Petra Diamonds upbeat on preliminary, tender results

Petra Diamonds reported record preliminary full-year results on Tuesday, with revenue rising 44% to $585m, as it launched a $150m tender offer to reduce its debt and recorded strong sales in its first tender for the new year.

The London-listed firm said adjusted EBITDA had doubled year-on-year for the 12 months ended 30 June, to $265m, while adjusted basic earnings per share were ahead 219% to 42.93 US cents.

Operational free cash flow grew by 91% to $230m, while consolidated net debt ended the year at $40.6m, with leverage of 0.15x.

“We are delighted with our overall performance, which caps the turnaround begun three years ago,” said chief executive officer Richard Duffy.

“Our continued focus on safety has supported a 48% improvement in our LTIFR.

“Additionally, sustainability is being integrated across our business through the implementation of our new sustainability framework.”

Duffy noted that Project 2022, now concluded, delivered $265m in net free cash over its three years, contributing to Petra’s record financial results for the 2022 financial year.

“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.

“Our strong cash generation in 2022 has enabled us to target a further reduction in our gross debt through a tender offer for $150m of our second lien notes.”

That, Richard Duffy said, would see the company saving up to $15m annually in interest expenses.

“I am also very pleased to announce that, on the back of our much improved financial position, the board has approved a dividend policy.”

Petra’s board said it approved a dividend policy targeting an ordinary dividend within the range of 15% to 35% of adjusted free cash flows after interest and tax, and having adjusted for any windfall earnings.

The directors said they would normally look to the annual dividend being paid one-third following its interim results, and two-thirds after its full-year results.

It said the dividend policy took effect from 1 July this year, with the board set to consider whether to pay a maiden dividend under this policy following publication of its interim results for the six months ending 31 December.

In a year where Petra generates windfall earnings, the board said it could consider paying a special dividend.

“Prior to declaring or recommending any dividend, the board will consider the group’s capital commitments, including, amongst other things, approved expansion projects and debt servicing and repayment commitments and associated covenant requirements, to ensure that the group maintains a healthy balance sheet and sufficient liquidity and headroom.”

Petra also announced its intention to reduce its gross debt through a tender offer to bondholders to purchase $150m of the senior secured second lien notes due in 2026 in line with its stated intent to further optimise its capital structure through a reduction of gross debt.

If completed, the transaction would see Petra saving up to $15m per annum in interest expenses, while it remained confident that it would continue to fund its ongoing capital programmes from existing and internally-generated cash resources.

Looking ahead, Petra said 2023 to 2025 production, cost and capital expenditure guidance remained unchanged.

It said it was continuing to monitor the evolving macro-economic environment that had 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 South African rand,” the board said.

“The backdrop of structural changes to the supply and demand fundamentals in the diamond market remains unchanged and we anticipate that it will continue to be supportive going forward, notwithstanding possible volatility in the short term.”

Petra said the implementation of its new operating model that formed part of Project 2022 had provided a “more stable and resilient” operating platform supporting ongoing cash generation, enabling its self-funded expansion programme, the $150m tender offer for its second lien notes, and the potential payment of dividends under our new dividend policy.

Finally, Petra also announced the sales results for its first tender in the 2023 financial year, with 520,011 carats of diamonds sold, down 9% from the sixth and final tender in 2022.

Sales were ahead 11%, however, at $102.9m, as the average price rose 21% to $198 per carat.

“We have achieved strong sales in the first tender of 2023, realising $102.9m due to a high proportion of high-value gem-quality single stones particularly from the Cullinan Mine,” said Richard Duffy.

“This has resulted in a 21% increase in our average realised price against tender six in 2022, more than offsetting the 4.5% softening of like-for-like price.

“We have seen strong support in fancy-coloured and large white stones while pricing of smaller stones has continued its recent upward trend.”

Duffy said subdued demand in China had led to relative pricing pressure on 0.75 up to five carat size ranges..

“While we expect some volatility in pricing in the short-term given the ongoing macroeconomic situation, we remain encouraged by the supportive diamond market resulting from the projected supply deficit in the medium to longer term.”

At 0956 BST, shares in Petra Diamonds were up 5.99% at 111.29p.

Reporting by Josh White at Sharecast.com.