Governance

Effective corporate governance is a priority of the Board. As a company listed on the Alternative Investment Market (AIM) of the London Stock exchange (LSE) Petra is not required to apply the principles of the Combined Code on Corporate Governance (the Code). However, the Board fully supports the principles on which the Code is based and considers that the Group has complied with a number of key requirements.

Board of directors

The Board’s primary role is the protection and enhancement of long-term shareholder value, and is responsible for the overall corporate governance of the Group, including formulating its strategic direction, approving and monitoring capital expenditure, setting remuneration, appointing, removing and creating succession policies for Directors and senior management, establishing goals for management and monitoring the achievement of these goals, and ensuring the integrity of internal control and management information systems. It is also responsible for approving and monitoring financial and sustainable development reporting.

The Board currently consists of four executive directors and two non-executive directors. While the Board is not considered independent by London governance standards, Petra believes that the Board composition is appropriate given the size of the Company. In particular, the Board believes that this composition gives the required combination of industry- specific and broad business experience necessary for the effective governance of the Company, for setting strategic direction, and for creating shareholder value.

Board committees

Certain responsibilities of the Board have been delegated to board sub-committees to enable the Board to properly discharge its duties and responsibilities. These committees are:

• Audit Committee - comprises Charles Segall and Volker Ruffer (both non-executive directors) and is chaired by Charles Segall; makes recommendations to the Board on the appointment of the external auditors, their independence and the level of their fees; considers reports both written and verbal from the external auditors on a regular basis.
• Remuneration Committee - also comprises Charles Segall and Volker Ruffer (both non-executive directors), chaired by Charles Segall; and determines the overall policy for executive remuneration and approves all directors’ service contracts on behalf of the Board and shareholders.
• Executive committee - assists in the execution of the Board’s responsibilities and manages the Company on a day-to-day basis. Members of this committee are Adonis Pouroulis (Executive Chairman), Johan Dippenaar (Chief Executive Officer), David Abery (Finance Director) and Jim Davidson (Technical Director).

Ensuring that matters relating to sustainability are planned for and dealt with at an operational level, and monitoring Group performance, is the responsibility of the Executive Committee. The Executive Committee, in turn, report to the Board and significant sustainability matters are dealt with by the Board.

Ethical standards and dealing with conflict of interest

All directors, managers and employees are expected to act with the utmost integrity and objectivity, striving at all times to enhance the reputation and performance of the Group. Every employee has a nominated supervisor to whom they may refer issues arising from their employment.

Directors are required to continually keep the Board advised of any interest that could potentially conflict with those of the Company. There are policies in place to assist directors to disclose potential conflicts of interest.

Each operation has mandated a formal Code of Ethics and it is the responsibility of mine management to both inform employees of their responsibilities and to monitor and ensure compliance. The Code of Ethics deals with:

• conflict of interest;
• compliance with the law;
• bribery, fraud, theft, and the illicit dealing in diamonds and stolen property;
• use of company funds and assets;
• reliable and accurate record-keeping;
• commissions;
• freedom of (political) association;
• timeous, complete, accurate and courteous communication with employees;
• safeguarding the Company’s intellectual property; and
• dealing with the media.

Petra has adopted certain induction procedures to inform newly appointed directors, managers and employees of their rights and their duty to act with utmost integrity and objectivity. The code of conduct is designed to guide compliance with legal and other obligations to the Company’s stakeholders.

Petra’s Employee Share Option Scheme governs the issue of share options to eligible employees. Company policy prohibits directors and senior management from dealing in shares or exercising these options whilst in possession of price sensitive information. Directors and senior management must notify and get approval from the Chairman of the Board before they deal in shares or exercise options in the Company.

Risk management

The Board adopts practices to identify significant areas of business risk and to effectively manage those risks in accordance with the Group’s risk profile. This includes assessing, monitoring and managing operational, financial reporting and compliance risks for the Group. The Board acknowledges that it is responsible for the overall internal control framework, but recognises that no cost effective internal control system will preclude all errors and irregularities. The Group established an internal audit function during the year to ensure compliance with the internal controls and risk management procedures.

The Board ensures that risks are identified, assessed and appropriately managed. Where necessary, the Board will draw on the expertise of appropriate external consultants to assist in dealing with or mitigating risk.

Major risks arise from such matters as government policy changes, the cost and supply of energy in South Africa, the impact of exchange rate movements on diamond sales, a significant fall in the price of rough diamonds, difficulties in sourcing goods and services, environment, occupational health and safety, financial reporting, and the purchase, development and use of information systems.

The Board’s internal control processes are comprehensive and comprise:

• Operating unit controls - operating units confirm compliance with financial controls and procedures including information system controls.
• Sustainability reporting - key areas subject to regular reporting to the Board include health and safety, environment, economic and other social aspects.

Practices have been established to ensure:

• capital expenditure and revenue commitments above a certain size obtain prior Board approval;
• financial exposures are controlled, including the potential use of derivatives;
• occupational health and safety standards and management systems are monitored and reviewed to achieve high standards of performance and compliance with regulations;
• business transactions are properly authorised and executed; and
• financial reporting accuracy and compliance with the financial reporting regulatory framework.

Commitment to external initiatives

Petra Diamonds only operates in countries that are members of the Kimberley Process, an unprecedented collaboration between Governments, NGOs and the diamond industry, to stem the flow of conflict diamonds - rough diamonds used by rebel movements to finance wars against legitimate governments. It was set up to assure consumers that by purchasing diamonds they were not financing war and human rights abuses. The Company is a signatory to the Kimberley Process.

This Sustainable Development report has been produced in line with the Global Reporting Initiative (GRI) guidelines which have been used to define the report’s content, as well as in alignment to the principles of the International Council on Mining and Metals (ICMM).

Stakeholder engagement

Active investor relations are important to the Group and the Company reports to shareholders annually through the Annual Report posted on the Company’s website.

Although the Company’s main operations are in South Africa, the Group maintains a group management office in Jersey and an office in London where it is listed on AIM, to ensure ongoing engagement with its stakeholders. The Company has a policy, based on existing policies and practices as a company quoted on the AIM market, that all shareholders and investors have equal access to the Company’s information and has procedures to ensure that all price sensitive information will be disclosed to AIM in accordance with the continuous disclosure requirements of the AIM Listing Rules.

Directors appointed by the Board are subject to election by shareholders at the following Annual General Meeting and thereafter directors are subject to re-election at least every three years.

An important part of the roles and responsibilities of operational management is the regular and ongoing communication with internal stakeholders - employees, their families, unions and community members, as well as the regulatory authorities at both a national and local level. This engagement is both informal and formal in nature.