Jul 23, 2019

Petra’s FY 2019 Revenue Decreases by 6% Due to Weak Diamond Market

Petra Diamonds Limited announcing its Trading Update (unaudited) for the year ended   June 30, 2019 (FY 2019), prior to releasing its preliminary results for the financial year, reported that revenue for FY 2019 decreased 6% to US$463.6 million compared to US$495.3 million earned in FY 2018. This, the Company said reflected “a weaker diamond market”.

Petra sold a total 3,736,847 carats in FY 2019 as against 3,793,799 carats sold in FY 2018.  The Company further revealed that its realised diamond prices reduced by about 5% per carat “in line with market movement during the period”.

Meanwhile, the Company’s full year production of 3.87 Mcts (FY 2018: 3.84 Mcts), was in line with guidance.

While Run of Mine (ROM) production increased to 3.76 Mcts (FY 2018: 3.65 Mcts); production from surface tailings decreased to 0.11 Mcts (FY 2018: 0.19 Mcts) -- in line with Petra’s policy of “focus on value over volume”.

At the Company’s Finsch Mine overall production decreased 15% to 1,755,768 carats (FY 2018: 2,073,477 carats) with ROM carat production decreasing 10% to 1,724,265 carats (FY 2018: 1,926,467 carats) and tailings production decreasing to 31,503 carats (FY 2018: 147,010 carats).

In the period under review, the Cullinan mine saw a production rise of 21% to 1,655,929 carats (FY 2018: 1,368,720 carats) “mainly due to underground throughput increasing from 3.7 Mt in FY 2018 to 4.1 Mt in FY 2019 and further supplemented by an increase in ROM grades from 35.9 cpht in FY 2018 to 38.6 cpht in FY 2019”, the Company said.

“Cullinan Mine recovered four +100 carat gem quality stones during the year, including the 425.1 carat D colour Type II gem quality diamond that was sold for US$15 million,” Petra announced. Further, post period end, a 132 carat D colour Type II gem quality stone was recovered from the Cullinan Mine.

At Petra’s Koffiefontein mine, ROM production increased 21% to 63,635 carats (FY 2018: 52,537 carats). This, Petra said, was “further to the ramping up of the SLC to a planned 1.0 Mt, notwithstanding lower production during Q2 as a result of community unrest relating to municipal service delivery and operational challenges experienced relating to plant availability.”

In FY 2019 the Williamson mine is said to have “performed well operationally” with production up 17% to 399,615 carats (FY 2018: 341,102 carats); the highest level of production achieved by the mine in over 40 years. “This is despite operations being impacted by liquidity constraints due to the parcel of ca. 72,000 carats that remains blocked for export and the overdue VAT receivables of ca. US$34 million,” Petra said.

The Company generated net free cash of $17 million in H2 FY 2019. Net debt as at June 30, 2019 stood at US$560.5 million.

Petra has launched Project 2022 and a team has been set up, led by a senior project executive, “to identify and drive efficiencies and improvement across all aspects of the business” with  the aim of  delivering “an initial target of $150-200 million free cashflow over a three year period, based on flat nominal pricing over the three years”.

The Company has announced a production guidance of around 3.8 Mcts for FY 2020.

“ROM production is expected to remain largely flat at 3.75 Mcts (FY 2019: 3.76 Mcts) whilst tailings production will decrease to 0.05 Mcts (FY 2019: 0.11 Mcts),” the Company said elaborating on its expectations. Petra has also assumed flat diamond prices and an exchange rate of ZAR14:USD1 in FY 2020.

Richard Duffy, Chief Executive of Petra Diamonds, commented: "Petra delivered solid results in both a difficult market and during its continued transition from a period of high capital investment to a steady state operational phase. The focus in the short term is on driving efficiencies across the business through Project 2022 to provide a stable, consistent operating platform off which to drive improvements, supported by an appropriate organisational structure and cost base to enhance our cash flow generation and significantly reduce our net debt."

Remarking on the overall market scenario, Petra said: “The diamond market remains difficult with rough prices as measured by the Bloomberg Rough Diamond Index down 4% in the period January to June 2019. Polished diamond demand and prices were weaker as the market was challenged by higher than normal polished inventories and tightening cutting-centre bank credit. Trade tensions between the US and China were also headwinds in H2 FY2019. These conditions weighed on rough sales and pricing, with subdued pricing particularly in lower-value stones.”

Petra added: “The Company expects the diamond market to remain challenging in the near-term but with broadly stable prices in FY 2020.