REG-Petra Diamonds: Preliminary Results for the year ended 30 June 2021
14/09/2021 07:05
14 September 2021 LSE: PDL
Petra Diamonds Limited
(“Petra”, “the Company” or “the Group”)
Preliminary Results Announcement for the Year ended 30 June 2021 (unaudited)
Petra Diamonds Limited announces its preliminary results (unaudited) for the
year ended 30 June 2021 (“the Year” or “FY 2021”).
Richard Duffy, Chief Executive, commented on the results:
“FY 2021 was a watershed year for Petra. Besides the challenges of the
COVID-19 pandemic, we completed a capital restructuring which, together with
the sale of a number of exceptional blue and white diamonds from the Cullinan
mine, served to reduce consolidated net debt by around two thirds to US$228.2
million. We now have a more stable capital structure, considerably reduced
debt obligations and greater liquidity.
“The strong recovery in the diamond market towards the end of the financial
year, that has continued into the current quarter, further bolstered our
improved financial position. Record production at Cullinan, driven by Project
2022 throughput initiatives, as well as the highest annual contribution to
revenue from exceptional diamond sales, resulted in a 65% improvement in
revenue to US$402.3 million and contributed to operational free cashflow of
US$120.1 million for FY 2021. These record recoveries have continued post
Year end with the sale of the magnificent 39.34 carat blue diamond for US$40
million, being the most valuable single diamond ever sold by Petra. The US$1
million per carat realised for this stone is likely the highest per carat
price for a rough diamond ever achieved.
“Although Group production for the Year was negatively impacted by
production challenges at both Finsch and Koffiefontein, we are confident that
the post Year end re-engineering projects currently underway will lead to
improved production and margins at both operations during FY 2022.
“We enter FY 2022 with some momentum from a considerably strengthened
balance sheet, ongoing optimisation of our asset base and a positive outlook
for the diamond market.”
Key Financial Results(1)
· FY 2021 revenue up 65% to US$402.3 million (FY 2020: US$243.3
million), including US$62.0 million contribution from Exceptional Stones (FY
2020: US$14.9 million).
· Adjusted EBITDA up 101% to US$135.4 million (FY 2020: US$67.3
million); adjusted EBITDA margin of 34% (FY 2020: 28%).
· Operational free cashflow(13) of US$120.1 million (FY 2020:
operational cash outflow of US$12.3 million).
· Adjusted loss before tax decreased 88% to US$8.9 million (FY2020:
US$74.0 million).
· Adjusted net loss after tax of US$16.1 million (FY 2020: US$54.7
million).
· Non-cash impairment charge of US$17.7 million (FY 2020: US$50.5
million)
· Loss on discontinued operations of US$52.1 million (FY 2020: US$58.0
million).
· Net profit after tax of US$196.6 million (FY 2020: net loss after
tax: US$223.0 million), including a gain of US$213.3 million on the
extinguishment of the Notes following the successful debt Restructuring.
· Consolidated net debt reduced to US$228.2 million at 30 June 2021
from US$693.2 million at 30 June 2020.
· Basic earnings per share from continuing operations: 6.67 US$ cents
per share (FY 2020: loss of 15.26 US$ cents per share).
· The Board has decided to review its strategic options at Williamson
and the asset has therefore been classified as an asset held for sale for
financial reporting purposes.
Operational and ESG Results
· Lost Time Injury Frequency Rate (“LTIFR”) increased to 0.44 (FY
2020: 0.29). Total injuries, including LTIs, in FY 2021 decreased to 42 (FY
2020: 45).
· Production down 2% to 3.24 Mcts (FY 2020: 3.29 Mcts), with record
production of 1.94 Mcts at Cullinan offset by lower production at Finsch and
Koffiefontein.
· Absolute on-mine cash costs increased 3% to US$197.6 million (FY
2020: US$191.2 million), driven by inflation and a marginally stronger South
African Rand.
· The Company’s total carbon footprint decreased 16% in FY 2021,
assisted by lower production levels as well as the positive impact of the
Company’s energy efficiency initiatives.
· Petra’s commitment to environmental reporting affirmed with the
attainment of an A- score for its climate change submission to CDP, placing
the Company in the leadership category.
· Continued focus on diversity saw the percentage of women in the
Company increase from 19% to 20% in FY 2021 and the percentage of women on the
Board increased from 22% to 25%, with a further increase post Year end to 34%.
Post Year End Updates
· The Company announced the sale of an exceptional 39.34ct blue
diamond, recovered during April 2021, for US$40.18 million, as well as a
342.92 carat Type IIa white diamond and an 18.30 carat Type IIb blue diamond
that were sold for a total of US$13.5 million; the Company has retained a 50%
interest in the profit uplift of the polished proceeds of both diamonds, after
costs.
· Successful labour negotiations concluded in September 2021, with the
agreement of a new three-year wage agreement with NUM covering FY 2022 to FY
2024, which should allow for further workforce stability over this timeframe.
· Re-engineering projects initiated in July 2021 at Finsch and
Koffiefontein to comprehensively review and improve the mines’ cost bases
and enhance operating efficiencies and margins.
· Although the number of COVID cases have increased as a result of a
third wave of infections in South Africa, there has been a limited impact on
our production rate. Petra is carrying out vaccination drives at each of the
South African mines in order to help protect our workforce.
· Discussions with the Government of Tanzania to reach agreement on
various issues at the Williamson mine are ongoing, with an objective of these
being concluded during FY 2022.
Outlook
· FY 2022 production guidance of 3.3 to 3.6 Mcts (South African
operations: 3.1 to 3.4 Mcts and Williamson: 0.22 to 0.27 Mcts).
· FY 2022 capex guidance of US$78 million to US$92 million (South
African operations: US$70 million to US$82 million and Williamson: US$8
million to US$10 million).
· Positive outlook for the market, with the severe supply contraction
of CY 2020 expected to continue in CY 2021, while consumer demand is expected
to remain robust in the second half of CY 2021, with retailers anticipating
continued strong consumer demand moving into the key festive retail period,
underpinned by shortages in the polished market.
(1)Unless stated otherwise, the financial results in this announcement are
adjusted to exclude the assets and liabilities of Williamson, which has been
reclassified as an asset held for sale as at 30 June 2021, and the operating
results of Williamson have been reclassified as a discontinued operation for
FY 2020 and FY 2021. An appendix for production results has been included on
page 25 to show operational results prior to its reclassification, for
reference only.
SUMMARY OF RESULTS (unaudited)
Restated (8)
Year ended 30 June 2021 (“FY 2021”) Year ended 30 June 2020 (“FY 2020”)
US$ million US$ million
Revenue 402.3 243.3
Adjusted mining and processing costs (1) (261.2) (169.3)
Other direct income 1.7 1.0
Profit from mining activity (2) 142.8 75.0
Exploration expense — (0.5)
Adjusted corporate overhead (16) (7.4) (7.2)
Adjusted EBITDA (3) 135.4 67.3
Depreciation & Amortisation (76.8) (69.8)
Share-based expense (0.5) (0.7)
Net finance expense (67.0) (70.8)
Adjusted loss before tax (8.9) (74.0)
Tax (expense) / credit (excluding taxation credit / charge on impairment charge and unrealised foreign exchange gain / (loss)) (14) (7.2) 19.3
Adjusted net loss after tax (4) (16.1) (54.7)
Impairment charge – operations and other receivables (5) (17.7) (50.5)
Impairment of BEE loans receivable – expected credit loss release / (charge) (6) 5.8 (10.9)
Gain on extinguishment of Notes net of unamortised costs 213.3 —
Profit on disposal of subsidiary (7) 14.7 —
Costs and fees relating to investigation and settlement of human rights abuse claims (12.7) —
Net unrealised foreign exchange gain / (loss) 77.1 (82.1)
Taxation (charge) / credit on unrealised foreign exchange gain / (loss) (14) (19.9) 22.2
Taxation credit on impairment charge 4.2 11.0
Profit / (loss) from continuing operations 248.7 (165.0)
Loss on discontinued operations, net of tax (7) (52.1) (58.0)
Net profit / (loss) after tax 196.6 (223.0)
Earnings per share attributable to equity holders of the Company – US cents
Basic profit / (loss) per share – from continuing and discontinued operations 5.22 (21.96)
Basic profit / (loss) per share – from continuing operations 6.67 (15.26)
Adjusted loss per share – from continuing operations (8) (0.46) (5.04)
Cash at bank – (including restricted amounts) US$m 163.8 67.6*
Diamond debtors US$m 38.3 4.8*
Diamond inventories US$m / Cts 45.1 560,699 84.1* 1,357,584*
US$336.7m loan notes (issued March 2021) (15) US$m 327.3 —
US$650 million loan notes (9) US$m — 676.9
Bank loans and borrowings (10) US$m 103.0 52.1
BEE partner bank facilities (11) US$m — 40.0
Consolidated Net debt (12) US$m 228.2 693.2
Bank facilities undrawn and available (10) US$m 7.7 —
*Including Williamson
The following exchange rates have been used for this announcement: average for
FY 2021 US$1:ZAR15.41 (FY 2020: US$1:ZAR15.68); closing rate as at 30 June
2021 US$1:ZAR14.27 (30 June 2020: US$1:ZAR17.32).
Results Webcasts – 9:30am and 4:00pm BST today
Petra’s Chief Executive Richard Duffy and Finance Director Jacques
Breytenbach will host a results webcast at 9:30am BST on 14 September 2021.
Participants can join the webcast by registering at:
https://www.petradiamonds.com/go/prelim14sep2021-09h30.
A recording of the webcast will be available later that day on Petra’s
website at:
https://www.petradiamonds.com/investors/results-reports/ and on the link
above.
There will be a second webcast on 14 September 2021 for international
investors at 4:00pm BST. Participants can join the webcast by registering
at:
https://www.petradiamonds.com/go/prelim14sep2021-16h00
Investor Meet Company Webcast – 2:00pm BST today
Petra will also be hosting an investor presentation predominantly aimed at
retail investors with Investor Meet Company at 2:00pm BST on 14 September
2021. Participants can join the webcast by registering at:
https://www.investormeetcompany.com/petra-diamonds-limited/register-investor
Notes to Summary of Results Table:
The Group uses several non-GAAP measures above and throughout this report to
focus on actual trading activity by removing certain non-cash or non-recurring
items. These measures include adjusted mining and processing costs, profit
from mining activities, adjusted EBITDA, adjusted net profit after tax,
adjusted earnings per share, US$ loan note 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, costs and fees relating to investigation and settlement of
human rights abuse claims, share-based expense, net finance expense, tax
expense, loss on discontinued operations, net of tax, impairment charges,
expected credit loss release/ (charge), gain on extinguishment of Notes net of
unamortised costs, profit on disposal of subsidiary and net unrealised foreign
exchange gains and losses
4. Adjusted net profit/(loss) after tax is net profit/(loss) after
tax stated before impairment charge, expected credit release (loss) provision,
gain on extinguishment of Notes net of unamortised costs, profit on disposal
net unrealised foreign exchange gains and losses, and excluding taxation
(charge) credit on net unrealised foreign exchange gains and losses and
excluding taxation credit on impairment charge.
5. Impairment charge of US$17.7 million (30 June 2020: US$50.5
million) was due to the Group’s impairment review of its operations and
other receivables. Refer to note 16 for further details.
6. Reversal of impairment of BEE loans receivable of US$5.8 million
(30 June 2020: US$10.9 million impairment charge) is due to the Group’s
expected credit loss assessment of its BEE loans receivable. Refer to note 13
for further details.
7. The profit on disposal of subsidiary of US$14.7 million includes
the reclassification of foreign currency translation reserve, net of tax of
Sekaka Diamonds (Pty) Ltd.
The loss on discontinued operations reflect the results of the Williamson
operation (net of tax), including impairment, of US$52.1 million (FY 2020
results have been amended for comparability) as per the requirements of IFRS
5; refer to Note 17.
8. Adjusted EPS from continuing operations is stated before
impairment charge, expected credit release (loss) provision, gain on
extinguishment of Notes net of unamortised costs, profit on disposal of
subsidiary, costs and fees relating to investigation and settlement of human
rights abuse claims, net unrealised foreign exchange gains and losses, and
excluding taxation (charge) credit on net unrealised foreign exchange gains
and losses and excluding taxation credit on impairment charge.
9. The US$650 million loan note represents the gross capital of
US$nil (30 June 2020: US$650 million), including US$nil accrued interest (30
June 2020: US$26.9 million). These loan notes were settled in full following
the debt restructuring completed during March 2021. Refer to detailed Debt
Restructuring Note 8.
10. Bank loans and borrowings represent amounts drawn under the
Group’s refinanced South African bank facilities as part of the
Restructuring and comprise the ZAR1.068 billion term loan (US$74.8 million),
net of unamortised transaction costs capitalised of US$1.7 million, and
ZAR402.1 million (US$28.2 million) drawn (including accrued interest) under
the ZAR509.6 million (US$35.7 million) revolving credit facility. Under the
revolving credit facility, ZAR109.6 million (US$7.7 million) remains undrawn
and available.
11. BEE partner bank facilities represent the BEE guarantees of US$nil
(ZARnil) (30 June 2020: US$40.0 million (ZAR693.6 million)). During FY 2021
and as part of the debt restructuring, the BEE partner bank facilities (which
comprised the BEE guarantees) were settled by the Group through proceeds of
the term loan under the Group’s South African bank facilities. Refer to note
10 above for further detail.
12. Consolidated Net Debt is bank loans and borrowings plus loan notes,
less cash, less diamond debtors and includes the Black Economic Empowerment
guarantees of ZARnil (US$nil) as at 30 June 2021 (ca. US$40.0 million
(ZAR693.6 million) as at 30 June 2020).
13. Operational free cashflow is defined as cash generated from
operations less acquisition of property, plant and equipment.
14. Tax expense / credit is the tax (expense) / credit for the Year
excluding taxation credit / charge on impairment charge and unrealised foreign
exchange gain / (loss) generated during the Year; such exclusion more
accurately reflects resultant Adjusted net profit /(loss).
15. The US$336.7 million loan notes have a carrying value of US$ 327.3
million which represents gross capital of US$336.7 million (30 June 2020:
US$nil), plus US$11.1 million accrued interest (30 June 2020: US$nil) net of
unamortised transaction costs capitalised of US$20.5 million. Refer to note 10
for further detail.
16. Adjusted corporate overheads is corporate overheads net of
depreciation, amortisation of right-of-use assets, share based payment expense
and costs and fees relating to investigation and settlement of human rights
abuse claims.
For further information, please contact:
Petra Diamonds,
London
Telephone: +44 20 7494 8203
Cathy Malins
Des Kilalea
Marianna Bowes
investorrelations@petradiamonds.com
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. 230 million carats, which supports the potential for long-life
operations.
Petra strives to conduct 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$336.7 million notes due in
2026 are listed on the Irish Stock Exchange and admitted to trading on the
Global Exchange Market. For more information, visit www.petradiamonds.com.
CEO’S REVIEW
A resilient business and market
While FY 2021 continued to present a number of challenges, both internal and
external, real progress was made in terms of stabilising our balance sheet,
further to the completion of the recapitalisation of the Group (the
“Restructuring”), and continuing to optimise production at all our assets,
particularly the Cullinan mine, set against the backdrop of an improving
diamond market.
Our most important performance indicator is safety: while the number of
injuries experienced during the Year reduced 7% from 45 to 42, it was
disappointing that the number of lost-time injuries increased from 19 to 25,
which led the Group LTIFR to increase from 0.29 in FY 2020 to 0.44 in FY 2021.
An evaluation of the incidents has determined that the majority of these were
of low severity and behavioural related, and our approach is therefore to use
initiatives to drive a change in people’s mindsets and to foster greater
awareness towards achieving an accident-free workplace.
The impact of COVID-19 on individuals and the economy has increased the levels
of stress and impacted on the emotional wellbeing of all our employees. We
believe this has contributed to the deterioration in safety performance. This
is borne out by an increase in accidents and fatalities across the South
African mining sector as a whole since the outbreak of the COVID-19 pandemic,
as measured by the Minerals Council South Africa. Addressing this issue
therefore requires a holistic approach, including training, mentorship,
communication and wellbeing initiatives.
The COVID-19 pandemic remains an ongoing business challenge. In South Africa,
we are currently experiencing a third wave of infections and the disruption to
operations is mainly around the necessary quarantine of confirmed or suspected
cases amongst our workforce. However, we have the systems and processes in
place to manage this without materially impacting production. Our focus now is
on assisting the Government with its vaccination drive and we have vaccination
stations and campaigns to encourage their uptake available at, or near to,
each of our operations. While the vast majority of those who contract the
virus only have mild to moderate symptoms, we have very sadly lost 14
employees to the disease as at the date of these results. Our heartfelt
condolences go to the loved ones and colleagues of the deceased.
In terms of production, output for the Year decreased 2% to 3,240,312 carats
(FY 2020: 3,291,046 carats), notwithstanding record annual production from
Cullinan of 1.94 Mcts. As previously announced, production at Finsch was
impacted by unexpected levels of waste ingress during Q2 FY 2021, with
subsequent mitigating measures reducing throughput during the second half of
the Year. In addition, production at both Finsch and Koffiefontein was
impacted by the high level of rainfall during the third quarter. Cullinan’s
record 4.61 Mt ROM production (FY 2020: 3.97 Mt) was partially offset by these
factors, resulting in the Group’s ROM tonnages for the Year increasing by 3%
to 7.7 Mt (FY 2020: 7.5 Mt).
Cullinan performed very well for the Year, benefitting from the Project 2022
business improvement throughput initiatives. ROM tonnes increased 16% to 4.61
Mt (FY 2020: 3.97 Mt), and spare capacity in the plant was utilised with a 73%
increase in tailings tonnes to 0.45 Mt (FY 2020: 0.26 Mt), leading to an
overall record tonnes treated at the operation under Petra stewardship of 5.06
Mt (FY 2020: 4.23 Mt).
The mine also affirmed its place as a producer of world-class diamonds, with
the recovery of a number of spectacular stones, namely:
· September 2020: The Letlapa Tala collection of five high quality blue
diamonds totalling 85.6ct were recovered all in the space of one week’s
production at the mine. The collection was sold as a suite of stones to a
partnership between De Beers and Diacore for US$40.36 million in November
2020.
· January 2021: A 299ct high quality white diamond was recovered and
subsequently sold to Stargems DMCC for US$12.18 million in March 2021.
· February 2021: A 11.82ct high quality blue diamond was recovered and
subsequently sold for US$9.53 million in April 2021.
· April 2021: An exceptional 39.34ct blue diamond was recovered and
sold post Year end to a partnership between De Beers and Diacore for US$40.18
million in July 2021, representing a remarkable US$1.0 million per carat. This
was the most valuable diamond sold in Petra’s history and is believed to be
the most valuable rough stone per carat ever sold (though since not all rough
diamond sales are publicly disclosed, this cannot be established with
certainty).
The sale of the Letlapa Tala collection, the 299ct white diamond and the
11.82ct blue diamond contributed US$62.0 million in ‘exceptional diamond
sales’ to revenue for the Year (FY 2020: US$14.9 million), being the highest
contribution in Petra’s history. Post Year end, Petra has also recovered and
sold two further special diamonds from the Cullinan mine, being a 342.92ct
white stone and an 18.30ct blue stone, into a partnership with Stargems (Pty)
Ltd. Petra received an upfront payment of US$10.0 million for the white stone
and US$3.5 million for the blue stone, as well as retaining a 50% interest in
the profit uplift of the polished proceeds of both diamonds, after costs.
The higher revenue for the Year led to Adjusted EBITDA being up 101% to
US$135.4 million (FY 2020: US$67.3 million) and Operational free cashflow of
US$120.1 million (FY 2020: operational cash outflow of US$12.3 million).
However, overall profitability for the Year was impacted by Depreciation of
US$75.9 million (FY 2020: US$69.3 million) and Net finance expenses of US$67.0
million (FY 2020: US$70.8 million) and the Company therefore recorded an
Adjusted loss after tax of US$16.1 million (FY 2020: US$54.7 million).
Outlook for FY 2022
Looking ahead to FY 2022, we are guiding production to increase to between 3.3
and 3.6 Mcts, with the South African operations estimated to contribute 3.1 to
3.4 Mcts and Williamson estimated to contribute 0.22 to 0.27 Mcts.
At Williamson, preparations to resume production in H1 FY 2022 continue with
the redeployment of employees and contractors, while receiving relevant
refresher and safety training, and the recommissioning of plant and equipment.
The Board has decided to review its strategic options at Williamson and the
asset has therefore been classified as an asset held for sale for financial
reporting purposes.
Recapitalisation of the business
In March 2021, Petra completed the recapitalisation of the Group, thanks to
the continued support of its bondholders, shareholders and its South African
Lender Group. The completion of the Restructuring, along with the
aforementioned sale of Exceptional Stones during the Year, helped the
Group’s Consolidated net debt, excluding Williamson, reduce by nearly two
thirds to US$228.2 million at 30 June 2021, from US$700.3 million at 31
December 2020. The key features of the Restructuring are set out on page 16 of
this announcement.
The Restructuring has provided Petra with a more stable and sustainable
capital structure, significantly reduced financial burdens and greater
liquidity, leaving us in a stronger position to focus on optimising the value
of our diversified asset base and to deliver growth for all our stakeholders.
ESG performance
The Company remained highly active across all the different areas of ESG,
which are integrated into our strategy and how we manage the business.
In terms of environmental performance, our team continued to focus on the
efficient use of water and energy during the Year, as well as responsible
waste management across the operations. Our total carbon footprint reduced 16%
to 405,807 tCO(2)-e (FY 2020: 483,431 tCO2-e), mainly due to the lower
production with Williamson being on care and maintenance, and associated
reduction in energy consumption for the Year, positively impacted by our focus
on energy efficiency. Our carbon emitted per carat decreased 7% to 0.125
tCO(2)-e/ct (FY 2020: 0.134 tCO(2)-e/ct) due to the combined effect of the
overall decrease in carats produced and associated lower energy use for the
Year.
Significant progress was made in terms of the Group’s environmental strategy
in FY 2021 with the Board approval of the Group’s Climate Change Adaptation
Strategy, which will assist Petra in staying on top of rapidly changing
legislation and in meeting stakeholder expectations. The Company also improved
its CDP climate change reporting to the A- category, placing Petra in the
leadership category and demonstrating our strong commitment to this area.
Petra continued to focus on the development of a suitably diverse workforce.
The overall gender diversity of the Group increased to 20% in FY 2021 (FY
2020: 19%), which remains above that of the industry average in South Africa,
which ranges from 12%–17% depending on the commodity. We were also pleased
to improve gender diversity at the higher levels of the business, with an
increase in female representation at Board, senior management and management
level, and our employee development programmes once again focused on the
advancement of women and historically disadvantaged South Africans
(“HDSAs”).
Our community programmes remained very active and the Petra Hardship Fund
continued to supply aid to address some of the most urgent needs of our local
communities in South Africa. We also completed a number of community projects
during the Year, including the refurbishment of water pump stations and the
completion of electrification of households and informal dwellings in
Kgatelopele, near the Finsch mine. A major drive for improved stakeholder
relations also saw the number of engagements recorded by the Company increase
to 658, with the majority of the increase relating to training sessions for
small, medium and micro enterprises, in order to drive enterprise development
in our local communities.
More detail on our ESG performance for the Year will be reported in our 2021
Annual and Sustainability Reports, which are due to be published on 12 October
2021.
Addressing the human rights allegations at Williamson
In May 2021, Petra announced the findings of the its independent Board
Sub-Committee in relation to alleged breaches of human rights at the
Williamson mine in Tanzania raised by the UK law firm, Leigh Day and the
independent NGO, Rights and Accountability In Development (“RAID”). The
mine is operated by Williamson Diamonds Limited (“WDL”), which is 25%
owned by the Government of Tanzania and 75% owned by Petra. Petra acquired its
majority interest in WDL in 2009.
Based on the conclusions of the independent Board Sub-Committee, the Company
acknowledged that past incidents have taken place that regrettably resulted in
the loss of life, injury and the mistreatment of illegal diggers, within the
WDL Special Mining Licence area (“SML”). The incidents in question
involved WDL’s third-party security provider Zenith Security as well as the
Tanzanian Police Force (“TPF”). During the investigation, no evidence
emerged that WDL personnel were directly involved in these actions.
The Company took immediate precautionary measures to address the concerns
raised, ahead of the findings of the investigation and in order to mitigate
the risks of future incidents, including the appointment of a new third party
security contractor, the training of all security personnel and internal
management at WDL on human rights and their obligations in terms of the UN’s
Voluntary Principles on Security and Human Rights and the launch of a
Community Grievance Mechanism.
Further to the findings of the independent Board Sub-Committee, additional
measures were put in place to address issues identified, including the
revision of reporting structures to enable the more timely, accurate and
transparent reporting of all incursions and incidents, the overhaul of
stakeholder engagement at the mine, as well as ongoing work Group-wide, and
the establishment of an independent Tier 2 Operational Grievance Mechanism,
which aims to investigate and resolve complaints following the application of
local legal requirements, including the provision of free and independent
advice from local lawyers.
Having already established the Operational Grievance Mechanism for complaints
and grievances related to operational impacts, the Company has continued with
the process of the design and implementation of a non-judicial, Independent
Grievance Mechanism (“IGM”) to address allegations of severe human rights
impacts. A series of engagements with Government Ministries and Agencies,
Civil Society and NGOs were conducted in Dodoma and Dar es Salaam, seeking
feedback and support on the proposed design of the IGM. The company has
specialist external support from Synergy Global Consulting (“Synergy”) in
the development of this process. Synergy is a specialist international
consultancy with over twenty years’ experience working with companies,
governments and community-based organisations.
Further detail on all the measures taken by Petra and WDL to address the
findings are set out in the Company’s announcement of 12 May 2021
‘Findings of the Independent Board Sub Committee’ which is available to
view along with all other related announcements here:
https://www.petradiamonds.com/our-operations/our-mines/williamson/allegations-of-human-rights-abuses-at-the-williamson-mine/.
Petra also announced on 12 May 2021 that it had reached a settlement, on a no
admission of liability basis, in relation to claims brought in London by Leigh
Day, on behalf of the anonymous claimants, in relation to alleged breaches of
human rights, associated with third-party security operations, within the SML.
The agreed total settlement figure announced in May 2021 was £4.3 million
(US$6.1 million), which includes the sum to be distributed to the claimants by
Leigh Day, a contribution to the claimants’ legal expenses and significant
funds, which Petra has committed to invest in programmes dedicated to
providing long-term sustainable support to the communities living around the
mine. The Company has also incurred and provided for additional total costs of
US$6.6 million related to this matter in its FY 2021 accounts, the majority of
which relate to legal, consultant, investigation and expert fees.
During the period from 1 July to the end of August 2021, there were a total of
89 incidents of illegal incursions onto the Williamson mine lease area,
resulting in two security officials (one belonging to the third party security
provider and one belonging to the TPF) suffering minor injuries, and in four
arrests being made. We believe the contracted security teams and the TPF acted
in accordance with the Voluntary Principles on Security and Human Rights. WDL
is continuing to engage extensively with local stakeholders, including with
surrounding village leaders and community forums, as well as with local and
regional Government and police officials, to get their support in order to
reduce these incursions.
As previously noted, the Board has decided to review its strategic options at
Williamson. However, this does not impact the Company’s commitment to the
community programmes, IGM and other actions and initiatives detailed in its 12
May 2021 announcement referenced above.
A resilient diamond market
COVID-19 continued to have a significant impact on the diamond market in FY
2021, with related regulations and other measures to control the spread of the
virus continuing to impose restrictions, particularly around the movement of
people and international travel.
Petra maintained its flexible sales approach during the Year in order to
maximise client attendance at its sales. This meant that we continued to hold
rough diamond tenders for the South African goods in Antwerp (having fulfilled
our regulatory obligation to offer a portion of goods for sale to the State
Diamond Trader and local beneficiation groups in South Africa), rather than in
Johannesburg, where travel restrictions have severely limited participation by
international diamond buyers. We will continue to review this approach and
reinstate sales in South Africa when conditions are right.
Despite the ongoing challenges around COVID-19, overall the market has
remained remarkably resilient, which we attribute to a number of factors:
· control discipline by the majors (De Beers and ALROSA), both via
production cuts and restriction of supply to the midstream during periods of
lower demand;
· the significant contraction of production supply in 2021, including
the winding down of the Argyle mine, has served to lower inventories in the
pipeline generally and restore a better balance between supply and demand;
· capacity returned to the midstream manufacturing segment in India;
and
· strong consumer demand was experienced in the key retail markets,
notably the US and China, leading to shortages in certain polished goods;
commentators note that for some there is increased consumer disposable income
due to lack of spend on competing product categories, such as holidays and
experiences, and that natural diamonds remain highly desirable as a way to
forge deeper human connections and to celebrate our most important life
events.
In 2020, the global diamond market experienced one of the most severe
contractions in supply on record, falling 22% by volume to 107.1 Mcts (2019:
138.2 Mcts). Material reductions in supply came from Australia (due to the
closure of the Argyle mine), Russia, Botswana, Canada, the Democratic Republic
of Congo and Namibia, due to a combination of production being slowed due to
COVID-19, pending exhaustion of resources, mine closures, operations
transitioning from open pit to underground and falling alluvial output.
Increased volume of output was recorded in South Africa and Zimbabwe.
For CY 2021, various sources forecast that rough supply will increase as mines
come back into production, though the increase will be ameliorated by the
closure of Argyle which still contributed 11 Mcts to global output in 2020.
Bain & Co’s “Optimistic” scenario projects that mines which continue to
operate will reach pre-pandemic production levels by 2021-2022 and that global
inventories will gradually sell out in a year. Longer term, there are
forecast to be few material additions to production over the next decade, with
rough diamond supply forecast to remain “almost flat” at 2021 levels over
the next 10 years, according to Bain & Co, with few new projects coming on
line.
In terms of demand, Petra’s participation in the Natural Diamond Council
(“NDC”) remains an important strategy in terms of helping to positively
impact the long-term fundamentals for our market. The NDC aims to ensure that
natural diamonds inspire and excite today’s consumer and it has secured
rising Hollywood actor Ana de Armas as its global market ambassador. A new
global marketing campaign starring Ms de Armas launched in September 2021 to
support the market in advance of the key festive retail season and can be
viewed at
https://www.youtube.com/watch?v=ZAXKavG2vOE.
Petra Sales and Prices
FY 2021 revenue increased 65% to US$402.3 million (FY 2020: US$243.3 million)
driven by sales from Exceptional Stones contributing US$62.0 million during
the Year (FY 2020: US$14.9 million); the highest annual contribution to
revenues from the sale of Exceptional Stones. On a like for like basis,
realised diamond prices in Q4 FY 2021 increased ca. 5.7% from those achieved
in Q3 FY 2021.
Despite lower production for the Year, the amount of diamonds sold increased
51% to 3,930,136 carats (FY 2020: 2,598,252 carats) due to the improvement in
market conditions and the easing of certain COVID-19 related restrictions
which allowed for a higher volume of sales to take place, including the
release of inventory held over from the prior year.
The Company recovered a number of Exceptional Stones from the Cullinan mine in
FY 2021 and to date in FY 2022, as set out already on pages 6 to 7 of this
announcement. These prices are included in the averages reported for Cullinan
in the table below.
Prices on a like-for-like basis increased ca. 9% compared to prices achieved
in FY 2020 and closed the Year at levels above the prices achieved before the
COVID-19 pandemic outbreak.
Diamond prices achieved per operation
FY 2021 US$/ct FY 2020 (2) US$/ct
Cullinan 111 (1) 98 (1)
Finsch 77 75
Koffiefontein 419 387
Notes:
1. Prices include Exceptional Stones. Prices excluding Exceptional
Stones US$83/ct (FY 2020: US$86/ct).
2. Prices achieved in FY 2020 and FY 2021 do not reflect true
run-of-mine averages as the Company had to withhold certain mostly lower value
goods for sale in Q4 FY 2020 due to the depressed pricing environment; these
goods were sold shortly after Year end, which negatively impacted unit prices
in FY 2021, further exacerbated by the sale of other low value stock during
June 2021.
FINANCIAL REVIEW
Revenue
FY 2021 revenue increased 65% to US$402.3million (FY 2020: US$243.3 million)
driven by sales from Exceptional Stones contributing US$62.0 million during
the Year (FY 2020: US$14.9 million); the highest annual contribution to
revenue from the sale of Exceptional Stones in Petra’s history. Diamonds
sold for the Year increased 51% to 3,930,136 carats (FY 2020: 2,598,252
carats), excluding Williamson, while rough diamond prices realised by Petra
increased ca. 9% in FY 2021 on a like for like basis.
Mining and processing costs
The mining and processing costs for the Year are comprised of on-mine cash
costs as well as other operational expenses. A breakdown of the total mining
and processing costs for the Year is set out below.
On-mine cash costs (1) US$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
FY 2021 197.6 2.9 39.1 21.7 261.2 76.0 337.2
FY 2020 191.2 2.6 (42.6) 18.1 169.3 68.9 238.2
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. Includes amortisation of right-of-use assets under IFRS 16 of
US$0.6 million (FY 2020: US$0.2 million) and excludes exploration and
corporate/administration.
Absolute on-mine cash costs in FY 2021 increased 3.3%, compared to FY 2020,
due to:
· the effect of translating ZAR denominated costs at the South African
operations at a stronger ZAR/USD exchange rate (1.7% increase);
· inflationary increases, including the impact of electricity and
labour costs (6.0% increase);
offset by:
· the variable cost impact of changing production volumes across the
South African operations (0.8% decrease); and
· net savings, including Project 2022 initiatives (3.6% decrease).
Diamond inventory and stockpile movements reflect the release of inventories
during FY 2021 resulting in a charge of US$39.1 million, compared to a credit
of US$42.6 million in FY 2020 due to increased levels of stockholding driven
by an inability to hold tenders due to COVID-19.
Profit from mining activities
Profit from mining activities increased 90% to US$142.8 million (FY 2020:
US$75.0 million), mainly due to increased volumes sold, improved diamond
pricing and the contributions from Exceptional Stones.
Adjusted corporate overhead – general and administration
Corporate overhead (before costs and fees relating to investigation and
settlement of human rights claims, depreciation and share-based payments)
increased marginally to US$7.4 million for the Year (FY 2020: US$7.2 million),
mainly attributable to the ZAR strengthening against the USD in addition to
cost curtailment measures introduced during the Year.
During the Year, the Group received payments from the South African government
under the temporary employee relief scheme (“TERS”) of US$3.5 million (FY
2020: US$nil). Of the US$3.5 million TERS payment received, US$0.3 million was
attributable to corporate overheads expenditure and US$3.2 million was
attributable to Mining and processing costs.
Adjusted EBITDA
Adjusted EBITDA, being profit from mining activities less exploration and
corporate overhead, increased 101% to US$135.4 million (FY 2020: US$67.3
million), representing an adjusted EBITDA margin of 34% (FY 2020: 28%),
reflecting better overall pricing, including proceeds from Exceptional Stones.
Depreciation
Depreciation for the Year increased to US$75.9 million (FY 2020: US$69.3
million), mainly due to the strengthening of the ZAR against the USD and
increased throughput at Cullinan, partially offset by reduced production at
Finsch and Koffiefontein.
Impairment charge
As a result of the impairment reviews carried out at Cullinan, Finsch and
Koffiefontein, and the Group’s other receivables during the Year, the Board
recognised an overall impairment charge of US$17.7 million (FY 2020: US$50.5
million). Further details are provided in note 16.
Asset level impairments at Finsch and Koffiefontein amount to US$17.3 million
(FY 2020: US$50.9 million at Cullinan, Finsh and Koffiefontein) (representing
some 2.4% of the Group’s carrying value of property, plant and equipment of
US$711.8 million (FY 2020: US$742.7 million) pre-impairment). There were no
reversals of prior year impairments for Cullinan.
Impairment of BEE loans receivable – 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 future free cashflows to be generated by the
mining operations, based on the current LOM plans and the conclusion during
the Year of an offset agreement with the BEE partners. Based on the
assessment, the Group’s free cashflows generated indicated a net credit loss
reversal totalling US$5.8 million (30 June 2020: US$10.9 million expected
credit loss provision), comprising of US$6.1 million provision reversal in
respect of Cullinan and Finsch and an additional US$0.3 million expected
credit loss provision in respect of Koffiefontein (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) (refer to note 13 for further
detail).
Net financial income / expense
Net financial income of US$223.4 million (FY 2020: US$152.9 million expense)
comprises:
· net gain on extinguishment of the Notes of US$213.3 million (FY2020:
US$nil) comprising a gain of US$221.0 million attributable to the debt for
equity conversion and a loss of US$7.7 million on the substantial modification
of the Notes;
· net unrealised foreign exchange gains of US$77.1 million (FY 2020:
US$82.1 million losses), driven by significant volatility in the Rand closing
the Year at US$1:ZAR14.27 compared to US$1:ZAR17.32 at 30 June 2020, and
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$0.7 million (FY 2020: US$1.2
million);
offset by:
· the acceleration of unamortised finance costs attributable to the
Notes of US$2.7 million (FY2020: US$nil);
· interest expense on the Group’s debt and working capital facilities
of US$51.5 million (FY 2020: US$52.4 million);
· net interest payable on the BEE Partner loans and amortisation of
lease liabilities in accordance with IFRS 16 of US$3.1 million (FY 2020:
US$6.7 million);
· a charge for the unwinding of the present value adjustment for Group
rehabilitation costs of US$4.3 million (FY 2020: US$4.6 million); and
· net realised foreign exchange losses on settlement of forward
exchange contracts of US$6.1 million (FY 2020: US$8.3 million).
Tax credit/charge
The tax charge of US$23.0 million (FY 2020: US$52.5 million credit; reflecting
principally the utilisation of certain capital allowances and the impact of
the deferred taxation on the impairment charge, predominantly at Cullinan and
Finsch, which reduced existing deferred tax liabilities) comprises deferred
tax charges of US$19.9 million relating to utilisation of tax losses as a
result of unrealised foreign exchange gains at Cullinan during the Year and
US$2.7 million in respect of other capital allowances, with an income tax
charge of US$0.3 for the Year (FY 2020: US$0.6 million).
The Group’s current Year effective tax rate of 8.9% (FY 2020: 24.1%) is
lower than the South African tax rate of 28% (the Group’s primary tax paying
jurisdiction) due to the recognition of the gain on extinguishment of the
Notes for which no tax consequences are recognised. During the Year, there was
a reversal of deductible temporary differences relating to the current Year
impairments of property, plant and equipment, reversal of prior year tax
losses recognised at Finsch and Cullinan and other reversing deductible
temporary differences. There were no taxation adjustments arising from items
of other comprehensive income and expense.
Profit on disposal Sekaka Diamonds (Pty) Ltd (“Sekaka”)
The profit on disposal of subsidiary of US$14.7 million relates to the
Group’s disposal during the Year of its exploration operations in Botswana
via the disposal of interests in Sekaka, 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 17 for the detailed
breakdown.
Loss on discontinued operations – Williamson
The Board has decided to review its strategic options at Williamson and the
asset has therefore been classified as an asset held for sale. As a result of
the strategic review, the loss on discontinued operations of US$52.1 million
relates to the Board’s decision to reclassify Williamson mine as a
discontinued operation in line with the criteria under IFRS 5 in meeting the
definition of a disposal group and a discontinued operation for financial
reporting purposes.
In terms of the IFRS requirements to measure the assets of a disposal group at
the lower of carrying amount and fair value less costs to sell, the
determination of the fair value is complex and subject to considerable
judgment. Based on management’s best estimate of the fair value at the
reporting date, the following amounts have been recognised as a result of that
reclassification:
· an impairment charge of US$21.4 million in respect of property, plant
and equipment;
· a US$11.2 million charge attributable to Williamson’s net loss for
the Year. For comparative purposes, the prior period results for Williamson
have been restated, which show a net loss of US$58.0 million (inclusive of an
impairment charge of property, plant and equipment and certain receivables of
US$34.6 million and US$6.8 million respectively); and
· a US$19.5 million provision for unsettled and disputed tax claims
arising from the ordinary course of business.
Refer to note 17 for further detail.
Group loss/profit
The Group’s net profit after tax is US$196.6 million (FY 2020 net loss:
US$223.0 million).
Earnings per share
Basic profit per share from continuing operations of 6.67 US$ cents was
recorded (FY 2020: 15.26 US$ cents loss per share).
Adjusted loss per share from continuing operations (adjusted for impairment
charge, expected credit release (loss) provision, gain on extinguishment of
Notes net of unamortised costs, profit on disposal of subsidiary, costs and
fees relating to investigation and settlement of human rights claims, net
unrealised foreign exchange gains and losses, and excluding taxation (charge)
credit on net unrealised foreign exchange gains and losses and excluding
taxation credit on impairment charge) of 0.46 US$ cents was recorded (FY 2020:
5.04 US$ cents loss (adjusted for impairment charges, taxation credit on
impairment charge, net unrealised foreign exchange gains and losses)).
Operational free cashflow
During the Year, operational free cashflow of US$120.1 million (FY 2020:
US$12.3 million outflow) reflects the impact of stronger diamond prices, the
contribution of Exceptional Stones and lower mining and processing costs
derived from the optimisation of production and cost efficiencies from Project
2022. This positive cashflow was offset by:
· US$12.1 million (FY 2020: US$33.3 million) cash finance expenses net
of finance income and realised foreign exchange gains/(losses);
· US$7.0 million (FY 2020: US$14.1 million) advances to BEE Partners,
largely related to servicing of BEE bank debt prior to the Restructure, with
the advances recoverable against future BEE Partner distributions; and
· Restructuring fees settled during the Year of US$29.9 million (FY
2020: US$3.8 million net advances paid to advisors).
Cash and diamond debtors
As at 30 June 2021 the Company had cash at bank of US$163.8 million (30 June
2020: US$67.6 million). Of these cash balances, US$147.7 million was held as
unrestricted cash (30 June 2020: US$53.6 million), US$15.3 million was held by
Petra’s reinsurers as security deposits on the Group’s cell captive
insurance structure (with regards to the Group’s environmental guarantees)
(30 June 2020: US$13.3 million) and US$0.8 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 (30 June 2020:
US$0.7 million).
Diamond debtors at 30 June 2021 were US$38.3 million (30 June 2020: US$4.8
million), with the June 2021 tender closing at Year-end, and debtors settling
shortly thereafter. Both Diamond Debtors and Diamond Inventory for FY 2020
were significantly impacted by the inability to host tenders during Q4 FY 2020
following the initial COVID-19 outbreak.
Diamond inventory
Diamond inventory at 30 June 2021 decreased to US$45.1 million (30 June 2020:
US$84.1m) reflecting the release of inventory during the Year.
Loans and borrowings
The Group had loans and borrowings (measured under IFRS) at Year end of
US$430.3 million (30 June 2020: US$769.0 million), comprised of the US$327.3
million Notes (includes US$11.3 million accrued interest and unamortised
transaction costs of US$20.7 million) (30 June 2020: US$676.9 million), bank
loans and borrowings of US$103.0 million (includes interest of US$0.1 million
and unamortised transaction costs of US$1.7 million) (30 June 2020: US$52.1
million) following the Restructuring completed in March 2021, the Company’s
guarantees related to the BEE Partner debt facilities were US$nil (30 June
2020: US$40.0 million); refer to ‘The Restructuring’ section on page 16
for further detail. Bank debt facilities undrawn and available to the Group at
30 June 2021 were US$7.7 million (30 June 2020: US$nil).
Consolidated net debt at 30 June 2021 was US$228.2 million (30 June 2020:
US$693.2 million).
Covenant measurements attached to banking facilities
The Company’s EBITDA-related covenants associated with its banking
facilities during the Year were as outlined below:
· to maintain a 1.3x debt service cover ratio tested semi-annually on a
rolling 12-month basis; and
· to maintain liquidity requirements, being the aggregate of the
undrawn amounts available under the RCF and consolidated cash and cash
equivalents (excluding diamond debtors) not falling below ZAR200 million
(US$14.0 million).
Going concern considerations
During FY 2020 the going concern consideration was dependent on the successful
completion of the Restructuring. In March 2021, the Restructuring was
successfully completed which resulted in solid progress towards stabilising
the balance sheet and cash reserves.
The Group closely monitors and manages its liquidity risk, and cash forecasts
are regularly produced and run for different scenarios. 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, the forecasts indicate that the Company will be able to
operate within covenants set out in the financing agreements and maintain
sufficient liquidity.
However, as detailed above, the first lien covenants were set with limited
headroom to the Company’s base case. As such, results of the Company’s
stress testing indicate that in the event of a combination of all tested
scenarios, possible covenant breaches associated with the South African
banking facilities may occur at June 2022, while a breach is also projected in
December 2022 on an individual stress test basis. At the time of possible
covenant breaches under these scenarios, projected cash balances exceed
outstanding debt under these facilities, which would allow the Group to fully
pay down the drawn facilities prior to the breach occurring while maintaining
adequate liquidity. The forecasts indicate that under the stress-tested
scenarios, the Group is not reliant on the facilities.
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, 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. Accordingly, the Board has concluded that the going
concern basis in the preparation of the financial statements is appropriate
and that there are no material uncertainties that would cast doubt on that
basis of preparation.
BEE loans receivable
BEE loans receivable of US$46.6 million (FY 2020: US$137.0 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),
and financing of their interests in the Koffiefontein mine. As part of the
Restructuring, an offset agreement was entered into between the Company and
its BEE Partners allowing for the offsetting of the BEE loan receivable
against the BEE loan payable, thus resulting in a net BEE loan receivable due
from the BEE Partners. The repayment of these loans by the mines to the BEE
Partners will be from future free cashflows generated by the mining
operations.
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 Year which resulted in a partial net reversal of
the expected credit loss provision of US$5.8 million, following a US$10.9
million expected credit loss provision being raised against the BEE loans
receivable at 30 June 2020. Refer to note 13 for further detail.
During the Year, Petra advanced US$4.7 million (FY 2020: US$12.2 million) to
facilitate the servicing of capital and interest payments on behalf of the BEE
Partners and US$2.3 million (FY 2020: US$1.9 million) for distributions to the
beneficiaries of the IPDET and shareholders of Kago Diamonds.
Refer to note 13 further detail on BEE loans receivable.
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 ad hoc group (“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. On 10 March 2021 the Company announced that it had
completed the implementation of the Restructuring.
The key features of the Restructuring were 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 of
US$336.7 million (including the New Money and fees paid as part of the
transaction in New Notes) have a maturity date of five years from completion.
The New Notes are 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 contributed to the New Money were entitled to a greater
portion of the New Notes.
2. Conversion of the remainder of the Notes debt into equity, which resulted
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 contributed to the New Money were 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 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 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.
Other liabilities
Other than trade and other payables of US$49.1 million (comprising US$16.8
million trade creditors, US$5.8 million employee-related accruals and US$26.5
million other payables) (FY 2020: US$52.5 million), the remaining liabilities
on the balance sheet mainly comprise provisions for rehabilitation
liabilities, post-retirement employee-related provisions, provisions for costs
and fees relating to investigation and settlement of human rights claims,
lease liabilities and deferred tax.
During the Year, the Group’s rehabilitation provision increased from US$45.3
million to US$57.9 million, mainly attributable to Cullinan’s estimated
period to decommissioning reducing from 45 years to 25 years, reflecting
updated scoping studies for future development outside of its current approved
LOM, resulting in an increase of US$5.8 million in the provision as expected
timing of the rehabilitation costs are brought forward and the effect of
foreign exchange movements of US$9.0 million.
Capex
Total Group Capex for the Year reduced to US$23.5 million (FY 2020: US$28.4
million), comprising:
· US$16.9 million expansion Capex (FY 2020: US$21.8 million);
· US$5.6 million sustaining Capex (FY 2020: US$6.8 million); and
· corporate/exploration Capex of US$1.0 million (FY 2020: (US$0.2
million) net recoupment).
Capex Unit FY 2021 FY 2020
Cullinan US$m 16.8 16.4
Finsch US$m 4.0 8.4
Koffiefontein US$m 1.7 3.8
Subtotal – Capex incurred by operations US$m 22.5 28.6
Corporate/exploration (1) US$m 1.0 (0.2)
Total Group Capex US$m 23.5 28.4
Note:
1. Petra operates an internal projects / construction division and, although
this division's spend is reported in the Group's total Capex, it is policy not
to account for it on a specific mine's Capex until the work completed is
invoiced to the relevant operation.
Dividend
Distribution covenants were not met for the measurement period to 30 June 2021
and as a result no dividend is declared for FY 2021 (30 June 2020: US$nil).
OPERATIONAL REVIEW
Combined Operations (Excluding Williamson)¹
Unit FY 2021 FY 2020 Variance
Sales
Diamonds sold Carats 3,930,136 2,598,252 51%
Revenue US$M 402.3 243.3 65%
Production
ROM diamonds Carats 3,057,860 3,155,237 -3%
Tailings diamonds Carats 182,452 135,809 +34%
Total diamonds Carats 3,240,312 3,291,046 -2%
Tonnages
ROM tonnes Mt 7.7 7.5 +3%
Tailings & other (1)tonnes Mt 0.4 0.5 -20%
Total tonnes Mt 8.1 8.0 +1%
On mine cash costs US$M 197.6 191.2 3%
Capex
Expansion US$M 16.9 21.8 -23%
Sustaining US$M 6.6 6.6 0%
Total US$M 23.5 28.4 -17%
1. Williamson results are shown separately below.
FY 2021 production decreased 2% to 3,240,312 carats (FY 2020: 3,291,046
carats), notwithstanding record annual production from Cullinan, of 1.94 Mcts.
As previously announced, production at Finsch was impacted by unexpected
levels of waste ingress during Q2 FY 2021, with subsequent mitigating measures
reducing throughput during the second half of the Year. In addition,
production at both Finsch and Koffiefontein was impacted by the high level of
rainfall during the third quarter. Despite these factors, the Group’s ROM
tonnages for the Year increased by 3% to 7.7 Mt (FY 2020: 7.5 Mt).
Cullinan – South Africa
Unit FY 2021 FY 2020 Variance
Sales
Revenue US$M 250.6 116.5 +115%
Diamonds sold Carats 2,261,058 1,183,745 +91%
Average price per carat US$ 111 98 +13%
ROM Production
Tonnes treated Tonnes 4,614,802 3,972,682 +16%
Diamonds produced Carats 1,761,490 1,482,482 +19%
Grade (1) Cpht 38.2 37.3 +2%
Tailings Production
Tonnes treated Tonnes 445,538 257,549 +73%
Diamonds produced Carats 182,452 95,918 +90%
Grade (1) Cpht 41.0 37.2 +10%
Total Production
Tonnes treated Tonnes 5,060,339 4,230,231 +20%
Diamonds produced Carats 1,943,942 1,578,400 +23%
Costs
On-mine cash cost per tonne treated ZAR 260 270 -4%
Capex
Expansion Capex US$M 14.5 13.0 +12%
Sustaining Capex US$M 2.3 3.4 -32%
Total Capex US$M 16.8 16.4 +2%
Notes:
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.
Cullinan achieved record production in FY 2021 of 1,943,942 carats (FY 2020:
1,578,400 carats), with underground throughput of 4.6 Mt and an average ROM
grade of 38.2 cpht (FY 2020: 37.3 cpht). A total of 0.4 Mt of recovery
tailings were treated with an average grade of 41.0 cpht.
Cullinan’s revenue increased by 32% to US$250.6 million for the Year (FY
2020: US$116.5 million), due to a combination of a 91% increase in diamonds
sold and a 13% increase in the average price per carat for the Period.
The full range of diamonds was recovered at the Cullinan mine in FY 2021,
including a number of exceptional stones, as set out on pages 6 to 7 of this
announcement.
Costs
The on-mine unit cash cost per total tonne treated decreased to ZAR260/t (FY
2020: ZAR270/t), mainly due to increased tonnages offset by inflationary
increases.
Capex
FY 2021 Capex of US$16.8 million was mainly spent on underground development
in the CC1E SLC area, as well as continued construction of the North Crusher 2
servicing the C-Cut Phase 1 production area.
FY 2022 Capex for Cullinan is guided at ca. US$48 – 54 million, primarily
relating to underground development of the CC1E Phase 2 production areas and
certain feasibility studies to be conducted related to shaft infrastructure,
as well as fines residue deposit facilities and Stay in Business Capex.
Finsch – South Africa
Unit FY 2021 FY 2020 Variance
Sales
Revenue US$M 123.5 101.1 +22%
Diamonds sold Carats 1,602,312 1,348,181 +19%
Average price per carat US$ 77 75 +3%
ROM Production
Tonnes treated Tonnes 2,311,195 2,719,389 -15%
Diamonds produced Carats 1,237,219 1,603,678 -23%
Grade (1) Cpht 53.5 59.0 -9%
Tailings Production
Tonnes treated Tonnes 0 211,541 -100%
Diamonds produced Carats 0 39,890 -100%
Grade (1) Cpht 0 18.9 -100%
Total Production
Tonnes treated Tonnes 2,311,195 2,930,930 -21%
Diamonds produced Carats 1,237,219 1,643,568 -25%
Costs
On-mine cash cost per tonne treated ZAR 536 477 12%
Capex
Expansion Capex US$M 1.7 6.1 -72%
Sustaining Capex US$M 2.3 2.3 0%
Total Capex US$M 4.0 8.4 -52%
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.
Overall production totalled 1,237,219 carats (FY 2020: 1,643,568 carats), with
ROM carat production of 1,237,219 carats (FY 2020: 1,603,678 carats) and an
average ROM grade of 53.5 cpht (FY 2020: 59.0 cpht).
The contribution from underground ROM production decreased to 1,237,219 carats
(FY 2020: 1,603,678 carats). In H1 FY 2021, ROM volumes mined were impacted by
the expiry of the temporary continuous operations arrangement during September
2020, subsequently reinstated during October 2020 that remained in place until
June 2021. In addition, the Finsch mine experienced higher than expected
levels of waste ingress in a number of the upper levels of the Block 5 Sub
Level Cave, which negatively impacted the recovered grade. The Company
conducted a detailed exercise to better understand this issue and has put a
plan in place to mitigate the impact. This has included a revision to the draw
strategy to limit planned draw tonnage, 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. Furthermore, production at the Finsch mine in Q3 FY 2021 was
impacted by significantly high rainfall.
Revenue increased by 22% to US$123.5 million (FY 2020: US$101.1 million) due
to a combination of slightly higher sales and a slightly higher average value
per carat.
Costs
The on-mine cash unit cost increased to ZAR536/t (FY 2020: ZAR477/t), mainly
due to the reduced throughput.
Capex
FY 2021 Capex of US$4.0 million was mainly spent on underground development
and infrastructure relating to the Block 5 SLC.
FY 2022 Capex is guided at ca. US$21 – 25 million, primarily relating to the
exploration drilling and feasibility studies associated with the new 3-Level
SLC, underground development in 78 Level SLC Phase 2 and Stay in Business
Capex.
Koffiefontein – South Africa
Unit FY 2021 FY 2020 Variance
Sales
Revenue US$M 28.0 25.7 +9%
Diamonds sold Carats 66,650 66,326 0%
Average price per carat US$ 419 387 +8%
ROM Production
Tonnes treated Tonnes 754,369 891,705 -15%
Diamonds produced Carats 59,151 69,077 -14%
Grade Cpht 7.8 7.7 +1%
Total Production
Tonnes treated Tonnes 754,369 891,705 -15%
Diamonds produced Carats 59,151 69,077 -14%
Costs
On-mine cash cost per tonne treated ZAR 651 510 28%
Capex
Expansion Capex US$M 0.6 2.7 -78%
Sustaining Capex US$M 1.1 1.1 0%
Total Capex US$M 1.7 3.8 -55%
ROM production totalled 59,151 carats (FY 2020: 69,077 carats), with ROM
tonnage throughput down 15% on FY 2020 impacted by the significant rainfall
experienced in Q3 FY 2021; overall carat produced decreased by 14%, with the
average ROM grade remaining broadly flat at 7.8 cpht (FY 2020: 7.7 cpht).
Revenue increased 9% to US$28.0 million (FY 2020: US$25.7 million) for the
Year, with an 8% increase in the average price per carat.
Costs
The on-mine cash unit cost increased to ZAR651/t (FY 2020: ZAR510/t), mainly
due to decreased tonnages.
Capex
FY 2021 Capex of US$1.7 million was mainly spent on Stay in Business Capex.
FY 2022 Capex is guided at ca. US$1 – 3 million primarily relating Stay in
Business Capex.
Williamson – Tanzania (held for sale at 30 June 2021)
Unit FY 2021 FY 2020 Variance
Sales
Revenue US$M 4.6 52.5 -91%
Diamonds sold Carats 30,339 297,245 -90%
Average price per carat US$ 150 177 -15%
ROM Production
Tonnes treated Tonnes 0 3,980,438 -100%
Diamonds produced Carats 0 287,356 -100%
Grade Cpht 0 7.2 -100%
Alluvial Production
Tonnes treated Tonnes 0 302,567 -100%
Diamonds produced Carats 0 10,774 -100%
Grade Cpht 0 3.6 -100%
Total Production
Tonnes treated Tonnes 0 4,283,005 -100%
Diamonds produced Carats 0 298,130 -100%
Costs
On-mine cash cost per tonne treated USD n/a 10.2 n/a
Capex
Expansion Capex US$M 0.0 0.0 0%
Sustaining Capex US$M 0.3 8.0 -96%
Total Capex US$M 0.3 8.0 -96%
The Williamson mine was placed on care and maintenance during April 2020 and
remained on care and maintenance throughout FY 2021 (FY 2020 production:
298,130 carats).
Revenue decreased 91% to US$4.6 million (FY 2020: US$52.5 million), with sales
limited to the final parcel recovered prior to the commencement of care and
maintenance. Cash on-mine costs, mainly associated with care and maintenance
expenses, totalled around US$12.7 million for the Year.
Capex
FY 2021 Capex of US$0.3 million mainly related to Stay in Business Capex.
Project 2022 Update
Project 2022 commenced in July 2019 with the aim of identifying opportunities
to increase throughput across the business, drive efficiencies and facilitate
continuous improvement. A key objective of this project was to target delivery
of significant free cashflow over three years, though this has been impeded
primarily by the weakness in the diamond market, compounded further by
precautionary measures imposed at the operations related to the COVID-19
pandemic.
Project 2022 is not only now fully operational across the Group, but its
principles of focused and continuous improvement are being entrenched in the
operating model and are becoming part of the culture of the Company.
Weekly Project 2022 Results Action Review meetings (“RARs”) are held
within the first four structural layers of the organisation, starting with the
CEO, to monitor progress, provide support and resourcing where required and
ensure we are on track to deliver on our targets. In addition, we are in the
process of aligning our various incentive and production bonus schemes to
support and reward delivery of our Project 2022 targets across the Group.
The implementation of throughput ideas remains the largest contributor to
improving operational cash flow, led by Cullinan’s record recovery of 1.94
Mcts in FY 2021. Due to reduced pricing coupled with lower throughput at
Finsch, Koffiefontein and Williamson, expectations on the annualised
contribution from throughput initiatives were reduced to around US$50 million
in the Company’s Q3 FY 2021 Trading Update released in April 2021 and the
Company remains confident that it will achieve the annualised contribution of
US$50 million, supported by measures taken to curtail the waste ingress at
Finsch.
Initiatives undertaken to drive cost efficiencies are expected to contribute
an annualised US$20 million going into FY 2022, which remains unchanged from
previous guidance.
The Project 2022 Organisational Design Review Phase 1 was completed during FY
2021 and will result in updated role descriptions providing for clearer line
of site and improved accountability.
Gross Reserves and Resources
Petra manages one of the world’s largest diamond resources of 230 Mcts and
this major resource implies that the potential mine lives of our core assets
could be considerably longer than the current mine plans in place at each
operation or could support higher production rates.
As at 30 June 2021, the Group’s gross diamond resources (inclusive of
reserves) decreased 5% to 230.64 Mcts (30 June 2020: 243.51 Mcts),
predominantly due to depletions at all mining assets further to ore mined in
FY 2021 and the sale of Petra’s exploration assets in Botswana to Botswana
Diamonds PLC, which has removed the KX36 kimberlite pipe (Resource of 8.73
Mcts) from the Resource Statement.
The Group’s gross diamond reserves decreased 14% to 33.33 Mcts (30 June
2020: 38.86 Mcts) primarily due to mining depletions, the impact of increased
pit scaling and waste ingress on the remaining reserves in the current SLC at
Finsch, changes to the mine plan and mining method for the future block at
Finsch, and Williamson remaining on care and maintenance with an associated
reduction in reserve estimate given the remaining tenure of the Special Mining
License.
The following table summarises the gross Reserves and Resources status of the
combined Petra Group operations as at 30 June 2021 and includes the Williamson
operation.
Category Gross
Tonnes (millions) Grade (cpht) Contained Diamonds (Mcts)
Reserves
Proved - - -
Probable 116.3 28.7 33.33
Sub-total 116.3 28.7 33.33
Resources
Measured - - -
Indicated 329.1 47.2 155.38
Inferred 1,292.3 5.8 75.27
Sub-total 1,621.3 14.2 230.64
The full 2021 Resource Statement can be accessed at
https://www.petradiamonds.com/our-operations/reserves-resources/.
Labour relations
Stable labour relations are essential to our productivity and the delivery of
our strategy. We therefore remain highly focused on managing labour relations
and on maintaining open and effective communication channels with our
employees and the appropriate union representatives at our operations.
Petra did not experience any industrial action during the Year and has seen
largely stable labour relations over the last four years. Post Year end, the
Company announced that it had reached agreement on a new three-year wage
agreement with NUM for employees in the Paterson A and B Bands at the South
African operations covering FY 2022 to FY 2024, which should allow for further
stability over this timeframe.
GOVERNANCE
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.
As previously announced, Mr Gordon Hamilton, Independent Non-Executive
Director, will retire from the Board and as Chair of the Audit and Risk
Committee at the conclusion of the FY 2021 Annual General Meeting on 19
November 2021. On 1 July 2021, the Company announced the appointment of Ms
Deborah Gudgeon as an Independent Non-Executive Director and Chair-designate
of the Audit and Risk Committee.
Following completion of the Restructuring in March 2021, the appointment of
Mr. Matthew Glowasky as a Non-Independent Non-Executive Director of the
Company became effective, further to his nomination by Monarch Master Funding
2 (Luxembourg) S.a.r.l. (“Monarch”). In addition, on 1 July 2021 Ms
Alexandra Watson and Mr Johannes Bhatt were both appointed as Non-Independent
Non-Executive Directors, having been nominated by Franklin Templeton and
Monarch respectively. Monarch also exercised their right under the Nomination
Agreement to appoint Mr. Marius Kraemer as their Board Observer with effect
from 1 July 2021.
The Company welcomes the new Directors, as well as Mr Kraemer as Board
Observer; together they bring a wealth of experience, complementing that of
our existing Directors, and their appointments leave the Board well placed to
take the Company forward.
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.
A summary of the risks identified as the Group’s principal external,
operating and strategic risks (in no order of priority), which may impact the
Group over the next twelve months, is listed below.
Risk Risk appetite Risk rating Nature of risk Change in FY 2021
1. Country and political High High Long term No change – risk of political instability remains in South Africa, illustrated by civil unrest shortly after Year end, and certain components of the new Mining Charter remain under review. In Tanzania, the risk of political instability remains high further to the death of the Tanzanian President. Petra is in ongoing dialogue with the
Government of Tanzania and local advisers in relation to legislative developments, overdue VAT receivables and the blocked parcel of diamonds from Williamson.
2. COVID-19 pandemic (operational impact) Medium High Short to medium term No change – the impact of COVID-19 is ongoing, but the mitigating processes Petra has put in place are enabling the Company to manage the pandemic without a significant impact on production and sales.
3. Currency High Medium Long term No change - the ZAR/USD exchange rate continues to be volatile. The short-term strengthening in the Rand has the capacity to offset some of the improvement in Petra’s realised diamond prices.
4. Diamond price High Medium Long term Lower - diamond prices recovered during H2 FY 2021 and overall increased ca. 9% during the Year, following the major disruption of the diamond pipeline in FY 2020 caused by the COVID 19 pandemic.
5. Financing Medium Medium Short to medium term Lower – progress with Project 2022 initiatives led to an improvement in operational
free cashflow supported by stronger diamond markets during H1 CY’21, despite the
negative impact of COVID-19 pandemic. Following shareholder, noteholder and
regulatory approvals, the capital and debt restructure project which was a key focus
area for management was completed.
6. Labour relations Medium Medium Short to medium term Lower - stable labour relations were experienced during the Year. Post Year end, the
Company reached agreement on a new three-year wage agreement with NUM for employees
in the Paterson A and B Bands at the South African operations covering FY 2022 to FY
2024.
7. Licence to operate Medium Medium Long term No change - continued compliance in all material aspects with relevant laws,
regulations and standards. Incorporated in Petra’s licence to operate is its
continued focus on safety, as well as its impacts on the environment and communities.
In May 2021, Petra announced the findings of the independent Board Sub-Committee into
the alleged human rights breaches in Tanzania, as well as setting out the mitigating
and preventative actions the Company had taken or was putting place to address the
findings. The Company also reached a settlement, on a no admission of liability
basis, in relation to claims of alleged human rights breaches. The risk of illegal
mining at Williamson is ongoing.
8. Mining and production Medium Medium Long term Higher - positive throughput improvements driven by Project 2022 led to a strong
operational performance at Cullinan during FY 2021, offset by work to curtail waste
ingress and pit sidewall instability at Finsch, and rainfall impacting production at
Finsch and Koffiefontein in Q3 FY 2021. With Williamson in care and maintenance, low
production levels at Koffiefontein and lower production at Finsch, there is greater
dependency on production at Cullinan.
9. ROM grade and product mix volatility Medium Medium Short term No change – Cullinan ROM grades were in line and slightly above expectations, whilst
both Finsch and Koffiefontein were below expectations. Finsch’s production was
impacted by waste ingress and the medium to long term impact on the mine’s LOM
planning is being reviewed. The mines recovered the full range of diamonds in FY
2020, with a higher recovery of specials at Cullinan.
OUTLOOK
The medium to long-term outlook for our market and for our business remains
positive. The completion of the Company’s financial restructuring in FY 2021
showed that we retain significant support from the investment market and has
provided enhanced stability for the Company to deliver on its operational
plans.
I believe that Petra has high quality assets, a skilled and motivated
workforce, a refreshed company culture, ongoing optimisation plans and support
from our stakeholders. This, set against an improving diamond market,
positions the Company well for the years to come.
Richard Duffy
Chief Executive
14 September 2021
Notes
1. The following exchange rates have been used for this announcement:
average for the Year US$1:ZAR15.41 (FY 2020: US$1:ZAR15.68); closing rate as
at 30 June 2021 US$1:ZAR14.27 (30 June 2020: US$1:ZAR17.32).
2. The following definitions have been used in this announcement:
a. ct: carat
b. cpht: carats per hundred tonnes
c. CY: calendar year
d. FY: financial year
e. Kcts: thousand carats
f. Mctpa: million carats per annum
g. Mcts: million carats
h. mL: metre level
i. Mt: million tonnes
j. Mtpa: million tonnes per annum
k. ROM: run-of-mine, i.e. relating to production from the primary
orebody
l. SLC: sub-level cave, a variation of block caving
APPENDIX
The below operational results include Williamson and are provided for
reference only:
Combined Operations (Including Williamson)
Unit FY 2021 FY 2020 Variance
Sales
Diamonds sold Carats 3,960,475 2,895,497 37%
Revenue US$M 406.9 295.8 38%
Production
ROM diamonds Carats 3,057,860 3,442,593 -11%
Tailings & other (1)diamonds Carats 182,452 146,583 +24%
Total diamonds Carats 3,240,312 3,589,176 -10%
Tonnages
ROM tonnes Mt 7.7 11.5 -33%
Tailings & other (1)tonnes Mt 0.4 0.8 -50%
Total tonnes Mt 8.1 12.3 -34%
On mine cash costs US$M 276.1 225.3 23%
Capex
Expansion US$M 16.9 21.8 -23%
Sustaining US$M 6.9 14.6 -53%
Total US$M 23.8 36.4 -35%
Notes:
1. 'Other' represents alluvial diamond mining at Williamson.
PETRA DIAMONDS LIMITED – PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2021
US$ million Notes 2021 2020 (1)
Revenue 4 402.3 243.3
Mining and processing (337.2) (238.2)
Other direct income 1.7 1.0
Exploration expenditure 17 — (0.6)
Corporate expenditure including settlement costs 5 (21.3) (8.7)
Impairment of non-financial assets 16 (17.7) (50.5)
Impairment of BEE loans receivable – expected credit loss reversal / (charge) 13 5.8 (10.9)
Total operating costs (368.7) (307.9)
Profit on disposal of subsidiary 17 14.7 —
Financial income 6 84.1 7.9
Financial expense 6 (74.0) (160.8)
Gain on extinguishment of Notes net of unamortised costs 6,8 213.3 —
Profit / (loss) before tax 271.7 (217.5)
Income tax (charge) / credit (23.0) 52.5
Profit / (loss) for the year from continuing operations 248.7 (165.0)
Loss on discontinued operations including associated impairment charges (net of tax) 17 (52.1) (58.0)
Profit / (loss) for the Year 196.6 (223.0)
Attributable to:
Equity holders of the parent company 187.1 (190.0)
Non-controlling interest 9.5 (33.0)
196.6 (223.0)
Earnings / (loss) per share attributable to the equity holders of the parent during the Year:
Continuing operations:
Basic earnings / (loss) per share – US cents 14 6.67 (15.26)
Diluted earnings / (loss) per share – US cents 14 6.67 (15.26)
From continuing and discontinued operations:
Basic earnings / (loss) per share – US cents 14 5.22 (21.96)
Diluted earnings / (loss) per share – US cents 14 5.22 (21.96)
(1. Comparative results have been restated to reflect the results of
Williamson within loss on discontinued operations including associated
impairment charges (net of tax) as per the requirements of IFRS 5 (refer to
note xx).)
PETRA DIAMONDS LIMITED - PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2021
US$ million 2021 2020
Profit / (loss) for the Year 196.6 (223.0)
Exchange differences on translation of the share-based payment reserve 0.2 (0.2)
Exchange differences on translation of foreign operations (1,2) 64.2 (91.3)
Exchange differences on non-controlling interest (1) (1.2) (0.6)
Total comprehensive income / (expense) for the Year 259.8 (315.1)
Total comprehensive income and expense attributable to:
Equity holders of the parent company 251.5 (281.5)
Non-controlling interest 8.3 (33.6)
259.8 (315.1)
¹ These items will be reclassified to the consolidated income statement if
specific future conditions are met.
² The Company has disclosed the net assets of the Williamson mine under
non-current assets held for sale and liabilities directly associated with
non-current assets held for sale in the Statement of Financial Position.
PETRA DIAMONDS LIMITED – PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 30 JUNE 2021
US$ million Notes 2021 2020
ASSETS
Non-current assets
Property, plant and equipment 7 696.8 675.8
Right-of-use assets 1.2 4.9
BEE loans and receivables 13 46.6 137.0
Other receivables — 10.3
Deferred tax assets — 23.3
Total non-current assets 744.6 851.3
Current assets
Trade and other receivables 50.7 20.0
Inventories 59.9 103.5
Cash and cash equivalents (including restricted amounts) 163.8 67.6
Total current assets 274.4 191.1
Non-current assets classified as held for sale 17 59.6 0.3
Total assets 1,078.6 1,042.7
EQUITY AND LIABILITIES
Equity
Share capital 8,9 145.7 133.4
Share premium account 8,9 959.5 790.2
Foreign currency translation reserve (402.1) (453.0)
Share-based payment reserve 1.8 1.1
Other reserves (0.8) (0.8)
Accumulated losses (253.3) (440.4)
Attributable to equity holders of the parent company 450.8 30.5
Non-controlling interest (10.5) (18.8)
Total equity 440.3 11.7
Liabilities
Non-current liabilities
Loans and borrowings 10 400.0 —
Lease liabilities 0.5 1.1
BEE loans payable 13 — 108.6
Provisions 71.3 55.6
Deferred tax liabilities 48.9 40.5
Total non-current liabilities 520.7 205.8
Current liabilities
Loans and borrowings 10 30.3 769.0
Lease liabilities 0.5 3.6
Trade and other payables 49.1 52.5
Provisions 4.2 —
Total current liabilities 84.1 825.1
Liabilities directly associated with non-current assets classified as held for sale 17 33.5 0.1
Total liabilities 638.3 1,031.0
Total equity and liabilities 1,078.6 1,042.7
PETRA DIAMONDS LIMITED –PRELIMINARY ANNOUNCEMENT
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
US$ million Notes 2021 2020
Profit / (loss) before taxation for the Year from continuing and discontinued operation 219.6 (275.3)
Depreciation of property plant and equipment 75.9 78.3
Amortisation of right-of-use asset 0.9 5.2
Unrealised gain on lease liability — (0.8)
Impairment charge – non financial assets 16 17.7 92.3
Impairment charge/(reversal) – other receivables 16 — (0.4)
Impairment of BEE loans receivable – expected credit loss (release) / charge 13 (5.8) 10.9
Gain on extinguishment of Notes net of unamortised costs 6,8 (213.3) —
Loss and impairment charge on discontinued operations 17 43.2 —
Profit on disposal of subsidiary 17 (14.7) —
Movement in provisions 4.8 (0.1)
Financial income 6 (84.1) (7.9)
Financial expense 6 74.0 161.0
Profit on disposal of property, plant and equipment (0.6) (0.1)
Share based payment provision 0.5 0.7
Operating profit before working capital changes 118.1 63.8
(Increase) / decrease in trade and other receivables (26.9) 11.4
Increase / (decrease) in trade and other payables 5.5 (15.5)
Decrease / (Increase) in inventories 42.8 (32.7)
Cash generated from operations 139.5 27.0
Net realised losses on foreign exchange contracts (6.1) (8.3)
Finance expense paid (6.7) (26.2)
Income tax received / (paid) 0.3 (0.6)
Net cash generated from / (utilised by) operating activities 127.0 (8.1)
Cash flows from investing activities
Acquisition of property, plant and equipment (19.4) (39.3)
Proceeds from sale of property, plant and equipment 0.3 0.8
Loans advanced to BEE partners (7.0) (14.1)
Repayments from KEM JV — 0.4
Finance income received 0.7 1.2
Net cash utilised in investing activities (25.4) (51.0)
Cash flows from financing activities
Cash transaction costs settled – Debt Restructuring 8 (29.9) —
Cash paid on lease liabilities (0.7) (5.0)
Increase in borrowings 8,18 30.0 100.9
Repayment of borrowings 18 (7.4) (43.5)
Net cash (utilized) / generated from financing activities (8.0) 52.4
Net increase / (decrease) in cash and cash equivalents 93.6 (6.7)
Cash and cash equivalents at beginning of the Year 53.6 71.7
Effect of exchange rate fluctuations on cash held 9.7 (11.4)
Cash and cash equivalents at end of the Year (1) 156.9 53.6
The cashflows specific to the discontinued operation net of associated
impairments (net of tax) are included in the amounts above and are disclosed
in note 17.
¹ Cash and cash equivalents in the Consolidated Statement of Financial
Position includes restricted cash of US$16.1 million (30 June 2020: US$14.0
million) and unrestricted cash of US$147.7 million (30 June 2020: US$53.6
million) and excludes unrestricted cash attributable to Williamson of US$9.2
million.
PETRA DIAMONDS LIMITED – PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
(Unaudited) US$ million Share capital Share premium account Foreign currency translation reserve Share-based payment reserve Hedging and other reserves
At 1 July 2020 133.4 790.2 (453.0) 1.1 (0.8)
Profit for the Year — — — — —
Other comprehensive income / (expense) — — 64.2 0.2 —
Recycling of foreign currency translation reserve on disposal of Sekaka (refer note 17) — — (13.3) — —
Equity settled share based payments — — — 0.5 —
Allotments during the Year:
- Ordinary shares – Debt for equity issue (net of US$12.3 million issue costs) – refer to note 8 12.3 169.3 — — —
At 30 June 2021 145.7 959.5 (402.1) 1.8 (0.8)
(Unaudited) US$ million Accumulated losses Attributable to the parent Non-controlling interest Total equity
At 1 July 2020 (440.4) 30.5 (18.8) 11.7
Profit for the Year 187.1 187.1 9.5 196.6
Other comprehensive income / (expense) — 64.4 (1.2) 63.2
Recycling of foreign currency translation reserve on disposal of Sekaka (refer note 17) — (13.3) — (13.3)
Equity settled share based payments — 0.5 — 0.5
Allotments during the Year:
- Ordinary shares – Debt for equity issue (net of US$12.3 million issue costs) – refer to note 8 — 181.6 — 181.6
At 30 June 2021 (253.3) 450.8 (10.5) 440.3
PETRA DIAMONDS LIMITED – PRELIMINARY ANNOUNCEMENT
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
(Unaudited) US$ million Share capital Share premium account Foreign currency translation reserve Share-based payment reserve Hedging and other reserves
12 month Period ended 20 June 2020:
At 1 July 2019 133.4 790.2 (361.7) 6.2 (0.8)
Loss for the Year — — — — —
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
12 month Period ended 20 June 2020:
At 1 July 2019 (255.6) 311.7 14.4 326.1
Loss for the Year (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 PRELIMINARY FINANCIAL STATEMENTS
FOR THE YEAR 30 JUNE 2021
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
Preliminary Financial Statements of the Company for the year ended 30 June
2021 comprise the Company and its subsidiaries, joint operations and
associates (together referred to as the “Group”).
2. ACCOUNTING POLICIES
This unaudited preliminary 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 reporting period.
The annual financial report for the year ended 30 June 2020 was prepared in
accordance with International Financial Reporting Standards as adopted by the
European Union (“IFRS’s”) and the accounting policies applied in this
condensed preliminary report are consistent with the polices applied in the
annual financial report for the year ended 30 June 2020 unless otherwise
noted. The preliminary report has been prepared in accordance with
International Financial Reporting Standards as adopted by the European Union.
Accounting policy for Non-current assets held for sale and discontinued
operations
Where an operation within the Group is separately identified or forms part of
a separate reporting structure, the Group will classify the asset as held for
sale, in accordance with IFRS 5, if management has committed to a plan to
sell, the operation is available for sale, an active search for a buyer is in
place, or if any transaction is highly probable within 12 months of
classifying as held for sale. The Williamson operation met the criteria
mentioned above and as such has been classified as held for sale as at 30 June
2021. The assets held for sale are measured at the lower of their carrying
amount and fair value less costs to sell. An impairment loss is recognised for
any initial or subsequent write-down of the asset to fair value less costs to
sell. A gain is recognised for any subsequent increases in fair value less
costs to sell of an asset but not in excess of any cumulative impairment loss
previously recognised. A gain or loss not previously recognised by the date of
the sale of the non-current asset is recognised at the date of derecognition.
Non-current assets classified as held for sale and the assets of an operation
classified as held for sale are presented separately from the other assets in
the statement of financial position. The liabilities of an identified
operation classified as held for sale are presented separately from other
liabilities in the statement of financial position.
A discontinued operation is a component of the entity that has been disposed
of or is classified as held for sale and that represents a separate major line
of business or geographical area of operations, is part of a single
co-ordinated plan to dispose of such a line of business or area of operations,
or is a subsidiary acquired exclusively with a view to resell. The results of
discontinued operations are presented separately in the statement of profit or
loss.
Unrealised foreign exchange gains and losses on historic retranslation of the
subsidiaries results into US Dollars are recycled to the consolidated income
statement upon completion of the disposal. The Group designates the results of
discontinued activities, including those of disposed subsidiaries, separately
in accordance with IFRS and reclassifies the results of the operation in the
comparative period from continuing to discontinued operations.
Debt for Equity conversion
When the Group issues equity to settle outstanding debt, the value attributed
to the ordinary shares issued is based on the fair value of the equity at the
date of settlement to extinguish the debt. The fair value is derived by
reference to the closing share price at the date of the conversion, it is
considered to be a Level 1 fair value measurement. Costs identified as being
directly associated with the debt for equity conversion are taken directly to
share premium.
Accounting policy for substantial modification of financial liabilities
When the Group’s borrowings are refinanced, and the refinancing is
considered to be a substantial modification, the difference between the
carrying amount of a financial liability (or part of a financial liability)
extinguished or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities assumed, is
recognised as a charge in the income statement.
Basis of preparation including going concern
GOING CONCERN
Despite facing many challenges during FY 2021, improvements in market
conditions and the easing of certain COVID-19 restrictions resulted in an
increase in demand for rough diamonds, specifically during H2. This allowed
for a higher volume of diamond sales to be generated by the Group, which
further benefitted from a ca. 9% increase in diamond prices on a like-for-like
basis when compared to FY 2020. In addition, the Company recovered and sold a
number of Exceptional Stones during FY 2021 from Cullinan, yielding a total of
US$62.0 million in sales revenues. Post Year-end, another three Exceptional
Stones were sold, being a 39.3ct blue diamond yielding US$40.18 million in
July 2021, and a 342.9ct white diamond and an 18.3ct blue diamond which
collectively sold for US$13.5 million, while the Company retained a fifty
percent interest in the profits, after costs, of both these stones.
These factors, coupled with the successful completion of the Capital
Restructuring, resulted in solid progress towards stabilising the Group’s
balance sheet and strengthening cash reserves to the date of this report.
The Group’s liquidity outlook over the 18-month period to December 2022
remains strong, even when applying sensitivities to the base case forecast.
However, since covenants were set tightly in the base case at the time of the
Restructuring, the debt service cover ratio (“DSCR”) covenant, which does
not factor in available liquidity nor consider leverage levels, remains
sensitive to trading conditions during this period. Under certain
stressed-case scenarios, projections indicate that the DSCR covenant may be
breached; however, the Company is forecast to have adequate liquidity to fully
pay down the drawn facilities prior to any potential breach occurring and
retain adequate liquidity and is, therefore, not reliant on the facilities.
The Company has also commenced with steps towards renegotiating available
banking facilities and associated covenants to address the risk of a breach
occurring. The Board considers that the going concern basis in the
preparation of the financial statements is appropriate and that there are no
material uncertainties that would cast doubt on that basis of preparation.
Capital Restructuring
The Restructuring completed in March 2021 and significantly reduced the
Company’s gross debt from US$817.5 million directly before the Restructuring
to US$450.1 million thereafter, with some US$10.3 million (ZAR160 million)
remaining undrawn and available to the Group.
Loan Notes reduced from US$713.7 million (US$650 million capital plus accrued
interest of ca. US$63.7 million to date of settlement) to US$336.7 million,
while debt owed under the Group’s banking facilities saw an additional
US$10.3 million (ZAR160 million) revolving credit facility being made
available to the Group, increasing these facilities to ZAR560 million, while
the previous ZAR500 million working capital facility and the ZAR683 million
BEE guarantee facilities were refinanced and replaced by a ZAR1,200 billion
amortising Term Loan.
South African Operations
Cullinan performed well during FY 2021, delivering record throughput supported
by Project 2022 initiatives. It is expected that Cullinan will continue to
perform at these levels in future. Finsch was impacted by unexpected levels of
waste ingress, reducing both throughput and grades recovered at the mine. The
longer-term impact of the waste ingress has been assessed through geological
simulations, with results informing revised LOM planning models, as well as
resultant cashflow projections. Short term disruptions were also experienced
after unusually heavy rainfalls hampered operations at both Finsch and
Koffiefontein during Q3 FY 2021.
COVID-19
Some uncertainty still exists around the ongoing impact of COVID-19 on the
Group. South Africa is currently experiencing a third wave of infections and
the disruption to Petra’s operations mainly concerns the necessary
quarantining of confirmed or suspected cases amongst our workforce. However,
the Company has the systems and processes in place to manage this without
materially impacting production. Petra’s focus now is on assisting the
Government with its vaccination drive and the Company has vaccination stations
and campaigns to encourage their uptake available at, or near to, each of our
operations.
The Group continues to sell its product through a dual tender system – first
via the mandatory tender held in South Africa, with the bulk of the goods then
exported to be sold in Antwerp. This approach ensures maximum exposure to
potential bidders and, in turn, stronger competition and improved pricing.
Further waves of outbreak and repeat 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/or demand for
rough diamonds and, consequently, diamond prices.
Williamson mine, Tanzania
The Board took the decision to dispose of the Williamson operation as at 30
June 2021. The Williamson mine remained on care and maintenance; however, the
Company is currently taking steps towards the recommencement of production
given improving market conditions over the last number of months. The mine’s
own liquidity position, bolstered by US$10 million in VAT refunds during Q4 FY
2021, coupled with support from the local mining contractor in the form of
deferred payment terms, should see it reach commercial production levels
during H1 FY 2022, with first sale of goods projected to be in Q2 FY 2022,
with working capital funding from Petra limited to US$6 million during this
start-up period.
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. Williamson’s liquidity position is
reliant on its ability to generate cash through operations; and/or its ability
to reach agreement with the GoT allowing it to sell the blocked diamond parcel
and around potential recoupment of the balance 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. Earlier discussions with a local bank for a possible working
capital facility were not successful given the mine is still in care and
maintenance. The Tanzanian banks suggested that they may consider advancing a
facility post restart of operations, although this remains uncertain. 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 the 18
months to December 2022, including both forecast liquidity and covenants.
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, including adverse weather
conditions;
· a sustained 5% decrease in forecast rough diamond prices
throughout the forecast period;
· 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);
and
· an increase in forecast operating cost.
Under the base case, the forecasts indicate that the Company will be able to
operate within the covenants set out in the financing agreements and maintain
sufficient liquidity.
However, as detailed above, the first lien covenants were set with limited
headroom to the Company’s base case. As such, results of the stress testing
indicate that in the event of a combination of all tested scenarios, possible
covenant breaches associated with the South African banking facilities may
occur at June 2022, while a breach is also projected in December 2022 on an
individual stress test basis. At the time of any covenant breach in June 2022
and December 2022 under such scenarios, projected cash balances exceed
outstanding debt under these facilities, which would allow the Group to fully
pay down the drawn facilities prior to the breach occurring and maintain
adequate liquidity. The forecasts indicate that under the sensitivity
scenarios, the Group is not reliant on the facilities.
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, 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. Accordingly, the Board has concluded that the going
concern basis in the preparation of the financial statements is appropriate
and that there are no material uncertainties that would cast doubt on that
basis of preparation.
New standards and interpretations applied
The IASB has issued new standards, amendments and interpretations to existing
with an effective date on or before 1 July 2020, these new standards are not
considered to have a material impact on the Group during the Year 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 preliminary financial statements
requires management to make estimates and judgements and form assumptions that
affect the reported amounts of the assets and liabilities, reported revenue
and costs during the periods presented therein, and the disclosure of
contingent liabilities at the date of the preliminary financial statements.
Estimates and judgements are continually evaluated and based on management’s
historical experience and other factors, including future expectations and
events that are believed to be reasonable. The estimates and assumptions that
have a significant risk of causing a material adjustment to the financial
results of the Group in future reporting periods are discussed below.
Key estimates and judgements:
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 and Koffiefontein
The impairment tests for Cullinan, Finsch and Koffiefontein resulted in an
impairment charge of US$17.3 million (30 June 2020: US$50.9 million) to be
recognised, on a carrying value of the Group’s property, plant and equipment
of US$711.8 million (30 June 2020: US$844.0 million). The impairment was
directly attributable to the Finsch amounting US$15.5 million (30 June2020:
US$11.6 million) and Koffiefontein amounting US$2.2 million (30 June2020:
US$11.7 million) related to property, plant and equipment of US$213.9 million
(30 June 2020: US$17.4 million). For further details of the inputs,
assumptions and sensitivities in the impairment model, refer to note 16.
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) 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 requires
significant judgement. In making such a judgement, the Group considered their
ongoing discussions with the GoT. The Group received confirmation from the GoT
in FY 2018 that they held the diamond parcel of 71,654.45 carats. The Group
has received verbal re-confirmation during the Year in the course of the
ongoing discussions held with the GoT. The Group has made an assessment of the
internal process used for the sale and export of diamonds and has confirmed
that in the event that the parcel is recovered, a sale would be possible to
execute in full compliance with legislation in Tanzania and the Kimberley
Process with certain rectification steps. The Group has obtained legal advice
from the Group’s in-country attorneys which supports management’s position
that the Group retains the legal right to the parcel.
The Company is aware of media reports during the Year suggesting that the
blocked parcel of 71,654 carats of diamonds from the Williamson mine in
Tanzania has been nationalised by GoT. The Company remains in discussions
discussions with the GoT on this matter.
While a resolution has not yet been reached with regards to the blocked
parcel, 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 by the Williamson operation. The funds are
expected to flow to the Williamson mine and to be used as part of its future
working capital requirements.
Recoverability of VAT in Tanzania
The Group has VAT receivable of US$0.7 million (30 June 2020: US$10.3 million)
in respect of the Williamson mine, all of which are past due and have
therefore been classified, after after provision including amounts related to
providing for a time-value of money inclusive of risk adjustments for various
factors, as non-current given the potential delays in receipt. Williamson’s
non-current assets have been classified as assets held for sale in FY 2021.
The VAT receivable can be split into three identifiable component time periods
as set out below:
US$ million VAT Receivable Provision Carrying value
Pre July 2017 1.8 (1.3) 0.5
July 2017 to June 2020 26.9 (26.9) —
Post June 2020 0.8 (0.6) 0.2
29.5 (28.8) 0.7
Pre July 2017
Of the total VAT receivables, US$1.8 million (30 June 2020: US$13.0 million)
relates to historic VAT pre July 2017. During the Year the Group received
US$10.0 million in VAT refunds from the Tanzanian Revenue Authority in respect
of the pre July 2017 period and US$1.2 million was disallowed subsequent to a
VAT audit performed by the Tanzanian Revenue Authority. A provision of US$1.3
million, given the uncertainty around the timing of receipts of the amount
outstanding, has been provided for against the US$1.8 million receivable
resulting in a carrying value of US$0.5 million.
July 2017 to June 2020
A further US$26.9.million (30 June 2020: US$26.9 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 (“TRA”) 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 based on legal advice, considers that input VAT is
valid and legally recoverable.. However, the TRA maintains that this amount is
disputed and not recoverable. Given that there have been no favourable
developments from the TRA, management has written down the full disputed
balance of US$26.9 million as there has been no indication from the TRA that
these amounts will be reimbursed, regardless of the June 2020 revision of
legislation.
As noted above, the VAT legislation was again revised to remove any reference
to raw minerals with effect from 1 July 2020. The amendment to the legislation
is to be applied prospectively and this therefore supports management’s view
that VAT related to periods post July 2020 are recoverable.
Post June 2020
An amount of US$0.8 million of VAT is receivable for the period subsequent to
1 July 2020. The Group is considering various alternatives in pursuing payment
in accordance with legislation. A provision of US$0.6 million, given the
uncertainty around the timing of receipts of the amount outstanding, has been
provided for against the US$0.8 million receivable resulting in a carrying
value of US$0.2 million.
While the remaining pre July 2017 and post 1 July 2020 VAT balance is
considered receivable, significant uncertainty exists regarding the timing of
receipt. 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$0.05 million and a one year
delay would increase the provision by US$0.1 million.
The total impairment on the total VAT balance is therefore US$28.7 million (FY
2020: US$29.6 million) During the Year, a reversal of previous impairments of
US$0.7 million (30 June 2020: US$nil) was recognised in loss on discontinued
operations.
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 conclusion during the Year of an offset agreement. Based on the
assessment, the analysis generated an expected net credit loss reversal
totalling US$5.8 million (30 June 2020: US$10.9 million expected credit loss
provision), comprising of US$6.1 million provision reversal in respect of
Cullinan and Finsch and US$0.3 million expected credit loss provision in
respect of Koffiefontein (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).
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 Resource 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, outside the current
mine plan further impact the estimated date of decommissioning and
rehabilitation.
Restructuring
Transaction costs associated with the restructuring exercise were apportioned
to the listed debt, equity issued and ZAR banking facilities based on the
value of each element at the date of restructuring. Refer to Note 8 (c) for
further details.
Williamson Diamond Mine (30 June 2021)
The Group needs to apply judgment when determining whether an asset should be
classified as held for sale. For this to be the case, the asset must be
available for immediate sale in its present condition and its sale must be
highly probable. The following factors are considered by management in
determining whether a sale is highly probable: Management must be committed to
a plan to sell the asset; an active programme to locate a buyer and complete
the plan must have been initiated; the asset must be actively marketed for
sale at a reasonable price and any transaction should be expected to be
completed within 12 months of classification of the asset as held for sale.
Based on the above factors, management considered that the Williamson mine was
an asset held for sale at 30 June 2021. Judgement is required when determining
whether a component of an entity classifies as a discontinued operation. A
component of the Group should be classified as a discontinued operation when
it has been disposed of, or if it is classified as held for sale, and
represents a separate major line of business or geographical area of
operations, is part of a single co-ordinated plan to dispose of a separate
major line of business or geographical area of operations, or is a subsidiary
acquired exclusively with a view to resale. Judgement is required when
determining whether the component represents a separate major line of business
or geographical area of operations. This was applied to the classification of
the Williamson mine as a discontinued operation. The Williamson mine is
considered a major geographical area of operations which has been reported as
a separate segment in the past, and as such we have determined the
classification of a discontinued operation to be appropriate. In terms of the
measurement requirements of IFRS 5, once classified as held for sale, the
assets are required to be measured at the lower of their carrying amount and
fair value less costs to sell. Judgment is required in order to determine
the fair value of the disposal group. In determining the fair value used to
calculate the appropriate write down, management took into consideration,
current discussions with vendors, the latest LOM plan assessment and the best
available information at the present time. Refer to note 17 for further
details.
Taxation
The Group operates in South Africa and Tanzania, and accordingly it is subject
to, and pays annual income taxes under the various income tax regimes in the
countries in which it operates. From time to time the Group is subject to a
review of its income tax filings and in connection with such reviews, disputes
can arise with the taxing authorities over the interpretation or application
of certain rules to the Group's business conducted within the country
involved. Management evaluates each of the assessments and recognises a
provision based on its best estimate of the ultimate resolution of the
assessment, through either negotiation or through a legal process.
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).
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. As at 30 June 2021, the Tanzania segment
constitutes a discontinued operation and is classified as held for sale per
IFRS 5.
Exploration – exploration activities in Botswana (The exploration assets in
Botswana were disposed of via the sale of the Group’s interest in Sekaka
Diamonds Exploration (Pty) Ltd).
Corporate – administrative activities in the United Kingdom.
Beneficiation – beneficiation activities in South Africa.
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 (5) Exploration (4)
2021 2021 2021 2021 2021
Revenue 250.6 123.5 27.9 — —
Segment result¹ 76.8 (0.5) (8.1) — —
Impairment charge – operations — (15.1) (2.2) — —
Impairment charge – other receivables — — — — —
Impairment of BEE loans receivable – expected credit loss release / (charge) — — — — —
Other direct income 0.6 1.0 0.1 — —
Operating profit / (loss)² 77.4 (14.6) (10.2) — —
Gain on extinguishment of Notes and unamortised costs
Profit on disposal of subsidiary
Financial income
Financial expense
Income tax charge
Loss on discontinued operation (net of tax) (5)
Non-controlling interest
Profit attributable to equity holders of the parent company
Segment assets 559.0 249.9 6.9 59.6 —
Segment liabilities 559.2 119.7 22.1 33.5 —
Capital expenditure 16.8 4.0 1.7 0.3 —
Operating segments United Kingdom South Africa
US$ million Corporate and treasury Beneficiation (3) Inter-segment Consolidated
2021 2021 2021
Revenue — 0.3 — 402.3
Segment result¹ (21.2) (1.6) (1.6) 43.8
Impairment charge – operations — — — (17.3)
Impairment charge – other receivables (0.4) — — (0.4)
Impairment of BEE loans receivable – expected credit loss release / (charge) 5.8 — — 5.8
Other direct income — — — 1.7
Operating profit / (loss)² (15.8) (1.6) (1.6) 33.6
Gain on extinguishment of Notes and unamortised costs 213.3
Profit on disposal of subsidiary 14.7
Financial income 84.1
Financial expense (74.0)
Income tax charge (23.0)
Loss on discontinued operation (net of tax) (5) (52.1)
Non-controlling interest (9.5)
Profit attributable to equity holders of the parent company 187.1
Segment assets 3,488.7 4.5 (3,290.0) 1,078.6
Segment liabilities 2,134.7 5.5 (2,236.4) 638.3
Capital expenditure 1.0 — — 23.8
¹ Total depreciation of US$75.9 million included in the segmental result
comprises depreciation incurred at Cullinan of US$52.2 million, Finsch of
US$23.0 million, Koffiefontein US$ 0.1 million and Corporate and treasury of
US$0.6 million.
² Operating profit is equivalent to revenue of US$402.3 million less total
costs of US$368.7 million as disclosed in the Consolidated Income Statement.
(3) The beneficiation segment represents Tarorite, a cutting and polishing
business in South Africa, which on occasion cuts and polishes select rough
diamonds.
(4) The operating results in respect of Botswana have been reflected in note
17. In FY 2021, Petra sold its exploration assets in Botswana to Botswana
Diamonds PLC via the sale of its interest in Sekaka Diamonds Exploration (Pty)
Ltd.
(5) The operating results in respect of Williamson have been reflected within
loss on discontinued operation and the assets and liabilities classified as
held for sale (refer to note 17).
4. SEGMENTAL INFORMATION (continued)
Operating segments South Africa – Mining activities Tanzania -Mining activities Botswana
US$ million Cullinan Finsch Koffiefontein Williamson (5) Exploration
2020 2020 2020 2020 2020
Revenue 116.5 101.1 25.7 — —
Segment result¹ 21.6 (5.1) (6.2) — (0.6)
Impairment charge – operations (11.6) (27.6) (11.7) — —
Impairment charge – other receivables — — — — —
Impairment of BEE loans receivable – expected credit loss provision — — — — —
Other direct income — 0.7 0.3 — —
Operating loss² 10.0 (32.0) (17.6) — (0.6)
Financial income
Financial expense
Income tax credit
Loss on discontinued operation (net of tax) (4)
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
2020 2020 2020 2020
Revenue — — — 243.3
Segment result¹ (8.7) (0.7) (4.5) (4.2)
Impairment charge – operations — — — (50.9)
Impairment charge – other receivables 0.4 — — 0.4
Impairment of BEE loans receivable – expected credit loss provision (10.9) — — (10.9)
Other direct income — — — 1.0
Operating loss² (19.2) (0.7) (4.5) (64.6)
Financial income 7.9
Financial expense (160.8)
Income tax credit 52.5
Loss on discontinued operation (net of tax) (4) (58.0)
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$69.9 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, , Exploration of US$0.1
million and Corporate administration of US$0.8 million.
² Operating loss is equivalent to revenue of US$243.3 million less total
costs of US$307.9 million as disclosed in the Consolidated Income Statement.
(3) The beneficiation segment represents Tarorite, a cutting and polishing
business in South Africa, which on occasion cuts and polishes select rough
diamonds.
(4) The operating results in respect of Williamson have been reflected within
loss on discontinued operation (refer to note 17).
US$ million 2021² 2020
5. CORPORATE EXPENDITURE
Corporate expenditure includes:
Depreciation of property, plant and equipment 0.6 0.5
Amortisation of right-of-use asset 0.3 0.3
London Stock Exchange and other regulatory expenses 1.5 1.4
Settlement costs and fees – human rights claims at Williamson¹ 12.7 —
Share-based expense - Directors 0.5 0.7
Other staff costs 2.3 2.0
Total staff costs 2.8 2.7
¹ The settlement costs for the human rights claims at Williamson comprise
US$4.8 million for the part settlement of the claimant’s legal costs and for
distribution to the claimants and US$1.3 million to invest in programmes
dedicated to providing long-term sustainable support to the communities living
around the Williamson mine as a condition of the Settlement. The Company has
incurred and provided for additional total costs of US$6.6 million relating to
this matter, the bulk of which relate to legal, consultant, investigation and
expert fees.
² During the Year, the Group received payments from the South African
Government under the temporary employee relief scheme (“TERS”) of US$3.5
million. Of the US$3.5 million TERS payment received, US$0.3 million relates
to Corporate expenditure and US$3.2 million relates to Mining and processing
costs.
6. FINANCING INCOME / (EXPENSE)
US$ million 2021 2020
Net unrealised foreign exchange gains (1) 77.1 —
Interest received on BEE loans and other receivables 5.4 6.7
Interest received bank deposits 0.7 1.2
Realised foreign exchange gains on the settlement of foreign loans and forward exchange contracts 0.9 —
Financial income 84.1 7.9
Interest on senior secured second lien notes, bank loans and overdrafts (51.5) (52.4)
Other debt finance costs, including BEE loan interest, facility fees and IFRS 16 charges (8.5) (13.4)
Acceleration of unamortised Notes costs (2.7) —
Unwinding of present value adjustment for rehabilitation costs (4.3) (4.6)
Net unrealised foreign exchange losses (1) — (82.1)
Realised foreign exchange losses on the settlement of foreign loans and forward exchange contracts (7.0) (8.3)
Financial expense (74.0) (160.8)
Loss on substantial modification of Notes (2) (7.7) —
Gain on extinguishment of Notes – debt for equity conversion (2) 221.0 —
Net gain on extinguishment of Notes 213.3 —
Net finance income / (expense) 223.4 (152.9)
(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 Year 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 ZAR14.27 (30 June 2021) resulted in an unrealised
gain of US$77.1 million (30 June 2020: US$82.1 million loss) comprising
foreign exchange contracts held at Year end of US$12.4 million (30 June 2020:
US$12.8 million loss) and inter-group foreign denominated loans of US$64.7
million (30 June 2020: US$68.7 million loss); and a net realised foreign
exchange loss of US$6.1 million (30 June 2020: US$8.3 million loss) in respect
of foreign exchange contracts closed during the Year is included in the net
finance and expense amount.
(2) The loss on substantial modification and gain on extinguishment of Notes
in the Year arose from the Restructuring completed by the Group on 10 March
2021. Refer to note 8 for further detail.
7. PROPERTY, PLANT AND EQUIPMENT
The net movement in property, plant and equipment for the Year is an increase
of US$21.0 million (30 June 2020: US$292.0 million decrease). This is
primarily as a result of:
- the movement in the US$/ZAR foreign exchange rate resulting in a
foreign exchange increase on Rand based assets of US$136.8 million (30 June
2020: US$163.8 million decrease);
- an increase in property, plant and equipment from capital
expenditure of US$23.8 million (30 June 2020: US$36.4 million), which includes
US$0.3 million (30 June 2020: US$8.0 million) additions attributable to
Williamson; and
- an increase in the rehabilitation asset of US$6.4 million (30 June
2020: US$0.1 million) due to Cullinan’s estimated period to decommissioning
reducing from 45 years to 25 years reflecting updated scoping studies for
future development outside of its current approved LOM;
offset by:
- depreciation of US$75.9 million (30 June 2020: US$78.3 million);
- the impairment of the Finsch and Koffiefontein assets of US$17.3
million (30 June 2020: US$50.9 million);
- the impairment of the Williamson assets of US$21.4 million (30
June 2020: US$34.6 million);
- the transfer of the remaining Williamson assets to non-current
assets held for sale of US$31.3 million (30 June 2020: US$nil); and
- assets of US$0.1 million (30 June 2020: US$0.7 million) disposed
of during the Year.
8. Restructuring of the US$650 million Loan Notes
On 10 March 2021, the Company announced it had completed the implementation of
the debt Restructuring project with the Noteholders and the South African
Lender Group. The key features of the Restructuring of the US$650 million
Notes and the Senior secured lender debt facilities of ZAR1.6 billion are as
follows:
- conversion of Notes debt valued at US$415.0 million into equity,
which resulted in the Noteholder group holding 91% of the enlarged share
capital of the Company (refer (a) below);
- the remainder of the Notes exchanged for the issue of US$295.0
million new Notes and the contribution by holders of the existing Notes of
US$30.0 million in new money, each to take the form of New Notes (refer (a)
below); and
- restructuring of the first lien facilities to provide for a Term
Loan of ZAR1.2 billion and a Revolving Credit Facility (“RCF”) of ZAR560
million provided by the South African Lender Group (refer (b) below).
a) Debt for Equity conversion and the issue of New Notes
i) Debt for Equity swap
The Company completed a debt for equity conversion consisting of the partial
repayment of the US$650 million Loan Notes by issuing 8,844,657,929 new
Ordinary Shares with a nominal value of 0.001 pence per share in the Company
to the existing Noteholders. The fair value of the shares at the date of the
conversion was 1.58 pence per share, giving a total consideration of U$194.0
million. As the fair value was derived by reference to the closing share price
at the date of the conversion, it is considered to be a Level 1 fair value
measurement. The carrying value of the liability at the date of the conversion
was US$415.0 million, after capitalisation of the May 2020 and November 2020
coupons and adjusting for the issue of new Notes. The resulting gain, before
restructuring costs, of US$221.0 million has been recognised in the Income
Statement as part of the gain on extinguishment of the Notes. Restructuring
costs identified as being directly associated with the debt for equity
conversion, of US$12.4 million have been taken directly to share premium. The
Debt for Equity Conversion resulted in the Noteholders holding 91% of the
enlarged share capital of the Company.
US$ million 2021
Ordinary shares issued – nominal value per share 12.3
Share premium 169.3
Share premium on debt for equity conversion 181.6
Costs directly associated with issue of shares (12.3)
Attributable to parent 181.6
Gain on extinguishment of Notes – debt for equity conversion 221.0
ii) Issue of New Notes
The New Notes of US$336.7 million were issued and allocated as
follows:
· US$30.0 million allocated only to those Noteholders that subscribed, and
funded that subscription, to the New Money, pro rata to their New Money
contribution (the “New Money Noteholders”);
· US$150.0 million allocated only to those New Money Noteholders, pro rata
to each holder's contribution to the New Money;
· US$145.0 million allocated to all Noteholders (including the New Money
Noteholders), pro rata to their holdings of existing Notes at the close of the
Restructuring; and
· a further amount of New Notes as consideration to certain Noteholders, in
remuneration for the commercial risks and other commercial considerations
borne by those Noteholders whilst restricted for the purposes of negotiations
with other stakeholders and work performed in connection with the
Restructuring. The quantum of New Notes issued for this purpose was US$11.7
million, which has been capitalised as part of the Notes liability and will be
amortised over the term of the Notes.
iii) Substantial modification
The Group performed an assessment under its accounting policies and the
requirements of IFRS 9 as to whether the restructuring of the terms of the
Loan Notes represented a substantial modification. As the net present value of
the cash flows under the original terms and the modified terms was greater
than 10% different, the modification was accounted for as a substantial
modification.
As a result, on completion of the Restructuring, the carrying value of the
Loan Notes of US$299.0 million was de-recognised and the amended new Notes
with a nominal value of US306.7 million were recognised on the balance sheet
at the date of modification. The loss arising on substantial modification of
the Loan Notes of US$7.7 million has been recognised in the Income Statement
as part of the gain on extinguishment of the Notes. The acceleration of
unamortised costs associated with the substantial modification were expensed
and included within net finance income (refer to note 6).
US$ million 2021
New Money Noteholders 150.0
New Notes allocated to all Noteholders 145.0
New Notes for consideration of costs 11.7
New Notes nominal value 306.7
Carrying value of Notes derecognized 299.0
New Notes nominal value (306.7)
Loss on substantial modification of Notes (7.7)
b) First lien facilities
The previous facilities held with the South African Lender Group, included the
ZAR500.0 million working capital facility (the "WCF"), the ZAR400.0 million
RCF, the financing arrangements in respect of the Group's BEE partners (the
"BEE Facilities") of ZAR683.1 million and the Group's general banking
facilities were restructured through the extinguishment of the existing
facilities and the replacement of such facilities with a new Term Loan and
RCF, as part of the Restructuring.
A new Term Loan was made available to the Group for a principal amount of
ZAR1.2 billion, in order to refinance the previous drawn ZAR500.0 million WCF
and the outstanding principal amounts of the BEE Facilities (ZAR683.1
million). Transaction costs of ZAR17.4 million (US$1.7 million) and cash
transaction costs of US$0.7 million directly associated with the Term loan
were capitalised to the liability to be amortised over the period of the loan.
The Term Loan is fully drawn.
A new RCF was made available comprising a rollover of the previous ZAR400.0
million RCF but increased by a further ZAR160.0 million. An amount of ZAR400.0
million remains drawn at Year end under the RCF with the RCF reducing at Year
end to ZAR509.6 million in line with the amortisation profile, with ZAR109.6
million still available for drawdown. For the terms of the new First lien
facilities refer to note 10.
c) Transaction costs
A total of US$33.7 million (FY2020: US$3.8 million included under prepayments)
were incurred during the Year for the Restructuring. The transaction costs
have been apportioned to Equity, the Notes and bank facilities based on each
components contribution to the total Restructuring. Cash costs incurred in the
Year amounted to US$29.9 million (FY 2020: US$3.8 million included under
prepayments). A summary of the cash transaction costs are presented in the
table below:
US$ million
Transaction costs attributable to equity
Transaction costs attributable to Notes
Transaction costs attributable to First lien facilities
d) Taxation
The current and deferred taxation consequences of the Restructuring have been
considered and based on adviser opinions received during the Restructuring
project, Management are of the opinion there are no material tax events
anticipated.
9. SHARES ISSUED
As part of the Restructuring and subsequent to the approval by shareholders at
a special general meeting held on 13 January 2021, the Company allotted
8,844,657,929 Ordinary Shares to the Noteholders valued at US$194.0 million
(comprising Ordinary shares valued at US$12.3 million and share premium of
US$181.7 million before capitalised costs), based on the share price at 9
March 2021 (the date upon which all implementation steps for the Debt
Restructuring were met). The allotment was pursuant to the Debt for Equity
Conversion, announced on 22 December 2020, which resulted in the Noteholders
holding 91% of the enlarged share capital of the Company in the following
proportions:
- 56.0% of the enlarged share capital was issued to all Noteholders,
including the New Money Noteholders, pro rata to their holdings of existing
Notes at the close of the Restructuring (to the extent any Noteholder did not
take up their equity entitlement, such entitlement was allocated to the
remaining Noteholders who did not opt out of their equity entitlement, on a
pro rata basis); and
- 35.0% of the enlarged share capital was issued to the New Money
Noteholders only, pro rata to their contribution of the New Money (to the
extent any such Noteholders did not take up their equity entitlement, such
entitlement was allocated to the remaining Noteholders who contributed to the
New Money and who did not opt out of their equity entitlements, on a pro rata
basis).
As a consequence of the Debt for Equity Conversion, 9% of the Company’s
enlarged share capital remains with the previous shareholders (subject to
dilution as a result of standard management equity incentive arrangements).
The costs associated with the allotment of the new ordinary shares of US$12.3
million were capitalised against share premium. For additional information
regarding the Restructuring refer to note 8.
Allotments during FY 2020 were in respect of the award of 94,858 Ordinary
Shares to Mr Dippenaar and Mr Davidson (previous Group Executive Directors)
granted under the 2012 Performance Share Plan in receipt of performance
measured over the period 1 July 2016 to 30 June 2019.
10. LOANS AND BORROWINGS
US$ million 2021 2020
Non-current liabilities
Loans and borrowings – Senior secured second lien notes 327.3 —
Loans and borrowings – Senior secured lender debt facilities 72.7 —
400.0 —
Current liabilities
Loans and borrowings – BEE Partner debt facilities — 40.0
Loans and borrowings – senior secured lender debt facilities 30.3 52.1
Loans and borrowings – senior secured second lien notes¹ — 676.9
30.3 769.0
Total loans and borrowings - bank facilities 430.3 769.0
¹ Prior to the Debt Restructuring the Company had US$650 million Notes which
had been issued by a wholly owned subsidiary, Petra Diamonds US$ Treasury Plc.
In terms of the requirements of IFRS, the Notes were classified as a current
liability as at 30 June 2020, as at that date the company did not have an
unconditional right to defer settlement for at least 12 months.These Notes
were restructured during the Year with the existing Notes being extinguished
through a debt for equity conversion (US$415.0 million), the issue of new
Notes via a cash injection of US$30.0 million and additional new Notes issued
for US$306.7 million (including costs of US$11.7 million). Refer to note 8 for
further detail.
a) US$336.7 million Senior Secured Second Lien Notes
A wholly owned subsidiary of the Company, Petra Diamonds US$ Treasury Plc,
issued debt securities consisting of US$336.7 million five-year senior secured
second lien loan notes (“Notes”), with a maturity date of 8 March 2026.
The 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. The Notes carry a coupon from:
- 9 March 2021 to 31 December 2022 of 10.50% per annum, which is
capitalised to the outstanding principal amount semi-annually in arrears on 31
December and 30 June of each year;
- 1 January 2023 to 30 June 2023 of 10.50% per annum on 37.7778% of
the aggregate principal amount outstanding, which is capitalised to the
outstanding principal amount semi-annually in arrears on 31 December and 30
June of each year and 9.75% per annum on 62.2222% of the aggregate principal
amount outstanding which is payable in cash semi-annually in arrears on 31
December and 30 June of each year;
- 1 July 2023 to 31 December 2025 of 9.75% per annum on the
aggregate principal amount outstanding which is payable in cash semi-annually
in arrears on 31 December and 30 June of each year; and
- 1 January 2026 to 8 March 2026 (final coupon payment) of 9.75% per
annum on the aggregate principal amount outstanding which is payable in cash
The costs associated with issuing the Notes of US$20.7 million have been
capitalised against the principal amount and US$19.4 million remains
unamortised as at 30 June 2021. Interest of US$11.1 million has been accrued
as at 30 June 2021.
Further details about the Notes (including security) will be included in the
Group’s FY 2021 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.
As part of the Restructuring, the existing banking facilities were amended on
a first lien basis and on the following terms, the creation of a new Term Loan
of ZAR1.2 billion (US$76.6 million) comprising ZAR500.0 million (US$35.0
million) under the existing WCF and ZAR683.1 (US$41.6 million) million
relating to the BEE Partner debt facilities; and the rollover of the existing
RCF increasing by ZAR160.0 million (US$11.2 million) to ZAR560 million
(US$39.2 million). The revised terms and conditions are set out in the table
below. The costs associated with restructuring of the banking facilities of
US$1.7 million and US$0.7 million cash transaction costs allocated based on
the total Restructuring costs have been capitalised against the principal
amount.
The Group performed an assessment under its accounting policies and the
requirements of IFRS 9 as to whether the restructuring of the Senior Secured
Lender Facilities represented a substantial modification. As the net present
value of the cashflows under the original terms and the modified terms was
less than 10% different, the modification did not represent a substantial
modification.
The new terms under the Term loan are:
- maturity date 8 March 2024;
- scheduled amortisation of 9% of principal per quarter (starting in
June 2021) with a final 10% of principal repayment at maturity,
- 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; and
- interest rate of SA JIBAR + 5.25% per annum (with an upfront fee
of 1% of the term loan amount capitalised).
The revised terms under the RCF are:
- maturity date 8 March 2024;
- scheduled amortisation of 9% of principal per quarter (starting in
June 2021) with a final 10% of principal repayment at maturity;
- 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; and
- interest rate of SA JIBAR + 5.25% per annum (with an upfront fee
of 1% of the RCF amount capitalised and a commitment fee based on undrawn
balances).
The Group's debt and hedging facilities are detailed in the table below:
Senior Lender Debt Facilities 2021 2020
Facility amount Facility amount
ZAR Debt Facilities:
ZAR Lenders RCF ZAR560 million ZAR400 million
ZAR Lenders Term loan ZAR1.2 billion ZARnil
ZAR Lenders WCF ZARnil ZAR500 million
Absa/RMB – FX Hedging facilities ZAR150 million ZAR300 million
The terms and conditions of the Group’s facilities will be detailed in the
Group’s FY 2021 Annual Report.
The facilities are secured on the Group’s interests in Cullinan, Finsch, and
Koffiefontein.
As at date of this report, the Term loan was fully drawn while the RCF had
available capacity of ZAR109.6 million (US$7.7 million).
Covenant ratios
As part of the revised Term loan and RCF facilities entered into with the
South African Lender Group, the Company is required:
- to maintain a 1.3x debt service cover ratio tested semi-annually
on a rolling 12-month basis; and
- to maintain liquidity requirements being the aggregate of the
undrawn amounts available under the RCF and consolidated cash and cash
equivalents (excluding diamond debtors) not falling below ZAR200 million
(US$14.0 million).
Refer to the Financial Review for further commentary with regards to
covenants.
c) BEE Partner debt facilities
The BEE Partner debt facilities have been restructured and now form part of
the new Term Loan (refer to (b) above).
11. COMMITMENTS
As at 30 June 2021, the Company had committed to future capital expenditure
totalling US$10.2 million (30 June 2020: US$4.4 million), mainly comprising
Cullinan US$8.1 million (30 June 2020: US$2.0 million), Finsch US$1.5 million
(30 June 2020: US$1.4 million), Koffiefontein US$0.6 million ( (30 June 2020:
US$0.3 million) and Williamson US$nil (30 June 2020: US$0.7 million).
12. RELATED PARTY TRANSACTIONS
The Group’s related party BEE partner, Kago Diamonds (Pty) Ltd (“Kago
Diamonds”) and its gross interests in the mining operations of the Group are
disclosed in the table below.
Mine Partner and respective interest as at 30 June 2021 (%) Partner and respective interest as at 30 June 2020 (%)
Cullinan Kago Diamonds (14%) Kago Diamonds (14%)
Finsch Kago Diamonds (14%) Kago Diamonds (14%)
Koffiefontein Kago Diamonds (14%) Kago Diamonds (14%)
The Itumeleng Petra Diamonds Employee Trust (“IPDET”) holds a 12% interest
in each of the Group’s South African operations, with Petra’s commercial
BEE Partners holding the remaining 14% interest through their respective
shareholdings in Kago Diamonds, in which Petra has a 31.46% interest. The
effective interest percentages attributable to the remaining operations for
the Group’s shareholders is 78.4%.
The non-current loans receivable, non-current loans payable, finance income
and finance expense due from and due to the related party BEE partners and
other related parties are disclosed in the table below:
US$ million 1 July 2020 - 30 June 2021 1 July 2019 - 30 June 2020
Non-current receivable
Kago Diamonds (1) 33.5 72.1
33.5 72.1
Non-current payable
Kago Diamonds — 58.5
— 58.5
Current trade and other receivables
KEM JV (2) 9.7 8.0
Impairment provision (2) (8.4) (6.9)
1.3 1.1
Finance income
Kago Diamonds 3.7 5.1
3.7 5.1
Finance expense
Kago Diamonds 3.8 6.4
3.8 6.4
¹ The decrease in the Kago Diamonds receivable of US$38.6 million is mainly
attributable to amounts advanced to Kago Diamonds during the Year totalling
US$3.8 million (30 June 2020: US$7.7 million), a foreign exchange increase of
US$15.4 million (30 June 2020: US$7.7 million decrease), the reversal of prior
period expected credit loss provision of US$4.2 million (30 June 2020: US$5.4
million impairment) and offset by the loan payable of US$62.1 million
(including foreign exchange movements on the loan payable) by the Group to
Kago against the Kago loan receivable.
(2) Included in current trade and other receivables are amounts advanced to
KEM JV in respect of a working capital facility and equipment finance facility
of US$nil (30 June 2020: US$nil) and the balance of the KEM JV purchase
consideration of US$1.3 million (30 June 2020: US$1.1 million). During FY2021
the Group received payments of US$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$8.4 million (30 June 2020: US$6.9 million). The increase in the
expected credit loss is attributable to the movement in the foreign exchange
rates during the Year.
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. During FY2020, the Group had provided a guarantee to the
BEE Lenders for repayment of loans advanced to the Group’s BEE Partners,
however during FY2021 as part of the Debt Restructuring, the BEE Partner debt
facilities were restructured and now form part of the Group’s new Term Loan
(refer to note 9 for further detail).
Rental income receivable
The Group received US$0.1 million (30 June 2020: US$0.1 million) from Alufer
Mining Ltd. The Group has US$nil (30 June 2020: US$0.1 million) receivable
from Alufer Mining Ltd. Mr Pryor is a director of Alufer Mining Ltd.
13. BEE LOANS RECEIVABLE AND PAYABLE
US$ million 30 June 2021 30 June 2020
Non-current assets
Loans and other receivables 46.6 137.0
Non-current liabilities
Trade and other payables — 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$47.9 million (30 June 2020: US$40.0 million) has been recorded as
part of the gross receivable (before expected credit loss provisions) in
respect of amounts to be reimbursed to the Group in respect of the guarantee
under the BEE Lender facilities. Judgment was required in determining the
extent to which reimbursement is applicable based on the terms of the
agreements, South African legislation, future cashflow generation of the
operations and discussions with the BEE partners.
As a result of historical delays in the Cullinan plant ramp-up and the Finsch
SLC ramp-up, the Group has historically and through the Period elected to
advance the BEE Partners’ funds using Group treasury to enable the BEE
Partners to service their interest and capital commitments under the BEE
Lender facilities (refer below). These BEE receivables, including interest
raised, will be recoverable from the BEE Partners’ share of future cashflows
from the underlying mining operations.
As part of the Debt Restructuring, Petra has assumed the BEE Lender facility
obligations under the terms outlined in notes 9 and 10.
For detail on expected credit loss provision and reversal associated with the
BEE loans receivable refer to note 2.
US$ million 1 July 2020 - 30 June 2021 1 July 2019 - 30 June 2020
As at 1 July 137.0 109.6
Foreign exchange movement on opening balance 30.7 (22.5)
Discretionary advance – capital and interest commitment (BEE Lender facility) 4.7 12.2
Discretionary advance – distributions to beneficiaries 2.0 1.9
Interest receivable 5.2 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 5.8 (10.9)
BEE payable restructuring – offset against BEE receivable (138.8) —
As at 30 June 46.6 137.0
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 - 30 June 2021 1 July 2019 - 30 June 2020
As at 1 July 108.6 120.5
Foreign exchange movement on opening balance 23.2 (23.8)
Interest payable 7.0 11.9
BEE payable restructuring – offset against BEE receivable (138.8) —
As at 30 June — 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.
In March 2021, the Group completed its Restructuring, the BEE Lender facility
was included as part of the Group’s new banking facilities and the guarantee
provided by the Group on behalf of the BEE Partners was extinguished (refer to
note 10 for further detail).
14. EARNINGS PER SHARE
Continuing operations 30 June 2021 US$ Discontinued operations 30 June 2021 US$ Total 30 June 2021 US$
Numerator
Profit / (loss) for the Year 239,085,494 (52,063,601) 187,021,893
Denominator
Shares Shares Shares
Weighted average number of ordinary shares used in basic EPS
Brought forward 865,431,343 865,431,343 865,431,343
Effect of shares issued during the Year 2,721,433,209 2,721,433,209 2,721,433,209
Carried forward 3,586,864,552 3,586,864,552 3,586,864,552
Shares Shares Shares
Dilutive effect of potential ordinary shares — — —
Weighted average number of ordinary shares in issue used in diluted EPS 3,586,864,552 3,586,864,552 3,586,864,552
US cents US cents US cents
Basic profit / (loss) per share – US cents 6.67 (1.45) 5.22
Diluted profit / (loss) per share – US cents 6.67 (1.45) 5.22
Continuing operations 30 June 2020 US$ Discontinued operations 30 June 2020 US$ Total 30 June 2020 US$
Numerator
Profit / (loss) for the Year (132,012,863) (58,008,824) (190,021,687)
Denominator
Shares Shares Shares
Weighted average number of ordinary shares used in basic EPS
Brought forward 865,336,485 865,336,485 865,336,485
Effect of shares issued during the Year 63,152 63,152 63,152
Carried forward 865,399,637 865,399,637 865,399,637
Shares Shares Shares
Dilutive effect of potential ordinary shares — — —
Weighted average number of ordinary shares in issue used in diluted EPS 865,399,637 865,399,637 865,399,637
US cents US cents US cents
Basic profit / (loss) per share – US cents (15.26) (6.70) (21.96)
Diluted profit / (loss) per share – US cents (15.26) (6.70) (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).
15. 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.
Continuing operations 30 June 2021 US$ Discontinued operations 30 June 2021 US$ Total 30 June 2021 US$
Numerator
Profit / (loss) for the Year 239,085,494 (52,063,601) 187,021,893
Net unrealised foreign exchange loss / (gain) (62,242,188) 2, ,422,257 (59,819,931)
Present value discount – Williamson VAT receivable — (763,537) (763,537)
Profit on disposal of subsidiary (14,696,171) — (14,696,171)
Impairment charge - operations* 13,551,364 21,438,352 34,989,716
Impairment/(reversal) charge – other receivables 439,236 — 439,236
(Reversal) / impairment charge of BEE loans receivable – expected credit loss provision (5,824,201) — (5,824,201)
Taxation charge / (credit) on unrealised foreign exchange (gain) / loss 17,228,580 — 17,228,580
Taxation credit on impairment charge* (3,308,166) — (3,308,166)
Gain on extinguishment of Notes (213,349,503) — (213,349,503)
Transaction costs – Human rights settlement agreement and provisions for unsettled and disputed tax claims 12,651,014 19,459,877 31, 110,891
Adjusted loss for the Year attributable to parent (16,464,541) (9,506,652) (25,971,193)
*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 865,431,343 865,431,343 865,431,343
Effect of shares issued during the Year 2,721,433,209 2,721,433,209 2,721,433,209
Carried forward 3,586,864,552 3,586,864,552 3,586,864,552
Shares Shares Shares
Dilutive effect of potential ordinary shares — — —
Weighted average number of ordinary shares in issue used in diluted EPS 3,586,864,552 3,586,864,552 3,586,864,552
US cents US cents US cents
Adjusted basic profit / (loss) per share – US cents (0.46) (0.27) (0.73)
Adjusted diluted profit/(loss) per share – US cents (0.46) (0.27) (0.73)
Continuing operations 30 June 2020 US$ Discontinued operations 30 June 2020 US$ Total 30 June 2020 US$
Numerator
Profit / (loss) for the Year (132,012,863) (58,008,824) (190,021,687)
Net unrealised foreign exchange loss / (gain) 64,036,456 (650,203) 63,386,253
Present value discount – Williamson VAT receivable — 6,816,715 6,816,715
Profit on disposal of subsidiary — — —
Impairment charge - operations* 39,879,861 34,644,929 74,524,790
Impairment/(reversal) charge – other receivables (382,713) — (382,713)
(Reversal) / impairment charge of BEE loans receivable – expected credit loss provision 10,887,714 — 10,887,714
Taxation charge / (credit) on unrealised foreign exchange (gain) / loss (17,396,618) — (17,396,618)
Taxation credit on impairment charge* (8,595,566) — (8,595,566)
Gain on extinguishment of Notes — — —
Transaction costs – Human rights settlement agreement and provisions for unsettled and disputed tax claims — — —
Adjusted loss for the Year attributable to parent (43,583,729) (17,197,382) (60,781,111)
*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 865,336,485 865,336,485 865,336,485
Effect of shares issued during the Year 63,152 63,152 63,152
Carried forward 865,399,637 865,399,637 865,399,637
Shares Shares Shares
Dilutive effect of potential ordinary shares — — —
Weighted average number of ordinary shares in issue used in diluted EPS 865,399,637 865,399,637 865,399,637
US cents US cents US cents
Adjusted basic profit / (loss) per share – US cents (5.04) (1.99) (7.02)
Adjusted diluted profit/(loss) per share – US cents (5.04) (1.99) (7.02)
16. IMPAIRMENT CHARGE
The current market conditions in the global rough diamond market, the ongoing
impact of the COVID-19 pandemic, volatility of and variability in product mix
are all factors impacting the rough diamond prices achieved by Petra during
the Year, 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
further impaired or an impairment reversal may apply, its recoverable amount
is estimated. The recoverable amount is determined on a fair value less cost
to develop basis.
The operations of Cullinan, Finsch and Koffiefontein were held at recoverable
value as a result of FY 2020 impairments. During the Year under review, 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 was considered appropriate for
Finsch and Koffiefontein. No impairment was considered necessary for Cullinan,
nor was any impairment reversal considered appropriate in the current year.
The Group recognised a consolidated income statement charge of US$17.3 million
being the amount required to write down management’s estimate of recoverable
value of the Finsch and Koffiefontein assets. Williamson has been classified
as Held for Sale as at 30 June 2021. For impairment considerations of
Williamson, refer to note 17.
.
Impairment (US$ million) Asset class Carrying value pre impairment Impairment Carrying value post impairment
Impairment operations:
Cullinan Property, plant & equipment 497.9 — 497.9
Finsch Property, plant & equipment 210.6 (15.1) 195.5
Koffiefontein Property, plant & equipment 3.3 (2.2) 1.1
Sub-total 711.8 (17.3) 694.5
Impairment – non-financial receivables:
Other – current Other receivables 0.6 (0.4) 0.2
Sub-total 0.6 (0.4) 0.2
Total 712.4 (17.7) 694.7
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$85.5 million, being
management’s estimate of recoverable value of the Cullinan, Finsch,
Koffiefontein and Williamson assets. For impairment considerations of
Williamson, refer to note 16.
Impairment (US$ 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
Sub-total 742.7 (50.9) 691.8
Williamson (refer note 16) 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
Sub-total — 0.4 0.4
Total 844.0 (85.1) 758.9
Cullinan, Finsch, and Koffiefontein 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 Koffiefontein and Finsch assets (30
June 2020: Cullinan, Finsch, Koffiefontein and Williamson). 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 30 June 2021 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 2031 (FY 2020: FY 2029) Finsch: FY 2030 (FY 2020: FY 2030) Koffiefontein: FY 2023 ( (FY 2020: FY 2023) Williamson: 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 nine years; total resource processed 26.8 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 38.6 Mt (FY 2020: LOM plan over the next nine years; total resource processed 37.8 Mt).
Koffiefontein: LOM plan over the next two years; total resource processed 2.2 Mt (FY 2020: LOM plan over the next three years; total resource processed 2.9 Mt).
FY2020: Williamson: LOM plan over the next nine 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 30 June 2021 impairment testing models starting
price assumptions have been updated to reflect the improved pricing achieved during the Year when compared to the 30 June 2020 impairment models. Diamond prices have been assumed to increase from FY 2022 and then 4% from FY 2024, 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 1.9% above a long-term US inflation rate of
2.5% per annum from FY 2025 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 the 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$5.0 million each are determined with reference to historical trends.
Discount rate A ZAR discount rate of 12.0% (30 June 2020: 11.25%) was used for the South African operations in FY 2020 and a USD discount rate of 13.75% (30 June 2020: 13.5%) for Williamson. Discount rates calculated based on a nominal weighted average cost of capital
including the effect of factors such as market risk and country risk as at the Year end. USD and ZAR discount rates are applied based on respective functional currency of the cash generating unit.
Cost inflation rate Long-term inflation rates of 3.5–7.8% (30 June 2020: 6.0–9.8%) above the long-term US$ 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 ZAR14.50 (30 June 2020: ZAR16.00), reflecting the volatility
experienced during Year, before further devaluing at 5.5% (30 June 2020: 3.5% from FY 2023) per annum until FY 2027 and thereafter devaluing at 3.5% per annum. 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 FY2020, Williamson was placed on care and maintenance. For impairment testing at Williamson, for FY2020 management assumed that operations would recommence from 1 July 2021 at normal monthly costs. However if the recommencement of operations had
been delayed by six months, the impact would be to increase the impairment by an additional US$9.4 million. During the current Year, Williamson was classified as an asset held for sale, for further detail refer to note 17.
Sensitivity analysis
The impact of applying reasonable sensitivities on the key inputs based on
management’s assumptions at 30 June 2021 is noted below:
Additional impairment charge
(US$ million) Cullinan Finsch Koffiefontein
Base case
Increase in discount rate by 2% 32.1 37.0 1.1
Reduction in pricing by 5% over Life of Mine 46.1 54.8 1.1
Reduction in short-term production by 10% 22.4 33.0 1.1
Increase in Opex by 5% 22.9 36.3 1.1
Strengthening of the ZAR from US$/ZAR14.50 to US$/ZAR14.00 35.4 42.0 1.1
17. DISPOSAL OF OPERATIONS
a) Disposal of 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”) 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 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 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$2.0 million.
The disposal completed during November 2020.
Effect of the transaction
The transaction had the following effect on the Group’s assets and
liabilities:
i) Net assets of Sekaka:
US$ 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
ii) Post tax profit on disposal of Sekaka 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 of subsidiary 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$0.1 million in cash costs during the Year.
b) Asset Held for Sale
Williamson
The Board has decided to review its strategic options at Williamson and the
asset has therefore been classified as an asset held for sale.. As a result,
the assets and liabilities of the Williamson mining operation (being Petra’s
75.0% interest) have been classified as held for sale in the Statement of
Financial Position at 30 June 2021, in accordance with IFRS 5. The financial
results of the Williamson operation for the Year have been disclosed in the
Consolidated Income Statement in Loss on discontinued operation. The
Williamson mining operation is a separate operating segment for the purposes
of the Group’s segmental reporting.
i) Net assets of Williamson:
US$ million Book value prior to reclassification of as held for sale Impairment 30 June 2021
Mining property, plant and equipment 52.7 (21.4)¹ 31.3
Non-current trade and other receivables 0.7 — 0.7
Trade and other receivables 2.9 — 2.9
Inventory 15.5 — 15.5
Cash and cash equivalents 9.2 — 9.2
Non-current assets held for sale 81.0 (21.4) 59.6
Environmental liabilities, provisions and other non-current trade and other payables (22.9) — (22.9)
Trade and other payables and provisions (10.6) — (10.6)
Non-current liabilities associated with non-current assets held for sale (33.5) — (33.5)
Net assets 47.5 (21.4) 26.1
ii) Result of Williamson:
US$ million 1 July 2020 – 30 June 2021 1 July 2019 – 30 June 2020
Revenue 4.6 52.5
Cost of sales (13.8) (68.7)
Gross loss (9.2) (16.2)
Impairment charge – operations — (34.6)
Impairment reversal / (charge) - other receivables 0.7 (6.8)
Provisions for unsettled and disputed tax claims (19.5) —
Financial income — 0.6
Financial expense (2.7) (0.8)
Loss before tax (30.7) (57.8)
Income tax charge — (0.2)
Loss after tax before impairment charge (30.7) (58.0)
Impairment charge (1) (21.4) —
Net loss for the Year (52.1) (58.0)
Attributable to:
- Equity holders of the parent (52.1) (58.0)
- Non-controlling interest — —
(52.1) (58.0)
1. The US$21.4 million impairment loss recorded on the Williamson assets
represents the difference between the assets measured at the lower of their
carrying amount and fair value less costs to sell. In determining the fair
value used to calculate the appropriate write down, management took into
consideration the best available information at the present time with
reference to ongoing discussions with a potential investor. The impairment
charge of US$21.4 million is recognised to reduce assets of Williamson to
equal the fair value less costs to sell.
iii) The consolidated cash flow statement includes the following
amounts relating to Williamson:
US$ million 1 July 2020 – 30 June 2021 1 July 2019 – 30 June 2020
Operating activities (5.2) 7.9
Investing activities (0.3) (7.9)
Net cash utilised in discontinued operations 0.6 (4.2)
18. SIGNIFICANT NON CASH TRANSACTIONS
(a) Operating and investing activities
US$ million 2021 2020
Operating activities
Depreciation of property, plant and equipment 75.9 78.6
Amortisation of right-of-use asset 0.9 4.9
Unrealised gain on lease liability — (0.8)
Impairment charge 17.3 92.3
Impairment charge reversal for other receivables 0.4 (0.4)
Impairment of BEE loans receivable – expected credit loss (reversal) / charge provision (5.8) 10.9
Loss and impairment charge on discontinued operations 43.2 0.1
Profit on disposal of subsidiary (14.7) —
Movement in provisions 4.8 (0.1)
Other finance expense – unwinding of present value adjustment for rehabilitation costs 4.3 4.6
Other finance expense – post-retirement medical fund 0.9 0.9
Net unrealised foreign exchange (gains)/losses (77.1) 82.1
(Profit)/loss on sale of property, plant and equipment (0.6) (0.1)
Share-based payment provision 0.5 0.7
50.0 273.7
Investing activities
Non-cash rehabilitation asset adjustment – change in estimate (5.8) (0.1)
Non-cash rehabilitation provision adjustment (0.1) (0.8)
Non-cash pension and post-retirement fund adjustment – change in estimate 0.8 0.8
Non-cash interest receivable from BEE loans on investing activity 5.2 6.7
(0.1) 6.6
Financing activities
Non-cash transaction costs on Notes unamortised at time of Restructure 2.7 —
Non-cash interest payable on BEE loans on investing activity 7.0 11.9
9.7 11.9
(b) Financing activities – change in loans and borrowings
US$ million Senior secured second lien notes 2021 Senior secured lender debt facilities 2021 BEE Lenders guarantee recognised Lease liability Total 2021
Loans and borrowings
At 1 July 676.9 52.1 40.0 4.7 773.7
Cash draw-downs 30.0 — — — 30.0
Cash repayments (capital and interest) — (14.0) (4.7) — (18.7)
Lease payments — — — (0.7) (0.7)
Non-cash
– Initial recognition of lease liability — — — 0.7 0.7
– Gain on lease liability — — — — —
– lease terminations — — — (0.4) (0.4)
– loss on discontinued operation — — — (3.6) (3.6)
– Debt for equity conversion (415.0) — — — (415.0)
- Extinguishment of remaining Notes (299.2) — — — (299.2)
- Issue of new Notes 306.7 — — — 306.7
- Transaction costs (20.8) (1.7) — — (22.5)
- Unamortised transaction costs 2.7 — — — 2.7
– Guarantee obligation recognised (refer to note 10) — 45.4 (45.4) — —
– Interest accruing during the Year 46.0 6.8 4.7 0.1 57.6
– Effect of foreign exchange — 14.3 5.4 0.2 19.9
At 30 June 327.3 102.9 — 1.0 431.2
US$ million Senior secured second lien notes 2020 Senior secured lender debt facilities 2020 BEE Lenders guarantee recognised Lease liability Total 2020
Loans and borrowings
At 1 July 650.6 — — — 650.6
Cash draw-downs — 100.9 — — 100.9
Cash repayments (capital and interest) (23.6) (46.1) — — (69.7)
Lease payments — — — (5.0) (5.0)
Non-cash
– Initial recognition of lease liability — — — 10.0 10.0
– Gain on lease liability — — — (0.8) (0.8)
– lease terminations — — — — —
– loss on discontinued operation — — — — —
– Debt for equity conversion — — — — —
- Extinguishment of remaining Notes — — — — —
- Issue of new Notes — — — — —
- Transaction costs — — — — —
- Unamortised transaction costs — — — — —
– Guarantee obligation recognised (refer to note 10) — — 40.0 — 40.0
– Interest accruing during the Year 49.9 0.2 — 0.5 50.6
– Effect of foreign exchange — (2.9) — — (2.9)
At 30 June 676.9 52.1 40.0 4.7 773.7
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
a) the preliminary financial statements have been prepared in accordance
with International Financial Reporting Standards as adopted by the European
Union, and give a true and fair view of the assets, liabilities, financial
position and profit of the Group for the Year; and
b) the preliminary management report for the Year includes a fair review
of the information required by the FCA’s Disclosure and Transparency Rules
(DTR 4.1.8 R and 4.1.9 R).
By order of the Board
Richard Duffy
Chief Executive Officer
14 September 2021
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