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Annual Report and Accounts 2011

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Risk Management

The Group is exposed to a number of risks and uncertainties which could have a material impact on its long-term development and performance and management of these risks is an integral part of the management of the Group.

The Board has identified the following as being the principal strategic and operational risks (in no order of priority).

Risk

Mining and Production

Description

The mining of diamonds from underground kimberlite deposits involves an intrinsic degree of risk from various factors, including geological, geotechnical and seismic factors, industrial and mechanical accidents, unscheduled plant shutdowns, technical failures, ground or water conditions and inclement or hazardous weather conditions.

Mitigation/Comments

All of Petra┬┤s existing kimberlite operations have long histories of production and therefore the geology and economics of each mine are well understood. This knowledge of the deposits allows management to eliminate much of the risk associated with operating a diamond mine.

Risk

Diamond Prices

Description

The Company's financial performance is closely linked to diamond prices which are influenced by numerous factors beyond the Company's control, including international economic conditions, world production levels and consumer trends.

Mitigation/Comments

The management of the Group closely monitors developments in the international diamond market (across the pipeline from the rough market to the retail consumer market) to be in a position to react in a timely manner to changes in rough diamond prices and demand.

Risk

Expansion and Project Delivery

Description

Petra has set out a clear and transparent growth profile to increase annual production to over 5 million carats by FY 2019. Actual production may vary from estimates of future production for a variety of reasons and it should be noted that long term assumptions may be subject to change as the Company continually evaluates its projects to optimise efficiency and production profitability.

Mitigation/Comments

Petra has an enviable track record in the management of underground diamond operations and is respected as one of the "best in class" teams in the diamond mining industry. With regards to potential budget or time overruns that could impact the completion of these expansion projects, the Group has established procedures to control, monitor and manage the roll-out of its development plans.

Risk

Retention of Key Personnel

Description

The successful achievement of the Group's strategies, business plans and objectives depends upon its ability to attract and retain certain key personnel.

Mitigation/Comments

Part of Petra's success is due to the fostering of a management culture where management is empowered and where innovation and creativity in the workplace is encouraged. Petra's employment terms are designed to attract, incentivise and retain individuals of the right calibre.

Risk

Country and Political

Description

Petra's operations are predominantly based in South Africa, with lesser exposure to Tanzania and Botswana. Emerging market economies could be subject to greater risks, including legal, regulatory, economic and political risks, and are potentially subject to rapid change.

Mitigation/Comments

The Petra team is highly experienced at operating in Africa. Petra routinely monitors political and regulatory developments in its countries of operation. In addition the Company actively engages in dialogue with relevant Government representatives in order to keep abreast of all key legal and regulatory developments applicable to its operations. Petra has a number of internal processes and checks in place to ensure that it is wholly compliant with all relevant regulations in order to maintain its mining or exploration licences within each country of operation.

Risk

Currency

Description

With Petra's operations mainly in South Africa, but diamond sales based in US dollars, the volatility and movement in the rand is a significant factor to the Group. Also, the Group undertakes transactions in a number of different currencies. Fluctuations in these currencies may have a significant impact on the Group's performance.

Mitigation/Comments

The Group continually monitors the movement of the rand against the US dollar and takes expert advice from its bankers in this regard. It is the Group's policy to hedge a portion of future diamond sales when weakness in the rand deems it appropriate. Such contracts are generally short term in nature. Management seeks to mitigate other transaction risks by matching assets and liabilities in the same currency and where appropriate hedging material exposure.

Risk

Social,
Safety and
Environmental

Description

The Group's success may depend upon its social, safety and environmental performance, as failures can lead to delays or suspension of its mining activities.

Mitigation/Comments

The Group takes its responsibilities in these areas seriously and monitors its performance across these areas on a regular basis.