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Annual Report and Accounts 2011

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Directors' Remuneration Report

The Remuneration Committee is responsible for determining the remuneration and incentive packages for the Executive Directors and Senior Management.

Remuneration Committee

Details of the Remuneration Committee are set out in the Corporate Governance Statement of this report. The Committee seeks independent advice from external consultants as appropriate. The Committee has engaged the services of Deloitte LLP, Global Employer Services, London in providing remuneration advisory services.

Remuneration policy

The employment terms for Executive Directors and Senior Management are designed to attract, motivate and retain individuals of the right calibre. Incentives are structured so as to align their interests with those of the shareholders by rewarding Executive Directors and Senior Management for enhancing shareholder value.

The Group competes for management talent with other major mining companies and the remuneration strategy is designed to allow the Company to attract and retain high quality executives. The Committee ensures that a significant proportion of the Executive Directors' remuneration is directly related to the performance of the Group, in order to promote the long-term success of the Company.

In setting the remuneration policy and levels for the Executive Directors, the Committee takes into account the pay and employment conditions of the wider employee population within the Company.

Review of Executive Directors' remuneration in 2011/12

Given the planned move to a Main Market listing on the London Stock Exchange and potential entry to the FTSE 250, the Board is mindful that the Company's remuneration arrangements will need to reflect both the forward-looking strategy of the business and its status as a fully listed company. Accordingly, the Company is undertaking a review of the remuneration arrangements for the Executive Directors and Senior Management team. An important part of this review will be to ensure that remuneration practices reflect UK corporate governance best practice in relation to executive pay.

Base salaries

The policy of the Company is to pay base salaries which are competitive with those paid to Executive Directors and Senior Management in organisations of similar size and complexity in the mining sector.

Performance-related bonuses

In order to retain and incentivise the Executive Directors and Senior Management, performance-related bonuses, as approved by the Remuneration Committee, are awarded based on the performance of the Company and the individual for the Period under review. It is the policy of the Board that bonuses will only be paid on achieving performance and results which are stretching.

To date, the Petra Group has grown rapidly by the acquisition of world-class assets which have then been integrated into the Group. In this context the Board has been of the view that, rather than set static targets, it was in the best interests of the Group to assess performance at the end of the year based on achievements in relation to integration and delivery on newly acquired mines as well as existing assets. Bonuses were therefore based on a subjective but challenging assessment of the performance of the Company and individual.

However, now that the Group has matured after several years of acquisitions and asset integration and has a clearly stated production growth profile, the Board and Remuneration Committee will now include performance measures that are applicable, relevant and stretching in the context of the Group's stated production growth profile and other strategic goals. It is intended that, following the review of remuneration, the performance conditions will take account of certain key operational deliverables, as well as health and safety performance. The Committee will provide shareholders with appropriate disclosure of the new framework and bonus out-turns.

Whilst there is no formal maximum limit under the current bonus plan, bonuses have traditionally been no higher than 100% of salary. Going forward, it is intended that the Company will set a maximum bonus potential as a percentage of salary, subject to pre-determined performance targets.

Share incentives

The Board believes that the granting of share incentives encourages a broad alignment of the interests of the Executive Directors and Senior Management with the creation of shareholder value. The Company operates an Employee Share Option Scheme (introduced in 2005), whereby it can issue options to eligible employees (including Executive Directors and Senior Management) to subscribe for shares in the Company at set prices.

Options awarded to Executive Directors are subject to performance conditions. Share options granted to date have been subject to the performance condition that, in order to vest and be exercisable, the market value of the Company's shares must increase in value by an amount greater than 10% in excess of the UK Retail Price Index rise ("RPI") in year one for one-third of the grant to vest, by 20% over the RPI between the date of grant and the second anniversary of grant for the second third of the grant to vest, and by 30% over the RPI between the date of grant and the third anniversary of grant for the final third of the grant to vest. The Board considered that a performance condition based on share price growth targets was aligned with shareholders and appropriate for the Company's strategy at the time that the share options were granted.

Petra intends to consider the introduction of new share plans as part of the 2011/12 review of executive remuneration, taking into account best practice for a Main Market FTSE company. This will include consideration of the performance metrics and targets which are appropriately aligned to Petra's future strategy. It is also intended that the share plans will include dilution and individual limits.

As at 30 June 2011 the following share options were in issue to the Executive Directors to subscribe for ordinary shares in the Company.

Grant date Expiry date Exercise price
(pence)
Mr Pouroulis Mr Dippenaar Mr Abery Mr Davidson Senior
Management
Total
05/09/03 05/09/13 44.0 500,000 n/a 500,000 n/a 1,000,000
13/09/04 13/09/14 56.75 n/a n/a 50,000 50,000
24/09/04 24/09/14 46.5 n/a n/a 75,000 75,000
28/01/05 28/01/15 56.5 n/a n/a 23,750 23,750
16/06/05 16/06/15 85.0 250,000 750,000 250,000 750,000 2,000,000
27/11/05 27/11/15 65.75 84,300 84,300
31/05/06 31/05/16 79.5 250,000 250,000 250,000 250,000 166,388 1,166,388
31/07/06 31/07/16 96.0 236,812 236,812
12/03/09 12/03/19 27.5 250,000 750,000 750,000 750,000 4,470,000 6,970,000
30/09/09 30/09/19 45.5 100,000 350,000 350,000 350,000 2,117,671 3,267,671
17/03/10 17/03/20 60.5 100,000 350,000 350,000 350,000 3,060,002 4,210,002
25/11/10 25/11/20 92.8 500,000 500,000
Total 1,450,000 2,450,000 2,450,000 2,450,000 10,783,923 19,583,923

As at 30 June 2011, the total number of Petra shares under option was 19,583,923 (representing 3.9% of the Company's issued share capital) of which the number granted to the Directors is 8,800,000 (representing 1.8% of the Company's issued share capital).

The Company is cognisant of best market practice, including the guidelines of the Association of British Insurers (ABI), and therefore the number of Petra shares under option is significantly less than 10% of the Company's issued share capital and the Petra shares under option are appropriately split between grants to Executive Directors and other employees, including Senior Management.

Shareholding guidelines

It is the Company's policy that each of the Executive Directors holds a meaningful number of Petra shares, a minimum being equal to one year's basic salary for the applicable Director.

Directors' remuneration

The Board determines the NEDs' fees in the absence of the relevant NED. The NEDs are paid fees for their services; no bonuses or other amounts are paid. The following table gives a breakdown of the remuneration of the individual Directors who held office during the year ended 30 June 2011. Although the Company's reporting currency is US dollars, these figures are stated in pounds sterling as the Directors' service contracts denominate the payments in pounds sterling.

Base
remuneration
£
Non-cash
benefits1
£
Performance-
related bonus
£
2011
Total
£
2010
Total
£
Executive Directors
A Pouroulis2 120,000 2,129 90,000 212,129 216,000
J Dippenaar 230,000 4,800 170,000 404,800 405,000
D Abery 230,000 4,800 170,000 404,800 405,000
J Davidson 230,000 3,792 170,000 403,792 405,000
1,425,521 1,431,000
Non-Executive Directors
C Segall3 25,000 25,000 25,000
O Kamal 35,000 35,000 13,125
60,000 38,125

1. Non-cash benefits comprise contributions made by the Company to the Group life assurance, disability and critical illness scheme.

2. Mr Pouroulis was Executive Chairman for FY 2011 and became Non-Executive Chairman with effect from 28 November 2011.

3. Mr Segall sadly passed away in July 2011.

Directors' service contracts and appointment letters

On 28 November 2011, the Executive Directors each entered into updated employment agreements with the Company. Each of these agreements is terminable by 12 months' written notice on either side and contain non-compete, non-solicitation and dealing with customers/clients and non-solicitation of Directors or senior employees restrictions following termination. In the event of termination by the Company of an Executive Director's employment, the contractual Remuneration Package (incorporating base salary and benefits), reflecting the 12 month notice period, would normally be payable. The Remuneration Committee's policy is to emphasise the duty of the terminated party to mitigate any loss caused by the early termination to the fullest extent possible. In these circumstances, any payments may be made on a monthly basis.

On 28 November 2011, the Non-Executive Directors entered into letters of appointment with the Company. Other than Dr Kamal (who entered into an updated letter of appointment), the appointments are for an initial term of three years which is terminable by one month's written notice on either side at any time and the appointment letter contains appropriate confidentiality provisions. On termination, the Non-Executive Directors (other than Dr Kamal) would be entitled to payment of fees for the 1 month contractual notice period. Dr. Kamal's appointment is terminable on Al Rajhi Holdings W.L.L ceasing to have a right to appoint a Director under the Al Rajhi Holdings W.L.L. Option Agreement. Dr. Kamal's appointment also contains a confidentiality provision.

Details of all Directors' contracts are summarised below:

Directors Date of contract Unexpired term Notice period by
Company or Director
Executive Directors
Mr Dippenaar 28 November 2011 n/a 12 months
Mr Abery 28 November 2011 n/a 12 months
Mr Davidson 28 November 2011 n/a 12 months
Non-Executive Directors
Mr Pouroulis 28 November 2011 36 months 1 month
Mr Hamilton 28 November 2011 36 months 1 month
Dr Bartlett 28 November 2011 36 months 1 month
Dr Kamal 28 November 2011 n/a

Pensions

Petra operates a defined benefit scheme and a defined contribution scheme. The defined benefit scheme was acquired as part of the acquisition of Cullinan Diamond Mine (Pty) Limited and is closed to new members. The assets of the pension schemes are held separately from those of the Group's assets.

By order of the Board

Gordon Hamilton

Remuneration Committee Chairman

28 November 2011

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