REG-Petra Diamonds: Interim Results for the six months to 31 Dec 2020
16/02/2021 07:05
16 February 2021 LSE: PDL
Petra Diamonds Limited
(“Petra”, “the Company” or “the Group”)
Interim results for the six months to 31 December 2020
Petra Diamonds Limited announces its interim results (unaudited) for the six
months to 31 December 2020 (“the Period” or “H1 FY 2021” or “H1”).
Financial
* Revenue down 8% to US$178.1 million from 1,712,797 carats sold (H1 FY 2020:
US$193.9 million from 1,743,807 carats sold) with the US$40.4 million proceeds
from the Letlapa Tala Collection of blue diamonds, offset by weaker prices
following the COVID-19 outbreak and fewer tenders during the Period. Diamond
pricing on a like-for-like basis increased by a further 8% at the Company's
January 2021 tender, confirming that pricing has now returned to pre-COVID-19
levels.
* Adjusted EBITDA(3) up 20% to US$80.8 million (H1 FY 2020: US$67.2 million)
yielding an adjusted EBITDA margin of 45%, up from 35% in H1 FY 2020 and 22%
in FY 2020; driven by the sale of the Letlapa Tala Collection and reduced
mining and processing costs.
* Operational free cash flow(13) of US$54.0 million before Restructuring fees
(H1 FY 2020: US$13.7 million, and FY 2020 US$8.4 million negative before
Restructuring fees), due to lower operational expenditure and reduced capital
expenditure.
* Adjusted net profit after tax: US$2.7 million (H1 FY 2020: US$10.2 million
loss).
* Unrestricted cash of US$92.4 million (30 June 2020: US$53.6 million), with
the Company's banking facilities remaining fully drawn.
* Consolidated net debt(12) of US$700.4 million (30 June 2020: US$693.2
million) including US$52.0 million (30 June 2020: US$26.9 million) of accrued
interest on the Company’s existing US$650 million Notes.
* ZAR:USD exchange rate volatility continued during the Period (averaging
R16.27/USD1; H1 FY 2020: R14.69/USD1 and FY 2020: R15.68) and closing the
Period at ZAR14.69/USD1 (30 June 2020: ZAR17.32/USD1). The continued weakness
in ZAR/USD levels partially offset some of the price weakness realised through
diamond sales.
* Capital restructuring and associated debt for equity swap expected to be
completed in early March.
Operations
* Lost Time Injury Frequency Rate ("LTIFR") of 0.50 (H1 FY 2020: 0.22 and FY
2020: 0.29) improved from 0.65 during Q1 FY 2021 due to the behaviour-based
intervention campaign in place to address this LTI trend and reinforce safe
workplace practices. The total number of injuries during the Period, which
includes LTIs, reduced to 19 (H1 FY 2020: 24).
* Production down 16% to 1,740,862 carats (H1 FY 2020: 2,070,240 carats).
* Absolute costs remain within expectations despite inflationary pressures.
* Operational Capex down 68% to US$8.1 million (H1 FY 2020: US$25.6 million).
Outlook
* Due to the ongoing uncertainty around the impact of COVID-19, production
guidance for FY 2021 remains suspended. Furthermore, the Williamson mine
remains on care and maintenance, as has been the case since April 2020, and
this situation remains under continual review.
* The Company is closely monitoring the impact of COVID-19 on its clients’
ability to attend tenders and will continue its flexible approach in planning
its upcoming sales events.
* The Cullinan mine produced a 299 carat Type IIa white gem-quality diamond in
January 2021; this stone is expected to be sold during the Company’s tender
in February / March 2021.
* Project 2022 on track to deliver throughput targets for FY 2021 of ca. US$70
million. The very significant rainfall levels that continued from December
through into January and February 2021 at Finsch and Koffiefontein are likely
to negatively impact delivery of the throughput targets at those mines.
COVID-19 and the ongoing care and maintenance at Williamson may similarly
negatively impact on these targets. Petra continues to expect the Project 2022
cost saving initiatives to deliver an annualised contribution of ca. US$22
million from the end of Q3 FY 2021.
* The Company announced in January that it was aware of media reports
suggesting that the parcel of 71,654 carats of diamonds from the Williamson
mine in Tanzania, which was blocked for export in September 2017, had been
nationalised. The Company has since received communication from the Government
of Tanzania that this will be dealt with as part of ongoing discussions with
the Government, which are expected to resume by the end of February.
* As set out in the interim update dated 9 February 2021 on the status of its
work in relation to allegations of human rights abuses at the Williamson Mine
in Tanzania, the Company's Tunajali Committee, comprised entirely of
independent Non-Executive Directors, is undertaking a review of the output of
the ongoing external investigation into these allegations and will make
recommendations to address any findings. The Company intends to make a further
announcement on these issues by the end of March 2021.
Richard Duffy, CEO of Petra, commented:
“I am pleased that our capital restructuring is now almost complete as we
work with the South African Lender Group and the BEE Lenders towards
finalising the documentation required for implementation. We expect this to be
completed early in March of this year. As mentioned in our last Trading
Update, this marks a significant milestone in putting the Company on a
sustainable footing going forward.
The continued improvement in the diamond market, with prices now back at
pre-COVID19 levels, is encouraging, and the recovery of the Letlapa Tala
stones and other high value stones from Cullinan supported strong EBITDA
growth over the comparative reporting period in FY2020. Challenges at Finsch
relating to waste ingress, as previously reported, have been exacerbated by
the impact of record rainfall in January and February that is hampering mining
operations. Koffiefontein has also been impacted by significantly elevated
rainfall. I am confident that the Finsch, Koffiefontein and Group Technical
teams will manage these challenges to limit the impact on the operations.”
SUMMARY OF RESULTS (unaudited)
6 months to 31 December 2020 (“H1 FY 2021”) 6 months to 31 December 2019 (“H1 FY 2020”) Year ended 30 June 2020 (“FY 2020”)
US$ million US$ million US$ million
Revenue 178.1 193.9 295.8
Adjusted mining and processing costs (1) (99.2) (123.6) (225.3)
Other direct income 5.1 0.3 2.0
Profit from mining activity (2) 84.0 70.6 72.5
Exploration expense — (0.2) (0.5)
Corporate overhead (3.2) (3.2) (7.2)
Adjusted EBITDA (3) 80.8 67.2 64.8
Depreciation (35.9) (47.0) (78.3)
Amortisation of right-of-use asset (2.3) — (5.2)
Share-based expense (0.2) (0.4) (0.7)
Net finance expense (35.9) (34.1) (71.6)
Tax (expense) / credit (excluding taxation credit / charge on impairment charge and unrealised foreign exchange gain / (loss)) (14) (3.8) 4.1 19.1
Adjusted net profit / (loss) after tax (4) 2.7 (10.2) (71.9)
Impairment charge – operations (5) (0.2) (1.6) (91.9)
Impairment of BEE loans receivable – expected credit loss release / (charge) (6) 4.6 — (10.9)
Profit on disposal including associated impairment, net of tax (7) 14.7 — —
Net unrealised foreign exchange gain / (loss) 65.1 2.7 (81.5)
Taxation (charge) / credit on unrealised foreign exchange gain / (loss) (14) (19.3) (0.9) 22.2
Taxation credit on impairment charge — — 11.0
Net profit / (loss) after tax 67.6 (10.0) (223.0)
Earnings per share attributable to equity holders of the Company – US cents
Basic profit / (loss) per share – from continuing operations 6.31 (1.01) (21.96)
Adjusted profit / (loss) per share – from continuing operations (8) 0.08 (1.09) (6.95)
Unit As at 31 December 2020 (US$ million) As at 31 December 2019 (US$ million) As at 30 June 2020 (US$ million)
Cash at bank – (including restricted amounts) US$m 106.3 53.6 67.6
Diamond debtors US$m 3.7 12.8 4.8
Diamond inventories US$m 105.0 85.2 84.1
Diamond inventories Carats 1,385,402 992,425 1,357,584
US$650 million loan notes (9) US$m 702.0 652.1 676.9
Bank loans and borrowings (10) US$m 61.2 — 52.1
BEE partner bank facilities (11) US$m 47.2 49.3 40.0
Consolidated Net debt (12) US$m 700.4 635.0 693.2
Bank facilities undrawn and available US$m — 107.2 —
The following exchange rates have been used for this announcement: average for
H1 FY 2021 US$1:ZAR16.27 (H1 FY 2020: US$1: ZAR14.69, FY 2020: US$1:ZAR15.68);
closing rate as at 31 December 2020 US$1:ZAR14.69 (31 December 2019
US$1:ZAR13.99, 30 June 2020: US$1:ZAR17.32).
Notes:
The Group uses several non-GAAP measures above and throughout this report to
focus on actual trading activity by removing certain non-cash or non-recurring
items. These measures include adjusted mining and processing costs, profit
from mining activities, adjusted EBITDA, adjusted net profit after tax,
adjusted earnings per share, adjusted US$ loan note, net debt and consolidated
net debt for covenant measurement purposes. As these are non-GAAP measures,
they should not be considered as replacements for IFRS measures. The Group’s
definition of these non-GAAP measures may not be comparable to other similarly
titled measures reported by other companies. The Board believes that such
alternative measures are useful as they exclude one-off items such as the
impairment charges and non-cash items to provide a clearer understanding of
the underlying trading performance of the Group.
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 stated before depreciation, amortisation of right-of-use
asset, share-based expense, net finance expense (excluding net unrealised
foreign exchange gains and losses), tax expense (excluding taxation credit on
impairment charge and unrealised foreign exchange gains/losses), profit on
disposal including associated impairment, net of tax, impairment charges,
expected credit release (loss) provision and net unrealised foreign exchange
gains and losses.
4. Adjusted net profit/(loss) after tax is net profit/(loss) after tax stated
before profit on disposal including associated impairment, net of tax,
impairment charge, expected credit release (loss) provision, taxation credit
on impairment charge and tax expense/credit on net unrealised foreign exchange
gains and losses and net unrealised foreign exchange gains and losses.
5. Impairment charge of US$0.2 million (30 June 2020: US$91.9 million and 31
December 2019: US$1.6 million) was due to the Group’s impairment review of
its operations and other receivables. Refer to note 14 for further details.
6. Reversal of impairment of BEE loans receivable of US$4.6 million (30 June
2020: US$10.9 million impairment charge and 31 December 2019: US$nil) is due
to the Group’s expected credit loss assessment of its BEE loans receivable.
Refer to note 11 for further details.
7. The profit on disposal including associated impairment, net of tax reflect
the non-cash results of the Sekaka operation (net of tax). Refer to note 15
for further details.
8. Adjusted EPS from continuing operations is stated before impairment charge,
reversal of impairment charge, expected credit release (loss) provision,
profit on disposal including associated impairment, net of tax, excluding
taxation credit on impairment charge, net unrealised foreign exchange gains
and losses, and excluding taxation (charge) credit on net unrealised foreign
exchange gains and losses.
9. The US$ loan note represents the gross capital of US$650 million (31
December 2019: US$650 million and 30 June 2020: US$650 million), plus
US$52.0 million accrued interest (30 June 2020: US$26.9 million and 31
December 2019: US$2.1 million).
10. In March 2020, the Company drew down the full amount available (ZAR500
million / US$28.9 million) under its working capital facility and in May 2020,
the Company reached agreement with the South African Lender Group to draw down
ZAR400 million (US$23.1 million) under its ZAR1.0 billion revolving capital
facility. The movement in the balance as at 31 December 2020 is attributable
to the strengthening of the ZAR against the US Dollar.
11. BEE partner bank facilities represents the BEE guarantees of US$47.2
million (ZAR692.8 million) (30 June 2020: US$40.0 million (ZAR693.6 million)
and 31 December 2019 (off balance sheet): US$49.3 million (ZAR689.5 million)).
12. Consolidated Net Debt for covenants is bank loans and borrowings plus loan
notes, less cash, less diamond debtors plus BEE partner bank facilities.
13. Operational free cash flow is cash generated from operations less
acquisition of property, plant and equipment.
14. Tax expense / credit is the tax (expense) / credit for the Period
excluding taxation credit / charge on impairment charge and unrealised foreign
exchange gain / (loss) generated during the Period, such exclusion more
accurately reflects resultant Adjusted net profit /(loss).
In terms of the Amendment Agreement entered into on 29 May 2020, Petra and the
South African Lender Group have agreed that covenant measurements will not be
undertaken for the period ending 31 December 2020.
RESULTS WEBCAST
A live audio webcast will be held at 9:30am GMT on 16 February 2021 and will
be available on Petra’s website at www.petradiamonds.com and on the
following link:
https://www.investis-live.com/petra-diamonds/60102ac89a1388100079c323/pead
A conference call line will also be available to allow participants to listen
to the webcast and ask questions by dialling one of the following numbers
shortly before 9:30am GMT:
From the UK (toll free): 0800 640 6441
From South Africa: 080 017 2952
From the rest of the world: +44 (0)203 936 2999
Participant passcode: 017831
A recording of the webcast will be available from 1:00pm GMT on 16 February
2021 on the website and on the link above.
For further information, please contact:
Petra Diamonds,
London
Telephone: +44 20 7494 8203
Marianna
Bowes
investorrelations@petradiamonds.com
Des Kilalea
Julia
Stone
About Petra Diamonds Limited
Petra Diamonds is a leading independent diamond mining group and a consistent
supplier of gem quality rough diamonds to the international market. The
Company has a diversified portfolio incorporating interests in three
underground producing mines in South Africa (Finsch, Cullinan and
Koffiefontein) and one open pit mine in Tanzania (Williamson).
Petra's strategy is to focus on value rather than volume production by
optimising recoveries from its high-quality asset base in order to maximise
their efficiency and profitability. The Group has a significant resource base
of ca. 243 million carats, which supports the potential for long-life
operations.
Petra conducts all operations according to the highest ethical standards and
will only operate in countries which are members of the Kimberley Process. The
Company aims to generate tangible value for each of its stakeholders, thereby
contributing to the socio-economic development of its host countries and
supporting long-term sustainable operations to the benefit of its employees,
partners and communities.
Petra is quoted with a premium listing on the Main Market of the London Stock
Exchange under the ticker 'PDL'. The Company’s US$650 million loan notes due
in 2022, currently subject to restructuring, are listed on the Global Exchange
market of the Irish Stock Exchange. For more information, visit
www.petradiamonds.com.
CEO’S REVIEW
Despite the considerable pressures of COVID-19, our operations in South
Africa, and Cullinan in particular, continued to perform well in H1 FY 2021,
despite emerging operational challenges at Finsch. Furthermore, the recovery
of the five blue diamonds of significant colour, clarity and size, The Letlapa
Tala Collection, in September 2020 and the 299 carat white diamond in January
2021 serve as a reminder that the new block cave at Cullinan still produces
rare and exceptional stones.
Measures to mitigate the impact of the waste ingress at Finsch that negatively
impacted on its carat production in H1 FY 2021 have been developed and are
currently being implemented to address this. Very significant rainfall in
December last year through to February this year at Koffiefontein and Finsch
in particular, are providing challenges that we expect will negatively impact
on those operations in Q3 FY2021.
Williamson remains under care and maintenance and the Company is considering a
number of options, both for the business, including resuming mining subject to
clarity on the status of the blocked diamond parcel, the progress on the
negotiations with the Government, and obtaining local bank financing, as well
as for its own stake. Petra is not in a position to provide any financial
assistance to the Williamson mine to address its liquidity shortfall unless
Board and lender support is obtained.
Looking at our safety performance in H1 FY 2021, our Group LTIFR was 0.50
compared to 0.22 in H1 FY 2020, although improving from 0.65 for Q1 FY 2021.
The majority of the accidents recorded continued to be behavioural in nature.
Considerable focus is being placed on reinforcing safe behaviour and
continuous improvement in striving for a zero harm working environment. The
total number of injuries during the Period, which includes LTIs, reduced to 19
(H1 FY 2020: 24).
Our financial results for H1 FY 2021 were again impacted by the weaker diamond
market, partially offset by a weaker South African Rand against the US Dollar.
However, we have recently seen improved demand for rough diamonds, further to
continued robust demand from the midstream thanks to positive consumer sales
during the holiday retail season. The recovery in prices at our January tender
to pre COVID-19 levels is very encouraging, and there are expectations that
this improved demand will continue throughout Q3 FY 2021. However, the
continued impact of COVID-19 in many countries poses a significant risk to the
logistics and timing of sales in H2 FY 2021, and we will continue to monitor
the market closely. Supply discipline by the major producers will remain a key
factor in terms of maintaining supply / demand equilibrium.
The impact of lower pricing during the Period was compounded by the reduction
in Group carat production resulting from the waste ingress at Finsch and the
Williamson mine remaining on care and maintenance throughout H1 FY 2021.
The implementation of Project 2022 and our emphasis on cost control, as well
as the proceeds from the sale of the Letlapa Tala Collection saw us deliver
adjusted EBITDA of US$80.8 million, up 20% against H1 FY 2020, and positive
operational free cashflow before Restructuring fees of US$54.0 million (H1 FY
2020: US$13.7 million operational free cash), reflecting our reduced mining
and processing costs and reduced capital expenditure during the Period.
Consolidated net debt increased to US$700.4 million (H1 FY 2019: US$635.0
million), with total cash of US$106.3 million (H1 FY 2020: US$53.6 million)
which includes restricted cash of US$13.9 million (H1 FY 2020: US$13.5
million), as the Company's banking facilities remain fully drawn.
Project 2022 remains a key focus to further stabilise our operations and
ensure that continuous improvement is embedded in our operating model and
culture. The key drivers of Project 2022 are to identify bottlenecks and
increase throughput capacity and capacity utilisation at all of Petra’s
mines, while improving cost and process efficiencies. Project 2022 has been
very successful in increasing throughput and throughput ideas are targeting an
estimated annualised contribution of ca. US$70 million by the end of FY 2021.
This may be negatively impacted by various factors including the very
significant rainfall at Finsch and Koffiefontein in December through to
February 2021, COVID-19 and Williamson remaining in care and maintenance.
The process of improving cost efficiencies is tracking very well and it is
expected that Project 2022’s cost saving initiatives will deliver an
annualised contribution of ca. US$22 million from the end of Q3 FY 2021. The
key cost savings initiatives driving this saving are reduced water cost at
Finsch, ventilation efficiency improvement at Cullinan and savings on
electricity. The design phase of the Organisational Design Review, which forms
part of Project 2022, has been completed and will provide for more focused
delivery of support by the various Group functions to the operations and
alignment of operational structures across the different sites. Implementation
of this Organisational Design Review is on track to be completed by the end of
Q3 FY 2021 and will result in updated role descriptions providing for clearer
line of site and improved accountability.
The allegations of human rights abuses relating to the security operations of
the Williamson mine in Tanzania are deeply concerning to the executive
management team and the Board. An interim update was provided in our
announcement on 9 February 2021, which outlines prevailing circumstances on
the ground, reviews recent incidents, details actions already taken and sets
out next steps. Information on these allegations and the actions being taken
to address these allegations are set out on page 48 of our 2020 Annual Report
and copies of the Company’s announcements on this topic, as well as our
response letters to NGO RAID can be found on our website here:
https://www.petradiamonds.com/our-operations/our-mines/williamson/allegations-of-human-rights-abuses-at-the-williamson-mine/.
The support of our noteholders, lenders and shareholders have allowed us to
progress the envisaged Restructuring of the Group’s balance sheet, which is
expected to be completed in early March. This is a significant milestone and
has not only put Petra on a sustainable footing going forward, but it will
also allow us to focus on optimising the value of our diversified asset base.
SAFETY
Group LTIFR of 0.50 (H1 FY 2020: 0.22 and FY 2020: 0.29), improving from 0.65
for Q1 FY 2021. The majority of the accidents in H1 FY 2021 continued to be
behavioural in nature. Considerable focus is being placed on reinforcing safe
behaviour and continuous improvement in striving for a zero harm working
environment. The total number of injuries during the Period, which includes
LTIs, reduced to 19 (H1 FY 2020: 24).
The COVID-19 pandemic poses a significant risk to the health and safety of the
Group’s workforce. Whilst the majority of those who contract the virus may
be asymptomatic or may only experience mild symptoms, a number of people
(especially those with comorbidities) may become seriously ill or even succumb
to the virus. Whilst Petra has implemented systems and strategies aiming to
prevent and/or contain the spread of the virus at its operations, the
widespread prevalence and highly infectious nature of the virus has meant that
319 employees to date have been confirmed COVID-19 positive at the South
African operations as at 12 February 2021, and of these 309 have fully
recovered. Although the majority of those affected are only experiencing mild
symptoms, the Company has tragically lost four colleagues as a result of
COVID-19.
More information about the Company’s response to the pandemic can be
accessed here:
https://www.petradiamonds.com/sustainability/health-and-safety/our-response-to-covid-19/.
DIAMOND MARKET
The diamond market has continued to show improved demand for rough diamonds,
as evidenced by the recent strong sales from the majors De Beers and ALROSA.
Midstream demand has remained robust as inventories of rough and polished
diamonds remained low following strong sales of diamond jewellery over the
holiday retail season. There are expectations that this improved demand will
continue throughout Q1 CY 2021 as sales of rough diamonds have been sustained
by demand ahead of Chinese New Year and Valentine’s Day. However, the
current resurgence of COVID-19 in many countries poses a significant risk to
the logistics and timing of sales in H2 FY 2021.
In the retail market, leading jewellers experienced strong sales in China over
the holiday period, as the economic recovery on the mainland led to a
resurgence of consumer demand for diamonds and other luxury goods. Jewellery
sales in the US were also strong, led by online retailers.
Supply discipline by the major diamond producers in 2020 played an important
role in moving towards more balance between supply and demand in the midstream
and remains a key factor in terms of the health of the market in 2021.
Due to the impact of COVID-19 and the closure of the Argyle mine in Australia
in 2020 (which accounted for ca. 13 Mcts in 2019), rough diamond production is
expected to have contracted significantly in 2020 and may continue to decline.
Diamond Pricing
Like-for-like diamond prices at our most recent tender held during January
2021 have recovered to pricing levels before the COVID-19 outbreak, barring
the finer (smaller) goods, which only account for a small portion of overall
revenues.
The 299ct Type IIa diamond from the Cullinan mine, recovered during January
2021, is expected to be sold at the Company’s upcoming tender in February /
March 2021.
Prices achieved during H1 FY 2021 are set out in the table below:
Mine Actual H1 FY 2021 (US$/ct) Actual H1 FY 2020 (US$/ct) Actual FY 2020 (US$/ct)
Cullinan 120 112 98
Finsch 71 79 75
Koffiefontein 590 431 387
Williamson 150 184 177
Pricing achieved in H1 was impacted by the carry-over of certain, mostly
lower-value parcels from FY 2020, which were subsequently sold during July
2020. The realised prices reflect the weaker market conditions offset by the
sale of the Letlapa Tala Collection during the Period, positively impacting
Cullinan’s unit price, while Koffiefontein’s price also benefited from a
higher proportion of coarse material (larger diamonds) in the product mix.
Despite the Williamson mine being on care and maintenance, it was possible to
include ca. 30,000 carats for sale in Q1 due to these diamonds being held in
inventory at 30 June 2020.
FINANCIAL RESULTS
Revenue
H1 revenue was down 8% to US$178.1 million from 1,712,797 carats sold (H1 FY
2020: US$193.9 million from 1,743,807 carats sold), with the US$40.4 million
proceeds from the Letlapa Tala Collection of blue diamonds, offset by weaker
prices following the COVID-19 outbreak and the deferral of sales to January
2021 of some 382 kcts yielding around US$30.5 million through a tender which
closed on 15 January 2021.
Mining and processing costs
The mining and processing costs for H1 FY 2021 are comprised of on-mine cash
costs as well as other operational expenses. A breakdown of the total mining
and processing costs for the Period is set out below.
On-mine cash costs (1) US$m Diamond royalties US$m Diamond inventory and stockpile movement US$m Group technical, support and marketing costs (2) US$m Adjusted mining and processing costs US$m Depreciation (3) US$m Total mining and processing costs (IFRS) US$m
H1 FY 2021 94.4 2.4 (5.9) 8.3 99.2 37.7 136.9
H1 FY 2020 135.1 4.8 (25.6) 9.3 123.6 46.6 170.2
FY 2020 235.0 5.9 (34.9) 19.3 225.3 82.6 307.9
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 H1 FY 2021 reduced by ca. 30% compared to H1 FY
2020 and in line with expectations, due to:
offset by:
* the effect of translating ZAR denominated costs at the South African
operations at a weaker ZAR/USD average exchange rate (ca. 7.6% decrease);
* Williamson mine being on care and maintenance throughout the period (ca.
17.3% decrease);
* Other cost movements, including the impact of Project 2022 cost improvement
initiatives delivered during the Period (ca. 7.8% decrease).; and
* Partially offset by inflationary increases, including the impact of
electricity costs (2.6% increase) while labour increases were deferred to
January 2021.
Royalties decreased to US$2.4 million (H1 FY 2020: US$4.8 million) due to a
reduced royalty percentage following decreased profit net of capex at Finsch,
as defined in the royalty legislation of South Africa.
Profit from mining activities
Profit from mining activities increased 19% to US$84.0 million (H1 FY 2020:
US$70.6 million), mainly due to the one-off sale of the Letlapa Tala
Collection of blue diamonds, lower mining and processing costs offset by lower
diamond pricing.
Corporate overhead – General and Administration
Corporate overhead (before depreciation and share based payments) remained
flat at US$3.2 million for the Period (H1 FY 2020: US$3.2 million).
Adjusted EBITDA
Adjusted EBITDA, being profit from mining activities less exploration and
corporate overhead, increased 20% to US$80.8 million (H1 FY 2020: US$67.2
million), representing an adjusted EBITDA margin of 45% (H1 FY 2020: 35%),
driven by the one-off sale of the Letlapa Tala Collection of blue diamonds and
lower mining and processing costs.
Depreciation
Depreciation for the Period decreased to US$35.9 million (H1 FY 2020: US$47.0
million), mainly due a lower asset base as a result of prior period
impairments of operational assets.
Impairment charge
Impairment reviews carried out at Cullinan, Finsch, Koffiefontein and
Williamson operational assets did not result in an impairment charge or
reversal during the Period (H1 FY 2020: US$nil). An impairment review of the
Group’s other receivables during the Period resulted in a net impairment
charge US$0.2 million comprising of the Williamson VAT receivable (H1 FY 2019:
US$1.6 million, comprising of US$1.7 million in respect of the Williamson VAT
receivable and recoupment of US$0.1 million previously impaired in respect of
the KEM JV receivable).
Net financial income
Net financial income of US$29.2 million (H1 FY 2020: US$31.4 million expense)
comprises:
* net unrealised foreign exchange gains of US$65.1 million (H1 FY 2020: US$2.7
million gains) 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 (refer to note 6 for further detail); and
interest received on bank deposits of US$0.4 million (H1 FY 2019: US$0.1
million); offset by:
* interest on the Group’s debt and working capital facilities of US$27.6
million (H1 FY 2020: US$25.4 million);
* net interest payable on the BEE partner loans and amortisation of lease
liabilities in accordance with IFRS 16 of US$2.6 million (H1 FY 2020: US$3.2
million);
* a charge for the unwinding of the present value adjustment for Group
rehabilitation costs of US$2.5 million (H1 FY 2020: US$1.7 million); and
* net realised foreign exchange loss on settlement of forward exchange
contracts of US$3.6 million (H1 FY 2020: US$3.4 million).
Cash financial expenses settled during the Period, as reflected in the
Statement of Cashflows, reduced to US$2.5 million (H1 FY 2020: US$24.5
million) following the non-settlement of coupon payments related to the Notes
since May 2020.
Tax credit / charge
The tax charge of US$23.1 million (H1 FY 2020: US$3.2 million credit)
comprising deferred tax charges of US$19.3 million (H1 FY 2020: US$0.9 million
credit) relating to unrealised foreign exchange gains during the Period and
US$3.8 million (H1 FY 2020: US$34.1 million credit) in respect of other
capital allowances, with an income tax charge of US$nil for the Period (H1 FY
2020: US$nil million).
Profit on disposal including associated impairment, net of tax
The profit on disposal including associated impairment, net of tax of US$14.7
million relates to the Group’s disposal during the Period of its interests
in Sekaka, its exploration operations in Botswana, and is made up of a US$0.3
million disposal consideration, net profit of US$1.3 million for the Period 1
July 2020 to the 30 November 2020 disposal date and the recycling of the
foreign currency translation reserve of US$13.3 million, offset by a net asset
disposal amount of US$0.2 million. Refer to Note 15 for the detailed
breakdown.
Group profit / loss
The Group’s net profit after tax is US$67.6 million (H1 FY 2020: US$10.0
million loss).
Earnings per share
Basic profit per share from continuing operations of 6.31 US$ cents was
recorded (H1 FY 2020: 1.01 US$ cents loss).
Adjusted profit per share from continuing operations (adjusted for impairment
charges and net unrealised foreign exchange gains and losses) of 0.08 US$
cents was recorded (H1 FY 2020: 1.09 US$ cents loss (adjusted for impairment
charges, taxation credit on impairment charge, net unrealised foreign exchange
gains and losses)).
Operational free cash flow
During the Period and considering the weaker diamond market, generation of
operational free cash flow of US$54.0 million before Restructuring fees (H1 FY
2020: US$13.7 million) reflects the impact from the sale of the Letlapa Tala
Collection and the initial results from Project 2022 to optimise production
and drive cost efficiencies. This positive cash flow was offset by:
* US$2.1 million (H1 FY 2020: US$24.4 million) cash finance expenses net of
finance income and US$3.6 million (H1 FY 2020: US$3.4 million) net realised
foreign exchange losses;
* Restructuring fees settled during the Period of US$15.5 million (H1 FY
2020:US$nil; FY 2020 US$ 3.9 million); and
* US$5.0 million (H1 FY 2020: US$11.3 million) advances to BEE partners,
largely related to servicing of BEE bank debt in line with the Group’s
stated intention of reducing consolidated net debt for covenant measurement
purposes (which includes BEE partner facilities), with the advances
recoverable against future BEE partner distributions.
Cash and Diamond Debtors
As at 31 December 2020, Petra had cash at bank of US$106.3 million (H1 FY
2019: US$53.6 million). Of these cash balances, US$92.4 million was held as
unrestricted cash (H1 FY 2020: US$40.1 million), US$12.9 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)
(H1 FY 2020: US$12.6 million) and US$1.0 million was held by Petra’s bankers
as security for other environmental rehabilitation bonds lodged with the
Department of Mineral Resources and Energy in South Africa (H1 FY 2020: US$0.9
million).
Diamond debtors at 31 December 2020 were US$3.7 million (H1 FY 2020: US$12.8
million).
Loans and Borrowings
The Group had loans and borrowings (measured under IFRS) at Period end of
US$810.4 million (H1 FY 2020: US$652.1 million), comprised of US$702.0 million
Notes including US$52.0 million accrued interest (H1 FY 2020: US$652.1
million), bank loans and borrowings of US$61.2 million (H1 FY 2020: US$nil)
and BEE partner bank facilities of US$47.2 million (H1 FY 2020: US$49.3
(off-balance sheet guarantees)); the BEE guarantees were brought onto the
Groups balance sheet as at 30 June 2020, refer to ‘BEE loans receivable and
payable’ below for further detail. The Group remains fully drawn down on its
banking facilities with the South African Lender Group since the decision to
shore up liquidity following the outbreak of the COVID-19 pandemic during H2
FY 2020. Bank debt facilities undrawn and available to the Group at 30 June
2020 were US$nil (H1 FY 2020: US$107.2 million).
Consolidated net debt at 31 December 2020 was US$700.4 million (H1 FY 2020:
US$635.0 million).
Covenant Measurements attached to banking facilities
In terms of the Amendment Agreement entered into on 29 May 2020, Petra and the
South African Lender Group have agreed that covenant measurements will not be
undertaken for the period ending 31 December 2020.
The Company’s EBITDA-related covenants associated with its banking
facilities during the Period were as outlined below:
12 months to 31 Dec 2020 12 months to 30 Jun 2021
Consolidated net debt to consolidated EBITDA: ? 3.25x ? 3.0x
Consolidated EBITDA to consolidated net finance charges: ? 3.0x ? 3.25x
Consolidated net senior debt to book equity: ?0.4x ?0.4x
In addition to its existing covenant ratios, the Group is required to maintain
liquidity of the aggregate of the undrawn amounts available under the RCF and
WCF and consolidated cash and cash equivalents (excluding diamond debtors)
which shall not fall below ZAR200 million (US$11.6 million).
Details of the envisaged new banking facilities and the associated covenants
following the completion of the Group’s capital and debt restructuring are
set out in note 8.
Going concern considerations
The Group closely monitors and manages its liquidity risk, and cash forecasts
are regularly produced and run for different scenarios. The forecasts assume
that the envisaged Restructuring will be implemented in line with the
provisions of the in-principle term sheet under the Lock-up Agreement. The
Group also considered risks associated with COVID-19, which were considered to
focus primarily on the potential for further production disruption, deferral
of tenders due to travel restrictions and adverse impacts on diamond pricing.
In light of both normal trading risks and elevated risks associated with the
potential impact of the COVID-19 pandemic, the following have been key
considerations in assessing the Group’s ability to operate as a going
concern at the date of this report:
* an unforeseen disruption to operations at its South African mines due to
either COVID-19 restrictions or otherwise;
* an unforeseen deferral of a rough diamond tender due to COVID-19
restrictions, coupled with a significant price decline at an assumed
subsequent private sale (in line with actual experiences during FY 2020);
* a sustained 5% decrease in forecast rough diamond prices throughout the
forecast period; and
* an increase in forecast operating cost.
Under the base case, which itself is dependent upon the successful completion
of the Restructuring and continued availability of the South African banking
facilities in line with the Lock-up Agreement, the forecasts indicate that the
Company will be able operate within covenants set out in the in-principle
agreement and maintain sufficient liquidity.
However, the proposed first lien covenants (as more fully set out in note 8)
were set with limited headroom to the base case. As such, although adequate
liquidity is maintained throughout the review period under each of the
individual scenarios subject to continued availability of the South African
Lender Group facilities, results of the stress testing indicate that in the
event of deferral to the tenders outlined above or a combination of scenarios
such as sustained reduced pricing and production disruption, possible covenant
breaches associated with the South African banking facilities may occur at
December 2021 and June 2022. Whilst reasonably available mitigating actions,
which include cost savings and capital deferrals, are foreseen to address the
risk of such a covenant breach, the delivery of such mitigating actions
remains uncertain. In the event of a breach of covenant, the Company would be
dependent on the South African Lender Group continuing to make the facilities
available and under certain of the scenarios there would be insufficient
liquidity to settle the outstanding South African Lender Group facilities if
required. Whilst the South African Lender Group has indicated its support in
recent discussions and ongoing dialogue with the South African Lender Group
will be important during this period, there can be no guarantee that the
facilities would continue to remain available in the event of a covenant
breach.
However, the Group is reliant on the successful conclusion of the current
Restructuring to continue as a going concern, which is dependent on the
finalisation of the documentation required for implementation after the
requisite approval by the Company’s shareholders was obtained at a Special
General Meeting held on 13 January 2021. Despite a successful Restructuring,
the Group’s forecasts remain sensitive to trading conditions and the impact
of COVID-19 may further have a material impact on the Group’s ability to
operate within its covenants, such that continued South African Lender Group
support may be required and, if unavailable, additional funding may be
required.
As a result, the Board concluded that a material uncertainty exists in respect
of the Company continuing as a going concern. See ‘Basis of preparation
including going concern’ in the Financial Statements for further
information.
BEE loans receivable and payable
BEE loans receivable of US$175.1 million (H1 FY 2020: US$125.9 million) relate
to advances provided to the Group’s BEE Partners to enable them to discharge
interest and capital commitments under the BEE Lender facilities, advances to
the BEE Partners to enable trickle payment distributions to both Kago Diamonds
(Pty) Ltd’s (“Kago Diamonds”) shareholders and to the beneficiaries of
the Itumeleng Petra Diamonds Employee Trust (“IPDET”) (Petra Directors and
Senior Managers do not qualify as beneficiaries under the IPDET Trust Deed),
financing of their interests in the Koffiefontein mine, and an amount related
to the BEE guarantees provided to the BEE Lender Group – refer below for
more detail.
As detailed in the section “Impairment of BEE loans receivable – expected
credit loss provision”, an IFRS 9 estimated credit loss assessment was
conducted at the end of the Period which resulted in a partial reversal of the
expected credit loss provision of US$4.6 million (H1 FY 2020: US$nil),
following a US$10.9 million expected credit loss provision being raised
against the BEE loans receivable at 30 June 2020. Refer to note 11 for further
detail.
During the Period, Petra advanced US$2.9 million (H1 FY 2020: US$9.3 million)
to facilitate the servicing of capital and interest payments on behalf of the
BEE Partners and US$2.1 million (H1 FY 2020: US$2.0 million) for distributions
to the beneficiaries of the IPDET and shareholders of Kago Diamonds.
In May 2020, as part of the Amendment Agreement, Petra reached agreement with
the South African BEE Lender Group, being Absa Bank, Rand Merchant Bank and
Ninety-One (previously Investec), to reschedule the capital repayments due in
May 2020 and November 2020 under the Company's BEE Partners’ outstanding
bank financing. In terms of the Amendment Agreement, the capital balance
outstanding of US$ 47.2 million at 31 December 2020 (30 June 2020: US$40.0
million) will become payable on 31 July 2021, subject to the outcome of the
Restructuring described above. However, should the Restructuring complete as
planned, the Company’s new banking facilities will enable it to refinance
the BEE facilities with proceeds from the new term loan – for more detail,
refer to ‘The Restructuring’ below.
The aforementioned Amendment Agreement and the Forbearance Agreement entered
into during May 2020 did not confer the unconditional right to the Company to
defer the coupon repayment and as such triggered an event of default under the
BEE Lender facility. The event of default sets out that the Company under the
BEE guarantee is liable for the outstanding obligation under the BEE Lender
facility. As at 31 December 2020, and consistent with the approach at 30 June
2020, the Company accrued for the outstanding obligation of US$40.0 million
under current loans and borrowings (refer to note 8). The Company recognises a
compensating receivable from the BEE Partners, repayable from the BEE
Partners’ share of future operational cashflows.
The BEE loans payable of US$133.4 million (H1 FY 2020: US$128.1 million)
relate to the initial acquisition loan funding advanced by the Group’s BEE
Partners to the operations to acquire their investments in Cullinan and
Finsch. The repayment of these loans by the mines to the BEE Partners will be
from future free cashflows generated by the mining operations.
Refer to note 11 for further detail on BEE loans receivable and payable.
The Restructuring
In March 2020, Petra launched a strategic review, in conjunction with a set of
independent advisers, in order to evaluate an optimal long-term capital
structure for the Group. The key focus of this review was to bring down the
Company’s leverage to a manageable level and it therefore involved extensive
consultations with the AHG of the Company’s US$650 million 7.25% senior
secured second lien notes due in May 2022, as well as with the South African
Lender Group. The review also aimed to assess all strategic options available
to maximise value to stakeholders and included a formal sale process, whereby
interested parties could submit bids either for Petra or for any parts of the
business or assets of the Group.
In October 2020, the Company announced that it had reached agreement in
principle with the AHG and the South African Lender Group on a common set of
commercial terms with respect to the Restructuring. Petra signed a Lock-Up
Agreement on 17 November 2020 with the parties to the Restructuring, which
binds each party into supporting the Restructuring on the proposed terms. The
Company’s shareholders subsequently approved the scheme at a Special General
Meeting on 13 January 2021.
The key features of the Restructuring are as follows:
1. Partial reinstatement of the Notes debt and the contribution by holders
of the existing Notes of US$30.0 million in New Money, each to take the form
of new senior secured second lien notes ("New Notes"). The New Notes will
amount to approximately US$337.0 million (including the New Money and fees
paid as part of the transaction in New Notes) and will have a maturity date of
five years from completion. The New Notes will be subject to an interest rate
of 10.50% Payment in Kind for the first 24 months, reverting to a cash
interest rate of 9.75% thereafter. Those Noteholders that contribute to the
New Money will be entitled to a greater portion of the New Notes.
2. Conversion of the remainder of the Notes debt into equity, which will
result in the Noteholder group holding 91% of the enlarged share capital of
Petra Diamonds Limited, with the existing shareholders holding the remaining
9%. Those Noteholders that contribute to the New Money will be entitled to a
greater portion of the equity.
3. The restructuring of the first lien facilities provided by the South
African Lender Group, with a new term loan of ZAR1.2 billion in order to
refinance the existing drawn ZAR500 million WCF and the BEE Facilities
(approximately ZAR683 million), and a new RCF of ZAR560 million, constituted
by the rollover of the existing RCF but upsized by ZAR160 million. Both
facilities will have a maturity date of three years from completion and a
first lien debt service cover ratio of 1.3x tested semi-annually on a rolling
12-month basis which, if breached, will give rise to an event of default under
the new bank facilities. Both facilities will have an interest rate of JIBAR +
5.25% per annum.
4. New governance arrangements, whereby up to four of the largest
Noteholders as determined by the Restructuring Lock-Up Agreement and who
individually hold at least 5% of the shares in Petra at the closing of the
Restructuring shall have a ‘Nomination Right’ to nominate a person for
appointment to the Board as a non-independent Non-Executive Director, as well
as the right to appoint an observer to the Board (who will not have voting
rights at Board meetings). Any Board appointments must comply with the UK
Listing Rules and the Corporate Governance Code
5. Certain cashflow controls will be introduced.
The full terms of the Restructuring are listed in the prospectus released on
22 December 2020 and further details are provided in note 8.
The Restructuring is expected to become effective in early March 2021.
Implementation of the Restructuring will occur once the Company has agreed
certain documentation with its key financial stakeholders, including:
* certain documents with the South African Lender Group to give effect to the
restructuring of the first lien facilities;
* certain documents with the Noteholders to give effect to the partial
reinstatement of the Notes and the New Notes; and
* certain documents with the BEE Partners in relation to the reorganisation of
loans, payables, receivables and other entitlements with the Group to give
effect to the Restructuring.
Other Liabilities
Other than trade and other payables of US$47.5 million (comprising US$18.2
million trade creditors, US$12.6 million employee related accruals and US$16.7
million other payables) (H1 FY 2020: US$46.3 million), the remaining
liabilities on the balance sheet mainly comprise provisions for rehabilitation
liabilities, post retirement employee related provisions, lease liabilities
and deferred tax.
Capex
Total Group Capex for the Period reduced to US$8.6 million (H1 FY 2020:
US$26.5 million), comprising:
* US$6.3 million expansion Capex (H1 FY 2020: US$15.9 million); and
* US$2.3 million sustaining Capex (H1 FY 2020: US$10.6 million).
Capex Unit H1 FY 2021 H1 FY 2020
Cullinan US$m 5.9 12.0
Finsch US$m 1.3 5.6
Koffiefontein US$m 0.6 2.3
Williamson US$m 0.3 5.7
Subtotal – Capex incurred by operations US$m 8.1 25.6
Corporate / exploration US$m 0.5 0.9
Total Group Capex US$m 8.6 26.5
Dividend
Distribution covenants were not met for the measurement period to 31 December
2020 and as a result no dividend is declared for H1 FY 2021.
OPERATIONAL REVIEW
H1 FY 2021 Sales, Production and Capex – Summary
Unit H1 FY 2021 H1 FY 2020 Variance FY 2020
Sales
Diamonds sold Carats 1,712,797 1,743,807 -2% 2,895,497
Gross revenue US$m 178.1 193.9 -8% 295.8
Production
ROM tonnes Mt 4.2 7.0 -40% 11.5
Tailings & other (1)tonnes Mt 0.2 0.5 -60% 0.8
Total tonnes treated Mt 4.4 7.5 -41% 12.3
ROM diamonds Carats 1,644,846 1,995,512 -18% 3,442,593
Tailings & other (1)diamonds Carats 96,016 74,728 +28% 146,583
Total diamonds Carats 1,740,862 2,070,240 -16% 3,589,176
Capex
Expansion US$m 6.3 15.9 -60% 21.8
Sustaining US$m 1.8 9.7 -81% 14.8
Total US$m 8.1 25.6 -68% 36.6
Note:
1. ‘Other’ includes alluvial diamond mining at Williamson in FY 2020.
Overall carat production decreased 16% to 1,740,862 carats (H1 FY 2020:
2,070,240 carats), with Cullinan’s outperformance offsetting lower
production at Finsch, lower production from Koffiefontein and no contribution
from Williamson (H1 FY 2020: 222,351 carats), which remains on care and
maintenance.
Cullinan – South Africa
Unit H1 FY 2021 H1 FY 2020 Variance FY 2020
Sales
Diamonds sold Carats 894,758 730,847 +22% 1,183,745
Average price per carat US$ 120 112 +7% 98
Revenue US$m 107.3 81.7 +31% 116.5
ROM Production
Tonnes treated Tonnes 2,339,473 2,295,197 +2% 3,972,682
Diamonds produced Carats 913,626 855,371 +7% 1,482,482
Grade¹ Cpht 39.1 37.3 +5% 37.3
Tailings Production
Tonnes treated Tonnes 221,385 117,112 +89% 257,549
Diamonds produced Carats 96,016 34,416 +179% 95,918
Grade¹ Cpht 43.4 29.4 +48% 37.2
Total Production
Tonnes treated Tonnes 2,560,858 2,412,309 +6% 4,230,231
Diamonds produced Carats 1,009,642 889,787 +13% 1,578,400
Costs
On-mine cash cost per total tonne treated ZAR 239 262 -9% 270
Capex
Expansion Capex US$m 5.2 10.0 -48% 13.0
Sustaining Capex US$m 0.7 2.0 -65% 3.4
Total Capex US$m 5.9 12.0 -51% 16.4
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.
Production:
Cullinan’s overall carat production increased by 13% to 1,009,642 carats (H1
FY 2020: 889,787 carats) due to ROM production increasing by 7% to 913,626
carats (H1 FY 2020: 855,371 carats) in line with Project 2022 throughput
targets. Tailings production increased by 179% to 96,016 carats in line with
the mine plan (H1 FY 2020: 34,416 carats). The higher ROM carat production was
largely driven by an increased volume treated of 2,339,473 tonnes (H1 FY 2020:
2,295,197 tonnes) at a ROM grade of 39.1 cpht (H1 FY 2020: 37.3 cpht).
Sales:
Cullinan’s revenue increased 31% to US$107.3 million (H1 FY 2020: US$81.7
million), due to the higher sales volumes, as well as the sale of the Letlapa
Tala Collection for US$40.4 million (H1 FY 2020: US$14.9 million exceptional
diamond sales), offset by reduced pricing as a result of COVID-19.
Costs:
The on-mine unit cash cost per total tonne treated reduced 9% to ZAR239 (H1 FY
2019: ZAR262), mainly due to improved production efficiencies supported by
Project 2022 initiatives.
Capex:
Cullinan’s Capex for FY 2021 is weighted to H1, with US$5.9 million spent
(H1 FY 2020: US$12.0 million) mainly on the finalisation of the North Crusher
2 chamber, including the tip construction, development of the early access to
the CC1E decline and underground workshop, and equipment for the XRL stream in
the processing plant. The Company expects Cullinan’s full year Capex to
remain in line with guidance.
Finsch – South Africa
Unit H1 FY 2021 H1 FY 2020 Variance FY 2020
Sales
Diamonds sold Carats 768,647 783,962 -2% 1,348,181
Average price per carat US$ 71 79 -9% 75
Revenue US$m 54.8 61.7 -11% 101.1
ROM Production
Tonnes treated Tonnes 1,323,000 1,534,256 -14% 2,719,389
Diamonds produced Carats 695,308 880,707 -21% 1,603,678
Grade (1) Cpht 52.6 57.4 -8% 59.0
Tailings Production
Tonnes treated Tonnes 0 174,167 -100% 211,541
Diamonds produced Carats 0 32,850 -100% 39,890
Grade (1) Cpht 0 18.9 -100% 18.9
Costs
On-mine cash cost per total tonne treated ZAR 456 405 13% 477
Total Production
Tonnes treated Tonnes 1,323,000 1,708,423 -23% 2,930,930
Diamonds produced Carats 695,308 913,557 -24% 1,643,568
Capex
Expansion Capex US$m 0.8 4.2 -81% 6.1
Sustaining Capex US$m 0.5 1.4 -64% 2.3
Total Capex US$m 1.3 5.6 -77% 8.4
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.
Production:
Finsch’s overall carat production decreased by 24% to 695,308 carats (H1 FY
2020: 913,557 carats) due to ROM carat production decreasing by 21% to 695,308
carats (H1 FY 2020: 880,707 carats) further to a 14% decrease in the volume
treated of 1,323,000 tonnes (H1 FY 2020: 1,534,256 tonnes) and an 8% decrease
in the ROM grade to 52.6 cpht (H1 FY 2020: 57.4 cpht). ROM volumes mined in H1
were impacted by the expiry of the temporary continuous operations arrangement
during September 2020, subsequently reinstated during October 2020 and will
remain in place until June 2021.
As announced on 22 December 2020, the Finsch mine has experienced higher than
expected levels of waste ingress in a number of the upper levels of the Block
5 Sub Level Cave, which has served to negatively impact the recovered grade.
The Company has been going through a detailed exercise to better understand
this issue and has put a plan in place to mitigate the impact. In the short
term, this will include a revision to the draw strategy to limit planned draw
tonnage for the next four months, a build-up of inventory rings to allow for
increased blasting from March 2021, and a change to the drill and blast
designs to optimise ore extraction. In the longer term, the Company will also
investigate ore mixing programmes to better assist with the prediction of
waste ingress. A combination of the reduced ore tonnage extraction (further to
the dilution caused by the waste material ingress) and a lower grade is
expected to lead to Finsch’s production for FY 2021 being ca. 15% lower in
carat volumes than the Company’s internal plan.
During H1 FY 2021, the areas surrounding the Finsch mine experienced above
average rainfall. Due to the excessive amount of rainfall and an influx of
water into the pit, pit wall failures were experienced on the northern side of
the pit. These failures have not impacted production to date, but they may
have a future impact on the stability of the decline from surface which also
serves as the second escape route from the underground operations. Measures to
mitigate the impact on the second escape route are being put in place and
include the re-commissioning of a temporary hoisting facility from surface
down to the 70 level.
Sales:
Sales decreased 11% to US$54.8 million (H1 FY 2020: US$61.7 million), mainly
due to the average value per carat decreasing 9% to US$71 (H1 FY 2020: US$79)
reflecting the impact of COVID-19 on rough diamond prices.
Costs:
The on-mine unit cash cost per total tonne treated increased by 13% to ZAR456
(H1 FY 2020: ZAR405) due to a 23% reduction in total tonnes treated,
reflecting the high fixed-cost nature of the mine.
Capex:
Capex of US$1.3 million for the Period (H1 FY 2020: US$5.6 million) lower due
to reduced development activity and CAPEX purchases and availability of
contractor resources being disrupted as a result of the COVID-19 restrictions.
Koffiefontein – South Africa
Unit H1 FY 2021 H1 FY 2020 Variance FY 2020
Sales
Diamonds sold Carats 18,944 34,163 -45% 66,326
Average price per carat US$ 590 431 +37% 387
Revenue US$m 11.2 14.7 -24% 25.7
ROM Production
Tonnes treated Tonnes 493,661 561,296 -12% 891,705
Diamonds produced Carats 35,912 44,545 -19% 69,077
Grade Cpht 7.3 7.9 -8% 7.7
Total Production
Tonnes treated Tonnes 493,661 561,296 -12% 891,705
Diamonds produced Carats 35,912 44,545 -19% 69,077
Costs
On-mine cash cost per total tonne treated ZAR 459 419 10% 510
Capex
Expansion Capex US$m 0.3 1.7 -82% 2.7
Sustaining Capex US$m 0.3 0.6 -50% 1.1
Total Capex US$m 0.6 2.3 -74% 3.8
Production:
Koffiefontein’s production decreased 19% to 35,912 carats (H1 FY 2020:
44,545 carats), following operational disruptions due to COVID-19, including
challenges related to the availability of spares for underground drilling
machinery; the ROM stockpile was largely depleted during H1 FY 2021.
Sales:
Koffiefontein’s revenue decreased 24% to US$11.2 million (H1 FY 2020:
US$14.7 million), due to lower volumes sold coupled with the weaker diamond
market, partially offset by increased proportion of coarser, more valuable
rough diamonds supporting an increased price per carat.
Costs:
The unit cash cost per total tonne treated was up 10% to ZAR459 (H1 FY 2020:
ZAR419), mainly due to reduced throughput during the Period.
Capex:
Capex decreased 74% to US$0.6 million (H1 FY 2020: US$2.3 million) in line
with the operation approaching steady state production.
Williamson – Tanzania
Unit H1 FY 2021 H1 FY 2020 Variance FY 2020
Sales
Diamonds sold Carats 30,339 194,835 -84% 297,245
Average price per carat US$ 150 184 -18% 177
Revenue US$m 4.6 35.9 -87% 52.5
ROM Production
Tonnes treated Tonnes 0 2,654,906 -100% 3,980,438
Diamonds produced Carats 0 214,888 -100% 287,356
Grade Cpht 0 8.1 -100% 7.2
Alluvial Production
Tonnes treated Tonnes 0 198,698 -100% 302,567
Diamonds produced Carats 0 7,463 -100% 10,774
Grade Cpht 0 3.8 -100% 3.6
Total Production
Tonnes treated Tonnes 0 2,853,604 -100% 4,283,005
Diamonds produced Carats 0 222,351 -100% 298,130
Costs
On-mine cash cost per total tonne treated US$ n.a. 10.2 n.a. 10.2
Capex
Expansion Capex US$m 0.0 0.0 0% 0.0
Sustaining Capex US$m 0.3 5.7 -95% 8.0
Total Capex US$m 0.3 5.7 -95% 8.0
Production:
The Williamson mine in Tanzania remained on care and maintenance during H1 FY
2021.
Sales:
Williamson’s revenue decreased 87% to US$4.6 million (H1 FY 2020: US$35.9
million), with sales limited to some 30kcts carried over from FY 2020, with
the mine remaining on care and maintenance throughout the Period.
Costs and Capex:
On-mine cash care and maintenance costs amounted to some US$5.7 million for
the six month period, while some US$0.3 million was spent on stay in business
capex.
The Company remains in discussions with the Government of Tanzania and local
advisers in relation to various issues, including the overdue VAT receivables
and the blocked parcel, which continues to be recognised as an asset despite
the recent press coverage around the nationalisation of the parcel.
Project 2022 Update
Project 2022 throughput ideas continue to remain the largest contributor
towards the operational cash flow benefits and Cullinan is on track to deliver
on its throughput stretch target for FY 2021, having met the H1 recovered
carats stretch target of 1 million carats. However, the higher than expected
levels of waste ingress at Finsch is having a detrimental impact on throughput
benefits due to both lower grade and volume. The extended state of care and
maintenance at Williamson is also inhibiting throughput ideas, with operations
being suspended. The expected impact of the reduced throughput at Finsch and
Williamson indicates a reduction in the annualised contribution of the
throughput initiatives from some US$101 million by the end of FY 2021, as
previously disclosed, to around US$70 million, with further risk around very
significant rainfall at Finsch and Koffiefontein into Q3 FY2021, the possible
impact of COVID-19 and Williamson’s extended care and maintenance.
The targeted contribution from cost efficiencies remains at an annualised
US$22 million from the end of Q3 FY 2021.
The Organisational Design (“OD”) project progressed to implementation,
with the adoption of a top-down phased approach starting with Group functions
through to the roles at operations. Alignment of the organisational structures
to support the operating model and a total review of role titles and role
profiles are nearing completion. The grading committee is at an advanced stage
with the grading of Group function roles and aims to have the subsequent
layers completed by June 2021. There is also progress to align incentive and
production bonus schemes to support and reward delivery of our Project 2022
targets across the Group.
BOARD SUCCESSION
Dr Pat Bartlett, Non-executive Director, retired from the Board after nearly
nine years’ service, on 30 June 2020, and Mr Tony Lowrie, Senior Independent
Director, retired from the Board in November 2020, after more than eight
years’ service.
Ms Varda Shine subsequently assumed the role of Senior Independent
Non-Executive Director in November 2020. Varda is also a member of the
Company’s Audit and Risk, HSE (Health, Safety and Environment), Nomination
and SED (Social, Ethics and Diversity) Committees, as well as chairing the
Company’s Remuneration Committee. As such she has oversight of all the
Company’s material risks and opportunities and will be able to apply this
expertise to the benefit of shareholders and other stakeholders.
As previously indicated, Mr. Gordon Hamilton, Independent Non-executive
Director, will retire from the Board and as Chair of the Audit and Risk
Committee (“ARC”) at the conclusion of the FY 2021 Annual General Meeting.
A search process for his successor as Chair of the ARC has commenced.
In December 2020 the Company announced the prospective appointment of Mr.
Matthew Glowasky to the Board as a Non-Executive Director nominee appointed by
Monarch Master Funding 2 (Luxembourg) S.à r.l., a holder of the Company’s
US$650 million 7.25% senior secured second lien notes due in May 2022 that is
participating in the debt for equity swap. Mr. Glowasky's prospective
appointment to the Board is subject to the successful implementation of the
Restructuring and a further announcement confirming the date on which he will
formally assume office will be made in due course.
PRINCIPAL BUSINESS RISKS
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.
An overview of the key risks which could affect the Group’s operational and
financial performance was included in the Company’s 2020 Annual Report,
which can be accessed at www.petradiamonds.com. These may impact the Group
over the medium to long term; however, the following key risks have been
identified which may impact the Group over the next six months.
Short term demand and prices
The stability of financial markets and the corresponding effect on consumer
demand impacts the Group and the diamond industry as a whole. Whilst the
medium to long term fundamentals of the diamond market remain intact, with
demand forecast to outpace supply, in the short term the prevailing climate of
global economic uncertainty, exacerbated by the COVID-19 outbreak, may cause
some volatility in rough diamond pricing.
Although diamond prices are influenced by numerous factors beyond the
Company’s control, 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.
Product mix variability
Some level of variability in terms of product mix is associated with large and
complex orebodies like Cullinan and Williamson, where the recovery of high
value stones varies on a period-to-period basis. Variability is also being
experienced in the product mix at Finsch, which contains a lower than expected
incidence of gem-quality coarse (larger) diamonds in comparison to historical
recoveries. This risk can be addressed by maximising tonnages across the
footprint of the orebodies and by optimising plant processes to capture the
value within the individual kimberlite’s product profile. However, in the
case of Cullinan, it is impossible to predict when exceptional diamonds
(valued at +US$5 million) will be recovered as they are truly rare.
Variability in overall diamond prices realised as a result of this product mix
volatility may have an impact on the Group’s financial performance.
COVID-19 pandemic
The COVID-19 pandemic took hold in early CY 2020 and caused major disruption
to all aspects of the diamond pipeline. Certain Government-imposed
restrictions, including varying levels of lockdown, impacted the mining
operations and Petra’s ability to conduct tenders in South Africa and
Belgium. Petra has put in place stringent procedures in order to prevent or
mitigate the spread of the virus at our operations, some of which resulted in
lost production time; the Group introduced revised shift configurations, with
the support from organised labour, to offset this. Petra’s suppliers to its
mines, although also impacted by the COVID-19 restrictions, continued to
deliver as required and no major supply chain disruption was experienced. The
Company is maintaining a flexible sales approach in order to bring goods to
market at the optimal time and location based on prevailing market conditions.
Financing and liquidity
The Group closely monitors and manages its liquidity risk, and cash forecasts
are regularly produced and run for different scenarios. The forecasts assume
that the envisaged Restructuring will be implemented in line with the
provisions of the Consensual Restructuring. The Group also considered risks
associated with COVID-19, which were considered to focus primarily on the
potential for further production disruption, deferral of tenders due to travel
restrictions and adverse impacts on diamond pricing.
The Group’s forecast, taking into account the risks described above and the
covenants as discussed in the ‘Covenant measurements attached to banking
facilities’ section of the Financial Review, show that the Group will be
able to operate within its restructured debt facilities and have sufficient
liquidity headroom for at least the next 12 months, although headroom remains
sensitive to diamond prices, foreign exchange rates and production. There
remains a risk, given these factors and the impact on operating cashflows,
that the Group’s liquidity position could deteriorate and the resulting lack
of adequate available cashflows, potential breach of covenants and restricted
access to its debt facilities could impact development work and impact the
operations. The Group may therefore be required to have further discussions
with its South African Lender Group regarding further covenant resets and/or
waivers as required.
Petra is not in a position to provide any financial assistance to the
Williamson mine. Williamson’s liquidity position is reliant on its ability
to generate cash through operations (which is not possible during care and
maintenance); and/or its ability to reach agreement with the Government of
Tanzania allowing it to sell the blocked diamond parcel and around potential
recoupment of VAT receivables; and/or its ability to procure funding via
borrowings from local financial institutions. If Williamson is unable to
secure additional funding it is likely to face a liquidity shortfall. Under
the terms of the in-principle agreements with the South African Lender Group
any additional funding by Petra would require its approval and if not provided
may result in Williamson’s insolvent liquidation.
Exchange rates
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. The Group also undertakes transactions in a number of different
currencies, including Tanzanian Shillings, GBP and Euro. Fluctuations in these
currencies can have an impact on the Group’s performance, albeit less
significant than the impact of fluctuations in the ZAR/USD exchange rate.
In order to mitigate currency risk, the Group continually monitors the
movement of the Rand against the US Dollar, the maturity dates and the level
of the hedge book and takes expert advice from its bankers in this regard. It
is the Group’s policy to hedge, on a short term basis, linked to the tender
calendar, a portion of US Dollar sales revenue when weakness in the Rand deems
it appropriate.
Country and political risk
Petra’s operations are predominantly based in South Africa, with lesser
exposure to Tanzania. Emerging market economies could be subject to greater
risks, including legal, regulatory, taxation, economic, and political risks,
and are potentially subject to rapid change.
Petra is in ongoing dialogue with the Government of Tanzania and local
advisers in relation to various issues, including the overdue VAT receivables
and the blocked parcel. In addition, there is no certainty with regards to the
outcome for the blocked Williamson parcel, which remains in the custody of the
Government of the United Republic of Tanzania. The long-term viability of the
Company’s Williamson operations is dependent on the successful completion of
the ongoing negotiations with the Government of Tanzania.
Labour relations
The Group’s production is dependent on a stable and productive labour
workforce. The mining labour relations environment in South Africa has been
notably volatile over the years, but much less so specifically in the diamond
sector, where there is a higher incidence of mechanisation and skilled
workers, leading to smaller and more manageable workforces which do not rely
on migrant labour.
In H1 FY2021 the Company announced that it had reached agreement on a new
one-year wage agreement with NUM for employees in the Paterson A and B Bands
at the South African operations covering FY 2021. The Company will therefore
look to continue discussions in due course with NUM on a wage agreement for FY
2022. Petra remains highly focused on managing labour relations and on
maintaining open and effective communication channels with its employees and
the appropriate union representatives at its operations.
Power supply
South Africa’s power issues have been well publicised. Eskom’s approach is
to consult with industry participants before implementing load shedding, with
advanced notice giving customers time to react appropriately. Petra is used to
managing the operations optimally to maintain production levels as much as
possible throughout load shedding requests. Such measures include the bringing
forward of essential maintenance work and restricting load curtailment to
processing plants where possible, given the Company’s operations have excess
processing capacity which allows for additional throughput when full power is
restored. However, the impact of load shedding on the Company will depend on
the duration and level of severity of the power restriction.
Illegal mining and human rights violations
There is an ongoing risk of illegal mining taking place in areas where the
Group has surface operations (as opposed to underground), namely the
Williamson open pit and the tailings operations of the South African mines.
Such incidents are particularly common in volatile countries where
unemployment levels are high and governments have insufficient resources to
address these issues.
Illegal mining is often carried out in unsafe mining conditions which could in
turn cause injuries or result in fatalities. Illegal miners accessing Petra's
operations present risks associated with contravening a number of regulations
for which the Company is held responsible, in particular in the areas of
health and safety and environmental management. In the event of non-compliance
with such regulations or the occurrence of accidents or incidents causing
personal injury, death or property or environmental damage at Petra's
facilities or surrounding areas, there is a risk of increased operating costs,
significant losses, interruptions in production, expensive litigation,
imposition of penalties and sanctions or suspension or revocation of permits
and licences as well as reputational damage. In addition, illegal miners may
pose a risk to the safety of Group personnel as they may be armed and willing
to resort to violence if challenged. This may result in confrontations between
Group personnel, contractors or law enforcement personnel, resulting in claims
for damages against the Group or contraventions of international protocols
that apply to the Company and the businesses within the Group.
The Group has been subjected to recent allegations of human rights violations
at the Williamson mine. The UK law firm Leigh Day and a UK-based NGO RAID have
notified the Company and Williamson Diamonds Limited by letter concerning
allegations that illegal miners suffered personal injury inflicted by the
security patrol teams at the Williamson Mine, which comprise guards from
Williamson Diamonds Limited's third-party security contractor and members of
the Tanzanian Police. The amount of damages sought is not yet quantified and
the validity of the claims is yet to be determined.
The current scale of illegal mining at Williamson is not anticipated to affect
production levels in the short-to-medium term but the potential consequences
associated with a major incident could adversely affect the Group's business,
results of operations and financial condition.
Richard Duffy
Chief Executive Officer
16 February 2021
Notes:
1. The following exchange rates have been used for this announcement: 1.
closing rate as at 31 December 2020 US$1:ZAR14.69 (31 December 2019
US$1:ZAR13.99 and 30 June 2020: ZAR17.32)
2. average rate H1 FY 2021 US$1:ZAR16.27 (H1 FY 2020 US$1:ZAR14.69)
2. The following definitions have been used in this announcement: 1. ct: carat
2. cpht: carats per hundred tonnes
3. Exceptional Diamonds: stones that sell for more than US$5 million each
4. LTIFR: lost time injury frequency rate
5. Kt: thousand tonnes
6. Mcts: million carats
7. mL: meter level
8. Mt: million tonnes
9. ROM: run-of-mine, i.e. relating to production from the primary orebody
10. SLC: sub-level cave, a variation of block caving
3. Diamond inventory carrying values are stated at the lower of cost of
production on the weighted average basis or estimated net realisable value.
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE 6 MONTH PERIOD ENDED 31 DECEMBER 2020
US$ million Notes (Unaudited) 1 July 2020- 31 December 2020 (Unaudited) 1 July 2019- 31 December 2019 (Audited) Year ended 30 June 2020
Revenue 178.1 193.9 295.8
Mining and processing costs (136.9) (170.2) (307.9)
Other direct income 5.1 0.3 2.0
Exploration expenditure 15 — (0.3) (0.6)
Corporate expenditure 5 (3.9) (3.9) (8.7)
Impairment of non-financial assets 14 (0.2) (1.6) (91.9)
Impairment of BEE loans receivable – expected credit loss release / (charge) 11 4.6 — (10.9)
Total operating costs (131.3) (175.7) (418.0)
Profit on disposal including associated impairment, net of tax 15 14.7 — —
Financial income 6 69.0 7.1 7.9
Financial expense 6 (39.8) (38.5) (161.0)
Profit / (loss) before tax 90.7 (13.2) (275.3)
Income tax (charge) / credit (23.1) 3.2 52.3
Profit / (loss) for the Period 67.6 (10.0) (223.0)
Attributable to:
Equity holders of the parent company 54.5 (8.7) (190.0)
Non-controlling interest 13.1 (1.3) (33.0)
67.6 (10.0) (223.0)
Profit / (loss) per share attributable to the equity holders of the parent during the Period:
Basic profit / (loss) per share – US cents 12 6.31 (1.01) (21.96)
Diluted profit / (loss) per share – US cents 12 6.31 (1.01) (21.96)
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE 6 MONTH PERIOD ENDED 31 DECEMBER 2020
US$ million (Unaudited) 1 July 2020- 31 December 2020 (Unaudited) 1 July 2019- 31 December 2019 (Audited) Year ended 30 June 2020
Profit / (loss) for the Period 67.6 (10.0) (223.0)
Exchange differences on translation of the share-based payment reserve 0.2 0.2 (0.2)
Exchange differences on translation of foreign operations (1) 54.7 (0.9) (91.3)
Exchange differences on non-controlling interest (1) (0.1) (0.2) (0.6)
Total comprehensive income / (expense) for the Period 122.4 (10.9) (315.1)
Total comprehensive income and expense attributable to:
Equity holders of the parent company 109.4 (9.4) (281.5)
Non-controlling interest 13.0 (1.5) (33.6)
122.4 (10.9) (315.1)
¹ These items will be reclassified to the consolidated income statement if
specific future conditions are met.
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2020
US$ million Notes (Unaudited) 31 December 2020 (Unaudited) 31 December 2019 (Audited) 30 June 2020
ASSETS
Non-current assets
Property, plant and equipment 7 773.3 950.3 675.8
Right-of-use assets 3.0 6.8 4.9
BEE loans and receivables 11 175.1 125.9 137.0
Other receivables 10.6 13.5 10.3
Deferred tax assets 0.1 — 23.3
Total non-current assets 962.1 1,096.5 851.3
Current assets
Trade and other receivables 42.8 30.4 20.0
Inventories 126.4 110.6 103.5
Cash and cash equivalents (including restricted amounts) 106.3 53.6 67.6
Total current assets 275.5 194.6 191.1
Non-current assets classified as held for sale 15 — 0.6 0.3
Total assets 1,237.6 1,291.7 1,042.7
EQUITY AND LIABILITIES
Equity
Share capital 133.4 133.4 133.4
Share premium account 790.2 790.2 790.2
Foreign currency translation reserve (411.6) (362.6) (453.0)
Share-based payment reserve 1.5 6.8 1.1
Other reserves (0.8) (0.8) (0.8)
Accumulated losses (385.9) (264.3) (440.4)
Attributable to equity holders of the parent company 126.8 302.7 30.5
Non-controlling interest (5.8) 12.9 (18.8)
Total equity 121.0 315.6 11.7
Liabilities
Non-current liabilities
Loans and borrowings 8 — 604.8 —
Lease liabilities 1.0 2.6 1.1
BEE loans payable 11 133.4 128.1 108.6
Provisions 73.7 64.0 55.6
Deferred tax liabilities 49.3 78.5 40.5
Total non-current liabilities 257.4 878.0 205.8
Current liabilities
Loans and borrowings 8 810.4 47.3 769.0
Lease liabilities 1.3 4.5 3.6
Trade and other payables 47.5 46.3 52.5
Total current liabilities 859.2 98.1 825.1
Liabilities directly associated with non-current assets classified as held for sale 15 — — 0.1
Total liabilities 1,116.6 976.1 1,031.0
Total equity and liabilities 1,237.6 1,291.7 1,042.7
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2020
US$ million Notes (Unaudited) 1 July 2020- 31 December 2020 (Unaudited) 1 July 2019- 31 December 2019 (Audited) Year ended 30 June 2020
Profit / (loss) before taxation for the Period 90.7 (13.2) (275.3)
Depreciation of property plant and equipment 35.9 47.0 78.3
Amortisation of right-of-use asset 2.3 — 5.2
Unrealised gain on lease liability (2.5) — (0.8)
Impairment charge – non financial assets 14 0.2 — 92.3
Impairment charge/(reversal) – other receivables 14 — 1.7 (0.4)
Impairment of BEE loans receivable – expected credit loss (release) / charge 11 (4.6) — 10.9
Profit on disposal including associated impairment, net of tax 15 (14.6) — —
Movement in provisions 0.4 — (0.1)
Financial income 6 (69.0) (7.1) (7.9)
Financial expense 6 39.8 38.5 161.0
Profit on disposal of property, plant and equipment (0.3) — (0.1)
Share based payment provision 0.2 0.4 0.7
Operating profit before working capital changes 78.5 67.3 63.8
(Increase) / decrease in trade and other receivables (25.7) 3.0 11.4
Increase / (decrease) in trade and other payables 1.2 (6.1) (15.5)
Increase in inventories (6.8) (23.7) (32.7)
Cash generated from operations 47.2 40.5 27.0
Net realised losses on foreign exchange contracts (3.6) (3.4) (8.3)
Finance expense (2.5) (24.5) (26.2)
Income tax received / (paid) 0.1 (0.6) (0.6)
Net cash generated from / (utilised by) operating activities 41.2 12.0 (8.1)
Cash flows from investing activities
Acquisition of property, plant and equipment (8.7) (26.8) (39.3)
Proceeds from sale of property, plant and equipment — — 0.8
Loans advanced to BEE partners (5.0) (11.3) (14.1)
Repayments from KEM JV — 0.1 0.4
Finance income 0.4 0.1 1.2
Net cash utilised in investing activities (13.3) (37.9) (51.0)
Cash flows from financing activities
Principal paid on lease liabilities (0.3) (2.8) (5.0)
Increase in borrowings — 95.9 100.9
Repayment of borrowings — (95.9) (43.5)
Net cash generated from financing activities (0.3) (2.8) 52.4
Net increase / (decrease) in cash and cash equivalents 27.6 (28.7) (6.7)
Cash and cash equivalents at beginning of the Period 53.6 71.7 71.7
Effect of exchange rate fluctuations on cash held 11.2 (2.9) (11.4)
Cash and cash equivalents at end of the Period (1) 92.4 40.1 53.6
¹ Cash and cash equivalents in the Consolidated Statement of Financial
Position includes restricted cash of US$13.9 million (30 June 2020: US$14.0
million and 31 December 2019: US$13.5 million) and unrestricted cash of
US$92.4 million (30 June 2020: US$53.6 million and 31 December 2019: US$40.1
million).
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2020
(Unaudited) US$ million Share capital Share premium account Foreign currency translation reserve Share-based payment reserve Hedging and other reserves
Six month Period ending 31 December 2020:
At 1 July 2020 133.4 790.2 (453.0) 1.1 (0.8)
Profit for the Period — — — — —
Other comprehensive income / (expense) — — 54.7 0.2 —
Recycling of foreign currency translation reserve on disposal of Sekaka (refer note 15) — — (13.3) — —
Equity settled share based payments — — — 0.2 —
At 31 December 2020 133.4 790.2 (411.6) 1.5 (0.8)
(Unaudited) US$ million Accumulated losses Attributable to the parent Non-controlling interest Total equity
Six month Period ending 31 December 2020:
At 1 July 2020 (440.4) 30.5 (18.8) 11.7
Profit for the Period 54.5 54.5 13.1 67.6
Other comprehensive income / (expense) — 54.9 (0.1) 54.8
Recycling of foreign currency translation reserve on disposal of Sekaka (refer note 15) — (13.3) — (13.3)
Equity settled share based payments — 0.2 — 0.2
At 31 December 2020 (385.9) 126.8 (5.8) 121.0
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2020
(Unaudited) US$ million Share capital Share premium account Foreign currency translation reserve Share-based payment reserve Hedging and other reserves
Six month Period ending 31 December 2019:
At 1 July 2019 133.4 790.2 (361.7) 6.2 (0.8)
Loss for the Period — — — — —
Other comprehensive (expense) / income — — (0.9) 0.2 —
Equity settled share based payments — — — 0.4 —
At 31 December 2019 133.4 790.2 (362.6) 6.8 (0.8)
(Unaudited) US$ million Accumulated losses Attributable to the parent Non-controlling interest Total equity
Six month Period ending 31 December 2019:
At 1 July 2019 (255.6) 311.7 14.4 326.1
Loss for the Period (8.7) (8.7) (1.3) (10.0)
Other comprehensive (expense) / income — (0.7) (0.2) (0.9)
Equity settled share based payments — 0.4 — 0.4
At 31 December 2019 (264.3) 302.7 12.9 315.6
PETRA DIAMONDS LIMITED
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2020
(Unaudited) US$ million Share capital Share premium account Foreign currency translation reserve Share-based payment reserve Hedging and other reserves
Twelve month Period ended 20 June 2020:
At 1 July 2019 133.4 790.2 (361.7) 6.2 (0.8)
Loss for the Period — — — — —
Other comprehensive expense — — (91.3) (0.2) —
Transfer between reserves - Williamson non-controlling interest. — — — — —
Transfer between reserves for lapsed employee options — — — (5.6) —
Equity settled share based payments — — — 0.7 —
At 30 June 2020 133.4 790.2 (453.0) 1.1 (0.8)
(Unaudited) US$ million Accumulated losses Attributable to the parent Non-controlling interest Total equity
Twelve month Period ended 20 June 2020:
At 1 July 2019 (255.6) 311.7 14.4 326.1
Loss for the Period (190.0) (190.0) (33.0) (223.0)
Other comprehensive expense — (91.5) (0.6) (92.1)
Transfer between reserves - Williamson non-controlling interest. (0.4) (0.4) 0.4 —
Transfer between reserves for lapsed employee options 5.6 — — —
Equity settled share based payments — 0.7 — 0.7
At 30 June 2020 (440.4) 30.5 (18.8) 11.7
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED 31 DECEMBER 2020
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. The Consolidated
Interim Financial Statements of the Company for the six month period ended 31
December 2020 comprise the Company and its subsidiaries, joint operations and
associates (together referred to as the “Group”).
2. ACCOUNTING POLICIES
The interim results, which are unaudited, have been prepared in accordance
with the requirements of International Accounting Standard 34. This condensed
interim report does not include all the notes of the type normally included in
an annual financial report. This condensed report is to be read in conjunction
with the Annual Report for the year ended 30 June 2020, and any public
announcements made by the Group during the interim reporting period. The
annual financial report for the year ended 30 June 2020 was prepared in
accordance with International Financial Reporting Standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European Union
(“IFRS’s”) and the accounting policies applied in this condensed interim
report are consistent with the polices applied in the annual financial report
for the year ended 30 June 2020 unless otherwise noted.
Basis of preparation including going concern
Going concern
In H1 FY 2021 our operations delivered largely in line with expectations, with
revenues bolstered by the sale of the Letlapa Tala Collection, and
US$-reported costs positively impacted by a weaker ZAR:USD1 rate for the 6
months to December 2020. Project 2022 continued to deliver both on throughout,
as well as cost performance. However, the outbreak of the COVID-19 pandemic
during the preceding period, coupled with the uncertainty which remains still
presents unprecedented challenges to our operations and the industry as a
whole.
Capital restructuring
The Restructuring, which is expected to complete in early March 2021, remains
subject to finalisation of the documentation required for implementation. At
the estimated time of the envisaged restructure becoming effective, the
Group’s gross debt under the existing facilities is estimated to be US$815.8
million, being US$708.5 under the loan Notes (US$650 million capital plus
accrued interest of ca. US$ 58.5 million to date of settlement), plus ZAR1,609
million (ca. US$107.3 million at ZAR15/US$1) owed under the Group’s banking
facilities, including the BEE guarantees. The envisaged Restructuring will
also impact the Group’s equity shareholders as it entails a debt for equity
swap approved by the shareholders at a SGM on 13 January 2021.
In the unlikely event that the Restructuring does not complete, it is likely
that the Company, or one or more of the Group members, would file for
insolvency (in the relevant jurisdiction(s)). It may in these circumstances be
possible to effect a restructuring through a structured insolvency process.
However, this would be reliant on the Group obtaining additional funding to
fund trading as a going concern for a period of time before such restructuring
could be effected, the obtaining (or waiving) of certain regulatory consents,
support from the South African Lender Group and agreement from the Noteholders
(potentially through a second scheme of arrangement or restructuring plan
pursuant to the UK Companies Act 2006).
COVID-19
Uncertainty exists around the ongoing impact of COVID-19 on the Group.
Although the South African Government declared mining operations able to
continue during previous lockdown periods, the required social distancing
measures which had to be implemented initially resulted in some operational
disruptions, but these measures now put the Group in good stead to curtail the
impact of any further possible lockdowns in South Africa.
At the Group’s tender post Period end, held in January 2021, rough diamond
prices on a like-for-like basis were largely in line with prices achieved
immediately pre-COVID-19. Further waves of outbreak and possible further
restrictions on international travel may negatively impact the Group’s
short- and medium-term liquidity profile due to the potential impact on
production, ability to hold tenders and market pricing, notwithstanding the
proposed Restructuring.
Williamson mine, Tanzania
As mentioned above, the Williamson mine remains on care and maintenance and
the likely timing of a recommencement of production remains subject to
improving market conditions and the mine’s liquidity position. In addition,
the Group remains in discussions with the Government of Tanzania (“GoT”)
around various issues including, inter alia, the sharing of economic benefit,
the recoverability of VAT receivables, and the potential release of the
blocked diamond parcel. Due to the Group’s current financial position, Petra
is not in a position to provide any financial assistance to the Williamson
mine. Williamson’s liquidity position is reliant on its ability to generate
cash through operations (which is not possible during care and maintenance);
and/or its ability to reach agreement with the GoT allowing it to sell the
blocked diamond parcel and around potential recoupment of VAT receivables;
and/or its ability to procure funding via borrowings from local financial
institutions. Notwithstanding receiving approval from the GoT to proceed with
arranging a US$25 million working capital facility from a local Tanzanian
bank, while pledging its own assets as security, the mine has not yet been
able to secure such funding. Discussions with a local bank for a possible
reduced facility of some US$ 2 million is currently ongoing. Should an
agreement with the local bank not be reached within the next month, Williamson
is likely to face a liquidity shortfall. Under the terms of the in-principle
agreements with the South African Lender Group any additional funding by Petra
would require its approval and if not provided may result in Williamson’s
insolvent liquidation.
Forecast liquidity and covenants
The Board has reviewed the Group’s forecasts and sensitivities for a period
of at least 18 months from Period end, including both forecast liquidity and
covenants. The forecasts assume that the envisaged Restructuring will be
implemented in line with the provisions of the in-principle term sheet. In
doing so, careful consideration was given to potential risks to the forecasts
under the review period. The Board carefully considered risks associated with
COVID-19 which were considered to focus primarily on the potential for further
production disruption, deferral of tenders due to travel restrictions and
adverse impacts on diamond pricing.
In light of both normal trading risks and elevated risks associated with the
potential impact of the COVID-19 pandemic, the following have been key
considerations for the Board in assessing the Group’s ability to operate as
a going concern at the date of this report:
* an unforeseen disruption to operations at its South African mines due to
either COVID-19 restrictions or otherwise;
* an unforeseen deferral of a rough diamond tender, due to COVID-19
restrictions, coupled with a significant price decline at an assumed
subsequent private sale (in line with a similar process followed in FY 2020);
* a sustained 5% decrease in forecast rough diamond prices throughout the
forecast period; and
* an increase in forecast operating cost.
Under the base case, which itself is dependent upon the successful completion
of the proposed Restructuring and continued availability of the South African
banking facilities in line with the Lock-up Agreement above, the forecasts
indicate that the Company will be able to operate within the covenants set out
in the in-principle agreement and maintain sufficient liquidity.
However, the proposed first lien covenants were set with limited headroom to
base case. As such, although adequate liquidity is maintained throughout the
review period under each of the individual scenarios, subject to continued
availability of the South African Lender Group facilities, results of the
stress testing indicate that in the event of deferral to the tenders outlined
above or a combination of scenarios such as sustained reduced pricing and
production disruption, possible covenant breaches associated with the South
African banking facilities may occur at December 2021 and June 2022. Whilst
reasonably available mitigating actions, which include cost savings and
capital deferrals, are foreseen to address the risk of such a covenant breach,
the delivery of such mitigating actions remains uncertain. In the event of a
breach of covenant, the Company would be dependent on the South African Lender
Group continuing to make the facilities available and under certain of the
scenarios there would be insufficient liquidity to settle the outstanding
South African Lender Group facilities if required. Whilst the South African
Lender Group has indicated its support in recent discussions and ongoing
dialogue with the South African Lender Group will be important during this
period, there can be no guarantee that the facilities would continue to remain
available in the event of a covenant breach.
Conclusion
The Board is of the view that the longer-term fundamentals of the diamond
market remain sound and that the Group will continue to benefit from Project
2022 (which includes increased production and reduced spend) throughout the
review period and beyond.
Based on its assessment of the forecasts, principal risks and uncertainties
and mitigating actions considered available to the Group in the event of
downside scenarios, assuming a successful Restructuring the Board confirms
that it is satisfied that the Group will be able to continue to operate and
meet its liabilities as they fall due over the review period. However, the
Group is reliant on the successful conclusion of the Restructuring to continue
as a going concern. Additionally, as set out above, in the event of a
successful Restructuring, the Group’s forecasts remain sensitive to trading
conditions and the ongoing COVID-19 pandemic may have a further material
impact on the Group’s ability to operate within its covenants such that
continued South African Lender Group support may be required and, if
unavailable, additional funding may be required, specifically for the December
2021 and June 2022 periods.
These factors indicate the existence of material uncertainties which may cast
significant doubt about the Company’s ability to continue as a going concern
and therefore it may be unable to realise its assets and discharge its
liabilities in the normal course of business. The Financial Statements do not
include the adjustments that would result if the Company were unable to
continue as a going concern.
New standards and interpretations applied
The IASB has issued new standards, amendments and interpretations to existing
standards with an effective date on or after 1 July 2020 which are not
considered to have a material impact on the Group during the Period under
review.
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 2021 or later periods. The only standard which is
anticipated to be significant or relevant to the Group is:
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
Amendments to IAS 1, which are intended to clarify the requirements that an
entity applies in determining whether a liability is classified as current or
non-current. The amendments are intended to be narrow scope in nature and are
meant to clarify the requirements in IAS 1 rather than modify the underlying
principles. The amendments include clarifications relating to:
* how events after the end of the reporting period affect liability
classification;
* what the rights of an entity must be in order to classify a liability as
non-current;
* how an entity assesses compliance with conditions of a liability (e.g. bank
covenants); and
* how conversion features in liabilities affect their classification.
The amendments were originally effective for periods beginning on or after 1
January 2022 which was deferred to 1 January 2023 by the IASB in July 2020.
Significant assumptions and judgements:
The preparation of the condensed consolidated interim 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 interim 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:
Impairment reviews
The Group prepares impairment models and assesses mining assets for impairment
or reversals of previous impairments. While conducting an impairment test of
its assets using recoverable values using the current life of mine plans, 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’.
Cullinan, Finsch, Koffiefontein and Williamson
The impairment tests for Cullinan, Finsch, Koffiefontein and Williamson
indicated no further impairment charges to be recognised, with an asset base
of US$773.3 million. This follows US$85.5 million recognised at 30 June 2020
on a carrying value of property, plant and equipment of US$844.0 million at
the time of recognition. For further details of the inputs, assumptions and
sensitivities in the impairment model, refer to note 14.
Recoverability of diamond parcel in Tanzania
The Group holds diamond inventory valued at lower of cost and net realisable
value of US$10.6 million (30 June 2020: US$9.2 million and 31 December 2019:
US$12.3 million) in the Statement of Financial Position in respect of the
Williamson mine’s confiscated diamond parcel. During FY 2018, an
investigation into the Tanzanian diamond sector by a parliamentary committee
in Tanzania was undertaken to determine if diamond royalty payments were being
understated. 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% by Petra and 25% by the Government of the United Republic
of Tanzania (“GoT”)) had been blocked for export to Petra’s marketing
office in Antwerp.
The assessment of the recoverability of the diamond parcel required
significant judgement. In making such a judgement, the Group considered their
ongoing discussions with the GoT, confirmation was received from the GoT in FY
2018 that they held the diamond parcel of 71,654.45 carats, verbal
re-confirmation has been given this year in the course of the ongoing
discussions held with the GoT, an assessment of the internal process used for
the sale and export of diamonds confirming such process is in full compliance
with legislation in Tanzania and the Kimberley Process, and legal advice
received from the Group’s in-country attorneys which supports the Group’s
position.
The Company is aware of media reports suggesting that the parcel of 71,654
carats of diamonds from the Williamson mine in Tanzania, which was blocked for
export in September 2017, has been nationalised. The Company has since
received communication from the Government of Tanzania that this will be dealt
with as part of ongoing discussions with the Government, which are expected to
resume by the end of February.
While a resolution has not yet been reached with regards to the parcel of
diamonds that was blocked from export, based on the above judgements and
assessment thereof, management remain confident that the diamond parcel will
be released by the GoT and will be available for future sale.
Recoverability of VAT in Tanzania
The Group has VAT receivables of US$10.6 million (30 June 2020: US$10.3
million and 31 December 2019: US$13.5 million) in respect of the Williamson
mine, all of which are past due and have therefore been classified, after
providing for a time-value of money provision inclusive of risk adjustments
for various factors, as non-current given the potential delays in receipt. Of
the total VAT receivables, US$13.0 million (30 June 2020: US$13.0 million and
31 December 2019: US$13.8 million) relates to historic VAT pre July 2017. The
assessment of the carrying value of the VAT receivables under the historic VAT
legislation required significant judgement over the timing of future payments,
progress and finalisation of VAT audits, ongoing discussions with the relevant
authorities in Tanzania and the wider operating environment.
A further US$27.4 million (30 June 2020: US$26.9 million and 31 December 2019:
US$24.2 million) of VAT is receivable which relates to VAT under the
legislation, effective from July 2017 to 30 June 2020. Under that legislation,
costs incurred in the production and sale of raw minerals were not eligible
for VAT and judgement was required in determining whether rough diamonds
qualified as raw minerals. The assessment of the carrying value of the VAT
receivable under the VAT legislation effective in this period required
significant judgement considering ongoing discussions with the relevant
authorities in Tanzania, legal advice, a formal rejection letter received from
the Tanzania Revenue Authority and the Company’s legal objection thereto and
the wider operating environment. In addition to judgement regarding the
eligibility for VAT, judgement was required over the timing of future
payments. Management has considered the amendment to the VAT legislation for
the period July 2017 to July 2020 and considers that input VAT can continue to
be recovered in relation to the export of rough diamonds; however, note that
the legislation is unclear and the Tanzania Revenue Authority disputes the
recoverability of such VAT. It is noted that in June 2020, the VAT legislation
was, again, amended to remove any reference to raw minerals with effect from 1
July 2020. Whilst this amendment to the legislation is to be applied
prospectively, management considers that this further helps support its view
that the VAT receivables in this period are valid and recoverable.
Accordingly, the Group is considering various alternatives in pursuing payment
in accordance with legislation.
While the total VAT balance is considered receivable, significant uncertainty
exists regarding the timing of receipt. Accordingly, the receivable has been
discounted by US$29.8 million (30 June 2020: US$29.6 million and 31 December
2019: US$24.5 million), which required estimates as to the timing of future
receipts and determination of a risk adjusted discount rate. A discount rate
of 16.25% has been applied to the expected cash receipts inclusive of
estimated country credit risk. A 1% increase in the discount rate would
increase the provision by US$0.4 million and a one year delay would increase
the provision by US$0.7 million.
BEE receivables – expected credit loss provision
The Group has applied the expected credit loss impairment model to its BEE
loans receivable. In determining the extent to which expected credit losses
may apply, the Group assessed the probability of agreeing an offset of the
gross receivable and payable balances and the future free cashflows to be
generated by the mining operations, based on the current LOM plans. In
assessing the future cashflows, the Group considered the diamond price outlook
and the probability of reaching an offset agreement. Based on the assessment,
the analysis generated an expected credit loss reversal totalling US$4.6
million (30 June 2020: US$10.9 million expected credit loss provision and 31
December 2019: US$nil), comprising of US$4.6 million provision reversal in
respect of Cullinan and Finsch (30 June 2020: US$10.9 million provision
comprising US$6.1 million in respect of Cullinan and Finsch and US$4.8 million
in respect of Koffiefontein; and 31 December 2019: US$nil).
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.
Leases
Management has made certain assumptions and applied judgement around certain
service contracts with medium term renewal terms. In assessing the applicable
term of the service contracts, the Group has concluded that it is unlikely
that such contracts will be renewed and thus they are only included in the
lease calculation up to the date of lease termination.
Other key estimates and judgements
In addition to the key estimates and judgements disclosed above, the following
estimates and judgements have not significantly changed from those disclosed
in the FY 2020 Annual Report and will be discussed in further detail in the FY
2021 Annual Report:
* Provision for rehabilitation
* Inventory and inventory stockpile
* Depreciation
* Pension and post-retirement medical fund schemes
* Net investments in foreign operations
3. DIVIDENDS
No dividends have been declared in respect of the current Period under review
(30 June 2020: US$nil and 31 December 2019: US$nil).
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.
Corporate – administrative activities in the United Kingdom.
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 reviewing the corporate
administration expenses in the 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.
4. SEGMENTAL INFORMATION (continued)
Operating segments South Africa – Mining activities Tanzania -Mining activities Botswana
US$ million Cullinan Finsch Koffiefontein Williamson Exploration (4)
(6 month period ended 31 December 2020) 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020
Revenue 107.3 54.8 11.2 4.6 —
Segment result¹ 44.4 1.9 2.6 (6.3) —
Impairment charge – other receivables — — — (0.2) —
Impairment of BEE loans receivable – expected credit loss release / (charge) — — — — —
Other direct income 0.3 1.1 0.1 3.6 —
Operating profit / (loss)² 44.7 3.0 2.7 (2.9) —
Profit on disposal including associated impairment, net of tax
Financial income
Financial expense
Income tax credit
Non-controlling interest
Profit attributable to equity holders of the parent company
Segment assets 560.2 332.1 168.3 89.0 —
Segment liabilities 574.8 185.4 170.0 295.1 —
Capital expenditure 5.9 1.3 0.6 0.3 —
Operating segments United Kingdom South Africa
US$ million Corporate and treasury Beneficiation (3) Inter-segment Consolidated
(6 month period ended 31 December 2020) 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020 1 July 2020 - 31 December 2020
Revenue — 0.2 — 178.1
Segment result¹ (3.9) (0.4) (1.0) 37.3
Impairment charge – other receivables — — — (0.2)
Impairment of BEE loans receivable – expected credit loss release / (charge) 4.6 — — 4.6
Other direct income — — — 5.1
Operating profit / (loss)² 0.7 (0.4) (1.0) 46.8
Profit on disposal including associated impairment, net of tax 14.7
Financial income 69.0
Financial expense (39.8)
Income tax credit (23.1)
Non-controlling interest (13.1)
Profit attributable to equity holders of the parent company 54.5
Segment assets 3,390.6 4.6 (3,307.2) 1,237.6
Segment liabilities 2,424.9 5.5 (2,539.1) 1,116.6
Capital expenditure 0.5 — — 8.6
¹ Total depreciation of US$35.9 million included in the segmental result
comprises depreciation incurred at Cullinan US$24.0 million, Finsch US$11.4
million, Koffiefontein US$0.1 million, Williamson US$0.1 million and Corporate
and treasury US$0.3 million.
² Operating profit is equivalent to revenue of US$178.1 million less total
costs of US$131.3 million as disclosed in the Consolidated Income Statement.
(3) The beneficiation segment represents Tarorite, a cutting and polishing
business in South Africa, which can on occasion cut and polish select rough
diamonds.
(4) The operating results in respect of Botswana have been reflected in note
15.
Operating segments South Africa – Mining activities Tanzania -Mining activities Botswana
US$ million Cullinan Finsch Koffiefontein Williamson Exploration (4)
(6 month period ended 31 December 2019) 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019
Revenue 81.7 61.7 14.7 35.9 —
Segment result¹ 21.8 3.1 (0.5) 1.8 (0.3)
Impairment charge – other receivables — — — (1.7) —
Other direct income — 0.2 — 0.1 —
Operating profit / (loss)² 21.8 3.3 (0.5) 0.2 (0.3)
Financial income
Financial expense
Income tax credit
Non-controlling interest
Loss attributable to equity holders of the parent company
Segment assets 602.2 401.4 177.1 189.6 —
Segment liabilities 603.2 194.0 314.1 306.0 —
Capital expenditure 12.0 5.6 2.3 5.7 —
Operating segments United Kingdom South Africa
US$ million Corporate and treasury Beneficiation (3) Inter-segment Consolidated
(6 month period ended 31 December 2019) 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019 1 July 2019 - 31 December 2019
Revenue — 0.1 (0.2) 193.9
Segment result¹ (3.9) — (2.5) 19.5
Impairment charge – other receivables 0.1 — — (1.6)
Other direct income — — — 0.3
Operating profit / (loss)² (3.8) — (2.5) 18.2
Financial income 7.1
Financial expense (38.5)
Income tax credit 3.2
Non-controlling interest 1.3
Loss attributable to equity holders of the parent company (8.7)
Segment assets 3,130.1 13.0 (3,221.7) 1,291.7
Segment liabilities 2,155.2 13.9 (2,610.3) 976.1
Capital expenditure 0.9 — — 26.5
¹ Total depreciation of US$47.0 million included in the segmental result
comprises depreciation incurred at Cullinan US$23.2 million, Finsch US$15.0
million, Koffiefontein US$1.6 million, Williamson US$6.8 million, Exploration
US$0.1 million and Corporate and treasury US$0.3 million.
² Operating loss is equivalent to revenue of US$193.9 million less total
costs of US$175.7 million as disclosed in the Consolidated Income Statement.
(3) The beneficiation segment represents Tarorite, a cutting and polishing
business in South Africa, which can on occasion cut and polish select rough
diamonds.
(4) Assets of US$0.6 million and liabilities of US$nil in respect of the
exploration assets in Botswana were classified as non-current assets held for
sale (refer to note 15 in respect of disposal).
Operating segments South Africa – Mining activities Tanzania -Mining activities Botswana
US$ million Cullinan Finsch Koffiefontein Williamson Exploration (4)
(12 month period ended 30 June 2020) 2020 2020 2020 2020 2020
Revenue 116.5 101.1 25.7 52.5 —
Segment result¹ 21.6 (5.1) (6.2) (19.3) (0.6)
Impairment charge – operations (11.6) (27.6) (11.7) (34.6) —
Impairment charge – other receivables — — — (6.8) —
Impairment of BEE loans receivable – expected credit loss provision — — — — —
Other direct income — 0.7 0.3 1.0 —
Operating loss² 10.0 (32.0) (17.6) (59.7) (0.6)
Financial income
Financial expense
Income tax credit
Non-controlling interest
Loss attributable to equity holders of the parent company
Segment assets 494.0 303.5 135.9 94.5 —
Segment liabilities 566.7 176.6 266.2 297.8 —
Capital expenditure 16.4 8.4 3.8 8.0 —
Operating segments United Kingdom South Africa
US$ million Corporate and treasury Beneficiation (3) Inter-segment Consolidated
(12 month period ended 30 June 2020) 2020 2020 2020 2020
Revenue — — — 295.8
Segment result¹ (8.7) (0.7) (2.4) (21.4)
Impairment charge – operations — — — (85.5)
Impairment charge – other receivables 0.4 — — (6.4)
Impairment of BEE loans receivable – expected credit loss provision (10.9) — — (10.9)
Other direct income — — — 2.0
Operating loss² (19.2) (0.7) (2.4) (122.2)
Financial income 7.9
Financial expense (161.0)
Income tax credit 52.3
Non-controlling interest 33.0
Loss attributable to equity holders of the parent company (190.0)
Segment assets 2,876.6 4.1 (2,865.9) 1,042.7
Segment liabilities 2,018.9 4.8 (2,300.0) 1,031.0
Capital expenditure 1.0 — (1.2) 36.4
¹ Total depreciation of US$78.3 million included in the segmental result
comprises depreciation incurred at Finsch of US$25.8 million, Cullinan of
US$40.4 million, Koffiefontein of US$2.5 million, Williamson of US$9.0
million, Exploration of US$0.1 million and Corporate administration of US$0.5
million.
² Operating loss is equivalent to revenue of US$295.8 million less total
costs of US$418.0 million as disclosed in the Consolidated Income Statement..
(3) The beneficiation segment represents Tarorite, a cutting and polishing
business in South Africa, which can on occasion cut and polish select rough
diamonds.
(4) Assets of US$0.3 million and liabilities of US$nil in respect of the
exploration assets in Botswana were classified as non-current assets held for
sale (refer to note 15 in respect of disposal).
US$ million 1 July 2020 - 31 December 2020 1 July 2019 - 31 December 2019 1 July 2019 - 30 June 2020
5. CORPORATE EXPENDITURE
Corporate expenditure includes:
Depreciation of property, plant and equipment 0.3 0.3 0.5
Amortisation of right-of-use asset 0.1 — 0.3
London Stock Exchange and other regulatory expenses 0.6 0.8 1.4
Share-based expense - Directors 0.2 0.4 0.7
Other staff costs 1.0 1.1 2.0
Total staff costs 1.2 1.5 2.7
6. FINANCING INCOME / (EXPENSE)
US$ million 1 July 2020 - 31 December 2020 1 July 2019 - 31 December 2019 1 July 2019 - 30 June 2020
Net unrealised foreign exchange gains 65.1 2.7 —
Interest received on BEE loans and other receivables 2.7 3.9 6.7
Interest received bank deposits 0.4 0.1 1.2
Realised foreign exchange gains on the settlement of foreign loans and forward exchange contracts 0.8 0.4 —
Financial income 69.0 7.1 7.9
Gross interest on senior secured second lien notes, bank loans and overdrafts (27.6) (25.4) (52.4)
Interest on bank loans and overdrafts capitalised — — —
Net interest expense on bank loans and overdrafts (27.6) (25.4) (52.4)
Other debt finance costs, including BEE loan interest, facility fees and IFRS 16 charges (5.3) (7.6) (13.9)
Unwinding of present value adjustment for rehabilitation costs (2.5) (1.7) (4.9)
Net unrealised foreign exchange losses (1) — — (81.5)
Realised foreign exchange losses on the settlement of foreign loans and forward exchange contracts (4.4) (3.8) (8.3)
Financial expense (39.8) (38.5) (161.0)
Net financial income / (expense) 29.2 (31.4) (153.1)
(1) .The Group predominantly enters into hedge contracts where the risk being
hedged is the volatility in the South African Rand, Pound Sterling and US
Dollar exchange rates affecting the proceeds in South African Rand of the
Group’s US Dollar denominated diamond tenders. The fair value of the
Group’s hedges as at the end of the Period are based on Level 2
mark-to-market valuations performed by the counterparty financial
institutions. The contracts are all short dated in nature and mature within
the next 12 months. A significant strengthening of the South African Rand
against the US Dollar from ZAR17.32 (30 June 2020) to ZAR14.69 (31 December
2020) resulted in an unrealised gain of US$65.1 million (30 June 2020: US$81.5
million loss and 31 December 2019: US$2.7 million gain) comprising foreign
exchange contracts held at Period end of US$13.0 million (30 June 2020:
US$12.8 million loss and 31 December 2019: US$0.7 million loss) and
inter-group foreign denominated loans of US$52.1 million (30 June 2020:
US$68.7 million loss and 31 December 2019: US$3.4 million gain); and a net
realised foreign exchange loss of US$3.6 million (30 June 2020: US$8.3 million
loss and 31 December 2019: US$3.4 million loss) in respect of foreign exchange
contracts closed during the Period is included in the net finance and expense
amount.
7. PROPERTY, PLANT AND EQUIPMENT
The net movement in property, plant and equipment for the Period is an
increase of US$97.5 million (30 June 2020: US$292.0 million and 31 December
2019: US$17.5 million). This is primarily as a result of:
* the movement in the US$/ZAR foreign exchange rate resulting in a foreign
exchange increase on Rand based assets of US$118.7 million (30 June 2020:
US$163.8 million decrease and 31 December 2019: US$3.0 million increase);
* an increase in property, plant and equipment from capital expenditure of
US$8.6 million (30 June 2020: US$36.4 million and 31 December 2019: US$26.5
million),
* an increase in the rehabilitation asset of US$6.2 million (30 June 2020:
US$0.1 and 31 December 2019: US$nil); and
offset by:
* depreciation of US$35.9 million (30 June 2020: US$78.3 million and 31
December 2019: US$47.0 million);
* the impairment of the Cullinan, Finsch, Koffiefontein and Williamson assets
of US$nil (30 June 2020: US$85.5 million and 31 December 2019: US$nil); and
* assets of US$0.1 million (30 June 2020: US$0.7 million and 31 December 2019:
US$nil) disposed of during the Period.
8. LOANS AND BORROWINGS
US$ million 31 December 2020 31 December 2019 30 June 2020
Non-current liabilities
Loans and borrowings – Senior secured second lien notes — 604.8 —
— 604.8 —
Current liabilities
Loans and borrowings – BEE Partner debt facilities 47.2 — 40.0
Loans and borrowings – senior secured lender debt facilities 61.2 — 52.1
Loans and borrowings – senior secured second lien notes 702.0 47.3 676.9
810.4 47.3 769.0
Total loans and borrowings - bank facilities 810.4 652.1 769.0
a) US$650 million Senior Secured Second Lien Notes
A wholly owned subsidiary of the Company, Petra Diamonds US$ 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 1 May and 1 November of each year. The 2022 Notes
are guaranteed by the Company and by the Group’s material subsidiaries and
are secured on a second lien basis on the assets of the Group’s material
subsidiaries.
On 1 May 2020, the Company deferred the coupon repayment due on the Notes to
preserve liquidity within the Group which led to an event of default under the
Notes. On 29 May 2020, the Group entered into a Forbearance Agreement with an
ad-hoc group of Noteholders. Pursuant to the Forbearance Agreement, as a
result of the event of default due to the non-payment of the coupon, the AHG
agreed to forbear from the exercise of certain rights and remedies that they
have under the Notes indenture, including agreeing not to accelerate the Notes
obligations as a result of the missed interest payment. Under the terms of the
indenture, the failure by the Group to pay the coupon on the Notes created an
event of default. The extension of the Forbearance Agreement is at the
discretion of the AHG and thus the Company does not have the unconditional
right to defer the coupon repayment beyond a period of 12 months. Accordingly
as at 30 June 2020 and 31 December 2020, the Company recorded the outstanding
obligation of the capital and interest in the Consolidated Statement of
Financial Position under current loans and borrowings.
Further details about the 2022 Notes (including security) are included in the
Group’s FY 2020 Annual Report.
b) Senior Secured Lender Debt Facilities
The Group’s South African Lender Group (Absa Corporate and Investment
Banking (“Absa”), FirstRand Bank Limited (acting through its Rand Merchant
Bank division) (“RMB”), and Nedbank Limited) and lending facilities are
detailed in the table below. There have been no amendments to the facilities
during the period under review.
Due to the deferment of the Notes coupon on 1 May 2020, explained in (a)
above, an event of default occurred under the terms of the debt facilities
held with the South African Lender Group. On 29 May 2020, the Company entered
into an Amendment Agreement with the South African Lender Group amending the
terms of the RCF and WCF. The extension of the Amendment Agreement is at the
discretion of the South African Lender Group and thus the Company does not
have the unconditional right to defer the coupon repayment beyond a period of
12 months and shall remain in default until the default is remedied.
Accordingly as at 30 June 2020 and 31 December 2020, the Company recorded the
outstanding obligation of US$52.1 million and US$61.2 million respectively in
the Consolidated Statement of Financial Position under current loans and
borrowings. For further detail regarding the terms agreed with the South
African Lender Group post Period-end refer to note 16.
The amendments to the RCF and WCF were:
* resetting the maturity date of the RCF to 31 July 2021 (previously 20
October 2021);
* increasing the margin on the WCF provided by Absa and RMB by 100 bps to
match the South African prime lending rate; and
* the margin on the RCF increasing to 9% above SA JIBAR (5% above SA JIBAR).
The Group's debt and hedging facilities are detailed in the table below:
Senior Lender Debt Facilities 31 December 2020 31 December 2019 30 June 2020
Facility amount Facility amount Facility amount
ZAR Debt Facilities:
ZAR Lenders RCF ZAR400 million ZAR1,000 million ZAR400 million
ZAR Lenders WCF ZAR500 million ZAR500 million ZAR500 million
Absa/RMB – FX Hedging facilities ZAR300 million ZAR300 million ZAR300 million
The terms and conditions of the Group facilities are detailed in the Group’s
FY 2020 Annual Report.
The facilities are secured on the Group’s interests in Cullinan, Finsch,
Koffiefontein and Williamson.
As at date of this report, both the RCF and WCF were fully drawn.
Covenant ratios
There have been no changes to the covenant ratios during the Period under
review.
12 months to 31 Dec 2020 12 months to 30 Jun 2021
Consolidated Net Debt to Consolidated EBITDA: ? 3.25x ? 3.0x
Consolidated EBITDA to Consolidated Net Finance Charges: ? 3.0x ? 3.25x
Consolidated Net Senior Debt to Book Euity: < 0.4x < 0.4x
As part of the Amendment agreement entered into with the South African Lender
Group, the Company is required, in addition to its existing covenant ratios
(as above), to maintain certain liquidity requirements. The liquidity
requirements mean the aggregate of the undrawn amounts available under the RCF
and WCF and consolidated cash and cash equivalents (excluding diamond debtors)
shall not fall below ZAR200 million (US$13.6 million).
Refer to the Financial Review for further commentary with regards to
covenants.
c) BEE Partner debt facilities
On 29 May 2020, the BEE Lenders agreed to amend the BEE Lender facility
capital repayment profile of the outstanding balance. The balance, which was
to be settled in three instalments, November 2020, May 2021 and November 2021,
will now have a final single bullet repayment date of 31 July 2021. The BEE
Lender facility bears interest at SA JIBAR plus 9.0%. The fees incurred for
the amendment includes a 50 bps fee to the BEE Lenders referenced against the
current principal amount outstanding under the BEE Facilities. The outstanding
obligation has been disclosed under current loans and borrowings as a result
of the event of default and the facility becomes immediately repayable for
reasons described in note 8. For events subsequent to Period end affecting the
BEE Lender facility refer to note 16.
Commercial terms agreed in principle with the AHG and South African Lender
Group
Further to the disclosure above, on 20 October 2020, the Company announced it
had reached agreement in principle on a common set of commercial terms with
respect to a long-term solution for the recapitalisation of the Group (“the
Restructuring") with each of the AHG and the South African Lender Group. The
key features of the proposed Restructuring are as follows:
* partial reinstatement of the Notes debt and the contribution by holders of
the existing Notes of US$30.0 million in new money, each to take the form of
new senior secured second lien notes ("New Notes"). It is expected that the
New Notes will amount to approximately US$337.0 million (including the new
money and fees paid as part of the transaction in New Notes);
* conversion of the remainder of the Notes debt into equity, which will result
in the Noteholder group holding 91% of the enlarged share capital of PDL;
* restructuring of the first lien facilities provided by the South African
Lender Group; and
* new governance arrangements and cashflow controls.
1. Reinstatement of Notes debt and New Money
All Noteholders shall have a right to subscribe for a portion of US$30.0
million of new money to be provided by Noteholders to Petra Diamonds US$
Treasury plc (“the New Money”), pro rata to their holdings of the
Notes. The New Money will be structured to incentivise participation by
Noteholders, including through the treatment of their existing Notes debt (as
further described below), and backstopped by certain of the Noteholders.
A portion of the existing Notes debt will be reinstated alongside the New
Money notes, each to be reinstated in the form of New Notes. The New Notes
will be allocated as follows:
1. US$30.0 million (reflecting the New Money) allocated only to those
Noteholders that contribute New Money, pro rata to their New Money
contribution;
2. US$150.0 million allocated only to those Noteholders that contribute New
Money, pro rata to each holder’s contribution to the New Money (reflecting a
ratio of 5.0:1);
3. US$145.0 million allocated to all Noteholders, pro rata to their holdings
of existing Notes at the close of the Restructuring; and
4. a further amount of New Notes as consideration to certain Noteholders,
including the AHG, for their support and efforts expended in connection with
the Restructuring. It is expected that the quantum of New Notes issued for
this purpose will be approximately US$12.0 million.
Material terms of the New Notes:
1. Interest rate (payable every six months) of 10.50%. Payment in kind for the
first 24 months and 9.75% cash pay thereafter.
2. Maturity date: five years from date of completion.
3. Non-call protection: two-year non-call protection (customary make-whole),
and coupon step-down profile thereafter at 104.88, 102.44, then par.
4. Covenants: customary for financing of this type, including: (i) a change of
control provision requiring a change of control offer at 101%; and (ii) a
minimum liquidity covenant.
5. Guarantors, security and ranking: second-ranking guarantees and security to
be provided on substantially the same terms as under the existing Notes, with
certain amendments to be agreed in line with corporate restructuring
steps. Enhancements to security package to be agreed, including, but not
limited to, security over intra-group offtake receivables and inventory at all
relevant points in supply chain until inventory is sold to third parties (but
only to extent of not constraining operations or incurring material additional
duties or fees). Any enhancements shall also be included in the first lien
security package.
6. Inter-creditor arrangements: to reflect second-ranking guarantees and
security and certain additional inter-creditor arrangements including payment
stops (including limitations on paying cash interest) and enforcement
limitations, subject to the requirements and covenants of the first lien debt
(including compliance with a first lien debt service cover ratio (see Section
3 below for further details), amount drawn under the new Revolving Credit
Facility ("RCF") of no more than ZAR400.0 million at the time of and for two
weeks following the interest payment and a minimum unrestricted cash covenant
of US$20.0 million).
The above arrangements with respect to the Notes shall be effected through an
English law scheme of arrangement under part 26 of the Companies Act 2006.
The holders of the New Notes will be granted certain rights, and some ongoing
financial oversight, over the business of the Group, including with respect to
governance and cashflow controls.
2. Equity
The remainder of the existing Notes debt will be exchanged for equity in the
Company (“the Debt for Equity"), pursuant to which new Ordinary Shares in
Petra Diamonds Limited (“PDL”) will be issued to the Noteholders in
consideration for the assignment of existing Notes debt. The Debt for Equity
will result in the Noteholder group holding 91% of the enlarged share capital
of PDL in the following proportions:
(a) 56.0% of the enlarged share capital to be issued to all Noteholders,
pro rata to their holdings of existing Notes at the close of the Restructuring
(and to the extent any Noteholder does not take up their entitlement, such
entitlement will be allocated to the remaining Noteholders who have not opted
out of their equity entitlement, on a pro rata basis); and
(b) 35.0% of the enlarged share capital to be issued to those Noteholders
that elect to contribute towards the New Money only, pro rata to their
contribution of New Money (and to the extent any such Noteholders do not take
up their entitlement, such entitlement will be allocated to the remaining
Noteholders (that are participating in the New Money and who have not
opted-out of their equity entitlement) on a pro rata basis).
As a consequence of the Debt for Equity, at least 9% of the enlarged PDL share
capital will remain with the existing PDL shareholders (subject to dilution as
a result of standard management equity incentive arrangements). The Debt for
Equity as currently constituted was approved by the existing shareholders of
the Company at an EGM of the Company held on 13 January 2021.
3. Arrangements with the South African Lender Group
The various existing arrangements with the South African Lender Group,
including the ZAR500.0 million WCF, the ZAR400.0 million RCF, the financing
arrangements in respect of the Group's BEE Partners (“the BEE Facilities")
and the Group's general banking facilities will (subject to credit committee
approval) be restructured as part of the Restructuring.
The new bank facilities will comprise the following, on a first lien basis and
on substantially the same terms (or better for the Group) as under the
existing documentation:
(a) Term loan
(i) Available in a principal amount of ZAR1.2 billion (ca. US$69
million), borrowed by existing obligors in the Group (to be agreed) in order
to refinance the existing drawn ZAR500 million (ca. US$29 million) WCF and the
BEE Facilities (approximately ZAR683 million (ca. US$39 million)).
(ii) Final maturity date: three years from date of
completion.
(iii) Scheduled amortisation of 9% of principal per quarter
(starting in June 2021) with a final 10% of principal repayment at maturity.
(iv) 1.3x debt service cover ratio tested semi-annually on a
rolling 12-month basis, which if breached will give rise to an event of
default under the new bank facilities.
(v) Interest rate of JIBAR + 5.25% per annum (with an upfront
fee of 1% of the term loan amount to be capitalised).
(b) RCF
(i) Available in a principal amount of ZAR560.0 million (ca.
US$32 million) constituted by a rollover of the existing RCF but upsized by
ZAR160 million (ca. US$9 million).
(ii) Final maturity date: three years from completion.
(iii) Scheduled reduction in the committed amount under the RCF
of 9% of the total initial commitments per quarter (starting in June 2021)
with a final 10% reduction at maturity.
(iv) 1.3x debt service cover ratio tested semi-annually on a
rolling 12-month basis, which if breached will give rise to an event of
default under the new bank facilities.
(v) Interest rate of JIBAR + 5.25% per annum (with an upfront
fee of 1% of the RCF amount to be capitalised and a commitment fee based on
undrawn balances).
Derivative, guarantee, foreign exchange and intra-day exposure lines up to an
agreed amount consistent with current requirements and on substantially the
same terms as the Group's existing arrangements. The existing arrangements
will be rolled over to provide hedging against foreign exchange risk on the
same terms as the Group's existing arrangements.
For further detail on the Restructuring post Period end refer to note 16.
9. COMMITMENTS
As at 31 December 2020, the Company had committed to future capital
expenditure totalling US$8.2 million (30 June 2020: US$4.4 million and 31
December 2019: US$5.9 million), mainly comprising Cullinan US$5.7 million (30
June 2020: US$2.0 million 31 December 2019: US$2.5 million), Finsch US$1.8
million (30 June 2020: US$1.4 million 31 December 2019: US$2.3 million),
Koffiefontein US$0.7 million (30 June 2020: US$0.3 million 31 December 2019:
US$0.4 million) and Williamson US$nil (30 June 2020: US$0.7 million and 31
December 2019: US$0.7 million).
10. RELATED PARTY TRANSACTIONS
The Group’s related party BEE partners, Kago Diamonds (Pty) Ltd (“Kago
Diamonds”) and its gross interests in the mining operations of the Group are
disclosed in the table below.
Mine Partner and respective interest as at 31 December 2020 (%) Partner and respective interest as at 31 December 2019 (%) Partner and respective interest as at 30 June 2020 (%)
Cullinan Kago Diamonds (14%) Kago Diamonds (14%) Kago Diamonds (14%)
Finsch Kago Diamonds (14%) Kago Diamonds (14%) Kago Diamonds (14%)
Koffiefontein Kago Diamonds (14%) Kago Diamonds (14%) Kago Diamonds (14%)
The IPDET holds a 12% interest in each of the Group’s South African
operations, with Petra’s commercial BEE Partners holding the remaining 14%
interest through their respective shareholdings in Kago Diamonds, in which
Petra has a 31.46% interest. The effective interest percentages attributable
to the remaining operations for the Group’s shareholders, as a result of the
restructuring, are disclosed in the table below:
Mine Resultant Group’s effective interest %
Cullinan 78.4
Finsch 78.4
Koffiefontein 78.4
The non-current loans receivable, non-current loans payable, finance income
and finance expense due from and due to the related party BEE partners and
other related parties are disclosed in the table below:
US$ million 31 December 2020 31 December 2019 30 June 2020
Non-current receivable
Kago Diamonds (1) 92.9 64.4 72.1
92.9 64.4 72.1
Non-current payable
Kago Diamonds 71.9 69.0 58.5
71.9 69.0 58.5
Current trade and other receivables
KEM JV (2) 9.4 8.5 8.0
Impairment provision (2) (8.1) (7.3) (6.9)
1.3 1.2 1.1
1 July 2020 - 31 December 2020 1 July 2019 - 31 December 2019 1 July 2019 - 30 June 2020
Finance income
Kago Diamonds 2.1 2.8 5.1
2.1 2.8 5.1
Finance expense
Kago Diamonds 2.6 3.6 6.4
2.6 3.6 6.4
¹ The movement in the Kago Diamonds receivable of US$20.8 million is mainly
attributable to amounts advanced to Kago Diamonds during the Period totalling
US$2.8 million (30 June 2020: US$7.7 million and 31 December 2019: US$6.3
million), a foreign exchange increase of US$15.5 million (30 June 2020: US$7.7
million decrease and 31 December 2019: US$6.3 million decrease) and offset by
the reversal of prior period expected credit loss provision of US$2.5
million (30 June 2020: US$5.4 million impairment and 31 December 2019:
US$nil).
(2) Included in current trade and other receivables are amounts advanced to
KEM JV in respect of a working capital facility and equipment finance facility
of US$nil (30 June 2020: US$nil and 31 December 2019: US$8.5 million) and the
balance of the KEM JV purchase consideration of US$1.1 million (30 June 2020:
US$1.1 million and 31 December 2019: US$3.1 million). During FY H1 2021 the
Group received payments of US$nil (FY 2020 US$0.4 million) from the KEM JV as
part settlement of the outstanding purchase consideration. The Group has
applied the expected credit loss impairment model to the KEM JV receivables,
taking into account various factors, and the expected credit loss was deemed
to be US$8.1 million (30 June 2020: US$6.9 million and 31 December 2019:
US$7.3 million). The increase in the expected credit loss is attributable to
the movement in the foreign exchange rates during the Period.
Kago Diamonds is one of the BEE partners which obtained bank financing from
ABSA, RMB and Ninety-One (the “BEE Lenders”) to acquire its interests in
Cullinan and Finsch. The Group has provided a guarantee to the BEE Lenders for
repayment of loans advanced to the Group’s BEE Partners (refer to note 8 for
further detail).
Rental income receivable
The Group received US$0.1 million (30 June 2020: US$0.1 million and 31
December 2019: US$0.1 million) from Alufer Mining Ltd. The Group has US$0.3
million (30 June 2020: US$0.3 million and 31 December 2019: US$0.3 million)
receivable from Pella Resources Ltd and US$nil (30 June 2020: US$0.1 million
and 31 December 2019: US$nil) receivable from Alufer Mining Ltd, both
companies of which Mr Pouroulis is a director. Mr Pryor is a director of
Alufer Mining Ltd.
11. BEE LOANS RECEIVABLE AND PAYABLE
US$ million 31 December 2020 31 December 2019 30 June 2020
Non-current assets
Loans and other receivables 175.1 125.9 137.0
Non-current liabilities
Trade and other payables 133.4 128.1 108.6
BEE Loans Receivable
The non-current BEE loans receivable represents those amounts receivable from
the Group’s BEE Partners (Kago Diamonds and the IPDET) in respect of,
advances historically provided to the Group’s BEE Partners to enable them to
discharge interest and capital commitments under the BEE Lender facilities,
advances to the BEE Partners to enable trickle payment distributions to both
Kago Diamonds shareholders and to the beneficiaries of the IPDET (Petra
Directors and Senior Managers do not qualify as beneficiaries under the IPDET
Trust Deed), and financing of their interests in the Koffiefontein mine. In
addition, US$47.2 million (30 June 2020: US$40.0 million and 31 December 2019:
US$nil) has been recorded as part of the gross receivable (before expected
credit loss provisions) in respect of amounts to be reimbursed to the Group in
respect of the guarantee under the BEE Lender facilities. Judgment was
required in determining the extent to which reimbursement is applicable based
on the terms of the agreements, South African legislation and discussions with
the BEE partners.
As a result of historical delays in the Cullinan plant ramp-up and the Finsch
SLC ramp-up, the Group has historically and through the Period elected to
advance the BEE Partners’ funds using Group treasury to enable the BEE
Partners to service their interest and capital commitments under the BEE
Lender facilities (refer below). These BEE receivables, including interest
raised, will be recoverable from the BEE Partners’ share of future cashflows
from the underlying mining operations less any offset agreements reached
between the parties which are proposed to create a reduced net receivable.
As part of the in principle agreement reached during the Period as part of the
Restructuring, Petra will assume the BEE Lender facility obligations under the
terms outlined in note 8.
The Group has applied the expected credit loss impairment model to its
financial assets and the BEE loans receivable. In determining the extent to
which expected credit losses may apply, the Group assessed the probability of
agreeing an offset of the gross receivable and payable balances and the future
free cashflows to be generated by the mining operations, based on the current
LOM plans. In assessing the future cashflows, the Group considered a
probability weighted range of diamond price outlooks. Based on the assessment,
the analysis generated a reversal of the expected credit loss provision during
the Period totalling US4.6 million (30 June 2020: US$10.9 million impairment
and 31 December 2019: US$nil), comprising of US$4.6 million (30 June 2020:
US$6.1 million and 31 December 2019: US$nil) in respect of Cullinan and Finsch
and US$nil (30 June 2020: US$4.8 million and 31 December 2019: US$nil) in
respect of Koffiefontein. The main factor contributing to the reversal of the
expected credit loss provision during the Period is the assumption relating to
the probability of the BEE receivables being offset against the BEE payables.
Management considered the current status of the Restructuring and was of the
opinion that probability of successful completion have improved when compared
to 30 June 2020 given the various approvals received by the Scheme creditors,
current shareholders at the SGM and the approval received from Financial
Surveillance Department of the South African Reserve Bank.
US$ million 1 July 2020 - 31 December 2020 1 July 2019 - 31 December 2019 1 July 2019 - 30 June 2020
As at 1 July 137.0 109.6 109.6
Foreign exchange movement on opening balance 25.8 2.1 (22.5)
Discretionary advance – capital and interest commitment (BEE Lender facility) 2.9 9.3 12.2
Discretionary advance – distributions to beneficiaries 2.1 2.0 1.9
Interest receivable 2.7 2.9 6.7
Group guarantee provided to BEE Lenders – default event under Notes (refer below) — — 40.0
Reversal / (impairment) of BEE loans receivable – expected credit loss provision 4.6 — (10.9)
As at 30 June 175.1 125.9 137.0
BEE loans payable
BEE loans payable represent those loans advanced by the BEE partners to the
Group to acquire their interest in Cullinan and Finsch. Details of the
movements are set out below.
US$ million 1 July 2020 - 31 December 2020 1 July 2019 - 31 December 2019 1 July 2019 - 30 June 2020
As at 1 July 108.6 120.5 120.5
Foreign exchange movement on opening balance 20.0 1.0 (23.8)
Interest payable 4.8 6.6 11.9
As at 30 June 133.4 128.1 108.6
Group guarantee provided to BEE Lenders
The BEE Partners obtained bank financing from ABSA, RMB and Investec (“the
BEE Lenders”) to refinance amounts owing by the BEE Partners to Petra, which
had provided funding to the BEE Partners to enable them to acquire their
interests in Cullinan and Finsch. As part of historical refinancing
arrangements the Group provided a guarantee to the BEE Lenders over the
repayment of loans advanced to the Group’s BEE Partners. The BEE Partners
were expected to settle their loan obligations with the BEE Lenders from their
share of future operational cashflows from the South African operations,
either through repayment of the amounts owing to the BEE Partners by Petra or
through recoverable advances provided by Petra from Group treasury. During
FY2019, judgement has been applied by management in assessing the risk of the
BEE Partners defaulting under their obligations to the BEE Lenders. Management
had considered the Group’s future cashflow forecasts and its ability to
meet, at its discretion, planned forecast BEE Partner distributions.
Accordingly management was of the opinion that the risk of default by the BEE
Partners to the BEE Lenders was remote.
As disclosed in Note 1.1, in May 2020, the Company deferred the coupon
repayment due on the Notes to preserve liquidity and entered into a
Forbearance Agreement in respect of the Notes with the AHG and an Amendment
Agreement in respect of its banking facilities with the South African Lender
Group, including the South African BEE Lender Group. Under the terms of the
BEE guarantee, the failure by the Group to pay the coupon on the Notes created
an event of default under the BEE Lender facility. The revised terms under the
banking facilities Amendment Agreement reset the capital repayment profile to
31 July 2021; however; if the Forbearance Agreement is not extended by the AHG
and the South African Lender Group then the BEE Lender facility becomes
immediately payable. The Company does not have the unconditional right to
defer the coupon repayment beyond a period of 12 months and thus is unable to
control the extension of the Forbearance Agreement. Accordingly as at 31
December 2020, the Company recorded the outstanding obligation of US$47.2
million (30 June 2020: US$40.0 million and 31 December 2019: US$nil) under
current loans and borrowings and recognised an equivalent receivable due from
the BEE Partners to the Company as detailed above.
The BEE Lender facility forms part of Petra’s Consolidated Net Debt for
Petra’s covenant measurement purposes and is subject to the same covenant
requirements (refer to note 8 for further detail).
12. EARNINGS PER SHARE
Total 1 July 2020 - 31 December 2020 US$ Total 1 July 2019 - 31 December 2019 US$ Total 30 June 2019 US$
Numerator
Profit / (loss) for the Period 54,571,655 (8,719,448) (190,021,687)
Denominator
Shares Shares Shares
Weighted average number of ordinary shares used in basic EPS
Brought forward 865,431,343 865,336,485 865,336,485
Effect of shares issued during the Period — 31,619 63,152
Carried forward 865,431,343 865,368,104 865,399,637
Shares Shares Shares
Dilutive effect of potential ordinary shares — — —
Weighted average number of ordinary shares in issue used in diluted EPS 865,431,343 865,368,104 865,399,637
US cents US cents US cents
Basic profit / (loss) per share – US cents 6.31 (1.01) (21.96)
Diluted profit / (loss) per share – US cents 6.31 (1.01) (21.96)
The number of potentially dilutive ordinary shares, in respect of employee
share options, Executive Director and Senior Management share award schemes is
nil (30 June 2020: nil and 31 December 2019: nil).
13. 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.
Total 1 July 2020 - 31 December 2020 US$ Total 1 July 2019 - 31 December 2019 US$ Total 30 June 2020 US$
Numerator
Profit / (loss) for the Period 54,571,655 (8,719,448) (190,021,687)
Net unrealised foreign exchange loss / (gain) (49,936,067) (2,724,502) 64,036,456
Present value discount – Williamson VAT receivable* 211,488 1,330,696 6,816,715
Profit on disposal including associated impairment (14,696,171) — —
Impairment charge - operations* — — 74,524,791
Impairment/(reversal) charge – other receivables — — (382,713)
(Reversal) / impairment charge of BEE loans receivable – expected credit loss provision (4,585,295) — 10,887,714
Taxation charge / (credit) on unrealised foreign exchange (gain) / loss 15,165,971 673,166 (17,396,618)
Taxation credit on impairment charge* — — (8,595,566)
Adjusted profit / (loss) for the Period attributable to parent 731,581 (9,440,088) (60,130,908)
*Portion attributable to equity shareholders of the Company
Denominator
Shares Shares Shares
Weighted average number of ordinary shares used in basic EPS
As at 1 July 865,431,343 865,336,485 865,336,485
Effect of shares issued during the Period — 31,619 63,152
Carried forward 865,431,343 865,368,104 865,399,637
Shares Shares Shares
Dilutive effect of potential ordinary shares — — —
Weighted average number of ordinary shares in issue used in diluted EPS 865,431,343 865,368,104 865,399,637
US cents US cents US cents
Adjusted basic profit / (loss) per share – US cents 0.08 (1.09) (6.95)
Adjusted diluted profit / (loss) per share – US cents 0.08 (1.09) (6.95)
14. IMPAIRMENT CHARGE
The continued downturn in the global rough diamond market, impact of the
COVID-19 pandemic and variability in product mix have severely impacted rough
diamond prices achieved by Petra, resulting in management taking a critical
review of the Group’s business models and operational assets. The carrying
amounts of the Group’s assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If there is any
indication that an asset may be impaired, its recoverable amount is estimated.
The recoverable amount is determined on a fair value less cost to develop
basis.
The operations of Cullinan, Finsch, Koffiefontein and Williamson are held at
recoverable value as a result of FY2020 impairments. During the Period under
review, the Group reviewed the carrying value of its investments, loan
receivables and operational assets for indicators of impairment. Following the
assessment, no further impairment of property, plant and equipment was
considered appropriate for Cullinan, Finsch, Koffiefontein and Williamson, nor
was any impairment reversal considered appropriate in the current Period. The
Group recognised a consolidated income statement charge of US$0.2 million
comprising management’s estimate of the recoverability of the Tanzania VAT
receivable.
.
Impairment (US$ million) Asset class Carrying value pre impairment Impairment Carrying value post impairment
Impairment – non-financial receivables:
Other – non-current Tanzania VAT receivable (refer to note 2) 10.8 (0.2) 10.6
Total 10.8 (0.2) 10.6
31 December 2019
During the 6 month period ending 31 December 2019, the Group reviewed the
carrying value of its investments, loan receivables and operational assets for
indicators of impairment. Following the assessment, no impairment of property,
plant and equipment was considered appropriate for Cullinan, Finsch,
Koffiefontein and Williamson. The Group recognised a net consolidated income
statement charge of US$1.6 million comprising of US$1.7 million, being
management’s estimate of the recoverability of the Tanzania VAT receivable,
and recoupment of US$0.1 million previously impaired in respect of the KEM JV
receivable.
Details of the impairment assessment are shown below:
Impairment (US$ million) Asset class Carrying value pre impairment Impairment Carrying value post impairment
Impairment – non-financial receivables:
Other Tanzania VAT receivable (refer note 2) 15.2 (1.7) 13.5
Other KEM JV recoupment of receivable (0.1) 0.1 —
Total 15.1 (1.6) 13.5
30 June 2020
During FY 2020, the Group reviewed the carrying value of its investments, loan
receivables and operational assets for indicators of impairment. Following the
assessment, impairment of property, plant and equipment were considered
appropriate for Cullinan, Finsch, Koffiefontein and Williamson. The Group
recognised a consolidated income statement charge of US$85.5 million being
management’s estimate of recoverable value of the Cullinan, Finsch,
Koffiefontein and Williamson assets.
Impairment (US$ million) Asset class Carrying value pre impairment Impairment Carrying value post impairment
Impairment operations:
Cullinan Property, plant & equipment 250.1 (27.6) 222.5
Finsch Property, plant & equipment 475.2 (11.6) 463.6
Koffiefontein Property, plant & equipment 17.4 (11.7) 5.7
Williamson Property, plant & equipment 101.3 (34.6) 66.7
Sub-total 844.0 (85.5) 758.5
Impairment – non-financial receivables:
Other – reversal current Other receivables — 0.4 0.4
Other – non-current Tanzania VAT receivable (refer to note 2) 17.1 (6.8) 10.3
Sub-total 17.1 (6.4) 10.7
Total 861.1 (91.9) 769.2
Cullinan, Finsch, Koffiefontein and Williamson impairment considerations and
assumptions
The Group performs impairment testing on an annual basis of all operations and
when there are potential indicators of impairment. The impairment testing
performed resulted in impairments of the Cullinan, Finsch, Koffiefontein and
Williamson assets. The key assumptions used in determining the recoverable
value calculations, determined on fair value less cost to develop basis, are
listed in the table below:
Group assumptions for 31 December 2020 and 30 June 2020:
Key assumptions Explanation
LOM and recoverable value of reserves and resources Economically recoverable reserves and resources are based on management’s expectations based on the availability of reserves and resources at mine sites and technical studies undertaken in house and by third party specialists. The LOM for the operations
are as follows: Cullinan: FY 2029 (FY 2020: FY 2029) Finsch: FY 2030 (FY 2020: FY 2030) Koffiefontein: FY 2023 (FY 2020: FY 2023) Williamson: FY 2030 (FY 2020: FY 2030) Resources remaining after the current LOM plans have not been included in impairment
testing for the operations.
LOM reserves and resources Finsch: LOM plan over the next ten years; total resource processed 31.6 Mt (FY 2020: LOM plan over the next 10 years; total resource processed 33.0 Mt).
Cullinan: LOM plan over the next nine years; total resource processed 35.7 Mt (FY 2020: LOM plan over the next 9 years; total resource processed 37.8 Mt).
Koffiefontein: LOM plan over the next three years; total resource processed 2.4 Mt (FY 2020: LOM plan over the next 3 years; total resource processed 2.9 Mt).
Williamson: LOM plan over the next nine years; total resource processed 49.3 Mt (FY 2020: LOM plan over the next 9 years; total resource processed 49.3 Mt).
LOM – capital expenditure Management has estimated the timing and quantum of the capital expenditure based on the Group’s current LOM plans for each operation. There is no inclusion of capital expenditure to enhance the asset beyond exploitation of the LOM plan orebody.
Residual Value Cullinan: Management included a residual value of property, plant and equipment to be used beyond the current LOM given the significant resource base estimated to be available at the end of the current LOM. No residual values were included in the
impairment assessments of the other mining operations.
Diamond prices The diamond prices used in the impairment test have been set with reference to recently achieved pricing and market trends, and long-term diamond price escalators are informed by industry views of long-term market supply/demand fundamentals. Given the
current market uncertainty, the assessment of short-term diamond prices and the rate and extent of pricing recovery, together with the longer-term pricing escalators, represented a critical judgement. The 31 December 2020 impairment testing models
starting price assumptions remain unchanged when compared to the 30 June 2020 impairment models. Diamond prices have been assumed to increase from FY2022 and FY2023 returning to pricing levels achieved before the impact of COVID-19, representing an
increase of 25%-30% from pricing achieved at the lowest point during FY2020.. The long-term models incorporate normalised diamond price escalation of 1.8% above a long-term US inflation rate of 2.5% per annum from FY 2024 to FY 2030. Estimates for the
contribution of Exceptional Diamonds sold for more than US$5.0 million each are determined with reference to historical trends. 30 June 2020 impairment testing models incorporated diamond prices impacted by the COVID-19 pandemic with expected diamond
prices returning to pre-COVID-19 adjusted long-term average by FY 2024. The long-term models incorporate normalised diamond price escalation of 1.8% above a long-term US inflation rate of 2.5% per annum from FY 2024 to FY 2030. Estimates for the
contribution of Exceptional Diamonds sold for more than US$5.0 million each are determined with reference to historical trends.
Discount rate A ZAR discount rate ranging from 11.60% to 16.00% (30 June 2020: 11.60 to 16.00%) was used for the South African operations and a USD discount rate of 13.5% (30 June 2020: 13.5%) for Williamson. Discount rates calculated based on a nominal weighted average
cost of capital including the effect of factors such as market risk and country risk as at the Period end. USD and ZAR discount rates are applied based on respective functional currency of the cash generating unit.
Cost inflation rate Long-term inflation rates of 3.5%–7.5% (30 June 2020: 6.0%–9.8%) above the long-term US$ inflation rate were used for Opex and Capex escalators.
Exchange rates Exchange rates are estimated based on an assessment of current market fundamentals and long-term expectations. The US$/ZAR exchange rate range used for all South African operations commenced at ZAR15.00 (30 June 2020: ZAR16.00) reflecting the current
volatility experienced during H1 FY2021, ZAR16.00 (30 June 2020: ZAR16.00) during FY2022 before further devaluing at 3.5% (30 June 2020: 3.5% from FY2023) per annum thereafter. Given the volatility in the USD/ZAR exchange rate and the current levels of
economic uncertainty the determination of the exchange rate assumptions required significant judgement.
Valuation basis Discounted present value of future cash flows.
Williamson During the Period, Williamson remained on care and maintenance. For impairment testing at Williamson, management have not changed the assumptions when compared to FY 2020. During FY2020, Williamson was placed on care and maintenance. For impairment
testing at Williamson, management assumed that operations would recommence from 1 July 2021 at normal monthly costs. However if the recommencement of operations was delayed by six months, the impact would be an impairment of US$7.7 million.
Sensitivity analysis
The impact of applying reasonable downside sensitivities on the key inputs
based on management’s assumptions at 31 December 2020 is noted below:
Impairment charge
(US$ million) Cullinan Finsch Koffiefontein Williamson
Base case
Increase in discount rate by 2% -36.1 -1.9 -0.5 -4.9
Reduction in pricing by 5% over Life of Mine -47.5 -21.0 -3.1 -16.9
Reduction in short-term production by 10% -34.1 -1.3 -7.8 -0.7
Increase in Opex by 5% -22.7 0 -1.8 -26.1
Strengthening of the ZAR from US$/ZAR16.00 to US$/ZAR15.00 -61.3 -31.0 -2.8 n/a
15. DISPOSAL OF OPERATIONS
Botswana (exploration)
On 20 July 2020 the Company announced that it had entered into an agreement to
dispose of its exploration assets in Botswana via the sale of 100% of its
holding in Sekaka Diamonds Exploration (Pty) Limited (previously known as
Petra Diamonds Botswana (Pty) Limited) (“Sekaka Diamonds”) to Botswana
Diamonds PLC for a total consideration of US$300,000 and a 5% royalty on
future diamond revenues should any of the prospects within the exploration
licences be brought into production.
The assets of Sekaka Diamonds include the Company’s three existing
Prospecting Licenses in Botswana, which includes the KX36 project, a 3.5
hectare kimberlite that was a new discovery by Petra in 2010, as well as a
bulk sampling plant. These assets have been classified as 'Assets held for
sale' since 30 June 2018 following a decision by the Board to dispose of its
Botswana exploration assets; the disposal of Sekaka was not a result of the
recent sales process, as announced on 26 June 2020, undertaken by the Group
with respect to the debt Restructuring.
The purchase price of US$300,000 will be payable in two equal instalments of
US$150,000 each, on or before 31 August 2021 and 31 August 2022 respectively.
Petra is also entitled to a 5% royalty on the sale of diamonds commercially
produced from any kimberlite which falls within the licence areas covered in
the sale. Botswana Diamonds has the option to buy-out the royalty for a cash
payment of US$2.0 million.
The acquisition completed during November 2020.
Effect of the transaction
The transaction had the following effect on the Group’s assets and
liabilities:
1. Net assets of Sekaka Diamonds:
US$ million As at 30 November 2020
Mining property, plant and equipment 0.2
Trade and other receivables —
Non-current assets held for sale 0.2
Trade and other payables —
Non-current liabilities associated with non-current assets held for sale —
Net assets disposed 0.2
1. Post tax loss on disposal of Sekaka Diamonds at:
US$ million Period ended 30 November 2020
Fair value consideration receivable on disposal 0.3¹
Less: net assets disposed of (0.2)
Add: foreign currency translation recycled on disposal 13.3
Profit on disposal 13.4
Add: net profit for the Period² 1.3
Profit on disposal including associated impairment, net of tax 14.7
¹ The Company has attributed US$nil fair value to the 5% royalty given the
uncertainty and time taken to convert an exploration project to a commercially
viable mine.
² The Company incurred US$0.1 million in cash costs during the Period.
16. EVENTS AFTER THE REPORTING PERIOD
The Restructuring
On 8 January 2021, the Company obtained approval for the Proposed Scheme of
Arrangement of Petra Diamonds US$ Treasury Plc (“the Scheme”) by the
requisite majority of Scheme Creditors at the Scheme Meeting (being a majority
in number, representing at least 75 per cent. in value of the Scheme Creditors
present and voting).
On 12 January 2021, the Company obtained approval that the Scheme in
connection with the Notes was sanctioned by the High Court of Justice of
England and Wales at the Scheme Sanction Hearing which took place before Bacon
J at 10.30 a.m. (London time).
On 13 January 2021, a Special General Meeting was held whereby ordinary
shareholders of the Company votedto:
* approve the reduction to the authorised share capital of the Company by
reducing the nominal value of all Ordinary Shares from 10 pence to 0.001 pence
* approve the increase to the authorised share capital of the Company by the
creation of 8,500,000,000 Ordinary Shares
* authorise the Directors to allot Ordinary Shares up to an aggregate nominal
amount of £88,447, being 8,844,700,000 Ordinary Shares (the "New Ordinary
Shares") and
* approve the issue of the New Ordinary Shares pursuant to the Debt for Equity
Conversion, including at a discount to the Closing Price as at 18 December
2020
At the meeting the ordinary shareholders voted in favour of the resolutions
and as a result, 8,844,657,929 Ordinary Shares are expected to be allotted to
Noteholders, on or around the Proposed Restructuring Effective Date, under the
authority granted. The Proposed Restructuring Effective Date will occur once
the Company has agreed certain documentation with its key financial
stakeholders.
Applications will therefore be made in due course to the Financial Conduct
Authority for 8,844,657,929 Ordinary Shares to be admitted to listing on the
premium listing segment of the Official List of the FCA and to London Stock
Exchange plc for 8,844,657,929 Ordinary Shares to be admitted to trading on
the London Stock Exchange plc's main market for listed securities.
On 14 January 2021, the Company obtained approval from the United States
Bankruptcy Court approving the US Chapter 15 Bankruptcy application.
On 29 January 2021 the Company received approval from the Financial
Surveillance Department of the South African Reserve Bank to implement the
Restructuring.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
1. the Condensed Financial Statements have been prepared in accordance with
IAS 34 Interim Financial Reporting, and give a true and fair view of the
assets, liabilities, financial position and profit of the Group; and
1. the Interim Management Report includes a fair review of the information
required by FCA’s Disclosure and Transparency Rules (DTR 4.2.7 R and 4.2.8
R).
By order of the Board
Richard Duffy
Chief Executive Officer
16 February 2021
INDEPENDENT REVIEW REPORT TO Petra Diamonds Limited
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
December 2020 which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed
consolidated statement of financial position, condensed consolidated statement
of changes in equity, the condensed consolidated statement of cashflows and
the related notes.
We have read the other information contained in the half-yearly financial
report and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
financial statements.
Directors’ responsibilities
The half-yearly financial report is the responsibility of and has been
approved by the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom’s Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are
prepared in accordance with International Financial Reporting Standards
(IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, ‘‘Interim Financial Reporting’’,
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European
Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, ‘‘Review of Interim Financial
Information Performed by the Independent Auditor of the Entity’’, issued
by the Financial Reporting Council for use in the United Kingdom. A review
of interim financial information consists of making enquiries, primarily of
persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in
scope than an audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an
audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 December 2020 is not prepared, in
all material respects, in accordance with International Accounting Standard
34, adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and, and the Disclosure Guidance and Transparency Rules of the
United Kingdom’s Financial Conduct Authority.
Material uncertainty related to Going Concern
We draw your attention to note 2 in the condensed financial statements in the
half-yearly financial report, which indicates that at the date of this report
the group is reliant on the successful conclusion of the proposed capital
Restructuring to continue as a going concern.
Additionally, as set out in note 2, in the event of a successful capital
Restructuring, the group’s forecasts remain sensitive to both trading
conditions and the potential impact of COVID-19, which may have a material
impact on the group‘s ability to operate within its covenants such that
continued South African Lender Group support may be required for the proposed
lending facilities to remain available and, if unavailable, additional funding
may be required.
As stated in note 2, these events or conditions indicate that a material
uncertainty exists that may cast significant doubt on the group’s ability to
continue as a going concern. Our conclusion is not modified in respect of this
matter.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to
assist the Company in meeting its responsibilities in respect of half-yearly
financial reporting in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom’s Financial Conduct Authority and
for no other purpose. No person is entitled to rely on this report unless such
a person is a person entitled to rely upon this report by virtue of and for
the purpose of our terms of engagement or has been expressly authorised to do
so by our prior written consent. Save as above, we do not accept
responsibility for this report to any other person or for any other purpose
and we hereby expressly disclaim any and all such liability.
BDO LLP
Chartered Accountants
London, United Kingdom
16 February 2021
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
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