Petra Diamonds LSE:PDL, the Jersey-based, Africa-focussed diamond mining company published its unaudited preliminary results for the year ended 30th June 2022 today (13th September).
The company reported revenues had increased by 44% to USD585m (GBP500m) from USD406.9m in FY21. Earnings before interest, taxes, depreciation, and amortization was USD265m, up 103% from USD130.2m, turning around its net adjusted profit/loss after tax from a USD25.5m loss in FY21 to a USD102m profit – a 500% increase. Basic earnings per share was up 219% to USD0.43. The company had net debt of USD40.6m with a leverage of 0.15x.
Shares opened trading at 114.5p, up from 105p at close of play the previous day. The company has offered a 534.7% year-to-date return, and a 34.7% one-year return, with shares ranging between 45p and 139p over a 52-week period. The company has a market capitalisation of GBP203.9m.
Petra Diamonds debt reduction
The company also announced a tender offer to bondholders of its USD336.7m 2026 notes to redeem up to USD150m of the face value to enable the Petra “to manage its overall funding level and to reduce its gross debt, while maintaining a prudent approach to liquidity.” The tender will offer USD50 premium per USD1,000 redeemed.
Petra hopes that the tender will return between 15-35% of adjusted free cash flow, saving the business up to USD15m in interest a year.
Richard Duffy, chief executive officer of Petra, said in a statement this morning: “Our strong cash generation in FY22 has enabled us to target a further reduction in our gross debt through a tender offer for USD150m of our 2nd lien notes, […] This will see us saving up to USD15m annually in interest expenses.”
Revenues were attributed to rough diamond sales of USD584.1m and profit share agreements on partnership stones of USD1.1m. Duffy noted the contribution to revenue of USD89.1m from the sale of a record number of exceptional stones of compared to an average of USD39.2m over the last five years. The boost to the top line came from a 52% increase in average price per carat (ct).
Diamond heritage
Petra has interests in four producing operations: three underground kimberlite pipe mines in South Africa – Finsch, Cullinan and Koffiefontein – and one open pit mine in Tanzania – Williamson. Cullinan, Finsch, Koffiefontein and Williamson Mines all have rich histories associated with them, as over time they have produced many of the world’s most spectacular and celebrated diamonds.
The Cullinan Mine is the source of the world’s largest gem diamond ever recovered: The Cullinan diamond (3,106ct rough) and was cut to form the Great Star of Africa and the Second Star of Africa, the two largest cut diamonds in the British Crown Jewels. Cullinan sources very large, high quality Type II diamonds and has produced over 800 stones of greater than 100ct, over 140 stones weighing more than 200ct and more than a quarter of all the world’s diamonds of greater than 400c. Open-pit operation,
Cullinan’s revenue increased 29% to USD322.4m due to a 52% increase in the average price achieved per carat and USD75.2m realised for exceptional stones.
Finsch diamond mine is one of the world’s most important diamond mines and South Africa’s second largest diamond operation by production. Petra purchased Finsch as a fully staffed, operating mine from De Beers in September 2011 for ZAR1.4bn. Petra’s initial mine plan has a life to 2030, but resources in Block 6 and the adjacent Precursor kimberlite orebody, which sits next to the main body of the Finsch kimberlite pipe, are expected to prolong the actual LOM. The mine has gross resources of 37.72 Mcts.
Finsch saw steady production in the final quarter of the year leading to an overall increase of 3%, just below guidance. Finsch revenue increased 34% to USD165.7m due to a 53% increase in the average price per carat which more than offset a 12% reduction in diamonds sold.
Mining first started at Koffiefontein over 140 years ago and the mine’s remarkable longevity is a testament to its quality, said the company. Koffiefontein is a low-grade deposit, but this is countered by the very high value of its diamond production. The mine produces white stones of exceptional quality, a regular proportion of which are of between 5ct and 30ct, and occasional fancy pink diamonds. In 1994, a 232ct diamond was recovered at Koffiefontein, being the largest rough diamond ever produced by the mine. FY 2021 production at Koffiefontein totalled 59,151ct.
Koffiefontein’s production metrics, except grade, were below guidance. Revenue decreased 23% to USD21.5m as the 39% increase in the average price per carat was more than offset by the 45% decline in the number of diamonds sold. As Koffiefontein approaches the end of its mine plan in 2025, Petra said it is exploring options for a responsible exit. The mining company is evaluating non-binding expressions of interest, received post year-end for the mine. “If a sales transaction does not eventuate, Petra will evaluate its options and continue to operate the mine responsibly,” said Duffy.
Williamson, Tanzania’s only significant diamond mine, is known for its bubble-gum pink diamonds. The mine was put on care and maintenance in April 2020 to maintain its liquidity. Operations at Williamson recommenced in August 2021 The past year was one of improving the performance of the mine after the 17-month shutdown and Petra said that Williamson’s operations are now fully ramped up.
Williamson’s production and grade were in line with guidance. Revenue was USD75.9m, compared with USD4.6m in FY21, when the only diamond sales were the final parcel recovered prior to the mine being placed on care and maintenance. Petra said it benefitted from the recovery of an exceptional 32.32ct pink diamond which was sold for USD13.8m in the December 2021 tender.
Petra reported that rough diamonds sold in FY22 was 3,536,316ct, down 11% from 3,960,475ct in FY21, but due to higher prices, had a more positive effect. Duffy said: “The 11% reduction in rough diamonds sold reflects the particularly high volumes sold in FY21, mostly off-tender, as the inventory build-up after the initial COVID-19 outbreak was released.”
Resource depletion
Petra currently manages one of the world’s largest gross diamond resources, inclusive of reserves of 226.6Mcts, supporting a potential mine life well beyond its current mining plans. A 2% reduction compared to 230.64Mcts on 30th June 2021, was predominantly due to depletions resulting from mining at the company’s sites in FY22. Petra’s gross diamond reserves decreased 10% to 29.97Mcts primarily due to mining depletions with minor changes in mine plans and Williamson remaining on care and maintenance until August 2021. However, the company has planned extension projects at its South African mines this year.
Petra Diamonds new dividend policy
The company 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 dividend policy will take effect from 1st July 2022 and the company will consider whether to pay a maiden dividend under this policy following publication of Petra’s interim results for the six months ending 31st December 2022. In a year where Petra generates windfall earnings, the company said it may consider paying a special dividend.
