Petra Diamonds Reports Record Six Month Period Production Figure

(IDEX Online) – Petra Diamonds reports production up 10 percent to 2,208,056 carats for the half-year 2018 (H1 FY 2017: 2,015,087 carats), in line with H1 guidance of 2.2 – 2.3 Mcts (million carats). This represents record production for any six month period for the company, it added.

Petra is guiding for a lower grade at Cullinan, largely offset by a higher average diamond price, resulting in the revenue per tonne remaining materially in line with expectations. Recoveries at Cullinan’s new plant to date indicate that a steady state higher grade can be achieved by recovering larger quantities of small, low value diamonds; however, it is Petra’s initial assessment that it would be uneconomic to do so and would not be in line with the company’s strategic focus on value rather than volume production.

FY 2018 revenue expected to remain in line with current consensus (including the expected sale of the blocked Williamson parcel in H2). FY 2018 production guidance is reduced to 4.6 – 4.7 Mcts (4.8 – 5.0 Mcts previously), mostly due to the lowered grade guidance at Cullinan, as well as production lost further to the labour action in South Africa in Q1.

Revenue was down 1 percent to $225.2 million (H1 FY 2017: $228.5 million), mainly due to Williamson’s first parcel (ca. 71,000 carats) not being sold during the Period; this parcel remains blocked for export by the government of Tanzania.

Diamonds sold were down 5 percent to 1,811,154 carats (H1 FY 2017: 1,910,113 carats), also impacted by Williamson’s first parcel not being sold. In line with past years, H2 is expected to be a stronger sales period, due to the higher number of tenders held (four in H2 versus three in H1).

Rough diamond prices on a like-for-like basis down ca. 3.5 percent, compared to H2 FY 2017, split as to down ca. 5 percent from July to October 2017, before recovering by ca. 1.5 percent by end December 2017. However, higher average values were realized at Finsch, Cullinan and Koffiefontein further to the improved product mix associated with higher production levels of undiluted ore and lower contribution of tailings carats.

Underground expansion projects at both Finsch and Cullinan continue to deliver increased volumes of undiluted ore from newly established mining areas.

There was net debt of $644.7 million (30 September 2017: $613.8 million) which is at the high end of expected levels as it was impacted by the labor action and working capital locked up in the blocked Williamson parcel; cash and undrawn bank facilities of $124.4 million (30 September 2017: $146.7 million).

As previously guided to the market, Petra expects to be in breach of the 31 December 2017 EBITDA related covenant measurement ratios associated with its banking facilities; the בompany has therefore commenced formal discussions with its lender group, evaluating both the December 2017 and June 2018 measurements, bearing in mind the risks to covenant compliance associated with potentially not selling the blocked Williamson parcel and the potential further strengthening of the Rand. These discussions are expected to be concluded during Q3 FY 2018. Petra remains confident that the lender group will continue to support the company as it progresses towards its targeted production profile.

Johan Dippenaar, Chief Executive Officer, commented: "Petra has delivered a record production performance, with 2.2 Mcts being the highest level achieved for any half year period for the group, and delivered against a solid safety performance, demonstrating the high level of focus on this most important area.

“Petra’s stated strategy is to focus on value as opposed to volume production, which is particularly pertinent to diamond operations, as not all carats are of equal value. Our assessment of optimal recoveries at Cullinan has therefore led us to opt for lower carat volumes, due to the positive impact that not recovering the small diamonds has on the average value per carat. This has led to lowered production guidance for FY 2018, but does not materially impact our expected revenue, further to the positive uplift in Cullinan’s average value per carat. Likewise, we have been very encouraged by the recovery of large diamonds and other higher value single stones through the new Cullinan Plant to date, which was in line with our expectations that the incidence of such stones would increase as they are historically associated with the Western side of the orebody."

“Furthermore, Petra has been undertaking a Capex evaluation in H1 to optimize cashflow without impacting the economics of the longer term business plan.