Petra Diamonds (LSE:PDL) — Interim Results FY2025

0:01 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 they can be submitted at any time just by using the Q and A tab that's 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 received in the meeting itself. However, company can review all the 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 Vivek. Good afternoon, sir.

0:32 Thank you, Alessandro. Good afternoon, everybody. Thank you for joining us today for a discussion on PETRA's interim results for the six months ended 12/31/2024. I'm Vivek Panodia, joint interim CEO of PETRA DIAMONDS, and with me, Marjuan Kemp, also appointed joint interim CEO and Johan Sneeman, our CFO, who will cover the key financial metrics. After taking you through our announcement, we'll open up for q and a. And at that point in time, we will invite Patrick Pettire to manage that session. You can please move to slide three. As you will have seen yesterday, we announced that Richard Duffy has stepped down from the CEO role with immediate effect by mutual agreement with the board.

1:20 We thank Richard for his dedication and hard work during his tenure as CEO and wish him all the best for his future. Sean and I have taken on the role of joint interim CEOs, and we will be taking you to the present today as well as Jan's tenure. To start with, a brief introduction of Sean and myself. Some of you may know me already, but if not, I have nearly two decades of experience in the extractives industries and joined PETRA in August 2021 as head of corporate development, working closely with the CEO and the CFO.

1:55 I then proceeded to take on the role of planning and corporate development executive and drove the replanning of the business that we presented at the Investor Day in June 2024. More recently, I took on the role of chief restructuring officer and initiated our multistream business restructuring plan, which is currently underway. I will be responsible for all corporate matters, including the ongoing execution our business restructuring plan and leading the refinancing process. I'll now ask Sean to give a brief introduction of himself. Thank you, Vivek. I'm a metallurgical engineer by profession. Applied my trade over the last thirty one years in the mining industry, of which the past twenty seven years were in diamond mining, seventeen years with PETRA.

2:46 I worked over the full operations spectrum, I. E, production, projects, technical, and operations management. I have in-depth knowledge of the Cullinan mine, and I spent eight years as GM over the period when the c cut was developed, the shaft was deepened, and the current treatment plant was constructed.

3:11 I also gained valuable knowledge of the Fijge mine during my time as chief technical officer from 2019 to 2024. Both Culligan Mine and Fitch Mine are world class assets with quality people, and I'm looking forward to work with the teams online, our expert colleagues at the PETRA board to reap the best out of both these mines through efficiency improvement with a focus on OpEx reduction, sustainable revenue maximization and life extension and SIB capital optimization. I'm excited to lead the company into the future with Vivek as I believe our skill sets are complementary and will add great value in growing the company from good to good.

3:59 We can move to Slide four, please. Vivek, over to you. Thank you, John. I'd like to start with an overview of where we are today and the work we have achieved over the last six months. These financial results reflect the successful implementation of the cost reduction plans and smooth capital profiles outlined at our Investor Day last June. We have been executing on our capital development plan with improved capital efficiencies resulting in lower capital spend while still achieving our development reaches. Encouragingly, both Finch and Cullinan mine started producing from higher grade areas in financial year '25, with production contribution from higher grade areas continuing to increase going forward.

4:46 Over the period, we also took decisive steps to simplify the portfolio by closing the coffee fountain sale, which would avoid up to $23,000,000 in closure costs. Soon thereafter, we announced the full sale of Williamson for a consideration up $16,000,000. We're actively working to close this transaction as soon as possible. During the period, we also launched our multistream restructuring plan with a focus on further sustainable cost reductions, capital optimization as part of our life of mine reviews, and looking at opportunities to enhance revenue in the short term. An example of this was the fast tracking of '81 level development at Finch, which we managed to accelerate over the period and which will see first carats from this new level at Finch in the last quarter of this financial year.

5:37 All the streams of this plan are underway, and we anticipate completing our life of mine reviews and the updated business plan towards the end of March twenty twenty five. Despite all our efforts as outlined, we could not prevent the breach in our interest cover and leverage ratios. This was largely on the back of the lower EBITDA over the past twelve months. We managed to receive a waiver from Absa for the December measurement period. I would like to confirm that we have sufficient liquidity headroom going forward. Looking ahead, we are now a much simpler business focusing on Cullinan Mine and Fringe, which are both world class assets and with a product mix that remains resilient against the broader market. We are fully focused on operational delivery against our plants and the completion of our business restructuring process that will result in a more resilient picture.

6:30 You can please move to Slide five. While we have sustainably reduced our mining and processing costs from continuing operations by 19% and lowering our capital expenditure by 32% year on year, revenue was negatively impacted by circa EUR 49,000,000 year on year due to the combination of rollover sales from FY twenty twenty three to first half of FY twenty twenty four, weaker pricing and product mix variability at Cotton in Mind that emerged towards the end of the period. As a result of the cost reduction and cash preservation measures, operational cash flow generation improved from a negative $21,000,000 to a positive $16,000,000 in the reporting period. An average realized price of a $103 per carat is in line with that achieved in H1 FY twenty twenty four, reflecting the positive impact of our product mix and helping us insulate from the broader market weakness experienced over the last twelve months.

7:33 Johan will impact the financials in greater detail later in the presentation. If you can please move to the next slide. Despite the prevailing weakness in the market, as you can see on the top right graph, PETRA's average prices have remained broadly in line with recent quarters with product mix offsetting the broader price declines experienced by the market over the last twelve to eighteen months.

8:01 We've also released our tender four results with like for like prices dropping 6% compared to tender three and product mix variability resulting in a 12% reduction largely at the Kalimit mine. Tender four generated in total $39,000,000 with approximately $7,000,000 of that attributed to the rates in goods. On the broader market, there have been reports of stronger online jewelry demand in The US during the festive season together with continued robust growth experience in the Indian market. It is encouraging to in a the We the S.

8:46 Have the industry. A seen of the The

9:02 the proud for co funding global diamond promotion campaigns. De Beers has also announced a host of collaboration with promotion councils and large retailers to promote national diamond marketing, which in time should help reinvigorate demand for national diamonds. With that, I will hand over to Joao to take us through the operational highlights. Thank you, Vic. We can move to the next slide. The health and safety of our people of utmost importance to PETRA and hence, our lead this life to zero harm. Every employee leaves the workplace every day unarmed.

9:49 It is especially critical now when labor restructuring is creating uncertainty in the minds of our people, and additional effort is required to prove safety in front of mind. Our h one safety performance depicted by the LTI and the lost time injury frequency graph showed that with an LTIFR of 0.23, our performance is in line with the lowest LTIFR in the past ten years.

10:20 Our performance did regress from our record breaking performance in FY 2024, for which we received numerous accolades. Our goal is to achieve similar and even better safety results compared to the FY 2024 performance going forward. Even with labor restructuring taking place, mine specific plans are in place and are being executed through the on mine safety structures, organized labor, employees and mine management. Zero one is achievable early through teamwork and relentless dedication. And move to the next slide, please.

11:07 On the production performance, we had a mixed we had a bit of a mixed bag in Q2. On both Canada recovery and tonnes treated, Cullinan's performance was slightly up on half year one FY 2024 with an upward trend from Q1 into Q2 and in line with expectations. The good news is that the contribution from the higher grade CC1 East block is picking up momentum

11:42 and increased from a 3% contribution in Q1 to 4% in Q2. We expected this to increase to 5% in H2 of FY 2025. The dilution in the C Cut were also well controlled and together with the increase in CC1E's material resulted in the recovered grades slightly above expectations.

12:13 It is important to note that the resource at Cullinan is an indicated resource and that the variation in product mix is part of the normal behavior of the cave. During the end of Q2, we recovered fewer quality plus 10.8 ks stones if compared to the months before. But it was still within the normal variation parameters of the cave. We had similar experience in the past, but after a month or two, it picked up, keeping the long term trend around the expected performance. We already started to see an uptick in quality plus 10.8 carat stone recovery towards the end of January into February.

13:03 On times treated, but more so on current recovery, Fincher's performance regressed from H1 FY twenty twenty four performance. Times treated was affected by a slower than expected transition from continuous four shift operation to a two shift operation, which has been completed by end Q1 and is now fully implemented. Carrot recovery was affected by the recovered grade being negatively affected by dilution as we work our way towards more undiluted ore on 78 level Phase two and eighty one level. 78 level Phase two contributed 25% in Q1, which grew to 35 in Q2.

13:54 We expect this to increase to 40% in H2. The project to open up 81 level is on schedule to deliver first ore in Q3 of FY24. And move over to the next slide, please. Our focus at both Cullinan and Finch is to ensure the maintenance of stable operations while we transition towards a lower OpEx and CapEx base for inclusion into our updated life of mine plans. The ramp up of higher grade material at both Finch and Cullinan mine is in progress and we are satisfied with the C21 East and 80 1 level progress.

14:45 It is exceeding expectations with capital expenditure lower than expectations. I'll now hand over you. Thank you. Thank you Vivek and John. When reviewing our six month results, please note that Williamson has been excluded following our January announcement to sell our entire shareholding in that operation. From an accounting perspective, Williamson is now classified as a discontinued operation and is no longer consolidated within the rest of the business. We reported revenue of $115,000,000 compared to $164,000,000 in H1 FY twenty twenty four.

15:33 This decline is mainly due to the prior period benefiting from the $50,000,000 in deferred sales carried over from FY 2023.

15:43 Our average realized price per carat was $103 per carat in line with H1 FY 2024, reflecting a more favorable product mix that offset overall market price weakness. However, market wide challenges persist with a 6% drop in like for like pricing during our most recent tender. A key focus area has been the implementation of cost control and cash optimization measures, which were the focus of our Investor Day last June. Adjusted mining and processing costs reduced by 19% year on year from $121,000,000 to $98,000,000 Adjusted EBITDA was $15,000,000 down from $38,000,000 in H1 FY twenty twenty four, largely due to lower revenue.

16:42 Despite this, cash flow from operations improved to $55,000,000 compared to the previous period CAD 34,000,000, reflecting our success in cost and capital discipline. Similarly, operational free cash flow improved by CAD 37,000,000 from a negative $21,000,000 in H1 FY24 to a positive $16,000,000 in the first half of twenty twenty five.

17:16 At Finch, we have rebased costs in FY twenty twenty four in line with its lower production profile. While the new shift configuration was still being implemented during the early part of the first half of FY 2025, the benefits of this reduction are already evident. Crude wide online cash costs remained flat year on year, effectively countering the combined impact of inflationary increases and a stronger rand. The average exchange rate for H1 FY twenty twenty five was R17.93 per U. S. Dollar compared to R18.69 dollars in the comparative period, which would otherwise have added an estimated $4,000,000 in cost.

18:06 However, through our hedging strategy, we achieved an average exchange rate of R1,849, resulting in approximately $5,000,000 in realized gains on top of the ongoing cost containment initiatives. Additionally, we achieved an 80% reduction in group technical support and marketing costs, reflecting the success of our structural changes and decentralized approach to cost management across the business. Net debt increased to $250,000,000 from $193,000,000 at 06/30/2024, mainly due to the timing of tender sales and weaker pricing.

18:54 This increase consists of outflows of $39,000,000 in capital expenditure, dollars 15,000,000 in finance expenses, dollars 30,000,000 in diamond dentist movements, partly offset by free cash flow before capital expenditure of $55,000,000 and realized profits on foreign currency hedges of $5,000,000 Our revolving credit facility remains available with $50,000,000 undrawn as at 12/31/2024. In H1 FY 2025, we repurchased and canceled $24,000,000 of second lien notes, but we have since suspended further repurchases to preserve liquidity and focus on refinancing.

19:46 To support this, we have obtained a waiver from Absa Bank for our covenant breaches at the December 2024 measurement period. We are now focused on advancing our refinancing discussions, which we expect to resume once our restructuring is further progressed. The interest cover ratio and leverage ratios, given their dependence on the twelve month trailing EBITDA, will remain under pressure and is sensitive to diamond pricing, exchange rate and product mix variability. We continue to monitor this on an ongoing basis and are confident on maintaining sufficient liquidity headroom and are focused on managing those items under our control being cost and capital.

20:35 With that, I will now hand over to Vivek for concluding remarks. I'd like to start by saying that we remain committed to our target of net cash generation. The rightsizing of our business and the ongoing capital optimization will play a major role in helping us achieve this target. On the back of completing the sale of Coffee Fountain and announcing the full sale of Williamson, we are now a simpler, more focused business. We have two world class assets with a product mix that has proven to withstand the broader market decline and moving into new parts of the ore bodies through our capital projects that is expected to further improve both our carats production and product quality. In conclusion, I would like to say that we have a clear set of short term objectives in completing the business restructuring and life of mine reviews, which inform the basis of an updated business plan.

21:30 We're confident of achieving our short term targets evidenced by the delivery of our savings and capital profiles as outlined at our Investor Day in June 24. We are encouraged by the resilience shown by the organization who have navigated a very difficult 2024 while still delivering on their targets. We will recommence our engagements with our lenders on the back of completing this piece of work. We're confident that collectively with all our capital providers, we will be able to successfully refinance our debt. This concludes the formal part of the presentation. I will now hand over to our head of investor relations, Patrick, who will lead the q and a session. Good afternoon, everyone, and thank you Vivek. We have a number of questions. I have two to begin with from Paul. The first is, do you have any large stones or specials to sell?

22:25 Thanks, Patrick. We currently are not holding any large stones or specials. Our policy is to minimize working capital lockups, so we do try and sell stones that we that we recover. So in this stage, there are no stones that we are holding back on. I can maybe just add to that that we do continuously recover large stones. But as you would have seen from our results announcements, there has been none of those that have been classified as special and special being all diamonds in excess of US15 million dollars Thank you, Johan. You, Johan. Paul, second question, you have promoted for years the world class of Williamson, yet you sold it for $16,000,000.

23:13 Why? Thanks, Patrick. I think it's fair to say the current price backdrop and the current market conditions, Williamson has been a marginal operation since its restart. You would recall that we had an agreement in place to sell 50% of our share, but it became clear that it is in the best interest of the mind to be operating under consolidated ownership. So from a PETRA perspective, it came down to a portfolio decision in the sense of Williamson competing with Cullinan and Finch. And on that basis, PETRA decided that we wanted to focus on our assets, a linen mine and Finch, and therefore, the decision was made to rather sell our entire stake in. Thank you, Vivek.

24:01 I have a question from John. Can you share more quantitative details on the cost cutting initiatives, for example, key areas and cost impact of each measure? Thanks, Patrick. I think not at this stage. We are in the middle of a section one eight nine process, and we need to respect that process. So by the time we finish our restructuring plan and the life of mine reviews, we hope to have an updated business plan that we will be using as a basis of engagement going forward. But, unfortunately, today, we don't have any numbers to guide on on this on these elements. Thank you, Vivek. I have a number of questions in on the financing, which splits really into two parts. The first is, can we please provide an update on financing discussions and feedback received so far? The second part being, what is our timeline going forward?

24:58 Thank you, Patrick. The last conversations we had with the banks were towards the back end of last year where we had agreed with the banks that we would pause conversations on the refinancing and then the pending evidence of delivering against our operational plans and capital profiles that we had put out in June of last year, and we had agreed to defer those conversations to this calendar year. At this stage, there are currently no specific refinancing conversations going on with the banks. The focus is very much on completing the restructuring business restructuring plan that we have set out and completing the life of mine reviews. We anticipate completing those life of mine reviews by the end of March.

25:43 Thereafter, we intend on engaging with all our capital providers on the basis of the updated business plan. Thank you, Vivek. I have a question from Youssef. Why is the price decline in Finch much more than Cullinan? Are lab grown diamonds impacting Finch diamond prices more than Cullinan? Thanks, Patrick. So the phenomenon in Finch is specifically to do with where we are mining at French. Over the last few years, French, unfortunately, hasn't had the benefit of capital development opening up new mining areas. So we are mining in a very mature part of French. We expect product mix to improve at French as we open up new and deeper areas starting with 81 level, and and, really, we expect the kick to come through when we get into the three level SLC area, which is eight eighty six level and below.

26:42 So it's not that Finch's product slate is getting specifically impacted by lab growth, but it's more it's own product mix, is currently being minor as the most mature part of the whole body at the moment. Thank you, Vivek. I have a follow-up question from John. It's about the timing, his expectations of timing for the operational restructuring and when we might be releasing more on the life of mine plans. Thanks, Patrick. As I've just said, we anticipate closing our life of mine planning So I think we may have a technical issue, moderator.

27:38 Hi, Vivek. Can you hear us in the room? We can. Can you hear us? Yes. We can hear you clearly. I have a final question from Tim. Your net debt has risen sharply despite the cost cutting. Would equity investors reasonably expect the equity value to be retained as it currently stands with this wall of debt maturity in front of us? Thanks, Patrick. I think I think the proof of the pudding will be in our ability to come up with an updated business plan that sells the PETRA story and its ability to refinance. We believe that do have a business backed up by our two world class assets that will generate robust cash flows going forward, which will form the basis of a successful refinancing.

28:28 I believe once the refinancing is done, the equity story will will ought to look after itself. So at this stage, focus is on completing this restructuring piece of work so we can put our best foot forward, especially on an engagement with the capital providers to get a successful refinancing done. Perfect. Just like to jump in and thank you, France, for those questions from investors. Of course, the company can review all the questions submitted today, and we will publish our responses out on the investor meet company platform. Just before redirecting investors to provide you their feedback, which is particularly important to the company, Vivek, could I just ask you for a few closing comments? Thank you, moderator. I'd just like to thank all of you again for joining us on this results presentation.

29:16 I encourage you to send any follow-up questions to our Investor Relations teams via email. And with that, we can close this presentation. Thank you. Perfect. Thank you once again for updating investors today. Could I please ask investors not to close this session? As you know, we automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will then take a few moments to complete, and I'm sure 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.