NOTES TO THE CONDENSED CONSOLIDATED PRELIMINARY FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2023

1.     GENERAL INFORMATION

Petra Diamonds Limited (the "Company"), a limited liability company listed on the Main Market of the London Stock Exchange, is registered in Bermuda with its Group management office domiciled in the United Kingdom. The Consolidated Preliminary Financial Statements of the Company for the year ended 30 June 2023 comprise the Company and its subsidiaries, joint operations and associates (together referred to as the "Group").

2.     ACCOUNTING POLICIES

This preliminary report, which is unaudited, does not include all the notes of the type normally included in an annual financial report. This condensed report is to be read in conjunction with the Annual Report for the year ended 30 June 2022, and any public announcements made by the Group during the reporting period. The annual financial report for the year ended 30 June 2022 was prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS's") and the accounting policies applied in this condensed preliminary report are consistent with the polices applied in the annual financial report for the year ended 30 June 2022 unless otherwise noted. The preliminary report has been prepared in accordance with accounting policies compliant with International Financial Reporting Standards as adopted by the European Union.

Accounting policy for discontinued operations

Where an operation within the Group is separately identified or forms part of a separate reporting structure, the Group will classify the asset as a discontinued operation, in accordance with IFRS 5. For this to be the case, the asset must represent a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale. Non-current assets (or disposal groups) to be abandoned include non-current assets (or disposal groups) that are to be used to the end of their economic life and non-current assets (or disposal groups) that are to be closed rather than sold. The disposal group's assets are measured at the lower of their carrying amount and recoverable value less costs to sell. An impairment loss is recognised for any initial or subsequent write-down of the asset to recoverable value less costs to sell. A gain is recognised for any subsequent increases in recoverable value less costs to sell of an asset but not in excess of any cumulative impairment loss previously recognised. The assets and liabilities of a disposal group are presented separately from the other assets and liabilities in the statement of financial position.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale, or if it is designated as abandoned and represents a separate major line of business or geographical area of operations, is part of a single coordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resell. The results of discontinued operations are presented separately in the statement of profit or loss.

Unrealised foreign exchange gains and losses on historic retranslation of the subsidiaries results into US Dollars are recycled to the consolidated income statement upon cessation of the subsidiary. The Group designates the results of discontinued activities, including those of disposed subsidiaries, separately in accordance with IFRS and reclassifies the results of the operation in the comparative period from continuing to discontinued operations.

Basis of preparation including going concern

Going concern

The twelve-month period to 30 June 2023 delivered US$113.1 million in adjusted EBITDA and US$40.6 million in cash from operating activities, while total capital expenditure amounted to US$117.1 million for the Year following the ramping up of underground development projects at both Cullinan Mine and Finsch. Consolidated Net Debt increased from US$40.6 million at 30 June 2022 to US$176.8 million as at 30 June 2023. This was largely driven by the decision to defer a portion of Tender 5 (May) and the majority of Tender 6 (June) in FY 2023 on account of seasonal weakness coupled with a more cautious and disciplined approach with regards to inventory management by the mid-stream as a result of high finance costs. Based on the previous definition of Exceptional Stones (diamonds sold for US$5 million or more each), FY 2023 realised US$12.6 million as a contribution from these Exceptional Stones, compared to US$89.1 million in FY 2022. Applying the updated definition of Exceptional Stones (diamonds sold for US$15 million or more each), there was no contribution from Exceptional Stones in FY 2023, compared to US$40.2 million realised in FY 2022.

Operational Update

The first half of FY 2023 saw Petra's operations having to deal with operational challenges. CDM experienced lower grades in the C-Cut block cave on account of earlier than expected waste ingress, resulting in lower ROM carats being recovered, while also lowering the projected ROM carat production for the remainder of FY 2023 and FY 2024. FDM challenges were as a result of low machine availability owing to an aging underground fleet, challenges with the centralised blasting system and emulsion quality and an extended rock-winder breakdown. WDL was performing well during H1 FY 2023, until the Tailings Storage Facility (TSF) incident in the 1st week of November 2022, which led to a suspension of operations for the remainder of the Year. Finally, KDM continued to struggle in achieving its budgeted production targets and was subsequently placed on Care & Maintenance (C&M) in November 2022.

Several mitigation steps were initiated during H2 FY 2023 to minimise the above impacts. At CDM, these included re-opening of Tunnels 36 (which has already occurred) and 41 and the addition of pillar retreats, while the addition of two more tunnels (T46 and T50) adjacent to the current C-Cut centre was also approved during H2 FY 2023, both of which are anticipated to deliver on relatively higher-grade ore towards the end of FY 2024 (compared to the current grades being achieved from the balance of the C-Cut). The CC1E project, which is expected to  significantly increase the overall ROM grade at CDM, remains on track for production to commence in FY 2025.

At FDM, mitigation steps included new underground equipment being delivered and commissioned, coupled with positive changes to the blasting process, the introduction of new long hole drill rigs and Load Haul Dump (LHDs) loaders as well as the appointment of individuals to a number of key positions. Furthermore, the 3-Level SLC project scope was amended to go up to 90L, which adds additional production tonnes to the Life of Mine plan. The mitigation steps undertaken are expected to stabilise production at FDM, while the 3-Level-SLC 90L project is planned to start contributing to production from FY 2025 onwards, supporting increased grades at FDM. 

At Williamson, the TSF failure in November 2022 significantly disrupted WDL's operational run-rate which had largely stabilised after a lengthy care & maintenance period post the COVID-19 pandemic. There were no serious injuries as a result of the failure, both at the mine and the surrounding communities. Since the TSF incident, WDL has been focused on rehabilitation efforts due to the tailings failure, with new infrastructure being built to further safe-guard the communities downstream of the mine. In parallel, a new TSF was constructed, which received the required permits and complies with the GISTM standards. Subsequently, production resumed at WDL in July 2023, shortly after Year-end, with a steady ramp-up currently underway. While most of the activities were funded by WDL's on-mine cash reserves, PDL and the mining contractor, Taifa, have advanced priority loans totalling US$12m to assist WDL's liquidity requirements, with a local overdraft facility also in place. WDL's short term liquidity needs are receiving focused attention to ensure WDL remains as a going concern.

As noted above, KDM was placed on C&M in November 2022. The KDM workforce was retrenched through a Section 189(3) process, as set out in the South African Labour Relations Act. Certain of the retrenched employees were appointed on fixed-term contracts to carry out C&M activities. In parallel, the KDM sales process failed to identify a possible buyer. Consequently, the mine has commenced with detailed closure planning, with the main focus on obtaining the required permits to cease dewatering of the underground workings, which remains a significant cost element during the C&M period. The Social transition, including implementation of the committed Social & Labour Plans (SLP) also continue in parallel to the C&M activities and the closure roadmap planning.   

Diamond prices and Market Outlook

The diamond prices consolidated their gains from FY 2022 up until the Q3 FY 2023, but experienced softness in Q4 of FY 2023. The softening of the diamond prices during Q4 FY 2023 is ascribed to two main factors, namely the seasonal weakness due to summer holidays and lack of festive induced demand coupled with high financing costs, on account of the elevated interest rates, resulting in a far more cautious and disciplined approach applied by the midstream for their inventory management. Indications are that interest rates have now peaked and will start to decline, providing support to our view of improved demand in the medium-term because of the structural supply deficit, as well as entering the seasonally stronger period ahead of Diwali, Thanksgiving, Christmas and the Chinese New Year, with an anticipated increase in demand for diamond jewellery.

The Group achieved an all-in diamond price of US$135/ct during FY 2023 (excluding contributions from Exceptional Stones, applying the previous definition) compared to an all-in diamond price of US$140/ct during FY 2022 (also excluding contributions from Exceptional Stones, again applying the previous definition). This represents a marginal reduction of 3.6% year-on-year and was partly also influenced by lower contributions from both WDL and KDM product mix, which averages higher US$/ct prices, albeit at reduced volumes. Post period end, Tender 1 of FY 2024 closed in August, and realised prices in line with expected levels.

Williamson updates

The Group announced the signing of  a framework agreement with the Government of Tanzania (GoT) in December 2021, which sets out key principles on the economic benefit sharing amongst shareholders, treatment of outstanding VAT balances, as well as agreement reached on the blocked parcel of diamonds and settlement of historic disputes, amongst others. During the Year, it came to Petra's attention that the GoT sold the blocked diamond parcel, either partially or fully. The framework agreement provides for the proceeds of the sale of this parcel to be allocated to Williamson. The GoT has not yet remitted the proceeds to the mine, and Petra has opened discussions with the GoT to resolve this matter in due course. Should the proceeds not be remitted, in accordance with the terms of the framework agreement, the obligation to commence with payments towards settling an amount of US$20 million owed to the GoT related to historic disputes, would not be triggered.       

The framework agreement is expected to provide fiscal stability for the mine and its investors and is expected to become effective during the second half of FY 2024, pending satisfaction of certain suspensive conditions.

During FY 2023, Petra and Taifa (previously Caspian) executed a Sale of Shares Agreement, to give effect to a Memorandum of Understanding (MOU) entered into in December 2021, for Taifa to acquire 50% of Petra's stake in Williamson for a purchase consideration of US$15m. This agreement is subject to certain regulatory approvals   and is anticipated to become effective during the second half of FY 2024.

Williamson short term liquidity outlook  

It should be noted that the Group's Going Concern assessment is performed excluding Williamson's trading results, as Williamson is considered a ring-fenced operation for these purposes, as per the definitions and requirements set forth in the Group's Financing agreements.

Williamson continues to focus on steadily ramping-up production post its restart in July 2023, and is currently performing ahead of its assumed ramp-up profile. Williamson has also successfully upsized its overdraft facility from US$7 million to US$10 million, effective September 2023. Williamson may, however, encounter short-term liquidity challenges over the next 12 - 18 months. These may be mitigated by means of optimising tender timings, initiating cost reduction/deferral opportunities, and/or benefitting from the faster-than-anticipated startup and increasing production.

From a Group perspective, if  these levers at Williamson materialise, then as a last resort, there may be further contribution of up to US$5 million from the Group to Williamson, as a priority shareholder loan, during  the going concern assessment period. This further cash contribution to Williamson will be at the discretion of the Petra Board and is not expected to impact the Group's ability to continue as a Going Concern, should this materialise.

Bond tender offer and South African banking facilities

During FY 2023, the Group carried out a successful tender offer to its Noteholders, repaying the Noteholders US$144.6 million (principal plus interest), utilising existing cash reserves, resulting in further deleveraging of the Group. This will save the Group c.US$15 million per annum in interest.

The Group's ZAR 1 billion senior Revolving Credit Facility (RCF) facility remained undrawn at 30 June 2023, with the Group having access to the full ZAR 1 billion (US$53.1 million). Post Year-end, the Group utilised ZAR 850 million following a decision to defer tenders during Q4 FY 2023, as noted above. The Group anticipates settling the drawn balances during H1 FY 2024 from the proceeds of sales tenders.

The Group continues to assess opportunities for further debt optimization in the current market, with the Group's bonds maturing in March 2026.

Forecast liquidity and covenants

The Board has reviewed the Group's forecasts with various sensitivities applied for the Going Concern assessment to December 2024, including both forecast liquidity and covenant measurements. As per the First Lien agreements, the liquidity and covenant measurements exclude contributions from Williamson's trading results and only recognises cash distributions payable to Petra upon forecasted receipt, or Petra's funding obligations towards Williamson upon payment.

The Board has given careful consideration to potential risks identified in meeting the forecasts under the review period. Therefore, the following downside sensitivities have been performed (sensitivities applied throughout the period) in assessing the Group's ability to operate as a going concern (in addition to the Base Case) at the date of this report:

•       ZAR stronger by 5%

•       Revenue down 10% 

•       OPEX up by 5% (could be higher inflation, logistics costs, direct energy costs, etc.)

•       Extension CAPEX up by 5%

•       Combined Sensitivity: Revenue down 5% + ZAR stronger by 5% (effectively resulting in OPEX and total CAPEX up by 5% in USD terms)

The forward-looking covenant measurements for the base case and sensitised cases do not project any breaches for any of the covenants, other than the potential minimum liquidity covenant for the unmitigated Combined- and Revenue down 10% sensitivities during the 18-month review period.

Any potential liquidity breaches as a result of the above sensitivities could be cured by means of the following levers at Management's disposal:

a.     Hedging opportunities - the Group actively monitors the USD:ZAR exchange rate and pro-actively locks in hedges to benefit from periods of weaker ZAR, which results in cash flow savings compared to the base case USD:ZAR forecast;  

b.     Deferral of Feasibility Studies  - this includes planned costs associated with feasibility studies on future extension opportunities;

c.     Release of diamond inventory - the Group would be able to release inventory through optimising mine to market lead times and/or more frequent tenders;

d.     Deferral of extension CAPEX - the Group is projecting substantial CAPEX spend largely driven by the approved extension projects at CDM & FDM;

e.     OPEX and SIB CAPEX Cost Savings or deferrals - the Group, upon further assessment and as may be required once the above levers are extinguished, will look to initiate potential cost avoidance and/or deferral measures, such as temporary freezing of non-critical appointments, cash cost reduction initiatives targeting non-critical spend, working capital management, etc. 

Management will implement the required mitigation levers and believes it would be able to prevent potential liquidity covenant breaches, in the event that the downside sensitivities materialise during the going concern period.

Conclusion

The Board is of the view that despite the current volatility being experienced, the supply/demand fundamentals of the diamond market remain intact, with the Group also continuing to benefit from an improving operating model throughout the review period and beyond.

Based on its assessment of the forecasts, principal risks and uncertainties and mitigating actions considered available to the Group in the event of downside scenarios, the Board confirms that it is satisfied the Group will be able to continue to operate and meet its liabilities as they fall due over the review period. Accordingly, the Board have concluded that the going concern basis in the preparation of the financial statements is appropriate and that there are no material uncertainties that would cast doubt on that basis of preparation.

New standards and interpretations applied

The IASB has issued new standards, amendments and interpretations to existing standards with an effective date on or after 1 July 2022 which are not considered to have a material impact on the Group during the Period under review.

New standards and interpretations not yet effective

Certain new standards, amendments and interpretations to existing standards have been published that are mandatory for the Group's accounting periods beginning after 1 July 2023 or later periods. The only standard which is anticipated to be significant or relevant to the Group is:

Amendments to IAS 1: Classification of Liabilities as Current or Non-current

Amendments to IAS 1, which are intended to clarify the requirements that an entity applies in determining whether a liability is classified as current or non-current. The amendments are intended to be narrow scope in nature and are meant to clarify the requirements in IAS 1 rather than modify the underlying principles. The amendments include clarifications relating to:

·      how events after the end of the reporting period affect liability classification;

·      what the rights of an entity must be in order to classify a liability as non-current;

·      how an entity assesses compliance with conditions of a liability (e.g., bank covenants); and

·      how conversion features in liabilities affect their classification.

The amendments to IAS1 are effective for periods beginning on or after 1 January 2024. Earlier application is permitted but Amendments to IAS 1 has not yet been endorsed for application by the European Union.

Significant assumptions and judgements:

The preparation of the condensed consolidated preliminary financial statements requires management to make estimates and judgements and form assumptions that affect the reported amounts of the assets and liabilities, reported revenue and costs during the periods presented therein, and the disclosure of contingent liabilities at the date of the preliminary financial statements. Estimates and judgements are continually evaluated and based on management's historical experience and other factors, including future expectations and events that are believed to be reasonable. The estimates and assumptions that have a significant risk of causing a material adjustment to the financial results of the Group in future reporting periods are discussed below.

 Key estimates and judgements:

Going concern

Management have considered the Group's ability to meet its obligations as they fall due for a period of at least 12 months from the date of this report and, in light of this review and the current financial position, they are satisfied that the Group has access to adequate resources to continue in operational existence for the foreseeable future. As part of its going concern assessment, the Group exercised judgement in making assumptions about forecasted future rough diamond prices, foreign exchange rates, volumes of production, ore reserves and resources included in the current life of mine plans, future development and production costs and factors such as inflation and discount rates and other macroeconomic factors.

Impairment reviews

The Group prepares impairment models and assesses mining assets for impairment or reversals of previous impairments. While conducting an impairment test of its assets using recoverable values using the current life of mine plans, the Group exercised judgement in making assumptions about future rough diamond prices, foreign exchange rates, volumes of production, ore reserves and resources included in the current life of mine plans, future development and production costs and factors such as inflation and discount rates. Changes in estimates used can result in significant changes to the 'Consolidated Income Statement' and 'Statement of Financial Position'.

Cullinan, Finsch, Koffiefontein and Williamson Mines

The impairment tests for the Cullinan, Finsch and Williamson Mines indicated a net impairment reversal of US$20.0 million to be recognised, on a carrying value of the Group's property, plant and equipment of US$573.8 million (pre-impairment). This follows US$21.1 million impairment reversal recognised at 30 June 2022 (comprising Koffiefontein impairment charge of US$0.3 million and a Group level impairment reversal relating to Williamson, previously recognised under IFRS 5, of US$21.4 million as Williamson was no longer considered an asset held for sale) on a carrying value of the Group's property, plant and equipment of US$608.2 million (pre-impairment) at the time of recognition. For further details of the inputs, assumptions and sensitivities in the impairment model, refer to note 15. For impairment considerations of Koffiefontein, refer to note 18.

Recoverability of trade and other receivable,  ownership of blocked diamond parcel and disputed tax claims provision in Tanzania

During FY 2018, an investigation into the Tanzanian diamond sector by a parliamentary committee in Tanzania was undertaken to determine if diamond royalty payments were being understated. In connection with this, Petra announced on 11 September 2017 that a parcel of diamonds (71,654.45 carats) from the Williamson mine in Tanzania had been blocked for export to Petra's marketing office in Antwerp.

The confirmation from the GoT confirming that the blocked diamond parcel has been partially sold, resulted in the inventory no longer being available for sale. As such, the full carrying value of US$12.5 million (30 June 2022: US$12.5 million) has been expensed as other direct mining expense in the Consolidated Income Statement as at 30 June 2023. Management have applied judgement to the sales proceeds of the blocked diamond parcel by estimating the fair value as at 30 June 2023, based on the original valuation of US$14.8 million (11 September 2017), the movement in the diamond index (147.1 in Q1 FY2017, compared to 162.1 at June 2023), a two-year expected delay to concluding the discussions with the GoT and a discount rate of 14%. Based on the aforesaid factors a fair value of US$12.3 million was recognised in the Consolidated Income Statement as other direct mining income/expense with a trade and other receivable recognised in the Statement of Financial Position as at 30 June 2023. The blocked diamond parcel was written up from its net realisable value of prior periods to historical cost during FY 2022. The recommencement of operations and the diamond tenders at Williamson during FY 2022 provided additional information for management to assess the value of the blocked diamond parcel forming the basis used to revalue the diamond parcel to the lower of cost or net realisable value.

The assessment of the recoverability of the trade and other receivable required significant judgement. In making such a judgement, the Group considered the Framework Agreement that was signed with the GoT on 13 December 2021, ongoing discussions held with the GoT regarding the receipt of the proceeds from the partial disposal of the diamond parcel and legal advice received from the Group's in-country attorneys which supports the Group's position.

Under the Framework Agreement entered into with the GoT in December 2021, it is stated that the proceeds from the sale of the blocked diamond parcel are to be applied to the Williamson mine to assist with the restart of operations (which had previously been on C&M from April 2020 to August 2021) and that in the event such proceeds are not received by Williamson, Williamson is not required to pay a US$20 million liability relating to the settlement of past tax disputes (refer to note 16 for further detail). During recent discussions, the parties also confirmed their intent to resolve how to treat the blocked parcel sale proceeds and the related US$20 million settlement liability.

While these engagements between the Company and the GoT are ongoing, based on the above judgements and assessment thereof, management remain confident that based on the signed Framework Agreement, and the legal advice received from the Group's in-country attorneys, WDL will derive future economic benefit from the sale proceeds of the parcel (both the portion already sold and any portion that is yet to be sold).

Recoverability of VAT in Tanzania

The Group has VAT receivable of US$6.6 million (30 June 2022: US$2.6 million) in respect of the Williamson mine, all of which are past due and have therefore been classified, after provision including amounts related to providing for a time-value of money inclusive of risk adjustments for various factors, as non-current given the potential delays in receipt.

The VAT receivable as at 30 June 2023, can be split into two identifiable component time periods as set out below:

30 June 2023

30 June 2022

Pre-July 2017 and Post-June 2020

An amount of US$16.5 million (30 June 2022: US$8.6 million) of VAT is receivable for the period for the period pre-July 2017 and subsequent to 1 July 2020. The Group is considering various alternatives in pursuing payment in accordance with legislation. A provision of US$9.9 million (30 June 2022: US$6.0 million), given the uncertainty around the timing of receipts of the amount outstanding, has been provided for against the US$16.5 million (30 June 2022: US$8.6 million) receivable resulting in a carrying value of US$6.6 million (30 June 2022: US$2.6 million).

While the remaining pre-July 2017 and post-July 2020 VAT balance is considered recoverable, significant uncertainty exists regarding the timing of receipt. A discount rate of 14.00% inclusive of estimated country credit risk has been applied to the expected cash receipts. A 1% increase in the discount rate would increase the provision by US$0.4 million and a one year delay would increase the provision by US$0.8 million.

During the Year, an impairment charge of US$3.9 million (30 June 2022: US$4.1 million) was recognised in the Consolidated Income Statement.

BEE receivables - expected credit loss provision

The Group has applied the expected credit loss impairment model to its BEE loans receivable. In determining the extent to which expected credit losses may apply, the Group assessed the future free cashflows to be generated by the mining operations, based on the current mine plans. In assessing the future cashflows, the Group considered the diamond price outlook and the probability of reaching an offset agreement. Based on the assessment, no expected credit loss reversal was recognised in the respective periods. For further detail refer to note 11.

Life of mine and ore reserves and resources

There are numerous risks inherent in estimating ore reserves and resources and the associated current life of mine plan. The life of mine plan is the current approved management plan for ore extraction that considers specific resources and associated capital expenditure. The life of mine plan frequently includes less tonnes than the total reserves and resources that are set out in the Group's Resource Statement and which management may consider to be economically viable and capable of future extraction.

Management must make a number of assumptions when making estimates of reserves and resources, including assumptions as to exchange rates, rough diamond and other commodity prices, extraction costs, recovery and production rates. Any such estimates and assumptions may change as new information becomes available. Changes in exchange rates, commodity prices, extraction costs, recovery and production rates may change the economic viability of ore reserves and resources and may ultimately result in the restatement of the ore reserves and resources and potential impairment to the carrying value of the mining assets and life of mine plans. Refer to note 15 for further detail on the assumptions.

The current life of mine plans are used to determine the ore tonnes and capital expenditure in the impairment tests.  Ore reserves and resources, both those included in the life of mine and certain additional tonnes which form part of reserves and resources considered to be sufficiently certain and economically viable, also impact the depreciation of mining assets depreciated on a unit of production basis. Ore reserves and resources, outside the current mine plan further impact the estimated date of decommissioning and rehabilitation.

Williamson Tailings Storage Facility

On 7 November 2022, the tailings storage facility at the Williamson mine was breached, resulting in flooding away from the pit which extended into certain areas outside of the mine lease area. As a result, remediation costs relating to the incident have been incurred during the Period and additional costs will be incurred going forward. The remediation costs comprise establishing the root cause of the failure, humanitarian relief to the affected community, livelihood and environmental restoration and costs to repair. Judgement has been applied by Management in assessing the future remediation costs. Management have considered the current work streams, the estimated time of completion and appropriate information received from suppliers and contractors involved in the remediation process.    

In FY 2023, US$2.4 million of costs, comprising management's best estimate based on the current information available, has been provided for in respect of ongoing remediation costs.

Human rights settlement claims

The IGM is a non-judicial process that has the capacity to investigate and resolve complaints alleging severe human rights impacts in connection with security operations at the Williamson mine. It is being overseen by an Independent Panel of Tanzanian experts taking an approach informed by principles of Tanzanian law, and with complainants having access to free and independent advice from local lawyers. The overall aim of the IGM is to promote reconciliation between the Williamson Diamond Mine, directly affected parties and the broader community by providing remedy to those individuals who have suffered severe human rights impacts. Petra Diamonds Limited (PDL) has agreed to fund the remedies determined by the IGM.

On 28 November 2022, the IGM became operational with the commencement of the IGM's pilot phase. The pilot phase, which was completed in May 2023, has allowed the IGM's systems and procedures to be further developed and adjusted to take into account learnings. The Independent Panel ("IP") have started making decisions on the merits of the cases considered during the pilot phase and the associated remedies for successful grievances.

Judgement has been applied by Management in assessing the estimated future cost of remedies for successful grievances based on the outcome of claims investigated during the pilot phase. Management have assessed the results and performed their own estimate based on calculations received from consultants. The estimate makes a number of different assumptions, including, amongst others, regarding the categories of the grievances, the success rates of the grievances and the settlement payment that apply to successful grievances. These estimates also do not make any allowance for non-financial remedies that the IP may award. The concluded cases of the initial pilot phase grievances have been extrapolated across the grievance population of 5,577, based on the average claim settlement per category and the various categories of the grievances (nature of claim). Management's assessment resulted in estimated aggregate costs of US$7.9 million to be provided at Year end; this compares to a range estimated by external consultants of US$ 7.2 - 10.1 million. The estimate will be reassessed at each future reporting date.

Koffiefontein - discontinued operation

Judgement is required when determining whether a component of an entity classifies as a discontinued operation. A component of the Group should be classified as a discontinued operation when it has been disposed of, or abandoned, and represents a separate major line of business or geographical area of operations. Judgement is required when determining whether the component represents a separate major line of business or geographical area of operations. Judgement is required when determining whether the component represents an abandoned operation. This was applied to the classification of the Koffiefontein mine as a discontinued operation. The Koffiefontein mine is considered a major geographical area of operations which has been reported as a separate segment in the past.

The Koffiefontein operation was placed on care and maintenance in November 2022 after it continuously failed in achieving its budgeted production targets. The operation mine is considered to have reached the end of its economic life and has commenced with detailed closure planning. The income producing activities of the operation which involve the mining, recovery and sale of rough diamonds have ceased. Care and maintenance activities have commenced and are ongoing. These ongoing activities at the Koffiefontein operation are more focused towards identifying and managing the mine's ongoing environmental compliance obligations in terms of local mining and environmental legislation and the implementation of the committed Social and Labour Plans (SLP). As these are legislative requirements, these activities are necessary and cannot be avoided.

Based on the above, management considered that the Koffiefontein mine is abandoned and therefore a discontinued operation and as such Management have determined that the classification of a discontinued operation in terms of IFRS 5 to be appropriate at 30 June 2023. Refer to note 18 for further details.

Koffiefontein - care and maintenance

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will occur and where a reliable estimate can be made of the amount of the obligation. Where the effect of discounting is material, provisions are discounted. The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

As mentioned above, income producing activities of the Koffiefontein operation have ceased and care and maintenance activities have commenced. These ongoing activities are a necessary bridge to eventual closure of the mine.

When a mine is not in production, environmental degradation continues and needs to be monitored closely even though the mine is not fully operational. As the Koffiefontein operation has reached end of its Life of Mine (LOM) and a decision has been taken by management to close the operation, the committed costs associated with operating Koffiefontein during the care and maintenance phase are more focused towards identifying and managing the mine's ongoing environmental compliance obligations until such time that a closure certificate is issued by the Department of Mineral Resources and Energy (DMRE). As such, there is a present obligation that exists for these committed costs related to care and maintenance at Year end.

Significant estimates and assumptions are made in determining the amount attributable to care and maintenance provisions. These deal with uncertainties such as the regulatory framework, timing and future costs. In  determining the amount attributable to care and maintenance provisions at Koffiefontein, management used a discount rate of 10.5%, estimated timing to final closure of 11 years and an inflation rate of 6%. Management's estimate of costs has taken into account discussions with suppliers, contractors, quotes and historical on mine costs. Management's assessment resulted in estimated aggregate costs of US$10.7 million  provided at Year end. The estimate will be reassessed at each future reporting date.

Other key estimates and judgements

In addition to the key estimates and judgements disclosed above, the following estimates and judgements have not significantly changed from those disclosed in the FY 2022 Annual Report and will be discussed in further detail in the FY 2023 Annual Report:

-     Provision for rehabilitation

-     Inventory and inventory stockpile

-     Depreciation

-     Pension and post-retirement medical fund schemes

-     Net investments in foreign operations

-     Taxation

3.     DIVIDENDS

No dividends have been declared in respect of the current Year (30 June 2022: US$nil).

4.     SEGMENTAL INFORMATION

Segment information is presented in respect of the Group's operating and geographical segments:

Mining - the extraction and sale of rough diamonds from mining operations in South Africa and Tanzania.

Corporate - administrative activities in the United Kingdom.

Beneficiation - beneficiation activities in South Africa.

Segments are based on the Group's management and internal reporting structure. Management reviews the Group's performance by reviewing the results of the mining activities in South Africa, Tanzania and reviewing the results of reviewing the corporate administration expenses in the United Kingdom. Each segment derives, or aims to derive, its revenue from diamond mining and diamond sales, except for the corporate and administration cost centre.

Segment results, assets and liabilities include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. Segment results are calculated after charging direct mining costs, depreciation and other income and expenses. Unallocated items comprise mainly interest-earning assets and revenue, interest-bearing borrowings and expenses and corporate assets and expenses. Segment capital expenditure is the total cost incurred during the year to acquire segment assets that are expected to be used for more than one period. Eliminations comprise transactions between Group companies that are cancelled on consolidation. The results are not materially affected by seasonal variations. Revenues are generated from tenders held in South Africa and Antwerp for external customers from various countries, the ultimate customers of which are not known to the Group.