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Petra Diamonds Limitedpetra Annual Report and Accounts 2016 Pressure Strong Understrong Strong under pressure Petra DiamondsPetra Limited Annual Report and Accounts ReportAnnual Accounts and 2016 Petra Diamonds Limited Annual Report and Accounts 2016 Cover: Drilling one of the slot rings required to get the first tunnel of the sub level cave going at Finsch Below: This 32 carat pink diamond is a magnificent example of the high quality pink diamonds for which the Williamson mine is known and sold for US$15 million in FY 2016 OUR MISSION OUR STRATEGY Petra’s mission is to unearth Increase output the world’s most beautiful Targeting circa 5.3 million carats by FY 2019 product as responsibly and Optimise recoveries efficiently as possible. Improving operating margins at each mine In doing so, we will contribute to Drive efficiencies the sustainability of our industry Maintaining a culture of effective cost control and deliver long-term value to Work responsibly each of our stakeholders. Committed to responsible development Overview Strategic Report Corporate Governance Financial Statements Supplementary Information Overview Petra Diamonds is a 02 At a Glance leading independent Strategic Report 06 Chairman’s Statement diamond mining group 08 Why Invest 10 Chief Executive’s Statement and a growing supplier 14 Our Business Model 16 Stakeholder Engagement 18 Our Market of rough diamonds to 22 Our Strategy 24 Key Performance Indicators the international market. 26 Financial Review 30 Operational Review Petra navigated a number of challenges 32 Finsch to deliver a strong set of results in FY 2016 34 Cullinan (the “Year”), achieving record production 37 Koffiefontein 38 Combined Kimberley Operations levels and continued steady progress with 40 Williamson our expansion programmes, which have 41 Exploration remained materially on target over the last 42 Risks Overview seven years. FY 2017 is forecast to be the first 44 Sustainability The Strategic Report should be read in conjunction year that Petra reaps the benefit of this work with the Corporate Governance Statement. as we are in line to become free cashflow positive in H2, with our cashflow profile rising Corporate Governance strongly thereafter. This progress is due to 54 Chairman’s Introduction to Governance the tenacity and shared vision of our team, 56 Board of Directors 58 Corporate Governance Statement combined with our ‘can-do’ company culture. 67 Report of the Audit Committee 73 Viability Statement 74 Risk Management 82 Report of the Nomination Committee 83 Report of the HSSE Committee 84 Directors’ Remuneration Report Financial Statements Chief Executive’s Why Invest 100 Directors’ Responsibilities Statement Statement Page 8 101 Independent Auditors’ Report Page 10 105 Consolidated Income Statement 106 Consolidated Statement of Other Comprehensive Income 107 Consolidated Statement of Financial Position 108 Consolidated Statement of Cashflows 109 Consolidated Statement of Changes in Equity 110 Notes to the Annual Financial Statements Discover more about See our Sustainability Supplementary Information Petra online Report online petradiamonds.com petradiamonds.com/ 149 Five-year Summary of Consolidated Figures sustainability 150 Petra’s Partners 152 FY 2016 – Operations Results Tables Petra is quoted with a premium listing on the Main Market 155 2016 Resource Statement of the London Stock Exchange under the ticker ‘PDL’, with US$300 million loan notes due in 2020 listed on the 159 Shareholder and Corporate Information Global Exchange Market of the Irish Stock Exchange. 162 Glossary Overview At a Glance One of the world’s largest diamond resources GROUP RESOURCES GROUP RESERVES EMPLOYEES CONTRACTORS GROUP Mcts Mcts WORLDWIDE WORLDWIDE LTIFR 312.2 +1% 47.9 -4% 5,005 +13% 5,763 +50% 0.29% 0% WORLD DIAMOND PRODUCTION1 RESERVES AND RESOURCES2 Mcts 0 250 500 750 1000 1250 1500 De Beers 25% – Major producers (De Beers, ALROSA ALROSA and Rio Tinto) Petra Diamonds 312.2 – Mid-tier quoted producers Rio Tinto VALUE (Petra Diamonds, Dominion 9% Dominion Diamonds Notes: Reserves and resources are 66% Diamonds, Lucara and Gem Diamonds) calculated on a 100% basis, with the – Proved and probable reserves exception of Diavik which is calculated – Non-quoted producers (including proportional to its ownership in the – Measured, indicated and inferred the DRC, Zimbabwe and Angola) operation. Total resources are 67+8+25+I resources (excl. reserves) calculated inclusive of reserves. 2015 world diamond production by volume increased 1.6% to 127.4 Mcts, while production by value decreased 4.1% POSITION IN VALUE CHAIN to US$13.9 billion (Kimberley Process Statistics). Petra involved in: Based on FY 2016 production of 3.7 Mcts and sales of US$430.9 million, Petra accounted for 2.9% of world supply by volume and 3.1% by value. Petra’s world-class resource of 312.2 Mcts ranks third by size. Diamond mining Rough diamond sales This factor, combined with the significant size of Petra’s orebodies, suggests relatively long lives for the Company’s mining operations (in particular, Cullinan and Williamson have the potential to be in production for over 50 years). Chain after Petra: Our Market Page 18 Cutting & Jewellery Retail 1. Source: Kimberley Process Statistics, company reports. polishing manufacturing 2. Source: Barclays Research, company reports; RBC Capital Markets research. ORE PROCESSED IN FY 2016 ROUGH DIAMOND REVENUE PROFIT FROM MINING Million tonnes PRODUCTION Mcts US$ million ACTIVITIES3 US$ million 19.0 +11% 3.7 +16% 430.9 +1% 176.0 +14% ADJUSTED EBITDA3 ADJUSTED EBITDA MARGIN3 ADJUSTED OPERATING ADJUSTED NET PROFIT US$ million CASHFLOW3 US$ million AFTER TAX3 US$ million 164.3 +18% 38% +15% 192.0 +36% 63.6 +1% ADJUSTED EARNINGS BASIC EARNINGS PER SHARE IFRS NET DEBT3 BANK FACILITIES AVAILABLE PER SHARE US$ cents US$ cents US$ million US$ million 9.76 -3% 10.38 +10% 375.8 +134% 110.0 -57% 3. Refer to page 29 of the Financial Review for definitions of non-GAAP measures. Petra Diamonds Limited 02 Annual Report and Accounts 2016 Strategic Report Corporate Governance Financial Statements Supplementary Information 5 Focused TANZANIA on Africa Africa produces 47% of the world’s diamonds by volume and 62% by 7 BOTSWANA value. Petra mines and sells rough 2 diamonds from its diversified 6 1 4 portfolio of producing mines in 3 South Africa and Tanzania, and is also exploring for diamond deposits SOUTH AFRICA in Botswana and South Africa. 1 2 3 Finsch Cullinan Koffiefontein A major producer with One of the world’s most One of the world’s top mines top-quality infrastructure celebrated diamond mines by average value per carat Ownership 74%1 Ownership 74%1 Ownership 70%1 Production 2.2 Mcts Production 0.7 Mcts Production 0.1 Mcts Revenue US$186.4m Revenue US$83.3m Revenue US$25.7m Mine plan to 2030 Mine plan to 2030 Mine plan to 2025 4 5 6 7 Combined Kimberley Williamson Exploration Operations Tanzania’s only important The search for new economic The site of South Africa’s early diamond producer deposits in Botswana and diamond rush South Africa Ownership 75.9%1 Ownership 75%1 Ownership 100% Production 0.5 Mcts Production 0.2 Mcts Area 4,282 km2 licences Revenue US$57.7m Revenue US$78.9m Spend US$2.7 million Mine plan to 2035 Mine plan to 2033 1. Ownership figures as at 30 June 2016. Refer to Operational Review Pages 30–41 Petra’s Partners Page 150 page 150 for figures as at the date of this Report. 2016 PRODUCTION Per mine 2016 REVENUE Per mine 2% 6% 6% – Finsch – Finsch 14% 18% – Cullinan – Cullinan 43% VALUE – Combined Kimberley Operations VALUE – Combined Kimberley Operations 18% 60% – Williamson 14% – Williamson – Koffiefontein – Koffiefontein 60+18+1462I 4319% +20+13186I Petra Diamonds Limited Annual Report and Accounts 2016 03 Peak Capex year Petra commenced its mine development programmes in FY 2009, with a plan to increase production to circa 3 Mcts by FY 2019. This target was subsequently lifted to circa 5 Mcts further to the acquisition of Finsch in FY 2011, and then increased in FY 2016 to circa 5.3 Mcts, further to the acquisition of the Kimberley Mines during the Year. Over this period, Petra’s operational capital expenditure has increased from US$40.9 million in FY 2009 to reach a peak of US$297.6 million (excluding capitalised borrowing costs) in FY 2016. This substantial spend reflects the high level of activity related to the underground development finalising the new mining areas at Finsch, Cullinan and Koffiefontein, as well as the construction of the new plant at Cullinan. Petra is now guiding for Capex to be on a declining trend. There is one more year of significant spend in FY 2017 of circa US$218 million (again mainly allocated to underground development, the finalisation of the new Cullinan plant and additional capital for the new Kimberley Ekapa Mining Joint Venture), before falling substantially to circa US$130 million in FY 2018 and circa US$85 million in FY 2019. As Petra’s production and revenues increase, and Capex requirements fall, the Company’s cashflow generation is forecast to rise. The Company is therefore expected to become free cashflow positive from H2 FY 2017, and to be strongly cashflow generative from FY 2018 onwards. More online petradiamonds.com/investors/analysts/analyst-guidance Inside the 3,000 ton silo, part of the new plant construction at Cullinan Strategic Report 06 Chairman’s Statement 08 Why Invest 10 Chief Executive’s Statement 14 Our Business Model 16 Stakeholder Engagement 18 Our Market 22 Our Strategy 24 Key Performance Indicators 26 Financial Review 30 Operational Review 32 Finsch 34 Cullinan 37 Koffiefontein 38 Combined Kimberley Operations 40 Williamson 41 Exploration 42 Risks Overview 44 Sustainability Strategic Report Chairman’s Statement Strong under pressure Despite a number of challenges over the years, Petra has kept delivering on its plans Dear shareholder, of our underground tonnes will be coming from the new mining I am delighted to introduce Petra’s 2016 Annual Report (the areas.
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