Petra Diamonds Limited

Good morning, everybody, and thank you for joining us today for our unaudited FY24 interim results for the six months ended 31 December 2024. With me today is Jacques Breitenbach, our CFO, and Patrick Fitaway, our Head of Investor Relations. Would you please take us to slide four, moderator? Petra is the largest independent diamond producer with the world's third largest diamond resource, providing long-term mine life potential. Petra continues to be proactive in marketing cycles, particularly in response to the recent lower for longer diamond pricing environment. We are re-planning the resumption of our capital projects to deliver a smooth capital and growth profile with a commensurately lower cost structure to be sustainably net cash generative from financial year 2025. We continue to focus on embedding our sustainability framework and apply a disciplined capital allocation approach with debt optimization remaining a priority. Our operating model is focused on delivering stable and predictable operations to deliver reliable production through continuous improvement to optimize value. We are on track to deliver the 75 million FY 2024 cash savings that we announced in November 2023, with cost savings expected to contribute around $10 million. As part of our value-driven growth strategy, we are at an advanced stage in the implementation of technologies that allow our diamonds to be traceable from mind to fingers. Moderator, could you please turn to slide five? Safety remains our number one priority and a renewed focus has led to a reduction in both our lost time injury frequency rate and our lost time injuries year to date in financial year 24. There were five lost time injuries recorded, a 29% decrease on the prior year period, which translated to a lost time injury frequency rate of 0.15 per 200,000 hours worked, down from 0.19 in the first half of financial year 23, and 0.24 for the full financial year 2023. Moderator, could you please turn to slide six? Turning now to our operational and financial highlights. We show our H1FY24 results against the same period last year, as well as against H2 financial year 23, to illustrate the progress we have made with certain strategic initiatives, including our capital deferrals and cost optimization. All processed increased year on year to 5.8 million tons, leading to an increase in diamonds produced. Average rough diamond prices remained in line, with our second half of financial year 23, which is an indication that markets have stabilized, and we will touch on this in a little more detail further on in the presentation. Revenues were affected by the lower pricing environment, resulting in reduced EBITDA compared to the same period last year, but higher than the second half of financial year 23. CapEx has reduced to $50.5 million, down from $65 million, in H2 financially at 23, largely as a result of the deferral of certain capital projects in response to market conditions. Operational free cash outflow came in at 21.1 million, up from 79 million in the six months to June 2023, partly due to the deferral of sales from H2 23. Moderator, can you turn to slide seven, please? In line with our focus on continuous improvement during the first half of this financial year, we continue to implement our sustainability framework in accordance with our four pillars. In terms of our people, alongside our efforts in striving for a zero harm workplace, we are also committed to training and development. We are pleased to have launched the Petra Caving School this month to develop critical underground mining skills. As part of our focus on protecting our planet, We are developing a renewable strategy that aligns with our climate change ambitions and deliver on our target of reducing our scope one and two GHG emissions by 2030. The key focus of our partnerships has been a responsible exit from Coquifontaine. During the period, we announced that we signed a non-binding term sheet for the potential sale of the mine. With regard to our production, Ensuring operational stability and the smoothing of our CapEx profile, together with rigorous cost control, to reliably generate sustainable free cash flow remains a key and ongoing focus. Moderator, please turn to slide eight. On the market, our recent tenders support our view that the market has bottomed, although we expect the pricing recovery to take a bit longer than previously anticipated. As a consequence, we have slightly lowered our pricing assumptions per mine for financial year 24 to reflect that view and as set out in our announcement released earlier today. Whilst demand from both the U.S. and Indian consumer markets remains healthy, China is still lackluster. Given ongoing global economic uncertainty, it remains important for the major producers to continue to exercise discipline to ensure that inventory levels remain balanced across the value chain. Our results from the fourth sales cycle of financial year 24 were announced last week with like-for-like pricing up 4% on the December tender. This cycle also includes an exceptional color and quality blue diamond of 14.76 carats, which we expect to sell by the end of this month. Moderator, please turn to slide nine. Notwithstanding the current somewhat muted environment, we continue to highlight the structural supply deficit with largely flat production against the backdrop of a growing middle class and high net worth individuals. In a recent note by Diamond commentator Paul Zemliski, he states that supply is expected to halve by around 2045 due to aging mines. At that time, he expects only 50 mines will continue to be in operation. including Petra's three mines. In the short term, we continue to see support from U.S. consumers with post-COVID relationships maturing, something that is expected to lead to an increase in bridal sales. Moderator, if you could take us to slide 10, please. Improved provenance and traceability will have a positive impact for the natural diamond market and is aligned with a growing requirement from consumers for greater transparency and around the origin of diamonds and their social and environmental impact. We have always provided confirmation of origin for our diamonds at the time of sale, given we only sell goods from our own mines, but the technologies that are emerging will further ensure traceability and provenance that will extend right through the value chain from mine to finger. We are currently trialing technologies with the aim of rolling this traceability out before the end of this financial year 2024. And we also believe that this will meet expected G7 requirements. We see enhanced traceability as benefiting the marketability and attractiveness of our diamonds. Moderator, if you could take us to slide 11, please. Sorry, I can't see the next slide, 11, please. Thank you. Lab-grown diamonds have continued to diverge as a separate product category, quite apart from natural diamonds, both in terms of pricing and also increasingly now margins. While volumes continue to grow, this is coming at the expense of prices with the year-on-year revenue change from jewelry stores in the U.S. turning negative for the first time in January this year. Moderator, can you take us to slide 13, please? Looking at our operations, Cullinan and Finch Mines continue to be the largest contributors to revenue and adjusted profit with operations having mostly stabilized during the period. This was supported by the continued ramp-up at Williamson, which is now effectively back at full production. As announced previously, volatility at Finch has been expected owing to the maturation of the upper block five sub-level cave. Post-period end, Finch encountered two mechanical challenges, both of which have since been remediated, but are likely to result in group production for this financial year 2024, coming in slightly below our previous guidance of 2.9 to 3.2 million carats, now at 2.75 to 2.85 million carats. Moderator, could you take us to slide 14, please? This year's focus remains on stabilizing our operations. We continue to assess value engineering opportunities through replanning work associated with our deferred capital projects and are targeting a more smoothed capital profile going forward. Once this work is complete, we will provide revised production and cost guidance. At Coffee Fontaine, we remain focused on progressing a responsible exit, potentially through a sale, and we'll update the market with progress as appropriate. I will now hand over to Jacques to run through the financial highlights. Thanks, Jacques.

Thank you, Richard. Moderator, if I can ask you to go to slide 16. So I'll take you through the highlights for our first half of fiscal year 2024. Revenue payment at $187.8 million, a 9% decrease on our first half of 2023, but significantly up on the $116.8 million revised in the second half of fiscal year 23. This was the result of like-for-like prices being down some 13.3% compared to the similar half of 2023, with the balance of revenue movements attributable to sales volume and product mix. Adjusted EBITDA, being profit from mining activities, less adjusted corporate overheads, decreased 55% from first of 23 to $38.9 million this period. Although the EBITDA margin reduced from 41% to 21% in this period, the margin was largely flat when compared to H2 of 2023. Operational free cash outflow of some $21.1 million, was down from the $12.5 million inflow in H1 of FY23, but significantly better than the $79 million outflows in the directly preceding six-month period, partly attributed to the deferral of sales from H2 2023. Moderator, if you can move to slide 17. Cash online cost for this period remained largely in line with expectations. Online cash cost increased by around 3% year-on-year, due to increased production volumes adding some 3.4%, and inflation, including above-inflation labor and electricity increases, adding some 5.7%. These increases were offset by weaker South African RAN, leading to an associated reduction in USD reported costs, while further supported by cost reduction efforts during this period. Moderator, slide 18, please. Cash balances during the period were supported by a R850 million drawdown from our devolving credit facility earlier in the year. Diamond inventory is reduced from the June 2023 levels after a decision to defer certain sales from H2 fiscal year 23 into this period. Gross debt increased to $295.8 million, up from around $247 million as of June, reflecting a drawdown of the company's revolving credit facility. Our consolidated net debt increased to $212 million due to negative operational free cash flow, cash coupon settlement on the loan notes, and working capital funding for the resumption of mining at our Williamson mine. During December 23, we also announced APSA Bank's approval to increase our 1 billion rand revolving credit facility with a further 750 million rand or $40 million increasing our liquidity at room. This increase in the facility is now fully available following the completion of the associated amendment agreements. I will now hand back to Richard to provide concluding remarks and will ask the moderator to turn to slide 26.

Thank you very much, Jacques. In concluding our presentation today, Petra continues to focus on ongoing stabilization and optimization of our operations. Given where we are in the cycle, we are proactively building greater business resilience. Our target is to consistently generate net cash from financial year 25 through addressing our cost structures and delivering a more smoothed capital profile. We will communicate the resultant impact on our outlook once we have completed this re-planning work and expect this to occur before the end of this financial year 2024. Finally, in line with addressing increasing consumer requirements and expected tougher G7 sanctions, we are implementing technologies to provide for traceability of our product from mind to finger. I will now hand back to the moderator for a question and answer session, which will be led by Patrick, our Head of Investor Relations. Thank you.

Thank you, Richard. And good morning, everyone. We have several questions in on the chat. Please do send more if you have questions. The first is from Pete Malin-Jones of Peel Hunt. Can you give us an idea of when the value engineering work will be completed and therefore when we can expect an update to your plans, please?

Thanks, Peter. It's Richard. I mentioned just in closing that we are targeting to provide that update to the market before the end of this financial year, in other words, before the end of June of this year.

Thank you, Richard. I have two questions on our debt, which I'll combine. They're from Lorenzo Parisi of JP Morgan. And Giuseppe Caione of Penta Fitzgerald. Can you please release some more details around the debt structure and any idea around short-term actions to restructure debt?

Thanks, Patrick. It's Jacques here. In terms of our debt structure, I think that's well laid out. It's our 2026 loan notes, which adds up to around $250 million. And then we have drawn debt on the RCF or Revolving Credit Facility of some $46 million. The loan notes matures in March, 2026. So just over two years from today. And we are busy considering different options in terms of a possible refinancing of these landlords. Any refinancing will probably be considered, depending on the market, being available later this calendar year, probably second half of calendar year 2024.

Thank you, Jacques. I have a question from Luke Roberts of Barclays. It's in two parts. I was wondering if you could provide any details around the underground mechanical issues at Finch and whether this is an ongoing issue at present and if there is any risk of prolonged disruptions at the mine. The second question is, is there any update on working capital funding to restart Williamson operations and has this now been fully phased in?

Right, so on the first part relating to Finch, we had two issues. The first was with the winder rope where we observed increased wear on the winder rope as a result of issues with the grooving on that rope. That was part of the standard inspection. And as a result, we changed out the winder rope. which created some delay. That was in January, and that has been fully remediated. And we're seeing normal wear on the rope, having installed the new one. The second related to accelerated wear on one of our loader chutes on our mineral sizer at Finch. What we did there is we concreted that chute that was completed over this last weekend and we are back up and running. So in both instances, those issues have been remediated. We do not expect them to have an impact on the operation at Finch going forward. The second question is, relating to Williamson. The mine has ramped up to full production, as I mentioned, and the mine is funding its own business. So it's ramped up. We've increased the frequency of our sales to help with our working capital management, but the plan there is for Williamson to continue to fund its own business.

Thank you, Richard. I have a question from Ned Dyvig of Atlas Merchant Capital. Can you please update us on what revenue you expect to realise from the 15 carat blue stone you recently discovered?

Look, I think we don't provide indications around what we expect in terms of prices for these sorts of stones, I think for obvious reasons. What I can say, though, is pointing to our guidance or our definitions that we changed recently at Cullinan. We previously had defined exceptional stones as any single stone that we felt would attract a price of $5 million or higher. And we recently changed that definition on exceptional stones to stones being worth $15 million or higher. So in this instance, although this blue stone has exceptional color and quality, it's not an exceptional stone as we have defined it, but it remains a high value stone.

Thank you, Richard. I have a question from Marcus Hazel of Hartree Partners. It's a follow-up question on debt. Could we provide any colour on any new ideal debt structures and potential timelines?

Not at this point in time. The refinancing considerations is currently on the go, and as part of that, we are assessing what an optimal structure for the group should look like, given where we are heading in terms of the life of my planning, et cetera, that's on the go. That will further inform the optimal structure once we've landed on that. So in a design phase, but not yet designed, I would suggest.

Thank you, Jacques. There appear to be no further questions, so I will hand back to the moderator to