Q1 revenue increased 33% to US$82.0 million (Q1 FY 2020: US$61.6 million) mainly due to the release of inventory carried over from Q4 FY 2020. Although diamond prices increased ca. 21% on a like-for-like basis at the September 2020 tender in comparison to the prices obtained following the COVID-19 outbreak, with a further ca. 2% increase at the October 2020 tender post Period end, prices are still down around 10% in comparison to pre-COVID-19 levels.
Consolidated net debt as at 30 September 2020 of US$687.8 million, marginally improving over the Period (30 June 2020: US$693.2 million). Unrestricted cash of US$49.3 million (30 June 2020: US$53.6 million), with the Company’s banking facilities remaining fully drawn.
Due to ongoing uncertainty around the impact of COVID-19, production guidance for FY 2021 remains suspended. While the mines are generally operating at planned levels, there remain risks to production relating to the impact of the stringent COVID-19 measures in place. September and October 2020 production at the Finsch mine was impacted by the arrangements to operate continuous operations (“Contops”), to offset the impact of COVID-19 mitigation measures, coming to an end. Post Period-end, an agreement was reached with organised labour to reinstate Contops for the nine-month period to June 2021. Production is therefore expected to revert to planned levels for the duration of FY 2021.
Post Period end the Company announced on 20 October 2020 that it had reached agreement in principle on a common set of commercial terms with respect to a long-term solution for the recapitalisation of the Group with each of the ad-hoc group of holders of the US$650 million 7.25% Senior Secured Second Lien Notes and the Company’s South African lender group.
As previously announced, five high quality Type IIb blue diamonds of significant colour, clarity and size were recovered at the Cullinan mine in September 2020 and have since been named the Letlapa Tala Collection. Petra is planning a special, standalone tender for these diamonds which, as previously announced, is due to be finalised around the end of November 2020.
The Williamson mine in Tanzania remains under care and maintenance and recommencement of operations is dependent on improved market conditions and rough diamond pricing. Post Period end, Petra announced the finalisation of a one-year wage agreement with the National Union of Mineworkers covering its A and B Paterson Band employees at its South African operations for FY 2021, providing some assurances around labour stability during these volatile times. Agreement has also been reached with organised labour for other categories of unionised employees.
Project 2022 continued through the lockdown period, despite the resultant reduction in manning levels, although the emphasis shifted from throughput initiatives to cost optimisation. The implementation of the throughput improvement initiatives has resulted in more stable operations and a thorough understanding of the bottlenecks in our mining and recovery processes. This has facilitated a rapid ramp-up back towards full production. The process of ‘rewiring’ the business to ensure that these revised processes are both replicable and sustainable is now all but complete.
Project 2022 is firmly embedded across the business and has transitioned to being entirely supported by our Group and site-based Business Improvement teams. Cost optimisation opportunities totalling annualised savings of nearly US$22 million have been identified and are expected to be fully implemented by the end of FY 2021. With operations now returning to full production, the Project 2022 throughput initiatives are expected to ramp up towards delivering an annualised contribution of some US$101 million by the end of FY 2021.
Organisation Design Project (a subset of Project 2022) is now being implemented and is expected to be completed by the end of March 2021. This will provide for a cleaner structure and revised role descriptions with clear accountabilities that will result in better support to our operations.The diamond market has shown some modest improvement in FY 2021 but there is still uncertainty around further disruption due to COVID-19 related restrictions. Sales post Period end indicated like-for-like price movements up ca. 2% from the September tender. The Company is continuing its flexible approach in planning its upcoming tenders in light of the COVID-19 challenges. Risks to tender timing remain as a result of possible restrictions that may be re-imposed following a second wave of COVID-19 infections currently being experienced in a number of countries, including Belgium.
Richard Duffy, Chief Executive of Petra Diamonds, commented:
“The Company continued to perform well during the Period, with record carat production at Cullinan during August and September, an excellent achievement given the COVID-19 mitigation measures, which now form part of our standard working conditions. However, Group production was down, mainly due to the Williamson mine remaining on care and maintenance. “We are working very hard to improve our safety performance, with a continued emphasis on awareness campaigns, retraining and management-led interventions and, despite the regression in our LTIFR rate, it was encouraging to see that overall the number of total injuries during the Period reduced.
“We will retain flexibility around the timing and method of our sales tenders for the remainder of the financial year, given the COVID-19 related risks. Sales will be boosted by the special tender for our Letlapa Tala Collection of blue diamonds towards the end of November 2020.
“Finally, last week’s announcement with regards to reaching agreement in principle with our ad hoc group of bondholders and South African lender group around a financial restructuring will provide us with a considerably more manageable level of debt going forward and marks a significant milestone in putting the Company on a viable footing going forward.”