Petra Diamonds Limited

Welcome, everybody, and thank you for joining us today for a discussion of Petra's half-year operating update. I have with me Johan Sneijermann, our CFO, who will take you through the financials, and Vivek Gadodia, our Chief Restructuring Officer, who will introduce elements of our restructuring plan. After taking you through our announcement, we'll open up for questions and answers. This will be hosted both verbally through the raised hand icon and we'll then move on to any typed questions moderated through the chat feature. Please note that we are recording this webcast and it will be available on our website later today. Moderator, if I could ask you to please turn to slide three. As always, I will start with safety, which is our number one priority. I'm pleased that safety improved in the second quarter, reversing an increase that took place in the first quarter, with our lost time injuries falling from 4 to 2 and the lost time injury frequency rate falling from 0.28 to 0.16. The temporary increase in quarter one mainly related to the rebasing of production at Finch to a 2.2 million ton a year operation and follows renewed efforts around improving our practices as we continue to focus on delivering a zero-harm workplace. In terms of production, we saw a marginal 2% decrease in total production from 1.43 million carats a year ago to 1.4 million carats in the first half of financial year 2025. Cullinan Mine continued to perform well on the back of an improvement in tons treated good dilution control in the sea cut and higher CC1 East grades coming through. Finch soil reduction in tons treated and carrots produced compared to H1FY 2024, largely due to the transition from continuous operations to a two-shift configuration during the first quarter, with output improving throughout the first half as the new shift pattern was successfully introduced and mining moved into fresher ore associated with 78 level phase two. With transition to the new two shift configuration now embedded at Finch and dilution measures in place to manage grain, we expect more predictable and stable operating performance at Finch. Williamson continued to perform well with production increasing from a year ago on the back of higher tons treated. Will you please turn to slide four. Despite the prevailing weakness in the market, Petra's average prices have remained broadly static over recent quarters, with product mix offsetting like-for-like price declines. Our third tender cycle, which closed in December, showed ongoing diamond price weakness at the end of the calendar year 2024, but we are encouraged by recent reports of stronger online jewelry demand in the US during the festive season and stronger jewelry demand in India during Diwali. This, together with reduced supply from the major producers and renewed marketing efforts, should help to reduce inventory levels. Notwithstanding this, and on the back of our last tender results and prevailing market weakness, we have revised our FY25 pricing assumptions for Finch from $80 to $90 a carat down to $70 to $80 a carat. I will now hand over to Johan, who will run through some of the key financial metrics. Johan.

Thank you, Richard. Moderator, can you please move on to slide five? Revenue for the first half of FY25 amounted to $146 million, which compares to $188 million for the first half of 2024, with revenue in FY24 benefiting from 456,000 carats that were deferred from FY23 and sold in the first half of FY24. As Richard has already mentioned, the average price per carat received of $112 per carat for the first half of FY25, normalized for inventory movements, has remained broadly stable over recent quarters as Petra's product mix has partly offset the overall weaker market. Consolidated net debt closed at $225 million as at 31 December 2024, which is slightly higher than the $212 million at the end of December 2023, but lower than the $285 million at the end of quarter one of FY25. The reduction from the first quarter of FY25 is primarily due to the deferral of our first tender for the year to October 2024. but was also helped through cost control and efficiencies in our capital spend, helping to offset the impact of a weaker pricing environment, the production ramp up at Finch at the start of the financial year, and a stronger Rand dollar exchange rate. Regarding the exchange rate, the Rand has recently resumed its downward trend, having strengthened in the post-election period by closing 18 Rand 85 to the dollar on 31 December 2024, which compares to an average of 17 Rand 93 for the first half of the year. Consolidated net debt during the financial year is also influenced by the timing of our tender sales, with three tenders scheduled for the first half and four tenders for the second. During the first half of this year, Petra purchased and cancelled 2026 loan notes with a nominal value of $24 million through an open market repurchase program. Largely as a result of the repurchase, the amount drawn on our revolving credit facility increased by $18 million from 30 June 2024. I will now hand over to Vivek Gadodia to run through Petra's restructuring plans.

Thank you, Johan. Moderator, if I may please ask you to move to slide six. As we have previously stated, we remain committed to our target of net cash generation from 2025 onwards. Given the protracted weak market conditions experienced during the first half of the financial year, it became clear that we would need to adjust our cost base further to respond to this ongoing market weakness. The restructuring plan is a multi-stream program aimed at delivering net cash generation by resetting of the company's cost base and organizational structures to essentially service a two-mine business. Given that the sale of Coffee Fontaine was completed during this first half and as we continue to progress the Williamson transaction. The restructuring plan comprises five main work streams as depicted on the slide. Initiatives identified under Workstreams 1 to 3 are already being implemented, including the regrettable decision to initiate a Section 189 redundancy process for our indirect cost structures across the South African operations. A full review of life of mine plans will also be undertaken with a view to optimize capital further in response to the weaker market. We believe the delivery of our restructuring plan will enable a successful refinancing of our outstanding debt during 2025. We will share progress and timelines as part of our interim results in February 2025. I'll now hand over to Richard to provide some closing comments.

Thanks, Vivek. If we could move to slide seven, please. In closing today, I would like to provide a reminder of the resilience that we are continuing to build into our business. Our focus remains on improving safety performance following the temporary increase early in FY25 as we move towards achieving our goal of zero harm. We also continue to focus on delivering reliable production, with Cullen and mine and Williamson performing well and in line with expectations, with Finch now also moving up towards planned levels. While the diamond market continues to be challenging, there are some signs of optimism from the US and India, and we are encouraged by efforts from major producers to manage supply together with a renewed marketing push through alliances across the industry. In addition, our product mix has assisted in offsetting weakness in our like-for-like prices. As outlined in the restructuring plan that Vivek has just taken us through, we continue to target sustainable net cash generation even in these weaker market conditions. Having re-based costs by $44 million in financial year 25 and having smoothed our capital profile, Petra's restructuring plan aims to further improve our cost base and review our life of mine plans, optimize capital spend, and deliver sustainable cash generation. The results of this work will enable us to re-engage with our lenders around the successful refinancing of our 2026 loan notes. Finally, we remain on track to meet our FY25 production guidance of 2.8 to 3.1 million carats for the group. This concludes our overview and we'll now hand over to our investor relations head Patrick Puttaway for our Q&A session.

Patrick. Thank you, Richard. We will first be taking verbal questions. To do so, please click on the raised hand icon. We will then run through any questions written in the chat. Our first question comes from Nicholas Stefanou. Please unmute yourself, Nicholas. Hi.

Good morning. Thank you for taking my questions. I have three to ask, if I may. The first one is with regards to the covenant on the RCF. My understanding is that there is a 12-month forward liquidity requirement covenant. this March, so that's in a couple of months, and unless you manage to waive that, you'll be, you know, there's going to be a breach or it's going to be a little default. So can you give me an update on the conversations with the banks there? and how how those discussions are going because you know we've got like a couple of months uh till that uh till that happens and then the other question is i want to kind of like um touch base again on on what the current plan is um with regards to the refinancing i think in the past you kind of like alluded to a sort of like simultaneous financing Is that still the case? And, you know, what is kind of like Plan B if that is not an option? And then the final question, that's kind of like more operational. I saw kind of like volumes going up at Finch, but Diamond production was down. At which phase are we going to see, you know, grades improving and, you know, dumb production going up in line with volume? I'm not really sure where we are with that sort of like development plan. So you can give some points there. I'll be happy. Thank you.

Thanks. I think we'll start with your first question on the covenants that Johan can address. I'll talk briefly and Vivek can chip in on the question around the refinancing and then I'll pick up the question on Finch. So, Johan. Thank you, Richard.

So, in terms of the covenants and specifically the forward-looking covenants, we do have two covenants that we continuously track and that is the $20 million minimum liquidity requirement going forward. And then we also, while we do the open market repurchases on the bonds, have an additional limit up to $40 million forward-looking. Now, those covenants you will only trigger if you assume that the refinancing will not go ahead and you will not be able to refinance. So we have agreed with the lenders um that that covenant um is not automatically breached just because uh that the debt becomes current in march 26 26 20 well payable in march 26 current in march 25. um and and there's a there's a follow-up question which i can also um answer at this point and that is that we will have a requirement if we were to breach any of the common covenants uh to give the market update

When is the covenant test? How often is it?

Nicholas, the test is every half year, so it won't be tested in March. It will be tested at the end of December and then at the end of June. I just want to add to Johan's point that in conversation with the lenders, they are fairly relaxed because their debt matures two months before the bonds, and the technical breach of the covenant is only if the bonds are not repaid. So they are fairly relaxed that this is not going to cause an issue and we will obviously keep talking to them, but the measurement will be in June after the December period, not in March.

Then just around the second question, which was in talking to the planner on the refinancing. As we said in the presentation, what we're looking to do is to complete our life of mine review to both optimize capital, incorporate all of the cost rebase and restructuring work that Vivek spoke to, ahead of then going back to both the first lien in the first instance, who we've been discussing this with through the end of last year into this. And then obviously, we will then look to engage with the bondholders. The process is to update the mine plans to incorporate all of the work we've been doing. And then with the updated plans to sit in front of the first in the first instance and then bondholders.

Yeah. Sorry, Justin, but I need to kind of like get a better understanding of the timelines that are involved because in the past, Now, you know, there are a lot of steps you've just described towards the refinancing of the nodes now. And I still see that kind of like covenant sort of like, I don't know, milestone there in a couple of months. So should we be thinking this is going to be, you know, an exercise that will happen in the next three months, six months? Like, can you give me, you know, some more kind of like data around that?

Sure, sure. The planning work will be completed in the next three months. It's not a six-month exercise. So we're simply updating our plans to reflect the restructuring work we've done in the optimized capital, and obviously it also reflects and accommodates the current market weakness. So we're not talking about extended timeframes. We'll be done on that within the next three months. If I can then move on to the question on Finch, where you were asking at what point do we see Finch's production tick up in terms of carrots aligned with the tons treated. And I think what you're seeing is in particularly in quarter two versus quarter one, you've seen an improvement over the year where we have seen better grades as a result of better management around dilution. We would expect that to continue. We would expect to see some improvement in grade once we get into 81 level, which happens towards the end of the financial year. We will get some tonnage and carrots from 81 level. we will see a fairly significant uptick in production in terms of carrots as we move towards the end of financial year 2026 going into 2027 as we begin to produce tons and carrots from the new three-level sub-level K. So, in short, you should expect to see the current level of performance in terms of grade at Finch continue. We may see or we expect to see some modest improvement in grades going through the end of this financial year, and then an uptick towards the end of FY26 going into FY27 as we access the fresh ore from the new three-level sub-level cave.

Thank you.

Thank you. Patrick?

Thank you, Richard. As a reminder, please use the raised hand icon to ask a verbal question and the chat function for any written questions. We do have a couple of questions coming through on the chat from Tim Kempster. Hi and thanks. Can you confirm that you will notify the market if there is a covenant breach?

I think certainly we're obliged to do that. So if there is a covenant breach, yes, of course, we would inform the market.

The net debt to EBITDA, if tested today, must surely be in breach as of today. Can you please confirm this or discuss plans to avoid that?

We are obliged to carry out the tests in accordance with the covenants as set out, and we will update the market, all of you together with our interim results. This really is an operating update. We haven't completed all of the full financials and we'll take you through that in detail later in February when we release those results. So you can expect that we are continually monitoring the various covenants. And in line with the earlier question, we would, of course, communicate if there are any indicated breaches of any of those covenants. But we will provide a full update with the financial results that will go out later in February.

Thank you, Richard. I have another question on the chat function. What is your cash position as of the end of calendar year 2024? And if you can please share the amount of bond buybacks carried out in the last quarter and then a follow on. Do we have any ongoing plans to buy further bonds before the refinancing?

And you want to talk to the. I can do the cash and the bond conversation. So in terms of the cash position, at the end of June 2024, so at the end of the financial year in 2024, we had consolidated group cash balances of $40 million. At the end of The calendar year, 31 December 2024, the consolidated group cash was 42 million and included a bank overdraft from WDL of $10 million. So gross, that would be $52 million at the end of December. in terms of the bond buybacks um for the first half of the year we bought back nominal bonds of 24 million dollars um and you will see that the bonds are currently trading um at about 80 uh where they currently stand um people give you take a couple of basis points we will continue to um pursue bond buybacks where our cash availability allows for it and where the market also allows for that. So we will continue with that program. We are limited in the amount under our revolving credit facility. So we will also keep that in mind. Vivek, anything you wanted to add on that?

Thank you. Thank you Johan. We appear to have no further questions. I will therefore hand back to Richard to close the meeting.

Thank you very much everybody for your attendance as usual. If there are any further questions that you have that haven't been addressed, please send them through to Patrick and we will address them and we'll have another call later this afternoon. So thank you very much and until our next results, thanks for your attendance.