Petra records solid full-year performance despite weak market
MINNG WEEKLY / 16 SEPTEMBER 2019 - 17.01 / TASNEEM BULBULIA
Aim-listed Petra Diamonds achieved a solid operational performance for the financial year ended June 30, generating operating free cash flow of $70.5-million, despite a weaker market, and during the company’s transition from its expansionary capital expenditure (capex) phase towards steady-state production.
Following a strategic review of the business, in the short term, the company remains focused on the execution of Project 2022, which is expected to reduce its high net debt levels against a backdrop of a challenging diamond market, Petra CE Richard Duffy said on Monday.
Project 2022 was launched in July, led by a senior project executive team.
The initiative is aimed at identifying and driving efficiencies and improvement across all aspects of the business, targeting $150-million to $200-million of cumulative free cash flow over a three-year period, with delivery weighted towards the 2021 and 2022 financial years, dependent on diamond pricing.
“Addressing this leverage will enable us to capture future organic growth opportunities and reposition Petra as a leading midtier diamond producer,” he added.
Positive operational free cash flow of $70.5-million, compared with a $61.3-million outflow in the prior financial year, marked an important milestone for the company and reflected the strong grip on factors under Petra’s control of production, costs and capex.
Adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda), however, decreased by 22% to $153-million from $195.4-million in the prior year
Petra’s full-year production increased to 3.87-million carats, compared with the 3.84-million carats produced in the prior financial year. Output was in line with guidance.
Run-of-mine tonnes treated increased by 10% to 13.3-million tonnes, from 12.1-million tonnes in the prior financial year.
Operational capex, excluding capitalised borrowing costs, reduced to $81.4-million from $129.6-million in the prior year in line with the company’s reducing capex profile.
The group achieved absolute on-mine costs in line with expectations with a weakening rand having offset most of the inflationary increases.
Petra on Monday said it was on track to achieve its production guidance of about 3.8-million carats for the 2020 financial year.
Further, under its Project 2022, the diagnostic phase at both the Finsch and Cullinan mines has been completed and has identified a number of potential operational cost saving and throughput enhancement opportunities that are scheduled to be implemented from the first quarter of 2020.
Moreover, further diagnostics are being conducted to identify opportunities at Koffiefontein, Williamson and off-mine expenditure.
Petra will focus on operational cost efficiencies. The group’s full year 2020 total on-mine cash costs are expected to remain largely flat relative year-on-year, with inflationary pressures partially offset by lower tailings production and a group-wide focus on streamlining operations and re-setting the cost base across its portfolio.
Full-year 2020 capex is guided at about $43-million, continuing the declining trend since peak capex was reached in full-year 2016.
The 2020 capex guidance is about $29-million lower than previous guidance, with a focus to close out the existing expansion programmes.
While noting that seasonal weakness is typically experienced in pricing at the first tender of full year 2020, Petra expects the diamond market to remain challenging in the near-term.
As part of the board's three-year succession plan, nonexecutive chairperson Adonis Pouroulis intends to step down from the board by the end of the third quarter of the 2020 financial year, once a successor has been identified and appointed.
This is expected to be finalised before the end of this calendar year.
Meanwhile, the South African lenders to the company's black economic empowerment (BEE) partners have, post the financial year-end, agreed to an amended repayment profile of the about $54.2-million BEE banking debt.
The balance will be spread out over the period to November 2021.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER