Good afternoon and welcome to the Petra Diamonds Limited investor presentation. Throughout this recorded presentation, investors will be in listen-only mode. Questions are encouraged, and they can be submitted at any time just by using the Q&A tab that's situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives in the meeting itself, however, the company can review all the questions sent today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll, and I'd now like to hand you over to Vivek. Good afternoon, Sir.
Good afternoon, everybody. Thank you for joining us today for a discussion on Petra's interim results for the six-month window of 31st December 2024. I'm Vivek Gadodia, Joint Interim CEO of Petra Diamonds, and with me, Juan Kemp, also appointed Joint Interim CEO, and Johan Snyman , our CFO, who will cover the key financial metrics. After taking you through our announcement, we'll open up for Q&A, and at that point in time, we'll invite Patrick Pittaway to manage that discussion. You can please move to slide three. As you will have seen yesterday, we announced that Richard Duffy has stepped down from the CEO role with immediate effect by mutual agreement with the board. We thank Richard for his dedication and hard work during his tenure as CEO and wish him all the best for his future.
Juan and I have taken on the role of Joint Interim CEOs, and we will be taking you through the presentation today, as well as Johan Snyman . To start with, a brief introduction of Juan and myself. Some of you may know me already, but if not, I have nearly two decades of experience in the extractive industry. I joined Petra in August 2021 as Head of Corporate Development, working closely with the CEO and the CFO. I then proceeded to take on the role of Planning and Corporate Development Executive and drove the replanning of the business that we presented at the Investor Day in June 2024. More recently, I took on the role of Chief Restructuring Officer and initiated our multi-stream business restructuring plan, which is currently underway.
I will be responsible for all corporate matters, including the ongoing execution of our business restructuring plan and leading the refinancing process. I'll now ask Juan to give a brief introduction of himself.
Thank you, Vivek. I'm an analytical engineer by profession. I applied my trade over the last 31 years in the mining industry, of which the past 27 years were in diamond mining, 17 years with Petra. I work over the full operations spectrum, i.e., production, projects, technical, and operations management. I have in-depth knowledge of the current environment, and I spent eight years as GM over the period when the C-Cut was developed, the shaft was deepened, and the current treatment plant was constructed. I also gained valuable knowledge of the Finsch Mine during my time as Chief Technical Officer from 2019 to 2024. Both Cullinan Mine and Finsch Mine are world-class assets with quality people, and I'm looking forward to working with the teams on mine.
My excellent colleagues and the Petra board to bring the best out of both these mines through efficiency improvement with a focus on OPEX reduction, sustainable revenue maximization, and life extension and SIB capital optimization. I'm excited to lead the company into the future with Vivek, as I believe our skill sets are complementary and will add great value in driving the company from good to great. You can move to slide four, please. Vivek, over to you.
Thank you, Juan. I'd like to start with an overview of where we are today and the work we have achieved over the last six months. These financial results reflect the successful implementation of the cost reduction plan and smooth capital profiles outlined in our Investor Day last June. We have been executing on our capital development plan, which improves capital efficiencies, resulting in lower capital spend while still achieving our development metres. Encouragingly, both Finsch and Cullinan Mines started producing from higher-grade areas in financial year 2025, with production contributions from higher-grade areas continuing to increase going forward. Over the period, we also took decisive steps to simplify the portfolio by closing the Koffiefontein Mine sale, which would avoid up to $23 million in closure costs. Soon thereafter, we announced the full sale of Williamson for a consideration of $16 million.
We are actively working to close this transaction as soon as possible. During the period, we also launched our multi-stream restructuring plan with a focus on further sustainable cost reductions, capital optimization as part of our life of mine reviews, and looking at opportunities to enhance revenue in the short term. An example of this was the fast-tracking of 81 level development at Finsch, which we managed to accelerate over the period and which will see first carats from this new level at Finsch in the last quarter of this financial year. All the streams of this plan are underway, and we anticipate completing our life of mine reviews and the updated business plan toward the end of March 2025. Despite all our efforts as outlined, we could not prevent the breach in our interest cover and leverage ratios.
This was largely on the back of the lower EBITDA over the past 12 months. We managed to receive a waiver from Absa Bank for the December measurement period. I would like to confirm that we have sufficient liquidity headroom going forward. Looking ahead, we are now a much simpler business focusing on Cullinan Mine and Finsch, which are both world-class assets and with a product mix that remains resilient against the broader market. We are fully focused on operational delivery against our plans and the completion of our business restructuring process that will result in a more resilient Petra. You can please move to slide five.
While we have sustainably reduced our mining and processing costs from continuing operations by 19% and lowering our capital expenditure by 32% year-on-year, revenue was negatively impacted by a $49 million year-on-year due to the combination of rollovers from FY2023 to the first half of FY2024, weaker pricing, and product mix variability at Cullinan Mine as we marched towards the end of the period. As a result of the cost reduction and cash preservation measures, operational cash flow generation improved from a negative $21 million to a positive $16 million in the reporting period. An average realized price of $103 per carat is in line with that achieved in H1 FY2024, reflecting the positive impact of our product mix and helping us insulate from the broader market weakness experienced over the last 12 months. Johan will unpack the financials in greater detail later in the presentation.
You can please move to the next slide. Besides the prevailing weakness in the market, as you can see on the top right graph, Petra's average prices have remained broadly in line with recent quarters, with product mix offsetting the broader price decline experienced by the market over the last 12 to 18 months. We also released our Tender 4 results with like-for-like prices dropping 6% compared to Tender 3, and product mix variability resulting in a 12% reduction, largely at the Cullinan Mine. Tender 4 generated in total $39 million, with approximately $7 million of that attributed to the relation growth. On the broader market, there have been reports of stronger online jewelry demand in the U.S. during the festive season, together with continued robust growth experienced in the Indian market.
It is encouraging to see the double-digit growth in India, and India has now become the second-largest consumer market behind the USA. We also remain encouraged by the majors' ongoing supply discipline and ongoing initiatives by upstream, midstream, and the retail sectors to collaborate in the category marketing of natural diamonds. India's Gem & Jewellery Export Promotion Council met with India's finance minister recently to discuss the board for co-funding the global diamond promotion campaign. De Beers has also announced a host of collaborations with promotion councils and large retailers to promote natural diamond marketing, which in time should help reinvigorate demand for natural diamonds. With that, I will hand over to Juan to take us through the operational highlights.
Thank you, Vivek. Move to the next slide. The health and safety of our people are of utmost importance to Petra, and the interest of everything that's alive to zero harm. We're every input into the future workplace every day. I'm honest. It is especially critical now when labor restructuring is creating uncertainty in the minds of our people, and additional effort is required to keep safety in front of mind. Our H1 safety performance, depicted by the LTI and the Lost Time Injury Frequency Graph, showed that with an LTI of 0.23, our performance is in line with the lowest LTI in the past 10 years. Our performance did progress from our record-breaking performance in FY2024, for which we received numerous accolades. Our goal is to achieve similar and even better safety results compared to the FY2024 performance going forward.
Even with labor restructuring taking place, mine-specific plans are in place and are being executed through the on-mine safety structures: organized labor, inquiries, and mine management. Zero harm is achievable on early teamwork and relentless dedication. Move to the next slide, please. On the production performance, we had a bit of a mixed bag in Q2. On both carat recovery and tonnes treated, Cullinan's performance was slightly up on half-year one FY2024, with an upward trend from Q1 into Q2 and in line with expectations. The good news is that the contribution from the higher-grade CC1 East is picking up momentum and increased from a 3% contribution in Q1 to 4% in Q2. We expect this to increase to 5% in H2 of FY2025. The dilution in the C-Cut was also well controlled, and together with the increase in CC1 East material, resulted in the recovered carats slightly above expectations.
It is important to note that the resource at Cullinan is an indicated resource and that the variation in product mix is part of the normal behavior of carat. During the end of Q2, we recovered fewer quality plus 10.8 carat stones if compared to the months before, but it was still within the normal variation parameters of the carat. We had similar experience in the past, but after a month or two, we picked up, keeping the long-term trend around the expected performance. We already started to see an uptick in quality plus 10.8 carat stone recovery towards the end of January into February. On tonnes treated, but more so on carat recovery, Finsch's performance regressed from H1 FY2024 performance. Tonnes treated was affected by a slower than expected transition from continuous four-shift operation to a two-shift operation, which has been completed by end Q1 and is now fully implemented.
Carat recovery was affected by the recovered carat being negatively affected by dilution as we worked our way towards more undiluted ore on 78 level phase two and 81 level. 78 level phase two contributed 25% in Q1, which grew to 55% in Q2. We expect this to increase to 40% in H2. The project to open up 81 level is on schedule to deliver first ore in Q3 of FY2024. Move over to the next slide, please. Our focus at both Cullinan and Finsch is to ensure the maintenance of stable operations while we transition towards a lower OPEX and CapEx base for inclusion into our updated life of mine plans. The ramp-up of higher-grade material at both Finsch and Cullinan Mine is in progress, and we are satisfied with the CC1 East and 81 level progress. It is exceeding expectations, with capital expenditure lower than expectations.
I'll now hand over to Johan. Thank you.
Thank you, Vivek and Juan. When reviewing our six-month results, please note that Williamson has been excluded following our January announcement to sell our entire shareholding in that operation. From an accounting perspective, Williamson is now classified as a discontinued operation and is no longer consolidated within the rest of the business. We reported revenue of $115 million compared to $164 million in H1 FY2024. This decline is mainly due to the prior period benefiting from the $50 million in deferred sales carried over from FY2023. Our average realized price per carat was $103 per carat, in line with H1 FY2024, reflecting a more favorable product mix that offset overall market price weakness. However, market-wide challenges persist with a 6% drop in like-for-like pricing during our most recent tender.
A key focus area has been the implementation of cost control and cash optimization measures, which were the focus of our investor day last June. Adjusted mining and processing costs reduced by 19% year-on-year from $121 million to $98 million. Adjusted EBITDA was $15 million, down from $38 million in H1 FY2024, largely due to lower revenue. Despite this, cash flow from operations improved to $35 million compared to the previous period, $34 million, reflecting our success in cost and capital discipline. Similarly, operational free cash flow improved by $37 million from a negative $21 million in H1 FY2024 to a positive $16 million in the first half of 2025. At Finsch, we have rebased costs in FY2024 in line with its lower production profile.
While the new shift configuration was still being implemented during the early part of the first half of FY2025, the benefits of this reduction are already evident. Group-wide on-mine cash costs remained flat year-on-year, effectively countering the combined impact of inflationary increases and a stronger rand. The average expense rate for H1 FY2025 was ZAR 17.93 per US dollar, compared to ZAR 18.69 in the comparative period, which would otherwise have added an estimated $4 million in cost. However, through our hedging strategy, we achieved an average expense rate of ZAR 18.49, resulting in approximately $5 million in realized gains, on top of the ongoing cost containment initiatives. Additionally, we achieved an 80% reduction in group technical support and marketing costs, reflecting the success of our structural changes and decentralized approach to cost management across the business.
Net debt increased to $215 million from $193 million at 30 June 2024, mainly due to the timing of tender sales and weaker pricing. This increase consists of outflows of $39 million in capital expenditure, $15 million in finance expenses, and $30 million in diamond inventory movements, partly offset by free cash flow before capital expenditure of $55 million and realized profits on foreign currency hedges of $5 million. Our revolving credit facility remains available, with $50 million undrawn as of 31 December 2024. In H1 FY2025, we repurchased and canceled $24 million for second lien notes, but we have since suspended further repurchases to preserve liquidity and focus on refinancing. To support this, we have obtained a waiver from Absa Bank for our covenant breaches at the December 2024 measurement period.
We are now focused on advancing our refinancing discussions, which we expect to resume once our restructuring is further progressed. The interest cover ratio and leverage ratios, given their dependence on the 12-month trading EBITDA, will remain under pressure and is sensitive to diamond pricing, exchange rate, and product mix variability. We continue to monitor this on an ongoing basis and are confident on maintaining sufficient liquidity headroom and are focused on managing those items under our control, being cost and capital. With that, I will now hand over to Vivek for concluding remarks.
I'd like to start by saying that we remain committed to our target of net cash generation. The right-sizing of our business and the ongoing capital optimization will play a major role in helping us achieve this target. On the back of completing the sale of Koffiefontein and announcing the full sale of Williamson, we are now a simpler, more focused business. We have two world-class assets with a product mix that has proven to withstand the broader market decline, and moving into new parts of the ore bodies through our capital project that is expected to further improve both our carats production and product quality. In conclusion, I would like to say that we have a clear set of short-term objectives in completing the business restructuring and life of mine review, which inform the basis of an updated business plan.
We are confident of achieving our short-term targets, evidenced by the delivery of our savings and capital profiles as outlined at our investor day in June 2024. We are encouraged by the resilience shown by the organizations who have navigated a very difficult 2024 while still delivering on their targets. We will recommend our engagement with our lenders on the back of completing this piece of work. We are confident that collectively with all our capital providers, we will be able to successfully refinance our debt. This concludes the formal part of the presentation. I will now hand over to our Head of Investor Relations, Patrick, who will lead the Q&A session.
Good afternoon, everyone, and thank you, Vivek. We have a number of questions. I have two to begin with from Paul. The first is, do you have any large stones or specials to sell?
Thanks, Patrick. We currently are not holding any large stones or specials. Our policy is to minimize working capital buffer, so we do try and sell stones that we recover. At this stage, there are no stones that we are holding back on.
I can maybe just add, Vivek, that we do continuously recover large stones, but as you would have seen from our results announcements, there has been none of those that have been classified as special, and special being all diamonds in excess of $15 million. Do you have?
Thank you, Johan. For second question. You have promoted for years the world-class of Williamson, yet you sold it for $16 million. Why?
Thanks, Patrick. I think it's fair to say in the current price backdrop and the current market conditions, Williamson has been a marginal operation since its restart. You would recall that we had an agreement in place to sell 50% of our share, but it became clear that it is in the best interest of the mine to be operating under consolidated ownership. From a Petra perspective, it came down to a portfolio decision in the sense of Williamson competing with Cullinan and Finsch. On that basis, Petra decided that we wanted to focus on our assets, Cullinan Mine and Finsch, and therefore the decision was made to rather sell our entire stake in Williamson.
Thank you, Vivek. I have a question from John. Can you share more quantitative details on the cost-cutting initiatives, for example, key areas and cost impact of each measure?
Thanks, Patrick. I think not at this stage. We are in the middle of a Section 189 process, and we need to respect that process. By the time we finish our restructuring plan and the life of mine reviews, we hope to have an updated business plan that we will be using as a basis of engagement going forward. Unfortunately, today, we do not have any numbers to guide on these items.
Thank you, Vivek. I have a number of questions in on the financing, which splits really into two parts. The first is, can we please provide an update on financing discussions and feedback received so far? The second part being, what is our timeline going forward?
Thank you, Patrick. The last conversations we had with the banks were towards the back end of last year, where we had agreed with the banks that we would pause conversations on the refinancing, pending evidence of delivering against our operational plan and capital profile that we had put out in June of last year. We had agreed to defer those conversations to this calendar year. At this stage, there are currently no specific refinancing conversations going on with the banks. The focus is very much on completing the business restructuring plan that we had set out and completing the life of mine reviews. We anticipate completing those life of mine reviews by the end of March, thereafter we intend on engaging with all our capital providers on the basis of the updated business plan.
Thank you, Vivek. I have a question from Yusuf. Why is the price decline in Finsch much more than Cullinan? Are lab-grown diamonds impacting Finsch diamond prices more than Cullinan?
Thanks, Patrick. The phenomenon at Finsch is specifically to do with where we are mining at Finsch. Over the last few years, Finsch, unfortunately, has not had the benefit of capital development opening up new mining areas. We are mining in a very mature part of Finsch. We expect product mix to improve at Finsch as we open up new and deeper areas, starting with 81 level. We expect the ticks to come through when we get into the 3 Level SLC area, which is 86 level and below. It is not that Finsch's product slate is getting specifically impacted by lab-grown, but it is more its own product mix, which is currently being mined out of the most mature part of the ore body at the moment.
Thank you, Vivek. I have a follow-up question from John. It's about the timing. Here's the expectations of timing for the operational restructuring and when we might be releasing more on the life of mine plans.
Thanks, Patrick. As I've just said, we anticipate closing our life of mine planning by the end of March.
I think we may have a technical issue, moderator. Hi, Vivek. Can you hear us in the room?
We can. Can you hear us?
Yes, we can hear you clearly. Sorry, final question from Tim. Your net debt has risen sharply despite the cost-cutting. Would equity investors reasonably expect the equity value to be retained as it currently stands with this wall of debt maturity in front of us?
Thanks, Patrick. I think the proof of the pudding will be in our ability to come up with an updated business plan that tells the Petra story and its ability to refinance. We believe that we do have a business backed up by our two world-class assets that will generate robust cash flows going forward, which will form the basis of a successful refinancing. I believe once the refinancing is done, the equity story will start to look after itself. At this stage, focus is on completing this restructuring piece of work so we can put our best foot forward at Petra and engage with the capital providers to get a successful refinancing done.
Perfect. Just like to jump in and thank you for answering those questions from investors. Of course, the company can review all the questions submitted today, and we will publish those responses out on the Investor Meet Company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important to the company, Vivek, could I just ask you for a few closing comments?
Thank you, moderator. I'd just like to thank all of you again for joining us on this result presentation. I encourage you to send any follow-up questions to our investor relations team to our email. With that, we can close this presentation. Thank you.
Perfect. Thank you once again for updating investors today. Could I please ask investors not to close this session? As you know, you will be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure it will be greatly valued by the company. On behalf of the management team at Petra Diamonds Limited, we'd like to thank you for attending today's presentation. Good afternoon to you all.