Petra Diamonds (LSE:PDL) — Final Results

0:00 Good afternoon, and welcome to the PETRA DIAMONDS LIMITED investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question that receives during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and I'd now like to hand you over to Richard Duffy, CEO. Good afternoon, sir. Hello, everybody, and thank you for joining us today for a discussion of our audited full year results for the twelve months ended 06/30/2024. I'm Richard Duffy, CEO of PETRA DIAMONDS LIMITED, JR. BREITENBACH, our CFO, who will cover the key financial metrics.

0:50 After taking you through our announcement, we'll open up for Q and A. We have also today released our annual reporting financial statements as well as our sustainability report. Moderator could ask you to please move us to slide four. I start today's presentation with a slide you may recall from our Investor Day in June, where we set out the resilience built into the business and PETRA's compelling value proposition. In financial year 2024, in response to weaker diamond prices, we reduced our operating cost base by around $19,000,000 and CapEx by approximately $80,000,000 for the year, which included some $75,000,000 in deferrals. From financial year 2025 onwards, operating costs will be sustainably reduced by around $44,000,000 per annum relative to the guidance we issued for FY 2025 in July 2023.

1:46 And from FY 2025, we have smoothed future CapEx to around $100,000,000 annually for our South African operations. Together, these actions are targeting the delivery of free cash flow through both capital and market cycles. During the year, we took the opportunity to repurchase $5,000,000 of our twenty twenty six second year loan notes on market and at a discount to face value. This continued post period end with repurchases of our second year notes to date now totaling 12,000,000 at a cost of $9,000,000 which will save us around $1,200,000 in future annual interest costs. We intend to continue opportunistic open market repurchases. Our focus for the current financial year is on delivery of these cost savings and the implementation of our smooth capital profile to generate positive cash flow from the current financial year 2025.

2:43 This positions us well for a successful refinancing of our twenty twenty six second lien notes. Despite current can we move to the next slide please, moderator? Despite current market weakness, which has characterized much of financial year 2024, we are seeing some price stabilization on the back of actions taken by producers and the midstream in reducing supply to the market. As we've highlighted previously, the medium to longer term supplydemand fundamentals of the natural diamond industry remain supportive. Supply as shown in the top chart is in structural decline and expected to halve by 2045 with the depletion of primary diamond mines and the lack of exploration. Only 2% of kimberlites discovered are economically viable with any discovery taking at least ten years to come on stream.

3:34 Demand, as shown in the bottom left chart, is expected to increase over the next decade. Historically, natural diamond demand tracks GDP with recent delayed recovery in China reflecting this. As mentioned, our product mix with 80% of revenue coming from 20% of our production, we are well geared for a recovery as well as the growing emerging middle class. This is particularly evident in India, which is now the world's second largest natural diamond consumer behind The United States, with its luxury market expected to expand threefold by 2030. In the West, the rise in the marketing of lab grown diamonds and the impact of Russian sanctions has made consumers more aware of provenance and traceability, a key area that the natural diamond market is pushing to address this requirement of verifying and assuring provenance and sustainability credentials as part of the Natural Diamond's journey to the end consumer.

4:32 We will be rolling out this technology to provide assurance to our customers and will highlight the benefits we are delivering to our employees, host communities, and other key stakeholders. We could move to slide six please. Safety is our number one priority, which is evidenced through seven fatality free years. Our focus on remedial actions and behavior based intervention programs resulted in a reduction of seven LTIs to 10 in financial year 2024 and a reduction in our lost time injury frequency rate from zero point two four last year to zero point one six in financial year 2024. We continue our health and well-being programs to support our culture and performance in making safety our number one priority.

5:19 Move to Slide seven, please. Turning to our key operating and financial highlights. Diamonds produced increased due to the earlier than expected and successful ramp up at Williamson mine in Tanzania. Diamonds sold increased on the back of the deferred parcels from financial year 2023 into FY 2024 and the increased contribution from Williamson. As a result, despite weaker pricing year on year, revenue increased from $325,000,000 to $367,000,000 The increase in revenues did not translate into higher EBITDA for the year, which reduced from $113,000,000 at a more normal level for the business to $66,000,000 due to the release of inventory in a weaker market.

6:08 CapEx reduced from $117,000,000 to $84,000,000 due to the deferral of certain capital projects during FY24. Operational free cash flow improved from a negative $65,000,000 in financial year 2023 to a negative $17,000,000 in FY 2024. Although our net debt increased year on year, we saw an $11,000,000 improvement from the half year level of $212,000,000 achieving what we targeted at the time of publishing our H1 interim results earlier this year. I will now hand over to Jean. Thank you, Richard. And moderator, if we can move to Slide nine. We have reported revenue of $367,000,000 for the year. The year on year increase is mainly due to the deferral of sales from FY 'twenty three to FY '4, supported by increased contribution from Williamson, but offset by weaker dollar price compared to the previous year.

7:07 Adjusted EBITDA reduced to $66,000,000 down from $113,000,000 representing an adjusted EBITDA margin of 18%, driven by reduced draft diamond prices and impacted by a $71,000,000 swing in diamond inventory movement year on year. Net loss after tax of some $107,000,000 compared to a loss of a $102,000,000 in the year is stated after impairments totaling $78,000,000, $45,000,000 of which attributable to Finch and $33,000,000 to the Kalimar mine as a result of the revised life of mine plans and lower pricing assumptions. Operational free cash flow improved from negative $65,000,000 in FY 2023 to negative $17,000,000 in FY 2024, reflecting an increase in cash from operations of $19,000,000 and a reduction of $29,000,000 in cash outflows from capital expenditure following the deferral of certain capital projects during FY 2024.

8:05 As of thirty June twenty four, dollars twenty five million was drawn under RCF and $246,000,000 outstanding on the second clear notes. So just check if there's an issue with the audio. Operator? Can you hear us? Is there We've had a question from our participant. Yes. We can hear you. You can hear us all right? Yeah. We can hear you clearly. Carry on. Okay. We'll continue. Thank you. Moderator, can I please ask you to turn to Slide number 10? At our Investor Day, we provided more detailed insight into the diamond market. So today, I will keep it brief. Prices achieved in FY 2024 saw like for like prices down 12.4% compared to the prior year, with softness evident throughout the year. It's also evident in the Sydenosky lifetime index.

9:02 Our own prices were supported by product mix, resulting in fairly flat pricing over the last eighteen months. As announced, we delayed our tender one fiscal year 2025 until mid October, given a particular weak market environment in August. Broader market commentary suggests some signs of pricing stabilization, and as a result, we are maintaining the FY 'twenty $5 pricing assumption given at our Investor Day in June. Moderator, if we can please move to Slide 11. Overall, total online cash costs were in line with expectations, increasing some 11% compared to FY 2023, largely due to the ramp up at Williamson and cost inflation across the SA mines, partially offset by an 18% reduction in centralized costs supported by the changes to our operating model to effect cost reductions.

9:55 Adjusted mining and processing costs were up 47%, largely ascribed to the net movement in diamond inventory valuation with the $37,000,000 inventory release this year and the $34,000,000 buildup in FY 2023, resulting in a $71,000,000 P and L swing year on year. We do not expect the recurrence of this in future year end reporting periods given our inventory levels have largely stabilized and our sales cycle should deliver similar inventory balances going forward. Moderate, if we can move to Slide 12. As previously announced, we exceeded our initial estimates of cost reductions for fiscal year twenty twenty four against the guidance released in July 2023, delivering some $10,000,000 across the ESO operations and centralized structures, which was at the upper end of our expectations set in November 23 and a further $9,000,000 at Williamson for the year.

10:51 We also exceeded our initial estimates of between $65,000,000 to $70,000,000 of CapEx savings, achieving $80,000,000 in fiscal year twenty twenty four in deferrals and savings. Sustainable cost savings will deliver $44,000,000 for FY 2025, comprising $30,000,000 across the SA operations and central structures and a further $14,000,000 at our Williamson operation. We also expect CapEx to remain below $100,000,000 for FY 2025, in line with the smooth capital profile we announced at the time of our Investor Day. Moderator, if we can move to Slide 13. Cullinan Mine and Finch contributed positively to adjusted profit from mining activities, while Williamson posted a loss for FY 2024 due to the ramp up during the year to full production.

11:42 And now moving to Slide 14. Looking at our balance sheet, specifically to note diamond inventories, which reduced significantly from June 2023, with this level of inventory expected to be largely maintained on an annual basis going forward. Consolidated net debt decreased from $212,000,000 at the end of December twenty three to $2.00 $1,000,000 at the end of June twenty four, partially due to the actions taken to reduce operating costs and deferrals of CapEx. As previously announced and as a prudent measure, the group increased its commitments under the ZAR 1,000,000,000 revolving credit facility with Absa Bank to ZAR 1,750,000,000 or some $96,000,000 providing an additional $41,000,000 of liquidity headroom.

12:29 Note that as a post close event in August and September 2024, the group drew down some R855,000,000 or $47,000,000 from the RCF as a result of the deferral of our first SA tender to now close in October 2024. Turning to Slide 15. Here, I would like to highlight a key component of our debt, which comprises of a first year revolving credit facility with Absa Bank, dollars 25,000,000 drawn at the end of June twenty twenty four and $246,000,000 outstanding on the second year notes. During the year, the group repurchased $5,000,000 of second year notes in an open market repurchase program for cash concentration of 4,000,000 with a further $7,000,000 repurchased post period end for a consideration of $5,000,000 These notes have been canceled and also the company will save around $1,200,000 in annual interest payments.

13:29 Unrestricted cash of $28,000,000 was offset by an $8,000,000 overdraft at Williamson. As mentioned at the increase today, are now focused on refinancing of the loan notes and are charting the path to generating sustainable cash flow from FY 2025 onwards. Moving to Slide 16. Our FY 2024 average exchange rate was circa 5% weaker compared to the prior year. Post-twenty twenty four, we are seeing improved ZAR strength due to the improved global economic sentiment, stable power supply in South Africa and positive sentiment following the national elections in the country. With that, I will now hand back to Richard to take us through operational results. Thanks, Jacques. And can we please turn to Slide 18? For all our operations, we provide an in-depth look at the life of mine during our Investor Day in June, and you can find all of that information on our website.

14:22 For now, reflecting on financial year '24, Cullinan mine remained at the upper end of guidance with regards to tonnes mined. However, run of mine grades were below expectations, exacerbated by our reliance on diluted run of mine ore due to capital deferrals, which delayed access to fresh ore in our project area. Our focus in this financial year 2025 is to transition and ramp up our sublevel cave production from the CC1 East project. The smooth capital development results in Cullinan Mine stepping down to around 3,700,000 tonnes from financial year 2017 onwards and maintaining that going forward with carat production remaining at similar levels as in financial year '26 as a result of higher grade ore from CC1 East. Please turn to Slide 19.

15:14 At Finch, a number of operating challenges were addressed this past year and we are on track for further operating stability and improvement in run of mine grades in financial year 2025 as we complete our transition from around 2,800,000 ton to 2,200,000 ton a year operation. Currently the majority of tunnels to access the fresh ore at our 78 level Phase two have now been commissioned and financially twenty five's focus will be to optimize the current two shift configuration to deliver more predictable and stable operations. Turn to Slide 20 please. At Williamson, we have successfully ramped up through the year, which you can see across all of our metrics and performance of the operation. Financial year 2025, we'll see a focus on waste stripping to provide sufficient access to the ore body to maintain a life of mine plan and provide materials for construction of the new TSF, which commenced in the first quarter of FY twenty twenty five.

16:16 If we could turn to Slide 22, please. In conclusion, steps taken in financial year 'twenty four to mitigate the impact of diamond market weakness has enhanced our resilience and with our new smooth capital profile and reduced cost base, we are well positioned to generate free cash flow throughout the cycle. We believe that prices will stabilize towards the end of this calendar year before showing some improvement in calendar year 2025. Through the actions taken, we are targeting net debt to EBITDA of below 1.5 times from financial year 2026. Finally, we have a high quality long life asset base set up to deliver value to our stakeholders through market cycles and we are well positioned to benefit from expected price improvement in calendar year 2025 and a supportive market in the medium to longer term.

17:11 This concludes the formal part of the presentation. Before handing over for Q and A, I would like to note that this is Jacques' last results presentation and I would like to thank him for his significant contribution over the last eighteen years and wishing him success in the future. That concludes our presentation, and we will now take questions. Thank you very much for your presentation this afternoon. And if I may just bring back up your camera. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the top right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A, can be accessed via investor dashboard.

17:57 As you can see, we have received a number of questions throughout today's presentation. And Patrick, if I could please ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Thank you, moderator. The first question comes from Dean. Your share price indicates potential restructuring over the next twelve months. Is this possible as it has happened previously with PETRA? Thanks, Patrick. I'll answer that. I think it's important to note that at PETRA we did go through a restructuring in 2020 and that was on the back of the market collapse and price collapse post COVID. I think that what we demonstrated through this presentation is that we believe that the company will successfully refinance its twenty twenty six second year notes.

18:49 We have sufficient liquidity in order to do that and the cash generation that we have outlined in the business supports the view that we will successfully refinance. So we certainly do not believe that there will be a restructuring, but that we would rather refinance the loan notes. And as we've said before, we expect to be in a position to share our plan for the full refinancing by the end of this calendar year. Thank you, Richard. We have a couple of questions on diamond pricing. You said earlier in the presentation that diamond prices track GDP, that the IDEX diamond index has fallen 40% over the last two and a half years.

19:35 Can you explain how this relates to GDP, please? So diamonds and diamond prices have little correlation with most other measures other than GDP over the longer term. So you're quite right if you plot over the last two and a half years, there's not correlation between the diamond price index and GDP. But generally, if you look at the performance prices over a longer period, and here I'm talking if you go back and you look at it over the last decade, for example, GDP growth provides the best indicator for looking at pricing, which is why we've used that, and that is also what De Beers has used as the basis for looking at prices going forward. But it certainly needs to be noted that within those longer periods, there are periods where there is high price volatility.

20:36 So around the post COVID period, you saw a very significant increase in prices. Post that, is rightly pointed out, we've seen a circa 40% drop in prices in the last two and a half, three years. But we still see over the longer term GDP as being the best indicator for looking at diamond prices. Thank you, Richard. Another question on diamond pricing for FY 2025. You've provided diamond pricing assumptions for each of our mines. How confident are we in achieving these price levels? What are the risks if prices remain weaker than anticipated? Yeah, so I think what we've indicated in this presentation is we believe that our pricing assumptions that we shared at the time of our Investor Day in June remain valid in our view.

21:33 We, as I indicated, see prices consolidating and stabilizing at and around current levels, and we expect to see some improvement in calendar year '25. We certainly haven't built much price increase into our pricing assumptions for FY twenty five. But in the event we do see periods of further market weakness, I think we've demonstrated that as a business, we're able to take cost out as and where required, and that's evidenced by the $44,000,000 overall savings against our previous guidance. We also have indicated that we have around $100,000,000 of capital spend at our South African operations, and we have some flexibility around the timing of that spend.

22:26 So we have a number of levers at our disposal in the event of prices being lower than we expect. And as I indicated at the Investor Day, that even if we assume flat real prices going forward off the lower end of our price assumption range, the business is expected to generate $180,000,000 of net free cash over the next five years. Richard, I think it's also worth adding that the pricing assumptions is based on a twelve month running view. Yes. And although we may see slight volatility on a 10 to 10 basis over a twelve month period, we are fairly confident that the pricing assumptions are absolutely valid.

23:15 Thanks, Sean. Thank you. A question from Dan at Devwire. You have mentioned refinancing opportunities down the line for the 2026 bonds. Over the current yields maturity of the outstanding bonds does not suggest typical bond refi will take place. Are you looking at other options, for example, bank syndication, refi or private placements? Thanks, Dan. Yes, we're looking at a number of different opportunities in terms of liquidity pools for the refinancing. Our bond is relatively small in the context of the global bond market. We've mentioned previously that we have had conversations with our SA banks and lenders. We'll continue those conversations.

24:02 And we believe that there is sufficient liquidity to enable us to refinance the loan notes at reasonable rates. So that remains work in progress. I've said, we expect to have a plan in place, the details of which we'll share with you before the end of the calendar year. Thank you. Present, there are no further questions. Thank you all for answering those questions that you can from investors. And of course, the company can review all questions submitted today, we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Richard, could I please just ask you for a few closing comments?

24:51 Yes. Just to say thanks very much to all of the participants for joining us today. Please do reach out if you have any further questions, and we look forward to chatting again in the near future. Thank you. Thank you all for updating investors today. Can I please ask investors not to close this session as you'll now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of PETRA DIAMONDS LIMITED, we'd like to thank you for attending today's presentation, and good afternoon to you all.