Petra Diamonds (LSE:PDL) — Investor Presentation

0:00 Good morning, 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 using 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 it receives during the meeting itself. However, the company can review your questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. And I would now like to hand you over to the management team of PETRA DIAMONDS LIMITED. Vivek, good morning to you. Good morning, operator, and good morning to everyone that are joining us today. I've got with me, our joint co joint, interim CEO of operation, John Kim. And to my right is our chief financial officer, Johan Sneeman, and we'll be talking through the first quarter operating update of financial year 2026.

0:54 After after taking you through the short presentation, we'll open up to q and a, and I would also like to note that this presentation will be available on our website later on today. With that, moderator, if we can please move to Slide three. I think I'd like to start by just reflecting a little bit on the past twelve to fifteen months for PETRA as a business before we get into the operating update. It's it's clear to see that we've made significant strides in transforming ourselves into a much simpler and a much more streamlined business with two clear, compelling world class assets that are poised to deliver value in the medium to long term. Changes in the milestones that we've been achieving over the last twelve months have been articulated through our financial year end results as well as in our annual report that that was recently published on our website.

1:52 We're also pleased to have delivered against FY 2025 guidance that we had put out at our Investor Day in June 2024. With regards to the refinancing, we are pleased to report that we are progressing well, and we are on track to finish our refinancing before the end of the calendar year. This will obviously significantly improve our balance sheet and give us the flexibility and the headroom to continue with our critical capital projects that unlock sustainable value generation in the medium to long term. We're happy to take questions on the refinancing as part of the Q and A. And then quickly turning our focus into the operating update. I think quarter one performance has been positive. We've had better product mix coming out of our mines, specifically at Cullinan mine as we opened up new areas, and Jean obviously will unpack that in a bit more detail.

2:50 And we've seen improved tenders as a result of that product mix. We did have some challenges at Cullinan as we transition from continuous ops to a new shift configuration. But, again, Jean will unpack a bit more of that as we move forward. With that, if we can move to the next slide, and I'll hand over to Jean. Thank you, Vivek, and good morning, everybody. And from my side, also, you for joining us. I will start with safety, which is our number one priority as we strive to deliver a zero harm workplace. PETRA recorded eight point five years fatality free by the end of q one FY twenty twenty six, representing eight point five million fatality free shifts, with the lost time injury frequency rate improving to zero point two seven from zero point five eight in Q4 of FY twenty twenty five.

3:47 This represents one lost time injury each at CDM and FDM. We are quite proud of this performance, taking into consideration the significant number of changes the company went through over the last few months, including a shift from continuous to a three shift operation at Cullinan Diamond Mine. Our key focus has been on reinstating a sense of stability for our employees following this time of significant internal change at the company, and have implemented several initiatives to ensure we address this. We are pleased to see that it had a positive impact and will continue to focus on driving this together with other internal initiatives and campaigns that drive awareness for our employees, including increased visual field leadership.

4:42 I will now step over and take you through the unpacking of our operations during Q1. In terms of production, the teams are adequately sorry, are adapting well to the successful transition from continuous to the two shift structure at Finch Mine, with this having been completed in the first half of financial year twenty twenty five. Transition from continuous operation to a three shift structure at Kalinan took effect in quarter one of FY twenty twenty six, and teams are getting used to the new structure. As expected and planned, this resulted in a throughput reduction of 65% when compared to Q1 and Q4 of FY twenty twenty five, respectively.

5:33 With Finch Mine adapting well to the two shift structure, they transitioned to in Q1 of FY twenty twenty five, the mine's throughput increased by 32% if compared to Q1 and 5% compared to Q4 of FY 2025. We have been very pleased with the improved product mix at Kaliningen Mine. This is as a result of the fresher ore encountered as we continue to ramp up tonnage from the eastern side of the C Cut block, which includes Double 41 and the CC1 East block, where we used the sublevel caving mining method. The CC1 East block is known for higher quality non Type two diamonds through all the size ranges, while the eastern side of the C code block is known for large white Type two and very rare and special blue diamonds.

6:30 With the two shift operation now well established at Finsch, we are seeing a stronger product mix as we open new parts of the ore body on 81 level and on 86 level in the lower Block five. Despite the increase in fresh ore, the bulk of the ore in Q1 at Cullinan was mined from the C cut block of which the grade is reducing as it is getting more matured and hence a slightly higher reduction in carats produced when compared to the throughput reduction. As we ramp up tons from the higher grade Cc 1 East block, the recovered grade and hence carat recovery will increase going forward. At Finch, the carrots produced is 37% higher compared to q one of FY twenty twenty five and five percent higher compared to q four as the grade improved with reduced tonnes mined as planned at Finch, resulting in reduced waste dilution.

7:29 That's a summary of the safety and ops update. And I hand over to Vivek. Thanks, Sean. If we can please move to the next slide. Maybe just to spend a couple of minutes on a on a short market update. By and large, the market still remains largely subdued and hasn't been helped by the uncertainty caused due to the implementation of The US tariffs as well as continued subdued demand from China. Reflecting on our own results, however, almond sales for quarter one FY twenty twenty six were at $52,000,000 from approximately 470,000 carats sold. Encouragingly, average prices realized were 53% higher compared to quarter four of FY twenty twenty five with product mix contributing about 61 increase partially offset by an 8% decrease on a like for like basis across all product categories.

8:32 At at this point in time, we'd like to reiterate our pricing assumptions for FY twenty twenty six that we announced as part of the operating update in August 2025. I think moving forward, we do expect to continue to see this improved product mix as we ramp up production from new areas that are being opened up through the capital projects execution. On on on the market side, there have been some positive news that suggests that consumers are seemingly now switching back to natural diamonds, and that should also be further helped by the renewed marketing push that some of the major retailers and producers in the National Diamond Council is beginning to now undertake. From a US tariffs perspective, again, encouraging piece of news about in Antwerp getting exemption from exporting diamonds to The US if they were cut and polished in Antwerp is promising and a and a good start. We're already seeing some initial elements of some of the Indian cutters and polishers adapting to that and potentially moving some of their activities to Angkor. But more encouragingly, we hope that other diamond cutting centers like Dubai and Israel and India having a trade over The US would also follow suit in exempting national diamonds from tariffs as they enter The US.

9:58 If I now could hand over to Johan, who will take us through the financial highlights for the quarter. Thank you, Vivek, and good morning, everybody. As Vivek mentioned, revenue for the quarter came in at $52,000,000 up slightly from $50,000,000 in the previous quarter. This improvement came despite selling 218,000 fewer carats, thanks to a strong increase in our average price, up $110 per carat compared to $72 per carat in the prior quarter. Consolidated net debt increased by $23,000,000 to $287,000,000 The main driver was the timing of our diamond tenders, which led to a $14,000,000 buildup in inventory.

10:51 We also saw an impact from exchange rate movements and the accrual of coupon interest during the quarter. Our revolving credit facility remains fully drawn. It is rand based and the reported balance increased by 3,000,000 to $102,000,000 largely due to exchange rate revaluations. The balance on our loan notes also rose by $7,000,000 reflecting accrued coupon interests and the unwinding of deferred loan fees. At the end of the quarter, our total cash cost stood at $46,000,000 which includes the $90,000,000 of restricted cash. And I just want to correct that, not cash cost, but our total cash balances stood at $46,000,000 The South African rand strengthened from R17.75 dollars to the U. S. Dollar at June 30 to $17.25 at September 30.

11:54 That's been driven by stronger local fundamentals as well as a weaker dollar. We've actively managed our foreign exchange exposure through our hedging program and we'll continue to execute this strategy through to year end. Turning briefly to our full year results released a few weeks ago, they clearly demonstrate the benefits of our cost discipline. Total on mine cash cost dropped to $158,000,000 in FY 2025, down from $173,000,000 in FY 2024, despite wage, electricity and other inflationary pressures and a stronger rand. Group technical support and marketing costs also came down to $17,000,000 from $20,000,000 last year, a 15% reduction.

12:51 These savings came from our company wide restructuring, which included the sale of non core assets, a labor restructure and decentralizing certain functions to the operations. I will hand back to Vivek for concluding remarks. Thank you, Johan. We move to the next. Thank you. As we conclude, I think we'd like to reiterate that our focus for FY 2026 remains on delivering safe and reliable operations while we continue to look for optimizing Kalinin mine and Finsch and progressing our capital projects in line with our smooth life of mine plans. We expect to deliver on our guidance that we shared with the market in August 2025. The diamond market remains challenging and is out of our control, but we believe we have repositioned the business to ensure that PETRA is well positioned to navigate the current market conditions and actually benefit from any market improvement.

13:51 In closing, I'd like to thank all our stakeholders for their continued support of the business and supporting the refinancing exercise that the company has been busy with over the last few months. We it we made it there with the refinancing, which will secure the long term future of the business. With that, we conclude the presentation and are now open for Q and A. That's great, Jan, Vivek, Johan. Thank you very much indeed for your presentation. I will now turn on your cameras back on. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would 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 our investor dashboard.

14:37 And team, as you can see, we have received a number of questions throughout today's presentation. And Julie, if I may now hand back to you, I'll kindly ask you to read out the questions where appropriate to do so, and I'll pick up from you at the end. Thank you. Thanks, Alex. We've got a question in from Andrew b regarding to the average diamond prices. The average diamond price rose 53% quarter on quarter, mainly due to product mix improvements. Could you elaborate on the sustainability of this improved product mix at Cullinan mine? Is this expected to continue in upcoming tenders? Jean, I think that's for you. Thank you for the question.

15:25 I think if if one look at the reason for the more significant increase in price in Q1, there were some significant stones that we recovered as part of the parcel. And we did up the tonnage from the eastern side of the ore body, number 41, we know these diamonds originate from. So as we ramp up the production that area, we will see more large white and blue stones being recolored. And we expect that the diamond prices will increase going forward to our guidance of $100 per carat and remaining.

16:14 And I think the one in Q1 is part of an exceptional stone, but it will remain on a high level as we ramp up as we ramp up tunnel for Q1. Just would like to add just for clarity, it was not an exceptional stone. Our definition of exceptional is $15,000,000 but we did have some high value stones. I think there's another element to this question. We're comparing our prices from q four of f y twenty twenty five, and f y twenty twenty five was truly an anomalous year from with regards to product mix from Cullinan Mine because we were mining in a depleted part of the c cut block. So we do expect product mix to hold steady as we experienced in quarter one, as as Johan said, because we're mining in fresher ore and newer areas. But I think the reference needs to be taken into context because second half of FY twenty five was particularly weak because we didn't have access to fresh ore.

17:22 Thanks, Vivek. Andrew's follow-up question is, can you comment on how you're positioning yourselves in the context of ongoing market uncertainty and the increased prominence of lab grown diamonds? Thanks thanks, Julia. Thanks, Andrew, for the question. I think, I briefly mentioned we are seeing some signs of reswitching back from lab growns to natural diamonds. Having said that, we do think lab grown diamonds are here to stay perhaps as a completely different product category. From a PETRA perspective, the effort over the last twelve months has really been to reposition the business such that it can sustain itself even in the current weaker pricing environment. So we haven't assumed or banked any price recovery in the market.

18:09 Our our sustainability of the business is really predicated on us delivering on our capital projects, which will lead to more carats for the same fixed cost as we get the benefit of a higher higher grade production areas, which also will improve the product mix. Thanks, Vivek. Next question is from miss Stefania m regarding the debt. There was a lump sum payment due in the restructuring of the debt. Can you let us know when it when is this going to be completed? Additionally, we will like to know when are the new terms of the restructuring going to be available? Thanks, Julia. I'm gonna try and answer that in two parts.

18:56 If I understand the question correctly, the lump sum perhaps is being referred to when the debt was becoming mature. We had the RCF maturing in January 2026 and the bonds becoming due in March 2026. Obviously, we've avoided that by extending debt. In the context of the current refinancing, if the lump sum payment is being referred to the rights issue, we have just launched the prospectus for that. We expect to complete that by the November 27. So towards the end of November, we expect those proceeds to come in. With regards to the terms of the restructuring, pretty much most of that is available in the prospectus that we have put out, but we will obviously be publishing all of the key terms on our website that we that we normally do.

19:52 Thanks, Vivek. And from Nicholas s, following the completion of the refinancing, what will be the focus of the management and key deliverables? I I think I think, Julia and thanks, Nicholas, the question. Our focus for FY 2026 is really to make sure that our capital project execution happens as planned because that really unlocks the business plan as it were with the increased carats at the same cost coming through from FY 2027 and really ramping up in 2028, if you look at the guidance. So from a management team perspective, it's been a year of transition. FY 2026 is a year of stability for us to make sure we deliver on the operating plan that we put out of the business plan. We continue to exercise cost discipline, and we deliver on the capital projects.

20:41 I think that really is the focus and and making sure that we deliver on what we've set out ourselves to do. Thanks, Vivek. I've got a question in from David s regarding pricing. With pricing outlook unchanged, given 8% like for like decline, how conservative or optimistic are those assumptions given the macro environment? Thanks, David. We'd like to think that our price assumptions are realistic because it does try and balance the benefit of an improving product mix while still having the uncertainty in the market. So at this point in time, we're comfortable retaining our pricing assumptions. We do know our product mix will be better as we progress further in the year because there will just be more contribution from higher grade areas and better product mix.

21:34 But at the same time, as you can appreciate, there is a lot of uncertainty specifically with regards to US tariffs. So we don't want to bank the upside. At the same time, we do think our product mix will insulate us against further weakness if that were to happen. You to you all for very much indeed for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the board can better understand your views and expectations. This will only take a few moments to complete, and I'm sure we greatly valued by the company. On behalf of the management team of PETRA DIAMONDS LIMITED, we would like to thank you for attending today's presentation, and good afternoon to you all.