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Annual Report and Accounts 2011

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CEO's Review

"The 2011 financial year has seen a further remarkable period of progression for Petra."

Johan Dippenaar, CEO

Summary of CEO's Review

» The Group recorded significant revenue growth and a net profit after tax of US$59.2 million; agreed to acquire the major
   Finsch mine in South Africa from De Beers; and significantly strengthened its balance sheet.

» Petra is now following an accelerated growth path. Our core objective is to deliver on our expansion plans and we continue
   to strengthen our mine management teams and internal skills-set appropriately.

» The Group's Lost Time Injury Frequency Rate in FY 2011 was 0.80, an improvement on FY 2010's performance of 1.03
   and demonstrating management's focus on this area across all of our operations.

» We plan to move to the Main Market of the London Stock Exchange in December 2011 and are targeting to enter the FTSE
   250.

Introduction

The 2011 financial year ("FY 2011" or "the Period") saw a further remarkable period of progression for Petra: the Company recorded significant revenue growth and a net profit after tax of US$59.2 million; agreed to acquire the major Finsch mine in South Africa from De Beers; and significantly strengthened its balance sheet, all set against the backdrop of a healthy rough diamond market.

The acquisition of Finsch completed post year end on 14 September 2011 and is a landmark development for Petra. Finsch is a long-life, major diamond producer which introduces another flagship asset to complement and balance the Cullinan mine in Petra's portfolio. The acquisition increases the Company's gross resource base to over 300 million carats, which is one of the world's largest diamond resources.

Petra is now following an accelerated growth path. Whereas previously we targeted annual production of 3 million carats by FY 2019, the Group is now on track, due to the inclusion of Finsch, to reach over 5 million carats by FY 2019. Our core objective is to deliver on our expansion plans and we continue to strengthen our mine management teams and internal skills-set appropriately.

With regards to financing the roll-out of the expansion plans, Petra completed debt facilities with IFC and RMB of approximately US$83 million in November 2010. Both banks carried out detailed due diligence on Petra; the IFC's involvement is particularly notable as it reflects the important socio-economic benefits Petra can bring to the Mwadui area of Tanzania by providing a long-term, sustainable future for the Williamson mine.

In order to satisfy the Finsch acquisition consideration of R1.425 billion (US$192 million as at 14 September 2011, when the acquisition consideration was settled), Petra completed an equity fundraising with new and existing investors, raising £205 million (approximately US$325 million as at 21 January 2011, when the raising was completed). The Company enjoyed a positive response to the fundraising, which was significantly oversubscribed, and the high quality names on our share register show that Petra is supported by some of the UK's most reputable institutional investors.

Petra is now London's largest quoted diamond mining group. We have used the AIM market well to facilitate our ambitious growth plans, and we are now preparing to develop the Company's stature further by stepping up to the Main Market of the London Stock Exchange. In line with the Company's continued corporate development, we have today appointed two independent Non-Executive Directors, Dr Patrick Bartlett and Gordon Hamilton, and we are looking to appoint one or more further independent Non-Executive Directors to the Board as soon as is practicable in FY 2012.

In terms of our safety performance, the Group's Lost Time Injury Frequency Rate in FY 2011 was 0.80, an improvement on FY 2010's performance of 1.03 and demonstrating management's focus on this area across all of our operations. It is with deep regret that an employee lost his life in an accident on 31 January 2011 in an underground production section of the Koffiefontein mine. No other employees were injured or endangered in the incident. Petra is striving for a zero harm environment across all its operations and works closely with the relevant regulatory bodies in South Africa, Tanzania and Botswana in order to fully comply with all health and safety legislation.

Operational highlights

Petra is London's largest quoted diamond mining group

Production remained relatively flat for FY 2011 versus FY 2010 due to:

  • a strategic focus (as part of Petra's core objective to maximise revenues) on "value production" as opposed to "volume production", which led the Company to raise the bottom-cuts in the treatment plants of the Cullinan, Koffiefontein and Kimberley Underground mines during FY 2011;
  • the planned stoppage of main pit production at Williamson whilst the expansion plan is underway;
  • the planned depletion of high grade OSP tailings material at Cullinan;
  • lower than projected volumes treated at Kimberley Underground due to initial commissioning difficulties at the Joint Shaft plant, which have now been largely overcome; and
  • unseasonably heavy rainfall – Petra, like many other mining companies with South African operations, was affected by the very high rainfall levels during FY 2011, especially where processing wet stockpile and tailings material.

Further information on Petra's operational performance for the year can be found in the individual mine reviews.

Outlook

Looking forward to the coming financial year, we will see a step-change in production further to the integration of the Finsch mine. We plan to step up to the Main Market of the London Stock Exchange in December 2011 and are targeting to enter the FTSE 250, further stimulating investment and liquidity. We foresee medium to long term health in the diamond market, despite any short-term volatility caused by current economic uncertainty, due to the sound long-term fundamentals in place and the continued growth in demand from both established and emerging markets.

I would like to extend my thanks to the Petra team, which encompasses my fellow Board members, our Senior Management team, all of our Group employees and our valued Government and BEE partners, for the hard work and spirit which is driving our Company forward.

Petra is focused on excelling in all areas – striving to be a "best-in-class" operator, a responsible corporate citizen and a pre-eminent diamond investment opportunity – and we believe that we will go on to deliver positive returns to all our stakeholders.

Johan Dippenaar

CEO

28 November 2011

Note: the Diamond Market and Operational Reviews form part of the CEO's Review.

Combined production and sales summary

Production

Combined operations


  Unit FY 2011 FY 2010 Variance
Sales
       
Gross revenue
US$m 220.6 177.71,2 +24%
Diamonds sold
carats 1,174,825 1,125,098 +4%3
Production
       
ROM diamonds
carats 1,027,609 1,050,874 -2%
Tailings and alluvial diamonds
carats 90,186 113,982 -21%
Total diamonds
carats 1,117,795 1,164,856 +4%

Notes:
1. The revenue for FY 2010 included the sale of the 507 carat Cullinan Heritage diamond for US$35.3 million.
2. Gross revenue for FY 2010 was US$177.7 million; Group revenue for FY 2010 was US$163.7 million due to the partial consolidation
    of Cullinan during FY 2010.
3. Although overall production fell by 4%; carats sold increased by 4% due to the movement in opening and closing stock levels.