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Economic performance

Review

Petra’s economic performance during FY 2011, reflects its stature as one of the world’s leading independent diamond producers with the Company generating revenue of US$220.6 million and producing in excess of 1 million carats.

Financial highlights

  • Revenue: US$220.6 million (FY 2010: US$163.7 million)
  • Profit from mining activity1: US$76.4 million (FY 2010: US$67.2 million)
  • Operating cashflow: US$50.6 million (FY 2010: US$48.8 million)
  • EBITDA2: US$67.1 million (FY2010: US$70.9 million); FY 2010 included a profit of approximately US$35 million due to the sale of the 507 carat Cullinan Heritage diamond
  • Profit after tax3: US$59.2 million (FY 2010: US$70.2 million)
  • EPS4: 12.83 cents per share, post the issue of 136,698,212 new shares in January 2011 (FY 2010: 22.65 cents per share)
  • Cash at bank at 30 June 20115: US$324.9 million (FY 2010: US$34.5 million)

Notes:

  1. Stated before impairments, depreciation, amortisation, share based expense, foreign exchange gains, interest paid, inventory fair value adjustment and deferred taxation on inventory fair value adjustment.
  2. EBITDA disclosures are “adjusted EBITDA”, being stated before impairments, share based expense, foreign exchange gains and recycling of foreign exchange differences on exploration projects.
  3. The results for FY 2010 included the exceptional sale of the 507 carat Cullinan Heritage diamond for US$35 million.
  4. Stated after non-controlling interests (representing black economic empowerment (“BEE”) partners’ interests in the Group) of US$6.0 million (FY 2010: US$6.7 million).
  5. Cash at bank comprises unrestricted cash and restricted cash balances of US$96.9 million and US$228 million respectively (30 June 2010: US$24.8 million and US$9.7 million). The restricted balance of US$228 million as at 30 June 2011 included the consideration held in escrow for the acquisition of Finsch, which completed post Period end.

Mining rights and licences

South Africa

South African mineral rights are guided by the Mineral and Petroleum Resources Development Act (“MPRDA”), promulgated in 2004, and the accompanying Broad-Based Socio Economic Empowerment Charter for the Mining Industry. In line with this legislation, Petra reports on an annual basis to the DMR in compliance with its licences. New order mining rights have been granted for Cullinan, Finsch, Koffiefontein and Kimberley Underground, and have been applied for at the three fissure mines. All operations have social and labour plans (“SLPs”) in place which have been developed in line with the Mining Charter.

Cullinan

Cullinan Diamond Mine (Pty) Limited holds a valid new order mining right (‘‘the Cullinan Mining Right’’) dated 4 December 2007 in respect of the remaining extent of portion 3 of the farm Elandsfontein 480 JR, situated in Gauteng, Magisterial District of Cullinan, for an area of 453.2 hectares. The Cullinan Mining Right has been granted until 3 December 2037.

Finsch

Petra’s 74% owned subsidiary Afropean Diamonds (Pty) Limited holds a valid and an unencumbered new order mining right in respect of the areas covered by the Mining Right (‘‘the Finsch Mining Right’’) dated 15 October 2008. The Finsch Mining Right relates to portion 26 (Brits) and portion 34 (a portion of the remaining extent) of the farm Carter Block 458, Magisterial District of Hay, Northern Cape Province for an area of 1,567.5377 hectares. The Finsch Mining Right has been granted until 14 October 2038.

Koffiefontein

Petra’s wholly owned subsidiary Blue Diamond Mines (Pty) Limited holds a valid and an unencumbered new order mining right dated 2 February 2007 (‘‘the Koffiefontein Mining Right’’), granted to it pursuant to section 23 of the MPRDA. The Koffiefontein Mining Right relates to remaining extent of the farm Koffiefontein 733, Magisterial District of Koffiefontein Free State Province, for an area of 968,5600 hectares. The Koffiefontein Mining Right has been granted until 1 February 2017.

Kimberley Underground

Petra’s wholly owned subsidiary Crown Resources (Pty) Limited holds a valid and an unencumbered new order mining right (‘‘the Kimberley Underground Mining Right’’) dated 7 May 2010. The Kimberley Underground Mining Right relates to portions of the farm Alexandersfontein 123, Benauwdheidfontein 124, Bultfontein 80, Dorstfontein 77 and Du Toitspan 119, Magisterial District of Kimberley and Boshof, for an area of 378.8482 hectares. The Kimberley Underground Mining Right has been granted until 6 May 2040.

Fissure Mines

Helam Mining (Pty) Limited holds an old order mining right dated ML4/1995 in respect of portions 9, 18, 39, 40, 3, 4, 12, 43, 50, 35, 19, 47, 11, 37, 38 and 49 of the farm Nooitgedacht 381 JP and portion 10 of the farm Winkelhaak 403 JP, Magisterial District Swartruggens, North West Province, for an area of 113.425 hectares (the ‘‘old order Mining Right’’). The old order Mining Right was lodged for conversion on 30 May 2005 and remains in full force and effect until it has been converted into a new order mining right in terms of item 7(7) of Schedule II to the MPRDA.

The Sedibeng operation is an amalgamation of two mines: Dancarl and Messina.

Dancarl Mining Right

Dancarl Diamonds (Pty) Limited holds an old order mining right dated ML 12/94 in respect of the farm no 84 Barkley West, Magisterial District Barkley West, Region North Cape, for an area of 80.2 hectares namely the Dancarl Mine (the ‘old order Mining Right’). The old order Mining Right was lodged for conversion on 17 April 2009 and remains in full force and effect until it has been converted into a new order mining right in terms of item 7(7) of Schedule II to the MPRDA, 2002.

Messina Mining Right

Messina Diamonds (Pty) Limited holds an old order mining right dated ML 1/1995 in respect of farm no 85 Barkley West, Magisterial District Barkley West, Region North Cape, for an area of 9.42 hectares (the ‘Messina Mining Right’). The Messina Mining Right was lodged for conversion on 17 April 2009 and remains in full force and effect until it has been converted into a new order mining right in terms of item 7(7) of Schedule II to the MPRDA.

Star Diamonds (Pty) Limited holds an old order mining right dated ML 11/1996 in respect of the remaining extent of the farm Clewer 104, sub-divisions 2, 4, 5, 6 and 7 and the remaining extent of the farm Wynandsfontein 53 and the farm The Missing Link 102, Magisterial District Theunissen, Free State region, for an area of 246.29 hectares (the ‘‘old order Mining Right’’). The old order Mining Right was lodged for conversion on 7 October 2004 and remains in full force and effect until it has been converted into a new order mining right in terms of item 7(7) of Schedule II to the MPRDA.

Tanzania

In Tanzania, the principal legislation governing the mining sector is the Tanzanian Mining Act, 2010. In terms of the Mining Act, the entire property and control over minerals in or under the land is vested in the United Republic of Tanzania. No one may prospect for minerals or carry on mining operations except under the authority of a licence issued pursuant to the Mining Act. The terms and conditions of such licences require that the licence holder mines in accordance with an approved Mining Plan and approved Environmental Management Plan, takes reasonable steps to ensure health and safety and, to the extent reasonably possible, employs Tanzanian citizens.

Williamson

Williamson Diamonds Limited holds a valid and an unencumbered special mining licence (‘‘SML’’) number 216/2005 dated 25 May 2005 in respect of property described by co-ordinates in the special mining licence located in the Mwadui area in the Shinyanga region measuring an area of 2,973 hectares. The SML has been granted until 24 May 2030. Petra holds a 75% interest in Williamson Diamonds through its wholly owned subsidiary, Wilcroft Company Limited.

Botswana

In Botswana, Petra holds prospecting licences covering approximately 22,250km², one of the largest diamond licence holdings in the country. Petra carries out all its prospecting activities in Botswana in accordance with the local law as decreed by the Department of Minerals, Energy and Water Resources, and further to consultation with the Department of Wildlife and National Parks and the Botswana Geological Survey.

Kalahari Diamonds

Sekaka Diamonds (Pty) Limited’s ground holdings cover an area of approximately 22,250 km². In addition, as at 30 June 2011 folio applications (ground designated for allocation to Sekaka Diamonds) totalled approximately 1,500 km², with another 18 licences (covering a total area of approximately 6,000 km²) currently under application. In this regard, prospecting Licence 627/2009 was issued on 13 July 2009 and contains requirements relating to minimum annual expenditures and annual charges payable.

Direct and indirect economic contributions

Value added statement for the year ended 30 June 2011
  30 June 2011
US$ million
30 June 2010
US$ million
Revenue 220.6 163.7
Paid to suppliers for material and services 77.7 77.5
Value added 142.9 86.2
Income from investments 4.9 8.2
Wealth created 147.8 94.4
Wealth distribution    
Employees    
Gross salaries, wages and benefits 75 53.9
Providers of capital 4.5  
Finance cost 4.5 1.6
Dividends paid
Governments    
Total tax paid 0.4 1.7
Reinvested in the group    
Depreciation, amortisation and capital items 133.2 62.7
Retained earnings (65.3) (25.5)
  147.8 94.4

Payments to government

The following payments to the governments of South Africa, Tanzania and Botswana were paid during the year under review.

Country PAYE SDL UIF Royalties VAT
South Africa R66 million R4.5 million R5.5 million R6.2 million R117million
Tanzania* US$1.2 million US$0.4 million US$0.5 million US$0.5 million
Botswana P0.7 million

* Withholding tax: US$0.8 million

In addition to the above list, Petra also paid US$0.1 million in TANSORT fees in Tanzania during the year under review.

Black economic empowerment

Petra is committed to the tenets and objectives of broad-based black economic empowerment (“BBBEE”) legislation in South Africa. This is not legislated in Tanzania or Botswana.

The objectives of BBBEE are being met through equity ownership of Petra’s South African operations, changing the procurement base to include local and historically disadvantaged companies, and through the promotion of BEE recruitment, training and development programmes within the Company.

BEE ownership

Petra’s intention is to adopt a proactive strategy to foster and encourage BBBEE and transformation at ownership and management level, through skills development training, employment equity, procurement and rural development. The South African operations are fully BBBEE compliant from an equity ownership perspective and Petra’s various partners are detailed below.

BEE empowerment partners
Empowerment partners Effective ownership
Cullinan: Thembinkosi Mining Investments (Pty) Ltd 14%
Cullinan: Petra Diamonds Employee Share Trust 12%
Finsch: Senakha Diamonds Investments (Pty) Ltd 21%
Finsch: Petra Diamonds Employee Share Trust 5%
Koffiefontein: Re-Teng Diamonds (Pty) Ltd 26%
Kimberley Underground: Sedibeng Mining (Pty) Ltd 26%
Helam: Sedibeng Mining (Pty) Ltd 26%
Sedibeng: Sedibeng Mining (Pty) Ltd 17.85%
Sedibeng: Bokone Properties (Pty) Ltd 7.65%
Star: Sedibeng Mining (Pty) Ltd 26%

Case studies

Extending the lives of our assets

Petra’s vision has been to develop a diamond mining group of global significance and, to this end, the Company has grown rapidly through acquisition. The acquisition of mines, which in some cases could otherwise have been closed down, has not only consolidated Petra’s position as one of the world’s pre-eminent diamond companies, it has also provided job security to the mines’ workforces and, correspondingly, income to their dependents. Read case study

GRI

The following GRI indicators are covered in this section:

Organisational profile
2.7
Markets served

Economic performance
Management approach
EC1
Direct economic value generated and distributed

Market presence
EC6
Policy, practices and proportions of spending on locally based suppliers at significant locations of operation

Indirect economic impacts
EC8
Development and impact of infrastructure investments and services provided for public benefit
EC9
Indirect impact
Public policy
SO6
Total value of financial and in-kind contributions to political parties, politicians and related institutions.