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Adapt to thrive
Petra Diamonds Limited
Annual Report and Accounts 2020
Adapt to thrive
Petra Diamonds Limited (“Petra” or the “Company” or the “Group”) is a leading independent
diamond mining group and a consistent supplier of gem-quality rough diamonds to the
international market from its diversified portfolio of mines in South Africa and Tanzania.
Petra is quoted with a premium listing on the Main Market of the London Stock Exchange under the ticker ‘PDL’, with US$650
million loan notes due in 2022 listed on the Global Exchange Market of the Irish Stock Exchange, which are currently subject to
restructuring.
The Company is a constituent of the FTSE4Good Index and aims to generate tangible value for each of its stakeholders, thereby
contributing to the socio-economic development of its host countries and supporting long-term sustainable operations to the
benefit of its employees, partners and communities.
Petra’s operations have again delivered strongly in an extremely challenging environment that continues to be severely impacted
by the COVID-19 pandemic. Despite the robust underlying business, significantly reduced revenues as a result of the disrupted
diamond market required the Company to re-evaluate its capital structure. The Company therefore announced in October 2020
that it had reached agreement in principle with its financial stakeholders on a common set of commercial terms with respect to a
long-term solution for the recapitalisation of the Group, as set out on page 35.
FY 20201 operational and financial highlights2
KPI
ROM ore processed
Total ore processed
ROM carats produced
Total carats produced
Revenue
Operational capital expenditure
Adjusted EBITDA
Operational free cashflow
Net loss after tax3
Adjusted loss per share
Consolidated net debt
Unit
Mt
Mt
Mcts
Mcts
US$m
US$m
US$m
US$m
US$m
US$ cents
US$m
FY 2020
11.5
12.3
3.4
3.6
295.8
36.6
64.8
(12.3)
223.0
4.94
696.6
FY 2019
13.3
14.9
3.8
3.9
463.6
81.4
153.0
70.5
258.1
2.63
595.2
Variance
-13%
-17%
-9%
-7%
-36%
-55%
-58%
-117%
-14%
+88%
+17%
FY 2020 represents the financial year to 30 June 2020.
Certain alternative performance measures (“APMs”) have been used in this report. See page 197 for an explanation of relevance as well as their definition.
Including non-cash impairment charge of US$91.9 million (FY 2019: US$246.6 million) and expected credit loss provision of US$10.9 million (FY 2019: US$nil).
Cover photo
The 2020 Annual Report cover features the Letlapa Tala Collection of five blue diamonds of significant colour, clarity and size
(ranging from 9 to 25 carats) which were recovered at the Cullinan mine in September 2020. Further information is set out on
page 22.
Strategic Report
Index
Strategic Report
IFC Highlights
2
At a Glance
4 Chairman’s Statement
8 Chief Executive’s Statement
13 Our Business Model
Corporate Governance
58 Chairman’s Introduction to
Governance
Financial Statements
127 Directors’ Responsibilities
Statement
61 Board of Directors
128 Independent Auditor’s Report
63 Corporate Governance
137 Consolidated Income Statement
Statement
138 Consolidated Statement of
79 Report of the Audit and Risk
Other Comprehensive Income
15 Stakeholder Engagement
Committee
18 Our Market
24 Our Strategy
91 Viability Statement
93 Risk Management
27 Key Performance Indicators
100 Report of the Nomination
29 Financial Review
37 Operational Review
39 Cullinan
41 Finsch
41 Koffiefontein
42 Williamson
43 Principal Risks and
Uncertainties
45 Sustainability
139 Consolidated Statement of
Financial Position
140 Consolidated Statement of
Cashflows
141 Consolidated Statement of
Changes in Equity
Committee
102 Report of the Health, Safety and
Environment Committee
142 Notes to the Annual Financial
104 Report of the Social, Ethics and
Diversity Committee
107 Directors’ Remuneration Report
Statements
Supplementary Information
197 Alternative Performance
Measures
198 Five-year Summary of
Consolidated Figures
199 FY 2020 Summary of Results
and Non-GAAP Disclosures
200 Petra’s Partners
201 FY 2020 Operations Results
Tables
203 FY 2020 Resource Statement
207 Shareholder and Corporate
Information
211 Glossary
Petra Diamonds Limited Annual Report and Accounts 2020
1
Strategic Report
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
GROUP RESOURCES (MCTS)
243.5 (-2%)
GROUP RESERVES (MCTS)
38.9 (-9%)
The careful management of these resources will ensure
sustainable, long-life mining operations for the Group for
many years to come.
FY 2020 Resource Statement – pages 203 to 206
Establishing a new
capital structure
CONSOLIDATED NET DEBT (US$ MILLION)
696.6 (+17%)
ADJUSTED MINING AND PROCESSING COSTS (US$
MILLION)
225.3 (-25%)
225.3 (-25%) ADJUSTED EBITDA (US$ MILLION)
64.8 (-58%)
OPERATIONAL FREE CASHFLOW (US$ MILLION)
-12.3 (-117%)
In October 2020, the Company announced that it had
reached agreement in principle with its financial
stakeholders on a common set of commercial terms with
respect to a long-term solution for the recapitalisation of
the Group. A more stable financial platform will be enhanced
by the Group’s focus on identifying and delivering
operational efficiencies across all aspects of the business
and the effective management of capital expenditure, with
the aim to generate free cashflow. While Project 2022
initiatives resulted in the highest ROM production recorded
in the Group’s history in the nine months to 31 March 2020,
overall production and financial results for the Year were
significantly impacted post March 2020 by the COVID-19
pandemic.
Our Strategy – pages 24 to 26
Prioritising safe and sustainable
business practices
LTIFR
0.29 (+38%)
TOTAL INJURIES
45 (-26%)
MAJOR ENVIRONMENTAL INCIDENTS
0 (0%)
SOCIAL SPEND (US$ MILLION)
1.4 (+40%)
Our people are integral to our business and ensuring a safe
workplace is our number one priority. Our goal is to put in
place the right actions today, which will benefit current
operations and future projects to ensure long-term
sustainability for the benefit of all our stakeholders.
Sustainability – pages 45 to 57
The right team, skills,
experience and culture
EMPLOYEES WORLDWIDE
3,696 (-3%)
CONTRACTORS WORLDWIDE
1,323 (-55%)
BOARD FEMALE DIVERSITY (%)
22 (0%)1
TRAINING AND DEVELOPMENT SPEND (US$ MILLION)
5.8 (-12%)
As at the date of this report, this has increased to 29%.
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 and
where innovation and creativity in the workplace are
encouraged and rewarded. In FY 2020 the Company made
further changes to its Board, including the appointment of a
new Non-Executive Chairman with significant mining,
finance and corporate experience.
Our People – pages 50 to 52
Petra Diamonds Limited Annual Report and Accounts 2020
2
Strategic Report
Delivering from a
diversified portfolio
GROUP PRODUCTION (MCTS)
3.6 (-7%)
DIAMOND SALES (MCTS)
2.9 (-23%)
GROUP REVENUE (US$ MILLION)
295.8 (-36%)
Petra has a diversified portfolio incorporating interests
in three underground producing mines in South Africa
(Cullinan, Finsch and Koffiefontein) and one open pit mine
in Tanzania (Williamson). These operations are some of the
most culturally significant diamond mines in the world and
are renowned as reliable sources for rare and highly prized
coloured diamonds.
With increasing access across the full footprint of the
sub-level and block caves, consistent production is now
targeted as Petra completes its transition from a period of
high capital investment to a steady operational phase.
9
18
39
34
Finsch
US$295.8m
REVENUE BY MINE %
Cullinan
Koffiefontein
Williamson(cid:599)(cid:461)
(cid:552)(cid:461)
PRODUCTION BY MINE %
Cullinan
Koffiefontein
Finsch
Williamson
3.6 Mcts
44
46
8
2
Our Market – pages 18 to 23
Iconic diamond mines
Cullinan
One of the world’s most celebrated diamond mines.
REVENUE (US$ MILLION)
116.5 (-32%)
PRODUCTION (MCTS)
1.58 (-5%)
PRODUCTION PROFILE
Renowned for producing large, high quality white and very
rare blue diamonds.
Finsch
A consistent producer with top-quality infrastructure.
REVENUE (US$ MILLION)
101.1 (-41%)
PRODUCTION (MCTS)
1.64 (-6%)
PRODUCTION PROFILE
Regularly produces highly commercial goods of over 5
carats and occasionally produces diamonds of over 50
carats and smaller gem-quality diamonds.
Koffiefontein
One of the world’s top kimberlite mines by average value
per carat.
REVENUE (US$ MILLION)
25.7 (-11%)
PRODUCTION (MCTS)
0.07 (+9%)
PRODUCTION PROFILE
Regularly produces high quality white diamonds of between
5 and 30 carats.
Williamson
Having been in continuous operation since 1940, the mine
was placed on care and maintenance in April 2020 in
response to market conditions.
REVENUE (US$ MILLION)
52.5 (-44%)
PRODUCTION (MCTS)
0.30 (-25%)
PRODUCTION PROFILE
Renowned for beautifully rounded white stones and
‘bubblegum’ pink diamonds.
Operational Review – pages 37 to 42
Petra Diamonds Limited Annual Report and Accounts 2020
3
(cid:4276)
(cid:461)
(cid:3193)
(cid:461)
(cid:950)
(cid:461)
(cid:467)
(cid:2080)
(cid:461)
(cid:2623)
(cid:461)
(cid:2685)
(cid:461)
(cid:467)
Strategic Report
Chairman’s Statement
Adapt to thrive
“I knew when I joined the Company that we had world-class assets, capable
of producing some of the world’s most historically significant diamonds, and
I have also come to appreciate the high quality of the teams at all levels of
the organisation, which live and breathe the ‘can-do’ culture and which have the
adaptability to endure unpredictable and fast-changing operating conditions.”
Peter Hill
Non-Executive Chairman
Adapt to thrive
I am honoured to introduce Petra’s 2020 Annual Report, my first as Chairman. I joined the Company’s Board on 1 January 2020 and
could not have foreseen the year ahead. The first two months were almost business as usual, albeit with a difficult diamond
market and the emergence of the debt issues, and I was able to have a full induction including site visits to the Company’s South
African operations and offices, as well as meetings with some of the Company’s shareholders and other stakeholders.
From the time I assumed the role of Chairman on 31 March 2020, the world changed markedly with the onset of the COVID-19
pandemic. Lockdowns and other social and travel restrictions have meant that I have mostly been working remotely, just one of
the many challenges associated with overseeing a business in what may become the ‘new normal’.
The theme of this year’s report is ‘adapt to thrive’ and how Petra has implemented this approach in order to withstand the most
testing business environment. I knew when I joined the Company that we had world-class assets, capable of producing some of
the world’s most historically significant diamonds, and I have also come to appreciate the high quality of the teams at all levels of
the organisation, which live and breathe the ‘can-do’ culture and which have the adaptability to endure unpredictable and fast-
changing operating conditions.
The COVID-19 pandemic has rightly placed the emphasis on the ‘social’ aspects of ‘ESG – environmental, social and governance’
matters. I believe Petra’s performance during this period has demonstrated that the Company has strong management in this area,
as it had the right systems and practices in place to be able to respond quickly. As at the date of this report, all of the South
African operations are now back at normal operating levels, despite the stringent processes that have been put in place to
mitigate the spread of the virus.
In terms of the actual levels of COVID-19 at our operations, I believe these have been as well contained so far as we could have
done. As at 30 October 2020, the Company was screening 3,336 individuals a day and a total of 750 possible cases were tested.
To date, the total number of employees confirmed COVID-19 positive at the South African operations is 223; of these, so far 217
have recovered in full and four cases are still active. No deaths were reported during the Year. However, very regrettably we have
lost two people to causes related to the disease since Year end, being Joseph Phoku, a Boilermaker at Cullinan, and Eurith
Sekgoro, a Cleaner at the Kimberley Group satellite offices. Our heartfelt condolences go to the family, friends and colleagues of
the deceased; support has been offered to their next of kin.
While there have fortunately been no cases of COVID-19 at the Williamson mine in Tanzania to date, this operation has been
impacted by the poor market conditions, with diamond pricing not currently at a level to support the mine’s cost base. Williamson
was therefore placed on care and maintenance in April 2020, until such time as market conditions improve sufficiently to ensure
economic operations.
The impact of COVID-19
The COVID-19 pandemic has of course placed additional emphasis on optimisation of the business, though this was something
that was already well underway via Project 2022. This project was launched in July 2019 with the aim of identifying opportunities
to increase throughput across the business, drive efficiencies and facilitate continuous improvement. In so doing, a key objective
of the project was to target delivery of significant free cashflow over three years in order to reduce the Company’s high debt level
and strengthen its balance sheet. However, despite the project delivering record throughput results for the first nine months of FY
2020, the disruption to operations caused by the outbreak of the COVID-19 pandemic has eroded the benefits generated. This, in
combination with the resultant weakness in the diamond market, has placed further strain upon the Company’s balance sheet.
In March 2020, Petra therefore launched a strategic review, in conjunction with a set of independent advisers, in order to evaluate
an optimal long-term capital structure for the Group. The key focus of this review was to bring down the Company’s leverage to a
manageable level and it therefore involved extensive consultations with the ad-hoc group of holders (“AHG”) of the Company’s
US$650 million 7.25% senior secured second lien notes due in May 2022 (the “Notes”), as well as with the group of lenders in
South Africa which provides the Group’s first lien bank facilities (the “South African Lender Group”). The review also aimed to
assess all strategic options available to maximise value to stakeholders and included a formal sale process, whereby interested
parties could submit bids either for Petra or for any parts of the business or assets of the Group.
Petra Diamonds Limited Annual Report and Accounts 2020
4
Strategic Report
In October 2020, the Company announced that it had reached agreement in principle with its financial stakeholders on a common
set of commercial terms with respect to a long-term solution for the recapitalisation of the Group (the “Restructuring”). This
agreement serves to nearly halve the Group’s level of the Notes debt and requires that the outstanding debt owed to the
Noteholders will be converted into equity, with the Noteholder group set to hold 91% of the enlarged share capital of the Company
and existing shareholders set to hold the remaining 9%. At the same time, the South African Lender Group, subject to the approval
of the Restructuring, agreed to a restructuring of the first lien facilities provided to the Company. Petra is currently well advanced
in terms of agreeing a Lock-Up Agreement with the parties to the Restructuring, which will bind each party into supporting the
Restructuring on the proposed terms.
While unfortunately a consequence of a debt for equity swap is that existing shareholders are diluted, we have fought hard to
ensure that our existing shareholders retain a share of the equity if they support the deal, which will give them the opportunity to
benefit from an overall improved equity story, with a robust underlying operating business, the potential recovery in the diamond
market and prices, supported by a significantly deleveraged group. In order to become effective, the Restructuring is dependent
on execution of the Lock-Up Agreement and approval by shareholders at a special general meeting ("SGM") in early calendar year
(“CY”) 2021; Petra will publish a related circular and prospectus to shareholders by information by the end of CY 2020.
The Restructuring was deemed by the Board and its advisers to offer the optimal value to all stakeholders and therefore the
formal sales process was concluded in October 2020.
Diamonds resonate in uncertain times
Despite the many challenges, the pandemic has reinforced certain values which we believe make natural diamonds the perfect
choice for consumers. Having been subject to lockdowns and self-isolation, often kept apart from family and loved ones, we
believe that there is pent-up demand for meaningful personal connections. Diamonds therefore have a potentially significant role
to play in people’s lives as they emerge from this difficult period, given that they are used to celebrate our most profound
moments and relationships. The Natural Diamond Council (“NDC”), of which Petra is a founder member, will certainly be playing its
part to reinforce the emotional relevance of diamonds, and we remain confident in the long-term fundamentals for the industry.
Read more: Our Market on pages 18 to 23
Board development
The Petra business has evolved significantly over recent years, as the Company has transitioned from its phase of heavy capital
investment to that of steady-state operations, and the Company’s Board of Directors and its Board Committees have continued to
develop to reflect this. During the Year, I was appointed as Chairman after a formal executive search, carried out by an independent
agency. I would like to thank outgoing Chairman Mr Adonis Pouroulis for the time he dedicated to my handover period, as well as his
exceptional contribution to the business that he originally founded in 1997. We wish him well with all his future endeavours.
Dr Pat Bartlett retired from the Board at the end of the Year. Pat’s knowledge of kimberlite geology and the block cave mining
technique has made him highly prized in our industry and he is continuing to offer technical consultancy services to the Company
for the duration of FY 2021.
We have also seen a change in our Senior Independent Director, with Mr Tony Lowrie retiring from the Board on 17 November
2020. Tony has brought all his experience in the equities, mining and African markets to bear in his roles on the Board over the
last eight years and has demonstrated his profound support for the Company via the accumulation of a significant shareholding.
Tony oversaw the recent Chairman succession, and I have enjoyed working with him; he will be much missed.
The Nomination Committee has therefore recommended to the Board that Ms Varda Shine would assume the role from this date.
Varda was considered an outstanding appointee given her deep experience of the diamond industry, as well as the UK public
company corporate world, and her expertise in multi-stakeholder engagement. I welcome Varda to her new role and look forward
to working with her as we take Petra forward.
In terms of our Board Committees, Varda succeeded the role of Chair of the Remuneration Committee from Mr Gordon Hamilton
on 31 March 2020. We also made further changes to Committee memberships, with the effect that as at the start of FY 2021 all
Non-Executive Directors (all of whom are independent) are now serving on the Nomination, Audit and Risk, and Remuneration
Committees, with the exception of myself as Non-Executive Chairman; I am solely a member of the Nomination Committee (as
Chair). This is expected to bring greater cohesion and transparency to these key Board Committees.
Read more: Report of the Nomination Committee on pages 100 and 101
Evolution of our purpose and culture
In addition to Project 2022, we have a number of other cultural change initiatives in progress, as set out on page 7. Given the
evolution of the business, it has also been deemed appropriate that the Company purpose, culture and values are being re-
evaluated so that they accurately reflect and support the realisation of our vision and strategy.
One integral aspect of Company culture which will not change is our commitment to protecting our people and environment from
harm, and to ethical behaviour in all areas of the business, as expressed by our leading value, ‘Let’s do no harm’. Leading from the
top, Petra’s Board and management team work to ensure that we are living these values and embedding them throughout the
organisation. They are also further disseminated through continuous engagement around Petra’s Code of Ethical Conduct, which
includes a strong emphasis on compliance with our ethical value system.
Read more about our values: https://www.petradiamonds.com/about-us/who-we-are/our-vision-values/
Petra Diamonds Limited Annual Report and Accounts 2020
5
Strategic Report
Chairman’s Statement continued
Responsible business practices
Responsible business practices are essential to the long-term success of the Company and Petra is committed to continuous
improvement in this area.
This is especially important with regards to climate change management, which remains an existential threat that is of growing
importance to our stakeholders. I was therefore pleased to see the progress that has been made in this area during the Year, with
the continued development of the Company’s Climate Change Adaptation Strategy and the ongoing submission of the Climate
Disclosure Project’s (“CDP”) climate change questionnaire, both of which are helping to shape how we structure our approach to
climate change management and will ensure that we can meet the recommendations of the Task Force on Climate-related
Financial Disclosures (“TCFD”) by 2022.
The Company has worked hard to improve both gender and ethnic diversity, particularly at management level and above, and has
continued to invest in the training and development of its workforce, recognising that a skilled and motivated team is essential to
the delivery of our strategy.
The impact of COVID-19 has been far reaching, touching both our work and personal lives, as well as markets and industries.
While the overall economic effect still remains unknown, the social toll is already heavy, particularly in South Africa where
unemployment rose to a record 34.9% in the second quarter of calendar 2020, being the highest of all 83 countries tracked by
Bloomberg. We understand the hardships facing our communities and have been working in conjunction with local authorities to
help address some of the most pressing needs, as funded by the Petra Hardship Fund, which was financed by Director and Senior
Management salary and fee sacrifices during April to June 2020 – read more on page 12.
Petra has also continued with an active programme of community development work throughout the Year, focused on
contributing meaningful and long-term development of our host communities via sustainable job creation, skills transfer,
enterprise development and infrastructure development.
Read more: Sustainability on pages 45 to 57
The Tunajali Committee to strengthen Petra’s human rights management
Despite the emphasis that I have found Petra to place on responsible business, it was very concerning for both myself and the
Board to learn of the allegations of human rights abuses in Tanzania received from both law firm Leigh Day and non-governmental
organisation (“NGO”) RAID. These allegations are related to the security operations of the Williamson mine, where illegal mining is
an ongoing issue managed by the mine’s in-house team, its third party security contractor and the local police force.
It was important to the Board that the process to evaluate these matters was carried out according to governance best practice.
To this end, a sub-committee of the Board, comprised entirely of independent Non-Executive Directors, was formed and named
‘Tunajali’, meaning ‘we care’ in Swahili.
Petra has initiated an investigation into the human rights allegations, which is being carried out by a specialist external adviser in
conjunction with the Company’s lawyers. The investigation is scheduled to be completed during Q2 FY 2021 and the Committee
will consider the outcome of the investigation and the recommendations to address any findings. This may include any required
remedy or corrective action to be taken as a result of the investigation’s conclusions.
At mine level, Williamson Diamonds Limited (“WDL”), the operator of the Williamson mine, has also appointed an independent
consultancy to conduct an assessment of WDL’s management of its security in line with the Voluntary Principles on Security and
Human Rights. A number of enhancement measures have been taken already in response to these findings, as set out on page 48.
The Tunajali Committee will continue to monitor this situation and will report back regularly to the full Board.
Outlook
We are already well into FY 2021 and the diamond market has improved considerably and should benefit from the retail festive
season, though risks remain related to the further duration and severity of the COVID-19 pandemic and its economic impact,
especially in the major diamond buying centres of the US, China and India.
Operationally, our team has been performing well in South Africa, despite the COVID-19 mitigation measures that now form part of
our standard working conditions, and we will continue to evaluate the optimal timing at which to bring the Williamson mine in
Tanzania back into production, based on prevailing market conditions.
With the finalisation of our agreement to improve our capital structure, we will have a solid foundation in place from which to move
forward. This will allow management the opportunity to focus on the continued optimisation of our world-class asset base, with
the intention of generating value for all of our stakeholders.
Peter Hill
Non-Executive Chairman
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
6
Strategic Report
Case study: Reassessing our culture
Petra has undergone significant change over the last number of years. Firstly, the Company has mostly completed a
major capital investment cycle to open up new mining areas at its operations and upgrade the infrastructure required to
support these projects. This expansion required large numbers of contract workers, in addition to our permanent
employee base, and these numbers are now reducing as the operations transition to steady-state production. Secondly,
the Company has had a change of leadership, with a new Chief Executive appointed in April 2019 and a new Non-
Executive Chairman appointed in March 2020, as well as other ongoing Board changes.
Given the evolution of the business, it is therefore appropriate that the Company purpose, culture and values are in the
process of being re-evaluated so that they accurately reflect and support the realisation of our vision and strategy.
As part of this process, Petra has instigated a number of change initiatives intended to provide the building blocks for
establishing a culture within Petra that is aligned to our values. These are as follows:
• Health, safety and environment: ‘Let’s do no harm’ remains our foremost value and embedding a safety and
compliance culture within Petra is led from the top by our Chief Executive, and also involves a participative approach
where all stakeholders are involved and can provide input.
• Leadership alignment and development: Recognising that effective leadership is at the heart of any business
transformation, our Executive Committee (“Exco”) and other levels of management have been engaged in discussions
around change leadership and organisational culture, taking stock of where we are today and where we need to go to
embrace Petra’s full potential.
• Project 2022: Project 2022 is integral to the Company’s new operating model, with continuous improvement,
efficiencies and accountability at its core. Honest, open and transparent communication and interaction is central to
achieving this.
• Organisational Design Review: This project closely supports Project 2022 but is broader in scope and seeks to
eliminate inefficiencies, speed up decision making, clarify accountability and ensure the integration of work. As a
result of this process, revised role profiles for all employees will be prepared in FY 2021, aimed at delivering and
supporting a culture of accountability and performance.
Values in action: Let’s take control/Let’s do it better
Petra Diamonds Limited Annual Report and Accounts 2020
7
Strategic Report
Chief Executive’s Statement
Rising to the challenge
“While there have been unprecedented challenges to contend with in 2020,
I am pleased that operationally the Company has performed very well, strongly
supported by Project 2022-driven efficiencies. This, combined with our highly
valued people, world-class asset base and the agreement in principle reached
with our Noteholders and Lender Group on our long-term capital structure,
provides a sustainable future for the Company, once operating conditions
normalise.”
Richard Duffy
Chief Executive
Improved operational performance marred by external challenges
FY 2020 and the current financial year to the date of this report have undoubtedly been very challenging, particularly in relation to
managing the impact of the COVID-19 pandemic on the Company. I am very pleased with the underlying operational performance
of the business, particularly in light of these significant challenges.
Turning first to our most important metric, being safety: while it was disappointing that our lost time injury frequency rate (“LTIFR”)
increased for the Year to 0.29 (FY 2019: 0.21), the majority of the accidents were found to be behavioural in nature and of low
severity. Considerable focus has been placed on changing these behaviours through management intervention, including in-shift
safety stops, visible leadership and management walkabouts, awareness campaigns, safety discipline enforcement and safety
inspection processes.
Despite the deterioration in our LTIFR over last year, our overall safety performance for the Year improved as the Group fared
better on 75% of all measured safety KPIs, including a 26% improvement in the number of total injuries to 45 (FY 2019: 61).
Read more: Workplace Safety on pages 49 and 50
Operationally, we delivered a solid performance. The Company set an initial production target of ca. 3.8 Mcts for the Year and we
were on track to meet this, having delivered the highest run-of-mine (“ROM”) production in the Company’s history of 3.0 Mcts in
the nine months to 31 March 2020. This run-rate was driven by Project 2022, which resulted in the implementation of various
initiatives that have eliminated or mitigated bottlenecks in the production processes of the various mines.
However, the outbreak of COVID-19 in South Africa had a severe impact on our operations from late Q3 onwards, as a national
lockdown was implemented from 26 March 2020. While production was permitted to continue at our mines, it had to be
significantly scaled down, with stringent protocols put in place to mitigate the spread of the disease and protect our people – read
more about our management of COVID-19 on page 12. Notwithstanding these significant constraints on our South African
operations, our production for the Year at 3.59 Mcts was only 5.5% lower than our pre-COVID-19 target.
While the Company has since been able to increase production in a phased manner, the restrictions and procedures in place to
mitigate the spread of the disease continued to impact operations. Post Year end, we therefore took the decision to change our
shift configuration in moving to continuous operations (“Contops”) at the Finsch mine and a similar Contops-like configuration at
the Cullinan mine in order to increase available working hours to offset those lost as a result of incorporating the necessary
COVID-19 mitigation measures. Contops involve a seven-day working week (as opposed to the five-day working week previously
in place). This process required extensive consultation and planning in co-operation with the relevant organised labour and
employee stakeholders.
Post Year end, September and October 2020 production at the Finsch mine was impacted by the arrangements to operate
Contops coming to an end. However, an agreement was subsequently reached with organised labour to reinstate Contops for the
nine-month period to end June 2021. Production is therefore expected to revert to planned levels for the remainder of FY 2021.
In this way, we have been able to bring the South African operations back to normal operating levels, even while maintaining the
strict COVID-19 precautionary measures. This is a significant achievement, made possible by the tireless dedication, adaptability
and motivation of our workforce. I would like to thank all our employees, contractors and organised labour representatives for their
important contribution to the ongoing stability of our business.
Unfortunately, we had to take the difficult decision to place the Williamson mine in Tanzania on care and maintenance in April
2020, in order to protect the mine’s liquidity position, as the operation is uneconomic at the current levels of diamond pricing. This
situation is under continual review and we will look to commence production again as soon as market conditions support it. I
would also like to extend my sincere thanks to our colleagues and partners at Williamson, and specifically the Government of
Tanzania, for their ongoing perseverance and support, as we navigate this difficult time together.
Post Year end, production for Q1 FY 2021 was down 10% to 974,346 carats (Q1 FY 2020: 1,082,764 carats), but this was mainly
due to Williamson being on care and maintenance. Cullinan performed very strongly, achieving record carat production during
both August and September 2020; however, this was offset by Finsch production being weaker, mainly due to the interruption to
Contops noted above.
Read more: Operational Review on pages 37 to 42
Petra Diamonds Limited Annual Report and Accounts 2020
8
Strategic Report
Adapting to an unpredictable market
The impact of COVID-19 on the diamond market was immediate and served to significantly reduce activity throughout the pipeline
from production, rough sales, trading, cutting and polishing, right through to consumer sales.
In response, Petra took the decision to cancel its usual May and June 2020 tenders due to the significantly reduced demand from
the midstream during this period, exacerbated by travel restrictions making it all but impossible for clients to view goods on offer.
As a result, there was significant inventory build to 30 June 2020 (notwithstanding the reduced production levels). The Company
realised some US$10.5 million sales in Q4, following the partial sale of goods not sold during the March tender, coupled with
relatively low levels of sales in June, mainly to the local South African cutting and polishing market. The excess inventory held at
Year-end was sold during Q1 FY 2021, partially through private off-tender sales during July 2020, followed by a resumption of our
rough diamond tenders during September 2020 from our marketing office in Antwerp, Belgium.
Our marketing department has had to adopt a flexible sales approach in order to continually assess the optimal route to market
and ensure maximum participation at our sales. This led to a temporary move of its rough diamond tenders for our South African
goods to Antwerp, instead of in Johannesburg, where travel restrictions severely limited participation by international diamond
buyers. Post Year end, Petra realised sales of US$82.0 million in Q1 FY 2021 due to the number of carats sold during the period
increasing 55% to 936,749 carats (Q1 FY 2020: 603,626 carats), further to the sale of the excess inventory noted above, offset by
a weaker diamond market. The Group's tender sale in September 2020 saw pricing on a like-for-like basis strengthen ca. 21% in
comparison to prices achieved in the March and June sales 2020 cycles and the tender sale in October 2020 saw a further ca. 2%
like-for-like price increase; however, prices were still around 10% below pre-COVID-19 levels.
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 assist in terms of stabilising the market and there have been positive results from China, which is
the most advanced of the major economies in terms of its control of COVID-19 in-country and where retail sales are registering
positive growth again. However, all participants in the industry recognise that risks to a sustained recovery remain, particularly in
light of the current resurgence of COVID-19 in key diamond markets, and much will depend on the level of consumer activity in the
coming months, especially in the major US market.
Petra’s participation in the NDC remains an important strategy in terms of helping to positively impact the long-term fundamentals
for our market. The NDC, formerly known as the Diamond Producers Association, rebranded in 2020 with a renewed focus on
ensuring that natural diamonds inspire and excite today’s consumer. Its first major advertising campaign as the NDC, ‘For
Moments Like No Other’, was launched in September 2020 starring rising Hollywood actor Ana de Arnas, which was positively
received by the market. The NDC’s valuable work is dedicated to the major diamond markets, being the US, China and India, but it
is also looking at cost effective ways to expand its reach to other markets including Europe.
From the supply side, the market outlook is positive, due to the trend of constrained and falling production. In 2019, diamond
supply by volume fell 7% to 138.2 Mcts (2018: 148.4 Mcts) and supply by value fell 6% to US$13.6 billion (2018: US$14.5 billion)
according to the Kimberley Process Statistics. In the short term, output has been impacted by the COVID-19 pandemic, with
several mines being temporarily closed. One of the world’s major producers, Argyle in Australia, has also reached the end of its life
in 2020. Over the next decade, there are expected to be few material additions to production, with rough diamond supply forecast
to potentially be as low as 120 Mcts by 2030, according to Bain & Co.
Read more: Our Market on pages 18 to 23
The Letlapa Tala Collection to be sold in late November
Post Year end, we were excited to recover five blue diamonds of significant colour, clarity and size at the Cullinan mine, ranging
from 9 to 25 carats in size. Blue diamonds are so rare that there are no official statistics on their recovery; however, the Cullinan
mine is known as the world’s most important source. The last blue diamond recovery of significance prior to this was over a year
ago at the mine in September 2019 and it was therefore even more unusual to recover five high quality stones around the same
time, all in the space of one week’s production.
The collection has since been named the Letlapa Tala Collection, meaning ‘blue rock’ in Northern Sotho (commonly known as
Pedi), the predominant language spoken in the Cullinan area. A special tender process has been launched and the diamonds will
be available for viewings in the key diamond centres of Antwerp, Hong Kong and New York before eventual sale around 24
November 2020. This is likely to be the first time that five blue rough diamonds have ever been offered for sale at one time, with
buyers being offered the chance to bid either on individual stones, more than one, or for the entire collection.
See photos of the Letlapa Tala Collection: https://www.petradiamonds.com/media/image-library/diamonds/
Addressing our balance sheet
Constrained production, lower pricing and limited sales had a considerable impact on our balance sheet. Diamonds sold for the
Year reduced 23% to 2,895,497 carats (FY 2019: 3,736,847 carats), and rough diamond prices realised by Petra decreased ca.
18%, with the overall effect that revenue decreased 36% to US$295.8 million (FY 2019: US$463.6 million).
Absolute on-mine cash costs decreased 12% despite ongoing inflationary pressures and the costs incurred directly attributable to
COVID-19, due to the effect of a weaker ZAR:USD exchange rate for the Year and a decrease in tonnages treated. Petra will
maintain its focus via Project 2022 on the sustainable optimisation of the Company’s cost structure, particularly while market
conditions remain volatile.
The lower revenue for the Year significantly impacted Group profitability, with adjusted Group EBITDA down 58% to US$64.8
million (FY 2019: US$153.0 million) and, having generated significant operational free cashflow of US$70.5 million in FY 2019, this
turned into a negative outflow of US$12.3 million for FY 2020. This in turn had a detrimental effect on our balance sheet, with
consolidated net debt rising 17% to US$696.6 million at Year end (30 June 2019: US$595.2 million).
Petra Diamonds Limited Annual Report and Accounts 2020
9
Strategic Report
Chief Executive’s Statement continued
Addressing our balance sheet continued
Decisive action was required to shore up liquidity during this difficult and uncertain time. Capital expenditure (“Capex”) was
reduced where possible, without impacting our short-term production plans, resulting in operational Capex of US$36.6 million in
FY 2020 being considerably lower than original guidance of ca. US$43.0 million, and a significantly reduced level of capex of ca.
US$28 million is planned for FY 2021. We also placed the Williamson mine on care and maintenance in order to limit the cash
outflow caused by the low diamond price environment. Finally, we drew down the full amounts available under our banking
facilities and entered into a forbearance agreement with the Company’s US$650 million Noteholders to defer the coupon payment
due in May 2020 of US$23.6 million. At the same time, we also reached agreement with the South African lender group (the
“South African BEE Lender Group”) to our black economic empowerment (“BEE”) partners (the “BEE Partners”) to reschedule the
capital repayments due in May 2020 and November 2020 under the Company's outstanding bank financing of its BEE Partners.
Further to this, on 20 October 2020, we announced that we had reached agreement in principle on a capital restructuring with
both our Noteholders (represented by the AHG) and our South African Lender Group. This aims to provide the business with a
more stable, deleveraged capital structure that will ensure the short and long-term viability of the Company. The terms of the
Restructuring are available in the announcement of 20 October 2020 and the key features are listed on page 35.
The deferment of the coupon repayment due on the Notes led to an event of default under the Notes. The execution of a Lock-Up
Agreement and subsequent approval of the Restructuring by the shareholders of the Company is critical to the completion of the
Restructuring and also the Group’s future liquidity. Should the shareholders not approve the Restructuring, the Noteholders have
the right to accelerate the principal and interest outstanding on the Notes.
Updated cash flow projections, and mitigating actions considered available to the Group in the event of downside scenarios,
assuming a successful Restructuring, while also considering principal risks and uncertainties, indicate that the Group will be able
to continue to operate and meet its liabilities as they fall due. However, the Group is reliant on the successful conclusion of the
current Restructuring, which is dependent on execution of the Lock-up Agreement and subsequent approval by the Company’s
shareholders, to continue as a going concern. Additionally, in the event of a successful Restructuring, the Group’s forecasts
remain sensitive to trading conditions and the impact of COVID-19 may further have a material impact on the Group’s ability to
operate within its covenants such that continued South African Lender Group support may be required and, if unavailable,
additional funding may be required. These factors indicate the existence of material uncertainties which may cast significant
doubt upon the Company’s ability to continue as a going concern and therefore it may be unable to realise its assets and
discharge its liabilities in the normal course of business. The Financial Statements do not include the adjustments that would
result if the Company was unable to continue as a going concern.
The impact of lower pricing, partially offset by a weaker South African Rand against the US Dollar, as well as an increase in the
discount rate used were key drivers for further operational impairments in FY 2020, with asset level impairments amounting to
US$85.5 million (FY 2019: US$223.7 million). However, the underlying operational assumptions did not significantly change
compared to our earlier reviews, apart from the impact of a temporary care and maintenance period at Williamson and the impact
of a revised Koffiefontein mining plan with reduced Capex resulting in a shorter remaining life of mine (“LOM”). The resultant
impairments were materially reflective of market factors rather than operational performance issues. Overall the Group recognised
impairments of US$102.8 million (FY 2019: US$246.6 million), which includes impairments of BEE loan receivables of US$10.9
million and other receivables for the Year – further details are provided in notes 8 and 16 of the Financial Statements.
Looking ahead, Project 2022 remains a key focus to further stabilise our operations and ensure that continuous improvement is
embedded in our operating model and culture. Weekly Results Action Review meetings (“RARs”) focus on the delivery of agreed
key performance indicators (“KPIs”), from the CEO level down to the first layers of management on site, enabling the early
identification of issues and strong alignment between operational and Group functional support teams around key deliverables.
In addition to these weekly RARs, daily production meetings and meetings with teams ensures that KPIs are well understood and
aligned from the General Manager through the different levels to the frontline workers, with a focus on a clear single point of
accountability for each individual.
A shift in focus to cost optimisation as a result of COVID-19 production restrictions has led to the identification of annualised
savings ideas increasing to ca. US$22 million. These savings are expected to be fully realised by the end of Q3 FY 2021. With
operations now returning to full production, the Project 2022 throughput initiatives are expected to ramp up towards delivering an
annualised contribution of ca. US$101 million by the end of FY 2021. This is expected to result in an annualised increase in
operating free cashflow of ca. US$123 million.
Read more: Financial Review on pages 29 to 36
Building a sustainable business
Petra has been through a process of considerable change and the Company continues to evolve and adapt to ensure it is
successful. As set out on page 7, we have a number of change initiatives underway which are intended to provide the building
blocks for establishing the desired culture within Petra. I am particularly proud of how resilient our team has been in the face of
enormous pressure and I feel confident that Petra can continue to adapt to thrive.
The design phase of the Organisational Design Review, which forms part of Project 2022, has been completed and will provide for
more focused delivery of support by the various Group functions to the operations and alignment of operational structures across
the different sites. Implementation of this Organisational Design Review is expected to be completed by the end of Q3 FY 2021
and will result in updated role descriptions providing for clearer line of site and improved accountability.
Our long-term strategy is underpinned by responsible business practices. Only by investing in the training and development of our
people, caring for the environment, making a positive contribution to local communities and treating our stakeholders with dignity
and respect can we ensure that we build a sustainable company. I am pleased to report that we made good progress across all
these different areas in FY 2020, as set out in detail on pages 45 to 57.
Petra Diamonds Limited Annual Report and Accounts 2020
10
Strategic Report
I was particularly proud of the new community projects that were completed during the Year, including the electrification project
to deliver electricity to 118 homes in Daniëlskuil in the Northern Cape in South Africa, the construction of a Technical High School,
again in Daniëlskuil, which should assist in improving science, technology, engineering and mathematics education standards, and
the completion of the expansion project of the Onverwacht Primary School at Cullinan.
Operating according to high levels of ethical standards is expected in every part of the business. The allegations of human rights
abuses relating to the security operations of the Williamson mine in Tanzania are therefore deeply concerning to me and the other
Board members. The actions being taken to address these allegations are set out on page 48 of this report. Petra has a policy of
zero tolerance towards any behaviour that is in breach of our Code of Ethical Conduct or our Human Rights Policy Statement and
we are redoubling our efforts to ensure that our commitment to ethical behaviour is communicated and adhered to throughout the
Group.
Read more: Sustainability on pages 45 to 57
Outlook
Finally, I would like to thank all of our stakeholders for their continued support. Navigating the COVID-19 challenges has required a
highly collaborative approach, working in partnership with local Government bodies to ensure our people remain safe and to assist
local communities, working constructively with organised labour around the revised shift configurations as well as agreeing a new
one-year wage agreement, engaging with our lenders, shareholders and Noteholders to re-evaluate the capital structure for our
business, managing our supply chain in the face of unprecedented business interruptions, working flexibly with our customers to
supply rough diamonds despite the travel restrictions, and finally, and most importantly, benefiting from the dedication and
incredible efforts of our employees, who have had to adapt to very different work and home lives.
I am extremely proud of the resilience displayed across our business in confronting and overcoming the considerable challenges
that 2020 presented. I am confident that we are now well down the road in repositioning Petra for a successful and sustainable
future, building on the operational successes delivered to date and benefiting from a capital restructuring, once complete, that will
result in considerably lower levels of debt going forward.
Richard Duffy
Chief Executive
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
11
Strategic Report
Chief Executive’s Statement continued
Case study: Petra’s response to COVID-19
The outbreak of the COVID-19 pandemic presented unprecedented challenges to our operations and the safety and
wellbeing of our people. We acted quickly to put in place comprehensive systems and strategies to address COVID-19
in order to limit the threat to our employees, contractors and other local stakeholders.
Comprehensive measures put in place at our operations
Firstly, a COVID-19 Committee was established, comprising multi-disciplinary specialists within the Group, whose role
was to regularly review and update our advice to employees, establish business continuity planning, and ensure
effective, properly coordinated managerial oversight. Following this the Company implemented a comprehensive
Awareness and Response Plan for each operation.
In South Africa, there were more regulatory requirements around the permissible continuation of operations and the
plan for these operations therefore included:
• a Mandatory Code of Practice (“MCOP”) that was submitted to the Department of Mineral Resources and Energy
(“DMRE”);
• a Standard Operating Procedure (“SOP”) that complied with the Minerals Council of South Africa’s (“Minerals Council
SA”) COVID-19 guidelines;
• an issue-based risk assessment which looked at the Company’s approach relating to health screening and testing
• the provision of quarantine facilities for employees who have tested positive for COVID-19, as well as arrangements
for transporting employees from their homes to their respective areas of operations; and
• COVID-19 contingency plans for the operations were also implemented, should an entire section be placed under
quarantine/isolation, to ensure business continuity.
While Williamson in Tanzania is not subject to the same regulations, similar measures have been put in place to protect
our people while the mine is carrying out the essential services still required under care and maintenance.
Other measures introduced by the Company included a 24/7 COVID-19 call centre for employees and Company-wide
awareness training, including formal training, awareness posters (surface and underground) and COVID-19 handout
guides in line with World Health Organization guidance (and South Africa’s National Institute of Communicable Diseases’
guidelines), as well as frequent communications via text message and the Company’s social media channels.
The Company also introduced enforced social distancing at all operations and increased sanitisation measures
(including regular, deep cleaning of employee congestion points such as entry and exit turnstiles, underground
conveyances, change houses and lamp rooms). In addition, personal protective equipment (“PPE”) was provided to all
employees, with specific focus on security and health workers, and COVID-19 evaluation rooms were set up at all
operations.
An important part of our COVID-19 strategy was to identify all ‘at-risk’ employees with disclosed pre-existing health
conditions that make them more vulnerable to the disease, including hypertension, diabetes, asthma, tuberculosis (“TB”)
and HIV. These employees were requested to work from home and those that were not able were placed on special
paid leave to reduce their chances of being exposed. While most at-risk employees were eventually able to return to
work safely, there is a small selection deemed to have more severe conditions who have not returned.
Caring for our communities
Our care for our local stakeholders also extended to our host communities. In April 2020 we established the Petra
Hardship Fund (“PHF”) to provide targeted assistance to distressed communities and qualifying employees to mitigate
the impact of COVID-19. A committee was established to oversee the management and disbursement of these funds
which were financed by Director and Senior Management salary and fee sacrifices during April to June 2020.
Contributions made by the PHF were distributed in partnership with the lead Government relief agencies for each of the
affected communities and supported a variety of initiatives. These included the supply of PPE and other COVID-19
prevention equipment such as thermal scanners and sanitisers to local clinics and schools, as well as the provision of
protective masks to community members, healthcare workers and members of the police force. Additional support was
also offered to local healthcare workers and clinics by donating gazebos and chairs as well as screening facilities to
assist with the testing and screening of community members.
To address the critical issue of food security, over 5,000 food parcels were distributed to vulnerable community
members through recognised community structures, and blankets were also distributed to some communities to
combat the cold winter conditions.
Finally, where Petra had provided loans to local small to medium sized enterprises (“SMEs”) as part of its Enterprise and
Supplier Development Programme, the Company allowed for a two-month payment and interest holiday. Once this
payment holiday ended, the Company provided relief to the local businesses by further reducing the interest on their
low interest loans by an additional 2%.
Values in action: Let’s take control/Let’s make a difference
Petra Diamonds Limited Annual Report and Accounts 2020
12
Strategic Report
Our Business Model
Delivering long-term value
to our stakeholders
By unearthing the world’s most beautiful product as responsibly and efficiently as possible,
we will contribute to the sustainability of our industry and deliver long-term value to each of
our stakeholders.
WHAT WE DO
Project appraisal
Central to our approach is the identification of the right assets, where we can add value.
How we differentiate
• Petra’s technical team has decades of specialist experience in the appraisal and valuation of diamond orebodies.
• The Company is able to produce the full range of diamonds from its diversified portfolio.
• 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.
Mining and development
Petra’s operations are focused on ‘hard rock’ kimberlite pipe orebodies.
How we differentiate
• Safety is our number one priority and ingrained in everything we do.
• Hard rock orebodies can generally provide for much better predictability and long-term planning than alluvial deposits.
• Strong operations team, with significant experience in the management, mining and development of diamond orebodies.
• Adaptable culture with team able to meet and overcome challenges as they arise, as evidenced by the fast response to
operating under COVID-19 restrictions.
Processing
Ore is passed through the processing plant to extract the diamonds from the rock.
How we differentiate
• Petra is focused on value production, rather than volume.
• 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.
• We embrace innovation and continually stay abreast of the latest diamond mining and processing technologies.
• Security is enhanced through maintaining automated, ‘hands-off’ processes.
Sorting and sales
Rough diamonds are sorted into parcels and then sold through a competitive tender process.
How we differentiate
• Petra has always run 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.
• Petra utilises the competitive tender process for its sales, thereby providing a competitive pricing environment.
• Petra’s South African production is normally sold in Johannesburg, thereby encouraging local participation and beneficiation,
and its Tanzanian production is sold in Antwerp; however, the Company had to maintain a flexible approach to sales in FY 2020,
and in FY 2021 thus far, as a result of COVID-19, with more sales than usual taking place in Antwerp due to travel restrictions
limiting access to South Africa.
Petra Diamonds Limited Annual Report and Accounts 2020
13
Strategic Report
Our Business Model continued
Inputs and their benefits to Petra
Stakeholder value creation
Responsible leadership
• Sustainable operations
Employees
• Focus on safety
• Uphold the high value placed on diamonds
• Sustainable employment
People and skills
• Company culture
• Project 2022
• Productive workforce
• Specialist skills
High quality assets
• Significant resources
• Diverse product range
• Culture of empowerment
• Skills development
• Itumeleng Petra Diamonds Employee Trust
• Employee wellbeing initiatives
Pages 49 – 52
Customers
• Quality and consistent product offering
• Confirmed provenance and heritage
Page 48
Host Governments/regulators
• Taxes and royalty payments
• Positive impacts on our countries of operation
Page 55 – 56
Financial capital
• Responsible capital allocation
Shareholders/noteholders/lenders
• Free cashflow generation
• Access to diversified sources of capital
• Future returns to investors
Page 16
Relationships
• Mutually beneficial partnerships
Local communities
• Job opportunities and socio-economic upliftment
• Effective internal and external stakeholder
• Efficient and responsible use of natural resources
engagement
• Licence to operate
• Promoting environmental awareness
• Community health initiatives
Pages 52 – 57
Energy and water
• Sustainable access to energy and water
Suppliers
• Benefits to local businesses and suppliers
• Policy of sustainable local procurement and supplier
development
Pages 55 – 56
Technology and equipment
• Extension of mine lives
• Optimisation of operations
Petra Diamonds Limited Annual Report and Accounts 2020
14
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.
We have identified our most important stakeholder groups and we use a variety of methods of engagement in order to maintain
consistent two-way communication throughout the Year. Feedback from these stakeholder groups on key issues or impacts as a
result of our operations is relayed to management and the Board and is taken into account in strategic discussions and decisions.
During FY 2020, the Company carried out a formal internal and external stakeholder engagement process to establish our material
sustainability topics – more information is disclosed on page 45.
While Petra is incorporated in Bermuda and therefore does not have to comply with the UK Companies Act, the Company
considers the disclosures in this section, and elsewhere in the Strategic Report and Governance Statement, to be consistent with
the requirement for a UK incorporated company to include a Section 172 Statement in its Annual Report.
Why they are
important
How we engage
How we deliver value
How we have considered our impact on
stakeholders and the resultant actions taken
Read
more
Employees, contractors and unions
• Our people are
integral to the
success of our
business.
• Workplace
meetings and
internal
committees.
• Without a skilled,
• Employee briefs,
productive, healthy
and safe
workforce, Petra
would be unable to
implement its
strategy.
publications, notice
boards and
electronic channels.
• Whistleblowing
hotline.
• Engagement with
union mine forums
and trade union
representation.
• Employee
engagement with
the Board, including
annual CEO
operations tour and
Director sessions
with employees.
• Social media.
• SMS
communications.
• Salaries and other
benefits: US$117.8
million.
• COVID-19 mitigation strategy put in
place, including comprehensive
Awareness and Response Plan.
• Employee training
and development:
US$5.8 million.
• Formulation of the Group’s Diversity and
Inclusion Policy to further drive diversity
improvements throughout the business.
12
104
51
• Graduates of
Leadership
Development
Programme since
inception in 2008:
140.
• Leadership and management coaching
was increased to include more middle
and senior managers.
• Several change initiatives are underway
7
that intend to provide the building
blocks for establishing a culture at Petra
that is aligned to our values, including
the roll-out of an employee satisfaction
survey.
• Appointment of Independent Non-
Executive Director Ms Matloa as
Workforce Engagement Director post
Year end to improve Board engagement
with the workforce.
74
Customers
• Our customers buy
• Continuous
• Conflict-free
• Flexible sales approach adopted in FY
21
the diamonds
mined at our
operations and are
therefore the
primary source of
revenue for the
Group.
• Long-standing
relationships with
customers based
on mutual trust
and respect.
communication with
our client base.
• Open door policy
and high level of
business
transparency.
• Full certification of
our products.
• Industry advocacy
via the NDC.
production: 100%.
• Diamonds sold: 2.9
Mcts.
• NDC marketing
investment: ca.
US$70 million.
2020 and FY 2021 in order to access the
widest number of customers, subject to
prevailing challenging market conditions
and the COVID-19-related regulations
and restrictions, specifically on travel.
• The NDC invested ca. US$70 million in
23
consumer marketing in 2019 and
allocated a similar budget for 2020,
subject to market conditions and the
impact of COVID-19. NDC member
contributions are made in line with the
size of the member company and the
majority of this spend is therefore
covered by the major diamond
producers, De Beers and ALROSA.
• Collaboration with luxury jeweller
n/a
Boodles to celebrate the heritage of the
Cullinan mine and the provenance of our
diamonds.
Petra Diamonds Limited Annual Report and Accounts 2020
15
Strategic Report
Stakeholder Engagement continued
Why they are
important
How we engage
How we deliver value
How we have considered our impact on
stakeholders and the resultant actions taken
Read
more
Financial stakeholders (includes shareholders, noteholders, South African Lender Group, analysts
and BEE shareholders)
From FY 2006 to FY
2020, the Company
has achieved:
• Steps taken to preserve liquidity,
32 – 33
including non-payment of Notes coupon
in May 2020.
• Total production of
• Multi-stakeholder process to evaluate an
35
31.4 Mcts.
• Total revenue of
US$4.0 billion.
• Operating cashflow
(before capex) of
US$1.4 billion.
• Capital investment
of US$1.6 billion.
optimised capital structure for the
Group, with the need to reach alignment
between the Company and its financial
stakeholders, resulted in a capital
Restructuring agreement reached in
principle with Noteholders and South
African Lender Group.
• The Williamson mine was placed on care
42
and maintenance in April 2020 to
preserve mine liquidity while diamond
prices were not at a level to cover the
operating costs of the mine.
• Continued evolution of the Board with
100 – 101
the appointment of new Non-Executive
Chairman.
• New Remuneration Policy consulted on
and received broad support from major
shareholders.
120 – 126
• Social spend:
US$1.4 million.
• Community training
spend: US$0.5
million.
• Internal and
external
stakeholder
meetings held: 69.
• Petra Hardship
Fund established:
April 2020.
• The Petra Hardship Fund was
12
established to assist distressed host
communities during the COVID-19
pandemic.
• Launch of artisanal mining initiative at
Koffiefontein, allowing for properly
regulated artisanal mining to take place
on certain tailings mineral resources.
47
• An ongoing review of security practices
48
and stakeholder engagement at
Williamson in response to the human
rights allegations announced post Year
end, plus launch of an investigation into
the allegations.
• Regular briefings
via public
announcements,
webcasts,
presentations and
social media.
• Regular direct
engagement via
meetings,
conferences and
site visits.
• Annual and
sustainability
reporting.
• Dedicated investor
relations
department.
• Petra has raised
financing over a
number of years to
enable its
development,
thanks to support
from the equity,
fixed income and
bank finance
markets.
• Clear, transparent
and balanced
communications
are important to
enable a good
understanding of
our strategy,
business model
and performance,
as well as our
industry.
Local communities
• The support of our
local communities
is an important
component of our
licence to operate.
• A positive role in
the community will
ensure a
sustainable future
for Petra and
contribute to a
favourable
Company culture.
• Public participation
processes and
meetings.
• Community
newsletters and
local media
partnerships on
socio-economic
projects.
• Establishing
positive
relationships
through ongoing
engagement with
community
structures.
• Social media.
• SMS
communications.
• Mandated public
participation
processes.
Petra Diamonds Limited Annual Report and Accounts 2020
16
Strategic Report
Why they are
important
How we engage
How we deliver value
How we have considered our impact on
stakeholders and the resultant actions taken
Read
more
Host Governments, regulators and NGOs
• Support from
Governments and
regulators is
required for our
social licence to
operate.
• Petra ensures it
complies in all
material respects
with all 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.
Suppliers
• Suppliers provide
the goods and
services necessary
to keep our
operations
running.
• Dealing with
suppliers which
share our values is
important to Petra
in order to ensure
the ethical
provenance of our
diamonds.
• Continuous
consultation.
• Scheduled
meetings.
• Membership of
Minerals Council
SA.
• Regulatory site
visits and audits.
• Active involvement
as members of
Government-
initiated forums and
other consultative
structures.
• Taxes and royalties:
US$19.7 million.
• Estimated number
of dependents on
our direct
employees: ca.
37,000 (using the
accepted x10
multiplier effect for
South Africa and
Tanzania).
• Partnerships with local authorities to
12
provide assistance with COVID-19 relief
programmes to local communities.
• The Company closely monitors
n/a
developments around the Broad-Based
Socio-Economic Empowerment Charter
for the Mining Industry.
• Continued discussions in relation to
overdue VAT receivables and the
blocked diamond parcel in Tanzania.
• Post Year end, engagement with NGO
RAID with regards to human rights
allegations in Tanzania.
131
48
• South Africa
procurement
expenditure:
US$134.7 million.
• Tanzania
procurement
expenditure:
US$50.6 million.
• Suppliers registered
with our eProcure
Portal: ca. 2,000.
• Supplier induction
process.
• Supplier days and
events.
• Local Enterprise
Development
centres.
• Continuous liaison.
• Open door policy.
• Engagement on
Company policy
and required
standards of
practice.
• Continued prioritisation of local
56
procurement to encourage economic
development and community
empowerment.
• Enterprise and Supplier Development
Programme in place to facilitate the
inclusion of local SMMEs into the
Company’s supply chain.
• As part of their procurement processes,
our Group companies obtain contractual
obligations from their suppliers 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.
56
55
Petra Diamonds Limited Annual Report and Accounts 2020
17
Strategic Report
Our Market
Uncertain global economic backdrop
• The world economy was already on an uncertain footing before the severe impact of the COVID-19 pandemic hit in 2020, with
global real GDP slowing throughout the Year to 2.9% in 2019 from 3.6% in 2018, due to the combined impact of increasing trade
tensions between the US and China, uncertainty regarding Brexit and heightened geopolitical tensions. However, there was a
positive rebound in the financial markets, with global stock markets advancing 28% in 2019 after a decline of 9% in 2018,
according to the MSCI World Index.
• The picture for 2020 is very different, with global growth, according to International Monetary Fund (“IMF”) forecasts, expected
to contract at 4.4% in 2020 with the brunt being felt in the first half and more in the advanced economies due to the impact of
the COVID-19 pandemic.
• Latest IMF projections suggest 2021 global growth could rebound to ca. 5.2%, but “the uncertainty surrounding the baseline
projection is unusually large” and rests on “public health and economic factors that are inherently difficult to predict”.
• The IMF notes that “the risk of worse growth outcomes than projected remains sizeable”. Much will depend on the success of
the containment measures to control the virus in the world’s major economies, as well as the ability to develop an effective
vaccine to enable the resumption of free-flowing economic activity.
• The OECD Consumer Confidence Index saw a sharp fall in early 2020 due to the coronavirus but rebounded in Q3, though it
remains below levels of the past five years.
The major diamond consumer markets
• Real GDP growth of 2.2% was recorded in the US in 2019 with the IMF projecting a sharp downturn of -4.3% in 2020 before a
rebound to 3.1% in 2021. The US has recorded the largest outbreak of COVID-19 worldwide, with a resultant far-reaching impact
on the local economy, and a knock-on impact to the global economy given the US remains the world’s largest economy.
• Growth in China slowed to 6.1% in 2019 from 6.6% in 2018. Despite the impact of the COVID-19 outbreak, the IMF is still
forecasting positive growth in 2020 but at a much lower rate of 1.9%, reflecting China’s position further along the path to
recovery following a better containment of COVID-19 in-country. After seven months of decline, China saw positive retail sales
growth of 0.5% in August and 3.3% in September 2020, and China is expected to grow by 8.2% in 2021.
• The IMF records Indian GDP growth in 2019 at 4.2%, below initial projections of ca. 7%. For 2020 the Indian economy is
projected to contract -10.3% in 2020, with a rebound post the COVID-19 impact to growth of 8.8% in 2021.
The luxury market
• The luxury market grew 4% to EUR1.3 trillion in constant exchange rates in 2019 after 5% growth in 2018 to ca. EUR1.2 trillion,
according to Bain & Co.
• Chinese demand for luxury goods is projected to grow as much as 30% this year, according to Boston Consulting Group, but the
wider luxury industry is otherwise expected to contract between 25% and 45% in 2020, as Europe and the US continue to battle
second wave infections of COVID-19.
Why is this relevant?
Global diamond demand growth is highly correlated to global GDP growth and consumer confidence. While there has been some
rebound in consumer confidence and the global economy is starting to recover, uncertainty is likely to continue to impact diamond
markets. However, a certain element of diamond purchasing is underpinned by the engagement and wedding sectors, which
provides some level of immunity to economic cycles.
Sources of information used for the data provided in this section:
• ALROSA
• Bain & Co
• Bloomberg
• Boston Consulting Group
• De Beers Diamond Insight Report
• Financial Times
•
International Monetary Fund
• Kimberley Process Statistics
• Organisation for Economic Co-operation and Development
Petra Diamonds Limited Annual Report and Accounts 2020
18
Strategic Report
The long-term fundamentals of the market
remain intact
Supply
Supply is forecast to decline in the coming years as a result of the depletion of resources
Supply in 2019¹
• Diamond supply by volume fell 7% to 138.2 Mcts (2018: 148.4 Mcts) and supply by value fell 6% to US$13.6 billion (2018:
US$14.5 billion).
• Supply remains significantly below the highest year of diamond production in 2005, where 177 Mcts was considered to have
represented 'peak supply’.
• Reductions in rough diamond supply came in Australia, Canada, South Africa, Namibia, Zimbabwe and the DRC, due to a
combination of pending exhaustion of resources, mine closures, operations transitioning from open pit to underground and
falling alluvial output.
Source: Kimberley Process Statistics.
Impact of COVID-19 in 2020
• COVID-19 had an immediate impact on the upstream end of the diamond pipeline, with some diamond mining operations
needing to scale back significantly to comply with local lockdowns or restrictions, and all needing to put in place strict protocols
to mitigate the spread of COVID-19.
• In some instances, mines were placed on care and maintenance, including Petra’s Williamson mine in Tanzania. Other mines
which were temporarily halted in 2020 included operations in Russia, Canada, South Africa and Lesotho. Some of these mines
returned to production in Q3 2020.
• The major producers, De Beers and ALROSA, both cut production guidance significantly in 2020 in response to the disruptions,
as well as in response to market conditions.
• Due to the impact of COVID-19 and the closure of the Argyle mine in Australia in 2020 (which accounted for ca. 13 Mcts in
2019), rough diamond production is forecast to contract significantly in 2020, with market analyst Paul Ziminsky projecting that
2020 production will be at the lowest levels since the late 1990s.
Outlook
• In 2021, various sources project rough supply to increase as mines temporarily shut due to COVID-19 are returned to
production.
• Longer term, there are forecast to be few material additions to production over the next decade, with rough diamond supply
forecast to decrease 8%–15% by 2021 (Bain & Co) with the range of output by 2030 ranging between an optimistic ca. 140 Mcts
and a conservative total of under 120 Mcts (Bain & Co).
Petra’s strategy
Petra aims to deliver sustainable, long-term production from its diversified portfolio and is focused on optimising its business and
operations to maximise its profitability. The Group’s orebodies are of significant size and collectively contain the third largest
resource in the world, suggesting the potential to extend the lives of our mining operations, at a time when the overall outlook for
world diamond supply is expected to be constrained. As a result of poor success rates in global diamond exploration, the
Company has chosen to divest of its exploration assets in Botswana.
Petra Diamonds Limited Annual Report and Accounts 2020
19
Strategic Report
Our Market continued
Demand
Global demographic shifts increasing purchasing power are expected to support diamond
demand over the long term
Demand in 2019
• According to the De Beers Diamond Insight Report 2020, the global consumer market for diamond jewellery grew slightly in
2019, up by 0.5% to US$79 billion, with sales of polished diamonds up 0.5% at $26.7 billion measured in wholesale prices.
Although growth was strong in the US and Japan, demand in the other main markets was impacted by currency exchange rate
effects and trade tensions between the US and China, which affected consumer confidence and Chinese tourism.
• In terms of performance in some of the key diamond markets: the major US market, which accounts for ca 48% of demand,
grew ca. 4%; the Chinese market fell ca. 3%; the Indian market grew ca. 1%; the Gulf market fell ca. 5% and the Japanese market
grew ca. 3%.
Impact of COVID-19 in 2020
• The COVID-19 pandemic has had a pervasive negative impact on both the high street and shopping malls, with physical
shopping for goods often restricted or deemed unsafe by consumers.
• Sales have therefore had to move online, driving brands to either initiate or significantly expand their digital presence, both via
their websites and social media.
• The inability to spend on competing luxury goods categories, such as holidays, may lead higher income shoppers to treat
themselves with jewellery instead, as evidenced by positive results of online sales by the major auction houses.
• The lack of tourist travel has severely impacted purchases by wealthy travellers abroad. Prior to the COVID-19 pandemic, two-
thirds of Chinese luxury purchases were made abroad; this could shift to see more than half made domestically by 2025,
according to Bain & Co.
Outlook
• The continued impact of COVID-19 on retailers and consumers will depend on the length and severity of the pandemic in the
world’s major economies, and the ability to regain economic activity, particularly in the US.
• Longer term, increasing levels of global wealth are expected to underpin demand for later-cycle products such as diamonds.
• 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.
• Continued generic marketing to stimulate consumer demand.
• Sustained upsurge in ‘self-purchasing’, especially by women who choose to gift themselves with diamond jewellery as a way of
marking important personal milestones.
• Growing demand from online channels.
• Spending power increases amongst Millennials and Gen Z supporting diamond demand, albeit with different consumer
preferences to previous generations.
• Demand is expected to continue to rise, with Bain & Co forecasting an average annual growth rate between 0% and 2% in real
value terms through to 2030.
Petra’s strategy
As a founder member of the NDC, 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 in a range of fancy colours.
Petra Diamonds Limited Annual Report and Accounts 2020
20
Strategic Report
Our place in the market
Petra accounts for ca. 2% of supply by value and ca. 3% by volume1
Global diamond production by volume2
Producer
ALROSA
De Beers
Democratic Republic of Congo (predominantly informal sector)
Rio Tinto
Catoca (Angola)
Petra
Others
Based on FY 2020 production set against Kimberley Process 2019 world production figures.
Based on 2019 production results set against Kimberley Process 2019 world production figures.
% by volume
28
22
10
14
7
3
16
One of the world’s largest diamond resources
Petra has the third largest resources of global, listed diamond producers which, combined with the significant size of our
orebodies, suggests the potential to extend the lives of our mining operations, with organic growth opportunities well beyond
2030.
Reserves and resources (Mcts)
ALROSA
De Beers
Petra Diamonds
Rio Tinto
Resources (inclusive of reserves)
(Mcts)
1,064.0
1,353.7
243.5
28.5
Reserves
(Mcts)
628.0
448.2
38.9
24.4
Market performance in FY 2020
The 2019 calendar year was very challenging for the rough diamond market, driven by the wider economic backdrop, higher than
normal polished inventories and the sustained tightening of liquidity in the midstream, as well as unrest in Hong Kong and its
impact on the retail sector. Q2 FY 2020 saw growing stability in pricing as the Year closed and in early Q3 FY 2020 demand and
pricing continued to improve as the midstream looked to replenish inventory after robust holiday season retail sales.
The market optimism came to an abrupt end with the outbreak of the COVID-19 pandemic, which served to significantly reduce
activity throughout the pipeline, from production, rough sales, trading, cutting and polishing right through to consumer sales.
Towards the end of FY 2020, limited sales of rough diamonds took place due to restrictions on clients travelling to view goods and
a voluntary ban on importing rough diamonds into the cutting and polishing factories of India during June and most of July 2020.
In addition, many factories remained closed or operated at a much reduced capacity.
Conditions started improving in September 2020 as inventory started clearing in the midstream and diamantaires began buying
rough ahead of the seasonally busier year-end holiday period. Prices were impacted positively by the continued restriction of
supply of rough diamonds by the major producers.
Petra’s strategy
Petra adopted a flexible approach to diamond sales in order to achieve the best possible route to market, subject to prevailing
market conditions and any COVID-19-related regulations or restrictions. Measures included the export of rough from South Africa
to Antwerp, where the lockdown and travel restrictions were less onerous, as well as limiting sales in Q4 FY 2020, with the
majority taking place through agreements with some of its long-standing customers. With the stabilisation of market conditions
towards the end of Q1 FY 2021, Petra restarted larger tender sales in Antwerp.
Petra Diamonds Limited Annual Report and Accounts 2020
21
Strategic Report
Our Market continued
Market performance in FY 2020 continued
Petra sales and prices
• FY 2020 revenue decreased 36% to US$295.8 million (FY 2019: US$463.6 million) due to the number of carats sold for the Year
decreasing 23% to 2,895,497 carats (FY 2019: 3,736,847 carats) and a weaker diamond market. Pricing was severely impacted
by the COVID-19 pandemic and was down ca. 27% in the Company’s combined March/April tenders in comparison to prices
achieved in February 2020. Overall for the full financial Year, Petra’s realised diamond prices reduced by ca. 18%.
• Only limited sales were possible in Q4 FY 2020 due to the lockdown measures in place globally. The Company realised some
US$10.5 million sales in Q4, following the partial sale of goods not sold during the March tender, coupled with relatively low
levels of sales in June, mainly to the local South African cutting and polishing market.
• Since the Year end, Q1 FY 2021 revenue increased 33% to US$82.0 million (Q1 FY 2020: US$61.6 million) due to the number of
carats sold during the period increasing 55% to 936,749 carats (Q1 FY 2020: 603,626 carats) further to the release of excess
inventory built up at Year end, offset by a weaker diamond market.
• The Group's tender sale in September 2020 saw pricing on a like-for-like basis strengthen ca. 21% in comparison to prices
achieved in the March and June 2020 sales cycles and the tender sale in October 2020 saw a further ca. 2% like-for-like price
increase; however, prices were still around 10% below pre-COVID-19 levels (pricing achieved in January and February 2020).
Diamond prices achieved per operation
Mine
Cullinan
Finsch
Koffiefontein
Williamson
Q1 FY 20211
US$/ct
72
81
790
1504
FY 20202
US$/ct
983
75
387
177
FY 2019
US$/ct
110
99
480
231
Pricing achieved in Q1 FY 2021 was impacted by the carry-over of certain, mostly lower-value, parcels from FY 2020, which were subsequently sold during July 2020,
while the September 2020 tender benefited from a higher proportion of coarse material (larger diamonds) in the product mix, specifically at Finsch and Koffiefontein. Like-
for-like prices at the September 2020 tender were still around 12% below pre-COVID-19 prices.
Prices achieved in FY 2020 do not reflect true run-of-mine averages as the Company had to withhold certain goods for sale in Q4 due to the depressed pricing
environment; these goods were sold shortly after Year end.
The average price achieved at Cullinan in FY 2020 was influenced by the sale in November 2019 of a 20.08 carat blue diamond which sold for US$14.9 million.
Despite the Williamson mine being on care and maintenance, it was possible to include ca. 30,000 carats for sale in Q1 FY 2021 due to these diamonds being withheld for
sale in Q4 FY 2020.
The Letlapa Tala Collection
In September 2020, Petra recovered five blue diamonds of significant colour, clarity, size and heritage, all sourced from the famed
Cullinan mine in South Africa. Letlapa Tala means ‘blue rock’ in Northern Sotho (commonly known as Pedi), the predominant
language spoken in the Cullinan area.
The Cullinan mine is known as the world’s most important source of blue diamonds, as well as being the source of many other
historic and magnificent stones, including the 3,106 carat Cullinan diamond which was cut to form the 530 carat Great Star of
Africa and the 317 carat Second Star of Africa, being the two largest diamonds in the British Crown Jewels.
The Letlapa Tala Collection consists of five Type IIb blue diamonds of 25.75, 21.25, 17.57, 11.42 and 9.61 carats in size. Type II
diamonds contain no detectable nitrogen in their chemical structure and tend to display exceptional transparency. Type IIb stones
contain a small amount of boron which is what determines their blue colour.
Petra will be offering the collection for sale at a special sales tender, with the diamonds being available for viewings in the key
diamond centres of Antwerp, Hong Kong and New York before eventual sale around 24 November 2020. This is likely to be the
first time that five blue rough diamonds have ever been offered for sale at one time, with buyers being offered the chance to bid
either on individual stones, more than one, or for the entire collection. See photos of the Letlapa Tala Collection at
https://www.petradiamonds.com/media/image-library/diamonds/.
Outlook
Conditions in the diamond industry began improving as lockdown measures around the world were eased and retail outlets
reopened. Since the outbreak of COVID-19, a period of sustained low supply, particularly from the majors, De Beers and ALROSA,
has allowed for a better equilibrium in the market and there is now improved demand from the downstream as retailers look to put
orders in place in time for the festive retail season. The cutting and polishing factories of India have ramped up to ca. 60%
capacity under COVID-19 guidelines, but are looking at how to maximise working hours in order to meet demand, including
observing a much shorter holiday period for Diwali than usual. Many producers have reinstated their usual sales tender pattern in
order to match demand. However, all participants in the industry recognise that risks to a sustained recovery remain, particularly
in light of the current resurgence of COVID-19 in key diamond markets, and much will depend on the level of consumer activity in
the coming months, especially in the major US market.
Petra Diamonds Limited Annual Report and Accounts 2020
22
Strategic Report
Case study: The NDC launches its first major advertising campaign
In September 2020 the Natural Diamonds Council announced Hollywood actor Ana de Armas as its Global Ambassador
and successfully launched their its global advertising campaign, ‘For Moments Like No Other’.
Ana de Armas is a rising Hollywood star, having been nominated for a Golden Globe for her performance in Knives Out,
and has a leading role in the latest James Bond film, No Time to Die. She leads the multipart campaign that celebrates
beautiful natural diamond jewellery and its significance across different relationships: love, freedom, friendship and
family, for meaningful moments like no other, whether big or small. The campaign ushers in the next chapter for natural
diamonds, one that is exciting, energetic, and driven by connection and experience.
The campaign film was debuted at the Emmy Awards and was complemented by a robust media plan, launched with a
feature article in Vogue US. The campaign has also been featured at other prime broadcast events including Good
Morning America, the American Music Awards and more.
The campaign materials were also distributed through the NDC’s own channels, including its campaign website, which
features behind-the-scenes footage and an interview element with Ana, as well as comprehensive information about
the brands and designers featured in the campaign.
The campaign was timed to support the industry at the start of the retail buying season and marked a number of firsts
for the NDC. Not only was it the first celebrity-fronted campaign for the diamond category, but it was also the first
dedicated to its ‘Only Natural Diamonds’ platform. The campaign is also the first marketing initiative by the NDC to
showcase a diverse roster of jewellery designers that work with natural diamonds in innovative and modern ways.
Visit the campaign website: www.moments.naturaldiamonds.com
Petra Diamonds Limited Annual Report and Accounts 2020
23
Strategic Report
Our Strategy
Stabilising and optimising
our portfolio
We are driving the optimisation of our diversified asset base with the aim of delivering
consistent production, revenue and free cashflow in order to maximise value for all of our
stakeholders.
Our strategy is firmly underpinned by our focus on safety and sustainability, and decisions are
taken with the long-term success of the business in mind.
Our strategy
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
0.29
(FY 2019: 0.21)
STAFF TURNOVER
8%
(FY 2019: 8%)
Performance against FY 2020 objectives
• Safety remained our top priority but we did not meet our
How we achieve this
• Strive for a zero harm workplace
reduction in LTI target, mainly due to an increase in
behavioural incidents at Finsch which are being
addressed (below expectations)
• The Company’s Sustainability Framework was
significantly progressed but finalisation was impacted by
the COVID-19 pandemic and is now scheduled for FY
2021 (below expectations)
• A formal internal and external stakeholder engagement
process took place to establish the Company’s key
sustainability material topics (met expectations)
Commitments and objectives for FY 2021
• Continued priority placed on the health and safety of our
workforce, including the ongoing mitigation of COVID-19
at all our operations
• Finalisation of the Group’s Sustainability Framework, to be
reviewed by the SED Committee and approved by the
Board
• Progression of change initiatives to drive the
development of a culture at Petra that is aligned to our
values
• Continued development of the Petra Climate Change
Adaptation Strategy
• Strengthening of our stakeholder feedback and
engagement systems to ensure compliance with
international industry standards
• Foster a dynamic Company culture, underpinned by our
purpose and values, in which employees are encouraged
to fulfil their true potential
• Leverage strong relationships with our stakeholders to
support our licence to operate
• Protect and enhance our environment
• Uphold the high value placed on diamonds
• Strive to go beyond compliance
KPIs
• Safety
• Staff turnover
• Social and training spend
• Water usage
• Carbon emissions
Risks
• COVID-19
• Country and political
• Licence to operate
• Labour relations
Remuneration
• HSE performance measures
• SED performance measures
Petra Diamonds Limited Annual Report and Accounts 2020
24
Strategic Report
Consistent delivery
Focus on delivering steady-state operations that generate sustainable free cashflow
Strategy in action
Stabilising production across our portfolio and ongoing review of the asset portfolio with a view to maximising return on capital.
TOTAL PRODUCTION
(MCTS)
3.6
(FY 2019: 3.9)
OPERATIONAL FREE
CASHFLOW (US$ MILLION)
-12.3
(FY 2019: 70.5)
Performance against FY 2020 objectives
• Production guidance of ca. 3.8 Mcts was on track to
being achieved prior to the outbreak of COVID-19 and the
subsequent suspension of guidance (below expectations)
• Cashflow generation was severely impacted by the
COVID-19 pandemic and the resultant effect on
production, sales and rough diamond pricing (below
expectations)
• Continued evolution of the Board with the appointment of
Peter Hill as Non-Executive Chairman (met expectations)
• The Company continued to focus on training and
development, with expenditure of US$5.8 million during
the Year (met expectations)
Commitments and objectives for FY 2021
• Continued maintenance of Contops at Cullinan and Finsch
to optimise production, particularly in light of the
disruptions caused by COVID-19
• Reinstate production guidance when appropriate
• Ongoing review of the asset portfolio to ensure all assets
are in a position to contribute positive cashflow to the
business
• Maintain flexible sales approach to ensure optimal route
to market
How we achieve this
• Effective implementation of Project 2022 to optimise free
cashflow
• Prioritise ‘value’ over ‘volume’ production and achieve
annual production targets
• Ensure we have the right people and skills in place,
including appropriate Board and management structures
• Optimise diamonds sales
• Training, development and empowerment of management
and employees
• Commit the necessary long-term investment in order to
sustain and extend the lives of our assets
• Use new technology where appropriate to drive
improvements
KPIs
• Free cashflow generation
• Production
• Revenue
• Staff turnover
• Training spend
• TSR
Risks
• Diamond price
• Currency
• COVID-19
• Country and political
• Mining and production
• ROM grade and product mix volatility
• Labour relations
• Financing
• Licence to operate
Remuneration
• Safety
• Free cashflow generation
• Production performance measures
• TSR performance measures
Petra Diamonds Limited Annual Report and Accounts 2020
25
Strategic Report
Our Strategy continued
Our strategy continued
Drive optimisation
Driving efficiencies and improvements across the business to optimise operations and enhance cashflow generation,
supported by an appropriate organisational and capital structure
Strategy in action
Project 2022 helped to drive throughput improvements and other business efficiencies; change initiatives are in place to ensure
the Group has the optimal management and organisational structures to drive the next phase of its development.
OPERATIONAL CAPEX
(US$ MILLION)
36.6
(FY 2019: 85.1)
WATER EFFICIENCY
(M3/T)
0.97
(FY 2019: 1.03)
Performance against FY 2020 objectives
• Operational Capex of US$36.6 million was below
guidance of ca. US$43.0 million reflecting management’s
response to the COVID-19 impact on the business
(exceeded expectations)
• The implementation of Project 2022 initiatives to reduce
production bottlenecks resulted in increased throughput,
prior to the outbreak of COVID-19; free cashflow
generation was impeded by the weakness in diamond
prices leading to a rise in the Group’s consolidated net
debt level (below expectations)
• Energy and water usage were both lower due to
constrained production, as well as efficiency initiatives
implemented during the Year (exceeded expectations)
Commitments and objectives for FY 2021
• Finalise the Restructuring in order to provide a stable
deleveraged capital structure to ensure the short and
long-term viability of the Company
• Deliver operational efficiencies and improvements across
the business according to the Project 2022 objectives to
deliver cost and throughput optimisation, thereby
improving free cashflow generation and strengthening the
Group’s balance sheet
• Target Group Capex of ca. US$28 million
• Ongoing Organisational Design Review to ensure a
consistent and simplified operating model for the Group,
providing the basis for a more sustainable business
• Continued focus on electricity and water efficiency as
well as carbon intensity
How we achieve this
• Effective implementation of Project 2022
• Focus on capital efficiency
• Maintain disciplined cost control on mine and efficient
overhead structure
• Drive efficiencies, particularly in terms of the usage of
energy, water and labour
• Continued optimisation of portfolio, operating systems
and performance
KPIs
• Safety
• Free cashflow generation
• Profitability
• Capital efficiency
• TSR
• Carbon emissions
• Water usage
Risks
• Mining and production
• COVID-19
• ROM grade and product mix volatility
• Labour relations
• Financing
• Licence to operate
Remuneration
• Safety
• Free cashflow generation
• Profit and cost performance measures
• Capital efficiency
• TSR performance measures
Petra Diamonds Limited Annual Report and Accounts 2020
26
Strategic Report
Key Performance Indicators
Petra uses various performance measures of both a financial and a non-financial nature,
which are linked to our strategic objectives, to help evaluate the ongoing performance of the
business. The following performance measures are considered by management to be some of
the most important in terms of evaluating the overall performance of the Group year on year.
ROUGH DIAMOND PRODUCTION1
(MCTS)
3.6 (-7%)
REVENUE1
(US$ MILLION)
295.8 (-36%)
ADJUSTED EBITDA1, 2
(US$ MILLION)
64.8 (-58%)
3.3
3.2
3.8
3.9
3.6
495.3 463.6
396.8 394.8
195.4
151.4 142.6
153.0
295.8
64.8
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
Performance and targets
While the Company was on track to meet or
exceed its original guidance of ca. 3.8 Mcts
(guidance was suspended on 27 March 2020),
production was severely disrupted by the
COVID-19 lockdown implemented in South Africa
from 26 March 2020 and the Williamson mine in
Tanzania being placed on care and maintenance
in April 2020. Due to ongoing uncertainty around
the impact of COVID-19, production guidance for
FY 2021 will be provided once a sustainable level
of operational stability has been reached.
Risk management
Realistic operational targets, based on detailed
mine production planning, with production
performance monitored closely; contingency plans
put in place to mitigate impact of COVID-19.
Performance and targets
Revenue decreased 36% to US$295.8 million,
reflecting a weaker market in H1 FY 2020,
exacerbated by significant price reductions
and major disruptions to the planned sales
cycles following the outbreak of the COVID-19
pandemic, with the number of diamonds sold
for the Year down 23% to 2.9 Mcts.
Performance and targets
Adjusted EBITDA, being profit from mining
activities less exploration and corporate
overhead, decreased by 58% to US$64.8
million, representing an adjusted EBITDA margin
of 22% (FY 2019: 33%), driven by lower
revenue and partially offset by a decrease in
mining and processing costs.
Risk management
The key factors affecting revenue growth are
delivery on production targets, managing
grade volatility and product mix, and diamond
prices (which are outside of the Group’s
control); alternative sales mechanisms were
implemented to counter inability to hold
tenders during hard lockdown in South Africa.
Risk management
Rigorous operational and financial discipline
involving a comprehensive, Board-approved
annual budgeting process and monthly
monitoring.
OPERATIONAL FREE CASHFLOW2, 4
(US$ MILLION)
-12.3 (-117%)
OPERATIONAL CAPEX1, 3
(US$ MILLION)
36.6 (-55%)
SAFETY4
(GROUP LTIFR)
0.29 (+38%)
70.5
-61.3
-12.3
288.4
226.2
-122.7
-150.6
129.6
36.6
81.4
0.29
0.29
0.27
0.23
0.21
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
Performance and targets
Having generated significant operational free
cashflow in FY 2019, the situation was reversed
in FY 2020, reflecting the impact of a weaker
diamond market in H1, further compounded by
the severe effect of the COVID-19 pandemic on
production, sales and pricing across the
operations.
Risk management
Strong financial and operational management,
disciplined cashflow forecasting and strong
customer, banking and equity relationships assist
in managing liquidity.
Performance and targets
Operational Capex (excluding capitalised
borrowing costs) reduced 55% to US$36.6
million, lower than original guidance of ca.
US$43.0 million, reflecting management’s
response to capital allocation in light of the
COVID-19 impact on the business. A significantly
reduced level of Capex is planned for FY 2021
of ca. US$28 million to assist with managing
Company liquidity while the business
environment remains very challenging.
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.
Capex deferrals were implemented to partially
offset revenue shortfall following the COVID-19
outbreak.
Performance and targets
Group LTIFR for the Year increased to 0.29,
which was not in line with our target to achieve
a minimum 10% improvement in LTIFR annually.
19 LTIs were recorded in FY 2020 as opposed
to 16 in FY 2019, with the majority of accidents
found to be behavioural in nature and of low
severity. Considerable focus has been placed
on changing these behaviours, as set out on
page 49. The LTIFR calculation was also
impacted by a reduction of 2.1 million risk work
hours during the Year (0.04 or 12% impact).
Total injuries, including those that did not result
in a lost shift, reduced by 26%. 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.
Petra Diamonds Limited Annual Report and Accounts 2020
27
Strategic Report
Key Performance Indicators continued
TOTAL SHAREHOLDER RETURN
(PERCENTAGE CHANGE)
-91%
CARBON EMISSIONS4, 5
(tCO2-e/ct)
0.13 (+8%)
WATER USAGE4, 6
(m³/t)
0.97 (-6%)
-21
-6
-37
-65
-91
0.17
0.15
0.13
0.12
0.13
2.43
1.97
2.04
1.03
0.97
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
Performance and targets
Total shareholder return decreased by 91%, due
to the depreciation of the share price during the
Year. Despite the positive operational
performance in FY 2020, the main issues
affecting the Company’s share price were
concerns around the weak diamond price
environment in H1 FY 2020 and the impact on the
Group’s level of leverage. This was further
exacerbated by the outbreak of the COVID-19
pandemic in Q3 FY 2020, which brought the
diamond industry to a near standstill in Q4 FY
2020.
Risk management
Petra has taken action to address market
concerns. The Company commenced a strategic
review in March 2020 in order to assess an
optimal longer-term capital structure for the
Group and an agreement was reached with the
Company’s lenders in October 2020 with respect
to a long-term solution for the recapitalisation of
the Group, subject to shareholder approval.
Performance and targets
The carbon emitted per carat by the Group
increased by 9% due to the combined effect of
an overall decrease in carats produced, further
to the impact of the COVID-19 pandemic, and an
increase in Scope 2 emissions at the Williamson
mine due to the use of a higher, but more
accurate, emission factor for electricity
purchased from Tanesco, the national utility,
despite a decrease in electricity actually used
during the Year. The total carbon emitted by the
Company increased by 1% to 484,182 tCO2-e,
mainly due to the aforementioned increase in
Scope 2 emissions. The Company target of a 1%
reduction in the carbon emitted per carat was
not achieved in FY 2020, but over a five-year
period the saving of 12% has surpassed the
target of 5%.
Risk management
The Group endeavours to continually reduce
its reliance on fossil fuel energy sources and
to minimise its overall energy usage wherever
possible.
Performance and targets
Petra’s total water usage per production tonne
decreased by 6% to 0.97 m³/t. This overall
improvement in efficiency was due to water
saving initiatives to manage the drought
conditions experienced in South Africa in 2019.
Petra is aiming to maintain water efficiency
rates in line with FY 2020 in FY 2021. Forward-
looking targets are currently on hold pending
the stabilisation of the operations, post the
disruption caused by the COVID-19 pandemic.
Risk management
The Group endeavours to continually develop,
implement and improve water efficiency
measures to reduce the consumption per tonne
processed.
STAFF TURNOVER4 (%)
8 (0%)
TRAINING SPEND4 (US$ MILLLION)
5.8 (-12%)
SOCIAL SPEND4 (US$ MILLION)
1.4 (+40%)
11
9
8
8
7
9.5
8.5
5.8
6.6
5.8
3.4
1.7
1.0
1.0
1.4
16
17
18
19
20
16
17
18
19
20
16
17
18
19
20
Performance and targets
The Group staff turnover rate remained constant
at 8%, which 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 reduced by 12% due to the ZAR
weakening against the USD, as well as a
significant reduction in the total number of
people employed by the Company (especially
contractors), a reduced training spend from
March 2020 due to restrictions relating to the
COVID-19 pandemic, and a reduced spend at
Williamson due to the mine being placed on
care and maintenance in April 2020. Petra
aims to achieve a training spend target of 5%
of annual payroll and this was achieved at the
South African operations in FY 2020, though
Williamson’s performance was impeded by the
care and maintenance period.
Risk management
Petra maintains compliance with the regulatory
framework and supports a number of different
training and development programmes.
Performance and targets
Social spend increased 40%, with higher spend
in South Africa due to the completion of a
number of community projects in FY 2020.
Community spend in Tanzania remained
curtailed to a minimum, as a result of the mine’s
liquidity constraints, further exacerbated by the
COVID-19 pandemic and the mine being placed
on care and maintenance in April 2020. Petra
targets base case spend of 1% of net profit
after tax (“NPAT”); however, this calculation
was not possible for FY 2020, given the
negative NPAT recorded.
Risk management
Petra maintains compliance with the regulatory
framework and continues to evaluate the
evolving Mining Charter legislation in South
Africa. Petra also continually liaises and co-
operates with social and institutional
stakeholders.
Notes:
FY 2016–FY 2019 excludes KEM JV.
All APMs used are defined on page 197.
Excluding capitalised borrowing costs.
FY 2018 and before includes KEM JV; FY 2019 and FY 2020 excludes KEM JV.
Updated emissions reporting methodology implemented during FY 2017
means that historical figures are not directly comparable.
Petra’s water usage calculation methodology changed during the Year due to
a redefinition of ‘total water’ – read more on page 55; the figure for FY 2019
has therefore been restated.
Petra Diamonds Limited Annual Report and Accounts 2020
28
Strategic Report
Financial Review
Addressing our challenges
“Having generated significant operational free cashflow for the first time in FY
2019, FY 2020 was severely impacted by the COVID-19 pandemic, which made
production and sales particularly challenging in Q4. We therefore took decisive
action to protect liquidity and post Year end, we reached agreement in principle
on a common set of commercial terms with respect to a long-term solution for
the recapitalisation of the Group with the South African Lender Group, our BEE
Partners and the majority of the Noteholders.”
Jacques Breytenbach
Finance Director
Estimated COVID-19 impact on the FY 2020 results
The COVID-19 pandemic significantly impacted the Group’s results for FY 2020. The total revenue impact is estimated to be ca.
US$97.1 million for the Year, consisting of lost production valued at pre-COVID-19 prices of ca. US$46.0 million, a 27% reduction
in realised prices for actual sales during the period March 2020 to June 2020 of ca. US$12.6 million and sales deferred to FY 2021
due to diamond markets largely closed in the period to June 2020 of ca. US$38.5 million.
The Group’s profit before tax for FY 2020 was adversely impacted by COVID-19 by an estimated US$31.0 million (excluding
impairment charges), comprising:
• revenue shortfall of ca. US$97.1 million (as detailed above), additional costs incurred directly attributable to COVID-19 (including
additional PPE and sanitisers as well as additional labour cost required to cover those employees with at-risk pre-existing
medical conditions who were granted special paid leave) totalling US$3.6 million, and additional finance expenses incurred of
US$1.7 million on the utilisation of banking facilities necessitated by COVID-19 revenue shortfalls; offset by
• cash on-mine cost savings of ca. US$19.6 million (attributable to lost production at the South African operations, costs avoided
at Williamson due to the mine being on care and maintenance, and fixed cost savings across the Group), since the outbreak of
COVID-19, there has been a positive operating cost impact in USD terms as a result of a weaker ZAR of ca. US$12.0 million,
increased diamond inventory of ca. US$38.5 million (stated at net realisable value), and assistance received from the South
African Government through the Temporary Employment Relief Scheme (“TERS”) of ca. US$1.3 million.
Revenue
FY 2020 revenue decreased 36% to US$295.8 million (FY 2019: US$463.6 million), reflecting a weaker market in H1 FY 2020,
exacerbated by significant price reductions and major disruptions to the planned sales cycles following the outbreak of the
COVID-19 pandemic. Diamonds sold for the Year thereby reduced 23% to 2,895,497 carats (FY 2019: 3,736,847 carats), while
rough diamond prices realised by Petra decreased 18% in FY 2020.
Mining and processing costs
The mining and processing costs for the Year are comprised of on-mine cash costs as well as other operational expenses. A
breakdown of the total mining and processing costs for the Year is set out below.
On-mine
cash
costs1
US$m
235.0
266.9
Diamond
royalties
US$m
5.9
13.2
FY 2020
FY 2019
Diamond
inventory
and
stockpile
movement
US$m
(34.9)
(2.9)
Group
technical,
support
and
marketing
costs2
US$m
19.3
24.5
Adjusted
mining and
processing
costs
US$m
225.3
301.7
Total
mining and
processing
costs
(IFRS)
US$m
307.9
407.6
Depreciation3
US$m
82.6
105.9
Includes all direct cash operating expenditure at operational level, i.e. labour, contractors, consumables, utilities and on-mine overheads.
Certain technical, support and marketing activities are conducted on a centralised basis.
Includes amortisation of right-of-use assets under IFRS 16 of US$4.9 million and excludes exploration and corporate/administration.
Petra Diamonds Limited Annual Report and Accounts 2020
29
Strategic Report
Financial Review continued
Mining and processing costs continued
Absolute on-mine cash costs in FY 2020 decreased 12%, despite ongoing inflationary pressures, due to:
• the effect of translating ZAR denominated costs at the South African operations at a weaker ZAR/USD exchange rate (10.5%
decrease); and
• a decrease in production/volumes treated (7.8% decrease), mostly as a result of COVID-19-related disruptions, including putting
Williamson on care and maintenance during April 2020,
offset by:
• inflationary increases, including the impact of electricity and labour costs (5.5% increase), and additional costs incurred directly
attributable to COVD-19 estimated to be ca. US$3.6 million (as set out in the preceding ‘Estimated COVID-19 impact on the FY
2020 results’ section), net of assistance received from the South African Government through TERS amounting to US$1.3 million
during the Year (net impact of 0.8%).
Royalties decreased to US$5.9 million (FY 2019: US$13.2 million) due to reduced revenues and resultant lower profits, due to the
South African mineral royalty regime being profit based.
Profit from mining activities
Profit from mining activities decreased 55% to US$72.5 million (FY 2019: US$161.1 million), due to lower pricing and revenue
impacted by the COVID-19 pandemic.
Corporate overhead – general and administration
Corporate overhead (before depreciation and share-based payments) decreased 6% to US$7.2 million for the Year (FY 2019:
US$7.7 million), mainly attributable to the ZAR weakening against the USD in addition to cost curtailment measures introduced
following the outbreak of the COVID-19 pandemic.
Adjusted EBITDA
Adjusted EBITDA, being profit from mining activities less exploration and corporate overhead, decreased by 58% to US$64.8
million (FY 2019: US$153.0 million), representing an adjusted EBITDA margin of 22% (FY 2019: 33%), driven by lower revenue and
partially offset by a decrease in mining and processing costs as set out above.
Depreciation
Depreciation for the Year decreased to US$78.6 million (FY 2019: US$106.7 million), mainly due to prior year impairments of
operational assets resulting in a lower asset base; and the weakening of the ZAR against the USD during the Year, coupled with
reduced levels of production due to COVID-19.
Impairment charge
As a result of the impairment reviews 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$91.9 million (FY 2019: US$246.6 million).
Further details are provided in note 8 of the Financial Statements.
Asset level impairments across the mining operations amount to US$85.5 million (FY 2019: US$223.7 million) (representing some
10% of the carrying value of property, plant and equipment of US$844.0 million pre-impairment), largely driven by an increase in
the discount rate from 8.5% in FY 2019 to 11.25% for the South African mines and from 9% in FY 2019 to 13.5% for Williamson;
reduced starting price assumptions for rough diamonds, given current rough diamond market conditions; and a reduction in the
forward-looking pricing escalator from 2.5% real per annum (in our previous assumptions) to flat prices in real terms for FY 2021,
followed by 1.8% per annum real growth (down from 2.5% real price growth in FY 2019) from FY 2024 to FY 2030. The underlying
operational assumptions did not materially change, apart from Williamson temporarily being placed on care and maintenance, with
an expectation that operations recommence in July 2021, and the expected Koffiefontein remaining LOM in the Group’s base case
being reduced to FY 2023, down from FY 2024 previously (refer to note 8 of the Financial Statements for further detail).
Impairment of BEE loans receivable – expected credit loss provision
The Group has applied the expected credit loss impairment model to its 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 indicated an expected credit loss
provision against its BEE loans receivable totalling US$10.9 million (30 June 2019: US$nil), comprising US$6.1 million (30 June
2019: US$nil) in respect of future free cashflows generated by Cullinan and Finsch, and US$4.8 million (30 June 2019: US$nil) in
respect of future free cashflows generated by Koffiefontein (refer to note 16 of the Financial Statements for further detail).
Petra Diamonds Limited Annual Report and Accounts 2020
30
Strategic Report
Loss on discontinued operations
The loss on discontinued operations for the Year was US$nil (FY 2019: US$49.9 million). During FY 2019, the loss on discontinued
operations related to the Group’s disposal of its interests in the KEM JV and Helam operations during December 2018.
Net financial expense
Net financial expense of US$153.1 million (FY 2019: US$53.5 million) comprises:
• interest received on bank deposits of US$1.2 million (FY 2019: US$1.1 million),
offset by:
• a net unrealised foreign exchange loss of US$81.5 million (FY 2019: US$4.0 million gain) driven by a significant weakening of the
ZAR against the USD from ZAR14.07 (30 June 2019) to ZAR17.32 (30 June 2020), and consisting of:
• US$68.7 million loss (FY 2019: US$8.2 million gain) on the foreign currency retranslation of cross border loans considered to
be repayable in the foreseeable future; and
• unrealised losses on forward exchange contracts of US$12.8 million (FY 2019: US$4.0 million loss) (refer to note 9 of the
Financial Statements for further detail);
• interest on the Group’s debt and working capital facilities of US$52.4 million (FY 2019: US$47.0 million), stated after the
capitalisation of interest of US$nil (FY 2019: US$3.7 million) associated with the funding of assets under development (interest
is no longer capitalised as the Group’s expansion programmes have been commissioned); the interest charges also include
US$23.6 million of interest on the Notes which was due to be settled in May 2020, but not paid (refer ‘Loans and borrowings’
below);
• net interest payable on the BEE Partner loans of US$7.2 million (FY 2019: US$8.6 million);
• a charge for the unwinding of the present value adjustment for Group rehabilitation costs of US$4.9 million (FY 2019: US$4.0
million); and
• net realised foreign exchange losses on settlement of forward exchange contracts of US$8.3 million (H1 FY 2019: US$1.0 million
gain).
Tax credit/charge
The tax credit of US$52.3 million (FY 2019: US$45.8 million) comprised a deferred tax credit of US$52.9 million (FY 2019: US$53.9
million), offset by an income tax charge of US$0.6 million (FY 2019: US$8.1 million charge).
The current period effective tax rate of 19% is lower than the South African tax rate of 28% (the Group’s primary tax paying
jurisdiction) predominantly due to:
• deferred tax credit specific to Cullinan and Finsch;
• loss-making companies where deferred tax assets are not recognised; and
• 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 2020 arises due to deferred tax (net of charges and credits), reflecting principally the utilisation of certain
capital allowances and the impact of the deferred taxation on the impairment charge, predominantly at Cullinan and Finsch during
the Year, which reduced existing deferred tax liabilities. The cash taxes paid during the Year amounted to US$0.6 million mainly
attributable to Williamson (FY 2019: US$13.0 million mainly attributable to Finsch).
Group loss/profit
The Group’s net loss after tax is US$223.0 million (FY 2019 net loss: US$258.1 million).
Earnings per share
A basic loss per share from continuing operations of 21.96 US$ cents was recorded (FY 2019: 20.18 US$ cents).
An adjusted loss per share from continuing operations (adjusted for impairment charges, estimated credit loss on BEE loans
receivable, taxation credit on impairment charge, net unrealised foreign exchange gains and losses) of 4.94 US$ cents was
recorded (FY 2019: 2.63 US$ cents).
Petra Diamonds Limited Annual Report and Accounts 2020
31
Strategic Report
Financial Review continued
Operational free cashflow
During the Year, negative operational free cashflow of US$12.3 million (FY 2019: US$70.5 million inflow) reflects the impact of a
weaker diamond market in H1, further compounded by the severe effect of the COVID-19 pandemic on production and sales
across the operations. Operational free cashflow for the Year was further impacted by:
• US$33.3 million (FY 2019: US$43.1 million) cash finance expenses net of finance income and realised foreign exchange
gains/(losses);
• US$14.1 million (FY 2019: US$46.7 million) advances to BEE Partners, largely related to servicing of BEE bank debt, with the
advances recoverable against future BEE Partner distributions; and
• US$0.4 million net receipts from (FY 2019: US$5.5 million net advances to), KEM JV further to the disposal in the prior Year.
Cash and diamond debtors
As at 30 June 2020, Petra had cash at bank of US$67.6 million (30 June 2019: US$85.2 million). Of these cash balances, US$53.6
million was held as unrestricted cash (30 June 2019: US$71.7 million), US$13.3 million was held by Petra’s reinsurers as security
deposits on the Group’s cell captive insurance structure (with regards to the Group’s environmental guarantees) (30 June 2019:
US$12.6 million) and US$0.7 million was held by Petra’s bankers as security for other environmental rehabilitation bonds lodged
with the DMRE (30 June 2019: US$0.9 million).
Diamond debtors at 30 June 2020 were US$4.8 million (30 June 2019: US$23.8 million), due to limited sales in Q4 as a result of
the COVID-19 pandemic.
Diamond inventory
Diamond inventory at 30 June 2020 increased significantly to 1,357,584 carats/US$84.1 million (FY 2019: 666,201 carats/US$57.5
million), due to limited sales in Q4 as a result of the COVID-19 pandemic. As at 30 June 2020, diamonds held for resale with a cost
value of US$53.5 million (30 June 2019: US$nil) have been written down by US$7.4 million (30 June 2019: US$nil) to a fair value
less costs to sell of US$46.1 million (30 June 2019: US$nil, due to the fair value less cost to sell being below cost) within the
overall carrying value of US$84.1 million (30 June 2019: US$57.5 million).
Loans and borrowings
The Group had loans and borrowings (measured under IFRS) at Year end of US$769.0 million (30 June 2019: US$650.6 million),
comprised of the US$676.9 million Notes including US$26.9 million accrued interest (30 June 2019: US$650.6 million), bank loans
and borrowings of US$52.1 million (30 June 2019: US$nil) and guarantees related to the BEE Partner debt facilities of US$40.0
million (30 June 2019: US$nil); refer to ‘BEE loans receivable and payable’ below for further detail. Following the outbreak of the
COVD-19 pandemic, the Group decided to fully draw down on its banking facilities with the South African Lender Group in order to
shore up liquidity. Bank debt facilities undrawn and available to the Group at 30 June 2020 were US$nil (30 June 2019: US$106.6
million).
On 29 May 2020, the Company and other members of the Group entered into:
• an amendment agreement with the South African Lender Group in respect of the first lien facilities (the "Amendment
Agreement"); and
• a forbearance agreement with the AHG of Noteholders (which is from time to time comprised of certain of the largest holders of
the US$650 million 7.25% senior second lien notes due 2022) in respect of the Company's obligations under the Notes
Indenture (the "Forbearance Agreement"),
to provide the Group with a short-term solution to its liquidity issues.
The Amendment Agreement facilitated the drawdowns of ZAR400 million and ZAR500 million from the existing revolving credit
facility ("RCF") and existing working capital facilities ("WCFs") respectively and met the short-term liquidity requirements of the
Group. The ZAR400 million drawdown was received by the Group on 23 June 2020. Each of the maturity dates under the RCF and
WCFs was also aligned to 31 July 2021. The Amendment Agreement also: (a) increased the margin on the WCF provided by Absa
and RMB by 100 bps to match the South African prime lending rate; and (b) increased the margin on the RCF to 9% above SA
JIBAR (previously 5% above SA JIBAR).
It was intended that entry into the Amendment Agreement and the drawdown of the RCF were interim measures to provide the
Company with a short-term solution to its immediate liquidity concerns, to be followed by a broader restructuring of the Group. As
such, the Amendment Agreement requires the Group to progress a long-term solution to the Group's financial difficulties through a
restructuring of the Group's capital structure, and failure by the Group to achieve certain milestones in this regard would
constitute an event of default under the first lien facilities.
The Amendment Agreement also provides that no member of the Group shall make a payment in respect of the Notes (including
the interest payments falling due on 1 May 2020 and 1 November 2020), other than as part of a broader restructuring solution
approved by the South African Lender Group. If a member of the Group were to make a payment under the Notes other than in
connection with the Restructuring, or an alternative restructuring arrangement without the prior consent of the South African
Lender Group, this would constitute an event of default under the Amendment Agreement.
Petra Diamonds Limited Annual Report and Accounts 2020
32
Strategic Report
In light of the above, the Group did not pay the interest payment due under the Notes Indenture in May 2020, nor has it paid the
interest payment that fell due on 1 November 2020. The Group's failure to pay the interest payment due under the Notes
Indenture in May 2020 triggered a default under the Notes Indenture. Accordingly, the Company sought a forbearance
commitment from a majority of the Noteholders in respect of the rights arising under the Notes Indenture as a result of the event
of default. On 29 May 2020 the Forbearance Agreement was entered into by the members of the AHG (as it was then constituted,
representing a majority of the outstanding principal amount of the Notes). As at the date of this report, the forbearing Noteholders
bound by the Forbearance Agreement represent a considerably higher percentage of the outstanding principal amount of the
Notes. Pursuant to the Forbearance Agreement, the relevant Noteholder parties agreed to forbear from the exercise of certain
rights and remedies such parties have under the Notes Indenture in respect of the missed May interest payment, including
agreeing not to accelerate all present and future monies, debts and liabilities owed or incurred under the Notes.
As with the Amendment Agreement, the Forbearance Agreement was agreed with the counterparties on the understanding that a
broader financial restructuring of the Group would occur. The initial forbearance period ceased on 31 August 2020. At each month
end thereafter the Noteholder counterparties have the ability to terminate the forbearance obligations (with respect to themselves
only) by giving notice to the Company. One forbearing Noteholder notified the Company of its intention to terminate the
Forbearance Agreement, effective 31 August, but no further termination notices were received. None of the remaining forbearing
Noteholders notified the Company of their intention to so terminate on either 30 September 2020 or 31 October 2020 and, in
accordance with the terms of the Forbearance Agreement, the forbearance obligations presently continue to be in force with
respect to the remaining Noteholders, which together represent a majority of the Notes in value.
Equivalent forbearance undertakings in respect of the November interest payment, which fell due on 1 November 2020, are
contained in the Lock-Up Agreement. The forbearance undertakings under the Lock-Up Agreement would bind the Noteholder
parties (expected to represent a majority (in value) of the Notes) and the South African Lender Group not to bring, or cause to be
brought, any enforcement action against the Group in respect of any defaults while the parties are all pursuing the Restructuring.
As a result, and due to the ongoing nature of discussions with the AHG and the South African Lender Group, the outstanding
amounts due under the Notes have been reclassified as ‘current loans and borrowings’. Post the envisaged Restructuring being
completed successfully, any remaining debt will be appropriately classified as ‘long term’ and ‘current loans and borrowings’ in
future reporting periods.
Consolidated net debt at 30 June 2020 was US$696.6 million (30 June 2019: US$595.2 million).
Covenant measurements attached to banking facilities
The Company’s EBITDA-related covenants associated with its banking facilities during the Year were as outlined below:
Consolidated net debt to consolidated EBITDA:
Consolidated EBITDA to consolidated net finance charges:
Consolidated net senior debt to book equity:
12 months to 31 Dec
2019
≤ 4.25x
≥ 2.5x
≤0.4x
12 months to 30 Jun
2020
≤ 3.5x
≥ 2.75x
≤0.4x
The recent weakness in the diamond market, compounded by the outbreak of the COVID-19 pandemic, significantly impacted the
Group’s operating results and cashflow position. The Company’s South African Lender Group therefore agreed to waive the
EBITDA-related covenants for the 31 December 2019 measurement period and in terms of the Amendment Agreement entered
into on 29 May 2020, Petra and the South Africa Lender Group agreed that covenant measurements will not be undertaken for the
period ending 30 June 2020. In addition to its existing covenant ratios, the Group is required to maintain liquidity of the aggregate
of the undrawn amounts available under the RCF and WCF and consolidated cash and cash equivalents (excluding diamond
debtors) which shall not fall below ZAR200 million (US$11.6 million).
Details of the envisaged new banking facilities and the associated covenants are set out under the section ‘The Restructuring’ on
page 35.
Going concern considerations
The Group closely monitors and manages its liquidity risk, and cash forecasts are regularly produced and run for different
scenarios. The forecasts assume that the envisaged Restructuring will be implemented in line with the provisions of the in-
principle term sheet. The Group also considered risks associated with COVID-19, which were considered to focus primarily on the
potential for further production disruption, deferral of tenders due to travel restrictions and adverse impacts on diamond pricing.
In light of both normal trading risks and elevated risks associated with the potential impact of the COVID-19 pandemic, the
following have been key considerations in assessing the Group’s ability to operate as a going concern at the date of this report:
• an unforeseen disruption to operations at its South African mines due to either COVID-19 restrictions or otherwise;
• an unforeseen deferral of two consecutive rough diamond tenders, due to COVID-19 restrictions, coupled with a significant
price decline at an assumed subsequent private sale (in line with actual experiences during FY 2020);
• a sustained 5% decrease in forecast rough diamond prices throughout the forecast period; and
• an increase in forecast operating cost.
Petra Diamonds Limited Annual Report and Accounts 2020
33
Strategic Report
Financial Review continued
Going concern considerations continued
Under the base case, which itself is dependent upon the successful completion of the proposed Restructuring and continued
availability of the South African banking facilities in line with the in-principle Restructuring agreement, the forecasts indicate that
the Company will be able operate within covenants set out in the in-principle agreement and maintain sufficient liquidity.
However, the proposed first lien covenants (as more fully set out on pages 194 and 195) were set with limited headroom to base
case. As such, although adequate liquidity is maintained throughout the review period under each of the individual scenarios
subject to continued availability of the South African Lender Group facilities, results of the stress testing indicate that in the event
of deferral to the tenders outlined above or a combination of scenarios such as sustained reduced pricing and production
disruption, possible covenant breaches associated with the South African banking facilities may occur in December 2021. Whilst
reasonably available mitigating actions, which include cost savings and capital deferrals, are foreseen to address the risk of such
a covenant breach, the delivery of such mitigating actions remains uncertain. In the event of a breach of covenant, the Company
would be dependent on the South African Lender Group continuing to make the facilities available and under certain of the
scenarios there would be insufficient liquidity to settle the outstanding South African Lender Group facilities if required. Whilst the
South African Lender Group has indicated its support in recent discussions and ongoing dialogue with the South African Lender
Group will be important during this period, there can be no guarantee that the facilities would continue to remain available in the
event of a covenant breach.
However, the Group is reliant on the successful conclusion of the current Restructuring to continue as a going concern, which is
dependent on the execution of the Lock-Up Agreement and subsequent approval by the Company’s shareholders. Additionally, as
set out above, in the event of a successful Restructuring the Group’s forecasts remain sensitive to trading conditions and the
impact of COVID-19 may further have a material impact on the Group’s ability to operate within its covenants, such that continued
South African Lender Group support may be required and, if unavailable, additional funding may be required.
See ‘Basis of preparation including going concern’ on pages 142 to 144 for further information.
BEE loans receivable and payable
BEE loans receivable of US$137.0 million (FY 2019: US$109.6 million) relate to advances provided to the Group’s BEE Partners to
enable them to discharge interest and capital commitments under the BEE Lender facilities, advances to the BEE Partners to
enable trickle payment distributions to both Kago Diamonds (Pty) Ltd’s (“Kago Diamonds”) shareholders and to the beneficiaries of
the Itumeleng Petra Diamonds Employee Trust (“IPDET”) (Petra Directors and Senior Managers do not qualify as beneficiaries
under the IPDET Trust Deed), and financing of their interests in the Koffiefontein mine. The balance at Year end also includes
US$40.0 million (FY 2019: US$nil) related to the BEE guarantees provided to the BEE Lender Group – refer below for more detail.
As detailed in the section “Impairment of BEE loans receivable – expected credit loss provision”, an IFRS 9 estimated credit loss
assessment was conducted at the end of the Year which resulted in a provision of US$10.9 million impairment being raised
against the BEE loans receivable. Refer to note 16 of the Financial Statements for further detail on the estimated credit loss
assessment.
During the Year, Petra advanced US$12.2 million (FY 2019: US$42.2 million) to facilitate the servicing of capital and interest
payments on behalf of the BEE Partners and US$1.9 million (FY 2019: US$4.5 million) for distributions to the beneficiaries of the
IPDET and shareholders of Kago Diamonds.
In May 2020, as part of the Amendment Agreement, Petra reached agreement with the South African BEE Lender Group, being
Absa Bank, Rand Merchant Bank and Ninety-One (previously Investec), to reschedule the capital repayments due in May 2020
and November 2020 under the Company's BEE Partners’ outstanding bank financing. In terms of the Amendment Agreement, the
capital balance outstanding (US$40.0 million) will become payable on 31 July 2021, subject to the outcome of the Restructuring
described above. However, should the Restructuring complete as planned, the Company’s new banking facilities will enable it to
refinance the BEE facilities with proceeds from the new term loan – for more detail, refer to ‘The Restructuring’ below.
The aforementioned Forbearance Agreement and Amendment Agreement entered into during May 2020 did not confer the
unconditional right to the Company to defer the coupon repayment and as such triggered an event of default under the BEE
Lender facility. The event of default sets out that the Company under the BEE guarantee is liable for the outstanding obligation
under the BEE Lender facility. As at 30 June 2020, the Company accrued for the outstanding obligation of US$40.0 million under
current loans and borrowings (refer to note 21 of the Financial Statements). The Company raised a compensating receivable from
the BEE Partners (included in the US$137.0 million balance as mentioned above), repayable from the BEE Partners’ share of future
operational cashflows.
The BEE loans payable of US$108.6 million (FY 2019: US$120.5 million) relate to the initial acquisition loan funding advanced by
the Group’s BEE Partners to the operations to acquire their investments in Cullinan and Finsch. The repayment of these loans by
the mines to the BEE Partners will be from future free cashflows generated by the mining operations.
Refer to note 16 for further detail on BEE loans receivable and payable.
Petra Diamonds Limited Annual Report and Accounts 2020
34
Strategic Report
The Restructuring
Despite strong operational performance in FY 2020, with Project 2022 delivering record throughput results for the first nine
months of FY 2020, the disruption to operations caused by the outbreak of the COVID-19 pandemic eroded the benefits
generated. This, in combination with the resultant weakness in the diamond market, placed further strain upon the Company’s
balance sheet.
In March 2020, Petra therefore launched a strategic review, in conjunction with a set of independent advisers, in order to evaluate
an optimal long-term capital structure for the Group. The key focus of this review was to bring down the Company’s leverage to a
manageable level and it therefore involved extensive consultations with the AHG of the Company’s US$650 million 7.25% senior
secured second lien notes due in May 2022, as well as with the South African Lender Group. The review also aimed to assess all
strategic options available to maximise value to stakeholders and included a formal sale process, whereby interested parties could
submit bids either for Petra or for any parts of the business or assets of the Group.
In October 2020, the Company announced that it had reached agreement in principle with the AHG and the South African Lender
Group on a common set of commercial terms with respect to the Restructuring. Petra is currently well advanced in terms of
agreeing a Lock-Up Agreement with the parties to the Restructuring, which will bind each party into supporting the Restructuring
on the proposed terms.
As of 1 November 2020, the Group had US$697.2 million of Notes outstanding, reflecting the US$650.0 million principal amount
and US$47.2 million of accrued coupons for May and November 2020. The final amount of the Notes outstanding will increase to
reflect any additional accrued interest from 1 November 2020 until the closing date of the Restructuring.
The key features of the proposed Restructuring are as follows:
1. Partial reinstatement of the Notes debt and the contribution by holders of the existing Notes of US$30.0 million in New
Money, each to take the form of new senior secured second lien notes ("New Notes"). It is expected that the New Notes will
amount to approximately US$337.0 million (including the New Money and fees paid as part of the transaction in New Notes)
and will have a maturity date of five years from completion. The New Notes will be subject to an interest rate of 10.50%
Payment in Kind for the first 24 months, reverting to a cash interest rate of 9.75% thereafter. Those Noteholders that
contribute to the New Money will be entitled to a greater portion of the New Notes.
2. Conversion of the remainder of the Notes debt into equity, which will result in the Noteholder group holding 91% of the
enlarged share capital of Petra Diamonds Limited, with the existing shareholders holding the remaining 9%. Those Noteholders
that contribute to the New Money will be entitled to a greater portion of the equity.
3. The restructuring of the first lien facilities provided by the South African Lender Group, with a new term loan of ZAR1.2 billion
in order to refinance the existing drawn ZAR500 million WCF and the BEE Facilities (approximately ZAR683 million), and a new
RCF of ZAR560 million, constituted by the rollover of the existing RCF but upsized by ZAR160 million. Both facilities will have a
maturity date of three years from completion and a first lien debt service cover ratio of 1.3x tested semi-annually on a rolling
12-month basis which, if breached, will give rise to an event of default under the new bank facilities. Both facilities will have an
interest rate of JIBAR + 5.25% per annum.
4. New governance arrangements, whereby up to four Noteholders that individually hold at least 10% of the shares in Petra at
the closing of the Restructuring shall have a ‘Nomination Right’ to nominate a person for appointment to the Board as a non-
independent Non-Executive Director, as well as the right to appoint an observer to the Board (who will not have voting rights
at Board meetings). Any Board appointments must comply with the UK Listing Rules and the UK Corporate Governance Code.
5. Certain cashflow controls will be introduced.
The full terms of the Restructuring are listed in the announcement released on 20 October 2020 and further details are provided in
note 37 of the Financial Statements.
The Restructuring is expected to become effective in Q1 CY 2021. In order to become effective, the Restructuring is subject to
execution of the Lock-Up Agreement and will need to be approved by shareholders at a Special General Meeting. For the
purposes of convening the SGM, the Company will publish a circular and prospectus to shareholders. The Company currently
anticipates publishing the combined circular and prospectus before the end of the calendar Year.
The Restructuring was deemed by the Board and its advisers to offer the optimal value to all stakeholders and therefore the
formal sales process was concluded in October 2020.
Petra Diamonds Limited Annual Report and Accounts 2020
35
Strategic Report
Financial Review continued
Other liabilities
Other than trade and other payables of US$52.5 million (comprising US$18.4 million trade creditors, US$2.8 million employee-
related accruals and US$31.3 million other payables) (FY 2019: US$54.9 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$36.4 million (FY 2019: US$86.9 million), comprising:
• US$21.8 million expansion Capex (FY 2019: US$56.0 million);
• US$14.8 million sustaining Capex (FY 2019: US$25.4 million); and
• corporate/exploration Capex of US$0.2 million (net recoupment) (FY 2019: US$1.8 million).
Capex
Cullinan
Finsch
Koffiefontein
Williamson
Subtotal – Capex incurred by operations
Corporate/exploration
Total Group Capex
Notes:
Unit
US$m
US$m
US$m
US$m
US$m
US$m
US$m
FY 2020
FY 2019
16.4
8.4
3.8
8.0
36.6
(0.2)
36.4
46.3
24.1
6.1
8.6
85.1
1.8
86.9
Capex for the Year includes US$0.0 million (FY 2019: US$3.7 million) of capitalised borrowing costs.
Jacques Breytenbach
Finance Director
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
36
Strategic Report
Operational Review
Introduction to the Operational Review
In FY 2020 the outbreak of the COVID-19 pandemic presented unprecedented challenges to
our operations and the industry as a whole. We acted quickly to put in place comprehensive
systems and strategies to address COVID-19, to both limit the threat to our employees,
contractors and local stakeholders, and protect the ongoing viability of our operations.
Despite this extremely challenging operating environment, our operations again delivered a strong performance for the Year, as
we recorded the highest ROM production in Petra’s history in the first nine months of FY 2020, further to throughput
improvements driven by Project 2022. However, overall production was down 7% to 3.6 Mcts (FY 2019: 3.9 Mcts) further to the
disruptions caused by COVID-19.
At Cullinan, an important milestone was reached with the C-Cut project, as we completed the draw-bell installation across the
footprint of the project by the end of January 2020. The draw-bells require roughly 12 months to reach maturity. Production from
the C-Cut and CC1 East mining areas increased to ca. 3.9 Mt in FY 2020 (FY 2019: ca. 3.6 Mt).
At Finsch, the contribution from underground ROM production also increased to 1.6 Mcts (FY 2019: 1.5 Mcts), with the tonnage
contribution from the Block 5 SLC ramping up to 2.7 Mt (FY 2019: 2.5 Mt), notwithstanding the Q4 disruptions.
The Company has temporarily suspended production guidance and will look to reinstate this when operating conditions normalise.
Protecting our people
In FY 2020 the Group reported an LTIFR of 0.29 (FY 2019: 0.21). The Group recorded 19 LTIs in FY 2020 (FY 2019: 16), the
majority of which were at Finsch, where the number of LTIs for the Year increased from six in FY 2019 to 11 in FY 2020. Most of
the accidents in FY 2020 were found to be behavioural in nature and of low severity. Considerable focus has been placed on
reinforcing safe behaviour and continuous improvement in striving for a zero harm working environment – read more on page 49.
While the COVID-19 pandemic presents a significant threat to the health of our employees and stakeholders, we are pleased to
report that overall cases of the disease at our operations have remained fairly low, which is a testament to the controls we have
put in place. However, we remain highly vigilant and will continue to enforce strict compliance with the Mandatory Codes of
Practice covering each operation to ensure we are playing our part to mitigate the spread of the virus and to protect our people.
Improving our productivity
Project 2022 commenced in July 2019 with the aim of identifying opportunities to increase throughput across the business, drive
efficiencies and facilitate continuous improvement. A key objective of this project was to target delivery of significant free
cashflow over three years, though this has been impeded primarily by the weakness in the diamond market, compounded further
by precautionary measures imposed at the operations related to the COVID-19 pandemic.
Project 2022 is not only now fully operational across the Group, but its principles of focused and continuous improvement are
being entrenched in the operating model and are becoming part of the culture of the Company.
In FY 2020 we continued to implement initiatives at our operations as part of Project 2022 and these have eliminated or mitigated
the impact of bottlenecks in the production processes of the various mines. This resulted in the increased throughput recorded for
FY 2020, prior to the disruption of the COVID-19 pandemic. Read more in ‘Project 2022 in action’ on page 40.
Resources
Petra manages one of the world’s largest diamond resources of 244 Mcts 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 2020 the Group’s gross diamond resources (inclusive of reserves) decreased 2% to 243.51 Mcts (30 June 2019:
248.15 Mcts), predominantly due to the finalisation of a new resource model at Cullinan, which includes all outstanding sampling
information from the recently completed C-Cut block cave development, the reclassification of remnant surface resources at
Finsch and Koffiefontein, and the removal of the Eskom tailings mineral resources at Koffiefontein following the transfer of
ownership to the Koffiefontein Community Mining Primary Cooperative, as well as depletions at all mining assets further to ore
mined in FY 2020.
The Group’s gross diamond reserves decreased 9% to 38.86 Mcts (30 June 2019: 42.51 Mcts) primarily due to mining depletions
and the impact on the remaining reserves at Williamson following the pit slump experienced during FY 2020.
Petra Diamonds Limited Annual Report and Accounts 2020
37
Strategic Report
Operational Review continued
Focus for FY 2021
In Q1 FY 2021, the Company took the decision, following extensive consultation and planning in cooperation with the relevant
organised labour and employee stakeholders, to move to Contops at the Finsch mine and a similar Contops-like configuration at
the Cullinan mine in order to increase available working hours to offset those lost as a result of incorporating the necessary
COVID-19 mitigation measures. Contops involve a seven-day working week (as opposed to the five-day working week previously
in place), thereby mitigating the continued disruption to operations caused by the COVID-19 pandemic.
In September and October 2020, production at the Finsch mine was impacted by the arrangements to operate Contops coming to
an end. An agreement has since been reached with organised labour to reinstate Contops for the nine-month period to June 2021.
Production is therefore expected to revert to planned levels for the duration of FY 2021.
A key objective for FY 2021 will therefore be to maintain Contops and to further stabilise the operations as much as possible,
dependent on the ongoing prevalence of the COVID-19 pandemic. We will also continue to evaluate the care and maintenance
position of the Williamson mine in Tanzania, with the hope that market conditions will improve sufficiently to restart operations in
H2 FY 2021.
Prior to the outbreak of COVID-19, the implementation of Project 2022’s initiatives was firmly on track and ahead of schedule;
however, it has since been significantly interrupted by the COVID-19 lockdown. As our operations return to full capacity, focused
steps are being taken to ensure that the momentum of idea generation and implementation returns to its pre-lockdown levels to
ensure the delivery of the expected benefits.
The focus of Project 2022 has expanded into two further areas in addition to the initial concentration on throughput. Firstly, it now
also includes a sustainable optimisation of the Company’s cost structure during this period of reduced revenue generation.
Secondly, it is helping to drive the transformation to a new organisational model designed to support clear accountability and
authority, with the correct number of organisational layers and the right work at the right levels, in order to empower our people to
deliver on our strategy.
Juan Kemp
Chief Technical Officer
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
38
Strategic Report
Production, sales and capex summary1
Sales
Diamonds sold
Revenue
Production
ROM diamonds
Tailings and other1 diamonds
Total diamonds
Tonnages
ROM tonnes
Tailings and other1 tonnes
Total tonnes
On-mine cash costs
Capex
Expansion
Sustaining
Borrowing costs capitalised
Total
'Other' represents alluvial diamond mining at Williamson.
Cullinan – South Africa
CARAT
REVENUE
CONTRIBUTION:
CONTRIBUTION:
44%
39%
(FY 2019: 43%)
(FY 2019: 37%)
Unit
FY 2020
FY 2019
Variance
Carats
US$m
Carats
Carats
Carats
Mt
Mt
Mt
US$m
US$m
US$m
US$m
US$m
2,895,497
295.8
3,442,593
146,583
3,589,176
3,736,847
463.6
3,763,622
111,324
3,874,946
11.5
0.8
12.3
225.3
21.8
14.8
—
36.6
13.3
1.6
14.9
266.9
56.0
25.4
3.7
85.1
-23%
-36%
-9%
+32%
-7%
-13%
-50%
-17%
-15%
-61%
-42%
-100%
-57%
REVENUE
(US$ MILLION):
116.5
(-32%)
PRODUCTION
(MCTS):
1.6
(-5%)
AVERAGE PRICE
PER CARAT (US$):
98
(-10%)
FY 2020 performance
Production totalled 1,578,400 carats (FY 2019: 1,655,929 carats) with underground throughput of 4.0 Mt, almost matching FY
2019’s 4.1 Mt, and an average ROM grade of 37.3 cpht (FY 2019: 38.6 cpht).
Production from the C-Cut and CC1 East mining areas increased to ca. 3.9 Mt in FY 2020 (FY 2019: ca. 3.6 Mt) with the remaining
tonnage being supplemented from older B-Block mining areas. As a result of the COVID-19 disruptions, Cullinan’s ROM tonnes
treated for Q4 represented ca. 60% of the production rate achieved during the preceding three quarters.
A total of 0.2 Mt of recovery tailings were treated with an average grade of 37.2 cpht.
Cullinan’s revenue decreased by 32% to US$116.5 million for the Year (FY 2019: US$171.4 million), due to a combination of
significantly lower sales due to the COVID-19 disruptions and a lower average value per carat, which was in part influenced by the
market but also reflected the withholding for sale of higher value goods in Q4 due to the depressed bidding conditions.
The full range of diamonds was recovered at the Cullinan mine in FY 2020, including a number of larger white diamonds of high
quality, as well as the recovery of a number of blue diamonds of varying qualities.
Costs
The on-mine unit cash cost per total tonne treated increased to ZAR270/t (FY 2019: ZAR234/t), mainly due to lower tonnages and
inflationary increases including Project 2022 consulting costs.
Capex
FY 2020 Capex of US$16.4 million was mainly spent on the development of the C-Cut Phase 1 block cave, development to North
Crusher 2, and rehabilitation in the North West Corner of C-Cut Phase 1. Based on the re-prioritisation of capital spend, the
completion of the shaft plant interface project was deferred. The current system has proved to be reliable and will be utilised in
the interim.
FY 2021 Capex for Cullinan is guided at ca. US$13 million, primarily relating to underground development, including the decline to
the CC1E production areas, the finalisation and commissioning of North Crusher 2, and the implementation of the sixth XRL stream
to expose all large diamonds to X-ray technology in order to minimise the recirculation of these larger stones and improve the
value of diamonds recovered. It also includes Stay in Business Capex.
Petra Diamonds Limited Annual Report and Accounts 2020
39
Strategic Report
Operational Review continued
Case study: Project 2022
Project 2022 in action
Project 2022 is an essential part of Petra’s journey to financial sustainability and profitability. It is now fully operational
at all of Petra’s mine sites, as well as at Group level, with central teams focusing on overhead costs, strategic sourcing
and organisational design.
Weekly Project 2022 Results Action Review meetings are held within the first four structural layers of the organisation,
starting with the CEO, to monitor progress, provide support and resourcing where required and ensure we are on track
to deliver on our targets. In addition, we are in the process of aligning our various incentive and production bonus
schemes to support and reward delivery of our Project 2022 targets across the Group.
A major component of Project 2022 is to optimise throughput; during FY 2020 we implemented initiatives to eliminate or
mitigate the impact of bottlenecks in the production processes of the mines and we have already seen a positive impact
on production volumes.
Cullinan
At Cullinan the team has successfully implemented initiatives to address bottlenecks and change the behaviours of all
employees on site, specifically in the loading and hoisting processes, the recycling and crushing of ore, and the milling
and processing of tailings ore.
In the loading process, the team looked at the shift handovers and implemented measures to increase the number of
productive hours on the ore loaders by changing blasting times and ensuring that shift handovers happen effectively. In
addition, a contractor was appointed to load over the weekends to increase the number of days utilised and reduce
overtime costs on the mine.
The hoisting process has also been improved following the implementation of a new shaft shift structure to increase the
shaft winder’s operating time and to reduce the amount of time that the loaders have to stop loading due to full
underground silos.
At the plant, the high pressure grinding roll crushers were refurbished and the rolls were redesigned in order to crush
recycled material more effectively and to reduce the recycle load of the milling circuit. This has allowed for a higher
proportion of ROM ore to be fed into the mills. At the mills, improvements were made to the automated control system,
and operating procedures were standardised to ensure a more consistent operating performance and a higher overall
feed rate. Also at the plant, the processing of the mine’s historically high value red tailings was accelerated to fill the
plant’s capacity.
Finsch
Some of the ideas that already contributed significant value during FY 2020 at Finsch include improved secondary
blasting to effectively deal with big rocks, the introduction of a second blasting window to reduce tunnel turnaround
time, improved management of activities at tips to reduce delays on loaders and other downstream delays, charging of
blast holes to specification to improve blast results and tunnel availability, treatment of tailings to take benefit of
available plant capacity to generate more revenue, conveyor system improvements to reduce downtime, and using a
local water source to save costs.
Koffiefontein
The focus at Koffiefontein is on mining and including ideas to improve the availability of less diluted ore to benefit the
recovered grade and carats produced. This idea is dependent on improvement of availability and utilisation of loaders
and production drill rigs to a target of 70%. The drill rig performance is stable and meets and sustains the targets.
Further work is required to also make the loader performance sustainable but is already contributing benefits. The grade
is further supported by initiatives that focus on managing extraction ratios and making more tunnels available to load.
Cost optimisation
A shift in focus to cost optimisation as a result of COVID-19 production restrictions resulted in the identification of
annualised savings ideas, increasing to US$22 million. These savings are expected to be fully realised by the end of Q3
FY 2021. The bulk of these savings come from:
• cost reduction at Finsch in the areas of ventilation, water and electricity (ca. US$8 million);
• reduced corporate expenses (ca. US$7 million);
• cost reductions at Cullinan in the areas of ventilation, tyres and transport (ca. US$3 million);
• ca. US$3 million from procurement initiatives; and
• old or redundant asset disposals.
Conclusion
In FY 2020, notwithstanding the negative impact of COVID-19 precautionary measures on production in Q3 and Q4, the
positive throughput improvements driven by Project 2022 led to the highest ROM production recorded in Petra’s history
for the nine months up to 31 March 2020. With operations now returning to full production, the Project 2022 throughput
initiatives are expected to ramp up towards delivering an annualised contribution of some US$101 million by the end of
FY 2021. In combination with the cost savings noted above, this therefore is expected to result in an annualised
increase in operating free cashflow of ca. US$123 million.
Project 2022 is not just a project; it is a new way of working and part of our Petra culture, to continuously improve in
everything we do.
Petra Diamonds Limited Annual Report and Accounts 2020
40
Strategic Report
Finsch – South Africa
REVENUE
CONTRIBUTION:
34%
(FY 2019: 37%)
CARAT
CONTRIBUTION:
46%
(FY 2019: 43%)
REVENUE
(US$ MILLION):
101.1
(-41%)
PRODUCTION
(MCTS):
1.6
(-6%)
AVERAGE PRICE
PER CARAT (US$):
75
(-25%)
FY 2020 performance
Overall production totalled 1,643,568 carats (FY 2019: 1,755,768 carats) with ROM carat production of 1,603,678 carats (FY 2019:
1,724,265 carats) and tailings production of 39,890 carats (FY 2019: 31,503 carats). The ROM grade for FY 2020 was 59.0 cpht
(FY 2019: 56.1 cpht).
The contribution from underground ROM production increased to 1,594,194 carats (FY 2019: 1,504,722 carats) while the treatment
of surface overburden ROM stockpiles decreased to 9,484 carats (FY 2019: 219,544 carats).
Finsch’s ROM tonnes treated reduced to 2,719,389 tonnes (FY 2019: 3,073,479 tonnes), mainly as a result of the COVID-19-
related disruptions from March 2020, with Finsch’s ROM tonnes treated for Q4 representing 61% of the production rate achieved
during the preceding three quarters. The tonnage contribution from the Block 5 SLC ramped up to 2.7 Mt (FY 2019: 2.5 Mt),
notwithstanding the Q4 disruptions, 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.
Revenue decreased by 41% to US$101.1 million (FY 2019: US$170.2 million) due to a combination of significantly lower sales due to
the COVID-19 disruptions and the lower average value per carat.
Costs
The on-mine cash unit cost increased to ZAR477/t (FY 2019: ZAR388/t), mainly due to decreased tonnages, increased water costs
and Project 2022 consulting costs.
Capex
FY 2020 Capex of US$8.4 million was mainly spent on underground development and infrastructure relating to the Block 5 SLC.
FY 2021 Capex is guided at ca. US$6 million, primarily relating to the continuation of the SLC development, the installation of the
third crusher and Stay in Business Capex.
Koffiefontein – South Africa
REVENUE
CONTRIBUTION:
9%
(FY 2019: 6%)
CARAT
CONTRIBUTION:
2%
(FY 2019: 2%)
REVENUE
(US$ MILLION):
25.7
(-11%)
PRODUCTION
(MCTS):
0.07
(+9%)
AVERAGE PRICE
PER CARAT (US$):
387
(-19%)
FY 2020 performance
ROM production totalled 69,077 carats (FY 2019: 63,635 carats), with ROM tonnage throughput down 11% on FY 2019,
significantly impacted by the COVID-19-related disruptions since March 2020, but overall carats produced up 9% due to the
average ROM grade rising from 6.4 cpht in FY 2019 to 7.7 cpht in FY 2020. As a result of the COVID-19 disruptions, Koffiefontein’s
ROM tonnes treated for Q4 represented some 35% of the production rate achieved during the preceding three quarters, with
lockdown activities focused primarily on mining, while treatment of stockpiled ore was limited. A ROM stockpile of 70,041 tonnes
was available for treatment at Year end.
Revenue decreased 11% to US$25.7 million (FY 2019: US$28.9 million) for the Year, despite a 10% increase in carats sold, due to
the 19% decrease in the average value per carat.
Costs
The on-mine cash unit cost increased to ZAR510/t (FY 2019: ZAR 450/t), mainly due to decreased tonnages.
Capex
FY 2020 Capex of US$3.8 million was mainly spent on the completion of the SLC development and 56 Level workshop
development. This Capex will contribute to largely completing the SLC and associated development, with further expansions to
levels below 58 Level removed from the current mining plan. This will see Koffiefontein’s remaining LOM reducing to FY 2023, as
opposed to FY 2024 as previously stated.
FY 2021 Capex is guided at ca. US$2 million primarily relating to the finalisation of the 56 Level workshop engineering
infrastructure and other Stay in Business Capex.
Petra Diamonds Limited Annual Report and Accounts 2020
41
Strategic Report
Operational Review continued
Williamson – Tanzania
REVENUE
CARAT
CONTRIBUTION:
CONTRIBUTION:
8%
18%
(FY 2019: 9%)
(FY 2019: 20%)
REVENUE
(US$ MILLION):
52.5
(-44%)
PRODUCTION
(MCTS):
0.03
(-25%)
AVERAGE PRICE
PER CARAT (US$):
177
(-24%)
FY 2020 performance
FY 2020 production totalled 298,130 carats (FY 2019: 399,615 carats), impacted by the initial 1.3 Mt pit slump that occurred at the
mine in January 2020 in an area on the south western sector of the pit, as well as the decision to place the mine on care and
maintenance during April 2020.
Revenue decreased 44% to US$52.5 million (FY 2019: US$93.0 million) due to a combination of significantly lower sales due to
the COVID-19 disruptions and the lower average value per carat.
Costs
The on-mine cash cost decreased to US$10.2/t (FY 2019: US$11.1/t) due to a force majeure notice issued to all contractors
including the mining contractor when the mine was placed on care and maintenance. The notice resulted in a significant reduction
in the mine’s fixed costs, compensating for the reduced volumes in FY 2020.
Capex
FY 2020 Capex of US$8.0 million mainly related to in-pit waste removal, the raising of the slimes dam wall and the extension of
the tailings disposal infrastructure.
FY 2021 Capex is guided at ca. US$7 million, assuming production restarts during H2 FY 2021. FY 2021 Capex is primarily related
to the ongoing waste removal, commencing the removal of the pit slump material, slimes dam extensions, the completion of the
tailings disposal facilities and the preparation of a pit dewatering sump. It also includes Stay in Business Capex.
EXPLORATION
As Petra continued to focus on the ramp-up of its development programmes at its producing operations, a limited exploration
programme was continued in South Africa and Botswana in FY 2020, with a cash budget of US$0.4 million (FY 2019: US$0.4
million).
Botswana
On 20 July 2020 the Company announced that it had entered into an agreement to dispose of its exploration assets in Botswana
via the sale of 100% of its holding in Sekaka Diamonds Exploration (Pty) Limited (previously known as Petra Diamonds Botswana
(Pty) Limited) (“Sekaka Diamonds”) to Botswana Diamonds PLC for a total consideration of US$300,000 and a 5% royalty on
future diamond revenues should any prospects within the exploration licences, or discovered using the Sekaka exploration
database, be brought into production.
The assets of Sekaka Diamonds include the Company’s three existing prospecting licenses in Botswana, which includes the KX36
project, a 3.5 ha kimberlite that was a new discovery by Petra in 2010, as well as a bulk sampling plant. These assets have been
classified as 'assets held for sale' since 30 June 2018 following a decision by the Board to dispose of its Botswana exploration
assets; the transaction is not a result of the recent sales process announced on 26 June 2020.
The purchase price of US$300,000 will be payable in two equal instalments of US$150,000 each, on or before 31 August 2021 and
31 August 2022 respectively. Petra is also entitled to a 5% royalty on the sale of diamonds commercially produced from any
kimberlite which falls within the licence areas covered in the sale, or that are discovered using historical exploration data
previously acquired by Sekaka Diamonds. Botswana Diamonds has the option to buy out the royalty for a cash payment of US$2.0
million.
South Africa
Petra currently holds 984km2 of prospecting rights in the Northern Cape province of South Africa. Due to current market
conditions and the COVID-19 pandemic, exploration activities have been put on hold. The Company is looking to divest of its
exploration assets in South Africa when market conditions allow.
Petra Diamonds Limited Annual Report and Accounts 2020
42
Strategic Report
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 this is 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 newly established
Risk and Assurance function consolidates, reviews and reports on key risks on a quarterly basis to the Exco, which is responsible for risk
management processes and systems and drives a culture of individual employee accountability in implementing these.
Following the Group’s Organisational Design Review, an Enterprise and Risk Management (“ERM”) and Combined Assurance
function was formed during the Year, headed by the Group Head of Risk and Assurance. The priority for this function in FY 2021
will be to operationalise the new ERM and Combined Assurance Plan, which includes a Group Risk and Assurance Policy Statement
and Group Risk Policy and Framework. An enterprise-wide, ‘bottom-up’ and ‘top down’ risk aggregation and assessment will also be
carried out and integrated into the Group risk register.
Risk review process
Petra’s management together with the Risk and Assurance function reviewed and updated the Group’s principal risks with
reference to the Group’s internal risk registers in FY 2020. 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 inclusion of the COVID-19 pandemic as a principal external risk.
The Group’s future approach towards the management of ESG-related risks will be further considered and enhanced though the
new Risk and Assurance function, in support of the SED and HSE Committees.
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. As part of
the Risk and Assurance function’s risk management improvement plan, it expects to conduct a review of Petra’s risk appetite and
tolerance framework during FY 2021.
Risk management framework
A schematic illustrating the structure of Petra’s risk management framework can be viewed at
https://www.petradiamonds.com/about-us/corporate-governance/internal-control-and-risk-management/.
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 – refer to pages 93 to 99 for the full risk management commentary.
Risk
appetite
Risk
rating
Nature
of risk
Change in FY 2020
Risk
External risks
1. Diamond price
High
High
2. Currency
High
Medium
3. Country
and political
High
High
Long
term
Long
term
Long
term
Medium
High
Short to
medium
term
4. COVID-19
pandemic (NEW)
(operational
impact)
Diamond market
impact included in
diamond price risk
above
Higher - diamond prices realised by Petra fell ca. 18% during the Year, mainly
due to the major disruption to all parts of the diamond pipeline (from mine to
retail) caused by the COVID-19 pandemic.
No change - 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.
No change - 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
Mining 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.
New risk - the COVID-19 pandemic took hold in early CY 2020 and caused major
disruption to all aspects of the diamond pipeline. Certain Government-imposed
restrictions, including varying levels of lockdown, impacted the mining operations
and Petra’s ability to conduct tenders in South Africa and Belgium. Petra has put in
place stringent procedures in order to prevent or mitigate the spread of the virus at
our operations, some of which resulted in lost production time; the Group introduced
revised shift configurations, with the support from organised labour, to offset this.
Petra’s suppliers to its mines, although also impacted by the COVID-19 restrictions,
continued to deliver as required and no major supply chain disruption was
experienced. The Company is maintaining a flexible sales approach in order to bring
goods to market at the optimal time and location based on prevailing market
conditions.
Petra Diamonds Limited Annual Report and Accounts 2020
43
Strategic Report
Principal Risks and Uncertainties continued
Principal risks continued
Risk
Operating risks
5. Mining and
production
Risk
appetite
Risk
rating
Nature
of risk
Change in FY 2020
Medium
Medium
Long term Higher - positive throughput improvements driven by Project 2022
6. ROM grade and
product mix volatility
Medium
Medium
Short
term
7. Labour relations
Medium
Medium
Strategic risks
8. Financing
Medium
High
Short to
medium
term
Short to
medium
term
led to the highest ROM production recorded in the Company’s history
for the nine months up to 31 March 2020, but production for the full
Year was down 7% to 3.59 Mcts further to the disruption to
operations caused by the COVID-19 pandemic.
During the Year, the Cullinan mine experienced scaling of the open pit
wall, resulting in 3 Mt of material falling into the open pit, and the
Williamson mine experienced an initial 1.3 Mt pit slump at the south
western sector, both of which occurred after a period of heavy
rainfall. Petra’s current financial position may result in deferral of
capital expansion projects, resulting in increased future production
risk. To this end, the Company has proactively identified alternative
expansion strategies, mainly to defer the CC1E extension project at its
Cullinan mine, should a further need arise to preserve cash.
No change - ROM grades were generally in line with expectations,
with both Finsch and Williamson slightly above guidance, while
Cullinan and Koffiefontein were slightly below guidance. The mines
recovered the full range of diamonds in FY 2020.
Higher - stable labour relations were experienced during the Year.
Post Year end, Petra agreed a one-year salary agreement with the
National Union of Mineworkers (“NUM”), rather than the customary
three-year salary agreement, as a result of the COVID-19 pandemic.
This may result in an increased likelihood of industrial action during
the early parts of FY 2022 when a further round of salary negotiations
will be undertaken.
Higher - despite the good progress made with Project 2022
initiatives, the delivery of free cashflow was impeded by the weaker
diamond market in calendar 2019, compounded by the outbreak of
the COVID-19 pandemic in 2020. This led to Petra’s debt level
becoming higher than anticipated and the Board subsequently
launched a strategic review to evaluate an optimal long-term capital
structure for the Group.
Post Year end, the Company reached agreement with its financial
stakeholders with respect to a long-term solution for the
recapitalisation of the Group. Should the Restructuring not be
approved by shareholders, the Group's financial position will be
materially adversely affected and there is a significant risk that the
Group's debt obligations under the first lien facilities, the BEE
outstanding bank financing and the Notes will be accelerated, which
would likely result in the Company being placed into insolvent
liquidation.
9. Licence to operate Medium
Medium
Long term Higher - continued compliance in all material aspects with relevant
laws and regulations, as well as industry standards. Incorporated in
Petra’s licence to operate is its continued focus on safety, as well as
its impacts on the environment and communities. Petra has initiated
an investigation into the human rights allegations relating to the
Williamson mine in Tanzania, which is being carried out by a specialist
external adviser in conjunction with the Company’s lawyers.
Petra Diamonds Limited Annual Report and Accounts 2020
44
Strategic Report
Sustainability
Driving sustainable operations
and stakeholder value
Mining is an inherently long-term business and therefore our operations are planned and
structured with their sustainability in mind, to the benefit of all our stakeholders. 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. Management of ESG matters is integrated into how we
operate, with formal oversight provided by the Company’s HSE, SED and Audit and Risk
Committees.
Petra has reported in detail on its sustainability strategy and performance in its standalone Sustainability Reports since 2009, all of
which are available to view on the Company’s website at https://www.petradiamonds.com/investors/results-reports/.
Assessing materiality
In FY 2020, Petra completed a formal internal and external stakeholder engagement process in order to ensure that the Company
is managing and reporting on the topics that are most important to our stakeholders. This process, which is outlined in more detail
in our 2020 Sustainability Report on pages 8 to 9, confirmed that Petra has generally been focused on the right topics, but it was
nevertheless very helpful to gain further insight into what issues are most important to the various stakeholder groups.
Sustainability performance in FY 2020
The Company has numerous sustainability objectives in place to drive and measure performance; some examples of key
objectives and related outcomes in FY 2020 are detailed below.
Material topic
Responsible business
Ethical behaviour
Objectives
Outcomes in FY 2020
Strengthening of the independent
whistleblowing system
√ System reviewed and updated
Corporate governance
Review of the Human Rights Policy
√ Policy statement reviewed, updated
and approved post Year end
Safety and occupational health
Workplace safety
Occupational health
People
Employee development
Diversity
Development of the Diversity and
Inclusion Policy
√ Policy finalised and approved post Year
end
Zero fatalities and 10% reduction in LTIs
X 0 fatalities but a 19% increase in LTIs
Zero compensated occupational diseases
and 100% investigation of occupational
hygiene incidents
√ 0 compensated and 100% incidents
investigated
Ensure employee development needs are
met by identifying current training gaps
and future training needs
Improve participation of women in
leadership and management
√ US$5.8 million invested in training and
development
√ 12 female leaders participated in
Women in Leadership Programme and
improved participation in other
management development programmes
Petra Diamonds Limited Annual Report and Accounts 2020
45
Strategic Report
Sustainability continued
Sustainability performance in FY 2020 continued
Material topic
Environment
Environmental management
Objectives
Continued improvement in waste
management processes
Climate change and energy usage
1% annual reduction in carbon emitted per
carat1
Water management
Implementation of water saving initiatives
Positive impacts
Community relations and development
Stakeholder engagement and
management
Continued roll-out of community
development projects
Implementation of a consistent and
effective stakeholder engagement
approach across the Group
FY 2015 to FY 2020, from the base year of FY 2016.
Responsible business
100%
PRODUCTION CERTIFIED AS ‘CONFLICT FREE’
Ethical behaviour and corporate governance
• FTSE4Good – Petra confirmed again as a constituent
• No fines paid for regulatory non-compliance
• 15 tip-offs received by Company whistleblowing hotline
Outcomes in FY 2020
√ 44% less waste generated and 24%
less waste sent to landfill
X Carbon emitted per carat increased
due to less carats produced and a
change in emission factor for energy
supplied by Tanesco
√ Water usage per production tonne
improved by 6%
√ Total volume of recycled water used
increased by 34%
√ Three community projects were
completed, with social spend
correspondingly rising by 40%
X While progress was made, delivery of
enhancements to the Company’s
IsoMetrix system used to capture and
manage engagement was delayed by the
COVID-19 pandemic and work is ongoing
• 3 sustainability pledges made by NDC members in support of the Sustainable Development Goals (“SDGs”)
Responsible business practices are essential to the long-term success of the Company and are managed at Petra via effective
corporate governance, legal compliance and ethical behaviour.
The Company has a robust system of policies in place to provide the framework for ethical behaviour within the Group and a
number of these can be accessed at https://www.petradiamonds.com/about-us/corporate-governance/business-ethics/.
Ensuring ethical behaviour
Petra is committed to upholding not only the levels of corporate governance it has maintained to date, but also to further
developing and implementing governance 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.
Petra 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’.
Petra is in the process of developing a governance suite of training modules facilitated on an e-learning platform, having
witnessed the success of this format for employee training around COVID-19. The first module to be developed is on human rights
and the intention is to then develop other ethics modules, including whistleblowing, anti-bribery, Code of Ethical Conduct,
diversity and inclusion and vetting. These training modules will be made available mainly to supervisors and management and
other employees in relevant disciplines, such as security, procurement and human resources. Other employees are exposed to
these issues through the mandatory general induction process. These training modules are expected to greatly assist in an
approach of continuous communication and learning on ethical practices.
Anti-bribery
Bribery is strictly prohibited by Petra. Petra has a Group Anti-Bribery Policy in place which is made public on both the Company’s
intranet and website. The Group’s stance on responsible business practices, including its commitment to ethical behaviour and
anti-bribery, is communicated regularly to employees and included in employee training. All Petra employees, contractors and
suppliers are informed as part of the Company’s induction procedure about this important corporate policy.
Petra Diamonds Limited Annual Report and Accounts 2020
46
Strategic Report
The Audit and Risk Committee receives a quarterly security intelligence report, detailing any investigations of bribery. This report
provides details of incidents and actions taken (including fines and penalties). In FY 2020 there were a number of allegations which
were investigated and appropriate action was taken (further information is provided in the ‘Whistleblowing procedure’ section to follow).
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 to a service provider.
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 before being forwarded to nominated Group employees for further
investigation and feedback, where required; outcomes are presented to the Audit and Risk Committee.
In FY 2020 Petra received 15 reports involving alleged irregularities considered necessary to investigate, relating mostly to fraud
involving recruitment scams. A further breakdown of the types of tip-offs received can be found in the Company’s 2020 Sustainability
Report in the ‘Responsible business’ section. Of these reports, eight were resolved and closed and seven remain under investigation.
Human rights
Petra acknowledges the global problem with regards to human rights abuses, such as slavery, gender-based violence, child labour
and other abuses committed against vulnerable members of society. The Company is fully committed to upholding the human
rights of all of its stakeholders, as set out in the Group’s Human Rights Policy Statement, and risk assessments in the Company’s
working environment are critical to the security of personnel, local communities and assets, as well as to promote and protect
human rights. As part of their procurement processes, our Group companies obtain contractual obligations in the standard terms
and conditions from their suppliers that they are not involved in any human rights abuses.
Our commitment includes all applicable internationally recognised human rights but particularly the International Bill of Rights
(which includes the Universal Declaration of Human Rights), the International Labour Organisation Declaration on Fundamental
Principles and Rights at Work, the UN Guiding Principles on Business and Human Rights, the Voluntary Principles on Security and
Human Rights (“VPSHR”), and all legislation pertaining to human rights in the countries where it operates.
In ensuring our respect for human rights we pledge to:
• welcome diversity and treat all people equally, without discrimination;
• respect the resources, values, traditions and cultures of local and indigenous communities;
• deal respectfully with issues of access to land;
• mitigate environmental impacts, including access to clean water;
• avoid damaging as far as possible the right to livelihoods including those whose livelihoods have historically been reliant on
artisanal mining;
• operate with respect for human rights in post-conflict and weak governance zones;
• ensure respect for human rights in deployment of security forces; and
• have consideration for society’s most marginalised individuals and groups.
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 they are seen as substantive in nature, by the
collective bargaining processes that are in place with recognised trade unions.
As previously noted, Petra is in the process of developing a new e-learning training module on human rights which is expected to
improve the Company’s communication and training practices around this topic.
Petra has zero tolerance for child labour, forced labour or discrimination, and we respect the right of our workers to form unions.
The Company does not consider there to be a risk of child labour or forced labour taking place at any of our Group company
operations, due to the rigorous recruitment and pre-employment vetting processes they have in place. The Company also does
not consider there to be a risk of slavery or human trafficking with regards to its Group company operations or supply chain, due
to the due diligence processes in place in the different parts of the business covering supply chain management.
Illegal mining and artisanal and small-scale mining (“ASM”)
Whilst there is no risk of illegal artisanal mining taking place at the underground operations in South Africa, there is an ongoing risk
of illegal artisanal mining at the Williamson open pit operation in Tanzania. For further information on this risk, see ‘Allegations of
human rights abuses at the Williamson mine in Tanzania’ to follow.
There is also a risk of illegal artisanal mining taking place upon the tailings dumps at other South African operations, due to the
nature of these deposits being at surface, meaning they can be more easily targeted.
As part of its commitment to finding a long-term solution, the Koffiefontein diamond mine (“KDM”) partnered with local
stakeholders in the Free State province of South Africa to create the opportunity for an ASM initiative. This process resulted in
KDM making some of the tailings mineral resources, notably the resource generally referred to as the ‘Eskom dump’, available to
the newly established Koffiefontein Community Mining Primary Cooperative (“KCM”). KDM continues to provide ongoing support
to the KCM to ensure that this initiative benefits the local community.
The scale of illegal mining is not expected to have a material impact upon production in the short to medium term. However, there
are risks in terms of illegal miners contravening a number of regulations for which the Petra Group companies may be held
responsible, in particular in the areas of health and safety and environmental management. There are also reputational risks
associated with human rights issues relating to the management of illegal mining; hence, the Company is taking steps to
strengthen its management processes in this area.
Petra Diamonds Limited Annual Report and Accounts 2020
47
Strategic Report
Sustainability continued
Responsible business continued
Ethical behaviour and corporate governance continued
Allegations of human rights abuses at the Williamson mine in Tanzania
Petra has previously disclosed that there has been ongoing illegal artisanal mining taking place at Williamson over a period of time,
due to the challenges in securing the large perimeter of the Special Mining Licence area, which covers 30.6km2 including the main
146 hectare orebody, together with alluvial resources. Steps to manage this illegal mining activity are taken by WDL, the operator
of the Williamson diamond mine in Tanzania that is owned 75% by Petra and 25% by the Government of Tanzania, its third party
security contractor and the local Government authorities on an ongoing basis.
Post Year end, the Company announced that a UK-based law firm, Leigh Day, has filed claims in the High Court of England and
Wales against Petra and WDL. The claims are understood to have been filed on behalf of 32 anonymous individuals in relation to
alleged breaches of human rights at the Williamson mine. The claims are understood to allege that Petra and WDL are liable for
human rights violations, personal injuries and deaths suffered by these anonymous individuals at and surrounding the mine, arising
from the mine’s security operations.
To date, the claims filed by Leigh Day have not been served on either Petra or WDL. In its letter before claim, Leigh Day has
expressed an interest in alternative dispute resolution methods, including mediation.
Additionally, Petra received a letter from the UK-based NGO RAID post Year end regarding similar allegations raised by local
residents and others relating to actions by WDL, its security contractor and others linked to WDL. Petra takes these allegations
extremely seriously and is engaging and co-operating with RAID in order to address the allegations raised. Copies of the
Company’s recent correspondence with RAID, as well as its public announcements relating to the human rights allegations, can be
viewed at https://www.petradiamonds.com/our-operations/our-mines/williamson/allegations-of-human-rights-abuses-at-the-
williamson-mine/.
It was important to the Board of the Company that the process to evaluate these matters was carried out according to best
governance principles. To this end, a sub-committee of the Board, formed entirely of independent Non-Executive Directors, was
established. The Committee has initiated an investigation, which is being carried out by a specialist external adviser in conjunction
with the Company’s lawyers, for the purpose of responding to the allegations and will be responsible for overseeing this
investigation and reporting back regularly to the Board. The investigation is scheduled to be completed during Q2 FY 2021 and the
Committee will consider the outcome of the investigation and the recommendations to address any findings. This may include any
required remedy or corrective action to be taken as a result of the investigation’s conclusions.
At present, pending the investigation, the veracity of the claims made is unknown, but in the meantime, and whether or not there
is any substance in the allegations, WDL has appointed an external consultancy to conduct an assessment of WDL’s management
of its security in line with the VPSHR.
A number of measures have been implemented, including the development and roll-out of a dedicated grievance mechanism, which
will allow stakeholders to more easily raise concerns and ensure that these claims are addressed, the deployment of a stakeholder
engagement expert on site to provide support to mine leadership in its engagement with local stakeholders, the closure of the on-
site facility that had been used exclusively by the Tanzanian Police as a temporary police post (and was never operated by WDL
or the third party private security contractor) and steps taken to strengthen the capability of the security team on site and ensure
that all involved in security at the mine (which includes WDL personnel, the third party private security contractor and members of
the local police force) are fully aware of their responsibilities in terms of the VPSHR, including refresher training on this. The
intention is to roll out a refresher VPSHR awareness campaign in FY 2021 to the wider Petra Group.
Protecting consumer demand
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.
We seek to actively influence sustainable consumer demand via the Natural Diamond Council (formerly the Diamond Producers
Association), an industry organisation formed in May 2015 by Petra and six of the other world-leading diamond companies to
maintain and enhance consumer demand for, and confidence in, diamonds. By promoting the integrity and reputation of diamonds
and the diamond industry, the NDC intends to play a central role in ensuring the long-term sustainability of the sector.
Petra is dedicated to upholding the high value placed on natural diamonds, which are given to celebrate life’s most special
moments and are considered as prized possessions. As a member of the NDC, 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.
As part of the relaunch of the NDC, the members came together and agreed three sustainability pledges, in alignment with the
UN’s SDGs, as follows:
Sustainability pledge
Strengthening communities
Protecting the environment
Promoting gender equality and inclusivity
SDGs supported
8 – Decent work and economic growth
9 – Industry, innovation and infrastructure
6 – Clean water and sanitation
12 – Responsible consumption and production
13 – Climate action
15 – Life on land
4 – Quality education
5 – Gender equality
10 – Reduced inequalities
These sustainability pledges ensure a common focus and allow us to highlight the positive work that is being done to support
sustainable development and create a lasting legacy for future generations. Read more at
https://www.naturaldiamonds.com/diamond-industry-sustainability/.
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Workplace safety
0.29
LTIFR
Safety
• Zero fatalities
• 26% improvement in total injuries
• 100% of staff trained in health and safety standards
• 8,293 employee, contractor and stakeholders provided with safety training
Ensuring our people go home safe 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 behavioural 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 regards 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 achieve 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.
Health and safety material hazards and associated risks are identified when writing 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 responsibility and target dates.
Every employee and contractor at Petra’s operations is provided with formal health and safety training. This focuses on providing
them with the required skills to execute work safely, familiarising them with workplace hazards and risks and equipping them with
the knowledge to eliminate, control and minimise these hazards and risks.
Our health and safety objectives and KPIs are underpinned by the targets to achieve zero fatalities and a 10% reduction in LTIs on
a rolling annual basis. The LTI target was not achieved in FY 2020, with the number experienced by the Group rising 19% to 19
during FY 2020 (FY 2019: 16).
Significant material hazards that resulted in unwanted events during the Year related to mechanical maintenance, trackless mobile
machinery, charging, drilling, barring and supported loads. Causal triggers indicated that 89% of significant accidents were due to
unsafe behaviour and 11% due to unsafe conditions. The majority of incidents were of low severity and were assessed to be
caused by a lack of focus and inattention to detail resulting in unsafe behaviour and mistakes. However, the Company takes
responsibility for behavioural-related accidents as these are an important indicator of Company culture; hence, considerable focus
has been placed on turning this performance around and promoting the right mindset and conditions for a safe working
environment. Of the LTIs, 37% were caused by non-work-related activity (slips and trips) and 79% of LTIs were ankle and hand
injuries.
All of the mines reduced the number of LTIs recorded during the Year, with the exception of Finsch, which accounted for 11 of the
19 LTIs (Finsch accounted for six of the 16 LTIs in FY 2019), and this operation therefore exceeded its LTI target by 46%. Finsch
has been addressing this performance via increased management interventions and awareness campaigns focused on hand and
foot injuries, correct footing awareness, material handling retraining and stop for safety awareness days.
Group wide, considerable focus has been placed on changing unsafe or at-risk behaviours through management intervention,
including in-shift safety stops, visible felt leadership and management walkabouts, safety discipline enforcement and safety over-
inspection processes.
While the increase in LTIs was disappointing, overall Petra is considered to have generally achieved an improvement in its safety
performance when compared to FY 2019, due to the fact that the number of total injuries (including LTIs and non-LTIs)
experienced by the Group improved 26%, plus the Group improved on 75% of all measured safety KPIs during the Year.
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Sustainability continued
Workplace safety continued
Employee health and wellness
• 100% of employees underwent medical screening
• 100% of our employees were offered voluntary testing for HIV/AIDS
• 9,488 medical examinations conducted
In addition to keeping our employees safe, we motivate and encourage a workforce that is healthy in both body and mind. We aim
to promote employee wellbeing, 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. 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 are noise induced hearing loss (“NIHL”) and respiratory illnesses.
We therefore monitor our operating environment to assess the risk to our workforce, as well as providing the appropriate PPE,
such as suitably selected hearing protection and respiratory protection devices, as well as training on safe working practices.
Measures to reduce noise levels have resulted in the near elimination of instances where employees are exposed to noise levels
above the key South Africa Mine Health and Safety Council milestone limit of 105 dB(A). The roll-out of personalised hearing
protection devices at sites at risk across our South African operations has also materially improved the effectiveness of hearing
protection measures.
During FY 2020, two NIHL cases (FY 2019: nine) were submitted to Rand Mutual Assurance for consideration for compensation as
an occupational disease and are awaiting adjudication. Seven TB cases were diagnosed in FY 2020 (FY 2019: eight) and of these
five cases have been submitted to the Medical Bureau for Occupational Diseases (“MBOD”) for certification and feedback remains
outstanding. Two cases were Extrapulmonary TB, which does not meet the criteria for submission to the MBOD as it is not
considered to be related to workplace exposure. When a condition is confirmed, we ensure that all our employees have access to
the appropriate medical care through medical aids or partnerships with the relevant public healthcare facilities.
Outside the workplace, prior to the COVID-19 pandemic (read more about our response to COVID-19 on page 12), the main
community health issues are HIV/AIDS, TB and malaria (Tanzania only), as well as lifestyle diseases such as hypertension and
diabetes.
Petra supports the ambitious UNAIDS 90-90-90 targets that aim that by 2020 90% of all people living with HIV will know their HIV
status, 90% of all people with diagnosed HIV infection will receive sustained antiretroviral therapy and 90% of all people receiving
antiretroviral therapy will have viral suppression. The Company therefore ensures that 100% of its employees are offered voluntary
HIV testing each year and HIV-positive employees are referred to relevant service providers for anti-retroviral treatment.
Petra has partnered with Life EHS Careways to assist employees and contractors with guidance and counselling covering mental
health and other wellbeing issues. In FY 2020, 92 employees and family members made use of the facility, equating to an
employee engagement rate of 14%, compared to an average mining industry rate of 7%. The top three topics that employees seek
help for are substance abuse (25%), stress (9%) and relationship counselling (4%).
People
5,019
EMPLOYEES AND CONTRACTORS
Employee development
• 8% staff turnover rate
• US$5.8 million invested in staff training and development
• 233 employees supported by study assistance scheme in FY 2020
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. It is only with the continued hard work and contribution of our employees that the significant value of
our resources can be unlocked.
Petra works hard to foster a ‘can-do’ culture, where big challenges can be taken on and tackled systematically, change is
embraced, and full accountability is placed on all individuals to act with integrity and to the best of their abilities. In this way, each
employee can feel that they are contributing to the ongoing success of the business.
As at 30 June 2020, the total number of people employed by the Group decreased by 26% to 5,019 (30 June 2019: 6,788). The
number of permanent employees decreased 3% to 3,696 (FY 2019: 3,833) mainly due to the transition from an intensive capital
development phase to steady-state production. The number of contractors decreased by 55% to 1,323 (FY 2019: 2,955), mainly
due to the Williamson mine being placed on care and maintenance, as well as due to the advanced stages of our capital
programmes and the reclassification of some contractors as suppliers.
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We aim to provide education and training opportunities that will help our employees to fulfil their best potential, covering basic
literacy and computer skills right through to portable skills that can be used beyond a career on the mine. We therefore invest
significantly in employee training and development, with spend of US$5.8 million in FY 2020. The main areas of expenditure
continued to be in-house safety and technical training, outsourced training to specialist accredited external training providers,
engineering and rock-breaking learnerships, internships, and centralised leadership and management development programmes,
including leadership coaching.
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 communication
systems and channels in place to facilitate the execution of its internal communications strategy, including written and electronic
media, social media, SMS communications and a programme of face-to-face meetings at different levels of the Company.
Case study: Progressing careers through Petra’s Career Advancement Programme
The Career Advancement Programme for employees in the Paterson A and B Band (the “CAP A&B Programme”) is in
place to assist employees to achieve their personal goals.
On 1 June 2018, Oliver Tait, a production driver in the plant department, joined the CAP A&B Programme at the Finsch
mine. His dream was to follow a career in human resources development (“HRD”) and he therefore enrolled in and
obtained a qualification in HRD, being a Certificate in Occupationally Directed Education, Training and Development
Practices NQF Level 4, thereby affording him the opportunity to enter into this career. Oliver also gained valuable
experience in the different aspects of the mining training field, including facilitating training, assessing computer skills,
and conducting on the job coaching.
Oliver is Finsch’s first success story as a graduate of the CAP A&B programme. As a result, he was able to apply for a
training position at the mine’s Technical Training Centre and is currently appointed as a Training Instructor for Mining.
Oliver Tait commented: “Firstly, I would like to thank Petra Diamonds for the opportunity the Company has afforded me.
Also, to my mentors and everyone that had a hand in my success, a big thank you. This opportunity has already, and will
continue to, open doors for me in the future. The CAP A&B Programme is a stepping-stone for employees to fulfil their
dreams and have the opportunity to advance their respective careers. I would also like to encourage all A and B Band
employees to make use of the opportunity and always to give 100% commitment.”
Diversity
• 22% female Directors
• 19% women in our workforce
• 31% female interns
• 38% female Leadership Development Programme (“LDP”) candidates
• 85% historically disadvantaged South Africans (“HDSA”) LDP candidates
Petra believes that diversity is an important business benefit, allowing for a broad range of views, experience and backgrounds to
be drawn upon. We have a policy of no tolerance of discrimination and are committed to fair employment practices, meaning that
these criteria are not used to discriminate against individuals, and this is reflected in equitable remuneration scales and benefits.
Improving diversity is also a mandatory requirement for companies operating in South Africa and a best practice requirement for
UK-listed companies.
The Company’s approach to diversity is backed up by the Group’s Diversity and Inclusion Policy, which was recommended for
approval by the SED Committee to the Board during the Year and is described in more detail in the Report of the SED Committee
on page 104. This new policy will align the Company’s various commitments and aspirations, dependent on its various operating
jurisdictions, to create a Group-wide Diversity and Inclusion Plan, which will set targets for gender and racial representation
across the various levels of the organisation.
Petra is committed to encouraging women in mining at all levels of the business, as well as the advancement of HDSAs. The
Company therefore actively pursues the appointment of women and HDSAs at all levels of the business, as well as the
development of women and HDSAs to fill more senior positions. Petra’s overall objective is to achieve true equity by affording
women and HDSAs the appropriate training, development and progression opportunities within the organisation across all job
levels.
Petra has a number of management and leadership programmes in place, which aim to identify and develop employees who
display the potential to fulfil leadership positions in the future. These programmes also assist as a strategic method of improving
management diversity, both by gender and ethnicity.
During FY 2020, 13 employees participated in the Company’s Leadership Development Programme, with 38% of participants being
female and 85% of participants being HDSA. From the inception of this programme in 2008, a total of 141 employees have
graduated. Of the graduates, a total of 94 were promoted, including 35 women and 78 HDSAs. Petra also offers a Management
Development Programme in partnership with the University of Stellenbosch Business School and of the six middle managers who
participated in FY 2020, four were female and five were HDSAs.
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Sustainability continued
People continued
Diversity continued
Encouraging women in mining
Petra is focused on affording women an equal role as part of the next generation of Petra employees and as a result 30% of our
interns, 34% of our engineering learnerships, 34% of our mining learnerships and 60% of our bursars were female.
The Company also has a Women in Leadership Programme in place, which was attended by 12 female participants in FY 2020.
This customised programme is intended to enable women in key leadership positions to master important personal skills and gain
insight into leadership at both a micro- and macro-organisational level.
Petra has a Women in Mining Committee, which enables women at Petra’s South African operations to share experiences, identify
challenges in the workplace and promote development opportunities.
Breakdown of gender diversity across the Group (at 30 June 2020)
Board
Senior Management
Management
Employees (excluding management)
Total
Men
Women
FY 2020
78%
89%
78%
81%
81%
FY 2019
78%
94%
81%
81%
81%
FY 2020
22%1
11%
22%
19%
19%
FY 2019
22%
6%
19%
19%
19%
Total
9
37
194
3,463
3,7032
Following the retirement of Dr Bartlett from the Board on 30 June 2020 and the retirement of Mr Lowrie from the Board on 17 November 2020, the percentage of female
representation on Petra’s Board improved to 29%.
This figure differs from the total employee figure of 3,696 for the Year, as it includes the seven Non-Executive Directors who are not employees of the Company.
Labour relations
Stable labour relations are essential to our productivity and the delivery of our strategy. We therefore remain highly focused on
managing labour relations and on maintaining open and effective communication channels with our employees and the
appropriate union representatives at our operations.
Petra did not experience any industrial action during the Year and has seen largely stable labour relations over the last four years.
Post Year end, the Company announced that it had reached agreement on a new one-year wage agreement with NUM for
employees in the Paterson A and B Bands at the South African operations covering FY 2021. The Company will therefore look to
continue discussions in due course with NUM on a wage agreement for FY 2022.
We respect our workforce’s right to exercise freedom of association and collective bargaining, regulated by our
Collective/Recognition Agreements, across all our operations. Any union that has achieved sufficient representation in the
workplace may request recognition. Union membership across our operations represents 75% of the total workforce in South
Africa and 77% in Tanzania.
The Company’s Itumeleng Petra Diamonds Employee Trust plays an important role in our labour relations strategy as annual
distributions to employees (which commenced in 2014) are considered to be a compelling motivator to drive enhanced employee
productivity and accountability.
Environment
0
MAJOR ENVIRONMENTAL INCIDENTS REPORTED FOR TEN CONSECUTIVE YEARS
Environmental management
• 44% less waste generated
• 45% of waste recycled
• 6,981ha of protected wildlife areas
• 100% of suppliers screened using environmental criteria
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.
Our aim is to embed environmental management across our operations as a value rather than a regulatory requirement. We wish
to demonstrate to our employees, communities and other stakeholders that taking care of our environment is built into our culture,
with a value proposition of ‘Let’s do no Harm’ – more commonly referred to as ‘zero harm’.
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. Williamson is not yet certified but operates with the same principles.
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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.
We aim to minimise environmental incidents at all our operations and have processes to manage any incidents which may occur
as effectively as possible. We classify incidents according to their severity, ranging from minor to major. Petra is pleased to report
that there have been no ‘major’ environmental incidents recorded at the Group’s operations for the past ten years.
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 2020 decreased by 44% to 5,483t (FY 2019: 9,812t), due to improvements in waste
management and the impact of the COVID-19 pandemic and associated lockdowns/restricted activity.
Petra has 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 totalling 6,981ha equate to 56% of the total area owned and managed by Petra.
While there is currently no standard available to certify biodiversity management, Petra is currently developing a Biodiversity Management
Standard based on the Endangered Wildlife Trust of South Africa’s Best Practice Guidelines regarding biodiversity management.
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 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.
Climate change and energy usage
• 23% decrease in Scope 1 direct carbon emissions from our operations
• 0.039 tCO2/t carbon intensity per tonne (Scopes 1 and 2)
• 37 kWh/t energy efficiency
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.
The Company follows a two-pronged approach to identify and assess climate-related risks and opportunities. The first forms part
of the Environmental Management System risk assessment process that is performed annually (based on the principles of the ISO
31000 standard on risk assessment) at each of the operations. This risk assessment process includes the identification and
assessment of risks and opportunities derived from internal and external issues, environmental conditions, emergency conditions,
environmental legislation and significant aspects of the mining operations.
The second approach is to complete climate change vulnerability assessments at each operation and at corporate level. The
vulnerability assessment evaluates acute, chronic, transitional and financial risks and opportunities, evaluated for two scenarios
over three mining phases (operational, decommissioning and post closure). The first complete set of evaluated climate change
vulnerabilities will be available in FY 2021.
Petra Climate change adaption strategy (“PCCAS”)
The PCCAS is an important strategic tool for the Company as it:
• provides a position statement to our internal and external stakeholders who are concerned with climate change vulnerability
and its impact on the Company;
• supports Petra in meeting international obligations and investor expectations by defining the Company’s process to identify its
vulnerabilities, plans to reduce the vulnerabilities and maximisation of opportunities; and
• acts as a common reference point for climate change adaptation efforts within Petra, providing guidance across all levels and disciplines.
The strategic framework for Petra’s Climate Change Adaptation consists of 11 steps:
1.
2.
3.
4.
5.
6.
climate change scenario analysis;
identification of climate change exposure (relevance);
identification of climate change receptors;
identification of potential climate change impacts;
vulnerability assessment;
identification of climate change adaptive capacity/capability;
7. prioritise adaptive needs;
8.
identify appropriate action;
9. prioritise climate change adaptation action plans;
10.
implementation of climate change adaptation action plans; and
11. monitor the effectiveness of adaptation action plans.
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Sustainability continued
Environment continued
Climate change and energy usage continued
Petra Climate change adaption strategy (“PCCAS”) continued
The climate change scenario analysis for each operation has now been completed. The scenarios used are RCP 8.51 and RCP 2.6,
which cater for both the worst-case and best-case emissions future.
Implementation of the PCCAS will span over five years with Phases 1 and 2 completed in FY 2020. Phase 3 (completion of
operational vulnerability assessments) is now underway and will be followed by Phase 4 (implementation) and Phase 5 (ongoing
monitoring) thereafter.
Task Force on Climate-related Financial Disclosures (“TCFD”)
Petra is committed to meeting the requirements of the TCFD, which aims to develop voluntary, consistent climate-related financial
risk disclosures for use by companies in providing information to the financial markets and other stakeholders. The PCCAS has
been compiled with reference to the TCFD to ensure that Petra can meet these recommendations. It should be noted that post
Year end, the Company completed submission of the 2020 CDP climate change questionnaire, which has recently been updated
to include the recommendations of the TCFD. Therefore, Petra considers that its 2020 CDP submission provides all the
disclosures required in relation to TCFD. However, the Company will continue to evaluate how best to consolidate and integrate
the TCFD recommendations into its climate change practices and reporting in a way that best meets the needs of its
stakeholders.
Performance in FY 2020
In FY 2020, the direct carbon emissions linked to our operations (Scope 1) decreased by 23% to 28,551 tCO2-e (FY 2019: 37,214
tCO2-e), mainly due to a decrease in energy consumption for the Year, which was driven by the scaling back of operations in
response to the COVID-19 pandemic and the placing of the Williamson mine on care and maintenance from April 2020. The
Group’s indirect emissions (Scope 2) increased by 3% to 451,803 tCO2-e (FY 2019: 438,118 tCO2-e), despite the fact that the mine
used less electricity for the Year, due to the use of a higher, but more accurate, emission factor for electricity purchased from
Tanesco. Scope 3 emissions decreased by 22% to 3,828 tCO2-e (FY 2019: 4,916 tCO2-e) due to the redistribution of some
activities to Scope 1, reduced volumes of waste to landfill and limited business travel due to the COVID-19 lockdown.
Petra uses the GHG Protocol on the reporting of greenhouse gases, as well as the IPCC Guidelines for National Greenhouse Gas
Inventories of 2001 to calculate and report on our carbon footprint. This provides us with confidence that the correct information
is portrayed to our stakeholders and enables us to be held accountable for the figures presented. In October 2020, Petra for the
first time published an annual GHG Emissions Report, which is available to view under the section ‘Climate Change’ at
https://www.petradiamonds.com/sustainability/environment/.
Managing our energy usage is an important method by which we can limit our emissions, thereby combatting 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 13% of total cash on-mine costs in FY 2020 (FY 2019: 16%).
However, it is recognised that non-renewable energy sources are finite and therefore likely to become increasingly scarce over
time. Our short-term strategy is therefore to minimise overall energy usage wherever possible, while our long-term strategy is to
reduce our reliance on fossil fuel energy resources. We do this by continuously evaluating opportunities to implement initiatives to
reduce energy consumption, by designing all new projects to be as efficient as possible and by continuing to evaluate the
strategic case for renewable power sources.
Petra's total energy consumption for FY 2020 decreased by 32% to 2.01 million gigajoules (FY 2019: 2.96 million gigajoules). Our
electricity consumption was 9% lower than the previous reporting period, due to the implementation of several energy
consumption reduction initiatives that resulted in decreased electricity consumption at all the mines.
Water management
• 0.97m3/t total water usage per tonne
• 81% recycled water used on mine
• 100% of operations with water management plans
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 (Finsch and Koffiefontein).
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. Scenario analysis indicates
that Petra's operations may have to compete with local communities for the availability of water, due to expected significant
population growth in the centres that provide employment. 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; to ensure a resource capable of not only supporting production but also
improving the lives of those around us; and to operate within the regulatory framework provided by international, national and
local legislation. As part of this strategy, all of our operations now have water management plans in place.
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Strategic Report
Petra's short- to medium-term strategy to secure water resources is through:
• service-level arrangements and co-operative agreements with local Government and neighbouring industries;
• reduction of water losses;
• securing water from Governmental water schemes;
• expanding our own internal storage capacities; and
• maximising 'grey water harvesting'.
Total clean water, which includes total raw water plus potable water consumed for mining-related activities, used by our
operations decreased in FY 2020 by 27% to 9,226,764m3 (FY 2019: 12,720,427m3), mainly due to water saving initiatives and the
constrained production due to the COVID-19 pandemic.
‘Total water’ has been re-defined in FY 2020 to only include water used for mining-related activities, namely raw water, potable
water and underground dewatering, whereas previously it included recycled water.
Our total water usage per production tonne decreased by 6% to 0.97m³/t (FY 2019: 1.03 m³/t1). This overall decrease in efficiency
was due to water saving initiatives to manage the drought conditions of 2019.
Petra prides itself on the level of water recycling achieved to date and we now recycle 81% of all water used on mine. The total
volume of recycled water used during FY 2020 was 51,385,297m3, representing a significant increase of 34% compared to FY
2019 (38,391,412m3).
Restated from previously reported figure following change in definition of ‘Total water’.
Positive impacts
US$16 billion
NET POSITIVE SOCIO-ECONOMIC AND ENVIRONMENTAL BENEFITS OF NDC MEMBERS1
Measured in 2016. Source: The Socio-economic and Environmental Impact of Large-Scale Diamond Mining, a report by Trucost for the Diamond Producers Association
(now known as the Natural Diamond Council) – May 2019.
Generating economic benefit
• US$19.7 million paid in taxes and royalties
• US$117.8 million spent on salaries and benefits
• US$185.3 million total procurement spend
• 1,220 suppliers in our supply chain
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 regards 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 at
https://www.petradiamonds.com/investors/results-reports/.
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 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 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. As part of their procurement processes, our Group
companies obtain contractual obligations in the standard terms and conditions from their suppliers that they are not involved in
any human rights abuses and that they have internal measures in place to avoid bribery, modern slavery, tax evasion, money
laundering and human rights abuses.
Petra is utilising a supply chain management platform, enabling suppliers to register to do business with the Company via our
online eProcure Portal. This ensures that suppliers are made aware of new opportunities as they arise and also allows us to
expand our list of contractors and make our procurement system more transparent and effective. The platform also encourages
potential suppliers to comply with various forms of legislature and registrations that are measured by a Business Maturity Index
(“BMI”) visible to every registered supplier on the platform. Petra aspires to improve the average BMI of suppliers contracted going
forward.
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Sustainability continued
Positive impacts continued
Generating economic benefit continued
Our supply chain continued
The Company has a mandatory supplier induction programme in place to ensure that suppliers are aware of their various
obligations before their contract commences. This induction incorporates modules on Company general information, governance
issues and security issues, as well as important HSE issues. Furthermore, Petra uses pre-qualification questionnaires, and
occasionally site inspections, to vet suppliers on environmental standards and performance before contracts are finalised.
Petra sources the majority of the goods and services for its South African and Tanzanian operations from the countries in which
they are located. We view targeted local procurement as a powerful lever for local economic development and community
empowerment and preference is therefore always given to suppliers in close proximity to our mines when possible. Petra’s supply
chain now encompasses 1,220 suppliers and the Company spent US$134.7 million with South African suppliers and US$50.6
million with Tanzanian suppliers in FY 2020.
Community relations and development
• US$1.4 million social investment
• US$0.5 million community training spend
• US$2.1 million loan funding disbursed to local SMMEs since inception of Petra’s ESD Community Fund in 2015
Maintaining supportive relationships and playing a positive role in our local communities is vital to the sustainable success of our
operations. Due to the remote locations of our operations, predominantly in areas with 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. The Company engages with its stakeholders in order to identify suitable development projects which are then
funded and delivered through Petra’s established community development channels, including local economic development
(“LED”), corporate social investment, the Petra Foundation, the Petra Hardship Fund (in FY 2020 only) and discretionary
sponsorships.
In order to address the scarcity of skills in our local communities and to develop a local talent pipeline for our operations, our
community involvement starts at 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, internships and the provision of practical experience through our experiential training
programme. In FY 2020, Petra supported 20 full-time bursars, 95% of whom were HDSA and 60% female, and awarded
scholarships to 52 learners, 100% of whom were HDSA and 63% female.
The Company has an Enterprise and Supplier Development (“ESD”) Programme in place which aims to assist local businesses in
accessing financing and markets, thereby encouraging their sustainability and creating local employment and economic growth
opportunities. We do this via a network of one-stop Enterprise Development Resource Centres, which support local businesses
with non-financial and financial services. Petra’s ESD Programme has provided consultations to 524 local SMMEs to date and of
these 61 have gone on to enter the Company’s supply chain.
Petra Diamonds Limited Annual Report and Accounts 2020
56
Strategic Report
Case study: Construction of the Daniëlskuil Technical High School
The Finsch mine undertook a socio-economic impact assessment in FY 2016 with the aim of identifying the underlying
issues within its local communities, as well as reviewing the impacts of its operations, both positive and negative, in
order to aid its decision-making process in terms of LED initiatives. LED is mandatory spend and corresponds with the
Company’s commitments as per the approved Social and Labour Plan in place at each of the South African operations.
One of the issues identified was availability of quality education and associated facilities. As a backdrop to this, the 2011
Census had identified that only 28% of the population within the Kgatelopele Local Municipality had some secondary
education and that high unemployment prevails, particularly amongst young people.
The need to construct a Technical High School within circuit 5 (comprising the Postmasburg, Daniëlskuil and Lime Acres
areas) was identified by various stakeholders and included into Finsch’s latest Social and Labour Plan (covering the
five-year period to 2022). A local SMME, P&E Artisans, was appointed as the main contractor for the project and a local
electrical trading company, Power Solutions, was also appointed as a sub-contractor. Construction of the project took
six months to complete and 42 job opportunities were created.
The project is also in line with the developing trend for high schools that are focused on science, technology, engineering
and mathematics (“STEM”), which thereby allow students to learn in a very practical and hands-on manner.
Improved STEM education standards will benefit the local communities, as well as benefiting Finsch by providing a
sustainable pipeline of suitable candidates that operations can target for apprenticeship intakes. The initial trades being
taught by the school include automotive and plating/metal work, starting in Q1 CY 2021.
The Finsch mine is proud to be associated with this project and the hope is that the facility will benefit the whole
community in the longer term.
To view photos of the new school, visit
https://www.petradiamonds.com/sustainability/communities/construction-of-the-danielskuil-technical-
high-school/
Stakeholder engagement and management
63
MEETINGS HELD WITH INTERNAL AND EXTERNAL STAKEHOLDERS
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 Petra Group. In addition to this Petra is continuing to review its community grievance mechanism and engagement
systems, and is putting in place the necessary changes to properly capture and address issues raised.
The Company uses a software system, IsoMetrix Social Management, to capture, profile, schedule and manage engagement, as
well as carry out the required reporting. Some further enhancements were made to the IsoMetrix system and our stakeholder
approach during FY 2020, which centred around capturing a significant amount of historical demographical data on stakeholder
individuals and entities, as well as engagement. Unfortunately, delivery of the enhancements was negatively impacted by the
COVID-19 pandemic, but work will continue in FY 2021, as it is considered necessary to ensure that the system provides an
accurate overall picture of our ongoing stakeholder relationships. This process further includes ensuring that all stakeholder
relationship owners have been identified and trained in the principles of effective stakeholder relations, and are actively using the
IsoMetrix system not only as a means of data capturing but also as a stakeholder engagement and management tool.
Community feedback received is captured and integrated into the IsoMetrix system, thereby significantly improving both the
Company’s awareness of and response to community issues. Petra’s social media accounts have also proven to be very valuable
and powerful as a feedback mechanism, to the point where most feedback is now being received via these channels.
Petra Diamonds Limited Annual Report and Accounts 2020
57
Corporate Governance
Chairman’s Introduction to Governance
“Since assuming the role of Chairman, I have been satisfied that the Company
has already attained high standards of corporate governance, which are led by
the Board from the top down. Furthermore, the Company has made
considerable progress in terms of meeting the requirements of the UK
Corporate Governance Code 2018.”
Peter Hill
Non-Executive Chairman
Dear shareholder,
I am pleased to introduce Petra’s first Governance Statement under my tenure as Non-Executive Chairman. Having been
appointed to the Board on 1 January 2020, I assumed the role of Non-Executive Chairman on 31 March 2020, in succession to
founder Adonis Pouroulis, and am therefore the Company’s first ‘independent’ Chairman.
Strong and effective corporate governance is essential to the long-term success of the Company and since joining Petra, I have
been satisfied that the Company has already attained high standards in this area, which are led by the Board from the top down.
Furthermore, the Company has made considerable progress in terms of meeting the requirements of the UK Corporate
Governance Code 2018 (the “new Code”).
Governance highlights for FY 2020 and FY 2021 to date are as follows:
Board evolution and succession planning
The Petra Board, in line with the wider Group, has evolved significantly over recent years and my appointment marked the
refreshment of leadership within the Company, further to the appointment of Richard Duffy as Chief Executive in April 2019. We
are also seeing ongoing changes to the independent Non-Executive Directors (“iNEDs”) on the Board, with the retirement of Dr
Bartlett at the end of the Year and the retirement of Mr Lowrie on 17 November 2020, as well as the planned retirement of Mr
Hamilton at the conclusion of the FY 2021 Annual General Meeting (“AGM”).
Significant focus has therefore continued to be placed on succession planning and a key priority for FY 2021 so far has been the
appointment of a new Senior Independent Director (in succession to Mr Lowrie). To this end, the Nomination Committee has
recommended to the Board that Ms Shine assumes this role from 17 November 2020, being the date that Mr Lowrie stepped
down from the Board.
The Nomination Committee is also considering a successor to Mr Hamilton as Chair of the Audit and Risk Committee in FY 2022
and an announcement in this regard will be made in CY 2021.
Post Year end, there were a number of changes to the composition of certain Committees so that all iNEDs, with the exception of
myself, are members of the Audit and Risk, Nomination and Remuneration Committees, which is expected to bring greater
cohesion and transparency to these Board Committees.
Board strategy, process and performance
With the onset of the COVID-19 pandemic, Petra has faced considerable disruption to its business and the ‘normal’ way of doing things.
We as a Board have also had to adapt to a considerably different operating environment, particularly with the onset of remote working.
We have also had to adopt a highly flexible approach with regards to strategy, as the Company has faced unprecedented challenges,
most notably being the rough diamond sales industry coming to a virtual standstill in Q4 FY 2020 due to travel restrictions and the
closure of factories in India, further exacerbating the strain on our balance sheet. To compensate for this, the frequency of virtual
Board, Committee and sub-committee meetings increased significantly during this period and into FY 2021, in order to stay on top of
the fast-changing business environment and to respond appropriately, as well as to oversee the multi-stakeholder engagement
process required to establish an improved capital structure for the business.
Despite these challenges, our externally facilitated Board evaluation confirmed that the Board has continued to operate well and to
make progress across the identified areas for improvement, as set out on page 72. The external facilitation has noted a number of new
recommendations that have been aligned with our Board objectives for FY 2021, as set out on pages 73 to 75.
Culture
Evaluation and immersion in company culture is a necessary objective of any incoming chair and I have found much to commend,
including an overriding commitment to safety and care for the environment, a ‘can-do’ spirit that has seen the Company rise to the
challenge of operating efficiently in a COVID-19 world, and an open and collaborative way of working. I have also seen an
improvement in acknowledged cultural issues of the past, namely the setting of guidance and the ability to meet production
forecasts.
However, in order to reflect the considerable evolution of the business over recent years, we have decided that now is the right
time to re-evaluate the purpose, culture and values of the Group and these will be considered by the Board and management,
bearing in mind input from our stakeholders, including employees, in FY 2021.
Petra Diamonds Limited Annual Report and Accounts 2020
58
Corporate Governance
Diversity
We remain committed to improving diversity levels throughout the workforce, management team and Board and following the work of
the SED Committee and the newly appointed Group Head of Human Resources and Public Affairs, a Diversity and Inclusion Policy
was approved by the Board in May 2020 as part of the Company’s Sustainability Framework (read more on page 104).
While the overall gender diversity of the Company remained the same in FY 2020, with women representing 19% of our workforce,
I was pleased to note the overall improvements in terms of women in managerial positions, which is positively influenced by the
various employee development programmes we have in place, such as our Leadership Development Programme and the Women
in Leadership Programme (read more on page 52). The percentage of women on our Board remained at 22% during the Year, but
post 17 November 2020 this has increased to 29% following the retirement of Dr Bartlett and Mr Lowrie from the Board.
Governance updates
In July 2018, the new Code was published and applied to accounting periods commencing on or after 1 January 2019. Whilst the
new Code has therefore only applied to Petra from the current Year, we were already compliant with the majority of its provisions.
Where we were not in strict compliance in FY 2020, steps have been taken to address this, as set out on page 63. The Board now
considers that Petra is in full compliance with the new Code’s provisions.
Stakeholder engagement and feedback
Positive relationships with our stakeholders continue to be essential to the long-term success of our business and we are
continually looking to improve and strengthen our stakeholder engagement processes. One provision of the new Code with which
we were not compliant was the Board’s mechanism for engagement with the workforce. In this regard, post Year end the Board
has appointed Ms Matloa, Chair of the SED Committee, as its designated iNED to carry out this function. The key principles and
parameters of the role have been formalised in a document approved by the Board.
As a Board, we receive feedback on the views and priorities of our key stakeholder groups, as set out on pages 15 to 17, and
stakeholder views are considered when making strategic decisions. An important example of this has been the finalisation of a
new long-term capital structure for the Group, which had to be acceptable to the Company, our Noteholders, our South African
Lender Group, our BEE Partners and our shareholders. It was a challenging process to align these groups, but we are satisfied that
the result was the best outcome possible in this business environment and will allow for stability of operations, thereby also
benefiting our workforce, host countries and local communities, as well as our customer base. The Restructuring is subject to the
execution of a Lock-Up Agreement and subsequent shareholder approval at a forthcoming SGM in early CY 2021.
Should any stakeholder like to speak to me or Varda Shine, 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 207 for contact details).
Peter Hill
Non-Executive Chairman
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
59
Corporate Governance
Chairman’s Introduction to Governance continued
Petra governance framework
Audit and Risk Committee
Overseeing the Group’s financial reporting,
internal and external audit, internal control,
ICT and risk management systems, and
compliance, whistleblowing and fraud
policies
Remuneration Committee
Advising the Board on the remuneration of
Executive Directors and setting an overall
policy for remunerating the Group’s
employees
Nomination Committee
Leading the process for Board appointments
and re-election and succession of the
Directors and the Chairman of the Board
HSE Committee
Overseeing the Group’s health, safety and
environmental systems and policies, and
monitoring of compliance
SED Committee
Overseeing the Group’s social, ethics and
diversity systems and policies, and
monitoring of compliance
k
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e
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P
Chair
Gordon Hamilton
Chair
Varda Shine
Chair
Peter Hill
Chair
Bernard Pryor
Chair
Octavia Matloa
Executive Committee
Assisting the CEO in the performance of his
duties and in dealing with the day-to-day
activities of the Company’s business
Chair
Richard Duffy
Other members
Tony Lowrie
Octavia Matloa
Bernard Pryor
Varda Shine
Other members
Gordon Hamilton
Tony Lowrie
Octavia Matloa
Bernard Pryor
Other members
Gordon Hamilton
Tony Lowrie
Octavia Matloa
Bernard Pryor
Varda Shine
Other members
Richard Duffy
Varda Shine
Other members
Richard Duffy
Varda Shine
Other members
Jacques Breytenbach
Charl Barnard
Thasmi Doorasamy
Juan Kemp
Ayoub Mwenda
Ntokozo Ngema
Jaison Rajan
Greg Stephenson
Petra Diamonds Limited Annual Report and Accounts 2020
60
Corporate Governance
Board of Directors
(as at 30 June 2020)
1. Peter Hill, CBE (68) (N)
Independent Non-Executive Chairman
Appointment date January 2020.
3. Jacques Breytenbach (48) E
Finance Director
Appointment date February 2018.
Qualifications Chartered Engineer and Fellow of the
Institution of Materials, Minerals and Mining; BSc in Mining
Engineering – University of Nottingham; MBA – London
Business School; South Africa Mine Manager’s Certificate of
Competency.
Skills Mr Hill is a mining engineer who has held numerous
positions at Anglo American, Rio Tinto, BP and Gold Fields
plc, following which he was Chief Executive of Laird plc
from 2002 to 2011. More recently he has held the role of
non-executive chairman for a number of UK plcs.
Experience Mr Hill has extensive board experience and has
been directly involved in four UK plc takeovers, a FTSE 100
merger, a FTSE 250 demerger and an IPO.
External appointments Non-Executive Chairman of Keller
Group plc.
Interest in the Company as at 30 June 2020
Nil shares.
2. Richard Duffy (56) H S (E)
Chief Executive
Appointment date April 2019.
Qualifications B. Com degree – University of
Witwatersrand, South Africa; MBA from Henley Management
College, UK.
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.
Experience Mr Duffy has 28 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 2020
240,000 shares (30 June 2019: 240,000 shares).
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.
Interest in the Company as at 30 June 2020
243,750 shares (30 June 2019: 243,750 shares).
4. Varda Shine (57) (R) A N H S
Senior Independent Non-Executive Director
Appointment date January 2019.
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
Metals Plc. She is also a Governing Board member of the
Diamond Empowerment Fund.
Interest in the Company as at 30 June 2020
Nil shares (30 June 2019: nil shares).
5. Gordon Hamilton (75) (A) N R
Independent Non-Executive Director
Appointment date November 2011.
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 and 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 2020
247,000 shares (30 June 2019: 247,000 shares).
Petra Diamonds Limited Annual Report and Accounts 2020
61
Corporate Governance
Board of Directors continued
(as at 30 June 2020)
6. Octavia Matloa (44) A N R (S)
Independent Non-Executive Director
Appointment date November 2014.
Qualifications Chartered Accountant – Member of the
South African Institute of Chartered Accountants and the
Independent Regulatory Board for Auditors.
Skills Ms Matloa is a Chartered Accountant and brings broad
business, financial and auditing experience to the Board.
Experience Ms Matloa has 16 years of corporate experience
of which 12 years is in the mining industry. She completed
her articles with PwC in South Africa in 2000 and was
appointed by court as the first woman curator in the
insurance industry. She has also served on various public
sector audit committees. Ms Matloa has founded a number
of businesses, including Tsidkenu Chartered Accountants
Inc. and Mukundi Mining Resources.
External appointments Non-Executive Director of Master
Drilling Group Limited.
Interest in the Company as at 30 June 2020
Nil shares (30 June 2019: nil shares).
7. Bernard Pryor (63) (H) A N R
Independent Non-Executive Director
Appointment date January 2019.
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 2020
Nil shares (30 June 2019: nil shares).
8. Tony Lowrie (78) A N R
Independent Non-Executive Director
Appointment date September 2012.
Retirement date 17 November 2020.
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 2020
3,737,500 shares (30 June 2019: 3,737,500 shares).
9. Dr Pat Bartlett (74) A N H R
Independent Non-Executive Director
Appointment date November 2011.
Retirement date 30 June 2020.
Qualifications Member of the South African Institute of
Mining and Metallurgy; registered Professional Natural
Scientist.
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, Cullinan and
Koffiefontein.
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 2020
Nil shares (30 June 2019: nil shares).
Committee key
A Audit and Risk Committee
N Nomination Committee
R Remuneration Committee
H Health, Safety and Environment Committee
S Social, Ethics and Diversity Committee
E Executive Committee (“Exco”)
() Chair
Board changes
Mr Hill was appointed to the Board of Directors on 1 January
2020 and assumed the role of Non-Executive Chairman and
Chair of the Nomination Committee on 31 March 2020,
following the stepping down of founder Adonis Pouroulis
from the Board.
Dr Bartlett, iNED, retired from the Company’s Board of
Directors, effective 30 June 2020. Dr Bartlett will continue
to offer technical consultancy services to the Company for a
period of one year following his retirement from the Board.
Mr Lowrie was Senior Independent Director up to 17
November 2020, upon which date he retired from the
Board.
Petra Diamonds Limited Annual Report and Accounts 2020
62
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 2018 and to explain in this statement any areas of non-compliance with the new Code.
The new Code, which came into force on 1 July 2018, is applicable for accounting periods beginning on or after 1 January 2019.
Prior to the stepping down of prior Non-Executive Chairman Mr Pouroulis from the Board on 31 March 2020, there were two
related areas in which the Company was not compliant with the new Code, being:
1. Mr Pouroulis was 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 having been eligible to receive benefits of membership
from the Group’s life insurance scheme. Up to the point of his departure from the Board, the Company’s iNEDs continued to be
of the opinion that, whilst not considered to be independent, Mr Pouroulis demonstrated integrity in judgement, character and
action. Furthermore, his contribution, leadership and accumulated experience and track record of building natural resource
companies justified their recommendation that shareholders support his re-election to the Board at the Company’s 2019 AGM.
2. Remuneration of Non-Executive Directors (“NEDs”) – as noted, Petra’s prior Non-Executive Chairman, Mr Pouroulis, held 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 were legacy
arrangements and there have been no further share option or share incentive awards to the Non-Executive Chairman since 17
March 2010.
Further to the stepping down of Mr Pouroulis from the Board on 31 March 2020, Petra complied with the provisions of the new
Code, with the exception of having a mechanism in place to engage with the workforce. In order to address this, post Year end Ms
Matloa, Chair of the SED Committee, was appointed as the designated iNED to engage with the workforce and the key principles
and parameters of the role have been set out in a formal document approved by the Board.
As at the date of this report, Mr Hamilton has served nine years as an iNED of Petra, a length of tenure that could impair his
independence, according to the new Code. However, the Board considers that Mr Hamilton remains independent as he continues
to demonstrate integrity and independence in judgement, character and action, thereby justifying its recommendation that
shareholders support his re-election at the Company’s forthcoming AGM (read more in ‘Assessment of Director independence’ on
page 69). Mr Hamilton will be stepping down from the Board at the conclusion of the FY 2021 AGM and a successor to his role as
Chair of the Audit and Risk Committee will be announced in 2021.
As at the date of this report, the Board therefore considers that Petra complies in full with the new Code provisions.
Petra Diamonds Limited Annual Report and Accounts 2020
63
Corporate Governance
Corporate Governance Statement continued
Matters reserved for the Board
• Vision and strategy
• Production and trading results
• Financial Statements and reporting (supported by the
Audit and Risk Committee)
• Financing strategy
• Risk management and internal controls, including
consideration of the Viability Statement (supported by
the Audit and Risk, Remuneration and HSE
Committees)
• Health, safety, social and environmental matters
(supported by the HSE and SED Committees)
• Budgets, expansion projects, capital expenditure and
• Appointments and succession plans (supported by the
business plans
Nomination Committee)
• Material acquisitions and divestments
• Executive Director remuneration (supported by the
• Corporate governance, ethics and culture
Remuneration Committee)
Board experience (as at 30 June 2020, including Dr Bartlett and Mr Lowrie)
9/9
MINING
3/9
GEOLOGY
6/9
CAPITAL
MARKETS
7/9
FINANCE
2/9
AUDIT
9/9
AFRICA
Board time in FY 2020
Strategy and risk
Corporate and finance
Operations and projects
Governance, social, ethics and diversity
Health, safety and environment
22%
34%
16%
18%
10%
Petra Diamonds Limited Annual Report and Accounts 2020
64
Corporate Governance
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:
• 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;
• provides leadership of the Company within a framework of effective systems and controls, which enable risk to be assessed and
managed;
• 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
• carries out all duties with due regard for the sustainability and long-term success of the Company.
The role of the Chairman
Mr Hill:
• leads the Board and is primarily responsible for the
• engages with shareholders and other governance-
effective working of the Board;
related stakeholders, as required;
• in consultation with the Board, ensures good
corporate governance and sets clear expectations
with regards to Company culture, values and
behaviour;
• 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;
• 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;
• is the ultimate custodian of shareholders’ interests;
• identifies induction and development needs of the
Board and its Committees; and
• 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.
The role of the Chief Executive Officer
Mr Duffy:
• is primarily responsible for implementing Petra’s
strategy established by the Board and for the
operational management of the business;
• leads and provides strategic direction to the
Company’s management team;
• ensures that the assets of the Group are adequately
safeguarded and maintained;
• is the Company’s primary spokesperson,
communicating with external audiences, such as
investors, analysts and the media;
• runs the Company on a day-to-day basis;
• leads by example in establishing a performance-
• implements the decisions of the Board and its
Committees, with the support of the Executive
Committee;
• monitors, reviews and manages key risks;
orientated, inclusive and socially responsible Company
culture; and
• 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.
Petra Diamonds Limited Annual Report and Accounts 2020
65
Corporate Governance
Corporate Governance Statement continued
The role of the Board continued
The role of the Senior Independent Director
Ms Shine (Mr Lowrie up to 17 November 2020):
• provides a sounding board for the Chairman and
• is a member of Petra’s Audit and Risk, HSE,
serves as an intermediary for the other Directors as
necessary;
• 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;
• leads the iNEDs in undertaking the evaluation of the
Chairman’s performance appraisal; and
Nomination, Remuneration and SED Committees,
thereby having oversight of the Group’s material
issues and opportunities, and bringing her skill-set and
independent judgement to the benefit of these
Committees.
The role of the independent NEDs
Mr Hamilton, Ms Shine, Ms Matloa, Mr Pryor and Mr Lowrie:
• challenge the opinions of the Executive Directors,
• ensure that the governance, financial information,
provide fresh insight in terms of strategic direction,
and bring their diverse experience and expertise to
the benefit of the leadership of the Group;
controls and systems of risk management within the
Group are robust and appropriate;
• determine the appropriate levels of remuneration of
• assess the performance of the Chairman;
the Executive Directors; and
• scrutinise the performance of the Executive Directors
in terms of meeting agreed goals and objectives;
• provide independence and a breadth of skills and
experience to Board Committees.
How our Board operates
Board and Committee meetings
The full Board normally meets formally in person at least four times a year for Board meetings (though meetings in person have
not been possible towards the end of FY 2020 due to COVID-19 travel restrictions and have generally been conducted using
online conferencing facilities) and also speaks at other times as necessary 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 allocated
sufficient 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 Chairs of the relevant Committees) and a timeframe generally 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 Company Secretary and
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.
Petra Diamonds Limited Annual Report and Accounts 2020
66
Corporate Governance
FY 2020 Board calendar
Board
meetings
9 held
Audit and Risk
Committee
5 held
Remuneration
Committee
4 held
Nomination
Committee
4 held
HSE
Committee
5 held
SED
Committee
4 held
Annual General
Meeting
1 held
Adonis Pouroulis1
Peter Hill2
Richard Duffy
Jacques
Breytenbach3
Varda Shine4
Pat Bartlett6
Gordon Hamilton
Octavia Matloa
Bernard Pryor
Tony Lowrie7
3
6
9
9
85
9
9
9
9
9
N/A
N/A
N/A
N/A
N/A
5
5
5
5
5
N/A
N/A
N/A
N/A
4
4
4
N/A
N/A
4
3
1
N/A
N/A
N/A
4
4
N/A
N/A
4
N/A
N/A
5
N/A
N/A
5
N/A
N/A
5
N/A
N/A
N/A
4
1
4
N/A
N/A
4
N/A
N/A
0
N/A
1
1
1
1
1
1
1
1
1. Mr Pouroulis stepped down from the Board with effect from 31 March 2020. Due to unforeseen personal commitments, Mr Pouroulis was unable to attend two Board
meetings, one Nomination Committee meeting and the AGM held during the Year. In his absence, these were chaired by Mr Lowrie.
2. Mr Hill was appointed to the Board with effect from 1 January 2020 and assumed the role of Non-Executive Chairman and Chair of the Nomination Committee from 31
March 2020.
3. Mr Breytenbach resigned from the SED Committee with effect from 12 February 2020.
4. Ms Shine assumed the role of Senior Independent Director on 17 November 2020.
5. Ms Shine was unable to attend the April 2020 Board meeting due to personal reasons.
6. Dr Bartlett retired from the Board on 30 June 2020.
7. Mr Lowrie retired from the Board on 17 November 2020.
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 usually arranged for the iNEDs 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.
Whilst COVID-19 travel restrictions impacted on the number of site visits that could be undertaken during the latter half of the
Year, the Executive Directors visited the operations on a regular basis as part of their day-to-day business and the following site
visits were conducted by the iNEDs in FY 2020:
• February 2020: Mr Hamilton and Ms Shine visited Cullinan.
• March 2020: Mr Hill and Dr Bartlett visited all the South African operations and Mr Pryor visited Cullinan.
Employee engagement
Post Year end, the Board appointed Ms Matloa, Chair of the SED Committee, as the designated iNED to engage with the
workforce. The aim of the role is to help ensure the views and concerns of the workforce are brought to the Board and taken into
account in the Board’s deliberations and decisions, helping the Board to understand if employees are aligned to, and able to
respond to, its business priorities. A formal document outlining the key principles and parameters of the role has been approved
by the Board.
The Board normally has several opportunities throughout the year for employee engagement, with the aforementioned Director
site visits, as well as informal meetings in which the Board welcomes feedback and open communication. These opportunities
have been disrupted by the COVID-19 pandemic.
Petra Diamonds Limited Annual Report and Accounts 2020
67
Corporate Governance
Corporate Governance Statement continued
How our Board operates continued
Tenure of Directors1
0–3 years
4–9 years
10–22 years
Board composition1
Executive Directors
Independent Non-Executive Directors
Non-Executive Directors
Directors’ nationality1
South African
British
Directors’ gender1
Female
Male
56%
44%
0%
22%
78%
0%
4/9
5/9
22%2
78%
Percentage of Petra shares held (as at 30 June 2020)
Directors
Other
0.5%
99.5%
1. All statistics as at 30 June 2020, prior to the retirement of Dr Bartlett and Mr Lowrie.
2. The percentage of women on Petra’s Board increased to 29% from 17 November 2020, following the retirement of Dr Bartlett and Mr Lowrie.
Why our Board is effective
Director commitment
The Directors’ biographies and duties can be found on pages 61 and 62. During the Year, there were no significant changes to the
iNEDs’ external commitments and they are considered to have sufficient time to fulfil their duties, as confirmed by the external Board
evaluation, carried out in August 2020. The Company appointed Mr Hill as Non-Executive Chairman in March 2020 and he is also
considered to have sufficient time to fulfil his duties.
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 conflicts 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.
Petra Diamonds Limited Annual Report and Accounts 2020
68
Corporate Governance
Assessment of Director independence
On 31 March 2020, Mr Hill assumed the role of Non-Executive Chairman. Mr Hill was appointed following a search for a new Chairman
assisted by an independent executive search agency and is considered to be independent upon appointment, in accordance with the
new Code.
The Board notes that Mr Hamilton has served nine years as an iNED as at November 2020 and the Board intends that he remains
with the Company as iNED, Chair of the Audit and Risk Committee and a member of the Remuneration and Nomination
Committees for continuity purposes until the conclusion of the FY 2021 AGM. While the new Code notes that serving over nine
years could impair a non-executive director’s independence, the Board considers that Mr Hamilton continues to demonstrate
integrity and independence in judgement, character and action, thereby justifying its recommendation that shareholders support
his re-election at the Company’s forthcoming AGM.
The Board also considers Ms Shine, Ms Matloa, Mr Pryor and Mr Lowrie to be independent in accordance with the new Code. All
five iNEDs are independent of any relationship listed in the provisions of the new Code. None of the iNEDs received any fees from
the Company in FY 2020 other than their contractual iNED fees, as set out on page 114 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. While no such instances occurred during the Year, consideration was given to
Mr Hamilton’s role as a Director of an offshore subsidiary of Nedbank when discussing the process to optimise the Company’s capital
structure, which has involved the South African Lender Group (including Nedbank Limited) as a key stakeholder. However, in each
instance it was noted in the relevant Board meeting minutes that Mr Hamilton was not connected in any way to the business of the
meeting as the offshore subsidiary he is a Director of has no involvement in commercial lending activities in South Africa.
Process used in relation to Board membership, succession planning and appointment process
Petra’s Nomination Committee is responsible for reviewing the skills, expertise, composition and balance of the Board on an
ongoing basis as part of the Company’s succession planning. When considering new appointments, a brief is prepared and an
independent external search agency is utilised to identify potential candidates. Read more about the work of the Nomination
Committee on pages 100 and 101.
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), ESG matters and Petra’s unique business and operations is crucial to the
Board’s ability to effectively lead the Company.
Petra Diamonds Limited Annual Report and Accounts 2020
69
Corporate Governance
Corporate Governance Statement continued
Why our Board is effective continued
Director induction, information, training and development needs continued
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 and 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.
New Chairman induction
Strategy in action
Work responsibly
Values in action
Let’s do it right
Let’s take control
Upon appointment, Mr Hill underwent the Company’s
induction programme, which was led by the Group’s
Corporate Communications Manager and Company
Secretary. The aim of the programme is to provide a
suitable introduction to the Company, its operations and
marketplace, as well as its governance standards, values
and culture.
Mr Hill’s induction programme involved:
• a Director induction pack, including (amongst other
things) Company policies, reports, Board and
Committee minutes, Board objectives, the Petra Group
structure, the Group risk register, latest analyst and
ratings agency notes, and latest diamond market
reports and resources;
• meetings with Directors and management at different
levels of the business;
• attendance at the Mining Indaba Conference in Cape
Town and the BMO Global Metals and Mining
Conference in Miami (both in February 2020), allowing
for meetings with various Company stakeholders,
including corporate advisers and current and potential
shareholders and bondholders; and
• a tour of the South African operations and corporate
office in Johannesburg in March 2020, accompanied
by the Chief Executive.
Peter Hill, Non-Executive Chairman, commented:
“I was happy with the comprehensive nature of my
induction process, which was carried out quickly and
efficiently.
”The site visits were essential in terms of gaining a better
understanding of the quality and scale of our assets and
our workforce, as well as demonstrating the priority
emphasis placed on health and safety within the Group.
“I have been impressed with the ‘can-do’ nature of the
Petra culture and the ability to embrace change and
remain flexible in the face of a fast-changing business
environment.
“Unfortunately, the onset of the COVID-19 pandemic has
disrupted ‘business as usual’ and it was therefore not
possible to visit the Williamson mine in Tanzania before
global lockdowns came into effect.
“We also have plans to carry out a governance roadshow
in due course to formally introduce me to our top
shareholders and bondholders, but this has been placed
on hold for the time being.
“While assuming the role of Chairman at the onset of a
global pandemic has presented many challenges, our
recent external Board evaluation confirmed that the
Board is operating effectively and I look forward to the
resumption of meetings in person and visits to
operations when it is considered safe to do so.”
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 specific topics is requested by the Board members and then provided by a specialist at the
Board meeting.
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70
Corporate Governance
In FY 2020, the Board received formal training by an independent external adviser on ‘Climate change – regulations, implications
and opportunities’. The Directors also received detailed technical presentations during their mine site visits. Further Board training
for the Year was curtailed by the COVID-19 pandemic.
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.
Climate change training
Strategy in action
Work responsibly
Values in action
Let’s do it right
Let’s do it better
Issues related to climate change now demand significantly more attention and there is an expectation that all UK
listed companies will provide climate-related financial disclosure in line with the TCFD’s recommendations by 2022.
There is therefore a need for boards to be regularly updated on these issues.
In November 2019, the Board had a comprehensive overview and training session on climate change legislation and
disclosure carried out by an independent external adviser.
The session focused on the following key areas:
• current and emerging legislation including Section 172 and the duties of Directors with regards to stakeholders;
• reporting requirements relating to climate change;
• the responsibilities of Directors;
• governance structures;
• expectations of investors including TCFD; and
• the UN Sustainable Development Goals.
Evaluation of the Board’s performance
Following the internal evaluation process conducted for FY 2019, various areas for improvement were identified and an update on
progress made during FY 2020 is set out below.
Area of improvement identified in FY 2019 evaluation
Progress made during FY 2020
Objectives, strategy and remit
Board composition and succession
Board reporting and performance
measurement
Risk management and reviews
Board objectives developed further in FY 2020 (see pages 73 to 75);
strategy evolved into a shorter-term focus on surviving the diamond
market downturn and, during the second half of the Year, adapting
operations to the effects of the COVID-19 pandemic.
Chairman succession successfully completed: Peter Hill CBE joined as an
iNED on 1 January 2020 and became Non-Executive Chairman on 31
March 2020 when founder and Non-Executive Chairman Adonis Pouroulis
retired.
Board reporting packs continue to be evolved with greater feedback from
the Exco incorporated and the submission of regular ‘CEO reports to the
Board’, allowing for enhanced Board oversight of ongoing performance
and issues. During the fourth quarter of the financial year, Board and
Committee meetings were held virtually using online conferencing
facilities.
Risk register developed further during FY 2020, including a ‘bottom up’
review and the development of specific risks. The latter focused
especially on the deteriorating diamond market during the Year and its
effects on Petra, and during H2 FY 2020 focus was on the emerging and
increasing risk of the COVID-19 pandemic, and how that affected the
Company’s operations (internal) and the diamond market (external), and
thus the financial health of the Company. While management assessment
of risk is a continuous process, formal risk reviews by the Board therefore
moved to being dynamic as opposed to being focused on once per year.
Petra Diamonds Limited Annual Report and Accounts 2020
71
Corporate Governance
Corporate Governance Statement continued
Evaluation of the Board’s performance continued
FY 2020 Board evaluation
The Board undertook an externally facilitated evaluation of its own performance and that of the Board Committees, using Donata
Denny, an independent and highly respected Leadership Coach and Professional Development Adviser. The evaluation consisted
of each Director completing a focused questionnaire, a one-on-one confidential interview with the external facilitator, and then a
facilitated Directors’ workshop to discuss the outcomes and findings, to be taken forward during FY 2021.
The evaluation of the performance of the new Chairman was undertaken by Mr Lowrie, the Senior Independent Non-Executive
Director at the time, in conjunction with his Board colleagues. The Directors welcomed the appointment of the new Chairman
together with his leadership, and valued his experience, as the Board had to focus increasingly on the Company’s financial
position.
One major theme of the evaluation was Board development and the way in which it was conducted. This covered three areas, as
set out below.
Firstly, the composition of the Board has been further developed. Dr Bartlett, iNED, retired on 30 June 2020 after serving nine
years. He remains a consultant to the Board and management given his world-class expertise in kimberlite geology and sub and
block-level caving. It was agreed that Mr Lowrie would retire on 17 November 2020, after serving nearly nine years, and that the
Senior Independent Director role would be assumed by Ms Shine. It was also agreed by the Board that Mr Hamilton, iNED and
Chair of the Audit and Risk Committee, notwithstanding having been a Director for nine years, was still considered by the Board to
be independent, and in order to provide continuity would continue to serve as Chair of the Audit and Risk Committee until the FY
2021 AGM when he would retire, with a search for his replacement as Committee Chair to be commenced in CY 2021. Together
with the three Director appointments made in FY 2019 (new Chief Executive and two new iNEDs) and the appointment of a new
Chairman of the Board in FY 2020, the Board in FY 2021 has been considerably refreshed.
Secondly, in a change to previous practice, at the start of FY 2021 all iNEDs are now serving on the Nomination, Audit and Risk,
and Remuneration Committees, with the exception of the Non-Executive Chairman who is solely a member of the Nomination
Committee (as Chair). This is expected to bring greater cohesion and transparency to these key Board Committees.
Thirdly, in a review of Directors’ remuneration conducted by the Chairman and the Chair of the Remuneration Committee, fees for
chairing all of the Board Committees were reduced from the start of FY 2021.
The above-mentioned changes constitute a major reconfiguration of the Board and its Committees and could have caused
tensions; Directors felt that these had generally been conducted in a collaborative and transparent manner.
The second major theme of the Board evaluation concerned an evaluation of Board dynamics during isolation and lockdown,
which coincided with the Company entering into intense discussions with its financial stakeholders, as well as putting itself up for
sale, all at a time when the diamond market itself made achieving tenders and sales very difficult, putting further financial pressure
on the Company.
Most of this occurred when Board members were unable to meet face to face because of COVID-19 isolation and thus Board and
Committee meetings had to be held ‘virtually’, including with advisers. Even just the latter would put a strain on normal Board
dynamics; doing this during the financial pressure the Company was under made this even more sensitive, particularly as the
frequency of Board, Committee and sub-committee meetings increased significantly during Q4 FY 2020 and into FY 2021.
Notwithstanding these pressures, the Board was felt to have functioned well, with the iNEDs continuing to provide oversight and
support to the Executive Directors during these challenging times. The Board and its Committees were felt generally to have
performed creditably.
The following areas of improvement and development were identified for FY 2021; however, it should be noted that the aspiration
to resume more personal contact remains severely impaired by the ongoing impact of the COVID-19 pandemic:
• the resumption of in-person Board and Committee meetings when COVID-19 restrictions are lifted, while maintaining and
improving further the collaborative nature of the Board’s working fostered during isolation;
• the resumption of Directors visiting mines, facilities and offices which were suspended during lockdown, to re-familiarise
themselves with the grassroots of the business;
• Directors re-engaging with managers and the workforce, having understandably become more distant from the Company’s
workforce during lockdown;
• re-engaging on Company strategy and portfolio development, having been more short-term focused during FY 2020 due to the
effects of COVID-19 including diamond market disruption, as well as the short-term pressures engendered by the Company’s
financial restructuring; and
• developing and enhancing Board dynamics and corporate governance standards and processes once the new Board is in place
following the completion of the financial restructuring.
Petra Diamonds Limited Annual Report and Accounts 2020
72
Corporate Governance
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 2020
Progress in FY 2020
Objectives for FY 2021
Strategy and operations
Safety of all Petra people will continue to
be the Company’s top priority and closely
monitored by the Board and the HSE
Committee.
Safety is the first operational item
discussed at every Board meeting and
received significant attention throughout
the Year. While the Group’s LTIFR rose
to 0.29 (FY 2019: 0.21), the number of
total injuries, including those that did not
result in a lost shift, reduced by 26% to
45.
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 2021,
remain closely monitored by the Board
and the HSE Committee, as Petra
strives to reach its objective of a zero
harm workplace.
Strategic focus on optimisation of the
Group’s portfolio, driven by Project 2022,
which aims to reset the cost base and
maximise profitability.
Project 2022 is mainly driven by
throughput initiatives and the elimination
or mitigation of bottlenecks in
production processes, which led to the
Company recording its highest level of
ROM production for the nine months to
31 March 2020, before the COVID-19
disruptions took hold.
The Board will allocate sufficient time
both at Board meetings and at an annual
strategy day to consider long-term
strategy for the Group, including an
appropriate capital structure and
allocation strategy, as well as ongoing
review of the assets within the Group’s
portfolio with a view to maximise return
on capital.
Strategic discussions form part of each
Board meeting. A strategy day took
place in September 2019 and another
session is planned for FY 2021.
Throughout the period of negotiations
with the Company’s Noteholders and the
South African Lender Group, the Board
met on a very regular basis in order to
debate the terms presented and to
consider an appropriate capital structure
that would be in the best interests of the
Company and its stakeholders. Post
Year end, a revised capital structure was
agreed that presents a solid foundation
for the business to the benefit of all of
its stakeholders.
The Williamson mine was placed on care
and maintenance in April 2020 in order
to protect the mine’s liquidity, due to the
lower diamond price environment.
The Company chose to exit its
exploration operations and announced
the sale of its Botswana assets post
Year end. Its South African exploration
assets remain as assets held for sale.
Regular monitoring to assess the
implementation of Project 2022, which
aims to get fully back on track, despite
the disruptions to operations caused
by the COVID-19 pandemic.
The focus of the project now also
includes a sustainable optimisation of
the Company’s cost structure during
this period of reduced revenue
generation.
Monitoring the return of the
Williamson mine from care and
maintenance to production, when
market conditions allow.
Continue to closely monitor the
Company’s financial position based on
the prevailing uncertainty in the
business environment afforded by the
COVID-19 pandemic.
Continue 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.
Re-engagement on long-term strategy
having understandably been more
short-term focused in FY 2020 due to
the pressures engendered by the
COVID-19 pandemic and the
Company’s financial restructuring.
Petra Diamonds Limited Annual Report and Accounts 2020
73
Corporate Governance
Corporate Governance Statement continued
Board strategy and performance continued
Strategy and operations continued
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.
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.
Board composition
Continue to consider the optimal Board,
Committee and Senior Management
structures, bearing in mind the benefits of
a broad mix of expertise, skills and
diversity.
Identify and appoint a successor for the
role of Chairman.
Continue to improve the mechanisms
by which the Board receives feedback
from the Company’s broad range of
stakeholders.
As part of the ongoing evolution of the
Group, which has seen leadership
change and a strategic review of the
business, reconsideration of the
purpose, vision, values and culture of
the Group, taking into account
stakeholder interests and views.
The Board receives relevant reports
from management, including feedback
on stakeholder engagement, covering
topics such as shareholder and
noteholder feedback, labour relations,
community engagement and social
matters.
Regular site visits (in normal operating
conditions) afford the opportunity for
direct engagement with a range of
stakeholders, including employees at
different levels within the Group.
Post Year end, Ms Matloa was appointed
as the designated iNED for workforce
engagement. The key principles and
parameters of the role were set out in a
document approved by the Board.
Petra is undergoing an organisational
design review and is also carrying out an
ongoing evaluation of its corporate
culture. Information on these processes
has been presented to and considered
by the Board.
When making any decisions, the
Company purpose, culture and
reputation are kept in mind by the Board.
The Company is also a member of the
NDC and is represented by CEO Richard
Duffy.
Mr Hill was appointed as Non-Executive
Director in January 2020 and assumed
the role of Non-Executive Chairman in
March 2020, following the stepping
down of founder Mr Pouroulis from the
Board.
Ms Shine assumed the role of Chair of
the Remuneration Committee in
succession to Mr Hamilton in March
2020.
Dr Bartlett retired from the Board at the
end of the Year after nearly nine years’
service, following which changes were
made to the composition of the Audit
and Risk, Remuneration, Nomination and
HSE Committee memberships via the
appointment of additional iNEDs.
A Diversity and Inclusion Policy was
approved by the Board.
Continue to consider the optimal Board,
Committee and Senior Management
structures, bearing in mind the benefits
of a broad mix of expertise, skills and
diversity.
Ms Shine was appointed Senior
Independent Director upon the
retirement of Mr Lowrie on 17
November 2020.
Plan for the successor for the role of
Chair of the Audit and Risk Committee,
following the planned retirement of Mr
Hamilton from the Board at the
conclusion of the FY 2021 AGM.
Ongoing consideration of succession
planning, both for the Board and the
other Senior Management structures.
Petra Diamonds Limited Annual Report and Accounts 2020
74
Corporate Governance
Risk management
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 Internal Audit Plan for FY 2020
considered the key business risks as
highlighted in the Company’s risk
registers. Risks are reported on a
quarterly basis, highlighting risk
movements, emerging risks and
mitigation plans. Risk assessment is an
ongoing process not an event. In light of
the COVID-19 impacts, formal risk
reviews by the Board moved to being
dynamic as opposed to being focused
on once per year.
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 are fully
understood and continually actioned by
the Board and Senior Management,
including an annual review of the Group’s
risk register.
The Company’s recently formed ERM and
Combined Assurance function reviews
and reports on key risks on a quarterly
basis to the Exco. The Group risk
register developed further, including a
‘bottom up’ Group-wide review and the
development of specific risks.
FY 2021 represents the last of the
three-year Internal Audit Plan approved
by the Audit and Risk Committee.
Planning will therefore commence on
the next three-year cycle, which is
expected to make significant
progression due to the input of the
Company’s recently formed ERM and
Combined Assurance function, which
will enhance the Company’s already
well-established risk management
processes. The ERM function is
currently working on a Group-wide
bottom-up risk assessment.
In conjunction with the Exco, to
operationalise the new ERM and
Combined Assurance Plan, which
includes a Group Risk and Assurance
Policy Statement, and Group Risk
Policy and Framework as well as Risk
Methodology Policy. Quarterly
reporting to the Exco and the Board will
continue.
Review of effectiveness of the COVID-
19 pandemic response across the
Group as a way of evaluating the
Company’s emergency response
procedures.
Monitoring of the independent
investigation into the allegations of
human rights abuses in Tanzania. The
outcome of the investigation will inform
how the matter proceeds thereafter.
Board process
Hold an external Board evaluation
process in FY 2020.
The evaluation process was carried out
post Year end by independent
consultant Donata Denny. An overview
of the results is included on page 72.
Hold an internal Board evaluation
process in FY 2021, with an external
evaluation to occur at least once
every three years.
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 in
November 2019 on ‘Climate change –
regulations, implications and
opportunities’. Further Board training for
the Year was curtailed by the COVID-19
pandemic.
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.
Continue to receive monthly update
reports to ensure regular monitoring of
delivery against development and
production plans.
The Board was provided with regular
operating and liquidity updates,
particularly as the COVID-19 pandemic
caused unprecedented disruption to the
operating environment.
Continue to keep the Board regularly
updated about operating conditions,
the Company’s financial position and
the wider diamond market, bearing in
mind the uncertain business
environment afforded by the COVID-19
pandemic.
Arrange at least one annual visit for the
full Board to the Group’s operations.
A full Board visit was not undertaken in
FY 2020, mainly due to travel
restrictions as a result of COVID-19.
However, a number of site visits to
certain operations were made by various
Directors during FY 2020 as set out on
page 67.
Resumption of group and individual site
visits, including to mines, facilities and
offices, when considered safe to do so,
in order to re-engage with managers
and the workforce, having
understandably become more distant
during lockdown.
Petra Diamonds Limited Annual Report and Accounts 2020
75
Corporate Governance
Corporate Governance Statement continued
Shareholder communications
Shareholder breakdown as at 30 June 2020
Analysis of equity investor concentration
Top 20 holders
74%
Analysis of investor style
Multi-style
21–40 holders
41–60 holders
61–80 holders
81–100 holders
Other holders
14%
5%
2%
1%
5%
Growth
GARP
Index
Private client broker
Value
Hedge
Other
10%
13%
19%
0%
32%
1%
0%
0%
Investor relations (“IR”) calendar for FY 2020
July
FY 2019 Trading Update
Investor/analyst conference call
September
FY 2019 Prelim Results
Investor/analyst presentation and webcast
Investor roadshow in the UK
Investor one-on-one meetings
October
Annual and Sustainability Reports published
Report publication
Q1 FY 2020 Trading Update
Investor/analyst conference call
November
AGM
Investor/analyst presentation and webcast
January
H1 FY 2020 Trading Update
Investor/analyst conference call
February
Investor and analyst site visit to Cullinan
Site visit
H1 FY 2020 Interim Results
Investor/analyst presentation and webcast
Investor roadshow in the UK
Investor one-on-one meetings
Participation in industry investor conferences in South
Africa and North America
Conferences
May
Q3 FY 2020 Trading Update
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 and other financial stakeholders, thereby ensuring
that their 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 and other
local community stakeholders.
Petra Diamonds Limited Annual Report and Accounts 2020
76
Corporate Governance
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 Chief Executive, Finance Director and Corporate Communications
team commit time to hold regular formal and informal meetings in person and via telephone with the Company’s shareholders,
bondholders and potential investors, in addition to twice yearly roadshows, which coincide with the publication of Petra’s interim
and annual results. The Company also normally 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 are normally 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, Chief Executive 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 normally carry out a governance roadshow every two years. However, the governance roadshow planned for FY 2020,
which would also have served to introduce the new Chairman to Petra’s top shareholders, has been placed on hold for the time
being due to the COVID-19 pandemic.
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 2020 shareholder engagement
During FY 2020, the Company’s CEO and corporate communications team held 115 one-on-one and group investor meetings,
thereby engaging with almost 170 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 Chairman, Mr Hill attended a
number of investor meetings during conferences in South Africa and in the US in February.
The main recurring themes and issues raised by shareholders during the Year centred on:
• Petra’s operational performance, as the Company reported record ROM output in the first nine months of the year, and Project
2022, Petra’s business efficiency programme, delivered a number of operational improvements;
• Petra’s balance sheet and leverage levels, and the Company’s ability to generate free cashflow and to meet its debt facility
covenants and its liabilities as they fall due, including the coupon for the Company’s US$650 million Notes (read more on pages
6 to 36);
• the outlook for the diamond market and expectations with regards to Petra’s diamond sales and pricing (read more on pages 18
to 23);
• the reasons for the decline in the Company’s share price during FY 2020 (read more on page 28);
• the impact of the outbreak of COVID-19 on the Company’s operations and the diamond market, as well as the measures taken
by the Company to contain the spread of the virus at its operations and how it supported its employees and stakeholders
during the pandemic (read more on page 12);
• the blocked Williamson parcel and VAT receivables in Tanzania and the ongoing discussions with the Government (read more
on page 87);
• the volatility of the ZAR:USD exchange rate and the impact on Petra’s financial position (read more on page 94); and
• laboratory-grown gem diamonds and how these affect the market for natural diamonds (read more on page 93).
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.
Petra Diamonds Limited Annual Report and Accounts 2020
77
Corporate Governance
Corporate Governance Statement continued
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 FY 2019 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 Chair on behalf of Mr Pouroulis)
available to answer any questions relevant to their activities.
Results of our FY 2020 AGM
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.
Total votes for
(as a % of
votes cast)
Total votes
against (as a %
of votes cast)
Votes withheld (as a
% of total shares
with voting rights)
Total number
of votes
withheld
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Statutory accounts
Approve Directors’ remuneration
Re-appointment of auditors
Approval to fix auditors’ remuneration
Re-appointment of Mr Pouroulis
Re-appointment of Mr Breytenbach
Re-appointment of Mr Lowrie
Re-appointment of Dr Bartlett
Re-appointment of Mr Hamilton
Re-appointment of Ms Matloa
Re-appointment of Ms Shine
Re-appointment of Mr Pryor
Re-appointment of Mr Duffy
Authority to allot relevant securities
Disapplication of pre-emption rights
100.00
94.47
100.00
100.00
98.90
98.89
98.97
98.97
98.97
98.97
100.00
100.00
100.00
98.97
98.97
0.00
5.53
0.00
0.00
1.10
1.11
1.03
1.03
1.03
1.03
0.00
0.00
0.00
1.03
1.03
0.00
0.00
0.00
0.00
4.72
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
9,010
12,260
9,010
12,260
18,907,147
9,010
9,010
9,010
9,010
9,010
9,010
9,010
9,010
12,260
21,812
Petra Diamonds Limited Annual Report and Accounts 2020
78
Corporate Governance
Report of the Audit and Risk Committee
Members of the Audit and Risk Committee¹
Gordon Hamilton (Chairman), iNED
Varda Shine, iNED²
Octavia Matloa, iNED
Bernard Pryor, iNED
Tony Lowrie, iNED3
1. Dr Bartlett was a member of the Committee in FY 2020, until he retired from the Board on 30 June 2020.
2. Ms Shine joined the Committee on 1 July 2020.
3. Mr Lowrie was a member of the Audit and Risk Committee until he retired from the Board on 17 November 2020.
Audit and Risk Committee Terms of Reference petradiamonds.com/about-us/ corporate governance/board-
committees
Quote from the Chair:
“The Committee gave careful consideration to the Group’s liquidity forecast, the
possible impact of the envisaged capital Restructuring and the assessment of
the Group’s ability to continue as a going concern while recognising the material
uncertainties the Group is currently facing.”
The Audit and Risk Committee (“the Committee”) continued to focus on its key objectives set for
FY 2020 of:
• assessing the Group’s reaction to navigate the challenges brought about by COVID-19, including the steps taken towards the
envisaged capital Restructuring planned to be undertaken during FY 2021 (although not an initial key objective set for FY 2020);
• ensuring the Group’s interim and annual results and financial statement reporting were adequately considered with focus on
maintaining robust judgements and estimates, specifically in light of the significant impact of COVID-19 on these judgements
and estimates;
• continually assessing the Group’s Internal Audit function and looking to enhance and improve processes and functions where
appropriate;
• overseeing and directing enhanced enterprise-wide risk management practices;
• ongoing consideration of controls systems to ensure they remain relevant and appropriate to the business and the associated
risks thereto; and
• 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.
Petra Diamonds Limited Annual Report and Accounts 2020
79
Corporate Governance
Report of the Audit and Risk Committee continued
Dear shareholder,
The Audit and 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, capital restructuring, banking covenants, going concern and
Viability Statement
The Group’s debt levels continue to remain high given the impact of the lower diamond prices achieved during the Year and the
disruption to sales tenders due to COVID 19. The impact of the current weakness in the diamond market on the Group’s operating
results and cashflow position resulted in the Company not paying the May 2020 interest coupon on the Notes and also fully
drawing down on its working capital and revolving credit facilities to maximise liquidity within the Group.
The Company entered into a forbearance agreement with the AHG of the Notes under which the AHG agreed not to exercise their
rights to accelerate payment of the Notes notwithstanding the continuing event of default whilst the forbearance agreement was
in place. Additionally, the Company entered into an Amendment Agreement with its South African Lender Group to amend the
maturity of the revolving credit facility and BEE bank facilities to July 2021, although the South African Lender Group reserved the
right to demand repayment in the event of the forbearance agreement ceasing to apply.
A strategic review by the Company was launched, in conjunction with a set of independent advisers, to evaluate an optimal long-
term capital structure for the Group. A key focus of this review was to reduce the Company’s leverage to a manageable level and
it therefore involved extensive discussions with both the AHG and the South African Lender Group.
On 20 October 2020, an in-principle agreement was reached with the AHG and South African Lender Group to restructure both its
existing Notes as well as its existing banking facilities, including amounts drawn under its ZAR500 million (US$28.9 million) WCF,
ZAR400 million (US$23.1 million) RCF and amounts outstanding under the Group’s guarantee to its BEE partners’ facilities (ca.
ZAR694 million). The envisaged debt Restructuring entails a debt for equity swap which will impact the Group’s equity
shareholders and will thus be subject to shareholder approval by way of voting at an upcoming SGM, currently estimated to take
place early CY 2021.
In the event of a successful Restructuring, the Group’s forecasts remain sensitive to both trading conditions and the potential
impact of COVID-19, which may have a material impact on the Group’s ability to operate within its covenants such that continued
South African Lender Group support may be required for the proposed lending facilities to remain available and, if unavailable,
additional funding may be required.
The Committee was kept fully appraised of the developments regarding the non-payment of the May 2020 interest coupon, the
subsequent Forbearance Agreement with the AHG and the Amendment Agreement with the South African Lender Group, liquidity
and cashflow forecast positions including potential forecast covenant breaches, as well as management’s engagements with the
AHG and the South African Lender Group (which remain ongoing as part of the Restructuring). The Committee regularly discussed
these issues and the Restructuring and 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 resultant recognition of the
related debt on the Group’s balance sheet at Year-end.
Reviewing LOM estimates leading to impairments
IFRS requires that detailed impairment reviews are performed for each reporting period if there are indications of a potential
impairment. Given the weakening diamond pricing environment as a result of COVID-19, coupled with the Group’s declining market
capitalisation, management identified there to be indicators 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, estimated timeframes for Williamson to recommence
production 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.
Tanzanian legislative environment
Ongoing legislative challenges in Tanzania impacting the mining industry, coupled with the blocked parcel of rough diamonds
dating back to September 2017, 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 approve and 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 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.
Petra Diamonds Limited Annual Report and Accounts 2020
80
Corporate Governance
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 VAT legislative changes in
July 2020 amending the categorisation of raw minerals (legislated post July 2017 to June 2020) in the context of Williamson’s diamond
exports, current fiscal constraints in Tanzania and the political environment were further considered by the Committee. Given the
continued delays in recovery, significant uncertainty exists regarding the timing of receipt. Following a review of management’s
analysis, the Committee agreed with their assessment around the potential timing of the recoverability of the receivables and credit
adjusted discount rate, and agreed with the suggested provision to appropriately reflect a time value of money adjustment.
Recoverability of BEE loans receivable
The BEE partners hold non-controlling interests in Finsch, Cullinan and Koffiefontein and the Group held loans payable to its BEE
partners totalling US$108.6 million as at 30 June 2020 (more detail can be found in note 16).
At 30 June 2020, the Group recorded US$40.0 million within loans and borrowings in respect of guarantees provided by the Group to
the South African Lender Group in respect of the BEE Lender Facilities following the event of default arising on the Second Lien Notes
due to the non-payment of interest during May 2020 and the associated cross default on the BEE Lender Facilities.
A compensating BEE loan receivable of US$40.0 million was recorded on 30 June 2020 as part of the gross receivables in respect
of amounts to be reimbursed to the Group relating to the guarantee under the BEE Lender Facilities. The Committee considered
the appropriateness of the asset recognition based on the terms of the agreements and legal advice obtained by management on
the entitlement to reimbursement. Including this amount, the Group held BEE loan receivables of US$147.9 million (before
recognising excepted credit losses under IFRS 9) due from its BEE partners, as set out in note 16, which are repayable out of
cashflows generated from the Group’s mines.
Under IFRS 9, the Group performed an expected credit loss assessment on the recoverability of the BEE receivable balance and
recorded an expected credit loss provision of US$10.9 million which required judgement and estimation by management. The
Committee carefully considered the appropriateness of judgements and estimates applied in determination of the accounting for
the guarantee and associated reimbursement asset, together with the expected credit loss determination and agreed with
management’s assessment.
Other matters considered by the Committee
Litigation at Williamson
During May 2020, a UK-based law firm, Leigh Day, filed claims in the High Court of England and Wales against Petra and WDL.
The claims are understood to have been filed on behalf of 32 anonymous individuals in relation to alleged breaches of human
rights at the Williamson mine, arising from the mine’s security operations.
To date, the claims filed by Leigh Day have not been served on either Petra or WDL. In its letter before claim, Leigh Day has
expressed an interest in alternative dispute resolution methods, including mediation.
The Committee takes these allegations extremely seriously. A sub-committee of the Board, formed entirely of independent Non-
Executive Directors, was established. The committee has initiated an investigation, which is being carried out by a specialist
external adviser in conjunction with specialist human rights lawyers advising the sub-committee and the Group, for the purposes
of responding to the allegations and will be responsible for overseeing this investigation and reporting back regularly to the Board.
Responses will be provided to the claimants’ lawyers in accordance with the relevant pre-action procedures of the English court.
Additionally, the Company has been contacted by the UK-based Non-Governmental Organisation RAID regarding similar
allegations raised by local residents and others relating to actions by WDL, its security contractor and others linked to WDL. Petra
is engaging and cooperating with RAID in order to address the allegations raised.
Based on discussions with management, their assessment of the merits and outcome of the claims and the pending independent
investigations around the claims and the completion thereof, the Committee agrees with management that the outcome of the
claims remains uncertain, the disclosure made is appropriate and that the conclusion that no provision is applicable at 30 June
2020 is appropriate.
The Committee’s responsibility towards risk management
The Committee continued to execute its risk management oversight responsibilities ensuring that both operational and corporate
level risk reviews were both carried out and appropriately reported on during the Year. In addition, the Committee had oversight of
the Company’s implementation steps towards establishing an Enterprise and Risk Management (“ERM”) and Combined Assurance
function during the Year, headed by the Group Head of Risk and Assurance. The priority for this function in FY 2021 will be to
operationalise the new ERM and Combined Assurance Plan, which includes a Group Risk and Assurance Policy Statement, Group
Risk Policy and Framework. An enterprise-wide, “bottom-up” and “top down” risk aggregation and assessment will also be carried
out and integrated into the Group Risk Register.
Whilst the FY 2020 risk review largely followed previous methodologies, the revised ERM approach is not expected to materially
amend the Group’s principal risks as disclosed on pages 43 and 44.
Gordon Hamilton
Chairman of the Audit and Risk Committee
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
81
Corporate Governance
Report of the Audit and Risk Committee continued
Committee experience and skill-set
The members of the Audit and 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 61).
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; he was a member of the Committee
until the end of the Year, at which point he stepped down from the Board. However he remains available to the Company for the
duration of FY 2021 as a technical consultant. Mr Lowrie brings many years of business experience across international banking
and financial sectors; he was a member of the Committee until 17 November 2020, at which point he stepped down from the
Board. 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 is a metallurgical engineer with 35 years of
experience in the international mining industry. Ms Shine, who was appointed as a member of the Committee with effect from 1
July 2020, brings deep knowledge of the diamond industry, as well as significant experience in the South African and UK
corporate environments.
When appropriate, new members to the Audit and 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 pages 69 and 70), 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 2020.
Committee meetings
Five meetings were held in FY 2020 and the Committee invited the Group Chairman, the Executive Directors, members of Senior
Management (including the Exco members and the Group Risk and Assurance Manager) 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.
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 2020, except during the COVID-19 pandemic travel restrictions, where he was able to meet with the Finance Director
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 Ms Shine to Cullinan during February 2020. Dr Bartlett also accompanied Mr Hill on site visits to Cullinan, Finsch
and Koffiefontein in March 2020. Mr Pryor visited the Cullinan mine in March 2020.
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Committee role and activities
The principal functions of the Audit and Risk Committee are listed below, along with the corresponding activity and performance in
FY 2020.
Role
Activities in FY 2020
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 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.
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 Finance Director. 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.
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 2020 Annual Report are set
out on pages 85 to 88.
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.
The Committee considers that
Petra’s internal controls,
including its internal financial
controls, continue to be robust
and defensible.
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.
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.
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 meetings during FY 2020 included
presentations by BDO LLP regarding the results of the FY
2019 audit, the interim review for H1 FY 2020 and the FY
2020 Audit and Risk Committee Planning Report, with a
presentation by BDO LLP of the results of the FY 2020 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.
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83
Corporate Governance
Report of the Audit and Risk Committee continued
Committee role and activities continued
Role
Activities in FY 2020
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, having been
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.
In advance of the FY 2020 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.
Subsequent to Year end, the Committee reviewed non-audit
fees and independence considerations in respect of BDO
LLP’s proposed role as Reporting Accountant as part of the
Restructuring process. Having considered the estimated
fees, nature of the services and safeguards to
independence the Committee approved the services.
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.
Outcomes
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.
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 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 2020 Petra received 15
reports involving alleged
irregularities considered
necessary to investigate, relating
mostly to fraud involving
recruitment scams, procurement
irregularities, illegal diamond
trading, theft and corruption. Of
the 22 reports in total under
review, including seven brought
forward from the previous year, 11
were resolved and closed and 11
remain under investigation.
Following reports of collusion with
a contracted supplier at the
Cullinan mine, an employee was
dismissed for fraud after it was
found the employee had colluded
with another employee (who
subsequently resigned) 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.
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Significant issues considered by the Committee in FY 2020
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 128 to 136.
The Committee separately considered certain key areas warranting specific audit focus, in particular going concern and viability
and impairments given the impact of COVID -19 and the weaker pricing environment, and compared these to the significant
matters identified by the external auditors. The Committee assessed that all matters were adequately covered during the FY 2020
external audit.
Significant matters considered
Our response to these matters
Going concern, debt restructuring, leverage and debt facility covenants
Going concern, liquidity, the successful
completion of the Group’s debt
Restructuring and covenant compliance
coupled with facility availability remained a
key risk and area of focus given the impact
of a softer diamond market throughout the
year and COVID 19 pandemic impact.
Management’s base case forecasts as at
the date of this report indicate that the
Group will maintain sufficient liquidity and
operate within its covenants across the
period to 31 December 2021. However, the
Group’s forecasts remain sensitive to both
trading conditions and the potential impact
of COVID-19, which may have a material
impact on the Group’s ability to operate
within its covenants such that continued
South African Lender Group support may
be required for the proposed lending
facilities to remain available and, if
unavailable, additional funding may be
required.
The assumptions in the Group’s financial
forecasts, the successful completion of the
Group’s debt Restructuring 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 presented by Management against forecast
Group liquidity requirements and required covenant ratios in relation to the
banking facilities, particularly considering the current debt Restructuring
and the in-principle agreement reached in October 2020 with the AHG and
the South African Lender Group, coupled with a detailed and robust review
of the impact of COVID-19 on assumptions pertaining to a disruption to
operations at its South African mines, deferral of at least two consecutive
diamond tenders during the period, a sustained decline in rough diamond
prices of 5% and an increase in operating costs.
The Committee members considered the results under the base case
scenario, confirming that it was dependent on the successful completion of
the proposed debt Restructuring and the continued availability of the
South African banking facilities in line with the in-principle agreement. The
Committee noted the forecasts indicate that the Company will be able
operate within covenants set out in the in-principle agreement and
maintain sufficient liquidity.
However, the Committee noted that proposed first lien covenants were set
with limited headroom to base case. As such, although adequate liquidity is
maintained throughout the review period under each of the individual
scenarios subject to the continued availability of the South African Lender
Group bank facilities, results of the stress testing indicate that in the event
of deferral of the tenders outlined above or a sustained reduction in
pricing, or a combination of different scenarios, possible covenant
breaches associated with the South African banking facilities may occur in
December 2021 and June 2023. Whilst reasonably available mitigating
actions, which include cost savings and capital deferrals, are foreseen to
address the risk of such a covenant breach, the delivery of such mitigating
actions remains uncertain. In the event of a breach of covenant, the
Company would be dependent on the South African Lender Group
continuing to make the facilities available and under certain of the
scenarios there would be insufficient liquidity to settle the outstanding
South African Lender Group facilities if required. Whilst the South African
Lender Group has indicated their support in recent discussions, and
ongoing dialogue with the South African Lender Group will be important
during this period, there can be no guarantee that the facilities would
continue to remain available in the event of a covenant breach.
Having considered the cashflow forecast, risks and sensitivity analysis, the
current status of the debt Restructuring and South African Lender Group
support, the Committee was satisfied with Management’s forecast and
judgement that the going concern basis of preparation remained
appropriate. However, the Group is reliant on the successful conclusion of
the current capital Restructuring to continue as a going concern which is
dependent on execution of the Lock-Up Agreement and subsequent
approval by the Company’s shareholders. Additionally, in the event of a
successful capital Restructuring, the Group’s forecasts remain sensitive to
trading conditions and the impact of COVID-19 may further have a material
impact on the Group’s ability to operate within its covenants such that
continued South African Lender Group support may be required and, if
unavailable, additional funding may be required.
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 142
to 144 for further details.
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85
Corporate Governance
Report of the Audit and Risk Committee continued
Significant issues considered by the Committee in FY 2020 continued
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 2020 on the back
of the weaker diamond market, the impact
of COVID-19, lower diamond prices and the
inability to hold tenders.
At Cullinan, Finsch, Koffiefontein and
Williamson impairment indicators were
identified and impairment charges of
US$11.6 million, US$27.6 million, US$11.7
million and US$34.6 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 148 to 152.
The Committee critically reviewed the key assumptions and parameters
(diamond price forecasts versus historical pricing trends and the impact of
COVID-19 pandemic on the market outlook, foreign exchange rates against
current and forward rates, and the basis for production, cost forecasts and
the determination of the discount rate) in the LOM plans for Cullinan,
Finsch, Williamson 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. The Committee has also reviewed
the assumptions around price recovery post COVID-19 and compared such
recovery to the period in 2008 post the economic crash when diamond
prices had a robust recovery within twelve months. The Committee did
note that the recovery in the LOM plans allowed for a slower recovery in
diamond prices given the suppressed nature of the diamond markets.
Analyst reports, media sources and public statements from other diamond
companies were also 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, apart from the impact of a
temporary care and maintenance period at Williamson and the impact of a
revised Koffiefontein mining plan with reduced Capex resulting in a shorter
remaining LOM. However, the revised starting price assumptions and a
decision to use a lower real price escalator compared to earlier
assumptions, given the continued weakness in the diamond market,
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.
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86
Corporate Governance
Significant matters considered
Our response to these matters
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 2020.
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 LOM plan and impairment test. This included specific
consideration of the impact on costs and the selection of an appropriate
discount rate at 30 June 2020.
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 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 Committee
considered the Group’s ongoing discussions with the GOT, verbal
confirmation that the GOT still holds the diamond parcel 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.
The Committee also received confirmation that 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, the
Committee agrees with management’s assessment that the diamond
parcel will be released by GOT and will be available for future sale.
The Committee reviewed the VAT legislation amendment which now allows
for VAT input credit to be claimed on the export of raw materials. The
amendment became effective 17 June 2020. The Committee considered
the impact of the legislation change on VAT receivables pre July 2017 and
VAT receivables post July 2017 to June 2020. Further consideration was
undertaken by the Committee of management’s assessment that the pre
July 2017 VAT is legally valid and remains recoverable by reviewing the
historical in-country legal advice and confirming that no change to the
legal opinion was implemented.
The Committee considered management’s discounting provision based on
management’s analysis of the expected timing of receipts and suggested
risk adjusted discount rate.
Additionally, the impact of care and maintenance at Williamson and
production forecast to re-commence in CY 2021 was reviewed by the
Committee.
The Committee reviewed the relevant disclosure in the Financial
Statements to ensure compliance with reporting standards.
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87
Corporate Governance
Report of the Audit and Risk Committee continued
Significant issues considered by the Committee in FY 2020 continued
Significant matters considered
Our response to these matters
Litigation at Williamson
In May 2020, the Group received litigation
claims from a UK based law firm, Leigh Day,
in respect of various alleged human rights
abuses at Williamson. The Group was also
contacted by RAID, a human rights NGO
based in the UK, subsequent to Year end
with similar claims. The financial impact of
the risks associated with such claims
required the Committee to focus on the
merits of the claims.
Recoverability of BEE loans receivable
The Group acts as guarantor for the BEE
Partners external banking facilities.
Historically the event of default by the BEE
partners to the BEE Lender group was
considered less than probable and thus no
separate provision was recorded by the
Group.
Given the Group’s event of default under the
Notes, the BEE Partner banking debt of
US$40.0 million was recognised in the
Consolidated Statement of Financial
Position as an additional liability and a
corresponding long-term receivable. As the
cashflows to repay the banking debt are
linked to the cashflows of the underlying
operating mines, the Committee considered
the recoverability of the BEE loans a
significant issue.
The Group’s expected credit loss for the
BEE loans receivable amounted to US$10.9
million, comprising US$6.1 million for
Cullinan and Finsch and US$4.8 million of
Koffiefontein BEE loan receivables.
The Committee reviewed the claims letter received from Leigh Day and
noted its content and alleged claims. Responses by management to Leigh
Day were also reviewed wherein it was confirmed that a formal response
to Leigh Day is required by 20 November 2020. The responses to RAID
were also reviewed and included setting out the proactive measures taken
to strengthen human rights management at Williamson.
The appointment of external advisers, to assist with an in-depth
investigation, working with the legal team, and legal substance of the
claims, and the establishment of an internal sub-committee comprising of
iNEDs to oversee the investigation, was noted by the Committee.
The Committee held calls with the advisers to understand the scope of the
work and also the progress to date. Discussions were also held with the Chair
of the sub-committee. The discussions held with both the sub-committee and
advisers confirmed that the investigation is at an early stage and is unlikely to
provide a clear conclusion by the date of signing this report.
Given the early stage of the investigations and developing nature of the
claim, Management concluded that it was not probable that a loss would
be incurred, however deemed it appropriate to disclose the claims in the
Annual Report as a contingent liability. The Committee considered
Management’s approach, based on the information presented, to be
appropriate and reviewed the disclosure in the Annual Report for
compliance with reporting standards.
The Committee reviewed the expected credit loss assessment
calculations and confirmed that the calculations were based on the
approved LOM models for Cullinan and Finsch used in the 30 June 2020
impairment testing under different pricing scenarios.
The calculations included a range of scenarios and assumptions each with
an associated probability factor:
• possibility of the debt Restructuring not being successful;
• possibility of the debt Restructuring being successful with a probability of
the BEE loan receivable being offset against the BEE loan payable; and
• possibility of the debt Restructuring being successful with a probability of
the BEE loan receivable not being offset against the BEE loan payable.
• Five different pricing scenarios ranging from 10% below the base case
pricing to 10% above the base case.
The Committee considered Management’s various scenarios, the
assumptions around pricing and the probability factor attributed to each
scenario. Taking into account that in-principle agreement to the debt
Restructuring has been reached the Committee agreed with the
probability factor that Management had assigned to the success of the
debt Restructuring. The ongoing discussions with the BEE partners are at
an advanced stage and thus the probability factor assigned to the
successful offsetting of the BEE loans receivable against the BEE loans
payable was deemed appropriate. The pricing distribution was considered
appropriate under the current diamond market conditions.
The Committee also noted the adjustment to Koffiefontein’s LOM from FY
2024 to FY 2023, thus decreasing future cashflows available, and agreed
with Management that the full amount in respect of BEE loans receivable
related to Koffiefontein should be provided for.
The Committee considered the expected credit loss assessment by
Management to be well balanced and appropriate, and reviewed the
disclosure in the Financial Statements for compliance with reporting
standards.
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88
Corporate Governance
Each of these areas, with the exception of the Litigation at Williamson, also represented key audit matters for BDO LLP and,
accordingly, the Committee was provided with detailed written and oral presentations by the engagement team on each of these
matters. Additionally, the engagement team provided presentations on the audit assessment of the Litigation at Williamson and
related accounting treatment and disclosure by management. 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.
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, 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 for FY 2020 by the Group’s auditors.
Auditors’ remuneration
US$ million
Audit services1
Audit-related assurance services2
Total
FY 2020
FY 2019
0.9
0.1
1.0
0.9
0.1
1.0
1. Audit services are in respect of audit fees for the Group.
2. Audit-related services are in respect of the interim review of US$0.1 million (FY 2019: US$0.1 million ), 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 2019:
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.
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 provided 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. Subsequent to Year end, the Committee reviewed non-audit fees and independence
considerations in respect of BDO LLP’s proposed role as Reporting Accountant as part of the Restructuring process. Having
considered the estimated fees of £0.25 million (US$0.33 million), the nature of the services and safeguards to independence, the
Committee approved the services.
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.
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89
Corporate Governance
Report of the Audit and Risk Committee continued
Internal controls (including the system of internal financial controls) and risk management continued
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 2020 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.
The Group’s Risk Management function
During the Year, and following the Organisational Design Review launched by the CEO, the Group established an Enterprise and
Risk Management and Combined Assurance function, headed by the Group Head of Risk and Assurance, supported by a Risk
Specialist. In FY 2020, the focus of this function was to commence with the review and updating of the Group’s risk management
policy and the formulation of a risk management framework. The policy and framework were subsequently recommended to the
Committee and, following a review by the Committee, approved by the Board during Q1 FY 2021. The priority for this function in
FY 2021 will be to operationalise the new ERM and Combined Assurance.
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 and Risk Committee reports and face-to-face discussion between the Audit Partner
and the Audit and Risk Committee Chairman and Committee members.
For FY 2020, 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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90
Corporate Governance
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 2023, taking into account the Group’s current position, the likely terms of the envisaged Restructuring with specific
reference to the envisaged maturity date of the restructured first lien bank debt, 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 and informed by continuous business planning processes throughout the Year.
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 as well as the restructured loan notes and their envisaged maturity date,
even though the envisaged maturity date falls outside the three-year review period.
The impact of the COVID-19 pandemic on the Group’s operations, the rough diamond market and rough diamond prices, as
witnessed in the Group’s FY 2020 financial results, necessitated the Group’s decision to launch a strategic review and commence
with the envisaged debt and capital Restructuring during H2 FY 2020. As announced on 20 October 2020, the Group reached an
in-principle agreement with its lenders to restructure both its existing US$650 million loan notes (originally maturing in May 2022)
as well as its existing banking facilities, including amounts drawn under its ZAR500 million WCF, ZAR400 million RCF and amounts
outstanding under the Group’s guarantee to its BEE Partners’ facilities (ca. ZAR694 million). At the estimated time of the envisaged
Restructuring, the Group’s gross debt under the existing facilities is estimated to be US$797 million, being US$650 million loan
notes plus US$47 million associated with the May 2020 and November 2020 coupon payments not settled, plus ZAR1,594 million
(US$100 million at ZAR16/US$1) owed under the Group’s banking facilities, including the BEE guarantees. The envisaged
Restructuring will also impact the Group’s equity shareholders as it entails a likely debt for equity swap, and remains subject to
execution of the Lock-Up Agreement and subsequent shareholder approval by way of voting at an upcoming SGM, currently
estimated to take place early CY 2021.
The Group’s assessment is based on the assumption that the envisaged debt and capital restructuring will be implemented in line
with the provisions of the term sheet agreed in principle, as announced. In the event that shareholders do not approve the
Restructuring, it is likely that the Company, or one or more of the Group members, would file for insolvency (in the relevant
jurisdiction(s). It may in these circumstances be possible to effect a restructuring through a structured insolvency process.
However, this would be reliant on the Group obtaining additional funding to fund trading as a going concern for a period of time
before such restructuring could be effected, the obtaining (or waiving) of certain regulatory consents, support from the South
African Lender Group and an agreement from the Noteholders (potentially through a second scheme of arrangement or
restructuring plan pursuant to the UK Companies Act 2006).
COVID-19
Uncertainty exists around the ongoing impact of COVID-19 on the Group. Although the South African Government declared mining
operations able to continue during previous lockdown periods, the required social distancing measures which had to be
implemented initially resulted in some operational disruptions, but these measures now put the Group in good stead to curtail the
impact of any further possible lockdowns in South Africa. The more pronounced impact was seen on the Group’s rough diamond
sales, with the usual May 2020 tender having to be cancelled due to the inability of a majority of international clients to travel to
the Company’s sales offices in both Johannesburg and Antwerp. In addition, prices of rough diamonds reduced by ca. 27% for
sales immediately after the outbreak. At these price levels, the South African operations continued to generate sufficient cashflow
to warrant ongoing operations, while the Williamson mine in Tanzania was placed on care and maintenance with effect from April
2020.
At the Group’s tenders post Year end, held in September and October 2020, rough diamond prices improved by ca. 23%, but
remain ca. 10% below the prices achieved immediately pre-COVID-19. A second wave of outbreak, and possible further
restrictions on international travel, may negatively impact the Group’s short- and medium-term liquidity profile due to the potential
impact on production, ability to hold tenders and market pricing, as set out below, notwithstanding the proposed Restructuring.
Williamson mine, Tanzania
As mentioned above, the Williamson mine is currently on care and maintenance and the likely timing of a recommencement of
production remains subject to improving market conditions and the mine’s liquidity position. In addition, the Group remains in
discussions with the Government of Tanzania (“GoT”) around various issues including, inter alia, the sharing of economic benefit,
the recoverability of VAT receivables and the potential release of the blocked diamond parcel. Due to the Group’s current financial
position, Petra is not in a position to provide any financial assistance to the Williamson mine. Williamson’s liquidity position is reliant
on its ability to generate cash through operations (not possible during care and maintenance); and/or its ability to reach
agreement with the GoT allowing it to sell the blocked diamond parcel and around potential recoupment of VAT receivables;
and/or its ability to procure funding via borrowings from local financial institutions. The mine is currently seeking approval from the
GoT to proceed with arranging a US$25 million working capital facility from a local Tanzanian bank, while pledging its own assets
as security. Should an agreement with either the GOT or the local bank not be reached within the next three months, Williamson is
likely to face a liquidity shortfall. Under the terms of the in-principle agreements with the South African Lender Group, any
additional funding by Petra would require its approval and if not provided may result in Williamson’s insolvent liquidation.
Petra Diamonds Limited Annual Report and Accounts 2020
91
Corporate Governance
Viability Statement continued
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
43 and 44 and 93 to 99 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:
• an unforeseen disruption to operations at its South African mines due to either COVID-19 restrictions, or otherwise;
• an unforeseen deferral of two consecutive rough diamond tenders, due to COVID-19 restrictions, coupled with a significant
price decline at an assumed subsequent private sale (in line with a similar process followed in FY 2020);
• a sustained 5% decrease in forecast rough diamond prices throughout the forecast period; and
• an increase in forecast operating cost.
Under the base case, which itself is dependent upon the successful completion of the proposed Restructuring and continued
availability of the South African banking facilities in line with the in-principle agreement above, the forecasts indicate that the
Company will be able to operate within the covenants set out in the in-principle agreement and maintain sufficient liquidity.
However, the proposed first lien covenants (as more fully set out on pages 194 and 195) were set with limited headroom to base
case. As such, although adequate liquidity is maintained throughout the review period under each of the individual scenarios
subject to the continued availability of the South African Lender Group bank facilities, results of the stress testing indicate that in
the event of deferral to the tenders outlined above or a combination of scenarios, such as sustained reduced pricing and
production disruption, possible covenant breaches associated with the South African banking facilities may occur in December
2021 and June 2023. Whilst reasonably available mitigating actions, which include cost savings and capital deferrals, are foreseen
to address the risk of such a covenant breach, the delivery of such mitigating actions remains uncertain. In the event of a breach
of covenant, the Company would be dependent on the South African Lender Group continuing to make the facilities available and
under certain of the scenarios there would be insufficient liquidity to settle the outstanding South African Lender Group facilities if
required. Whilst the South African Lender Group has indicated its support in recent discussions and ongoing dialogue with the
South African Lender Group will be important during this period, there can be no guarantee that the facilities would continue to
remain available in the event of a covenant breach.
Conclusion
The Board is of the view that the longer-term fundamentals of the diamond market remain sound and that the Group will continue
to benefit from Project 2022 (which includes increased production and reduced spend) throughout the review period and beyond.
Based on its assessment of the forecasts, principal risks and uncertainties and mitigating actions considered available to the
Group in the event of downside scenarios, assuming a successful Restructuring the Board confirms that it has a reasonable
expectation that the Group will be able to continue to operate and meet its liabilities as they fall due over the review period.
However, the Group viability is reliant on the successful conclusion of the Restructuring, which is dependent on execution of the
Lock-Up Agreement and subsequent approval by the Company’s shareholders, to continue as a going concern. Additionally, as set
out above, in the event of a successful Restructuring, the Group’s forecasts remain sensitive to trading conditions and the ongoing
COVID-19 pandemic may have a further material impact on the Group’s ability to operate within its covenants such that continued
South African Lender Group support may be required and, if unavailable, additional funding may be required, specifically for the
December 2021 period, while projections indicate sufficient liquidity to proactively address the possible breach in June 2023 from
own funds.
These factors indicate the existence of material uncertainties which may cast significant doubt about the Group’s viability and
therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.
Petra Diamonds Limited Annual Report and Accounts 2020
92
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.
External risks
1. Rough diamond prices
Risk change in FY 2020
Higher
Strategic objectives
Consistent delivery
KPIs
Revenue; Profitability; Operational free cashflow; TSR
Responsibility
Exco
Long term
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 laboratory-grown diamonds (“LGD”) 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 NDC, which aims to maintain and enhance consumer demand for, and confidence in,
diamonds by a range of methods, including via exciting advertising campaigns across multiple digital channels.
The Company continues to monitor LGD developments. Disclosure and detection remain key; equipment exists which can
detect LGDs with 100% accuracy.
The diversified nature of the Group’s asset portfolio also acts as a mitigant in that Petra produces the full spectrum of
diamond sizes and qualities, to minimise reliance on the price performance of any one diamond category.
FY 2020 risk developments and management
The rough market was severely impacted in FY 2020. Price weakness continued from FY 2019 into H1 FY 2020, driven by
excess inventory in both rough and polished diamonds, growing US/China trade tensions, and social unrest in Hong Kong.
The market started to stabilise towards the end of Q2 and early Q3; however, the rapid spread of the COVID-19 pandemic
from the end of Q3 then served to effectively bring most parts of the diamond pipeline to a standstill. Only limited sales
were possible in Q4 due to the restriction of movement of people, as well as very low demand from the midstream, where
the majority of cutting and polishing factories were either closed or operating at significantly reduced volumes. The severe
drop in demand led to a corresponding fall in prices, with Petra’s realised diamond prices reducing by ca. 18% for the Year.
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.
The start of the FY 2021 sales season saw conditions in the diamond industry improving, as lockdown measures around the
world were eased and retail outlets reopened. Since the outbreak of COVID-19, a period of sustained low supply,
particularly from the majors, De Beers and ALROSA, has allowed for a better equilibrium in the market and there is now
improved demand from the downstream as retailers look to put orders in place in time for the festive retail season.
However, all participants in the industry recognise that risks to a sustained recovery remain, particularly in light of the
current resurgence of COVID-19 in key diamond markets, and much will depend on the level of consumer activity in the
coming months, especially in the major US market.
The number of gem-quality LGDs on the market continued to rise during the Year, but accurate statistics on their volumes
are not available so it is hard to quantify the risk. According to Bain and Co, LGD substitution is estimated to stay within 5%–
15% in value terms when compared to natural diamonds through to 2030, based on lessons learned from the natural versus
synthetic sapphires markets.
Petra continues to work with the NDC in its activities to support diamond demand.
Read more
Our Market – pages 18 to 23
Petra Diamonds Limited Annual Report and Accounts 2020
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Corporate Governance
Risk Management continued
Identifying, managing and mitigating risk continued
External risks continued
2. Currency
Risk change in FY 2020
No change
Strategic objectives
Consistent delivery; Drive optimisation
KPIs
Revenue; Profitability; Operational free cashflow; TSR
Responsibility
Exco
Long term
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 2020 risk developments and management
The ZAR/USD exchange rate saw significant volatility in FY 2020, with the Rand averaging ZAR15.68/USD1 for the 12-month
period to 30 June 2020 and closing the Year at ZAR17.32/USD1, compared to ZAR14.07//USD1 on 30 June 2019, amidst
weak national economic fundamentals and continued global uncertainties compounded by the COVID-19 pandemic.
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 29 to 36
Note 9 to the Financial Statements
3. Country and political
Risk change in FY 2020
No change
Strategic objectives
Work responsibly; Consistent delivery
KPIs
Profitability; Operational free cashflow; TSR
Responsibility
Exco; HSE Committee; SED Committee
Long term
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
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.
FY 2020 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. However, this engagement has been impacted by the COVID-19 pandemic, as well as the
Tanzanian elections in October 2020.
Read more
N/A
Petra Diamonds Limited Annual Report and Accounts 2020
94
Corporate Governance
External risks continued
4. COVID-19 pandemic (NEW)
Risk change in FY 2020
New risk
Strategic objectives
Work responsibly; Consistent delivery
KPIs
Production; Revenue; Profitability; Operational free cashflow
Responsibility
Exco; HSE Committee; SED Committee
Short to medium term
Description and impact
In early CY 2020, the COVID-19 disease (caused by the newly discovered coronavirus) emerged and rapidly became a
pandemic as it spread around the world. While the majority of those who contract it may be asymptomatic or may only
experience mild symptoms, a number of people (especially those with comorbidities) may become seriously ill or the disease
may prove fatal. Most countries around the world have therefore put in place measures to restrict social interaction in order to
control the spread of this highly infectious disease, with implications for both companies and citizens, many of whom have
experienced profound changes in both their work and personal lives.
Mitigation
Petra implemented comprehensive systems and strategies to help prevent and/or contain the spread of virus at our operations in
South Africa and Tanzania. Areas of focus included awareness and training, wearing of PPE, regular sanitising, maintaining
social distance, identification of those employees with underlying health conditions who may be at greater risk, employee
transportation and screening, testing and the handling of suspected positive cases identified. All of the procedures were
captured in the MCOPs in the case of the South African operations. An MCOP was not required for the Williamson mine in
Tanzania, due to this being a South African obligation, but activity there has followed a similar high standard of health and
safety-led protocols. Petra’s mitigation activity extends beyond its workforce to help support its local communities in a
number of ways. Petra has adopted a flexible sales approach in order to bring goods to market at the optimal time and
location based on prevailing market conditions.
FY 2020 risk developments and management
The comprehensive systems and strategies put in place by Petra enabled the Company to engage in a phased ramp-up of its
South African operations following the end of the initial three-week lockdown put in place from 26 March 2020. A significant challenge
to ramping up operations back to steady state is allowing all employees to return to work while complying with the measures vital
to the effective implementation of the MCOPs. Petra therefore took the decision, following extensive consultation with organised
labour, to move to Contops at the Finsch mine and a similar Contops-like configuration at the Cullinan mine in order to maximise
the number of shifts available and thereby optimise production levels while the COVID-19 pandemic remains a significant
business threat. This was achieved during August 2020 but during September and October 2020 production at the Finsch
mine was impacted by the arrangements to maintain Contops coming to an end. In late October, an agreement was reached
with organised labour to reinstate Contops for the remainder of FY 2021. Both Cullinan and Finsch are therefore now operating at
planned levels but the ability to maintain Contops could be impacted by potentially rising numbers of COVID-19 infections or the
need to quarantine healthy employees, a potential ‘second wave’ of COVID-19, which could see South Africa revert to stricter
lockdown measures, and the continued acceptance of organised labour to the revised shift configurations.
The Company’s ability to hold its normal diamond sales tenders was severely impacted in Q3 and Q4 FY 2020 and into Q1 FY
2021. During these constrained sales periods, the Company experienced severely depressed and opportunistic bidding for its
goods, particularly in the larger size and higher quality, greater value categories, and the Company therefore chose to
withhold some of the higher value goods for sale at its March 2020 tender cycle, all of which were subsequently sold in June or early
July 2020. Such sales took place through agreements with some of the Company's long-standing customers and the Company has
focused sales efforts in Antwerp in the short term while business travel to South Africa remains challenging. Post Year end,
conditions in the diamond market have been improving. The Company’s tender in September 2020 saw pricing on a like-for-
like basis strengthen ca. 21% in comparison to prices achieved in the March and June sales cycles and the tender in October
2020 saw a further ca. 2% like-for-like price increase; however, prices were still ca. 10% below pre-COVID-19 levels.
As at 30 October 2020, the Company was screening 3,336 individuals a day for COVID-19 and a total of 750 possible cases
were tested. To date, the total number of employees confirmed COVID-19 positive at the South African operations is 223; of
these, so far 217 have recovered in full and four cases are still active. No deaths were reported during the Year; however,
very regrettably, two colleagues passed away of causes related to the disease post Year end. Employee and community
wellbeing is a priority for Petra and the Company launched the Petra Hardship Fund, funded by Director and Senior
Management salary and fee sacrifices over the period April to June 2020, to provide assistance to distressed host
communities and qualifying employees.
Up to the date of this report, there have been no negative impacts on the Company’s supply chain. All Petra’s suppliers have
re-opened post-COVID-19 lockdown and are delivering in line with their commitments.
The Williamson mine in Tanzania was placed on care and maintenance in April 2020 in order to protect the mine’s liquidity
position during a period of sustained lower diamond prices, with only essential services permitted to continue. There have
been no cases of COVID-19 at the mine to date.
Read more
Our response to COVID-19 – page 12
Operational Review – pages 37 to 42
Petra Diamonds Limited Annual Report and Accounts 2020
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Corporate Governance
Risk Management continued
Identifying, managing and mitigating risk continued
Operational risks
5. Mining and production
Risk change in FY 2020
Higher
Strategic objectives
Consistent delivery; Drive optimisation
KPIs
Production; Revenue; Profitability; Operational free cashflow; TSR
Responsibility
Exco
Long term
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.
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.
Petra’s diversified portfolio of mines ensures that the Company is not reliant on the performance of just one asset.
FY 2020 risk developments and management
Project 2022 has resulted in the implementation of various initiatives which have eliminated or mitigated the impact of
bottlenecks in the production processes of the various mines. This drove throughput improvements in FY 2020 and led to
the highest ROM production recorded in the Company’s history for the nine months up to 31 March 2020. However, overall
performance for the full Year was negatively impacted by the COVID-19 pandemic, which began causing disruptions to
operations from March 2020, and the extensive and stringent health and safety-led procedures that were subsequently
required to be implemented.
In October 2019, the Cullinan mine experienced scaling of the open pit wall, resulting in 3 Mt of waste material falling into
the open pit, and in January 2020, the Williamson mine experienced an initial 1.3 Mt pit slump at the south western sector,
both of which occurred after a period of heavy rainfall. While the pit scaling at Cullinan is not expected to impact
production, the immediate surrounding area of the open pit may be impacted over the medium to longer term by this natural
degradation (see ‘Licence to operate’ risk management for further information on plans to mitigate the social impact). In
respect of Williamson, the pit slump has restricted access to higher grade material which is expected to lead to grade
volatility and an overall grade decrease of approximately 3% over the current LOM to 2030. However, there is the potential
to increase production above the current rate of 5–5.5 Mtpa, which could serve to mitigate the lower grade impact. Of the
US$7 million capital expenditure assigned for the mine in FY 2021, approximately 50% has been allocated to clear and
stabilise the area, as well as to re-establish appropriate infrastructure for pit access, in order to ensure that this does not
materially impact on future production.
Petra’s current financial position may result in deferral of capital expansion projects, resulting in increased future production
risk. To this end, the Company has proactively identified alternative expansion strategies, mainly to defer the CC1E
extension project at its Cullinan mine, should a further need arise to preserve cash.
Read more
Operational Review – pages 37 to 42
Petra Diamonds Limited Annual Report and Accounts 2020
96
Corporate Governance
Operational risks continued
6. ROM grade and product mix volatility
Risk change in FY 2020
No change
Strategic objectives
Drive optimisation
KPIs
Production; Revenue; Profitability; Operational free cashflow; TSR
Responsibility
Exco
Short term
Description and impact
With Petra’s underground expansion projects mostly complete, the Company is now mining the majority of its ore from the
newly created mining areas. The ramp-up of underground tonnages involves gaining access across a larger footprint of the
orebody which is expected to 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.
FY 2020 risk developments and management
ROM grades were generally in line with expectations in terms of resource performance, with both Finsch and Williamson
slightly above guidance, while Cullinan and Koffiefontein were slightly below guidance.
The mines recovered the full range of diamonds in FY 2020, including the Cullinan mine where the production profile for the Year
included a number of larger white diamonds of high quality, as well as the recovery of a number of blue diamonds of varying qualities.
Read more
Operational Review – pages 37 to 42
7. Labour relations
Risk change in FY 2020
Higher
Strategic objectives
Work responsibly; Consistent delivery; Drive optimisation
KPIs
Production; Staff turnover
Responsibility
Exco; SED Committee
Short to medium term
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.
FY 2020 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 came to an
end on 30 June 2020, following which new negotiations commenced. In October 2020, the Company announced that it had
agreed a new one-year wage agreement, rather than the customary three-year agreement, with NUM covering employees
graded in the A and B Paterson Bands of its South African operations. This may result in an increased likelihood of industrial
action during the early parts of FY 2022 when a further round of salary negotiations is likely to be undertaken. Petra remains
highly focused on managing labour relations and on maintaining open and effective communication channels with its
employees and the appropriate union representatives at its operations.
Read more
Labour relations – page 52
Petra Diamonds Limited Annual Report and Accounts 2020
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Corporate Governance
Risk Management continued
Identifying, managing and mitigating risk continued
Strategic risks
8. Financing
Risk change in FY 2020
Higher
Strategic objectives
Consistent delivery; Drive optimisation
KPIs
Production; Revenue; Profitability; Operational Capex
Responsibility
Exco
Short to medium term
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 project and operational delays and business challenges in preceding years, Petra’s debt level
became higher than originally anticipated. One of the objectives behind the launch of Project 2022 was to address this and
while excellent progress was made in terms of optimising throughput, the delivery of significant free cashflow was impacted
by a weak diamond market in CY 2019, followed by the outbreak of the COVID-19 pandemic in 2020. Petra’s Board
subsequently launched a strategic review in order to evaluate an optimal long-term capital structure for the Group.
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 is required to ensure adequate liquidity headroom,
while cashflow generation is negatively impacted by the current weaker diamond market and product mix.
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 South African Lender Group.
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, aim to maximise
the Company’s cashflow generation. The Company also has some flexibility in the roll-out of its future capital spend.
FY 2020 risk developments and management
The COVID-19 pandemic had a significant impact on the Company’s financial position and required Petra to take steps in
order to manage its liquidity through the crisis period.
In February 2020, the South Africa Lender Group agreed to waive the EBITDA-related maintenance covenant associated
with the first lien banking facilities for the December 2019 measurement period.
In March 2020, the Company drew down the full amount available (ZAR500 million) under its WCF and in May 2020, the Company
reached agreement with the South African Lender Group to draw down ZAR400 million under its ZAR1.0 billion RCF. At the same
time the Company also reached agreement with the South African BEE Lender Group to reschedule the capital repayments due in
May 2020 and November 2020 under the Company's outstanding bank financing of its BEE Partners, and it also entered into a
Forbearance Agreement with the Company’s Noteholders to defer the coupon payment due on 1 May 2020.
Petra’s operational Capex for the Year of US$36.6 million was below guidance of ca. US$43.0 million and the Company is
also planning a reduced level of Capex for FY 2021 of ca. US$28 million. Likewise, the Company maintained a firm grip on its
cost base in FY 2020, with adjusted mining and processing costs reducing 25% to US$225.3 million and corporate
overhead reducing 6% to US$7.2 million.
The Company launched a strategic review to evaluate the optimal long-term capital structure for the business and post Year end,
the Company announced that it had reached agreement in principle with the AHG and the South African Lender Group on a
common set of commercial terms with respect to a long-term solution for the recapitalisation of the Group. This agreement served
to nearly halve the Group’s level of Notes debt and requires that the outstanding debt owed to the Noteholders will be converted
into equity, with the Noteholder group set to hold 91% of the enlarged share capital of the Company and existing shareholders set
to hold the remaining 9%. At the same time, the South African Lender Group agreed to a restructuring of the first lien facilities
provided to the Company. Petra is currently well advanced in terms of agreeing a Lock-Up Agreement with the parties to the
Restructuring, which will bind each party into supporting the Restructuring on the proposed terms. The Restructuring is considered
to offer a stable, deleveraged capital structure that will ensure the short and long-term viability of the Company.
The Restructuring is subject to execution of a Lock-Up agreement and shareholder approval. If this is not received, the
Group's financial position will be materially adversely affected and there is a significant risk that the Group's debt
obligations under the first lien facilities and/or the Notes will be accelerated, which will likely result in the Company being
placed into insolvent liquidation.
Read more
Financial Review – pages 29 to 36
Viability Statement – pages 91 and 92
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Corporate Governance
Strategic risks continued
9. Licence to operate
Risk change in FY 2020
Higher
Strategic objectives
Work responsibly; Drive optimisation
KPIs
Production; Revenue; Profitability; Responsible business
Responsibility
Exco; Audit and Risk Committee; HSE Committee; SED Committee
Long term
Description and impact
In order to maintain our mining 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 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 ESG practices.
Mitigation
Mining is an inherently long-term business and therefore the Company’s operations are planned and structured with their
sustainability in mind, to the benefit of all our stakeholders. Management of ESG matters is integrated into how the
Company operates, with formal oversight provided by the Company’s HSE, SED and Audit and Risk Committees.
The Company 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 https://www.petradiamonds.com/sustainability/ for additional detail.
FY 2020 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. While our LTIFR increased to 0.29 from 0.21, the number of total injuries,
including those that did not result in a lost shift, reduced by 26%.
Community support is ongoing during the COVID-19 pandemic and aims to address the most pressing needs, particularly food
shortages and the availability of PPE and other COVID-19 prevention equipment such as thermal scanners and sanitisers.
The Finsch health clinic remains open to community members and sees ca. 50 people per day. Additional support is also
offered to local healthcare workers and clinics by donating gazebos and chairs, as well as screening facilities to assist with
the testing and screening of community members. The Petra Hardship Fund has also provided targeted assistance to distressed
communities.
A number of community projects were completed in FY 2020, including an electrification project to deliver electricity to 118
homes in Daniëlskuil in the Northern Cape of South Africa, the construction of a Technical High School, again in Daniëlskuil,
which should assist in improving science, technology, engineering and mathematics education standards, and the
completion of the expansion project of the Onverwacht Primary School at Cullinan. Further information on the Company’s
community programmes for the Year can be found on pages 55 to 57.
For the tenth year running, there were no major environmental incidents to report during the Year.
The aforementioned pit scaling at Cullinan requires consistent and proactive engagement with the communities residing
closest to the pit, as well as with the DMRE in order to keep the regulator up to date on all developments as per the agreed
Stakeholder Engagement Plan.
The Board was deeply concerned to learn of human rights abuse allegations in relation to the security operations of the
Williamson mine in Tanzania. A sub-committee of the Board, formed entirely of iNEDs, has been established to evaluate the
allegations. The committee has initiated an investigation, which is being carried out by a specialist external adviser in
conjunction with the Company’s lawyers, for the purposes of responding to the allegations, and will be responsible for
overseeing this investigation and reporting back regularly to the Board. The investigation is scheduled to be completed during
Q2 FY 2021 and the committee will consider the outcome of the investigation and the recommendations to address any
findings. This may include any required remedy or corrective action to be taken as a result of the investigation’s conclusions.
To date, the allegations have not resulted in any negative business impacts on the Company, including loss of partnerships
or customers, but the issue remains a reputational risk which could generate significant negative media coverage and which
could damage the Company’s standing as a diamond mining group committed to a high level of ethical business practices.
The claims could also result in the Company being liable to pay financial damages to the claimants, but the exact level of
these damages is not yet possible to gauge.
Petra acknowledges that climate change continues to grow in importance, both to the Company and its stakeholders, as a
business risk and opportunity. In FY 2021, the Company will therefore continue to evaluate the status of climate change as a
principal business risk, guided by the ongoing development of its Climate Change Adaptation Strategy and stated objective
of compliance with the TCFD by 2022.
Read more
Sustainability – pages 45 to 57
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Corporate Governance
Report of the Nomination Committee
Members of the Nomination Committee¹
Peter Hill (Chair)
Gordon Hamilton
Tony Lowrie2
Octavia Matloa
Bernard Pryor
Varda Shine
1. Mr Pouroulis was Chair of the Nomination Committee until he stepped down from the Board on 31 March 2020 and was succeeded by Mr Hill, and Dr Bartlett
was a member of the Nomination Committee until he retired from the Board on 30 June 2020.
2. Mr Lowrie was a member of the Nomination Committee until he retired from the Board on 17 November 2020.
Quote from the Chair:
“In line with the ongoing progression of the Petra business, the Company’s
Board of Directors continued to evolve in FY 2020. I was delighted to join the
Board in January 2020 before assuming the role of Non-Executive Chairman, as
well as becoming Chair of the Nomination Committee, on 31 March 2020. The
Nomination Committee will continue to focus on succession planning into FY
2021, bearing in mind the priorities highlighted in our new Diversity and
Inclusion Policy.”
I would like to present the first Report of the Nomination Committee since I assumed the role of Non-Executive Chairman of the
Company and Chair of the Nomination Committee.
Board composition, appointment of Chairman and succession planning
The Petra business has evolved significantly over recent years, as the Company has transitioned from its phase of heavy capital
investment to that of steady-state operations, and the Company’s Board of Directors and its Board Committees have continued to
develop to reflect this.
During the Year the Committee’s main focus was the identification and appointment of a new Chairman, in succession to founder
Adonis Pouroulis. To this end, an independent executive search firm, Egon Zehnder, was selected on the basis of its global reach,
experience and strong understanding of the mining and metals industry. A job specification was drawn up for the Chairman role,
with experience of mining, capital markets, governance and Africa being priorities, as well as noting the Company’s aims to further
improve the diversity of its Board. A shortlist of candidates was then generated and the Company was given the opportunity to
interview candidates. Accordingly, I was appointed as an iNED on 1 January 2020 and subsequently as Non-Executive Chairman
of the Board and Chair of this Committee on 31 March 2020, when Mr Pouroulis stepped down from the Board.
Additionally, Dr Bartlett retired as a Director of the Company and a member of various committees, including this Committee, with
effect from 30 June 2020.
In FY 2020, the Committee also recommended a number of changes to the composition of certain Board Committees which were
approved by the Board, as follows:
• Mr Breytenbach stepped down from the SED Committee with effect from 12 February 2020;
• Ms Shine succeeded Mr Hamilton as Chair of the Remuneration Committee with effect from 31 March 2020;
• Ms Shine was appointed to the Audit and Risk Committee and the HSE Committee with effect from 1 July 2020;
• Ms Matloa and Mr Pryor were appointed to the Remuneration Committee with effect from 1 July 2020; and
• Ms Matloa, Mr Pryor, and Ms Shine were appointed to the Nomination Committee with effect from 1 July 2020.
Post Year end, Ms Matloa was appointed as the Company’s designated iNED to engage with the workforce, as required by the
new Code. The key principles and parameters of the role have been formalised in a document approved by the Board.
Post Year end, the Committee considered the appointment of a successor to Mr Lowrie as Senior Independent Director, following
his planned retirement on 17 November 2020, and subsequently recommended to the Board that Ms Shine would assume the role.
Ms Shine was considered an outstanding candidate given her deep experience of the diamond industry, as well as the UK
corporate world, and her expertise in multi-stakeholder engagement.
Whilst the Committee assesses the current skills, experience (as set out on pages 61 and 62) and diversity of the Board to be
appropriate, it continues to review its composition. A further priority in FY 2021 will be the consideration of a successor to Mr
Hamilton as Chair of the Audit and Risk Committee, following his planned retirement at the conclusion of the FY 2021 AGM.
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Corporate Governance
Board evaluation
Donata Denny, an independent and highly respected Leadership Coach and Professional Development Adviser, was appointed to
carry out an external Board evaluation post Year end, the results of which are set out on page 72. Ms Denny had not worked with
the Company before and it was felt an opportune time to have a fresh pair of eyes examining the workings and performance of
the Board.
Diversity
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.
The overall percentage of females in the Company remained flat at 19%, but this remains slightly higher than the industry average
in South Africa, which ranges from 12%–17% depending on the commodity. However, we noted an improvement in the percentage
of females in our Senior Management and Management teams. While the percentage of women on our Board remained at 22% in
FY 2020, from 1 July 2020 this split improved to 25% further to Dr Bartlett stepping down from the Board at the end of the Year
and has increased further to 29% from 17 November 2020 further to Mr Lowrie stepping down from the Board.
In May 2020, the Board approved the Group’s Diversity and Inclusion Policy, which will serve to support the development of a
diverse skills pipeline for the business. More information on this policy is included in the Report of the SED Committee on page
104.
We have many initiatives in place to further increase female representation in the Company and we were pleased to report further
improvement in both Senior Management and Management levels in FY 2020. Read more about Petra’s approach to diversity on
pages 51 and 52.
Nomination Committee role and activities
The principal functions of the Nomination Committee are listed below, along with the corresponding activity and performance in
FY 2020.
Activities in FY 2020
The Committee reviewed the composition of
the Board and its Committees, including
discussions around diversity and the effective
functioning of these Committees. This resulted
in the appointment of a new independent Non-
Executive Chairman and a number of changes
to the composition of certain Committees.
Mr Hill was appointed as an iNED and
subsequent Non-Executive Chairman as
successor to Mr Pouroulis during FY 2020.
The Committee continued to focus on
succession planning.
An external Board evaluation exercise took
place during August 2020.
Outcome
The Committee will continue to make
recommendations regarding the Board,
Board Committee and Senior Management
composition and structures.
The Board may make additional changes
during FY 2021 and will receive
recommendations from the Nomination
Committee on this.
Subsequent to the Year end the Committee
recommended the appointment of Ms Shine
as Senior iNED to succeed Tony Lowrie
when he retired from the Board on 17
November 2020.
As part of our succession practices, the
Nomination Committee will continue 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 72.
Each Director was considered to remain
effective and was proposed by the
Committee for re-election to the Board at
the forthcoming AGM.
Role
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.
Peter Hill
Nomination Committee Chair
17 November 2020
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Corporate Governance
Report of the Health, Safety and Environment (“HSE”) Committee
Members of the HSE Committee1
Bernard Pryor (Chair), iNED
Varda Shine, iNED2
Richard Duffy, CEO
1. Dr Bartlett was a member of the HSE Committee until he stepped down from the Board on 30 June 2020. However, he will be invited to attend all Committee
meetings in FY 2021 for the duration of his consultancy agreement with the Company.
2. Ms Shine became a member of the HSE Committee in July 2020.
Quote from the Chair:
“The health and safety of all Petra people remains our top priority, along with
safeguarding our environment for future generations. The Company is taking
measures to continuously improve our performance in this area, working
towards our primary goal of zero harm. Despite the ongoing threat of the
COVID-19 pandemic to our employees and other stakeholders, I am satisfied
that the Company has the right systems and practices in place to mitigate this
threat effectively.”
The purpose of the HSE Committee
The role and purpose of the HSE Committee is to assist the Board in discharging its oversight responsibilities relating to HSE
matters, to ensure the Company upholds the principles of good corporate citizenship and conducts its business in an ethical and
sustainable manner.
Safety achievements for FY 2020
Three years
Fatality free
7.47 million
Fatality-free shifts
43% improvement
Non-lost time injuries
26% improvement
Total injuries
34% improvement
Dangerous occurrences
100% achievement
Mandatory compliance
100% achievement
ISO 45001:2018 certification
79% improvement
Section 54 DMRE instructions
17% improvement
Section 55 DMRE instructions
Other highlights for FY 2020
• Petra continues to show high levels of performance in its environmental reporting, with its CDP score on climate change
reporting of ‘B’ higher than average for the Company’s sector and region of reporting.
• No major environmental incidents occurred within the Company for the tenth consecutive year.
• Launch of an environmental pledge demonstrating the Company’s commitment towards a sustainable future.
• All mines were successfully migrated from OSHAS 18001 to ISO 45001, international standard for Occupational Health and
Safety.
Further information on HSE matters is included in Petra’s FY 2020 Sustainability Report.
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Corporate Governance
HSE Committee role and activities
The principal functions of the HSE Committee are listed below, along with the corresponding activity and performance in FY 2020.
Role
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.
To assess compliance
obligations with applicable
legal and regulatory
requirements with respect to
health, safety and
environmental aspects.
To ensure, on behalf of the
Board, that an internationally
recognised Health and
Safety Management System
and an Environmental
Management System are
implemented and
maintained.
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.
Activities in FY 2020
The Group’s significant HSE hazards and
associated risks were reviewed as part of a
discovery process as per ISO 14001 and ISO
45001 standards requirements and implemented
into the operations.
Changes in legislation were evaluated for
potential impact on HSE systems and policies.
Outcomes of external certification audits for ISO
45001:2018 and ISO 14001:2015 were evaluated.
Monitoring of HSE performance throughout the
Year and review of annual Group occupational
HSE objectives and KPIs.
COVID-19 brought significant challenges
regarding return to work policies and processes.
The implementation of these as well as general
performance against the processes were
monitored.
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.
Health and safety incidents, investigation
outcomes and detailed trending were reported
to and reviewed by the Committee on a
quarterly basis.
Environmental incidents classified as ‘significant’
were discussed in detail.
Outcomes
Material impacts on health, hygiene and
safety-related legislatory requirements were
integrated into existing policies. New policies
and processes were developed and
implemented for the COVID-19 pandemic
including MCOPs which were submitted to
the DMRE.
No material changes in environmental
legislation were identified that required
systems or policies to be updated.
Processes are up to date, compliant to
international standard requirements and
certified by BSI through third party audits.
All South African operations successfully
migrated to ISO 45001:2018 and retained
ISO 14001:2015 certification through BSI.
Williamson mine remains uncertified but
conforms to the HSE Management Systems
principles of the certified operations.
The achievement of HSE objectives was
noted. The Group’s performance was
satisfactory and no complaints from
stakeholders were received.
The decisions and actions leading from
COVID-19 specific policies, codes of practice
and procedures did not have a negative
effect on any stakeholders including
communities and employees.
The Company achieved a three-year fatality-
free record during June 2020.
The LTI KPI target was not achieved due to
an increase in LTIs at Finsch which were
assessed to be behavioural in nature and of
low severity. A mitigation plan was put in
place.
Three ‘significant’ environmental incidents
occurred during FY 2020, deemed moderate
in nature. These are listed in the Company’s
2020 Sustainability Report on page 83.
A review of the Company’s disclosure
requirements was carried out.
Changes to disclosures were instituted
where required.
To evaluate the quality and
integrity of reporting to
external stakeholders
concerning HSE aspects.
Bernard Pryor
HSE Committee Chair
17 November 2020
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Corporate Governance
Report of the Social, Ethics and Diversity (“SED”) Committee
Members of the SED Committee1
Octavia Matloa, NED (Chair)
Varda Shine, NED
Richard Duffy, CEO
1. Mr Breytenbach stepped down from the SED Committee in February 2020.
2. Former Chief Operating Officer, Mr Roode, stepped down from the SED Committee when he left the Company to pursue other interests in November 2019.
Quote from the Chair:
“It has been a very productive year for the SED Committee and I believe we
have made good progress with further developing and enhancing the Group’s
risk approach, policies and practices with regards to SED matters. We also
reviewed our internal and external reporting requirements, as well as our
ongoing legal compliance obligations, which are helping us discharge our
oversight responsibilities.”
The purpose of the SED Committee
The purpose of the SED Committee is to oversee the Group’s social, ethics and diversity systems and policies and the monitoring
of compliance. As part of its role, it also monitors and advises the Group on issues of ethics and corruption, social investments and
interaction with stakeholders. The aim is to position Petra as a responsible corporate citizen and to promote a diverse organisation
in a sustainable and beneficial way.
Highlights for the Year
The SED Committee has completed its first full year of operation, having been formed in February 2019, and we have worked to
align the information requirements and processes of the Committee to the strategic objectives. We are not where we are
supposed to be but I am satisfied with the milestones achieved as we gear towards ensuring that the work of the Committee is
effectively discharged and that we add value to the Company. I am also satisfied that the Committee fulfilled all its fiduciary duties
for the Year.
A key achievement for the Year was the development of the Group’s Diversity and Inclusion Policy, which was recommended for
approval by the Committee to the Board in May 2020. The policy applies to the Petra Group, inclusive of the Board, and its aim is
to encourage leadership at all levels across the organisation to think broadly about diversity in its different forms and to ensure
that appointment and succession planning practices inclusive of retention polices are designed to promote diversity. The policy
also seeks to ensure that the Company develops a diverse pipeline for skilled succession to top management, Senior Management
and junior management levels and creates the framework for reporting on actions taken to promote diversity in terms of actual
progress achieved on diversity and inclusion.
Post Year end, the SED Committee reviewed the management approach for implementation of the Diversity and Inclusion Policy in
September 2020. The intention is to develop both a Petra Diamonds South Africa Employment Equity Plan, which will align the
Company’s employment equity targets in South Africa with other sector specific targets included in the new Mining Charter
(encompassing both racial and gender targets), as well as a Group-wide Diversity and Inclusion Plan, which will set targets for
gender representation across the various levels of the organisation, including taking into consideration the UK targets for women
at board level. Achieving diversity targets will form part of management’s overall performance scorecard, thereby directly
impacting on reward and recognition.
We continued to improve our stakeholder engagement processes, with the revision of our Stakeholder Engagement Policy, as well
as an ongoing project to enhance the Company’s stakeholder database in order to effectively monitor historical and current
engagements with these stakeholders to identify and mitigate any risks or explore opportunities. Post Year end, the Company has
also revised its Stakeholder Feedback and Grievance Procedure in order to allow stakeholders to more easily raise concerns and
ensure that these claims are addressed.
Post Year end, the Company announced that it had received allegations of human rights abuses at the Williamson mine in
Tanzania. These allegations are being taken extremely seriously by the Company and an independent investigation has been
launched, which will be monitored by the separate Tunajali Committee, of which SED Committee Chair Ms Matloa is a member.
Read more on pages 6 and 48.
While not in response to the above allegations, but as part of its planned course of business, the SED Committee reviewed the
revised Group Human Rights Policy Statement post Year end and will continue its ongoing oversight of the Group’s implementation
of the SED policies and activities.
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Corporate Governance
SED Committee role and activities
The principal functions of the SED Committee are listed below, along with the corresponding activity and performance in FY 2020.
Activities in FY 2020
Formulation of the Group’s Diversity and
Inclusion Policy, which amalgamates the
Group’s employment equity and diversity
strategies and objectives.
Progression of the Group Sustainability
Framework, which will align Petra’s
management of sustainability with select SDGs.
Review of the revised Group Human Rights
Policy Statement.
Outcomes
The Diversity and Inclusion Policy was
approved.
Finalisation of the Group Sustainability
Framework was delayed by the COVID-19
pandemic and is targeted for completion in FY
2021.
The Human Rights Policy Statement was
approved post Year end.
Role
To assess the policies and
systems within Petra 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.
To evaluate the
effectiveness of Petra’s
framework, policies and
systems for identifying and
managing SED risks.
Group ERM process commenced.
Evaluation of Petra’s compliance with the
VPSHR.
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.
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.
Continued evaluation of the new Mining
Charter in South Africa.
Continued engagement, via its membership of
the Minerals Council SA, on various industry
matters, including the draft amended Mineral
and Petroleum Resources Development Act
(“MPRDA”) in South Africa.
Evaluation of the Company’s Social Compliance
Matrix.
Monitoring of the risk of ASM at Koffiefontein
and co-operation with local authorities to find a
long-term solution.
Monitoring of the risk of pit scaling at Cullinan
and its impact on the local community.
Monitoring of the independent whistleblowing
hotline with regards to SED issues, including
fraud and corruption.
The Group Sustainability Framework will be
finalised and presented to the Board for
approval in FY 2021.
Incorporating ESG-related risks into the Group
ERM processes for risk identification and
monitoring.
Roll-out of a gap assessment to determine
compliance towards the VPSHR.
The Committee will continue to monitor the
potential impact of the new Mining Charter on
the Company, as well as the ongoing legal
dispute impacting its finalisation.
Petra has provided its input via the Minerals
Council SA.
Revision and approval of the Social Compliance
Matrix to improve the Company’s engagement
with internal and external stakeholders.
The launch of the ASM Initiative at
Koffiefontein, with certain tailings mineral
resources transferred for legal mining by the
KCM.
A stakeholder engagement plan was put in
place to guide communication with the local
community at Cullinan in relation to pit scaling.
A resettlement policy is also planned for FY
2021, to act as the framework should any
residential resettlements be required in the
future.
Enhancement of the whistleblowing service, as
set out on page 47.
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Corporate Governance
Report of the Social, Ethics and Diversity (“SED”) Committee continued
SED Committee role and activities continued
Role
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.
Activities in FY 2020
Employment equity profiling and regular review
of the racial and gender diversity performance
of the Group at all various levels of the
business, as well as monitoring of other
employee-related KPIs related to workforce
culture.
Outcomes
Revision of the Group’s diversity targets to
ensure one plan for the Group to improve both
racial and gender diversity.
Evaluation of the Company’s Stakeholder
Engagement Module.
Review of internal and external reporting
requirements; gap analysis to evaluate how
Petra could improve its ESG disclosures.
Submission of statutory documents.
Materiality survey carried out with internal and
external stakeholders to establish the
Company’s key ESG material topics.
Implementation and roll-out of an enhanced
IsoMetrix Stakeholder Engagement Module to
capture and assess historical and ongoing
stakeholder engagement, commencing with
the South African operations.
Monitoring of SED-related data and information
at Committee level.
Reporting on employment equity and SLP
progress to the Department of Labour and the
DMRE.
Monitoring of SED-related statutory documents
per the SED Annual Plan.
Results of materiality survey form the basis of
Petra’s ongoing sustainability reporting.
To ensure an appropriate
Stakeholder Engagement
Management System is in
place and is maintained.
To ensure systems are in
place to record and submit
statistical data that may be
required for legal, regulatory
and other external
reporting.
To identify and/or ratify
those material issues
related to SED which could
impact the continued
sustainability of the
Company. Commentary on
these issues is included in
the FY 2020 Sustainability
Report.
Octavia Matloa
SED Committee Chair
17 November 2020
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Corporate Governance
Directors’ Remuneration Report
Letter from the Chair
Members of the Remuneration Committee1
Varda Shine, Chair2
Tony Lowrie, iNED3
Gordon Hamilton, iNED4
Bernard Pryor, iNED5
Octavia Matloa, iNED5
1. Dr Bartlett was a member of the Committee in FY 2020, until his resignation from the Board on 30 June 2020.
2. Ms Shine became Chair of the Committee with effect from 1 April 2020.
3. Mr Lowrie retired from the Board on 17 November 2020.
4. Mr Hamilton was Chair of the Committee until 31 March 2020.
5. Mr Pryor and Ms Matloa joined the Committee on 1 July 2020.
Key highlights
• Renewed Committee composition, with Ms Shine assuming the role of Chair from Mr Hamilton on 1 April 2020. Further changes
were made post Year end such that all the Company’s iNEDs are now members of the Committee.
• During the Year the Board agreed to a temporary reduction to Executive salaries and Non-Executive fee levels. The funds
raised were utilised for the Petra Hardship Fund which was established to mitigate the impact of COVID-19 for distressed
communities and qualifying employees.
• Taking into account the impact of COVID-19 there are no Executive salary increases for FY 2021 and, although the formulaic
outturn was 25.4% of maximum, the Committee determined that there would be no annual bonuses for FY 2020.
• The approach to Performance Share Plan (“PSP”) awards will be delayed until there is more certainty on the Group’s future
capital structure.
• The revised Remuneration Policy is being put to shareholders at the 2020 AGM, updated with some good governance practice
features.
• In recognition of the current position of the business the Non-Executive Directors have agreed to a reduction in their fees on an
ongoing basis.
Dear shareholder,
As Chair of the Remuneration Committee (the “Committee”) I am pleased to present our Directors’ Remuneration Report for the
financial year ended 30 June 2020.
COVID-19 response
Our Board’s overriding priority is the health, safety and wellbeing of all of our people. First and foremost Petra continues to
prioritise taking all actions necessary to support measures to limit the spread of COVID-19 in the countries in which the Company
operates and to decrease the threat to our employees, contractors and other local stakeholders. Regrettably, as at 30 October
2020, 223 Petra employees have been confirmed COVID-19 positive since the outbreak and our deepest condolences go to the
families of our two employees who have tragically lost their lives.
In recognition of the pandemic and its impact on the business, it was agreed that salaries for Petra’s senior Executives and Non-
Executives at Petra would be reduced for the fourth quarter of FY 2020. The salaries of the Chief Executive and Finance Director
were reduced by one-third, the salaries of the Company’s Non-Executive Directors and other members of the Executive
Committee were reduced by 25%, and senior managers reporting to the Executive Committee members were invited to participate
in the initiative with a reduction of up to 20% of their salaries.
The Company contributed an amount equivalent to the total salary and fee reductions to the Petra Hardship Fund, which was
established to provide targeted assistance to distressed communities and qualifying employees to mitigate the impact of COVID-
19. A committee was established to oversee the management and disbursement of these funds, which were awarded on the basis
of greatest need.
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Corporate Governance
Directors’ Remuneration Report continued
Letter from the Chair
Remuneration outturns for FY 2020
FY 2020 was an exceptionally challenging year. Prior to March 2020 the Company was on track to meet, and even exceed, its
operational targets for the Year. This performance was interrupted by various levels of COVID-19-related lockdowns which led to
reduced throughput at the South African operations. On the demand side, the diamond market was significantly impacted. COVID-
19 prevented diamond sales for large parts of H2 FY 2020 and the Company was forced to cancel its May 2020 tender, while the
bulk of the June 2020 tender was only concluded after Year end. The state of the diamond market also forced the Company to
place the Williamson mine in Tanzania on care and maintenance during April 2020, with a future restart of production dependent
on diamond market recovery.
In these unprecedented circumstances the Company did not achieve the threshold level of performance required for the free
cashflow and revenue targets under the annual bonus plan. As a result of partly meeting targets in relation to cost reduction,
Capex and HSE and SED, the Executive Directors were eligible for annual bonuses of 25.4% of maximum. However, in light of the
overall impact of the COVID-19 pandemic, it was agreed that no bonuses would be paid in respect of FY 2020.
There were no PSP awards vesting for the current Executive Directors in respect of the three-year period ending in FY 2020. The
value of legacy PSP awards for former Directors is less than 0.5% of their original value. The Committee determined that no
payments will be made until after the upcoming SGM, planned for early CY 2021.
The Committee considers that the Remuneration Policy operated as intended in respect of FY 2020.
Remuneration Policy renewal
Petra’s current Remuneration Policy (the “Policy”) was approved by shareholders at our 2017 AGM. In accordance with the normal
three-year renewal cycle, we are submitting our Policy for a shareholder vote at the 2020 AGM. Taking into account the impact of
COVID-19, as well as the current position of the business, we have decided that it is not an appropriate time to undertake a full-
scale review of the Policy. We are therefore proposing to update the existing Policy with some relatively minor amendments to
reflect good governance practice. During 2020 we consulted with a number of our major shareholders and received broad support
for our proposed approach.
Our proposed changes to the Policy to align with good governance are as follows:
• Pensions: Petra’s executive pension contributions are already aligned with the workforce. Executive Directors are eligible to
participate in the Company’s defined contribution scheme on the same basis as the Company’s South African workforce. This
alignment is being formalised in the Policy.
• PSP holding period: We introduced a post-vesting holding period to the PSP in FY 2020. The holding period will now form part
of the Policy.
• Post-employment shareholding guidelines: In line with the UK Corporate Governance Code we are introducing post-
employment shareholding guidelines. Executives will be expected to maintain a shareholding in the Company for two years
post-employment.
The Committee will continue to monitor the Policy on an ongoing basis and as part of our commitment to meaningful engagement
with shareholders we will consult with shareholders if we propose any significant changes.
Implementation of the Policy for FY 2021
Executive salaries are not being increased for FY 2021.
During the Year the Committee reviewed the approach to the annual bonus. Annual bonuses will continue to be based on a
balanced scorecard linked to the financial, operational and strategic objectives of the Group. For FY 2021 the performance metrics
in the scorecard have been adjusted to aggregate the Group’s priorities including environmental, social and governance (“ESG”)
related measures. In addition a portion of the bonus will be linked to the achievement of individual strategic targets.
Given the current status of the envisaged capital restructuring the Company is looking to undertake, the Committee has decided
to postpone the determination of PSP awards for FY 2021. The intention is that these awards will be made once the capital
restructuring has been completed with more certainty around shareholder expectations, estimated to be early calendar year
2021.
Non-Executive Director fees
Non-Executive Director fees remained unchanged for the second year in a row. Following a review, and in recognition of the
position of the business, the Senior Independent Director and various chairpersons of the Board sub-committees have agreed to a
reduction in their fees on an ongoing basis. Further details are set out on page 114.
AGM
94.47% of shareholders voted in favour of the Directors’ Annual Remuneration Report at the 2019 AGM.
We hope that our shareholders will continue to support our approach to Directors’ remuneration at the Company’s upcoming AGM.
Varda Shine
Chair of the Remuneration Committee
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
108
Corporate Governance
This report explains how the Group’s Remuneration Policy was implemented during FY 2020 and how it will be applied for FY 2021.
Overview of Policy and how it will be applied for FY 2021
Salary
Influenced by role, individual
performance, experience and market
positioning.
Benefits
Provision of an appropriate level of
benefits for the relevant role and local
market.
No increases were awarded to Executive Directors from 1 July 2020 in line with
the approach followed for the Group’s workforce on the same date. The Group’s
South African workforce will be receiving salary increases with effect from 1
January 2021 following negotiated settlements with organised labour and general
increases with reference to inflation to non-unionised employees.
With effect from 1 July 2020, Executive Director base annual salaries were as
follows:
• Richard Duffy – £370,800 (FY 2019: £370,800 from date of appointment 1 April
2019); and
• Jacques Breytenbach – £265,200 (FY 2019: £265,200).
Executive Directors receive:
• 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, up to the maximum contribution in line with
the wider workforce, funded from this allowance; and
• Group life, disability and critical illness insurance.
Annual bonus
Linked to key financial, operational, HSE,
SED and strategic goals of the Company,
which reflect critical factors of success.
Maximum opportunity for FY 2021 of 150% of salary.
The Committee has reviewed the annual bonus targets for FY 2021 to ensure that
they are aligned to our strategic priorities. The bonus scorecard for FY 2021,
which will have an overall weighting of 70%, will be linked to:
Performance Share Plan
Aligned with shareholders and motivating
the delivery of long-term objectives.
• free cashflow generation (25%);
• cost and capital management (25%);
• carats produced and revenue realised (20%);
• health and safety objectives (15%); and
• ESG objectives (15%).
The remaining 30% of the Executive Directors’ bonuses will be linked to the
achievement of individual strategic targets.
Annual bonus will be subject to a clawback provision, which may apply for up to
two years following the end of the performance period.
Given the current status of the envisaged capital restructuring the Company is
looking to undertake, the Committee has decided to postpone the determination
of PSP awards for FY 2021. The intention is that these awards will be made once
the capital restructuring has been completed with more certainty around
shareholder expectations, estimated to be early CY 2021.
The current intention is that PSP awards for FY 2021 will have the same broad
performance framework as FY 2020, with 50% based on TSR and 50% based on
operational and financial measures. Full details of the awards and the
performance targets set will be published on our website shortly after the awards
have been granted.
PSP awards are 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.
Shareholding guidelines
Aligned with shareholders.
Shareholding guidelines of 200% of salary.
Post-employment shareholding requirement introduced.
Petra Diamonds Limited Annual Report and Accounts 2020
109
Corporate Governance
Directors’ Remuneration Report continued
Overview of Policy and how it will be applied for FY 2021 continued
The following table provides details of how the Remuneration Policy addresses the factors set out in Provision 40 of the 2018 UK
Corporate Governance Code:
Clarity
Remuneration arrangements should be
transparent and promote effective
engagement with shareholders and the
workforce.
Simplicity
Remuneration structures should avoid
complexity and their rationale and operation
should be easy to understand.
Risk
Remuneration arrangements should ensure
reputational and other risks from excessive
rewards, and behavioural risks that can arise
from target-based incentive plans, are
identified and mitigated.
The Committee is mindful of ensuring that our remuneration arrangements
are clear and transparent for both participants and shareholders.
When considering changes to our Remuneration Policy the Committee
engaged with major shareholders and key proxy bodies and took their
comments into account.
Petra’s remuneration framework is simple, consisting of fixed remuneration,
an annual bonus and a single long-term incentive plan.
The Committee takes risk factors into account when setting and assessing
remuneration arrangements. The performance framework includes a
balanced range of measures which include production, financial, health and
safety, and ESG measures.
The remuneration framework provides the Committee with discretion to
adjust incentive outturns or to claw back remuneration in certain
circumstances.
Predictability
The range of possible values of rewards to
individual Directors and any other limits or
discretions should be identified and explained
at the time of approving the Policy.
Our Policy provides details of the maximum opportunity for elements of
variable pay.
The scenario charts on page 124 of the Policy provide four illustrations of
the application of our Policy for differing levels of performance.
Proportionality
The link between individual awards, the
delivery of strategy and the long-term
performance of the Company should be clear.
Outcomes should not reward poor
performance.
Alignment to culture
Incentive schemes should drive behaviours
consistent with Company purpose, values and
strategy.
In order to align executive pay with performance two of the overarching
principles of our Policy are that remuneration packages should be weighted
towards performance-related pay and that performance targets should be
suitably demanding.
The Committee has a strong track record of applying discretion to reduce
awards where they do not consider them to be appropriate in the context of
performance.
The Company’s values, purpose and culture are reflected in remuneration
outcomes. Salary increases for Executives take account of the wider
workforce. In FY 2020 Executive Directors volunteered salary reductions in
response to COVID-19. Pension benefits are aligned to the workforce.
Incentives reflect broader purpose measures, such as environmental and
societal, as well as financial results.
Petra Diamonds Limited Annual Report and Accounts 2020
110
Corporate Governance
Single figure of total remuneration
The following table gives a breakdown of the remuneration received by the Executive Directors for FY 2020 and FY 2019.
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.
Salary2
Benefits3
Retirement benefits3
Total fixed remuneration
Annual bonus
Long-term incentives – PSP awards
Legacy awards (Management LTIP)
Total variable remuneration
Total
Richard Duffy
Chief Executive
Jacques Breytenbach
Finance Director
£
2020
20191
2020
2019
£
£
£
£
£
£
£
£
£
339,900
92,700
243,100
260,000
44,356
11,363
22,469
21,696
—
—
9,255
9,750
384,256
104,063
274,824
291,446
—
—
—
—
41,159
—
—
41,159
—
—
—
—
92,352
—
5,587
97,939
384,256
145,222
274,824
389,385
1. Mr Duffy joined as Chief Executive effective 1 April 2019 and the table reflects his 2019 remuneration for the three-month period to 30 June 2019.
2. In light of the COVID-19 pandemic, Executive Directors took temporary salary reductions for a period of three months (April to June 2020); other elements of remuneration
were not impacted by this temporary salary reduction.
3. 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.
Additional notes to the total remuneration table
Salary
For FY 2021 the Committee has determined that the base salaries (per annum) for Executive Directors should be as set out below:
Richard Duffy
Jacques Breytenbach
Base
salary to
1 July 2019
£
370,800
265,200
Base
salary from
1 July 2020
£
370,800
265,200
Salary increases across the Company’s employee population, which will become effective 1 January 2021, were generally aligned
to inflation where the employee is based, while the Executive Directors’ base salaries were left unchanged.
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.
Petra Diamonds Limited Annual Report and Accounts 2020
111
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 2020, 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
Operational performance and
profitability (including free
cashflow generation, revenue,
Capex and cost management)
Corporate (including corporate
and strategic priorities and
health, safety, social and
environmental performance)
Performance and targets
Weighting
Vesting
outcome
Threshold Target Maximum
FY 2020
performance
80%
12.8%
Free cashflow
($m)
20.0 37.2
50.0
Revenue ($m)
439.7 475.4
501.8
Cost and Capex
6
8
10
(57.0)
295.8
8.4
LTIFR of 0.29 (FY 2019: 0.21) – negative LTIFR trend,
although total injuries improved year on year; zero fatalities
recorded during the Year.
The Committee carefully considered the performance of
the Executive Directors in delivering against corporate and
strategic priorities, with a key focus on the reaction to
mitigate the unprecedented impact of the COVID-19
pandemic, progress towards capital restructuring, progress
towards Tanzanian issues, continued business optimisation
steps implemented, and Board and management changes.
20%
12.6%
Total (before application
of discretion)
100%
25.4%
Considering the Company’s current financial position, coupled with ongoing uncertainty related to the impact of COVID-19 on the
diamond market, the Committee determined that the Executive Directors will not be awarded an annual performance bonus for FY
2020, notwithstanding the formulaic outcome (equating to 25.4% of maximum). This is the sixth consecutive year in which the
Committee has made a downwards adjustment to the formulaic outcome for the bonus scorecard.
Annual bonus for FY 2021
For FY 2021, the Committee will continue to use a scorecard framework to determine annual bonuses. The Committee has set
performance measures, targets and milestone achievements reflecting the increased focus on free cashflow generation and net
debt reduction as set out below. In addition, to reflect a focus on key strategic actions for the ongoing benefit of the Company, for
FY 2021 the Committee has decided that 30% of the Executive Directors’ bonuses will be linked to the achievement of individual
strategic targets.
Group performance measure
Operational performance and profitability (including free cashflow generation, carat production,
revenue, Capex and cost management)
Health and safety performance (including LTIFR, TIFR and maintaining zero fatalities)
ESG measures (including environmental efficiencies, social and community, and diversity and
inclusion performance)
Scorecard
weighting
70%
15%
15%
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.
Petra Diamonds Limited Annual Report and Accounts 2020
112
Below median
(0% vested)
Below threshold
(0% vested)
Corporate Governance
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 2018 to FY 2020 award
There were no PSP awards vesting for the current Executive Directors in respect of the three-year period ending in FY 2020.
The long-term incentive outturn post period end relates to the awards granted under the PSP in October 2017 to former Executive
Directors that were subject to performance measures assessed over three years, appropriately pro-rated for time served. 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 total shareholder return (“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
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, project delivery and overall mine management. Performance was in respect of Cullinan,
Finsch 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 37 to 42.
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 only applicable to
past Executive Directors, as none of the current Executives were appointed in their roles at the time of grant, 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 less than 0.5% of the pro-rated face value at the time of grant. The Committee
determined that no payments will be made until after the upcoming SGM planned for early CY 2021.
FY 2021 awards
Given the current status of the envisaged capital restructuring the Company is looking to undertake, the Committee has decided
to postpone the determination of PSP awards for FY 2021. The intention is that these awards will be made once the capital
restructuring has been completed with more certainty around shareholder expectations, estimated to be early CY 2021.
Full details of the awards and the performance targets set will be published on our website shortly after the awards have been
granted.
Petra Diamonds Limited Annual Report and Accounts 2020
113
Corporate Governance
Directors’ Remuneration Report continued
Non-Executive Director remuneration
Mr Pouroulis resigned from the position of Non-Executive Chairman with effect from 31 March 2020. Mr Pouroulis continued to
receive the benefit of membership of the Group’s life insurance scheme up to 30 June 2020.
Mr Hill was appointed as Non-Executive Chairman with effect from 31 March 2020.
The Chairman’s fee is £165,000 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 and for the role as Senior Independent Director. All fees are payable in cash.
The additional annual fees paid for chairmanship of the Audit and Risk Committee, Remuneration Committee, HSE Committee and
SED Committee are £15,579, £12,888, £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 2021, the Chairman’s fee and the fixed basic fees payable to Non-Executive Directors will not be increased. In recognition
of the position of the business, the Senior Independent Director and the various Chairs of the Board sub-committees have agreed
to a reduction in their fees on an ongoing basis. The additional annual fees paid for the Senior Independent Director, as well as for
the chairmanship of the Audit and Risk Committee, Remuneration Committee, HSE Committee and SED Committee, will be
reduced to £10,000, £10,000, £10,000, £7,500 and £7,500 per annum respectively.
Independent Non-Executive Directors do not participate in the Company’s bonus arrangements, share schemes or pension plans,
and for FY 2020 (in accordance with the Company’s normal policy) did not receive any other remuneration from the Company
outside of the fee policy outlined above.
Following the outbreak of COVID-19, the Non-Executive Director fees were reduced by 25% for Q4 FY 2020.
Single figure of total remuneration
The following table gives a breakdown of the remuneration received by the Non-Executive Directors for FY 2020 and FY 2019.
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 (resigned 31 March 2020)
Peter Hill
Chairman (effective 1 April 2020)
Varda Shine
Dr Pat Bartlett
Gordon Hamilton
Octavia Matloa
Bernard Pryor
Tony Lowrie
Year
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Fees1
£
119,738
159,650
45,100
—
55,5262
28,3255
53,109
56,650
77,3743
84,975
65,856
62,3154
63,731
33,9904,5
74,836
79,825
Benefits
£
3,310
3,466
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total
£
123,048
163,116
45,100
—
55,526
28,325
53,109
56,650
77,374
84,975
65,856
62,315
63,731
33,990
74,836
79,825
1. In light of the COVID-19 pandemic, Non-Executive Directors took temporary fee reductions for a period of three months (April to June 2020).
2. Fees pro-rated for services as Remuneration Committee Chair for the period 1 April 2020 to 30 June 2020.
3. Fees pro-rated for services as Remuneration Committee Chair for the period 1 July 2019 to 31 March 2020.
4. Includes pro-rated HSE and SED Committee Chair fees for the period 1 January 2019 to 30 June 2019.
5. Pro-rated from appointment date 1 January 2019 to 30 June 2019.
Petra Diamonds Limited Annual Report and Accounts 2020
114
Corporate Governance
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 2020 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 five-year
period from appointment in line with our policy on shareholding guidelines.
Shareholding
as at
30 June 2020
Shareholding as at
30 June 2019
Shareholding
guideline1
Peter Hill
Richard Duffy
Jacques Breytenbach2
Varda Shine3
Dr Pat Bartlett
Gordon Hamilton
Octavia Matloa
Bernard Pryor
Tony Lowrie4
Chairman
Chief Executive
Finance Director
Senior iNED
iNED
iNED
iNED
iNED
iNED
—
240,000
243,750
—
—
—
N/A
240,000
16,334,802
243,750
11,682,819
—
—
247,000
247,000
—
—
—
—
3,737,500
3,737,500
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 2020 of 2.27 pence.
2. Post Year end, 93,034 deferred bonus awards vested adding to Mr Breytenbach’s shareholding.
3. Ms Shine assumed the role of Senior iNED on 17 November 2020.
4. Mr Lowrie was Senior iNED up to the date of his retirement from the Board on 17 November 2020.
Post-employment shareholding guidelines
The Committee has introduced post-employment shareholding guidelines. Executive Directors will be expected to maintain a
shareholding for a period of two years post cessation of employment. The expected shareholding will be the lower of the
Executive Directors’ shareholding guideline of two years’ basic salary or their actual relevant shareholding at the date of
termination if lower. This requirement will only apply to shares delivered from incentives from the date of the new Policy. The
Committee may, in exceptional circumstances, allow an Executive Director to reduce this holding guideline to 50% after at least
one year from the date of cessation.
As at 30 June 2020, the Directors’ interests in share plans of the Company were as follows:
Breakdown of share plan interests as at 30 June 2020
Executive Directors
Richard Duffy
Jacques Breytenbach
Shares
Options
Unvested and
subject to
performance1
Unvested and
not subject to
performance2
Vested but
not exercised
Lapsed
in the Year
2,904,678
1,940,151
116,926
355,398
—
—
—
—
1. This comprises awards made in FY 2019 and FY 2020 under the Company’s PSP.
2. This comprises outstanding deferred share awards in respect of FY 2018 and FY 2019. During FY 2019, the following awards were granted: Mr Duffy – 116,926 and Mr
Breytenbach – 262,364 shares respectively. These awards represent 50% of the total bonus in respect of FY 2019. Post Year end, the FY 2018 deferred share awards
vested: Mr Breytenbach – 93,034 shares.
Petra Diamonds Limited Annual Report and Accounts 2020
115
Corporate Governance
Directors’ Remuneration Report continued
Directors’ shareholding and share interests continued
Post-employment shareholding guidelines continued
As at 30 June 2020, Executive Directors held the following interests in the 2012 PSP:
Date of
award
Outstanding
at 1 July
2019
Awarded
during
the Year
Vested
during
the Year
Lapsed
during
the Year
Outstanding
at 30 June
2020
Performance
period4
Richard Duffy
01/04/20191
797,860
—
24/10/20192
— 2,106,818
Total
797,860 2,106,818
Jacques Breytenbach
06/10/2018 3
433,333
—
24/10/20192
—
1,506,818
Total
433,333 1,506,818
—
—
—
—
—
—
—
797,860
FY 2020–FY 2022
— 2,106,818
FY 2020–FY 2022
— 2,904,678
—
—
—
433,333
FY 2019–FY 2021
1,506,818
FY 2020–FY 2022
1,940,151
1. 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.
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 and project delivery (50%). The share price on 24 October 2019 was 7.0 pence; the six-month average share price used to determine these
awards was 17.6 pence, as opposed to the 30-day average price, being 7.5 pence, used historically.
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%). 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 theoretical ex-rights price
(“TERP”) of 60.92 pence following the rights issue. A price of 60.0 pence was applied in this regard.
4. 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 the last remaining options awarded to Directors, totalling
2,206,607 vested share options, lapsed (of which 1,943,433 related to former Chairman Mr Pouroulis and Executive Directors
Messrs. Dippenaar and Davidson). As at 30 June 2020, there were no outstanding vested share options for Executive Directors
under the 2005 ESOS, with the table below setting out the relevant detail of vested options which lapsed during the Year:
Date of grant
Exercisable
from
30/09/2009 30/09/2012
17/03/2010 17/03/2013
Jacques
Breytenbach
Total
Exercise
price (p)
(pre-
Rights
Issue)
Outstanding
at 1 July
2019
Exercised
during
the Year
45.5
60.5
80,977
182,197
—
—
Lapsed
during
the Year
80,977
182,197
263,174
— 263,174
Outstanding
as at 30
June
2020
—
—
—
Exercise
price (p)
Expiry date
37.5 30/09/2019
49.8 17/03/2020
External non-executive directorships
None of the Company’s Executive Directors hold a directorship at another listed company.
Other disclosures
Performance graph
The graph below shows a comparison between the TSR for Petra shares for the ten-year period to 30 June 2020 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.
300
200
100
0
June 10
June 11
June 12
June 13
June 14
June 15
June 16
June 17
June 18
June 19
June 20
Petra Diamonds
FTSE 350 Mining Index
Source: Datastream
Petra Diamonds Limited Annual Report and Accounts 2020
116
Corporate Governance
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 ten-year period.
FY 2012 FY 2013
FY 2014
FY 2015
FY 2016
FY 2017 FY 2018
FY 2019 3 FY 2019 3
FY 2020
Main Market
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
1,115,496 804,361 1,075,225 999,034 1,137,521 545,687 550,801
449,172
145,222 384,256
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
N/A
1. The Chief Executive’s annual bonus for FY 2011 was £170,000.
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.
Petra Diamonds Limited Annual Report and Accounts 2020
117
Corporate Governance
Directors’ Remuneration Report continued
Annual percentage change in remuneration of the Directors
The following table sets out the annual percentage change in salary, benefits and bonus in respect of each Director and the
average for the Company’s employees (on a full-time equivalent basis).
Average Company employee1
Executive Directors
Mr Duffy
Mr Breytenbach
Non-Executive Directors2
Chief Executive
Finance Director
Mr Pouroulis (resigned 31 March 2020) Non-Executive Chairman
Mr Hill (appointed 1 April 2020)
Non-Executive Chairman
Ms Shine3
Dr Bartlett
Mr Hamilton
Ms Matloa3
Mr Pryor
Mr Lowrie44
Senior Independent Non-Executive
Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Year-on-year change in pay
Salary
5.0%
Benefits
13.0%
(8.3%)
(6.5%)
0.0%
n/a
(2.0%)
(6.3%)
(8.9%)
5.7%
(6.3%)
(6.2%)
(2.4%)
0.9%
(4.5%)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
Bonus
10%
(100%)
(100%)
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1. Average employee compensation is calculated using all employees in the Group (excluding Executive Directors), as the parent company employs only a small number of
employees. The results were calculated by dividing actual salaries, benefits and bonuses paid out during the Year by the average number of employees.
2. The percentage changes in salary and fees for Directors differs from the annual increases awarded for FY 2020 as it takes into account a temporary reduction in salaries
and fees for Q4 FY 2020 following the outbreak of the COVID-19 pandemic (as detailed in the relevant sections above), as well as the impact of changes in various chair
positions in actual FY 2020 fees paid to the NEDs.
3. Ms Matloa’s fees increased due to her role as Chair of the SED Committee for the full Year, following her assuming the role midway through FY 2019.
4. Ms Shine assumed the role of Senior iNED on 17 November 2020.
5. Mr Lowrie was Senior iNED up to the date of his retirement from the Board on 17 November 2020.
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
Service contracts
Director
Role
Executive Directors
Mr Duffy
Chief Executive
Mr Breytenbach Finance Director
Non-Executive Directors
FY 2020
US$m
nil
117.8
FY 2019
US$m
nil
143.2
Change
%
0%
(18%)
Date of contract
Contract end date
Notice period
by Company
or Director
1 April 2019
19 February 2018
N/A
12 months
N/A
12 months
Mr Hill
Non-Executive Chairman
1 January 2020
31 December 2022
1 month
Ms Shine
Senior Independent Non-Executive Director
22 October 2018
31 December 2021
1 month
Mr Hamilton
Independent Non-Executive Director
17 September 2018
29 November 2020
1 month
Ms Matloa
Independent Non-Executive Director
17 September 2018
10 November 20201
1 month
Mr Pryor
Mr Lowrie1
Independent Non-Executive Director
22 October 2018
31 December 2021
1 month
Senior Independent Non-Executive Director
17 September 2018
13 September 2020
1 month
1. Ms Matloa’s contract is in the process of being extended.
2. Mr Lowrie retired from the Board on 17 November 2020.
Petra Diamonds Limited Annual Report and Accounts 2020
118
Corporate Governance
Membership of the Committee
The Committee members for FY 2020 were Varda Shine (Chair from 1 April 2020), Gordon Hamilton (Chair to 31 March 2020), Dr
Pat Bartlett (stepped down on 30 June 2020) and Tony Lowrie (stepped down on 17 November 2020). Bernie Pryor and Octavia
Matloa became members of the Committee on 1 July 2020, meaning that the Committee membership now comprises all of the
Company’s iNEDs.
The Committee is responsible for determining on behalf of the Board and shareholders:
• the Company’s general policy on the remuneration of the Executive Directors, the Chairman and the Senior Management team;
• the total individual remuneration for the Chairman, Executive Directors and Senior Management including base salary, benefits,
performance bonuses and share awards;
• the design and operation of the Company’s share incentive plans;
• performance conditions attached to variable incentives;
• service contracts for Executive Directors; and
• oversee Group-wide workforce remuneration.
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 FY
2022 for the Remuneration Committee totalled £39,850 (FY 2019: £17,600) 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) did undertake the local statutory audit for Williamson Diamonds Ltd, a subsidiary of
the Petra Diamonds Group, until FY 2019. BDO LLP remains the Group auditors.
Statement of shareholder voting
The voting outcomes for the 2019 Directors’ Remuneration Report and 2017 Directors’ Remuneration Policy Report were as
follows:
2019 Directors’ Remuneration Report
396,518,936
94.47% 23,231,139
5.53%
419,750,075
12,260
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
Varda Shine
Chair of the Remuneration Committee
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
119
Corporate Governance
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report
Directors’ Remuneration Policy Report
The following section sets out the Group’s Remuneration Policy (the “Policy Report”). As a Bermuda-incorporated company, Petra
is not subject to the UK disclosure regulations. However, the Remuneration Committee continues to recognise the importance of
good governance and therefore we are resubmitting our Policy Report to shareholders in accordance with the three-year renewal
timeframe. It is intended that this Policy Report will be put forward to shareholders for approval at the 2020 AGM and will
thereafter come into immediate effect following the AGM.
Remuneration principles
Petra’s culture is performance driven. We have a management team that is highly experienced within the specialist world of
diamond mining, which therefore brings unique skills to bear. Against this background, our approach to remuneration is guided by
the following overarching principles:
• The employment terms for Executive Directors and Senior Management are designed to attract, motivate and retain high calibre
individuals who will drive the performance of the business. The Group competes for talent with major mining companies and we
aim for packages to be competitive in this market.
• Remuneration packages should be weighted towards performance-related pay.
• Performance measures should be tailored to Petra’s strategic goals, and targets should be demanding.
• Share-based reward should be meaningful – the Committee believes long-term share awards provide alignment with the long-
term interests of shareholders and the Company.
• Remuneration structures should take into account best practice developments, but these should be applied in a manner that is
appropriate for Petra’s industry and specific circumstances.
• Remuneration alignment with equitable culture throughout the workforce.
Review process and changes to the Policy Report
Taking into account the impact of COVID-19 as well as the current position of the business, the Remuneration Committee decided
that it was not an appropriate time to undertake a full-scale review of the Policy Report. We are therefore proposing to roll forward
our existing Policy Report, making some minor amendments to reflect good governance practice.
During the review the Committee took into account the latest governance developments, in particular the 2018 UK Corporate
Governance Code and the evolving views of shareholders. Input was received from the Chairman and the Committee’s
independent advisers. Input was also received from the Company’s management, whilst ensuring that any conflicts of interest
were suitably mitigated.
The key changes between this Policy Report and the policy report which was approved by shareholders at the AGM in November
2017 are as follows:
• Executive Directors are eligible to use a portion of their benefit allowance to participate in the Company’s pension plan on the
same basis as the Group’s South African workforce. This alignment with the workforce is now formalised in the Policy Report.
• The post-vesting holding period that was introduced to the Performance Share Plan (“PSP”) in FY 2020 will now form part of the
Policy Report.
• Post-employment shareholding requirements have been introduced.
Petra Diamonds Limited Annual Report and Accounts 2020
120
Corporate Governance
Fixed remuneration
Salary
Purpose and link to strategy
• To attract and retain Executive Directors of the calibre required by the business.
• This is a core element of the remuneration package.
Operation
• The base salaries for Executive Directors are determined by the Committee taking into
account a range of factors including:
• the scope of the role;
• the individual’s performance and experience; and
• positioning against comparable roles in other mining companies of similar size and
complexity.
• Base salaries are normally reviewed annually with changes effective from the start of the
financial Year on 1 July.
Current implementation
• With effect from 1 July 2020, Executive Director salaries were unchanged from 1 July
2019:
• Richard Duffy, CEO – £370,800; and
• Jacques Breytenbach, CFO – £265,200.
Maximum opportunity
• In determining salary increases, the Committee is mindful of general economic conditions
and salary increases for the broader Company employee population.
• More significant increases may be made at the discretion of the Committee in certain
circumstances, including (but not limited to):
• where an individual’s scope of responsibilities has increased;
• where, in the case of a new Executive Director who is positioned initially on a lower
starting salary, an individual has gained appropriate experience in the role; and
• where the positioning is out of step with salary for comparable roles in the market.
Benefits
Purpose and link to strategy
• To provide market competitive benefits.
Operation
• Benefit policy is to provide an appropriate level of benefit for the role taking into account
relevant market practice.
• Under the current arrangements, Executive Directors receive:
• a benefits allowance of 10% of salary in respect of both benefits and pension; and
• Group life, disability and critical illness insurance.
• Executive Directors may use a portion of their benefit allowance to contribute to the
Company’s defined contribution pension plan up to the maximum contribution in line with
the wider workforce, funded from the benefits allowance.
• The Committee retains the discretion to provide reasonable additional benefits based on
individual circumstances (e.g. travel allowance and relocation expenses for new hires, or
pension arrangements).
Maximum opportunity
• The benefit provision will be set at an appropriate level taking into account the cost to the
Company and the individual’s circumstances.
Petra Diamonds Limited Annual Report and Accounts 2020
121
Corporate Governance
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report
Directors’ Remuneration Policy Report continued
Variable remuneration
Annual bonus
Purpose and link to strategy
• To motivate and reward performance measured against annual key financial, operational
and strategic goals of the Company, which reflect critical factors of success.
• Deferred element of the annual bonus ensures that part of the value of payments earned
remains aligned to the Company’s share price, thus creating alignment with the
shareholder experience.
Operation
• Short-term annual incentive based on performance during the financial year.
• A proportion of the award earned for a financial year will normally be deferred into shares.
• Deferred shares may accrue dividend equivalents.
• In exceptional circumstances, where delivery of the deferred element of the bonus in
shares is deemed by the Company to be impractical for any reason (e.g. due to exchange
control or other regulatory restrictions) cash equivalents linked to the share price provide
alignment with shareholders. In the event that awards are, exceptionally, delivered as
cash the amount would normally be used to purchase shares.
• Awards will be subject to malus and clawback provisions.
Maximum opportunity
• Maximum award of up to 150% of base salary.
Performance measures
• The amount of bonus earned is based on performance against financial, operational,
strategic and personal measures.
• The Committee reviews the performance measures annually and sets targets to ensure
that they are linked to corporate priorities and are appropriately stretching in the context
of the business plan.
• Prior to determining bonus outcomes, the Committee considers performance in the round
to ensure that actual bonuses are appropriate. The Committee retains the discretion to
amend the formulaic outcome if considered appropriate and to ensure fairness to both
shareholders and participants.
• Any amounts deferred into shares, normally for a period of two years, will be subject to
continuing employment, but not to any further performance measures.
Performance Share Plan
Purpose and link to strategy
• To motivate and reward for the delivery of long-term objectives in line with the business
strategy.
• To create alignment with the shareholder experience and motivate long-term objectives.
Operation
• Awards of conditional shares (or equivalent) which will normally vest based on
performance over a period of three years.
• Awards granted from FY 2020 are normally subject to a two-year post-vesting holding
period.
• Awards may accrue dividend equivalents.
• Where delivery in shares is deemed by the Company to be impractical for any reason (e.g.
due to exchange control regulations) cash equivalents linked to the share price provide
alignment with shareholders.
• Awards will be subject to malus and clawback provisions.
Maximum opportunity
• Maximum award of up to 200% of salary and a normal award of 150% of salary.
Performance measures
• Vesting is normally based on performance against financial, operational and strategic
measures.
• The Committee determines targets each year to ensure that targets are stretching and
represent value creation for shareholders, while remaining motivational for management.
• The Committee retains the discretion to amend the formulaic outcome if considered
appropriate and to ensure fairness to both shareholders and participants.
• The Committee has additional discretion to make downward adjustments in the event
that a significant increase in the share price leads to potentially excessive rewards.
Petra Diamonds Limited Annual Report and Accounts 2020
122
Corporate Governance
Shareholding guidelines
It is the Company’s policy that each of the Executive Directors holds a meaningful number of Petra shares. The guideline is to build
and maintain a minimum of two years’ basic salary for the applicable Director. Newly appointed Executive Directors will normally
have five years from the date of appointment to reach this guideline.
Post-employment shareholding guidelines
Executive Directors will normally be expected to maintain a minimum shareholding for two years following ceasing to be an
Executive Director.
Notes to the Remuneration Policy table
Performance measures for incentives
The performance measures and targets for the annual bonus and PSP awards to Executive Directors are intended to be closely
aligned with the Company’s short-term and long-term objectives. The intention is to provide a direct link between reward levels,
performance and the shareholder experience. While the Committee has flexibility to adjust the performance measures used over
the course of the Policy, the following broadly summarises the performance measures currently used:
Cashflow generation
• Given Petra’s current level of debt, one of the key performance measures for Executive
Directors is the generation of cashflow and the resultant deleveraging of the Group.
Costs and Capex control
• Petra remains focused on managing costs and profitability. Cost management and capital
expenditure measures form part of the annual bonus and PSP metrics.
Production and revenue
• Carat production and product mix are at the core of Petra’s strategy. These measures are
therefore embedded in the performance measurement framework.
Corporate and ESG
• Corporate and strategic priorities including health, safety and ESG measures are explicitly
included as part of the annual bonus and PSP framework, reflecting Petra’s commitment
to corporate responsibility.
Total shareholder return
• Share awards are linked to value created for shareholders by measuring both relative and
absolute total shareholder return (“TSR”).
Malus and clawback provisions
In line with best practice, the vesting of deferred bonus and PSP awards is subject to malus and clawback provisions. The malus
provision enables the Committee to exercise discretion to reduce, cancel or impose further conditions on an award prior to vesting
or exercise (as the case may be). The clawback provision enables the Committee to require participants to return some or all of an
award after payment or vesting. Both provisions may be applied in circumstances including:
• a serious misstatement of the Company’s audited results;
• gross misconduct;
• payments based on erroneous data; or
• a serious failure of risk management.
Petra Diamonds Limited Annual Report and Accounts 2020
123
Corporate Governance
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report
Directors’ Remuneration Policy Report continued
Illustration of application of the Remuneration Policy
Fixed remuneration
Annual variable remuneration
Long-term variable remuneration
£1,798,380
£1,520,280
46%
37%
£964,080
29%
29%
£407,880
36%
31%
100%
42%
27%
23%
£1,286,220
£1,087,320
46%
£689,520
37%
29%
29%
£291,720
36%
31%
100%
42%
27%
23%
Minimum
Mid
Chief Executive Officer
Maximum Maximum +
share price
growth (50%)
Minimum
Mid
Finance Director
Maximum Maximum +
share price
growth (50%)
The charts above have been compiled using the following assumptions:
Fixed remuneration
Fixed remuneration (salary and benefits allowance) as at 1 July 2020.
Variable remuneration
• Annual bonus: maximum award of up to 150% of salary.
• PSP: FY 2021 conditional awards will be determined once the ongoing capital restructuring
has been finalised. The normal award size of 150% of annual salary is shown for reference.
• The amounts shown in the minimum, mid and maximum scenarios do not take into account
share price growth. The amounts in all scenarios do not take into account receipt of
dividend equivalents.
Performance scenarios
Minimum
Mid
Fixed remuneration only.
Fixed remuneration plus variable pay for the purpose of illustration as follows:
• Annual bonus: assumes a bonus pay-out of 50% of maximum.
• PSP: assumes vesting of 50% of maximum.
Maximum
Fixed remuneration plus variable pay for the purpose of illustration as follows:
• Annual bonus: assumes a bonus pay-out of 100% of maximum.
• PSP: assumes vesting of 100% of maximum.
Maximum + share price
growth (50%)
Fixed remuneration plus variable pay for the purpose of illustration as follows:
• Annual bonus: assumes a bonus pay-out of 100% of maximum.
• PSP: assumes vesting of 100% of maximum plus 50% share price growth.
Petra Diamonds Limited Annual Report and Accounts 2020
124
Corporate Governance
Recruitment policy
The Committee’s key principle when determining appropriate remuneration arrangements for a new Executive Director (appointed
from within the organisation or externally) is to ensure that arrangements are in the best interests of both Petra and its
shareholders, without paying more than is considered necessary by the Committee to recruit an executive of the required calibre
to develop and deliver the business strategy.
Fixed pay
Variable pay
Buy-outs
Salary and benefits would be determined within the bounds of the future policy table
above.
The UK regulations require the identification of a maximum level of variable pay which
may be granted on recruitment (excluding any buy-out arrangements). The maximum level
of variable pay (bonus and long-term incentives) for a new recruit will be consistent with
the Policy table on page 122. Within these limits and where appropriate the Committee
may tailor the incentives (e.g. timeframe, form and performance criteria) based on the
commercial circumstances at the time of recruitment.
The Committee may need to buy out remuneration forfeited on joining Petra. In such
circumstances, the Committee will seek to ensure any buy-out is of comparable
commercial value and is capped as appropriate.
The quantum, form and structure of any buy-out arrangement will be determined by the
Committee taking into account the terms of the forfeited arrangements (e.g. form of
award, timeframe, performance criteria, likelihood of vesting, etc.). The buy-out may be
structured as an award of cash or shares; however, where appropriate, the Committee will
normally seek to make awards under the existing incentive plans.
Non-Executive Directors
On the appointment of a new Non-Executive Chairman or Non-Executive Director, the
fees will be consistent with the policy set out on page 126. Fees to Non-Executive
Directors will not include share options or other performance-related elements.
Executive Director service contracts and policy on payment for loss of office
When determining leaving arrangements for an Executive Director, the Committee takes into account any contractual agreements
including the provisions of any incentive arrangements, typical market practice and conduct of the individual. The Committee may
also make any payments by way of compromise or settlement of any claim arising in connection with an Executive Director’s
cessation. Any such payments may include amounts in respect of accrued leave and any other professional or legal fees in
connection with the cessation.
Notice period
Payment in lieu of notice
Annual bonus
Share awards
The Executive Director service contracts are terminable by 12 months’ written notice on
either side and contain non-compete and non-solicitation clauses (dealing with
customers/clients and non-solicitation of Directors or senior employees restrictions
following termination).
In the event of termination by the Company of an Executive Director’s employment, the
contractual remuneration package (incorporating base salary and benefits including any
legal and professional fees), reflecting the 12-month notice period, would normally be
payable.
The Executive Director may, at the discretion of the Committee, remain eligible to receive
an annual bonus for the financial year in which they ceased employment. Such a bonus
will be determined by the Committee taking into account time in employment and
performance.
‘Good leavers’ (e.g. ill health or retirement)
If a participant is deemed to be a good leaver, unvested awards will usually continue until
the normal vesting date, unless the Board determines that the award will vest sooner (e.g.
at the time of departure). For PSP awards any vesting will normally take account of any
performance targets and, unless the Board determines otherwise, the time elapsed since
the award was granted. The Board will determine the extent to which any post-vesting
holding period will continue to apply.
‘Bad leavers’
If a participant is deemed to be a bad leaver, unvested awards will lapse.
Petra Diamonds Limited Annual Report and Accounts 2020
125
Corporate Governance
Directors’ Remuneration Report continued
Directors’ Remuneration Policy Report
Directors’ Remuneration Policy Report continued
Future Remuneration Policy for Non-Executive Directors
The remuneration of the independent Non-Executive Directors, with the exception of the Chairman, is determined by the
Chairman and the Executive Directors; the remuneration of the Chairman is determined by the Committee. Directors are not
involved in any decisions as to their own remuneration.
The table below sets out the Remuneration Policy with respect to the Non-Executive Directors. Independent Non-Executive
Directors do not participate in the Company’s bonus arrangements, share schemes or pension benefit plans. Any new independent
Non-Executive Director will be treated in accordance with this Policy.
Approach to setting fees
The fees for Non-Executive Directors are set at a level which
is considered appropriate to attract individuals with the
necessary experience and ability to oversee the business.
Fees are reviewed periodically, typically annually.
Judgement is used and consideration is given to a number of
internal and external factors including responsibilities, market
positioning, inflation and pay increases for the broader
Company employee population.
Travel and other reasonable expenses (including fees
incurred in obtaining professional advice in the furtherance of
their duties and any associated taxes) incurred in the course
of performing their duties may be reimbursed to Non-
Executive Directors.
Opportunity
The fee opportunity reflects responsibility and time
commitment.
Additional fees are paid for further responsibilities, such
as chairmanship of Committees.
The value of benefits provided will be reasonable in the
market context and take account of the individual
circumstances and benefits provided to comparable roles.
Legacy arrangements
The Committee may approve payments outside of the Remuneration Policy in order to satisfy any legacy arrangements agreed
prior to the adoption of this Policy Report or made to a Director prior to (but not in contemplation of) appointment to the Board.
Incentive plan discretions
All incentive awards are subject to the terms of the relevant plan rules under which the award was granted. The Committee may
adjust or amend awards in accordance with the provisions of the plan rules. This includes making adjustments to awards to reflect
corporate events, such as a change in the Company’s capital structure.
The Committee may adjust the weightings and measures under the annual bonus and PSP. The Committee retains the discretion
to exclude operational, strategic or personal measures.
The Committee may adjust the calibration of performance measures and vesting outcomes, or substitute or amend any vesting
condition. The Committee retains the discretion to amend the formulaic outcome if considered appropriate and to ensure fairness
to both shareholders and participants, including both upwards and downwards discretion.
In the event of a change of control of the Company, the Committee may determine the extent to which any PSP award will vest,
taking into account the extent that any performance target has been satisfied, the period of time that has elapsed since the award
was granted, and such other factors the Board deems relevant. Deferred awards will normally vest in full on a change of control,
unless the Committee determines otherwise. PSP and deferred bonus awards may be exchanged for an equivalent award in the
acquiring company.
Minor changes
The Committee may make minor amendments to the Remuneration Policy to aid its operation or implementation without seeking
shareholder approvals (e.g. for regulatory, exchange control, tax or administrative purposes).
Remuneration elsewhere in the Company
When assessing remuneration, the Committee takes care to ensure that pay levels reflect roles and responsibilities. The
Committee also takes care to ensure that packages for senior individuals are appropriate in comparison to the remuneration of
other employees within the Company, whilst still supporting delivery of Petra’s corporate objectives. Remuneration arrangements
throughout the organisation are based on similar reward principles.
Shareholder engagement
The Committee believes that it is very important to maintain open dialogue with shareholders on remuneration matters. The
Committee consulted with the Company’s major shareholders in the development of the Remuneration Policy.
Petra Diamonds Limited Annual Report and Accounts 2020
126
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:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
• state whether they have been prepared in accordance with IFRS as adopted by the European Union, subject to any material
departures disclosed and explained in the Financial Statements; and
• prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping 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:
• 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
• 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:
• there is no relevant available information of which the auditors are unaware; and
• they have taken all steps that ought to have been taken to make themselves aware of any relevant audit information and to
establish that the auditors are aware of that information.
In accordance with Section 89 of the Bermuda Companies Act 1981 (as amended), a resolution to confirm the re-appointment of
BDO LLP as auditors of the Company is to be proposed at the 2020 AGM to be held on 17 December 2020.
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 17 November 2020 and are signed on its behalf by:
Richard Duffy
Chief Executive
17 November 2020
Petra Diamonds Limited Annual Report and Accounts 2020
127
Financial Statements
Independent Auditor’s Report
To the members of Petra Diamonds Limited
1. Our opinion
We have audited the Financial Statements of Petra Diamonds Limited (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for
the year ended 30 June 2020 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 Notes to the 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 give a true and fair view of the state of the Group’s affairs as at 30 June 2020 and of the Group’s loss
for the year then ended;
• the Group Financial Statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and
• the Financial Statements 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 Auditor’s 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. Material uncertainty related to going concern
We draw attention to note 1.1 to the Financial Statements concerning the Group’s ability to continue as a going concern. The
matters explained in note 1.1 indicate that the Group is reliant on the successful conclusion of the proposed capital Restructuring
to continue as a going concern which is dependent on execution of a Lock-Up Agreement and subsequent approval by the
Company’s shareholders.
Additionally, as set out in note 1.1, in the event of a successful capital Restructuring, the Group’s forecasts remain sensitive to both
trading conditions and the potential impact of COVID-19, which may have a material impact on the Group’s ability to operate within
its covenants such that continued South African Lender Group support may be required for the proposed lending facilities to
remain available and, if unavailable, additional funding may be required.
As stated in note 1.1 these events or conditions, along with the other matters disclosed in note 1.1, indicate that a material
uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
Given the conditions and uncertainties noted above, we considered going concern to be a key audit matter. Our audit procedures
in response to this key audit matter included the following:
How we addressed the matter
• We made enquiries of Management and the Board regarding the status and form of the proposed capital Restructuring together
with the steps required for completion of the transaction. We reviewed the Term Sheet in respect of the proposed Restructuring
to obtain a detailed understanding of the proposed terms.
• We discussed the potential further impact of COVID-19 with Management and the Audit and Risk Committee including their
assessment of risks and uncertainties associated with areas such as the Group’s tenders, production and diamond prices that
are relevant to the Group’s business model and operations. We formed our own assessment of risks and uncertainties based on
our understanding of the business and mining sector and the impact of COVID-19 to date.
• We obtained Management’s sensitivity and reverse stress test analysis, which was performed to determine the point at which
covenants and liquidity breaks, and considered whether such scenarios were possible given both normal trading risks and the
potential impacts of COVID-19 and continued level of uncertainty.
• We critically reviewed the Group’s base case 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 2021 and external market data. We specifically confirmed that the forecast
period excluded receipts associated with Parcel 1 and outstanding VAT receivables at Williamson.
• We compared the debt service cash flows to the proposed terms in the Term Sheet. We recalculated Management’s forecast
covenant compliance and assessed the consistency of such calculations with the ratios stated in the Term Sheet.
• We reviewed the disclosures in note 1.1 to the Financial Statements in respect of going concern.
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Financial Statements
4. Conclusions relating to principal risks, going concern and viability statement
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:
• the Directors’ confirmation set out on page 43 in the annual report that they have carried out a robust assessment of the
Group’s emerging and principal risks and the disclosures in the annual report that describe the principal risks and the
procedures in place to identify emerging risks and explain how they are being managed or mitigated;
• the Directors’ statement set out on pages 142 to 144 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 and the Parent Company’s ability to continue to do so over a period of
at least twelve months from the date of approval of the Financial Statements; or
• the Directors’ explanation set out on pages 91 and 92 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.
5. Overview of our audit approach
Materiality
FY 2020
FY 2019
Change
Materiality for the Financial Statements as
a whole
US$5.0 million
US$6.5 million
Materiality levels used for the audits of
the significant components of the audit
US$1.4 million to
USD$3.3 million
US$1.1 million to
US$3.8 million
¯
¯
Audit scope coverage
96% of total assets, 100% of revenue and 97% of loss before tax
6. 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, including 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.
In addition to the matter described in the Material uncertainty related to going concern section, we have determined the matters
described below to be the key audit matters to be communicated in our report.
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 judgments in
respect of the accounting for
the guarantee in respect of
the BEE Lender Facilities were
inappropriate and that the
BEE receivables are not
recoverable.
Why it represented a
key audit matter
Relevant information
in Financial
Statements and
Report of the Audit
and Risk Committee
Management were 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 18 and 19.
Note 16.
Report of the Audit and Risk
Committee page 86.
Report of the Audit and Risk
Committee page 87.
Report of the Audit and Risk
Committee page 88.
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129
Financial Statements
Independent Auditor’s Report continued
To the members of Petra Diamonds Limited
6. Key audit matters continued
1. The risk that the judgements and estimates in the impairments of the mining assets are inappropriate
As detailed in note 8, the assessment of potential impairments to the carrying value of mining assets required significant
judgement and estimates by Management. Given the Group’s market capitalisation at 30 June 2020 was significantly below its net
assets, together with the recent downturn in the global rough diamond market as a result of COVID-19 which has significantly
impacted realised rough diamond prices, Management identified impairment indicators under IFRS and performed an impairment
test on each of the Group’s mining operations.
As detailed in note 8, as at 30 June 2020, the Group recognised an US$85.5 million impairment charge across its operations to
write the mining assets down to their recoverable amount. 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 longer term diamond prices, foreign exchange rates, the
recoverability of future VAT at Williamson and timing of Williamson re-commencing production (see page 150).
How we addressed the matter
• We evaluated Management’s impairment models against approved 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.
• In respect of short term pricing assumptions, our testing included evaluation of Management’s diamond price forecasts against
prices achieved during the Year and post Year end. In particular, we challenged Management on their assumptions regarding
the impact of the current market downturn on pricing and the basis for their estimates as to the extent to which the market will
recover in the short term. In assessing Management’s estimates, we considered empirical price recoveries after historical
market shocks, utilised public source information including market analyst and other diamond producer commentary on the
short term outlook, together with assessment of the effect of product mix on pricing.
• In respect of long term pricing, we considered the appropriateness of the long term diamond price escalator of 1.8% above a
long term US inflation rate of 2.5% per annum from FY 2024 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
forecasts 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.
• In terms of the recovery of historic VAT at Williamson (see ‘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’ to follow),
we confirmed that given the risks and uncertainty over the timing of recovery, any cashflows associated with the recovery of
historic VAT were excluded from the impairment model and the VAT receivable was 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 historic recovery. In
doing so, we considered legislative changes and evaluated legal advice obtained by Management, reviewed any
correspondence with the tax authorities and made inquiries of Management regarding the status of discussions with the GoT. In
addition, we considered the risk of delays in future VAT recovery and the extent to which such risks were adequately reflected
in the discount rate.
• In respect of the forecast date at which Williamson would recommence production, we discussed Management’s judgement
with the Audit and Risk Committee and considered the basis for the judgement with reference to forecast diamond pricing
impacting the economic viability of the mine and risks associated with the ongoing negotiations with the GoT regarding the
recovery of historic VAT and Parcel 1.
• On the other key assumptions, our testing included comparison of foreign exchange rates to market spot and forward rates;
recalculation of discount rates and evaluation of the appropriateness of risk premiums therein; and critical review of the forecast
cost, capex and production profiles against approved mine plans, reserves and resources reports and empirical performance.
• We reviewed Management’s sensitivity analysis and performed our own sensitivity analysis over individual key inputs.
• We held discussions with the Audit and Risk Committee to consider the recoverable amount under the forecasts, including
downside risks and sensitivity around pricing, production, foreign exchange rates, the timing of the Williamson mine re-start and
discount rates.
• We evaluated the disclosures given in note 8.
Observations
In respect of the recoverable amount of the mining assets, we found the Group’s conclusion to be appropriate and that the
Board’s assessment of the recoverable amount at 30 June 2020 considered both the Group’s plans, recent performance and
continued risks and uncertainties. We found the disclosures in note 8 to be relevant and informative.
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Financial Statements
6. 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
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 19, Parcel 1 from FY 2018 of 71,654 cts held at US$9.2 million being the lower of cost and net realisable value
was confiscated by the 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 18, the gross value of Williamson’s VAT receivable has increased to US$39.9 million at 30 June 2020.
US$13.0 million relates to historic VAT prior to July 2017 which arose under the pre-2017 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$26.9 million of VAT relates to VAT arising under the legislation, effective from July 2017 to June 2020. 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. We note that the VAT legislation was further
amended, effective from July 2020, which provided clarity on the legislation enacted from July 2020 removing the element that
required specific interpretation previously.
Given these circumstances, the carrying value and presentation of VAT was considered to represent a key risk for our audit.
How we addressed the matter
Inventory
• During our prior year audits, 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. For 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 their engagement with the GoT.
• We reviewed all correspondence with the GoT and the legal appeal previously filed by the Group, in conjunction with their legal
adviser, in relation to the blocked parcel which sets out the Group’s legal entitlement to return of the parcel.
• 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 Tanzanian 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.
• We challenged Management regarding the method, likelihood and timing of recovery and discussed the judgement with the
Audit and Risk Committee. In doing so, we considered representations regarding the status of discussions with GoT
representatives, including GoT representatives on the Williamson board. We obtained written representations from the Board in
respect of the judgement.
• We reviewed the carrying value of the inventory, held at net realisable value, against average tender values achieved in H2 FY
2020 and H1 FY 2021.
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131
Financial Statements
Independent Auditor’s Report continued
To the members of Petra Diamonds Limited
6. 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
VAT
• We examined the Group’s correspondence with the tax authorities in respect of the US$13.0 million pre-2017 legislation VAT for
indicators that such taxes were irrecoverable under local tax rules or subject to dispute. In addition, we made enquiries of the
Board and Management and reviewed minutes of meetings to identify indicators that VAT is disputed or may be irrecoverable.
• In respect of the US$26.9 million VAT arising under the legislation effective from July 2017 to June 2020, we reviewed the
definition of ‘raw minerals’ under the 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 enquiries of Management
regarding the nature of their ongoing discussions with the GoT. In addition, we reviewed the VAT legislation that was further
amended, effective from July 2020, which provided clarity on the legislation enacted from July 2017.
• 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.
• 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.
• We reviewed the disclosures in the Financial Statements to satisfy ourselves that the judgements and estimates have been
appropriately disclosed.
Observations
In relation to the Parcel 1, we found the Group’s conclusion that they are 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$13.0 million VAT under the pre-2017 legislation, we found no evidence of disputes in respect of VAT
receivables claimed. We found Management’s assessment that the US$26.9 million VAT under the legislation, effective July 2017
to June 2020, is valid to be an area of significant judgement given the lack of clarity in the tax legislation in that period 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 credit adjusted discount rate and timing of recovery to be highly subjective but acceptable.
We found the disclosures included in the Financial Statements in notes 18 and 19 to be appropriate.
3. The risk that the judgments in respect of the accounting for the guarantee in respect of the BEE Lender Facilities were
inappropriate and that the BEE receivables are not recoverable
As at 30 June 2020, the Group held loan receivables of US$147.9 million due from its BEE partners as set out in Note 16 which are
repayable out of cashflows generated from the Group’s mines. The BEE partners hold non-controlling interests in Finsch, Cullinan
and Koffiefontein and the Group holds loans payable to its BEE partners totalling US$108.6 million.
At 30 June 2020, as detailed in Note 16, the Group recorded US$40.0 million within loans and borrowings in respect of guarantees
provided by the Group to the South African BEE Lender Group in respect of the BEE Lender Facilities following the event of default
arising on the Second Lien Notes and associated cross default on the BEE Lender Facilities.
US$40.0 million has been recorded in FY 2020 as part of the gross receivable (before expected credit loss provisions) in respect
of amounts to be reimbursed to the Group in respect of the guarantee under the BEE Lender Facilities.
Under IFRS 9, the Group performed an expected credit loss assessment on the recoverability of the BEE receivable balance and
recorded an expected credit loss provision of US$10.9 million which required judgement and estimation by Management.
The appropriateness of judgements and estimates applied in determination of the accounting for the guarantee and associated
reimbursement asset, together with the expected credit loss determination, represented a key focus for our audit.
Petra Diamonds Limited Annual Report and Accounts 2020
132
Financial Statements
6. Key audit matters continued
3. The risk that the judgments in respect of the accounting for the guarantee in respect of the BEE Lender Facilities were
inappropriate and that the BEE receivables are not recoverable continued
How we addressed the matter
• We evaluated Management’s assessment that the US$40.0 million guarantee under the BEE Lender facilities met the criteria for
recognition under IFRS. In doing so we reviewed the terms of the BEE Lender facilities guarantee and considered the impact of
the default under the Second Lien Notes and subsequent Forbearance Agreement on the likelihood of the guarantee being
called. We obtained external confirmation of the outstanding amount of the BEE Lender facilities.
• We considered the Group’s judgment that the asset recognition criteria were met in respect of the equivalent reimbursement
asset. In doing so we reviewed external legal advice obtained by Management regarding the entitlement to such reimbursement
under South African legislation and held a call with the Group’s legal advisers to discuss their legal analysis.
• We have obtained and reviewed Management’s assessment of the expected credit loss (ECL) provision against the BEE
receivables and considered whether this is in line with the requirements of IFRS 9.
• We considered and challenged Management’s assessment of the ECL provision. In doing so we evaluated the methodology
used and scenarios applied against our understanding of the business. We discussed the appropriateness of the probability
weightings of each scenario with the Audit and Risk Committee, confirmed the consistency of underlying cashflows with LOM
plans and evaluated Management’s judgments regarding the impact of the proposed capital Restructuring terms on the models
based on information obtained during the course of our audit.
• We reviewed the disclosures in the Financial Statements.
Observations
We found Management’s assessment to be acceptable. We found the estimates regarding the probability of the various
recoverability scenarios to be highly subjective but appropriately considered.
We found the disclosures included in the Financial Statements in note 16 to be appropriate.
7. Our application of materiality
The materiality we applied equates to 1.25% of the average revenue for the last three years (FY 2019: 0.5% of the total assets of
the Group). We considered revenue to be an appropriate benchmark for materiality given the Group has now substantially
completed its capital expansion programmes and is delivering relatively steady state production. Given the impact of COVID-19 on
diamond prices and the Group’s inability to hold all of its planned tenders in FY 2020, we considered it appropriate to use a three
year average revenue figure as the basis for materiality.
Whilst materiality for the Financial Statements as a whole was US$5.0 million (FY 2019: US$6.5 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% (2019: 75%) of the above materiality
levels.
We agreed with the Audit and Risk Committee that we would report to them all individual audit differences identified during the
course of our audit in excess of US$0.1 million (FY 2019: US$0.2 million). We also agreed to report differences below that
threshold that, in our view, warranted reporting on qualitative grounds.
Petra Diamonds Limited Annual Report and Accounts 2020
133
Financial Statements
Independent Auditor’s Report continued
To the members of Petra Diamonds Limited
8. 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-site 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 on-site
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
96%
Revenue
100%
Profit before tax
97%
The remaining non-significant holding companies were principally subject to analytical review procedures.
As part of our audit strategy, as Group auditors:
• 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.
• The Group audit team performed procedures independently over key audit risk areas, as considered necessary, including the
key audit matters above.
• 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.
• Members of the Group audit team attended virtual clearance meetings for all significant components and spent significant
periods of time in virtual meetings with the component auditors responsible for the significant components during their
fieldwork and completion phases.
• The Group audit team performed remote reviews of the significant component audit files.
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134
Financial Statements
9. Other information in the annual report set out on pages 1 to 126 and 197 to 216
The Directors are responsible for the other information. The other information comprises the information included in the Annual
Report and Accounts 2020, 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.
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:
• Fair, balanced and understandable set out on page 127 – 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 position, performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
• Audit and Risk Committee reporting set out on pages 79 to 90 – the section describing the work of the Audit and Risk
Committee does not appropriately address matters communicated by us to the Audit and Risk Committee; or
• Directors’ statement of compliance with the UK Corporate Governance Code set out on page 63 – 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 auditor in accordance with Listing Rules do not properly disclose a departure
from a relevant provision of the UK Corporate Governance Code.
10. Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement set out on page 127, 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.
11. Auditor’s 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.
12. Other matters
Following the recommendation of the Audit and 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 2020 we were
reappointed as auditor by the members of the Company at the AGM of the Company held on 29 November 2019. The period of
total uninterrupted engagement is 15 years, covering the years ending 30 June 2006 to 30 June 2020.
Our audit opinion is consistent with the additional report to the Audit and Risk Committee.
Petra Diamonds Limited Annual Report and Accounts 2020
135
Financial Statements
Independent Auditor’s Report continued
To the members of Petra Diamonds Limited
13. Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with the Bermuda Companies Act 1981.
Our audit work has been undertaken so that we might state to the Parent Company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the 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 Auditor
London
17 November 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Petra Diamonds Limited Annual Report and Accounts 2020
136
Financial Statements
Consolidated Income Statement
For the Year ended 30 June 2020
US$ million
Revenue
Mining and processing costs
Other direct income/(expense)
Exploration expenditure
Corporate expenditure
Impairment of non-financial assets
Impairment of BEE loans receivable – expected credit loss provision
Total operating costs
Financial income
Financial expense
Loss before tax
Income tax credit
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 142 to 196 form part of these Financial Statements.
Notes
2
3
4
5
6
8
16
9
9
10
35
12
12
12
12
2020
295.8
(307.9)
2.0
(0.6)
(8.7)
(91.9)
(10.9)
(418.0)
7.9
(161.0)
(275.3)
52.3
(223.0)
—
(223.0)
(190.0)
(33.0)
(223.0)
(21.96)
(21.96)
(21.96)
(21.96)
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)
Petra Diamonds Limited Annual Report and Accounts 2020
137
Financial Statements
Consolidated Statement of Other Comprehensive Income
For the Year ended 30 June 2020
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
2020
(223.0)
(0.2)
(91.3)
(0.6)
2019
(258.1)
(0.1)
(14.9)
(0.7)
Total comprehensive expense for the Year
(315.1)
(273.8)
Total comprehensive expense for the Year attributable to:
Equity holders of the parent company
Non-controlling interest
(281.5)
(33.6)
(315.1)
(241.8)
(32.0)
(273.8)
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 142 to 196 form part of these Financial Statements.
Petra Diamonds Limited Annual Report and Accounts 2020
138
Financial Statements
Consolidated Statement of Financial Position
At 30 June 2020
US$ million
ASSETS
Non-current assets
Property, plant and equipment
Right-of-use asset
BEE loans receivable
Other receivables
Deferred tax assets
Total non-current assets
Current assets
Trade and other receivables
Inventories
Cash and cash equivalents (including restricted amounts)
Total current assets
Non-current assets classified as held for sale
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
Lease liability
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Loans and borrowings
Lease liability
Trade and other payables
Total current liabilities
Liabilities directly associated with non-current assets classified as
held for sale
Total liabilities
Total equity and liabilities
Notes
2020
2019
14
15
16
18
25
18
19
20
36
21
21
21
21
21
21
17
22
16
24
15
25
22
15
23
36
675.8
4.9
137.0
10.3
23.3
851.3
20.0
103.5
67.6
191.1
0.3
967.8
—
109.6
10.1
—
1,087.5
35.9
85.6
85.2
206.7
0.6
1,042.7
1,294.8
133.4
790.2
(453.0)
1.1
(0.8)
133.4
790.2
(361.7)
6.2
(0.8)
(440.4)
(255.6)
30.5
(18.8)
11.7
—
108.6
55.6
1.1
40.5
205.8
769.0
3.6
52.5
825.1
311.7
14.4
326.1
603.5
120.5
61.3
—
81.4
866.7
47.1
—
54.9
102.0
0.1
1,031.0
1,042.7
—
968.7
1,294.8
The notes on pages 142 to 196 form part of the Financial Statements.
The Financial Statements were approved and authorised for issue by the Directors on 17 November 2020.
Petra Diamonds Limited Annual Report and Accounts 2020
139
Financial Statements
Consolidated Statement of Cashflows
For the Year ended 30 June 2020
US$ million
Notes
2020
2019
8
8
16
35
9
9
Loss before taxation for the Year from continuing and discontinued
operations
Depreciation of property, plant and equipment
Amortisation of right-of-use asset
Unrealised gain on lease liability
Impairment charge
Impairment charge reversal for other receivables
Impairment of BEE loans receivable – expected credit loss provision
Loss and impairment charge in relation to discontinued operation
Movement in provisions
Financial income
Financial expense
(Profit)/loss on sale of property, plant and equipment
Share-based payment provision
Operating profit before working capital changes
Decrease in trade and other receivables
Decrease in trade and other payables
Increase in inventories
Cash generated from operations
Net realised (losses)/gains on foreign exchange contracts
Finance expense
Income tax paid
Net cash (utilised in)/generated from operating activities
Cashflows from investing activities
Acquisition of property, plant and equipment (including capitalised cash
interest paid of US$nil (30 June 2019: US$3.7 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
Principal paid on lease liabilities
Increase in borrowings
Repayment of borrowings
Net cash generated from/(utilised in) by financing activities
Net decrease 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
20
(275.3)
78.3
5.2
(0.8)
92.3
(0.4)
10.9
—
(0.1)
(7.9)
161.0
(0.1)
0.7
63.8
11.4
(15.5)
(32.7)
27.0
(8.3)
(26.2)
(0.6)
(8.1)
(39.3)
0.8
(14.1)
—
0.4
—
1.2
(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
(51.0)
(137.9)
(5.0)
100.9
(43.5)
52.4
(6.7)
71.7
(11.4)
53.6
—
5.8
(108.5)
(102.7)
(141.6)
223.0
(9.7)
71.7
1. Cash and cash equivalents in the Consolidated Statement of Financial Position includes restricted cash of US$14.0 million (30 June 2019: US$13.5 million) and unrestricted
cash of US$53.6 million (30 June 2019: US$71.7 million).
The cashflows specific to the discontinued operation (net of tax) are included in the amounts above and are disclosed in note 35.
Notes to the Consolidated Statement of Cashflows are set out in note 29.
The notes on pages 142 to 196 form part of the Financial Statements.
Petra Diamonds Limited Annual Report and Accounts 2020
140
Financial Statements
Consolidated Statement of Changes in Equity
For the Year ended 30 June 2020
—
—
—
—
—
—
—
—
—
—
—
US$ million
At 1 July 2019
Loss for the Year
Other comprehensive
expense
Transfer between reserves -
Williamson non-controlling
interest.
Transfer between reserves
for lapsed employee options
Equity-settled share-based
payments
Share
capital
Share
premium
account
Foreign
currency
translation
reserve
Share-
based
payment
reserve
133.4
790.2
(361.7)
—
—
6.2
—
—
(91.3)
(0.2)
—
—
—
—
—
—
(5.6)
—
0.7
Other
reserves
Accumulated
losses
Attributable
to the
parent
Non-
controlling
interest
Total
equity
(0.8)
(255.6)
311.7
14.4
326.1
—
—
—
—
—
(190.0)
(190.0)
(33.0) (223.0)
—
(91.5)
(0.6)
(92.1)
(0.4)
(0.4)
5.6
—
0.4
—
—
—
—
0.7
—
0.7
At 30 June 2020
133.4
790.2
(453.0)
1.1
(0.8)
(440.4)
30.5
(18.8)
11.7
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
capital
Share
premium
account
Foreign
currency
translation
reserve
Share-
based
payment
reserve
133.4
790.2
(344.7)
—
—
7.7
—
—
(14.9)
(0.1)
—
—
—
—
(2.1)
—
—
(1.6)
—
—
—
0.2
6.2
Other
reserves
Accumulated
losses
Attributable
to the
parent
Non-
controlling
interest
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)
—
(2.1)
—
(2.1)
1.6
—
—
—
—
—
—
35.2
35.2
0.2
—
0.2
(0.8)
(255.6)
311.7
14.4
326.1
At 30 June 2019
133.4
790.2
(361.7)
1. 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 35).
The notes on pages 142 to 196 form part of these Financial Statements.
Petra Diamonds Limited Annual Report and Accounts 2020
141
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020
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 adoption of new standards and interpretations where applicable as detailed in 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
In FY 2020 our operations delivered a strong performance for the first nine months of the Year, further to throughput
improvements driven by Project 2022. However, the outbreak of the COVID-19 pandemic during Q3 FY 2020 presented
unprecedented challenges to our operations and the industry as a whole. This, in combination with the resultant weakness in the
diamond market, placed further strain upon the Company’s balance sheet.
The COVID-19 pandemic has placed additional emphasis on optimisation of the business, though this was already well underway
via Project 2022. We acted quickly to put in place comprehensive systems and strategies to address COVID-19, to both limit the
threat to our employees, contractors and local stakeholders, and to protect the ongoing viability of our operations.
Capital restructuring
In May 2020, to maintain liquidity and in order to meet anticipated conditions associated with the drawdown of ZAR400 million of
revolving credit facilities, the Company decided not to make payment of the interest due on its US$650 million 7.25% Senior
Second Lien Notes due 2022. The Company entered into a Forbearance Agreement with the AHG of the Notes under which the
AHG agreed not to exercise its rights to accelerate payment of the Notes notwithstanding the continuing event of default whilst
the Forbearance Agreement was in place. Additionally, the Company entered into amendments to its South African Lender Group
facilities and BEE Facilities which reset the maturity of the revolving credit facility and BEE Facilities to July 2021, although the
South African Lender Group reserved the right to demand repayment in the event of the Forbearance Agreement ceasing to apply.
Petra therefore launched a strategic review, in conjunction with a set of independent advisers, to evaluate an optimal long-term
capital structure for the Group. The key focus of this review was to bring down the Company’s leverage to a manageable level and
it therefore involved extensive consultations with the AHG as well as with the South African Lender Group, which provides the
Group’s first lien bank facilities.
As announced on 20 October 2020, the Group reached an in-principle agreement with its lenders to restructure both its existing
US$650 million Notes as well as its first lien bank facilities, including amounts drawn under its ZAR500 million WCF, ZAR400
million RCF and amounts outstanding under the Group’s guarantee to its BEE Partners’ facilities (ca. ZAR694 million). The
envisaged Restructuring is subject to completion of a binding Lock-Up Agreement between the parties, which is yet to be
executed but is expected to complete imminently. At the estimated time of the envisaged restructure, the Group’s gross debt
under the existing facilities is estimated to be US$797 million, being US$650 million loan notes plus US$47 million associated with
May 2020 and November 2020 coupon payments not settled, plus ZAR1,594 million (ca. US$100 million at ZAR16/US$1) owed
under the Group’s banking facilities, including the BEE guarantees. The envisaged Restructuring will also impact the Group’s equity
shareholders as it entails a likely debt for equity swap and remains subject to shareholder approval by way of voting at an
upcoming SGM, currently estimated to take place early CY 2021.
In the event that the shareholders do not approve the Restructuring, it is likely that the Company, or one or more of the Group
members, would file for insolvency (in the relevant jurisdiction(s)). It may in these circumstances be possible to effect a
restructuring through a structured insolvency process. However, this would be reliant on the Group obtaining additional funding to
fund trading as a going concern for a period of time before such restructuring could be effected, the obtaining (or waiving) of
certain regulatory consents, support from the South African Lender Group and agreement from the Noteholders (potentially
through a second scheme of arrangement or restructuring plan pursuant to the UK Companies Act 2006).
COVID-19
Uncertainty exists around the ongoing impact of COVID-19 on the Group. Although the South African Government declared mining
operations able to continue during previous lockdown periods, the required social distancing measures which had to be
implemented initially resulted in some operational disruptions, but these measures now put the Group in good stead to curtail the
impact of any further possible lockdowns in South Africa. The more pronounced impact was seen on the Group’s rough diamond
sales, with the usual May 2020 tender having to be cancelled due to the inability of a majority of international clients to travel to
the Company’s sales offices in both Johannesburg and Antwerp. In addition, prices of rough diamonds reduced by ca. 27% for
sales immediately after the outbreak. At these price levels, the South African operations continued to generate sufficient cashflow
to warrant ongoing operations, while the Williamson mine in Tanzania was placed on care and maintenance with effect from April
2020.
At the Group’s tenders post Year end, held in September and October 2020, rough diamond prices improved by ca. 23%, but
remain ca. 10% below the prices achieved immediately pre-COVID-19. A second wave of outbreak and possible further restrictions
on international travel may negatively impact the Group’s short- and medium-term liquidity profile due to the potential impact on
production, ability to hold tenders and market pricing, as set out below, notwithstanding the proposed Restructuring.
Petra Diamonds Limited Annual Report and Accounts 2020
142
Financial Statements
1. Accounting policies continued
1.1 Basis of preparation continued
Williamson mine, Tanzania
As mentioned above, the Williamson mine is currently on care and maintenance and the likely timing of a recommencement of
production remains subject to improving market conditions and the mine’s liquidity position. In addition, the Group remains in
discussions with the Government of Tanzania (“GoT”) around various issues including, inter alia, the sharing of economic benefit,
the recoverability of VAT receivables, and the potential release of the blocked diamond parcel. Due to the Group’s current
financial position, Petra is not in a position to provide any financial assistance to the Williamson mine. Williamson’s liquidity position
is reliant on its ability to generate cash through operations (which is not possible during care and maintenance); and/or its ability
to reach agreement with the GoT allowing it to sell the blocked diamond parcel and around potential recoupment of VAT
receivables; and/or its ability to procure funding via borrowings from local financial institutions. The mine is currently seeking
approval from the GoT to proceed with arranging a US$25 million working capital facility from a local Tanzanian bank, while
pledging its own assets as security. Should an agreement with either the GoT or the local bank not be reached within the next
three months, Williamson is likely to face a liquidity shortfall. Under the terms of the in-principle agreements with the South African
Lender Group any additional funding by Petra would require its approval and if not provided may result in Williamson’s insolvent
liquidation.
Forecast liquidity and covenants
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. The forecasts assume that the envisaged Restructuring will be implemented in line with the
provisions of the in-principle term sheet. In doing so, careful consideration was given to potential risks to the forecasts under the
review period. The Board carefully considered risks associated with COVID-19 which were considered to focus primarily on the
potential for further production disruption, deferral of tenders due to travel restrictions and adverse impacts on diamond pricing.
In light of both normal trading risks and elevated risks associated with the potential impact of the COVID-19 pandemic, 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:
• an unforeseen disruption to operations at its South African mines due to either COVID-19 restrictions or otherwise;
• an unforeseen deferral of two consecutive rough diamond tenders, due to COVID-19 restrictions, coupled with a significant
price decline at an assumed subsequent private sale (in line with a similar process followed in FY 2020);
• a sustained 5% decrease in forecast rough diamond prices throughout the forecast period; and
• an increase in forecast operating cost.
Under the base case, which itself is dependent upon the successful completion of the proposed Restructuring and continued
availability of the South African banking facilities in line with the in-principle agreement above, the forecasts indicate that the
Company will be able to operate within the covenants set out in the in-principle agreement and maintain sufficient liquidity.
However, the proposed first lien covenants (as more fully set out on pages 194 and 195 were set with limited headroom to base
case. As such, although adequate liquidity is maintained throughout the review period under each of the individual scenarios,
subject to continued availability of the South African Lender Group facilities, results of the stress testing indicate that in the event
of deferral to the tenders outlined above or a combination of scenarios such as sustained reduced pricing and production
disruption, possible covenant breaches associated with the South African banking facilities may occur in December 2021. Whilst
reasonably available mitigating actions, which include cost savings and capital deferrals, are foreseen to address the risk of such
a covenant breach, the delivery of such mitigating actions remains uncertain. In the event of a breach of covenant, the Company
would be dependent on the South African Lender Group continuing to make the facilities available and under certain of the
scenarios there would be insufficient liquidity to settle the outstanding South African Lender Group facilities if required. Whilst the
South African Lender Group has indicated its support in recent discussions and ongoing dialogue with the South African Lender
Group will be important during this period, there can be no guarantee that the facilities would continue to remain available in the
event of a covenant breach.
Conclusion
The Board is of the view that the longer-term fundamentals of the diamond market remain sound and that the Group will continue
to benefit from Project 2022 (which includes increased production and reduced spend) throughout the review period and beyond.
Based on its assessment of the forecasts, principal risks and uncertainties and mitigating actions considered available to the
Group in the event of downside scenarios, assuming a successful Restructuring the Board confirms that it is satisfied that the
Group will be able to continue to operate and meet its liabilities as they fall due over the review period. However, the Group is
reliant on the successful conclusion of the Restructuring, which is dependent on approval by the Company’s shareholders, to
continue as a going concern. Additionally, as set out above, in the event of a successful Restructuring, the Group’s forecasts
remain sensitive to trading conditions and the ongoing COVID-19 pandemic may have a further material impact on the Group’s
ability to operate within its covenants such that continued South African Lender Group support may be required and, if
unavailable, additional funding may be required and, if unavailable, additional funding may be required, specifically for the
December 2021 period.
Petra Diamonds Limited Annual Report and Accounts 2020
143
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
1. Accounting policies continued
1.1 Basis of preparation continued
Conclusion continued
These factors indicate the existence of material uncertainties which may cast significant doubt about the Company’s ability to
continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of
business. The Financial Statements do not include the adjustments that would result if the Company were unable to continue as a
going concern.
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$). ZAR balances are translated to
US Dollars at ZAR17.32 as at 30 June 2020 (30 June 2019: ZAR14.07) and at an average rate of ZAR15.68 for transactions during
the Year ended 30 June 2020 (30 June 2019: ZAR14.19).
Financial statements of foreign entities
Assets and liabilities of foreign entities (i.e. those with a functional currency other than US$) 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.
Petra Diamonds Limited Annual Report and Accounts 2020
144
Financial Statements
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
Going concern
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 in the prior year
Depreciation judgements
Leases
BEE guarantee and expected credit loss assessment for BEE receivables
Recoverability of VAT in Tanzania
Inventory net realisable value and recoverability of confiscated diamond parcel in Tanzania
Provision for rehabilitation estimates
Pension scheme estimates
Post-retirement medical fund estimates
Loss on discontinued operations in the prior year
Non-current assets held for sale in the prior year
Note
1.1
1.1
8
8
9 and 14
14
15
16
18
19
24
31
32
35
36
Petra Diamonds Limited Annual Report and Accounts 2020
145
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 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 2019 which have been adopted by the Group:
IFRIC 23 “Uncertainty over Income Tax Treatments”
The Group was required to apply IFRIC 23 for annual reporting periods beginning on or after 1 July 2019. IFRIC 23 provides for the
treatment of income tax where it may be unclear how tax law applies to a particular transaction or circumstance, or whether a
taxation authority will accept a company’s tax treatment. IAS 12 “Income Taxes” specifies how to account for current and deferred
tax, but not how to reflect the effects of uncertainty. IFRIC 23 provides requirements that add to the requirements in IAS 12 by
addressing the following issues when there is uncertainty over income tax treatments:
• whether an entity considers uncertain tax treatments separately or together with one or more other uncertain tax treatments;
• the assumptions an entity makes about the examination of tax treatments by taxation authorities. IFRIC 23 requires an entity to
assume that the taxation authorities will examine amounts it has a right to examine and has full knowledge of all related
information when making those examinations;
• how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. IFRIC 23
requires an entity to consider the probability that the tax authorities will accept or reject an uncertain tax treatment, with the
accounting treatment being driven by the conclusion of that assessment; and
• how an entity considers changes in facts and circumstances. IFRIC 23 requires an entity to reassess judgements or estimates
required if the facts and circumstances on which the judgement or estimate was based change or as a result of new information
that affects the judgement or estimate.
The Group has elected to adopt IFRIC 23 retrospectively with the cumulative effect recognised at the date of initial application
rather than through the restatement of comparatives. The adoption of IFRIC 23 did not have any impact on the Group’s Financial
Statements.
IFRS 16 “Leases”
The Group was required to apply IFRS 16 for annual reporting periods beginning on or after 1 July 2019. IFRS 16 provides a single
lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases
where the lease term is 12 months or less, or where the underlying asset is of low value. The Group adopted IFRS 16 using the
modified retrospective approach, with recognition of transitional adjustments on the date of initial application (1 July 2019),
without restatement of comparative figures.
IFRS 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Group
applied the following practical exceptions when applying IFRS 16 to leases previously classified as operating leases under IAS 17:
• apply a single discount rate to a portfolio of leases with reasonably similar characteristics;
• exclude initial direct costs from the measurement of right-of-use assets at the date of initial application;
• rely on previous assessments on whether leases are onerous as opposed to preparing an impairment review under IAS 36 as at
the date of initial application; and
• apply the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term
remaining as of the date of initial application.
As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease
transferred substantially all of the risks and rewards of ownership. Under IFRS 16, the Group recognises right-of-use assets and
lease liabilities for leases, except for leases of low value assets based on the value of the underlying asset when new and short-
term leases with a lease term of 12 months or less.
On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities in relation to leases of office space, mining
equipment and contract mining services, which had previously been classified as operating leases.
The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s
incremental borrowing rate as at 1 January 2019. The Group’s incremental borrowing rate is the rate at which a similar borrowing
could be obtained from an independent lender under comparable terms and conditions.
The right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or
accrued lease payments.
Included in profit or loss for the Year are US$5.2 million of amortisation of right-of-use assets, US$0.6 million of finance expense
on lease liabilities and other income of US$0.8 million.
For additional disclosure for right-of-use assets and lease liabilities refer to note 15.
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 2020 or in later periods, which the Group has decided not to adopt early.
Petra Diamonds Limited Annual Report and Accounts 2020
146
Financial Statements
1. Accounting policies continued
1.4 New standards and interpretations applied continued
New standards and interpretations not yet effective continued
IFRS 3
Amendments to IFRS 3 “Business Combinations”: Definition of a
Business
Effective period
commencing
on or after
1 January 2020
Amendments IFRS 7, IFRS 9 and
IAS 39
Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark
Reform
1 January 2020
Definition of Material
Amendments to IAS 1 and IAS 8
Amendments IFRS 16
Amendments to IFRS 16 “Leases”: COVID-19-related Rent
Concessions
1 January 2020
1 June 2020
Amendments IFRS 4
Amendments to IFRS 4 “Insurance Contracts”: Deferral of IFRS 9
1 January 2021¹
Amendments IAS 1
Amendments to IAS 1: Classification of Liabilities as Current or Non-
current
1 January 2023¹
1. Not yet endorsed by the European Union.
The only standard which is anticipated to be significant or relevant to the Group is:
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
Amendments to IAS 1, which are intended to clarify the requirements that an entity applies in determining whether a liability is
classified as current or non-current. The amendments are intended to be narrow scope in nature and are meant to clarify the
requirements in IAS 1 rather than modify the underlying principles. The amendments include clarifications relating to:
• how events after the end of the reporting period affect liability classification;
• what the rights of an entity must be in order to classify a liability as non-current;
• how an entity assesses compliance with conditions of a liability (e.g. bank covenants); and
• how conversion features in liabilities affect their classification.
The amendments were originally effective for periods beginning on or after 1 January 2022 which was deferred to 1 January 2023
by the IASB in July 2020. Earlier application is permitted but they are yet to be endorsed for application in the European Union.
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, when applicable. 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.
US$ million
Revenue from diamond sales
1. The disaggregation of revenue is disclosed per segment as per note 34.
2020¹
295.8
2019
463.6
3. Mining and processing costs
Refer to notes 11, 14, 19, and 27 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
Amortisation of right-of-use asset
Diamond royalty
Changes in inventory of finished goods and stockpiles
2020
139.5
114.8
77.7
4.9
5.9
(34.9)
307.9
2019
151.3
140.2
105.9
—
13.2
(3.0)
407.6
Petra Diamonds Limited Annual Report and Accounts 2020
147
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
4. Other direct (income)/expense
US$ million
(Profit)/loss on disposal of fixed assets
Other income
2020
(0.1)
(1.9)
(2.0)
2019
1.1
(0.3)
0.8
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
Amortisation of right-of-use asset
London Stock Exchange and other regulatory expenses
Share-based expense – Directors
Salaries and other staff costs
Total staff costs
7. Auditors’ remuneration
US$ million
Audit services1
Audit-related assurance services²
Total
2020
2019
0.2
0.3
0.1
0.6
0.2
0.2
0.1
0.5
2020
2019
0.5
0.3
1.4
0.7
2.0
2.7
2020
0.9
0.1
1.0
0.7
—
1.3
0.2
2.6
2.8
2019
0.9
0.1
1.0
1. Audit services are in respect of audit fees for the Group.
2. Audit-related services are in respect of the interim review of US$0.1 million (FY 2019: US$0.1 million) 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 2019:
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 include 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.
Petra Diamonds Limited Annual Report and Accounts 2020
148
Financial Statements
8. Impairment of operational assets and other assets continued
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 24).
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 149 to 152.
30 June 2020
The continued downturn in the global rough diamond market, impact of the COVID-19 pandemic 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 was considered appropriate for Cullinan, Finsch,
Koffiefontein and Williamson and the Group recognised a Consolidated Income Statement charge of US$85.5 million, being
management’s estimate of decrease in value of the Cullinan, Finsch, Koffiefontein and Williamson assets. Details of the impairment
test assessments for the operations are shown in note 8.1.
30 June 2019
During the year ended 30 June 2019, the Group impaired the Cullinan, Finsch, Koffiefontein and Williamson operational assets by
an amount of US$223.7 million.
For impairment considerations at KEM JV and Helam refer to note 35.
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 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 (FY 2019: FY 2030)
Cullinan: FY 2029 (FY 2019: FY 2029)
Koffiefontein: FY 2023 (FY 2019: FY 2024)
Williamson: FY 2030 (FY 2019: FY 2032)
Resources remaining after the current LOM plans have not been included in impairment testing for
the operations.
Petra Diamonds Limited Annual Report and Accounts 2020
149
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
8. Impairment of operational assets and other assets continued
8.1 Impairment testing assumptions continued
(a) Impaired continuing operations continued
LOM – reserves and
resources
Finsch: LOM plan over the next ten years; total resource processed 33.0 Mt (FY 2019: LOM plan
over the next 11 years; total resource processed 35.8 Mt).
LOM – capital
expenditure
Diamond prices
Discount rate
Cost inflation rate
Exchange rates
Cullinan: LOM plan over the next nine years; total resource processed 37.8 Mt (FY 2019: LOM plan
over the next ten years; total resource processed 40.5 Mt).
Koffiefontein: LOM plan over the next three years; total resource processed 2.9 Mt (FY 2019: LOM
plan over the next five years; total resource processed 4.8 Mt).
Williamson: LOM plan over the next nine years; total resource processed 49.3 Mt (FY 2019: LOM
plan over the next 13 years; total resource processed 64.1 Mt).
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. Given the current market uncertainty, the
assessment of short-term diamond prices and the rate and extent of pricing recovery, together with
the longer-term pricing escalators, represented a critical judgement.
30 June 2020 impairment testing models incorporated diamond prices impacted by the COVID-19
pandemic with expected diamond prices returning to pre-COVID-19 adjusted long-term average by
FY 2024. The long-term models incorporate normalised diamond price escalation of 1.8% above a
long-term US inflation rate of 2.5% per annum from FY 2024 to 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 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 equated 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$5.0 million each are determined with
reference to historical trends.
A discount rate of 11.25% (30 June 2019: 8.5%) was used for the South African operations and
13.5% (30 June 2019: 9.0%) for Williamson. Discount rates were calculated based on a nominal
weighted cost of capital including the effect of factors such as market risk and country risk as at
the Year end.
Long-term inflation rates of 6.0%–9.8% (30 June 2019: 3.5%–7.5%) above the long-term US$
inflation rate were used for Opex and Capex escalators. In the prior year, Opex savings of 5% per
annum were applied from FY 2021 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 USD/ZAR exchange rate range used for all South African operations
commenced at ZAR16.00 (30 June 2019: ZAR14.00), further devaluing from FY 2023 at 3.5% (30
June 2019: 3.9%) per annum thereafter. Given the volatility in the USD/ZAR exchange rate and the
current levels of economic uncertainty the determination of the exchange rate assumptions
required significant judgement.
Valuation basis
Discounted present value of future cashflows.
Williamson
During the Year, Williamson was placed on care and maintenance. For impairment testing at
Williamson, management has assumed that operations will recommence from 1 July 2021 at normal
monthly costs. However if the recommencement of operations is delayed by six months, the impact
would be to increase the impairment by an additional US$9.4 million.
Management has not included the recovery of the historical VAT receivable in the impairment model.
At 30 June 2019 a key judgement was around the recoverability of such VAT subsequent to
legislation effective 20 July 2018. As detailed in note 18, management considered the future VAT to
be fully recoverable based on its interpretation of the legislation. However, if the VAT had not been
recoverable, the impact would be to increase the FY 2019 impairment by an additional US$80.9
million. In line with the prior period, VAT incurred prospectively on costs is assumed to be
recoverable. Following recent legislative changes in Tanzania, effective 1 July 2020, the eligibility
for VAT recovery on costs incurred during diamond production has been confirmed.
Petra Diamonds Limited Annual Report and Accounts 2020
150
Financial Statements
8. Impairment of operational assets and other assets continued
8.1 Impairment testing assumptions continued
(a) Impaired continuing operations continued
Impairment of non-financial assets
Impairment
(US$ million)
Impairment – operations:
Finsch
Cullinan
Koffiefontein
Williamson
Sub-total
Impairment – non-financial
receivables:
Other – reversal current
Other – non-current
Sub-total
Total
30 June 2019
Impairment
(US$ million)
Impairment – operations:
Finsch
Cullinan
Koffiefontein
Williamson
Sub-total
Asset class
Carrying value
pre-impairment
Impairment
Carrying value
post-impairment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
250.1
475.2
17.4
101.3
844.0
(27.6)
(11.6)
(11.7)
(34.6)
(85.5)
222.5
463.6
5.7
66.7
758.5
Other receivables (refer to note
18)
Tanzania VAT receivable (refer to
note 18)
—
0.4
0.4
17.1
17.1
861.1
(6.8)
(6.4)
(91.9)
10.3
10.7
769.2
Asset class
Carrying value
pre-impairment
Impairment
Carrying value
post-impairment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
Property, plant and equipment
374.0
637.2
46.5
129.8
(85.4)
(63.9)
(33.2)
(41.2)
1,187.5
(223.7)
288.6
573.3
13.3
88.6
963.8
Impairment – other receivables:
Other – current
Other – non-current
Sub-total
Total
Other receivables (refer to note
18)
Tanzania VAT receivable (refer to
note 18)
4.0
(4.0)
—
29.0
33.0
(18.9)
(22.9)
1,220.5
(246.6)
10.1
10.1
973.9
Petra Diamonds Limited Annual Report and Accounts 2020
151
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
8. Impairment of operational assets and other assets continued
8.1 Impairment testing assumptions continued
(a) Impaired continuing operations continued
Sensitivity analysis
The impairment impact of applying sensitivities on the key inputs is noted below:
Additional impairment charge
(US$ million)
Cullinan
Finsch
Koffiefontein
Williamson
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$/ZAR16.00 to
US$/ZAR15.00
34.7
42.5
34.7
20.9
34.1
26.1
41.8
28.8
22.9
42.1
0.3
4.7
5.7
0.1
5.7
7.6
18.1
17.9
26.5
—
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 were US$nil (30 June 2019:
US$3.7 million) as a result of the expansion projects undertaken by the Group being completed during the prior year. Borrowing
costs have been expensed directly to the Consolidated Income Statement.
Other borrowing costs are recognised as an expense in the period in which the borrowing cost is incurred.
Refer to notes 1.1, 14, 24 and 33 for the Group’s policy on foreign exchange, borrowing cost capitalisation, unwinding of
rehabilitation provisions and derivative instruments together with key estimates and judgements.
US$ 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 the Notes, bank loans and overdrafts
Interest on bank loans and overdrafts capitalised
Net interest expense on the Notes, 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
2020
—
6.7
1.2
—
7.9
(52.4)
—
(52.4)
(13.9)
(4.9)
(81.5)
(8.3)
(161.0)
(153.1)
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)
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. 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. A
significant weakening of the South African Rand against the US Dollar from ZAR14.07 (30 June 2019) to ZAR17.32 (30 June 2020) resulted in an unrealised loss of US$81.5
million (30 June 2019: US$4.0 million gain) in respect of losses incurred on foreign exchange contracts held at Year end of US$12.8 million (30 June 2019: US$4.2 million
loss) and inter-group foreign denominated loans of US$68.7 million (30 June 2019: US$8.2 million gain), and a net realised foreign exchange loss of US$8.3 million (30
June 2019: US$1.0 million gain) in respect of foreign exchange contracts closed during the Year is included in the net finance expense amount. For additional information
on the Company’s ZAR credit facilities refer to note 22.
Petra Diamonds Limited Annual Report and Accounts 2020
152
Financial Statements
10. Taxation
Significant accounting policies relevant to taxation
Current tax comprises tax payable calculated on the basis of the expected taxable income for the Year, using the tax rates
enacted or substantively enacted at the reporting date, and any adjustment of tax payable for previous years. Deferred tax is
provided using the balance sheet liability method, based on temporary differences. Temporary differences are differences
between the carrying amounts of assets and liabilities for financial reporting purposes and their tax base. The amount of deferred
tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax
rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised to the extent that it is
probable that future taxable profits will be available against which the associated unused tax losses and deductible temporary
differences can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit
will be realised.
US$ 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 on 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 (over)/under provision of deferred tax
Total tax credit
2020
2019
0.6
8.1
(52.9)
(52.3)
(275.3)
(77.1)
(1.0)
13.5
(10.3)
23.8
(1.2)
(52.3)
(53.9)
(45.8)
(303.9)
(85.1)
(0.4)
24.9
(6.6)
21.1
0.3
(45.8)
In the current Year the impact of unrecognised tax losses totalled US$23.8 million (30 June 2019: US$21.1 million). 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 2020 amount to US$229.9 million (30 June 2019: US$109.7 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 2020 amount to US$167.0 million (30 June 2019:
US$105.7 million) and arise in South Africa. There is no taxation arising from items of other comprehensive income and expense.
11. Director and employee remuneration
Significant accounting policies relevant to remuneration
The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.
The provisions for employee entitlements to wages, salaries and annual leave represent the amount which the Group has a
present obligation to pay as a result of employees’ services provided to the reporting date. Provisions are calculated based on
current wage and salary rates.
Refer to note 27 for the Group’s policy in respect of share-based payments and related key judgements and estimates.
Staff costs (excluding the Non-Executive Directors) during the Year were as follows:
US$ million
Wages and salaries – mining
Wages and salaries – exploration
Wages and salaries – administration
Number of employees (excluding the Non-Executive Directors and contractors)
2020
114.8
0.3
2.7
117.8
2019
140.2
0.2
2.8
143.2
Number
3,696
Number
3,826
Petra Diamonds Limited Annual Report and Accounts 2020
153
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
11. Director and employee remuneration continued
Key management personnel
Key management is considered to be the Non-Executive Directors, the Executive Directors and the Executive Committee
(“EXCO”). The EXCO comprises the Chief Technical Officer, the General Managers of each mining operation, the Group Head of
Human Resources and Public Affairs, the Group Head of Health and Safety, the Group Head of Risk and the Group Head of Sales
and Marketing (30 June 2019: key management comprised the Non-Executive Directors, Executive Directors, the Chief Operating
Officer and the Group Head of Sales and Marketing). 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
2020
2019
2.7
0.2
0.1
—
0.7
3.7
3.4
0.1
0.4
0.4
0.2
4.5
The remuneration for key management personnel in FY 2019 includes termination remuneration for Johan Dippenaar (former CEO)
of US$0.7 million.
12. Loss per share
Significant accounting policies relevant to earnings per share
Basic loss per share amounts are calculated by dividing net loss for the Year attributable to ordinary equity holders of the parent
by the weighted average number of Ordinary Shares outstanding during the Year. Diluted loss per share amounts are calculated
by dividing the net loss attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares
outstanding during the Year plus the weighted average number of Ordinary Shares that would be issued on conversion of all the
dilutive potential Ordinary Shares into Ordinary Shares.
Continuing
operations
30 June
2020
US$
Discontinued
operations
30 June
2020
US$
Total
30 June
2020
US$
Continuing
operations
30 June
2019
US$
Discontinued
operations
30 June
2019
US$
Total
30 June
2019
US$
(190,021,687)
—
(190,021,687)
(174,622,904)
(52,015,046)
(226,637,950)
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
865,336,485
865,336,485
865,336,485
Effect of
shares
issued during
the Year
63,152
—
63,152
—
—
—
As at 30 June
865,399,637
865,336,485
865,399,637
865,336,485
865,336,485
865,336,485
Shares
Shares
Shares
Shares
Shares
Shares
Dilutive
effect of
potential
Ordinary
Shares
Weighted
average
number of
Ordinary
Shares in
issue used in
diluted EPS
—
—
—
—
—
—
865,399,637
865,336,485
865,399,637
865,336,485
865,336,485
865,336,485
Petra Diamonds Limited Annual Report and Accounts 2020
154
Financial Statements
12. Loss per share continued
Significant accounting policies relevant to earnings per share continued
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
Basic loss
per share
Diluted loss
per share
(21.96)
(21.96)
—
—
(21.96)
(20.18)
(6.01)
(26.19)
(21.96)
(20.18)
(6.01)
(26.19)
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 2019: nil). 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.
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
2020
US$
Discontinued
operations
30 June
2020
US$
Total
30 June
2020
US$
Continuing
operations
30 June
2019
US$
Discontinued
operations
30 June
2019
US$
Total
30 June
2019
US$
Loss for the Year
attributable to
parent
Adjustments:
Net unrealised
foreign exchange
losses/(gains) 1
Impairment
charge –
Williamson VAT
receivable
Impairment
charge –
operations1
(Reversal)/impair
ment – loan
receivables
Impairment of
BEE loans
receivable –
expected credit
loss provision
Taxation credit
on impairment
charge1
Adjusted loss for
the Year
attributable to
parent
(190,021,687)
—
(190,021,687)
(174,622,904)
(52,015,046)
(226,637,950)
64,036,456
—
64,036,456
(4,022,483)
—
(4,022,483)
6,816,715
—
6,816,715
14,212,444
—
14,212,444
74,524,791
—
74,524,791
174,009,126
—
174,009,126
(382,713)
—
(382,713)
3,941,305
—
3,941,305
10,887,714
—
10,887,714
—
—
—
(8,595,566)
—
(8,595,566)
(36,279,098)
—
(36,279,098)
(42,734,290)
—
(42,734,290)
(22,761,610)
(52,015,046)
(74,776,656)
1. Portion attributable to equity shareholders of the Company.
Petra Diamonds Limited Annual Report and Accounts 2020
155
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
13. Adjusted earnings/(loss) per share (non-GAAP measure) continued
Continuing
operations
30 June
2020
Shares
Discontinued
operations
30 June
2020
Shares
Total
30 June
2020
Shares
Continuing
operations
30 June
2019
Shares
Discontinued
operations
30 June
2019
Shares
Total
30 June
2019
Shares
Weighted
average
number of
Ordinary
Shares used
in basic EPS:
As at 1 July
865,336,485
865,336,485
865,336,485
865,336,485
865,336,485
865,336,485
Effect of
shares
issued during
the Year
63,152
—
63,152
—
—
—
As at 30 June
865,399,637
865,336,485
865,399,637
865,336,485
865,336,485
865,336,485
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
per share
Adjusted
diluted loss
per share
—
—
—
—
—
—
865,399,637
865,336,485
865,399,637
865,336,485
865,336,485
865,336,485
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
US$ cents
(4.94)
(4.94)
—
—
(4.94)
(2.63)
(6.01)
(8.64)
(4.94)
(2.63)
(6.01)
(8.64)
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.
Petra Diamonds Limited Annual Report and Accounts 2020
156
Financial Statements
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 24 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. 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. The Group completed its
expansion projects that met the criteria for borrowing cost capitalisation in FY 2019 and, as such, no borrowing costs were
capitalised during the Year (30 June 2019: US$3.7 million).
Petra Diamonds Limited Annual Report and Accounts 2020
157
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
14. Property, plant and equipment continued
Significant accounting policies relevant to property, plant and equipment continued
US$ million
Cost
Balance at 1 July 2018
Exchange differences
Additions
Transfer of assets under construction
Disposal – Helam
Disposals
Balance at 30 June 2019
Balance at 1 July 2019
Exchange differences
Additions
Transfer of assets under construction
Change in rehabilitation asset
Disposals
Balance at 30 June 2020
Depreciation and impairment
Balance at 1 July 2018
Exchange differences
Disposals
Transfer of assets under construction
Impairments2
Provided in the Year
Balance at 30 June 2019
Balance at 1 July 2019
Exchange differences
Disposals
Impairments2
Provided in the Year
Balance at 30 June 2020
Net book value
At 30 June 2019
At 30 June 2020
Plant and
machinery
Mineral
properties
Assets under
construction1
1,576.9
(37.9)
1.8
154.2
(1.5)
(77.0)
1,616.5
1,616.5
(292.6)
0.1
35.4
(0.1)
(149.8)
1,209.5
462.3
(13.9)
(74.0)
2.9
218.2
99.0
694.5
694.5
(135.7)
(149.1)
85.3
75.3
570.3
922.0
639.2
68.3
(1.7)
—
—
—
—
66.6
66.6
(12.5)
—
—
—
—
54.1
28.5
(0.8)
—
—
5.5
7.6
40.8
40.8
(8.3)
—
0.2
3.0
35.7
25.8
18.4
92.7
(3.6)
85.1
(154.2)
—
—
20.0
20.0
(2.7)
36.3
(35.4)
—
—
18.2
2.9
(0.1)
—
(2.9)
—
0.1
—
—
—
—
—
—
—
20.0
18.2
Total
1,737.9
(43.2)
86.9
—
(1.5)
(77.0)
1,703.1
1,703.1
(307.8)
36.4
—
(0.1)
(149.8)
1,281.8
493.7
(14.8)
(74.0)
—
223.7
106.7
735.3
735.3
(144.0)
(149.1)
85.5
78.3
606.0
967.8
675.8
1. During the Year, assets under construction comprising stay-in-business and expansion capital expenditure of US$35.4 million (30 June 2019: US$154.2 million) were
commissioned and transferred to plant and machinery. Included within assets under construction are amounts mainly for expansion projects at the Finsch and Cullinan
mines. Borrowing costs of US$nil (30 June 2019: US$3.7 million) have been capitalised to assets under construction.
2. Refer to note 8 for additional detail on the Cullinan, Finsch, Koffiefontein and Williamson impairments of US$85.5 million (30 June 2019: US$223.7 million).
Capital commitments
The Group’s total commitments of US$4.4 million (30 June 2019: US$6.6 million) mainly comprise Cullinan US$2.0 million (30 June
2019: US$3.1 million), Finsch US$1.4 million (30 June 2019: US$1.9 million), Koffiefontein US$0.3 million (30 June 2019: US$0.5
million) and Williamson US$0.7 million (30 June 2019: US$1.1 million).
15. Leases
On adoption of IFRS 16, the Group recognised right-of-use assets and lease liabilities in relation to leases of office space, mining
equipment and contract mining services, which had previously been classified as operating leases.
The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s
incremental borrowing rate as at 1 July 2019. The Group’s incremental borrowing rate is the rate at which a similar borrowing could
be obtained from an independent creditor under comparable terms and conditions. The weighted average lessee’s incremental
borrowing rate applied to the lease liabilities on 1 July 2019 was 5.98%. Subsequent to initial measurement lease liabilities increase
as a result of interest charged at a constant rate on the balance outstanding and are reduced for lease payments made.
Petra Diamonds Limited Annual Report and Accounts 2020
158
Financial Statements
15. Leases continued
The right-of-use assets were measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or
accrued lease payments.
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the
Company is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life.
In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise
an extension option, or not exercise a termination option.
Extension and termination options are used to maximise operational flexibility in terms of managing the assets used in the Group’s
operations. Extension options are only included in the lease term if the lease is reasonably certain to be extended. Extension
options requiring the consent of the respective lessor have been disregarded as there are no enforceable rights and obligations
that exist between the Group and the lessor beyond the non-cancellable period.
The lease term will be reassessed if an option is actually exercised or the Group becomes obliged to exercise it. The assessment
of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs which affects this
assessment and which is within the control of the lessee.
Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease
period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Payments
associated with short-term leases of equipment and vehicles and all leases of low value assets are recognised on a straight-line
basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low value assets
comprise IT equipment and small items of office furniture.
Included in profit or loss for the Year are US$5.2 million of amortisation of right-of-use assets, US$0.6 million of finance expense
on lease liabilities and other income of US$0.8 million.
Information for leases for which the Group is a lessee is presented below:
Right-of-use assets
US$ million
Cost
Balance at 1 July 2019
Exchange differences
Additions
Balance at 30 June 2020
Depreciation and impairment
Balance at 1 July 2019
Exchange differences
Impairments
Provided in the Year
Balance at 30 June 2020
Net book value
At 30 June 2019
At 30 June 2020
Lease liabilities
US$ million
Balance at 1 July 2019
Exchange differences
Additions
Finance charges
Lease payments
Gain on lease liability
Balance at 30 June 2020
US$ million
Current
Non-current
As at 30 June
Buildings Plant and machinery
Total
1.9
—
—
1.9
—
—
—
(0.3)
(0.3)
—
1.6
8.2
—
—
8.2
—
—
—
(4.9)
(4.9)
—
3.3
Buildings Plant and machinery
1.8
—
—
0.1
(0.8)
—
1.1
8.2
—
—
0.4
(4.2)
(0.8)
3.6
2020
3.6
1.1
4.7
10.1
—
—
10.1
—
—
—
(5.2)
(5.2)
—
4.9
Total
10.0
—
—
0.5
(5.0)
(0.8)
4.7
2019
—
—
—
The Group does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities are monitored within the
Group’s treasury function.
Petra Diamonds Limited Annual Report and Accounts 2020
159
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
15. Leases continued
Amounts recognised in profit and loss
US$ million
Amortisation on right-of-use assets
Finance expense on lease liabilities
Expense relating to short-term leases
Expense relating to leases of low value assets
Income from suspended lease payments
2020
(5.2)
(0.6)
—
—
0.8
(5.0)
2019
—
—
—
—
—
—
16. BEE loans receivable and payable
Significant accounting policies relevant to BEE loans receivable and payable
Refer to note 33 for the Group’s policy in respect of financial instruments, which include BEE receivables and payables.
Significant judgements and estimates relevant to BEE loans receivable and payable
Refer below for significant judgments in respect of the BEE loans receivable related to the recognition of the BEE Lender facility
guarantee payable in loans and borrowings, a receivable for reimbursement of the BEE Lender facilities guarantee and expected
credit loss provision recorded in respect of BEE receivables.
US$ million
Non-current assets
BEE loans receivable1
Non-current liabilities
BEE loans payable2
2020
2019
137.0
109.6
108.6
120.5
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, advances historically provided to the Group’s BEE Partners to enable them to discharge interest and
capital commitments under the BEE Lender facilities, advances to the BEE Partners to enable trickle payment distributions to both
Kago Diamonds shareholders and to the beneficiaries of the IPDET (Petra Directors and Senior Managers do not qualify as
beneficiaries under the IPDET Trust Deed), and financing of their interests in the Koffiefontein mine. In addition, US$40.0 million
has been recorded in FY 2020 as part of the gross receivable (before expected credit loss provisions) in respect of amounts to be
reimbursed to the Group in respect of the guarantee under the BEE Lender facilities which has been recognised at 30 June 2020.
Judgment was required in determining the extent to which reimbursement is applicable based on the terms of the agreements,
South African legislation and discussions with the BEE partners.
As a result of historical delays in the Cullinan plant ramp-up and the Finsch SLC ramp-up, the Group has historically and through
FY 2020 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). The BEE loans receivable due to Petra has increased, mainly
attributable to the weakening of the ZAR against the US Dollar and accounting for the Group guarantee of US$40.0 million
provided to the BEE Lenders (refer to the Group guarantee provided to BEE Lenders section in the note) after adjusting for the
expected credit loss provision of US$10.9 million. These BEE receivables, including interest raised, will be recoverable from the BEE
Partners’ share of future cashflows from the underlying mining operations less any offset agreements reached between the parties
which are proposed to create a reduced net receivable.
As part of the in principle agreement reached subsequent to Year end as part of the Restructuring, Petra will assume the BEE
Lender facility obligations under the terms outlined in note 37
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 probability of agreeing an offset of the gross
receivable and payable balances and the future free cashflows to be generated by the mining operations, based on the current
LOM plans. In assessing the future cashflows, the Group considered a probability weighted range of diamond price outlooks.
Based on the assessment, the analysis generated an expected credit loss provision totalling US$10.9 million (30 June 2019:
US$nil), comprising of US$6.1 million (30 June 2019: US$nil) in respect of Cullinan and Finsch and US$4.8 million (30 June 2019:
US$nil) in respect of Koffiefontein.
Petra Diamonds Limited Annual Report and Accounts 2020
160
Financial Statements
16. BEE loans receivable and payable continued
BEE loans receivable continued
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
Group guarantee provided to BEE Lenders – default event under Notes (refer below)
Impairment of BEE loans receivable – expected credit loss provision
BEE Partner receivables written off1
As at 30 June
2020
109.6
(22.5)
12.2
1.9
6.7
40.0
(10.9)
—
137.0
2019
64.7
(1.2)
42.2
4.5
4.9
—
—
(5.5)
109.6
1. The receivables written off in the prior year 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 Cullinan and
Finsch. 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
2020
120.5
(23.8)
11.9
108.6
2019
110.5
(2.6)
12.6
120.5
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
Cullinan
Finsch
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
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 Cullinan and
Finsch. As part of historical refinancing arrangements the Group provided a guarantee to the BEE Lenders over the repayment of
loans advanced to the Group’s BEE Partners. The BEE Partners were expected to 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. In prior periods,
judgement has been applied by management in assessing the risk of the BEE Partners defaulting under their obligations to the
BEE Lenders. Management had considered the Group’s future cashflow forecasts and its ability to meet, at its discretion, planned
forecast BEE Partner distributions. Accordingly management was of the opinion that the risk of default by the BEE Partners to the
BEE Lenders was remote.
As disclosed in Note 1.1, in May 2020, the Company deferred the coupon repayment due on the Notes to preserve liquidity and
entered into a Forbearance Agreement in respect of the Notes with the AHG and an Amendment Agreement in respect of its
banking facilities with the South African Lender Group, including the South African BEE Lender Group. Under the terms of the BEE
guarantee, the failure by the Group to pay the coupon on the Notes created an event of default under the BEE Lender facility. The
revised terms under the banking facilities Amendment Agreement reset the capital repayment profile to 31 July 2021; however; if
the Forbearance Agreement is not extended by the AHG and the South African Lender Group then the BEE Lender facility
becomes immediately payable. The Company does not have the unconditional right to defer the coupon repayment beyond a
period of 12 months and thus is unable to control the extension of the Forbearance Agreement. Accordingly as at 30 June 2020,
the Company recorded the outstanding obligation of US$40.0 million in the Consolidated Statement of Financial Position under
current loans and borrowings (refer to note 22) and recognised an equivalent receivable due from the BEE Partners to the
Company as detailed above.
The BEE Lender facility forms part of Petra’s consolidated net debt for Petra’s covenant measurement purposes and is subject to
the same covenant requirements (refer to note 22).
Further details of the transactions with the BEE Partners are included in note 28.
Petra Diamonds Limited Annual Report and Accounts 2020
161
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
17. Non-controlling interests
The non-controlling interests of the Group’s partners in its operations are presented in the table below:
US$ million
Cullinan
Finsch
Koffiefontein
Tarorite
Williamson
Total
Effective interest %
21.6
21.6
21.6
17.8
25.0
Country
South Africa
South Africa
South Africa South Africa
Tanzania
As at 1 July 2019
Loss for the Year
Transfer between reserves
of Williamson non-
controlling interest
Foreign currency translation
difference
(2.1)
(18.2)
—
0.1
At 30 June 2020
(20.2)
47.7
(9.7)
—
(2.0)
36.0
(31.0)
(5.0)
—
1.3
(34.7)
0.1
—
—
—
0.1
(0.3)
(0.1)
14.4
(33.0)
0.4
0.4
—
—
(0.6)
(18.8)
During the Year, no dividends were paid to the non-controlling interests (30 June 2019: US$nil). For additional information on total
assets, total liabilities and segment results for each operation in the table above refer to note 34.
18. Trade and other receivables
Significant accounting policies relevant to trade and other receivables
Refer to note 33 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 VAT receivables of US$10.3 million (30 June 2019: US$10.1 million), net of an impairment provision of US$29.6
million (30 June 2019: US$ 22.8 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$13.0 million (30 June 2019: US$13.8 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.
A further US$26.9 million (30 June 2019: US$19.1 million) relates to VAT under the legislation, effective from July 2017 to 30 June
2020. Under that legislation, costs incurred in the production and sale of raw minerals were not eligible for VAT and judgement
was required in determining whether rough diamonds qualified as raw minerals. The assessment of the carrying value of the VAT
receivable under the VAT legislation effective in this period required significant judgement considering 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. In addition to judgement regarding the eligibility for VAT,
judgement was required over the timing of future payments. Management has considered the amendment to the VAT legislation
which became effective during FY 2020 and considers that input VAT can continue to be recovered in relation to the export of
rough diamonds; however, note that the legislation is unclear and the Tanzania Revenue Authority disputes the recoverability of
such VAT. It is noted that in June 2020, the VAT legislation was, again, amended to remove any reference to raw minerals with
effect from 1 July 2020. Whilst this amendment to the legislation is to be applied prospectively, management considers that this
further helps support its view that the VAT receivables in this period are valid and recoverable. Accordingly, the Group is
considering various alternatives in pursuing payment in accordance with legislation.
While the total VAT balance is considered due, uncertainty exists regarding the timing of receipt. Accordingly, the receivable has been
impaired by US$29.6 million (30 June 2019: US$22.8 million), which required estimates as to the timing of future receipts and applicable
credit adjusted discount rate. A discount rate of 16.25% 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$1.4 million.
US$ million
Current
Trade receivables1
Other receivables
Less: expected credit loss provision of KEM JV receivables (refer to note 28)2
Less: expected credit loss provision of other receivables2
Other receivables – net
Income tax receivable
Prepayments3
Non-current
Other receivables4
Less: impairment provision
2020
2019
4.8
15.0
(6.9)
(1.3)
6.8
1.4
7.0
20.0
39.9
(29.6)
10.3
23.8
20.3
(7.3)
(4.0)
9.0
1.5
1.6
35.9
32.9
(22.8)
10.1
Petra Diamonds Limited Annual Report and Accounts 2020
162
Financial Statements
18. Trade and other receivables continued
Significant judgements and estimates relevant to VAT receivable at Williamson continued
1. Included in the opening balance of trade receivables are trade receivables in respect of diamond revenue of US$23.8 million (30 June 2018: US$75.0 million).
2. Included within other receivables is an amount of US$1.1 million due from KEM JV (comprising a gross receivable of US$8.0 million and an expected credit loss provision of
US$6.9 million). Management has assessed the recoverability considering various factors as described below and taking into account repayments of US$0.4 million
received during the Year and as such have not raised an additional impairment provision against the receivable. The Group raised an impairment provision of US$1.3
million in respect of VAT and diesel rebate refunds due from the tax authorities in South Africa as the amounts are past due.
3. Included in prepayments are costs of US$3.9 million relating to the debt restructuring of the Group, which is expected to complete during FY 2021, and the costs are
expected to form transaction costs associated with debt and or equity instruments.
4. Other non-current receivables comprise the VAT receivable at Williamson.
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 2020 trade receivables of US$4.8 million (30 June 2019: US$23.8 million) comprised of diamond debtors, all of
which had settled post Year end and as such have lifetime expected credit losses of US$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, recent
press coverage involving the third parties and ongoing legal discussions. Such assessment resulted in impairment provisions totalling
US$1.3 million (30 June 2019: US$11.3 million) in respect of VAT and diesel rebate refunds due from the South African tax authorities and
a reversal of prior year impairment in respect of KEM JV of US$0.4 million (30 June 2019: US$11.3 million).
Included in trade and other receivables are amounts due from related parties (refer to note 28).
19. 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.
Significant judgements and estimates relevant to diamond inventories
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. The impact of the COVID-19
pandemic resulted in the Company not being able to proceed with its May and June 2020 rough diamond tenders. As a result,
when determining the value of diamond inventories at Year end, management considered for each of the South African operations
the product mix, the average actual prices achieved for FY 2020 and H2 FY 2020, actual prices achieved for tender four in FY
2020 and actual selling prices for tender one in FY 2021. For each of the price data points considered, management deemed it
appropriate to use the lower of each of the pricing points when valuing diamond inventories at Year end having considered the
product mix and information in respect of market price trends between the tender dates and 30 June 2020.
Recoverability of diamond parcel in Tanzania
The Group holds diamond inventory valued at lower of cost and net realisable value of US$9.2 million (30 June 2019: US$12.4
million) in the Statement of Financial Position in respect of the Williamson mine’s confiscated diamond parcel. During FY 2018, an
investigation into the Tanzanian diamond sector by a parliamentary committee in Tanzania was undertaken to determine if
diamond royalty payments were being understated. In connection with this, Petra announced on 11 September 2017 that a parcel
of diamonds (71,654.45 carats) from the Williamson mine in Tanzania (owned 75% by Petra and 25% by the Government of the
United Republic of Tanzania) had been blocked for export to Petra’s marketing office in Antwerp.
The assessment of the recoverability of the diamond parcel required significant judgement. In making such a judgement, the
Group considered its ongoing discussions with the GoT, confirmation received from the GoT in FY 2018 that it still holds the
diamond parcel of 71,654.45 carats, verbal re-confirmation that has been given this Year in the course of the ongoing discussions
held with the GoT, an assessment of the internal process used for the sale and export of diamonds confirming such process is in
full compliance with legislation in Tanzania and the Kimberley Process and legal advice received from the Group’s external in-
country attorneys which supports the Group’s position.
During FY 2018, Petra received authorisation from the GoT to resume diamond exports and sales from Williamson and all subsequent parcels
of diamonds have been exported from Tanzania for eventual sale at the Company’s marketing office in Antwerp. While a resolution has not
yet been reached with regard to the parcel of diamonds that was blocked from export, based on the above judgements and assessment
thereof, management remains confident that the diamond parcel will be released by GoT and will be available for future sale.
US$ million
Diamonds held for sale
Work in progress stockpiles
Consumables and stores
Provision for redundant consumables and stores
Consumables and stores
2020
84.1
6.4
14.1
(1.1)
13.0
103.5
2019
57.5
13.3
15.5
(0.7)
14.8
85.6
Petra Diamonds Limited Annual Report and Accounts 2020
163
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
19. Inventories continued
Significant judgements and estimates relevant to diamond inventories continued
Recoverability of diamond parcel in Tanzania continued
As at 30 June 2020, diamonds held for resale with a cost value of US$53.5 million (30 June 2019: US$nil) have been written down
by US$7.4 million (30 June 2019: US$nil) to a fair value less costs to sell of US$46.1 million (30 June 2019: US$nil) (due to the fair
value less costs to sell being below cost) within the overall carrying value of US$84.1 million (30 June 2019: US$57.5 million).
20. Cash
Significant accounting policies relevant to cash
Cash and cash equivalents comprise cash on hand, deposits held on call with banks and investments in money market
instruments, net of bank overdrafts, all of which are available for use by the Group unless otherwise stated. Restricted cash
represents amounts held by banks, the Group’s insurance cell captive and other financial institutions as guarantees in respect of
environmental rehabilitation obligations in respect of the Group’s South African mines.
US$ million
Cash and cash equivalents – unrestricted
Cash – restricted
2020
53.6
14.0
67.6
2019
71.7
13.5
85.2
The Group’s environmental rehabilitation insurance product, which currently includes the Finsch, Cullinan and Koffiefontein mines, has
secured cash assets of US$13.3 million (30 June 2019: US$12.8 million) held in a cell captive. As part of the disposal of the KEM JV and
Helam operations in FY 2019, an amount of US$2.0 million 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$1.8 million (30 June 2019: US$2.2 million) to fund the environment
rehabilitation insurance product for the South African operations. The rehabilitation provisions are disclosed in note 24.
21. Equity and reserves
Share capital
Significant accounting policies relevant to share capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a
financial liability. The Group’s Ordinary Shares are classified as equity instruments.
US$ million
Number of shares
2020 Number of shares
2019
Authorised – Ordinary Shares of 10 pence each
At 1 July 2019 and 30 June 2020
1,000,000,000
164.3
1,000,000,000
164.3
Issued and fully paid
At 1 July
865,336,485
133.4
865,336,485
Allotments during the Year
94,858
—
—
At 30 June
865,431,343
133.4
865,336,485
133.4
—
133.4
Allotments during the Year were in respect of the award of 94,858 Ordinary Shares to Mr Dippenaar and Mr Davidson (previous
Group Executive Directors) granted under the 2012 Performance Share Plan in receipt of performance measured over the period 1
July 2016 to 30 June 2019.
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:
• the fair value of employee and Director options as measured at grant date and spread over the period during which the
employees or Directors become unconditionally entitled to the options;
• the fair value of shares awarded under the 2011 Longer-term Share Plan and the 2012 Performance Share Plan measured at
grant date (inclusive of market-based vesting conditions) with estimated numbers of awards to vest due to non-market-based
vesting conditions evaluated each period and the fair value spread over the period during which the employees or Directors
become unconditionally entitled to the awards;
• foreign exchange retranslation of the reserve;
• amounts transferred to retained losses in respect of exercised and lapsed warrants and options; and
• 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
2019: US$0.8 million).
Petra Diamonds Limited Annual Report and Accounts 2020
164
Financial Statements
21. Equity and reserves continued
Share capital continued
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
movement in non-controlling interest at 30 June 2019 is an amount of US$35.2 million relating to the disposal of the KEM JV and Helam
operations. The non-controlling interest share of total comprehensive income includes US$33.6 million total comprehensive expense (30
June 2019: US$32.0 million expense) for the Year. Refer to note 17 and the Statement of Changes in Equity for further detail.
22. Interest-bearing loans and borrowings
Significant accounting policies relevant to loans and borrowings
Bank borrowings are recognised initially at fair value less attributable transaction costs. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest rate method, which ensures that any interest expense over the period to
repayment is at a constant rate on the balance of liability carried in the Consolidated Statement of Financial Position. ‘Interest
expense’ in this context includes initial transaction costs, as well as any interest or coupon payable while the liability is outstanding.
The following table summarises the Group’s current and non-current interest-bearing borrowings:
US$ million
Current
Loans and borrowings – BEE Partner debt facilities
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
2020
2019
40.0
52.1
676.9
769.0
—
769.0
—
—
47.1
47.1
603.5
650.6
(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 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; an amount of US$4.6 million remains unamortised as at 30 June 2020.
On 1 May 2020, the Company deferred the coupon repayment due on the Notes to preserve liquidity within the Group which led
to an event of default under the Notes. On 29 May 2020, the Group entered into a Forbearance Agreement with an ad-hoc group
of Noteholders. Pursuant to the Forbearance Agreement, as a result of the event of default due to the non-payment of the
coupon, the AHG agreed to forbear from the exercise of certain rights and remedies that they have under the Notes indenture,
including agreeing not to accelerate the Notes obligations as a result of the missed interest payment. Under the terms of the
indenture, the failure by the Group to pay the coupon on the Notes created an event of default. The extension of the Forbearance
Agreement is at the discretion of the AHG and thus the Company does not have the unconditional right to defer the coupon
repayment beyond a period of 12 months. Accordingly as at 30 June 2020, the Company recorded the outstanding obligation of
US$676.9 million in the Consolidated Statement of Financial Position under current loans and borrowings. For further detail
regarding the negotiations with the AHG refer to note 37.
As at 30 June 2020, the Notes had accrued interest of US$26.8 million (30 June 2019: US$8.3 million) which includes the May
2020 coupon of US$23.6 million which was deferred under the Forbearance Agreement. 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 (refer to note 30 for further detail). 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:
• the cession of all claims and shareholdings held by the Company and certain of the guarantors within the Group;
• the cession of all unsecured cash balances held by the Company and certain of the guarantors;
• the creation of liens over the moveable assets of the Company and certain of the guarantors; and
• the creation of liens over the mining rights and immovable assets held and owned by certain of the guarantors.
Petra Diamonds Limited Annual Report and Accounts 2020
165
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
22. Interest-bearing loans and borrowings continued
(b) Senior secured lender debt facilities
The Group’s South African Lender Group is Absa Corporate and Investment Banking (“Absa”), FirstRand Bank Limited (acting
through its Rand Merchant Bank division) (“RMB”) and Nedbank Limited.
Due to the deferment of the Notes coupon on 1 May 2020, explained in (a) above, an event of default occurred under the terms of the
debt facilities held with the South African Lender Group. On 29 May 2020, the Company entered into an Amendment Agreement with the
South African Lender Group amending the terms of the RCF and WCF. The extension of the Amendment Agreement is at the discretion of
the South African Lender Group and thus the Company does not have the unconditional right to defer the coupon repayment beyond a
period of 12 months and shall remain in default until the default is remedied. Accordingly as at 30 June 2020, the Company recorded the
outstanding obligation of US$52.1 million in the Consolidated Statement of Financial Position under current loans and borrowings. For
further detail regarding the terms agreed with the South African Lender Group post Year-end refer to note 37.
The amendments to the RCF and WCF are:
• resetting the maturity date of the RCF to 31 July 2021 (previously 20 October 2021);
• increasing the margin on the WCF provided by Absa and RMB by 100 bps to match the South African prime lending rate; and
• the margin on the RCF increasing to 9% above SA JIBAR (5% above SA JIBAR).
The RCF, as amended in the Amendment Agreement of ZAR400.0 million (US$23.1 million) and WCF of ZAR500 million (US$28.9
million) were fully drawn at Year end.
(c) BEE Partner debt facilities
On 29 May 2020, the BEE Lenders agreed to amend the BEE Lender facility capital repayment profile of the outstanding balance.
The balance, which was to be settled in three instalments, November 2020, May 2021 and November 2021, will now have a final
single bullet repayment date of 31 July 2021. The BEE Lender facility bears interest at SA JIBAR plus 9.0%. The fees incurred for
the amendment includes a 50 bps fee to the BEE Lenders referenced against the current principal amount outstanding under the
BEE Facilities. The outstanding obligation has been disclosed under current loans and borrowings as a result of the event of
default and the facility becomes immediately repayable for reasons described in note 16. For events subsequent to Year end
affecting the BEE Lender facility refer to note 37.
As at 30 June 2020, the Group’s debt and hedging facilities are detailed in the table below:
Bank loan – secured
Bank loan – secured
Senior second lien notes – secured
2020
20191
2020
20191
2020
2019
Institution
Type
Nedbank, Absa
FirstRand, Absa
Revolving credit facility
Working capital facility
Bond holders
Bond notes
Total facility (ZAR million)
Total facility (US$ million)
Draw-down ZAR facility (US$ million)
at 30 June
Draw-down (US$ million) at 30 June
Interest rate (ZAR)
Interest rate (US$)
400.0
1,000.0
500.02
500.0
—
—
—
400.0
—
—
—
—
SA JIBAR
plus 9.0%
SA JIBAR
plus 5.0%
—
—
650.0
650.0
500.0
—
SA Prime
—
—
—
—
650.0
650.0
SA Prime
less 1.0%
—
—
—
—
—
—
7.25%
7.25%
Interest rate at Year end (ZAR)
12.83%
12.70%
7.50%
9.25%
—
—
Interest rate at Year end (US$)
—
—
—
—
7.25%
7.25%
Interest repayment period
Monthly
Monthly
Monthly
Monthly
Bi-annually
Bi-annually
Latest date available for draw-down
Capital repayment profile
Fully drawn
down
Single
payment
20 October
2021
Single
Annual
review
Annual
review
Fully
drawn down
Fully
drawn down
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)
31 July
2021
20 October
31 July
2021
2021 On demand
—
—
1. 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.
2. The facility also comprises a ZAR300 million (30 June 2019: ZAR300 million) foreign exchange settlement line not included above. No additional fees are charged on the
foreign exchange settlement line.
Covenant ratios
30 June 2020
As part of the Amendment agreement entered into with the South African Lender Group, the Company is required, in addition to
its existing covenant ratios (as above), to maintain certain liquidity requirements. The liquidity requirements mean the aggregate
of the undrawn amounts available under the RCF and WCF and consolidated cash and cash equivalents (excluding diamond
debtors) shall not fall below ZAR200 million (US$11.6 million).
Petra Diamonds Limited Annual Report and Accounts 2020
166
Financial Statements
22. Interest-bearing loans and borrowings continued
Covenant ratios continued
30 June 2019
The covenant amendments during the prior year (refer below) resulted in a change in the interest rate and commitment fee
ratchet mechanisms to the ZAR RCF contingent on the consolidated net debt to 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
≤ 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.
For further detail on the Company’s interest-bearing loans and borrowings subsequent to the period end refer to note 37.
In the prior year, agreement was reached with the lender group to amend the EBITDA-related maintenance covenant levels for the
respective measurement periods. There have been no changes to the EBITDA-related maintenance covenants during the current
Year.
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:
≤ 4.5x
≤ 4.25x
≤ 3.5x
≤ 3.25x
≤ 3.0x
– Previous covenant ratio:
≤ 2.5x
≤ 2.5x
≤ 2.5x
≤ 2.5x
≤ 2.5x
Consolidated EBITDA to consolidated net finance charges:
– New covenant ratio:
– Previous covenant ratio:
≥ 2.5x
≥ 4.0x
≥ 2.5x
≥ 2.75x
≥ 3.0x
≥ 3.25x
≥ 4.0x
≥ 4.0x
≥ 4.0x
≥ 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 were 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$40.0 million (ZAR692.6 million) (30 June 2019: US$54.2 million (ZAR762.5 million)) issued by Petra to the lenders as part of the BEE financing concluded
in December 2014 and which are included in the Group’s Consolidated Statement of Financial Position.
There are no significant differences between the fair value and carrying value of loans and borrowings.
23. Trade and other payables
Significant accounting policies relevant to trade and other payables
Refer to note 33 for the Group’s policy in respect of financial instruments, which include trade and other payables, together with
note 10 for the Group’s policy on taxation.
US$ million
Current
Trade payables
Accruals and other payables1
Income tax payable
2020
2019
18.4
34.1
52.5
—
52.5
20.9
34.0
54.9
—
54.9
1. Included within accruals and other payables are amounts in respect of foreign exchange losses on hedging contracts of US$11.5 million (30 June 2019: US$0.5 million
gain).
Included in trade and other payables are amounts due to related parties (refer to note 28).
Petra Diamonds Limited Annual Report and Accounts 2020
167
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
24. 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 8.1–9.7% (30 June 2019: 8.8–9.7%), estimated rehabilitation
timing of 3 to 45 years (30 June 2019: 8 to 46 years) and an inflation rate range of 6.1–7.7% (30 June 2019: 6.8–7.7%). 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.
US$ million
Balance at 1 July 2018
Disposal – Helam
(Decrease)/increase in provisions
Unwinding of present value adjustment of rehabilitation provision
Exchange differences
Balance at 30 June 2019
Balance at 1 July 2019
Increase/(decrease) in provisions
Decrease in rehabilitation provision – change in estimate
Unwinding of present value adjustment of rehabilitation provision
Exchange differences
Balance at 30 June 2020
Pension and
post-retirement
medical fund
Rehabilitation
12.1
—
(0.3)
—
(0.1)
11.7
11.7
0.8
—
—
(2.2)
10.3
47.4
(1.5)
0.4
4.0
(0.7)
49.6
49.6
(0.8)
(0.1)
4.9
(8.3)
45.3
Total
59.5
(1.5)
0.1
4.0
(0.8)
61.3
61.3
—
(0.1)
4.9
(10.5)
55.6
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 31 and 32.
Additional information on the provision for post-retirement medical and pension funds is also described in notes 31 and 32.
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
Cullinan
Finsch
Koffiefontein
Williamson
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Decommissioning
period (years)
Estimated
rehabilitation cost
(US$ million)
45
46
10
14
3
8
10
14
45.3
49.6
12.4
14.3
20.2
22.4
6.3
6.8
6.4
6.1
Petra Diamonds Limited Annual Report and Accounts 2020
168
Financial Statements
24. Provisions continued
Rehabilitation continued
The vast majority of the rehabilitation expenditure is expected to be incurred at the end of mining activities.
The movements in the provisions during the Year are attributable to the unwinding of discount, change in estimates and
unrealised foreign exchange on retranslation from functional to presentational currency.
In FY 2019, the decrease in the provisions was attributable to unwinding of discount, disposal of Helam, 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 20.
25. 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.
Significant estimates and judgments related to deferred tax assets
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.
In FY 2020, deferred tax assets of US$23.3 million (30 June 2019: US$nil) were recognised in respect of tax losses and other temporary
differences to be utilised by future taxable profits at Cullinan. The Directors believe it is probable that these tax assets will be recovered
through future taxable income or the reversal of temporary differences having considered the current LOM plans used for impairment
testing at Cullinan. The assessment of the LOM plans is subject to the risks associated with the assumptions made with respect to the
recovery of diamond prices and foreign exchange rates amongst other inputs as detailed in note 8.
Management has made assumptions in the recognition of deferred tax assets including the timing and value of estimated future taxable
income, available tax losses and capital allowances at Williamson. If the available tax losses and capital allowances are not allowed under
the ongoing discussions with GoT, it would result in the Group recognising an additional deferred tax liability of US$12.8 million.
Management made assumptions based on the probability of the tax losses and capital allowances not being allowed, the current status
and all associated elements of the ongoing discussions with GoT. Based on the assumptions and the uncertain outcomes, management
deemed it appropriate not to recognise the deferred tax liability of US$12.8 million as at 30 June 2020.
US$ million
Balance at the beginning of the Year
Income statement credit
Foreign currency translation difference
Balance at the end of the Year
Comprising:
Deferred tax asset
Deferred tax liability
2020
81.4
(52.9)
(11.3)
17.2
(23.3)
40.5
17.2
2019
139.2
(53.9)
(3.9)
81.4
—
81.4
81.4
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.
Petra Diamonds Limited Annual Report and Accounts 2020
169
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
25. Deferred taxation continued
Significant estimates and judgments related to deferred tax assets continued
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 (asset)/liability
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
2020 Recognised
2020 Unrecognised
169.5
—
169.5
(144.8)
(22.2)
(64.4)
(231.4)
(61.9)
169.5
—
169.5
(118.5)
(14.1)
(19.7)
(152.3)
17.2
—
—
—
(26.3)
(8.1)
(44.7)
(79.1)
(79.1)
Total
157.4
0.3
157.7
(84.2)
(21.5)
(30.7)
(136.4)
21.3
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)
Movements in deferred tax include amounts recognised in the Consolidated Income Statement and foreign exchange
retranslation. The Consolidated Income Statement deferred tax charge for the Year reflects movements in deferred tax of
US$30.2 million (credit) (30 June 2019: US$57.2 million (credit)) in respect of property, plant and equipment and associated
capital allowances, US$0.9 million (30 June 2019: US$0.9 million credit) comprised of provisions and US$21.8 million (30 June
2019: US$nil) in respect of tax losses recognised at Cullinan and Finsch. The US$30.2 million credit movement arises from
temporary differences related to the impairments of property, plant and equipment (US$11.0 million) and other temporary
differences (US$19.2 million).
26. 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.
Litigation at Williamson
During May 2020, a UK-based law firm, Leigh Day, filed claims in the High Court of England and Wales against Petra and
WDL. The claims are understood to have been filed on behalf of 32 anonymous individuals in relation to alleged breaches of
human rights at the Williamson mine, arising from the mine’s security operations.
To date, the claims filed by Leigh Day have not been served on either Petra or WDL. In its letter before claim, Leigh Day has
expressed an interest in alternative dispute resolution methods, including mediation.
Petra Diamonds Limited Annual Report and Accounts 2020
170
Financial Statements
26. Contingent assets/liabilities continued
Litigation at Williamson continued
Petra takes these allegations extremely seriously. A sub-committee of the Board, formed entirely of independent Non-Executive
Directors, was established. The committee has initiated an investigation, which is being carried out by a specialist external adviser
in conjunction with the Company’s lawyers for the purposes of responding to the allegations and will be responsible for overseeing
this investigation and reporting back regularly to the Board. Responses will be provided to the claimants’ lawyers in accordance
with the relevant pre-action procedures of the English court.
Additionally, Petra received a letter from the UK-based non-governmental organisation RAID regarding similar allegations raised
by local residents and others relating to actions by WDL, its security contractor and others linked to WDL. Petra is engaging and
co-operating with RAID in order to address the allegations raised.
Judgement has been applied by management in assessing the merits and outcome of the claims. Management has considered the
pending independent investigations around the claims and the completion thereof. Accordingly management is of the opinion that
the outcome of the claims remains uncertain.
Withholding tax on services rendered to non-residents and interest charged on Group loans at Williamson
The Tanzanian Revenue Authority (“TRA”) has issued tax assessments amounting to US$0.8 million in respect of withholding taxes
not paid for services provided to and costs incurred from non-resident Group companies. The Company has lodged an objection
to the TRA and is awaiting a response from the TRA.
The TRA is claiming withholding tax of US$3.2 million on interest accrued on Group loans for the FY 2007 and FY 2008 periods.
The matter is still under discussion and yet to be resolved. Accordingly management is of the opinion that the outcome of the
claims remains uncertain.
Details of related parties are disclosed in note 28.
27. 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$0.7 million (30 June 2019: US$0.2 million) for the PSP share plan comprises US$0.7
million (30 June 2019: US$0.2 million charged to the Consolidated Income Statement.
The total charge of US$nil (30 June 2019: US$0.6 million) for the LTIP share plan was charged to the Consolidated Income
Statement.
Petra Diamonds Limited Annual Report and Accounts 2020
171
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
27. 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
2020
2019
Fair value (PSP absolute TSR/PSP relative TSR/PSP non-market)
9.5p/10.0p/17.6p 20.3p/25.0p/37.3p
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)
24 October 2019
15 October 2018
7.0p
55.1%
3 years
—
3 years
19.8%
0.5%
37.3p
55.1%
3 years
—
3 years
19.8%
0.9%
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, 3,613,636 (30 June 2019: 1,051,333) PSP shares were awarded to the
Executive Directors at a fair value price of 7.0 pence (30 June 2019: 37.3 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 24 October 2019, the Executive Directors of the Company were granted a total of 753,460 (30 June 2019: 585,240) deferred
awards over Ordinary Shares in the Company. The total deferred awards granted comprise 374,170 granted to Mr Dippenaar
under his FY 2019 settlement agreement. 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 2019: 100%) of the total bonus
in respect of performance for the financial year ended 30 June 2019. The awards vest on 30 June 2020 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 109 to 119.
Senior Management LTIP 2016
The LTIP 2016 scheme is a cash-based reward scheme linked to the share price performance. Upon vesting, no shares will be
issued to Senior Management under the LTIP 2016 scheme. To align Senior Management to the Company objectives for Project
2022, the Remuneration Committee approved an alternate approach for the LTIP 2016 scheme. Previous awards will be
aggregated with current awards, subject to an alternative measurement period of three years (FY 2020 to FY 2022) and a revised
vesting period of FY 2022. The vesting of awards has been aligned to the performance criteria of the Executive Directors. 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 – market and non-market based subject to performance conditions
2020
2019
Number of awards
Fair value
Grant date
Share price at grant date
Life of award
Foreign exchange rate (ZAR/USD)
10,479,660
4,635,818
17.6p
48.0p
24 October 2019 22 November 2018
7.0p
3 years
48.0p
3 years
ZAR15.00
ZAR14.80
During the Year 10,479,660 LTIP shares were awarded for the FY 2020 – FY 2022 measurement period, 2,530,221 vested and
1,655,597 lapsed, both in respect of the FY 2017 – FY 2019 measurement period. These awards had no exercise price.
Petra Diamonds Limited Annual Report and Accounts 2020
172
Financial Statements
27. Share-based payments continued
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
Grant date
Post Rights Issue
Number
Vesting period
Remaining life
of options
(months)
Options granted to Senior
Management
25 November 2010
200,417
1/3 per annum from grant date
5
2020
2019
Weighted
average
exercise price
(pence)
Weighted
average
exercise price
(pence)
Number
Outstanding at the beginning of the Year
47.3
3,304,866
Rights Issue adjustment
Lapsed
Cancelled
Exercised during the Year
Outstanding at the end of the Year
Exercisable at the end of the Year
—
—
44.4
(3,104,449)
—
—
76.4
76.4
—
—
200,417
200,417
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
The weighted average market price of the shares in respect of options exercised during the Year was nil pence (30 June 2019: nil
pence). The options outstanding at 30 June 2020 have an exercise price of 76.4 pence (30 June 2019: 37.5 pence to 76.4 pence)
and a weighted average remaining contractual life of five months (30 June 2019: 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.
28. Related parties
Subsidiaries and jointly controlled operations
Details of subsidiaries are disclosed in note 30.
Directors
Details relating to Directors’ emoluments are disclosed in note 11 and in the Directors’ Remuneration Report on pages 109 to 119.
Details relating to Directors’ shareholdings in the Company are disclosed in the Corporate Governance Report on pages 115 and
116. Key management remuneration is disclosed in note 11.
BEE Partner and related party balances
Details relating to the Group’s interests in its BEE Partners are disclosed in note 16.
The Group’s related party BEE Partner, Kago Diamonds, and its gross interests in the mining operations of the Group are disclosed
in the table below.
Mine
Cullinan
Finsch
Koffiefontein
Partner and respective interest
as at 30 June 2020
Partner and respective interest
as at 30 June 2019
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Kago Diamonds (14%)
Petra Diamonds Limited Annual Report and Accounts 2020
173
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
28. Related parties continued
BEE Partner 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 Partner and other related parties are disclosed in the table below:
US$ million
Non-current receivable
Kago Diamonds1
Non-current payable
Kago Diamonds1
Current trade and other receivables
KEM JV2
Impairment provision2
Finance income
Kago Diamonds1
Ekapa Mining²
Finance expense
Kago Diamonds1
Ekapa Mining²
2020
2019
72.1
72.1
58.5
58.5
8.0
(6.9)
1.1
5.1
—
5.1
6.4
—
6.4
54.6
54.6
64.9
64.9
8.6
(7.3)
1.3
3.5
—
3.5
6.8
—
6.8
1. The Kago Diamonds receivable increased by US$17.5 million mainly attributable to amounts advanced to Kago Diamonds during the Year totalling US$7.7 million (30 June
2019: US$26.8 million), amounts attributable to the Company recording the BEE Lender guarantee in the Statement of Financial Position at Year end (refer to note 16 for
further detail) and the Group applying the expected credit loss impairment model to the Kago Diamonds receivable and recording a credit loss provision of US$5.4 million
(30 June 2019: US$nil).
2. Included in current trade and other receivables are amounts advanced of US$nil (30 June 2019: US$9.4 million) to the KEM JV in the form of a working capital facility and
equipment finance facility and the balance of the KEM JV purchase consideration of US$1.1 million (30 June 2019: 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$6.9 million (30 June 2019:
US$7.3 million). During the Year, the Company received US$0.4 million from the KEM JV as part settlement of the outstanding purchase consideration.
Interest on the BEE loans and receivables is charged at the prevailing South African prime interest rate plus an interest margin
ranging between 0% and 2%.
The BEE loans payable bear interest at the prevailing South African prime interest rate.
Kago Diamonds is one of the BEE Partners which obtained bank financing from the BEE Lenders to acquire its interests in Cullinan
and Finsch. The Group has provided a guarantee to the BEE Lenders for repayment of loans advanced to the Group’s BEE
Partners. Further details on the BEE guarantees are in note 16.
Rental income receivable
The Group received US$nil (30 June 2019: US$nil) of rental income from Pella Resources Ltd and US$nil (30 June 2019: US$0.1
million) from Alufer Mining Ltd. The Group has US$0.3 million (30 June 2019: US$0.3 million) receivable from Pella Resources Ltd
and US$0.1 million (30 June 2019: US$0.1 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 208.
30 June 2019
Helam disposal (refer to note 35)
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 the Helam mine. Mr
Davidson agreed to subscribe for 49% of the shares in Lindleys Mining. As such, Mr 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 to note 35), 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$0.2 million at
current exchange rates), the “Option Cancellation”. The Option Cancellation is classified as a small transaction as defined in Listing
Rule 11 Annex 1.
Petra Diamonds Limited Annual Report and Accounts 2020
174
Financial Statements
29. Notes to the cashflow statement
Significant non-cash transactions
(a) Operating and investing activities
US$ million
Operating activities
Depreciation of property, plant and equipment
Amortisation of right-of-use asset
Unrealised gain on lease liability
Impairment charge
Impairment charge reversal for other receivables
Impairment of BEE loans receivable – expected credit loss provision
Loss and impairment charge on discontinued operations
Movement in provisions
Other finance expense – unwinding of present value adjustment for rehabilitation
costs
Other finance expense – post-retirement medical fund
Net unrealised foreign exchange losses/(gains)
(Profit)/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 rehabilitation provision adjustment
Non-cash pension and post-retirement fund 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
2020
2019
78.6
4.9
(0.8)
92.3
(0.4)
10.9
0.1
(0.1)
4.9
0.9
81.5
(0.1)
0.7
106.7
—
—
246.6
—
—
49.9
0.7
4.0
1.2
(4.0)
1.3
0.2
273.4
406.6
—
(0.1)
(0.8)
0.8
6.7
6.6
11.9
11.9
1.0
—
0.4
(0.3)
4.9
6.0
12.6
12.6
(b) Financing activities – change in loans and borrowings (per note 22 and change in lease liability (per note 15)
US$ million
Loans and borrowings
At 1 July
Cash draw-downs
Cash repayments (capital
and interest)
Lease payments
Non-cash
– Initial recognition of lease
liability
– Gain on lease liability
– Guarantee obligation
recognised (refer to note 16)
– Interest accruing during
the Year
– Effect of foreign exchange
At 30 June
Senior
secured
second lien
notes
2020
Senior
secured
lender debt
facilities
2020
BEE Lenders
guarantee
recognised
Lease
liability
Total
2020
Senior
secured
second lien
notes
2019
Senior
secured
lender debt
facilities
2019
Total
2019
650.6
—
—
100.9
(23.6)
(46.1)
—
—
—
—
—
—
650.6
100.9
648.1
106.7
754.8
—
5.8
5.8
—
—
—
(69.7)
(47.1)
(108.5)
(155.6)
(5.0)
(5.0)
—
—
—
—
—
—
49.9
—
676.9
—
—
—
0.2
(2.9)
52.1
—
—
10.0
10.0
(0.8)
(0.8)
40.0
—
40.0
—
—
—
—
—
—
—
—
—
—
—
0.5
50.6
—
(2.9)
49.6
—
—
49.6
(4.0)
(4.0)
40.0
4.7
773.7
650.6
—
650.6
Petra Diamonds Limited Annual Report and Accounts 2020
175
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
30. Subsidiaries and jointly controlled interests
Significant accounting policies relevant to subsidiaries
At 30 June 2020 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 2020
Direct
percentage
held 30
June 2019
Nature of business
Blue Diamond Mines (Pty) Ltd1
South Africa
Ordinary
Cullinan Diamond Mine (Pty) Ltd1
South Africa
Ordinary
Ealing Management Services
(Pty) Ltd1
South Africa
Ordinary
Finsch Diamond Mine (Pty) Ltd1
South Africa
Ordinary
Kalahari Diamonds Ltd
United Kingdom
Ordinary
74%
74%
100%
74%
100%
74% Mining and exploration
74% Mining and exploration
100%
Treasury
74% Mining and exploration
100%
Investment holding
Petra Diamonds Holdings SA (Pty)
Ltd1
Petra Diamonds Jersey Treasury
Ltd1
Petra Diamonds Netherlands
Treasury B.V.1
Petra Diamonds Southern Africa
(Pty) Ltd1
South Africa
Ordinary
100%
100%
Investment holding
Jersey
Ordinary
100%
100%
Treasury
Netherlands
Ordinary
100%
100%
Treasury
Petra Diamonds UK Treasury Ltd1
United Kingdom
Ordinary
South Africa
Ordinary
100%
100%
100%
100%
Services provision
Treasury
Petra Diamonds US$ Treasury
Plc1
Premier Rose Management
Services (Pty) Ltd2
Sekaka Diamonds Exploration
(Pty) Lt3
Tarorite (Pty) Ltd1
Willcroft Company Ltd1
Williamson Diamonds Ltd
United Kingdom
Ordinary
100%
100%
Treasury
South Africa
Ordinary
—%
100%
Treasury
Botswana
Ordinary
South Africa
Ordinary
Bermuda
Ordinary
Tanzania
Ordinary
100%
74%
100%
75%
100%
74%
100%
Exploration
Beneficiation
Investment holding
75% Mining and exploration
1. The companies are guarantors to the senior secured second lien notes.
2. During the Year, Premier Rose Management Services (Pty) Ltd was deregistered.
3. Post Year end, the Company disposed of its interest in Sekaka Diamonds Exploration (Pty) Ltd; for further detail refer to note 37.
31. 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.
Petra Diamonds Limited Annual Report and Accounts 2020
176
Financial Statements
31. Pension scheme continued
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 2020. 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.
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 11.50% (30 June 2019: 9.99%), and that salaries will be increased
at 7.54% (30 June 2019: 7.43%), based on the current South African consumer price index of 6.54% (30 June 2019: 6.43%).
Estimated future benefit payments to members for the 12-month period ending 30 June 2021 are US$0.7 million.
US$ 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 – net of actuarial movements
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
2020
2019
(7.6)
7.6
—
(0.1)
—
(0.1)
10.9
(2.0)
(1.0)
(0.7)
0.4
7.6
(10.9)
2.0
0.7
(0.1)
(0.9)
(0.1)
1.7
(7.6)
13.8%
20.8%
24.5%
8.4%
32.5%
(10.9)
10.9
—
(0.2)
—
(0.2)
11.0
(0.3)
0.4
(0.8)
0.6
10.9
(11.3)
0.4
0.8
(0.2)
(1.1)
(0.1)
0.6
(10.9)
10.4%
30.7%
24.6%
11.8%
22.5%
100.0%
100.0%
Petra Diamonds Limited Annual Report and Accounts 2020
177
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
31. Pension scheme continued
Defined benefit scheme continued
US$ million
Plan assets
Plan liabilities
Deficit
2020
7.6
(7.6)
—
2019
10.9
(10.9)
—
2018
11.0
(11.3)
(0.3)
2017
13.4
(14.1)
(0.7)
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 2020 is as follows:
Male
Female
2020
15.92
20.02
2019
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$0.3 million (30 June 2019: US$0.6 million). A two-year
change in mortality changes the pension obligation by approximately US$0.2 million (30 June 2019: US$0.4 million).
32. 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 2020. 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 179.
The post-employment healthcare liability scheme was acquired as part of the acquisitions of Cullinan and Finsch and is closed to
new members. All new employees will be responsible for funding their own post-employment 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 2019: 7.25%), based on the average yield of relevant South African Government long-dated bonds of 11.25% (30 June
2019: 10.0%), and that salaries will be increased at 5.73% (30 June 2019: 5.75%).
Petra Diamonds Limited Annual Report and Accounts 2020
178
Financial Statements
32. Post-retirement medical fund continued
Significant judgements and estimates relevant to medical funds 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
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
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)
2020
2019
10.3
10.3
11.7
(2.2)
1.1
0.1
(0.4)
10.3
0.2
0.9
1.1
0.2
0.9
1.1
11.7
(2.2)
1.1
0.1
(0.4)
10.3
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
2020
2019
11.25%
7.25%
5.73%
75%
3.73%
60.0
60.0
10.0%
7.75%
5.75%
75%
2.56%
60.0
60.0
US$ million
2020
2019
Determination of estimated post-retirement medical fund expense for the Year
ended 30 June 2020
Current service cost
Finance expense
Benefit payments
0.8
0.5
(0.5)
0.8
0.5
(0.5)
Petra Diamonds Limited Annual Report and Accounts 2020
179
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
32. Post-retirement medical fund continued
Significant judgements and estimates relevant to medical funds continued
US$ million
Actuarial accrued liability
Unfunded status
2020
2019
2018
2017
10.3
11.7
11.8
14.8
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 2020
1% increase
1% decrease
10.3
—
11.7
11.9%
9.2
(10.7)%
30 June 2019
1% increase
1% decrease
11.7
—
11.9
1.7%
11.2
(4.3%)
Average retirement age
The table below shows the impact of a one-year change in the expected average retirement age:
US$ million
Accrued liability
% difference
US$ million
Accrued liability
% difference
30 June 2020
10.3
—
30 June 2019
11.7
—
Retirement
one year
earlier
10.7
3.9%
Retirement
one year
earlier
11.7
0.1%
Retirement
one year
later
10.0
(2.9)%
Retirement
one year
later
11.7
(0.1%)
33. 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, BEE Partners, KEM JV and other third 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.
Petra Diamonds Limited Annual Report and Accounts 2020
180
Financial Statements
33. 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
2020
4.8
3.8
137.0
145.6
Total
2019
23.8
6.5
109.6
139.9
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. Due to the impact of the COVID-19 pandemic, the Company cancelled its usual
May and June tenders, only realising partial sales to the South African cutting and polishing industry resulting in significantly lower
trade receivables at Year end. During the prior year, trade receivables were significant at the period end due to the tender’s
proximity to the 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
2020
1.1
21.0
65.1
58.4
Total
2019
4.3
16.7
56.0
62.9
145.6
139.9
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, leases and long-term BEE liabilities
Trade payables, other payables, leases 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)
Lease liability
Non-current lease liability
Non-current trade payables owing to BEE Partners
Total
2020
18.5
22.8
3.6
1.1
108.6
154.6
Total
2019
20.9
34.5
—
—
120.5
175.9
Petra Diamonds Limited Annual Report and Accounts 2020
181
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
33. Financial instruments continued
Other financial liabilities continued
Trade payables, other payables, leases and long-term BEE liabilities continued
The carrying values of other financial liabilities are denominated in the following currencies:
US$ million
Pound Sterling
South African Rand
US Dollar
Interest-bearing borrowings
Refer to note 22 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 lease liability
– 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)
– Lease liability
Total
2020
9.0
131.6
14.0
154.6
Total
2019
4.9
156.8
14.2
175.9
Total
2020
Total
2019
137.0
4.8
3.8
14.0
53.6
213.2
1.1
108.6
—
769.0
41.2
3.6
923.5
109.6
23.8
6.5
13.5
71.7
225.1
—
120.5
603.5
47.1
55.4
—
826.5
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.
Petra Diamonds Limited Annual Report and Accounts 2020
182
Financial Statements
33. 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
2020
—
1.1
21.2
108.4
82.5
213.2
—
0.3
8.7
220.9
693.6
923.5
Total
2019
—
29.4
19.7
72.6
103.4
225.1
—
—
4.9
156.7
664.9
826.5
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 significant concentrations of credit risk in respect of the BEE loans receivable. 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 expected losses incurred as disclosed in notes 16 and 18.
Group cash balances are deposited with reputable banking institutions within the countries in which it operates. Excess cash is
held in overnight call accounts and term deposits ranging from seven to 30 days. Refer to note 20 for restricted cash secured in
respect of rehabilitation obligations. At Year end the Group had undrawn borrowing facilities of US$nil (30 June 2019: US$106.6
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. At Year end the Group had a derivative liability of US$11.5 million (30 June 2019: US$8.3 million derivative liability)
recorded in the Statement of Financial Position and a realised foreign exchange loss of US$8.3 million (30 June 2019: US$1.0
million gain) and an unrealised foreign exchange loss on hedges of US$12.8 million (30 June 2019: US$8.2 million gain) recorded
in the Consolidated Income Statement.
Petra Diamonds Limited Annual Report and Accounts 2020
183
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
33. Financial instruments continued
Derivatives continued
Management considered the impact of a change in the US Dollar/ZAR exchanges rates to the Group’s financial results. In the
current Year the impact of a ten percentage point increase/decrease would result in a financial loss/gain of US$1.1 million (30 June
2019: US$nil).
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.
Foreign exchange risk also arises when individual Group operations enter into transactions denominated in a currency other than
their functional currency. The policy of the Group is, where possible, to allow Group entities to settle liabilities denominated in
their local currency with the cash generated from their own operations in that currency, having converted US Dollar diamond
revenues to local currencies. In the case of the funding of non-current assets, such as projects to expand productive capacity
entailing material levels of capital expenditure, the central Group treasury function will assist the foreign operation to obtain
matching funding in the functional currency of that operation and shall provide additional funding where required. The currency in
which the additional funding is provided is determined by taking into account the following factors:
• the currency in which the revenue expected to be generated from the commissioning of the capital expenditure will be
denominated;
• the degree to which the currency in which the funding provided is a currency normally used to effect business transactions in
the business environment in which the foreign operation conducts business; and
• the currency of any funding derived by the Company for onward funding to the foreign operation and the degree to which it is
considered necessary to hedge the currency risk of the Company represented by such derived funding.
The sensitivity analysis to foreign currency rate changes is as follows:
US$ million
Financial assets
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
Financial liabilities
Botswana Pula
Euro
Pound Sterling
South African Rand
US Dollar
30 June 2020
Year-end
US$ rate
Year-end
amount
US$
strengthens 10%
US$
weakens 10%
0.0842
0.8903
0.8065
0.0577
1.000
0.0842
0.8903
0.8065
0.0577
1.000
—
1.1
21.2
108.4
82.5
213.2
—
0.3
8.7
220.9
693.6
923.5
—
1.0
19.0
97.6
82.5
200.1
—
0.3
7.8
198.8
693.6
900.5
—
1.2
23.3
119.2
82.5
226.2
—
0.3
9.6
243.0
693.6
946.5
Petra Diamonds Limited Annual Report and Accounts 2020
184
Financial Statements
33. Financial instruments continued
Foreign exchange risk continued
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
810.5
—
32.4
21.8
79.8
103.4
237.4
—
—
5.5
172.4
664.9
842.8
The tables above reflect the impact of a 10% cumulative currency movement over the next 12 months and are shown for
illustrative purposes.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital, capital expenditure, finance charges and principal
repayments on its debt instruments. It is the risk that the Group will encounter difficulty in meeting its financial obligations and
when necessary will seek to raise funds through the issue of shares and/or debt.
It is the policy of the Group to ensure that it will always have sufficient cash to allow it to meet its liabilities when they fall due. To
achieve this aim, the Group maintains cash balances and funding facilities at levels considered appropriate to meet ongoing
obligations.
Cashflow is monitored on a regular basis. 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 16 and 23, 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 (BEE Partner debt
facilities)
Bank loan – secured
Bank loan – secured
Senior secured second lien notes
Lease liabilities
Cashflow of loans and borrowings
Notes
Interest
rate
Total
3
months
or less
3–6
months
6–12
months
1–2
years
2–5
years
30 June 2020
20
20
22
22
22
22
15
0.1–4.1%
53.6
53.6
0.1–4.1%
14.0
67.6
—
53.6
12.83%
40.0
40.0
12.83%
23.1
23.1
7.5%
29.0
29.0
7.25%
676.9
676.9
5.98%
5.0
1.4
774.0
770.4
—
—
—
—
—
—
—
1.4
1.4
—
—
—
—
—
—
—
1.5
1.5
—
—
—
—
—
—
—
0.4
0.4
—
14.0
14.0
—
—
—
—
0.3
0.3
Petra Diamonds Limited Annual Report and Accounts 2020
185
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
33. Financial instruments continued
Maturity analysis continued
US$ million
Cash
Cash and cash equivalents – unrestricted
Cash – restricted
Total cash
Loans and borrowings
Bank loan – secured
Bank loan – secured
Senior secured second lien notes
Cashflow of loans and borrowings
Notes
Interest
rate
3 months
or less
3–6
months
6–12
months
Total
1–2
years
2–5
years
30 June 2019
20 0.1-6.5%
20 0.1-6.5%
71.7
13.5
85.2
71.7
—
71.7
22
22
22
12.7%
9.25%
—
—
7.25%
791.4
791.4
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
13.5
13.5
—
—
23.7
23.7
23.5
23.5
47.1
697.1
47.1
697.1
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 considered the impact of a change in
the floating interest rate to the Group’s financial results as the quantum of borrowings at floating rates is US$92.1 million (30 June
2019: US$nil). In the current Year, the impact of a 100 basis point increase/decrease would result in a financial loss/gain of US$0.9
million (30 June 2019: US$nil).
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:
• to safeguard the ability of the entity to continue as a going concern; and
• to provide an adequate return to shareholders.
The Group monitors capital on the basis of the debt to equity ratio. This ratio is calculated as net debt to equity. Net debt is
calculated as US$ loan notes (less transaction costs), bank loans and borrowings and BEE guarantee 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 2020 and 30 June 2019 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
2020
769.0
(67.6)
701.4
30.5
23.0:1
2019
650.6
(85.2)
565.4
311.7
1.81:1
The Group manages its capital structure by the issue of Ordinary Shares, raising debt finance where appropriate and managing
Group cash and cash equivalents.
Petra Diamonds Limited Annual Report and Accounts 2020
186
Financial Statements
34. 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$769.8 million (30 June 2019: US$989.2 million), Tanzania US$80.5
million (30 June 2019: US$98.7 million), and United Kingdom US$1.0 million (30 June 2019: US$0.2 million).
The Group’s property, plant and equipment included in non-current assets are located in South Africa of US$608.9 million (30
June 2019: US$879.0 million), Tanzania of US$66.7 million (30 June 2019: US$88.6 million), and United Kingdom of US$0.2 million
(30 June 2019: US$0.2 million).
Petra Diamonds Limited Annual Report and Accounts 2020
187
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
34. Segment information continued
Significant accounting policies relevant to segmental reporting continued
South Africa – mining activities
Tanzania
– mining
activities
Botswana
United
Kingdom
South
Africa
Operating
segments
US$ million
Finsch
2020
Cullinan
2020
Koffiefontein
2020
Williamson
2020
Exploration4
2020
Corporate
and
treasury
2020
Beneficiation5
2020
Inter-
segment
2020
Consolidated
2020
Revenue
101.1
116.5
25.7
52.5
—
—
—
—
295.8
Segment
result1
Impairment
charge
Impairment
charge –
other
receivables
Impairment
of BEE loans
receivable –
expected
credit loss
provision
Other direct
income
Operating
loss2
Financial
income
Financial
expense
Income tax
credit
Non-
controlling
interest
Loss
attributable
to equity
holders of
the parent
company
Segment
assets3
Segment
liabilities3
Capital
expenditure
(5.1)
21.6
(6.2)
(19.3)
(0.6)
(8.7)
(0.7)
(2.4)
(21.4)
(27.6)
(11.6)
(11.7)
(34.6)
—
—
—
—
(85.5)
—
—
—
(6.8)
—
0.4
—
—
(6.4)
—
0.7
—
—
—
0.3
—
1.0
—
—
(10.9)
—
—
—
—
—
(10.9)
2.0
(32.0)
10.0
(17.6)
(59.7)
(0.6)
(19.2)
(0.7)
(2.4)
(122.2)
7.9
(161.0)
52.3
33.0
(190.0)
303.5
494.0
135.9
94.5
—
2,876.6
4.1 (2,865.9)
1,042.7
176.6
566.7
266.2
297.8
—
2,018.9
4.8 (2,300.0)
1,031.0
8.4
16.4
3.8
8.0
—
1.0
—
(1.2)
36.4
1. Total depreciation of US$78.3 million included in the segmental result comprises depreciation incurred at Finsch of US$25.8 million, Cullinan of US$40.4 million,
Koffiefontein of US$2.5 million, Williamson of US$9.0 million, Exploration of US$0.1 million and Corporate administration of US$0.5 million.
2. Operating loss is equivalent to revenue of US$295.8 million less total costs of US$418.0 million as disclosed in the Consolidated Income Statement.
3. Segment assets and liabilities include inter-company receivables and payables which are eliminated on consolidation.
4. The exploration assets in Botswana of US$0.3 million and liabilities of US$0.1 million have been classified as non-current assets held for sale (refer to note 36).
5. The beneficiation segment represents Tarorite, a cutting and polishing business in South Africa, which can on occasion cut and polish select rough diamonds.
Petra Diamonds Limited Annual Report and Accounts 2020
188
Financial Statements
34. Segment information continued
Significant accounting policies relevant to segmental reporting continued
South Africa – mining activities
Tanzania
– mining
activities
Botswana
United
Kingdom
South
Africa
Operating
segments
US$ million
Finsch
2019
Cullinan
2019
Koffiefontein
2019
Williamson
2019
Exploration5
2019
Corporate
and
treasury
2019
Beneficiation6
2019
Inter-
segment
2019
Consolidated
2019
Revenue
170.2
171.4
28.9
93.0
—
—
0.1
—
463.6
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)3
Non-
controlling
interest
Loss
attributable
to equity
holders of
the parent
company
Segment
assets4
Segment
liabilities4
Capital
expenditure
32.2
26.2
(9.6)
9.9
(0.5)
(8.6)
(1.2)
(1.5)
46.9
(85.4)
(63.9)
(33.2)
(41.2)
—
—
—
—
(223.7)
—
—
—
(18.9)
—
(4.0)
—
—
(22.9)
(0.5)
(0.1)
(0.4)
0.2
—
—
—
—
(0.8)
(53.7)
(37.8)
(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)
396.6
611.2
168.7
182.5
—
3,146.8
13.0 (3,224.0)
1,294.8
184.3
608.5
303.4
300.6
—
2,306.9
13.8 (2,748.8)
968.7
24.1
46.3
6.1
8.6
—
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 operating results in respect of KEM JV and Helam have been reflected within loss on discontinued operation (refer to note 35).
4. Segment assets and liabilities include inter-company receivables and payables which are eliminated on consolidation.
5. 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 36).
6. The beneficiation segment represents Tarorite, a cutting and polishing business in South Africa, which can on occasion cut and polish select rough diamonds.
Petra Diamonds Limited Annual Report and Accounts 2020
189
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
35. 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. The Botswana exploration operations met the criteria mentioned
above and as such are 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.
30 June 2019
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$18.6 million) (“the Disposal”) comprising
deferred and contingent elements.
The Disposal was on a going concern basis, with Ekapa Mining taking on all of the Company’s financial, employee, environmental,
health, safety and social obligations with regard to the KEM JV operation. The rationale for the Disposal is to ensure a sustainable
future for KEM JV by placing the operation under the sole stewardship of an operator best suited to maximise its value. Ekapa
Mining’s extensive experience of operating specifically within Kimberley and its ability to solely focus on these assets is expected
to provide the right fit for the operation, thereby ensuring continuation of diamond mining employment and related economic
activity in this renowned diamond centre.
The terms of repayment of the ZAR300 million purchase consideration, originally to be payable in 24 monthly instalments starting
in January 2019, were amended prior to completion to allow Ekapa Mining to maximise the prospects of the financial viability of
the operation. According to the terms, the purchase consideration will be settled as follows:
• ZAR60 million payable in 24 monthly instalments starting on 1 April 2019;
• the balance, ZAR240 million, of the purchase consideration will be repayable from a 50% share of future operating cashflows
above set benchmark thresholds including proceeds from the sale of assets adjusted for sustaining capital of between ZAR110
million and ZAR130 million per annum, for a period of five years to 30 June 2024; and
• possible proceeds from a pending insurance claim, which is subject to ongoing discussions, in relation to the mud-rush incident
at Bultfontein, as previously announced.
The Company has fair valued the balance of the purchase consideration and deemed it to be US$nil having considered the
historical trading performance of the asset, the Group’s knowledge of the mine and risks and uncertainties.
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.
Petra Diamonds Limited Annual Report and Accounts 2020
190
Financial Statements
35. 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
Total assets
Environmental liabilities and other non-current trade and other payables
Trade and other payables
Total liabilities
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)
1. The sale of KEM JV was effective as at 30 November 2018 as reported in the FY 2019 Annual Report.
30 June 20191
19.8
3.0
10.0
0.7
33.5
(13.8)
(11.5)
(25.3)
8.2
Period ended
30 June 20191
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)
Petra Diamonds Limited Annual Report and Accounts 2020
191
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
35. 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 June 20191
3.6
(8.2)
(2.0)
(1.3)
(26.1)
(34.0)
(1.5)
(35.5)
(3.1)
(4.2)
(42.8)
1. The sale of KEM JV was effective as at 30 November 2018 as reported in the FY 2019 Annual Report.
During the year ended 30 June 2019, the Company advanced US$9.4 million funding to the KEM JV; of this amount, US$3.9
million has been recovered. Management assessed the recoverability of the remaining US$5.5 million and as a result of the
assessment an impairment charge of US$4.2 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.
During the Year, the Company received repayments of US$0.4 million from KEM JV and no further impairment charge was
recognised in respect of KEM JV receivables due to the Group.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss
provision for trade receivables and other receivables. To measure expected credit losses on a collective basis, trade receivables
and other receivables are grouped based on similar credit risk and ageing.
At 30 June 2019, as a result of the above assessment by management of the loan receivable, management has also impaired the
remaining balance of the purchase consideration reducing it to US$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 June 2019
3.4
(2.1)
(16.1)
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:
• an owner-manager approach will ensure sole focus on the optimisation of the Helam assets;
• it will reduce Group cash outflow with existing care and maintenance expenditure amounting to ca. US$2 million per annum; and
• Lindleys Mining will take on all of the Company’s environmental obligations with regard 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 year ended 30 November 2018, which is disclosed in the Consolidated
Income Statement in ‘Loss on discontinued operations’ and the net assets disposed of amounted to US$0.6 million.
Petra Diamonds Limited Annual Report and Accounts 2020
192
Financial Statements
35. Disposal of operations continued
Helam Mining disposal continued
(i) Post-tax loss on disposal of Helam at:
US$ 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 June 2019
—
(0.6)
3.4
(9.1)
(6.3)
(0.8)
(7.1)
36. 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, was
carried at the lower of carrying value and fair value less costs to sell. The assessment of fair value less costs 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. The losses associated with the Botswana exploration programme are not considered a
separate major line of business or geographical operations.
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 2020
30 June 2019
0.3
—
0.3
0.1
0.1
0.2
0.6
—
0.6
—
—
0.6
Refer to note 37 for details relating to the disposal post Year end of the Company’s exploration assets held in Botswana.
37. Events after the reporting period
Botswana (exploration)
On 20 July 2020, the Company announced that it had entered into an agreement to dispose of its exploration assets in Botswana
via the sale of 100% of its holding in Sekaka Diamonds Exploration (Pty) Limited (previously known as Petra Diamonds Botswana
(Pty) Limited) (“Sekaka Diamonds”) to Botswana Diamonds PLC (“Botswana Diamonds”) for a total consideration of US$300,000
and a 5% royalty on future diamond revenues should any of the prospects within the exploration licences be brought into
production.
The assets of Sekaka Diamonds include the Company’s three existing prospecting licences in Botswana, which include the KX36
project, a 3.5 hectare kimberlite that was a new discovery by Petra in 2010, as well as a bulk sampling plant.
The purchase price of US$300,000 will be payable in two equal instalments of US$150,000 each, on or before 31 August 2021 and
31 August 2022 respectively. Petra is also entitled to a 5% royalty on the sale of diamonds commercially produced from any
kimberlite which falls within the licence areas covered in the sale. Botswana Diamonds has the option to buy out the royalty for a
cash payment of US$2.0 million.
The sale is subject to a number of regulatory approvals, including Ministerial consent in Botswana, approval from Petra’s lenders
and Noteholders and, to the extent required, approval from the Botswana Competition Commission. The long-stop date for
fulfilment of the conditions precedent is 30 November 2020, which may be extended by mutual agreement of the two parties.
Petra Diamonds Limited Annual Report and Accounts 2020
193
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
37. Events after the reporting period continued
Long-term restructuring solution for Petra: commercial terms agreed in principle with financial stakeholders
On 20 October 2020, the Company announced it had reached agreement in principle on a common set of commercial terms with
respect to a long-term solution for the recapitalisation of the Group (“the Restructuring") with each of the AHG and the South
African Lender Group. The key features of the proposed Restructuring are as follows:
• partial reinstatement of the Notes debt and the contribution by holders of the existing Notes of US$30.0 million in new money,
each to take the form of new senior secured second lien notes ("New Notes"). It is expected that the New Notes will amount to
approximately US$337.0 million (including the new money and fees paid as part of the transaction in New Notes);
• conversion of the remainder of the Notes debt into equity, which will result in the Noteholder group holding 91% of the enlarged
share capital of PDL;
• restructuring of the first lien facilities provided by the South African Lender Group; and
• new governance arrangements and cashflow controls.
Commercial terms of the Restructuring
1. Reinstatement of Notes debt and New Money
All Noteholders shall have a right to subscribe for a portion of US$30.0 million of new money to be provided by Noteholders to
Petra Diamonds US$ Treasury plc (“the New Money”), pro rata to their holdings of the Notes. The New Money will be structured to
incentivise participation by Noteholders, including through the treatment of their existing Notes debt (as further described below),
and backstopped by certain of the Noteholders.
A portion of the existing Notes debt will be reinstated alongside the New Money notes, each to be reinstated in the form of New
Notes. The New Notes will be allocated as follows:
(a) US$30.0 million (reflecting the New Money) allocated only to those Noteholders that contribute New Money, pro rata to their
New Money contribution;
(b) US$150.0 million allocated only to those Noteholders that contribute New Money, pro rata to each holder’s contribution to the
New Money (reflecting a ratio of 5.0:1);
(c) US$145.0 million allocated to all Noteholders, pro rata to their holdings of existing Notes at the close of the Restructuring; and
(d) a further amount of New Notes as consideration to certain Noteholders, including the AHG, for their support and efforts
expended in connection with the Restructuring. It is expected that the quantum of New Notes issued for this purpose will be
approximately US$12.0 million including, without limitation:
(i)
(ii)
New Notes to be issued to any Noteholder who executes the Lock-Up Agreement on or within 14 days of the date
of the agreement (“the Early Bird Fee”), where the Early Bird Fee will be equal to 1.0% of the aggregate principal
amount of such Noteholder's existing Notes as at the date 14 days after the date of the Lock-Up Agreement; and
New Notes to be issued to certain Noteholders who agree to provide any portion of the New Money that is not
otherwise provided by other Noteholders in the form of a pro rata allocation of US$1.5 million of New Notes.
Material terms of the New Notes:
(a) Interest rate (payable every six months) of 10.50%. Payment in kind for the first 24 months and 9.75% cash pay thereafter.
(b) Maturity date: five years from date of completion.
(c) Non-call protection: two-year non-call protection (customary make-whole), and coupon step-down profile thereafter at
104.88, 102.44, then par.
(d) Covenants: customary for financing of this type, including: (i) a change of control provision requiring a change of control offer
at 101%; and (ii) a minimum liquidity covenant.
(e) Guarantors, security and ranking: second-ranking guarantees and security to be provided on substantially the same terms as
under the existing Notes, with certain amendments to be agreed in line with corporate restructuring steps. Enhancements to
security package to be agreed, including, but not limited to, security over intra-group offtake receivables and inventory at all
relevant points in supply chain until inventory is sold to third parties (but only to extent of not constraining operations or
incurring material additional duties or fees). Any enhancements shall also be included in the first lien security package.
(f) Inter-creditor arrangements: to reflect second-ranking guarantees and security and certain additional inter-creditor
arrangements including payment stops (including limitations on paying cash interest) and enforcement limitations, subject to
the requirements and covenants of the first lien debt (including compliance with a first lien debt service cover ratio (see
Section 3 below for further details), amount drawn under the new Revolving Credit Facility ("RCF") of no more than ZAR400.0
million at the time of and for two weeks following the interest payment and a minimum unrestricted cash covenant of
US$20.0 million).
It is contemplated that the above arrangements with respect to the Notes shall be effected through an English law scheme of
arrangement under part 26 of the Companies Act 2006.
Petra Diamonds Limited Annual Report and Accounts 2020
194
Financial Statements
37. Events after the reporting period continued
Commercial terms of the Restructuring continued
2. Equity
The remainder of the existing Notes debt will be exchanged for equity in the Company (“the Debt for Equity"), pursuant to which
new Ordinary Shares in Petra Diamonds Limited (“PDL”) will be issued to the Noteholders in consideration for the assignment of
existing Notes debt. The Debt for Equity will result in the Noteholder group holding 91% of the enlarged share capital of PDL in the
following proportions:
(a) 56.0% of the enlarged share capital to be issued to all Noteholders, pro rata to their holdings of existing Notes at the close of
the Restructuring (and to the extent any Noteholder does not take up their entitlement, such entitlement will be allocated to
the remaining Noteholders who have not opted out of their equity entitlement, on a pro rata basis); and
(b) 35.0% of the enlarged share capital to be issued to those Noteholders that elect to contribute towards the New Money only,
pro rata to their contribution of New Money (and to the extent any such Noteholders do not take up their entitlement, such
entitlement will be allocated to the remaining Noteholders (that are participating in the New Money and who have not opted-
out of their equity entitlement) on a pro rata basis).
As a consequence of the Debt for Equity, at least 9% of the enlarged PDL share capital will remain with the existing PDL
shareholders (subject to dilution as a result of standard management equity incentive arrangements). The Debt for Equity as
currently constituted is subject to the approval of existing shareholders of the Company at an EGM of the Company. However, the
Company is also preparing to implement the agreement in principle reached with its creditors through alternative structures
should shareholder approval not be obtained at the relevant time. It is not anticipated that such alternative structures would result
in any retention of equity or other interests in the Group by the existing shareholders of the Company.
3. Arrangements with the South African Lender Group
The various existing arrangements with the South African Lender Group, including the ZAR500.0 million WCF, the ZAR400.0 million
RCF, the financing arrangements in respect of the Group's BEE Partners (“the BEE Facilities") and the Group's general banking
facilities will (subject to credit committee approval) be restructured as part of the Restructuring.
The new bank facilities will comprise the following, on a first lien basis and on substantially the same terms (or better for the
Group) as under the existing documentation:
(a) Term loan
(i) Available in a principal amount of ZAR1.2 billion (ca. US$69 million), borrowed by existing obligors in the Group (to be
agreed) in order to refinance the existing drawn ZAR500 million (ca. US$29 million) WCF and the BEE Facilities
(approximately ZAR683 million (ca. US$39 million)).
(ii) Final maturity date: three years from date of completion.
(iii) Scheduled amortisation of 9% of principal per quarter (starting in June 2021) with a final 10% of principal repayment at
maturity.
(iv) 1.3x debt service cover ratio tested semi-annually on a rolling 12-month basis, which if breached will give rise to an event
of default under the new bank facilities.
(v) Interest rate of JIBAR + 5.25% per annum (with an upfront fee of 1% of the term loan amount to be capitalised).
(a) RCF
(i) Available in a principal amount of ZAR560.0 million (ca. US$32 million) constituted by a rollover of the existing RCF but
upsized by ZAR160 million (ca. US$9 million).
(ii) Final maturity date: three years from completion.
(iii) Scheduled reduction in the committed amount under the RCF of 9% of the total initial commitments per quarter (starting in
June 2021) with a final 10% reduction at maturity.
(iv) 1.3x debt service cover ratio tested semi-annually on a rolling 12-month basis, which if breached will give rise to an event
of default under the new bank facilities.
(v) Interest rate of JIBAR + 5.25% per annum (with an upfront fee of 1% of the RCF amount to be capitalised and a
commitment fee based on undrawn balances).
Derivative, guarantee, foreign exchange and intra-day exposure lines up to an agreed amount consistent with current
requirements and on substantially the same terms as the Group's existing arrangements. The existing arrangements will be rolled
over to provide hedging against foreign exchange risk on the same terms as the Group's existing arrangements.
Petra Diamonds Limited Annual Report and Accounts 2020
195
Financial Statements
Notes to the Annual Financial Statements
For the Year ended 30 June 2020 continued
37. Events after the reporting period continued
Commercial terms of the Restructuring continued
4. Additional rights for holders of the New Notes
The holders of the New Notes will be granted certain rights, and some ongoing financial oversight, over the business of the Group,
including with respect to governance and cashflow controls.
Directors and corporate governance
Up to four Noteholders (in their capacity as shareholders of PDL following the Restructuring) that individually hold at least 10% of
the shares in PDL (taking into account the shares issued pursuant to the Debt for Equity) at the closing of the Restructuring shall
have a "Nomination Right" to:
(i) nominate a person for appointment to the Board as a non-independent Non-Executive Director; and
(ii) appoint an observer to the Board (such person shall not have voting rights at Board meetings), it being acknowledged that the
Company shall comply with the UK Listing Rules and the UK Corporate Governance Code on the appointment of additional
independent Non-Executive directors as applicable. If at any time the Noteholder (shareholder) ceases to hold at least 7% of
the shares in PDL (taking into account shares issued under the Debt for Equity), the rights will fall away. These arrangements
will be governed by agreements between the relevant Noteholder (in its capacity as shareholder) and the Company.
The Nomination Rights will be allocated to the Noteholders who execute the Lock-Up Agreement on, or within 14 days of, the date
of the Lock-Up Agreement ("the Deadline"), provided they satisfy the minimum shareholding requirements mentioned above in (ii).
For the avoidance of doubt, only four Noteholders will be entitled to Nomination Rights (and if more than four Noteholders would
be so entitled, the top four Noteholders (in terms of projected holdings of PDL shares, based on the Noteholders' holdings of
existing Notes as at the Deadline) will have the Nomination Rights).
It is expected that details of these Nomination Rights will be included in the PDL shareholder circular and prospectus to be
published in connection with the Debt for Equity. The PDL shareholder circular and prospectus will also disclose the intention that
the existing Directors of PDL remain in office following closing of the Restructuring.
The Board will, following closing of the Restructuring, form an advisory investment committee, which will include Directors
nominated by the Noteholders (shareholders) in order to monitor significant capital and other investments and recommend their
adoption to the full Board.
A cash bonus and/or equity-based management incentive plan will be implemented by the Remuneration Committee post-closing
of the Restructuring which shall be designed to incentivise and reward business performance and to achieve or exceed targets
set by the Board, which will include targets relating to cash generation and leverage and performance against the PDL business
plan. Any such arrangements will be put forward in the normal course for approval by shareholders at the AGM.
Cashflow control enhancement covenants
In addition to various restrictions and the tightening of existing covenants and baskets in relation to the Notes, certain cashflow
control protocols will be introduced and debt service waterfalls will be included to reflect the priority and application of payments
to the banks as first lien debt providers and to the Noteholders as second lien debt providers.
Cashflow protocols
All cashflows, whether from operations or otherwise, will be applied in accordance with a cashflow protocol. The protocol will
include a transparent and orderly cashflow management in the ordinary course and recording and implementation of the agreed
priority of ordinary course payments as between the operating companies, the rest of the Group, the BEE Partners, the South
African Lender Group and the Noteholders and restricted payments.
Petra Diamonds Limited Annual Report and Accounts 2020
196
Supplementary Information
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
Adjusted EPS from
continuing operations
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),
impairment charges, expected credit loss
provision, net unrealised foreign exchange
gains and losses and loss/profit on
discontinued operations.
Earnings per share, stated before impairment
charges, expected credit loss provision,
taxation credit on impairment charge and net
unrealised foreign exchange gains and losses.
Adjusted EBITDA excludes the impact of
certain non-cash items and one-off items (i.e.
loss/profit on discontinued operations) and is
used to provide further clarity on the ongoing,
underlying financial performance of the Group.
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, expected credit loss
provision, taxation credit on impairment
charge, net unrealised foreign exchange gains
and losses, 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
Operational free
cashflow
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, refer to note 22.
Cash generated from operations less capital
expenditure for the Year as per the
Consolidated Cashflow Statement.
Net debt
The US$ loan notes (gross), bank loans and
borrowings and BEE guarantee, 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.
Petra Diamonds Limited Annual Report and Accounts 2020
197
Supplementary Information
Five-year Summary of Consolidated Figures
For the Year ended 30 June 2020
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)
2020
2019
2018
2017
2016
295.8
463.6
576.4
477.0
430.9
(225.3)
(301.7)
(291.4)
(311.3)
(257.7)
72.5
161.1
205.1
168.5
176.0
64.8
153.0
195.4
157.2
164.3
(49.7)
(13.2)
1.6
(223.0)
(258.1)
(203.1)
29.0
20.7
63.6
66.8
191.1
206.7
413.5
354.8
222.5
851.0
1,087.5 1,329.2
1,500.0
1,117.9
0.3
0.6
46.5
—
18.8
1,042.7
1,294.8
1,789.2
1,854.8
1,359.2
769.0
650.6
754.8
757.1
424.5
52.5
54.9
130.8
136.7
125.4
Liabilities directly associated with non-current assets held for sale
—
—
27.8
—
12.2
Total equity
Movement in cash
11.7
326.1
566.6
646.4
546.8
Net cash generated from operating activities
27.0
156.4
67.9
152.5
153.7
Net cash utilised in investing activities
(51.0)
(137.9)
(201.9)
(292.6)
(324.4)
Net cash generated from/(utilised in) financing activities
52.4
(102.7)
169.7
291.1
82.6
Net (decrease)/increase in cash and cash equivalents
(6.7)
(141.6)
35.7
151.0
(98.1)
Ratios and other key information
Basic (loss)/earnings 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)
(21.96)
(20.18)
(15.85)
3.14
10.38
(4.94)
(2.63)
0.83
5.50
9.76
36.4
67.6
86.9
145.5
300.1
324.1
85.2
236.0
203.7
48.7
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 197.
Petra Diamonds Limited Annual Report and Accounts 2020
198
Supplementary Information
FY 2020 Summary of Results and Non-GAAP Disclosures
US$ million
Revenue
Adjusted mining and processing costs1
Other direct income/(expense)
Profit from mining activities2
Exploration expense
Corporate overhead
Adjusted EBITDA3
Depreciation
Amortisation of right-of-use asset
Share-based expense
Net finance expense
Tax credit (excluding taxation credit on impairment charge)
Adjusted net loss after tax4
Impairment charge5
Impairment of BEE loans receivable – expected credit loss provision6
Net unrealised foreign exchange (loss)/gain
Taxation credit on impairment charge
Loss from continuing operations
Loss on discontinued operations, net of tax7
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 per share – from continuing operations8
2020
295.8
(225.3)
2.0
72.5
(0.5)
(7.2)
64.8
(78.6)
(4.9)
(0.7)
(71.6)
41.3
(49.7)
(91.9)
(10.9)
(81.5)
11.0
(223.0)
—
(223.0)
(21.96)
(4.94)
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)
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, amortisation of right-of-use asset, share-based expense, net finance expense (excluding net unrealised foreign exchange
gains and losses), tax expense (excluding taxation credit on impairment charge), (loss)/profit on discontinued operations, impairment charges, expected credit loss
provision 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, expected credit loss provision, taxation
credit on impairment charge and net unrealised foreign exchange gains and losses.
5. Impairment charge of US$91.9 million (30 June 2019: US$246.6 million) was due to the Group’s impairment review of its operations and other receivables. Refer to note 8
for further details.
6. Impairment of BEE loans receivable of US$10.9 million (30 June 2019: US$nil) is due to the Group’s expected credit loss assessment of its BEE loans receivable. Refer to
note 16 for further details.
7. The loss on discontinued operations reflect the results of the KEM JV and Helam operations (net of tax) in FY 2019. Refer to note 35 for further details.
8. Adjusted EPS from continuing operations is stated before impairment charge, reversal of impairment charge, expected credit loss provision, taxation credit on impairment
charge and net unrealised foreign exchange gains and losses.
Petra Diamonds Limited Annual Report and Accounts 2020
199
Supplementary Information
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 which 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.
To view schematics of our Group structure, including a ‘Summary of mine ownership’, ‘BEE Partner structures’ and ‘Petra Group
structure – operating entities’, visit https://www.petradiamonds.com/about-us/who-we-are/group-structure/.
Petra Diamonds Limited Annual Report and Accounts 2020
200
Supplementary Information
FY 2020 Operations Results Tables
Cullinan – 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
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
Unit
FY 2020
FY 2019
Variance
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
Cpht
116.5
171.4
1,183,745
1,562,922
98
110
3,972,682
1,482,482
37.3
257,549
95,918
37.2
4,119,406
1,589,707
38.6
956,035
66,222
6.9
Tonnes
Carats
4,230,231
1,578,400
5,075,441
1,655,929
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
Cpht
101.1
170.2
1,348,181
1,711,311
75
99
2,719,389
3,073,479
1,603,678
1,724,265
59.0
56.1
211,541
39,890
18.9
223,568
31,503
14.1
Tonnes
2,930,930
3,297,047
Carats
1,643,568
1,755,768
-32%
-24%
-10%
-4%
-7%
-3%
-73%
+45%
+438%
-17%
-5%
15%
-65%
-50%
-100%
-65%
-41%
-21%
-25%
-12%
-7%
+5%
-5%
+27%
+34%
-11%
-6%
23%
-55%
-75%
-100%
-65%
On-mine cash cost per tonne treated
ZAR
270
Capex
Expansion Capex
Sustaining Capex
Borrowing costs capitalised
Total Capex
US$m
US$m
US$m
US$m
13.0
3.4
—
16.4
234
37.2
6.8
2.3
46.3
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.
Unit
FY 2020
FY 2019
Variance
On-mine cash cost per tonne treated
ZAR
477
Capex
Expansion Capex
Sustaining Capex
Borrowing costs capitalised
Total Capex
US$m
US$m
US$m
US$m
6.1
2.3
—
8.4
388
13.6
9.1
1.4
24.1
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.
Petra Diamonds Limited Annual Report and Accounts 2020
201
Supplementary Information
FY 2020 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
Unit
FY 2020
FY 2019
Variance
US$m
Carats
US$
Tonnes
Carats
Cpht
Tonnes
Carats
25.7
66,326
387
28.9
60,291
480
891,705
1,000,726
69,077
7.7
63,635
6.4
891,705
1,000,726
69,077
63,635
-11%
+10%
-19%
-11%
+9%
+22%
-11%
+9%
On-mine cash cost per tonne treated
ZAR
510
450
13%
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
US$m
US$m
US$m
2.7
1.1
3.8
5.2
0.9
6.1
-48%
+22%
-38%
Unit
FY 2020
FY 2019
Variance
US$m
Carats
US$
52.5
93.0
297,245
402,329
177
231
Tonnes
3,980,438
5,082,319
Carats
Cpht
287,356
386,016
7.2
7.6
Tonnes
302,567
Carats
Cpht
10,774
3.6
413,151
13,599
3.3
Tonnes
4,283,005
5,495,470
Carats
298,130
399,615
-44%
-26%
-24%
-22%
-26%
-5%
-27%
-21%
8%
-22%
-25%
-8%
0%
-7%
-7%
On-mine cash cost per tonne treated
US$
10.2
Capex
Expansion Capex
Sustaining Capex
Total Capex
1. Negatively impacted by the 71,654 carat parcel blocked for export.
US$m
US$m
US$m
—
8.0
8.0
11.1
—
8.6
8.6
Petra Diamonds Limited Annual Report and Accounts 2020
202
Supplementary Information
FY 2020 Resource Statement
Petra Diamonds Limited (“Petra” or “the Company” or “the Group”) manages one of the world’s largest diamond resources of ca. 244
million carats (“Mcts”). 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 (in the case of Cullinan and Williamson).
Gross resources
As at 30 June 2020 the Group’s gross diamond resources (inclusive of reserves) decreased 2% to 243.51 Mcts (30 June 2019:
248.15 Mcts), predominantly due to the finalisation of a new resource model at Cullinan, which includes all outstanding sampling
information from the recently completed C-Cut block cave development, the removal of the Eskom Tailings Mineral Resource at
Koffiefontein following the transfer of ownership to the Koffiefontein Community Mining Primary Cooperative, as well as
depletions at all mining assets further to ore mined in the Year to 30 June 2020 (“FY 2020”).
Gross reserves
The Group’s gross diamond reserves decreased 9% to 38.86 Mcts (30 June 2019: 42.51 Mcts) primarily due to mining depletions, and
the impact on the remaining reserves at Williamson following the pit slump experienced during FY 2020. The following table
summarises the gross reserves and resources status of the combined Petra Group operations as at 30 June 2020.
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Note
Gross
Grade
(cpht)
—
29.6
29.6
—
46.8
6.0
14.8
Tonnes
(millions)
—
131.4
131.4
—
354.2
1,295.5
1,649.6
Contained
diamonds
(Mcts)
—
38.86
38.86
—
165.64
77.87
243.51
1. The gross resources include 8.73 Mcts relating to the KX36 project in Botswana. On 20 July 2020, Petra entered into an agreement to dispose of its exploration assets in
Botswana, including KX36, via the sale of its holding in Sekaka Diamonds Exploration (Pty) Limited to Botswana Diamonds PLC; the transaction is expected to be
concluded in the six-month period to 31 December 2020.
Cullinan
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Grade
(cpht)
—
38.5
38.5
—
59.2
10.1
38.3
Tonnes
(millions)
—
43.0
43.0
—
228.6
169.6
398.2
Contained
diamonds
(Mcts)
—
16.55
16.55
—
135.31
17.20
152.50
1. Resource bottom cut-off: 1.0mm.
2. Reserve bottom cut-off: 1.0mm.
3. New resource model includes minor changes to the geological model and all outstanding sampling information from the recently completed C-Cut block cave development.
4. B-Cut resource tonnes and grade are based on block cave depletion modelling and include external waste. A portion of the resources in these remnant blocks report into
the current caving operations as low grade dilution.
5. C-Cut resource stated as in situ.
6. Reserves based on PCBC simulations on C-Cut phase 1 and PCSLC simulations for the CC1E.
7. 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.
8. 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%.
9. US$/ct values of 85–95 for ROM, excluding exceptional stones, and 30–40 for tailings based on expected sales values (with reference to FY 2020 sales results and
considering the impact of the COVID-19 pandemic on rough diamond prices) and production size frequency distributions.
Petra Diamonds Limited Annual Report and Accounts 2020
203
Supplementary Information
FY 2020 Resource Statement continued
Finsch
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Grade
(cpht)
—
55.7
55.7
67.7
53.4
59.8
Tonnes
(millions)
—
33.2
33.2
29.2
36.2
65.4
Contained
diamonds
(Mcts)
—
18.48
18.48
19.78
19.33
39.11
1. Resource bottom cut-off: 1.0mm.
2. Reserve bottom cut-off: 1.0mm.
3. Block 4 resource tonnes and grade are based on block cave depletion modelling and include external waste. A portion of this remnant resource reports into the current
caving operations as low grade dilution.
4. Block 5 and Block 6 resource stated as in situ.
5. Remaining Block 5 reserves are based on PCSLC and PCBC simulations.
6. US$/ct values of 75–85 for ROM, based on expected sales values (with reference to FY 2020 sales results and considering the impact of the COVID-19 pandemic on rough
diamond prices) and production size frequency distributions.
Koffiefontein
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
3.0
3.0
15.0
125.0
140.0
—
7.9
7.9
7.7
3.3
3.8
—
0.24
0.24
1.15
4.16
5.31
1. Resource bottom cut-off (Koffiefontein underground and Ebenhaezer): 1.15mm.
2. Reserve bottom cut-off: 1.15mm.
3. Main Pipe resources above 490L are remnants of the front cave mining block and include external waste. A portion of this remnant resource reports into the current caving
operations as low grade dilution.
4. Resources below 490L are stated as in situ.
5. The Eskom Tailings Mineral Resource has been removed following a donation of part of the Tailings Mineral Resource to the Koffiefontein Community Mining Primary
Cooperative to promote artisanal small-scale mining in the area.
6. Remaining 56–60L sub-level cave reserves are based on PCSLC simulations.
7. US$/ct values of 400–450 for ROM, based on expected sales values (with reference to FY 2020 sales results and considering the impact of the COVID-19 pandemic on
rough diamond prices) and production size frequency distributions.
Petra Diamonds Limited Annual Report and Accounts 2020
204
Supplementary Information
Williamson
Category
Reserves
Proved
Probable
Sub-total
Resources
Measured
Indicated
Inferred
Sub-total
Notes
Gross
Tonnes
(millions)
Grade
(cpht)
Contained
diamonds
(Mcts)
—
52.3
52.3
63.4
958.0
1,021.4
—
6.9
6.9
4.9
3.6
3.7
—
3.59
3.59
3.08
34.77
37.86
1. Resource bottom cut-off: 1.15mm.
2. Reserve bottom cut-off: 1.15mm.
3. Resource depletions based on June 2020 pit surface, adjusted for the in-pit slump experienced in FY 2020.
4. Reserves based on mine scheduling in XPAC, including care and maintenance period and adjustments to the mine plan following the in-pit slump.
5. US$/ct values of 170–220 for ROM, based on expected sales values (with reference to FY 2020 sales results and considering the impact of the COVID-19 pandemic on
rough diamond prices) 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)
—
—
—
—
17.9
6.8
24.7
—
—
—
—
35.3
35.7
35.4
—
—
—
—
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$58/ct, based on size frequency distribution of large diameter drill sampling, adjusted to current
diamond market prices.
Petra Diamonds Limited Annual Report and Accounts 2020
205
Supplementary Information
FY 2020 Resource Statement continued
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. Reserve tonnages and grades are reported inclusive of external waste, mining and geological losses and plant modifying
factors; reserve carats will generally be less than resource carats on conversion and this has been taken into account in the
applicable statements.
6. Reserves and resources have been reported in accordance with the South African code for the reporting of mineral reserves
and mineral resources (SAMREC 2016).
7. The Petra 2020 annual Resource Statement as shown above is based on information compiled internally within the Group under
the guidance and supervision of Andrew Rogers, Pr. Sci. Nat. (reg. no. 120664). Andrew Rogers has 20 years' relevant
experience in the diamond industry and is a full-time employee of Petra.
8. All reserves and resources have been independently reviewed and verified by John Kilham, Pr. Sci. Nat. (reg. no. 400018/07), a
competent person with 40 years' relevant experience in the diamond mining industry, who was appointed as an independent
consultant by the Company for this purpose.
Petra Diamonds Limited Annual Report and Accounts 2020
206
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
Company registration number
EC 23123
Company Secretary
St James’s Corporate Services Limited
Suite 31
Second Floor
107 Cheapside
London EC2V 6DN
Tel: +44 20 7796 8644
www.corpserv.co.uk
Banker
Barclays Bank plc
1 Churchill Place
London E14 5HP
Tel: +44 20 7116 1000
www.barclays.com
Solicitors
Bermuda – Conyers Dill & Pearman Limited
Clarendon House
2 Church Street
Hamilton HM11
Bermuda
Tel: +1 441 295 1422
United Kingdom – Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
Tel: +44 20 7638 1111
United Kingdom – Memery Crystal
165 Fleet Street
London EC4A 2DY
Tel: +44 20 7242 5905
Financial adviser
Rothschild & Co
New Court, St Swithin's Lane
London EC4N 8AL
Tel: +44 20 7280 5000
Financial adviser and stockbroker
BMO Capital Markets
95 Queen Victoria Street
London EC4V 4GH
Tel: +44 20 7236 1010
www.bmocm.com
Stockbroker
Peel Hunt
Moor House
120 London Wall
London EC2Y 5ET
Tel: +44 20 7418 8900
www.peelhunt.com
Registrar
Link Market Services (Jersey) Limited
First Floor
IFC5
The Esplanade
St. Helier
Jersey JE2 3BY
Tel: UK: 0371 664 0300 (calls are charged at the standard
geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at the applicable international
rate; lines are open 9.00am–5.30pm GMT Mon–Fri)
International: +44 371 664 0300
Website: www.linkmarketservices.com
Email: shareholderenquiries@linkgroup.co.uk
Transfer agent
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Tel: UK: 0371 664 0300 (calls are charged at the standard
geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at the applicable international
rate; 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
Auditor
BDO LLP
55 Baker Street
London W1U 7EU
Tel: +44 207 486 5888
Petra Diamonds Limited Annual Report and Accounts 2020
207
Supplementary Information
Shareholder and Corporate Information continued
Power to issue shares
At the AGM held on 29 November 2019 (“the 2019 AGM”),
authority was given to the Directors to allot:
i) Relevant Securities (as defined in the Bye-Laws) up to a
maximum aggregate nominal amount of £28,844,549.50
(being 288,445,495 Ordinary Shares); and
ii) equity securities (as defined in the Bye-Laws) for cash on
(a) a non-pre-emptive basis pursuant to a rights issue or
other offer to shareholders and (b) in any case up to
aggregate maximum nominal amount of £4,326,682.43,
representing approximately 5% of the issued share capital
of the Company as at 14 October 2019.
Share rights
In accordance with the Company’s Bye-Laws, 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
regard to the control of the Company.
The Company’s 2020 AGM will be held at 9:30am on 17
December 2020 at 52-53 Conduit Street, London W1S 2YX.
Due to the COVID-19 pandemic, the AGM will be held as a
closed meeting; however, shareholders will be given the
opportunity to participate remotely. Details of the AGM
format are included in the accompanying Notice of AGM.
Shareholder voting
In advance of the AGM in December 2020, the Company
would like to inform shareholders that the Company has
moved to a digital approach to voting and therefore
requests that all shareholders vote electronically. The
Company will not be sending paper proxy forms and,
instead, shareholders should vote either via the Shareholder
Portal (www.signalshares.com) or, for CREST holders, via
the CREST network. You will require your username and
password in order to log in and vote using the Shareholder
Portal. If you have forgotten your username or password,
you can request a reminder via the Shareholder Portal. If
you have not previously registered to use the Shareholder
Portal, you will require your investor code (IVC) which can
be found on your share certificate. 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.
Standard financial calendar
Accounting period end
Annual Report published
30 June
October
Annual General Meeting
November/December
Interim accounting period end
31 December
Interim results announced
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
(as defined below) themselves are not admitted to CREST,
but dematerialised depositary interests representing the
underlying Ordinary Shares issued by Capita IRG Trustees
Limited can be held and transferred through the CREST
system. The rights attached to the Ordinary Shares are
governed by the Companies Act 1981 (Bermuda) (as
amended) (“the Act") and the Company’s Bye-Laws as
adopted on 28 November 2011 (“the Bye-Laws”).
The Company is a constituent of the FTSE4Good Index.
Dividend
Distribution covenants were not met for the measurement
period to 30 June 2020 and the Company will therefore not
declare a dividend for FY 2020.
Substantial shareholdings
The interests as indicated in the table below in the Ordinary
Shares of the Company represented public disclosures of
more than 3% of the issued share capital as at 30 October
2020.
Shareholder
Number of
voting rights1
Percentage
of issued
share capital
Standard Life Aberdeen plc
90,589,721
M&G Plc
Directors
87,886,419
4,468,250
10.5%
10.2%
0.5%
1. Attached to shares and through voting rights.
Company Bye-Laws
The Company is incorporated in Bermuda and the UK City
Code on Takeovers and Mergers (the “City Code”) therefore
does not 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 21 to
the Financial Statements.
Petra Diamonds Limited Annual Report and Accounts 2020
208
Supplementary Information
Restriction on transfer of shares
There are no restrictions on the transfer of Ordinary Shares
other than:
• the Board may at its absolute discretion refuse to register
any transfer of Ordinary Shares over which the Company
has a lien or which are not fully paid up provided it does
not prevent dealings in the Ordinary Shares on an open
and proper basis.
During the Year, the Board did not place a lien on any
shares nor did it refuse to transfer any Ordinary Shares.
The Board shall refuse to register a transfer if:
• it is not satisfied that all the applicable consents,
authorisations and permissions of any governmental body
or agency in Bermuda have been obtained;
• certain restrictions on transfer from time to time are
imposed by laws and regulations;
• pursuant to the Company’s share dealing code whereby
the Directors and employees of the Company require
approval to deal in the Company’s Ordinary Shares; and
• where a person who holds default shares (as defined in
the Bye-Laws) which represent at least 0.25% of the
issued shares of the Company has been served with a
disclosure notice and has failed to provide the Company
with the requested information in connection with the
shares.
Repurchase of shares
The Company may purchase its own shares for cancellation
or to acquire them as Treasury Shares (as defined in the
Bye-Laws) in accordance with the Companies Act 1981
(Bermuda) on such terms as the Board shall think fit. The
Board may exercise all the powers of the Company to
purchase or acquire all or any part of its own shares in
accordance with the Companies Act 1981 (Bermuda),
provided, however, that such purchase may not be made if
the Board determines in its sole discretion that it may result
in a non de minimis adverse tax, legal or regulatory
consequence to the Company, any of its subsidiaries or any
direct or indirect holder of shares or its affiliates.
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 clear days before the meeting and at such meeting
the Director shall be entitled 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 33 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
to assist shareholders 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.
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 865,431,343 Ordinary Shares in issue
at 30 June 2020.
Petra Diamonds Limited Annual Report and Accounts 2020
209
Supplementary Information
Shareholder and Corporate Information continued
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 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.
Petra Diamonds Limited Annual Report and Accounts 2020
210
Supplementary Information
Glossary
“advanced economies”
an advanced economy is a term used by the International Monetary Fund to describe the
most developed countries in the world, a list of which can be found at
https://www.imf.org/external/pubs/ft/weo/2020/01/weodata/groups.htm#ae
“AGM”
“AHG”
“alluvial”
“APM”
“ASM”
“barring”
“BBBEE”
“BEE”
“BEE Partners”
“beneficiation”
“block caving”
“BSI”
“bulk sample”
“C-Cut”
“CAGR”
“Capex”
Annual General Meeting
ad hoc group of holders of the Company’s US$650 million 7.25% senior secured second lien
notes due in May 2022
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
alternative performance measure
artisanal small-scale mining
barring of underground workings to bring down loose rocks, minimising the potential for fall of
ground incidents/accidents
broad-based black economic empowerment, a policy of the South African Government to
redress past economic imbalances
black economic empowerment, a policy of the South African Government to redress past
economic imbalances
the Group’s black economic empowerment partners, who hold minority interests in the
Group’s South African operations, as set out in ‘BEE Structure’ at
https://www.petradiamonds.com/about-us/who-we-are/group-structure/
the refining of a commodity; in the case of diamonds, refers to the cutting and polishing of a
rough stone
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’
British Standards Institute
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
the ‘Centenary Cut’ a major resource of 133 million carats located beneath the B block of the
Cullinan orebody
compound average growth rate
capital expenditure
“carat” or “ct”
a measure of weight used for diamonds, equivalent to 0.2 grams
“CDP”
“CEO”
“Contops”
Carbon Disclosure Project, a global disclosure system that enables companies, cities, states
and regions to measure and manage their environmental impacts
Chief Executive Officer
continuous operations, involving a seven-day working week, as opposed to the standard
five-day working week
“COVID-19”
COVID-19 is an infectious disease caused by a newly discovered coronavirus
“Cpht”
“ctpa”
“cut-off grade”
“CY”
“dB(A)”
“DMRE”
“drawbell”
carats per hundred tonnes
carats per annum
the lowest grade of mineralised material considered economic to extract; used in the
calculation of the ore reserves in a given deposit
calendar year
A-weighted decibels are an expression of the relative loudness of sounds in air as perceived
by the human ear
the South African Department of Minerals Resources and Energy
a funnel shaped excavation, through which broken ore gravitates, that vertically connects the
undercut level to the production level through one or two drawpoints; ore is then loaded from
the outlet(s) of the drawbell through the drawpoint(s) on the production level
“drawpoint”
a short connection from a production tunnel to a drawbell
Petra Diamonds Limited Annual Report and Accounts 2020
211
Supplementary Information
Glossary continued
“EBITDA”
“effluent”
“EGM”
“EPS”
“ERM”
“ESG”
earnings before interest, tax, depreciation and amortisation
mine effluent is a regulated discharge from a point source like a treatment plant or dam
spillway
extraordinary general meeting of shareholders
earnings per share
enterprise risk management
environmental, social and governance
“Exceptional Diamonds”
Petra classifies ‘exceptional’ diamonds as stones that sell for US$5 million or more each
“Exco”
“fissure”
“FRC”
“FY”
“GAAP”
“GDP”
“Gen Z”
“GHG”
Executive Committee
informal term for a narrow, vertical, vein-like kimberlite dyke
the UK’s Financial Reporting Council
Petra’s financial year (1 July to 30 June)
Generally Accepted Accounting Principles; issued by the Financial Accounting Standards
Board
Gross Domestic Product
Generation Z is considered to be those born between 1995 and 2012
greenhouse gases
“GHG Protocol”
the Greenhouse Gas Protocol provides standards, guidance, tools and training for businesses
and Governments to measure and manage climate-warming emissions
“GM”
“GOT”
“grade”
“grey water”
“GRI”
“H1” or “H2”
“ha”
“HDSA”
General Manager (i.e. the Mine Manager)
Government of the United Republic of Tanzania
the content of diamonds, measured in carats, within a volume or mass of rock
wastewater generated in households of office buildings from streams without faecal
contamination, such as sinks, showers, washing machines or dishwashers
Global Reporting Initiative
first half, or second half, of the financial year
hectares
historically disadvantaged South African; refers to any person, category of persons or
community disadvantaged by unfair discrimination before the Constitution of the Republic of
South Africa, 1993 (Act No. 200 of 1993) came into operation
“high pressure grinding roll
crushers”
a gentler liberation technique incorporating inter-particle crushing, in contrast to more
traditional high impact cone crushing
“HIV/AIDS”
human immunodeficiency virus infection and acquired immune deficiency syndrome
“HSE”
“HSEQ”
“IASB”
“IFRIC”
“IMF”
“iNED”
“Indicated Resource”
“Inferred Resource”
health, safety and environment
health, safety, environmental and quality
International Accounting Standards Board
International Financial Reporting Interpretations Committee
International Monetary Fund
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)
Petra Diamonds Limited Annual Report and Accounts 2020
212
Supplementary Information
“IPDET”
“IPCC”
“ISO standards”
“KEM JV”
“kimberlite”
“KPI”
“Kt”
“LDP”
“LED”
“LGD”
“LHD”
“LOM”
“LTI”
“LTIFR”
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
the Intergovernmental Panel on Climate Change is the United Nations body for assessing the
science related to climate change
the ISO standards are a set of quality management standards for companies and
organisations developed by ISO, an international standard-setting body composed of
representatives from various national standards organisations
former joint venture; Petra disposed of its interest in KEM JV during FY 2019
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
key performance indicator
thousand tonnes
Leadership Development Programme
local economic development
laboratory-grown diamond
load haul dumper
life of mine
lost time injury; a work-related injury resulting in the employee/contractor being unable to
attend work on the day following the injury
lost time injury frequency rate; the number of LTIs multiplied by 200,000 and divided by the
number of hours worked
“major producers”
the major diamond producers, namely De Beers and ALROSA
“MCOP”
“Mctpa”
“Mcts”
“Measured Resource”
Mandatory Code of Practice
million carats per annum
million carats
that part of a diamond resource for which tonnage, densities, shape, physical characteristics,
grade and average diamond value can be estimated with a high level of confidence. It is
based on detailed and reliable exploration sampling and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings and drill
holes. The locations are spaced closely enough to confirm geological and grade continuity
and sufficient diamonds have been recovered to allow a confident estimate of average
diamond value
“millennials”
the millennials generation is considered to be those born between 1980 and 1994
“Minerals Council SA”
the Minerals Council of South Africa
“Mining Charter”
the Broad-Based Socio-Economic Empowerment Charter for the Mining and Minerals
Industry in South Africa, commonly known as the Mining Charter, has a core objective to
facilitate meaningful participation of HDSAs in the mining industry, by deracialising the
ownership of the industry, expanding business opportunities for HDSAs, and enhancing the
social and economic welfare of employees and mine communities
“mL”
“Mt”
“Mtpa”
“NDC”
“NED”
metre level
million tonnes
million tonnes per annum
Natural Diamond Council
Non-Executive Director
“new Code”
the UK Corporate Governance Code 2018
“NGO”
“NIHL”
“NQF”
“Notes”
“NPAT”
“NUM”
non-governmental organisation
noise induced hearing loss
National Qualifications Framework, being the South African framework used to arrange levels
of learning achievements
the Company’s US$650 million 7.25% senior secured second lien notes due in May 2022
net profit after tax
National Union of Mine Workers in South Africa
Petra Diamonds Limited Annual Report and Accounts 2020
213
Supplementary Information
Glossary continued
“OECD”
“open pit”
“Opex”
“orebody”
“pa”
“PAT”
Organisation for Economic Co-operation and Development
mining in which ore that occurs close to the Earth’s surface is extracted from a pit or
quarry
operating costs
a continuous well-defined mass of material of sufficient ore content to make extraction
feasible
per annum
profit after tax
“Paterson A and B Band”
the Paterson grading system is an analytical method of job evaluation, used predominantly
in South Africa, and is comprised of grades A through F, with A being the lowest skilled and F
being the highest
“PCBC”
“PCCAS”
“PCSLC”
“PHF”
GEOVIA PCBC™ is a highly sophisticated software package designed specifically for the
planning and scheduling of block cave mines
Petra Climate Change Adaptation Strategy
a highly sophisticated software package designed specifically for the planning and
scheduling of SLCs
Petra Hardship Fund
“pit dewatering sump”
an excavation created at a low point in an open pit to collect ground water seeping into the
pit as well as precipitation over the footprint of the open pit from where it is pumped out of
the open pit to avoid flooding of the working areas
“PPE”
personal protective equipment
“Probable Reserves”
“Proved Reserves”
“Project 2022”
“PSP”
“Q”
“raiseboring”
“RCF”
“RCPs”
the economically mineable material derived from a Measured and/or Indicated Resource. It is
estimated with a lower level of confidence than a proven reserve. It is inclusive of diluting
materials and allows for losses that may occur when the material is mined. Appropriate
assessments, which may include feasibility studies, have been carried out, including
consideration of, and modification by, realistically assumed mining, metallurgical, economic,
marketing, legal, environmental, social and governmental factors. These assessments
demonstrate at the time of reporting that extraction is reasonably justified
the economically mineable material derived from a Measured 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
business improvement programme launched in July 2019 with the aim of identifying
opportunities to increase throughput across the business, drive efficiencies and facilitate
continuous improvement
Performance Share Plan
quarter of the financial year
a method of developing vertical or inclined excavations by drilling a pilot hole, then reaming
the pilot hole to the required dimensions
revolving credit facility
Representative Concentration Pathways try to capture how our climate may change in the
future by predicting how concentrations of GHGs in the atmosphere will change as a result of
human activities; the four RCPs range from very high (RCP8.5) through to very low (RCP2.6)
future concentrations
“re-crush system”
processes oversized material from the primary crushers, further reducing it in size
“red tailings”
normally high-grade stockpiles created from the tailings of the recovery section of a diamond
treatment plant; in some cases, these tailings are also mixed with lower grade Dense Media
Separation tailings
“rehabilitation”
the process of restoring mined land to a condition approximating to a greater or lesser
degree its original state
“ROM”
run of mine, relating to production from the primary orebody
Petra Diamonds Limited Annual Report and Accounts 2020
214
Supplementary Information
“SAMREC”
“SDGs”
“SED”
“Severity Rate”
“shaft”
“SHE”
“SLC”
“SLP”
“slimes”
South African Code for Reporting of Exploration Results, Mineral Resources and Mineral
Reserves
the United Nation’s Sustainable Development Goals
Social, ethics and diversity
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
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
“SMMEs”
Small, medium and micro enterprises
“South African Lender
Group”
providers of the Group’s first lien debt facilities, being Absa Corporate and Investment
Banking, FirstRand Bank Limited (acting through its Rand Merchant Bank division) and
Nedbank Limited
“stockpile”
“stripping”
“sub level caving”
“tailings”
“tailings dump”
“TB”
“TCFD”
“TERS”
“TIFR”
“tonnage”
“tpa”
“tpm”
a store of unprocessed ore
the removal of waste overburden at an open pit mine
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
material left over after processing ore
dumps created of waste material from processed ore after the economically recoverable
metal or mineral has been extracted
tuberculosis
Task Force on Climate-related Financial Disclosures; the Financial Stability Board created the
TCFD to improve and increase reporting of climate-related financial information
Temporary Employment Relief Scheme in South Africa as a result of COVID-19
total injury frequency rate
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
tonnes per annum
tonnes per month
“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
• Type IIa diamonds make up 1–2% of all natural diamonds. These diamonds are almost or
entirely devoid of impurities, and consequently are usually colourless. Many large famous
diamonds, such as the Cullinan and the Koh-i-Noor, are Type IIa
• Type IIb make up about 0.1% of all natural diamonds. In addition to having very low levels of
nitrogen impurities comparable to Type IIa diamonds, Type IIb diamonds contain significant
boron impurities which is what imparts their blue/grey colour. All blue diamonds are Type IIb,
making them one of the rarest natural diamonds and very valuable
Petra Diamonds Limited Annual Report and Accounts 2020
215
Supplementary Information
Glossary continued
“UHNWI”
“USD”
“VPSHR”
“WCF”
“WDL”
“WIL”
“WIM”
“XRL”
“ZAR”
ultra high net worth individual
US Dollar
The Voluntary Principles on Security and Human Rights
working capital facility
Williamson Diamonds Limited, the owner and operator of the Williamson mine in Tanzania
women in leadership
women in mining
X-Ray luminescence, a method of sorting in the diamond recovery process
South African Rand
Petra Diamonds Limited Annual Report and Accounts 2020
216
Printer to add
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Petra Diamonds’ commitment to environmental issues
is reflected in this Annual Report, which has been printed
on Arcoprint, an FSC® certified material. This document was
printed by Park Communications using its environmental
print technology, which minimises the impact of printing on
the environment, with 99% of dry waste diverted from landfill.
Both the printer and the paper mill are registered to
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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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