Petra Diamonds (LSE:PDL) — Investor Presentation

0:00 Good afternoon, ladies and gentlemen. Welcome to the PETRA DIAMONDS LIMITED Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, could 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 at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and publish responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll. And if you give that your kind attention, I'm sure the would be most grateful. I'd now like to hand over to the management team from PETRA DIAMONDS, Richard Jarks. Good afternoon. Good afternoon, and thank you for joining us today for a discussion of our third quarter operating update for financial year 2024 for the period ending March 31, as well as an update on our outlook and the diamond market.

0:51 I'm Richard Duffy, CEO of PETRA DIAMONDS, and joining me is Jacques Breidenbach, our CFO, who will cover the key financial metrics a little later.

1:01 After taking you through our presentation, we'll open up for questions. Moving to Slide three and starting with safety as always being our number one priority, our ongoing focus on remedial actions and behavior based intervention programs have supported a stabilization in our lost time injuries, which remained at three for the quarter with a small increase in our lost time injury frequency rate. Turning now to our operations. Total run of mine tonnes treated were largely flat on the previous two quarters, reducing marginally to 2,900,000 tonnes from 3,000,000 tonnes in the second quarter and up slightly from 2,800,000 tonnes in the first quarter.

1:46 This reflects continued ramp up of production at Williamson and a steady quarter at Cullinan Mine, offset by lower volumes at Finch due to the previously announced wind issues which have since been fully resolved. The 18% improvement in grades at Finch is ascribed to draw control measures and first production tonnes from 78 level Phase two with the first tunnel commissioned in March 2024. Work is ongoing on the remaining six tunnels, all of which are expected to be commissioned by June of this year. At Cullinan Mine, lower production is mainly attributable to reduced tailings volume and grade with some variation in the run of mine ore grade. Across the group, diamond production reduced 9% to 666,000 carats, which is in line with expectations.

2:37 Guidance is reaffirmed at 2,750,000 to 2,850,000 carats for this financial year. Turning now to the diamond market and the results of tender five of financial year 2024, which were also announced this morning. Can you turn to the next slide please? Our fifth tender cycle yielded CAD49 million from the sale of 362,000 carats. Average received prices per carat were 22% higher than tender four, supported by the sale of a 14.76 carat blue diamond from Cullinan mine for CAD8.2 million.

3:13 Like for like prices, which excludes our single stones, were relatively flat through the seasonally weaker period being 0.8% lower than tender for affirming some market stabilization. An increased focus on provenance continues following the strengthening of import restrictions from the G7 that came into effect on the first of March of this year requiring certification of non Russian origin for rough and polished diamonds of more than a carat. This is a clear differentiator for us at PETRA given we have always marketed our diamonds on a mine by mine basis and have established a reputable pedigree as a result. We are trialing traceability and provenance technologies to enable us to meet more robust import restrictions that will impact diamonds of more than 0.5 carats from the first of September this year.

4:09 I will now hand over to Jacques, who will run through some of the key financial metrics. Jacques? Thank you, Richard, and good afternoon all. Revenue for the quarter totaled $66,000,000 a 27% decrease on the previous quarter, largely due to the timing of our fifth tender cycle straddling the quarter end with some $32,000,000 of sales recorded in quarter four of fiscal year twenty twenty four. Pricing remained strong due to product mix, benefiting in particular from the sale of the 14.76 exceptional color and clarity blue diamond recovered from the Cullinan mine, which the company sold into a partnership agreement for sale proceeds of $8,200,000 Average like for like prices for the first five tenders of fiscal year twenty twenty four were down 8.5% year to date compared to the equivalent five tenders of fiscal year twenty twenty three.

5:01 Pricing assumptions for the remainder of the year revised that our interims in February remained unchanged.

5:08 Moving to our balance sheet. Gross debt decreased to $280,000,000 at the end of March twenty four, down from some $296,000,000 at the end of December twenty twenty three, following repayment of around $23,000,000 of the revolving credit facility with Absa Bank to reduce interest costs. This leaves PETRA with around $69,000,000 of headroom from the facility, which together with unrestricted cash balances of some $24,000,000 and DIAMONDS LIMITED received shortly after period end of $11,000,000 means we have $104,000,000 of available liquidity at the end of March. As a result of the timing of our first tender cycle, net debt increased to $232,000,000 at the end of March. Since the end of the quarter, final proceeds of around $32,000,000 from the recently closed tender five had more than offset this increase in net debt.

6:02 I will now hand back to Richard to discuss outlook and continued focus on the business resilience. Thanks, Jacques. And moving to our final Slide six. Our ongoing focus of our operations remains to ensure zero harm while delivering on our production guidance, completing the development of 78 level Phase two at Finch and continuing development of CC1 East at Cullinan mine. In terms of building business resilience, we are on track to meet our target of saving $10,000,000 in operating costs in this financial year 2024 and we recently announced an increase to our annual cost savings target to more than $30,000,000 for financial year 2025 to be sustained on a go forward basis.

6:50 Around half of these savings relate to rebasing our Finch throughput and the balance to reducing our group overheads and Cullinan mine costs. We also remain on track in respect of

7:02 the deferral of CAD65 million of CapEx in this financial year 2024. As Jacques mentioned, we have reduced our interest costs in repaying CAD23 million of our revolving cash facility during the quarter and have sufficient liquidity at $104,000,000 We recently updated the market on the sale of Kofufontaine to Stargens for a nominal cash consideration,

7:28 which will lead to the avoidance of $15,000,000 to $18,000,000 in closure related expenses. In addition to the 10 to five results we've discussed, we're seeing some price stabilization in the diamond market, which we expect to continue through much of the calendar year. Despite a slower than expected price recovery, we continue to see a supportive diamond market in the mid to longer term. In closing, production guidance is maintained for financial year 2024.

7:56 Together with the cost savings measures outlined, we expect to be cash generative from financial year 2025 onwards. We are currently finalizing our new life of mine plans that will support the transition to a more smooth capital profile and incorporate the replanned ramp up of the deferred capital projects from the beginning of financial year 2025. That concludes our presentation, and I'll hand back to our host here at Q and A session. That's great. Richard Giles, thank you very much indeed for updating investors. I will just bring your camera back up. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. Just while the company take a couple of moments to review your questions submitted already, I'd just like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard.

8:53 Patrick, if I may just hand back to you to moderate through the Q and A. Thank you to everybody for your engagement this afternoon. If you could ask me to read out the questions, and then I'll pick up from you at the end. Thank you very much, moderator. The first question is a pre submitted one. Any update on how you intend to sort out your balance sheet and any timeline in terms of potential debt refinancing?

9:16 Thank you, Patrick. Good afternoon. It's Jean speaking. In terms of the balance sheet, the key focus for us is to finalize our life of mine planning to then overlay that with an optimal capital structure based on the revised outlook with reference to the planning. As As a reminder, we have recently repaid the $23,000,000 in our RCF, and we are we'll continue to look at opportunities to further reduce gross debt in the lead up to any refinancing. I think importantly,

9:48 it's not a restructuring we are planning for, but rather a refinancing of your loan notes, which becomes due in March 2026. The window we are looking at in terms of timing would be second half of this year, shortly after the release of our annual financial statements or if the market is not supportive, could be delayed until early calendar year twenty twenty five.

10:17 Thank you, Jacques. The next question comes from Gary B. How will the cost refinancing at Finch and the group level savings impact operational efficiency? Thanks, Gary. I think, essentially, what we're looking to do at Finch is to take the current throughput levels from around 2,800,000 tonnes to around 2,200,000 tonnes. As a result, we do not require to continue to mine on under a continuous operations shift configuration. So we would be looking at a two shift configuration, and we don't expect that to have an impact on the operating efficiency at all. It's simply matching the cost base with the level of throughput at Finch.

11:20 And as is usual with all of our operations, our business improvement focus would hopefully see efficiencies and productivity improve. So no consequence around efficiency as a result of matching the costs to the planned lower throughput. Thank you, Richard. I have two questions on grades, which are very similar. The first from Steve, why which is concerning the grades at all three of our mines and what our expectations are for this year. Ian R has asked a similar question, but specifically on Cullinan and why the grade has been lower in this current quarter and what our expectations are there going forward. Thanks on both. Yes, on grade, I think the simple answer is what do we expect from grade.

12:15 The reason that we're holding our production guidance unchanged is factors in our expectations around grade. There is obviously some variability in grade in these mines we operate. We do bulk mining. And so there is some variability in grade. If you look at Cullinan, as we said, for this quarter, we process the same volume of tailings material as we did in the previous quarter. And so both the volume and grade of the tailings we did process had an impact on the carats produced at Cullinan in particular. So we don't expect any significant change in grade at Cullinan until we get into CC1 East, and we'll start to be producing some of our carats from CC1 East going into next financial year, and that comes at a much higher grade.

13:21 At Finch, we have just opened the first tunnel in 78 level Phase two, and that should also support grade at Finsch through to the end of the year. For a view on what the production profiles, grade, etcetera, look like over the medium to longer term, we are planning to share that with the market before the end of June of this year, and we'll be in a better position then to have a discussion on production profiles, grade, costs, capital, etcetera, in the medium to longer term. Thanks, Richard. Next question is from Alex C.

14:07 Given the volatility in commodity markets, and I'll extend that to currency markets as well, what hedging strategies do you employ? Thanks, Alex. Again, Jacques here. Hedging the diamond price is is difficult and actually is well, we don't have a product to to hedge diamond pricing. But we do lock in commodity weakness when there's a opportunity given our bulk of our cost exposures are in rand while our revenue is in dollars. So that exposure, we do try to hedge from finance team side, as I mentioned, limited opportunity, if any, on the diamond commodity side.

14:57 Thanks, Jacques. Next question is from Martin C. Has the diamond industry been giving sufficient attention to developing its markets? And what does PETRA do to develop the market? What do you expect De Beers campaign to contribute, and do we contribute ourselves as well? Yeah. So this is this is a question of of, you know, many parts and not not particularly simple to to answer. I think that, you know, if you look at the market diamond market and and what's going into the diamond market in terms of support, the Natural Diamond Council does effectively promote natural diamonds. We are founding members of the NDC, and we contribute to the NDC.

15:51 Obviously, the NDC spend has reduced in terms of its budget on the withdrawal of Olarossa, the Russian diamond producer on the back of sanctions. And so De Beers is the largest contributor, and they also run their own campaigns you know, as as highlighted. So our our promotion of natural diamonds is through the the the Natural Diamond Council, the NDC. And, you know, we we also, through the NDC, looking to expand the contribution across the value chain. So we've seen some of the midstream come in and contribute. And I think that we're seeing some collaboration with the larger retailers in terms of promoting natural diamonds.

16:41 I think all of us would agree that there is not yet sufficient spend going into that promotion, but I think we've made really good strides. I think also to note the growing emphasis on provenance and origin in terms of traceability, and we did mention that we are busy trialing technologies around traceability, which become important, not just in the context of potential sanctions, but also in the context of linking our sustainability initiatives, which we believe enhance the marketability of of our. Thank you, Richard. Next question is from Matt H.

17:28 How do you expect liquidity to be over the next six to twelve months? If a straight refinancing cannot be done, is there a plan b? Matt, Jacques again. So we are obviously considering absolutely all options available to us. We and it includes a range of options including a vanilla refi, a combination of further bank loans and a different debt structure. So at this point in time, the key for us is just to finalize the life of mine planning and have a firm view on our cash generation going forward to then decide on the optimal debt structure. So there is it's at this point in time quite dynamic and we haven't made any decisions on that front.

18:20 But you can absolutely know that we are looking at all options that might be considered. Thanks, Shar. And a follow-up question from Ian R on Finch. At Finch, with the reduction in throughput to 2,200,000 tonnes, what is the expectation on cost reduction? Will Finch EBITDA margins go up or down, assuming there is no change in prices? Ian, I can help you with part of that question, and we'll provide more detail on the rest of that at our Investor Day at the end of June. But on the first part, we said that we're looking at delivering in excess of $30,000,000 in annualized sustainable savings.

19:13 And we said that roughly half of that is attributable to the rebased costs at Finch on the back of the lower volume. So roughly half of that $15,000,000 is attributable to Finch, And we will then obviously revert once we've shared details of our revised mine plans to give a sense and visibility around the medium to longer term, not just for Finch but obviously for other operations too. I think if I can just add there, Patrick apologies, Finch grades will also benefit from fresh ore. So the carat reduction is not expected to 200 and tons reduction and will also partially offset the reduction on the tonnage front.

20:04 That's great, Jacques. Richard, Patrick, thank you once again for updating investors. Thank you to everybody for your engagement this afternoon. Richard, Jarksong will surely redirect investors on the call to give you their feedback, which I know will be important to you both. But before doing so, wonder if I may, Richard, just come back to you for just a couple of closing comments, and then I'll send investors to give you their feedback. Thanks very much. Yeah. Just just from my side to thank you all for your participation again, and we look forward to to chatting in near future. Thank you. That's great. Richard, Jarks, Patrick, thank you once again for updating investors this afternoon. Could I please ask investors not to close this session? We're now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a couple of moments to complete, I'm but sure it'll be greatly valued by the company. I'm Martha management team of PETRA DIAMONDS LIMITED. I'd like to thank you for attending today's presentation, and good afternoon to you all.