Petra Diamonds (LSE:PDL) — Preliminary Results

0:01 Good afternoon, and welcome to the PETRA DIAMONDS LIMITED preliminary results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the q and a tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may now be in a position to answer every question it receives during the meeting itself. Have the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to do the following poll. I'd now like to hand you over to Richard Duffy, CEO. Good afternoon, sir.

0:31 Good afternoon, and thank you very much to all of you for joining us today for our unaudited FY 'twenty three preliminary results for our financial year ended 06/30/2023. We'll just move through to Slide four, please.

0:49 PETRA is the largest independent diamond producer with the world's third largest diamond resource, providing potential for long term mine life. We've taken actions to strengthen our business and improve cash flow generation. And together with our strengthened balance sheet and capital discipline, this means we are well placed to deliver on our value driven growth strategy. We are building resilience in our business through the implementation of our operating model to deliver more stable and predictable performance and to address any operational challenges. Our strengthened balance sheet enabled us to be flexible in our approach to diamond sales during the softened market, while still progressing our expansion projects. And we are on track for annual production to increase by up to 1,300,000 carats incrementally in FY 2026.

1:42 We continue to focus on continuous improvement, embed our sustainability framework and apply the disciplined capital approach I mentioned earlier. We are confident that we will continue to generate sufficient cash to fund our CapEx. So PETRA is both resilient in the short term and well placed in the medium to longer term to leverage the fundamentally supportive diamond market structural supply deficit that I'll talk to a little later. Turning to our operating and financial summary.

2:17 Our revenue in 2023 was lower on the back of our deferred tender sale, but we strengthened our balance sheet through buying back around onethree of our loan notes during the year, providing us with greater flexibility. You will note that our diamonds produced were down as well as our tonnes treated, and this was the result of Williamson not operating for seven months of the year and also some operating challenges at Cullinan Mine and Finch, particularly in the first half of the year, which we had addressed previously and which were largely mitigated in the second half of the year. Our CapEx increased from $52,000,000 to $117,000,000 as we ramped up our projects at Cullenin Mine And Finch. Of note, Coffey Fontaine is now classified as a discontinued operation, having been placed into care and maintenance in the run up to a responsible closure and it is therefore excluded from our production and financial numbers.

3:16 Turning to safety, which remains our number one priority. We do work in challenging conditions, but continue to strive for a zero harm working environment. You'll notice slight uptick in lost time injuries in financial year '23, and this resulted from increased activity around our projects that I've mentioned already and a single blasting related incident at Cullinan mine. Most of these incidents are behavioral in nature and we continue to focus on our safety and behavioral intervention programs. Talking to our sustainability journey on the next slide, we continue to focus on embedding our sustainability framework founded on four pillars: people, planet, partnership and production across the business.

4:08 Our people enable us to achieve our shared vision and strategy and ensuring their health, safety and well-being in the working environment is a priority. In particular, I would like to highlight our PETRA culture code, a formula for success that was created by all of our employees and guides our behavior as an organization in driving cultural change. Respecting our planet, we are looking to responsible consumption and production and ensure that they are embedded in our operational planning. We have updated our climate change strategy in accordance with TCFD recommendations, setting targets to achieve our financial year 2030 reduction target of 35% to 40% against the 2019 baseline.

5:01 On shared value partnerships, these are fundamental to our operations and the relationships that we maintain with our host communities, local authorities and governments are not only aimed at improving business opportunities, but also around creating shared value outcomes. This year, priority has been ensuring responsible closure process of Coffee Fountain and the identification of alternative economic development opportunities for its surrounding communities. The closure roadmap for Coffee Fountain is premised on sustaining quality of life and livelihoods. We have developed a rehabilitation plan for the operation, which is supported by financial provisions for the closure aligned with the relevant regulatory requirements. The final pillar of production which underpins all of this aims at ensuring responsible and sustainable production from our ore bodies while also optimizing the life of our different mining operations.

6:01 This year has been achieved through stabilizing operational performance and a continued focus on continuous improvement. Turning now to the market. As you would have seen from our recent announcements, the diamond market has softened during the year and we anticipate this to continue in the short term. However, support for the market in diamond prices is expected in the medium to longer term as a result of the prevailing structural supply deficit, which I'll expand on a little in the following slide. At PETRA, around 80% of our revenues are derived from only 20% of our higher value diamonds, and this aligns well with ongoing growth projections in the luxury goods market.

6:52 An important consumer aspect is the emotional investment proposition of a natural diamond that is unlike any other. The marketing of this is championed by the Natural Diamond Council, who are also currently seeking new partners across the value chain to increase the promotion and allure of natural diamonds. This already includes eight of the world's largest DIAMONTEZ, several diamond bosses, and a manufacturing association. On this next slide, which is one we've shared before, it really just highlights that natural diamonds are rare, precious, and finite. With maturing global diamond mines, major mines depleting smaller mines on care and maintenance and global exploration investment at multi decades low at multi decade lows, supply for diamonds has peaked and the structural supply deficit is expected to persist.

7:46 This combined with concurrent growth in luxury goods demand from emerging markets means that the fundamentals are in place to support stronger prices in the medium to longer term. I will now hand over to Jacques who will provide an overview of our financial performance. Thank you, Richard. So moving to our FY 'twenty three financial results, you will note that revenue came in at $325,300,000 which was impacted by a 20% reduction in diamond recoveries, the decision to defer certain of our sales to fiscal year 2024, and a lower contribution from exceptional stones. While on this topic, we today confirmed that the definition of exceptional stones has been changed to stones selling for $15,000,000 or more each, up from $5,000,000 used historically.

8:34 We adjusted this threshold given that we only saw three such selling sales incentives since 2016, truly reflecting the rarity and exceptional nature of these high value stones. We'll thus note that in FY 2023, no such exceptional stones were sold on a single 39 carat blue stone contributed just over $40,000,000 in FY 2022. As a result of lower sales revenues partly offset by improved operating costs adjusted EBITDA reduced to $130,000,000 yielding a 35% EBITDA margin compared to last year's 49%.

9:11 The planned increase in capital expenditure we came in at $117,100,000 for the year coupled with the cash cost incurred at Coffee Fountain, which is now accounted as a discontinued operation led to a $66,500,000 outflow of operational free cash for fiscal year twenty twenty three. The repurchase of some $144,600,000 of our loan notes saw our gross debt reducing to $247,500,000 and unrestricted cash balances totaled $44,100,000 at year while our R1,000,000,000 or $53,000,000 revolving credit facility remained undrawn and available at year end. Moving on to our online cost, For fiscal year twenty twenty three, cash online costs remained in line with our expectations and came in 11% lower than last year.

10:03 We continue to benefit from the weaker land, while inflation of just over 5% was seen including electricity and labor escalations. The variable cost savings as a result of lower production volumes were realized, however this was partially offset by Williamson's once off general maintenance and remediation costs following the TSF failure. Then looking at our contributions by the various mines,

10:29 Cullinan continued to be the largest contributor to both revenue as well as adjusted profits from mining activities and continued to demonstrate its quality posting an adjusted profit margin of 55% even in a weaker year. Williamson was impacted by the move to care and maintenance with ongoing cost incurred during the year, resulting in a gross loss for fiscal year twenty twenty three. Then taking a look at our balance sheet snapshot on slide 14. I want to highlight that our tender deferrals resulted in elevated levels of diamond inventory at the end at some 715,000 carats, the bulk of these being sold in our first tender of fiscal year twenty twenty four.

11:14 The result of that tender was announced a couple of weeks ago. Gross debt as mentioned was reduced contributing to around $50,000,000 in cash interest savings annually, while our consolidated net debt increased to $176,800,000 and the net debt EBITDA ratio of 1.6 times. Moving on to the next slide, our best disciplined capital allocation in fiscal year twenty twenty three, the slide sets up where our capital has been directed with our priority one focusing on the online cost,

11:49 stay in business CapEx, and in this year we commenced with cash interest payments on our loan notes of some $8,400,000 Our priority two capital allocation saw $72,400,000 being directed to extension projects at both Cullinan and Finch, while priority three CapEx or capital allocation of $144,600,000 speaks to the debt redemption. No discretionary expenditure or allocations were made this year.

12:19 Moving on to the next slide, in terms of our group guidance, which remained unchanged from earlier guidance, reiterating that we are looking to increase our production from 2.67 in fiscal year twenty twenty three million carats through to 3.7 to 4,000,000 carats by 2026. Cash online cost is expected to remain largely flat in real terms, while expansion CapEx is expected to peak in fiscal year twenty twenty four, thereafter reductions you see in 2025 to 2026. I'll hand back to Richard.

12:54 Thanks, Jacques. I'll now talk briefly to our operations, starting with Cullinan Mine. Highlights from this year is that remedial action was taken to address our lower grades on the back of waste ingress earlier in the year and we are on track for delivering on our '24 guidance.

13:21 We have continued to advance our projects on the eastern side of the mine and CC1 East and in the block cave, the C Cut extension with two new tunnels. Looking to financial year twenty four, we are continuing to deliver steady state operational performance and develop the projects as mentioned together with progressing studies around our mine plan extensions beyond financial year 2032. On FISH, production fell slightly short of our revised guidance due to some operational challenges, which are being introduced through the introduction of new underground equipment, the recruitment of a number of senior technical employees to plug some of our gaps and improve blasting processes.

14:16 This was reflected in improved production in quarter four of financial year 2023. For this year, financial year 2024, the focus will be on continuing to address and improve our ground handling and draw control and to complete the project at Finsch being the phase two seventy eight level extension and then the development of the three level sublevel cave. At Williamson Mine, our focus for the year following the tailings failure was around remedial and restoration efforts to mitigate the impact on local communities and the surrounding environment. These are now largely complete. Operationally, we focused on commissioning the new tailings storage facility, which enabled production to resume safely ahead of plan in July 23.

15:05 For this financial year 2024, we will be focusing on ramping up to full production as quickly as possible and to also manage the near term liquidity position at Williamson. We are also now close to finalizing the framework agreement with the Government of Tanzania and in completing the transaction with TAEFA, Pink Diamonds, both of which have progressed during the year. So in closing, and talking to our purpose of creating abundance from rarity, we are on track to deliver substantial production growth as indicated of up to 1,300,000 carats of incremental production in financial year 2026.

15:51 Although the current diamond market is softer, the actions we have taken as a business in continuing to build our resilience puts us in a strong position to leverage these supportive fundamentals in the market in the medium to longer term. Our strong capital discipline and the embedding of our sustainability framework across the business supports this strong and stable platform that will enable us to develop our high quality long life assets in positioning to deliver on our value led growth strategy. Thanks everybody and with that I'll hand back to the moderator. Perfect and thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab which is situated on the top right hand corner of your screen. But just while the company take a few moments to review those questions that have been submitted today, I'd 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 our investor dashboard.

16:56 As you can see, we've received a number of questions throughout today's presentation. And Patrick, if I could just hand over to you just to read out the questions where it's appropriate to do so. I'll then pick up from you at the end. Thank you, moderator. The first question is on dividends. Should investors expect future dividends or is the focus going to be on organic LIMITED:] growth? Thank you, PETRA It's Jean Pierre. We last year in September 22, the company announced a dividend policy. We do have a quite a clear policy in terms of 15% to 35% of adjusted free cash flow will be considered for dividend payments. Obviously, this year, given the capital investment coupled with the decision to defer certain sales, the free cash flow was negative this year, hence no dividends, but we would be looking at opportunities going forward to resume dividend payments.

17:55 Yeah, just to add to that, I don't think that organic growth and dividends are mutually exclusive. I think we will continue to grow organically. That is really what is behind the growth we've highlighted over the next three years of up to 1,300,000 carats. But in building resilience, we're looking to be able to both grow the business and generate returns through the cycle. Thank you, moderator. There are no further questions. Perfect. Thank you very much for that. I think you've addressed those questions you can from investors. And of course, the company will review all the questions submitted today and will publish responses on the Investor Meet company platform.

18:44 But just before redirecting investors to provide you with their feedback, which you know is particularly important to the company, Richard, could I just ask you for a few closing comments? Thanks very much. Really just to say, appreciate you joining the call and we look forward to catching up in a little while. Thanks very much for your attendance. Perfect. And thanks once again for updating investors today. Could I please ask investors to opt to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of management with PETRA DIAMONDS LIMITED, we'd like to thank you for attending today's presentation, and good afternoon to you all.