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Annual Report and Accounts 2011

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Chairman's Statement

"We are working together to further establish our status as one of the world's leading diamond mining groups"

Adonis Pouroulis, Chairman

Summary of Chairman's Statement
  • » Acquisition of Finsch, one of the world's important diamond mines, in line with our strategy to acquire long-life
       assets with substantial diamond resources.
  • » Petra is focused on Africa, which is the source of some 60% of the world's diamonds by value. We have
       established a significant marketing operation in Johannesburg where we sell the bulk of our production.
  • » Petra is moving to the next stage of its corporate development as we prepare for our step-up from AIM to the Main
       Market of the London Stock Exchange in December 2011.
  • » The long term outlook for the rough diamond market remains positive due to inherent production constraints, which
       suggest that supply will struggle to keep pace with demand.
Review

Dear shareholder,

It gives me great pleasure to introduce Petra's 2011 Annual Report and to provide an overview of the key highlights of the year. This was a period of significant progress for Petra Diamonds, which is now firmly established as London's largest quoted diamond mining company.

An exceptional growth profile

The major milestone since my previous Chairman's Report in October 2010 was undoubtedly the acquisition of Finsch, the second largest diamond mine in South Africa. Finsch is an important diamond producer and its addition to Petra's portfolio is in line with our strategy to acquire long-life assets with substantial diamond resources which can deliver strong cashflows and earnings to the Group. Petra was chosen by De Beers as the winning bidder for Finsch in a competitive bidding process, a reflection of our strong track record, technical capacity and the emphasis we place on sustainability. Our focus is to now deliver on our core objective to increase Group production to over 5 million carats by FY 2019.

An African success story

Petra is focused on Africa, which is the source of some 60% of the world's diamonds by value, and where we have built up a first-rate team, in terms of the depth of its skill-set and its experience in the management of diamond mining operations. With a portfolio encompassing eight producing mines – seven in South Africa and one in Tanzania – as well as a prospective exploration programme in Botswana, Petra is a significant employer on the continent, with over 4,600 employees.

We have established a significant marketing operation in Johannesburg, where we sell the bulk of our South African production, and have a sales office in Antwerp, where we sell production from the Williamson mine in Tanzania. Due to the quality and growing size of our output, which includes world-class gems such as the 7 carat, flawless, fancy vivid blue "Star of Josephine" and the 507 carat "Cullinan Heritage", we now count many of the world's foremost manufacturers as regular Petra clients, who travel from all over the world to South Africa to participate in our tenders.

We have secured the future for several of Africa's important diamond mines, which are at the heart of their local communities. As well as providing employment to our workforce, our mines have a wider positive impact in terms of stimulating social and economic upliftment, as outlined in our annual Sustainability Report, which is available on the Petra Diamonds website.

We see Africa growing in stature on the world stage as the continent continues to develop at a rapid rate and we are proud that Petra is one of its many modern success stories.

Corporate development

Petra is moving to the next stage of its corporate development as we prepare for our move from AIM to the Main Market of the London Stock Exchange in December 2011. The Company joined AIM in 1997 and the market has provided an ideal platform for the high growth achieved by Petra in recent years.

In line with our continued corporate development, we have today appointed two independent Non-Executive Directors to the Petra Board, Dr Patrick Bartlett and Gordon Hamilton, who both bring a wealth of relevant experience and expertise in the financial and mining worlds. Following these appointments, I moved from Executive to Non-Executive Chairman, though my commitment to Petra will, of course, remain unchanged. I very much look forward to working with the enlarged Board and to taking the Company forward after Petra's step up to the Main Market.

Sadly, I must also mark the loss of long-time Petra Non-Executive Director Charles Segall, who passed away in July 2011. Charles was a great friend and loyal colleague, who inspired all with the enthusiasm he felt for his life and work. He will be much missed.

A sparkling outlook

Although current economic uncertainty may continue to impact on diamond pricing in the short term, the long term outlook for the rough diamond market remains positive due to inherent production constraints, which suggest that supply will struggle to keep pace with demand. Many of the world's largest diamond mines are now past their peak and are moving underground in order to sustain their mine lives, meaning that they will see significant drops in production as surface tonnages are curtailed. At the same time, rising prosperity and the growth in consumption from emerging economies such as China and India should ensure that demand continues to rise, leading many commentators to predict a likely scenario of rising rough diamond prices in the medium to long term. Petra is very well placed to benefit from these fundamentals.

Partnerships are key to Petra's continued success and I would like to especially thank our host Governments of South Africa, Tanzania and Botswana, as well as our main black economic empowerment partners, Sedibeng Mining (Pty) Ltd, Umnotho weSizwe Group (Pty) Ltd, Namoise Mining (Pty) Ltd and the Petra Diamonds Employee Share Trust.

Finally I would like to thank all our employees for the hard work which is the driving force behind Petra. We are all aware that we are building a truly special Group, but the journey often requires extra effort and dedication. We have a first-rate team in place, with an emphasis on getting the job done, and we are working together to further establish our status as one of the world's leading diamond mining groups.

Adonis Pouroulis

Non-Executive Chairman

28 November 2011

Awards won

Petra was delighted to win several quoted company awards in 2010 and 2011 as recognition of the Company's continued successful development, both from an operational and corporate perspective.

"AIM Transaction of the Year" – (2010 AIM
Awards)

About the category:

2010 was a highly successful year for Petra, when the Company raised US$120 million in an equity fundraising, acquired a further 37% of its flagship Cullinan mine, completed the acquisition of the Kimberley Underground mines and sold the 507 carat Cullinan Heritage diamond for US$35 million, the highest price on record for a rough diamond.

Picture shows:

Chairman Adonis Pouroulis accepting the 2010 award.

Chairman Adonis Pouroulis accepting the 2010 AIM Transaction of the Year award

"AIM Transaction of the Year" – (2011 AIM
Awards)

About the category:

Petra completed the landmark acquisition of the Finsch mine in 2011 for US$192 million, further to an equity placing in which the Company raised US$325 million. The acquisition was a continuation of Petra's strategy to build a world-class miner, adding an eighth producing mine to the Company's portfolio and consolidating Petra's position as London's largest quoted diamond mining group.

Picture shows:

Finance Director David Abery accepting the 2011 award.

Finance Director David Abery accepting the 2011 AIM Transaction of the Year award

"Best Investor Communications" (2011 UK Stockmarket Awards)

About the category:

This category recognises those companies which have most effectively disseminated information to existing and potential shareholders across the full range of media – official RNS press releases, their annual report, webcasts, their website and via their public relations representative – regarding all aspects of their financial performance, strategy and market positioning.

Picture shows:

Corporate Communications Manager Cathy Malins accepting the award.

Corporate Communications Manager Cathy Malins accepting the 2011 Best Investor Communications award