QUALIFICATIONS Member of the South African Institute of Mining
and Metallurgy; registered Professional Natural Scientist.
SKILLS In addition to his business, strategic and financial skills,
Mr Duffy has extensive experience in both open pit and underground
mining and a proven focus on safety, productivity and community
relations, having led multiple large-scale mining operations
across Africa.
SKILLS Dr Bartlett 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.
EXPERIENCE Mr Duffy has 27 years of global mining industry
experience, initially with Anglo American plc and then AngloGold
Ashanti Limited, where he worked across business development,
exploration and corporate finance; Mr Duffy was appointed
Executive Vice President: Africa Region in 2008 and became
CFO and Executive Director of AngloGold Ashanti in 2013.
EXTERNAL APPOINTMENTS Director of Africa Energy Management
Platform and Aren Energy (Pty) Ltd.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
240,000 shares.
EXPERIENCE Dr Bartlett was formerly Chief Geologist for De Beers
until his retirement in 2003. Since retiring from De Beers, he has
consulted on block caving projects for BHP Billiton, Anglo American
and Rio Tinto.
EXTERNAL APPOINTMENTS None.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
Nil shares (30 June 2018: nil shares).
3. Jacques Breytenbach (47)
Finance Director
E
S
6. Gordon Hamilton (74)
Independent Non-Executive Director
A
N R
APPOINTMENT DATE February 2018
APPOINTMENT DATE November 2011
QUALIFICATIONS Chartered Accountant – member of the
South African Institute of Chartered Accountants.
SKILLS Mr Breytenbach leads the financial management of the
Company and is responsible for financing, treasury, financial
controls, reporting, legal, compliance and corporate governance.
EXPERIENCE Mr Breytenbach held the role of Finance Manager –
Operations at Petra from 2006, with responsibility for financial
management across the Group’s operations, before becoming Chief
Financial Officer of the Group in June 2016. Prior to joining Petra, he
held various roles, culminating in Finance Manager – Capital Projects
at Anglo Platinum.
EXTERNAL APPOINTMENTS None.
QUALIFICATIONS Chartered Accountant – ICAEW.
SKILLS Mr Hamilton has extensive experience as a non-executive
director across a wide range of businesses.
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.
EXTERNAL APPOINTMENTS Non-Executive Director of Atrium
Underwriting Group Limited, Nedbank Private Wealth and other
related companies within the Nedbank Group.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
243,750 shares (30 June 2018: 243,750 shares).
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
247,000 shares (30 June 2018: 247,000 shares).
52
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
7. Octavia Matloa (43)
Independent Non-Executive Director
APPOINTMENT DATE November 2014
SA
QUALIFICATIONS Chartered Accountant – Member of the
South African Institute of Chartered Accountants
SKILLS Ms Matloa is a Chartered Accountant and brings broad
business, financial and auditing experience to the Board.
EXPERIENCE Ms Matloa completed her articles with PwC in
South Africa in 2000 before joining the Department of Public Transport,
Roads and Works, first as deputy Chief Financial Officer, followed by
Chief Director Management Accounting. Since this time, Ms Matloa
has founded a number of businesses, including Tsidkenu Chartered
Accountants Inc. and Mukundi Mining Resources.
EXTERNAL APPOINTMENTS Non-Executive Director of MultiChoice
South Africa (Pty) Limited and MultiChoice South Africa Holdings
(Pty) Limited.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
Nil shares (30 June 2018¹: nil shares).
8. Bernard Pryor (62)
Independent Non-Executive Director
APPOINTMENT DATE January 2019
AH
QUALIFICATIONS Metallurgical Engineer, Royal School of Mines,
Imperial College London; Chartered Engineer from the Institute
of Mines and Metallurgy.
SKILLS Mr Pryor has a wide skill-set encompassing project
acquisition, development and construction and international
commercial and general management, and has run large-scale,
fully operational mining assets.
EXPERIENCE Mr Pryor has over 35 years’ experience in the
international mining industry; prior to his appointment as CEO of
Alufer Mining, he was previously CEO of African Minerals Limited
and Q Resources plc. Mr Pryor also held senior positions within
Anglo American plc and was COO at Adastra Minerals Inc.
EXTERNAL APPOINTMENTS CEO of Alufer Mining and
Non-Executive Chairman of MC Mining Limited.
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
Nil shares.
9. Varda Shine (56)
Independent Non-Executive Director
APPOINTMENT DATE January 2019
R S
QUALIFICATIONS Business and management courses at Technicon
(Israel), Templeton College, Oxford, Cranfield and INSEAD.
SKILLS Ms Shine is a CEO’s mentor and a diamond industry expert
adviser, with significant experience in working with stakeholders
across the supply chain and delivering record sales and profits.
EXPERIENCE Ms Shine has 30 years of experience in the diamond
industry and was most recently CEO of De Beers Trading Company
(2006-2014). She is a trustee of the Teenage Cancer Trust.
EXTERNAL APPOINTMENTS Ms Shine currently sits on the boards
of the Mineral Development Company Botswana, Sarine Technologies
Limited (Singapore listed) and Niron Plc. She is also a Governing Board
member of the Diamond Empowerment Fund (“DEF”).
INTEREST IN THE COMPANY AS AT 30 JUNE 2019
Nil shares.
1
2
3
4
5
6
7
8
9
Committee key
A Audit & Risk
N Nomination
R Remuneration
H Health, Safety & Environment
S Social, Ethics & Diversity
E Executive
Chairman
Board and Senior Management changes
As part of the Company’s three-year Succession plan, a process to
identify a successor for the CEO position was completed. In line
with the Company’s development from a phase of intensive capital
expenditure and expansion to a focus on steady-state operations,
Johan Dippenaar stepped down from the role. Richard Duffy was
appointed as his successor with effect from 1 April 2019.
Mr Dippenaar’s interest in the Company as at 31 March 2019
was 8,385,830 shares (30 June 2018: 8,385,830).
Annual Report and Accounts 2019 Petra Diamonds Limited
53
Corporate Governance Corporate Governance Statement
UK Corporate Governance
Code compliance
Petra aims to maintain high standards of corporate governance throughout the Group.
The Company looks to not only comply with all applicable governance regulations in its
jurisdictions but also to meet best practice wherever possible.
Petra is not subject to a code of corporate governance in its country
of incorporation, Bermuda; however, as a London Stock Exchange
(“LSE”) Main Market company with a premium listing and its tax
domicile in the UK, Petra is required to comply with the UK Corporate
Governance Code (April 2016) (“the Code”) and to explain in this
statement any areas of non-compliance with the Code.
The Company has identified two areas in which it is not strictly
in compliance with the Code, as set out below:
Š 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 2005 Executive Share Option Scheme and being
eligible to receive benefits of membership from the Group’s life
insurance scheme. The Company’s Independent Non-Executive
Directors (“iNEDs”) continue to be of the opinion that, whilst not
considered to be independent, Mr Pouroulis demonstrates
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 previous Annual General Meeting (“AGM”).
Š Remuneration of Non-Executive Directors (“NEDs”) – as noted,
Petra’s Non-Executive Chairman, Mr Pouroulis, holds share
options granted prior to the Company’s step-up from AIM to
the Main Market of the LSE, 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 share option
or share incentive awards to the Non-Executive Chairman
since 17 March 2010. Other than this exception, the Group has
fully incorporated the principles of the Code when determining
remuneration for NEDs (for further information, please review
the Directors’ Remuneration Report on pages 84 to 93).
The Board is in the process of reviewing the provisions of
the 2018 UK Corporate Governance Code (“the new Code”),
which is applicable for accounting periods beginning on or
after 1 January 2019. Petra already complies with a number
of these and will be formally reporting on this in FY 2020.
Matters reserved for the Board
Š Vision and strategy
Š Production and trading results
Š Financial Statements and reporting
(supported by the Audit & Risk
Committee)
Š Financing strategy
Š Budgets, expansion projects, capital
expenditure and business plans
Š Material acquisitions
and divestments
Š Corporate governance, ethics
and culture
Board experience
Š Risk management and internal
controls, including consideration of
the Viability Statement (supported
by the Audit & Risk, Remuneration
and HSE Committees)
Š Health, safety, social and
environmental matters (supported
by the HSE and SED Committees)
Š Appointments and succession
plans (supported by the
Nomination Committee)
Š Executive Director remuneration
(supported by the Remuneration
Committee)
8/9
MINING89+
FINANCE78+
7/9
2/9
GEOLOGY22+
AUDIT33+
3/9
CAPITAL MARKETS
6/9
67+
AFRICA89+
8/9
54
Petra Diamonds Limited Annual Report and Accounts 2019
Board time in FY 2019
10
25
20
20+
%
15
30
– Strategy and risk
– Corporate and finance
– Operations and projects
– Governance, social, ethics and diversity
– Health, safety and environment
Corporate Governance30
+
15
+
25
+
10
+
I
11
+
A
78
+
A
22
+
A
33
+
A
67
+
A
11
+
A
Strategic Report
Financial Statements
Supplementary Information
The role of the Board
The Board is responsible for the long-term success of the Company. Petra’s Board has the required balance of experience, skills and
knowledge of the Company, as well as independence with regards to the iNEDs, to properly discharge its responsibilities and duties.
In order to fulfil its role, the Board:
Š sets the Company’s strategic aims, ensures that the necessary
resources are in place for the Company to meet its objectives,
and reviews management performance in achieving such objectives;
Š provides leadership of the Company within a framework of
effective systems and controls, which enable risk to be
assessed and managed;
Š develops the 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
Š carries out all duties with due regard for the sustainability
and long-term success of the Company.
The role of the Chairman
Mr Pouroulis:
The role of the Chief Executive Officer
Mr Duffy:
Š leads the Board and is primarily responsible
for the effective working of the Board;
Š in consultation with the Board, ensures good corporate
governance and sets clear expectations with regards
to Company culture, values and behaviour;
Š sets the Board’s agenda and ensures that all Directors
are encouraged to participate fully in the activities
and decision-making process of the Board;
Š engages with shareholders and other governance-
related stakeholders, as required;
Š meets with the Senior Independent Director and with
the iNEDs without the Executive Team present, in order
to encourage open discussions and to assess the
Executive Team’s performance;
Š identifies induction and development needs
of the Board and its Committees; and
Š chairs the Nomination Committee and thereby plays
an important part in assessing and advising on the
appropriate composition of the Board and its skill-set.
Š is primarily responsible for developing Petra’s strategy
in consultation with the Board, for its implementation
and for the operational management of the business;
Š leads and provides strategic direction to the Company’s
management team;
Š runs the Company on a day-to-day basis;
Š implements the decisions of the Board and its Committees,
with the support of his fellow Executive Director and
top-level Senior Management;
Š monitors, reviews and manages key risks;
Š ensures that the assets of the Group are adequately
safeguarded and maintained;
Š is the Company’s primary spokesperson, communicating
with external audiences, such as investors, analysts and
the media;
Š leads by example in establishing a performance-orientated,
inclusive and socially responsible Company culture; and
Š chairs the Executive Committee and is a member of
the HSE and SED Committees, thereby having direct
involvement in the strategic management of Petra’s
HSE and SED issues, including labour relations.
The role of the
Senior Independent Director
Mr Lowrie:
Š provides a sounding board for the Chairman and serves
as an intermediary for the other Directors as necessary;
Š is available to shareholders if they have concerns which
contact through the normal channels has failed to
resolve or for which such contact is inappropriate;
Š leads the iNEDs in undertaking the evaluation
of the Chairman’s performance appraisal;
Š provides valuable input with regards to Petra’s investor
relations (“IR”) strategy, in line with his extensive capital
markets experience; and
Š is a member of Petra’s Audit & Risk, Remuneration
and Nomination Committees, thereby bringing his
skill-set and independent judgement to the benefit
of these Committees.
The role of the independent NEDs
Dr Bartlett, Mr Hamilton, Mr Lowrie, Ms Matloa,
Mr Pryor and Ms Shine:
Š challenge the 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 Group;
Š assess the performance of the Chairman;
Š scrutinise the performance of the Executive Directors
in terms of meeting agreed goals and objectives;
Š ensure that the financial information, controls and
systems of risk management within the Group are
robust and appropriate;
Š determine the appropriate levels of remuneration
of the Executive Directors; and
Š provide independence and a breath of skills
and experience to Board Committees.
Annual Report and Accounts 2019 Petra Diamonds Limited
55
Corporate Governance Corporate Governance Statement continued
How our Board operates
Board and Committee meetings
The full Board meets formally in person at least four times a
year for Board meetings and also speaks at other times via
conference call in order to discuss operational matters and
ongoing performance against the Group’s development and
production plans, including internal budgets and external
guidance to the market. There is frequent communication
between Board members outside of the set meeting dates,
in order to stay abreast of business developments.
The formal Board and Committee meeting dates are scheduled
to address key events in the corporate calendar and are generally
allocated around three days to allow for considerable interaction
by the members, both inside and outside of the formal meetings.
There is a standing list of agenda items for discussion at every
meeting, with extra time factored in for additional items. The
agenda is agreed with the Chairman (or with the Chairman of
the relevant Committee) and a timeframe set in advance for
the various items, thereby ensuring that the full agenda can
be covered in the time allotted. Dinners and other social
engagements are also attended by members outside of the
meeting times to allow for more informal discussion of issues;
this assists in clarification and engagement, meaning that
consensus during the meeting is more easily attained.
Packs for the meetings are prepared by management following
input on the agendas formulated by the respective Chairs, and
circulated electronically prior to the meeting, thereby allowing
the Directors adequate time to consider the variety of issues to
be presented and debated. In the minutes of the meetings,
issues identified for follow-up are set out, ensuring that
unresolved matters raised by the Directors are actioned and
reported back in a timely manner.
In addition to formal Board and Committee meetings, the
Chairman holds frequent meetings with the iNEDs during the
year, enabling free discussions without the Executive Directors
present. These meetings also allow the Chairman to update the
iNEDs on the various activities of the Group where necessary
before a formal Board meeting, in particular when the Executive
Directors are reviewing matters of strategy, the budgetary
process and other corporate activities.
FY 2019 Board calendar
Board
meetings
5 held
Audit & Risk Remuneration
Committee
Committee
5 held
5 held
Nomination
Committee
5 held
HSE
Committee
2 held
SED
Committee
2 held
HSSE Annual General
Meeting
1 held
Committee 1
1 held
Adonis Pouroulis2
Richard Duffy3
Johan Dippenaar4
Jacques
Breytenbach
Tony Lowrie
Dr Pat Bartlett
Gordon Hamilton
Octavia Matloa5
Bernard Pryor6
Varda Shine7
4
1
4
5
5
5
5
5
2
2
n/a
n/a
n/a
n/a
5
5
5
5
1
n/a
n/a
n/a
n/a
n/a
5
5
5
n/a
n/a
1
4
n/a
n/a
n/a
5
5
5
n/a
n/a
n/a
n/a
1
1
n/a
n/a
2
n/a
n/a
1
n/a
n/a
1
1
2
n/a
n/a
n/a
2
n/a
2
n/a
n/a
1
n/a
n/a
1
n/a
n/a
n/a
n/a
0
n/a
1
1
1
1
1
1
n/a
n/a
1. This Committee was amended during the Year to form the HSE Committee and SED Committee.
2. Due to an unforeseen personal commitment, Mr Pouroulis was unable to attend the AGM as well as one Board and one Nomination Committee meeting. In his absence,
these were chaired by Mr Lowrie.
3. Mr Duffy was appointed to the Board and as Chief Executive Officer with effect from 1 April 2019. Mr Duffy became a member of the SED Committee with effect from April 2019
and a member of the HSE Committee with effect from May 2019.
4. Mr Dippenaar resigned as Director during FY 2019, effective 31 March 2019.
5. Ms Matloa was elected as the Chair of the SED Committee with effect from May 2019.
6. Mr Pryor was appointed to the Board on 1 January 2019 and became a member of the Audit & Risk Committee as well as a member and the Chairman of the HSE Committee.
7. Ms Shine was appointed to the Board with effect from 1 January 2019. Ms Shine joined the SED Committee when it was established in February 2019 and became a member of the
Remuneration Committee with effect from May 2019.
Employee engagement
The Board currently has several opportunities throughout the
year for employee engagement, with Director site visits as well
as informal meetings, in which the Board welcomes feedback
and open communication. A more formal system to enable
workforce engagement is currently being investigated and the
Board is committed to facilitating effective communication
channels going forward.
Site visits
Visiting Petra’s operations in person and interacting with
Senior Management and employees is very important for all
Board members. Annual site visits are therefore arranged for
the NEDs to ensure that, in addition to papers presented at
Board meetings, they continue to stay informed of development
and progress at the operations, as well as allowing for interaction
with employees at a range of levels throughout the business
and assisting with the ongoing evaluation of Company culture.
A full Board site visit was held at Cullinan in May 2019; the trip
included a comprehensive overview of the slimes dam and related
facilities, involving a review of the management, controls and
assurance functions in place. Mine management provided Board
members with in-depth presentations and the Board was given
the opportunity to interact with staff and ask questions, which
allowed for a highly effective and productive site visit.
56
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
– 0–3 years
– 4–9 years
– 10–22 years
– Executive Directors
– Independent Non-Executive
Directors
– Non-Executive Directors
– South African
– British
11
12
67
22
44
44
%
%
Tenure of Directors
Board composition
44+
22+
54+
2+
Directors’ nationality
%
98
2
4
5
In addition to the full Board site visit, Executive Directors
visited the operations on a regular basis as part of their
day-to-day business. Additional site visits were conducted
by the iNEDs in FY 2019:
Š August 2018: Dr Pat Bartlett and Gordon Hamilton visited
all South African operations.
Š February 2019: Dr Pat Bartlett, Gordon Hamilton and
Varda Shine visited Koffiefontein and Cullinan. Tony Lowrie
also visited Cullinan.
Š February 2019: Gordon Hamilton and Varda Shine joined
the investor and analyst site visit to Finsch.
Š June 2019: Bernard Pryor visited Finsch and Koffiefontein.
Why our Board is effective
Director commitment
The Directors’ biographies and duties can be found on pages
52 and 53. There have been various changes to the Board as
well as Committee membership throughout the Year.
During the Year, there were no significant changes to the
Chairman or iNED’s external commitments and they are considered
to have sufficient time to fulfil their duties, as confirmed by
the internal Board evaluation, carried out in August 2019.
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 appointments to ensure no conflict of interest
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 external appointments which affect their
contribution to Petra.
The Chairman and iNEDs are 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.
Assessment of Director independence
As previously noted, Mr Pouroulis is not considered independent
according to corporate governance guidelines; however, the iNEDs
continued to be of the opinion that Mr Pouroulis demonstrates
integrity and independence in judgement, character and action,
thereby justifying their recommendation that shareholders
support his re-election at the Company’s forthcoming Annual
General Meeting (“AGM”), prior to the appointment of a
suitable successor.
In accordance with the Code, the Board considers Mr Lowrie,
Dr Bartlett, Mr Hamilton, Ms Matloa, Mr Pryor and Ms Shine
to be independent and all six iNEDs are independent of any
relationship listed in the provisions of the Code. None of the
iNEDs received any fees from the Company in FY 2019 other
than their contractual iNED fees, as set out on page 89
of the Directors’ Remuneration Report.
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
may be, if requested by the Chairman, excluded from any related
discussion and will always be excluded from any formal decision.
Percentage of Petra shares held
– Directors
– Other
Shares in issue as at
30 June 2019: 865,336,485.
The Board site visit to Cullinan
in May 2019
Annual Report and Accounts 2019 Petra Diamonds Limited
57
Corporate Governance44
+
12
+
I
46
+
I
67
+
11
+
I
98
+
I
Corporate Governance Statement continued
Why our Board is effective continued
Board committees
An SED Committee has been established to provide the Company
with strategic direction into matters related to social, ethics and
diversity and to support Petra in proactively engaging with its
social environment, mitigating risk associated with social
complexity and contributing to operational stability and
sustainability. This derived from the HSSE Committee which
is now the HSE Committee, focusing on health, safety and
environmental matters.
The SED Committee will assist the Board in ensuring that the
Board discharges its oversight responsibilities with regard to
social, ethics, diversity, social sustainable development matters
and stakeholder relationships, to ensure that the Company
upholds the principles of good corporate citizenship and
conducts its business in an ethical and sustainable manner.
A process of reviewing the terms of reference of all Committees
was commenced during FY 2019, and upon completion of the
process, each Committee will approve its revised terms of
reference during FY 2020.
Process used in relation to Board membership,
succession planning and appointment process
As part of the three-year Succession Plan, the Nomination
Committee commenced a search process for a new CEO and
two iNED positions during FY 2018. An independent, external
process was used to identify CEO and NED candidates for
appointment during FY 2019. An executive search agency
was selected on the basis of its global reach, experience and
strong understanding of the mining and metals industry.
The Nomination Committee provided the agency with a brief
which included not only requisite skills and experience, but also
a requirement to consider diversity in the selection. Having been
shortlisted, the Board was then given the opportunity to
interview the candidates prior to their appointment.
As part of our ongoing succession planning, a process has
commenced to find a suitable successor for the Chairman
position, which is also being externally facilitated. The current
Chairman will be standing for re-election, supported by the
Board, at the Company’s forthcoming AGM and an announcement
regarding the appointment of the successor will be made as
soon as a successful candidate has been identified. A handover
period will ensure a smooth transition.
The Nomination Committee and the Board itself will continue
to review the composition of the Board and its Committees
as part of its ongoing succession planning.
Director induction, information, training
and development needs
Detailed knowledge of the specialist world of diamonds, the
global mining industry, international capital markets, UK/LSE
legislation, Sub-Saharan Africa (particularly South Africa) and
Petra’s unique business and operations is crucial to the Board’s
ability to effectively lead the Company.
Petra has an induction programme designed to bring new
Directors up to speed as quickly as practicable, following their
appointment to the Board. Such an induction would typically
involve meetings with the Board and various members of
Senior Management, an information pack of all necessary
corporate documents, including the Company’s latest Annual
and Sustainability Reports, the Bye-Laws, Committee Terms of
Reference and other key Group policies, such as the Group Code
of Ethical Conduct and the Anti-Bribery Policy, enabling them
to familiarise themselves with the Group, its procedures and
current activities. A site visit to one or more of the Group’s key
operations is held as soon as possible, to provide the new
Director with further information on the operations, including
production/expansion plans and key ESG considerations.
In order to ensure that existing Board members retain the
relevant and up-to-date knowledge and skill-set to properly
discharge their duties, ongoing training and other professional
development opportunities are provided by the Company and/
or the Directors attend external courses and conferences on
their own professional behalf. Training is arranged as appropriate
to suit each Director’s individual needs and covers topics such
as industry developments, governance, technical subjects
related to diamond mining, communication strategies and ESG
matters. The Chairman reviews and agrees with each Director
their training and development needs. Board training on
New Director induction
STRATEGY IN ACTION
WORK RESPONSIBLY
VALUES IN ACTION
LET’S DO IT RIGHT
LET’S TAKE CONTROL
Petra’s induction programme, which is led
by the Company Secretary and overseen
by the Chairman, aims to ensure that all
new Directors are provided with a suitable
introduction to the Company, its operations
and marketplace as well as our governance
standards, values and culture. In FY 2019,
several new Directors joined the Board
and their induction process included:
Š meetings with Directors and management
at different levels of the business;
Š tours of Petra’s operations, which included
presentations from mine management
teams and the opportunity to meet
other personnel;
Š conversations with Petra’s largest
shareholders (see further information
on page 63); and
Š a Director induction pack, containing
Company policies, reports, Board and
Committee minutes, Board objectives
and the Petra Group structure as well
as relevant information on the UK
Corporate Governance Code and
other relevant standards.
Varda Shine:
“Given my position on the SED Committee, I
was specifically interested in understanding
more about the Company’s talent pool and in
being given an overview of Petra’s succession
plans. This enabled me to get a good sense
of how Petra develops its employees and
fosters the next generation of leaders.
The ‘deep dive’ into each operation on the
site visits I conducted was a fantastic way
of quickly getting up to speed with the
Company, its operations and its people.”
58
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
specific topics is requested by the Board members and then
provided by a specialist at the Board meeting.
In FY 2019, the Board received formal training by external
experts on shareholder activism and the 2018 UK Corporate
Governance Code (see further detail on page 64). The Directors
also received detailed technical presentations during their mine
site visits. Furthermore, briefing sessions were held for the
Directors covering topics such as diamond sales and marketing
processes, information and communications technology, cyber
security, disaster recovery preparedness and an overview of
social complexities in operational areas.
The Company’s Corporate Communications team acts as
a conduit of regular information to the Board and Senior
Management, providing daily briefings by email on relevant
topics, such as key diamond industry trends, peer group
developments, regulatory updates and socio-economic
information about Petra’s countries of operation, as well
as internal Company news.
The Board has access to the advice and services of the
Company Secretarial function as required.
Evaluation of the Board’s performance
Following the internal evaluation process conducted for FY 2018, various areas for improvement were identified as follows.
An update on progress made during FY 2019 has been included.
AREA OF IMPROVEMENT IDENTIFIED
IN FY 2018 EVALUATION
PROGRESS MADE DURING FY 2019
Off-site strategy session to be held on a regular basis.
Strategic issues are addressed during Board meetings and a full day off-site strategy
session was held in September 2019, with annual sessions scheduled thereafter.
Increased reporting to the Board on progress
with strategic priorities within the business.
Reporting has been formalised during the Year, with the introduction of a formal
monthly CEO report to the Board, covering strategic matters.
The annual review of the risk register should become
standard practice.
Risk discussions are a standing item at Exco meetings and are covered by the Board
as and when required but at least on an annual basis.
Board composition and succession should remain
an item for discussion at quarterly meetings.
More time will be allocated for Board and Committee
meetings, bearing in mind the size of the business
and the ever-evolving governance landscape.
Succession planning is a standing agenda item on the Nomination Committee agenda,
with recommendations, feedback and guidance then being provided to the Board. In
line with the Company’s Succession Plan, the appointment of two new NEDs took place
in FY 2019 and Richard Duffy was appointed as CEO with effect from 1 April 2019. Post
Year end, the commencement of a process to appoint a successor for the role of
Chairman was announced.
More time has been allocated where required to suit agenda requirements.
An internal Board evaluation was carried out again for FY 2019,
in which each Board member was given the opportunity to
provide input by means of a questionnaire covering the
following topics:
Š objectives, strategy and remit;
Š performance measurement;
Š risk management;
Š Audit & Risk Committee, Internal Audit
and corporate reporting;
Š Board composition and process; and
Š individual performance.
The results were collated and analysed and a report was
provided to the Board. As a result of the evaluation process,
it was concluded that, whilst the Board remains effective for
the size of the business, the following areas of improvement
have been identified:
Š An annual risk review has become standard practice;
however, further consideration of principal risks needs
to be incorporated into Board discussion and decisions.
Š Whilst Board reporting has improved, further work will be
carried out in order to provide enhanced clarity and ensure
that Board papers are concise and consistent, and
circulated on a timely basis.
Š Continue to improve the mechanisms by which the Board
receives feedback from the Company’s broad range of
stakeholders. Implementation of clear and formal systems
to facilitate Board/workforce engagement.
Š Whilst the Succession Plan has resulted in various changes
to the composition of the Board, further consideration of
succession is required, and additional changes may be made.
Š The Board is currently provided with training on various
relevant topics; however, more regular training sessions,
covering a broader range of issues, will be incorporated
into the Board schedule in future.
An external assessment is conducted every three years
and is next scheduled for FY 2020.
Annual Report and Accounts 2019 Petra Diamonds Limited
59
Corporate Governance Corporate Governance Statement continued
Board strategy and performance
The Company’s strategy is to further develop its stature as a leading independent diamond miner with a focus on working
responsibly, achieving consistent delivery and driving optimisation. The Board’s objectives in order to assist the Company
in the furtherance of its strategy are set out below.
OBJECTIVES FOR FY 2019
PROGRESS IN FY 2019
OBJECTIVES FOR FY 2020
Strategy and operations
1. Safety of all Petra people will continue to be
the Company’s top priority and will remain
closely monitored by the Board and the HSE
Committee, as Petra strives to reach its
objective of a zero harm workplace.
Safety is the first operational item discussed at
every Board meeting and received significant
attention throughout the Year. iNED Bernard Pryor
was appointed as Chairman of the HSE Committee
in order to ensure Board-level oversight of this
important area of the business.
Safety of all Petra people will continue to be the
Company’s top priority and performance in this
regard, including the specific KPIs set for FY 2020,
remain closely monitored by the Board and the
HSE Committee, as Petra strives to reach its
objective of a zero harm workplace.
2. Strategic focus on value over volume,
requiring continued evaluation of driving
operational efficiencies and optimisation
across the portfolio in order to reset the
cost base and maximise profitability.
The Group’s production results and delivery against
approved plans was monitored closely throughout
the Year. Cullinan tailings production was curtailed
based on lower prices for smaller goods.
3. Annual strategy day to become regular
fixture in Board calendar.
Strategic discussions form part of each
Board meeting. A strategy day took place
in September 2019 and another session has
been planned for 2020.
4. Increase reporting to the Board on progress
on strategic priorities within the business.
The Board receives information on a monthly basis
in the form of flash results and other important
information relating to progress on strategic
priorities. Following the appointment of the new
CEO, reporting to the Board has been critically
reviewed and enhanced.
Strategic focus on value over volume, requiring
continued evaluation of driving operational
efficiencies and optimisation across the portfolio
in order to reset the cost base and maximise
profitability. Oversight of implementation of
Project 2022 (see further detail on pages 7 and 8).
Annual strategy day will remain a regular fixture
in Board calendar.
The Board will consider an appropriate long-term
capital allocation strategy for the Group, while
closely monitoring the Company’s progress
with regards to meeting its medium-term
leverage target.
The Board will review the asset portfolio of
the business with a view to maximise return
on capital and to ensure that all assets are in
a position to contribute positive cashflow
to the business.
A continued high level of reporting to the
Board on progress on strategic priorities within
the business.
5. Further consideration of an appropriate
longer-term capital allocation strategy and
dividend policy for the Group, while closely
monitoring the Company’s progress with
regards to meeting its medium-term
leverage target.
A complete review of all life of mine plans was
undertaken post Year end along with an appraisal
of the Group’s capital allocation strategy.
This objective has been consolidated
into objective 3.
6. Review the asset portfolio of the business
with a view to maximising return on capital
to ensure that all assets are in a position to
contribute positive cashflow to the business.
The Board receives information on the performance
of the assets on a continuous basis at Board
meetings. The information received forms the basis
of strategic discussions around its asset portfolio
and the maximising of return on capital.
This objective has been consolidated
into objective 3.
7. Continue to improve the mechanisms by
which the Board receives feedback from the
Company’s broad range of stakeholders.
The Board receives relevant reports from
management, including feedback on stakeholder
engagement, covering topics such as shareholder
and bondholder feedback, labour relations,
community engagement and social matters.
Continue to improve the mechanisms by
which the Board receives feedback from
the Company’s broad range of stakeholders.
Implementation of clear and formal systems
to facilitate Board/workforce engagement.
8. Ongoing consideration of Company purpose,
culture and reputation, and how these are
vital to the delivery of Petra’s strategy
and to upholding consumer confidence
in diamonds.
When making any decisions, the Company purpose,
culture and reputation is always kept in mind by
the Board. The Company is also a member of the
DPA and is represented by CEO Richard Duffy.
Ongoing consideration of Company purpose,
culture and reputation, and how these are vital
to the delivery of Petra’s strategy and to
upholding consumer confidence in diamonds.
60
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
OBJECTIVES FOR FY 2019
PROGRESS IN FY 2019
OBJECTIVES FOR FY 2020
Board composition
9. The Board and Nomination Committee
are looking to make additional changes in
FY 2019 in order to ensure Petra has the
right mix of expertise and skills within its
Board, Committee and Senior Management
structures. Improving diversity at the
top levels of the business will be an
integral part of this.
The Board was further strengthened in FY 2019,
with the appointment of the CEO and two iNEDs.
10. Further strategic consideration of the
Company’s three-year Succession Plan.
The Company’s Succession Plan was discussed and
considered by the Board. Succession planning will
be considered on a continuous basis going forward.
The Internal Audit Plan for FY 2019 considered the
key business risks as highlighted in the Company’s
risk registers. Progress on reviews and updates on
risks are continuously monitored.
Risk management
11. Ensure that the annual Internal Audit Plan
addresses the key business risk areas that
can be mitigated by Internal Audit reviews.
This will be backed up by Internal Audit
continuing to consider other parts of the
business where the ongoing review of the
systems of internal controls and internal
financial controls is relevant to superior
Group risk management.
12. Continue to consider the key risks that are
relevant to the Petra Group, ensuring the
possible effect of such risks and plans for
the mitigation thereof is fully understood
and continually actioned by the Board
and Senior Management.
The Board and Nomination Committee will continue
to consider the expertise and skills within Petra’s
Board, Committee and Senior Management
structures and may make additional changes as
required. Improving diversity at the top levels
of the business will be an integral part of this.
A policy review is currently underway to ensure
the Group has a Diversity Policy as part of its
sustainability framework.
Identify and appoint a successor for the role
of Chairman.
Further changes may be made to the Board in
accordance with ongoing succession planning.
Ensure that the annual Internal Audit Plan
addresses the key business risk areas that can be
mitigated by Internal Audit reviews. This will be
backed up by Internal Audit continuing to consider
other parts of the business where the ongoing
review of the systems of internal controls and
internal financial controls is relevant to superior
Group risk management.
The Company has established an Operational
Risk Committee which reports into its Executive
Committee. The Committee reviews and reports
on key risks on a quarterly basis to the Executive
Committee. The Board conducted a full review of
the Group’s principal risks shortly after Year end
and amendments to the reported risk profile have
been made (see pages 36 and 37 for further detail).
Continue to consider the key risks that are
relevant to the Petra Group, ensuring the
possible effect of such risks and plans for the
mitigation thereof is fully understood and
continually actioned by the Board and Senior
Management, including an annual review
of the Group’s risk register.
13. Arrange at least one annual visit for the full
Board to the Group’s operations.
A full Board visit was conducted at Cullinan
in May 2019.
Arrange at least one annual visit for the full
Board to the Group’s operations.
14. An annual review of the Group’s
risk register.
An annual risk review of the Group’s risk register
was performed during July 2019.
This objective has been consolidated into
objective 12.
Board process
15. The Board will continue to hold monthly
update meetings in order to regularly
monitor delivery against development
and production plans.
The monthly update meetings have been replaced
by the issuing of monthly update reports during
the months in which there are no Board meetings.
The Board will continue to receive monthly update
reports to ensure regular monitoring of delivery
against development and production plans.
16. More time will be allocated for Board and
Committee meetings, bearing in mind the
size of the business and the ever-evolving
governance landscape.
Three days have been allocated to the scheduled
Committee and Board meetings, increasing from
two previously.
This item has not been stated as a specific
objective for FY 2020 as the Chairman of the
Board and each Committee considers the amount
of time required for their meetings during the
process of finalisation of agendas prior to each
meeting. This process ensures that sufficient
time is available to cover all key issues adequately.
17. Hold an internal Board evaluation process
in FY 2019.
The evaluation process took place shortly after
Year end but covers FY 2019.
Hold an external Board evaluation process
in FY 2020.
18. Continue to assess the Directors’ training
needs and to provide relevant training
opportunities to the Directors in order to
ensure that all Board members stay abreast
of relevant developments.
Board training was conducted at two of the
Board meetings during FY 2019. Training needs
are assessed on a continual basis.
Continue to assess the Directors’ training needs
and to provide relevant training opportunities
to the Directors in order to ensure that all Board
members stay abreast of relevant developments.
19. Content of Board packs to be reviewed
and further improved to ensure
optimal communication.
Board packs have been improved to ensure
that the key issues receive most attention
at the Board meetings.
This item has not been listed as a specific
objective for FY 2020 as it has been addressed
and will be reviewed if required. Board packs are
also reviewed at a pre-Board Exco meeting to
ensure that key issues receive most attention at
the Board meetings.
Annual Report and Accounts 2019 Petra Diamonds Limited
61
Corporate Governance Corporate Governance Statement continued
Shareholder communication
Shareholder breakdown as at 30 June 2019
Analysis of equity investor concentration
– Top 20 holders
– 21–40 holders
– 41–60 holders
– 61–80 holders
– 81–100 holders
– Other holders
6
14
212
75+
%
75
Investor relations (“IR”) calendar for FY 2019
Analysis of investor style
8
10
30
33
30+
%
18
17
11
– Multi-style
– Growth
– GARP
– Index
– Private client broker
– Value
– Hedge
– Other
July
FY 2018 Trading Update and FY 2019 Guidance Update
September
FY 2018 Prelim Results
Investor roadshow in UK and North America
October
Annual and Sustainability Reports published
November
January
February
Q1 FY 2019 Trading Update
AGM
H1 FY 2019 Trading Update
Investor and analyst site visit to Finsch
H1 FY 2019 Interim Results
Investor roadshow in UK and North America
Participation in industry investor conferences in South Africa and North America
March
April
May
Participation in industry investor conference in the UK
Q3 FY 2019 Trading Update
Participation in industry investor conference in Spain
Investor/analyst presentation and webcast
Investor/analyst conference call
Investor one-on-one meetings
Conferences
Site visit
Report publication
IR strategy
Investor relations is an essential aspect of the Company’s
Corporate Communications strategy. The aim of Petra’s IR
programme is to ensure that the Company’s business model,
strategy, operational and financial performance and future
prospects are clearly understood by the investment
community both in the UK and internationally.
The Company achieves this by operating with a high level of
transparency with regards to its historical, current and future
operations, by providing consistent information and messages
across a number of communication channels and by using clear
language that aims to explain the investment story and ensure
that it is easy to understand for a wide range of audiences.
Petra continues to support an open and transparent dialogue
with shareholders, thereby ensuring 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.
The Group’s corporate website, www.petradiamonds.com,
aims to provide investors with the required information
to potentially make an investment decision; however, the
Company also provides a wide range of information to assist
other stakeholders and makes available Petra’s Annual and
Sustainability Reports via this medium. The website is regularly
reviewed and updated with new information.
Recognising the growing importance of social media both
in terms of news dissemination and in terms of providing
an alternative communications channel to stakeholders,
Petra continues to develop its presence through its LinkedIn
and Twitter channels. The Company also publishes updates
on Facebook and Instagram, but these channels are
focused primarily on employee, local community and
consumer audiences.
IR activity
Petra has a dedicated in-house Corporate Communications
team 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 as well as all
members of the Board on shareholder and analyst communication
and ensures that analyst research notes are circulated as received.
A monthly IR report covering Petra trading in relation to its
peers, an overview of IR activity and investor feedback, analyst
forecasts, share register movements and bond performance is
distributed monthly to the Board and a quarterly IR presentation
is included for review at Board meetings.
As part of Petra’s proactive investor relations approach, the
CEO, Finance Director, Corporate Communications team and
Business Analyst (based in Johannesburg) commit time to hold
regular formal and informal meetings in person and via the
telephone with the Company’s shareholders and potential
62
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance14
+
6
+
2
+
1
+
2
+
I
18
+
17
+
11
+
10
+
8
+
3
+
3
+
I
Strategic Report
Financial Statements
Supplementary Information
investors, in addition to twice yearly roadshows, which coincide
with the publication of Petra’s interim and annual results.
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 available to access
thereafter at www.petradiamonds.com/investors/financial-
events-calendar/. Furthermore, regular meetings are arranged
with sell-side analysts and broker sales teams.
In addition, the Chairman is available to meet with
shareholders as required and the iNEDs, 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 address concerns that contact with the Chairman, CEO or
Finance Director failed to resolve, or for which such contact
was inappropriate.
As part of the Company’s commitment to ensuring effective
shareholder communications, the Chairman and Senior
Independent Director carry out a governance roadshow every
two years, with the next event scheduled in FY 2020.
Petra hosts one formal investor/analyst site visit per year, with
additional smaller ad hoc visits arranged as required or requested.
Such visits are considered an essential part of the Company’s IR
programme as seeing one of the operations in person is the
best way for an investor/analyst to understand the scope and
scale of Petra’s assets, as well as the depth of operational
management on site and the passion of Petra’s people.
FY 2019 shareholder engagement
During FY 2019, the Company’s CEO and IR team held 130
one-on-one and group investor meetings, thereby engaging
with over 180 people. The team met with all of the active
managers within the Group’s top 20 shareholders at least once
during the Year. In addition to the meetings detailed above,
following his appointment as CEO, in April 2019, Richard Duffy
met with the Group’s top shareholders. Meetings were also
arranged with a number of top shareholders with Bernard
Pryor and Varda Shine, following their appointments as
Independent Non-Executive Directors.
The main recurring themes and issues raised by shareholders
during the Year centred on:
Š Petra’s achieved diamond prices, especially at Cullinan
following the fall in the average achieved price in H1 FY 2019
and the subsequent recovery of a number of ‘special’ stones
in H2 FY 2019 (read more on page 19);
Š Petra’s operational performance as the Company moves
from a phase of significant capital expenditure to one of
steady-state production (read more on pages 28 to 35);
Š Petra’s balance sheet and leverage levels, the Company’s
ability to generate free cashflow and management’s plans to
refinance the bond due in May 2022 (read more on page 26);
Š the volatility of the ZAR:USD exchange rate and the impact
on Petra’s financial position (read more on page 25);
Š the political situation in South Africa around the general
election in May 2019 (read more on page 73);
Š the blocked Williamson parcel and VAT receivables in
Tanzania and the ongoing discussions with the Government
(read more on page 66);
Š the state of the diamond market and expectations with
regards to diamond pricing (read more on pages 15 to 19);
Š synthetic diamonds and how these affect the market
for natural diamonds (read more on page 15); and
Š Richard Duffy’s reasons for joining Petra and his first
impressions from his first few weeks as CEO (read more
on page 9).
Reporting
Petra’s objective with regards to external reporting (via its
Annual Report and Sustainability Report and supported by its
website) is to provide a high level of transparency, in order to
set out a clear picture of the Group’s past performance and
its potential future prospects. To this end Petra has aimed to
provide a high level of disclosure, particularly across the area
of sustainability, having produced detailed standalone
Sustainability Reports for the last ten years.
Investor and analyst site visit to Finsch in February 2019, also attended
by various Board members
Annual Report and Accounts 2019 Petra Diamonds Limited
63
Corporate Governance Corporate Governance Statement continued
Preparing for the 2018 UK Corporate Governance Code
STRATEGY IN ACTION
WORK RESPONSIBLY
VALUES IN ACTION
LET’S DO IT RIGHT
LET’S TAKE CONTROL
LET’S DO IT BETTER
The 2018 UK Corporate Governance Code
(“the new Code”) will apply to Petra in
FY 2020 and therefore the Board started
its preparations during the Year, which
included a comprehensive overview and
training session on both the new Code as
well as the FRC’s updated Guidance on
Board Effectiveness, carried out by an
external adviser.
The session covered all key aspects of both
documents but focused on the following
key areas:
Š ‘comply or explain’ requirements;
Š increased emphasis on
stakeholder engagement;
Š possible methods of ensuring effective
workforce engagement;
Š diversity and its implications in succession
planning; and
Š boardroom effectiveness.
The Board noted that Petra already complies
with a number of the new provisions and it
continues to review the new Code ahead of
formally reporting in FY 2020.
Annual General Meeting (“AGM”)
Shareholders are encouraged to participate at the AGM,
ensuring that there is a high level of accountability and
identification with the Group’s strategy and goals. Due to an
unforeseen personal commitment, Mr Pouroulis was unable
to attend the AGM and in his absence it was chaired by
Mr Lowrie. The remainder of the Board was present, with
the Committee Chairs (Mr Lowrie standing in as Nomination
Committee Chairman on behalf of Mr Pouroulis) available
to answer any questions relevant to their activities.
A summary of the proxy voting for the AGM was made available
via the London Stock Exchange and on the corporate website as
soon as reasonably practicable on the same day as the meeting.
Results of our FY 2018 AGM
Total votes
Votes withheld
against (as a % (as a % of total shares
with voting rights)
of votes cast)
1
2
3
4
5
Statutory accounts
Approve Directors’ remuneration
Re-appointment of auditors
Approval to fix auditors’ remuneration
Re-appointment of Chairman
Total votes
for (as a %
of votes cast)
100
97.34
99.87
99.94
77.88
0.00
2.66
0.13
0.06
22.12
6-11
Re-appointment of Directors
84.64 to 99.97
15.36 to 0.03
12
13
Authority to allot relevant securities
Disapplication of pre-emption rights
99.58
99.58
0.42
0.42
Total number of
votes withheld
1,323,572
15,898,759
1,057
15,897,275
17,813,361
903 to 4,153
2,528
7,328
0.15
1.84
0.00
1.84
2.06
0.00
0.00
0.00
In the FY 2018 AGM, 22.12% of the total votes cast were against
the re-appointment of Mr Pouroulis as Chairman. In response to
this, the Company emphasised in its AGM results announcement
that it is focused on progressing with its three-year Succession
Plan, which is in line with Petra’s development from a phase
of intensive capital expenditure and expansion to a focus on
steady-state operations, that solid progress is being made
with the plan and that the Company will continue to engage
with its shareholders around the important topic of Board
composition and diversity.
Furthermore, the Company issued an update announcement
within six months of the AGM on 20 March 2019. This confirmed
that the Board had considered the concerns raised by shareholders
and had reaffirmed its assessment that the Chairman continued
to demonstrate the independence of thought and challenge
required for his role, notwithstanding the years he had served
as a Director. The Company also stated that, following the
recent appointment of a new CEO and two new independent
NEDs, in order to ensure continuity and stability of leadership
and management, the appointment of a new Chairman was
not considered appropriate at the time.
Post Year end, Petra announced that Mr Pouroulis intends to
step down from the Board by the end of Q3 FY 2020, once a
successor has been identified and appointed. It is expected
that an announcement regarding the appointment of a new
Chairman will be made before the end of this calendar Year.
64
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
Report of the Audit & Risk Committee
Dear shareholder,
The Audit & Risk Committee plays a vital role at Petra by
ensuring that the Group has effective and appropriate risk
management and internal control systems, backed up by
comprehensive financial, governance, Internal Audit and
reporting functions. As Chairman of the Committee, I am
pleased to have this opportunity to summarise some of
the key developments during the Year, as well as our
ongoing responsibilities and objectives.
Careful consideration of leverage, banking
covenants, going concern and Viability Statement
Whilst all major capital expansion programmes have been
delivered across the portfolio and the Company has achieved
positive operational free cashflow during the Year, the Group’s
debt levels continue to remain high. The impact of the current
weakness in the diamond market on the Group’s operating
results and cashflow position has increased the likelihood of
possible breaches in its EBITDA-related covenants for the
December 2019 and June 2020 reporting periods and the
Group’s temporary utilisation of the South African banking
facilities, should the ongoing weakness in the diamond
market persist.
The Committee was kept fully appraised of these developments
with regards to potential forecast covenant breaches, liquidity
and cashflow forecast positions as well as management’s
engagements with the Lender Group (which remain ongoing).
The Committee regularly discussed these issues and the
potential deleveraging mechanisms available to the Group
with the full Board, ensuring at all times that appropriate
consideration was being given and that external reporting in
regulatory announcements was always appropriate, balanced
and complete. Consideration was also applied to the BEE
guarantees and the bond refinancing in FY 2022 and related
disclosures with regards to the Viability Statement.
Reviewing LOM estimates leading to impairments
IFRS requires that detailed impairment reviews are performed
at each reporting period if there are indications of a potential
impairment. Given the weakening diamond pricing environment,
coupled with the Group’s declining market capitalisation,
management identified there to be an indicator of impairment
and carried out tests for each mine based on the underlying
LOM models.
The review required management to use its judgement and
make assumptions with regards to production rates, operating
costs, capital expenditure, treatment of VAT at Williamson in
the forecast period, Project 2022 and the Group’s reserves and
resources coupled with a robust discussion on diamond pricing
in light of the current diamond market weakness measured
against prices achieved historically and anticipated future
pricing. Economic assumptions around inflation, foreign
exchange rates and discount rates are further included in the
preparation of the models with the resultant net present value
per mine then being compared to the carrying value of mining
assets, ore stockpiles and diamond inventories.
The Committee assessed all these key assumptions and project
initiatives, considered market conditions, and was kept abreast
regularly by management of developments at the operations
as well as holding frequent discussions with the external auditors
so as to ensure appropriate external reporting was provided.
Annual Report and Accounts 2019 Petra Diamonds Limited
65
Members of the Audit & Risk Committee
Gordon Hamilton (Chairman), iNED
Dr Pat Bartlett, iNED
Tony Lowrie, iNED
Octavia Matloa, iNED
Bernard Pryor, iNED (effective 1 January 2019)
The Audit & Risk Committee (“the Committee”) continued
to focus on its key objectives set for FY 2019 of:
Š continually assessing the Group’s Internal Audit
function and looking to enhance and improve
processes and functions where appropriate;
Š ensuring the Group’s interim and annual results
and financial statement reporting were adequately
considered with focus on maintaining robust
judgements and estimates;
Š ongoing consideration of controls systems to ensure
they remain relevant and appropriate to the business
and the associated risks thereto; and
Š maintaining regular and detailed interaction with
the external auditors, both within the Committee
meetings and otherwise (by the Committee
Chairman), ensuring the highest levels of audit
quality and timeous feedback are maintained.
The Committee gave careful consideration to
leverage in FY 2019 – whilst all major capital
expansion programmes have been delivered
and the Company has achieved positive
operational free cashflow, the Group’s debt
levels continue to remain high.
Gordon Hamilton
Chairman of the Audit & Risk Committee
Audit & Risk Committee Terms of Reference
petradiamonds.com/about-us/
corporate-governance/board-committees
Corporate Governance Report of the Audit & Risk Committee continued
Tanzanian legislative environment
Ongoing legislative challenges in Tanzania impacting the
mining industry, coupled with the blocked parcel, continue
to constitute a commercial risk for the Group. The Committee
considered external legal advice received by management,
which highlighted the Company’s legal right to receive the
parcel as well as Petra’s adherence to all requisite procedures.
These factors, along with the ongoing engagement with the
Government of Tanzania (“GoT”) and its decision to release
subsequent parcels show that the continued seizure of the
parcel is not indicative of a wider dispute, which would increase
the risk that the Group’s ownership and right to the diamonds
is being contested. This provided further additional support to
the likelihood of the release of the parcel and therefore, the
Committee’s consideration of the carrying value of the parcel
and its reflection thereof in inventory.
The significant increase in overdue VAT receivables at
Williamson continues to be a key concern. The Committee held
frequent discussions with management throughout the Year
wherein updates concerning feedback on engagement with the
Tanzanian Revenue Authorities and other Government officials
were provided. Consideration of in-country legal advice as to
the amended categorisation of raw minerals (legislated post
July 2017) in the context of Williamson’s diamond exports,
current fiscal constraints in Tanzania and the political environment
were further considered by the Committee. Whilst the GoT
states that input VAT cannot be claimed post July 2017 on raw
mineral exports that have not yet been processed, beneficiated
or value added, management has highlighted the value add to
the diamonds in the form of the sorting, acidisation and transport
process, which is supported by independent legal advice. In
light of the above, the Committee agreed with management’s
views that the VAT receivable balances are legally valid and
remain recoverable. However, given the continued delays in
recovery, significant uncertainty exists regarding the timing
of receipt. Following discussions with management and a
review of management’s analysis of the expected timing of
receipts and an appropriate risk adjusted discount rate, the
Committee agreed with management around the potential
timing of the recoverability and agreed with its suggested
discounting provision against the receivable based on recovery
over an extended time period with an associated discount rate.
Risk review
The Committee continued to consider and enhance its risk
reporting matrices ensuring that both operational and corporate
level risk reviews were carried out during the Year.
Whilst the risk review led to the consolidation and re-prioritisation
of some of our risks, the outcome did not significantly change the
Group’s recorded material risks as disclosed on pages 36 and 37.
Gordon Hamilton
Chairman of the Audit & Risk Committee
14 October 2019
Committee experience and skill-set
The members of the Audit & Risk Committee are considered to
possess the appropriate skills and experience to monitor and
ensure the integrity of the Group’s financial reporting, Internal
Audit, internal financial control and risk management systems
and to support Petra’s governance.
Mr Hamilton, the Chairman of the Committee, fulfils the
requirements of the Code with regards to recent and relevant
financial experience, having spent more than 30 years as a
partner at Deloitte LLP primarily responsible for multinational
and FTSE 350-listed company audits in mining and for several
South African companies. He is currently chairman of the audit
committee for several other companies (refer to page 52).
In terms of the Committee members, and in line with updated
FRC Guidance, Dr Bartlett, as an experienced diamond geologist,
possesses a wealth of sector-specific experience relevant to
the nature of Petra’s business; Mr Lowrie brings many years of
business experience across international banking and financial
sectors; and Ms Matloa is a qualified Chartered Accountant
who brings highly relevant business and audit experience as
she is currently a member of the audit committee for other
organisations in South Africa. Mr Pryor was appointed as a
member of the Committee with effect from May 2019. Mr Pryor
is a metallurgical engineer with 35 years of experience in the
international mining industry.
When appropriate, new members to the Audit & Risk Committee
will receive the required induction to ensure they are properly
equipped to discharge their duties; this includes the standard
Board induction process (as set out on page 58), as well as
information specific to the Committee such as its Terms
of Reference, Internal Audit Charter, previous internal and
external auditor reports and Committee meeting minutes.
The Committee members receive appropriate ongoing training
and development as well as regular updates from the Group’s
external auditors on relevant financial reporting, governance
and regulatory developments.
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 assisted
the Committee during FY 2019.
Committee meetings
Five meetings were held in FY 2019 and the Committee invited
the Group Chairman, the Executive Directors, members of Senior
Management (including the COO) and the Group Internal Audit
Manager to attend these meetings as appropriate. In addition,
the Chairman of the Committee met separately with the BDO
LLP Audit Partner on several occasions to discuss significant
audit and accounting matters, together with relevant financial
reporting and governance developments. The full Committee
also met with the Audit Partner without the Executive
Directors present during the Year.
The Committee recognises the importance of allocating
significant time to fulfil its duties effectively. In advance of
each Committee meeting, a formal agenda and information
pack is circulated allowing each member time to review the
information and prepare for the Committee meetings. During
the formal meetings, the members then engage in robust and
open debate and assessment of relevant matters.
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Supplementary Information
Mr Hamilton, as Chairman of the Committee, allocates a
significant amount of time to this role. In addition to chairing
formal meetings of the Committee and attending sessions
with the external auditors, Mr Hamilton travelled regularly to
Johannesburg during FY 2019 where he was able to meet with
the FD and the Finance team, as well as the Group Internal
Audit Manager, in order to discuss and monitor the financial
controls and audit activities of the Group on a timely basis.
In addition, site visits were arranged for Committee members
during the Year to the Group’s various operations, enabling the
Chairman and the Committee to maintain a comprehensive
understanding of corporate and finance developments and
activities and any associated risks, as well as the operational
risks and issues and controls in place at Petra. A site visit was
undertaken by Mr Hamilton and Dr Bartlett to Finsch, Cullinan
and Koffiefontein mines during August 2018 and again in
February 2019 to Koffiefontein and Cullinan accompanied
by Ms Shine post her appointment to the Board. Mr Hamilton
also accompanied the investor/analyst site visit to Finsch in
February 2019. In June 2019 Mr Pryor visited the Finsch and
Koffiefontein operations.
Committee role and activities
The principal functions of the Audit & Risk Committee are listed below, along with the corresponding activity and performance
in FY 2019.
ROLE
ACTIVITIES IN FY 2019
OUTCOMES
To monitor the integrity of
the interim and preliminary full
year results announcements,
as well as the Annual Report
and Accounts published by the
Company, reviewing significant
financial reporting judgements
contained therein.
The Committee formally considered the Group’s interim results, preliminary
full year results and Annual Report and Accounts and considers that they present
a fair, balanced and understandable assessment of the Group’s performance
and prospects. The Committee, on behalf of the Board, has a specific process
of review that enables it to make this assessment, which includes a detailed
appraisal by each member. The Committee then met with the Executive
Directors to discuss any questions and comments.
In particular, the Committee assessed the balance of information reported
against its understanding of the Group, as well as the tone and language used
in the reporting, ensuring that it should be comprehensible to readers
of various backgrounds.
Outside of formal Committee meetings, accounting matters were also discussed
by the Chairman of the Committee and the FD. Key auditing, financial reporting
and governance matters, which typically focused on areas of significant judgement,
estimation or accounting policy selection, were discussed with the Audit Partner
ahead of Committee meetings and then during the Committee meetings.
In accordance with the Code, the
Directors consider that the Annual
Report and Accounts taken as a whole
is fair, balanced and understandable
and provides information necessary
for shareholders to assess the
Company’s performance, business
model and strategy.
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.
As part of its work to approve the Group’s Financial Statements, the
Committee reviewed the key financial reporting judgements and accounting
policies therein. These judgements were assessed through discussions with the
Group’s auditors and presentations by management in which the Committee,
where appropriate, challenged the basis for such judgements and estimates.
Details of the significant matters considered by the Committee in respect
of the FY 2019 Annual Report are set out on pages 68 and 69.
The Committee considers that the
accounting policies used, reporting
disclosures, compliance with
accounting standards and other
requirements are appropriate to the
Group in all regards, taking account of
the specialised nature of its business.
To ensure that Petra’s risk
management systems, internal
financial controls and other
internal controls are effective.
The Committee assesses the Company’s risk management systems, internal
controls and internal financial controls on an ongoing basis. As part of this, the
Committee invites the Group Chairman, the Executive Directors and the Group
Internal Audit Manager to attend the meetings as appropriate.
The Committee considers that Petra’s
internal controls, including its internal
financial controls, continue to be
robust and defensible.
During these meetings, the Committee was provided with updates on the
Group’s activities and the members considered the risk and control implications
on an ongoing basis. Additionally, the Board as a whole received presentations
and reports by management on operational and financial performance each
quarter that allowed for assessment of risk and internal controls.
The Committee will continue to review
and assess the development of risk
management and internal control
systems, assisted by the work of the
Internal Audit team.
The Committee meetings during FY 2019 included presentations by BDO LLP
regarding the results of the FY 2018 audit, the interim review for H1 FY 2019
and the FY 2019 Audit & Risk Committee Planning Report, with a presentation
by BDO LLP of the results of the FY 2019 audit subsequent to the Year end.
These presentations included the auditors’ observations and recommendations
in respect of internal controls that the Committee incorporated into its overall
assessment of the effectiveness of risk management and controls.
To ensure the Internal Audit
function is adequately resourced
and effective and is supported
by the Committee in its role.
The Internal Audit Charter was reviewed, updated and approved by the
Committee in FY 2019. The Committee continued to assess the effectiveness
of the Internal Audit team during the Year and to review and develop the
Internal Audit Plan as required.
The Group Internal Audit Manager, and
supporting team, will continue to work
with the Committee to ensure the
integrity and effectiveness of the
Group’s internal control procedures
and risk management systems.
Annual Report and Accounts 2019 Petra Diamonds Limited
67
Corporate Governance Report of the Audit & Risk Committee continued
Committee role and activities continued
ROLE
ACTIVITIES IN FY 2019
OUTCOMES
In advance of the FY 2019 audit, the Committee reviewed and approved the
external auditors’ audit planning presentation and assessed the appropriateness
of the audit strategy, scoping, materiality and audit risks.
The Committee approved the audit fees as part of the audit planning process.
The Committee also reviewed audit-related fees in relation to the interim review
and agreed upon procedures over the Company’s Sustainability Report.
The Committee has taken appropriate
steps to assess the independence of its
auditors, recognising the importance of
audit independence to the audit process.
The Committee has reviewed and
gained a thorough understanding
of the external auditors’ strategy and
has satisfied itself that it is robust and
that the auditors remain independent.
To consider the appointment,
re-appointment or removal
of the external auditors, to
recommend the remuneration
and terms of engagement of
the external auditors and 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 their
independence or objectivity.
To give due consideration to
relevant laws and regulations,
the provisions of the Code and
the requirements of the UK
Listing Rules.
The Committee received adequate timely information, briefings and training
on all relevant regulatory updates and developments. The Committee as a
whole and, on occasion, the Chairman of the Committee met separately with
the BDO LLP Audit Partner to discuss significant audit, accounting and
governance developments during the Year.
The Committee is satisfied that Petra
continues to act in accordance with
the Code and all relevant laws,
regulations and the UK Listing Rules.
To review the adequacy of the
Company’s whistleblowing
system, its fraud detection
procedures and the systems
and controls in place for
bribery prevention.
The Committee continues to consider the adequacy of the various policies
and systems in place across the Group that cover the whistleblowing system,
its fraud detection procedures and the systems and controls in place for
bribery prevention.
The Group’s whistleblowing procedure was reviewed and updated during the
Year, and the independent, external whistleblowing and fraud hotline remains
in place and continues to be offered to all employees as well as other stakeholders.
In FY 2019 Petra received 27 reports
involving alleged irregularities
considered necessary to investigate,
relating mostly to fraud involving
recruitment scams, procurement
irregularities, theft and corruption.
Of these reports, 20 were resolved
and closed and 7 remain under
investigation. Following a lengthy
investigation and criminal trial, a
non-diamond related theft conviction
was handed down in respect of a
previous employee at Cullinan. In
another incident at the same mine,
a senior employee was dismissed for
fraud after it was found the employee
had colluded with another employee
to unlawfully pay a supplier at the
mine. The amounts involved in these
investigations are not of a material
nature. Further to the outcome of
these investigations, the Company
made changes to its system of internal
controls to limit such events taking
place in the future.
Significant issues considered by the Committee in FY 2019
The following are considered by the Committee to be the significant issues considered by the Committee in respect of the Group’s
Financial Statements, based upon its interaction with both management and the external auditors during the Year. These issues
align with those disclosed in the Independent Auditors’ Report on pages 97 to 103.
SIGNIFICANT MATTERS CONSIDERED
OUR RESPONSE TO THESE MATTERS
Going concern, leverage and debt facility covenants
Going concern, liquidity and covenant compliance coupled
with facility availability remained a key risk and area of
focus given the impact of a softer diamond market towards
the latter half of the Year and since Year end.
Management’s cashflow forecast as at the date of this
report indicate the likelihood of possible breaches on its
two EBITDA covenant tests for the 31 December 2019
and 30 June 2020 measurement periods.
The assumptions in the Group’s financial forecasts and the
status of forecast future covenant compliance, mitigating
actions available to the Group and appropriateness of
the going concern assumption and related disclosures
therefore represented an area of significant focus
for the Committee.
The Committee members critically reviewed the forecast cashflow and banking
covenant models against forecast Group liquidity requirements and required covenant
ratios in relation to the banking facilities, particularly considering exchange rate and
production assumptions, coupled with a detailed and robust review on the diamond
pricing assumptions in the context of past and present pricing and the current weakness
being experienced in the diamond market. The forecasts demonstrated that the Group
is likely to require temporary utilisation of the South African banking facilities, should
the ongoing weakness in the diamond market persist during the period under review,
and possible breaches in its EBITDA-related covenants for the December 2019 and
June 2020 measurement periods. Management provided updates of its engagement
with the Lender Group and the Lender Group’s ongoing support and availability of
the facilities that were carefully considered by the Committee. The Committee also
considered previous covenant waivers received, the long-standing relationship with
the Lender Group and subsequent affirmation from the lenders post Period end that
they remained supportive of the Group.
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SIGNIFICANT MATTERS CONSIDERED
OUR RESPONSE TO THESE MATTERS
Carrying value of mining assets
The carrying values of the mining assets at all of
the operations were key focus areas for the Committee
in FY 2019 on the back of the weaker diamond market
and variability in product mix.
At Cullinan, Finsch, Koffiefontein and Williamson
impairment indicators were identified and impairment
charges of US$63.9 million, US$85.4 million, US$33.2 million
and US$41.2 million respectively were recognised.
The impairment tests include significant estimates and
judgements and therefore represented a key focus for
the Committee, as covered in note 8 on pages 114 to 116.
Tanzanian legislative environment
At Williamson, ongoing risks arising from legislative
changes and political uncertainties, alongside the slow
recovery of VAT receivables and the continued confinement
of the parcel of diamonds due for export in FY 2018,
continued to represent a significant area of focus for
the Committee in FY 2019.
Management presented a sensitivity analysis on liquidity and covenant ratios with due
consideration given to potential risk areas (diamond pricing, production, product mix
volatility, increased operating costs and exchange rates), as well as the Group’s capacity
to defer capital expenditure and the ability to deliver on Project 2022. The impact of
continued advances to BEE partners to enable them to meet their loan obligations to
the BEE Lenders, the exclusion of the proceeds from the sale of exceptional stones, the
sale of the blocked Williamson parcel and the recovery of historical and current VAT
during the forecast period was further considered as part of this review.
Having considered the cashflow forecast, risks and sensitivity analysis and Lender Group
support, the Committee was satisfied with management’s forecast and judgement
that the going concern basis of preparation remained appropriate and that there were
no material uncertainties that would cast doubt on the basis of preparation.
The Committee assessed the disclosures in the Annual Report and Financial Statements
in respect of going concern and covenant compliance and concluded that they were
appropriate. Refer to note 1.1 on pages 109 and 110 for further details.
The Committee critically reviewed the key assumptions and parameters (diamond price
forecasts versus historical pricing trends and market outlook, foreign exchange rates against
current and forward rates, and the basis for production and cost forecasts) in the LOM
plans for Cullinan, Finsch and Koffiefontein that supported the impairment tests
performed by management.
In addition, the Committee reviewed, for all the operations, the sensitivity analysis
performed by management on key parameters of potential impairments under various
scenarios. Robust discussions on diamond pricing, with input from Petra’s Head of
Marketing, in light of the current diamond market weakness measured against prices
achieved historically and anticipated future pricing was critical to the Committee’s
review of the impairment models.
The changes to the underlying operational plans, costs and capital expenditure
assumptions did not materially change the valuation of these assets compared to
earlier reviews of this nature and thus did not indicate any impairment on a standalone
basis. However, the revised starting price assumptions, given recent weakness in the
diamond market and a decision to use a lower real price escalator compared to earlier
assumptions, resulted in each of the four operational assets’ carrying values being
partially impaired to reflect the latest assessment of the recoverable value.
The Committee further reviewed the relevant disclosure in the Financial Statements
to ensure compliance with reporting standards.
The Committee reviewed legislative changes, reviewed associated commentary from legal
bodies and discussed with management and the Company’s legal counsel the potential
impact of the legislative changes on the Williamson life of mine plan and impairment
test. This included specific consideration of the impact on costs and the selection of
an appropriate discount rate at 30 June 2019.
The Group’s independent Tanzanian legal adviser supported management’s assessment
that the Group continues to hold legal title to the parcel and the Group would have a
valid claim for compensation if the parcel is not released.
The Committee further considered management’s assessment that the VAT is legally
valid and remains recoverable, further supported by in-country legal advice.
The Committee considered management’s discounting provision based on management’s
analysis of the expected timing of receipts and suggested risk adjusted discount rate.
The Committee reviewed the relevant disclosure in the Financial Statements to ensure
compliance with reporting standards.
Each of these areas also represented significant audit risk areas for BDO LLP and, accordingly, the Committee was provided with
detailed written and oral presentations by the engagement team on each of these matters. On the basis of their work, BDO LLP
reported to the Committee no inconsistencies or misstatements that were material in the context of the Financial Statements
as a whole.
Annual Report and Accounts 2019 Petra Diamonds Limited
69
Corporate Governance Report of the Audit & Risk Committee continued
External auditors
During the Year, the Committee fully considered the effectiveness,
objectivity, skills, capacity and independence of BDO LLP
considering all current ethical guidelines, and was satisfied that
all these criteria were met. The auditors’ fees were approved
as part of this process.
The effectiveness of the external auditors was deliberated,
giving consideration to recent FRC guidance on assessing audit
quality. The Committee places considerable importance on the
following attributes: African mining sector experience (given
the specialised nature of the industry), service levels, audit
quality, sound auditor judgement, the willingness and ability
to challenge management and provision of value for money.
In forming its assessment of the effectiveness of the audit,
prior to the audit the Committee considered the FRC’s Audit
Quality Review report on BDO LLP and received formal
presentations regarding the proposed audit strategy and the
Chairman met separately with the Audit Partner to discuss the
audit strategy in detail. These forums enabled the Committee
to assess the extent to which the audit strategy was considered
to be appropriate for the Group’s activities and addressed the
risks the business faces, including factors such as: independence,
materiality, the auditors’ risk assessment versus the Committee’s
own risk assessment, the extent of the Group auditors’
participation in the subsidiary component audits and the
planned audit procedures to mitigate risks.
Following the audit, BDO LLP presented their findings to the
Committee and met separately with the Committee Chairman
to discuss key audit judgements and estimates. This provided
an opportunity to assess the audit work performed, understand
how management’s assessments had been challenged and
assess the quality of conclusions drawn.
The Committee also made enquiries of Senior Management
to obtain its feedback on the audit process and considered this
feedback in its assessment.
Each of the key attributes for audit effectiveness was
considered to be appropriately met by the Group’s auditors.
Auditors’ remuneration
US$ million
Audit services1
Audit-related
assurance services2
Total
FY 2019
FY 2018
0.9
0.1
1.0
0.9
0.4
1.3
1. Audit services are in respect of audit fees for the Group.
2. Audit-related services are in respect of the interim review (US$0.1 million) (FY 2018:
US$0.1 million plus US$0.3 million for services in respect of the issuance of comfort
letters in respect of the Rights Issue, which were capitalised to share premium), and
specific agreed upon procedures in relation to the Sustainability Report, under the
International Standard on Related Services 4400 as issued by the International
Auditing and Assurances Standards Board, US$5.0k (FY 2018: US$5.0k).
The 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 areas such as
internal control testing procedures; providing comfort letters
to management and/or underwriters; and performing regulatory
audits. BDO LLP provided audit-related services in the Year in
relation to the interim review and specific agreed upon procedures
on the Company’s Sustainability Report as set out to the left.
The provision of any non-audit service requires Committee
pre-approval and 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, as well as
measures available to guard against independence threats and
to safeguard the audit independence. No non-audit services were
provided by BDO LLP during the Year or during the prior year.
Internal controls (including the system of internal
financial controls) and risk management
The Board, with assistance from the Committee, 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.
The Group’s Internal Audit function
The Group’s Internal Audit function is staffed by the Group’s
Internal Audit Manager, supported by two Senior Internal Audit
Managers. The Group Internal Audit Manager reports directly
to the Chairman of the Committee.
The FY 2019 Internal Audit Plan was approved by the Committee,
and the new three-year Internal Audit Plan strategy (i.e. FY 2020
to FY 2022) was presented to the Committee for approval
during September 2019.
System of internal control
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 Internal Audit, Finance, Operations and Corporate
teams, and through consideration of the external auditors’
Audit & Risk Committee reports and face-to-face discussion
between the Audit Partner and the Audit & Risk Committee
Chairman and Committee members.
For FY 2019, the Group Internal Audit Manager and the Committee
remained satisfied that no material weaknesses in internal
control systems were identified. Whilst being satisfied that
controls and risk management remain appropriate for the Group’s
activities, the Committee continues to undertake a thorough
review and to challenge 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. This includes systems to
track management’s responses to the areas for improvement
and subsequent Internal Audit visits to test the implementation.
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Supplementary Information
Viability Statement
The UK Corporate Governance Code requires that the Directors
assess the viability of the Group over an appropriate period of
time selected by them. The Board has concluded that the most
relevant time period for this assessment is a three-year period
ending June 2022, taking into account the Group’s current
position and the potential impact of the principal risks that
could affect the viability of the Group. This assessment is
carried out annually before the approval of the Annual
Financial Statements.
The results of this stress testing highlighted the ongoing
cash-generating nature of the Group’s core assets, Finsch and
Cullinan. Coupled with the continued availability of the debt
facilities, the potential Project 2022 benefits mentioned below,
together with other mitigating actions reasonably considered
to be available to the Company in the event of the stress
scenarios, Petra would be able to withstand the impact of
these scenarios occurring over the three-year period ending
June 2022.
While the Group maintains a full business model based
predominantly on the LOM plans for each of its significant
operations, the Group’s key business and strategic planning
period is through to the end of FY 2022 which covers the
US$650 million loan notes which mature in May 2022.
The review of the Group’s viability is led by the Chief Executive
and involves all relevant functions including operations, sales
and marketing, finance, treasury and risk. The Board actively
participates in the annual review process by means of
structured Board meetings. As part of this review, the Board
considered detailed forecasts in respect of both liquidity and
the future covenant measurements related to the Group’s
banking facilities, which are currently undrawn and remain
available, and associated guarantees provided to its BEE
partners as well as the loan notes and their maturity date.
The impact of the recent weakness in the diamond market on
the Group’s operating results and cashflow position has been
discussed with the Lender Group1, including possible breaches
in its EBITDA-related covenants for the December 2019 and
June 2020 reporting periods. The Lender Group has reaffirmed
its ongoing support of the Group during engagements in
August 2019 and has agreed to further engage during FY 2020.
This may include covenant resets and/or waivers for the
measurement periods as mentioned.
Risks and stress tests
For the purpose of assessing the Group’s viability, the Board
focused its attention on the more critical principal risks. In order
to determine those risks, the Board assessed the Group-wide
principal external, operational and strategic risks by undertaking
consultations with Senior Management (refer to the Risk
Overview and Risk Management sections of this report set
out on pages 36 and 37 and 72 to 75 respectively). Through
this analysis, the Board also identified low probability, high loss
scenarios – ‘singular events’ – with the potential magnitude
to severely impact the solvency and/or liquidity of the Group.
Although the business and strategic plans reflect the Board’s
best estimate of the future prospects of the Group, the Board
has also stress tested the potential impact on the Group of a
number of scenarios over and above those included in the plan,
by quantifying their financial impact and overlaying this on the
detailed financial forecasts in the plan. The scenarios tested
considered the Group’s revenue, underlying EBITDA, cashflows,
other key financial and covenant ratios as well as the impact on
facility availability over the three-year period and included:
Š a decrease in forecast rough diamond prices, with reference
to current weak market conditions;
Š an increase in forecast operating cost;
Š an appreciation of the South African Rand to the US Dollar;
Š a reduction in production due to labour and/or any other
operational factors; and
Š a combination of the above.
The forecasts indicate that the Group will require utilisation
of the South African banking facilities, should the ongoing
weakness in the diamond market persist during the period
under review. Assuming the continuing availability of current
facilities, considering the recent positive engagements with the
Lender Group, alongside the Group’s existing cash resources and
mitigating actions reasonably considered to be available to the
Company in the event of the stress scenarios, the Board
assessed the liquidity headroom to be adequate to meet its
liabilities as they fall due under the forecasts and reasonably
possible sensitivities. The forecasts (which incorporate current
diamond market conditions) assume an average exchange rate
of ZAR14.50:US$1 for the period to June 2020, ZAR14.00:US$1
for the period to June 2021, ZAR14.55:US$1 for the period to
June 2022, continued advances to BEE partners to enable
them to meet their loan obligations to the BEE Lenders, and
specifically exclude the proceeds from the sale of exceptional
stones at Cullinan, the sale of the blocked Williamson parcel
and the recovery of historical and current VAT in Tanzania
during the forecast period. Following ongoing discussions
with the Lender Group, the Board remains confident that the
existing facilities will remain available to the Group and the
conclusion as set out below has been reached on this basis.
Project 2022 impact and benefits
Project 2022, which was launched in July 2019, aims to identify
and drive efficiencies and improvement across all aspects
of the business, targeting delivery of US$150–200 million
cumulative free cashflow over a three-year period, with delivery
weighted towards FY 2021 and FY 2022 and dependent on
diamond pricing. The Company’s intends to utilise expected
cashflow benefits realised from this Project towards improving
its net debt position (refer to page 7 for further information).
Refinancing of the US$650 million bond
In FY 2017, Petra Diamonds US$ Treasury Plc, a wholly owned
subsidiary of the Company, issued debt securities consisting of
US$650 million five-year senior secured second lien loan notes,
with a maturity date of 1 May 2022. The Board has reasonable
confidence that the ongoing cash-generating ability of the
operations, coupled with the initiatives implemented via
Project 2022, will enable the Company to refinance these
notes (all or portion thereof) in advance of its contractual
maturities. The Board, is however, cognisant of the requirement
to conduct any refinancing in a timely manner. Any refinancing
options which may be available to the Group have been and
will continue to be appropriately assessed by the Board with
relevant input from its corporate advisers.
Conclusion
Based on its assessment of the principal risks, prospects
and viability of the Group, the Board confirms that it has
a reasonable expectation that the Group will be able to
continue operation and meet its liabilities as they fall due
over the three-year period ending June 2022.
1. See page 26 for definition.
Annual Report and Accounts 2019 Petra Diamonds Limited
71
Corporate Governance Risk Management
Identifying, managing and mitigating risk
Risk management is the overall responsibility of the Board at Petra, but the Board Committees, Exco and Senior Management also
play important roles in terms of the identification, management and ongoing mitigation of risks within their realm of responsibilities.
The role of the Audit Committee was extended to that of the Audit & Risk Committee in FY 2019.
External risks
Rough diamond prices
Long term
RISK CHANGE
IN FY 2019
Petra continues to work with the DPA in its activities
to support diamond demand.
The start of the FY 2020 sales season saw continued uncertainty
in cutting centres given ongoing unrest in Hong Kong and
escalating trade tensions. The leading global producers of
rough diamonds have responded to the market challenges
by cutting production and allowing clients to defer
purchases of rough diamonds.
KPIs
Revenue; Profitability; Operational free cashflow; TSR
READ MORE
Our Market – pages 15 to 19
RESPONSIBILITY
Exco
DESCRIPTION AND IMPACT
The Company’s financial performance is closely linked to rough
diamond prices, which are influenced by numerous factors
beyond the Company’s control, including international economic
conditions, world production levels and consumer trends. Growth in
the synthetic diamonds market could also impact diamond prices.
Low diamond prices may have a negative impact on cashflow,
profitability and the overall performance of the business as well
as the viability of capital programmes going forward.
Whilst the long-term fundamentals of the diamond market
remain positive, some volatility in rough diamond pricing may
be experienced.
MITIGATION
Petra maintains regular dialogue with its client base and closely
monitors developments across the pipeline in order to assess the
overall health of the diamond market and to be able to react in a
timely manner to changes in rough diamond prices and demand.
Petra is a founding member of the DPA, which aims to maintain
and enhance consumer demand for, and confidence in, diamonds
by a range of methods.
The Company continues to monitor synthetic developments.
Disclosure and detection remain key; equipment exists which can
detect synthetic diamonds with 100% accuracy. The DPA is tasked
with helping consumers to understand the significant value
differential between natural and laboratory-grown diamonds.
The diversified nature of the Group’s asset portfolio also acts as
a mitigant in that we can produce the full spectrum of sizes and
qualities, to minimise reliance on the price performance of any one
diamond category.
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
The rough market was challenged by excess inventory in both
rough and polished diamonds in FY 2019, as well as tightening
credit availability in the midstream. Growing US/China trade
tensions, and, late in the Year, unrest in Hong Kong, also
represented headwinds for the diamond sector.
Whilst Petra continued to see strong attendance at its sales in
FY 2019, average realised diamond prices were ca. 5% lower per
carat on a like-for-like basis. A softening in demand was noted
across the size ranges but particularly in the lower value, smaller
stones. Petra’s risk rating for diamond prices remains high, as in
the previous year, from both a probability and impact perspective.
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Petra Diamonds Limited Annual Report and Accounts 2019
Currency
Long term
RISK CHANGE
IN FY 2019
KPIs
Revenue; Profitability; Operational free cashflow; TSR
RESPONSIBILITY
Exco
DESCRIPTION AND IMPACT
Currency fluctuations may have a significant impact on the
Group’s performance.
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.
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 indicates it appropriate.
Such contracts are generally short term in nature.
The Company looks to actively manage its exposure to the
ZAR/USD rate in order to safeguard Group cashflow against
a volatile currency outlook.
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
The ZAR/USD exchange rate saw some volatility in FY 2019,
ranging between a low of ZAR15.40:US$1 in September 2018
and a high of ZAR13.29 in February 2019, before closing the
financial Year at ZAR14.09:US$1, amidst weak national
economic fundamentals and continued global uncertainties.
To mitigate volatility, the Company continued with its approach
to focus on short-dated hedge positions. Management was
mandated by the Board to cover up to 50% of expected
FY 2020 USD sales proceeds during the Year.
READ MORE
Financial Review – pages 24 to 27
Note 9 to the Financial Statements
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
STRATEGIC OBJECTIVES
WORK RESPONSIBLY
CONSISTENT DELIVERY
DRIVE OPTIMISATION
Country and political
Long term
RISK CHANGE
IN FY 2019
KPIs
Profitability; Operational free cashflow; TSR
RESPONSIBILITY
Exco; HSE Committee; SED Committee
DESCRIPTION AND IMPACT
Petra’s mining operations are based in South Africa and
Tanzania. Emerging market economies are generally subject
to greater risks, including legal, regulatory, tax, economic and
political risks, and are potentially subject to rapid change.
MITIGATION
Petra’s work to extend the lives of its assets is classed as
resource extension and brownfields exploration, meaning
that the existing knowledge of the deposits, which have long
histories of production, allows management to eliminate some
of the risk associated with developing a new diamond mine.
The Group’s management team is comprised of key personnel
with a substantial and specialist knowledge of kimberlite
mining and diamond recovery, and this skills base enables
the Company to manage mining and production risks.
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
Petra’s diversified portfolio of mines ensures that the Company
is not reliant on the performance of just one asset.
Operations were largely stable in FY 2019 and production was
in line with guidance, delivering 3.87 Mcts, with higher than
expected production at Cullinan and Williamson offset by
lower than expected production at Finsch.
MITIGATION
The Petra team is highly experienced at operating in Africa. Petra
routinely monitors political, regulatory and legal developments
in its countries of operation at both regional and local level.
READ MORE
Operational Review – pages 28 to 35
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
Political volatility in South Africa eased somewhat with the
completion of the 2019 elections. Regulatory uncertainty has
reduced in South Africa due to the publication of the new mining
charter; however, certain components remain under review.
Petra is in ongoing dialogue with the Government of Tanzania
and local advisers in relation to legislative developments and
overdue VAT receivables. Petra also continues to communicate
with the Government in relation to the blocked parcel of
diamonds from Williamson.
ROM grade and product mix volatility
Short term
RISK CHANGE
IN FY 2019
KPIs
Production; Revenue; Profitability; Operational free cashflow; TSR
RESPONSIBILITY
Exco
READ MORE
Chairman’s Statement – page 4
Legal compliance – page 41
Operational risks
Mining and production
Long term
RISK CHANGE
IN FY 2019
KPIs
Production; Revenue; Profitability; Operational free cashflow; TSR
RESPONSIBILITY
Exco
DESCRIPTION AND IMPACT
The mining of diamonds from 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, access to energy and inclement
or hazardous weather conditions.
DESCRIPTION AND IMPACT
With Petra’s underground expansion projects nearing
completion, the Company’s access to undiluted ore continues
to increase. The ramp-up of underground tonnages involves
gaining access across a larger footprint of the orebody which
will deliver a greater consistency in grade and product mix.
Some level of variability in terms of ROM grade and product
mix occurs depending on the mix of ore produced from the
current mining areas at each operation and can also be impacted
by the inclusion of production from surface resources at some
of the mines.
MITIGATION
Petra’s work to extend the lives of its assets is classed as
resource extension and brownfields exploration, meaning that
the existing knowledge of the deposits, which have long histories
of production, allows management to eliminate some of the
risk associated with grade and product mix.
Annual Report and Accounts 2019 Petra Diamonds Limited
73
Corporate Governance Risk Management continued
Identifying, managing and mitigating risk continued
Operational risks continued
ROM grade and product mix volatility continued
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
ROM grades were in line with expectations in terms of resource
performance. A higher level of waste dilution at Cullinan and
Koffiefontein has suppressed the ROM grade to some degree
whilst at Williamson there is a higher potential for volatility
due to the size and variability of the orebody.
Product mix at Finsch contained a lower than expected incidence
of gem-quality coarse diamonds. The product mix at Cullinan
indicated a lower than expected recovery of large, high value
Type II white and blue stones in H1 FY 2019 improving to expected
levels in H2 FY 2019. The product mix saw a lower than expected
incidence of +10.8ct gemstones during H2 FY 2019.
READ MORE
Market performance – page 19
Operational Review – pages 28 to 35
Labour relations
Short to medium term
RISK CHANGE
IN FY 2019
KPIs
Production; Staff turnover
RESPONSIBILITY
Exco
DESCRIPTION AND IMPACT
The Group’s production, and to a lesser extent its project
development activities, is dependent on a stable and productive
labour workforce. The mining labour relations environment in
South Africa has been notably volatile over the years, but much
less so specifically in the diamond sector, where there is a
higher incidence of mechanisation and skilled workers, leading
to smaller and more manageable workforces which do not rely
on migrant labour.
MITIGATION
Petra remains highly focused on managing labour relations
and on maintaining open and effective communication
channels with its employees and the appropriate trade union
representatives at its operations, as well as local communities.
A key part of Petra’s labour relations strategy is the IPDET,
which is one of the Company’s core BEE Partners and owns
a 12% interest in each of the South African operations.
74
Petra Diamonds Limited Annual Report and Accounts 2019
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
Stable labour relations were experienced throughout the Year.
The Company’s three-year wage agreement relating to
semi-skilled employees at its South African operations remains
in force for FY 2020.
The relationship with technical skilled employee trade unions
has been formalised during the Year and future wage negotiations
will include this category of employees at the majority of
the operations.
As we move into the negotiation phase of the next agreement,
which is expected to commence in Q3 FY 2020, there is
potential for some volatility.
READ MORE
Stakeholder Engagement – pages 12 to 14
Labour relations – page 43
Strategic risks
Financing
Short to medium term
RISK CHANGE
IN FY 2019
KPIs
Production; Revenue; Profitability; Operational Capex
RESPONSIBILITY
Exco
DESCRIPTION AND IMPACT
Following a phase of significant capital investment funded by
a combination of equity, operational cashflow and third party
debt, coupled with certain operational delays and business
challenges in preceding years, Petra’s current debt level is
higher than originally anticipated. In addition to this, the
impact of the recent weakness in the diamond market and
product mix on the Group’s operating results and cashflow
position indicates a possible breach in its EBITDA-related
covenants associated with its banking facilities for the
December 2019 and June 2020 reporting periods, albeit these
banking facilities remain undrawn.
In FY 2017, Petra Diamonds US$ Treasury Plc, a wholly owned
subsidiary of the Company, issued debt securities consisting of
US$650 million five-year senior secured second lien loan notes,
with a maturity date of 1 May 2022. The Board has reasonable
confidence that the Company will be able to refinance these
notes (all or portion thereof) in advance of their contractual
maturities, with the balance (if any) to be settled on the
maturity date. The Board is, however, cognisant of the
requirement to conduct any refinancing in a timely manner.
Whilst management prepares detailed projections based on
operational plans and sales estimates, actual cashflow results
may differ from these projections.
Ongoing access to the working capital and revolving credit
facilities are required to ensure adequate liquidity headroom,
while cashflow generation is negatively impacted by the
current weaker diamond market and product mix.
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
STRATEGIC OBJECTIVES
WORK RESPONSIBLY
CONSISTENT DELIVERY
DRIVE OPTIMISATION
MITIGATION
The Company closely monitors and manages its liquidity risk,
including regularly reviewing its cashflow forecasting to ensure
operational plans are adequately financed and regularly
monitors its position with regards to its forecast covenant
outlook. Regular updates are provided to the Lender Group1.
Available levers to manage working capital are considered
and employed to manage short-term cashflow requirements.
Efficiencies and improvements across all aspects of the business
associated with Project 2022, which was launched in July 2019,
target the delivery of US$150–200 million cumulative free
cashflow over a three-year period, with delivery weighted
towards FY 2021 and FY 2022 and dependent on diamond
pricing, thereby aiming to reduce the Company’s net
debt position.
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
The Company’s Lender Group agreed to amend the EBITDA-
related maintenance covenant levels for South African banking
facilities during the Year.
However, post Year end, the impact of further weakness in the
diamond market on the Group’s operating results and cashflow
position has been discussed with the Lender Group, including
possible breaches in its EBITDA-related covenants for the
December 2019 and June 2020 reporting periods. The Lender
Group has reaffirmed its ongoing support of the Group during
engagements in August 2019 and has agreed to further engage
during the course of FY 2020. This may include covenant resets
and/or waivers for the relevant measurement periods.
READ MORE
Financial Review – pages 24 to 27
Licence to operate
Long term
RISK CHANGE
IN FY 2019
KPIs
Production; Revenue; Profitability; all HSSE indicators
RESPONSIBILITY
Exco; Audit & Risk Committee; HSE Committee; SED Committee
DESCRIPTION AND IMPACT
In order to maintain mining or exploration licences, Petra must
comply with stringent legislation. Failure to comply with
relevant legislation in our countries of operation could lead
to litigation proceedings, delays or suspension of our mining
and exploration activities.
Petra’s licence to operate is also dependent on the safety, retention
and support of its employees, and its continued acceptance in
the communities in which it operates. This encompasses Petra’s
environmental, social and governance practices.
MITIGATION
Petra’s approach is to go ‘beyond compliance’ in terms of
meeting its health and safety, social, environmental and local
community obligations, by adopting a holistic approach with
the true long-term sustainability of each operation in mind.
The Company also continually monitors developments and
changes in laws and regulations and has systems to ensure
it meets all the requirements of its mining rights and
related matters.
Our community relations efforts continue to be focused on
effective engagement; sustainable job creation; skills transfer
(education and training); enterprise development; and
infrastructure development.
Managing and monitoring our environmental impacts remain
priorities for Petra and the Company has a tailings management
programme in place. See Petra’s website for additional detail.
FY 2019 RISK DEVELOPMENTS AND MANAGEMENT
Petra continued to comply in all material aspects with relevant
laws and regulations in the countries in which it operates.
The Company again recorded a fatality-free year and saw
further improvement in its overall safety performance,
with the LTIFR decreasing 9% to 0.21.
The community unrest witnessed at Koffiefontein during
the Year has reinforced the requirement to focus on our
stakeholder engagement practices.
A decision was taken to donate part of the Tailings Mineral
Resources at Koffiefontein for artisanal small-scale mining,
demonstrating Petra’s constructive approach to stakeholder
engagement and co-operation.
The Company continues to carefully monitor natural side wall
degradation at all open pits. The immediate surrounding areas
to the Cullinan open pit may be impacted over the medium-
to longer term by this natural degradation and therefore the
Company is engaging with all relevant local stakeholders to
manage the potential impact.
READ MORE
Stakeholder Engagement – pages 12 to 14
Sustainability – pages 38 to 47
1. See page 26 for definition of Lender Group.
Annual Report and Accounts 2019 Petra Diamonds Limited
75
Corporate Governance Nomination Committee role and activities
The principal functions of the Nomination Committee are listed
below, along with the corresponding activity and performance
in FY 2019.
Board composition and diversity
The Nomination Committee approved certain changes
to the Board and Board Committees throughout the Year,
as detailed below.
With the introduction of three new Directors to the Board in
FY 2019, we believe that the overall breadth of views, skills,
experience and background has been widened.
Whilst the Committee assesses the current skills, experience
(as set out on pages 52 and 53) and diversity of the Board to be
appropriate, it continues to review its composition, specifically
following the outcomes of the internal evaluation which
identified the opportunity for further improvement.
We believe increasing diversity is important in terms of
facilitating the Board’s ability to function effectively to the
benefit of the business as a whole and all of its stakeholders.
Whilst steps forward in terms of improving diversity at top
levels of the business have been made during the Year,
with Board gender diversity improving to 22% and Senior
Management diversity improving to 6%, we will continue
to focus on this goal going forward. Read more about Petra’s
approach to diversity on page 43. The Company is currently
in the process of formulating its Diversity Policy as part
of its Sustainability Framework.
Succession planning
As part of the Nomination Committee’s three-year Succession
Plan, which ran until the end of FY 2019, Varda Shine and
Bernard Pryor were appointed as iNEDs with effect from
1 January 2019 and Richard Duffy was appointed as CEO with
effect from 1 April 2019. You can read more about the skills and
experience of these Directors on pages 52 and 53 of the report.
A process has commenced to find a suitable successor for the
Chairman, which is being externally facilitated (see further detail
on the search process on page 58). I will stand for re-election at
the November 2019 AGM, but I intend to step down by the end
of Q3 FY 2020, once a successor has been identified and appointed.
A proper handover period will be ensured to enable continuity
and a smooth transition.
The Nomination Committee will continue to consider
succession on an ongoing basis.
Report of the Nomination Committee
Members of the Nomination Committee
Adonis Pouroulis, Chairman
Dr Pat Bartlett, iNED
Gordon Hamilton, iNED
Tony Lowrie, iNED
The searches for both a new CEO and
additional NEDs have been priorities for
the Nomination Committee in FY 2019 in
order to further deliver on Petra’s three-year
Succession Plan. We have continued to
consider the balance and diversity of skills,
knowledge and experience on the Board and
are delighted to have been able to recommend
such strong appointments during the Year.
Adonis Pouroulis
Chairman of the Nomination Committee
Nomination Committee Terms of Reference
petradiamonds.com/about-us/
corporate-governance/board-committees
76
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
ROLE
ACTIVITIES IN FY 2019
OUTCOMES
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 regard to any changes.
To identify, nominate and recommend,
for the approval of the Board, appropriate
candidates to fill Board and Committee
vacancies as and when they arise.
To satisfy itself, with regards
to succession planning, that plans are in
place with regards to both Board and
Senior Management positions.
To 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.
The Committee reviewed the composition of
the Board and the Board Committees, including
discussions around diversity and the effective
functioning of these Committees. This process
resulted in the appointment of two additional
iNEDs and a new CEO. The structure of the Board
Committees was also amended with the formation
of separate HSE and SED Committees.
A diversity and transformation training session was
held in FY 2019.
The Committee will continue to make
recommendations regarding the Board, Board
Committee and Senior Management composition
and structures.
A formal search process for a successor to the
Chairman has commenced.
An ongoing Succession Plan is in place.
Varda Shine and Bernard Pryor were appointed to the
Board during FY 2019. Richard Duffy was appointed as
successor to Johan Dippenaar during FY 2019.
The Board will make further changes during
FY 2020 and will receive recommendations from
the Nomination Committee on this.
Various nominations to Board Committees were
proposed by the Committee and approved by the
Board; see page 51 for Committee memberships.
The Committee continued to focus on succession
planning. The Succession Policy has also been finalised.
An internal Board evaluation exercise took place
during August 2019.
An ongoing succession plan is in place.
As part of our succession practices,
the Nomination Committee continues to review
programmes in place to assimilate talent into
leadership and specialist positions.
The overall result was positive in terms of
the Board’s performance, as well as highlighting
a number of areas for further improvement.
See page 59. Each Director was considered to
remain effective and was proposed by the
Committee for re-election to the Board at
the forthcoming AGM.
Adonis Pouroulis
Chairman of the Nomination Committee
14 October 2019
Annual Report and Accounts 2019 Petra Diamonds Limited
77
Corporate Governance Report of the Health, Safety and Environmental Committee
HSE Committee role and purpose
I am pleased to present Petra’s HSE Report for FY 2019,
which is my first as Chairman of the Committee, succeeding
Johan Dippenaar. I joined the Committee in January 2019 and
was appointed Chairman in May 2019. Our membership was
further strengthened during the Year by the appointment
of CEO Richard Duffy.
The role and purpose of the HSE Committee is to assist the
Board in discharging its oversight responsibilities relating to
HSE matters and to ensure the Company upholds the principles
of good corporate citizenship and conducts its business in
an ethical and sustainable manner.
The Committee was amended in FY 2019 from the previously
named HSSE Committee, which also had oversight of social
matters, in order to divide roles and purposes between two
Committees, each with a specific focus. A separate Social,
Ethics and Diversity (“SED”) Committee Report is included
on pages 80 and 81.
Activities and achievements
In addition to the Committee’s principal functions and
corresponding activities, the following achievements are noted:
Š continued focus on safety, as well as a specific safety drive,
which was held at Petra’s operations, led to an improvement
in the Company’s LTIFR from 0.23 in FY 2018 to 0.21 in FY 2019,
and no fatalities recorded;
Š Petra continues to show a continuous improvement in its
carbon reporting, with a higher score being achieved with
the Carbon Disclosure Project (“CDP”) in FY 2019 for the sixth
consecutive year;
Š during FY 2019 the Board signed a safety pledge,
demonstrating its commitment to achieving a ‘zero harm’
working environment; and
Š Petra recycled 72% of all water used on mine in FY 2019.
Further information on HSE matters is included in Petra’s
FY 2019 Sustainability Report.
Members of the HSE Committee
Bernard Pryor, Chairman, iNED1
Dr Pat Bartlett, iNED
Richard Duffy, CEO2
Luctor Roode, COO
1. Joined and was appointed Chairman in May 2019.
2. Joined in May 2019.
The safety of Petra’s people remains our top
priority and the Company is taking measures
to continuously improve our performance in
this area, working towards our primary goal
of zero harm.
Bernard Pryor
Chairman of the HSE Committee
HSE Committee Terms of Reference
petradiamonds.com/about-us/
corporate-governance/board-committees
78
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
HSE Committee role and activities
The principal functions of the HSE Committee are listed below, along with the corresponding activity and performance in FY 2019.
ROLE
ACTIVITIES IN FY 2019
OUTCOMES
To evaluate the effectiveness of the
Group’s policies, standards and systems
for identifying and managing health,
safety and environmental risks within
the Group’s operations.
Review of material risk management process
to align with the ISO 45001:2018 requirements.
Evaluation of effectiveness and roll-out of the
revised health and safety-related operational risk
management processes, and effective controls for
all significant hazards and risks. Environmental risk
management processes were aligned to the
operational risk management process.
Development of Group standards on HSEQ processes.
ISO 45001:2018 aligned operational risk
management process implementation with
all associated significant controls linked to
legal and other requirements, as well as a
system effectiveness review at all South African
operations. Williamson is not yet certified but
operates with the same principles.
Total HSE integration within the risk
management framework.
To assess compliance obligations
with applicable legal and regulatory
requirements with respect to health,
safety and environmental aspects.
To assess the performance of the Group
with regards to the impact of health,
safety and environmental decisions and
actions upon employees, communities
and other stakeholders.
Levels of compliance were monitored across the
Group. Third party legal specialists were sourced
to conduct legal compliance audits at all operations
as part of the Committee’s annual assurance
verification process.
The continual review, updating and management
of a HSEQ legal register, consisting of relevant
legislation, laws and standards applicable to mining,
in a timely manner.
Monitoring of HSE performance throughout the Year
and review of annual Group occupational health,
safety and environmental objectives and key
performance indicators.
Consideration of the main causes of accidents,
risks and incidents across the HSE spectrum both
internally and within the industry more broadly.
To review management’s investigation of
any fatalities and/or serious HSE-related
accidents or incidents within the Group
and the efficacy of the resultant remedial
actions implemented.
The Company recorded no fatal accidents during
FY 2019 and achieved a rolling improvement in
significant injuries (measured by LTIFR) of 69%
over the past eight consecutive years.
To evaluate the quality and integrity
of reporting to external stakeholders
concerning HSE aspects.
Continued annual reporting to GRI, CDP, MSCI and
FTSE4Good. Updated data collection processes for
full GHG reporting and accurate carbon footprint
calculations as identified through external data
verification assessments.
Ongoing review of international guidelines and best
practice in respect of Petra’s sustainability reporting.
The Committee provided oversight of the
preparation of the FY 2019 Sustainability Report,
with certain aspects of the report being
independently verified or assured.
The Board is updated regularly with regards
to Petra’s levels of compliance.
Four internal audits (performed by the Group
HSEQ Leads) and six third party audits (BSI) were
conducted. Audit reports were issued and concluded.
Continual performance evaluation
and improvement.
The Board was kept informed of the Group’s
HSE performance.
Performance KPIs and objectives aligned with
the Mine Health and Safety Council industry
milestones and international environmental
best practice.
Continual real time HSEQ performance trending
and intervention from Group HSEQ leads to
drive zero harm, a safe workplace and a
sustainable environment.
Petra has proactive measures to mitigate
the potential of any fatalities and/or serious
HSE-related accidents or incidents, including
continual stop and fix interventions, the analysis
of and adoption of learnings of any such accidents
and incidents both at Petra’s operations and
within the industry, and the subsequent review
of internal risk control effectiveness at all mines.
Petra’s FY 2019 Sustainability Report is prepared
in accordance with GRI Standards.
Continued improvement in reporting to the CDP
with a score of ‘B’ being achieved.
Repeated inclusion in the FTSE4Good index.
Bernard Pryor
HSE Committee Chairman
14 October 2019
Annual Report and Accounts 2019 Petra Diamonds Limited
79
Corporate Governance Report of the Social, Ethics & Diversity Committee
Introduction
I am pleased to present Petra’s first SED Committee Report.
In recognition of our intensified focus on social, ethical and
diversity issues, the SED Committee was established during Q2
FY 2019 as a separate Board Committee, both to ensure strong
governance practices and to satisfy local legislative requirements.
Previously SED functions were included in the scope of the
Health, Safety, Social and Environment (“HSSE’) Committee,
and this separation has brought both greater focus to Committees
and improved alignment to internal processes and structures.
SED Committee role and activities
The role and purpose of the SED Committee is to oversee
the SED strategy and monitor performance as well as advise
on the Company’s approach to stakeholder engagement, with
regards to social matters, business ethics and diversity (with its
different interpretations and connotations in the jurisdictions
in which Petra operates).
As an ethical, responsible and diverse organisation that
interacts with its external environment in a sustainable and
beneficial way, it is important for Petra to have a Board-level
committee that can oversee these issues.
Our goal is to engage using a methodology and philosophy
suitable for a rapidly transforming social landscape. This approach
is aligned with the UN SDGs, which are aimed at real and
sustainable benefits accruing to the social environment
as a result of a company’s operations.
Committee membership and SED structure
Membership of the SED Committee and all levels within its
sub-structures is based on achieving a healthy balance between
independent governance and operational accountability, as
well as between global perspectives on SED issues and practical
experience of the social environment in which the Company
operates. A diagram depicting the SED Committee membership
and structures is available in the Petra Sustainability Report.
Stakeholder engagement
Engaging our employees in order to embed the vision and
ethos of the SED Committee remains a critical objective. There
is currently a high degree of engagement with and involvement
by employees in the sub-structures underpinning the SED
Committee which, although it should not be regarded as a
substitute for direct engagement fulfils the role of having
employee- and employment-related issues escalated to the
level of the Board Committee for information and guidance.
Continuous progress is being made with the implementation of
a consistent and effective stakeholder community engagement
approach across the Petra Group.
Members of the SED Committee
Octavia Matloa, iNED (Chair)
Jacques Breytenbach, FD
Richard Duffy, CEO
Luctor Roode, COO
Varda Shine, iNED
The establishment of the SED Committee is
an important step forward in further formalising
and concentrating Petra’s approach to social,
ethical and diversity issues. I am confident that
we now have the correct structure in place to
oversee, manage and highlight these essential
aspects of the business.
Octavia Matloa
Chair of the SED Committee
SED Committee Terms of Reference
petradiamonds.com/about-us/
corporate-governance/board-committees
80
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
Roles of the SED Committee
The SED Steering Committee, which reports to the Exco, carried
out a number of activities during FY 2019, which are covered
in part in the FY 2019 Sustainability Report.
The principal roles of the SED Committee are listed below. Due
to the establishment date of the Committee being in the middle
of the financial Year, it has been decided that specific activities
should be reported on in the FY 2020 report (and thereafter).
Š to assess Petra’s policies and systems for ensuring
compliance with material local and international legal and
regulatory requirements with respect to SED aspects, including
organisational ethics, corporate citizenship, social sustainable
development, stakeholder relationships and diversity;
Š to evaluate the effectiveness of Petra’s framework, policies
and systems for identifying and managing SED risk;
Š to monitor technical developments in the fields of SED
management and practice and, where appropriate, to
oversee the assessment of their impact on Petra and
to provide appropriate strategic guidance;
Š to assess Petra’s performance regarding the impact of SED
decisions and actions upon employees, communities and
other stakeholders. To assess the impact of such decisions
and actions on the reputation of the Petra Group as a whole;
Š to monitor and evaluate Petra’s organisational culture
against the mission and vision of the Company and to advise
on issues of general diversity, as well as more specifically
gender diversity, as a strategic imperative for Petra;
Š to recommend objectives and KPIs and review performance;
Š to ensure an appropriate Stakeholder Engagement
Management system is in place and is maintained;
Š to ensure systems are in place to record and submit
statistical data that may be required for legal, regulatory
and other external reporting; and
Š to identify and/or ratify those material issues related to
SED which could impact the continued sustainability of the
Company. Commentary on these issues are included in the
FY 2019 Sustainability Report.
Whilst the SED Committee is still engaged with the establishment
of its work plan, I am pleased with the progress thus far and
with Petra’s achievements on some of its key objectives and
would like to thank management for its commitment in
ensuring that Petra is a responsible corporate citizen.
Octavia Matloa
SED Committee Chair
14 October 2019
Annual Report and Accounts 2019 Petra Diamonds Limited
81
Corporate Governance Directors’ Remuneration Report
Letter from the Chairman
Members of the Remuneration Committee
Gordon Hamilton, Chairman
Dr Pat Bartlett, iNED
Tony Lowrie, iNED
Varda Shine, iNED
Key highlights
Š At the AGM held on 23 November 2018 97.34% of
shareholders voted in favour of our 2018 Directors’
Annual Remuneration Report. This voting outcome
is a positive reflection of how shareholders view
the structure of the remuneration policies, the
application thereof, and the level of discretion
exercised by the Committee in relation to Executive
remuneration to support alignment with the Group’s
performance and strategic objectives.
Š The FY 2019 out-turns under bonus and share plans
reflect the challenges the Company faced during the
Year. The Committee has continued to apply appropriate
downwards discretion in considering the levels
of Executive remuneration.
Š The Committee has determined that, due to the low
PDL share price at date of award, FY 2020 awards
under the Performance Share plan (“PSP”) and the
FY 2019 deferred share awards will both be based
on the six-month average share price as opposed
to the 30-day average price used historically. The
normal maximum is 150% of salary. The approach
adopted by the Committee to take into account
the current share price will result in a PSP award
of ca. 50% of salary.
Š The Committee has also introduced additional
discretion to make downward adjustments to the
PSP in the event that a significant correction in the
share price over the period leads to potentially
excessive rewards.
Š From FY 2020 onwards, PSP awards will be subject
to a two-year holding period post vesting to further
align Executive remuneration to shareholder interests.
Š The Committee’s membership was further
enhanced during the Year with the appointment
of Ms Varda Shine with effect from January 2019.
82
Petra Diamonds Limited Annual Report and Accounts 2019
Dear shareholder,
I am pleased to present the Petra Diamonds Directors’
Remuneration Report for FY 2019 (“the Report”).
Petra is a leading independent diamond mining group that
aims to offer shareholders an attractive medium to long-term
growth and value proposition. The Company operates in an
industry which requires specialist skills and experience and
against this background the Remuneration Committee’s (“the
Committee”) objective is to operate an appropriate and measured
remuneration policy that supports the Company’s strategy.
Remuneration framework
The Group’s remuneration policies are weighted towards
performance-related pay and the Committee continues to be
of the view that the policies support the objectives of Petra
and its shareholders.
Performance out-turns and decisions
during the Year
FY 2019 was another challenging year. Solid operational
performance was offset by a challenging diamond market,
which resulted in revenue being down 6% on FY 2018.
Notwithstanding these challenges, the Company generated
operating free cashflow totalling US$70.5 million signifying the
transition from a multi-year capital intensive period towards
steady-state production. In determining the levels of variable
remuneration, the Committee has been mindful of a backdrop
of high debt levels and shortfalls in financial results, but has
also recognised the improvements in health and safety (with
a 9% improvement in LTIFR to 0.21 for the Year) and ongoing
optimisation at the operations.
For annual bonus, the assessment against all targets set resulted
in a formulaic outcome of 37% of maximum. In light of the Year’s
performance the Committee determined that it would be
appropriate to adjust bonus outcomes downwards, resulting in
actual bonus awards for the newly appointed Chief Executive,
Mr Duffy, being reduced by 20% to 29.6% of maximum (time
apportioned), and an additional 20% downward adjustment to
the bonuses of the former Chief Executive, Mr Dippenaar, and
the Finance Director, Mr Breytenbach, with a final bonus award
of 23.7% of maximum. 50% of the FY 2019 bonus award for the
two Executive Directors and Mr Dippenaar have been deferred
for two years into shares at 17.6 pence per share. This was the
fifth consecutive year the Committee has made a downwards
adjustment to the formulaic outcome for annual bonus awards.
Performance Share Plan (“PSP”) awards granted in October 2016,
which are relevant only to past Executives as none of the current
Executives were appointed in their roles at that time, are due to
vest at 16.6% of maximum reflecting the challenges against
operational performance and project delivery objectives, coupled
with no vesting in respect of shareholder returns over the
three-year performance measurement period. As a result of
the current share price, the value of these awards is ca. 1.5%
of their original award value.
In the opinion of the Committee, the final annual performance
bonus and PSP outcomes appropriately reflect overall
performance over the respective periods of measurement.
Approach for FY 2020
For FY 2020, the Committee determined that the Finance
Director’s salary would be increased by 2%; there was no
adjustment to the Chief Executive’s salary due to his recent
appointment, effective 1 April 2019.
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
AGM
Last year the Remuneration Committee was pleased to note
that 97.34% of shareholders voted in favour of our Directors’
Annual Remuneration Report. The Committee’s view is that
Petra’s remuneration policies are aligned with the strategy to
enhance long-term value for shareholders and the Committee
values the support received from shareholders over recent
years. This Year, the Committee was particularly mindful of
share price deterioration which had to be balanced against
solid operational delivery, positive operating free cashflow,
improved operational stability and improved safety performance.
We hope you find our report for this Year informative and will
continue to support our remuneration policies and practices
by voting in favour of the resolution at the Company’s AGM.
Gordon Hamilton
Chairman of the Remuneration Committee
14 October 2019
The Committee reviewed the targets under the annual bonus
to ensure that they continue to be linked to the Company’s
strategic objectives. For FY 2020, the bonus targets have been
amended to reflect an increased strategic focus on free
cashflow, revenue and cost control.
In specific recognition of the Company’s share price, the
Committee has also adjusted the approach to calculating the
number of shares awarded under the Performance Share Plan
(“PSP”). The normal maximum is 150% of salary. The approach
adopted by the Committee, using both a lower award percentage
of salary as well as a longer averaging period, will result in an
award of ca. 50% of salary.
The Committee has also considered the total shareholder return
targets in recognition of the current share price, increasing the
growth stretch of the absolute total shareholder return targets
in recognition of the current share price.
The Committee has also introduced additional discretion to
enable it to make downward adjustments to the PSP in the
event that a significant correction in the share price over the
period leads to potentially excessive rewards.
Board changes
After 14 years as Chief Executive Officer at Petra, Johan Dippenaar
stepped down from the Board on 31 March 2019. Johan’s departure
was announced on September 2018 and he continued in the
role and worked closely with the Board to ensure an efficient
handover. Details of his leaving arrangements are set out on
pages 88 and 89.
With effect from 1 April 2019, Richard Duffy assumed the
position of Chief Executive and this report reflects his remuneration
and awards from the date of his appointment. Mr Duffy was
appointed with the same base salary as Mr Dippenaar and, on
joining, received a PSP award of ca. 40% of salary, with targets linked
to Petra’s consolidated net debt to consolidated EBITDA ratio.
Corporate governance
The Committee is mindful of the corporate governance reforms
and the revised UK Corporate Governance Code that applied to
Petra from 1 July 2019. The Board reviewed arrangements to ensure
our continued compliance with the provisions of the new Code.
In particular the Committee notes the revised provision concerning
the timing of the release of share awards and has introduced
a two-year holding period for shares vested under the PSP.
The FY 2020 awards, which will be subject to the three-year
measurement period FY 2020 to FY 2022, are the first awards
which will be subject to this two-year holding period. Post-leaving
shareholding requirements will be considered as part of the review
of the Policy during the year.
Directors’ Remuneration Report
In the interest of succinct reporting we have not reproduced
the full Directors’ Remuneration Policy Report in this report.
An overview of the Policy and how it will be applied for
FY 2020 follows this letter and the full Policy can be found
on our website.
Annual Report and Accounts 2019 Petra Diamonds Limited
83
Corporate Governance Directors’ Remuneration Report continued
This report explains how the Group’s Remuneration Policy was implemented during FY 2019 and how it will be applied for FY 2020.
Overview of policy and how it will be applied for FY 2020
Salary
Influenced by role, individual performance,
experience and market positioning.
The Chief Executive was appointed effective from 1 April 2019 on a salary in line with that
of his predecessor. The Finance Director received an increase of 2% from 1 July 2019.
With effect from 1 July 2019, Executive Director base annual salaries were as follows:
Š Richard Duffy – £370,800 (prior year comparison not applicable); and
Š
Jacques Breytenbach – £265,200 (FY 2018: £260,000).
Benefits
Provision of an appropriate level of benefit
for the relevant role and local market.
Annual bonus
Linked to key financial, operational, HSE, SED
and strategic goals of the Company, which
reflect critical factors of success.
Performance Share Plan
Aligned with shareholders and motivating
the delivery of long-term objectives.
Executive Directors receive:
Š a benefits allowance of 10% of salary in lieu of both pension and other benefits and, at the
Directors’ election, the option to participate in the Company’s defined contribution pension
fund with Company contributions funded from this allowance; and
Š Group life, disability and critical illness insurance.
Maximum opportunity for FY 2020 of 150% of salary.
The Committee has reviewed the annual bonus targets for FY 2020 to ensure that they are aligned
to our strategic priorities. The bonus for FY 2020 will be linked to:
Š
Š
free cashflow generation (net of debt obligations) (40%);
revenue (20%);
Š cost and capital management (20%); and
Š HSE and SED objectives (20%).
Annual bonus will be subject to a clawback provision, which may apply for up to two years
following the end of the performance period in the event of serious misconduct or a material error
in the calculation of the bonus outcome.
In specific recognition of the Company’s share price, the Committee has adjusted the approach
to the PSP award for the period FY 2020–FY 2022. The normal maximum is 150% of salary.
The approach adopted by the Committee is to make a lower award of 100% of salary and to
further reduce this by using the six-month average share price as opposed to the 30-day average
price, resulting in an award of ca. 50% of salary.
The Committee will also introduce additional discretion to make downward adjustments in the event
that a significant correction in the share price over the period leads to potentially excessive rewards.
Performance is measured over three years ending in FY 2022:
Š TSR relative to FTSE 350 mining companies and listed diamond mining peers (25%);
Š absolute TSR (25%);
Š
free cashflow generation (net of debt obligations) (25%); and
Š operational performance (25%).
From FY 2020 onwards, PSP awards will be subject to a two-year holding period post vesting
to further align executive remuneration to shareholder interests.
The PSP is subject to a clawback provision, which applies for up to two years following the end
of the relevant performance period in the event of serious misconduct or a material error in the
calculation of the vesting outcome.
Shareholding guidelines
Aligned with shareholders.
Shareholding guidelines of 200% of salary.
84
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
Single figure of total remuneration
The following table gives a breakdown of the remuneration received by the Executive Directors for FY 2019 and FY 2018
(excluding Jim Davidson who retired at the end of FY 2018). 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.
Salary
Benefits2
Retirement benefits2
Annual bonus – paid in cash3
Annual bonus – deferred to shares
Long-term incentives – PSP awards4,5
Legacy awards (Management LTIP)
Total
£
£
£
£
£
£
£
£
£
Richard Duffy
Chief Executive
appointed 1 April 2019
Jacques Breytenbach
Finance Director
Johan Dippenaar
Chief Executive
resigned 31 March 2019
2019 1
2018
2019
2018 6
2019
2018 1
92,700
11,363
—
20,580
20,579
—
—
145,222
—
—
—
—
—
—
—
—
260,000
95,000
278,100
370,800
21,696
9,750
46,176
46,176
—
8,013
3,319
—
33,516
—
5,587
9,986
34,442
45,830
—
65,854
65,854
4,922
—
—
—
98,114
36,057
—
389,385
149,834
449,172
550,801
1. Mr Duffy joined as Chief Executive effective 1 April 2019 and the above table reflects his remuneration for the three-month period to 30 June 2019. Mr Dippenaar stepped down
effective 31 March 2019; see section titled “Departing Director” below for further information.
2. Executive Directors are provided with a benefits allowance and may use a portion of such allowance, limited to 7.5% of salary, to contribute to the Company’s outsourced defined
contribution pension plan which is also available to the Group’s South African workforce. No additional retirement benefits are provided.
3. The mechanism for calculating the deferral into shares has been adjusted for FY 2019 to recognise the current share price. The impact of this reduction is a discount of ca. 50%
of the value of deferred shares. Further details are set out on page 86.
4. Long-term incentives (PSP awards) in FY 2019 relate to the PSP awards granted on 7 October 2016. The awards are due to vest at 16.6% of the maximum shortly after Year end.
The awards have been valued based on the 30-day average share price on 3 October 2019 of 7.9 pence, the closing price prior to vesting. The awards are denominated in shares
and therefore have been impacted by the significant fall in the share price. The value of the awards at vesting is equivalent to ca. 1.5% of the face value at the time of grant.
5. Long-term incentives (PSP awards) in FY 2018 relate to the PSP awards granted on 6 October 2015. The awards vested at 17.5% of the maximum shortly after Year end.
The awards have been valued based on the share price on 3 October 2018 of 34.24 pence, the closing price prior to vesting.
6. Mr Breytenbach was promoted to the Board effective from 19 February 2018.
These total remuneration figures reflect a number of factors:
Š Salaries are modestly set relative to salaries and benefits available to executive directors of comparable companies.
Š A significant portion of pay is performance based and is comprised of annual bonus and long-term incentives. In line with
the challenges encountered during FY 2019 the outcomes for FY 2019 reflect the strong link between pay and performance.
Š A portion of the annual bonus is deferred into shares (and is therefore subject to share price movements) rather than being
paid immediately to Executive Directors. In the current Year 50% has been deferred into shares for two years at a share price
of 17.6 pence with a 50% cash bonus component.
Š The amounts shown under long-term incentives are awards which were granted in prior years and were subject to stretching
performance conditions. As the awards are denominated in shares the outcomes also appropriately reflect shareholders’ experience.
Additional notes to the remuneration table
Salary
For FY 2020 the Committee has determined that the base salaries (per annum) for Executive Directors should be as set out below:
Richard Duffy
Jacques Breytenbach
1. Effective 1 April 2019.
Base
salary to
1 July 2018
£
370,800 1
260,000
Base
salary from
1 July 2019
£
370,800
265,200
The base salary for the Finance Director was increased by 2% for FY 2020. No adjustment was made to the Chief Executive’s
salary as his date of appointment was three months prior to Period end. Salary increases made across the Company’s employee
population were generally aligned to inflation where the employee is based, and therefore the Executive Directors’ base salary
increases were lower than those of the Company’s general employee population.
Benefits
In lieu of pension plan participation and other benefits, the Executive Directors receive a benefit cash supplement of 10% of
salary. Other than membership of the Group management life insurance scheme (which includes disability and critical illness),
Executive Directors are not provided with any further benefits and may elect, at their own discretion, to participate in the
Company’s defined contribution pension scheme as available to the Group’s South African workforce.
Annual Report and Accounts 2019 Petra Diamonds Limited
85
Corporate Governance
Directors’ Remuneration Report continued
Single figure of total remuneration continued
Annual 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 the final bonus
outcomes, the Committee considers all-round performance to ensure that actual bonuses are appropriate.
For FY 2019, the Committee’s assessment of performance against the balanced scorecard of key measures and milestone achievements
during the Year included the following key achievements and targets. The Committee and the Board have given careful consideration
to the retrospective disclosure of targets and have disclosed targets where this is not considered to be commercially sensitive.
PERFORMANCE METRICS
PERFORMANCE AND TARGETS
WEIGHTING
VESTING OUTCOME
Production and project delivery
(carat production and delivery
against project milestones)
Profitability (adjusted
EBITDA, adjusted net profit,
cost management and
operational free cashflow (“FCF”))
Corporate (including
corporate and strategic priorities
and health, safety, social and
environmental performance)
Threshold
FY19
Target Maximum performance
Production (Mcts)
3,432
3,814
4,004
Project delivery
6
8
10
3,875
7.6
30%
20.1%
Threshold
FY19
Target Maximum performance
50%
5.6%
Adjusted EBITDA ($m)
155
200.6
223.4
Costs
Adjusted NPAT ($m)
6
1.3
8
34.5
10
50.9
Operational FCF ($m)
76.8
112.8
130.8
153.0
7.7
(13.2)
70.5
Š LTIFR of 0.21 (FY 2018: 0.23) – continuing the improving
LTIFR trend; zero fatalities recorded during the Year.
20%
11.4%
Š The Committee carefully considered the performance
of the Executive Directors in delivering against corporate
and strategic priorities, with key focus on progress towards
Tanzanian issues, close-out of the KEM JV and Helam
disposals, and Board and Management changes.
Total (before application of discretion)
100%
37.0%
Taking into account overall performance, the Committee determined that the bonus for the newly appointed Chief Executive,
Mr Duffy, would be reduced by 20% from the formulaic outcome (equating to 29.6% of maximum), with an additional 20%
downward adjustment to the bonus awards of both the former Chief Executive, Mr Dippenaar, and the Finance Director
(equating to 23.7% of maximum). This is the fifth consecutive year in which the Committee has made a downwards adjustment
to the formulaic outcome for the bonus scorecard.
The Committee has determined that 50% of the bonuses earned by Messrs. Duffy, Breytenbach and Dippenaar will be deferred
for two years into shares. In addition, the share price used to calculate the level of deferral has been adjusted. The Committee
has determined that the number of shares will be calculated using a six-month average share price of 17.6 pence as opposed to
the 30-day average price used to calculate historical awards resulting in a ca. 50% reduction in the number of deferred share awards.
Performance measures FY 2020
For FY 2020, the Committee will apply a consistent framework to that of FY 2019. However, the Committee has set performance
measures, targets and milestone achievements reflecting the increased focus on free cashflow generation and net debt reduction
as follows:
PERFORMANCE MEASURE
WEIGHTING
Operational performance and profitability (including free cashflow generation, revenue, Capex and cost management)
80%
Corporate (including corporate and strategic priorities and health, safety, social and environmental performance)
20%
As noted above, the bonus framework includes both measurement against pre-defined targets and the exercise of judgement,
within a scoring framework which uses measurable and defined objectives.
86
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
Long-term incentives – Performance Share Plan
Annual long-term share awards are granted under the Performance Share Plan. This plan was originally approved by shareholders at
the January 2012 AGM. The vesting of awards is conditional on the achievement of both shareholder return and operational measures.
FY 2017 to FY 2019 award
The long-term incentive figures shown in the single figure table relate to the awards granted under the PSP in October 2016
that were subject to performance measures assessed over three years. These awards were linked to total shareholder return (50%)
and to operational performance and project delivery (50%). Following the end of the performance period, the Committee assessed
performance achieved against the pre-determined measures and targets.
Performance measure
Ranked TSR vs FTSE 350 mining companies
and diamond mining peers
Weighting
25% of
element vests 1
100% of
element vests
Actual
performance
25%
Median
Upper quartile
Below median
(0% vested)
Below threshold
(0% vested)
Absolute TSR growth
25%
8% per annum 16% per annum
1. No portion of an element vests for performance below this threshold level.
The elements linked to TSR lapsed in full, reflecting both internal challenges and external macro factors.
Weighting
25% of
element vests 1
80% of
element vests
100% of
element vests
Actual
performance
Operational performance/
efficiency and project delivery
50%
6/10
8/10
10/10
Overall 6.3/10
1. No portion of an element vests for performance below this threshold level.
Operational performance was measured at each mine considering an assessment of performance against operating cashflow
generation, production, costs, profitability and project delivery. Performance was in respect of Finsch, Cullinan and Koffiefontein/
Williamson together combined (weighted 20%, 20% and 10% respectively). 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. Further details of performance at each site are set out in the Operational Review
of the Strategic Report on pages 28 to 35.
Following the assessment of operational performance and project delivery, this element can be varied by up to 15% (upwards or
downwards) to reflect operational efficiency, including factors such as operating cashflow generation, production, revenue, costs
and profitability, overall mine management and other metrics considered appropriate by the Committee. The Committee made no
further adjustment to the award.
Final vesting of the operational performance and project delivery element was 16.6% (out of 50%).
On the basis of the above performance the total vesting for the PSP awards for Executive Directors, which is relevant only to
past Executives as none of the current Executives were appointed in their roles at the time, vested at 16.6% of the maximum.
The awards are denominated in shares and therefore have been impacted by the significant fall in the share price. The value
of the awards at vesting is equivalent to ca. 1.5% of the face value at the time of grant.
PSP award to incoming Chief Executive
On appointment, Mr Duffy was granted a PSP award equivalent to ca. 40% of salary. Vesting of this award will be subject
to the Company achieving a consolidated net debt:consolidated EBITDA ratio of not more than 2.5 times.
FY 2020 awards
For FY 2020, in specific recognition of the Company’s share price, the Committee has adjusted the approach to calculating the
number of shares awarded under the Performance Share Plan (“PSP”). The normal maximum award is 150% of salary. The Committee
has determined that awards will be calculated as 100% of salary but adjusted downwards further by using a longer six-month
average share price as opposed to the 30-day average price used to calculate historical awards. This will result in an award of
ca. 50% of salary. The Committee will also introduce additional discretion to make downward adjustments in the event that
a significant correction in the share price over the period leads to potentially excessive rewards.
The Committee has also considered the total shareholder return targets in recognition of the current share price. Relative TSR
will be based on a longer than usual averaging period of six months. The absolute TSR targets have been increased and converted
to share price targets. The Committee is comfortable that these are stretching targets that require a significant increase in the
Company’s share price.
The long-term incentive performance measurement framework for share awards in FY 2020 is summarised below. This is similar
to the performance framework that applied to FY 2019.
Annual Report and Accounts 2019 Petra Diamonds Limited
87
Corporate Governance
Directors’ Remuneration Report continued
FY 2020 awards continued
From FY 2020 onwards, PSP awards will be subject to a two-year holding period post vesting to further align Executive
remuneration to shareholder interests.
Summary of performance targets
PERFORMANCE MEASURES
Ranked TSR vs FTSE 350
mining companies plus
diamond mining peers
Absolute TSR growth
Š Half of the award is linked to returns made for shareholders.
Š The first element is linked to relative TSR measured against other mining peers.
Š The second element is based on absolute TSR so that reward is linked to the creation of absolute value for shareholders.
Weighting
25% of
element vests 1
100% of
element vests
Ranked TSR vs mining companies
25%
Median
Upper quartile
1. No portion of an element vests for performance below this threshold level.
Weighting
0% of
element vests 1
25% of
element vests
75% of
element vests
100% of
element vests
Absolute
TSR growth
25%
16 pence
share price
25 pence
share price
35 pence
share price
50 pence
share price
1. No portion of an element vests for performance below this threshold level.
Operational performance
Š The Company is committed to realising benefits associated with Project 2022, thereby reducing the Company’s net
debt levels.
Š The operational element is based on:
Š
free cashflow generation (50%); and
Š operational performance, including revenue, costs, Capex, HSE and SED performance (50%).
Š 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 Board.
Š This element can be varied by up to 15% (upwards or downwards) to reflect operational efficiencies, overall mine
management and other metrics considered appropriate by the Committee.
100% of
Weighting element vests1 element vests element vests
80% of
25% of
Free cashflow generation
Operational performance
50%
US$150m
US$200m
Stretch above
Project 2022
US$250m
50% 6 out of 10
8 out of 10 10 out of 10
1. No portion of an element vests for performance below this threshold level.
Departing Director
Johan Dippenaar stepped down as Chief Executive on 31 March 2019.
The Remuneration Committee carefully considered Mr Dippenaar’s departure in the context of his contract of employment and
his contribution to the business as it developed from a small producer to one of the world’s largest independently listed diamond
producers, as well as the share price deterioration effecting all shareholders, including Mr Dippenaar’s own substantial
shareholding, and agreed that:
Š Mr Dippenaar’s settlement agreement included an undertaking that he would continue to serve as Chief Executive until
a successor was appointed based on an open-ended departure date with a target of 30 June 2019. Further to Mr Duffy’s
appointment effective 1 April 2019, Mr Dippenaar agreed to step down on 31 March 2019 following a successful handover in the
period leading up to Mr Duffy’s engagement. Mr Dippenaar remained eligible for a bonus in respect of FY 2019 for the period
to 30 June 2019 based on his undertaking to remain in service up to that date and in recognition of his efforts in ensuring a fast
and effective handover to the incoming Chief Executive. A combined 36% downward discretionary adjustment to Mr Dippenaar’s
annual performance bonus award by the Committee resulted in a final FY 2019 bonus award of 23.7% of maximum, amounting
to £131,708 (FY 2018: £98,114). 50% of Mr Dippenaar’s FY 2019 performance bonus will be deferred into shares until 30 June 2021.
The deferral will be at a six-month average share price of 17.6 pence, thereby effectively reducing this element by a further 50%.
Š Mr Dippenaar’s deferred bonus shares that were earned in respect of FY 2017 (92,680 shares) and FY 2018 (272,347 shares)
will vest at the normal time period (June 2019 and June 2020 respectively).
88
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance
Strategic Report
Financial Statements
Supplementary Information
Š In respect of the PSP award made on 7 October 2016, Mr Dippenaar was Chief Executive for over 90% of the measurement
period of these awards, so measurement of performance conditions and out-turn was applied in the normal way; the detail
of out-turn of these awards is covered on pages 86 and 87 of this report. The final value of the vested award was £5,296.
Š In respect of the PSP awards made on 6 October 2017 and 16 October 2018, the original awards were pro-rated for time and will
continue until the normal vesting dates. Following the pro-rating reductions the maximum number of shares under PSP awards
are 361,324 (2017 award) and 206,000 (2018 award). These awards will continue to be subject to performance conditions.
Š Mr Dippenaar will not participate in any annual incentive or PSP award for the year commencing FY 2020.
Š On departure, Mr Dippenaar received his contractual payment in lieu of his 12-month notice period of £407,880.
Mr Dippenaar was a significant shareholder in Petra throughout his tenure (holding over 8 million shares at the time of his
departure), which means he has been strongly aligned with shareholders via his personal shareholding.
Non-Executive Director remuneration
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 Employee Share Option Scheme (“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 does 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.
The Chairman’s fee is £159,650 per annum, payable in cash.
The other Non-Executive Directors receive a fixed basic fee of £56,650 per annum for their normal services rendered during
the Year and a fee for chairmanship of Committees. All fees are payable in cash.
The additional annual fees paid for chairmanship of the Audit & Risk Committee, Remuneration Committee, HSE Committee
and SED Committee are £15,450, £12,875, £11,330 and £11,330 respectively. There is no additional fee for chairmanship of the
Nomination Committee. The additional annual fee paid to the Senior Independent Director is £23,175.
For FY 2020, the Non-Executive Director fees will not be increased.
Independent Non-Executive Directors do not participate in the Company’s bonus arrangements, share schemes or pension plans,
and for FY 2019 (in accordance with the Company’s normal policy) did not receive any other remuneration from the Company
outside of the fee policy outlined above.
Single figure of total remuneration
The following table gives a breakdown of the remuneration received by the Non-Executive Directors for FY 2019 and FY 2018.
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.
Adonis Pouroulis
Chairman
Dr Pat Bartlett
Gordon Hamilton
Tony Lowrie
Octavia Matloa
Bernard Pryor
Varda Shine
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Fees
£
159,650
159,650
56,650
56,650
84,975
84,975
79,825
79,825
62,315 2
56,650
33,990 1,2
—
28,325 1
—
Benefits
£
3,466
3,681
—
—
—
—
—
—
—
—
—
—
—
—
Total
£
163,116
163,331
56,650
56,650
84,975
84,975
79,825
79,825
62,315
56,650
33,990
—
28,325
—
1. Pro-rated from appointment date 1 January 2019 to 30 June 2019.
2. Includes pro-rated HSE and SED Committee Chair fees for the period 1 January 2019–30 June 2019.
Annual Report and Accounts 2019 Petra Diamonds Limited
89
Corporate Governance Directors’ Remuneration Report continued
Directors’ shareholding and share interests
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 two years’ basic salary for the applicable Director. Executive share ownership and alignment with shareholders
is further supported by the Company’s bonus deferral and share incentive schemes.
The share interests of the Directors as at 30 June 2019 are detailed below. Mr Breytenbach and Mr Duffy were appointed to
the Board effective 19 February 2018 and 1 April 2019 respectively and are expected to build their shareholding over the next
five years in line with our policy on shareholding guidelines.
Adonis Pouroulis
Richard Duffy2
Jacques Breytenbach3
Tony Lowrie
Dr Pat Bartlett
Gordon Hamilton
Octavia Matloa
Varda Shine
Bernard Pryor
Shareholding as at
30 June 2019
Shareholding as at
30 June 2018
Shareholding
guideline 1
Chairman
12,569,375
12,569,375
Chief Executive
Finance Director
Senior iNED
iNED
iNED
iNED
iNED
iNED
240,000
243,750
3,737,500
—
247,000
—
—
—
—
243,750
3,737,500
—
247,000
—
—
—
n/a
3,603,499
2,526,725
n/a
n/a
n/a
n/a
n/a
n/a
1. Shareholding guideline of 200% of salary based on three-month average share price to 30 June 2019 of 20.58 pence.
2. Mr Duffy was appointed to the Board effective 1 April 2019.
3. Mr Breytenbach was appointed to the Board effective 19 February 2018.
As at 30 June 2019, the Directors’ interests in share plans of the Company were as follows:
Breakdown of adjusted share plan interests as at 30 June 2019
Executive Directors
Richard Duffy
Jacques Breytenbach
Johan Dippenaar (resigned 31 March 2019)
Non-Executive Directors
Adonis Pouroulis5
Shares
Options
Unvested and
subject to
performance
Unvested and
not subject to
performance
Vested but
not exercised
Lapsed
in the Year
797,860 1
433,333 2
942,650 4
—
93,034 3
365,027 3
—
263,174
850,252
—
(141,709)
(910,985)
—
—
242,929
—
1. Mr Duffy was appointed 1 April 2019 and received a PSP award equivalent to ca. 40% of salary on appointment. Further details are set out on page 87.
2. This comprises awards made in FY 2019 under the Company’s PSP.
3. This comprises outstanding deferred share awards in respect of FY 2017 and FY 2018. During FY 2018, the following awards were granted: Mr Breytenbach – 93,034 and
Mr Dippenaar – 272,347 shares respectively. These awards represent 100% of the total bonus in respect of FY 2018. Post Year end, the FY 2017 deferred share awards vested:
Mr Dippenaar – 92,680 shares.
4. Further to Mr Dippenaar’s departure on 31 March 2019, the original PSP awards for FY2018-FY2020 and FY2019-FY2021 were pro-rated for time.
5. Options held by Mr Pouroulis relate to the 2005 ESOS awards granted to him between 2006 and 2010, when he was an Executive Director of the Company. Following his move
to the position of Non-Executive Chairman, Mr Pouroulis does not participate in any future Company share scheme arrangements.
As at 30 June 2019, Executive Directors held the following interests in the 2012 PSP:
Date of
award
Outstanding
at 1 July
2018
Awarded
during
the Year
Vested
during
the Year
Lapsed
during
the Year
Outstanding
at 30 June
2019
Performance
period 7
Johan Dippenaar
06/10/2015 1
601,752
— 105,307
496,445
—
FY 2016–FY 2018
07/10/2016 2
375,326
06/10/2017 3
541,986
—
—
—
—
375,326
FY 2017–FY 2019
— 180,662
361,324
FY 2018–FY 2020
04/10/2018 4
— 618,000
— 412,000
206,000
FY 2019–FY 2021
Total
1,519,064
618,000 105,307 1,089,107
942,650
Richard Duffy
01/04/2019 5
— 797,860
Total
— 797,860
Jacques Breytenbach
06/10/2018 6
— 433,333
Total
— 433,333
—
—
—
—
—
—
—
—
797,860
FY2020–FY2022
797,860
433,333
FY 2019–FY 2021
433,333
90
Petra Diamonds Limited Annual Report and Accounts 2019
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
1. The performance measures applicable to the awards consist of: (a) TSR relative to FTSE 350 mining and listed diamond companies (25%); (b) absolute TSR (25%); and (c) operational
performance (40%) and project delivery (10%). The share price on 6 October 2015 was 93.25 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 109.0 pence. This award vested at 17.5% and the balance of this award lapsed.
2. The performance measures applicable to the awards consist of: (a) TSR relative to FTSE 350 mining and listed diamond companies (25%); (b) absolute TSR (25%); and (c) operational
performance (40%) and project delivery (10%) (50%). The share price on 5 October 2016 was 139.5 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 139.8 pence. As noted above, following the Year end this award vested at 16.6% and the balance of this award lapsed.
3. The performance measures applicable to the awards consist of: (a) TSR relative to FTSE 350 mining and listed diamond companies (25%); (b) absolute TSR (25%); and (c) operational
performance (40%) and project delivery (10%) (50%). The share price on 5 October 2017 was 71.0 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 83.1 pence. Further to Mr Dippenaar’s departure on 31 March 2019, the original awards were pro-rated for time and will
continue until the normal vesting dates. Following the pro-rating reduction and subsequent lapsing of 180,662 awards, the maximum number of shares under PSP awards were
reduced from 541,986 to 361,324. These awards will continue to be subject to performance conditions.
4. The performance measures applicable to the awards consist of: (a) TSR relative to FTSE 350 mining and listed diamond companies (25%); (b) absolute TSR (25%); and (c) operational
performance (40%) and project delivery (10%) (50%). The share price on 4 October 2018 was 36.0 pence; the 30-day trading average price to the date preceding the date of the award
was 36.1 pence; the Committee determined it was more appropriate to apply a price that more closely approximated the TERP of 60.92 pence following the rights issue. A price of
60.0 pence was applied in this regard. Further to Mr Dippenaar’s departure on 31 March 2019, the original awards were pro-rated for time and will continue until the normal vesting
dates. Following the pro-rating reduction and subsequent lapsing of 412,000 awards, the maximum number of shares under PSP awards were reduced from 618,000 to 206,000.
These awards will continue to be subject to performance conditions.
5. On appointment, Mr Duffy was granted a PSP award equivalent to ca. 40% of salary. Vesting of this award will be subject to the Company achieving a consolidated net debt:
consolidated EBITDA ratio of not more than 2.5 times as at April 2022, or at the earliest measurement date thereafter, but not later than 30 June 2022.
6. The performance measures applicable to the awards consist of: (a) TSR relative to FTSE 350 mining and listed diamond companies (25%); (b) absolute TSR (25%); and (c) operational
performance (40%) and project delivery (10%) (50%). The share price on 4 October 2018 was 36.0 pence; the 30-day trading average price to the date preceding the date of the
award was 36.1 pence; the Committee determined it was more appropriate to apply a price that more closely approximated the TERP of 60.92 pence following the rights issue.
A price of 60.0 pence was applied in this regard.
7. Performance periods with respect to operational performance metrics are measured on respective financial years’ results, whilst the relevant TSR measurements are based
on returns from date of award to date of final vesting.
During the Year no awards were granted under the 2005 ESOS and 1,963,679 lapsed (of which 1,821,970 related to former Executive
Directors, Messrs. Dippenaar and Davidson). As at 30 June 2019, Executive Directors and the Chairman held the following vested
share options under the 2005 ESOS:
Exercise
price (p)
Date of grant
Exercisable Rights
from Issue)
(pre- Outstanding
at 1 July
2018
Exercised
during
the Year
Lapsed
Outstanding
during as at 30 June
2019
the Year
Exercise
price (p)
Expiry date
Adonis Pouroulis
30/09/2009 30/09/2012
45.5
121,465
17/03/2010 17/03/2013
60.5
121,464
242,929
—
—
—
—
—
—
121,465
37.5 30/09/2019
121,464
49.8
17/03/2020
242,929
Total
Johan Dippenaar
(departed
31 March 2019)
Total
12/03/2009 12/03/2012
27.5
910,985
— 910,985
—
22.6 12/03/2019
30/09/2009 30/09/2012
45.5
425,126
17/03/2010 17/03/2013
60.5
425,126
—
—
—
—
425,126
37.5 30/09/2019
425,126
49.8
17/03/2020
1,761,237
— 910,985
850,252
Jacques Breytenbach 12/03/2009 12/03/2012
27.5
141,709
— 141,709
—
22.6 12/03/2019
30/09/2009 30/09/2012
45.5
80,977
17/03/2010 17/03/2013
60.5
182,197
—
—
—
—
80,977
37.5 30/09/2019
182,197
49.8
17/03/2020
Total
404,883
— 141,709
263,174
External non-executive directorships
None of the Company’s Executive Directors hold a directorship at another listed company.
Annual Report and Accounts 2019 Petra Diamonds Limited
91
Corporate Governance Directors’ Remuneration Report continued
Other disclosures
Performance graph
The graph below shows a comparison between the TSR for Petra shares for the ten-year period to 30 June 2019 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-day trading average.
Total shareholder return
Based on 30-day trading average
500
400
300
200
100
0
Jun
09
Jun
10
Jun
11
Jun
12
Jun
13
Jun
14
Jun
15
Jun
16
Jun
17
Jun
18
Jun
19
X Petra Diamonds X FTSE 350 Mining Index
Source: Datastream.
Table of historical data for the Chief Executive
Before the Company stepped up to the Main Market, Petra operated a different remuneration structure. Prior to FY 2012, there
was no set maximum annual bonus opportunity for Executive Directors and the Company granted share options, rather than the
more conventional PSP awards with set performance criteria. Therefore it is not possible to provide fully comparable data for
awards across this nine-year period.
AIM
Main Market
FY 2010
FY 2011
FY 2012
FY 2013
FY 2014
FY 2015
FY 2016
FY 2017
FY 2018
FY 2019 3
FY 2019 3
Johan
Dippenaar
Richard
Duffy
Single
figure of total
remuneration (£)
Annual bonuses
as a % of
maximum1
Long-term
incentives (PSP
awards) as a %
of maximum2
Long-term
incentives (LTSP
awards) as a %
of maximum
507,500
879,258
1,115,496
804,361 1,075,225
999,034 1,137,521
545,687
550,801
449,172 145,222
—
—
68%
72.5%
85.5%
40.0%
55.0%
11.4%
17.6%
23.7%
29.6%
—
—
—
—
62.2%
57.0%
55.0%
24.9%
17.5%
16.6%
n/a
—
—
—
—
n/a
42.5%
42.3%
n/a
n/a
n/a
n/a
1. The Chief Executive’s annual bonuses for FY 2010 and FY 2011 were £180,000 and £170,000 respectively.
2. Prior to FY 2012, the Company granted share options to Executive Directors. For the purposes of the single figure for FY 2010 to FY 2013 in the table above, these options have
been split into three equal tranches and valued based on the notional gain as at the first, second and third anniversaries of the original grant date.
3. Mr Dippenaar departed effective 31 March 2019 and the table reflects his remuneration (excluding payment in lieu of notice) for the nine-month period to date of his departure.
Mr Duffy joined as Chief Executive effective 1 April 2019 and the above table reflects his remuneration for the three-month period to 30 June 2019.
Percentage change in remuneration of the Chief Executive
In FY 2019, the Chief Executive’s salary and benefits allowance (as a percentage of salary) was unchanged for a second year
running. This compares to an average annual increase in salaries across Petra of ca. 6% (measured in local currencies). The Chief
Executives’ aggregated performance-related pay (annual bonus and long-term incentives) of £177,789 is 32.5% up on the prior
year’s £134,171, largely driven by improved production and safety performance.
Relative importance of spend on pay
The following table sets out the percentage change in payments to shareholders and overall expenditure on pay across the Group.
Payments to shareholders
Group employment costs
92
Petra Diamonds Limited Annual Report and Accounts 2019
FY 2019
US$m
nil
143.2
FY 2018
US$m
nil
139.1
Change
%
0%
3%
Corporate Governance Strategic Report
Financial Statements
Supplementary Information
Service contracts
Director
Role
Executive Directors
Mr Duffy
Chief Executive
Mr Breytenbach
Finance Director
Non-Executive Directors
Date of contract
Contract end date
1 April 2019
19 February 2018
n/a
n/a
Mr Pouroulis
Non-Executive Chairman
17 September 2018
29 November 2020
Mr Lowrie
Dr Bartlett
Senior Independent Non-Executive Director 17 September 2018
13 September 2020
Independent Non-Executive Director
17 September 2018
29 November 2020
Mr Hamilton
Independent Non-Executive Director
17 September 2018
29 November 2020
Ms Matloa
Ms Shine
Mr Pryor
Independent Non-Executive Director
17 September 2018
10 November 2020
Independent Non-Executive Director
22 October 2018
31 December 2021
Independent Non-Executive Director
22 October 2018
31 December 2021
Notice period
by Company
or Director
12 months
12 months
1 month
1 month
1 month
1 month
1 month
1 month
1 month
Membership of the Committee
The Committee members for FY 2019 were Gordon Hamilton (Chairman), Dr Pat Bartlett, Tony Lowrie and Varda Shine (effective May 2019).
The Committee is responsible for determining on behalf of the Board and shareholders:
Š the Company’s general policy on the remuneration of the Executive Directors, the Chairman and the Senior Management team;
Š the total individual remuneration for the Chairman, Executive Directors and Senior Management including base salary, benefits,
performance bonuses and share awards;
Š the design and operation of the Company’s share incentive plans;
Š performance conditions attached to variable incentives; and
Š 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 www.petradiamonds.com/about-us/corporate-governance/board-committees.
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.
External advisers
The Committee engages the services of Deloitte LLP (“Deloitte”) to provide independent advice to the Committee relating to
remuneration matters. Deloitte is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the
code of conduct in relation to executive remuneration consulting in the UK. The Committee is satisfied that the advice it has received
from Deloitte during the Year has been objective and independent. The fees paid to Deloitte for work carried out in the financial
Year ended 30 June 2019 for the Remuneration Committee totalled £17,600 (FY 2018: £14,250) and were based on a time and
materials basis.
During the Year Deloitte 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 Diamonds Group. BDO LLP remain the Group auditors.
Statement of shareholder voting
The voting outcomes for the 2018 Directors’ Remuneration Report and 2017 Directors’ Remuneration Policy Report were as follows:
2018 Directors’ Remuneration Report
572,130,274
97.34% 15,632,119
2.66% 587,762,393
15,898,759
2017 Directors’ Remuneration Policy
376,406,002
99.96%
164,181
0.04% 376,570,183
9,779,383
For
% for
Against
% against
Total
votes cast
Withheld
Gordon Hamilton
Chairman of the Remuneration Committee
14 October 2019
Annual Report and Accounts 2019 Petra Diamonds Limited
93
Corporate Governance Driving
cashflow
Petra reached an important milestone in
FY 2019, with the generation of US$70.5 million
of operational free cashflow. This is a notable
turning point for Petra and reflects both the
positive benefits of our capital investment
and the transition to steady-state operational
performance across our portfolio.
Financial Statements
96 Directors’ Responsibilities Statement
97 Independent Auditors’ Report
104 Consolidated Income Statement
105 Consolidated Statement
of Other Comprehensive Income
106 Consolidated Statement
of Financial Position
107 Consolidated Statement of Cashflows
108 Consolidated Statement
of Changes in Equity
109 Notes to the Annual Financial Statements
Directors’ Responsibilities Statement
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with the Bermuda
Companies Act 1981.
Company law requires the Directors to prepare Financial Statements for each financial year. The Directors have elected to prepare
the Group Financial Statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the
European Union.
In preparing the Financial Statements, the Directors are required to:
Š select suitable accounting policies and then apply them consistently;
Š make judgements and accounting estimates that are reasonable and prudent;
Š 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
Š 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 proper accounting records that are sufficient to ascertain with reasonable accuracy at
any time the financial position of the Company and to ensure that the Financial Statements comply with the Bermuda Companies
Act 1981. 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.
Directors’ responsibilities pursuant to DTR4
In accordance with Chapter 4 of the Disclosure and Transparency Rules issued by the Financial Conduct Authority in the
United Kingdom the Directors confirm to the best of their knowledge:
Š the Group’s Financial Statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view
of the assets, liabilities, financial position and profit and loss of the Group; and
Š 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 it faces.
Fair, balanced and understandable
The Board considers that the Annual Report and Accounts, taken as a whole, provides shareholders with a fair, balanced and
understandable view of Petra’s business and the outlook for the future developments of the Group, as well as the principal risks
and uncertainties which could affect the Group’s performance.
Auditors
As far as each of the Directors are aware at the time this report was approved:
Š there is no relevant available information of which the auditors are unaware; and
Š they have taken all steps that ought to have been taken to make themselves aware of any relevant audit information
and to establish that the auditors are aware of that information.
In accordance with Section 89 of the Bermuda Companies Act 1981 (as amended), a resolution to confirm the re-appointment
of BDO LLP as auditors of the Company is to be proposed at the 2019 AGM to be held on 29 November 2019.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the
Company’s website. Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of Financial
Statements may differ from legislation in other jurisdictions.
The Financial Statements were approved by the Board of Directors on 14 October 2019 and are signed on its behalf by:
Richard Duffy
Chief Executive
14 October 2019
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Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
Independent Auditors’ Report
To the members of Petra Diamonds Limited
1. Our opinion
We have audited the Consolidated Financial Statements of Petra Diamonds Limited (“the parent company”) and its subsidiaries
(together “the Group”) for the Year ended 30 June 2019 which comprise the Consolidated Income Statement, the Consolidated
Statement of Other Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of
Cashflows, the Consolidated Statement of Changes in Equity and the notes to the annual Financial Statements, including a
summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union.
In our opinion the Financial Statements:
Š give a true and fair view of the state of the Group’s affairs as at 30 June 2019 and of the Group’s loss for the Year then ended;
Š have been properly prepared in accordance with IFRSs as adopted by the European Union; and
Š have been prepared in accordance with the requirements of the Bermuda Companies Act 1981.
2. Basis for our opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under those standards are further described in the Auditors’ responsibilities for the audit of the financial statements section of
our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinion.
3. Overview of our audit approach
Materiality
FY 2019
FY 2018 Change
Materiality for the Financial Statements
as a whole
Materiality levels used for the audits
of the significant components of the audit
US$6.5 million
US$9.5 million
US$1.1 million to US$3.8 million
US$2.6 million to US$4.7 million
Audit scope coverage
97% of total assets, 100% of revenue and 98% of loss before tax
Key audit matters
What we considered
to be a key audit matter
The risk that judgements
and estimates in the
impairments of the mining
assets were inappropriate.
The risk that judgements
regarding the recoverability
of Williamson’s ‘Parcel 1’
inventory blocked for export
and VAT receivables were
inappropriate given the
legislative environment
in Tanzania.
The risk that the going
concern assumption is
inappropriate or that
material uncertainties are
not disclosed appropriately.
Why it represented a key
audit matter
Relevant information in
Financial Statements
and Report of the Audit &
Risk Committee
Management was required to exercise significant judgement and estimation in these
areas and, in the case of Williamson’s inventory and VAT these are further impacted by
the uncertainties associated with the legislative environment of Tanzania. The appropriate
disclosure of such judgements and estimates was also a focus for the audit.
Note 8.
Notes 17 and 18.
Note 1.1.
Report of the Audit & Risk
Committee, pages 65 to 70.
Report of the Audit & Risk
Committee, pages 65 to 70.
Report of the Audit & Risk
Committee, pages 65 to 70.
4. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial
Statements of the current Period and include the most significant assessed risks of material misstatement (whether or not due
to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our
audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
Annual Report and Accounts 2019 Petra Diamonds Limited
97
Financial Statements Independent Auditors’ Report
To the members of Petra Diamonds Limited continued
4. Key audit matters continued
1. The risk that the judgements and estimates in the impairments on the mining assets are inappropriate
How we addressed the matter
Observations
As detailed in note 8, the assessment
of potential impairments to the
carrying value of mining assets
required significant judgement and
estimate by management. Given the
Group’s market capitalisation at 30
June 2019 was significantly below its
net assets, together with the recent
downturn in the global rough
diamond market and variability in the
Group’s product mix, both of which
have significantly impacted realised
rough diamond prices, management
performed an impairment test on all
of the Group’s mining operations.
As detailed in note 8, as at 30 June 2019,
the Group recognised a US$223.7 million
impairment charge across its operations
to write the mining assets down to their
recoverable amount at 30 June 2019.
The appropriateness of judgements
and estimates applied in determination
of the recoverable amounts represented
a significant risk for our audit,
particularly given the sensitivity
of the recoverable amount to
assumptions including short-term
and future diamond prices, foreign
exchange rates, the extent to which
cost savings associated with Project
2022 can be realised and the
recoverability of future VAT at
Williamson (see page 115).
In respect of the
recoverable amount
of the mining assets,
we found the Group’s
conclusion to be
appropriate and
found that the Board’s
assessment of the
recoverable amount at
30 June 2019 considered
both the Group’s plans,
recent performance and
continued risks and
uncertainties. We found
the disclosures in note 8
to be appropriate.
Š We evaluated management’s impairment models against
approved life of mine (“LOM”) plans and our understanding
of the operations, and critically challenged the key estimates
and assumptions used by management for each of the
mining operations.
Š In respect of short-term pricing assumptions, our testing
included evaluation of management’s diamond price forecasts
against prices achieved in the Year and post Year end and
challenging management on their assumptions regarding
the impact that the current market downturn will have on
pricing using public source information including market analyst
and other diamond producer commentary on the short-term
outlook, together with the effect of product mix on pricing.
Š In respect of long-term pricing, we considered the
appropriateness of the long-term diamond price escalator of
2.8% above a long-term US inflation rate of 2.5% per annum
from FY 2022 to FY 2030. In evaluating whether management’s
estimate was within an acceptable range we compared the
price escalator to market guidance and historical market pricing
trends over various time horizons. In addition, we searched
for alternative views on the long-term outlook and challenged
management’s forecast using a variety of information sources,
including market analyst commentary, other diamond producer
pricing outlooks and demand and supply side factors that
would be expected to impact market pricing.
Š We assessed the appropriateness of the forecast cost
savings associated with Project 2022 included in the
forecasts, particularly given the early stage of the project
roll-out. In doing so, we considered the consistency of the
forecast with the Group’s strategic business plan, reviewed
internal documents in respect of the project and met with
operational management responsible for Project 2022 to
evaluate the basis for management’s assumption.
Š In terms of the recovery of historical VAT at Williamson (see
below), we confirmed that given the risks and uncertainty
over the timing of recovery, any cashflows associated with
the recovery of historical VAT were excluded from the
impairment model and the VAT receivable excluded from
the cash-generating unit asset base and tested separately
for impairment, as detailed below. With regards to future
VAT recovery, we assessed the appropriateness of including
future recovery in the forecasts, especially given the
significant delays in historical recovery. In doing so,
we considered correspondence with the tax authorities,
made inquiries of management regarding the nature of
its ongoing discussions with the GoT and reviewed legal
advice obtained by management.
Š On the other key assumptions, our testing included
comparison of foreign exchange rates to market spot and
forward rates; recalculation of discount rates; and critical
review of the forecast cost, Capex and production profiles
against approved mine plans, resources and reserves
reports and empirical performance.
Š We reviewed management’s sensitivity analysis and performed
our own sensitivity analysis over individual key inputs, together
with a combination of sensitivities over such inputs.
Š We held discussions with the Audit & Risk Committee to
consider the recoverable amount under the forecasts,
including downside risks and sensitivity around pricing,
production and foreign exchange rates.
Š We evaluated the disclosures given in note 8 and found
them to be relevant and informative.
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4. Key audit matters continued
2. The risk that judgements regarding the recoverability of ‘Parcel 1’ inventory blocked for export and VAT receivables
were inappropriate given the legislative environment in Tanzania
How we addressed the matter
Observations
In relation to the Parcel 1,
we found the Group’s
conclusion that it is
entitled to the return
of the parcel to be
acceptable and suitably
supported by independent
advice from management’s
external experts. We found
the judgement regarding
the likelihood, method
and timing of recovery to
have been appropriately
considered and disclosed.
In relation to the US$13.8
million VAT under the
historical legislation, we
found no evidence of
disputes in respect of
VAT receivables claimed.
We found management’s
assessment that the
US$19.1 million VAT under
the new legislation is
valid to be an area of
significant judgement
given the lack of clarity
in the tax legislation and
dispute ongoing with the
GoT. However, based on
external legal advice, we
found management’s
assessment to be
acceptable and
appropriately disclosed.
We found the estimates
regarding the timing of
recovery to be highly
subjective but acceptable.
We found the disclosures
included in the Financial
Statements in note 17
and 18 to be appropriate.
The legislative changes in Tanzania
targeted at the mining industry,
together with the seizure of ‘Parcel 1’
in September 2017, created a significant
commercial risk to the Group and has
required the Board to exercise judgement
in respect of a number of areas:
Inventory
As detailed in note 18, Parcel 1 from
FY 2018 of 71,654 cts held at US$12.4
million being the lower of cost and
net realisable value was confiscated
by the Government of Tanzania
(“GoT”) and is being prevented from
export and sale, although subsequent
parcels have been released for export.
Given the circumstances and continued
confinement of the parcel, determination
that the inventory remained recoverable
required the Board to consider whether
it continued to retain legal title to the
parcel, the likelihood and form of
recovery together with the timing
thereof. As such, the recoverability of
Parcel 1 inventory was considered to
represent a key focus for our audit.
VAT
As detailed in note 17, the gross value of
Williamson’s VAT receivable has increased
to US$32.9 million at 30 June 2019.
US$13.8 million relates to historical VAT
prior to July 2017 which arose under
the previous VAT legislation in Tanzania.
Given the significant ageing of the
balance and absence of any significant
receipts, the Board needed to consider
whether there were indications that
the VAT was disputed or invalid,
together with the ultimate timing of
future recoveries. In doing so, the Board
applied judgement and considered
factors including the ongoing VAT
audits, discussions with relevant
authorities in Tanzania and the wider
operating environment.
A further US$19.1 million of VAT
relates to VAT arising under the
current legislation, effective from
July 2017. The ability of the Group
to recover VAT is dependent on the
interpretation and application of the
new legislation to diamond mining.
In addition, judgement was required
in assessing the ultimate timing of
recovery of eligible VAT.
Inventory
Š During the prior year audit, we reviewed the shipping
documentation and export approvals for the parcel together
with documents demonstrating that relevant GoT authorities
seized the parcel. We obtained confirmation from the GoT
that the parcel was held by the GoT and remained unsold.
We performed procedures to assess the steps undertaken
in the export process to assess management’s conclusion
that legislative requirements were appropriately followed.
In the current Year, we have reviewed correspondence with
the GoT authorities which did not indicate any change to
the status of the parcel. We also confirmed with management
and the Board that there have been no indications that the
parcel is no longer held by the GoT during its engagement
with the GoT.
Š We reviewed all correspondence with the GoT and the legal
appeal filed by the Group, in conjunction with its legal
adviser, in relation to the blocked parcel which sets out the
Group’s legal entitlement to return of the parcel.
Š We discussed and critically assessed management’s own
assessment of the Group’s rights over the parcel with the
Group’s independent external Tanzanian legal adviser. We
have obtained written confirmation from the Group’s Tanzania
legal adviser which supports the Directors’ assessment that
the parcel is being held without any procedural claim or merit,
that the Group continues to hold legal title to the parcel
and the Group would have a valid claim for compensation
if the parcel is not released. In relying upon the assessments
made by such expert, we evaluated the competence
and objectivity of the professional adviser relied upon
by management.
Š We challenged management regarding the method, likelihood
and timing of recovery and discussed the judgement with
the Audit & Risk Committee. In doing so, we considered
representations regarding the status of discussions with
GoT representatives. We obtained written representations
from the Board in respect of the judgement.
VAT
Š We examined the Group’s correspondence with the tax
authorities in respect of the US$13.8 million historical VAT
for indicators that such taxes were irrecoverable under
local tax rules or subject to dispute. In addition, we made
inquiries of the Board and Management and reviewed
minutes of meetings to identify indicators that VAT is
disputed or may be irrecoverable.
Š In respect of the US$19.1 million VAT arising under the current
legislation, we reviewed the definition of ‘raw minerals’
under the new legislation and, in conjunction with our tax
specialists, evaluated management’s judgement that rough
diamond production is outside of the scope of the legislation.
We inspected correspondence from the tax authorities rejecting
the Group’s assessment. We reviewed correspondence with the
tax authorities and made inquiries of management regarding
the nature of its ongoing discussions with the GoT.
Annual Report and Accounts 2019 Petra Diamonds Limited
99
Financial Statements Independent Auditors’ Report
To the members of Petra Diamonds Limited continued
4. Key audit matters continued
2. The risk that judgements regarding the recoverability of ‘Parcel 1’ inventory blocked for export and VAT receivables
were inappropriate given the legislative environment in Tanzania continued
How we addressed the matter
Observations
Given these circumstances, the
carrying value and presentation
of VAT was considered to represent
a key risk for our audit.
We discussed and critically assessed management’s own
assessment that the Group can legally recover the VAT with
the Group’s independent external Tanzanian legal adviser.
We have obtained written confirmation from the Group’s
Tanzanian legal adviser which supports the Board’s assessment
that the VAT is legally valid and remains recoverable. In
addition, we considered the nature of the rough diamond
acidisation and sorting processes in assessing whether
management’s judgement that the VAT is recoverable
under the legislation is acceptable. In relying upon the
assessments made by such expert, we evaluated the
competence and objectivity of the professional adviser
relied upon by management.
Š We considered and challenged management’s assessment
of the provision for discounting including the estimates
regarding the timing of recovery and risk adjusted discount
rate applied in the calculation and performed sensitivity
analysis to consider alternative scenarios. In particular, this
included consideration of the payment history, apparent
fiscal constraints on the GoT and political developments,
the nature of ongoing correspondence and other ongoing
legislative changes.
Š We reviewed the disclosures in the Financial Statements to
satisfy ourselves that the judgements and estimates have
been appropriately disclosed.
3. The risk that the going concern assumption is inappropriate or that material uncertainties are not disclosed appropriately
The Group held US$650 million of
secured senior second lien loan notes
and had US$107 million of undrawn,
but available secured senior lender
facilities as at 30 June 2019, the latter
being subject to covenant measurements.
The Group’s results had been adversely
impacted by the weakening of the rough
diamond market as set out in note 1.1
to the Financial Statements such that
the Group is forecasting a potential
breach of its EBITDA-related covenants
for December 2019 and June 2020.
As detailed in note 1.1, the Group’s
base case cashflow forecast indicates
that it will require the temporary
utilisation of its banking facilities,
to meet its liabilities as they fall due
under the base case forecast. As detailed
in note 1.1 to the Financial Statements,
based on ongoing discussions with the
Lender Group, the Board has concluded
that if a forecast breach occurs it remains
confident that the existing facilities
will remain available to the Group.
The Group’s assessment that the going
concern basis of preparation remains
appropriate and that the circumstances
detailed in note 1.1 to the Financial
Statements do not represent a material
uncertainty that may cast doubt on the
Group’s use of that basis for a period of at
least 12 months from the date of approval
of the Financial Statements represented
a significant risk for our audit.
Š We critically reviewed the Group’s forecasts and challenged
management’s assumptions in respect of diamond prices,
production, operating costs, foreign exchange rates and
capital expenditure. In doing so, we considered factors such
as empirical performance, trading to date in H1 FY 2020
and external market data. We specifically confirmed that
the forecast period excluded receipts associated with
Parcel 1 and VAT receivables at Williamson.
Š We agreed debt service payments associated with the
secured senior second lien loan notes to the terms of the
loan notes. We confirmed that the forecasts included advances
to the Group’s BEE partners to enable the BEE partners to
meet their obligations under the BEE Lender Facilities.
Š We assessed management’s sensitivity analysis performed
in respect of key assumptions underpinning the forecasts
and assessed the level of facility utilisation under such
sensitivities. We performed our own sensitivities in respect
of diamond pricing, production and foreign exchange rates.
Š We recalculated management’s covenant compliance
calculations and forecast covenant compliance calculations
and assessed the consistency of such calculations with the
ratios stated in the relevant lender agreements.
Š Given the forecasts indicate a likely breach of covenants
we critically assessed the Board’s judgement that, should a
breach occur, the banking facilities would remain available
to the Group. We reviewed and considered management
reports reviewed by the Board in respect of going concern
and associated disclosures. We made specific inquiries of
management and the Board regarding the nature of
discussions held with the Lender Group and how those
discussions had been considered in the Board’s conclusion.
We found management’s
forecasts indicated that
the Group would likely
breach its banking
covenant ratios as at
31 December 2019 and
30 June 2020. We found
the key underlying
assumptions to be within
an acceptable range.
We found the Board’s
judgement that, in the
event of a breach under
the Group’s forecasts,
the Group would expect
to be able retain access
to its banking facilities
to be acceptable.
We found the disclosures
included in the Financial
Statements in respect
of going concern to be
appropriate. We found
the Board’s judgement
that the disclosed
circumstances did not
constitute a material
uncertainty in respect
of going concern to
be acceptable.
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Supplementary Information
4. Key audit matters continued
3. The risk that the going concern assumption is inappropriate or that material uncertainties are not disclosed appropriately
How we addressed the matter
Observations
continued
We held independent discussions with representatives
of the Lender Group regarding the nature of the Lender
Group’s discussions with management and received written
confirmation from the Lender Group which, whilst non-binding,
was consistent with the Board’s conclusion. In addition, we
considered the Board’s assessment of factors such as the
historical covenant resets, the extent of the forecast
facility requirement and the underlying operating cash
profile which formed part of the Board’s conclusion.
Š We reviewed the disclosures in note 1.1 to the Financial
Statements in respect of going concern.
5. Our application of materiality
The materiality we applied equates to 0.5% (FY 2018: 0.5%) of the total assets of the Group and represents 2.0% (FY 2018: 1.6%)
of total equity and 4.2% (FY 2018: 4.9%) of adjusted EBITDA. We consider total assets to be an appropriate basis for materiality
given the Group’s stage of development and in particular the strategic focus on capital expansion programmes.
Whilst materiality for the Financial Statements as a whole was US$6.5 million (FY 2018: US$9.5 million), each significant
component of the Group was audited to a lower materiality as detailed in the overview section.
Performance materiality is the application of materiality at the individual account or balance level and is set at an amount
which reduces to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the Financial Statements as a whole. Performance materiality was set at 75% (2018: 75%) of the above
materiality levels.
We agreed with the Audit & Risk Committee that we would report to them all individual audit differences identified during the
course of our audit in excess of US$0.2 million (FY 2018: US$0.25 million). We also agreed to report differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
6. An overview of the scope of our audit
Whilst Petra Diamonds Limited is a London Stock Exchange listed company, the Group’s operating mines are located in South Africa
and Tanzania. We assessed there to be four significant components being the Finsch, Cullinan, and Koffiefontein operations in
South Africa and the Williamson mine in Tanzania.
Group ISA 600 audit
BDO UK
Williamson
Non-BDO firm
South African operations
BDO South Africa
Full scope audits for Group reporting purposes were performed on the three significant South African reporting components
by BDO in South Africa. The BDO firm in South Africa also performed audits on the South African non-significant components
for Group reporting purposes. A full scope audit of the one significant component in Tanzania was performed by a non-BDO firm
in Tanzania. The Group audit team performed an audit of Petra Diamonds Limited as a standalone entity, along with the audit
of the significant head office component, and the consolidation.
The combined effect of the component audits performed to component level materiality levels for the purpose
of the Group audit opinion covered:
Total assets
Revenue
Profit before tax
97%
100%
98%
The remaining non-significant holding companies were principally subject to analytical review procedures.
Annual Report and Accounts 2019 Petra Diamonds Limited
101
Financial Statements Independent Auditors’ Report
To the members of Petra Diamonds Limited continued
6. An overview of the scope of our audit continued
As part of our audit strategy, as Group auditors:
Š Detailed Group reporting instructions were sent to the component auditors, which included the significant areas to be covered
by the audits (including areas that were considered to be key audit matters as detailed above), and set out the information
required to be reported to the Group audit team.
Š The Group audit team performed procedures independently over key audit risk areas, as considered necessary, including the key
audit matters above.
Š Members of the Group audit team were physically present in South Africa and Tanzania at certain times during the planning
and fieldwork phases of the audits.
Š The Group audit team was actively involved in the direction of the audits performed by the component auditors for Group
reporting purposes, along with the consideration of findings and determination of conclusions drawn.
Š The Responsible Individual or his representative in the Group audit team visited all of the operating mines, attended clearance
meetings for all significant components and spent significant periods of time with the component auditors responsible for the
significant components during their fieldwork and completion phases.
Š We gained an understanding of the legal and regulatory framework applicable to the Group and the industry in which it
operates, and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud.
We designed audit procedures to respond to the risk, recognising that the risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through collusion.
Š Our tests included, but were not limited to, agreement of the Financial Statement disclosures to underlying supporting
documentation, review of correspondence with regulators, review of correspondence with legal advisers, enquiries of
management, review of significant component auditors’ working papers and review of internal audit reports in so far as they
related to the financial statements. There are inherent limitations in the audit procedures described above and the further
removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements,
the less likely we would become aware of it.
Š We also addressed the risk of management override of internal controls, including testing journals and evaluating whether
there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
7. Conclusions relating to principal risks, going concern and Viability Statement
Notwithstanding the matters relating to going concern set out in the Key Audit Matters section of this report we have nothing
to report in respect of the Directors’ statement set out on pages 109 and 110 in the financial statements on the use of the going
concern basis of accounting with no material uncertainties that may cast significant doubt over the Group’s use of the going
concern basis for period of at least 12 months from the date of approval of the Financial Statements.
We have nothing to report in respect of the following information in the Annual Report, in relation to which the ISAs (UK) require
us to report to you whether we have anything material to add or draw attention to:
Š the disclosures in the Annual Report set out on pages 72 to 75 that describe the principal risks and explain how they are being
managed or mitigated;
Š the Directors’ confirmation set out on page 71 in the Annual Report that they have carried out a robust assessment of the principal
risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity;
Š the Directors’ statement set out on pages 109 and 110 in the Financial Statements about whether the Directors considered
it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements and the Directors’
identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least 12 months
from the date of approval of the Financial Statements; or
Š the Directors’ explanation set out on page 71 in the Annual Report as to how they have assessed the prospects of the Group, over
what period they have done so and why they consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over
the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
8. Other information in the Annual Report set out on pages 1 to 93 and 156 to 176
The Directors are responsible for the other information. The other information comprises the information included in the Annual
Report, other than the Financial Statements and our Auditor’s Report thereon. Our opinion on the Financial Statements does not
cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the Financial Statements or our knowledge obtained
in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material misstatement in the Financial Statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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8. Other information in the Annual Report set out on pages 1 to 93 and 156 to 176 continued
In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the
other information and to report as uncorrected material misstatements of the other information where we conclude that those
items meet the following conditions:
Š fair, balanced and understandable set out on page 67 – the statement given by the Directors that they consider the
Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group’s performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
Š Audit & Risk Committee reporting set out on pages 65 to 70 – the section describing the work of the Audit & Risk
Committee does not appropriately address matters communicated by us to the Audit & Risk Committee; or
Š Directors’ statement of compliance with the UK Corporate Governance Code set out on page 54 – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance
Code containing provisions specified for review by the auditors in accordance with the Listing Rules do not properly disclose
a departure from a relevant provision of the UK Corporate Governance Code.
9. Responsibilities of Directors
As explained more fully in the Directors’ Responsibilities Statement set out on page 96, the Directors are responsible for the
preparation of the Financial Statements and for being satisfied that they give a true and fair view, 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.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
10. Auditors’ responsibilities for the audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the Financial Reporting Council’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our Auditor’s Report.
11. Other matters
Following the recommendation of the Audit & Risk Committee, we were appointed to audit the Financial Statements for the year
ending 30 June 2006 and subsequent financial periods. We were re-appointed by the Directors following a competitive tender to
audit the Financial Statements for the period ended 30 June 2018. In respect of the period ended 30 June 2019 we were re-appointed
as auditors by the members of the Company at the Annual General Meeting of the Company held on 23 November 2018. The period
of total uninterrupted engagement is 14 years, covering the years ending 30 June 2006 to 30 June 2019.
The non-audit services that would be prohibited by the FRC’s Ethical Standard were the Company considered to be a public
interest entity were not provided to the Group and we remain independent of the Group in conducting our audit.
Our audit opinion is consistent with the additional report we have submitted to the Audit & Risk Committee.
12. Use of our report
This report is made solely to the parent company’s members. Our audit work has been undertaken so that we might state to
the parent company’s members those matters we are required to state to them in an auditors’ 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 parent company
and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Scott Knight (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditors
London
14 October 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Annual Report and Accounts 2019 Petra Diamonds Limited
103
Financial Statements Consolidated Income Statement
For the Year ended 30 June 2019
US$ million
Revenue
Mining and processing costs
Other (expense)/direct income
Exploration expenditure
Corporate expenditure
Impairment
Total operating costs
Financial income
Financial expense
Loss before tax
Income tax credit/(charge)
Loss for the Year from continuing operations
Loss on discontinued operations including associated impairment
charges (net of tax)
Loss for the Year
Loss for the Year attributable to:
Equity holders of the parent company
Non-controlling interest
Loss per share attributable to the equity holders of the parent
during the Year
From continuing operations:
Basic loss per share – US$ cents
Diluted loss per share – US$ cents
From continuing and discontinued operations:
Basic loss – US$ cents
Diluted loss – US$ cents
The notes on pages 109 to 155 form part of these Financial Statements.
Notes
2
3
4
5
6
8
9
9
10
34
12
12
12
12
2019
463.6
(407.6)
(0.8)
(0.5)
(8.6)
(246.6)
(664.1)
12.1
(65.6)
(254.0)
45.8
(208.2)
(49.9)
(258.1)
(226.8)
(31.3)
(258.1)
(20.18)
(20.18)
(26.19)
(26.19)
2018
495.3
(418.6)
1.2
(0.7)
(10.4)
(66.0)
(494.5)
8.5
(94.3)
(85.0)
(13.8)
(98.8)
(104.3)
(203.1)
(166.9)
(36.2)
(203.1)
(15.85)
(15.85)
(31.29)
(31.29)
104
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
Consolidated Statement of Other Comprehensive Income
For the Year ended 30 June 2019
US$ million
Loss for the Year
Exchange differences on translation of the share-based payment reserve
Exchange differences on translation of foreign operations1
Exchange differences on non-controlling interest1
Total comprehensive expense for the Year
Total comprehensive expense for the Year attributable to:
Equity holders of the parent company
Non-controlling interest
2019
(258.1)
(0.1)
(14.9)
(0.7)
(273.8)
(241.8)
(32.0)
(273.8)
2018
(203.1)
1.3
(41.3)
(5.3)
(248.4)
(206.9)
(41.5)
(248.4)
1. Exchange differences arising on translation of foreign operations and non-controlling interest will be reclassified to profit and loss if specific future conditions are met.
The notes on pages 109 to 155 form part of these Financial Statements.
Annual Report and Accounts 2019 Petra Diamonds Limited
105
Financial Statements Notes
2019
2018
Consolidated Statement of Financial Position
At 30 June 2019
US$ million
ASSETS
Non-current assets
Property, plant and equipment
BEE loans receivable
Other receivables
Total non-current assets
Current assets
Trade and other receivables
Inventories
Cash and cash equivalents (including restricted amounts)
Total current assets
14
15
17
17
18
19
Non-current assets classified as held for sale
34,35
Total assets
EQUITY AND LIABILITIES
Equity
Share capital
Share premium account
Foreign currency translation reserve
Share-based payment reserve
Other reserves
Accumulated losses
Attributable to equity holders of the parent company
Non-controlling interests
Total equity
Liabilities
Non-current liabilities
Loans and borrowings
BEE loans payable
Provisions
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Total current liabilities
20
20
20
20
20
20
16
21
15
23
24
21
22
Liabilities directly associated with non-current assets classified as held
for sale
34,35
Total liabilities
Total equity and liabilities
The notes on pages 109 to 155 form part of these Financial Statements.
The Financial Statements were approved and authorised for issue by the Directors on 14 October 2019.
106
Petra Diamonds Limited Annual Report and Accounts 2019
967.8
109.6
10.1
1,244.2
64.7
20.3
1,087.5
1,329.2
35.9
85.6
85.2
206.7
0.6
99.4
78.1
236.0
413.5
46.5
1,294.8
1,789.2
133.4
790.2
(361.7)
6.2
(0.8)
(255.6)
311.7
14.4
326.1
603.5
120.5
61.3
81.4
866.7
47.1
54.9
102.0
—
968.7
1,294.8
133.4
790.2
(344.7)
7.7
(0.8)
(30.4)
555.4
11.2
566.6
601.2
110.5
59.5
139.2
910.4
153.6
130.8
284.4
27.8
1,222.6
1,789.2
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
Consolidated Statement of Cashflows
For the Year ended 30 June 2019
US$ million
Notes
2019
2018
8
34
9
9
Loss before taxation for the Year from continuing and
discontinued operations
Depreciation of property, plant and equipment
Impairment charge
Loss and impairment charge in relation to discontinued operation
Movement in provisions
Financial income
Financial expense
Profit on sale of property, plant and equipment
Share-based payment provision
Operating profit before working capital changes
Decrease/(increase) in trade and other receivables
(Decrease)/increase in trade and other payables
Increase in inventories
Cash generated from operations
Net realised gains on foreign exchange contracts
Finance expense
Income tax paid
Net cash generated from operating activities
Cashflows from investing activities
Acquisition of property, plant and equipment (including capitalised cash interest
paid of US$3.7 million (30 June 2018: US$13.3 million))
Proceeds from sale of property, plant and equipment
Loans advanced to BEE Partners
Loans advanced to KEM JV post disposal
Repayment of loans from KEM JV
Disposal of interest in KEM JV and Helam (net of cash disposed of)
Finance income
Net cash utilised in investing activities
Cashflows from financing activities
Proceeds from the issuance of share capital (net of cash issue costs paid
30 June 2018: US$6.5 million)
Increase in borrowings
Repayment of borrowings
Net cash (utilised in)/generated by financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the Year
Effect of exchange rate fluctuations on cash held
Cash and cash equivalents at the end of the Year1
19
(303.9)
106.7
246.6
49.9
0.7
(12.1)
65.6
1.3
0.2
155.0
61.0
(53.2)
(6.4)
156.4
1.0
(45.4)
(13.0)
99.0
(85.9)
0.4
(46.7)
(9.4)
3.9
(1.5)
1.3
(183.2)
135.7
66.0
92.7
(3.0)
(8.9)
95.6
—
0.6
195.5
(76.8)
14.2
(18.8)
114.1
0.2
(38.9)
(7.5)
67.9
(175.4)
0.6
(31.0)
—
—
—
3.9
(137.9)
(201.9)
—
5.8
(108.5)
(102.7)
(141.6)
223.0
(9.7)
71.7
166.9
35.6
(32.8)
169.7
35.7
190.2
(2.9)
223.0
1. Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of US$13.5 million (30 June 2018: US$14.4 million) and unrestricted cash
of US$71.7 million (30 June 2018: US$221.6 million) and excludes unrestricted cash attributable to KEM JV of US$nil (30 June 2018: US$1.4 million) (refer to note 34).
The cashflows specific to the discontinued operation (net of tax) are included in the amounts above and are disclosed in note 34.
Notes to the Consolidated Statement of Cashflows are set out in note 28.
The notes on pages 109 to 155 form part of these Financial Statements.
Annual Report and Accounts 2019 Petra Diamonds Limited
107
Financial Statements Consolidated Statement of Changes in Equity
For the Year ended 30 June 2019
At 30 June 2019
133.4
790.2
(361.7)
US$ million
At 1 July 2018
Loss for the Year
Other comprehensive expense
Recycling of foreign currency
translation reserve on disposal
of KEM JV and Helam1
Transfer between reserves
for lapsed employee options
Non-controlling
interest disposed
Equity-settled share-based
payments
Share
Foreign
currency
premium translation
reserve
account
Share-
based
payment
reserve
Share
capital
133.4
790.2
(344.7)
(14.9)
(0.1)
(2.1)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Share
Share-
Foreign
based
currency
premium translation payment
reserve
reserve
account
Share
capital
7.7
—
(1.6)
—
0.2
6.2
Other
reserves
Accumulated
losses
Attributable
Non-
to the controlling
interest
parent
Total
equity
(0.8)
(30.4)
555.4
11.2
566.6
—
—
—
—
—
—
(226.8)
(226.8)
(31.3)
(258.1)
—
(15.0)
(0.7)
(15.7)
—
1.6
—
—
(2.1)
—
—
—
—
(2.1)
—
35.2
35.2
0.2
—
0.2
(0.8)
(255.6)
311.7
14.4
326.1
(Accumulated
Other
reserves
/retained
earnings
losses) Attributable
Non-
to the controlling
interest
parent
Total
equity
89.6
666.0
(303.4)
12.8
(0.8)
129.5
593.7
52.7
646.4
US$ million
At 1 July 2017
Loss for the Year
Other comprehensive income/
(expense)
Transfer between reserves
for exercise of options
Equity-settled share-based payments
Allotments during the Year:
Ordinary shares – Rights Issue
(net of US$7.4 million issue costs)
Share options exercised
—
—
—
—
—
—
—
—
43.7
0.1
124.1
0.1
—
—
(41.3)
1.3
—
—
—
—
(7.0)
0.6
—
—
7.7
—
—
—
—
—
—
(166.9)
(166.9)
(36.2)
(203.1)
—
(40.0)
(5.3)
(45.3)
7.0
—
—
—
—
0.6
167.8
0.2
—
—
—
—
—
0.6
167.8
0.2
(0.8)
(30.4)
555.4
11.2
566.6
At 30 June 2018
133.4
790.2
(344.7)
1. During the Year, the Company disposed of the KEM JV and Helam operations and recognised a foreign currency translation gain of US$2.1 million which has been recycled through
the Consolidated Income Statement as part of loss on discontinued operations (refer to note 34).
The notes on pages 109 to 155 form part of these Financial Statements.
108
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
Notes to the Annual Financial Statements
For the Year ended 30 June 2019
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 the United Kingdom. The Company’s registered address is 2 Church Street,
Hamilton, Bermuda. The Financial Statements incorporate the principal accounting policies set out below and in the subsequent
notes to these Financial Statements, which are consistent with those adopted in the previous year’s Financial Statements, apart
from the accounting policies relevant to IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers
(refer to note 1.4).
1.1 Basis of preparation
The Financial Statements of the Company and its subsidiaries, jointly controlled operations and associates (“the Group”) are
prepared in accordance with International Financial Reporting Standards (“IFRS”) (IFRS and IFRIC interpretations) issued by the
International Accounting Standards Board (“IASB”), as adopted by the European Union.
Going concern
Background
The Group started the Year with cash and cash equivalents of US$236 million, following the US$170 million Rights Issue in June 2018.
This was used shortly thereafter to settle ca. US$103 million drawn under the ZAR1 billion (ca. US$70 million) revolving credit and
ZAR500 million (ca. US$35 million) working capital facilities (“RCF” and “WCF”, respectively) from Petra’s Lender Group; both these
facilities remain available to the Group.
Production for the Year was largely delivered in accordance with management expectations. However, rough diamond market
conditions and product mix negatively impacted rough diamond pricing and, as a result, revenue and cashflow results. Product
mix results are discussed in more detail in the mine-by-mine commentary in the Operational Review section, while the rough
diamond market is discussed in Our Market.
During April 2019, Petra and its Lender Group reached an agreement to reset the forward-looking EBITDA-related maintenance
covenants associated with its banking facilities to more appropriate levels; the Company announced the following amendments
to the market at the end of April 2019:
12 months
to 30 Jun 2019
12 months
to 31 Dec 2019
12 months
to 30 Jun 2020
12 months
to 31 Dec 2020
12 months
to 30 Jun 2021
Consolidated net debt to consolidated EBITDA:
- New covenant ratio:
- Previous covenant ratio:
≤ 4.5x
≤ 2.5x
Consolidated EBITDA to consolidated net finance charges:
- New covenant ratio:
- Previous covenant ratio:
≥ 2.5x
≥ 4.0x
≤ 4.25x
≤ 2.5x
≥ 2.5x
≥ 4.0x
≤ 3.5x
≤ 2.5x
≥ 2.75x
≥ 4.0x
≤ 3.25x
≤ 2.5x
≥ 3.0x
≥ 4.0x
≤ 3.0x
≤ 2.5x
≥ 3.25x
≥ 4.0x
Further to the appointment of CEO Richard Duffy on 1 April 2019, Project 2022 was initiated and announced to the market in July 2019.
This project aims to identify and drive efficiencies and improvements across all aspects of the business with the objective of delivering
an initial target of US$150–200 million free cashflow over a three-year period, with delivery weighted towards FY 2021 and FY 2022
and dependent on diamond pricing. Project 2022’s focus is on enhancing cashflow generation and reducing net debt.
Forecasts and associated risks
In light of the above, and coupled with continued weakness in the diamond market, the following have been key considerations
for the Board in assessing the Group’s ability to operate as a going concern at the date of this report:
Š risks of further market weakness reducing diamond prices;
Š the impact on pricing due to product mix volatility;
Š risks of general production disruptions;
Š risks of increased operating costs;
Š volatility in the South African Rand; and
Š the impact of reduced revenue on earnings, cashflow projections and associated covenant measurements.
Base case forecasts (which incorporate current diamond market conditions) assume an average exchange rate of ZAR14.50:US$1
for the period to June 2020 and ZAR14.00:US$1 thereafter and continued advances to BEE Partners to enable them to meet their
loan obligations to the BEE Lenders, and specifically exclude the proceeds from the sale of exceptional stones, the sale of the
blocked Williamson parcel and the recovery of historical and current VAT during the forecast period.
The Board has reviewed the Group’s forecasts and sensitivities for a period of at least 18 months from Year end, including both
forecast liquidity and covenants. In doing so, careful consideration was given to potential risks to the forecasts as listed above.
Under the base case, and considering the above sensitivities on an individual basis, the Company’s forecast liquidity may require
temporary utilisation of the South African banking facilities, should the ongoing weakness in the diamond market persist during
the Period under review. The impact of the recent weakness in the diamond market on the Group’s operating results and cashflow
position has been discussed with the Lender Group, including possible breaches in its EBITDA-related covenants for the December
2019 and June 2020 reporting periods. The Lender Group has reaffirmed its ongoing support of the Group and the Company;
discussions with the Lender Group will continue once the September tender results have been finalised and processed, and the
Company has had the opportunity to further assess the impact on forward-looking cashflow projections. This may include
covenant resets and/or waivers for the measurement periods as mentioned.
Annual Report and Accounts 2019 Petra Diamonds Limited
109
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
1. Accounting policies continued
1.1 Basis of preparation continued
Conclusion
The Board is of the view that the longer-term fundamentals of the diamond market remain sound. The forecast benefits of Project
2022 (which include increased production and reduced spend) are expected to materialise in FY 2020 and beyond, and further organic
growth opportunities will continue to be provided well beyond 2030, with Petra having the third largest diamond resource globally.
The Board recognises the significant debt levels within the Group and despite the operations now performing in line with
guidance, and all major capital expansion programmes having been delivered on, the current weakness in the diamond market has
heightened the need to continue to optimise production across all operations and focus on key deliverables as currently envisaged
to be addressed via Project 2022.
Ongoing engagement with the Lender Group is key to ensuring facilities remain available to the Group. Cash management and
preservation will continue to be of the highest importance and will be facilitated by maintaining very tight control over costs and
overheads and by deferring certain elements of capital expenditure.
Considering the recent positive engagements with the Lender Group, as well as the Group’s existing cash resources and the
continuing availability of current facilities, the Board assessed the liquidity headroom to be adequate under the Group’s current
base case and reasonable sensitivities.
Accordingly, the Board has concluded that the going concern basis in the preparation of the unaudited preliminary Financial
Statements remains appropriate and that there are no material uncertainties that would cast doubt on that basis of preparation.
Currency reporting
The functional currency of the Company is Pounds Sterling (GBP). The functional currency of the Group’s business transactions
in Botswana is Botswana Pula (BWP) and Tanzania is US Dollars (US$). 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$). ZAR balances are translated
to US Dollars at ZAR14.07 as at 30 June 2019 (30 June 2018: ZAR13.73) and at an average rate of ZAR14.19 for transactions during
the Year ended 30 June 2019 (30 June 2018: ZAR12.86).
Financial statements of foreign entities
Assets and liabilities of foreign entities (i.e. those with a functional currency other than US$) are translated at rates of exchange
ruling at the financial Year end; income and expenditure and cashflow items are translated at rates of exchange ruling at the date
of the transaction or at rates approximating the rates of exchange at the date of the translation where appropriate. Fair value
adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated
at the exchange rate ruling at the reporting date. Exchange differences arising from the translation of foreign entities are
recorded in the Consolidated Statement of Other Comprehensive Income and recycled to the Consolidated Income Statement
on disposal of the foreign entity.
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. Such unrealised gains and losses are
recycled through the Consolidated Income Statement on disposal of the Group’s shares in the entity.
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.
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 is included in share capital and share premium at the
prevailing US$/GBP spot rate at the date of the transaction.
Significant judgements and estimates relevant to the basis of preparation
Net investments in foreign operations
Management assesses 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 judgement is based upon
factors including the life of mine (“LOM”) plans, cashflow forecasts and strategic plans. The unrealised foreign exchange gains or
losses on, permanent as equity loans, is recorded in the 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.
110
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
1. Accounting policies continued
1.2 Basis of consolidation
Subsidiaries
Subsidiaries are those entities over whose financial and operating policies the Group has the power to exercise control. Control is
achieved where the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability
to affect those returns through its power over the investee. 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.
Subsidiaries 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).
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.
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 are eliminated to the extent
of the Group’s interest in the enterprises and 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.
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 shareholders’ share of changes in equity since the date of the combination. The non-controlling interests’ share
of losses, where applicable, is 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.
1.3 Key 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. 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 in the relevant sections of this report and summarised as follows:
Key estimate or judgement
Net investments in foreign operations judgements
Life of mine and ore reserves and resources estimates and judgements
Impairment review estimates and judgements
Capitalisation of borrowing costs judgements
Depreciation judgements
BEE guarantee
Recoverability of VAT in Tanzania
Inventory stockpile and recoverability of confiscated diamond parcel in Tanzania
Provision for rehabilitation estimates
Pension scheme estimates
Post-retirement medical fund estimates
Loss on discontinued operations
Non-current assets held for sale
Note
1.1
8
8
9 and 14
14
15
17
18
23
30
31
34
35
Annual Report and Accounts 2019 Petra Diamonds Limited
111
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
1. Accounting policies continued
1.4 New standards and interpretations applied
The IASB has issued the following new standards, amendments to published standards or interpretations to existing standards
with effective dates on or prior to 1 July 2018 which have been adopted by the Group:
IFRS 9 “Financial Instruments”
IFRS 9 “Financial instruments” addresses the classification and measurement of financial assets and financial liabilities and replaces
the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed
measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other
comprehensive income (“OCI”) and fair value through profit or loss. The basis of classification depends on the entity’s business model and
the contractual cashflow characteristics of the financial asset. There is now a new expected credit loss model that replaces the incurred
loss impairment model used in IAS 39. The adoption of IFRS 9 did not result in any material change to the consolidated results of
the Group from the beginning of the earliest period presented. Following an assessment of the consolidated financial assets no changes
to classification of those financial assets was required. The Group has applied the expected credit loss impairment model to its financial
assets, focused in particular on its KEM JV receivables in respect of the purchase consideration, working capital and equipment facility
advances and non-current BEE receivables. The expected credit loss for KEM JV was US$7.3 million. No material credit losses are
considered to apply to the non-current BEE receivables. As per note 15, the Group provided a guarantee to the BEE Lenders over
the repayment of loans advanced to the Group’s BEE Partners. The BEE Partners will settle their loan obligations with the BEE
Lenders from their share of future operational cashflows, either through repayment of the amounts owing to the BEE Partners
by Petra or through recoverable advances provided by Petra from Group treasury. The adoption of IFRS 9 has not had any material
impact on the accounting treatment of the BEE guarantee. The Group’s VAT receivables are excluded from the scope of IFRS 9.
IFRS 15 “Revenue from Contracts with Customers”
IFRS 15 introduced a single framework for revenue recognition and to clarify principles of revenue recognition. This standard modifies
the determination of when to recognise revenue and how much revenue to recognise. The core principle is that an entity recognises
revenue to depict the transfer of promised goods and services to the customer of an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. The adoption of IFRS 15 did not result in any material change to
the Group’s revenue recognition. The Group recognises revenue to depict the transfer of promised diamond sales to customers in
an amount that reflects the consideration to which the Group expects to be entitled in exchange for the diamond sales. Diamond
sales are made through a competitive tender process.
The Group’s performance obligations are considered to be satisfied and control of the rough diamonds transferred at the point
the tender is awarded.
Where the Group makes rough diamond sales to customers and retains a vested right in the future sale of the polished diamond,
the Group will record such revenue only at the date when the polished diamond is sold (and only its interest therein).
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 on or after 1 July 2019 or in later periods, which the Group has decided not to adopt early.
IFRIC 23
Uncertainty over Income Tax Treatments
Amendments IAS 19
Plan Amendment, Curtailment or Settlement
IFRS 16
“Leases”
Definition of Material
Amendments to IAS 1 and IAS 8
The only standard which is anticipated to be significant or relevant to the Group is:
Effective period
commencing
on or after
1 January 2019
1 January 2019
1 January 2019
1 January 2020
IFRS 16 “Leases”
The Group is required to apply IFRS 16 for annual reporting periods beginning on or after 1 January 2019. IFRS 16 introduces a single
lease accounting model. This standard requires lessees to account for all leases under a single on-balance sheet model. Under the
new standard, a lessee is required to recognise all lease assets and liabilities on the balance sheet; recognise amortisation of leased
assets and interest on lease liabilities over the lease term; and separately present the principal amount of cash paid and interest in
the cashflow statement. The requirements of IFRS 16 extend to certain service contracts, such as mining contractors in which the
contractor provides services, and the use of assets, which will impact the Group. The Company will apply the modified retrospective
approach where the cumulative effect of initially applying IFRS 16 is recognised at the date of initial application in FY 2020.
Below is a summary of the impact upon adoption of IFRS 16 “Leases”.
Right-of-use asset – 1 July 2019
Lease liability – 1 July 2019
Effect on retained earnings – 1 July 2019
30 June 2020:
Variable non-discounted lease payments
Amortisation of right-of-use asset
Finance charges on lease liability
112
Petra Diamonds Limited Annual Report and Accounts 2019
US$ million
9.5
(9.5)
—
5.8
4.7
0.8
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
2. Revenue
Significant accounting policies relevant to revenue
Revenue comprises net invoiced diamond sales to customers excluding VAT. Revenue is split between rough diamond sales and revenue
from interest in polished diamonds. Diamond sales are made through a competitive tender process and recognised when point of
control passes to the buyer, costs can be measured reliably and receipt of future economic benefits is probable. The performance
obligation is met at the point at which the tender is awarded. Where the Group makes rough diamond sales to customers and also
retains a right to an interest in their future sale as polished diamonds, the Group records the sale of the rough diamonds but such
contingent revenue on the onward sale is only recognised at the date when the polished diamonds are sold.
Revenue from test production on projects pending formal commissioning is credited to revenue and an attributable amount
associated with generating the revenue is charged to cost of sales.
US$ million
Revenue from diamond sales
2019 ¹
463.6
2018
495.3
1. The disaggregation of revenue is disclosed per segment as per note 33.
3. Mining and processing costs
Refer to notes 11, 14, 18, and 26 for the Group’s policies, relevant to the significant cost lines below, on employment costs,
depreciation, inventories, share-based payments and related key judgements and estimates.
US$ million
Raw materials and consumables used
Employee expenses (including share-based payments)
Depreciation of mining assets
Diamond royalty
Changes in inventory of finished goods and stockpiles
4. Other direct expense/(income)
US$ million
Loss on disposal of fixed assets
Other income
2019
151.3
140.2
105.9
13.2
(3.0)
407.6
2019
1.1
(0.3)
0.8
2018
152.2
134.5
127.2
14.2
(9.5)
418.6
2018
—
(1.2)
(1.2)
5. Exploration expenditure
Exploration costs relate to the Company’s exploration activities in Botswana and are written off in the year in which they are incurred.
US$ million
Direct exploration costs
Employee expenses
Depreciation of exploration assets
6. Corporate expenditure
Corporate expenditure includes:
US$ million
Depreciation of property, plant and equipment
London Stock Exchange and other regulatory expenses
Share-based expense – Directors
Salaries and other staff costs
Total staff costs
2019
0.2
0.2
0.1
0.5
2018
0.2
0.4
0.1
0.7
2019
2018
0.7
1.3
0.2
2.6
2.8
0.7
1.4
0.6
3.6
4.2
Annual Report and Accounts 2019 Petra Diamonds Limited
113
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
7. Auditors’ remuneration
US$ million
Audit services1
Audit-related assurance services²
Total
1. Audit services are in respect of audit fees for the Group.
2019
0.9
0.1
1.0
2018
0.9
0.4
1.3
2. Audit-related services are in respect of the interim review of US$0.1 million (FY 2018: US$0.1 million plus US$0.3 million for services in respect of the issuance of comfort letters
in respect of the Rights Issue, which were capitalised to share premium) and specific agreed upon procedures in relation to the Sustainability Report, under the International
Standard on Related Services 4400 as issued by the International Auditing and Assurances Standards Board, of US$5.0k (FY 2018: US$5.0k).
8. Impairment of operational assets and other assets
Significant accounting policies relevant to 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 determined on the fair value less cost to develop basis.
In assessing the recoverable amount, which is determined on a fair value less costs to develop basis, the expected future post-tax
cashflows from the asset are discounted to their present value using a post-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. The LOM plan for each mine 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 LOM plan. The ore tonnes
included in the Resource Statement, which management considers economically viable, often includes ore tonnes in excess of those
used in the LOM model and therefore the impairment test.
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.
Significant judgements and estimates relevant to impairment of non-financial assets
Life of mine and ore reserves/resources
There are numerous risks inherent in estimating ore reserves and resources and the associated current LOM plan. The LOM plan for
each mine is the current approved management plan for ore extraction that considers specific ore reserves and resources and associated
capital expenditure. The LOM plan frequently includes fewer tonnes than the total reserves and resources that are set out in the
Group’s Resource 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, extraction costs and recovery and production rates. Any such estimates
and assumptions may change as new information becomes available. Changes in exchange rates, rough diamond and commodity
prices, extraction and recovery costs 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 LOM.
The current LOM plans are used to determine the ore tonnes and capital expenditure in the impairment tests.
Ore reserves and resources, both those included in the LOM and certain additional tonnes contained within the Group’s Resource
Statement, 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 units-of-production basis (refer to note 14). Ore reserves and resources further
impact the estimated date of decommissioning and rehabilitation (refer to note 23).
Impairment reviews
While conducting an impairment review of its assets using the fair value less cost to develop basis, the Group exercises judgement
in making assumptions about future exchange rates, rough diamond prices, contribution from Exceptional Diamonds, volumes of
production, ore reserves and resources included in the current LOM plans, feasibility studies, future development and production
costs and macro-economic factors such as inflation and discount rates. Changes in estimates used can result in significant changes
to the Consolidated Income Statement and the Consolidated Statement of Financial Position. The key inputs and sensitivities are
detailed on pages 115 and 116.
30 June 2019
The recent downturn in the global rough diamond market and variability in product mix have severely impacted rough diamond prices
achieved by Petra, resulting in management taking a critical review of the Group’s business models and operational assets. 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 determined
on a fair value less cost to develop basis.
During the Year, the Group reviewed the carrying value of its investments and operational assets for indicators of impairment.
Following the assessment, impairment of property, plant and equipment were considered appropriate for Cullinan, Finsch, Koffiefontein
and Williamson. Impairment of property, plant and equipment was considered appropriate given the outcome of the impairment
review exercise and the Group recognised a Consolidated Income Statement charge of US$223.7 million, being management’s
estimate of value of the Cullinan, Finsch, Koffiefontein and Williamson assets. Details of the impairment test assessments
for the operations are shown in note 8.1.
114
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
8. Impairment of operational assets and other assets continued
30 June 2019 continued
For impairment considerations at KEM JV and Helam refer to note 34.
30 June 2018
During the year ended 30 June 2018, the Group impaired the Koffiefontein operational assets by an amount of US$66.0 million.
8.1 Impairment testing assumptions
(a) Impaired continuing operations
The key assumptions used in determining the recoverable value calculations, determined on a fair value less cost to develop basis,
are listed in the table below:
Key assumptions
Explanation
LOM and 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.
The LOM for the operations are as follows:
Finsch: FY 2030
Cullinan: FY 2029
Koffiefontein: FY 2024 (FY 2018: FY 2032)
Williamson: FY 2032
Resources remaining after the current LOM plans have not been included in impairment testing
for the operations.
LOM – reserves
and resources
Finsch: LOM plan over the next 11 years; total resource processed 35.8 Mt.
Cullinan: LOM plan over the next 10 years; total resource processed 40.5 Mt.
Koffiefontein: 5-year LOM plan; total resource processed 4.8 Mt.
Williamson: 13-year LOM plan; total resource processed 64.1 Mt.
LOM – capital
expenditure
Diamond prices
Discount rate
Cost inflation rate
Exchange rates
Management has estimated the timing and quantum of the capital expenditure based on the Group’s
current LOM plans for each operation. There is no inclusion of capital expenditure to enhance the asset
beyond exploitation of the LOM plan orebody.
The diamond prices used in the impairment test have been set with reference to recently achieved pricing
and market trends, and long-term diamond price escalators are informed by industry views of long-term
market supply/demand fundamentals.
30 June 2019 impairment testing models incorporated diamond price escalation of 2.8% above a long-term
US inflation rate of 2.5% per annum from FY 2022 to FY 2030. This equates to a 2.5% real CAGR for the
ten-year period from the start of FY 2021 to the end of FY 2030. Estimates for the contribution of Exceptional
Diamonds sold for more than US$5.0 million each are determined with reference to historical trends.
30 June 2018 impairment testing models incorporated diamond price escalation of 3.0% above a long-term
US inflation rate of 2.5% per annum. Estimates for the contribution of Exceptional Diamonds sold for more
than US$5.0 million each are determined with reference to historical trends.
A discount rate of 8.5% (30 June 2018: 8.5%) was used for the South African operations and 9.0%
(30 June 2018: 9.0%) for Williamson. Discount rates were calculated based on a nominal weighted cost
of capital including the effect of factors such as market risk and country risk as at the Year end.
Long-term inflation rates of 3.5%–7.5% (30 June 2018: 3.5%–7.5%) above the long-term US$ inflation rate
were used for Opex and Capex escalators. Opex savings of 5% per annum have been applied from FY 2020
onwards in line with the Project 2022 strategy implemented by the Group.
Exchange rates are estimated based on an assessment of current market fundamentals and long-term
expectations. The US$/ZAR exchange rate range used for all South African operations commenced at
ZAR14.00 (30 June 2018: ZAR12.75), further devaluing at 3.9% (30 June 2018: 3.9%) per annum over
a period of three years, reverting to 3.4% per annum thereafter.
Valuation basis
Discounted present value of future cashflows.
Williamson
At Williamson, a further key judgement is around the recoverability of the VAT receivable under the new
legislation effective 20 July 2018. As detailed in note 17, management considers the future VAT to be
fully recoverable. However, if the VAT were not to be recoverable, the impact would be to increase the
impairment by an additional US$80.9 million.
Annual Report and Accounts 2019 Petra Diamonds Limited
115
Financial Statements Sub-total
Total
30 June 2018
Impairment
(US$ million)
Koffiefontein
Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
8. Impairment of operational assets and other assets continued
8.1 Impairment testing assumptions continued
(a) Impaired continuing operations continued
Detail of the impairment assessment is shown below.
Impairment
(US$ million)
Impairment – operations:
Asset class
Carrying value
pre-impairment
Impairment
Carrying value
post-impairment
Finsch
Cullinan
Koffiefontein
Williamson
Sub-total
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Impairment – other receivables:
Other – current
Other receivables (refer to note 17)
Other – non-current
Tanzania VAT receivable (refer to note 17)
374.0
637.2
46.5
129.8
(85.4)
(63.9)
(33.2)
(41.2)
1,187.5
(223.7)
4.0
29.0
33.0
(4.0)
(18.9)
(22.9)
1,220.5
(246.6)
288.6
573.3
13.3
88.6
963.8
—
10.1
10.1
973.9
Asset class
Carrying value
pre-impairment
Impairment
Carrying value
post-impairment
Property, plant and equipment
118.2
(66.0)
52.2
Sensitivity analysis
The impairment impact of applying sensitivities on the key inputs is noted below:
(US$ million)
Williamson
Koffiefontein
Finsch
Cullinan
Additional impairment charge
Increase in discount rate by 2%
Reduction in pricing by 5% over LOM
Reduction in short-term production by 10%
Increase in Opex by 5%
Strengthening of the ZAR from US$/ZAR14.00
to US$/ZAR13.00
12.3
28.5
11.4
46.8
n/a
0.4
8.8
7.3
7.2
12.6
33.9
48.4
17.5
23.9
71.6
47.4
57.6
41.7
26.8
85.1
9. Net financing expense
Significant accounting policies relevant to net financial expense
Finance income comprises income from interest and finance-related exchange gains and losses. 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.
Borrowing costs, including any upfront 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. The borrowing costs capitalised by the Group during the year reduced to US$3.7 million
(30 June 2018: US$15.2 million) as a result of the expansion projects undertaken by the Group being commissioned during the Year.
Borrowing costs will in future be expensed directly to the Consolidated Income Statement.
Other borrowing costs are recognised as an expense in the period in which the borrowing cost is incurred.
Refer to notes 1.1, 14, 23 and 32 for the Group’s policy on foreign exchange, borrowing cost capitalisation, unwinding
of rehabilitation provisions and derivative instruments together with key estimates and judgements.
116
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
9. Net financing expense continued
US$ million
Net unrealised foreign exchange gains1
Interest received on BEE loans and other receivables
Interest received on bank deposits
Realised foreign exchange gains on the settlement of foreign loans and forward
exchange contracts
Financial income
Gross interest on bank loans and overdrafts
Interest on bank loans and overdrafts capitalised
Net interest expense on bank loans and overdrafts
Other debt finance costs, including BEE loan interest and facility fees
Unwinding of present value adjustment for rehabilitation costs
Net unrealised foreign exchange losses1
Realised foreign exchange losses on the settlement of foreign loans and forward
exchange contracts
Financial expense
Net financial expense
2019
4.0
5.8
1.1
1.2
12.1
(50.7)
3.7
(47.0)
(14.4)
(4.0)
—
(0.2)
(65.6)
(53.5)
2018
—
4.1
3.5
0.9
8.5
(62.7)
15.2
(47.5)
(16.5)
(4.1)
(26.2)
—
(94.3)
(85.8)
1. The Group predominantly enters into hedge contracts where the risk being hedged is the volatility in the South African Rand, Pound Sterling and US Dollar exchange rates
affecting the proceeds in South African Rand of the Group’s US Dollar denominated diamond tenders. In FY 2018, the Group entered into short-dated hedges to facilitate the
conversion between functional currencies across the Group for the settlement of the South African lender facilities out of the Pound Sterling Rights Issue proceeds in July 2018.
The fair value of the Group’s hedges as at 30 June are based on Level 2 mark-to-market valuations performed by the counterparty financial institutions. The contracts are all short
dated in nature and mature within the next 12 months. An unrealised gain of US$4.0 million (30 June 2018: US$26.2 million loss) in respect of foreign exchange contracts held at
Year end was mainly attributable to hedging the proceeds of future diamond tenders and a net realised foreign exchange gain of US$1.0 million (30 June 2018: US$0.9 million
gain) in respect of foreign exchange contracts closed during the Year is included in the net finance expense amount.
10. Taxation
Significant accounting policies relevant to taxation
Current tax comprises tax payable calculated on the basis of the expected taxable income for the Year, using the tax rates enacted or
substantively enacted at the reporting date, and any adjustment of tax payable for previous years. Deferred tax is provided using
the balance sheet liability method, based on temporary differences. Temporary differences are differences between the carrying
amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred tax provided is based
on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or
substantively enacted at the balance sheet date. A deferred tax asset is recognised to the extent that it is probable that future
taxable profits will be available against which the associated unused tax losses and deductible temporary differences can be
utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
US$ million
Current taxation:
– Current tax charge
Deferred taxation:
– Current period (origination and reversal of temporary differences)
Reconciliation of tax rate:
– Loss before taxation (including loss and discontinued operation)
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 not recognised
– Prior year under provision of deferred tax
Total tax (credit)/charge
2019
8.1
(53.9)
(45.8)
(303.8)
(85.1)
(0.4)
24.9
(6.6)
21.1
0.3
(45.8)
2018
10.5
3.3
13.8
(85.0)
(23.8)
3.1
46.3
(45.3)
25.4
8.1
13.8
Annual Report and Accounts 2019 Petra Diamonds Limited
117
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
10. Taxation continued
Significant accounting policies relevant to taxation continued
In the current Year there are unrecognised tax losses which increase the current taxation payable totalling US$21.1 million (30 June
2018: US$25.4 million unrecognised tax losses). 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 2019 amount to US$109.7 million
(30 June 2018: US$146.6 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 2019
amount to US$168.9 million (30 June 2018: US$18.6 million) and arise in South Africa. The temporary differences of US$168.9 million
relate to the current year impairments of property, plant and equipment (US$149.4 million) and other reversing taxable temporary
differences (US$19.5 million). There is no taxation arising from items of other comprehensive income and expense.
11. Director and employee remuneration
Significant accounting policies relevant to remuneration
The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.
The provisions for employee entitlements to wages, salaries and annual leave represent the amount which the Group has a present
obligation to pay as a result of employees’ services provided to the reporting date. Provisions are calculated based on current
wage and salary rates.
Refer to note 26 for the Group’s policy in respect of share-based payments and related key judgements and estimates.
Staff costs (excluding the Non-Executive Directors) during the Year were as follows:
US$ million
Wages and salaries – mining
Wages and salaries – exploration
Wages and salaries – administration
Number of employees (excluding the Non-Executive Directors and contractors)
2019
140.2
0.2
2.8
143.2
Number
3,826
2018
134.5
0.4
4.2
139.1
Number
5,497
Key management personnel
Key management is considered to be the Executive Directors, the Chief Operating Officer and Group Head of Sales and Marketing
(30 June 2018: key management comprised the Executive Directors and the Chief Operating Officer). Remuneration for the Year
for key management is disclosed in the table below:
US$ million
Salary
Benefits
Annual bonus – paid in cash
Annual bonus – deferred to shares
Share-based payment charge
2019
2018
2.0
0.1
0.4
0.4
0.2
3.1
1.5
0.1
0.1
0.4
0.6
2.7
The above remuneration for key management personnel includes termination remuneration for Johan Dippenaar (former CEO)
of US$0.7 million.
118
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
12. Earnings/(loss) per share
Significant accounting policies relevant to earnings per share
Basic earnings/(loss) per share amounts are calculated by dividing net loss for the Year attributable to ordinary equity holders
of the parent by the weighted average number of Ordinary Shares outstanding during the Year. Diluted earnings/(loss) per share
amounts are calculated by dividing the net loss attributable to ordinary equity holders of the parent by the weighted average
number of Ordinary Shares outstanding during the Year plus the weighted average number of Ordinary Shares that would be
issued on conversion of all the dilutive potential Ordinary Shares into Ordinary Shares.
Continuing
operations
30 June
2019
US$
Discontinued
operations
30 June
2019
US$
Total
30 June
2019
US$
Continuing
operations
30 June
2018
US$
Discontinued
operations
30 June
2018
US$
Total
30 June
2018
US$
(174,622,904)
(52,015,046)
(226,637,950)
(84,562,428)
(82,312,465)
(166,874,893)
Numerator
Loss for
the Year
attributable
to parent
Denominator
Shares
Shares
Shares
Shares
Shares
Shares
Weighted
average number
of Ordinary
Shares used in
basic EPS:
As at 1 July
865,336,485
865,336,485
865,336,485
531,986,218
531,986,218
531,986,218
Effect of shares
issued during
the prior year
—
—
—
1,248,794
1,248,794
1,248,794
As at 30 June
865,336,485
865,336,485
865,336,485
533,235,012
533,235,012
533,235,012
Shares
Shares
Shares
Shares
Shares
Shares
Dilutive effect
of potential
Ordinary Shares
Weighted
average
number of
Ordinary Shares
in issue used in
diluted EPS
Basic loss
per share
Diluted loss
per share
—
—
—
2,011,279
—
2,011,279
865,336,485
865,336,485
865,336,485
535,246,291
533,235,012
535,246,291
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
(20.18)
(20.18)
(6.01)
(6.01)
(26.19)
(15.85)
(15.44)
(31.29)
(26.19)
(15.85)
(15.44)
(31.29)
Due to the loss for the Year, the diluted loss per share is the same as the basic loss per share. The number of potentially dilutive
Ordinary Shares, in respect of employee share options and Executive Director and Senior Management share award schemes is nil
(30 June 2018: 2,011,279). These potentially dilutive Ordinary Shares may have a dilutive effect on future earnings per share. There
have been no significant post-balance sheet changes to the number of options and awards under the share schemes to impact the
dilutive number of Ordinary Shares.
Annual Report and Accounts 2019 Petra Diamonds Limited
119
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
13. Adjusted earnings/(loss) per share (non-GAAP measure)
In order to show earnings/(loss) per share from operating activities on a consistent basis, an adjusted earnings/(loss) per share
is presented which excludes certain items as set out below. It is emphasised that the adjusted earnings/(loss) per share is a non-GAAP
measure. The Petra Board considers the adjusted earnings/(loss) per share to better reflect the underlying performance of the Group.
The Company’s definition of adjusted earnings/(loss) per share may not be comparable to other similarly titled measures reported
by other companies.
Continuing
operations
30 June
2019
US$
Discontinued
operations
30 June
2019
US$
Total
30 June
2019
US$
Continuing
operations
30 June
2018
US$
Discontinued
operations
30 June
2018
US$
Total
30 June
2018
US$
Loss for
the Year
attributable
to parent
Adjustments:
Net unrealised
foreign
exchange
(gains)/losses
Present value
discount
– Williamson
VAT receivable1,2
Impairment
charge
– operations1
Impairment
charge – loan
receivables
Taxation credit
on impairment
charge1
Taxation charge
on reduction
of unutilised
Capex benefits1
Adjusted loss
for the Year
attributable
to parent
(174,622,904)
(52,015,046)
(226,637,950)
(84,562,428)
(82,312,465)
(166,874,893)
(4,022,483)
—
(4,022,483)
26,233,603
—
26,233,603
14,212,444
—
14,212,444
1,805,365
—
1,805,365
174,009,126
—
174,009,126
54,232,200
67,306,108
121,538,308
3,941,305
—
3,941,305
(36,279,098)
—
(36,279,098)
—
—
—
—
—
—
—
—
—
6,736,719
—
6,736,719
(22,761,610)
(52,015,046)
(74,776,656)
4,445,459
(15,006,357)
(10,560,898)
1. Portion attributable to equity shareholders of the Company.
2. 30 June 2018 adjusted to include present value discount adjustment of the Williamson VAT receivable.
120
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
13. Adjusted earnings/(loss) per share (non-GAAP measure) continued
Continuing
operations
30 June
2019
Shares
Discontinued
operations
30 June
2019
Shares
Total
30 June
2019
Shares
Continuing
operations
30 June
2018
Shares
Discontinued
operations
30 June
2018
Shares
Total
30 June
2018
Shares
Weighted
average number
of Ordinary
Shares used
in basic EPS:
As at 1 July
865,336,485
865,336,485
865,336,485
531,986,218
531,986,218
531,986,218
Effect of shares
issued during
the prior year
—
—
—
1,248,794
1,248,794
1,248,794
As at 30 June
865,336,485
865,336,485
865,336,485
533,235,012
533,235,012
533,235,012
Shares
Shares
Shares
Shares
Shares
Shares
Dilutive effect
of potential
Ordinary Shares
Weighted
average
number of
Ordinary Shares
in issue used in
diluted EPS
Adjusted basic
(loss)/profit
per share
Adjusted
diluted (loss)/
profit per share
—
—
—
2,011,279
—
2,011,279
865,336,485
865,336,485
865,336,485
535,246,291
533,235,012
535,246,291
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
(2.63)
(6.01)
(8.64)
0.83 2
(2.81)
(1.98)
(2.63)
(6.01)
(8.64)
0.83 2
(2.81)
(1.98)
14. Property, plant and equipment
Significant accounting policies relevant to property, plant and equipment
Capital expenditure
Property, plant and equipment are stated at historical 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. 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.
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.
Surpluses/(deficits) on the disposal of property, plant and equipment are credited/(charged) to the Consolidated Income
Statement. The surplus or deficit is the difference between the net disposal proceeds and the carrying amount of the asset.
Annual Report and Accounts 2019 Petra Diamonds Limited
121
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
14. Property, plant and equipment continued
Significant accounting policies relevant to property, plant and equipment continued
Stripping costs
Costs associated with the removal of waste overburden at the Group’s open cast mine are classified as stripping costs within
property, plant and equipment or inventory, depending on whether the works provide access to future ore tonnes in a specific
orebody section or generate ore as part of waste removal. When costs provide both benefits, they are allocated, although the
stripping to date has not generated inventory ore. The stripping asset is depreciated on a units-of-production basis over the
tonnes of the relevant orebody section to which it provides future access.
Depreciation
The Group depreciates its mining assets using a units-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 or processing plant).
In applying the Group’s policy, assets associated solely with specific sections of the orebody are depreciated over reserves
associated with that section of the orebody. Examples include underground development associated with accessing a specific
orebody section. By contrast, shared infrastructure, including shared surface and underground infrastructure, is utilised for the
extraction of multiple sections of the orebody or is considered to have a life in excess of the ore tonnes included in the current
approved LOM plan given the substantial residual resources that exist at deeper levels in certain of the Group’s kimberlite pipe
mines. When the shared infrastructure assets provide benefit over multiple sections of the orebody they are depreciated over
the reserves of the relevant sections of the orebody. When the shared infrastructure is expected to be utilised to access or
process ore tonnes from deeper areas of the mine, which frequently represent ore resources that are outside of the current
approved LOM plans but for which the Group considers there to be sufficient certainty of future extraction, such assets are
depreciated over those reserves and resources.
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
10–25% straight-line basis
Refer to notes 8, 9 and 23 for the Group’s policy on impairment, borrowing cost capitalisation and rehabilitation provisions
and associated decommissioning assets.
Judgement is applied in making assumptions about the depreciation charge for mining assets as noted above. Judgement is
applied when using the units-of-production method in estimating the ore tonnes held in reserves and resources which have
sufficient geological and geophysical certainty of being economically viable and are extractable using existing assets. The
relevant reserves and resources include those included in current approved LOM plans and, in respect of certain surface and
underground shared infrastructure, certain additional resources which also meet these levels of certainty and viability. The Group
depreciates its assets according to relevant sections of the orebody over which these will be utilised and a key judgement exists
in determining the future production unit assigned to on-mine shared infrastructure which is utilised over more than one section
of the orebody or is used to access ore tonnes outside the current approved LOM plan as noted above. Judgement is also applied
when assessing the estimated useful life of individual assets and residual values. The assumptions are reviewed at least annually
by management and the judgement is based on consideration of the LOM plans and structure of the orebody, as well as the
nature of the assets. The assessment is determined by the Group’s capital project teams and geologists.
Borrowing cost capitalisation
The Group capitalises effective interest costs (inclusive of fees) to property, plant and equipment when the loans are considered
to have been drawn down for the purpose of funding the Group’s capital development programmes. Judgement is required in
determining the extent to which borrowing costs relate to qualifying capital projects. The US$650 million bond raised in April 2017
and existing bank borrowings were utilised to fund the completion of underground expansion projects, the processing plant at
Cullinan and the refinancing of existing bond and bank borrowings. The remaining bank borrowings have continued to fund
capital expansion projects. When the Group’s borrowings are refinanced, the difference between the carrying amount of a
financial liability (or part of a financial liability) extinguished or transferred to another party and the consideration paid, including
any non-cash assets transferred or liabilities assumed, is recognised as a charge in the income statement on an accelerated basis
when the refinancing is considered to be a substantial modification of terms. Judgement is required in determining the extent
to which borrowing costs relate to qualifying capital projects.
122
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements
Strategic Report
Corporate Governance
Supplementary Information
14. Property, plant and equipment continued
Significant accounting policies relevant to property, plant and equipment continued
US$ million
Cost
Balance at 1 July 2017
Exchange differences
Additions
Transfer of assets under construction
Change in rehabilitation asset
Non-current assets held for sale2
Disposals
Balance at 30 June 2018
Balance at 1 July 2018
Exchange differences
Additions
Transfer of assets under construction
Change in rehabilitation asset
Disposal - Helam
Disposals
Balance at 30 June 2019
Depreciation and impairment
Balance at 1 July 2017
Exchange differences
Disposals
Non-current assets held for sale
Impairments3
Provided in the Year
Balance at 30 June 2017
Balance at 1 July 2018
Exchange differences
Disposals
Transfer of assets under construction
Non-current assets held for sale
Impairments3
Provided in the Year
Balance at 30 June 2019
Net book value
At 30 June 2018
At 30 June 2019
Plant and
machinery
Mineral
properties
Assets under
construction 1
1,235.5
(90.3)
0.5
468.4
2.7
(36.1)
(3.8)
1,576.9
1,576.9
(37.9)
1.8
154.2
—
(1.5)
(77.0)
73.4
(3.6)
—
—
—
(1.5)
—
68.3
68.3
(1.7)
—
—
—
—
—
412.2
(1.2)
158.8
(468.4)
—
(8.7)
—
92.7
92.7
(3.6)
85.1
(154.2)
—
—
—
Total
1,721.1
(95.1)
159.3
—
2.7
(46.3)
(3.8)
1,737.9
1,737.9
(43.2)
86.9
—
—
(1.5)
(77.0)
1,616.5
66.6
20.0
1,703.1
259.9
(28.1)
(8.9)
(24.3)
134.3
129.4
462.3
462.3
(13.9)
(74.0)
2.9
—
218.2
99.0
694.5
1,114.6
922.0
17.2
(1.7)
—
(1.6)
8.7
5.9
28.5
28.5
(0.8)
—
—
—
5.5
7.6
40.8
39.8
25.8
2.7
(0.2)
—
—
—
0.4
2.9
2.9
(0.1)
—
(2.9)
—
—
0.1
—
279.8
(30.0)
(8.9)
(25.9)
143.0
135.7
493.7
493.7
(14.8)
(74.0)
—
—
223.7
106.7
735.3
89.8
20.0
1,244.2
967.8
1. During the Year, assets under construction comprising stay-in-business and expansion capital expenditure of US$154.2 million (30 June 2018: US$468.4 million) were
commissioned and transferred to plant and machinery. Included within assets under construction are amounts mainly for expansion projects at the Finsch and Cullinan mines.
Borrowing costs of US$3.7 million (30 June 2018: US$15.2 million) have been capitalised to assets under construction.
2. Non-current assets held for sale are in respect of the Kimberley Ekapa Mining JV mining assets and the exploration assets in Botswana (refer to notes 34 and 35).
3. Refer to note 8 for additional detail on the Cullinan, Finsch, Koffiefontein and Williamson impairments of US$223.7 million (30 June 2018: US$66.0 million for Koffiefontein
and KEM JV of US$77.0 million).
Capital commitments
The Group’s total commitments of US$6.6 million (30 June 2018: US$24.4 million), mainly comprise Cullinan US$3.1 million
(30 June 2018: US$16.9 million), Finsch US$1.9 million (30 June 2018: US$6.3 million), Koffiefontein US$0.5 million (30 June 2018:
US$1.2 million), KEM JV US$nil (30 June 2018: US$nil) and Williamson US$1.1 million (30 June 2018: US$nil).
Annual Report and Accounts 2019 Petra Diamonds Limited
123
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
15. BEE loans receivable and payable
Significant accounting policies relevant to BEE loans receivable and payable
Refer to note 32 for the Group’s policy in respect of financial instruments, which include BEE receivables and payables.
US$ million
Non-current assets
BEE loans receivable1
Non-current liabilities
BEE loans payable2
2019
109.6
120.5
2018
64.7
110.5
1. Interest on the BEE loans receivable is charged at the prevailing South African prime interest rate plus an interest margin ranging between 0–2%. The movement in the Year
includes advances, repayments, accrued interest and foreign exchange retranslation. The loans are repayable from future cashflows, attributable to the loan holders, generated
from the underlying mining operations.
2. The BEE loans payable bear interest at the prevailing South African prime interest rate. The movement includes accrued interest and foreign exchange retranslation. The loans are
repayable from future cashflows from the underlying mining operations.
BEE loans receivable
The non-current BEE loans receivable represents those amounts receivable from the Group’s BEE Partners (Kago Diamonds and
the IPDET) in respect of financing their interest in the Koffiefontein mine, advances provided to the BEE Partners to enable the
BEE Partners to discharge interest and capital commitments under the BEE Lender facilities (refer below for the guarantee provided
by the Company) and other advances to the BEE Partners which have enabled the BEE Partners to make distributions to their
beneficiaries (Petra Directors do not qualify as beneficiaries under the IPDET Trust Deed).
As a result of prior period delays in the Cullinan plant ramp-up and the Finsch SLC ramp-up, the Group has elected to advance the
BEE Partners’ funds using Group treasury to enable the BEE Partners to service their interest and capital commitments under the
BEE Lender facilities (refer below). As a result the BEE loans receivable due to Petra have increased. The BEE Partners are also required
to settle future interest and capital repayments under the BEE Lender facilities and Petra may, at its discretion, elect to advance
the BEE Partners funds to enable the BEE Partners to service those future interest and capital commitments. These loan advances,
including interest raised, will be recoverable from the BEE Partners’ share of future cashflows from the underlying mining operations.
The Group has applied the expected credit loss impairment model to its financial assets and the BEE loans receivable. In determining
the extent to which expected credit losses may apply, the Group assessed the future free cashflows to be generated by the
mining operations, based on the current LOM plans. Based on the assessment the Group’s free cashflows generated are deemed
sufficient to enable the BEE Partners to repay their loans to the Group. No expected credit losses are considered to apply to the BEE
receivables relating to continuing operations.
US$ million
As at 1 July
Foreign exchange movement on opening balances
Discretionary advance – capital and interest commitment (BEE Lender facility)
Discretionary advance – distributions to beneficiaries
Interest receivable
BEE partner receivables written off1
As at 30 June
2019
64.7
(1.2)
42.2
4.5
4.9
(5.5)
109.6
2018
35.0
(3.7)
24.3
6.7
2.4
—
64.7
1. The receivables written off comprise advances to the BEE Partners associated with the KEM JV.
BEE loans payable
BEE loans payable represent those loans advanced by the BEE Partners to the Group to acquire their interest in Finsch and Cullinan.
Details of the movements are set out below.
US$ million
As at 1 July
Foreign exchange movement on opening balances
Interest payable
As at 30 June
2019
110.5
(2.6)
12.6
120.5
2018
99.5
(1.5)
12.5
110.5
The IPDET holds a 12% interest in each of the Group’s South African operations, with Petra’s commercial BEE Partners holding the
remaining 14% interest through their respective shareholdings in Kago Diamonds, in which Petra has a 31.46% interest. The effective
interest percentages attributable to the remaining operations for the Group’s shareholders are disclosed in the table below:
Mine
Finsch
Cullinan
Koffiefontein
BEE
Partner
Kago Diamonds and IPDET
Kago Diamonds and IPDET
Kago Diamonds and IPDET
BEE
interest
%
Resultant Group’s
effective interest
%
26.00
26.00
26.00
78.4
78.4
78.4
124
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
15. BEE loans receivable and payable continued
Group guarantee provided to BEE Lenders
The BEE Partners obtained bank financing from ABSA, RMB and Investec (“the BEE Lenders”) to refinance amounts owing by the
BEE Partners to Petra, which had provided funding to the BEE Partners to enable them to acquire their interests in Finsch and
Cullinan. As part of the refinancing the Group provided a guarantee to the BEE Lenders over the repayment of loans advanced
to the Group’s BEE Partners. The BEE Partners will settle their loan obligations with the BEE Lenders from their share of future
operational cashflows from the South African operations, either through repayment of the amounts owing to the BEE Partners
by Petra or through recoverable advances provided by Petra from Group treasury.
As at 30 June 2019 the BEE Lender facility for which Petra stands surety was US$54.2 million (30 June 2018: US$85.9 million)
with interest and capital commitments as detailed below:
US$ million
BEE Lender facility as at 30 June 2019
Due and payable within 12 months
Due and payable in 1–2 years
Interest
repayments
Capital
repayments
(6.0)
(17.0)
Balance
54.2
(23.0)
31.2
The BEE Lender facility forms part of Petra’s consolidated net debt for Petra’s covenant measurement purposes and is subject
to the same covenant requirements (refer to note 21).
The BEE Lenders agreed, post Year end, to amend the BEE Lender facility repayment profile of the outstanding balance of
US$54.2 million. The balance, which was to be settled in two instalments, November 2019 and May 2020, will now have a final
repayment date of 20 November 2021. The BEE Lender facility bears interest at SA JIBAR plus 6.5% (the same interest rate ratchet
terms as disclosed in note 21 are applicable to the BEE Lender facility), and is repayable with the first instalment of US$4.8 million
due in November 2019 and thereafter bi-annual instalments (capital plus interest) of US$12.1 million in May and November with
a final repayment date in November 2021. The probability of repayment default by the BEE Partners to Absa, Investec and RMB
and any subsequent call by the BEE Lender Group on the guarantee provided by Petra is considered remote.
Further details of the transactions with the BEE Partners are included in note 27.
16. Non-controlling interests
The non-controlling interests of the Group’s partners in its operations are presented in the table below:
US$ million
Effective
interest %
Cullinan
Finsch
Koffiefontein
KEM JV 1
Helam 1
Tarorite
Williamson
Total
21.6
21.6
21.6
—
—
17.8
25.0
Country
South Africa South Africa South Africa South Africa South Africa South Africa
Tanzania
As at
1 July 2018
(Loss)/profit
for the Year
Disposal
Foreign
currency
translation
difference
At 30 June
2019
11.7
59.2
(21.7)
(28.9)
(9.2)
(13.5)
—
(10.0)
—
(9.6)
—
2.0
26.1
(0.3)
(1.5)
0.3
(2.1)
47.7
(31.0)
0.8
—
0.1
9.1
—
—
0.1
—
—
—
0.1
—
11.2
(0.3)
—
(31.3)
35.2
—
(0.7)
(0.3)
14.4
1. The non-controlling interest in respect of KEM JV and Helam was realised upon disposal of the operations during the Year.
During the Year, no dividends were paid to the non-controlling interests (30 June 2018: US$nil). For additional information on total
assets, total liabilities and segment results for each operation in the table above refer to note 33.
17. Trade and other receivables
Significant accounting policies relevant to trade and other receivables
Refer to note 32 for the Group’s policy in respect of financial instruments, which include trade and other receivables.
Significant judgements and estimates relevant to VAT receivable at Williamson
The Group has gross VAT receivables of US$32.9 million (30 June 2018: US$24.2 million) in the Statement of Financial Position in
respect of the Williamson mine, all of which is past due, and the receivables have been classified, after providing for a time value
of money provision, as non-current given the potential delays in receipt. Of the total VAT receivable, US$13.8 million (30 June 2018:
US$15.1 million) relates to historical VAT pre-July 2017. The assessment of the carrying value of the VAT receivable under the historical
VAT legislation required significant judgement over the timing of future payments, progress and finalisation of VAT audits,
ongoing discussions with the relevant authorities in Tanzania and the wider operating environment.
Annual Report and Accounts 2019 Petra Diamonds Limited
125
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
17. Trade and other receivables continued
Significant judgements and estimates relevant to VAT receivable at Williamson continued
A further US$19.1 million (30 June 2018: US$9.1 million) of VAT is receivable which relates to VAT under the current legislation,
effective from July 2017. The assessment of the carrying value of the VAT receivable under the current VAT legislation required
significant judgement over the timing of future payments, the definition of raw minerals under the new VAT legislation, ongoing
discussions with the relevant authorities in Tanzania, legal advice, a formal rejection letter received from the Tanzania Revenue
Authority and the Company’s legal objection thereto and the wider operating environment. Management has considered the
current legislation and considers that input VAT can continue to be recovered in relation to the export of rough diamonds; however,
note that the current legislation is unclear. As such, management considers the VAT receivables under the new VAT legislation
to be valid. Accordingly, the Group is considering various alternatives in pursuing payment in accordance with legislation.
While the total VAT balance is considered receivable, uncertainty exists regarding the timing of receipt. Accordingly, the receivable
has been discounted by US$22.8 million (30 June 2018: US$3.9 million) which required estimates as to the timing of future receipts.
A discount rate of 14.0% has been applied to the expected cash receipts. A 1% increase in the discount rate would increase the
provision by US$0.8 million and a one-year delay would increase the provision by US$1.2 million.
US$ million
Current
Trade receivables1,2
Other receivables1
Less: expected credit loss provision of KEM JV receivables (refer to note 34)
Less: expected credit loss provision of other receivables
Other receivables - net
Income tax receivable
Prepayments1
Non-current
Other receivables3
Less: discounting provision
2019
2018
23.8
20.3
(7.3)
(4.0)
9.0
1.5
1.6
35.9
32.9
(22.8)
10.1
75.0
20.8
—
—
20.8
—
3.6
99.4
24.2
(3.9)
20.3
1. In the prior year, current trade receivables, prepayments and other receivables exclude amounts classified as non-current assets held for sale of US$12.1 million (refer to note 34).
2. Included in the opening balance of trade receivables are trade receivables in respect of diamond revenue of US$75.0 million (1 July 2017: US$32.6 million).
3. Other non-current receivables comprise net VAT receivable at Williamson of US$10.1 million (30 June 2018: US$20.3 million).
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables and the 12-month approach, unless a specific risk exists, for other receivables. To measure expected
credit losses on a collective basis, trade receivables and other receivables are grouped based on similar credit risk and ageing.
As at 30 June 2019 trade receivables of US$23.8 million (30 June 2018: US$75.0 million) comprised of diamond debtors,
all of which had settled post year end and as such have a lifetime expected credit losses of US$nil.
In assessing the credit risk loss and recoverability of other receivables, management considered the historical trading performance of
the third parties, the current downturn in the diamond market and outlook, the current economic climate and outlook, payment history
and recent press coverage involving the third parties. Such assessment resulted in impairment provisions totaling US$11.3 million
(30 June 2018: US$nil).
Included in trade and other receivables are amounts due from related parties (refer to note 27).
18. Inventories
Significant accounting policies relevant to 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.
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.
The Group uses empirical data on prices achieved, grade and expenditure in forming its assessment.
126
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
18. Inventories continued
Significant accounting policies relevant to inventories continued
Recoverability of diamond parcel in Tanzania
The Group holds diamond inventory valued at lower of cost and net realisable value of US$12.4 million (30 June 2018: US$12.4 million)
in the Statement of Financial Position in respect of the Williamson mine’s confiscated diamond parcel. During FY 2018, an investigation
into the Tanzanian diamond sector by a parliamentary committee in Tanzania was undertaken to determine if diamond royalty payments
were being understated. In connection with this, Petra announced on 11 September 2017 that a parcel of diamonds (71,654.45 carats)
from the Williamson mine in Tanzania (owned 75% by Petra and 25% by the Government of the United Republic of Tanzania (“GoT”))
had been blocked for export to Petra’s marketing office in Antwerp.
The assessment of the recoverability of the diamond parcel required significant judgement. In making such a judgement, the
Group considered its ongoing discussions with the GoT, confirmation received from the GoT in FY 2018 that it still holds the
diamond parcel of 71,654.45 carats, verbal re-confirmation that has been given this Year in the course of the ongoing discussions
held with the GoT, an assessment of the internal process used for the sale and export of diamonds confirming such process is in
full compliance with legislation in Tanzania and the Kimberley Process and legal advice received from the Group’s external
in-country attorneys which supports the Group’s position.
During FY 2018, Petra received authorisation from the GoT to resume diamond exports and sales from Williamson and all
subsequent parcels of diamonds have been exported from Tanzania, for eventual sale at the Company’s marketing office in Antwerp.
While a resolution has not yet been reached with regards to the parcel of diamonds that was blocked from export, based on the
above judgements and assessment thereof, management remains confident that the diamond parcel will be released by GoT
and will be available for future sale.
US$ million
Diamonds held for sale
Work in progress stockpiles
Consumables and stores
2019
57.5
13.3
14.8
85.6
2018 1
54.0
10.5
13.6
78.1
1. In the prior year, inventories exclude amounts classified as non-current assets held for sale of US$12.6 million (refer to note 34).
19. Cash
Significant accounting policies relevant to cash
Cash and cash equivalents comprise cash on hand, deposits held on call with banks and investments in money market instruments,
net of bank overdrafts, all of which are available for use by the Group unless otherwise stated. Restricted cash represents amounts
held by banks, the Group’s insurance cell captive and other financial institutions as guarantees in respect of environmental
rehabilitation obligations in respect of the Group’s South African mines.
US$ million
Cash and cash equivalents – unrestricted
Cash – restricted
2019
71.7
13.5
85.2
2018 1
221.6
14.4
236.0
1. In the prior year, cash and cash equivalents exclude amounts classified as non-current assets held for sale of US$1.4 million (refer to note 34).
The Group’s insurance product, which currently includes the Finsch, Cullinan and Koffiefontein mines, has secured cash assets of
US$12.8 million (30 June 2018: US$13.6 million) held in a cell captive. As part of the disposal of the KEM JV and Helam operations
an amount of US$2.0 million (30 June 2018: US$nil) was transferred from the cell captive to the new owners. The Group has a
commitment to pay insurance premiums over the next year of US$2.2 million (30 June 2018: US$2.3 million) to fund the insurance
product for the South African operations. The rehabilitation provisions are disclosed in note 23.
20. Equity and reserves
Share capital
Significant accounting policies relevant to share capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition
of a financial liability. The Group’s Ordinary Shares are classified as equity instruments.
US$ million
Number of shares
2019
Number of shares
2018
Authorised – Ordinary Shares of 10 pence each
At 1 July 2018 and 30 June 2019
1,000,000,000
164.3
1,000,000,000
164.3
Issued and fully paid
At 1 July
Allotments during the Year
At 30 June
865,336,485
133.4
531,986,218
—
—
333,350,267
865,336,485
133.4
865,336,485
89.6
43.8
133.4
There were no share allotments during the current Year.
Annual Report and Accounts 2019 Petra Diamonds Limited
127
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
20. Equity and reserves continued
30 June 2018
Allotments during the period ending 30 June 2018 were in respect of the issue of 332,821,725 Ordinary Shares to shareholders
pursuant to a Rights Issue, the award of 136,519 Ordinary Shares to Executive Directors granted under the 2012 Performance Share
Plan in receipt of performance measured over the period 1 July 2013 to 30 June 2017, the award to the Executive Directors of
135,545 Ordinary Shares granted under the deferred bonus plan, in respect of performance measured over the period 1 July 2014
to 30 June 2015, the exercise of 135,821 share options held by Executive Directors and employees, and the award to David Abery
(as per FY 2016 Remuneration Committee minutes), share awards of 10,163 under the 2012 Performance Share Plan, in receipt of
performance measured over the period 1 July 2014 to 30 June 2017 and 110,494 ordinary shares granted under the FY 2015 and
FY 2016 deferred share awards based on the annual performance bonus plan.
The Company raised gross proceeds of US$175.2 million (£133.1 million) comprising share capital of US$43.7 million (£33.3 million)
and share premium of US$131.5 million (£99.8 million). The costs of US$7.4 million associated with the Rights Issue have been
capitalised against share premium. The proceeds from the Rights Issue were used to settle costs of US$7.4 million in respect of the
Rights Issue, the RCF (capital plus interest) of US$73.1 million and the WCF (capital plus interest) of US$33.6 million held with the
Group’s Lenders during July 2018.
The Group’s equity and reserve balances include the following:
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:
Š 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;
Š 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;
Š foreign exchange retranslation of the reserve;
Š amounts transferred to retained losses in respect of exercised and lapsed warrants and options; and
Š amounts derecognised as part of cash settlement of vested awards originally planned for equity settlement.
Other reserves
The other reserves comprise the cumulative gains or losses arising from other listed financial assets of US$0.8 million (30 June
2018: US$0.8 million). The Directors do not consider there to be objective evidence that the other listed financial asset is
permanently impaired.
Accumulated losses
The accumulated losses comprise the Group’s cumulative accounting 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 and Williamson mines together with foreign exchange retranslation of the reserve. Included
in the non-controlling interest is an amount of US$35.2 million (30 June 2018: US$nil) relating to the disposal of the KEM JV and
Helam operations. The non-controlling interest share of total comprehensive income includes US$32.0 million total comprehensive
expense (30 June 2018: US$41.5 million expense) for the Year. Refer to note 16 for further detail.
128
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
21. Interest-bearing loans and borrowings
Significant accounting policies relevant to loans and borrowings
Bank borrowings are recognised initially at fair value less attributable transaction costs. Such interest-bearing liabilities are
subsequently measured at amortised cost using the effective interest rate method, which ensures that any interest expense over
the period to repayment is at a constant rate on the balance of liability carried in the Consolidated Statement of Financial Position.
‘Interest expense’ in this context includes initial transaction costs, as well as any interest or coupon payable while the liability
is outstanding.
The following table summarises the Group’s current and non-current interest-bearing borrowings:
US$ million
Current
Loans and borrowings – senior secured lender debt facilities
Loans and borrowings – senior secured second lien notes
Non-current
Loans and borrowings – senior secured second lien notes
2019
2018
—
47.1
47.1
603.5
650.6
106.7
46.9
153.6
601.2
754.8
(a) US$650 million senior secured second lien notes
A wholly owned subsidiary of the Company, Petra Diamonds US$ Treasury Plc, issued debt securities consisting of US$650 million
five-year senior secured second lien loan notes, with a maturity date of 1 May 2022 (“the Notes”). The Notes carry a coupon of
7.25% per annum, which is payable semi-annually in arrears on 1 May and 1 November of each year. The costs associated with
issuing the Notes of US$12.6 million were capitalised against the principal amount. As at 30 June 2019, the Notes had accrued
interest of US$8.3 million (30 June 2018: US$7.7 million). The Notes are guaranteed by the Company and by the Group’s material
subsidiaries and are secured on a second-priority basis on the assets of the Group’s material subsidiaries. The Notes are listed on
the Irish Stock Exchange and traded on the Global Exchange Market. On or after 1 May 2019, the Company has the right to redeem
all or part of the Notes at the following redemption prices (expressed as percentages of the principal amount), plus any unpaid
accrued interest:
Period of 12 months from 1 May 2019
Period of 12 months from 1 May 2020
Period of 12 months from 1 May 2021
Redemption price
103.6250%
101.8125%
100.0000%
The Notes are secured on a second-priority basis to the senior secured lender debt facilities by:
Š the cession of all claims and shareholdings held by the Company and certain of the Guarantors within the Group;
Š the cession of all unsecured cash balances held by the Company and certain of the Guarantors;
Š the creation of liens over the moveable assets of the Company and certain of the Guarantors; and
Š the creation of liens over the mining rights and immovable assets held and owned by certain of the Guarantors.
(b) Senior secured lender debt facilities
The Group’s South African Lender Group are Absa Corporate and Investment Banking (“Absa”), FirstRand Bank Limited (acting
through its Rand Merchant Bank division) (“RMB”) and Nedbank Limited. On 9 and 13 July 2018, the Company settled the RCF loan
(capital plus interest) of US$73.1 million and the WCF loan (capital plus interest) of US$33.6 million respectively with its Lender
Group. The RCF and WCF remain available to the Group and were undrawn at Year end.
Annual Report and Accounts 2019 Petra Diamonds Limited
129
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
21. Interest-bearing loans and borrowings continued
The Group’s debt and hedging facilities are detailed in the table below:
Institution
Type
Bank loan – secured
Bank loan – secured
Senior second lien notes –
secured
2019
2018
2019
2018
2019
2018
Nedbank, Absa
FirstRand, Absa
Bond holders
Revolving credit facility
Working capital facility
Bond notes
Total facility (ZAR million)
Total facility (US$ million)
Draw-down ZAR facility (US$ million)
Draw-down (US$ million)
1,000.0
1,000.0
500.0 1
500.0
—
—
—
—
72.9
—
—
—
—
—
33.8
—
Interest rate (ZAR)
Interest rate (US$)
SA JIBAR
plus 5.0%
SA JIBAR
plus 5.0%
SA Prime
less 1.0%
SA Prime
less 1.0%
—
—
—
Interest rate at Year end (ZAR)
12.7%
13.7%
9.25%
Interest rate at Year end (US$)
—
—
—
—
9.0%
—
—
650.0
—
650.0
—
650.0
—
650.0
—
—
7.25%
7.25%
—
—
7.25%
7.25%
Interest repayment period
Monthly
Monthly
Monthly
Monthly
Bi-annually
Bi-annually
Latest date available for draw-down
20 October
2021
20 October
2021
Annual
review
Annual
review
Fully
drawn down
Fully
drawn down
Capital repayment profile
Single
payment
Single
payment On demand On demand
Single
payment
Single
payment
Final repayment date (US$ million)
—
—
—
— 1 May 2022 1 May 2022
Final repayment date (ZAR million)
20 October
2021
20 October
2021 On demand On demand
—
—
1. The facility also comprises a ZAR300 million (30 June 2018: ZAR300 million) foreign exchange settlement line not included above.
The repayment terms remain unchanged; however, due to the covenant amendments (refer below) there was a change in the
interest rate and commitment fee ratchet mechanisms to the ZAR RCF contingent on the consolidated net debt:consolidated
EBITDA covenant levels at each measurement date. The revised interest rate and commitment fee ratchet mechanisms are as follows:
Consolidated net debt to consolidated EBITDA
≤ to 2.5:1
> 2.5:1 but ≤ 3.0:1
> 3.0:1 but ≤ 3.5:1
> 3.5:1 but ≤ 4.0:1
> 4.0:1
Additional
interest rate
ratchet
Additional
commitment
fee ratchet
0.0%
+1.0%
+2.0%
+3.0%
+4.0%
0.0%
0.0%
+0.225%
+0.450%
+0.675%
The revolving credit and working capital facilities are secured on the Group’s interests in Finsch, Cullinan, Koffiefontein and Williamson.
Covenant ratios
On 26 April 2019, agreement was reached with Petra’s Lender Group to amend the EBITDA-related maintenance covenant levels for
the respective measurement periods. In addition the impact of the recent weakness in the diamond market on the Group’s operating
results and cashflow position has been discussed with the Lender Group, including possible breaches in its EBITDA-related covenants
for the December 2019 and June 2020 reporting periods. The Lender Group has reaffirmed its ongoing support of the Group and
the Company. Further discussions will be held once post-Year-end tender results have been finalised and processed, and the Company
has had the opportunity to further assess the impact on forward-looking cashflow projections.
130
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
21. Interest-bearing loans and borrowings continued
Covenant ratios continued
The Company’s EBITDA-related maintenance covenant levels for the respective measurement periods are outlined below:
12 months to
30 Jun 2019
12 months to
31 Dec 2019
12 months to
30 Jun 2020
12 months to
31 Dec 2020
12 months to
30 Jun 2021
Consolidated net debt to consolidated EBITDA1,2:
- New covenant ratio:
- Previous covenant ratio:
≤ 4.5x
≤ 2.5x
≤ 4.25x
≤ 2.5x
≤ 3.5x
≤ 2.5x
≤ 3.25x
≤ 2.5x
≤ 3.0x
≤ 2.5x
Consolidated EBITDA to consolidated net finance charges:
- New covenant ratio:
- Previous covenant ratio:
≥ 2.5x
≥ 4.0x
≥ 2.5x
≥ 4.0x
≥ 2.75x
≥ 4.0x
≥ 3.0x
≥ 4.0x
≥ 3.25x
≥ 4.0x
Distribution
covenants
(all periods)
≤ 2.0x
≤ 2.0x
≥ 6.0x
≥ 6.0x
1. Fees to the Lender Group relating to the above mentioned changes in covenants and facilities are set out on page 163 in the form of the increased interest rate and commitment
fee ratchet mechanism.
2. Consolidated net debt for covenant measurement purposes is bank loans and borrowings plus loan notes, less cash and diamond debtors and includes the BEE guarantees
of US$54.2 million (ZAR762.5 million) (30 June 2018: US$85.9 million (ZAR1,179 million)) issued by Petra to the lenders as part of the BEE financing concluded in December 2014
and which are included in the Group’s Consolidated Statement of Financial Position as BEE loans payable.
There are no significant differences between the fair value and carrying value of loans and borrowings.
22. Trade and other payables
Significant accounting policies relevant to trade and other payables
Refer to note 32 for the Group’s policy in respect of financial instruments, which include trade and other payables,
together with note 10 for the Group’s policy on taxation.
US$ million
Current
Trade payables1
Accruals and other payables
Income tax payable
2019
20.9
34.0
54.9
—
54.9
2018
34.9
92.4
127.3
3.5
130.8
1. In the prior year, current trade and other payables exclude amounts classified as non-current assets held for sale of US$13.6 million (refer to note 34).
Included in trade and other payables are amounts due to related parties (refer to note 27).
23. Provisions
Significant accounting policies relevant to 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
are made as to the remaining life of existing operations based on the approved current LOM plan and assessments of extensions
to the LOM plans to access resources in the Resources Statement that are considered sufficiently certain of extraction.
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. In circumstances where the decommissioning
asset has been fully amortised, reductions in the provision give rise to other direct income.
Significant estimates and assumptions are made in determining the amount attributable to rehabilitation provisions. These deal
with uncertainties such as the legal and regulatory framework, timing and future costs. In determining the amount attributable
to rehabilitation provisions, management used a discount rate range of 8.8–9.7% (30 June 2018: 7.5–9.7%), estimated rehabilitation
timing of 8 to 46 years (30 June 2018: 9 to 47 years) and an inflation rate range of 6.8–7.7% (30 June 2018: 5.5–7.7%). The Group
estimates the cost of rehabilitation with reference to approved environmental plans filed with the local authorities. Reductions in
estimates are only recognised when such reductions are approved by local legislation and are consistent with the Group’s planned
rehabilitation strategy. Increases in estimates are immediately recognised.
Annual Report and Accounts 2019 Petra Diamonds Limited
131
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
23. Provisions continued
Decommissioning, mine closure and environmental rehabilitation continued
US$ million
Balance at 1 July 2017
Increase in rehabilitation liability provision – change in estimate
Provisions directly associated with non-current assets held for sale (refer
to note 34)
Decrease in provisions
Unwinding of present value adjustment of rehabilitation provision
Exchange differences
Balance at 30 June 2018
Balance at 1 July 2018
Disposal - Helam
Increase/(decrease) in provisions
Unwinding of present value adjustment of rehabilitation provision
Exchange differences
Balance at 30 June 2019
Pension and
post-retirement
medical fund
Rehabilitation
15.5
—
(1.2)
(1.2)
—
(1.0)
12.1
12.1
—
(0.3)
—
(0.1)
11.7
56.5
2.3
(13.0)
—
4.0
(2.4)
47.4
47.4
(1.5)
0.4
4.0
(0.7)
49.6
Total
72.0
2.3
(14.2)
(1.2)
4.0
(3.4)
59.5
59.5
(1.5)
0.1
4.0
(0.8)
61.3
Employee entitlements and other provisions
The provisions relate to provision for an unfunded post-retirement medical fund and pension fund. The Group’s policy in respect
of the post-retirement medical and pension schemes and related key judgements and estimates are disclosed in notes 30 and 31.
Additional information on the provision for post-retirement medical and pension funds is also described in notes 30 and 31.
Rehabilitation
The provision is the estimated cost of the environmental rehabilitation at each site, which is based on current legal requirements,
existing technology and the Group’s planned rehabilitation strategy. The Group estimates the present value of the rehabilitation
expenditure at each mine as follows:
Total
Finsch
Cullinan
Koffiefontein Williamson
KEM JV
Helam
2019 2018
2019 2018
2019 2018
2019 2018
2019 2018
2019 2018
2019 2018
Decommissioning period (years)
14
15
46
47
8
9
14
15
— 18
— —
Estimated rehabilitation cost
(US$ million)
49.6 47.4
22.4 21.3
14.3 13.4
6.8
6.4
6.1
4.8
— —
— 1.5
The vast majority of the rehabilitation expenditure is expected to be incurred at the end of mining activities.
The movements in the provisions are attributable to the unwinding of discount, disposal of Helam, change in estimates
and unrealised foreign exchange on retranslation from functional to presentational currency.
In FY 2018, the decrease in the provisions was attributable to unwinding of discount, reclassification of KEM JV to non-current
assets held for sale, change in estimates and unrealised foreign exchange on retranslation from functional to presentational currency.
Cash and cash equivalents have been secured in respect of rehabilitation provisions, as disclosed in note 19.
24. Deferred taxation
Significant accounting policies relevant to deferred taxation
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.
132
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
24. Deferred taxation continued
Significant accounting policies relevant to deferred taxation continued
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 and available tax
losses, as well as the timing of rehabilitation costs and the availability of associated taxable income.
US$ million
Balance at the beginning of the Year
Income statement (credit)/charge
Reclassified to assets held for sale and loss on discontinued operations
Foreign currency translation difference
Balance at the end of the Year
Comprising:
Deferred tax asset
Deferred tax liability
2019
139.2
(53.9)
—
(3.9)
81.4
—
81.4
81.4
2018
137.2
3.3
5.9
(7.2)
139.2
—
139.2
139.2
The deferred tax assets and liabilities are offset to determine the amounts stated in the Consolidated 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
– Prepayment and accruals
Deferred tax asset
– Capital allowances
– Provisions and accruals
– Tax losses
Net deferred taxation liability/(asset)
US$ million
Deferred tax liability
– Property, plant and equipment
– Prepayment and accruals
Deferred tax asset
– Capital allowances
– Provisions and accruals
– Tax losses
Net deferred taxation liability/(asset)
Total
157.4
0.3
157.7
(84.2)
(21.5)
(30.7)
(136.4)
21.3
Total
189.0
—
189.0
(57.0)
(20.4)
(42.1)
(119.5)
69.5
2019
Recognised
2019
Unrecognised
157.4
0.3
157.7
(59.9)
(16.4)
—
(76.3)
81.4
—
—
—
(24.3)
(5.1)
(30.7)
(60.1)
(60.1)
2018
Recognised
2018
Unrecognised
189.0
—
189.0
(32.5)
(17.3)
—
(49.8)
139.2
—
—
—
(24.5)
(3.1)
(42.1)
(69.7)
(69.7)
In the current Year and prior year no deferred tax assets have been recognised in respect of tax losses and other temporary differences.
Movements in deferred tax include amounts recognised in the Consolidated Income Statement, amounts reclassified as held for
sale and foreign exchange retranslation. The Consolidated Income Statement deferred tax charge for the Year reflects movements
in deferred tax of US$57.2 million (credit) (30 June 2018: US$0.9 million) in respect of property, plant and equipment and associated
capital allowances, with the remaining US$0.9 million (30 June 2018: US$4.2 million credit) comprised of provisions and utilisation
of tax losses. The US$57.2 million credit movement arises from temporary differences related to the impairments of property,
plant and equipment (US$42.8 million) and other temporary differences (US$14.4 million).
Annual Report and Accounts 2019 Petra Diamonds Limited
133
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
25. Contingent assets/liabilities
Significant accounting policies relevant to contingent assets/liabilities
Contingent assets and liabilities refer to potential receivables or obligations arising on the Group as a result of past events. Items
are disclosed when considered to be probable receivables or possible obligations and are recognised as assets when virtually
certain, or provisions or liabilities if they are considered probable.
Revenue
In FY 2016, the Group sold two pink rough diamonds into polishing partnerships, retaining a 20% and 10% interest in the sales
proceeds (net of expenses) and value uplift of the polished sale of the diamonds respectively. The polished stones from both pink
diamonds are yet to be sold but are expected to be sold in the foreseeable future and only then will Petra’s share of any proceeds
in the retained interest be recognised as revenue.
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.
BEE Lender guarantees
The BEE Partners obtained bank financing from the BEE Lenders to refinance amounts owing by the BEE Partners to Petra, which
had provided funding to the BEE Partners to enable them to acquire their interests in Finsch and Cullinan. As part of the refinancing
the Group provided a guarantee to the BEE Lenders over the repayment of loans advanced to the Group’s BEE Partners. The BEE Partners
will settle their loan obligations with the BEE Lenders from their share of future operational cashflows, either through repayment
of the amounts owing to the BEE Partners by Petra or through recoverable advances provided by Petra from Group treasury.
Judgement has been applied by management in assessing the risk of the BEE Partners defaulting under their obligations to
the BEE Lenders. Management has considered the Group’s future cashflows forecasts and its ability to meet, at its discretion,
planned forecast BEE Partner distributions. Accordingly management is of the opinion the risk of default by the BEE Partners
to the BEE Lenders is remote (refer to note 15).
Details of related parties are disclosed in note 27.
26. Share-based payments
Significant accounting policies relevant to 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 applicable to the option strike price.
The LTIP award fair value is recognised annually at the date of grant as an employee expense with reference to the Company
share price and award quantum. The amount recognised as an expense is then adjusted to reflect the final number of LTIPs which
vest once the final performance conditions and weighted average share price are determined. Measurement of the expense is
calculated on a straight-line basis (LTIP award multiplied by the vesting percentage, multiplied by the Company’s share price,
multiplied by the foreign exchange rate).
2012 Performance Share Plan (“PSP”) and 2016 Longer-term Incentive Plan (“LTIP”)
Share-based awards granted under the 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 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 conditions are valued by taking into account
the considered likelihood of meeting the vesting conditions 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. In the event that vesting conditions were
not met the charge would be reversed.
The LTIP performance conditions are non-market based (i.e. HSE, production, project delivery and adjusted EBITDA) with vesting
conditions measured annually.
Company schemes
The total share-based payment charge of US$0.2 million (30 June 2018: US$0.6 million) for the PSP share plan comprises US$0.2 million
(30 June 2018: US$0.6 million charge) charged to the Consolidated Income Statement.
The total charge of US$0.6 million (30 June 2018: US$0.9 million) for the LTIP share plan was charged to the Consolidated
Income Statement.
134
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
26. Share-based payments continued
Share grants to Directors: 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 PSP granted during the current and prior year and the assumptions used in the Monte Carlo model are as follows:
PSP – market and non-market-based performance conditions
2019
2018
Fair value (PSP absolute TSR/PSP relative TSR/PSP non-market)
20.3p/25.0p/37.3p
36.4p/46.6p/75.5p
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)
15 October 2018
5 October 2017
37.3p
55.1%
3 years
—
3 years
19.8%
0.9%
75.5p
49.7%
3 years
—
3 years
23.4%
0.5%
The expected volatility is based on historical volatility of the Group’s share price, adjusted for any extreme changes in the share
price during the historical period. During the Year, 1,051,333 (30 June 2018: 806,417) PSP shares were awarded at a fair value price
of 37.3 pence (30 June 2018: 75.5 pence). 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 15 October 2018, the Executive Directors of the Company were granted a total of 585,240 (30 June 2018: 137,898) deferred
awards over Ordinary Shares in the Company. The deferred share awards were fair valued using the market price of the share
awards which approximated the fair value in a Black-Scholes model. The awards represent 100% (30 June 2018: 100%) of the total
bonus in respect of performance for the financial year ended 30 June 2018. The awards vest on 30 June 2019 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 in the Directors’ Remuneration
Report on pages 84 to 93.
Senior Management LTIP: 2019
The Senior Management LTIP awards will be cash settled. The fair value of the LTIP granted to Senior Management during the
current Year and the assumptions used are as follows:
LTIP – non-market based subject to performance conditions
Number of awards
Fair value
Grant date
Share price at grant date
Life of award
Foreign exchange rate (ZAR/US$)
2019
4,635,818
48.0p
2018
3,152,083
74.9p
22 November 2018
15 November 2017
48.0p
3 years
ZAR14.80
74.9p
3 years
ZAR14.07
During the Year 4,635,818 LTIP shares were awarded, 1,669,097 lapsed and 2,516,721 vested. These awards had no exercise price.
The awards vested at 60.1% based on performance conditions measured over the Period ending 30 June 2019.
Employee and Director share options
The Company has a legacy share option plan, the 2005 Executive Share Option scheme. The last awards under this plan were
granted in March 2010 and no further awards will be granted to Executive Directors or Senior Management under this plan.
The share-based payment expense has been calculated using the Black-Scholes model. All share options are equity settled.
The terms and conditions of the options in issue, whereby options are equity settled by delivery of shares under the plan terms,
are as follows:
Employees and
Directors entitled
Options granted
to Directors
Options granted
to Senior Management
Grant date
30 September 2009
17 March 2010
30 September 2009
17 March 2010
25 November 2010
Post Rights Issue
Number
Vesting period
Remaining life
of options
(months)
971,717
971,717
402,858
758,157
200,417
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
3
9
3
9
17
Annual Report and Accounts 2019 Petra Diamonds Limited
135
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
26. Share-based payments continued
Employee and Director share options continued
Outstanding at the beginning of the Year
Rights Issue adjustment
Lapsed
Cancelled
Exercised during the Year
Outstanding at the end of the Year
Exercisable at the end of the Year
2019
2018
Weighted
average
exercise price
(pence)
43.4
35.7
23.1
—
—
47.3
47.3
Number
5,044,179
1,058,747
(2,798,060)
—
—
3,304,866
3,304,866
Weighted
average
exercise price
(pence)
43.7
—
—
33.5
60.5
43.4
43.4
Number
5,255,000
—
—
(75,000)
(135,821)
5,044,179
5,044,179
The weighted average market price of the shares in respect of options exercised during the Year was nil pence (30 June 2018:
81.2 pence). The options outstanding at 30 June 2019 have an exercise price in the range of 37.5 pence to 76.4 pence (30 June 2018:
27.5 pence to 92.8 pence) and a weighted average remaining contractual life of one year (30 June 2018: one year).
The above mentioned options are fully vested and due to be equity settled under the plan terms. No legal or constructive
obligation to cash settle the remaining options or share awards is considered to exist.
27. Related parties
Subsidiaries and jointly controlled operations
Details of subsidiaries are disclosed in note 29.
Directors
Details relating to Directors’ emoluments are disclosed in note 11 and in the Directors’ Remuneration Report on pages 84 to 93.
Details relating to Directors’ shareholdings in the Company are disclosed in the Corporate Governance Report on pages 52 and 53.
Key management remuneration is disclosed in note 11.
Helam disposal (refer note 34)
Jim Davidson, former Technical Director of Petra who retired from the Company on 30 June 2018, was approached by the existing
owners of Lindleys Mining to be a co-shareholder in this venture, given his extensive experience with Helam. Jim Davidson agreed
to subscribe for 49% of the shares in Lindleys Mining. As such, Jim Davidson is considered to be a related party of the Company
under Listing Rule 11.1.4R. Lindleys Mining purchased the Helam mine on 6 December 2018.
As disclosed in the Company’s FY 2012 Annual Report, Johan Dippenaar, former Group CEO, and Jim Davidson, former Technical
Director, exercised an option to acquire the Helam game farm from the Company for ZAR2.5 million (ca. US$0.3 million at the
prevailing exchange rate) granted in 2004. Although Mr Dippenaar and Mr Davidson duly paid the option price, the transfer of
the properties has to date not been effected. In the interest of the Helam disposal (refer note 34), and to ensure the surface rights
(including the mining right area and the Helam game farm) are transferred without any encumbrance to the new owners, Helam
entered into a cancellation agreement with Mr Dippenaar and Mr Davidson prior to the Helam disposal as disclosed above, to
unwind the exercise of the original option through the repayment of the original option price of ZAR2.5 million (US$0.2 million at
current exchange rates), the “Option Cancellation”. The Option Cancellation is classified as a small transaction as defined in Listing
Rule 11 Annex 1.
BEE Partners and related party balances
Details relating to the Group’s interests in its BEE Partners are disclosed in note 15.
The Group’s related party BEE Partners, Kago Diamonds and Sedibeng Mining, and their gross interests in the mining operations
of the Group are disclosed in the table below.
Mine
Finsch
Cullinan
Koffiefontein
KEM JV1
Helam1
Partner and respective interest
as at 30 June 2019
Partner and respective interest
as at 30 June 2018
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (0.0%)
Ekapa Mining (0.0%)
Kago Diamonds (8.4%)
Ekapa Mining (24.1%)
Sedibeng Mining (0.0%)
Sedibeng Mining (26%)
1. During the Year, the Company and its BEE Partners disposed of their interests in KEM JV and Helam (refer to note 34).
136
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
27. Related parties continued
BEE Partners and related party balances continued
The non-current loans receivable, non-current loans payable, finance income and finance expense due from and due to the related
party BEE Partners and other related parties are disclosed in the table below:
US$ million
Non-current receivable
Sedibeng Mining
Kago Diamonds1,3
Non-current payable
Kago Diamonds1,3
Current trade and other receivables
KEM JV2
Impairment provision2
Finance income
Kago Diamonds1,3
Ekapa Mining²
Finance expense
Kago Diamonds1,3
Ekapa Mining²
2019
—
54.6
54.6
64.9
64.9
8.6
(7.3)
1.3
3.5
—
3.5
6.8
—
6.8
2018
0.9
26.2
27.1
59.5
59.5
—
—
—
1.8
0.2
2.0
6.7
0.2
6.9
1. Included in non-current receivables and payables are amounts advanced to Kago Diamonds during the Year of US$26.8 million (30 June 2018: US$14.3 million). The Group has
applied the expected credit loss impairment model to the Kago Diamonds receivables and no credit losses are considered to apply.
2. Included in current trade and other receivables are amounts advanced of US$9.4 million to the KEM JV in the form of a working capital facility and equipment finance facility
(of which the Company has received repayments of US$3.9 million during the Year) and the balance of the KEM JV purchase consideration of US$3.1 million. The Group has applied
the expected credit loss impairment model to the KEM JV receivables taking into account various factors and the expected credit loss was deemed to be US$7.3 million.
3. Umnotho weSizwe Group (Pty) Ltd (“Umnotho”), holds a 16.34% interest in Kago Diamonds. Mr Dippenaar (the former Group CEO) is directly or indirectly a beneficiary of a trust
that is a shareholder in Umnotho.
Interest on the BEE loans and receivables is charged at the prevailing South African prime interest rate plus an interest margin
ranging between 0% and 2%.
The BEE loans payable bear interest at the prevailing South African prime interest rate.
Kago Diamonds is one of the BEE Partners which obtained bank financing from the BEE Lenders to acquire its interests in
Finsch and Cullinan. The Group has provided a guarantee to the BEE Lenders for repayment of loans advanced to the Group’s
BEE Partners. Further details on the BEE guarantees are in note 15.
Rental income receivable
The Group received US$nil (30 June 2018: US$nil) of rental income from Pella Resources Ltd and US$0.1 million (30 June 2018:
US$0.4 million) from Alufer Mining Ltd. The Group has US$0.3 million (30 June 2018: US$0.3 million) receivable from Pella
Resources Ltd and US$0.1 million (30 June 2018: US$0.4 million) receivable from Alufer Mining Ltd, both companies of which
Mr Pouroulis is a Director.
Shareholders
The principal shareholders of the Company are detailed in Supplementary Information on page 169.
Annual Report and Accounts 2019 Petra Diamonds Limited
137
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
28. Notes to the cashflow statement
Significant non-cash transactions
(a) Operating and investing activities
US$ million
Operating activities
Depreciation of property, plant and equipment
Impairment charge
Loss and impairment charge on discontinued operations
Movement in provisions
Other finance expense – pension scheme
Other finance expense – unwinding of present value adjustment for rehabilitation costs
Other finance expense – post-retirement medical fund
Net unrealised foreign exchange (gains)/losses
Loss on sale of property, plant and equipment
Share-based payment provision
Investing activities
Non-cash capital expenditure (capitalisation of borrowing costs and employee costs)
Non-cash rehabilitation asset adjustment – change in estimate
Non-cash interest receivable from BEE loans on investing activity
Investing activities
Non-cash interest payable on BEE loans on investing activity
(b) Financing activities – change in loans and borrowings (per note 21)
Senior secured Senior secured
lender debt
facilities
2019
second lien
notes
2019
Senior secured Senior secured
lender debt
facilities
2018
second lien
notes
2018
Total
2019
US$ million
Loans and borrowings
At 1 July
Cash draw-downs
Cash repayments (capital and interest)
(47.1)
(108.5)
(155.6)
648.1
—
106.7
5.8
754.8
5.8
648.1
—
(49.6)
49.6
—
109.0
35.6
(44.6)
11.8
(5.1)
49.6
(4.0)
650.6
648.1
106.7
754.8
Non-cash
– Interest accruing during Year
– Effect of foreign exchange
At 30 June
49.6
—
650.6
—
(4.0)
—
138
Petra Diamonds Limited Annual Report and Accounts 2019
2019
2018
106.7
246.6
49.9
0.7
—
4.0
1.2
(4.0)
1.3
0.2
135.7
66.0
92.7
(3.0)
0.2
4.0
1.2
26.2
—
0.6
406.6
323.6
1.0
—
4.9
5.9
12.6
12.6
13.3
2.4
2.4
18.1
12.5
12.5
Total
2018
757.1
35.6
(94.2)
61.4
(5.1)
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
29. Subsidiaries and jointly controlled interests
Significant accounting policies relevant to subsidiaries
At 30 June 2019 the Group held 20% or more of the allotted share capital of the following significant subsidiaries:
Country of
incorporation
Class
of share
capital held
Direct
percentage
held 30
June 2019
Direct
percentage
held 30
June 2018
Nature of business
Blue Diamond Mines (Pty) Ltd
Crown Resources (Pty) Ltd1
South Africa
Ordinary
South Africa
Ordinary
Cullinan Diamond Mine (Pty) Ltd
South Africa
Ordinary
Cullinan Investment Holdings Ltd
British Virgin Islands
Ordinary
Ealing Management Services (Pty) Ltd
South Africa
Ordinary
Ekapa Minerals (Pty) Ltd1
South Africa
Ordinary
Finsch Diamond Mine (Pty) Ltd
South Africa
Ordinary
Helam Mining (Pty) Ltd3
Kalahari Diamonds Ltd
South Africa
Ordinary
United Kingdom
Ordinary
Kimberley Ekapa Mining JV1
Unincorporated JV
n/a
Petra Diamonds Holdings SA (Pty) Ltd
South Africa
Ordinary
Petra Diamonds Jersey Treasury Ltd
Jersey
Ordinary
Petra Diamonds Netherlands
Treasury B.V.
Netherlands
Ordinary
Petra Diamonds Southern Africa (Pty) Ltd
South Africa
Ordinary
Petra Diamonds UK Treasury Ltd
United Kingdom
Ordinary
Petra Diamonds US$ Treasury Plc
United Kingdom
Ordinary
Premier Rose Management Services
(Pty) Ltd
South Africa
Ordinary
Sekaka Diamonds Exploration (Pty) Ltd2
Botswana
Ordinary
Tarorite (Pty) Ltd
Willcroft Company Ltd
Williamson Diamonds Ltd
South Africa
Ordinary
Bermuda
Ordinary
Tanzania
Ordinary
74%
—%
74%
100%
100%
—%
74%
—%
100%
—%
100%
100%
100%
100%
100%
100%
100%
100%
74%
100%
75%
74% Mining and exploration
74% Mining and exploration
74% Mining and exploration
100%
100%
Investment holding
Treasury
49.9% Mining and exploration
74% Mining and exploration
74% Mining and exploration
100%
Investment holding
55.5% Mining and exploration
100%
100%
100%
100%
100%
100%
100%
100%
74%
100%
Investment holding
Treasury
Treasury
Services provision
Treasury
Treasury
Treasury
Exploration
Beneficiation
Investment holding
75% Mining and exploration
1. On 5 December 2018, the Company disposed of its interest in Crown Resources (Pty) Ltd, Ekapa Minerals (Pty) Ltd and the Kimberley Ekapa Mining JV; for further detail
refer to note 34.
2. During the Year, Petra Diamonds Botswana (Pty) Ltd changed its name to Sekaka Diamonds Exploration (Pty) Ltd.
3. On 6 December 2018, the Company disposed of its interest in Helam Mining (Pty) Ltd; for further detail refer to note 34.
30. Pension scheme
Significant accounting policies relevant to pensions
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 Consolidated 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. Changes in the defined benefit valuation are recorded in the Consolidated Income Statement
when they refer to current service costs, past service costs or net interest calculated on the net deficit. All other changes in the
defined benefit valuation are recorded within other comprehensive income. The actuarial calculation is performed by a qualified
actuary using the projected unit credit method on an annual basis.
Significant judgements and estimates relevant to pensions
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 2019. 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 below.
The Company operates a defined benefit scheme and defined contribution scheme. The defined benefit scheme was acquired as
part of the acquisitions 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.
Annual Report and Accounts 2019 Petra Diamonds Limited
139
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
30. Pension scheme continued
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 are the
average yield of South African Government long-dated bonds of 9.99% (30 June 2018: 9.81%), and that salaries will be increased
at 7.43% (30 June 2018: 7.61%), based on the current South African consumer price index of 6.43% (30 June 2018: 6.61%). Estimated
future benefit payments to members for the 12-month period ending 30 June 2020 are US$0.9 million.
2019
2018
(10.9)
10.9
—
(0.2)
—
(0.2)
11.0
(0.3)
1.0
(0.8)
—
10.9
(11.3)
11.0
(0.3)
(0.3)
0.2
(0.1)
13.4
(0.8)
1.1
(2.9)
0.2
11.0
(11.3)
(14.1)
0.4
0.8
(0.2)
(1.1)
(0.1)
0.6
0.9
2.9
(0.3)
(1.2)
(0.1)
0.6
(10.9)
(11.3)
10.4%
30.7%
24.6%
11.8%
22.5%
9.9%
41.5%
24.1%
7.4%
17.1%
100.0%
100.0%
US$ million
Defined benefit obligations
Present value of funded obligations
Fair value of plan assets
Recognised deficit for defined benefit obligations
Expense recognised in the income statement
Current service cost
Net interest on deficit
Change in the fair value of the defined benefit assets
At 1 July
Foreign exchange movement on opening balances
Return on plan assets
Benefits paid to members
Contributions by Group – net
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
Net transfers in
At 30 June
Analysis of plan assets
Cash
Equity
Bonds
Property
Other – offshore
140
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
30. Pension scheme continued
Defined benefit scheme continued
US$ million
Plan assets
Plan liabilities
Deficit
2019
10.9
(10.9)
—
2018
11.0
(11.3)
(0.3)
2017
13.4
(14.1)
(0.7)
2016
11.9
(12.9)
(1.0)
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 2018 is as follows:
Male
Female
2019
15.92
20.02
2018
15.92
20.02
Further to the assumption of assets and liabilities associated with the defined benefit fund when the Group acquired its interest
in Cullinan and Finsch, the Group has no experience adjustments.
The valuation is subject to risks. The key sensitivities are changes in discount rates and mortality assumptions. A 0.5% change
in the discount rate changes the pension obligation by approximately US$0.6 million (30 June 2018: US$0.7 million). A two-year
change in mortality changes the pension obligation by approximately US$0.4 million (30 June 2018: US$0.4 million).
31. Post-retirement medical fund
Significant accounting policies relevant to medical funds
The Group’s post-retirement medical fund 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.
Significant judgements and estimates relevant to medical funds
The benefit liability for the post-employment healthcare 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 2019. The most
important assumptions made in connection with the scheme valuation and charge or income are the healthcare 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 on page 142.
The post-employment healthcare liability scheme was acquired as part of the acquisitions of the Cullinan and Finsch and is closed
to new members. As part of the KEM JV disposal agreement, those members which formed part of the post-employment healthcare
scheme (under the Kimberley Mines) were transferred to a post-employment healthcare liability scheme controlled by Ekapa Mining.
All new employees will be responsible for funding their own post-employment healthcare liability costs.
The benefit liability for the post-employment healthcare liability scheme is regularly assessed in accordance with the advice
of a qualified actuary using the projected unit credit method. The Group’s post-employment healthcare 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 healthcare cost of inflation will
be 7.25% (30 June 2018: 7.75%), based on the average yield of relevant South African Government long-dated bonds of 10.0%
(30 June 2018: 10.0%), and that salaries will be increased at 5.75% (30 June 2018: 6.25%).
Annual Report and Accounts 2019 Petra Diamonds Limited
141
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
31. 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 Consolidated Statement of Financial Position
Net liability for the post-retirement medical fund obligation as at 1 July
Foreign exchange movement on opening balances
Reclassified to assets held for sale
Net expense recognised in the income statement
Membership changes
Benefit payments
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
Reclassified to assets held for sale
Net expense recognised in the income statement
Membership changes
Benefit payments
Liabilities at fair market value 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)
US$ million
Determination of estimated post-retirement medical fund expense for the year
ended 30 June 2020
Current service cost
Finance expense
Benefit payments
142
Petra Diamonds Limited Annual Report and Accounts 2019
2019
11.7
11.7
11.8
(0.6)
—
1.5
(0.5)
(0.5)
11.7
0.3
1.2
1.5
0.3
1.2
1.5
11.8
(0.6)
—
1.5
(0.5)
(0.5)
11.7
2019
10.0%
7.75%
5.75%
75%
2.56%
60.0
60.0
2019
0.8
0.5
(0.5)
2018
11.8
11.8
14.8
(3.9)
(1.2)
1.5
0.9
(0.3)
11.8
0.3
1.2
1.5
0.3
1.2
1.5
14.8
(3.9)
(1.2)
1.5
0.9
(0.3)
11.8
2018
10.0%
7.75%
6.25%
86%
2.09%
60.0
60.0
2018
0.3
1.0
(0.5)
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
31. Post-retirement medical fund continued
US$ million
Actuarial accrued liability
Funded status
2019
11.7
2018
11.8
2017
14.8
2016
11.2
Sensitivity analysis
Healthcare inflation rate
The effect of a 1% increase or decrease in the healthcare 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 2019
1% increase
1% decrease
11.7
—
11.9
1.7%
11.2
(4.3%)
30 June 2018
1% increase
1% decrease
11.8
—
12.5
5.9%
10.1
(14.4%)
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 2019
11.7
—
30 June 2018
11.8
—
Retirement
one year
earlier
Retirement
one year
later
11.7
0.1%
Retirement
one year
earlier
11.9
0.8%
11.7
(0.1%)
Retirement
one year
later
11.0
(6.8%)
32. Financial instruments
Significant accounting policies relevant to financial instruments
The Group classifies its financial assets (excluding derivatives) into the following category and the Group’s accounting policy
for the category is as follows:
Financial assets
Amortised cost
These 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 where the objective is to hold these assets in order to collect contractual cashflows
and the contractual cashflows are solely payments of principal and interest. 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.
Impairment
Impairment provisions for current trade receivables are recognised based on the simplified approach within IFRS 9 using a provision
matrix in the determination of the lifetime expected credit losses. During this process the probability of the non-payment of the
trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine
the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded
in a separate provision account with the loss being recognised within cost of sales in the Consolidated Statement of Comprehensive
Income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off
against the associated provision.
Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward-looking
expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been
a significant increase in credit risk since initial recognition of the financial asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset, 12-month expected credit losses along with gross interest income are
recognised. For those for which credit risk has increased significantly, lifetime expected credit losses along with the gross interest
income are recognised. For those that are determined to be credit impaired, lifetime expected credit losses along with interest
income on a net basis are recognised.
Annual Report and Accounts 2019 Petra Diamonds Limited
143
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
32. Financial instruments continued
Significant accounting policies relevant to financial instruments continued
Financial assets continued
Impairment continued
The Group’s financial assets measured at amortised cost comprise non-current receivables, trade and other receivables and cash
and cash equivalents in the Consolidated Statement of Financial Position.
The financial assets classified at amortised cost included in receivables are as follows:
US$ million
Current trade receivables
Other receivables (excluding taxation, VAT
and prepayments)
Non-current receivables (excluding VAT)
Total
2019
23.8
6.5
109.6
139.9
Total
2018
84.0
21.4
64.7
170.1
Statement of
Financial Position
2018
Non-current
assets held for sale
2018
75.0
21.4
64.7
161.1
9.0
—
—
9.0
The trade receivables are all due within normal trading terms. 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 trade receivables are considered
to be subject to credit loss or impaired.
The carrying values of financial assets held at amortised cost are denominated in the following currencies:
US$ million
Euro
Pound Sterling
South African Rand
US Dollar
Total
2019
4.3
16.7
56.0
62.9
139.9
Total
2018
17.3
16.7
96.7
39.4
170.1
Statement of
Financial Position
2018
Non-current
assets held for sale
2018
17.3
16.7
87.7
39.4
161.1
—
—
9.0
—
9.0
Financial liabilities
The Group classifies its financial liabilities (excluding derivatives) into one category: other financial liabilities. The Group’s
accounting policy is as follows:
Substantial modification of financial liabilities
When the Group’s borrowings are refinanced, and the refinancing is considered to be a substantial modification, 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 recognised as a charge in the
income statement on an accelerated basis.
Other financial liabilities
Trade payables, other payables and long-term BEE liabilities
Trade payables, other payables and long-term BEE liabilities, which are initially recognised at fair value, are subsequently carried
at amortised cost using the effective interest rate method.
The other financial liabilities included in trade and other payables (which exclude taxation) are as follows:
US$ million
Trade payables
Other payables (excluding taxation, VAT
and derivatives)
Non-current trade payables owing to BEE Partners
Statement of
Financial Position
2018
Liabilities directly
associated with
non-current assets
held for sale
2018
34.9
76.1
110.5
221.5
3.3
9.1
—
12.4
Total
2018
38.2
85.2
110.5
233.9
Total
2019
20.9
34.5
120.5
175.9
144
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements
Strategic Report
Corporate Governance
Supplementary Information
32. Financial instruments continued
Other financial liabilities continued
Trade payables, other payables and long-term BEE liabilities continued
The carrying values of other financial liabilities are denominated in the following currencies:
US$ million
Botswana Pula
Pound Sterling
South African Rand
US Dollar
Statement of
Financial Position
2018
Liabilities directly
associated with
non-current assets
held for sale
2018
—
12.1
186.6
22.8
221.5
0.7
—
11.7
—
12.4
Total
2018
0.7
12.1
198.3
22.8
233.9
Total
2019
—
4.9
156.8
14.2
175.9
Interest-bearing borrowings
Refer to note 21 for the Group’s policy on interest-bearing borrowings.
The details of the categories of financial instruments of the Group are as follows:
US$ million
Financial assets
Held at amortised cost:
– Non-current trade and other receivables
(excluding VAT)
– Trade receivables
– Other receivables (excluding taxation, prepayments
and VAT)
– Cash and cash equivalents – restricted
– Cash and cash equivalents – unrestricted
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 (excluding taxation, VAT
and derivatives)
Total
2019
109.6
23.8
6.5
13.5
71.7
225.1
120.5
603.5
47.1
55.4
826.5
Total
2018
Statement of
Financial Position
2018
Non-current
assets/liabilities
held for sale
2018
64.7
84.0
21.4
14.4
223.0
407.5
110.5
601.2
153.6
123.4
988.7
64.7
75.0
21.4
14.4
221.6
397.1
110.5
601.2
153.6
111.0
976.3
—
9.0
—
—
1.4
10.4
—
—
—
12.4
12.4
There is no significant difference between the fair value of financial assets and other financial liabilities and the carrying values
set out in the table above, noting that non-current loan receivables and payables bear interest.
Annual Report and Accounts 2019 Petra Diamonds Limited
145
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
32. Financial instruments continued
Interest-bearing borrowings continued
The currency profile of the Group’s financial assets and liabilities is as follows:
US$ million
Financial assets
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
Financial liabilities
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
Total
2019
—
29.4
19.7
72.6
103.4
225.1
—
—
4.9
156.7
664.9
826.5
Statement of
Financial Position
2018
Non-current
assets/liabilities
held for sale
2018
—
19.3
183.9
93.2
100.7
397.1
—
0.1
12.1
297.1
667.0
976.3
—
—
—
10.4
—
10.4
0.7
—
—
11.7
—
12.4
Total
2018
—
19.3
183.9
103.6
100.7
407.5
0.7
0.1
12.1
308.8
667.0
988.7
Further quantitative information in respect of these risks is presented throughout these Financial Statements.
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.
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 material financial assets
are carried at amortised cost, with no indication of impairment. The Group considers the credit quality of loans and receivables
to be good with no expected losses to be incurred.
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 Partner has an interest.
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$106.6 million (30 June 2018: US$2.6 million).
Derivatives
The fair values of derivatives are recorded on the Consolidated Statement of Financial Position within ‘Trade and other receivables’
or ‘Trade and other payables’. Derivatives are classified as current or non-current depending on the date of expected settlement
of the derivative.
The Group utilises derivative instruments to manage certain market risk exposures. The Group does not use derivative financial
instruments for speculative purposes; however, it may choose not to designate certain derivatives as hedges for accounting purposes.
Such derivatives are classified as ‘non-hedges’ and fair value movements are recorded in the Consolidated Income Statement.
The derivative financial liabilities were valued using Level 2 of the financial instrument valuation hierarchy. The valuation is
provided by the Group’s bankers, which act as the instrument’s counterparty, and was prepared using a Black-Scholes model.
The inputs include the strike price range, spot price at Year end, volatility and discount rate.
The use of derivative instruments is subject to limits and the positions are regularly monitored and reported to the Board.
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.
146
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements
Strategic Report
Corporate Governance
Supplementary Information
32. Financial instruments continued
Foreign exchange risk continued
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:
Š the currency in which the revenue expected to be generated from the commissioning of the capital expenditure will be denominated;
Š 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
Š 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
Euro
Pound Sterling
South African Rand
US Dollar
Financial liabilities
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
US$ million
Financial assets
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
Financial liabilities
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
30 June 2019
Year-end
US$ rate
Year-end
amount
US$
strengthens 10%
US$
weakens 10%
0.0936
0.8796
0.7878
0.0711
1.0000
0.0936
0.8796
0.7878
0.0711
1.0000
—
29.4
19.7
72.6
103.4
225.1
—
—
4.9
156.7
664.9
826.5
—
26.5
17.8
65.3
103.4
213.0
—
—
4.5
141.1
664.9
810.9
—
32.4
21.8
79.8
103.4
237.4
—
—
5.5
172.4
664.9
842.8
30 June 2018
Year-end
US$ rate
Year-end
amount
US$
strengthens 10%
US$
weakens 10%
0.0960
0.8559
0.7572
0.0729
1.0000
0.0960
0.8559
0.7572
0.0729
1.0000
—
19.3
183.9
103.6
100.7
407.5
0.7
0.1
12.1
308.8
667.0
988.7
—
17.3
165.5
93.2
100.7
376.7
0.6
0.1
10.9
277.9
667.0
956.5
—
21.2
202.3
114.0
100.7
438.2
0.8
0.2
13.3
339.7
667.0
1,021.0
The tables above reflect the impact of a 10% cumulative currency movement over the next 12 months and are shown for
illustrative purposes.
Annual Report and Accounts 2019 Petra Diamonds Limited
147
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
32. Financial instruments continued
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 below. The maturity analysis of trade and other payables is 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 notes 15
and 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
Senior secured second lien notes
Cashflow of loans and borrowings
US$ million
Cash
Cash and cash equivalents – unrestricted
Cash – restricted
Total cash
Loans and borrowings
Bank loan – secured
Bank loan – secured
Senior secured second lien notes
Cashflow of loans and borrowings
Notes
Interest
rate
6 months
6–12
or less months
Total
1–2
years
2–5
years
30 June 2019
19 0.1–6.5%
19 0.1-6.5%
21
21
21
12.7%
9.25%
7.25%
71.7
13.5
85.2
—
—
791.4
791.4
71.7
—
71.7
—
—
23.7
23.7
—
—
—
—
—
—
—
—
—
—
—
13.5
13.5
—
—
23.5
23.5
47.1
47.1
697.1
697.1
Notes
Interest
rate
6 months
or less
6–12
months
Total
1–2
years
2–5
years
30 June 2018
19 0.1–5.0%
221.6
221.6
19 0.1–5.0%
14.4
—
236.0
221.6
21
21
21
13.7%
9.0%
73.1
33.6
7.25%
838.6
73.1
33.6
23.6
—
—
—
—
—
—
—
—
—
—
—
14.4
14.4
—
—
23.4
47.3
744.3
945.3
130.3
23.4
47.3
744.3
Interest rate risk
The Group has borrowings that incur interest at fixed and floating rates. The Group’s fixed rate borrowings comprise the senior
secured second lien notes which incur interest at a fixed interest rate of 7.25%. Management constantly monitors the floating
interest rates so that action can be taken should it be considered necessary. Management considers the impact of a change in the
floating interest rate to the Group’s financial results not to be material as the quantum of borrowings at floating rates is US$nil
(30 June 2018: US$106.7 million). In the current Year the impact of a 100 basis point increase/decrease would result in a financial
loss/gain of US$nil (30 June 2018: US$1.1 million).
148
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
32. Financial instruments continued
Interest rate risk continued
Other market price risk
The Group predominantly generates revenue from the sale of rough and polished diamonds, as well as occasionally from polished
stones. The significant number of variables involved in determining the selling prices of rough diamonds, such as the uniqueness
of each individual rough stone, the content of the rough diamond parcel and the ruling USD/ZAR spot rate at the date of sale,
makes it difficult to accurately extrapolate the impact the fluctuations in diamond prices would have on the Group’s revenue.
Capital disclosures
Capital is defined by the Group to be the capital and reserves attributable to equity holders of the parent company.
The Group’s objectives when maintaining capital are:
Š to safeguard the ability of the entity to continue as a going concern; and
Š to provide an adequate return to shareholders.
The Group monitors capital on the basis of the debt to equity ratio. This ratio is calculated as net debt to equity. Net debt is
calculated as US$ loan notes (less transaction costs) and bank loans and borrowings 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 2019 and 30 June 2018 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
2019
650.6
(85.2)
565.4
311.7
1.81:1
2018
754.8
(236.0)
518.8
555.4
0.93:1
The Group manages its capital structure by the issue of Ordinary Shares, raising debt finance where appropriate and managing
Group cash and cash equivalents.
33. Segment information
Significant accounting policies relevant to segmental 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.
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 (which have been reclassified as assets held for sale in the current Year)
and South Africa.
Corporate – administrative activities in the United Kingdom.
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 exploration activities in
Botswana and South Africa, and reviewing the corporate administration expenses in the United Kingdom. Each segment derives,
or aims to derive, its revenue from diamond mining and diamond sales, except for the United Kingdom 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, depreciation and other income and expenses.
Unallocated items comprise mainly interest-earning assets and revenue, interest-bearing borrowings and expenses and corporate
assets and expenses. Segment capital expenditure is the total cost incurred during the Year to acquire 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
South Africa and Antwerp for external customers from various countries, the ultimate customers of which are not known to the Group.
The Group’s non-current assets are located in South Africa US$989.2 million (30 June 2018: US$1,178.6 million), Tanzania US$98.7 million
(30 June 2018: US$150.4 million), and United Kingdom US$0.2 million (30 June 2018: US$0.2 million).
The Group’s property, plant and equipment included in non-current assets are located in South Africa of US$879.0 million
(30 June 2018: US$1,113.9 million), Tanzania of US$88.6 million (30 June 2018: US$130.1 million), and United Kingdom of
US$0.2 million (30 June 2018: US$0.2 million).
Annual Report and Accounts 2019 Petra Diamonds Limited
149
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
33. Segment information continued
Significant accounting policies relevant to segmental reporting continued
South Africa – mining activities
Tanzania
– mining
activities
Botswana
South
Africa
United
Kingdom
Corporate
and
Operating
segments
US$ million
Revenue
Segment
result1
Impairment
charge
Impairment
charge
– other
receivables
Other direct
(expense)/
income
Operating
loss2
Financial
income
Financial
expense
Income tax
credit
Loss on
discontinued
operation
(net of tax)5
Non-
controlling
interest
Loss
attributable
to equity
holders of the
parent
company
Segment
assets6
Segment
liabilities6
Capital
expenditure
Finsch
2019
Cullinan Koffiefontein
2019
2019
Williamson
2019
Exploration 4
2019
treasury Beneficiation 3
2019
2019
Inter-
segment
2019
Consolidated
2019
171.4
170.2
28.9
93.0
—
—
0.1
—
463.6
26.2
32.2
(9.6)
9.9
(0.5)
(8.6)
(1.2)
(1.5)
46.9
(63.9)
(85.4)
(33.2)
(41.2)
—
—
—
(18.9)
(0.1)
(0.5)
(0.4)
0.2
—
—
—
—
—
—
(223.7)
(4.0)
—
—
—
—
—
(22.9)
(0.8)
(37.8)
(53.7)
(43.2)
(50.0)
(0.5)
(12.6)
(1.2)
(1.5)
(200.5)
12.1
(65.6)
45.8
(49.9)
31.3
(226.8)
611.2
396.6
168.7
182.5
608.5
184.3
303.4
300.6
46.3
24.1
6.1
8.6
—
—
—
3,146.8
13.0
(3,224.0)
1,294.8
2,306.9
13.8
(2,748.8)
968.7
1.8
—
—
86.9
1. Total depreciation of US$106.7 million included in the segmental result comprises depreciation incurred at Finsch of US$32.7 million, Cullinan of US$56.1 million, Koffiefontein
of US$6.9 million, Williamson of US$10.2 million, Exploration of US$0.1 million and Corporate administration of US$0.7 million.
2. Operating loss is equivalent to revenue of US$463.6 million less total costs of US$664.1 million as disclosed in the Consolidated Income Statement.
3. The beneficiation segment represents Tarorite, a cutting and polishing business in South Africa, which can on occasion cut and polish select rough diamonds.
4. The exploration assets in Botswana of US$0.6 million and liabilities of US$nil have been classified as non-current assets held for sale (refer to note 35).
5. The operating results in respect of KEM JV and Helam have been reflected within loss on discontinued operation (refer to note 34).
6. Segment assets and liabilities include inter-company receivables and payables which are eliminated on consolidation.
150
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
Operating
segments
US$ million
Segment
result1
Impairment
charge
Other direct
income
Operating
profit/(loss)2
Financial
income
Financial
expense
Income tax
expense
Loss on
discontinued
operation
(net of tax)5
Non-
controlling
interest
Loss
attributable
to equity
holders of
the parent
company
Segment
assets6
Segment
liabilities6
Capital
expenditure
33. Segment information continued
Significant accounting policies relevant to segmental reporting continued
South Africa – mining activities
Care and
maintenance
Tanzania
– mining
activities
Botswana
South
Africa
United
Kingdom
Corporate
and
Inter-
Finsch Cullinan Koffiefontein
2018
2018
2018
KEM JV 4,5
2018
Helam Williamson Exploration 4
2018
2018
2018
treasury Beneficiation 3
2018
2018
segment Consolidated
2018
2018
Revenue
231.9
167.0
27.2
67.7
14.2
(12.5)
—
—
(66.0)
0.3
(0.2)
—
68.0
14.0
(78.5)
—
—
—
—
—
—
68.5
—
—
25.5
(24.8)
495.3
(1.7)
13.0
(0.7)
(10.4)
(1.0)
(3.0)
65.6
—
(0.4)
—
0.4
—
—
—
—
—
—
—
1.1
(2.1)
13.4
(0.7)
(10.4)
(1.0)
(1.9)
(66.0)
1.2
0.8
8.5
(94.3)
(13.8)
(104.3)
36.2
(166.9)
557.4 727.3
135.8
281.8 653.3
291.0
54.0
73.9
12.3
—
—
—
7.2
211.3
— 3,323.8
13.0
(3,233.1)
1,742.7
50.1
302.5
— 2,304.5
14.1
(2,702.6)
1,194.7
—
4.6
—
0.7
—
—
145.5
1. Total depreciation of US$128.0 million included in the segmental result comprises depreciation incurred at Finsch of US$41.7 million, Cullinan of US$66.1 million, Koffiefontein
of US$9.1 million, Williamson of US$9.5 million, Helam of US$0.7 million, Exploration of US$0.1 million and Corporate administration of US$0.8 million.
2. Operating profit is equivalent to revenue of US$495.3 million less total costs of US$494.5 million as disclosed in the Consolidated Income Statement.
3. The beneficiation segment represents Tarorite, a cutting and polishing business in South Africa, which can on occasion cut and polish select rough diamonds.
4. Assets of US$46.5 million and liabilities of US$27.8 million in respect of KEM JV and the exploration assets in Botswana have been classified as non-current assets held for sale
(refer to notes 34 and 35).
5. The operating results in respect of KEM JV have been reflected within loss on discontinued operation (refer to note 34).
6. Segment assets and liabilities include inter-company receivables and payables which are eliminated on consolidation.
Annual Report and Accounts 2019 Petra Diamonds Limited
151
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
34. Disposal of operations
Significant accounting policies relevant to non-current assets held for sale and discontinued operations
Where an operation within the Group is separately identified or forms part of a separate reporting structure, the Group will
classify the asset as held for sale, in accordance with IFRS 5, if management has committed to a plan to sell, the operation is
available for sale, an active search for a buyer is in place, the disposal is highly probable within 12 months of classifying as held for
sale and completion of the disposal is unlikely to significantly change. As at 30 June 2018, the Botswana exploration operations
met the criteria mentioned above and as such were classified as held for sale. Assets held for sale are measured at the lower of
their carrying amount and fair value less costs to sell. An impairment loss is recognised for any initial or subsequent write-down
of the asset to fair value less costs to sell. A gain is recognised for any subsequent increases in fair value less costs to sell of an
asset but not in excess of any cumulative impairment loss previously recognised. A gain or loss not previously recognised by the
date of the sale of the non-current asset is recognised at the date of derecognition. Non-current assets classified as held for sale
and the assets of an operation classified as held for sale are presented separately from the other assets in the statement of
financial position. The liabilities of an identified operation classified as held for sale are presented separately from other liabilities
in the statement of financial position.
A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents
a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of
business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations
are presented separately in the statement of profit or loss.
Unrealised foreign exchange gains and losses on historical retranslation of the subsidiaries’ results into US Dollars are recycled
to the consolidated income statement upon completion of the disposal. The non-controlling interest attributable to minority
shareholders is recycled to the consolidated income statement upon completion of the disposal. The Group designates the results
of discontinued activities, including those of disposed subsidiaries, separately in accordance with IFRS and reclassifies the results
of the operation in the comparative period from continuing to discontinued operations. The Group does not consider mines held
on care and maintenance to be discontinued activities unless the mine is abandoned.
Kimberley Ekapa Mining Joint Venture (30 June 2018)
At 30 June 2018, in line with IFRS 5 and the Group’s accounting policy for assets held for sale and discontinued, the assets of KEM
JV operation was classified as held for sale. Judgement was required in determining the fair value adjustment on reclassification
of the KEM JV to non-current assets held for sale, with regards to the purchase offer, received from Ekapa Mining, for the Company’s
and its BEE Partners’ 75.9% interest. The fair value adjustment to property, plant and equipment, non-current trade and other
receivables and trade and other receivables was to ensure the asset values of the KEM JV were reflected at fair value based on the
consideration receivable under the purchase offer if the transaction completed. The accounting treatment involved consideration
of the structure of the arrangement, the legal form and the contractual agreements between the parties. During the year ending
30 June 2019, the Company disposed of the KEM JV operation.
KEM JV disposal
On 5 December 2018, the Group and its BEE Partners’ disposed of their 75.9% interest in the KEM JV operation to the Company’s
joint venture partner Ekapa Mining for a gross cash consideration of ZAR300 million (US$18.6 million) (“the Disposal”) comprising
deferred and contingent elements.
The Disposal was on a going concern basis, with Ekapa Mining taking on all of the Company’s financial, employee, environmental,
health, safety and social obligations with regards to the KEM JV operation. The rationale for the Disposal is to ensure a sustainable
future for KEM JV by placing the operation under the sole stewardship of an operator best suited to maximise its value. Ekapa
Mining’s extensive experience of operating specifically within Kimberley and its ability to solely focus on these assets is expected
to provide the right fit for the operation, thereby ensuring continuation of diamond mining employment and related economic
activity in this renowned diamond centre.
The terms of repayment of the ZAR300 million purchase consideration, originally to be payable in 24 monthly instalments
starting in January 2019, were amended prior to completion to allow Ekapa Mining to maximise the prospects of the financial
viability of the operation. According to the terms, the purchase consideration will be settled as follows:
Š ZAR60 million payable in 24 monthly instalments starting on 1 April 2019;
Š the balance, ZAR240 million, of the purchase consideration will be repayable from a 50% share of future operating cashflows
above set benchmark thresholds including proceeds from the sale of assets adjusted for sustaining capital of between R110
million and R130 million per annum, for a period of five years to 30 June 2024; and
Š possible proceeds from a pending insurance claim, that is subject to ongoing discussions, in relation to the mudrush incident
at Bultfontein as previously announced.
The Company has fair valued the balance of the purchase consideration and deemed it to be US$nil having considered the
historical trading performance of the asset, the Group’s knowledge of the mine and risks and uncertainties.
On initial reclassification of the assets and liabilities of the KEM JV mining operation (being Petra’s effective of 75.9% interest) as held
for sale in the statement of financial position at 30 June 2018, in accordance with IFRS 5, the Group recognised a US$92.7 million
impairment loss. The financial results of the KEM JV for the periods have been disclosed in the Consolidated Income Statement in
‘Loss on discontinued operations’. The KEM JV mining operation was a separate operating segment for the purposes of the
Group’s segmental reporting.
152
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
34. Disposal of operations continued
Effect of the transaction
The transaction had the following effect on the Group’s assets and liabilities:
(i) Net assets:
US$ million
Mining property, plant and equipment
Trade and other receivables
Inventory
Cash and cash equivalents
Non-current assets held for sale
Environmental liabilities and other non-current trade and other payables
Trade and other payables
Non-current liabilities associated with non-current assets held for sale
Net assets
(ii) Result of KEM JV:
US$ million
Revenue
Cost of sales
Gross loss
Financial income
Financial expense
Loss before tax
Income tax charge
Loss after tax before impairment charge
Impairment charge
Net loss for the Year
Attributable to:
– Equity holders of the parent
– Non-controlling interest
Basic loss per share (US cents)
Dilutive loss per share (US cents)
As at
30 November 2018
As at
30 June 2018
19.8
3.0
10.0
0.7
33.5
(13.8)
(11.5)
(25.3)
8.2
19.8
12.0
12.6
1.4
45.8
(14.2)
(13.0)
(27.2)
18.6
Period ended
30 November 2018
1 July 2017–
30 June 2018
31.3
(32.2)
(0.9)
0.1
(0.7)
(1.5)
—
(1.5)
—
(1.5)
(3.5)
2.0
(1.5)
(0.17)
(0.17)
81.6
(86.1)
(4.5)
0.4
(1.3)
(5.4)
(6.2)
(11.6)
(92.7)¹
(104.3)
(85.6)
(18.7)
(104.3)
(15.44)
(15.44)
1. The US$92.7 million impairment loss recorded on the KEM JV assets represents the difference between the fair value of the assets and liabilities and the consideration receivable
upon the proposed completion of the transaction. An impairment charge of US$56.2 million was recognised in respect of assets written down to carrying values in accordance
with IAS 36 “Impairment of Assets”. This includes US$52.0 million impairment recognised in respect the carrying value of the assets and US$4.2 million impairment of assets
damaged in the mudrush. In addition, a further impairment charge of US$36.5 million has been recognised to reduce assets of the KEM JV to equal the fair value less costs to sell,
being the fair value of the consideration receivable.
Annual Report and Accounts 2019 Petra Diamonds Limited
153
Financial Statements Notes to the Annual Financial Statements
For the Year ended 30 June 2019 continued
34. Disposal of operations continued
Effect of the transaction continued
(iii) Post-tax loss on disposal of KEM JV:
US$ million
Fair value consideration receivable on disposal
Less: net assets disposed of
Less: cash transferred from rehabilitation guarantee cell captive
Less: foreign currency translation recycled on disposal
Less: non-controlling interest
Loss on disposal of discontinued operation
Add: net loss for the Period (refer to (ii) above)
Loss on discontinued operation
Add: impairment of purchase consideration
Add: impairment of Group other receivables
Period ended
30 November 2018
3.6
(8.2)
(2.0)
(1.3)
(26.1)
(34.0)
(1.5)
(35.5)
(3.1)
(4.2)
(42.8)
During the Year, the Company advanced US$9.4 million funding to the KEM JV; of this amount, US$3.9 million has been recovered.
Management has assessed the recoverability of the remaining US$5.5 million and as a result of the assessment an impairment
charge of US$4.21 million was recognised in the Consolidated Income Statement. In assessing the recoverability, management
considered the historical trading performance of the KEM JV, the current downturn in the diamond market, the current economic
climate, payment history and recent press coverage involving the KEM JV operation. The remaining balance has been included
under current trade and other receivables.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables and other receivables. To measure expected credit losses on a collective basis, trade receivables
and other receivables are grouped based on similar credit risk and ageing.
As a result of the above assessment by management of the loan receivable, management has also impaired the remaining
balance of the purchase consideration reducing it to US$nil and an impairment charge of US$3.1 million was recognised in the
Consolidated Income Statement.
(iv) The Consolidated Cashflow Statement includes the following amounts relating to discontinued operations:
US$ million
Operating activities
Investing activities
Net cash utilised in discontinued operations
Period ended
30 November 2018
1 July 2017–
30 June 2018
3.4
(2.1)
(16.1)
(0.5)
(23.4)
(0.6)
Helam Mining disposal
On 6 December 2018 the Company and its BEE Partners disposed of their interest in Helam Mining (Pty) Ltd (“Helam”) to Lindleys
Mining (Pty) Ltd (“Lindleys Mining”) for a nominal consideration of ZAR200 with immediate effect.
The Helam mine was put on care and maintenance by the Company during FY 2015, following previous attempts to source a
suitable purchaser, and no mining activities have been conducted by Petra since. The rationale for the disposal is to support the
South African Government’s intention to prolong the lives of mines facing closure by facilitating opportunities for emerging
miners to the benefit of entrepreneurs, host communities and local employment. The disposal is also in line with Petra’s strategic
priorities, which include that the Board continues on an ongoing basis, to review the asset portfolio of the business with a view
to maximising return on capital and to ensure that all assets are in a position to contribute positive cashflow to the business.
The disposal shall have the following benefits:
Š an owner-manager approach will ensure sole focus on the optimisation of the Helam assets;
Š it will reduce Group cash outflow with existing care and maintenance expenditure amounting to ca. US$2 million per annum; and
Š Lindleys Mining will take on all of the Company’s environmental obligations with regards to Helam, currently estimated
at ca. ZAR23 million excluding VAT (ca. US$1.7 million).
As part of the disposal, agreement has been reached for the joint use of the processing plant at Helam, which has historically been
utilised to conduct resource and production sampling and analyses for the Petra Group. Lindleys Mining has agreed to continue
with such sampling and analyses for a period of up to two years. Petra intends to establish appropriate sampling facilities
elsewhere in the Group which, once commissioned, will replace the need to continue with this arrangement.
Helam generated a net loss of US$0.8 million for the Period which is disclosed in the Consolidated Income Statement in Loss
on discontinued operations and the net assets disposed of amounted to US$0.6 million.
154
Petra Diamonds Limited Annual Report and Accounts 2019
Financial Statements Strategic Report
Corporate Governance
Supplementary Information
34. Disposal of operations continued
Helam Mining disposal continued
(i) Post-tax loss on disposal of Helam at:
US$ million
Fair value consideration receivable on disposal
Less: net assets disposed of
Add: foreign currency translation recycled on disposal
Less: non-controlling interest
Loss on disposal of discontinued operation
Less: net loss for the Period
Loss on discontinued operation
Period ended
30 November 2018
0.0
(0.6)
3.4
(9.1)
(6.3)
(0.8)
(7.1)
35. Non-current assets held for sale
Botswana (exploration)
Significant judgements and estimates relevant to non-current assets held for sale
The carrying value of assets of Botswana, considered on the basis of classification as non-current assets held for sale, were carried
at the lower of carrying value and fair value less cost to sell. The assessment of fair value less cost to sell was considered by the
Board and represented a key judgement, based on internal valuation models, discounts for market pricing and progress of the
current sale process. The book value of the assets was greater than fair value less costs to sell.
During the year ended 30 June 2018, the Company took the decision to dispose of its exploration assets held in Botswana and
subsequently considered from potential purchasers offers to purchase its exploration assets held in Botswana. As such, the assets
and liabilities of the Botswana exploration operation continue to be classified as held for sale in the statement of financial
position in accordance with IFRS 5.
US$ million
Mining property, plant and equipment
Trade and other receivables
Non-current assets held for sale
Trade and other payables
Non-current liabilities associated with non-current assets held for sale
Net assets
30 June 2019
30 June 2018
0.6
—
0.6
—
—
0.6
0.6
0.1
0.7
(0.6)
(0.6)
0.1
Annual Report and Accounts 2019 Petra Diamonds Limited
155
Financial Statements Alternative Performance Measures
In addition to GAAP figures reported under International Financial Reporting Standards (“IFRS”), Petra provides certain Alternative
Performance Measures (“APMs”). These APMs are used internally in the management, planning, budgeting and forecasting of the
business and are also considered to be helpful in terms of the external understanding of the Group’s underlying performance.
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.
The use of APMs by listed companies to better explain performance and provide additional transparency and comparability
is common. However, APMs should always be considered in conjunction with IFRS reported numbers and not used in isolation.
Commentary within the Annual Report, including the Financial Review, as well as the Consolidated Financial Statements and
the accompanying notes, should be referred to in order to fully appreciate all the factors that affect our business. We strongly
encourage readers not to rely on any single financial measure, but to carefully review our reporting in its entirety.
APM
Method of calculation
Relevance
Adjusted EBITDA
Net profit after tax, stated before depreciation,
share-based expense, net finance expense
(excluding net unrealised foreign exchange gains
and losses), tax expense (excluding taxation
credit on impairment charge and taxation charge
on unutilised Capex benefits), impairment charges,
net unrealised foreign exchange gains and losses
and loss/profit on discontinued operations.
Adjusted EBITDA excludes the impact of certain
non-cash items and one-off items (i.e. loss/profit
on discontinued operations) is used to provide
further clarity on the ongoing, underlying
financial performance of the Group.
Adjusted EPS from
continuing operations
Earnings per share, stated before impairment
charges, taxation credit on impairment charge,
net unrealised foreign exchange gains and losses,
and taxation charge on reduction of unutilised
Capex benefits.
This is used to assess the Group’s operational
performance from continuing operations per
Ordinary Share. It removes the effect of items
that are not directly related to operational
performance.
Adjusted mining and
processing costs
Mining and processing costs stated before
depreciation and share-based expense.
This removes the impact of non-cash items
from the actual operational cost.
Adjusted net profit/loss
after tax
Net profit/loss after tax stated before
impairment charges, taxation credit on
impairment charge, net unrealised foreign
exchange gains and losses, taxation charge
on reduction of unutilised Capex benefits
and loss/profit on discontinued operation.
By removing the impact of items that are not
directly related to operational performance, as
well as the effect of any discontinued operations,
this is one of the indicators used to assess the
underlying performance of the business.
Consolidated net debt:
EBITDA
Consolidated net debt:EBITDA is consolidated
net debt divided by adjusted EBITDA.
This ratio is used by creditors, credit rating
agencies and other stakeholders.
Consolidated net
debt for covenant
measurement purposes
Bank loans and borrowings plus US$ loan notes,
less cash and diamond debtors and including the
BEE guarantees issued by Petra to the lenders as
part of the BEE financing concluded in December
2014 and those which are disclosed in the Group’s
BEE loans receivable and payable note, refer
to note 15.
Operational free cashflow Cash generated from operations less capital
expenditure for the year as per the Consolidated
Cashflow Statement.
Net debt
The US$ loan notes (gross) and bank loans and
borrowings, net of cash at bank (including
restricted cash).
This consolidated figure is used by the Lender Group,
analysts, rating agencies and other stakeholders.
Free cashflow reflects the cash generated from
operations after capital expenditure requirements
have been met. This measure reflects the
Company’s ability to generate cash from profit,
reflecting strong working capital management
and capital expenditure discipline.
Net debt combines the various funding sources
that are included in the Consolidated Statement
of Financial Position and the accompanying
notes. It provides an overview of the Group’s
net indebtedness, providing transparency on
the overall strength of the balance sheet.
Profit from
mining activities
Revenue less adjusted mining and processing
costs plus other direct income.
Provided to demonstrate the Group’s ability to
achieve profit from its core operating activities.
156
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
Five-year Summary of Consolidated Figures
For the Year ended 30 June 2019
US$ million
Income statement
Revenue (gross)1
Adjusted mining and processing costs2
Profit from mining activity3
Adjusted EBITDA3
Adjusted net (loss)/profit after tax3
Net (loss)/profit after tax – Group
Statement of financial position
Current assets
Non-current assets
Non-current assets held for sale
Total assets
Borrowings (short and long term)
Current liabilities (excluding borrowings)
Liabilities directly associated with non-current assets held for sale
Total equity
Movement in cash
Net cash generated from operating activities
Net cash utilised in investing activities
Net cash (utilised)/generated by financing activities
Net (decrease)/increase in cash and cash equivalents
Ratios and other key information
2019
2018
2017
2016
2015
463.6
576.4
477.0
430.9
425.0
(301.7)
(291.4)
(311.3)
(257.7)
(272.7)
161.1
153.0
(13.2)
205.1
195.4
1.6
(258.1)
(203.1)
168.5
157.2
29.0
20.7
176.0
164.3
63.6
66.8
154.5
139.3
62.8
59.6
206.7
413.5
354.8
222.5
303.2
1,087.5
1,329.2
1,500.0
1,117.9
1,004.7
0.6
46.5
—
18.8
—
1,294.8
1,789.2
1,854.8
1,359.2
1,307.9
650.6
54.9
—
754.8
130.8
27.8
757.1
136.7
—
424.5
125.4
12.2
327.1
79.3
—
326.1
566.6
646.4
546.8
622.5
156.4
67.9
152.5
153.7
132.7
(137.9)
(201.9)
(292.6)
(324.4)
(174.4)
(102.7)
169.7
(141.6)
35.7
291.1
151.0
82.6
(98.1)
179.0
137.3
Basic earnings/(loss) per share attributable to the equity holders of the
Company – US$ cents
Adjusted basic (loss)/earnings per share from continuing operations
attributable to the equity holders of the Company – US$ cents3
Capex
Cash at bank (including restricted)
20.18
(15.85)
3.14
10.38
9.46
(2.63)
86.9
85.2
0.5
145.5
236.0
5.50
300.1
203.7
9.76
324.1
48.7
10.09
274.1
166.6
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. Revenue (gross) excludes revenues for the KEM JV for FY 2019 (FY 2018 to FY 2015 includes revenues for KEM JV). Under IFRS, these revenues are classified in the Consolidated
Income Statement as part of the loss from discontinued operations.
2. Adjusted mining and processing costs are mining and processing costs (excluding KEM JV for FY 2019 and FY 2018) stated before depreciation and share-based expense.
3. For definitions of these non-GAAP measures refer to page 158.
Annual Report and Accounts 2019 Petra Diamonds Limited
157
Supplementary Information
FY 2019 Summary of Results and Non-GAAP Disclosures
US$ million
Revenue
Adjusted mining and processing costs1
Other direct (expense)/income
Profit from mining activities2
Exploration expense
Corporate overhead
Adjusted EBITDA3
Depreciation
Share-based expense
Net finance expense
Tax credit/(expense) (excluding taxation credit on impairment charge (FY 2018: tax charge
on reduction of unutilised Capex benefits))
Adjusted net (loss)/profit after tax4
Impairment charge5
Net unrealised foreign exchange gain/(loss)
Taxation credit on impairment charge
Taxation charge on reduction of unutilised Capex benefits
Loss from continuing operations
Loss on discontinued operations, net of tax6
Net loss after tax
Earnings per share attributable to equity holders of the Company – US$ cents
Basic loss per share – from continuing operations
Adjusted (loss)/profit per share – from continuing operations7
2019
463.6
(301.7)
(0.8)
161.1
(0.4)
(7.7)
153.0
(106.7)
(0.2)
(57.5)
3.0
(8.4)
(246.6)
4.0
42.8
—
(208.2)
(49.9)
(258.1)
(26.19)
(2.63)
2018
495.3
(291.4)
1.2
205.1
(0.6)
(9.1)
195.4
(128.0)
(0.6)
(59.6)
(5.6)
1.6
(66.0)
(26.2)
—
(8.2)
(98.8)
(104.3)
(203.1)
(31.29)
0.50
The Group uses several non-GAAP measures above and throughout this report to focus on actual trading activity by removing non-cash or non-recurring items. These measures
include adjusted mining and processing costs, profit from mining activities, adjusted EBITDA, adjusted net profit after tax, adjusted earnings per share, adjusted US$ loan notes and
net debt. 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. Adjusted mining and processing costs are mining and processing costs stated before depreciation and share-based expense.
2. Profit from mining activities is revenue less adjusted mining and processing costs plus other direct income.
3. Adjusted EBITDA is stated before depreciation, share-based expense, net finance expense (excluding net unrealised foreign exchange gains and losses), tax expense (excluding
taxation credit on impairment charge and taxation charge on unutilised Capex benefits), loss/profit on discontinued operations, impairment charges and net unrealised foreign
exchange gains and losses.
4. Adjusted net (loss)/profit after tax is net loss/profit after tax stated before losses on discontinued operations, impairment charge, taxation credit on impairment charge,
net unrealised foreign exchange gains and losses and taxation charge on reduction of unutilised Capex benefits.
5. Impairment charge of US$246.6 million (30 June 2018: US$66.0 million - Koffiefontein) was due to the Group’s impairment review of its operations and other receivables.
Refer to note 8 for further details.
6. The loss on discontinued operations reflect the results of the KEM JV and Helam operations (net of tax), including impairment of other receivables from the KEM JV; refer to note 34
for further details.
7. Adjusted EPS from continuing operations is stated before impairment charge, taxation credit on impairment charge, net unrealised foreign exchange gains and losses
and taxation charge on reduction of unutilised Capex benefits.
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Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information
Strategic Report
Corporate Governance
Financial Statements
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 BEE shareholders. These BEE Partners
include various commercial BEE entities (including women’s groups), as well as, importantly, the Itumeleng 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.
Summary of mine ownership
Finsch
Cullinan
74%
74%
74%
Koffiefontein
74%
Tarorite
(Beneficiation)
12%
14%
12%
14%
12%
14%
26%
Itumeleng Petra Diamonds Employee Trust
Kago Diamonds (Pty) Ltd
Itumeleng Petra Diamonds Employee Trust
Kago Diamonds (Pty) Ltd
Itumeleng Petra Diamonds Employee Trust
Kago Diamonds (Pty) Ltd
Kago Diamonds (Pty) Ltd
Petra
Diamonds
Holdings SA
(Pty) Ltd
Petra
Diamonds
Limited
Williamson
75%
25%
Government of the
United Republic of Tanzania
100%
Botswana
exploration
BEE Partner structures
Petra Diamonds Holdings
SA (Pty) Ltd
31.46%
Kago Diamonds (Pty) Ltd
16.10%
5.26%
14.20%
0.55%
32.43%
Umnotho weSizwe Group
Lexshell 844 (Pty) Ltd
Namoise Mining (Pty) Ltd
Thari Resources (Pty) Ltd
Sedibeng Mining (Pty) Ltd
Annual Report and Accounts 2019 Petra Diamonds Limited
159
Supplementary Information Petra’s Partners continued
Petra Group structure – operating entities
South
African
service
companies
100%
100%
74%
Petra Diamonds
Southern Africa (Pty) Ltd
Ealing Management
Services (Pty) Ltd
Tarorite (Pty) Ltd
(Beneficiation)
26%
Kago Diamonds (Pty) Ltd
Petra Diamonds
Limited
100%
Petra Diamonds
Holdings SA
(Pty) Ltd
12%
14%
12%
14%
Itumeleng Petra Diamonds
Employee Trust
Kago Diamonds (Pty) Ltd
Itumeleng Petra Diamonds
Employee Trust
Kago Diamonds (Pty) Ltd
74%
Finsch Diamond Mine
(Pty) Ltd
74%
Cullinan Diamond
Mine (Pty) Ltd
100%
Premier Transvaal
Diamond Mining
(Pty) Ltd
74%
Blue Diamond
Mines (Pty) Ltd
Koffiefontein Diamond
Mine
12%
Itumeleng Petra Diamonds
Employee Trust
Kago Diamonds (Pty) Ltd
14%
100%
Willcroft Company Ltd
75%
100%
100%
Offshore
service
companies
100%
100%
100%
Petra Diamonds UK
Services Ltd
Petra Diamonds US$
Treasury PLC
Petra Diamonds UK
Treasury Ltd
25%
100%
Government of Tanzania
Sekaka Diamonds
Exploration (Pty) Ltd
Williamson
Diamonds Ltd
Kalahari
Diamonds Ltd
Jersey
100%
Petra Diamonds
Jersey Treasury Ltd
United
Kingdom
Tanzania
100%
100%
Belgium
100%
Petra Diamonds
Belgium
Netherlands
100%
Petra Diamonds
Netherlands
Treasury BV
South Africa
Bermuda
Jersey
Belgium
Netherlands
BEE
Botswana
160
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
FY 2019 Operations Results Tables
Finsch – South Africa
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Diamonds produced
Grade1
Tailings production
Tonnes treated
Diamonds produced
Grade1
Total production
Tonnes treated
Diamonds produced
Costs
On-mine cash cost per tonne treated
Capex
Expansion Capex
Sustaining Capex
Borrowing costs capitalised
Total Capex
Unit
FY 2019
FY 2018
Variance
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
Cpht
Tonnes
Carats
ZAR
US$m
US$m
US$m
US$m
170.2
1,711,311
99
3,073,479
1,724,265
56.1
223,568
31,503
14.1
231.9
2,152,786
108
3,084,395
1,926,467
62.5
794,973
147,010
18.5
3,297,047
1,755,768
3,879,368
2,073,477
388
13.6
9.1
1.4
24.1
329
42.3
7.7
4.0
54.0
-27%
-21%
-8%
0%
-10%
-10%
-72%
-79%
-24%
-15%
-15%
18%
-68%
18%
-65%
-55%
1. The Company is not able to precisely measure the ROM/tailings grade split because ore from both sources is processed through the same plant; the Company therefore
back-calculates the grade with reference to resource grades.
Cullinan – South Africa
Unit
FY 2019
FY 2018
Variance
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Diamonds produced
Grade1
Tailings production
Tonnes treated
Diamonds produced
Grade1
Total production
Tonnes treated
Diamonds produced
Costs
On-mine cash cost per tonne treated
Capex
Expansion Capex
Sustaining Capex
Borrowing costs capitalised
Total Capex
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
Cpht
Tonnes
Carats
ZAR
US$m
US$m
US$m
US$m
171.4
1,562,922
110
4,119,406
1,589,707
38.6
956,035
66,222
6.9
167.0
1,335,669
125
3,741,086
1,342,020
35.9
412,749
26,700
6.5
5,075,441
1,655,929
4,153,835
1,368,720
234
37.2
6.8
2.3
46.3
239
56.2
6.5
11.2
73.9
3%
17%
-12%
10%
18%
8%
132%
148%
7%
22%
21%
-2%
-34%
5%
-79%
-37%
1. The Company is not able to precisely measure the ROM/tailings grade split because ore from both sources is processed through the same plant; the Company therefore
back-calculates the grade with reference to resource grades.
Annual Report and Accounts 2019 Petra Diamonds Limited
161
Supplementary Information FY 2019 Operations Results Tables continued
Koffiefontein – South Africa
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Diamonds produced
Grade
Total production
Tonnes treated
Diamonds produced
Costs
On-mine cash cost per tonne treated
Capex
Expansion Capex
Sustaining Capex
Total Capex
Williamson – Tanzania
Sales
Revenue
Diamonds sold
Average price per carat
ROM production
Tonnes treated
Diamonds produced
Grade
Alluvial production
Tonnes treated
Diamonds produced
Grade
Total production
Tonnes treated
Diamonds produced
Costs
On-mine cash cost per tonne treated
Capex
Expansion Capex
Sustaining Capex
Total Capex
1. Negatively impacted by the 71,654 carat parcel blocked for export.
Unit
FY 2019
FY 2018
Variance
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
ZAR
US$m
US$m
US$m
28.9
60,291
480
1,000,726
63,635
6.4
1,000,726
63,635
450
5.2
0.9
6.1
27.2
51,936
525
649,259
52,537
8.1
649,259
52,537
596
9.6
2.7
12.3
6%
16%
-9%
54%
21%
-21%
54%
21%
-24%
-46%
-67%
-50%
Unit
FY 2019
FY 2018
Variance
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
Cpht
Tonnes
Carats
US$
US$m
US$m
US$m
93.0
402,329
231
5,082,319
386,016
7.6
413,151
13,599
3.3
68.5
253,524 1
270
4,659,563
328,681
7.0
385,721
12,421
3.2
5,495,470
399,615
5,045,284
341,102
11.1
—
8.6
8.6
10.7
2.6
2.0
4.6
36%
59%
-14%
9%
17%
9%
7%
9%
3%
9%
17%
4%
-100%
328%
86%
162
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
Debt Facilities Information
Banking facilities
Bank debt facilities undrawn and available to the Group as at 30 June 2019 of ZAR1.5 billion (US$106.6 million), in addition to cash
at bank of US$85.2 million.
Lender
Type
Absa and Nedbank
Absa and RMB (FNB)
ZAR revolving
credit facility
ZAR working
capital facility
Size
(ZARm)
1,000
500
Size
(US$m
Utilised at
June 2019
(US$m
equivalent 1) equivalent 1)
Interest rate
Annual
commitment
fees
on undrawn
facilities
Repayment
71
36
0
0
1M JIBAR plus
5.0% 2
SA prime
lending rate
minus 1%
1.35% 2 October 2021
0.85%
Subject to
annual renewal
1. Converted to US$ using exchange rate of ZAR14.07/US$1 as at 30 June 2019.
2. The ZAR revolving credit facility will be subject to new margin and commitment fee ratchet mechanisms contingent on the consolidated net debt:consolidated EBITDA covenant
levels at each measurement date (refer to note 21).
Interest rate and commitment fee ratchet mechanism is as follows:
Consolidated net debt to consolidated EBITDA
≤ to 2.5:1
> 2.5:1 but ≤ 3.0:1
> 3.0:1 but ≤ 3.5:1
> 3.5:1 but ≤ 4.0:1
> 4.0:1
Additional
interest rate
ratchet
Additional
commitment fee
ratchet
0.0%
+1.0%
+2.0%
+3.0%
+4.0%
0.0%
0.0%
+0.225%
+0.450%
+0.675%
Banking covenants
The below covenants relate to Petra’s banking facilities. The ratios are measured twice annually, on a rolling 12-month period
at 30 June and 31 December, respectively.
12 months
12 months to
to 30 June 2019 31 December 2019
12 months
12 months to
to 30 June 2020 31 December 2020
12 months
to 30 June 2021
≤ 4.5x
≤ 4.25x
≤ 3.5x
≤ 3.25x
≤ 3.0x
≥ 2.5x
≥ 2.5x
≥ 2.75x
≥ 3.0x
≥ 3.25x
≤ 0.4x
≤ 0.4x
≤ 0.4x
≤ 0.4x
≤ 0.4x
Maintenance covenants
Consolidated net debt1
to consolidated EBITDA
Consolidated EBITDA to
consolidated net finance charges
Consolidated net senior debt2
to book equity3
Distribution covenants
Consolidated net debt1 to consolidated EBITDA
Consolidated EBITDA to consolidated net finance charges
Consolidated net senior debt2 to book equity3
All periods
≤ 2.00x
≥ 6.00x
≤ 0.30x
1. Consolidated net debt is loans and borrowings, less cash and diamond debtors and includes the BEE guarantees of ca. ZAR762.5 million (US$54.2 million) as at 30 June 2019,
issued by Petra to the lenders as part of the BEE financing concluded in December 2014.
2. Consolidated net senior debt means at any time the consolidated net debt (excluding any second lien and other subordinated debt).
3. Book equity is equity excluding accounting reserves.
Annual Report and Accounts 2019 Petra Diamonds Limited
163
Supplementary Information Debt Facilities Information continued
Leverage ratios
Net debt1
Consolidated net debt for bank debt covenant measurement
Gearing2
Adjusted EBITDA3
EBITDA margin4
Consolidated net debt:EBITDA5
EBITDA net interest cover6
30 June 2019
30 June 2018
US$564.8m
US$520.7m
US$595.2m
US$531.6m
173%
92%
US$153.0m
US$195.4m
33%
3.9x
2.7x
39%
2.7x
2.7x
1. Net debt is the US$ loan notes and bank loans and borrowings net of cash at bank.
2. Gearing is calculated as net debt divided by total equity.
3. Adjusted EBITDA, stated before depreciation, share-based expense, net finance expense, tax expense, impairment charges, net unrealised foreign exchange gains and losses and loss
on discontinued operations and losses and loss on discontinued operations.
4. EBITDA margin is adjusted EBITDA divided by revenue.
5. Consolidated net debt:EBITDA is consolidated net debt divided by adjusted EBITDA.
6. EBITDA:net interest cover is EBITDA divided by net finance costs, (excluding exchange gains or losses and unwinding of present value adjustment for rehabilitation costs) plus
capitalised interest.
164
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
FY 2019 Resource Statement
Petra Diamonds Limited manages one of the world’s largest diamond resources of ca. 250 million carats. 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 higher production rates.
Gross resources
As at 30 June 2019 the Group’s gross diamond resources (inclusive of reserves) decreased 15% to 248.15 Mcts (30 June 2018:
290.48 Mcts), due to depletion by mining activity at all operations, changes to resource estimates for Cullinan, Finsch and
Williamson, and the disposal of Petra’s interest in Helam. An interim resource estimate for Cullinan has been completed
and will be updated once the C-Cut bulk sampling programme is completed in December 2019.
Cullinan’s gross resource decreased 19% to 154.9 Mcts (FY 2018: 190.3 Mcts), in line with an interim resource estimate carried out
by Z-Star Mineral Resource Consultants (Pty) Ltd on the Cullinan kimberlite pipe. This was based upon a new geological model,
incorporating data from C-Cut Phase 1 development tunnels, as well as additional micro-diamond sampling data and new diamond
grade information from the C-Cut bulk sampling programme. However, there has been no material impact on the Cullinan reserve
for mine planning purposes as the effect of the revised resource estimate was taken into account as part of the plant recovery
factors calculated for the new Cullinan plant on the previous resource estimate.
Gross reserves
The Group’s gross diamond reserves decreased 1% to 42.51 Mcts (30 June 2018: 42.92 Mcts) due to depletions, changes to block cave
and SLC designs at Finsch, and a reserve of 66.5Mt and 4.30 Mcts being declared at Williamson.
The following table summarises the gross reserves and resources status of the combined Petra Group operations as at 30 June 2019.
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Finsch
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Gross
Grade
(cpht)
—
29.0
29.0
—
45.1
6.0
14.8
Grade
(cpht)
—
56.3
56.3
—
67.6
53.3
59.9
Tonnes
(millions)
—
146.6
146.6
—
376.8
1,298.4
1,675.2
Tonnes
(millions)
—
35.7
35.7
—
31.6
36.5
68.1
Contained
diamonds
(Mcts)
—
42.51
42.51
—
170.06
78.10
248.15
Contained
diamonds
(Mcts)
—
20.11
20.11
—
21.34
19.44
40.79
1. Resource bottom cut-off: 1.0mm.
2. Reserve bottom cut-off: 1.0mm.
3. Updated resource estimate completed.
4. Block 4 remnants recalibrated to June 2019 pit scans.
5. Block 5 resource stated as in situ.
6. Block 5 reserves are based on PCSLC and PCBC simulations, depleted for SLC development tonnes.
7. US$/ct values of 90-95 for ROM and US$/ct 40-45 for Pre-79 tailings, based on FY 2019 sales values and production size frequency distributions.
Annual Report and Accounts 2019 Petra Diamonds Limited
165
Supplementary Information
FY 2019 Resource Statement continued
Cullinan
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Grade
(cpht)
—
39.2
39.2
—
58.9
10.1
38.4
Tonnes
(millions)
—
45.0
45.0
—
233.9
169.6
403.6
Contained
diamonds
(Mcts)
—
17.67
17.67
—
137.68
17.20
154.88
1. Resource bottom cut-off: 1.0mm.
2. Reserve bottom cut-off: 1.0mm.
3. B-Cut resource tonnes and grade are based on block cave depletion modelling and include external waste.
4. C-Cut resource stated as in situ.
5. Reserves based on PCBC simulations on C-Cut phase 1 and Mine2-4D schedules for CC1E and other remaining pillar retreats.
6. Factorised grades and carats are derived from a calculated Plant Recovery Factor (“PRF”). These factors account for the efficiency of sieving (bottom cut-off), diamond liberation
and recovery in the ore treatment process.
7. The PRF has been revised in line with the new resource model, and plant commissioning in 2018. The PRFs currently applied for the new mill plant per rock type are:
Brown kimberlite = 73.8%, Grey kimberlite = 67.9%, Black kimberlite = 70.6% and Coherent kimberlite = 68.0%.
8. An interim resource estimate has been completed, and will be updated once the C-Cut bulk sampling programme is completed in December 2019.
9. US$/ct values of 110-120 for ROM, excluding exceptional stones, and 35-45 for tailings, based on FY 2019 sales values and production size frequency distributions.
Koffiefontein
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
1. Resource bottom cut-off (Koffiefontein underground and Ebenhaezer): 1.15mm.
2. Resource bottom cut-off (Eskom tailings): 1.0mm.
3. Reserve bottom cut-off: 1.15mm.
4. Koffiefontein 56L–60L SLC reserves are based on Min 2-4D schedules.
5. US$/ct values of 475-525 for ROM, based on FY 2019 sales values and production size frequency distributions.
Gross
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
5.3
5.3
—
27.1
126.2
153.3
—
8.0
8.0
—
5.3
3.3
3.7
—
0.43
0.43
—
1.44
4.19
5.63
166
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information
Strategic Report
Corporate Governance
Financial Statements
Williamson
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
1. Resource bottom cut-off: 1.15mm.
2. Updated resource estimate completed.
3. Reserves based on mine scheduling in XPAC software.
4. US$/ct values of 200-240 for ROM, based on FY 2019 sales values and production size frequency distributions.
KX36
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
66.5
66.5
—
66.2
959.4
1,025.6
Tonnes
(millions)
—
—
—
—
17.9
6.8
24.7
—
7.1
7.1
—
5.0
3.6
3.7
Grade
(cpht)
—
—
—
—
35.3
35.7
35.4
Gross
—
4.64
4.64
—
3.28
34.84
38.12
Contained
diamonds
(Mcts)
—
—
—
—
6.32
2.41
8.73
1. Resource bottom cut-off: 1.15mm.
2. Resource estimation based on >10,000m of core drilling and >5,000m of large diameter reverse circulation sample drilling. Resource estimate used a dataset of 1,046 carats
recovered from 235 samples. Modelled diamond value of US$65/ct, based on size frequency distribution of large diameter drill sampling.
General notes on reporting criteria
1. Resources are reported inclusive of reserves.
2. Tonnes are reported as millions; contained diamonds are reported per million carats (“Mcts”).
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.
6.
7.
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.
Reserves and resources have been reported in accordance with the South African code for the reporting of mineral reserves
and mineral resources (SAMREC 2016).
The 2019 annual Resource Statement as shown above is based on information compiled internally within the Petra Group.
All reserves and resources have been independently reviewed and verified by John Kilham, Pr. Sci. Nat. (reg. No. 400018/07),
a competent person with 39 years’ relevant experience in the diamond mining industry, who was appointed as an independent
consultant by the Company for this purpose.
Annual Report and Accounts 2019 Petra Diamonds Limited
167
Supplementary Information
Shareholder and Corporate Information
Petra Diamonds Limited
Registered office
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Group management office
52–53 Conduit Street
London W1S 2YX
Tel: +44 20 7494 8203
info@petradiamonds.com
www.petradiamonds.com
Corporate Communications team
Tel: +44 20 7494 8203
Email: investorrelations@petradiamonds.com
Bankers
Barclays Bank plc
1 Churchill Place
London E14 5HP
Tel: +44 20 7116 1000
www.barclays.com
Solicitors
Bermuda – Conyers Dill & Pearman
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Tel: +1 441 295 1422
United Kingdom – Memery Crystal
165 Fleet Street
London EC4A 2DY
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
Barclays
10 The North Colonnade
Canary Wharf
London E14 4BB
Tel: +44 20 7623 2323
www.barclays.com
BMO Capital Markets
95 Queen Victoria Street
London EC4V 4GH
Tel: +44 20 7236 1010
www.bmocm.com
Peel Hunt
Moor House
120 London Wall
London EC2Y 5ET
Tel: +44 20 7418 8900
www.peelhunt.com
168
Petra Diamonds Limited Annual Report and Accounts 2019
Company registration number
EC 23123
Company Secretary
St James’s Corporate Services Limited
Suite 31
Second Floor
107 Cheapside
London EC2V 6DN
United Kingdom
Tel: +44 (0)20 7796 8644
Tamesis Partners LLP
125 Old Broad Street
London EC2N 1AR
Tel: +44 20 3882 2868
www.tamesispartners.com
PR advisers
Buchanan
107 Cheapside
London EC2V 6DN
Tel: +44 20 7466 5000
www.buchanan.uk.com
Registrar
Link Market Services (Jersey) Limited
First Floor
IFC5
The Esplanade
St. Helier
Jersey JE2 3BY
Tel: UK: 0871 664 0300 (calls cost 12 pence a minute plus
network extras; lines are open 9.00am–5.30pm GMT Mon–Fri)
International: +44 (0) 371 664 0300
Website: www.linkmarketservices.com
Email: shareholderenquiries@linkgroup.co.uk
Transfer agent
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BRS 4TU
Tel: UK: 0871 664 0300 (calls cost 12 pence per minute plus
network extras; lines are open 9.00am–5.30pm GMT Mon–Fri)
International: +44 (0) 371 664 0300
Website: www.linkassetservices.com
Email: shareholderenquiries@linkgroup.co.uk
Auditors
BDO LLP
55 Baker Street
London W1U 7EU
Tel: +44 207 486 5888
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
Financial calendar
Accounting period end
Annual Report published
Annual General Meeting
Interim accounting period end
Interim results announced
30 June
October
November
31 December
February
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 Link
Market Services 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 FTSE4Good Index.
Dividend
Distribution covenants were not met for the measurement
period to 30 June 2019 and Petra will therefore not declare
a dividend for FY 2019.
Substantial shareholdings
The interests as indicated in the table below in the Ordinary
Shares of the Company represented significant shareholdings
of the issued share capital as at 8 October 2019.
Shareholder
Number of
voting rights 1
131,177,932
Standard Life Aberdeen plc
Prudential plc (incorporating
M&G Group Limited)
28,175,972
Cobas Asset Management, SCIIC, S.A. 43,360,171
42,602,976
Lazard Asset Management
17,037,625
Directors
1. Attached to shares and through voting rights.
Percentage
of issued
share capital
15.2%
5.3%
5.0%
4.9%
2.0%
Company Bye-Laws
The Company is incorporated in Bermuda and the City Code
therefore does not formally apply to the Company; however,
the Company’s Bye-Laws incorporate material City Code
protections appropriate for a company to which the City Code
does not apply.
The Bye-Laws also 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:
www.petradiamonds.com/about-us/corporate-governance/.
Share capital
The Company has one class of shares of 10 pence 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 23 November 2018 (“the 2018 AGM”),
authority was given to the Directors to allot:
i)
ii)
unissued Relevant Securities (as defined in the Bye-Laws)
in the Company up to a maximum aggregate nominal value
of £28,844,549.50, being 288,445,495 Ordinary Shares; and
equity securities (as defined in the Bye-Laws) in the Company
for cash on (a) 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 £4,326,682.40, being
equal to approximately 5% of the issued share capital of
the Company as at 12 October 2018.
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.
Annual Report and Accounts 2019 Petra Diamonds Limited
169
Supplementary Information Shareholder and Corporate Information continued
Shareholder voting
In advance of the AGM in November 2019, Petra would like to
inform shareholders that the Company has moved to a more
digital approach to voting and therefore requests that all
shareholders vote electronically. The Company will not be
sending paper proxy forms and, instead, shareholders can vote
either via the Shareholder Portal (www.signalshares.com) or,
for CREST holders, via the CREST Network. Voting in this way is
cost effective and efficient and mitigates the risk of lost items
via postal systems thus ensuring your vote is received and recorded.
Shareholders who still wish to receive a hard copy proxy card
should contact Link Asset Services to obtain this. Hard copy
cards should be returned in accordance with instructions
printed thereon and returned to Link Asset Services, The
Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
Restriction on transfer of shares
There are no restrictions on the transfer of Ordinary Shares
other than:
Š 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:
Š it is not satisfied that all the applicable consents,
authorisations and permissions of any governmental body
or agency in Bermuda have been obtained;
Š certain restrictions may from time to time be imposed by
laws and regulations;
Š 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
Š 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 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.
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 minimum 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.
Financial instruments
The Group makes use of financial instruments in its operations
as described in note 32 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.
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 Company 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 Company’s regulatory announcements and public
presentations are made available and there is a dedicated
Investors section at www.petradiamonds.com/investors.
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.
Shareholder enquiries
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.
The Company also has a frequently asked questions section
available on its website at: www.petradiamonds.com/investors/
shareholders/faqs/.
Shareholder Portal
The Company has set up an online Shareholder Portal,
www.signalshares.com, which offers a host of shareholder
services online.
170
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
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
Link Asset Services or by logging in to the Shareholder Portal.
Shares in issue
There were a total of 865,336,485 Ordinary Shares in issue
at 30 June 2019.
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/. 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. 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.fca.org.uk/consumers/scams/investment-scams.
Annual Report and Accounts 2019 Petra Diamonds Limited
171
Supplementary Information Glossary
“AGM”
Annual General Meeting
“alluvial”
“ASM”
“BBBEE”
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
artisanal small-scale mining
broad-based black economic empowerment, a policy of the South African Government aimed at addressing past
economic imbalances, stimulating further growth and creating employment
“BEE”
black economic empowerment
“Beneficiation”
the refining of a commodity; in the case of diamonds, refers to the cutting and polishing of a rough stone
“block caving”
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’
“bulk sample”
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
“CCMA”
“C-Cut”
“CAGR”
Commission for Conciliation, Mediation and Arbitration
the ‘Centenary Cut’, a major resource of 103 million carats located beneath the B block of the Cullinan orebody
compound average growth rate
“Capex”
capital expenditure
“carat” or “ct”
a measure of weight used for diamonds, equivalent to 0.2 grams
“Cpht”
“CSI”
“ctpa”
carats per hundred tonnes
corporate social investment
carats per annum
“cut-off grade”
the lowest grade of mineralised material considered economic to extract; used in the calculation of the ore
reserves in a given deposit
“DPA”
Diamond Producers Association
“drawpoint”
an opening through which ore from a higher level can fall and subsequently be loaded
“EBITDA”
earnings before interest, tax, depreciation and amortisation
“effluent”
mine effluent is a regulated discharge from a point source like a treatment plant or dam spillway
“EPS”
“ESG”
“ Exceptional
Diamonds”
earnings per share
environmental, social and governance
Petra classifies ‘exceptional’ diamonds as stones that sell for US$5 million or more each
“fissure”
informal term for a narrow, vertical, vein-like kimberlite dyke
“FRC”
“FY”
the UK’s Financial Reporting Council
Petra’s financial year (1 July to 30 June)
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Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
“GDP”
“GHG”
“grade”
“GRI”
“ Group II
kimberlites”
Gross Domestic Product
greenhouse gases
the content of diamonds, measured in carats, within a volume or mass of rock
Global Reporting Initiative
‘Group II’ indicates the specific mineralogy and composition of this kimberlite type
“H1” or “H2”
first half, or second half, of the financial year
“ha”
hectares
“HDSA”
historically disadvantaged South African
“HIV/AIDS”
human immunodeficiency virus infection and acquired immune deficiency syndrome
“HSE”
“HSEQ”
“HSSE”
“iNED”
“ Indicated
Resource”
“ Inferred
Resource”
health, safety and environment
health, safety, environmental and quality
health, safety, social and environment
independent Non-Executive Director
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)
“IPDET”
Itumeleng Petra Diamonds Employee Trust, which is a registered trust holding a 12% interest in each of
Petra’s South African operations, through which the current and certain former employees (with some
exceptions in both cases) of Petra’s South African operations participate
“ISO 14001”
an international standard on environmental management; it specifies a framework of control for an
Environmental Management System against which an organisation can be certified by a third party
“KEM JV”
Former joint venture; Petra disposed of its interest in KEM JV during FY 2019
“kimberlite”
An ultramafic igneous rock consisting mainly of olivine, often with phlogopite mica and pyroxenes. Kimberlite
is generated at great depth in the Earth’s mantle, and may or may not contain diamonds
“Kt”
“LDD”
“LDP”
“LED”
“LHD”
thousand tonnes
large diameter drilling
Leadership Development Programme
local economic development
load haul dumper
Annual Report and Accounts 2019 Petra Diamonds Limited
173
Supplementary Information Glossary continued
“LOM”
“LTI”
“LTIFR”
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
“Majors”
the major diamond producers, namely De Beers, ALROSA and Rio Tinto
“Mctpa”
million carats per annum
“Mcts”
million carats
“ Measured
Resource”
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
“microdiamond” diamonds small enough to pass through a 0.5mm screen
“mL”
“Mt”
“Mtpa”
“NED”
“NGOs”
“NIHL”
“NPAT”
“NUM”
metre level
million tonnes
million tonnes per annum
Non-Executive Director
non-governmental organisations
noise induced hearing loss
net profit after tax
National Union of Mine Workers in South Africa
“open pit”
mining in which ore that occurs close to the Earth’s surface is extracted from a pit or quarry
“Opex”
operating costs
“orebody”
a continuous well-defined mass of material of sufficient ore content to make extraction feasible
“pa”
“PAT”
“PCBC”
per annum
profit after tax
GEOVIA PCBC™ is a highly sophisticated software package designed specifically for the planning
and scheduling of block cave mines
“PCSLC”
a highly sophisticated software package designed specifically for the planning and scheduling of SLCs
“ 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
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Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Strategic Report
Corporate Governance
Financial Statements
“ 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”
a method of developing vertical or inclined excavations by drilling a pilot hole, then reaming the pilot hole
to the required dimensions
“RC”
“RCF”
reverse circulation (drilling)
revolving credit facility
“re-crush system” processes oversized material from the primary crushers, further reducing it in size
“rehabilitation”
the process of restoring mined land to a condition approximating to a greater or lesser degree its original state
“ROM”
run of mine
“SAMREC”
South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves
“SED”
Social, Ethics and Diversity
“Severity Rate”
Severity Rate indicates the severity of work-related injuries (number of days lost due to injuries) where
individuals were booked off from work impacting on workforce effectiveness. The rate calculus is as follows:
number of days off from work due to injury x 200 000 ÷ total man-hours worked
“shaft”
“SHE”
“SLC”
“SLP”
“slimes”
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
social and labour plans
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 and 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”
dumps created of waste material from processed ore after the economically recoverable metal or mineral
has been extracted
“tonnage”
quantities where the tonne is an appropriate unit of measure; typically used to measure reserves of target
commodity bearing material or quantities of ore and waste material mined, transported or milled
“tpa”
“tpm”
tonnes per annum
tonnes per month
Annual Report and Accounts 2019 Petra Diamonds Limited
175
Supplementary Information Glossary continued
“ trackless
equipment”
equipment that does not operate on tracks (rails)
“TSR”
total shareholder return
“ Type II
diamonds”
Type II diamonds have no measurable nitrogen impurities, meaning they are often of top quality in terms
of colour and clarity
Š 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
Š 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 and Koffiefontein
“UHNWI”
ultra high net worth individual
“WCF”
“WiL”
“WIM”
working capital facility
women in leadership
women in mining
176
Petra Diamonds Limited Annual Report and Accounts 2019
Supplementary Information Discover more online
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52-53 Conduit Street
London W15 2YX
United Kingdom
Tel:
Email:
+44 207 494 8203
info@petradiamonds.com
www.petradiamonds.com
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