TIDMPDL
RNS Number : 9648Q
Petra Diamonds Limited
18 September 2017
This announcement contains inside information
18 September 2017 LSE: PDL
Petra Diamonds Limited
("Petra", "the Company" or "the Group")
Preliminary Results Announcement for the Year ended 30 June 2017
(unaudited)
Petra Diamonds Limited announces its preliminary results
(unaudited) for the year ended 30 June 2017 ("the Year" or "FY
2017").
Financial Highlights
-- Revenue up 11% to US$477.0 million (FY 2016: US$430.9 million).
-- Adjusted EBITDA(3) down 4% to US$157.2 million (FY 2016: US$164.3 million).
-- Adjusted net profit after tax(4) down 54% to US$29.0 million (FY 2016: US$63.6 million).
-- Net profit after tax down 69% to US$20.7 million (FY 2016: US$66.8 million).
-- Cash generated from operations down 10% to US$160.2 million (FY 2016: US$177.3 million).
-- Basic EPS: 3.47 US$ cents per share (FY 2016: 10.38 US$ cents per share).
-- Adjusted EPS(6) : 5.04 US$ cents per share (FY 2016: 9.76 US$ cents per share).
-- Net debt(9) : US$555.3 million (30 June 2016: US$382.8 million).
-- Financial results for the Year were negatively impacted by
the delayed ramp-up of the expansion programmes, rising on-mine
cash costs and the stronger Rand versus the Dollar for the
Year.
Operational Highlights
-- Production up 8% to 4.0 Mcts (FY 2016: 3.7 Mcts).
-- Capex (excluding capitalised borrowing costs) of US$254.6
million (FY 2016: US$295.8 million), reflecting the declining trend
due to the advanced stage of the Group's expansion programmes.
-- Safety: Group LTIFR improved to 0.27 (FY 2016: 0.29), but
tragically the Company experienced six fatalities; extensive safety
reviews initiated and ongoing.
-- Gross Diamond Resources (inclusive of Reserves) decreased 2%
to 304.9 Mcts (30 June 2016: 312.2 Mcts) due to depletion and
re-estimation of resources.
Corporate
-- During April 2017, the Group completed the issuance of US$650
million of new 7.25% senior secured second lien notes due 2022, and
the redemption of the Group's US$300 million 8.25% senior secured
second lien notes due 2020; the Group's debt facilities were
amended and simplified, including through the partial repayment of
drawn bank debt and a reduction in total facilities, thereby
rationalising the Company's capital structure.
-- Distribution covenants were not met for the measurement
period to 30 June 2017 and Petra will therefore not declare a
dividend for FY 2017.
-- Agreement reached (post Year-end) with Petra's lender group
to waive the two EBITDA measurement covenant tests related to its
senior debt facilities for the 12 month period to, and as at, 30
June 2017, and the covenant ratios were reset for the rolling 12
month period to, and as at, 31 December 2017.
-- Company tax domicile transferred from Jersey to the UK in May 2017.
Outlook
-- Operations at Williamson in Tanzania have resumed after a
four day stoppage, but the Company's parcel of diamonds (71,654
carats) has not been released for export; discussions with the
Government are ongoing. The Company's forecasts and expectations as
disclosed in this announcement include Williamson in normal
operation. Refer to 'Post Year end Developments in Tanzania' on
page six for further information.
-- The Company has made a solid start to FY 2018 and remains on
track to meet production guidance of 4.8 - 5.0 Mcts in FY 2018 and
5.0 - 5.3 Mcts by FY 2019 (includes 0.3 Mctpa from Williamson).
-- Increasing volumes to be realised against Petra's fixed cost
base are expected to have a positive impact on the Company's
financial results for FY 2018 and beyond.
-- As the Company continues to ramp up higher value ROM
production from the increasing mining footprint established, and
its contribution to Petra's carat output increases from 71% in FY
2017 to ca. 85% in FY 2018 (as opposed to lower value tailings
production), this is expected to lead to an improved product
mix.
-- Due to the Company's declining Capex profile, Petra expects
net debt levels to start falling from H2 FY 2018, and free cashflow
to be generated from H2 FY 2018 onwards.
-- The Group's forecasts show that Petra has sufficient
liquidity to meet its working capital and capital development
requirements. The Company maintains headroom against its financial
covenants going forward based on its forecasts.
-- Diamond market stable but showing signs of seasonal weakness,
with like-for-like pricing achieved by Petra at its first tender of
FY 2018 down ca. 3% in comparison to those achieved in H2 FY
2017.
Johan Dippenaar, CEO, said:
"While Petra remained in growth mode in FY 2017, achieving
record production and revenue, the shortfall against guidance, in
conjunction with the significant strengthening of the Rand on our
predominantly Rand-denominated cost base, impacted our financial
results for the Year.
"However, the challenges related to the commissioning of the
Cullinan Plant have now been overcome and it is ramping up in line
with expectations, plus the new mining areas at our two biggest
mines, Finsch and Cullinan, are set to deliver double the amount of
undiluted ore in FY 2018. The impact of a rising contribution of
undiluted ore has already seen ROM grades at both mines rise ca.
30% in FY 2017.
"While the diamond market has shown some softness at our first
tender of FY 2018, this appears to be attributable to normal
seasonal factors, as our assessment of the wider market is that it
remains stable. We view the big push in diamond marketing now being
made by the Diamond Producers Association, as well as De Beers, as
very positive in terms of supporting future consumer demand."
Results Presentation, Webcast and Conference Call
Presentation:
A presentation for analysts will be held at 9:30am BST on 18
September 2017 at the offices of Buchanan, 107 Cheapside, London
EC2V 6DN.
Webcast:
A live webcast of the presentation will be available on Petra's
website at www.petradiamonds.com and on:
www.investis-live.com/petra-diamonds/5996b50f2e7a6610000c8a0d/gdrd.
A recording will be available from 1:00pm BST on 18 September 2017
on the same link.
A conference call line will also be available to allow
participants to listen to the webcast by dialling one of the
following numbers shortly before 9:30am BST:
From the UK (toll free): 0800 368 0649
From South Africa (toll free): 0800 999 282
From the rest of the world: +44 20 3059 8125
Participant passcode: Petra Diamonds
Conference Call
A conference call with management to cater for North American
and other international investors will be held at 4:00pm BST on 18
September 2017. Participants are advised to view the results
presentation webcast in advance of the call, as the full management
commentary on the results will not be repeated.
From the United States (toll free): 1866 928 7517
From the rest of the world: +44 203 428 1542
From the UK (toll free): 0808 237 0040
Participant passcode: 40569091#
SUMMARY OF RESULTS (unaudited)
Year ended
30 June Year ended
2017 30 June
2016
("FY 2017") ("FY 2016")
US$ million US$ million
----------------------------------------- ------------- -------------
Revenue 477.0 430.9
Adjusted mining and processing
costs(1) (311.3) (257.7)
Other direct income 2.8 2.8
----------------------------------------- ------------- -------------
Profit from mining activities(2) 168.5 176.0
----------------------------------------- ------------- -------------
Exploration expense (0.6) (2.7)
Corporate overhead (10.7) (9.0)
----------------------------------------- ------------- -------------
Adjusted EBITDA(3) 157.2 164.3
----------------------------------------- ------------- -------------
Depreciation (79.6) (51.8)
Share-based expense 0.1 (4.1)
Net finance expense (22.9) (36.2)
Tax expense (25.8) (8.6)
----------------------------------------- ------------- -------------
Adjusted net profit after tax(4) 29.0 63.6
Kimberley Ekapa Mining JV fair 4.1 -
value adjustment(5)
Net unrealised foreign exchange
gain 9.9 3.2
Bond redemption premium and unamortised (22.3) -
costs(7)
Net profit after tax 20.7 66.8
----------------------------------------- ------------- -------------
Earnings per share attributable
to equity holders of the Company
- US$ cents
Basic profit per share 3.47 10.38
Adjusted profit per share(6) 5.04 9.76
Unit As at 30 As at
June 2017 30 June
2016
------------------------------------ -------- ----------- ---------
Cash at bank (including restricted
amounts) US$M 203.7 48.7
Diamond debtors US$M 41.5 63.4
Diamond inventories US$M 50.2 43.6
Diamond inventories Carats 570,264 549,620
US$650 million loan notes US$M 650.0 -
(issued April 2017)(8)
US$300 million loan notes
(issued May 2015) US$M - 300.0
Bank loans and borrowings US$M 109.0 131.5
Net debt(9) US$M 555.3 382.8
Notes:
The Group uses several non-GAAP measures above and throughout
this report to focus on actual trading activity by removing
non-cash or non-recurring items. These measures include adjusted
mining and processing costs, profit from mining activities,
adjusted EBITDA, adjusted net profit after tax, adjusted earnings
per share, adjusted US$ loan notes and net debt. As these are
non-GAAP measures, they should not be considered as replacements
for IFRS measures. The Company's definition of these non-GAAP
measures may not be comparable to other similarly titled measures
reported by other companies.
1. Adjusted mining and processing costs are mining and
processing costs stated before depreciation and share-based
expense.
2. Profit from mining activities is revenue less adjusted mining
and processing costs plus other direct income.
3. Adjusted EBITDA is net profit after tax stated before
Kimberley Ekapa Mining JV ("KEM JV") fair value adjustment, bond
redemption premium and acceleration of unamortised costs,
depreciation, share-based expense, net finance expense, tax expense
and net unrealised foreign exchange gains and losses.
4. Adjusted net profit after tax is net profit after tax stated
before the KEM JV fair value adjustment, net unrealised foreign
exchange gains and losses, and bond redemption and acceleration of
unamortised costs.
5. The US$4.1 million gain recorded on the formation of KEM JV
represents Petra's newly recognised incremental 26% share of the
fair value of Ekapa Minerals (Pty) Ltd's (being the entity through
which Petra and Ekapa Mining own the Kimberley Mines) assets and
liabilities and its 75.9% share of the fair value of Super Stone's
assets and liabilities, less the 24.1% of the net book value assets
and liabilities of the Kimberley Underground mine relinquished as
part of the transaction. See notes 2 and 16 for further
details.
6. Adjusted EPS is stated before the KEM JV fair value
adjustment, net unrealised foreign exchange gains and losses and
bond redemption premium and acceleration of unamortised costs.
7. Bond redemption premium and acceleration of unamortised costs
represent those costs incurred as a result of the early redemption
of the US$300 million loan notes in April 2017.
8. The US$ loan notes represent the gross capital of US$650
million (30 June 2016: US$300 million) excluding transaction
costs.
9. Net debt is the US$ loan notes and bank loans and borrowings net of cash at bank.
For further information, please contact:
Petra Diamonds, London Telephone: +44 20 7494 8203
Cathy Malins cathy.malins@petradiamonds.com
Buchanan Telephone: +44 20 7466 5000
(PR Adviser)
Bobby Morse bobbym@buchanan.uk.com
Anna Michniewicz annam@buchanan.uk.com
About Petra Diamonds Limited
Petra Diamonds is a leading independent diamond mining group and
an increasingly important supplier of rough diamonds to the
international market. The Company has interests in five producing
operations: three underground mines in South Africa (Finsch,
Cullinan and Koffiefontein), the Kimberley Ekapa Mining joint
venture (including the Kimberley Underground mine and extensive
tailings retreatment operations) and one open pit mine in Tanzania
(Williamson). It also maintains an exploration programme in
Botswana and South Africa.
Petra has a core objective to steadily increase annual
production to 5.0 - 5.3 million from FY 2019 onwards. The Group has
a significant resource base in excess of 300 million carats.
Petra conducts all operations according to the highest ethical
standards and will only operate in countries which are members of
the Kimberley Process. Petra is quoted with a premium listing on
the Main Market of the London Stock Exchange under the ticker 'PDL'
and is a constituent of the FTSE4Good Index. For more information,
visit www.petradiamonds.com.
CEO'S REVIEW
While FY 2017 saw the Company in continued growth mode, reaching
record production of 4.0 Mcts and revenue of US$477.0 million,
unfortunately we did not meet our production guidance of 4.4 - 4.6
Mcts for the Year. The lower production and sales for the Year had
a knock on effect to the Company's profitability due to the fixed
cost structure of the Group, which is ca. 70% of our cost base,
rising in line with the ramp-up in our expansion programmes.
Our financial results were further impacted by the strengthening
of the Rand, with an average of ZAR13.59: US$1 for the Year, as
opposed to ZAR14.51: US$1 for FY 2016. Given that 80-85% of our
costs are Rand-based, a strengthening Rand has a negative impact on
conversion to Dollar reported costs. As a result, the Company
recorded an Adjusted EBITDA margin of 33% (FY 2016: 38%) and an
adjusted net profit after tax of US$29.0 million (FY 2016: US$63.6
million).
While this performance is disappointing, we have commenced FY
2018 with a significantly de-risked expansion profile, given that
the majority of the capital has now been spent, the major plant
construction / modification work has mostly been completed across
our mine portfolio, and the new caves at both Finsch and Cullinan
are already producing at substantial volumes. We have also been
encouraged by the improving grades and product mix driven by mining
higher quantities of undiluted ore from our new mining areas, that
we have already experienced to date and which we expect to continue
into FY 2018 and beyond.
The two main operational issues impacting results for FY 2017
were the delay in bringing the new plant at Cullinan on stream and
a slower than anticipated ramp up of the new Sub-level Cave ("SLC")
at Finsch. The Cullinan Plant delay was mainly due to labour
disruptions experienced by our contractor, followed by a number of
commissioning issues. Production ramp up is continuing, with
processing rates already at 60% of nameplate capacity of 6 Mtpa,
and the plant is set to deliver Cullinan's production and treatment
plan for FY 2018, including processing the stockpile of some
400,000t of ROM ore. The new Block Cave is performing as planned
and is expected to more than double output to ca. 2.2 Mt in FY 2018
(FY 2017: ca. 940,000 t).
The Finsch SLC has had a challenging period in terms of reaching
its required tonnage build-up. This is mostly due to the issues
encountered with regards to allocation of equipment (drill rigs)
and the associated impact on the number of rings drilled and
blasted in the SLC. By increasing the size of the long hole drill
rig fleet (from four to six), we have significantly increased the
available drilling capacity to ensure blasted ore tonnes will now
be available to achieve the intended levels of ROM production.
We are now on track to deliver further growth and have provided
production guidance ranges of 4.8 - 5.0 Mcts for FY 2018 and 5.0 -
5.3 Mcts for FY 2019 (including 0.3 Mctpa from Williamson).
Importantly, our longer-term production target of ca. 5 Mcts
(originally set in FY 2012 to be reached in FY 2019) is soon to be
achieved.
Petra will continue to focus on maximising overall value, as
opposed to maximising volumes, by optimising production and plant
processes. Given our well-diversified asset base, along with the
quality and size of our orebodies, we will have a lot of
flexibility in how we can maximise the value of our production in
the future. As we near completion of our capital expansion
programmes started in FY 2009, we are looking to create further
operational flexibility and extend the current mine lives of our
operations on an ongoing basis. We have therefore assigned an
ongoing annual capital spend of US$100 - 120 million post FY 2019
to continue organic development work at our assets, split as to ca.
US$30 million sustaining capital and ca. US$70 - 90 million
expansion capital. This will ensure the continuous opening up of
new ore at our mines, thereby leading to long-term sustainable
operations and avoiding such a heavy Capex period as we have had
over the past few years.
In terms of health and safety, our LTIFR improved to 0.27 for
the Year (FY 2016: 0.29), which is a good achievement in the
context of the high level of construction activities currently
underway and for underground operations. However, we tragically
experienced five fatal accidents, which led to five employee and
one contractor fatalities. The Board and I are very disappointed
with this performance and turning it around is the most important
priority for the Group. Petra is working very hard to reinforce its
safety procedures as well as implementing new practices in an
effort to ensure that every one of our people returns from work
unharmed each day. No other outcome will do.
Petra is currently in wage negotiations with the relevant unions
relating to its South African operations, further to the completion
of its prior three year agreement. Agreement has been reached for
Cullinan and we will conclude negotiations with regards to the
other operations in due course. It is noted that labour relations
volatility could be experienced prior to the finalisation of this
wage agreement. We remain highly focused on managing labour
relations, via ongoing priority engagement with unions and
employees directly, and via measures such as the Itumeleng Petra
Diamonds Employee Trust, which directly holds 12% of each of our
South African operations and aims to further align employee and
shareholder interests. Historically, Petra has generally
experienced stable labour relations, without protracted
disruptions, due to the Company's labour relations strategy.
Furthermore, the extensive surface resources in place at the
Company's assets provide a buffer to minimise impact on production
in the event of industrial action.
We strengthened the senior management team immediately below the
Board post Year end with the appointment of Luctor Roode,
previously the General Manager at Petra's Finsch Mine, to the role
of Executive Operations, responsible for operational production
matters. Luctor sits alongside Koos Visser, Chief Technical Officer
with responsibility for operational technical support and projects,
and Jacques Breytenbach, Chief Financial Officer. This appointment
is part of the Company's ongoing succession planning process,
supporting the transition from a capital intensive / expansion
phase to a steady-state production focus.
Post Year End Developments in Tanzania
Reports have recently appeared in the media about the findings
of an investigation into the Tanzanian diamond sector by a
parliamentary committee in Tanzania. In connection with this, Petra
announced on 11 September 2017 that a parcel of diamonds (71,654.45
carats) from the Williamson mine in Tanzania (owned 75% Petra and
25% by the Government of the United Republic of Tanzania ("GoT"))
had been blocked from export to Petra's marketing office in Antwerp
and certain key personnel from Williamson were being questioned by
the authorities. Production was temporarily stopped for safety and
security reasons, but recommenced on 14 September 2017 after a four
day shut-down following the return of the key personnel to the
mine. However the parcel of diamonds has not yet been released. The
grounds upon which these actions were taken have still not been
formally made known to the Company. Petra is committed to
engagement with the GoT to resolve this matter.
As previously announced, changes to the legislative framework
governing the natural resources sector were also recently passed by
the GoT and sales at Williamson are now subject to an additional 1%
royalty (bringing the total royalty to 6%) and a 1% export clearing
fee. Changes have also been enacted with regards to the offsetting
of VAT, the impact of which on Williamson is still under discussion
with GoT and yet to be determined, but could increase cash on-mine
costs by ca. 10%. The legislative change does not impact the VAT
recoverable as at Year end.
Further key legislative changes also encompass:
-- the provision to the GoT of a non-dilutable, free-carried
interest of no less than 16% in all mining projects (note that the
GoT already holds 25% of the Williamson mine);
-- the right for the GoT to acquire up to 50% of any mining
asset commensurate with the value of tax benefits provided to the
owner of that asset by the GoT; and
-- companies with a Special Mining Licence to float 30% of their
total issued shares on the Dar es Salaam Stock Exchange in Tanzania
by 24 August 2017 (a waiver to the minimum local shareholding
requirement may be granted under certain conditions).
The Company is committed to ongoing dialogue with the GoT with
respect to the aforementioned matters. The outcome and timing of
these discussions remain uncertain at this point in time. Should
Petra be unable to resume sales from Williamson during H1, the
Company may breach the two EBITDA related covenant measurements
(related to its banking facilities) to, and as at, 31 December
2017, in which event the Company will commence early discussions
with its lender group to reach a resolution. Petra will monitor the
situation very closely and take decisive action if required to
preserve shareholder value.
DIVID
Distribution covenants were not met for the measurement period
to 30 June 2017 and Petra will therefore not declare a dividend for
FY 2017.
Returns to shareholders remain a priority for the Board and as
the Company becomes increasingly cash generative, it intends to
resume dividend payments. The decision as to whether to pay a
dividend is reviewed by the Board regularly and the market will be
updated on this when appropriate.
THE DIAMOND MARKET
The rough diamond market remained stable in FY 2017, in line
with the steady retail demand for diamonds experienced over the
same period.
During H1 FY 2017, the industry was concerned about the impact
on India's major cutting and polishing industry of the country's
demonetisation programme, which commenced on 8 November 2016 and
saw the government invalidate 86% of Rupee currency notes in
circulation. However, the effects of this were remarkably
short-lived and H2 FY 2017 saw a large restocking by the midstream,
as Indian manufacturers sought to rebalance and increase capacity,
thereby seeing the release of significant inventory of smaller
goods, particularly from the major diamond producers.
Petra experienced steady demand across all diamond size ranges
throughout the Year, apart from the few months' period immediately
following the Indian demonetization, which temporarily affected
demand for smaller, lower value categories.
While results from retailers in the US (which accounts for ca.
47% of global demand) have been mixed in H2 FY 2017, the market is
still assessed by those in the industry to remain stable as a
whole. Bridal diamond jewellery continues to be the foundation for
the market, but recent consumer research has identified
self-purchase by women as an important growing demand category, as
well as products aimed at millennials.
It has been encouraging to see continued evidence of an
improving retail market in China and a recovering market in India,
as well as a rebound in the Swiss watch market, which typically
uses a significant quantity of small but very high quality
diamonds.
Consumer demand will be supported by advertising campaigns from
the Diamond Producers Association ("DPA"), which recently announced
that it had quadrupled its budget to US$57 million for 2017. The
majority of this budget (ca. US$50 million) is assigned to US
marketing, building upon its new iconic platform "Real is Rare.
Real is a Diamond", and will be spent in the second calendar half
of 2017. The DPA will be launching its first marketing campaigns in
India in October 2017 and in China in April 2018.
On the supply side, global diamond output increased by 6% in
2016 to 134 Mcts (2015: 127 Mcts), however this still remains
significantly below the high of 177 Mcts in 2005, which is believed
by many to represent world 'peak diamond' supply. While three new
mines came into production in late 2016 (Renard and Gahcho Kue in
Canada and Liqhobong in Lesotho), these are not of significant size
to reverse the long-term downward trend in global production,
maintaining the strong supply-demand fundamentals of the industry.
A number of diamond development and mining projects have also been
recently placed on hold, thereby adding to the constrained supply
picture.
Diamond Prices:
Further to the stable rough diamond market noted above, Petra
experienced flat pricing in H1 (six months to December 2016) and
pricing up ca. 2% on a like for like basis in H2 (six months to
June 2017).
Post Year end, the Company held its first tender of FY 2018 in
early September yielding ca. US$76 million (ca. 745,000 carats
sold), in line with expectations for the South African operations
(no sales for Williamson included). The market is showing signs of
normal seasonal weakness, with prices on a like-for-like basis down
ca. 3% in comparison to H2 FY 2017. The Company will hold two more
tenders during H1 FY 2018 and four tenders in H2 FY 2018, as
usual.
Given that the first half of the calendar year is the seasonally
stronger time for the rough diamond market, Petra remains cautious
with regards to the market outlook for the remainder of the
calendar year and continues to guide flat pricing on a like for
like basis for FY 2018. However, FY 2018 will mark the first year
where Petra will source the majority of its underground tonnages
from the new, undiluted mining areas and this, combined with the
decreased contribution of lower-value tailings carats to the
Group's overall production mix, is expected to lead to an improved
product mix at the South African operations, while Williamson's
average price is expected to dilute as a result of the improved
liberation of smaller diamonds by the new mills in its processing
plant.
Mine Guidance Actual(3) Actual(3)
Weighted Average(1&2)
US$/ct US$/ct US$/ct
FY 2018 FY 2017 FY 2016
--------------- ---------------------- --------- ---------
Finsch 101 - 106 101 89
--------------- ---------------------- --------- ---------
Cullinan 113 - 119 120(4) 126(4)
--------------- ---------------------- --------- ---------
Koffiefontein 525 - 550 506 462
--------------- ---------------------- --------- ---------
KEM JV 120 - 125 100(6) 132(5)
--------------- ---------------------- --------- ---------
Williamson 214 - 224 258(7) 384(7)
--------------- ---------------------- --------- ---------
Notes:
1. Guidance is based on expected weighted average prices for FY
2018, incorporating all sales of ROM and tailings carats, but not
including "Exceptional Diamonds" (diamonds that sell for +US$5
million each).
2. Exceptional Diamonds added an average of ca. US$21.7 million
per annum to revenues over the last nine years (FY 2009 being the
year during which Petra took over the Cullinan mine).
3. All sales (ROM and Tailings) including Exceptional Diamonds
were used to calculate the above average values.
4. Excluding Exceptional Diamonds, the average value per carat
for FY 2017 was US$113 and for FY 2016 was US$109.
5. The average value per carat for FY 2016 reflects the dilutive
impact of combining tailings and ROM sales from H2 FY 2016
onwards.
6. The average value per carat was below expectations due to the
higher contribution of tailings carats during the Year.
7. Excluding Exceptional Diamonds, the average value per carat
for FY 2017 was US$235 and for FY 2016 was US$238.
FINANCIAL REVIEW
Revenue
Group revenue for FY 2017 increased 11% to US$477.0 million (FY
2016: US$430.9 million) due to an increase in volumes sold, offset
by lower sales from Exceptional Diamonds during the Year,
contributing only US$10.9 million (FY 2016: US$36.3 million).
Diamond inventory as at 30 June 2017 was 570,264 carats valued
at US$50.2 million (FY 2016: 549,620 carats valued at US$43.6
million).
Mining and processing costs
The mining and processing costs for the Year are comprised of
on-mine cash costs as well as other operational expenses. A
breakdown of the total mining and processing costs for the Year is
set out below.
Group
Diamond technical, Total
inventory support Adjusted mining and
On-mine and and mining and Share processing
cash Diamond stockpile marketing processing based costs
costs(1) royalties movement costs(2) costs Depreciation(3) expense (IFRS)
US$m US$m US$m US$m US$m US$m US$m US$m
--------- ----------- ----------- ----------- ----------- ----------- ---------------- ----------- -----------
FY 2017 287.3 4.7 (2.6) 21.9 311.3 78.7 0.1 390.1
--------- ----------- ----------- ----------- ----------- ----------- ---------------- ----------- -----------
FY 2016 246.4 5.4 (14.1) 20.0 257.7 51.0 1.6 310.3
--------- ----------- ----------- ----------- ----------- ----------- ---------------- ----------- -----------
Notes:
1. Includes all direct cash operating expenditure at operational
level, i.e. labour, contractors, consumables, utilities and on-mine
overheads.
2. Certain technical, support and marketing activities are conducted on a centralised basis.
3. Excludes exploration and corporate / administration.
Absolute on-mine cash costs in FY 2017 remained in line with
expectations, despite ongoing inflationary pressures. The unit cost
per tonne was adversely affected by the high fixed cost base and
below plan throughput. On-mine cash costs increased by 17% compared
to FY 2016, mainly due to:
-- inclusion of Kimberley Ekapa Mining JV ("KEM JV") for the full Year (4% increase);
-- inflationary increases, including the impact of electricity
and labour costs (7% increase); and
-- the effect of translating South African operations' ZAR
denominated costs at a stronger ZAR/USD exchange rate (6%
increase).
Adjusted EBITDA
Adjusted EBITDA decreased to US$157.2 million (FY 2016: US$164.3
million), reflecting an Adjusted EBITDA margin of 33% (FY 2016:
38%); the decrease being mainly due to the increase in mining and
processing costs, partially offset by increased revenues.
Operating cashflow
Cash generated from operations for the Year decreased 10% to
US$160.2 million (FY 2016: US$177.3 million) in line with the
decrease in Adjusted EBITDA and the inflow from net working capital
changes of US$3.6 million (FY 2016: US$13.8 million inflow).
Corporate overhead - General and Administration
Corporate overhead (before depreciation and share based
payments) increased to US$10.7 million for the Year (FY 2016:
US$9.0 million). The increase is mainly attributable to an
increased membership contribution to the DPA and non-recurring
legal costs relating to the restructuring of the Group's BEE
partners' ownership structure. Overhead costs remained tightly
controlled.
KEM JV fair value adjustment
The non-cash and non-recurring US$4.1 million accounting gain
recorded on the formation of KEM JV represents Petra's newly
recognised incremental 26% share of the fair value of Ekapa
Minerals' assets and liabilities and its 75.9% share of the fair
value of Super Stones' assets and liabilities acquired through the
transaction, less the 24.1% of the net book value assets and
liabilities of the Kimberley Underground mine relinquished by Petra
as part of the transaction. Refer to notes 15 and 16 for further
details.
Depreciation
Depreciation for the Year increased to US$79.6 million (FY 2016:
US$51.8 million), mainly due to the commencement of depreciation
relating to newly commissioned assets associated with the expansion
programmes, accelerated depreciation on the old KEM JV plants to
reflect their remaining useful economic lives, and the
strengthening of the Rand during the Year.
Net financial expense
Net financial expense of US$35.3 million (FY 2016: US$33.0
million) comprises:
-- interest received on bank deposits of US$1.8 million (FY 2016: US$0.4 million); and
-- net unrealised foreign exchange gains of US$9.9 million (FY
2016: US$3.2 million gain) representing (i) the unrealised foreign
exchange gains on the foreign currency retranslation of cross
border loans considered to be repayable in the foreseeable future
and (ii) unrealised losses on forward exchange contracts;
offset by:
-- net interest payable on the BEE partners' loans of US$12.0
million (FY 2016: US$9.1 million);
-- net realised foreign exchange losses of US$3.8 million (FY
2016: US$20.7 million) on the settlement of forward exchange
contracts, significantly down as a result of closing out numerous
forward exchange contracts in the prior Year;
-- a charge for the unwinding of the present value adjustment
for Group rehabilitation costs of US$5.0 million (FY 2016: US$4.2
million); and
-- interest on the Group's debt and working capital facilities
of US$3.9 million (FY 2016: US$2.6 million) (stated after the
capitalisation of interest of US$44.1 million (FY 2016: US$26.5
million) associated with the funding of assets under
development).
-- non-recurring costs of US$22.3 million associated with the
refinancing and early redemption of the US$300 million loan notes,
comprising acceleration of unamortised costs (US$7.3 million
previously capitalised) and early redemption premium of US$15
million to settle the US$300 million loan notes .
Tax charge
The tax charge of US$25.8 million (FY 2016: US$8.6 million),
comprised deferred tax of US$24.6 million (FY 2016: US$10.5
million), and an income tax charge of US$1.2 million (FY 2016:
US$1.9 million credit). The increased deferred tax charge for FY
2017 arises due to utilisation of certain capital allowances at the
South African operations during the Year. The effective Group tax
rate for FY 2017 is 55% (FY 2016: 11%), which is higher than the
South Africa tax rate of 28% (the Group's primary tax paying
jurisdiction) primarily due to: a) the write off of deferred tax
assets in the current Year in respect of Koffiefontein; b) loss
making companies (within the Group) based in tax jurisdictions with
a 0% tax rate which when consolidated reduces the Group's overall
net profit resulting in an increased effective tax rate; and c)
losses incurred by the South African operations not recognised as
deferred tax assets.
Adjusted net profit after tax
An adjusted net profit after tax of US$29.0 million was recorded
for the Year (FY 2016: US$63.6 million), adjusted for the KEM JV
fair value adjustment, net unrealised foreign exchange gains and
losses, bond redemption premium and acceleration of unamortised
costs. These adjusted profit figures are considered to be more
appropriate in comparing results year on year.
Group profit
The Group's net profit after tax is US$20.7 million (FY 2016:
US$66.8 million).
Earnings per share
A basic earnings per share from operations of 3.47 US$ cents was
recorded (FY 2016: 10.38 US$ cents). Adjusted basic earnings per
share from operations (stated before the KEM JV fair value
adjustment, net unrealised foreign exchange gains and losses and
bond redemption premium and acceleration of unamortised costs) of
5.04 US$ cents was recorded (FY 2016: 9.76 US$ cents).
Cash and Diamond Debtors
As at 30 June 2017, Petra had cash at bank of US$203.7 million
(30 June 2016: US$48.7 million). Of these cash balances, US$190.2
million was held as unrestricted cash (30 June 2016: US$36.7
million), US$12.6 million was held by Petra's reinsurers as
security deposits on the Group's cell captive insurance structure
(with regards to the Group's environmental guarantees) (30 June
2016: US$11.1 million) and US$0.9 million was held by Petra's
bankers as security for other environmental rehabilitation bonds
lodged with the Department of Mineral Resources in South Africa (30
June 2016: US$0.9 million).
Diamond debtors at 30 June 2017 were US$41.5 million (30 June
2016: US$63.4 million). These related to the June 2017 tenders and
were settled shortly after Year end.
Loans and Borrowings
The Group had loans and borrowings (measured under IFRS) at Year
end of US$757.1 million (30 June 2016: US$424.5 million), comprised
of the loan notes plus accrued interest of US$648.1 million (30
June 2016: US$293.0 million) and bank loans and borrowings of
US$109.0 million (30 June 2016: US$131.5 million).
At 30 June 2017, the Group had debt facilities undrawn and
available to the Group of US$5.6 million (30 June 2016: US$110.0
million), in addition to cash at bank of US$203.7 million.
Covenant Measurements attached to banking facilities
The Group has a number of covenants related to its banking
facilities, which can be found on Petra's website at:
www.petradiamonds.com/investors/fixed-income-investors/banking-covenants/.
Covenant ratios are measured bi-annually on a rolling 12 month
period to 30 June and 31 December respectively, with the formal
measurement taking place three months after the period end. In the
Company's Market Update announcement on 28 June 2017, it announced
that production for the Year would not meet guidance and that it
was therefore likely to breach the EBITDA related covenant tests
for the 12 month measurement period to 30 June 2017. On 9 September
2017, agreement was reached with Petra's lender group to waive the
two EBITDA covenant tests for the 12 month period to, and as at, 30
June 2017. The lender group further agreed to reset the two EBITDA
covenant tests for the 12 month measurement period to, and as at,
31 December 2017 as follows:
-- the interest cover ratio is changed to no less than 2.7x (previously 3.85x); and
-- the net debt to EBITDA ratio is changed to no more than 4.0: 1 (previously 2.80:1).
The Group closely monitors and manages its liquidity risk, and
cash forecasts are regularly produced and run for different
scenarios, indicating that the Group has sufficient cash reserves
and banking facilities to meet its working capital and capital
development requirements.
The Company expects to be compliant with its financial covenants
going forward, but the situation remains sensitive to changes in
diamond prices, exchange rates and expected production from the
Group's mines, including total carats and mix - refer to 'Post Year
end Developments in Tanzania' on pages six and seven for further
disclosures with regards to the Williamson mine and its potential
impact on covenant compliance.
BEE loans receivable and payable
BEE loans receivable of US$35.0 million (FY 2016: US$28.8
million) relate to the acquisition and financing of the
Koffiefontein and Kimberley Underground mines by Petra on behalf of
its BEE partners, post the refinancing of the BEE Partners' loans
at Cullinan and Finsch in FY 2015.
The BEE loans payable of US$99.5 million, (FY 2016: US$86.2
million, including the portion held in liabilities directly
associated with non-current assets held for sale), relate to the
initial acquisition loan funding advanced by the Group's BEE
partners to the operations to acquire their investments in Finsch,
Cullinan, Koffiefontein and Kimberley Underground. The repayment of
these loans by the mines to the BEE partners will be from future
free cashflows generated by the mining operations.
Other Liabilities
Other than trade and other payables of US$136.7 million,
(comprising US$39.1 million trade creditors, US$21.8 million
employee related accruals and US$75.8 million other payables) (FY
2016: US$134.6 million, including the portion held in liabilities
directly associated with non-current assets held for sale), the
remaining liabilities on the balance sheet mainly comprise
provisions for rehabilitation liabilities, post retirement employee
related provisions and deferred tax.
Capex
Total Group Capex for the Year was US$300.1 million (FY 2016:
US$324.1 million), further to peak Capex being reached in FY 2016.
The total Capex figure comprised of:
-- US$230.5 million on expansion Capex (FY 2016: US$275.2 million);
-- US$24.1 million on sustaining Capex (FY 2016: US$20.6 million);
-- US$44.1 million on capitalised borrowing costs with regards
to the expansion Capex (FY 2016: US$26.5 million); and
-- Corporate / exploration Capex of US$1.4 million (FY 2016: US$1.8 million).
Capex Unit FY 2017 FY 2016
--------------------------- ------ -------- --------
Finsch US$M 85.6 73.8
--------------------------- ------ -------- --------
Cullinan US$M 151.2 179.4
--------------------------- ------ -------- --------
Koffiefontein US$M 18.8 27.5
--------------------------- ------ -------- --------
KEM JV US$M 28.4 16.8
--------------------------- ------ -------- --------
Williamson US$M 15.0 24.4
--------------------------- ------ -------- --------
Helam US$M 0.0 0.1
--------------------------- ------ -------- --------
Subtotal - Capex incurred
by operations US$M 299.0 322.0
--------------------------- ------ -------- --------
Petra internal projects
division - Capex under
construction / invoiced
to operations(1) US$M (0.3) 0.3
--------------------------- ------ -------- --------
Total Operational Capex US$M 298.7 322.3
--------------------------- ------ -------- --------
Corporate / exploration US$M 1.4 1.8
--------------------------- ------ -------- --------
Total Group Capex(2) US$M 300.1 324.1
--------------------------- ------ -------- --------
Notes:
1. The Group (Petra internal projects division and Other
Corporate) incurs capital spend on behalf of the operations and
although this spend is reported in the Group's total Capex, it is
policy not to account for it on a specific mine's Capex until the
work completed is invoiced to the relevant operation. Group Capex
includes US$0.3 million for the Year (FY 2016: US$0.3 million),
which was incurred and invoiced by the Group's internal projects
facility and Corporate division. Therefore, the mine by mine tables
plus the internal projects division and other corporate Capex will
add together to make the Capex total in the relevant sections
above.
2. Capex for the Year includes US$44.1 million (FY 2016: US$26.5
million) of capitalised borrowing costs, which is also included in
the applicable mine-by-mine tables above.
3. Petra's annual Capex guidance is cash-based and excludes
capitalised borrowing costs. Given that the majority of Petra's
debt funding is in relation to its expansion and development
programmes, Petra's guidance is to assume that the majority of
interest and financing fees will be capitalised for the duration of
the project phases and not expensed through the income
statement.
OPERATIONAL REVIEW
Combined operations:
Unit FY 2017(1) FY 2016(1) Variance
---------------------- -------- ----------- ----------- ---------
Sales
---------------------- -------- ----------- ----------- ---------
Diamonds sold Carats 4,006,856 3,448,084 +16%
---------------------- -------- ----------- ----------- ---------
Revenue US$M 477.0 430.9 +11%
---------------------- -------- ----------- ----------- ---------
Production
---------------------- -------- ----------- ----------- ---------
ROM tonnes Mt 10.1 11.3 -11%
---------------------- -------- ----------- ----------- ---------
Tailings & other
tonnes Mt 8.7 7.7 +13%
---------------------- -------- ----------- ----------- ---------
Total tonnes treated Mt 18.8 19.0 -1%
---------------------- -------- ----------- ----------- ---------
ROM diamonds Carats 2,849,247 2,582,135 +10%
---------------------- -------- ----------- ----------- ---------
Tailings & other(2)
diamonds Carats 1,163,966 1,119,270 +4%
---------------------- -------- ----------- ----------- ---------
Total diamonds Carats 4,013,213 3,701,405 +8%
---------------------- -------- ----------- ----------- ---------
On mine cash costs US$M 287.3 246.4 +17%
---------------------- -------- ----------- ----------- ---------
Capex
---------------------- -------- ----------- ----------- ---------
Expansion US$M 230.5 275.2 -16%
---------------------- -------- ----------- ----------- ---------
Sustaining US$M 24.1 20.6 +17%
---------------------- -------- ----------- ----------- ---------
Borrowing Costs
Capitalised US$M 44.1 26.5 +67%
---------------------- -------- ----------- ----------- ---------
Total operational
capex US$M 298.7 322.3 -7%
---------------------- -------- ----------- ----------- ---------
Note:
1. FY 2017 production, sales and Capex are stated on an
attributable basis, including 75.9% of KEM JV effective from 01
July 2016. FY 2016 production, sales and Capex are stated on an
attributable basis, including 75.9% of the Combined Kimberley
Operations from 18 January 2016 to 30 June 2016.
2. 'Other' includes mining of the Ebenhaezer satellite
kimberlite pipe at Koffiefontein and alluvial diamond mining at
Williamson.
FY 2017 diamond production increased 8% to 4.0 Mcts, below
guidance of 4.4 - 4.6 Mcts but nevertheless representing record
levels for the Group. The increase was due to a higher contribution
from undiluted ROM ore and the inclusion of KEM JV for the full
Year.
The commentary below mainly relates to operational results for
the Year and a brief overview of the outlook. Further detailed
operational guidance, as published on 24 July 2017, is available on
the Company's website at:
https://www.petradiamonds.com/investors/analysts/analyst-guidance/.
Guidance for FY 2018 remains as published, including cost
guidance.
Finsch - South Africa
Unit FY 2017 FY 2016 Variance
--------------------- -------- ---------- ---------- -----------
Sales
--------------------- -------- ---------- ---------- -----------
Revenue US$M 216.7 186.4 +16%
--------------------- -------- ---------- ---------- -----------
Diamonds sold Carats 2,141,885 2,085,123 +3%
--------------------- -------- ---------- ---------- -----------
Average price
per carat US$ 101 89 +14%
--------------------- -------- ---------- ---------- -----------
ROM Production
--------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 3,212,169 3,547,798 -10%
--------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 1,818,454 1,572,725 +16%
--------------------- -------- ---------- ---------- -----------
Grade(1) Cpht 56.6 44.3 +28%
--------------------- -------- ---------- ---------- -----------
Tailings Production
--------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 1,651,089 2,295,918 -28%
--------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 331,442 641,339 -48%
--------------------- -------- ---------- ---------- -----------
Grade(1) Cpht 20.1 27.9 -28%
--------------------- -------- ---------- ---------- -----------
Total Production
--------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 4,863,258 5,843,716 -17%
--------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 2,149,896 2,214,064 -3%
--------------------- -------- ---------- ---------- -----------
Costs
--------------------- -------- ---------- ---------- -----------
On-mine cash cost
per tonne treated ZAR 253 183 38%
--------------------- -------- ---------- ---------- -----------
Capex
--------------------- -------- ---------- ---------- -----------
Expansion Capex US$M 58.4 56.5 +3%
--------------------- -------- ---------- ---------- -----------
Sustaining Capex US$M 9.1 6.7 +36%
--------------------- -------- ---------- ---------- -----------
Borrowing Costs
Capitalised US$M 18.1 10.6 +71%
--------------------- -------- ---------- ---------- -----------
Total Capex US$M 85.6 73.8 +16%
--------------------- -------- ---------- ---------- -----------
Note:
1. The Company is not able to precisely measure the ROM /
tailings grade split because ore from both sources is processed
through the same plant; the Company therefore back-calculates the
grade with reference to resource grades.
ROM production increased 16% to 1,818,454 carats further to
initial production from the new Block 5 SLC, which delivered ca.
750 Kt of undiluted ore. The inclusion of significantly higher
volumes of undiluted ore from the new mining areas had a positive
impact on production, with Finsch's ROM grade up 28% from 44.3 cpht
in FY 2016 to 56.6 cpht in FY 2017.
This output was below initial expectations due to the slower
than expected ramp-up of the SLC. The shortfall in ROM tonnes mined
compared to guidance relates to challenges associated with the
allocation of equipment and work streams in the transitioning
period as the old Block 4 is decommissioned and the Block 5 SLC
ramps up. The commissioning of additional mining equipment at the
start of Q4 addressed the challenges mentioned above with the mine
ending the Year operating at the required levels.
Total production decreased 3% to 2,149,896 carats (FY 2016:
2,214,064 carats), due to the planned decrease in tailings
production to 331,442 carats (FY 2016: 641,339 carats).
Revenue increased by 16% to US$216.7 million (FY 2016: US$186.4
million) mainly due to the greater weighting of higher value ROM
carats (as opposed to lower value tailings carats) in the overall
production profile and the resultant 14% improvement in the average
value per carat to US$101 (FY 2016: US$89).
Costs:
The on-mine cash cost of ZAR 253/t was an increase of 38% from
FY 2016 (ZAR183/t), mainly due to the planned reduction in lower
cost tailings tonnes being treated during the Period. Unit costs
were negatively affected, when compared to guidance, due to the
negative effect of the high fixed cost base and below plan ROM
throughput.
Capex:
FY 2017 Capex of US$85.6 million exceeded previous guidance by
ca. US$8 million, mainly due to additional equipment purchased to
address constraints experienced during the transitioning period as
the old Block 4 is decommissioned and the Block 5 SLC ramps up.
Development Plan:
Petra's development plan at Finsch is due to increase higher
value ROM production from 1.8 Mcts in FY 2017 to steady state
production of ca. 2 Mcts by FY 2018. Petra's initial mine plan has
a life to 2030, but resources in Block 6 and the adjacent Precursor
kimberlite, which sits next to the main body of the Finsch
kimberlite pipe, are expected to prolong the actual life of mine
("LOM"). The mine has a significant gross resource of 45.0
Mcts.
Mining is currently ramping up in the new Block 5 SLC over four
levels from 700 mL to 780 mL and this is expected to deliver ca.
1.9 Mt in FY 2018. A new Block 5 Cave will be installed at 900 mL
from FY 2023 / FY 2024.
Cullinan - South Africa
Unit FY 2017 FY 2016 Variance
------------------- -------- ---------- ---------- -----------
Sales
------------------- -------- ---------- ---------- -----------
Revenue US$M 91.3 83.3 +10%
------------------- -------- ---------- ---------- -----------
Diamonds sold Carats 760,957 663,175 +15%
------------------- -------- ---------- ---------- -----------
Average price
per carat US$ 120(1) 126(1) -5%
------------------- -------- ---------- ---------- -----------
ROM Production
------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 1,882,911 2,302,892 -18%
------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 679,622 643,724 +6%
------------------- -------- ---------- ---------- -----------
Grade Cpht 36.1 28.0 +29%
------------------- -------- ---------- ---------- -----------
Tailings Production
--------------------- -------- ---------- ---------- ------
Tonnes treated Tonnes 506,176 886,289 -43%
--------------------- -------- ---------- ---------- ------
Diamonds produced Carats 106,887 37,089 +188%
--------------------- -------- ---------- ---------- ------
Grade Cpht 21.1 4.2 +402%
--------------------- -------- ---------- ---------- ------
Total Production
--------------------- -------- ---------- ---------- ------
Tonnes treated Tonnes 2,389,087 3,189,181 -25%
--------------------- -------- ---------- ---------- ------
Diamonds produced Carats 786,509 680,813 +16%
--------------------- -------- ---------- ---------- ------
Costs
--------------------- -------- ---------- ---------- ------
On-mine cash cost
per tonne treated ZAR 316 257 23%
--------------------- -------- ---------- ---------- ------
Capex
--------------------- -------- ---------- ---------- ------
Expansion Capex US$M 120.9 156.2 -23%
--------------------- -------- ---------- ---------- ------
Sustaining Capex US$M 4.3 7.3 -41%
--------------------- -------- ---------- ---------- ------
Borrowing Costs
Capitalised US$M 26.0 15.9 +64%
--------------------- -------- ---------- ---------- ------
Total Capex US$M 151.2 179.4 -16%
--------------------- -------- ---------- ---------- ------
Notes:
1. Excluding exceptional diamonds, the average value per carat
for FY 2017 was US$113 and for FY 2016 was US$109.
Cullinan's production increased 16% to 786,509 carats (FY 2016:
680,813 carats), but performance was below planned levels due to
the delay in bringing on-stream the new Cullinan plant. As a
result, ca. 400 Kt of ROM stockpile is available for treatment
during H1 FY 2018.
While the plant delay was disappointing, it is encouraging that
Cullinan's new block cave, known as C-Cut Phase 1, has progressed
in line with expectations. ROM production from the new block cave
reached 940 Kt for the Year, in line with guidance, driving the 29%
improvement in the ROM grade for H2 FY 2017 to 38.0 cpht, giving a
full year grade of 36.1 cpht (FY 2016: 28.0 cpht). However, this H2
grade was lower than planned, due to the late start of the new
plant and the associated benefits of improved diamond
liberation.
Cullinan's revenue increased by 10% to US$91.3 million for the
Year (FY 2016: US$83.3 million) due to higher sales, though with a
lower contribution of sales from Exceptional Diamonds of US$5.7
million (FY 2016: US$11.2 million).
Costs:
The on-mine unit cash cost per total tonne treated was ZAR316/t,
an increase of 23% from FY 2016 (ZAR257/t), mainly due to the
decrease in total tonnes being treated as a result of delays in
commissioning the new plant.
Capex:
FY 2017 Capex of US$151.2 million exceeded previous guidance by
ca. US$14 million at Cullinan due to the direct and indirect
impacts of the delays of the new plant and US$3 million additional
spend associated with the C-Cut Phase 1 project.
Development Plan:
Cullinan contains a 'Tier 1' diamond resource of 192.7 Mcts
(including 17.3 Mcts in tailings) and the Company is capitalising
on this by undertaking an expansion programme at the mine to take
annual production to ca. 2.2 Mcts by FY 2019 (comprising ca. 2 Mcts
ROM and ca. 0.2 Mcts tailings).
The ramp up of production from the C-Cut Phase 1 Block Cave
(extraction level: 839 mL) will continue during FY 2018 and is
expected to contribute in excess of 2.2 Mt for the year.
New Cullinan Plant:
The new Cullinan Plant did not meet its target of being fully
commissioned by the end of FY 2017 due to labour disruptions
experienced by our contractor, followed by a number of
commissioning issues.
Production ramp up is continuing, with processing rates already
at 60% of nameplate capacity of 6 Mtpa, and the plant is set to
deliver Cullinan's production and treatment plan for FY 2018. The
Large Diamond Recovery section is nearing completion, with one of
the four modules in operation, while the other three are expected
to be commissioned by the end of September. Following this, the
plant will be fully operational with all components of the plant
commissioned as per the flow design.
The recovered grade is performing in line with expectations
given the current stage of commissioning, especially in the middle
and coarse (larger) size fractions. Further optimisation is in
progress to improve recovery efficiencies in the finer (smaller)
size fractions.
Koffiefontein - South Africa
Unit FY 2017 FY 2016 Variance
----------------------- -------- ---------- ---------- -----------
Sales
----------------------- -------- ---------- ---------- -----------
Revenue US$M 28.4 25.7 +11%
----------------------- -------- ---------- ---------- -----------
Diamonds sold Carats 56,068 55,500 +1%
----------------------- -------- ---------- ---------- -----------
Average price
per carat US$ 506 462 +10%
----------------------- -------- ---------- ---------- -----------
ROM Production
----------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 667,821 681,344 -2%
----------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 51,173 50,825 +1%
----------------------- -------- ---------- ---------- -----------
Grade Cpht 7.7 7.5 +3%
----------------------- -------- ---------- ---------- -----------
Tailings / Ebenhaezer
Production
----------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes - 446,854 -
----------------------- -------- ---------- ---------- -----------
Diamonds produced Carats - 11,365 -
----------------------- -------- ---------- ---------- -----------
Grade Cpht - 2.5 -
----------------------- -------- ---------- ---------- -----------
Total Production
----------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 667,821 1,128,198 -41%
----------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 51,173 62,190 -18%
----------------------- -------- ---------- ---------- -----------
Costs
----------------------- -------- ---------- ---------- -----------
On-mine cash cost
per tonne treated ZAR 532 317 +68%
----------------------- -------- ---------- ---------- -----------
Capex
----------------------- -------- ---------- ---------- -----------
Expansion Capex US$M 13.3 24.6 -46%
----------------------- -------- ---------- ---------- -----------
Sustaining Capex US$M 5.5 2.9 +90%
----------------------- -------- ---------- ---------- -----------
Total Capex US$M 18.8 27.5 -32%
----------------------- -------- ---------- ---------- -----------
ROM production at Koffiefontein increased 1% to 51,173 carats
(FY 2016: 50,825 carats), but was below expectations due to
challenges encountered with the SLC ore handling infrastructure.
This work was hampered by difficult ground conditions in both the
second crusher chamber and decline ramp, restricting the ability to
transport material and equipment to the working levels. The second
crusher, which aims to alleviate ground handling constraints, will
be fully operational in Q2 FY 2018.
Overall production was down 18% to 51,173 carats (FY 2016:
62,190 carats), as production from the satellite Ebenhaezer pit
ceased in FY 2016, as planned, together with the challenges
detailed above.
Revenue increased 11% to US$28.4 million (FY 2016: US$25.7
million) for the Year further to the 10% uplift in the average
value per carat, as the planned reduction in tailings production
resulted in an improved product mix with the average value per
carat up 10% from US$462 to US$506.
Costs:
The marked increase in higher value, higher-cost, underground
production resulted in a 68% increase in the unit cash cost per
total tonne treated to ZAR532 (FY 2016: ZAR317/t). This was
materially above guidance of ZAR310/t, due to the increased fixed
cost base in anticipation of the production ramp-up, which did not
materialise as planned, coupled with additional maintenance costs
due to unforeseen breakdowns. Measures and control systems are
being put in place to increase control over maintenance and to
limit the occurrences of these breakdowns on machines and ground
handling infrastructure. FY 2018 ROM unit cost is guided at
ZAR360/t.
Capex:
Capex of US$18.8 million was above guidance, mainly relating to
over-runs and delays as a result of the aforementioned SLC
ore-handling infrastructure challenges.
Development Plan:
Petra's expansion plan at Koffiefontein will increase production
from 50,500 ctpa in FY 2017 to ca. 85,000 ctpa by FY 2019. Petra's
current mine plan has a life to 2025, but the residual resources at
the mine indicate that the actual LOM could be in excess of 20
years.
As at Finsch, the SLC mining method is now being used at
Koffiefontein, before putting in place a new block cave. The SLC is
to be mined over three levels from 560 mL to 600 mL, and production
has now commenced on the 560 and 580 mL. The SLC is expected to
ramp up to ca. 1.1 Mtpa by FY 2019 at an average grade of ca. 8.5
cpht.
KEM JV - South Africa (all figures reflect Petra's 75.9%
attributable share)
Unit FY 2017(1) FY 2016(2) Variance
--------------------- -------- ------------- ------------- -----------
Sales
--------------------- -------- ------------- ------------- -----------
Revenue US$M 82.3 57.7 +43%
--------------------- -------- ------------- ------------- -----------
Diamonds sold Carats 821,963 438,680 +87%
--------------------- -------- ------------- ------------- -----------
Average price
per carat US$ 100 132 -24%
--------------------- -------- ------------- ------------- -----------
ROM Production
--------------------- -------- ------------- ------------- -----------
Tonnes treated Tonnes 597,025 721,513 -17%
--------------------- -------- ------------- ------------- -----------
Diamonds produced Carats 87,783 88,572 -1%
--------------------- -------- ------------- ------------- -----------
Grade Cpht 14.7 12.3 +20%
--------------------- -------- ------------- ------------- -----------
Tailings Production
--------------------- -------- ------------- ------------- -----------
Tonnes treated Tonnes 6,153,657 3,583,758 +72%
--------------------- -------- ------------- ------------- -----------
Diamonds produced Carats 712,651 442,897 +61%
--------------------- -------- ------------- ------------- -----------
Grade Cpht 11.6 12.4 -7%
--------------------- -------- ------------- ------------- -----------
Total Production
--------------------- -------- ------------- ------------- -----------
Tonnes treated Tonnes 6,750,682 4,305,271 +57%
--------------------- -------- ------------- ------------- -----------
Diamonds produced Carats 800,434 531,469 +51%
--------------------- -------- ------------- ------------- -----------
Costs
--------------------- -------- ------------- ------------- -----------
On-mine cash cost
per tonne treated ZAR 133 140 -5%
--------------------- -------- ------------- ------------- -----------
Capex
--------------------- -------- ------------- ------------- -----------
Expansion Capex US$M 23.9 14.7 +63%
--------------------- -------- ------------- ------------- -----------
Sustaining Capex US$M 4.5 2.1 +114%
--------------------- -------- ------------- ------------- -----------
Total Capex US$M 28.4 16.8 +69%
--------------------- -------- ------------- ------------- -----------
Notes:
1. Data represent Petra's 75.9% attributable share (including
both ROM production from Kimberley Underground and Tailings
production).
2. Data for FY 2016 in the table above represent production from
Kimberley Underground ROM and Tailings production for the period 1
July 2015 to 17 January 2016 and Petra's 75.9% attributable
production from the Combined Kimberley Operations for the period 18
January 2016 to 30 June 2016.
Production increased 51% to 800,434 carats for the Year (FY
2016: 531,469 carats).
Further to the modifications required to the Central Treatment
Plant ("CTP") in order to enable it to handle ROM material from the
Kimberley Underground operation, KEM JV built up a ROM stockpile of
ca. 75 Kt (attributable to Petra), which will be processed during
H1 FY 2018. Since the Year end, KEM JV have completed the CTP
modifications, being a new pan plant and permanent ROM crusher,
enabling it to process ROM ore from the end of July 2017.
Revenue increased 43% to US$82.3 million (FY 2016: US$57.7
million) further to the higher sales, though the average value per
carat was down 24% to US$100 (FY 2016: US$132) due to the much
higher proportion of tailings carats as opposed to ROM.
Costs:
The on-mine cash cost decreased to ZAR133/t (FY 2016: ZAR140/t),
due to the inclusion of the lower cost, higher volume tailings
operations for the full Year. However this was above guidance of
ZAR107/t, due to below planned throughput, due to a slower than
expected start-up of the CTP plant modifications mentioned
above.
Capex:
Capex of US$28.4 million was in line with guidance. FY 2018
expansion Capex is guided at ca. US$12.0 million, associated with
underground development and shaft upgrades at both Joint Shaft and
Wesselton (ca. US$10.0 million) to increase ROM throughput to ca.
1.2 Mtpa by FY 2019.
Development Plan:
The KEM JV is a joint venture between Petra and its partner
Ekapa Mining and incorporates the Kimberley Underground mine
(mining the Bultfontein, Dutoitspan and Wesselton kimberlite
pipes), extensive tailings retreatment programmes (with total
tailings resources of some 140.1 Mt) and the high volume CTP. The
combination of these diamond mining assets in Kimberley has yielded
cost synergies and allows for a mine plan to 2035.
The KEM JV business plan envisages a combined steady state
throughput of ca. 6.7 Mtpa (ca. 1.2 Mtpa ROM and ca. 5.5 Mtpa
tailings) yielding ca. 574,500 carats, and to only utilise the CTP
plant for both tailings and ROM processing from FY 2019
onwards.
Williamson - Tanzania
Unit FY 2017 FY 2016 Variance
--------------------- -------- ---------- ---------- -----------
Sales
--------------------- -------- ---------- ---------- -----------
Revenue US$M 58.4 78.9 -26%
--------------------- -------- ---------- ---------- -----------
Diamonds sold Carats 226,110 205,548 +10%
--------------------- -------- ---------- ---------- -----------
Average price
per carat US$ 258(1) 384(1) -33%
--------------------- -------- ---------- ---------- -----------
ROM Production
--------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 3,667,781 4,003,180 -8%
--------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 212,215 199,796 +6%
--------------------- -------- ---------- ---------- -----------
Grade Cpht 5.8 5.0 +16%
--------------------- -------- ---------- ---------- -----------
Alluvial Production
--------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 403,811 417,452 -3%
--------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 12,987 13,073 -1%
--------------------- -------- ---------- ---------- -----------
Grade Cpht 3.2 3.1 +3%
--------------------- -------- ---------- ---------- -----------
Total Production
--------------------- -------- ---------- ---------- -----------
Tonnes treated Tonnes 4,071,592 4,420,632 -8%
--------------------- -------- ---------- ---------- -----------
Diamonds produced Carats 225,202 212,869 +6%
--------------------- -------- ---------- ---------- -----------
Costs
--------------------- -------- ---------- ---------- -----------
On-mine cash cost
per tonne treated US$ 11.60 10.90 +9%
--------------------- -------- ---------- ---------- -----------
Capex
--------------------- -------- ---------- ---------- -----------
Expansion Capex US$M 14.1 23.0 -39%
--------------------- -------- ---------- ---------- -----------
Sustaining Capex US$M 0.9 1.4 -36%
--------------------- -------- ---------- ---------- -----------
Total Capex US$M 15.0 24.4 -39%
--------------------- -------- ---------- ---------- -----------
Note:
1. Excluding Exceptional Diamonds, the average value for FY 2017 was US$235 (FY 2016: US$238).
Production increased 6% to 225,202 carats (FY 2016: 212,869
carats), mainly due to a 16% increase in ROM grades (as a result of
improved liberation associated with the new milling section of the
plant), partially offset by throughput constraints experienced
during commissioning of the new milling section during H2 FY
2017.
Revenue decreased 26% to US$58.4 million (FY 2016: US$78.9
million) due to the contribution of revenue from Exceptional
Diamonds for the Year falling to US$5.2 million (FY 2016: US$25.1
million).
Costs:
The on-mine cash cost of US$11.6/t (FY 2016: US$10.9/t) was in
line with expectations, and the Company is guiding US$11/t for FY
2018, mainly due to the increase in throughput planned for FY 2018
with the new milling section being fully operational.
Capex:
Capex of US$15.0 million for the Year exceeded guidance of ca.
US$6.0 million due to additional spend relating to the water
recovery thickener and mill plant project. Total Capex is guided at
ca. US$6.4 million for FY 2018.
Development Plan:
Petra's expansion plan at Williamson is expected to see
production rise from ca. 225,000 carats in FY 2017 to ca. 337,500
ctpa by FY 2019. The current mine plan has a life extending to
2033, but given that the Mwadui kimberlite hosts a major resource
of 39.0 Mcts, there is potential to extend the LOM
considerably.
ROM throughput is planned at ca. 4.6 Mt at a grade of ca. 6.75
cpht during FY 2018, before ramping up to steady state of ca. 5 Mt
by FY 2019 onwards at a grade of 6.5 - 7 cpht.
EXPLORATION
The Company's focus on delivery of its expansion programmes at
its producing operations resulted in a further decrease in
exploration spend to US$0.6 million during FY 2017 (FY 2016: US$2.7
million).
Botswana
In Botswana, Petra's focus has been on the evaluation of the
KX36 deposit. Further to the work carried out in FY 2016, KX36 has
a Resource of 8.7 Mct (contained in 24.6 Mt at an average grade of
35 cpht) and an estimated average diamond value of US$65 per carat,
which is below the expectations raised by the work carried out in
FY 2015. This is due to a finer (smaller) size frequency
distribution caused by an increase in recoveries of diamonds
smaller than 7 DTC sieve size, further to an improved crushing
circuit in the sample plant, as well as due to not recovering the
coarser (larger) range of diamonds modelled originally from the
total diamond content data. However, Petra is of the view that the
current KX36 grade and value derived from LDD samples may be
underestimated due to diamond breakage or loss.
The Company has now completed a Pre-feasibility Study on KX36
and submitted this to the Botswana Department of Minerals and
Energy. The outcome of this exercise indicates that, under present
market conditions, the KX36 project is not economic and needs
further detailed evaluation so as to increase confidence in the
results. As a result of this, Petra has actively embarked on
investigating the potential for a joint venture partner to take
this kimberlite deposit forward.
Petra also holds four contiguous prospecting licences that
constitute the Orapa South West Project Area, located to the South
West of the Orapa kimberlite field. Low-key ground geophysical
follow up of several large anomalies is ongoing, with the intention
of executing a drilling programme during Q2 FY 2018.
South Africa
In South Africa, Petra's focus remains the investigation of the
Reivilo project, which is situated approximately 110 kilometres
north-east of the Finsch mine and where the Company has delineated
a cluster of three kimberlite bodies within a 250m radius with
estimated sizes of 3.1 Ha, 1.7 Ha and 0.9 Ha respectively.
The FY 2017 drilling programme entailed a total of 755m of core
drilling in four core boreholes which targeted the two larger
bodies. The deepest kimberlite intersection from the drilling was
at 172m below surface, and the kimberlites remain open ended at
depth. The preliminary identification of three kimberlite phases
has been made, each with varying degrees of internal waste. In
general the 3.1 Ha body shows higher internal waste dilution than
the smaller 1.7 Ha body.
Heavy mineral abundance ("HMA") sampling of core from the
kimberlite intersections replicated the results from the initial
soil samples in that abundant diamond stability field G10 and high
sodium diamond stability field eclogitic paragenesis garnets were
recovered. The presence of these diamond indicator minerals
indicates that the kimberlite bodies are diamondiferous (contain
diamonds), though the internal waste content, especially in the
larger body, will have a negative effect on overall diamond
grade.
Microdiamond sampling of core recovered during the FY 2017
drilling programme is planned for FY 2018 to obtain a preliminary
grade estimate for the two larger bodies, which will take into
account the effects of internal waste dilution.
Petra has recently been awarded further prospecting rights in
the Northern Cape adjacent to Reivilo and the Sedibeng diamond mine
(which was previously operated by Petra), bringing the total
surface area of prospecting rights held to 524 km(2) . The area
adjacent to Sedibeng is covered by recent alluvium, and sits over a
graben structure on a known kimberlite trend with the potential for
hidden kimberlite pipes. An airborne geophysical survey is planned
for FY 2018.
SAFETY
Petra's overriding concern is the health and safety of both its
employees and contractors and the Company is committed to achieving
a zero harm work environment.
While Petra's mining methods and operations are inherently safe,
there is an ever present risk of accidents as with all heavy
industries. For this reason, Petra aims to have a deeply-ingrained
safety culture, backed up by effective systems and processes, with
managers through all levels of the business leading by example.
The Group's LTIFR for the Year improved to 0.27 (FY 2016: 0.29).
In spite of this achievement however, as previously reported, the
Company tragically experienced five employee and one contractor
fatalities during the Year in five separate fatal incidents. Each
incident was investigated in detail by specialist teams comprising
operational management, health and safety committee members and
Group subject specialists, and in conjunction with the relevant
authorities in South Africa and Tanzania.
The outcomes of these investigations were analysed and actioned
by the updating of existing controls, and the development of
additional controls where necessary, and were then implemented
throughout the Group at all operations where similar incidents or
accidents might occur. In addition, the Group initiated a system of
'in-time interventions', which aim to remediate at-risk behaviour
and conditions proactively, prior to the possibility of escalation
into incidents and accidents.
Petra will report in detail on action taken further to the
fatalities noted above in its FY 2017 Sustainability Report, which
will be published in Q2 FY 2018 and will be available on the
Company's website at www.petradiamonds.com/sustainability.
GROSS RESERVES & RESOURCES
Petra manages one of the world's largest diamond resources. This
major resource suggests that the potential mine lives of Petra's
assets could be considerably longer than the current mine plans in
place at each operation, or could support higher production rates.
A summary of the Group's gross Reserves and Resources is below and
the Group's full 2017 Resource Statement can be accessed at
www.petradiamonds.com/our-operations/reserves-resources/.
Gross Resources
As at 30 June 2017, the Group's gross Diamond Resources
(inclusive of Reserves) decreased 2% to 304.9 Mcts (30 June 2016:
312.2 Mcts), due to depletion by mining activity at all operations
and Resource re-estimations at Finsch, Koffiefontein and
Williamson.
Gross Reserves
The Group's gross Diamond Reserves increased 7% to 51.1 Mcts (30
June 2016: 47.9 Mcts) due to an increase of Reserves at Cullinan
and Finsch due to the inclusion of additional tonnages from the
CC1E and the SLC Phase 2 respectively in the current mine plans to
2030.
The following table summarises the gross Reserves and Resources
status of the combined Petra Group operations as at 30 June
2017.
Gross
----------- ----------------------------------
Contained
Tonnes Grade Diamonds
Category (millions) (cpht) (Mcts)
----------- ------------ -------- ----------
Reserves
----------- ------------ -------- ----------
Proved
----------- ------------ -------- ----------
Probable 103.8 49.3 51.1
----------- ------------ -------- ----------
Sub-total 103.8 49.3 51.1
----------- ------------ -------- ----------
Resources
----------- ------------ -------- ----------
Measured 0.2 263.9 0.6
----------- ------------ -------- ----------
Indicated 412.6 52.1 215.0
----------- ------------ -------- ----------
Inferred 1,453.6 6.1 89.3
----------- ------------ -------- ----------
Sub-total 1,866.4 16.3 304.9
----------- ------------ -------- ----------
Notes:
1. Reserves and Resources have been reported in accordance with
the South African code for the reporting of mineral reserves and
mineral resources (SAMREC 2016).
2. The Petra 2017 Resource Statement as shown above is based on
information compiled internally within the Group under the guidance
and supervision of Jim Davidson, Pr. Sci. Nat. (reg. No.400031/06).
Jim Davidson has 45 years' relevant experience in the diamond
industry and is a full-time employee of Petra.
3. All Reserves and Resources have been independently reviewed
and verified by John Kilham, Pr. Sci. Nat. (reg. No. 400018/07), a
competent person with 37 years' relevant experience in the diamond
mining industry, who was appointed as an independent consultant by
the Company for this purpose.
CORPORATE
South Africa
As previously announced, proposed changes to the South African
Mining Charter were published in July 2017. The Chamber of Mines,
which represents the South African mining industry and of which
Petra is a member, responded by launching a court application to
interdict the revised Charter. The Chamber of Mines has now
retracted the interdict further to the Minister of Mineral
Resources' written undertaking on 13 September 2017 to not
implement or apply the provisions of the revised Charter pending
the judgement of the review application set down for court hearing
on 13 - 14 December 2017. More information about the Chamber of
Mines' position can be
found at the following website: http://miningcharter.chamberofmines.org.za/index.php.
GOVERNANCE
AGM
In advance of the AGM on 24 November 2017, Petra would like to
remind shareholders that the Company has decided to move to a more
digital approach to voting and therefore requests that all
shareholders vote electronically. The Company will not be sending
paper proxy forms and instead, shareholders can vote either via the
shareholder portal or, for CREST holders, via the CREST Network.
Voting in this way is cost effective, efficient and mitigates the
risk of lost items via postal systems thus ensuring your vote is
received and recorded. Shareholders who still wish to receive a
hard copy proxy card should contact Capita to obtain this. Capita's
contact details can be found here:
https://www.petradiamonds.com/investors/advisers/.
OUTLOOK
Petra has been working on major expansion programmes at each of
its five mines since FY 2009, entailing significant underground and
plant projects, a period which has seen the Company's production
essentially quadruple from 1.1 Mcts to 4.0 Mcts. While the ramp up
has been slower than anticipated, the bigger picture for the
business remains the same as we remain on track to grow production
to 4.8 - 5.0 Mcts in FY 2018 and to 5.0 - 5.3 Mcts FY 2019
(including production from Williamson of 0.3 Mctpa), capital
expenditure is falling and we are set to generate free cashflow in
H2 FY 2018.
FY 2018 will also see the continued transformation of our
production profile. This will be achieved through ramping up
production from the new undiluted mining areas of our underground
mines, most notably at Cullinan, while also decreasing the
proportion of tailings from around 30% of our carat production in
FY 2017 to around 15% in FY 2018. Both of these factors mean that
we will continue to realise higher average grades, as well as a
better quality product mix.
Finally I would like to acknowledge that our people and our
relationships with our stakeholders are vital to Petra's success. I
therefore extend my thanks to each of our employees, contractors
and partners, who have worked so hard to ensure the continued
progress of the Company on our growth path.
Johan Dippenaar
Chief Executive
18 September 2017
Notes
1. The following exchange rates have been used for this
announcement: average for the Year US$1:R13.59 (30 June 2016: US$1:
ZAR14.51); closing rate as at 30 June 2017 US$1:ZAR13.05 (30 June
2016 US$1:ZAR14.68).
2. The following definitions have been used in this announcement:
a. ct: carat
b. cpht: carats per hundred tonnes
c. Exceptional Diamonds: classified by Petra as diamonds that sell for +US$5 million each
d. Mctpa: million carats per annum
e. Mcts: million carats
f. mL: metre level
g. Mt: million tonnes
h. Mtpa: million tonnes per annum
i. ROM: run-of-mine, i.e. relating to production from the primary orebody
j. SLC: sub-level cave, a variation of block caving
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 30 JUNE 2017
US$ million Notes 2017 2016
-------------------------------- ------ -------- --------
Revenue 477.0 430.9
Mining and processing costs (390.1) (310.3)
Other direct income 2.8 2.8
Exploration expenditure (0.8) (2.9)
Corporate expenditure 5 (11.2) (12.1)
Total operating costs (399.3) (322.5)
Fair value uplift on Kimberley
Ekapa Mining Joint Venture 16 4.1 -
Financial income 6 14.2 7.0
Financial expense 6 (49.5) (40.0)
-------------------------------- ------ -------- --------
Profit before tax 46.5 75.4
Income tax charge (25.8) (8.6)
-------------------------------- ------ -------- --------
Profit for the Year 20.7 66.8
Attributable to:
Equity holders of the parent
company 18.3 54.2
Non-controlling interest 2.4 12.6
-------------------------------- ------ -------- --------
20.7 66.8
-------------------------------- ------ -------- --------
Profit per share attributable
to the equity holders of
the parent during the Year:
From continuing operations:
Basic profit per share -
US$ cents 13 3.47 10.38
Diluted profit per share
- US$ cents 13 3.43 10.14
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 JUNE 2017
US$ million 2017 2016
----------------------------------------- ------ --------
Profit for the Year 20.7 66.8
Exchange differences on translation
of the share-based payment
reserve (0.4) (2.9)
Exchange differences on translation
of foreign operations(1) 68.7 (121.4)
Exchange differences on non-controlling
interest(1) 9.3 (9.6)
Total comprehensive income
/ (expense) for the Year 98.3 (67.1)
------------------------------------------ ------ --------
Total comprehensive income
and expense attributable to:
Equity holders of the parent
company 86.6 (70.1)
Non-controlling interest 11.7 3.0
-------------------------------- ----- -------
98.3 (67.1)
------------------------------- ----- -------
(1) These items will be reclassified to the consolidated income
statement if specific future conditions are met.
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2017
US$ million 2017 2016
------------------------------------- ----- -------- --------
ASSETS
Non-current assets
Property, plant and equipment 7 1 441.3 1 079.3
Deferred tax asset 5.9 7.1
BEE loans and receivables 12 35.0 28.8
Other receivables 17.8 2.7
------------------------------------- ----- -------- --------
Total non-current assets 1 500.0 1 117.9
------------------------------------- ----- -------- --------
Current assets
Trade and other receivables 75.5 115.9
Inventories 75.6 57.9
Cash and cash equivalents
(including restricted amounts) 203.7 48.7
------------------------------------- ----- -------- --------
Total current assets 354.8 222.5
------------------------------------- ----- -------- --------
Non-current assets classified
as held for sale 15 - 18.8
------------------------------------- ----- -------- --------
Total assets 1 854.8 1 359.2
------------------------------------- ----- -------- --------
EQUITY AND LIABILITIES
Equity
Share capital 8 89.6 88.6
Share premium account 666.0 665.2
Foreign currency translation
reserve (303.4) (372.1)
Share-based payment reserve 12.8 14.4
Hedging and other reserves (0.8) (0.8)
Retained earnings 129.5 109.1
------------------------------------- ----- -------- --------
Attributable to equity holders
of the parent company 593.7 504.4
Non-controlling interest 52.7 42.4
------------------------------------- ----- -------- --------
Total equity 646.4 546.8
------------------------------------- ----- -------- --------
Liabilities
Non-current liabilities
Loans and borrowings 9 598.5 317.2
BEE loans payable 12 99.5 84.6
Provisions 72.0 59.7
Deferred tax liabilities 143.1 106.0
------------------------------------- ----- -------- --------
Total non-current liabilities 913.1 567.5
------------------------------------- ----- -------- --------
Current liabilities
Loans and borrowings 9 158.6 107.3
Trade and other payables 136.7 125.4
------------------------------------- ----- -------- --------
Total current liabilities 295.3 232.7
------------------------------------- ----- -------- --------
Liabilities directly associated
with non-current assets classified
as held for sale 15 - 12.2
------------------------------------- ----- -------- --------
Total liabilities 1 208.4 812.4
------------------------------------- ----- -------- --------
Total equity and liabilities 1 854.8 1 359.2
------------------------------------- ----- -------- --------
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF CASHFLOWS
FOR THE YEARED 30 JUNE 2017
US$ million 2017 2016
--------------------------------------- -------- --------
Profit before taxation for
the Year 46.5 75.4
Depreciation of property plant
and equipment 79.6 51.8
Movement in provisions (0.6) (0.7)
Fair value uplift on Kimberley
Ekapa Mining Joint Venture (4.1) --
Financial income (14.2) (7.0)
Financial expense 49.5 40.0
Profit on disposal of property,
plant and equipment (0.3) (0.1)
Share based payment provision 0.2 4.1
Operating profit before working
capital changes 156.6 163.5
Decrease / (increase) in trade
and other receivables 18.5 (46.8)
(Decrease) / increase in trade
and other payables (5.4) 64.9
Increase in inventories (9.5) (4.3)
---------------------------------------- -------- --------
Cash generated from operations 160.2 177.3
Realised losses on foreign
exchange contracts (3.8) (20.7)
Finance expense (3.9) (2.6)
Income tax refund -- (0.3)
---------------------------------------- -------- --------
Net cash generated from operating
activities 152.5 153.7
---------------------------------------- -------- --------
Cashflows from investing activities
Acquisition of assets at Kimberley
Mines net of cash -- (3.0)
Acquisition of property, plant
and equipment (including capitalised
cash interest paid of US$34.7
million (30 June 2016 US$24.3
million)) (282.9) (327.9)
Proceeds from sale of property,
plant and equipment 0.9 --
Loans advanced to BEE partners (12.9) (6.8)
Repayment from BEE partners 0.5 3.4
Finance income 1.8 0.4
Transfer from restricted cash
deposits -- (0.5)
---------------------------------------- -------- --------
Net cash utilised in investing
activities (292.6) (334.4)
---------------------------------------- -------- --------
Cashflows from financing activities
Proceeds from the issuance
of share capital 1.1 1.4
Increase in borrowings (net
of bond issue costs of US$12.6
million (30 June 2016: US$nil
million)) 798.8 137.0
Dividends paid -- (15.4)
Repayment of borrowings (including
Bond redemption premium of
US$15.0 million (30 June 2016:
US$ nil)) (508.8) (40.4)
Net cash generated from financing
activities 291.1 82.6
---------------------------------------- -------- --------
Net increase / (decrease) in
cash and cash equivalents 151.0 (98.1)
Cash and cash equivalents at
beginning of the Year 36.7 153.5
Effect of exchange rate fluctuations
on cash held 2.5 (18.7)
---------------------------------------- -------- --------
Cash and cash equivalents at
end of the Year(1) 190.2 36.7
---------------------------------------- -------- --------
(1) Cash and cash equivalents in the Consolidated Statement of
Financial Position includes restricted cash of US$13.5 million (30
June 2016: US$12.0 million) and unrestricted cash of US$190.2
million (30 June 2016: US$36.7 million).
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2017
(Unaudited) Share Share Foreign Share-based Hedging Retained Attributable Non-controlling Total
capital premium currency payment and earnings to the interest equity
account translation reserve other parent
US$ million reserve reserves
------------------------------- -------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
At 1 July 2016 88.6 665.2 (372.1) 14.4 (0.8) 109.1 504.4 42.4 546.8
Profit for the Year - - - - - 18.3 18.3 2.4 20.7
Non-controlling interest
acquired - - - - - 1.4 1.4 (1.4) -
Other comprehensive expense - - 68.7 (0.4) - - 68.3 9.3 77.6
Transfer between reserves for
exercise of employee options
and warrants - - - (0.7) - 0.7 - - -
Equity settled share based
payments - - - 0.2 - - 0.2 - 0.2
Allotments during the Year:
* Share options exercised 0.3 0.8 - - - - 1.1 - 1.1
* LTSP share grants 0.7 - - (0.7) - - - - -
At 30 June 2017 89.6 666.0 (303.4) 12.8 (0.8) 129.5 593.7 52.7 646.4
------------------------------- -------- -------- ------------ ------------ --------- --------- ------------- ---------------- -------
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2017
(Audited) Share Share Foreign Share-based Hedging Retained Attributable Non-controlling Total
capital premium currency payment and earnings to the interest equity
account translation reserve other parent
US$ million reserve reserves
------------------------------- -------- -------- ------------ ------------ --------- --------- ------------- ---------------- --------
At 1 July 2015 87.6 664.0 (250.7) 21.7 (0.8) 61.3 583.1 39.4 622.5
Profit for the Year - - - - - 54.2 54.2 12.6 66.8
Other comprehensive expense - - (121.4) (2.9) - - (124.3) (9.6) (133.9)
Dividends paid - - - - - (15.4) (15.4) - (15.4)
Transfer between reserves for
exercise of options - - - (9.0) - 9.0 - - -
Equity settled share based
payments - - - 5.3 - - 5.3 - 5.3
Allotments during the Year:
* Share options exercised 0.2 1.2 - - - - 1.4 - 1.4
* LTSP share grants 0.8 - - (0.7) - - 0.1 - 0.1
------------------------------- -------- -------- ------------ ------------ --------- --------- ------------- ---------------- --------
At 30 June 2016 88.6 665.2 (372.1) 14.4 (0.8) 109.1 504.4 42.4 546.8
------------------------------- -------- -------- ------------ ------------ --------- --------- ------------- ---------------- --------
NOTES TO THE CONSOLIDATED PRELIMINARY FINANCIAL STATEMENTS
FOR THE YEARED 30 JUNE 2017
(UNAUDITED)
1. GENERAL INFORMATION
Petra Diamonds Limited (the "Company"), a limited liability
company listed on the Main Market of the London Stock Exchange, is
registered in Bermuda with its Group management office domiciled in
the United Kingdom (effective 01 May 2017).) The Consolidated
Preliminary Financial Statements of the Company for the year ended
30 June 2017 comprise the Company and its subsidiaries, joint
operations and associates (together referred to as the
"Group").
2. ACCOUNTING POLICIES
The preliminary results, which are unaudited, do not include all
the notes of the type normally included in an annual financial
report. Accordingly, this unaudited preliminary report is to be
read in conjunction with the Annual Report for the year ended 30
June 2016, and any public announcements made by the Group during
the reporting period. The annual financial report for the year
ended 30 June 2016 was prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
("IFRS's") and the accounting policies applied in this preliminary
report are consistent with the polices applied in the annual
financial report for the year ended 30 June 2016 unless otherwise
noted.
Accounting policy for the Kimberley Ekapa Mining Joint
Venture
As discussed in note 16, Petra entered into a joint venture
agreement to combine the operations they owned with those of Ekapa
Mining to create the Kimberley Ekapa Mining JV. Subsequent to the
transaction, Petra and its BEE Partners had a 75.9% jointly
controlled interest in KEM JV, held through Crown Resources (Pty)
Ltd and Ekapa Minerals (Pty) Ltd, with Ekapa Mining owning the
remaining 24.1%. Petra and its BEE Partners effectively contributed
24.1% of their interest in Kimberley Underground mines in return
for a 75.9% interest in the tailings operations (contributed by
Super Stone and Kimberley Miners Forum (Pty) Ltd, subsidiaries of
Ekapa Mining (Pty) Limited) and a 26% increase in the interest in
the Kimberley Mines tailings operation taking its interest to
75.9%. In line with IAS 28, gains and losses resulting from
upstream and downstream transactions between an entity and its
joint venture are recognised in the entity's financial statements
only to the extent of unrelated investors' interest in the joint
venture. As a result, Petra's incremental increase of 26% in Ekapa
Minerals and its share (75.9%) of Super Stone have been recognised
at fair value with the gain being recognised in the consolidated
income statement. Petra's remaining share of Kimberley Underground
mines (75.9%) continues to be recognised at book value whilst the
24.1% of the assets and liabilities classified as held for sale at
30 June 2016 have been derecognised and expensed in the Year and
recorded as part of the net US$4.1 million fair value gain.
The Group accounts for its interest in the Kimberley Ekapa
Mining Joint Venture as a joint arrangement. The Group is a party
to a joint arrangement when there is a contractual arrangement that
confers joint control over the relevant activities of the
arrangement to the Group and at least one other party. The Group
classifies its interests in joint arrangements as jointly
controlled operations where the Group has the rights to both assets
and obligations for the liabilities of the joint arrangement. In
assessing the classification of interests in joint arrangements,
the Group considers the structure of the arrangement, the legal
form and the contractual agreements between the parties.
The Group accounts for its interests in joint operations by
recognising its share of assets, liabilities, revenues and expenses
in accordance with its contractually conferred rights and
obligations.
Accounting policy for substantial modification of financial
liabilities
When the Group's borrowings are refinanced, and the refinancing
is considered to be a substantial modification, the difference
between the carrying amount of a financial liability (or part of a
financial liability) extinguished or transferred to another party
and the consideration paid, including any non-cash assets
transferred or liabilities assumed, is recognised as a charge in
the income statement on an accelerated basis.
Basis of preparation
After a review of the Group's operations, the Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the unaudited consolidated preliminary financial
statements. Further details of the Group's funding position are
included in 'Post Year end Developments in Tanzania' on page 6, in
'Covenant Measurements attached to Banking Facilities' on page 10
of the financial review and in note 9.
The unaudited consolidated preliminary financial statements for
the year ended 30 June 2017 do not constitute statutory accounts
and have been drawn up using accounting policies and presentation
expected to be adopted in the Group's full financial statements for
the year ended 30 June 2017, which are not expected to be
significantly different to those set out in notes 1 - 37 of the
Group's audited financial statements for the year ended 30 June
2016, together with the accounting policies for the Kimberley Ekapa
Mining JV, and substantial modification of financial liabilities,
as noted above.
The financial information for the year ended 30 June 2016 has
been extracted from the statutory accounts for that period. The
auditors' report for the year ended 30 June 2016 was unqualified
and did not include references to any matters to which the auditors
drew attention by way of emphasis without qualifying their
report.
New standards and interpretations applied
The IASB has issued no new standards, amendments to published
standards and interpretations to existing standards with effective
dates on or prior to 1 July 2016 which have a material effect on
the Group.
New standards and interpretations not yet effective
Certain new standards, amendments and interpretations to
existing standards have been published that are mandatory for the
Group's accounting periods beginning after 1 July 2017 or later
periods, which the Group has decided not to adopt early or which
are yet to be European Union endorsed.
The only standards which are anticipated to be significant or
relevant to the Group are:
IFRS 15 Revenue from Contracts with Customers
The Group is required to apply IFRS 15 for annual reporting
periods beginning on or after 1 January 2018. Management have
assessed the core principle of IFRS 15, that the Group will
recognise revenue to depict the transfer of promised diamond sales
to customers in an amount that reflects the consideration to which
the Group expects to be entitled in exchange for the diamond
sales.
Diamonds sales are made through a competitive tender process.
Diamond sales are recognised when significant risks and rewards of
ownership are transferred to the buyer, costs can be reliably
measured and receipt of tender proceeds probable - this is deemed
to be the point at which the tender is awarded. The Group has
reviewed the terms and conditions of the current tender contract
entered into with each of the buyers and are satisfied that, based
on the terms of the current contracts, there is no change to the
timing of revenue recognition on tender sales under IFRS 15.
Where the Group makes rough diamond sales to customers and
retains a vested right in the future sale of the polished diamond,
the Group will record such revenue only at the date when the
polished diamond is sold (and only its interest therein). The Group
has reviewed the terms and conditions of its current contracts
pertaining to such scenarios and are satisfied that there is no
change, based on the terms of the current contracts, to the timing
of revenue recognition on such sales under IFRS 15.
IFRS 16 Leases
The Group is required to apply IFRS 16 for annual reporting
periods beginning on or after 1 January 2019. Management have
assessed the core principle of IFRS 16, to reflect the right of use
assets and lease liabilities onto the consolidated statement of
financial position for the first time in respect of its current
operating leases. Management consider the impact to be
immaterial.
IFRS 9 Financial Instruments
IFRS 9 "Financial instruments" addresses the classification and
measurement of financial assets and financial liabilities. The
complete version of IFRS 9 was issued in July 2014. It replaces the
guidance in IAS 39 that relates to the classification and
measurement of financial instruments. IFRS 9 retains but simplifies
the mixed measurement model and establishes three primary
measurement categories for financial assets: amortised cost, fair
value through other comprehensive income (OCI) and fair value
through profit or loss. The basis of classification depends on the
entity's business model and the contractual cash flow
characteristics of the financial asset. Investments in equity
instruments are required to be measured at fair value through
profit or loss with the irrevocable option at inception to present
changes in fair value in OCI. There is now a new expected credit
loss model that replaces the incurred loss impairment model used in
IAS 39. For financial liabilities there were no changes to
classification and measurement except for the recognition of
changes in credit risk in other comprehensive income, for
liabilities designated at fair value through profit or loss.
Contemporaneous documentation is still required but is different to
that currently prepared under IAS 39. Management are currently
assessing the standard's full impact. The impact of IFRS 9 is
likely to be largely affected by the Group's hedge accounting
policies that will apply at the time of the standard's adoption.
The Group is currently assessing both its hedging policies and the
overall impact of IFRS 9.
Significant assumptions and judgements:
The preparation of the consolidated preliminary financial
statements requires management to make estimates and judgements and
form assumptions that affect the reported amounts of the assets and
liabilities, reported revenue and costs during the periods
presented therein, and the disclosure of contingent liabilities at
the date of the preliminary financial statements. Estimates and
judgements are continually evaluated and based on management's
historical experience and other factors, including future
expectations and events that are believed to be reasonable. The
estimates and assumptions that have a significant risk of causing a
material adjustment to the financial results of the Group in future
reporting periods are discussed below.
Key estimates and judgements:
Life of mine and ore reserves and resources
There are numerous risks inherent in estimating ore reserves and
resources and the associated current life of mine plan. The life of
mine plan is the current approved management plan for ore
extraction that considers specific resources and associated capital
expenditure. The life of mine plan frequently includes less tonnes
than the total reserves and resources that are set out in the
Group's Reserves and Resources Statement and which management may
consider to be economically viable and capable of future
extraction.
Management must make a number of assumptions when making
estimates of reserves and resources, including assumptions as to
exchange rates, rough diamond and other commodity prices,
extraction costs, recovery and production rates. Any such estimates
and assumptions may change as new information becomes available.
Changes in exchange rates, commodity prices, extraction costs,
recovery and production rates may change the economic viability of
ore reserves and resources and may ultimately result in the
restatement of the ore reserves and resources and potential
impairment to the carrying value of the mining assets and life of
mine plans.
The current life of mine plans are used to determine the ore
tonnes and capital expenditure in the impairment tests. Ore
reserves and resources, both those included in the life of mine and
certain additional tonnes which form part of reserves and resources
considered to be sufficiently certain and economically viable, also
impact the depreciation of mining assets depreciated on a unit of
production basis. Ore reserves and resources further impact the
estimated date of decommissioning and rehabilitation.
Impairment reviews
The Group prepares value in use impairment models and assesses
mining assets for impairment. While conducting an impairment review
of its assets using value in use impairment models, the Group
exercised judgement in making assumptions about future rough
diamond prices, foreign exchange rates, volumes of production, ore
reserves and resources included in the current life of mine plans,
future development and production costs and factors such as
inflation and discount rates. Changes in estimates used can result
in significant changes to the 'Consolidated Income Statement' and
'Statement of Financial Position'.
The impairment test for Williamson as at 30 June 2017 included
the estimated effects of the legislation changes in Tanzania
resulting in increased royalty, export and VAT costs,
notwithstanding that they were only formally enacted shortly after
Year end, and further considered the impact from regulatory
uncertainty within Tanzania.
The headroom on the impairment test at Williamson was 2% (30
June 2016: 81%) on a carrying value of assets of US$130.9 million.
Accordingly the carrying value of the assets is highly sensitive to
a change in any of the underlying assumptions. The most sensitive
inputs are diamond prices (including expected revenue from
Exceptional Diamonds) and discount rates. The diamond prices
(including expected revenue from Exceptional Diamonds) used in the
impairment test have been set with reference to recent achieved
prices and product mix. The long-term diamond price escalators
reflect the Group's assessment of market supply/demand
fundamentals, although short-term volatility remains present within
the market. A discount rate of 9% was used, calculated based on a
nominal weighted cost of capital including the effect of factors
such as market risk and country risk at year end. A sustained 5%
drop in prices would result in a US$28.3 million impairment charge;
a 1% increase in
the discount rate would result in a US$8.2 million impairment charge.
The Board notes that there have been significant developments
with regards to Williamson post Year end, as set out in note
17.
The lowest headroom at the South African mines is at
Koffiefontein. The headroom on the impairment test at Koffiefontein
was 10% (30 June 2016: 94%) on a carrying value of assets of
US$117.9 million. Management notes that a 2.7% reduction in diamond
prices or a 32.0% reduction in production (for FY 2018 only) or a
3.7% reduction in foreign exchange rates as compared to the
ZAR13.25/US$1 base foreign exchange rate for FY 2018 at
Koffiefontein would result in a break-even impairment scenario. The
diamond prices used in the impairment test have been set with
reference to recent achieved prices, the product mix anticipated
from increased undiluted ore contribution and increased volume. The
long-term diamond price escalators reflect the Group's assessment
of market supply/demand fundamentals, although short-term
volatility remains present within the market. Foreign exchange rate
volatility remains. The impairment model includes an increase of
56.4% in carat production in FY 2018 versus FY 2017, reflecting a
29.0% increase in ROM tonnage throughput, which is supported by
current production rates and trend.
Recoverability of VAT in Tanzania
The Group holds VAT receivables carried at US$15.8 million (30
June 2016: US$10.8 million) in the Statement of Financial Position
in respect of the Williamson mine, a major portion of which is past
due. The assessment of carrying value required significant judgment
including the payment history, ongoing discussions with the
relevant authorities in Tanzania and the wider operating
environment. The VAT receivables are considered valid and are not
being disputed by the tax authorities. Accordingly, the Group will
be pursuing near term payment in accordance with legislation.
However, acknowledging the challenges of the current operating
environment in Tanzania the receivables have been reclassified as
non-current given the potential for delays in receipt.
Capitalisation of borrowing costs
The Group capitalises effective interest costs (inclusive of
fees) to property, plant and equipment when the loans are
considered to have been drawn down for the purpose of funding the
Group's capital development programmes. Judgement is required in
determining the extent to which borrowing costs relate to
qualifying capital projects. The US$650 million bond raised in
April 2017 and existing bank borrowings were utilised to fund the
completion of underground expansion projects, the processing plant
at Cullinan and the refinancing of existing bond and bank
borrowings. When the Group's borrowings are refinanced, the
difference between the carrying amount of a financial liability (or
part of a financial liability) extinguished or transferred to
another party and the consideration paid, including any non-cash
assets transferred or liabilities assumed, is recognised as a
charge in the income statement on an accelerated basis when the
refinancing is considered to be a substantial modification of
terms.
Provision for rehabilitation
Significant estimates and assumptions are made in determining
the amount attributable to rehabilitation provisions. These deal
with uncertainties such as the legal and regulatory framework,
timing and future costs. In determining the amount attributable to
rehabilitation provisions, management used a discount rate range of
7.7%-9.9% (30 June 2016: 8.1%-9.6%), estimated rehabilitation
timing of 10 to 48 years (30 June 2016: 11 to 49 years) and an
inflation rate range of 5.7%-7.9% (30 June 2016: 6.1%-7.6%). The
Group estimates the cost of rehabilitation with reference to
approved environmental plans filed with the local authorities.
Reductions in estimates are only recognised when such reductions
are approved by local legislation and are consistent with the
Group's planned rehabilitation strategy. Increases in estimates are
immediately recognised.
Inventory and inventory stockpile
Judgement is applied in making assumptions about the value of
inventories and inventory stockpiles, including diamond prices,
production grade and expenditure to determine the extent to which
the Group values inventory and inventory stockpiles.
Depreciation
Judgement is applied in making assumptions about the
depreciation charge for mining assets. The Group depreciates its
assets using units of production or straight-line basis depending
on its assessment of the most appropriate method for each
individual asset. Judgement is applied when using the units of
production method in estimating the ore tonnes held in reserves and
resources which have sufficient geological and geophysical
certainty of being economically viable and which are extractable
using existing assets. The relevant reserves and resources include
those included in current approved life of mine plans and, in
respect of certain surface and underground shared infrastructure,
certain additional resources which also meet these levels of
certainty and viability. The Group depreciates its assets according
to relevant sections of the orebody over which these will be
utilised and a key judgement exists in determining the future
production unit assigned to on-mine shared infrastructure which is
utilised over more than one section of the orebody or is used to
access ore tonnes outside of the current approved life of mine
plan. Judgement is also applied when assessing the estimated useful
life of individual assets and residual values. The assumptions are
reviewed at least annually by management and the judgement is based
on consideration of the Life of Mine plans and structure of the
orebody and the nature of the assets. The assessment is determined
by the Group's capital project teams and geologists.
Pension and post-retirement medical fund schemes
The Company operates a defined benefit pension scheme and a
post-employment health care liability scheme. The pension charge or
income for the defined benefit scheme and benefit liability for the
post-employment health care liability scheme is regularly assessed
in accordance with the advice of a qualified actuary using the
projected unit credit method. The most recent actuarial valuation
was at 30 June 2017 for the pension fund. The most recent actuarial
valuation for the post-employment medical scheme was at 30 June
2016 in line with the Group's policy of obtaining an external
valuation every 2 years. The Group has assessed the key assumptions
and no significant change in any of the key assumptions from the
last external valuation at 30 June 2016 has been identified. The
most important assumptions made in connection with the pension
scheme valuation and charge or income are the return on the funds,
the average yield of South African Government long dated bonds,
salary increases, withdrawal rates, life expectancies and the
current South African consumer price index. The most important
assumptions made in connection with the post-employment health care
liability scheme valuation and charge or income are the health care
cost of inflation, the average yield of South African Government
long dated bonds and salary increases, withdrawal rates and life
expectancies.
Net investments in foreign operations
Management assess the extent to which intra-group loans to
foreign operations that give rise to unrealised foreign exchange
gains and losses are considered to be permanent as equity or
repayable in the foreseeable future. The judgement is based upon
factors including the life of mine plans, cashflow forecasts and
strategic plans. The foreign exchange on permanent equity loans are
recorded in foreign currency translation reserve until such time as
the operation is sold, whilst the foreign exchange on loans
repayable in the foreseeable future are recorded in the
Consolidated Income Statement.
Kimberley Mines acquisition during FY 2016
Judgement was applied in determining the fair value adjustments
in respect of the Kimberley Mines acquisition. The fair value
adjustments to property, plant and equipment and medical aid
provisions were to ensure these amounts were reflected at fair
value. As detailed in note 29 of the FY 2016 annual report, the
Group holds a 49.9% interest in Ekapa Minerals, which was used to
acquire Kimberley Mines. The Group consolidated its share of the
assets, liabilities, income and expenses of Kimberley Mines as a
jointly controlled operation, based on contractual agreements
between the joint venture partners that provided for unanimous
decision making on the relevant activities of the business. The
accounting treatment involved consideration of the structure of the
arrangement, the legal form and the contractual agreements between
the parties.
Non-current assets held for sale FY 2016 - Kimberley
Underground
At 30 June 2016, the carrying value of assets at Kimberley
Underground, considered on the basis of classification as
non-current assets held for sale and were carried at the lower of
carrying value and fair value less cost to sell, as detailed in
note 15 and in the Group's FY 2016 Annual Report. The assessment of
fair value less cost to sell was considered by the Board and
represented a key judgement, based on internal valuation models,
discounts for market pricing and progress of the current sale
process. The book value of the assets was less than fair value less
costs to sell.
Kimberley Ekapa Mining Joint Venture
Judgement was applied in determining the fair value adjustments
in respect of the Kimberley Ekapa Mining Joint Venture ("KEM JV")
acquisition. The fair value adjustments to mineral properties were
to ensure the asset values for Petra's incremental share in Ekapa
Minerals (Pty) Ltd ("Ekapa Minerals") and Petra's interest in Super
Stone were reflected at fair value. The Group has joint control
over the KEM JV and recognises its share of the assets,
liabilities, income and expenses. The accounting treatment involved
consideration of the structure of the arrangement, the legal form
and the contractual agreements between the parties.
3. DIVIDS
No dividends have been declared in respect of the current Year
under review (30 June 2016: US$15.4 million).
4. SEGMENTAL INFORMATION
Segment information is presented in respect of the Group's
operating and geographical segments:
Mining - the extraction and sale of rough diamonds from mining
operations in South Africa and Tanzania.
Exploration - exploration activities in Botswana and South
Africa.
Corporate - administrative activities in United Kindgom.
Segments are based on the Group's management and internal
reporting structure. Management reviews the Group's performance by
reviewing the results of the mining activities in South Africa and
Tanzania, reviewing the results of exploration activities in
Botswana and South Africa and reviewing the corporate
administration expenses in United Kingdom. Each segment derives, or
aims to derive, its revenue from diamond mining and diamond sales,
except for the corporate and administration cost centre.
Segment results, assets and liabilities include items directly
attributable to a segment, as well as those that can be allocated
on a reasonable basis. Segment results are calculated after
charging direct mining costs, depreciation and other income and
expenses. Unallocated items comprise mainly interest-earning assets
and revenue, interest-bearing borrowings and expenses and corporate
assets and expenses. Segment capital expenditure is the total cost
incurred during the year to acquire segment assets that are
expected to be used for more than one period. Eliminations comprise
transactions between Group companies that are cancelled on
consolidation. The results are not materially affected by seasonal
variations. Revenues are generated from tenders held in South
Africa and Antwerp for external customers from various countries,
the ultimate customers of which are not known to the Group.
The Group's non-current assets are located in South Africa
US$1,345.1 million (30 June 2016: US$991.8 million), Tanzania
US$153.8 million (30 June 2016: US$125.0 million), Botswana US$0.8
million (30 June 2016: US$0.9 million) and United Kingdom US$0.3
million (30 June 2016: US$0.2 million).
The Group's property, plant and equipment included in
non-current assets are located in South Africa US$1,302.2 million
(30 June 2016: US$953.2 million), Tanzania US$138.0 million (30
June 2016: US$125.0 million), Botswana US$0.8 million (30 June
2016: US$0.9 million) and United Kingdom US$0.3 million (30 June
2016: US$0.2 million).
4. SEGMENTAL INFORMATION (continued)
Operating South Africa - Mining activities Care Tanzania Botswana United South
segments and -Mining Kingdom(6) Africa
maintenance activities
Corporate
US$ million and
Cullinan Finsch Koffiefontein KEM JV(5) Helam Williamson Exploration treasury Beneficiation(4) Inter-segment Consolidated
----------------- --------- ------- -------------- ---------- ------------ ----------- ------------ ----------- ----------------- -------------- -------------
2017 2017 2017 2017 2017 2017 2017 2017 2017 2017 2017
----------------- --------- ------- -------------- ---------- ------------ ----------- ------------ ----------- ----------------- -------------- -------------
Revenue 91.3 216.7 28.4 82.3 - 58.3 - - 0.4 (0.3) 477.0
Segment
result(1) 4.8 101.2 (11.0) (2.7) (2.5) (3.4) (0.8) (11.2) 1.1 (0.6) 74.9
Other direct
income - 0.5 0.1 1.0 0.3 0.5 - - - 0.4 2.8
--------- ------- -------------- ---------- ------------ ----------- ------------ ----------- ----------------- -------------- -------------
Operating
profit /
(loss)(2) 4.8 101.7 (10.9) (1.7) (2.2) (2.9) (0.8) (11.2) 1.1 (0.2) 77.7
Fair value
uplift on
Kimberley
Ekapa Mining
Joint
Venture(5) 4.1
Financial
income 14.2
Financial
expense (49.5)
Income tax
expense (25.8)
Non-controlling
interest (2.4)
----------------- --------- ------- -------------- ---------- ------------ ----------- ------------ ----------- ----------------- -------------- -------------
Profit
attributable
to equity
holders
of the parent
company 18.3
----------------- --------- ------- -------------- ---------- ------------ ----------- ------------ ----------- ----------------- -------------- -------------
Segment
assets 828.7 661.6 248.0 212.1 5.0 171.1 0.9 3 214.0 7.4 (3 494.0) 1 854.8
Segment
liabilities 694.3 394.6 265.6 220.7 50.9 277.8 44.2 2 178.8 8.0 (2 926.5) 1 208.4
Capital
expenditure 151.2 85.6 18.8 28.4 - 15.0 - 1.4 - (0.3)(3) 300.1
----------------- --------- ------- -------------- ---------- ------------ ----------- ------------ ----------- ----------------- -------------- -------------
(1) Total depreciation of US$79.6 million included in the
segmental result, comprises depreciation incurred at Finsch US$14.6
million, Cullinan US$31.6 million, Koffiefontein US$8.8 million,
KEM JV US$16.4 million, Williamson US$6.6 million, Helam US$0.6
million, Exploration US$0.2 million and Corporate administration
US$0.8 million.
(2) Operating profit is equivalent to revenue of US$477.0
million less total costs of US$399.3 million as disclosed in the
Consolidated Income Statement.
(3) Inter segment capital expenditure represents
work-in-progress at Helam of US$0.3 million in respect of the
manufacture of plant and equipment for other mines within the
Group.
(4) The beneficiation segment represents Tarorite, a cutting and
polishing business in South Africa, which can on occasion cut and
polish select rough diamonds.
(5) KEM JV comprises the combined operations of Kimberley
Underground, Super Stone and the Kimberley Mines tailings
operations (refer to note 16).
(6) With effect from 01 May 2017 the Company was domiciled in
the United Kingdom.
4. SEGMENTAL INFORMATION (continued)
Operating South Africa - Mining activities Care Tanzania Botswana Jersey South
segments and -Mining Africa
maintenance activities
Corporate
US$ million Kimberley and
Cullinan Finsch Koffiefontein Operations(3) Helam Williamson Exploration treasury Beneficiation(5) Inter-segment Consolidated
----------------- --------- ------- -------------- -------------- ------------ ----------- ------------ ---------- ----------------- -------------- -------------
2016 2016 2016 2016 2016 2016 2016 2016 2016 2016 2016
----------------- --------- ------- -------------- -------------- ------------ ----------- ------------ ---------- ----------------- -------------- -------------
Revenue 83.3 186.4 25.7 57.7 0.1 78.9 - - 0.2 (1.4) 430.9
Segment
result(1) 3.7 98.0 (1.0) 7.1 (2.5) 18.6 (2.9) (12.1) (1.6) (1.7) 105.6
Other direct
income - 0.2 0.2 1.5 0.3 0.5 - - - 0.1 2.8
--------- ------- -------------- -------------- ------------ ----------- ------------ ---------- ----------------- -------------- -------------
Operating
profit /
(loss)(2) 3.7 98.2 (0.8) 8.6 (2.2) 19.1 (2.9) (12.1) (1.6) (1.6) 108.4
Financial
income 7.0
Financial
expense (40.0)
Income tax
expense (8.6)
Non-controlling
interest (12.6)
----------------- --------- ------- -------------- -------------- ------------ ----------- ------------ ---------- ----------------- -------------- -------------
Profit
attributable
to equity
holders of
the parent
company 54.2
----------------- --------- ------- -------------- -------------- ------------ ----------- ------------ ---------- ----------------- -------------- -------------
Segment assets 654.7 352.8 195.9 185.2 5.8 158.9 1.1 2 314.8 6.1 (2 516.1) 1 359.2
Segment
liabilities 425.1 179.4 199.1 194.1 42.7 264.1 43.6 1 368.9 7.6 (1 912.2) 812.4
Capital
expenditure 179.4 73.8 27.5 16.8 0.1 24.4 - 1.8 - 0,3(4) 324.1
----------------- --------- ------- -------------- -------------- ------------ ----------- ------------ ---------- ----------------- -------------- -------------
(1) Total depreciation of US$51.8 million included in the
segmental result, comprises depreciation incurred at Finsch US$11.8
million, Cullinan US$18.4 million, Koffiefontein US$4.5 million,
Kimberley Underground US$9.8 million, Williamson US$5.9 million,
Helam US$0.6 million, Exploration US$0.2 million and Corporate
administration US$0.6 million.
(2) Operating profit is equivalent to revenue of US$430.9
million less total costs of US$322.5 million as disclosed in the
Consolidated Income Statement.
(3) The Kimberley Operations segment includes the trading
results of 100% of Kimberley Underground from 1 July 2015 to 17
January 2016 and the Group's 75.9% attributable share of the
Combined Kimberley Operations from 18 January 2016 following the
acquisition of a jointly controlled interest in the Kimberley Mines
and tolling agreement. Assets of US$18.8 million and liabilities of
US$12.2 million in respect of Kimberley Underground have been
classified as non-current assets-held-for-sale (refer to note 15 of
the FY 2016 annual report).
(4) Inter-segment capital expenditure represents
work-in-progress at Helam of US$0.3 million in respect of the
manufacture of plant and equipment for other mines within the
Group.
(5) The beneficiation segment represents Tarorite, a cutting and
polishing business in South Africa, which can on occasion cut and
polish select rough diamonds.
5. CORPORATE EXPITURE
US$ million 2017 2016
----------------------------------------- ------ -----
Auditors' remuneration
- Audit services(1) (&2) 0.5 0.6
- Audit related services(3) 0.1 0.1
Depreciation of property, plant
and equipment 0.8 0.6
London Stock Exchange and other
regulatory expenses 1.1 1.4
Other charges 5.2 3.1
------ -----
Share-based expense - Directors (0.3) 2.3
Share-based expense - Senior Management - 0.3
Other staff costs 3.8 3.7
------------------------------------------ ------ -----
Total staff costs 3.5 6.3
11.2 12.1
----------------------------------------- ------ -----
(1) Audit fees for the year ended 30 June 2017 stated above
refer to fees for the 30 June 2016 audit.
(2) Included in Mining and Processing costs are audit fees of
US$0.3 million (30 June 2016: US$0.3 million) relating to the audit
of the mining operations.
(3) Audit-related services of US$0.1 million for the FY 2016 are
in respect of the interim review. A further US$0.4 million fees for
non-audit services in FY 2017 are in respect of the issue of the
US$650 million loan notes, which were capitalised under non-current
loans and borrowings.
6. FINANCING EXPENSE
US$ million 2017 2016
------------------------------------------ ------- -------
Net unrealised foreign exchange
gains 9.9 3.2
Interest received on BEE loans and
other receivables 2.5 3.4
Interest received bank deposits 1.8 0.4
Financial income 14.2 7.0
-------
Gross interest on bank loans and
overdrafts (48.0) (29.1)
Interest on bank loans and overdrafts
capitalised 44.1 26.5
------- -------
Net interest expense on bank loans
and overdrafts (3.9) (2.6)
Bond redemption premium and acceleration
of unamortised bond costs(1) (22.3) -
Other debt finance costs, including
BEE loan interest and facility fees (14.5) (12.5)
Unwinding of present value adjustment
for rehabilitation costs (5.0) (4.2)
Realised foreign exchange losses
on the settlement of foreign loans
and forward exchange contracts(2) (3.8) (20.7)
Financial expense (49.5) (40.0)
Net financial expense (35.3) (33.0)
------------------------------------------- ------- -------
(1) Bond redemption premium and acceleration of unamortised bond
costs of US$22.3 million relate to costs associated with the
refinancing and early redemption of the US$300 million Bond
comprising; unamortised upfront costs (US$7.3 million previously
capitalised) and make-whole premium (US$15.0 million).
(2) During the current Year the Group ceased to classify its
forward currency contracts as cashflow hedges. The Group recognised
an amount of US$nil million (30 June 2016: US$7.2 million) in the
Consolidated Income Statement in respect of the intrinsic and time
value of these derivative positions that remained open at 30 June
2017. The Company recognised a realised loss of US$3.8 million (30
June 2016: US$20.7 million) in the Consolidated Income Statement in
respect of foreign exchange contracts closed during the year. This
realised loss arose due to the hedging positions being closed out
at foreign exchange rates higher than the foreign exchange rates
applicable at the inception of the original hedges.
7. PROPERTY, PLANT AND EQUIPMENT
The net movement in property, plant and equipment for the Year
is an increase of US$362.0 million (30 June 2016: US$110.5 million,
excluding the portion held in non-current assets held for sale of
US$14.1 million). This is primarily as a result of an increase in
property, plant and equipment from capital expenditure of US$300.1
million (30 June 2016: US$324.1 million), the recognition of the
incremental assets attributable to the Group from the KEM JV of
US$14.7 million and the movement in the US$/ZAR foreign exchange
rate resulting in a foreign exchange increase on Rand based assets
of US$127.4 million (30 June 2016 US$147.4 million decrease), which
is off-set by depreciation of US$79.6 million (30 June 2016:
US$51.8 million), increase in rehabilitation asset of US$nil
million (30 June 2016: US$8.8 million decrease) and assets of
US$0.6 million (30 June 2016: US$0.2 million) disposed of during
the Year.
8. SHARES ISSUED
Allotments during the Year were in respect of:
(i) the award to the Executive Directors of 646,398 ordinary
shares granted under the 2012 Performance Share Plan, in receipt of
performance measured over the period 1 July 2013 to 30 June
2016;
(ii) the award to the Executive Directors of 507,600 ordinary
shares granted under the 2011 Long-Term Share Plan, in receipt of
performance measured over the period 1 July 2013 to 30 June
2016;
(iii) the award to the Executive Directors of 156,233 ordinary
shares granted under the 2014 deferred share awards based on the
annual performance bonus plan;
(iv) the award to the Senior Management of 4,371,770 ordinary
shares granted under the 2011 Long-Term Share Plan, in receipt of
performance measured over the period 1 July 2013 to 30 June 2016
and
(v) the exercise of 2,131,250 share options under the 2005
Executive Share Option Scheme by Directors and Senior
Management.
Further details with regards to the Group's share plans will be
provided in the Group's 2017 Annual Report.
9. LOANS AND BORROWINGS
US$ million 2017 2016
--------------------------------------- ------ ------
Non-current liabilities
Loans and borrowings - Senior secured
lender debt facilities - 51.2
Loans and borrowings - Senior secured
second lien notes 598.5 266.0
---------------------------------------- ------ ------
598.5 317.2
Current liabilities
Loans and borrowings - Senior secured
lender debt facilities 109.0 80.3
Loans and borrowings - Senior secured
second lien notes 49.6 27.0
---------------------------------------- ------ ------
158.6 107.3
Total loans and borrowings - bank
facilities 757.1 424.5
---------------------------------------- ------ ------
a) Senior Secured Lender Debt Facilities
On 1 July 2016 the Group further amended its lending group (Absa
Corporate and Investment Banking ("Absa"), FirstRand Bank Limited
(acting through its Rand Merchant Bank division) ("RMB"), IFC,
Nedbank Limited) to facilitate the exit of Bank of China Limited
from its Amortising term facility. On 12 April 2017 the Group
further amended its lending facilities with its lending group as
follows:
- ATF reduced to ZARnil million (previously ZAR900 million)
- RCF reduced to ZAR1,000 million (previously ZAR1,250 million)
- WCF reduced to ZAR500 million (previously ZAR700 million) and
- IFC ATF and RCF facilities reduced to US$nil (previously US$35
million and US$25 million respectively).
The Group's debt and hedging facilities are detailed in the
table below:
Amended Senior Lender 30 June 01 July 30 June
Debt Facilities 2017(3) 2016(1) 2016
Facility Facility Facility
amount amount amount
------------------------ --------- --------------- --------------
ZAR Debt Facilities:
ZAR Lenders Amortising ZARnil ZAR900 million ZAR665
term facility (ATF)(2) million
ZAR Lenders Revolving ZAR1,000 ZAR1,250 ZAR1,500
credit facility (RCF) million million million
ZAR Lenders Working ZAR500 ZAR700 million ZAR500
capital facility (WCF) million million
Absa/RMB - FX Hedging ZAR300 ZAR300 million ZAR400
facilities million million
US$ Debt Facilities:
IFC - Amortising term
facility (ATF)(2) US$nil US$35 million US$35 million
IFC - Revolving credit
facility (RCF)(2) US$nil US$25 million US$25 million
------------------------ --------- --------------- --------------
(1) Effective 1 July 2016, Bank of China Limited exited the
Petra Group Lenders.
(2) The ZAR Lenders ATF, the IFC ATF and RCF facilities were all
repaid during the year (refer to b) below).
(3) The facilities were amended with effect from 12 April
2017.
The repayment terms and interest rates remained unchanged. The
terms and conditions will be detailed in the Group's FY 2017 Annual
Report.
The facilities are secured on the Group's interests in Finsch,
Cullinan, Koffiefontein, and Williamson.
For changes relating to the covenant ratios subsequent to the
year end, refer to note 17.
Refer to 'Covenant Measurements attached to Banking Facilities'
on page 10 of the CEO's Review for discussion with regards to
covenants.
b) US$650 million Senior Secured Second Lien Notes
On 12 April 2017, a wholly owned subsidiary of the Company,
Petra Diamonds US$ Treasury Plc, issued debt securities consisting
of US$650 million five-year senior secured second lien notes with a
maturity date of 01 May 2022 (the "2022 Notes"). The 2022 Notes
carried a coupon of 7.25% per annum, which is payable semi-annually
in arrears on 01 May and 01 November of each year. The 2022 Notes
are guaranteed by the Company and by the Petra Diamonds Group's
material subsidiaries and are secured on a second lien basis on the
assets of the Petra Diamonds Group's material subsidiaries.
Proceeds from the 2022 Notes have been used to refinance the
Petra Diamonds Group existing US$300 million 8.25% senior secured
second lien notes due 2020 (refer to c) below), to repay certain
bank facilities (refer to a) above), and primarily to fund capital
expansion projects.
Further details about the Notes (including security) will be
included in the FY 2017 Annual Report.
c) US$300 million Senior Secured Second Lien Notes
In the prior year, a wholly owned subsidiary of the Company,
Petra Diamonds US$ Treasury Plc, issued debt securities consisting
of US$300 million five-year senior secured second lien loan notes
("the Notes"), with a maturity date of 31 May 2020. The Notes carry
a coupon of 8.25% per annum, which was payable semi-annually in
arrears on 31 May and 30 November of each year, beginning on 30
November 2015. The Notes were guaranteed by the Company and by the
Group's material subsidiaries and were secured on a second-priority
basis on the assets of the Group's material subsidiaries. The Notes
were listed on the Irish Stock Exchange and traded on the Global
Exchange Market. On or after 31 May 2017, the Company had the right
to redeem all or part of the Notes, details of which were included
in the 2016 Annual Report.
The Notes were repaid on 12 April 2017 from the proceeds
received from the issue of the 2022 Notes (refer b) above).
10. COMMITMENTS
As at 30 June 2017, the Company has committed to future capital
expenditure totalling US$25.6 million (30 June 2016: US$63.3
million), mainly comprising Cullinan US$6.8 million (30 June 2016:
US$36.1 million), Finsch US$13.8 million (30 June 2016: US$14.1
million), Koffiefontein US$2.6 million (30 June 2016: US$4.4
million), KEM JV US$1.9 million (30 June 2016: Kimberley
Underground US$4.1 million) and Williamson US$0.5 million (30 June
2016: US$4.3 million).
11. RELATED PARTY TRANSACTIONS
The Group's related party BEE partners, Kago Diamonds (Pty) Ltd
("Kago Diamonds"), Senakha Diamonds Investments (Pty) Ltd
("Senakha"), Thembinkosi Mining Investments (Pty) Ltd
("Thembinkosi"), Re-Teng Diamonds (Pty) Ltd ("Re-Teng Diamonds")
and Sedibeng Mining (Pty) Ltd ("Sedibeng Mining") and their gross
interests in the mining operations of the Group are disclosed in
the table and group restructuring paragraph below.
Mine Partner and respective
interest Partner and respective
as at 30 June interest
2017 as at 30 June 2016
----------------------- ----------------------- -----------------------
Finsch Kago Diamonds
(14%) Senakha (21%)
Cullinan Kago Diamonds
(14%) Thembinkosi (14%)
Koffiefontein Kago Diamonds Re-Teng Diamonds
(14%) (30%)
Kimberley Underground n/a Sedibeng Mining
(26%)
Kimberley Ekapa Mining Kago Diamonds
JV(1) (8.4%) Ekapa
Mining (24.1%) n/a
Helam Sedibeng Mining Sedibeng Mining
(26%) (26%)
(1) The Kimberley Ekapa Mining JV was formed effective 1 July
2016 (refer note 16).
The non-current loans receivable, non-current loans payable,
finance income and finance expense due from and due to the related
party BEE partners and other related parties are disclosed in the
table below:
US$ million 2017 2016
------------------------ ----- -----
Non-current receivable
Re-Teng Diamonds - 0.6
Sedibeng Mining 1.0 14.1
Kago Diamonds 11.8 -
Senakha(2) - 2.1
Thembinkosi(1&2) - 2.4
Ekapa Mining(3) 2.0 2.7
------------------------- ----- -----
14.8 21.9
------------------------ ----- -----
Non-current payable
Re Teng Diamonds - -
Sedibeng Mining - 1.1
Kago Diamonds 53.6 -
Senakha(2) - 35.2
Thembinkosi(1&2) - 21.8
------------------------- ----- -----
53.6 58.1
------------------------ ----- -----
Finance income
Re-Teng Diamonds - -
Sedibeng Mining - 1.3
Kago Diamonds 0.7 -
Senakha(2) - 0.1
Thembinkosi(1&2) - 0.1
Ekapa Mining 0.2 0.1
------------------------- ----- -----
0.9 1.6
------------------------ ----- -----
Finance expense
Re-Teng Diamonds - -
Sedibeng Mining - 0.7
Kago Diamonds 5.8 -
Senakha(2) - 3.9
Thembinkosi(1&2) - 2.0
Ekapa Mining 0.2 0.1
------------------------- ----- -----
6.0 6.7
------------------------ ----- -----
(1) Umnotho weSizwe Group (Pty) Ltd ("Umnotho"), holds a 36%
interest in Thembinkosi. Mr Abery (a Group director for the period
ending 30 June 2016) is a director of Umnotho. Mr Pouroulis, Mr
Dippenaar and Mr Abery are directly or indirectly beneficiaries of
a trust that is a shareholder in Umnotho.
(2) Included in non-current receivables and payables are amounts
advanced during the Year of US$3.4 million (30 June 2016: US$1.7
million).
(3) Additionally, included in current trade and other
receivables and current trade and other payables are amounts
of:
- US$10.6 million (30 June 2016: US$11.6 million) receivable
from and US$nil million (30 June 2016: US$1.9 million) payable to
Ekapa Mining (Pty) Ltd relating to working capital loans with the
Group.
Tolling agreement
In the prior year the Group entered into a tolling agreement for
the period 18 January 2016 to 30 June 2016 with Ekapa Minerals
(50.1% owned by Ekapa Mining (Pty) Ltd) and Super Stone (100% owned
by Ekapa Mining (Pty) Ltd) to combine diamond production and sales.
Under the agreement, the Group acquired tailings material from the
parties and the combined run of mine and tailings material of the
parties was processed by the parties in return for tolling fees.
While the Group sold the resulting combined diamond production on
behalf of the parties, the Group only received the economic benefit
from 75.9% of the combined rough diamond sales under the agreement.
Accordingly, the Group recognised 75.9% of the sales for which it
acted as principal. No revenue was recognised for the remaining
portion, for which the Group acted as an agent and receives no
further income. The Group generated revenue of US$42.2 million as
part of the tolling agreement and incurred total costs of US$23.4
million for the period 18 January 2016 to 30 June 2016. Effective 1
July 2016 the Group entered into the KEM JV (refer to note 16) and
the tolling agreement ceased.
Rental income receivable
The Group received US$nil million (30 June 2016: US$0.1 million)
of rental income from Pella Resources Ltd and US$0.3 million (30
June 2016: US$0.1 million) from Alufer Mining Ltd. The Group has
US$0.3 million (30 June 2016: US$0.2 million) receivable from Pella
Resources Ltd and US$0.1 million (30 June 2016: US$0.1 million)
receivable from Alufer Mining Ltd both companies of which Mr
Pouroulis is a director.
Group restructuring
Effective 1 July 2016, the Company completed the restructuring
of the Group and its BEE Partner structures, allowing for a
simplified Group structure. The IPDET now owns a 12% interest in
each of the Group's South African operations, with Petra's
commercial BEE Partners holding the remaining 14% interest through
their respective shareholdings in Kago Diamonds, in which Petra has
a 31.46% interest. The effect of the restructuring for shareholders
at 1 July 2016 is an increase in the equity attributable to the
shareholders of the Company as the non-controlling interest in the
underlying net assets of the operations decreased by US$1.4
million. This decrease reflects the non-controlling interest's
increased share of cumulative profits at Finsch, a reduction in the
share of the cumulative profits at Cullinan and an increased share
of cumulative losses at Kimberley, Koffiefontein and Helam. The
increase of US$1.4 million, attributable to the Group's
shareholders, excludes the effect of the KEM JV transaction in note
16. The effective interest percentages attributable to the Group's
shareholders are disclosed in the table below:
Resultant Group's Resultant Group's
effective interest effective interest
Mine % - Pre restructuring % - Post restructuring
---------------------------- ---------------------- -----------------------
Finsch 82.38 78.4
Cullinan 77.03 78.4
Koffiefontein 81.39 78.4
Kimberley Underground / KEM
JV 86.80 58.1(1)
Helam 86.80 74.0
---------------------------- ---------------------- -----------------------
(1) The 58.1% effective interest in KEM JV post restructuring
reflects both the Group's interest in KEM JV following the
transaction in note 16 and the impact of the BEE restructuring.
Mr Abery stepped down as Petra's Finance Director, effective 30
June 2016, in order to pursue other opportunities. Mr Abery entered
into a fixed term employment contract for advisory services with
the Company effective from 1 July 2016 for a fixed period of seven
months until 31 January 2017 as part of the succession process.
Further details with regards to Mr Abery's resignation and
subsequent fixed term employment contract were provided in the
Company's 2016 Annual Report.
12. BEE LOANS RECEIVABLE AND PAYABLE
US$ million 2017 2016
----------------------------- ----- --------
Non-current assets
Loans and other receivables 35.0 28.8(1)
Non-current liabilities
Trade and other payables 99.5 84.6(1)
(1) The non-current BEE loans and receivables and BEE payables
exclude the portion held in liabilities directly associated with
non-current assets held for sale of US$1.6 million.
The non-current BEE loans and receivables and BEE payables,
represent those amounts receivable from and payable to the Group's
BEE partners (Kago Diamonds, Thembinkosi, Senakha, Re Teng
Diamonds, Sedibeng Mining and the IPDET) in respect of financing
their interests in the Finsch, Cullinan, Koffiefontein and
Kimberley Underground mines.
The Group has provided surety to Absa, Investec and RMB for
repayment of loans advanced by Absa, Investec and RMB to the
Group's BEE Partners. The BEE Lender facilities were amended on 1
July 2016 to include Kago Diamonds as a party to the BEE Lender
facilities and to extend the repayment terms to align with the
delivery of the capital expansion programmes at the underlying
Petra mining operations. The probability of repayment default by
the BEE Partners to Absa, Investec and RMB is considered
remote.
13. EARNINGS PER SHARE
30 June 30 June
2017 2016
US$ US$
Numerator
Profit for the Year 18,330,197 54,173,140
--------------------------------------- ------------ ------------
Denominator
Shares Shares
Weighted average number of ordinary
shares used in basic EPS
As at 1 July 524,172,967 518,138,799
Effect of shares issued during
the Year 4,397,609 3,592,017
------------ ------------
As at 30 June 528,570,576 521,730,816
------------ ------------
Shares Shares
Dilutive effect of potential ordinary
shares 5,904,758 12,547,315
--------------------------------------- ------------ ------------
Weighted average number of ordinary
shares in issue used in diluted
EPS 534,475,334 534,278,131
--------------------------------------- ------------ ------------
US$ cents US$ cents
------------ ------------
Basic profit per share - US$ cents 3.47 10.38
Diluted profit per share - US$
cents 3.43 10.14
In the current Year, the number of potentially dilutive ordinary
shares, in respect of employee share options, Executive Director
and Senior Management share award schemes is 5,904,758 (30 June
2016: 12,547,315). These potentially dilutive ordinary shares may
have a dilutive effect on future earnings per share. There have
been no significant post balance sheet changes to the number of
options to impact the dilutive number of ordinary shares.
14. ADJUSTED EARNINGS PER SHARE (non-GAAP measure)
In order to show earnings per share from operating activities on
a consistent basis, an adjusted earnings per share is presented
which excludes certain items as set out below. It is emphasised
that the adjusted earnings per share is a non-GAAP measure. The
Petra Board considers the adjusted earnings per share to better
reflect the underlying performance of the Group. The Company's
definition of adjusted earnings per share may not be comparable to
other similarly titled measures reported by other companies.
30 June 30 June
2017 2016
US$ US$
Numerator
Profit for the Year 18,330,197 54,173,140
------------------------------------------- ------------ ------------
Net unrealised foreign exchange
gains (9,908,160) (3,257,585)
------------------------------------------- ------------ ------------
Kimberley Ekapa Mining JV fair
value adjustment (4,140,552) -
------------------------------------------- ------------ ------------
Bond redemption premium and accelerated
unamortised bond costs 22,347,670 -
------------------------------------------- ------------ ------------
Adjusted profit for the year attributable
to parent 26,629,155 50,915,555
------------------------------------------- ------------ ------------
Denominator
Shares Shares
Weighted average number of ordinary
shares used in basic EPS
As at 1 July 524,172,967 518,138,799
Effect of shares issued during
the Year 4,397,609 3,592,017
------------ ------------
As at 30 June 528,570,576 521,730,816
------------ ------------
Shares Shares
Dilutive effect of potential ordinary
shares 5,904,758 12,547,315
------------------------------------------- ------------ ------------
Weighted average number of ordinary
shares in issue used in diluted
EPS 534,475,334 534,278,131
------------------------------------------- ------------ ------------
US$ cents US$ cents
------------ ------------
Adjusted basic profit per share
- US$ cents 5.04 9.76
Adjusted diluted profit per share
- US$ cents 4.98 9.53
15. NON-CURRENT ASSETS HELD FOR SALE
Partial disposal of Kimberley Underground (24.1%)
As at 30 June 2016, the Company was in negotiations with Ekapa
Mining to combine their respective businesses in the Kimberley area
(refer note 16), with Petra retaining a 75.9% interest in the
planned KEM JV. As a result o this transaction, 24.1% of the
Kimberley Underground mining operation (being Ekapa Mining's
effective interest in the planned KEM JV) was classified as held
for sale in the Statement of Financial Position at 30 June 2016, in
accordance with IFRS 5. The Kimberley Underground mining operation
formed a part of the Kimberley Operations operating segment for the
purposes of the Group's segmental reporting, as disclosed in note
4. The 24.1% interest in net assets of the Kimberly Underground
mining operation included in the Statement of Financial Position
are set out below.
US$ million 30 June 2016
------------------------------------------------- ------------
Net assets :
Property, plant and equipment 14.1
Trade and other receivables 3.0
Inventories 1.7
Non-current assets classified as held for
sale 18.8
Non-current trade and other payables (1.6)
Rehabilitation provision (1.4)
Trade and other payables (9.2)
------------
Liabilities directly associated with non-current
assets classified as held for sale (12.2)
Net assets 6.6
------------
16. ACQUISITION
Kimberley Ekapa Mining Joint Venture
On 8 July 2016, Petra and Ekapa Mining entered into a joint
venture agreement (effective 1 July 2016) to combine the operations
they owned in the Kimberley area into an unincorporated joint
venture named the Kimberley Ekapa Mining Joint Venture ("KEM JV").
The operations contributed by the joint venture partners are
detailed below. Petra has joint control of the KEM JV under the
terms of the shareholders' agreements and recognise its share of
revenue, costs, assets and liabilities.
The operations owned and operated by the joint venture partners
comprise:
- Kimberley Underground mines (via Petra's subsidiary Crown
Resources (Pty) Ltd) ("Crown Resources"). At 30 June 2016, 24.1% of
the Kimberley Underground mines (being Ekapa Mining's effective
interest in the newly formed joint venture) were classified as held
for sale in the Statement of Financial Position in accordance with
IFRS 5;
- Tailings operations (via Ekapa Mining's subsidiaries, Super
Stone and Kimberley Miners Forum (Pty) Ltd); and
- Kimberley Mines tailings operations (via Ekapa Minerals, owned
50.1% Ekapa Mining and 49.9% Petra).
Prior to the transaction, Petra controlled and consolidated
Kimberley Underground mines with a non-controlling interest shown
separately and Petra also held a 49.9% jointly controlled interest
in the Kimberley Mines tailings operations.
Subsequent to the transaction, Petra and its BEE Partners have a
75.9% jointly controlled interest in KEM JV, held through Crown
Resources and Ekapa Minerals, with Ekapa Mining owning the
remaining 24.1%. Petra and its BEE Partners effectively contributed
24.1% of their interest in Kimberley Underground mines in return
for a 75.9% interest in the tailings operations contributed by
Super Stone and Kimberley Miners Forum (Pty) Ltd and a 26% increase
in the interest in the Kimberley Mines tailings operation.
Effect of the transaction
The transaction had the following effect on the Group's assets
and liabilities:
Summary of net fair value gain recognised
US$ million Table Fair value
--------------------------------------- ------- -----------
Fair value uplift for 26% incremental
interest in Ekapa Minerals a) 2.2
Fair value uplift for 75.9% interest
in Super Stone b) 8.5
Derecognition of 24.1% net book value
of Kimberley Underground Mines c) (6.6)
--------------------------------------- ------- -----------
Net fair value gain recognised in the
consolidated income statement 4.1
------------------------------------------------ -----------
a) Ekapa Minerals
Book value Fair Fair value
US$ million value
adjustments
-------------------------------- ----------- ------------- -----------
Mining property, plant and
equipment 18.9 - 18.9
Mineral property - 3.7 3.7
Cash and cash equivalents,
inventory and trade and other
receivables 6.9 - 6.9
Environmental liabilities and
trade and other payables (21.0) - (21.0)
-------------------------------- ----------- ------------- -----------
Net assets at 1 July 2016 4.8 3.7 8.5
-------------------------------- ----------- ------------- -----------
Recognition of Petra's 26%
incremental interest in Ekapa
Minerals 1.2 1.0 2.2
-------------------------------- ----------- ------------- -----------
b) Super Stone
Book value Fair Fair value
US$ million value
adjustments
-------------------------------- ----------- ------------- -----------
Mining property, plant and
equipment 7.4 - 7.4
Mineral property 2.0 0.9 2.9
Cash and cash equivalents,
inventory and trade and other
receivables 2.5 - 2.5
Environmental liabilities and
trade and other payables (1.6) - (1.6)
-------------------------------- ----------- ------------- -----------
Net assets at 1 July 2016 10.3 0.9 11.2
-------------------------------- ----------- ------------- -----------
Recognition of Petra's 75.9%
interest in Super Stone 7.8 0.7 8.5
-------------------------------- ----------- ------------- -----------
c) Kimberley Underground Mines
Book value
US$ million
---------------------------------------------------- -----------
Partial disposal of 24.1% of Kimberley Underground
Mines (refer to note 15) (6.6)
---------------------------------------------------- -----------
The US$4.1 million gain recorded on the formation of KEM JV
represents Petra's newly recognised incremental 26% share of the
fair value of Ekapa Minerals assets and liabilities and its 75.9%
share of the fair value of Super Stones assets and liabilities,
less the 24.1% of the net book value assets and liabilities of
Kimberley Underground mine relinquished by Petra as part of the
transaction.
17. POST BALANCE SHEET EVENTS
Covenant Ratios
On 9 September 2017, agreement was reached with Petra's lender
group to waive the two EBITDA maintenance measurement covenant
tests relating to its senior debt facilities for the 12 month
period to, and as at, 30 June 2017. The lender group further agreed
to revised covenant ratios relating to EBITDA for the 12 month
measurement period to 31 December 2017 as follows:
-- the interest cover ratio is changed to no less than 2.7x (previously 3.85x); and
-- the net debt to EBITDA ratio is changed to no more than 4.0: 1 (previously 2.80:1).
Operations in Tanzania
Reports have recently appeared in the media about the findings
of an investigation into the Tanzanian diamond sector by a
parliamentary committee in Tanzania. In connection with this, Petra
announced on 11 September 2017 that a parcel of diamonds (71,654.45
carats) from the Williamson mine in Tanzania (owned 75% Petra and
25% by the Government of the United Republic of Tanzania ("GoT"))
had been blocked from export to Petra's marketing office in Antwerp
and certain key personnel from Williamson were being questioned by
the authorities. Production was temporarily stopped for safety and
security reasons, but recommenced on 14 September 2017 after a four
day shut-down following the return of the key personnel to the
mine. However the parcel of diamonds has not yet been released. The
grounds upon which these actions were taken have still not been
formally made known to the Company. Petra is committed to
engagement with the GoT to resolve this matter.
As previously announced, changes to the legislative framework
governing the natural resources sector were also recently passed by
GoT and sales at Williamson are now subject to an additional 1%
royalty (bringing the total royalty to 6%) and a 1% export clearing
fee. Changes have also been enacted with regards to the offsetting
of VAT, the impact of which on Williamson is still under discussion
with GoT and yet to be determined, but could increase costs by ca.
10%. The legislative change does not impact the VAT recoverable as
at Year end.
Further key legislative changes also encompass:
-- the provision to the GoT of a non-dilutable, free-carried
interest of no less than 16% in all mining projects (note that the
GoT already holds 25% of the Williamson mine);
-- the right for the GoT to acquire up to 50% of any mining
asset commensurate with the value of tax benefits provided to the
owner of that asset by the GoT; and
-- companies with a Special Mining Licence to float 30% of their
total issued shares on the Dar es Salaam Stock Exchange in Tanzania
by 24 August 2017 (a waiver to the minimum local shareholding
requirement may be granted under certain conditions).
The Company is committed to ongoing dialogue with the GoT with
respect to the aforementioned matters. The outcome and timing of
these discussions remain uncertain at this point in time. Should
Petra be unable to resume sales and maintain normal operations at
Williamson, this would have a material negative impact on the
carrying value of assets of the Williamson mine.
Principal Risk Factors and Uncertainties
The Group is exposed to a number of risks and uncertainties
which could have a material impact on its long-term development and
performance and management of these risks is an integral part of
the management of the Group. The Board has identified the following
as being the principal strategic and operational risks (in no order
of priority). A more detailed analysis of the Group's risk factors
as well as its risk management processes will be provided in the
2017 Annual Report.
Risk Description
Safety Ensuring the safety of all Petra people
is the Group's number one priority.
Poor safety performance can also lead
to temporary mine closures, thereby
impacting production results. Petra
is highly focused on managing its
safety performance and follows a risk-based
approach which entails continual hazard
identification, risk assessment and
instilling safety awareness into the
workplace culture. HSSE targets are
explicitly included as part of Petra's
annual bonus framework.
Mining and production The mining of diamonds from kimberlite
deposits involves an intrinsic degree
of risk from various factors, including
geological, geotechnical and seismic
factors, industrial and mechanical
accidents, unscheduled plant shutdowns,
technical failures, ground or water
conditions and inclement or hazardous
weather conditions.
ROM grade and At the Group's underground mines,
product mix Petra is currently transitioning from
variability operating in 'mature' caves, which
are significantly diluted with waste
rock, to new caves where the Company
is accessing undiluted ore. This risk
is reducing as Petra ramps up production
from the new mining areas, as evidenced
by the improving ROM grades and product
mix recorded at Finsch, Cullinan and
Koffiefontein, however there remains
risk of volatility in the short term.
Rough diamond The Company's financial performance
prices is closely linked to rough diamond
prices which are influenced by numerous
factors beyond the Company's control,
including international economic conditions,
world production levels and consumer
trends.
Whilst the medium to long term fundamentals
of the diamond market remain positive,
some volatility in rough diamond pricing
may be experienced in the short term.
The Group's management closely monitors
developments in the international
diamond market (across the pipeline
from the rough market to the retail
consumer market) to be in a position
to react in a timely manner to changes
in rough diamond prices and demand.
Expansion and Petra has set out a clear and transparent
project delivery growth profile to increase annual
production to 5.0 - 5.3 million carats
by FY 2019. Actual production may
vary from estimates of future production
for a variety of reasons and it should
be noted that assumptions may be subject
to change as the Company continually
evaluates its projects to optimise
efficiency and production profitability.
Retention of The successful achievement of the
key personnel Group's strategies, business plans
and objectives depends upon its ability
to attract and retain certain key
personnel. Petra believes that employees
who are empowered and accountable
for their actions work to the best
of their ability and are able to fulfil
their true potential, plus the Group's
employment policies and terms are
designed to attract, incentivise and
retain individuals of the right calibre.
Financing Petra has a significant Capex programme
in place. The Company plans to continue
to finance this Capex from operating
cashflows and debt finance. Lack of
adequate available cashflows as a
result of reduction in operating cashflows
and/or breaches in banking covenants
could delay development work.
Country and Petra's operations are predominantly
political risk based in South Africa, with lesser
exposure to Tanzania and Botswana.
Emerging market economies could be
subject to greater risks, including
legal, regulatory, taxation, economic,
and political risks, and are potentially
subject to rapid change.
Political risk in Tanzania increased
significantly during FY 2017 and had
a direct impact on the business post
Year end, as disclosed in note 17.
Labour relations The Group's production, and to a lesser
extent its project development activities,
is dependent on a stable and productive
labour workforce. Petra remains highly
focused on managing labour relations
and on maintaining open and effective
communication channels with the appropriate
employee and union representatives
at its operations.
The Company is currently finalising
new union wage agreements with regards
to its South African operations, as
disclosed in the 'CEO's Review' on
page 5.
Currency With Petra's operations mainly in
South Africa, but diamond sales based
in US Dollars, the volatility and
movement in the Rand is a significant
factor to the Group. Also, the Group
undertakes transactions in a number
of different currencies. Fluctuations
in these currencies may have a significant
impact on the Group's performance.
In order to mitigate currency risk,
the Group continually monitors the
movement of the Rand against the US
Dollar and takes expert advice from
its bankers in this regard. It is
the Group's policy to hedge a portion
of future diamond sales when weakness
in the Rand deems it appropriate.
Such contracts are generally short-term
in nature.
Synthetic diamonds Man-made or "synthetic" diamonds
have been available for many years,
but to date have predominantly been
used to manufacture smaller diamonds
for industrial purposes as the cost
of production has generally rendered
larger gem quality synthetic stones
uneconomic. Technological advancements
mean that gem quality synthetics are
now more widely available but they
are only estimated to represent ca.
3% of mined diamond supply(1). The
Company expects synthetic diamonds
to find a place in the consumer market
as lower value goods, with natural
diamonds remaining the premium product.
Cost Control As is usual for the mining industry,
and Capital Petra's operations have a relatively
Discipline high fixed-cost base, estimated to
be ca. 70%. Petra's main cost inputs
are labour and energy, both of which
have been rising higher than the official
inflation rates in South Africa and
Tanzania. Ineffective cost control
leads to reduced margins and profitability.
Licence to Operate In order to maintain its exploration
or mining licences, Petra must comply
with stringent legislation to justify
its licence to operate. Failure to
comply with relevant legislation in
South Africa, Tanzania or Botswana
could lead to delays or suspension
of its mining and exploration activities.
Proposed changes to legislation in
South Africa are noted on page 21,
and changes to legislation in Tanzania
are noted on page 6.
Community Relations Mutual support between our operations
and the communities around them is
vital to the success of our activities
and for maintaining our social licence
to operate. Petra regards its host
communities as one of the most important
of its primary stakeholders and contributing
to these groups in a meaningful, sustainable
and long term manner is therefore
central to its strategy.
(1) Source: Canaccord Genuity - Quarterly Diamond Focus - 8
August 2017
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the preliminary financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union, and give a true and fair view of the
assets, liabilities, financial position and profit of the Group for
the Year; and
(b) the preliminary management report for the Year includes a
fair review of the information required by the FCA's Disclosure and
Transparency Rules (DTR 4.1.8 R and 4.1.9 R).
By order of the Board
Johan Dippenaar
Chief Executive
18 September 2017
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR LRMLTMBTBBTR
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