Release Date: February 17, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Petra Diamonds Ltd (PDLMF) successfully implemented cost reduction plans, reducing mining and processing costs by 19% and capital expenditure by 32% year on year.
• The company achieved improved operational cash flow, moving from a negative $21 million to a positive $16 million for the reporting period.
• Petra Diamonds Ltd (PDLMF) has focused on simplifying its portfolio by closing the Coffee fontaine sale and announcing the full sale of Williamson, which will avoid significant closure costs.
• The company has launched a multi-stream restructuring plan aimed at sustainable cost reductions and capital optimization, with progress in developing higher-grade areas at Finch and Cullinan mines.
• Despite market challenges, Petra Diamonds Ltd (PDLMF) maintained an average realized price of $103 per carat, reflecting a favorable product mix that helped offset broader market price declines.

Negative Points

• Petra Diamonds Ltd (PDLMF) experienced a breach in interest cover and leverage ratios due to lower EBITDA over the past 12 months.
• Revenue was negatively impacted by approximately $49 million year on year, due to rollover sales, weaker pricing, and product mix variability.
• The company reported a decline in revenue from $164 million to $115 million compared to the previous year, primarily due to deferred sales from FY 2023.
• Net debt increased to $215 million from $193 million, driven by timing of tender sales and weaker pricing.
• The diamond market remains weak, with a 6% drop in like-for-like pricing during the most recent tender, and uncertainty around the timing and extent of price recovery.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with PDLMF.

Q: Is there a specific deadline for Petra Diamonds to complete its refinancing plan? A: Unidentified_1 (Joint Interim CEO): There is no specific timeline required to complete the refinancing. We are in constant dialogue with our bank, ABSA, and bondholders. Our focus is on completing the restructuring of our business to optimize cost bases and capital profiles before sitting down with lenders to finalize a refinancing plan.

Q: Can you share the roadmap for refinancing, including potential options like full repayment or equity injection? A: Unidentified_1 (Joint Interim CEO): At this stage, all options are on the table. We plan to talk to all our lenders once we've updated our business plan to craft the best solution, which includes local debt, bondholders, and shareholders.

Q: Should we expect a new CapEx plan, or will the July 2024 plan remain the basis? A: Unidentified_1 (Joint Interim CEO): Our capital development is proceeding as per the June plan. We've achieved capital efficiencies resulting in lower spend while being slightly ahead on development. We aim to maintain or enhance production profiles going forward.

Q: Given the current earnings level, will CapEx still be self-funded? A: Unidentified_1 (Joint Interim CEO): The target remains to be cash positive, and we are not looking to raise capital for funding our capital projects. We are confident that through sustainable cost reductions and capital optimization, the capital programs will be self-funded.

Q: What is the outlook for diamond prices, and when do you expect them to improve? A: Unidentified_1 (Joint Interim CEO): We see green shoots of recovery with demand increases in key markets like the US and India. However, the return of Chinese demand is crucial for a significant impact on pricing. It's difficult to predict the exact timing and percentage of improvement.

Q: Are there any plans for further asset disposals? A: Unidentified_1 (Joint Interim CEO): No, we are now focused on the Cullinan and Finch mines, which are world-class assets. There are no plans for further asset sales.

Q: What is the realistic net debt to EBITDA ratio target post-refinancing? A: Unidentified_1 (Joint Interim CEO): We aim for a sustainable leverage ratio around 1.5 to 2 times EBITDA. Our target is to substantially reduce gross debt post-refinancing, ensuring a sustainable leverage ratio for the business.

Q: Are more waivers from ABSA expected due to potential covenant breaches? A: Unidentified_1 (Joint Interim CEO): We are in constant dialogue with ABSA and will initiate conversations if needed. The June 2025 covenant measurement is due by the end of September, and we hope to have a firm path to refinancing by then.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.