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Petra reduces debt further, posts 87% growth in interim Ebitda

22nd February 2022

By: Marleny Arnoldi

Deputy Editor Online

     

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The first half of the 2022 financial year has set London-listed Petra Diamonds in good stead to maintain profitability and cash flow, as well as meet operational guidance for the full-year.

In the six months ended December 31, 2021, Petra grew its adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) by 87% to $150-million, compared with adjusted Ebitda of $80-million posted in the first half of the 2021 financial year.

However, net profit after tax amounted to $49.1-million, compared with $67-million in the prior comparable period, owing to a negative noncash foreign exchange movement.

Notably, CEO Richard Duffy says the company has achieved stabilised operations and improving cash generation, as envisioned in the company’s Project 2022 strategy, which was initiated in 2019 and included overhead cost optimisation, building a more stable production base and instilling a continuous improvement culture.

To date, Project 2022 has delivered $182-million of net free cash flow and is on track to exceed $200-million by the end of June when the project comes to an end, against a target of between $100-million and $150-million.

Petra further reports that its adjusted basic earnings per share (EPS) were $0.29 for the reporting period, compared with adjusted basic EPS of $0.04 posted in the prior half-year period.

The company explains that earnings growth and a significant reduction in net debt were made possible by a recovery in rough diamond proceeds, record proceeds from the sale of exceptional diamonds and improvements made to operations in the six months under review. 

The half-year saw a 16% increase in rough diamond prices year-on-year, boosting the company’s ability to reduce consolidated net debt further to $152-million, compared with a debt bill of $700-million in the first half of the 2021 financial year, and $228-million by the end of the 2021 financial year.

This while unrestricted cash increased by $109-million to $256-million from $147-million as at June 30, 2021.

Petra recovered 1.77-million carats of diamonds in the reporting period, on par with the prior half-year. Diamonds sold amounted to 1.59-million carats, compared with 1.71-million carats sold in the prior comparable period; however, Petra generated 49% more revenue at $264-million for the six months under review.

Exceptional diamonds have contributed an average of $47-million a year to group revenue over the last three years, and an average of $37-million a year over the last five years.

The company notes that its production was supported by the restarting of the Williamson mine, in Tanzania, in September 2021, after an extended closure period while investigations into security issues and alleged human rights abuses were under way.

Petra has since advised of its decision to reduce its exposure in Tanzania through a framework agreement with the Tanzanian government and a memorandum of understanding with East African mining contractor Caspian. However, the company retains a controlling interest in the mine.

Duffy admits that the second half of the financial year may not benefit from the same levels of record contribution from exceptional diamond sales, but the rough diamond market remains robust and advantageous for Petra for the time being.

The company maintains its full-year guidance for the current financial year at between 3.3-million and 3.6-million carats.

Meanwhile, Petra expects to spend capital expenditure of between $78-million and $92-million, but more likely at the lower end.

The board has approved two major projects to this end – a $173-million project to extend the Cullinan mine life plan to 2031 and a project to extend the life of the Finsch mine to 2030.

Over the medium term between 2026 and 2029, the company will invest about $61-million towards completion of these major projects and for certain infrastructure projects at the Cullinan mine, which still need to be approved.

Petra says its Koffiefontein mine will reach the end of its life and available reserves by the 2025 financial year, to which end Petra will mitigate against negative cash flow impacts and effect responsible exit from the area.

MARKET VIEW

The number of producing diamond mines globally continues to contract. Supply decreased by 22% in 2020 to 107-million carats, compared with supply of 138-million carats globally in 2019.

Africa and Russia remain the major diamond producers.

Diamond exploration spend totalled $247-million in 2020 globally, indicating that the industry is heavily suppressed. Duffy expects supply to be almost flat over the next ten years, with few new projects coming online.

He adds that diamonds and jewellery emerged as winning consumer categories as the Covid-19 pandemic progressed. More discretionary spend went to diamonds, owing to travel challenges and emphasis rose on personal relationships.

Additionally, a delayed wedding boom is currently under way, which bodes well for diamond demand.

Last year had been the strongest holiday season for diamond trade and commentators are expecting record jewellery sales of about $84-billion – 29% higher year-on-year.

“We are seeing structural change in the market, with insufficient rough diamond inventory to supply the market. The fundamentals suggest a very supportive diamond market for Petra going forward.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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