Petra Diamonds Limited
Annual Report and Accounts 2013
122
25. Financial instruments
continued
Principal financial instruments
Further quantitative information in respect of these risks is presented throughout these Financial Statements.
Credit risk
The Group sells its rough diamond production through a tender process on a recognised bourse. This mitigates the need to undertake
credit evaluations. Where production is not sold on a tender basis the Directors undertake suitable credit evaluations before
passing ownership of the product.
At the reporting date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented
by the carrying amount of the financial assets in the Consolidated Statement of Financial Position. The financial assets are carried
at amortised cost, with no indication of impairment. The Group considers the credit quality of loans and receivables that are
neither past due nor impaired to be good.
Credit risk associated with loans to BEE partners is mitigated by a contractual obligation for the loans to be repaid, prior to any
payments to the BEE partners, from future cashflows generated by the Group’s operations in which the BEE partners hold
interests. The amounts due from the Group’s principal BEE partner are recoverable either through cashflows from the mines
against which the loans were originally made or through cashflows from other Group mines in which the BEE has an interest,
by virtue of a contractual agreement.
Group cash balances are deposited with reputable banking institutions within the countries in which it operates. Excess cash is held
in overnight call accounts and term deposits ranging from seven to 30 days. Refer to note 19 for restricted cash secured in respect of
rehabilitation obligations. At year end the Group had undrawn borrowing facilities of US$71.3 million (30 June 2012: US$66.3 million),
net of US$3.6 million utilised for foreign exchange settlement lines (30 June 2012: US$nil).
Foreign exchange risk
Foreign exchange risk arises because the Group has operations located in parts of the world where the functional currency is not
US Dollars. The Group’s net assets arising from its foreign operations are exposed to currency risk resulting in gains and losses on
translation into US Dollars. Only in exceptional circumstances will the Group consider hedging its net investments in foreign operations,
as generally it does not consider that the reduction in foreign currency exposure warrants the cashflow risk created from such
hedging techniques.
Foreign exchange risk also arises when individual Group operations enter into transactions denominated in a currency other than
their functional currency. The policy of the Group is, where possible, to allow Group entities to settle liabilities denominated in their
local currency with the cash generated from their own operations in that currency having converted US Dollar diamond revenues
to local currencies. In the case of the funding of non-current assets, such as projects to expand productive capacity entailing
material levels of capital expenditure, the central Group treasury function will assist the foreign operation to obtain matching
funding in the functional currency of that operation and shall provide additional funding where required. The currency in which
the additional funding is provided is determined by taking into account the following factors:
$
the currency in which the revenue expected to be generated from the commissioning of the capital expenditure will be denominated;
$
the degree to which the currency in which the funding provided is a currency normally used to effect business transactions
in the business environment in which the foreign operation conducts business; and
$
the currency of any funding derived by the Company for onward funding to the foreign operation and the degree to which
it is considered necessary to hedge the currency risk of the Company represented by such derived funding.
The sensitivity analysis to foreign currency rate changes is as follows:
30 June 2013
US$ million
Year-end
US$ rate
Year-end
amount
US$
strengthens 10%
US$
weakens 10%
Financial assets:
Botswana pula
0.1168
0.5
0.5
0.6
Pounds sterling
0.6574
8.3
7.5
9.1
South African Rand
0.1012
144.9
130.4
159.4
US Dollar
1.0000
32.9
32.9
32.9
186.6
171.3
202.0
Financial liabilities:
Botswana pula
0.1168
0.7
0.6
0.8
Pounds sterling
0.6574
2.5
2.2
2.8
South African Rand
0.1012
191.0
171.9
210.1
US Dollar
1.0000
82.8
82.8
82.8
277.0
257.5
296.5
Notes to the Annual Financial Statements
For the year ended 30 June 2013 continued
1...,114,115,116,117,118,119,120,121,122,123 125,126,127,128,129,130,131,132,133,134,...142