Petra Diamonds Limited
Annual Report and Accounts 2013
Strategic Review
Risks continued
Financing Risks
Petra has a significant Capex programme over the years
to FY 2019, with Capex forecast to peak in FYs 2014 and 2015.
The Company plans to finance this Capex from operating
cashflows and Group debt facilities. Lack of adequate
available cashflows could delay development work.
Board responsibility
The Executive Directors and the Audit Committee.
Whilst Management prepares detailed plans, the actual Capex
may differ from estimates. In order to mitigate this, Capex
requires a tiered level of approval and variances to Capex plans
are monitored on a timely basis. The Company continually and
regularly reviews its cashflow planning to ensure that Capex
plans are adequately financed.
FY 2013 risk management
Petra’s Capex for FY 2013 was well controlled and was
in accordance with the roll-out of the Group’s expansion
programmes. The Company actively monitors the terms of its
debt financing arrangements to ensure that it remains well
within the various covenants and ratios within these agreements.
Financial risk
Diamond Price Risk
The Company’s financial performance is closely linked to the
price of diamonds which are influenced by numerous factors
beyond the Company’s control, including international
economic conditions, world diamond production levels
and consumer trends.
Board responsibility
The Executive Directors.
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.
FY 2013 risk management
The rough diamond market was stable in FY 2013, with prices
essentially flat in H1 before firming in H2. The Company sells its
rough diamonds via competitive tender in both Johannesburg
and Antwerp, and believes that this sales process maximises
the value of its production.
External risk
Currency Risk
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.
Board responsibility
The Executive Directors.
The Group continually monitors the movement of the Rand
against the 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.
FY 2013 risk management
In FY 2013, the increasing size of Petra’s tenders combined
with significant ZAR/US$ volatility resulted in active currency
management being particularly important to address exchange
rate risks. Hedges were structured on a short dated basis and
the Company took advice from two specialist banks in order
to advise on exchange rate hedging strategies.
External risk
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