Petra Diamonds Limited

Discussion of our audited full year results for the 12 months ended 30 June 2024. I'm Richard Duffy, CEO of Petra Diamonds, and I'm joined again by Jacques Breytenbach, our CFO, who will cover the key financial metrics.

After taking you through our announcement, we will open up for Q&A. This will be hosted both verbally through the raised hand icon, and we will then move on to any typed questions moderated through the chat feature.

We have also today released our annual report and financial statements as well as our sustainability report. Please note that we will be recording this within cast and it will be available on our website later today.

Moderator, could you please move to Slide 4. I start today with a slide that you may recall from our Investor Day in June, where we set out the resilience built into the business and Petra's compelling value proposition.

In financial year '24 in response to weaker diamond prices, we reduced our operating cost base by around $19 million and CapEx by approximately $80 million, for the year, including some $75 million in deferrals. From financial year '25 onwards, operating costs will be sustainably reduced by around $44 million per annum relative to guidance we provided for FY '25 back in July 2023.

And from FY '25, we have smooth future capital to around $100 million annually for our South African operations. Together, these actions are targeting the delivery of free cash flow through both capital and market cycles.

During the year, we took the opportunity to repurchase $5 million of our 2026 second lien loan notes on market and at a discount face value. This continued post-period end with the repurchase of our second lien notes to date now totaling $12 million at a cost of $9 million, which will save us around $1.2 million in future annual interest costs.

We intend to continue opportunistic open market repurchases. Our focus for the current financial year is on delivery of these cost savings and the implementation of our smooth capital profile to generate positive cash flow from the current financial year -- financial year 2025.

This positions us well for a successful refinancing of our 2026 second lien notes. Moderator could we move to the next slide, Slide 5, please.

Despite current market weakness, which has characterized much of financial year 2024 we are seeing some price stabilization on the back of actions taken by producers and the midstream in reducing supply to the market. As we've highlighted previously, the medium-to-longer term supply-demand fundamentals for the natural diamond industry remain supportive.

Supply as shown in the top chart is in structural decline and expected to halve by 2045, with the depletion of primary diamond mines and the lack of exploration investment, only 2% of [indiscernible] are economically viable with any discovery taking at least 10 years to come on stream. Demand is shown in the bottom left chart is expected to increase over the next decade.

Historically, natural diamond demand tracks GDP with recent delayed recovery in China, reflecting this. As mentioned, our product mix with 80% of revenue coming from 20% of our product is well geared for a company as well as a growing emerging middle class.

On that point, India is now the world's second largest natural diamond consumer with its luxury market expected to expand threefold by 2030. In the West, the rise in the marketing of LGDs and the impact of Russian sanctions has made consumers more aware of prominence and traceability.

A key area that the natural diamond market is addressing in terms of verifying and assuring provenance and sustainability credentials as part of a natural diamonds journey to the end consumer. We will be rolling out this technology to provide assurance to our customers and will highlight the benefits we are delivering to our employees, host communities and other key stakeholders.

Moving to Slide 6, please. Safety is our number one priority and this is reflected in seven fatality-free years.

Our focus on remedial actions and behavior-based intervention programs resulted in the reduction of seven lost time injuries to a total of 10 in financial year 2024 and a reduction in our lost time injury frequency rate from 0.24 last year to 0.16 this year. We continue our health and well-being programs to support our culture and performance of ensuring safety and health remain our number one priority.

Moving to Slide 7, please. In looking at our operating and financial highlights diamonds produced increased due to the earlier-than-expected successful ramp-up at Williamson.

Diamond sold increased on the back of the deferred parcels from FY '23 into FY '24, together with the increased contribution from Williamson. As a result, despite weaker pricing year-on-year, revenue increased from $325 million to $367 million.

This increase in revenue did not translate to a higher EBITDA for the year which reduced from $113 million at a more normal level for our business to $66 million due to the release of inventory in a weaker market. CapEx reduced from $117 million to $84 million due to the deferral of certain capital projects during FY '24.

Operational free cash flow improved from a negative $65 million in FY '23 to a negative $17 million in FY '24. Although our net debt increased year-on-year, we saw an $11 million improvement from the first half of the year level of $212 million, achieving what we had targeted at the time of publishing our H1 interim results earlier this year.

I will now hand over to Jacques.

Thanks, Richard, and moderator can we move to Slide 9. Good morning all, we have reported revenue of $367 million for the year.

The year-on-year increase is mainly due to the deferral of sales from fiscal year 2023 to this year fiscal year '24, supported by increased contribution from our Williamson operation. But unfortunately offset by weaker diamond price compared to the previous year.

Adjusted EBITDA reduced to $66 million, down to $130 million, representing an adjusted EBITDA margin of 18% driven by reduced dropdown in prices and impacted by a $71 million swing in climate inventory movement year-on-year. Net loss after tax of some $107 million compared to the loss of $102 million in the prior year and this now we stated after impairments totaling $78 million, $45 million contributed to or attributed to Finsch Mine and $33 million to the Cullinan Mine as a result of the device life of Mine plans and lower pricing assumptions.

Operational free cash flow improved to negative $65 million in the FY '23 to negative $17 million in '24, reflecting an increase cash from operations of some $90 million and a reduction of $29 million in our cash outflows for capital expenditure following the deferred offset on our capital projects during the year. As at the end of June 2024, $25 million was drawn on our existing RCF and $246 million outstanding on our second lien loan notes and unrestricted gas balances were $28 million, offset by an $8 million overdraft at our Williamson Mine.

Moderator if you can go to Slide 10. At our Investor day, we provided more detailed insight into our diamond market.

Also today, we'll keep it brief. Prices achieved in fiscal year 2024 saw like-for-like prices down 12.4% compared to the prior year with softness evidence throughout the year has also in [sublus Q] index.

index. Our own prices were supported by product mix, resulting in fairly flat pricing over the last 18 months.

As announced, we laid out Tender 1 for fiscal year 2025 until mid-October, even a particularly weak market environment in August. Broader market commentary suggests some signs of pricing stabilization and as a result, we are maintaining our fiscal year 2025 final price assumptions given at our Investor Day in June.

Moving to Slide 11. Overall, total online costs were in line with expectations, increasing some 11% compared to the prior year FY 2023, largely due to the ramp up at Williamson, and cost inflation across our South African operations, partially offset by an 18% reduction in centralized costs, supported by the changes to our operating model to reflect these cost redemptions.

Adjusted mining and processing costs were up 47%, largely started net movement in diamond inventory valuation with the $37 million inventory released in fiscal year 2024 and a $34 million buildup in the prior year, resulting in a $71 million profit and loss statement swing year-on-year. We do not expect the recurrence uplist in future years and the year-end reporting periods, given our inventory levels have largely stabilized and our sales cycles should deliver similar inventory balances going forward.

Moving to Slide 12. As previously announced, we exceeded our initial estimates of cost reductions for fiscal year 2024 against the guidance released in July '23, delivering some $10 million across the SA operations and centralized structures.

We saw -- which was at the end of -- at the upper end of our expectations in November '23 and a further $9 million of Williamson for the year. We also exceeded our initial estimates of between $75 million and $70 million of CapEx savings, achieving $80 million in fiscal year 2024 in defferals and savings.

Sustainable cost savings were later $44 million for fiscal year 2025, approx $30 million plus our SA operations and the central structures and a further $14 million at Williamson. We also expect CapEx to remain below the $100 million for FY 2025, in line with the smooth capital profile we announced at the time of our Investor day.

Moderator if we can move to Slide 13. Slide 6 sets out the Cullinan Mine bench contributions, which positively contributed to adjusted profit from mining activities, while Williamson posted a loss for FY 2024 due to the ramp-up default production during the year.

And now moving to Slide 14. Looking at our balance sheet.

Diamond inventories reduced significantly from June 2023 with this level of inventory expected to be largely maintained. Consolidated net debt decreased from $212 million at the end of December '23 to $201 million at June '24, compared to $177 million - largely due to the actions taken to reduce operating costs and deferrals of CapEx.

As previously announced, and as a prudent measure, the group increased its commitments under the ZAR 1 billion, $54 million revolving credit facility with Absa Bank to ZAR 1.75 billion sub $96 million, providing an additional $41 million of liquidity ledger. As a post close event in August and September, the group drew down some ZAR 855 million of our revolving credit facility as a result of the deferral of our first SA tender to now close in October 2024.

Moving to Slide 15. Yes, I would like to highlight the key components of our update, which comprises a first year development revolving credit facility with Absa Bank, $25 million drawn as of the end of June and $246 million notes outstanding on our second lien index.

During the year, as mentioned earlier as well, the group repurchased some $5 million of these notes, open market repurchase program for a cash consideration of some $4 million with a further $7 million repurchased both period end for a cash consideration of $5 million. These have been canceled and will save around $1.2 million annual leading interest payments going forward.

Unrestricted cash of $28 million was offset by $8 million overdraft at Williamson operation. As also mentioned at Investor Day, we are now focused on refinancing the loan notes and now charting the path to generating sustainable cash flow from FY '25 onwards.

Moving to Slide 16. FY 2024, so an average exchange rate, some 5% weaker than our fiscal year 2023 exchange rate.

Closed fiscal year 2024, we are seeing improved our strength due to improved global economic sentiment, stable power supplies in South Africa and positive sentiment for international elections in earlier this year. With that, I will now hand over to Richard to take you the operational results.

Thanks. You can go to Slide 18.

Thanks, Jacques. For all of our operations we provide an in-depth look at the life of mine for these operations at our Investor Day, and you can see all of that on our website.

For now reflecting on a financial year '24, Cullinan Mine remained at the upper end of guidance with regards to tonnes mined over run-and-mine grades were below expectations, exacerbated by a reliance on diluted run at mine ore due to some of the capital deferrals, which delayed access to our fresher ore areas. Our focus in financial year '25 is to transition and ramp up our sub-level production from the CC1 East project.

The smooth capital development results in the Cullinan Mines stepping down to 3.7 million tonnes from financial year '27 onwards and maintaining that going forward. But importantly, with carat production remaining at similar levels as in FY '26 as a result of higher grade from our CC1 East area.

If you could turn to Slide 19, please. At Finsch, a number of operating challenges were addressed this past year and we are on track for further operating stability and improvement in run-of-mine grades in financial year '25 as we complete our transition from a 2.8 million tonne to a 2.2 million tonne a year operation.

Currently, the majority of tunnels to access the fresher ore at 78 level Phase 2 have now been commissioned and FY '25's focus will be to optimize the current 2-shift configuration to deliver more predictable and stable operations. If you turn to Slide 20, please.

Williamson successfully ramped up through the year, which you can see across all of the metrics and performance. Financial year '25 will see a focus on waste stripping to provide sufficient access to the ore body to maintain the run rate highlight of mine plan and provide materials for construction of the new TSF, which commenced in quarter one of financial year '25.

Turning to Slide 22. In conclusion, steps taken in FY '24 to mitigate the impact of diamond market weakness has enhanced our resilience and with our new smooth capital profile and reduced cost base, we are now well positioned to generate free cash flow through the cycle.

We believe that prices will stabilize towards the end of this calendar year before showing some improvement in calendar year '25. Through the actions taken, we are targeting net debt-to-EBITDA below 1.5x from financial year 2026.

Finally, we have a high-quality, long-life asset base set up to deliver value to our stakeholders through market cycles and well positioned to benefit from the expected price movement in calendar year '25 and the supportive market in the medium to longer term. This concludes the formal part of our presentation before handing over to Patrick to lead our Q&A I would just like to note that this is Jacques last results presentation.

I would like to thank him for his significant contribution over the last 18 years to Petro Diamonds and wish him every success in the future. Patrick.

Thank you, Richard. We will first take verbal questions.

[Operator Instructions] And we have one question from Pete Mallin-Jones. We have another question from Stefano.

Let's see if Stefanos has any more success.

So thanks so much for the last question, and Jacques congrats on your retirement, I guess -- well, forward, I hope we all the best. So I got a couple to ask.

The first one is I was wondering if you could.

Sorry, we've lost Stephane.

Sorry, can you hear me?

Yes.

So I was wondering if you could first give maybe some shorter guidance for the fiscal year '25. More specifically, at which point should we expect that free cash flow inflection point?

Is it going to be towards the late sort of like end of the year, assuming a recovery down prices? Or do you think kind of is in the next kind of like a couple of quarters, especially considering where do prices are?

That's the first question. And then on the second question, it's more about the financing plants.

I see you've got a lot of kind of like conviction going out to the market and buying from secondary markets, the bonds. But I was wondering if there's been more progress on the conversations you've had with the banks and more specifically, in case you're not able to refund by the end of this year, would they be able to maybe to kind of like waive the liquidity covenant that exists for March '25.

Thanks. I'll start off.

I think with regard to cash flow in FY '25, what we've indicated is we're targeting net cash generation for the full year. We also indicated that in this financial year '25 and financial year '26, we would be looking at modest cash generation given that we're still ramping up our projects at both Cullinan Mines and Finsch, but that we would expect to see significant growth from financial year '27 in the order of 0.5 million carats of incremental production.

So relatively tight years FY '25 and '26 in terms of cash generation, we haven't provided specific guidance around the shape of that, but we're obviously targeting net cash generation over the full year. So there may be some ups and downs during the year, but with objective, as stated, of net cash generation for the full year.

Maybe just to that point, typically, our sales related to our second half. We typically would sell five months' worth of production in H1 and seven months’ worth of production in H2 and that's just clearly due to the timing of our tenders that given the Christmas holiday break on the [indiscernible]

Yes. Thanks, Jacques.

I mean on revenue, obviously, is not matched to our lengthy costs. So there is some lumpiness in the cash flow over the year, as Jacques has highlighted and with typically more sales in the second half than in the first half of the year.

On the refinancing, I think what we have indicated is that we have continued discussions with banks around refinancing of the loan notes. We do still have some time to complete that.

And we've indicated that we would look to have at least a plan in place by the end of this calendar year, and that remains the objective. In the interim, we will continue to opportunistically repurchase on-market loan notes as we have done previously, but you should expect us to revert by the end of the calendar year on the full refinancing of those loans.

Thank you. And as a follow-up, is it possible to use the RCF to buy the signaling nodes from the secondary market?

Or is it -- is that not kind of like a lot by the banks?

It is possible. We do have an approved basket in our first lien financing arrangements with Absa Bank with the arrangements.

Currently, we have $25 million per fiscal year available for these purposes. And we are allowed to use the undrawn balances on the ask rate to affect that.

Should we try Pete again, Pete, do you want to have to go and see if we can hear you this time, otherwise revert to the written.

Marvelous. I think is now working.

It was a very quick one. It was really around the cost savings, the $44 million.

I was just wondering, is this sort of where you've got to now and there's a little bit more to come -- that $44 million might go up for sort of FY '26? Or are we now getting so far into the sort of efficiency drivers that really are starting to impact muscle rather than Trim VAT?

Yes, I think just to comment on the cost savings. I think the $44 million is against guidance on guidance as we mentioned, $30 million of that in South Africa and in our corporate and group structures and $14 million at Williamson.

And we're confident that we will deliver that. We've really delivered a portion of that in FY '24.

And Obviously, what we will continue to do is to look for opportunities to improve efficiencies and further reduce costs. Where that will continue to be a focus of the team.

But I don't think that we will see anything near the order of magnitude improvement in costs than we saw in the $44 million and that's also because it includes significant redundancies at Finsch Mine and also that it corporate. So yes, we would expect to see some improvements in efficiency.

We will focus on further cost efficiencies as well, but certainly not the order of magnitude of what we've seen in $44 million.

Thank you very much. That was it for me.

Thanks, Pete. [Operator Instructions]

Patrick, are there any written questions that we can perhaps take it.

No recent ones now maybe get it another second or two on the raised hand function.

It doesn't appear as if we have any more questions, Patrick. So my suggestion is if anyone does have any follow-up questions, please direct them to Patrick or any one of us, and we'll get back to you.

But otherwise, just to say thank you very much for your participation, and we look forward to talking again in the near future. So thank you very much.