Economic performance

Petra Diamonds has, in just four years, established itself as one of the world's largest independent producers of rough diamonds, having increased its production five-fold from 200,000 carats to over one million carats in the 2009 financial year. This has been a significant achievement against the background of very challenging conditions in the diamond industry.

Financial performance

Key structural changes effected during the 2009 financial year were:

• The conclusion of the acquisition of the iconic Cullinan mine in South Africa with effect from 16 July 2008.
• The acquisition of a 75% interest in Williamson in Tanzania with effect from 10 November 2008.
• Withdrawal from Angolan exploration activities.

Details of the Company’s financial performance for the financial year may be found in the Annual Report (PDF - 4.3MB).

Key features of the Company's financial performance as at 30 June 2009 were:

• Revenue generated of US$69.3 million (2008: US$76.9 million). While gross carat production for the year increased substantially by 449% to 1,099,367 carats (2008: 200,287 carats), weaker diamond prices had an impact on revenues.
• Profit from mining activity (before depreciation) achieved was US$7.8 million (2008: US$38.8 million).
• Exploration expenditure for 2009 amounted to US$13.7 million (2008: US$9.5 million).
• The net loss reported for the year was US$88.9 million (2008: US$1.9 million profit). The bulk of this loss can be attributed to impairment charges incurred of US$75.2 million, largely resulting from the cessation of exploration activities in Angola and Sierra Leone and a reduction of the exploration spend in Botswana.

Mining rights and licences

The South African minerals rights regime is guided by the Mineral and Petroleum Resources Development Act (MPRDA) that was promulgated in 2004, and the accompanying Broad-Based Socio Economic Empowerment Charter for the Mining Industry. In line with this legislation Petra has applied for and reports on an annual basis to the Department of Mineral Resources (DMR) in compliance with its licences. New order mining rights have been granted for Cullinan and Koffiefontein, and have been applied for at Star, Helam and Sedibeng. All operations have in place Social and Labour Plans (SLPs) that have been developed in line with the Mining Charter and many of the elements of this charter are covered in this report. (See the Mining Charter Index).

In Tanzania, Petra (through its wholly owned subsidiary Williamson Diamond Limited - WDL) holds a 75% interest in the Mwadui Licence, granted pursuant to section 39 of the Mining Act No.5 of 1998. The Mwadui Licence was granted to WDL on 25 May 2005 and endures for a period of 25 years. The Mwadui Licence pertains specifically to diamonds that occur in and vertically under the area covered by the Mwadui Licence, including the Williamson mine.

In Botswana, Petra holds prospecting licences covering approximately 47,000 km², the largest precious stone licence holdings in the country. In 2009, Petra’s exploration activities in Botswana largely centred on desktop work such as the identification of ground holdings to be relinquished (20,900km² relinquished in 2009), new ground to be taken up following various prospectivity analyses (19,400km² acquired in 2009), and focused target generation exercises within both existing and newly identified prospecting areas. 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.

Black Economic Empowerment

Petra is committed to the tenets and objectives of black economic empowerment (BEE) legislation in South Africa. This is not legislated in Tanzania or Botswana.

The objectives of broad-based BEE 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. The latter issue is dealt with under the Human Resources Development section.

BEE ownership

Petra Diamonds Cullinan Consortium (PDCC) completed the acquisition of the Cullinan mine from De Beers Consolidated Mines in July 2008. Petra's initial interest in PDCC was 37% and the other members of PDCC were Al Rajhi Holdings W.L.L. and PDCC's black economic empowerment partners (26% interest).

In compliance with South African minerals legislation, 26% of the equity in the Cullinan operation is held by BEE interests. The BEE partners are Thembinkosi Mining Investments (Pty) Limited with 14% interest, and a broad based Petra employee share trust with 12% interest. Thembinkosi is a consortium of BEE mining companies, namely Sedibeng Mining (Pty) Limited (6.16%), Umnotho weSizwe Group (Pty) Limited (5.04%) and Namoise Mining (Pty) Limited (2.8%).

The Petra employee share trust ensures that all Petra employees benefit in the mine's success by enabling all Historically Disadvantaged South African (HDSA) employees to participate in the mine's future, not only achieving the objectives of the South African Mining Charter, but underscoring the Company's belief in employee participation for the benefit of the business and the employees themselves.

The PDCC BEE partners' 26% interest in Cullinan was funded by Petra and Al Rajhi and will be repaid from the BEE share of future cash flows from the mine, after servicing interest at appropriate interest rates. The BEE partners can alternatively arrange independent financing to repay this loan.

Other BEE partnershsips are as follows:

• Koffiefontein - 70% interest held; 30% BEE partner Re-Teng Diamonds (Pty) Limited.
• Kimberley Underground - once acquisition completes: 74% interest held; 26% BEE partner Sedibeng Mining (Pty) Limited.
• Fissure mines - 74.5% interest held in Sedibeng; 25.5% BEE partners Sedibeng Mining (Pty) Limited and Bokone Properties (Pty) Limited; 100% interests in both Helam and Star.