Interim Results

Petra Diamonds Ld 15 March 2006 15 March 2006 Petra Diamonds Limited ('Petra', 'the Group' or 'the Company') Interim Results for the Six Months to 31 December 2005 (unaudited) Highlights to 15 March 2006 • Group - expansion of operations on track in Angola, Botswana, Sierra Leone, and South Africa; base set for significant exploration developments and production upside in next six months • Angola - kimberlitic occurrences at Alto Cuilo increased to approximately 1,323 hectares in estimated surface area (31 January 2006: 1,080); 33 kimberlitic occurrences (31 January 2006: 26) now confirmed by drilling; third core drill rig ordered to expedite drilling of the substantial number of anomalies; 350 alluvial pits (31 January 2006: 245) now completed • Botswana - focus placed on the Gope area where there are diamondiferous kimberlites within Petra's licence areas; Falcon results for the Gope West flyblock identify 18 anomalies in the A block; 700km(2) low-level Xcalibur horizontal gradient magnetic survey in the immediate vicinity of the Gope kimberlites results in the selection of a further 24 target anomalies • Sierra Leone - Kono project on track for first production from the Lion fissures by June 2006; Petra has earned a 51% interest in the Kono joint venture following expenditure of US$3 million on the Kono project • South Africa - production growth target met of 167,000 carats for the twelve month period to 31 December 2005; on track for production of 200,000 carats for FY 2005/6 (FY 2004/5 actual: 143,673 carats); 76 carat (sold for US$465,000) and 67 carat diamonds recovered Adonis Pouroulis, Chairman, said; 'Petra has established operations in some of the most prospective regions for diamond exploration across Africa. As production increases at our mines in South Africa, so too will our revenue streams, whilst we progress our exciting exploration projects and commence production in Sierra Leone. The next six months will provide a steady stream of news as we work to further realise the true value of our assets and we believe there is significant potential upside for the Company.' Summary of Results (unaudited) 6 months to 6 months to 6 months to 31 December 2005 30 June 2005 31 December 2004 Revenue * £5.5m £1.2m - Production (carats) 88,640 78,530 65,143 Loss before depreciation, amortisation and foreign exchange movements £0.9m £2.1m £3.4m Loss for the period £1.1m £7.2m £4.3 Loss per share 0.79 pence 9.07 pence 6.28 pence Cash at bank (period end) £7.1m £15.4m £0.5m * The results from the Crown South African production operations are included from June 2005 as the acquisition of Crown Diamonds was effective 1 June 2005. Chairman's Statement It is with great pleasure that I present the 2006 interim financial statements during what is a very active time for the Group. In the period under review South African diamond production increased substantially and exploration at Alto Cuilo was fast tracked, delivering exceptional results. The period also saw site preparations in Sierra Leone and the completion of the production plant in preparation of near term production on the Kono project whilst exploration was further advanced on the Kalahari ground in Botswana. Petra's South African operations produced just over 167,000 carats for the 2005 calendar year and are on track to produce 200,000 carats for the year to June 2006. Although the rough diamond market experienced a dip in the last quarter of the year, in that prices achieved were below those for the six months to June 2005, the market has since recovered somewhat as demand for rough continues to outpace supply. De Beers has recently announced an overall increase of 2% in rough diamond prices. Petra is achieving its objective of being an African-focused diamond group, with operations in South Africa, Botswana, Angola and Sierra Leone. In 2005 Africa accounted for over sixty percent of diamond supply world-wide and we continue to believe the continent offers the most exciting diamond opportunities. One of our main goals is to fill the production gap between the four major diamond producers and the diamond juniors. The increasing production from South Africa and near term production from Sierra Leone will assist us to achieve this goal. Results The loss for the period amounted to £1,102,463 (6 months to 30 June 2005: £7,259,089), stated after operating charges of £1,833,100 (6 months to 30 June 2005: £1,830,195), amortisation of intangibles of £579,220 (6 months to 30 June 2005: £4,409), and net financing income of £2,307,636 (6 months to 30 June 2005: £237,549). Group net cash outflow for the period is stated after taking account of mining development cash outflows in Sierra Leone of £1,398,996 (6 months to 30 June 2005: £102,270), other capital expenditure for the period of £893,722 (6 months to 30 June 2005: £520,613), repayment of all outstanding convertible loan notes of £718,944, cash inflow from the acquisition of Kalahari Diamonds of £3,154,388 as well as the settlement in July 2005 of the Helam mine acquisition costs and various term loans. Intangible assets of £9,995,608 were brought into the balance sheet following the acquisition of Kalahari Diamonds Limited in September 2005 and IFRS require that this amount be written off over the estimated life of the assets, which the Board has estimated to be four years in respect of the prospecting licences. A charge of £579,220 is included within operating expenditure in respect of the amortisation of the licences during the period. The results from the Crown South African production operations acquired were consolidated into the Petra Group results from 1 June 2005. Therefore, the comparative period to June 2005 includes results of the South African operations acquired for one month and the period to 31 December 2005 includes a full six months results. The results for the period to 30 June 2005 and for the period to 31 December 2004 have been restated, as with effect from the period to 31 December 2005 the Company has complied with IRFS 2, Share Based Payments, in respect of share options granted to management. Alto Cuilo - Angola Exploration developments at Alto Cuilo have continued to exceed our expectations. In conjunction with BHP Billiton and our Angolan partners, activities have been focused on the drilling of anomalies identified following the completion of the low-level Midas survey and the preparation and sampling of alluvial pits alongside the Luange river. The Midas survey identified over 200 magnetic anomalies that have been earmarked for further investigation. Drilling of these anomalies has been underway since August and has so far resulted in the discovery of 33 kimberlitic occurrences, an increase from the 26 identified at the date of Petra's last quarterly report on 31 January 2006. Three of these kimberlitic occurrences have surface expressions of over 100 hectares in size. An estimated 1,300 hectares of kimberlitic occurrences have now been identified and will be further investigated. To date, over 15,000 metres of core drilling has been undertaken, with a third drill having been ordered to increase the pace of drilling. 74% of the holes drilled on the Midas anomalies have intersected kimberlite, again an exceptional success rate in kimberlite exploration. The alluvial exploration programme continues alongside the kimberlite activities. Bulk sampling has resulted in over 350 pits being excavated so far. The costs of exploration and associated activities on Alto Cuilo for the six months to 31 December 2005 amounted to US$7.8m, all such expenditure being funded by BHP Billiton in accordance with the Alto Cuilo JV agreement. BHP Billiton's spend as at 31 December amounted to US$13.4m. Kalahari Diamonds - Botswana The successful acquisition of Kalahari Diamonds in September 2005 established Petra as the largest holder of diamond exploration licences in Botswana. It also brought several new investors to the Company including the International Finance Corporation and resulted in BHP Billiton increasing its stake in Petra. Drilling of selected Falcon anomalies continues on the ground and Petra is undertaking further investigation of the known Gope kimberlite field, where there are several known diamondiferous kimberlites within Petra's licence areas. Our technical teams are also focusing on revisiting and improving the analysis of the Falcon data acquired so far. Helam, Sedibeng and Star mines - South Africa The South African mines recorded revenue of £5.5 million for the six month period and Petra continues to be South Africa's second largest producer of rough diamonds by volume after De Beers. The mines achieved record production of just over 167,000 carats for calendar year 2005 and are on track for the growth target of 200,000 carats for FY 2005/6. Mining methods are being implemented on all mines to set the platform for a significant increase in production, targeted at over 300,000 carats in FY 2009/ 10. There have been some notable stones recovered from the South African mines. A 67.1 carat diamond was recovered recently, this stone being in addition to the 76 carat diamond recovered in November 2005 which was sold for US$465,000. High value recoveries of this nature, combined with stringent control of production costs, feed though to the Group's bottom line and we look forward to other similar recoveries in the future. Kono Project - Sierra Leone As noted in Petra's announcement of 27 February 2006, the Kono project is on track for the first diamond recovery from treatment of the initial bulk samples by June 2006. The diamond recovery plant has arrived on site and establishment of site facilities will be completed this month. Initial trenching has established that varying fissure seams, with widths of up to 1.7 metres having been intersected. Further, geological samples taken from various kimberlite fissures in the area have returned some exceptional processing and mineral probing results Under the terms of the Kono JV with Mano River Resources ('Mano'), by spending a total of US$3 million on the Kono Project, Petra would acquire a 51% equity interest in the Kono Project. Petra has accelerated expenditure and therefore the development of the Kono Project in order to bring production on line as soon as possible and has incurred US$3 million of expenditure and earned a 51% interest in the Kono JV. From now on expenditure will be funded pro-rata by both Petra and Mano. Petra is very pleased to have delivered on its stated objective of the fast-tracked development of the Kono Project. With a 51% interest in this exciting project we look forward to further developments and to first production beginning later this year. Conclusion The Company aims to be a world class diamond group occupying a niche position; that of being a mid-tier producer of gemstone diamonds. This will be achieved by possessing a highly prospective exploration portfolio ensuring future growth, growing the Company's production profile and by geographically diversifying the Company's portfolio of projects. The next six month period is expected to see increasing production from the mines in South Africa without a significant increase in operating costs. In the medium term production is planned from the kimberlite fissures in Sierra Leone and also from Alto Cuilo, should an economically viable alluvial deposit be quantified. The required infrastructure to achieve this is already in place. In addition, any new diamond projects that meet and fulfil Petra's overlying objectives will be carefully considered. The Company has a strong treasury to finance the above development. The revenue for the period of £5.5 million was the largest of any diamond company quoted on AIM and the Company is well placed to benefit from the robust diamond market, at the same time enjoying strong support from BHP Billiton in both Angola and Botswana. Adonis Pouroulis, Chairman 15 March 2006 For further information, please contact: Petra Diamonds, South Africa Parkgreen Communications, London Adonis Pouroulis//David Abery Justine Howarth / Cathy Malins Tel +27 11 467 6710 Tel +44 20 7493 3713 John Baillie, Perth Field PR, Adelaide Tel +61 8 9381 8888 Kevin Skinner Tel +61 8 8234 9555, Mobile +61 414 822 631 PETRA DIAMONDS LIMITED UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 Notes Restated Restated 1 July 2005- 1 July 2004- 1 July 2004 - 31 31 30 June December 2005 December 2004 2005 £ £ £ Revenue 5,497,276 - 1,225,292 Cost of Sales (5,998,383) (1,060,954) - Gross (loss)/profit (501,107) 164,338 - Exploration expenditure (738,548) (2,838,546) (3,799,608) Operating expenditure (2,412,320) (880,354) (7,544,760) - other (1,833,100) (878,131) (2,708,326) - amortisation of intangibles 5 (579,220) (2,223) (4,409) - impairment of goodwill - - (4,832,025) Financial income 2,465,163 4,555 19,636 Financial expense (157,527) (555,574) (333,106) Net financing income/(costs) 6 2,307,636 (551,019) (313,470) Loss before tax (1,344,339) (4,269,919) (11,493,500) Income tax 241,876 - (35,508) Loss for the period (1,102,463) (4,269,919) (11,529,008) Basic and diluted loss per share - pence 7 (0.79) (6.28) (15.59) UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED INCOME AND EXPENSE FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 Restated Restated 1 July 2005- 1 July 2004- 1 July 2004 - 31 31 30 June December December 2004 2005 2005 £ £ £ Loss for the period (1,102,463) (4,269,919) (11,529,008) Exchange adjustments on translation of 1,013,677 475,979 647,083 subsidiary and branch undertakings recognised directly in equity Total recognised income and expenses (88,786) (3,793,940) (10,881,925) Prior year adjustment - 111,102 320,827 (88,786) (3,682,838) (10,561,098) PETRA DIAMONDS LIMITED UNAUDITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2005 Notes Restated Restated 31 December 31 December 30 June 2004 2005 2005 £ £ £ ASSETS Property, plant and equipment 45,356,392 2,301,919 40,938,217 Intangible assets 5 9,430,185 80,281 187,199 Investments - listed 700,000 - - Trade and other receivables 108,873 - 89,960 Total non-current assets 55,595,450 2,382,200 41,215,376 Inventories 1,460,852 - 782,996 Trade and other receivables 1,716,208 615,970 1,563,640 Cash and cash equivalents 7,070,308 452,466 15,374,678 Total current assets 10,247,368 1,068,436 17,721,314 Total assets 65,842,818 3,450,636 58,936,690 EQUITY AND LIABILITIES Equity Issued capital 9 14,832,739 6,926,954 13,094,946 Share premium account 10 67,608,994 19,746,615 56,711,873 Foreign currency translation reserve 10 3,299,838 2,115,057 2,286,161 Share based payment reserve 10 457,682 183,971 320,827 Accumulated loss 10 (36,190,756) (27,959,146) (35,088,293) Total equity 50,008,497 1,013,451 37,325,514 Liabilities Interest-bearing loans and borrowings 3,522,649 2,000,000 239,470 Trade and other payables 474,332 - 1,114,737 Provisions 1,087,292 - 956,758 Deferred tax liabilities 7,016,415 - 6,648,166 Total non-current liabilities 12,100,688 2,000,000 8,959,131 Interest-bearing loans and borrowings 529,493 - 6,464,162 Trade and other payables 2,432,042 437,185 5,049,297 Provisions 772,098 - 1,138,586 Total current liabilities 3,733,633 437,185 12,652,045 Total liabilities 15,834,321 2,437,185 21,611,176 Total equity and liabilities 65,842,818 3,450,636 58,936,690 PETRA DIAMONDS LIMITED UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 Notes Restated Restated 1 July 2005- 1 July 2004- 1 July 2004 - 30 31 December 31 June 2005 December 2004 2005 £ £ £ Loss after taxation for the period (1,102,463) (4,269,919) (11,529,008) Depreciation of property plant and equipment 304,430 284,403 340,966 - exploration Depreciation of property plant and equipment 1,553,236 - 249,394 - mining Depreciation of property plant and equipment 10,333 5,768 15,628 - other Amortisation of intangible assets 5 579,220 2,223 4,409 Profit on sale of property plant and (3,297) - (866) equipment Impairment of intangible assets - - 73,710 Impairment of goodwill - - 4,832,025 Interest received (142,769) (4,555) (19,636) Interest paid 157,527 62,998 216,585 Foreign exchange (gain)/loss (2,322,394) 556,407 497,083 Share based payment provision 136,855 72,869 209,725 Rehabilitation unwinding provision 37,652 - - Operating loss before working capital changes (791,670) (3,289,806) (5,109,985) (Increase) in trade and other receivables (98,455) (65,132) (563,539) (Decrease) / increase in trade and other (1,442,368) (48,331) 1,088,439 payables (Increase) in inventories (677,856) - (28,860) Cash utilised in operations (3,010,349) (3,403,269) (4,613,945) Interest paid (157,527) (62,998) (216,585) Net cash utilised by operating activities (3,167,876) (3,466,267) (4,830,530) Cash flows from investing activities Proceeds from sale of property, plant and 31,843 - 866 equipment Acquisition of subsidiary net of cash 4 3,154,338 - 57,688 acquired Interest received 142,769 4,555 19,636 Acquisition of property, plant and equipment (2,292,718) (893,993) (1,516,876) Acquisition of listed investment (700,000) - - Net cash from investing activities 336,232 (889,438) (1,438,686) Cash flows from financing activities Proceeds from the issue of share capital - 1,054,939 18,106,789 Decrease in long term borrowings (5,169,851) (13,620) (218,837) Payment of transaction costs (363,584) - - Net cash from financing activities (5,533,435) 1,041,319 17,887,952 Net (decrease)/increase in cash and cash (8,365,079) (3,314,386) 11,618,736 equivalents Cash and cash equivalents at beginning of the 15,374,678 3,766,852 3,766,852 period Effect of exchange rate fluctuations on cash 60,709 - (10,910) held Cash and cash equivalents at end of the 7,070,308 452,466 15,374,678 period PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 1. ACCOUNTING POLICIES The interim results, which are unaudited, have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB). This interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the Annual Report for the year ended 30 June 2005 and any public announcements made by the Company during the interim reporting period. The unaudited interim financial statements for the six months ended 31 December 2005 do not constitute statutory accounts and have been drawn up using accounting policies and presentation consistent with those applied in the audited accounts for the year ended 30 June 2005. The financial information for the year ended 30 June 2005 has been extracted from the statutory accounts for that period, after the adjustment for the adoption of IFRS 2. The auditors report for the year ended 30 June 2005 was unqualified. The results for the year to 30 June 2005 reflect the results for the Company (pre the acquisition of Crown Diamonds NL) for the eleven months to 31 May 2005 and for the enlarged group, including one month's contribution from the Crown operations acquired, to 30 June 2005. The effective date of control of Crown Diamonds was 1 June 2005. The financial information for the 6 months ended 31 December 2004 has been extracted from the interim results released to 31 December 2004 after the adjustment for the adoption of IFRS 2. 2. DIVIDENDS No dividends were proposed or paid during the period. 3. SEGMENTAL INFORMATION The Group comprises the following business segments: Mining - the extraction and sale of rough diamonds from mining operations in South Africa for the diamond industry. Exploration - exploration operations carried out in Angola, Sierra Leone, Botswana and South Africa. Business segments Mining Exploration Consolidated 1 July 2005 - 1 July 2005 - 1 July 2005 - 31 December 31 December 31 December 2005 2005 2005 £ £ £ Revenue from external customers 5,497,276 - 5,497,276 Gross loss (501,107) - (501,107) Segment result (839,352) (2,812,623) (3,651,975) Net financing income 1,024,432 1,283,204 2,307,636 Income tax 241,876 - 241,876 Profit/(loss) for the period 426,956 (1,529,419) (1,102,463) PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 Business segments Mining Exploration Consolidated 1 July 2004 - 1 July 2004 - 1 July 2004 - 31 December 31 December 31 December 2004 2004 2004 £ £ £ Revenue from external customers - - - Gross loss - - - Segment result - (3,718,900) (3,718,900) Net financing income/(cost) - (551,019) (551,019) Income tax - - - Loss for the period - (4,269,919) (4,269,919) Business segments Mining Exploration Consolidated 1 July 2004 - 1 July 2004 - 1 July 2004 - 30 June 30 June 30 June 2005 2005 2005 £ £ £ Revenue from external customers 1,225,292 - 1,225,292 Gross profit/(loss) 164,338 - 164,338 Segment result 37,406 (11,217,436) (11,180,030) Net financing income/(cost) 72,058 (385,528) (313,470) Income tax (35,508) - (35,508) Profit/(loss) for the year 73,956 (11,602,964) (11,529,008) PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 4. ACQUISITION OF SUBSIDIARY On 30 September 2005, the Company acquired all the shares in Kalahari Diamonds Limited ('Kalahari'), for £12,479,005, satisfied by the issue of 16,166,529 shares. Kalahari, through its wholly-owned Botswana subsidiary, Sekaka Diamonds (Pty) Limited, is the holder of approximately 80,000 km(2) of diamond prospecting licences in Botswana. In the three months to 31 December 2005, Kalahari made an exploration loss, before depreciation and amortisation, of £421,700. Effect of the acquisition The acquisition had the following effect on the Group's assets and liabilities. Kalahari's net assets at acquisition date: Book Values Fair value Carrying Values Adjustments £ £ £ Consolidated fair value of net assets of entity acquired:- Plant and equipment 100,059 - 100,059 Prospecting licences 728,086 9,267,522 9,995,608 Cash assets 3,154,338 - 3,154,338 Receivables 54,113 - 54,113 Accruals and payables (825,113) - (825,113) Consideration settled satisfied in shares 3,211,483 9,267,522 12,479,005 5. INTANGIBLE ASSETS Goodwill Pre Mineral Prospecting Total production rights licences expenditure £ £ £ £ £ Cost At 1 July 2005 - 187,199 - - 187,199 Transfer to property plant and - (187,199) - - (187,199) equipment Exchange differences - - - 13,797 13,797 Acquisition by business combination - - - 9,995,608 9,995,608 At 31 December 2005 - - - 10,009,405 10,009,405 Amortisation At 1 July 2005 - - - - - Exchange differences - - - - - Provided in the year - - (579,220) (579,220) - At 31 December 2005 - - - (579,220) (579,220) Net book amount 30 June 2005 - 187,199 - 187,199 - Net book amount 31 December 2005 - - - 9,430,185 9,430,185 PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 The amortisation of intangible assets has arisen due to the Board taking the view that Kalahari Diamonds Limited's prospecting licences have an average remaining life of four years. Therefore the intangible asset recorded on the acquisition effective 30 September 2005 of Kalahari Diamonds Limited of £9,267,522 (note 4), has been amortised for the three month period from 1 October to 31 December 2005. 1 July 2005 - 1 July 2004 - 1 July 2004 - 30 June 31 December 31 December 2005 2005 2004 £ £ £ 6. NET FINANCING INCOME/(COSTS) On bank loans and overdrafts (108,006) (946) (29,395) Other debt finance costs (49,521) (62,052) (187,190) Foreign exchange losses - (492,576) (116,521) Financial expense (157,527) (555,574) (333,106) Interest received 142,769 4,555 19,636 Foreign exchange gains 2,322,394 - - Financial income 2,465,163 4,555 19,636 2,307,636 (551,019) (313,470) 1 July 2005 1 July 2004 - 1 July 2004 - - 30 June 31 December 31 December 2005 2004 2005 £ £ £ 7. LOSS PER SHARE The calculation of loss per share is based on the loss for the six month period ended 31 December 2005 of £1,102,463 (six month period ended 31 December 2004: £4,269,919) and on a weighted average, during the six month period ended 31 December 2005, of 139,565,621 (six month period ended 31 December 2004: 68,010,371) ordinary shares of 10p each in issue during the period. Loss for the period (1,102,463) (4,269,919) (11,529,008) Shares Shares Shares Basic weighted average number of ordinary shares in 139,565,621 68,010,371 73,937,847 issue Pence Pence Pence Basic loss per share - pence (0.79) (6.28) (15.59) Due to the Group's loss for the period, the diluted loss per share is the same as the basic loss per share PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 8. CONVERTIBLE NOTE A controlled entity, Crown Diamonds NL, had 16,078,191 (£1,229,621) convertible notes on issue at the beginning of the period. During the period, 6,660,430 Crown Diamonds NL convertible notes were converted into 1,011,993 ordinary shares of the Company. The notes were convertible into ordinary shares of the Company, at the option of the note holder or repayable on 30 November 2005. 1 July 2005 - 1 July 2004 - 1 July 2005 - 1 July 2004 - 31 December 31 December 31 December 31 December 2005 2004 2005 2004 Movements in secured convertible notes Number Number £ £ Balance at beginning of period 16,078,191 - 1,229,621 - Exchange differences - - (2,123) - Redeemed during the period (9,417,761) - (720,248) - Converted to ordinary Shares (6,660,430) - (507,250) - Balance at the end of period - - - - 9. ISSUED CAPITAL Number of 1 July 2005 - Number of shares 1 July 2004 - shares 31 December 31 December 2005 2004 £ £ Authorised - ordinary shares of 10p each As at 31 December 2004 and 31 200,000,000 20,000,000 120,000,000 12,000,000 December 2005 Issued and fully paid 130,949,456 13,094,946 67,849,975 6,784,998 At 1 July 2005 Allotments during the year 16,365,939 1,636,594 1,419,560 141,956 Conversion of convertible notes 1,011,993 101,199 - - At 31 December 2005 148,327,388 14,832,739 69,269,535 6,926,954 PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 10. RESERVES Share Foreign Share based Accumulated premium currency payment loss account translation reserve reserve £ £ £ £ 6 Month period ending 31 December 2004: At 1 July 2004 18,834,587 1,639,078 - (23,578,125) Implementation of IFRS 2 (refer note - - 111,102 (111,102) 11) Restated balance at 1 July 2004 18,834,587 1,639,078 111,102 (23,689,227) Loss for the period - - - (4,269,919) Equity based share options - - 72,869 - Exchange differences - 475,979 - - Premium allotments during the year 912,028 - - - At 31 December 2004 19,746,615 2,115,057 183,971 (27,959,146) 6 Month period ending 31 December 2005: At 1 July 2005 56,711,873 2,286,161 - (34,767,466) Implementation of IFRS 2 (refer note - - 320,827 (320,827) 11) Restated balance at 1 July 2005 56,711,873 2,286,161 320,827 (35,088,293) Loss for the period - - - (1,102,463) Equity based share options - - 136,855 - Exchange differences - 1,013,677 - - Premium allotments during the year 10,522,887 - - - Share issue costs (31,816) - - - Convertible notes issued 406,050 - - - At 31 December 2005 67,608,994 3,299,838 457,682 (36,190,756) 11. ADOPTION OF IFRS 2 (SHARE BASED EMPLOYEE OPTIONS) During the period, the Company adopted IFRS 2 with respect to the treatment of share-based employee share options. In order to comply with IFRS 2, the Company now expenses the fair value of share-based employee options with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The comparative numbers have been appropriately restated. The effect of the change is as follows: Gross Taxation Net Increase in net loss due to increase in personnel costs: - 30 June 2004 (111,102) - (111,102) - 30 June 2005 (209,725) - (209,725) Restatement of opening accumulated losses in respect of prior year adjustment (320,827) - (320,827) PETRA DIAMONDS LIMITED NOTES TO THE INTERIM FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2005 12. SHARE BASED OPTIONS The Company has an established share option programme that entitles the Remuneration Committee, at its discretion, to grant share options to directors and senior management. The terms and conditions of the share options granted during the year ended 30 June 2005 are disclosed in the Annual Report. Share options made prior to 7 November 2002 have, in accordance with the transitional provisions and recognition and measurement principles in IFRS 2, not been taken into account. The share-based option expense has been calculated using the Black-Scholes-Merton formula. Fair value of share options and assumptions for the 6 months ended 31 December 2005: Directors Senior management Fair value at measurement date 26.9p - 40.9p 9.2p - 25.4p Exercise price 44p - 85p 44p - 67.75p Share price 31 December 2005 63p 63p Expected volatility 50% 50% Option life 10 years 1 - 10 years Expected dividends - - Risk-free interest rate (based on national government bonds) 4.2% - 5% 3.5% - 4.9% The expected volatility is based on historic volatility, adjusted for any extreme changes in the share price during the historic period. No options had been exercised during the period. During the six months ended 31 December 2005, the Company recognised expenses of £136,855 related to the fair value of employee share options (refer to note 11 for prior period adjustments). 13. POST-BALANCE SHEET EVENTS Sierra Leone The Company and Mano River Resources Inc ('Mano') are engaged in a joint venture relating to the production of diamonds in the Kono diamond district in Sierra Leone. On 27 February the Group announced that it had incurred $3 million of expenditure on the Kono Project and had earned 51% interest in the joint venture and in Basama Diamonds Limited, which holds the Kono Project licences. 14. CONTINGENT LIABILITIES There were no material changes to the contingent liabilities during the interim period, as compared with those set out in the accounts for the year ended 30 June 2005. This information is provided by RNS The company news service from the London Stock Exchange BKBPND

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