Diamond producer Petra Diamonds has reported record results in terms of three metrics for the financial year ended June 30, which CEO Richard Duffy said would allow the company to maximise the benefit gained from a higher diamond price environment.

For the year, Petra reported a 103% year-on-year increase in adjusted earnings before interest, taxes, depreciation and amortisation to $265-million, a 91% increase in operational free cash flow to $230-million, and a 219% in adjusted basic earnings a share to $0.43.

“This affirms the quality of the diamonds in our resource, where we also saw a contribution of $89.1-million from exceptional diamond sales,” he said. Exceptional diamonds are those that are capable of fetching more than $5-million each.

“This all culminated in stronger cash generation, which has generated $265-million of net free cash flow from our Project 2022, which was launched towards the end of 2019, targeting the delivery of $150-million to $200-million of net free cash flow from the business over a three-year period. We have generated well in excess of that $265-million net free cash over a three-year period,” Duffy said.

The focus of Project 2022 centred primarily on improving throughput at the company’s operations.

Over the year, Petra reported a 44% increase in revenue for the year to $585-million and a net profit after tax of $88.1-million.

“The significant increase in our whole process is really as a result of Williamson mine [in Tanzania] recommitting its operations on the back of it being in care and maintenance,” Duffy explained.

The mine was placed on care and maintenance in April 2020 to preserve its liquidity. Operations restarted during the first quarter of the 2022 financial year.

“Our overall performance caps the turnaround begun three years ago. In addition to Project 2022, the key drivers were our record recovery of exceptional stones, the resumption of operations at the Williamson mine, and a 41.5% increase in like-for-like diamond prices.

“The diamond market remains broadly supportive as a result of the prevailing structural supply deficit, although ongoing macro-economic uncertainties may lead to some volatility in the short term,” Duffy summarised.  

He noted that the company’s strong cash generation enabled it to target a further reduction in its gross debt through a tender offer for $150-million of Petra’s senior secured second lien notes due 2026.

“This will see us saving up to $15-million yearly in interest expenses,” he explained.

The purpose of the offer was to enable Petra to manage its overall funding level and to reduce its gross debt, while maintaining a prudent approach to liquidity, the company expressed.

OUTLOOK

Petra reaffirmed its previous operational guidance provided for 2023 to 2025, noting that the production, cost and capital expenditure guidance remained unchanged.

However, the company noted that, while the Cullinan mine recorded lower grades towards the end of the year, a study was under way to inform mine planning as a result of a higher proportion of run-on-mine tonnes from the more mature draw points.

Moreover, the impact of waste dilution on grades experienced at the Finsch mine in the fourth quarter of the 2022 financial year continued into the first quarter of the 2023 financial year, with ongoing monitoring and mitigation plans in place to address this.

Finally, options for a responsible exit at Koffiefontein, including the evaluation of non-binding expressions of interest, were being considered.

“We continue to monitor the evolving macroeconomic environment that has seen higher inflation and interest rates. Our ability to absorb inflationary pressures is assisted by our disciplined cost management, relatively low fuel consumption, and any weakening of the rand,” Duffy said.

The backdrop of structural changes to the supply and demand fundamentals in the diamond market remained unchanged, he added, noting that the company expected that it would continue to be supportive going forward, notwithstanding possible volatility in the short term. 

“The implementation of our new operating model, that formed part of Project 2022, has provided a more stable and resilient operating platform supporting ongoing cash generation, enabling our self-funded expansion programme,” he noted.